the a2 milk company - macquarie...the a2 milk company flawless execution event a2m reported its 1h18...
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Please refer to page 11 for important disclosures and analyst certification, or on our website
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AUSTRALIA
A2M AU Outperform
Price (at 05:10, 21 Feb 2018 GMT) A$11.30
Valuation A$ 11.04 - DCF (WACC 9.1%, beta 0.9, ERP 7.0%, RFR 4.5%, TGR 2.0%)
12-month target A$ 13.00
12-month TSR % +16.0
Volatility Index Medium
GICS sector Food, Beverage & Tobacco
Market cap A$m 8,255
30-day avg turnover A$m 46.7
Number shares on issue m 730.5
Investment fundamentals Year end 30 Jun 2017A 2018E 2019E 2020E
Revenue m 549.5 965.6 1,340.3 1,630.5 EBIT m 138.6 294.2 420.6 542.9 Reported profit m 90.6 205.2 295.1 381.5
Adjusted profit m 90.6 205.2 295.1 381.5 Gross cashflow m 93.3 207.9 298.4 384.7 CFPS ¢ 12.7 28.2 40.5 52.2 CFPS growth % 170.4 121.7 43.5 28.9 PGCFPS x 95.4 43.1 30.0 23.3 PGCFPS rel x 8.84 4.26 2.99 2.50 EPS adj ¢ 12.3 27.8 40.0 51.7 EPS adj growth % 186.5 125.3 43.8 29.2 PER adj x 98.3 43.6 30.3 23.5 PER rel x 5.82 2.74 1.95 1.60 Total DPS ¢ 0.0 0.0 20.0 28.4 Total div yield % 0.0 0.0 1.6 2.3 Franking % nmf nmf 0 0
ROA % 50.0 58.1 54.7 55.7 ROE % 48.4 55.5 51.4 51.6 EV/EBITDA x 61.9 29.3 20.6 15.9
Net debt/equity % -50.1 -57.3 -62.4 -66.5 P/BV x 37.2 18.0 13.8 10.8
A2M AU vs ASX 100, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, February 2018
(all figures in NZD unless noted, TP in AUD)
22 February 2018
The a2 Milk Company Flawless execution Event
A2M reported its 1H18 result with EBITDA of $143m, 19% ahead of our
forecast, and NPAT of $99m (Macq $78m). Net cash at 1H18 was $240m.
A2M and Fonterra announced a comprehensive strategic relationship
covering a number of products and markets.
Impact
Strong top line growth: Revenue came in 5% ahead of expectations at
$435m, up by 70% on pcp, underpinned by improved distribution and brand
awareness, strong key sales events and better inventory availability.
Significant improvement in EBITDA margins: This increased 7.8% to
32.9% reflecting GM benefits and fixed cost operating leverage. The last two
months were particularly strong at 37.5%. A2M flagged marketing spend
would increase NZ$35-40m in 2H vs. 1H from China and USA, which may
drag a little on margin in 2H18, but drive revenue benefits in FY19+.
Annualising share provides strong base: China market share increased to
5.4%, up 190bp in the last six months. Annualising current share compared to
pcp gives 77%/31% volume growth in 2H18/19E before market growth (we
think 5-10%), pricing (~3% p.a.) and share gains. This gives us comfort in our
99% and 46% IF revenue growth (vs. pcp) for these periods respectively.
Capacity constraints closer in FY19: With higher volumes and growth,
production constraints may be a concern. We estimate SML are utilising
~70% of A2 milk supply (hence ~40% production growth to fully utilise), and
currently are looking for new suppliers for 2018/19 season. Current ramp in
SML’s new canning line we think removes processing capacity risk.
Fonterra partnership to accelerate roll-out: This partnership covers a
number of products and markets, but we think the first priority is launch of
infant formula into SE Asia. a2MC will leverage Fonterra’s resources and
execution capability when entering new markets, which helps increase speed
to market and lowers risk for a2MC in our view.
Pregnancy formula announced: This is a logical extension to a2MC’s infant
offering and fits well in the key channels. a2MC are still investigating new
product opportunities for USA to leverage distribution and brand awareness.
Earnings and target price revision
EPS: FY18E +26%, FY19E +32%. PT to A$13.00 (from $8.29) reflecting
increased share and margin, and accelerated product/market roll out (SE
Asia).
Price catalyst
12-month price target: A$13.00 based on a PER methodology.
Catalyst: New product and market launches
Action and recommendation
Maintain OP. Operational momentum is clearly strong, and the Fonterra
relationship will help accelerate new products and markets to drive higher
growth. We still see some blue sky from turning this into a truly global brand,
and accordingly view A2M as an attractive acquisition target. On our revised
forecasts, A2M is on ~29x FY19E PER (ex USA losses) which we see as
undemanding given growth, net cash, low capital requirement and high ROE.
Macquarie Wealth Management The a2 Milk Company
22 February 2018 2
Fig 1 1H18 result wrap
The good The not so good The interesting
A2M’s result came in significantly ahead of
expectations, with EBITDA of $143m (19% ahead
of Macq) and NPAT of $99m (27% ahead of
Macq) This was underpinned by both strong top
line as well as improved margin from operating
leverage, meaning a high quality beat.
China market share (based on Kantar data used
by A2M) increased to 5.4% at 31/12/17, which
compares to 4.1% in Mid-Sept and 3.5% in June.
This shows an acceleration in share gains
(+130bp over three months). Infant formula
market share in Australia has increased from
26% to 30% in the last six months.
a2MC have announced the expected launch of a
maternal / pregnancy product in 2HFY18 (we had
previously flagged this incremental opportunity),
which has had good feedback from presentation
to trade. We think this will be incrementally
positive and fits well into its existing product
offering and distribution channels.
