Glenn Freeman: In this edition of "Three Top Picks" David Pace from Greencape is talking about companies in three quite distinct areas. There's a property developer, there's a packaging company and there's also another one in building and construction materials.

David Pace: So, James Hardie is for the most part a US housing play. So, dealing with the macro first, I mean, one of the sort of conundrums in thinking about US housing is, we're 9 to 10 years into a US housing recovery now. They typically go for 6 or 7, but we are still – or they are still building 300 – underbuilding 300,000 homes per annum. So, which of those forces ultimately win out?

Now, I have done a lot of work in that US building materials channel. And the conclusion I have come to is that whilst we are 9 to 10 years in, the millennials who effectively stayed home for 7 or 8 years are only 2 to 3 years in. So, my view would be that there's a longer tail to the US housing recovery and it still has legs.

Let's get down to the company specifics. One of the best management teams I have ever come across. Always looking for proof statements in making those calls. Through the GFC US housing starts halved and halved again from 2 million to 1 million and bottomed under 500,000. James Hardie actually maintained and even grew margins through that period. So, exceptional micro management to manage the cycle and then leverage it on the way back out.

Let's talk about the business and what a powerful franchise it is and how, sort of, proprietary the product is. They have taken price increases every year except for one since the GFC. Hardie spend more on R&D than their next largest competitor has in revenue. So, as long as they are spending that efficiently, they stay one or two steps ahead of the product development curve. They have also been able to take price increases every year since the GFC but one. Again, that says a lot about the proprietary nature of the product set. James Hardie have 90 per cent of the category share of fiber cement siding and fiber cement siding is 20 per cent of the US siding market and Hardie is very confident that they can get that to 35 per cent over time and retain their 90 per cent share. Now, if you do that, you can very easily can see valuations towards $30 relative to the $23 today.

What I like about Lendlease is they have carved out, what I think, is world's best practice in urban regeneration development. Barangaroo is probably the best reference point for Australian investors. But they have been busy building like projects in the U.K. and in Asia and now, in the US And one of the real powers of the Lendlease model for me is that it's an integrated player. So, it develops, it constructs and then it typically vests those projects into its funds. The power of that is it liberates capital to invest into the next project but also develops an ongoing revenue stream. And this is a business that trades at 12 to 13 times earnings in a market where we are struggling to find absolute value. It's trading at $18 today. I can very easily get to $22, $23 Lendlease over time.

It's been a long time since you have been able to buy Amcor at a P/E of less than 15 times. The share price has been under pressure because of the raw material price increases that are going through that business. They do ultimately get to recapture those but with a lag. And so, we think that there are in-built earnings ways to come through this business over the next two to three years, not only recapturing those raw material prices increases but also leveraging a lot of the efficiency drivers being going on in that business to hold margins flat over the last little while in the face of those raw material prices increases. So, this is a proven business, a proven management team that you are getting to buy cheaply today.