australian first edition - credit suisse | plus

Note: If the rating of a company shown on the cover of First Edition is in bold type, a rating change has taken place

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EQUITY RESEARCH CREDIT SUISSE EQUITIES (AUSTRALIA) LIMITED ABN 35 068 232 708 ACN 068 232 708 | Participating Organisation of the Australian Stock Exchange

Australia & NZ Daily Research Friday, 14 February 2014

COMPANIES & SECTORS

AWK Airwork Holdings NEUTRAL 13 .NZ Engineering a competitive advantage

ASX ASX UNDERPERFORM 26 Revenue growth across the board

DJS David Jones NEUTRAL 39 2Q14 sales

GMG Goodman Group NEUTRAL 43 Earnings achieved in a transition period

GPT GPT Group OUTPERFORM 48 Grinding away

IRE IRESS NEUTRAL 54 Glass half empty or glass half full?

MYX Mayne Pharma NEUTRAL 58 US portfolio expanded with another acquisition

SGP Stockland NEUTRAL 60 Entering the upgrade cycle

SGN STW Communications Group NEUTRAL 73 Soft underlying result, acquisitions yet to

generate solid returns

TLS Telstra Corporation OUTPERFORM 80 Mobile performance remains strong

WEB Webjet NEUTRAL 90 Risks to the core, but becoming full service

RESULT PREVIEW

AWC Alumina Limited OUTPERFORM 95 2013 results preview; reports on 20 Feb

Australian Transport Sector 98 1H14 preview: Cost-outs will be rewarded

against volume headwinds

BEN Bendigo and Adelaide Bank NEUTRAL 115 1H14 results preview; reports on 17 Feb

FMG Fortescue Metals Group OUTPERFORM 123 1H14 results preview; reports on 19 Feb

ILU Iluka Resources NEUTRAL 125 2013 results preview and operation analysis;

reports on 21 Feb

MGX Mount Gibson Iron UNDERPERFORM 136 1H14 results preview and exploration success;

reports on 19 Feb

UGL UGL NEUTRAL 142 HY14 results preview; reports on 17 Feb

STRATEGY & ECONOMICS

Australian Investment Strategy 146 Strategy Portfolio Changes - SUN out ASX in

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

MARKET EVENTS

Results, Automotive Hldgs Group 14 Feb

Results, Charter Hall Retail REIT 14 Feb

Results, Newcrest Mining 14 Feb

Results, Sims Metal Mgmt 14 Feb

UPCOMING CONFERENCES

2014 HOLT Conference 2014 – London

25 Feb

2014 5th Annual DC Defense Conference – Washington

25 Feb

For more scheduled conferences refer to page 2

TABLES

Credit Suisse Ratings – Australia 148

Top 100 Earnings & Dividends 151

Small Caps Earnings & Dividends 154

Sector Aggregates 157

Reporting Season Calendar 158

March 24-28, Hong Kong

Australia and NZ First Edition 2

Australia & NZ Market Reports

Australia Index +/- %Day %Wk %Mth %YrRol

All Ordinaries 5318.7 -1.1 0.0% 3.3% 1.9% 5.9% S&P/ASX 50 5478.0 -2.2 0.0% 3.3% 1.8% 7.4% S&P/ASX 200 5308.1 -2.0 0.0% 3.4% 1.8% 6.1% Financials 5790.7 -12.5 -0.2% 3.9% 1.0% 10.9% REITs 1009.6 0.6 0.1% 2.1% 1.8% -1.0% Industrials 3904.2 9.2 0.2% 3.0% 1.6% 0.8% Materials 10356.0 -0.1 0.0% 4.9% 5.7% -6.0% Cons. Discreet 1786.7 6.2 0.3% 3.4% 0.9% 18.2% NEW ZEALAND

NZX 50 4873.5 3.556 0.1% 1.4% 0.2% 15.4%

Currencies, Interest Rates & Gold

Index +/- %Day %Wk %Mth %YrRol

AUD/USD 0.893 -0.009 -1.0% -0.2% -0.4% -13.8% AUD/GBP 0.544 0.000 0.0% -0.9% -0.3% -18.3% EURAUD 1.505 0.000 0.0% -0.7% -1.3% 15.9% NZD/USD 0.830 -0.002 -0.3% 0.6% -1.0% -1.9% AUD/NZD 1.084 0.000 0.0% -0.1% 1.4% -11.5% TWI 0.697 0.003 0.4% 1.6% 0.4% -10.3% Aust 90Day 2.450 0.000 0.0% 0.0% 0.0% Aust 10Y 4.244 0.024 0.6% 2.8% 1.0% 20.7% NZ 90Day 3.220 NZ 10Y 4.630 0.005 0.1% 1.1% -1.6% 19.0% Gold Spot 1,291 -0.820 -0.1% 2.7% 3.7% -21.4%

Best Performers Worst Performers

Close % ‘000 Close % ‘000

Webjet 3.16 26.4% 1571 Sundance Rsc 0.10 27146 Nexus Energy 0.07 15.3% 11476 Goodman Fielder 0.59 -7.1% 34886 Mayne Pharma 0.87 9.5% 5662 Primary Health Care 4.55 -5.4% 8365 Qantas Airways 1.19 6.3% 31188 OM Holdings 0.56 -4.3% 4 Silver Chef 5.55 5.3% 46 Whitehaven Coal 1.61 -3.9% 8287 GMEL 0.21 5.0% 780 Skilled Group 2.97 -3.9% 2393 Teranga Gold 1.08 4.9% 180 MacMahon Hldgs 0.13 -3.8% 1559 McMillan Shakespeare 11.57 4.7% 601 Dulux Group 5.49 -3.7% 1499 Western Areas 3.14 4.7% 1654 Elemental 0.28 -3.5% 368 NewSat Limited 0.46 4.5% 1589 Intrepid Mines 0.29 -3.4% 566 Imdex 0.57 3.7% 77 Crowe Horwath 0.28 -3.4% 529 PanAust 1.85 3.7% 8403 Boart Longyear Grp 0.44 -3.3% 1675

Source: ASX, Bloomberg, Reuters

Commodity Prices Spot* Forward Curve Credit Suisse Forecasts 3mth 15mth 1Q14 2014 2015

Bulks Iron Ore $/t 121.0 125.0 111.3 95.0 Coking Coal $/t 143.0 153.3 167.5 Thermal Coal $/t 76.8 85.0 85.0 90.0 Base Metals Aluminium USc/lb 76.8 78.2 83.1 77.1 82.2 90.7 Copper USc/lb 326.5 324.5 321.5 317.5 300.5 306.2 Nickel USc/lb 651.3 653.0 656.1 635.0 629.4 646.4 Zinc USc/lb 91.6 91.7 92.6 90.7 95.3 107.7 Lead USc/lb 95.3 96.2 96.8 99.8 103.2 108.9 Tin USc/lb 1020.4 1019.5 1043.3 1071.6 1128.3

Precious Metals Gold US$/oz 1290.6 1160.0 1082.5 990.0 Silver US$/oz 20.2 18.7 18.2 18.5 Platinum US$/oz 1402.0 1380.0 1430.0 1562.5

Energy Oil (Brent) US$/bbl 108.5 108.0 102.9 107.0 101.8 97.5 Oil (WTI) US$/bbl 100.4 99.2 90.1 94.0 91.8 87.5

*Fiscal year averages used, Steel prices are contract prices. Spot as of 10PM AEST.

VIX (S&P 500 Options Implied Volatility)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Jan

-96

Au

g-9

6

Ap

r-97

Dec-9

7

Au

g-9

8

Ap

r-99

Dec-9

9

Au

g-0

0

Ap

r-01

Dec-0

1

Au

g-0

2

Ap

r-03

Dec-0

3

Au

g-0

4

Ap

r-05

Dec-0

5

Au

g-0

6

Ap

r-07

Dec-0

7

Au

g-0

8

Ap

r-09

Dec-0

9

Au

g-1

0

Ap

r-11

Nov-1

1

Jul-1

2

Dec-1

2

Jun

-13

Dec-1

3

Daily VIX (S&P 500 Options Implied Volatility)

VIX Index Average -1 StDev +1 StDev

VIX – Current 1mth rol(avg) 3mth rol(avg) 6mth rol(avg) 14.30 15.78 14.28 14.51 Freight Spot 1 wk (avg) 1 mth (avg) 3 mth (avg) 6 mth (avg) 1 yr (avg)

Baltic Dry 1091.0 1093 1219 1644 1653 1278

Source: Bloomberg

Upcoming Credit Suisse Global Conferences New additions this week in bold.

February 2014 to November 2014

Feb-Mar 2014 Q1 Media Seminar – London

25 Feb 2014 HOLT Conference 2014 – London

25 Feb 2014 5th Annual DC Defense Conference – Washington

4-5 Mar 2014 Global Healthcare Conference – London

5 Mar 2014 Geneva Autos Show 2014 – Geneva

10-12 Mar 2014 Global Services Conference – Scottsdale, Arizona

11-12 Mar 2014 European Banks Conference 2014 – London

13 Mar 2014 Global Flagship event – London

13 Mar 2014 9th Annual European Cable and Telecoms Conf – London

13-16 Mar 2014 DCM Winter Conference 2014 – Silvaplana-Surlej

19-21 Mar 2014 Prime Services 2014 Hedge Fund Leadership Conf. – Florida

24 - 28 Mar 2014 Asian Investment Conference – Hong Kong

25 Mar 2014 Asian Hedge Fund Forum 2014 – Hong Kong

26-28 Mar 2014 Global Trading Forum 2014 – Miami

8 May 2014 Stockholm Consumer IR Day – Stockholm

14-15 May 2014 Chemicals & Ag Conference – London

May-Jun 2014 Q2 Media Seminar – London

3-4 Jun 2014 Energy Conference – London

5 Jun 2014 European Gaming Companies Conference – London

11 Jun 2014 Global Small & Midcap Conference – London

12 Jun 2014 European Buildings Conference – London

Jun 2014 Swiss Midcap Healthcare Conference – Zurich

Aug-Sep 2014 Q3 Media Seminar – London

10-12 Sep 2014 Asian Technology Conference – Taiwan

15-16 Sep European Telecoms 1:1 Conference – London

17-18 Sep Pan European Capital Goods Conference – London

24-25 Sep Global Steel & Mining Conference – London

3-4 Oct Paris Auto Conference – Paris

Oct-Nov Q4 Media Seminar – London

1 Nov Global Consumer IR Day – London

Nov Swiss Midcap Conference – Zurich

If you would like to attend any of the above conferences, please contact the Australian Corporate Access team: Cathy Kermond [email protected] or your Credit Suisse sales representative

Research Production

Adam Indikt – Supervisory Analyst 61 3 9280 1659 Patricia Rocis – Supervisory Analyst 61 3 9280 1678

Web Access Research Distribution [email protected] Email: [email protected]

Database Jason Swinbourne 612 8205 4591

Bottom Liners

14 February 2014


At a Glance Australia/NZ equities executive summary

COMPANIES & SECTORS

Engineering a competitive advantage Airwork Holdings (AWK.NZ)

We initiate coverage on AWK with a DCF-based 12-month target price of $3.00 and a NEUTRAL rating. AWK is a specialist aviation business operating in fixed wing and helicopter leasing and maintenance. AWK owns, operates and maintains a fleet of aircraft that are supported by a world-class maintenance, repair and overhaul (MRO) capability backed by extensive local and international certification. In June 2013 AWK received European Aviation Safety Authority (EASA) certification. This has the potential to step change revenue and earnings of its Helicopter Engineering division and represents an area of upside risk to forecasts. Early benefits of EASA certification have been encouraging, with a key contract signing in Germany. Canada and South Africa are other markets that have been assessed as offering strong potential. Helicopter demand remains strong, particularly in the oil and gas sectors, and AWK’s upgrade capability positions the company for pursuing offshore leasing contracts. Potential exists to deploy further helicopters in markets such as Africa over and above what our current forecasts assume, particularly if mining related exploration and development activity expand. AWK has embarked on a programme of productivity measures within the Fixed Wing division to improve cost efficiency and fleet utilisation. Benefits from this programme are expected to commence from FY14. AWK will report its interim result on Wednesday 19 February.

Share Price 2.96 (NZD)

NEUTRAL

Target Price 3.00 (NZD)

Paul Turnbull Research Analyst 64 9 302 5559 This report is distributed in Australia by Credit Suisse Equities (Australia) Limited. Please see legal disclaimer and disclosure annex for further terms and information. Provided by First NZ Capital

Revenue growth across the board ASX (ASX.AX)

ASX reported 1H14 NPAT of $189.6mn, slightly below our $191mn (consensus $187mn) and an interim dividend of 88.2cps (consensus 89.8cps). Revenue was slightly above our expectations, however this was offset by an 8.3% increase in operating expenses. We maintain our UNDERPERFORM rating with a $35.20 target price. Key points: (1) all major ASX business lines increased revenue year-on-year in 1H14, for the first time since the end of 2008; (2) operating expenses increases 8.3% due to an increase in staff numbers; (3) capital expenditure guidance has increased from $40mn to $40-$45mn; (4) the largest business line, Derivatives, had the lowest growth and we note that the daily contract average for ASX 24 was down 11% on 2H13. Earnings changes: We have lowered our FY14 NPAT by 0.6% and increased FY15 by 1.1%. The increase in outer year revenue forecasts is driven by a base increase to information services revenue. While 1H14 expenses were higher than expected we have maintained our FY14 estimate and lowered outer years on the assumption of further cost savings in occupancy and equipment expenses. Investment view: ASX is currently trading at a ~20% PE premium to the market, the middle of the 10-30% range it has traded at over the past five years. While the 1H14 operating revenue growth was 8.0% on pcp, the growth on 2H13 was only 5.4% with the decline in activity late in 1H14 flowing through to the start of 2H14. With downside risk to earnings we consider the current share price as full and maintain our UNDERPERFORM rating.

Share Price 36.25 (AUD)

UNDERPERFORM

Target Price (from 33.20) 35.20 (AUD)

Andrew Adams Research Analyst 61 2 8205 4106

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552566&serialid=7mDoRVB8%2bNM015qd1rT7RqhHXm3lD5EgJxluTUnZWGM%3d

mailto:[email protected]

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552547&serialid=S%2bGXdcSggDmfVz0%2fIWDUwp9lQEAfK7ByTTCYySW1xR8%3d


14 February 2014


2Q14 sales David Jones (DJS.AX)

DJS returned to positive LFL sales growth in 2Q14. Second-quarter sales of $618mn and LFL sales growth 2.1% were in line with forecast (CS $622mn, 2.0%). Online was above expectations and stands to boost total sales by 100–150bp through 2014. We have upgraded our second-half LFL sales forecasts 50bps to 3.0%. The upgrade reflects the improved run rate in on line sales and an assumption of steady growth in the market. Gross margin has been downgraded 50bp for 1H14 and 30bp for 2H14 due to higher levels of promotional activity. EPS has been downgraded 3% due to gross margin effect (-4%) and LFL sales upgrade (+1%). Online sales improved through the period: Online sales increased 150% in 2Q14 and accounted for 2.0% of group sales in the quarter. That outcome suggests online growth contributed ~60% of the total growth in comparable store sales. Commentary that online was 1.4% of first-half sales implies acceleration is ongoing and it is therefore likely to make an increasing contribution to 2H14 LFLs. There is likely to be a positive margin impact over time due to the growth of online. Promotional activity was higher than expected. Inventory issues in Target appeared to lead a period of higher-than-expected promotional expenditure. That effect is likely to be temporary due to Target's restructuring efforts. We expect some heightened promotional activity to continue through 3Q14. Earnings and valuation: We have downgraded EPS due to a reduction in gross margin. In our view, the sales lift is of greater materiality than the temporary increase in promotional activity thought 2Q14. DJS appears on the verge of successive quarters of sales and consequent profit growth.


NEUTRAL

Target Price 3.14 (AUD)

Grant Saligari Research Analyst 61 3 9280 1720

Earnings achieved in a transition period Goodman Group (GMG.AX)

Not disappointed by guidance: Goodman Group reported 1H14 operating profit of $296mn roughly in line with CSe of $297.4mn. Operating EPS of 17.2c reflects 6% growth on 1H13. While some may be disappointed to note GMG merely re-iterated 6% EPS growth guidance for FY14 (34.3c) we remain slightly higher (35c) to be diluted back to guidance on inclusion of the DRP and our expectation that the Brazil deal will close towards the end of 3Q FY14. Investment case: Goodman Group trades on a 13.2x P/E representing a 0.92x P/E Rel, only slightly below the historical average of 0.96x. Growth expectations into Year Two stand at 7.3% relative to an average expectation of 7.8% over the past 12 months. For GMG to meaningfully outperform, the market will need to value the quality (sustainability) of GMG's growth, for which a market correction may be a catalyst. We also note, speculation about the "overhang" associated with the CIC block continues to weigh on pricing. Catalysts: This half saw the first meaningful Japanese development impact on the P&L. We expect the Japanese contribution will ramp up quickly from here with Osaka (~March), Nagoya (Dec Qtr) and Tokyo Bay (Dec Qtr) representing ~$550mn of completions this year. We expect WIP to remain at ~$2.5bn with these completions offset by Ichikawa commencement in 4Q and a US ramp-up to ~$250mn of WIP by year-end. Valuation: Our target price of $4.95 is struck at our June 2014 Net Asset Valuation applying: a 7.65% WACR to balance sheet NOI, 11.4x multiple to management EBIT and 12x to development EBIT. We apply an 8x multiple to unallocated expenses.


NEUTRAL


Stephen Rich Research Analyst 61 2 8205 4617

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552479&serialid=epZAKXvMQs1n5wbLqGrB0lCLe8vzwNWl7xBneJZmFZs%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552571&serialid=BeKe7jGBniSKsIVey%2fNqMPT3DpZA%2bIueGNqyWVmI9bI%3d


14 February 2014


Grinding away GPT Group (GPT.AX)

No magic bullets. GPT reported FY13 earnings of $471.8m as pre-released on 28 January. EPS of 25.7c represents a 6.1% increase on 2012. Having ridden a cost of debt reduction from 7.4% in 2010 to 5.1% today, we should now expect real estate type returns. To that end, 3% EPS growth is a reasonable outcome. Two concerns arise from GPT's strategy: (1) Management is incentivised to lever up to drive DPS growth and (2) the focus on tangible asset growth appears at odds with the desire to grow active earnings. OUTPERFORM rating retained due to value in real estate portfolio. Investment case. GPT owns and manages a high-quality portfolio of Australian Real Estate. At $3.66, GPT is trading on: a forward NOI yield of 7.2%, a dividend yield of 5.6% and a 13.6x FY14 FFO. While we see better value in Dexus, WRT and MGR, GPT combines inherent value with an active buyback, which we expect would be effective in a market correction. Catalysts. We note the buyback activity was not included in GPT's 3% EPS growth guidance but also note that GPT has significant capacity to buy back stocks on an earnings yield of ~7.2% versus a cost of debt of 5.1%. Operationally, we look forward to leasing success at Governor Macquarie Tower and/or MLC Centre or a recovery in retail lead indicators such as retention to refocus the market on the quality of the real estate. Valuation. We strike our target price in line with our December 2014 Net Asset Valuation at $4.00. Key inputs include: 5.8% cap rate on malls, 8.0% on industrial and a 6.56% implied cap rate on office as well as 10.0x on active earnings and 9.25x on costs. If GPT was to trade to our $4.00 NAV in 12 months, it would offer a 5.3% forward dividend yield at that time.


OUTPERFORM


Stephen Rich Research Analyst 61 2 8205 4617

Glass half empty or glass half full? IRESS (IRE.AX)

Pros and cons: A criticism of IRE is that for a stock with a fairly demanding multiple, it hasn't delivered much growth over the last few years. The counter to this is that for a company that has as much financial market exposure as IRE has, it has done remarkably well. As always, the forward-looking view is most important and in that regard we are starting to become more optimistic on the growth profile. This is not without its share of risks however, and for the time being we find that the pros and cons equal out at current valuation levels. We retain our Neutral rating. Paul Buys assumes coverage of IRE following a change in analyst responsibility. UK is the key driver: We have reviewed our key assumptions for IRE, but while our updated forecasts result in some revisions at a divisional level, the net impact on group EPS is fairly minor. We assume A&NZ Financial Markets remain flat into FY14 and some further growth for A&NZ Wealth Management, although at moderated levels. That leaves the UK business as the key growth driver. Key opportunities are the market size, regulatory change and IRE's competitive technology – basically, the potential to replicate IRE's XPLAN/VisiPlan experience. Key risks include integrating Avelo (the CEO has relocated to the UK to oversee this), managing legacy product and the different UK structure (greater dealer group independence). Valuation: Our target price increases from $8.75 to $9.60, due mainly to modest positive EPS revisions and a higher market multiple. On a PE basis, IRE trades in line with its long-term average premium of ~45% relative to the ASX Small Industrials (XSI). However, the stock looks more demanding on an EV/EBIT basis (~1 standard deviation expensive) given the introduction of debt to the balance sheet post the Avelo acquisition.


NEUTRAL


Paul Buys Research Analyst 61 2 8205 4538

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552573&serialid=53kHLSSlBOVVgEHRhM4WVL5FAR6wILH6QAHvfTbCNtE%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552502&serialid=3Dl5UxQ7B8FnpKDiV2kqh6b4OaYUKVY9tM32x1aT%2bMQ%3d


14 February 2014


US portfolio expanded with another acquisition Mayne Pharma (MYX.AX)

Brand franchises acquired: MYX has completed an A$18mn equity placement (~22.6mn shares) to fund the acquisition of the LORCET and ESGIC brands from Forest Pharmaceuticals for ~A$13.4mn (US$12mn). LORCET contains hydrocodone + paracetamol and is used to treat moderate to moderately severe pain, while ESGIC contains butalbital (a barbituate), paracetamol and caffeine and is indicated for tension headaches. Gross sales of both products were ~US$5mn in FY13 (implying a sales acquisition multiple of 2.4x). Manufacturing of both products is currently outsourced but MYX could look to bring this in-house in the medium term when contracts expire. Further, MYX will directly distribute both brands through its US Midlothian business and hence realise a high margin on sales. Management noted that investment in both products had been somewhat limited by Forest and that there was opportunity for MYX to grow share. Sound strategy: This brand acquisition is another example of MYX executing its core strategy of acquiring "unloved", complementary products to properly market and distribute with the intention of growing the brands. We suspect similar opportunities will continue to present themselves and that further acquisitions will follow. The strategy is in our view sound, prices paid are relatively undemanding and acquired assets are leveraged by MYX's existing infrastructure and business capabilities. As with all pharmaceutical companies we see some inherent regulatory risk with new products but see the company as a fundamentally attractive investment proposition. Catalysts: MYX 1H14 result (26 February) Valuation: While the acquisition is expected to be mid-single digit EPS accretive (pre-synergies) in its first full financial year (FY15), we will incorporate the transaction in our forecasts following MYX's formal 1H14 result. Our target price is based on DCF valuation.


NEUTRAL


Saul Hadassin Research Analyst 61 2 8205 4679

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552536&serialid=YACP4vTcsTJgFqbdxuG9uU5aJiKInXwe9eryx1dDbU4%3d


14 February 2014


Entering the upgrade cycle Stockland (SGP.AX)

Entering the upgrade cycle. After two years of negative consensus earnings revisions, SGP has now entered the upgrade cycle, with management lifting its previous FY14 EPS growth guidance from 4-6% to 5-6% largely on the back of stronger residential earnings. We have lifted our earnings by 0.5%, and our FY14-16E EPS CAGR of 7.6% is the highest in our universe after LLC, and sits above SGP's upper EPS growth hurdle for LTI awards of 6.5% p.a. Higher quality earnings. SGP's 1H14 EPS of 11.6¢ was flat on 1H13 and was in line with our forecast (of 11.6¢). Quality improved on several fronts: (1) Operating cash increased 60% representing 113% of NPAT; (2) Net capitalised interest moved from $20m to -$29m representing -11% of NPAT, and (3) the tax benefit reduced from 10% of pre-tax profit to 7%. On the negative side, SGP's 12¢ DPS remains above both EPS (11.6¢) and AFFO (10.6¢). Residential delivers. Residential profit grew 49% due to 8% growth in settlements (2,253) and a lift in operating margins from 7.0% to 8.9%. Net deposits of 3,197 are running well ahead of settlements driving a 67% increase in pre-sales, which support our FY13-16 EBIT CAGR of 34% for the business. Commercial still tough. While developments on 11-13% IRR's supported 10% growth in retail NOI, operations are still tough. Retail comp NOI growth declined for the fifth consecutive period to 2.6% and comp spec MAT growth was -0.8% versus +2.7% in June. Office and industrial occupancy sit at <92%. Upside priced in. Despite positive EPS growth, improving market conditions and improved earnings quality, SGP offers a TSR of 14.6% in line with the AREIT sector at 13.6%, warranting a NEUTRAL rating. SGP currently trades on a 14.7x P/E and at a 6% P/E premium to ASX versus its historic 2% discount. Our $4.23 NAV applies a 7.0% WACR (versus 7.3% book), a 12x FY15E EBIT multiple for Communities and values Retirement at a 10% discount to tangible book.


NEUTRAL


John Richmond Research Analyst 61 2 8205 4580

Soft underlying result, acquisitions yet to generate solid returns

STW Communications Group (SGN.AX)

Event: STW Communications reported a weaker-than-expected FY13 result. NPAT increased 12.5% vs consensus and guidance for 15% growth. EPS increased 2.5% vs consensus and guidance for mid-single-digit growth. The result was impacted by a number of acquisitions as well as changing business mix to lower margin research and field marketing businesses and office relocation and consolidation. STW Communications provided FY14 guidance for mid-single-digit NPAT growth which was below market expectations for high-single-digit growth. We have reduced our forecasts following a weaker-than-expected result and outlook. Our TP moves to $1.55 (from $1.63) per share and we maintain a NEUTRAL rating. Investment case: Underlying business fairly static, acquisitions yet to generate solid returns. Most of the profit growth in FY13 came from acquisitions within Australia, and to a lesser extent acquisitions in Asia. Whilst the acquisitions make strategic sense and are likely to increase STW Communications' market share, they do not appear to be driving synergies within the group or contributing meaningful profits at this point. With a mix shift to lower margin businesses such as research and field marketing, it will become increasingly important for STW Communications to leverage its core business capabilities to drive additional revenues. We need to see a reversal in the current declining return on invested capital trend. Fair value with upside: STW Communications is trading on 11x FY14 and 10x FY15 EPS, broadly in line with its historical ratios. We forecast mid-single-digit growth p.a. for the next several years. There is upside from successful expansion in Asia and further abroad (although some upside from recent acquisitions will be offset by additional earnout payments if certain earnings targets are met).


NEUTRAL


Samantha Carleton Research Analyst 61 2 8205 4148

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552357&serialid=875o1THQ8WNaloA%2b7L%2bcKRFf8aDMyaKumL1KcXmvS60%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552562&serialid=TxiV%2faippcT6uFMGmsxS0kOMUIz85eKZWd7U9r8DzrQ%3d


14 February 2014


Mobile performance remains strong Telstra Corporation (TLS.AX)

Solid 1H14 result: Telstra's 1H14 EBITDA of A$5.29bn (ex Sensis) was in line with our A$5.27bn forecast and up 7% vs pcp (+5% ex A$127m Telstra Clear impairment charge in pcp and ASB119). 1H14 NPAT of A$1.93bn was 2.6% ahead of our A$1.88bn forecast on lower depreciation. FY14 guidance for 'low-single digit EBITDA growth' (incl Sensis) was maintained. We raise our FY14F EBITDA by 0.8% to A$10.86bn (ex Sensis). FY14F NPAT is increased 2.6% to A$4.1bn due to lower depreciation. The interim dividend was raised to 14.5c (fully franked) and we forecast 29c for the full year. Mobile performance remained strong: Mobile growth remained strong, with mobile revenue rising 6.4% in 1H14 (vs +6.0% in FY13). Telstra added 739k mobile SIOs (vs 608k in pcp), although the majority were prepaid (postpaid handheld +103k). Postpaid handset ARPU (ex MRO) grew 2%. Mobile margins expanded to 39% (from 37% in pcp) and mobile EBITDA was up 13%. We calculate that the total mobile market declined 0.6% in the 6m to Dec and Telstra's market share rose to 51.3% (vs 50.6% in 6m to June). Costs slightly higher than expected: Costs grew 2.1% in the half, due to investment in NAS growth and lower efficiency savings (A$230m). The company said that efficiency savings will increase in 2H14 and it continues to target A$1bn in savings per annum for the next few years. OUTPERFORM rating and A$5.70 target price unchanged: We remain positive on the Telstra investment story with strong cashflows being supported by continued mobile growth, cost savings and NBN payments. We see upside from the emerging Asian growth strategy. Finalisation of NBN negotiations should be a key catalyst.


OUTPERFORM


Fraser McLeish Research Analyst 61 2 8205 4069

Risks to the core, but becoming full service Webjet (WEB.AX)

Zuji and LoH positive, but core still under pressure: Zuji appears on track and the TTV result for Lots of Hotels was ahead of expectations with the run rate now $65mn (up from $40mn at FY13). Backing out of the result the $2.1mn other gains and losses and adding back the $1mn in duplicated IT costs we believe the underlying EBITDA for 1H14 was ~$11.2mn and that it is supportive of FY14 guidance. However, we remain cautious given that we believe volumes in the core flights business remain negative, that in the 2H there will be the $2mn of incremental marketing spend for Zuji and that WEB is focused on scale in LoH and not on the short-term profitability ($0.4mn 1H14 loss may be carried into 2H). NEUTRAL rating retained. Key takeaways: (1) WEB's revenue margin increased ~23% to 10.3% (revenue / TTV) due to mix shift (higher proportion of accommodation TTV), 1H14 includes the full annualisation of the September 2012 increase in booking fees and improved commercial agreements with the airlines; (2) management gave no guidance into the air booking volumes in 1H14, and we believe that the negative run rate in 2H13 has likely continued, implying that WEB's booking volumes have continued to decline in its core flights business; (3) the weakness in WEB's booking volumes is not due to a single factor, it is a combination of many (cycling strong comps, slowing shift online, increased competition from airlines and other OTAs, growth in lower conversion mobile traffic); (4) the outlook for WEB's core flights business is softer, with Zuji and other initiatives required to drive earnings growth in FY14 and beyond; and (5) Lots of

Hotels is growing ahead of expectations, but management has changed its focus from profitability to scale ($0.4mn EBITDA loss in 1H14, previous guidance was for it to be profitable). Target price: $3.25 (from $2.90) moving back to an equally blended PER and DCF-based valuation methodology. Modest EPS revisions.


NEUTRAL


Chris Smith Research Analyst 61 2 8205 4210

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1029433581&serialid=j6nlBeQ4wvIoGZR5JapeBckKnB42m29yV56nnqN9uUA%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552522&serialid=1Va4cLsJ%2bL8iyIwgox7CjhkwVdy66XXoKElONXfNwJs%3d


14 February 2014


RESULT PREVIEW

2013 results preview; reports on 20 Feb Alumina Limited (AWC.AX)

Expecting a messy result. The read-through from Alcoa results to AWC is poor when profits are weak because accounting translations from GAAP to AIFRS, plus black box retirement benefits and embedded derivative valuations overwhelm low values, swinging the results. On top of these problems, this year we have the true-up of the Alba settlements between Alcoa and AWC, another swing factor. AWC's share of Alcoa's profit was $41mn, but after finance, corporate costs, and accounting translations, we believe that the underlying NPAT will be US$17mn. Consensus is $12mn. We estimate FCF was US$60mn. AWC previously announced that new debt was down to $135mn at December. Cash inflows were the agreed AWAC dividends of US$105mn over the year. We forecast no dividend, but recognise risk. AWC has not paid a dividend since 2011, but having made positive FCF and with low net debt, it may decide a modest final dividend is warranted. But with commodity prices remaining weak and capital injections into AWAC of over $30mn being likely in 2014, we believe a wiser course would be to apply cash to reducing debt and set the company up for a better future. Our DCF valuation remains A$1.60/sh, and our target price is A$1.30/sh.


OUTPERFORM


Matthew Hope Research Analyst 61 2 8205 4669

1H14 preview: Cost-outs will be rewarded against volume headwinds

Australian Transport Sector

1H14 cost-out and self-help candidates should be rewarded against a weak volume backdrop and top-line outlook: With weak volumes and demand impacting the bulk of the Australian transport sector, we expect that evidence of cost-outs and solid execution at 1H14 results will be rewarded with relative outperformance. All stocks (excluding Qube) have publicly announced cost-out programmes, though the biggest upside in cost-out execution remains with AIO, AZJ and QAN. Asciano and Aurizon: cost-out upside baked in for AZJ, but what about AIO? While the cost-out opportunity is well understood for Aurizon, with the market already baking in 75% operating margins from FY15 (and then some), the opportunity for AIO is perhaps less well understood, but equally still available in Ports and PN Rail. We are optimistic that management can, in time, exceed the $150mn in cost-outs initially targeted under the BIP programme. For AZJ, the upside remains bringing forward the time frame for reaching 25% EBIT margins, currently expected in FY15. "One Toll" margin improvement? In the absence of a volume-led recovery, we believe evidence of productivity improvements elsewhere in the business in the form of margin expansion will be well received. While hard to quantify "One Toll" benefits, we believe they could progressively materialise from 1H14, as we start to see the first results of management turning its focus on consolidation instead of acquisitive growth. BXB back to more appropriate multiples: With BXB now trading back in line with its historical market multiple, and with management likely to reaffirm FY14 guidance, we see the result more about the timeline for growth in emerging markets as well as RPC penetration in North America. Following this note, we have removed Recall, resulting in 12% changes to earnings over the forecast period. We lower our target price from $9.83 to $9.29 leaving a NEUTRAL rating. Airlines: With guidance already given for both stocks and a looming "transformational" strategy day for Qantas, we see 1H14 results as perhaps less meaningful than in previous years. For VAH, we have lowered earnings over the forecast period and our target price to $0.38 (from $0.42). Qube – forecasts and target price upgraded into 1H14, based on volume expectations in Ports and Bulk as Qube progressively tender for contracts on the North West Shelf. Target price raised to $2.20, previously ($1.90), NEUTRAL rating maintained.

Nicholas Markiewicz Research Analyst 61 2 8205 4107

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552508&serialid=jLvzd5zu31j5q9eY0czuyAVVjGNiLNc59woodteDO8U%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552506&serialid=C%2b498%2bY%2f5iEM330scGGfBBGhm51AcrPGQH0aXZVUYdQ%3d


14 February 2014


1H14 results preview; reports on 17 Feb Bendigo and Adelaide Bank (BEN.AX)

Credit Suisse assumptions/variance to market Our FY14E $378mn cash earnings estimate sits 1% above the IBES $376mn consensus, while our corresponding DPS estimate of $0.64 is in line with the consensus. What to look for We would look for: 1) Some relief emerging for net interest margins, with term deposit spread pressures easing and the re-pricing of parts of the Community Bank originated portfolio; 2) Accelerating operating costs, reflecting new premises costs and acceleration of the Basel advanced accreditation programme; 3) Rural Bank asset quality (given on-going deterioration within half a dozen North Queensland cattle exposures, reflecting live export bans, drought and lower stock prices); and 4) Update on medium-term issues such as the progress of the Great Southern litigation and the Basel advanced accreditation programme. Share price implications BEN currently trades on 12.4x 12-month prospective earnings (equating to a 4% discount to the major banks vs an 8% four-year average discount and compared with Bank of Queensland on 12.3x) and a corresponding book multiple of 1.1x (major banks 2.1x, Bank of Queensland 1.3x).


NEUTRAL


James Ellis Research Analyst 61 2 8205 4531

1H14 results preview; reports on 19 Feb Fortescue Metals Group (FMG.AX)

We already have a good estimate of the key P&L items following the DecQ results. We can estimate revenue and expenses from received prices and C1 costs, and we know net debt and gearing as FMG has kept the market informed while calling in debt for repayment. Having the exact figures will be interesting, but there is unlikely to be anything in the results to change the view. We expect EPS of 53¢ps (consensus 55¢ps). Management provided an investor call less than three weeks ago, so we doubt much has changed. We will be looking for updates on the ramp-up of the Kings OPF and status of the Cloud Break wet front-end fix due for completion this month. We expect an interim dividend of 5¢/sh, ahead of zero last year, given the strong DecH result. This would represent a payout ratio of only 9% versus the policy of 30%-40%, but we understand the first priority is debt repayment. We doubt the market would welcome a dividend above consensus while gearing remains high. We expect the dividend payout will rise towards the payout policy once gearing reaches the targeted 40% level. Our DCF valuation remains A$9.60/sh and our target price A$7.50.


OUTPERFORM


Matthew Hope Research Analyst 61 2 8205 4669 All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS.

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14 February 2014


2013 results preview and operation analysis; reports on 21 Feb

Iluka Resources (ILU.AX)

Following the quarterly results and the 11 Feb report that NPAT is $18mn after impairments, we now have the main items of the P&L. Dividend – we expect policy-breaking 5¢/sh final dividend, matching interim. Payout policy is +40% of FCF measured after all capital. Capex for DecH is uncertain, but guidance was $100mn for the year. On that basis, we estimate 2013 FCF to be -$3mn. Interim dividend of 5¢/sh (A$21mn) looked beyond a hefty tax payment towards a stronger DecH, which did not eventuate. Policy would indicate no final dividend, given it would be funded with debt, but with a comfortable balance sheet, it may match interim at 5¢. Management call and cost guidance for the current year should be key catalysts for the outlook. We believe ILU is heading for a loss in the first half of 2014 with pricing now lower than the average for 2013. We will be interested in management response, although we doubt ILU has any further useful cuts available. We look closer at this issue in this note. MAC changes – ILU has given responsibility for the MAC royalty to a development manager and may begin moves to develop and spin off the royalty business. Our DCF valuation remains A$9.10/sh and our target price is $10.


NEUTRAL



1H14 results preview and exploration success; reports on 19 Feb

Mount Gibson Iron (MGX.AX)

Sales revenue can be estimated from the received prices (CS: $589mn, consensus $525mn), but we have no lead on cash costs. For EBITDA, CS: $230mn, consensus $224mn. A large swing factor in reaching NPAT is D&A, particularly amortisation of stripping, which is driven by earth moving at Koolan Island. We estimate NPAT of $142mn, consensus mean is $109mn, but with a $65mn range. MGX provided its cash balance in the DecQ report (A$484mn) which implies net cash of $465mn. Interim dividend nil: MGX has a policy of providing only final dividends. MGX today announced exploration success at Iron Hill prospect, 3km from Extension Hill mine. Successful Dec drilling and historical work (drilling and adits) has provided MGX with an exploration target of 5-7Mt at a grade of 58-61% Fe, which could extend the mine life by two years. Iron Hill is one of three prospects known at Extension Hill South lease from historical work. Extension Hill mine is due to end in 2017 on most recent reserves. A two-year life extension might increase our DCF valuation by 5¢ps if there is no capex, and costs are similar to the current mine. Nevertheless, earnings will improve if the mine life could be extended to 2021 like Koolan Island. Our DCF valuation and target price remain A$1.05/sh.


UNDERPERFORM



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552550&serialid=7eyWaen585066HvFdeNfSC2iSNJ0BRLarccoGMtokMU%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552518&serialid=e8nNb66oocNZNBWYJRB8S6GP5MlFXMGr8ztygHkw1H4%3d


14 February 2014


HY14 results preview; reports on 17 Feb UGL (UGL.AX)

Credit Suisse assumptions/variance to market: We forecast HY14 underlying NPAT of $52.9mn, up 4% vs. pcp. Our forecasts imply 1H earnings seasonality of 41%, below the historical average (45%). What to look for: Reiterate FY14 guidance of $120-130mn underlying NPAT. Credit Suisse FY14 forecasts ($128mn) are 4% above consensus ($123mn). Solid property result to offset engineering: We forecast 24% growth in DTZ EBIT vs pcp driven by revenue growth (+8%) & margin uplift (to 5.7%). In contrast, we forecast an 11% decline in engineering EBIT in 1H14 with stronger projects EBIT offset by a weaker rail result. Demerger on track for FY15: We expect UGL to confirm it remains on track to have its property and engineering businesses structurally separated in FY14 and the demerger completed in FY15 subject to market conditions. UGL to focus on solid outlook for property supported by the US cyclical recovery and integration of DTZ. We are still cautious on engineering outlook: UGL is likely to identify the Dec-13 LNG maintenance contract win as evidence that resources maintenance activity is picking up. However, we need to see further contract wins to turn more positive on the outlook. UGL appears fair value: Trading at 10x 12-month fwd PE, valuation upside from the demerger is likely to be offset by the weak outlook for engineering.


NEUTRAL


Emma Alcock Research Analyst 61 2 8205 4403

STRATEGY & ECONOMICS

Strategy Portfolio Changes - SUN out ASX in Australian Investment Strategy

Strategy Short Ideas, Suncorp Out – We are taking profits from our short Suncorp position. The stock has been in our Short Ideas list since inception. Andrew Adams has been cautious on Suncorp given the stocks lofty valuations, aggressive insurance assumptions and likelihood of cutting revenue growth targets. Andrew notes that the upcoming results

announcement could be an additional negative for the share price.

Strategy Short Ideas, ASX In – In place of Suncorp, we are adding ASX to our Short Ideas. We believe the general pressures on the equity industry will continue to weigh on ASXs share price. Meanwhile, the company currently pays out 90% of free cash-flow in the form of dividends. FCF growth is expected to remain anaemic. Andrew Adams has recently assumed coverage on the stock with an Underperform rating.

He highlights falling value per trade and lower turnover velocity.

While we expect the Australian equity market to rally from here, we still anticipate ASX to underperform. Its historical beta has been less than one. Stock Themes – A number of themes run through our stock selection

process. First, Selfies continue to dominate the Australian investor base

and we know they have an acute focus on dividends. We do not want to stand in the way of these flows. Most of our long ideas are in a position to increase dividends. While our shorts generally operate on lower FCF yields and have less capacity to return capital to share-holders. Second,

we believe Australian companies will be operating in a low growth environment. Those companies in a position to generate returns,

irrespective of the macro backdrop, should be valued more highly. For this

reason, we have many restructuring candidates amongst our Long

Ideas. Third, while we believe bottom-up factors will continue to become more important in driving stock prices, there will continue to be macro

influences. One of the most important will be the RBA to cutting rates as mining investment unwinds. This supports our long position in a

number of consumer and residential housing exposed stocks.

Hasan Tevfik ,CFA Research Analyst 61 2 8205 4284

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x552520&serialid=PF0RhOyXaaLioAvsh5iMWlYKIMEmcqIydgPT3YWseOI%3d


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https://plus.credit-suisse.com/u/DPaVRL

https://plus.credit-suisse.com/u/DPaMug

https://plus.credit-suisse.com/u/JfncR1

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https://plus.credit-suisse.com/u/DZcWDq

https://plus.credit-suisse.com/u/DZP9CV




14 February 2014

Asia Pacific/New Zealand

Equity Research

Transportation Infrastructure (Industrials)

■

■

Airwork Holdings

(AWK.NZ) INITIATION

Engineering a competitive advantage

■ We initiate coverage on AWK with a DCF-based 12-month target price

of $3.00 and a NEUTRAL rating. AWK is a specialist aviation business

operating in fixed wing and helicopter leasing and maintenance. AWK owns,

operates and maintains a fleet of aircraft that are supported by a world-class

maintenance, repair and overhaul (MRO) capability backed by extensive

local and international certification.

■ In June 2013 AWK received European Aviation Safety Authority (EASA)

certification. This has the potential to step change revenue and earnings of

its Helicopter Engineering division and represents an area of upside risk to

forecasts. Early benefits of EASA certification have been encouraging, with a

key contract signing in Germany. Canada and South Africa are other

markets that have been assessed as offering strong potential.

■ Helicopter demand remains strong, particularly in the oil and gas sectors,

and AWK’s upgrade capability positions the company for pursuing offshore

leasing contracts. Potential exists to deploy further helicopters in markets

such as Africa over and above what our current forecasts assume,

particularly if mining related exploration and development activity expand.

■ AWK has embarked on a programme of productivity measures within

the Fixed Wing division to improve cost efficiency and fleet utilisation.

Benefits from this programme are expected to commence from FY14.

■ AWK will report its interim result on Wednesday 19 February.

Share price performance

90.0

95.0

100.0

105.0

110.0

2.00

2.50

3.00

3.50

4.00

Dec-13 Jan-14

Airwork Holdings Limited LHS Relative to NZX50 (RHS)

The price relative chart measures performance against the

NZX50 index which closed at 4870.0 on 12 Feb 14

The spot exchange rate was NZ$1.202/US$1 on 13 Feb 14

Performance over 1M 3M 12M

Absolute (%) 8.4 N/A N/A

Rel-NZX50(%) 9.0 N/A N/A

Year to 30 Jun 2012A 2013A 2014F 2015F 2016F

Adjusted Earnings NZ$m 8.0 10.1 12.0 13.2 13.9

EPS Adjusted NZc. 18.8 23.7 23.9 26.2 27.6

EPS Grow th % -32.6 25.8 0.8 9.8 5.5

P/E x 15.7 12.5 12.4 11.3 10.7

CPS NZc. 56.5 68.7 66.3 70.6 72.5

P/CF x 5.2 4.3 4.5 4.2 4.1

EV/EBITDA x 7.6 6.2 5.6 4.8 4.4

Net DPS NZc. 7.5 7.5 13.4 14.0 15.3

Imputation % 50.0 50.0 50.0 50.0 50.0

Net Yield % 2.5 2.5 4.5 4.7 5.2

Gross Yield % 3.0 3.0 5.4 5.6 6.2

Financial and valuation metrics

Source: Company data, NZX, First NZ Capital estimates

Rating NEUTRAL* Price (13 Feb 2014, NZ$) 2.96 Target price (NZ$) 3.00¹ Market cap. (NZ$mn) 148.71 Projected return: 0 Capital gain (%) 1.4 Dividend yield (net %) 4.6 Total return (%) 6.0 52-week price range (NZ$) 2.70-3.05

* Stock ratings are relative to the relevant country

benchmark.

¹Target price is for 12 months.

Research Analysts

Paul Turnbull

+64 9 302 5559

[email protected]

This report is distributed in Australia by Credit Suisse

Equities (Australia) Limited. Please see legal disclaimer and

disclosure annex for further terms and information

Provided by First NZ Capital

14 February 2014


Figure 1: Airwork Holdings financial summary

Sector: Transportation NZX Code: AWK

PROFIT & LOSS ($m) BALANCE SHEET ($m)Year to 30 Jun 2012A 2013A 2014F 2015F 2016F Year to 30 Jun 2012A 2013A 2014F 2015F 2016F

Operating Rev enue 103 118 126 134 143 Cash & Equiv alents 2.6 4.7 4.8 7.6 15.4

Operating Ex penses -72.3 -81.3 -86.5 -90.4 -96.8 Debtors & Inv entories 14.5 18.4 15.4 16.4 17.5

Operating EBITDA 30.4 37.1 39.2 43.2 45.9 Other Current Assets 39.6 31.7 24.5 26.5 28.3

Depreciation -16.0 -19.1 -21.3 -22.3 -22.6 Current Assets 56.8 54.8 44.7 50.5 61.1

Amortisation -0.2 -0.3 -0.2 -0.6 -0.6 Fix ed Assets 122 126 135 134 130

Operating EBIT 14.2 17.7 17.8 20.4 22.7 Inv estments 0.0 0.0 0.0 0.0 0.0

Other Income 0.0 0.0 0.0 0.0 0.0 Intangibles 1.0 1.7 3.7 3.8 3.9

Abnormals -10.6 -3.7 -0.9 0.1 0.0 Other Non-Current Ass. 4.4 1.8 2.1 2.0 2.0

Reported EBIT 3.7 14.0 16.9 20.5 22.7 Total Assets 185 185 189 194 201

Net Interest -5.2 -5.3 -4.4 -3.2 -3.5

Pretax Profit -1.5 8.7 12.5 17.2 19.3 Interest Bearing Debt 87.4 84.9 67.4 65.7 65.7

Tax 0.5 -2.2 -4.0 -5.1 -5.3 Other Liabilities 31.6 30.9 31.4 31.4 32.1

Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Liabilities 119 116 98.7 97.1 97.8

Equity Accounted Profit 0.0 0.0 0.0 0.0 0.0 Minorities 0.0 0.0 0.0 0.0 0.0

Reported NPAT -1.1 6.5 8.6 12.2 13.9 Conv ertible Capital 0.0 0.0 0.0 0.0 0.0

Abnormals (net of tax ) -9.1 -3.6 -3.4 -1.0 0.1 Ordinary Equity 65.6 68.8 90.2 95.5 102

Adjusted Earnings 8.0 10.1 12.0 13.2 13.9 Total Funds Emp. 185 185 189 193 200

RATIOS AND CAPITAL STRUCTURE CASH FLOW ($m)Year to 30 Jun 2012A 2013A 2014F 2015F 2016F Year to 30 Jun 2012A 2013A 2014F 2015F 2016F

Profitability & Growth

EBITDA/Op Rev % 29.6 31.3 31.2 32.4 32.2 Operating EBITDA 30.4 37.1 39.2 43.2 45.9

EBIT/Op Rev % 13.9 14.9 14.2 15.2 15.9 Other Cash Income 1.7 -2.3 -1.8 0.1 0.0

Effectiv e Tax Rate % 30.5 25.5 31.6 29.4 27.7 Interest Paid -5.2 -5.3 -4.4 -3.2 -3.5

Return On Equity % 11.8 15.0 15.1 14.2 14.1 Tax Paid 0.5 -2.2 -4.0 -5.1 -5.3

ROCE % 9.5 11.8 11.8 13.3 14.9 Working Capital / Other -3.1 -4.8 5.2 -1.9 -2.2

EPS Adjusted c. 18.8 23.7 23.9 26.2 27.6 Operating Cash Flow 24.3 22.5 34.4 33.2 34.9

EPS Grow th % -32.6 25.8 0.8 9.8 5.5

Net DPS c. 7.5 7.5 13.4 14.0 15.3 Total Capex -31.0 -16.3 -31.2 -21.1 -18.8

Div idend Cov er x 2.5 3.2 1.8 1.9 1.8 Acquisitions -0.6 -0.9 -4.9 -0.7 -0.7

Asset Backing & Capital Structure Div estments 4.9 0.7 5.2 0.0 0.0

Net Cash (Debt) $m -84.8 -80.2 -62.5 -58.1 -50.3 Div idends -3.2 -3.2 -6.7 -7.0 -7.7

NTA / Share $ 1.5 1.6 1.9 1.8 1.9 Equity Raised 0.0 0.0 20.0 0.0 0.0

Equity / Tot Assets % 35.5 37.3 47.8 49.4 50.8 Other 0.0 0.0 -0.5 0.1 0.0

Net Debt / EBITDA x 2.8 2.2 1.6 1.3 1.1 Change in Net Debt -5.6 2.7 16.2 4.5 7.7

Interest Cov er x 2.7 3.3 4.1 6.3 6.6

Shares on Issue Capex /Depn % 194 85.3 147 94.7 83.2

Ordinary m 42.6 42.6 50.2 50.2 50.2 Capex /Rev % 30.2 13.8 24.8 15.8 13.2

Fully Diluted m 42.6 42.6 46.4 50.2 50.2

EBITDA BREAKDOWNYear to 30 Jun 2012A 2013A 2014F 2015F 2016F

Fix ed Wing 22 24.22 26.58 26.36 27.1

Helicopters 11.93 17.06 18.96 22.21 24.24

Other -3.5 -4.21 -6.31 -5.33 -5.49

Group 30.43 37.07 39.23 43.24 45.85

Fix ed Wing Margin % 37.52 37.09 41.48 41.24 41.24

Helicopters Margin % 27.07 32.17 30.77 31.87 31.53

Group Margin % 29.63 31.32 31.21 32.37 32.16

Fixed Wing51%

Helicopter Leasing

17%

Helicopter Engineering

32%

SEGMENT REVENUE

Source: Company data, NZX, First NZ Capital estimates

14 February 2014


Introduction

Airwork Holdings Limited (AWK) is a specialist aviation business operating in two well-

defined niches of fixed wing and helicopter leasing and maintenance. AWK owns,

operates and maintains a fleet of aircraft that are supported by a world-class maintenance,

repair and overhaul (MRO) capability backed by extensive local and international

certification.

AWK’s Fixed Wing business derives most of leasing income from the provision of B737

aircraft, maintenance and crew for carriage of express freight in Australia and New

Zealand for major courier companies. Helicopter operations encompass leasing, crewing

and chartering of helicopters for emergency medical services (EMS), search and rescue

(SAR), police, military, mining, oil and gas and tourism sectors. A full helicopter MRO

service supports the helicopter leasing business and provides third-party MRO services in

New Zealand and internationally.

Figure 2: Revenue by division FY13 Figure 3: EBITDA by division FY13

Fixed Wing54%

Helicopters46%

Fixed Wing24.2m

Helicopters17.0m

Source: Company data


Helicopter operations

AWK’s Helicopter business principally operates in the small- to medium-sized (5-9 pax),

twin engine, turbine powered helicopter market. These helicopters are typically used for

support services in the mining/oil and gas sector, emergency medical services (EMS),

search and rescue (SAR), police, military and tourism/charter market.

An active secondary market exists for helicopters, with around 80% of all turbine

helicopters produced since commercial production commenced in 1955 estimated to

remain in active service. Helicopters depreciate relatively modestly over a useful life that

can span several decades with appropriate service. Individual components are frequently

replaced to meet regulatory requirements or safety standards. The global fleet of twin-

engine BK117 helicopters in operation is around 295.

In FY13 helicopter leasing contributed 39% of divisional revenue compared with 61% from

maintenance, repair and overhaul (MRO). AWK’s external MRO business has roughly

doubled over the past five years.

Helicopter MRO

A healthy secondary market for helicopters together with AWK’s MRO capability provides

opportunity for AWK to source helicopters to overhaul and upgrade them and either lease

or on-sell. Upgraded helicopters are a highly cost-competitive alternative to new

helicopters. The high value of helicopter components and maintenance and low cost of

transporting components relative to their value has created a global MRO market. This

feature of the helicopter business allows AWK’s NZ-based MRO facility to support the

offshore growth aspirations of AWK’s helicopter leasing business and compete effectively

with high valued new helicopters.

14 February 2014


AWK’s MRO capability is supported by an increasing range of certifications which offer a

barrier to entry and international growth opportunity. Key certifications underpinning

helicopter MRO growth:

■ Only accredited service centre for Honeywell LTS-101 turbine engine in the Asia

Pacific excluding Japan (and only one of six worldwide);

■ One of two facilities in Asia Pacific approved to repair and overhaul BK117 dynamic

components (and only one of three worldwide);

■ One of three accredited service centres in Asia Pacific to repair and overhaul

Eurocopter AS350/355 dynamic components (and one of six facilities globally

excluding OEM providers);

■ The only helicopter engineering facility in the Asia Pacific with test cell capability for

Honeywell LTS-101 engines and Eurocopter AS350/355 and BK117 dynamic

components.

In addition AWK holds the only certification for BK117-850 engine upgrade, a modification

developed with Honeywell which replaces the engine on the BK117 helicopter with a more

powerful version. This upgrade has been approved by the New Zealand, European and

Canadian authorities. This significantly improves the Category A performance of the

BK117 helicopter, especially in hot and high altitude conditions to enable upgraded

helicopters to match alternative models in this area, but at a significantly lower cost.

Helicopter leasing

AWK manages a fleet of 29 helicopters which are leased or chartered on a range of terms

tailored to customer requirements. Of these helicopters 25 are owned and four are

operated on behalf of third parties. Helicopters are currently leased in New Zealand,

Australia, Papua New Guinea and Africa. The fleet in service has grown by two helicopters

over the past five years.

Figure 4: Helicopter fleet in service

Eurocopter AS 355F1

Kawasaki BK-117

Augusta Westland A109

Eurocopter AS 350BA

McDonnell Douglas 500

Robinson R44 Bell 427

Number Owned 10 12 - 2 1 - -

Number Operated - 1 1 - - 1 1

Capacity 5 passengers 9 passengers 5 passengers 6 passengers 4 passengers 3 passengers 7

passengers

Max Range 703km 500km 990km 660km 605km 560km 685km


There are two types of leases:

■ “dry lease” where the helicopter is supplied (with full or partial engineering support) – in

this case the customer is responsible for crew, fuel, insurance and operation; and

■ “wet lease” where AWK provides all services (aircraft, crew, maintenance and

insurance) and the customer is only responsible for variable charges (eg. fuel).

AWK’s helicopter fleet operates in the following sectors: mining/oil and gas exploration,

tourism/charter, emergency medical services (EMS), police and search and rescue (SAR).

In addition to its long-term leasing operations AWK offers helicopter charter services on an

ad hoc basis in NZ and offshore. Around two thirds of forecast FY14 revenue is covered

by existing contracts.

14 February 2014


Figure 5: Helicopter leasing revenue by industry FY13

Oil & Gas48%

Mining17%

Tourism / Charter14%

Emergency / Govt Services

20%

Other1%


Major customers currently include:

■ New Zealand Police.

■ Heli Niugini – a helicopter provider to the oil and gas industry in PNG.

■ Rio Tinto.

■ Bristow Group – for contracting to the offshore oil and gas industry in Australia.

■ The Helicopter Line.

AWK is in a commercial dispute with The Helicopter Line (a subsidiary of Skyline

Enterprises Ltd) with respect to the dry lease of eight Squirrel AS355 helicopters. The

Helicopter Line is not flying the helicopters and has been threatening to terminate the

lease for some months alleging that AWK has breached the contract. AWK has filed

proceedings in the High Court seeking payment of outstanding invoices amounting to

$2.5mn. The contract extends for a further nine years and provides for minimum revenue

of approximately $17mn ($1.9mn pa). While the company is confident of success in the

summary judgment, no income from this contract is allowed for in FY14 or FY15 forecasts.

Fixed Wing Operations

AWK’s Fixed Wing flight operations business is based around the provision of aircraft on a

wet lease basis (providing aircraft, crew. maintenance and insurance) in the specialist

airfreight sector in New Zealand and Australia. Over 70% of revenue is derived from

leasing and operating aircraft and related services to the airfreight industry with the

balance of revenue mainly derived from passenger charters, dry leasing of aircraft and

third party maintenance. Over 80% of revenue is secured by long-term contracts. AWK

has little direct fuel price risk or operating risk. FY13 accounts disclose that AWK’s two

largest customers were both in Fixed Wing and contributed approximately 72% of Fixed

Wing revenue.

14 February 2014


Figure 6: Revenue by sector FY13

Air Freight70%

Passenger Charters

18%

Dry Leasing5%

Other7%


Express Freight Services

This business comprises two contracts:

■ In New Zealand, AWK Flight Operations lease a B737 to Express Couriers (NZ Post

subsidiary) on an ACMI lease and operates five turboprop aircraft on their behalf under

AWK’s New Zealand Air Operators certificate. The relationship with NZ Post extends

back to 1989.

■ In Australia, AWK Flight Operations leases five B737-300 freighters to Toll Priority for

its Australian express freight business under an ACMI lease. When the contract was

first awarded in 2007, three B737-300 aircraft were leased. Two B737-300 aircraft have

since been added as routes have grown. The contract was renegotiated in FY11 and

extended from 2014 to 2018 in conjunction with the addition of capacity. Multiple

services are operated between Brisbane, Sydney, Melbourne and Perth and additional

services are operated as required.

In both NZ and Australia the express freight market are duopolies. AWK lease and operate

the aircraft fleet for one of the two major players in each market. In NZ, AWK’s customer

NZ Express (NZ Post subsidiary) competes against Freightways. In Australia, AWK’s

customer Toll Priority competes against Qantas Freight.

Passenger services

AWK leases or operates the following passenger aircraft:

■ A B737-400 passenger aircraft was leased to Alliance Airways up until December

2013. Since then the aircraft has been redeployed for charters and short term lease. A

B737-300 passenger aircraft is based in Brisbane which is leased on short-term

contracts often in support of small airlines operating in the Pacific.

■ A Fairchild Metroliner is leased to Life Flight Trust Auckland as an air ambulance

service under an ACMI lease. AWK also uses 2 uncommitted aircraft (Metroliner and

Piper Chieftain) for commercial charters.

■ AWK also owns 50% of Infinite Charters Ltd, a corporate charter joint venture that

operates two Jetstream 32 aircraft which are crewed and operated by AWK.

14 February 2014


Dry leasing

AWK leases two B737-400 passenger aircraft to Romanian low-cost carrier Blue Air, which

operates services out of Bucharest. AWK receives a monthly lease fee and an hourly rate

per flight hour. Blue Air operates, insures and maintains the aircraft.

Figure 7: Fixed Wing fleet in service

Boeing 737 300

Boeing

737-400

IAI Westwind

II Jet Stream 32

Fokker

F27-500

Fairchild

SA227

Metroliner

Piper PA31

Cheiftain

Number Owned 5 freight

1 passenger

1 freight

3 passenger - - - 2 1

Number Operated - - 1 2 2 3 -

Capacity 17,000kg

136 passengers

19,500kg

162 passengers

1,155kg

7 passengers

1,908kg

19 passengers 5,500kg

2,200kg

18 passengers

800kg

8 passengers

Max Range 6,000km 6,000km 4,167km 1,875km 2,000km 2,750km 2,750km


Maintenance

AWK is certified to perform the full range of engineering services on all aircraft within its

fleet including heavy maintenance C checks for B737-300 and B737-400, C and D checks

on Fokker 27 aircraft and Phase and SSV checks of Metroliner aircraft. AWK also provides

MRO services to some external customers.

The key competitive advantage of AWK’s Fixed Wing business is its cost competiveness

supported by its in-house engineering capability and certifications held to operate fixed

wing aircraft in the jurisdictions it operates. Also, through mutual recognition of Australia

and New Zealand aviation regulations, AWK can operate in Australia on a partial New

Zealand cost base.

Key opportunities

Helicopter MRO certification leverage. In June 2013 AWK received European Aviation

Safety Authority (EASA) certification of its Ardmore facility. This followed initial submission

back in October 2010 and expanded the acceptance of maintenance and engine upgrade

sales to most of jurisdictions worldwide (other than USA). This is expected to be a key

driver of further MRO growth in the years ahead. Early signs of the benefits of EASA

accreditation are encouraging. AWK recently contracted with ADAC, the largest

automotive club in Germany to progressively purchase its fleet of 14 BK117 helicopters

over the next five years while also supplying parts, engines and components during that

period. Canada and South Africa are other markets that have been assessed as offering

strong potential for BK117 upgrades. In anticipation of further sustained growth AWK is

upgrading capacity at its Ardmore facility.

EASA certification has the potential to step change BK 117 engine sales and we would

highlight this as a key area of upside risk to medium-term forecasts. We forecast

Helicopter Engineering revenue will grow to $40.5mn in FY14 up 26% on pcp. This slightly

exceeds PFI forecasts but we would highlight helicopter trading revenue as presenting

further upside risk. Between FY14 and FY18 we forecast Helicopter Engineering revenue

will grow at an average 11% p.a.

Helicopter lease fleet growth. Helicopter demand remains strong, particularly in the oil

and gas sectors, and AWK’s upgrade capability (and cost-effective products) positions the

company strongly for pursuing offshore leasing contracts. Potential exists to deploy further

helicopters in Africa, particularly if mining related exploration and development activity

expands. Our base case valuation assumes AWK grows its helicopter fleet by one BK117

p.a. through the explicit forecast period.

14 February 2014


Fixed Wing efficiency improvement. Expansion of the business footprint in Fixed Wing

in Australia in recent years has been accompanied by a significant lift in the capital and

cost base. Management is now focusing on consolidating the Fixed Wing business (to

extract improved ROIC) and has embarked on a programme of productivity measures to

improve cost efficiency in its Australian operation. Management is targeting annual cost

reduction of A$3mn from a variety of initiatives including more robust planning, logistics,

crewing and internalisation of staff maintenance functions. These cost-reduction benefits

will commence in FY14.

In addition to targeting greater efficiency, focus is on increasing capacity utilisation in

Fixed Wing charter. FY14 PFI forecasts assume that the expiry of a Boeing 737-400 fixed

price contract in Australia in December 2013 will only be partly offset by charter hours.

However, with current charter activity strength in Australia we believe there is upside risk

to this assumption as well as our Fixed Wing revenue forecast in FY14 of $64.1mn.

