SPEAKER: Martin Roth, Author

LOCATION: Melbourne

DATE: December 2013

ASX INVESTMENT VIDEOS

Top Stocks 2014

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do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691

and its related bodies corporate (“ASX”). Information and material presented at the seminar is for

educational purposes only and does not constitute financial product advice. Investors should obtain

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Agenda

1. Insights from 20 years of Top Stocks

2. How companies make the list and what it means

3. Some high-profile companies that did not make the list

4. Five top small and mid-cap companies that made Top Stocks 2014.

2

Purpose of Top Stocks

- Need for independent sharemarket information for beginners in ‘90s

- Wanted to identify safe, secure, reliable stocks

- And provide a list that be could compared simply across the years.

3

The big insight from Top Stocks

- Focus on buying companies, not stocks

- Australia has lots of very good listed companies

- Narrow your search, stick to the best, and weigh up the valuation.

4

To make Top Stocks, a company must: - Be in top 500 on ASX by market capitalisation (ie The All Ordinaries

Index) - Be listed for five years

- Earned a profit and dividend in each of those five years

- Have a Return on Equity (ie the return on each dollar of

shareholders’ funds invested) of at least 10 per cent

- Have a debt-to-equity ratio below 70 per cent - Not be a listed investment company, property trust, or foreign company.

5

Is there much turnover on the list?

- Only 3 companies have made each list: (CBA, Westpac, ANZ Bank)

- Depending on the year, about 20 per cent turnover on list

- Also, plenty of exceptional companies don’t make list, because: - Not paying a dividend, to reinvest for future growth

- Have high debt, because cash flows are very strong.

6

Is every company in Top Stocks a buy?

- No!

- Investors must weigh up if the share price reflects the company’s quality and prospects. Top Stocks doesn’t consider valuations

- The starting point is to invest only in exceptional companies.

7

Why did some big-name stocks miss out?

- Telstra: Debt too high to make criteria (but very strong cash flow)

- Wesfarmers: Coles acquisition dulled its Return on Equity (ROE)

- Coca-Cola Amatil: Debt slightly too high.

8

Companies that stood out: Perpetual (PPT)

Perpetual:

- Wealth management group

- Operational recovery continues

- Cost base lowered

- Leverage to rising sharemarket

- Stars aligning for company.

9

Retail Food Group (RFG) Retail Food Group:

- Franchisor of convenience food chains

- Strong position in gourmet pizza market

- Growing overseas

- Expanding rapidly in coffee roasting

- Potentially higher operating margins.

10

Tassal Group (TGR) Tassal:

- Leading Atlantic salmon producer

- Salmon demand growing strongly

- Focus on domestic business a winner

- Lower $A makes competing imports dearer.

11

Greencross (GXL) Greencross:

- Acquirer of veterinary practices

- Consolidating fragmented industry

- Large market size in Australia

- Adding animal hospitals, pet insurance etc.

12

Austin Engineering (ANG) Austin Engineering:

- Mining services company

- Focuses on truck manufacturer, repair

- Relatively more defensive service business:

◦ Miners have to maintain trucks

- Expanding in US and Latin America.

13

To buy Top Stocks 2014 Order from:

- The Educated Investor Financial Bookshop

- Buy a copy online at:

http://www.educatedinvestor.com.au/products/Top-Stocks-2014.html

- Or call: (03) 9620 0885

14

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