Monday, 10 December 2007 Topic Page Number Overnight Summary 2 US Equities 3 US Bonds 3 Commodities 3 International Markets 4 US Economic Action 4 Australian Market Summary 5 Australian Equity Market Movers (Sector) 5 Australian Equity 5 Best / Worst Stocks 5 Australian Companies Ex-Dividend 6 Australian Equity Snapshots 7 Summary of Daily Research Reports 8 ST GEORGE BANK LIMITED SHARE PRICE AS AT 07 December 2007 Last Sale $35.59 Changes +$0.25 Total Volume 874,872 Web Address: www.stgeorge.privatebank.com.au www.banksa.privatebank.com.au PRIVATE BANK PORTFOLIO SERVICES DAILY BULLETIN
Transcript
Monday, 10 December 2007
Topic Page Number
Overnight Summary 2
US Equities 3
US Bonds 3
Commodities 3
International Markets 4
US Economic Action 4
Australian Market Summary 5
Australian Equity Market Movers (Sector) 5
Australian Equity 5 Best / Worst Stocks 5
Australian Companies Ex-Dividend 6
Australian Equity Snapshots 7
Summary of Daily Research Reports 8
ST GEORGE BANK LIMITED
SHARE PRICE AS AT 07 December 2007
Last Sale $35.59
Changes +$0.25
Total Volume 874,872
Web Address: www.stgeorge.privatebank.com.au
www.banksa.privatebank.com.au
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Daily Bulletin 10 December 2007
Overnight Markets
US stocks ended a volatile session little changed as investorsweighed up the falling oil price and stronger than expected jobsdata with a possible slowdown in consumer credit performanceand the prospect of a smaller than hoped for interest rate cut.
Australian Market Summary
The Australian share market ended Friday higher with the Allordinaries rising in early trading and continued its upward trendthroughout the rest of the day to end 54 points up.
Flashnotes
Lend Lease (LLC) - LLC managed property fund acquiresBrisbane properties in JVPerpetual Limited (PPT) - Funds under management decline$1.7B in NovemberIluka Resources (ILU) - Discovery of the Dromedary Prospect,Eucla BasinFortescue Metals (FMG) - Memorandum of Understanding withMineralogyGRD Ltd (GRD) - GRD Minproc awarded Cloncurry CopperProject Pre-Feasibility StudyFortescue Metals (FMG) - Media clarification regarding MidwestCorpMirvac Real Estate Investment Trust (MRZ) - CompletesrefinancingExco Resources (EXS) - CCP pre-feasibility study commencesHastings High Yield Fund (HHY) - HHY completes $36.6M Non-Renounceable entitlement offerAllco Finance (AFG) - AFG changes Rubicon termsHills Industries (HIL) - BSA and Hills Antenna & TV mergerJubilee Mines (JBM) - Extension of Offer period by XstrataDowner EDI Limited (DOW) - Sale of Century ResourcesBabcock & Brown Infrastructure Group (BBI) - US, Germanand Belgian port operator acquisitionsRedbank Mines (RBM) - Entitlements offer and placementWestpac (WBC) - Final price set on BT Investment ManagementfloatCoates Hire (COA) - FY08 operating earnings growth guidanceupgraded to 20%Valad Property Group (VPG) - Reinstates its DividendReinvestment PlanSt Barbara (SBM) - Share purchase plan raises $22.5MBillabong International (BBG) - Acquires TigerlilyAust Pharmaceutical (API) - API to fall out of ASX200
Babcock & Brown Infrastructure Group (BBI) - BBI pursues its port consolidation strategySP AusNet (SPN) - Recommendation to vote against the Alinta assets acquisitionDowner EDI Limited (DOW) - Sale of Century ResourcesRedbank Mines (RBM) - Entitlements offer and placementBillabong International (BBG) - BBG strengthens its girls swimwear offeringAllco Finance (AFG) - Rubicon terms improved; shareholders should vote in favour of transactionCoates Hire (COA) - FY08 operating earnings growth guidance upgraded to 20%
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Private Bank Daily Bulletin
US EquitiesUS stocks ended a volatile session little changed as investors weighed up the falling oil price and stronger than expected jobsdata with a possible slowdown in consumer credit performance and the prospect of a smaller than hoped for interest rate cut.
Employers added 94K jobs in November, against expectations of a rise of 70K. The unemployment rate held steady at 4.7%when economists had expected it to tick up to 4.8%. The jobs data indicated that the economy was holding up better thanfeared, but it also tempered expectations of a bigger rate cut on Tuesday. The market has fully priced in a 0.25% cut, but manywere hoping for a more generous 0.5% cut.
Another dark cloud hanging over Wall Street was a broker downgrade of credit card companies due to tighter credit conditions.Consumer credit for October tumbled to US$4.7B versus expectations of US$6B. American Express dropped 4%, while CapitalOne Financial fell 5%.
The NASDAQ also featured a number of high profile casualties. Palm crashed almost 13% after the maker of popular handhelddevices issued a profit warning due to shipping delays for its new product and an unexpected raise in warranty repairs. Amgenfell 5.5% on worries that the drug maker would have to adhere to stricter safety labelling for its anemia drugs.
Meanwhile, Boeing and 3M were the top two gainers on the Dow Jones Industrial Average, rising 1.5% and 1.6% respectively.Apple was another notable advancer, adding 2.3% on optimism about the outlook for large technology firms.
Market breadth was mixed on the NYSE, with winners and losers about evenly matched. However, most NYSE sector indicesclosed in the red, with Financials taking the biggest hit – closing down 0.5%.
US BondsUS Treasuries tumbled after the latest jobs data eased concerns about the health of the US economy.
The yields on the two- and five-year notes jumped to 3.10% (+0.06) and 3.49% (+0.15) respectively. The 30-year bond isproviding a yield of 4.56% (+0.07).
US EQUITIES US BONDS
Page 4
Private Bank Daily Bulletin
CommoditiesCrude oil was sold off sharply as buyers stood aside ahead of the all-important US interest rate decision on Tuesday.
With a 0.5% cut now looking less likely, oil traders took profit on expectations that the US dollar would bounce if the Fed onlydelivers a 0.25% cut. There has also been a lack of buying leadership after the big funds closed out their December contractsand have not returned to the market.
Gold was weighed down by oil and lower expectations of a larger US interest rate cut, but copper hit a one-week high onencouraging signs of strength on the US employment front and a 20% drawdown in weekly copper inventories in China.
COPPER & NICKEL OIL
GOLD
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Private Bank Daily Bulletin
International MarketsEuropean stocks made good gains, supported by hopes of an interest rate cut in the US and further consolidation in the miningsector.
Takeover rumours surrounding Xstrata were rife with Anglo American and CVRD said to be contemplating bids. Xstrata was thebiggest riser on the FTSE 100 with a 7.9% surge, while Anglo American rose 5.1%.
The banking sector was another top gainer on the US government’s rescue plan for troubled sub-prime mortgagees and positiveUS jobs data. Barclays jumped 2.4%, HSBC gained 1.7% and UBS added 2%.
Staying on financials, the world’s second largest reinsurer Munich Re soared 5.2% on news that Swedish activist fund CervianCapital had bought around 3% of the company, and Northern Rock rose 7.4% after receiving a firm offer from Olivant. Olivant’sproposal is backed by Northern Rock’s leading institutional shareholders and it appears to be more attractive than the Virgin bid.
On the flipside, StatoilHydro tanked 10.9% after it downgraded its 2007 oil and gas production target and lowered its 2008forecasts due to field repairs, while Roche extended the previous day’s loss by 0.9% as analysts downgraded price targets forthe company after it failed to win US approval for its key breast cancer drug Avastin.
Across the major European exchanges, the FTSE 100 posted the biggest gain of 1.1%. The DAX and CAC finished up 0.7%and 0.8%, respectively.
