equity engineer – january 2015 · baillieu holst quant research 09 january 2015 baillieu holst...

BAILLIEU HOLST QUANT RESEARCH

09 January 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 – January 2015

ENGINEERING GUIDE TO EQUITY STRATEGY

In the Year of the Sheep, stay ahead of the herd and B+

Global market outlook: We continue to expect the US to recover with below trend growth, China to stabilise, Europe to downgrade and Japan to remain high risk. US reporting season will be a key indicator to see if the macro optimism in growth is matched by the corporate earnings growth. We continue to expect small targeted stimulus in China and Japan while substantial QE in Europe is inevitable. We expect the energy prices to trend lower and remain at lower equilibrium during 2015H1. The lower energy prices will be positive for global growth while energy producing countries like Australia will struggle. We continue to feel Iron Ore has seen the lows in the short term and expected to stabilise around these levels.

Local market outlook: Equities will continue to benefit from global demand for better than bond yield income streams from rising older demographic globally, with economies maintaining low rates of interest for longer due to low growth and unemployment. The federal government policy mix continues to support old sectors over new sectors despite structural headwinds and limited upside for the economy in the long term. Tidal wave of unemployment, falling real wages, falling living standards and rising cost of living in the next few years are expected to take a substantial bite out of local consumer sentiment. Free trade agreements opens our market to competitors who are artificially stimulating their economies while further loosening visa rules which will allow cheap overseas labour to flood into an already struggling local job market. Despite the growth downgrades and medium term currency drop to 77 cents, we expect the RBA to delay any rate cut into 2015H2 to allow the stimulatory effects of falling energy prices to flow through the economy. A rate cut alone will not turn the slide in consumer sentiment while there are expectations of rising unemployment and higher government fiscal tightening.

Market View: We maintain a bullish view on the Australian equity market from May 2013, while pushing back our timeline to 6500 from 2015 to 2016 after earlier than expected decline in commodities, currency and consumer sentiment. The substantial amount of macro factors sitting over the market in 2015 will force higher volatility and favour traders who are staying ahead of the macro risk cycles. We expect the year to be ideal for hedge funds while long only funds will be tested on their ability to manage risks and market cycles. Retail investors should be looking to invest in diversified portfolio of quality large cap sustainable yield stocks with earnings certainty, growth and global earnings.

Preferred Sectors: Metals & Mining, Gold, Commercial & Professional Services, Transport, Consumer Services, Media, Retail, Staple, Health Care, Banks, Diversified Financials, Property Trusts, Information Technology, Telecom Services.

MIND THE GAP – Australian Equity Market Dividend Yield and 10 year Bond Yield

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


09 January 2015


Contents Market Strategy Calls Since 2013 3 Global Outlook – Top Down 4 Global Outlook – Bottom Up 8 Macro Summary - Global 12 Market Summary - Local 13 Major Sector Outlook – Market 15 Major Sector Outlook – Resources 17 Major Sector Outlook – Industrials Ex Financials 19 Major Sector Outlook – Financials 21 Sector Outlook – Energy 23 Sector Outlook – Materials (Ex Metals & Mining) 25 Sector Outlook – Metals & Mining (Ex Gold) 27 Sector Outlook – Gold 30 Sector Outlook – Capital Goods 32 Sector Outlook – Commercial & Professional Services 34 Sector Outlook – Transport 36 Sector Outlook – Consumer Services 38 Sector Outlook – Media 40 Sector Outlook – Retail 42 Sector Outlook – Staple 44 Sector Outlook – Health Care 46 Sector Outlook – Banks 48 Sector Outlook – Diversified Financials and Insurance 50 Sector Outlook – Property Trust 52 Sector Outlook – Information Technology 54 Sector Outlook – Telecommunication Services 56 Sector Outlook – Utilities 59 Performance Perspective 61 Market and Sector Multiples 63 Quant Strategy Model Portfolio 65


09 January 2015


Market Strategy Calls Since 2013 FIG.1-1: TIMING OF MARKET STRATEGY CALLS SINCE START OF 2013


Market calls over the past 3 months and commentary:

17th Sep 2014 – Maintain positive long term view and turning positive with stabilising geopolitical risks, China bottoming, school holidays and value emerging in the market. We expect the AUDUSD to settle around 87 cents in the short term and pull back to mid-80s in the medium term.

6th Nov 2014 – Maintain positive long term view while turning short term negative with domestic risk to financials and commodity price risks to resources. We expect the AUDUSD to see support around 85 cents and recover with global demand for yield.

24th Nov 2014 – Maintain positive long term view while turning positive short term with China moving to cut rates after two years to stabilise the domestic growth. We expect the AUDUSD to hover around 85 cents and trend down to low 80 over the medium term.

28th Nov 2014 – Maintain positive long term view while turning negative short term with OPEC move to not support Oil price by maintaining over-supply. We expect the AUDUSD to hover around 85 cents and trend down to low 80 over the medium term.

2nd Dec 2014 – Maintain positive long term view while turning positive short term with market sold down to fair value territory. We expect the AUDUSD to trend down to 80 cents in the short term before settling into 77-82 cent trading range in the medium term.


09 January 2015


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

in line with the world index post GFC after falling commodity prices scared global investors on currency worries. China and US are the only regions showing positive trend in the short term while Australia and Europe are the most negative.

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

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

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09 January 2015


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

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

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

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


Manufacturing PMI shows the strong recovery in the US while India and Japan are slightly ahead of the rest. Recent government moves to stimulate the domestic economy should show recovery signs in China in the short to medium term.

FIG.2-4: MANUFACTURING PMI AROUND THE WORLD

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09 January 2015


Unemployment rates around the world shows the US and India have managed to recover better than Australia while Europe is moving into double digits. Europe is potentially looking at a lost generation of young people that may 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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Australia Consumer Sentiment India Consumer Sentiment Japan Consumer Sentiment



09 January 2015


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

FIG.2-7: BOND YIELDS AROUND THE WORLD

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Volatility indices shows the link between Australia and the US while overall volatility has started to rise in both countries after hitting the lowest point in mid-2014.

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

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09 January 2015


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 thematics in a low growth outlook. Australian dividend yield offers the best risk/return yield option compared to all the major markets around the world.

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

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

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US: The US earnings growth is showing signs of recovery after the market 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 growth downgrades expected from all the other major regions and emerging markets.

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

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Europe: Europe needs to see sustained sales growth recovery to maintain earnings growth improvements. Europe continues to have uncertainty driven by each country’s internal political volatility due to austerity plans. Russia looks certain to fall into recession while countries trade linked to Russia will also get tainted. The dividend yield is comparable to Australia but the sustainability risk is higher. The lack of detail in ECB plans to stimulate Europe and negative data from Germany is raising questions about growth.

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

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

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

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China: China has been in decline due to its leadership’s inability to deliver any big structural changes to move the dial. Given the big changes facing the leadership, change has been slow and measured. The recent domestic interest in margin loan investing on the hope of government driven domestic consumption recovery has seen a big move in PE valuation despite growth outlook not showing the turn.

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 as expected. Recent change in leadership is seen as the catalyst to open the economy and drive more growth and consumption. Global investors see the upside but expect this turn around to take time.

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

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Macro Summary – Global US: The US Fed continues to hint towards higher interest rates without any commitment to

timeframe. The growth in the US is below trend, but a much broader based and stable growth than any other region. The worry is that higher rates will see capital flow out of emerging markets to the US and drive the USD even higher. This move will force emerging markets to raise rates and stifle their growth. The US Fed may ignore global worries, but falling energy prices will produce low inflation and job losses, while high currency will soften growth outlook. The US reporting season coming up will show if the corporate earnings growth stacks up to the high market expectations.

Euro: The ECB has talked a good game and even delivered some steps towards structural changes for bail-outs. The continued austerity mode is stifling growth and keeps unemployment high. This outlook is not likely to change for the next 5-10 years in some of the troubled members of Euro. The turnaround in the US is getting Euro to look at similar QE to stimulate their economy. Germany is also beginning to show signs of decline. The ECB has more ammo with the latest deflation data, but needs Germany to let them move to large scale QE. Germany prefers to wait and watch Euro devaluate despite taking some heat. Once the Euro members at the bottom of the pecking order start to make noise about breaking away, we expect that Germany will be forced to act. They need the underperformers to keep the Euro down to sell more outside Europe. Greece is leading the pack to leave the Euro fold while Russia is expected to fall into recession in 2015 and remain a drag on Euro.

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.

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 myriad of historical, political and structural impediments. The lower average age compared to China offers huge upside to growth while the historical rate of change suggests this will take time.

Commodities: We expect Iron Ore to stabilise around the US$65-75 range with China bottoming while Energy prices likely to see close to US$40 in the next 3-6 months before recovering to a lower equilibrium. Longer term outlook for the fossil fuel sector is likely to be challenged by improving battery technology supporting alternative clean energy sources in 5-10 year time frame. The next commodity up cycle will require a large emerging country like India or Indonesia to ramp up substantial building up phase like China. We struggle to see that in the next 5 years.


09 January 2015


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 close 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 months to limit this damage. The infrastructure job creation will only start in 2016 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. Recent FTAs will further hinder any industry recovery process given the competition from mature technological and manufacturing giants like South Korea, Japan and China. The recent view to relax 457 visa rules to allow foreign cheap labour to flood an already struggling employment market will drive unemployment even higher.

Consumer confidence: Tidal waves of unemployment coming in the next few years, rising cost of living pressures, falling real wages and continued budget worries have slammed consumer confidence down to multi year low. We continue to be negative on local cyclicals with a slowing domestic economy. Continued lack of long term planning, real policy reform and party politics will keep sentiment low in 2015. We expect the government to further hurt sentiment with new welfare changes, work place relations, federation changes, climate change policies, tax reform and countless committees of inquiries. We do not see consumer confidence improving substantially in 2015H1.

Infrastructure outlook: The technological advancement in infrastructure projects and loosening of 457 visa will limit any substantial job creation to cover the unemployment tidal wave that is expected this year. The government preference to spend on roads with toll gates over railways continues to hurt growth. History shows domestic road infrastructure projects always bites the majority and benefits the minority. Developers will rake in the profits while the big job creation and multiplier effects never live up to expectations.

Corporate outlook: Businesses with strong cashflow and solid balance sheet in a falling consumer sentiment and low interest rate environment, prefer 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.

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 prefer apartment living to houses. Over supply of units being built in major cities in the next 12-18 month 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 the house prices. We expect the London/UK property price paradigm is likely 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 oversupply of units are headwinds RBA can’t avoid, but they can buffer the risk to banks. The real structural solution is to only allow negative gearing on new dwellings and take the heat off the existing dwellings for low income and first home buyers.

