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BAILLIEU HOLST QUANT RESEARCH

04 October 2016 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 Market Engineer ENGINEERING GUIDE TO EQUITY STRATEGY

Central banks are becoming overexposed reality stars

Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view.

Global market outlook: Global markets are looking at US Presidential election and Italian referendum as the next key risk catalysts. Central banks are running out of ammunition and are being forced into even more complex and creative ways to drive asset bubbles. Central banks are becoming the new global reality stars for the markets. Central banks are expected to bedazzle the market on a regular basis and drive growth. The ineffectiveness of the trickle down economy is driving central banks into a race to the bottom in currency and financial system stability. As with any reality star, over exposure reduces effectiveness and the sustainability of the marketing pitch. Global markets have reached peak central bank driven growth. Monetary policy will be handing over the growth responsibility to fiscal policy. The central banks will remain in charge of protecting the system against downside risk while upside will be completely reliant on government reform policy settings. The politics of survival versus reform is driving governments into popular politics and protectionism. We continue to expect the US Fed to move in December, while the downgrades in September and any weak US economic data in the meantime should turn market expectations away from the rate hike outlook.

Local market outlook: The Australian equity market continues to see support on premium yield outlook on global basis. Australia continues to ignore structural issues after going through 25 years of growth on the back of boom cycles in credit, population and mining. The lack of policy planning post boom cycles has delivered asset bubbles and cyclical growth risks. The short term currency decline on USD strength and China stability is likely to keep the RBA inactive until 2017. We expect global investors to buy into Australian equity dividend yields as the currency moves higher on weaker USD and better China data. Australian equities should continue to benefit from global demand for better than bond yield income streams from the rising older demographic.

Market view: We maintain a bullish long term view on the Australian equity market with the 12 month index target level of 5,850. We maintain our positive long term view on the yield thematic, while small cap industrials offer the best growth and yield to value mix.

Resources: Buy call maintained with US Fed backtracking and stable China outlook.

Industrials Ex-Financials: Selective buy category where stocks with global diversification, small cap thematic and quality growth/yield to value outlook are preferred options after the US Fed meeting. Overall sector is expensive with declining ROE outlook.

Financials: Buy call maintained with US Fed backtracking and bank sector back at fair value despite premium yield. Property trust sector remains over valued on the yield to value outlook.


04 October 2016


Contents Global Outlook – Top Down 3 Global Outlook – Bottom Up 7 Major Sector Outlook – Market 12 Major Sector Outlook – Resources 14 Major Sector Outlook – Industrials Ex Financials 16 Major Sector Outlook – Financials 18 Performance Analysis 20 Market and Sector Multiples 22


04 October 2016


Global outlook – top down Major indices around the world in USD show that Australia has gone from performing

above the world index in mid-2014 to be one of the underperformers. The September downgrades by the US Fed should help to bring down the USD and be supportive for emerging markets and commodity countries.

FIG.2-1: MSCI INDICES AROUND THE WORLD IN COMMON CURRENCY OVER THE LAST DECADE

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MSCI Euro Index (US$) MSCI World Index (US$) MSCI China Index (US$)

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MSCI Japan Index (US$)

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

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

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MSCI Euro Index (US$) MSCI World Index (US$) MSCI China Index (US$)

MSCI Australia Index (US$) MSCI US Index (US$) MSCI India Index (US$)

MSCI Japan Index (US$)



04 October 2016


GDP growth outlook shows the pecking order starting with India and ending with Japan. India remains above China, while US downgrades have put a gap below Australia. Australia is expected to experience more downgrades as the major trading partners remain in a downgrade cycle. The common trend around the world is for lower growth with a negative bias.

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

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US Real GDP QOQ SA Growth (%) China Real GDP QOQ SA Growth (%)

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 slowdown of manufacturing is a global phenomenon despite the stimulus programs. Slowing global growth will continue to put pressure on commodity prices in the long term. Growth overall is shrinking, while currency wars and stimulus plans only offer short term rebalance.

FIG.2-4: MANUFACTURING PMI AROUND THE WORLD

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US PMI China PMI Euro PMI India PMI Australia PMI Japan PMI



04 October 2016


Unemployment rates around the world show that 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 remain unemployed for over a decade. We continue to see Australia and other major trading partners masking under employment within the employment recovery cycle.

FIG.2-5: UNEMPLOYMENT AROUND THE WORLD

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


Consumer sentiment around the world has been trending sideways for the least the past year. Chinese consumer sentiment remains a worry as the economic transition needs consumer spending to take the growth reigns from manufacturing.

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



04 October 2016


Bond yields around the world show that the decline trend over the past three years remains intact. We continue to expect to see the yield trend lower as governments keep cutting interest rates. Australian equity dividend yields with franking are substantially higher than all bond and equity dividend yields in the developed market. Japan has moved into negative territory with Europe. The potential rate hike cycle from the US will start to turn the long yield, while backtracking by the US Fed will further drive yields lower.

