Australian First Edition - Credit Suisse | PLUS

Note: If the rating of a company shown on the cover of First Edition is in bold type a rating change has taken place

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EQUITY RESEARCH CREDIT SUISSE EQUITIES (AUSTRALIA) LIMITED ABN 35 068 232 708 ACN 068 232 708 | Participating Organisation of the Australian Stock Exchange

Australia & NZ Daily Research Wednesday, 24 April 2013

COMPANIES & SECTORS

Australian Healthcare 14 Growth in US doctor visits not evident in 1Q lab results

Australian Iron Ore Miners 18 Benchmarking the Australian iron ore miners

CFX CFS Retail Property Trust UNDERPERFORM 26 Quarterly mixed, valuation full

EVN Evolution Mining OUTPERFORM 29 Weak MarQ but full-year guidance unchanged

IFT Infratil OUTPERFORM 39 .NZ Opposition’s mooted electricity market reform

undermines value

IAG Insurance Australia Group NEUTRAL 45 New Zealand: On track for lower profits

IFL IOOF Holdings NEUTRAL 53 Mar-Q FuMAS slightly ahead of expectations

MBN Mirabela Nickel NEUTRAL 58 Production and equipment disappoints

NCM Newcrest Mining OUTPERFORM 61 MarQ - Cadia East and MOPU commissioning well

OSH Oil Search OUTPERFORM 80 Modest 1Q miss, LNG remains on track

PNA PanAust NEUTRAL 85 MarQ weak, as expected

PAN Panoramic Resources NEUTRAL 99 A good quarter but no solution

SHL Sonic Healthcare NEUTRAL 102 FY13 shortfall but not by much

TRS The Reject Shop UNDERPERFORM 110 Capital raising to fund new store opportunity

VAH Virgin Australia Holdings OUTPERFORM 113 Acquisition hurdle cleared, execution risks remain

WES Wesfarmers UNDERPERFORM 116 Quarterly coal production and price negotiations

WSA Western Areas NL OUTPERFORM 118 Solid 3Q production result

WPL Woodside Petroleum NEUTRAL 121 Special dividend plus raising payout ratio

RESULT PREVIEW

RMD ResMed Inc. NEUTRAL 125 3Q result preview; reports on 26 April

STRATEGY & ECONOMICS

NZ Equity Market 127 Opposition party electricity sector reform

proposals – draining power from NZ equities

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

MARKET EVENTS

AGM, Woodside Petroleum 24 Apr

DEWR Internet Skilled Vacancies (MoM) (Mar)

24 Apr

Consumer Prices (QoQ)/(YoY) (1Q)

24 Apr

US, Richmond Fed Manufact. Index (Apr)

24 Apr

CH, Bloomberg Apr Ch Eco Survey

24 Apr

UPCOMING CONFERENCES

2012 Chairman’s Club – Bermuda

24–27 Apr

2013 21st Annual Offshore Technology Conf. – Houston

6 – 8 May

For more scheduled conferences refer to page 2

TABLES

Credit Suisse Ratings – Australia 132

Top 100 Earnings & Dividends 135

Small Caps Earnings & Dividends 138

Sector Aggregates 141

Australia and NZ First Edition 2

Australia & NZ Market Reports

Australia Index +/- %Day %Wk %Mth %YrRol

All Ordinaries 5002.6 47.2 1.0% 1.2% 0.4% 12.9% S&P/ASX 50 5155.7 51.4 1.0% 1.4% 1.5% 18.5% S&P/ASX 200 5016.2 49.7 1.0% 1.3% 1.0% 15.3% Financials 5563.8 60.1 1.1% 1.3% 3.7% 31.7% REITs 1088.3 8.0 0.7% 1.5% 6.8% 28.6% Industrials 3785.4 40.0 1.1% 1.7% -0.2% 2.2% Materials 8955.5 -107.8 -1.2% -1.9% -8.4% -18.7% Cons. Discreet 1616.4 22.8 1.4% 2.5% 4.1% 24.0%

NEW ZEALAND

NZX 50 4516.5 32.842 0.7% 2.0% 4.0% 28.5%

Currencies, Interest Rates & Gold

Index +/- %Day %Wk %Mth %YrRol

AUD/USD 1.023 -0.004 -0.4% -1.5% -2.0% -0.8%

AUD/GBP 0.672 0.000 0.0% -0.7% -2.0% 5.0%

EURAUD 1.271 0.000 0.0% 0.2% 2.2% -0.3%

NZD/USD 0.838 -0.004 -0.4% -1.2% 0.3% 3.1%

AUD/NZD 1.220 0.000 0.0% -0.3% -2.4% -3.9%

TWI 0.783 -0.001 -0.1% -1.3% -1.1% 2.4%

Aust 90Day n.a. n.a. n.a. n.a.

Aust 10Y 3.166 -0.052 -1.6% -3.3% -12.0% -17.1%

NZ 90Day 3.220

NZ 10Y 3.275 -0.005 -0.2% -2.1% -11.4% -17.7%

Gold Spot 1425.14 21.290 1.5% 4.2% -11.4% -12.9%

Best Performers Worst Performers

Close % ‘000 Close % ‘000

Coalspur Mines 0.39 11.4% 1093 Mirabela Nickel 0.14 9304 Woodside Petroleum 37.96 9.7% 9150 Silver Lake 1.10 -16.0% 12439 Molopo Australia 0.30 9.1% 524 St Barbara 0.60 -13.7% 5048 APN News & Media 0.35 7.7% 397 Saracen Mineral 0.15 -9.1% 10741 Horizon Oil 0.38 7.1% 2479 Rex 0.32 -8.7% 270 Ivanhoe 0.17 6.3% 751 Panoramic Resrcs. 0.31 -7.5% 163 Harvey Norman 2.86 5.9% 2135 Sandfire Resrcs NL 5.62 -7.0% 608 Bathurst Resources 0.21 5.1% 1342 Starpharma 1.04 -6.8% 282 Linc Energy 1.95 5.1% 2450 Blackthorn 0.41 -6.8% 217 Perseus Mining 1.44 4.7% 2543 Sirius Resources 2.46 -6.5% 1332 Virgin Austr. Holdgs. 0.46 4.6% 7953 Sedgman 0.66 -6.4% 498 G8 Education 2.35 4.4% 2470 Intrepid Mines 0.22 -6.4% 1144

Source: ASX, Bloomberg, Reuters

Commodity Prices Spot* Forward Curve Credit Suisse Forecasts 3mth 15mth 1Q13 2013 2014

Base Metals Aluminium USc/lb 84.6 85.8 90.2 90.7 110.0 92.1 Copper USc/lb 313.3 314.6 318.8 349.3 402.5 361.6 Nickel USc/lb 690.7 694.0 705.2 748.4 1043.8 795.9 Zinc USc/lb 83.7 85.4 88.8 93.0 101.3 88.6 Lead USc/lb 90.2 91.2 93.6 102.1 108.8 93.6 Tin USc/lb 941.2 943.3 975.2 1186.3 954.5 Precious Metals

Gold US$/oz 1425.1 1580.0 1570.5 1669.8 Silver US$/oz 23.4 28.7 35.2 31.3 Platinum US$/oz 1428.5 1630.0 1721.2 1560.0 Energy

Oil (Brent) US$/bbl 99.2 100.2 97.5 110.0 0.0 110.5

Oil (WTI) US$/bbl 88.0 89.6 86.7 102.0 94.7 94.2

*Fiscal year averages used, Steel prices are contract prices. Spot as of 10PM AEST.

VIX (S&P 500 Options Implied Volatility)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

Jan

-96

Au

g-9

6

Ap

r-97

Dec-9

7

Au

g-9

8

Ap

r-99

Dec-9

9

Au

g-0

0

Ap

r-01

Dec-0

1

Au

g-0

2

Ap

r-03

Dec-0

3

Au

g-0

4

Ap

r-05

Dec-0

5

Au

g-0

6

Ap

r-07

Dec-0

7

Au

g-0

8

Ap

r-09

Dec-0

9

Au

g-1

0

Ap

r-11

Nov-1

1

Jul-1

2

Dec-1

2

Daily VIX (S&P 500 Options Implied Volatility)

VIX Index Average -1 StDev +1 StDev

VIX – Current 1mth rol(avg) 3mth rol(avg) 6mth rol(avg)

14.39 13.75 13.54 14.91

Freight Spot 1 wk (avg) 1 mth (avg) 3 mth (avg) 6 mth (avg) 1 yr (avg)

Baltic Dry 888.0 884 887 823 867 897

Source: Bloomberg

Upcoming Credit Suisse Global Conferences New additions this week in bold.

2013 April to October

April 24 – 27 2012 Chairman’s Club – Bermuda

May 6 – 8 2013 21st Annual Offshore Technology Conf. – Houston

May 9 2013 Eurotech Conference – London

May 14 2013 Consumer IR Day – Netherlands, Amsterdam

May 14 – 17 2013 US China Auto Corporate Week, NY, Boston, SF

May 15 2013 Consumer IR Day – Scandinavia, New York

May 15 – 16 2013 President's Club – Dallas

May 16 2013 Macro Economic Conference – Stockholm

May 16 2013 Qatari Exchange Investor Day – London

May 21 – 22 2013 Global Ag & Consumer Chemicals Conf. – London

May 21 – 22 2013 European Financials West Coast Conf. – SF

June 4 – 5 2013 Oil & Gas Conference (London Energy Conference)

June 6 2013 European Gaming Companies Conference – London

June 6 2013 Engineering & Construction Conference – NY

June 11 – 12 2013 Pan European Small & Mid-Cap Conference – London

June 13 2013 European Buildings Conference – London

June 18 2013 China/Hong Kong Small Cap Corporate Day

June 26 2013 APAC Transport Corporate Day

September 11 – 13 2013 Asian Technology Conference

October 1 – 2 2013 Global Credit Products – Barcelona

If you would like to attend any of the above conferences, please contact the Australian Corporate Access team: Cathy Kermond [email protected] or your Credit Suisse sales representative

Research Production Adam Indikt – Supervisory Analyst 61 3 9280 1659 Patricia Rocis – Supervisory Analyst 61 3 9280 1678 Web Access Research Distribution [email protected] Email: [email protected] Database Jason Swinbourne 612 8205 4591

Bottom Liners

24 April 2013


At a Glance Australia/NZ equities executive summary

COMPANIES & SECTORS

Growth in US doctor visits not evident in 1Q lab results Australian Healthcare

More doctor attendances but cautious on read-throughs: US physician attendance data for the month of March has been released by IMS Health. Physician office attendance (including GPs and all specialist visits) is generally a useful proxy for laboratory referrals, while family office (GP) attendance serves as a reasonable trend proxy for RMD’s US flow generator sales trends. For the quarter ended Mar-13, physician office attendance was up 4.6% vs. pcp (up from 2.6% at February), while family office attendance was up 2.3% vs. pcp (2.1% at Feb). SHL: It remains to be seen whether doctor attendance growth will be sustained into 2H FY13. What does seem apparent is that the recent uplift is not flowing through to pathology volume “green shoots” – Labcorp and Quest reported muted / negative volume growth in 1Q CY13. Lack of volume recovery likely reflects market share losses to hospitals and physician office labs as well as general lack of health care utilisation due to an increase in insurance policies with higher patient deductibles/co-pays. RMD: While sustained improvement would be positive, US flow generator sales trends typically lag family office attendance by one quarter. Hence, for RMD’s 3Q FY13 result, family office attendance in the Dec-12 quarter will be most relevant. One could interpret the data as suggesting downside risk to our forecasts (given DecQ attendance growth was low compared to Sep/Jun quarters); however, in our view the discrepancy can be attributed to RMD’s market share gains via APAP up-take in the US. Similar divergence was seen in FY10 (S9 release). Stock Calls: We maintain our Neutral ratings on SHL and RMD; target prices (A$13.50 SHL, A$4.60 RMD) and earnings remain unchanged.

Saul Hadassin Research Analyst 61 2 8205 4679

Benchmarking the Australian iron ore miners Australian Iron Ore Miners

Iron ore miners’ plans and costs have been changing and so we revise our benchmark to test margins under a potentially lower iron ore price. We use an iron ore index price of $100 CFR and parity AUD/USD. FMG has separated itself from the smaller iron ore miners with its stronger margins, but cash margins remain less than half of those of BHP and RIO on our estimate. FMG’s cash margins vary little if the minority sell down of the port and rail infrastructure (TPI) is included. Lower interest payments offset most of the cash leakage to the minority investment partner. We consider investors are becoming less tolerant of endless growth capex plans by companies, especially with iron ore supply expected to exceed demand. FMG is due to finish its capex spend in CY13, well ahead of RIO. We forecast FMG’s free cashflow yield will be double that of RIO’s in 2015. BHP and RIO’s margins remain a long way ahead of other miners due to higher grades and lump premiums providing higher received costs,

while low stripping ratios maintain low mining costs. FMG’s costs are

falling with the lower cost Solomon orebodies, but the high stripping ratio of the Chichester mines, lower iron grades and a lack of lump will not allow it to challenge the margins of RIO and BHP. The junior iron ore miners margins are another step below FMG. The Karara magnetite has the next highest margin, but the hematite ore from the Karara project is unlikely to break—even at an iron ore price below $120/t.

Matthew Hope Research Analyst 61 2 8205 4669

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508083&serialid=r2n499T3tOCrAi9mcWlkF%2fINCUkJt7k5Tb%2fmSzotV1o%3d

mailto:[email protected]

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014961621&serialid=SYcpk%2fGMUP5FAFC0Qd1%2f9ubPKaOstqItpDAQeDf2RNs%3d


24 April 2013


Quarterly mixed, valuation full CFS Retail Property Trust (CFX.AX)

Quarterly update mixed: Despite confirming guidance for 3% sales growth in CY13 and achieving a 20bp margin reduction on its $50mn MTN, CFX cut its full-year EPS guidance to 13.6¢ (+3.9% on FY12), at the bottom of its previous 13.6-13.7¢ range given softer operating conditions. Full-year NOI growth is expected to be 1.5%, down from 2.4% in FY12. Our TP moves from $2.07 to $2.08. Sales improving, but still not keeping pace: CFX’s comp. annual specialty sales growth improved from 2.1% as of Dec to 2.5% as of March, supported by food and homewares. Department store growth remains weak (0%) but improved from -1.2% as of Dec. DFO growth also improved from 5.1% to 8.2%. In addition, we have seen higher margins reported across a number of retailers including JB Hi-Fi, Specialty Fashion and Pacific Brands. Despite these improvements, CFX’s fixed 5% bumps remain demanding, and we assume deterioration in releasing spreads from -2.1% to -5.5%, driving medium-term NOI growth of 2.6%. Our FY13-16F EPS CAGR is 3.6%. Emporium on track. Emporium is expected to be “substantially leased” by Dec, and fully leased by Jan. While the targeted initial yeild of >5% is below the blended 5.5% rate on the $600mn convertible notes originally used to fund the development, dilution should be reduced over time through lower funding costs as the convertibles expire and given income growth. Limited EPS/NAV drivers: With a full valuation, limited levers for EPS/NAV upgrades and continued operating pressures, we maintain UNDERPERFORM. We see limited scope for further capital management and believe CFX’s portfolio rotation strategy will be restricted as: (1) demand for CFX’s non-core assets remains thin, (2) tenant demand is insufficient to support new developments and (3) debt headroom is limited to fund growth. We assume 10bp tighter cap rates for CFX’s regional assets which leads to our NAV (and target price) lift from $2.07 to $2.08. We still prefer WRT.

Share Price 2.20 (AUD)

UNDERPERFORM

Target Price (from 2.07) 2.08 (AUD)

John Richmond Research Analyst 61 2 82054580

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508165&serialid=nHmspxizW5duLfvcvnTpqBiu7%2bxSUD6T1AN3EAzgOZw%3d


24 April 2013


Weak MarQ but full-year guidance unchanged Evolution Mining (EVN.AX)

Production of 84,251oz (CS: 82,111oz), well down on record DecQ (101.7koz) and the lowest quarter since the end of 2011. Production impacted by: (1) significant rainfall at Mt Rawdon, (2) flooding the pit and deferring access to high-grade ore (17.817koz, down from DecQ 26koz), (3) lower grade at Pajingo, (4) Edna May weaker throughput from maintenance, (5) crusher trials and power outages and Cracow lower mine production, and (6) grade and throughput from crusher challenges during wet weather. All operations were weak. Target price falls to $1.20/sh (from $1.35/sh), but rating moves to OUTPERFORM (from Underperform) on stock price weakness. No change to FY13 production guidance of 370-410koz, with a strong JunQ forecast (>100koz), particularly as Mt Rawdon is able to access higher grade ore in the base of the pit. Reserves upgraded, replacing mining depletion and adding ~six months

life across the asset suite with best upgrade from Pajingo—extending

reserve life to three years from 18 months and grade now in-line with recent head grade. Resource life is now 13 years and the promise of more to come from the Moonlight area which could be 250–500koz. Cash balance now only of A$7.4mn (DecQ: $49.2mn) and debt drawn of A$106.8mn at period end and to A$126.8mn currently, but Mt Carlton capital spend now completed and only the major cut backs at Mt Rawdon and Edna May remain to be completed. Capex to halve but needs to be in order to be able to cash break-even at current gold prices. Earnings changes reflect higher cost and slightly lower production assumptions. Costs continue to be a concern. At US$1,421/oz gold, all-in cash costs of US$1,353/oz before growth capital leaves little room for cash generation. TP falls to $1.20/share, rating moves to OUTPERFORM on stock price weakness. Spot NPV is at $0.94/share.


(from Underperform) OUTPERFORM


Michael Slifirski Research Analyst 61 3 9280 1845

Opposition’s mooted electricity market reform undermines value

Infratil (IFT.NZ)

Our target price for IFT has been lowered from $2.75 to $2.62 following our assessment of the potential valuation impact on TrustPower of the opposition parties (Labour/Greens) proposed electricity reform policy. We estimate that the proposed reform would potentially reduce our TPW valuation by 16% if implemented. Our TPW target price and valuation have been lowered by 45 cents (-5.6%) from $8.10 to $7.65, applying a 35% probability to the electricity sector reform being implemented as proposed by the opposition. The general election is still some time away (November 2014). Current polls pre this policy announcement suggest that the Labour/Greens have at best a 50% chance of forming the next government. At this stage it is unclear whether the opposition’s policy to move to state control of electricity prices (set at a lower level) has boosted or harmed the opposition’s political support. Poll results will become increasingly influential on listed electricity sector exposures including IFT. TPW’s share price has fallen around 50cps (-6.5%) since the opposition parties released their policy on electricity sector reform. The market value of IFT’s stake in TPW has declined by around NZ$80mn, equating to roughly 13 cents per IFT share. IFT’s shares are trading at a 9% discount to our spot NAV ($2.54 per share). Our 12-month target price is set at $2.62 which reflects our estimated 12-month valuation less a 10% holding company discount. IFT has flagged the potential sell-down of its investment in Z Energy via IPO. The expectation of IFT moving to a divestment bias combined with a commitment to an ongoing share buyback programme has helped reduce the discount to valuation and should remain supportive of performance. Near-term catalysts include annual results of IFT entities (Z Energy, TrustPower, and Wellington Airport). IFT report their FY13 result on 14 May.

Share Price 2.31 (NZD)

OUTPERFORM

Target Price (from 2.75) 2.62 (NZD)

Robert Bode Research Analyst 64 9 302 5555 This report is distributed in Australia by Credit Suisse Equities (Australia) Limited. Please see legal disclaimer and disclosure annex for further terms and information. Provided by First NZ Capital

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1014961581&serialid=s6xVv1bZcYMVT%2f8NXD3yQcO9eZN%2fwDVF9P7jUTYG31s%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508163&serialid=5tMCG28vAU1YPcmIOM%2bCmCpfI4wADqbJHM5uhVhEiVk%3d


24 April 2013


New Zealand: On track for lower profits Insurance Australia Group (IAG.AX)

IAG New Zealand’s strategy briefing: IAG hosted a strategy briefing on its New Zealand business which provided a high level summary of how the business is positioned, with a long-term insurance margin target of ~10%, below the current 11.5% being achieved. We have lowered FY14 earnings by 1.2% and retain our NEUTRAL rating and $5.75 target price. Insurance margin target: IAG said that they are targeting an underlying insurance margin of around 10% over the longer term, noting that they anticipate the underlying margin will be slightly higher in the short to medium term, consistent with the business’ recent performance (~11.5%). Synergies on track but not seen: IAG noted that the NZ$30mn of synergy savings from the AMI acquisition were tracking to plan, however, given the synergies could theoretically add a further 1.5% to IAG’s NZ insurance margin, a flat to declining margin guidance suggests that these synergies will be absorbed within the business. Earnings changes: We have removed the AMI synergies from our forecasts. This results in a 1.2% decrease to our FY14 NPAT, however, we continue to forecast a margin of ~12%, above management’s long-term target for NZ. Investment view: While the environment remains difficult for IAG’s New Zealand business and both Australia and New Zealand premium rate increase have already peaked, we expect margins to remain at current levels in the near-term with slight upward risk as premiums continue to earn-through the book. We retain our NEUTRAL rating and $5.75 target price and preference for QBE in the general insurance space.


NEUTRAL

Target Price 5.75 (AUD)

Andrew Adams Research Analyst 61 2 8205 4106

Mar-Q FuMAS slightly ahead of expectations IOOF Holdings (IFL.AX)

IFL reported FuMAS for the March quarter of $120.9bn, slightly ahead of our forecast at $119.3bn. We have increased EPS by 1-2% across the forecast period on higher closing FuMAS balances. Our target price moves to $9.00 (from $8.65). Retain a NEUTRAL rating. March quarter 2013 FuMAS: IFL reported FuMAS of $120.9bn as at 31 March 2013, up 4% from the December quarter, with FuMA (excluding funds under supervision) also up 4% at $88.9bn (CS at $119.3bn and $87.9bn, respectively). Net flows for the quarter were slightly negative, with net fund inflows for both the platform and advice segments offset by net outflows from investment management (albeit noting outflows were substantially lower than previous quarters). Flows into flagship platforms of $189mn were a record for the March quarter, while outflows associated with Global One and transition platforms showed improved trends. Net inflows of $130mn in the advice segment included a significant contribution from DKN products. Earnings changes: We have increased FY13E EPS by ~1% in line with a higher assumed FY13 closing FuMAS balance (impacting 2H13 average), with upgrades of ~2% in outer years reflecting the annualised impact of higher opening balances flowing through. Investment case: While we remain positive on earnings growth from recent acquisitions (DKN, Plan B) as well as capacity for further acquisitions (noting the strength of the balance sheet), we see IFL as fairly valued at current levels. That said, we do note the strong leverage of the business to rising markets given the largely fixed nature of the cost base, with any further uplift a key positive for IFL. Valuation: Our target price moves to $9.00 (from $8.60) which represents an equal weighting of our relative P/E and DCF valuations, with the increase reflecting both EPS upgrades and a higher market multiple.


NEUTRAL


David Bailey Research Analyst 61 2 8205 4739

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508166&serialid=W56co5HFj16yuAKqvf4XsbM8hzrfgejRCdLFxjtfQ78%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508149&serialid=T4QQL0EvkkHLAgtfgLKATAazZxU5HLqaR03VlZKURGQ%3d


24 April 2013


Production and equipment disappoints Mirabela Nickel (MBN.AX)

1Q production was weak at 4.15kt (CS: 5.18kt). While we knew the main crusher was undergoing maintenance, there was additional downside from nickel grades (0.47%, down from 0.53%) and recovery (56%, down from 59% but achieved while processing lower grade ore from the Central zone). MBN is guiding towards the lower end of an unchanged FY13 guidance of 22-24kt but this requires that every piece of equipment operates at full capacity. This would be a first – we lower our forecast to 20kt from 22kt. FY13 forecast losses increase from $31mn to $41mn. Crusher remains the key concern – on the call, management noted that consultants had been hired for a technical review of the primary crusher. The casing needs to be inspected for stress fractures (among other issues) and we expect an update in about 6 weeks. If the technical issues prove beyond basic maintenance, the crusher could be out for a while – in addition to the capex cost, mobile crushers will have to be leased – the secondary crusher can operate at 800/t but the plant requires 930t/h at budgeted capacity. One bright spot was the low $5.1/lb cash cost, despite “significant inflationary pressures”. Although partially driven by real productivity gains, the low cost was helped by strong by-product credits of $1.23/lb (from $0.91/lb in 4Q) following a lumpy PGM sale. Excess stripping above LOM average of 5:1 was also capitalised (6.3 in 1Q). In April, MBN replaced its own underperforming O&K 120t excavators with two larger Hitachi 2500 excavators run by mining contractor U&M, to be paid on performance. MBN expects operational improvements to outweigh higher contracted opex rates. While the 24% share price decline feels overdone, significant uncertainty remains while the crusher review is ongoing – MBN now faces real risk of opex/capex increasing but does not have cash to burn ($141mn cash but $50 debt payable in 2014 and $379mn in 2018). Despite a compelling long-term valuation ($0.50) we retain our NEUTRAL rating.


NEUTRAL


Paul McTaggart Research Analyst 61 2 8205 4698

MarQ - Cadia East and MOPU commissioning well Newcrest Mining (NCM.AX)

MarQ production was as expected, pre-empted by recent guidance downgrade on continuing Gosowong ground condition challenges and the late quarter Lihir autoclave issue which will impact the JunQ but is now fully resolved. Higher sequential production of 514,421 @ $799/oz up on DecQ’s 492,906 @ $727/oz driven by – Stronger Lihir from expansion commissioning ahead of the late quarter autoclave issue in the old plant, Cadia East from ramp up of higher grade underground production displacing lower grade stockpile ore, and marginally stronger Bonikro; Weaker Telfer from cyclone disruption and Gosowong from protracted high grade access challenges, and Hidden Valley, remaining unacceptable ahead of conveyor restoration. Cadia East and Lihir MOPU projects are progressing in line with expectations. Cadia East Draw Bell development, the determiner of production, is ahead of schedule. Successful commissioning of the main crusher and conveyor suggests a step increase in JunQ production. The recently downgraded guidance of 2-2.15moz is re-stated. Swift reaction to commodity prices with $50mn annual cost reduction (150 jobs cut) at a cost of ~$10mn will reduce corporate G&A by ~$12mn/year, with the balance of the costs within project study capital. All capital projects are under review. Cost or commodity price environment must improve to justify additional Telfer capital and life >5 years. Reserve life is materially longer. TP is revised down slightly to $24.20 (from $24.50); earnings changes of ~5-6% reflect more conservative cost and production profiles over the forecast period. Maintain OUTPERFORM.


OUTPERFORM



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508151&serialid=oF4q8lMS4TklZeGYrQ7246WOvG9g3F4KGUM5cXZ3NpE%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508192&serialid=l5%2bd5HaRPOZog%2bhOF%2fkyJqGuNcMPaUmNLqzmsGEXJqs%3d


24 April 2013


Modest 1Q miss, LNG remains on track Oil Search (OSH.AX)

Production numbers of 1.56mmboe slightly below CS expectations but FY guidance maintained at 6.2–6.7mmboe. Lower production at Kutubu which was impacted by two unplanned shutdown events was partially offset by gas and NGL from Hides. We lower our FY production target from 6.6mmboe to 6.4mmboe on the risk that there could be further shutdowns. PNG LNG more than 80% complete and remains on track for first LNG late 2014. Air strip operations are expected to commence in May and OSH will soon be able to supply commissioning gas to the LNG Plant. P’nyang studies progressed, with the use of gas for Train 3 the primary focus PNG LNG project finance discussions for the additional US$1.5bn progressing well, with “strong interest” from prospective lenders. If debt can be raised, OSH cash balance of $438.6mn (down from $480mn) and undrawn facility of $500mn is sufficient for completion at current capex guidance. Capex for the quarter was $406mn, including $285.9mn for PNG LNG. Slightly below full-year guidance of $1.9bn–$2.1bn due to lower spend on PNG ($1.5bn–$1.6bn guidance, including capitalised interest). Exploration was up to $65mn (from $45mn), with MENA seeing the largest increase at $12mn – subsequent to the reporting period oil flowed from the Euphrates Formation. Our FY13 NPAT is down $16mn or 8%: $10mn can attributed to increased exploration expensed from MENA (specifically, the Semda 1 well in Tunisia), with the remaining due to lower oil production for the year. This is immaterial to our valuation as PNG LNG makes up more than 80% of our SoTP which is unchanged at A$8.6/shr.


OUTPERFORM



MarQ weak, as expected PanAust (PNA.AX)

Weak MarQ with 13.753kt Cu as expected but marginally stronger than our forecast. MarQ is to be the weakest quarter on low Phu Kham grade of 0.46% Cu (DecQ 0.57%) and pre-JunQ commissioning of the recovery enhancement augmentation to the plant. We had forecast 13.5kt rising to 15.5kt in the JunQ (17kt SepQ). Guidance implies 1H of 29-30kt. No change to 2013 production or cost guidance despite weak MarQ. Lower production, lower gold prices delivered higher reported Phu Kham C1 cash costs of $1.28/lb vs our forecast of $1.40/lb (DecQ $1.15/lb). Weaker mill throughput of 16.5Mtpa annualised on planned shutdowns (DecQ 17.92Mtpa, SepQ 14.68Mt annualised from 12Mt nameplate). US$45mn recovery enhancement project (+6%) is progressing toward commissioning during JunQ, 2-3 months early with full production expected CY14, adding 5-7.5kt Cu and reducing C1 cash costs by ~5%. Ban Houayxai throughput was weaker, as expected, at 3.87Mt (DecQ 4.48Mt) annualised (4Mtpa nameplate on harder ore). Lower production on higher mining and grinding costs saw a sequentially higher C1 production cost. Management is examining a stockpile strategy for JunQ completion, looking to process potentially higher grade material, increasing stockpile size, and boosting near-term production. Cash came in at US$103.8mn (DecQ US$125mn), debt US$137mn (DecQ US$85mn) excluding equipment leases. TP drops to $2.50/sh (from $2.60) but NEUTRAL rating is unchanged.


NEUTRAL



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508103&serialid=8ajE0JbC%2bOah6QgtHLirvUo3iQz%2fn%2fF9fdc7f0eiOxY%3d


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24 April 2013


A good quarter but no solution Panoramic Resources (PAN.AX)

Q3 production in line with CS at 4.7kt nickel contained (1.9kt Savannah, 2.8kt Lanfranchi). Guidance narrowed from 18.5–19kt (CS: 18.5kt) from 18–19kt nickel. Cash costs of $6.2/lb also in line (CS: 6.2/lb) but down significantly from A$7.12/lb in previous quarter. A solid quarter with no bad surprises but PAN had already guided towards these numbers on 16 April. Our forecast NPAT changes by less than $1m over the next three years. Cost savings kicking in…: Discretionary savings amount to $2.5mn for the quarter and is the first sign of the earlier announced $10–15mn annualised cost reduction. Work force has been reduced by 5% and payroll by 5–10%. …but still consuming cash: Free Cash flow from operations was $9m in the quarter but this includes a $6m reduction in receivables for a $3m net operating cash flow (no update on payables or inventory). With liquid assets down $8m, this suggests capex and exploration of ~$11m. Roughly $7m was spent of progressing gold projects which leaves $4m for maintenance capex. $3m operating cash flow net of $4m maintenance capex gives an operating loss of $1m. Liquid assets sit at $54m (from $62m the half) with $37m cash ($13.5m debt). A dividend of $2.7m will be paid out in May. Corporate solution still required: Despite an improved quarterly result, PAN is still not making money and is no closer to funding its expansion projects. While PAN likely hopes it can last until its gold DFSs (Gidgee and Mt. Henry) are finished at the end of the year, it looks like it is cutting it close with cash spends near $10m per quarter. And this was while nickel prices were close to $1/lb higher than the current $6.9/lb. Despite trading at a significant discount to our DCF $0.62/lb, we retain our NEUTRAL rating.


NEUTRAL



FY13 shortfall but not by much Sonic Healthcare (SHL.AX)

Reviewing FY13 forecasts: We have quantified SHL’s required 2H13 underlying EBITDA growth to reach the low end of its guidance range (i.e., ~5% growth in constant currency). The analysis shows that SHL needs to grow 2H13 underlying EBITDA by ~11% vs ~5% in 1H13. This is due to a number of factors that will reduce reported earnings, in particular, quotas and fee cuts in Germany, AUS and the US. With no evidence of change in underlying volume growth rates by region between 1H13 and 2H13, it seems cost-out is left as the only lever to reach guidance. While we acknowledge the opportunity SHL has in the US division to drive cost-out, we believe this will be a FY14 story with only limited impact in 2H13. We now assume 2H13 pathology EBITDA growth of 7.5%, slightly ahead of the implied 1H13 growth rate (using the weighted revenue growth method). We have decreased FY13F NPAT by ~4% and forecast EBITDA of A$631.5mn, implying constant currency growth of 2.5% – below guidance but not materially so. Our target price (A$13.50) and NEUTRAL rating remain unchanged. Investment case: Despite the modest downside risk to guidance, we note SHL is trading on a lower multiple relative to closest peer PRY (20% discount to the long-term average), with a healthy dividend yield that does not appear to be at risk. We therefore see the stock as fair value. That said, with no apparent acceleration in the US volume growth and the potential for additional CMS fee cuts (cytopathology/immunohistochemistry flagged) as well as German quotas, a material cost out programme seems key to generating material earnings growth in FY14. Catalyst: AUS monthly Medicare data (March data due out tomorrow). Valuation: SHL is trading on 15x FY14F CS EPS, a slight premium to its five-year average of 14.4x.


NEUTRAL



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508168&serialid=Z6J9iUFNNz%2fYiVEZPVa7sjcKGA76%2fppnoMtFKv0eUy8%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508179&serialid=V7NlOgMTIaoVAcD5xzm0ytXM6L%2faqwGzhAxykAZSLOc%3d


24 April 2013


Capital raising to fund new store opportunity The Reject Shop (TRS.AX)

TRS is raising up to $40mn in new equity through a fully underwritten placement ($30mn) and SPP (up to $10mn). The raising will fund approximately $44mn of cash outflows associated with accelerated store openings. Access to new sites in an earlier-than-expected timeframe is a positive development, although the placement price looks full relative to FY14 earnings accretion. The placement represents 7% of shares on issue. The placement price is $16.20, which represents a 1% discount to five-day VWAP. The additional $10mn SPP, if fully subscribed would cause total shares on issue to increase by 9%. We have increased our FY13 store opening costs forecast to $1.8mn, previously $1.0mn, which drives the downgrade to FY13 earnings. Additional stores in FY14 deliver EBIT of $1mn (+3%) after store opening costs (40 stores versus 20 previously forecast) and $3.0mn (+6%) to EBIT in FY15. The benefits of store openings to group earnings fails to offset the dilution impact of the equity raising, causing our EPS forecasts to decline 5% and 2% in FY14 and FY15, respectively. We have not adjusted our valuation for TRS at this time.


UNDERPERFORM


Grant Saligari Research Analyst 61 3 9280 1720

Acquisition hurdle cleared, execution risks remain Virgin Australia Holdings (VAH.AX)

Event: On 23 April 2013, the Australian Competition and Consumer Commission (ACCC) announced that it would not oppose Virgin Australia’s 60% acquisition of Tiger Airways Australia. Investment case: We see today’s announcement as strategically positive for Virgin Australia. A 60% stake in Tiger Australia with no minimum capacity guarantees gives Virgin’s management another platform to compete more effectively against Jetstar (Qantas) in the Australian domestic LCC market. However, while we agree with the acquisition in principle, without further information we continue to believe there are many execution-related risks, potentially bringing into question whether the deal is value accretive for shareholders over the medium to longer term. Tiger Australia is at present without strong management, has recurring losses and needs to aggressively grow scale to achieve profit, which in our view is likely to keep pressure on already weakened yields. Furthermore, in the longer term it remains unclear whether Tiger Australia has a materially lower cost base than Jetstar. Consolidation: We are yet to consolidate financial accounts given the acquisition still requires FIRB approval as well as having to pass a number of Virgin management’s internal criteria. As well, no timeline has been given for the final completion of the deal. Catalysts: i) approval of the deal by FIRB, ii) high quality Tiger Australia management hires, iii) ongoing domestic yield recovery and, iv) oil pricing. Valuation: Target price and earnings remain unchanged.


OUTPERFORM


Nicholas Markiewicz Research Analyst 61 2 8205 4400

https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508096&serialid=Y5g4Q9OrMBN697%2bwC7zIAjruBOsx11QZOwY1aob0ghE%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508157&serialid=4Sd%2fQLOAj2kfAgh%2feSBlCObmJ%2fGcJEyrsHlfEASYmTI%3d


24 April 2013


Quarterly coal production and price negotiations Wesfarmers (WES.AX)

Coal production and price updates: WES has announced March quarter Curragh coal production of 2,267kt (CS 2,300kt), 15.2% lower than 2Q13. Wet weather associated with Cyclone Oswald was cited as interrupting activity. Metallurgical coal production decreased 15.4% to 1,535kt and thermal production declined 14.8% to 732kt. WES’ share of quarterly production at Bengalla was 706kt, down 14.6% on the previous quarter. Curragh’s sales guidance was maintained at 7.5–8.0mn tonnes in FY13. Price negotiations for the June quarter: WES has concluded price negotiations for the June quarter with a weighted average US$FOB metallurgical coal price of $167/tonne, up 4% on the previous quarter. Carry-over for the quarter is expected to be 25%, producing an average price increase of 3%. The fourth-quarter price outcome is marginally ahead of the previous CS forecast of $160/tonne. Valuation: We have made negligible changes to earnings forecasts as a result of the update. Our target price of $35.58 remains the average of our $36.95 DCF valuation and $34.20 SOP valuation.


UNDERPERFORM


Grant Saligari Research Analyst 61 3 9280 1720

Solid 3Q production result Western Areas NL (WSA.AX)

Mine production at 7.146t (CS: 6.7kt), split between Flying Fox at 4.1kt and Spotted Quoll 3.1kt – a beat vs. our expectation due to a faster ramp-up and higher grades of SQ. WSA noted it was on track to meet its guidance of 27.5kt nickel in ore but having already produced 21.6kt we view this as conservative and increase our forecast to 28.4kt nickel (from 28.3kt). Mill production was at 6,611t and concentrate sales at 6,845t. Average reported cash cost at A$2.86/lb (CS: $2.81/lb) for a YTD average cost of A$2.75/lb (or an estimated total payable cash cost at US$5.1/lb). This remains well within the guidance of A$3.0/lb and will keep WSA operating cash flow positive, even at $6.90/lb spot prices. Cash from operations at $26.7mn for a total cash balance of $84.5mn and net debt of $130mn. We would need to assume nickel prices below A$7/lb for three years before debt repayment would become an issue. Total capex of $15.6mn (CS:$24mn), down substantially as most infrastructure associated with SQ has been completed. We don’t expect any major new investment until a decision has been made on the expansion of the Cosmic Boy concentrator or development of the New Morning and Sunrise deposits. NPAT is up $3mn in FY13 on slightly higher production. While the EPS changes are immaterial, lower capex spend increases our DCF to $4.24/sh (from $4.11/sh). We retain TP at $4.0, set at a modest discount to DCF to reflect current depressed nickel pricing. At spot nickel prices our DCF declines to $1.9/sh and we view WSA a relatively safe play (vs. junior peers) leveraged to even a small rebound in nickel prices. Retain OUTPERFORM.


OUTPERFORM



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508111&serialid=2xpDDLtngiT9DLnGT9xjuKl5brnYUWDGm6AKwShq6%2fA%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508137&serialid=YZto3ulOKrAfqb9ENbgEjY2OpdcXZvsvvy6ZZ6uPm4I%3d


24 April 2013


Special dividend plus raising payout ratio Woodside Petroleum (WPL.AX)

Capital management: WPL has announced a fully franked US$0.63 special dividend (US$520m) to be paid on 29 May, ex dividend date for entitlement is 30 April. The Board has also raised its target payout ratio to 80% of underlying NPAT and said, “the payout ratio is expected to be maintained for several years”. This will apply to FY13 and is in addition to the special dividend implying total dividends of US$2.45 on our forecasts. Given the franking balance was over US$3bn, we expect future dividends to be fully franked. The DRP continues to be suspended. WPL div. yield now rivals Aussie banks: We have adjusted our WPL model – FY13 div. yield is 6.4% falling to 6.2% in FY14. Gearing (ND:ND+E) in FY3/14 is a modest 13%/10% moving to net cash in FY17. ROE is now forecast at 12%/15% for FY13/14. Banks trade on a div. yield of ~5.5% so investors now have another yield play to consider. Higher share price makes it easier to deal with the Shell stake: With WPL’s shares up 10% today and B/S capacity, we wouldn’t rule out selective buy back of a portion of Shell’s 23.1% stake. Shell may accept a ~7% discounted price (A$35 in hand but $A40 grossed up for franking) presuming it can access the franking – effectively splitting the benefits with WPL. For WPL this would be value accretive given our ~A$38 DCF SOTP valuation. Valuation unchanged: From a purely valuation perspective, we would have preferred an offmarket buyback which, putting aside Shell considerations, could have been effected at a ~14% discount to the market. We have rolled forward our valuation to Jan 2014 and adjusted for the dividend payment. Our valuation is now A$37.8/share and our target price is unchanged at A$38.5.


