research analyst equity engineer – july 2015 engineering … · 2015. 7. 13. · baillieu holst...

BAILLIEU HOLST QUANT RESEARCH

13 July 2015 INTERNAL ONLY

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

RESEARCH ANALYST Mathan Somasundaram

+612 9250 8947 [email protected]

Equity Engineer – July 2015

ENGINEERING GUIDE TO EQUITY STRATEGY

Market showing value after Grexit and Chiquities scare

Global market outlook: European outlook improved substantially after Greece rolled over and requested a bailout plan. EU has set Greece strict structural changes to be acted upon by Wednesday to remain in EU and get access to bail out. EU move to force the changes will bind Greece to EU at least for a few years. Irrespective of what happens to Greece, this minimises the contagion risk of other countries under austerity asking for better deals. Chiquities (i.e. Chinese Equities) have stabilised over the past few days after Chinese government took steps to stabilise a market in panic mode. We continue to expect the Chinese government to gradually bring stocks out of suspension after re-capitalising them. The Chiquities will require number of months of transitional management before getting back to normal while global investors will be wary of jumping back in anytime soon. US Fed continues to support a rate rise in 2015, but the exact time, magnitude and future moves are likely to be heavily liked to domestic economic recovery and global growth slowdown. We remain of the view that we will see a rise in early Q4 at a lower magnitude with a relatively slow path to normalisation. We continue to expect small targeted stimulus in China and Japan, while substantial QE in Europe will need time to flow through. As the global macro risks subside, markets are moving their attention to reporting season initially in US and then domestically. We see the global low growth outlook and falling domestic currency will support our equity market recovery on chase for yield.

Local market outlook: Equities will continue to benefit from global demand for better than bond yield income streams from rising older global demographic. Economies around the world maintaining low rates of interest for longer to help improve growth and employment will further add fuel to the Australian equities demand. A tidal wave of unemployment, falling real wages, falling living standards, falling disposable income and in-active government in the next few years are expected to keep local consumer sentiment down. The RBA is unable to cover for inability of the fiscal policy to improve growth, grow jobs and improve sentiment through rate cuts. The continued focus on protecting yesterday’s industries with a lack of job growth plan suggests that we are headed towards substantial risk to the economy. The lack of any employment initiatives will drive up risk for all consumer related domestic sectors. Commodity boom to manufacturing doom has left Australia with asset bubbles that can’t be sustained without employment and wages growth. The recession risk in the next two years can’t be ignored as comparable resource dominated economies like Canada have already experienced a negative growth quarter. Corporates are expected to protect their balance sheet, cut costs, buy back shares and deliver yield to drive share price performance. We expect global investors to buy into Australian equity dividend yield as the currency gets down below 70 cents.

Market View: We maintain a bullish long term view on the Australian equity market to reach 6500 in 2016. RBA move in February and May have made equities as the preferred risk/return option for investors wanting more than bond yield return in a rising cost environment. We expect global investors to come back in to Australian equity market when the currency gets below 70 cents. The recent profit taking has brought the market down below where we see market’s yield weighted fair value. Long term investors should accumulate good quality growth/yield stocks.

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


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


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Global outlook – top down Major indices around the world in USD shows that the China, Indian and Australia are

the worst performers over the past 3 months. Most markets have held up well despite global macro worries while the US is facing strengthening currency.

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

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

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

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GDP growth outlook shows India and China at the top with the US and Australia in the middle, while Europe and Japan are at the lower end. The next few years are expected to show lower growth in Australia due to a below trend growth outlook in US and a sliding growth outlook in China. Global growth continues to be downgraded along with macro headwinds in multiple regions of the world.

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

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

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


Manufacturing PMI shows the slowing down 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.

FIG.2-4: MANUFACTURING PMI AROUND THE WORLD

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

FIG.2-5: UNEMPLOYMENT AROUND THE WORLD

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


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

FIG.2-6: CONSUMER SENTIMENT AROUND THE WORLD

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US Consumer Sentiment China Consumer Sentiment Euro Consumer Sentiment

Australia Consumer Sentiment India Consumer Sentiment Japan Consumer Sentiment



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Bond yields around the world show that they have all been in decline over the past year before making a sharp recovery in the past few weeks. We continue to expect to see yield settle then trend lower as governments keep cutting interest rates. Australian equity dividend yields with franking are substantially higher than all in the developed markets.

FIG.2-7: BOND YIELDS AROUND THE WORLD

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Volatility indices show the link between Australia and the US, with overall volatility beginning to rise in both countries after hitting the lowest point in mid-2014. The expectations are that both volatility indices are likely to rise as markets transition towards a rate rise environment in the US, a Greece debt resolution with Europe, and Chinese asset bubble worries.

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

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Global Outlook – Bottom Up

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

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

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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 with consistent strong data. The dividend yield is substantially lower than Australia and under pressure from rising US bond yields and currency. The growth outlook will be tested with higher currency and growth downgrades from all the other major regions and emerging markets.

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

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

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

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UK: The UK recovery needs to show sustained top line growth recovery while the rest of Europe remains in low growth. The dividend yield is at a slight discount to Australia, while the UK is trading above pre-GFC high level. UK election result removes some uncertainties while link to Euro/Greece and state of Scotland keeps risk high.

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

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China: China will remain in an overall decline trend towards 5-6% growth outlook in the next 2-3 years. Given the big changes facing leadership, change has been slow and measured. The recent domestic interest in margin loan investing on the hope of government stimulus driven domestic consumption recovery has seen a big move in PE valuation despite growth outlook not delivering similar recovery. The government continues to massage recovery by adding liquidity when needed. As we wrote last month, China has created an equity bubble to support the struggling property bubble and now have to stabilise both bubbles to build back confidence.

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

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

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

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

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

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Macro Summary – Global US: The US Fed updates continue to support the view that the rate rise likely to be near the

end of Q3. We remain of the view that the move will be at a lower magnitude and will be supported by a view of slow and steady path to normalisation. The growth in the US is below trend, but a much broader based and stable growth than any other region. The key area of underperformance is consumer spending and consumer sentiment. The worry is that higher rates will see capital flow out of emerging markets to the US and drive the USD even higher. This move will force emerging markets to raise rates and stifle their growth. Despite US Fed move to deflate USD, the global weak growth outlook will continue to see USD strengthen on relative basis and force US Fed to talk down rate rise risks.

Euro: The ECB is delivering QE1 and many expect there will be a few more stages similar to US to get substantial recovery. Greece is leading the pack to re-adjust debt payment deals to help recovery plans while Russia is expected to fall into recession in 2015 and remain a drag on Euro. Greece folding over the weekend substantially reduced contagion risk, while Euro will see more downgrades with global growth slowing further. Middle East unrest remains another growth killer while Iran deal could flood the commodity markets further. UK is the next exit candidate to rock the Euro boat and this is unlikely to get resolved quickly.

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

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

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

Commodities: We expect Iron Ore to average below US$60 over the next few years with rising supply and falling demand while Energy prices likely average high to mid US$50 in the short to medium with OPEC holding over supply and more supply likely from Iraq and Iran. 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 5-10 year time frame. The next commodity up cycle will require a large emerging country like India or Indonesia to ramp up substantial building up phase like China. We struggle to see that in the next five years.


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

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

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

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

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

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


13 July 2015


new dwellings only or limiting number of negative geared properties to take the heat off low income and first home buyers. Regulatory changes to allow any other forms of benefits like using Super to improve affordability will further add to the bubble. The key solution to the housing bubble is removing artificial price boosters, increasing land supply and making sure other policy settings do not add more fuel to the fire.

Taxation Outlook: Due to the current fiscal policy of the government, we expect overall taxation to increase in the next few years to cater to falling overall tax revenue at federal and state levels. The structural decline in the budget has not been addressed as it is mainly a revenue problem. The current policy solutions are no more than nipping at the edges with minor spending cuts. The federal government has started to talk changes to federation to clear the path for a GST rise. The majority of the balanced views would suggest some form of income tax cut to balance out the effects on low incomes. Given the track record of the budget in the last 12 months, the public is unlikely to support the GST hike without details. The $80b cuts to education and health will starve the states into doing a deal with federal government on tax changes. Recent history does not hold well for middle to low income earners and consumer sentiment as a whole. The federal government backflips alongside leadership challenges do not offer us any confidence, and we are likely to endure an ineffectual government until the 2016/17 election.

Currency outlook: We maintain our view that AUDUSD will track down below 70 cents in the short to medium term with global growth worries, domestic government risks, RBA action and commodity price falls in energy and iron ore. US rate rise risk, China downgrade, emerging market risks and falling commodities will help the devaluation.

Interest Rate Outlook: We expect another 25-50 bps cut in the next 12 months to keep the currency low and drive more consumer spending. We see very little chance of any rate rise until 2017. The RBA has made it clear that they also now see the risk to growth and unemployment and want to keep the currency and interest rates low. The surprise rate cut in Feb and expected rate cut in May have been proven to be a wasted cut on all fronts due to bigger global macro factors in play. RBA is likely to stay unchanged until US Fed moves.

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


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

Grexit and Chiquities risks has driven profit taking. Local consumer sentiment has taken a beating with government budget risk, rising cost of living, falling living standards, falling real wages and the expectations of the tidal wave of unemployment. Corporates and consumers are caught in a Mexican stand-off in terms of increasing capex to create jobs or waiting for higher consumer spending to drive growth. Budget outlook continues to provide corporates certainty while consumers will see higher risks. We continue to see equities remaining the preferred investment option with low interest rates, low growth and house price bubble worries. RBA has made it clear that they will act to keep the currency low while US, China, EU and Japan are active participants of the currency war. RBA continues to keep rate cut option open despite wasted cuts in Feb and May.

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

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

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

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

Momentum – Price momentum and earnings revision remain in negative territory.

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

FIG.3-1: COST OF STYLE

3000

3500

4000

4500

5000

5500

6000

6500

7000

7500

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

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



13 July 2015


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

1000

2000

3000

4000

5000

6000

7000

8000

9000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

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

500

1500

2500

3500

4500

5500

6500

7500

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

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

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Forward Dividend Yield 10Year Bond Yield Average DY Average BY

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

0.00

5.00

10.00

15.00

20.00

25.00

30.00

14.00

16.00

18.00

20.00

22.00

24.00

26.00

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

7.00

9.00

11.00

13.00

15.00

17.00

19.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

3mth Avg Earnings Revision 3mth Price Momentum

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


13 July 2015


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

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

Value – Resources trading in the expensive territory compared to the long term average due to recovery in the big miners whilst a decline in key commodities will keep mid to small caps in financial stress.

