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BAILLIEU HOLST QUANT RESEARCH

10 April 2015 INTERNAL ONLY

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report.

RESEARCH ANALYST Mathan Somasundaram

+612 9250 8947 [email protected]

Equity Engineer – April 2015

ENGINEERING GUIDE TO EQUITY STRATEGY

Employment White Paper: Commodity Boom to Manufacturing Bust

Global market outlook: We continue to expect the US to recover with below trend growth, China to stabilise, Europe to show signs of recovery and Japan to remain high risk. US reporting season shows signs of corporate earnings growth risk with rising currency, rising cost of debt, low consumer spending, low global growth and multi-nationals under pressure to pay more tax outside US. The US Fed is expected to raise rates around Sep 2015 at lower magnitude. The rising bond yields will continue to put pressure on yield stocks that have stretched beyond risk premium gap. We continue to expect small targeted stimulus in China and Japan, while substantial QE in Europe will need time to flow through. We expect the energy prices to trend lower and remain at lower equilibrium during 2015H1. The lower energy prices will be positive for global growth, while energy producing countries like Australia will struggle. We expect Iron Ore prices to see further decline and put pressure on high cost producers with China and other emerging markets expected to reduce demand over the next few years.

Local market outlook: Equities expected to benefit from low bond yields/interest rates, higher cost of living and rising older global demographic. A tidal wave of unemployment, falling real wages, falling living standards and rising cost of living in the next few years are expected to take a substantial bite out of local consumer sentiment. The RBA is unable to cover for the government’s inability to grow jobs and improve sentiment through rate cuts. RBA is expected to be persuaded to cut rates in June despite US rate rise in Sep, falling commodity prices, slowing Emerging markets (i.e. China et al) and budget uncertainties will deliver lower currency through the cycle. We see the rate cuts making asset bubbles even worse while not delivering more jobs or higher consumer spending. The continued focus on delivering more cost savings to yesterday’s industries with no job growth plan suggests that we are headed towards substantial risk to the economy. Consumers are likely to further cut spending with rising unemployment (i.e. above 7%), rising costs, high level of debt and asset bubble worries. The lack of any employment initiatives will drive up risk for all consumer related domestic sectors. We are likely to see savings growth outstrip spending growth for the near future. The commodity boom to manufacturing burst over the past year has left Australia with asset bubbles that can’t be sustained without employment and wages growth. Capex plans show that there are no plans in corporates or government to absorb the substantially negative unemployment outlook. Deteriorating terms of trade will continue to put pressure on government to maintain a tight fiscal policy to match their rhetoric. The three ways Mexican stand-off between consumers, corporate and government needs to be broken to drive growth in the medium to long term.

Market View: We maintain a bullish long term view on the Australian equity market to reach 6500 in 2016. The RBA move in February has made equities as the preferred risk/return option for investors wanting more than 3% return in a rising cost environment. We expect global investors to come back in substantial amounts when the currency gets down to low 70s. We see short term profit taking risk in the market after hitting post GFC premium valuation level (i.e.5900) with yield trade likely to get squeezed by rising bond yields.

Preferred Sectors: Australian Gold Miners, Transport Infrastructure, Global Consumer Services, Diversified Media, Automotive Retail, Health Care, Banks, Diversified Financials, Property Trusts, Information Technology and Telecommunication Services.


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Contents Global Outlook – Top Down 3 Global Outlook – Bottom Up 7 Macro Summary - Global 11 Market Summary - Local 12 Major Sector Outlook – Market 14 Major Sector Outlook – Resources 16 Major Sector Outlook – Industrials Ex Financials 18 Major Sector Outlook – Financials 20 Sector Outlook – Energy 22 Sector Outlook – Materials (Ex Metals & Mining) 24 Sector Outlook – Metals & Mining (Ex Gold) 26 Sector Outlook – Gold 29 Sector Outlook – Capital Goods 31 Sector Outlook – Commercial & Professional Services 33 Sector Outlook – Transport 35 Sector Outlook – Consumer Services 37 Sector Outlook – Media 39 Sector Outlook – Retail 41 Sector Outlook – Staple 43 Sector Outlook – Health Care 45 Sector Outlook – Banks 47 Sector Outlook – Diversified Financials and Insurance 49 Sector Outlook – Property Trust 51 Sector Outlook – Information Technology 53 Sector Outlook – Telecommunication Services 55 Sector Outlook – Utilities 58 Performance Perspective 60 Market and Sector Multiples 62 Quant Strategy Model Portfolio 64


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Global outlook – top down Major indices around the world in USD shows that the Australian market is the worst

performer over the past 12 months with falling commodity prices. China, Japan and India are showing positive trend in the short term while the US is beginning to flatten with strengthening currency.

FIG.2-1: MSCI INDICES AROUND THE WORLD SINCE 2003

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Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

FIG.2-2: MSCI INDICES AROUND THE WORLD SINCE GFC LOW

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GDP growth outlook shows India and China at the top with the US and Australia in the middle, while Europe and Japan are at the lower end. The next few years are expected to be lower in growth in Australia due to sliding growth outlook in China.

FIG.2-3: GDP GROWTH RATES AROUND THE WORLD

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Euro Real GDP QOQ SA Growth (%) India Real GDP QOQ SA Growth (%)

Australia Real GDP QOQ SA Growth (%) Japan Real GDP QOQ SA Growth (%)


Manufacturing PMI shows the strong recovery in the US while the rest are in overall decline. Recent government moves to stimulate the domestic economy should show recovery signs in China in the short to medium term with falling commodity prices.

FIG.2-4: MANUFACTURING PMI AROUND THE WORLD

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Unemployment rates around the world show the US and India have managed to recover better than Australia while Europe is recovering from double digits. Europe is potentially looking at a lost generation of young people that may be expected to remain unemployed over a decade.

FIG.2-5: UNEMPLOYMENT AROUND THE WORLD

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Australia Unemployment (%) China Unemployment (%) India Unemployment (%)


Consumer sentiment around the world shows that US recovery started in 2011Q2 and Australia started to decline in 2013Q3. The rest of the major regions have been stagnating with consumer sentiment trending sideways for at least the past 18 months.

FIG.2-6: CONSUMER SENTIMENT AROUND THE WORLD

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US Consumer Sentiment China Consumer Sentiment Euro Consumer Sentiment

Australia Consumer Sentiment India Consumer Sentiment Japan Consumer Sentiment



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Bond yields around the world show that they have all been in decline over the past year and Australian equity dividend yield with franking is substantially higher than all the developed markets.

FIG.2-7: BOND YIELDS AROUND THE WORLD

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Volatility indices show the link between Australia and the US, with overall volatility beginning to rise in both countries after hitting the lowest point in mid-2014. The expectations are that both volatility indices are likely to rise as markets take profit after a solid Q1 performance.

FIG.2-8: VOLATILITY INDICES IN AUSTRALIA AND US

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Australia Volatility Index (XVI) US Volatility Index (VIX)



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Global Outlook – Bottom Up

Australia: The Australian market experienced PE expansion, while earnings and sales growth continued to decline. We continue to expect the market to look for quality growth/yield thematic in a low growth outlook. Australian dividend yield offers the best risk/return yield option compared to all the major markets around the world.

FIG.2-8: AUSTRALIA - CONSENSUS AGGREGATE MULTIPLES FIG.2-9: AUSTRALIA - CONSENSUS AGGREGATE YIELD

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PE (x) EPS GROWTH (%) SALES GROWTH (%) INDEX (RHS)

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DIVIDEND YIELD (%) EARNINGS YIELD (%) INDEX (RHS)


US: The US earnings growth is showing signs of stable broad based growth after the market recovered on stimulus. The US market has moved past QE with consistently strong data. The dividend yield is substantially lower than Australia and under pressure from rising US bond yields and currency. The growth outlook will be tested with growth downgrades expected from all the other major regions and emerging markets.

FIG.2-10: US - CONSENSUS AGGREGATE MULTIPLES FIG.2-11: US - CONSENSUS AGGREGATE YIELD

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Europe: Europe needs to see sustained sales growth recovery to maintain earnings growth improvements. Europe continues to have uncertainty driven by each country’s internal political volatility due to austerity plans. Russia looks certain to fall into recession while countries trade linked to Russia will also be tainted. The dividend yield is comparable to Australia but the sustainability risk is higher. The hope of QE based recovery will drive markets higher while countries like Greece will struggle with austerity.

FIG.2-12: EUROPE - CONSENSUS AGGREGATE MULTIPLES FIG.2-13: EUROPE - CONSENSUS AGGREGATE YIELD

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UK: The UK recovery needs to show sustained top line growth recovery while the rest of Europe remains in deflation worries. The dividend yield is at a slight discount to Australia, while the UK is trading above pre-GFC high level.

FIG.2-14: UK - CONSENSUS AGGREGATE MULTIPLES FIG.2-15: UK - CONSENSUS AGGREGATE YIELD

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China: China will remain in an overall decline trend towards 5-6% growth outlook in the next 2-3 years. Given the big changes facing leadership, change has been slow and measured. The recent domestic interest in margin loan investing on the hope of government driven domestic consumption recovery has seen a big move in PE valuation despite growth outlook not showing the turn. The government continues to massage recovery by adding liquidity when needed.

FIG.2-16: CHINA - CONSENSUS AGGREGATE MULTIPLES FIG.2-17: CHINA - CONSENSUS AGGREGATE YIELD

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Japan: Japan has experienced remarkable market recovery driven by ‘Abenomics’. The government’s policies are designed to deliver the country from relatively low growth. The early signs are positive with sales growth outlook showing signs of moving higher, albeit still flat. Risk remains high while the economy is in transition with even more stimulus. The easy steps are finished while the big structural moves are still to be delivered.

FIG.2-18: JAPAN - CONSENSUS AGGREGATE MULTIPLES FIG.2-19: JAPAN - CONSENSUS AGGREGATE YIELD

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India: India continues to be a strong growth market still not delivering the big global growth push and demand for commodities as expected. Recent change in leadership is seen as the catalyst to open the economy and drive more growth and consumption. Global investors see the upside but expect this turn around to take time.

FIG.2-20: INDIA - CONSENSUS AGGREGATE MULTIPLES FIG.2-21: INDIA - CONSENSUS AGGREGATE YIELD

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Macro Summary – Global US: The US Fed pushed back the rate rise risk for a few months which has been supported

by the weak economic data points in recent months. The growth in the US is below trend, but a much broader based and stable growth than any other region. The worry is that higher rates will see capital flow out of emerging markets to the US and drive the USD even higher. This move will force emerging markets to raise rates and stifle their growth. The US Fed may ignore global worries, but falling energy prices will produce low inflation and job losses, while high currency will soften growth outlook. The US reporting season reduced corporate earnings growth outlook while interest rate cuts around the world and Euro QE has pushed the USD higher. Despite US Fed move to deflate USD, the global weak growth outlook will continue to see USD strengthen on relative basis.

Euro: The ECB has started on QE1 and many expect there will be a few more stages similar to the US. Greece is leading the pack to re-adjust debt payment deals to help recovery plans while Russia is expected to fall into recession in 2015 and remain a drag on Euro. Middle East unrest remains another growth killer while Iran deal could flood the commodity markets further.

China: Chinese leadership continues to manage the transition with measured stimulus while easing the economy out of the credit issues. The older demographic and the lack of innovation will be long term issues for growth in China. The recovery in growth will drive a small recovery in commodity prices, but they will be a much lower equilibrium than what we have seen in the past 2-3 years. China is trending down towards a 5-6% steady growth rate in the next 2-3 years like most developed countries.

Japan: The easy steps in regards to stimulus have driven spending and boosted the share market. The government will have to move on the structural changes after the snap election. Doubts remain if the economy is strong enough to withstand the changes and maintain the recovery path.

India: The sleeping giant seems to be moving with new leadership, but unlike China, every step is slow with a myriad of historical, political and structural impediments. The lower average age compared to China offers huge upside to growth while the historical rate of change suggests this will take time.

Commodities: We expect Iron Ore to continue to head lower towards US$40-45 range with rising supply and falling demand while Energy prices likely to see low US$40 in the next 3-6 months before recovering to a lower equilibrium. Longer term outlook for the fossil fuel sector is likely to be challenged by improving battery technology supporting alternative clean energy sources in 5-10 year time frame. The next commodity up cycle will require a large emerging country like India or Indonesia to ramp up substantial building up phase like China. We struggle to see that in the next five years.


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Macro Summary – Local Unemployment outlook: The accumulated unemployment tidal wave from technological

improvement, car industry, airline industry, ship building industry, telco industry, finance industry, manufacturing industry, energy industry, M&A job cuts, outsourcing to emerging markets, government job cuts and the ever shrinking mining industry cuts will create a vacuum for jobs and drive unemployment to 7% in the next 12 months. We do not see any government policy or global macro changes that can create jobs in the next 12-18 months to limit this damage. The infrastructure job creation will start in 2016 and only deliver jobs that will pay much less than the jobs being lost over the past few years. We expect unemployment to stay above 6% well into 2016. Similar to the US, the jobs we are losing are high paid, high skilled full time jobs while majority of the jobs being created are low paid, low skilled, part time jobs. Recent FTAs will further hinder any industry recovery process given the competition from mature technological and manufacturing giants like South Korea, Japan and China. The recent view to relax 457 visa rules to allow foreign cheap labour to flood an already struggling employment market will drive unemployment even higher. RBA has now accepted that unemployment will continue to worsen into next year.