NEUTRAL



RESULT PREVIEW

3Q result preview; reports on 26 April ResMed Inc. (RMD.AX)

RMD reports 3Q13 results on 26 April AEST: We forecast revenues of US$391mn (12% constant currency growth), gross margin (including D&A) of 62.0%, US$4.0mn hedge gain and US$86.8mn NPAT (up 34% on pcp). Focus areas: (1) US mask sales – RMD posted strong 16% pcp growth in 2Q13, ahead of 1Q13 at 13%. Despite FPH and Respironics releasing new masks RMD still managed to post high growth. We still expect a degree of competitive pressures to materialise and forecast 12% growth in 3Q; (2) US flow generator sales growth – we expect growth of 13% primarily driven by APAP sales; (3) RoW constant currency sales growth (CS forecast 11%) and impact of EUR macro factors on result (austerity and pricing, general patient demand); (4) gross margin and contributions from manufacturing efficiencies/shift to Singapore – we expect margin uplift as proportionate production moves from Sydney; and (5) number of shares repurchased in the quarter (CS forecast 1.0mn). Share price implications: RMD is trading at 19.0x 12-month forward consensus EPS, in line with its three-year average. Clearly uncertainty remains over future US pricing following low Rd 2 competitive bidding rates; however, the market has factored in only 11% EPS growth in FY14 (CS at 8%), well below the 20% average since FY03. In addition the impact of competitive bidding on RMD (if at all) is unlikely to be seen until 1Q/2Q FY14. Positive earnings surprise in the 3Q13 result is likely to see the stock re-rate higher, which would not be unexpected given the slow but ongoing US economic recovery and growing awareness of OSA.


NEUTRAL



https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508154&serialid=8CPJ1tST2W5xYdlBdUGvNU9K6%2f%2b09SmlrL64%2fCkAi9g%3d


https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x508156&serialid=vJMA19sOTtkTmPMv0lT87Za6nBzZb0vT3vE6e1yBleE%3d


24 April 2013


STRATEGY & ECONOMICS

Opposition party electricity sector reform proposals – draining power from NZ equities

NZ Equity Market

The Labour and Green parties announced on April 18 a joint policy on the NZ electricity system which they propose to implement if they win the next election – due by November 2014. Key points of this policy proposal include: The establishment of NZ Power – a new independent Crown entity – which will act as a single buyer of wholesale electricity and will have the power to set prices. Each generator will be paid a fair return for their actual costs. The fair return will be calculated by NZ Power “on the basis of their historic capital costs, possibly adjusted by inflation, plus operating costs like fuel depreciation and maintenance”. In support of its proposed Electricity Reform Policy, the Labour party refers to a paper prepared by Berl Economics which models the economic impact on the NZ economy of the proposed electricity price changes. These estimates suggest a rise in GDP of 0.2% (NZ$450mn), a lowering of the CPI by 0.2-0.3%, together with a rise in employment of 5,000-7,000 employees. In our view, Berl’s estimates surrounding the economic impact of a one-off reduction in the user cost of electricity leaves out a number of potentially significant negative effects. In particular, their modelling appears to omit the incorporation of the likely financial market effects and the potential negative feedback loop back into the domestic economy resulting from the implementation of the NZ Power policy. We assess that the implication of a move towards the establishment of a government agency to act as a single buyer of wholesale electricity would be a negative for the NZ equity market. In our view such a policy implementation would elevate concerns regarding potential regulatory risk in the NZ equity market, together with increased uncertainty surrounding the risk of further government interventions in markets. We would expect such interventions to have an adverse impact on the cost of capital (debt and equity) from both domestic and foreign providers. In the run-up to the 2014 general election we would expect the equity market to focus on policy releases of the Labour and Green parties and on poll results to assess the chances of a Labour/Green coalition forming the next government.

Chris Green Research Analyst 64 9 302 5509

This report is distributed in Australia by Credit Suisse Equities (Australia) Limited. Please see legal disclaimer and disclosure annex for further terms and information. Provided by First NZ Capital

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24 April 2013

Asia Pacific/Australia

Equity Research

Healthcare Facilities / Medical Supplies & Devices

Australian Healthcare COMMENT

Growth in US doctor visits not evident in 1Q

lab results

■ More doctor attendances but cautious on read-throughs: US physician

attendance data for the month of March has been released by IMS Health.

Physician office attendance (including GPs and all specialist visits) is

generally a useful proxy for laboratory referrals, while family office (GP)

attendance serves as a reasonable trend proxy for RMD’s US flow generator

sales trends. For the quarter ended Mar-13, physician office attendance

was up 4.6% vs. pcp (up from 2.6% at February), while family office

attendance was up 2.3% vs. pcp (2.1% at Feb). As shown in Figure 1

these rates have improved over recent months.

■ SHL: It remains to be seen whether doctor attendance growth will be

sustained into 2H FY13. What does seem apparent is that the recent uplift is

not flowing through to pathology volume “green shoots” – Labcorp and

Quest reported muted / negative volume growth in 1Q CY13. Lack of volume

recovery likely reflects market share losses to hospitals and physician office

labs as well as general lack of health care utilisation due to an increase in

insurance policies with higher patient deductibles/co-pays.

■ RMD: While sustained improvement would be positive, US flow generator

sales trends typically lag family office attendance by one quarter. Hence, for

RMD’s 3Q FY13 result, family office attendance in the Dec-12 quarter will be

most relevant. As shown in Figure 2 (overleaf), one could interpret the data

as suggesting downside risk to our forecasts (given DecQ attendance

growth was low compared to Sep/Jun quarters); however, in our view the

discrepancy can be attributed to RMD’s market share gains via APAP up-

take in the US. Similar divergence was seen in FY10 (S9 release).

■ Stock Calls: We maintain our Neutral ratings on SHL and RMD; target

prices (A$13.50 SHL, A$4.60 RMD) and earnings remain unchanged.

Figure 1: US physician and family office (GP) attendance – pcp qtr growth

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Physician office attendance (pcp qtrly growth) Family practice (pcp qtrly growth) Source: IMS data, Credit Suisse estimates

Research Analysts

Saul Hadassin

61 2 8205 4679

[email protected]

William Dunlop, CFA

61 2 8205 4405

[email protected]

24 April 2013


Figure 2: RMD US flow gen growth (pcp) vs. US family practice attendance lagged 1Q

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Introduction of S9 platform led to RMD's US flow gen growth outpacing family practice attendances

Disparity due to increased demand for RMD's APAP machines?

Source: Company data, Credit Suisse estimates

Figure 3: US physician and family office (GP) attendance – 12-month rolling average growth

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Physician office attendance (12mth rolling growth) Family practice (12mth rolling growth) Source: IMS

24 April 2013


Figure 4: Financial summary

Sonic Healthcare (SHL) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$13.15 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating c_EPS_SHARESEquiv. FPO (period avg.) mn 390.2 391.8 397.9 404.5 409.0

Target Price A$ 13.50 c_EPS*100EPS (Normalised) c 75.5 80.7 82.4 90.5 97.0

vs Share price % 2.66 EPS_GROWTH*100EPS Growth % 6.9 2.1 9.9 7.1

DCF A$ 13.50 c_EBITDA_MARGIN*100EBITDA Margin % 18.4 18.7 18.8 19.3 19.5

c_DPS*100DPS c 59.0 59.0 61.0 66.5 71.3

c_PAYOUT*100Payout % 78.2 73.1 74.0 73.4 73.5

FRANKING*100Franking % 28.0 40.9 45.0 45.0 45.0

c_FCF_PS*100Free CFPS c 70.0 89.2 85.3 91.8 98.4

Profit & Loss 06/11A 06/12A 06/13E 06/14E 06/15E c_TAX_RATE*100Effective tax rate % 24.6 24.0 25.1 25.3 26.0

Sales revenue 3,090.1 3,342.8 3,470.2 3,691.6 3,909.3 ValuationEBITDA 570.1 624.1 651.8 713.4 763.1 c_PE P/E x 17.4 16.3 16.0 14.5 13.6

Depr. & Amort. (114.9) (132.1) (140.0) (146.9) (151.7) c_EBIT_MULTIPLE_CURREV/EBIT x 14.8 13.8 13.0 11.5 10.4

EBIT 455.2 492.1 511.8 566.5 611.4 c_EBITDA_MULTIPLE_CUEV/EBITDA x 11.8 10.9 10.2 9.1 8.3

Associates 0.0 0.0 0.0 0.0 0.0 c_DIV_YIELD*100Dividend Yield % 4.5 4.5 4.6 5.1 5.4

Net interest Exp. (64.8) (74.1) (65.1) (66.1) (64.5) c_FCF_YIELD*100FCF Yield % 5.3 6.8 6.5 7.0 7.5

Other 0.0 0.0 0.0 0.0 0.0 c_PB Price to Book x 2.0 2.0 1.9 1.8 1.7

Profit before tax 390.4 417.9 446.7 500.5 546.9 ReturnsIncome tax (95.9) (100.2) (112.2) (126.7) (142.2) c_ROE*100Return on Equity % 11.7 12.2 11.9 12.5 12.9

Profit after tax 294.5 317.7 334.6 373.8 404.7 c_I_NPAT/c_I_SALES*100Profit Margin % 9.5 9.5 9.4 9.9 10.1

Minorities 0.0 (1.7) (6.8) (7.5) (8.2) c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.7 0.7 0.7 0.7 0.7

Preferred dividends 0.0 0.0 0.0 0.0 0.0 c_ASSETS/c_EQ_COMMONEquity Multiplier x 1.9 1.9 1.9 1.8 1.8

Associates & Other 0.0 0.0 0.0 0.0 0.0 c_ROA*100Return on Assets % 6.2 6.4 6.4 6.9 7.2

Normalised NPAT 294.5 316.0 327.8 366.2 396.6 c_ROIC*100Return on Invested Cap. % 8.5 8.9 9.0 10.0 10.7

Unusual item after tax 0.0 0.0 0.0 0.0 0.0 GearingReported NPAT 294.5 316.0 327.8 366.2 396.6 c_GEARING*100Net Debt to Net debt + Equity % 37.9 37.6 34.2 30.4 26.4

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 2.7 2.5 2.2 1.8 1.5

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x 8.8 8.4 10.0 10.8 11.8

Cash & equivalents 174.7 168.6 275.6 435.9 605.8 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 7.0 6.6 7.9 8.6 9.5

Inventories 53.4 55.7 62.0 65.5 69.3 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 4.4 4.1 4.5 3.8 3.7

Receivables 402.9 447.8 469.7 499.3 529.6 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 144.0 124.1 134.6 115.0 115.0

Other current assets 37.0 42.7 38.7 38.7 38.7

Current assets 667.9 714.8 846.0 1,039.4 1,243.4 MSCI IVA (ESG) Rating AAProperty, plant & equip. 552.0 561.4 622.7 640.8 659.5 TP ESG Risk (%): -2

Intangibles 3,408.0 3,549.2 3,580.9 3,555.1 3,528.0

Other non-current assets 84.9 103.4 79.5 79.5 79.5

Non-current assets 4,045.0 4,214.0 4,283.0 4,275.4 4,267.0

Total assets 4,712.9 4,928.8 5,129.0 5,314.8 5,510.4

Payables 233.7 277.3 283.9 300.0 316.9

Interest bearing debt 1,710.3 1,739.7 1,726.0 1,726.0 1,726.0

Other liabilities 252.5 301.7 328.1 335.1 341.6 MSCI IVA Risk: Neutral

Total liabilities 2,196.5 2,318.6 2,337.9 2,361.0 2,384.5

Net assets 2,516.4 2,610.2 2,791.1 2,953.7 3,125.9

Ordinary equity 2,514.4 2,589.5 2,766.4 2,921.5 3,085.5

Minority interests 2.0 20.7 24.7 32.2 40.4

Preferred capital 0.0 0.0 0.0 0.0 0.0

Total shareholder funds 2,516.4 2,610.2 2,791.1 2,953.7 3,125.9

Net debt 1,535.6 1,571.1 1,450.4 1,290.1 1,120.2 Source: MSCI ESG Research

Cashflow 06/11A 06/12A 06/13E 06/14E 06/15E Share Price Performance

EBIT 455.2 492.1 511.8 566.5 611.4

Net interest -65.8 -69.7 -62.1 -66.1 -64.5

Depr & Amort 114.9 132.1 140.0 146.9 151.7

Tax paid -75.9 -64.6 -87.7 -119.7 -135.7

Working capital 0.0 0.0 -20.4 -17.0 -17.2

Other -19.3 -3.1 0.7 0.0 0.0

Operating cashflow 409.0 486.8 482.4 510.6 545.7

Capex -135.8 -137.2 -155.4 -139.2 -143.3

Capex - expansionary 0.0 0.0 -12.5 0.0 0.0

Capex - maintenance -135.8 -137.2 -142.9 -139.2 -143.3

Acquisitions & Invest -300.0 -160.2 -30.2 0.0 0.0

Asset sale proceeds 0.0 0.0 0.0 0.0 0.0 'The sum of interim and final must equal total dividend per share'

Other -33.1 -38.4 0.9 0.0 0.0

Investing cashflow -468.9 -335.7 -184.7 -139.2 -143.3

Dividends paid -229.2 -231.0 -202.9 -253.7 -276.2

Equity raised -1.8 21.7 32.7 42.5 43.7

Net borrowings 166.6 55.2 -22.1 0.0 0.0

Other -0.2 0.0 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -64.7 -154.1 -192.3 -211.1 -232.5 Absolute -5.0% -1.2% 6.3%

Total cashflow -124.5 -3.1 105.4 160.3 169.9 Relative -5.0% -4.9% -7.8%

Adjustments -1.1 -3.0 1.6 0.0 0.0

Net change in cash -125.7 -6.1 107.0 160.3 169.9 Source: Reuters 52 week trading range: 12.10-14.29

MSCI IVA Risk Comment: AA' rating. Cited for not showing

compliance with ISO 9001 / quality management standards. We do

not expect this to change in the near term, and further, do not

consider it meaningful to SHL's business. Negative risk is limited in

our view given the mature nature of pathology businesses and

strong government regulation of the industry in most countries in

which SHL operates.

23/04/2013 9:54

Sonic Healthcare is one of the world's largest medical diagnostics companies, providing

laboratory and radiology services to medical practitioners, hospitals, community health

services, and their collective patients.

Credit Suisse View

TP Risk Comment: Limited ESG risk for SHL - its business has

little social and environmental risk. SHL's governance is adequate,

and poses the greatest risk out of each of the three ESG

categories, particularly given SHL's relative lack of disclosure

(although it is compliant with ASX/ASIC requirements) compared

to peers. Our ESG risk is calculated by adding a small risk

premium to our DCF discount rate.

NEUTRAL

10.87

11.37

11.87

12.37

12.87

13.37

13.87

14.37

14.87

15.37

10/04/2012 10/06/2012 10/08/2012 10/10/2012 10/12/2012 10/02/2013 10/04/2013

SHL.AX XJO

2.3

3.3

4.3

5.3

6.3

7.3

Environment Social Governance

Stock Local Sector

Country Global Sector


24 April 2013



ResMed Inc. (RMD) Year ending 30 Jun In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$4.36 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating c_EPS_SHARESEquiv. FPO (period avg.) mn 1,566.7 1,485.8 1,466.5 1,468.7 1,472.0



DCF US$ 4.60 c_EBITDA_MARGIN*100EBITDA Margin % 27.1 27.8 29.7 29.8 30.1

c_DPS*100DPS c 0.0 1.7 7.2 8.3 9.2

c_PAYOUT*100Payout % 0.0 9.9 32.7 34.0 34.0








Net interest Exp. 26.0 29.1 33.4 36.8 42.8 c_FCF_YIELD*100FCF Yield % 3.1 5.1 4.6 5.3 5.7

Other 10.7 8.4 (0.2) 0.0 0.0 c_PB Price to Book x 4.1 4.1 3.6 3.4 3.1



Minorities (0.0) (0.0) (0.0) (0.0) (0.0) c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.6 0.6 0.6 0.6 0.6




Unusual item after tax 0.0 0.0 0.0 0.0 0.0 GearingReported NPAT 227.0 254.8 323.1 356.6 397.9 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash Net Cash Net Cash Net Cash

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -13.0 -13.1 -13.5 -13.2 -12.4

Cash & equivalents 735.3 809.5 1,040.7 1,228.0 1,441.2 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -10.2 -10.1 -11.2 -11.1 -10.6




Current assets 1,292.5 1,361.2 1,656.7 1,879.8 2,134.6 MSCI IVA (ESG) Rating BProperty, plant & equip. TP ESG Risk (%): -3

Intangibles 283.4 311.0 332.6 322.6 312.6


Non-current assets 776.5 776.7 790.8 777.5 772.2

Total assets 2,068.9 2,137.9 2,447.5 2,657.3 2,906.8

Payables 159.0 182.4 206.6 222.7 237.4

Interest bearing debt 100.2 250.8 330.7 390.3 449.9

Other liabilities 79.0 97.0 92.5 94.0 96.7 MSCI IVA Risk: Positive

Total liabilities 338.2 530.2 629.8 707.0 784.0

Net assets 1,730.7 1,607.6 1,817.7 1,950.3 2,122.8

Ordinary equity 1,730.7 1,607.6 1,817.7 1,950.3 2,122.8




Net debt -635.1 -558.7 -710.0 -837.7 -991.3 Source: MSCI ESG Research


EBIT 266.9 294.4 374.1 408.9 454.5

Net interest 26.0 37.5 33.2 36.8 42.8

Depr & Amort 70.5 85.7 76.6 76.4 76.3

Tax paid -128.5 -21.7 -83.4 -87.7 -96.7

Working capital -19.6 64.2 -39.0 -19.6 -27.0

Other 67.8 -77.0 -0.6 0.0 0.0


Capex -66.6 -47.1 -56.5 -63.1 -71.0

Capex - expansionary 0.0 0.0 0.0 0.0 0.0




Other 12.5 -2.5 4.2 0.0 0.0


Dividends paid 0.0 0.0 -101.7 -118.6 -132.3

Equity raised 94.7 62.5 117.2 93.4 113.8

Net borrowings -25.2 144.4 44.6 59.6 59.6

Other -148.8 -384.0 -142.5 -198.8 -206.9 1 Month 3 Month 12 Month

Financing cashflow -79.3 -177.1 -82.3 -164.4 -165.8 Absolute 1.9% 3.1% 46.3%

Total cashflow 127.3 104.4 221.0 187.3 213.2 Relative 1.9% -0.7% 32.2%

Adjustments 119.2 -30.2 10.1 0.0 0.0

Net change in cash 246.5 74.3 231.1 187.3 213.2 Source: Reuters 52 week trading range: 2.97-4.58

MSCI IVA Risk Comment: BB' rating. RMD's rating suffers as it

does not disclose initiatives to improve healthcare in developing

regions, nor does it provide evidence of anti-corruption measures.

RMD was also penalised for a lack of carbon emission

disclosures. In our view, RMD's disclosure on carbon should

improve as the carbon tax legislation in Australia becomes

operative. As such, we believe ESG risk is positively skewed

23/04/2013 10:05

The Company, through its subsidiaries, is a developer, manufacturer and distributor of medical

equipment for treating, diagnosing, and managing sleep-disordered breathing and other

respiratory disorders.

Credit Suisse View

TP Risk Comment: Some risk regarding governance - CEO Peter

Farrell is the founder of the company and also Chaiman. Further,

his son is a senior executive. The company has had a clean ESG

track record and we expect, as a manufacturer that it will meet

carbon tax / emissions disclosure requirements as needed. Our

ESG risk is calculated by adding a small risk premium to our DCF

discount rate.

NEUTRAL

2.61

3.11

3.61

4.11

4.61

10/04/2012 10/06/2012 10/08/2012 10/10/2012 10/12/2012 10/02/2013 10/04/2013

RMD.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7

8.7


Stock Local Sector




24 April 2013


Equity Research

Diversified Metals & Mining

Australian Iron Ore Miners SECTOR REVIEW

Benchmarking the Australian Iron Ore Miners

■ Iron ore miners’ plans and costs have been changing and so we revise

our benchmark to test margins under a potentially lower iron ore price.

We use an iron ore index price of $100 CFR and parity AUD/USD. FMG has

separated itself from the smaller iron ore miners with its stronger margins,

but cash margins remain less than half of those of BHP and RIO on our

estimate. FMG’s cash margins vary little if the minority sell down of the port

and rail infrastructure (TPI) is included. Lower interest payments offset most

of the cash leakage to the minority investment partner.

■ We consider investors are becoming less tolerant of endless growth capex

plans by companies, especially with iron ore supply expected to exceed

demand. FMG is due to finish its capex spend in CY13, well ahead of RIO.

We forecast FMG’s free cashflow yield will be double that of RIO’s in 2015.

■ BHP and RIO’s margins remain a long way ahead of other miners due

to higher grades and lump premiums providing higher received costs, while

low stripping ratios maintain low mining costs. FMG’s costs are falling with

the lower cost Solomon orebodies, but the high stripping ratio of the

Chichester mines, lower iron grades and a lack of lump will not allow it to

challenge the margins of RIO and BHP. The junior iron ore miners margins

are another step below FMG. The Karara magnetite has the next highest

margin, but the hematite ore from the Karara project is unlikely to break—

even at an iron ore price below $120/t.

Figure 1: Australian iron ore miners margins after all-in cash costs

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-15

-10

-5

0

5

10

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25

30

35

40

45

RIO BHP FMG FMG sell-down

GBGMag

ARIM'bck

AGO MGX ARI Sthn GBGHem

Cash m

arg

in (

US

$/t

)

CASH MARGIN Dec-13 CASH MARGIN Jun-15


Research Analysts

Matthew Hope

61 2 8205 4669

[email protected]

Michael Slifirski

61 3 9280 1845

[email protected]

Sam Webb

61 3 9280 1716

[email protected]

24 April 2013


Benchmarking the Australian iron ore miners

With China’s economic data looking disappointing and steel prices subsiding, investors

have become wary of iron ore miners. Since we last benchmarked iron ore miners in

October 2012, the strategies and costs of many of the miners have altered, so we have

repeated the analysis to see how the miners received prices and costs compare now.

As with our previous analysis, we use an iron ore price of $100/t CFR, and an AUD/USD

at parity as these seem convenient and intuitive levels that allow investors to gauge how

the miners margins look under substantially lower iron ore prices than present. We include

all costs that comprise a necessary cash outflow for the mines to operate, including

sustaining capex, corporate costs and financing charges. We focus on cash margins

rather than costs alone because received prices vary greatly.

Figure 2: DecH13 received price cost and margins at US$100/t CFR iron ore and parity AUD/USD

BHP RIO FMG FMG AGO MGX GBG GBG ARI ARI

WAIO WAIO 100% TPI sell-

down

Hem Hem Hem Mag M'Back South'n

Iron ore 62% CFR US$/dmt 100 100 100 100 100 100 100 100 100 100

AUDUSD US$/dmt 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Received price US$/wm

t

94.1 94.0 83.2 83.2 78.5 86.8 83.2 121.0 83.0 84.6

Mining cost US$/wmt 36.7 36.7 21.5 36.9 40.0 48.8 26.0 28.0

Port and Rail US$/wmt 4.8 11.1 26.8 12.1 28.5 28.5 15.0 26.7

C1 cash cost US$/wm

t

29.7 27.7 41.5 47.9 48.2 49.1 68.4 77.3 41.0 54.7

Royalties US$/wmt 6.3 6.3 5.1 5.1 5.3 5.2 4.7 2.5 1.0 3.4

Shipping US$/wmt 10.0 10.0 10.7 10.7 12.0 17.8 20.0 20.0 20.0 20.0

Total operating costs US$/wm

t

46.0 44.0 57.4 63.7 65.6 72.1 93.2 99.8 62.0 78.1

Sustaining capex US$/wmt 5.0 5.0 6.5 6.5 3.2 5.0 2.2 2.4 4.0 4.0

Net Interest US$/wmt 3.5 2.3 6.6 6.1 1.1 1.0 7.0 7.0 1.3 1.3

Corporate costs US$/wmt 1.0 1.0 1.0 1.0 3.0 2.5 0.6 0.6 8.3 1.8

Total cash costs US$/wm

t

55.5 52.3 71.5 77.3 72.9 80.6 103.0 109.9 75.6 85.2

add TPI EBITDA US$/wmt 4.3

EBITDA margin US$/wmt 48.1 50.0 25.8 23.8 12.9 14.7 -10.0 21.2 21.0 6.5

Total cash margin US$/wm

t

38.6 41.7 11.7 10.2 5.5 6.2 -19.8 11.1 7.5 -0.5


JunH15 provides a view of how the miners costs should look with expansions completed.

24 April 2013


Figure 3: JunH13 received price cost and margins at US$100/t CFR iron ore and parity AUD/USD

BHP RIO FMG FMG AGO MGX GBG GBG ARI ARI

WAIO WAIO 100% TPI sell-

down

Hem Hem Hem Mag M'Back South'n

Iron ore 62% CFR US$/dmt 100 100 100 100 100 100 100 100 100 100

AUDUSD US$/dmt 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Received price US$/wm

t

94.1 93.0 82.6 82.6 78.9 91.6 83.2 121.0 82.3 84.6

Mining cost US$/wmt 33.8 33.8 18.4 46.5 38.8 46.7 26.0 26.9

Port and Rail US$/wmt 4.9 11.3 29.3 12.6 29.5 29.5 15.0 26.7

C1 cash cost US$/wm

t

29.2 27.3 38.8 45.1 47.7 59.1 68.4 76.3 41.0 53.6

Royalties US$/wmt 6.3 6.2 5.1 5.1 5.4 5.5 4.7 5.1 1.0 3.1

Shipping US$/wmt 10.0 10.0 10.0 10.0 12.0 18.8 20.0 20.0 20.0 20.0

Total operating costs US$/wm

t

45.5 43.5 53.8 60.2 65.1 83.3 93.1 101.3 62.0 76.7

Sustaining capex US$/wmt 5.0 5.0 5.2 5.2 3.3 3.6 2.3 2.4 4.0 4.0

Net Interest US$/wmt 2.5 2.5 4.9 3.7 2.1 0.0 7.3 7.3 1.3 1.3

Corporate costs US$/wmt 1.0 1.0 0.8 0.8 2.4 3.5 0.6 0.6 8.3 1.8

Total cash costs US$/wm

t

54.0 52.0 64.8 69.9 72.9 90.5 103.3 111.7 75.6 83.8

add TPI EBITDA US$/wmt 4.6

EBITDA margin US$/wmt 48.6 49.5 28.8 27.0 10.6 8.3 -9.9 19.7 20.3 7.9

Total cash margin US$/wm

t

40.1 41.1 17.9 17.3 6.0 1.1 -20.1 9.3 6.8 0.9


Margins BHP & RIO; FMG and the minor miners

One way of viewing the margins is by splitting them into three groups. BHP and RIO stand

alone with margins more than double that of the next highest. Following this pair is

Fortescue; and then the junior iron ore miners with smaller margins again (Figure 4).

One point worth noting is that FMG’s cash margins don’t vary by much whether the

minority sell-down of TPI is included or not, under the metrics we use. The increase in port

and rail tariff is partially compensated by including FMG’s share of TPI’s EBITDA, and the

remainder of the differential is offset with lower interest costs when the proceeds are used

for debt reduction.

Figure 4: Cash margins in DecH13 and JunH15

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-5

0

5

10

15

20

25

30

35

40

45


GBGMag

ARIM'bck

AGO MGX ARI Sthn GBGHem

Cash m

arg

in (

US

$/t

)

CASH MARGIN Dec-13 CASH MARGIN Jun-15


24 April 2013


EBITDA margins show a greater difference for FMG with and without a TPI sell-down

because it is measured ahead of financing charges (Figure 5). We discuss the other

miners in greater detail later in this note.

Figure 5: EBITDA margins in DecH13 and JunH15

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0

10

20

30

40

50

60


GBG Mag ARI M'bck AGO MGX ARI Sthn GBG Hem

EB

ITD

A m

argi

n (U

S$/

t)

EBITDA MARGIN Dec-13 EBITDA MARGIN Jun-15


Gearing and free cash flow

Investors lose tolerance for growth capex

We consider that investors are becoming less tolerant of companies paying lean dividends

while retaining cashflow to expand production. This is especially the case in a sector such

as iron ore, where consensus estimates indicate that commodity analysts widely predict

the planned expansions are too large, that supply will overwhelm demand and cause the

iron ore price to collapse. If this is the case, investors could view the expansion plans as

spending shareholders’ funds to crush their own margins. The recent share price jump for

an Australian oil and gas company announcing an increased dividend suggests investors

now greatly value yield over growth plans.

If this is the case, then companies that are completing expansions and see an increase in

free cash flow would potentially be preferred. The largest Australian iron ore producer, Rio

Tinto, remains in the midst of iron ore growth plans. Its FCF yield looks to be weak through

to 2016 on current plans and thus it would have little capacity to greatly increase dividends

or reduce gearing with operating cashflow alone. However, this situation may change as

RIO has not yet committed the capex to expand iron ore production beyond 290Mtpa.

FMG is due to finish its expansion much earlier than RIO, with the final piece—Kings

mine—due to be ramped-up by the end of CY13. We forecast FMG’s FCF yield will

expand to over 10% in 2015 and 2016, the years we forecast our trough cycle iron ore

prices of $90/t CFR nominal. Some of this FCF will undoubtedly be used to repay debt

rather than expand dividends, but nevertheless it will be increasing value for current

shareholders rather than gambling on the strength of future iron ore demand.

24 April 2013


Figure 6: Iron ore comps showing gearings and FCF Yield

Target

Price

Share

price

upside DCF Market

Cap

Gearing FCF Yield

2012 2013 2014 2015 2013 2014 2015 2016

Rio Tinto A$* 70.00 53.84 30% 68.55 86,252 25% 23% 23% 22% 3% 2% 4% 7%

BHP A$* 35.00 31.36 12% 34.70 159,83

8

26% 28% 28% 26% 10% 10% 10% 11%

Vale US$ 22.00 16.03 37% 83,886 24% 26% 27% 27% 5% 5% 8% 12%

Fortescue Metals Group A$* 5.00 3.77 33% 7.20 12,008 62% 47% 43% 38% -39% 6% 12% 10%

Atlas Iron A$ 1.30 0.865 50% 1.30 787 -25% -6% -3% -2% -24% 1% 3% 6%

Gindalbie Metals Ltd A$ 0.22 0.185 19% 0.55 276 -6% -6% -2% -1% -1% -8% -2% -3%

Mount Gibson Iron A$ 0.65 0.5 30% 0.60 545 1% -17% -28% -37% 28% 23% 15% 6%

Alderon Iron Ore C$ 2.10 1.15 83% 150 -40% -106% 72% 92% -26% -33% -56% -33%

Cliffs Natural Resources C$ 10.00 17.65 -43% 2,816 40% 33% 40% 46% 8% -9% -15% -12%

Labrador Iron Ore Royalty C$ 33.00 33 0% 2,112 -5% -2% -2% 0% 5% 6% 5% 5%

Labrador Iron Mines C$ 1.00 0.56 79% 71 -26% -15% 31% 60% -46% -50% -102% -33%

New Millennium Iron C$ 1.85 0.87 113% 157 -3% 1% 7% 16% 1% -7% -10% -3%

Source: Credit Suisse estimates

Gearing—steady for the major miners that have not ceased expending growth capex

A comment about gearing—we forecast FMG’s gearing to drop from 62% in FY12 to 47%

by the end of FY13 because we model a sell-down of 35% of TPI for $3.4bn by the end of

June 2013 in line with FMG’s current plans.

BHP and RIO have steady gearing because under their current plans, growth capex will

prevent substantial debt reduction in the years to 2015.

The iron ore price

Steel versus iron ore suggests a correction approaching for one or the other

Plotting the iron ore price against China steel provides an ominous outlook, with iron ore

due to fall unless steel prices spike. The price differential between rebar and iron ore has

contracted to a point lower than August 2012, which was when weak steel margins lead to

a buyers’ strike by steel mills and triggered iron ore price capitulation (Figure 7). In July

and August 2012, steel mills began destocking iron ore, and the cessation of buying saw

the spot price plummet to a low of $87/t. The fall ended only when China announced a

new stimulus package.

Figure 7: China iron ore price versus rebar price

260

300

340

380

420

460

500

540

580

620

660

700

740

-

20

40

60

80

100

120

140

160

180

200

220

240

260

Dec 0

8

Mar

09

Jun

09

Se

p 0

9

Dec 0

9

Mar

10

Jun

10

Se

p 1

0

Dec 1

0

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11

Jun

11

Se

p 1

1

Dec 1

1

Mar

12

Jun

12

Se

p 1

2

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Mar

13

Ste

el b

ille

t (U

S$/t

)

Iro

n o

re U

S$/t

Seaborne Iron ore 62% CFR Rebar China (RHS)

Difference (Rebar less 1.6x iron ore) Source: SBB, Credit Suisse estimates

24 April 2013


But China already destocked

However, one difference between mid-2012 and now is that China’s steel mills have

already destocked iron ore (Figure 8, Figure 9). A Mysteel survey of smaller steel mills

shows iron ore is back at levels reached in the low-point of the 2012 destock, and port

stocks remain at an all-time low measured in terms of weeks of import cover. Anecdotal

reports in Platts note steel mills worries about the risk involved in buying spot iron ore right

now, but until mills start to curtail en masse, there are few options. Mills are buying port

stocks hand-to mouth quantities from traders, but some reports have indicated that

quantities of Pilbara Blend and other quality brands are becoming depleted at ports.

Figure 8: China iron ore port stocks inventory Figure 9: China steel mill iron ore stocks as of 15 April

Source: China customs, Credit Suisse estimates Source: MySteel, Credit Suisse estimates

Despite the apparent destock, our opinion is that the current situation cannot last. Either

demand for steel will pick up (through increased construction or a renewed stimulus

announcement) and tighten the steel price, or mills will begin to curtail and idle for

maintenance—with demand reduction allowing the iron ore price to subside. Without any

improvement in the steel rebar price, the iron ore price would have to retreat to roughly

$110/t to open the price differential to the levels of November 2012.

Comments on the benchmarking

BHP and RIO Tinto

BHP and RIO receive the highest prices as they ship the highest grade hematite ore in the

Pilbara with the Pilbara Blend, Newman and MAC products. They also obtain lump

premiums for a significant proportion of sales. With lump premiums, the received price

might have exceeded the index except that shipments of lower grade products from Robe

River and Yandi reduce the average.

BHP and RIO also have low costs, having pegged most of the best iron ore deposits

decades ago. Deposits such and Yandi and MAC have very low stripping ratios, keeping

mining costs low, and transport is efficient via wholly-owned bulks railways and ports.

Fortescue Metals

FMG is reducing costs as the low cost Solomon mines reach production, and volume

efficiencies for greater production reduce unit fixed costs across the group. Nevertheless,

FMG’s cash margins are less than half that of RIO and BHP due to lower received prices

and higher costs on average. In its MarQ conference call, FMG noted that it typically

receives about 89% of the index price on a dry basis, but after taking into account

moisture, this falls to the low $80’s. FMG does not obtain a lump premium as all its

products are fines, probably because it upgrades a lot of its mined iron ore, variously with

washing, desanding and jigging plants.

24 April 2013


We expect FMG’s EBITDA margin and Total Cash Margin to increase solidly between

DecH’13 and JunH’15 due to the increase in tonnages shipped as Solomon ramps up to

its full 60Mtpa rate. Mining cost will fall as the contribution of lower costs Solomon tonnes

rises, sustaining capex should ease, again because we expect lower sustaining capex for

Solomon than Chichester, and net interest costs will reduce on dilution across more

tonnes and with reduced net debt.

Atlas Iron

Atlas’ore grade is lower than the other miners. Its Atlas Blend used to be 57.5%fe, but is

now gradually being replaced by 57.0% in newer contracts. Atlas has found an appetite for

lower grades from steel mills, and providing a lower grade allows it to ration its limited

quantities of high-grade sweetener from mines such as Mt Dove, and therefore create

more saleable tonnes.

A second factor lowering Atlas’ received price is its sales of mineralised waste with a

grade of around 54% Fe. With Indian iron ore out of the market, there is demand for

cheap, extremely low grades. Atlas mines these grades as waste from Wodgina, and

rather than moving it to a waste dump, takes it to a mobile crusher. If mining costs are

discounted because the material had to be mined in any event, the margin is not dissimilar

to the Atlas Blend sales.

We expect AGO’s costs to be about $73/t in both DecH’13 and JunH’15, but the

composition of costs will change in this period. In JunH’15, AGO is due to be shipping ore

from its Mt Webber mine. Mt Webber will have a low stripping ratio – less than 0.75:1, and

well below the 2.5:1 for AGO’s current mines, so mining costs should fall. However, Mt

Webber is ~200km from Port Hedland, roughly double the distance of Wodgina, so

highway haulage costs will rise, from $12/t at Wodgina to around $23/t for Mt Webber.

Port costs are another impost on Atlas as it ships through Port Hedland Port Authority’s

Utah Point port. Fees’ have been increasing at Utah Point and in the DecH’12, AGO’s port

costs jumped to A$11.50/t from A$9.90/t in the JunH. Atlas is building a second yard and

at the time of a site tour last October, believed costs would fall steeply once yard 2 was

completed and operating at full efficiency. However, more recently it has seemed more

cautious about the costs. PHPA is a Government-owned monopoly. Small miners have no

other port option than Utah Point, so it does not necessarily have to provide a competitive

tariff-rate to maintain patronage. It is possible that it may simply book higher revenues for

the Government rather than deliver cost savings to Atlas for its Yard 2 investment. We

await further clarity on this issue.

If iron ore prices fall below $100/t, AGO costs will need to fall for it to remain cash positive.

The current cost structure is transient as it is working towards port and rail infrastructure

for all its sites. Its current model is to operate with high opex to maintain low capex,

husbanding cash until it sees which way the plans will go. We expect significant changes

will begin for AGO, perhaps this year, either a 3rd

party rail solution, or a deal with FMG for

rail haulage, and a move on the port solution.

Mount Gibson Iron

Mount Gibson Iron has strong headline grades of 59% Fe and above for all its mines and

also sell lump at a small premium. Its received price for high grade is only $2/t below BHP

and RIO. However, in DecH’13, like Atlas, MGX will be selling some mineralised waste

grading about 54% Fe from Koolan Island and also from Tallering Peak as the high grade

orebody at the latter is exhausted. The low grade ore drags down the average received

price. By JunH15, we assume shipping of the low grade will have ended, so the average

price will rebound to reflect the high grades.

MGX’s mining costs are very high as it is undertaking pre-stripping its flagship Koolan

Island mine until 2017. While this is occurring, the low stripping ratio mine at Extension Hill

will have to provide cashflow for the group. The Koolan Island stripping ratio is relatively

stable between DecH’13 and JunH’15, but unit mining costs rise strongly due to the costs

24 April 2013


being spread across fewer tonnes as the production from the Tallering Peak mine, and the

low grade sales cease.

Shipping is another cost that is greater for MGX than the Pilbara miners. Both the

Geraldton port and Koolan Island can only accept Panamax vessels so its shipping costs

to China range from $16/t to $20/t.

Gindalbie

Gindalbie has a 50% share in the Karara Mine which plans to ship 8Mtpa of magnetite and

2Mtpa hematite.

Provided that the Karara magnetite operations ultimately deliver concentrate at the

expected 68% Fe grade and in line with cost guidance, the Karara magnetite operation will

have a solid cash margin for the stage 1 magnetite mine that we have modeled. The cash

cost is high, but so is the received price. The margin may rise further if a stage 2

expansion is approved, which would carry lower costs on volume benefits, and lower tariffs

on fixed costs such as repayment of the Brookfield line upgrade.

However, the hematite operations (2Mtpa) appear to be deeply unprofitable at a $100/t

iron ore price. On an EBITDA basis they might break even at $110/t iron ore price, but

overall, we would be looking for $120/t for all-in costs including a pro-rata share of fixed

costs. We do not believe the hematite operations were ever expected to be a long-term

part of Karara’s cost structure. The hematite was a short-term opportunity that improved

the economics of the project and then would fall away as Karara undertook a stage 2

expansion to ship 16Mtpa through Geraldton Port, and then expanded further as the

proposed Oakajee Port became available.

We are not certain the stage-2 expansion will be approved as the capex is likely to be

substantial. However, ultimately Karara will need it as the hematite reserves are

insufficient to support the project for the long-term. If hematite is exhausted without stage

2 expansion, the fixed costs for the magnetite project will rise, including take-or-pay on

2Mtpa of haulage and a higher Brookfield line tariff..

EBITDA and total cash margins for GBG actually fall in 2015 versus 2013 because Karara

magnetite is obtaining a one year royalty cut from the State Government in 2013. In 2015,

its royalty will climb back to 5% of FOB revenue.

Sino Iron Project

We do not model Sino Iron, but we note that this project is not proceeding smoothly in the

ramp up of its first two lines according to Platts. The first shipments of magnetite

concentrate are now not expected until late-May. Technical issues have prevented the first

4Mtpa line from running smoothly since the start of commissioning in November 2012, and

the second line also has issues including a problem with the motor powering the grinding

mill. The timeline for a fix on line 2 is now August. The problems have caused original

contractor, China’s MCC, to be ruled out of building the remaining four lines, and the build

is out for tender. Sino is ultimately intended to comprise six lines of 4Mtpa each, with the

newly designed giant mills causing some of the problems.


24 April 2013


Equity Research

Real Estate Management & Development (Real Estate (AU))

CFS Retail Property Trust

(CFX.AX / CFX AU) INCREASE TARGET PRICE

Quarterly mixed, valuation full

■ Quarterly update mixed: Despite confirming guidance for 3% sales growth

in CY13 and achieving a 20bp margin reduction on its $50mn MTN, CFX cut

its full-year EPS guidance to 13.6¢ (+3.9% on FY12), at the bottom of its

previous 13.6-13.7¢ range given softer operating conditions. Full-year NOI

growth is expected to be 1.5%, down from 2.4% in FY12. Our TP moves

from $2.07 to $2.08.

■ Sales improving, but still not keeping pace: CFX’s comp. annual specialty

sales growth improved from 2.1% as of Dec to 2.5% as of March, supported

by food and homewares. Department store growth remains weak (0%) but

improved from -1.2% as of Dec. DFO growth also improved from 5.1% to

8.2%. In addition, we have seen higher margins reported across a number of

retailers including JB Hi-Fi, Specialty Fashion and Pacific Brands. Despite

these improvements, CFX’s fixed 5% bumps remain demanding, and we

assume deterioration in releasing spreads from -2.1% to -5.5%, driving

medium-term NOI growth of 2.6%. Our FY13-16F EPS CAGR is 3.6%.