FIG.2-7: BOND YIELDS AROUND THE WORLD

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Australia Bond Yield (10 Year) % China Bond Yield (10 Year) % India Bond Yield (10 Year) %

Japan Bond Yield (10 Year) % Euro Bond Yield (10 Year) % US Bond Yield (10 Year) %


Volatility indices show the link between Australia and the US with overall volatility. The volatility cycle reached the lows in 2014 before having a one year up cycle and one year down cycle.

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

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



04 October 2016


Global outlook – bottom up

Australia: The Australian market has experienced PE expansion since 2011, while earnings and sales remain in negative trend. We continue to expect the market to look for a quality growth/yield thematic in a low growth outlook. Lower commodity prices, a local housing bubble and global growth outlook will continue to drive investors towards the Australian equity dividend yield on offer.

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

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


US: US earnings growth continues to run into patches of weakness despite showing signs of stable broad based growth. The US market has moved past QE but slowing global growth, easing central bank bias, US Fed rate hike outlook and a rising USD are beginning to take effect. The dividend yield is substantially lower than Australia. The growth outlook will be tested with higher currency and global growth downgrades. The US Fed rate rise cycle and Presidential election are the key market risk catalysts.

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

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04 October 2016


Europe: Europe needs to see sustained sales growth recovery to maintain earnings growth. Europe continues to have uncertainty driven by each country’s internal political volatility due to austerity and refugee plans. The Euro needs a federation type overall government to manage the inequalities of the structure or continue to face break away threats. The dividend yield is comparable to Australia but the sustainability and sovereign risks are higher. The hope of a QE based recovery should drive markets higher, while countries like Greece will struggle balancing growth and austerity. The biggest refugee influx since the last world war could deliver a spending stimulus to help growth but should also deliver political instability. Brexit changes and Italian referendum will start to add to the growth risks.

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

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UK: The UK needs to sustain a top line growth recovery, while the rest of Europe remains in low growth. The dividend yield is at a slight discount to Australia, while the UK is trading around a pre-GFC high level. The Brexit changes remain the main catalyst for uncertainty while EU deals with refugee and banking crisis.

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

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04 October 2016


China: Despite the devaluation of the Yuan and stimulus packages, China will remain in an overall decline trend - towards a 5% growth outlook in the next two to three years. Given the big changes facing leadership, change has been slow and measured. China has created an equity bubble to support the struggling property bubble. China is working towards stabilising both asset bubbles to build back confidence. We continue to expect multiple layers of stimulus and further devaluation of the Yuan. The services sector is becoming a dominant part of the economy and gives hope that transition is showing signs of delivering change. The commodity prices are likely to remain at the lower equilibrium for a few years until another commodity cycle starts. We expect the government to keep the stimulus support for the economy through to the National People’s Congress and Leadership Changes in 2017.

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

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Japan: Japan has experienced a remarkable market recovery driven by ‘Abenomics’. The government’s policies are designed to deliver the country out of relatively low growth. Recent economic data points to a slowdown and will require further stimulus to keep the momentum. The easy steps are finished, while the big structural moves are still to be delivered. The move to negative interest rates shows the desperation to keep the transition on the recovery path. The likelihood of more fiscal stimulus is rising after a recent ineffective BOJ move.

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

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04 October 2016


India: India continues to be a strong growth market despite not raising substantial demand for commodities. The current leadership is seen as the catalyst to open the economy and drive more growth and consumption. Global investors continue to see the upside potential while expecting the turnaround to take time with risk to remain high. Changes in the central bank’s leadership introduce more risk, while tax reform points to positive changes.

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

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New Zealand: NZ’s economy has held up better than most commodity countries, but the decline in global growth outlook and a slowing China is taking effect. NZ has made structural changes and will benefit with the global economic recovery. NZ has returned to a rate cut cycle to stimulate its economy in the face of a slowing global economy. NZ fiscal standing moved into surplus and that opens up options to further stimulate the economy. The RBNZ has flagged that there will be more rate cuts to curb the rising currency after they moved to reign in property prices.

FIG.2-22: NZ - CONSENSUS AGGREGATE MULTIPLES FIG.2-23: NZ - CONSENSUS AGGREGATE YIELD

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04 October 2016


Canada: The Canadian economy has taken a substantial hit on-the-back of its dominant exposure to the energy sector as a declining global growth outlook and a weaker China take effect. Canada will be banking on an oil price bounce being sustainable after recent OPEC deal. The market is beginning to see upside in the energy sector in 2017/18 and that should flow through to support the Canadian recovery.

FIG.2-24: CANADA - CONSENSUS AGGREGATE MULTIPLES FIG.2-25: CANADA - CONSENSUS AGGREGATE YIELD

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Brazil: The Brazilian economy has been taken apart by political instability, corruption, a decline in the global growth outlook and a weaker China. Brazil will be hoping for a commodity price bounce in the short term and global economic recovery in the long term.