Taxation Outlook: Due to the current fiscal policy of the government, we expect overall taxation to increase in the next few years to cater for the falling overall tax revenue on federal and state levels. We expect the GST to be raised once the state elections and asset sales are out of the way. The structural decline in the budget has not been addressed as it is 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


09 January 2015


to clear the path for GST rise. Majority of the balanced views would suggest some form of income tax cut to balance out the effects on the low income. Given the track record of the budget in the last 12 months, the public are unlikely to support the GST hike without details. The cuts to education and health will starve the states into doing a deal with federal government on tax changes. Recent history does not hold well for the middle to low income earners and consumer sentiment as a whole. The petrol tax move, despite being irrelevant, will feed the lack of trust and low sentiment by the consumers.

Currency outlook: We maintain our view that AUDUSD will track down to 80 in the short term with global growth worries, domestic government/regulatory risks and commodity price falls in energy and iron ore. We see continued commodity and consumer instability to drive the currency towards the 77-82 cent band over the medium term.

Interest Rate Outlook: We are moving our rate cut outlook from 2015H1 to 2015H2 after the substantial drop in energy prices and the likelihood of it remaining low for 3-6 months. We see very little chance of any rate rise till 2017. The RBA will wait to see the effect of low energy prices before making any decision, as unemployment and budget measures are the key factors pushing down consumer sentiment.

Budget: The budget lacks consistency, innovation, long term planning, trust and government’s own narrative. As we have been expecting pre budget, the structural long term cut backs are almost completely targeting middle to low income earners and foreign aid, while the cuts on corporates and the wealthy were irrelevant. The ideological bickering between the major parties will make the budget process prolonged, given the track record of negotiations in previous governments. The clear big picture move is that the corporate debt that moved to government debt during GFC is now being moved to private hands over time. The disparity in the distribution will force the middle to low income earners to borrow to maintain living standard and take on risk to drive credit growth. MYEFO just keeps the charade going with a budget update that mainly will not get through the senate while delivering no growth or job creation plans.

Higher education deregulation: We expect the college system below the elite universities to charge at least private high school fees while universities to charge on average in the middle of private high school and US elite university fees. If you look through a four year engineering degree, a college graduate will end up with over $130,000 loan while an elite university graduate will come out with over $200,000 loan growing around 10 year bond yield (i.e. 5%). This will cause a number of structural changes in the society (1) Parents will choose to not send their kids to private schools in order to save the funds for university and drive more pressure on 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 the 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.


09 January 2015


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

Consumer sentiment locally has taken a beating with government budget, rising cost of living, falling living standards, falling real wages and 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 risk to disposable income with falling real wages, rising cost of living, falling living standards and tidal wave of unemployment. We continue to see equities remaining the preferred investment option with low interest rates, low growth and house price bubble worries.

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

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

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

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

Momentum – Price momentum turns positive while earnings revision goes flat.

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



09 January 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


09 January 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 low commodity price based equilibrium. The yields offered by BHP and RIO are better than bond yields. BHP and RIO are expanding production and reducing cost at the bottom of the cycle and putting the pressure on junior miners and explorers.

Value – Resources trading slightly below fair value compared to the long term average while 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 yield 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 and earnings revision are in negative territory despite falling currency.

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



09 January 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

3000

3500

4000

4500

5000

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00


1.00

2.00

3.00

4.00

5.00

6.00

7.00



-10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

14.00

19.00

24.00

29.00

34.00

39.00


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




09 January 2015


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

Industrial sector outlook for global facing sections, while domestic discretionary industrials will be under pressure with government budget plans. The yield offered by WOW and WES are now higher than bond yield. On a risk weighted basis, we suggest to increase Industrial exposure through big staple retailers and TLS while continuing to add TMT (Tech, Media and Telco) exposure on any pullback with M&A coming.

Value – Industrials trading above 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 is back to historical average levels.

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

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

Momentum – Price momentum recovers while earnings revision in positive territory.



900

1000

1100

1200

1300

1400

1500

1600

1700

1800

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Cost of Growth Cost of Yield

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



09 January 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




09 January 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 on fair value compared to the long term average. Improving global outlook and sustainable high dividend yield should help quality financials recover.

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

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

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

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



500

700

900

1100

1300

1500

1700

1900

2100

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Cost of Growth Cost of Yield

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



09 January 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

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




09 January 2015


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

falling energy prices with the OPEC announcement 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 the large cap energy stocks as they become yield stocks with gas projects coming online, while stocks with stretched balance sheets will continue to be under pressure. The OPEC move signals risk in the sector to persists for the next 3-6 month time frame.

Preferred Picks – None

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

FIG.7-1: CONSENSUS STOCK OUTLOOK

Code Share Price ($)Equity

Capital ($m)Price Target

($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AWE 1.23 649 1.82 BUY 9 2 -55.61 -63.16 65.00 176.43 1.15 0.48 0.00 0.00BPT 1.00 1297 1.29 BUY 158 166 -45.08 9.17 9.17 8.40 8.26 8.02 3.20 3.20BRU 0.36 122 1.50 BUY 21 18 -318.75 -12.86 5.14 5.90 8.01 11.65 0.00 0.00COE 0.29 97 0.56 BUY 10 10 -57.97 -6.45 9.52 10.17 5.46 5.27 0.00 0.68CTX 34.40 9288 28.76 UNDERPERFORM 506 578 16.47 13.17 18.56 16.40 18.14 18.76 2.76 3.24DLS 0.71 330 1.31 BUY 54 59 -50.79 14.29 6.38 5.59 13.77 12.12 0.00 0.00ERA 1.31 681 1.16 UNDERPERFORM -148 -133 -27.82 -46.53 -4.57 -8.54 -22.88 -19.16 0.00 0.00HZN 0.15 195 0.34 BUY 28 24 27.29 -17.24 7.28 8.79 8.98 7.10 0.00 0.00KAR 2.51 628 5.09 BUY -26 -22 -57.94 -27.78 -23.24 -32.18 -3.34 -1.83 0.00 0.00LNG 2.03 939 3.75 BUY -19 -81 7.14 284.44 -45.11 -11.73 N/A N/A 0.00 N/AORG 11.21 12402 13.90 BUY 738 969 -2.30 33.13 17.11 12.86 5.13 6.85 4.47 5.01OSH 7.09 10796 9.88 BUY 736 864 10.64 18.27 14.56 12.31 11.19 12.31 2.82 3.25PDN 0.37 617 0.41 HOLD -69 -2 -31.35 -100.00 -7.70 N/A -10.55 0.09 0.00 0.00SEA 0.47 258 1.21 BUY 44 71 -37.14 72.73 8.70 5.04 8.44 11.40 0.00 0.00SEH 0.18 270 0.32 BUY 5 41 -2600.00 -4.00 7.00 7.29 16.53 34.96 0.00 0.00STO 7.30 7171 12.00 HOLD 457 738 -17.39 63.16 16.01 9.81 4.49 6.64 5.32 5.86SXY 0.30 345 0.56 BUY 28 39 -48.85 54.17 12.50 8.11 5.71 7.20 0.00 0.00WHC 1.29 1323 1.86 BUY -63 7 61.20 -116.39 -21.15 129.00 -2.12 0.05 0.00 0.70WOR 9.06 2213 13.14 HOLD 275 266 2.79 -2.25 8.15 8.33 12.33 11.51 8.95 8.61WPL 35.96 29628 39.21 HOLD 1841 2064 -35.71 9.06 15.27 14.00 9.51 10.42 5.18 5.54



09 January 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




09 January 2015


Sector Outlook – Materials (ex Metals & Mining) Summary – Despite showing positive revision trends, the 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 resource sector and global competition worries. Falling currency will be another valuation kicker for globally diversified business models.






($)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 3.63 2353 3.72 HOLD 168 170 5.69 1.92 13.96 13.70 14.97 14.42 5.01 5.10AMC 13.20 15928 12.34 HOLD 829 889 14.65 6.83 19.19 17.96 33.66 32.98 3.78 4.03BLD 5.40 4227 5.52 HOLD 218 276 35.52 26.35 19.49 15.43 6.16 7.79 3.46 4.17CSR 3.82 1933 3.77 HOLD 131 148 81.03 11.58 14.75 13.22 11.63 12.67 4.63 5.21DLX 5.86 2277 5.81 HOLD 124 133 9.54 6.90 18.37 17.18 39.81 37.98 3.86 4.16FBU 7.80 5365 8.44 HOLD 378 428 15.79 13.30 14.29 12.61 11.53 12.56 4.60 5.04IPL 3.40 5697 3.20 HOLD 376 410 20.12 9.65 14.91 13.60 8.35 8.64 3.47 3.68

JHX 12.89 5739 14.19 HOLD 259 315 26.18 21.15 22.14 18.27 -82.02 -83.11 4.76 4.82NUF 4.88 1293 5.11 HOLD 101 122 32.18 19.90 12.77 10.66 6.49 7.30 2.07 2.60ORA 1.99 2401 1.80 HOLD 123 143 25.64 15.69 19.51 16.86 8.86 9.88 3.62 4.17ORI 18.10 6747 20.12 HOLD 585 630 -3.04 6.89 11.44 10.70 13.08 13.30 5.09 5.44PGH 4.19 1232 4.29 BUY 91 97 9.67 7.79 13.60 12.62 28.18 27.57 4.65 5.35TFC 1.60 523 2.52 BUY 26 31 5.19 21.13 22.54 18.60 6.60 6.93 1.81 1.87