■ Emporium on track. Emporium is expected to be “substantially leased” by

Dec, and fully leased by Jan. While the targeted initial yeild of >5% is below

the blended 5.5% rate on the $600mn convertible notes originally used to

fund the development, dilution should be reduced over time through lower

funding costs as the convertibles expire and given income growth.

■ Limited EPS/NAV drivers: With a full valuation, limited levers for EPS/NAV

upgrades and continued operating pressures, we maintain

UNDERPERFORM. We see limited scope for further capital management

and believe CFX’s portfolio rotation strategy will be restricted as: (1) demand

for CFX’s non-core assets remains thin, (2) tenant demand is insufficient to

support new developments and (3) debt headroom is limited to fund growth.

We assume 10bp tighter cap rates for CFX’s regional assets which leads to

our NAV (and target price) lift from $2.07 to $2.08. We still prefer WRT.

Total return forecast in perspective

Mean^CS tgt^ Sh Prc

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

12mth Volatility* 52wk Hi-Lo IBES Consensustarget return^

Performance over 1M 3M 12M

Absolute (%) 6.3 10.8 18.0

Relative (%) 5.3 6.1 2.7

Financial and valuation metrics

Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 764.0 737.4 783.7 827.9

EBITDA (A$mn) 504.0 492.0 523.1 559.6

EBIT (A$mn) 504.0 492.0 523.1 559.6

Net income (A$mn) 371.5 384.9 393.9 415.3

EPS (CS adj.) (Ac) 13.09 13.61 13.92 14.68

Change from previous EPS (%) n.a. -0.29 -0.26 -0.25

EPS growth (%) 2.8 4.0 2.3 5.4

P/E (x) 16.8 16.2 15.8 15.0

Dividend (Ac) 13.11 13.61 13.92 14.68

Dividend yield (%) 6.0 6.2 6.3 6.7

Net debt/equity (%) 37.5 39.5 36.9 36.2

Relative performance versus S&P ASX 200.See Reference

Appendix for a description of the chart. Source: Credit Suisse

estimates, * Consensus, mean range from Thomson Reuters.

Source: Company data, ASX, Credit Suisse estimates, * Adj. for goodwill, notional interest and unusual items. Relative P/E

against ASX/S&P200 based on pre GW in AUD. Company P/E calculation is based on displayed EPS currency

Rating UNDERPERFORM*

Price (23 Apr 13, A$) 2.20

Target price (A$) (from 2.07) 2.08¹

Market cap. (A$mn) 6,222.69

Yr avg. mthly trading (A$mn) 329.89

Last month's trading (A$mn) 337.71

Projected return:

Capital gain (%) -5.3

Dividend yield (net %) 6.3

Total return (%) 1.0

52-week price range 2.2 - 1.9

* Stock ratings are relative to the relevant country

benchmark.

¹Target price is for 12 months.

Research Analysts

John Richmond

61 2 82054580

[email protected]

John Lee

61 2 8205 4413

[email protected]

Stephen Rich

61 2 8205 4617

[email protected]

Specialist sales: Bhupen Master

61 2 8205 4792

[email protected]

24 April 2013


Figure 1: CFX Summary Financials

CFS Retail Property Trust 31/12/2008 ######## ######## ######## ########

In AUDmn unless otherwise stated Year ending 30 Jun Share Price: A$2.2012-month target price: A$#ERR: Label not found: 'ESTIM_PP'

Profit & Loss 2011A 2012A 2013F 2014F 2015F Financial Summary 2011A 2012A 2013F 2014F 2015F

Net property income 360.3 497.7 485.5 516.4 552.6 Dividends (cents per share) 12.7 13.1 13.6 13.9 14.7

Other income 25.0 10.2 10.0 10.3 10.6 Dividend Yield 5.8% 6.0% 6.2% 6.3% 6.7%

Unallocated expenses 99.7 -3.9 -3.5 -3.6 -3.6 DPS growth 3.2% 3.8% 2.3% 5.4%

EBITDA 485.0 504.0 492.0 523.1 559.6 AFFO (cents per share) 12.3 12.7 13.2 13.5 14.2

Depreciation & Amortisation - - - - - P/AFFO 17.8 17.4 16.7 16.3 15.5

EBIT 485.0 504.0 492.0 523.1 559.6 EV/EBITDA 14.8 15.1 17.2 16.3 15.2

Net Interest 134.7 132.5 107.1 129.2 144.3 Financial Ratios 2011 2012 2013 2014 2015

PBT 350.3 371.5 384.9 393.9 415.3 Profitability Ratios

Tax - - - - - ROE (%) 6.00% 6.34% 6.51% 6.04% 6.24%

Minorities - - - - - Balance Sheet Ratios

NPAT (post minorities) 350.3 371.5 384.9 393.9 415.3 Interest cover 3.6 3.8 4.6 4.0 3.9

Core Earnings 350.3 371.5 384.9 393.9 415.3 Debt/EBITDA 4.6 4.4 4.8 4.6 4.4

Core Earnings Growth 6.0% 3.6% 2.3% 5.4% Net Debt / Investment Properties 26.8% 28.2% 29.6% 26.5% 26.1%

EPS (CS underlying) 12.7 13.1 13.6 13.9 14.7 Total Liabilities/ Total Assets 31.3% 30.6% 31.4% 29.9% 29.7%

EPS growth 2.8% 4.0% 2.3% 5.4% Share Items

P/E 17.29 16.81 16.17 15.80 14.99 EFPOWA 2,752.4 2,838.0 2,829.0 2,829.0 2,829.0

FFO (cents per share) 12.3 12.7 13.2 13.5 14.2 Units on Issue 2,839.6 2,829.0 2,829.0 2,829.0 2,829.0

Balance Sheet 2011 2012 2013 2014 2015 ESG

Cash & equivalents 5.4 7.4 14.5 20.8 32.9 Target Price ESG Risk Due to ESG 0.0%

Receivables 59.5 47.2 47.2 47.2 47.2 MSCI IVA Risk Neutral

Derivatives 14.7 9.2 9.2 9.2 9.2 MSCI IVA Comment


Current assets 176.4 70.8 77.9 84.2 96.3

Investment Properties 8,276.3 7,788.5 7,881.0 9,070.5 9,208.0

Investments - - - - -

Intangible assets - - - - -



Total assets 8,491.4 8,434.1 8,609.8 9,307.6 9,457.8

Derivatives 90.0 47.4 47.4 47.4 47.4


Other liabilities 340.3 329.2 301.2 312.1 319.6


Net assets 5,835.8 5,854.9 5,910.1 6,522.9 6,652.4

Ordinary equity 5,835.8 5,854.9 5,910.1 6,522.9 6,652.4

Minorities / prefered capital - - - - -

Net Tangible Assets per share 2.06 2.07 2.09 2.31 2.35

Cashflow 2011 2012 2013 2014 2015 Share Price Performance 52 week range: $1.81 - $2.20

Net Property Income 360.3 497.7 485.5 516.4 552.6

Dividend Income 2.9 3.6 - - -

Change in working capital - - - - -

Other operating cashflow -18.4 -163.8 -100.6 -122.5 -137.3


Disposals (/acquisitions) of property -484.5 366.4 - - -

Specific Capex -137.7 -149.7 -136.6 -61.2 -

Maintenance Capex -10.8 -11.9 -12.0 -12.8 -13.2

Net investment in JV's & associates - - - - -

Other Investing Cashflows 1.7 0.8 - - -

Investing cashflow -631.3 205.6 -148.5 -74.0 -13.2

Proceeds from Equity Issuance 541.1 -18.6 - - -

Dividend Re-investment Plan

Dividends paid -275.5 -366.3 -377.9 -387.6 -403.2

Net borrowings 27.0 -47.4 148.5 74.0 13.2

Other - - - - -

Financing cashflow 292.6 -432.3 -229.4 -313.6 -390.0

Net cashflow 3.2 107.2 7.0 6.3 12.1

We agree with MSCI's rating for CFX. CFX

continues to perform strongly on green building

certifications and energy and water efficiency

improvements compared to most peers, though

several have accelerated their adoption of green

building certifications and demonstrated more

1.60

1.70

1.80

1.90

2.00

2.10

2.20

2.30

2.40

Apr

-12

May

-12

Jun

-12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

No

v-1

2

De

c-1

2

Jan

-13

Feb

-13

Mar

-13

Apr

-13

CFX.AX S&P/ASX 100 S&P/ASX 200 Property

18%

66%

12%1%3%

Super-regional

Regional

Sub regional

Neighbourhood

Other

CFX Portfolio Composition


24 April 2013


Figure 2: NAV

CFX NAV CY13 Weighting Income Val Cap Rate Valuation CS

Valuation

Investments (% of Port.

Income)

(A$mn) (%) (A$mn) (A$mn)

Super-regional 16% 90 5.0% 1,813 1,813

Regional 61% 338 6.5% 5,209 5,209

Sub regional 9% 52 8.0% 650 650

Neighbourhood 1% 5 7.9% 69 69

Other 2% 12 8.9% 135 135

DFO 8% 44 7.9% 560 560

Property assets 541 6.4% 8,435

Myer Melbourne (completion value) 525

Other WIP -17

Other net assets -283

Total Assets 8,660

Liabilities

Average Balance Sheet Debt -2502 -2502

Corporate Overheads - net of flow back -33 8x -263 -263

Net Assets 5,895

Securities on issue 2,829

Equity per share 2.08



24 April 2013


Equity Research

Precious Metals (Gold (AU))

Evolution Mining

(EVN.AX / EVN AT) UPGRADE RATING

Weak MarQ but full-year guidance unchanged

■ Production of 84,251oz (CS: 82,111oz), well down on record DecQ

(101.7koz) and the lowest quarter since the end of 2011. Production

impacted by: (1) significant rainfall at Mt Rawdon, (2) flooding the pit and

deferring access to high-grade ore (17.817koz, down from DecQ 26koz), (3)

lower grade at Pajingo, (4) Edna May weaker throughput from maintenance,

(5) crusher trials and power outages and Cracow lower mine production, and

(6) grade and throughput from crusher challenges during wet weather. All

operations were weak. Target price falls to $1.20/sh (from $1.35/sh), but rating

moves to OUTPERFORM (from Underperform) on stock price weakness.

■ No change to FY13 production guidance of 370-410koz, with a strong JunQ

forecast (>100koz), particularly as Mt Rawdon is able to access higher grade

ore in the base of the pit.

■ Reserves upgraded, replacing mining depletion and adding ~six months life

across the asset suite with best upgrade from Pajingo—extending reserve

life to three years from 18 months and grade now in-line with recent head

grade. Resource life is now 13 years and the promise of more to come from

the Moonlight area which could be 250–500koz.

■ Cash balance now only of A$7.4mn (DecQ: $49.2mn) and debt drawn of

A$106.8mn at period end and to A$126.8mn currently, but Mt Carlton capital

spend now completed and only the major cut backs at Mt Rawdon and Edna

May remain to be completed. Capex to halve but needs to be in order to be

able to cash break-even at current gold prices. Earnings changes reflect

higher cost and slightly lower production assumptions.

■ Costs continue to be a concern. At US$1,421/oz gold, all-in cash costs of

US$1,353/oz before growth capital leaves little room for cash generation.

■ TP falls to $1.20/share, rating moves to OUTPERFORM on stock price

weakness. Spot NPV is at $0.94/share.


Mean^

CS tgt^

Sh Prc

-50%

0%

50%

100%

150%


Performance Over 1M 3M 12M

Absolute (%) -38.9 -45.4 -48.0

Relative (%) -39.9 -50.2 -63.2


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 469.5 591.5 704.5 660.8

EBITDA (A$mn) 190.0 218.1 257.8 226.6

EBIT (A$mn) 96.0 74.4 84.8 55.1

Net income (A$mn) 63.4 46.7 53.0 33.3

EPS (CS adj.) (Ac) 11.79 6.49 7.36 4.63


Consensus EPS (Ac) n.a. 11.50 16.20 17.30

EPS growth (%) 1,596.3 -44.9 13.5 -37.1

P/E (x) 7.6 13.8 12.2 19.3

Dividend (Ac) — — — —

Dividend yield (%) — — — —

P/B (x) 0.60 0.57 0.55 0.53

Net debt/equity (%) net cash 10.9 8.9 4.3





against ASX/S&P200 based on pre GW in AUD. Company PE calculation is based on displayed EPS Currency

Rating (from Underperform) OUTPERFORM* [V]

Price (23 Apr 13, A$) 0.90


Market cap. (A$mn) 633.74

Yr avg. mthly trading (A$mn) 60

Last month's trading (A$mn) 82

Projected return:

Capital gain (%) 34.1

Dividend yield (net %) —




benchmark.


[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Michael Slifirski

61 3 9280 1845

[email protected]

Sam Webb

61 3 9280 1716

[email protected]

24 April 2013


Figure 1: EVN—Financial summary

Evolution Mining Limited (EVN) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$0.90 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating OUTPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 168.7 537.9 719.6 720.1 720.1

Target Price A$ 1.20 c_EPS*100EPS (Normalised) c -0.8 11.8 6.5 7.4 4.6

vs Share price % 34.08 EPS_GROWTH*100EPS Growth % 1,596.3 -44.9 13.5 -37.1


c_DPS*100DPS c 0.0 0.0 0.0 0.0 0.0

c_PAYOUT*100Payout % 0.0 0.0 0.0 0.0 0.0




Sales revenue 121.9 469.5 591.5 704.5 660.8 ValuationEBITDA 28.8 190.0 218.1 257.8 226.6 c_PEP/E x -113.6 7.6 13.8 12.2 19.3





Other 0.0 0.0 0.0 0.0 0.0 c_PBPrice to Book x 1.0 0.6 0.6 0.5 0.5

Profit before tax 4.9 92.2 67.1 75.7 47.6 ReturnsIncome tax (6.3) (28.8) (20.4) (22.7) (14.3) c_ROE*100Return on Equity % -0.8 6.0 4.2 4.6 2.8

Profit after tax (1.3) 63.4 46.7 53.0 33.3 c_I_NPAT/c_I_SALES*100Profit Margin % -1.1 13.5 7.9 7.5 5.0



Associates & Other (0.0) 0.0 0.0 0.0 0.0 c_ROA*100Return on Assets % -0.6 5.0 3.1 3.4 2.2

Normalised NPAT (1.3) 63.4 46.7 53.0 33.3 c_ROIC*100Return on Invested Cap. % -1.3 6.9 4.2 4.7 3.1

Unusual item after tax (1.0) (26.1) 0.0 0.0 0.0 GearingReported NPAT (2.3) 37.3 46.7 53.0 33.3 c_GEARING*100Net Debt to Net debt + Equity % 8.4 Net Cash 9.8 8.2 4.1

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 0.5 Net Cash 0.6 0.4 0.2






Current assets 52.1 219.2 186.5 223.6 208.6 MSCI IVA (ESG) Rating BProperty, plant & equip. 163.9 1,023.8 1,266.0 1,292.6 1,261.9 TP ESG Risk (%): 0

Intangibles 0.0 18.4 18.4 18.4 18.4


Non-current assets 178.7 1,050.3 1,297.7 1,336.3 1,316.6

Total assets 230.8 1,269.4 1,484.2 1,559.9 1,525.3

Payables 19.5 110.4 122.1 161.6 145.6




Net assets 160.0 1,056.4 1,106.7 1,159.7 1,193.1

Ordinary equity 160.0 1,056.4 1,106.7 1,159.7 1,193.1



Total shareholder funds 160.0 1,056.4 1,106.7 1,159.7 1,193.1

Net debt 14.7 -105.9 120.4 103.7 51.6 Source: MSCI IVA Rating


EBIT 8.6 96.0 74.4 84.8 55.1

Net interest -2.7 -0.7 -3.8 -9.1 -7.5

Depr & Amort 20.3 94.0 143.6 173.0 171.6

Tax paid 0.0 0.0 0.0 -22.7 -14.3

Working capital -5.6 48.5 -40.0 2.4 -1.0

Other 2.0 -65.5 0.7 -11.1 8.4


Capex -8.8 -161.0 -331.0 -178.6 -138.2

Capex - expansionary -101.8 -223.2 -105.0 -75.0

Capex - maintenance -59.2 -107.2 -73.6 -63.2

Acquisitions & Invest -23.0 -55.8 -47.1 -22.0 -22.0

Asset sale proceeds 0.0 0.0 0.0 0.0 0.0

Other -0.9 13.6 -21.4 0.0 0.0


Dividends paid 0.0 0.0 0.0 0.0 0.0

Equity raised 22.9 158.3 0.6 0.0 0.0

Net borrowings -17.7 -15.6 131.1 -16.7 -52.0

Other 0.0 0.0 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 5.1 142.6 131.7 -16.7 -52.0 Absolute -38.9% -45.4% -48.0%

Total cashflow -5.1 111.7 -92.7 0.0 0.0 Relative -39.9% -50.2% -63.2%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash -5.1 111.7 -92.7 0.0 0.0 Source: Reuters 52 week trading range: 0.90-2.14

MSCI IVA Risk Comment: Current 'B' rating would appear to be

weighed down by Evolution only recently being formed (merger of

Catalpa Resources and Conquest Mining). We'd expect ESG

policies to be gradually developed over time.

23/04/2013 20:46

Evolution Mining Limited is a mining exploration and development company, focusing primarily

on gold. It was formed following a merger of equals between Catalpa Resources and

Conquest Mining

Credit Suisse View

TP Risk Comment: No ESG impact included in current Target

Price.

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11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

EVN.AX XJO

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Stock Local Sector Country Global Sector


24 April 2013


Disappointing quarter (as expected)

The key concern from EVN’s MarQ is the cash consumption from continuing operations,

albeit after “growth” capital and during a quarter of disappointing production. Things should

get better, as more normal operating levels are restored and as Mt Carlton migrates from

cash consumption to cash generation, assuming that the operation commissions well and

overcomes early recovery challenges.

The assets remain generally short life, high cost and capital hungry—an uncomfortable

position in the current uncertain gold market.

■ Production of 84,251oz (CS: 82,111oz), well down on record DecQ (101.7koz) and the

lowest quarter since the end of 2011.

■ Production impacted by:

o Significant rainfall (1m) in January at Mt Rawdon, flooding the pit and deferring

access to high grade ore (17.817koz, down from DecQ 26koz).

o Lower grade at Pajingo (22.559koz vs DecQ 24.3koz).

o Mt Carlton’s negligible contribution of 445oz of commissioning production.

o Edna May’s weaker throughput from maintenance, crusher trials and power

outages (18.557koz from DecQ 28.6koz).

o Cracow (known) lower throughput from crusher challenges during wet weather,

driving lower production (24.572koz from DecQ 28.6koz).

■ The suite of assets has been presented as providing a production volatility hedge

against material QoQ changes in output to deliver consistent results to the market. To

date, this has been relatively successful, however the MarQ has displayed the impact

when the portfolio of assets don’t perform (or are unable to perform) across the board.

■ No change to FY13 production guidance of 370–410koz, with a strong JunQ forecast

(over 100koz), particularly as Mt Rawdon is able to access higher grade ore in the

base of the pit.

■ Reserves upgraded, replacing mining depletion and adding ~6 months life across the

asset suite with best upgrade from Pajingo—extending reserve life to three years from

18 months, but resource life to 13 years and the promise of more to come from the

Moonlight area.

■ Cash balance is now only A$7.4mn (DecQ: $49.2mn) and debt drawn of A$106.8mn

at period end and to A$126.8mn currently, but Mt Carlton capital spend now

completed and only the major cut backs at Mt Rawdon and Edna May remain to be

completed.

■ Costs also disappointed, only further magnified by the lower production ounces. C1

cash cost A$918/oz up on DecQ $764/oz. By asset:

o Pajingo A$795/oz

o Mt Rawdon A$891/oz

o Cracow A$955/oz

o Edna May A$1,063/oz

o Mt Carlton—commissioning only

24 April 2013


Figure 2: Quarterly production

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DecQ11Act.

MarQ12Act.

JunQ12Act.

SepQ12Act.

DecQ12Act.

MarQ13Act.

JunQ13Est.

KozTotal Gold Production (Koz)

Cracow Edna May Mt Carlton Mt Rawdon Pajingo


Edna May

■ Edna May had a weaker quarter, as projected, with production lost to planned

maintenance shutdowns and unplanned power outages that cost 140 hours.

Maintenance costs added $1.5mn to operating costs.

■ Unit costs were further impacted by a lower head grade of 1.03g/t (DecQ 1.15g/t) but

higher recovery of 91% (89%).

■ Cash costs increased to $1,063/oz from $838/oz, reflecting the lower production.

■ All in site cash costs including sustaining capital (not cut backs) and exploration was

$1,365/oz and $1,136/oz YTD.

■ 18,857oz production (DecQ 22,763oz) with a processed grade of 1.03 g/t (DecQ

1.15g/t) still exceeding 1g/t reserve grade and 0.93g/t (0.95g/t) mined grade.

Management continues to guide to 75–80koz production for FY13. (CS: 83.6koz)

■ We continue to assume that throughput does not increase above 2.4Mtpa (nameplate

2.8Mtpa). However, this was exceeded in the DecQ (not in the MarQ) and there is

more to come from a trial of contact crushing which has commenced and is hoped to

take load from the SAG mill and thereby increase throughput sustainably to 3Mtpa. If

this was successful and a permanent crushing solution implemented, Edna May could

be upgraded to a +100koz/yr contributor with flow through benefits to lower cash

costs. To date, there are no definitive results from the crusher trial.

■ Management are mobilising a larger scale operating fleet comprising 150t trucks and a

360t digger. This is hoped to reduce mining costs by ~$1/t.

■ Capital expenditure in excess of the all in cash cost is required to complete the cut

back which continues for two years at about $40mn/yr.

24 April 2013


Figure 3: Edna May

1174

1044989

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MarQ12Act.

JunQ12Act.

SepQ12Act.

DecQ12Act.

MarQ13Act.

JunQ13Est.

A$/ozKozEdna May

Gold Produced C1 Cash Cost


Mt Rawdon—down on flooding impact

■ As pre-advised, Mt Rawdon suffered a 1m rainfall even, inundating the pit 20m and

preventing access to scheduled high grade mining areas at the base of the pit. Low

grade ore was mined and processed during this period by was hampered by flooded

site access roads.

■ As a consequence, grade processed declined to 0.83g/t from 1.04g/t and throughput

to 729kt from 850Kt.

■ JunQ is not impacted and production can be drawn from the pit base, potentially

delivering a 30koz JunQ.

■ MarQ declined to 17,817oz, 8,000oz below budget and materially down on the solid

DecQ 25,986oz.

■ Cash cost increased to A$891/oz from A$658/oz, reflecting the lower production.

■ Reported cash cost include a non-cash component for the significant draw from

stockpile and adjustment for a normalised strip ratio after the capitalisation of almost

all waste movement (4Mt capitalised at ~$5/t for $20mn to return as depreciation).

■ All in cash cost of $935/oz excludes the $20mn cut back capital, making the operating

cash consuming during the quarter. However, this cutback, when completed, will

expose 1.0moz of production ore.

■ Taking into account weather challenges, Mt Rawdon continues to perform well and 95-

110koz FY13 guidance remains unchanged. Rawdon is regarded as a stable

100koz/yr producer.

■ Exploration recommenced in the DecQ12 after many years of no activity. A number of

anomalies have been identified from future testing and have identified a high grade

zone of 35m at 24.2g/t, postulated to potentially be a feeder zone. This was at 322m

down hole and about 50m west from the current design limit of the pit. Follow up holes

did not replicate this grade, reporting 2g/t, twice the current reserve grade.

■ This zone has only limited drilling, but the high grade nature already suggests the

potential for underground mining options if the cut back required for open pit access

isn’t punitive.

24 April 2013


■ Cut back activity continues with $65mn capital in FY14 to complete the task, exposing

1.0moz of gold at a remaining 0.87:1 strip ratio.

Figure 4: Mt Rawdon

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657

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SepQ12Act.

DecQ12Act.

MarQ13Act.

JunQ13Est.

A$/ozKozMt. Rawdon

Gold Produced C1 Cash Cost


Pajingo—Weak MarQ follows the strong DecQ

■ Encouraging exploration results from Pajingo with resources increasing to 1.3Moz at

5.8g/t from 0.9moz at 5.2g/t, a nice increase in both grade and ounces.

■ Reserves have grown to 329koz at 6.3g/t from 184koz at 5.1g/t, supporting a three- year

life plus whatever is converted from resources. We continue to model a five-year life.

■ Exploration result from Moonlight is targeting, and may have identified, a >10g/t zone

of 4m width that is about 1.5km ($7.5mn capital) from existing development. This

could conceptually be 700-800m in strike, 200–250m vertically and 4m thick,

suggesting 1.5 to 2Mt potential for perhaps 0.5Moz. However, this assumes many

things, including 10g/t. At reserve grade average it could be a 250koz deposit.

■ Lower gold production of 22,559oz (DecQ 24,340oz) with lower average grade ore at

4.17g/t (5.55g/t) not offset by higher tonnes processed of 176kt (142kt).

■ The +15g/t Sonia orebody has been the grade source relied upon to deliver FY13F

production. Management are confident that 85-90koz for FY13 can still be achieved.

■ Reported cash costs of $795/oz were above DecQ $695/oz despite the deferral of

$216/oz of costs associated with stockpiled open pit ore to be treated in FY14.

■ All in cash costs of $1,372/oz and $1,416/oz year to date, excluding 986m of

underground capital development (~$5mn), suggesting net cash consumption at

current gold prices. Development capital appears likely to remain a requirement at

Pajingo.

24 April 2013


Figure 5: Pajingo

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JunQ13Est.

A$/ozKozPajingo

Gold Produced C1 cash Cost


Cracow—strong DecQ and 1H but weaker MarQ

■ Weaker MarQ 24,572oz production (DecQ 28,574oz) but guidance 90-100koz for

FY13 unchanged.

■ Production down on lower average grade of 6.49g/t (DecQ 6.7g/t) and lower tonnes

processed of 125Kt (142Kt) matching mine production. Mine production was below

budget and mill throughput was constrained by crusher challenges from wet weather.

■ The grade decline reflects the average grade decline of the reserve. Cracow reserves

now total 273koz at an average grade of 5.3g/t down from 5.9g/t in June.

■ Cracow resources increased to 842koz at a grade of 6.1g/t. Exploration continues to

support the five-year mine life projection and strategy of annual reserve replacement.

■ The declining grade profile of reserves has driven higher cash costs of A$995/oz in the

MarQ (DecQ $861/oz). Management plan to address the operating cost by a move to

owner operating. This is expected to reduce average costs by $50/oz after financing

costs on the $12mn equipment fleet.

■ All in cash costs excluding non-operating capital were $1,474/oz for the MarQ and

$1,373/oz year to date. In addition, 804mn of capital development during the quarter

would have consumed ~$4mn suggesting a cash negative quarter against the average

gold price of $1,573/oz.

24 April 2013


Figure 6: Cracow

632 637707 703 735

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JunQ12Act.

SepQ12Act.

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JunQ13Est.

A$/ozKozCracow

Gold Produced C1 cash cost


Mt Carlton—SepQ full ramp up to 0.8Mtpa rate the focus

■ Mt Carlton is in in commissioning/ramp up mode, with design capacity expected in the

SepQ.

■ Costs and revenues will be capitalised until this time.

■ Mining is well advanced at both the V2 and A39 pits with 10Mt of material moved since

mining commenced, allowing mining activity to be halved in September to

0.5Mt/month.

■ Initial recovery of 60% is below design of 88% but will be addressed by changed to the

circuit and reagents.

■ Average ore grade mined was 2.59g/t but 4.31g/t was processed. We wonder why the

plant would be commissioned on high grade ore during commissioning when low

recoveries are expected.

■ $170mn capital cost excludes 1.684Mt of capital waste mined during the quarter and

4.525Mt to date.

Figure 7: FY13 production

Attributable (koz) FY13 guidance SepQ12 DecQ12 MarQ13 JunQ13F (CS) FY13 YTD FY13F (CS)

Cracow 90 - 100 25.8 28.6 24.6 20.4 78.9 99.3

Edna May 75 - 80 25.9 22.8 18.9 16.1 67.5 83.6

Mt. Carlton 25 - 30 0.0 0.0 0.4 13.7 0.4 14.2

Mt. Rawdon 95 - 110 27.1 26.0 17.8 28.0 70.9 98.9

Pajingo 85 - 90 15.7 24.3 22.6 25.9 62.6 88.5

Total 370 - 410 94.4 101.7 84.3 104.1 280.4 384.5


24 April 2013


Finance

■ Cash balance A$7.4mn from $49.2mn and drawn debt to A$106.8mn from $81.8mn.

Subsequent to quarter end, an additional $20mn of debt draw leaving $73.2mn

undrawn head room.

■ Capex to halve in FY14 with the completion of Mt Carlton and cash generation to

increase as Mt Carlton contributes.

■ Gold hedging covers 152,171oz at A$1,573/oz and gold deliveries to the hedge book

will be accelerated while the hedge price is above the spot price.

■ Average gold price achieved for the MarQ of A$1,573/oz and A$29/oz for silver sales.

■ All in cash cost before growth capital of $1,353/oz.

■ Exploration cost totalled $5.6mn.

■ Corporate administration cost of A$7mn, ahead of normal $5-6mn/q.

■ Capital expenditure totalled $76.4mn comprising:

o $32.8mn at Mt Carlton on construction, advanced stripping, commissioning and

sustaining capital.

o $43.6mn on the existing operations.

■ Operating cash flow of A$50.4mn broadly covered capital spend on existing

operations of $43.6mn and corporate overheads of $7mn, leaving exploration and Mt

Carlton to be covered by cash balance and debt draw.

24 April 2013


NPV

Figure 8: NPV—CS assumptions

Operational A$mn A$/sh A$mn A$/sh

Cracow 84 0.12 100% 84 0.12

Edna May 232 0.33 100% 232 0.33

Mt Carlton 401 0.57 100% 401 0.57

Mt Rawdon 118 0.17 100% 118 0.17

Pajingo 129 0.18 100% 129 0.18

Sub-Total 964 1.36 964 1.36

Non-Operational A$m A$/sh A$mn A$/sh

Net Cash/(Debt) Dec 31, '12 -35 -0.05 100% -35 -0.05

Hedging 4 0.01 100% 4 0.01

Corporate -112 -0.16 100% -112 -0.16

Sub-Total -143 -0.20 -143 -0.20

Non-Project koz A$ per oz A$m A$/sh

Non-project resources 277 97.8 100% 27 0.04

Net Present Value 848 1.20 848 1.20

DCF

Risk Weight

Attributable NPV

DCF

Risk Weight

Attributable NPV


Figure 9: NPV—spot assumptions

Operational A$mn A$/sh A$mn A$/sh

Cracow 52 0.07 100% 52 0.07

Edna May 181 0.26 100% 181 0.26

Mt Carlton 355 0.50 100% 355 0.50

Mt Rawdon 76 0.11 100% 76 0.11

Pajingo 100 0.14 100% 100 0.14

Sub-Total 764 1.08 764 1.08

Non-Operational A$m A$/sh A$mn A$/sh

Net Cash/(Debt) Dec 31, '12 -35 -0.05 100% -35 -0.05

Hedging 21 0.03 100% 21 0.03

Corporate -112 -0.16 100% -112 -0.16

Sub-Total -127 -0.18 -127 -0.18

Non-Project koz A$ per oz A$m A$/sh

Non-project resources 277 97.8 100% 27 0.04

Net Present Value 664 0.94 664 0.94

DCF

Risk Weight

Attributable NPV

DCF

Risk Weight

Attributable NPV



24 April 2013

Asia Pacific/New Zealand

Equity Research

Multi-Utilities (Utilities)

Infratil

(IFT.NZ / IFT NZ) DECREASE TARGET PRICE

Opposition’s mooted electricity market reform

undermines value

■ Our target price for IFT has been lowered from $2.75 to $2.62 following

our assessment of the potential valuation impact on TrustPower of the

opposition parties (Labour/Greens) proposed electricity reform policy.

■ We estimate that the proposed reform would potentially reduce our

TPW valuation by 16% if implemented. Our TPW target price and

valuation have been lowered by 45 cents (-5.6%) from $8.10 to $7.65,

applying a 35% probability to the electricity sector reform being implemented

as proposed by the opposition. The general election is still some time away

(November 2014). Current polls pre this policy announcement suggest that

the Labour/Greens have at best a 50% chance of forming the next

government. At this stage it is unclear whether the opposition’s policy to

move to state control of electricity prices (set at a lower level) has boosted or

harmed the opposition’s political support. Poll results will become

increasingly influential on listed electricity sector exposures including IFT.

■ TPW’s share price has fallen around 50cps (-6.5%) since the opposition

parties released their policy on electricity sector reform. The market value

of IFT’s stake in TPW has declined by around NZ$80mn, equating to roughly 13

cents per IFT share. IFT’s shares are trading at a 9% discount to our spot NAV

($2.54 per share). Our 12-month target price is set at $2.62 which reflects our

estimated 12-month valuation less a 10% holding company discount.

■ IFT has flagged the potential sell-down of its investment in Z Energy

via IPO. The expectation of IFT moving to a divestment bias combined with

a commitment to an ongoing share buyback programme has helped reduce

the discount to valuation and should remain supportive of performance.

■ Near-term catalysts include annual results of IFT entities (Z Energy,

TrustPower, and Wellington Airport). IFT report their FY13 result on 14 May.

Share price performance

90.0

97.5

105.0

112.5

120.0

1.00

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2.00

2.50

3.00

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13

Infratil Limited LHS Relative to NZX50 (RHS)

The price relative chart measures performance against the

NZX50 index which closed at 4516.5 on 23 Apr 13

The spot exchange rate was NZ$1.186/US$1 on 23 Apr 13


Absolute(%) -2.1 0.0 27.3

Rel-NZX50(%) -5.3 -7.1 -0.3

Year to 31 Mar 2011A 2012A 2013F 2014F 2015F

Adjusted Earnings NZ$m 66.6 49.6 60.0 83.4 102

EPS Adjusted NZc. 11.1 8.3 10.3 14.3 17.6

EPS Grow th % 6,412 -24.7 23.0 39.3 22.9

P/E x 20.9 27.7 22.5 16.2 13.2

CPS NZc. 26.7 26.2 29.8 34.2 38.4

P/CF x 8.6 8.8 7.8 6.8 6.0

EV/EBITDA x 9.2 9.3 9.8 8.8 8.2

Net DPS NZc. 6.8 8.0 8.5 9.0 10.0

Imputation % 100 100 100 100 100

Net Yield % 2.9 3.5 3.7 3.9 4.3

Gross Yield % 4.2 4.8 5.1 5.4 6.0


Source: Company data, NZX, First NZ Capital estimates

Rating OUTPERFORM* Price (23 Apr 2013, NZ$) 2.31 Target price (NZ$) (from 2.75) 2.62¹ Market cap. (NZ$mn) 1,347.47 Projected return: 0 Capital gain (%) 13.4 Dividend yield (net %) 3.9 Total return (%) 17.3 52-week price range (NZ$) 1.90-2.51


benchmark.


Research Analysts

Rob Bode

64 9 302 5555

[email protected]

This report is distributed in Australia by Credit Suisse

Equities (Australia) Limited. Please see legal disclaimer and

disclosure annex for further terms and information

Provided by First NZ Capital

24 April 2013


Figure 1: Infratil financial summary

Sector: Utilities NZX Code: IFT

PROFIT & LOSS ($m) BALANCE SHEET ($m)Year to 31 Mar 2011A 2012A 2013F 2014F 2015F Year to 31 Mar 2011A 2012A 2013F 2014F 2015F

Operating Rev enue 2,077 2,218 2,344 2,550 2,802 Cash & Equiv alents 158 104 104 104 104

Operating Ex penses -1,617 -1,698 -1,812 -2,003 -2,210 Debtors & Inv entories 381 389 389 389 389

Operating EBITDA 460 520 532 547 592 Other Current Assets 4.0 128 128 128 128

Depreciation -94.2 -106 -114 -116 -122 Current Assets 543 621 621 621 621

Amortisation -24.2 -27.3 -30.4 -32.1 -33.2 Fix ed Assets 3,777 3,914 4,133 4,247 4,274

Operating EBIT 341 387 388 399 437 Inv estments 314 394 394 394 394

Other Income 0.0 -37.4 -54.3 0.0 0.0 Intangibles 309 328 326 324 322

Abnormals 21.9 23.5 -25.8 0.0 0.0 Other Non-Current Ass. 90.0 37.0 37.0 37.0 37.0

Reported EBIT 363 373 308 399 437 Total Assets 5,033 5,294 5,511 5,623 5,648

Net Interest -168 -187 -191 -185 -193

Pretax Profit 195 185 117 213 244 Interest Bearing Debt 2,333 2,411 2,582 2,675 2,657

Tax -75.4 -58.4 -41.0 -57.0 -61.9 Other Liabilities 857 877 969 955 947

Minority Interests -55.1 -75.4 -72.6 -73.1 -79.3 Total Liabilities 3,190 3,287 3,551 3,631 3,604

Equity Accounted Profit 0.0 0.0 0.0 0.0 0.0 Minorities 844 932 936 936 940

Reported NPAT 64.5 51.6 3.0 83.4 102 Conv ertible Capital 0.0 0.0 0.0 0.0 0.0

Abnormals (net of tax ) -2.1 2.0 -57.0 0.0 0.0 Ordinary Equity 999 1,075 1,024 1,056 1,103

Adjusted Earnings 66.6 49.6 60.0 83.4 102 Total Funds Emp. 5,033 5,294 5,511 5,623 5,648

RATIOS AND CAPITAL STRUCTURE CASH FLOW ($m)Year to 31 Mar 2011A 2012A 2013F 2014F 2015F Year to 31 Mar 2011A 2012A 2013F 2014F 2015F

Profitability & Growth

EBITDA/Op Rev % 22.1 23.5 22.7 21.5 21.1 Operating EBITDA 460 520 532 547 592

EBIT/Op Rev % 16.4 17.4 16.5 15.6 15.6 Other Cash Income 0.0 0.0 0.0 0.0 0.0

Effectiv e Tax Rate % 38.7 31.5 35.1 26.7 25.4 Interest Paid -161 -181 -191 -185 -193

Return On Equity % 7.1 4.8 5.7 8.0 9.5 Tax Paid -44.2 -47.4 -41.0 -57.0 -61.9

ROCE % 9.0 8.4 7.6 8.9 9.5 Working Capital / Other -76.1 -95.8 -15.0 -30.0 -30.0

EPS Adjusted c. 11.1 8.3 10.3 14.3 17.6 Operating Cash Flow 179 196 285 275 307

EPS Grow th % 6,412 -24.7 23.0 39.3 22.9

Net DPS c. 6.8 8.0 8.5 9.0 10.0 Total Capex -208 -179 -336 -244 -158

Div idend Cov er x 1.6 1.0 1.2 1.6 1.8 Acquisitions -213 21.6 0.0 0.0 0.0

Asset Backing & Capital Structure Div estments 0.0 5.9 0.0 0.0 0.0

Net Cash (Debt) $m -2,175 -2,307 -2,478 -2,571 -2,553 Div idends -37.6 -44.1 -48.3 -51.0 -55.4

NTA / Share $ 1.1 1.2 1.2 1.3 1.3 Equity Raised 38.0 -29.2 -5.5 0.0 0.0

Equity / Tot Assets % 19.9 20.3 18.6 18.8 19.5 Other -85.9 -101 -68.9 -72.7 -75.3

Net Debt / EBITDA x 4.7 4.8 5.2 4.7 4.3 Change in Net Debt -328 -129 -173 -93.5 18.3

Interest Cov er x 2.0 2.1 2.0 2.2 2.3

Shares on Issue Maint Capex $m -70.0 -75.0 -77.0 -80.0 -82.0

Ordinary m 603 587 583 583 583 Maint Capex /Depn % 74.3 70.5 67.5 69.0 67.3

Fully Diluted m 656 640 583 583 583 Maint Capex /Rev % 3.4 3.4 3.3 3.1 2.9

EBIT BreakdownYear to 31 Mar 2011A 2012A 2013F 2014F 2015F

Trust Pow er 220 242 230 225 249

Wellington Airport 56.8 58.8 65.8 72.3 75.5

Infratil Airports Europe -18.8 0.0 0.0 0.0 0.0

NZ Bus 22.2 25.0 20.8 23.4 26.1

Infratil Energy Australia 35.7 33.6 55.0 58.5 62.8

Z Energy 55.1 52.3 39.4 44.0 48.5

Other income 26.9 7.8 0.7 4.0 4.0

Admin costs -30.1 -28.5 -27.1 -28.3 -29.7

Financial deriv ativ es -3.9 19.2 -22.5 0.0 0.0

Discontinued operations -37.4 -54.3

Reported EBIT 363.44 372.62 307.7 398.86 436.68

TrustPower41%

Other2%

Wellington Airport

14%

Infratil Energy

Australia17%

NZ Bus9%

Z Energy16%

Infratil Airports

Europe1%

Estimated Portfolio

Source: Company data, NZX, First NZ Capital estimates

24 April 2013


The proposal

On 18 April 2013, the opposition parties (Labour/Greens) released their electricity election

policy. The policy proposes moving to a single buyer model (with the creation of a new

entity NZ Power), based on the short run marginal cost of generation. Labour’s proposal

(which differs slightly from the Greens) proposes that each generator will be paid a ‘fair’

return for their actual costs. The ‘fair’ return will be calculated by NZ Power on the basis of

the generator’s historic capital costs, possibly adjusted by inflation, plus operating costs

like fuel, depreciation and maintenance. The proposal also proposes operational

separation of generation and retail, with the threat of structural separation if this is “in the

interests of consumers”.

First NZ Capital Energy Utilities analyst Jason Lindsay, analyses the implications of the

proposal in his research note of 22 April 2013, “If it ain’t broke, don’t fix it”.

Potential impact on TPW earnings and valuation

We estimate TPW’s revenue and EBITDAF would be reduced by NZ$51mn per annum or

17% of TPW’s FY12 EBITDAF. TPW is less impacted than other gentailers due to its

Australian wind farm exposure.

Assuming the new policy is implemented in FY16 we estimate TPW’s DCF-based

valuation NZ$8.10 would reduce by 16%.