Cash generation was strong, with operating cash
flow of $116m, reflecting strong working capital
management despite inventory build. This
increased cash balance to $240m which provides
significant flexibility around investment, growth
and distribution to shareholders.
A2M and Fonterra announced a comprehensive
strategic relationship covering a number of
products and markets to facilitate further growth
in a2MC branded products. We think this both
allows for an acceleration of strategy (such a roll
out of infant formula into SE Asia) as well as a
defensive move through increased speed to
market should there be threats of other
companies trying to launch an A1-free product.
While infant formula remains a key focus, “other
products” which is primarily adult milk powder
grew by 124%, while liquid milk grew by 14% with
launch in Singapore and growth in HK (Aus +3%).
A2M noted that January has been a strong
period, and that they expect 2H18 to be stronger
than 1H18 in terms of revenue given share gains,
and despite the usual market seasonality around
key sales events.
MBS store footprint increased to 6,700, up from
5,800 in November. This remains key to building
brand awareness, as well as the direct sales from
this channel (still biggest sales channel in China).
Despite the significant growth in sales, A2M also
managed to retain some volume as inventory,
with finished goods on hand increasing to $44m
from $10m at FY17. This is working towards a
more sustainable level of inventory.
Soft disclosure continues to be a challenge for us,
for example, details around price increases
achieved to help understand revenue/margin
movement. We would have liked to see more
details around potential new products to be
launched into the USA but this remains in the
works. We still suspect this would be a functional
healthy living/aging product to leverage a2MC’s
increasing brand awareness and distribution.
Guidance was for increased marketing spend in
2H to NZ$35-40m (from $30m) above 1H which
will drag on 2H EBITDA margin, while revenue
growth benefits are unlikely until FY19+.
Despite the significant cash build over 1H and
expected strong cash generation in 2H, the Board is
yet to make a move on capital management. The
Board is assessing a potential investment in
blending and canning, however, we estimate this
would be ~NZ$50-60m (based on SML’s last facility
of ~32k MT), so A2M would still have ample cash.
Interestingly, the Board is considering the
implementation of a dividend policy, vs. previously
not considering it noting reluctance of having a
permanent dividend policy given cash needs may
change over time.
In SML’s recent farmer update, it noted future A2
supply possibilities, keen to discuss possible A2
herd formation for next season (starting June-18).
We think this reflects the significant ramp in
production required to meet a2MC’s demand. We
think around 70% of A2 milk collection (total 200m
litres) is being utilised this season so has room for
~40% growth in FY19. That said, new products like
maternal formula may consume some of this.
a2MC noted that it had tested some competitor
products in other markets claiming to be A2, and
that these were not completely A1-free. The
company is looking to enforce IP accordingly here.
When asked about the Lion settlement,
management reiterated it remains confidential but
both parties are happy. We still wonder whether
Lion will need to remove “naturally contains A2
protein” from its label.
Legal expenses increased from $1.8m to $3.9m in
1H18, which we think reflects increased
development and enforcement of IP.
The new CFDA registered China label product is
expected to start selling in 4QFY18, and the
increased marketing spend (+$30m in China vs.
1H) will be to help relaunch this and grow
awareness for a2MC’s MBS strategy. China label
sales were 12% of total infant sales in 1H18, up
from 8% in 2H17.
Within the segmental reporting, assets in China and
other Asia grew by $75m to $184m, reflecting
increased infant formula inventory and
prepayments.
A2M are testing the Vietnamese market with a milk
powder product as it assess market opportunities in
SE Asia.
Despite the new partnership with Fonterra, new
product innovation still sits with the Synlait
relationship. We think this could cover other
nutritionals (such as upcoming maternal) or liquid
innovation such as ready-to-drink infant formula.
A2M have locked in key accounts for the North East
expansion, and noted that every outlet objective set
out has been achieved, which shows the positive
response to the brand.
Source: Company data, Macquarie Research, February 2018
Macquarie Wealth Management The a2 Milk Company
22 February 2018 3
EBITDA beat of 19% driven by higher top line and operating leverage
A2M delivered total revenue of $434.7m in 1H18, around 5% ahead of our forecast, underpinned
by improved distribution and brand awareness, as well as better inventory availability from larger
orders. Given A2M had previously provided revenue for the first 4 months of 1H18, the beat in the
last two months was even higher, reflecting success for key sales days (11/11 and 12/12).
Gross profit was $216.6m, around 9% higher than forecast. GM came in at 49% (Macq 48%), up
on 1H17 and flat on 2H17, despite A2M guiding to some GM pressure over the year. Mix, currency
and favourable selling prices assisted here, and GM is expected to be consistent in 2H.
Expenses were broadly consistent with expectations, which was for reasonably significant growth
given top line increases, but other expenses were lower reflecting the asset impairment in 1H17
($2.4m) and other favourable movements such as lower consultancy costs.
With higher gross margin and solid cost control, EBITDA came at $143.1m or around 19% ahead
of our forecast, and up 123% on pcp. We note that this 1H18 figure is higher than the full FY17.
Group EBITDA margin expanded 7.8% to 32.9%, and 3.8% ahead of our forecast.
Interest income was slightly below our forecast despite higher cash balance, reflecting lower rates
on deposits. Effective tax rate was 31%, lower than our forecast of 35%, reflecting A2M having a
lower weighting to non-deductable tax losses and expenses compared to previous periods. We
have tax rate at ~31% long term.
Accordingly, NPAT was $98.5m, around 27% ahead of our forecast.
No guidance provided for FY18 but A2M expects revenue growth in 2H, higher expected
marketing spend, constant GM and continued inventory build.