09 January 2015


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

500

1000

1500

2000

2500

3000

500

1000

1500

2000

2500

3000

3500


500

700

900

1100

1300

1500

1700

1900

2100

2300

2500

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


1.00

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

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

17.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00




09 January 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.

Preferred Picks – BHP, RIO





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AWC 1.88 5262 1.98 HOLD 285 354 800.00 24.69 18.61 14.93 8.39 9.72 5.04 6.57AGO 0.27 253 0.28 HOLD -104 -67 -432.68 -0.92 -2.52 -2.55 -5.55 -3.75 2.55 4.00ARI 0.30 867 0.35 HOLD 13 97 -96.85 300.00 49.17 12.29 0.06 2.04 1.02 2.03BCI 0.72 141 0.67 HOLD -12 13 -112.26 -147.19 -8.09 17.14 0.33 3.30 0.83 3.33BHP 28.38 91148 39.94 BUY 13716 14195 -11.51 6.44 11.48 10.78 12.48 12.68 5.50 5.71BSL 5.44 3042 5.97 BUY 170 251 40.44 45.60 17.72 12.17 3.81 5.59 1.56 3.01CDU 1.73 422 4.52 HOLD N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AFMG 2.67 8314 3.54 HOLD 1291 1230 -59.03 -6.29 6.75 7.20 11.48 9.34 4.29 4.47IAU 0.14 50 0.31 BUY -5 -5 -42.11 9.09 -10.02 -9.19 -4.20 -4.70 0.00 0.00IGO 4.40 1031 4.75 BUY 104 125 53.85 23.33 10.16 8.24 14.26 15.06 2.98 3.55ILU 5.90 2470 9.12 BUY 126 252 779.41 104.35 19.73 9.66 7.79 15.57 3.02 4.92IMD 0.42 90 0.60 HOLD 7 9 5900.06 105.00 20.75 10.12 2.67 4.73 1.20 2.41IRN 0.30 361 0.29 HOLD 0 -1 N/A N/A N/A -1.21 0.09 0.04 0.00 0.00LYC 0.06 219 0.16 HOLD -76 6 -60.88 -113.04 -2.83 21.67 -24.63 -0.35 0.00 0.00MDL 0.83 87 2.40 BUY -17 36 -12.27 -311.12 -5.09 2.41 -2.70 7.00 0.00 0.00MGX 0.26 284 0.26 HOLD -52 -27 -158.84 -61.40 -4.56 -11.82 -5.89 -3.13 11.92 11.15MLX 0.79 325 1.31 STRONG BUY 58 80 -9.30 33.33 6.71 5.03 15.17 17.50 5.10 3.69ORE 2.85 376 3.40 BUY 1 22 -111.44 2457.14 407.14 15.92 -28.62 11.36 0.00 0.00OZL 3.55 1077 4.64 BUY 10 7 1225.00 -50.94 66.98 136.54 0.80 0.07 3.75 4.42PNA 1.44 917 2.41 BUY 83 120 35.53 52.43 11.24 7.38 7.43 9.61 4.06 4.23RIO 58.65 25557 71.03 BUY 9757 11125 -13.91 12.66 11.30 10.03 14.73 14.97 4.69 5.05SDL 0.04 111 0.12 BUY -23 -15 -11.11 -62.50 -4.50 -12.00 -7.89 -6.10 0.00 0.00SFR 4.64 724 6.29 BUY 105 118 18.72 14.04 6.78 5.95 31.03 28.39 3.15 4.03SGM 11.39 2331 12.62 HOLD 123 173 42.12 40.10 18.64 13.31 6.54 8.88 2.59 3.63SIR 2.55 871 3.63 BUY -16 -29 -36.81 75.00 -63.75 -36.43 -3.33 -5.48 0.00 0.00SYR 3.03 497 6.78 BUY -9 -14 16.28 60.00 -60.60 -37.87 -11.63 4.18 0.00 0.00TGS 0.15 177 0.35 BUY 58 68 72.73 13.16 3.32 2.94 15.27 15.61 0.00 0.00WSA 3.95 919 5.15 BUY 88 147 228.73 74.25 10.70 6.14 21.49 29.99 3.52 6.99



09 January 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

2000

3000

4000

5000

6000

7000

8000

9000


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4500

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5500

-5.00

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5.00

10.00

15.00

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25.00


1.00

2.00

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-10.00

0.00

10.00

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30.00

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50.00

60.00

70.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

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45.00


0.00

5.00

10.00

15.00

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25.00

-60.00

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-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00




09 January 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

5000

6000

7000

0

1000

2000

3000

4000

5000

6000


500

1000

1500

2000

2500

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3500

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4500

5000

5500

-5.00

0.00

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10.00

15.00

20.00

25.00


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00



-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




09 January 2015


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

substantial risk to spot gold with strengthening USD and low inflation outlook. The Euro risk is helping to support resurgent spot gold with local miners benefiting from a stable commodity price and falling currency.

Preferred Picks – BDR, NST, SAR





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Grow th (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AQG 2.75 237 3.23 HOLD 42 2 -31.48 -99.11 19.82 2227.36 5.18 -0.59 0.39 0.17BDR 0.27 218 0.54 BUY 47 46 -12.50 1.59 4.37 4.30 15.37 13.02 2.18 4.00EVN 0.78 558 0.75 HOLD 55 70 -10.84 27.27 10.13 7.96 7.08 7.37 2.18 2.31KCN 0.73 163 0.77 UNDERPERFORM -2 4 -187.50 -266.67 -81.11 48.67 0.06 0.67 0.00 2.33MML 0.76 158 0.88 BUY 48 77 44.20 54.12 3.19 2.07 8.39 8.77 0.00 3.74NCM 11.64 8922 11.48 HOLD 337 530 -22.34 63.00 26.10 16.01 4.50 6.34 0.01 0.48NST 1.65 977 1.61 BUY 143 174 256.83 20.85 7.02 5.81 42.65 36.70 5.03 3.94OGC 2.39 721 3.03 BUY 65 69 -34.13 6.11 10.91 10.28 7.99 7.47 0.00 0.00PRU 0.27 145 0.45 HOLD 11 12 -220.21 -30.43 11.96 17.19 2.81 1.52 0.00 0.36RRL 2.08 1040 1.84 HOLD 84 122 38.02 46.11 12.46 8.52 21.33 25.27 1.88 4.42RSG 0.30 189 0.83 BUY 14 21 -61.01 81.48 10.93 6.02 1.90 3.29 0.00 0.00SAR 0.29 226 0.39 HOLD 38 50 128.17 25.93 5.28 4.19 15.23 18.77 0.70 0.70SLR 0.23 116 0.47 HOLD 16 22 -243.67 41.94 7.42 5.23 5.09 5.89 0.00 0.00TRY 0.51 100 0.84 BUY 22 41 129.53 81.58 4.47 2.46 10.66 16.79 0.00 0.00



09 January 2015


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

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09 January 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 margin pressure builds. The risk return in this sector points towards avoid category.

Quant Strategy Portfolio – None






($)Rating

NPAT ($m) 2015

NPAT ($m) 2016


EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ASB 1.57 544 1.46 BUY 45 49 29.70 7.63 11.98 11.13 9.91 10.15 2.48 3.69ASL 0.51 159 0.74 HOLD 19 34 -22.39 79.03 8.23 4.59 2.18 4.11 5.10 8.43BKN 4.44 759 4.76 HOLD 67 80 2.54 19.49 11.38 9.53 9.17 10.48 5.74 6.69CDD 3.31 544 4.25 HOLD 67 79 -20.04 15.89 8.09 6.98 8.79 9.87 8.70 9.46DCG 1.44 243 2.32 BUY 42 38 -17.75 -13.39 5.67 6.55 13.39 11.24 9.03 8.54EHL 0.18 108 0.24 HOLD -22 -11 -22.74 -42.42 -5.45 -9.47 -5.88 -2.57 0.00 0.00GWA 2.78 852 2.94 HOLD 53 59 20.89 12.21 16.16 14.40 12.25 13.46 4.28 5.58LEI 21.53 7288 20.31 HOLD 551 558 -5.34 1.70 13.06 12.85 14.64 14.03 4.87 4.94

MLD 0.95 221 2.47 BUY 65 62 -4.30 -7.96 3.29 3.57 24.59 20.87 11.58 13.58MND 8.97 834 10.97 UNDERPERFORM 112 99 -17.77 -12.50 7.33 8.38 30.65 26.17 10.96 9.53MXI 0.58 108 0.73 HOLD 11 13 -35.56 18.97 10.09 8.48 35.85 43.04 6.50 7.69NWH 0.35 98 0.60 HOLD 30 24 -48.12 -5.49 3.85 4.07 6.85 6.55 14.57 12.86RCR 2.39 332 3.34 BUY 44 47 -4.63 6.48 7.38 6.93 15.18 14.26 4.39 4.60SVW 5.72 1695 6.88 HOLD 181 205 -12.43 9.76 9.15 8.34 5.88 6.37 6.56 6.92UGL 2.08 346 3.46 UNDERPERFORM 43 62 -70.49 88.44 10.45 5.55 4.13 7.74 7.36 9.81



09 January 2015


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

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09 January 2015


Sector Outlook – Commercial & Professional Services Summary – Valuation is fair, growth outlook is below long term average and momentum is

improving. Non mining related stocks in the sector offer good growth outlook with solid yield in a low growth environment.

Preferred Picks – BXB, CCP, CLH, VED





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016


EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ALQ 5.00 2036 5.36 HOLD 131 150 -24.84 13.43 14.93 13.16 9.36 10.43 5.14 5.84BXB 10.52 16477 10.41 BUY 819 903 16.91 9.84 20.92 19.04 22.96 22.81 3.21 3.53CAB 4.65 560 4.67 HOLD 61 58 -7.20 -4.76 9.23 9.69 15.82 13.93 5.23 5.12CCP 10.28 476 10.43 HOLD 39 42 9.26 7.55 12.33 11.46 22.75 22.12 4.06 4.40CLH 2.05 267 2.18 HOLD 22 24 13.27 8.98 12.28 11.26 13.29 13.78 4.34 4.73DOW 4.49 1955 4.85 BUY 204 207 -2.18 1.50 9.61 9.47 10.36 10.06 5.46 5.84MIN 7.76 1453 9.36 HOLD 120 121 -50.14 10.39 12.03 10.90 10.79 15.79 4.46 4.48MMS 10.30 799 12.79 BUY 72 80 32.50 10.11 10.96 9.95 30.04 29.46 5.40 6.14PRG 2.43 288 2.90 HOLD 31 35 -6.49 12.55 9.53 8.47 7.54 8.18 7.41 7.90REC 7.10 2223 6.78 HOLD 93 106 12.34 13.04 23.96 21.19 12.45 13.63 2.78 3.08SAI 3.78 800 4.30 HOLD 53 59 12.78 12.80 15.12 13.40 15.07 15.75 4.37 4.84SEK 17.36 5948 17.20 HOLD 217 264 18.15 21.90 27.56 22.60 20.31 21.88 2.08 2.55SGF 2.05 498 2.10 HOLD 40 43 13.79 9.09 12.42 11.39 28.62 27.95 5.37 5.85SKE 1.53 362 2.23 BUY 55 49 0.57 -10.00 6.67 7.42 10.97 9.52 9.45 8.79SPO 1.96 2153 2.12 BUY 139 154 32.65 9.30 15.19 13.90 18.11 18.21 4.44 4.95TOX 2.43 325 3.16 BUY 25 29 -1.46 17.84 13.14 11.15 9.95 10.99 2.59 3.05TPI 0.82 1287 0.96 HOLD 70 81 -23.00 21.43 19.40 15.98 3.71 4.49 2.82 3.80TSE 1.56 797 1.88 HOLD 90 94 62.58 4.42 8.59 8.23 11.01 10.74 0.77 5.40VED 2.30 1937 2.49 BUY 78 89 13.58 15.22 25.00 21.70 10.44 11.40 2.52 2.87



09 January 2015


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

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09 January 2015


Sector Outlook – Transport Summary – Despite the valuation near fair value, the growth outlook is below long term

average and momentum is improving with the falling oil price. Stocks delivering growth and yield while aligned to global growth are the best option in this sector.