Consumer confidence: Tidal waves of unemployment coming in the next few years, rising cost of living pressures, falling real wages, continued budget worries and lack of growth agenda from the government have slammed consumer confidence down to multi year low. We continue to be negative on local cyclicals and consumer spending related sectors with a slowing domestic economy. Continued lack of long term planning, real policy reform and party politics will keep sentiment low into 2016. The government leadership risk and policy backflips point to no real structural change to our economy till the 2016/17 federal election.

Infrastructure outlook: The technological advancement in infrastructure projects and loosening of 457 visa will limit any substantial job creation to cover the unemployment tidal wave that is expected. The government preference to spend on roads with toll gates over railways continues to hurt overall economic growth. History shows domestic road infrastructure projects always bites the majority and benefits the minority. Developers will be the main beneficiaries while the large scale job creation and multiplier effects are unlikely to live up to expectations. State elections over the past few months have put asset recycling program on ice in number of states.

Corporate outlook: Businesses with strong cashflow and solid balance sheets in a falling consumer sentiment and low interest rate environment are choosing to chase growth through cost cutting, share buy backs and M&A. The cost cutting cycle is coming to an end with further improvements requiring wage reduction or M&A. Wage cuts will take time to work through structurally and politically. The most likely path for corporates in 2015 will be either buying back shares or consolidating industries to drive better earnings per share growth. Private equity is sitting on the side lines with substantial war chest built up by floating number of stocks over the past 12 months. The lack of capex growth shows that corporates are not planning to increase employment substantially in the next year to buffer the rising unemployment.

Property prices: We continue to expect areas where substantial unemployment, middle to low income earners and over-supplied high density dwellings to see property price decline in the next 12-18 month time frame. The top end should continue to rise with overseas investors from Europe and Asia continuing to look at Australia as a safer location to park wealth at low currency despite housing bubble worries. Recent housing finance data is beginning to show signs of affordability and consumer confidence taking effect. In a longer term thematic, we expect future generations to prefer renting than buying property and also choosing apartment living to houses. Over supply of units being built in major cities in the next 12-18 months will drive down unit prices and force the new home buyers with middle to low income to high density living due to the unaffordability of stand-alone house prices. We likely expect the London/UK property price paradigm to come to Sydney and Melbourne. We expect inner suburbs to major cities like Melbourne and Sydney will support stretched house prices with China inflow while the outer suburbs will suffer with affordability and unemployment worries. Rising unemployment, falling real wages, rising costs and an oversupply of units are headwinds the RBA can’t avoid whilst stimulating the economy, but they can buffer the risk to banks. The real structural solution is to limit negative gearing to new dwellings only and take the heat off existing dwellings for low income and first home buyers. Regulatory changes to allow any other forms of benefits like using Super to improve affordability will further add to the bubble. The key solution to the housing bubble is


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removing artificial price boosters, increasing land supply and making sure other policy settings do not add more fuel to the fire.

Taxation outlook: Due to the current fiscal policy of the government, we expect overall taxation to increase in the next few years to cater to falling overall tax revenue at federal and state levels. The structural decline in the budget has not been addressed as it is mainly a revenue problem. The current policy solutions are no more than nipping at the edges with minor spending cuts. The federal government has started to talk changes to federation to clear the path for a GST rise. The majority of the balanced views would suggest some form of income tax cut to balance out the effects on low incomes. Given the track record of the budget in the last 12 months, the public is unlikely to support the GST hike without details. The cuts to education and health will starve the states into doing a deal with federal government on tax changes. Recent history does not hold well for middle to low income earners and consumer sentiment as a whole. The federal government backflips in recent months alongside leadership challenges do not offer us any confidence, and we are likely to endure an ineffectual government until the 2016/17 election.

Currency outlook: We maintain our view that AUDUSD will track down to the 71-76 cent range in the short to medium term with global growth worries, domestic government risks, RBA action and commodity price falls in energy and iron ore. US rate rise risk, China downgrade, emerging market risks and falling commodities will help the devaluation. The next low technical level for AUDUSD is near 74 cents.

Interest rate outlook: We expect another 25-50 bps cut in the next 12 months to keep the currency in the low 70s. We see very little chance of any rate rise until 2017. The RBA has made it clear that they also now see the risk to growth and unemployment and want to keep the currency and interest rates low. The surprise rate cut in February has been proven to be a wasted cut on all fronts due to bigger global macro factors in play. After seeing the latest consumer and business sentiment data after the February cut, the RBA is likely to stay unchanged until they get clarity on consumer reaction to upcoming budget.

Budget: The last budget lacked consistency, innovation, long term planning, trust and the government’s own narrative. As expected, the structural long term cut backs are almost completely targeting middle to low income earners and foreign aid, while the cuts on corporates and the wealthy were irrelevant. The ideological bickering between the major parties will make the budget process prolonged, given the track record of negotiations in previous governments. The clear big picture move is that corporate debt that has moved to government debt during the GFC will now flow to private hands over time. The disparity in the distribution will force the middle to low income earners to borrow to maintain living standards and take on risk to drive credit growth. A leadership spill has facilitated a backflip on a number of federal government key policies and budget savings. We are still hearing conflicting view on the new budget and it still remains a key negative driver of consumer and business sentiment.

Higher education deregulation: We expect the college system below elite universities to charge at least private high school fees; while universities on average, are likely to charge in a mid-range of private high school and US elite university fees. If you consider a four year Engineering degree, a college graduate will end up with a >$130,000 loan, whilst an elite university graduate will come out with a >$200,000 loan with growth around 10 year bond yield (i.e. 5%). This will cause a number of structural changes: (1) Parents will not choose to send their children to private schools in order to save the funds for university and hence pressurise the public system; (2) wealthy students will be able to buy a university degree while low income students will be pushed to a college degree, which will not get the smartest students coming through; (3) university graduates will come out with substantial debt and future generations will be forced out of owning their own home for at least a decade or more; (4) university graduates will leave Australia to avoid repaying HECS and the country will lose the smartest candidates; (5) transfer of debt from government to next generation via education will further widening the inequality gap as seen in US with student debt blow outs.


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Market Outlook Summary – Global markets have recovered on the back of low interest rates and stimulus.

Local consumer sentiment has taken a beating with government budgets, rising cost of living, falling living standards, falling real wages and the expectations of the tidal wave of unemployment. Corporates and consumers are caught in a Mexican stand-off in terms of increasing capex to create jobs or waiting for higher consumer spending to drive growth. Budget outlook continues to provide corporates certainty while consumers will see higher risks. We continue to see equities remaining the preferred investment option with low interest rates, low growth and house price bubble worries. The RBA has made it clear that they will act to keep the currency low while US Fed has returned to currency wars. The RBA is most likely to move on rates in May, but currency is expected to decline to low 70’s even with no rate cuts as commodities continue to slide down.

Value – Market trading slightly above the one standard deviation to long term average. The low growth and low interest rate environment will continue to drive investors towards equities delivering high sustainable yield.

Growth – Despite the low interest rate levels, the low global growth and domestic fiscal outlook has kept the EPS growth and ROE at relatively low levels.

Yield – The gap between dividend yield and bond yield gap will get more investors chasing equities with high sustainable yield.

Risk – Earnings yield to bond yield gap shows risk is at medium level. Central banks around the major regions have provided the safety net of stimulus and low rates.

Momentum – Price momentum turns positive while earnings revision remains down in negative territory.

Long term market charts – FIG. 3-2 to FIG. 3-9.

FIG.3-1: COST OF STYLE

3000

3500

4000

4500

5000

5500

6000

6500

7000

7500

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Cost of Growth Cost of Yield GARY (Growth At Reasonable Yield) Price Index ‐ RHS



10 April 2015


Market (S&P 300) FIG.3-2: INDEX WITH PE BANDS FIG.3-3: INDEX WITH PB BANDS

1000

2000

3000

4000

5000

6000

7000

8000

9000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

FIG.3-4: EARNINGS YIELD TO BOND YIELD GAP AND INDEX FIG.3-5: DIV YIELD AND BOND YIELD

500

1500

2500

3500

4500

5500

6500

7500

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Earnings Yield to Bond Yiled Gap (%) - LHS Price Index - RHS

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Forward Dividend Yield 10Year Bond Yield Average DY Average BY

FIG.3-6: EARNINGS GROWTH FIG.3-7: ROE

0.00

5.00

10.00

15.00

20.00

25.00

30.00

14.00

16.00

18.00

20.00

22.00

24.00

26.00

FIG.3-8: PE FIG.3-9: EARNINGS REVISION AND PRICE MOMENTUM

7.00

9.00

11.00

13.00

15.00

17.00

19.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

3mth Avg Earnings Revision 3mth Price Momentum

Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


10 April 2015


Major sector outlook – Resources Summary – We continue to expect an improving US, bottoming China and stimulus driven

recovery in Japan and Euro to drive the Resource sector outlook towards a new lower commodity price based equilibrium. Big miners are seeing selling pressure despite delivering yields better than bond yields. BHP and RIO are expanding production and reducing costs at the bottom of the cycle and putting the pressure on junior miners and explorers in an environment of declining demand.

Value – Resources trading on fair value compared to the long term average whilst a decline in key commodities will keep mid to small caps in financial stress.

Growth – Low global growth outlook has kept the EPS growth and ROE at relatively low levels.

Yield – The gap between dividend yield and bond yield has met for the fourth time in the past decade. The market does not trust the historical yield premium to bonds can be maintained.

Risk – Earnings yield to bond yield gap shows risk is at medium level. Falling commodity prices and emerging market growth downgrades are increasing risk to the sector.

Momentum – Price momentum holding flat while earnings revision remains in negative territory.

Long term sector charts – FIG. 4-2 to FIG. 4-9.


500

1000

1500

2000

2500

3000

3500

4000

4500

5000

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Cost of Growth Cost of Yield GARY (Growth At Reasonable Yield) S&P 300 Resources ‐ RHS



10 April 2015


Resources (S&P 300) FIG.4-2: INDEX WITH PE BANDS FIG.4-3: INDEX WITH PB BANDS

0

1000

2000

3000

4000

5000

6000

0

1000

2000

3000

4000

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7000

8000


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1000

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-4.00

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12.00

14.00

16.00


1.00

2.00

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7.00



-10.00

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10.00

20.00

30.00

40.00

50.00

60.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00


0.00

5.00

10.00

15.00

20.00

25.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00




10 April 2015


Major sector outlook – Industrials ex Financials Summary – Improving US, stabilising Euro and bottoming China is beginning to improve

the Industrial sector outlook for global facing sectors, while domestic discretionary Industrials will be under pressure with government budget plans and deteriorating terms of trade. Large cap market darlings will be under pressure in the short term as they are trading on stretched multiples and declining yields in an environment of rising bond yields.

Value – Industrials trading premium to fair value compared to the long term average. Improving global outlook and sustainable high dividend yield should help industrials maintain the premium.

Growth – Low growth outlook has kept the EPS growth at low levels while ROE continues to improve above historical average levels.

Yield – The gap between dividend yield and bond yield has expanded again offering more value in a market chasing yield.

Risk – Earnings yield to bond yield gap shows risk is at medium level. Central banks around the major regions have provided the safety net of stimulus and low rates.

Momentum – Price momentum remains very positive while earnings revision holds up in positive territory.



900

1000

1100

1200

1300

1400

1500

1600

1700

1800

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Cost of Growth Cost of Yield

GARY (Growth At Reasonable Yield) S&P 300 Industrials Ex Financials ‐ RHS



10 April 2015


Industrials ex Financials (S&P 300) FIG.5-2: INDEX WITH PE BANDS FIG.5-3: INDEX WITH PB BANDS

700

900

1100

1300

1500

1700

1900

2100

0

500

1000

1500

2000

2500

3000


500

700

900

1100

1300

1500

1700

1900

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00


2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00



7.00

9.00

11.00

13.00

15.00

17.00

19.00

21.00

16.00

17.00

18.00

19.00

20.00

21.00

22.00

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24.00


10.00

11.00

12.00

13.00

14.00

15.00

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17.00

18.00

19.00

20.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00




10 April 2015


Major sector outlook – Financials Summary – Global chase for yield will continue to drive the Australian financial sector to

premium levels. Financials are back closer to fair value with global investor selling on currency risk and Financial Sector Inquiry risks.

Value – Financials are trading at a premium to fair value compared to the long term average. Improving global outlook and sustainable high dividend yield should help quality financials recover.

Growth – Low growth outlook has kept the EPS growth at low levels while ROE is improving back to historical average levels.

Yield – The gap between dividend yield and bond yield has expanded again offering more value in an environment of low growth and even lower fixed income yield.

Risk – Earnings yield to bond yield gap shows risk is at low level. Central banks around the major regions have provided the safety net of stimulus and low rates.

Momentum – Price momentum and earnings revision move further into positive territory.



