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BAILLIEU HOLST QUANT RESEARCH

02 June 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

Markets reach Winterfell

Global market outlook: Despite short term stimulus reprieves, the medium to long term global market dynamics point to slowing global growth, weaker commodity prices and lower interest rates. The US Fed has flagged a rate rise in June/July whilst December remains the most probable period for the next move. The rising strength of the USD will start to hurt commodity prices and growth in Emerging Markets. The inability of central banks to pull their economies away from stimulus dependencies has created an inefficient distribution of resources. Meanwhile, Central bank effectiveness is running into a “law of diminishing marginal returns”. The profit taking risk is expected to remain till late June (i.e. US Fed meeting and Brexit vote). Central Banks are forced to keep an easing monetary policy bias due to the lack of a government reform agenda to drive growth. Growing debt and deficit problems have forced governments to deliver a low risk and low growth agenda to support their political election outlook. The conflicting monetary and fiscal policy settings will continue to prolong the recovery cycle.

Local market outlook: The Australian equity market is expected to pullback as global and local sentiment fall in the traditional weak local winter season. Australia continues to ignore structural issues after going through 25 years of growth on the back of credit, population and mining boom. The lack of policy planning post boom cycles have delivered asset bubbles and cyclical low growth risks. We expect global investors to buy into Australian equity dividend yields as the currency pulls back to the high 60’s. Australian equities will continue to benefit from global demand for better than bond yield income streams from the rising older demographic. The RBA will be forced to follow with cuts in 2016Q3 and 2017Q2 as the economy slows further.

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 continue to see profit taking in June on macro risks and stretched valuations while longer term dynamics are supported by low growth and low interest rates. The RBA rate cuts and the end of the housing boom has made equities the preferred risk/return option for investors wanting a better than bond yield return in a rising cost environment. We maintain our positive long term view on the yield thematic while small cap industrials offer the best growth and yield to value mix. We continue to favour the new economy (i.e. MITCH Universe – Media, Information, Telecom, Consumer and Health) over the old economy on the long term view.


02 June 2016


Contents Global Outlook – Top Down 3 Global Outlook – Bottom Up 7 Macro Summary - Global 12 Market Summary - Local 13 Major Sector Outlook – Market 15 Major Sector Outlook – Resources 17 Major Sector Outlook – Industrials Ex Financials 19 Major Sector Outlook – Financials 21 Performance Analysis 23 Market and Sector Multiples 25


02 June 2016


Global outlook – top down Major indices around the world in USD shows that emerging markets and commodity

based countries were the worst performers in the last 18 months. Australia has gone from performing above the world index in mid-2014 to be one of the underperformers.

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$)

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

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$)



02 June 2016


GDP growth outlook shows the pecking order starting with India and ending with Japan. The recent downgrades to China puts a gap below India while US downgrades have put a gap below Australia. Australia is likely to see more downgrades as the major trading partners remain in a downgrade cycle. The common trend around the world is for a declining growth outlook.

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 short to medium 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



02 June 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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Euro Unemployment (%) US Unemployment (%) Japan Unemployment (%)

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


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



02 June 2016


Bond yields around the world show that the decline trend over the past 18 months is still intact. We continue to expect to see yield trend lower as governments keep cutting interest rates. Australian equity dividend yields with franking are substantially higher than all in the developed market bond and equity dividend yield. Japan has moved into negative territory while Europe is not far from there.

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 beginning to rise in both countries after hitting the lowest point in mid-2014. The relatively low levels of both volatility indices support the view that both markets are likely to see profit taking on stretched valuations.

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

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



02 June 2016


Global outlook – bottom up

Australia: The Australian market experienced PE expansion since 2012, while earnings and sales declined. We continue to expect the market to look for a quality growth/yield thematic in a low growth outlook. Falling commodity prices, local housing bubble and US rate cycle will keep the market in check for the short term. Australian equity dividend yield offers the best risk/return yield option compared to all the major markets.

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: US earnings growth is showing signs of stable broad based growth after the economy recovered on stimulus. The US market has moved past QE but slowing global growth, rising rates and 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. US Fed rate rise cycle expected to move twice in 2016.

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. 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 risk are higher. The hope of a QE based recovery will 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 will also deliver political instability. The Brexit worries will be an overhang with the UK going to a vote in June.

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

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UK: The UK needs to sustain 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 Euro needs a federation type overall government to manage the inequalities of the structure or continue to face break away threats. UK has been postponing the rate rise cycle and will have further reason to push back after recent global growth downgrades. Brexit vote in June will continue to be a source of risk.

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

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China: Despite the devaluation of the Yuan and stimulus packages, China will remain in an overall decline trend - towards 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 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 till another commodity cycle starts.

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. Recent economic data points to 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 latest move to negative interest rates shows the desperation to keep the transition on the recovery path. The likelihood of more stimulus in 2016 is rising after recent weak outlook while tax reform has been pushed back to 2019.