The US dollar remained under pressure against the euro due to the hawkish inflation comments from the European CentralBank on Thursday. However, the greenback rose against the Japanese yen after US non-farm payrolls rose higher thanexpected
In early AEST trade, the British pound firmed slightly to US$2.0306 after some analysts noted the balanced tone of the Bank ofEngland’s statement following its 0.25% rate cut. Meanwhile, the Australian dollar failed to hold on to early gains as tradersbecame less sure about the size of the US interest rate cut.
Australian Stock Prices OvernightIn New York, News Corp rose by US$0.14 to US$21.98, equivalent to A$25.11, A$0.14 above its last close on the ASX.
ResMed rose by US$0.29 to US$48.08, equivalent to A$5.49, A$0.01 below its last close on the ASX.
In London, Rio Tinto rose 163.0 pence to £57.46, A$3.78 higher in Australian currency terms.
BHP-Billiton rose 57.0 pence to £16.76, A$1.32 higher in Australian currency terms.
Henderson Group Plc rose 6.75 pence to £1.47, A$0.16 higher in Australian currency terms.
FTSE EURO TOP 100 $US/$A VS EUR/$A
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Private Bank Daily Bulletin
US Economic ActionNonfarm Payrolls jumped to 94K in November, against expectations of a rise of 70K. Nonfarm payrolls for October were alsorevised upwards from 166K to 170K.
In a separate survey, the Unemployment Rate for November was 4.7%, unchanged from the previous month. Economists hadexpected the rate to inch up to 4.8%.
On the downside was wage inflation. Hourly Earnings for November rose 0.5%, which was 0.2% higher than expected.
Meanwhile, the preliminary reading on the Michigan Consumer Sentiment for December disappointed the market, falling to 74.5from 76.1 in the previous month. Analysts were expecting a reading of 75.0.
Consumer credit for October came in softer than expected at US$4.7B, versus expectations of a rise to US$6B.
� Pending Home Sales (for October, released Tue AEST, Prior: 0.2%)
� Retail Sales excluding auto (for November, released Fri AEST, F/cast: 0.6%, Prior: 0.2%)
� PPI (for November, released Fri AEST, F/cast: 1.5%, Prior: 0.1%)
� Core PPI (for November, released Fri AEST, F/cast: 0.2%, Prior: 0.0%)
� Initial Claims (for week of 08 December, released Fri AEST, F/cast: 335K, Prior: 338K)
� Business Inventories (for October, released Fri AEST, F/cast: 0.3%, Prior: 0.4%)
� CPI (for November, released Sat AEST, F/cast: 0.6%, Prior: 0.3%)
� Core CPI (for November, released Sat AEST, F/cast: 0.2%, Prior: 0.2%)
� Industrial Production (for November, released Sat AEST, F/cast: 0.1%, Prior: -0.5%)
� Utility Utilisation (for November, released Sat AEST, F/cast: 81.7%, Prior: 81.7%)
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Private Bank Daily Bulletin
Australian Market Summary: As at 07 December 2007
OverviewAUSTRALIAN EQUITIES MARKET: The Australian share market ended Friday higher with the All ordinaries rising in earlytrading and continued its upward trend throughout the rest of the day to end 54 points up.
The S&P/ASX 200 rose by 54 points, led by the Financials and Materials sectors. The Financials sector rallied on buying inWestpac (+$0.63) ANZ (+$0.36) and Commonwealth Bank (+$0.32). Materials saw gains in BHP Billiton (+$0.12), Rio Tinto(+$0.74), and Orica (+$0.89). Gains in News Corp (+$0.57) and Aristocrat Leisure (+$0.34) outweighed a decline seen in FlightCentre (-$1.11). Market breadth was positive with other notable winners including Fosters Group (+$0.11) and Wesfarmers(+$0.31).
Coates (unchanged) upgraded its guidance on FY08 operating earnings in light of trading for the first 4 months of the financialyear. FY08 earnings is now expected to grow 20% on FY07. Babcock and Brown Infrastructure (+$0.03) announced it hadacquired interests in three port operators located in Germany, Belgium and the US. Lend Lease (-$0.32) purchased CentralPlaza 2&3 in Brisbane for $454M, through a 50:50 JV with an off-shore institutional investor. Billabong (+$0.03) has agreed toacquire the Tigerlily, a swimwear and apparel business, from its founder Jodhi Meares. The company is to be expanded in thedomestic market before looking to take the brand overseas. The acquisition is expected to be EPS accretive in the first full year.
AUSTRALIAN BOND MARKET: The yield on Australian government bonds rose 2 - 3 basis points with the exception of the one-year bond which declined 2 basis points.
AUSTRALIAN DOLLAR: After overnight gains the Australian dollar traded sideways throughout the day to end at US$0.878.
AUSTRALIAN ECONOMIC STATISTICS: AiG PERFORMANCE OFCONSTRUCTION INDEX: The index measuring theperformance of the Australian construction industry slowed by 4.2 points to a reading of 53.2 in November. Possible factorscontributing to the slower growth include rising interest rates, higher construction costs and capacity constraints. A readingabove 50 indicates the building industry is expanding.
Market Movers
SECTOR PERFORMANCE
5 BEST / WORST STOCKS
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Private Bank Daily Bulletin
Companies Ex-Dividend
Ex Date Sub Type Security Div Amt(cents) Franking
24-Dec-07 First Quarter Result AMP Capital China Growth Fund (AGF)24-Dec-07 Special Event Coates Hire Limited (COA) 53 10023-Dec-07 First Quarter Result Generator Income Trust ginha (GINHA)21-Dec-07 Half Yearly Result Aspen Group (APZ) 3.875 021-Dec-07 Half Yearly Result Macquarie Communications Infrastructure Group (MCG) 23 021-Dec-07 Half Yearly Result Orchard Industrial Property Fund (OIF)
21-Dec-07 Third Quarter Result CBA Perpetual Exchangeable Repurchaseable Listed Shares(PERLS III) (PCAPA) 5.5697 0
20-Dec-07 First Quarter Result Gunns Frankable Optionally Redeemable Equity SettleableTransferable Securities (FORESTS) (GNSPA) 166.20 100
20-Dec-07 Half Yearly Result RR Australia Limited (RRA) 1.78 10018-Dec-07 Special Event Futuris Hybrids (FCLPA) 159.85 10018-Dec-07 Half Yearly Result PaperlinX Step-up Preference Securities (PXUPA) 452.19 017-Dec-07 Special Event Contango Microcap Limited (CTN) 5 10014-Dec-07 Final Year Result Ruralco Holdings Limited (RHL) 13 10013-Dec-07 Half Yearly Result Singapore Telecommunications Limited (SGT) 012-Dec-07 Special Event Crusade Global Trust No. 1 of 2006 - Class A-3 Notes (CTJ)12-Dec-07 Half Yearly Result Envirozel Limited (EVZ) .5 10012-Dec-07 First Quarter Result Timbercorp Orchard Trust 9% Debenture (TODHA) 2.27 011-Dec-07 Half Yearly Result Van Eyk Three Pillars Limited (VTP) 5 10010-Dec-07 Special Event Interstar Millenium Series 2002-2 Trust (IME) 21.94510-Dec-07 Final Year Result Lion Nathan Limited (LNN) 21 100
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Private Bank Daily Bulletin
Flashnotes
Australian Prime Property Fund Commercial (APPF), a LLC wholesale property fund, purchased Central Plaza 2&3 on ElizabethStreet, Brisbane in a JV with an off-shore institutional investor. The buildings were purchased on a 50:50 basis for A$454.2M.Central Plaza 2 comprises of 32,000smq of office, retails and car-parking. Central Plaza 3, due for completion in late 2008, has11,400sqm of office space and is 100% pre-leased. Both buildings were sold by the Queensland Investment Corporation.