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

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

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

Momentum – Price momentum gets dragged to negative territory by earnings revision.

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



13 July 2015


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

0

1000

2000

3000

4000

5000

6000

0

1000

2000

3000

4000

5000

6000

7000

8000


500

1000

1500

2000

2500

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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

10.00

15.00

20.00

25.00

30.00

35.00

40.00


0.00

5.00

10.00

15.00

20.00

25.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00




13 July 2015


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

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

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

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

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 gets dragged into negative territory with earnings revision.



900

1000

1100

1200

1300

1400

1500

1600

1700

1800

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Cost of Growth Cost of Yield

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



13 July 2015


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

700

900

1100

1300

1500

1700

1900

2100

0

500

1000

1500

2000

2500

3000


500

700

900

1100

1300

1500

1700

1900

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00


2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00



7.00

9.00

11.00

13.00

15.00

17.00

19.00

21.00

16.00

17.00

18.00

19.00

20.00

21.00

22.00

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

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00




13 July 2015


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

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

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

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

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

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

Momentum – Price momentum and earnings revision remain in negative territory.



500

700

900

1100

1300

1500

1700

1900

2100

0.50

1.00

1.50

2.00

2.50

3.00

3.50

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



13 July 2015


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

500

700

900

1100

1300

1500

1700

1900

2100

2300

2500

500

700

900

1100

1300

1500

1700

1900

2100

2300


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




13 July 2015


Sector Outlook – Energy Summary – Despite showing value, the lack of global growth improvement and falling

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

Preferred Picks – None

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

FIG.7-1: CONSENSUS STOCK OUTLOOK

Code Share Price ($)Equity

Capital ($m)Price Target

($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AWE 1.32 694 1.52 BUY -13 -6 -186.45 -59.46 -35.68 -88.00 -2.03 -0.43 0.00 0.00BPT 0.95 1242 1.15 HOLD 96 104 -64.23 12.68 13.45 11.94 4.18 5.60 2.51 2.51BRU 0.39 134 0.58 BUY -13 3 -38.98 -137.50 -16.46 43.89 -6.55 2.14 0.00 0.00CTX 32.76 8845 34.18 HOLD 538 593 30.01 4.77 15.79 15.07 20.56 19.29 3.63 4.02DLS 1.03 475 1.22 HOLD 55 50 -44.20 -18.11 8.11 9.90 13.98 11.28 0.00 0.00ERA 0.39 202 0.78 UNDERPERFORM -137 -87 -32.46 -38.91 -1.42 -2.32 -15.74 -17.07 0.00 1.28FAR 0.08 255 0.20 BUY -8 -13 250.00 -35.71 -5.71 -8.89 -18.25 -14.20 0.00 0.00HZN 0.08 109 0.23 HOLD 14 13 -35.35 -25.00 8.03 10.70 4.37 2.91 0.00 0.00KAR 2.18 538 3.86 BUY -32 -17 -36.13 -53.66 -13.29 -28.68 -3.75 -1.49 0.00 0.00LNG 3.89 1957 9.33 HOLD -24 3 21.43 -111.76 -76.27 648.33 N/A N/A 0.00 0.00ORG 11.36 12605 13.46 BUY 659 865 -9.01 29.51 18.62 14.38 4.24 6.30 4.40 4.48OSH 7.00 10659 9.99 BUY 557 676 -12.37 17.04 19.24 16.44 8.31 9.52 2.23 2.58PDN 0.20 342 0.42 HOLD -101 -23 -9.53 -87.59 -3.24 -26.08 -15.22 -2.23 0.00 0.00SEA 0.47 258 1.23 BUY -13 10 -130.43 -174.60 -19.16 25.69 -1.25 1.75 0.00 0.00SEH 0.12 248 0.39 BUY 5 30 137.70 433.33 40.00 7.50 0.25 9.65 0.00 0.00STO 7.62 7643 9.61 HOLD 302 611 -44.01 96.14 24.50 12.49 3.18 6.19 4.54 5.04SXY 0.26 305 0.39 BUY 4 23 -97.87 1400.00 265.00 17.67 1.21 5.08 0.00 0.00WHC 1.18 1206 1.55 HOLD -23 16 -7.51 -140.00 -33.57 83.93 -0.90 0.28 0.09 0.68WOR 10.11 2471 10.04 HOLD 201 197 -24.29 -2.69 12.34 12.69 8.99 9.12 6.35 5.73WPL 33.57 27659 38.25 HOLD 1516 1699 -51.81 9.56 17.64 16.10 6.99 8.23 4.40 5.08



13 July 2015


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

0

2000

4000

6000

8000

10000

12000

0

2000

4000

6000

8000

10000

12000


500

1500

2500

3500

4500

5500

6500

7500

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00


1.00

2.00

3.00

4.00

5.00

6.00

7.00



-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00


7.00

12.00

17.00

22.00

27.00

32.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00




13 July 2015


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

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






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ABC 4.40 2855 4.31 HOLD 182 186 13.18 2.85 15.66 15.22 15.64 15.24 4.36 4.57AMC 13.60 16067 14.40 BUY 899 926 21.42 8.03 18.67 17.28 34.90 37.01 3.89 4.14BLD 5.93 4536 6.24 HOLD 209 262 30.63 28.09 22.21 17.34 6.22 7.76 3.15 3.86CSR 3.45 1746 4.20 BUY 133 153 81.79 16.89 13.26 11.35 11.71 12.85 5.26 6.14DLX 5.58 2172 5.96 HOLD 119 128 5.76 6.17 18.12 17.06 38.35 37.94 3.96 4.19FBU 7.08 4876 7.95 HOLD 346 385 6.63 10.82 14.09 12.71 11.21 11.98 4.65 5.08IPL 3.71 6254 3.99 HOLD 391 441 23.81 12.34 15.79 14.05 8.53 8.99 3.18 3.56JHX 17.78 7927 17.95 HOLD 259 341 32.83 26.78 29.01 22.88 -79.44 -94.84 3.46 3.52NUF 7.46 1977 6.60 HOLD 105 125 37.02 18.69 18.84 15.87 6.69 7.79 1.45 1.80ORA 2.06 2486 2.24 HOLD 131 151 34.27 14.68 18.90 16.48 9.30 10.29 3.45 4.13ORI 20.11 7451 21.01 HOLD 547 576 -8.87 8.00 13.52 12.52 12.54 12.87 4.70 4.94PGH 4.75 1399 4.84 HOLD 87 96 5.40 10.14 16.05 14.57 26.65 27.21 4.08 4.51TFC 1.43 466 2.48 BUY 22 27 -8.15 16.13 22.98 19.79 7.37 6.10 2.11 2.11



13 July 2015


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

500

1000

1500

2000

2500

3000

500

1000

1500

2000

2500

3000

3500


500

1000

1500

2000

2500

3000

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


2.00

3.00

4.00

5.00

6.00

7.00

8.00



0.00

5.00

10.00

15.00

20.00

25.00

30.00

5.00

10.00

15.00

20.00

25.00

30.00


7.00

9.00

11.00

13.00

15.00

17.00

19.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00




13 July 2015


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

falling commodity prices. Falling commodity prices, substantial production increase by the big miners, stretched balance sheets and exploration shutdown are making life hard for small miners. Falling commodity prices and rising bond yield will push the investors to take profit on the big miners in the short term. We continue to expect Iron Ore to average below US$60 level with increasing supply and declining demand over the next two years. We see short term downside risk in the sector overall, but see long term upside in the big miners.

Preferred Picks – BHP





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AGO 0.12 110 0.14 UNDERPERFORM -191 -112 -722.62 -37.75 -0.59 -0.94 -17.99 -14.54 1.67 1.67ARI 0.13 382 0.20 HOLD -67 20 -111.02 -138.10 -6.19 16.25 -6.42 0.54 0.00 0.00

AWC 1.47 4111 1.98 HOLD 276 350 356.01 30.04 15.53 11.94 7.59 10.11 4.14 6.90BCI 0.30 58 0.56 HOLD -22 -4 -118.46 -52.99 -2.20 -4.68 -7.99 -0.22 2.03 3.39BHP 26.65 85591 33.97 HOLD 10714 7679 -27.72 -28.12 13.20 18.36 16.15 11.96 6.42 6.44BSL 3.13 1769 4.72 BUY 121 104 -0.27 -7.80 14.36 15.57 3.02 2.30 2.17 2.78CDU 1.70 472 4.52 HOLD N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AFMG 1.81 5652 1.97 UNDERPERFORM 429 139 -86.35 -92.86 13.77 192.84 7.86 3.28 3.19 2.73IGO 4.12 965 5.16 HOLD 95 132 37.51 18.35 10.65 9.00 13.75 14.96 2.99 3.76ILU 7.27 3044 8.62 BUY 119 213 223.08 84.59 26.06 14.12 7.62 11.28 2.35 3.70LYC 0.03 111 0.07 BUY -137 -8 -37.07 -97.30 -0.89 -33.00 -38.74 -1.90 0.00 0.00MGX 0.20 218 0.20 HOLD -39 -33 -224.91 -73.55 -1.65 -6.25 -21.13 -11.10 4.00 4.50MLX 1.33 553 1.96 STRONG BUY 44 86 -23.26 106.06 13.43 6.52 12.30 18.59 2.18 4.06ORE 2.04 344 2.84 BUY -12 5 19.28 -176.71 -27.95 36.43 -8.80 -10.52 0.00 0.00OZL 3.67 1114 4.79 BUY 79 83 111.35 8.61 13.75 12.66 3.52 3.35 2.83 4.31RIO 52.07 22088 69.32 HOLD 6747 7320 -39.63 8.31 13.74 12.69 11.77 12.72 5.81 6.03S32 1.78 9476 2.60 BUY 958 851 N/A -15.12 9.66 11.39 6.10 4.33 0.30 3.71SFR 5.63 883 5.94 BUY 87 120 -4.19 42.57 10.20 7.15 26.45 28.80 1.83 2.54SGM 10.03 2055 11.98 HOLD 100 143 12.58 44.83 20.72 14.31 5.22 7.27 2.81 3.88SIR 3.21 1323 4.04 BUY -13 -23 -52.61 66.67 -107.00 -64.20 -2.58 -4.28 0.00 0.00SYR 3.75 620 6.74 BUY -8 -10 18.60 7.84 -73.53 -68.18 -13.12 0.65 0.00 0.00TGS 0.08 90 0.12 HOLD 26 36 -175.92 66.67 4.90 2.94 11.10 13.65 0.00 0.00WSA 3.14 732 4.59 BUY 57 109 106.68 91.81 13.53 7.06 14.32 22.98 2.61 5.45



13 July 2015


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

0

1000

2000

3000

4000

5000

6000

7000

0

1000

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0.00

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30.00

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60.00

70.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00


0.00

5.00

10.00

15.00

20.00

25.00

-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00




13 July 2015


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

0

1000

2000

3000

4000

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6000

7000

0

1000

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-5.00

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0.00

1.00

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-20.00

0.00

20.00

40.00

60.00

80.00

100.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00


0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00




13 July 2015


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

move by US Fed to weaken USD and risk in US rate rise delays will help Spot Gold recover. Chiquities, global recovery delays and EU break up worries with Greece and UK will further support spot gold. The fall in currency will buffer any fall in Spot Gold and help Australian gold miners (i.e. EVN, NST and SAR) deliver good margins. We see improving growth outlook as ROE continues to climb higher.