This estimate this does not assume any cost savings, or winding back of maintenance

capex both of which would be likely under such a scenario and would reduce this negative

impact.

To assess the impact on our TPW target price and build this scenario into our valuation we

probability weight the chance of the opposition (Labour/Greens) winning the next election

(50%) and the chance this proposal is implemented in the first term. Given the complexity,

potential for litigation and therefore time to implement there is a possibility that such a

policy may never be implemented. Assuming 50% probability of a Labour/Greens coalition

forming the next government, together with a 70% chance of this policy being

implemented, we apply a 35% probability to the electricity sector reform being

implemented as proposed by the opposition parties.

Adjusting the 16% potential valuation impact by a 35% probability, we arrive at a 45 cent

per share (-5.6%) reduction to TPW’s valuation and target. Our valuation and 12-month

target is lowered from $8.10 to $7.65.

Building this reduced target for TPW into our 12-month valuation and target for IFT, we

lower our 12-month target for IFT from $2.75 to $2.62. Our 12-month target price reflects

our estimated 12-month valuation less a 10% holding company discount.

24 April 2013


Valuation

Figure 2: Infratil – valuation summary

`

Shares

held

(mn)

% of

portfolio

Market

price

($)

Market

value

(NZ$mn)

% of

portfolio Comment

Renewable

energy/electricity

TrustPower (TPW.NZ) 159.22 42% $7.25 1154 39% Market

Infratil Energy Australia 18% 516 18%

A$275mn Lumo(A$567/cust), generation

(A$115mn), Perth Energy A$49mn, less

capitalised overheads

1670 57%

Regional/emerging airports

Wellington Airport 12% 423 14%

DCF less 5% discount for aero pricing risk

(equivalent to 11.2x FY13 EV/EBITDA)

Infratil Airports Europe 4% 18 1%

Carrying Value £14mn Sept 12 (less 30%

reflecting losses pre exit)

442 15%

Public Transport

NZ Bus 10% 271 9% 5.7 times FY14 EBITDA

Fuel distribution

Z Energy 486 17%

DCF Valuation (equivalent to 6.3x FY14

EBITDA)

Other investments

Infratil Property

34 1% Book

Sundry 1% 33 1% Snapper/Mana/Payglobal/Isite

Total Investments 100% 2938 100%

Bonds/Net bank debt -1241 42%

Vendor Finance (Port

Stanvac) -27 1%

Net Asset Value 1670 57%

less:

Corporate overheads(inc

mgmt contract) -184

8 times parent costs (ex costs reallocated to

subs)

Net Equity Value 1486

NZD/AUD 0.8185

NZD/GBP 0.5455

Shares (net of treasury stock) 584.24

Valuation per share

$2.54

Source: Company data, FNZC estimates

24 April 2013


Figure 3: Infratil – valuation per share

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

$2.80

$3.00

$3.20

Oct 05 Oct 06 Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12


Figure 4: Infratil – share price (discount)/premium to valuation

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

Oct 05 Oct 06 Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12

`


24 April 2013


Figure 5: Infratil – proportionate EV/EBITDA

2013E 2014E

EBITDA (NZ$m)

Wellington Airport (66%)

54 59

NZ Bus (100%)

45 49

Airports/Transport Infrastructure

99 107

Infratil Energy Australia (Lumo/Generation/Perth)

90 95

TPW (50.5%)

149 147

Energy

239 242

Z Energy (50%)

97 103

Infratil Property/other

4 4

Less: Mgmt costs /corporate overhead

-23 -24

Proportionate EBITDA

416 432

Shares (mn) 584.2

Market capitalisation $2.31 1350

Debt (IFT and wholly owned subs)

1241

Debt (TPW 50.5%)

429

Debt (WIAL 66% )

178

Debt (Perth Energy 82%)

63

Debt (Z Energy 50%)

218

Vendor Finance (Port Stanvac)

27

3505

Less: Assets held for sale (IAE)

-18

Less: Other investments

-67

Add: Perth Energy Minority Interest

18

Adjusted EV

3438

Proportionate EV/EBITDA Multiple

8.3 8.0



24 April 2013


Equity Research

Property & Casualty Insurance (Insurance (AU))

Insurance Australia Group

(IAG.AX / IAG AU) EARNINGS

New Zealand: On track for lower profits

■ IAG New Zealand’s strategy briefing: IAG hosted a strategy briefing on its

New Zealand business which provided a high level summary of how the

business is positioned, with a long-term insurance margin target of ~10%,

below the current 11.5% being achieved. We have lowered FY14 earnings

by 1.2% and retain our NEUTRAL rating and $5.75 target price.

■ Insurance margin target: IAG said that they are targeting an underlying

insurance margin of around 10% over the longer term, noting that they

anticipate the underlying margin will be slightly higher in the short to medium

term, consistent with the business’ recent performance (~11.5%).

■ Synergies on track but not seen: IAG noted that the NZ$30mn of synergy

savings from the AMI acquisition were tracking to plan, however, given the

synergies could theoretically add a further 1.5% to IAG’s NZ insurance

margin, a flat to declining margin guidance suggests that these synergies

will be absorbed within the business.

■ Earnings changes: We have removed the AMI synergies from our

forecasts. This results in a 1.2% decrease to our FY14 NPAT, however, we

continue to forecast a margin of ~12%, above management’s long-term

target for NZ.

■ Investment view: While the environment remains difficult for IAG’s New

Zealand business and both Australia and New Zealand premium rate

increase have already peaked, we expect margins to remain at current

levels in the near-term with slight upward risk as premiums continue to earn-

through the book. We retain our NEUTRAL rating and $5.75 target price and

preference for QBE in the general insurance space.


Mean^CS tgt^Sh Prc

-50%

-30%

-10%

10%

30%

50%



Absolute (%) 0.5 13.5 62.2

Relative (%) -0.5 8.7 47.0


Year 06/12A 06/13E 06/14E 06/15E

Reported profit (A$mn) 207.0 658.8 842.4 943.8

Cash Earnings (CS) (A$mn) 556.0 957.8 862.4 963.8

Cash EPS (CS) (A$) 0.27 0.44 0.39 0.44

Change from previous EPS (%) n.a. 37.9 -1.1 -1.1

Cash EPS growth (CS) (%) 30.5 63.9 -10.2 11.8

Cash PE (CS) (x) 21.1 12.8 14.3 12.8

Dividend (Ac) 17.00 25.50 23.50 26.50

Dividend yield (%) 3.0 4.5 4.2 4.7

Franking (%) 100 100 100 100

Book value per share (Ac) 208.90 215.07 233.05 252.91

Price/book (x) 2.7 2.6 2.4 2.2



estimates, * Consensus, mean range from Thomson Reuters



Rating NEUTRAL*

Price (23 Apr 13, A$) 5.63

Target price (A$) 5.75¹




Projected return:






benchmark.


Research Analysts

Andrew Adams

61 2 8205 4106

[email protected]

24 April 2013


Figure 1: IAG’s financial summary Insurance Australia Group Limited IAG.AX Rating: NEUTRAL Target price: 5.75

In AUDmn, unless otherwise stated Year ending 30 June

Profit and loss (A$mn) FY11 FY12 FY13F FY14F FY15F ASX code: IAG.AX Share price: 5.63

Gross written premium 8,050 8,495 9,448 9,944 10,460 No. of shares (m) 2,079 Rating NEUTRAL

Net earned premium 7,238 7,346 8,304 8,813 9,273 Market cap (A$m) 11,705 Target price $5.75

Net claims expense -5,089 -5,421 -5,397 -5,842 -6,145 Weighting - ASX200 0.8% TSR 6.4%

Commission expenses -633 -604 -667 -704 -736 Weighting - insurance 20.1% 12mnth Fwd PE 15.1x

Underwriting expense -1,345 -1,390 -1,466 -1,538 -1,604

Underwriting Result 171 -69 773 729 788 Valuation ratios: FY11 FY12 FY13F FY14F FY15F

Investment income on TR's 489 914 393 401 454 EPS 12.1 25.5 31.8 40.5 45.4

Insurance profit 660 845 1,166 1,130 1,241 EPS (pre-gw) 20.5 26.7 43.8 39.4 44.0

Investment income on SHF 213 89 373 277 311 EPS growth (pre_gw) 109% 31% 64% -10% 12%

Net corporate expenses -1 -56 -55 -6 - PER 27.5x 21.1x 12.8x 14.3x 12.8x

NSW insurance protection tax 0 - - - - DPS 16.0 17.0 25.5 23.5 26.5

General Insurance Result 872 878 1,484 1,401 1,552 Special DPS 0.0 0.0 0.0 0.0 0.0

Financial services - - - - - DPS growth 23% 6% 50% -8% 13%

Fee income 7 13 17 16 17 Payout ratio (% normalised earnings) 78% 64% 58% 60% 60%

Associates -3 -3 -2 8 9 Payout ratio (% cash earnings) 78% 64% 58% 60% 60%

Interest expense -86 -97 -100 -102 -104 Net Dividend yield 2.8% 3.0% 4.5% 4.2% 4.7%

Income tax -276 -177 -352 -371 -413 Franking level 100% 100% 100% 100% 100%

Post-tax profit 514 614 1,047 953 1,062 Gross Dividend Yield 4.1% 4.3% 6.5% 6.0% 6.7%

Outside equity interests -88 -58 -90 -90 -98 Tax rate 35% 22% 25% 28% 28%

Preference share dividend 0 0 0 0 0 Avg shares (mn) 2,067 2,067 2,074 2,079 2,079

Credit Suisse normalised profit 426 556 958 862 964 NTA per share ($) 1.23 1.20 1.27 1.46 1.67

Non-recurring items 0 0 0 0 0 Return on NTA (%pa) 17.2% 22.1% 35.5% 28.8% 28.1%

Cash Profit (pre-gw) 426 556 958 862 964 Price to NTA (x) 4.6x 4.7x 4.4x 3.9x 3.4x

Preference share dividend 0 0 0 0 0 NAV per share ($) 2.12 2.09 2.15 2.33 2.53

Goodwill amortisation -176 -28 -36 -20 -20 ROE (%pa) 9.6% 12.7% 21.7% 18.5% 19.1%

Profit from continuing operations 250 528 922 842 944 Price to NAV (x) 2.6x 2.7x 2.6x 2.4x 2.2x

Profit from discontinued operations 0 -321 -263 0 0 MCR multiple (x) 1.59x 1.74x 1.87x 1.97x 2.09x

IAG Reported Profit 250 207 659 842 944 Debt / Equity 31.2% 38.2% 35.2% 32.4% 29.9%

Gross debt / debt + NTA (%) 35.0% 37.5% 34.0% 31.1% 28.5%

Key ratios: FY11 FY12 FY13F FY14F FY15F Closing shares (mn) 2,079 2,079 2,079 2,079 2,079

Gross written premium growth (%pa) 3.4% 5.5% 11.2% 5.2% 5.2%

Net earned premium growth (%pa) 2.4% 1.5% 13.0% 6.1% 5.2% BALANCE SHEET (A$m) FY11 FY12 FY13F FY14F FY15F

Loss ratio (%) 70.4% 73.8% 65.0% 66.3% 66.3% Cash 509 969 458 458 458

Commision ratio (%) 8.7% 8.2% 8.0% 8.0% 7.9% Investments 12,177 13,337 14,034 15,075 16,061

Expense ratio (%) 18.6% 18.9% 17.7% 17.5% 17.3% Receivables 2,641 2,951 3,283 3,393 3,638

Combined ratio (% NEP) 97.8% 101% 90.7% 91.7% 91.5% Intangibles 1,869 1,850 1,828 1,808 1,788

Insurance margin (% NEP) 9.1% 11.5% 14.0% 12.8% 13.4% Deferred Acquisition Costs 1,054 1,246 1,638 1,723 1,812

Insurance margin (underlying) 12.2% 11.6% 12.4% 12.8% 13.4% Reinsurance Recoveries 4,010 3,928 3,044 3,044 3,044

Divisionals (A$mn) FY11 FY12 FY13F FY14F FY15F Other 769 851 1,877 1,877 1,877

Australia Direct Total assets 23,029 25,132 26,162 27,378 28,678

Net earned premium 3,594 3,810 4,216 4,503 4,773

Underwriting result 421 20 407 381 404 Total liabilities 18,449 20,608 21,484 22,327 23,214

Combined ratio (%) 88.1 99.2 90.4 91.5 91.5 - - - - -

Insurance margin (%) 19.5 14.3 15.4 13.4 13.7 Capital 5,353 5,353 5,353 5,353 5,353

Australia Intermediated Investment Fluctuation Reserve -84 -68 -55 -55 -55

Net earned premium 2,138 2,388 2,623 2,713 2,822 Asset Revaluation Reserve -57 -55 -66 -66 -66

Underwriting result -42 -117 254 211 240 Reset Preference Shares 0 0 0 0 0

Combined ratio (%) 99.9 102.8 90.3 92.2 91.5 Retained Profits -795 -887 -761 -387 26

Insurance margin (%) 6.5 10.8 14.6 12.9 14.0 Outside Equity Interests 163 181 206 206 206

New Zealand Total Equity 4,580 4,524 4,677 5,051 5,464

Net earned premium 828 991 1,261 1,374 1,447 Shareholders Equity 4,417 4,343 4,471 4,845 5,258

Underwriting result -11 93 106 128 135

Combined ratio (%) 101.3 90.6 91.6 90.7 90.7 Share Price Performance 52wk range: 3.24-5.80

Insurance margin (%) 0.4 10.4 9.5 11.6 11.7

Asia

Net earned premium 149 153 203 223 232

Underwriting result -5 -64 6 9 9

Combined ratio (%) 103.4 141.8 96.8 96.1 96.1

Insurance margin (%) -2.7 -38.6 6.5 8.5 8.8

MSCI IVA (ESG) Rating AAA Credit Suisse View

Source: Reuters Share price as of 23-Apr-13, 18:11

Andrew Adams

+612 8205-4106

Source: MSCI ESG Research [email protected]

TP Risk Comment: We value increased earnings pressure from

regulatory change with further downside pressure from regulatory

control of pricing (CTP, workers comp) and affordability concern

from policyholders.

TP ESG Risk (%): 0

MSCI IVA Risk (%): Neutral

MSCI Risk Comment: Recently upgraded to AAA from A and

we support this rating. The recent few years (large claim events)

have given IAG the opportunity to demonstrate its ESG focus.

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

IAG.AX XJO XXJ

0.0

3.0

6.0

9.0

12.0


Stock Local Sector



24 April 2013


New Zealand strategy

IAG hosted a strategy briefing on its New Zealand business which provided a high level

summary of how the business is positioned. IAG didn’t provide the detailed review of the

business and outlook that we were hoping for, instead opting for long-term goals in line

with the Groups strategy. IAG noted:

■ In New Zealand we are targeting GWP growth at least in line with the industry and

■ An underlying margin of around 10% over the longer term, which represents a strong

return on capital, given the short-tail nature of the business.

■ We anticipate the underlying margin will be slightly higher in the short to medium term,

consistent with the business’ recent performance.

■ We continue to target at least NZ$30mn of annual synergies from the integration of the

AMI business by April 2014.

Earnings changes

As a result of the strategy briefing and management’s comments that the long-term margin

target is ~10% and the near-term to remain at current levels (~11.5%), we have removed

the AMI synergies from our forecasts. This results in a 1.2% decrease to our FY14 NPAT,

however, we continue to forecast a margin of ~12%, above management’s long-term

target for New Zealand.

Figure 2: Earnings changes

Income statement (A$mn) FY13 FY14

Old New Change Old New Change

Gross written premium 9,448 9,448 0.0% 9,944 9,944 0.0%

Net earned premium 8,304 8,304 0.0% 8,813 8,813 0.0%

Net claims expense -5,397 -5,397 0.0% -5,828 -5,842 0.2%

Commission expenses -667 -667 0.0% -704 -704 0.0%

Underwriting expense -1,466 -1,466 0.0% -1,538 -1,538 0.0%

Underwriting result 773 773 0.0% 742 729 -1.9%

Investment income on TR's 393 393 0.0% 401 401 0.0%

Insurance profit 1,166 1,166 0.0% 1,143 1,130 -1.2%

Inv inc on SHF 373 373 0.0% 277 277 -0.1%

Net corporate expenses -55 -55 0.0% -6 -6 0.0%

General insurance result 1,484 1,484 0.0% 1,415 1,401 -1.0%

Fee income 17 17 0.0% 16 16 0.0%

Associates -2 -2 0.0% 8 8 0.0%

Interest expense -100 -100 0.0% -102 -102 0.0%

Income tax -352 -352 0.0% -374 -371 -1.0%

Post-tax profit 1,047 1,047 0.0% 963 953 -1.0%

Outside equity interests -90 -90 0.0% -90 -90 0.0%

Cash profit (pre-gw) 958 958 0.0% 872 862 -1.1%

Goodwill amortisation -36 -36 0.0% -20 -20 0.0%

Profit from continuing operations 922 922 0.0% 852 842 -1.2%

Profit from discontinued operations -263 -263 0.0% 0 0 #DIV/0!

IAG reported profit 659 659 0.0% 852 842 -1.2%

Insurance margin (% NEP) 14.0% 14.0% 0.0% 13.0% 12.8% -0.2%

EPS 31.8 31.8 0.0% 41.0 40.5 -1.2%

EPS normalised (pre-gw) 43.8 43.8 0.0% 39.8 39.4 -1.1%

DPS 25.5 25.5 0.0% 24.0 23.5 -2.1%


24 April 2013


GWP – growing at market not as easy as it seems

IAG is targeting GWP growth of at least in line with the industry which is probably to be

expected given that they are the largest player with almost 40% market share (60% in

motor and 55% in home). However, IAG is integrating the AMI business and now running

a multi-brand strategy, which has risk of market share losses. In addition to this, prior to

the AMI acquisition, despite being the largest player in the market, IAG was growing at

less than the market.

Figure 3: New Zealand market consolidated – top five control 80% of market

Gross written premium (NZ$mn) and market share

37%

23%

0%

8%

6%5%

3%

17%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

IAG SUN AMI WES QBE TWR FMG Other

Gro

ss W

ritt

en P

rem

ium

(NZ

$mn

)

2010 2011 2012

Top 5 control ~80% of market

Source: Company data, Credit Suisse estimates, TWR includes Pacific Islands

IAG’s New Zealand business achieved $1bn of GWP in FY05 but gradually fell from this

level and the years pre the large earthquakes achieved little if any growth. As a result of

the Canterbury earthquakes and subsequent increase in reinsurance costs, premium rates

increased significantly in late 2011 (1H12). IAG’s GWP movements (excluding AMI)

indicate that they have lost volume in recent periods. They experienced only one half of

large GWP increases, which is rare if this is driven by premium rate increases.

Figure 4: New Zealand GWP by half

GWP (A$mn) 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13

IAG (ex AMI) 482 492 482 483 472 489 472 484 538 598 587

IAG (ex AMI) growth on pcp 0.0% -1.8% -2.1% 1.2% 0.0% -1.0% 14.0% 23.6% 9.1%

SUN NZ growth on pcp 1.2% 6.9% 21.1% 22.3% 12.1%

AMI 74 164

IAG (total) 482 492 482 483 472 489 472 484 538 672 751


While it appears that IAG have lost business in their core IAG NZ portfolio, they have done

a good job in retaining the AMI business based on GWP reported to date.

24 April 2013


Figure 5: AMI GWP workings

AMI GWP NZ$mn

FY11 363

FY12 assumed (15% increase) 417

9 months to 31 Dec 309

Annualised 2012 413


Going forward, we see two main challenges for IAG’s GWP growth in the coming years:

1) Competing direct insurance brands

Direct business accounts for 44% of IAG NZ GWP, with State and AMI splitting this evenly

amongst the two brands. This is primary personal lines business, with State and AMI

competing against one another in the home and motor market.

Figure 6: IAG NZ GWP by channel Figure 7: Split of IAG’s NZ Direct business

Direct44%

Intermediated44%

Affinity12%

Personal94%

SME6%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

As outlined in our analysis above, and supported by IAG comments at the briefing, the

AMI brand has held up quite well since the acquisition and if anything has picked up some

business in the last period. It has been IAG’s core business that in our opinion has

suffered some volume loss.

IAG provided a split of the channel mix by brand, which actually presents a more positive

case for the two brands in our view. There is less overlap in their distribution than we

realised, supporting a case for multi-brand or even gradual consolidation of brands, noting

revenue attrition remains a risk but less than previously expected.

Figure 8: State brand channel mix Figure 9: AMI brand channel mix

Call centre66%

Branch19%

Internet15%

Call centre39%

Branch60%

Internet1%


2) Loss of affinity business

A further risk to IAG’s NZ GWP is the potential loss of the Affinity business. IAG

underwrites on behalf of two large banks, ASB and BNZ in New Zealand. As with most

relationships these underwriting agreements go out for tender on three to five year terms

24 April 2013


and hence the risk remains that a large per cent of GWP can be lost if an account changes

underwriter. In the near term, this is unlikely given the relationship post the impact of the

earthquakes, however, if market conditions improve, a capital re-enters the market, this

remains a downside risk.

Reinsurance – hero to villain to hero again

IAG hosted a panel discussion in reinsurance and the general tone from Guy Carpenter

and Swiss Re was that reinsurance rates are declining, both locally and globally. This

appeared to be well received however we note that reinsurers often talk in terms of risk-

adjusted price movements, as opposed to total reinsurance spend. We also highlight that

New Zealand regulation is moving to a specified 1/1000 event, a level of cover currently

not achieved by most insurers in the market. In our view, the potential rate on line

decreases will be absorbed by increased protection by most players in the market.

Nonetheless, a halt to the large reinsurance rate increases is positive news for the

industry.

On IAG specifically we note that they have not been immune from the reinsurance rate

increase in recent years and the advantage of large and diversified didn’t appear to assist

based on our calculations. While IAG’s numbers have been clouded by the inclusion of

AMI, the increase in reinsurance for New Zealand has been above what we were

expecting in recent periods.

Figure 10: IAG New Zealand reinsurance expense

A$mn 1H11 2H11 1H12 2H12 1H13

Reinsurance excluding reinstatements 29 40 38 86 113

Increase on pcp 9 46 75


Trying to break the recent increases by IAG (ex AMI) and AMI, we note the following:

■ IAG New Zealand falls under the Group’s main catastrophe programme, a 1 January

renewal date.

■ AMI has a separate reinsurance cover outside of the Group, a 1 July renewal date.

■ When IAG announced the AMI acquisition on 16 December 2011, they provided an

adjusted FY11 NEP to allow for higher reinsurance costs in FY12 for AMI. Effectively

AMI was paying ~NZ$15mn p.a. in reinsurance, with IAG’s expectation that this would

increase to ~NZ$45mn in FY12.

■ On the assumption that one quarter of this reinsurance was incurred in 2H12 (given

AMI acquisition was effective 1 April 2012), this implies that IAG’s core New Zealand

reinsurance cost almost double at the 1 January renewal.

Figure 11: IAG New Zealand reinsurance cost

A$mn

2H11 reinsurance (ex reinst) 40

2H12 reinsurance reported 86

Less AMI allowance 9

2H12 implied IAG (ex AMI) cost 77

Increase on pcp 93%


■ Applying the same principal to IAG’s 1H13 reported reinsurance cost, this time the

AMI renewal, the implied increase in the AMI reinsurance is also close to 100%.

24 April 2013


Figure 12: AMI reinsurance cost

A$mn

1H13 reinsurance reported 113

Less IAG (ex AMI) allowance 77

1H13 AMI reinsurance implied 36

2H12 implied AMI (full period) 18

Increase on pcp 100%


The increases in reinsurance cost are even more extreme considering the reduction in

cover. In regards to AMI we note the following:

■ AMI had an FY12 reinsurance cover in place when IAG purchased it, providing

protection up to NZ$1.4bn with a retention of NZ$10mn. The cost of this was

~NZ$45mn (three times what it was previously).

■ IAG renewed this cover for FY13, increasing the retention to NZ$25mn, maintaining

the upper limit of NZ$1.4bn. On our calculations this renewal incurred another

significant price increase, now ~$90mn for the AMI standalone cover.

Insurance margin – yes, targeting a lower margin

The importance of the increase in reinsurance costs for AMI is in understanding the

deterioration in the underlying insurance margin in the last half. With GWP flat on pcp and

reinsurance up ~100%, it is difficult to conclude that AMI contributed its share of profit to

the New Zealand business in 1H13.

IAG’s New Zealand business was showing strong margin improvement as a result of

premium rate increases in recent periods, however, this slipped in 1H13, despite the

continued earn-through of premium rate increases.

Figure 13: IAG New Zealand underlying insurance margin

1H10 2H10 1H11 2H11 1H12 2H12 1H13

GWP ($M)

472

489 472 484 538 672

751

NEP ($M)

453

440

455

373 454 537 626

NEP grossed up ($M)

423

Claims ratio (%) 55.0 55.7 52.1 91.4 65.6 56.4 63.7

Commission ratio (%) 12.1 12.3 11.9 13.4 12.3 11.7 10.7

Expense Ratio (%) 19.0 20.2 17.1 21.2 17.8 18.1 17.1

Combined operating ratio (%) 86.1 88.2 81.1 126.0 95.8 86.2 91.5

Insurance profit to NEP (%) 15.0 14.3 19.8 -23.3 7.3 13.0 8.3

Reserve releases (%) (.0) (1.6) (.0) (0.9) (4.2) 0.7 (6.4)

Natural perils (%) (.2) (1.1) (3.5) (25.8) (5.1) (4.8) (1.8)

Natural perils allowance (%) 4.6 4.8 5.5 5.7 5.5 4.7 5.0

Credit spreads (%)

DAC/LAT (%)

Reinsurance reinstatement (11.8)

Impact on group insurance margin 4.4 2.0 2.0 (32.9) (3.7) 0.6 (3.2)

Reported insurance margin 15.0 14.3 19.8 (23.3) 7.3 13.0 8.3

Underlying insurance margin 10.6 12.3 17.8 9.5 11.0 12.5 11.5


It is our view that the inclusion of the AMI business was the reason for the decline in

underlying margin, as outlined above primarily driven by the large increase in reinsurance

costs.

24 April 2013


Synergies – on track but never seen

While IAG included a slide on synergy savings noting that they are tracking to plan, with

these eventual savings unlikely to be observable in the financials we have not analysed

the plan any further.

IAG expects to deliver NZ$30mn of pre-tax synergy benefits within two years (by FY14)

with NZ$5mn recognised in 1H13. Based on our forecasts this adds a further 1.5% to

IAG’s insurance margin for the New Zealand business.

Figure 14: IAG New Zealand, FY14 benefit of remaining synergies

A$mn

CS forecast NEP FY14 1,374

Synergies remaining 20

Insurance margin benefit 1.5%


Considering that IAG is currently producing an underlying margin of 11.5% it is no doubt

confusing to hear management comment that are targeting ~10% for this business. While

management pointed out that they do not expect the margin to drop-off a cliff in the next

half, they certainly didn’t imply that there would be margin improvement, suggesting that

the synergies would be absorbed in the business.


24 April 2013


Equity Research

Asset Managers (Diversified Financials (AU))

IOOF Holdings

(IFL.AX / IFL AU) INCREASE TARGET PRICE

Mar-Q FuMAS slightly ahead of expectations

■ IFL reported FuMAS for the March quarter of $120.9bn, slightly ahead

of our forecast at $119.3bn. We have increased EPS by 1-2% across the

forecast period on higher closing FuMAS balances. Our target price moves

to $9.00 (from $8.65). Retain a NEUTRAL rating.

■ March quarter 2013 FuMAS: IFL reported FuMAS of $120.9bn as at 31

March 2013, up 4% from the December quarter, with FuMA (excluding funds

under supervision) also up 4% at $88.9bn (CS at $119.3bn and $87.9bn,

respectively). Net flows for the quarter were slightly negative, with net fund

inflows for both the platform and advice segments offset by net outflows

from investment management (albeit noting outflows were substantially

lower than previous quarters). Flows into flagship platforms of $189mn were

a record for the March quarter, while outflows associated with Global One

and transition platforms showed improved trends. Net inflows of $130mn in

the advice segment included a significant contribution from DKN products.

■ Earnings changes: We have increased FY13E EPS by ~1% in line with a

higher assumed FY13 closing FuMAS balance (impacting 2H13 average),

with upgrades of ~2% in outer years reflecting the annualised impact of

higher opening balances flowing through.

■ Investment case: While we remain positive on earnings growth from recent

acquisitions (DKN, Plan B) as well as capacity for further acquisitions (noting

the strength of the balance sheet), we see IFL as fairly valued at current

levels. That said, we do note the strong leverage of the business to rising

markets given the largely fixed nature of the cost base, with any further uplift

a key positive for IFL.

■ Valuation: Our target price moves to $9.00 (from $8.60) which represents

an equal weighting of our relative P/E and DCF valuations, with the increase

reflecting both EPS upgrades and a higher market multiple.


Mean^

CS tgt^Sh Prc

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%



Absolute (%) 7.5 10.7 42.0

Relative (%) 6.6 5.9 26.7


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 355.6 402.5 447.0 484.0

EBITDA (A$mn) 132.9 151.5 182.7 209.0

EBIT (A$mn) 128.5 147.1 178.3 204.6

Net income (A$mn) 96.4 109.1 131.2 150.3

EPS (CS adj.) (Ac) 41.55 46.99 56.53 64.76

Change from previous EPS (%) n.a. 0.9 2.2 2.1


EPS growth (%) -13.6 13.1 20.3 14.6

P/E (x) 20.9 18.5 15.4 13.4

Dividend (Ac) 37.00 42.50 51.00 58.00

Dividend yield (%) 4.3 4.9 5.9 6.7

P/B (x) 2.5 2.5 2.4 2.4

Net debt/equity (%) net cash 0.43 net cash net cash






Rating NEUTRAL*

Price (23 Apr 13, A$) 8.69





Projected return:






benchmark.


Research Analysts

David Bailey

61 2 8205 4739

[email protected]

Paul Buys

61 2 8205 4538

[email protected]

24 April 2013



IOOF Holdings (IFL) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$8.64 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating NEUTRAL c_EPS_SHARESEquiv. FPO (period avg.) mn 231.9 232.0 232.1 232.1 232.1


vs Share price % 4.17 EPS_GROWTH*100EPS Growth % -13.6 13.1 20.3 14.6

c_EBITDA_MARGIN*100EBITDA Margin % 42.4 37.4 37.6 40.9 43.2

c_DPS*100DPS c 43.0 37.0 42.5 51.0 58.0

c_PAYOUT*100Payout % 89.4 89.1 90.4 90.2 89.6




Sales revenue 358.6 355.6 402.5 447.0 484.0 ValuationEBITDA 152.1 132.9 151.5 182.7 209.0 c_PEP/E x 18.0 20.8 18.4 15.3 13.3





Other 0.0 0.0 0.0 0.0 0.0 c_PBPrice to Book x 2.3 2.5 2.5 2.4 2.4


Profit after tax 119.3 96.7 109.9 132.0 151.2 c_I_NPAT/c_I_REVENUES*100Profit Margin % 31.1 27.1 27.1 29.4 31.1

Minorities (1.3) (0.3) (0.6) (0.7) (0.8) c_I_REVENUES/c_B_TOT_ASSAsset Turnover x 0.3 0.3 0.3 0.4 0.4


Associates & Other (6.5) 0.0 (0.2) (0.2) (0.2) c_ROA*100Return on Assets % 10.2 8.5 9.4 11.1 12.5


Unusual item after tax (12.0) (77.0) (22.0) (22.0) (22.0) GearingReported NPAT 99.5 19.4 87.0 109.2 128.3 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash 0.4 Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash 0.0 Net Cash Net Cash



Inventories 0.0 0.0 0.0 0.0 0.0 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales %



Current assets 226.1 178.8 181.2 200.7 223.6 MSCI IVA (ESG) Rating AAProperty, plant & equip. 12.6 13.9 13.9 13.9 13.9

Intangibles 750.9 857.1 889.0 889.0 889.0



Total assets 1,089.7 1,127.8 1,163.9 1,183.4 1,206.3

Payables 50.7 61.9 70.6 77.2 84.3




Net assets 902.0 827.3 831.6 844.6 860.4

Ordinary equity 885.8 812.4 817.0 829.9 845.6



Total shareholder funds 902.0 827.3 831.6 844.4 860.1

Net debt -153.0 -56.6 3.5 -8.7 -23.8 Source: MSCI ESG Research


EBIT 148.4 128.5 147.1 178.3 204.6

Net interest -0.8 -2.4 -4.1 -4.7 -4.7

Depr & Amort 3.7 4.4 4.4 4.4 4.4

Tax paid -21.9 -39.2 -47.4 -51.1 -59.3

Working capital -3.1 18.8 -3.9 -0.7 -0.8

Other -4.2 -7.2 -11.6 8.8 9.8


Capex 0.0 0.0 0.0 0.0 0.0

Capex - expansionary

Capex - maintenance



Other -0.7 -8.2 -5.3 0.0 0.0


Dividends paid -95.9 -100.2 -99.0 -118.4 -134.6

Equity raised 9.1 -1.0 -2.3 0.0 0.0

Net borrowings

Other -14.6 54.5 49.0 0.0 0.0

Financing cashflow -101.4 -46.7 -52.3 -118.4 -134.6 1 Month 3 Month 12 Month

Total cashflow 20.2 -39.7 -10.3 12.2 15.0 Absolute 6.9% 10.1% 41.2%

Adjustments 0.0 0.0 0.0 0.0 0.0 Relative 5.9% 5.3% 25.9%

Net change in cash 20.2 -39.7 -10.3 12.2 15.0 Source: Reuters 52 week trading range: 5.37-8.77

MSCI IVA Risk Comment: We see the rating as

appropriate given balance of risks between

socially responsible investing and staff retention

/ development.

23/04/2013 16:51

IOOF Holdings Limited (IOOF) is an Australia-based company. IOOF, along with its

subsidiaries, is engaged in providing wealth management, superannuation, investment

management, asset management, estate planning and corporate trust services.

Credit Suisse ViewTP ESG Risk (%): 0

TP Risk Comment: We have not currently

factored in any change in the current operating

environment. Downside risk of 2.5% should IFL

lose 5% (A$1.5bn) of funds under management

from irresponsible investing.

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

IFL.AX XJO

4.0

5.0

6.0

7.0

8.0

9.0

10.0




24 April 2013


IFL – FuMAS / fund flow focus charts

Figure 2: FuMAS up in Mar-Q… IFL FuMAS (A$bn)

Figure 3: …as was FuMA IFL FuMA (A$bn)

96.6102.9 100.8 101.7 99.1

102.3 102.9 104.4 106.2100.3

106.6110.2

107.3110.8

116.4121.0

0

20

40

60

80

100

120

140

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

A$b

n

0

10

20

30

40

50

60

70

80

90

Jun-07

Jun-08

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

A$b

n

FuAdv FuA FuM

Figure 4: Outflows from investment management… IFL – net fund flow (A$bn), excluding acquired FuMA

Figure 5: …but offset by market movements IFL – net fund flow, market movements (A$bn)

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

A$b

n

Advice Admin FuM Net flow

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

A$b

n

Net flow Market / other

Figure 6: Positive trends for flagship platform flows… IFL – platform net fund flows by segment (A$mn)

Figure 7: …and up overall IFL – platform net fund flows (A$mn)

-300

-200

-100

0

100

200

300

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

A$m

n

Flagship Global One Transition

-200

-150

-100

-50

0

50

100

150

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

A$m

n

Source for all charts: Company data, Credit Suisse estimates

24 April 2013


IFL valuation charts

Figure 8: Fund managers trading just above average… Australian fund managers – average P/E

Figure 9: …with premium to market below Australian fund managers – P/E premium to XJO (%)

7.5x

10.0x

12.5x

15.0x

17.5x

20.0x

22.5x

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

PE

(x)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Jan 00

Jan 01

Jan 02

Jan 03

Jan 04

Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Fu

nd

man

ager

s: p

rem

ium

to A

SX

200

(%)


Figure 10: IFL trading just above historic P/E… IFL P/E (x)

Figure 11: …and near-term premium to XSI IFL premium to XSI (%)

5x

10x

15x

20x

25x

30x

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

PE

(x)

IFL.AX Mean +/- SD

90%

100%

110%

120%

130%

140%

150%

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

Pre

miu

m to

XS

I (%

)

IFL PE relative (to XSI) Mean +/- SD

Source: Bloomberg, IBES, Credit Suisse estimates Source: Bloomberg, IBES, Credit Suisse estimates

Figure 12: IFL trading at a slight premium to peers… IFL P/E premium to FM peers (%)

Figure 13: …across a dispersed range Australian asset manager P/E – (current v historic)

-25.0%

-12.5%

0.0%

12.5%

25.0%

37.5%

50.0%

62.5%

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

Co

nse

nsu

s P

ER

(12

mth

forw

ard

)

0.0x

2.5x

5.0x

7.5x

10.0x

12.5x

15.0x

17.5x

20.0x

22.5x

AM

P

BT

T

HG

G

IFL

PP

T

PT

M

Avg

AS

X200

PE

(x)

Historic Current Average (historic) Average (current)

Source: Bloomberg, IBES, Credit Suisse estimates Source: Bloomberg, IBES, Credit Suisse estimates

24 April 2013


IFL focus charts

Figure 14: Platform admin. ~50% of group revenue… IFL revenue composition (%), 1H13

Figure 15: …gross margin up in 1H13 IFL gross margin (A$mn)

Investment Management

19%

Platform49%

Advice8%

Trustee6%

Ord Minnett15%

Corporate and other0%

Other revenue3%

0

25

50

75

100

125

150

175

200

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

Gro

ss m

arg

in (

A$M

N)

Figure 16: Platform gross margin (% of FuA) up in 1H13… IFL gross margin by segment (%)

Figure 17: … DKN providing a boost to advice GM IFL gross margin by segment (A$mn)

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

Platform Investment management Advice and distribution Trustee

Gro

ss m

arg

in (

%)

2H10 1H11 2H11 1H12 2H12 1H13

0

10

20

30

40

50

60

70

80

90

100

Platform Investment management Advice and distribution Trustee

Gro

ss m

arg

in (

A$m

n)

2H10 1H11 2H11 1H12 2H12 1H13

Figure 18: Opex up in 1H13, but cost-to-income flat… IFL operating expenses (A$mn), cost to income (%)

Figure 19: …staff the greatest overall expense IFL cost composition (%), 1H13

40%

45%

50%

55%

60%

65%

70%

75%

80%

0

15

30

45

60

75

90

105

120

135

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

Co

st t

o in

com

e (%

)

Op

erat

ing

exp

ense

s (A

$mn

)

Salaries Other Cost to Income (%)

Salaries63%

Marketing3%

Occupancy7%

IT15%

Professional fees3%

Office admin6% Other

3%

Source for all charts: Company data, Credit Suisse estimates


24 April 2013


Equity Research

Diversified Metals & Mining (Nickel (AU))

Mirabela Nickel

(MBN.AX / MBN AU) FORECAST REDUCTION

Production and equipment disappoints

■ 1Q production was weak at 4.15kt (CS: 5.18kt). While we knew the main

crusher was undergoing maintenance, there was additional downside from

nickel grades (0.47%, down from 0.53%) and recovery (56%, down from

59% but achieved while processing lower grade ore from the Central zone).

MBN is guiding towards the lower end of an unchanged FY13 guidance of

22-24kt but this requires that every piece of equipment operates at full

capacity. This would be a first – we lower our forecast to 20kt from 22kt.

FY13 forecast losses increase from $31mn to $41mn.

■ Crusher remains the key concern – on the call, management noted that

consultants had been hired for a technical review of the primary crusher. The

casing needs to be inspected for stress fractures (among other issues) and we

expect an update in about 6 weeks. If the technical issues prove beyond basic

maintenance, the crusher could be out for a while – in addition to the capex

cost, mobile crushers will have to be leased – the secondary crusher can

operate at 800/t but the plant requires 930t/h at budgeted capacity.

■ One bright spot was the low $5.1/lb cash cost, despite “significant

inflationary pressures”. Although partially driven by real productivity gains,

the low cost was helped by strong by-product credits of $1.23/lb (from

$0.91/lb in 4Q) following a lumpy PGM sale. Excess stripping above LOM

average of 5:1 was also capitalised (6.3 in 1Q). In April, MBN replaced its

own underperforming O&K 120t excavators with two larger Hitachi 2500

excavators run by mining contractor U&M, to be paid on performance. MBN

expects operational improvements to outweigh higher contracted opex rates.

■ While the 24% share price decline feels overdone, significant uncertainty

remains while the crusher review is ongoing – MBN now faces real risk of

opex/capex increasing but does not have cash to burn ($141mn cash but

$50 debt payable in 2014 and $379mn in 2018). Despite a compelling long-

term valuation ($0.50) we retain our NEUTRAL rating.


Mean^

CS tgt^

Sh Prc

-70%

30%

130%

230%

330%

430%



Absolute (%) -53.3 -72.0 -68.8

Relative (%) -54.3 -76.8 -84.1


Year 12/12A 12/13E 12/14E 12/15E

Revenue (US$mn) 343.4 342.9 393.1 446.4

EBITDA (US$mn) 28.8 38.1 38.5 77.9

EBIT (US$mn) -36.0 -4.9 -4.5 34.8

Net income (US$mn) -72.9 -41.0 -40.2 -2.7

EPS (CS adj.) (USc) -10.53 -4.64 -4.55 -0.31

Change from previous EPS (%) n.a. n.m n.m n.m

Consensus EPS (USc) n.a. 0.30 2.50 7.70

EPS growth (%) 38.2 56.0 1.9 93.2

P/E (x) -1.4 -3.1 -3.1 -46.2

Dividend (USc) — — — —

Dividend yield (%) — — — —

P/B (x) 1.1 1.6 3.4 3.8

Net debt/equity (%) 258.9 422.3 1,028.9 1,155.0






Rating NEUTRAL* [V]

Price (23 Apr 13, A$) 0.14





Projected return:


Dividend yield (net %) —




benchmark.