AWK has also signalled that organic growth may be supplemented with strategic

acquisitions of businesses and assets that complement its existing operations.

Key issues / risks

Key contract risk. AWK derives a significant portion of revenue from key customers. The

FY13 financial statements note that the two largest customers (both in Fixed Wing)

accounted for 72% of Fixed Wing revenue and 40% of FY13 group revenue. AWK’s

largest customer, Toll Holdings Ltd, accounted for 28% of group revenue in FY13 and

although this contract does not expire until 2018 we would nominate this renegotiation as

a key medium-term risk. To reflect this risk in our valuation we assume a 5% nominal

decline in Fixed Wing lease revenue per flying hour in FY19. We also note that a four-year

extension of the Toll contract in FY11 coincided with declining yield trends in the Fixed

Wing division. Another key Fixed Wing lease contract with NZ Post is up for renewal in

FY16.

Fixed Wing accelerated depreciation. AWK has accelerated the depreciation of its Fixed

Wing fleet such that the implied economic life of this asset base has fallen from around 15

years in FY11 to nine years currently. Fixed Wing depreciation as a percentage of revenue

increased from 13.6% in FY11 to 19.4% in FY13. This led to a significant decline in Fixed

Wing EBIT margin during the period. Rather than a change in useful life, we believe that

the key driver of the higher depreciation charge has been a significant decline in the

market value of B737 aircraft. We estimate that the present over-depreciation of Fixed

Wing assets equates to around $4mn relative to maintenance capex indicated by

management. In addition to the accelerated depreciation, an impairment of $11.8mn was

recognised in FY12. This related to adjustments in the carrying value of AWK’s Fixed Wing

engines, specifically the Boeing 737 fleet.

Supplier and accreditation risk. In conducting its MRO activities AWK relies on

accreditations and parts supply agreements with OEMS, including Eurocopter and

Honeywell. Given that OEMs can compete with AWK’s MRO business potential

commercial tension exists between AWK and MROs. While AWK proactively manages

such relationships any impairment of these relationships could negatively impact on AWK.

Cyclical industry exposure. Many of AWK’s customers are exposed to cyclical sectors

including oil and gas, mining, logistics and tourism. AWK’s helicopter leasing division has

enjoyed growth in recent years as a recovery in the oil and gas and mining sectors drove

improved fleet utilisation. Three BK-117 helicopters were added to the fleet during FY12

with two of those deployed in a full service contract to Guinea, Africa, to support Rio

Tinto’s Simandou iron ore project. While charter activity in Australia has shown recent

strength, tourism related helicopter activity in NZ has remained weak.

Foreign exchange risk. AWK transacts much of its revenue and expenses in foreign

currencies such that AWK calculates that a 1 cent appreciation of the USD against the

14 February 2014


NZD will increase EBITDA by around $0.343mn, while a 1 cent appreciation of the AUD

against the NZD will increase EBITDA by $0.136mn.

Accident/incident risk. An accident or incident involving any aircraft or equipment

operated, designed or maintained by AWK could incur reputational damage or financial

loss. In January 2014 the right side main landing gear of a B737 aircraft owned by AWK

and servicing Toll Holdings Ltd collapsed, causing the plane to come to a sudden halt on

the runway shortly after landing. A full investigation is in progress to determine the cause

of the incident. The aircraft was fully insured and AWK had spare capacity to continue to

fully service the Toll contract.

Historical financial information and FNZC forecasts

Figure 8: AWK revenue and earnings breakdown

Year end 30 June (NZ$mn) FY11A FY12A FY13A FY14F FY15F FY16F

Revenue

Fixed Wing 53.7 58.6 65.3 64.1 63.9 65.7

Helicopter - leasing 17.2 18.8 21.0 21.1 23.7 26.6

Helicopter - engineering 26.1 25.2 32.0 40.5 46.0 50.3

Total Revenue 97.0 102.7 118.3 125.7 133.6 142.6

Operating Expenses

Parts & material purchases -23.9 -30.4 -31.6 -33.0 -37.9 -42.3

Employee & related expenses -17.1 -28.9 -35.3 -33.9 -33.5 -34.3

Aircraft operating expenses 0.0 -4.0 -4.1 -6.2 -6.8 -7.2

Other expenses -22.1 -9.1 -10.3 -13.4 -12.1 -13.0

Total Operating Expenses -63.1 -72.3 -81.3 -86.5 -90.4 -96.7

EBITDA

Fixed Wing 24.1 22.0 24.2 26.6 26.4 27.1

Helicopters 12.2 11.9 17.1 19.0 22.2 24.2

Other -1.8 -3.5 -4.2 -6.3 -5.3 -5.5

EBITDA 34.6 30.4 37.1 39.2 43.2 45.9

Depreciation & amortisation -12.8 -16.2 -19.4 -21.4 -22.9 -23.1

EBIT

Fixed Wing 16.9 12.2 11.6 12.0 11.7 12.5

Helicopters 7.9 6.9 11.9 13.8 16.8 18.7

Other -3.0 -4.9 -5.8 -8.1 -8.2 -8.4

EBIT 21.8 14.2 17.7 17.8 20.4 22.7

Impairment expenses -1.3 -12.0 -2.0 0.0 0.0 0.0

Other gains/(losses) 11.5 1.5 -1.7 -0.9 0.1 0.0

Net Financing Expense -5.1 -5.2 -5.3 -4.4 -3.2 -3.5

Profit before tax 26.9 -1.5 8.7 12.5 17.2 19.3

Tax Expense -7.9 0.5 -2.2 -4.0 -5.1 -5.3

NPAT 19.0 -1.1 6.5 8.6 12.2 13.9

NPAT - Normalised 11.9 8.0 10.1 12.0 13.2 13.9

EBIT margin

Fixed Wing 31.4% 20.8% 17.7% 18.8% 18.3% 19.0%

Helicopters 18.2% 15.6% 22.5% 22.4% 24.1% 24.3%

Group 22.4% 13.9% 14.9% 14.2% 15.2% 16.0%

Operating Fleet

Fixed Wing 17 20 20 21 21 21

Helicopter 22 25 26 27 28 29

Source: Company data, FNZC estimates

■ Earnings in FY11 were boosted relative to other years by excellent returns achieved

from the purchase, parting and sale of two MD90 aircraft engines in the Fixed Wing

division.

■ Margin expansion was achieved in the Helicopter division between FY11 and FY13 as

scale benefits more than offset the increasing skew from higher margin leasing

revenue towards lower margin engineering revenue.

14 February 2014


■ FY14 and FY15 do not recognise any revenue for the eight helicopters contracted to

The Helicopter Line Limited. FY16 does assume that these helicopters are re-leased

albeit at less than the current terms of the disputed contract.

Return on Invested Capital (ROIC)

Investment in additional Boeing 737 fleet in the Fixed Wing division and higher working

capital requirements to support the growth in Helicopter engineering revenue has led to

invested capital growth of 35% between FY09 and FY13. Earnings growth was unable to

keep pace with the increasing capital base, with Group after tax ROIC declining from

11.2% in FY09 to 9.1% in FY13. Key drivers of the lower return were the accelerated

depreciation and declining yields in the Fixed Wing division. Encouragingly we estimate

that the faster growing Helicopter division saw ROIC improve from around 11.0% in FY11

to 11.7% in FY13.

After adjusting for the accelerated depreciation and elevated fleet book value in Fixed

Wing, we calculate a normalised ROIC of 12.7% in FY13. Over the explicit forecast period

we assume a gradual decline in ROIC to 12.0% in our terminal year as a declining profile

in Fixed Wing is offset by scale benefits in the Helicopter division. With a calculated

WACC of 10.0% in the terminal year, and therefore an excess return of 2.1%, we are

implicitly ascribing a value of $40mn to intangible assets within AWK that are not carried

on balance sheet. Specifically we believe this intangible value is supported by AWK’s long-

standing relationships with a number of key customers and more importantly the extensive

local and international Helicopter Engineering certification that AWK holds.

Capex

Capex of $31.2mn is forecast in FY14 with maintenance capex of $13.8mn and growth

capex of $17.4mn. Implicit within this forecast is the assumption that Fixed Wing

maintenance capex will again be lower than Fixed Wing depreciation due to the

accelerated depreciation profile of the Boeing 737 asset base. Growth capex in FY14 and

FY15 includes investment in helicopter engineering plant capacity at AWK’s Ardmore

facility as well as the initial purchase of fleet from ADAC under the terms of the new parts

supply contract.

AWK estimated in the PFI that, based on the current fleet size, the addition of one

helicopter to the leasing fleet each year and provision of plant, inventories and spare parts

to support fleet and engineering growth, net annual capex would approximate $15mn to

$17mn. This includes average maintenance capex estimated at $13.5mn ($9.5mn Fixed

Wing, $4.0mn Helicopter). Our capex forecasts exceed management guidance, with

maintenance capex averaging around $17mn p.a. over the next five years. So as to take

into consideration a fleet replacement cycle we then forecast maintenance capex lifting to

$20mn p.a. from FY19 which equates to 1.13x depreciation.

Valuation

Our 12-month target price of $3.00 is established using a DCF valuation methodology. We

also compare AWK against the metrics of a basket of listed peer stocks. We consider an

adjusted EV/EBIT methodology the most relevant comparative multiple.

DCF valuation

DCF is our preferred valuation methodology due to a lack of directly comparable peer

companies for multiple-based analysis and due to the capital intensity of the business.

AWK is also suited to DCF analysis due to the contractual nature of its revenue stream, its

inconsistent capex profile and the accelerated depreciation of its Fixed Wing assets in the

medium term.

Our spot DCF valuation of $2.70 and 12-month forward valuation of $3.00 per share

assume that one BK-117 helicopter is added each year between FY16 and FY24.

14 February 2014


We provide a summary below of the sensitivity of our AWK 12-month forward DCF

valuation to a change in WACC and terminal growth rate inputs under two alternative

growth scenarios.

The low scenario assumes that the operating environment for helicopter leasing is not

supportive for BK-117 fleet growth. In this instance we do not grow the BK-117 fleet and

revert to a lower long-term ROIC for the Group.

The high scenario assumes that the operating environment remains buoyant for helicopter

leasing and is supportive for BK-117 fleet growth. In this scenario we grow the BK-117

fleet by two aircraft each year between FY16 and FY24 and long-term ROIC for the Group

improves and is sustained at an elevated level.

Figure 9: Low scenario 12-mth DCF sensitivity Figure 10: High scenario 12-mth DCF sensitivity

2.0% 2.5% 3.0%

9.6% $2.87 $2.99 $3.14

10.1% $2.65 $2.75 $2.87

10.6% $2.46 $2.54 $2.64WA

CC

TGR

2.0% 2.5% 3.0%

9.6% $3.39 $3.56 $3.75

10.1% $3.11 $3.25 $3.41

10.6% $2.86 $2.98 $3.11WA

CC

TGR

Source: FNZC estimates

Source: FNZC estimates

In addition to these scenarios we would also highlight the standalone value of the $40mn

of non-balance sheet intangible that we implicitly assume in our forecast terminal year

ROIC of 12.0%. Removal of this excess return in the terminal year would lower our base-

case DCF valuation by around $0.45 per share.

Peer comparison

We believe that the following list of companies captures a mix of operations of varying

levels of strength across each of AWK’s business units:

■ Bristow Group: The leading provider of helicopter services to the worldwide offshore

energy industry with a fleet skew towards medium and large aircraft.

■ Discovery Air: Canadian operator of helicopter fleet support to mining, oil and gas

exploration and forest fire suppression and a fixed wing fleet that provides scheduled

and charter passenger and cargo services as well as air ambulance services.

■ HNZ Group: Operates a helicopter fleet supporting a range of multinational companies

and government agencies, including onshore and offshore oil and gas, mineral

exploration & military support. HNZ also engages in third-party maintenance contracts.

■ Air Transport Services Group: Provides airline operations, aircraft leases, aircraft

maintenance and other support services primarily to the cargo transportation and

package delivery industries.

■ Alliance Aviation Services: Australia's leading provider of Fly in-Fly out transport.

The company services predominantly 'blue-chip' mining companies.

■ Atlas Air Worldwide Holdings: A global provider of outsourced aircraft and aviation

solutions for commercial and military customers.

In addition to aviation peer companies we also consider the rating of NZ small caps

relative to the wider NZX market.

14 F

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ruary

201

4

Au

stra

lia a

nd

NZ

Firs

t Ed

ition

24

Figure 11: Peer comparison Company Code Market Cap Div Yield ROIC Debt/EBITDA

NZD$mn FY0 FY1 FY0 FY1 FY0 FY1 FY1 FY0 FY1 FY0 FY0 EBIT EPS EBIT EPS

Helicopter Operators

Bristow Group Inc BRS 2,977 10.5x 9.1x 15.8x 13.0x 18.7x 15.2x 1.5% 12.6% 14.2% 6.6% 2.0x 8.0% 4.8% 22.2% 23.5%

Discovery Air Inc DAa.TO 21 4.8x 6.9x 11.1x 15.1x 32.5x n/a n/a 7.7% 6.0% 7.8% 3.9x 6.2% n/a (26.5%) n/a

Groupe HNZ Inc HNZa.TO 304 4.3x 4.3x 5.4x 5.5x 6.5x 6.5x 5.1% 23.8% 23.7% 17.8% 0.5x 28.6% 17.2% (1.9%) (0.6%)

Helicopter Operators Median 304 4.8x 6.9x 11.1x 13.0x 18.7x 10.9x 3.3% 12.6% 14.2% 7.8% 2.0x 8.0% 11.0% (1.9%) 11.5%

Helicopter Operators Average 1,101 6.6x 6.8x 10.8x 11.2x 19.2x 10.9x 3.3% 14.7% 14.6% 10.7% 2.1x 14.3% 11.0% (2.1%) 11.5%

Fixed Wing Operators

Air Transport Services Group Inc ATSG.O 480 4.7x 4.9x 9.8x 11.6x 9.4x 12.1x n/a 13.0% 11.7% 6.6% 2.1x (3.8%) 13.2% (14.8%) (22.4%)

Alliance Aviation Services Ltd AQZ.AX 156 4.0x 3.8x 6.7x 6.3x 5.8x 6.5x 7.2% 15.5% 15.5% 13.0% 1.5x 26.9% 30.3% 5.3% (10.9%)

Atlas Air Worldw ide Holdings Inc AAWW.O 946 7.8x 7.9x 10.0x 11.1x 7.2x 9.5x 0.0% 13.6% 12.4% 5.9% 3.1x 0.0% (4.8%) (9.8%) (24.2%)

Fixed Wing Operators Median 480 4.7x 4.9x 9.8x 11.1x 7.2x 9.5x 3.6% 13.6% 12.4% 6.6% 2.1x 0.0% 13.2% (9.8%) (22.4%)

Fixed Wing Operators Average 527 5.5x 5.5x 8.8x 9.6x 7.5x 9.4x 3.6% 14.0% 13.2% 8.5% 2.2x 7.7% 12.9% (6.5%) (19.2%)

Median (excluding Bristow) 304 4.7x 4.9x 9.8x 11.1x 7.2x 8.0x 5.1% 13.6% 12.4% 7.8% 2.1x 6.2% 15.2% (9.8%) (16.6%)

Average (excluding Bristow) 381 5.1x 5.5x 8.6x 9.9x 12.3x 8.7x 4.1% 14.7% 13.9% 10.2% 2.2x 11.6% 14.0% (9.5%) (14.5%)

Airw ork Holdings Ltd AWK.NZ 149 5.5x 5.0x 11.1x 10.1x 14.8x 12.4x 4.5% 16.1% 16.7% 9.1% 1.5x 0.0% 1.2% 14.1% 9.1%

Airw ork Holdings Ltd - adjusted AWK.NZ 149 5.5x 5.0x 9.2x 8.4x 11.5x 10.0x 4.5% 19.4% 19.9% 12.7% 1.5x 6.6% 10.1% 11.4% 5.3%

Selected Small Caps

PGG Wrightson Ltd PGW.NZ 317 9.3x 7.6x 11.3x 8.9x n/a 11.1x 6.1% 3.3% 4.0% 10.5% 2.3x (9.8%) n/a 27.0% n/a

Opus International Consultants Ltd OIC.NZ 322 8.4x 7.7x 10.0x 9.2x 13.8x 14.2x 4.0% 7.2% 6.9% 22.5% (0.9x) 7.7% 7.1% 8.0% (2.5%)

Tourism Holdings Ltd THL.NZ 111 4.0x 3.4x 15.7x 9.8x 30.0x 11.7x 6.9% 6.5% 9.5% 5.5% 2.1x 14.1% (11.5%) 60.5% 155.4%

Methven Ltd MVN.NZ 95 8.6x 7.9x 12.1x 10.6x 18.5x 14.7x 6.8% 9.0% 10.2% 20.7% 1.4x (11.8%) (13.0%) 14.3% 25.9%

Hellaby Holdings Ltd HBY.NZ 295 9.5x 5.8x 12.0x 7.5x 13.6x 10.2x 4.9% 5.4% 6.8% 12.8% 1.2x 13.6% 9.5% 60.6% 33.2%

Selected Small Caps Median 295 8.6x 7.6x 12.0x 9.2x 16.2x 11.7x 6.1% 6.5% 6.9% 12.8% 1.4x 7.7% (2.2%) 27.0% 29.5%

Selected Small Caps Average 228 7.9x 6.5x 12.2x 9.2x 19.0x 12.4x 5.7% 6.3% 7.5% 14.4% 1.2x 2.7% (2.0%) 34.1% 53.0%

NZ Market 9.8x 9.2x 14.5x 13.3x 17.6x 17.2x

Small Caps relative to NZ Market 0.8x 0.7x 0.8x 0.7x 1.1x 0.7x

EV/EBITDA EV/EBIT P/E EBIT Margin 3 Yr His CAGR FY1 Growth

Source: Company data, FNZC estimates, Reuters

14 February 2014


Peer Group analysis

Although we have included Bristow Group in our peer analysis, we do not believe it

represents a suitable comparison to AWK on a multiple basis. An expectation of stronger

offshore oil and gas activity has driven a significant re-rating in the Bristow share price

over the past 18 months such that it now trades at a large premium to other companies in

the peer group. It could also be argued that Bristow should trade at a premium due to it

being a much larger company and having a more diverse operating platform. Comparison

with Discovery Air is also limited by its very high gearing with net debt representing 90% of

the Group’s enterprise value, in effect distorting the multiple that it trades on.

We prefer EV/EBIT over EV/EBITDA as a relative valuation approach due to the different

fleet ownership structures between peers as well as differences in lease contract terms.

AWK has a much lower lease expense than peer companies because a greater proportion

of its fleet is held on balance sheet and because the non-owned portion of the fleet that it

operates on behalf of third parties does not incur lease expense. Accordingly, AWK has

higher depreciation expense as a percentage of revenue due to the ownership structure of

its operating fleet. In addition the accelerated depreciation profile of the Fixed Wing fleet

must be considered. We therefore also compare AWK to its peer group after positively

adjusting EBIT by $4mn which is equivalent to our estimate of Fixed Wing over-

depreciation.

AWK is currently trading on a one-year forward unadjusted EV/EBIT multiple of 10.1x

(8.4x after adjusting for accelerated depreciation) which compares to the peer group

average of 10.1x, although this is distorted by positive outlier skew. On an adjusted

EV/EBIT basis, AWK is trading at a premium to HNZ Group and Alliance Aviation

Services. We believe this is justified given that HNZ has key near-term contract risk and

Alliance Aviation’s fleet is Fixed Wing and has significant exposure to the mining sector.

AWK is trading at a discount to Air Transport Services and Atlas Air. We believe both

companies should trade at a premium to AWK in part because they are significantly larger

companies and also due to their relatively lower customer cyclical exposure.

Recommendation

We consider the extensive Helicopter Engineering certification and the subsequent growth

option that this certification presents to be the primary reason to invest in AWK. Cyclical

sector exposure and a reliance on key customer contracts elevates valuation risk, however

management’s deal-making approach should lead to a more diversified revenue and

earnings platform over time. Safety and reliability is paramount to the reputation of the

AWK business model both in terms of customer retention and growth. Reputational

damage would put at risk the excess return on invested capital that AWK currently enjoys

against its tangible capital base. While the B737 landing gear failure that occurred in

January was unfortunate, we consider it to be a one-off event. Our target price of $3.00

represents a gross annual return of 6.0%. We initiate coverage on AWK with a

NEUTRAL rating.


14 February 2014

Asia Pacific/Australia

Equity Research

Diversified Financial Services (Diversified Financials (AU))

ASX

(ASX.AX / ASX AU) INCREASE TARGET PRICE

Revenue growth across the board

■ ASX reported 1H14 NPAT of $189.6mn, slightly below our $191mn

(consensus $187mn) and an interim dividend of 88.2cps (consensus

89.8cps). Revenue was slightly above our expectations, however this was

offset by an 8.3% increase in operating expenses. We maintain our

UNDERPERFORM rating with a $35.20 target price.

■ Key points: (1) all major ASX business lines increased revenue year-on-

year in 1H14, for the first time since the end of 2008; (2) operating expenses

increases 8.3% due to an increase in staff numbers; (3) capital expenditure

guidance has increased from $40mn to $40-$45mn; (4) the largest business

line, Derivatives, had the lowest growth and we note that the daily contract

average for ASX 24 was down 11% on 2H13.

■ Earnings changes: We have lowered our FY14 NPAT by 0.6% and

increased FY15 by 1.1%. The increase in outer year revenue forecasts is

driven by a base increase to information services revenue. While 1H14

expenses were higher than expected we have maintained our FY14

estimate and lowered outer years on the assumption of further cost savings

in occupancy and equipment expenses.

■ Investment view: ASX is currently trading at a ~20% PE premium to the

market, the middle of the 10-30% range it has traded at over the past five

years. While the 1H14 operating revenue growth was 8.0% on pcp, the

growth on 2H13 was only 5.4% with the decline in activity late in 1H14 flowing

through to the start of 2H14. With downside risk to earnings we consider the

current share price as full and maintain our UNDERPERFORM rating.

Total return forecast in perspective

Mean^CS tgt^ Sh Prc

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

12mth Volatility* 52wk Hi-Lo IBES Consensustarget return^


Absolute (%) 0.4 -3.0 2.7

Relative (%) -1.4 -1.3 -3.4


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 617.4 654.6 693.6 734.5

EBITDA (A$mn) 471.2 501.3 537.0 573.5

EBIT (A$mn) 440.8 468.5 503.6 539.4

Net income (A$mn) 348.2 380.4 407.8 435.6

EPS (CS adj.) (Ac) 195.54 196.90 210.65 225.02

Change from previous EPS (%) n.a. -0.6 1.1 0.8

Consensus EPS (Ac) n.a. 196.90 211.70 226.40

EPS growth (%) -1.1 0.7 7.0 6.8

P/E (x) 18.5 18.4 17.2 16.1

Dividend (Ac) 170.20 176.97 189.71 202.65

Dividend yield (%) 4.7 4.9 5.2 5.6

P/B (x) 2.0 1.9 1.9 1.8

Net debt/equity (%) net cash net cash net cash net cash

Relative performance versus S&P ASX 200.See Reference

Appendix for a description of the chart. Source: Credit Suisse

estimates, * Consensus, mean range from Thomson Reuters

Source: Company data, ASX, Credit Suisse estimates, * Adj. for goodwill, notional interest and unusual items. Relative P/E

against ASX/S&P200 based on pre GW in AUD. Company PE calculation is based on displayed EPS Currency

Rating UNDERPERFORM*

Price (13 Feb 14, A$) 36.25

Target price (A$) (from 33.20) 35.20¹

Market cap. (A$mn) 7,017.82

Yr avg. mthly trading (A$mn) 457

Last month's trading (A$mn) 393

Projected return:

Capital gain (%) -2.9

Dividend yield (net %) 5.1

Total return (%) 2.2

52-week price range 39.2 - 32.2


benchmark.


Research Analysts

Andrew Adams

61 2 8205 4106

[email protected]

14 February 2014


Figure 1: ASX financial summary

ASX (ASX) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Share Price: A$36.25 Earnings 06/12A 06/13A 06/14E 06/15E 06/16ERating UNDERPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 175.1 178.1 193.2 193.6 193.6

Target Price A$ 35.20 c_EPS*100EPS (Normalised) c 197.7 195.5 196.9 210.7 225.0

vs Share price % -2.90 EPS_GROWTH*100EPS Growth % -1.1 0.7 7.0 6.8

DCF A$ 30.00 c_EBITDA_MARGIN*100EBITDA Margin % 76.9 76.3 76.6 77.4 78.1

c_DPS*100DPS c 177.9 170.2 177.0 189.7 202.7

c_PAYOUT*100Payout % 90.0 87.0 89.9 90.1 90.1

FRANKING*100Franking % 100.0 100.0 100.0 100.0 100.0

c_FCF_PS*100Free CFPS c 163.3 185.3 209.8 206.6 221.3

Profit & Loss 06/12A 06/13A 06/14E 06/15E 06/16E c_TAX_RATE*100Effective tax rate % 29.6 29.6 29.6 29.6 29.6

Sales revenue 610.4 617.4 654.6 693.6 734.5 ValuationEBITDA 469.3 471.2 501.3 537.0 573.5 c_PE P/E x 18.3 18.5 18.4 17.2 16.1

Depr. & Amort. (27.6) (30.4) (32.8) (33.4) (34.1) c_EBIT_MULTIPLE_CURREV/EBIT x 10.7 8.6 8.6 7.8 7.2

EBIT 441.7 440.8 468.5 503.6 539.4 c_EBITDA_MULTIPLE_CUEV/EBITDA x 10.1 8.1 8.0 7.4 6.8

Associates 0.0 0.0 0.0 0.0 0.0 c_DIV_YIELD*100Dividend Yield % 4.9 4.7 4.9 5.2 5.6

Net interest Exp. 40.6 44.1 62.6 65.7 69.1 c_FCF_YIELD*100FCF Yield % 4.5 5.1 5.8 5.7 6.1

Other 9.2 9.4 9.6 9.9 10.3 c_PB Price to Book x 2.1 2.0 1.9 1.9 1.8

Profit before tax 491.5 494.3 540.7 579.3 618.8 ReturnsIncome tax (145.3) (146.1) (160.2) (171.5) (183.2) c_ROE*100Return on Equity % 11.6 10.5 10.3 10.9 11.4

Profit after tax 346.2 348.2 380.4 407.8 435.6 c_I_NPAT/c_I_SALES*100Profit Margin % 56.7 56.4 58.1 58.8 59.3

Minorities (0.0) (0.0) (0.0) (0.0) (0.0) c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.1 0.1 0.1 0.1 0.1

Preferred dividends 0.0 0.0 0.0 0.0 0.0 c_ASSETS/c_EQ_COMMONEquity Multiplier x 2.2 2.2 2.2 2.2 2.1

Associates & Other 0.0 0.0 0.0 0.0 0.0 c_ROA*100Return on Assets % 5.3 4.7 4.7 5.1 5.4

Normalised NPAT 346.2 348.2 380.4 407.8 435.6 c_ROIC*100Return on Invested Cap. % 43.4 300.9 46.7 51.6 56.8

Unusual item after tax (7.0) 0.0 0.0 0.0 0.0 GearingReported NPAT 339.2 348.2 380.4 407.8 435.6 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash Net Cash Net Cash Net Cash

Balance Sheet 06/12A 06/13A 06/14E 06/15E 06/16E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -11.6 -10.7 -8.0 -8.2 -8.3

Cash & equivalents 2,528.6 3,218.6 2,990.4 3,065.3 3,138.8 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -10.9 -10.0 -7.5 -7.7 -7.8

Inventories 0.0 0.0 0.0 0.0 0.0 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 6.7 5.9 6.3 5.9 5.6

Receivables 275.7 229.6 175.8 175.8 175.8 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 341.7 267.9 279.0 273.5 268.2

Other current assets 1,174.7 1,285.6 2,119.4 2,119.4 2,119.4

Current assets 3,979.0 4,733.8 5,285.6 5,360.5 5,434.0 MSCI IVA (ESG) Rating BBProperty, plant & equip. 65.5 56.1 52.6 52.6 52.6 TP ESG Risk (%): 0

Intangibles 2,320.5 2,393.2 2,390.0 2,371.6 2,352.9

Other non-current assets 162.2 185.6 288.7 288.7 288.7

Non-current assets 2,548.2 2,634.9 2,731.3 2,712.9 2,694.2

Total assets 6,527.2 7,368.7 8,016.9 8,073.4 8,128.2

Payables 3,102.9 3,874.7 4,006.1 4,006.1 4,006.1

Interest bearing debt 250.0 0.0 0.0 0.0 0.0

Other liabilities 179.3 172.2 314.5 314.5 314.5 MSCI IVA Risk: Neutral

Total liabilities 3,532.2 4,046.9 4,320.6 4,320.6 4,320.6

Net assets 2,995.0 3,321.8 3,696.3 3,752.8 3,807.6

Ordinary equity 2,995.0 3,321.8 3,696.3 3,752.8 3,807.6

Minority interests 0.0 0.0 0.0 0.0 0.0

Preferred capital 0.0 0.0 0.0 0.0 0.0

Total shareholder funds 2,995.0 3,321.8 3,696.3 3,752.8 3,807.6

Net debt -2,278.6 -3,218.6 -2,990.4 -3,065.3 -3,138.8 Source: MSCI ESG Research

Cashflow 06/12A 06/13A 06/14E 06/15E 06/16E Revenue composition 06/12A 06/13A 06/14E 06/15E 06/16E

EBIT 441.7 440.8 468.5 503.6 539.4 Listings and Issuer Services 133.4 139.7 146.6 157.2 168.2

Net interest 39.3 34.5 62.1 65.7 69.1 Cash Market 124.5 114.6 122.4 144.5 162.7

Depr & Amort 27.6 30.4 32.8 33.4 34.1 ASX24 Derivatives 161.0 169.0 188.5 200.8 202.3

Tax paid -174.8 -148.2 -156.2 -171.5 -183.2 ASX Derivatives 27.7 28.3 29.7 31.5 33.4

Working capital 402.0 817.9 185.2 0.0 0.0 Information Services 66.9 61.8 67.8 70.5 73.9

Other -408.8 -808.8 -145.7 9.9 10.3 Austraclear 36.0 38.6 40.8 43.3 45.9

Operating cashflow 327.0 366.6 446.6 441.2 469.7 Technical Services 45.3 49.8 54.2 58.1 61.6

Capex -41.0 -36.7 -41.2 -41.2 -41.2 Other 15.6 15.6 16.6 17.4 17.7

Acquisitions & Invest -7.1 -53.6 -84.4 -84.4 -84.4

Asset sale proceeds 0.0 0.0 0.0 0.0 0.0

Other 0.0 0.0 55.4 110.5 110.2

Investing cashflow -48.1 -90.3 -70.2 -15.1 -15.4

Dividends paid -325.2 -302.9 -330.0 -351.2 -380.9

Equity raised 0.0 261.6 277.9 0.0 0.0

Net borrowings 0.0 -250.0 0.0 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0

Financing cashflow -325.2 -291.3 -52.1 -351.2 -380.9

Total cashflow -46.3 -15.0 324.3 74.9 73.5

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash -46.3 -15.0 324.3 74.9 73.5

MSCI IVA Risk Comment: Following ASX's recent ESG rating

downgrade to BB we believe that the current rating reflects an

appropriate level for ASX, hence we move to a Neutral rating

(from Underperform)

13/02/2014 18:33

ASX Limited (ASX) was created by the merger of the Australian Stock Exchange and the

Sydney Futures Exchange. The Company’s principal activities consists of the provision of

securities exchange and ancillary services.

Credit Suisse View

TP Risk Comment: We have not currently factored in any change

in the current regulatory environment. Downside risk of 6% should

competition in clearing eventuate in line with regulatory change

(assuming a 50% fee reduction).

2.3

3.3

4.3

5.3

6.3

7.3

Environment Social Governance

Stock Local Sector

Country Global Sector

Listings and Issuer

Services23%

Cash Market

19%

ASX24 Derivatives

27%

ASX Derivatives

5%

Information Services

10%

Austraclear

6%

Technical Services

8%

Other

2%

Source: Company data, Credit Suisse estimates

14 February 2014


ASX 1H14 result

ASX reported 1H14 NPAT of $189.6mn, slightly below our $191mn estimate (consensus

$187mn) and an interim dividend of 88.2cps (consensus 89.8cps). Revenue was slightly

above our expectations, however this was offset by an 8.3% increase in operating

expenses. While most of the expense increase in 1H14 was due to higher staffing levels,

ASX have maintained their FY14 expense growth guidance of ~5%, implying only 1%

expense growth in 2H14. Management have highlighted that activity levels in the first six

weeks of 2H14 have been subdued. Overall, it appears a clean result largely within

expectations.

Figure 2: ASX actual versus expected

(A$mn) 1H13A 2H13A 1H14A vs. 1H13A vs. 2H13A CS 1H14F Var (%)

Profit & Loss (A$mn)

ASX Listings 73.6 66.1 81.5 10.7% 23.3% 79.4 2.6%

ASX Cash Market 54.9 59.7 59.2 7.8% -0.8% 57.4 3.1%

ASX24 Derivatives 79.9 89.1 89.8 12.4% 0.8% 91.3 -1.6%

ASX Derivatives 14.5 13.8 10.0 -31.0% -27.5% 11.4 -12.0%

Information Services 30.6 31.2 33.9 10.8% 8.7% 32.0 6.0%

Austraclear Services 19.1 19.5 20.5 7.3% 5.1% 20.1 2.1%

Technology infrastructure fees 24.6 25.2 26.2 6.5% 4.0% 26.5 -1.0%

Other Revenue 7.6 8.0 8.2 7.9% 2.5% 8.2 0.0%

Operating Revenue 304.8 312.6 329.3 8.0% 5.3% 326.2 1.0%

Staff Expenses -43.2 -44.0 -47.2 9.3% 7.3% -44.6 5.9%

Occupancy Expenses -6.6 -7.1 -6.9 4.5% -2.8% -7.1 -3.3%

Equipment expenses -10.5 -11.9 -11.6 10.5% -2.5% -12.1 -4.0%

Admin Expenses -7.4 -8.2 -7.3 -1.4% -11.0% -8.4 -13.6%

Variable Expenses -3.6 -3.7 -4.2 16.7% 13.5% -3.8 9.7%

Operating Expenses -71.3 -74.9 -77.2 8.3% 3.1% -76.0 1.5%

EBITDA 233.5 237.7 252.1 8.0% 6.1% 250.2 0.8%

Depreciation and amortisation -15.4 -15.0 -16.3 -15.6

EBIT 218.1 222.7 235.8 8.1% 5.9% 234.6 0.5%

Dividends 3.3 6.1 3.3 3.5

Net interest revenue 21.9 22.2 30.9 41.1% 39.2% 33.3 -7.2%

Pre-Tax Profit 243.3 251.0 270.0 11.0% 7.6% 271.3 -0.5%

Tax -72.2 -73.9 -80.4 -80.3

NPAT 171.1 177.1 189.6 10.8% 7.1% 191.0 -0.7%

Abnormals 0.0 0.0 0.0 0.0

Reported Profits 171.1 177.1 189.6 10.8% 7.1% 191.0 -0.7%

Credit Suisse EPS (cps) 97.7 101.0 98.3 0.6% -2.6% 99.1 -0.7%

Reported EPS (cps) 97.7 101.0 98.3 0.6% -2.6% 99.1 -0.7%

Dividends (cps) 87.9 82.3 88.2 0.3% 7.2% 88.8 -0.7%


Earnings changes

We have lowered our FY14 NPAT by 0.6% and increased FY15 by 1.1%. The increase in

outer year revenue forecasts is driven by a base increase to information services revenue.

While 1H14 expenses were higher than expected we have maintained our FY14 estimate

and lowered outer years on the assumption of further cost savings in occupancy and

equipment expenses.

14 February 2014


Figure 3: ASX earnings changes

FY14F FY15F

Old New Change Old New Change

Operating Revenue 650.4 654.6 0.6% 682.1 693.6 1.7%

Operating Expenses 153.1 153.3 0.1% 159.1 156.6 -1.6%

EBITDA 497.3 501.3 0.8% 522.9 537.0 2.7%

EBIT 466.0 468.5 0.5% 491.0 503.6 2.6%

NPAT 382.7 380.4 -0.6% 403.4 407.8 1.1%

Credit Suisse EPS (cps) 198.1 196.9 -0.6% 208.4 210.7 1.1%

Dividends (cps) 177.9 177.0 -0.5% 187.5 189.7 1.2%

Payout ratio 90% 90% 0.1% 90% 90% 0.1%

EBITDA margin 76.5% 76.6% 0.1% 76.7% 77.4% 0.8%


1H14 result key points

All major ASX business lines increased revenue year-on-year in 1H14, for the first time

since the end of 2008. The derivatives business, which is the largest business and has

assisted in offsetting the weakness in cash markets revenue in recent years, experienced

the lowest level of growth.

Figure 4: ASX revenue composition FY07 Figure 5: ASX revenue composition 1H14

ASX Listings21%

ASX Cash Market28%AX24 Derivatives

22%

ASX Derivatives6%

Information Services11%

Settlement and Dep. Fees 3%

Registry Fees1%

Tech Infra. fees4%

Other4%

ASX Listings25%

ASX Cash Market18%

AX24 Derivatives27%

ASX Derivatives3%



Registry Fees3%

Tech Infra. fees8%

Other3%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Derivatives and OTC markets ($99.8mn, +5.9%)

ASX 24 derivatives experienced a 12.4% increase in revenue to $89.8mn, with the

average number of daily contracts increasing 13.6%, noting that the daily contract average

was down 11% on 2H13.

ASX derivatives revenue was down 30.5% to $10.0mn as a result of a 22.2% decline in

the daily average number of contracts traded.

14 February 2014


Figure 6: ASX 24 monthly trading volumes and growth Figure 7: ASX derivatives trading volumes and growth

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Jul 01

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)

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SFE - Total market volumes YoY Growth (% p.a.) 12mth rolling growth (%)

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0.0m

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)

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X o

pti

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trad

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ASX derivatives volumes Growth (% pcp)


Listing and Issuer Services ($81.5mn, up 10.7%)

Listing revenue was up 11.3% to $66.8mn as a result of 69 IPOs (versus 41 in pcp) and

total amount raised of $36.7bn (up 40.1% on pcp). The initial listing fee revenue was the

main contributor to the increase on pcp, with this unlikely to continue in 2H14.

Figure 8: Listing and Issuer Services revenue breakdown

$000's 1H13 1H14 Change

- Annual Listing Fees 29,900 30,700 800

- Initial Listing Fees 3,400 11,200 7,800

- Subsequent Listing Fees 22,800 20,500 - 2,300

- Warrants fees 3,900 4,400 500

- Other 13,600 14,700 1,100

Total 73,600 81,500 7,900


Based on the new listings fees for FY15, we estimate that the annual listing fee for FY15

will increase by ~$10mn, assuming current market levels. This will assist in offsetting the

pullback in initial listing fees that may occur in FY15.

Figure 9: ASX annual listing fees, FY13 versus FY14

From To Fee FY13 + Fee FY14 + Base change

$0mn $3mn 10,500 12,500 19.0%

$3mn $10mn 10,500 0.157200% 12,500 0.161130% 19.0%

$10mn $100mn 21,504 0.018200% 23,779 0.018655% 10.6%

$100mn $1,000mn 37,884 0.003612% 40,569 0.003702% 7.1%

$1,000mn $10,000mn 70,392 0.001202% 73,889 0.001232% 5.0%

$10,000mn 178,572 0.030000% 184,774 0.000308% 3.5%

Capped at 350,000 358,750 2.5%


Cash market revenue ($59.2mn, +7.8%)

Fees from trading, clearing and settlement all grew as activity levels recovered from the

subdued levels in pcp. While the daily average cash on-market value traded on ASX was

up 8.8% on pcp, this was down 12.1% on last half. We note that if activity levels do

recover significantly, ASX's share of revenue is not linear in the first year of growth.

14 February 2014


Figure 10: ASX monthly equity trading value and growth Figure 11: ASX cash market impact of rebate on revenue

-80%

-60%

-40%

-20%

0%

20%

40%

60%

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100%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jul 01

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wth

rat

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)

AS

X e

qu

ity

trad

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val

ue

/ day

(A$m

)

Equity trading turnover (VALUE) Growth (% pcp) Growth (% pa 12mth rolling)

0.0

50.0

100.0

150.0

200.0

250.0

-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%

A$m

n

Variance from base case forecasts (%)

Revenue excluding rebates Revenue including rebates


Information services ($33.9mn, +10.9%)

Management noted that the increase in revenue resulted from the growth in demand for

data from retail investors and professional customers. In 1H14 the pricing for information

was adjusted to better align with user profiles, which appears to have driven a 22.6%

increase in subscriber terminal numbers.

Technical services ($26.2mn, +6.6%)

Management noted that the revenue from technical services increased following previous

significant investment in ASX’s data centre and communications network. The increase in

revenue is attributed to the growth in users of ASX technical services provided by the

Group’s primary data centre and expanding communication services provided by ASX Net

and ASX Net Global. The number of cabinets hosted in the data centre increased from

111 to 133, and the number of liquidity cross connects increased from 272 to 320.

The revenue in this division has been slowly increasing in recent periods.

Austraclear ($20.5mn, +7.4%)

The increase was driven by growth in registry revenue, up 15.5% to $9.2mn. The registry

revenue is predominantly driven by the value of new and existing securities registered.

Transaction revenue was up 3.4% to $8.2mn primarily due to a 5.5% increase in

transaction volumes.

Holdings revenue was down 3.2% to $3.1mn. While the value of securities held increased

6.8% compared to the pcp to $1.5tn, rebates for large users, and a change in the billing

methodology resulted in the revenue decline.

Expenses

Operating expenses were up 8.3% in 1H14, as a result of higher staffing levels and

equipment costs to support the new post-trade and risk management services. Despite the

increase in 1H14, management have maintained their guidance for an expense increase

of ~5% in FY14.

To achieve expense guidance, one of the expense components will need to decline on

1H14 on our calculations. Keeping the expense base flat increases the FY14 operating

expense cost by 6%.

14 February 2014


Figure 12: ASX operating expense analysis

1H12A 2H12A 1H13A 2H13A 1H14A 2H14F

Staff Expenses -41.7 -40.9 -43.2 -44.0 -47.2 -47.2

Occupancy Expenses -7.8 -7.7 -6.6 -7.1 -6.9 -6.9

Equipment expenses -10.2 -11.4 -10.5 -11.9 -11.6 -11.6

Admin Expenses -6.4 -7.1 -7.4 -8.2 -7.3 -7.3

Variable Expenses -4.3 -3.6 -3.6 -3.7 -4.2 -4.2

Operating Expenses -70.4 -70.7 -71.3 -74.9 -77.2 -77.2

FY -141.1 -146.2 -154.4


Investment view

ASX is currently trading at a ~20% PE premium to the market, the middle of the 10-30%

range it has traded at over the past five years. While the 1H14 operating revenue growth

was 8.0% on pcp, the growth on 2H13 was only 5.4% with the decline in activity late in

1H14 flowing through to the start of 2H14. With downside risk to earnings we consider the

current share price as full and maintain our UNDERPERFORM rating.

Figure 13: ASX historical PE Figure 14: ASX historical PE Rel

10.0x

12.5x

15.0x

17.5x

20.0x

22.5x

25.0x

27.5x

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

PE

(x)

ASX.AX Mean +/- SD

100%

110%

120%

130%

140%

150%

160%

170%

180%

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

PE

pre

miu

m to

XJO

(%

)

ASX PE relative (to XJO) Mean +/- SD Source: Bloomberg, IBES, Credit Suisse estimates Source: Bloomberg, IBES, Credit Suisse estimates

14 February 2014


ASX – key group charts

Figure 15: ASX24 derivatives largest revenue segment… ASX revenue composition (%), 1H14

Figure 16: …cash equities contribution reduced over time ASX revenue composition (A$mn)

ASX Listings25%

ASX Cash Market18%

AX24 Derivatives27%

ASX Derivatives3%



Registry Fees3%

Tech Infra. fees8%

Other3%

0

50

100

150

200

250

300

350

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

A$m

n

ASX Cash Market ASX Listings AX24 Derivatives

ASX Derivatives Information Services Settlement and Dep. fees

Registry Fees Tech Infra. fees Other

Figure 17: Staff costs the largest expense… ASX expense composition (%), FY13

Figure 18: …and ticking up over the past few halves ASX expense composition (A$mn)

Staff 61%

Occupancy9%

Equipment 15%

Admin 10%

Variable 5%

0

10

20

30

40

50

60

70

80

90

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

A$m

n

Staff Expenses Occupancy Expenses Equipment expenses Admin Expenses Variable

Figure 19: EBITDA margin up slightly in 1H14… EBITDA (A$mn), EBITDA margin (%)

Figure 20: …capex higher in 1H14 on pcp Capex (A$mn), capex / sales (%)

60%

65%

70%

75%

80%

85%

90%

0

50

100

150

200

250

300

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

EB

ITD

A m

arg

in [R

HS

]

EB

ITD

A (A

$mn

)

EBITDA EBITDA margin

0%

2%

4%

6%

8%

10%

12%

0

6

12

18

24

30

36

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

Cap

ex /

sale

s

Cap

ex (A

$mn

)

Capex Capex / Sales (%) Source for all charts: Company data, Credit Suisse estimates

14 February 2014


ASX – key segmental charts

Figure 21: Annual fees the largest % of listing revenue… Listings revenue contribution (%), FY13

Figure 22: …initial, secondary fees up despite weak activity Initial, secondary capital raised (A$mn)

Annual listing38%

Secondary raising25%

Issuer services18%

Initial listing14%

Other5%

0

10

20

30

40

50

60

70

1H06A

2H06A

1H07A

2H07A

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

A$b

n

Intial Secondary

Figure 23: Average cash equity fees a trough levels… Cash equities volumes (mn), average fee (A$)

Figure 24: …contribution from trading lower, but stable Composition of cash equities revenue (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

10

20

30

40

50

60

70

80

90

100

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

Avg

fees

(A

$)

Vo

lum

es (m

n)

Trading volumes Average fee

29.3% 28.6% 29.3% 29.2% 28.6% 28.6% 28.0%

37.4% 36.7% 37.5% 36.1% 35.9% 36.7% 36.7%

33.2% 34.7% 33.2% 34.7% 35.5% 34.7% 35.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1H11A 2H11A 1H12A 2H12A 1H13A 2H13A 1H14A

Trading Clearing Settlement

Figure 25: ASX24 revenues outpaced cash equities… ASX cash equities, ASX24 revenue growth (% chg pcp)

Figure 26: …but average fees lower in 1H14 (on pcp) SFE derivatives volume (mn), average fee (A$)

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1H08A

2H08A

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

Gro

wth

(%

ch

g p

cp)

ASX Cash Market AX24 Derivatives

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

-

10

20

30

40

50

60

70

1H09A

2H09A

1H10A

2H10A

1H11A

2H11A

1H12A

2H12A

1H13A

2H13A

1H14A

Avg

fee

(A$)

Vo

lum

e (m

n)

Volumes Average fee Source for all charts: Company data, Credit Suisse estimates

14 February 2014


Monthly activity focus charts

Figure 27: Cash equities – 12-month rolling average growth ASX monthly equity trading volumes, value growth (% prior period)

Figure 28: Total capital raised – growth ASX: total capital raised – growth (%) 12mth rolling

0

0

0

0

0

1

1

1

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Variance Volume Value

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Figure 29: Cash equities volumes growth (per day) ASX monthly equity trading volumes per day growth

Figure 30: Cash equity traded value growth (per day) ASX monthly equity trading values per day growth

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Jul 01

Jan 02

Jul 02

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Jan 13

Jul 13

Jan 14

AS

X e

qu

ity

trad

ing

vo

lum

e / d

ay

Growth (% pcp) Growth (% pa 12mth rolling)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jul 01

Jan 02

Jul 02

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Jan 13

Jul 13

Jan 14

AS

X e

qu

ity

trad

ing

val

ue

/ day


Figure 31: SFE futures volumes SFE monthly trading volumes growth (% pcp)

Figure 32: ASX derivatives volumes ASX monthly option trading volumes growth (% pcp)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jul 01

Jan 02

Jul 02

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Jan 13

Jul 13

Jan 14

AS

X24

fu

ture

s tr

adin

g v

olu

me


-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jul 01

Jan 02

Jul 02

Jan 03

Jul 03

Jan 04

Jul 04

Jan 05

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Jan 13

AS

X o

pti

on

trad

ing

vo

lum

e


Source for all charts: Company data, Bloomberg

14 February 2014


Figure 33: Primary capital raisings ASX monthly primary capital raised in A$mn

Figure 34: Secondary capital raisings ASX monthly secondary raised in A$mn

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Jan 13

Jul 13

Jan 14

Init

ial C

apit

al r

aise

d (A

$m)

Average

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jul 05

Jan 06

Jul 06

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Jan 13

Jul 13

Jan 14

Sec

on

dar

y C

apit

al r

aise

d (

A$m

)

Average

Figure 35: Average value per trade Average value / trade A$

Figure 36: Monthly liquidity – Australian market Value traded as a proportion of market capitalisation

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

A$

/ tra

de

60%

70%

80%

90%

100%

110%

120%

130%

140%

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Tu

rno

ver

velo

city

(%)

Source for all charts: Company data

Figure 37: December 2013 market activity 3 mths to 12 mths to

Cash equities Dec-12 Nov-13 Dec-13 % chg MoM % chg YoY Dec-12 Dec-13 % chg Dec-12 Dec-13 % chg

Volume of trades ('000s) 10,762 14,055 14,823 5% 38% 36,348 44,286 22% 155,064 192,794 24%

Value of trades ($mn) 65,422 81,715 86,368 6% 32% 232,763 254,082 9% 1,027,465 1,079,498 5%

Average value / trade 6,079 5,814 5,827 0% -4% 6,404 5,737 -10% 6,626 5,599 -15%Trading days 19 21 21 64 65 253 255

Volume of trades / day ('000) 566 669 706 5% 25% 568 681 20% 613 756 23%

Value of trades / day 3,443 3,891 4,113 6% 19% 3,637 3,909 7% 4,061 4,233 4%

Market capitalisation 1,335,837 1,506,483 1,526,868 1% 14% 1,309,627 1,522,864 16% 1,252,666 1,446,693 15%

Turnover velocity 65% 65% 69% 3% 3% 82% 75% -7%

ASX options

Volume of trades ('000) 12,931 10,005 2,173 -78% -83% 38,677 22,987 -41% 157,758 131,372 -17%

Volume / day 681 476 103 -78% -85% 604 354 -41% 624 515 -17%

ASX24 futures

Volume of trades ('000) 8,956 8,119 12,778 57% 43% 25,208 30,789 22% 103,781 125,417 21%

Volume / day 471 387 608 57% 29% 394 474 20% 405 490 21%

Capital markets

Intial capital raised ($m) 349 792 165 -79% -53% 2,364 3,600 52% 7,146 12,413 74%

Secondary capital raised ($m) 3,817 1,611 1,288 -20% -66% 11,433 4,831 -58% 35,163 23,864 -32%

Total capital raised ($m) 4,166 2,403 1,453 -40% -65% 13,797 8,431 -39% 42,309 36,277 -14% Source: Company data

14 February 2014


ASX24 focus charts

Figure 38: Total futures Volume (‘000), growth (% chg pcp, 12-month rolling)

Figure 39: Interest rate futures composition Volume (‘000)

-1

-1

-0

-

0

1

1

1

1

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Gro

wth

(%

)

Vo

lum

e ('0

00)

Total market Growth (% chg pcp) Growth (12-month rolling)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Vo

lum

e ('0

00)

10 yr 3 yr 90 day bank Other

Figure 40: Ten-year bond futures Volume (‘000), growth (% chg pcp, 12-month rolling)

Figure 41: Three-year bond futures Volume (‘000), growth (% chg pcp, 12-month rolling)

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Gro

wth

(%

)

Vo

lum

e ('0

00)

Volume Growth (% chg pcp) Growth (12-month rolling)

-1

-0.5

0

0.5

1

1.5

2

0

1,000

2,000

3,000

4,000

5,000

6,000

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Gro

wth

(%

)

Vo

lum

e ('0

00)


Figure 42: 90-day bank bill futures Volume (‘000), growth (% chg pcp, 12-month rolling)

Figure 43: Equity index futures Volume (‘000), growth (% chg pcp, 12-month rolling)

-1

-0.6

-0.2

0.2

0.6

1

1.4

1.8

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Gro

wth

(%

)

Vo

lum

e ('0

00)


-80%

-40%

0%

40%

80%

120%

0

400

800

1,200

1,600

2,000

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Gro

wth

(%

)

Vo

lum

e ('0

00)


Source for all charts: Company data, Credit Suisse estimates

14 February 2014


ASX valuation screens

Figure 44: ASX PE at 17.6x (consensus)… ASX 12 month forward PE

Figure 45: …PE premium at ~20% ASX PE premium to ASX200

10.0x

12.5x

15.0x

17.5x

20.0x

22.5x

25.0x

27.5x

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

PE

(x)

ASX.AX Mean +/- SD

100%

110%

120%

130%

140%

150%

160%

170%

180%

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

PE

pre

miu

m to

XJO

(%

)

ASX PE relative (to XJO) Mean +/- SD

Figure 46: Global exchanges re-rated recently… Global exchanges PE

Figure 47: …Asian exchanges at a premium to ASX ASX PE relative to Asian exchanges

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

Jul-05

Jan-06

Jul-06

Jan-07

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Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

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Jan-12

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Jul-13

Jan-14

PE

(x)

ASX Europe North America Asia

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

Jul-05

Jan-06

Jul-06

Jan-07

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Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

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Jul-12

Jan-13

Jul-13

Jan-14

AS

X P

E p

rem

ium

/ (d

isco

un

t)

PE

(x)

PE premium / (discount) ASX Asia

Figure 48: ASX at a premium to European exchanges… ASX PE relative to European exchanges

Figure 49: …as well as North American peers ASX PE relative to US exchanges

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

Jul-05

Jan-06

Jul-06

Jan-07

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Jul-08

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Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

AS

X P

E p

rem

ium

/ (d

isco

un

t)

PE

(x)

PE premium / (discount) ASX Europe

-60%

-44%

-28%

-12%

4%

20%

36%

52%

68%

84%

100%

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

50x

Jul-05

Jan-06

Jul-06

Jan-07

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Jan-08

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Jan-10

Jul-10

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Jan-14

AS

X P

E p

rem

ium

/ (d

isco

un

t)

PE

(x)

PE premium / (discount) ASX North America

Source for all charts: Reuters, Bloomberg. * IBES – Cash EPS 12mth forward rolling


14 February 2014


Equity Research

Department Stores (Retail (AU))

David Jones

(DJS.AX / DJS AU) RESULTS

2Q14 sales

■ DJS returned to positive LFL sales growth in 2Q14. Second-quarter

sales of $618mn and LFL sales growth 2.1% were in line with forecast (CS

$622mn, 2.0%). Online was above expectations and stands to boost total

sales by 100–150bp through 2014. We have upgraded our second-half LFL

sales forecasts 50bps to 3.0%. The upgrade reflects the improved run rate in

on line sales and an assumption of steady growth in the market. Gross

margin has been downgraded 50bp for 1H14 and 30bp for 2H14 due to

higher levels of promotional activity. EPS has been downgraded 3% due to

gross margin effect (-4%) and LFL sales upgrade (+1%).

■ Online sales improved through the period: Online sales increased 150%

in 2Q14 and accounted for 2.0% of group sales in the quarter. That outcome

suggests online growth contributed ~60% of the total growth in comparable

store sales. Commentary that online was 1.4% of first-half sales implies

acceleration is ongoing and it is therefore likely to make an increasing

contribution to 2H14 LFLs. There is likely to be a positive margin impact over

time due to the growth of online.

■ Promotional activity was higher than expected. Inventory issues in

Target appeared to lead a period of higher-than-expected promotional

expenditure. That effect is likely to be temporary due to Target's

restructuring efforts. We expect some heightened promotional activity to

continue through 3Q14.

■ Earnings and valuation: We have downgraded EPS due to a reduction in

gross margin. In our view, the sales lift is of greater materiality than the

temporary increase in promotional activity thought 2Q14. DJS appears on

the verge of successive quarters of sales and consequent profit growth.


Mean^CS tgt^

Sh Prc

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%



Absolute (%) 3.1 1.8 17.0

Relative (%) 1.2 3.5 10.9


Year 07/13A 07/14E 07/15E 07/16E

Revenue (A$mn) 1,845.0 1,937.5 2,031.7 2,128.6

EBITDA (A$mn) 205.8 199.9 224.8 234.8

EBIT (A$mn) 149.0 139.4 161.9 170.2

Net income (A$mn) 101.6 92.1 107.5 113.3

EPS (CS adj.) (Ac) 19.14 17.23 20.11 21.21

Change from previous EPS (%) n.a. -3.3 -3.0 -3.0


EPS growth (%) -1.1 -10.0 16.7 5.5

P/E (x) 16.4 18.2 15.6 14.8

Dividend (Ac) 17.00 15.13 17.41 18.36

Dividend yield (%) 5.4 4.8 5.6 5.9

P/B (x) 2.1 2.1 2.0 2.0

Net debt/equity (%) 10.8 13.7 13.6 13.1






Rating NEUTRAL*

Price (13 Feb 14, A$) 3.14

Target price (A$) 3.14¹




Projected return:

Capital gain (%) 0.16





benchmark.


Research Analysts

Grant Saligari

61 3 9280 1720

[email protected]

James O'Brien

61 3 9280 1669

[email protected]

Samantha Carleton

61 2 8205 4148

[email protected]

14 February 2014


Figure 1: Financial Summary

David Jones (DJS) Year ending 26 Jul In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Share Price: A$3.14 Earnings 07/12A 07/13A 07/14E 07/15E 07/16ERating c_EPS_SHARESEquiv. FPO (period avg.) mn 522.3 530.9 534.4 534.4 534.4


vs Share price % 0.16 EPS_GROWTH*100EPS Growth % -1.1 -10.0 16.7 5.5


c_DPS*100DPS c 17.5 17.0 15.1 17.4 18.4

c_PAYOUT*100Payout % 90.4 88.8 87.8 86.6 86.6




Sales revenue 1,867.8 1,845.0 1,937.5 2,031.7 2,128.6 Valuation

EBITDA 206.4 205.8 199.9 224.8 234.8 c_PE P/E x 16.2 16.4 18.2 15.6 14.8




Net interest Exp. (10.6) (8.6) (8.5) (9.1) (9.1) c_FCF_YIELD*100FCF Yield % 8.2 6.8 4.6 5.8 6.1








Unusual item after tax 0.0 (6.4) (5.0) 0.0 0.0 Gearing

Reported NPAT 101.1 95.2 87.1 107.5 113.3 c_GEARING*100Net Debt to Net debt + Equity % 13.0 9.7 12.0 11.9 11.6

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 0.6 0.4 0.5 0.5 0.5

Balance Sheet 07/12A 07/13A 07/14E 07/15E 07/16E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x 19.5 24.0 23.4 24.6 25.7

Cash & equivalents 20.5 13.9 20.5 18.8 20.0 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 14.6 17.4 16.3 17.7 18.7



Other current assets 7.2 10.2 10.2 10.2 10.2

Current assets 323.2 294.7 317.2 327.8 342.2 MSCI IVA (ESG) Rating B

Property, plant & equip. 817.4 835.4 864.2 890.5 911.1 TP ESG Risk (%): 0

Intangibles 44.0 44.6 40.4 35.4 30.4


Non-current assets 917.6 943.1 967.7 988.9 1,004.6

Total assets 1,240.9 1,237.8 1,284.8 1,316.7 1,346.8

Payables 264.6 261.8 277.0 288.9 301.5



Total liabilities 465.2 436.7 481.9 493.8 506.4

Net assets 775.7 801.1 802.9 823.0 840.4

Ordinary equity 775.7 801.1 802.9 823.0 840.4



Total shareholder funds 775.7 801.1 802.9 823.0 840.4

Net debt 115.5 86.5 109.9 111.6 110.4 Source: MSCI ESG Research

Cashflow 07/12A 07/13A 07/14E 07/15E 07/16E Share Price Performance

EBIT 154.4 149.0 139.4 161.9 170.2

Net interest -10.5 -8.6 -8.5 -9.1 -9.1

Depr & Amort 51.9 56.8 60.5 63.0 64.6

Tax paid -59.5 -43.3 -38.8 -45.3 -47.7

Working capital 61.2 22.1 -0.6 -0.5 -0.5

Other -0.8 4.0 -5.0 0.0 0.0

Operating cashflow 196.7 180.0 146.9 169.9 177.5

Capex -81.5 -79.0 -85.3 -84.4 -80.5

Capex - expansionary -18.9 -12.3 -15.0 -12.0 -6.0

Capex - maintenance -62.5 -66.7 -70.3 -72.4 -74.5

Acquisitions & Invest 0.1 0.2 0.2 0.2 0.2


Other 0.0 0.0 0.0 0.0 0.0


Dividends paid -110.6 -72.3 -85.2 -87.5 -95.9

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings 7.0 -36.0 30.0 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -103.6 -108.3 -55.2 -87.5 -95.9 Absolute 3.1% 1.8% 17.0%

Total cashflow 11.8 -7.0 6.6 -1.8 1.3 Relative 1.2% 3.5% 10.9%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 11.8 -7.0 6.6 -1.8 1.3 Source: Reuters 52 week trading range: 2.34-3.15

MSCI IVA Risk Comment: David Jones was recently

downgraded to 'B' from 'BB' as the company lacks

transparency on its ability to manage issues such as product

safety, supply chain labour standards, and carbon reductions

in its operations. We view these issues as being

manageable, largely requiring more disclosure on their

operations alone. That said, we have not seen evidence of

DJS engaging with these problems and therefore carry a

13/02/2014 11:46

David Jones Ltd is an Australia-based company. It's principal activities are department

store retailing and a financial services alliance with American Express Australia Limited.

Credit Suisse View

TP Risk Comment: No material ESG risk

NEUTRAL

2.00

2.25

2.50

2.75

3.00

3.25

3.50

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

DJS.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector



14 February 2014


2Q14 sales

Return to positive LFLs

Second-quarter sales of $618.2mn was in line with CS forecast of $621.9mn. A return to

positive comparable store sales growth drove the improved performance. 2Q14 LFL sales

growth of 2.1% matched CS at 2.0%.

Increased discounting was present early in the quarter however abated and the company

stated it was pleased with early February trading. Gross margin will be down in 1H14 relative

to the pcp. We have upgraded our 2H14 LFL sales growth assumptions by 50bps to 3.0%.

We have downgrade gross margin assumptions by 50bp for 1H14 and 30bp for 2H14.

Figure 2: DJS quarterly sales

2Q13 3Q13 4Q13 1Q14 2Q14 2Q14F A vs F 3Q14F 4Q14F

Sales $mn 590 391 450 424 618 621.9 -0.6% 416 479

Sales growth % -1.4% -2.2% -1.3% 2.1% 4.8% 5.4% -63bp 6.3% 6.6%

LFL sales growth % -1.4% -3.4% -2.9% -0.3% 2.1% 2.0% 10bp 3.0% 3.0%


Online

Online sales increased 150% in 2Q14 accounted for 2.0% of group sales. That outcome

suggests online growth accounted for ~60% of the growth in comparable store sales.

Commentary that online represented 1.4% of first-half sales implies acceleration is

ongoing and it is therefore likely to make a further contribution to 2H14 LFLs.

Figure 4: DJS online contribution

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Store network underlying LFL -2.2% -4.4% -4.0% -1.3% 0.9% 1.6% 1.4%

Online contribution to LFL 0.8% 1.0% 1.1% 1.0% 1.2% 1.4% 1.6%

Comparable store sales growth -1.4% -3.4% -2.9% -0.3% 2.1% 3.0% 3.0%

New store sales growth 0.0% 1.2% 1.6% 2.4% 2.7% 3.3% 3.6%

Total sales growth -1.4% -2.2% -1.3% 2.1% 4.8% 6.3% 6.6%


Market share

DJS appears among the better placed of Australia's five major department store chains

and may therefore be in a stronger position to capitalise on a pick-up in cyclical activity.

We forecast 1.5% LFL sales growth for MYR in 2Q14, having reduced our forecast by

50bps following the website shut down during the week after Christmas.

Like-for-like sales excluding the electronics category transferred to DSH increased 3.6%.