Preferred Picks – SYD, TCL, TOL





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AIA 4.14 4929 3.55 HOLD 158 170 2.95 14.48 33.23 29.02 5.69 6.15 2.94 3.45AIO 6.01 5862 6.75 BUY 396 457 9.08 15.16 14.69 12.76 10.26 11.27 3.13 4.36AZJ 4.61 9792 5.28 BUY 582 649 8.32 12.73 16.76 14.87 9.07 9.97 4.08 4.60MQA 3.16 1616 3.30 BUY 93 97 20.26 1.09 17.17 16.99 2.13 6.31 5.22 6.39MRM 1.11 409 2.40 BUY 79 82 -0.22 2.34 5.19 5.07 10.57 10.38 10.99 11.26QAN 2.54 5579 2.82 BUY 306 618 -165.38 91.36 15.68 8.19 11.91 19.30 0.04 0.59QUB 2.35 2478 2.51 HOLD 114 131 20.43 14.41 21.17 18.50 8.09 8.88 2.64 3.06SYD 4.86 10771 4.50 HOLD 226 259 25.93 15.69 47.65 41.19 14.13 20.49 5.14 5.62TCL 8.81 16795 8.24 BUY 288 334 8.18 19.86 60.34 50.34 6.10 12.40 4.39 4.87TOL 5.94 4262 5.69 HOLD 298 311 4.25 4.35 14.35 13.75 10.75 10.87 4.90 5.15



09 January 2015


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

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09 January 2015


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

valuation premium are showing that. The Consumer sector offers quality growth and yield ideas with global exposure.

Preferred Picks – AAD, AGI, ALL, RFG





($)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 2.65 1162 3.38 HOLD 68 81 16.21 18.06 17.10 14.48 12.28 13.73 5.55 6.38AGI 2.33 751 3.55 BUY 62 70 -9.43 13.54 12.14 10.69 24.69 24.85 4.59 5.15ALL 6.64 4192 7.37 BUY 216 254 60.57 19.82 19.64 16.40 28.30 28.77 3.09 3.51ARP 11.38 901 11.80 HOLD 46 51 3.70 8.44 18.84 17.37 22.09 21.99 11.52 2.92BBG 0.68 673 0.66 BUY 7 22 -183.84 266.67 113.33 30.91 3.17 7.72 0.00 0.00CTD 10.44 1013 9.95 HOLD 31 38 53.04 20.80 31.93 26.43 17.92 19.39 1.70 2.07CWN 12.15 8850 16.30 BUY 602 676 -3.24 12.58 14.69 13.05 13.94 15.12 3.15 3.34DMP 24.51 2112 26.93 HOLD 58 70 24.55 21.62 36.80 30.26 21.21 23.52 1.86 2.22DNA 0.74 338 1.18 STRONG BUY 17 27 72.73 55.26 19.34 12.46 30.32 53.69 0.68 1.09EGP 3.81 3146 3.70 HOLD 189 200 27.74 4.80 16.64 15.88 6.41 6.43 2.81 2.94FLT 33.55 3379 42.46 BUY 265 287 -0.70 7.78 12.80 11.88 22.82 22.54 4.71 5.11GEM 3.98 1408 6.13 BUY 107 126 52.82 15.44 13.36 11.57 18.61 20.03 6.36 7.24GUD 7.20 511 7.05 HOLD 35 39 27.27 11.02 14.43 13.00 16.61 17.63 5.75 6.33ISU 1.20 314 1.63 BUY 22 25 15.28 15.66 14.46 12.50 8.65 9.28 0.00 0.00IVC 11.99 1319 11.66 HOLD 53 59 11.14 10.65 25.03 22.62 28.87 30.24 3.39 3.72MTR 2.70 674 2.67 HOLD 35 40 20.17 14.18 19.15 16.77 13.79 14.82 3.78 4.33NVT 5.09 1914 5.34 HOLD 98 110 18.66 12.17 19.35 17.25 43.64 44.61 4.24 4.83RFG 5.57 888 5.84 BUY 49 62 20.37 20.49 17.03 14.14 14.32 16.11 4.38 5.10SGH 6.41 1338 6.47 BUY 76 86 28.47 13.26 17.71 15.63 16.55 16.47 1.51 1.72SKC 3.75 2203 3.77 BUY 128 140 10.99 3.66 17.01 16.41 16.93 17.72 4.67 4.82TAH 4.15 3177 3.95 HOLD 162 177 8.76 8.53 19.67 18.12 10.80 11.41 4.58 5.11TTS 3.50 5060 3.38 HOLD 252 266 5.04 3.95 19.77 19.02 8.46 8.79 4.51 4.74VET 0.26 61 1.00 HOLD 18 21 -35.77 17.72 3.35 2.85 6.84 7.00 5.28 19.25



09 January 2015


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

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09 January 2015


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

recovery cycle is linked to the economic recovery. The growth and yield stocks offer the best risk/return. The Media sector expected to benefit from the election cycle in multiple states as well as deregulation on media ownership to lead to consolidation and M&A.

Preferred Picks – PRT, 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 0.77 798 0.73 HOLD 82 86 -1.27 5.13 9.94 9.45 14.11 13.36 1.68 4.13FXJ 0.87 2046 0.91 HOLD 146 148 8.91 -3.17 13.81 14.26 7.17 7.28 4.60 4.71NEC 1.84 1725 2.45 BUY 161 187 10.38 16.37 10.73 9.22 8.59 9.67 5.18 6.05NWS 17.85 666 23.56 BUY 325 380 11.54 16.81 30.78 26.35 2.01 2.33 0.00 0.27PRT 0.89 328 1.06 HOLD 34 36 0.37 6.59 9.84 9.23 20.41 20.05 7.93 8.27REA 45.00 5927 47.94 HOLD 199 246 31.42 23.32 29.72 24.10 42.26 41.09 1.65 2.04SGN 0.91 373 1.19 BUY 53 56 5.74 6.20 7.05 6.64 10.75 10.90 9.56 10.00SKT 5.69 2214 3.29 HOLD 158 163 7.81 3.96 14.09 13.55 14.00 13.85 5.35 5.61SWM 1.29 1289 2.02 BUY 212 213 -6.41 0.00 6.72 6.72 7.20 7.00 8.53 8.84SXL 1.12 820 1.03 HOLD 69 75 -15.99 7.37 11.79 10.98 5.52 5.84 5.63 6.07TEN 0.20 539 0.20 UNDERPERFORM -32 -10 -55.30 -69.23 -15.77 -51.25 -4.33 -1.57 0.00 0.00VRL 5.98 954 8.08 BUY 65 70 9.07 6.67 14.77 13.84 12.39 13.47 5.20 5.25



09 January 2015


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

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09 January 2015


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

cyclical recovery. There are substantial risks to local retailers with domestic political uncertainties, while experience related retailers and global players will continue to recover faster. Domestic discretionary retail recovery is 2015H2 story.

Preferred Picks – AHE, BRG, CCV, KMD, PMV





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016AHE 3.84 1177 4.23 BUY 96 104 8.22 8.89 12.19 11.20 14.64 15.19 6.02 6.51BAP 2.45 401 2.46 BUY 22 25 -19.68 15.44 18.01 15.61 21.57 22.78 3.55 4.12BRG 6.66 866 7.85 HOLD 52 59 3.89 11.66 16.53 14.80 23.51 24.44 4.29 4.82CCV 1.02 488 1.28 BUY 39 46 24.54 14.12 12.00 10.52 14.20 15.00 4.51 4.80DSH 2.06 487 2.60 BUY 48 52 17.33 9.41 10.20 9.32 27.52 27.60 6.46 7.04HVN 3.34 3709 3.54 HOLD 248 268 18.20 7.52 14.78 13.74 9.83 10.15 7.16 5.18JBH 15.85 1568 18.76 BUY 132 141 3.63 6.03 12.10 11.41 41.98 39.50 5.43 5.77KMD 1.85 373 2.76 BUY 39 46 4.82 15.53 9.38 8.12 12.94 13.92 6.26 7.09MYR 1.38 805 1.82 HOLD 91 95 -11.17 5.23 8.99 8.54 9.97 10.31 9.31 9.67PBG 0.51 463 0.53 UNDERPERFORM 38 45 -24.69 11.36 11.48 10.31 8.75 9.90 8.32 5.74PMV 9.66 1506 10.46 HOLD 89 99 13.08 11.17 17.13 15.41 6.80 7.42 4.55 5.00RCG 0.72 190 0.76 STRONG BUY 13 14 -2.13 10.87 15.65 14.12 21.77 23.16 6.39 6.53SUL 7.51 1480 9.04 BUY 110 126 1.09 15.37 13.58 11.77 14.14 15.56 5.29 5.83TGA 2.97 447 2.64 HOLD 31 35 6.15 12.08 14.35 12.80 17.38 18.17 3.91 4.41TME 3.50 1389 3.24 HOLD 77 82 0.54 6.80 19.12 17.91 11.96 12.53 4.42 4.78TRS 6.00 173 8.59 HOLD 17 19 6.56 14.43 10.31 9.01 12.84 13.75 5.53 6.50WEB 2.86 227 3.39 BUY 19 21 21.32 10.64 12.17 11.00 25.55 25.64 5.24 5.70



09 January 2015


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

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09 January 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 supermarket stocks are on solid yield after being sold down on UK supermarket and global competitor worries.

Preferred Picks – WES, WOW





($)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 1.51 804 1.05 UNDERPERFORM 69 19 119.61 -47.95 13.48 25.90 6.70 2.59 2.65 0.00AHY 1.70 1025 2.15 BUY 78 82 10.26 6.20 13.18 12.41 20.87 20.94 5.82 6.29BGA 5.07 774 5.06 HOLD 29 36 -5.04 19.60 25.48 21.30 9.06 10.40 1.83 2.17CCL 9.13 6972 9.04 HOLD 396 431 3.61 8.32 17.66 16.30 23.23 23.74 4.82 4.98FSF 5.74 706 6.48 HOLD 620 625 167.87 10.46 16.29 14.75 10.04 9.80 5.23 5.10GFF 0.64 1261 0.65 HOLD 71 79 22.96 8.11 17.43 16.12 6.06 6.79 3.57 4.50GNC 8.54 1954 8.42 HOLD 77 119 -13.79 52.75 24.75 16.20 4.29 6.57 1.96 3.06MTS 1.57 1418 2.21 HOLD 195 195 -23.07 -2.33 7.30 7.48 11.49 10.56 8.28 8.28RIC 0.97 299 1.02 BUY 19 21 9.00 14.29 15.40 13.47 8.54 9.25 4.43 5.15SHV 6.24 443 6.95 BUY 41 39 26.98 -8.42 10.30 11.24 17.10 13.39 3.75 3.67TGR 3.84 564 3.90 HOLD 41 45 30.21 8.99 13.81 12.67 12.42 12.71 4.01 4.37TWE 4.56 2970 4.58 HOLD 133 153 9.45 15.53 22.14 19.16 4.63 5.21 2.94 3.42WES 41.81 46984 44.93 HOLD 2499 2795 3.10 12.27 19.00 16.93 9.73 11.02 5.41 5.52WOW 29.64 37440 33.55 HOLD 2587 2719 4.22 4.80 14.52 13.85 24.33 23.46 4.85 5.10



09 January 2015


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

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09 January 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 getting more interest with global pharmaceuticals looking for new drugs through M&A.