Preferred Picks – EVN, NST and SAR





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Grow th (%) 2015


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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AQG 3.01 218 3.86 BUY 50 20 -21.24 -61.63 17.41 45.36 5.96 2.54 0.00 0.00BDR 0.17 135 0.48 BUY 40 53 -20.03 34.69 3.47 2.58 14.56 17.04 5.29 6.47EVN 1.17 1161 1.09 HOLD 98 268 54.80 64.80 9.36 5.68 11.34 18.12 1.37 1.28KCN 0.66 148 0.64 HOLD 14 12 522.22 -4.69 10.31 10.82 3.32 2.47 0.00 0.00MML 0.79 164 1.11 BUY 64 87 71.71 34.25 2.79 2.08 11.27 13.63 0.00 0.00NCM 12.60 9658 14.12 HOLD 480 750 10.57 60.00 19.84 12.40 6.18 9.00 0.00 0.52NST 2.27 1346 2.25 HOLD 140 240 252.28 70.26 9.78 5.75 43.06 50.93 2.42 3.08OGC 3.10 941 3.36 HOLD 85 91 -35.40 5.42 11.66 11.06 7.76 6.74 1.24 1.12PRU 0.41 216 0.57 HOLD 44 11 -559.93 -72.73 4.66 17.08 9.18 3.08 0.00 0.00RRL 1.14 570 1.66 BUY 77 119 24.79 54.97 7.55 4.87 19.89 24.81 2.19 6.32RSG 0.30 189 0.52 BUY 46 44 11.19 5.19 3.83 3.64 5.14 3.26 0.00 0.00SAR 0.45 357 0.56 BUY 31 60 77.46 88.10 10.71 5.70 10.78 18.27 0.44 0.67SLR 0.14 68 0.41 BUY 4 19 -127.81 533.33 22.50 3.55 1.31 4.48 0.00 0.00



13 July 2015


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

0

2000

4000

6000

8000

10000

12000

14000

-2000

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2000

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10000


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13 July 2015


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

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






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ASB 1.73 598 1.88 BUY 45 50 28.71 10.77 13.27 11.98 5.44 5.35 2.49 3.48BKN 1.21 207 2.30 HOLD 38 41 -41.90 6.79 5.48 5.13 5.59 6.49 0.66 4.71CDD 3.07 508 2.69 HOLD -15 52 -117.99 -439.13 -33.37 9.84 7.43 7.46 6.35 6.68CIM 21.95 7430 21.81 HOLD 500 516 -15.06 3.37 14.78 14.30 12.58 12.68 4.43 4.60DCG 1.16 194 1.67 BUY 41 29 -20.99 -29.51 4.75 6.74 13.07 8.74 11.21 9.48MLD 0.64 150 1.57 BUY 61 39 -13.25 -32.06 2.46 3.62 23.18 12.90 53.80 16.90MND 8.59 801 9.40 UNDERPERFORM 108 89 -22.47 -16.98 7.44 8.97 29.25 23.70 10.48 8.85NWH 0.17 47 0.33 HOLD -34 6 -168.99 -115.70 -1.40 8.95 -7.89 2.34 4.71 7.65RCR 1.68 232 2.77 BUY 38 41 -18.17 6.47 6.03 5.66 12.35 12.29 5.97 6.09SVW 6.08 1801 7.16 HOLD 196 202 -8.65 5.52 9.33 8.84 6.46 6.65 6.27 6.38UGL 2.03 338 2.18 UNDERPERFORM 30 40 -73.75 28.25 11.47 8.94 4.27 6.30 0.54 2.71



13 July 2015


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

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13 July 2015


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

Non mining related stocks in the sector offer good growth outlook and will come in favour when the yield gets back to 5% in a low growth environment. Global exposure of BXB, intellectual property business IPH and credit business model of VED are quality unique offering that will deliver growth and yield.

Preferred Picks – BXB, IPH, VED





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ALQ 5.63 2293 5.71 HOLD 131 133 -24.66 -0.54 16.77 16.86 9.69 10.62 4.49 4.00BXB 10.77 16876 12.23 HOLD 808 874 15.84 8.79 21.61 19.87 21.96 21.57 3.14 3.44CAB 3.54 426 4.56 HOLD 59 56 -10.15 -5.33 7.25 7.66 15.29 13.40 5.93 5.88CCP 12.32 570 11.98 HOLD 39 42 9.13 9.36 14.79 13.52 39.52 41.82 3.49 3.79CLH 2.17 285 2.26 HOLD 22 25 15.31 10.00 12.76 11.60 13.74 14.12 4.10 4.56DOW 4.76 2073 4.73 HOLD 202 198 -2.39 -1.07 10.21 10.33 10.30 9.53 5.32 5.36IPH 4.52 734 5.00 BUY 28 36 N/A 23.73 25.54 20.64 161.31 84.42 2.59 3.67MIN 6.18 1160 8.08 HOLD 112 81 -53.54 -27.29 10.28 14.14 9.76 6.74 4.13 4.13MMS 11.77 963 13.53 BUY 70 81 26.44 12.04 13.12 11.71 25.98 25.01 4.66 5.21PRG 2.46 292 3.03 BUY 30 32 -8.85 7.41 9.90 9.21 7.41 7.73 7.29 7.68REC 7.10 2228 8.53 HOLD 93 107 11.09 16.38 24.23 20.82 11.85 13.75 2.94 3.41SAI 4.04 856 4.43 HOLD 55 62 17.29 13.85 15.54 13.65 15.18 15.90 4.03 4.70SEK 14.43 4965 16.20 HOLD 191 227 4.46 19.03 25.91 21.76 17.87 18.10 2.54 2.91SGF 2.50 607 2.42 BUY 40 44 14.48 10.84 15.06 13.59 35.51 27.47 4.28 4.80SKE 1.53 362 2.04 HOLD 51 41 -6.86 -20.19 7.21 9.03 10.18 8.27 9.38 7.43SPO 2.07 2273 2.27 BUY 141 162 30.59 16.54 16.30 13.99 18.69 19.96 4.78 5.31TOX 3.01 403 3.23 BUY 24 27 -2.53 12.57 16.45 14.61 25.49 27.30 2.49 2.76TPI 0.75 1185 0.81 HOLD 46 61 -45.00 30.00 25.00 19.23 2.61 3.35 2.00 2.80TSE 1.40 717 1.80 HOLD 85 86 52.70 0.00 8.24 8.24 10.72 11.24 0.43 5.29VED 2.25 1896 2.53 BUY 78 89 13.58 15.22 24.46 21.23 10.37 11.36 2.53 2.93



13 July 2015


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

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13 July 2015


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

driven by lower oil price. Stocks delivering growth and yield aligned to global growth are the best options in this sector. TOL take-over bid removes our global growth/yield option while profit taking is expected with rising bond yields in infrastructure stocks. QAN will get more interest as oil price starts to decline, but investing in the airline industry is a short term trade due to main competitors are subsidised by their sovereign countries.

Preferred Picks – SYD, TCL





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AIA 4.67 5560 3.59 UNDERPERFORM 156 170 13.42 3.77 34.02 32.78 5.86 6.35 2.81 3.05AIO 7.92 7725 7.64 HOLD 394 444 7.75 13.12 19.60 17.33 10.14 10.91 2.39 3.37AZJ 5.27 11183 5.45 BUY 594 662 9.90 13.26 18.89 16.68 9.26 10.26 3.78 4.21MQA 3.18 1646 3.49 BUY 72 92 -4.23 25.87 22.24 17.67 7.59 1.32 5.47 6.64MRM 0.48 178 0.85 BUY 53 37 -33.79 -30.28 3.38 4.85 7.40 4.52 14.79 10.21QAN 3.33 7314 4.08 BUY 666 1081 -219.05 59.66 11.29 7.07 22.09 29.43 0.51 2.10QUB 2.37 2504 2.85 BUY 111 117 12.84 6.73 22.79 21.35 7.96 7.99 2.49 2.78SYD 5.39 11945 5.53 BUY 181 217 -0.78 23.17 65.73 53.37 13.86 29.32 4.64 5.10TCL 9.65 18475 9.76 BUY 221 381 -44.43 130.67 128.67 55.78 2.86 9.23 4.15 4.57



13 July 2015


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

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13 July 2015


Sector Outlook – Consumer Services Summary – Consumers are willing to spend at unique services providers. The growth