FIG.2-26: BRAZIL - CONSENSUS AGGREGATE MULTIPLES FIG.2-27: BRAZIL - CONSENSUS AGGREGATE YIELD

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04 October 2016


Market outlook Summary – Markets continue to struggle with global and local economic slowdown while

central bank easing bias supports PE expansion. We continue to see currency and dividend yield premium as the key driver of local equity market in low growth outlook. Central bank currency wars continue to create currency risk and economic growth imbalances. Waning central bank effectiveness and lack of fiscal policy work continues to drive down future growth outlook. 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. Fiscal policy outlook continues to provide corporate certainty and consumer uncertainty. We continue to see equities remaining the preferred investment option with low interest rates, low growth and house price bubble worries. The RBA will continue to act to keep the economy transitioning while US, China, EU and Japan are active participants in the currency war. We continue to see RBA cutting rates in 2017Q2 as the economy slows further. We expect to see short term volatility with US election cycle while medium to long term view remains very positive.

Value – Market trading at historical high premium to fair value on long term basis.

Growth – Despite the low interest rate levels, the low global growth and weak domestic fiscal outlook has kept the ROE at low levels while analyst are hoping for a commodity bounce to boost growth in 2017.

Yield – The GFC high gap between dividend yield and bond yield gap will see 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 recovers in positive territory while earnings revision pushes into positive territory.

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

FIG.3-1: COST OF STYLE

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04 October 2016


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

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

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

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

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


04 October 2016


Major sector outlook – Resources Summary – Commodities continue to outperform market expectations in 2016. China data

continues to remain robust and Resources are expected to remain in upgrade cycle into 2017. The market has already priced in upgrades to commodity prices while medium to long term dynamics are reliant on Chinese stimulus.

Value – Resources trading at a substantial premium to long term average.

Growth – Recovering ROE showing signs of support for future growth outlook.

Yield – The gap between dividend yield and bond yield has met for the fourth time in the past decade.

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 and earnings revision move higher into positive territory.

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


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04 October 2016


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

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04 October 2016


Major sector outlook – Industrials ex Financials Summary – Central bank stimulus verses growth slowdown remain the big macro risk for

Industrial sector outlook. Domestic cyclical Industrials will be under pressure with weak fiscal plans, housing bubble, under employment 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. Small Cap MITCH (i.e. Media, Information, Telecommunication, Consumer and Health) sectors that deliver exposure to the new economy remains the best growth and yield to value option in the market. Industrial growth and yield to value is near to pre GFC high levels.

Value – Industrials trading at a historical premium to fair value compared to the long term average.

Growth – Recovering EPS growth supported by strong albeit declining ROE.

Yield – The gap between dividend yield and bond yield has expanded again offering more value to 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 in positive territory while earnings revision remains in negative territory.



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



04 October 2016


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

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04 October 2016


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

premium levels while lack of credit growth, regulatory requirements and asset bubble risks weigh on the sector. Financials are back to fair value with investors selling on growth and regulatory risks. Global investors remain the risk to share price as the currency starts to pull back after the RBA moves on rates in August. The declining growth outlook is an overhang on the sector while cost out programs and divestments will be key to managing margins in the next few years.

Value – Financials are trading at fair value compared to the long term average. Improving global outlook on central bank stimulus and sustainable high dividend yield will see support for the sector.

Growth – Low growth and declining ROE outlook continues to raise doubts on the yield outlook as banks run into more capital requirements.

Yield – The GFC high 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 bounces back to positive territory while earnings revision recovers in negative territory.



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



04 October 2016


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

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04 October 2016


Performance Analysis

FIG.25-1: AUSTRALIAN MAJOR MARKET INDICES

Index Description Latest1wk

Perf (%)1mth

Perf (%)3mth

Perf (%)12mth

Perf (%)Perf since GFC

low (%)All Ordinaries Index 5525.15 0.12 -0.08 4.04 9.22 77.56

S&P 300 Index 5401.95 0.09 0.08 3.97 8.60 72.38

S&P 300 Accumulation Index 50847.12 0.11 0.51 5.24 13.50 139.97

S&P 300 Resources Index 3104.75 2.55 5.25 11.91 17.81 -14.03

S&P 300 Resources Accumulation Index 18013.17 2.56 5.85 12.93 20.65 5.56

S&P 300 Industrials Index 8806.99 -0.35 -0.82 2.64 7.08 110.33

S&P 300 Industrials Accumulation Index 105167.56 -0.33 -0.41 3.94 12.28 206.67

S&P 100 Index 4480.64 0.10 0.02 3.63 7.08 72.46

S&P 100 Resources Index 4333.85 2.92 5.38 12.55 13.17 -13.52

S&P 100 Industrials Index 4811.98 -0.38 -0.88 2.19 6.10 109.36

S&P 50 Index 5364.37 0.12 0.32 3.29 4.95 67.24

S&P Mid Cap Index 5796.46 -0.01 -1.84 5.78 22.79 114.01

S&P Small Cap Index 2453.50 -0.02 0.64 7.27 24.95 69.90

S&P Small Cap Accumulation Index 6642.82 0.14 1.53 8.50 29.16 115.70

S&P Small Cap Resources Index 2084.75 0.23 4.93 7.65 72.13 -24.67

S&P Small Cap Resources Accumulation Index 3545.02 0.23 5.17 8.15 73.87 -20.02

S&P Small Cap Industrials Index 2704.42 -0.08 -0.30 7.12 17.51 123.75

S&P Small Cap Industrials Accumulation Index 8815.93 0.12 0.73 8.52 22.05 205.97 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 5401.95 0.09 0.08 3.97 8.60 72.38