Fig 2 1H18 result summary – 19% EBITDA beat
$m 1H17A 1H18E 1H18A % vs. Macq % change
Total revenue 256.1 412.4 434.7 5% 70% Cost of goods sold 137.0 214.5 218.2 2% 59% Gross profit 119.1 198.0 216.6 9% 82% Administrative expenses 13.7 20.7 21.8 5% 59% Marketing expenses 16.0 26.5 26.0 -2% 62% Occupancy expenses 0.8 0.9 1.0 3% 25% Other expenses 26.1 31.4 25.8 -18% -1% Total expenses 56.6 79.6 74.6 -6% 32% EBIT 62.5 118.4 142.0 20% 127% Depreciation and Amortisation 1.6 1.6 1.1 -35% -34% EBITDA 64.2 120.0 143.1 19% 123% Interest income 0.4 1.2 0.8 -32% 79% Interest expense 0.1 0.0 0.1 - -11% PBT 62.9 119.6 142.7 19% 127% Associates 0.0 0.0 0.0 - - Tax 23.5 41.9 44.3 6% 88% NPAT 39.4 77.7 98.5 27% 150% EPS 5.4 10.6 13.3 25% 144% DPS 0.0 0.0 0.0 - -
Source: Company data, Macquarie Research, February 2018
Looking closer at the operating segments and metrics, A/NZ revenue of $304.3m was around 5%
below our forecast, while China and other Asia was 56% ahead at $114.4m. This reflect shift in
channel a little (albeit A/NZ still up 47% on pcp) toward direct and cross-border e-commerce.
USA/UK revenue of $16m was a little below our expectations.
Infant formula saw around 85% growth on pcp to $341m and was 7% ahead of expectations, and
represented 78% of revenue. While infant formula remains a key focus, “other products” which is
primarily adult milk powder grew by 124%, while liquid milk grew by 14% with launch in Singapore
and growth in HK (Aus +3%).
EBITDA in A/NZ was up 65% to $116.4m on the back of 47% revenue growth, with margins
growing by 4.2% to 38.2%, and around 1.1% ahead of our forecast. China and other Asia saw
EBITDA up 253% to $48.3m, and margins expanded 13% to 42.3%.
Macquarie Wealth Management The a2 Milk Company
22 February 2018 4
US and UK losses were $8.4m, broadly consistent with our forecast. This will grow into 2H18 as
a2MC invest in marketing to support the North Eastern launch, and the company has maintained
expectation for US$25m of investment before monthly breakeven in FY20.
Fig 3 Summary of operating segment revenues and margins
$m 1H17A 1H18E 1H18A % vs. Macq % change
ANZ 206.6 321.0 304.3 -5% 47% China and Asia 37.7 73.3 114.4 56% 204% USA and UK 11.8 18.2 16.1 -12% 37% Total revenue 256.0 412.4 434.7 5% 70% Infant formula 184.5 317.5 341.0 7% 85% Liquid milk 60.8 - 69.4 - 14% Other products 10.9 - 24.4 - 124% Gross profit 119.1 198.0 216.6 9% 82% Gross margin 46.5% 48.0% 49.8% 1.8% 3.3% EBITDA
Australia & NZ 70.4 119.1 116.4 -2% 65% China and other Asia 13.7 27.7 48.3 75% 253% UK and USA -7.7 -8.2 -8.4 3% 9% Corporate and other -12.3 -18.6 -13.4 -28% 9% Total EBITDA 64.1 120.0 142.9 19% 123% EBITDA margin
Australia & NZ 34.1% 37.1% 38.2% 1.1% 4.2% China and other Asia 36.4% 37.8% 42.3% 4.5% 5.9% UK and USA -65.5% -45.0% -52.5% -7.5% 13.0% Corporate and other -4.8% -4.5% -3.1% 1.4% 1.7% Group margin 25.0% 29.1% 32.9% 3.8% 7.8%
Source: Company data, Macquarie Research, February 2018
Operating cash flow was strong at $116.4m which was well ahead of our expectation. This was
driven by strong working capital management, with net working capital declining over the period
with increased payable (albeit ~$20m noted to payment timing) even with inventory build. Pre
interest and tax cash conversion was 113%.
Over 2H, a2MC noted the timing impact will reverse somewhat, and it aims to further build
inventory towards a sustainable level.
Fig 4 Strong cash flow conversion sees cash balance grow to $240m
$m 1H17A 1H18E 1H18A % vs. Macq % change
Trade and other receivables 67.9 98.5 75.4 -23% 11% Inventories 30.0 74.0 53.6 -28% 79% Prepayments 17.6 47.5 46.4 -2% 163% Gross working capital 115.5 219.9 175.4 -20% 52% Trade and other payables 59.8 101.7 123.5 21% 106% Net working capital 55.6 118.2 51.9 -56% -7% Cash and cash equivalents 108.4 131.4 240.2 83% 122% Operating cash flow 38.1 27.0 116.4 331% 205% Cash flow conversion (pre interest & tax)
97% 56% 113% 57% 16%
Source: Company data, Macquarie Research, February 2018
Cash balance accordingly increased materially to $240m. The Board are looking at the opportunity
for investment (alone or under JV) in blending and canning (see later), as well as potential
buybacks and/or implementation of a dividend policy. This is a change from the previous result,
announcing a $40m buyback (which was never conducted) and noting reluctance of having a
permanent dividend policy given cash needs may change over time.
Macquarie Wealth Management The a2 Milk Company
22 February 2018 5
Last two months had significant sales run rates, and strong base for 2H18
A2M reported revenue of $262m for the first 4 months of 1H18, implying a run rate of $66m per
month. A further $173m of revenue was generated in 2H18, reflecting a jump in the run rate to
$86m/month up 73% on the previous period. This partially captured strong performance in key
sales events but also increasing market share.