PPT advised that funds under management (FUM) as at 30th November 2007 were $37.9B, which is 3.8% down on the $39.4Bin FUM as at 31 October 2007. The decline in funds included an outflow of approximately $500M of Australian Equities from aninstitutional client.
ILU has announced the discovery of its Dromedary Prospect, located 45km north-east of Ceduna. Four drill traverses have beencompleted on nominal 1km spacing. Heavy mineral sands were intersected over an apparent width of up to 500m and up to 1kmalong strike. Mineralisation averages 4.5m thick, from an average depth of 25m. Provisional mineralogy indicates an averagezircon assemblage of 17%.
FMG has signed a Memorandum of Understanding (MoU) with Mineralogy Pty Ltd to investigate blending possibilities from bothcompanies. FMG is arranging sinter test work to establish the productivity of a blend comprising Mineralogy’s (magnetite)concentrate and (hematite) material from FMG’s Solomon tenement holding. Under the terms of the MoU, both companies willinvestigate port facilities at Cape Preston to export a variety of products, including magnetite, hematite and a mix of bothproducts.
GRD announced that its subsidiary, GRD Minproc, has been awarded the Cloncurry Copper Project Pre-Feasibility Study. TheCloncurry Copper Project is made up of numerous tenements ad mining leases containing copper, gold and ore. It is anticipatedthat the Pre-Feasibility study will be completed by the middle of 2008, providing the basis for a Definitive Feasibility study in1H09.
Lend Lease (LLC) - LLC managed property fund acquires Brisbane properties in JV 07-Dec-07 15:39
Perpetual Limited (PPT) - Funds under management decline $1.7B in November 07-Dec-07 15:39
Iluka Resources (ILU) - Discovery of the Dromedary Prospect, Eucla Basin 07-Dec-07 15:34
Fortescue Metals (FMG) - Memorandum of Understanding with Mineralogy 07-Dec-07 15:09
FMG has refuted speculation in a number of media outlets that the company has acquired any interest in Midwest Corp. Thecompany has indicated that it is entirely focused on bringing its Chichester Range iron ore project to fruition.
Mirvac REIT Management Limited as responsible entity for MRZ announces that it has completed a successful refinancing of its$289M commercial mortgage backed securities facility and its $303M cash advance facility via a bank debt facility with WestpacBanking Corporation. The use of a bank debt facility provided by Westpac will allow the Trust to reassess its funding optionsduring next year by which time management expect credit markets are more likely to stabilise.
EXS has commenced its pre-feasibility study on the Cloncurry Copper Project. The study will focus on options for a 1-2Mtpaoperation producing 15-25Ktps of copper. GRD Minproc has been awarded the study engineering package and appointed thestudy managers. It is anticipated the pre-feasibility study will be completed by the middle of 2008, and that it will provide thebasis for a Definitive Feasibility Study in the second half of 2008.
HHY announced the completion of the Non-Renounceable Entitlement Offer. Applications for 19.3M new units were received,which amounted to total proceeds of $36.6M. The net proceeds from the Entitlement Offer will be used to reduce HHY’soutstanding debt and to fund further investments. Net debt will be reduced to approximately $48M, representing net debt to totaltangible assets of around 17.1%. HHY reiterated annual distribution guidance of 18.5cps (inclusive of tax credits).
AFG announced amended terms for the Rubicon Share Acquisition Agreement. A significantly larger part of the overallconsideration will be subject to the achievement of growth in assets under management. The upfront payment will decrease by4.2M shares and the performance based payment increases by 4.2M shares. This means the value of the deferred andconditional consideration now represents 25.5% of the value of the total possible consideration, compared with 14.9% on theoriginal terms.
HIL and BSA have agreed on terms for a proposed merger of HIL's existing Antenna & TV Systems business with BSA. Thedeal involves an equity and convertible note issue as well as a 25cps return of capital to BSA shareholders. HIL are expected tohold 50.1% of BSA following the transaction. The combined group will have an estimated annual revenue of $370M. ASIC, BSAshareholders and the independent expert are yet to approve the acquisition. The BSA board is in favour of the deal.
Xstrata has announced an extension of its takeover Offer period for JBM from 7pm the 17th December, 2007, to 7pm the 31stJanuary, 2008. At present, Xstrata control 36.12% of JBM’s issued capital.
Hills Industries (HIL) - BSA and Hills Antenna & TV merger 07-Dec-07 10:50
Jubilee Mines (JBM) - Extension of Offer period by Xstrata 07-Dec-07 10:48
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Private Bank Daily Bulletin
DOW announced the sale of its Century Resources business to MB Holding. The sale will occur in two stages, the first involvesthe sale of 51% of Century to MB Holding for US$70M. The remaining 49% stake will be sold to MB Holding either at the end ofthree years via a put option held by DOW or a corresponding call option held by MB Holding. The sale will not impact currentearnings guidance.
BBI announced that it has acquired interests in three port operators located in Germany, Belgium and the US. BBI subsidiaryBenelux Port Holdings has acquired 43% of the Westerlund Group (Belgium) with negotiations on the remaining 57% stillunderway. BBI acquired 50% of Seehafen Rostock Umschlagsgesellchaft GmbH (Germany) with pre-emptive rights over theremaining 50%. Lastly, BBI has entered an agreement to acquire 50% of ICS Logistics Inc (US). The acquisitions have an EV of~A$616.5M.
RBM is to make a non-renouncable rights issue at 8 cents per share to raise $3.7M. RBM will also make a public placementoffer at 8 cents to raise $1.6M. Glencore will partially underwrite $1M of the issue. The funds will be used to fund the DFS, retirethe Macquarie Bank debt facility, fund drilling at Mt Kasi and provide working capital. The funding will take the company throughto a decision point to develop the expanded Redbank project, subject to a successful DFS.
The final price for BT Investment Management (BTT) has been set at $4.80 per share, which is at the bottom end of theindicative price range of $4.80 to $5.50 per share. Based on the final price, the offer raised around $247M. Valid applicationsunder the WBC shareholder offer have been allocated the first $5,000 worth of shares and 30% of the application above thatamount. BTT shares commence trading on a deferred settlement basis on 10 December 2007.
COA today upgraded its guidance on FY08 operating earnings in light of trading for the first 4 months of the financial year. FY08operating earnings is now expected to grow 20% over operating earnings of $102.4M in FY07. This is an improvement onprevious guidance of 15% growth.
VPG today announced the reintroduction of its Distribution Reinvestment Plan (DRP) effective from the distribution for 1H08,which is expected to be paid on or around 29 February 2008. For the forthcoming distribution for 1H08, VPG securities will beissued at a discount of 1.5% to the market price, as calculated in accordance with the Valad Property Trust constitution. TheDRP was suspended in June 2007 for one distribution, due to other capital raisings at that time.
SBM has raised $22.46M from their Share Purchase Plan, with participation by 4,672 shareholders, representing 52% of theshare register. The placement was done at $0.63 per share, the same price as the company’s recent institutional equityplacement. Together, the two capital raisings totalled $98.4M before costs. New SBM shares will be allotted 10/12/2007, andthey will be able to be traded the day after (11/12/2007).
BBG has agreed to acquire the Tigerlily swimwear and apparel business from its founder Jodhi Meares. This is BBG’s firstacquisition which focuses entirely on the girls market and will permit the company to expand its girl’s product range with a focuson swimwear. The company is to be expanded in the domestic market before looking to take the brand overseas. Theacquisition is expected to be EPS accretive in the first full year.
In the December quarter rebalance of the S&P/ASX Indices, API has been dropped from the S&P/ASX All Australian 200 Index.This change will take effect from close of trade on 21 December 2007.