Research Analysts

Paul McTaggart

61 2 8205 4698

[email protected]

Martin Kronborg

61 2 8205 4369

[email protected]

24 April 2013


Figure 1: MBN Financial Summary

Market data Valuation summary US$mn US$/share A$/sh C$/sh

Ticker MBN.AX Santa Rita Nickel Project 785 0.89 1.00 0.91

Share price A$ 23-Apr-13 0.14 Exploration Upside 20.0 0.02 0.02 0.02

Target price 0.27 Mining valuation 805 0.91 1.03 0.94

Return to target price 93% Corporate / other -137.8 -0.16 -0.18 -0.16

Market cap A$mn 124 Hedgebook 0 0.00 0.00 0.00

Market cap US$mn 129 Subtotal 667 0.76 0.85 0.78

Shares on issue (mn) 884 Less net debt/(cash) 307 0.35 0.35 0.36

FX rate (AUD:USD) 1.04 Net equity value 360 0.41 0.50 0.42

Spot FX rate (CAD:USD) 1.03 FX 1.04 1.03

Spot FX rate (BRL:USD) 2.02

Commodity prices CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Nickel Price (US$/lb) US$/lb 10.45 10.15 7.65 7.63 7.71 8.39 9.07

Copper Price (US$/lb) US$/lb 3.42 4.03 3.62 3.39 3.03 2.81 2.86

USD:BRL FX 1.76 1.67 1.95 1.99 1.95 1.95 1.95

AUD:USD FX 0.92 1.02 1.04 1.01 0.96 0.94 0.92

Production CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Strip ratio 8.4 6.1 4.7 5.7 5.5 5.9 5.9

Material movements (000t) 29,058 40,761 38,531 42,298 46,800 51,750 55,200

Mill throughput (000t) 3,804 5,373 6,473 6,780 7,200 7,500 8,000

Grade (%) 0.52 0.50 0.51 0.51 0.52 0.52 0.52

Recovery (%) 52 58 58 58 61 62 62

Nickel Payable (%) 89% 89% 89% 89% 89% 89% 89%

Nickel Produced after recoveries, before payable (000't) 10.4 15.9 19.3 20.1 22.7 24.2 25.8

Nickel Payable (mlb) 20.4 31.1 37.8 39.4 44.4 47.4 50.6

Copper in Concentrate Produced (000't) 3.23 4.96 5.81 5.77 6.95 7.03 7.38

Cobalt in Concentrate Produced (000't) 0.21 0.30 0.30 0.36 0.40 0.42 0.45

Unit Costs CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Mining costs (US$/lb) 2.81 3.65 3.01 3.13 3.24 3.08 3.08

Milling 2.57 2.10 1.62 1.53 1.48 1.44 1.44

Admin costs 1.04 0.86 0.53 0.51 0.50 0.50 0.50

Transport and shipping costs 0.08 0.19 0.19 0.18 0.20 0.20 0.20

By-Product Credit including QP adjustments -1.03 -1.31 -1.17 -1.18 -1.13 -1.02 -1.02

Operating unit cash costs 5.46 5.50 4.18 4.17 4.28 4.20 4.20

Smelter charges 2.14 1.72 1.66 1.61 1.65 1.65 1.65

Unit cash costs (exc. royalty 4.5% Gross Revenue) 7.60 7.23 5.83 5.78 5.93 5.85 5.85

Payable Unit cash costs (inc. royalty) 8.11 7.73 6.23 6.12 6.28 6.23 6.26

Payable Unit cash costs (head office & maint. capex) 8.56 8.06 6.57 7.19 7.22 7.05 7.01

Payable Unit total costs (incl. D&A, interest, ex. maint) 11.42 10.90 9.25 8.38 8.27 8.16 8.08

P&L (US$mn) CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Sale of goods (incl. by-products) 211.0 303.6 343.4 342.9 393.1 446.4 510.5

Hedging / other revenue - - - - - -

Revenues from operating activities 211.0 303.6 343.4 342.9 393.1 446.4 510.5

Treatment, refining and transport charges -31.8 -59.2 -70.0 -61.9 -73.3 -78.3 -83.5

Net revenues 179.2 244.4 273.4 280.9 319.8 368.1 427.0

Cost of sales (excl. by product revenue) 123.8 203.8 200.4 213.5 249.8 257.0 274.2

Royalties 10.3 15.6 15.0 13.4 15.4 17.9 20.7

Head Office 9.3 10.3 12.7 10.0 10.0 10.0 10.0

Other expenses (exploration, FX) 4.0 12.3 16.6 6.0 6.0 5.3 5.0

Total operating expenses 147.4 242.1 244.6 242.9 281.3 290.2 309.8

EBITDA 31.7 2.3 28.8 38.1 38.5 77.9 117.2

Depreciation and amortisation 37.2 52.8 64.8 43.0 43.0 43.0 43.0

EBIT -5.5 -50.5 -36.0 -4.9 -4.5 34.8 74.2

Net interest -21.1 -35.7 -36.9 -36.1 -35.7 -38.7 -39.4

Profit before tax -26.6 -86.2 -72.9 -41.0 -40.2 -3.9 34.8

Tax -6.3 2.4 - - - 1.1 -10.1

Normalised NPAT -32.9 -83.8 -72.9 -41.0 -40.2 -2.7 24.7

Net significant items (post tax) -14.7 33.1 -380.0 - - - -

Reported NPAT -47.6 -50.8 -452.9 -41.0 -40.2 -2.7 24.7

EPS basic -8.4 -17.0 -10.6 -4.7 -4.6 -0.3 2.8

DPS (cps) - - - - - - - Source: Company data, Credit Suisse estimates

24 April 2013


Figure 2: MBN Financial Summary

Key financials CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Normalised EPS - basic (cps) -8.4 -17.0 -10.6 -4.7 -4.6 -0.3 2.8

Normalised EPS - diluted (cps) -8.4 -17.0 -10.5 -4.6 -4.6 -0.3 2.8

Reported EPS - basic (cps) -12.1 -10.3 -66.2 -4.7 -4.6 -0.3 2.8

Reported EPS (diluted) -12.1 -10.3 -65.5 -4.6 -4.6 -0.3 2.8

Cash EPS (diluted) -2.6 0.4 -56.1 0.2 0.3 4.6 7.7

EPS growth 99% 104% -38% -56% -2% -93% -1002%

Diluted average shares 394 492 692 884 884 884 884

PER (x) (norm EPS - basic) -1.5x -0.8x -1.4x -3.0x -2.9x -42.0x 4.6x

PER (x) (norm EPS - diluted) -1.5x -0.8x -1.4x -3.0x -2.9x -42.4x 4.6x

PER (x) (norm cash EPS - diluted) -4.9x 34.0x -0.3x 60.9x 42.3x 2.9x 1.9x

PER (x) (norm cash EPS - after main capex) -4.2x -4.1x 10.3x 2.9x

Payout ratio (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Dividend yield (net) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Franking 0% 0% 0% 0% 0% 0% 0%

Dividend yield (gross) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Free cash flow yield -123.2% -72.3% -25.6% -8.4% -20.4% 9.2% 35.6%

Key operational financials CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Gross cash mining margin 41% 33% 42% 38% 36% 42% 46%

EBITDA margin (%) 15% 1% 8% 11% 10% 17% 23%

EBIT margin (%) -3% -17% -10% -1% -1% 8% 15%

NPAT margin (%) -23% -17% -132% -12% -10% -1% 5%

Corporate tax rate (%) -24% 3% 0% 0% 0% 29% 29%

Variable Profits Tax (%) 0% 0% 0% 0% 0% 0% 0%

Tax rate - P&L (%) -24% 3% 0% 0% 0% 29% 29%

Tax rate - cash (%) 0% 0% 0% 0% 0% 0% 14%

EBITDA growth (%) -334% -93% 1156% 32% 1% 102% 51%

EBIT growth (%) -65% 826% -29% -86% -8% -866% 113%

NPAT growth (%) -497% 7% 792% -91% -2% -93% -1002%

Gearing CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Net Debt 160.4 341.0 307.2 328.1 375.2 383.8 343.3

Net Debt / Equity (%) 26% 65% 259% 422% 1029% 1155% 593%

Net Debt / (Equity+Net Debt) (%) 21% 39% 72% 81% 91% 92% 86%

Interest cover (x) (EBITDA) 1.5 0.1 0.8 1.1 1.1 2.0 3.0

Interest cover (x) (EBIT) -0.3 -1.4 -1.0 -0.1 -0.1 0.9 1.9

Cashflows (US$mn) CY10 CY11 CY12F CY13F CY14F CY15F CY16F

Operating cashflows (pre-tax) -88.2 -51.8 -32.7 22.1 5.9 40.7 78.5

Cash Tax Paid - - - -0.81 - - -5.0

Capex - maintenance - - - -32.0 -32.0 -29.0 -28.0

Free cash flow -88.2 -51.8 -32.7 -10.7 -26.1 11.7 45.5

Capex - growth -32.7 -96.5 -43.0 -5.0 -15.0 -15.0 -

Other investing cashflows -0.4 -0.0 -3.1 -5.2 -6.0 -5.3 -5.0

Debt drawdowns / (repayment) -44.9 -251.4 -9.7 - -50.0 - -

Financing cashflows 208.1 358.7 169.2 - - - -

Net increase in cash 42.0 -41.1 80.7 -20.9 -97.1 -8.6 40.5

Cash at end of the year 102.1 61.2 143.0 122.2 25.1 16.5 57.0 check - - - - - - -

Balance Sheet (A$m) CY10F CY11F CY12F CY13F CY14F CY15F CY16F

Cash 102.1 61.2 143.0 122.2 25.1 16.5 57.0

Receivables 43.0 59.4 63.0 41.5 43.3 48.9 55.9

Inventories 34.5 64.1 56.9 56.9 56.9 56.9 56.9

Plant & equipment 883.6 816.3 358.6 352.6 356.5 357.5 342.5

Deferred tax assets - - - - - - -

Intangibles - - - - - - -

Other assets 57.0 15.0 14.5 14.5 14.5 14.5 14.5

Assets 1,120.3 1,016.0 636.0 587.6 496.2 494.3 526.8

Payables 32.7 69.0 46.0 38.0 38.6 39.7 42.4

Provisions 3.7 - - - - - -

Tax liabilities 6.6 4.6 - - - - 5.1

Total Borrowings 262.5 402.2 450.3 450.3 400.3 400.3 400.3

LT Borrowings 246.1 393.8 415.3 415.3 365.3 365.3 365.3

Other liabilities 195.5 14.7 21.1 21.1 21.1 21.1 21.1

Liabilities 501.0 490.5 517.3 509.3 459.9 461.0 468.8 check #N/A #N/A - - - - -

Net Assets 619.3 525.5 118.7 78.3 36.3 33.2 57.9 Source: Company data, Credit Suisse estimates


24 April 2013


Equity Research

Precious Metals (Gold (AU))

Newcrest Mining

(NCM.AX / NCM AU) DECREASE TARGET PRICE

MarQ - Cadia East and MOPU commissioning

well

■ MarQ production was as expected, pre-empted by recent guidance downgrade

on continuing Gosowong ground condition challenges and the late quarter Lihir

autoclave issue which will impact the JunQ but is now fully resolved.

■ Higher sequential production of 514,421 @ $799/oz up on DecQ’s 492,906

@ $727/oz driven by – Stronger Lihir from expansion commissioning ahead

of the late quarter autoclave issue in the old plant, Cadia East from ramp up of

higher grade underground production displacing lower grade stockpile ore,

and marginally stronger Bonikro; Weaker Telfer from cyclone disruption and

Gosowong from protracted high grade access challenges, and Hidden Valley,

remaining unacceptable ahead of conveyor restoration.

■ Cadia East and Lihir MOPU projects are progressing in line with

expectations. Cadia East Draw Bell development, the determiner of

production, is ahead of schedule. Successful commissioning of the main

crusher and conveyor suggests a step increase in JunQ production.

■ The recently downgraded guidance of 2-2.15moz is re-stated.

■ Swift reaction to commodity prices with $50mn annual cost reduction (150 jobs

cut) at a cost of ~$10mn will reduce corporate G&A by ~$12mn/year, with the

balance of the costs within project study capital. All capital projects are under

review. Cost or commodity price environment must improve to justify

additional Telfer capital and life >5 years. Reserve life is materially longer.

■ TP is revised down slightly to $24.20 (from $24.50); earnings changes of

~5-6% reflect more conservative cost and production profiles over the

forecast period. Maintain OUTPERFORM.


Mean^CS tgt^

Sh Prc

-30%

-10%

10%

30%

50%

70%

90%



Absolute (%) -26.2 -30.1 -40.4

Relative (%) -27.2 -34.9 -55.6


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 4,416.0 3,904.4 5,185.8 5,557.9

EBITDA (A$mn) 2,151.0 1,529.1 2,359.8 2,581.2

EBIT (A$mn) 1,590.0 931.4 1,575.7 1,637.2

Net income (A$mn) 1,084.1 616.9 1,023.5 1,083.3

EPS (CS adj.) (Ac) 141.53 80.49 133.55 141.35



EPS growth (%) -3.8 -43.1 65.9 5.8

P/E (x) 11.6 20.4 12.3 11.6

Dividend (Ac) 35.00 40.00 40.00 42.00

Dividend yield (%) 2.1 2.4 2.4 2.6

P/B (x) 0.84 0.79 0.76 0.73

Net debt/equity (%) 14.4 18.4 19.1 15.5






Rating OUTPERFORM*

Price (23 Apr 13, A$) 16.45



Yr avg. mthly trading (A$mn) 1,990

Last month's trading (A$mn) 2,209

Projected return:






benchmark.


Research Analysts

Michael Slifirski

61 3 9280 1845

[email protected]

Sam Webb

61 3 9280 1716

[email protected]

24 April 2013


Figure 1: NCM financial summary

Newcrest Mining (NCM) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % 47.11 EPS_GROWTH*100EPS Growth % -3.8 -43.1 65.9 5.8


c_DPS*100DPS c 30.0 35.0 40.0 40.0 42.0

c_PAYOUT*100Payout % 20.4 24.7 49.7 30.0 29.7




Sales revenue 4,102.0 4,416.0 3,904.4 5,185.8 5,557.9 ValuationEBITDA 2,045.0 2,151.0 1,529.1 2,359.8 2,581.2 c_PE P/E x 11.2 11.6 20.4 12.3 11.6


EBIT 1,544.0 1,590.0 931.4 1,575.7 1,637.2 c_EBITDA_MULTIPLE_CUEV/EBITDA x 6.5 6.9 10.2 6.7 5.9




Profit before tax 1,508.0 1,549.0 880.2 1,535.0 1,604.6 ReturnsIncome tax (392.0) (406.1) (224.4) (458.4) (480.0) c_ROE*100Return on Equity % 7.7 7.2 3.9 6.2 6.3

Profit after tax 1,116.0 1,142.9 655.8 1,076.6 1,124.5 c_I_NPAT/c_I_SALES*100Profit Margin % 25.8 24.5 15.8 19.7 19.5




Normalised NPAT 1,058.0 1,084.1 616.9 1,023.5 1,083.3 c_ROIC*100Return on Invested Cap. % 7.9 6.8 3.6 5.5 5.7

Unusual item after tax (150.0) 33.0 (16.6) (99.1) (46.0) GearingReported NPAT 908.0 1,117.1 600.3 924.4 1,037.3 c_GEARING*100Net Debt to Net debt + Equity % 4.2 12.5 15.5 16.0 13.4







Current assets 1,542.0 1,464.0 1,380.2 1,496.1 2,042.6 MSCI IVA (ESG) Rating BBProperty, plant & equip. 3,310.0 4,364.0 5,756.7 6,475.4 6,769.8 TP ESG Risk (%): 0

Intangibles 3,682.0 3,852.0 3,785.0 3,775.6 3,767.2

Other non-current assets 8,748.0 10,829.0 11,165.9 11,307.8 11,316.9


Total assets 17,282.0 20,509.0 22,087.8 23,055.0 23,896.5

Payables 432.0 482.0 352.7 436.0 478.7

Interest bearing debt 800.0 2,408.0 3,095.1 3,231.3 3,188.3

Other liabilities 2,175.0 2,525.0 2,531.4 2,634.8 2,656.5 MSCI IVA Risk: Neutral


Net assets 13,875.0 15,094.0 16,108.6 16,752.9 17,573.0

Ordinary equity 13,776.0 14,975.0 15,942.4 16,533.9 17,312.8




Net debt 615.0 2,166.0 2,964.0 3,197.1 2,721.4 Source: MSCI ESG Research


EBIT 1,544.0 1,590.0 931.4 1,575.7 1,637.2

Net interest -20.0 -31.0 -44.3 -39.9 -36.8

Depr & Amort 501.0 561.0 597.7 784.2 944.1

Tax paid -107.0 -219.0 -220.0 -355.0 -458.3

Working capital -362.1 183.0 -35.2 -130.4 -66.8

Other 173.1 -358.0 -262.2 9.8 89.5

Operating cashflow 1,729.0 1,726.0 967.4 1,844.3 2,108.8

Capex -1,890.0 -2,556.0 -1,991.4 -1,417.2 -1,147.4

Capex - expansionary -1,279.9 -1,231.7 -1,346.5 -1,043.7 -790.7

Capex - maintenance -610.1 -1,324.3 -644.9 -373.5 -356.7



Other -6.0 -41.0 -26.0 0.0 0.0

Investing cashflow -2,294.0 -2,755.0 -2,178.6 -1,568.7 -1,258.7

Dividends paid -231.0 -405.0 -283.8 -306.2 -306.2

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings 427.0 1,543.0 1,273.9 -66.4 -111.1

Other -65.0 -48.0 114.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 131.0 1,090.0 1,104.1 -372.6 -417.3 Absolute -26.2% -30.1% -40.4%

Total cashflow -434.0 61.0 -107.2 -97.0 432.8 Relative -27.2% -34.9% -55.6%

Adjustments -24.0 -4.0 -4.0 0.0 0.0

Net change in cash -458.0 57.0 -111.2 -97.0 432.8 Source: Reuters 52 week trading range: 15.89-29.96

MSCI IVA Risk Comment: Given performance and rating provided,

feel change in rating in near-term may be unlikely.

4/23/2013 15:32

Newcrest Mining Limited (Newcrest) is engaged in the exploration, mine development, mine

operations and the sale of gold and gold/copper concentrate. Newcrest operates seven gold

mines in Australia, Indonesia and Papua New Guinea

Credit Suisse View

TP Risk Comment: No additional ESG downside risk incorporated

into our Target Price outside of already assumed cost pressure

from labour in our modelled assumptions.

OUTPERFORM

15.10

20.10

25.10

30.10

35.10

4/11/2012 6/11/2012 8/11/2012 10/11/2012 12/11/2012 2/11/2013 4/11/2013

NCM.AX XJO

2.3

2.8

3.3

3.8

4.3

4.8

5.3

5.8

6.3


Stock Local Sector



24 April 2013


MarQ reveals challenges behind latest downgrade

Details of Newcrest’s MarQ operating performance that contributed to the recent guidance

downgrade were demonstrated to have been largely resolved and unlikely to be repeated,

although Telfer old plant reliability will remain unpredictable until the refurbishment of the

old plant is completed.

■ Lihir – higher production from:

o Improved reliability of the old plant (prior to the end of the quarter autoclave issue

which impacts the JunQ, not the MarQ). This was fully resolved in four weeks,

less than the five-seven week estimate. The autoclave issue was satisfactorily

explained as a small design issue on just that clave. This has been fully repaired

and the clave upgraded to the same design as the other three claves (titanium

baffles replacing brick baffles around an agitator).

o Initial production from the commissioning new plant. The new plant appears to

have commissioned well but remains in commissioning mode. All components

have been run at or above nameplate and the new autoclave is performing well.

■ Cadia Valley – higher production at future declining costs from:

o Solid tonnage increase from Ridgeway at lower costs as the cave performance

and productivity improves with time with 8.2Mtpa annualised rate achieved.

o Incremental tonnage increase from Cadia East as the sublevel cave develops,

displacing lower grade stockpiled ore. Caved ore is now reporting to the

drawpoints at excellent fragmentation and is being very comfortably handled by

the materials handling system. April commissioning of the main crusher and

haulage conveyor allows for a step increase in JunQ production over the MarQ.

o Incrementally less low grade stockpiled ore in the production mix. Stockpile ore

appears to be behaving better in the plant than in the prior quarter.

■ Gosowong – weak production reflecting now reasonably resolved near term

challenges with accessing more normal and scheduled high grade ore. Hanging wall

access has been re-established allowing normal mining of the high grade Kencana

stopes and more permanent footwall access is near completion.

■ Telfer – weaker production at higher cost, reflecting the impact of heavy rainfall in

February from Cyclone Rusty and the need to mine high cost benches.

■ Hidden Valley – continuing weak, high cost production reflecting the multitude of

challenges of the operation and further delays to commissioning the reinstated

conveyor and head end crusher to be completed in May. Focus will then turn to

reducing site costs.

■ Bonikro – flat production but not deserving of expansion capital at this time.

The key drivers of Newcrest’s outlook – Lihir and Cadia East – have delivered sequential

improvements and are commissioning very well.

■ Cadia East is well ahead of its development schedule, suggesting increasing

confidence around its ramp up schedule and potential for a shorter lead time to design

production. Caved ore reaching the draw points (not just drill and blasted under-cut

ore) and commentary on very good fragmentation from the extensive pre-conditioning

of the orebody, is a very significant de-risking announcement.

■ Lihir’s new plant performance appears to be very satisfactory and provides some

insight into the future production potential when stable operations are established from

the new plant and the old plant. Aside from the recent autoclave incident, the old plant

reliability appears to be improving as the major total plant shut down risks are

24 April 2013


addressed. Material movements have been well below (half) the capacity of the fleet.

Management indicate that mining will increase materially next year before

commissioning of the 5Mtpa flotation expansion gives capacity to increase draw of

stockpiles ore. Unit costs are well above what is required to deliver post expansion

cost guidance but might be a function of the very low equipment utilisation on mining

and costs being incurred on stockpile relocation but with a mined tonne denominator.

We suspect that more work needs to be done to reduce mining costs and improve

productivity.

■ Gosowong’s recent ground condition challenges that have led to production shortfalls

relative to schedule, have been well explained, giving confidence that the targeted

100koz/q can be re-established. Management discussed their two pronged approach –

remediation of existing access in the plastic, closing hangingwall development, while

more permanent new access is developed in the footwall.

Management change – a sign of lost patience?

Management changes announced with the recent production downgrade suggest to us

that the MD is seeking to increase management focus and accountability, particularly at

Lihir. A $50mn of labour cost reduction from city-based longer term project studies has

been implemented to reduce cash outflow on projects that are longer dated, not priced by

the market, but are able to maintain an option value (Hidden Valley expansion, Bonikro

expansion, Namosi, O’Callaghans).

We still worry about Telfer – as does management

Telfer’s current performance and production is dependent on sustainability of high grade

underground ore to the mill. Underground ore contributes 6Mtpa and ~250koz of Telfer’s

annual 21.5Mt of ore processed and 550koz of production. 43-101 Reserves however are

only 23Mt at 1.2g/t Au and 0.26% copper, supporting nearly four years of remaining

reserve life at similar to current production and costs, but within a broader resource base

of 78Mt at 1.3g/t that requires additional drilling, a feasibility study, and commitment of

additional capital. The higher JORC reserve for the underground includes the Vertical

Stockwork Corridor resource that has not been subjected to a feasibility study or

committed to. Management made it abundantly clear that, under current AUD commodity

prices and WA operating costs, no additional capital would be committed to Telfer.

This decision does not have to be made for at least two years, with the operation well

positioned to milk cash from the existing capital base until the underground is depleted

and the current open pit cutback needs to be repeated to uncover the next ore block.

Management are expressing significant confidence that additional ore-grade underground

resource will be identified beneath West Dome and potentially between Main Dome and

West Dome. This drilling program is yet to be completed and a resource identified.

Time is clearly getting tight to complete the necessary access development, undertake the

drilling, complete a feasibility study, and develop a replacement underground operation to

maintain the current 6.5Mtpa underground production rate. This is a large mine and will

require large capital to replace it – a decision that requires confidence in metal prices,

operating costs, and the likelihood of extracting a return on the additional capital.

We note also that the current cut back at Telfer open pit underpins open pit production for

the next three-four years and possibly five years based on management’s discussion on

the conference call. A further capital commitment (Cut back 4 was $200mn) is required for

the next cutback to support a life extension that is underpinned by open pit reserves.

It may be that underground reserves are not extended sufficiently to maintain the current

underground production rate. Without the underground ore contribution, the open pit

reserve may struggle to be viable and unable to support additional capital for a cut back to

uncover ore for beyond four years. This is a materially more punitive assumption than we

24 April 2013


currently make. A bear case assumption on Telfer life could reduce our group NPV by

~$1.00/share.

From investment phase to surplus cashflow

With the heavy capital reinvestment phase (Lihir expansion and refurbishment, Telfer cut

back and Cadia East development) now largely complete, Newcrest moves to a phase of

strong free cash flow generation with no major capital projects other than completion of:

■ The 5Mtpa Lihir flotation expansion ($300mn)

■ The old plant refurbishment ($200mn)

■ Cadia East lift 2 development ($500mn)

The end of the investment phase coincides well with the market’s focus shift from

demanding and paying for growth from gold companies to now discounting for growth but

demanding returns and dividends. Newcrest’s near complete recapitalisation of its major

production centres should see a period of reduced capital expenditure and generation of

stronger free cash.

Discussion on the management call made it abundantly clear that any new capital

committed to any Newcrest projects would only be on the basis of sound returns. This is a

very material change in direction from the strategy of prior MD, Ian Smith, in a different

gold equity market, where every one of Newcrest’s operating assets had an expansion

plan and many of the advanced exploration projects were included in the projected

production growth profile. These now remain as future options in the portfolio.

IFRIC 20 – underground bias suggests limited

cosmetic changes

As a June year-end company, Newcrest does not have to start reporting under IFRIC 20

until its SepQ result, so no change is expected this financial year.

FY14 will see full implementation of IFRIC 20, resulting in:

■ Lower reported cash costs as deferred stripping cost above life of mine, or life of

phase strip, ratio will create an asset which is depreciated in future, compared to

current treatment as stripping adjustment that is added back to reported cash costs

when stripping is below life of mine, or life of phase, average.

■ A reduction in operating assets as deferred stripping is no-longer capitalised as an

operating asset.

■ An increase in Exploration, Evaluation and Development Assets as deferred stripping

is capitalised to this asset line.

■ Reclassification of the existing deferred stripping on the balance sheet to Exploration,

Evaluation and Development.

■ An increase in operating cash flow as waste stripping is no longer captured under

operating cash flow.

■ An increase in investment cash flow as waste stripping will be considered as capital,

not operating expenditure.

In the case of Telfer, the $200mn waste stripping for cut back 4 is nearly completed and

the stripping fleet is to be demobilised. Remaining stripping will largely be confined to

smaller waste movements from West Dome.

In the case of Lihir where pre-stripping is significant, reported cash costs should fall and

reported operating cash flow should rise.

24 April 2013


Figure 2: FY13 group production guidance

FY11 actual FY12 original

guidance

FY12A FY13 guidance FY13 #1 revised

guidance

FY13 #2 revised

guidance

Gold Production koz koz koz koz koz koz

Cadia Valley 515 550 – 580 473,195 400 - 500 450 - 470 no change

Lihir 791 815 – 850 604,336 700 - 900 726 - 746 620 - 680

Telfer 621 575 – 610 540,115 500 - 600 549 - 559 no change

Gosowong 463 455 – 465 439,384 375 - 425 351-361 300 - 325

Hidden Valley 100 115 – 135 88,801 100 - 120 88-98 80 - 90

Bonikro 50 95 – 105 92,102 100 - 110 104 - 114 no change

Cracow 71 70 – 75 divested divested divested divested

Mt Rawdon 90 100 – 105 divested divested divested divested

Total Gold Production 2,702 2,775 – 2,925 2,286 2,300 - 2,500 2,268 - 2,378 2,000 - 2124

Copper Production kt kt kt kt kt kt

Cadia Valley 44 45 – 50 45 53 - 58 53 - 58 54 - 58

Telfer 32 30 – 35 31 22 - 27 22 - 27 23 - 27

Total Copper Production 76 75 - 85 76.015 75 - 85 75 - 85 76 - 85

Silver Production 1,921 koz 2,500 – 2,750 koz 1,997.25 2,380 - 2,630 2,380 - 2,630 2,380 - 2,631


24 April 2013


Operational review Figure 3: NCM gold quarterly production

0

100

200

300

400

500

600

700

800

1Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q13

Qua

rter

ly G

old

Pro

duct

ion

(koz

)

Gold Produced

Cracow ( 70%) Gosowong ( 82.5%) Hidden Valley ( 50%)Telfer ( 100%) Cadia ( 100%) Ridgeway ( 100%)Lihir Island (100%) Mt Rawdon (100%) Bonikro (90%)


Figure 4: NCM copper quarterly production

0

5

10

15

20

25

30

1Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q13

Qua

rter

ly C

oppe

r P

rodu

ctio

n (k

t)

Copper Produced

Hidden Valley ( 50%) Telfer ( 100%) Cadia ( 100%) Ridgeway ( 100%)


24 April 2013


Ridgeway – cave and conveyor working extremely

well

■ With on-going improvements being made to the materials handling system and

fragmentation improving with the cave maturity, production continues to rise and costs

decline. We assume that the costs of production have declined further with the

increase in cave productivity and production (DecQ $8.30/t, SepQ $10/t, down from

$14/t). The higher production demonstrates a further improvement in cave

fragmentation, and a reduction in secondary breaking required, lifting productivity and

reducing costs.

■ Another record with MarQ tonnage 2.090Mt/8.36Mtpa (DecQ 1.906Mt/7.62Mt

annualised).

■ Annualised production target is 9Mtpa.

■ Higher gold production of 67,232oz (DecQ 60,326oz, SepQ 54,688oz).

■ The old sub level cave halo is producing ~1Mtpa of ore and will maintain this for “a

year or two” before Ridgeway cave ramps up to a sustainable 8Mtpa then 9Mtpa.

■ Head grade declining towards reserve grade at 1.28g/t (DecQ 1.24g/t, SepQ 1.32g/t,

JunQ 1.28g/t, MarQ 1.27g/t, DecQ 1.36g/t, SepQ 1.35g/t, JunQ 1.25g/t).

■ Marginally higher recovery of 81.2% (DecQ 81.1%, SepQ 80.2%, JunQ 79.8%, MarQ

80.6%, DecQ 81.2%, SepQ 82.4%, JunQ 79.5%),

■ Beyond FY16, Ridgeway is not required as an ore source as the higher grade Cadia

East is expected to have ramped up to 26Mtpa, matching current plant design

capacity.

■ However, the Cadia Valley ore sources support a further mill expansion from currently

implemented 26Mtpa to 30Mtpa, potentially achieved for very little capital as improving

cave fragmentation may do some of the work currently budgeted to be done by the mill.

Figure 5: Ridgeway production

FY11A 1Q12A 2Q12A 3Q12A 4Q12A FY12A FY13F 1Q13 2Q13 3Q13

Gold Production oz 148 54 55 51 63 223 240-270 54,699 60,326 67,232

Copper Production t 20 7.2 7 7.3 8.4 30 35-37 7.524 9.129 8.793


Cadia –stockpiles and incremental Cadia East tonne

■ Cadia production delivered largely from low grade (0.45g/t) stockpiles and a small but

increasing contribution from Cadia East production 601kt at 0.88g/t, down on the DecQ

(731Kt @ 0.88g/t).

■ Cadia East mine production flat on the DecQ, as expected, with production constrained

until the main crusher and haulage is commissioned (now) so a step change is

expected in JunQ production.

■ Cadia East production capitalised in 1H13 but hits P&L from MarQ.

■ Cadia East recovery down a little to 76.5% from DecQ 80.3%.

■ Costs reflect a stockpile recovery cost of ~$2/t and a non-cash stockpile carrying value

of ~$2/t ($7.6mn on 3.711Mt).

24 April 2013


■ The site will transition to 100% underground ore from Cadia East over four years, with

the net short fall during ramp up made up by low grade stockpiles.

■ Management indicate that a future cutback for the Cadia Hill pit (cut back 4) is

designed and could unlock future ore but is not needed for many years as higher

margin ore is plentiful. However, the collapse in the gold price may change this plan.

■ A$1,108mn capital spend in FY12 declines to A$600mn in FY13.

■ Very confident on ramp up profile with progress ahead of schedule.

■ Five year targeted production of 800koz from 400-500koz in FY13.

■ Further optimisation in 2015 towards higher capacity and production beyond five

years.

■ On-going development capex of $100mn/yr after $1.3bn of cave development capital

over the next five years plus 11 additional $100mn crushers required over balance of

mine life.

■ Site sustaining capital of $50-60mn/yr.

■ Depreciation $315 - $325/oz in FY13, materially up on FY12 $240/oz reflecting higher

Cadia East capital base and lower FY13F production from low grade stockpiles.

Figure 6: Cadia stockpile and Cadia East production

Cadia Valley


Gold Production koz 368 96 63 36 55 250 140-175 40.782 33.825 49.748

Copper Production kt 24 4.6 3.7 2.8 3.7 14 15-16 3.869 4.135 4.215


Figure 7: Cadia Valley guidance – note 2H range tightened to 450-480koz, but no change in latest update

Cadia Valley FY11

guidance

FY12

guidance

FY13

guidance

FY10A Low High FY11A Low High FY12A Low High

Gold Production koz 326 319 330 368 550 580 473.195 400 500

open cut koz 326 220 230 240.43 140 175

underground koz 330 350 223.314 240 270

Cadia East koz 8.451 20 55

Copper Production kt 29 25 26 24 45 50 44.778 53 58

open cut kt 29 8 10 14.075 15 16

underground kt 0 37 40 29.901 35 37

Cadia East kt 801 3 5

Total Site Cash Costs A$mn 358 310 335 229 380 405 440 410 450

Stripping & Ore Inventory A$mn 6 60 70 86.6 70 80 34 40 45

TC/RC's A$mn 69 62 72 45.4 60 70 63 75 85

Royalty A$mn 28 31 39 19.7 32 38 33 30 35

Depreciation A$/oz 132 168 179 152 225 235 240 315 325


24 April 2013


Telfer – Cyclone softens production

■ Weaker MarQ 124,378oz impacted by the impact of a cyclone exacerbated by a

planned shutdown (DecQ 128,995oz, SepQ 110,372oz, JunQ 131,755oz, MarQ

135,648oz). Flat production was forecast in FY13 on FY12.

■ West Dome recovery to improve with commissioning of Isa mills and Jamison cells to

address the West Dome metallurgy challenge of high sulphur.

■ Management suggest that the Vertical Stockwork Corridor and West Dome high grade

opportunities show potential to maintain elevated underground grades after the end of

the I30 reef despite this not being reflected by current reserves. Current drilling is

required to support this projection and future additional capital required to bring this to

production. Under current costs and metal prices, Newcrest would be unlikely to

commit the capital.

■ Gross site costs $220.6mn up materially (DecQ $195.9mn, SepQ $202.9mn, $199mn,

MarQ $195mn).

■ Cost guidance for FY13 of $810-$850mn. Full-year FY12 costs of $760mn met

guidance of $750mn–$770mn.

■ Open pit grade flat at 0.86g/t (DecQ 0.86g/t, SepQ 0.74g/t, JunQ 0.65g/t, MarQ

0.74g/t).

■ Underground grade continues to decline to1.31g/t (DecQ 1.44g/t, SepQ 1.48g/t, JunQ

1.67g/t, MarQ 1.48g/t).

■ Underground production increased to 1.387Mt (DecQ 1.568Mt, SepQ 1.459Mt, JunQ

1.572Mt, MarQ 1.431Mt).

■ No growth forecast unless O’Callaghans were to proceed.

■ Management unlikely to commit new capital to Telfer under current cost environment

and commodity prices but see the operation sustainable without new capital for four to

five years.

Figure 8: Telfer production

Telfer



Copper Production kt 32 7 7 8 8 31 22-27 6.916 6.662 6.016


24 April 2013


Figure 9: Telfer guidance – full-year 549koz-559koz but no change in latest update

Telfer FY11

guidance

FY12

guidance

FY13

guidance



open cut koz 379 365 380 319 310 330 253.065 280 330

underground koz 302 305 3,200 297 265 280 269.558 220 270

heap leach koz 7 6

Copper Production kt 35 31 34 32 30 35 31.236 22 27

open cut kt 14 11 12 13 15 17 12.794 10 12

underground kt 21 20 22 19 15 18 18.442 12 15


Stripping & Ore Inventory A$mn -35 0 5 2 -90 -100 -183 -175 -185

TC/RC's A$mn 67 65 70 64 80 85 69 60 70

Royalties A$mn 34 33 38 35 36 42 33 35 40



Gosowong – another weak quarter, as projected

■ Gosowong has delivered an expected weak quarter, from continued lack of access to

planned higher grade ore sources due to poor ground conditions. These have now

been resolved, suggesting that the operation can return to its 100koz/qtr drum beat.

■ Disappointing MarQ 58,502oz (DecQ 81,090oz at $551/oz, flat on weak SepQ at

80,223oz) resulting in a further downgrade to guidance during the quarter due to

constrained access to scheduled high grade ore due to continuing poor ground

conditions.

■ Gosowong’s capacity expansions have been implemented to sustain gold production

of ~400koz/yr, despite declining grades. Difficult ground conditions have been

deferring access to higher grade underground ore. This continued in the DecQ and

into the MarQ. ~15g/t is required to achieve 100koz/q.

■ Record mill throughput of 230kt sustained (DecQ 230kt, SepQ 216Kt, JunQ 216kt,

MarQ 187kt).

■ FY13 guidance downgraded during the quarter to 300-325koz from 351-361koz from

375-425koz. 439,384oz FY12 production was marginally below 450koz guidance.

■ Site costs $46.5mn (DecQ $43.64mn up on lower SepQ $39.6mn, JunQ $42.5mn,

MarQ $40mn).

■ FY13 site cost forecast is $175-$185mn, above FY12 $166mn, above original FY12

guidance of $140mn-$150mn.

Figure 10: Gosowong production

Gosowong

FY11A 1Q12A 2Q12A 3Q12A 4Q12A FY12A FY13F 1Q13 2Q13 1H13 3Q13

Gold Production koz 463 80 108 119 133 439 375-425 81.09 80.223 161.313 58.502


24 April 2013


Figure 11: Gosowong guidance – FY13 downgraded to 351-361koz and now 300 – 325koz

Gosowong FY11

guidance

FY12

guidance

FY13

guidance




Stripping & Ore Inventory A$mn 1 -12 -17 -13 3 8 12.3 0 -5

TC/RC's A$mn 3 3 5 2 2 4 3.5 2 4

Royalty A$mn 4 15 20 22 25 30 29.4 25 30



Hidden Valley (PNG) – turning point not reached but

visible

■ Another rather surprising quarter from Hidden Valley as production in the MarQ

remained weak and well below target levels, due to the conveyor challenges and

continuing difficult mining conditions.

■ Guidance downgraded on delays to completion of the crusher to now May, suggesting

improvement won’t be seen until FY14.

■ Throughput is constrained by limited haulage productivity. The repaired conveyor is

still performing below design as expected until the head end solution is installed.

■ A permanent conveyor solution was expected by the end of April when a head end

crusher is installed along with ore preconditioning, allowing the conveyor to run at full

capacity and the existing supplementary truck fleet to decommissioned, reducing costs

significantly, but not addressing the many other challenges of the site.

■ MarQ production of 18,988oz (DecQ 20,649oz, SepQ 22,137oz, JunQ 21,349oz,

MarQ 15.759koz).

■ Milled grade 1.59g/t (DecQ 1.71g/t, SepQ 1.67g/t. JunQ 1.72g/t, low MarQ 1.46g/t,

DecQ 1.9g/t) and recoveries improved to 84.3% (JunQ 80.7% from low MarQ 80.3%,

DecQ 90.6%).

■ Site costs up to $46.7mn (DecQ $44.1mn, SepQ $40.5mn, JunQ $42.5mn, MarQ

$37mn). Costs up on lower production.

■ Site costs are now beyond annual forecast of $155-$165mn. Costs remain elevated

by: poor conveyor performance requiring supplementation by expensive trucking; poor

road conditions, high tyre wear, mining interrupted by rain and fog and the remoteness

of the site.

Figure 12: Hidden Valley production

Hidden Valley


Gold Production koz 100 25.5 26.2 15.8 21.3 89 100-120 22.137 20.649 18,988

Silver Production koz 763 220 275 171 192 857 191.6 223.936 235.312 205.601


24 April 2013


Figure 13: Hidden Valley guidance – FY13 downgraded to 88-98koz and now 80-90koz

Hidden Valley FY11

guidance

FY12

guidance

FY13

guidance

FY10 Low High FY11A Low High FY12A Low High

Gold Production koz - 100 120 100 115 135 88.8 80 90

Silver Production koz - 1,000 1,200 763 na na na na na

Total Site Cash Costs A$mn - 100 110 123 130 140 155 155 165

Stripping & Ore Inventory A$mn - -4 -8 -8 -5 -10 -22.5 -20 -25

TC/RC's A$mn - 2 4 3 3 7 3.6 5 7

Royalties A$mn - 3 5 4 3 8 4 5 7

Depreciation A$/oz - 330 360 383 270 300 416 380 400

Hidden Valley – struggling but strategic, sort of

Hidden Valley’s issues are much deeper than the conveyor issue that has reduced

productivity and added haulage costs. High cost, production constraining ore haulage is

just one of many issues for a deeply challenged and compromised operation. Head grade,

mining rate, milling rate and recovery have never achieved feasibility projections. Unit

costs have been materially higher. With these structural shortfalls, the operation is unlikely

to achieve its expected investment potential.

It contributes less than 10cps to our valuation so is irrelevant, but strategically important

from a PNG perspective. It is a difficult position for Newcrest to exit as government

relationships are critical to future significant permitting hurdles for Golpu.