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

Preferred Picks – AAD, AGI, ALL, MTR, RFG, SGH





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AAD 2.25 995 2.39 HOLD 57 68 -0.28 15.04 16.92 14.71 10.36 11.24 5.73 6.36AFJ 0.69 160 0.96 BUY 17 21 -1.58 22.78 8.73 7.11 7.61 8.44 4.64 7.39AGI 2.64 851 3.22 BUY 57 62 -19.34 12.87 15.44 13.68 21.97 22.70 3.90 4.05ALL 8.01 5077 8.68 BUY 226 271 71.50 21.61 22.19 18.25 30.25 32.85 2.23 2.83ARB 12.76 1010 12.79 HOLD 44 49 -2.65 8.99 22.50 20.65 20.98 21.47 10.13 2.49BBG 0.57 560 0.69 HOLD 6 26 -127.95 1250.00 282.50 20.93 0.85 5.25 0.00 0.00CTD 10.59 1027 12.02 HOLD 30 41 47.42 32.06 33.62 25.46 17.41 19.34 1.61 2.15CWN 12.79 9316 15.14 BUY 537 561 -15.17 6.62 17.64 16.55 12.26 12.07 2.94 3.06DMP 37.49 3245 34.29 HOLD 62 78 33.72 25.03 52.43 41.94 22.69 25.78 1.36 1.63DNA 0.76 631 1.20 STRONG BUY 11 79 -13.64 384.21 40.00 8.26 4.06 25.03 0.00 2.24EGP 4.61 3806 4.80 BUY 205 220 40.01 5.98 18.37 17.33 6.95 7.21 2.43 2.73FLT 33.01 3328 39.72 HOLD 253 266 -4.95 4.62 13.16 12.58 22.54 21.51 4.56 4.75GEM 3.02 1102 4.69 BUY 96 115 32.42 12.74 11.66 10.34 16.97 18.83 7.91 8.34GUD 8.93 760 8.85 HOLD 35 50 25.74 27.18 18.11 14.24 15.40 19.20 4.56 5.51ISU 1.49 390 1.71 BUY 22 24 13.89 12.20 18.17 16.20 8.57 8.82 0.00 0.47IVC 12.34 1358 12.70 HOLD 52 57 9.41 10.19 26.20 23.78 26.76 27.78 3.22 3.53MTR 3.55 949 3.82 HOLD 37 44 22.73 16.67 24.65 21.13 12.86 13.92 2.87 3.44NVT 4.34 1633 5.07 HOLD 95 101 12.80 7.20 17.36 16.19 42.37 43.43 4.79 5.05RFG 5.45 888 7.51 BUY 54 67 29.20 19.37 15.53 13.01 15.54 16.98 4.61 5.30SGH 3.39 1189 7.10 BUY 80 205 23.41 80.67 10.40 5.76 10.16 14.24 2.54 3.42SHJ 2.35 405 3.42 STRONG BUY 30 33 22.43 11.86 13.28 11.87 17.88 16.71 1.83 2.21SKC 3.79 2227 3.88 BUY 116 130 -1.83 13.24 19.44 17.16 16.69 18.18 5.24 4.77TAH 4.79 3973 4.72 HOLD 171 192 11.94 6.98 22.28 20.83 11.26 12.23 8.62 4.70TTS 3.89 5683 4.02 BUY 259 277 6.82 6.11 21.61 20.37 9.03 9.35 4.24 4.52



13 July 2015


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

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13 July 2015


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

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

Preferred Picks – FXJ, VRL





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016APN 0.65 674 0.90 HOLD 81 86 -2.68 7.69 8.40 7.80 17.15 16.14 0.92 3.36APO 3.08 513 3.47 BUY 29 33 37.60 14.53 17.91 15.63 12.94 13.70 3.25 3.77FXJ 0.83 2009 1.00 HOLD 147 155 7.18 6.45 13.39 12.58 7.08 8.01 4.70 5.06NEC 1.40 1256 1.96 HOLD 142 141 -1.24 1.96 9.12 8.94 7.82 8.04 6.31 9.32NWS 18.47 914 24.95 BUY 349 376 21.06 7.90 29.35 27.20 1.99 2.16 0.27 0.62OML 2.52 378 2.79 BUY 16 22 -9.17 35.78 23.12 17.03 6.61 7.90 3.41 3.73PRT 0.72 264 0.86 HOLD 33 33 1.47 -1.09 7.83 7.91 20.12 18.96 9.72 9.58REA 40.99 5399 48.93 BUY 189 234 25.35 22.58 28.39 23.16 40.33 38.56 1.69 2.10SGN 0.67 281 0.76 HOLD 45 47 -11.11 3.70 6.16 5.94 9.11 9.17 9.32 9.32SKT 5.47 2129 3.29 HOLD 165 168 18.08 -2.86 12.37 12.73 13.88 13.40 5.50 5.62SWM 0.93 1408 1.34 HOLD 207 200 -20.71 -14.65 5.92 6.94 7.14 9.55 11.18 8.17SXL 0.95 716 1.05 HOLD 67 78 -18.64 10.87 10.33 9.31 5.37 5.92 6.21 6.95TEN 0.20 513 0.18 UNDERPERFORM -38 -6 -48.42 -80.00 -13.00 -65.00 -5.41 -0.58 0.00 0.51VRL 6.03 966 6.65 BUY 48 59 -20.83 22.11 20.51 16.80 9.39 11.38 4.56 4.76



13 July 2015


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

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13 July 2015


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

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






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AHG 4.02 1232 4.29 BUY 92 100 3.06 9.33 13.40 12.26 13.80 14.46 5.52 5.92BAP 3.31 794 3.77 BUY 23 44 -15.95 31.85 24.52 18.60 15.69 15.26 2.60 3.53BRG 6.40 833 7.67 HOLD 49 55 -3.59 12.03 17.11 15.27 21.89 22.73 4.31 4.77CCV 0.72 346 1.21 BUY 26 44 -17.95 62.50 12.86 7.91 13.81 14.50 6.25 6.81DSH 2.05 485 2.50 BUY 44 48 7.45 9.19 11.08 10.15 25.56 25.54 5.95 6.39HVN 4.41 4898 4.30 HOLD 265 290 27.09 8.23 18.15 16.77 9.71 10.32 5.69 3.99JBH 19.53 1933 19.37 HOLD 131 140 3.70 6.10 14.90 14.04 41.39 38.98 4.46 4.73KMD 1.43 288 1.71 HOLD 22 26 -42.84 22.13 13.30 10.89 7.71 9.15 5.36 5.79MYR 1.25 732 1.31 UNDERPERFORM 74 70 -27.42 -4.00 10.00 10.42 8.23 7.72 7.60 7.12PBG 0.44 399 0.47 UNDERPERFORM 37 38 -29.83 2.44 10.61 10.36 4.48 9.68 0.46 5.29PMV 12.85 2008 11.95 HOLD 90 101 15.49 11.81 22.31 19.95 6.90 7.62 3.81 3.74RCG 1.21 563 1.27 STRONG BUY 14 27 0.00 25.53 25.74 20.51 10.18 18.15 3.80 4.13SUL 8.86 1746 10.13 HOLD 108 125 -2.02 18.10 16.53 14.00 13.68 15.59 4.44 4.95TGA 2.44 369 2.88 HOLD 31 35 4.91 12.92 11.93 10.56 17.17 17.96 4.73 5.29TME 2.98 1183 3.23 UNDERPERFORM 75 79 -1.35 4.46 16.59 15.89 11.82 12.21 5.08 5.40TRS 6.45 186 6.67 HOLD 13 15 -18.34 14.35 14.46 12.65 10.19 10.89 4.02 4.68WEB 3.83 308 3.86 BUY 19 22 19.77 18.53 16.51 13.93 25.15 26.37 3.63 3.94



13 July 2015


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

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13 July 2015


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

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






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AAC 1.33 709 1.05 UNDERPERFORM 69 19 119.61 -47.95 11.88 22.82 6.70 2.59 3.01 0.00AHY 1.85 1113 2.14 BUY 76 80 8.18 3.94 14.53 13.98 19.10 18.89 5.37 5.80BGA 4.46 681 5.05 HOLD 24 32 -26.04 36.77 28.77 21.04 7.54 10.06 1.84 2.29CCL 9.25 7063 10.07 HOLD 387 407 1.56 5.33 18.24 17.32 21.71 21.36 4.69 4.99FSF 4.35 468 5.52 HOLD 434 512 121.36 9.63 14.94 13.63 7.47 8.89 4.55 5.13GNC 8.60 1968 8.92 UNDERPERFORM 55 100 -39.03 79.92 35.25 19.59 3.17 5.44 1.52 2.57MTS 1.06 979 1.33 HOLD 193 161 -25.21 -17.70 5.05 6.13 12.58 12.64 6.76 4.45RIC 1.29 397 1.20 BUY 21 24 17.65 14.71 18.97 16.54 9.23 10.10 3.26 3.10SHV 10.78 770 9.81 BUY 48 55 47.93 9.07 15.27 14.00 20.60 19.25 2.65 2.76TGR 3.47 510 4.21 BUY 43 45 19.91 19.14 13.55 11.38 12.51 12.16 4.01 4.67TWE 5.17 3367 4.95 HOLD 133 158 7.86 18.72 25.47 21.45 4.57 5.31 2.55 2.96WES 39.88 44815 42.76 HOLD 2449 2621 0.39 7.24 18.62 17.36 8.82 9.55 5.28 5.38WOW 26.92 34097 26.89 UNDERPERFORM 2430 2366 -1.34 -4.55 13.93 14.59 23.00 20.34 5.12 5.04