Downer EDI Limited (DOW) - Sale of Century Resources 07-Dec-07 10:42
Babcock & Brown Infrastructure Group (BBI) - US, German and Belgian port operator acquisitions 07-Dec-07 10:35
Redbank Mines (RBM) - Entitlements offer and placement 07-Dec-07 10:33
Westpac (WBC) - Final price set on BT Investment Management float 07-Dec-07 10:14
Coates Hire (COA) - FY08 operating earnings growth guidance upgraded to 20% 07-Dec-07 10:01
Valad Property Group (VPG) - Reinstates its Dividend Reinvestment Plan 07-Dec-07 09:51
St Barbara (SBM) - Share purchase plan raises $22.5M 07-Dec-07 09:47
Billabong International (BBG) - Acquires Tigerlily 07-Dec-07 09:30
Aust Pharmaceutical (API) - API to fall out of ASX200 07-Dec-07 09:06
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Private Bank Daily Bulletin
Daily Research Reports
BBI announced that it has acquired interests in three port operators located in Germany, Belgium and the US. BBI subsidiaryBenelux Port Holdings has acquired 43% of the Westerlund Group (Belgium) with negotiations on the remaining 57% stillunderway. BBI acquired 50% of Seehafen Rostock Umschlagsgesellchaft GmbH (Germany) with pre-emptive rights over theremaining 50%. Lastly, BBI has entered an agreement to acquire 50% of ICS Logistics Inc (US). The acquisitions have an EV of~A$616.5M.
SPN has proposed to acquire the Alinta assets from Singapore Power International (SPI) for $8,322M. The acquisition isconditional upon SPN obtaining non-associated securityholder approval at a general meeting on 11 December. Theindependent directors unanimously recommend securityholders vote in favour of the transaction. However, we recommendsecurityholders do not vote in favour of this transaction.
DOW announced the sale of its Century Resources business to MB Holding. The sale will occur in two stages: the first stageinvolves the sale of 51% of Century to MB Holding for US$70M and the second involves the sale of remaining 49% stake to MBHolding either at the end of three years via a put option held by DOW or a corresponding call option held by MB Holding. DOWhas guaranteed the EBIT performance of Century over the three-year option period with exposure capped at US$5.4M in anyyear.
RBM is to make a non-renounceable rights issue at 8 cents per share to raise $3.7M. RBM will also make a public placementoffer at 8 cents to raise $1.6M. Glencore will partially underwrite $1M of the issue. The funds will be used to fund the DFS, retirethe Macquarie Bank debt facility, fund drilling at Mt Kasi and provide working capital. The funding will take the company throughto a decision point to develop the expanded Redbank Project, subject to a successful DFS.
BBG has agreed to acquire the Tigerlily swimwear and apparel business from its founder Jodhi Meares. This is BBG’s firstacquisition that focuses entirely on the girls market and will permit the company to expand its girls' product range with a focuson swimwear.
AFG has amended the original terms announced on 23 October 2007 for its proposed acquisition of the 79.6% of RubiconHoldings (Aust) Ltd it does not already own. The up-front share consideration will decrease by approximately 4.2M shares andthe conditional consideration will increase by 4.2M shares. This means the value of the deferred and conditional considerationnow represents 25.5% of the value of the total possible consideration, compared with 14.9% on the original terms.
COA today upgraded its guidance on FY08 operating earnings in light of trading for the first four months of FY08. FY08operating earnings are now expected to grow 20% over operating earnings of $102.4M in FY07. This is an improvement onprevious guidance of 15% growth.
Babcock & Brown Infrastructure Group (BBI) - BBI pursues its port consolidation strategy
SP AusNet (SPN) - Recommendation to vote against the Alinta assets acquisition
Downer EDI Limited (DOW) - Sale of Century Resources
Redbank Mines (RBM) - Entitlements offer and placement
Billabong International (BBG) - BBG strengthens its girls swimwear offering
Allco Finance (AFG) - Rubicon terms improved; shareholders should vote in favour of transaction
Coates Hire (COA) - FY08 operating earnings growth guidance upgraded to 20%
Page 13
UtilitiesAlan Stuart
ASX: BBI Bloomberg: BBI AU Reuters: BBI.AX 08 December 2007
Babcock & Brown Infrastructure GroupBBI pursues its port consolidationstrategy
EventBBI announced that it has acquired interests in three port operatorslocated in Germany, Belgium and the US. BBI subsidiary Benelux PortHoldings has acquired 43% of the Westerlund Group (Belgium) withnegotiations on the remaining 57% still underway. BBI acquired 50% ofSeehafen Rostock Umschlagsgesellchaft GmbH (Germany) with pre-emptive rights over the remaining 50%. Lastly, BBI has entered anagreement to acquire 50% of ICS Logistics Inc (US). The acquisitionshave an EV of ~A$616.5M.
ImplicationsWe have made no adjustments to our EPS forecasts at this time.We shall be having discussions with management to confirm some ofour model assumptions before updating our financial forecasts. Thatsaid, from a broad overview of the transaction, it looks positive.Following our discussions with management we shall provide anupdate. We retain our bullish view on both 12-month and long-terminvestment horizons.
Investment OpinionBBI is a diversified utility and infrastructure vehicle with an aggressiveasset growth profile, having acquired $6B+ of assets since listing in2002. BBI's long-life, long concession, monopolistic underlying assetsproduce strong and stable cash flows, secured by regulated tariffregimes or contracted revenues. We expect continued success via itsrelationship with BNB, which identifies, secures and finances BBI'sacquisitions. We have a positive long-term view on the stock.
Our BBI forecasts reflect improved cash flows derived from its whollyowned Dalrymple Bay Coal Terminal and moderate growth from itsutilities portfolio. We favour the proposed acquisition of the AAN assetsand expect the deal to be earnings accretive. BBI offers an attractiveyield, given its moderate growth outlook. Overall, we have a positive12-month view on the stock.
Notes: 1. The 12M recommendation rates stocks on a 12 month, absolute basis based on the total return (capital and dividends). BUY denotes an expectation of 15% ormore total return; SELL 5% or less; HOLD within the range of 5-15%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our view is toaccept that offer.2. The Long Term Recommendation rates stocks on a long term, absolute basis based on the average total return per annum (capital and dividends). BUY denotes a longterm expectation of 1% or more above the cost of equity (also known as the required return, which measures the the return required by investors given the company's risk);HOLD within the range of 1% above and 3% below the cost of equity; SELL more than 3% below the cost of equity but above a total forecast annual return for the stock of0%; AVOID denotes a long term expectation of a total annual return below 0%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our viewis to accept that offer.
12M Recommendation1: BUY 12M Target: $2.02 Long Term Recommendation 2: BUY Long Term Target Return: 20.0% pa
Profit & loss summary 2006A 2007A 2008F 2009F
Operating revenue 787.7 1,239.3 1,617.4 1,700.7Invest & other income (18.4) 0.0 (44.5) (45.6)
Notes To AccountsAll P&L items (except Reported profit) now exclude GoodwillAmortisation as per the new IFRS requirements. Our adjusted NPATrepresents returns to both ordinary unit holders and preference shareholders.
ASX: SPN Bloomberg: SPN AU Reuters: SPN.AX 07 December 2007
SP AusNetRecommendation to vote against theAlinta assets acquisition
EventSPN has proposed to acquire the Alinta assets from Singapore PowerInternational (SPI) for $8,322M. This is the price paid by SPI, plustransaction costs and holding costs between the time of the acquisitionby SPI and completion of the sale to SPN. The acquisition isconditional upon SPN obtaining non-associated securityholder approvalat a general meeting on 11 December 2007.