500

700

900

1100

1300

1500

1700

1900

2100

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Cost of Growth Cost of Yield

GARY (Growth At Reasonable Yield) S&P 300 Financials ‐ RHS



10 April 2015


Financials (S&P 300) FIG.6-2: INDEX WITH PE BANDS FIG.6-3: INDEX WITH PB BANDS

500

700

900

1100

1300

1500

1700

1900

2100

2300

2500

500

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1100

1300

1500

1700

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2300


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1900

2100

0.00

1.00

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9.00


1.00

2.00

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4.00

5.00

6.00

7.00

8.00

9.00

10.00



0.00

2.00

4.00

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10.00

12.00

14.00

16.00

18.00

20.00

12.00

13.00

14.00

15.00

16.00

17.00

18.00

19.00

20.00


6.00

8.00

10.00

12.00

14.00

16.00

18.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00




10 April 2015


Sector outlook – Energy Summary – Despite showing some value, the lack of global growth improvement and

falling energy prices, OPEC announcement and Iran potential deal adds to the risk in the sector. Sustained low energy prices will push negative earnings revision and may drive further profit taking in the sector. Long term investors will find good value in large cap energy stocks as they become yield stocks with gas projects coming online, while stocks with stretched balance sheets will continue to be under pressure. The OPEC move signals risk in the sector to persist for the next 3-6 months. Short term traders will be attracted by the value and volatility, but the long term outlook will become clearer after June.

Preferred Picks – None

Long term sector charts – FIG. 7-2 to FIG. 7-9

FIG.7-1: CONSENSUS STOCK OUTLOOK

Code Share Price ($)Equity

Capital ($m)Price Target

($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AWE 1.23 647 1.53 HOLD -19 -5 -195.79 -70.73 -30.00 -102.50 -2.32 -0.50 0.00 0.00BPT 1.15 1489 1.16 HOLD 91 102 -64.23 18.31 16.13 13.63 4.17 5.76 2.01 2.45BRU 0.35 117 1.30 BUY 0 7 -115.25 366.67 57.50 12.32 0.35 4.90 0.00 0.00CTX 34.75 9383 33.99 HOLD 517 588 21.68 11.02 17.89 16.12 19.13 19.23 3.20 3.70DLS 1.12 516 1.15 BUY 58 54 -42.44 84.73 8.55 4.63 14.61 12.54 0.00 0.00ERA 1.26 652 1.19 UNDERPERFORM -134 -80 -37.61 -32.68 -4.96 -7.37 -19.10 -17.37 0.00 0.00FAR 0.10 300 0.18 BUY -10 -14 -25.00 33.33 -32.00 -24.00 -19.78 -12.11 0.00 0.00HZN 0.12 156 0.23 HOLD 15 12 -28.11 -23.36 10.31 13.45 5.31 2.50 0.00 0.00KAR 2.37 584 3.87 BUY -26 -19 -49.76 -35.66 -18.37 -28.55 -2.41 -1.64 0.00 0.00LNG 3.69 1708 4.75 BUY -24 3 21.43 -111.76 -72.35 615.00 N/A N/A 0.00 0.00ORG 11.55 12815 13.58 BUY 690 866 -6.32 24.52 18.39 14.77 4.36 6.53 4.33 4.47OSH 7.64 11633 10.06 BUY 529 765 -17.05 37.55 22.18 16.12 7.68 10.07 1.93 2.63PDN 0.38 625 0.44 HOLD -94 -6 -7.64 -97.98 -5.80 -286.48 -15.08 -1.04 0.00 0.00SEA 0.50 275 1.12 BUY 7 26 -85.34 307.06 42.09 10.34 0.85 3.75 0.00 0.00SEH 0.19 286 0.42 BUY 10 28 600.00 157.14 26.43 10.28 4.89 22.99 0.00 0.00STO 7.41 7427 10.52 HOLD 342 710 -38.79 107.65 21.79 10.50 3.25 6.90 4.79 5.53SXY 0.32 362 0.49 BUY 5 24 -89.34 380.00 63.00 13.13 1.14 4.74 0.00 0.00WHC 1.48 1519 1.72 BUY -24 27 0.42 -176.32 -38.95 51.03 -0.90 0.99 0.07 0.61WOR 9.94 2429 10.46 HOLD 246 224 -7.38 -9.38 9.92 10.95 10.96 9.71 7.60 6.41WPL 35.07 28895 39.78 HOLD 1445 1841 -54.89 25.17 19.68 15.73 6.85 9.22 3.98 5.03



10 April 2015


Energy (GIC 10) FIG.7-2: INDEX WITH PE BANDS FIG.7-3: INDEX WITH PB BANDS

0

2000

4000

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8000

10000

12000

0

2000

4000

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10000

12000


500

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3500

4500

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-3.00

-2.00

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0.00

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3.00

4.00

5.00

6.00

7.00


1.00

2.00

3.00

4.00

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6.00

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-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00


7.00

12.00

17.00

22.00

27.00

32.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00




10 April 2015


Sector outlook – Materials (ex Metals & Mining) Summary – Despite showing positive revision trends, valuations are stretched and already

priced in the housing-related positive outlook. Packaging stocks offer defensive long term growth and worth accumulating on any pullback. Chemicals are struggling with the Resource sector and global competition worries. Falling currency will be another valuation kicker for globally diversified business models. Stocks with yield below 5% fully franked will see profit taking with rising bond yield and falling global growth.






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ABC 4.69 3040 4.14 HOLD 176 183 9.95 4.03 17.18 16.51 15.21 15.10 3.94 4.24AMC 14.30 17256 13.69 HOLD 875 909 22.10 5.58 19.52 18.48 35.28 37.28 3.81 3.97BLD 6.64 5197 6.07 HOLD 209 265 30.63 28.84 24.87 19.30 6.17 7.73 2.77 3.42CSR 4.10 2075 4.09 HOLD 131 155 81.03 16.99 15.83 13.53 11.68 13.35 4.39 5.10DLX 6.50 2526 6.00 HOLD 124 133 9.88 7.19 20.31 18.95 40.30 39.10 3.46 3.75FBU 8.17 5620 8.30 HOLD 376 424 15.52 12.77 15.00 13.31 11.22 12.20 4.36 4.79IPL 4.36 7306 3.77 BUY 394 441 26.44 12.08 18.17 16.21 8.68 9.18 2.80 3.03JHX 15.69 6993 15.59 HOLD 267 322 38.08 14.01 24.62 21.60 -79.67 -78.12 4.26 4.12NUF 6.68 1770 6.63 HOLD 105 126 37.02 18.18 16.87 14.27 6.70 7.76 1.62 2.01ORA 2.26 2727 2.18 HOLD 130 151 33.03 15.74 20.93 18.08 9.21 10.34 3.19 3.76ORI 20.09 7488 20.34 HOLD 580 605 -3.41 6.41 12.75 11.98 13.20 13.13 4.70 4.93PGH 4.19 1232 4.80 HOLD 86 96 4.69 10.54 14.25 12.89 26.63 27.24 4.63 5.04TFC 1.72 561 2.48 BUY 23 26 -6.67 15.87 27.22 23.49 7.77 6.13 1.75 1.75



10 April 2015


Materials (ex Metals & Mining) FIG.8-2: INDEX WITH PE BANDS FIG.8-3: INDEX WITH PB BANDS

500

1000

1500

2000

2500

3000

500

1000

1500

2000

2500

3000

3500


500

700

900

1100

1300

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-1.00

0.00

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4.00

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8.00

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10.00


1.00

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5.00

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0.00

5.00

10.00

15.00

20.00

25.00

30.00

5.00

10.00

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7.00

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-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00




10 April 2015


Sector outlook – Metals & Mining (ex Gold) Summary – Trading below long term averages while earnings are in a decline phase with

falling commodity prices. Falling commodity prices, substantial production increase by the big miners, stretched balance sheets and exploration shutdown are making life hard for small miners. Falling commodity prices and rising bond yield will push the investors to take profit on the big miners in the short term. We continue to expect Iron Ore to trade down to mid to low US$40 levels with increasing supply and declining demand over the next two years.






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AGO 0.12 110 0.16 UNDERPERFORM -163 -90 -643.27 -44.38 -0.67 -1.21 -16.21 -14.53 3.33 4.17ARI 0.15 441 0.26 HOLD -23 64 -104.72 -333.33 -16.67 7.14 -0.78 2.16 1.33 2.00

AWC 1.63 4574 2.16 HOLD 287 380 404.11 31.65 15.63 11.88 9.53 11.85 6.02 8.11BCI 0.27 54 0.66 HOLD -24 -6 -119.56 -80.99 -1.94 -10.19 -9.22 -2.45 3.64 3.64BHP 30.74 98727 37.27 BUY 10330 9217 -29.37 -10.80 15.58 17.46 20.77 21.89 5.35 5.43BSL 4.14 2340 5.70 BUY 136 223 10.70 61.16 17.11 10.62 3.45 5.14 2.03 3.43CDU 1.41 351 4.52 HOLD N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AFMG 1.94 6041 2.47 HOLD 582 368 -82.67 -47.66 11.60 22.16 16.94 15.90 3.23 2.63IGO 5.25 1230 5.31 HOLD 100 134 52.08 35.05 12.27 9.08 14.49 17.37 2.53 3.43ILU 8.84 3701 8.80 BUY 120 250 228.87 110.92 31.13 14.76 7.81 15.87 2.36 3.25LYC 0.05 152 0.16 HOLD -89 2 -55.78 -103.85 -1.73 45.00 -31.25 0.51 0.00 0.00MGX 0.20 213 0.24 HOLD -46 -22 -139.23 -42.11 -5.13 -8.86 -5.09 -7.08 5.64 7.18MLX 1.31 545 1.81 BUY 51 73 -6.98 45.83 10.92 7.49 15.05 17.84 2.98 4.35ORE 2.29 347 3.15 BUY -14 14 61.76 -173.74 -23.13 31.37 -11.46 -13.63 0.00 0.00OZL 3.88 1177 4.72 BUY 28 46 -8.18 62.07 33.45 20.64 1.77 3.28 1.80 2.50PNA 1.74 1131 1.97 HOLD 41 84 -16.43 100.00 25.20 12.60 4.23 7.48 0.45 0.90RIO 57.00 24838 73.67 HOLD 7195 8308 -35.35 16.17 14.05 12.09 12.32 13.84 5.30 5.58SFR 4.64 726 5.70 BUY 90 111 -2.45 29.18 8.26 6.39 25.93 26.74 2.24 3.17SGM 11.76 2408 12.84 HOLD 125 174 41.66 40.07 19.31 13.79 6.30 8.21 2.76 3.59SIR 2.64 902 3.71 BUY -13 -23 -47.87 63.64 -80.00 -48.89 -2.70 -4.23 0.00 0.00SYR 3.74 618 6.85 BUY -9 -12 18.60 37.25 -73.33 -53.43 -12.14 9.67 0.00 0.00TGS 0.05 58 0.09 HOLD 30 40 -180.74 74.91 2.97 1.70 8.98 13.55 0.00 0.00WSA 3.28 763 5.01 BUY 64 126 144.10 105.11 11.97 5.84 16.14 27.00 3.08 7.44



10 April 2015


Metals & Mining (ex Gold) FIG.9-2: INDEX WITH PE BANDS FIG.9-3: INDEX WITH PB BANDS

0

1000

2000

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7000

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-20.00

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0.00

10.00

20.00

30.00

40.00

50.00




10 April 2015


Metals & Mining (ex BHP, RIO and Gold) FIG.9-10: INDEX WITH PE BANDS FIG.9-11: INDEX WITH PB BANDS

0

1000

2000

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7000

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0.00

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10.00

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40.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00




10 April 2015


Sector outlook – Gold Summary – Recovering US economy has put pressure on the spot gold price. The recent

move by the US Fed to weaken the USD and risk in US corporate season will help spot gold recover. The fall in currency will buffer any fall in spot gold and help Australian gold miners (i.e. NCM, NST and SAR) deliver good margins. We see improving growth outlook as ROE continues to climb higher.