13 July 2015


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

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13 July 2015


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

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

Preferred Picks – ANN, CSL, GXL, RHC, SRX





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015


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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ACR 0.86 143 0.83 UNDERPERFORM 14 14 -57.11 1.18 10.12 10.00 38.14 44.62 8.26 8.26ANN 24.56 3761 27.39 HOLD 253 271 38.12 4.97 15.24 14.52 15.93 15.68 2.28 2.45API 1.57 766 1.49 HOLD 42 46 34.12 9.41 18.47 16.88 8.47 8.86 2.87 3.31BNO 0.40 167 1.30 BUY -2 38 -250.00 2150.00 100.00 4.44 -4.62 46.59 0.00 0.00CAJ 0.76 400 1.10 BUY 10 17 7.32 40.91 34.77 24.68 11.02 15.02 1.57 2.61COH 79.52 4539 76.41 HOLD 155 182 51.01 17.60 29.22 24.85 44.70 45.60 2.46 2.85CSL 88.06 40933 97.28 BUY 1898 2071 33.36 9.35 22.22 20.32 44.80 44.04 1.87 2.05EHE 6.02 1089 6.78 BUY 43 52 N/A 22.88 25.51 20.76 9.29 9.10 2.28 4.77FPH 6.34 3539 2.23 HOLD 104 115 9.62 10.64 34.05 30.78 25.63 26.33 2.03 2.19GXL 5.15 579 8.67 BUY 38 47 40.37 21.05 15.06 12.44 9.12 11.32 3.34 4.06HSO 2.71 4694 2.95 HOLD 164 189 -17.33 13.40 27.94 24.64 8.69 8.29 2.51 2.84IPD 0.83 243 1.61 STRONG BUY -10 -8 29.99 -25.71 -23.71 -31.92 -37.19 -23.16 0.00 0.00JHC 2.58 679 2.84 HOLD 29 31 27.59 8.11 23.24 21.50 5.81 6.02 3.91 4.57MSB 3.84 1294 6.58 HOLD -94 -86 25 -12 -14 -16 -17 -19 0 0MVF 1.32 311 1.63 HOLD 23 28 1.43 21.21 13.33 11.00 17.36 19.48 4.92 5.83MYX 1.10 865 1.18 STRONG BUY 14 40 -30.88 138.10 52.38 22.00 15.11 29.52 0.00 0.18NAN 1.64 464 2.06 BUY -6 2 123.53 -178.95 -86.32 109.33 -26.39 -15.79 0.00 0.43PRY 5.03 2595 5.20 HOLD 146 159 -16.45 8.39 18.36 16.94 5.17 5.71 3.96 4.17REG 5.35 1607 5.26 BUY 51 58 N/A 13.45 31.29 27.58 32.91 26.95 1.74 3.61RHC 61.17 12361 66.86 HOLD 405 476 22.07 16.78 30.74 26.32 23.34 24.91 1.67 1.97RMD 7.59 10691 8.82 HOLD 461 493 24.78 8.47 23.46 21.63 21.22 22.28 1.92 2.11SHL 22.37 8993 21.60 HOLD 405 491 2.04 19.98 22.46 18.72 12.75 14.36 3.16 3.61SIP 0.76 826 0.83 HOLD 52 57 18.59 9.73 15.63 14.25 8.98 10.07 2.89 5.43SPL 0.70 222 1.10 BUY -13 -2 -3.31 -79.49 -17.82 -86.88 -39.51 -2.91 0.00 0.00SRX 29.41 1663 29.61 BUY 36 52 43.50 42.02 46.46 32.71 29.19 32.64 0.69 1.00VRT 5.27 421 7.18 HOLD 33 36 0.67 11.36 13.01 11.69 13.66 14.35 5.01 5.46



13 July 2015


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

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13 July 2015


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

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

Preferred Picks – NAB, ANZ, WBC, BOQ





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016


EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ANZ 32.25 90128 35.08 HOLD 7413 7864 4.18 4.07 12.15 11.68 14.70 14.35 5.69 5.90BEN 12.58 5712 13.19 HOLD 434 449 6.07 1.96 13.67 13.41 9.14 9.25 5.33 5.52BOQ 13.05 4839 13.95 HOLD 355 390 8.84 7.17 13.75 12.83 10.81 11.20 5.65 5.98CBA 85.79 139631 85.45 HOLD 9068 9368 4.84 3.20 15.51 15.02 18.62 18.19 4.89 5.04GMA 3.19 2073 3.52 HOLD 271 258 0.68 -4.25 7.52 7.86 10.73 10.25 11.22 10.56MOC 2.26 281 2.90 HOLD 20 22 5.75 11.18 14.04 12.63 19.47 21.03 6.99 7.79NAB 33.07 86830 35.62 BUY 6805 7149 22.85 -1.15 12.23 12.37 14.14 13.58 5.97 6.00WBC 33.10 105387 35.03 HOLD 7765 8191 1.95 2.71 13.38 13.03 15.95 15.38 5.67 5.80



13 July 2015


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

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13 July 2015


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

stable yields. Asset managers are the best way to garner equity exposure locally and globally. We prefer the global exposure offered by asset managers due to better recovery outlook. Financial sector recommendation risks to stocks with purely local business remains elevated.

Preferred Picks – EQT, HGG, MQG





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AMP 6.21 18368 6.76 HOLD 1126 1217 9.25 7.57 16.21 15.07 14.17 14.80 4.69 5.07ASX 41.13 7963 40.80 HOLD 402 419 5.35 4.24 19.81 19.01 12.31 12.34 4.54 4.73CGF 6.76 3851 7.31 BUY 319 358 -10.71 11.21 12.22 10.99 13.73 13.76 4.36 4.67CVO 2.32 737 2.57 BUY 31 36 5.72 17.53 23.92 20.35 14.88 18.05 3.88 4.27EQT 21.50 423 23.29 HOLD 20 25 12.47 18.68 19.78 16.67 8.92 10.68 4.42 4.87FXL 2.96 900 4.13 BUY 90 99 6.22 9.76 9.97 9.08 22.42 22.92 5.88 6.32HGG 5.37 3557 6.07 BUY 374 439 20.43 16.99 15.83 13.53 17.05 19.38 3.86 4.49IAG 5.55 13494 5.97 HOLD 998 1057 -22.59 -0.94 13.06 13.18 15.68 15.87 5.39 5.59IFL 8.42 2527 10.41 BUY 169 193 14.22 11.98 14.62 13.05 14.35 13.71 6.24 6.96IMF 1.69 283 2.62 BUY 6 39 -65.18 544.44 46.81 7.26 6.98 18.33 5.99 6.71MFG 17.18 2754 20.99 BUY 148 165 84.75 11.01 19.50 17.57 59.84 54.24 4.09 4.45MPL 2.09 5756 2.27 HOLD 267 290 N/A 7.14 21.33 19.90 19.40 20.06 2.44 3.64MQG 80.60 26882 83.35 BUY 1500 1769 26.68 15.86 17.65 15.23 12.57 12.70 3.84 4.43NHF 3.55 1558 3.52 HOLD 72 82 3.35 12.80 21.65 19.19 21.41 23.18 3.77 3.66OFX 2.06 494 2.90 BUY 25 29 23.06 15.88 20.23 17.46 61.07 56.04 3.57 4.22PPT 47.76 2224 56.85 HOLD 130 149 12.09 13.42 16.95 14.95 22.76 24.68 5.04 5.94PTM 7.24 4248 8.31 HOLD 203 240 3.30 17.53 20.80 17.70 58.02 67.78 5.65 5.52QBE 13.79 18881 15.74 BUY 1334 1549 11.19 14.80 14.15 12.33 14.01 10.66 3.92 4.68SDF 1.63 1208 1.74 BUY 54 79 25.09 15.22 17.66 15.33 7.61 9.38 3.08 3.75SUN 13.61 17511 13.99 HOLD 1183 1364 -5.52 14.50 14.84 12.96 8.62 9.87 6.65 6.63TRG 8.94 247 13.55 BUY 18 21 17.82 5.48 12.56 11.90 35.42 9.19 5.85 6.54



13 July 2015


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

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13 July 2015


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

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

Preferred Picks – CWP, LLC, SGP, VLW





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016



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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ABP 2.89 1599 2.72 HOLD 107 116 1.26 5.15 12.40 11.80 8.92 9.21 5.92 6.09AJA 4.99 303 5.30 STRONG BUY 27 28 -5.73 8.03 12.14 11.24 7.37 8.15 5.55 6.01ANI 2.29 220 2.08 BUY 15 16 48.77 4.47 12.79 12.25 9.39 9.59 7.69 8.17AOG 2.64 1361 3.10 BUY 54 79 12.76 45.87 24.22 16.60 5.15 7.19 2.01 3.07ARF 1.53 349 1.80 BUY 22 25 40.45 -1.60 12.24 12.44 8.59 8.89 6.54 6.99BWP 3.19 2049 2.63 UNDERPERFORM 101 106 5.81 3.66 19.45 18.76 8.00 8.11 4.95 5.14CHC 4.61 1875 4.90 HOLD 98 112 9.09 7.61 16.70 15.52 9.78 10.59 5.34 5.75CMW 1.06 1844 1.05 HOLD 144 157 -1.19 8.43 12.77 11.78 11.26 11.24 7.45 7.55CQR 4.24 1592 4.12 UNDERPERFORM 111 117 2.97 0.65 13.86 13.77 8.64 8.69 6.53 6.75CWP 5.25 414 7.02 BUY 42 44 -2.16 6.24 9.92 9.34 15.61 15.39 5.31 5.52DXS 7.26 7048 7.53 HOLD 500 543 30.22 3.94 12.99 12.50 7.97 8.09 5.65 5.88FDC 2.96 11718 2.95 HOLD 274 653 7.63 6.08 16.35 15.42 5.32 7.66 5.68 6.08FET 2.10 515 2.28 BUY 29 33 4.80 3.82 16.03 15.44 12.94 9.61 6.14 6.33GDI 0.88 477 1.03 BUY 47 50 168.85 4.88 10.73 10.23 8.53 8.93 8.52 8.52GMF 2.05 262 2.13 HOLD 12 20 N/A 45.45 18.64 12.81 N/A 7.90 4.83 7.37GMG 6.27 10992 6.27 HOLD 652 701 6.62 6.97 16.81 15.71 11.56 10.55 3.52 3.80GOZ 3.16 1798 3.12 HOLD 116 123 5.35 2.38 15.05 14.70 9.37 9.50 6.27 6.49GPT 4.27 7590 4.50 HOLD 490 509 3.51 3.87 15.04 14.47 6.93 7.12 5.25 5.46HPI 2.55 373 2.50 HOLD 25 28 13.33 8.82 15.00 13.78 8.75 9.10 6.27 7.25IDR 1.84 227 1.96 HOLD 20 21 53.27 4.27 11.22 10.76 8.09 7.85 8.80 8.48INA 0.45 399 0.51 BUY 19 27 18.12 65.00 22.50 13.64 5.99 10.20 3.33 3.78IOF 3.81 2340 3.70 HOLD 158 165 3.73 3.89 14.82 14.27 7.73 7.76 5.01 5.20LLC 15.02 8719 17.26 BUY 622 711 13.60 12.84 14.08 12.48 22.70 25.14 3.66 4.15MGR 1.88 6935 2.11 BUY 449 477 3.12 6.56 15.37 14.42 7.06 7.17 4.91 5.28NSR 1.63 543 1.70 BUY 25 33 102.50 20.99 20.06 16.58 7.80 8.67 4.98 5.66SCG 3.81 20286 3.88 HOLD 1192 1247 2.28 4.46 17.01 16.28 6.60 7.34 5.51 5.67SCP 2.12 1530 1.96 UNDERPERFORM 87 97 1.66 4.65 16.43 15.70 6.66 6.94 5.33 5.71SGP 4.14 9778 4.66 HOLD 608 663 8.41 7.69 15.92 14.79 7.28 7.29 5.80 5.94TIX 2.47 377 2.62 BUY 27 31 8.35 1.37 11.28 11.13 9.95 8.89 8.30 8.42