ImplicationsThe independent directors unanimously recommend securityholdersvote in favour of the transaction. However, we recommendsecurityholders do not vote in favour of this transaction. Whilst webelieve SPN's proposed acquired assets will provide stability to thecash flows and good growth prospects to the group, we view thetransaction as EPS-dilutive because the increase in additionalearnings from the new assets is proportionally less than its interestexpense and additional security issues. In our opinion, the synergybenefits are not sufficient to justify the EPS dilution. After incorporatingthe Alinta assets and the synergy benefits, our FY09 EPS forecast isdiluted by 45% down to 4.7cps. In addition, we have increased ourbeta from currently 0.8 to 1.0 to reflect the extra financing risk, whichhas the effect of increasing our discount rate from 7.3% to 7.8%. Our12-month target price has been revised downwards, from $1.37 to$1.25. We have downgraded our both short-term and long-termrecommendations on SPN from BUY to HOLD.
Investment OpinionWe view SPN as a solid income-type investment. We like SPN'sportfolio of strong cash flow Victorian-based energy transmission anddistribution assets, which offer scope for moderate electricity and gasdistribution volume growth. The extension into other business streams,as seen in the potential Alinta acquisition, is clearly within SPN'sstrategy. SPN is backed by Singapore Power Ltd, which has significantexperience in both transmission and distribution operations.
The outlook for SPN is that it will be cashflow constrained by the potential Alinta acquisition. While it wouldprovide stability to the cash flows and good growth prospects to thegroup, we view the transaction as EPS-dilutive due to increased issueof securities, lower EBITDA margin and a heavy interest burden. In ouropinion, the synergy benefits are not sufficient to justify the EPSdilution.
Notes: 1. The 12M recommendation rates stocks on a 12 month, absolute basis based on the total return (capital and dividends). BUY denotes an expectation of 15% ormore total return; SELL 5% or less; HOLD within the range of 5-15%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our view is toaccept that offer.2. The Long Term Recommendation rates stocks on a long term, absolute basis based on the average total return per annum (capital and dividends). BUY denotes a longterm expectation of 1% or more above the cost of equity (also known as the required return, which measures the the return required by investors given the company's risk);HOLD within the range of 1% above and 3% below the cost of equity; SELL more than 3% below the cost of equity but above a total forecast annual return for the stock of0%; AVOID denotes a long term expectation of a total annual return below 0%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our viewis to accept that offer.
12M Recommendation1: HOLD 12M Target: $1.25 Long Term Recommendation 2: HOLD Long Term Target Return: 9.3% pa
Profit & loss summary 2006A 2007A 2008F 2009F
Operating revenue 737.5 1,019.3 1,328.3 2,331.6Invest & other income 0.0 0.0 0.0 0.0
Notes To AccountsThe financial forecast has assumed the approval of the potential Alintaacquisition and incorporation of the acquired assests into account.
ACQUIRED ALINTA BUSINESSESThe businesses to be acquired by SPN include regulated electricity and gas distribution infrastructure, contracted gastransmission pipelines and an asset management business (collectively referred to as "Acquired Businesses"). SPN hasproposed to acquire these Alinta businesses from SPI via SPIAA.
The acquisition cost to SPN for the acquired businesses is approximately $8,322M. The acquisition cost to be paid by SPN forthese businesses is the same price that SPI paid to Alinta shareholders (adjusted for SPI’s Recoverable Costs, SPN’stransaction costs (excluding capital raising costs) and stamp duty). Independent Expert Grant Samuel has estimated the valueof the acquired businesses to be in the range of $7,485M–$8,365M. This is a standalone valuation and does not reflect anyvalue for synergies and cost savings specific to SPN.
New South Wales Gas Network
The network provides gas to more than 980,000 users across Sydney, Newcastle, Wollongong and over 20 countrycentres. AGL Energy, as the largest gas retailer in New South Wales, is the largest user of the network.
The New South Wales gas network’s total revenue comprises regulated and other revenues. Regulated revenues are afunction of actual volumes realised and regulated tariffs. The current regulatory period commenced on 1 July 2005, andthe next regulatory reset will be effective as at 1 July 2010.
With relatively low household penetration in New South Wales at about 35% (compared to an average penetration inreticulated areas estimated between 65% and 70%), the network’s “natural monopoly” represents a source of potentialgrowth above population growth. However, demand levels are directly impacted by climate and can be negativelyaffected, as seen by the recently experienced warmer winter weather and the decreased hot water usage due to waterrestrictions.
Alinta Victorian Electricity Network
The Alinta Victorian electricity network (formerly known as Solaris) distributes electricity to over 295,000 customer sites,over 950sqkm of north-west greater Melbourne. It is one of five licensed electricity distribution networks in Victoria,and penetration of the electricity network is approximately 100%, with future growth to be driven by usage/populationgrowth. Distribution prices for transporting electricity over the network and access to the network are regulated. The nextregulatory reset will be effective as at 1 January 2011.
The Victorian footprint covers a mix of major industrial areas, residential growth areas, established inner suburbs andMelbourne International Airport. Revenue from residential, commercial and industrial customers representsapproximately 38%, 26% and 36%, respectively, of the total revenue from energy deliveries. This, in turn, accounts forapproximately 88% of the total revenue for the electricity network.
Average annual growth for electricity consumption of around 1.5% per annum is anticipated for the residential sectorthrough to 2010, largely resulting from growth in connections. Growth in the commercial and industrial markets,however, is expected to remain largely flat, as organic growth continues to be partly offset by redevelopment of inner cityindustrial land for residential and small business use. The peak instantaneous load demand is forecast to grow at a rateof 2.5% over the next 20 years compared with growth of about 1.5% in energy delivered.
Additionally, the Alinta Victorian electricity network provides physical metering facilities and meter reading services. Therollout will involve significant capital expenditure by SPN and will be subject to an additional round of regulatorynegotiation.
ACTEWAGL Distribution Partnership (50% ownership)
An electricity and gas distribution joint venture with the ACT government (ACTEW Corporation). The acquiredbusinesses are not involved in energy retailing in the ACT. The transfer of this interest is subject to the consent ofACTEW Corporation and AGL Energy Ltd. The joint venture’s principal activities include the following:
� Ownership and operation of the ACT electricity distribution network with 155,000 end-users, and the gasdistribution network in the ACT and in the Palerang, Queanbeyan, Shoalhaven and Tumut local governmentareas in NSW totalling 104,000 end-users; and
� Provision of management services to TransACT, a telecommunications services provider in the ACT in whichSPIAA also has a 7.6% shareholding.
The large majority of end-users for the gas and electricity networks are residential and small business customers, withonly limited industrial usage. High penetration rates for both networks result in overall growth broadly consistent withpopulation growth and represents limited opportunities to expand the network beyond the existing population areas.
The ACTEWAGL Distribution Partnership is also involved in the operation and maintenance of the ACT’s water andsewerage networks under a contract with the ACTEW Corporation. This involves the provision of more than 100M litresof treated water each day to Canberra residents.
United Energy Distribution (34.1% ownership)
This consists of the electricity distribution network servicing the south-eastern suburbs of Melbourne and the MorningtonPeninsula, which is largely urban in nature. The 34.1% interest remains owned by BBI and is proposed to be sold to BBIsubsidiaries, which will, in turn, be acquired by SPIAA. The balance of UED is owned by DUET.
DUET maintains that such a sale would trigger pre-emptive rights under the UED Shareholders Agreement (givingDUET the right to acquire the shares currently held by BBI for a fair value). BBI and SPIAA do not accept that position,and may, if necessary, challenge such an assertion in dispute resolution proceedings. There is a risk, however, that thealleged pre-emptive rights may be upheld, in which case the 34.1% interest would not constitute part of the acquiredbusinesses, but SPN would be entitled to receive the proceeds of the exercise of those rights.
UED’s last regulatory reset occurred in 2005, with revenues set for the period 1 January 2006 to 31 December 2010.The AER will oversee the next regulatory reset for the 2011 to 2016 period.