US - NASDAQ 5312.00 0.12 1.89 9.69 4.06 310.56

US - S&P 500 2168.27 0.17 -0.12 3.31 12.93 217.29

US - DOW JONES 18308.15 0.26 -0.50 2.11 12.43 176.27

CANADA - S&P/TSX 60 858.47 0.29 0.83 4.99 9.43 N/A

BRAZIL - BOVESPA 58367.05 -0.56 0.80 13.27 29.53 57.30

MEXICO 47245.80 -1.11 -0.62 2.78 10.82 177.21

UK - FTSE 100 6899.33 -0.15 1.74 6.07 13.82 95.41

FRENCH - CAC40 4448.26 -0.90 0.23 4.97 -0.16 75.51

GERMAN - DAX 10511.02 -1.09 -0.77 8.58 8.80 186.68

JAPAN - NIKKEI 225 16449.84 -1.82 -2.59 5.61 -5.40 129.33

HONG KONG - HANG SENG 23297.15 -1.64 1.39 12.04 11.76 95.42

CHINA - SHANGHAI 3004.70 -0.96 -2.62 2.56 -1.57 37.01

INDONESIA - KLSE 1652.55 -1.10 -1.52 -0.09 1.94 92.56

NEW ZEALAND - NZSE 50G 7361.09 0.88 -0.51 6.72 31.60 197.89

IRON ORE - Iron Ore fines 61.5% Fe US$/dmt 55.10 -2.48 -6.56 4.16 0.18 N/A

GOLD - Spot Gold - US Dollars / Oz 1315.87 -1.59 0.54 -0.44 18.06 40.28

SILVER - Spot Silver - US Dollars 19.15 -2.58 2.76 2.35 32.09 43.58

COPPER - COMEX High Grade Copper Futures 221.35 0.57 6.47 0.61 -5.41 31.05

OIL - WTI - NYMEX Light Sweet Crude Oil Futures 48.05 8.03 7.11 -0.72 6.56 5.56

OIL - Brent Crude Oil 49.99 8.67 6.41 0.46 3.03 9.72

COAL - NYMEX Central Appalachian Coal Futures 40.00 0.00 1.27 1.27 -5.06 -15.20

GAS - NYMEX Natural Gas Futures 2.90 -4.29 0.80 -0.51 15.15 -26.36

AUDUSD 0.7660 0.47 1.89 2.78 9.14 19.60

AUDEUR 0.6814 0.35 1.11 1.51 8.52 34.56

AUDJPY 77.60 0.76 -0.19 0.88 -7.77 23.21

VIX - CBOE Market Volatility 13.29 8.14 -0.97 -14.97 -45.76 -73.06

XVI - S&P/ASX 200 Volatility 13.48 7.50 -1.45 -30.42 -48.75 -64.45 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


04 October 2016


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 8505.70 4.32 -0.17 1.87 3.16 -32.29

S&P/ASX 300 Materials - 15 9114.54 1.75 4.92 12.84 20.96 14.28

S&P/ASX 300 Industrial - 20 5277.41 0.39 -0.99 1.21 13.19 132.06

S&P/ASX 300 Consumer Discretionary - 25 2281.02 -0.56 -0.50 7.17 24.06 133.11

S&P/ASX 300 Consumer Staples - 30 9058.55 -0.01 1.01 10.45 8.13 52.95

S&P/ASX 300 HealthCare - 35 18013.97 0.24 -1.28 2.22 23.30 160.84

S&P/ASX 300 Financials - 40 5876.72 -1.26 -0.84 2.30 2.44 115.42

S&P/ASX 300 Information Technology - 45 963.10 0.02 0.85 8.97 12.78 75.47

S&P/ASX 300 Telecommunication Services - 50 1813.48 -0.53 -4.09 -8.81 -7.24 67.87

S&P/ASX 300 Utilities - 55 7071.74 2.42 -3.59 -3.29 13.76 100.81

S&P/ASX 300 Metals & Mining 2708.13 1.95 7.32 15.99 24.19 -5.64

S&P/ASX 300 RESOURCES 3104.75 2.55 5.25 11.91 17.81 -14.03

S&P/ASX 300 INDUSTRIALS 8806.99 -0.35 -0.82 2.64 7.08 110.33

S&P/ASX 300 5401.95 0.09 0.08 3.97 8.60 72.38 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 8505.70 4.32 -0.17 1.87 3.16 -32.29

S&P/ASX 300 Materials - 1510 9114.54 1.75 4.92 12.84 20.96 14.28

S&P/ASX 300 Capital Goods - 2010 2295.28 -0.11 0.47 3.73 17.84 -10.97

S&P/ASX 300 Comm & Professional Services - 2020 2718.85 0.01 -0.38 5.21 24.05 129.73

S&P/ASX 300 Transportation - 2030 9493.78 0.71 -1.59 -1.77 6.52 198.90

S&P/ASX 300 Automobiles & Components - 2510 1596.86 0.39 5.28 8.48 32.55 N/A

S&P/ASX 300 Consumer Durables & Apparel - 2520 665.11 1.66 4.58 14.48 1.03 -65.85