Preferred Picks – NCM, NST and SAR





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Grow th (%) 2015


PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AQG 3.00 218 3.56 HOLD 43 16 -34.64 -61.82 20.90 54.74 5.27 1.72 0.00 0.00BDR 0.24 186 0.53 BUY 43 49 -2.08 3.33 3.92 3.79 16.06 15.88 3.40 4.26EVN 0.92 656 0.97 HOLD 89 104 54.00 23.31 6.88 5.58 10.77 11.78 1.75 1.86KCN 0.71 159 0.67 HOLD 9 5 308.33 -47.62 16.90 32.27 1.92 0.86 0.00 0.00MML 0.98 204 1.02 BUY 51 78 54.92 41.84 3.83 2.70 9.01 12.48 0.00 0.00NCM 14.23 10907 12.72 HOLD 429 675 -1.10 62.32 25.05 15.43 5.62 7.88 0.00 0.48NST 2.35 1393 2.04 HOLD 149 235 281.13 60.96 9.36 5.82 43.96 47.72 2.43 3.83OGC 2.71 822 3.13 BUY 68 76 -46.43 12.43 12.29 10.93 7.80 7.23 1.16 1.25PRU 0.30 158 0.46 HOLD 27 8 -387.46 -76.36 5.45 23.08 6.19 1.42 0.00 0.00RRL 1.34 667 1.67 BUY 72 112 16.53 58.87 9.47 5.96 18.91 23.57 1.80 5.62RSG 0.30 189 0.84 BUY 30 36 -13.36 36.67 4.92 3.60 3.93 6.15 0.00 0.00SAR 0.43 337 0.53 BUY 34 61 90.14 75.56 9.44 5.38 11.95 18.71 0.47 0.71SLR 0.19 93 0.39 HOLD 3 20 -127.81 566.67 30.83 4.63 0.68 5.52 0.00 0.00



10 April 2015


Gold FIG.10-2: INDEX WITH PE BANDS FIG.10-3: INDEX WITH PB BANDS

0

2000

4000

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14000

-2000

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2000

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10 April 2015


Sector outlook – Capital Goods Summary – Falling commodity prices and mining capex decline starting in 2015 will

continue to hang over this sector. We expect the sector to consolidate through M&A as the debt and margin pressure builds. The risk return in this sector points towards an avoid category.






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ASB 1.92 666 1.69 BUY 47 52 33.66 11.11 14.22 12.80 6.83 6.94 2.24 3.12ASL 0.29 91 0.48 HOLD 12 12 -42.42 -10.87 6.30 7.07 1.52 2.44 6.21 9.31BKN 2.31 395 2.85 HOLD 47 55 -26.65 13.26 8.28 7.31 6.58 7.86 2.25 4.98CDD 3.25 535 3.38 HOLD 66 70 -23.17 6.62 8.27 7.76 8.15 8.62 8.40 8.40DCG 1.26 212 1.66 BUY 42 32 -19.37 -21.29 5.06 6.43 13.71 10.10 10.32 9.29GWA 2.53 776 2.64 HOLD 44 53 1.92 17.24 17.45 14.88 10.17 11.55 0.63 5.38LEI 21.35 7227 20.77 HOLD 502 517 -14.66 3.02 14.31 13.89 12.68 12.50 4.51 4.62

MLD 0.83 193 1.91 BUY 63 52 -8.61 -21.38 3.01 3.82 23.78 17.80 33.86 15.78MND 9.93 923 9.42 UNDERPERFORM 108 90 -22.34 -16.35 8.59 10.27 29.28 24.14 9.12 7.78NWH 0.19 53 0.34 HOLD -33 9 -161.00 -127.10 -1.78 6.55 -7.79 3.49 5.26 7.37RCR 1.77 246 2.92 BUY 40 43 -13.16 6.78 6.00 5.62 12.99 12.83 5.99 6.16SVW 7.29 2160 7.04 HOLD 196 202 -8.65 5.06 11.18 10.64 6.38 6.56 5.28 5.35UGL 1.49 248 1.71 UNDERPERFORM 42 47 -71.83 41.05 7.84 5.56 4.73 6.32 2.42 5.44



10 April 2015


Capital Goods FIG.11-2: INDEX WITH PE BANDS FIG.11-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Commercial & Professional Services Summary – Valuation at premium for lower growth outlook while momentum is improving.

Non-mining related stocks in the sector offer good growth outlook and will come in favour when the yield gats back to 5% in a low growth environment.






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ALQ 5.19 2114 5.14 HOLD 134 143 -23.27 6.43 15.18 14.26 9.39 9.70 4.99 5.43BXB 11.89 18630 11.90 BUY 807 881 17.87 9.27 23.45 21.46 22.56 22.44 2.86 3.01CAB 4.65 560 4.84 HOLD 59 56 -9.78 -4.49 9.49 9.94 15.32 13.53 4.49 4.45CCP 11.49 532 11.54 HOLD 39 42 9.52 9.21 13.74 12.58 22.80 22.29 3.72 4.03CLH 2.32 304 2.37 HOLD 22 25 15.31 10.00 13.65 12.41 13.74 14.12 3.84 4.27DOW 4.63 2016 4.66 BUY 202 201 -3.02 0.00 10.00 10.00 10.27 9.80 5.40 5.59IPH 4.50 709 4.62 BUY 28 33 N/A 16.67 25.00 21.43 277.89 218.58 2.84 3.27MIN 6.91 1294 8.86 HOLD 107 102 -55.39 -5.37 11.98 12.66 8.55 8.56 3.86 3.62MMS 11.98 980 13.28 BUY 68 79 25.03 13.30 13.51 11.92 25.98 25.01 4.54 5.05PRG 2.63 312 2.88 BUY 31 34 -7.96 13.15 10.48 9.26 7.49 8.20 6.88 7.30REC 7.75 2431 7.58 HOLD 97 111 17.21 13.50 25.06 22.08 12.30 13.79 2.73 3.05SAI 4.17 883 4.32 HOLD 56 62 19.55 10.57 15.74 14.23 15.31 15.91 3.91 4.51SEK 16.92 5822 17.29 HOLD 204 251 11.40 23.23 28.48 23.11 19.53 20.50 2.26 2.67SGF 2.39 580 2.22 BUY 40 44 13.79 10.91 14.48 13.06 39.63 27.62 4.48 5.02SKE 1.35 317 2.05 BUY 51 42 -5.55 -17.13 6.23 7.51 10.53 8.70 11.00 9.00SPO 2.35 2581 2.23 BUY 141 157 30.59 13.39 18.50 16.32 18.39 18.78 4.21 4.43TOX 2.93 392 3.19 BUY 24 28 -2.00 13.04 15.92 14.09 27.14 29.05 2.59 2.87TPI 0.80 1264 0.82 HOLD 46 61 -45.00 30.00 26.67 20.51 2.64 3.37 1.87 2.62TSE 1.39 710 1.79 HOLD 86 88 53.59 2.34 8.10 7.91 18.51 17.43 0.58 5.27VED 2.34 1971 2.53 BUY 78 89 12.35 15.38 25.71 22.29 10.41 11.43 2.44 2.82



10 April 2015


Commercial & Professional Services FIG.12-2: INDEX WITH PE BANDS FIG.12-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Transport Summary – Transport stocks seem to be on stretched valuation due to solid growth outlook

driven by falling oil price. Stocks delivering growth and yield aligned to global growth are the best options in this sector. The TOL take-over bid removes our global growth/yield option while profit taking is expected with rising bond yields in infrastructure stocks.

Preferred Picks – SYD, TCL





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AIA 4.48 5333 3.77 UNDERPERFORM 168 182 17.07 7.59 31.62 29.39 5.85 6.28 3.14 3.40AIO 6.42 6262 6.89 BUY 394 444 8.55 12.53 15.77 14.02 10.16 10.93 2.93 4.02AZJ 4.95 10513 5.23 HOLD 593 652 9.50 12.23 17.81 15.87 9.27 10.04 3.98 4.38MQA 3.30 1688 3.36 HOLD 77 80 -0.21 20.13 22.15 18.44 10.75 4.64 5.12 5.88MRM 0.73 269 1.24 BUY 65 52 -17.47 -21.47 4.12 5.25 21.79 16.65 11.37 9.04QAN 3.20 7028 3.72 BUY 618 996 -211.39 62.68 11.59 7.13 19.77 26.85 0.47 1.88QUB 2.88 3037 2.87 HOLD 116 136 19.35 17.27 26.18 22.33 7.45 8.24 2.12 2.50SYD 5.36 11879 5.38 BUY 180 215 -1.99 19.75 66.17 55.26 13.88 29.23 4.68 5.11TCL 9.67 18513 9.40 BUY 223 305 -23.68 56.31 93.88 60.06 3.03 7.65 4.11 4.50TOL 8.97 6435 8.28 HOLD 290 303 1.48 4.71 22.26 21.26 10.60 11.01 2.99 3.33



10 April 2015


Transport FIG.13-2: INDEX WITH PE BANDS FIG.13-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Consumer Services Summary – Consumers are willing to spend in this sector and the growth outlook and the

valuation premium are showing that. The Consumer sector offers quality growth and yield ideas with global exposure. Quality consumer experience related stocks continue to deliver good growth by attracting shrinking consumer demand.

Preferred Picks – ALL, RFG, SGH





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AAD 2.24 991 2.42 HOLD 57 67 1.22 11.85 16.59 14.83 10.53 11.38 5.85 6.38AFJ 1.06 245 1.66 BUY 23 29 47.01 23.73 8.98 7.26 12.51 13.92 5.85 7.64AGI 2.88 928 3.33 BUY 64 68 -8.49 8.76 14.85 13.65 24.82 24.05 3.75 3.89ALL 8.35 5292 8.22 BUY 218 261 65.32 20.69 23.99 19.88 28.33 29.28 2.46 2.85ARP 12.42 983 12.33 HOLD 43 49 -2.99 9.03 21.98 20.16 20.75 21.24 10.38 2.54BBG 0.58 579 0.69 HOLD 6 26 -127.95 1250.00 292.50 21.67 0.85 5.25 0.00 0.00CTD 11.70 1135 11.83 HOLD 29 39 46.95 28.98 37.26 28.89 16.93 18.88 1.44 1.87CWN 13.73 10001 16.50 BUY 588 637 -5.23 9.14 16.95 15.53 13.63 13.68 2.79 2.96DMP 37.41 3238 32.15 HOLD 62 77 32.78 24.08 52.69 42.46 22.58 25.53 1.34 1.61DNA 0.63 427 1.16 STRONG BUY 12 78 -9.09 365.00 31.25 6.72 4.63 16.76 0.00 1.60EGP 4.62 3815 4.69 BUY 204 219 38.90 6.83 18.55 17.37 6.89 7.12 2.40 2.68FLT 41.08 4141 44.39 BUY 262 286 -1.76 8.45 15.84 14.61 22.89 22.76 3.90 4.17GEM 3.40 1221 5.43 BUY 101 124 41.12 16.30 12.32 10.59 17.49 19.25 7.35 8.21GUD 8.59 609 7.25 HOLD 36 40 27.52 12.00 17.18 15.34 16.72 17.79 4.81 5.29ISU 1.46 382 1.75 BUY 22 25 15.28 14.46 17.59 15.37 8.66 9.07 0.00 0.00IVC 13.08 1439 12.70 HOLD 52 58 9.87 9.94 27.65 25.15 26.88 27.86 3.05 3.33MTR 3.58 953 3.51 HOLD 36 43 21.88 13.99 25.03 21.96 12.57 13.61 2.85 3.35NVT 4.50 1693 5.04 HOLD 94 103 12.35 10.44 18.07 16.36 42.32 44.02 4.62 4.98RFG 6.90 1106 7.31 HOLD 53 67 26.63 21.22 20.06 16.55 15.67 16.56 3.67 4.14SGH 7.52 2629 8.31 BUY 78 91 29.84 17.20 21.92 18.71 20.99 16.73 1.17 1.57SHJ 3.15 543 3.15 BUY 29 33 21.04 13.14 18.00 15.91 18.85 17.39 1.37 1.62SKC 4.06 2385 4.02 BUY 127 144 9.37 12.67 18.69 16.59 16.58 18.17 4.87 4.96TAH 4.85 4023 4.34 HOLD 171 185 11.94 3.72 22.56 21.75 11.51 12.24 8.72 4.41TTS 4.03 5828 3.91 BUY 258 275 6.82 5.56 22.39 21.21 9.14 9.64 4.07 4.34



10 April 2015


Consumer Services FIG.14-2: INDEX WITH PE BANDS FIG.14-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Media Summary – The Media sector has been beaten up on low consumer spending and online

competition. The sector recovery cycle is linked to economic recovery. The growth and yield stocks offer the best risk/return. The Media sector is waiting on deregulation to drive M&A while consumer sentiment not expected to recover in the medium term.

Preferred Picks – FXJ, PRT





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016APN 1.00 1029 0.88 HOLD 85 91 4.81 7.14 11.90 11.11 17.60 16.45 0.90 2.70APO 3.50 583 3.40 BUY 29 33 39.20 14.37 20.11 17.59 13.04 14.00 2.83 3.26FXJ 1.00 2420 0.94 HOLD 148 156 7.18 4.84 16.13 15.38 7.18 8.07 4.50 4.90NEC 2.15 2022 2.37 BUY 158 176 10.38 14.04 12.57 11.03 8.66 9.56 4.19 4.93NWS 21.06 948 25.60 BUY 367 401 25.41 8.91 32.30 29.66 2.03 2.30 0.00 0.16OML 2.40 360 2.61 BUY 13 21 -26.67 59.09 27.27 17.14 5.32 6.64 3.54 3.75PRT 0.88 322 0.91 HOLD 34 34 2.57 3.23 9.46 9.17 20.10 19.35 7.95 7.84REA 49.67 6542 52.63 BUY 200 249 32.99 23.04 32.42 26.35 42.23 40.74 1.46 1.84SGN 0.67 272 0.85 HOLD 48 50 -3.70 5.13 5.68 5.41 9.44 9.46 10.53 10.83SKT 5.95 2315 3.29 HOLD 175 178 20.94 0.66 13.13 13.05 13.88 13.40 5.18 5.29SWM 1.42 1414 1.66 BUY 207 200 -13.24 -3.93 7.95 8.27 7.42 9.34 8.27 7.35SXL 1.13 824 1.06 HOLD 68 78 -18.64 10.87 12.23 11.03 5.38 5.94 5.33 6.04TEN 0.20 526 0.19 UNDERPERFORM -36 -16 -55.30 -53.85 -15.38 -33.33 -4.83 -2.49 0.00 0.00VRL 5.81 927 6.83 BUY 48 59 -20.56 23.05 19.69 16.01 21.03 31.17 4.73 4.97



10 April 2015


Media FIG.15-2: INDEX WITH PE BANDS FIG.15-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Retail Summary – The Retail sector is still recovering from structural problems while waiting for

the cyclical recovery. Retailers continue to struggle with low consumer spending in an environment of falling disposable income and high unemployment. Domestic discretionary retail recovery is a 2016H2 story. The global players will benefit from a falling currency. Low energy prices will help automotive related retailers.

