pattersons like ciy

Don't know if everyone saw this recently published release or not but thought it was worth repeating it here.

The "Flight to Quality" - Brokers Favour City Pacific
15th January, 2007

Australian stockbrokers Patersons have expressed confidence in City Pacific Limited (CIY) and recommend a buy for its shares, following their recent analysis of the company's activities.

"Undervalued funds and property situation with robust growth" headlined the report completed at the close of 2006.

Patersons believe City Pacific's share price is undervalued partly due to market unawareness of the disciplined development and construction lending processes fundamental to CIY.

As stated in the report, "CIY has adopted a vigorous risk control approach that we believe has not been fully appreciated by the market."

The document explained in detail, how earnings for the next three years from City Pacific's major development products, the growth of the Mortgage Fund and the company's transparency, would impact the share price.

Here are some of the highlights from the report:

Share Price
"We consider CIY undervalued on the basis of the expanding project pipeline providing a growing level of earnings certainty (i.e. Martha Cove)."

"We believe within six to twelve months, redevelopment and other progress on new business will move the break-up value closer to $5.30, as an indicator of the underlying value of CIY."

"We believe the 'broad brush' approach to the sector will alter, driving CIY's value and reducing the discount factor applied to CIY's share price."

Property Development
"CIY is involved in a range of property projects where it is employing its expertise and funding capabilities. This includes CIY having controlling stakes and investments in listed companies."

"CIY's growing links with a number of smaller, innovative developers and also major developers such as Mirvac underpins its presence in the market place." "The Mirvac relationship….creates the ability to deliver income streams over a period of years, in linking with one of the country's major property companies."

"Land prices (Martha Cove) have risen and buyers are showing strong interest with the project gaining momentum. The profit margins are now projected to be in excess of 30% at a gross profit level, reinforcing the future contribution to CIY."

"Demographic trends such as the continued migration of retirees and more general population into South East Queensland – including the Gold Coast region, will drive ongoing demand for property."

City Pacific Mortgage Trust
"We believe CIY has established its credentials as a stronger mortgage fund."

"CIY's mortgage funds benefit from the flight to quality. CIY has not lost principal on any loan in the last five years and its Mortgage Fund is all on 1st mortgage basis. "

"CIY actively monitors borrowers, and has vigorous recovery processes in place."

"Our view is that CIY has rigorous controls and we are comfortable that the Mortgage Fund has the processes to maintain returns for investors. In servicing the developer sector through superior service and timelines, CIY can maintain a constant flow of loans."

For further information please contact Patersons – Analyst: Mark Topy [email protected] or Phone: 03 8803 0100