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 that has not become one of the dominant global growth push and demand for commodities as expected. 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 and risk to remain high.

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 weaker China is taking its 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.

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

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Canada: The Canadian economy has taken a substantial hit with a dominant exposure to the energy sector amid a declining global growth outlook and a weaker China taking effect. Canada will be banking on an oil price bounce late this year and an eventual global economic recovery. Market is beginning to see upside in the energy sector in 2016H2 and that will help 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 global growth outlook and a weaker China. Brazil will hope 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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Macro summary – global US: The US economic recovery has given the US Fed enough scope to maintain a slow

path to normalisation of US interest rates. The US corporate earnings season continues to support short term profit taking despite the overall economy showing stable performance.

Euro: The ECB will continue to hold fire with more global macro and geopolitical risks rising. Similar to US, we expect there will be multiple stages of EU QE in a bid for substantial recovery. Austerity countries will continue to struggle through multi-year structural changes while Middle East geopolitical unrest will continue to weigh on growth. The UK vote on EU exit will weigh on growth and markets in June.

China: Chinese leadership continues to manage the transition with measured stimulus actions, while easing the economy out of the credit and bubble issues. The older demographic and the lack of innovation will be long term issues for growth in China. We continue to expect China to deliver multiple layers of stimulus and devaluate the Yuan as the economy slows down. The transition of the economy seems to be headed in the right direction as the services/consumer segment taking over as the dominant growth driver. The structural risk remains as the leadership keeps turning on the stimulus driven manufacturing growth tap to pump up growth outlook.

Japan: The easy steps in regards to stimulus have driven spending and boosted the share market. The government has postponed tax reform structural changes well into 2019 while the negative rates policy shows the desperate state of the Japanese economy with debt to GDP level going past 200%.

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 and risk will remain high.

Commodities: We expect iron ore to average below US$50 over the next year with rising supply and falling demand. Energy prices are unlikely to average above US$50 in the short term while OPEC and non-OPEC members fight for market share. The medium term outlook is turning positive as we start to see some supply side reductions. The longer term outlook for the fossil fuel and utilities sectors are likely to be challenged by improving battery technology supporting alternative clean energy sources in five to ten years’ time. The next commodity up cycle will require a large emerging country like India or Indonesia to ramp up a substantial building-up phase like China. We struggle to see that happening in the next five years.


02 June 2016


Macro summary – local Unemployment outlook: The accumulated unemployment tidal wave from technological

improvement, automation, car industry, airline industry, ship building industry, telco industry, media industry, retail industry, finance industry, manufacturing industry, M&A job cuts, outsourcing to emerging markets, government job cuts, housing slowdown and the ever shrinking mining/energy and related services industry cuts will create a vacuum for jobs and drive unemployment close to 6.5% in the next 12 months. The transition in the employment market from full time to part time and high paying to low paying jobs will start to have a structural effect on the retail spending and big asset purchases over time. We expect unemployment to stay above 6% well into 2017. Similar to the US, we are losing high paid and high skilled full time jobs while creating lower paid and lower skilled part time jobs. FTAs will further hinder a new industry build up or an old industry recovery process given the competition from mature technological and manufacturing giants like South Korea, Japan and China. The employment market outlook has held up better than expected due to sample testing limitations, lower population growth, full time to part time transition and short term government subsidies to declining industries to carry them until the federal election. The housing market rolling over will further add to the economic transition woes. The risk of technology and automation will decimate the job market in the low income manufacturing and service sectors in the next decade.

Consumer confidence: Tidal waves of unemployment coming in the next few years, rising cost of living pressures, falling real wages, rolling over of the housing cycle, lack of fiscal reform and a lack of a growth agenda from the government have all culminated to hurt consumer confidence. We continue to be negative on local cyclicals and consumer spending related sectors with a slowing domestic economy. A continued lack of long term planning, real policy reform, election volatility and party politics will keep sentiment low in 2016. Property bubble worries in light of banks raising interest rates out of cycle will further damage any consumer confidence recovery. Irrespective of who wins the election, tax burdens will increase into the future years and that will come from the disposable income of the low to middle income earners, directly or indirectly.

Infrastructure outlook: The technological advancement in infrastructure projects, FTA allowance of global cheap labour and loosening of the 457 visa will limit any substantial job creation to cover the unemployment tidal wave that is expected domestically. The government preference to spend money on roads with toll gates over railways continues to hurt efficiency of the overall economy. 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.