Preferred Picks – AHE





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AHE 4.27 1308 4.19 BUY 93 101 4.44 8.22 14.05 12.98 14.01 14.49 5.25 5.60BAP 3.25 532 2.79 BUY 22 25 -20.28 15.56 24.07 20.83 21.03 21.63 2.77 3.11BRG 7.61 990 7.65 HOLD 49 54 -3.84 11.80 20.40 18.25 21.88 22.65 3.61 3.97CCV 0.77 373 1.28 BUY 38 46 21.61 15.66 9.34 8.07 13.83 14.88 6.06 6.32DSH 2.01 475 2.45 BUY 44 48 8.62 9.09 10.75 9.85 25.40 25.45 6.17 6.62HVN 4.33 4809 4.19 HOLD 262 286 25.00 7.95 18.12 16.78 9.63 10.15 5.64 4.30JBH 19.29 1909 18.36 HOLD 130 137 2.44 5.25 14.90 14.15 41.11 38.42 4.47 4.68KMD 1.38 277 1.68 HOLD 23 29 -38.31 23.73 11.85 9.58 7.56 9.18 6.01 6.65MYR 1.43 835 1.34 UNDERPERFORM 77 75 -24.52 -2.31 10.96 11.22 8.47 8.22 7.09 6.67PBG 0.47 431 0.47 UNDERPERFORM 36 37 -29.83 -2.44 11.46 11.75 8.28 8.95 7.02 4.68PMV 13.22 2064 11.70 HOLD 90 101 14.89 12.04 23.07 20.59 6.88 7.61 3.74 3.71RCG 1.16 353 0.96 STRONG BUY 14 26 0.00 23.40 24.68 20.00 10.79 18.63 3.97 4.40SUL 10.28 2025 9.85 HOLD 109 126 -2.20 18.88 19.21 16.16 13.87 15.65 3.83 4.19TGA 2.70 409 2.72 HOLD 31 35 5.13 13.17 13.17 11.64 17.17 18.12 4.26 4.81TME 3.71 1472 3.66 HOLD 78 83 7.90 5.42 18.89 17.92 11.85 12.30 4.33 4.64TRS 6.50 187 7.56 HOLD 13 15 -16.88 16.30 14.32 12.31 10.38 11.18 3.92 4.75WEB 4.01 322 3.81 BUY 19 22 22.35 15.19 16.92 14.69 24.61 24.70 3.24 3.57



10 April 2015


Retail FIG.16-2: INDEX WITH PE BANDS FIG.16-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Staple Summary – Staple stocks have come back from relatively stretched multiples due to low

growth outlook. The big staple retailers and unique food retailers with Asian growth exposure will continue to deliver. The sector overall is on a declining ROE that will damage growth and margin outlook. WOW has started a price war in the race to the bottom; this will end up pushing the whole sector to lower margins. Longer term view suggest the scale and distribution will continue to support the big retailers but at a lower price.






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AHY 1.85 1119 2.14 BUY 76 80 8.18 3.94 14.61 14.05 19.10 18.89 5.34 5.77AAC 1.60 855 1.05 UNDERPERFORM 69 19 119.61 -47.95 14.33 27.53 6.70 2.59 2.49 0.00BGA 5.00 763 5.29 HOLD 27 36 -16.02 32.95 28.41 21.37 7.74 10.53 1.82 2.26CCL 10.97 8377 10.17 HOLD 390 414 2.16 6.08 21.51 20.28 22.01 21.95 3.97 4.25FSF 5.34 625 6.12 HOLD 470 542 139.55 7.17 16.95 15.81 7.44 8.68 4.14 4.52GNC 9.55 2186 8.77 UNDERPERFORM 59 111 -34.28 87.45 36.31 19.37 3.34 6.22 1.42 2.61RIC 1.15 352 1.18 BUY 21 24 17.65 14.71 16.84 14.68 9.23 10.10 3.67 3.49SHV 7.79 553 7.43 BUY 42 44 27.40 1.32 12.81 12.65 17.60 14.91 3.27 3.53TGR 3.49 513 4.24 HOLD 41 48 32.55 14.49 12.33 10.77 13.37 13.03 4.30 5.01TWE 5.47 3562 4.98 HOLD 132 157 7.32 18.81 27.08 22.79 4.54 5.28 2.38 2.78MTS 1.46 1351 2.02 HOLD 196 192 -22.71 -3.70 6.74 7.00 11.45 10.26 9.00 8.87WES 43.85 49277 44.01 HOLD 2466 2698 1.04 9.88 20.34 18.51 8.94 9.89 4.90 4.92WOW 29.05 36695 29.11 UNDERPERFORM 2517 2514 0.60 -0.20 14.74 14.77 23.28 21.50 4.79 4.77



10 April 2015


Staple FIG.17-2: INDEX WITH PE BANDS FIG.17-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Health Care Summary – Global demographic changes, falling currency and government budget cuts

will keep driving the Health Care sector higher. The Biotech sector is garnering greater interest with global pharmaceuticals looking for new drugs through M&A. The valuations are back at pre GFC levels while global growth remains weak.

Preferred Picks – ANN, CSL, GXL, RHC





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015


PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ACR 0.82 137 0.85 UNDERPERFORM 14 14 -57.61 0.00 9.76 9.76 38.40 45.33 9.15 8.90ANN 28.94 4432 27.06 HOLD 246 262 37.91 5.14 17.99 17.11 16.05 15.70 2.00 2.09API 1.62 791 1.08 HOLD 38 41 26.23 3.75 20.25 19.52 7.81 7.98 2.53 2.84BNO 0.42 175 1.23 BUY -10 32 -325.00 1366.67 70.00 4.77 -31.02 52.96 0.00 0.00CAJ 1.05 548 1.11 HOLD 10 17 -2.44 50.00 52.50 35.00 24.88 22.65 0.95 1.90COH 90.76 5181 72.74 UNDERPERFORM 156 183 52.57 17.64 33.02 28.06 45.22 46.26 2.18 2.52CSL 94.90 44611 94.65 BUY 1837 2005 30.80 9.21 24.41 22.35 44.77 43.98 1.72 1.86EHE 6.05 1094 6.05 BUY 43 52 N/A 20.17 25.42 21.15 9.32 8.87 2.53 4.71FPH 6.62 3694 2.23 HOLD 108 127 14.81 17.44 33.95 28.91 25.87 27.39 1.90 2.11GXL 7.73 869 10.64 BUY 40 51 49.81 23.84 21.18 17.10 19.28 29.70 2.32 2.87HSO 3.00 5196 2.93 HOLD 164 185 -17.33 10.31 30.93 28.04 8.93 8.06 2.27 2.53IPD 0.81 237 1.62 STRONG BUY -9 -7 18.85 -18.75 -25.31 -31.15 -34.69 -21.06 0.00 0.00JHC 2.60 684 2.81 HOLD 30 32 31.03 5.26 22.81 21.67 5.81 6.03 4.38 4.58MSB 3.32 1077 7.58 HOLD -94 -103 32 5 -11 -11 -18 -20 0 0MVF 1.63 376 1.72 HOLD 24 28 4.51 16.67 15.93 13.66 17.47 19.19 4.12 4.68MYX 0.99 778 1.10 STRONG BUY 14 39 -34.17 145.00 49.50 20.20 15.03 29.28 0.00 0.20NAN 1.80 505 2.01 BUY -6 1 147.06 -109.52 -85.48 897.50 -31.80 -24.55 0.00 0.00PRY 5.40 2766 4.97 HOLD 142 153 -20.11 8.40 20.61 19.01 5.46 5.59 3.65 3.80REG 5.69 1709 5.26 BUY 51 57 N/A 11.76 33.47 29.95 31.21 27.12 1.86 3.34RHC 67.38 13616 67.00 HOLD 406 480 22.31 17.40 33.79 28.78 23.47 25.18 1.52 1.80RMD 9.40 13196 9.42 BUY 472 523 28.54 14.12 28.21 24.72 21.49 22.99 1.55 1.75SHL 20.80 8361 20.24 HOLD 407 467 2.55 15.08 20.78 18.06 12.80 13.87 3.43 3.78SIP 0.88 962 0.84 UNDERPERFORM 52 59 18.59 11.80 18.22 16.30 8.98 10.45 2.48 4.89SPL 0.51 163 1.09 BUY -13 -2 1.65 -82.93 -12.44 -72.86 -39.28 -2.83 0.00 0.00SRX 21.66 1224 24.40 BUY 36 48 42.82 33.97 34.38 25.66 29.27 30.80 0.90 1.35VRT 7.59 607 8.19 HOLD 35 40 7.63 13.39 17.53 15.46 14.53 15.43 3.72 4.10



10 April 2015


Health Care FIG.18-2: INDEX WITH PE BANDS FIG.18-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Banks Summary – Low growth global outlook with drive demand for Bank yield despite the

housing bubble risk and Financial Sector Inquiry recommendations. ANZ and NAB offer the best global exposure with solid yields, whilst NAB and WBC are the high yielding big banks. Despite the financial sector recommendations and global investor selloff, we see the Banking sector as a very good adaptor to regulatory change, a sustainable high dividend yield provider and an early adaptor of technology. Rising bond yields likely to bring about a buying opportunity as investors take profit.

Preferred Picks – ANZ, NAB, WBC





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016


EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ANZ 36.79 101760 35.66 HOLD 7408 7880 3.35 5.05 13.97 13.30 14.93 14.77 5.00 5.21BEN 12.30 5572 13.38 HOLD 436 454 6.64 2.59 13.30 12.96 9.18 9.31 5.47 5.71BOQ 13.94 5116 13.88 HOLD 358 390 8.73 7.17 14.70 13.72 10.81 11.18 5.27 5.57CBA 94.00 152404 87.92 HOLD 9208 9613 5.99 3.50 16.80 16.23 18.48 18.11 4.50 4.67GMA 3.30 2145 3.55 HOLD 272 268 0.21 -1.42 7.82 7.93 10.86 10.58 10.06 10.06MOC 2.59 322 2.90 BUY 20 22 5.09 10.63 16.19 14.63 19.48 20.79 6.10 6.72NAB 39.45 95513 37.78 HOLD 6724 7158 23.44 4.50 14.31 13.69 14.66 14.53 5.22 5.38WBC 39.76 124058 37.14 HOLD 7930 8350 3.14 4.12 15.89 15.26 16.21 16.05 4.76 4.95



10 April 2015


Banks FIG.19-2: INDEX WITH PE BANDS FIG.19-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Diversified Financials and Insurance Summary – Diversified financials offer stocks with good exposure to rising markets and

stable yields. Asset managers are the best way to garner equity exposure locally and globally. We prefer the global exposure offered by asset managers due to better recovery outlook. Financial sector recommendation risks to stocks with purely local business remains elevated. Short term profit taking expected in stocks with stretched multiples and yield below 5%. We see this as a buying opportunity with growth outlook expected to improve over time.