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





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ACR 1.27 211 0.94 UNDERPERFORM 14 15 -58.12 9.64 15.30 13.96 34.69 44.35 6.61 7.32ANN 22.45 3438 21.97 HOLD 227 250 26.33 10.21 15.23 13.82 15.79 15.81 2.32 2.55API 0.82 398 0.76 HOLD 33 35 7.30 4.41 11.99 11.48 6.71 6.74 4.54 4.66BNO 0.43 182 1.15 BUY 27 38 -2500.00 40.63 6.80 4.83 21.36 17.48 0.00 0.00CAJ 0.83 412 0.81 BUY 8 16 -2.44 50.00 41.50 27.67 24.88 22.65 1.20 1.20COH 79.60 4544 61.69 UNDERPERFORM 148 171 45.02 16.04 30.46 26.25 42.21 42.64 2.35 2.69CSL 85.86 40743 87.58 BUY 1834 2010 30.42 10.23 22.15 20.09 45.45 43.34 1.85 2.06GXL 7.84 874 10.79 BUY 40 50 50.22 23.22 21.42 17.38 9.97 11.58 2.13 2.78HSO 2.66 4607 2.55 HOLD 165 181 -17.33 7.22 27.42 25.58 8.87 7.86 2.41 2.74JHC 1.99 525 2.58 BUY 28 30 22.99 6.54 18.64 17.50 5.48 5.78 5.46 5.76MSB 4.16 1349 6.86 HOLD -84 -85 15.55 -0.78 -16.12 -16.25 -16.24 -18.40 0.00 0.00MVF 1.38 319 1.93 BUY 26 29 14.75 13.39 12.32 10.87 19.05 19.35 5.07 5.80MYX 0.68 402 0.87 BUY 13 22 -26.48 60.87 29.57 18.38 19.65 28.67 0.00 0.15PBT 0.19 90 0.75 HOLD N/A N/A N/A N/A N/A N/A N/A N/A N/A N/APRY 4.66 2387 4.88 HOLD 174 187 6.12 8.05 13.39 12.39 6.24 6.41 4.59 4.96RHC 58.02 11725 53.85 BUY 399 466 19.73 14.81 29.72 25.89 22.96 23.77 1.76 2.03RMD 7.01 9797 7.08 BUY 444 493 20.73 14.12 22.40 19.63 20.54 21.71 1.83 2.28SHL 18.42 7394 18.22 HOLD 407 455 2.96 12.04 18.33 16.36 12.92 13.66 3.80 4.20SIP 0.73 809 0.74 HOLD 52 57 17.86 8.33 15.21 14.04 8.97 9.75 3.01 6.03SPL 0.55 174 1.23 BUY -14 -4 11.57 -66.67 -12.11 -36.33 -65.25 1.00 0.00 0.00SRX 27.62 1561 24.01 HOLD 32 46 28.09 43.54 48.88 34.06 26.34 28.73 0.64 0.84VRT 8.05 643 8.37 HOLD 36 42 10.37 15.54 18.13 15.69 14.77 15.92 3.50 3.95



09 January 2015


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

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09 January 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 yield. Despite the financial sector recommendation and global investor selloff, we see the Banking sector as a very good adaptor to regulatory change, sustainable high dividend yield provider and an early adaptor of technology.

Preferred Picks – ANZ, BOQ, CBA, MOC, NAB, WBC





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS Growth (%) 2015

EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ANZ 31.91 87965 34.46 HOLD 7528 7981 5.04 4.56 11.92 11.40 14.99 14.84 5.81 6.06BEN 12.80 5772 12.80 HOLD 441 473 8.83 5.72 13.56 12.83 9.26 9.56 5.29 5.60BOQ 11.94 4382 12.76 BUY 363 396 11.94 6.45 12.23 11.49 10.89 11.31 6.06 6.49CBA 85.39 138444 81.52 HOLD 9154 9557 5.14 4.07 15.39 14.79 18.48 18.26 4.93 5.14GMA 3.29 2139 3.91 BUY 271 281 0.48 4.06 7.85 7.55 10.89 10.86 7.60 8.12MOC 2.68 333 3.22 HOLD 21 23 9.69 8.38 16.05 14.81 19.79 20.77 6.12 6.72NAB 33.72 81581 35.35 HOLD 6727 7137 23.26 4.29 12.25 11.75 14.39 14.29 6.10 6.29WBC 32.81 102373 34.67 HOLD 7967 8347 3.68 3.66 13.05 12.59 15.88 15.61 5.78 6.01



09 January 2015


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

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09 January 2015


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

stable yield. Asset managers are the best way to get 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, FXL, HGG, IFL, MQG, PPT





($)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 5.46 16149 5.71 HOLD 1082 1182 6.67 9.24 14.84 13.58 13.68 13.73 5.20 5.57ASX 36.70 7105 36.56 HOLD 395 416 3.57 5.29 17.98 17.08 10.73 11.07 5.01 5.27CGF 6.34 3612 7.03 HOLD 335 367 -5.06 7.99 10.78 9.98 14.68 14.32 4.51 4.87CVO 1.90 604 2.51 BUY 33 38 16.62 14.95 17.76 15.45 15.91 18.75 4.68 5.53EQT 19.22 370 22.16 BUY 20 24 8.43 18.89 18.34 15.43 8.65 10.19 4.94 5.40FXL 2.93 891 4.16 BUY 90 98 5.51 9.83 9.93 9.04 22.24 22.63 5.87 6.45HGG 3.90 2991 4.61 BUY 331 363 15.15 13.78 12.98 11.41 17.60 19.31 4.98 5.06IAG 6.30 14752 6.51 BUY 1103 1216 -12.75 6.89 13.15 12.30 18.27 19.25 5.41 5.62IFL 8.86 2659 9.82 BUY 172 196 15.41 11.68 15.22 13.63 14.72 14.33 5.98 6.66IMF 2.11 351 2.47 BUY 38 41 123.40 6.93 9.13 8.54 18.25 18.30 5.64 6.68MFG 16.82 2688 16.40 BUY 133 147 60.22 12.17 22.02 19.63 55.60 51.77 3.61 4.00MQG 57.88 18773 63.23 BUY 1379 1490 18.06 6.63 13.60 12.75 11.73 12.06 5.06 5.47OFX 2.81 674 3.05 BUY 24 29 22.05 17.82 27.82 23.61 61.08 63.11 2.67 3.31PPT 46.55 2168 50.28 BUY 127 145 9.86 14.56 16.86 14.72 22.20 23.87 4.87 6.00PTM 7.28 4236 7.02 BUY 199 225 1.52 12.28 21.29 18.96 52.26 56.63 4.60 5.01QBE 11.15 15219 12.96 BUY 1456 1672 24.41 11.09 9.94 8.95 16.13 17.68 5.06 5.63SDF 1.52 765 1.76 HOLD 46 52 18.95 13.19 16.70 14.76 7.20 7.77 3.49 4.08SUN 13.96 17961 14.40 HOLD 1332 1417 8.28 5.42 13.28 12.60 8.48 8.94 7.01 6.59TRG 12.04 321 13.22 BUY 17 19 16.16 15.24 17.15 14.88 23.65 26.27 4.82 5.48



09 January 2015


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

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09 January 2015


Sector Outlook – Property Trusts Summary – Property Trusts are surging ahead with improving industrial outlook and solid

residential outlook. We continue to prefer the diversified construction stocks with housing upside already priced in.

Preferred Picks – BWP, GMG, LLC, SCP, SGP





($)Rating

NPAT ($m) 2015

NPAT ($m) 2016


EPS Growth (%) 2016

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

2015ROE (%)

2016Div Yield (%)

2015Div Yield (%)

2016ABP 3.14 1615 2.65 HOLD 112 102 -2.16 0.44 13.89 13.83 6.24 8.05 5.45 5.61AJA 5.03 338 4.91 BUY 28 29 -0.69 0.23 11.62 11.59 7.39 7.65 5.13 5.43ANI 2.21 213 2.08 HOLD 16 17 50.43 3.87 12.21 11.76 9.29 9.23 7.78 8.01AOG 2.26 1129 2.39 BUY 51 71 7.59 41.35 21.73 15.37 5.35 7.45 2.35 3.45ARF 1.61 341 1.48 HOLD 21 23 13.48 8.91 15.94 14.64 8.85 9.39 6.21 6.71BWP 2.90 1855 2.43 UNDERPERFORM 99 103 5.81 3.66 17.68 17.06 7.55 7.65 5.34 5.59CHC 4.59 1630 4.39 BUY 94 100 7.11 5.90 16.94 15.99 10.02 10.51 5.32 5.58CMW 1.07 1857 1.00 HOLD 144 149 -2.38 4.88 13.05 12.44 10.77 10.94 7.38 7.38CQR 4.21 1570 3.84 UNDERPERFORM 111 115 0.28 2.68 14.13 13.76 8.60 8.51 6.58 6.72CWP 5.75 450 7.60 HOLD 42 46 -1.60 9.96 10.81 9.83 15.65 15.94 4.87 5.22DXS 7.26 6574 7.14 HOLD 470 489 26.26 4.06 13.39 12.87 7.85 7.72 5.62 5.87FDC 2.87 4097 2.73 HOLD 267 278 7.63 3.87 15.86 15.27 7.34 7.54 5.82 6.03FET 1.94 472 1.94 HOLD 27 32 8.00 2.96 14.37 13.96 10.67 10.06 6.60 7.01GDI 0.88 497 1.11 BUY 46 48 161.29 3.70 10.80 10.42 8.62 8.70 8.57 8.69GMG 5.81 10141 5.66 HOLD 648 695 6.05 6.74 15.66 14.67 10.78 10.73 3.82 4.10GOZ 2.81 1558 2.75 BUY 115 119 2.84 1.46 13.71 13.51 9.44 9.33 7.05 7.08GPT 4.43 7467 4.15 HOLD 468 487 5.47 4.84 15.33 14.62 6.81 6.90 5.01 5.26HPI 2.54 371 2.40 BUY 23 25 6.67 12.50 15.88 14.11 8.50 8.70 6.30 6.69IDR 2.01 251 2.08 HOLD 22 24 67.29 6.70 11.23 10.52 8.73 9.02 8.36 8.66INA 0.44 387 0.58 BUY 23 33 71.27 37.93 15.17 11.00 29.31 35.32 4.09 4.77IOF 3.72 2284 3.50 HOLD 157 164 2.51 4.33 14.65 14.04 7.62 7.68 5.11 5.32LLC 16.34 9471 15.08 BUY 619 714 12.32 14.50 15.49 13.53 12.79 13.58 3.26 3.87MGR 1.86 6877 1.88 BUY 450 473 3.12 5.74 15.25 14.42 7.07 7.15 4.95 5.32NSR 1.44 426 1.46 BUY 24 30 122.50 14.61 16.18 14.12 8.79 9.46 5.83 6.81NVN 2.17 6620 2.10 UNDERPERFORM 410 422 1.54 2.19 15.84 15.50 6.72 6.73 6.41 6.45SCG 3.61 19225 3.62 HOLD 1179 1222 8.65 3.54 15.97 15.43 7.44 7.45 5.84 5.98SCP 1.88 1216 1.72 HOLD 83 84 7.97 1.46 13.69 13.49 7.79 7.80 5.97 6.19SGP 4.18 9818 4.27 BUY 598 648 7.16 7.00 16.26 15.20 7.12 7.42 5.74 5.79TIX 2.47 302 2.49 BUY 26 27 5.87 0.00 11.54 11.54 10.40 9.25 8.10 8.42

WFD 9.64 20033 8.46 HOLD 972 1017 16.54 4.76 19.67 18.78 10.32 10.10 3.08 3.15



09 January 2015


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

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09 January 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.