Corporate outlook: Businesses with strong cash flow and solid balance sheets in a falling consumer sentiment and a low interest rate environment are choosing to chase growth through cost cutting, share buy backs and M&A. The easy cost cutting cycle is coming to an end with the next phase requiring wage reduction or M&A. Wage cuts will take time to work through structurally and politically. We expect corporates to move towards substantial cost cutting through layoffs, buying back shares or consolidating industries to drive better earnings per share growth as the interest rate down cycle starts to see a bottom with US Fed raising rates. Private equity remains on the side lines with substantial war chest. The lack of capex growth shows that corporates are not planning to increase employment substantially in the next year to buffer the rising unemployment and under employment despite low interest rates, tax cuts and other stimulus.

Property prices: We continue to expect areas of substantial unemployment areas with concentrated middle to low income earners and areas with over-supplied high density dwellings will experience property price decline in the next 6-12 month time frame. The top end should continue to stabilise with overseas investors from Europe and Asia continuing to see 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 issues, rising interest rates, falling rental yield and weak consumer confidence taking effect. In a longer term thematic, we expect future generations to prefer renting over buying property and choosing apartment living to detached housing. Oversupply 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 incomes to high density living due to the unaffordability of stand-alone


02 June 2016


house prices. The real structural solution is to limit negative gearing to new dwellings only or limiting number of negative geared properties to take the heat off low income and first home buyers. The latest move by investors classifying the home loans owner occupied to get lower rates will end up delivering even more risk to the investor and the financial system. Australian economy is slowing and the risk from property bubble is becoming substantial due to the build-up of household debt.

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 tax revenue at federal and state levels. The structural decline in the budget has not been addressed at the revenue and spending levels. The current policy solutions are no more than nipping at the edges with minor spending cuts to set up an election win. Given the track record of the last two budgets and the legacy cuts flowing into this budget, the consumer sentiment is the main factor that will suffer in the medium to long term. The $80b cuts to education and health will starve the states into raising state level taxes over time. History does not hold well for middle to low income earners and consumer sentiment as a whole.

Currency outlook: We maintain our view that AUDUSD will track down to high 60s in the medium term with US Fed moves, global growth worries, domestic economy sliding, domestic government inaction, RBA rate cuts and commodity price falls. Substantial rate rise outlook for US or substantial devaluation of the Yuan can move the AUDUSD towards mid 60s as it overshoots.

Interest rate outlook: We expect another 50 bps cut in the next 12-18 months to support the sliding economy with the government stuck in election mode. We see very little chance of any rate rise until 2018 or when inflation starts to pick up on low currency. The RBA has moved to negative bias on growth, employment and inflation. Given the backward looking data strength, RBA is likely to wait for the next inflation data in July before making another move on rates.


02 June 2016


Market outlook Summary – Global and local economic slowdown will continue to weigh on equity market.

We continue to see dividend yield premium as the key driver of 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 2016Q3 and 2017Q2 as the economy slows further. We expect to see short term profit taking as the market is paying 5 year high value for yield.

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

Growth – Despite the low interest rate levels, the low global growth and 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 moves substantially into positive territory despite earnings revision remaining 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 YieldGARY (Growth At Reasonable Yield) Price Index ‐ RHS



02 June 2016


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


02 June 2016


Major sector outlook – Resources Summary – Commodities have outperformed the market expectations in year to date with

China stimulus. Lack of supply side action shows the risk is on the downside for commodities as the China stimulus starts to wane. We struggle to see the rising growth and falling ROE being maintained as the Chinese economy continues to slow down further. Market has already priced in upgrades to commodity prices after short term strength while long term dynamics remain weak.

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

Growth – Low global growth outlook has kept the ROE at historical low levels while EPS growth recovery in 2017 looks to be in doubt.

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 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 moves into substantial positive territory while earnings revision recovers.

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



02 June 2016


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

5000

6000

7000

8000


500

1000

1500

2000

2500

3000

3500

4000

4500

5000

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00


1.00

2.00

3.00

4.00

5.00

6.00

7.00



-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

40.00


5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

21.00

23.00

25.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00




02 June 2016


Major sector outlook – Industrials ex Financials Summary – US/China growth worries and stimulus driven Euro/Japan are raising risks for

Industrial sector outlook with global facing models. Domestic cyclical Industrials will be under pressure with government 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 – Low EPS growth recovery supported by strong ROE.

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 moves into substantial positive territory while earnings revision remains in slight negative 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


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



02 June 2016


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

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

23.00

24.00


10.00

11.00

12.00

13.00

14.00

15.00

16.00

17.00

18.00

19.00

20.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00




02 June 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 on fair value with investors selling on growth and regulatory risks. Banks have started to move on interest rate rises out of cycle to protect their margins, and we do expect to see more out of cycle rises in the next 6-12 months. The confession period is expected to see banks raise bad debt provisions and pull back dividend expectations. Global investors were the main sellers in recent selloff on currency worry and we expect that trade to reverse as the currency stabilises around the high-60s. The declining growth outlook remains an overhang on the sector.

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

Growth – Declining growth and ROE outlook at historical low levels 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 moved positive despite negative earnings moving further negative.