S&P/ASX 300 Consumer Services - 2530 7831.81 -0.59 0.18 7.25 24.39 149.08

S&P/ASX 300 Media - 2540 1455.58 -0.09 -1.71 -2.78 11.70 116.87

S&P/ASX 300 Retailing - 2550 5581.63 -1.05 -2.18 14.68 35.42 140.41

S&P/ASX 300 Food & Staples Retailing - 3010 12784.01 -0.03 1.51 10.49 5.79 50.41

S&P/ASX 300 Food Beverage & Tobacco - 3020 6482.79 0.18 -0.59 13.56 22.93 70.81

S&P/ASX 300 HealthCare Equipment&Services - 3510 10047.57 -0.60 -1.76 8.79 27.62 159.58

S&P/ASX 300 Pharmaceuticals&Biotechnology - 3520 32867.95 1.03 -0.83 -3.15 19.69 166.12

S&P/ASX 300 Banks - 4010 7819.45 -1.14 1.21 3.92 -0.27 113.48

S&P/ASX 300 Diversified Financials - 4020 7762.90 -0.84 -0.29 10.24 6.16 227.88

S&P/ASX 300 Insurance - 4030 3339.32 -2.69 -4.14 -4.34 -5.73 34.17

S&P/ASX 300 Real Estate - 4040 3282.96 0.65 -4.07 -1.93 15.02 157.54

S&P/ASX 300 Software & Services - 4510 1160.08 -0.10 0.94 9.07 13.18 96.93

S&P/ASX 300 Technology Hardware&Equipment - 4520 97.23 7.66 -40.08 -40.08 N/A N/A

S&P/ASX 300 Telecommunication Services - 5010 1813.48 -0.53 -4.09 -8.81 -7.24 67.87

S&P/ASX 300 Utilities - 5510 7071.74 2.42 -3.59 -3.29 13.76 100.81

S&P/ASX 300 5401.95 0.09 0.08 3.97 8.60 72.38 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


04 October 2016


Market and Sector Multiples FIG.26-1: MARKET MULTIPLES

Category GICSNumber of

stocks

Market Cap

($b)

S&P 300

Weight (%)

S&P 100

Weight (%)

Expected

12mth Price

Return (%)

PE 2015 (x) PE 2016 (x) PE 2017 (x)EPS Growth

2015 (%)

EPS Growth

2016 (%)

EPS Growth

2017 (%)

Al l Ordinaries S&P 500 408 1658.56 100.00 100.00 4.14 17.03 18.55 16.59 ‐2.15 ‐8.18 11.83

Market S&P 300 283 1602.40 100.00 100.00 4.07 16.72 18.31 16.43 ‐2.61 ‐8.71 11.48

Large Cap S&P 100 100 1386.54 86.15 100.00 4.65 16.14 18.05 16.32 ‐2.89 ‐10.58 10.58

Smal l Cap S&P Smal l 183 215.85 13.41 0.00 0.36 21.72 20.23 17.14 ‐0.15 7.38 17.98

Micro Cap S&P Micro 125 56.17 0.00 0.00 6.12 36.73 29.25 22.96 39.88 25.60 27.36

S&P 500 with mkcap between $20‐500m MC $20‐500m 159 43.04 1.27 0.00 10.20 23.68 20.02 16.84 ‐18.05 18.26 18.87

Category GICSROE 2015

(%)

ROE 2016

(%)

ROE 2017

(%)

Profit Margin

2015 (%)

Profit Margin

2016 (%)

Profit Margin

2017 (%)

Div Yield

2015 (%)

Div Yield

2016 (%)

Div Yield

2017 (%)PB 2015 (x) PB 2016 (x) PB 2017 (x)

Al l Ordinaries S&P 500 13.99 14.19 15.10 11.47 10.98 11.74 4.43 4.07 4.30 1.92 1.90 1.82

Market S&P 300 14.06 14.36 15.26 11.82 11.31 12.07 4.49 4.11 4.34 1.92 1.94 1.86

Large Cap S&P 100 15.48 14.33 15.18 13.15 12.51 13.27 4.71 4.25 4.47 1.90 1.94 1.86

Smal l Cap S&P Smal l 4.92 14.54 15.76 6.19 6.73 7.59 3.08 3.23 3.56 2.06 1.99 1.87

Micro Cap S&P Micro 12.19 9.50 10.45 4.64 5.08 5.84 2.72 2.83 3.11 2.13 1.15 1.13

S&P 500 with mkcap between $20‐500m MC $20‐500m ‐24.91 17.01 15.03 4.84 4.73 5.36 3.31 3.16 3.55 1.71 0.90 0.88

Category GICS PCF 2015 (x) PCF 2016 (x) PCF 2017 (x)EV/EBITDA

2015 (x)

EV/EBITDA

2016 (x)

EV/EBITDA

2017 (x)

EV/EBIT 2015

(x)

EV/EBIT 2016

(x)

EV/EBIT 2017

(x)