VLW 2.03 224 2.60 BUY 26 30 10.31 2.03 8.25 8.09 12.73 13.50 7.39 7.78WFD 9.28 19285 9.83 HOLD 1000 1047 9.11 2.90 19.20 18.66 9.39 9.02 3.76 3.88



13 July 2015


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

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13 July 2015


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

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

Preferred Picks – CAR, CPU, IFM





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ALU 4.30 556 4.96 BUY 23 28 38.13 20.34 24.29 20.19 49.48 41.08 4.21 4.26CAR 10.39 2494 11.07 BUY 103 118 6.80 14.06 23.94 20.99 51.14 51.32 3.40 3.88CPU 11.77 6547 13.39 HOLD 428 449 22.48 9.03 15.16 13.91 26.69 27.37 2.88 3.16CSV 1.55 439 1.63 BUY 20 23 30.51 9.09 20.06 18.39 8.00 9.49 5.83 5.83GBT 5.68 378 5.37 HOLD 17 18 51.01 9.92 21.68 19.72 28.93 27.30 1.83 2.11HIL 0.48 110 1.50 BUY 23 27 -18.47 14.61 5.34 4.66 8.96 10.13 13.26 14.74HSN 2.73 481 1.89 HOLD 18 21 22.91 10.91 24.82 22.38 23.31 22.62 2.34 2.56IFM 1.14 353 1.43 BUY 14 17 18.42 22.22 25.33 20.73 32.20 36.93 3.51 4.21IPP 2.40 450 3.23 BUY 4 10 102.63 131.82 109.09 47.06 23.04 49.40 0.00 0.00IRE 10.16 1626 10.35 BUY 71 77 1.94 13.51 22.88 20.16 19.14 22.08 4.37 4.77ISD 3.44 688 3.42 HOLD 28 33 67.66 19.29 24.57 20.60 22.20 24.38 2.06 2.50NXT 2.30 446 2.82 BUY -9 4 -56.27 -145.45 -52.27 115.00 -4.01 1.80 0.00 0.04RKN 1.99 223 2.09 HOLD 17 18 5.20 5.88 13.01 12.28 51.76 45.37 4.87 5.08SMX 3.34 230 4.02 HOLD 18 19 31.31 6.35 13.25 12.46 13.96 14.18 4.70 5.30TNE 3.61 1116 3.67 HOLD 35 42 10.92 16.81 31.95 27.35 32.27 35.33 2.52 2.94UXC 0.79 261 1.02 BUY 21 22 15.07 6.35 12.46 11.72 9.73 9.95 5.99 6.11



13 July 2015


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

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13 July 2015


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

transition to online by multiple sectors. The Telecommunication sector is on the M&A cycle to drive consolidation with other sectors like media, entertainment, education and health.

Preferred Picks – MTU, SPK, TLS





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016CNU 2.54 1007 2.76 BUY 96 84 -26.32 -11.90 10.60 12.03 13.27 10.39 0.00 4.06IIN 9.48 1545 8.79 HOLD 69 76 4.90 10.11 21.79 19.79 18.69 19.09 2.59 2.85

MTU 10.71 1964 11.54 BUY 95 124 16.00 29.14 20.13 15.59 25.18 29.16 2.89 3.73SPK 2.51 4621 2.35 HOLD 306 303 7.08 0.53 15.06 14.98 20.18 20.42 6.58 6.80TLS 6.21 75921 5.95 HOLD 4215 4504 4.37 7.31 18.16 16.92 31.20 32.92 4.93 5.17TPM 8.85 7025 8.79 HOLD 233 274 31.56 18.64 30.00 25.29 25.46 25.80 1.34 1.62VOC 5.38 1238 6.61 BUY 20 56 16.03 50.55 29.56 19.64 13.03 23.10 1.43 1.34



13 July 2015


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

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13 July 2015


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

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13 July 2015


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

outlook. Rising interest rates, lack of franking and gearing levels will be negative for the sector. The recent breakthrough in battery technology will further raise risk for utilities.


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




($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AGL 15.60 10526 16.38 HOLD 618 713 -3.21 11.01 16.51 14.87 7.46 7.97 4.03 4.31APA 8.38 9338 8.94 HOLD 222 247 -1.55 -2.17 36.43 37.24 9.30 5.78 4.44 4.67AST 1.36 4789 1.42 HOLD 279 291 0.47 -1.32 16.43 16.65 22.87 22.62 6.05 6.30DUE 2.32 3465 2.50 HOLD 66 117 -56.30 70.45 52.73 30.93 3.92 6.29 7.54 7.63EPW 2.17 525 2.48 HOLD 32 35 42.24 9.09 16.44 15.07 10.70 11.05 5.76 6.13EWC 0.37 633 0.80 BUY N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIFN 0.31 238 0.22 HOLD -36 -38 28.77 4.26 -6.60 -6.33 -6.00 -5.20 0.00 6.45SKI 1.88 2757 2.13 HOLD 202 140 -12.90 -31.01 14.57 21.12 10.65 7.14 6.38 6.60



13 July 2015


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

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13 July 2015


Performance Perspective

FIG.25-1: AUSTRALIAN MAJOR MARKET INDICES

Index Description Latest1wk

Perf (%)1mth

Perf (%)3mth

Perf (%)12mth

Perf (%)Perf since GFC

low (%)All Ordinaries Index 5478.11 -0.90 -0.14 -7.70 0.66 76.05

S&P 300 Index 5431.58 -0.85 0.17 -7.90 0.62 73.32

S&P 300 Accumulation Index 48173.57 -0.85 0.36 -7.13 5.07 127.35

S&P 300 Resources Index 3166.83 -1.25 -6.27 -6.32 -23.48 -12.31

S&P 300 Resources Accumulation Index 17489.72 -1.25 -6.27 -6.32 -20.41 2.49

S&P 300 Industrials Index 8834.34 -0.78 1.45 -8.16 6.71 110.98

S&P 300 Industrials Accumulation Index 99249.75 -0.78 1.69 -7.23 11.54 189.41

S&P 100 Index 4586.35 -0.75 0.56 -8.06 1.17 76.53

S&P 100 Resources Index 4566.57 -1.11 -6.18 -6.67 -22.92 -8.88

S&P 100 Industrials Index 4899.54 -0.68 1.90 -8.29 7.22 113.17

S&P 50 Index 5647.41 -0.70 1.04 -7.92 0.48 76.06

S&P Mid Cap Index 4863.18 -1.16 -3.22 -9.28 7.07 79.55

S&P Small Cap Index 2055.34 -2.04 -4.24 -6.13 -5.71 42.33

S&P Small Cap Accumulation Index 5308.95 -2.02 -3.89 -5.73 -2.61 72.39

S&P Small Cap Resources Index 1593.76 -2.78 -7.30 -2.24 -29.78 -42.41

S&P Small Cap Resources Accumulation Index 2661.91 -2.78 -7.30 -2.24 -29.03 -39.94

S&P Small Cap Industrials Index 2316.32 -1.89 -3.61 -6.77 1.06 91.64

S&P Small Cap Industrials Accumulation Index 7162.99 -1.87 -3.19 -6.30 4.85 148.60 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 5431.58 -0.85 0.17 -7.90 0.62 73.32

US - NASDAQ 4997.70 -0.23 -1.56 0.03 13.09 286.27

US - S&P 500 2076.62 -0.01 -1.36 -1.21 5.26 203.87

US - DOW JONES 17760.41 0.17 -1.33 -1.65 4.56 168.00

CANADA - S&P/TSX 60 842.74 -1.62 -2.76 -6.19 -3.37 N/A

BRAZIL - BOVESPA 52590.72 0.14 -2.39 -2.99 -1.95 41.73

MEXICO 44915.98 -0.33 0.76 0.08 2.81 163.54

UK - FTSE 100 6673.38 1.33 -2.30 -5.87 -0.66 89.01

FRENCH - CAC40 4903.07 1.97 -0.65 -6.44 12.46 93.46

GERMAN - DAX 11315.63 2.33 0.45 -8.56 15.37 208.63

JAPAN - NIKKEI 225 19779.83 -3.70 -1.33 -0.64 29.26 175.75

HONG KONG - HANG SENG 24901.28 -4.46 -6.69 -8.69 7.44 108.88

CHINA - SHANGHAI 3877.80 5.18 -24.05 -3.88 90.22 76.83

INDONESIA - KLSE 1715.58 -1.08 -1.16 -6.98 -9.28 99.90

NEW ZEALAND - NZSE 50G 5725.34 -1.98 -1.35 -2.09 11.76 131.70

IRON ORE - Iron Ore fines 61.5% Fe US$/dmt 52.50 -6.25 -19.23 9.38 -45.31 N/A

GOLD - Spot Gold - US Dollars / Oz 1163.09 -0.44 -1.92 -3.65 -12.39 24.00

SILVER - Spot Silver - US Dollars 15.56 -0.80 -2.80 -5.46 -26.26 16.66

COPPER - COMEX High Grade Copper Futures 253.75 -3.04 -7.63 -7.19 -21.60 50.24

OIL - WTI - NYMEX Light Sweet Crude Oil Futures 53.22 -4.14 -13.91 -0.54 -47.97 16.92

OIL - Brent Crude Oil 58.71 -3.01 -10.31 1.38 -45.71 28.86

COAL - NYMEX Central Appalachian Coal Futures 42.20 2.73 -3.94 -15.73 -29.96 -10.54