500

700

900

1100

1300

1500

1700

1900

2100

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50


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



02 June 2016


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

500

700

900

1100

1300

1500

1700

1900

2100

2300

2500


500

700

900

1100

1300

1500

1700

1900

2100

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00


1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00



0.00

2.00

4.00

6.00

8.00

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




02 June 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 5447.80 1.60 2.48 10.10 -5.66 75.07

S&P 300 Index 5339.06 1.59 2.47 10.28 -6.60 70.37

S&P 300 Accumulation Index 49524.01 1.60 3.14 11.67 -2.10 133.72

S&P 300 Resources Index 2715.55 2.31 -5.00 16.23 -23.63 -24.81

S&P 300 Resources Accumulation Index 15612.73 2.31 -5.00 16.99 -20.50 -8.51

S&P 300 Industrials Index 8887.53 1.48 3.75 9.40 -3.21 112.25

S&P 300 Industrials Accumulation Index 104483.22 1.48 4.53 10.89 1.55 204.67

S&P 100 Index 4448.31 1.52 2.31 10.11 -7.50 71.22

S&P 100 Resources Index 3805.57 2.50 -5.76 15.61 -25.63 -24.06

S&P 100 Industrials Index 4874.84 1.38 3.65 9.31 -3.90 112.10

S&P 50 Index 5346.17 1.36 1.82 9.68 -9.30 66.67

S&P Mid Cap Index 5615.41 2.62 5.58 13.06 6.07 107.33

S&P Small Cap Index 2325.41 2.21 4.05 11.88 3.12 61.03

S&P Small Cap Accumulation Index 6203.81 2.24 4.09 13.12 6.91 101.45

S&P Small Cap Resources Index 1775.65 1.02 0.80 20.61 -3.11 -35.84

S&P Small Cap Resources Accumulation Index 3005.39 1.02 0.80 20.73 -1.82 -32.19

S&P Small Cap Industrials Index 2628.39 2.47 4.77 10.28 4.38 117.46

S&P Small Cap Industrials Accumulation Index 8422.23 2.50 4.82 11.71 8.66 192.31 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 5339.06 1.59 2.47 10.28 -6.60 70.37

US - NASDAQ 4948.06 1.79 1.61 7.24 0.13 282.43

US - S&P 500 2096.96 1.01 1.53 8.53 -0.49 206.85

US - DOW JONES 17787.20 0.46 0.08 7.69 -1.24 168.41

CANADA - S&P/TSX 60 821.06 0.67 0.69 8.71 -6.17 N/A

BRAZIL - BOVESPA 48471.71 -1.77 -10.09 13.27 -8.13 30.63

MEXICO 45459.45 -0.08 -0.71 3.99 1.69 166.73

UK - FTSE 100 6230.79 0.19 -0.18 2.19 -10.79 76.47

FRENCH - CAC40 4505.62 1.67 1.73 3.49 -10.03 77.78

GERMAN - DAX 10262.74 2.04 2.23 8.08 -10.08 179.91

JAPAN - NIKKEI 225 17234.98 4.46 3.41 7.54 -16.19 140.27

HONG KONG - HANG SENG 20815.09 4.97 -1.20 8.91 -24.10 74.60

CHINA - SHANGHAI 2916.62 3.37 -0.74 8.51 -36.76 33.00

INDONESIA - KLSE 1626.00 0.01 -2.79 -1.74 -6.95 89.46

NEW ZEALAND - NZSE 50G 7039.41 2.43 3.21 12.98 20.44 184.88

IRON ORE - Iron Ore fines 61.5% Fe US$/dmt 49.60 -2.55 -19.74 2.06 -18.69 N/A

GOLD - Spot Gold - US Dollars / Oz 1215.03 -0.98 -6.06 -1.88 2.09 29.53

SILVER - Spot Silver - US Dollars 15.99 -1.29 -10.32 7.32 -4.39 19.90

COPPER - COMEX High Grade Copper Futures 209.55 1.40 -8.23 -1.74 -23.19 24.07

OIL - WTI - NYMEX Light Sweet Crude Oil Futures 49.10 0.99 6.93 45.48 -18.57 7.86

OIL - Brent Crude Oil 49.55 1.93 4.60 35.23 -24.33 8.76

COAL - NYMEX Central Appalachian Coal Futures 39.83 -8.71 -8.44 -9.78 -10.55 -15.56

GAS - NYMEX Natural Gas Futures 2.29 6.76 6.91 34.25 -13.36 -41.93

AUDUSD 0.7232 0.68 -4.94 1.29 -5.41 12.92

AUDEUR 0.6497 0.76 -2.25 -1.05 -6.60 28.30

AUDJPY 80.08 1.35 -1.04 -0.47 -15.63 27.15

VIX - CBOE Market Volatility 14.19 -1.60 -9.62 -30.95 2.53 -71.23

XVI - S&P/ASX 200 Volatility 16.52 -7.77 -6.91 -25.51 7.90 -56.45 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