Over 2H18E, we forecast A2M to increase run rate from this base (to $89m/month), given the
share position it has generated. This will also be aided by further growth in products and markets
outside of infant formula (e.g. USA North Eastern launch).
China market share (based on Kantar data used by A2M) increased to 5.4% at 31/12/17, which
compares to 4.1% in Mid-Sept and 3.5% in June. This shows an acceleration in share gains
(+130bp over three months) reflecting improved distribution, brand awareness and inventory
availability. Increased distribution (now 6,700MBS vs. 5,800 in Nov) and higher order profile into
2H18 should help drive further growth.
Fig 5 A2M had $86m/month revenue in Nov/Dec… Fig 6 …while China market share grew to 5.4% at Dec
Source: Company data, Macquarie Research, February 2018 Source: Company data, Macquarie Research, February 2018
Using the share data that A2M has provided, we estimate the impact of annualising the gains
made at the end of 1H18 into 2H18 and 1H19. We estimate that in the 2H17A, a2MC’s infant
share in China was ~3.1%, and assuming current share holds (i.e. no further growth), the
annualisation impact should be around 77% growth in sales for 2H18E. Similarly for 1H19E, this
comes in at around 31% growth.
Fig 7 2H18 IF growth should be ~85-90% before share gains
1H18 2H18 1H19
Average pcp share 2.4% 3.1% 4.1% Current share 4.1% 5.4% 5.4% Annualisation impact 75.9% 77.0% 30.6% Market growth 7.5% 7.5% 7.5% Pricing 3.0% 3.0% 3.0% Base growth 94.8% 96.0% 44.7% Share of sales to China* 92.5% 92.5% 92.5% IF product growth 87.6% 88.8% 41.3% China share gain 0.5% 1.0% Potential growth 105.6% 66.1% Macq forecast growth 98.6% 45.9%
*Remaining 7.5% assumed domestic Australian & NZ consumption and hence not growing at same pace
Source: Company data, Macquarie Research, February 2018
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Macquarie Wealth Management The a2 Milk Company
22 February 2018 6
On top of this, the market will continue to grow, with market volumes expected to be up ~5-10%
p.a. across the next few years. Further, the segment and channel which a2MC are targeting, being
super premium and online, is currently growing faster than the market, and this is expected to
continue medium term given premiumisation trend.
We think a2MC will continue to look for opportunities to take pricing growth, which we
conservatively estimated to be ~3% per annum (constant FX). Compounding these factors would
indicate ~96% growth in 2H18E and 45% in 1H19E before share gains. This needs to be down-
weighted slightly for the fact that product sold for domestic consumption will not experience this
growth (we estimate ~5-10% so have taken mid-point of sales but no data here).
a2MC will be looking to build further market share as it grows its distribution, marketing spend and
brand awareness. Adding around 0.5% share on average in 2H18 would take growth to around
106% and 1.0% share gain (cumulative, i.e. a further 0.5% on 2H18) for 1H19 would take growth
to around 66%. This compares to our forecast of 99% and 46% respectively, and hence despite
significant upgrades, we view our forecasts as achievable.
EBITDA margin beat; close to 35% excluding USA losses
A2M reported a significant increase in EBITDA margin to 32.9% in 1H18, vs 26.3% in 2H17A and
25.1% in 1H17A.
After reporting $78.4m of EBITDA in the first 4 months of the period, or 29.9% margin, the implied
margin for the remaining two months was around 37.5%. This clearly benefited from a higher
share of infant and operating leverage.
We note that a2MC reported $8.4m of losses in USA/UK. Excluding the impact of this, EBITDA
margin was around 34.8% for 1H18A.
Fig 8 Significant margin expansion in 1H18
1H17A 2H17A 1H18A First 4
months Last 2
months Six months Six months First 4
months Last 2
months Six months
Revenue 155.2 100.8 256.0 293.4 262.2 172.5 434.7 EBITDA 35.5 28.7 64.2 77.1 78.4 64.7 143.1 Margin 22.9% 28.4% 25.1% 26.3% 29.9% 37.5% 32.9% Add: asset impairment 2.4 - - Underlying EBITDA 66.6 - - Margin 26.0% - - Underlying EBITDA excluding USA/UK
74.3 91.9 151.5
Margin 29.0% 31.3% 34.8%
Source: Company data, Macquarie Research, February 2018
We have EBITDA margins coming off ~3.5pp to 29.3% in 2H18 reflecting the expected increase in
marketing spend flagged by A2M. This is likely to drag on 2H18 given the timing of spend being in
4QFY18 in relation to the launch of the new label for the China product (post CFDA), and hence
the revenue benefits will be largely from FY19+.
We expect gross margins to see a small increase in mix towards infant formula before significant
growth in fresh (USA) and non-infant products (such as maternal formula or adult). a2MC will see
further scale benefits from its sourcing from SML as it increases utilisation of new capacity, noting
the new canning facility is running at <25% we think.
We think a2MC will continue to benefit from operating leverage in its cost base as additional scale
is achieved. Marketing expenses will be the key area of growth, while other operating cost lines
should grow slower than revenue. Corporate overheads have decreased from 4.8% of revenue in
1H17 to 3.1% in 1H18.
Macquarie Wealth Management The a2 Milk Company
22 February 2018 7
Fonterra partnership to accelerate roll-out; SE Asia first step we think
At the AGM, A2M noted it is seeking increased flexibility and diversification of supply chain, and
accordingly has announced a relationship with Fonterra. This agreement is on a rolling three-year
term, similar to other supply arrangements. This includes a number of different areas including:
Nutritional products manufacturing and supply agreement: Fonterra will exclusively
supply A1 protein free milk products in both bulk powder form and consumer packaged to
a2MC. This covers certain nutritional products for sale in certain new markets including SE
Asia and Middle East. These will be manufactured at Darnum in VIC, Australia and will be
canned at Canpac in Hamilton, NZ. Product supply from Darnum is expected to commence
during CY19.