Figure 14: Hidden Valley grade disappoints Figure 15: Hidden Valley recovery disappoints


24 April 2013


Figure 16: Hidden Valley milling rate disappoints Figure 17: Hidden Valley mining rate disappoints

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

Sep11

Dec11

Mar12

Jun12

Sep12

Dec12

Mar13

Mill

ed

To

nn

es

(Mtp

a)

Actual Annualised Milling Rate Tonnes treated


Figure 18: Hidden Valley cash costs disappoint Figure 19: Hidden Valley production disappoints


From the historical total costs versus head grade data, it is difficult to believe that the JV

can continue to support the current 1.51g/t cut-off grade that underpins the current

reserve. It shows little sign of ever being economic, particularly against Newcrest’s

conservative gold price assumption of $1,250/oz.

24 April 2013


Figure 20: Hidden Valley – is the cut-off grade too low?


Lihir – progress on old plant and new

■ Production of 171,690oz reflected increased plant reliability as electrical remediation

progresses and the contribution from the new plant. (DecQ 147,146oz, SepQ

129,311oz, JunQ 163,059koz, MarQ 149,533oz,).

■ Recovery flat at 83.5% on DecQ 83.5% from SepQ 88.7% from an already elevated

JunQ 84% reflecting the leach circuit re-build and replacement

■ Guidance downgraded during the quarter on the unplanned autoclave outage which

will impact forecast JunQ production, but is now fully resolved in a four week outage.

■ Reliability issues are being addressed through the expenditure of $200mn/year over

two years. Key electrical issues have been addressed, with a new power supply

backbone and new switchgear.

■ MarQ autoclave tonnes up to 2,003Mtt from DecQ 1.593Mt after the weak SepQ

1.162Mtt on oxygen plant outage (JunQ 1.555Mt, MarQ 1.539Mt), reflecting

commissioning of the new autoclave.

■ Open pit material mined remains very low and behind original guidance but up to

7.721Mt from DecQ 6.845Mt from weak, rain impacted SepQ 5.719Mt , JunQ 7.974Mt,

MarQ 7.22Mt). Additional dewatering capacity has improved pit access materially.

■ Total material movement budget 60-70Mt across mining and stockpile movements.

Mine budget closer to 40-50Mt. Management suggest that much of the activity is not

visible in mine production as its relates to stockpile relocation, adding costs but not

booked as mine production tonnes.

■ Site costs up on MOPU plant to $166mn (DecQ $144mn, SepQ $124mn, JunQ

$139mn, MarQ $130mn).

■ The path for production beyond five years is not yet defined, other than management’s

desire for it to be beyond 1.2Moz/yr. The Kapit study due next year will define whether,

and in what form, Kapit proceeds. Management are assessing whether to put capital

into developing Kapit and the required sea wall, or whether to put additional capital

into the plant to increase production without needing Kapit. Management appear

24 April 2013


focussed on minimising capital while maximising production and cash flow and believe

this can be achieved through stockpile treatment. Stockpile recovery cost is $2/t

compared to a mining cost of $7/t.

■ $1.4bn capex ($1.3bn) forecast for Million ounce project (MOPU). US$440mn spend in

FY12 and ~US$160mn in FY13 to deliver ~1.2moz/yr for at least five years and

possibly 15 years, subject to Kapit proceeding and stockpile recovery option pursued.

■ Depreciation expected to remain ~$200/oz.

Figure 21: Lihir production

Lihir Island FY11A 1Q12A 2Q12A 3Q12A 4Q12A FY12A FY13F 1Q13 2Q13 3Q13

Gold production 791 135 157 150 163 604 700-900 129.311 147.126 171.690


Figure 22: Lihir guidance – guidance tightened to 726-747koz and now 628-680koz

FY11 actual FY12 original guidance FY12A FY13 guidance

Production koz koz koz koz

Gold 791 815 - 850 604.4 620-680

Cash Costs A$M A$M A$M A$M

Total site cash costs 489 500 – 520 521 650 - 680

Stripping & ore inventory (185) (190) – (200) (207) (190) – (210)

Third party smelting,

refining & transporting

3 3 – 8 2.5 3 - 6

Royalty 24 25 – 30 22 25 – 30

Depreciation $162/oz $190 – 200/oz 165 $190 – 200/oz


Bonikro steady, low probability of expansion

■ MarQ milling rate 485kt (DecQ12 481kt, SepQ12 465kt, JunQ12 478Kt, MarQ12

491kt) reflecting the main crusher rebuilt and less reliance on higher cost

supplementary crushing.

■ Production of 23,883oz (DecQ12 21,762oz, SepQ12 22,137oz) flat, reflecting restored

access to high grade open pit areas after the JunQ12 restricted access due to an early

wet season, and consequent improved recovery. (JunQ12 20.046Kt, MarQ12

25.5koz,).

■ Original FY12 guidance of 95-105koz was just missed with 92koz achieved.

■ Costs of $930/oz, (DecQ $952/oz, SepQ $979/oz, JunQ $817/oz, and MarQ $898/oz).

■ Mill expansion was targeted from current 2Mtpa to 3.5Mtpa to increase production

from current 100koz/yr to ~225koz/yr at a cash cost of ~US$600-650/oz, but unlikely

to be executed by Newcrest.

■ Current 1.1moz reserve does not support capital investment to reduce mine life from

ten years to <5 years, but 2.9moz resource does suggest potential.

24 April 2013


Figure 23: Bonikro production

Bonikro




Figure 24: Bonikro guidance

FY11 Actual FY12 Guidance FY12A FY13 Guidance

Production koz koz koz koz

Gold 50 95 - 105 92.1 100-110

Cash Costs A$M A$M A$M A$M

Total site cash costs 71 155 - 170 135 135 - 140

Stripping & ore inventory (11) (85) - (95) (57) (50) - (55)

Third party smelting,

refining & transporting

0 0 - 2 0.3 0 - 1

Royalty 2 4 - 7 4.4 5 - 7

Depreciation $266/oz $270 - 285/oz $340/oz $255 - 270/oz


Does Bonikro fit the portfolio?

In the context of Newcrest’s strategic positioning, Bonikro is an outlier. It is small and to

date exploration has not delivered a reserve base that demands capital for an expansion.

While it does not de-rate the portfolio, it does not enhance it unless Newcrest wishes to be

a West African consolidator of modest assets. This appears unlikely.

Evolution is not a logical vehicle for ownership of Bonikro. Perhaps Perseus is, with

aspirations to grow its production and suite of mines with an existing presence in country.

The Ivory Coast has indicated that it is going to speed up mining reform, under pressure

from the International Monetary Fund (IMF), which will disburse cash to assist the Ivory

Coast’s budget, but only if economic reforms are undertaken. As part of this, a new mining

code is expected to be adopted by the end of May.

The IMF’s board is to meet in May to examine granting $74mn in assistance to Abidjan. By

then, President Alassane Ouattara, is expected to have signed an order adopting the new

legislation which is to remove the proposed tax on additional profits that was applied by

Mines Minister Adama Toungara

Removal of this lingering uncertainty from Cote d’Ivoire will significantly reduce the risk

perception around gold assets in the country, increasing their corporate appeal.

24 April 2013


Earnings changes


FY15

Old 1H 2H New % change Old New % change Old New % change

Total Revenue A$mn 4,022 1,805 2,099 3,904 -3% 5,232 5,186 -1% 5,642 5,558 -1%

Cracow EBIT A$mn - - - - - - - - - - -

Gosowong EBIT A$mn 267 137 105 242 -9% 319 298 -7% 252 230 -9%

Hidden Valley EBIT A$mn 30- 13- 23- 36- -19% 19- 30- -60% 12- 19- -62%

Telfer EBIT A$mn 185 67 45 113 -39% 163 140 -14% 66- 78- -19%

Cadia EBIT A$mn 121 40 100 140 16% 306 306 0% 601 600 0%

Ridgeway EBIT A$mn 273 104 130 234 -14% 295 281 -5% 275 261 -5%

Wafi - Golpu Revenue - - - - - - - - - - -

Lihir Island EBIT A$mn 335 230 184 413 23% 804 772 -4% 873 812 -7%

Mt Rawdon EBIT A$mn - - - - - - - - - - -

Bonikro EBIT A$mn 49 15 23 38 -22% 7 15 108% 6 16 167%

Other EBIT A$mn 22- 17- 5- 22- 0% 9- 9- 0% 8- 8- 0%

Corporate A$mn 116- 56- 60- 116- 0% 120- 120- 0% 120- 120- 0%

Exploration A$mn 75- 36- 39- 75- 0% 76- 76- 0% 56- 56- 0%

EBITDA A$mn 1,600 740 789 1,529 -4% 2,456 2,360 -4% 2,693 2,581 -4%

Depreciation & Amortisation A$mn 614- 269- 329- 598- 3% 786- 784- 0% 948- 944- 0%

EBIT A$mn 986 471 460 931 -6% 1,670 1,576 -6% 1,745 1,637 -6%

Net Interest A$mn 52- 30- 21- 51- 1% 41- 41- 1% 31- 33- -5%

NPBT A$mn 934 441 439 880 -6% 1,629 1,535 -6% 1,714 1,605 -6%

Taxation A$mn 240- 102- 122- 224- 7% 487- 458- 6% 513- 480- 6%

Minorities A$mn 44- 19- 20- 39- 12% 56- 53- 6% 45- 41- 7%

NPAT (operating) A$mn 650 320 297 617 -5.1% 1,085 1,024 -5.7% 1,156 1,083 -6.3%

EPS (operating) A¢ 85 42 39 80 -5% 142 134 -6% 151 141 -6%

FY14FY13


CS gold and currency assumptions

Figure 26: CS gold price forecasts

4Q12 2012E 1Q13 2Q13 3Q13 4Q13 CY13 1Q14 2Q14 3Q14 4Q14 CY14 1Q15 2Q15 3Q15 4Q15 CY15

Gold US$/oz 1,725 1,670 1,631 1,580 1,570 1,540 1,580 1,520 1,520 1,480 1,470 1,498 1,420 1,420 1,420 1,420 1,420


Figure 27: AUD-USD forecasts

2013 quarters 2014 quarters 2015 quarters

4Q-12 2012E 1Q-13 2Q-13 3Q13 4Q13 CY13 1Q14 2Q14 3Q14 4Q14 CY14 1Q15 2Q15 3Q15 4Q15 CY15

AUD:USD 1.04 1.04 1.04 1.00 1.00 0.98 1.01 0.97 0.96 0.95 0.95 0.96 0.95 0.94 0.93 0.93 0.94


24 April 2013


NPV

Figure 28: NPV

Operational DCFs A$mn A$/sh A$mn A$/sh

Bonikro 434 0.57 90% 390 0.51

Cadia 8,021 10.48 100% 8,021 10.48

Gosowong 961 1.26 75.0% 721 0.94

Hidden Valley 33 0.04 50% 17 0.02

Lihir Island 9,238 12.07 100% 9,238 12.07

Namosi -522 -0.68 69.9% 0 0.00

Ridgeway 504 0.66 100% 504 0.66

Telfer 1,537 2.01 100% 1,537 2.01

Wafi-Golpu 4,985 6.51 35% 1,745 2.28

Sub-Total 25,191 32.91 22,172 28.96

Other assets A$mn A$/sh A$mn A$/sh

O'Callaghans 50 0.07 100% 50 0.07

Evolution stake 648 0.85 33% 214 0.28

Sub-Total 698 0.91 264 0.34

Corporate A$m A$/sh A$m A$/sh

Net Debt as at Dec 31, 2012 -3,106 -4.06 100% -3,106 -4.06

Corporate -798 -1.04 100% -798 -1.04

Sub-Total -3,904 -5.10 -3,904 -5.10

Equity

Net Present Value 21,985 28.72 18,532 24.21

SOI (mn) 766

Attributable NPVEquity

Interest

Attributable NPV

DCF

Equity

Interest

DCF Attributable NPV

Equity

Interest

Attributable NPV



24 April 2013


Equity Research

Oil & Gas Exploration & Production (Oil & Gas (AU))

Oil Search

(OSH.AX / OSH AU) QUARTERLY

Modest 1Q miss, LNG remains on track

■ Production numbers of 1.56mmboe slightly below CS expectations but FY

guidance maintained at 6.2–6.7mmboe. Lower production at Kutubu which

was impacted by two unplanned shutdown events was partially offset by gas

and NGL from Hides. We lower our FY production target from 6.6mmboe to

6.4mmboe on the risk that there could be further shutdowns.

■ PNG LNG more than 80% complete and remains on track for first LNG

late 2014. Air strip operations are expected to commence in May and OSH

will soon be able to supply commissioning gas to the LNG Plant. P’nyang

studies progressed, with the use of gas for Train 3 the primary focus

■ PNG LNG project finance discussions for the additional US$1.5bn

progressing well, with “strong interest” from prospective lenders. If debt can be

raised, OSH cash balance of $438.6mn (down from $480mn) and undrawn

facility of $500mn is sufficient for completion at current capex guidance.

■ Capex for the quarter was $406mn, including $285.9mn for PNG LNG. Slightly

below full-year guidance of $1.9bn–$2.1bn due to lower spend on PNG ($1.5bn–

$1.6bn guidance, including capitalised interest). Exploration was up to $65mn

(from $45mn), with MENA seeing the largest increase at $12mn – subsequent to

the reporting period oil flowed from the Euphrates Formation.

■ Our FY13 NPAT is down $16mn or 8%: $10mn can attributed to increased

exploration expensed from MENA (specifically, the Semda 1 well in Tunisia),

with the remaining due to lower oil production for the year. This is immaterial

to our valuation as PNG LNG makes up more than 80% of our SoTP which

is unchanged at A$8.6/shr.


Mean^CS tgt^

Sh Prc

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%


Performance Over 1M 3M 12M Absolute (%) -3.3 2.1 -1.9 Relative (%) -3.3 -1.6 -16.0


Year 12/12A 12/13E 12/14E 12/15E Production (mmboe) 6.4 6.4 9.6 25.7 Revenue (US$mn) 724.6 718.5 979.5 2,294.1 EBITDAX (US$mn) 525.7 517.5 738.7 1,884.2 EBIT (US$mn) 332.2 362.7 572.0 1,574.8 Net income (US$mn) 154.5 179.1 323.0 810.2 EPS (CS adj.) (USc) 11.57 13.29 23.73 58.23 Change from previous EPS (%) n.a. -8.0 -1.1 -0.7 Consensus EPS (USc) n.a. 12.70 23.60 63.70 EPS growth (%) -34.9 14.8 78.6 145.4 P/E (x) 64.3 56.0 31.4 12.8 Dividend (USc) 4.00 4.00 4.00 23.62 Dividend yield (%) 0.5 0.5 0.5 3.2 EV/EBITDAX 23.5 23.8 16.7 6.6 Net debt/equity (%) 74.1 121.2 129.2 111.2






Rating OUTPERFORM* Price (23 Apr 13, A$) 7.25 Target price (A$) 8.60¹ Market cap. (A$mn) 9,702.27 Yr avg. mthly trading (A$mn) 569 Last month's trading (A$mn) 626 Projected return: Capital gain (%) 18.6 Dividend yield (net %) 0.54 Total return (%) 19.2 52-week price range 7.9 - 6.2


benchmark.


Research Analysts

Paul McTaggart

61 2 8205 4698

[email protected]

James Redfern

61 2 8205 4779

[email protected]

Martin Kronborg

61 2 8205 4369

[email protected]

24 April 2013


Figure 1: OSH Financial summary

Oil Search (OSH) Year ending 31 Dec In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % 18.62 EPS_GROWTH*100EPS Growth % -34.9 14.8 78.6 145.4


c_DPS*100DPS c 4.0 4.0 4.0 4.0 23.6

c_PAYOUT*100Payout % 22.5 34.6 30.1 16.9 40.6




Sales revenue 732.9 724.6 718.5 979.5 2,294.1 ValuationEBITDA 526.1 381.7 437.5 658.7 1,804.2 c_PE P/E x 41.9 64.3 56.0 31.4 12.8


EBIT 474.8 332.2 362.7 572.0 1,574.8 c_EBITDA_MULTIPLE_CUEV/EBITDA x 20.3 32.3 32.2 22.4 8.3



Other (1.2) (1.4) 0.0 0.0 0.0 c_PB Price to Book x 3.3 3.1 3.0 2.7 2.3

Profit before tax 473.0 326.3 358.2 562.8 1,157.5 ReturnsIncome tax (237.4) (171.8) (179.1) (239.9) (347.2) c_ROE*100Return on Equity % 7.8 4.8 5.3 8.7 17.9


Minorities 0.0 0.0 0.0 0.0 0.0 c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.1 0.1 0.1 0.1 0.2




Unusual item after tax (33.1) 21.3 0.0 0.0 0.0 GearingReported NPAT 202.5 175.8 179.1 323.0 810.2 c_GEARING*100Net Debt to Net debt + Equity % 18.8 42.6 54.8 56.4 52.7



Cash & equivalents 1,047.5 488.3 271.7 335.1 581.5 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 721.6 72.9 81.3 62.6 3.8


Receivables 102.3 173.2 193.4 344.2 649.0 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 10,491.0 12,808.0 12,475.1 8,272.9 7,193.6


Current assets 1,295.2 908.4 701.6 979.4 1,633.6 MSCI IVA (ESG) Rating BBProperty, plant & equip. 68.0 71.9 67.7 64.3 61.6 TP ESG Risk (%): -4.5

Intangibles 0.0 0.0 0.0 0.0 0.0



Total assets 5,702.0 7,102.7 8,781.4 10,200.3 11,612.2

Payables 415.9 392.2 366.5 634.8 729.8




Net assets 3,017.2 3,208.3 3,387.5 3,710.4 4,520.7

Ordinary equity 3,017.2 3,208.3 3,387.5 3,710.4 4,520.7




Net debt 700.1 2,377.8 4,104.0 4,793.0 5,028.1 Source: MSCI ESG Research


EBIT 474.8 332.2 362.7 572.0 1,574.8

Net interest 4.3 1.3 -4.5 -9.1 -417.4

Depr & Amort 51.3 49.5 74.8 86.8 229.3

Tax paid -178.5 -213.9 -163.5 -164.7 -322.1

Working capital 182.3 -143.9 -35.5 54.0 -312.9

Other -148.0 171.2 80.0 80.0 80.0


Capex -1,194.9 -1,610.6 -1,770.2 -1,107.9 -916.9

Capex - expansionary -1,066.4 -1,495.8 -1,585.4 -926.8 -735.8




Other 0.0 -48.4 0.0 0.0 0.0


Dividends paid -36.7 -31.7 -53.6 -54.0 -173.1

Equity raised 43.1 37.6 53.6 54.0 173.1

Net borrowings 708.1 1,002.4 1,509.6 752.5 481.4

Other 0.0 -10.1 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 714.5 998.2 1,509.6 752.5 481.4 Absolute -3.3% 2.1% -1.9%

Total cashflow -216.1 -559.2 -216.6 63.5 246.3 Relative -3.3% -1.6% -16.0%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash -216.1 -559.2 -216.6 63.5 246.3 Source: Reuters 52 week trading range: 6.24-7.88

MSCI IVA Risk Comment: It will be difficult for OSH to improve

their rating due to the fact they operate entirely in PNG which is

deemed to have a weak rule of law and high levels of corruption

23/04/2013 13:05

Oil Search Ltd is engaged in the exploration for oil and gas fields and development &

production. This is carried out as both the operator of producing and exploration joint ventures

and as a non-operator participant.

Credit Suisse View

TP Risk Comment: Removing the country risk implied in the

disount rate, whereby we reduce the discount rate by 0.5% in line

with STO and WPL adds $0.39/share of 4.5%.

OUTPERFORM

5.93

6.43

6.93

7.43

7.93

8.43

11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

OSH.AX XJO

1.4

2.4

3.4

4.4

5.4

6.4


Stock Local Sector



24 April 2013


March 2013 quarter production highlights

Figure 2: Quarterly Production

Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 QoQ PcP

Production

Oil Kutubu kbbl 740 919 650 957 780 -18.5% 5%

Moran kbbl 417 546 360 541 465 -14.0% 12%

Gobe Main kbbl 9 11 11 9.0 10.0 11.1% 11%

SE Gobe kbbl 58 54 49 37 42 13.5% -28%

SE Mananda kbbl 11 8 3 0 1 nm -91%

Hides Gas mmcf 1177 1403 1375 1311 1392 6.2% 18%

Hides Liquids kbbl 25 30 30 28 30 7.1% 20%

Total mmboe 1.46 1.80 1.33 1.79 1.56 -12.9% 7%


Production numbers slightly below CS expectations (1.6mmboe) but FY guidance

maintained at 6.2–6.7mmboe. PNG remains on track for first LNG late 2014 with project

finance discussions for the additional US$1.5bn progressing well. Capex for the quarter

below expectations vs. full-year guidance on lower PNG spend.

■ Production at 1.56mmboe, slightly up from pcp (1.46mmboe) but down from 4Q

(1.79mmboe):

o Lower production at Kutubu which was impacted by two unplanned shutdown

events and Moran following a brief downtime for maintenance.

o Partially offset by strong production from Hides and SE Mananda coming back on

line.

■ Full-year guidance unchanged at 6.2–6.7mmboe (CS: 6.4mmboe, reduced from

6.6 mmboe).

■ Revenue of $176mn in line, realised oil price of US$113.9/bbl versus $111.1 in the

December quarter.

■ PNG LNG more than 80% complete, on track for first LNG sales in 2014. OSH will

soon be able to supply commissioning gas to the LNG Plant.

o Air strip operations expected to commence in May.

o Additional $1.5bn project financing for PNG on schedule, “with strong interest

expressed by prospective lenders. The additional commitments are expected to

be in place well before the funding is needed, towards the end of 2013”.

■ Capex for the quarter was $406mn, including $285.9mn for PNG LNG. Slightly

below full-year guidance of $1.9bn–$2.1bn due to lower spend on PNG ($1.5bn–

$1.6bn guidance, including capitalised interest).

■ If debt can be raised, OSH’s cash balance of $438.6mn (down from $480mn) and

undrawn facility of $500mn is sufficient for completion of the PNG project at current

capex guidance.

■ Exploration expensed was up $5.3mn as increased exploration costs from MENA were

expensed (from $2.9mn to $17.8mn, related to the Semda 1 well in Tunisia – offset by

lower expensed exploration in PNG). We increase our expensed exploration for the

half to $45mn, up from $35mn.

24 April 2013


Figure 3: Exploration Expensed


■ P’nyang studies progressed, narrowing the range of options. Use of the gas as a

foundation resource for Train 3 is the primary focus.

■ Drilling continued at Taza 1 in Kurdistan (MENA) – subsequent to the reporting period

the well has flowed oil from the Euphrates Formation (intermediate 38 API oil).

■ Construction of the Mananda 6 well pad was completed and the drilling of the

Mananda 6 well to appraise the Mananda 5 discovery has commenced.

■ In the Gulf of Papua the drilling programme (two firm wells and an option to drill two

further wells commenced with Flinders 1 (PPL 244) spudded on 31 March. The Total

SA farm in deal on PPL 244 is now unconditional with Total funding its partial carry of

the initial offshore drilling programme.

Figure 4: Quarterly Production and Revenue Figure 5: Quarterly Production Split

0

50

100

150

200

250

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Rev

enu

e (U

S$m

n)

Pro

du

ctio

n (

mm

bo

e)

Total Production (mmboe) Total Revenue (US$mn)

1.6 1.61.8

2.01.7 1.7 1.6 1.6 1.5 1.5

1.211.40

1.24

1.54

1.07

1.54

1.30

0.3 0.3

0.30.3

0.30.3

0.2 0.3 0.30.3

0.28

0.24

0.22

0.26

0.26

0.25

0.26

0.0

0.5

1.0

1.5

2.0

2.5

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Pro

du

ctio

n (

mm

bo

e)

Oil Gas/Condensate Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Earnings Changes

FY13 NPAT is down $16mn or 8%: $10mn can attributed to higher exploration expenses

from MENA, with the remaining due to lower oil production for the year. This is immaterial

to our project valuation as PNG LNG makes up more than 80% – Target Price unchanged

at $8.6/sh in line with our DCF and retain our OUTPERFORM rating.

Figure 6: Earnings Changes

OSH.AX FY13 FY13 % FY14 FY14 % FY15 FY15 %

New Old Change New Old Change New Old Change

Production (mmboe) 6.4 6.6 -3% 9.6 9.6 0% 25.8 25.7 0%

OSH Guidance 6.2 - 6.7 mmboe

Sales revenue ($mn) 718 746 -4% 979 979 0% 2294 2,293 0%

EBITDAX ($mn) 518 540 -4% 739 737 0% 1884 1,882 0%

EBIT ($mn) 363 394 -8% 572 578 -1% 1575 1,583 -1%

NPAT ($mn) 179 195 -8% 323 326 -1% 810 816 -1%

Underlying EPS ($) 0.13 0.14 -8% 0.24 0.24 -1% 0.58 0.59 -1% Source: Company data, Credit Suisse estimates

24 April 2013


Figure 7: OSH SoTP

Oil Search SOTP valuation Risk

A$mn A$/sh Weight. A$mn A$/sh

Existing production

Kutubu 818.0 0.61 100% 818.0 0.61

Gobe Main 7.1 0.01 100% 7.1 0.01

Gobe SE 16.7 0.01 100% 16.7 0.01

Moran 462.6 0.35 100% 462.6 0.35

Hides 23.8 0.02 100% 23.8 0.02

SE Mananda 8.6 0.01 100% 9 0.01

OSH total existing production 1,336.9 1.00 100% 1,336.9 1.00

Development projectsPNG LNG T12 (CS Assumptions) 10,057.0 7.53 100% 10,057 7.53

OSH total development projects 10,057.0 7.53 10,057.0 7.53

1H13 Balance sheet

Cash & Investments 412.9 0.31 412.9 0.31

Debt -3,516.8 -2.63 -3,516.8 -2.63

Base valuation 8,290.0 6.21 8,290 6.21

PNG LNG T3 1,678.9 1.26 70% 2,398.4 1.80

Undeveloped Gas 432.0 0.32 100% 432.0 0.32

Undeveloped liquids 220.5 0.17 100% 220.5 0.17

Exploration - other 585.7 0.44 100% 585.7 0.44

MENA 281.3 0.21 100% 281.3 0.21

TOTAL VALUATION 11,488.4 8.61 12,207.9 9.15

…shares on issue (mn) 1,335

Target price 8.60

ESG valuation impact: -5%Removing the country risk implied in the disount rate, whereby we

reduce the discount rate by 0.5% in line with STO and WPL adds

$0.39/share of 4.5%.

Risk weighted Unrisked Valuation



24 April 2013


Equity Research

Diversified Metals & Mining (Copper (AU))

PanAust

(PNA.AX / PNADA AU) DECREASE TARGET PRICE

MarQ weak, as expected

■ Weak MarQ with 13.753kt Cu as expected but marginally stronger than our

forecast. MarQ is to be the weakest quarter on low Phu Kham grade of

0.46% Cu (DecQ 0.57%) and pre-JunQ commissioning of the recovery

enhancement augmentation to the plant. We had forecast 13.5kt rising to

15.5kt in the JunQ (17kt SepQ). Guidance implies 1H of 29-30kt.

■ No change to 2013 production or cost guidance despite weak MarQ.

■ Lower production, lower gold prices delivered higher reported Phu Kham C1

cash costs of $1.28/lb vs our forecast of $1.40/lb (DecQ $1.15/lb).

■ Weaker mill throughput of 16.5Mtpa annualised on planned shutdowns

(DecQ 17.92Mtpa, SepQ 14.68Mt annualised from 12Mt nameplate).

US$45mn recovery enhancement project (+6%) is progressing toward

commissioning during JunQ, 2-3 months early with full production expected

CY14, adding 5-7.5kt Cu and reducing C1 cash costs by ~5%.

■ Ban Houayxai throughput was weaker, as expected, at 3.87Mt (DecQ

4.48Mt) annualised (4Mtpa nameplate on harder ore). Lower production on

higher mining and grinding costs saw a sequentially higher C1 production

cost. Management is examining a stockpile strategy for JunQ completion,

looking to process potentially higher grade material, increasing stockpile

size, and boosting near-term production.

■ Cash came in at US$103.8mn (DecQ US$125mn), debt US$137mn (DecQ

US$85mn) excluding equipment leases.

■ TP drops to $2.50/sh (from $2.60) but NEUTRAL rating is unchanged.


Mean^

CS tgt^

Sh Prc

-50%

-30%

-10%

10%

30%

50%

70%



Absolute (%) -9.4 -33.7 -32.1

Relative (%) -10.4 -38.5 -47.4


Year 12/12A 12/13E 12/14E 12/15E

Revenue (US$mn) 705.3 745.1 768.6 735.0

EBITDA (US$mn) 319.3 269.8 331.6 301.6

EBIT (US$mn) 230.8 175.4 218.5 181.5

Net income (US$mn) 142.3 95.9 131.9 107.7

EPS (CS adj.) (US¢) 23.91 16.09 22.12 18.07

Change from previous EPS (%) n.a. -1.2 2.6 0.2

Consensus EPS (US¢) n.a. 24.90 27.70 24.40

EPS growth (%) 3.0 -32.7 37.5 -18.3

P/E (x) 9.5 14.1 10.3 12.6

Dividend (US¢) 7.00 4.04 5.56 4.54

Dividend yield (%) 3.1 1.8 2.4 2.0

P/B (x) 1.5 1.4 1.3 1.2

Net debt/equity (%) 3.9 Net cash Net cash Net cash

Relative performance versus S&P ASX 200. See Reference





Rating NEUTRAL* [V]

Price (23 Apr 13, A$) 2.22





Projected return:




52-week price range 3.5–2.2


benchmark.



Research Analysts

Michael Slifirski

61 3 9280 1845

[email protected]

Sam Webb

61 3 9280 1716

[email protected]

24 April 2013


Figure 1: PNA financial summary

PanAust (PNA) Year ending 31 Dec In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$2.22 Earnings 12/11A 12/12A 12/13E 12/14E 12/15ERating NEUTRAL c_EPS_SHARESEquiv. FPO (period avg.) mn 593.0 594.9 596.1 596.1 596.1


vs Share price % 12.61 EPS_GROWTH*100EPS Growth % 3.0 -32.7 37.5 -18.3


c_DPS*100DPS c 0.0 7.0 4.0 5.6 4.5

c_PAYOUT*100Payout % 0.0 29.3 25.1 25.1 25.1




Sales revenue 596.6 705.3 745.1 768.6 735.0 ValuationEBITDA 284.2 319.3 269.8 331.6 301.6 c_PEP/E x 9.8 9.5 14.1 10.3 12.6





Other (3.0) (1.9) (2.9) (1.5) 0.0 c_PBPrice to Book x 1.7 1.5 1.4 1.3 1.2







Unusual item after tax (5.5) 0.0 0.0 0.0 0.0 GearingReported NPAT 132.1 142.3 95.9 131.9 107.7 c_GEARING*100Net Debt to Net debt + Equity % Net Cash 3.7 Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash 0.1 Net Cash Net Cash Net Cash






Current assets 231.7 257.5 326.5 473.5 470.5 MSCI IVA (ESG) Rating AProperty, plant & equip. 525.3 903.9 923.5 1,003.3 1,026.6 TP ESG Risk (%): 0

Intangibles 14.0 14.0 14.0 14.0 14.0


Non-current assets 961.1 1,146.3 1,188.4 1,277.2 1,309.5

Total assets 1,192.9 1,403.8 1,514.8 1,750.7 1,780.0

Payables 84.5 88.0 119.9 107.5 106.9




Net assets 894.0 1,024.1 1,103.2 1,221.4 1,316.3

Ordinary equity 777.7 915.5 977.9 1,077.6 1,156.9



Total shareholder funds 894.0 1,024.1 1,103.2 1,221.4 1,316.3

Net debt -48.5 39.7 -76.7 -100.0 -159.7 Source: MSCI IVA Rating


EBIT 224.7 230.8 175.4 218.5 181.5

Net interest -17.1 -18.0 -22.3 -16.6 -16.9

Depr & Amort 59.5 88.4 94.4 113.0 120.1

Tax paid -36.5 -53.9 -37.5 -50.1 -41.1

Working capital 38.1 -56.6 79.4 -6.1 -2.9

Other -29.6 7.6 4.6 1.5 3.0


Capex -232.2 -203.8 -114.0 -192.9 -143.4

Capex - expansionary -173.0 -134.1 -54.5 -132.8 -112.5




Other -0.7 -8.3 0.0 0.0 0.0


Dividends paid 0.0 -16.9 -33.5 -32.1 -28.5

Equity raised 1.4 3.7 0.0 0.0 0.0

Net borrowings 43.3 56.5 0.0 130.0 -65.0


Financing cashflow 34.2 50.5 -33.5 97.9 -93.5 Absolute -9.4% -33.7% -32.1%

Total cashflow -28.6 -31.0 116.5 153.2 -5.2 Relative -10.4% -38.5% -47.4%

Adjustments -0.6 0.5 0.0 0.0 0.0

Net change in cash -29.2 -30.5 116.5 153.2 -5.2 Source: Reuters 52 week trading range: 2.19-3.51

MSCI IVA Risk Comment: Recent upgrade to 'A' rating (from

'BBB') was pleasing. Main operations in Laos/Thailand continue to

place perceived geopolitical risk on PNA.

23/04/2013 17:34

PanAust is a leading copper & gold producer in Southeast Asia & has a portfolio of organic

growth projects in both commodities.It has acquired a majority interest in the Inca de Oro

Copper-Gold Project in Chile from Codelco,the world’s largest copper Co.

Credit Suisse View

TP Risk Comment: Despite low carbon tax exposure and

operations in Laos/Thailand, we do not attribute any ESG risk to

our share price.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

PNA.AX XJO

1.8

2.8

3.8

4.8

5.8

6.8




24 April 2013


MarQ achieves weak guidance as Phu Kham grade

falls

PNA’s MarQ recorded projected lower grade and higher costs at Phu Kham, reflecting

constrained access to previously scheduled higher grade ore. Waste movement to

stabilise pit wall stability is progressing, but previously modelled higher grade zones

appear to be less present than the prior reserve model indicated.

CY13 has started with the plant at full expanded capacity but grade constrained. The year

should see grade improve and higher recovery in 2H after commissioning of the second

ISA mill. Management suggests externally projected recovery improvements are

conservative compared with average test results.

CY12 was a year of project delivery after 2011 being a year of operation success and

stability with strong production and cash generation from Phu Kham and good progress on

expansion of Phu Kham and development of Ban Houayxai.

■ Ban Houayxai, now at stable production, has achieved a rapid ramp-up and exceeded

its annualised gold production rate in the DecQ, but silver production fell short of

expectation on lower grade and recovery, reducing the expected by-product credit and

increasing reported cash costs. The MarQ has seen throughput reduce and costs rise

as ore hardness has increased from the initial weathered cap, consuming more

grinding media and energy.

■ Phu Kham’s expansion was delivered on schedule with a successful ramp-up over the

SepQ, delivering a very strong DecQ, boosted by grade. MarQ saw high DecQ

throughput not sustained with reduced operating time, flat recovery and the

disappointing grade decline. Operating costs were also impacted by expensing of

major maintenance activities.

■ The DecQ recorded commencement of construction of the Phu Kham recovery

enhancement project for now JunQ commissioning, 2-3 months ahead of its projected

SepQ13 completion.

PNA is in a strong position to fund potential growth projects, with available debt facilities of

$275mn available for four years. Funding capacity is plentiful, particularly now that Inca de

Oro is less likely to proceed near term, until a power solution can be identified.

Management suggests that multiple power options and multiple energy sources are being

examined, but all sound conceptual rather than progressed or fixed to any timeline.

Phonsavan remains a marginal $200-300mn capex project but with a smaller and lower

grade resource than originally promoted and outstanding environmental challenges to be

resolved. A higher grade core appears to have been identified, offering elevated

production potentially in the early years of the project—if it proceeds.

Over the next 1–3 years, PNA will be seeking to fund:

■ Perhaps $250-300mn on Phonsavan, with the progressing pre-feasibility study to roll

into a feasibility study to be completed in mid-2013.

Perhaps beyond years

■ Maybe a re-jigged Inca de Oro ($800mn) with management seeking to stitch together a

project that can be made to meet their commercial hurdles by later 2013. Inca de Oro

(Chile)’s feasibility study concluded in June 2012 that the project was unviable at

US$3.00/lb copper. Consequently, the scope increased to identify ~60Mt of higher

grade satellite deposits. Work progressed on Artemisa targeting ~40Mt and Carmen

seeking to elevate the grade of the identified 40Mt. Drilling is continuing in 2013 until

mid-year to feed into a revised feasibility study by year-end. However, the project is

contingent on a power supply which is not anticipated to be available until well after

24 April 2013


2015. The capex appears to exclude an oxide option now being investigated and the

necessary development of the Carmen and Artemisa deposits.

■ The Nam San $150-200mn underground concept has been deferred by the reality of

inconsistent drill results and highly fragmented ground. The proposed early 2013

access decline commencement for exploration and future production (2-3Mtpa @ 1-

1.5% Cu) is no longer part of short-term thinking, with drilling revealing materially

greater complexity and poorer ground conditions than initially envisaged.

■ LCT remains a broad mineralised target within proximity of Phu Kham. Material growth

in both tonnage and grade is required to bring this prospect to commercial reality.

Key points for the quarter

Production

Phu Kham: A soft, low-grade quarter, as expected

■ Weaker MarQ production on lower grade delivering 13.753kt Cu at US$1.28/lb after

the expansion and grade boosted DecQ12 18,671t Cu at US$1.15/lb (SepQ12 14,933t

Cu at US$1.22/lb, JunQ12 13,908t at US$1.15/lb, and MarQ12 production 15,772t at

US$0.92/lb).

■ Lower DecQ12 costs relative to elevated SepQ12 costs reflected SepQ12 mill ramp-

up costs and seasonally elevated mining cost during the wet season when

maintenance is higher and tyre wear and damage is greater.

■ CY13 copper guidance of 62-65kt was confirmed, remaining constrained by access to

grade, with a pit wall failure limiting access to originally scheduled higher grade ore.

Management gave guidance for flat year on year production despite the expansion

and recovery enhancement project.

■ CY13 C1 cash costs consequently up to US$1.15-1.25/lb but with lower production

and higher costs in the 1H than the second. This cost was based on an average

received gold price assumed on $1,700/oz gold. Every ~$100/oz change in the gold

price impacts cash costs by ~4c/lb. However, a lower than 1.4:1 guidance strip ratio

(perhaps 1.1:1) may provide some offset.

■ Phu Kham throughput is expected to continue to exceed nameplate for the next two

years without additional capital spend on the mill.

■ MarQ recovery was 72%, down on DecQ12’s 73.5% (SepQ12 71.8% from JunQ12

72.5% and MarQ12 71.3%). Higher DecQ12 recovery reflected:

o Higher head grade;

o Finer grinding from the ramped up expanded mill; and

o Increased flotation capacity and residence time.

■ Reported C1 cash costs of $1.28/lb (DecQ12 $1.15/lb, SepQ12 $1.22/lb, JunQ12

$1.15/b, MarQ12 $0.92/lb, DecQ12 $0.95/lb) reflect the ramped-up throughput but

lower copper grades, lower gold grades and a lower gold price credited against copper

production costs.

■ MarQ13 gold credit was $0.86/lb (DecQ12 $0.80/lb, SepQ12 $0.89/lb flat on the

JunQ12 credit of $0.89/lb, marginally up on the MarQ12 $0.86/lb and CY12 average of

$0.80/lb).

■ Expectation is for 2H13 to be stronger than 1H with guidance implying 29-30kt in the

1H, rising to 34-35kt in the 2H.

24 April 2013


■ $10-$15mn per year sustaining capex assumed.

■ We expect higher CY14 production of ~67-68kt (~2H13 annualised amount roughly)

based on higher average grade (reserve grade) and a full year benefit of the recovery

enhancement project. CY15 production could exceed 70kt.

■ CY14 head grade ~0.45% Cu.

■ The plant should do 17.5-18Mt in CY13 and CY14, the crusher being the constraint.

CY15 ~17Mt. LT rate is expected to be ~16.5-17Mtpa.

■ Phu Kham is fully defined to the basement so there is very little exploration/mine life

extension. Indeed, the last two reserve statements have seen reserves decline by

more than mining depletion despite the favourable cut of grade reduction. Phu Kham

is now all about optimisation.

■ Mining this year is to a lower cut-off ratio than the 0.2% the recent reserves are based

on, generating more ore but at a lower grade while ore availability is constrained and

while copper prices are above the US$2.70/lb assumed in the reserve estimate and

1.4:1 strip ratio. Current mining is not using the $2.75/lb Cu mining cut-off assumption,

which would see commercial resources mined but tipped at waste. At $3.10/lb copper

the strip rate is about 1.1-1.2 and as such, year-end reserves will potentially be greater

than current reserves less mining depletion.

Figure 2: Phu Kham quarterly production and grade

0.45

0.55

0.65

0.75

0.85

0.95

0

5

10

15

20

25

30

35

40

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q01

0

2Q01

0

3Q01

0

4Q01

0

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

Cop

per

grad

e (%

)

Cop

per

prod

uctio

n-m

lb

Phu Kham production and grade (equity adjusted basis)

Production (kt) Grade - Copper


24 April 2013


Figure 3: Phu Kham quarterly throughput and recovery

40

50

60

70

80

90

100

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,0002Q

08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q01

0

2Q01

0

3Q01

0

4Q01

0

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

Rec

over

ies

(%)

Ton

nes

(kt)

Phu Kham throughput and recovery (equity adjusted basis)

Material moved Tonnes milled Recovery - copper


Figure 4: Quarterly gross cost break-down

15.3 19.4 19.7 18.41 18.12 19.23 25.10 24.23 25.5

32.3 30.0 29.0

16.3 16.8 17.5 20.53 19.80 20.71

18.74 25.82 24.9

25.7 25.6 25.9 13.4 15.8 11.7

15.58 15.43 13.61 15.57

16.68 12.6

13.8 15.4 15.6

5.8

8.1 6.1

8.85 6.38 7.10

7.94

10.72 7.6

7.6 7.6 7.6

-21.1 -26.5 -23.9 -29.74 -28.86

-26.33 -28.27 -30.81 -23.75

-30.93 -31.95 -31.65

29.74

33.60 31.08

33.6330.87 34.32

39.08

45.68

37.45

48.60 46.67 46.42

-40.0

-20.0

-

20.0

40.0

60.0

80.0

100.0

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

US

$mn

Mining costs Milling costs Offsite costsAdmin and Other costs By-product credits C1 Cash Costs - after credits


Ban Houayxai: Main game on hard ore reduces production

■ MarQ production of 24,137oz @ $677/oz, down on elevated DecQ12 33,353oz @

$569/oz, up from the SepQ12 of 30,903oz @ $524/oz from JunQ12 commissioning

production of 12,644oz.