02 June 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 8417.56 4.14 -1.62 11.74 -30.14 -32.99

S&P/ASX 300 Materials - 15 8039.59 1.85 -3.10 16.78 -14.82 0.81

S&P/ASX 300 Industrial - 20 5305.83 1.10 2.56 5.85 6.82 133.31

S&P/ASX 300 Consumer Discretionary - 25 2135.61 1.94 5.64 7.97 2.96 118.25

S&P/ASX 300 Consumer Staples - 30 8545.80 -1.02 -0.89 2.38 -6.89 44.29

S&P/ASX 300 HealthCare - 35 18072.84 2.00 9.35 12.43 14.30 161.69

S&P/ASX 300 Financials - 40 6012.72 1.85 3.27 10.89 -7.81 120.40

S&P/ASX 300 Information Technology - 45 956.81 3.12 7.05 15.07 2.42 74.33

S&P/ASX 300 Telecommunication Services - 50 2014.42 0.26 4.96 7.36 -5.85 86.47

S&P/ASX 300 Utilities - 55 7011.89 0.42 3.32 4.00 5.16 99.11

S&P/ASX 300 Metals & Mining 2257.18 1.55 -6.37 18.26 -20.61 -21.36

S&P/ASX 300 RESOURCES 2715.55 2.31 -5.00 16.23 -23.63 -24.81

S&P/ASX 300 INDUSTRIALS 8887.53 1.48 3.75 9.40 -3.21 112.25

S&P/ASX 300 5339.06 1.59 2.47 10.28 -6.60 70.37 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 8417.56 4.14 -1.62 11.74 -30.14 -32.99

S&P/ASX 300 Materials - 1510 8039.59 1.85 -3.10 16.78 -14.82 0.81

S&P/ASX 300 Capital Goods - 2010 2346.01 0.76 1.19 12.25 2.99 -9.00

S&P/ASX 300 Comm & Professional Services - 2020 2655.85 2.00 2.53 8.34 1.88 124.40

S&P/ASX 300 Transportation - 2030 9740.27 0.64 2.73 3.79 11.14 206.66

S&P/ASX 300 Automobiles & Components - 2510 1459.69 4.27 2.98 10.15 16.90 N/A

S&P/ASX 300 Consumer Durables & Apparel - 2520 590.64 0.62 -0.47 14.16 -13.89 -69.68

S&P/ASX 300 Consumer Services - 2530 7328.46 2.29 6.21 8.66 4.03 133.07

S&P/ASX 300 Media - 2540 1496.64 1.01 7.48 8.53 -1.42 122.99

S&P/ASX 300 Retailing - 2550 4892.15 1.73 3.56 4.93 4.34 110.72

S&P/ASX 300 Food & Staples Retailing - 3010 11932.73 -1.66 -2.74 1.45 -11.96 40.39

S&P/ASX 300 Food Beverage & Tobacco - 3020 6150.98 1.99 7.30 6.17 19.27 62.07

S&P/ASX 300 HealthCare Equipment&Services - 3510 9403.55 1.67 8.93 12.62 5.97 142.94

S&P/ASX 300 Pharmaceuticals&Biotechnology - 3520 35004.89 2.26 9.70 12.28 22.11 183.43

S&P/ASX 300 Banks - 4010 7921.58 1.61 2.58 10.81 -13.32 116.27

S&P/ASX 300 Diversified Financials - 4020 7661.87 4.68 10.21 13.59 -3.40 223.61

S&P/ASX 300 Insurance - 4030 3858.39 1.83 2.98 14.96 -2.95 55.03

S&P/ASX 300 Real Estate - 4040 3297.74 1.40 2.78 7.76 7.76 158.70

S&P/ASX 300 Software & Services - 4510 1151.43 3.12 7.05 15.13 2.89 95.46

S&P/ASX 300 Technology Hardware&Equipment - 4520 162.26 0.00 0.00 -10.42 N/A N/A

S&P/ASX 300 Telecommunication Services - 5010 2014.42 0.26 4.96 7.36 -5.85 86.47

S&P/ASX 300 Utilities - 5510 7011.89 0.42 3.32 4.00 5.16 99.11

S&P/ASX 300 5339.06 1.59 2.47 10.28 -6.60 70.37 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


02 June 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 500 407 1628.95 100.00 100.00 ‐2.23 16.93 18.14 16.28 ‐3.17 ‐6.65 11.43

Market S&P 300 280 1574.26 100.00 100.00 ‐2.52 16.60 17.96 16.18 ‐3.38 ‐7.54 10.96

Large Cap S&P 100 100 1377.31 87.13 100.00 ‐2.57 16.00 17.76 16.16 ‐2.96 ‐9.90 9.91