Al l Ordinaries S&P 500 11.15 10.90 10.58 10.09 10.12 9.30 12.40 13.29 11.92

Market S&P 300 11.04 10.80 10.47 10.03 9.92 9.05 12.24 12.99 11.57

Large Cap S&P 100 10.74 10.47 10.48 9.89 9.87 9.06 11.82 12.77 11.46

Smal l Cap S&P Smal l 13.46 13.56 10.42 11.11 10.31 9.01 15.98 14.56 12.33

Micro Cap S&P Micro 15.44 14.62 14.98 12.11 16.85 17.41 20.06 24.77 24.86

S&P 500 with mkcap between $20‐500m MC $20‐500m 9.72 9.80 6.83 10.03 15.40 16.76 15.85 22.75 23.86


FIG.26-2: MAJOR SECTOR MULTIPLES


stocks

Market Cap

($b)

S&P 300

Weight (%)

S&P 100

Weight (%)

Expected

12mth Price

Return (%)


2015 (%)

EPS Growth

2016 (%)

EPS Growth

2017 (%)

Market Resources S&P 300 Res 40 246.89 15.34 15.35 4.84 16.02 31.85 18.80 ‐34.26 ‐49.70 69.43

Market Industria ls S&P 300 Ind 243 1355.50 84.23 84.65 3.93 16.85 17.00 16.06 7.28 ‐0.86 5.85

Market Industria ls Excl Financia ls S&P 300 Ind Ex Fin 208 829.53 51.54 47.93 3.09 21.32 20.78 19.27 9.52 2.61 7.82

Market Financia ls S&P 300 Fin 35 525.98 32.68 36.72 5.26 12.66 13.21 12.71 5.27 ‐4.11 3.88


stocks

Market Cap

($b)

S&P 300

Weight (%)

S&P 100

Weight (%)

Expected

12mth Price

Return (%)


2015 (%)

EPS Growth

2016 (%)

EPS Growth

2017 (%)

Smal l Resources S&P Smal l Res 26 34.04 2.12 0.00 5.97 21.86 27.00 15.11 ‐15.37 ‐19.05 78.74

Smal l Industria ls S&P Smal l Ind 157 181.81 11.30 0.00 ‐0.69 21.69 19.32 17.59 3.30 12.29 9.84

Smal l Industria ls Excl Financia ls S&P Smal l Ind Ex Fin 141 164.99 10.25 0.00 ‐1.73 22.55 19.94 17.94 2.36 13.11 11.15

Smal l Financia ls S&P Smal l Fin 16 16.82 1.05 0.00 9.54 15.79 14.81 14.77 10.27 6.66 0.24


(%)

ROE 2016

(%)

ROE 2017

(%)

Profit Margin

2015 (%)

Profit Margin

2016 (%)

Profit Margin

2017 (%)

Div Yield

2015 (%)

Div Yield

2016 (%)

Div Yield

2017 (%)PB 2015 (x) PB 2016 (x) PB 2017 (x)

Market Resources S&P 300 Res 8.45 5.60 8.90 10.00 7.13 10.03 4.41 1.80 2.28 1.21 1.43 1.39

Market Industria ls S&P 300 Ind 15.08 15.95 16.42 12.38 12.31 12.57 4.51 4.53 4.72 2.15 2.08 1.99

Market Industria ls Excl Financia ls S&P 300 Ind Ex Fin 14.75 16.85 17.76 7.95 8.03 8.25 3.61 3.67 3.99 2.54 2.46 2.33

Market Financia ls S&P 300 Fin 15.59 14.53 14.30 26.83 26.88 27.68 5.92 5.89 5.87 1.72 1.67 1.61


(%)

ROE 2016

(%)

ROE 2017

(%)

Profit Margin

2015 (%)

Profit Margin

2016 (%)

Profit Margin

2017 (%)

Div Yield

2015 (%)

Div Yield

2016 (%)

Div Yield

2017 (%)PB 2015 (x) PB 2016 (x) PB 2017 (x)

Smal l Resources S&P Smal l Res 8.19 8.63 12.96 5.47 5.54 10.29 1.53 0.80 1.19 1.38 1.53 1.41

Smal l Industria ls S&P Smal l Ind 4.30 15.65 16.29 6.31 6.90 7.21 3.37 3.68 4.00 2.27 2.12 1.99

Smal l Industria ls Excl Financia ls S&P Smal l Ind Ex Fin 2.26 14.72 15.46 5.77 6.38 6.75 3.18 3.52 3.89 2.25 2.09 1.97

Smal l Financial s S&P Smal l Fin 24.33 24.74 24.40 20.71 20.32 18.99 5.23 5.29 5.10 2.47 2.37 2.28


2015 (x)

EV/EBITDA

2016 (x)

EV/EBITDA

2017 (x)

EV/EBIT 2015

(x)

EV/EBIT 2016

(x)

EV/EBIT 2017

(x)

Market Resources S&P 300 Res 6.69 8.82 7.28 5.50 7.10 5.83 9.77 15.89 10.89

Market Industria ls S&P 300 Ind 12.53 11.26 11.38 12.19 10.82 10.16 12.95 12.52 11.71