Preferred Picks – ALU, CPU, CRZ, IFM, IPP





($)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 3.34 432 3.59 BUY 21 26 33.44 19.30 19.53 16.37 121.88 94.94 4.16 4.70CPU 11.92 6630 12.92 HOLD 432 468 21.48 9.22 15.48 14.17 25.39 24.98 2.94 3.23CRZ 10.44 2495 11.73 BUY 111 127 14.43 14.41 22.45 19.62 55.11 54.65 3.56 4.16CSV 1.19 340 1.38 BUY 20 22 18.64 12.86 17.07 15.13 7.88 9.32 7.53 7.53HIL 1.18 274 1.90 BUY 23 28 -7.48 15.84 11.68 10.09 9.53 11.12 6.36 7.03IFM 0.98 301 1.18 BUY 14 16 23.68 10.64 20.85 18.85 33.57 36.79 4.39 5.00IPP 2.71 506 3.06 BUY 7 12 263.64 57.50 67.75 43.02 21.27 28.35 0.00 0.00IRE 10.60 1686 10.00 HOLD 77 88 10.55 13.69 21.99 19.34 22.34 26.26 4.06 4.47ISD 2.67 534 2.99 BUY 26 31 55.69 19.23 20.54 17.23 23.53 25.81 2.62 3.18NXT 1.90 366 2.40 BUY -12 0 -43.35 -101.75 -33.25 1895.00 -5.39 -0.30 0.00 0.05RKN 1.85 207 2.20 HOLD 18 20 13.10 6.71 11.28 10.57 54.56 47.07 5.57 6.11SLX 0.53 90 1.68 UNDERPERFORM -1 2 N/A N/A N/A 15.14 -3.00 2.20 0.94 1.51SMX 3.60 250 3.94 HOLD 17 20 27.14 13.93 14.75 12.95 13.24 14.42 4.36 5.08TNE 3.10 958 3.07 HOLD 36 41 9.94 17.86 27.68 23.48 32.33 35.01 2.71 3.29UXC 0.75 247 0.96 BUY 21 23 15.07 11.11 11.83 10.64 9.69 10.48 5.91 6.71



09 January 2015


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

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09 January 2015


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

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

Preferred Picks – IIN, 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 (%)

2016AMM 2.83 754 2.27 HOLD 27 31 3.13 18.18 28.59 24.19 15.26 16.96 2.44 2.90CNU 2.52 999 2.76 BUY 105 108 -15.78 -10.44 9.20 10.27 13.89 12.50 0.00 5.11IIN 7.68 1245 8.36 HOLD 76 85 13.82 12.08 16.27 14.52 20.35 20.71 3.40 3.84

MTU 8.01 1457 7.93 BUY 99 104 20.14 5.99 14.54 13.72 25.62 25.76 3.83 4.28NWT 0.16 106 0.23 BUY -6 4 60.00 -162.50 -20.62 33.00 -3.00 -2.77 0.00 0.00SGT 3.59 446 3.68 BUY 3473 3682 11.61 6.38 16.52 15.53 15.56 15.75 4.45 4.68SPK 3.02 5541 2.52 UNDERPERFORM 324 330 12.90 -1.31 17.19 17.42 19.93 19.88 5.63 5.76TLS 6.02 73598 5.58 HOLD 4133 4360 2.24 6.87 17.97 16.82 30.60 32.11 5.12 5.32TPM 6.49 5152 6.77 HOLD 225 266 27.10 18.25 22.77 19.26 24.80 25.42 1.80 2.14VOC 6.23 657 6.18 BUY 27 49 45.99 40.61 27.21 19.35 13.55 26.28 0.58 0.75



09 January 2015


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

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09 January 2015


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

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8.00

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-40.00

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-20.00

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0.00

10.00

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30.00




09 January 2015


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

outlook. Rising interest rates will be a substantial negative for the sector.


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




($)Rating

NPAT ($m) 2015

NPAT ($m) 2016

EPS (¢) 2014 EPS (¢) 2015 EPS (¢) 2016EPS Growth

(%) 2015EPS Growth

(%) 2016DPS (¢) 2015 DPS (¢) 2016 PE (x) 2015 PE (x) 2016

ROE (%) 2015

ROE (%) 2016

Div Yield (%) 2015

Div Yield (%) 2016

AGL 13.57 9136 14.66 HOLD 607 732 98 93 108 -4.54 16.31 65 66 14.56 12.52 7.28 8.12 4.75 4.89APA 7.68 8558 7.43 HOLD 224 235 23 23 21 -1.13 -9.96 36 40 33.25 36.92 7.34 6.54 4.66 5.23AST 1.35 4663 1.35 HOLD 301 304 8 8 9 -2.07 6.17 8 9 16.60 15.64 21.16 22.72 6.17 6.32DUE 2.44 3645 2.37 HOLD 111 139 10 7 9 -26.50 21.62 18 18 32.97 27.11 6.33 7.41 7.17 7.17EPW 2.29 553 2.30 BUY 32 35 9 13 14 42.24 9.09 13 14 17.35 15.90 10.82 11.59 5.63 5.90EWC 0.31 529 0.80 BUY N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/AIFN 0.24 180 0.22 HOLD -36 -38 -4 -5 -5 28.77 4.26 0 2 -5.00 -4.80 -6.00 -5.20 0.00 8.51SKI 2.13 3123 2.02 HOLD 219 198 15 15 14 3.45 -9.33 12 13 14.20 15.66 11.39 10.02 5.63 5.92



09 January 2015


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

400

600

800

1000

1200

1400

1600

0

200

400

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800

1000

1200

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1600

1800


0

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-3.00

-2.00

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28.00

-20.00

-15.00

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-5.00

0.00

5.00

10.00

15.00

20.00




09 January 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 5359.41 -0.54 0.20 2.25 0.77 72.23

S&P 300 Index 5320.98 -0.52 0.23 2.56 0.99 69.79

S&P 300 Accumulation Index 46183.45 -0.52 0.42 3.43 5.47 117.96

S&P 300 Resources Index 3274.84 -2.67 -1.67 -12.75 -19.56 -9.32

S&P 300 Resources Accumulation Index 17668.82 -2.67 -1.67 -12.75 -17.01 3.54

S&P 300 Industrials Index 8566.63 -0.10 0.61 6.16 6.23 104.59

S&P 300 Industrials Accumulation Index 94205.65 -0.10 0.84 7.25 11.25 174.70

S&P 100 Index 4488.60 -0.54 0.20 2.96 1.66 72.77

S&P 100 Resources Index 4739.29 -3.12 -2.43 -12.72 -18.90 -5.43

S&P 100 Industrials Index 4742.63 -0.03 0.73 6.66 6.89 106.35

S&P 50 Index 5531.63 -0.57 0.12 2.36 0.80 72.45

S&P Mid Cap Index 4733.50 -0.29 0.90 8.13 9.23 74.76

S&P Small Cap Index 2038.07 -0.31 0.56 -2.07 -6.42 41.13

S&P Small Cap Accumulation Index 5182.24 -0.29 0.90 -1.67 -3.40 68.28

S&P Small Cap Resources Index 1583.33 2.89 8.14 -13.27 -26.79 -42.79

S&P Small Cap Resources Accumulation Index 2636.78 2.89 8.20 -13.23 -26.04 -40.51

S&P Small Cap Industrials Index 2293.23 -0.93 -0.83 0.40 -1.06 89.73

S&P Small Cap Industrials Accumulation Index 6963.61 -0.91 -0.45 0.89 2.66 141.68 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 5320.98 -0.52 0.23 2.56 0.99 69.79

US - NASDAQ 4736.19 0.00 -0.10 5.99 13.70 266.05

US - S&P 500 2062.14 0.16 0.09 4.74 12.23 201.76

US - DOW JONES 17880.96 0.32 0.16 5.22 8.61 169.82

CANADA - S&P/TSX 60 845.47 -1.10 2.10 -0.21 8.10 N/A

BRAZIL - BOVESPA 49943.30 -0.13 -0.66 -12.47 -1.25 34.60

MEXICO 42402.31 -1.72 -1.26 -4.69 2.14 148.79

UK - FTSE 100 6569.96 0.06 -1.53 1.35 -2.26 86.08

FRENCH - CAC40 4260.19 -0.29 -2.63 2.21 -0.02 68.09

GERMAN - DAX 9837.61 0.33 -1.77 9.36 3.58 168.32

JAPAN - NIKKEI 225 17167.10 -1.63 -4.28 10.07 6.49 139.33

HONG KONG - HANG SENG 23835.53 0.98 -0.88 2.46 3.65 99.94

CHINA - SHANGHAI 3293.46 1.82 9.05 38.22 61.10 50.18

INDONESIA - KLSE 1728.06 -1.88 -0.73 -5.28 -5.64 101.35

NEW ZEALAND - NZSE 50G 5574.05 0.10 0.81 6.26 16.62 125.58

IRON ORE - Iron Ore fines 61.5% Fe US$/dmt 72.00 4.35 2.86 -8.86 -45.45 N/A

GOLD - Spot Gold - US Dollars / Oz 1208.63 2.07 0.44 -0.99 -1.34 28.85

SILVER - Spot Silver - US Dollars 16.35 4.24 0.03 -5.85 -16.23 22.54

COPPER - COMEX High Grade Copper Futures 276.95 -1.98 -4.02 -7.79 -17.14 63.97

OIL - WTI - NYMEX Light Sweet Crude Oil Futures 49.28 -7.49 -21.84 -43.56 -46.63 8.26