Smal l Cap S&P Smal l 180 196.95 12.46 0.00 ‐2.19 22.53 19.47 16.37 ‐7.37 15.71 18.99

Micro Cap S&P Micro 127 54.69 0.00 0.00 6.18 39.13 25.46 19.44 14.39 53.71 30.93

S&P 500 with mkcap between $20‐500m MC $20‐500m 164 41.93 1.25 0.00 14.06 69.13 21.46 15.54 ‐61.61 222.09 38.09

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 14.33 14.45 15.22 11.41 10.83 11.53 4.50 4.20 4.43 1.89 1.85 1.78

Market S&P 300 14.51 14.66 15.35 11.75 11.12 11.81 4.57 4.24 4.47 1.88 1.88 1.81

Large Cap S&P 100 15.63 14.57 15.14 13.09 12.31 12.98 4.75 4.35 4.55 1.88 1.89 1.81

Smal l Cap S&P Smal l 6.62 15.32 16.89 6.05 6.49 7.31 3.31 3.48 3.90 1.88 1.86 1.77

Micro Cap S&P Micro 9.26 8.30 11.34 4.41 5.25 6.39 2.62 2.98 3.37 2.19 1.20 1.19

S&P 500 with mkcap between $20‐500m MC $20‐500m ‐25.44 13.50 15.24 4.07 3.96 5.27 3.22 3.25 3.69 1.50 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 10.97 10.46 10.54 9.90 9.69 8.86 12.20 12.80 11.45

Market S&P 300 10.83 10.35 10.46 9.84 9.66 8.85 12.03 12.72 11.40

Large Cap S&P 100 10.64 10.09 10.41 9.79 9.69 8.91 11.72 12.59 11.35

Smal l Cap S&P Smal l 12.38 12.65 10.84 10.17 9.51 8.40 14.80 13.69 11.71

Micro Cap S&P Micro 17.13 14.95 13.53 12.10 10.65 9.30 20.82 15.93 13.20

S&P 500 with mkcap between $20‐500m MC $20‐500m 9.35 9.86 9.49 9.96 9.37 8.01 17.23 14.69 11.71


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 39 210.80 13.34 13.27 ‐7.19 14.04 32.95 20.46 ‐34.13 ‐57.40 61.02

Market Industria ls S&P 300 Ind 241 1363.46 86.26 86.73 ‐1.80 17.09 16.78 15.68 5.92 1.85 7.02

Market Industria ls Excl Financia ls S&P 300 Ind Ex Fin 177 684.43 43.30 40.16 ‐4.97 22.40 20.95 18.95 5.91 6.90 10.55

Market Financia ls S&P 300 Fin 64 679.03 42.96 46.56 1.40 13.79 13.97 13.35 5.93 ‐1.29 4.64


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 28.01 1.77 0.00 ‐2.15 21.50 30.66 14.73 5.40 ‐29.89 108.10

Smal l Industria ls S&P Smal l Ind 154 168.94 10.69 0.00 ‐2.20 22.71 18.36 16.67 ‐9.29 23.70 10.14

Smal l Industria ls Excl Financia ls S&P Smal l Ind Ex Fin 120 131.23 8.30 0.00 ‐2.69 25.48 19.51 17.47 ‐16.13 30.58 11.68

Smal l Financia ls S&P Smal l Fin 34 37.70 2.39 0.00 ‐0.47 16.49 15.24 14.38 11.12 8.19 5.96


(%)

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 8.31 4.74 7.14 9.89 5.83 7.98 5.15 2.23 2.56 1.04 1.19 1.15

Market Industria ls S&P 300 Ind 15.47 16.19 16.62 12.31 12.37 12.72 4.48 4.55 4.76 2.15 2.07 1.98

Market Industria ls Excl Financia ls S&P 300 Ind Ex Fin 16.57 18.76 19.88 6.81 6.88 7.24 3.49 3.57 3.90 2.97 2.92 2.79

Market Financia ls S&P 300 Fin 14.35 13.61 13.34 26.75 26.91 27.34 5.48 5.54 5.63 1.68 1.60 1.54


(%)

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 9.85 9.15 14.03 4.68 4.17 8.68 1.78 1.07 1.58 1.18 1.36 1.26

Smal l Industria ls S&P Smal l Ind 6.09 16.34 17.36 6.28 6.82 7.11 3.56 3.89 4.28 2.09 1.99 1.89

Smal l Industria ls Excl Financia ls S&P Smal l Ind Ex Fin 3.03 16.13 17.47 5.00 5.52 5.81 3.13 3.47 3.89 2.21 2.15 2.04

Smal l Financia l s S&P Smal l Fin 16.72 17.09 16.98 28.83 28.69 28.38 5.06 5.33 5.65 1.77 1.58 1.52