Preferred Picks – EQT, FXL, HGG, IFL, IMF, MQG, PPT, TRG





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AMP 6.60 19521 6.62 HOLD 1117 1214 8.39 8.16 17.37 16.06 14.06 14.02 4.36 4.71ASX 41.61 8055 38.76 HOLD 399 417 4.74 4.41 20.16 19.31 12.24 12.27 4.46 4.66CGF 7.22 4113 6.96 HOLD 319 355 -10.55 9.39 13.03 11.91 13.88 13.91 4.09 4.35CVO 2.09 664 2.34 BUY 31 36 5.72 17.53 21.55 18.33 14.84 18.12 4.31 4.74EQT 22.45 433 21.11 UNDERPERFORM 20 25 12.47 18.68 20.65 17.40 8.92 10.68 4.24 4.69FXL 3.51 1068 4.18 BUY 90 100 6.22 10.44 11.82 10.70 22.41 23.13 4.96 5.38HGG 5.63 4118 5.72 BUY 345 403 10.85 16.27 18.03 15.50 16.93 18.73 3.41 3.90IAG 6.02 14097 6.13 HOLD 1152 1116 -8.20 -6.75 11.94 12.81 18.48 17.15 5.73 5.45IFL 10.47 3142 10.74 HOLD 171 197 15.41 12.37 17.99 16.01 14.14 13.66 5.02 5.67IMF 1.94 324 2.69 BUY 23 42 82.79 31.75 10.29 7.81 25.35 57.50 5.30 5.81MFG 20.53 3282 21.18 BUY 148 165 83.07 11.23 23.52 21.14 59.98 54.22 3.33 3.71MPL 2.38 6555 2.32 HOLD 269 294 N/A 8.16 24.29 22.45 19.24 20.40 2.18 3.28MQG 79.21 26413 76.02 BUY 1498 1688 27.11 10.00 17.29 15.72 12.56 13.18 3.89 4.29NHF 3.73 1637 3.50 HOLD 71 81 3.35 11.59 22.74 20.38 20.50 23.60 3.59 3.40OFX 2.44 586 3.05 BUY 24 29 22.05 19.80 24.16 20.17 61.10 62.66 3.07 3.73PPT 56.54 2633 54.88 HOLD 130 148 11.49 13.78 20.18 17.74 22.73 24.64 4.25 5.03PTM 8.13 4753 8.30 HOLD 203 240 3.59 17.48 23.30 19.83 58.07 67.85 5.03 4.92QBE 13.68 18672 14.43 BUY 1314 1526 7.96 14.92 14.46 12.58 9.42 16.93 3.84 4.58SDF 1.59 1179 1.72 BUY 54 79 27.81 11.70 16.91 15.14 7.70 9.35 3.14 3.77SUN 13.44 17292 14.05 HOLD 1323 1386 5.40 4.50 13.14 12.57 7.91 8.70 7.34 6.77TRG 13.18 364 14.53 BUY 19 23 19.80 10.50 18.20 16.48 35.80 9.60 4.08 4.86



10 April 2015


Diversified Financials and Insurance FIG.20-2: INDEX WITH PE BANDS FIG.20-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Property Trusts Summary – Property Trusts are surging ahead on improving industrial and solid residential

outlook. We continue to prefer the diversified construction and commercial property stocks. Housing related stock upside is already in the price with property bubble worries building. Short term profit taking expected on stocks with yield below 6% with no franking credits.

Preferred Picks – ARF, LLC, SCG, SGP





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ABP 2.94 1743 2.70 HOLD 106 104 1.26 -0.86 12.62 12.73 8.98 8.35 5.82 5.99AJA 5.03 331 5.25 STRONG BUY 27 28 -5.96 5.37 12.27 11.64 7.13 7.45 5.51 5.96ANI 2.32 223 2.08 BUY 15 16 48.77 4.47 12.96 12.41 9.39 9.59 7.59 8.06AOG 2.66 1329 2.92 BUY 54 78 14.83 43.24 23.96 16.73 5.23 7.20 1.99 3.05ARF 1.65 375 1.82 BUY 22 25 40.45 -1.60 13.20 13.41 8.57 8.86 6.06 6.42BWP 3.07 1972 2.62 UNDERPERFORM 101 105 5.81 3.66 18.72 18.06 8.00 8.11 5.15 5.34CHC 5.18 1861 4.85 HOLD 97 105 8.70 8.36 18.84 17.38 10.15 10.75 4.75 5.14CMW 1.14 1981 1.04 HOLD 144 155 -1.19 7.23 13.73 12.81 11.46 11.70 6.93 7.02CQR 4.45 1671 4.07 UNDERPERFORM 111 117 2.63 0.98 14.59 14.45 8.62 8.66 6.22 6.45CWP 5.46 428 7.05 BUY 42 45 -2.16 8.51 10.32 9.51 15.61 15.70 5.11 5.31DXS 7.78 7045 7.42 HOLD 488 512 29.99 4.12 13.94 13.39 7.98 7.90 5.26 5.55FDC 3.09 4411 2.87 HOLD 272 280 7.04 5.00 17.17 16.35 7.56 7.71 5.44 5.70FET 2.17 530 2.28 BUY 29 33 4.80 3.82 16.56 15.96 12.94 9.61 5.94 6.13GDI 0.92 518 1.09 BUY 45 48 162.30 5.00 11.50 10.95 8.53 8.93 8.15 8.26GMF 2.19 279 2.11 HOLD 13 20 N/A N/A N/A N/A N/A 8.20 N/A N/AGMG 6.42 11254 6.23 HOLD 652 701 6.62 6.97 17.21 16.09 11.03 10.61 3.44 3.71GOZ 3.05 1736 3.09 HOLD 115 122 4.35 2.40 14.66 14.32 9.39 9.31 6.49 6.62GPT 4.69 8337 4.50 HOLD 486 506 3.51 3.87 16.51 15.90 6.94 7.11 4.67 4.84HPI 2.74 400 2.51 HOLD 24 26 10.00 9.09 16.61 15.22 8.60 8.50 5.84 6.20IDR 2.01 251 2.04 HOLD 21 22 55.14 9.04 12.11 11.10 8.19 8.57 8.11 8.26INA 0.39 340 0.53 BUY 19 28 29.93 50.00 17.50 11.67 4.32 10.73 4.16 4.94IOF 3.93 2413 3.70 HOLD 157 164 2.92 4.31 15.41 14.77 7.71 7.72 4.86 5.04LLC 17.00 9868 16.86 BUY 621 720 13.60 14.43 15.93 13.92 12.71 14.03 3.21 3.76MGR 2.03 7506 2.08 HOLD 450 477 3.12 7.38 16.64 15.50 7.07 7.26 4.53 4.93NSR 1.60 533 1.68 HOLD 25 31 105.00 18.29 19.45 16.44 7.89 8.81 5.14 5.64NVN 2.57 7908 2.30 UNDERPERFORM 412 424 1.54 2.19 18.76 18.36 6.67 6.63 5.41 5.49SCG 3.80 20232 3.87 HOLD 1188 1243 3.65 3.96 16.74 16.10 6.67 7.34 5.53 5.71SCP 2.10 1367 1.90 UNDERPERFORM 84 85 1.66 0.78 16.28 16.15 6.85 6.66 5.38 5.62SGP 4.61 10888 4.65 HOLD 604 659 7.57 7.75 17.87 16.58 7.30 7.36 5.21 5.31TIX 2.58 322 2.61 BUY 26 28 3.40 3.83 12.34 11.89 9.25 8.64 7.75 8.06

VLW 2.38 263 2.46 BUY 25 29 15.70 -0.39 9.22 9.26 13.80 13.15 6.85 7.31WFD 10.08 20947 10.35 HOLD 1001 1049 15.26 4.62 19.74 18.87 9.36 8.98 3.33 3.45



10 April 2015


Property Trusts FIG.21-2: INDEX WITH PE BANDS FIG.21-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Information Technology Summary – Information Technology stocks offer the big global growth at low cost and

subdued growth environment. We see substantial growth potential in a number of global IT stocks with recovering global growth. Improving ROE points to future growth and margin upside.

Preferred Picks – ALU, CAR, CPU, IFM





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ALU 4.62 597 4.03 BUY 22 27 31.10 26.79 27.50 21.69 157.66 113.69 3.81 3.83CAR 10.22 2448 11.05 HOLD 103 118 6.55 14.32 23.60 20.65 51.35 51.53 3.45 3.96CPU 12.69 7058 13.87 HOLD 434 453 23.10 4.68 16.26 15.54 26.66 27.33 2.72 2.86CSV 1.46 413 1.63 BUY 20 23 30.51 9.09 18.90 17.32 8.00 9.49 6.19 6.19GBT 6.40 426 4.91 BUY 17 19 53.31 12.03 24.06 21.48 29.11 27.98 1.63 1.88HIL 0.87 202 1.59 BUY 21 23 -13.89 9.57 9.26 8.45 8.33 8.86 6.67 7.24HSN 2.39 391 2.07 HOLD 18 20 21.79 8.26 21.93 20.25 25.31 24.42 2.68 2.93IFM 1.23 377 1.25 BUY 14 17 21.05 17.39 26.63 22.69 32.26 36.63 3.27 4.00IPP 3.06 573 3.26 HOLD 5 10 130.26 120.00 122.40 55.64 25.59 54.17 0.00 0.00IRE 10.37 1650 10.35 BUY 70 78 1.71 11.29 23.41 21.03 19.48 22.95 4.12 4.41ISD 3.64 728 3.32 BUY 28 33 67.66 19.29 26.00 21.80 22.26 24.36 1.92 2.36NXT 2.49 482 2.80 BUY -9 2 -54.29 -132.61 -54.13 166.00 -4.20 1.20 0.00 0.04RKN 1.93 216 2.10 HOLD 17 19 6.57 5.81 12.45 11.77 51.81 45.46 5.03 5.23SMX 3.38 234 4.05 HOLD 18 19 33.40 7.81 13.20 12.25 14.02 14.48 4.56 5.27TNE 4.15 1283 3.21 HOLD 36 42 11.90 17.54 36.40 30.97 32.53 35.49 2.17 2.53UXC 0.77 257 0.96 HOLD 20 21 11.42 4.92 12.70 12.11 9.31 9.61 5.94 6.32



10 April 2015


Information Technology FIG.22-2: INDEX WITH PE BANDS FIG.22-3: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Telecommunication Services Summary – The Telecommunication sector will continue to benefit from the structural

transition to online by multiple sectors. The Telecommunication sector is on the verge of an M&A cycle to drive consolidation with other sectors like media, entertainment, education and health. Short term profit taking expected in TLS will offer another buying opportunity.

Preferred Picks – TLS





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AMM 2.72 725 2.63 HOLD 25 29 -4.17 15.22 29.57 25.66 14.34 15.79 2.79 2.83CNU 2.86 1134 2.76 BUY 103 108 -20.07 4.09 11.00 10.57 13.22 12.02 0.00 3.71IIN 8.88 1447 8.42 HOLD 70 76 4.41 9.24 20.51 18.77 18.68 18.91 2.77 3.04

MTU 10.21 1862 9.48 BUY 95 106 16.22 11.26 19.16 17.22 25.13 25.97 3.08 3.50SGT 4.22 550 4.24 BUY 3662 3838 17.78 4.66 18.40 17.58 15.54 15.58 3.94 4.10SPK 2.93 5376 2.72 UNDERPERFORM 328 337 14.76 2.16 16.41 16.06 19.92 20.27 5.86 6.13TLS 6.32 77266 5.98 HOLD 4222 4506 4.68 7.29 18.43 17.17 31.11 32.61 4.84 5.08TPM 9.37 7438 9.08 HOLD 230 275 29.78 19.59 32.20 26.93 25.51 25.96 1.27 1.53VOC 5.91 623 6.70 BUY 22 51 31.97 40.58 28.55 20.31 13.15 21.31 1.07 1.20



10 April 2015


Telecommunication Services FIG.23-2: INDEX WITH PE BANDS FIG.23-3: INDEX WITH PB BANDS

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10 April 2015


Telecommunication Services (ex TLS) FIG.23-10: INDEX WITH PE BANDS FIG.23-11: INDEX WITH PB BANDS

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10 April 2015


Sector outlook – Utilities Summary – Utilities will continue to be in favour with rising market risk and low growth

outlook. Rising interest rates, lack of franking and gearing levels will be negative for the sector.


Long term sector charts – FIG. 24-2 to FIG. 24-9




($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

PE (x) 2015 PE (x) 2016ROE (%)

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AGL 15.04 10148 15.48 HOLD 610 723 -4.23 14.22 16.09 14.08 7.34 7.94 4.18 4.40APA 9.25 10307 8.49 HOLD 234 250 3.58 -6.20 38.22 40.75 8.16 5.65 3.97 4.26AST 1.49 5166 1.38 HOLD 297 287 0.35 6.02 17.95 16.93 22.88 21.72 5.57 5.70DUE 2.55 3809 2.50 HOLD 71 120 -54.31 69.57 55.43 32.69 4.24 6.55 6.90 6.94EPW 2.39 578 2.51 BUY 32 35 42.24 9.85 18.11 16.48 10.73 11.07 5.19 5.48EWC 0.39 676 0.80 BUY N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIFN 0.28 215 0.22 HOLD -36 -38 28.77 4.26 -5.96 -5.71 -6.00 -5.20 0.00 7.14SKI 1.92 2808 2.24 HOLD 199 160 -10.20 -18.05 14.40 17.57 10.67 8.32 6.27 6.53



