Across the Australian equity component of investor accounts, we have sold Aurizon (AZJ). AZJ is a rail freight operator, providing haulage services across a regulated network. Given the quasi-monopoly nature of their business and recent clarity from the Queensland Competition Authority on the network access charge AZJ can levy, AZJ has outperformed the broader market through the recent period of significant market weakness.
Given this, the decision has been made to sell AZJ and reallocate the funds to companies where the selloff has provided significant opportunity to purchase stock at attractive valuations. Despite a range of macro concerns that have weighed on the market, we feel that there are a number of stocks within the broader Portfolio that have a high degree of earnings certainty, strong valuation support after being oversold and potential near-term positive catalysts should market sentiment stabilise.
As such we have used the proceeds of the AZJ sale to increase the weightings in the Portfolio of Tabcorp, Flight Centre, Aristocrat, Woodside, Brambles and Wesfarmers.
In addition to the above, within the property allocation, we have sold GPT Group (GPT) and reallocated the weighting to an existing holding in Lend Lease (LLC). Lend Lease is a fully integrated property solutions provider involved in construction, property development, investment management.
- We are positive on the medium-term outlook for LLC for the following reasons: The company has a strong property development pipeline with many still in the early stage of delivery;
- With the development pipeline moving into delivery phase the company is nearing its capex peak;
- With a strong balance sheet and access to 3rd party capital from its Investment Management (IM) business, it benefits from lower development funding costs than many of its competitors;
- Demand for unlisted property funds remains strong allowing the IM business to increase FUM which provides a growing proportion of stable income;
- Strong retirement living development pipeline which Lend Lease owns in their Investment Management segment.
Recently LLC has been sold off aggressively after it took a $350m write-down in its Engineering and Services division. After extensive research into the reason and background for the write-down, we are of the view that it is related to discrete projects and is not reflective of the entire Engineering and Services division. We therefore think the sell-off subsequent to the announcement has created an attractive opportunity to purchase LLC.