The drag from electronics did not appear to increase in 2Q14 compared with 1Q14. The

difference serves to highlight the attractiveness of the brand management deal for DJS.

14 February 2014


Figure 5: Department store LFL sales growth

-16.0%

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14

Myer LFL David Jones LFL


Valuation

We have a DCF valuation of $3.20. Our DCF is most sensitive to cost of capital

assumptions for which a 1ppt change moves our DCF by 59cps.

Our $3.14 target price is the average of our DCF and $3.10 SOP valuation.

Figure 6: DCF valuation

Valuation inputs

EBIT growth (CAGR)

Years 1 to 5 5.3%

Years 5 to 10 3.2%

ROIC

FY13A 8.7%

FY18F 9.0%

FY23F 10.1%

DCF

WACC 10.4%

Terminal grow th 1.5%

Enterprise Value ($mn) 1,793 12.6x FY14 EBIT

DCF Value ($/share) 3.20 19.2x FY14 EPS

Sensitivities

WACC 1.0% 0.59

Gross margin 1.0% 0.17

LFL sales growth 1.0% 0.22

CS FY14 metrics

Dividend yield 5.0%

Price-earnings ratio 17.6x

FCCR 2.9x Source: Company data, Credit Suisse estimates


14 February 2014


Equity Research

REITs (Real Estate (AU))

Goodman Group

(GMG.AX / GMGDA AU) RESULTS

Earnings achieved in a transition period

■ Not disappointed by guidance: Goodman Group reported 1H14 operating

profit of $296mn roughly in line with CSe of $297.4mn. Operating EPS of

17.2c reflects 6% growth on 1H13. While some may be disappointed to note

GMG merely re-iterated 6% EPS growth guidance for FY14 (34.3c) we remain

slightly higher (35c) to be diluted back to guidance on inclusion of the DRP

and our expectation that the Brazil deal will close towards the end of 3Q FY14.

■ Investment case: Goodman Group trades on a 13.2x P/E representing a

0.92x P/E Rel, only slightly below the historical average of 0.96x. Growth

expectations into Year Two stand at 7.3% relative to an average expectation

of 7.8% over the past 12 months. For GMG to meaningfully outperform, the

market will need to value the quality (sustainability) of GMG's growth, for which

a market correction may be a catalyst. We also note, speculation about the

"overhang" associated with the CIC block continues to weigh on pricing.

■ Catalysts: This half saw the first meaningful Japanese development impact

on the P&L. We expect the Japanese contribution will ramp up quickly from

here with Osaka (~March), Nagoya (Dec Qtr) and Tokyo Bay (Dec Qtr)

representing ~$550mn of completions this year. We expect WIP to remain at

~$2.5bn with these completions offset by Ichikawa commencement in 4Q

and a US ramp-up to ~$250mn of WIP by year-end.

■ Valuation: Our target price of $4.95 is struck at our June 2014 Net Asset

Valuation applying: a 7.65% WACR to balance sheet NOI, 11.4x multiple to

management EBIT and 12x to development EBIT. We apply an 8x multiple

to unallocated expenses.


Mean^CS tgt^

Sh Prc

-30%

-20%

-10%

0%

10%

20%

30%

40%


Performance Over 1M 3M 12M

Absolute (%) 2.1 -5.7 3.7

Relative (%) 0.3 -4.0 -2.4


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 657.5 716.3 769.3 839.9

EBITDA (A$mn) 615.0 669.5 719.7 787.4

EBIT (A$mn) 609.0 663.5 713.7 781.4

Net income (A$mn) 544.1 603.5 635.4 675.8

EPS (CS adj.) (Ac) 32.44 35.02 36.71 38.62

Change from previous EPS (%) n.a. 0.1 -0.0 -0.0

EPS growth (%) 5.4 8.0 4.8 5.2

P/E (x) 14.7 13.6 13.0 12.3

Dividend (Ac) 19.48 20.82 22.08 23.19

Dividend yield (%) 4.1 4.4 4.6 4.9

Net debt/equity (%) 27.5 31.2 36.8 30.3

Relative performance versus S&P ASX 200.See Reference Appendix for a description of the chart. Source: Credit Suisse estimates, * Consensus, mean range from Thomson Reuters



Rating NEUTRAL*

Price (13 Feb 14, A$) 4.76



Yr avg. mthly trading (A$mn) 531.15

Last month's trading (A$mn) 450.77

Projected return:






benchmark.


Research Analysts

Stephen Rich

61 2 8205 4617

[email protected]

John Richmond

61 2 8205 4580

[email protected]

Mikhail Mohl

61 2 8205 4413

[email protected]

Specialist sales: Bhupen Master

61 2 8205 4792

[email protected]

14 February 2014


Figure 1: Goodman Group Summary Financials

Goodman Group ####### ###### ###### ###### ######

In AUDmn unless otherwise stated Year ending 30 Jun Share Price: A$4.7612-month target price: A$#ERR: Label not found: 'ESTIM_PP'

Profit & Loss 2012A 2013A 2014F 2015F 2016F Financial Summary 2012A 2013A 2014F 2015F 2016F

Net property income 171 159 161 172 177 Core Earnings 463.4 544.1 603.5 635.4 675.8

Investment Income 181 225 241 278 311 Core Earnings Growth 20.7% 17.4% 10.9% 5.3% 6.4%

Other Active EBIT 219 274 314 319 353 EPS (Core / underlying) 30.78 32.44 35.02 36.71 38.62

Unallocated expenses -39 -43 -47 -50 -53 EPS growth 6.5% 5.4% 8.0% 4.8% 5.2%

EBITDA 532 615 670 720 787 P/E 15.5 14.7 13.6 13.0 12.3

Depreciation & Amortisation -5 -6 -6 -6 -6 EPS (CS Basic) 30.8 32.4 35.0 36.7 38.6

EBIT 527 609 664 714 781 FFO (cents per share) 31.1 32.8 35.4 37.1 39.0

Net Interest -59 -238 -241 -41 -66 Dividends (cents per share) 18.2 19.5 20.8 22.1 23.2

PBT 517 579 639 673 716 Dividend Yield 3.8% 4.1% 4.4% 4.6% 4.9%

Tax -11 -13 -13 -14 -15 AFFO (cents per share) 31.1 32.8 35.4 37.1 39.0

Minorities & Other -42 -22 -22 -23 -25 P/AFFO 15.3 14.5 13.5 12.8 12.2

NPAT (post minorities) 463 544 604 635 676 EV/EBITDA 15.0 15.9 14.8 14.1 12.6

Balance Sheet 2012 2013 2014 2015 2016 Financial Ratios 2012 2013 2014 2015 2016

Cash & equivalents 311 645 643 801 980 Profitability Ratios

Receivables 164 339 248 248 248 ROE (%) 6.3% 7.0% 7.7% 8.1% 8.5%

Derivatives Payout Ratio (Dist / Op Earnings) 59% 60% 59% 60% 60%

Other current assets 316 193 344 344 344 Balance Sheet Ratios

Current assets 791 1,177 1,235 1,393 1,572 Debt/EBITDA 4.4 3.7 3.8 4.2 3.8

Investment Properties 2,259 2,090 2,123 2,179 2,240 Net Debt / Investment Properties 90% 77% 90% 101% 89%

Investments 2,893 3,243 3,814 4,298 4,763 Total Liabilities/ Total Assets 37% 34% 37% 40% 38%

Intangible assets 783 891 1,003 1,020 1,046

Other non-current assets 1,494 1,489 1,512 1,173 1,000 Share Items

Non-current assets 7,429 7,713 8,451 8,670 9,048 EFPOWA 1,506 1,677 1,724 1,731 1,750

Total assets 8,220 8,891 9,686 10,063 10,620 Units on Issue 1,595 1,713 1,719 1,727 1,754

Derivatives ESG Items

Interest bearing debt 2,348 2,250 2,545 3,009 2,977 Target Price Risk due to ESG (%) 0%

Other liabilities 698 805 1,051 1,051 1,051 MSCI IVA Risk Neutral

Total liabilities 3,045 3,055 3,597 4,060 4,028

Net assets 5,175 5,836 6,090 6,003 6,592

Ordinary equity 7,363 7,805 7,805 7,805 7,923

Minorities / prefered capital -319 -332 -331 -341 -351

Net Tangible Assets per share 2.55 2.69 2.77 2.69 2.96

Cashflow 2012 2013 2014 2015 2016 Share Price Performance 52 week range: $4.50 - $5.51

Net Property Income 171 159 161 172 177

Dividend Income

Change in working capital

Other operating cashflow 95 198 298 493 530

Operating cashflow 267 356 460 665 707

Disposals of Property -204 -283 -492 -1,229 -1,093

Acquisition of Property -140 -54 -27 - -

Total Capex - - -521 -1,069 -1,019

Net investment in JV's & associates

Other Investing Cashflows 124 483 889 2,128 1,902

Investing cashflow -221 146 -150 -170 -209

Proceeds from Equity Issuance

Dividend Re-investment Plan

Dividends paid -328 -327 -360 -371 -392

Net borrowings

Other 365 160 48 34 74

Financing cashflow 37 -168 -312 -337 -319

Net cashflow 83 335 -3 158 179

3.50

4.00

4.50

5.00

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6.00

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

GMG.AX S&P/ASX 200 S&P/ASX 200 Property


14 February 2014


Result

Goodman Group reported 1H14 operating profit of $296mn roughly in line with CSe of

$297.4mn. Operating EPS of 17.2c reflects 6% growth on 1H13.

With 53% of earnings offshore domiciled and an ever-complex capital structure,

forecasting and reconciling results is always difficult, but Figure 2 depicts our attempt.

Figure 2: Results reconciliation

Reported CSe Dif

Passive Income 186.6 202.5 -7.8%

Management Services EBIT 57.5 57.5 0.0%

Development Management 56.7 33.8

Development RTP's 76.1 76.3

Development Revenue 132.8 110.1

Development Expenses -30.5 -20.6

Development EBIT 102.3 89.6 14.2%

Unallocated Expenses -24.6 -21.4

Depreciation -3.4 -3.0

EBIT 318.4 325.1 -2.1%

Gross Interest Expense -273.2 -82.5

Net Interest Expense -6.6 -10.0 -33.7%

Tax 5.0 6.7 -25.1%

NPAT 306.8 308.5 -0.5%

Minorities -10.8 -11.1 -2.8%

NPAT - Post Minorities 296.0 297.4 -0.5%


Guidance

34.3c FY14 EPS guidance maintained unsurprisingly: This was re-affirmed as recently

as the 18 Dec DRP announcement. Our FY14E earnings stand slightly higher at 35c, as

we expect pull through two dilutive events: the DRP and the much anticipated Brazilian

acquisition.

Margins

While the recent merging of Funds Management and Property Services for accounting

purposes removes some transparency, our estimates were close enough to once again

consider margin analysis.

Figure 3: Margins on management income tick back up Figure 4: Margins in development business remain high

51% 52%54%

60%

65%

56%59%

0%

10%

20%

30%

40%

50%

60%

70%

-60

-40

-20

0

20

40

60

80

100

120

Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13

Funds Mgmt Ppty Services Mgmt Exp Margin

58%

65%

70%

54%

69%

64%63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-40

-20

0

20

40

60

80

100

120

140

160


Devt Mgmt Trasactional Profit (TP) Gains on Disposal

Development Costs Margins


14 February 2014


Evolving In a continuous disclosure environment, there was not much in the way of "new news" on

today's call. However, we do find it interesting to trace the trajectory of the GMG business

from a geographic perspective.

Below we provide some of our favourite charts highlighting the evolution of the global

footprint.

Figure 5: Work in progress now at $2,591bn Figure 6: Led by Asia Pacific

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

A$

billi

on

Asia Pacifc Europe Americas

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Asia Pacifc Europe Americas


Figure 7: New commitments and completions Figure 8: EU commitments moderating

-3,000

-2,000

-1,000

0

1,000

2,000

3,000


A$

mill

ion

Global Commitments Global Completions

0

200

400

600

800

1,000

1,200

1,400

1,600


A$

mill

ion

Asia Pacific commitments EU commitments


14 February 2014


Appendix 1: Snapshot Highlights at a Glance

Investments:

■ Overall occupancy was maintained at 96% from June-13.

■ Retention rate remains slightly depressed at 77%, in line with FY13 but below the 80%

through FY12.

■ Weighted average lease expiry across the investment portfolio increased slightly from

4.7 years to 4.9 years.

■ Like-on-like rental growth of 2.2% was up on FY13 2.1% but still below FY12 2.8%.

Developments

■ WIP of $2.6bn (from $2.3bn at June) is 71% pre-committed and 88% “matched” to

third party capital.

■ Contributed $83.1m or 22% of operating EBIT (in line with FY13).

■ Development commitments of $1.2bn were 69% pre-committed (down from 72% at

June 13).

Funds management

■ $2bn of new committed third party equity raised including new €500mn initial

commitment from EPF for German fund.

■ Third party AUM increased 11% from June 13 to $21.6bn.

■ Significant capacity: GMG boasts $5.2bn of uncalled equity and debt to fund

development opportunities.

Capital

■ Gearing: continues to drift down to 32.9% look through from 33%.


14 February 2014


Equity Research


GPT Group

(GPT.AX / GPT AU) RESULTS

Grinding away

■ No magic bullets. GPT reported FY13 earnings of $471.8m as pre-released

on 28 January. EPS of 25.7c represents a 6.1% increase on 2012. Having

ridden a cost of debt reduction from 7.4% in 2010 to 5.1% today, we should

now expect real estate type returns. To that end, 3% EPS growth is a

reasonable outcome. Two concerns arise from GPT's strategy: (1)

Management is incentivised to lever up to drive DPS growth and (2) the focus

on tangible asset growth appears at odds with the desire to grow active

earnings. OUTPERFORM rating retained due to value in real estate portfolio.

■ Investment case. GPT owns and manages a high-quality portfolio of

Australian Real Estate. At $3.66, GPT is trading on: a forward NOI yield of

7.2%, a dividend yield of 5.6% and a 13.6x FY14 FFO. While we see better

value in Dexus, WRT and MGR, GPT combines inherent value with an

active buyback, which we expect would be effective in a market correction.

■ Catalysts. We note the buyback activity was not included in GPT's 3% EPS

growth guidance but also note that GPT has significant capacity to buy back

stocks on an earnings yield of ~7.2% versus a cost of debt of 5.1%.

Operationally, we look forward to leasing success at Governor Macquarie

Tower and/or MLC Centre or a recovery in retail lead indicators such as

retention to refocus the market on the quality of the real estate.

■ Valuation. We strike our target price in line with our December 2014 Net

Asset Valuation at $4.00. Key inputs include: 5.8% cap rate on malls, 8.0%

on industrial and a 6.56% implied cap rate on office as well as 10.0x on

active earnings and 9.25x on costs. If GPT was to trade to our $4.00 NAV in

12 months, it would offer a 5.3% forward dividend yield at that time.


Mean^CS tgt^

Sh Prc

-20%

-10%

0%

10%

20%

30%



Absolute (%) 1.7 -2.1 -3.9

Relative (%) -0.2 -0.4 -10.1


Year 12/12A 12/13E 12/14E 12/15E

Revenue (A$mn) 580.8 593.5 606.2 632.5

EBITDA (A$mn) 558.0 567.1 579.0 604.6

EBIT (A$mn) 558.0 567.1 579.0 604.6

Net income (A$mn) 431.4 446.8 442.0 454.7

EPS (CS adj.) (Ac) 24.23 25.70 26.54 27.42

Change from previous EPS (%) n.a. — — —

EPS growth (%) 8.0 6.1 3.3 3.3

P/E (x) 15.1 14.2 13.8 13.3

Dividend (Ac) 19.39 20.44 21.23 21.94

Dividend yield (%) 5.3 5.6 5.8 6.0

Net debt/equity (%) 28.8 29.1 33.2 33.1

Relative performance versus S&P ASX 200.See Reference Appendix for a description of the chart. Source: Credit Suisse




Rating OUTPERFORM*

Price (13 Feb 14, A$) 3.66





Projected return:






benchmark.


Research Analysts

Stephen Rich

61 2 8205 4617

[email protected]

John Richmond

61 2 8205 4580

[email protected]

Mikhail Mohl

61 2 8205 4413

[email protected]


61 2 8205 4792

[email protected]

14 February 2014


Figure 1: GPT Group—Financial summary

GPT Group ######## ######## ######## ######## 31/12/2012

In AUDmn unless otherwise stated Year ending 31 Dec Share Price: A$3.6612-month target price: A$#ERR: Label not found: 'ESTIM_PP'


Net property income 443 486 491 499 523 P/E 16.32 15.11 14.24 13.79 13.35

Management EBIT 35 80 90 93 95 Dividends (cents per share) 17.8 19.4 20.4 21.2 21.9

Other 70 -8 -14 -13 -14 Dividend growth 8.9% 5.4% 3.9% 3.3%

EBITDA 548 558 567 579 605 Dividend Yield 4.9% 5.3% 5.6% 5.8% 6.0%

Depreciation & Amortisation FFO (cents per share) 21.6 21.9 27.0 27.9 28.8

EBIT 545 558 567 579 605 P/FFO 17.0 16.7 13.6 13.1 12.7

Net Interest 118 104 95 112 125 AFFO (cents per share) 18.9 19.2 18.8 20.0 22.4

PBT 427 455 472 467 480 P/AFFO 19.3 19.1 19.5 18.3 16.3

Tax Expense / (Benefit) -12 -2 - - - EV/EBITDA 12.9 14.5 13.8 13.8 13.2

Minorities 25 25 25 25 25 ROE (%) 6.44% 6.27% 6.71% 6.69% 6.74%

NPAT (post minorities) 414 431 447 442 455 Payout Ratio (Dist / Op Earnings) 79% 80% 80% 80% 80%

Core Earnings 413.8 431.4 446.8 442.0 454.7 Financial Ratios 2011A 2012A 2013F 2014F 2015F

Core Earnings Growth 4.3% 3.6% -1.1% 2.9% Interest cover 4.0 3.4 6.0 5.2 4.8

EPS (CS underlying) 22.4 24.2 25.7 26.5 27.4 Debt/EBITDA 8.0 5.8 3.8 4.2 4.1

EPS growth 8.0% 6.1% 3.3% 3.3% Net Debt / Investment Properties 44.1% 39.4% 30.4% 33.7% 33.7%

EFPOWA 1,845.3 1,780.6 1,738.5 1,665.5 1,658.1

Units on Issue 1,813.8 1,766.8 1,688.4 1,658.1 1,658.1

Balance Sheet 2011A 2012A 2013F 2014F 2015F TP ESG Risk Due / MSCI IVA Risk 0.0% Neutral

Cash & equivalents 43 160 223 234 269 MSCI IVA Comment

Receivables 142 72 77 77 77

Derivatives 0 5 3 3 3

Other current assets - - - - -

Current assets 666 445 320 331 366

Investment Properties 6,198 6,501 6,384 6,511 6,637

Investments 1,860 2,011 1,953 2,028 2,075

Intangible assets 51 50 51 51 51

Other non-current assets 504 337 336 336 336

Non-current assets 8,613 8,899 8,724 8,927 9,100

Total assets 9,279 9,343 9,044 9,257 9,466

Derivatives 129 140 78 78 78

Interest bearing debt 2,144 2,144 2,161 2,428 2,503

Other liabilities 220 183 142 142 142

Total liabilities 2,492 2,467 2,380 2,647 2,722

Net assets 6,786 6,876 6,663 6,611 6,744

Ordinary equity 6,786 6,876 6,663 6,611 6,744

Minorities / prefered capital - - - - - Share Price Performance 52 week range: $3.39 - $4.16


Cashflow 2011A 2012A 2013F 2014F 2015F

Net Property Income 443 486 491 499 523

Other operating cashflow -30 -66 -89 -116 -101

Operating cashflow 413 420 402 383 422

Disposals (/acquisitions) of property 539.3

Specific Capex -68 -84 -6 - -

Maintenance Capex -67 -217 -55 -102 -76


Other Investing Cashflows 44 596 410 -49 -

Investing cashflow 448 295 349 -151 -76

Proceeds from Equity Issuance -127 -148 -265 -116 -

Dividend Re-investment Plan

Dividends paid -348 -366 -370 -347 -361

Net borrowings -312 -331 1 266 76

Other -76 246 -54 -25 -25

Financing cashflow -863 -598 -688 -222 -311

Net cashflow -2 117 63 11 36

We agree with MSCI's AAA rating for GPT as it

continues to lead most in its industry in the adoption of

green building certifications and its improvement trend

and targets for energy and water efficiency

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

GPT.AX S&P/ASX 200 S&P/ASX 200 Property

52%

22%

11%

12%

3%

Retail

Office

Industrial

Funds Management

Non-core

FY12 EBIT by Segment


14 February 2014


Focus on composition and growth Having pre-released its FY13 earnings of $471.8m or 25.7cps, we were focused on the

composition of today's results and guidance by GPT Group.

Composition

Figure two highlights the GPT result relative to our expectations:

Figure 2: GPT Group – FY13 results

Reported Cse Dif

Retail 264.3 267.5 -1.2%

Office 144.1 147.3 -2.2%

Industrial 76.2 76.0 0.3%

Fund distributions 74.9 71.9 4.1%

Total fees received 54.7 43.7 25.2%

Expenses (Incl tax) -33.3 -25.8 28.9%

Funds management 96.3 89.8 7.3%

Non-core 11.2 12.8 -12.4%

Corporate expenses – Unallocated expenses -22.1 -26.4 -16.2%

EBIT 570.0 567.1 0.5%

Net interest -95.5 -95.2 0.3%

Net profit before tax 474.5 471.8 0.6%

Tax -2.7 0.0

Net profit after tax / Realised operating income (ROI) 471.8 471.8 0.0%


Key takeaways:

■ Passive income came in somewhat weaker than expected, 1.3% across the portfolios.

■ Visibility in active earnings remains opaque and medium-term trajectory must be

reconsidered given considerable variability.

■ Unallocated expenses reduced, but aggregate expenses were 6.2% higher suggesting

there may be an element of re-allocation of expenses, especially when we consider

the $1.5m of CPA related costs expensed through the period.

■ Reflecting the profitability of the management, company tax registered $2.7m.

Guidance

In guiding to 3% EPS growth the key points to clarify include:

■ No buyback: This highlights the scope for outperformance relative to expectations,

given conservative gearing at 22.3% and a ~2.1% spread between earnings yield and

cost of debt.

■ CPA costs expensed: Will be enough to offset the incremental FM fees GPT expects

to receive on an annualised basis. We've previously estimated this at: ~$5m.

■ New funds: Are not assumed to be launched in the EPS growth guidance.

■ Cost of debt: At 5.1% may have finally troughed given the average margin now sits at

~145bps and debt is now 72% hedged with an average duration of 5.9 years.

New earnings terminology

FFO adjustments: Appear minimal but should preclude further swap breaks.

AFFO adjustments: Could introduce reasonable volatility to the dividend profile.

14 February 2014


Operational metrics

Retail metrics recovering but challenges remain

Comparable NOI growth lifted to 2.5% from 1.5% in December but remains well below

GPT's historical average of 4.1% (Figure 3). Occupancy remains solid at 99.6%, up 0.1%

over the past six months.

Figure 3: Comp NOI growth rebounds to 2.5% Figure 4: Comp specific MAT growth recovering

0%

1%

2%

3%

4%

5%

6%

7%

8%

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

WDC/WRT AU SGP CFX GPT

-2%

0%

2%

4%

6%

8%

WDC/WRT AU SGP CFX GPT


Positively, GPT's specialty sales productivity increased by 5.3% to $9,458 which saw

occupancy costs fall slightly to 18.1%, Figure 5.

Figure 5: GPT's sales productivity lifted by 5.3% Figure 6: Joining the 5% WACR club

WRT

SGP

CFX

FDC

GPT

CQR

6%

8%

10%

12%

14%

16%

18%

20%

7,500 8,000 8,500 9,000 9,500 10,000 10,500

Sp

ecia

lty

occ

up

ancy

co

sts

Specialty sales ($/psm)

6.21%

6.19%6.21%

6.10%

6.07%

6.03%

5.99%

5.85%

5.90%

5.95%

6.00%

6.05%

6.10%

6.15%

6.20%

6.25%


GPT WACR

Source: Company data, Credit Suisse estimates Source: ABS, Credit Suisse estimates

In addition, the portfolio experienced $42.9mn in valuation uplift with the WACR falling by

8bps to 5.99% as shown in Figure 6. Despite this, we note that our key lead indicators

show little sign of improvement:

■ Re-leasing spreads remain depressed at -5.2% but improved from the 5.8% recorded in June.

■ Holdovers ticked up to 3% in December and have increased by 290bps over the past 12 months. Although, management did comment that part of this was due to tenant remixing/development and were comfortable to see holder-overs rise until better terms could be negotiated.

■ Tenant retention of 57% remains well below historic average of 70-80%

■ Yesterday's SGP update showed that retail incentives have increased markedly over the last 12 months and are now at 13.4% (as a % rent over the lease term) as compared to 7.5% at Dec-12 (in SGP's portfolio).

14 February 2014


Comparable office NOI could fall in 2014

The key standout from today's result was the significant fall in occupancy in GPT's office

portfolio, which at 90.6% is the lowest of GPT's peer set and is likely to be a major

headwind to achieving comparable income in 2014, Figure 8.

Figure 7: Office comp NOI growth Figure 8: GPT's occupancy is now the lowest of peer set

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13

IOF CPA DXS GPT MGR

86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

100.0%

IOF CPA DXS GPT MGR

Dec-11 Jun-12 Dec-12 Jun-13 Dec-13


Comparable NOI growth improved slightly to 0.7% from -0.7% in June, although like retail,

remains well below the historical average of 4.7%, Figure 7.

The exit of Freehill's over 20k sqm from GPT's MLC property in January has seen

occupancy in this asset fall to 65.7% from 94.2% in June. Surprisingly, this asset

experienced $9mn (2.5%) of valuation uplift during the half, potentially a result of improved

letting up assumptions. GPT today announced a further 6k sqm of space under heads of

agreement at 111 Eagle St in Brisbane, take occupancy to 94% from 83.7% at June.

The portfolio WACR fell by 14bps to 6.72% over the half which is consistent with solid

valuation uplift recorded in Dexus (10bps), Stockland (10bps) and CPA's (26bps) portfolios

over the past six months.

Management noted the deterioration in operating fundamentals during 2013 (Figure 9)

detailed in our recent report Office - AREIT Market Forecasts – nearing the trough.

Despite this, management suggested improved market fundamentals in their preferred

markets such as Sydney and Melbourne (86% exposure), in particular, which is also

consistent with commentary from DXS' management in yesterday's 1H14 update. We note

that business conditions improved markedly in the December quarter and typically lead

office demand by around six months as shown in Figure 10.

Figure 9: Weak demand has seen vacancy rise to 11.8% Figure 10: NAB business conditions surged in December

-10%

-5%

0%

5%

10%

15%

-150

-100

-50

0

50

100

150

200

250


Vac

ancy

Rat

e

Squ

are

met

res

(000

)

Net additions (lhs) Net absorption (lhs) Vacancy rate (rhs)

-20

-15

-10

-5

0

5

10

15

20

25

-2%

0%

2%

4%

6%

2005 2006 2007 2008 2009 2010 2011 2012 2013

National net absorption (lhs) NAB Business Conditions, adv 6mths (rhs)

Source: Jones Lang LaSalle, Credit Suisse estimates Source: Jones Lang LaSalle, Credit Suisse estimates

Click%20here%20to%20view%20document%20(36%20pages,%201195KB)

14 February 2014


Appendix 1: CPA related FUM lift Reproduced from our 14 January note, "Not much of a consolation".

Earnings accretion

While valuations look full, GPT looks set to benefit from the ~$4.75m (1.0%) accretion in

2014, growing to $8.25m on a full-year basis.

■ GPT's third-party funds management fees: With FUM growing by $1.18bn (16.4%)

as a result of this transaction, revenue will increase by $5.3m on an annualised basis.

While fees are charged quarterly in arrears, the calculation has to be based off the

gross assets of the funds at the last balance date with audited accounts (in this case,

31 December). As such, we assume fees only commence from 1 July.

We assume minimal additional costs delivering $5m to profit annually, or $2.5m in '14.

■ Ownership interest:

While 10 Shelley Street appears likely to incur some downtime on the expiry of the

KPMG lease in January 2016, the asset appears to have been priced with reference to

the CY14 passing yield, which skews up the portfolio average to 7.0%.

After adjusting for a 45bps MER (depicted above) and a 5% all-in cost of debt (on

valuation plus costs) annual accretion stands at $3m.

With Dexus' bid due to close on 7 February, we assume GPT's funds should be

booking spread income for three quarters of 2014, i.e. $2.25m.

Figure 11: Face income estimates Figure 12: Accretion analysis

CY14

Income

Valuation CY14 Yield

Northland 28 505.0 5.6%

750 Collins St 19 249.5 7.7%

2 Southbank Ave 15 196.7 7.9%

10 Shelley St 13 130.6 9.7%

655 Collins 7 102.2 6.8%

Total 83 1,184 7.0%

Acquisitions 1,184

Yield 7.0% 83

Debt 5.5% 1,249

Cost of debt 5.0% -62

MER 0.45% -5.328

Net income 14.8

GPT share 20.3% 3.00

Part period 0.75 2.25


https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1027825571&serialid=iK2cQAwufV1b%2b8ijclvak8kkBS2X6JzD2lziWDQ0w3c%3d


14 February 2014


Equity Research

Software (Corporate services - SMID (AU))

IRESS

(IRE.AX / IRE AU) ASSUMING COVERAGE

Glass half empty or glass half full? ■ Pros and cons: A criticism of IRE is that for a stock with a fairly demanding

multiple, it hasn't delivered much growth over the last few years. The counter

to this is that for a company that has as much financial market exposure as

IRE has, it has done remarkably well. As always, the forward-looking view is

most important and in that regard we are starting to become more optimistic

on the growth profile. This is not without its share of risks however, and for

the time being we find that the pros and cons equal out at current valuation

levels. We retain our Neutral rating. Paul Buys assumes coverage of IRE

following a change in analyst responsibility.

■ UK is the key driver: We have reviewed our key assumptions for IRE, but

while our updated forecasts result in some revisions at a divisional level, the

net impact on group EPS is fairly minor. We assume A&NZ Financial

Markets remain flat into FY14 and some further growth for A&NZ Wealth

Management, although at moderated levels. That leaves the UK business as

the key growth driver. Key opportunities are the market size, regulatory

change and IRE's competitive technology – basically, the potential to

replicate IRE's XPLAN/VisiPlan experience. Key risks include integrating

Avelo (the CEO has relocated to the UK to oversee this), managing legacy

product and the different UK structure (greater dealer group independence).

■ Valuation: Our target price increases from $8.75 to $9.60, due mainly to

modest positive EPS revisions and a higher market multiple. On a PE basis,

IRE trades in line with its long-term average premium of ~45% relative to the

ASX Small Industrials (XSI). However, the stock looks more demanding on

an EV/EBIT basis (~1 standard deviation expensive) given the introduction

of debt to the balance sheet post the Avelo acquisition.



Absolute (%) -0.9 -7.0 10.0

Relative (%) -1.2 -6.2 2.9


Year 12/12A 12/13E 12/14E 12/15E

Revenue (A$mn) 206.9 245.1 348.6 378.2

EBITDA (A$mn) 83.4 88.6 118.9 137.8

EBIT (A$mn) 77.3 81.1 111.7 131.0

Net income (A$mn) 54.4 55.0 76.6 91.6

EPS (CS adj.) (Ac) 42.49 38.94 47.77 56.43

Change from previous EPS (%) n.a. -0.7 1.4 2.9


EPS growth (%) -10.0 -8.3 22.7 18.1

P/E (x) 21.8 23.8 19.4 16.4

Dividend (Ac) 38.00 32.50 39.23 46.27

Dividend yield (%) 4.1 3.5 4.2 5.0

P/B (x) 9.4 4.2 4.6 4.5

Net debt/equity (%) net cash 42.2 29.5 24.7




Rating NEUTRAL*

Price (13 Feb 14, A$) 9.25





Projected return:






benchmark.


Research Analysts

Paul Buys

61 2 8205 4538

[email protected]

Bradley Clibborn

61 2 8205 4465

[email protected]

Chris Smith

61 2 8205 4210

[email protected]

Sarah Mann

61 2 8205 4610

[email protected]

14 February 2014


Figure 1: Financial summary

IRESS (IRE) Year ending 31 Dec In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015




c_EBITDA_MARGIN*100EBITDA Margin % 43.6 40.3 36.1 34.1 36.4

c_DPS*100DPS c 38.0 38.0 32.5 39.2 46.3

c_PAYOUT*100Payout % 80.5 89.4 83.5 82.1 82.0




Sales revenue 204.5 206.9 245.1 348.6 378.2 ValuationEBITDA 89.1 83.4 88.6 118.9 137.8 c_PE P/E x 19.5 21.7 23.7 19.3 16.3




Net interest Exp. 1.6 1.0 (1.8) (5.5) (4.9) c_FCF_YIELD*100FCF Yield % 4.7 5.2 2.4 6.7 6.0




Minorities 0.0 0.0 0.0 0.0 0.0 c_I_SALES/c_B_TOT_ASSAsset Turnover x 1.2 1.3 0.5 0.7 0.7




Unusual item after tax 0.0 0.0 0.0 0.0 0.0 GearingReported NPAT 59.8 54.4 55.0 76.6 91.6 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash 29.7 22.8 19.8

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash 1.5 0.8 0.6

Balance Sheet 12/11A 12/12A 12/13E 12/14E 12/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -56.4 -83.4 49.0 21.5 28.3

Cash & equivalents 48.9 56.0 39.1 45.4 37.3 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -53.4 -77.3 44.9 20.2 26.9




Current assets 64.8 70.4 71.8 70.8 64.9 MSCI IVA (ESG) Rating BProperty, plant & equip. 6.8 7.8 10.6 13.1 16.6 TP ESG Risk (%): 0

Intangibles 44.9 42.5 395.0 394.0 393.1


Non-current assets 104.6 86.8 444.2 445.8 448.4

Total assets 169.5 157.2 516.0 516.6 513.3

Payables 16.2 14.4 10.5 29.4 31.3




Net assets 127.9 126.8 311.9 323.5 338.2

Ordinary equity 127.9 126.8 311.9 323.5 338.2




Net debt -48.9 -56.0 131.6 95.3 83.4 Source: MSCI ESG Research


EBIT 84.4 77.3 81.1 111.7 131.0

Net interest 1.5 1.3 -1.7 -5.5 -4.9

Depr & Amort 4.7 6.2 7.5 7.2 6.8

Tax paid -31.5 -21.7 -23.1 -29.6 -34.5

Working capital -1.5 -0.3 -22.2 26.2 -0.3

Other -2.9 -1.2 -9.8 -10.9 -8.9


Capex 0.0 0.0 0.0 0.0 0.0

Capex - expansionary

Capex - maintenance



Other 0.0 0.0 0.0 0.0 0.0


Dividends paid -52.4 -47.9 -48.9 -54.1 -68.0

Equity raised 0.0 0.0 205.9 0.0 0.0

Net borrowings 0.0 0.0 170.7 0.0 0.0


Financing cashflow -52.4 -47.9 327.7 -54.1 -68.0 Absolute 0.5% -8.1% 10.6%

Total cashflow -47.5 7.5 -17.9 36.4 11.8 Relative -1.3% -6.3% 19.9%

Adjustments -2.7 -0.5 1.0 0.0 0.0

Net change in cash -50.1 7.0 -16.9 36.4 11.8 Source: Reuters 52 week trading range: 7.22-10.38

MSCI IVA Risk Comment: We see the rating as appropriate given

consideration of key criteria.

13/02/2014 15:30

IRESS Limited is an Australia-based company. The Company is engaged in the provision of

information, trading, compliance, order management, portfolio and financial planning systems

and related tools.

Credit Suisse View

TP Risk Comment: We have not currently factored in any change

in the current operating environment to account for privacy / data

security issues or energy efficiency.

NEUTRAL

6.20

6.70

7.20

7.70

8.20

8.70

9.20

9.70

10.20

10.70

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

IRE.AX XSO

2.3

3.3

4.3

5.3

6.3

7.3

8.3

9.3


Stock Local Sector



14 February 2014


Valuation Figure 2: Divisional EBITDA forecasts

FY10 FY11 1H12 2H12 FY12 1H13 2H13F FY13F FY14F FY15F

Financial Markets - A&NZ 58.9 56.3 27.1 27.1 54.2 25.4 25.2 50.6 50.9 53.7

Wealth - A&NZ 18.6 20.3 11.6 11.8 23.4 13.1 13.8 26.9 29.4 31.6

Financial Markets -

Canada

7.8 8.2 3.4 2.9 6.3 2.5 2.6 5.1 5.1 5.2

Asia -1.7 -2.8 -2.1 -1.9 -4.0 -1.9 -2.1 -3.9 -2.1 0.0

South Africa 2.5 7.2 3.5 3.0 6.5 3.4 3.2 6.5 6.8 7.2

UK 0.0 -0.1 -1.2 -1.7 -3.0 -1.6 5.3 3.7 28.8 40.2

Total - IRE-defined 86.1 89.1 42.2 41.2 83.4 40.9 48.1 89.1 118.9 137.8

SBP -6.9 -7.1 -3.6 -4.5 -8.5 -4.7 -4.3 -9.0 -7.3 -4.7

Total - reported 79.2 82.0 38.6 36.6 75.0 36.3 43.8 80.1 111.6 133.2

By geography

ANZ 77.5 76.6 38.7 38.9 77.6 38.5 39.0 77.5 80.3 85.3

UK 0.0 -0.1 -1.2 -1.7 -3.0 -1.6 5.3 3.7 28.8 40.2

South Africa 2.5 7.2 3.5 3.0 6.5 3.4 3.2 6.5 6.8 7.2

Canada 7.8 8.2 3.4 2.9 6.3 2.5 2.6 5.1 5.1 5.2

Asia -1.7 -2.8 -2.1 -1.9 -4.0 -1.9 -2.1 -3.9 -2.1 0.0

Total 86.1 89.1 42.2 41.2 83.4 40.9 48.1 89.1 118.9 137.8

Growth by division

Financial Markets - A&NZ 4.0% -4.4% -2.5% 0.0% -3.7% -6.2% -1.0% -6.6% 0.5% 5.5%

Wealth - A&NZ 10.1% 8.9% 9.8% 1.3% 15.2% 11.3% 5.8% 15.3% 9.3% 7.3%

Financial Markets -

Canada

11.7% 4.5% -21.3% -16.5% -23.5% -11.5% 3.9% -17.9% -1.7% 3.7%

Asia 869.9% 62.5% 25.4% -12.2% 43.1% -0.1% 11.8% -1.1% -46.3% -97.8%

South Africa 10.6% 193.0% -9.5% -13.0% -10.3% 11.1% -4.6% 1.0% 4.2% 5.0%

UK - - - - - - - - - -

Total 4.2% 3.4% -5.6% -2.6% -6.4% -0.5% 17.5% 6.8% 33.5% 15.9%

Growth by geography

ANZ 5.4% -1.2% 0.9% 0.4% 1.3% -0.9% 1.3% 0.0% 3.6% 6.2%

UK 940.3% 39.3% 2389.9% -7.4% -434.0% -226.1% 670.9% 39.5%

South Africa 10.6% 193.0% -9.5% -13.0% -10.3% 11.1% -4.6% 1.0% 4.2% 5.0%

Canada 11.7% 4.5% -21.3% -16.5% -23.5% -11.5% 3.9% -17.9% -1.7% 3.7%

Asia 869.9% 62.5% 25.4% -12.2% 43.1% -0.1% 11.8% -1.1% -46.3% -97.8%

Total 4.2% 3.4% -5.6% -2.6% -6.4% -0.5% 17.5% 6.8% 33.5% 15.9%

Contribution by division

Financial Markets - A&NZ 68% 63% 64% 66% 65% 62% 52% 57% 43% 39%

Wealth - A&NZ 22% 23% 27% 29% 28% 32% 29% 30% 25% 23%

Financial Markets -

Canada

9% 9% 8% 7% 8% 6% 5% 6% 4% 4%

Asia -2% -3% -5% -5% -5% -5% -4% -4% -2% 0%

South Africa 3% 8% 8% 7% 8% 8% 7% 7% 6% 5%

UK 0% 0% -3% -4% -4% -4% 11% 4% 24% 29%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Contribution by geography

ANZ 90% 86% 92% 94% 93% 94% 81% 87% 68% 62%

UK 9% 9% 8% 7% 8% 6% 5% 6% 4% 4%

South Africa 3% 8% 8% 7% 8% 8% 7% 7% 6% 5%

Canada -2% -3% -5% -5% -5% -5% -4% -4% -2% 0%

Asia 0% 0% -3% -4% -4% -4% 11% 4% 24% 29%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%


14 February 2014


Valuation

Figure 3: IRE PE-relative to the XSI Figure 4: IRE EV/EBIT-relative to the XSI

0%

50%

100%

150%

200%

250%

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

IRE PE relative (to XSI) Mean +SD -SD

0%

50%

100%

150%

200%

250%

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

IRE EV/EBIT relative (to XSI) Mean +SD -SD



14 February 2014


Equity Research

Healthcare Facilities (Health Care (AU))

Mayne Pharma

(MYX.AX / MYX AU) ACQUISITION

US portfolio expanded with another acquisition

■ Brand franchises acquired: MYX has completed an A$18mn equity

placement (~22.6mn shares) to fund the acquisition of the LORCET and

ESGIC brands from Forest Pharmaceuticals for ~A$13.4mn (US$12mn).

LORCET contains hydrocodone + paracetamol and is used to treat moderate

to moderately severe pain, while ESGIC contains butalbital (a barbituate),

paracetamol and caffeine and is indicated for tension headaches. Gross sales

of both products were ~US$5mn in FY13 (implying a sales acquisition

multiple of 2.4x). Manufacturing of both products is currently outsourced but

MYX could look to bring this in-house in the medium term when contracts

expire. Further, MYX will directly distribute both brands through its US

Midlothian business and hence realise a high margin on sales. Management

noted that investment in both products had been somewhat limited by Forest

and that there was opportunity for MYX to grow share.

■ Sound strategy: This brand acquisition is another example of MYX

executing its core strategy of acquiring "unloved", complementary products to

properly market and distribute with the intention of growing the brands. We

suspect similar opportunities will continue to present themselves and that

further acquisitions will follow. The strategy is in our view sound, prices paid

are relatively undemanding and acquired assets are leveraged by MYX's

existing infrastructure and business capabilities. As with all pharmaceutical

companies we see some inherent regulatory risk with new products but see

the company as a fundamentally attractive investment proposition.

■ Catalysts: MYX 1H14 result (26 February)

■ Valuation: While the acquisition is expected to be mid-single digit EPS

accretive (pre-synergies) in its first full financial year (FY15), we will

incorporate the transaction in our forecasts following MYX's formal 1H14

result. Our target price is based on DCF valuation.


Mean^CS tgt^ Sh Prc

-60%

-40%

-20%

0%

20%

40%

60%



Absolute (%) 24.5 21.0 121.8

Relative (%) 22.6 22.7 115.7


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 83.4 145.2 186.5 269.5

EBITDA (A$mn) 17.6 40.1 54.9 89.8

EBIT (A$mn) 10.2 28.5 42.1 75.7

Net income (A$mn) 6.2 18.4 26.7 50.1

EPS (CS adj.) (Ac) 1.43 3.12 4.52 8.46



EPS growth (%) -40.7 117.7 44.9 87.1

P/E (x) 60.4 27.7 19.1 10.2

Dividend (Ac) — — 1.42 3.79

Dividend yield (%) — — 1.6 4.4

P/B (x) 4.0 3.5 2.9 2.6

Net debt/equity (%) 23.0 24.0 8.6 1.1





Rating NEUTRAL* [V]

Price (13 Feb 14, A$) 0.86


Market cap. (A$mn) 487.39



Projected return:






benchmark.


[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Saul Hadassin

61 2 8205 4679

[email protected]

William Dunlop, CFA

61 2 8205 4405

[email protected]

14 February 2014



Mayne Pharma (MYX) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016



vs Share price % -0.58 EPS_GROWTH*100EPS Growth % -40.7 117.7 44.9 87.1


c_DPS*100DPS c 0.0 0.0 0.0 1.4 3.8

c_PAYOUT*100Payout % 0.0 0.0 0.0 31.4 44.8




Sales revenue 51.9 83.4 145.2 186.5 269.5 Valuation

EBITDA 10.8 17.6 40.1 54.9 89.8 c_PE P/E x 35.8 60.4 27.7 19.1 10.2












Unusual item after tax 2.5 (9.0) (0.7) 0.0 0.0 Gearing

Reported NPAT 6.2 (2.8) 17.7 26.7 50.1 c_GEARING*100Net Debt to Net debt + Equity % Net Cash 18.7 19.3 7.9 1.1

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash 1.6 0.8 0.3 0.0






Current assets 23.3 61.9 76.1 109.8 148.5 MSCI IVA (ESG) Rating

Property, plant & equip. 22.2 55.0 63.3 69.2 73.3 TP ESG Risk (%): -1

Intangibles 4.2 115.5 112.5 105.6 98.1



Total assets 53.9 233.4 252.9 285.6 320.8

Payables 7.0 28.9 19.3 22.9 37.7




Net assets 30.6 120.9 138.8 166.2 188.2

Ordinary equity 30.6 120.9 138.8 166.1 188.2




Net debt -11.6 27.8 33.3 14.3 2.1 Source: MSCI ESG Research


EBIT 5.3 10.2 28.5 42.1 75.7

Net interest 0.2 -1.6 -3.4 -3.3 -3.1

Depr & Amort 5.5 7.4 11.6 12.9 14.1

Tax paid 0.8 -2.0 -1.9 -9.3 -17.7

Working capital 0.0 -4.4 -13.2 -11.9 -28.6

Other 1.6 -2.8 0.0 0.0 0.0


Capex -2.5 -3.2 -13.6 -12.0 -10.6



Acquisitions & Invest 0.0 -103.1 -10.5 0.0 0.0


Other 0.0 -19.2 -3.3 0.0 0.0


Dividends paid 0.0 0.0 0.0 0.0 -18.4

Equity raised 0.0 85.6 0.2 0.6 0.6

Net borrowings

Other -5.2 39.4 8.8 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -5.2 125.0 9.0 0.6 -17.7 Absolute 24.5% 21.0% 121.8%

Total cashflow 5.6 6.3 3.3 19.0 12.2 Relative 22.6% 22.7% 115.7%

Adjustments 0.1 1.0 0.0 0.0 0.0

Net change in cash 5.8 7.3 3.3 19.0 12.2 Source: Reuters 52 week trading range: 0.37-0.87

MSCI IVA Risk Comment: MSCI rating not available

2/13/2014 13:42

MYX is a specialty pharmaceuticals business with a globally recognised brand and a range

of proprietary and generic products currently on the market. It also provides contract

analytical/manufacturing services

Credit Suisse View

TP Risk Comment: Social, governance and environmental

history and disclosures are adequate for MYX's size. Mayne's

business operations present a low environmental risk, while

risks related to the social impact of Mayne's business are in

our view limited. Hence only a minor risk weight is in our view

applicable. Our ESG risk is calculated by adding a small risk

premium to our DCF discount rate.

NEUTRAL

37.40

42.40

47.40

52.40

57.40

62.40

67.40

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

MYX.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector




14 February 2014


Equity Research


Stockland

(SGP.AX / SGP AU) INCREASE TARGET PRICE

Entering the upgrade cycle ■ Entering the upgrade cycle. After two years of negative consensus

earnings revisions, SGP has now entered the upgrade cycle, with

management lifting its previous FY14 EPS growth guidance from 4-6% to 5-

6% largely on the back of stronger residential earnings. We have lifted our

earnings by 0.5%, and our FY14-16E EPS CAGR of 7.6% is the highest in

our universe after LLC, and sits above SGP's upper EPS growth hurdle for

LTI awards of 6.5% p.a.

■ Higher quality earnings. SGP's 1H14 EPS of 11.6¢ was flat on 1H13 and

was in line with our forecast (of 11.6¢). Quality improved on several fronts:

(1) Operating cash increased 60% representing 113% of NPAT; (2) Net

capitalised interest moved from $20m to -$29m representing -11% of NPAT,

and (3) the tax benefit reduced from 10% of pre-tax profit to 7%. On the

negative side, SGP's 12¢ DPS remains above both EPS (11.6¢) and AFFO

(10.6¢).

■ Residential delivers. Residential profit grew 49% due to 8% growth in

settlements (2,253) and a lift in operating margins from 7.0% to 8.9%. Net

deposits of 3,197 are running well ahead of settlements driving a 67%

increase in pre-sales, which support our FY13-16 EBIT CAGR of 34% for the

business.

■ Commercial still tough. While developments on 11-13% IRR's supported

10% growth in retail NOI, operations are still tough. Retail comp NOI growth

declined for the fifth consecutive period to 2.6% and comp spec MAT growth

was -0.8% versus +2.7% in June. Office and industrial occupancy sit at <92%.

■ Upside priced in. Despite positive EPS growth, improving market conditions

and improved earnings quality, SGP offers a TSR of 14.6% in line with the

AREIT sector at 13.6%, warranting a NEUTRAL rating. SGP currently trades

on a 14.7x P/E and at a 6% P/E premium to ASX versus its historic 2%

discount. Our $4.23 NAV applies a 7.0% WACR (versus 7.3% book), a 12x

FY15E EBIT multiple for Communities and values Retirement at a 10%

discount to tangible book.


Mean^

CS tgt^

Sh Prc

-30%

-20%

-10%

0%

10%

20%

30%



Absolute (%) 3.2 -2.7 12.1

Relative (%) 2.8 -1.9 5.0


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 579.0 631.1 702.2 776.1

EBITDA (A$mn) 519.1 586.5 655.3 726.8

EBIT (A$mn) 519.1 586.5 655.3 726.8

Net income (A$mn) 494.8 550.0 596.5 644.5

EPS (CS adj.) (Ac) 22.37 23.83 25.63 27.44

Change from previous EPS (%) n.a. 0.55 0.46 0.01

EPS growth (%) -23.7 6.5 7.5 7.1

P/E (x) 17.4 16.4 15.2 14.2

Dividend (Ac) 24.00 24.00 24.00 24.00

Dividend yield (%) 6.2 6.2 6.2 6.2

Net debt/equity (%) 31.4 35.5 37.9 41.6





Rating NEUTRAL*

Price (12 Feb 14, A$) 3.90





Projected return:






benchmark.


Research Analysts

John Richmond

61 2 8205 4580

[email protected]

Stephen Rich

61 2 8205 4617

[email protected]

Mikhail Mohl

61 2 8205 4413

[email protected]


61 2 8205 4792

[email protected]

14 February 2014


Figure 1: Stockland—Financial summary

In AUDmn unless otherwise stated Year ending 30 Jun Share Price: A$3.9012-month target price: A$#ERR: Label not found: 'ESTIM_PP'


Commercial Property Income 510.0 482.2 508.3 547.2 589.1 Core Earnings 676.0 494.8 550.0 596.5 644.5

Residential Income 198.0 55.8 85.8 115.9 144.9 Core Earnings Growth -26.8% 11.2% 8.5% 8.0%

Retirement Income 58.0 41.0 37.0 39.1 42.0 EPS (CS underlying) 29.3 22.4 23.8 25.6 27.4

Other Income EPS growth -23.7% 6.5% 7.5% 7.1%

Unallocated Expenses -50.0 -59.9 -44.7 -46.9 -49.2 P/E 13.31 17.44 16.36 15.22 14.21

EBITDA 716.0 519.1 586.5 655.3 726.8 FFO (cents per share) 26.8 21.6 24.6 26.8 28.1

Depreciation & Amortisation - - - - - Dividends (cents per share) 24.0 24.0 24.0 24.0 24.0

EBIT 716.0 519.1 586.5 655.3 726.8 Dividend Yield 6.2% 6.2% 6.2% 6.2% 6.2%

Interest Expense -55.0 -85.0 -77.7 -86.8 -102.4 AFFO (cents per share) 26.8 21.6 24.6 26.8 28.1

Interest Income 8.0 6.2 5.3 5.0 5.0 P/AFFO 14.6 18.1 15.8 14.5 13.9

PBT 669.0 440.3 514.1 573.5 629.5 EV/EBITDA 11.9 18.3 18.7 17.3 16.3

Tax 7.0 54.5 35.9 23.0 15.0 Prem/disc NTA 10%

Minorities - - - - -

NPAT (post minorities) 676.0 494.8 550.0 596.5 644.5 Financial Ratios 2012A 2013A 2014F 2015F 2016F

AFFO 617.8 477.5 568.5 624.6 659.4 Profitability Ratios

Development ROC 11.0% 3.3% 4.8% 6.2% 7.4%

Balance Sheet 2012A 2013A 2014F 2015F 2016F ROE (%) 8.2% 6.0% 6.6% 6.9% 7.2%

Cash & equivalents 135.6 227.1 200.8 200.8 200.8 Payout Ratio (Dist / Op Earnings) 82% 107% 101% 94% 87%

Receivables 186.0 154.3 135.1 135.1 135.1 Balance Sheet Ratios

Other current assets 1,206.1 825.5 794.6 829.7 866.5 Debt/EBITDA 4.4 5.1 5.4 5.2 5.3

Current assets 1,527.7 1,206.9 1,130.5 1,165.6 1,202.4 Net Debt / Investment Properties 47.7% 35.3% 42.7% 44.0% 46.9%

Investment Properties 6,330.6 6,875.4 6,886.3 7,362.4 7,867.5 Total Liabilities/ Total Assets 43.4% 41.8% 42.8% 43.2% 44.0%

Investments 608.9 543.0 543.7 543.7 543.7 Share Items

Intangible assets 116.6 116.6 116.6 116.6 116.6 EFPOWA 2,306.7 2,212.0 2,307.7 2,327.5 2,348.4

Other non-current assets 5,950.1 5,327.8 5,919.2 5,968.7 6,187.2 Units on Issue 2,203.5 2,305.8 2,316.9 2,338.2 2,358.7

Non-current assets 13,006.2 12,862.8 13,465.8 13,991.4 14,715.0 TP ESG Risk Due / MSCI IVA Risk 0.0% Neutral

Total assets 14,533.9 14,069.7 14,596.3 15,157.0 15,917.5 MSCI IVA Comment

Provisions 8.0 184.8 381.4 381.4 381.4

Interest bearing debt - Current 144.5 143.3 25.0 25.0 25.0

Interest bearing debt - Non-Current 3,155.5 2,656.7 3,139.9 3,440.6 3,887.6

Other liabilities 2,998.5 2,890.0 2,705.1 2,705.1 2,705.1


Net assets 8,227.4 8,194.9 8,344.9 8,605.0 8,918.3

Ordinary equity 8,227.4 8,194.9 8,344.9 8,605.0 8,918.3

Minorities / prefered capital - - - - -


Cashflow 2012A 2013A 2014F 2015F 2016F

EBIT 716.0 519.1 586.5 655.3 726.8

Change in working capital

Other operating cashflow -317.3 106.1 -62.5 -182.6 -212.4

Operating cashflow 398.7 625.2 523.9 472.7 514.5 Share Price Performance 52 week range: $3.35 - $4.07

Disposals - - - - -

Acquisitions - - - - -

Specific Capex - - -117.9 -235.8 -412.3

Maintenance Capex -40.0 -75.4 -66.5 -65.7 -74.2


Other Investing Cashflows 315.3 179.9 -50.1 3.2 4.4

Investing cashflow 275.3 104.5 -234.5 -298.2 -482.1

Proceeds from Equity Issuance

Dividends paid - - -553.2 -558.6 -563.6

Net borrowings - - 180.8 300.7 447.1

Other -733.0 -638.2 56.7 83.4 84.2

Financing cashflow -733.0 -638.2 -315.7 -174.5 -32.4

Net cashflow -59.0 91.5 -26.3 -0.0 0.0

We agree with MSCI's AAA rating for SGP as it

continues to pursue best practice standards in green

building certifications, and energy and water efficiency

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14

SGP.AX S&P/ASX 200 S&P/ASX 200 Property

80%

14%

6%0%

Commercial Property Income

Residential Income

Retirement Income

Other Income

FY13 Operating Profit Split


14 February 2014


1H14 result: Key differences were tax and interest

■ SGP's 1H14 EPS of 11.6¢ was flat on 1H13, was up 7% on 2H13 given the reversal of

the $12m in restructuring costs taken in the second half, and was in line with our

forecast (11.6¢). ROE fell from 6.2% to 5.7%, pulled down by lagging returns within

Residential Communities (4% ROA or 9.8% excluding the impact of workout projects)

and Retirement at 4.8%. NTA lifted marginally from $3.50 at June to $3.52 with the

portfolio WACR tightening from 7.4% to 7.3%.

■ At the divisional level, SGP's Retail and Residential earnings were within 3% of our

forecasts; however, Office fell short given dilution from assets sales (Optus Centre, 78

Waterloo Rd & 135 King St) and Retirement came in slightly below given lower

development unit sales (122 units versus 150 forecast). The result was again boosted

by a tax benefit which came in higher than our forecast and equal to 7% of pre-tax

profit albeit below 1H13 at 10% pre-tax profit. Relative to our forecast, the higher tax

benefit was offset by higher interest expense resulting from lower capitalised interest.

Figure 2: Result reconciliation

% growth CS est % diff

1H14A 1H13A on 1H13 1H13 to CSe

Retail 174.0 158.7 10% 169.7 3%

Office 53.0 60.0 -12% 59.1 -10%

Industrial 31.0 32.0 -3% 32.6 -5%

Trust overheads (net of fees) -9.0 -12.0 -25% -12.4 -27%

Total Commercial 249.0 239.7 4% 249.0 0%

Residential Communities 39.0 26.2 49% 37.9 3%

Retirement 17.0 12.0 42% 18.5 -8%

Other 1.0 2.7 -63% 0.0

Total Corporate 57.0 40.9 39% 56.5 1%

Operating EBIT 306.0 280.6 9% 305.5 0%

Corporate expenses -22.0 -23.3 -6% -22.6 -3%

EBIT 284.0 257.3 10% 282.9 0%

Net Interest expense -38.0 -30.5 25% -32.5 17%

Tax 21.0 28.2 -26% 18.6 13%

Normalised NPAT 267.0 255.0 5% 269.0 -1%

Normalised EPS 11.6 11.6 0% 11.6c 0%


The quality of the result improved on several fronts:

■ Operating cash flow increased from $189.4m to $302.7m, representing 113% of

NPAT. We expect operating cash flow will remain elevated while impaired residential

projects are cleared.

■ Net capitalised interest declined from $20mn in 1H13 (8% of NPAT) to -$29.1mn

(-11% of NPAT) reflecting higher capitalised interest released in residential COGS as

shown in Figure 7.

■ The tax benefit reduced from 10% of pre-tax profit to 7%, and will reduce further into

FY15+16 as residential and retirement earnings improve.

14 February 2014


Figure 3: Operating cash flow as % NPAT Figure 4: Net capitalised interest as a % of NPAT

0%

20%

40%

60%

80%

100%

120%

140%

2009A 2010A 2011A 2012A 2013A 1H14E

Operating cashflow % NPAT

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2008A 2009A 2010A 2011A 2012A 1H13A 2H13E 2013A 1H14E

Net capitalised interest % NPAT


Figure 5: Cash ROA split - FY13 vs. FY12 vs. 1H14 Figure 6: EPS and ROA forecasts

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Retail Industrial Office Residential Retirement Other

FY12 FY13 1H14

29.1

31.6

29.3

22.423.7

25.627.4

29.5

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E

EPS (lhs) ROE (rhs)


The key drivers of the result:

■ Residential Communities' operating profit grew 39% to $39mn (vs. CSe of $38m)

due to 8% growth in settlements to 2,253 (vs. CSe of 2,005) and a lift in operating

margins from 7.0% to 8.9% (above CSe of 8.0%).

■ Retail profit grew 10% to $174mn (vs. CSE of $170mn) given the completion of its

Townsville, Merrylands and Shellharbour developments despite lower comp NOI

growth of 2.6% (down from 3.0% at June).

■ Retirement profit grew 42% to $17m (vs. CSe of $18.5mn) driven by a 21% lift in

established unit turnover. Development sales were down 6.9% to 122 however, below

our forecast of 150.

■ Trust overheads declined from $12mn to $9mn, and unallocated overheads fell from

$23mn to $22m following the $12mn restructuring costs taken in FY13.

Detractors from growth:

■ Office income declined 12% post asset sales (Optus Centre, 78 Waterloo Rd & 135

King St) and lower occupancy (from 96% at June to 91.3%)

■ Industrial income declined 3% given lower occupancy (from 93.3% to 89.7%), with

comp NOI being down 1.6%.

■ SGP's interest expense lifted from $31m to $38m given a higher cost of debt (from

6.0% to 6.5%), and lower capitalised interest post residential impairments and retail

development completions. SGP broke swaps for a total cost of $35m in the period and

may look to break more swaps in the coming periods to offset taxable capital gains on

commercial asset sales.

14 February 2014


■ The tax benefit fell from $28m to $21m given the $507m capital transfer into the

corporation ($9m full-year tax impact) plus higher residential profits.

Figure 7: Higher capitalised interest released in residential COGS under new policy

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E

Interest capitalised Capitalised interest expensed


FY14 guidance range increased

■ SGP tightened its EPS growth guidance from 4-6% to 5-6% largely due to stronger

residential market conditions and the settlement commencement of its Calleya

development in 2H14 which was previously at risk of slipping into 1H15. Revised

guidance of 23.5-23.7¢ is in line with our forecast of 23.7¢, but below consensus at

24.0¢, and implies a 51% skew to the second half. DPS is to be held flat at 24.0¢.

Left-field upside: M&A

■ In December, SGP's management stated that it does not hold stakes in other

companies. However, as we highlighted in our note "Australand - Block trade may

be a trigger", ALZ offers an acquirer potential EPS accretion given: (1) the high

8.05% cap rate on its investment portfolio, (2) the ability to reset hedges and reduce

its 7.5% cost of debt, and (3) the ability to repay its hybrids which cost 480bps over

90-day BBSW and (4) operating synergies (e.g. building scale in Apartments and

Industrial. We note that SGP trades on a 6.1% EPS yield vs. ALZ at 6.7%. Today SGP

management reiterated its commitment to growing residential within urban infill

locations, and has demonstrated its commitment to grow industrial portfolio through

the acquisition of the Forrester Distribution Centre and the development at Yatala.

Residential Communities

■ Residential Communities' operating profit grew 39% to $39m (vs. CSe of $38m)

due to 8% growth in settlements to 2,253 (vs. CSe of 2,005) and a lift in operating

margins from 7.0% to 8.9% (above CSe of 8.0%). ROA however, fell to 4% for the

total residential portfolio (versus 5.5% in FY13).

■ Residential net deposits up 49.7%: Positive momentum in residential sales volumes

continued in 2Q14 with Stockland achieving 1,741 net deposits (+49.7% on 2Q13), the

highest quarterly result in three years as shown in Figure 8. Contracts on hand

increased to 2,872 in Dec-13 and are up 48% since June-13 (1,946). An additional

371 net deposits in January 2014 have increased contracts on hand to 3,243. Over the

past 12 months, SGP has achieved 5,961 net deposits, 28% higher than FY13

https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1025617811&source_id=emcms&serialid=NSPAyVOL0IcygZArh6oB5pds0ZqC6bnoBEtqbTOl84w%3d

https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1025617811&source_id=emcms&serialid=NSPAyVOL0IcygZArh6oB5pds0ZqC6bnoBEtqbTOl84w%3d

14 February 2014


settlements of 4,641 supporting its targeted 5,000+ settlements for FY14. The pickup

in net deposit volumes has been broad based across SGP's major markets as

illustrated in Figure 9. Interestingly, approx. 44% of SGP's net deposits are FHB’s, well

above the national average (12.7%) as shown in Figure 11. We remained concerned

about this buyer type given affordability pressures with solid house price inflation

across most markets (Figure 14).