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 5.77 7.71 6.55 4.96 6.48 5.53 8.82 16.10 11.52

Market Industria ls S&P 300 Ind 12.53 10.93 11.53 12.13 10.64 9.91 12.93 12.24 11.37

Market Industria ls Excl Financia ls S&P 300 Ind Ex Fin 13.19 12.95 11.67 11.13 10.69 9.92 15.77 15.34 13.98

Market Financia ls S&P 300 Fin 11.94 9.44 11.38 13.44 10.57 9.91 10.81 9.96 9.40


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 7.15 8.10 6.19 7.20 7.39 5.36 15.41 17.43 9.84

Smal l Industria ls S&P Smal l Ind 14.09 13.95 12.39 10.83 9.93 9.14 14.71 13.27 12.04

Smal l Industria ls Excl Financia l s S&P Smal l Ind Ex Fin 13.57 13.71 12.01 10.04 9.20 8.40 14.54 12.95 11.65

Smal l Financia ls S&P Smal l Fin 16.27 14.87 13.91 14.91 13.50 12.81 15.34 14.45 13.51



02 June 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 11 64.93 4.11 4.36 ‐4.81 17.46 28.37 17.88 ‐45.44 ‐38.45 58.67

Materia ls 1510 43 213.85 13.53 12.95 ‐8.54 15.43 27.93 20.03 ‐27.21 ‐44.74 39.46

Capita l Goods 2010 10 17.05 1.08 0.90 ‐20.53 17.08 18.55 17.31 ‐27.46 ‐7.93 7.19

Commercia l & Profess ional Services 2020 17 40.73 2.58 2.25 1.63 19.41 19.06 18.15 0.32 1.85 5.03

Transportation 2030 9 77.52 4.90 4.91 ‐1.96 31.51 25.60 22.16 101.65 23.08 15.51

Consumer Durables & Apparel 2520 4 3.37 0.21 0.00 ‐2.61 24.39 24.03 19.97 12.36 1.50 20.33

Consumer Services 2530 20 55.79 3.53 3.07 2.55 23.23 21.35 19.29 7.71 8.77 10.69

Media 2540 14 20.76 1.31 0.69 1.50 16.59 16.36 15.55 2.99 1.41 5.18

Reta i l ing 2550 17 21.73 1.37 0.54 1.50 19.63 17.40 15.56 3.29 12.82 11.78

Food & Staples Reta i l ing 3010 3 75.94 4.80 5.38 2.09 15.00 18.29 16.81 ‐2.03 ‐17.99 8.78

Food Beverage & Tobacco 3020 14 23.40 1.48 1.19 1.77 28.71 22.15 19.06 4.21 29.60 16.26

Health Care Equipment & Services 3510 15 64.37 4.07 3.78 ‐15.47 27.76 25.35 22.82 17.40 9.47 11.10

Pharmaceutica ls & Biotechnology 3520 5 56.74 3.59 3.98 ‐27.27 29.64 30.27 25.43 35.02 ‐2.08 19.05

Banks 4010 9 396.23 25.07 28.65 2.40 12.05 12.65 12.16 5.00 ‐4.73 4.07

Divers i fied Financia ls 4020 15 78.34 4.96 4.95 3.31 16.92 15.06 14.45 15.70 12.36 4.22

Insurance 4030 7 60.87 3.85 4.13 ‐1.11 16.00 15.91 14.61 ‐3.46 0.59 8.93

Rea l Estate 4040 33 143.60 9.08 8.83 ‐1.35 18.12 17.40 16.56 9.64 4.10 5.08

Software & Services 4510 16 23.57 1.49 0.65 ‐9.17 27.40 23.75 20.92 33.42 15.37 13.55

Telecommunication Services 5010 7 92.41 5.85 6.09 ‐2.18 18.62 17.48 16.45 5.41 6.52 6.28

Uti l i ties 5510 7 38.66 2.45 2.72 2.96 25.75 23.27 21.34 ‐11.18 10.67 9.04


(%)

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 7.47 5.35 7.36 6.01 4.72 7.19 4.77 2.50 3.21 0.91 1.03 1.02

Materia ls 1510 7.74 4.86 7.15 10.19 6.49 8.01 4.75 2.56 2.78 1.36 1.55 1.48

Capital Goods 2010 12.79 12.39 12.74 3.59 3.81 3.84 4.07 3.47 3.65 1.68 1.77 1.71

Commercia l & Profess ional Services 2020 23.79 19.46 18.95 7.70 7.58 7.69 3.28 3.23 3.46 2.67 2.66 2.50

Transportation 2030 10.02 11.54 14.79 8.47 10.20 11.19 3.05 3.65 4.26 3.07 3.13 3.04

Consumer Durables & Apparel 2520 18.23 17.21 18.55 5.30 5.08 6.02 5.16 2.99 3.29 3.26 3.10 2.93