In March and April 2007, a proposal was made by the acquired businesses to tender for the Sydney Water CorporationCamellia Recycled Water Project. SPIAA and BBI have agreed to enter into a 50:50 unincorporated joint venture inrelation to the operation of stage 1 of the Camellia Recycled Water Project if the proposal is successful. The projectprovides the Acquired Businesses with the opportunity to move into ownership of water infrastructure.
Eastern Gas Pipeline (EGP)
The EGP transports natural gas from the Gippsland Basin in Victoria to markets in Sydney and regional centres(including Wollongong and Canberra). Gas enters the pipeline at the Longford Compressor Station (which primarilysources gas from the Esso/BHP Billiton gas processing plant at Longford), the Patricia Baleen site at Orbost and throughthe VicHub Interconnect Facility.
The 797km-long pipeline has a current capacity of 73PJ of gas per annum. The major end-users of gas transported bythe pipeline are the BlueScope Steel facilities at Port Kembla, Marubeni’s Smithfield Power Station and the BairnsdalePower Station in addition to retailers supplying smaller industrial, commercial and domestic end-users in Sydney.
The Sydney retail and industrial market is a mature gas market and is not expected to be the driver of major growth ofgas haulage on the pipeline. Future growth of the EGP customer base is expected to result from the anticipatedconstruction of gas-fired power stations positioned along the pipeline. The current drought conditions appear to havebrought forward a shortage of supply in the electricity market. Gas-fired electricity generation is expected to fill theelectricity generation shortfall in the current carbon-constraint environment.
Queensland Gas Pipeline (QGP)
QGP is a natural gas and coal seam gas transmission pipeline that links both the Ballera to Roma pipeline and theRoma to Brisbane pipeline at Wallumbilla to large industrial users in Gladstone and Rockhampton, QLD.
It supplies a small retail distribution network in the Gladstone region, and large industrial facilities, including the QLDAlumina Limited plant near Gladstone (51% of revenue for year ended June 07) and QLD Magnesia. Further potentialfor growth in demand has been identified as a consequence of continued industrial development in the Gladstone andRockhampton regions. As the current sole means of transporting gas to the Gladstone region, the QGP is well placed tocapture these growth opportunities.
The 627km-long pipeline is a free flow, high-pressure pipeline with a current capacity of approximately 27PJ per annum(pipeline licence limits total capacity to 52PJ/annum). The pipeline is being expanded to 49PJ per annum toaccommodate additional load required by Origin Energy (Rio Tinto nickel refinery) by 2010.
Eastern States Asset Management
This includes specialist infrastructure management services that encompass operations, maintenance and managementof capital works, commercial, corporate support, engineering, regulatory compliance and information technology.
Significant growth in the outsourcing of electricity distribution works in QLD and WA is expected to continue. Stategovernments are also responding to the increasing demand for water with a pipeline of PPP water infrastructure assetsunder development. The asset management business is well positioned for the increasing forecast expenditure in theelectricity energy infrastructure sector.
FUNDING STRUCTURE
The transaction is expected to be funded by equity (36%) and debt (64%). SPI intends to fully subscribe for its pro rataentitlement under the entitlement offer and subscribe for 51% of securities offered under the institutional placement. Overallgearing increases from 58% as at 31 August 2007 to 61% after the acquisition. As a result of the transaction, Standard &Poor’s has indicated that the corporate credit rating on SPN is likely to be downgraded to “A- with a stable outlook", from “A withnegative implications" on CreditWatch. Debt will be at least 75% hedged over the forecast period.
SPN intends to undertake an equity offering of $3,022M to partially fund the transaction. The board has decided that it will notissue new securities at an issue price of less than $1.10. The debt component of the acquisition cost will initially be funded by amixture of a $2,500M Syndicated Facility and $3,700M Bridge Facility.
FINANCIAL IMPACTSWe have incorporated in our forecasts the Alinta assets and the synergy benefits.
� Post-acquisition, FY09 revenue forecast has now doubled. Our FY09 revenue forecast before the acquisition was$1,094M. We have increased our post-acquisition FY09 revenue forecast to $2,332M, 113% up on the originalforecast. Further revenue growth will be underpinned by the revenue growth in its contracted business and theexpansion of the infrastructure asset management business.
� After incorporating the acquired businesses in our forecast, we expect the EBITDA margin to decline substantially from61.3% in FY07 to 52.4% in FY09, significantly below the historical margin earned from the existing businesses.
� FY09 interest expense triples. We forecast net interest expense to increase to $676M in FY09, three times the originalforecast. SPN had borrowings of $3.7B pre-acquisition as at 31 August 2007. Inclusive of the $5.3B debt-finance for thistransaction, the acquisition will take SPN's total debt to $9.0B, 142% increase on the original forecast. Overall gearingincreases from 58% as at 31 August 2007 to only 61% after the acquisition; however, the interest coverage ratio isexpected to drop from 1.8x for FY08 to 1.4x for FY09.
� Dilutive FY08 and FY09 EPS. SPN expects the transaction to be EPS dilutive by 33% in FY09 (including one-offimplementation costs) after synergies. However, in our opinion, our FY09 EPS forecast would be diluted by 46% downto 4.6cps due to increased units of stapled securities, lower EBITDA margin and a heavy interest burden.
� The addition of the acquired businesses is expected to result in transaction synergy benefits for SPN, as administrativecosts are spread over a greater asset pool and the operations become more efficient. Cost synergies of $89.8M areexpected by 2010 through headcount reduction, IT & business systems, site consolidation and procurement savings.The independent expert has indicated that the synergies, if achieved, represent NPV in excess of $1B, whichis consistent with our expectation and slightly improves the margins. However, the synergy benefits are not sufficientto compensate for the increase in interest burden and the earning dilution going forward.
� SPN expects the free cash flow per security after synergies to be accretive by 0.6% in FY09 (including one-off synergyimplementation costs), supported by the higher growth rate and lower capital intensity of the acquired assets. However,strained by lower EPS and double the capex resulting from the acquired assets, we find it hard to justify any free cashflow accretion, even after the synergy realisation.
� Upgrade on FY09 distribution guidance. SPN expects the long-term benefits of the transaction could provide thegroup the confidence to increase DPS. If the transaction is approved, SPN expects to upgrade an upwards revision to itsFY09 distribution guidance to 12.14cps, 2.5% up from its existing FY09 guidance of 11.8cps. Of these, 59% is expectedto be tax deferred for Australian investors.
Advantages
� This transformational acquisition will position SPN as the leading utility business in Australia. The transaction provides aunique opportunity to acquire a suite of high-quality assets that complement SPN’s existing business.
� The Transaction will result in SPN geographically expanding outside of Victoria into high growth NSW, QLD and ACTmarkets.
� Revenue diversity is expected to deliver a number of benefits to SPN. It lowers the sensitivity of cash flows to theperformance of, or regulatory determination in respect of, any one individual asset and increases long-term revenuecertainty through increased contracted revenue, which extends beyond the period of regulatory decisions. It provides anopportunity to grow group revenue beyond the regulated levels by participation in non-regulated activities and improvesdiversity across regulatory determination.
FIGURE 6: OPERATION DIVERSIFICATION
Source: SPN explanatory memorandum
� The transaction is expected to provide SPN with enhanced growth opportunities through investment in the expansion ofthe new asset portfolio, increased volumes through gas transmission pipelines and growth in demand for the provision ofinfrastructure services. The addition of gas transmission assets to SPN’s existing portfolio provides a significantopportunity to build and leverage a new capability. Expansion of assets and capabilities into gas transmission and assetmanagement allows redeployment of existing resources into third party asset management opportunities across easternAustralia and puts SPN in a strong position to develop and grow through enhanced asset management capabilities.