NZ fresh milk licence: Fonterra has entered into an exclusive licensing agreement for the
production, distribution, sale and marketing of a2 Milk branded fresh milk in NZ. a2MC will
provide Fonterra with the systems and know-how relating to sourcing, processing and
marketing of a2 Milk. No detail on licence fees but we think these tend to be 5-10%.
Distribution and sales arrangements: This covers potential for new market entries where
Fonterra has resources and execution capability.
Exclusive period to explore a2MC branded butter and cheese, and China sourced liquid
milk: This is under evaluation and would before the sale of certain A1 free products (more
traditional products not presently marketed by a2MC) in Australia, New Zealand and China.
Packaging facility to be explored: a2MC are considering an investment in a blending and
canning facility, a2MC and Fonterra may look to do this under a JV in Australia.
Development of A1 protein free milk pool: To facilitate this agreement, Fonterra will
develop a milk pool in Australia and New Zealand.
We think this endorses the product proposition, however, for Fonterra, does not discredit existing
bulk and branded product offering (i.e. standard milk) given it remains under a2MC’s brand.
This provides a2MC with a second manufacturer to support ongoing growth and provide
diversification of supply base.
Given Synlait will likely reach capacity in its current facilities in the next few years through growth
in a2 Platinum infant formula volumes for China, plus its other brands, it is unlikely SML would
have been able to facilitate nutritional volumes for a2MC’s SE Asia strategy. The Fonterra
partnership unlocks volume in order to pursue this growth opportunity for a2MC.
We also view this partnership as a defensive move by a2MC against other competitors who may
be looking to develop A1 free products given improved speed to market and access a2MC will
have under the relationship.
Per the analysis in our initiation report (see pages 44-45), the SE Asian infant formula market is
estimated to be ~US$6b per annum, roughly 1/3 of the size of China.
Fig 9 South East Asian IF markets ~US$6b Fig 10 Retail distribution channels in SE Asia
Source: Coriolis, Macquarie Research, February 2018 Source: Coriolis, Macquarie Research, February 2018
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20%
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33%
Macquarie Wealth Management The a2 Milk Company
22 February 2018 8
Significant earnings revisions given revenue and margins
Following the strong result in 1H18, we have revised our forecasts. Our revenue in FY18
increases by 11% to $966m, and FY19E increases 23% to $1,340m. This is underpinned by
increased market share achieved, which provides for significant growth when annualised, plus
assumed further modest share gains by a2MC over the next few years.
Our EBITDA forecasts have increased by 19% and 27% in FY18/19 respectively from a
combination of higher revenue and improved margin outlook.
EPS increases by 26% and 32% respectively, from higher EBITDA as well as a2MC normalising
tax to 31% quicker than previously anticipated. We assume a reasonable dividend to be paid in
FY19 given the significant cash position that will be built.
Fig 11 Earnings revisions; FY18 +27%, FY19 +33%
FY18E FY19E FY20E Previous Current % change Previous Current % change Previous Current % change
ANZ 668.6 646.7 -3% 781.9 835.5 7% 871.5 921.3 6% China and Asia 160.3 279.7 75% 237.2 433.0 83% 306.3 603.6 97% USA and UK 41.3 39.2 -5% 71.9 71.9 0% 105.6 105.6 0% Total revenue 870.2 965.6 11% 1,091.0 1,340.3 23% 1,283.4 1,630.5 27% Australia & NZ 247.3 246.5 0% 295.1 322.1 9% 333.6 354.6 6% China and other Asia 62.3 104.5 68% 98.0 157.0 60% 132.6 234.3 77% UK and USA -22.1 -24.6 12% -15.4 -15.4 0% 4.1 4.1 0% Corporate and other -37.8 -29.7 -21% -44.7 -39.8 -11% -51.3 -46.8 -9% Total EBITDA 249.7 296.7 19% 332.9 423.8 27% 418.9 546.2 30% Margin 28.7% 30.7% 2% 30.5% 31.6% 1% 32.6% 33.5% 1% EBIT 246.5 294.2 19% 329.7 420.6 28% 415.6 542.9 31% PBT 249.1 297.4 19% 334.3 427.8 28% 422.3 552.9 31% NPAT 161.9 205.2 27% 222.3 295.1 33% 287.1 381.5 33% EPS 22.1 27.7 26% 30.4 40.0 32% 39.2 51.7 32% DPS 0.0 0.0 - 15.2 20.0 32% 21.6 28.4 32%
Source: Company data, Macquarie Research, February 2018
Our price target increases to A$13.00/share (from A$8.29) reflecting increased share and margin,
and accelerated product/market roll out (SE Asia).
Based on our revised forecasts, we have A2M trading on ~29x PER in FY19E (excluding USA
losses) which we see as undemanding. A2M has traded on ~33x forward PER over the last six
months, and we see the growth profile strengthening of late given execution and acceleration of
strategy likely to occur from the Fonterra partnership.