GAS - NYMEX Natural Gas Futures 2.78 -1.52 -3.87 10.67 -33.36 -29.50

AUDUSD 0.7440 -1.09 -4.10 -3.11 -20.96 16.17

AUDEUR 0.6670 -1.43 -2.66 -7.93 -3.34 31.70

AUDJPY 91.33 -1.13 -4.04 -1.06 -4.53 45.01

VIX - CBOE Market Volatility 16.83 0.24 27.31 33.78 44.46 -65.88

XVI - S&P/ASX 200 Volatility 21.26 10.50 17.02 68.50 86.91 -43.96 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


13 July 2015


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


1wk Perf (%)

1mth Perf (%)

3mth Perf (%)

12mth Perf (%)


S&P/ASX 300 Energy - 10 10883.35 -3.09 -6.47 -5.19 -25.12 -13.36

S&P/ASX 300 Materials - 15 8490.01 -0.66 -5.28 -6.12 -14.60 6.45

S&P/ASX 300 Industrial - 20 4697.76 -1.24 -1.14 -1.71 13.48 106.57

S&P/ASX 300 Consumer Discretionary - 25 1877.35 -1.37 -3.70 -9.44 1.56 91.85

S&P/ASX 300 Consumer Staples - 30 8565.68 -0.92 -2.64 -9.89 -13.94 44.62

S&P/ASX 300 HealthCare - 35 15137.69 -0.10 0.13 -7.40 27.62 119.19

S&P/ASX 300 Financials - 40 6358.67 -0.81 3.47 -10.15 5.27 133.09

S&P/ASX 300 Information Technology - 45 875.36 -2.35 -2.75 -6.02 -0.52 59.49

S&P/ASX 300 Telecommunication Services - 50 2129.78 1.02 3.79 -1.38 19.18 97.15

S&P/ASX 300 Utilities - 55 6178.29 -1.71 -1.62 -4.96 7.76 75.44

S&P/ASX 300 Metals & Mining 2516.17 -0.38 -6.17 -6.79 -22.77 -12.33

S&P/ASX 300 RESOURCES 3166.83 -1.25 -6.27 -6.32 -23.48 -12.31

S&P/ASX 300 INDUSTRIALS 8834.34 -0.78 1.45 -8.16 6.71 110.98

S&P/ASX 300 5431.58 -0.85 0.17 -7.90 0.62 73.32 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 10883.35 -3.09 -6.47 -5.19 -25.12 -13.36

S&P/ASX 300 Materials - 1510 8490.01 -0.66 -5.28 -6.12 -14.60 6.45

S&P/ASX 300 Capital Goods - 2010 1966.74 -3.29 -10.46 -7.20 -31.81 -23.72

S&P/ASX 300 Comm & Professional Services - 2020 2393.53 -1.48 -4.35 -6.89 1.33 102.24

S&P/ASX 300 Transportation - 2030 8543.83 -0.87 2.24 2.58 32.03 168.99

S&P/ASX 300 Automobiles & Components - 2510 1122.02 -4.06 -6.52 -1.09 16.75 N/A

S&P/ASX 300 Consumer Durables & Apparel - 2520 644.13 0.12 0.62 3.42 23.96 -66.93

S&P/ASX 300 Consumer Services - 2530 6458.70 -1.27 -3.07 -8.68 7.97 105.41

S&P/ASX 300 Media - 2540 1303.82 -1.04 -5.72 -18.28 -20.20 94.26

S&P/ASX 300 Retailing - 2550 4262.68 -1.86 -3.91 -4.74 3.48 83.60

S&P/ASX 300 Food & Staples Retailing - 3010 12618.96 -1.01 -3.12 -9.92 -16.15 48.47

S&P/ASX 300 Food Beverage & Tobacco - 3020 4887.08 -0.23 0.39 -10.17 2.02 28.77

S&P/ASX 300 HealthCare Equipment&Services - 3510 8598.23 -0.05 1.58 -8.98 26.02 122.14

S&P/ASX 300 Pharmaceuticals&Biotechnology - 3520 27145.41 -0.14 -1.17 -5.89 28.78 119.79

S&P/ASX 300 Banks - 4010 9010.56 -0.61 5.38 -12.88 0.91 146.00

S&P/ASX 300 Diversified Financials - 4020 7577.17 -2.29 -0.26 -5.03 20.23 220.04

S&P/ASX 300 Insurance - 4030 3835.82 -1.54 2.37 -3.58 7.78 54.12

S&P/ASX 300 Real Estate - 4040 2908.42 -0.36 -0.92 -5.80 15.22 128.16

S&P/ASX 300 Software & Services - 4510 1049.45 -2.38 -2.64 -5.52 1.50 78.15

S&P/ASX 300 Technology Hardware&Equipment - 4520 358.49 2.15 -15.18 -45.09 N/A N/A

S&P/ASX 300 Telecommunication Services - 5010 2129.78 1.02 3.79 -1.38 19.18 97.15

S&P/ASX 300 Utilities - 5510 6178.29 -1.71 -1.62 -4.96 7.76 75.44

S&P/ASX 300 5431.58 -0.85 0.17 -7.90 0.62 73.32 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


13 July 2015


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

Category GICSNumber of

stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)

Expected 12mth Price Return (%)

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

2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

All Ordinaries S&P 500 464 1585.46 100.00 100.00 9.52 16.33 16.53 15.35 12.39 -1.25 7.67Market S&P 300 296 1530.70 100.00 100.00 8.96 15.88 16.23 15.29 13.52 -2.15 6.12Large Cap S&P 100 100 1368.98 89.43 100.00 8.34 15.76 15.95 15.31 12.49 -1.16 4.19Small Cap S&P Small 196 161.72 10.57 0.00 14.27 16.96 19.09 15.17 23.87 -11.16 25.83Micro Cap S&P Micro 168 54.76 0.00 0.00 25.00 74.17 34.42 17.28 -51.10 115.50 99.16S&P 500 w ith mkcap betw een $20-500m MC $20-500m 233 49.98 1.67 0.00 42.49 23.06 32.83 14.00 -18.07 -29.74 134.50

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

All Ordinaries S&P 500 16.61 15.58 15.67 11.73 11.12 11.76 4.27 4.52 4.78 1.96 1.84 1.79Market S&P 300 17.01 15.70 15.81 12.19 11.56 12.10 4.33 4.57 4.83 1.99 1.86 1.79Large Cap S&P 100 17.43 15.86 15.86 13.58 12.81 13.24 4.43 4.65 4.90 2.08 1.91 1.84Small Cap S&P Small 13.42 14.32 15.44 6.03 5.91 7.03 3.47 3.89 4.24 1.43 1.51 1.45Micro Cap S&P Micro 5.72 12.35 11.70 2.52 3.33 6.04 2.66 3.07 3.51 1.41 1.51 1.66S&P 500 w ith mkcap betw een $20-500m MC $20-500m 8.47 14.63 15.05 2.95 2.46 4.72 3.77 3.58 3.99 0.82 0.97 1.04

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

2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

All Ordinaries S&P 500 11.47 12.77 12.10 9.30 9.65 9.49 11.13 11.77 10.65Market S&P 300 11.49 11.36 10.74 9.18 9.58 9.52 10.90 11.58 10.58Large Cap S&P 100 11.72 11.41 10.91 9.28 9.74 9.87 10.69 11.41 10.54Small Cap S&P Small 9.82 10.90 9.46 8.47 8.46 7.43 12.93 13.15 10.95Micro Cap S&P Micro 11.09 -5.17 -4.77 14.15 11.77 8.78 25.79 21.22 12.67S&P 500 w ith mkcap betw een $20-500m MC $20-500m 5.41 -5.69 -5.64 7.70 8.01 6.50 14.63 16.26 10.51


FIG.26-2: MAJOR SECTOR MULTIPLES


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

Market Resources S&P 300 Res 56 231.20 15.10 15.62 27.26 10.39 16.01 15.76 21.59 -35.10 1.58Market Industrials S&P 300 Ind 240 1299.50 84.90 84.38 5.66 17.55 16.27 15.21 11.27 7.90 6.96Market Industrials Excl Financials S&P 300 Ind Ex Fin 180 608.91 39.78 36.40 5.86 21.00 19.39 17.51 4.93 8.30 10.75Market Financials S&P 300 Fin 60 690.59 45.12 47.98 5.49 15.34 14.25 13.64 15.78 7.64 4.50


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

Small Resources S&P Small Res 41 21.44 1.40 0.00 50.22 16.18 98.60 15.34 29.96 -83.59 542.93Small Industrials S&P Small Ind 155 140.28 9.16 0.00 8.78 17.08 16.99 15.15 22.94 0.52 12.20Small Industrials Excl Financials S&P Small Ind Ex Fin 123 109.63 7.16 0.00 9.28 17.38 17.68 15.65 17.84 -1.69 12.98Small Financials S&P Small Fin 32 30.64 2.00 0.00 6.99 16.11 14.94 13.60 43.37 7.84 9.84

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

Market Resources S&P 300 Res 13.35 10.71 9.99 14.08 9.32 9.78 4.61 4.43 4.85 1.28 1.16 1.13Market Industrials S&P 300 Ind 17.67 16.60 16.86 11.53 12.28 12.80 4.28 4.60 4.82 2.20 2.09 2.00Market Industrials Excl Financials S&P 300 Ind Ex Fin 21.19 18.67 19.43 6.14 6.73 7.17 3.49 3.87 4.11 2.66 2.63 2.51Market Financials S&P 300 Fin 14.55 14.77 14.60 27.45 27.73 28.41 4.97 5.24 5.45 1.91 1.76 1.70

Category GICSROE 2014

(%)ROE 2015

(%)ROE 2016

(%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

Small Resources S&P Small Res 4.79 5.84 8.85 5.68 2.17 7.46 2.45 1.09 1.58 0.65 0.83 0.81Small Industrials S&P Small Ind 14.74 15.61 16.45 6.08 6.42 6.97 3.63 4.31 4.65 1.76 1.73 1.66Small Industrials Excl Financials S&P Small Ind Ex Fin 14.07 14.96 15.56 4.99 5.24 5.72 3.34 3.89 4.26 1.79 1.79 1.70Small Financials S&P Small Fin 17.12 17.92 19.62 30.69 30.18 30.59 4.67 5.82 6.05 1.66 1.56 1.52