Disadvantages
The transaction involves a number of significant risks and potential disadvantages, including the following:
� The increased indebtedness of SP AusNet and resulting credit rating downgrade;
� The dilution of existing securityholders’ ownership through the issue of new securities to partially fund the transaction;
� The existence of disputes relating to the asset management business and the risk that further disputes emerge;
� Integration of asset management operations may be hindered if consent to transfer AAM shares is not obtained; and
� The risk that the 34.1% interest in UED may ultimately not be acquired.
We believe SPN's proposed acquired assets will provide stability to the cash flows and good growth profile to the group.However, the increase in additional earnings from the new assets is proportionally less than its interest expense and theadditional security issues. In our opinion, the synergy benefits are not sufficient to justify the EPS dilution.
After incorporating the Alinta assets and the synergy benefits, our FY09 EPS forecast would be diluted by 45% down to 4.7cpsdue to increased units of stapled securities, lower EBITDA margin and a heavy interest burden. In addition, we have increasedour beta from currently 0.8 to 1.0 to allow for the extra financing risk, which has the effect of increasing our discount rate from7.3% to 7.8%. Our 12-month target price has been revised downwards, from $1.37 to $1.25. We have downgraded ourrecommendation on SPN in both our short-term and long-term views from BUY to HOLD. On this basis, we recommendsecurityholders do not vote in favour of this transaction.
ASX: DOW Bloomberg: DOW AU Reuters: DOW.AX 07 December 2007
Downer EDI LimitedSale of Century Resources
EventDOW announced the sale of its Century Resources business to MBHolding. The sale will occur in two stages: the first stage involves thesale of 51% of Century to MB Holding for US$70M and the secondstage involves the sale of the remaining 49% stake to MB Holdingeither at the end of three years via a put option held by DOW or acorresponding call option held by MB Holding. DOW has guaranteedthe EBIT performance of Century over the three-year option period,with exposure capped at US$5.4M in any year. The sale does notimpact current earnings guidance provided by DOW.
ImplicationsWe have adjusted the cash flow to take into account the 51% saleof Century Resources for US$70M. As per management'sguidance, we have decreased our revenue forecasts from 2H08onwards by circa A$67M to account for the loss of revenue arising fromthe sale of Century. The net effect on our FY08 and FY09 EPSforecasts is not significant, with changes of +0.6% and -0.2%,respectively. Our 12-month price target has increased slightly by 0.5%to $5.42. DOW had previously flagged the sale of Century Resources,citing it would be a better fit in a company with larger drilling operations.We retain an analyst discount in our price targets due to some possibleoperational risks. We are meeting with DOW's management early nextweek and will provide an update after our discussions. We maintainour neutral view on the stock on both 12-month and long-terminvestment horizons.
Investment OpinionDOW provides infrastructure and engineering services across severalsectors, including water, rail, power and mining. The companycontinues to perform successfully across all its business divisions,which we forecast to continue in the medium term. Management's newapproach to risk management and the arrival of a new CEO should bepositive for the company. We are neutral on a long-term investmentview.
From an underlying business point of view, we see a strong company,marred by operational shortcomings, with successive profit write-downsin the past two years. While we look positively on the business and ourfundamentals suggest that the business looks attractive on a PEmultiple, we are hesitant to look favourably on the business from aninvestment point of view. Until we see a greater focus on mitigating theoperational risk of the company, we are neutral on a 12-month outlook.
Notes: 1. The 12M recommendation rates stocks on a 12 month, absolute basis based on the total return (capital and dividends). BUY denotes an expectation of 15% ormore total return; SELL 5% or less; HOLD within the range of 5-15%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our view is toaccept that offer.2. The Long Term Recommendation rates stocks on a long term, absolute basis based on the average total return per annum (capital and dividends). BUY denotes a longterm expectation of 1% or more above the cost of equity (also known as the required return, which measures the the return required by investors given the company's risk);HOLD within the range of 1% above and 3% below the cost of equity; SELL more than 3% below the cost of equity but above a total forecast annual return for the stock of0%; AVOID denotes a long term expectation of a total annual return below 0%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our viewis to accept that offer.
12M Recommendation1: HOLD 12M Target: $5.42 Long Term Recommendation 2: HOLD Long Term Target Return: 10.8% pa
Profit & loss summary 2006A 2007A 2008F 2009F
Operating revenue 4,624.1 5,361.9 5,731.4 6,034.5Invest & other income 0.0 0.0 0.0 0.0
Notes To AccountsAll P&L items (except Reported profit) now exclude GoodwillAmortisation as per the new IFRS requirements.The forecast tax rate is significantly lower in FY07 and has the effectof skewing some ratio analysis.
ASX: RBM Bloomberg: RBM AU Reuters: RBM.AX 07 December 2007
Redbank MinesEntitlements offer and placement
EventRBM will make a non-renounceable rights issue at 8 cents per share toraise $3.7M. RBM will also make a public placement offer at 8 cents toraise $1.6M. Glencore will partially underwrite $1M of the issue. Thefunds will be used to fund the DFS, to retire the Macquarie Bank debtfacility, to fund drilling at Mt Kasi and to provide working capital. Thefunding will take the company through to a decision point to developthe expanded Redbank Project, subject to a successful DFS.
ImplicationsRBM will issue 47.4M new shares under the entitlements offer and 20Mnew shares through the placement. The total number of shares onissues by RBM will increase from 142M to 209M. As the issue price of8 cents is below our calculated NPV for RBM, the issue has a dilutiveeffect on existing shareholders. As a result, our valuation for RBM fallsfrom 21 cents per share to 15 cents per share.
Investment OpinionThe research on this company has been commissioned and as suchAegis has received a fee for its initiation and ongoing researchcoverage.
No part of either the fee received by Aegis or the compensation paid toits analysts involved in preparing this report was, is or will be directly orindirectly, related to the valuation, earnings forecast or viewsexpressed in this report.
Key Information
Price Performance
Market Statistics
Key Assumptions
Share Price $0.08Valuation $0.15
Market Cap (M) $19
Shares (M) 209.45
% of Market 0.00
% of Sector 0.00
12 Month Range $0.06 - $0.23
Company Risk
Share Price Risk
Ethical rating
Performance against indices (%)3 Months 6 Months 12 Months
Notes:1. The risk ratings are on a 12 month perspective, where five stars denotes low risk and one star denotes high risk. Company risk takes into account expectedfinancial, strategic and execution risks associated with the company. Share price risk is a measure of the expected volatility of the price and other trading factors.2. The Ethical rating rates a company on an ethical investment basis where five stars denote very good and one star a poor rating. The score is based on four key factors:areas of operating, environmental, corporate governance and social factors. For more information see www.aegis.com.au.
Notes To AccountsThe financial reports were prepared in accordance with therequirements of the Corporations Act, 2001, including Australianequivalents to International Financial Reporting Standards (A-IFRS).
ASX: BBG Bloomberg: BBG AU Reuters: BBG.AX 07 December 2007
Billabong InternationalBBG strengthens its girls swimwearoffering
EventBBG has agreed to acquire the Tigerlily swimwear and apparelbusiness from its founder Jodhi Meares. This is BBG’s first acquisitionthat focuses entirely on the girls market and will permit the company toexpand its girls' product range with a focus on swimwear. The companyis to be expanded in the domestic market before looking to take thebrand overseas. The company expects the acquisition to be EPS-accretive in the first full year.
ImplicationsThe acquisition of Tigerlily will be immaterial to our forecasts over thenext two-three years. Beyond that, we expect that it will have gainedenough scale and strengthened its brand name to a point where saleswill start to impact the BBG bottom line. Despite BBG offering noguidance on the acquisition cost or multiple paid, we look favourably onthe acquisition, as we are confident that the company will successfullybuild on Tigerlily’s position in the market and potentially take the brandinto international markets. The acquisition has had a minimal impact onour 12-month price target, which remains largely unchanged at $18.22.