Fig 12 Forward PER ~33x on average in the last 6 months
Fig 13 On our revised forecasts, A2M is on ~29x FY19 PER ex USA losses which we see as undemanding
Source: Bloomberg, Macquarie Research, February 2018 Source: Company data, Macquarie Research, February 2018
15
20
25
30
35
40
45
Mar-
16
Apr-
16
May-1
6
Ju
n-1
6
Ju
l-16
Aug
-16
Sep
-16
Oct-
16
No
v-1
6
De
c-1
6
Ja
n-1
7
Feb
-17
Mar-
17
Apr-
17
May-1
7
Ju
n-1
7
Ju
l-17
Aug
-17
Sep
-17
Oct-
17
No
v-1
7
De
c-1
7
Ja
n-1
8
Feb
-18
12m forward PER
At share price (A$11.30) FY18E FY19E FY20E
EV/EBITDA 29.5x 20.2x 15.5x
- ex UK/USA losses 27.2x 19.5x 15.5x
PER 43.2x 30.0x 23.2x
- ex UK/USA losses 39.9x 29.0x 23.2x
At price target (A$13.00) FY18E FY19E FY20E
EV/EBITDA 34.4x 23.7x 18.2x
- ex UK/USA losses 31.7x 22.9x 18.2x
PER 50.3x 35.0x 27.1x
- ex UK/USA losses 46.4x 33.8x 27.1x
Macquarie Wealth Management The a2 Milk Company
22 February 2018 9
Source: Company data, Macquarie Research, February 2018
a2 milk Company - A2M (Last price: A$11.30)
Interim Profit & Loss (NZ$) 1H17A 2H17A 1H18A 2H18E 1H19E 2H19E Annual Profit & Loss (NZ$) 2015A 2016A 2017A 2018E 2019E 2020E
30 June Year End 30 June Year End
Total revenue $m 256.1 293.4 434.7 530.9 632.7 707.6 Total revenue $m 155.1 352.8 549.5 965.6 1,340.3 1,630.5
Direct costs $m 137.0 148.7 218.2 266.4 312.1 345.2 Direct costs $m 100.4 201.5 285.7 484.6 657.3 773.2
Gross profit $m 119.1 144.7 216.6 264.5 320.6 362.4 Gross profit $m 54.7 151.3 263.8 481.0 683.0 857.4
Administrative expenses $m 13.7 18.7 21.8 23.1 26.2 26.4 Administrative expenses $m 15.4 27.0 32.4 44.8 52.6 61.9
Marketing expenses $m 16.0 26.0 26.0 61.6 66.1 81.0 Marketing expenses $m 10.3 33.0 42.0 87.6 147.2 180.1
Occpuancy expenses $m 0.8 0.7 1.0 1.2 1.5 1.7 Occpuancy expenses $m 0.5 0.8 1.5 2.2 3.2 4.3
Other expenses $m 26.1 23.2 25.8 26.3 28.8 30.7 Other expenses $m 27.3 38.5 49.3 52.1 59.5 68.1
Total overhead costs $m 56.6 68.6 74.6 112.2 122.6 139.9 Total overhead costs $m 53.5 99.3 125.2 186.8 262.5 314.4
EBIT $m 62.5 76.1 142.0 152.2 198.1 222.5 EBIT $m 1.3 52.0 138.6 294.2 420.6 542.9
Net finance costs $m -0.4 -0.4 -0.7 -2.4 -3.3 -3.9 Net finance costs $m 0.0 -0.3 -0.8 -3.2 -7.2 -10.0
Profit before tax $m 62.9 76.4 142.7 154.7 201.4 226.4 Profit before tax $m 1.3 52.3 139.4 297.4 427.8 552.9
Associates $m 0.0 0.0 0.0 0.0 0.0 0.0 Associates $m 0.0 0.0 0.0 0.0 0.0 0.0
Tax $m 23.5 25.2 44.3 48.0 62.4 70.2 Tax $m 3.4 21.9 48.7 92.2 132.7 171.5
Net profit after tax $m 39.4 51.3 98.5 106.7 138.9 156.2 Net profit after tax $m -2.1 30.4 90.6 205.2 295.1 381.5
Depreciation & Amortisation $m 1.6 1.1 1.1 1.6 1.6 1.6 Depreciation $m 1.9 2.7 2.7 2.7 3.2 3.2
EBITDA $m 64.2 77.1 143.1 153.9 199.7 224.1 EBITDA $m 3.2 54.7 141.2 296.9 423.8 546.2
Divisional breakdown 1H17A 2H17A 1H18A 2H18E 1H19E 2H19E Divisional breakdown 2015A 2016A 2017A 2018E 2019E 2020E
Revenue Revenue
Australia & NZ $m 206.6 233.0 304.3 342.4 416.7 418.7 Australia & NZ $m 149.1 296.3 439.6 646.7 835.5 921.3
China and other Asia $m 37.7 51.2 114.4 165.3 185.2 247.8 China and other Asia $m 4.0 38.2 88.9 279.7 433.0 603.6
UK and USA $m 11.8 9.3 16.1 23.1 30.8 41.1 UK and USA $m 1.9 18.3 21.1 39.2 71.9 105.6
Corporate and other $m - - - - - - Corporate and other $m - - - - - -
Total $m 256.0 293.6 434.7 530.9 632.7 707.6 Total $m 155.1 352.7 549.6 965.6 1,340.3 1,630.5
EBITDA EBITDA
Australia & NZ $m 70.4 84.9 116.4 130.2 160.6 161.5 Australia & NZ $m 30.0 84.7 155.3 246.5 322.1 354.6
China and other Asia $m 13.7 19.1 48.3 56.2 67.1 89.9 China and other Asia $m -3.1 9.2 32.8 104.5 157.0 234.3
UK and USA $m -7.7 -14.8 -8.4 -16.2 -9.2 -6.2 UK and USA $m -12.1 -20.5 -22.5 -24.6 -15.4 4.1
Corporate and other $m -12.3 -12.1 -13.4 -16.3 -18.8 -21.0 Corporate and other $m -11.7 -18.8 -24.4 -29.7 -39.8 -46.8
Total $m 64.1 77.1 143.0 153.9 199.7 224.1 Total $m 3.2 54.7 141.2 296.7 423.8 546.2
EBITDA margin EBITDA margin
Australia & NZ % 34.1% 36.4% 38.3% 38.0% 38.5% 38.6% Australia & NZ % 20.1% 28.6% 35.3% 38.1% 38.5% 38.5%