Figure 8: Net deposits the highest in three years Figure 9: Supported by improvement in NSW and VIC

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

NSW VIC QLD WA

0

100

200

300

400

500

600

700

800

900

1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14

NSW VIC QLD WA


Figure 10: Housing finance: Established market Figure 11: Housing finance: FHBs still non-existent

2

4

6

8

10

12

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

AU

D b

illio

n

Owner occupiers - established

Investor - established

Owner occupiers - new

Investor - new

-20%

-10%

0%

10%

20%

30%

40%

2009 2010 2011 2012 2013 2014

Ann

ual c

hang

e

Investor Upgrader FHB

Source: ABS, Credit Suisse estimates Source: ABS, Credit Suisse estimates

Figure 12: Building approvals: structural change at play? Figure 13: Building approvals: QLD finally recovering

2,000

4,000

6,000

8,000

10,000

12,000

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Total houses Total 'other'

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

NSW VIC WA ROA QLD

Source: ABS, Credit Suisse estimates Source: ABS, Credit Suisse estimates

14 February 2014


Figure 14: House price recovery to date has been broad

based

Figure 15: ‘Time to buy a dwelling’ remains above

historical average of 122.5

-20%

-10%

0%

10%

20%

30%

40%

50%

05 06 07 08 09 10 11 12 13

Ann

ual c

hang

e

Sydney Melbourne Brisbane Perth

60

70

80

90

100

110

120

130

140

150

160

2005 2006 2007 2008 2009 2010 2011 2012 2013

Consumer Confidence 'Time to buy a dwelling'

Source: RP Data, Credit Suisse estimates Source: WBC-MI, Credit Suisse estimates

■ Residential recovery tempered by impaired stock and supply constraints.

Despite the more positive backdrop, margins are expected to remain moderated as

SGP trades through low-margin and impaired projects. SGP reiterated its guidance

that operating profit margins would improve from 8.9% to 11-13% by FY16. We expect

this margin recovery to be back-end loaded however, given higher capitalised interest

released through COGS, the persistent drag of impaired projects and time-frame for

new projects to reach stabilisation. Approximately 15% of lots settled will be impaired

in FY14. Our three-year operating profit CAGR for the business is 34%, which sees

profit reaching $144.9m in FY16 still well below the FY11 peak of $233m.

Figure 16: Residential Communities' operating forecasts

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Settlements Return on Inventory (EBIT) Operating Profit Margins


Retirement

■ Retirement profit grew 42% to $17m (vs. CSe of $18.5m) driven by a 21% lift in

established unit turnover as well as higher contract conversion profits, which increased

from $1.6m to $3.9m. Development sales were down 6.9% to 122 however, below our

forecast of 150.

14 February 2014


Cash ROA improved modestly from 4.5% to 4.8%, still impacted by low turnover of

development inventory and relatively high overheads. Management expects ROA to lift to

8% by FY17 given higher development profits, village maturity and economies of scale.

■ Development – Turnover of retirement development inventory is tracking at only

7.3%, which we expect to improve to 8.1% by FY16 given new project launches.

■ DMF turnover – Turnover of established units rose from 6.9% in FY13 to 7.5%, which

we forecast to improve to 7.7% by FY16. We assume 2.5% per annum price growth,

and flat DMF margins.

■ Valuation – In our NAV, we value the business at a 10% discount to tangible book

value which implies a 25.5x FY15 EBIT multiple.

Figure 17: Development volumes driven by new project

launches

Figure 18: Gradual improvement in turnover forecast

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

-

50

100

150

200

250

300

350

2009 2010 2011 2012 2013 2014 2015 2016

Volumes of lots sold Development Margin

0%

1%

2%

3%

4%

5%

6%

7%

8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2009 2010 2011 2012 2013 2014 2015

DMF margin Turnover %


Retail property

■ Retail still tough, but green shoots evident: Retail NOI of $174mn was slightly

ahead of CSe ($169.7) and 9% above the prior corresponding period. SGP highlighted

the general softness in consumer spending in line with recent updates from CFX and

GPT as illustrated in Figure 5. Comp NOI growth fell for the fifth consecutive period to

2.6% but remains above last reported print for SGP's major peers as shown in Figure

19. Occupancy costs declined slightly to 13.9% from 14% in June and SGP's WACR

decreased 10bps to a new low of 6.9%, reflecting the improving quality of the portfolio

with recent completions and Townsville and Shellharbour.

Figure 19: Comparable NOI growth continues to fall Figure 20: WACR time-series; portfolio quality improving

0%

1%

2%

3%

4%

5%

6%

7%

8%

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13

WDC/WRT AU SGP CFX

7.40%

7.30%

7.20% 7.20%

7.10%

7.00% 7.00%

6.90%

6.60%

6.70%

6.80%

6.90%

7.00%

7.10%

7.20%

7.30%

7.40%

7.50%

Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13

WACR


14 February 2014


■ Surprisingly, comparable spec MAT growth (per sqm) fell by 0.8% in December

compared with +2.7% in June. This is the lowest print for SGP since Dec-10 and is

well below CFX's December print of 1.7% (2.4% June), Figure 6. Speciality sales per

sqm also fell "over $8,500" from $8,766 in June. Total re-lease spreads were a solid

3% across 361 deals in the December half. This was underpinned by an improvement

in re-lease spreads for new leases to 3.1% from 1.8% in December. Spreads on

renewals fell slightly to 3% from 3.4% in June.

Figure 21: Discretionary and non-discretionary sales Figure 22: Comp Spec MAT growth fell sharply in Dec-13

-2%

0%

2%

4%

6%

8%

10%

12%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Discretionary Non-discretionary

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

WDC/WRT AU SGP CFX

Source: Company data, Credit Suisse estimates Source: ABS, Credit Suisse estimates

Figure 23: Retail turnover growth at a 4-year high Figure 24: Re-leasing spreads remain healthy

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Total New Renewal

Jun-12 Dec-12 Jun-13 Dec-13


■ The deterioration in SGP's performance metrics is at odds with the broader recovery in

the Australian retail sector which has now increased for eight consecutive months.

Retail trade is now 5.7% year on year in December, underpinned by strong growth in

NSW and Victoria which have increased by 7.2% and 6.0%, respectively.

■ Developments on track despite rising incentives: Re-developments at Hervey Bay

($119mn), Wetherill Park ($222mn) and Baldavis ($116mn) are under construction

and are expected to deliver an average total return of 12-14% and incremental

stabilised yields of 7-8% pre-IFRS. We note that incentives on SGP’s retail

developments have increased markedly over the last 12 months and are now 13.4%

(as a % rent over the lease term) compared with 7.5% at Dec-12.

Industrial property

■ Industrial: Industrial NOI of $31mn was slightly below CSe ($32.6) and 3% below the

pcp, reflecting lower occupancy (89.7% vs. 93.3% pcp) and comp NOI (-1.6% vs. -

10.9% at June). Net face rents increased by 0.6% on average across executed leases

in 1H14 compared with 2% at June 30. The industrial portfolio experienced moderate

valuation uplift with cap rates compressing by 20bps to 8.6%. This was supported by

14 February 2014


continued leasing activity which has seen the portfolio WALE increase to 3.7 years

from 3.3 years in June and 2.8 years in Dec-12.

■ SGP has executed leases over 176k sqm in the six months to December in addition to

a further 45k sqm under Heads of Agreement. Weighted average incentives over the

six months to December fell to 3.1% from 5.1% in Dec-12. Management noted that

vacancy was affected by the timing of the completion of the refurbishment at Port

Adelaide DC, and the timing of lease expires at Yennora and Brooklyn.

EPS growth lifts from 6% to 7.6% p.a. from FY15

■ Our FY14 forecast of 23.7¢ remains unchanged, and we have increased earnings by

0.5% from FY15. Our FY14-16 EPS CAGR of 7.6% sits at the top of our coverage

universe after LLC (7.8%), and sits above managements upper EPS growth hurdle for

LTI awards of 6.5% p.a.

Trading below NAV, but fully priced versus the sector

■ Despite positive EPS growth, improving market conditions and improved earnings

quality, SGP offers a TSR of 14.6% in line with the AREIT sector at 13.6%, warranting

a NEUTRAL rating. Our $4.23 target price is based on the average of our FY14 and

FY15 NAV's, which assume a 7.0% blended WACR (versus 7.3% book), values

Communities on 12x FY15E EBIT and Retirement at a 10% discount to tangible book.

On relative valuation, SGP currently trades on a 14.7x P/E and at a 6% P/E premium

to ASX versus its historic 2% discount.

Figure 25: SGP's P/E Figure 26: SGP's P/E Rel

0.00

5.00

10.00

15.00

20.00

25.00

1-Jul-06 1-Jul-08 1-Jul-10 1-Jul-12

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1-Jul-06 1-Jul-08 1-Jul-10 1-Jul-12


Figure 27: EPS yield and 2-yr CAGR Figure 28: DPS yield and 2-yr CAGR

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

EPS Yield 2yr EPS CAGR

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

DPS Yield 2yr DPS CAGR


14 February 2014


Figure 29: EPS revision history Figure 30: TSR: SGP mid-pack

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5

Jul-11 Jul-12 Jul-13

2012 2013 2014 2015

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Source: Company data, IBESS Source: Company data, Credit Suisse estimates

14 February 2014


NAV $4.23

Figure 31: NAV

NAV 2014E 2015E

Retail NOI (current portfolio normalised) 377.15 388.47

Book cap rate 6.9% 6.9%

Applied cap rate 6.6% 6.6%

Value 5,714.5 5,885.9

Office NOI (current portfolio normlaised) 120.00 123.60



Value 1,568.6 1,615.7

Industrial NOI (current portfolio normlaised) 78.78 81.14



Value 949.1 977.6

Trust overheads -18.27 -19.00

Multiple 8.0x 8.0x

Value (146.2) (152.0)

Retail Development

Book value of forecast WIP 352.9 588.7

DCF of future valuation uplift 225.3 225.3

Value 578.2 814.0

Residential Communities

EBIT (FY15) 309.2 309.2

EBIT Multiple 12.0x 12.0x

Value 3,710.0 3,710.0

Retirement

Total book value 1,224.0 1,224.0

Tangible Book Value 1,107.0 1,107.0

Premium / Discount to Tangible BV -10% -10%

Value 996.3 996.3

EBIT 36.0 39.1

Implied Multiple 27.7x 25.5x

Retail and Industrial Projects

Inventory Book Value (incl held for sale) 72.1 72.1

Premium / Discount 0% 0%

Value 72.1 72.1

Apartments + Halladale book value 97.5 97.5

Corporate overheads (44.7) (46.9)

Multiple 8.0x 8.0x

Value (357.3) (375.1)

Cash 200.8 200.8

Other Assets 939.1 939.1

TOTAL ASSETS 14,322.8 14,781.9

Debt 3,164.9 3,465.6

Other Liabilities 1,397.2 1,397.2

NET ASSETS 9,760.7 9,919.1

Shares on issue 2,316.9 2,338.2

NET ASSET VALUE $4.21 $4.24 Source: Company data, Credit Suisse estimates

14 February 2014


Figure 32: Stockland's earnings forecast

2011A 2012A 2013A 2014E 2015E 2016E 2017E

Retail 286.0 310.0 324.0 353.7 380.5 417.5 465.4

Office 183.0 142.0 119.0 107.9 112.0 114.6 119.2

Industrial 77.0 77.0 63.0 64.9 73.8 76.7 78.5

Trust overheads (net of fees) -31.0 -23.0 -23.8 -18.3 -19.0 -19.8 -20.6

Total Commercial 524.0 510.0 482.2 508.3 547.2 589.1 642.6

Residential Communities 233.0 198.0 60.0 85.8 115.9 144.9 171.9

Retirement 53.0 36.0 38.3 36.0 39.1 42.0 44.3

Other 12.3 5.0 0.0 1.0 0.0 0.0 0.0

Total Corporate 327.3 256.0 96.8 122.8 155.0 187.0 216.1

Operating EBIT 851.3 766.0 579.0 631.1 702.2 776.1 858.7

Corporate expenses -63.3 -50.0 -59.9 -44.7 -46.9 -49.2 -51.7

EBIT 788.0 716.0 519.1 586.5 655.3 726.8 807.0

Net Interest expense -14.0 -47.0 -78.8 -75.2 -81.8 -97.4 -118.6

Tax -21.6 7.0 54.5 35.9 23.0 15.0 7.6

Normalised NPAT 752.4 676.0 494.8 547.1 596.5 644.5 696.0

Normalised EPS 31.6 29.3 22.4 23.7 25.6 27.4 29.5

- growth 8.6% -7.2% -23.7% 6.0% 8.1% 7.1% 7.5%

DPS 23.7 24.0 24.0 24.0 24.0 24.0 24.0

- growth 8.7% 1.3% 0.0% 0.0% 0.0% 0.0% 0.0% Source: Company data, Credit Suisse estimates


14 February 2014


Equity Research

New Media (Media - SMID (AU))

STW Communications Group

(SGN.AX / SGN AU) DECREASE TARGET PRICE

Soft underlying result, acquisitions yet to

generate solid returns

■ Event: STW Communications reported a weaker-than-expected FY13

result. NPAT increased 12.5% vs consensus and guidance for 15%

growth. EPS increased 2.5% vs consensus and guidance for mid-single-

digit growth. The result was impacted by a number of acquisitions as well as

changing business mix to lower margin research and field marketing

businesses and office relocation and consolidation. STW Communications

provided FY14 guidance for mid-single-digit NPAT growth which was below

market expectations for high-single-digit growth. We have reduced our

forecasts following a weaker-than-expected result and outlook. Our TP

moves to $1.55 (from $1.63) per share and we maintain a NEUTRAL rating.

■ Investment case: Underlying business fairly static, acquisitions yet to

generate solid returns. Most of the profit growth in FY13 came from

acquisitions within Australia, and to a lesser extent acquisitions in Asia.

Whilst the acquisitions make strategic sense and are likely to increase STW

Communications' market share, they do not appear to be driving synergies

within the group or contributing meaningful profits at this point. With a mix

shift to lower margin businesses such as research and field marketing, it will

become increasingly important for STW Communications to leverage its core

business capabilities to drive additional revenues. We need to see a reversal

in the current declining return on invested capital trend.

■ Fair value with upside: STW Communications is trading on 11x FY14 and

10x FY15 EPS, broadly in line with its historical ratios. We forecast mid-

single-digit growth p.a. for the next several years. There is upside from

successful expansion in Asia and further abroad (although some upside from

recent acquisitions will be offset by additional earnout payments if certain

earnings targets are met).


Mean^CS tgt^

Sh Prc

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%



Absolute (%) -4.3 -4.7 6.3

Relative (%) -6.2 -2.9 0.2


Year 12/13A 12/14E 12/15E 12/16E

Revenue (A$mn) 399.0 426.5 447.6 469.7

EBITDA (A$mn) 82.6 84.4 89.0 93.8

EBIT (A$mn) 74.2 76.5 79.6 84.1

Net income (A$mn) 49.5 52.6 55.5 59.1

EPS (CS adj.) (Ac) 12.34 13.11 13.83 14.72



EPS growth (%) 2.6 6.3 5.5 6.5

P/E (x) 11.6 10.9 10.4 9.7

Dividend (Ac) 8.60 8.77 9.26 9.85

Dividend yield (%) 6.0 6.1 6.5 6.9

P/B (x) 1.3 1.2 1.2 1.1

Net debt/equity (%) 26.0 14.3 10.0 3.4






Rating NEUTRAL*

Price (13 Feb 14, A$) 1.44





Projected return:






benchmark.


Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Paul Buys

61 2 8205 4538

[email protected]

Bradley Clibborn

61 2 8205 4465

[email protected]

Chris Smith

61 2 8205 4210

[email protected]

Sarah Mann

61 2 8205 4610

[email protected]

14 February 2014



STW Communications Group (SGN) Year ending 31 Dec In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016



vs Share price % 8.01 EPS_GROWTH*100EPS Growth % 2.6 6.3 5.5 6.5


c_DPS*100DPS c 8.3 8.6 8.8 9.3 9.9

c_PAYOUT*100Payout % 69.0 69.7 66.9 67.0 66.9





EBITDA 78.3 82.6 84.4 89.0 93.8 c_PE P/E x 11.9 11.6 10.9 10.4 9.7












Unusual item after tax 0.0 0.0 0.0 0.0 0.0 Gearing

Reported NPAT 44.0 49.5 52.6 55.5 59.1 c_GEARING*100Net Debt to Net debt + Equity % 16.7 20.7 12.5 9.1 3.3









Intangibles 495.5 505.2 504.6 504.0 503.5



Total assets 845.9 902.7 982.1 1,026.3 1,073.7

Payables 182.3 172.1 220.8 231.9 243.5


Other liabilities 64.0 62.3 62.3 62.3 62.3 MSCI IVA Risk:


Net assets 463.4 495.9 526.6 559.7 595.6

Ordinary equity 422.7 449.2 466.9 486.1 507.0






EBIT 69.7 74.2 76.5 79.6 84.1

Net interest -9.8 -10.1 -9.5 -7.5 -4.5

Depr & Amort -8.6 -8.4 -7.9 -9.3 -9.7

Tax paid -19.7 -20.0 -14.7 -16.6 -19.9

Working capital 10.0 -25.2 36.3 1.9 2.0

Other 10.9 24.9 29.2 32.5 33.6


Capex -8.6 -15.9 -11.0 -11.4 -11.8





Other -57.9 -18.2 -10.0 -14.0 0.0


Dividends paid -36.6 -41.9 -35.0 -36.2 -38.2

Equity raised 38.5 0.0 0.0 0.0 0.0

Net borrowings 23.1 36.1 0.0 0.0 0.0


Financing cashflow 25.0 -5.7 -35.0 -36.2 -38.2 Absolute -4.3% -4.7% 6.3%

Total cashflow 16.4 -1.6 53.9 19.0 35.7 Relative -6.2% -2.9% 0.2%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 16.4 -1.6 53.9 19.0 35.7 Source: Reuters 52 week trading range: 1.32-1.67

MSCI IVA Risk Comment: Not rated

13/02/2014 19:34

STW Communications Group Ltd. is engaged in offering advertising & diversified

communications services for clients through various channels, including television,

radio,print,outdoor & electronic forms.It has 2 segments:Advertising, Production & media.

Credit Suisse View

TP Risk Comment: While WPP to date has not looked to exert

undue influence on the company, as SGN expands

internationally it is possible that its interests may conflict with

those of WPP. Additionally, given that the company is

increasingly investing in South East Asia where ESG risks

may be more prevalent and harder to measure, this is

something that we will be keeping our eye on.

NEUTRAL

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

SGN.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector



14 February 2014


Assessing the moving parts in FY13 STW Communications reported a weaker-than-expected FY13 result. NPAT increased

12.5% versus consensus and guidance for 15% growth while EPS increased 2.5% versus

consensus and guidance for mid-single-digit growth. The result was impacted by a number

of acquisitions as well as changing business mix to lower margin research and field

marketing businesses and office relocation and consolidation.

Revenue boosted by acquisitions and digital

Revenue from operations increased 13.6% (or $48mn) to $399mn.

The majority of this growth came from acquisitions in Australia and Asia, which we

estimate contributed $27mn and $6mn additional revenue, respectively.

Figure 2: STW Communications acquisitions in FY13


Organic revenue was primarily driven by growth in digital. New Zealand and Asia were the

bright spots in the organic result.

Figure 3: STW Communications revenue build FY13

$ 351 mn

$ 27 mn

$ 6 mn

$ 11 mn$ 3 mn $ 1 mn $ 399 mn

$320 mn

$330 mn

$340 mn

$350 mn

$360 mn

$370 mn

$380 mn

$390 mn

$400 mn

FY12 Revenue Aus Acqns Asia Acqns Aus/NZOrganic

Asia Organic US/EU/OtherOrganic

FY13 Revenue


14 February 2014


Margins impacted by change in business mix and

office relocation

EBITDA margins declined 1.6% on Credit Suisse calculations (excluding interest revenue

and associates) to 21.0%.

The result was primarily impacted by a mix shift to lower margin field marketing and

research businesses, particularly following the acquisition of research firm Colmar

Brunton. 30% growth in digital revenues provided an offset. PR, design and branding

companies reported soft results whilst the key media companies recorded solid

performances.

Whilst difficult to separate each business type, the below chart provides an indication of

the types of revenues STW Communications generates, with research margins typically at

the lower end and digital revenues typically at the higher end.

Figure 4: STW Communications estimated revenue mix

Marketing

Media Planning

Production

Research

Digital


STW Communications relocated and consolidated several offices through the period,

resulting in duplication in lease costs for the period as leases ran off. This had a $5mn

impact for the period which we expect to normalise through FY14.

Gearing and cash flow deteriorated

Net debt including earnouts increased from $138.5mn to $165.6mn in FY13, resulting in a

ND/EBITDA of 1.7x and Gross Debt/EBITDA of 2.2x. This compares to STW

Communications' internal target of 2.0x Gross Debt/EBITDA at the upper end.

The increase in debt reflects settlement of past earnouts, acquisition expenses, higher

costs associated with office relocations and weaker cash generation. The company

expects to move to a healthier gearing position in FY14.

The operating cash flow was negatively impacted by adverse working capital movements.

The company expects cash conversion to improve in FY14 as acquisitions move past the

initial start-up phase.

14 February 2014


Outlook FY14 guidance for mid-single-digit NPAT growth

STW Communications provided guidance for mid-single-digit NPAT growth in FY14 (or

~$2.5mn incremental NPAT), compared with market expectations for high-single-digit

NPAT growth (consensus forecasting 8% growth).

The guidance excludes the impact on potential future acquisitions. It includes 15% organic

growth from business outside Australia and New Zealand.

We estimate businesses outside Australia and New Zealand contributed ~$5mn NPAT in

FY13. This would imply an additional ~$0.75mn NPAT in FY14 from offshore and

~$1.75mn NPAT from Australia and New Zealand.

Future growth to come from acquisitions, offshore

and creating content solutions for clients

Recent acquisitions are expected to drive reasonable growth over the next five years. The

company has $45.8mn to pay in earnouts over the next five years with peak settlements

spread over the FY14 and FY15 years. $22mn in earnouts relates to put and call options

and are tied to the achievement of incremental earnings.

Organically, we see the potential for STW Communications to continue to win contracts as

well as expanding revenue from existing clients. Traditional ad budgets that sit with CMOs,

whilst likely to remain the primary revenue source for advertising companies, are no longer

the only revenue source. We estimate ad budgets will contribute ~70% income to STW

Communications in five years. CIOs and Chief Technology Officers will become

increasingly important for advertisers and may increase the overall size of the advertising

pie (especially as retailers increase spend on websites, data and loyalty programs and

incorporate this cost into their cost of goods sold rather than cost of doing business).

'Owned' and 'earned' media where advertisers assist retailers or other clients to build

content rather than the traditional 'paid' model is likely to provide new revenue

opportunities for media companies and we see STW Communications as being well

positioned to benefit from this.

14 February 2014


Valuation We forecast mid-single-digit growth for STW Communications each year over the next

three years. We see upside from successful expansion into Asia and further abroad.

The valuation metrics look reasonable on our assumptions. STW Communications is

trading on 11x FY14 and 10x FY15 EPS. This is broadly in line with where the stock has

been trading over the past several years.

Figure 5: STW Communications historical P/E

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: IBES

14 February 2014


FY13 result financial snapshot Figure 6: SGN FY13 result summary

Actual Est. Diff. FY13A FY12A Change

Revenue

Advertising 190.4 214.6 -11.3% 190.4 181.7 4.8%

Diversified 203.0 169.8 19.6% 203.0 163.2 24.4%

Other 5.5 6.6 -17.0% 5.5 6.3 -12.7%

Total revenue 399.0 391.0 2.0% 399.0 351.3 13.6%

Proportional revenue 399.0 391.0 2.0% 399.0 351.3 13.6%

EBITDA

Advertising 50.0 57.7 -13.4% 50.0 49.9 0.2%

Diversified 40.0 39.0 2.6% 40.0 37.5 6.7%

Other (7.4) (7.9) -7.2% (7.4) (9.1) -19.2%

Total EBITDA 82.6 88.8 -6.9% 82.6 78.3 5.6%

Proportional EBITDA 88.8 88.8 0.0% 88.8 78.3 13.5%

Depreciation & amortisation (8.4) (8.6) -1.7% (8.4) (8.6) -1.6%

EBIT 74.2 80.2 -7.5% 74.2 69.7 6.5%

Net interest (11.9) (12.7) -5.9% (11.9) (11.0) 7.9%

Tax (13.5) (16.1) -16.1% (13.5) (15.4) -12.0%

Consolidated NPAT 48.8 51.4 -5.2% 48.8 43.3 12.7%

Associates 12.9 11.7 10.4% 12.9 11.2 15.2%

Minorities 12.2 12.6 -3.4% 12.2 10.5 16.2%

Significant items (post-tax) 0.0 0.0 NM 0.0 0.0 NM

NPAT (AU reported) 49.5 50.5 -2.0% 49.5 44.0 12.5%

NPAT (adjusted) 49.5 50.5 -2.0% 49.5 44.0 12.5%

EPS (AU reported) 12.3 12.7 -2.8% 12.3 12.0 2.6%

EPS (adjusted) 12.3 12.7 -2.8% 12.3 12.0 2.6%

DPS 8.6 8.5 1.8% 8.6 7.9 8.9%

EBITDA Margins

Advertising 26.2% 26.9% 26.2% 27.4%

Diversified 19.7% 23.0% 19.7% 23.0%

Total 20.7% 22.7% 20.7% 22.3%

Cash Flow

Operating 35.4 70.0 35.4 52.6

Financing (5.7) (12.4) (5.7) 25.0

Investing (31.3) (33.0) (31.3) (61.2)

Inc/Dec net cash (1.6) 24.6 (1.6) 16.4

Balance Sheet

Net Debt 129.1 94.2 129.1 92.6

Equity 495.9 493.8 495.9 463.4

ND/ND+E 20.7% 16.0% 20.7% 16.7%

ND/EBITDA 1.0x 0.7x 1.0x 0.8x

Scorecard Performance

FY13 YoY Comparison



14 February 2014


Equity Research

Integrated Telecommunication Services (Telecommunications (AU))

Telstra Corporation

(TLS.AX / TLS AU) RESULTS

Mobile performance remains strong

■ Solid 1H14 result: Telstra's 1H14 EBITDA of A$5.29bn (ex Sensis) was in

line with our A$5.27bn forecast and up 7% vs pcp (+5% ex A$127m Telstra

Clear impairment charge in pcp and ASB119). 1H14 NPAT of A$1.93bn was

2.6% ahead of our A$1.88bn forecast on lower depreciation. FY14 guidance

for 'low-single digit EBITDA growth' (incl Sensis) was maintained. We raise

our FY14F EBITDA by 0.8% to A$10.86bn (ex Sensis). FY14F NPAT is

increased 2.6% to A$4.1bn due to lower depreciation. The interim dividend

was raised to 14.5c (fully franked) and we forecast 29c for the full year.

■ Mobile performance remained strong: Mobile growth remained strong, with

mobile revenue rising 6.4% in 1H14 (vs +6.0% in FY13). Telstra added 739k

mobile SIOs (vs 608k in pcp), although the majority were prepaid (postpaid

handheld +103k). Postpaid handset ARPU (ex MRO) grew 2%. Mobile

margins expanded to 39% (from 37% in pcp) and mobile EBITDA was up

13%. We calculate that the total mobile market declined 0.6% in the 6m to Dec

and Telstra's market share rose to 51.3% (vs 50.6% in 6m to June).

■ Costs slightly higher than expected: Costs grew 2.1% in the half, due to

investment in NAS growth and lower efficiency savings (A$230m). The

company said that efficiency savings will increase in 2H14 and it continues

to target A$1bn in savings per annum for the next few years.

■ OUTPERFORM rating and A$5.70 target price unchanged: We remain

positive on the Telstra investment story with strong cashflows being

supported by continued mobile growth, cost savings and NBN payments.

We see upside from the emerging Asian growth strategy. Finalisation of

NBN negotiations should be a key catalyst.


Mean^

CS tgt^

Sh Prc

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



Absolute (%) -1.0 -0.4 11.0

Relative (%) -2.8 1.3 4.9


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 25,502.0 25,186.2 24,555.1 25,132.4

EBITDA (A$mn) 10,740.0 10,855.9 10,885.4 11,732.3

EBIT (A$mn) 6,502.0 6,833.1 6,862.1 7,666.0

Net income (A$mn) 3,866.0 4,094.0 4,265.2 4,826.8

EPS (CS adj.) (Ac) 31.07 32.90 34.28 39.03

Change from previous EPS (%) n.a. 2.6 2.9 2.3


EPS growth (%) 9.0 5.9 4.2 13.9

P/E (x) 16.6 15.7 15.0 13.2

Dividend (Ac) 28.00 29.00 30.00 31.00

Dividend yield (%) 5.4 5.6 5.8 6.0

P/B (x) 5.1 4.1 3.9 3.8

Net debt/equity (%) 97.7 67.3 64.8 57.7





Rating OUTPERFORM*

Price (13 Feb 14, A$) 5.15



Yr avg. mthly trading (A$mn) 3,212

Last month's trading (A$mn) 3,673

Projected return:






benchmark.


Research Analysts

Fraser McLeish

61 2 8205 4069

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

Bradley Clibborn

61 2 8205 4465

[email protected]

14 February 2014


Figure 1: TLS—Financial summary

Telstra Corporation (TLS) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Share Price: A$5.15 Earnings 06/12A 06/13A 06/14E 06/15E 06/16ERating c_EPS_SHARESEquiv. FPO (period avg.) mn 12,443.0 12,443.0 12,443.0 12,443.0 12,365.6




c_DPS*100DPS c 28.0 28.0 29.0 30.0 31.0

c_PAYOUT*100Payout % 98.2 90.1 88.1 87.5 79.4




Sales revenue 25,165.0 25,502.0 25,186.2 24,555.1 25,132.4 ValuationEBITDA 10,371.0 10,740.0 10,855.9 10,885.4 11,732.3 c_PE P/E x 18.1 16.6 15.7 15.0 13.2

Depr. & Amort. (4,412.0) (4,238.0) (4,022.8) (4,023.3) (4,066.3) c_EBIT_MULTIPLE_CURREV/EBIT x 12.7 11.8 11.0 10.9 9.6

EBIT 5,959.0 6,502.0 6,833.1 6,862.1 7,666.0 c_EBITDA_MULTIPLE_CUEV/EBITDA x 7.3 7.1 6.9 6.9 6.3




Profit before tax 5,064.0 5,503.0 5,881.2 6,062.9 6,861.6 ReturnsIncome tax (1,498.0) (1,585.0) (1,722.6) (1,776.2) (2,010.5) c_ROE*100Return on Equity % 30.9 30.7 26.2 26.3 29.3

Profit after tax 3,566.0 3,918.0 4,158.6 4,286.7 4,851.1 c_I_NPAT/c_I_SALES*100Profit Margin % 14.1 15.2 16.3 17.4 19.2




Normalised NPAT 3,547.0 3,866.0 4,094.0 4,265.2 4,826.8 c_ROIC*100Return on Invested Cap. % 18.2 18.2 18.1 17.8 20.4

Unusual item after tax (142.0) (127.0) 329.0 0.0 0.0 GearingReported NPAT 3,405.0 3,739.0 4,423.0 4,265.2 4,826.8 c_GEARING*100Net Debt to Net debt + Equity % 49.2 49.4 40.2 39.3 36.6



Cash & equivalents 3,945.0 2,479.0 5,146.8 5,854.3 5,277.7 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 6.7 6.5 7.2 8.6 9.5


Receivables 4,346.0 4,557.0 4,437.7 4,353.0 4,452.5 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 119.5 146.7 136.2 170.4 128.2

Other current assets 1,399.0 436.0 3,428.0 3,428.0 3,428.0

Current assets 9,950.0 7,903.0 13,418.0 14,013.0 13,562.8 MSCI IVA (ESG) Rating BBBProperty, plant & equip. 20,504.0 20,326.0 19,987.9 19,887.4 19,885.8 TP ESG Risk (%): 0

Intangibles 7,421.0 8,202.0 6,278.7 7,095.7 6,682.2

Other non-current assets 1,650.0 2,096.0 2,798.0 2,798.0 2,798.0


Total assets 39,525.0 38,527.0 42,482.6 43,794.1 42,928.8

Payables 4,131.0 4,241.0 4,045.6 4,031.7 4,392.8

Interest bearing debt 15,264.0 15,064.0 15,895.0 16,595.0 14,995.0

Other liabilities 8,441.0 6,347.0 6,579.6 6,589.1 6,694.7 MSCI IVA Risk: Positive


Net assets 11,689.0 12,875.0 15,962.4 16,578.3 16,846.3

Ordinary equity 11,480.0 12,611.0 15,632.8 16,227.3 16,471.0




Net debt 11,319.0 12,585.0 10,748.2 10,740.7 9,717.3 Source: MSCI ESG Research


EBIT 5,959.0 6,502.0 6,833.1 6,862.1 7,666.0

Net interest -1,037.0 -801.0 -898.9 -799.2 -804.4

Depr & Amort 4,412.0 4,238.0 4,022.8 4,023.3 4,066.3

Tax paid -1,597.0 -1,500.0 -1,556.0 -1,766.7 -1,904.9

Working capital -148.0 -272.0 -50.6 98.6 234.7

Other 758.0 -453.0 -245.0 0.0 0.0

Operating cashflow 8,347.0 7,714.0 8,105.4 8,418.1 9,257.7

Capex -3,948.0 -4,509.0 -3,962.3 -4,739.9 -3,651.2

Capex - expansionary -424.9 -2,255.0 -251.9 0.0 0.0

Capex - maintenance -3,523.1 -2,254.0 -3,710.5 -4,739.9 -3,651.2

Acquisitions & Invest 17.0 48.0 -146.0 0.0 0.0

Asset sale proceeds -11.0 709.0 2,452.0 0.0 0.0

Other -362.0 25.0 18.0 0.0 0.0

Investing cashflow -4,304.0 -3,727.0 -1,638.3 -4,739.9 -3,651.2

Dividends paid -3,491.0 -3,508.0 -3,568.2 -3,670.7 -3,783.1

Equity raised 0.0 0.0 27.0 0.0 -800.0

Net borrowings 825.0 -1,968.0 -264.0 700.0 -1,600.0

Other -86.0 -13.0 -15.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -2,752.0 -5,489.0 -3,820.2 -2,970.7 -6,183.1 Absolute -1.0% -0.4% 11.0%

Total cashflow 1,291.0 -1,502.0 2,646.8 707.5 -576.6 Relative -2.8% 1.3% 4.9%

Adjustments 17.0 36.0 21.0 0.0 0.0

Net change in cash 1,308.0 -1,466.0 2,667.8 707.5 -576.6 Source: Reuters 52 week trading range: 4.48-5.28

MSCI IVA Risk Comment: We see medium to long term upside

risks to TLS ESG rating driven by 1) the reduction in unionised

labor force as NBN rolls out. This will reduce risks for industrial

disputes going forward adding to TLS Social rating. 2) Secondly

after the NBN is rolled out TLS will not longer be in the business of

fixed line access, this has been a large source of regulatory

disputes / fines historically. Hence we see upside risk to TLS

governance rating as regulatory disputes become a thing of the

13/02/2014 20:33

Telstra Corporation Limited (Telstra) is an Australia-based company. The principal activity of

the Company is to provide telecommunications and information services for domestic and

international customers

Credit Suisse View

TP Risk Comment: Under a scenario, reducing beta to 0.9 from

1.0 to reflect improving ESG rating as NBN rolls out would

positively impact our valuation by 4.7%.

OUTPERFORM

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

TLS.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector



14 February 2014


1H14 results

1H14 EBITDA of A$5.29bn (ex Sensis) was in line with our A$5.27bn forecast and up 7%

vs pcp. 1H14 NPAT of A$1.93bn was 2.6% ahead of our A$1.88bn forecast due to lower

depreciation.

Figure 2: TLS 1H14 result vs 1H13 and CS forecasts

1H13

Interim Forecasts (A$m) 1H14F 1H14A Variance Restated Growth

P&L

Sales revenue 12,400 12,564 1.3% 12,124 3.6%

Other revenue 69 62 -9.6% 67 -7.5%

Total revenue 12,469 12,626 1.3% 12,191 3.6%

Other income 107 177 66.2% 110 60.9%

Total income 12,575 12,803 1.8% 12,301 4.1%

Costs (7,130) (7,514) 5.4% (7,359) 2.1%

EBITDA 5,270 5,289 0.4% 4,942 7.0%

D&A (2,095) (2,013) -3.9% (2,068) -2.7%

EBIT 3,176 3,276 3.2% 2,874 14.0%

Interest (447) (490) 9.7% (477) 2.7%

Tax (822) (825) 0.4% (758) 8.8%

Consolidated NPAT 1,907 1,961 2.8% 1,639 19.6%

Minorities (31) (36) 16.1% (26) 38.5%

NPAT (normalised) 1,877 1,925 2.6% 1,613 19.3%

NPAT (reported) 1,777 1,704 -4.1% 1,560 9.2%

Normalised EPS (c) 15.2 15.5 2.2% 13.0 19.6%

Reported EPS (c) 14.4 13.7 -4.6% 12.5 9.3%

DPS (c) 14.5 14.5 0.0% 14.0 3.6%

Segmental Revenue

PSTN 2,023 2,059 1.8% 2,220 -7.3%

Fixed Internet 1,080 1,090 1.0% 1,028 6.0%

Total Fixed 3,612 3,626 0.4% 3,680 -1.5%

Mobile 4,830 4,861 0.6% 4,567 6.4%

IP & Data 1,516 1,498 -1.2% 1,543 -2.9%

NAS 712 821 15.3% 636 29.1%

Media 560 492 -12.1% 499 -1.4%

International 1,015 1,083 6.7% 844 28.3%

Other 156 183 17.4% 356 -48.6%

Total 12,400 12,564 1.3% 12,124 3.6%

Other Financial Information

Capex 1,860 1,814 -2.5% 1,852 -2.1%

Free Cashflow 1,371 1,650 20.4% 2,155 -23.4%

KPIs

Mobile SIOs 15,628 15,811 1.2% 14,423 9.6%

Mobile net adds 556 739 32.9% 608 21.5%

Postpaid handheld ARPU ex-MRO $64.10 $66.09 3.1% $64.75 2.1%

Retail basic access lines 6,423 6,388 -0.5% 6,699 -4.6%

Retail basic access net adds (120) (155) 28.8% (178) -12.9%

Retail Broadband subscribers 2,862 2,847 -0.5% 2,684 6.1%

Retail Broadband net adds 90 75 -16.7% 85 -11.8% Source: Company data, Credit Suisse estimates

14 February 2014


Changes to forecasts

We raise our FY14F EBITDA by 0.8% to A$10.86bn (from A$10.78bn previously).

Figure 3: TLS changes to earnings forecasts

FY13

June Y/E Restated Previous Revised Change Previous Revised Change FY14F FY15F

P&L

Sales revenue 24,298 24,994 25,186 0.8% 24,069 24,555 2.0% 3.7% -2.5%

Other income 478 433 544 25.6% 614 711 15.8% 13.8% 30.7%

Total revenue 24,776 25,426 25,730 1.2% 24,682 25,266 2.4% 3.9% -1.8%

Costs (14,608) (14,652) (14,874) 1.5% (13,860) (14,380) 3.8% 1.8% -3.3%

EBITDA 10,168 10,775 10,856 0.8% 10,823 10,885 0.6% 6.8% 0.3%

D&A (4,078) (4,139) (4,023) -2.8% (4,105) (4,023) -2.0% -1.4% 0.0%

EBIT 6,090 6,636 6,833 3.0% 6,718 6,862 2.1% 12.2% 0.4%

Interest (933) (895) (952) 6.4% (810) (799) -1.4% 2.0% -16.0%

Tax (1,517) (1,692) (1,723) 1.8% (1,742) (1,776) 2.0% 13.6% 3.1%

Minorities (52) (58) (65) 10.6% (21) (21) 2.9% 24.2% -66.8%

NPAT (normalised, continuing ops) 3,588 3,990 4,094 2.6% 4,145 4,265 2.9% 14.1% 4.2%

Discontinued / exceptional 151 450 329 nm 0 0 nm nm nm

NPAT (reported) 3,739 4,440 4,423 -0.4% 4,145 4,265 2.9% 18.3% -3.6%

Normalised EPS (c) 28.8 32.1 32.9 2.6% 33.3 34.3 2.9% 14.1% 4.2%

Reported EPS (c) 30.0 35.7 35.5 -0.4% 33.3 34.3 2.9% 18.3% -3.6%

DPS (c) 28.0 29.0 29.0 0.0% 30.0 30.0 0.0% 3.6% 3.4%

Segmental Revenue

PSTN 4,359 3,977 4,043 1.7% 3,612 3,716 2.9% -7.2% -8.1%

Fixed Internet 2,087 2,171 2,184 0.6% 2,193 2,213 0.9% 4.6% 1.3%

Fixed 7,305 7,224 7,217 -0.1% 7,132 7,248 1.6% -1.2% 0.4%

Mobile 9,200 9,633 9,740 1.1% 10,004 10,120 1.2% 5.9% 3.9%

IP & Data 3,041 3,005 2,968 -1.2% 2,967 2,950 -0.6% -2.4% -0.6%

NAS 1,484 1,640 1,800 9.7% 1,729 1,980 14.5% 21.3% 10.0%

Media 987 1,105 976 -11.7% 1,049 967 -7.9% -1.1% -1.0%

International 1,739 2,075 2,154 3.8% 958 1,041 8.6% 23.9% -51.7%

Other 541 313 330 5.6% 229 250 9.1% -39.0% -24.2%

Total 24,298 24,994 25,186 0.8% 24,069 24,555 2.0% 3.7% -2.5%

Other Financial Information

Capex 3,749 3,962 5.7% 4,538 4,740 4.5% 5.4% 19.6%

Free Cashflow 5,041 5,016 -0.5% 5,710 5,736 0.5% 2.5% 14.4%

KPIs - Fixed

Mobile SIOs 16,333 16,883 3.4% 17,048 17,925 5.1% 10.3% 6.2%

Mobile net adds 1,020 1,570 53.9% 715 1,042 45.7% 9.0% -33.6%

Postpaid handheld ARPU ex-MRO $65.33 $65.38 0.1% $64.75 $65.38 1.0% 0.1% 0.0%

Retail basic access lines 6,380 6,310 -1.1% 6,233 6,163 -1.1% -3.6% -2.3%

Retail basic access lines net adds (163) (233) 43.0% (147) (147) 0.0% -30.3% -37.0%

Retail broadband subscribers 2,990 2,975 -0.5% 3,163 3,148 -0.5% 7.3% 5.8%

Retail broadband net adds 218 203 -6.9% 173 173 0.0% 17.6% -15.0%

FY14F FY15F Growth


Mobile remains strong

■ Mobile revenue grew 6.4% in 1H14 (service revenue +7.3%), which was an

acceleration from the 6.0% growth in FY13. We forecast mobile revenue to grow 5.9%

in FY14 (vs +4.7% previously).

■ Total mobile SIOs were up 9.6% to 15.8m, with 739k SIOs added in the half (vs 608k

in pcp and CS 556k forecast). However, most of the increase was in pre-pay. Postpaid

handset subs were up 103k (vs 265k in pcp) and WBB subs grew 102k

(vs 218k in pcp).

14 February 2014


■ Postpaid handheld ARPU was flat on a reported basis, but grew 2.1% excl MRO. WBB

ARPU fell 0.5% to A$29.60.

■ Mobile margins increased to 39% (vs 37% in pcp) due to lower subsidy costs. We

calculate that mobile EBITDA grew 13% to A$1.9bn in the half

Telstra had a 51.3% mobile share in 6m to December

All three mobile operators have now reported revenue and subscriber figures for the 6m to

December (VHA has not reported, but Vodafone Group gave high level numbers for

Australia in its recent results).

On this basis, we calculate that total mobile market revenue was -0.6% (service revenue

down 0.2%) in the 6m to December (vs pcp) and that Telstra had a market share of 51.3%

in the period (up from 50.6% in 6m to June).

Figure 4: Mobile revenue growth (service & equipment) Figure 5: Mobile revenue market share

2H11 1H12 2H12 1H13 2H13 1H14

Telstra 10.8% 11.0% 6.1% 4.6% 7.4% 6.4%

Optus 5.7% 2.2% -3.3% -6.1% -3.7% -6.4%

VHA -3.5% -5.9% -9.0% -12.5% -15.7% -8.1%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2H11 1H12 2H12 1H13 2H13 1H14

Telstra 43.6% 44.5% 46.5% 47.9% 50.6% 51.3%

Optus 32.0% 31.8% 31.1% 30.8% 30.4% 29.0%

VHA 24.4% 23.6% 22.3% 21.3% 19.0% 19.7%

0%

10%

20%

30%

40%

50%

60%


Other key divisional results

■ PSTN – The rate of PSTN revenue decline eased slightly to -7.3% in 1H14 (vs –9.5%

in FY13). Basic access revenues fell 1.9% and usage revenue was down 14.8%. The

rate of decline in basic access lines eased slightly to -155k in 1H14 (vs -178k in pcp),

with the total base of 6.39m down 4.6% from Dec 2012.

■ Fixed broadband – Retail broadband growth remained solid with revenue rising 7.8%

in 1H14 (vs +9.3% in FY13). Telstra added 75k retail broadband subscribers in the

period (vs 85k in pcp), with total retail broadband subscribers of 2.85m up 6% from

year ago levels. ARPU increased 1% to A$55.04.

■ NAS – NAS revenue growth was very strong and was up 29% vs pcp driven by some

large contract wins in the period (e.g. Department of Defence). Revenue was boosted

by A$17m (3%) from the acquisition of North Shore Communications.

■ IP&data – IP&data revenue declined 2.9% in 1H14. The rate of decline in ISDN

revenue accelerated to –8.8% (vs –5.9% in FY13) and more than offset 3.9% growth

in IP Access revenues.

■ NBN – NBN related revenue increased to A$294m in 1H14 (vs A$176m in 1H13) due

primarily to Infrastructure payments for the transit network. Telstra said that it expects

the transit network to be completed by the middle of the calendar year.

14 February 2014


Costs: Still targeting A$1bn efficiency savings

Telstra's cost growth was slightly higher than we expected at 2.1% in the half. We

calculate that underlying cost growth was c3.2% adjusting for the Telstra Clear impairment

charge in the pcp and cA$50m of additional costs relating to the adoption of AASB119

'Employee Benefits' (which add cA$100m to cost in a full year).

The company said that cost growth was driven primarily by spend in the NAS business to

support new contract wins.

Efficiency savings of A$230m were lower than in recent periods. However, the company

said that this was mainly a timing issue and that it continues to target savings of cA$1bn

per annum for the next few years.

Figure 6: TLS cost movement 1H14 vs 1H13


Investment view and valuation

We remain positive on the Telstra investment story with strong cashflows supported by

continued mobile growth, cost savings and NBN payments. We see upside from the

emerging Asian growth strategy. Finalisation of NBN negotiations should be a key catalyst

Our Telstra sum of the parts valuation (based on divisional DCF) and target price are

unchanged at A$5.70. OUTPERFORM rating retained.

Figure 7: TLS—SOTP valuation

EBITDA EV/ EBITDA

Business line EV $ps FY14f FY15f FY14f FY15f

…Run off Fixed cash flow 5,752 0.46

…NBN resale 4,303 0.35

Total Fixed Line 10,055 0.81 3,461 3,436 2.9x 2.9x

Mobile 33,010 2.65 3,845 4,027 8.6x 8.2x

IP & Data 11,661 0.94 1,856 1,770 6.3x 6.6x

Sensis (proceeds plus 30% stake) 649 0.05 52 60 12.6x 10.8x

CSL (HK) 2,000 0.16 313 8.4x nm

Autohome (66%) 2,262 0.18 75 97 30.3x 23.3x

Network applications & Services 3,265 0.26 270 327 12.1x 10.0x

Other (inc TUSMA funding & NBN build work) 2,735 0.22 695 780 3.9x 3.5x

NBN - Infrastructure Services 9,131 0.73 287 391 nm nm

Telstra Enterprise valuation 74,768 6.01 10,853 10,889 6.9x 6.9x

Add: Foxtel (50%) 3,500 0.28 1,108 1,232 8.0x 7.2x

Add: Non-recurring (migration payments) 6,496 0.52

Less: Net debt -13,873 -1.11

Equity value of TLS 70,891 5.70 Source: Company data, Credit Suisse estimates

14 February 2014


Telstra – Focus charts

Figure 8: Telstra's mobile revenue growth Figure 9: Mobile service revenue growth

6%

8%

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4%

9%8%

11% 11%

6%

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2H11 1H12 2H12 1H13 2H13 1H14

Service revenue Total mobile revenue

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Handheld Wireless Broadband


Figure 10: Mobile SIOs and growth Figure 11: Telstra's mobile SIOs net adds (000s)

0%

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SIOs Growth vs pcp

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Figure 12: Postpaid handheld net adds (000s) Figure 13: Wireless broadband net adds (000s)

334 338

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14 February 2014


Figure 14: Postpaid handheld ARPU ex-MRO Figure 15: Prepaid handheld ARPU

$65.33 $66.48$63.69 $64.75 $65.39 $66.09

$0

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Figure 16: Wireless broadband ARPU Figure 17: Blended mobile ARPU

$36.37

$32.50$29.84 $29.75 $29.93 $29.60

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Figure 18: Telstra's fixed line revenue growth Figure 19: Telstra's basic access net adds & growth

-8%

-9%

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-8%-7%

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PSTN Total Fixed

-140-124

-157-178

-144 -155

-3.3%-3.5%

-3.7%-4.0%

-3.3%

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Net adds Growth vs pcp


14 February 2014


Figure 20: Telstra's PSTN revenue growth Figure 21: Telstra's PSTN revenue split

-4.1% -4.7%

-6.5%-5.2%

-1.9% -1.9%

-11.3%

-13.6%

-15.8%-17.4% -16.8%

-14.9%

-20%

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Basic access Calling usage

0

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Figure 22: NBN revenue A$m Figure 23: Broadband revenue growth

1H13 2H13 1H14

Other 60 75 84

Info campaign 90 78 52

Infrastructure 26 63 139

Migration 0 7 19

0

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Figure 24: Retail broadband net adds (000s) Figure 25: Retail broadband ARPU

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14 February 2014


Figure 26: IP & Data revenue growth Figure 27: IP & Data revenue split

-1% -3%1%

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Figure 28: NAS revenue growth Figure 29: Pro forma Telstra group revenue growth

19% 19%

4%

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29%

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2H11 1H12 2H12 1H13 2H13 1H14

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1.0% 0.9%

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0%

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2H11 1H12 2H12 1H13 2H13 1H14


Figure 30: Pro forma Telstra group cost growth Figure 31: Telstra's EBITDA margins

6.2%

0.0%

0.4%

-1.2%

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-1%

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2H11 1H12 2H12 1H13 2H13 1H14

2H11 1H12 2H12 1H13 2H13 1H14

Mobile 36% 34% 38% 37% 39% 39%

Broadband 31% 36% 40% 41% 43% 42%

PSTN 59% 60% 60% 62% 63% 61%

IP & Data 64% 63% 65% 65% 65% 65%

Total 42% 39% 43% 40% 43% 41%

0%

10%

20%

30%

40%

50%

60%

70%

Mobile Broadband PSTN

IP & Data Total



14 February 2014


Equity Research

Travel & Leisure (Online - SMID (AU))

Webjet

(WEB.AX / WEB AU) INCREASE TARGET PRICE

Risks to the core, but becoming full service

■ Zuji and LoH positive, but core still under pressure: Zuji appears on

track and the TTV result for Lots of Hotels was ahead of expectations with

the run rate now $65mn (up from $40mn at FY13). Backing out of the result

the $2.1mn other gains and losses and adding back the $1mn in duplicated

IT costs we believe the underlying EBITDA for 1H14 was ~$11.2mn and that

it is supportive of FY14 guidance. However, we remain cautious given that

we believe volumes in the core flights business remain negative, that in the

2H there will be the $2mn of incremental marketing spend for Zuji and that

WEB is focused on scale in LoH and not on the short-term profitability

($0.4mn 1H14 loss may be carried into 2H). NEUTRAL rating retained.

■ Key takeaways: (1) WEB's revenue margin increased ~23% to 10.3%

(revenue / TTV) due to mix shift (higher proportion of accommodation TTV),

1H14 includes the full annualisation of the September 2012 increase in

booking fees and improved commercial agreements with the airlines; (2)

management gave no guidance into the air booking volumes in 1H14, and

we believe that the negative run rate in 2H13 has likely continued, implying

that WEB's booking volumes have continued to decline in its core flights

business; (3) the weakness in WEB's booking volumes is not due to a single

factor, it is a combination of many (cycling strong comps, slowing shift

online, increased competition from airlines and other OTAs, growth in lower

conversion mobile traffic); (4) the outlook for WEB's core flights business is

softer, with Zuji and other initiatives required to drive earnings growth in

FY14 and beyond; and (5) Lots of Hotels is growing ahead of expectations,

but management has changed its focus from profitability to scale ($0.4mn

EBITDA loss in 1H14, previous guidance was for it to be profitable).

■ Target price: $3.25 (from $2.90) moving back to an equally blended PER

and DCF-based valuation methodology. Modest EPS revisions.


Mean^CS tgt^ Sh Prc

-40%

-20%

0%

20%

40%

60%

80%

100%



Absolute (%) 5.3 20.6 -32.0

Relative (%) 3.5 22.3 -38.1


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 74.8 101.7 108.4 114.9

EBITDA (A$mn) 17.7 22.4 27.8 31.0

EBIT (A$mn) 15.7 19.7 24.9 28.1

Net income (A$mn) 12.0 16.0 18.9 21.3

EPS (CS adj.) (Ac) 15.75 19.19 21.77 24.52



EPS growth (%) -16.2 21.8 13.4 12.7

P/E (x) 20.1 16.5 14.5 12.9

Dividend (Ac) 13.00 13.53 15.17 17.07

Dividend yield (%) 4.1 4.3 4.8 5.4

P/B (x) 4.1 4.1 3.7 3.4






Rating NEUTRAL*

Price (13 Feb 14, A$) 3.16





Projected return:






benchmark.


Research Analysts

Chris Smith

61 2 8205 4210

[email protected]

Paul Buys

61 2 8205 4538

[email protected]

Samantha Carleton

61 2 8205 4148

[email protected]

Bradley Clibborn

61 2 8205 4465

[email protected]

Sarah Mann

61 2 8205 4610

[email protected]

14 February 2014


Figure 1: WEB financial summary

Webjet (WEB) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016



vs Share price % 3.00 EPS_GROWTH*100EPS Growth % -16.2 21.8 13.4 12.7


c_DPS*100DPS c 13.0 13.0 13.5 15.2 17.1

c_PAYOUT*100Payout % 69.2 82.5 70.5 69.7 69.6


c_FCF_PS*100Free CFPS c 19.8 26.9 -16.1 17.6 22.4



EBITDA 18.7 17.7 22.4 27.8 31.0 c_PE P/E x 16.8 20.1 16.5 14.5 12.9



Associates (0.5) (0.1) 0.0 0.0 0.0 c_DIV_YIELD*100Dividend Yield % 4.1 4.1 4.3 4.8 5.4

Net interest Exp. 1.6 1.2 0.9 0.8 0.8 c_FCF_YIELD*100FCF Yield % 6.3 8.5 -5.1 5.6 7.1







Normalised NPAT 13.8 12.0 16.0 18.9 21.3 c_ROIC*100Return on Invested Cap. % -1,587.0 -182.7 62.6 65.2 69.8

Unusual item after tax 0.0 (5.4) 0.8 0.0 0.0 Gearing

Reported NPAT 13.8 6.6 16.8 18.9 21.3 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash Net Cash Net Cash Net Cash


Cash & equivalents 33.8 66.8 42.7 45.0 50.4 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -11.2 -13.2 -22.7 -32.9 -34.5


Receivables 4.6 17.0 20.5 21.5 22.6 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 568.5 816.6 1,024.6 566.4 478.2




Intangibles 10.4 39.0 40.5 38.6 36.8



Total assets 53.8 134.2 118.7 125.2 134.0

Payables 16.5 63.0 36.7 37.0 38.5


Other liabilities 4.4 10.4 15.3 15.7 16.1 MSCI IVA Risk:


Net assets 33.0 60.7 66.8 72.4 79.4

Ordinary equity 32.9 60.8 66.9 73.1 80.3

Minority interests 0.1 -0.1 -0.1 -0.4 -0.7



Net debt -33.8 -66.8 -42.7 -45.0 -50.4 Source: MSCI ESG Research


EBIT 18.2 15.7 19.7 24.9 28.1

Net interest 1.6 1.3 0.8 0.8 0.8

Depr & Amort 0.6 2.0 2.8 2.9 2.9

Tax paid -5.4 -5.6 -4.5 -6.6 -7.6

Working capital 0.0 0.0 -2.5 -0.6 0.3

Other 2.8 12.6 -19.8 0.0 0.0

Operating cashflow 17.7 26.0 -3.6 21.3 24.5

Capex -3.2 -5.6 -9.9 -6.1 -5.1

Capex - expansionary 0.0 0.0 0.0 0.0 0.0


Acquisitions & Invest 0.0 -4.7 0.0 0.0 0.0


Other 8.7 -1.4 0.1 0.0 0.0

Investing cashflow 5.5 -11.6 -9.8 -6.1 -5.1

Dividends paid -8.8 -9.7 -11.0 -12.7 -14.0

Equity raised -12.3 28.8 0.0 0.0 0.0

Net borrowings 0.0 0.0 0.0 0.0 0.0


Financing cashflow -21.0 19.1 -11.0 -12.7 -14.0 Absolute 5.3% 20.6% -32.0%

Total cashflow 2.1 33.4 -24.3 2.5 5.4 Relative 3.5% 22.3% -38.1%

Adjustments 0.0 -0.3 0.0 0.0 0.0

Net change in cash 2.1 33.1 -24.3 2.5 5.4 Source: Reuters 52 week trading range: 2.44-5.21

MSCI IVA Risk Comment: No MSCI rating

2/13/2014 11:44

Webjet Limited is an online travel agency that operates as an online manager and marketer

of travel and related services. It provides flight book ing services, accommodation and travel

package book ing services in Australia, Singapore and Hong Kong.

Credit Suisse View

TP Risk Comment: For WEB, outside of the travel ESG risk

factors we do not include any ESG impact in our base

valuation. We highlight key ESG risk areas for WEB as 1) the

privacy and security of customer information; and 2) contract

negotiations.

NEUTRAL

2.30

2.80

3.30

3.80

4.30

4.80

5.30

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

WEB.AX XJO

2.3

3.3

4.3

5.3

6.3

7.3

8.3

9.3


Stock Local Sector



14 February 2014


Key takeaways

■ 1H14 result is supportive of FY14 guidance: Normalised EBITDA increased

+21.5% to $12.3mn, but we note that this includes $2.1mn of other gains and losses

(which we understand comprised ~$0.9mn from the sale of part of the US business,

and the balance from an undisclosed contract). Excluding the $2.1mn of other gains

and losses and adding back the $1mn of duplicated IT costs for Zuji results in an

EBITDA for 1H14 of ~$11.2mn. We believe this is supportive of the guidance provided

at the AGM in November for EBITDA of $22.5mn ($21.5mn guidance and adding back

$1mn of IT duplication).

TTV increased 33.4% to $507mn (WEB did not disclose an underlying TTV figure).

From the review of operations in the accounts, we understand that Zuji and Lots of

Hotels contributed $18.2mn of revenue in 1H14. This implies that the residual revenue

in 1H14 was $31.8mn – flat on the pcp.

WEB declared an interim dividend of 6.3cps (6.0cps pcp).

■ Revenue margin improvement a stand out, but a doubled edged sword: The

improvement in WEB's revenue margin was again the stand out feature of the result.

The margin (revenue / TTV) increased to 10.3% from 8.4% in the pcp (8.6% FY13,

8.8% 2H13) and compares to an average of 7.3% over the past five years. However,

the rate of increase in the revenue margin was concerning since it implies a more

substantial mix shift in the business than we had anticipated. We understand that

there are four main drivers of this mix change:

o Increased contribution of higher margin accommodation: We believe that the

overall contribution of accommodation within WEB's TTV has increased due to

the integration of Zuji, as well as the decline in WEB's core booking volumes.

o Increased booking fees: In September 2012 WEB increased its booking fees on

domestic and international flights. On a weighted booking basis (domestic ~85%

transactions, international 15%), the booking fee for the group increased ~9%.

1H14 included three months of this benefit (~4.5%).

o Improved airline commercial agreements: WEB's increased scale in the airfare

market from the inclusion of Zuji allowed it to renegotiate its commissions and

overrides on improved terms.

o Selling hotels at a full margin: In the past WEB's hotel business was discounting

its hotel inventory and achieving a ~6% margin. WEB has focused on its profitability

and we understand accommodation margins are now closer to 13%.

■ Core booking volumes are declining and we have less visibility: WEB's total

number of flight bookings in FY13 increased ~1% to 1,062,000 (from 1,053,000). The

growth delivered was significantly below the historical levels (FY12 +17%, FY11

+13%, FY10 +21%). WEB did not provide direct commentary or guidance to the

booking volumes in 1H14 or for the first six weeks' trading in 2H14. We believe that

the negative run rate in 2H13 has likely continued and that WEB's booking volumes

have continued to decline in its core flights business.

■ Longer term we see no reason why WEB with its strong brand shouldn't perform

in line with the broader market growth, but risk is to the downside in the near

term: WEB's brand strength continues to improve (as shown by Hitwise data) and

WEB generates a significant amount of free traffic to the website, which in the long

term should let it grow in line with the broader market (domestic flights have trended at

~4% growth pa and international at 5% pa). The risk we see is that, in the near term

with the travel market changing, WEB will continue to underperform and that booking

volumes will continue to decline. We believe the market is changing due to:

14 February 2014


o Mobile growth: At this point in time mobile is primarily a price discovery tool and

is lowering conversion rates across the travel industry.

o Slowing shift online: After a number of years of growth ahead of market

volumes, it appears that the level of online penetration in the travel industry is

plateauing.

o Airlines continue to compete directly: Competition continues from airlines

who have direct distribution models in both the domestic and international flights

market; and

o OTA market remains competitive: Competition within the broader OTA market

remains elevated and there have been a number of new entrants.

We are not pointing to an immediate or large decline in WEB's core volumes, but

highlighting that there are headwinds in the core flights business which are likely to

result in continued volume declines in the short term. We do not believe that there is a

simple strategic response to return the business to the level of volume growth

achieved in recent years. This is our key concern for the WEB business.

■ Zuji – appears on track: We believe that Zuji contributed $16.8mn of revenue in

1H14 (backing out the contribution of Lots of Hotels ($1.441mn) from the $18.2 uplift

of revenue disclosed in the operating review. We understand that Zuji is now fully

integrated into WEB's cloud-based platform and that all of the cost based synergies

have now been achieved. We forecast an underlying EBITDA contribution of $3mn for

Zuji in FY14 (adding back the $1mn of duplicated IT costs).

■ Zuji's importance has increased as WEB moves to becoming a full service OTA:

WEB's core business volumes have declined since the acquisition of Zuji and with this

likely to continue in at least the short to medium term, Zuji is an important driver of

growth in terms of both its diversification in accommodation and in Asia.

■ LoH – TTV ahead of expectations, but focus is not on the short term: At the time

of the FY13 result the LoH business was running at a run-rate of $40mn of TTV. This

has increased ahead of expectations and is currently $65mn. WEB had anticipated

LoH to breakeven in 1Q and 1H14, but we understand the focus has now moved to

increasing scale in FY14, and that the positive contribution is now more of a FY15

story (1H14 EBITDA loss of $0.4mn).

■ Guidance, not confirmed, but we believe on track: WEB did not explicitly comment

on the FY14 guidance for EBITDA of $21.5mn provided at the AGM in November, but

we believe that management is tracking in line with its expectations for FY14.

■ Earnings changes: At the EBITDA level we have downgraded FY14 EBITDA 0.5% to

$22.4mn (in line with WEB’s November AGM guidance and backing out the $2mn of

one-off gains and adding back the $1mn of duplicated IT costs). We have upgraded

FY15 and FY16 EBITDA by ~3.5%-4.0% as a result of revised operating expectations

from the accommodation side of WEB’s business and higher than previously forecast

overrides in the air business. Higher-than-expected D&A drives our downgraded PBT

expectations across the forecast period. We assume that the tax rate normalised in

2H14, from the abnormally low 1H14 result. Overall, we downgrade EPS -2% in FY14,

-6% FY15 and -5% in FY16.