OIL - Brent Crude Oil 51.05 -11.28 -22.73 -44.27 -52.45 12.05

COAL - NYMEX Central Appalachian Coal Futures 50.27 -1.62 -6.56 -3.88 -12.65 6.57

GAS - NYMEX Natural Gas Futures 2.93 1.00 -18.64 -24.12 -30.62 -25.80

AUDUSD 0.8123 -0.52 -2.06 -8.11 -8.75 26.84

AUDEUR 0.6887 2.01 2.26 -0.81 5.02 35.99

AUDJPY 97.19 -0.54 -2.91 1.66 4.11 54.31

VIX - CBOE Market Volatility 17.01 -11.41 19.70 12.57 32.17 -65.52

XVI - S&P/ASX 200 Volatility 15.42 5.73 19.18 -5.40 22.54 -59.35 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


09 January 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 11093.20 -6.32 -2.75 -20.64 -19.23 -11.69

S&P/ASX 300 Materials - 15 8545.15 -0.99 -0.34 -4.69 -13.82 7.15

S&P/ASX 300 Industrial - 20 4349.41 0.25 1.69 8.24 8.75 91.25

S&P/ASX 300 Consumer Discretionary - 25 1795.92 -0.99 -3.21 0.04 -4.65 83.53

S&P/ASX 300 Consumer Staples - 30 9061.76 -1.64 -2.93 -5.12 -9.40 53.00

S&P/ASX 300 HealthCare - 35 14360.11 -0.46 0.21 14.42 19.95 107.93

S&P/ASX 300 Financials - 40 6204.64 0.11 0.71 6.59 6.89 127.44

S&P/ASX 300 Information Technology - 45 855.64 -0.17 1.21 0.35 1.69 55.89

S&P/ASX 300 Telecommunication Services - 50 2041.43 0.55 5.25 11.83 14.52 88.97

S&P/ASX 300 Utilities - 55 5795.19 1.86 -0.31 3.36 10.83 64.56

S&P/ASX 300 Metals & Mining 2620.07 -1.02 -1.21 -8.86 -19.57 -8.71

S&P/ASX 300 RESOURCES 3274.84 -2.67 -1.67 -12.75 -19.56 -9.32

S&P/ASX 300 INDUSTRIALS 8566.63 -0.10 0.61 6.16 6.23 104.59

S&P/ASX 300 5320.98 -0.52 0.23 2.56 0.99 69.79 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 11093.20 -6.32 -2.75 -20.64 -19.23 -11.69

S&P/ASX 300 Materials - 1510 8545.15 -0.99 -0.34 -4.69 -13.82 7.15

S&P/ASX 300 Capital Goods - 2010 2258.14 -2.29 2.10 -11.24 -24.78 -12.41

S&P/ASX 300 Comm & Professional Services - 2020 2417.26 -1.28 0.63 7.59 4.08 104.24

S&P/ASX 300 Transportation - 2030 7276.48 1.68 2.37 12.09 20.11 129.09

S&P/ASX 300 Automobiles & Components - 2510 1000.68 0.09 2.52 0.48 N/A N/A

S&P/ASX 300 Consumer Durables & Apparel - 2520 603.94 0.32 -0.24 6.12 16.45 -68.99

S&P/ASX 300 Consumer Services - 2530 6037.83 -0.84 -3.43 1.07 3.89 92.02

S&P/ASX 300 Media - 2540 1463.83 -2.44 -2.09 -0.06 -15.06 118.10

S&P/ASX 300 Retailing - 2550 3812.02 -0.31 -4.10 -3.07 -14.07 64.19

S&P/ASX 300 Food & Staples Retailing - 3010 13578.87 -1.68 -3.29 -6.42 -9.17 59.76

S&P/ASX 300 Food Beverage & Tobacco - 3020 4674.20 -1.54 -0.14 4.98 -10.71 23.16

S&P/ASX 300 HealthCare Equipment&Services - 3510 7926.33 0.26 4.34 12.23 17.56 104.78

S&P/ASX 300 Pharmaceuticals&Biotechnology - 3520 26367.86 -1.04 -2.94 16.21 21.97 113.49

S&P/ASX 300 Banks - 4010 8970.10 -0.44 0.82 6.18 3.43 144.89

S&P/ASX 300 Diversified Financials - 4020 6227.15 -0.77 -2.96 4.72 3.00 163.02

S&P/ASX 300 Insurance - 4030 3673.72 -0.35 -2.60 1.21 8.53 47.61

S&P/ASX 300 Real Estate - 4040 2876.79 2.96 3.92 12.58 23.25 125.67

S&P/ASX 300 Software & Services - 4510 1013.01 -0.20 1.25 0.79 4.48 71.96

S&P/ASX 300 Technology Hardware&Equipment - 4520 890.57 0.00 0.85 N/A N/A N/A

S&P/ASX 300 Telecommunication Services - 5010 2041.43 0.55 5.25 11.83 14.52 88.97

S&P/ASX 300 Utilities - 5510 5795.19 1.86 -0.31 3.36 10.83 64.56

S&P/ASX 300 5320.98 -0.52 0.23 2.56 0.99 69.79 Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson


09 January 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 Growth

2016 (%)

All Ordinaries S&P 500 469 1528.45 100.00 100.00 8.10 15.85 15.32 13.94 12.12 3.46 9.86Market S&P 300 297 1470.75 100.00 100.00 7.60 15.43 15.07 13.86 12.75 2.39 8.73Large Cap S&P 100 100 1310.48 89.10 100.00 6.90 15.08 14.84 13.73 13.02 1.66 8.09Small Cap S&P Small 197 160.28 10.90 0.00 13.39 19.02 17.29 15.05 10.11 9.98 14.90Micro Cap S&P Micro 172 57.70 0.00 0.00 20.74 50.65 26.29 16.44 -23.72 92.62 59.90S&P 500 w ith mkcap betw een $20-500m MC $20-500m 236 46.43 1.78 0.00 47.65 22.16 16.52 11.49 -9.65 34.16 43.74

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 16.92 15.55 15.99 11.71 11.90 12.50 4.41 4.69 4.98 1.74 1.68 1.73Market S&P 300 17.36 15.87 16.29 12.24 12.36 12.90 4.46 4.75 5.03 1.92 1.83 1.75Large Cap S&P 100 17.76 16.02 16.37 13.34 13.28 13.79 4.62 4.85 5.12 1.98 1.88 1.80Small Cap S&P Small 14.07 14.65 15.69 7.35 8.29 8.97 3.16 3.91 4.35 1.53 1.50 1.43Micro Cap S&P Micro 5.72 7.40 8.23 2.86 4.57 6.18 3.10 3.37 3.73 0.53 0.54 1.44S&P 500 w ith mkcap betw een $20-500m MC $20-500m 9.97 12.11 14.34 6.90 7.90 9.52 3.67 4.08 4.61 0.38 0.39 0.90

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 13.04 12.68 9.83 8.74 8.69 8.30 10.55 10.43 9.36Market S&P 300 11.11 10.75 9.91 8.65 8.66 8.31 10.35 10.29 9.28Large Cap S&P 100 11.10 10.84 10.02 8.82 8.99 8.74 10.20 10.30 9.34Small Cap S&P Small 11.23 10.08 9.08 7.61 6.78 6.07 11.61 10.26 8.84Micro Cap S&P Micro -3.80 -3.53 8.19 11.49 9.52 7.99 20.41 15.50 11.73S&P 500 w ith mkcap betw een $20-500m MC $20-500m -3.73 -3.38 4.56 5.21 4.84 4.17 8.83 8.08 6.55


FIG.26-2: MAJOR SECTOR MULTIPLES


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Growth

2016 (%)

Market Resources S&P 300 Res 62 240.04 16.32 18.72 29.52 10.77 13.46 11.74 19.63 -19.95 14.61Market Industrials S&P 300 Ind 235 1230.71 83.68 81.28 3.33 16.85 15.43 14.37 10.81 9.21 7.42Market Industrials Excl Financials S&P 300 Ind Ex Fin 178 580.61 39.48 34.70 3.86 20.02 18.11 16.36 4.04 10.55 10.73Market Financials S&P 300 Fin 57 650.10 44.20 46.58 2.86 14.77 13.63 12.96 15.78 8.33 5.19


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Growth

2016 (%)

Small Resources S&P Small Res 46 20.46 1.39 0.00 46.55 36.86 32.81 19.10 -8.11 12.36 71.74Small Industrials S&P Small Ind 151 139.82 9.51 0.00 8.54 17.76 16.17 14.60 11.67 9.81 10.80Small Industrials Excl Financials S&P Small Ind Ex Fin 121 110.23 7.49 0.00 10.14 18.24 16.64 14.90 3.97 9.62 11.68Small Financials S&P Small Fin 30 29.59 2.01 0.00 2.59 16.18 14.65 13.58 47.87 10.43 7.91

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

Market Resources S&P 300 Res 14.44 10.67 11.44 13.95 11.87 12.92 4.40 4.41 4.79 1.30 1.23 1.18Market Industrials S&P 300 Ind 17.92 16.88 17.24 11.67 12.52 12.89 4.47 4.81 5.08 2.11 2.02 1.93Market Industrials Excl Financials S&P 300 Ind Ex Fin 21.14 19.20 19.93 6.49 7.16 7.53 3.68 4.09 4.40 2.52 2.45 2.34Market Financials S&P 300 Fin 15.05 14.81 14.84 27.95 29.02 29.27 5.17 5.45 5.69 1.85 1.75 1.67

Category GICSROE 2014

(%)ROE 2015

(%)ROE 2016

(%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

Small Resources S&P Small Res 3.69 5.87 8.53 4.89 4.97 8.94 1.45 1.52 1.97 0.79 0.81 0.77Small Industrials S&P Small Ind 15.59 15.94 16.74 7.57 8.59 8.97 3.41 4.26 4.70 1.77 1.71 1.64Small Industrials Excl Financials S&P Small Ind Ex Fin 14.25 14.44 15.26 6.56 7.51 7.87 3.09 3.92 4.37 1.79 1.72 1.64Small Financials S&P Small Fin 20.58 21.52 22.25 41.80 41.64 41.79 4.62 5.52 5.91 1.70 1.67 1.61


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 5.78 6.52 5.92 4.41 4.74 4.19 6.29 7.39 6.38Market Industrials S&P 300 Ind 13.55 12.31 11.41 11.06 10.64 10.63 12.12 11.29 10.32Market Industrials Excl Financials S&P 300 Ind Ex Fin 12.25 11.14 10.33 9.51 8.86 8.14 13.85 12.67 11.50Market Financials S&P 300 Fin 14.97 13.58 12.58 13.32 13.36 15.51 10.72 10.16 9.34