China and other Asia % 36.4% 37.3% 42.3% 34.0% 36.2% 36.3% China and other Asia % -76.7% 24.0% 36.9% 37.4% 36.3% 38.8%
UK and USA % -65.5% -158.5% -52.2% -70.0% -30.0% -15.0% UK and USA % -625.3% -112.2% -106.7% -62.8% -21.4% 3.9%
Corporate and other % - - - - - - Corporate and other % - - - - - -
Total % 25.0% 26.3% 32.9% 29.0% 31.6% 31.7% Total % 2.1% 15.5% 25.7% 30.7% 31.6% 33.5%
Discounted Cashflow Valuation FY17A FY18E FY19E FY20E Ratios & margins 2015A 2016A 2017A 2018E 2019E 2020E
PV of explicit cash flows $m 4,173 Gross margin % 35.3% 42.9% 48.0% 49.8% 51.0% 52.6%
PV of perpetuity $m 4,319 EBITDA margin % 2.1% 15.5% 25.7% 30.7% 31.6% 33.5%
PV FCFs available to owners $m 8,492 EBIT margin % 0.8% 14.7% 25.2% 30.5% 31.4% 33.3%
Less: net debt (adj $40m buy back) $m -121 NPAT margin % -1.3% 8.6% 16.5% 21.2% 22.0% 23.4%
SML stake $m 100
Equity value $m 8,713 Gross profit growth % 36.7% 176.5% 74.4% 82.4% 42.0% 25.5%
Valuation per share $/sh 11.81 EBITDA growth % -11.0% 1605.4% 157.9% 110.3% 42.7% 28.9%
NZDAUD x 0.94 EBIT growth % -26.1% nmf 166.5% 112.3% 42.9% 29.1%
A$ valuation per share $/sh 11.05 NPAT growth % nmf nmf 197.8% 126.4% 43.8% 29.2%
Implied P/E ratio x 96.1x 42.5x 29.5x 22.8x Earnings cps -0.3 4.3 12.3 27.8 40.0 51.7
Implied EV/EBIT x 61.3x 28.9x 20.2x 15.6x P/E ratio x - 272.6x 95.6x 42.2x 29.4x 22.7x
Implied EV/EBITDA x 60.2x 28.6x 20.0x 15.5x Dividend cps 0.0 0.0 0.0 0.0 20.0 28.4
Implied dividend yield x 0.0% 0.0% 1.7% 2.4% Payout ratio % 0.0% 0.0% 0.0% 0.0% 50.0% 55.0%
Dividend yield % 0.0% 0.0% 0.0% 0.0% 1.7% 2.4%
DCF assumptions Net debt $m -6.1 -69.4 -121.0 -285.8 -406.3 -550.1
Terminal year Year FY30 Asset beta . 0.9 Net debt/total assets % -6.9% -33.0% -35.2% -42.8% -46.7% -51.0%
Terminal China IF market share (est) % 8.6% Post-tax market risk premium % 7.0% Total debt/EBITDA x - - - - - -
Perpetuity growth rate % 2.0% Target D/V % 0.0% EV/EBITDA x - 157.0x 60.9x 29.0x 20.3x 15.7x
Risk free rate % 4.5% WACC % 9.1% EV/EBIT x - 165.3x 62.0x 29.2x 20.4x 15.8x
Cashflow Analysis 2015A 2016A 2017A 2018E 2019E 2020E Balance Sheet 2015A 2016A 2017A 2018E 2019E 2020E
EBITDA $m 3.2 54.7 141.3 296.9 423.8 546.2 Cash $m 6.1 69.4 121.0 285.8 406.3 550.1
- Net interest paid $m -0.1 -0.5 -0.9 -3.2 -7.2 -10.0 Receivables $m 39.9 45.4 72.9 96.6 127.3 154.9
- Taxes paid $m 2.5 9.7 31.2 94.5 132.7 171.5 Inventories $m 4.8 52.6 28.4 95.0 133.2 161.9
+ Other items $m 0.2 -3.3 7.9 5.1 0.0 0.0 PP&E $m 9.3 8.1 8.4 9.6 9.6 9.6
Gross cashflow $m 1.0 42.3 119.0 210.8 298.4 384.7 Investment in associates $m 0.0 0.0 0.0 0.0 0.0 0.0
- Increase in working capital $m 9.0 20.8 19.0 47.1 27.1 27.8 Intangibles & goodwill $m 17.2 16.3 13.3 13.9 13.9 13.9
Operating cash flow $m -8.1 21.5 99.9 163.7 271.3 356.9 Other assets $m 11.5 18.4 100.0 167.7 178.9 188.3
Total assets $m 88.9 210.2 343.9 668.6 869.2 1,078.8
- Acquisition of PP&E and intangibles $m 1.0 1.2 1.7 2.3 1.5 1.5
+ Proceeds from sale of PP&E and intangibles$m 0.0 0.0 0.0 0.0 0.0 0.0 Current payables $m 28.4 66.2 71.4 135.7 184.0 216.5
+ Other items $m -2.6 -0.9 -49.5 -1.5 -1.8 -1.8 Short term debt $m 0.0 0.0 0.0 0.0 0.0 0.0
Investing cash flow $m -3.6 -2.1 -51.1 -3.8 -3.2 -3.2 Long term debt $m 0.0 0.0 0.0 0.0 0.0 0.0
Other liabilities $m 1.9 10.9 31.1 34.5 34.5 34.5
+ Proceeds from issue of units $m 0.0 44.2 3.8 2.9 0.0 0.0 Total liabilties $m 30.2 77.1 102.4 170.2 218.6 251.0
- Distributions paid to shareholders $m 0.0 0.0 0.0 0.0 147.6 209.8
+ Other items $m 0.0 0.0 0.0 0.0 0.0 0.0 Issued capital $m 86.3 130.5 134.3 137.2 137.2 137.2
Financing cash flow $m 0.0 44.2 3.8 2.9 -147.6 -209.8 Reserves $m -27.7 2.5 107.2 361.2 513.4 690.5
Net change in cash $m -11.7 63.7 52.5 162.9 120.5 143.8 Total equity $m 58.6 133.1 241.5 498.4 650.6 827.8
Macquarie Wealth Management The a2 Milk Company
22 February 2018 10
Macquarie Quant View
The quant model currently holds a strong positive view on a2 Milk Company.