■ Becoming a full service OTA, but there is increased risk with the continued

underperformance of the core flights business: WEB is increasingly becoming a full

service OTA with the inclusion of Zuji and the further development of its accommodation

offering. We continue to like WEB for its growth initiatives and underlying drivers, which

are essential in continuing to diversify the business away from both Australia as well as

flights. These new initiatives are becoming increasingly important due to the disruption

that is currently occurring within WEB’s core flights business and the negative volume

14 February 2014


growth that we believe is being experienced at the moment. We retain our NEUTRAL

rating on WEB as we believe short-term earnings risk remains elevated as the flights

volumes decline and we are concerned that the decline in revenue will more than offset

the incremental revenue from Zuji and Lots of Hotels.

■ Target price: We move our valuation methodology back to using an equally weighted

PER and DCF valuation methodology. Our PER EBITDA valuation assumes that WEB

trades in line with the XSI on an FY14 basis. The key assumptions underpinning our

DCF include a WACC of 11.9% (beta 1.1x, risk-free rate 5.3%) and terminal growth

rate of 3.5%. Our target price increased from $2.90 to $3.25.

Figure 2: WEB PE absolute Figure 3: WEB PE relative to the XSI

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Mar-13

Sep-13

WEB.AX Mean +SD -SD

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Mar-13

Sep-13

WEB PE relative (to XSI) Mean +SD -SD

Source: IBES consensus data Source: IBES consensus data


14 February 2014


Equity Research

Diversified Metals & Mining (Minerals (AU))

Alumina Limited

(AWC.AX / AWC AU) PRE RESULTS COMMENT

2013 results preview; reports on 20 Feb Date: 20 February 2014 Time: Pre market

Period: Full year 2013 Earnings Risk: High

Credit Suisse estimates Briefing and dial-in details

NPAT: US$17mn (consensus US$12mn) TBA

EPS: 0.6¢ps (consensus: 0.3¢ps)

DPS: nil (consensus 0.4¢ps)

■ Expecting a messy result. The read-through from Alcoa results to AWC is

poor when profits are weak because accounting translations from GAAP to

AIFRS, plus black box retirement benefits and embedded derivative

valuations overwhelm low values, swinging the results. On top of these

problems, this year we have the true-up of the Alba settlements between

Alcoa and AWC, another swing factor. AWC's share of Alcoa's profit was

$41mn, but after finance, corporate costs, and accounting translations, we

believe that the underlying NPAT will be US$17mn. Consensus is $12mn.

■ We estimate FCF was US$60mn. AWC previously announced that new

debt was down to $135mn at December. Cash inflows were the agreed

AWAC dividends of US$105mn over the year.

■ We forecast no dividend, but recognise risk. AWC has not paid a

dividend since 2011, but having made positive FCF and with low net debt, it

may decide a modest final dividend is warranted. But with commodity prices

remaining weak and capital injections into AWAC of over $30mn being likely

in 2014, we believe a wiser course would be to apply cash to reducing debt

and set the company up for a better future.

■ Our DCF valuation remains A$1.60/sh, and our target price is

A$1.30/sh.


Mean^

CS tgt^ Sh Prc

-50%

-30%

-10%

10%

30%

50%



Absolute (%) 3.1 27.9 3.9

Relative (%) 1.2 29.6 -2.2


Year 12/12A 12/13E 12/14E 12/15E

Revenue (US$mn) — — — —

EBITDA (US$mn) -18.4 -14.4 -16.0 -16.0

EBIT (US$mn) -18.4 -14.4 -16.0 -16.0

Net income (US$mn) -52.5 17.0 40.2 170.6

EPS (CS adj.) (USc) -2.15 0.61 1.43 6.08


Consensus EPS (USc) n.a. 0.30 2.10 5.20

EPS growth (%) -141.0 128.2 135.8 324.7

P/E (x) -52.3 185.4 78.6 18.5

Dividend (USc) — — 1.00 7.00

Dividend yield (%) — — 0.9 6.2

P/B (x) 1.0 1.1 1.1 1.1

Net debt/equity (%) 25.3 4.6 2.1 net cash






Rating OUTPERFORM*

Price (13 Feb 14, A$) 1.25





Projected return:






benchmark.


Research Analysts

Matthew Hope

61 2 8205 4669

[email protected]

Paul McTaggart

61 2 8205 4698

[email protected]

14 February 2014


Figure 1: AWC financial summary

Alumina Limited (AWC) Year ending 31 Dec In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015


Target Price A$ 1.30 c_EPS*100EPS (Normalised) c 5.2 -2.2 0.6 1.4 6.1


DCF US$ 1.60 c_EBITDA_MARGIN*100EBITDA Margin %

c_DPS*100DPS c 6.0 0.0 0.0 1.0 7.0

c_PAYOUT*100Payout % 114.4 0.0 0.0 69.9 115.2



Profit & Loss 12/11A 12/12A 12/13E 12/14E 12/15E c_TAX_RATE*100Effective tax rate % -2.2 -0.8 0.0 0.0 0.0


EBITDA (17.2) (18.4) (14.4) (16.0) (16.0) c_PE P/E x 21.6 -52.6 186.6 79.1 18.6

Depr. & Amort. (0.0) (0.0) (0.0) (0.0) (0.0) c_EBIT_MULTIPLE_CURREV/EBIT x -212.2 -208.8 -230.1 -202.4 -197.5

EBIT (17.2) (18.4) (14.4) (16.0) (16.0) c_EBITDA_MULTIPLE_CUEV/EBITDA x -212.2 -208.8 -230.1 -202.4 -197.5




Profit before tax (45.5) (47.7) (32.0) (23.3) (18.7) ReturnsIncome tax (1.0) (0.4) (0.0) (0.0) (0.0) c_ROE*100Return on Equity % 4.5 -2.0 0.6 1.4 5.9

Profit after tax (46.5) (48.1) (32.0) (23.3) (18.7) c_I_NPAT/c_I_SALES*100Profit Margin %



Associates & Other 174.5 (4.4) 49.1 63.5 189.3 c_ROA*100Return on Assets % 3.8 -1.6 0.6 1.3 5.6

Normalised NPAT 128.0 (52.5) 17.0 40.2 170.6 c_ROIC*100Return on Invested Cap. % -0.5 -0.6 -0.5 -0.5 -0.6

Unusual item after tax 0.0 0.0 0.0 0.0 0.0 Gearing

Reported NPAT 128.0 (52.5) 17.0 40.2 170.6 c_GEARING*100Net Debt to Net debt + Equity % 14.2 20.2 4.4 2.0 Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x n.m n.m n.m n.m Net Cash



Inventories 0.0 0.0 0.0 0.0 0.0 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales %

Receivables 0.2 0.1 25.0 25.0 25.0 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation %


Current assets 25.4 15.1 52.2 52.2 52.2 MSCI IVA (ESG) Rating AA


Intangibles 0.0 0.0 0.0 0.0 0.0

Other non-current assets 3,324.8 3,296.1 3,034.0 3,000.0 2,980.2


Total assets 3,350.4 3,311.4 3,086.3 3,052.3 3,032.5

Payables 3.1 2.7 1.5 1.5 1.5




Net assets 2,854.0 2,628.5 2,918.5 2,930.6 2,904.7

Ordinary equity 2,854.0 2,628.5 2,918.5 2,930.6 2,904.8




Net debt 471.6 664.4 135.0 60.8 -17.3 Source: MSCI ESG Research


EBIT -17.2 -18.4 -14.4 -16.0 -16.0

Net interest -26.8 -28.2 -18.4 -7.8 -3.3

Depr & Amort 0.0 0.0 0.0 0.0 0.0

Tax paid 0.8 0.8 0.4 0.0 0.0

Working capital -2.8 -0.3 -26.1 0.0 0.0

Other 241.9 94.6 130.3 127.5 214.6


Capex 0.0 0.0 0.0 0.0 0.0


Capex - maintenance



Other -166.6 -171.0 -12.0 -30.0 -5.6


Dividends paid -170.6 -73.2 0.0 0.0 -112.2

Equity raised 0.0 0.0 465.9 0.0 0.0

Net borrowings 31.4 187.5 -513.2 -74.2 -78.1


Financing cashflow -139.2 114.3 -47.3 -74.2 -190.4 Absolute 3.7% 28.7% 4.6%

Total cashflow -92.6 -8.2 12.4 -0.5 -0.5 Relative 1.8% 30.4% -1.5%

Adjustments -0.7 -0.8 0.8 0.0 0.0

Net change in cash -93.3 -9.0 13.2 -0.5 -0.5 Source: Reuters 52 week trading range: 0.91-1.32

MSCI IVA Risk Comment: CO2 emmissions mainly from

Victorian smelters is the main high profile environmental

issue. Industry get 96.5% protection in year 1, but AWAC

smelters run on Victorian electricity generated by burning

brown coal so subsidy less than industry average. We also

note that Alcoa has moved to settle Alba's charges of

racketeering (via bribing an Alba employee to overpay for

alumina) by way of an $85mn payment and a supply contract.

13/02/2014 14:59

Alumina Limited, through its 40 % equity interest in Alcoa World Alumina and Chemicals,

engages in the bauxite mining, alumina refining, and aluminum smelting businesses. The

company also involves in the production of alumina and alumina based chemicals.

Credit Suisse View

TP Risk Comment: Carbon tax snips US$50mn from AWAC

2013 earnings which translates to $20mn for AWC. As a result

our TP is cut 5cps. We have not applied a discount for Alba

litigation as AWC has paid a 40% share of the $85mn

settlement with Alba and may obtain a refund following an

agreement with Alcoa of only 15% liability if DoJ and SEC

settlement reached.

OUTPERFORM

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

AWC.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector



14 February 2014


2013 results preview

The future is looking better for AWC. The factors that are changing the outlook are:

■ The Gove refinery closure opening an alumina sales gap in the Pacific market;

■ The Indonesian raw material ban, which is looking increasingly likely to hold firm even

after the elections, as new parliamentary laws approving export controls on

commodities have just been approved.

■ The falling AUD/USD which is lowering AWAC costs; and

■ The likely closure of the loss-making Point Henry Aluminium smelter around mid-year.

The first three points are outside AWAC's control, but are likely the points it may comment

upon, together with ongoing AWAC productivity gains. We expect no comment will be

made about Pt Henry. That is a sensitive operational issue controlled by Alcoa of Australia

and any announcement will come from that entity and probably to the governments and

workers ahead of investors.

We doubt AWC has any greater visibility into the Indonesian ban than the rest of the global

community, but it may be able to make some comments about Gove. This closure is

beginning and will remove 2.5Mt of alumina supply from the Pacific Basin this year. Our

interest is whether AWC is seeing new enquiries from previous Gove customers and

whether AWAC has the ability to lift production above the 16Mtpa rate it operated at in

2H'13 to meet demand.


14 February 2014


Equity Research

Airlines / Air Freight & Couriers / Trucking / Railroads (Transportation (AU))

Australian Transport Sector PRE RESULTS COMMENT

1H14 preview: Cost-outs will be rewarded

against volume headwinds

■ 1H14 cost-out and self-help candidates should be rewarded against a

weak volume backdrop and top-line outlook: With weak volumes and

demand impacting the bulk of the Australian transport sector, we expect

that evidence of cost-outs and solid execution at 1H14 results will be

rewarded with relative outperformance. All stocks (excluding Qube) have

publicly announced cost-out programmes, though the biggest upside

in cost-out execution remains with AIO, AZJ and QAN.

■ Asciano and Aurizon: cost-out upside baked in for AZJ, but what

about AIO? While the cost-out opportunity is well understood for Aurizon,

with the market already baking in 75% operating margins from FY15 (and

then some), the opportunity for AIO is perhaps less well understood, but

equally still available in Ports and PN Rail. We are optimistic that

management can, in time, exceed the $150mn in cost-outs initially targeted

under the BIP programme. For AZJ, the upside remains bringing forward

the time frame for reaching 25% EBIT margins, currently expected in FY15.

■ "One Toll" margin improvement? In the absence of a volume-led

recovery, we believe evidence of productivity improvements elsewhere in

the business in the form of margin expansion will be well received. While

hard to quantify "One Toll" benefits, we believe they could progressively

materialise from 1H14, as we start to see the first results of management

turning its focus on consolidation instead of acquisitive growth.

■ BXB back to more appropriate multiples: With BXB now trading back in

line with its historical market multiple, and with management likely to

reaffirm FY14 guidance, we see the result more about the timeline for

growth in emerging markets as well as RPC penetration in North America.

Following this note, we have removed Recall, resulting in 12% changes to

earnings over the forecast period. We lower our target price from $9.83 to

$9.29 leaving a NEUTRAL rating.

■ Airlines: With guidance already given for both stocks and a looming

"transformational" strategy day for Qantas, we see 1H14 results as perhaps

less meaningful than in previous years. For VAH, we have lowered earnings

over the forecast period and our target price to $0.38 (from $0.42).

■ Qube – forecasts and target price upgraded into 1H14, based on volume

expectations in Ports and Bulk as Qube progressively tender for contracts

on the North West Shelf. Target price raised to $2.20, previously ($1.90),

NEUTRAL rating maintained.

Research Analysts

Nicholas Markiewicz

61 2 8205 4107

[email protected]

14 February 2014


Reporting calendar

Figure 1: Reporting season details

Company Date Time Aus no. Int no. Password

AZJ 17/02/2014 10:30 1800 558 698 +612 9007 3187 731905

AIO 18/02/2014 9:30 1800 041 303 NA 242227

TOL 19/02/2014 9:45 1800 558 698 +612 9007 3187 729084

BXB 19/02/2014 TBC TBC TBC TBC

QUB 21/02/2014 10:30 1800 558 698 +612 9007 3187 729120

QAN 27/02/2014 TBC TBC TBC TBC

VAH 28/02/2014 TBC TBC TBC TBC


Forecasts and consensus

Figure 2: Credit Suisse 1H14 estimates


14 February 2014


Changes to earnings and valuation into 1H14

■ Brambles—removing Recall from earnings forecast and valuation: Our forecasts

are now ex. Recall. As a result, we have lowered earnings by 12% over the forecast

period (non-Recall estimates remain unchanged). Our target price is now $9.29

previously $9.83) reflecting the divestment, maintaining a NEUTRAL rating.

■ Toll: We have lowered earnings over the forecast period by an average of -6.6%,

reflecting continued volume weakness. We have also largely removed contract

amortisation from FY14 and FY15.

■ Qube—forecast period earnings and target price raised into results: We have

raised earnings over the forecast period by an average of 11% (over a relatively small

base), reflecting a review of port and bulk volume ramp-up assumptions. As a result,

our target price is raised to $2.20 (from $1.90), which given recent share price strength

remains a NEUTRAL

■ Asciano: We have also made small changes to forecast earnings, by an average of

1.5% over the forecast period.

■ Aurizon: We have upgraded forecast earnings by an average of 4.5%, weighted to

FY14, based on strong recent above rail volumes as well as comfort with the cost out

profile. We are now largely in line with consensus estimates.

■ Virgin—Lowering forecast earnings materially: This reflects assumptions around

material CASK increases (discussed below) coupled with on-going uncertainty in the

domestic market. We now forecast an FY14 PBT of -$115.2mn (previously -$2mn).

Our valuation moves from $0.42 to $0.38 per share, maintaining a NEUTRAL rating.

Price Price Rating* Target Price Year EPS EPS FY1E EPS FY2E EPS FY3E

Company ccy 13 Feb 14 Prev. Cur. Prev. Cur. End Ccy Prev. Cur. Prev. Cur. Prev. Cur.

Asciano Group (AIO.AX) A$ 5.69 — O — 6.20 Jun 13 A$ — 0.37 0.42 0.43 0.48 0.47

Aurizon (AZJ.AX) A$ 4.99 — R — — Jun 13 A$ 0.23 0.24 — 0.30 0.32 0.34

Brambles Limited (BXB.AX) A$ 8.82 — N 9.83 9.29 Jun 13 US$ 0.46 0.41 0.53 0.45 0.57 0.48

Qube Logistics (QUB.AX) A$ 2.06 — N 1.90 2.20 Jun 13 A$ 0.08 0.09 — 0.10 0.11 0.12

Toll Holdings (TOL.AX) A$ 5.62 — N — 5.49 Jun 13 A$ 0.43 0.40 0.46 0.43 0.49 0.45

Virgin Australia (VAH.AX) A$ 0.34 — N 0.42 0.38 Jun 13 A$ (0.01) (0.05) 0.01 (0.02) 0.02 0.00

*O – Outperform, N – Neutral, U – Underperform, R – Restricted [V] = Stock considered volatile (see Disclosure Appendix).

Source: Company data, Credit Suisse estimates.

14 February 2014


Freight and Logistics Brambles—where is the growth?

Result: Wednesday, 19 February, dial in details TBA

Figure 3: 1H14 earnings estimates

1H13 2H13 FY13 1H14

Revenue 2,486.1 2,596.8 5,082.9 2,579.1

EBIT 417.6 495.4 908.0 459.2

PBT 362.9 439.2 807.1 405.5 Source: Company data, Credit Suisse estimates

What to look for:

■ Guidance: We expect management to likely reaffirm FY14 constant currency

guidance of $930mn–$965mn, with the added potential that the range may be

tightened. We note Brambles' management's strong track record in meeting guidance

each year and as a result do not expect any surprise either way.

■ 1H14 Earnings: We are forecasting underlying 1H14 EBIT of $459.2mn (actual FX).

Given the historical seasonality of earnings (our forecasts imply a seasonal skew

between 1H and 2H of 47:53), we believe guidance will be the initial primary focus of

the result.

■ Removing Recall from earnings forecast and valuation: Following this note, our

forecasts are now ex. Recall. As a result, we have lowered earnings by 12% over the

forecast period (non-Recall estimates remain unchanged). Our target price is now

$9.29 (previously $9.83) reflecting the divestment, maintaining a NEUTRAL rating.

■ Will growth capex disappoint again? We note that in FY13, Brambles incurred

$190mn in growth capex spend compared with a previously guided figure of $300mn.

At the time, we were left slightly disappointed by this number, particularly given the

$30bn of structural revenue opportunities previously identified in addition to the strong

returns on each incremental dollar of capex spent. Should growth capex spend

underwhelm again, we believe the market could start to question both the accessibility

of growth and the timeline for reasonable returns.

■ Net new business wins: Management expects a $70mn FY14 revenue uplift as

contract wins in FY13 start to make a full FY14 contribution. Based on guided cost-

outs and opex spend, we believe the existing constant currency FY14 earnings

guidance implies a revenue uplift for the year (excluding the $70mn roll over) of up to

$175mn. We will be looking for further colour as to how contract wins are tracking in

1H14 relative to this FY14 forecast.

■ Targeted cost savings: Management has forecast $39mn in cost savings in FY14.

Importantly, cost savings are a major driver of FY14 earnings growth (implicit in

guidance), meaning implications for underling organic earnings growth should cost

savings come in ahead or below expectations, and relative to movements in guidance.

■ RPC sales growth should be a key focus, which to date has underwhelmed as a

division and has the best structural growth opportunity in developed markets.

■ Return on opex spend: We note management spent $26mn on business

development in FY13. In 1H14 we will be looking for commentary around further opex

spend ($13mn expected in FY14) as well as early signs that these development costs

are yielding some form of return, whether it be customer retention, top-line growth,

asset control, etc.

14 February 2014


Toll Holdings

Margin growth as One Toll yields benefits?

Wednesday, 19 February, 9:45am AEDST, phone: 1800 558 698, code: 729084


1H13 2H13 FY13 1H14

Revenue 4,546.1 4,173.3 8,719.4 4,547.4

EBIT 256.4 169.5 425.9 263.7


What to look for:

■ 1H14 earnings: We are expecting 1H14 EBIT of $263.7, representing small (+2.8%)

earnings growth over the pcp.

■ Lowering broader forecast period earnings into results, reflecting continued

volume uncertainty: We have lowered earnings over the forecast period by an

average of -6.6%, reflecting continued volume weakness. We have also largely

removed contract amortisation from FY14 and FY15.

■ A compositionally interesting result: While headline earnings growth expectations

are relatively low, we expect this result to be very interesting composition wise, with

Global Express volume and margin growth potentially offsetting weakness in Global

Resources.

■ Global Express volumes and margins could surprise to the upside: Toll remains

well placed to capitalise on the fast growing and high margin Australian B2C market.

We believe 1H14 could show some encouraging signs in terms of volume and margin

growth, as the benefits of Toll's incumbency and strong network in the space start to

materialise. A strong performance in Express would be particularly well received,

given the expected roll-off in Resources.

■ Global Resources—TOPS growth will likely offset broader weakness: While

TOPS revenue growth is likely to be reasonably stable, we are mindful of the material

slowdown experienced in other mining service providers and believe the stable growth

in TOPS could mask other areas of weakness. In addition, we will be looking for colour

on the expected wind-down of Gorgon (the single-largest group contract) and

opportunities where equipment and capital can be redeployed. In our view, Global

Resources remains the biggest risk factor to group earnings with comfort around the

earnings profile increasingly important.

■ "One Toll" margin improvement: In the absence of a volume-led recovery and with

a formal ROIC-focused cost-out plan yet to show results for Global Forwarding, we

believe that evidence of productivity improvements elsewhere in the business in the

form of margin expansion will be well received. While hard to quantify "One Toll"

benefits, we believe they could be material, as management increasingly turns its

focus on consolidation instead of acquisitive growth.

■ Capital management candidate: As a potential silver lining to the poor volume

outlook, we believe that there is scope to increase dividends as a result of the

declining need for capital expenditure, particularly in FY15 if some of TGR’s existing

contracts taper off. We forecast an average free cash flow yield over the forecast

period of 8.0%.

14 February 2014


Qube Logistics—raising target price to $2.20

Friday, 21 February, 10:30am AEST, 1800 558 698, passcode 729120

Figure 5: FY13 earnings estimates

1H13 2H13 FY13 1H14

Revenue 526.3 538.8 1,065.1 587.0

EBIT 61.0 67.7 122.5 69.5


What to look for:

■ 1H14 earnings: 1H14 EBIT forecasts of $70mn compared with $61mn in the pcp and

$67.7mn in 2H13.

■ Forecast period earnings and target price raised into results: We have raised

earnings over the forecast period by an average of 11% (over a relatively small base),

reflecting a review of logistics and bulk volume ramp up assumptions. As a result, our

target price is raised to $2.20 (from $1.90), which given recent share price strength

remains a NEUTRAL.

■ Margin growth likely mixed: With final ownership changes and acquisitions cycling

through in the underlying businesses in addition to weak visibility into volumes, we

believe margins are likely to be the best gauge of underlying business improvement.

Logistics: We are expecting muted 1H14 margin growth, with EBITDA margins

forecast at 13.9% compared with the pcp of 14.8%. Weak margins reflect below trend

container volumes. For the Bulk division, we expect further margin improvement for

1H14, with EBITDA margins forecast at 19.5% compared with the pcp at 17.8%.

■ Customer contract wins in the North West Shelf: Qube recently won a contract

with Chevron for port logistics for the Barrow Island project. We will be looking for

further earnings clarity from this contract as well as other contract opportunities,

particularly for Wheatstone and Icthys.

■ Impact of dry weather on grain: With drought conditions gripping much of

agricultural NSW and Qld, we believe grain volumes could be significantly lower than

FY13, consistent with AIO commentary. With weak volumes expected, outlook

statements for grain will be increasingly important.

■ Port Botany rail update expected: We are expecting an update on the Moorebank

project at the 1H14 result. We currently assume a 2H15 volume ramp-up, though this

is more likely to be an FY16 story.

■ Giacci performance: At the FY13 result, Giacci missed its post-acquisition targets,

resulting in an $8mn reduction in contingent consideration. We will be looking for

updates on the businesses performance, in particular volumes associated with Iluka.

■ Overall: For many investors, Qube remains a largely conceptual proposition, making

the FY14 result less important than forward commentary around volumes, growth and

development plans around key strategic assets. On this basis, we will be looking more

towards outlook statements and the expected timeline for the ramp-up of port shuttle

volumes in Sydney as well as soft commodity contracts in south-east Australia. That

said, with Qube's management increasingly less acquisitive, we will also need to see

more disclosure in terms of volumes to gain increased comfort around the underlying

business performance.

14 February 2014


Coal haulers and infrastructure Asciano:

Cyclical weakness to mask strong execution

Tuesday, 18 February, 9:30am EDT, Phone: 1800 041 303, passcode 242227


1H13 2H13 FY13 1H14

Revenue 1,853.5 1,874.2 3,727.7 1,908.5

EBIT 355.0 330.9 685.9 358.1


What to look for:

■ 1H14 earnings: At the 1Q14 results, AIO's management guided 1H14 earnings to be

"broadly in line with the pcp" ($355mn), implying 7.5% underlying growth when

stripping out the one-off contribution of the $21.5mn sale of Kooragang Island. Credit

Suisse's EBIT forecast is for $358.1mn. Following this note, we have also made small

changes to forecast earnings, by an average of 1.5% over the forecast period.

■ Management needs to deliver on levers within their control: With a tough macro

backdrop and in the absence of a volume-led recovery, the task for management is to

clearly outline upside from levers within their control, which are cost-outs and the

execution of already contracted coal volumes. We are optimistic that management can

in time exceed the $150mn in cost-outs initially targeted under the BIP programme

and will look for any commentary around this.

■ Margin improvement will be well received in the absence of volumes: With an

environment of flat volume growth providing poor fixed cost leverage, we see flat

margins as a potentially positive outcome for BAPS, PN Rail and Terminals. We

expect coal margins ex. the sale of Kooragang Island to increase 1.7pp to 29.5%

(previously 27.8%). We expect a small margin decline of <0.5pp in Terminals, PN Rail

and BAPS.

■ Acquisitions and capex: The acquisition of Mountain Industries at the FY13 result

highlights a distinct shift in strategy, with management being more proactive in its

broader strategy of vertical supply chain integration coupled with opportunism, the result

of an increasingly healthy balance sheet. While we believe Asciano now has an

excellent platform to make smart bolt-on acquisitions, we remain cautious about other

acquisition opportunities and capex spend further up the supply chain, particularly in the

resources space where returns and earnings are currently challenged. With the market

willing to pay a premium for stocks with a high free cash flow yield, we remain cautious

as to any announced acquisitions in the resources space over a larger dividend.

■ Pay-out ratio: In the absence of any acquisitions, which we see as only a small

possibility, we will be looking for commentary around pay-out ratio targets, currently

20%–40%. With a diminishing growth outlook, looking past the Port Botany

redevelopment, we see enough growth capex flexibility to potentially lift the pay-out ratio.

■ ROCE targets: At the FY13 result, management maintained its initial returns profile

guidance provided from the 2011 strategy briefing. We will be looking for an update on

whether returns are still on track to earn or exceed group WACC by 2015.

14 February 2014


Aurizon

Weak Rev/NTK may mask otherwise robust result

Monday, 17 February, 10:30am AEST, Phone 1800 558 698, passcode 731905

Figure 7: Earnings forecasts

1H13 2H13 FY13 1H14

Revenue 1,877.0 1,806.2 3,724.9 1,954.6

EBIT 356.1 397.9 754.7 431.8


What to look for:

■ Aurizon has materially outperformed the market in FY14, implicit in this

outperformance relative to other transport stocks is the de-risking of future tonnage

coupled with increased detail around achieving 25% EBIT margins.

■ 1H14 earnings: No 1H14 earnings guidance has been given. Credit Suisse's

estimates remain 1.6% below consensus, with EBIT at $431.8mn vs. consensus at

$439mn.

■ Forecast earnings upgraded: We have upgraded forecast earnings by an average of

4.5%, weighted to FY14, based on strong recent above rail volumes as well as comfort

with the cost-out profile. We are now largely in line with consensus estimates.

■ FY14 tonnage guidance (200–205mt) likely to be upgraded at the 1H14 result:

Based on strong 1H14 volumes and a lack of weather events (so far), we expect a

volume upgrade of ~6.5%, or 213mt to 218mt (CS now 216mt).

■ Customer mix implies Rev/NTK growth may be (temporarily) muted: Given that

the volume growth is being led by BMA, a legacy customer, coupled with new volumes

in the Gunnedah (which carries execution related risks), we do not expect the strong

volumes to transpire into earnings growth at 1H14. As a result, earnings quality at

1H14, in the form of Rev/NTK will likely appear seemingly "weak", with the uplift a

medium-term story. We note confusion around Rev/NTK and other earnings "quality"

metrics at previous results.

■ Margin improvement expected: We expect EBIT margin improvement of 1.1pp (from

19.0% to 21.1%) across the business (FY14 consensus 21.8%), driven in part by the

progressive roll over of legacy contracts, volume recovery as well as further cost-outs.

Should 1H14 margins miss consensus expectations, we believe the fallout could be

low based on the market’s apparent comfort around management’s ability to reach

25% EBIT margin by FY15, with any miss in our view likely to be perceived as a

timing, rather than a structural issue.

■ Progress on cost-outs: With 25% EBIT margins by 2015 already priced into

consensus, we believe the market will increasingly be looking for commentary around

the timing for achieving the $230mn in targeted cost savings over FY14 and FY15. We

believe management could be tracking ahead of the $90mn in cost-out opportunities

initially expected to fall in FY14.

■ Overall: With high expectations baked into both FY15 consensus earnings and

valuation, we believe this result could be more outlook focussed, particularly given

material revenue upside and cost-outs are still 12–18 months away. On this basis we

see outlook commentary as key to the market’s reception of the result.

14 February 2014


Airlines Qantas Airways:

Potential for exceptionally weak cash flows

Thursday, 27 February, Dial in TBA

Figure 8: Qantas earnings forecasts

1H13 2H13 FY13 1H14

Revenue 8,241.0 7,724.2 15,903.0 8,096.1

EBIT 310.0 62.0 372.0 (156.0)

PBT 223.0 (31.0) 192.0 (259.0)


■ Pre tax earnings guided to -$250mn to -$300mn, CS -$259mn.

■ Exceptionally weak cash flows expected: In responding to Moody's in January

2014, Qantas announced that cash reserves and undrawn committed bank facilities at

31 December 2013 totalled $3bn. Assuming undrawn facilities remained constant to

FY13 at $600mn, it implies that cash reserves were $2.4bn, a $429mn deterioration

from FY13. The weak implied free cash flow position could be a result of lop-sided

capex, a larger-than-guided loss or cash restructuring charges.

■ Looming strategy day will likely overshadow the 1H14 result: With a looming

group strategy presentation expected sometime in February/March, which has the

potential to be transformational in terms of group costs and liquidity, we see the

upcoming result as carrying less share price weight than previous years, particularly

with guidance already issued.

■ Qantas Domestic will be weak, though relativity to Virgin is the focus: With a

weak result, and potentially even a small loss expected, we believe relativity to Virgin

will be a key metric, particularly in terms of corporate market share and cost

performance. On the best available data, we believe Qantas Domestic could have up

to a 25% CASK premium to Virgin, though realistically this is more likely ~15%. We

see new cost initiatives as likely being a key focus of the upcoming group strategy day

rather than the 1H14 result.

■ Large Qantas International loss likely: We interpret the departure of Virgin Atlantic

on sectors from Australia to Hong Kong as testament to the competitive environment

of Australian International flights. However, with the bulk of Qantas's international

network repositioning done, cabin reconfigurations complete and cost-outs gathering

pace, we could see the 1H14 result as a potential low point for International (fuel and

currency aside).

■ Quantifying the Emirates alliance: In addition to cost savings, any quantification of

the early benefits from the Emirates Alliance in 1H14 would be welcomed; with

positive surprises likely to be well received given the alliance revenue opportunity is a

key unknown.

■ Jetstar Japan losses likely accelerating: Associate losses in FY13 were -$50mn,

which we believe are likely to have accelerated into 1H14 based on high competition

in the Japanese domestic market, a significant depreciation in the JPY as well as

news of up to four parked aircraft tied to the Jetstar Japan and Jetstar Hong Kong.

The commencement of Jetstar Hong Kong remains a key unknown.

14 February 2014


Virgin Australia

Friday, 28 February, Dial in TBA

Figure 9: Virgin earnings forecasts

1H13 2H13 FY13 1H14

Revenue 2,108.1 1,912.3 4,020.4 2,273.3

EBIT 84.7 (121.2) (36.5) (15.0)

PBT 63.7 (145.7) (82.0) (47.8) Source: Company data, Credit Suisse estimates

What to look for:

■ PBT already guided to around -$49mn, CS estimates are -$47.8mn.

■ Lowering forecast earnings materially, reflecting assumptions around material

CASK increases (discussed below) coupled with on-going uncertainty in the domestic

market. We now forecast an FY14 PBT of -$115.2mn (previously -$2mn). Our

valuation moves from $0.42 to $0.38 per share, maintaining a NEUTRAL rating.

■ Virgin cost increases likely: We expect the weak Virgin result to be predominantly

cost-led, a result of investment in the new SABRE booking system, Lounge expansion

as well as other product and customer service upgrades. A material CASK overrun

would suggest the planned $60mn in FY14 cost savings is delayed or not enough to

offset cost base investment. With Virgin's product upgrade entering its final stages of

completion, we will be looking for updated CASK estimates and more importantly

CASK relative to Qantas for a view on how sustainable the current domestic

competitive environment is.

■ Is VAH revenue growth a timing issue or a deeper problem? Clearly, costs are

running ahead of revenue at this stage, but the bigger question remains when will

Virgin receive a revenue premium for this cost base investment? Key to revenue

stability going forward, and potentially the credibility of the broader “game change”

strategy, will be whether Virgin's management can grow the proportion of corporate

and government revenue mix, which at FY12 was 20%. More clarity is needed to be

given on corporate market shares.

■ SABRE progress: While the introduction of the SABRE booking system adds to

operating costs, there should also be offsetting revenue growth in the form of better

yield management of late bookings as well as stronger International passenger

inflows. Given the extent of the SABRE investment, we believe the market will likely

need to see evidence of some green shoots in this area.

■ Updates on the “tri-brand” strategy: With Tigerair and Skywest officially integrated

into the business in recent months, outlook statements around Tiger’s planned path

back to profitability would, in our view, also be welcomed by the market given these

acquisitions raise risks around execution.

■ Overall: While the recent guidance has de-risked 1H14 earnings, the near- to

medium-term operating environment coupled with the group’s ownership structure

remains unclear. For management to maintain credibility and keep the goodwill of the

remaining free float, we will need to see strong evidence that the “Game Change”

strategy is slowly yielding results that can put the airline into a competitive position in

FY15.

14 February 2014


Financial summaries

Figure 10: Aurizon's financial summary

Aurizon (AZJ) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016


Target Price A$ c_EPS*100EPS (Normalised) c 16.3 21.6 24.3 30.1 33.7

vs Share price % EPS_GROWTH*100EPS Growth % 32.9 12.4 23.9 11.9


c_DPS*100DPS c 8.0 16.0 17.0 21.1 23.6

c_PAYOUT*100Payout % 49.2 73.9 70.0 70.0 70.0






EBIT 585.0 754.7 863.5 1,042.5 1,205.9 c_EBITDA_MULTIPLE_CUEV/EBITDA x 11.2 10.4 9.8 8.4 7.5




Profit before tax 546.0 651.4 720.9 906.1 1,021.1 ReturnsIncome tax (149.4) (164.0) (201.8) (262.8) (301.2) c_ROE*100Return on Equity % 5.4 7.5 7.8 9.3 10.1




Associates & Other (0.0) 0.0 0.0 0.0 0.0 c_ROA*100Return on Assets % 4.0 4.7 4.7 5.7 6.2


Unusual item after tax 44.8 (40.0) (147.0) 0.0 0.0 GearingReported NPAT 441.4 447.4 372.0 643.3 719.8 c_GEARING*100Net Debt to Net debt + Equity % 13.1 26.7 28.4 27.6 26.0

84.9 96.4 112.8 c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 1.1 1.9 1.9 1.7 1.4






Current assets 879.5 932.9 1,016.5 1,038.4 1,134.4 MSCI IVA (ESG) Rating BBBProperty, plant & equip. 9,037.2 9,437.4 9,939.4 10,217.1 10,315.5 #VALUE!

Intangibles 16.3 11.1 11.1 11.1 11.1



Total assets 10,020.2 10,480.1 11,065.7 11,365.3 11,559.6

Payables 349.6 320.7 428.4 439.1 486.1


Other liabilities 1,175.1 1,224.2 1,242.9 1,275.6 1,296.0 MSCI IVA Risk: Neutral


Net assets 7,293.9 6,456.6 6,648.3 6,906.9 7,155.1

Ordinary equity 7,294.2 6,495.6 6,648.6 6,907.2 7,155.4






EBIT 585.0 754.7 863.5 1,042.5 1,205.9

Net interest -78.2 -112.0 -142.6 -136.5 -184.8

Depr & Amort 463.0 496.3 497.0 543.5 562.0

Tax paid 0.0 -31.0 -183.1 -230.1 -280.8

Working capital 0.0 0.0 24.1 -11.2 -49.0

Other 0.0 0.0 0.0 0.0 0.0

Operating cashflow 969.8 1,108.0 1,058.9 1,208.2 1,253.3

Capex -1,156.3 -944.0 -963.0 -821.2 -660.4



Acquisitions & Invest


Other 4.7 49.0 0.0 0.0 0.0

Investing cashflow -1,151.6 -895.0 -963.0 -821.2 -660.4

Dividends paid -180.6 -200.0 -363.3 -384.7 -471.7

Equity raised

Net borrowings 17.9 -68.0 267.4 -2.4 -121.2



Total cashflow -344.5 -55.0 0.0 0.0 0.0 Relative 2.3% 8.2% 15.5%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash -344.5 -55.0 0.0 0.0 0.0 Source: Reuters 52 week trading range: 3.80-5.06

MSCI IVA Risk Comment: No change to MSCI

12/02/2014 21:33

Aurizon is a rail freight company. The Company provides coal, bulk and general freight

haulage services, operating on the Central Queensland Coal Network (CQCN) and including

specialised track maintenance and workshop support functions.

Credit Suisse View

TP Risk Comment:

RESTRICTED

3.00

3.50

4.00

4.50

5.00

5.50

6.00

31/01/2013 31/03/2013 31/05/2013 31/07/2013 30/09/2013 30/11/2013 31/01/2014

AZJ.AX XJO

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0


Stock Local Sector



14 February 2014


Figure 11: Asciano's financial summary

Asciano Group (AIO) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016





c_DPS*100DPS c 7.7 11.1 14.8 21.3 30.6

c_PAYOUT*100Payout % 30.0 30.1 40.0 50.0 65.0




Sales revenue 3,456.7 3,727.7 3,842.5 4,013.5 4,191.1 ValuationEBITDA 907.7 992.7 1,078.4 1,178.7 1,245.6 c_PE P/E x 22.2 15.5 15.4 13.3 12.1












Unusual item after tax (9.2) (9.0) (26.0) 0.0 0.0 GearingReported NPAT 240.8 349.4 334.7 415.6 459.0 c_GEARING*100Net Debt to Net debt + Equity % 44.7 45.6 45.6 43.9 42.1







Current assets 575.6 494.8 507.9 527.2 547.3 MSCI IVA (ESG) Rating BBBProperty, plant & equip. 3,581.7 3,926.4 4,302.0 4,480.0 4,568.7 TP ESG Risk (%): -3.08

Intangibles 2,750.3 2,793.8 2,793.8 2,761.2 2,728.5



Total assets 7,162.2 7,643.1 8,031.8 8,196.5 8,272.5

Payables 366.4 393.6 397.8 408.0 423.9


Other liabilities 590.2 543.8 543.8 543.8 543.8 MSCI IVA Risk: Positive


Net assets 3,347.4 3,634.8 3,839.7 4,050.3 4,214.0

Ordinary equity 3,334.9 3,620.0 3,822.4 4,030.2 4,190.9






EBIT 616.7 701.7 728.0 803.7 867.1

Net interest -233.5 -219.9 -216.5 -210.3 -207.0

Depr & Amort 291.0 291.0 350.4 375.0 378.4

Tax paid -46.4 -170.4 -148.4 -175.1 -198.0

Working capital 0.0 0.0 -8.8 -9.2 -4.2

Other 17.5 18.6 0.0 0.0 0.0


Capex -819.2 -613.2 -726.1 -520.3 -434.4




Asset sale proceeds 25.6 -37.9 0.0 0.0 0.0

Other 3.7 14.1 0.0 0.0 0.0


Dividends paid -63.5 -90.4 -144.3 -207.8 -298.4

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings -3.4 10.2 179.6 -56.0 -103.6


Financing cashflow -66.9 -80.2 35.3 -263.8 -402.0 Absolute 0.7% -0.5% 13.6%

Total cashflow -211.5 -96.2 14.0 0.0 0.0 Relative 0.4% 0.3% 6.5%

Adjustments 0.0 0.0 0.0 0.0 0.0


MSCI IVA Risk Comment: While staff engagement is a key

concern at Patrick, the conclusion of negotiations and the signing

of a new workplace agreement should result in immediate

productivity improvements and staff engagement. On this basis

we do not agree with the poor MSCI rating in this category and

believe there is scope for a re-rating.

12/02/2014 21:35

Asciano is an Australia-based company. The Company is engaged in the ownership and

management of ports and rail assets, and associated operations and services. Asciano

consists of four segments: Coal, Intermodal, Container Ports, and Auto.

Credit Suisse View

TP Risk Comment: ESG impact from low staff engagement and

poor productivity at Patrick. New EBA signed meaning potential

upside likely, but risk to delivery remain.

OUTPERFORM

4.00

4.20

4.40

4.60

4.80

5.00

5.20

5.40

5.60

5.80

6.00

31/01/2013 31/03/2013 31/05/2013 31/07/2013 30/09/2013 30/11/2013 31/01/2014

AIO.AX XJO

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0


Stock Local Sector



14 February 2014


Figure 12: Brambles' financial summary (ex. Recall)

Brambles Limited (BXB) Year ending 30 Jun In USDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016





c_DPS*100DPS c 26.8 27.7 27.2 28.1 28.2

c_PAYOUT*100Payout % 77.7 73.6 67.1 62.4 58.7






EBIT 835.5 908.0 981.6 1,079.5 1,147.7 c_EBITDA_MULTIPLE_CUEV/EBITDA x 11.5 10.6 9.9 9.2 8.8




Profit before tax 696.5 807.1 874.2 969.9 1,035.5 ReturnsIncome tax (163.1) (209.1) (244.8) (271.6) (290.0) c_ROE*100Return on Equity % 18.7 23.3 23.1 23.5 23.0




Associates & Other (20.9) (12.9) 0.0 0.0 0.0 c_ROA*100Return on Assets % 6.8 8.7 9.0 9.5 9.7


Unusual item after tax (57.2) (30.1) 0.0 0.0 0.0 GearingReported NPAT 455.3 555.0 629.5 698.3 745.6 c_GEARING*100Net Debt to Net debt + Equity % 49.5 48.3 46.8 45.1 43.6





Receivables 1,054.8 972.0 991.4 1,011.3 1,031.5 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 227.2 210.0 194.3 195.5 197.4


Current assets 1,352.3 1,134.9 1,156.1 1,178.0 1,193.2 MSCI IVA (ESG) Rating AAAProperty, plant & equip. 4,138.6 4,036.0 4,306.9 4,601.8 4,920.2 TP ESG Risk (%): 0

Intangibles 1,969.6 1,471.0 1,471.0 1,471.0 1,471.0



Total assets 7,545.7 6,706.7 6,998.9 7,315.6 7,649.3

Payables 1,176.8 1,093.0 1,114.9 1,137.2 1,159.9




Net assets 2,740.4 2,510.3 2,730.6 2,975.0 3,236.0

Ordinary equity 2,740.4 2,510.3 2,730.6 2,975.0 3,236.0






EBIT 835.5 908.0 981.6 1,079.5 1,147.7

Net interest -158.4 -160.1 -125.5 -107.3 -109.8

Depr & Amort 489.2 495.0 524.7 547.7 575.2

Tax paid -215.1 -149.0 -244.8 -271.6 -290.0

Working capital 0.0 -50.0 1.3 1.4 1.4

Other 138.0 53.5 -1.3 -1.4 -1.4


Capex -949.4 -905.1 -901.1 -960.0 -1,023.7



Acquisitions & Invest 17.0 -105.2 105.5 117.4 130.0


Other 0.0 0.0 0.0 0.0 0.0

Investing cashflow -932.4 -1,010.3 -795.6 -842.6 -893.6

Dividends paid -397.7 -425.5 -409.1 -453.9 -484.6

Equity raised 326.6 117.4 0.0 0.0 0.0

Net borrowings 11.5 -93.9 50.0 50.0 50.0


Financing cashflow -55.0 -395.4 -359.1 -403.9 -434.6 Absolute -1.9% -3.8% 9.2%

Total cashflow 101.8 -308.3 -18.8 1.8 -5.2 Relative -2.2% -2.9% 2.1%

Adjustments -29.1 -11.9 0.0 0.0 0.0

Net change in cash 72.7 -320.2 -18.8 1.8 -5.2 Source: Reuters 52 week trading range: 8.17-9.71

MSCI IVA Risk Comment: While Brambles is AAA rated, we

believe the MSCI social score of 7.3 should be higher, as

concerns over the use of illegal immigrants in the IFCO business

relates to the 2003-2006 period, which was prior to its acquisition

by Brambles. Adequate provisions have been made. Furthermore,

the high risk MSCI places on Privacy and Data security as a result

of the Recall business should disappear with its impending sale.

With a higher MSCI re-rating likely, we believe this could be one

12/02/2014 21:36

Brambles Limited (Brambles) is an Australian based company. The company is engaged in

the provision of pallet, container pooling and supply chain services and information

management systems.

Credit Suisse View

TP Risk Comment: Solid ESG track record. Despite fast

expansion into emerging markets, particularly Asia, management

remain committed to sourcing lumber from sustainable sources.

NEUTRAL

7.00

7.50

8.00

8.50

9.00

9.50

10.00

31/01/2013 31/03/2013 31/05/2013 31/07/2013 30/09/2013 30/11/2013 31/01/2014

BXB.AX XJO

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0


Stock Local Sector



14 February 2014


Figure 13: Toll's financial summary

Toll Holdings (TOL) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016



vs Share price % -2.66 EPS_GROWTH*100EPS Growth % 9.4 -0.2 6.8 6.1


c_DPS*100DPS c 25.0 26.0 29.5 32.0 38.0

c_PAYOUT*100Payout % 68.1 64.7 73.6 74.7 83.6




Sales revenue 8,707.2 8,719.4 8,838.7 9,089.7 9,278.4 ValuationEBITDA 659.5 702.5 716.7 764.5 811.3 c_PE P/E x 15.4 14.0 14.1 13.2 12.4












Unusual item after tax (203.4) (190.7) 0.0 0.0 0.0 GearingReported NPAT 59.1 97.3 285.7 307.2 325.9 c_GEARING*100Net Debt to Net debt + Equity % 29.3 32.1 28.5 28.0 28.1







Current assets 1,921.4 1,966.7 1,801.8 1,833.1 1,856.4 MSCI IVA (ESG) Rating AProperty, plant & equip. 2,010.7 1,999.4 2,107.9 2,203.6 2,290.9 TP ESG Risk (%): 0

Intangibles 1,795.1 1,660.3 1,656.1 1,653.5 1,653.5



Total assets 6,040.9 5,974.6 5,914.0 6,038.4 6,149.0

Payables 892.9 868.2 884.7 909.9 928.7




Net assets 2,746.4 2,696.4 2,772.3 2,852.4 2,903.2

Ordinary equity 2,727.1 2,674.8 2,750.7 2,830.8 2,881.6






EBIT 405.4 438.7 452.4 482.7 513.1

Net interest -26.7 -28.5 -37.4 -32.9 -33.0

Depr & Amort 254.1 263.8 264.3 281.8 298.2

Tax paid -98.8 -132.7 -122.0 -135.3 -146.7

Working capital 6.5 -144.9 181.4 -6.2 -4.4

Other -2.8 146.8 -164.3 32.7 37.7


Capex -478.6 -391.6 -372.8 -377.4 -385.5





Other 23.8 168.2 0.0 0.0 0.0


Dividends paid -167.3 -192.3 -214.6 -243.8 -301.2

Equity raised 0.2 0.3 0.0 0.0 0.0

Net borrowings 97.0 -13.7 -168.5 4.6 26.1

Other 0.0 -0.5 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -70.1 -206.2 -383.0 -239.2 -275.0 Absolute -1.6% -2.1% 4.8%

Total cashflow 12.8 113.6 -181.4 6.2 4.4 Relative -1.9% -1.2% -2.2%

Adjustments 5.9 10.3 0.0 0.0 0.0

Net change in cash 18.7 123.9 -181.4 6.2 4.4 Source: Reuters 52 week trading range: 4.63-6.18

MSCI IVA Risk Comment: We are satisfied with the MSCI IVA

rating.

12/02/2014 21:38

Toll Holdings Limited is a transport and logistics provider. It operates in six segments: Toll

Global Resources; Toll Global Logistics; Toll Global Forwarding; Toll Global Express; Toll

Domestic Forwarding, and Toll Specialized and Domestic Freight.

Credit Suisse View

TP Risk Comment: Current lawsuit from US truck drivers

highlights potential workplace issues, though impact expected to

be small and isolated to the US.

NEUTRAL

4.00

4.50

5.00

5.50

6.00

6.50

31/01/2013 31/03/2013 31/05/2013 31/07/2013 30/09/2013 30/11/2013 31/01/2014

TOL.AX XJO

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0


Stock Local Sector



14 February 2014


Figure 14: Qube's financial summary

Qube Logistics (QUB) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016


Target Price A$ 2.20 c_EPS*100EPS (Normalised) c -1.8 9.4 9.2 10.5 12.2

vs Share price % 5.77 EPS_GROWTH*100EPS Growth % 616.5 -1.6 13.5 17.0


c_DPS*100DPS c 4.1 5.2 5.0 5.4 5.4

c_PAYOUT*100Payout % -226.1 55.5 54.3 51.6 44.1


c_FCF_PS*100Free CFPS c -7.3 -3.0 -1.0 7.3 9.9


Sales revenue 776.8 1,065.1 1,218.4 1,327.3 1,491.7 ValuationEBITDA 33.0 181.5 211.5 235.4 267.9 c_PE P/E x -114.7 22.2 22.6 19.9 17.0

Depr. & Amort. (36.2) (59.0) (66.5) (72.2) (80.4) c_EBIT_MULTIPLE_CURREV/EBIT x -694.4 19.6 17.0 15.1 13.0

EBIT (3.3) 122.5 145.1 163.2 187.5 c_EBITDA_MULTIPLE_CUEV/EBITDA x 68.7 13.2 11.7 10.4 9.1


Net interest Exp. (11.8) (33.7) (33.1) (35.6) (37.2) c_FCF_YIELD*100FCF Yield % -3.5 -1.4 -0.5 3.5 4.7


Profit before tax (15.0) 116.8 126.6 143.0 166.4 ReturnsIncome tax 0.3 (26.8) (38.0) (42.9) (49.9) c_ROE*100Return on Equity % -1.5 8.1 7.7 8.4 9.3

Profit after tax (14.7) 90.0 88.6 100.1 116.5 c_I_NPAT/c_I_SALES*100Profit Margin % -1.9 8.1 7.0 7.3 7.6



Associates & Other 0.0 (0.0) 0.0 0.0 0.0 c_ROA*100Return on Assets % -0.9 4.7 4.3 4.8 5.5

Normalised NPAT (14.7) 86.3 84.9 96.4 112.8 c_ROIC*100Return on Invested Cap. % -0.2 5.9 5.9 6.5 7.4

Unusual item after tax 0.0 7.2 0.0 0.0 0.0 GearingReported NPAT (14.7) 93.6 84.9 96.4 112.8 c_GEARING*100Net Debt to Net debt + Equity % 23.0 28.9 31.2 29.9 27.7



Cash & equivalents 118.6 57.7 57.7 57.7 57.7 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -0.3 3.6 4.4 4.6 5.0




Current assets 267.9 227.1 251.5 268.8 294.9 MSCI IVA (ESG) Rating BBBProperty, plant & equip. 362.9 513.6 597.2 615.0 624.5 TP ESG Risk (%): 0

Intangibles 599.7 605.1 605.1 605.1 605.1



Total assets 1,699.1 1,840.9 1,957.4 2,005.0 2,041.1

Payables 94.5 96.3 110.2 120.1 134.9




Net assets 1,093.2 1,142.1 1,174.9 1,227.9 1,297.0

Ordinary equity 1,013.3 1,062.7 1,097.8 1,146.3 1,209.3






EBIT -3.3 122.5 145.1 163.2 187.5

Net interest -10.5 -33.1 -33.1 -35.6 -37.2

Depr & Amort 36.2 59.0 66.5 72.2 80.4

Tax paid -20.7 -11.1 -38.0 -42.9 -49.9

Working capital -22.5 -22.1 -10.5 -7.5 -11.3

Other 39.6 32.5 10.5 7.5 11.3


Capex -77.8 -175.1 -150.0 -90.0 -90.0


Capex - maintenance



Other -200.6 -62.8 0.0 0.0 0.0


Dividends paid -29.1 -35.9 -49.8 -47.9 -49.8

Equity raised 83.8 1.8 0.0 0.0 0.0

Net borrowings

Other 223.1 77.6 70.2 -11.3 -29.3 1 Month 3 Month 12 Month

Financing cashflow 277.8 43.5 20.4 -59.2 -79.1 Absolute 0.5% 0.5% 20.2%

Total cashflow 18.3 -46.8 10.9 7.7 11.7 Relative 0.1% 1.3% 13.2%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 18.3 -46.8 10.9 7.7 11.7 Source: Reuters 52 week trading range: 1.58-2.26

MSCI IVA Risk Comment: Given the indirect environmental

benefits of shifting up to 1 million containers from road to rail

which the Moorebank facility could provide, we believe the MSCI

environment rating should be higher.

12/02/2014 21:39

Qube Logistics is a portfolio of logistics assets covering landside logistics, as well as

stevedoring and logistics to the bulk and automotive sectors.

Credit Suisse View

TP Risk Comment: Very poor disclosure and earnings visibility as

well as low staff engagement at WA Ports. Upside from disclosure

improvement, though hard to quantify such a benefit.

NEUTRAL

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31/01/2013 31/03/2013 31/05/2013 31/07/2013 30/09/2013 30/11/2013 31/01/2014

QUB.AX XJO

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-0.9

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Stock Local Sector



14 February 2014


Figure 15: QAN's financial summary

Qantas Airways (QAN) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016


Target Price A$ 1.21 c_EPS*100EPS (Normalised) c -1.2 6.0 -17.0 -8.8 4.5

vs Share price % 8.52 EPS_GROWTH*100EPS Growth % 608.6 -386.1 48.6 151.3


c_DPS*100DPS c 0.0 0.0 1.5 5.5 9.0

c_PAYOUT*100Payout % 0.0 0.0 -8.8 -62.8 200.4


c_FCF_PS*100Free CFPS c -28.9 26.0 -1.6 -8.2 17.6


Sales revenue 15,724.0 15,903.0 15,677.8 16,747.7 17,493.0 ValuationEBITDA 1,569.0 1,822.0 1,144.7 1,394.2 1,796.7 c_PE P/E x -95.3 18.7 -6.5 -12.7 24.8

Depr. & Amort. (1,384.0) (1,450.0) (1,483.0) (1,468.3) (1,436.1) c_EBIT_MULTIPLE_CURREV/EBIT x 30.3 15.3 -16.8 -80.6 15.9

EBIT 185.0 372.0 (338.3) (74.1) 360.6 c_EBITDA_MULTIPLE_CUEV/EBITDA x 3.6 3.1 5.0 4.3 3.2


Net interest Exp. (182.0) (180.0) (205.0) (204.7) (211.9) c_FCF_YIELD*100FCF Yield % -25.9 23.3 -1.4 -7.3 15.7


Profit before tax 3.0 192.0 (543.2) (278.8) 148.7 ReturnsIncome tax (28.5) (57.6) 163.0 83.6 (44.6) c_ROE*100Return on Equity % -0.4 2.2 -6.9 -3.7 1.9

Profit after tax (25.5) 134.4 (380.3) (195.1) 104.1 c_I_NPAT/c_I_SALES*100Profit Margin % -0.2 0.8 -2.4 -1.2 0.6



Associates & Other 0.0 0.0 0.0 0.0 0.0 c_ROA*100Return on Assets % -0.1 0.7 -1.9 -1.0 0.5

Normalised NPAT (26.5) 133.4 (382.3) (197.1) 102.1 c_ROIC*100Return on Invested Cap. % -69.0 7.0 2.3 5.4 9.9

Unusual item after tax (338.0) (128.6) 0.0 0.0 0.0 GearingReported NPAT (364.5) 4.8 (382.3) (197.1) 102.1 c_GEARING*100Net Debt to Net debt + Equity % 34.9 35.3 36.9 40.1 38.6



Cash & equivalents 3,398.0 2,829.0 2,837.4 2,558.0 2,708.8 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 1.0 2.1 -1.7 -0.4 1.7




Current assets 5,460.0 5,245.0 5,253.4 4,974.0 5,124.8 MSCI IVA (ESG) Rating BBProperty, plant & equip. 14,139.0 13,827.0 13,482.0 13,470.4 13,175.5 TP ESG Risk (%): -9.17

Intangibles 610.0 714.0 714.0 714.0 714.0



Total assets 21,178.0 20,200.0 19,786.1 19,495.3 19,351.1

Payables 1,876.0 1,859.0 1,859.0 1,859.0 1,859.0




Net assets 5,889.0 5,954.0 5,539.7 5,253.0 5,210.9

Ordinary equity 5,927.0 5,992.0 5,575.9 5,287.0 5,244.9






EBIT 185.0 372.0 -338.3 -74.1 360.6

Net interest -115.0 -119.0 -205.0 -204.7 -211.9

Depr & Amort 1,384.0 1,450.0 1,483.0 1,468.3 1,436.1

Tax paid -1.0 -3.0 163.0 83.6 -44.6

Working capital 50.0 -330.0 0.0 0.0 0.0

Other -28.0 472.0 0.0 0.0 0.0


Capex -2,129.0 -1,259.0 -1,138.0 -1,456.8 -1,141.2


Capex - maintenance



Other -136.0 52.0 0.0 0.0 0.0

Investing cashflow -2,199.0 -984.0 -1,060.8 -1,456.8 -1,141.2

Dividends paid -1.0 0.0 -33.6 -123.5 -202.7

Equity raised -16.0 -52.0 0.0 27.8 54.4

Net borrowings 405.0 -565.0 0.0 0.0 -100.0

Other -18.0 -336.0 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 370.0 -953.0 -33.6 -95.7 -248.2 Absolute -0.4% -7.9% -29.4%

Total cashflow -354.0 -95.0 8.4 -279.3 150.7 Relative -0.8% -7.0% -36.5%

Adjustments 4.0 12.0 0.0 0.0 0.0

Net change in cash -350.0 -83.0 8.4 -279.3 150.7 Source: Reuters 52 week trading range: 0.97-1.90

MSCI IVA Risk Comment: Fuel burn and energy efficiency is low

relative to other airlines with newer fleets, however with $15bn of

capital expenditure on new aircraft in the medium term, we see

this risk as gradually subsiding, particularly once the B787 enters

service.

12/02/2014 21:39

Qantas Airways Limited is an airline company. It is engaged in the transportation of

passengers using two airline brands, Jetstar and Qantas. The Jetstar network includes 52

destinations. As of June 30, 2010, the Company had a fleet of 254 aircrafts.

Credit Suisse View

TP Risk Comment: Fuel efficiency remains low relative to other

airlines, though likely to improve post fleet investment. ESG

impact is the capitalised fuel efficiency upside

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31/01/2013 31/03/2013 31/05/2013 31/07/2013 30/09/2013 30/11/2013 31/01/2014

QAN.AX XJO

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14 February 2014


Figure 16: Virgin Australia summary

Virgin Australia (VAH) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016


Target Price A$ 0.38 c_EPS*100EPS (Normalised) c 2.7 -2.4 -4.9 -2.5 0.5



c_DPS*100DPS c 0.0 0.0 0.0 0.0 0.0

c_PAYOUT*100Payout % 0.0 0.0 0.0 0.0 0.0


c_FCF_PS*100Free CFPS c 0.1 -2.4 -0.9 2.5 4.4


Sales revenue 3,919.5 4,020.4 4,371.8 4,633.1 4,835.0 ValuationEBITDA 383.5 202.2 226.9 293.1 366.5 c_PE P/E x 12.3 -14.0 -6.8 -13.5 72.1

Depr. & Amort. (232.5) (238.7) (276.6) (294.4) (300.6) c_EBIT_MULTIPLE_CURREV/EBIT x 13.6 -68.1 -48.1 -2,099.2 38.8

EBIT 151.0 (36.5) (49.7) (1.2) 65.9 c_EBITDA_MULTIPLE_CUEV/EBITDA x 5.3 12.3 10.5 8.8 7.0


Net interest Exp. (62.1) (53.4) (65.5) (68.6) (65.8) c_FCF_YIELD*100FCF Yield % 0.2 -7.3 -2.7 7.3 13.3


Profit before tax 88.9 (89.9) (115.2) (69.8) 0.1 ReturnsIncome tax (4.4) 51.6 32.2 19.6 (0.0) c_ROE*100Return on Equity % 6.4 -5.6 -9.4 -5.0 0.9

Profit after tax 84.5 (38.3) (82.9) (50.3) 0.1 c_I_NPAT/c_I_SALES*100Profit Margin % 1.5 -1.5 -2.7 -1.3 0.2



Associates & Other (25.0) (20.1) (36.7) (10.4) 11.2 c_ROA*100Return on Assets % 1.5 -1.3 -2.4 -1.2 0.2

Normalised NPAT 59.5 (58.4) (119.7) (60.7) 11.3 c_ROIC*100Return on Invested Cap. % 19.4 3.6 6.2 8.2 10.0

Unusual item after tax (58.9) (47.3) 0.0 0.0 0.0 GearingReported NPAT 0.6 (105.7) (119.7) (60.7) 11.3 c_GEARING*100Net Debt to Net debt + Equity % 48.4 55.7 48.9 53.7 53.1



Cash & equivalents 802.6 580.5 928.5 928.5 928.5 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 2.4 -0.7 -0.8 0.0 1.0




Current assets 1,032.0 970.9 1,344.3 1,363.0 1,377.4 MSCI IVA (ESG) Rating AProperty, plant & equip. 2,769.0 3,005.2 3,053.5 3,202.7 3,198.7 TP ESG Risk (%): 0

Intangibles 101.0 329.6 329.6 329.6 329.6



Total assets 3,995.2 4,426.0 4,909.7 5,077.5 5,087.9

Payables 505.5 580.4 599.6 635.4 663.1




Net assets 929.7 1,040.1 1,268.4 1,207.8 1,219.1

Ordinary equity 929.7 1,040.1 1,268.4 1,207.8 1,219.1



Total shareholder funds 929.7 1,040.1 1,268.4 1,207.8 1,219.1

Net debt 871.5 1,309.4 1,213.3 1,401.0 1,378.7 Source: MSCI ESG Research


EBIT 151.0 -36.5 -49.7 -1.2 65.9

Net interest -50.8 -42.1 -65.5 -68.6 -65.8

Depr & Amort 232.5 238.7 276.6 294.4 300.6

Tax paid 0.0 0.0 32.2 19.6 0.0

Working capital 0.0 0.0 -21.9 22.0 7.0

Other -107.2 -67.5 0.0 0.0 11.2


Capex -648.7 -437.9 -361.7 -453.9 -296.6





Other -46.1 -114.9 -62.0 0.0 0.0


Dividends paid 0.0 0.0 0.0 0.0 0.0

Equity raised 0.0 100.7 0.0 0.0 0.0

Net borrowings -0.8 87.0 251.9 187.8 -22.3


Financing cashflow -0.8 196.4 251.9 187.8 -22.3 Absolute -10.7% -17.3% -23.5%

Total cashflow -10.1 -207.0 0.0 0.0 0.0 Relative -12.5% -15.6% -29.6%

Adjustments -7.5 16.9 0.0 0.0 0.0


MSCI IVA Risk Comment: We are satisfied with the MSCI IVA

rating.

13/02/2014 11:53

Virgin Australia Holdings Limited is an Australia-based company. The Company is engaged in

airline industry. Its segments include short haul and long haul. Its operations use the short

haul fleet of Boeing 737 aircrafts and Embraer 170 and 190 aircraft.

Credit Suisse View

TP Risk Comment: Solid ESG track record though still scope for

improvement in disclosure.