Investment OpinionBBG possesses a substantial portfolio of quality brands. The companyhas an achievable medium-term EPS growth target of 15%. While theoutlook is for reasonable organic growth rates, the upside lies in furtheracquisitions, which BBG is actively pursuing in both America andAustralia. BBG has proven its ability as a brand manager and couldtake advantage of growth opportunities that would arise in the event ofa protracted slowdown in trading conditions. We hold a favourablelong-term view.
BBG remains a compelling investment due to its reasonable rates oforganic growth coupled with significant scope for growth by acquisition.Given the solid underlying earnings outlook and the management'sproven ability to deliver earnings growth, we remain positive on thestock. The caveat to this is that with robust growth rates expected overcoming years, a downturn in any of BBG's key markets would result indownside risk to our forecast. We hold a positive 12-month view onBBG.
Notes: 1. The 12M recommendation rates stocks on a 12 month, absolute basis based on the total return (capital and dividends). BUY denotes an expectation of 15% ormore total return; SELL 5% or less; HOLD within the range of 5-15%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our view is toaccept that offer.2. The Long Term Recommendation rates stocks on a long term, absolute basis based on the average total return per annum (capital and dividends). BUY denotes a longterm expectation of 1% or more above the cost of equity (also known as the required return, which measures the the return required by investors given the company's risk);HOLD within the range of 1% above and 3% below the cost of equity; SELL more than 3% below the cost of equity but above a total forecast annual return for the stock of0%; AVOID denotes a long term expectation of a total annual return below 0%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our viewis to accept that offer.
12M Recommendation1: BUY 12M Target: $18.22 Long Term Recommendation 2: BUY Long Term Target Return: 17.4% pa
Profit & loss summary 2006A 2007A 2008F 2009F
Operating revenue 1,018.2 1,226.5 1,348.7 1,584.7Invest & other income 0.0 0.0 0.0 0.0
ASX: AFG Bloomberg: AFG AU Reuters: AFG.AX 07 December 2007
Allco FinanceRubicon terms improved; shareholdersshould vote in favour of transaction
EventAFG has amended the original terms announced on 23 October 2007for its proposed acquisition of the 79.6% of Rubicon Holdings (Aust) Ltdit does not already own. The up-front share consideration will decreaseby approximately 4.2M shares and the conditional consideration willincrease by 4.2M shares. The cash component of the up-frontconsideration of $63.7M is unchanged. This means the value of thedeferred and conditional consideration now represents 25.5% of thevalue of the total possible consideration, compared with 14.9% on theoriginal terms. The transaction is subject to approval from non-associated AFG shareholders, with the vote to be held on 12December 2007.
ImplicationsWe believe the combined Allco Rubicon real estate business willachieve the 20% hurdle for growth in assets under management,triggering the deferred consideration of 10M AFG shares. We welcomethe improvement in the terms of the proposed acquisition and reiterateour previous recommendation that shareholders should vote in favourof the transaction. We have made no adjustment to our EPS forecasts,our 12-month price target remains at $11.68.
Investment OpinionAFG represents an attractive investment opportunity as a high-growthcompany in the financial services sector. AFG's ability to leverage itsbalance sheet generating high investment returns increases itsinvestment merits. AFG is shifting its focus from being a pure originatorand owner of assets to also becoming a manager of alternative assets.We are confident that AFG will be able to achieve strong earningsgrowth over the medium to long term and have a positive long-termview of the stock.
We expect AFG to deliver strong earnings growth in FY08, given astrong pipeline, a sound funding platform and the establishment ofadditional managed funds. We see good opportunities in AFG’s coreasset classes, with a particularly strong global aviation market andsignificant opportunities to acquire global infrastructure assets. We areforecasting strong double-digit EPS growth in FY08 and FY09 andhave a positive view of the stock on a 12-month time frame.
Notes: 1. The 12M recommendation rates stocks on a 12 month, absolute basis based on the total return (capital and dividends). BUY denotes an expectation of 15% ormore total return; SELL 5% or less; HOLD within the range of 5-15%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our view is toaccept that offer.2. The Long Term Recommendation rates stocks on a long term, absolute basis based on the average total return per annum (capital and dividends). BUY denotes a longterm expectation of 1% or more above the cost of equity (also known as the required return, which measures the the return required by investors given the company's risk);HOLD within the range of 1% above and 3% below the cost of equity; SELL more than 3% below the cost of equity but above a total forecast annual return for the stock of0%; AVOID denotes a long term expectation of a total annual return below 0%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our viewis to accept that offer.
12M Recommendation1: BUY 12M Target: $11.68 Long Term Recommendation 2: BUY Long Term Target Return: 27.2% pa
Profit & loss summary 2006A 2007A 2008F 2009F
Operating revenue 171.2 546.0 723.7 875.7Invest & other income 0.0 0.0 0.0 0.0
Notes To AccountsAll numbers for FY06 and going forward are based on AIFRSaccounting standards. All financial information for FY05 and FY06 arefor Allco Finance Group (previously Record Investments Limited) on astandalone basis. The numbers for FY07 and beyond are on amerged entity basis. Record Investments Limited name changed toAllco Finance Group Limited on completion of the merger.
ASX: COA Bloomberg: COA AU Reuters: COA.AX 07 December 2007
Coates HireFY08 operating earnings growth guidanceupgraded to 20%
EventCOA today upgraded its guidance on FY08 operating earningsfollowing trading for the first four months of FY08. FY08 operatingearnings are now expected to grow 20% over operating earnings of$102.4M in FY07. This is an improvement on previous guidance of15% growth. The company did not provide details on what theunderlying drivers were that accounted for the upgrade.
ImplicationsWe have upgraded our revenue growth and increased our EBITDAmargin forecasts in FY08. Our FY08 NPAT is now broadly in line withcompany guidance. The net effect is an increase in our FY08-FY09earnings forecast by 6.5% and 6.3%, respectively. We retain our short-term and long-term recommendations to accept offer.
Investment OpinionCOA is Australia's largest hire equipment company, with well over 100years' experience in the sector. It has managed to successfullyleverage off the lengthy uptrend in activity levels across theengineering, building/construction and mining/resources sectors. COAcontinues to build scale via a run of bolt-on acquisitions. The AlliedEquipment and Allplant acquisitions have further diversified its revenuebase, though their FY07 contributions have been disappointing.
From a top-down angle, COA's major clients see a positive outlookover the coming year or so. There remains much to like from a bottom-up perspective: (1) financials remain sound; (2) recentcapex/acquisitions are yet to fully reflect in earnings; and (3)restructuring initiatives now in train will benefit profitability. However,there are some challenges to sustain reasonable EPS growth over themedium term. We believe the Ned Group offer to be a fair price andencourage shareholders to accept.
Notes: 1. The 12M recommendation rates stocks on a 12 month, absolute basis based on the total return (capital and dividends). BUY denotes an expectation of 15% ormore total return; SELL 5% or less; HOLD within the range of 5-15%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our view is toaccept that offer.2. The Long Term Recommendation rates stocks on a long term, absolute basis based on the average total return per annum (capital and dividends). BUY denotes a longterm expectation of 1% or more above the cost of equity (also known as the required return, which measures the the return required by investors given the company's risk);HOLD within the range of 1% above and 3% below the cost of equity; SELL more than 3% below the cost of equity but above a total forecast annual return for the stock of0%; AVOID denotes a long term expectation of a total annual return below 0%. ACCEPT OFFER relates to a situation where there is a public offer for shares and our viewis to accept that offer.
12M Recommendation1: ACCEPT OFFER 12M Target: $6.86 Long Term Recommendation 2: ACCEPT OFFER Long Term Target Return: 10.5% pa
Profit & loss summary 2006A 2007A 2008F 2009F
Operating revenue 717.0 774.0 882.2 941.8Invest & other income 0.0 0.0 0.0 0.0
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