Market Industria ls Excl Financia ls S&P 300 Ind Ex Fin 14.27 13.73 12.59 12.26 11.79 11.08 16.62 16.09 14.98

Market Financia ls S&P 300 Fin 10.51 8.77 9.88 12.06 9.31 8.75 9.18 8.73 8.20


2015 (x)

EV/EBITDA

2016 (x)

EV/EBITDA

2017 (x)

EV/EBIT 2015

(x)

EV/EBIT 2016

(x)

EV/EBIT 2017

(x)

Smal l Resources S&P Smal l Res 8.53 9.61 7.00 8.33 8.66 6.15 17.09 19.22 10.52

Smal l Industria ls S&P Smal l Ind 15.09 14.69 11.47 11.74 10.64 9.71 15.81 14.01 12.66

Smal l Industria ls Excl Financia l s S&P Smal l Ind Ex Fin 15.27 14.63 13.19 11.76 10.63 9.61 16.27 14.32 12.77

Smal l Financia ls S&P Smal l Fin 13.50 15.37 5.04 11.58 10.73 10.86 12.11 11.42 11.65



04 October 2016


FIG.26-3: SECTOR MULTIPLES


stocks

Market Cap

($b)

S&P 300

Weight (%)

S&P 100

Weight (%)

Expected

12mth Price

Return (%)


2015 (%)

EPS Growth

2016 (%)

EPS Growth

2017 (%)

Energy 1010 10 66.14 4.11 4.31 10.99 17.24 27.16 18.01 ‐44.68 ‐36.53 50.82

Materia ls 1510 43 248.03 15.41 14.92 2.83 16.50 28.38 18.64 ‐23.02 ‐41.86 52.28

Capita l Goods 2010 12 17.90 1.11 0.67 ‐6.26 18.43 19.07 16.88 ‐29.93 ‐3.34 12.97

Commercia l & Profess ional Services 2020 14 38.85 2.41 2.14 7.62 19.99 20.28 19.03 7.89 ‐1.42 6.59

Transportation 2030 7 69.33 4.31 4.21 3.49 34.08 26.55 23.31 156.92 28.33 13.92

Consumer Durables & Apparel 2520 3 3.48 0.22 0.00 ‐5.72 25.51 24.01 21.98 4.74 6.24 9.24

Consumer Services 2530 20 59.90 3.72 3.31 4.76 24.84 23.17 20.83 7.73 7.19 11.24

Media 2540 12 19.74 1.23 0.69 9.59 15.60 16.24 16.04 ‐1.95 ‐3.95 1.29

Reta i l ing 2550 19 25.33 1.57 0.65 2.15 22.46 19.51 17.05 3.65 15.13 14.38

Food & Staples Reta i l ing 3010 3 81.46 5.06 5.73 ‐1.02 16.06 20.14 18.52 ‐2.09 ‐20.27 8.77

Food Beverage & Tobacco 3020 16 27.08 1.68 1.28 3.56 32.12 24.30 21.01 5.01 32.18 15.66

Health Care Equipment & Services 3510 15 67.94 4.22 4.03 ‐4.18 29.33 27.30 24.74 17.35 7.43 10.33

Pharmaceutica ls & Biotechnology 3520 5 54.45 3.38 3.65 4.69 28.33 31.43 28.95 34.17 ‐9.89 8.59

Banks 4010 9 392.64 24.40 28.20 4.56 11.90 12.64 12.23 5.01 ‐5.84 3.35

Divers i fied Financia ls 4020 19 80.62 5.01 5.02 4.39 17.04 15.51 15.02 15.74 9.82 3.32

Insurance 4030 7 52.72 3.28 3.50 11.79 13.85 14.81 13.55 ‐3.47 ‐6.46 9.28

Software & Services 4510 16 25.76 1.60 0.61 3.36 31.30 26.40 23.50 34.59 18.57 12.35

Telecommunication Services 5010 7 83.23 5.17 5.37 5.01 16.71 15.78 15.38 5.46 5.87 2.63

Uti l i ties 5510 7 39.11 2.43 2.75 6.76 26.01 23.24 22.59 ‐11.16 11.92 2.87

Rea l Estate 6010 34 144.66 8.99 8.79 4.10 18.12 17.46 16.79 9.76 3.80 3.98


(%)

ROE 2016

(%)

ROE 2017

(%)

Profit Margin

2015 (%)

Profit Margin

2016 (%)

Profit Margin

2017 (%)

Div Yield

2015 (%)

Div Yield

2016 (%)

Div Yield

2017 (%)PB 2015 (x) PB 2016 (x) PB 2017 (x)

Energy 1010 7.69 5.46 7.64 6.22 4.89 7.32 4.68 2.31 2.61 0.94 1.10 1.10

Materia ls 1510 8.06 5.83 10.11 10.25 7.63 9.94 4.11 2.10 2.59 1.56 1.82 1.74

Capital Goods 2010 11.57 12.93 13.71 3.54 4.05 4.17 3.93 3.29 3.62 1.71 1.85 1.87