NEUTRAL

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1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

VAH.AX XJO

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Stock Local Sector




14 February 2014


Equity Research

Regional Banks (Regional Banks (AU))

Bendigo and Adelaide Bank

(BEN.AX / BEN AU) PRE RESULTS COMMENT

1H14 results preview; reports on 17 Feb

Date: 17 February 2014 Time: Pre-market

Period: Interim Earnings Risk: Positive


BEN cash earnings: $192.0mn ($169.7mn 1H13) 10.00am AEDST 1800 801 825

(code: 5507 163)

Overseas: +612 8524 5042

BEN cash EPS: $0.47 ($0.42 1H13)

Interim DPS: $0.32 ($0.30 pcp)

Credit Suisse assumptions/variance to market

■ Our FY14E $378mn cash earnings estimate sits 1% above the IBES

$376mn consensus, while our corresponding DPS estimate of $0.64 is in

line with the consensus.

What to look for

■ We would look for: 1) Some relief emerging for net interest margins, with

term deposit spread pressures easing and the re-pricing of parts of the

Community Bank originated portfolio; 2) Accelerating operating costs,

reflecting new premises costs and acceleration of the Basel advanced

accreditation programme; 3) Rural Bank asset quality (given on-going

deterioration within half a dozen North Queensland cattle exposures,

reflecting live export bans, drought and lower stock prices); and 4) Update

on medium-term issues such as the progress of the Great Southern litigation

and the Basel advanced accreditation programme.

Share price implications

■ BEN currently trades on 12.4x 12-month prospective earnings (equating

to a 4% discount to the major banks vs an 8% four-year average discount

and compared with Bank of Queensland on 12.3x) and a corresponding

book multiple of 1.1x (major banks 2.1x, Bank of Queensland 1.3x).


Mean^

CS tgt^

Sh Prc

-20%

-10%

0%

10%

20%

30%


Performance over 1M 3M 12M Absolute (%) -0.3 5.0 20.2 Relative (%) -2.2 6.8 14.1


Year 06/13A 06/14E 06/15E 06/16E Reported profit (A$mn) 352.3 371.3 390.4 415.4 Cash Earnings (CS) (A$mn) 348.0 378.3 397.4 422.4 Cash EPS (CS) (A$) 0.85 0.91 0.95 1.00 Change from previous EPS (%) n.a. — — — Cash EPS growth (CS) (%) 1.4 7.0 4.2 5.4 Cash PE (CS) (x) 13.6 12.7 12.2 11.6 Dividend (A$) 0.61 0.64 0.67 0.71 Dividend yield (%) 5.2 5.5 5.8 6.1 Franking (%) 100 100 100 100 Book value per share (A$) 10.30 10.58 10.87 11.18 Price/book (x) 1.1 1.1 1.1 1.0 Return on Equity (%) 8.5 8.8 8.9 9.1 Equity Tier 1 ratio (%) 7.8 7.8 7.7 7.6 Tier 1 Ratio (%) 9.3 9.2 9.0 8.9





Rating NEUTRAL* Price (13 Feb 14, A$) 11.65 Target price (A$) 12.20¹ Market cap. (A$mn) 4,776.62 Yr avg. mthly trading (A$mn) 285 Last month's trading (A$mn) 287 Projected return: Capital gain (%) 4.7 Dividend yield (net %) 5.7 Total return (%) 10.4 52-week price range 11.9 - 9.4


benchmark.


Research Analysts

James Ellis

61 2 8205 4531

[email protected]

Jarrod Martin

61 2 8205 4334

[email protected]

James Cordukes, CFA

61 2 8205 4858

[email protected]

14 February 2014



BENDIGO & ADELAIDE BANK Year ending 30 Jun Share Price: $11.65 12-month target price: 12.20

Profit and Loss ($mn) 2012A 2013A 2014F 2015F 2016F Per Share Summary 2012A 2013A 2014F 2015F 2016F

Net interest income ## 950 1,028 1,078 1,134 1,197 Earnings:

Non-interest income ## 276 297 311 317 329 Cash EPS 0.9 $0.84 $0.85 $0.91 $0.95 $1.00

Total income ## 1,226 1,325 1,389 1,451 1,526 Cash EPS growth -8.7% 1.4% 7.0% 4.2% 5.4%

Operating expenses ## (752) (779) (813) (847) (881) Diluted cash EPS 0.9 $0.79 $0.78 $0.84 $0.88 $0.90

Underlying profit ## 474 546 576 604 644 Diluted cash EPS growth -9.4% -0.7% 7.5% 4.0% 3.1%

Bad debt charge ## (32) (70) (50) (52) (57) Company defined cash EPS 0.9 $0.84 $0.85 $0.91 $0.95 $1.00

…net write offs -37 (31) (69) (39) (42) (45) Company defined EPS growth -8.7% 1.4% 7.0% 4.2% 5.4%

…movement in provisions -7 (1) (1) (11) (10) (12)

Profit before tax ## 442 476 525 552 587 Dividends:

Income tax ## (130) (138) (154) (162) (172) Dividend per share $0.60 $0.61 $0.64 $0.67 $0.71

…Effective tax rate ## 29% 29% 29% 29% 29% Dividend payout ratio 71% 71% 70% 70% 71%

NPAT ## 312 338 371 390 415 Net dividend yield 5.2% 5.2% 5.5% 5.8% 6.1%

Minorities (4) (0) (0) (0) (0) (0) Gross dividend yield 7.4% 7.5% 7.8% 8.2% 8.7%

Preference dividends (9) (9) (7) (6) (6) (6) Franking 100% 100% 100% 100% 100%

Amortisation of intangibles 20 20 17 13 13 13

Cash earnings ## 323 348 378 397 422 Capital:

Preference dividends 9 9 7 6 6 6 Book value per share $10.02 $10.30 $10.58 $10.87 $11.18

Amortisation of intangibles ## (20) (17) (13) (13) (13) NTA per share $6.17 $6.62 $6.95 $7.31 $7.68

Significant items 17 (117) 15 0 0 0 Period end shares mn 402.2 412.0 415.7 419.1 422.5

Reported profit ## 195 352 371 390 415 Average shares mn 383.5 407.4 413.8 417.4 420.8

Company defined cash earnings ## 323 348 378 397 422

Balance Sheet 2012A 2013A 2014F 2015F 2016F Ratio Analysis 2012A 2013A 2014F 2015F 2016F

Total assets 57,238 60,282 64,546 69,300 74,403 Profitability Ratios:

Managed gross loans & acc. ## 48,832 50,679 54,341 58,450 62,859 Net interest margin 1.78% 1.86% 1.85% 1.82% 1.78%

…growth 5.0% 3.8% 7.2% 7.6% 7.5% Lending fees % average loans 0.12% 0.12% 0.13% 0.13% 0.12%

Managed housing lending ## 33,769 35,010 37,646 40,585 43,743 Group cost to income ratio 61.3% 58.8% 58.6% 58.4% 57.8%

…growth 7.1% 3.7% 7.5% 7.8% 7.8% Cash ROA 0.57% 0.60% 0.61% 0.60% 0.59%

Managed non housing lending ## 15,063 15,670 16,695 17,865 19,116 Cash ROE 8.3% 8.5% 8.8% 8.9% 9.1%

…growth 0.6% 4.0% 6.5% 7.0% 7.0%

Average interest earning assets ## 53,444 55,122 58,177 62,448 67,164 Bad Debt Charge:

…growth 5.4% 3.1% 5.5% 7.3% 7.6% Bad debt chrg % avg loans 0.08% 0.16% 0.11% 0.11% 0.11%

Risk weighted assets ## 28,310 30,530 32,615 34,975 37,503 Bad debt chrg % avg RWA 0.12% 0.24% 0.16% 0.15% 0.16%

...growth 8.7% 7.8% 6.8% 7.2% 7.2%

Impaired assets 359 390 402 424 447 Provisioning:

…% gross managed loans & acc. 0.73% 0.77% 0.74% 0.73% 0.71% Collective provisions (CP) $mn 32 35 37 40 43

GRCL $mn 184 198 211 226 242

Capital Adequacy: Individual provisions (IP) $mn 103 104 112 120 129

Tier 1 capital 2,376 2,825 2,994 3,155 3,324 Total provisions $mn 318 336 360 386 414

Equity Tier 1 capital 2,098 2,387 2,537 2,697 2,866 CP + GRCL % RWA 0.76% 0.76% 0.76% 0.76% 0.76%

Tier 1 ratio 8.4% 9.3% 9.2% 9.0% 8.9% CP + GRCL % non housing 1.43% 1.48% 1.48% 1.49% 1.49%

Equity Tier 1 ratio 7.4% 7.8% 7.8% 7.7% 7.6% CP + GRCL + IP % loans 0.75% 0.76% 0.76% 0.75% 0.75%

Valuation 2012A 2013A 2014F 2015F 2016F Share Price Performance 52 week range: $9.10 - $11.94

Investment Relatives

Cash PE 13.8x 13.6x 12.7x 12.2x 11.6x

Cash PE relative (S&P/ASX200) 85% 81% 86% 89% 89%

Cash P/Earnings growth -1.6x 9.7x 1.8x 2.9x 2.1x

Net dividend yield 5.2% 5.2% 5.5% 5.8% 6.1%

Gross dividend yield 7.4% 7.5% 7.8% 8.2% 8.7%

Price / Book 1.2x 1.1x 1.1x 1.1x 1.0x

Price / NTA 1.9x 1.8x 1.7x 1.6x 1.5x

Credit Suisse Valuation (12mth rolling forward) ESG Comment

Target Price $12.20

Sum of parts $8.87

Discounted cashflow $9.36

ESG

MSCI IVA rating BBB

Outlook Positive

Source: MSCI ESG Research Source: Iress

Rating does not consider

environmental and

community initiatives being

undertaken by BEN.

7.00

8.00

9.00

10.00

11.00

12.00

13.00

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

BEN.AX ASX 200 Financials

Source: ASX, Company data, Credit Suisse estimates

14 February 2014


Figure 2: BEN 1H14E profit announcement key financial summary in millions, unless otherwise stated

2H12A 1H13A 2H13A 1H14E vs 2H13 vs 1H13

Net Interest Income 469.0 504.9 520.0 537.6 3% 6%

Non-Interest Income 149.3 146.7 153.7 157.1 2% 7%

…Lending Fees 32.5 32.2 32.3 32.8 2% 2%

…Other Fees 54.5 54.4 46.6 47.1 1% -13%

…Trustee Fees 2.6 2.8 2.5 2.5 1% -10%

...Wealth & Insurance Commissions 23.5 21.4 23.3 23.5 1% 10%

…Equity Accounted Profits 0.7 0.5 1.1 1.1

…Homesafe Revaluation 5.0 11.9 13.2 15.0

…Other 30.5 23.5 34.7 35.0 1% 49%

Total Income 618.3 651.6 673.7 694.7 3% 7%

Operating Expenses (384.2) (390.9) (388.7) (402.3) 3% 3%

…Cost to Income Ratio 62.1% 60.0% 57.7% 57.9%

Underlying Profit 234.1 260.7 285.0 292.4 3% 12%

Bad Debt Charge (16.6) (32.1) (37.8) (25.8) -32% -20%

…Net Write-offs (16.0) (38.9) (30.5) (19.4)

…Movements in Provisions (0.6) 6.8 (7.3) (6.5)

Profit Before Tax 217.5 228.6 247.2 266.6 8% 17%

Income Tax (62.9) (65.8) (72.4) (78.1)

…Effective Tax Rate 28.9% 28.8% 29.3% 29.3%

Minorities 0.0 0.0 0.0 0.0

Distributions (4.2) (3.5) (3.0) (3.0)

Amortisation 10.0 10.4 6.5 6.5

Cash Earnings 160.4 169.7 178.3 192.0 8% 13%

Distributions 4.2 3.5 3.0 3.0

Amortisation (10.0) (10.4) (6.5) (6.5)

Significant Items (17.5) 26.6 (11.9) 0.0

Reported Profit 137.1 189.4 162.9 188.5 16% 0%

Average Shares 396.5mn 405.0mn 409.9mn 412.9mn 1% 2%

Basic Cash EPS $0.40 $0.42 $0.43 $0.47 7% 11%

DPS $0.30 $0.30 $0.31 $0.32 3% 7%

…Payout Ratio 74% 72% 71% 69%

Franking 100% 100% 100% 100%

Balance Sheet:

Average Earning Assets 54,068 54,802 55,442 57,163 3% 4%

Period End Gross Lending 48,832 49,426 50,679 52,533 4% 6%

…Housing 33,769 34,275 35,010 36,393 4% 6%

…Non-Housing 15,063 15,151 15,670 16,140 3% 7%

Reported NTA Per Share $6.16 $6.38 $6.62 $6.80 3% 7%

Cost to Average Assets 1.35% 1.36% 1.31% 1.32% -5bp -4bp

Returns:

Cash ROE (excluding hybrids) 8.2% 8.5% 8.5% 9.0%

Cash ROA 0.56% 0.59% 0.60% 0.63%

Margins:

Reported Net Interest Margin 2.08% 2.18% 2.24% 2.18% -6bp +0bp

Community Bank and Alliances -0.34% -0.35% -0.35% -0.31% +3bp +4bp

On Balance Sheet Net Interest Margin 1.74% 1.83% 1.89% 1.87% -3bp +4bp

Lending Fees % Average Loans 0.14% 0.13% 0.13% 0.13% -0bp -0bp

Bad Debt Charge:

Bad Debt Charge % Average Loans 0.07% 0.13% 0.15% 0.10% -5bp -3bp

Net Write-offs % Average Non-Housing 0.22% 0.51% 0.40% 0.24% -15bp -27bp


14 February 2014


Figure 3: BEN 1H14E profit announcement key financial summary (continued) in millions, unless otherwise stated

2H12A 1H13A 2H13A 1H14E vs 2H13 vs 1H13

Provisioning:

Collective Provisions (CP) 31.8 31.9 34.5 36.0

Specific Provisions (SP) 102.9 96.2 104.1 109.0

General Reserves (GRCL) 183.6 191.7 197.6 203.6

Total Provisions 318.3 319.8 336.2 348.7 4% 9%

CP+GRCL % Risk Weighted Assets 0.76% 0.76% 0.76% 0.76% +0bp -0bp

CP+GRCL % Non-Housing Loans 1.43% 1.48% 1.48% 1.48% +0bp +1bp

SP % Non-Accrual Loans 29% 33% 27% 28%

Total Provisions % Gross Loans 0.65% 0.65% 0.66% 0.66%

Total Provisions % Non-Accrual Loans 89% 110% 86% 89%

Asset Quality:

Non-Accrual Loans 358.5 290.0 390.2 394.0 1% 36%

…% Gross Non-Securitised Loans 0.85% 0.66% 0.88% 0.86%

Past Due Loans 807.5 721.5 742.3 764.6 3% 6%

...% Gross Non-Securitised Loans 1.90% 1.65% 1.68% 1.67%

Net Non-Accrual Loans % Net Fund. Tier 1 12.2% 8.5% 12.0% 11.5%

Capital:

Tier 1 2,376 2,732 2,825 2,924 3% 7%

Net Fundamental Tier 1 2,098 2,275 2,387 2,467 3% 8%

Risk Weighted Assets 28,310 29,354 30,530 31,529 3% 7%

Tier 1 Ratio 8.39% 9.31% 9.25% 9.27% +2bp -3bp

Net Fundamental Tier 1 Ratio 7.41% 7.75% 7.82% 7.82% +1bp +7bp


"Really the one area of disappointment when we look at our cash earnings is the credit

costs and that's really been driven by continued weakness in the Rural Bank cattle

property exposures we've got and also over the last 12 months there's been a number of

months where we've had significant Great Southern write-offs due to specific bankruptcies

relating to individual borrowers in that cohort of borrowers."

"One thing I think I can confidently say, I don't expect there to be our cost growth as low

this year because of the impact of the Adelaide head office, which is going to add about

$12mn per year, and additional occupancy costs plus also the Basel II advance program

… If you put those aside certainly we'd be aiming to try and keep our cost growth at

around CPI but with those two other impacts I think you're going to see an increase in our

costs but really our focus is to make sure that that cost increase is not greater than our

revenue increase so we can still maintain positive jaws, although I dare say they will be a

little narrower looking forward over the next 12 months."

"…the fact that we have passed on all of those cash rate reductions for the last two

changes I suspect that the [net interest margin] trend is likely to be down rather than up.

… I'm not sitting here thinking we're going to be looking at a NIM heading north certainly

over these six months with two cash rate reductions that we've just experienced."

Richard Fennell (CFO) at the FY13 profit announcement

■ Balance growth: In relation to 1H14E balance sheet growth, we estimate from APRA

Monthly Banking Statistics that BEN’s lending growth (+1.2%) was weaker than the

banking system (2.7%), including in housing (BEN 1.2% vs the system at 3.1%). Core

deposit growth (0.5%) also lagged the banking system (5.6%). Refer further: Bank

Market Shares: 1H14E stock-take (31 January 2014). BEN's annual report includes a

focus for 2014 on continuing to drive above-system growth in residential, business and

agri-business lending.

■ 1Q14 asset quality trends: We estimate from BEN’s Pillar 3 risk and capital data that

1Q14 impaireds percentage credit exposures increased to 0.82% (0.81% sequentially)

14 February 2014


although corresponding past-dues declined to 1.39% (1.50% sequentially). However,

corresponding write-offs appeared to moderate to 0.12% (0.21% sequentially, and the

series average since 2008 has been 0.15%) with specific provision coverage

percentage impaireds declining and general reserve coverage percentage credit RWA

stable. Finally, the Tier 1 ratio remained relatively stable in 1Q14 at 9.24% (9.25%

sequentially) on the back of flat sequential risk weighted asset growth / 1% credit

exposure growth:

Figure 4: Impaireds rising again… BEN impaired loans percentage credit exposures

Figure 5: …driven out of Other Retail BEN impaired loans percentage credit exposures by portfolio

0.82%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

Mar

12

Jun

12

Sep

12

Dec

12

Mar

13

Jun

13

Sep

13

0.11%

2.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Residential Mortgage Other Retail

Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11

Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13

Figure 6: Past-dues edging lower… BEN past due loans percentage credit exposures

Figure 7: …driven out of both categories BEN past due loans percentage credit exposures by portfolio

1.39%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

Sep

08

Dec

08

Mar

09

Jun

09

Sep

09

Dec

09

Mar

10

Jun

10

Sep

10

Dec

10

Mar

11

Jun

11

Sep

11

Dec

11

Mar

12

Jun

12

Sep

12

Dec

12

Mar

13

Jun

13

Sep

13

0.46%

3.63%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Residential Mortgage Other Retail

Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11

Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13

Source for all charts: Company data, Credit Suisse estimates

BEN investment positives

■ Strong leverage to improving term-deposit spreads: As illustrated in the following

charts, BEN is pre-eminently leveraged to the term deposit market in its funding mix,

where spreads have been improving (for context, BEN's total funding composition is

also skewed towards deposits at 77% vs listed peers at 59%-66%). During the 2H13

profit announcements, both WBC and BOQ referred to term deposit spread pressures

easing, and BEN has consistently stated that they have sought to be disciplined in

terms deposit pricing (remaining within, but at the lower end of market pricing). A

further margin tailwind is the fuller period impact of the 1 April 2013 "Restoring the

Balance" re-pricing of the Community Bank TDs and fixed rate loan portfolios (trail

fees reduced from 37bp to 25bp) – which BEN sees as a 1.5-2.0bp positive FY14E

Group net interest margin impact. The offset to this is the (industry wide) issue of

endowment margin compression associated with declining cash rates, with BEN still to

fully absorb within a half-yearly operating period, the 7 August 2003 25bp cash rate

cut (with the prima facie sensitivity of -5bp impact on net interest margins from a 25bp

cash rate cut). We acknowledge here BEN's statement at the FY13 result that the

FY14E margin trend is likely to be down rather than up, with the margin certainly not

up in 1H14E, citing the endowment margin headwind of a declining cash rate

environment as a key driver of this expected outcome.

14 February 2014


Figure 8: BEN pre-eminently geared to term deposits… Commercial banks' composition of FY13 deposits

Figure 9: …where spreads have been improving Major banks’ deposit spreads over equivalent money market rates

51%46% 46%

60%70%

62%

45% 52%46%

33%

30%38%

4% 3%8% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ANZ CBA NAB WBC BEN BOQ

Term Deposits At Call Non-Interest Bearing

-150bp

-100bp

-50bp

0bp

50bp

100bp

150bp

200bp

Jan

07

Apr

07

Jul 0

7

Oct

07

Jan

08

Apr

08

Jul 0

8

Oct

08

Jan

09

Apr

09

Jul 0

9

Oct

09

Jan

10

Apr

10

Jul 1

0

Oct

10

Jan

11

Apr

11

Jul 1

1

Oct

11

Jan

12

Apr

12

Jul 1

2

Oct

12

Jan

13

Term Deposit 'Specials' At Call Deposits

Source: Company data, Credit Suisse estimates Note: “At Call Deposits” is the spread to the cash rate; Refers to

existing customers only; Excludes temporary bonus rates

Source: Bloomberg, RBA

■ Modest leverage to rising house prices through Homesafe Solutions: BEN's

revenues are geared to house price inflation through the Homesafe Solutions

business (2% FY13 revenues) and, according to the ABS capital city house price

indices, Sydney house prices are up 8.6% in the six months to December 2013 while

Melbourne house prices are up 5.5% over the same period. BEN's Homesafe

Solutions brings to account non-interest income principally through: 1) amortisation of

the property acquisition discounts, 2) unrealised mark-to-model gains on Sydney and

Melbourne house price movements (per the Residex house price index), and 3) any

realised gains / losses on properties upon ultimate disposal (akin to "experience

variation"). We understand that every 1% increase in the Residex home price index in

Sydney and Melbourne equates to a $3mn unrealised gain per half for BEN.

■ On-going branch maturation benefits: BEN has previously stated that, having

opened more than 300 branches in the last ten years, there was still a lot of

maturation benefits in terms of above-system footings growth coming through (an

important tailwind in an overall subdued system credit growth environment).

■ Basel advanced accreditation program: BEN has indicated $400-$450mn of

potential capital release arising from advanced accreditation (albeit there is likely to be

a 10% regulatory benefit cap upfront with the ultimate the capital benefit deriving from

increased leverage of the existing capital base rather than any capital return), albeit

from a timing sense we acknowledge that this might not occur until beyond the

forecast period. BEN has stated that the benefits of advanced accreditation were three

fold (in rising order of importance): 1) capital relief, with BEN's mortgage risk weight

currently twice the mortgage risk weight of the majors; 2) improved risk structures and

frameworks to manage market, credit and operational risk, leading to greater

consistency on decision-making; and 3) the ability to understand customer needs

better with accurate data.

BEN investment risks

■ The Great Southern exposure: BEN's litigation exposure to the failed managed

investment scheme Great Southern represents a tail risk for BEN, with a worst case

scenario (adverse judgment with no feasible avenue of appeal) representing, say, a

$300mn exposure to BEN (against which BEN holds only around $20-25mn of loan

loss provisions). While the probability of such a worst case outcome might not be high,

the quantum of downside risk is much greater than the quantum of upside risk. As

illustrated in the chart below, the balance of 90+ day past-due balances associated

with Great Southern have steadily increased to $283mn in 2H13 (albeit we

acknowledge scope for this balance to include "tactical defaulters" that are merely

awaiting the outcome of the class action).

14 February 2014


Figure 10: Rising Great Southern past dues… BEN Great Southern past-due balances

Figure 11: …but declining development NPLs BEN property development NPL balances

$0mn

$50mn

$100mn

$150mn

$200mn

$250mn

$300mn

1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13

Great Southern Past Due 90 Days

$0mn

$10mn

$20mn

$30mn

$40mn

$50mn

$60mn

$70mn

1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13

Property Development NPL Balances

Source for both charts: Company data, Credit Suisse estimates

■ Rural Bank asset quality: BEN's impaired asset ratios have deteriorated in recent

periods, predominantly reflecting Rural Bank Queensland cattle property exposures.

While at the FY13 result, BEN referred to $55mn of post-balance date contracted

collateral disposals (which was expected to normalise specific provision coverage

back to its long-term rate), we understand that even after these contracted sales, BEN

will still hold $35mn of impaired rural exposures. Rural Bank's exposures are also

relatively large (we understand some exposures are $30-$35mn in size) creating also

a concentration risk issue.

■ Cost inflation risk: Following strong cost discipline with flat sequential costs in the

2H13 operating period (by our reckoning, it had been 15 years since BEN had

reported sequentially flat half-yearly expenses) BEN nevertheless indicated at the

FY13 result that FY14E cost growth would accelerate YoY with costs associated with

the new Adelaide Bank head office (+$12mn in occupancy costs) and the ramping up

of the Basel advanced accreditation programme (potential tripling the FY13 spend of

$12.5mn, which for context was c70% capitalised on say, a seven-year amortisation

cycle once the advanced systems are "in use").

■ On-going balance sheet headwinds from a shrinking margin lending market: As

illustrated in the chart below on the left, margin loans outstanding declined by 2%

sequentially in the September 2013 quarter while, as illustrated in the chart below on

the right, there was also a corresponding 3% decline in the number of customer

accounts. While margin lending represents only 4% of BEN's FY13 lending portfolio,

these trends tend to reaffirm the negative momentum seen in this part of the portfolio

(e.g., -5% balance growth 2H13 sequentially)

Figure 12: Shrinking margin loan balances… Australian system margin loans and credit limits

Figure 13: …and margin lending account numbers Number of margin lending accounts in Australia

0%

10%

20%

30%

40%

50%

60%

70%

80%

$0bn

$10bn

$20bn

$30bn

$40bn

$50bn

$60bn

$70bn

$80bn

$90bn

Sep

00

Mar

01

Sep

01

Mar

02

Sep

02

Mar

03

Sep

03

Mar

04

Sep

04

Mar

05

Sep

05

Mar

06

Sep

06

Mar

07

Sep

07

Mar

08

Sep

08

Mar

09

Sep

09

Mar

10

Sep

10

Mar

11

Sep

11

Mar

12

Sep

12

Mar

13

Sep

13

Credit Limits (LHS) Margin Loans (LHS) Margin Loans % Credit Limits (RHS)

0,000

50,000

100,000

150,000

200,000

250,000

300,000

Sep

00

Mar

01

Sep

01

Mar

02

Sep

02

Mar

03

Sep

03

Mar

04

Sep

04

Mar

05

Sep

05

Mar

06

Sep

06

Mar

07

Sep

07

Mar

08

Sep

08

Mar

09

Sep

09

Mar

10

Sep

10

Mar

11

Sep

11

Mar

12

Sep

12

Mar

13

Sep

13

Source for both charts: RBA Statistical Table D10, Credit Suisse

estimates

14 February 2014


■ On-going acquisition risk, with BEN seeing themselves as a consolidator amongst

smaller players and having developed an integration template following the April 2013

completion of the Adelaide Bank retail merger integration.

BEN earnings and valuation

■ Multiples: BEN is currently trading on 12.4x 12-month prospective earnings (1%

premium to BOQ vs 10% four-year average premium) equating to an 5% discount to

the major banks, and a corresponding book multiple of 1.1x.

■ Credit Suisse vs consensus: Our cash earnings estimates sit 2% below the IBES

consensus in both FY15E and FY16E.

■ Earnings guidance: BEN did not issue any directed guidance at the FY13 profit

announcement, but did state: 1) the FY14E margin trend was likely to be down rather

than up, with the margin "certainly not up" in 1H14E, citing the endowment margin

headwind of a declining cash rate environment as a key driver of this expected

outcome; 2) FY14E cost growth will accelerate YoY with costs associated with the new

Adelaide Bank head office (+$12mn in occupancy costs) and ramping up of the Basel

advanced accreditation program (potential tripling of the FY13 spend), although BEN

will aim to both keep FY14E cost growth at or around CPI and maintain positive cost /

revenue "jaws" (although with this likely to be "narrower" than FY13); and 3) 10-12

Community Bank branch openings expected in FY14E.


14 February 2014


Equity Research

Steel (Iron Ore (AU))

Fortescue Metals Group

(FMG.AX / FMG AU) PRE RESULTS COMMENT

1H14 results preview; reports on 19 Feb

Date: 19 February 2014 Time: Midday AEDT

Period: Interim Earnings Risk: Low


Gross profit: $163mn TBA

NPAT: US$1.65bn (Consensus: $1.72bn)

EPS: 53¢ps (consensus 55¢ps)

DPS: 5¢ interim (consensus 6.5¢ps)

■ We already have a good estimate of the key P&L items following the

DecQ results. We can estimate revenue and expenses from received prices

and C1 costs, and we know net debt and gearing as FMG has kept the

market informed while calling in debt for repayment. Having the exact figures

will be interesting, but there is unlikely to be anything in the results to change

the view. We expect EPS of 53¢ps (consensus 55¢ps).

■ Management provided an investor call less than three weeks ago, so

we doubt much has changed. We will be looking for updates on the ramp-

up of the Kings OPF and status of the Cloud Break wet front-end fix due for

completion this month.

■ We expect an interim dividend of 5¢/sh, ahead of zero last year, given

the strong DecH result. This would represent a payout ratio of only 9%

versus the policy of 30%-40%, but we understand the first priority is debt

repayment. We doubt the market would welcome a dividend above

consensus while gearing remains high. We expect the dividend payout will

rise towards the payout policy once gearing reaches the targeted 40% level.

■ Our DCF valuation remains A$9.60/sh and our target price A$7.50.


Mean^

CS tgt^

Sh Prc

-50%

-30%

-10%

10%

30%

50%



Absolute (%) 9.1 -3.8 8.7

Relative (%) 7.3 -2.0 2.6


Year 06/13A 06/14E 06/15E 06/16E

Revenue (US$mn) 8,057.0 13,177.2 13,099.5 12,007.5

EBITDA (US$mn) 3,299.0 6,650.5 5,996.3 5,037.5

EBIT (US$mn) 2,836.0 5,403.7 4,523.9 3,599.6

Net income (US$mn) 1,706.4 3,279.9 2,841.9 2,283.8

EPS (CS adj.) (USc) 54.78 105.33 91.27 73.35


Consensus EPS (USc) n.a. 107.40 98.20 77.90

EPS growth (%) 21.6 92.3 -13.4 -19.6

P/E (x) 9.3 4.8 5.6 6.9

Dividend (USc) 10.00 10.00 21.00 26.00

Dividend yield (%) 2.0 2.0 4.1 5.1

P/B (x) 3.0 1.9 1.5 1.3

Net debt/equity (%) 199.1 90.1 46.3 30.6




Rating OUTPERFORM* [V]

Price (13 Feb 14, A$) 5.62



Yr avg. mthly trading (A$mn) 1,741

Last month's trading (A$mn) 2,050

Projected return:






benchmark.



Research Analysts

Matthew Hope

61 2 8205 4669

[email protected]

Michael Slifirski

61 3 9280 1845

[email protected]

Sam Webb

61 3 9280 1716

[email protected]

All material presented in this report, unless

specifically indicated otherwise, is under

copyright to CS. None of the material, nor its

content, nor any copy of it, may be altered in

any way, transmitted to, copied or distributed to

any other party, without the prior express

written permission of CS.

14 February 2014



Fortescue Metals Group Ltd (FMG) Year ending 30 Jun In USDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016



vs Share price % 33.45 EPS_GROWTH*100EPS Growth % 21.6 92.3 -13.4 -19.6

DCF US$ 9.60 c_EBITDA_MARGIN*100EBITDA Margin % 43.1 40.9 50.5 45.8 42.0

c_DPS*100DPS c 8.0 10.0 10.0 21.0 26.0

c_PAYOUT*100Payout % 17.8 18.3 9.5 23.0 35.4




Sales revenue 6,681.0 8,057.0 13,177.2 13,099.5 12,007.5 Valuation

EBITDA 2,879.0 3,299.0 6,650.5 5,996.3 5,037.5 c_PE P/E x 11.1 9.2 4.8 5.5 6.8

Depr. & Amort. (267.0) (463.0) (1,246.8) (1,472.4) (1,437.9) c_EBIT_MULTIPLE_CURREV/EBIT x 8.3 9.2 4.3 4.6 5.4

EBIT 2,612.0 2,836.0 5,403.7 4,523.9 3,599.6 c_EBITDA_MULTIPLE_CUEV/EBITDA x 7.6 7.9 3.5 3.4 3.8




Profit before tax 2,107.0 2,379.0 4,697.6 4,059.9 3,262.6 ReturnsIncome tax (704.0) (672.6) (1,409.3) (1,218.0) (978.8) c_ROE*100Return on Equity % 37.3 32.3 40.2 26.6 18.9

Profit after tax 1,403.0 1,706.4 3,288.3 2,841.9 2,283.8 c_I_NPAT/c_I_SALES*100Profit Margin % 21.0 21.2 24.9 21.7 19.0




Normalised NPAT 1,403.0 1,706.4 3,279.9 2,841.9 2,283.8 c_ROIC*100Return on Invested Cap. % 17.5 12.9 24.2 20.1 15.9

Unusual item after tax 156.0 39.6 52.1 (0.0) 0.0 Gearing

Reported NPAT 1,559.0 1,746.0 3,332.0 2,841.9 2,283.8 c_GEARING*100Net Debt to Net debt + Equity % 62.1 66.6 47.4 31.7 23.4



Cash & equivalents 2,343.0 2,158.0 2,097.5 3,386.2 3,010.2 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 5.2 6.2 7.7 9.8 10.7

Inventories 617.0 961.0 1,190.1 1,139.3 1,127.5 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 88.6 78.9 15.2 7.8 8.3

Receivables 588.0 409.0 1,147.0 1,030.7 980.1 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 3,440.7 1,454.2 160.7 69.8 69.7


Current assets 3,650.0 3,662.0 4,434.6 5,556.2 5,117.7 MSCI IVA (ESG) Rating BB

Property, plant & equip. 11,357.0 17,159.0 17,893.3 17,447.9 17,012.0 TP ESG Risk (%): 0

Intangibles 19.0 40.0 40.0 40.0 40.0



Total assets 15,063.0 20,867.0 22,576.9 23,363.1 22,598.7

Payables 1,303.0 1,043.0 2,026.9 1,933.8 1,912.1




Net assets 3,762.0 5,327.0 8,270.3 10,800.9 12,212.9

Ordinary equity 3,762.0 5,285.0 8,149.9 10,680.5 12,092.5






EBIT 2,612.0 2,836.0 5,403.7 4,523.9 3,599.6

Net interest -531.0 -862.0 -616.0 -434.0 -275.4

Depr & Amort 267.0 463.0 1,246.8 1,472.4 1,437.9

Tax paid -123.0 -695.0 -1,207.0 -1,345.6 -1,033.9

Working capital 101.7 -425.0 16.8 74.0 40.7

Other -49.7 825.0 871.1 -413.4 -517.4


Capex -5,918.0 -6,355.0 -2,004.1 -1,027.0 -1,002.0

Capex - expansionary -4,452.0 -5,021.8 -990.0 0.0 0.0

Capex - maintenance -1,466.0 -1,333.3 -1,014.1 -1,027.0 -1,002.0

Acquisitions & Invest -4.0 155.0 -110.0 -110.0 -110.0


Other -121.0 3.0 0.0 0.0 0.0

Investing cashflow -6,043.0 -6,197.0 -2,114.1 -1,137.0 -1,112.0

Dividends paid -251.0 -131.0 -467.1 -311.4 -871.9

Equity raised 0.0 -20.0 0.0 0.0 0.0

Net borrowings 3,623.0 4,098.0 -3,194.7 -1,140.2 -1,643.7

Other 5.0 -65.0 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 3,377.0 3,882.0 -3,661.8 -1,451.6 -2,515.6 Absolute 9.1% -3.8% 8.7%

Total cashflow -389.0 -173.0 -60.5 1,288.6 -376.0 Relative 7.3% -2.0% 2.6%

Adjustments 69.0 -12.0 0.0 0.0 0.0

Net change in cash -320.0 -185.0 -60.5 1,288.6 -376.0 Source: Reuters 52 week trading range: 2.92-5.93

MSCI IVA Risk Comment: FMG has exposure to environmental

land management issues, carbon tax, health and safety, water

use and carbon emissions, but has adequate management

oversight on the issues. Two fatalities at Christmas Creek

mine in 2013 has brought safety into focus and tarnished

FMG's reputation. The issue may relate to use of a range of

contractors at the mine and FMG will need to focus on

casacading a safety culture down intoall contractors.

13/02/2014 18:06

Fortescue Metals Group Limited (Fortescue) is engaged in the mining of iron ore from its

Cloudbreak and Christmas Creek mine sites and the operation of an integrated mine, rail

and port supply chain.

Credit Suisse View

TP Risk Comment: No ESG factors identified that have a

material impact on the valuation, although two fatalities in

2013 have brought its safety culture into the spotlight

OUTPERFORM

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FMG.AX XJO

2.7

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5.7

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7.7


Stock Local Sector




14 February 2014


Equity Research

Diversified Metals & Mining (Minerals (AU))

Iluka Resources

(ILU.AX / ILU AU) PRE RESULTS COMMENT

2013 results preview and operation analysis;

reports on 21 Feb Date: 21 February 2014 Time: Pre market

Period: Full year 2013 Earnings Risk: Nil


EBITDA: $242mn (consensus $294mn) 10am AEDT Fri 21 Feb

NPAT: $18mn (announced 11 Feb) Aust: 1800 123 296

Intl: +61 2 8038 5221

Conf ID: 34963341

EPS: 4.3¢ps

DPS: 10¢ for year (Consensus14¢)

■ Following the quarterly results and the 11 Feb report that NPAT is $18mn

after impairments, we now have the main items of the P&L.

■ Dividend – we expect policy-breaking 5¢/sh final dividend, matching

interim. Payout policy is +40% of FCF measured after all capital. Capex for

DecH is uncertain, but guidance was $100mn for the year. On that basis, we

estimate 2013 FCF to be -$3mn. Interim dividend of 5¢/sh (A$21mn) looked

beyond a hefty tax payment towards a stronger DecH, which did not

eventuate. Policy would indicate no final dividend, given it would be funded

with debt, but with a comfortable balance sheet, it may match interim at 5¢.

■ Management call and cost guidance for the current year should be key

catalysts for the outlook. We believe ILU is heading for a loss in the first

half of 2014 with pricing now lower than the average for 2013. We will be

interested in management response, although we doubt ILU has any further

useful cuts available. We look closer at this issue in this note. MAC

changes – ILU has given responsibility for the MAC royalty to a

development manager and may begin moves to develop and spin off the

royalty business.

■ Our DCF valuation remains A$9.10/sh and our target price is $10.


Mean^CS tgt^Sh Prc

-50%

-30%

-10%

10%

30%

50%



Absolute (%) 11.9 -6.8 -7.2

Relative (%) 10.1 -5.0 -13.2


Year 12/12A 12/13E 12/14E 12/15E

Revenue (A$mn) 1,069.8 763.0 915.2 1,362.6

EBITDA (A$mn) 695.1 266.7 306.7 580.5

EBIT (A$mn) 492.4 97.8 100.9 434.1

Net income (A$mn) 363.2 59.0 96.0 337.7

EPS (CS adj.) (Ac) 86.74 14.10 22.93 80.65



EPS growth (%) -28.2 -83.7 62.6 251.8

P/E (x) 10.6 65.4 40.2 11.4

Dividend (Ac) 35.00 10.00 19.00 30.00

Dividend yield (%) 3.8 1.1 2.1 3.3

P/B (x) 2.5 2.5 2.5 2.1

Net debt/equity (%) 6.1 12.0 net cash net cash





Rating NEUTRAL* [V]

Price (13 Feb 14, A$) 9.22





Projected return:






benchmark.



Research Analysts

Matthew Hope

61 2 8205 4669

[email protected]

Martin Kronborg

61 2 8205 4369

[email protected]

14 February 2014



Iluka Resources (ILU) Year ending 31 Dec In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015





c_DPS*100DPS c 75.0 35.0 10.0 19.0 30.0

c_PAYOUT*100Payout % 62.0 40.3 70.9 82.9 37.2


c_FCF_PS*100Free CFPS c 145.0 19.9 -2.1 72.5 90.4


Sales revenue 1,536.7 1,069.8 763.0 915.2 1,362.6 Valuation

EBITDA 898.9 695.1 266.7 306.7 580.5 c_PE P/E x 7.6 10.6 65.4 40.2 11.4




Net interest Exp. (8.0) (6.6) (11.2) (7.6) 13.4 c_FCF_YIELD*100FCF Yield % 15.7 2.2 -0.2 7.9 9.8






Associates & Other (8.5) (14.8) (68.5) 0.0 0.0 c_ROA*100Return on Assets % 20.6 15.0 2.6 4.4 13.9


Unusual item after tax 35.6 0.0 (41.0) 0.0 0.0 Gearing

Reported NPAT 541.7 363.2 18.0 96.0 337.7 c_GEARING*100Net Debt to Net debt + Equity % Net Cash 5.8 10.7 Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash 0.1 0.7 Net Cash Net Cash

Balance Sheet 12/11A 12/12A 12/13E 12/14E 12/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x 112.4 105.3 23.8 40.1 -43.2

Cash & equivalents 320.7 54.3 31.5 84.4 356.3 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 84.3 74.6 8.7 13.2 -32.3




Current assets 953.5 716.4 701.4 702.1 993.5 MSCI IVA (ESG) Rating BBB

Property, plant & equip. 1,430.4 1,430.3 1,338.5 1,194.7 1,168.3 TP ESG Risk (%): -3.9

Intangibles 6.7 6.3 6.1 6.1 6.1



Total assets 2,453.8 2,426.6 2,302.3 2,159.4 2,424.4

Payables 136.7 87.3 66.4 78.0 112.0




Net assets 1,534.7 1,567.1 1,529.4 1,566.8 1,820.7

Ordinary equity 1,534.7 1,567.1 1,529.4 1,566.8 1,820.7




Net debt -156.7 95.9 183.3 -61.6 -356.3 Source: MSCI ESG Research


EBIT 674.7 492.4 97.8 100.9 434.1

Net interest -10.9 -0.7 -12.9 -7.6 13.4

Depr & Amort 224.2 202.7 168.9 205.7 146.4

Tax paid -12.5 -159.1 -150.3 -41.1 -144.7

Working capital -233.7 -79.2 -28.7 63.8 14.5

Other 107.7 -205.5 15.8 43.9 34.8


Capex -142.5 -167.3 -99.5 -62.0 -120.0


Capex - maintenance



Other 0.0 0.0 0.0 0.0 0.0


Dividends paid -117.0 -333.7 -62.8 -58.6 -83.7

Equity raised 0.0 -3.5 -1.8 0.0 0.0

Net borrowings -182.0 -5.0 49.4 -193.2 -23.3


Financing cashflow -320.3 -351.0 -15.2 -251.8 -107.0 Absolute 11.9% -6.8% -7.2%

Total cashflow 290.6 -266.3 -23.3 51.7 271.5 Relative 10.1% -5.0% -13.2%

Adjustments 0.0 -0.1 0.5 1.3 0.4

Net change in cash 290.6 -266.4 -22.8 52.9 271.9 Source: Reuters 52 week trading range: 8.11-11.86

MSCI IVA Risk Comment: Rating primarily based on negative

impact from carbon tax - CO2 numbers quoted were for all 4

kilns, whereas only two are operational. Furthermore, Iluka

expects to being eligible for assistance making the financial

impact small.

13/02/2014 19:20

Iluka Resources Limited is an Australia-based company.The principal activities of the

Company consists of exploration,mining,concentration & separation of mineral

sands,production of ilmenite, rutile,synthetic rutile & other titaniferous concentrates etc.

Credit Suisse View

TP Risk Comment: We include rehabilitation provisions in our

TP based on environmental requirements

NEUTRAL

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1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

ILU.AX XJO

2.7

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Stock Local Sector



14 February 2014


Changes to earnings

Reviewing the operations

We recently reviewed our operating assumption for Iluka. This was initiated because

details in the DecQ release about the expected production and timing of Balranald project

suggested that production would be too low to meet our forecast rutile sales of 320ktpa.

Further details provided in the release of 11 Feb, indicated West Australian mines – other

than the idled Tutanup South – are unlikely to restart, so we have adjusted capex and

output for these operations.

The operations we now model are shown below, with the zircon/rutile/Synthetic rutile

(Z/R/SR) production shown in Figure 3.

Figure 2: Operations that we model

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17Jacinth Ambrosia Mining

Processing

Murray Basin Mining Processing

Balranald Mining Processing

Virginia

Tutanup South

SR1

SR2

SR3

SR4

2013 2014 2015 2016 2017


Figure 3: High grade production and inventory that we model

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Invento

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kt)

Rutile sales Synthetic rutile sales Zircon sales

Zircon & TiO2 Inventory HMC inventory


On 11 February, following ILU pre-announcement of NPAT, we provided the following

changes to our earnings, based on our revised operating assumptions.

14 February 2014


Figure 4: Changes to assumptions and estimates

2013F 2014F 2015F 2016F 2017F

Prices New Old Chg New Old Chg New Old Chg New Old Chg New Old Chg

AUD/USD US$ 0.97 0.97 0% 0.89 0.89 0% 0.86 0.86 0% 0.85 0.85 0% 0.85 0.85 0%

Zircon US$/t 1,151 1,151 0% 1,108 1108 0% 1,250 1,250 0% 1,400 1,400 0% 1,600 1,600 0%

Rutile US$/t 1,136 1,136 0% 975 975 0% 1,275 1,275 0% 1,200 1,200 0% 1,075 1,075 0%

Synthetic Rutile US$/t 1,149 1,149 0% 1,050 1050 0% 1,175 1,175 0% 1,100 1,100 0% 975 975 0%

Ilmenite US$/t 211 211 0% 178 178 0% 225 225 0% 225 225 0% 225 225 0%

Production

Zircon kt 285 285 0% 362 393 -8% 430 393 9% 414 389 6% 452 379 19%

Rutile kt 127 127 0% 194 259 -25% 209 285 -27% 154 284 -46% 209 283 -26%

Synthetic Rutile kt 59 59 0% 0 0 235 235 0% 390 320 22% 420 320 31%

Ilmenite kt 585 585 0% 453 489 -7% 403 419 -4% 393 416 -6% 619 411 51%

Sales

Zircon kt 370 370 0% 380 380 0% 400 400 0% 400 400 0% 440 400 10%

Rutile kt 168 168 0% 230 260 -12% 230 320 -28% 180 320 -44% 200 320 -38%

Synthetic Rutile kt 46 46 0% 90 90 0% 240 235 2% 390 320 22% 420 320 31%

Ilmenite kt 338 338 0% 370 370 0% 400 400 0% 400 400 0% 619 411 51%

Inventory

Zircon kt 131 131 0% 114 144 -21% 143 137 4% 157 126 24% 169 105 61%

Rutile kt 99 99 0% 63 98 -36% 42 63 -33% 16 27 -40% 25 (10) -345%

Synthetic rutile kt 112 112 0% 21 21 0% 16 21 -23% 16 21 -23% 16 21 -23%

HMC kt 1,034 1,034 0% 1,210 1,113 9% 909 1,136 -20% 458 1,136 -60% 166 1,136 -85%

JA HMC processed kt 255 255 0% 550 500 10% 675 500 35% 700 490 43% 700 468 50%

Financials

Revenue A$mn 763 763 0% 915 947 -3% 1,363 1,489 -8% 1,524 1,631 -7% 1,727 1,634 6%

Operating Costs A$mn (416) (417) 0% (433) (514) -16% (647) (710) -9% (726) (810) -10% (956) (820) 17%

Gross Profit A$mn 347 346 1% 482 433 11% 715 779 -8% 798 821 -3% 771 814 -5%

Chg in inventory A$mn 15 15 NA (94) (54) 72% (57) (33) 72% (76) (42) 79% 20 (52) -138%

EBITDA A$mn 242 248 -2% 351 340 3% 625 712 -12% 688 745 -8% 757 728 4%

EV/EBITDA x 16.6 16.0 10.7 11.1 5.6 5.1 4.6 4.4 3.7 4.0

MAC EBIT A$mn 86 84 2% 68 68 0% 59 59 0% 59 59 1% 64 64.0 0%

NPAT A$mn 18 47 -62% 96 94 2% 338 353 -4% 423 388 9% 451 404 11%

EPS A¢/shar

e

4 11 -62% 23 22 2% 81 84 -4% 101 93 9% 108 97 11%

PE x 212 81 40 41 11 11 9 10 9 9

Operating cashflow A$mn 91 100 -10% 365 332 10% 499 545 -8% 641 653 -2% 629 671 -6%

Capex A$mn (100) (62) 60% (62) (95) -35% (120) (270) -56% (165) (180) -8% (100) (135) -26%

FCF A¢/share (2) 9 -120% 72 56 28% 90 66 38% 114 113 1% 126 128 -1%

FCF Yield x -0.2% 1.0% 7.9% 6.2% 9.9% 7.2% 12.4% 12.4% 13.8% 14.0%

Dividends A¢/share 10 10 0% 19 20 -5% 30 30 0% 40 40 0% 40 40 0%

Dividends yield 1.1% 1.1% 2.1% 2.2% 3.3% 3.3% 4.4% 4.4% 4.4% 4.4%

Net cash A$mn -183 -136 35% 62 38 61% 356 229 55% 665 535 24% 1026 904 14%

Depreciation -169 -190 -11% -206 -201 2% -146 -208 -30% -123 -215 -43% -193 -213 -10%


The major operational changes to the previous model were:

■ Reduction in production of rutile of 25-46% from 2014 onwards

■ Reduction in rutile sales of 12-44% from 2014 onwards

■ Corresponding Increase in synthetic rutile production and sales of 22% in 2016

■ Increase in zircon production and corresponding reduction in HMC inventory 2014

onwards

14 February 2014


■ All of the above changes result in revenue and Inventory changes in the financial

forecasts.

■ Alteration in costs, depreciation and capex, particularly for the remodeled Balranald

Project.

■ Removal of capex for Tutanup and WA sustaining capex, associated with ILU's

confession release.

ILU's DecQ release revealed that Balranald – if approved – may produce 170ktpa of rutile

and Jacinth Ambrosia may produce another 20-40ktpa. This would see high grade TiO2

feedstock sales drop well below historical averages. We make up some of the rutile

shortfall by assuming that three synthetic rutile kilns will restart. However, these

assumptions remain risky because we consider SR Kilns are the marginal producers of the

chloride feedstock market and will require sufficient demand and pricing to restart.

Financial impact of our operational changes

The impact of the changes is varied across the forecast years.

■ 2014 has only minor changes. The largest change was the addition of $40mn to

capex. This was to meet guidance rather than any operation we can specify.

■ 2015 has reduced EBITDA, earnings and operating cash flow, but lower capex so a

28% increase in FCF.

■ 2016 has lower EBITDA, but also lower depreciation, so earnings are 9% higher.

Operating cash flow is lower but FCF unchanged. Net cash climbs.

Positive changes but reasons to be cautious

Taken as a whole, the changes are probably mainly positive, with a stronger cash balance

and stronger FCF, which to us are the key drivers of value. However, we are aware that

we will probably receive new guidance for 2014 at next week's results, so it is premature to

be becoming to certain.

Nevertheless, on our current estimates, 2014 earnings will remain poor, with mineral

sands delivering a loss in the first half but a modest profit in the second half on expected

mineral sand price recovery. We forecast that most of the earnings in 2014 will again flow

from iron ore due to the MAC royalty.

It seems that the prospect for any strong recovery has to be pushed out further to 2015.

Feb announcement of 2013 result tells us mineral sands made a loss

ILU's 11 Feb pre-announcement of $18mn NPAT (after impairments) tells us that mineral

sands delivered an underlying loss of around $15mn, and the reversal to a positive

underlying result of ca. $55-60mn was driven by iron ore – the MAC royalty.

Same again for JunH-14?

This is a disappointing result and more so when we consider that entering 2014, mineral

sand prices have deteriorated from the 2013 average. We expect that ILU's mineral sands

business will clock up another underlying loss in the JunH-14. Our forecast of an

underlying $45mn for mineral sands for 2014 really depends on a recovery in mineral sand

prices in DecH, together with forecast lower currency.

14 February 2014


Figure 5: ILU key profit drivers out of its control – prices, FX and sales volumes

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Synthetic Rutile Price AUD/USD (RHS)


Mineral sand prices and FX are outside of ILU's control. Although the dominance of large

producers would suggest that the sector is well set up for producer discipline to uphold

profitable pricing, a loss of discipline in 2H 2012 saw pricing control slip out of the

producers grasp. It now seems there is little resistance from producers to sliding zircon

prices.

ILU can only control production and costs

ILU cannot do a lot about prices until demand recovers and nothing about FX. Its only real

controls at the moment are production and costs, and those two it had furiously wound

back over 2012 and 2013. In December it hauled cash costs all the way back to $174mn

for the half, $143 from its peaks in 2011 and only $6mn above the rate for DecH-09 in the

Global Financial Crisis, when production was at a low (Figure 6).

Figure 6: ILU cash costs – actual since 2007 and forecast -450

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A$m

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But despite these extreme efforts on the costs side, ILU's mineral sands business made a

loss in 2013, and is heading for another in 1H 2014. What else can it do?

14 February 2014


What else can ILU do on costs?

Given costs are now at a low point it is questionable whether there is anything left to cut.

ILU has switched off all its synthetic rutile kilns, closed the small mines Eneabba and

Tutanup South, it ceased shipping HMC from Jacinth Ambrosia for an extended period –

building up 800kt of HMC at the mine, and is running the mineral separation plants on

campaign basis, with extended outages.

So all that is left are the core mineral sand operations, Jacinth Ambrosia, Murray Basin or

Virginia.

We don't believe there are production changes at Virginia or Murray Basin that would be

useful in cutting costs. The current Murray Basin operations (WRP) have only a year of

production left and then there is due to be a production outage before the new mine starts.

Stopping it now and having to restart for only one year would cause staffing issues and

therefore would probably not be cost effective. Virginia is the smallest of the operations,

but also the cheapest, costing only $65mn pa. There are no big wins in switching it off.

And as best we can determine, it is also profitable, selling a high-TiO2 ilmenite to Dupont

and feeding zircon into the US market.

JA mining looks to be the only other option

That leaves Jacinth Ambrosia, the main source of zircon. On our estimates, ILU still holds

130kt of finished zircon inventory, which amounts to three months' worth at our expected

sales levels of 400ktpa. However, we estimate the Heavy Mineral Concentrate (HMC)

balance at JA is 800kt, which was built up in 20012 and 2013 when shipments to the

mineral separation plants ceased while mining continued. Half of the HMC content is

zircon, so ILU has a year's supply of zircon already mined that is simply awaiting shipping

to the Mineral Separation Plant. With zircon production continuing from Murray Basin and

Virginia, ILU could cease mining at JA and continue to meet sales for more than 12

months.

Is a JA mining stoppage worthwhile?

Back in May 2012, ILU presented the following break-up of costs at Jacinth Ambrosia,

probably based on 2011 operations, and noted that the cash cost of the mine was around

A$170mn pa. By ceasing transporting and separating zircon when it already had a surplus

of finished material, it was able to postpone 57% of the costs. Now that demand for zircon

is picking up, but pricing is weak, perhaps it is time for ILU to cut the other 43% of costs?

Figure 7: May 2012 break-up of JA cash costs set at about $170mn pa

Source: ILU

14 February 2014


JA average grades have eased a little since 2011, while oil in AUD terms is more

expensive, so we expect mining and concentrating costs may be a little higher than 2011.

We estimate that around $80mn pa ($40mn per half) will be saved by suspending mining

at Jacinth Ambrosia.

Too late to prevent a loss in JunH'14, but could save $80mnpa from DecH

If a decision was made to cease mining, effective from July this year, we estimate the

outage could be sustained until 4Q15. DecH-14 cash costs on our estimate would drop to

$164mn, from $174mn in DecH-13 (Figure 8). Without a JA mining cut, we expect DecH-

14 costs to exceed $200mn as production and mineral separation increase at JA and

Murray Basin. We forecast costs will rise steeply in 2015, with or without a mining

cessation because our forecasts include the restart of two synthetic rutile kilns.

Figure 8: ILU cash costs historical and forecast -450

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A$m

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Base Case Cash costs Cash cost with JA mining suspension


But flow on effects for production – lower zircon sales later

Another point that needs to be considered is the flow-on effects of a mining suspension,

beyond staffing issues and redundancy costs. With no mining, stockpiles of finished zircon

and HMC would be expended more rapidly than otherwise. If mining continues, we

estimate that ILU will lift zircon demand in later years if there is any increased market

demand, by using stockpiles of HMC and finished zircon (Figure 9). However, if mining

stopped for a period, stockpiles would be exhausted and by 2017, zircon sales would need

to be aligned with production. At that period, we expect production to be sliding as Jacinth

heads through declining grades towards its close and mining prepares to transition to the

lower-grade Ambrosia deposit.

14 February 2014


Figure 9: Base case zircon sales with steady JA mining Figure 10: Zircon sales if mining at JA is suspended

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t)

Zircon sales Zircon inventoryZircon in HMC stocks


So the outcome of our analysis of JA mining option is as follows:

■ A loss for the mineral sands business in JunH-14 looks unavoidable unless prices

jump. It is too late in the half now for a decision to suspend mining to take effect.

■ If a decision to suspend mining was made, cash costs and gross profit in DecH-14 and

JunH-14 could increase by $40mn each over our base case, but the offset would be a

loss of optionality around zircon output in later years. Earnings may not expand greatly

because the inventory unwind would likely represent a P&L expense.

■ Our base case is that there is no mining suspension, and that zircon sales increase to

440kt from 400kt, as market demand grows but with little increase in other supply.

Differences in cash costs and revenues

With effects to both cash costs and sales, it may be helpful to view the difference (Figure

11). If JA mining was suspended, cash costs would decline in DecH-14 as we have

already demonstrated, while sales revenue would be unchanged. However in 2016 and

2017, when we expect the zircon price to be higher and the AUD/USD lower, revenues

would be substantially lower than our base case due to the reduction rather than growth in

zircon sales, while cash costs would have closed to the original level.

Figure 11: Semi-annual mineral sand sales revenue versus cash costs -1,000

-900

-800

-700

-600

-500

-400

-300

-200

-100

00

100

200

300

400

500

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-2007

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Jun

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8

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9

Jun

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0

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Jun

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Jun

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013e

Jun

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Jun

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Jun

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Cash c

osts

(A

$m

n)

Sale

s (

A$m

n)

Sales with JA suspension Sales

Cash cost with JA suspension (RHS) Cash cost (RHS) Source: Company data, Credit Suisse estimates

14 February 2014


Other expenses erode the margin between sales and cash costs

The reader may note that there remains a sizeable gap of at least $200mn per half

between mineral sands revenue and cash costs as presented in Figure 11. Unfortunately,

this margin is not profit. It is eroded by other cash and non-cash expenses. $100mn per

half is expended in additional cash costs – royalties and marketing, corporate, exploration,

R&D and restructuring. Another $80-100mn goes on D&A, and Changes in Inventory can

be positive or negative, but going forward is likely to be an expense of up to $90mn per

half as inventory is unwound.

What causes revenue to rise

An obvious feature of the revenue versus cost chart (Figure 11) is the remarkable rise in

revenue in 2011. Figure 5 illustrates that this was caused by high prices and high sales

volumes. But in future years, revenues climb again, while Figure 5 shows that our forecast

prices are only around half the levels achieved in 2011-12. So what causes this

expansion?

Again Figure 5 provides the answer. It is a combination of higher pricing with lower

AUD/USD and higher volumes. We can isolate the effect of currency by charting the costs

and revenues in the USD (Figure 12). In this chart, peak semi-annual revenue in 2017

drops by about $100mn, whereas the 2011 peak rises to $1000mn.