10 April 2015


Utilities FIG.24-2: INDEX WITH PE BANDS FIG.24-3: INDEX WITH PB BANDS

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10 April 2015


Performance perspective

FIG.25-1: AUSTRALIAN MAJOR MARKET INDICES

Index Description Latest1wk

Perf (%)1mth

Perf (%)3mth

Perf (%)12mth

Perf (%)Perf since GFC

low (%)All Ordinaries Index 5928.31 1.64 1.02 10.61 9.60 90.51

S&P 300 Index 5890.89 1.68 1.04 10.71 10.00 87.98

S&P 300 Accumulation Index 51810.46 1.68 1.41 12.18 14.93 144.52

S&P 300 Resources Index 3412.72 2.79 -4.16 4.21 -17.98 -5.51

S&P 300 Resources Accumulation Index 18847.68 2.79 -3.03 6.67 -14.68 10.45

S&P 300 Industrials Index 9589.93 1.48 2.02 11.95 17.15 129.03

S&P 300 Industrials Accumulation Index 106662.32 1.48 2.24 13.22 22.58 211.03

S&P 100 Index 4981.52 1.67 1.19 10.98 10.70 91.74

S&P 100 Resources Index 4935.25 2.62 -4.33 4.13 -17.65 -1.52

S&P 100 Industrials Index 5325.27 1.50 2.23 12.29 17.95 131.70

S&P 50 Index 6127.10 1.66 1.00 10.76 9.69 91.02

S&P Mid Cap Index 5335.46 1.73 2.70 12.72 19.56 96.99

S&P Small Cap Index 2193.96 1.78 -0.58 7.65 2.23 51.93

S&P Small Cap Accumulation Index 5643.18 1.80 0.13 8.89 5.56 83.24

S&P Small Cap Resources Index 1663.76 4.74 -2.18 5.08 -21.55 -39.88

S&P Small Cap Resources Accumulation Index 2778.82 4.74 -2.02 5.39 -20.72 -37.30

S&P Small Cap Industrials Index 2481.57 1.26 -0.23 8.21 8.50 105.32

S&P Small Cap Industrials Accumulation Index 7635.27 1.29 0.59 9.65 12.57 164.99 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

FIG.25-2: MAJOR GLOBAL INDICES, COMMODITIES AND CURRENCIES

Index Description Latest

1wk Perf (%)

1mth Perf (%)

3mth Perf (%)

12mth Perf (%)

Perf since GFC low (%)

S&P/ASX 300 5890.89 1.68 1.04 10.71 10.00 87.98

US - NASDAQ 4950.82 1.45 0.48 4.53 20.37 282.64

US - S&P 500 2081.90 1.08 0.51 0.96 12.42 204.65

US - DOW JONES 17902.51 1.15 0.26 -0.03 10.13 170.15

CANADA - S&P/TSX 60 886.77 1.84 1.40 4.88 8.08 N/A

BRAZIL - BOVESPA 53661.11 2.56 7.36 7.44 3.94 44.62

MEXICO 44980.56 2.64 3.93 6.08 9.96 163.92

UK - FTSE 100 6937.41 1.88 0.37 5.59 5.26 96.49

FRENCH - CAC40 5136.86 1.47 3.47 20.58 16.09 102.68

GERMAN - DAX 12035.86 0.29 4.20 22.35 26.82 228.27

JAPAN - NIKKEI 225 19789.81 3.97 4.32 15.28 35.48 175.89

HONG KONG - HANG SENG 26236.86 4.60 8.58 10.07 16.11 120.08

CHINA - SHANGHAI 3994.81 4.84 23.25 21.30 90.38 82.16

INDONESIA - KLSE 1850.31 1.31 2.40 7.07 -0.11 115.60

NEW ZEALAND - NZSE 50G 5859.72 0.41 -0.73 5.12 16.46 137.14

IRON ORE - Iron Ore fines 61.5% Fe US$/dmt 48.00 0.00 -20.00 -33.33 -58.62 N/A

GOLD - Spot Gold - US Dollars / Oz 1202.29 -0.13 2.98 -0.52 -8.10 28.18

SILVER - Spot Silver - US Dollars 16.52 -2.55 3.98 1.05 -17.55 23.82

COPPER - COMEX High Grade Copper Futures 273.75 -0.40 4.93 -1.16 -10.28 62.08

OIL - WTI - NYMEX Light Sweet Crude Oil Futures 50.42 0.66 1.63 2.31 -50.84 10.76

OIL - Brent Crude Oil 56.09 -0.99 -6.16 9.87 -47.83 23.11

COAL - NYMEX Central Appalachian Coal Futures 50.90 -0.53 -3.93 1.25 -15.83 7.91

GAS - NYMEX Natural Gas Futures 2.62 0.54 -7.75 -10.46 -42.24 -33.56

AUDUSD 0.7686 1.14 -0.42 -5.39 -17.90 20.00

AUDEUR 0.7129 0.96 0.13 3.52 5.07 40.78

AUDJPY 92.33 1.46 -0.97 -5.00 -3.11 46.60

VIX - CBOE Market Volatility 13.98 -7.48 -8.03 -17.81 -6.11 -71.66

XVI - S&P/ASX 200 Volatility 13.99 -5.67 2.50 -9.28 22.38 -63.12 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


10 April 2015


FIG.25-3: S&P 300 AND GICS LEVEL 1 SECTOR PERFORMANCES


1wk Perf (%)

1mth Perf (%)

3mth Perf (%)

12mth Perf (%)


S&P/ASX 300 Energy - 10 11393.13 4.53 -2.83 2.70 -17.96 -9.30

S&P/ASX 300 Materials - 15 9168.68 2.36 -3.00 7.30 -10.02 14.96

S&P/ASX 300 Industrial - 20 4770.46 2.02 2.31 9.68 16.85 109.77

S&P/ASX 300 Consumer Discretionary - 25 2066.87 1.99 0.97 15.09 11.48 111.22

S&P/ASX 300 Consumer Staples - 30 9371.86 0.49 -0.99 3.42 -5.16 58.24

S&P/ASX 300 HealthCare - 35 16308.19 1.32 1.50 13.57 36.78 136.14

S&P/ASX 300 Financials - 40 7056.96 1.61 2.71 13.74 18.10 158.68

S&P/ASX 300 Information Technology - 45 926.20 0.28 0.91 8.25 7.62 68.75

S&P/ASX 300 Telecommunication Services - 50 2169.67 -0.16 1.74 6.28 26.79 100.84

S&P/ASX 300 Utilities - 55 6433.98 0.95 -0.89 11.02 19.63 82.70

S&P/ASX 300 Metals & Mining 2746.50 2.04 -4.74 4.83 -17.88 -4.31

S&P/ASX 300 RESOURCES 3412.72 2.79 -4.16 4.21 -17.98 -5.51

S&P/ASX 300 INDUSTRIALS 9589.93 1.48 2.02 11.95 17.15 129.03

S&P/ASX 300 5890.89 1.68 1.04 10.71 10.00 87.98 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

FIG.25-4: S&P 300 AND GICS LEVEL 2 SECTOR PERFORMANCES


1wk Perf (%)

1mth Perf (%)

3mth Perf (%)

12mth Perf (%)


S&P/ASX 300 Energy - 1010 11393.13 4.53 -2.83 2.70 -17.96 -9.30

S&P/ASX 300 Materials - 1510 9168.68 2.36 -3.00 7.30 -10.02 14.96

S&P/ASX 300 Capital Goods - 2010 2114.88 2.20 -1.49 -6.34 -29.75 -17.97

S&P/ASX 300 Comm & Professional Services - 2020 2587.04 2.88 1.41 7.02 9.88 118.59

S&P/ASX 300 Transportation - 2030 8269.52 1.44 3.34 13.65 32.36 160.35

S&P/ASX 300 Automobiles & Components - 2510 1092.13 0.81 3.07 9.14 13.74 N/A

S&P/ASX 300 Consumer Durables & Apparel - 2520 633.84 1.92 6.33 4.95 30.28 -67.46

S&P/ASX 300 Consumer Services - 2530 7026.05 1.48 0.12 16.37 18.28 123.45

S&P/ASX 300 Media - 2540 1611.71 3.17 2.61 10.10 -2.43 140.14

S&P/ASX 300 Retailing - 2550 4462.08 2.55 1.65 17.05 6.36 92.19

S&P/ASX 300 Food & Staples Retailing - 3010 13807.68 0.15 -1.57 1.68 -7.48 62.45

S&P/ASX 300 Food Beverage & Tobacco - 3020 5369.97 2.79 2.46 14.89 11.84 41.49

S&P/ASX 300 HealthCare Equipment&Services - 3510 9442.65 0.34 3.68 19.13 42.07 143.95

S&P/ASX 300 Pharmaceuticals&Biotechnology - 3520 28721.16 2.28 -0.45 8.92 32.40 132.55

S&P/ASX 300 Banks - 4010 10321.19 1.34 3.97 15.06 15.42 181.78

S&P/ASX 300 Diversified Financials - 4020 7867.85 1.96 3.26 26.35 27.79 232.31

S&P/ASX 300 Insurance - 4030 3968.82 2.09 0.28 8.03 12.85 59.47

S&P/ASX 300 Real Estate - 4040 3083.72 2.21 -0.86 7.19 29.41 141.91

S&P/ASX 300 Software & Services - 4510 1104.38 0.30 1.01 9.02 10.74 87.47

S&P/ASX 300 Technology Hardware&Equipment - 4520 656.60 -1.14 -0.57 -26.27 N/A N/A

S&P/ASX 300 Telecommunication Services - 5010 2169.67 -0.16 1.74 6.28 26.79 100.84

S&P/ASX 300 Utilities - 5510 6433.98 0.95 -0.89 11.02 19.63 82.70

S&P/ASX 300 5890.89 1.68 1.04 10.71 10.00 87.98 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


10 April 2015


Market and sector multiples FIG.26-1: MARKET MULTIPLES

Category GICSNumber of

stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)

Expected 12mth Price Return (%)

PE 2014 (x) PE 2015 (x) PE 2016 (x)EPS Growth

2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

All Ordinaries S&P 500 466 1710.75 100.00 100.00 1.96 17.61 17.78 16.17 12.31 -0.99 9.98Market S&P 300 299 1655.48 100.00 100.00 1.39 17.20 17.54 16.14 13.49 -1.92 8.65Large Cap S&P 100 100 1481.10 89.41 100.00 0.84 17.03 17.33 16.18 12.69 -1.76 7.09Small Cap S&P Small 199 174.38 10.53 0.00 6.07 18.83 19.51 15.79 21.66 -3.48 23.55Micro Cap S&P Micro 167 55.27 0.00 0.00 18.93 59.95 30.48 17.01 -46.24 96.66 79.19S&P 500 w ith mkcap betw een $20-500m MC $20-500m 225 47.23 1.32 0.00 38.77 19.59 23.25 12.54 -21.02 -15.75 85.44

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

PB 2014 (x) PB 2015 (x) PB 2016 (x)

All Ordinaries S&P 500 16.71 16.12 16.84 11.86 11.40 12.02 3.95 4.21 4.45 2.11 2.03 1.96Market S&P 300 17.10 16.37 17.05 12.31 11.81 12.34 4.00 4.25 4.49 2.15 2.06 1.98Large Cap S&P 100 17.51 16.45 17.08 13.54 12.88 13.33 4.09 4.32 4.55 2.25 2.13 2.04Small Cap S&P Small 13.64 15.70 16.81 7.24 7.52 8.42 3.19 3.60 4.00 1.58 1.62 1.56Micro Cap S&P Micro 5.03 8.78 10.56 2.68 4.03 6.35 2.62 2.98 3.41 1.42 1.50 1.65S&P 500 w ith mkcap betw een $20-500m MC $20-500m 7.75 11.52 14.08 3.76 3.24 5.60 3.78 3.57 4.00 0.82 0.96 1.02

Category GICS PCF 2014 (x) PCF 2015 (x) PCF 2016 (x)EV/EBITDA

2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

All Ordinaries S&P 500 12.33 12.27 11.15 9.62 9.39 9.66 11.60 12.21 10.93Market S&P 300 12.40 12.28 11.20 9.51 9.35 9.69 11.38 12.07 10.88Large Cap S&P 100 12.60 12.43 11.41 9.79 9.68 10.31 11.31 12.14 11.05Small Cap S&P Small 10.91 11.10 9.67 7.79 7.36 6.56 11.98 11.52 9.68Micro Cap S&P Micro 10.64 11.93 9.72 13.91 10.96 8.86 25.23 18.38 12.70S&P 500 w ith mkcap betw een $20-500m MC $20-500m 5.19 6.89 5.39 7.85 7.92 6.61 14.43 15.63 10.49


FIG.26-2: MAJOR SECTOR MULTIPLES


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

Market Resources S&P 300 Res 56 249.26 15.05 15.37 20.89 10.98 17.77 15.30 21.10 -38.23 16.16Market Industrials S&P 300 Ind 243 1406.22 84.89 84.63 -2.06 19.12 17.50 16.30 11.33 9.29 7.34Market Industrials Excl Financials S&P 300 Ind Ex Fin 182 651.29 39.32 35.81 -0.60 22.32 20.24 18.29 4.83 10.29 10.67Market Financials S&P 300 Fin 61 754.93 45.57 48.82 -3.33 17.02 15.67 14.90 16.07 8.63 5.12


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

Small Resources S&P Small Res 41 21.65 1.31 0.00 36.43 19.52 59.43 14.46 11.46 -67.16 310.88Small Industrials S&P Small Ind 158 152.73 9.22 0.00 1.77 18.74 17.82 16.00 23.19 5.18 11.34Small Industrials Excl Financials S&P Small Ind Ex Fin 126 120.93 7.30 0.00 1.89 19.30 18.52 16.48 18.10 4.18 12.37Small Financials S&P Small Fin 32 31.80 1.92 0.00 1.31 16.89 15.56 14.40 43.83 8.53 8.05

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

PB 2014 (x) PB 2015 (x) PB 2016 (x)