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Market Resources S&P 300 Res 5.57 6.57 6.58 4.28 5.23 5.06 6.12 9.01 8.60Market Industrials S&P 300 Ind 14.22 13.08 12.12 12.10 11.65 11.74 13.05 12.32 11.13Market Industrials Excl Financials S&P 300 Ind Ex Fin 12.95 11.81 10.84 10.56 10.00 9.20 15.24 14.20 12.89Market Financials S&P 300 Fin 15.56 14.44 13.53 14.18 13.93 16.25 11.39 10.89 9.79


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Small Resources S&P Small Res 4.11 7.56 4.95 4.78 5.71 4.15 11.35 22.18 9.37Small Industrials S&P Small Ind 12.47 11.70 10.99 9.50 9.05 8.31 13.19 12.46 11.20Small Industrials Excl Financials S&P Small Ind Ex Fin 11.51 10.66 10.05 8.68 8.34 7.72 12.76 12.18 10.98Small Financials S&P Small Fin 17.73 17.91 16.43 14.72 13.35 11.72 15.12 13.64 12.12



13 July 2015


FIG.26-3: SECTOR MULTIPLES


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Grow th

2016 (%)

Energy 1010 20 77.20 5.04 5.20 24.90 13.16 21.58 16.48 43.91 -38.99 30.96Materials 1510 49 214.17 13.99 14.20 22.15 11.06 15.01 15.51 15.96 -26.31 -3.24Capital Goods 2010 13 12.95 0.85 0.54 9.29 8.55 12.32 11.11 -10.65 -30.60 10.87Commercial & Professional Services 2020 20 40.91 2.67 2.17 12.39 18.19 17.98 16.80 12.34 1.21 7.03Transportation 2030 9 66.87 4.37 4.13 2.68 55.44 28.20 21.31 -12.22 96.59 32.35Consumer Services 2530 24 50.06 3.27 2.73 13.21 20.98 19.41 16.62 18.17 8.08 16.83Media 2540 14 17.56 1.15 0.52 15.22 14.81 14.51 13.55 18.73 2.04 7.09Retailing 2550 17 18.30 1.20 0.51 5.40 16.30 16.22 14.59 4.93 0.47 11.16Food & Staples Retailing 3010 3 79.81 5.21 5.84 4.32 15.55 15.82 15.73 3.49 -1.74 0.56Food Beverage & Tobacco 3020 10 16.90 1.10 0.90 4.81 20.72 19.47 17.64 -13.46 6.41 10.39Health Care Equipment & Services 3510 18 58.12 3.80 3.43 4.00 29.21 24.70 21.69 -14.96 18.24 13.91Pharmaceuticals & Biotechnology 3520 8 45.83 2.99 2.97 12.84 32.64 24.96 21.72 16.22 30.77 14.90Banks 4010 8 433.84 28.34 31.25 4.84 14.39 13.40 13.10 6.94 7.41 2.30Diversif ied Financials 4020 13 55.78 3.64 3.69 8.45 19.96 17.20 15.03 25.54 16.02 14.42Insurance 4030 8 77.73 5.08 5.44 8.33 15.58 15.14 13.82 30.42 2.96 9.55Real Estate 4040 31 123.24 8.05 7.60 4.61 17.37 16.01 15.07 52.93 8.54 6.19Softw are & Services 4510 16 16.29 1.06 0.67 10.77 23.56 19.59 17.27 16.23 20.28 13.42Telecommunication Services 5010 7 93.02 6.08 5.95 -3.34 19.49 18.56 17.21 9.14 5.02 7.88Utilities 5510 8 32.12 2.10 2.27 8.52 20.54 22.47 21.72 -1.60 -8.60 3.46

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

Energy 1010 11.03 7.11 8.39 8.99 6.30 7.87 5.40 3.68 4.07 1.18 1.17 1.14Materials 1510 20.05 10.83 9.30 13.83 9.54 9.70 3.98 4.53 4.94 1.54 1.37 1.32Capital Goods 2010 15.75 11.70 11.48 3.56 3.25 3.67 6.27 5.44 5.41 1.03 1.09 1.07Commercial & Professional Services 2020 18.47 20.33 18.89 6.91 6.85 7.15 2.81 3.43 3.80 2.56 2.41 2.29Transportation 2030 5.38 9.52 15.05 3.66 8.38 10.67 2.90 3.46 4.07 2.44 2.70 2.65Consumer Durables & Apparel 2520 15.99 16.35 17.59 11.26 11.14 11.87 2.96 3.84 3.68 2.66 2.46 2.29Consumer Services 2530 19.14 18.58 18.57 6.85 6.67 7.28 3.76 4.12 4.47 1.13 1.32 1.27Media 2540 16.46 15.14 15.81 4.86 4.77 5.06 3.99 4.84 4.71 2.01 1.96 1.86Retailing 2550 16.67 14.89 14.17 3.77 3.69 3.63 5.28 5.23 5.22 2.12 2.15 2.10Food & Staples Retailing 3010 14.06 13.73 13.90 2.96 4.05 4.14 3.42 3.61 3.90 1.87 1.77 1.65Food Beverage & Tobacco 3020 16.91 19.06 19.97 7.77 7.83 8.22 1.84 2.33 2.75 3.82 3.34 3.13Health Care Equipment & Services 3510 40.52 41.30 41.36 22.92 22.59 22.76 1.32 1.76 1.94 10.14 8.42 7.03Pharmaceuticals & Biotechnology 3520 16.13 15.98 15.52 35.25 36.71 36.74 5.32 5.51 5.64 2.13 1.96 1.86Banks 4010 17.67 19.56 20.22 24.02 24.35 25.50 3.68 4.33 4.80 2.54 2.37 2.18Diversif ied Financials 4020 12.26 13.62 13.40 12.50 11.12 12.38 4.54 4.85 5.25 1.72 1.63 1.59Insurance 4030 8.98 9.03 9.50 25.35 28.61 29.12 4.62 4.95 5.21 1.37 1.25 1.23Real Estate 4040 33.60 28.81 30.33 13.33 14.19 15.03 2.67 3.16 3.49 4.95 4.55 4.16Softw are & Services 4510 29.91 29.34 30.97 14.65 15.03 15.36 4.30 4.56 4.85 5.49 5.20 4.90Telecommunication Services 5010 10.46 9.95 9.03 8.12 7.96 8.11 4.78 4.95 5.22 1.68 1.57 1.58


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Energy 1010 6.51 8.65 7.59 6.56 8.89 7.36 9.88 16.01 12.35Materials 1510 6.24 6.82 6.99 4.42 5.05 5.04 6.22 8.32 8.28Capital Goods 2010 5.10 5.82 5.96 4.34 5.18 5.54 6.45 8.11 8.56Commercial & Professional Services 2020 10.41 10.00 9.42 8.75 8.87 8.27 12.92 13.47 12.47Transportation 2030 17.53 12.55 10.39 16.02 12.45 10.72 35.86 20.76 16.59Consumer Durables & Apparel 2520 16.09 15.05 12.38 13.09 11.63 10.07 16.93 15.25 12.93Consumer Services 2530 9.93 10.25 9.56 5.85 5.44 4.96 8.94 8.21 7.24Media 2540 12.90 11.50 10.31 10.24 9.39 8.42 12.64 11.78 10.51Retailing 2550 10.73 11.43 10.85 8.65 8.84 8.66 11.03 11.38 11.25Food & Staples Retailing 3010 12.98 11.65 11.54 8.54 7.59 7.08 13.62 11.20 10.40Food Beverage & Tobacco 3020 22.09 16.78 14.75 17.54 13.91 12.24 21.01 17.90 15.64Health Care Equipment & Services 3510 31.18 21.89 22.50 22.48 17.66 15.55 25.16 19.69 17.20Pharmaceuticals & Biotechnology 3520 14.65 13.51 13.22 13.12 13.35 20.68 9.19 8.96 8.45Banks 4010 21.91 16.79 15.28 11.92 11.61 9.96 13.10 11.79 8.89Diversif ied Financials 4020 14.42 14.36 12.23 14.25 13.14 9.77 15.30 14.72 10.92Insurance 4030 18.02 17.68 14.99 19.11 17.79 15.77 19.22 18.03 16.14Real Estate 4040 19.88 14.53 13.64 15.34 13.13 11.66 17.99 15.41 13.35Softw are & Services 4510 10.28 9.42 8.88 8.26 8.34 7.84 13.49 13.35 12.32Telecommunication Services 5010 10.22 10.08 9.31 11.59 11.98 10.71 15.98 16.90 15.76



13 July 2015


Quant Strategy Model Portfolio Latest monthly update: Published on 24th June 2015.

Current model portfolio: Materials – large (BHP); Transport – large (SYD, TCL); Consumer Services – mid (ALL), small (AAD, AGI, MTR, RFG, SGH); Media – mid (FXJ), small (VRL); Retailing – small (BRG, CCV, KMD); Health Care – large (CSL, RHC), mid (ANN), small (GXL); Banks – large (ANZ, NAB, WBC), mid (BOQ); Diversified Financials – large (MQG), mid (HGG), small (FXL, IMF); IT – large (CPU), mid (CAR); Telecommunications – large (TLS), micro (BGL).

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

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

Benchmark Index

Portfolio Market Cap Weighted Index

Portfolio Equal Weighted Index


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

Performance AnalysisBenchmark

Index

Portfolio Market Cap Weighted

Index

Portfolio Equal Weighted Index

Performance since inception (May 2009) 50.71% 159.11% 284.18%

Average performance per month 0.64% 2.00% 3.57%

Standard Deviation (weekly) 2.03% 2.12% 2.28%

Performance over the past 1 month -1.62% -0.97% -4.95%

Performance over the past 3 months -4.73% -3.43% -4.94%

Performance over the past 12 months 4.56% 10.12% 9.29% Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

BAILLIEU HOLST RESEARCH

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

This document has been prepared and issued by:

Baillieu Holst Ltd ABN 74 006 519 393

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

Analysts’ stock ratings are defined as follows:

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

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

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

Disclosure of potential interest and disclaimer:

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

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

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

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

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

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

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

Baillieu Holst Ltd

ABN 74 006 519 393

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research analyst equity engineer – july 2015 engineering … · 2015. 7. 13. · baillieu holst...

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