Figure 12: Semi-annual mineral sand sales revenue versus cash costs in USD terms

-1,000

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Jun

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Jun

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Jun

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011

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012

Jun

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Jun

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014

Jun

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017

Cash c

osts

(U

S$m

n)

Sale

s (

US

$m

n)

Sales revenue Cash costs


14 February 2014


Figure 13: Financial summary Assumptions FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

AUD:USD 0.92 1.03 1.03 0.97 0.89 0.86 0.85 0.85 1.02 0.93 0.90 0.88 0.86 0.86 0.85 0.85 0.85 0.85

Zircon price (US$/t) 875 1,875 2,173 1,151 1,108 1,250 1,400 1,600 1,173 1,129 1,090 1,125 1,225 1,275 1,400 1,400 1,600 1,600

Rutile price (US$/t) 550 1,055 2,405 1,136 975 1,275 1,200 1,075 1,300 972 900 1,050 1,250 1,300 1,200 1,200 1,075 1,075

Synthetic Rutile price (US$/t) 450 858 1,707 1,149 1,050 1,175 1,100 975 1,200 1,098 1,000 1,100 1,150 1,200 1,100 1,100 975 975

Ilmenite price (US$/t) 84 209 313 211 178 225 225 225 243 180 165 190 225 225 225 225 225 225

Production (kt) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Zircon 413 602 343 285 362 430 414 452 119 167 168 194 209 220 220 194 226 226

Rutile 250 281 220 127 194 209 154 209 61 66 92 102 104 105 105 49 105 105

Sythetic Rutile 347 286 248 59 - 235 390 420 59 - - - 75 160 180 210 210 210

Ilmenite saleable 469 460 386 585 453 403 393 619 334 251 213 239 238 165 165 228 310 310

Sales (kt) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Zircon 479 514 214 370 380 400 400 440 211 159 180 200 200 200 200 200 220 220

Rutile 240 266 106 168 230 230 180 200 56 112 100 130 100 130 100 80 100 100

Sythetic Rutile 357 258 170 46 90 240 390 420 20 26 40 50 80 160 180 210 210 210

Ilmenite saleable 374 571 443 338 370 400 400 619 147 191 170 200 200 200 200 200 310 310

HyTi / Leucoxene - - 1 - - - - - - - - - - - - - - -

Inventory (kt) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Zircon - 87 217 131 114 143 157 169 124 131 120 114 123 143 163 157 163 169

Rutile 10 25 140 99 63 42 16 25 144 99 90 63 67 42 47 16 21 25

Sythetic Rutile -0 28 99 112 21 16 16 16 138 112 71 21 16 16 16 16 16 16

Ilmenite saleable 111 0 - 175 258 261 254 254 115 175 218 258 296 261 226 254 254 254

HMC 283 458 520 1,034 1,210 909 458 166 885 1,034 1,098 1,210 1,230 909 583 458 312 166

JA HMC processed 423 681 323 255 550 675 700 700 37 218 250 300 325 350 350 350 350 350

Consolidated P&L (A$mn) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Sales Mineral sands 874 1,537 1,070 763 915 1,363 1,524 1,727 381.7 381.3 395.8 519.4 589.5 773.1 756.5 767.1 863.4 863.4

Cash cost of production -544 -629 -584 -376 -389 -578 -660 -862 -201.9 -174.2 -184.2 -204.9 -285.1 -292.8 -312.0 -348.2 -431.1 -431.1

Government Royalties -17 -25 -20 -15 -20 -40 -36 -51 -6.6 -8.8 -9.7 -10.1 -20.4 -19.7 -20.6 -15.3 -25.5 -25.5

Marketing and selling costs -24.1 -34.5 -30.2 -24.1 -23.9 -29.1 -29.8 -42.8 -13.1 -11.0 -11.1 -12.8 -14.7 -14.4 -14.9 -14.9 -21.4 -21.4

Total Operating Costs -585 -688 -633 -416 -433 -647 -726 -956 -221.6 -193.9 -205.0 -227.8 -320.2 -326.9 -347.5 -378.4 -477.9 -477.9

Gross Profit 289 849 436 347 482 715 798 771 160 187 191 292 269 446 409 389 385 385

Other Income 7.4 7.5 10.3 1.3 - - - - 1.3 - - - - - - - - -

Exploration expense -14.5 -19.0 -29.5 -28.5 -24.0 -24.0 -24.0 -24.0 -18.5 -10.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0

R&D expenses -5.6 -13.7 -13.6 -23.5 -14.0 -10.0 -10.0 -10.0 -12.5 -11.0 -7.0 -7.0 -5.0 -5.0 -5.0 -5.0 -5.0 -5.0

Restructuring and other -23.6 -44.7 -24.6 -69.6 - - - - -32.2 -37.4 - - - - - - - -

Changes in Inventory -3 148 347 15 -94 -57 -76 20 38.4 -23.7 -41.0 -52.8 11.4 -68.4 -42.2 -33.8 9.8 9.8

Total costs -632 -618 -354 -522 -565 -738 -836 -970 -246 -276 -265 -300 -326 -412 -407 -429 -485 -485

EBITDA (Mineral Sands) 250 926 726 242 351 625 688 757 137 105 131 220 264 361 350 338 378 378

Depreciation & Amortisation -219 -224 -203 -169 -206 -146 -123 -193 -99 -70 -99 -106 -101 -45 -47 -75 -96 -97

EBIT (Mineral Sands) 31 702 523 73 145 478 565 564 38 35 32 113 163 315 302 263 282 282

Mining area C 76 88 72 86 68 59 59 64 45 41 36 31 31 28 30 30 31 33

FX & hedging 9 0.4 -4 -0 - - - - -0 - - - - - - - - -

Corporate costs -30.3 -35.5 -45.7 -43.6 -44.0 -44.0 -44.0 -44.0 -21.6 -22.0 -22.0 -22.0 -22.0 -22.0 -22.0 -22.0 -22.0 -22.0

Group EBIT before sig. items 86 755 546 115 169 493 580 584 61 54 46 123 172 321 310 270 291 293

Interest Received 0.5 6.2 7.7 3.2 3.1 14.3 48.1 83.9 1.6 1.6 1.6 1.6 4.7 9.6 19.6 28.5 36.6 47.3

Interest Paid -31.4 -14.2 -14.3 -14 -11 -1 - - -7 -8 -8 -4 -1 - - - - -

Net Interest Rec. (Paid) -31 -8.0 -7 -11 -8 14 48 84 -5 -6 -6 -2 4 10 20 28 37 47

Other finance costs -15.3 -21.6 -26.9 -21.1 -24.0 -24.0 -24.0 -24.0 -9.1 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0

Profit before tax 40 726 512 83 137 483 604 644 47.2 35.3 28.1 108.7 163.7 318.8 317.7 286.7 315.5 328.2

Tax -4 -219 -149 -23 -41 -145 -181 -193 -12.9 -10.6 -8.4 -32.6 -49.1 -95.6 -95.3 -86.0 -94.7 -98.5

Underlying NPAT 36 507 363 59 96 338 423 451 34.3 24.7 19.7 76.1 114.6 223.2 222.4 200.7 220.9 229.7

Abnormal Items - 35.6 - -41.0 - - - - - -41.0 - - - - - - - -

Reported NPAT 35.7 542.2 363.2 18.0 95.8 337.8 423.1 450.6 34.3 -16.3 19.7 76.1 114.6 223.2 222.4 200.7 220.9 229.7

Cashflows (A$mn) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Operating cashflows 179 750 251 91 365 499 641 629 -11.9 102.6 159.3 205.9 214.7 283.9 324.0 317.2 312.4 316.5

Acquisition PPE -117 -143 -167 -100 -62 -120 -165 -100 -31.5 -68.0 -26.0 -36.0 -60.0 -60.0 -80.0 -85.0 -35.0 -65.0

Free cash flow 61 607 83 -9 303 379 476 529 -43.4 34.6 133.3 169.9 154.7 223.9 244.0 232.2 277.4 251.5

Other investing cashflows 9 4 1 1 - - - - 0.7 - - - - - - - - -

Financing cashflows -126 -320 -351 -18 -248 -107 -167 -167 2.3 -20.8 -133.3 -114.3 -65.1 -41.9 -83.7 -83.7 -83.7 -83.7

Net increase in cash -56 291 -266 -27 56 272 309 361 -40.4 13.8 - 55.6 89.5 182.1 160.3 148.5 193.6 167.8

Cash at end of the year 30 321 54 28 85 357 666 1,027 12.5 28.3 29.0 85.1 175.1 357.1 517.4 665.9 859.5 1,027.3

Balance Sheet (A$m) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Cash 30 321 54 28 85 357 666 1,027 30 28 29 85 175 357 517 666 860 1,027

Receivables 165 256 140 115 157 233 231 260 131 115 119 157 178 233 228 231 260 260

Inventory 258 426 781 795 701 644 568 588 819 795 754 701 713 644 602 568 578 588

PPE 1,425 1,430 1,430 1,338 1,195 1,168 1,211 1,118 1,369 1,338 1,265 1,195 1,154 1,168 1,201 1,211 1,149 1,118

Other assets 62 21 22 23 23 23 23 23 23 23 23 23 23 23 23 23 23 23

Assets 1,940 2,454 2,427 2,299 2,160 2,425 2,698 3,016 2,371 2,299 2,190 2,160 2,242 2,425 2,571 2,698 2,870 3,016

Payables 104 137 87 66 78 112 130 164 83 66 70 78 110 112 119.0 129.6 163.7 163.7

Provisions 369 460 471 469 469 469 469 469 456 469 469 469 469 469 469.0 469.0 469.0 469.0

Tax liabilities - 158.7 150.6 22.7 22.7 22.7 22.7 22.7 38.2 22.7 22.7 22.7 22.7 22.7 22.7 22.7 22.7 22.7

Borrowings 343 164 150 215 23 - - - 227 215 103 23 - - - - - -

Liabilities 815 919 860 773 593 604 621 655 804 773 665 593 601 604 611 621 655 655

Net Assets 1,125 1,535 1,567 1,526 1,567 1,822 2,077 2,360 1,567 1,526 1,525 1,567 1,640 1,822 1,960 2,077 2,214 2,360

Gearing FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Net Debt / (cash) 312.6 -156.7 95.9 186.6 -62.3 -357.1 -665.9 -1,027.3 197.0 186.6 74.2 -62.3 -175.1 -357.1 -517.4 -665.9 -859.5 -1,027.3

Net Debt / Equity (% ) 28% NA 6% 12% NA NA NA NA 13% 12% 5% NA NA NA NA NA NA NA

Net Debt / (Equity+Net Debt) (% ) 22% NA 6% 11% NA NA NA NA 11% 11% 5% NA NA NA NA NA NA NA

Interest cover (x) (EBIT) 1.0 49.5 36.6 5.0 13.0 597.7 0.0 0.0 5.8 4.4 4.2 31.4 203.4 0.0 0.0 0.0 0.0 0.0

Key financials FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F 1H13 2H13F 1H14F 2H14F 1H15F 2H15F 1H16F 2H16F 1H17F 2H17F

Reported EPS (diluted) 8.6 130.6 86.8 4.3 22.9 80.7 101.0 107.6 8.2 -3.9 4.7 18.2 27.4 53.3 53.1 47.9 52.8 54.9

Underlying EPS - diluted (cps) 8.6 130.6 86.8 4.3 22.9 80.7 101.0 107.6 8.2 -3.9 4.7 18.2 27.4 53.3 53.1 47.9 52.8 54.9

Free cashflow per share (cps) 16.7 145.9 20.2 -1.9 72.4 90.4 113.7 126.3 -10.2 8.3 31.8 40.6 36.9 53.5 58.3 55.5 66.2 60.1

FCF Yield 1.8% 16.0% 2.2% -0.2% 8.0% 9.9% 12.5% 13.9% -2.2% 1.8% 7.0% 8.9% 8.1% 11.7% 12.8% 12.2% 14.5% 13.2%

Diluted average shares (m) 416 419 419 419 419 419 419 419 419 419 419 419 419 419 419 419 419 419

PER (x) (reported EPS - diluted) 105.9x 7.0x 10.5x 211.2x 39.8x 11.3x 9.0x 8.5x 55.5x 0.0x 97.0x 25.1x 16.6x 8.5x 8.6x 9.5x 8.6x 8.3x

PER (x) (underlying EPS - diluted) 105.9x 7.0x 10.5x 211.2x 39.8x 11.3x 9.0x 8.5x 55.5x 0.0x 97.0x 25.1x 16.6x 8.5x 8.6x 9.5x 8.6x 8.3x

DPS (cps) 8.0 75.0 35.0 10.0 18.0 30.0 40.0 40.0 5.0 5.0 8.0 10.0 10.0 20.0 20.0 20.0 20.0 20.0

Payout ratio (% ) 93% 57% 40% 232% 79% 37% 40% 37% 24% 61% -206% 213% 55% 73% 38% 42% 38% 36%

Dividend yield (net) 0.9% 8.2% 3.8% 1.1% 2.0% 3.3% 4.4% 4.4% 1.1% 1.1% 1.8% 2.2% 2.2% 4.4% 4.4% 4.4% 4.4% 4.4%

Franking 0% 73% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Dividend yield (gross) 0.9% 10.0% 5.0% 1.4% 2.6% 4.3% 5.7% 5.7% 1.4% 1.4% 2.3% 2.9% 2.9% 5.7% 5.7% 5.7% 5.7% 5.7%

ROE (% ) 3% 35% 23% 1% 6% 19% 20% 19% 4% -2% 3% 10% 7% 12% 11% 10% 10% 10%

P / NAV (P/BV) 3.4x 2.5x 2.4x 2.5x 2.4x 2.1x 1.8x 1.6x 2.4x 2.5x 2.5x 2.4x 2.3x 2.1x 1.9x 1.8x 1.7x 1.6x



14 February 2014


Equity Research

Steel (Iron Ore (AU))

Mount Gibson Iron

(MGX.AX / MGX AU) PRE RESULTS COMMENT

1H14 results preview and exploration success;

reports on 19 Feb

Date: 19 February 2014 Time: Pre-market AEDT

Period: 1H14 Earnings risk: Medium-high


NPAT: A$142mn (consensus A$109mn) TBA, call likely 10.30am AEDT

EPS: 13¢ps (consensus: 10¢ps)

DPS: nil

■ Sales revenue can be estimated from the received prices (CS: $589mn,

consensus $525mn), but we have no lead on cash costs. For EBITDA, CS:

$230mn, consensus $224mn. A large swing factor in reaching NPAT is

D&A, particularly amortisation of stripping, which is driven by earth

moving at Koolan Island. We estimate NPAT of $142mn, consensus mean

is $109mn, but with a $65mn range. MGX provided its cash balance in the

DecQ report (A$484mn) which implies net cash of $465mn.

■ Interim dividend nil: MGX has a policy of providing only final dividends.

■ MGX today announced exploration success at Iron Hill prospect, 3km

from Extension Hill mine. Successful Dec drilling and historical work (drilling

and adits) has provided MGX with an exploration target of 5-7Mt at a grade

of 58-61% Fe, which could extend the mine life by two years. Iron Hill is one

of three prospects known at Extension Hill South lease from historical work.

■ Extension Hill mine is due to end in 2017 on most recent reserves. A two-

year life extension might increase our DCF valuation by 5¢ps if there is no

capex, and costs are similar to the current mine. Nevertheless, earnings will

improve if the mine life could be extended to 2021 like Koolan Island.

■ Our DCF valuation and target price remain A$1.05/sh.


Mean^CS tgt^Sh Prc

-70%

-50%

-30%

-10%

10%

30%

50%

70%



Absolute (%) 23.8 2.8 28.0

Relative (%) 21.9 4.5 21.9


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 843.8 1,003.4 660.9 781.8

EBITDA (A$mn) 208.2 392.5 223.2 216.8

EBIT (A$mn) 114.7 350.0 128.2 48.1

Net income (A$mn) 92.9 247.6 99.6 47.2

EPS (CS adj.) (Ac) 8.53 22.70 9.13 4.33



EPS growth (%) -50.8 166.1 -59.8 -52.6

P/E (x) 13.1 4.9 12.3 25.9

Dividend (Ac) 4.00 2.00 2.00 2.00

Dividend yield (%) 3.6 1.8 1.8 1.8

P/B (x) 1.0 0.9 0.8 0.8


Relative performance versus S&P ASX 200. See Reference


estimates, * Consensus, mean range from Thomson Reuters.



Rating UNDERPERFORM*

Price (13 Feb 14, A$) 1.12





Projected return:



Total return (%) -4.5



benchmark.



Research Analysts

Matthew Hope

61 2 8205 4669

[email protected]

Michael Slifirski

61 3 9280 1845

[email protected]

Sam Webb

61 3 9280 1716

[email protected]

14 February 2014



Mount Gibson Iron (MGX) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016



vs Share price % -10.64 EPS_GROWTH*100EPS Growth % -50.8 166.1 -59.8 -52.6


c_DPS*100DPS c 4.0 4.0 2.0 2.0 2.0

c_PAYOUT*100Payout % 23.1 46.9 8.8 21.9 46.2


c_FCF_PS*100Free CFPS c -0.9 13.8 23.2 13.9 15.8


Sales revenue 637.0 843.8 1,003.4 660.9 781.8 Valuation

EBITDA 307.0 208.2 392.5 223.2 216.8 c_PE P/E x 6.8 13.8 5.2 12.9 27.1




Net interest Exp. 14.1 6.7 3.7 14.1 19.3 c_FCF_YIELD*100FCF Yield % -0.8 11.7 19.8 11.8 13.4








Unusual item after tax (15.2) 64.5 0.0 0.0 0.0 Gearing

Reported NPAT 172.5 157.3 247.6 99.6 47.2 c_GEARING*100Net Debt to Net debt + Equity % 0.6 Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 0.0 Net Cash Net Cash Net Cash Net Cash






Current assets 535.2 578.0 736.5 823.8 1,006.4 MSCI IVA (ESG) Rating BB


Intangibles 0.0 0.0 0.0 0.0 0.0



Total assets 1,494.9 1,555.4 1,727.6 1,785.6 1,830.0

Payables 122.5 105.7 71.4 60.8 79.8




Net assets 1,071.3 1,182.0 1,407.8 1,485.6 1,511.0

Ordinary equity 1,071.3 1,182.0 1,407.8 1,485.6 1,511.0




Net debt 6.3 -33.6 -244.4 -368.2 -509.3 Source: MSCI ESG Research


EBIT 240.1 114.7 350.0 128.2 48.1

Net interest 19.7 9.6 3.7 14.1 19.3

Depr & Amort 66.8 93.5 42.5 95.0 168.7

Tax paid -34.1 -54.1 -80.1 -68.6 -26.5

Working capital -28.2 17.7 -1.2 16.7 -22.5

Other -188.5 11.3 -20.0 31.9 12.3


Capex -86.2 -42.4 -41.6 -65.7 -27.4


Capex - maintenance



Other 18.0 -62.0 0.0 0.0 0.0


Dividends paid -61.9 -40.0 -21.8 -21.8 -21.8

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings 0.4 -0.4 -19.2 -9.2 0.0



Total cashflow -77.2 22.1 191.6 114.6 141.1 Relative 28.0% 9.5% 28.2%

Adjustments 0.8 -0.7 0.0 0.0 0.0

Net change in cash -76.3 21.3 191.6 114.6 141.1 Source: Reuters 52 week trading range: 0.42-1.18

MSCI IVA Risk Comment: MSCI ESG risks related to water

mangement and carbon emission policies, whereas we are

more focussed on corporate governance, which we consider

is improving. Recent change in management may change

policy focus.

13/02/2014 12:44

Mount Gibson Iron Limited is an iron ore exploration and production company. The

Company holds mining leases covering hematite and magnetite deposits at Mount Gibson

in Western Australia.

Credit Suisse View

TP Risk Comment: Our focus has been around Governance

issues, but this appears to be receding and is not specifically

quantified.

UNDERPERFORM

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

MGX.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector



14 February 2014


More on the successful exploration

MGX has announced positive exploration results from the Iron Hill prospect adjacent to its

currently operating Extension Hill mine in the Mid-West of WA.

Operational impact of new resources

■ MGX says its target is 5-7Mt of ore at 58-61% Fe from Iron Hill.

■ Rail capacity is a constraint to further output from Extension Hill, so any new orebody

would be a mine life extension rather than higher output.

■ Extension Hill consumes around 3Mtpa, and, so a new orebody would probably be a

two year extension to mine life.

■ Under current reserves, Extension Hill will finish in early 2017.

■ Environmental sensitivities around flora on outcropping BIFs may see mining

approvals take time.

■ Iron Hill is one of the three known targets at the Extension Hill South Project.

■ Of the other two prospects, Gibson Hill is an Iron Hill look-alike, whereas Extension

Hill South is a detrital prospect. These have less historical exploration work than Iron

Hill.

Exploration results

■ MGX has historical drilling results, which provided it with a good idea of what is

available at Iron Hill. Its new work has been to infill and confirm known mineralisation

from historical work.

■ 15 of 16 holes targeting the primary mineralisation intersected ore grades with five hits

of over 60% Fe.

■ Phosphorous contents are modest and similar levels to Pilbara blends. Sulphur is a

little elevated (0.1 – 0.2%) in a few holes, but overall appears to be well below 0.1%.

Alumina is low at 0.5-2%, a favourable result.

■ The ore zone is vertical and varies in true width from 25m to 50m. It seems to be

800m long and has been tested to depths of 60m.

■ This geometry will not lend itself to the low stripping ratio (1:1) of the Extension Hill

mine. Expect higher stripping and higher costs if a mine proceeds.

■ Another 39 holes tested for the presence of detrital ore at the northern flanks. The

results were subdued, but were restricted to existing tracks. More work will be

undertaken.

Impact on DCF

■ Capex should be minimal; perhaps $1mn given Iron Hill is outcropping ore 3km from

existing infrastructure, so only a new road suitable for heavy vehicles would be

required.

■ Unfortunately the impact on the current DCF by assuming a two-year mine extension

to 2019 is modest (~5¢ps).

■ Nevertheless, by extending Extension Hill earnings towards 2020 from current FY17

close, multiples become a more useful valuation method, and cash generation at the

time would be increased.

14 February 2014


Figure 2: Location diagram of Mid-West projects

Source: MGX

14 February 2014


Figure 3: Extension Hill South Project

Source: MGX

14 February 2014


Figure 4: Schematic cross-section of Iron Hill

Source: MGX


14 February 2014


Equity Research

Engineering & Construction (Constructions & Engineering (AU))

UGL

(UGL.AX / UGL AU) PRE RESULTS COMMENT

HY14 results preview; reports on 17 Feb

Date:17 February Time: AM

Period: Interim Earnings risk: NEUTRAL

Credit Suisse estimates (pcp): Briefing and webcast details:

Underlying NPAT: $52.9mn ($51.0mn) 10am; Westin Sydney Barnet Room, 1 Martin

Pl Sydney. Dial In: +61 (0) 2 8524 5042.

Passcode: 9090318

Underlying EPS: 31.8¢ (30.7¢)

Final DPS: 22¢ (34¢)

Credit Suisse assumptions/variance to market:

We forecast HY14 underlying NPAT of $52.9mn, up 4% vs. pcp. Our forecasts

imply 1H earnings seasonality of 41%, below the historical average (45%).

What to look for:

■ Reiterate FY14 guidance of $120-130mn underlying NPAT. Credit Suisse

FY14 forecasts ($128mn) are 4% above consensus ($123mn).

■ Solid property result to offset engineering: We forecast 24% growth in

DTZ EBIT vs pcp driven by revenue growth (+8%) & margin uplift (to 5.7%).

In contrast, we forecast an 11% decline in engineering EBIT in 1H14 with

stronger projects EBIT offset by a weaker rail result.

■ Demerger on track for FY15: We expect UGL to confirm it remains on track

to have its property and engineering businesses structurally separated in

FY14 and the demerger completed in FY15 subject to market conditions.

■ UGL to focus on solid outlook for property supported by the US cyclical

recovery and integration of DTZ.

■ We are still cautious on engineering outlook: UGL is likely to identify the

Dec-13 LNG maintenance contract win as evidence that resources

maintenance activity is picking up. However, we need to see further contract

wins to turn more positive on the outlook.

■ UGL appears fair value: Trading at 10x 12-month fwd PE, valuation upside

from the demerger is likely to be offset by the weak outlook for engineering.


Mean^CS tgt^

Sh Prc

-40%

-20%

0%

20%

40%

60%

80%



Absolute (%) 6.6 -0.7 -37.4

Relative (%) 4.8 1.0 -43.5


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 3,816.1 3,867.5 3,928.9 4,071.8

EBITDA (A$mn) 203.5 259.6 267.5 266.4

EBIT (A$mn) 131.9 187.5 193.7 204.8

Net income (A$mn) 81.8 117.7 119.5 126.2

EPS (CS adj.) (Ac) 49.15 70.77 71.43 74.59



EPS growth (%) -49.1 44.0 0.9 4.4

P/E (x) 14.5 10.0 10.0 9.5

Dividend (Ac) 39.00 46.00 47.00 49.00

Dividend yield (%) 5.5 6.5 6.6 6.9

P/B (x) 1.1 1.0 1.0 1.0

Net debt/equity (%) 51.4 49.5 45.9 40.5


Appendix for a description of the chart. Source: Credit Suisse estimates, * Consensus, mean range from Thomson Reuters



Rating NEUTRAL*

Price (13 Feb 14, A$) 7.11





Projected return:






benchmark.


Research Analysts

Emma Alcock

61 2 8205 4403

[email protected]

14 February 2014


Figure 1: UGL - Financial Summary

UGL Limited (UGL) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016





c_DPS*100DPS c 70.0 39.0 46.0 47.0 49.0

c_PAYOUT*100Payout % 72.5 79.4 65.0 65.8 65.7




Sales revenue 4,454.4 3,816.1 3,867.5 3,928.9 4,071.8 ValuationEBITDA 302.9 203.5 259.6 267.5 266.4 c_PE P/E x 7.4 14.5 10.0 10.0 9.5












Unusual item after tax (26.2) (45.3) (17.5) (17.5) (0.0) GearingReported NPAT 134.3 36.5 100.2 102.0 126.2 c_GEARING*100Net Debt to Net debt + Equity % 27.0 33.9 33.1 31.5 28.8







Current assets 1,150.0 1,169.0 1,161.0 1,207.8 1,308.6 MSCI IVA (ESG) Rating AProperty, plant & equip. 176.7 170.8 177.9 188.1 197.6 TP ESG Risk (%): 0

Intangibles 1,310.9 1,445.0 1,422.9 1,401.2 1,379.8



Total assets 2,747.6 2,914.2 2,893.9 2,931.7 3,023.4

Payables 513.8 547.6 552.9 553.3 566.6




Net assets 1,175.4 1,130.0 1,153.4 1,176.6 1,220.1

Ordinary equity 1,169.7 1,118.1 1,141.5 1,164.7 1,208.2






EBIT 239.6 131.9 187.5 193.7 204.8

Net interest -26.0 -32.3 -32.4 -32.2 -31.9

Depr & Amort 63.3 71.6 72.2 73.8 61.6

Tax paid -58.4 -33.8 -44.6 -40.8 -45.5

Working capital 0.0 0.0 -18.5 -2.7 -7.6

Other -107.4 -31.9 -11.5 -11.5 2.7


Capex -68.0 -92.0 -43.1 -48.1 -49.8

Capex - expansionary -18.0 -27.4 0.0 0.0 0.0


Acquisitions & Invest -103.4 0.0 0.0 0.0 0.0


Other -31.6 -17.5 -22.8 -22.8 -5.3


Dividends paid -124.3 -118.3 -76.7 -78.8 -82.7

Equity raised 2.9 0.0 0.0 0.0 0.0

Net borrowings 168.0 72.6 -54.4 0.0 20.0


Financing cashflow 27.6 -48.3 -131.1 -78.8 -62.7 Absolute 6.6% -0.7% -37.4%

Total cashflow -63.3 -25.9 -44.4 30.6 66.3 Relative 4.8% 1.0% -43.5%

Adjustments 0.9 9.3 0.0 0.0 0.0

Net change in cash -62.4 -16.6 -44.4 30.6 66.3 Source: Reuters 52 week trading range: 6.13-11.80

MSCI IVA Risk Comment: UGL scores only 2.8 on corruption

purely due to lack of policy. Track record is actually good. Hence

formation of anti corruption policies would see a sharp reversal in

this indicator which is 38% of total weighting. Upside from

environment rating based on expected increase in property

services earnings as % group.

13/02/2014 16:55

United Group Ltd is focused on providing engineering construction and operations and

maintenance services to the railway rolling stock, power, water, property, resources and

defence sectors.

Credit Suisse View

TP Risk Comment: While we see upside risk to UGL ESG rating,

it is largely coming from formation of policies. Track record is

already solid, hence upside is already reflected in our valuation.

NEUTRAL

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1/02/2013 1/04/2013 1/06/2013 1/08/2013 1/10/2013 1/12/2013 1/02/2014

UGL.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7


Stock Local Sector



14 February 2014


UGL – HY14 results tables Figure 2: UGL – HY14 income statement

$mn 1H13A 1H14e 1H14e

Income Statement Dec-13 CS F'cast vs. pcp

Revenue 2,082 2,081 0%

EBITDA 113.4 117.3 3%

Depreciation/ Amortisation 27.7 26.6 -4%

EBIT 85.7 90.7 6%

Net Interest Expense 16.2 17.1 5%

Profit Before Tax 69.5 73.6 6%

Income Tax Expense 16.6 18.0 9%

…tax rate % (ex associates) 23.9% 24.5% 3%

Minorities 1.9 2.6 39%

Underlying NPAT (Pre amortisation) 51.0 52.9 4%

NPAT - post amortisation 45.9 48.1 5%

Significant items -19.9 0.0 na

Reported NPAT 26.0 48.1 85%

Underlying EPS ¢ 30.7 31.8 4%

DPS ¢ 34.0 22.0 -35%

Payout % 110.8% 69% -38%

Franking % 50.0% 50% 0%

EBIT Margin 4.1% 4.4% 6%

Work in Hand ($bn) 9.3 6.8 -27% Source: Company data, Credit Suisse estimates

Figure 3: UGL – HY14 divisional analysis

Segment Analysis 1H13A 1H14e 1H14e

Dec-12 CS F'cast vs. pcp

Revenue 2,082 2,081 0%

Engineering 1,169 1,093 -7%

…Rail 466.0 425.9 -9%

…Projects 441.5 462.0 5%

…O&M 261.6 205.1 -22%

Property 920.0 993.6 8%

Other -7.6 -5.4 -29%

EBIT 85.7 90.7 6%

Engineering 59.7 53.2 -11%

…Rail 31.2 22.1 -29%

…Projects 15.9 23.1 45%

…O&M 12.5 8.0 -36%

Property 45.8 56.6 24%

Other -19.8 -19.2 -3%

EBIT Margin Analysis 4.1% 4.4% 24bps

Engineering 5.1% 4.9% -23bps

…Rail 6.7% 5.2% -149bps

…Projects 3.6% 5.0% 139bps

…O&M 4.8% 3.9% -90bps

Property 5.0% 5.7% 72bps Source: Company data, Credit Suisse estimates

14 February 2014


Figure 4: UGL – HY14 gearing and cash flow analysis

Balance Sheet and Cash Flow 1H13A 1H14e 1H14e

Dec-12 CS F'cast vs. pcp

Balance Sheet Summary

Cash 170.7 165.6 -3%

Debt 725.5 771.7 6%

Equity 1147.7 1186.4 3%

Net Debt 554.9 606.0 9%

Gearing 32.6% 33.8% 4%

Cash Flow Analysis

Operating cashflow -40.3 17.3 143%

Add back:

Interest & tax paid 29.7 38.4 29%

Non-recurring items 0.0 0.0 na

Operating EBITDA cash -10.6 55.7 626%

Operating EBITDA 113.4 117.3 3%

Cash Conversion -9.3% 47.5% 608% Source: Company data, Credit Suisse estimates


14 February 2014


Equity Research

Investment Strategy

Australian Investment Strategy ECONOMICS AND STRATEGY

Strategy Portfolio Changes - SUN out ASX in

■ Strategy Short Ideas, Suncorp Out – We are taking profits from our short

Suncorp position. The stock has been in our Short Ideas list since inception.

Andrew Adams has been cautious on Suncorp given the stocks lofty

valuations, aggressive insurance assumptions and likelihood of cutting

revenue growth targets. Andrew notes that the upcoming results

announcement could be an additional negative for the share price.

■ Strategy Short Ideas, ASX In – In place of Suncorp, we are adding ASX to

our Short Ideas. We believe the general pressures on the equity industry will

continue to weigh on ASXs share price. Meanwhile, the company currently

pays out 90% of free cash-flow in the form of dividends. FCF growth is

expected to remain anaemic. Andrew Adams has recently assumed

coverage on the stock with an Underperform rating. He highlights falling

value per trade and lower turnover velocity. While we expect the

Australian equity market to rally from here, we still anticipate ASX to

underperform. Its historical beta has been less than one.

■ Stock Themes – A number of themes run through our stock selection

process. First, Selfies continue to dominate the Australian investor base

and we know they have an acute focus on dividends. We do not want to

stand in the way of these flows. Most of our long ideas are in a position to

increase dividends. While our shorts generally operate on lower FCF yields

and have less capacity to return capital to share-holders. Second, we

believe Australian companies will be operating in a low growth

environment. Those companies in a position to generate returns,

irrespective of the macro backdrop, should be valued more highly. For this

reason, we have many restructuring candidates amongst our Long

Ideas. Third, while we believe bottom-up factors will continue to become

more important in driving stock prices, there will continue to be macro

influences. One of the most important will be the RBA to cutting rates as

mining investment unwinds. This supports our long position in a number

of consumer and residential housing exposed stocks.

.

Research Analysts

Hasan Tevfik ,CFA

61 2 8205 4284

[email protected]

Damien Boey

61 2 8205 4615

[email protected]

https://plus.credit-suisse.com/u/DPaVRL



https://plus.credit-suisse.com/u/JfncR1



https://plus.credit-suisse.com/u/DZcWDq



14 February 2014


Figure 1: Australian Strategy Long and Short Stock Ideas Bottom-up strategy ideas for the next 6-12 months

FY 2015

Name MCap

(bn)

Year

End

PE (x) DY

(Net, %)

FCF Yield (%) Comment

Strategy Long ideas

Rio Tinto 104.6 Dec 9.5 3.9 9.8 Selling non-core assets

Potential big DVD increase

Cheapest mega cap miner

National Australia Bank 79.6 Sep 11.7 6.5 n.a Cheapest of the mega-banks

Potential UK demerger

Attractive dividend yield

Telstra 62.9 Jun 15.2 5.9 5.8 Improving dividends

Growth opportunities

High/solid dividend yield

Fortescue Metals 15.8 Jun 5.6 4.1 18.0 Falling cash costs

Paying down debt

Attractive valuation

QBE Insurance 12.8 Dec 11.3 4.3 n.a Restructuring

Rising margins

Macro headwinds subsiding

Mirvac 6.2 Jun 13.9 5.4 n.a Larger than normal discount

Exposed to rising property prices

Further RBA rate cuts to come

Caltex Australia 5.3 Dec 11.2 5.4 8.6 Asset conversion

Improving free cash

Attractive valuation

Seek 4.2 Jun 20.7 3.4 5.6 Selling Assets

Exceptional Cash Generator

Structural Grower

David Jones 1.7 Jul 15.0 5.7 5.4 Growing on-line business

Potential for asset sales

Potential consumption recovery

CSR 1.6 Mar 17.1 4.2 4.1 Preferred housing exposure

Restructuring glass business

Sharp rebound in profits growth

Strategy Short Ideas

Santos 13.3 Dec 13.5 3.7 -2.0 Priced for perfect LNG execution

Reliant on BG delivering

Cash-flows lower than expected

Crown 12.3 Jun 18.5 2.2 2.8 Slowing domestic revenues

Slowing Macau revenues

Testing valuations

Brambles 12.3 Jun 17.5 3.5 3.1 Expensive valuations

Poor cash generator

Potential EM risk

ASX 6.7 Jun 16.7 5.4 5.9 Falling volumes and trade size

90% FCF "payout"

Testing valuations

Toll Holdings 4.0 Jun 12.0 5.8 6.9 Margins under-pressure

Peaking resource volumes

Inefficient FCF generator



14 February 2014


Equity Research

Credit Suisse Ratings – Australia

Research Analysts

Adam Indikt

61 3 9280 1659

[email protected]

RATINGS

As of Thursday, 13 February 2014

Figure 1: Credit Suisse stock ratings – distribution

UNDERPERFORM 23%

NEUTRAL 44%

OUTPERFORM 34%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

See Figure 3 for ratings on each stock covered by Credit Suisse, ranked by expected total return.

Source: Credit Suisse estimates

Stock ratings

Individual stock ratings are determined by the projected total return on a stock

relative to absolute return benchmarks.

Analysts project a 12-month target share price for each stock. The capital gain

or loss implied by the 12-month target share price, along with the analyst’s

projected prospective dividend yield, generates the analyst’s projected total

return for a given stock.

The absolute return required to achieve an Outperform rating is greater than or

equal to 15%, and to achieve an Underperform rating is less than 7.5%. A

Neutral rating requires a projected total return within this range.


14 February 2014


Figure 2: Stock ratings definitions Stock rating Projected total return

Outperform ≥ 15 % Neutral 7.5% to < 15% Underperform < 7.5% Source: Credit Suisse

Credit Suisse applies a volatility cushion of 2.5% to the 7.5% and 15% total return

benchmarks so as to minimise rating changes caused by short-lived stock price

movements. Accordingly, a stock must trade for more than four consecutive trading days

above 10% or below 12.5% total return before an automatic rating change to Neutral from

either Underperform or Outperform, respectively, is considered appropriate.

Given the dynamic nature of share prices and as expectations regarding earnings

performance are adjusted for new information, it is possible these ratings could change

with some frequency.

14 February 2014


Figure 3: Ranking by projected total return Code Share Price Target Price Total Return* Rating^

KGD.AX $0.09 $0.35 307% OUTPERFORM BSE.AX $0.41 $0.90 120% OUTPERFORM MDL.AX $2.19 $4.00 83% OUTPERFORM SYR.AX $2.76 $4.90 78% OUTPERFORM WHC.AX $1.61 $2.75 72% OUTPERFORM NWT.AX $0.46 $0.74 61% OUTPERFORM TIG.AX $0.16 $0.25 56% OUTPERFORM AOH.AX $0.18 $0.26 44% OUTPERFORM MSB.AX $5.71 $7.95 39% OUTPERFORM GRY.AX $0.18 $0.25 39% OUTPERFORM BND.AX $0.15 $0.20 38% NEUTRAL FMG.AX $5.62 $7.50 37% OUTPERFORM JBH.AX $18.23 $23.06 32% OUTPERFORM TGA.AX $2.01 $2.53 31% NEUTRAL TRS.AX $10.93 $13.50 29% NEUTRAL PMV.AX $7.76 $9.50 29% OUTPERFORM FLT.AX $46.49 $58.00 29% OUTPERFORM SWM.AX $2.12 $2.60 28% OUTPERFORM QBE.AX $11.23 $13.65 25% OUTPERFORM ERA.AX $1.20 $1.50 25% OUTPERFORM CTX.AX $19.67 $23.80 24% OUTPERFORM AGO.AX $1.08 $1.30 23% OUTPERFORM WRT.AX $3.05 $3.51 22% OUTPERFORM ORL.AX $4.03 $4.65 21% OUTPERFORM ANZ.AX $30.99 $35.80 21% OUTPERFORM PAN.AX $0.24 $0.29 21% NEUTRAL MQG.AX $54.77 $63.00 20% OUTPERFORM SGN.AX $1.44 $1.63 20% NEUTRAL GDI.AX $0.90 $1.01 19% OUTPERFORM PRY.AX $4.55 $5.15 18% NEUTRAL NAB.AX $34.01 $38.00 18% OUTPERFORM DUE.AX $2.10 $2.30 18% OUTPERFORM OSH.AX $8.31 $9.70 18% OUTPERFORM AMP.AX $4.45 $4.96 17% NEUTRAL SFH.AX $0.87 $1.00 17% OUTPERFORM SXY.AX $0.73 $0.85 17% OUTPERFORM CQR.AX $3.64 $3.99 17% NEUTRAL TWR.AX $1.52 $1.66 17% NEUTRAL API.AX $0.57 $0.64 17% OUTPERFORM TLS.AX $5.15 $5.70 16% OUTPERFORM WDC.AX $10.15 $11.27 16% NEUTRAL DXS.AX $1.06 $1.16 16% OUTPERFORM CGF.AX $6.23 $7.00 16% OUTPERFORM PGH.AX $3.46 $3.85 16% OUTPERFORM PRT.AX $1.01 $1.10 16% NEUTRAL UGL.AX $7.11 $7.75 16% NEUTRAL MYR.AX $2.52 $2.70 15% NEUTRAL IAG.AX $5.45 $6.00 15% NEUTRAL GPT.AX $3.66 $4.00 15% OUTPERFORM LLC.AX $11.33 $12.54 15% OUTPERFORM WOR.AX $15.57 $17.10 15% NEUTRAL NHC.AX $3.36 $3.70 15% NEUTRAL SGP.AX $3.90 $4.23 15% NEUTRAL NUF.AX $4.08 $4.55 14% NEUTRAL MGR.AX $1.72 $1.87 14% OUTPERFORM CSL.AX $66.50 $74.55 14% OUTPERFORM RIO.AX $67.83 $75.00 14% OUTPERFORM SUL.AX $10.50 $11.50 14% NEUTRAL IOF.AX $3.09 $3.33 14% NEUTRAL PBG.AX $0.71 $0.75 14% NEUTRAL DOW.AX $4.80 $5.20 14% NEUTRAL RMD.AX $5.05 $5.60 13% NEUTRAL ANN.AX $19.02 $21.00 13% NEUTRAL SIP.AX $0.63 $0.66 13% NEUTRAL BOQ.AX $11.70 $12.50 13% NEUTRAL PNA.AX $1.85 $2.00 13% OUTPERFORM WOW.AX $35.30 $38.25 12% OUTPERFORM AIO.AX $5.68 $6.20 12% OUTPERFORM HVN.AX $3.12 $3.40 12% NEUTRAL TTS.AX $2.97 $3.16 12% NEUTRAL CFX.AX $1.96 $2.04 12% NEUTRAL PPT.AX $47.72 $51.00 12% NEUTRAL CPU.AX $11.55 $12.60 12% NEUTRAL BLD.AX $5.47 $5.90 12% NEUTRAL GNC.AX $7.76 $8.36 12% UNDERPERFORM ENE.AX $5.99 $6.44 11% OUTPERFORM ALQ.AX $8.24 $8.75 11% UNDERPERFORM ILU.AX $9.22 $10.00 11% NEUTRAL SKI.AX $1.72 $1.78 10% OUTPERFORM BEN.AX $11.65 $12.20 10% NEUTRAL VAH.AX $0.35 $0.38 10% NEUTRAL

Source: ASX, Credit Suisse estimates. Correct as of 9PM AET on 13 February 2014. *Projected capital gain or loss plus gross dividend yield.

Figure3: Ranking by projected total return (continued) Code Share Price Target Price Total Return* Rating^

EHL.AX $0.26 $0.28 10% NEUTRAL IPL.AX $2.94 $3.10 10% OUTPERFORM FDC.AX $2.36 $2.43 9% NEUTRAL QUB.AX $2.06 $2.20 9% NEUTRAL ENV.AX $1.18 $1.22 9% NEUTRAL MTS.AX $3.00 $3.10 9% UNDERPERFORM WES.AX $43.17 $45.00 9% NEUTRAL BXB.AX $8.80 $9.29 9% NEUTRAL SEK.AX $13.00 $13.78 9% NEUTRAL WBC.AX $32.44 $33.50 9% UNDERPERFORM AMC.AX $10.70 $11.20 9% NEUTRAL AMX.AX $0.18 $0.19 9% NEUTRAL HGG.AX $4.27 $4.45 9% NEUTRAL GMG.AX $4.76 $4.95 9% NEUTRAL ORA.AX $1.35 $1.40 8% OUTPERFORM ORG.AX $14.61 $15.30 8% NEUTRAL SPN.AX $1.26 $1.27 8% NEUTRAL TAH.AX $3.54 $3.65 8% NEUTRAL WEB.AX $3.16 $3.25 8% NEUTRAL JHX.AX $13.19 $13.50 7% OUTPERFORM NWS.AX $19.20 $20.25 7% NEUTRAL IFL.AX $9.22 $9.35 7% NEUTRAL NEC.AX $2.22 $2.30 7% OUTPERFORM SUN.AX $12.36 $12.36 7% UNDERPERFORM DJS.AX $3.11 $3.14 6% NEUTRAL FAN.AX $1.94 $2.00 6% UNDERPERFORM BHP.AX $37.32 $38.00 6% NEUTRAL EGP.AX $2.43 $2.50 6% OUTPERFORM AGK.AX $15.57 $15.80 6% NEUTRAL CBA.AX $75.75 $76.00 6% UNDERPERFORM OZL.AX $3.79 $3.80 6% UNDERPERFORM QAN.AX $1.19 $1.21 5% NEUTRAL TME.AX $3.68 $3.70 5% UNDERPERFORM AWC.AX $1.26 $1.30 5% OUTPERFORM BPT.AX $1.51 $1.55 4% NEUTRAL APA.AX $6.17 $6.05 4% UNDERPERFORM ALZ.AX $3.90 $3.81 3% NEUTRAL SHL.AX $16.74 $16.50 3% NEUTRAL PRU.AX $0.49 $0.50 3% OUTPERFORM TOL.AX $5.63 $5.49 3% NEUTRAL CHC.AX $3.90 $3.78 3% NEUTRAL CPA.AX $1.25 $1.21 2% NEUTRAL ASX.AX $36.25 $35.20 2% UNDERPERFORM SGM.AX $10.02 $10.00 2% UNDERPERFORM REA.AX $47.15 $47.50 2% NEUTRAL RHC.AX $41.61 $41.50 2% NEUTRAL ORI.AX $23.92 $23.10 1% NEUTRAL MYX.AX $0.87 $0.86 0% NEUTRAL CCL.AX $11.91 $11.30 0% UNDERPERFORM RRL.AX $3.09 $2.90 0% NEUTRAL CRZ.AX $10.20 $9.80 -1% NEUTRAL LEI.AX $16.19 $15.20 -1% UNDERPERFORM CSR.AX $3.05 $2.90 -1% OUTPERFORM STO.AX $13.91 $13.40 -1% UNDERPERFORM BSL.AX $5.85 $5.70 -2% OUTPERFORM AUB.AX $11.07 $10.41 -2% UNDERPERFORM COH.AX $54.95 $51.10 -2% UNDERPERFORM AQA.AX $2.68 $2.60 -3% OUTPERFORM WPL.AX $38.58 $35.00 -3% UNDERPERFORM CWN.AX $16.85 $15.90 -3% UNDERPERFORM MGX.AX $1.12 $1.05 -4% UNDERPERFORM ALL.AX $4.91 $4.50 -5% UNDERPERFORM YAL.AX $0.70 $0.65 -5% UNDERPERFORM SXL.AX $1.60 $1.40 -6% UNDERPERFORM SFR.AX $6.36 $5.75 -6% UNDERPERFORM IGO.AX $4.12 $3.70 -7% OUTPERFORM ARI.AX $1.69 $1.43 -9% UNDERPERFORM PTM.AX $6.99 $6.00 -10% UNDERPERFORM GFF.AX $0.59 $0.50 -10% UNDERPERFORM ABC.AX $3.99 $3.40 -10% UNDERPERFORM SDF.AX $1.58 $1.36 -11% UNDERPERFORM TWE.AX $3.70 $3.15 -11% UNDERPERFORM WSA.AX $3.14 $2.75 -12% NEUTRAL TEN.AX $0.34 $0.29 -13% NEUTRAL BTT.AX $6.26 $5.15 -13% NEUTRAL EVN.AX $0.79 $0.64 -17% UNDERPERFORM AQG.AX $2.73 $2.25 -18% UNDERPERFORM OGC.AX $2.44 $2.00 -18% UNDERPERFORM FXJ.AX $0.70 $0.50 -26% UNDERPERFORM NCM.AX $11.26 $8.20 -27% UNDERPERFORM APN.AX $0.45 $0.30 -32% UNDERPERFORM GBG.AX $0.10 $0.06 -42% UNDERPERFORM

Source: ASX, Credit Suisse estimates. Correct as of 9PM AET on 13 February 2014. *Projected capital gain or loss plus gross dividend yield.

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Top 100 Earnings & Dividends

Research Analyst

Jason Swinbourne

612 8205 4591

[email protected]

As at 13 February 2014 Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg

to Price Tgt Cap 2013 2014F 2015F 2013 2014F 2015F 2013 2014F 2015F 2013 2014F 2015F 2013 2014F 2015F 2013 2014F 2015F 2013 2014F 2015F 2014F

$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Energy

Aurora Oil & Gas 31-Dec RSTR 4.13 1,656 124.5 288.7 266.8 27.2 63.0 58.3 13.6 5.9 6.3 81.8 41.5 47.7 0.0 0.0 0.0 0.0 0.0 0.0 6.5 3.4 3.0 0

Beach Energy 30-Jun NTRL 1.51 1.55 1,930 140.8 264.2 235.9 10.5 19.5 17.2 14.4 7.8 8.8 87.1 55.0 66.1 2.8 2.8 2.8 1.8 1.8 1.8 5.2 3.4 3.8 100

Caltex Australia 31-Dec OPFM 19.67 23.80 5,311 320.3 433.6 475.5 118.6 160.6 176.1 16.6 12.2 11.2 100.0 86.8 84.1 40.0 48.2 105.7 2.0 2.4 5.4 8.6 6.8 6.4 100

Origin Energy 30-Jun NTRL 14.61 15.30 16,089 760.0 791.2 1,005.2 69.2 71.9 91.0 21.1 20.3 16.1 127.3 143.9 120.9 50.0 50.0 50.0 3.4 3.4 3.4 10.5 10.7 9.6 50

Oil Search 31-Dec OPFM 8.31 9.70 9,973 209.0 328.0 907.5 15.6 24.3 67.0 47.7 30.5 11.1 287.7 216.0 83.4 4.0 4.0 26.8 0.5 0.5 3.6 30.6 17.5 7.4 0

Santos Ltd 31-Dec UPFM 13.91 13.40 13,496 558.7 558.3 1,002.3 57.8 57.2 101.7 24.1 24.3 13.7 145.0 172.2 103.1 30.0 30.0 50.8 2.2 2.2 3.7 9.8 9.4 6.6 100

WorleyParsons 30-Jun NTRL 15.57 17.10 3,791 322.1 261.9 276.6 130.8 106.2 112.2 11.9 14.7 13.9 71.8 103.8 104.5 92.5 84.0 78.0 5.9 5.4 5.0 7.5 8.6 8.3 75

Woodside Petroleum 31-Dec UPFM 38.58 35.00 28,398 1,717.9 2,068.9 2,257.9 208.5 251.1 274.0 16.5 13.7 12.6 99.7 97.2 94.7 250.4 200.9 219.2 7.3 5.8 6.4 8.2 6.6 6.1 100

Sector Aggregate 20.2 16.1 12.3 4.0 3.7 4.8 9.9 7.9 6.5

Materials - Chemicals

Incitec Pivot Ltd. 30-Sep OPFM 2.94 3.10 4,836 298.4 350.9 477.7 18.3 21.5 29.3 16.0 13.6 10.0 96.8 96.7 75.5 9.2 11.9 16.1 3.1 4.0 5.5 9.6 7.9 6.1 50

Orica 30-Sep NTRL 23.92 23.10 8,856 601.6 626.7 693.6 165.2 171.8 189.6 14.5 13.9 12.6 87.3 98.6 95.0 94.0 98.0 107.0 3.9 4.1 4.5 9.1 9.0 8.0 50


Materials - Construction Materials

Adelaide Brighton 31-Dec UPFM 3.99 3.40 2,547 148.6 153.0 158.4 23.1 23.8 24.6 17.3 16.8 16.2 104.1 118.8 122.0 17.5 18.0 18.0 4.4 4.5 4.5 10.8 10.5 10.2 100

Boral 30-Jun NTRL 5.47 5.90 4,260 104.4 174.0 224.0 13.5 22.5 28.8 40.5 24.3 19.0 244.2 171.9 143.0 11.0 17.0 23.0 2.0 3.1 4.2 11.6 9.4 9.2 80

James Hardie Industries SE 31-Mar OPFM 13.19 13.50 5,227 140.8 193.2 246.0 32.1 43.6 55.5 36.8 27.0 21.2 221.7 191.5 159.9 18.0 53.0 61.0 1.5 4.5 5.2 20.9 16.3 13.2 0


Materials - Containers & Packaging

Amcor 30-Jun NTRL 10.70 11.20 12,912 689.5 722.8 806.1 56.3 59.0 65.8 19.0 18.1 16.3 114.6 128.4 122.5 40.0 41.3 46.7 3.7 3.9 4.4 10.5 9.9 9.2 0

Orora 30-Jun OPFM 1.35 1.40 1,629 - 98.5 112.7 8.2 9.3 n.m 16.5 14.5 117.2 108.9 5.8 6.5 4.3 4.8 n.m 8.0 7.3 0

Materials - Metals & Mining

Arrium 30-Jun UPFM 1.69 1.43 2,294 168.3 362.7 246.9 12.5 26.7 18.2 13.5 6.3 9.3 81.2 44.6 69.7 5.0 12.0 9.1 3.0 7.1 5.4 7.5 4.1 4.9 0

Alumina Limited 31-Dec OPFM 1.26 1.30 3,146 17.0 40.2 170.6 0.6 1.4 6.1 n.m 78.3 18.4 n.m 554.9 138.9 0.0 1.0 7.0 0.0 0.9 6.2 n.m n.m n.m 100

BHP Billiton 30-Jun NTRL 37.32 38.00 172,438 11,223.0 13,643.8 12,445.5 210.2 254.3 231.9 15.9 13.1 14.4 95.7 92.9 108.3 116.0 127.0 140.0 3.5 3.8 4.2 7.1 6.3 6.5 100

BlueScope Steel 30-Jun OPFM 5.85 5.70 3,269 29.7 67.8 160.1 5.2 12.1 28.7 n.m 48.2 20.4 677.2 341.1 153.6 0.0 0.0 8.8 0.0 0.0 1.5 8.2 6.5 4.8 100

Fortescue Metals Group Ltd 30-Jun OPFM 5.62 7.50 15,634 1,706.4 3,279.9 2,841.9 54.8 105.3 91.3 9.2 4.8 5.5 55.3 33.8 41.4 10.0 10.0 21.0 2.0 2.0 4.2 7.9 3.5 3.4 100

Iluka Resources 31-Dec NTRL 9.22 10.00 3,860 59.0 96.0 337.7 14.1 22.9 80.7 65.4 40.2 11.4 394.4 284.8 86.1 10.0 19.0 30.0 1.1 2.1 3.3 15.2 12.4 6.0 100

Newcrest Mining 30-Jun UPFM 11.26 8.20 8,631 451.0 291.5 540.0 58.9 38.1 70.5 19.1 29.6 16.0 115.3 209.5 120.2 12.0 0.0 0.0 1.1 0.0 0.0 9.3 10.4 7.6 0

OZ Minerals 31-Dec UPFM 3.79 3.80 1,150 62.5- 24.5- 82.2- -20.6 -8.1 -27.1 n.m n.m n.m n.m n.m n.m 20.0 20.0 20.0 5.3 5.3 5.3 6.8 6.1 6.2 0

Rio Tinto 31-Dec OPFM 67.83 75.00 108,795 10,181.2 11,067.5 11,623.1 551.2 599.1 629.2 11.0 10.1 9.6 66.3 71.6 72.5 192.1 211.3 232.4 3.2 3.5 3.8 6.2 5.7 5.3 100

Regis Resources Limited 30-Jun NTRL 3.09 2.90 1,539 145.7 112.7 179.6 30.1 22.5 35.9 10.3 13.7 8.6 61.9 97.1 64.8 15.0 11.3 21.5 4.9 3.6 7.0 6.0 7.3 4.6 0

Sims Metal Management 30-Jun UPFM 10.02 10.00 2,048 17.1 42.9 127.1 8.4 21.0 62.2 n.m 47.8 16.1 722.2 338.4 121.3 0.0 10.5 31.1 0.0 1.0 3.1 11.5 10.7 6.4 40


Industrials - Capital Goods

Leighton Holdings 31-Dec UPFM 16.19 15.20 5,460 521.5 502.1 503.8 154.7 149.0 149.5 10.5 10.9 10.8 63.1 77.0 81.6 99.0 89.4 89.7 6.1 5.5 5.5 3.3 3.2 3.0 55

UGL Limited 30-Jun NTRL 7.11 7.75 1,184 81.8 117.7 119.5 49.1 70.8 71.4 14.5 10.0 10.0 87.2 71.2 75.0 39.0 46.0 47.0 5.5 6.5 6.6 8.7 6.8 6.4 100


Industrials - Commercial & Professional Services

ALS Limited 31-Mar UPFM 8.24 8.75 3,249 237.9 191.5 226.2 69.4 53.4 61.3 11.9 15.4 13.4 71.6 109.4 101.3 48.0 36.6 42.9 5.8 4.4 5.2 9.0 10.9 9.0 50

Brambles Limited 30-Jun NTRL 8.80 9.29 12,280 585.1 629.5 698.3 37.7 40.5 45.0 20.9 19.4 17.5 125.9 137.4 131.7 27.0 30.0 32.0 3.5 3.5 3.6 10.4 9.7 9.1 25

Downer EDI 30-Jun NTRL 4.80 5.20 2,087 215.4 214.9 224.6 50.1 49.1 50.4 9.6 9.8 9.5 57.8 69.2 71.7 21.0 25.0 25.0 4.4 5.2 5.2 3.5 3.3 2.9 100

Seek 30-Jun NTRL 13.00 13.78 4,409 141.0 164.4 202.9 41.5 48.4 59.7 31.3 26.9 21.8 188.9 190.2 163.9 22.0 33.9 41.8 1.7 2.6 3.2 19.7 15.4 13.0 100


Industrials - Transportation

Asciano Group 30-Jun OPFM 5.68 6.20 5,540 358.4 360.7 415.6 36.7 37.0 42.6 15.5 15.4 13.3 93.2 108.8 100.4 11.1 14.8 21.3 1.9 2.6 3.8 8.6 8.1 7.4 100

Aurizon 30-Jun RSTR 5.00 10,686 487.4 519.0 643.3 21.6 24.3 30.1 23.1 20.6 16.6 139.6 145.8 125.1 16.0 17.0 21.1 3.2 3.4 4.2 10.4 9.8 8.4 20

Qantas Airways 30-Jun NTRL 1.19 1.21 2,603 133.4 382.3- 197.1- 6.0 -17.0 -8.8 19.9 n.m n.m 120.1 n.m n.m 0.0 1.5 5.5 0.0 1.3 4.6 3.2 5.1 4.4 100

Toll Holdings 30-Jun NTRL 5.63 5.49 4,037 288.0 285.7 307.2 40.2 40.1 42.8 14.0 14.0 13.1 84.5 99.5 99.0 26.0 29.5 32.0 4.6 5.2 5.7 7.6 7.2 6.7 100

Sector Aggregate 18.5 28.8 19.5 2.8 3.3 4.4 7.6 8.0 7.1n.m n.m n.m

Note: Aggregations are weighted by market cap of the listed companies . Actuals used when available else Credit Suisse Forecasts used in calculations. PE aggregates larger than 100 or negative are shown as nm.