Commercia l & Profess ional Services 2020 22.97 18.63 18.38 7.60 7.20 7.51 3.27 3.11 3.29 2.81 2.81 2.67

Transportation 2030 10.06 11.95 15.89 8.27 10.21 11.26 3.13 3.68 4.46 3.34 3.42 3.28

Consumer Durables & Apparel 2520 19.76 18.82 20.74 8.76 8.73 9.88 5.00 2.90 3.15 4.61 4.22 4.34

Consumer Services 2530 17.90 19.58 20.08 11.41 10.84 11.38 3.07 3.20 3.49 3.31 3.03 2.83

Media 2540 20.58 19.86 19.72 6.79 7.23 7.47 3.61 3.82 4.05 1.49 1.75 1.84

Reta i l ing 2550 16.73 17.01 17.07 4.78 5.14 5.37 3.58 3.65 4.25 2.64 2.43 2.29

Food & Staples Reta i l ing 3010 13.96 11.37 13.73 3.69 2.90 3.06 5.16 3.96 4.15 2.17 2.47 2.36

Food Beverage & Tobacco 3020 10.55 14.41 15.42 3.67 4.88 5.11 2.10 2.57 3.04 2.82 2.25 2.15

Health Care Equipment & Services 3510 20.72 21.96 22.25 7.82 7.68 7.84 1.97 2.22 2.80 3.97 3.81 3.00

Pharmaceuti cal s & Biotechnology 3520 43.47 42.18 43.97 23.94 19.97 18.74 1.43 1.43 1.57 11.37 11.70 9.60

Banks 4010 15.62 14.15 13.90 36.25 34.85 35.60 6.31 6.16 6.12 1.70 1.63 1.57

Divers i fied Financia ls 4020 17.77 17.56 17.09 29.12 29.49 30.60 4.34 4.71 4.96 2.36 2.16 2.10

Insurance 4030 12.04 12.75 13.02 8.12 8.49 9.17 5.40 5.68 5.46 1.34 1.40 1.38

Software & Services 4510 20.30 22.55 24.14 17.20 16.78 16.96 1.96 2.20 2.54 6.34 5.38 4.94

Telecommunication Services 5010 6.33 27.79 25.20 15.47 14.79 14.59 5.04 5.56 5.64 4.62 3.61 3.51

Uti l i ties 5510 9.65 8.73 7.93 7.35 8.45 8.66 4.56 4.95 5.36 1.78 1.82 1.76

Rea l Estate 6010 9.17 8.39 7.94 26.27 25.98 24.50 4.38 4.59 4.77 1.42 1.32 1.26


2015 (x)

EV/EBITDA

2016 (x)

EV/EBITDA

2017 (x)

EV/EBIT 2015

(x)

EV/EBIT 2016

(x)

EV/EBIT 2017

(x)

Energy 1010 6.47 8.60 6.84 8.50 9.88 7.55 15.38 20.72 14.12

Materia ls 1510 7.78 9.69 8.24 5.60 7.14 6.10 9.53 14.60 10.69

Capita l Goods 2010 8.86 11.16 10.21 7.31 8.49 7.82 10.56 12.67 11.30

Commercia l & Profess ional Services 2020 11.29 11.96 11.11 10.11 10.05 9.31 15.46 15.26 14.06

Transportation 2030 14.77 11.58 10.61 14.58 12.88 11.99 24.01 20.69 19.31

Consumer Durables & Apparel 2520 22.98 22.11 19.66 16.20 14.34 13.47 18.75 16.40 15.15

Consumer Servi ces 2530 17.31 18.00 14.67 14.32 12.71 11.75 18.91 16.85 15.40

Media 2540 10.98 12.32 11.84 5.98 6.22 5.87 9.06 9.18 8.48

Reta i l ing 2550 15.66 14.88 13.71 13.09 11.37 10.06 16.53 14.24 12.44

Food & Staples Retai l ing 3010 11.43 13.72 12.43 9.00 10.50 9.85 11.61 14.60 12.99

Food Beverage & Tobacco 3020 21.09 15.83 14.24 11.10 8.69 7.90 16.55 12.06 11.03

Health Care Equipment & Services 3510 19.49 17.74 13.77 16.28 15.41 14.05 21.10 20.09 18.22

Pharmaceutica ls & Biotechnology 3520 24.55 29.02 26.78 20.30 22.45 20.04 22.48 25.34 23.18

Banks 4010 9.77 10.41 9.89 12.09 9.01 8.54 8.28 8.12 7.70

Divers i fied Financia ls 4020 14.61 12.19 9.09 13.02 10.49 9.96 13.63 11.46 10.89

Insurance 4030 12.10 3.38 11.30 10.68 10.17 8.74 11.83 11.01 9.30

Software & Services 4510 23.92 26.56 19.88 19.93 16.26 14.39 24.01 19.36 17.02

Telecommunication Services 5010 8.59 7.95 7.75 7.75 7.44 7.43 12.45 12.01 12.06

Uti l i ties 5510 11.29 9.63 9.07 13.08 11.84 11.34 19.07 17.23 16.80

Real Estate 6010 19.96 17.08 17.05 18.39 16.55 15.85 19.41 17.83 16.97


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