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 6.15 5.72 4.61 5.35 5.09 4.09 14.63 14.52 8.12Small Industrials S&P Small Ind 12.78 11.34 10.58 8.00 7.05 6.43 11.34 9.92 8.94Small Industrials Excl Financials S&P Small Ind Ex Fin 11.94 10.46 9.80 7.23 6.40 5.83 10.74 9.43 8.47Small Financials S&P Small Fin 17.26 16.54 15.10 14.36 12.34 11.27 14.80 12.64 11.61



09 January 2015


FIG.26-3: SECTOR MULTIPLES


stocksMarket Cap

($b)S&P 300

Weight (%)S&P 100

Weight (%)



2014 (%)EPS Growth

2015 (%)EPS Growth

2016 (%)

Energy 1010 20 79.83 5.43 6.48 22.58 13.97 17.25 13.90 38.93 -18.96 24.08Materials 1510 55 216.26 14.70 15.53 24.58 11.07 13.01 11.70 15.01 -14.91 11.22Capital Goods 2010 15 14.10 0.96 0.63 10.14 9.31 10.74 10.04 -14.29 -13.26 6.93Commercial & Professional Services 2020 19 40.63 2.76 2.22 4.07 18.00 17.43 15.82 12.38 3.28 10.14Transportation 2030 10 61.98 4.21 3.68 1.97 41.85 24.03 19.46 -10.50 74.18 23.44Automobiles & Components 2510 1 0.89 0.06 0.00 4.65 19.37 18.68 17.22 -2.93 3.70 8.44Consumer Durables & Apparel 2520 2 1.20 0.08 0.00 -3.97 57.89 29.02 19.64 -61.69 99.46 47.77Consumer Services 2530 20 43.09 2.93 2.36 15.02 19.07 17.13 15.33 20.71 11.30 11.72Media 2540 12 17.72 1.20 0.58 7.85 17.14 15.47 14.00 16.97 10.82 10.54Retailing 2550 17 15.70 1.07 0.50 12.40 14.26 13.55 12.36 4.10 5.18 9.62Food & Staples Retailing 3010 3 85.86 5.84 7.17 10.49 16.75 16.37 15.15 3.52 2.35 8.06Food Beverage & Tobacco 3020 10 16.75 1.14 0.91 -0.87 20.61 18.26 16.70 -22.06 12.86 9.37Health Care Equipment & Services 3510 13 47.26 3.21 2.70 -2.66 24.81 21.93 19.49 -16.58 13.15 12.51Pharmaceuticals & Biotechnology 3520 9 45.23 3.08 2.81 4.20 32.18 24.62 21.83 14.40 30.70 12.77Banks 4010 8 420.96 28.62 31.43 3.16 14.24 13.20 12.66 7.18 7.95 4.20Diversif ied Financials 4020 13 46.41 3.16 2.91 8.29 16.57 14.72 13.55 24.36 12.54 8.67Insurance 4030 6 64.84 4.41 5.01 7.78 13.39 12.57 11.60 31.68 6.56 8.34Real Estate 4040 30 117.89 8.02 7.22 -3.09 17.25 15.75 14.89 50.99 9.50 5.78Softw are & Services 4510 13 14.72 1.00 0.69 10.39 22.90 18.72 16.48 14.79 22.34 13.61Telecommunication Services 5010 10 89.00 6.05 5.16 -5.70 18.50 17.79 16.64 8.84 3.98 6.91Utilities 5510 8 29.06 1.98 2.00 4.71 18.99 19.89 18.59 -1.96 -4.54 6.97

Category GICS

ROE 2014 (%)

ROE 2015 (%)

ROE 2016 (%)

Profit Margin 2014

(%)

Profit Margin 2015

(%)

Profit Margin 2016

(%)

Div Yield 2014 (%)

Div Yield 2015 (%)

Div Yield 2016 (%)

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

Energy 1010 10.93 8.76 10.00 8.68 7.33 8.52 4.91 4.08 4.46 1.22 1.20 1.16Materials 1510 20.00 10.96 11.36 13.79 12.03 12.92 4.02 4.44 4.82 1.51 1.41 1.35Capital Goods 2010 15.36 13.35 13.11 3.47 3.40 3.69 5.86 5.78 6.11 1.07 1.08 1.04Commercial & Professional Services 2020 18.83 18.10 18.59 6.90 6.94 7.36 2.84 3.46 3.93 2.53 2.37 2.23Transportation 2030 5.84 9.16 13.02 3.51 6.71 7.95 3.43 3.92 4.53 2.06 2.13 2.05Automobiles & Components 2510 22.22 22.08 21.99 14.06 14.29 14.83 2.60 11.62 2.94 4.14 3.96 3.58Consumer Durables & Apparel 2520 4.44 9.07 12.07 1.15 2.48 3.49 2.21 2.45 2.70 2.50 2.42 2.31Consumer Services 2530 16.50 17.44 18.40 12.20 12.37 12.99 3.29 3.70 4.07 2.45 2.36 2.22Media 2540 20.01 20.25 20.07 6.81 6.98 7.70 3.37 3.84 4.28 1.33 1.33 1.29Retailing 2550 16.15 16.08 16.42 4.86 4.91 5.17 4.58 5.88 5.68 1.74 1.75 1.68Food & Staples Retailing 3010 16.95 16.19 16.50 3.77 3.78 3.90 4.90 5.21 5.38 2.29 2.26 2.19Food Beverage & Tobacco 3020 12.89 13.63 14.04 2.79 4.46 4.29 3.53 3.77 4.03 1.62 1.63 1.54Health Care Equipment & Services 3510 18.12 19.05 19.57 7.64 7.64 7.86 2.13 2.52 2.91 3.20 2.88 2.71Pharmaceuticals & Biotechnology 3520 40.38 41.87 40.34 22.94 23.50 22.98 1.36 1.75 1.94 10.03 8.57 7.13Banks 4010 16.22 16.09 15.92 35.26 37.00 37.04 5.36 5.60 5.83 2.11 1.98 1.88Diversif ied Financials 4020 19.21 19.88 20.51 23.93 24.19 24.93 4.46 4.94 5.37 2.11 2.01 1.93Insurance 4030 14.80 13.79 14.54 13.10 13.26 14.14 5.26 5.73 5.90 1.48 1.44 1.37Real Estate 4040 9.37 8.81 8.91 26.29 27.67 27.15 4.74 4.96 5.18 1.36 1.30 1.25Softw are & Services 4510 33.94 32.02 32.08 14.40 15.35 16.33 2.74 3.31 3.71 5.02 4.36 4.19Telecommunication Services 5010 29.98 28.83 30.20 16.69 17.28 17.88 4.54 4.84 5.11 5.13 4.83 4.61Utilities 5510 10.70 9.67 9.98 8.09 8.35 8.44 5.13 5.30 5.61 1.55 1.49 1.48


2014 (x)EV/EBITDA

2015 (x)EV/EBITDA

2016 (x)EV/EBIT 2014

(x)EV/EBIT 2015

(x)EV/EBIT 2016

(x)

Energy 1010 6.92 7.23 6.12 6.89 7.69 6.44 10.31 12.53 10.03Materials 1510 6.25 6.96 6.51 4.44 4.61 4.14 6.24 6.99 6.17Capital Goods 2010 5.30 5.50 5.46 4.58 4.69 4.43 7.07 7.47 7.02Commercial & Professional Services 2020 10.29 9.64 8.99 8.66 8.60 7.82 12.78 12.96 11.61Transportation 2030 14.25 11.01 9.50 13.79 11.21 9.94 29.60 18.90 15.97Automobiles & Components 2510 19.29 16.47 15.67 13.93 12.63 11.31 15.87 14.35 12.81Consumer Durables & Apparel 2520 48.39 13.70 10.97 11.36 9.34 7.83 19.82 14.57 11.23Consumer Services 2530 14.46 12.63 11.48 11.86 10.63 9.72 15.28 13.66 12.35Media 2540 11.33 11.09 10.37 6.05 5.17 4.52 9.23 7.81 6.60Retailing 2550 11.26 10.06 9.60 9.00 8.02 7.30 11.12 9.99 9.01Food & Staples Retailing 3010 11.56 11.80 10.76 9.24 9.19 8.56 11.78 11.72 10.85Food Beverage & Tobacco 3020 12.59 11.36 10.98 8.27 6.80 6.60 13.27 9.92 9.63Health Care Equipment & Services 3510 18.77 15.65 13.78 15.17 12.88 11.35 18.16 16.40 14.48Pharmaceuticals & Biotechnology 3520 30.75 21.11 22.33 22.27 17.65 15.94 24.93 19.73 17.80Banks 4010 14.52 13.33 12.42 12.67 13.54 20.03 8.87 8.82 8.32Diversif ied Financials 4020 18.23 14.35 12.82 9.76 9.38 8.41 10.75 8.32 7.45Insurance 4030 12.43 11.12 9.83 12.53 11.11 8.32 13.47 11.93 9.09Real Estate 4040 17.69 16.34 15.54 17.85 16.42 15.51 18.09 16.65 15.68Softw are & Services 4510 19.38 13.97 14.10 15.08 12.47 11.04 17.58 14.25 12.37Telecommunication Services 5010 9.78 9.36 8.85 6.21 6.09 5.72 10.04 9.76 9.06Utilities 5510 9.39 9.31 8.73 10.88 11.10 9.85 15.06 15.69 14.40



09 January 2015


Quant Strategy Model Portfolio Latest monthly update: Published on 17th December 2014.

Current model portfolio: Energy – large (OSH); Materials – large (BHP, RIO); Transport – large (SYD, TCL, TOL); Consumer Services – mid (ALL), small (AAD, RFG); Media – small (APN), micro (PRT); Retailing – small (BRG, CCV, CCP, KMD); Food & Staples Retailing – large (WES, WOW); Health Care – mid (ANN), small (GXL); Banks – large (ANZ, NAB, WBC); Diversified Financials – mid (HGG, PPT); Property Trusts – large (LLC, SGP); IT – large (CPU), mid (CRZ); Telecommunications – large (TLS), small (SPK).

FIG.27-1: QUANT STRATEGY MODEL PORTFOLIO PERFORMANCE

100.00

150.00

200.00

250.00

300.00

350.00

400.00

Benchmark Index

Portfolio Market Cap Weighted Index

Portfolio Equal Weighted Index


FIG.27-2: QUANT STRATEGY MODEL PORTFOLIO PERFORMANCE

Performance AnalysisBenchmark

Index

Portfolio Market Cap Weighted

Index

Portfolio Equal Weighted Index

Performance since inception (May 2009) 36.53% 125.80% 242.61%

Average performance per month 0.50% 1.73% 3.33%

Standard Deviation (weekly) 2.03% 2.13% 2.33%

Performance over the past 1 month -4.62% -5.79% -4.80%

Performance over the past 3 months -5.55% -5.59% -4.38%

Performance over the past 12 months 0.69% 5.01% 10.82% 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 50% 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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