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$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Consumer Discretionary - Consumer Durables & Apparel

Consumer Discretionary - Consumer Services

Aristocrat Leisure 30-Sep UPFM 4.91 4.50 2,707 107.2 130.5 144.5 19.4 23.6 26.1 25.3 20.8 18.8 152.8 147.7 141.7 14.5 16.5 20.0 3.0 3.4 4.1 15.5 12.3 11.0 0

Crown 30-Jun UPFM 16.85 15.90 12,273 472.8 614.2 663.3 64.9 84.3 91.1 26.0 20.0 18.5 156.5 141.6 139.4 37.0 37.0 37.0 2.2 2.2 2.2 18.3 17.6 17.8 60

Echo Entertainment 30-Jun OPFM 2.43 2.50 2,006 123.3 126.4 133.6 14.9 15.3 16.1 16.3 15.9 15.1 98.3 112.6 113.7 6.0 6.0 8.0 2.5 2.5 3.3 6.9 6.6 6.3 100

Flight Centre 30-Jun OPFM 46.49 58.00 4,674 240.8 272.3 307.3 239.0 270.2 305.0 19.5 17.2 15.2 117.3 121.9 114.8 137.0 160.5 190.5 2.9 3.5 4.1 9.0 7.3 6.1 100

Tabcorp Holdings 30-Jun NTRL 3.54 3.65 2,670 139.1 144.7 162.0 18.8 19.2 21.4 18.8 18.5 16.6 113.3 130.8 124.8 19.0 15.3 17.1 5.4 4.3 4.8 8.2 7.9 7.5 100

Tatts Group 30-Jun NTRL 2.97 3.16 4,209 227.4 243.0 250.2 16.4 17.2 17.4 18.1 17.3 17.0 109.0 122.5 128.2 15.5 17.0 17.0 5.2 5.7 5.7 11.6 10.4 10.2 100


Consumer Discretionary - Media

Sector Aggregate n.m n.m n.m n.m n.m n.m

Consumer Discretionary - Retailing

David Jones 26-Jul NTRL 3.11 3.14 1,670 101.6 92.1 107.5 19.1 17.2 20.1 16.3 18.0 15.5 98.0 127.8 116.5 17.0 15.1 17.4 5.5 4.9 5.6 8.5 8.9 7.9 100

Harvey Norman 30-Jun NTRL 3.12 3.40 3,314 183.4 216.8 243.1 17.3 20.4 22.9 18.1 15.3 13.6 109.0 108.3 102.7 9.0 10.1 11.3 2.9 3.2 3.6 11.3 8.8 7.9 100

Myer Holdings 27-Jul NTRL 2.52 2.70 1,476 127.2 125.1 149.5 21.6 21.4 25.6 11.7 11.8 9.8 70.4 83.5 74.1 18.0 18.2 22.4 7.1 7.2 8.9 6.0 6.1 5.4 100


Consumer Staples - Food & Drug Retailing

Metcash 30-Apr UPFM 3.00 3.10 2,665 268.1 254.1 215.5 31.1 28.9 24.5 9.7 10.4 12.3 58.2 73.7 92.4 28.0 20.8 17.1 9.3 6.9 5.7 6.8 7.4 8.0 100

Wesfarmers 30-Jun NTRL 43.17 45.00 49,355 2,261.0 2,340.9 2,686.6 195.6 204.8 239.7 22.1 21.1 18.0 133.1 149.3 135.7 180.0 195.4 223.0 4.2 4.5 5.2 11.4 11.2 10.2 100

Woolworths 30-Jun OPFM 35.30 38.25 44,288 2,355.7 2,524.7 2,703.9 189.5 200.4 213.3 18.6 17.6 16.6 112.3 124.8 124.7 133.0 139.7 149.0 3.8 4.0 4.2 10.4 9.9 9.2 100


Consumer Staples - Food Beverage & Tobacco

Coca-Cola Amatil 31-Dec UPFM 11.91 11.30 9,094 508.8 515.5 522.9 66.7 67.4 68.3 17.9 17.7 17.4 107.7 125.1 131.3 59.5 61.0 58.0 5.0 5.1 4.9 10.3 10.1 9.9 70

Graincorp 30-Sep UPFM 7.76 8.36 1,776 174.5 121.1 146.7 76.2 52.2 64.1 10.2 14.9 12.1 61.4 105.3 91.2 40.0 27.6 33.6 5.2 3.6 4.3 6.1 6.8 6.1 100

Treasury Wine 30-Jun UPFM 3.70 3.15 2,395 136.8 162.4 196.4 20.7 25.0 30.2 17.9 14.8 12.3 108.0 105.0 92.3 13.0 12.0 15.0 3.5 3.2 4.1 9.2 10.1 8.1 0


Health Care

Ansell Limited 30-Jun NTRL 19.02 21.00 2,596 139.2 161.9 194.4 106.0 111.9 125.6 16.0 15.2 13.5 96.7 107.6 101.9 38.0 40.7 46.5 2.2 2.4 2.7 14.2 12.4 10.0 0

Cochlear 30-Jun UPFM 54.95 51.10 3,136 132.6 108.0 150.5 232.4 189.2 261.7 23.6 29.1 21.0 142.6 205.8 158.1 252.0 254.0 254.0 4.6 4.6 4.6 15.9 19.5 14.1 0

CSL Ltd 30-Jun OPFM 66.50 74.55 28,762 1,216.3 1,342.3 1,425.6 243.1 276.6 296.8 24.4 21.5 20.0 147.4 152.1 150.8 102.0 113.1 125.3 1.7 1.9 2.1 17.6 15.6 14.4 0

Primary Health Care 30-Jun NTRL 4.55 5.15 2,298 150.1 167.8 188.8 29.9 33.3 37.2 15.2 13.7 12.2 91.9 96.9 92.2 17.5 22.0 24.0 3.8 4.8 5.3 8.7 8.3 7.7 100

Ramsay Health Care 30-Jun NTRL 41.61 41.50 8,409 275.4 323.1 373.0 148.0 170.3 195.4 28.1 24.4 21.3 169.5 173.1 160.4 70.5 82.7 94.9 1.7 2.0 2.3 15.0 13.2 11.7 100

ResMed Inc. 30-Jun NTRL 5.05 5.60 6,388 307.2 364.3 403.7 21.0 25.1 27.7 21.5 18.0 16.3 129.8 127.5 122.6 7.6 10.5 12.5 1.7 2.3 2.8 13.4 11.4 10.3 0

Sonic Healthcare 30-Jun NTRL 16.74 16.50 6,708 335.0 403.8 441.1 84.3 100.4 108.5 19.9 16.7 15.4 119.8 118.1 116.2 62.0 72.9 78.8 3.7 4.4 4.7 13.1 10.9 9.9 45


Financials - Banks

ANZ Banking Group 30-Sep OPFM 30.99 35.80 85,040 6,446.0 7,036.2 7,450.6 229.6 247.8 261.9 13.5 12.5 11.8 81.4 88.6 89.1 164.0 176.0 187.0 5.3 5.7 6.0 4.7 4.0 3.5 100

Bendigo and Adelaide Bank 30-Jun NTRL 11.65 12.20 4,777 348.0 378.3 397.4 78.4 84.3 87.7 14.9 13.8 13.3 89.6 97.9 100.1 61.0 64.0 67.0 5.2 5.5 5.8 8.2 7.4 7.0 100

Bank of Queensland 31-Aug NTRL 11.70 12.50 3,774 248.2 291.3 328.1 75.8 86.5 95.7 15.4 13.5 12.2 93.1 95.8 92.1 58.0 66.0 73.0 5.0 5.6 6.2 9.5 8.4 7.5 100

Commonwealth Bank Australia 30-Jun UPFM 75.75 76.00 122,104 7,720.0 8,458.1 8,535.6 468.5 511.3 511.2 16.2 14.8 14.8 97.5 104.9 111.6 364.0 393.0 397.0 4.8 5.2 5.2 8.9 7.2 7.0 100

National Australia Bank 30-Sep OPFM 34.01 38.00 79,973 5,958.0 6,569.2 6,910.8 251.6 275.3 289.1 13.5 12.4 11.8 81.5 87.5 88.6 190.0 209.0 220.0 5.6 6.1 6.5 4.9 4.3 3.9 100

Westpac 30-Sep UPFM 32.44 33.50 100,858 7,097.0 7,307.1 7,538.8 223.0 228.2 234.9 14.5 14.2 13.8 87.7 100.7 104.0 174.0 182.0 190.0 5.4 5.6 5.9 8.1 7.8 7.5 100



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$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Financials - Diversified Financials

ASX 30-Jun UPFM 36.25 35.20 7,018 348.2 380.4 407.8 195.5 196.9 210.7 18.5 18.4 17.2 111.8 130.4 129.6 170.2 177.0 189.7 4.7 4.9 5.2 8.1 8.0 7.4 100

Challenger Limited 30-Jun OPFM 6.23 7.00 3,307 308.5 327.8 310.5 58.6 64.0 62.1 10.6 9.7 10.0 64.1 69.0 75.6 20.0 23.0 23.0 3.2 3.7 3.7 8.6 7.5 6.8 23

Henderson Group PLC 31-Dec NTRL 4.27 4.45 1,525 161.9 172.5 192.6 14.6 15.5 17.3 15.8 14.8 13.3 95.0 104.7 99.8 8.5 9.8 11.0 3.7 4.3 4.8 7.2 6.2 5.2 0

Macquarie Group 31-Mar OPFM 54.77 63.00 17,585 851.0 1,262.3 1,267.4 246.1 363.4 381.4 22.3 15.1 14.4 134.2 106.8 108.2 200.0 269.5 302.0 3.7 4.9 5.5 9.3 6.8 6.9 40

Perpetual Limited 30-Jun NTRL 47.72 51.00 2,220 75.9 110.9 141.0 185.1 254.0 305.3 25.8 18.8 15.6 155.5 133.1 117.7 130.0 200.0 250.0 2.7 4.2 5.2 17.3 12.6 9.8 100


Financials - Insurance

AMP 31-Dec NTRL 4.45 4.96 13,162 646.6 827.3 969.5 25.1 31.6 34.5 17.7 14.1 12.9 106.9 99.9 97.3 24.0 25.5 28.0 5.4 5.7 6.3 24.8 20.2 18.5 65

Insurance Australia Group 30-Jun NTRL 5.45 6.00 12,762 1,063.0 1,038.9 869.0 48.7 44.6 35.3 11.2 12.2 15.5 67.4 86.5 116.4 36.0 29.0 27.0 6.6 5.3 5.0 8.5 8.4 9.5 100

QBE Insurance Group 31-Dec OPFM 11.23 13.65 12,528 249.6- 970.9 1,194.9 -19.0 73.1 89.5 n.m 13.7 11.2 n.m 97.3 84.4 34.0 41.0 50.0 3.3 3.6 4.3 21.6 11.5 9.6 70

Suncorp Group Limited 30-Jun UPFM 12.36 12.36 15,902 502.6 1,163.6 1,361.7 41.1 91.0 106.6 30.1 13.6 11.6 181.6 96.2 87.4 75.0 78.0 90.0 6.1 6.3 7.3 26.4 12.4 10.7 100


Financials - Real Estate

CFS Retail Property Trust 30-Jun NTRL 1.96 2.04 5,900 384.6 386.7 401.7 13.6 13.7 14.2 14.4 14.3 13.8 86.7 101.3 103.7 13.6 13.7 14.2 7.0 7.0 7.3 16.9 16.3 15.5 0

Commonwealth Property Office Fund 30-Jun NTRL 1.25 1.21 2,934 204.3 206.9 207.5 8.7 8.8 8.8 14.4 14.2 14.1 86.6 100.4 106.5 6.6 6.7 6.9 5.2 5.4 5.5 15.8 15.3 15.3 0

Dexus Property Group 30-Jun OPFM 1.06 1.16 5,021 365.4 384.5 398.3 7.7 8.3 8.6 13.6 12.7 12.3 82.2 90.2 92.3 6.0 6.2 6.4 5.7 5.9 6.0 15.0 14.8 14.1 0

Federation Centres 30-Jun NTRL 2.36 2.43 3,369 224.4 237.1 249.5 15.8 16.6 17.5 14.9 14.2 13.5 90.1 100.6 101.7 13.8 14.6 15.4 5.9 6.2 6.5 13.9 14.9 15.0 0

Goodman Group 30-Jun NTRL 4.76 4.95 8,181 544.1 603.1 635.5 32.4 35.0 36.7 14.7 13.6 13.0 88.5 96.3 97.6 19.5 20.8 22.1 4.1 4.4 4.6 15.9 14.6 14.1 0

GPT Group 31-Dec OPFM 3.66 4.00 6,203 446.8 442.0 454.7 25.7 26.5 27.4 14.2 13.8 13.3 85.9 97.7 100.5 20.4 21.2 21.9 5.6 5.8 6.0 14.4 14.5 14.0 0

Investa Office Fund 30-Jun NTRL 3.09 3.33 1,897 137.5 139.8 145.0 22.4 22.8 23.6 13.8 13.6 13.1 83.2 96.1 98.6 17.7 18.5 19.0 5.7 6.0 6.2 14.6 15.0 14.9 0

Lend Lease 30-Jun OPFM 11.33 12.54 6,534 553.0 545.8 597.4 96.3 94.5 102.9 11.8 12.0 11.0 71.0 84.9 82.9 42.0 45.4 51.5 3.7 4.0 4.5 9.4 8.7 8.1 0

Mirvac Group 30-Jun OPFM 1.72 1.87 6,304 377.6 437.4 447.6 10.9 12.0 12.2 15.7 14.4 14.1 94.9 101.9 105.9 8.8 9.0 9.2 5.1 5.2 5.3 18.9 15.4 15.3 0

Stockland 30-Jun NTRL 3.90 4.23 8,992 494.8 550.0 596.5 22.4 23.8 25.6 17.4 16.4 15.2 105.1 115.9 114.6 24.0 24.0 24.0 6.2 6.2 6.2 22.3 20.4 18.7 0

Westfield 31-Dec NTRL 10.15 11.27 21,452 1,448.1 1,420.8 1,459.3 66.5 68.0 70.2 15.3 14.9 14.4 92.0 105.7 108.8 51.0 52.1 54.8 5.0 5.1 5.4 15.1 15.7 15.7 0

Westfield Retail Trust 31-Dec OPFM 3.05 3.51 9,087 605.3 619.7 641.2 20.0 20.7 21.5 15.3 14.7 14.2 92.2 104.2 107.0 19.9 20.7 21.4 6.5 6.8 7.0 15.5 15.4 15.0 0


Information Technology

Computershare 30-Jun NTRL 11.55 12.60 5,739 304.8 335.0 376.4 54.8 60.2 67.7 18.8 17.1 15.2 113.5 121.4 114.8 28.0 28.0 31.0 2.8 2.5 2.6 13.7 12.5 10.7 20

Telecommunication Services

Telstra Corporation 30-Jun OPFM 5.15 5.70 64,082 3,866.0 3,990.0 4,145.2 31.1 32.1 33.3 16.6 16.1 15.5 100.0 113.8 116.4 28.0 29.0 30.0 5.4 5.6 5.8 7.1 6.8 6.8 100

Utilities

AGL Energy 30-Jun NTRL 15.57 15.80 8,694 598.3 603.7 704.2 108.7 108.1 124.3 14.3 14.4 12.5 86.4 102.0 94.3 63.0 65.0 66.6 4.0 4.2 4.3 8.6 8.1 7.1 100

APA Group 30-Jun UPFM 6.17 6.05 5,157 178.8 201.4 240.6 23.1 24.1 28.8 26.7 25.6 21.4 160.7 181.4 161.5 35.5 36.0 36.9 5.8 5.8 6.0 14.3 13.5 12.3 0

DUET Group 30-Jun OPFM 2.10 2.30 2,701 68.0 85.9 127.5 5.9 6.9 9.8 35.3 30.5 21.3 213.1 216.0 160.8 16.5 17.0 17.5 7.9 8.1 8.3 10.0 9.9 9.2 0

Spark Infrastructure Group 31-Dec OPFM 1.72 1.78 2,275 177.5 210.7 214.0 13.4 15.9 16.1 12.8 10.8 10.6 77.3 76.5 80.1 11.0 11.5 12.0 6.4 6.7 7.0 7.1 6.1 5.9 0

SP AusNet 31-Mar NTRL 1.26 1.27 4,250 279.1 295.4 333.5 8.5 8.7 9.5 14.7 14.5 13.2 88.6 102.7 99.2 8.2 8.4 8.5 6.5 6.7 6.8 9.2 9.1 8.9 33


Report Average 16.6 14.1 13.3 4.1 4.5 4.9 8.3 7.1 6.6


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Small Caps Earnings & Dividends

Research Analyst

Jason Swinbourne

612 8205 4591

[email protected]

As at 13 February 2014 Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Energy

Aquila Resources 30-Jun OPFM 2.68 2.60 1,104 173.4- 15.1- 19.3- -42.1 -3.7 -4.7 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100

Bandanna Energy Limited 30-Jun NTRL 0.15 0.20 77 7.6- 13.3- 14.4- -1.4 -2.5 -2.7 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m 3.5 n.m 0

Cockatoo Coal 30-Jun RSTR 0.04 158 21.8- 19.1- 13.7 -1.3 -1.1 0.8 n.m n.m 4.6 n.m n.m 26.7 0.0 0.0 0.0 0.0 0.0 0.0 52.7 20.0 4.1 100

Energy Resources of Australia 31-Dec OPFM 1.20 1.50 621 142.4- 135.8- 142.5- -27.5 -26.2 -27.5 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 2.3 4.1 n.m 100

New Hope Corporation 31-Jul NTRL 3.36 3.70 2,792 124.4 113.7 134.1 15.0 13.7 16.1 22.4 24.6 20.8 84.8 114.2 119.9 16.0 13.7 16.1 4.8 4.1 4.8 9.5 12.2 11.2 100

Senex Energy Limited 30-Jun OPFM 0.73 0.85 830 61.0 64.7 79.0 5.3 5.6 6.9 13.6 12.9 10.6 51.4 60.0 60.9 0.0 0.0 0.0 0.0 0.0 0.0 9.0 8.4 6.7 100

Whitehaven Coal 30-Jun OPFM 1.61 2.75 1,646 60.7- 16.3- 57.8 -6.2 -1.6 5.6 n.m n.m 28.5 n.m n.m 164.1 0.0 0.0 2.5 0.0 0.0 1.5 n.m 23.8 9.9 100

Yancoal Australia 31-Dec UPFM 0.70 0.65 691 6.1 24.0- 150.0 0.6 -2.4 15.1 n.m n.m 4.6 424.8 n.m 26.5 0.0 0.3 3.8 0.0 0.5 5.4 23.3 8.4 5.6 100

Sector Aggregate n.m n.m 28.5 1.7 1.5 2.5 n.m 13.3 15.5

Materials - Chemicals

Nufarm 31-Jul NTRL 4.08 4.55 1,076 69.2 78.4 98.9 26.4 29.8 37.4 15.5 13.7 10.9 58.5 63.8 62.8 8.0 8.9 13.1 2.0 2.2 3.2 6.6 6.1 5.3 31

Materials - Construction Materials

CSR 31-Mar OPFM 3.05 2.90 1,543 32.7 67.0 91.7 6.5 13.2 18.1 47.2 23.0 16.8 178.2 107.1 97.0 5.1 11.0 13.0 1.7 3.6 4.3 10.2 8.2 6.9 0

Materials - Containers & Packaging

Pact Group Holdings 30-Jun OPFM 3.46 3.85 1,018 131.1 81.9 88.8 44.6 27.8 30.2 7.8 12.4 11.5 29.3 57.8 66.0 0.0 9.5 20.2 0.0 2.7 5.8 8.6 8.1 7.5 65

Materials - Metals & Mining

Atlas Iron 30-Jun OPFM 1.08 1.30 989 13.7 117.8 67.9 1.5 11.1 6.4 71.4 9.7 17.0 269.5 45.2 97.9 3.0 3.0 3.0 2.8 2.8 2.8 7.0 2.5 3.9 0

Ampella Mining Limited 31-Dec NTRL 0.18 0.19 43 19.6- 18.8- 19.8- -7.9 -7.6 -8.0 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Altona Mining Limited 30-Jun OPFM 0.18 0.26 96 12.6 13.8 11.6 2.4 2.6 2.2 7.6 7.0 8.3 28.8 32.6 48.1 0.0 0.0 0.0 0.0 0.0 0.0 8.3 3.8 5.4 0

Alacer Gold Corp. 31-Dec UPFM 2.73 2.25 708 110.3 52.3 0.9 38.2 18.1 0.3 6.4 13.5 n.m 24.1 62.7 n.m 0.0 0.0 0.0 0.0 0.0 0.0 1.8 2.9 9.3 0

Base Resources Ltd 30-Jun OPFM 0.41 0.90 230 5.7- 20.9- 88.3 -1.0 -3.7 15.7 n.m n.m 2.6 n.m n.m 15.0 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m 2.3 100

Evolution Mining Limited 30-Jun UPFM 0.79 0.64 560 44.4 47.4 38.6 6.3 6.7 5.4 12.6 11.8 14.5 47.5 54.9 83.6 1.0 1.7 1.6 1.3 2.1 2.0 3.2 3.1 3.4 0

Gindalbie Metals Ltd 30-Jun UPFM 0.10 0.06 149 138.9- 5.5- 19.9- -10.3 -0.4 -1.3 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.3 0.0 0.0 2.9 n.m n.m n.m 0

Gryphon Minerals Limited 30-Jun OPFM 0.18 0.25 72 4.1- 3.0- 7.5- -1.1 -0.8 -1.9 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Independence Group NL 30-Jun OPFM 4.12 3.70 961 18.3 52.6 74.8 7.8 22.6 32.1 52.9 18.3 12.9 199.8 84.9 74.1 2.0 9.0 12.8 0.5 2.2 3.1 18.8 7.7 5.5 100

Kula Gold 31-Dec OPFM 0.09 0.35 11 2.1- 5.5- 32.2 -0.8 -1.3 7.8 n.m n.m 1.1 n.m n.m 6.3 0.0 0.0 0.0 0.0 0.0 0.0 16.2 n.m 0.9 0

Mineral Deposits Ltd. 31-Dec OPFM 2.19 4.00 203 1.6 2.0 70.9 1.7 2.0 68.5 n.m n.m 2.9 435.8 466.5 16.5 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100

Mount Gibson Iron 30-Jun UPFM 1.12 1.05 1,221 92.9 247.6 99.6 8.5 22.7 9.1 13.1 4.9 12.3 49.6 22.9 70.7 4.0 2.0 2.0 3.6 1.8 1.8 5.7 2.5 3.8 100

OceanaGold Corporation 31-Dec UPFM 2.44 2.00 655 76.4 77.1 66.7 25.7 25.7 22.2 8.5 8.5 9.8 32.0 39.5 56.5 0.0 0.0 0.0 0.0 0.0 0.0 3.3 3.2 2.8 0

Panoramic Resources 30-Jun NTRL 0.24 0.29 77 26.1- 16.3- 3.4- -10.3 -5.3 -1.0 n.m n.m n.m n.m n.m n.m 1.0 0.0 0.0 4.2 0.0 0.0 4.1 1.4 0.4 100

PanAust 31-Dec OPFM 1.85 2.00 1,023 80.8 31.0 23.1 13.6 5.2 3.9 12.2 31.8 42.5 45.9 147.8 245.1 7.0 7.0 7.0 4.2 4.2 4.2 4.2 7.1 9.4 0

Perseus Mining 30-Jun OPFM 0.49 0.50 222 38.4 8.2- 12.5 8.4 -1.8 2.7 5.8 n.m 17.8 21.9 n.m 102.5 0.0 0.0 0.0 0.0 0.0 0.0 2.2 8.8 3.3 0

Sandfire Resources NL 30-Jun UPFM 6.36 5.75 990 88.0 103.5 116.4 57.4 65.4 73.1 11.1 9.7 8.7 41.9 45.2 50.1 0.0 0.0 36.6 0.0 0.0 5.7 4.5 4.1 3.5 0

Syrah Resources 30-Jun OPFM 2.76 4.90 448 4.8- 5.3- 8.1- -3.5 -3.6 -5.5 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Tigers Realm Coal 31-Dec OPFM 0.16 0.25 84 17.4- 6.1- 29.8- -3.2 -0.8 -3.3 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Western Areas 30-Jun NTRL 3.14 2.75 618 5.6 8.1 0.4 2.8 4.1 0.2 n.m 76.2 n.m 417.6 354.2 n.m 2.0 0.0 0.0 0.6 0.0 0.0 6.1 7.0 7.5 100


Materials - Paper & Forest Products

Sector Aggregate n.m n.m n.m

Industrials - Capital Goods


* Relative PE is calculated against All Industrials companies excluding the Stocks in the ASX Top 100 and Singtel.Calculation is based on Credit Suisse coverage.


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Industrials - Commercial & Professional Services


Industrials - Transportation

Qube Logistics 30-Jun NTRL 2.06 2.20 1,919 86.3 84.9 96.4 9.4 9.2 10.5 22.0 22.4 19.7 83.1 103.9 113.5 5.2 5.0 5.4 2.5 2.4 2.6 13.1 11.6 10.4 100

Virgin Australia 30-Jun NTRL 0.35 0.38 1,213 58.4- 119.7- 60.7- -2.4 -4.9 -2.5 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 12.5 10.7 8.9 100

Sector Aggregate n.m n.m n.m 1.5 1.5 1.6 12.9 11.2 9.8

Consumer Discretionary - Automobiles & Components

Consumer Discretionary - Consumer Durables & Apparel


Consumer Discretionary - Consumer Services


Consumer Discretionary - Media

APN News & Media 30-Dec UPFM 0.45 0.30 298 49.4 50.3 55.6 7.5 7.6 8.4 6.0 5.9 5.4 22.7 27.5 31.1 0.0 0.0 5.0 0.0 0.0 11.1 4.6 3.8 3.3 33

Fairfax Media 30-Jun UPFM 0.70 0.50 1,646 128.0 111.2 106.6 5.4 4.7 4.5 12.9 14.8 15.4 48.6 68.9 89.0 2.0 2.0 2.0 2.9 2.9 2.9 4.8 6.2 6.4 100

Nine Entertainment 30-Jun OPFM 2.22 2.30 2,087 136.7 150.7 160.2 14.5 16.0 17.0 15.3 13.9 13.0 57.7 64.4 75.1 0.0 4.1 9.4 0.0 1.8 4.2 9.0 8.4 7.8 100

Prime Media Group 30-Jun NTRL 1.01 1.10 370 35.4 32.3 34.5 9.7 8.8 9.4 10.4 11.5 10.7 39.4 53.3 61.9 7.3 6.6 7.1 7.2 6.5 7.0 7.4 7.4 7.0 30

REA Group 30-Jun NTRL 47.15 47.50 6,210 109.7 145.1 177.0 83.3 110.1 134.4 56.6 42.8 35.1 213.8 199.1 202.1 41.5 56.0 67.5 0.9 1.2 1.4 36.4 26.7 21.9 100

STW Communications Group 31-Dec NTRL 1.44 1.63 579 50.5 54.9 62.2 12.7 13.7 15.5 11.3 10.5 9.2 42.7 48.7 53.3 8.5 8.9 10.1 5.9 6.2 7.0 7.6 6.6 5.6 100

Seven West Media Ltd 30-Jun OPFM 2.12 2.60 2,118 225.2 256.8 273.8 19.8 22.7 24.2 10.7 9.3 8.8 40.5 43.4 50.4 12.0 12.0 12.1 5.7 5.7 5.7 7.2 6.6 6.1 100

Southern Cross Media Group 30-Jun UPFM 1.60 1.40 1,125 90.8 103.4 108.5 12.9 14.7 15.4 12.4 10.9 10.4 46.8 50.5 59.7 9.0 10.0 10.0 5.6 6.3 6.3 8.2 7.9 7.5 100

Ten Network Holdings 31-Aug NTRL 0.34 0.29 894 5.0- 5.4- 51.8 -0.2 -0.2 2.0 n.m n.m 17.0 n.m n.m 97.9 0.0 0.0 1.3 0.0 0.0 3.8 22.0 26.5 7.6 0


Consumer Discretionary - Retailing

Fantastic Holdings 30-Jun UPFM 1.94 2.00 199 13.5 5.4 10.2 13.1 5.3 10.0 14.7 36.8 19.4 55.6 171.2 111.9 15.0 3.2 6.2 7.8 1.7 3.2 8.1 12.9 8.6 100

JB Hi-Fi 30-Jun OPFM 18.23 23.06 1,828 116.4 131.9 149.5 117.0 129.3 147.1 15.6 14.1 12.4 58.8 65.6 71.4 72.0 81.0 97.7 3.9 4.4 5.4 8.9 8.2 7.1 100

OrotonGroup 27-Jul OPFM 4.03 4.65 165 23.4 9.6 12.4 57.3 23.5 30.3 7.0 17.2 13.3 26.6 79.8 76.5 50.0 22.0 26.0 12.4 5.5 6.5 3.3 8.8 6.9 100

Pacific Brands 30-Jun NTRL 0.71 0.75 648 73.8 69.8 68.2 8.1 7.6 7.4 8.8 9.3 9.6 33.2 43.4 55.5 5.0 5.3 5.9 7.0 7.5 8.3 5.8 6.0 6.0 100

Premier Investments Ltd 27-Jul OPFM 7.76 9.50 1,205 69.3 86.4 95.5 44.1 55.0 60.8 17.6 14.1 12.8 66.5 65.6 73.5 38.0 47.8 53.0 4.9 6.2 6.8 9.4 8.3 7.3 100

Specialty Fashion Group 30-Jun OPFM 0.87 1.00 167 13.0 10.0 17.7 6.7 5.2 9.2 13.0 16.7 9.5 49.0 77.9 54.5 2.0 2.0 2.0 2.3 2.3 2.3 3.1 3.7 2.4 100

Super Retail Group 30-Jun NTRL 10.50 11.50 2,066 114.1 117.6 142.4 57.7 59.4 72.0 18.2 17.7 14.6 68.8 82.1 84.1 38.0 41.7 50.5 3.6 4.0 4.8 16.3 16.2 14.3 100

Thorn Group 31-Mar NTRL 2.01 2.53 300 28.0 29.3 32.1 19.1 19.7 21.4 10.5 10.2 9.4 39.8 47.4 54.0 10.5 11.0 11.3 5.2 5.5 5.6 7.1 6.9 6.6 100

Trade Me Group Ltd 30-Jun UPFM 3.68 3.70 1,571 78.6 85.9 96.5 19.8 21.7 24.3 20.0 18.3 16.3 75.5 85.0 93.8 15.8 17.3 19.5 4.0 4.4 4.9 13.7 12.4 11.1 0

The Reject Shop 30-Jun NTRL 10.93 13.50 315 17.4 17.5 23.3 64.0 65.5 87.2 17.1 16.7 12.5 64.5 77.6 72.3 37.0 50.5 67.2 3.4 4.6 6.1 7.8 7.9 6.3 100

Webjet 30-Jun NTRL 3.16 3.25 251 12.0 16.0 18.9 15.8 19.2 21.8 20.1 16.5 14.5 75.8 76.6 83.7 13.0 13.5 15.2 4.1 4.3 4.8 10.4 9.3 7.4 100



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Consumer Staples - Food Beverage & Tobacco

Goodman Fielder 30-Jun UPFM 0.59 0.50 1,144 66.2 63.2 86.1 3.4 3.2 4.4 17.4 18.2 13.4 65.7 84.8 77.1 3.0 2.4 3.0 5.1 4.1 5.1 6.7 7.0 6.2 10

Health Care

Australian Pharmaceutical Ind 31-Aug OPFM 0.57 0.64 278 24.3 26.2 27.0 5.0 5.4 5.5 11.5 10.6 10.3 43.3 49.3 59.3 3.3 3.3 3.3 5.7 5.7 5.7 5.2 5.2 4.4 100

Mesoblast 30-Jun OPFM 5.71 7.95 1,834 61.7- 81.7- 93.6- -20.3 -25.0 -28.1 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Mayne Pharma 30-Jun NTRL 0.87 0.86 487 6.2 18.4 26.7 1.4 3.1 4.5 60.4 27.7 19.1 228.1 129.0 110.3 0.0 0.0 1.4 0.0 0.0 1.6 29.3 13.0 9.1 10

Sigma Pharmaceuticals 31-Jan NTRL 0.63 0.66 703 53.6 49.8 51.0 4.5 4.3 4.6 13.8 14.6 13.6 52.1 68.0 78.5 4.0 4.5 4.5 6.4 7.2 7.2 8.0 8.5 8.4 100

Sector Aggregate n.m n.m n.m 1.8 2.0 2.3 44.3 49.3 35.5

Financials - Diversified Financials

BT Investment Management 30-Sep NTRL 6.26 5.15 1,770 61.9 88.3 103.4 20.9 29.4 34.5 29.9 21.3 18.2 113.1 98.9 104.6 18.0 26.0 30.0 2.9 4.2 4.8 20.7 14.5 12.3 100

IOOF Holdings 30-Jun NTRL 9.22 9.35 2,140 108.8 126.3 140.2 46.9 54.4 60.4 19.7 16.9 15.3 74.3 78.8 88.0 42.0 49.0 54.0 4.6 5.3 5.9 14.4 12.2 10.9 100

Platinum Asset Management 30-Jun UPFM 6.99 6.00 4,045 129.1 176.7 197.0 22.6 30.1 33.6 31.0 23.2 20.8 116.9 107.9 119.9 22.0 29.0 33.0 3.1 4.1 4.7 21.9 15.8 14.1 100


Financials - Insurance

Austbrokers 30-Jun UPFM 11.07 10.41 660 28.9 32.6 35.6 50.2 55.5 60.6 22.1 19.9 18.3 83.3 92.7 105.3 35.5 39.0 42.0 3.2 3.5 3.8 16.3 13.8 12.3 100

Steadfast 30-Jun UPFM 1.58 1.36 792 35.8 38.5 40.8 7.1 7.7 8.1 22.1 20.6 19.4 83.6 95.8 111.9 0.0 4.6 5.0 0.0 2.9 3.1 21.9 21.4 20.4 100

Tower Limited 30-Sep NTRL 1.52 1.66 292 34.4 28.0 29.4 16.6 13.5 14.2 9.9 12.1 11.5 37.2 56.3 66.4 11.0 12.8 13.5 6.7 7.8 8.2 n.m 1.1 1.0 0


Financials - Real Estate

Australand 31-Dec NTRL 3.90 3.81 2,255 146.7 156.1 168.0 25.4 27.0 29.1 15.4 14.4 13.4 58.0 67.2 77.4 21.5 21.6 23.2 5.5 5.5 6.0 13.8 13.2 12.6 0

Charter Hall Group 30-Jun NTRL 3.90 3.78 1,206 71.8 74.8 81.2 23.9 24.5 26.0 16.3 15.9 15.0 61.5 74.1 86.5 20.3 22.0 23.4 5.2 5.6 6.0 17.1 15.8 14.7 0

Charter Hall Retail REIT 30-Jun NTRL 3.64 3.99 1,321 96.4 104.4 107.1 29.8 30.5 30.7 12.2 11.9 11.9 46.2 55.5 68.4 26.8 27.5 27.9 7.4 7.6 7.7 14.7 13.8 13.4 0

GDI Property Group 30-Jun OPFM 0.90 1.01 511 - 21.6 45.1 3.8 8.0 n.m 23.7 11.3 110.1 65.2 3.5 7.5 3.9 8.3 n.m 26.1 12.7 0


Information Technology


Telecommunication Services


Utilities

Energy Developments Limited 30-Jun OPFM 5.99 6.44 963 55.0 55.6 59.6 33.7 34.5 37.0 17.8 17.4 16.2 67.1 80.7 93.3 22.0 22.4 24.0 3.7 3.7 4.0 8.0 7.6 7.1 0

Envestra 30-Jun NTRL 1.18 1.22 2,111 107.8 145.2 146.8 6.6 8.1 8.2 17.8 14.5 14.4 67.1 67.6 82.9 5.9 6.4 6.6 5.0 5.4 5.7 11.5 10.4 10.1 0


Report Average 26.5 21.5 17.4 2.8 3.1 3.9 11.5 9.2 8.7



EPS


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Sector Aggregates

Research Analyst

Jason Swinbourne

612 8205 4591

[email protected] RAVE Database 02 8205 4591

As at 13 February 2014 PE Rel vs ASX 200(1)

EPS Growth % (1)

Div Yield % (1)

EBIT Multiple (1)

EBITDA Multiple (1)

2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 Top 200 Top 300

Energy (2) 22.0 16.7 12.7 14.8 12.9 11.2 1.3 1.1 0.9 -15.7 31.6 31.9 3.8 3.5 4.6 16.1 11.9 9.2 10.4 8.2 6.7 5.30% 5.18%

Materials (2) 15.8 11.9 11.7 17.3 15.2 14.5 0.9 0.8 0.8 -20 33 2 2.8 3.4 4.1 11.3 8.6 8.4 7.9 6.2 5.9 24.36% 23.84%

Chemicals (2) 15.0 13.8 11.5 15.5 13.7 10.9 0.9 0.9 0.8 -19 9 20 3.5 3.9 4.7 12.0 11.3 9.2 9.0 8.3 7.0 0.88% 0.86%

Construction Materials (2) 33.5 23.7 19.2 41.5 23.6 17.9 2.0 1.6 1.4 -13 41 23 2.1 3.9 4.6 24.9 18.1 15.4 14.3 11.6 10.4 0.85% 0.83%

Containers & Packaging (2) 19.0 17.9 16.0 19.0 17.3 15.4 1.1 1.2 1.2 9 5 12 3.7 3.9 4.4 16.8 13.2 12.2 10.5 9.6 9.0 0.87% 0.85%

Metals & Mining (2) 15.4 11.5 11.4 13.5 13.3 14.1 0.9 0.8 0.8 -21 34 1 2.8 3.4 4.0 10.9 8.3 8.2 7.6 5.9 5.7 21.77% 21.31%

Paper & Forest Products (2) 15.0 13.8 11.5 15.5 13.7 10.9 0.9 0.9 0.8 -19 9 20 3.5 3.9 4.7 12.0 11.3 9.2 9.0 8.3 7.0 0.88% 0.86%

Industrials (2) 18.4 21.5 17.2 15.0 14.7 13.2 1.1 1.4 1.2 16 -14 25 3.3 3.6 4.2 13.8 13.7 11.7 7.6 7.4 6.6 3.34% 3.27%

Capital Goods (2) 11.0 10.7 10.7 12.5 10.5 10.4 0.6 0.7 0.8 0 3 0 6.0 5.7 5.7 7.8 7.3 7.0 3.7 3.5 3.4 0.40% 0.39%

Commercial Services & Supplies (2) 19.5 18.3 16.0 17.9 17.6 15.3 1.1 1.2 1.2 8 7 14 3.3 3.6 3.9 14.9 13.5 11.7 10.1 9.0 7.9 1.40% 1.37%

Transportation (2) 20.9 36.8 22.0 17.7 14.7 13.2 1.2 2.5 1.6 36 -43 67 2.6 3.1 4.1 15.7 18.0 14.3 8.0 8.3 7.4 1.55% 1.51%

Consumer Discretionary (2) 21.4 19.9 17.5 17.3 16.3 15.2 1.3 1.3 1.3 -13 8 14 2.7 3.1 3.6 16.2 15.1 13.2 11.2 10.3 9.2 3.95% 3.87%

Automobiles & Components (2) >100 >100 >100 >100 >100 >100

Consumer Durables & Apparel (2) >100 >100 >100 >100 >100 >100

Hotels Restaurants & Leisure (2) 21.7 18.7 17.2 19.1 17.9 16.8 1.3 1.3 1.2 -15 16 8 3.2 3.3 3.5 16.7 14.6 13.5 12.2 11.0 10.2 1.70% 1.66%

Media (2) 26.2 27.3 22.3 12.4 10.9 15.4 1.5 1.8 1.6 -20 -4 23 1.3 2.1 2.6 18.7 19.6 15.6 11.1 10.5 9.0 1.42% 1.39%

Retailing (2) 16.1 15.0 13.2 17.1 15.3 12.8 0.9 1.0 1.0 1 7 14 4.3 4.7 5.5 12.4 11.5 10.0 9.7 9.0 8.0 0.83% 0.81%

Consumer Staples (2) 19.2 18.5 16.8 17.9 17.6 13.4 1.1 1.2 1.2 3 3 10 4.2 4.4 4.7 13.4 13.3 12.2 10.5 10.3 9.5 6.59% 6.45%

Food & Drug Retailing (2) 19.7 18.8 17.1 18.6 17.6 16.6 1.1 1.3 1.2 6 5 10 4.1 4.3 4.7 13.6 13.4 12.3 10.7 10.5 9.7 5.73% 5.61%

Food Beverage & Tobacco (2) 16.3 16.8 15.2 17.6 16.3 12.8 1.0 1.1 1.1 -10 -3 11 4.8 4.5 4.7 12.0 12.8 11.6 9.0 9.2 8.5 0.86% 0.84%

Health Care (2) 26.1 21.4 19.0 19.9 16.7 15.4 1.5 1.4 1.4 18 22 13 2.0 2.5 2.8 20.8 16.9 14.8 17.3 14.3 12.6 3.89% 3.80%

Financials (2) 15.5 13.8 13.2 15.1 14.2 13.5 0.9 0.9 1.0 4 13 4 5.2 5.5 5.8 8.5 7.2 6.7 7.8 6.7 6.2 34.64% 33.90%

Banks (2) 14.5 13.6 13.1 14.7 13.7 12.8 0.8 0.9 0.9 8 7 3 5.2 5.6 5.8 6.9 6.0 5.5 6.4 5.6 5.2 23.60% 23.09%

Diversified Financials (2) 20.0 15.7 14.8 19.7 16.9 15.3 1.2 1.1 1.1 12 27 6 3.7 4.7 5.2 11.6 9.1 8.6 9.9 7.9 7.5 2.33% 2.28%

Insurance (2) 25.8 13.4 12.4 14.5 13.6 12.3 1.5 0.9 0.9 -26 93 8 5.3 5.3 5.8 26.4 12.8 11.9 17.3 12.0 11.1 3.32% 3.25%

Real Estate (2) 14.8 14.2 13.6 14.7 14.2 13.5 0.9 1.0 1.0 3 4 4 5.4 5.6 5.8 15.5 15.0 14.5 15.2 14.8 14.3 5.39% 5.28%

Information Technology (2) 20.2 18.8 16.8 22.0 21.1 19.2 1.2 1.3 1.2 12 8 12 2.9 2.7 2.9 15.8 14.5 12.5 14.7 13.5 11.8 0.47% 0.46%

Telecommunication Services (2) 16.6 16.1 15.5 16.6 16.1 15.5 1.0 1.1 1.1 9 3 4 5.4 5.6 5.8 11.8 11.1 11.0 7.1 6.8 6.8 3.81% 3.73%

Utilities (2) 17.2 16.3 14.4 16.2 14.5 13.8 1.0 1.1 1.0 8 6 13 5.5 5.7 5.8 12.3 11.6 10.5 9.7 9.1 8.4 1.50% 1.47%

20 Leaders 16.3 13.9 13.3 17.7 14.8 14.4 1.0 0.9 0.96 -8 18 4 4.2 4.6 5.0 9.7 8.2 7.7 7.8 6.6 6.2 na na

50 Leaders 16.4 14.0 13.2 17.0 14.7 13.8 1.0 0.9 1.0 -5 17 6 4.1 4.5 4.9 10.3 8.6 8.0 8.2 7.0 6.5 na na

ASX 100 17.0 14.8 13.8 16.6 14.9 13.8 1.0 1.0 1.0 -3 15 7 4.3 4.6 5.0 10.5 8.9 8.2 8.5 7.3 6.8 na na

MidCap 50 18.6 15.9 14.4 16.3 15.1 13.5 1.1 1.1 1.0 4 17 11 3.6 4.1 4.7 13.9 11.5 10.3 9.8 8.5 7.7 na na

S&P/ASX 200 - Industrials 16.9 15.3 14.3 16.3 14.9 14.1 1.0 1.0 1.0 4 10 7 4.6 4.9 5.2 10.1 8.8 8.1 8.5 7.6 7.0 na na

S&P/ASX 200 - Resources 18.2 13.4 12.4 14.4 13.2 12.3 1.1 0.9 0.9 -27 36 8 3.0 3.3 4.1 12.6 9.4 8.8 8.5 6.6 6.1 na na

S&P/ASX 200 - Ind excl BIP 19.4 18.3 16.2 18.1 16.6 15.0 1.1 1.2 1.2 4.3 5.8 12.5 3.7 4.1 4.5 14.0 13.0 11.7 10.0 9.4 8.6 na na

S&P/ASX 200 17.2 14.9 13.9 16.3 14.7 13.8 17.2 14.9 13.9 -4 15 7 4.2 4.6 5.0 10.5 8.9 8.2 8.5 7.3 6.8 na na

S&P/ASX 300 - Industrials 19.5 18.2 16.3 17.7 15.9 14.5 1.1 1.2 1.2 2 7 12 3.7 4.1 4.5 15.1 14.1 12.7 10.2 9.6 8.8 na na

S&P/ASX 300 - Resources 18.4 13.4 12.4 13.3 12.0 11.3 1.1 0.9 0.9 -27 37 8 3.0 3.3 4.1 12.8 9.5 8.9 8.5 6.6 6.1 na na

S&P/ASX 300 - Ind excl BIP 19.5 18.2 16.3 17.7 15.9 14.5 1.1 1.2 1.2 2.0 6.8 11.9 3.7 4.1 4.5 15.1 14.1 12.7 10.2 9.6 8.8 na na

S&P/ASX 300 17.2 14.9 13.9 15.7 14.6 13.6 1.0 1.0 1.0 -4 15 7 4.2 4.6 5.0 10.6 9.0 8.2 8.5 7.3 6.8 na na

Small Companies (4) 23.4 18.3 16.2 13.4 13.8 13.3 1.4 1.2 1.2 24- 28 13 3.1 3.4 4.0 16.0 13.1 12.2 9.6 8.5 8.1 na na

Small Industrials 19.3 17.5 15.6 15.4 14.6 13.4 1.1 1.2 1.1 -4 10 12 3.9 4.3 4.8 17.7 16.1 14.6 12.2 11.1 10.2 na na

Small Resources 75.9 19.7 19.1 9.2 8.4 10.6 4.4 1.3 1.4 -76 285 3 1.2 1.2 1.9 33.4 13.0 15.8 6.8 5.3 5.7 na na

(1) Includes all companies covered by Credit Suisse analysts (3) No weighting applicable

(2) All sectors are based on S&P/ASX200.Companies on restricted list are not included in aggregates (4) Small companies are all companies covered by Credit Suisse analysts excluding top 100 stocks.

Sector Weight PE (1)

Median PE (1)(3)

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Credit Suisse’s Reporting Season Calendar Research Analyst

Adam Indikt 61 3 9280 1659

[email protected]

Price 12M NPAT pre-unusual* Reported NPAT* DPS (c)

Code Company Currency (A$) Tgt. Rtg Date Report Curr PCP Chg % Curr PCP Chg % Curr PCP Chg % Credit Suisse analyst comment

AHE Automotive Holdings Group

A$ 3.7 4.0 N 14-Feb Interim 41.2 38.5 6.9 41.2 37.9 8.6 8.5 8.0 6.7

CQR Charter Hall Retail REIT

A$ 3.6 4.0 N 14-Feb Interim 53.4 45.9 16.3 53.4 45.9 16.3 0.0 0.0 Australia dial in 1800 041 303. Conference ID 264116#

NCM Newcrest Mining A$ 11.3 8.2 U 14-Feb Interim 206.2 320.0 -35.6 89.0 320.0 -72.2 0.0 12.0 -100.0 Media reports suggest some proxy advisers will recommend against some resolutions put to shareholders. No quantitative guidance expected with SepQ result taking place a week prior.

PRU Perseus Mining A$ 0.5 0.5 O 14-Feb Interim -14.9 28.3 -152.8 -14.9 28.4 -152.6 0.0 0.0 No material updates expected.

SGM Sims Metal Management

A$ 10.0 10.0 U 14-Feb Interim 0.0 0.0 0.0 0.0 5.2 0.0 AGM date not yet confirmed. 1H FY14 quantitative guidance may be provided. Typically a good overview of current market conditions is discussed, we will pay particular attention to this given the continued challenges of the sector as evidenced by US peer reporting.

SGN STW Communications Group

A$ 1.4 1.6 N 14-Feb Final 50.5 44.0 14.8 50.5 44.0 14.8 5.2 4.6 12.0

TPI Transpacific Industries Group

A$ 1.1 1.0 N 14-Feb Interim 25.7 35.8 -28.3 87.8 32.3 171.8 0.0 0.0

ALZ Australand A$ 3.9 3.8 N 17-Feb Final 146.7 142.0 3.3 146.7 142.0 3.3 10.9 11.0 -0.5

ANN Ansell US$ 19.0 21.0 N 17-Feb Interim 64.3 57.1 12.6 64.3 57.1 12.6 17.4 16.0 8.9

APN APN News & Media A$ 0.5 0.3 U 17-Feb Final 49.4 54.4 -9.1 46.0 -455.8 110.1 0.0 0.0

AZJ Aurizon A$ 5.0 R 17-Feb Interim 0.0 0.0 0.0 0.0 450.0 410.0 9.8 Expect 1Q14 above rail volumes and qualitative outlook commentary, though nothing formal. Outlook commentary likely to be relatively positive given the reasonable organic volume growth in the space.

BEN Bendigo and Adelaide Bank

A$ 11.7 12.2 N 17-Feb Interim 192.0 169.7 13.1 192.0 169.7 13.1 32.0 30.0 6.7 We would look for: Some relief emerging for net interest margins (TD spread pressures easing, the re-pricing of parts of the Community Bank portfolio); Accelerating operating costs; Rural Bank asset quality; Update on medium-term issues, such as the progress of the Great Southern litigation and the Basel advanced accreditation programme.

FWD Fleetwood Corp A$ 3.0 2.4 N 17-Feb Interim 5.0 8.9 -43.5 5.0 5.2 -4.3 0.0 30.0 -100.0

UGL UGL A$ 7.1 7.8 N 17-Feb Interim 51.1 51.0 0.2 46.3 26.0 77.8 22.0 34.0 -35.3 We expect UGL to report 1H14 underlying NPAT of $51mn and to reiterate FY14 guidance of $120-130mn underlying NPAT. We expect a solid result for the property business to be overshadowed by weakness in the engineering division.

WSA Western Areas A$ 3.1 2.8 N 17-Feb Interim 6.3 6.5 -2.9 6.3 2.1 196.5 0.0 2.0 -100.0 Reporting date is an estimate.

AIO Asciano Group A$ 5.7 6.2 O 18-Feb Interim 0.0 0.0 0.0 0.0 3.0 3.0 0.0 Quarterly volumes will be released at AGM. We have a good read-through from Port and Coal stats so don't expect any material surprises. Data is showing a recovery in port vols and continued underlying growth of 5-6% of coal. Expect outlook commentary though no formal guidance likely. Management may reiterate progress towards 10-15% EPS growth targets and WACC goals.

AMC Amcor A$ 10.7 11.2 N 18-Feb Interim 5,233.1 322.0 1,525.2

5,233.1 238.3 2,096.0

18.5 19.0 -2.6

AMM Amcom Telecommunications

A$ 2.0 2.2 N 18-Feb Interim 11.3 10.0 13.9 11.3 10.0 13.9 2.3 2.0 14.6 FY14 earnings guidance for "double digit NPAT growth" expected to be maintained. Any momentum from sales here forward will be a driver for FY15 earnings. Could see announcement of first wins on CISCO HCS product. Potentially positive catalyst

ARI Arrium A$ 1.7 1.4 U 18-Feb Interim 0.0 0.0 0.0 0.0 6.0 2.0 200.0 1H FY14 quantitative guidance may be provided. We will also focus on domestic demand commentary and Iron Ore segment likely continued strong performance. First AGM for new MD Andrew Roberts.

* In A$mn, unless otherwise stated. Final DPS is 2H dividend. O = Outperform, N = Neutral, U = Underperform, R = Restricted. Source: Company data, Credit Suisse estimates

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Currency Price 12M NPAT pre-unusual* Reported NPAT* DPS (c)

Code Company (A$) Tgt. Rtg Date Report Curr PCP Chg % Curr PCP Chg % Curr PCP Chg % Credit Suisse analyst comment

BHP BHP Billiton US$ 37.3 38.0 N 18-Feb Interim 6,912.3 4,433.0 55.9 7,072.3 2,988.0 136.7 62.0 57.0 8.7

CCL Coca-Cola Amatil A$ 11.9 11.3 U 18-Feb Final 508.8 558.4 -8.9 499.6 459.9 8.6 35.5 -17.0 308.8

CFX CFS Retail Propy Trust

A$ 2.0 2.0 N 18-Feb Interim 191.9 0.0 191.9 0.0 6.8 0.0 Australia dial in 1800 801 825. International dial in 61 2 8524 5042. Conference ID 3227176

CGF Challenger A$ 6.2 7.0 O 18-Feb Interim 164.5 148.7 10.6 200.9 222.0 -9.5 10.0 9.5 5.3

CPA Commonwealth Property Office Fund

A$ 1.3 1.2 N 18-Feb Interim 105.7 103.3 2.3 105.7 103.3 2.3 3.4 3.2 4.7 Australia dial in 1800 801 825. International dial in 61 2 8524 5042. Conference ID 8287329.

MGX Mount Gibson Iron A$ 1.1 1.1 U 18-Feb Interim 141.6 37.1 281.7 141.6 37.1 281.7 0.0 2.0 -100.0 Reporting date is an estimate

MMS McMillan Shakespeare A$ 11.6 12.3 N 18-Feb Interim 22.1 29.7 -25.6 22.1 29.7 -25.6 17.9 24.0 -25.6

OKN Oakton A$ 1.6 1.3 N 18-Feb Interim 4.6 4.5 1.6 4.6 4.5 1.6 4.5 4.8 -4.6

ORA Orora A$ 1.4 1.4 O 18-Feb Interim 1,551.6 0.0 1,551.6 0.0 3.0 0.0 November trading update, AMC/Orora indicated trading was favorable: Earnings higher than last year across Australasia and Packaging Distribution. Full-year earnings expected to be significantly higher, cost savings will be skewed toward 2H14.

SHL Sonic Healthcare A$ 16.7 16.5 N 18-Feb Interim 172.2 150.6 14.3 172.2 150.6 14.3 27.9 25.0 11.5

APA APA Group A$ 6.2 6.1 U 19-Feb Interim 0.0 0.0 0.0 0.0 17.3 17.0 1.7

ARP ARB Corp A$ 10.7 11.5 U 19-Feb Interim 19.5 20.9 -6.6 19.5 20.9 -6.6 12.0 12.5 -4.0

BXB Brambles US$ 8.8 9.3 N 19-Feb Interim 0.0 0.0 0.0 0.0 13.6 13.9 -1.9 1Q14 sales and outlook commentary expected ahead of the AGM. Potential for BXB mgmt to narrow guidance within the stated band. Given the recent negative read-through into US retail sales from Walmart, there is a chance that guidance could be narrowed to the lower end of the range. CS is currently at the top end.

FMG Fortescue Metals Grp US$ 5.6 7.5 O 19-Feb Interim 1,594.5 367.4 334.0 1,646.6 478.0 244.5 5.0 0.0

SMX SMS Management & Technology

A$ 4.2 4.4 N 19-Feb Interim 6.8 12.7 -46.3 6.8 12.9 -47.1 7.0 13.5 -48.0

SUN Suncorp Group A$ 12.4 12.4 U 19-Feb Interim 560.3 574.0 -2.4 560.3 574.0 -2.4 33.0 25.0 32.0

TOL Toll Holdings A$ 5.6 5.5 N 19-Feb Interim 0.0 0.0 0.0 0.0 15.0 12.5 20.0 Qualitative and informal outlook commentary likely. Expect the tone of outlook to be reserved, in line with commentary at FY14 result.

WES Wesfarmers A$ 43.2 45.0 N 19-Feb Interim 1,297.9 1,285.0 1.0 1,364.4 1,285.0 6.2 84.7 77.0 9.9

WPL Woodside Petroleum US$ 38.6 35.0 U 19-Feb Final 1,717.9 2,086.5 -17.7 1,763.9 2,983.0 -40.9 104.4 0.0 FY13 results and final dividend announcement.

ABC Adelaide Brighton A$ 4.0 3.4 U 20-Feb Interim 0.0 0.0 0.0 0.0 8.0 7.5 6.7

AMP AMP A$ 4.5 5.0 N 20-Feb Final 646.6 703.6 -8.1 646.6 703.6 -8.1 12.5 12.5 0.0

BRG Breville Group A$ 7.9 8.2 N 20-Feb Final 49.7 46.0 8.2 49.7 46.0 8.2 12.0 11.5 4.3

EHL Emeco Holdings A$ 0.3 0.3 N 20-Feb Interim -12.3 25.1 -149.0 -12.3 22.5 -154.6 0.0 2.5 -100.0

ENV Envestra A$ 1.2 1.2 N 20-Feb Interim 87.0 59.1 47.1 87.0 59.1 47.1 3.2 3.0 6.7

FDC Federation Centres A$ 2.4 2.4 N 20-Feb Interim 115.8 106.2 9.0 115.8 106.2 9.0 7.1 6.6 8.2

IIN iiNet A$ 7.4 8.1 O 20-Feb Interim 31.7 26.3 20.5 31.7 31.9 -0.9 9.0 8.0 12.5 Expect a strong subscriber net adds result (best for several years). Also expect to see the cost discipline from 2H13 continued with further cost out from synergies and reduction in employee costs. IIN does not provide guidance. CS is above consensus in FY14 by 3%

IOF Investa Office Fund A$ 3.1 3.3 N 20-Feb Interim 69.3 69.3 0.0 69.3 69.3 0.0 9.3 0.0

LEI Leighton Holdings A$ 16.2 15.2 U 20-Feb Final 521.5 442.5 17.9 556.4 444.7 25.1 54.0 60.0 -9.9

MGR Mirvac Group A$ 1.7 1.9 O 20-Feb Interim 210.0 194.2 8.1 210.0 194.2 8.1 4.3 4.2 2.7 Australia dial in 1800 801 825. International dial in 612 8524 5042. Conference ID 2526682.

ORG Origin Energy A$ 14.6 15.3 N 20-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0

PNA PanAust US$ 1.8 2.0 O 20-Feb Final 80.8 142.3 -43.2 80.8 142.3 -43.2 4.0 4.0 0.0 Reporting date is an estimate

PTM Platinum Asset Management

A$ 7.0 6.0 U 20-Feb Interim 88.5 62.4 41.8 88.5 62.4 41.8 11.0 8.0 37.5

SUL Super Retail Group A$ 10.5 11.5 N 20-Feb Interim 60.7 60.6 0.1 60.7 60.6 0.1 18.5 17.0 9.0

TTS Tatts Group A$ 3.0 3.2 N 20-Feb Interim 114.3 109.7 4.2 114.3 129.3 -11.6 0.0 0.0

TWE Treasury Wine A$ 3.7 3.2 U 20-Feb Interim 0.0 0.0 6.0 6.0 0.0

CWN Crown A$ 16.9 15.9 U 21-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0

DUE DUET Group A$ 2.1 2.3 O 21-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0

EVN Evolution Mining A$ 0.8 0.6 U 21-Feb Interim 28.6 40.7 -29.7 28.6 40.7 -29.7 0.9 0.0 No material updates are expected.

IAG Insurance Aus Grp A$ 5.5 6.0 N 21-Feb Interim 570.4 643.0 -11.3 570.4 461.0 23.7 16.0 11.0 45.5


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ILU Iluka Resources A$ 9.2 10.0 N 21-Feb Final 59.0 363.2 -83.7 18.0 363.2 -95.0 5.0 10.0 -50.0 Dividend announcement.

SFR Sandfire Resources NL

A$ 6.4 5.8 U 21-Feb Interim 31.7 79.1 -59.9 31.7 79.1 -59.9 0.0 0.0 No material updates are expected.

STO Santos A$ 13.9 13.4 U 21-Feb Final 558.7 606.0 -7.8 469.5 519.0 -9.5 0.0 0.0

AGO Atlas Iron A$ 1.1 1.3 O 24-Feb Interim 69.5 1.0 6,839.9 69.5 -256.0 127.2 0.0 0.0 Estimated date.

AQA Aquila Resources A$ 2.7 2.6 O 24-Feb Interim -7.8 -112.0 93.1 -7.8 408.9 -101.9 0.0 0.0 Reporting date is an estimate

BLY Boart Longyear Group

US$ 0.4 0.4 U 24-Feb Final -125.7 114.0 -210.3 -410.4 68.2 -702.1 0.1 1.0 -94.5 Update given in December following clarification on Canadian tax issues. However, by mid-Feb should have an idea of conversation with Northern Hemisphere customers for 2014 budgets. Guidance unlikely to be provided. We expect conditions to remain challenging given weak gold price. Focus needs to be on

reducing costs and releasing working capital to manage the balance sheet.

BPT Beach Energy A$ 1.5 1.6 N 24-Feb Interim 161.3 62.2 159.2 161.3 45.1 257.8 0.8 0.8 0.0

BSL BlueScope Steel A$ 5.9 5.7 O 24-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0 Quantitative guidance change unlikely. Our focus will be on qualitative commentary around domestic conditions and demand.

CTX Caltex Australia A$ 19.7 23.8 O 24-Feb Final 320.3 458.0 -30.1 344.5 56.8 506.7 17.0 23.0 -26.1 FY13 results, dividend announced

IGO Independence Group NL

A$ 4.1 3.7 O 24-Feb Interim 21.3 16.5 29.1 21.3 16.5 29.1 3.7 1.0 265.4 Estimated reporting week.

MCS McAleese Group A$ 1.1 1.8 O 24-Feb Interim 23.4 28.6 -17.9 15.5 27.6 -43.7 0.0 0.0 Maiden result for McAleese. Focus will be on pro forma trading results for the first 6 months to Dec-13. Stat results likely to be messy given Nov-13 listing. No surprise expected given recent prospectus forecasts given in Nov-13

MDL Mineral Deposits. US$ 2.2 4.0 O 24-Feb Final 1.6 20.1 -91.9 -11.6 16.3 -171.7 0.0 0.0 Reporting date is an estimate

PAN Panoramic Resources A$ 0.2 0.3 N 24-Feb Interim -9.1 -13.0 29.6 -9.1 -13.0 29.6 0.0 1.0 -100.0 Reporting date is an estimate

RRL Regis Resources A$ 3.1 2.9 N 24-Feb Interim 61.0 66.1 -7.6 61.0 66.1 -7.6 0.0 0.0 No material update expected.

SKI Spark Infrastructure Group

A$ 1.7 1.8 O 24-Feb Final 177.5 173.9 2.1 177.5 173.9 2.1 5.5 5.3 4.7

SXY Senex Energy A$ 0.7 0.9 O 24-Feb Interim 27.3 23.4 17.1 27.3 23.4 17.1 0.0 0.0 Reporting date is an estimate

TIG Tigers Realm Coal A$ 0.2 0.3 O 24-Feb Final -17.4 -18.8 7.2 -17.4 -18.8 7.2 0.0 0.0 Reporting date is an estimate

YAL Yancoal Australia A$ 0.7 0.7 U 24-Feb Final 6.1 30.5 -79.9 -721.8 403.1 -279.0 0.0 0.0 Reporting date is an estimate

CAB Cabcharge Australia A$ 4.1 4.0 U 25-Feb Interim 34.1 33.3 2.2 34.1 33.3 2.2 17.6 18.0 -2.0

CHC Charter Hall Group A$ 3.9 3.8 N 25-Feb Interim 37.1 33.4 11.4 37.1 33.4 11.4 11.0 9.8 12.2

ENE Energy Developments A$ 6.0 6.4 O 25-Feb Interim 24.0 29.5 -18.5 24.0 29.5 -18.5 9.7 0.0

FLT Flight Centre A$ 46.5 58.0 O 25-Feb Interim 105.8 91.8 15.3 105.8 91.8 15.3 52.5 46.0 14.1

IFL IOOF Holdings A$ 9.2 9.4 N 25-Feb Interim 61.8 50.9 21.2 49.2 33.2 48.1 24.0 19.5 23.1

MRM Mermaid Marine Australia

A$ 2.9 3.8 O 25-Feb Final 60.3 51.0 18.1 60.3 51.0 18.1 7.0 6.0 16.7

OSH Oil Search US$ 8.3 9.7 O 25-Feb Final 209.0 154.5 35.3 209.3 175.8 19.0 2.0 2.0 0.0

QBE QBE Insurance Grp US$ 11.2 13.7 O 25-Feb Final -249.6 761.0 -132.8 -249.6 761.0 -132.8 13.0 10.4 25.1

RHC Ramsay Health Care A$ 41.6 41.5 N 25-Feb Interim 159.1 140.0 13.7 149.2 130.1 14.7 33.1 29.0 14.0

SLM Salmat A$ 2.0 2.2 N 25-Feb Interim 7.4 9.8 -24.5 6.8 41.5 -83.6 7.5 25.0 -70.0

AGK AGL Energy A$ 15.6 15.8 N 26-Feb Interim 0.0 0.0 0.0 0.0 31.0 30.0 3.3

HGG Henderson Group PLC £ 4.3 4.5 N 26-Feb Final 161.9 126.8 27.7 118.9 99.7 19.2 6.3 5.1 25.1

IRE IRESS A$ 9.3 9.6 N 26-Feb Final 55.0 54.4 1.1 55.0 54.4 1.1 19.0 24.5 -22.4

LLC Lend Lease A$ 11.3 12.5 O 26-Feb Interim 253.7 302.3 -16.1 253.7 302.3 -16.1 0.0 0.0 Australia dial in 1800 354 715. Conference ID 15797117.

MYX Mayne Pharma A$ 0.9 26-Feb Interim 9.5 1.6 489.4 8.8 -2.5 446.4 0.0 0.0

PGH Pact Group Holdings A$ 3.5 3.9 O 26-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0

WHC Whitehaven Coal A$ 1.6 2.8 O 26-Feb Interim -19.0 -27.6 31.1 -19.0 -47.1 59.6 0.0 0.0

WOR Worley Parsons A$ 15.6 17.1 N 26-Feb Interim 92.2 155.1 -40.6 92.2 155.1 -40.6 42.0 41.5 1.2 We expect WOR to report 1H14 underlying NPAT of $92mn, at the bottom end of 1H14 guidance ($90-110mn). We also expect WOR to reiterate FY14 guidance of $260-300mn.

WTF Wotif.com Holdings A$ 2.7 2.9 U 26-Feb Interim 22.2 27.5 -19.4 22.2 27.5 -19.4 8.3 11.5 -27.6 AGM: We are not expecting quantified guidance, but we believe that qualitative outlook commentary is a strong possibility. We are looking for updated commentary surrounding the strategies announced at the strategic review in May. Specifically, we would be looking for more detail on the marketing plans for Asia and for a further explanation of the strategy.


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GBG Gindalbie Metals A$ 0.1 0.1 U 27-Feb Interim -7.6 -18.8 59.6 -7.6 -18.8 59.6 0.0 0.0

ISU iSelect A$ 1.3 1.9 O 27-Feb Interim 5.0 0.2 2,359.5 5.0 0.2 2,359.5 0.0 0.0

NEC Nine Entertainment A$ 2.2 2.3 O 27-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0 Although NEC did not release any prospectus forecasts for the first half we expect upgrades post-1H14 result to full-year numbers due to improved ad market conditions and strong performance of Nine Network over summer.

NWH NRW Holdings A$ 1.3 1.3 N 27-Feb Interim 25.7 48.6 -47.0 25.7 48.6 -47.0 4.3 8.0 -45.8 Update expected on revenue guidance of $1-1.2bn. Now have Roy Hill contract awarded, hence should give mgmt more visibility. Roy Hill should be mostly mobilized and changes to RIO work schedule should also be understood.

PPT Perpetual A$ 47.7 51.0 N 27-Feb Interim 46.9 35.7 31.2 40.8 28.0 45.6 110.0 50.0 120.0

QAN Qantas Airways A$ 1.2 1.2 N 27-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0 No formal guidance, but qualitative outlook commentary likely to be offered. Alan Joyce will likely reiterate the airline is still on track for profitability in International by FY15

TSE Transfield Services A$ 0.8 1.2 O 27-Feb Interim 0.0 0.0 0.0 0.0 0.0 5.0 -100.0 Expect re-iteration of guidance for $65-70mn NPAT consistent with December update. key focus will be on balance sheet where ND expected to peak at ~$680mn. Also expect to see TIMEC (North America) turn to positive profit contribution (major milestone). This will be the first result showing the margin improvement from major cost out initiatives. So all eyes will be on margin trends.

UXC UXC A$ 1.1 1.2 O 27-Feb Interim 6.4 7.5 -15.5 6.4 8.4 -24.1 1.5 1.8 -13.2

VOC Vocus Communications

A$ 3.3 2.8 O 27-Feb Interim 5.1 3.9 31.2 5.1 4.2 21.1 0.7 0.4 72.9 Focus will be on 1) growth in fibre customers and fibre revenue; 2) capex and FY14 capex guidance; 3) continuing to win market share in Internet? 4) cost control.We expect it to be a very strong result.

WDC Westfield A$ 10.2 11.3 N 27-Feb Final 1,448.1 1,473.7 -1.7 1,448.1 1,473.7 -1.7 25.5 24.8 3.0

WRT Westfield Retail Trust A$ 3.1 3.5 O 27-Feb Final 605.3 572.6 5.7 605.3 572.6 5.7 9.9 9.5 4.5

AOH Altona Mining A$ 0.2 0.3 O 28-Feb Interim 8.5 14.2 -39.7 8.5 14.2 -39.7 0.0 0.0

AUT Aurora Oil & Gas US$ 4.1 R 28-Feb Final 124.5 55.2 125.7 124.5 55.2 125.7 0.0 0.0 Conference call.

BSE Base Resources A$ 0.4 0.9 O 28-Feb Interim -30.0 -2.0 -1,371.4 -30.0 -2.0 -1,371.4 0.0 0.0 Reporting date is an estimate

HVN Harvey Norman A$ 3.1 3.4 N 28-Feb Interim 119.5 113.4 5.4 119.5 81.9 45.9 5.1 4.5 12.5

NWT NewSat A$ 0.5 0.7 O 28-Feb Interim 0.1 1.3 -90.6 0.1 1.3 -90.6 0.0 0.0 Result not particularly meaningful. Key focus needs to be on delivery of sales contract for Jabiru1 satellite launching mid 2015.

VAH Virgin Australia A$ 0.3 0.4 N 28-Feb Interim 0.0 0.0 0.0 0.0 0.0 0.0 Tentative date

WOW Woolworths A$ 35.3 38.3 O 28-Feb Interim 1,344.2 1,247.2 7.8 1,344.2 1,154.8 16.4 64.5 62.0 4.1

GRY Gryphon Minerals A$ 0.2 0.3 O 3-Mar Interim -1.5 -1.1 -31.3 -1.5 -1.1 -31.3 0.0 0.0

MYR Myer Holdings A$ 2.5 2.7 N 20-Mar Interim 77.0 87.9 -12.5 77.0 87.9 -12.5 10.0 10.0 0.0

TPM TPG Telecom A$ 5.3 5.0 N 24-Mar Interim 75.3 71.3 5.6 75.3 78.3 -3.8 4.6 3.5 30.1 Guidance expected to be re-iterated for $290 - $300mn EBITDA (excluding AAPT acquisition). Key focus will be on progress with FTTb project

BOQ Bank of Queensland A$ 11.7 12.5 N 11-Apr Interim 140.5 119.9 17.2 140.5 119.9 17.2 32.0 28.0 14.3

MSB Mesoblast A$ 5.7 8.0 O TBA Interim -36.5 -27.8 -31.4 -36.5 -27.8 -31.4 0.0 0.0


14 February 2014


Companies Mentioned (Price as of 13 Feb 2014)

Air Transport Services Group (ATSG.US, US$6.17, NOT RATED) *Airwork Holdings (AWK.NZ, NZ$2.96, NEUTRAL, TP NZ$3.00) Alcoa Inc. (AA.N, $11.27) Atlas Air Worldwide Holdings (AAWW.US, US$31.43, NOT RATED) Bristow Group (BRS.US, US$68.27, OUTPERFORM, TP US$95.00) Chevron Corp. (CVX.N, $112.03) Discovery Air (DA.A, CAD$0.195, NOT RATED) *Hellaby Holdings (HBY.NZ, NZ$3.15, OUTPERFORM, TP NZ$3.90) *Methven (MVN.NZ, NZ$1.40, OUTPERFORM, TP NZ$1.50) *Opus International Consultants (OIC.NZ, NZ$2.15, OUTPERFORM, TP NZ$2.65) *PGG Wrightson (PGW.NZ, NZ$0.43, OUTPERFORM, TP NZ$0.52) Rio Tinto (RIO.AU, AU$67.83, OUTPERFORM, TP AU$75.00) Singapore Telecom (STEL.SI, S$3.57) Toll Holdings (TOL.AU, AU$5.63, NEUTRAL, TP AU$5.49) *Tourism Holdings (THL.NZ, NZ$1.00, OUTPERFORM, TP NZ$0.77) Vodafone Group (VOD.L, 221.0p)

*Denotes a First NZ Capital covered company. For details of Australian companies covered by Credit Suisse refer to the Top 100 and Small Caps earnings & dividends sheets.

Disclosure Appendix

Important Global Disclosures

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

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*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

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14 February 2014


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (54% banking clients)

Neutral/Hold* 40% (49% banking clients)

Underperform/Sell* 15% (44% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis . (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority ("FSA"). This report is being distributed in Germany by Credit Suisse Securities (Europe) This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House,Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This research may not conform to Canadian disclosure requirements. 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Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 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In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. 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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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