Consumer Services 2530 17.65 19.31 20.18 11.41 10.99 11.36 3.28 3.32 3.51 3.09 2.83 2.68

Media 2540 19.82 19.58 19.74 6.54 6.77 7.44 3.56 3.75 4.07 1.48 1.72 1.65

Reta i l ing 2550 14.84 15.36 16.11 4.84 5.14 5.44 3.95 4.05 4.47 2.28 2.15 2.06

Food & Staples Reta i l ing 3010 14.06 10.98 13.48 3.69 2.97 3.16 5.54 4.48 4.83 2.02 2.23 2.16

Food Beverage & Tobacco 3020 10.63 12.71 13.70 3.64 4.84 4.85 2.39 2.93 3.41 2.50 2.01 1.93

Health Care Equipment & Services 3510 20.51 21.64 22.29 7.82 7.80 8.11 2.08 2.41 2.69 3.76 3.59 3.37

Pharmaceuti cal s & Biotechnology 3520 44.57 44.21 46.51 23.94 20.45 21.92 1.37 1.39 1.71 12.44 12.51 10.03

Banks 4010 15.69 14.34 14.14 36.25 35.03 35.72 6.23 6.09 6.10 1.72 1.65 1.57

Divers i fied Financia ls 4020 18.86 18.72 18.13 29.26 29.72 30.86 4.37 4.84 5.15 2.35 2.14 2.05

Insurance 4030 11.98 13.30 13.68 8.12 8.94 9.42 4.67 5.08 5.15 1.55 1.57 1.53

Rea l Estate 4040 9.21 8.95 8.37 26.27 26.30 25.56 4.38 4.60 4.79 1.42 1.33 1.27

Software & Services 4510 22.29 23.15 24.82 16.36 15.99 16.35 2.24 2.50 2.86 5.61 4.76 4.52

Telecommunication Services 5010 11.13 28.02 27.19 15.47 14.78 15.00 4.53 4.98 5.12 5.17 4.14 4.15

Uti l i ties 5510 9.54 7.85 7.89 7.35 8.33 8.80 4.61 4.96 5.30 1.76 1.80 1.70


2015 (x)

EV/EBITDA

2016 (x)

EV/EBITDA

2017 (x)

EV/EBIT 2015

(x)

EV/EBIT 2016

(x)

EV/EBIT 2017

(x)

Energy 1010 6.39 8.38 6.62 8.43 9.49 7.33 15.35 20.00 13.22

Materia ls 1510 6.77 8.57 7.52 5.04 6.55 5.80 8.59 14.69 11.43

Capita l Goods 2010 8.91 9.98 10.71 7.07 8.23 8.03 9.91 13.34 12.50

Commercia l & Profess ional Services 2020 10.92 12.14 11.06 9.74 9.28 8.69 14.91 14.25 13.15

Transportation 2030 13.96 11.54 10.49 13.61 12.31 11.36 22.21 19.78 17.85

Consumer Durables & Apparel 2520 17.94 19.04 14.41 12.50 11.59 10.38 16.09 14.43 12.65

Consumer Servi ces 2530 16.20 16.58 13.43 13.43 11.95 10.98 17.75 15.78 14.37

Media 2540 11.52 12.21 11.08 6.22 6.29 5.84 9.47 9.38 8.43

Reta i l ing 2550 13.59 13.40 11.84 11.52 10.27 9.22 14.58 12.85 11.43

Food & Staples Retai l ing 3010 10.68 12.12 10.69 8.45 9.68 9.02 10.90 13.48 12.24

Food Beverage & Tobacco 3020 18.55 14.16 13.11 9.99 7.92 7.22 14.92 11.05 10.22

Health Care Equipment & Services 3510 18.45 16.81 15.11 15.50 14.49 13.08 20.09 18.80 16.82

Pharmaceutica ls & Biotechnology 3520 25.74 28.37 24.85 21.12 21.53 18.25 23.39 24.40 20.57

Banks 4010 9.90 10.68 10.12 12.20 9.05 8.44 8.36 7.93 7.52

Divers i fied Financia ls 4020 14.78 11.67 11.32 12.87 10.00 9.74 13.49 10.93 10.49

Insurance 4030 13.97 3.09 12.03 12.15 10.72 9.50 13.46 11.81 10.28

Real Estate 4040 19.95 16.99 16.84 18.29 16.37 15.58 19.30 17.41 16.53

Software & Services 4510 20.86 23.77 18.53 17.53 14.91 13.22 21.22 17.79 15.65

Telecommunication Services 5010 9.57 9.18 8.65 8.47 8.08 7.87 13.61 13.01 12.44

Uti l i ties 5510 11.19 10.13 9.30 12.99 11.76 11.08 18.94 17.51 16.45


BAILLIEU HOLST RESEARCH

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