■ CY13 gold guidance unchanged at 100koz consistent with prior guidance. Cash cost

guidance of $550-600/oz.

■ MarQ mill throughput was lower, at 3.87Mtpa, below nameplate, down on elevated

DecQ 4.48Mt/year annualised.

24 April 2013


■ MarQ gold recovery was 88.6%, down on a disappointing DecQ of 90%. Target gold

recovery of 92.6% achieved in commissioning in the JunQ and maintained at 92.5% in

the SepQ.

■ Costs are being impacted by higher-than-expected processing costs and weaker silver

production on lower grade and recovery than expected.

■ Management expects modest silver production for the first two years of ~200koz while

mining the silver depleted zone. The silver depleted zone appears to be more depleted

than expected. Ore hardness is expected to increase with silver grade, resulting in flat

cash costs (higher silver credit to cover higher processing costs).

■ It had been anticipated that the initial mining of the softer ore will allow a higher

throughput than nameplate (4Mtpa), possibly up to 5Mtpa, gradually decreasing to

nameplate over ~3 years as the harder ore begins to be mined. This gradual decrease

in throughput is expected to be matched with significant increases in silver production

to up to ~1moz by year three. This hard ore impact has occurred over three quarters,

not three years.

■ Depreciation was $410/oz, down on an elevated DecQ of $483/oz, which was above

an already-high SepQ ($445/oz or $44.5mn/year at the 100koz nameplate rate).

■ The SAG mill has been operating with no grinding media in it and liners in the mill

have been cracking. New liners are now on site and management expects to see

upside by end of June.

■ We are cautiously optimistic that the 100koz guidance for CY13 could be beaten but

do not model this scenario. Management hopes to schedule a “pervasive high grade

shoot” into CY13 production and is examining a stockpile strategy for JunQ

completion: looking to process potentially higher grade material, increasing stockpile

size and boosting near-term production.

■ Drilling high grade zones, with potential for further reserve growth, continues.

■ We believe management is examining the potential for a small underground mine;

conceptually, ~1Mtpa at 5-6g/t could deliver ~20kozpa.

24 April 2013


Figure 5: Ban Houayxai quarterly production and grade

0.75

0.85

0.95

1.05

1.15

1.25

0

5

10

15

20

25

30

35

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

Au

grad

e (g

/t)

Gol

d pr

oduc

tion-

koz

Ban Houayxai production and grade (equity adjusted basis)

Production (koz) Grade - Au


Figure 6: Ban Houayxai quarterly throughput and recovery

10

20

30

40

50

60

70

80

90

100

0

500

1,000

1,500

2,000

2,500

3,000

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

Rec

over

ies

(%)

Ton

nes

(kt)

Ban Houayxai throughput and recovery (equity adjusted basis)

Material moved Tonnes milled Recovery - gold


24 April 2013


Figure 7: Quarterly gross cost break-down

2.9

6.88.2 8.7

6.4 6.1 6.03.0

8.7

10.310.7

9.89.0 9.1

2.0

4.6

5.9 3.7

4.24.2 4.2

-0.5 -1.2-2.8

-4.3 -5.2 -5.1 -4.9

6.51

16.22

18.7116.34

15.2214.24 14.40

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

US

$mn

Mining costs Milling costs Other costs By-product credits Cash operating cost

Note 2Q12 includes only one month of commercial production

Source: Company data, Credit Suisse estimates,

Development and expansion

Phu Kham

■ Phu Kham’s <US$35mn increased recovery project ($45mn budget including $10mn

contingency), approved in the JunQ12, is progressing and now due to be

commissioned in the current JunQ 2013, adding 5-7.5Kt to annual copper production

at an incremental operating cost of ~$0.5/t or ~$8mn/year. Management suggests that

forecast recovery improvement might not be achieved on the current ore mix.

Nam San underground: Promoted too hard, too soon

■ Nam San appears to have been over-promoted too early and last year’s expectations

of a high grade underground operation to supplement Phu Kham’s open pit ore have

failed to be supported by drilling.

■ The project is no longer a near-term focus.

■ Drilling conditions are poor indicating poor mining conditions from highly fragmented

zones. This implies elevated mining costs if selective mining was pursued, diluted

grades and constrained mining rates.

■ Mining concepts are now including potential sublevel caving options, although it no

longer appears to be a near-term project.

LCT

■ The initial resource makes LCT look like a similar gold resource to Ban Houayxai, but

with a higher strip ratio and higher establishment capital. It was initially promoted as a

bulk copper resource to supplement Phu Kham and extend life but now looks like a

potential satellite feed for Ban Houayxai. Transport costs might be punitive.

■ Management appears more excited about this prospect than the initial resource should

warrant. Management suggests that the resource is actually in two discreet zones:

o 9Mt at 0.4% Cu, >1g/t Au, ~10g/t Ag sulphide.

o Balance is very low copper, gold CIL material.

24 April 2013


■ While close to Phu Kham, the terrain is very steep and unlike the favourable

topography of Ban Houayxai (mining the top of a ridge), the mineralisation appears to

dip into a hill. This suggests unfavourable strip ratio implications.

■ A revised resource is due towards the end of the year to be followed by a potential

PFS study next year.

■ While the initial 9Mt does not support an open pit, if the resource increases to >35Mt,

management sees it as a potential gold open pit opportunity with a stand-alone gold

CIL facility.

■ The project appears to have evolved from a copper concept to a very conceptual gold

play, with significant work required to backfill either concept. Management remains

hopeful that a minable copper resource will be defined by future drilling.

Inca de Oro

■ Management appears strongly committed to Inca de Oro despite questionable

economics and reliance of supplementary satellite deposits to drive acceptable project

returns.

■ Focus currently on Carmen and Artemisa as supplementary oxide feed to improve the

economics of the project. Two additional deposits identified at similar grade to Inca de

Oro with conceptual current tonnage of ~40Mt at Artemisa (5km from Inca de Oro) in

addition to 39.5Mt at 0.34% Cu and 0.33g/t Au at Carmen ~15km from Inca de Oro are

now being drilled to seek additional higher grade feed for the second five-year period.

The project requires 50-60Mt of 0.5% copper plus gold for 0.56% equivalent, at low

strip ratio. Carmen’s grade is below this currently.

■ The project remains a long-dated opportunity with earliest start-up in 2017/18.

■ The development concept could be defined by the end of this year.

■ Management is looking at ~4 years at small tonnage, supergene material ~1.3% Cu,

which falls away in year five, then blending the low-grade remaining ore of 0.3% Cu

but low grade gold with the soft IOCG Carmen ore which is ~0.34% Cu and 0.34g/t

Au. 6Mtpa from each.

■ How this will work given they own 100% of Carmen has yet to be determined.

■ EIA will be completed and be submitted by the end of JunQ. It may take up to 15-18

months to complete the approval process.

■ Power supply and price contract options are still being explored. Power remains a

significant uncertainty for the project and other potential copper projects in Chile.

Solar, hydro and gas power options all being explored.

■ Management expressed confidence in identifying sufficient satellite ore sources of

sufficient grade to underpin the capital cost of the project.

■ Since the ~$60mn acquisition of a 59.4% interest in the project:

o The capex has increased from “low $400s”mn to $742mn and possibly $800mn if

the sea water pipeline is required;

o Opex has increased from “US$0.90-$1.00/lb” to US$1.43/lb for the first five years

and US$2.28/lb for the second five years; and

o Grade has declined considerably from 0.47% to 0.38% copper.

■ Despite the use of a $3.00/lb copper price and $1,600/oz gold price, the project fails to

deliver an acceptable return.

24 April 2013


■ In the MarQ, management stressed that three levels of cooperation with JV partner

Codelco (water, oxide liquor treatment and smelting) could provide significant capex

and opex offsets and deferrals. Despite including these in the analysis, the project still

does not work.

o Water is now likely to be available from Codelco’s Salvador tailings dam for 4-5

years, deferring perhaps $80mn which would otherwise be required for a pipeline

for seawater from the coast.

o Salvador Smelter is likely to take the concentrate, reducing freight costs and

favourable from a working capital perspective.

o A potential oxide circuit could stop and the SX stage with pregnant liquor treated

at a Codelco site.

■ Power remains an issue with only higher-cost diesel power definitely available for the

first four years before lower cost coal power conceptually might or might not be

available. Management frequently refers to solar and gas options.

■ Inca de Oro’s challenges appear to be increasing, in our view. The project has been

proven to be marginal and may be uneconomical without the required power solution.

It requires robust economics before commitment because of the substantial

environmental challenges of operating in an established town in a desert environment

with a silica rich orebody.

■ We do not reflect the project in our earnings profile due to the marginal economics and

no visibility on a conceptual start date. The question is what the project is now worth.

Potentially not very much. In a competitive bidding environment, PNA acquired its

interest for ~$60mn up front on the basis of ~$400mn less capex than now and 24%

higher grade.

Phonsavan: Small and marginal (on our modelling) until Tharkhek is unravelled

■ Full feasibility study is potentially due to be completed by year-end following on from

expected completion of a PFS in the SepQ.

■ Concept remains a 7Mtpa / 25ktpa Cu / 20kozpa Au operation for ~10 years after

~$300mn capex.

■ Environmental studies are the main challenges, specifically where to place the tailing

storage facility (TSF). Studies are examining two valleys ~3-6km from the site. The

most favourable location for NPV is for the TSF to be sited in the town (Phonsavan).

■ Management plans to submit the environmental impact study (EIS) in the JunQ and

estimates ~9 months until approvals.

■ Phonsavan ore is lower pyrite ore than Phu Kham, meaning lower TSF cost because

of reduced acid mine drainage risk. This delivers shorter waste haulage distances than

PK.

■ However, the ore is harder, adding processing costs, subject to the grind size.

■ Coarser grinding is now being examined—up to ~150micron from ~106micron (PK is

~75 micron) before being reground in ISA Mills to improve recovery.

■ Conceptual costs: ~$2/t mining (less than PK because of previous point), $1.5-1.75/t

admin, perhaps $8/t processing.

■ The project needs to be >15% IRR using $3/lb Cu.

24 April 2013


■ A conceptual 5-7Mtpa plant, processing the 0.45% copper resource grade and

achieving 80% recovery, could add up to 25Ktpa of copper production and 20koz Au

for ten years, based on a 2:1 strip ratio operation.

■ Capex: We assume a conceptual capex of $250-300mn based on $200mn spent to

build 4Mt at Ban Houayxai grossed up for the 6Mtpa capacity proposed for

Phonsavan. The lower end of the range assumes the benefit of more benign

topography and a less remote location.

■ Operating cost: We have assumed a similar mining cost to Phu Kham (~$2.40/t), a

milling cost above Phu Kham due to smaller scale (~$7/t) and admin of $4mn/year to

reflect the more favourable location, generating a C1 operating cost of $1.35/lb.

■ Based on an arbitrary 60% conversion of the 77Mt indicated KTL resource, we

assumed mining inventory of 46Mt and an initial mine life of ~eight years for 170Kt

(375Mlbs) of recoverable copper.

■ Implied capital of ~$0.80/lb suggests total costs including a 6% royalty ($0.18/lb) of

$2.33/lb.

Finance

■ Cash fell to US$103.8mn from DecQ’s US$125mn (SepQ US$98.5mn, JunQ

US$107mn and MarQ $110mn), with debt drawn of $137mn (excluding equipment

lease facilities) on JunQ $85mn from $57.5mn (CY11 cash US$155mn and debt of

$45mn) as project capex exceeded operating cash flow.

■ Project capex is now largely spent. Cash generation should increase strongly on

increased production and reduce project spend near term, notwithstanding the recent

fall in commodity prices.

■ The elevated strip ratio is consuming more cash than indicated by reported cash

costs.

■ The MarQ average copper price of US$3.61/lb was up marginally on DecQ’s

US$3.57/lb after hedging (SepQ copper price averaged US$3.52/lb after hedging,

marginally above JunQ’s 3.45/lb, down materially on the MarQ’s $3.95/lb). CY12

average received copper price came in at $3.64/lb. Current spot price is ~US$3.13/lb.

■ Gold prices received of US$1,631/oz (DecQ12 US$1,682/oz, SepQ12 US$1,670/oz,

JunQ12 US$1,577/oz, MarQ12 US$1,668/oz) and silver prices of US$29.7/oz

(DecQ12 US$31.90/oz, SepQ12 US$30/oz, JunQ12 US$30.50//oz, MarQ12

US$40.5/oz.). The CY12 gold price average was $1,647 and silver was $31.5/oz.

Current spot prices are ~US$1,425/oz and ~US$23/oz, respectively.

Available facility

■ Four-year $250mn revolving facility with lower costs and more flexibility. In addition, a

$25mn working capital facility has been established. Both facilities are secured against

the Laos assets.

■ The facility has a 2% establishment cost which will be reflected in 1H13 financing

costs and is at Libor plus 3.5% plus political risk insurance. Political risk insurance is

<1%. The old facility was Libor plus 4.5% + PRI.

■ The new facility still requires 50-90% of concentrate QP exposure to be hedged which

is consistent with PNA’s policy. However, unlike the facility it replaces, it does not

require additional long-term hedging. The old facility required 20-25% of two-year

forward production to be hedged on a rolling quarterly basis. Management may

24 April 2013


continue to maintain this cover, but be more opportunistic in adding cover rather than

the mechanical, non-opportunistic process that had to be followed with the old facility.

■ The increased debt will allow for funding of growth projects in Laos (Phonsavan $250-

300mn) and Chile (Inca de Oro), neither of which we are enthusiastic about. The

larger Inca de Oro project is unlikely to proceed for some years until a lower cost

power solution is available. PNA continues to drill Carmen and Artemisa seeking

additional satellite ore tonnes to achieve a return from Inca de Oro. These resources

will feed into a revised feasibility study.

Hedging

As at 31 March, PNA had 7,602t of the next two years copper production covered by put

options at a strike price generally of $2.25/lb, 2,125t of copper at US$3.66/lb and 2,278t at

$3.18/lb, as required by the old banking syndicate.

This hedging requirement does not apply to the new debt facility.

Provisional pricing exposure over the QP period is generally hedged. 72% of PNA’s

provisionally priced copper or 7,750t is hedged at US$3.75/lb.

Earnings changes

Earnings changes are shown in Figure 8.


Old 1H13 2H13 New % change Old New % change Old New % change

Total Revenue US$mn 755 358 387 745 -1% 769 769 0% 735 735 0%

Operational EBIT

Phu Kham US$mn 190 198 207 183 -4% 172 172 0% 150 148 -1%

Phu Bia US$mn - - -

Phonsavan US$mn - - - - - - - - - - -

Ban Houayxai US$mn 41 46 45 40 -4% 69 74 7% 61 65 6%

Inca de Oro US$mn - - - - - - - - - - -

Other EBIT US$mn 53- 20- 25- 46- -15% 28- 28- 0% 28- 28- 0%

EBITDA US$mn 271 125 144 270 0% 328 332 1% 303 302 0%

Depreciation & Amortisation US$mn 93- 47- 47- 94- 2% 115- 113- -1% 122- 120- -1%

EBIT US$mn 178 78 97 175 -1% 213 219 2% 181 181 0%

Net Interest US$mn 22- 14- 8- 22- 0% 17- 17- 0% 17- 17- 1%

Put option premium expense US$mn 3- 2- 1- 3- 0% 1- 1- 0% - - -

NPBT US$mn 153 62 88 150 -2% 195 200 3% 164 165 0%

Taxation US$mn 38- 16- 22- 38- -2% 49- 50- 3% 41- 41- 0%

Minorities US$mn 17- 8- 9- 17- -4% 18- 18- 2% 16- 16- 0%

NPAT (operating) US$mn 97 39.3 57 96 -1% 128 132 3% 108 108 0%

EPS (operating) US¢ 16.3 6.6 9.5 16.1 -1% 21.6 22.1 3% 18.0 18.1 0%

Abnormal items (after tax) US$mn - - - - - - - - - - -

NPAT (reported) US$mn 97 39 57 96 -1% 128 132 3% 108 108 0%

EPS (reported) US¢ 16.4 6.6 9.5 16.2 -1% 21.7 22.2 3% 18.1 18.2 0%

CY15CY14CY13


24 April 2013


NPV

Our NPV of $2.52/share sets our TP of $2.50/share (down from $2.60/share). We apply a

risk-weighting to Phonsavan (75%) and a nominal $80mn for Inca de Oro.

Our rating remains NEUTRAL under the CS rating system.

Figure 9: PNA NPV summary

Operational US$mn US$/sh A$mn A$/sh Weighting US$mn US$/sh A$mn A$/sh

Phu Kham 1,046 1.76 1,036 1.75 100% 1,046 1.76 1,036 1.75

Phonsavan 209 0.35 207 0.35 75% 157 0.26 155 0.26

Inca de Oro 80 0.13 79 0.13 100% 80 0.13 79 0.13

Ban Houayxai 447 0.75 442 0.75 100% 447 0.75 442 0.75

Sub-Total 1,782 3.00 1,765 2.97 1,730 2.92 1,713 2.89

Non-Operational US$mn US$/sh A$mn A$/sh Weighting US$mn US$/sh A$mn A$/sh

Hedging 6 0.01 6 0.01 100% 6 0.01 6 0.01

Sub-Total 6 0.01 6 0.01 6 0.01 6 0.01

Corporate US$mn US$/sh A$mn A$/sh Weighting US$mn US$/sh A$mn A$/sh

Corporate / exploration / other -188 -0.32 -186 -0.31 100% -188 -0.32 -186 -0.31

Net Cash / (Net debt) @ Dec-12 -40 -0.07 -39 -0.07 100% -40 -0.07 -39 -0.07

Sub-Total -228 -0.38 -225 -0.38 -228 -0.38 -225 -0.38

Total 1,560 2.63 1,545 2.60 1,508 2.54 1,493 2.52

A$ amounts use 12mth fwd FX forecast of 1.01

Shares on issue at Dec 31, 2012 593

DCF Sum of parts Valuation


Commodity and FX assumptions

Figure 10: Forecast copper prices

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2014 2015 LT

LME copper 3M US$/t 8,329 7,860 7,720 7,917 7,914 7,700 7,300 7,000 6,675 6,200 6,600

US¢/lb 3.78 3.57 3.50 4.59 3.60 3.50 3.30 3.20 3.00 2.80 3.00

US$ per metric tonne, conversion to US¢/lb rounded to nearest 0.05. Source: CS estimates

Figure 11: AUDUSD forecasts

2013 quarters 2014 quarters 2015 quarters

1Q13 2Q13 3Q13 4Q13 2013E 1Q14 2Q14 3Q14 4Q14 2014E 1Q15 2Q15 3Q15 4Q15 2015E

AUD:USD New 1.04 1.00 1.00 0.98 1.01 0.97 0.96 0.95 0.95 0.96 0.95 0.94 0.93 0.93 0.94



24 April 2013


Equity Research


Panoramic Resources

(PAN.AX / PAN AU) RESULTS

A good quarter but no solution

■ Q3 production in line with CS at 4.7kt nickel contained (1.9kt Savannah,

2.8kt Lanfranchi). Guidance narrowed from 18.5–19kt (CS: 18.5kt) from 18–

19kt nickel. Cash costs of $6.2/lb also in line (CS: 6.2/lb) but down

significantly from A$7.12/lb in previous quarter. A solid quarter with no bad

surprises but PAN had already guided towards these numbers on 16 April.

Our forecast NPAT changes by less than $1m over the next three years.

■ Cost savings kicking in…: Discretionary savings amount to $2.5mn for the

quarter and is the first sign of the earlier announced $10–15mn annualised

cost reduction. Work force has been reduced by 5% and payroll by 5–10%.

■ …but still consuming cash: Free Cash flow from operations was $9m in

the quarter but this includes a $6m reduction in receivables for a $3m net

operating cash flow (no update on payables or inventory). With liquid assets

down $8m, this suggests capex and exploration of ~$11m. Roughly $7m

was spent of progressing gold projects which leaves $4m for maintenance

capex. $3m operating cash flow net of $4m maintenance capex gives an

operating loss of $1m. Liquid assets sit at $54m (from $62m the half) with

$37m cash ($13.5m debt). A dividend of $2.7m will be paid out in May.

■ Corporate solution still required: Despite an improved quarterly result,

PAN is still not making money and is no closer to funding its expansion

projects. While PAN likely hopes it can last until its gold DFSs (Gidgee and

Mt. Henry) are finished at the end of the year, it looks like it is cutting it close

with cash spends near $10m per quarter. And this was while nickel prices

were close to $1/lb higher than the current $6.9/lb. Despite trading at a

significant discount to our DCF $0.62/lb, we retain our NEUTRAL rating.


Mean^

CS tgt^ Sh Prc

-60%

-10%

40%

90%

140%

190%

240%



Absolute (%) -12.7 -40.4 -71.4

Relative (%) -13.7 -45.2 -86.7


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 228.8 205.5 224.0 240.2

EBITDA (A$mn) 34.5 19.1 28.8 46.1

EBIT (A$mn) -16.7 -35.3 -23.6 -4.8

Net income (A$mn) -11.0 -23.3 -16.0 -3.5

EPS (CS adj.) (Ac) -4.90 -9.40 -6.24 -1.37

Change from previous EPS (%) n.a. n.m n.m n.m

Consensus EPS (Ac) n.a. -8.60 -4.40 4.90

EPS growth (%) -139.2 -91.6 33.6 78.1

P/E (x) -6.3 -3.3 -5.0 -22.7

Dividend (Ac) 2.00 1.00 — 0.16

Dividend yield (%) 6.5 3.2 — 0.5

P/B (x) 0.22 0.27 0.30 0.31

Net debt/equity (%) net cash net cash net cash net cash






Rating NEUTRAL* [V]

Price (23 Apr 13, A$) 0.31





Projected return:






benchmark.



Research Analysts

Paul McTaggart

61 2 8205 4698

[email protected]

Martin Kronborg

61 2 8205 4369

[email protected]

24 April 2013


Figure 1: PAN—Financial summary

Valuation summary A$mn A$/share Market data

Savannah 40.5 0.16 Share price 23-Apr-13 $0.31

Lanfranchi 45.0 0.18 Target price $0.35

Gidgee 45.3 0.18 Model NPV $0.62

Listed/other investments 14.8 0.06 Upside to NPV 100%

Corporate / other -23.0 -0.09 Upside to TP 13%

Total mining enterprise 144.7 0.57

Cash / (Net debt) (FY12F) 14.1 0.05 Mcap 64.2

Net value 158.7 0.62 Net debt 14.1

Assumptions FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Nickel (US$/lb) 12.90 6.00 8.80 10.87 8.07 7.61 7.71 8.05

Copper (US$/lb) 3.55 2.22 3.03 3.93 3.48 3.55 3.16 2.86

Colbalt (US$/lb) 35.6 20.3 15.9 15.9 14.3 17.8 17.5 17.50

AUDUSD 0.89 0.75 0.88 0.99 1.03 1.03 0.98 0.95

Nickel (A$/lb) 14.42 8.04 9.97 10.98 7.82 7.39 7.91 8.52

Production FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Ore mined/milled - Savannah 689 684 672 596 658 674 660 660

Ore Ore mined/milled - Lanfranchi 286 406 399 412 464 508 465 460

Total ore 975 1,090 1,071 1,008 1,122 1,182 1,125 1,120

Ni grade - Savannah 1.26% 1.35% 1.25% 1.36% 1.53% 1.24% 1.30% 1.30%

Ni grade - Lanfranchi 2.56% 2.63% 2.54% 2.45% 2.40% 2.29% 2.40% 2.40%

Average head grade - nickel 1.53% 1.72% 1.63% 1.69% 1.76% 1.56% 1.65% 1.64%

Production contained - Savannah (kt) 7.6 8.1 7.3 6.9 8.6 6.8 7.4 7.4

Production contained - Lanfranchi (100% basis) (kt) 7.3 10.7 10.1 10.1 11.2 11.6 11.2 11.0

Production - contained Ni 14.9 18.7 17.4 17.0 19.8 18.4 18.5 18.4

Payable Ni production - Savannah (kt) 5.1 5.5 5.0 4.7 5.8 4.6 5.0 5.0

Payable Ni production - Lanfranchi (100% basis) (kt) 4.2 6.0 5.8 5.8 6.2 6.5 6.4 6.3

Total payable Ni production (kt) 9.3 11.5 10.7 10.5 12.0 11.1 11.4 11.3

Payable Cu production - Savannah (kt) 2.0 2.1 2.0 1.8 2.5 2.0 2.4 2.4

Payable Cu production - Lanfranchi (100% basis) (kt) 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4

Total Cu production (kt) 2.3 2.5 2.3 2.2 2.9 2.4 2.8 2.8

Co production - Savannah (kt) 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Costs Per Pound Payable Nickel FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Unit cash costs (inc. royalty) (A$/lb) 5.12 5.32 5.69 6.21 6.01 6.44 6.10 6.17

Unit cash costs (inc. royalty) (US$/lb) 4.60 3.96 4.99 6.16 6.20 6.64 5.91 5.83

Total unit cash costs (US$/lb) 4.60 4.43 5.29 7.34 7.51 7.43 6.93 6.63

Total costs, incl. D&A (US$/lb) 6.55 6.43 7.67 8.19 7.98 8.77 8.02 8.00

Consolidated P&L (A$mn) FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Revenues from operating activities 232.4 225.1 283.4 249.6 228.8 203.1 224.0 240.2

Other income 0.0 1.2 7.4 4.5 0.0 2.3 - -

Total revenues 232.4 226.3 290.8 254.0 228.8 205.5 224.0 240.2

Operating expenses 123.0 140.5 156.6 164.8 187.7 180.0 187.2 190.8

Exploration 2.3 7.6 7.1 6.3 6.7 6.4 8.0 3.4

EBITDA 107.2 78.2 127.1 82.9 34.5 19.1 28.8 46.1

Depreciation and amortisation 40.4 49.3 55.7 46.1 51.2 54.4 52.4 50.9

EBIT 66.8 28.8 71.4 36.8 -16.7 -35.3 -23.6 -4.8

Net interest 4.6 2.9 -0.3 -0.4 2.6 0.8 0.8 -0.2

Profit before tax 71.4 31.7 71.1 36.4 -14.1 -34.5 -22.8 -5.0

Tax -18.1 0.2 -19.9 -10.1 3.1 11.3 6.8 1.5

Underlying NPAT 53.3 31.9 51.2 26.3 -11.0 -23.3 -16.0 -3.5

Net significant items (post tax) - -26.3 5.0 -5.5 -7.2 - - -

Reported NPAT 53.3 5.6 56.2 20.8 -18.2 -23.3 -16.0 -3.5

EPS - basic underlying (cps) 27.3 16.1 24.5 12.5 -4.9 -9.4 -6.2 -1.4

DPS (cps) 12.0 3.0 16.5 6.0 2.0 1.0 0.0 0.2 Source: Company data, Credit Suisse estimates

24 April 2013


Figure 2: PAN—Financial summary

Key financials FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Underlying EPS - diluted (cps) 27.3 16.1 24.5 12.5 -4.9 -9.4 -6.2 -1.4

Reported EPS - basic (cps) 27.3 16.1 24.5 12.5 -4.9 -9.4 -6.2 -1.4

Reported EPS (diluted) 27.3 2.8 26.9 9.9 -8.1 -9.4 -6.2 -1.4

Cash EPS (diluted) 48.0 41.1 49.8 34.4 17.9 12.6 14.2 18.5

EPS growth -40% -41% 52% -49% -139% 92% -34% -78%

Diluted average shares 195.4 197.8 208.7 210.4 224.5 247.6 256.0 256.0

PER (x) (norm EPS - basic) 1.1x 1.9x 1.3x 2.5x -6.3x -3.3x -5.0x -22.7x

PER (x) (norm EPS - diluted) 1.1x 1.9x 1.3x 2.5x -6.3x -3.3x -5.0x -22.7x

Price/cash earnings 0.6x 0.8x 0.6x 0.9x 1.7x 2.5x 2.2x 1.7x

EV/EBITDA (fixed) 0.5x 0.6x 0.4x 0.6x 1.5x 2.6x 1.7x 1.1x

DPS (cps) - ordinary 12.0 3.0 11.5 6.0 2.0 1.0 0.0 0.2

DPS (cps) - special 0.0 0.0 5.0 0.0 0.0 0.0 0.0 0.0

Payout ratio (%) (ordinary divs) 42% 103% 42% 59% -21% -11% 0% -12%

Dividend yield (net) 38.7% 9.7% 53.2% 19.4% 6.5% 3.2% 0.0% 0.5%

Franking 100% 100% 100% 100% 100% 100% 100% 100%

Dividend yield (gross) 55.3% 13.8% 76.0% 27.6% 9.2% 4.6% 0.0% 0.7%

EBITDA margin (%) 46.1% 34.7% 43.8% 33.2% 15.1% 9.4% 12.8% 19.2%

EBIT margin (%) 28.7% 12.8% 25.2% 14.8% -7.3% -17.4% -10.5% -2.0%

NPAT margin (%) 22.9% 2.5% 19.8% 8.3% -8.0% -11.5% -7.1% -1.5%

Tax rate (%) 25.3% -0.7% 28.0% 27.7% 22.0% 32.6% 30.0% 30.0%

Gearing FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Net Debt (Net cash) -102.5 -43.4 -45.1 -89.4 -29.7 -14.1 -6.9 -30.6

Net Debt / Equity (%) -44.2% -15.2% -15.5% -29.5% -9.7% -5.0% -2.6% -11.9%

Net Debt / (Equity+Net Debt) (%) -79.4% -17.9% -18.3% -41.9% -10.7% -5.3% -2.7% -13.5%

Interest cover (x) (EBITDA) na na na na na na na 247.9x

Interest cover (x) (EBIT) na na na na 6.4x 45.3x 29.9x na

Cashflows (A$mn) FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Operating cashflows 89.8 33.3 147.3 52.1 43.8 41.3 45.5 59.4

Capex - maintenance - -15.8 -8.1 -27.6 -33.6 -18.7 -26.2 -21.2

Free cash flow 89.8 17.5 139.2 24.5 10.2 22.6 19.3 38.2

Capex - growth -59.4 -39.8 -25.2 -40.0 -20.9 -14.6 -8.0 -1.0

Other investing cashflows -0.0 -22.7 -84.8 78.8 -31.4 -9.9 -16.0 -13.5

Financing cashflows -39.1 -16.1 -29.4 -22.2 -9.5 -9.9 -2.6 -

Net increase in cash -8.7 -61.1 -0.2 41.1 -51.5 -11.7 -7.2 23.7

Cash at end of the year 110.9 50.0 49.8 90.9 39.4 27.7 20.5 44.2

Balance Sheet (A$m) FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F

Cash 110.9 50.0 49.8 90.9 39.4 27.7 20.5 44.2

Receivables 17.2 28.7 20.9 34.5 33.0 22.8 22.8 22.8

Inventories 11.2 14.8 12.3 12.3 14.0 14.5 14.5 14.5

Plant & equipment 135.9 199.7 206.5 236.7 229.1 324.0 305.8 277.1

Other assets 56.9 87.2 127.3 34.3 115.9 14.6 21.4 23.2

Assets 332.1 380.3 416.8 408.7 431.3 403.5 385.0 381.8

Payables 31.3 30.8 23.9 24.0 26.0 31.0 31.0 31.0

Provisions - 10.0 31.6 35.4 44.6 44.9 44.9 44.9

Tax liabilities 26.1 - 18.5 - - - - 0.4

Borrowings 2.0 2.2 1.4 0.6 7.2 9.3 9.3 9.3

Other liabilities 41.0 51.0 50.3 45.6 46.0 38.7 38.7 38.7

Liabilities 100.4 94.0 125.7 105.6 123.9 123.9 123.9 124.2

Net Assets 231.7 286.3 291.1 303.1 307.5 279.6 261.1 257.6

Net Tangible Assets 231.7 286.3 291.1 303.1 307.5 279.6 261.1 257.6 Source: Company data, Credit Suisse estimates


24 April 2013


Equity Research

Healthcare Facilities (Health Care (AU))

Sonic Healthcare

(SHL.AX / SHL AU) STRATEGIC ANALYSIS

FY13 shortfall but not by much

■ Reviewing FY13 forecasts: We have quantified SHL’s required 2H13

underlying EBITDA growth to reach the low end of its guidance range (i.e.,

~5% growth in constant currency). The analysis shows that SHL needs to

grow 2H13 underlying EBITDA by ~11% vs ~5% in 1H13. This is due to a

number of factors that will reduce reported earnings, in particular, quotas and

fee cuts in Germany, AUS and the US. With no evidence of change in

underlying volume growth rates by region between 1H13 and 2H13, it seems

cost-out is left as the only lever to reach guidance. While we acknowledge the

opportunity SHL has in the US division to drive cost-out, we believe this will be

a FY14 story with only limited impact in 2H13. We now assume 2H13

pathology EBITDA growth of 7.5%, slightly ahead of the implied 1H13 growth

rate (using the weighted revenue growth method). We have decreased

FY13F NPAT by ~4% and forecast EBITDA of A$631.5mn, implying

constant currency growth of 2.5% – below guidance but not materially

so. Our target price (A$13.50) and NEUTRAL rating remain unchanged.

■ Investment case: Despite the modest downside risk to guidance, we note

SHL is trading on a lower multiple relative to closest peer PRY (20%

discount to the long-term average), with a healthy dividend yield that does

not appear to be at risk. We therefore see the stock as fair value. That said,

with no apparent acceleration in the US volume growth and the potential for

additional CMS fee cuts (cytopathology/immunohistochemistry flagged) as

well as German quotas, a material cost out programme seems key to

generating material earnings growth in FY14.

■ Catalyst: AUS monthly Medicare data (March data due out tomorrow).

■ Valuation: SHL is trading on 15x FY14F CS EPS, a slight premium to its

five-year average of 14.4x.


Mean^CS tgt^

Sh Prc

-30%

-20%

-10%

0%

10%

20%

30%



Absolute (%) -5.0 -1.2 6.3

Relative (%) -6.0 -6.0 -8.9


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 3,342.8 3,429.4 3,611.5 3,837.5

EBITDA (A$mn) 624.1 631.5 684.8 749.5

EBIT (A$mn) 492.1 491.4 538.0 597.8

Net income (A$mn) 316.0 315.6 348.9 390.2

EPS (CS adj.) (Ac) 80.66 79.31 86.26 95.40



EPS growth (%) 6.9 -1.7 8.8 10.6

P/E (x) 16.3 16.6 15.2 13.8

Dividend (Ac) 59.00 61.00 63.34 70.09

Dividend yield (%) 4.5 4.6 4.8 5.3

P/B (x) 2.0 1.9 1.8 1.8

Net debt/equity (%) 60.2 52.7 44.9 36.8





against ASX/S&P200 based on pre GW in AUD. Company P/E calculation is based on displayed EPS currency

Rating NEUTRAL*

Price (23 Apr 13, A$) 13.15





Projected return:






benchmark.


Research Analysts

Saul Hadassin

61 2 8205 4679

[email protected]

William Dunlop, CFA

61 2 8205 4405

[email protected]

24 April 2013


Figure 1: Sonic Healthcare – Financial summary

Sonic Healthcare (SHL) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % 2.66 EPS_GROWTH*100EPS Growth % 6.9 -1.7 8.8 10.6


c_DPS*100DPS c 59.0 59.0 61.0 63.3 70.1

c_PAYOUT*100Payout % 78.2 73.1 76.9 73.4 73.5












Minorities 0.0 (1.7) (6.5) (7.2) (8.0) c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.7 0.7 0.7 0.7 0.7




Unusual item after tax 0.0 0.0 0.0 0.0 0.0 GearingReported NPAT 294.5 316.0 315.6 348.9 390.2 c_GEARING*100Net Debt to Net debt + Equity % 37.9 37.6 34.5 31.0 26.9







Current assets 667.9 714.8 825.5 1,005.9 1,213.5 MSCI IVA (ESG) Rating AAProperty, plant & equip. 552.0 561.4 622.7 640.8 659.5 TP ESG Risk (%): -2

Intangibles 3,408.0 3,549.2 3,580.9 3,555.1 3,528.0



Total assets 4,712.9 4,928.8 5,108.5 5,281.3 5,480.5

Payables 233.7 277.3 281.8 294.8 311.0




Net assets 2,516.4 2,610.2 2,778.6 2,928.8 3,103.4

Ordinary equity 2,514.4 2,589.5 2,754.1 2,897.1 3,063.7






EBIT 455.2 492.1 491.4 538.0 597.8

Net interest -65.8 -69.7 -60.2 -61.2 -59.7

Depr & Amort 114.9 132.1 140.0 146.9 151.7

Tax paid -75.9 -64.6 -87.7 -111.1 -131.5

Working capital 0.0 0.0 -15.7 -19.1 -18.2

Other -19.3 -3.1 0.7 0.0 0.0


Capex -135.8 -137.2 -155.4 -139.2 -143.3

Capex - expansionary 0.0 0.0 -12.5 0.0 0.0




Other -33.1 -38.4 0.9 0.0 0.0


Dividends paid -229.2 -231.0 -202.9 -248.5 -267.3

Equity raised -1.8 21.7 32.7 42.5 43.7

Net borrowings 166.6 55.2 -22.1 0.0 0.0


Financing cashflow -64.7 -154.1 -192.3 -205.9 -223.6 Absolute -5.0% -1.2% 6.3%

Total cashflow -124.5 -3.1 91.6 148.3 173.2 Relative -6.0% -6.0% -8.9%

Adjustments -1.1 -3.0 1.6 0.0 0.0

Net change in cash -125.7 -6.1 93.2 148.3 173.2 Source: Reuters 52 week trading range: 12.10-14.29

MSCI IVA Risk Comment: AA' rating. Cited for not showing

compliance with ISO 9001 / quality management standards. We do

not expect this to change in the near term, and further, do not

consider it meaningful to SHL's business. Negative risk is limited in

our view given the mature nature of pathology businesses and

strong government regulation of the industry in most countries in

which SHL operates.

4/23/2013 15:13

Sonic Healthcare is one of the world's largest medical diagnostics companies, providing

laboratory and radiology services to medical practitioners, hospitals, community health

services, and their collective patients.

Credit Suisse View

TP Risk Comment: Limited ESG risk for SHL - its business has

little social and environmental risk. SHL's governance is adequate,

and poses the greatest risk out of each of the three ESG

categories, particularly given SHL's relative lack of disclosure

(although it is compliant with ASX/ASIC requirements) compared

to peers. Our ESG risk is calculated by adding a small risk

premium to our DCF discount rate.

NEUTRAL

10.88

11.38

11.88

12.38

12.88

13.38

13.88

14.38

14.88

15.38

4/11/2012 6/11/2012 8/11/2012 10/11/2012 12/11/2012 2/11/2013 4/11/2013

SHL.AX XJO

2.3

3.3

4.3

5.3

6.3

7.3


Stock Local Sector



24 April 2013


Reaching FY13 guidance SHL’s revised FY13 EBITDA guidance (the lower end of 5-10% constant currency growth)

implies a material uplift to 2H13 growth on pcp relative to 1H13.

In this note we have: 1) derived underlying or “organic” 1H13 EBITDA growth by backing

out impact from relevant fee cuts, adverse weather, PIP/grant income: 2) calculated 2H13

EBITDA growth required to reach the lower end of SHL’s guidance based on similar 1H13

growth rates/margins; 3) updated our 2H13 forecasts as a result of this analysis.

In summary, we believe SHL must generate underlying group EBITDA growth of

11% in 2H13 compared to 5% in 1H13 to meet the low end of 5% EBITDA guidance.

Based on continued soft conditions in the US (22% of SHL’s group revenues) and

no apparent positive earnings catalysts in other regions (relative to 1H13

performance) we see downside risk to FY13 earnings guidance.

We leave our 2H13 imaging and IPN/corporate costs unchanged but now assume

pathology EBITDA growth of 7.5%, slightly ahead of the implied 1H13 growth rate (using

the weighted revenue growth method detailed below) but below the rate implied to reach

guidance. As a result, our reported pathology divisional EBITDA falls to A$272mn for 2H13

with group EBITDA of A$328mn.

For FY13, we forecast group EBITDA of A$631.5mn, implying constant currency

growth of 2.5%, below guidance but not materially so. FY14/15 earnings have also

been rebased; however, this is offset by modest upgrades beyond the FY13-15

period.

Earnings changes are shown below in Figure 2. We make no change to our target

price of A$13.50 and maintain our NEUTRAL rating.


CS FY13F CS FY14F CS FY15F

Old New Ch % Old New Ch % Old New Ch %

Sales revenue ($mn) 3,470 3,429 -1.2% 3,692 3,612 -2.2% 3,909 3,837 -1.8%

EBITDA ($mn) 652 631 -3.1% 713 685 -4.0% 763 750 -1.8%

EBIT ($mn) 512 491 -4.0% 567 538 -5.0% 611 598 -2.2%

NPAT ($mn) 328 316 -3.7% 366 349 -4.7% 397 390 -1.6%

EPS diluted (¢) 82 79 -3.7% 91 86 -4.7% 97 95 -1.6%

DPS (¢) 61.0 61.0 0.0% 66.5 63.3 -4.7% 71.3 70.1 -1.6%


Reviewing 1H13 underlying EBITDA/growth

SHL generated constant currency EBITDA of A$312.6mn in 1H13, implying a 6.5%

increase on the pcp (A$293.5mn). We note this includes acquisition related costs of

A$1.9mn likely reflecting costs associated with the HSP pathology purchase and various

IPN related practices.