The strongest style exposure is Price Momentum, indicating this stock has
had strong medium to long term returns which often persist into the future.
The weakest style exposure is Earnings Momentum, indicating this stock has
received earnings downgrades and is not well liked by sell side analysts.
Displays where the
company’s ranked based on
the fundamental consensus
Price Target and
Macquarie’s Quantitative
Alpha model.
Two rankings: Local market
(Australia & NZ) and Global
sector (Food Beverage &
Tobacco)
23/586 Global rank in
Food Beverage & Tobacco
% of BUY recommendations 62% (5/8)
Number of Price Target downgrades 0
Number of Price Target upgrades 3
Macquarie Alpha Model ranking Factors driving the Alpha Model
A list of comparable companies and their Macquarie Alpha model score
(higher is better).
For the comparable firms this chart shows the key underlying styles and their
contribution to the current overall Alpha score.
Macquarie Earnings Sentiment Indicator Drivers of Stock Return
The Macquarie Sentiment Indicator is an enhanced earnings revisions
signal that favours analysts who have more timely and higher conviction
revisions. Current score shown below.
Breakdown of 1 year total return (local currency) into returns from dividends, changes
in forward earnings estimates and the resulting change in earnings multiple.
What drove this Company in the last 5 years How it looks on the Alpha model
Which factor score has had the greatest correlation with the company’s
returns over the last 5 years.
A more granular view of the underlying style scores that drive the alpha (higher is
better) and the percentile rank relative to the sector and market.
Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])
Fu
nd
am
en
tals
Quant
Local market rank Global sector rank
Attractive
-0.3
0.1
0.2
0.2
0.3
1.3
1.6
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
GrainCorp
Costa Group Holdings
Bega Cheese
Coca-Cola Amatil
Inghams Group
Treasury Wine Estates
a2 Milk Company
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
GrainCorp
Costa Group Holdings
Bega Cheese
Coca-Cola Amatil
Inghams Group
Treasury Wine Estates
a2 Milk Company
Valuations Growth Profitability Earnings
Momentum
Price
Momentum
Quality
-0.4
1.4
1.1
-0.1
-1.2
0.7
0.8
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
GrainCorp
Costa Group Holdings
Bega Cheese
Coca-Cola Amatil
Inghams Group
Treasury Wine Estates
a2 Milk Company
-100% -50% 0% 50% 100%
GrainCorp
Costa Group Holdings
Bega Cheese
Coca-Cola Amatil
Inghams Group
Treasury Wine Estates
a2 Milk Company
Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
-46%
-43%
-31%
-11%
46%
55%
57%
68%
-75% -50% -25% 0% 25% 50% 75%
⇐ Negatives Positives ⇒
Operating Leverage NTM
Sales Growth FY1
Capex to Sales FY0
Sales to EV FY0
Price to Earnings LTM
Asset Growth
Price to Cash LTM
Interest Cover
0 1
Technicals & TradingRisk
LiquidityCapital & Funding
QualityPrice Momentum
Earnings MomentumProfitability
Growth
ValuationAlpha Model Score
0.04 0.03
-0.80-0.38
0.56 1.14
-0.24 0.99 0.10
-0.02 1.62
0 1
Normalized
Score
0 50 100
Percentile relative
to sector(/586)
0 50 100
Percentile relative
to market(/351)
Macquarie Wealth Management The a2 Milk Company
22 February 2018 11
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 31 December 2017
AU/NZ Asia RSA USA CA EUR
Outperform 51.82% 55.57% 44.05% 45.06% 60.00% 42.51% (for global coverage by Macquarie, 4.36% of stocks followed are investment banking clients)
Neutral 35.40% 28.60% 36.90% 47.59% 28.67% 40.42% (for global coverage by Macquarie, 2.58% of stocks followed are investment banking clients)
Underperform 12.77% 15.83% 19.05% 7.34% 11.33% 17.07% (for global coverage by Macquarie, 0.69% of stocks followed are investment banking clients)
A2M AU vs ASX 100, & rec history
(all figures in AUD currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, February 2018
12-month target price methodology
A2M AU: A$13.00 based on a PER methodology
Company-specific disclosures: A2M AU: Macquarie Group Limited together with its affiliates beneficially owns 1% or more of the equity securities of a2 Milk Company Ltd. Macquarie Group Limited together with its affiliates beneficially owns 1% or more of the equity securities of a2 Milk Company Ltd. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
Date Stock Code (BBG code) Recommendation Target Price 21-Nov-2017 A2M AU Outperform A$8.29 17-Nov-2017 A2M AU Outperform A$7.56 19-Sep-2017 A2M AU Outperform A$5.81 24-Aug-2017 A2M AU Outperform A$5.39 25-Jul-2017 A2M AU Outperform A$4.58
Target price risk disclosures: A2M AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures.
Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities
Macquarie Wealth Management The a2 Milk Company
22 February 2018 12
Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research, , is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures © Macquarie Group
This publication was disseminated on 21 February 2018 at 17:25 UTC.