Market Resources S&P 300 Res 14.22 13.30 15.06 14.11 9.49 10.51 4.37 4.14 4.53 1.35 1.31 1.28Market Industrials S&P 300 Ind 17.61 16.91 17.41 11.70 12.50 12.89 3.93 4.27 4.48 2.40 2.29 2.19Market Industrials Excl Financials S&P 300 Ind Ex Fin 20.97 19.28 20.15 6.54 7.20 7.59 3.29 3.68 3.91 2.83 2.75 2.63Market Financials S&P 300 Fin 14.71 14.87 15.04 27.62 28.11 28.33 4.48 4.77 4.98 2.12 2.00 1.91

Category GICSROE 2014

(%)ROE 2015

(%)ROE 2016

(%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

PB 2014 (x) PB 2015 (x) PB 2016 (x)

Small Resources S&P Small Res 3.54 5.54 8.82 4.73 2.10 6.68 2.38 0.98 1.61 0.68 0.86 0.83Small Industrials S&P Small Ind 15.07 17.14 17.94 7.57 8.18 8.64 3.31 3.97 4.34 1.95 1.85 1.78Small Industrials Excl Financials S&P Small Ind Ex Fin 14.32 16.65 17.12 6.66 7.23 7.65 3.01 3.57 3.96 2.01 1.91 1.83Small Financials S&P Small Fin 17.92 19.03 21.08 30.55 29.94 29.97 4.44 5.51 5.76 1.74 1.63 1.59


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Market Resources S&P 300 Res 5.88 7.22 6.58 4.45 5.62 5.08 6.37 9.71 8.33Market Industrials S&P 300 Ind 15.43 14.02 12.80 12.45 10.85 11.93 13.60 12.71 11.61Market Industrials Excl Financials S&P 300 Ind Ex Fin 13.72 12.38 11.36 10.46 9.76 8.98 15.18 13.98 12.67Market Financials S&P 300 Fin 17.29 15.82 14.36 15.32 12.18 17.67 12.33 11.67 10.73


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Small Resources S&P Small Res 4.50 6.71 4.68 5.15 5.83 4.35 13.12 24.03 9.29Small Industrials S&P Small Ind 13.68 12.24 11.40 8.34 7.61 6.98 11.85 10.84 9.73Small Industrials Excl Financials S&P Small Ind Ex Fin 12.79 11.36 10.69 7.52 6.90 6.34 11.21 10.33 9.25Small Financials S&P Small Fin 18.60 17.29 15.25 15.10 13.39 12.09 15.51 13.64 12.38



10 April 2015


FIG.26-3: SECTOR MULTIPLES


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

Energy 1010 20 81.82 4.94 5.00 19.41 13.84 22.55 15.84 43.84 -38.66 42.37Materials 1510 49 231.23 13.96 14.05 14.67 11.70 16.61 15.39 15.49 -29.55 7.89Capital Goods 2010 13 13.73 0.83 0.49 2.66 9.00 11.70 11.13 -10.65 -23.11 5.14Commercial & Professional Services 2020 20 44.40 2.68 2.18 2.45 19.63 19.15 17.56 12.34 2.50 9.07Transportation 2030 10 70.96 4.28 4.09 0.83 47.80 26.42 20.98 -10.37 80.95 25.92Consumer Durables & Apparel 2520 2 1.19 0.07 0.00 0.50 57.35 31.74 17.88 -61.69 80.69 77.48Consumer Services 2530 21 51.34 3.10 2.35 6.14 22.41 20.07 17.76 20.93 11.67 13.00Media 2540 14 20.51 1.24 0.61 -0.41 18.96 17.27 15.55 21.25 9.77 11.07Retailing 2550 17 18.77 1.13 0.45 -2.02 17.01 16.63 15.21 4.15 2.28 9.31Food & Staples Retailing 3010 3 87.32 5.27 5.90 0.90 17.01 17.08 16.35 3.49 -0.37 4.44Food Beverage & Tobacco 3020 9 17.79 1.07 0.95 -6.60 23.62 21.95 19.68 -21.10 7.61 11.55Health Care Equipment & Services 3510 18 64.45 3.89 3.56 -6.30 32.36 27.15 23.76 -14.99 19.22 14.24Pharmaceuticals & Biotechnology 3520 8 48.43 2.92 3.00 4.24 34.31 26.82 23.59 16.11 27.93 13.69Banks 4010 8 486.89 29.39 32.71 -5.03 16.46 15.27 14.65 7.19 7.81 4.21Diversif ied Financials 4020 13 59.29 3.58 3.49 -1.76 20.86 17.93 16.17 25.36 16.39 10.83Insurance 4030 8 79.62 4.81 5.14 2.54 16.18 14.87 14.06 30.72 8.81 5.75Real Estate 4040 32 129.14 7.80 7.48 -1.24 18.41 16.91 15.95 52.88 8.82 6.03Softw are & Services 4510 15 17.14 1.03 0.64 3.22 25.61 21.00 18.93 15.34 21.96 10.96Telecommunication Services 5010 9 96.45 5.82 5.72 -5.21 20.02 18.91 17.55 9.03 5.86 7.72Utilities 5510 8 33.71 2.03 2.18 0.51 21.50 23.28 21.71 -1.60 -7.65 7.22

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

PB 2014 (x) PB 2015 (x) PB 2016 (x)

Energy 1010 10.89 6.82 8.95 9.01 6.33 8.29 5.13 3.42 4.02 1.24 1.24 1.22Materials 1510 20.13 14.33 15.76 13.88 9.72 10.35 3.78 4.28 4.56 1.63 1.57 1.51Capital Goods 2010 15.74 11.91 11.57 3.55 3.48 3.74 5.95 5.21 5.39 1.09 1.08 1.07Commercial & Professional Services 2020 18.77 22.52 21.62 6.90 6.88 7.30 2.60 3.22 3.53 2.76 2.58 2.42Transportation 2030 5.79 9.40 14.00 3.61 7.18 8.63 3.00 3.51 4.06 2.36 2.51 2.42Consumer Durables & Apparel 2520 5.46 8.99 11.68 1.15 2.50 3.78 2.23 2.46 2.71 2.47 2.34 2.22Consumer Services 2530 16.44 17.23 17.89 12.19 12.08 12.74 2.78 3.58 3.53 2.87 2.71 2.56Media 2540 19.46 20.18 20.51 6.83 6.84 7.46 2.93 3.44 3.79 1.46 1.57 1.51Retailing 2550 16.13 15.25 15.74 4.86 4.83 5.06 3.84 4.80 4.58 2.08 2.07 1.98Food & Staples Retailing 3010 16.61 15.00 14.78 3.77 3.74 3.75 4.82 4.92 4.92 2.32 2.31 2.24Food Beverage & Tobacco 3020 13.96 13.72 14.08 2.80 3.83 3.89 3.11 3.16 3.46 2.02 1.93 1.80Health Care Equipment & Services 3510 17.22 19.70 20.74 7.78 7.88 8.21 1.66 2.13 2.48 4.24 3.68 3.48Pharmaceuticals & Biotechnology 3520 41.07 41.72 41.68 22.94 22.43 22.27 1.26 1.66 1.81 10.76 9.12 7.55Banks 4010 16.18 16.19 15.98 35.26 36.91 36.96 4.64 4.86 5.04 2.44 2.28 2.16Diversif ied Financials 4020 18.51 20.56 21.55 24.01 24.38 25.47 3.52 4.11 4.47 2.66 2.49 2.44Insurance 4030 12.23 12.89 14.79 12.50 11.77 12.25 4.38 4.91 5.09 1.77 1.69 1.65Real Estate 4040 8.95 8.47 8.66 26.25 28.89 28.26 4.39 4.65 4.89 1.46 1.37 1.32Softw are & Services 4510 34.04 33.00 33.53 14.39 15.05 15.89 2.45 2.93 3.18 5.62 5.00 4.62Telecommunication Services 5010 29.87 29.21 30.53 16.71 17.39 17.92 4.19 4.46 4.74 5.62 5.25 4.98Utilities 5510 10.61 9.73 9.03 8.11 7.97 8.11 4.57 4.72 4.97 1.76 1.64 1.65


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Energy 1010 6.85 8.72 7.28 6.83 9.20 7.28 10.28 16.95 11.90Materials 1510 6.60 7.59 7.12 4.60 5.44 5.11 6.48 8.94 8.12Capital Goods 2010 5.37 5.96 5.97 4.53 5.76 5.49 6.73 9.00 8.41Commercial & Professional Services 2020 11.23 10.22 9.66 9.36 9.37 8.66 13.82 14.14 12.86Transportation 2030 16.35 12.45 10.37 15.13 11.89 10.45 32.34 19.69 16.32Consumer Durables & Apparel 2520 47.95 15.10 10.74 11.27 10.14 7.95 19.66 15.59 10.98Consumer Services 2530 16.99 14.82 13.20 13.83 12.15 10.86 17.79 15.66 13.78Media 2540 12.63 12.09 10.98 6.80 6.18 5.58 10.40 9.27 8.13Retailing 2550 13.43 11.68 11.05 10.49 9.65 8.70 12.96 12.12 10.87Food & Staples Retailing 3010 11.74 12.24 11.32 9.39 9.48 9.06 11.96 12.18 11.67Food Beverage & Tobacco 3020 14.52 14.26 12.88 9.13 7.98 7.38 14.76 11.81 10.86Health Care Equipment & Services 3510 24.47 18.85 16.47 19.26 15.17 13.33 23.07 19.47 17.01Pharmaceuticals & Biotechnology 3520 32.76 23.55 24.95 23.81 19.27 16.88 26.65 21.50 18.91Banks 4010 16.77 15.39 14.32 14.79 10.98 23.20 10.35 10.07 9.47Diversif ied Financials 4020 22.89 17.01 15.34 12.57 11.49 9.95 13.81 11.71 10.25Insurance 4030 14.97 14.18 12.14 14.57 12.68 10.08 15.64 14.37 11.32Real Estate 4040 19.24 18.48 15.86 19.03 17.56 16.60 19.12 17.80 16.82Softw are & Services 4510 21.71 15.53 15.09 16.69 14.17 12.60 19.56 16.63 14.42Telecommunication Services 5010 10.59 9.67 9.10 6.61 6.38 6.02 10.68 10.34 9.57Utilities 5510 10.70 11.24 10.02 11.91 12.12 10.84 16.41 17.08 15.73



10 April 2015


Quant Strategy Model Portfolio Latest monthly update: Published on 25th March 2015.

Current model portfolio: Materials – large (BHP); Transport – large (SYD, TCL); Consumer Services – mid (ALL), small (AAD, AGI, MTR, RFG); Media – mid (FXJ), small (APN), micro (PRT); Retailing – small (BRG, CCV, KMD); Food & Staples Retailing – large (WES, WOW); Health Care – mid (ANN), small (GXL); Banks – large (ANZ, NAB, WBC); Diversified Financials – mid (HGG); Property Trusts – large (LLC, SCG, SGP), small (ARF); IT – large (CPU), mid (CAR); Telecommunications – large (TLS), micro (BGL).

FIG.27-1: QUANT STRATEGY MODEL PORTFOLIO PERFORMANCE AT LAST UPDATE

100.00

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300.00

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Benchmark Index

Portfolio Market Cap Weighted Index

Portfolio Equal Weighted Index


FIG.27-2: QUANT STRATEGY MODEL PORTFOLIO PERFORMANCE AT LAST UPDATE

Performance AnalysisBenchmark

Index

Portfolio Market Cap Weighted

Index

Portfolio Equal Weighted Index

Performance since inception (May 2009) 58.18% 168.32% 304.14%

Average performance per month 0.76% 2.21% 3.99%

Standard Deviation (weekly) 2.04% 2.13% 2.30%

Performance over the past 1 month 0.74% 0.76% 3.73%

Performance over the past 3 months 10.96% 14.03% 13.50%

Performance over the past 12 months 11.59% 17.26% 19.29% Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

BAILLIEU HOLST RESEARCH

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au

This document has been prepared and issued by:

Baillieu Holst Ltd ABN 74 006 519 393

Australian Financial Service Licence No. 245421 Participant of ASX Group Participant of NSX Ltd

Analysts’ stock ratings are defined as follows:

Buy: The stock’s total return is expected to increase by at least 10-15 percent from the current share price over the next 12 months.

Hold: The stock’s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months.

Sell: The stock’s total return is expected to decrease by at least 10-15 percent from the current share price over the next 12 months.

Disclosure of potential interest and disclaimer:

Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 55% of any brokerage resulting from any transactions you may undertake as a result of this advice.

When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances.

If you do not provide us with the relevant information (including updated information) regarding your investment needs, objectives and financial circumstances, our advice may be based on inaccurate information, and you will need to consider whether the advice is suitable to you given your personal investment needs, objectives and financial circumstances. Please do not hesitate to contact our offices if you need to update your information held with us. Please be assured that we keep your information strictly confidential.

No representation, warranty or undertaking is given or made in relation to the accuracy of information contained in this advice, such advice being based solely on public information which has not been verified by Baillieu Holst Ltd.

Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments.

Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given.

Baillieu Holst Ltd

ABN 74 006 519 393

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