We have adjusted this number to account for key variables including quotations, adverse

weather and PIP/other income in order to derive a normalised growth rate.

■ German quotas – We estimate a A$3.6mn EBITDA impact from the quota applied in

the shift to national KV administration of funding in 1H13 (with a 95.36% quota in the

Dec-Q on ~50% of SHL’s German revenues).

■ Hurricane Sandy: SHL management noted a US$3mn EBITDA impact from the storm

in 1H13.

24 April 2013


■ PIP / Other income: Practice incentive payments to IPN and other minor income

increased by A$8.3mn between 1H12 (A$6.0mn) and 1H13 (A$14.3mn) due to

ongoing medical centre acquisitions.

■ HSP contribution: A $1.75mn contribution from the acquisition of Healthscope’s WA

Pathology business is assumed. The transaction was closed in October 2012. We

assume three months earnings and an EBITDA margin of 35% on the acquired

revenues of c.A$20mn per annum (estimated).

On a normalised, constant currency basis we therefore derive an EBITDA growth

rate in 1H13 of 5.3% vs pcp, as shown in Figure 3.

Figure 3: SHL 1H13 EBITDA bridge

293.5

309.2 309.2

19.1

3.6

3

8.3

1.75

280

285

290

295

300

305

310

315

320

1H12 EBITDA Constant currency

growth

German

quotations

Hurricane Sandy PIP/Other income Healthscope Normalised 1H13

EBITDA (cc)

A$

mn

5.3%


Extrapolating 2H13 EBITDA/growth versus guidance

Taking the low end of SHL’s EBITDA guidance (5% constant currency growth) implies a

2H13 EBITDA of A$342.7mn.

We note however that the half will be impacted by a number of events that require

adjusting in order to derive a normalised implied growth rate.

These include:

■ German quotations: We estimate a A$16.4mn impact in 2H13 (based on an 11.8%

quota for the entire half year period on 50% of SHL’s German revenues).

■ US Medicare fee cuts: In total, we expect further fee cuts of A$10mn in 2H13 alone,

which stem from 1 January and 1 April 2013 CMS related reimbursement cuts of

5.15% (which we assume impact 22% of SHL’s US revenues) plus anatomical testing

fee cuts totalling A$6mn (as quantified by SHL).

24 April 2013


■ AUS fee cuts: We estimate a A$5.9mn EBITDA impact from the 1.1% cut to SHL’s

AUS revenues following the Jan 1 2013 implementation of the fee cut.

■ PIP / Other income: Following on from the significant increase in 1H13 vs. pcp, we

expect SHL to generate an additional A$4.7mn in practice-incentive-payments and

other income vs. 2H12 (A$19.0mn vs. A$14.3mn).

■ HSP contribution: In 2H13F we assume a A$3.5mn contribution from the acquisition

of Healthscope’s WA Pathology business compared to 2H12, double the 1H

contribution given SHL will have owned the business for the entire half.

On a normalised, constant currency basis, we therefore derive an EBITDA growth

rate in 2H13F of 10.9% vs pcp, as shown in Figure 4 .

Figure 4: SHL 2H13 EBITDA bridge

330.6

369.1 370.3366.8 366.8

12.1

16.4

10.0

5.9 4.7

3.5

300

310

320

330

340

350

360

370

380

2H12 EBITDA Constant

currency growth

to meet bottom

of guidance

German

quotations

US Medicare

fee cuts

Australian fee

cut

PIP/Other

income

Healthscope Normalised

2H13 EBITDA

(cc)

A$

mn

10.9%


The variance between 1H13 normalised growth (5.3%) and 2H13 normalised growth

(10.9%) translates into additional required EBITDA in 2H13 beyond growth achieved

in 1H13 of approximately A$18.5mn.

Focussing on pathology

We can undertake additional analysis showing what the aggregated pathology division

needs to deliver in 2H13 assuming similar imaging and IPN trends as those demonstrated

in 1H13, noting that SHL does not report earnings by regional pathology market.

As shown in Figure 5, SHL requires A$31.2mn additional EBITDA in constant currency in

FY13 to meet the low-end of its 5-10% EBITDA growth guidance.

24 April 2013


Figure 5: EBITDA growth required FY13 (cc)

FY12 EBITDA 624.1

FY13 EBITDA (cc) - 5% growth 655.3

Incremental EBITDA required 31.2


By backing out our 2H13F forecasts for SHL’s radiology and the IPN business, which we

have more comfort over given their relatively stable business, reimbursement

environments, and transparency via monthly Medicare data, on our current forecasts, we

believe SHL requires an additional A$2.6mn in 2H13F pathology EBITDA vs. 2H12 to

meet 5% EBITDA growth guidance – see Figure 6.

While A$2.6mn seems innocuous and easily achievable, SHL is facing significant

reimbursement headwinds in 2H13F. Figure 7 shows an EBITDA bridge for 2H13F of only

the pathology division. The chart includes the one-off items that Pathology is facing in

2H13 compared to 1H13 in order to achieve Group guidance. The division must generate

sufficient growth to overcome German quotations (A$16mn), US Medicare fee cuts

(A$10mn) and Australian fee cuts (A$5.9mn). It receives a boost compared to 2H12 by

having Healthscope’s WA business (acquired 1H13). These items have all been

addressed above. In all, the Pathology division requires 11.2% constant currency EBITDA

growth vs. 2H12 for SHL to meet guidance, once one-off items are factored in. This

implies a normalised 2H13F EBITDA of A$311.5mn.

Figure 6: Incremental EBITDA vs. pcp by division FY13F (constant currency)

1H13 2H13F FY13F

Radiology 4.8 4.3 9.1

IPN / Corporate 7.7 5.1 12.8

Pathology 6.6 2.6 9.2

Group 19.1 12.0 31.2


Figure 7: SHL Pathology 2H13 EBITDA bridge

280.1

309.1311.5

2.6

16.4

10.0

5.93.5

260

270

280

290

300

310

320


growth to meet

bottom of

guidance

German

quotations

US Medicare fee

cuts

Australian fee cut Healthscope Healthscope

A$

mn

11.2%


We note that in 1H13 the Pathology division generated 4.5% constant currency EBITDA

growth vs. pcp, on a normalised basis, as shown in Figure 8.

24 April 2013


Figure 8: SHL Pathology 1H13 EBITDA bridge

251.0

262.4 262.4

6.6

3.6

3.01.8

240

245

250

255

260

265


growth

German quotations Hurricane Sandy Healthscope Normalised 1H13

EBITDA (cc)

A$

mn

4.5%


So what needs to happen within the Pathology business for it to generate 11.2%

EBITDA growth? We address the revenues before looking at costs.

Figure 9 shows constant currency revenue growth (reported and CS estimates) for the

pathology division by region in 1H13. We have weighted these growth rates by reported

revenues to derive a 1H13 constant currency growth rate for the division of 6.4%.

Figure 9: 1H13 weighted pathology growth across divisions

1H13 normalised revenue

growth rates

1H13 revenues Weighted incremental

revenues

Australia 5% 520.3 26.02

Germany 5% 265.0 13.25

US -1% 367.0 -3.67

UK 60% 72.0 43.20

Switzerland 5% 37.0 1.85

Belgium 7% 48.0 3.36

Weighted growth 6.4%


Assuming this growth rate holds into 2H13 (an underlying growth rate that excludes one-

off items addressed above) and EBITDA margins remain the same, we derive 2H13F

EBITDA of A$298.1mn.

Hence, to reach normalised 2H13F Pathology EBITDA of A$311.5mn (which we

believe is necessary for SHL to meet the lower end of its guidance), an additional

A$13.5mn of cost-out is required assuming 1H13 underlying revenue growth rates

continue into 2H13F. This implies EBITDA margin expansion in the pathology

division of ~100bp to 23.4%.

Refer Figure 10 for calculations.

24 April 2013


Figure 10: Pathology cost out required to meet guidance assuming 1H13 rev. growth rates

2H12 1H13 rev. growth 2H13F

Pathology revenue (cc) A$mn 1253.4 6.4% 1333.8

Pathology EBITDA (cc) A$mn 280.1 6.4% 298.1

EBITDA margin % % 22.4% 22.4%

Normalised Pathology EBITDA required (cc) A$mn 311.5

Pathology EBITDA margin % required % 23.4%

Margin % uplift required (normalised) % 1.01%

Pathology cost-out required A$mn 13.5


We note SHL is currently implementing a cost-out programme in the US which could be

material from FY14 onwards (as a rough estimate we believe a ~5% reduction in the

~US$640mn opex base is possible) although unlikely to have a significant impact on the

2H13 result.

We therefore assume 2H13 pathology EBITDA growth of 7.5%, slightly ahead of the

implied 1H13 growth rate (using the weighted revenue growth method detailed above) but

below that theoretically required to meet the lower end of guidance (11.2%). As a result,

our reported pathology divisional EBITDA is A$272mn for 2H13 with group EBITDA of

A$328mn. For FY13, we forecast group EBITDA of A$631.5mn, implying constant

currency growth of 2.5%, below guidance but not materially so. Refer Figure 11.

We also flag a step-up in our FY14 EBITDA growth forecast to 8.4% (~7% in constant

currency) on the basis of successful cost out in the US and also less material fee

cuts/quotas in Germany and the US.

Figure 11: CS FY13 EBITDA forecast vs. guidance

624.1

631.5

640.5

655.3

605

610

615

620

625

630

635

640

645

650

655

660

FY12 EBITDA FY13 EBITDA - Credit

Suisse reported

FY13 EBITDA - Credit

Suisse constant currency

FY13 EBITDA - low end of

guidance (5% growth)

US

$m

n



24 April 2013


Equity Research

General Merchandise Stores (Retail (AU))

The Reject Shop

(TRS.AX / TRS AU) CATALYST ALERT

Capital raising to fund new store opportunity

■ TRS is raising up to $40mn in new equity through a fully underwritten

placement ($30mn) and SPP (up to $10mn). The raising will fund

approximately $44mn of cash outflows associated with accelerated store

openings. Access to new sites in an earlier-than-expected timeframe is a

positive development, although the placement price looks full relative to

FY14 earnings accretion.

■ The placement represents 7% of shares on issue. The placement price is

$16.20, which represents a 1% discount to five-day VWAP. The additional

$10mn SPP, if fully subscribed would cause total shares on issue to

increase by 9%.

■ We have increased our FY13 store opening costs forecast to $1.8mn,

previously $1.0mn, which drives the downgrade to FY13 earnings. Additional

stores in FY14 deliver EBIT of $1mn (+3%) after store opening costs (40

stores versus 20 previously forecast) and $3.0mn (+6%) to EBIT in FY15.

The benefits of store openings to group earnings fails to offset the dilution

impact of the equity raising, causing our EPS forecasts to decline 5% and

2% in FY14 and FY15, respectively.

■ We have not adjusted our valuation for TRS at this time.


Mean^

CS tgt^

Sh Prc

-50%

-30%

-10%

10%

30%

50%



Absolute (%) 4.5 8.3 40.3

Relative (%) 4.5 4.6 26.2


Year 07/12A 07/13E 07/14E 07/15E

Revenue (A$mn) 562.9 637.8 748.7 812.0

EBITDA (A$mn) 43.7 46.9 60.5 69.7

EBIT (A$mn) 31.3 32.4 43.3 51.1

Net income (A$mn) 20.0 21.6 29.6 35.2

EPS (CS adj.) (Ac) 76.02 80.50 102.80 122.29



EPS growth (%) 23.6 5.9 27.7 19.0

P/E (x) 22.0 20.8 16.3 13.7

Dividend (Ac) 33.50 33.50 77.94 92.72

Dividend yield (%) 2.0 2.0 4.7 5.5

P/B (x) 6.3 3.9 3.4 3.1

Net debt/equity (%) 32.6 2.1 5.5 net cash







Price (22 Apr 13, A$) 16.72





Projected return:



Total return (%) -14.8



benchmark.


Research Analysts

Grant Saligari

61 3 9280 1720

[email protected]

James O'Brien

61 3 9280 1669

[email protected]

24 April 2013



The Reject Shop (TRS) Year ending 1 Jul In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % -18.96 EPS_GROWTH*100EPS Growth % 23.6 5.9 27.7 19.0


c_DPS*100DPS c 31.0 33.5 33.5 77.9 92.7

c_PAYOUT*100Payout % 50.4 44.1 41.6 75.8 75.8


c_FCF_PS*100Free CFPS c 4.3 92.9 -36.9 67.8 154.7


Sales revenue 505.1 555.3 637.5 748.7 812.0 Valuation

EBITDA 37.1 43.7 46.9 60.5 69.7 c_PE P/E x 27.2 22.0 20.8 16.3 13.7




Net interest Exp. (3.2) (3.0) (2.0) (1.1) (0.9) c_FCF_YIELD*100FCF Yield % 0.3 5.6 -2.2 4.1 9.3








Unusual item after tax 0.0 1.9 2.0 0.0 0.0 Gearing

Reported NPAT 16.2 21.9 23.6 29.6 35.2 c_GEARING*100Net Debt to Net debt + Equity % 42.5 24.6 2.1 5.2 Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 1.1 0.5 0.1 0.1 Net Cash






Current assets 76.0 79.1 112.3 112.9 121.9 MSCI IVA (ESG) Rating CCC

Property, plant & equip. 71.9 74.3 90.0 104.1 109.0 TP ESG Risk (%): 0

Intangibles 0.0 0.0 0.0 0.0 0.0



Total assets 153.6 159.0 210.4 225.2 239.1

Payables 29.0 26.5 24.1 29.8 32.0




Net assets 53.1 68.5 121.0 140.1 151.7

Ordinary equity 53.1 68.5 121.0 140.1 151.7



Total shareholder funds 53.1 68.5 121.0 140.1 151.7

Net debt 39.3 22.4 2.6 7.7 -8.4 Source: MSCI ESG Research


EBIT 26.0 31.3 32.4 43.3 51.1

Net interest -3.4 -2.9 -1.5 -1.1 -0.9

Depr & Amort 11.1 12.4 14.5 17.2 18.6

Tax paid -6.8 -5.8 -6.6 -12.7 -15.1

Working capital -12.9 -1.0 -23.8 -10.1 9.3

Other 4.0 6.3 5.8 0.0 0.0


Capex -17.0 -15.6 -30.7 -32.0 -24.2

Capex - expansionary -14.8 -5.6

Capex - maintenance -17.2 -18.6

Acquisitions & Invest 0.1 0.6 0.7 0.7 0.7


Other 0.0 0.0 0.0 0.0 0.0


Dividends paid -13.3 -8.3 -11.0 -10.5 -23.5

Equity raised 0.0 0.0 40.0 0.0 0.0

Net borrowings 12.8 -12.0 -7.4 -10.0 0.0

Other 0.0 -0.8 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -0.4 -21.1 21.6 -20.5 -23.5 Absolute 4.5% 8.3% 40.3%

Total cashflow 0.6 4.1 12.4 -15.1 16.0 Relative 4.5% 4.6% 26.2%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 0.6 4.1 12.4 -15.1 16.0 Source: Reuters 52 week trading range: 9.03-17.91

MSCI IVA Risk Comment: The Reject Shop was recently

downgraded to 'CCC' from 'B' for a lack of transparency on

supply-chain labour standards and oversight into the

chemicals used by textile suppliers. For the company to

improve its rating significant investment is required that could

inhibit operational profitability. We currently have a bleak

outlook for The Reject Shop’s capability to sustain earnings

and so do not anticipate these investments to be forthcoming.

23/04/2013 11:28

The Reject Shop Limited is an Australia-based company. Its engaged in the retailing of

discount variety merchandise. It has a 100% owned non-operating subsidiary, TRS Trading

Group Pty Ltd.

Credit Suisse View

TP Risk Comment: No material ESG risk

UNDERPERFORM

8.58

10.58

12.58

14.58

16.58

18.58

10/04/2012 10/06/2012 10/08/2012 10/10/2012 10/12/2012 10/02/2013 10/04/2013

TRS.AX XJO

1.8

2.8

3.8

4.8

5.8

6.8

7.8

8.8


Stock Local Sector



24 April 2013


Impact of equity raising

We have increased our FY13 store opening costs forecast to $1.8mn, previously $1.0mn,

which drives the downgrade to FY13 earnings.

Additional stores in FY14 deliver EBIT of $1mn (+3%) after store opening costs of $90,000

per store. We are now forecasting 40 new store openings in FY14, previously 19.

The incremental EBIT uplift is stronger in FY15 when the stores added in FY14 do not face

opening costs. We forecast EBIT per store of $0.15mn, adding $3mn to our FY15 forecast.

The benefit of store openings to group earnings fails to offset the dilution impact of the

equity raising in the early years, causing our EPS forecasts to decline 5% and 2% in FY14

and FY15, respectively.

Figure 2: TRS equity raising adjustments

CS previous CS new Change

FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15

Stores 279 295 309 279 316 330 0 21 21

Sales ($mn) 638 705 762 638 749 812 -0.1% 6.2% 6.5%

EBIT ($mn) 33.4 42.2 48.1 32.4 43.3 51.1 -2.9% 2.8% 6.2%

NPAT ($mn) 22.2 28.6 33.0 21.6 29.6 35.2 -3.1% 3.2% 6.5%

Shares (weighted avg. ordinary) 26.1 26.1 26.1 26.5 28.4 28.4 1.5% 9.0% 9.0%

EPS (CS) 84 108 125 81 103 122 -3.5% -5.2% -2.2%

PE (CS) 19.8 15.4 13.4 20.6 16.3 13.7 3.6% 5.5% 2.3%

EPS (consensus) 80 105 124

PE (consensus) 20.8 15.9 13.5

Source: Company data, IBES, Credit Suisse estimates


24 April 2013


Equity Research

Airlines (Transportation (AU))

Virgin Australia Holdings

(VAH.AX / VBA AU) ACQUISITION

Acquisition hurdle cleared, execution risks

remain

■ Event: On 23 April 2013, the Australian Competition and Consumer

Commission (ACCC) announced that it would not oppose Virgin Australia’s

60% acquisition of Tiger Airways Australia.

■ Investment case: We see today’s announcement as strategically positive

for Virgin Australia. A 60% stake in Tiger Australia with no minimum capacity

guarantees gives Virgin’s management another platform to compete more

effectively against Jetstar (Qantas) in the Australian domestic LCC market.

However, while we agree with the acquisition in principle, without further

information we continue to believe there are many execution-related risks,

potentially bringing into question whether the deal is value accretive for

shareholders over the medium to longer term. Tiger Australia is at present

without strong management, has recurring losses and needs to aggressively

grow scale to achieve profit, which in our view is likely to keep pressure on

already weakened yields. Furthermore, in the longer term it remains unclear

whether Tiger Australia has a materially lower cost base than Jetstar.

■ Consolidation: We are yet to consolidate financial accounts given the

acquisition still requires FIRB approval as well as having to pass a number

of Virgin management’s internal criteria. As well, no timeline has been given

for the final completion of the deal.

■ Catalysts: i) approval of the deal by FIRB, ii) high quality Tiger Australia

management hires, iii) ongoing domestic yield recovery and, iv) oil pricing.

■ Valuation: Target price and earnings remain unchanged.


Mean^CS tgt^ Sh Prc

-50%

-30%

-10%

10%

30%

50%



Absolute (%) 13.8 8.3 12.3

Relative (%) 12.8 3.6 -2.9


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 3,919.5 3,976.8 4,310.5 4,781.2

EBITDA (A$mn) 299.4 325.0 471.1 598.2

EBIT (A$mn) 66.9 95.0 229.3 354.9

Net income (A$mn) 72.5 58.7 129.5 186.3

EPS (CS adj.) (Ac) 3.28 2.66 5.86 8.44

Change from previous EPS (%) n.a. — — —


EPS growth (%) 261.1 -19.0 120.5 43.9

P/E (x) 13.9 17.1 7.8 5.4

Dividend (Ac) — 2.00 3.00 —

Dividend yield (%) — 4.4 6.6 —

P/B (x) 1.1 1.0 1.0 0.8

Net debt/equity (%) 168.2 172.6 152.9 110.3






Rating OUTPERFORM* [V]

Price (23 Apr 13, A$) 0.46





Projected return:






benchmark.



Research Analysts

Nicholas Markiewicz

61 2 8205 4400

[email protected]

24 April 2013



Virgin Australia Holdings (VAH) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015


Target Price A$ 0.45 c_EPS*100EPS (Normalised) c -2.0 3.3 2.7 5.9 8.4

vs Share price % -1.10 EPS_GROWTH*100EPS Growth % 261.1 -19.0 120.5 43.9

c_EBITDA_MARGIN*100EBITDA Margin % 5.5 7.6 8.2 10.9 12.5

c_DPS*100DPS c 0.0 0.0 2.0 3.0 0.0

c_PAYOUT*100Payout % 0.0 0.0 75.2 51.2 0.0


c_FCF_PS*100Free CFPS c -23.0 -22.8 -10.7 -0.1 9.6


Sales revenue 3,270.8 3,919.5 3,976.8 4,310.5 4,781.2 ValuationEBITDA 179.0 299.4 325.0 471.1 598.2 c_PE P/E x -22.3 13.9 17.1 7.8 5.4

Depr. & Amort. (225.8) (232.5) (230.0) (241.7) (243.2) c_EBIT_MULTIPLE_CURREV/EBIT x -59.3 40.8 29.9 12.1 7.1

EBIT (46.8) 66.9 95.0 229.3 354.9 c_EBITDA_MULTIPLE_CUEV/EBITDA x 15.5 9.1 8.7 5.9 4.2


Net interest Exp. (48.2) (49.1) (45.9) (43.1) (70.0) c_FCF_YIELD*100FCF Yield % -50.5 -50.0 -23.5 -0.2 21.1


Profit before tax (95.0) 17.8 49.1 186.3 285.0 ReturnsIncome tax 27.0 (4.4) (11.6) (57.0) (98.9) c_ROE*100Return on Equity % -4.9 7.8 6.1 12.3 15.4

Profit after tax (68.0) 13.4 37.5 129.3 186.1 c_I_NPAT/c_I_SALES*100Profit Margin % -1.4 1.8 1.5 3.0 3.9



Associates & Other 23.0 59.1 21.2 0.2 0.3 c_ROA*100Return on Assets % -1.2 1.8 1.4 3.1 4.5

Normalised NPAT (45.0) 72.5 58.7 129.5 186.3 c_ROIC*100Return on Invested Cap. % 3.5 2.0 7.0 10.1 13.8

Unusual item after tax (22.8) (58.9) (21.0) 0.0 0.0 GearingReported NPAT (67.8) 13.6 37.7 129.5 186.3 c_GEARING*100Net Debt to Net debt + Equity % 63.5 62.7 63.3 60.5 52.5



Cash & equivalents 731.3 802.6 802.6 802.6 802.6 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -1.0 1.4 2.1 5.3 5.1




Current assets 949.6 1,032.0 1,034.1 1,052.5 1,078.6 MSCI IVA (ESG) Rating BBBProperty, plant & equip. 2,754.9 2,769.0 2,918.5 2,968.2 2,887.6 TP ESG Risk (%): 0

Intangibles 69.1 101.0 101.0 101.0 101.0



Total assets 3,841.3 3,995.2 4,146.8 4,214.9 4,160.4

Payables 395.9 505.5 512.9 555.9 616.6




Net assets 926.3 929.7 967.5 1,052.8 1,211.0

Ordinary equity 926.3 929.7 967.4 1,052.7 1,211.0



Total shareholder funds 926.3 929.7 967.4 1,052.7 1,211.0



EBIT -46.8 66.9 95.0 229.3 354.9

Net interest -55.1 -50.8 -45.9 -43.1 -31.8

Depr & Amort 0.0 0.0 0.0 0.0 0.0

Tax paid 0.0 0.0 -26.6 -57.0 -98.9

Working capital 0.0 0.0 15.5 83.5 117.7

Other 0.0 0.0 0.2 0.2 0.3

Operating cashflow -101.9 16.1 38.2 213.0 342.3

Capex -507.6 -648.7 -343.5 -268.9 -162.7

Capex - expansionary -101.5 -129.7 -68.7 -53.8 -32.5


Acquisitions & Invest 202.2 460.0 0.0 0.0 0.0


Other -16.1 -46.1 -36.0 -22.5 0.0


Dividends paid 0.0 0.0 0.0 -44.2 -66.3

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings 3.0 -0.8 96.3 -119.1 -356.5

Other 0.0 0.0 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 3.0 -0.8 96.3 -163.3 -422.8 Absolute 13.8% 8.3% 12.3%

Total cashflow -420.4 -219.5 -245.0 -241.7 -243.2 Relative 12.8% 3.6% -2.9%

Adjustments -14.5 -7.5 0.0 0.0 0.0

Net change in cash -434.9 -227.0 -245.0 -241.7 -243.2 Source: Reuters 52 week trading range: 0.37-0.51

MSCI IVA Risk Comment: We are satisfied with the MSCI IVA

rating.

23/04/2013 17:26

Virgin Australia Holdings Limited is an Australia-based company. The Company is engaged in

airline industry. Its segments include short haul and long haul. Its operations use the short

haul fleet of Boeing 737 aircrafts and Embraer 170 and 190 aircraft.

Credit Suisse View

TP Risk Comment: Solid ESG track record though still scope for

improvement in disclosure.

OUTPERFORM

0.35

0.37

0.39

0.41

0.43

0.45

0.47

0.49

0.51

0.53

11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

VAH.AX XJO

2.3

3.3

4.3

5.3

6.3

7.3


Stock Local Sector



24 April 2013


Investment view

We see today’s announcement as strategically positive for Virgin Australia. A 60% stake in

Tiger Airways Australia coupled with no minimum capacity guarantees imposed by the

regulator gives Virgin’s management another platform to compete more effectively against

Jetstar (Qantas) in the Australian domestic LCC market.

However, while we agree with the acquisition in principle, without further information we

continue to believe there are many execution-related risks, potentially bringing into

question whether the deal is value accretive for shareholders over the medium to longer

term. Tiger Australia is at present without strong management, has recurring losses and

needs to aggressively grow scale to achieve profit, which in our view is likely to keep

pressure on already weakened yields. Furthermore, in the longer term it remains unclear

whether Tiger Australia has a materially lower cost base than Jetstar.

Execution risks remain

While the acquisition of Tiger Australia is in our view needed for Virgin Australia to defend

its group market share, we believe there are still many execution-related risks which may

define whether the acquisition is value accretive for shareholders over the medium to

longer term. These risks include:

■ Addressing Tiger Australia’s chronic lack of profitability (Figure 2 and Figure 3),

■ Uneconomic scale,

■ Ongoing yield weakness in the leisure sector,

■ Attracting high quality management with previous LCC experience, and

■ Achieving the lowest CASK in Australia.

Figure 2: Tiger Australia revenue vs expenditure ($AUD) Figure 3: Tiger Australia operating profit ($AUD)

-

10

20

30

40

50

60

70

80

Sep

10

De

c 1

0

Mar

11

Jun

11

Sep

11

De

c 1

1

Mar

12

Jun

12

Sep

12

De

c 1

2

Revenue Expenditure

Last incidence of profitability

(25)

(20)

(15)

(10)

(5)

-

5

10

Sep

10

De

c 1

0

Mar

11

Jun

11

Sep

11

De

c 1

1

Mar

12

Jun

12

Sep

12

De

c 1

2



24 April 2013


Equity Research

Food Retail (Retail (AU))

Wesfarmers

(WES.AX / WES AU) CATALYST ALERT

Quarterly coal production and price

negotiations

■ Coal production and price updates: WES has announced March quarter

Curragh coal production of 2,267kt (CS 2,300kt), 15.2% lower than 2Q13.

Wet weather associated with Cyclone Oswald was cited as interrupting

activity. Metallurgical coal production decreased 15.4% to 1,535kt and

thermal production declined 14.8% to 732kt. WES’ share of quarterly

production at Bengalla was 706kt, down 14.6% on the previous quarter.

Curragh’s sales guidance was maintained at 7.5–8.0mn tonnes in FY13.

■ Price negotiations for the June quarter: WES has concluded price

negotiations for the June quarter with a weighted average US$FOB

metallurgical coal price of $167/tonne, up 4% on the previous quarter. Carry-

over for the quarter is expected to be 25%, producing an average price

increase of 3%. The fourth-quarter price outcome is marginally ahead of the

previous CS forecast of $160/tonne.

■ Valuation: We have made negligible changes to earnings forecasts as a

result of the update. Our target price of $35.58 remains the average of our

$36.95 DCF valuation and $34.20 SOP valuation.


Mean^

CS tgt^

Sh Prc

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%



Absolute (%) 4.4 12.0 44.5

Relative (%) 4.4 8.3 30.4


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 57,936.0 60,079.5 62,903.0 66,152.3

EBITDA (A$mn) 4,571.0 4,765.1 5,157.3 5,556.8

EBIT (A$mn) 3,576.0 3,698.0 4,042.3 4,412.3

Net income (A$mn) 2,138.0 2,297.5 2,524.7 2,830.5

EPS (CS adj.) (Ac) 184.95 198.38 217.60 243.96

Change from previous EPS (%) n.a. -0.11 -0.07 —


EPS growth (%) 11.2 7.3 9.7 12.1

P/E (x) 22.9 21.4 19.5 17.4

Dividend (Ac) 165.00 155.75 171.37 203.49

Dividend yield (%) 3.9 3.7 4.0 4.8

P/B (x) 1.9 1.9 1.8 1.8

Net debt/equity (%) 17.1 19.3 18.4 17.0







Price (23 Apr 13, A$) 42.41



Yr avg. mthly trading (A$mn) 1,731

Last month's trading (A$mn) 1,695

Projected return:



Total return (%) -12.1



benchmark.


Research Analysts

Grant Saligari

61 3 9280 1720

[email protected]

James O'Brien

61 3 9280 1669

[email protected]

24 April 2013



Wesfarmers (WES) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % -16.10 EPS_GROWTH*100EPS Growth % 11.2 7.3 9.7 12.1


c_DPS*100DPS c 150.0 165.0 155.8 171.4 203.5

c_PAYOUT*100Payout % 90.2 89.2 78.5 78.8 83.4




Sales revenue 52,891.0 55,897.0 57,952.4 60,952.9 64,146.9 Valuation

EBITDA 4,150.0 4,571.0 4,765.1 5,157.3 5,556.8 c_PE P/E x 25.5 22.9 21.4 19.5 17.4

Depr. & Amort. (923.0) (995.0) (1,067.0) (1,115.0) (1,144.5) c_EBIT_MULTIPLE_CURREV/EBIT x 16.5 15.0 14.6 13.4 12.2

EBIT 3,227.0 3,576.0 3,701.8 4,042.3 4,412.3 c_EBITDA_MULTIPLE_CUEV/EBITDA x 12.8 11.7 11.4 10.5 9.7




Profit before tax 2,739.0 3,093.0 3,241.0 3,571.1 3,995.6 ReturnsIncome tax (784.0) (921.0) (958.3) (1,071.3) (1,198.7) c_ROE*100Return on Equity % 7.6 8.3 8.8 9.5 10.3

Profit after tax 1,955.0 2,172.0 2,282.7 2,499.8 2,796.9 c_I_NPAT/c_I_SALES*100Profit Margin % 3.6 3.8 4.0 4.1 4.4



Associates & Other (33.0) (34.0) 14.8 24.9 33.6 c_ROA*100Return on Assets % 4.7 5.1 5.2 5.6 6.2

Normalised NPAT 1,922.0 2,138.0 2,297.5 2,524.7 2,830.5 c_ROIC*100Return on Invested Cap. % 13.1 13.7 13.9 14.8 15.9

Unusual item after tax 0.0 (12.0) 0.0 0.0 0.0 Gearing

Reported NPAT 1,922.0 2,126.0 2,297.5 2,524.7 2,830.5 c_GEARING*100Net Debt to Net debt + Equity % 13.6 14.6 16.2 15.6 14.5



Cash & equivalents 897.0 1,127.0 1,494.6 1,600.7 1,853.4 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 6.6 7.4 8.1 8.6 10.6

Inventories 4,987.0 5,006.0 5,112.2 5,372.6 5,655.6 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 3.9 4.7 4.2 2.5 2.3

Receivables 2,149.0 2,384.0 2,488.9 2,615.7 2,753.5 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 274.2 325.4 278.8 165.8 157.5

Other current assets 2,185.0 2,394.0 2,245.0 2,245.0 2,245.0

Current assets 10,218.0 10,911.0 11,340.7 11,834.0 12,507.4 MSCI IVA (ESG) Rating A

Property, plant & equip. 8,302.0 9,463.0 10,603.9 10,986.3 11,301.5 TP ESG Risk (%): -5

Intangibles 20,580.0 20,490.0 20,533.0 20,533.0 20,533.0



Total assets 40,814.0 42,312.0 43,857.4 44,757.9 45,780.2

Payables 5,059.0 5,420.0 5,466.9 5,713.5 5,995.5




Net assets 25,329.0 25,627.0 25,995.5 26,649.5 27,389.7

Ordinary equity 25,370.0 25,658.0 26,025.5 26,679.5 27,419.7





Cashflow 06/11A 06/12A 06/13E 06/14E 06/15E EBIT Segmentals: Top 5 Divisions

EBIT 3,227.0 3,576.0 3,701.8 4,042.3 4,412.3

Net interest -323.0 -301.0 -371.1 -471.2 -416.7 Coles F&L mn 1,071.0 1,232.0 1,385.1 1,555.7 1,746.0

Depr & Amort 923.0 995.0 1,067.0 1,115.0 1,144.5 Change (YoY) % 15.0 12.4 12.3 12.2

Tax paid -527.0 -835.0 -1,024.3 -1,071.3 -1,198.7 Home Improvement mn 802.0 841.0 881.3 921.9 967.8

Working capital -255.0 107.0 -164.3 -140.5 -138.7 Change (YoY) % 4.9 4.8 4.6 5.0

Other -128.0 99.0 412.3 0.0 0.0 Kmart mn 204.0 268.0 315.7 315.8 316.1

Operating cashflow 2,917.0 3,641.0 3,621.4 3,474.3 3,802.7 Change (YoY) % 31.4 17.8 0.0 0.1

Capex -2,062.0 -2,626.0 -2,408.9 -1,497.4 -1,459.7 Target mn 280.0 244.0 224.9 252.8 255.6

Capex - expansionary -979.8 -1,446.7 -1,155.8 -199.5 -102.5 Change (YoY) % -12.9 -7.8 12.4 1.1

Capex - maintenance -1,082.3 -1,179.3 -1,253.1 -1,297.9 -1,357.3 Resources mn 369.0 439.0 215.2 292.3 317.9

Acquisitions & Invest 90.0 219.0 201.0 0.0 0.0 Change (YoY) % 19.0 -51.0 35.9 8.7


Other 76.0 -164.0 -82.0 0.0 0.0


Dividends paid -1,557.0 -1,789.0 -1,987.9 -1,870.7 -2,090.3

Equity raised 0.0 0.0 160.4 336.7 376.2

Net borrowings -232.0 542.0 1,016.0 0.0 0.0

Other 5.0 5.0 -158.4 -334.7 -376.2

Financing cashflow -1,784.0 -1,242.0 -969.9 -1,868.7 -2,090.3

Total cashflow -743.0 230.0 365.6 108.1 252.7

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash -743.0 230.0 365.6 108.1 252.7

MSCI IVA Risk Comment: Wesfarmers currently has an 'A'

rating attributable to its ethical sourcing initiatives and efforts

to improve methods of sourcing materials such as fish and

palm oil. However, lagging initiatives to measure and reduce

carbon emissions and the highly regualted industries in which

it competes limit the likelihood of Wesfarmers' rating moving

higher. We therefore view the current rating as reflective of its

ongoing position and so have a Neutral outlook.

23/04/2013 14:02

Wesfarmers Limited is an Australia-based company. The Company’s principal activities are

retailing operations; insurance; industrial and safety product distribution; chemicals and

fertilizers manufacture, and investments

Credit Suisse View

TP Risk Comment: Approximately 3% of earnings is derived

from the sale of liquor and gaming, for which there is

downside from further regulatory risk. The direct impact of

Australia's carbon tax is reflected in our base earnings

forecasts for Curragh and CEF divisions (circa 20% of

company earnings). There is potentially further downside

regulatory risk to those divisions from tighter environmental

standards. We assign a 5% potentially negative impact to our

UNDERPERFORM

37%

24%

2%6%

9%

6%5%

5%6%

Coles F&L Home Improvement Officeworks Target Kmart

Resources Insurance Industrial & Safety Chemicals & Fertilsers

3.2

3.7

4.2

4.7

5.2

5.7

6.2

6.7

7.2


Stock Local Sector




24 April 2013


Equity Research


Western Areas NL

(WSA.AX / WSA AU) COMPANY UPDATE

Solid 3Q production result

■ Mine production at 7.146t (CS: 6.7kt), split between Flying Fox at 4.1kt and

Spotted Quoll 3.1kt – a beat vs. our expectation due to a faster ramp-up and

higher grades of SQ. WSA noted it was on track to meet its guidance of

27.5kt nickel in ore but having already produced 21.6kt we view this as

conservative and increase our forecast to 28.4kt nickel (from 28.3kt). Mill

production was at 6,611t and concentrate sales at 6,845t.

■ Average reported cash cost at A$2.86/lb (CS: $2.81/lb) for a YTD average

cost of A$2.75/lb (or an estimated total payable cash cost at US$5.1/lb).

This remains well within the guidance of A$3.0/lb and will keep WSA

operating cash flow positive, even at $6.90/lb spot prices. Cash from

operations at $26.7mn for a total cash balance of $84.5mn and net debt of

$130mn. We would need to assume nickel prices below A$7/lb for three

years before debt repayment would become an issue.

■ Total capex of $15.6mn (CS:$24mn), down substantially as most infrastructure

associated with SQ has been completed. We don’t expect any major new

investment until a decision has been made on the expansion of the Cosmic Boy

concentrator or development of the New Morning and Sunrise deposits.

■ NPAT is up $3mn in FY13 on slightly higher production. While the EPS

changes are immaterial, lower capex spend increases our DCF to $4.24/sh

(from $4.11/sh). We retain TP at $4.0, set at a modest discount to DCF to

reflect current depressed nickel pricing. At spot nickel prices our DCF

declines to $1.9/sh and we view WSA a relatively safe play (vs. junior peers)

leveraged to even a small rebound in nickel prices. Retain OUTPERFORM.


Mean^CS tgt^

Sh Prc

-50%

-30%

-10%

10%

30%

50%

70%

90%

110%



Absolute (%) -24.5 -36.1 -48.5

Relative (%) -25.5 -40.9 -63.7


Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 330.7 317.2 312.6 366.6

EBITDA (A$mn) 177.8 130.4 124.4 155.3

EBIT (A$mn) 86.1 41.8 43.0 73.3

Net income (A$mn) 40.2 13.7 16.9 41.5

EPS (CS adj.) (Ac) 21.12 6.55 8.00 19.67

Change from previous EPS (%) n.a. 32.9 11.0 3.9


EPS growth (%) -72.0 -69.0 22.2 145.8

P/E (x) 12.8 41.4 33.9 13.8

Dividend (Ac) 11.00 3.46 3.17 7.86

Dividend yield (%) 4.1 1.3 1.2 2.9

P/B (x) 1.7 1.6 1.5 1.4

Net debt/equity (%) 66.8 41.4 31.1 8.8






Rating OUTPERFORM*

Price (23 Apr 13, A$) 2.71





Projected return:






benchmark.


Research Analysts

Paul McTaggart

61 2 8205 4698

[email protected]

Martin Kronborg

61 2 8205 4369

[email protected]

24 April 2013


Figure 1: WSA Financial summary Market data Valuation summary A$mnA$/share

Ticker WSA.AX Operating mines 912 4.54

Share price A$ 2.71 Nickel inventory (stockpile) 35 0.17

Target price A$ 4.00 Exploration and other investments 103 0.51

Change to TP % 47.6% Corp expenses -54 -0.27

Investment rating OUTPERFORM Total mining enterprise 996 4.96

Shares on issue mn 179.7 Net debt (net cash) @ Dec 2013 144 0.72

Market cap A$mn 487 Total equity value (now) 852 4.24

Net debt A$mn 144 Price/DCF 0.64

EV A$mn 631

Commodity Assumptions FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

AUD:USD 0.90 1.03 1.01 1.02 0.97 0.95 1.01 1.01 1.04 1.00

Nickel (US$/lb) 9.07 10.87 8.82 7.62 7.65 8.05 9.30 8.35 7.57 7.68

Nickel (A$/lb) 10.11 10.59 8.73 7.47 7.89 8.52 9.19 8.27 7.28 7.68

Production Profile FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Flying Fox - Ore Mined (kt) 266 348 374 360 390 420 182 166 196 177

Grade 3.9% 4.7% 5.0% 4.9% 4.6% 4.5% 4.3% 5.0% 4.7% 5.3%

Flying Fox - Ni Mined (kt) 10.5 16.2 18.6 17.6 18.1 18.9 7.8 8.4 9.2 9.4

Spotted Quoll (U/ground) - Ore Mined (kt) - - 85 212 255 310 - - - 85

Grade - - 3.8% 5.1% 4.6% 4.6% 0.0% 0.0% 0.0% 3.8%

Spotted Quoll (U/ground) - Ni mined (kt) - - 3.2 10.8 11.7 14.3 - - - 3.2

Total Ore Mined (kt) 319 594 647 572 645 730 305 289 328 320

Average Grade 4.3% 5.4% 4.8% 5.0% 4.6% 4.5% 5.3% 5.5% 4.9% 4.7%

TOTAL Ni in ORE MINED (kt) 13.8 32.2 30.9 28.4 29.9 33.2 16.3 16.0 16.0 14.9

Cosmic Boy Concentrator - Ore Processed 270 519 548 585 600 730 255 265 273 275

Grade 3.9% 5.4% 5.1% 5.0% 4.6% 4.5% 5.6% 5.3% 5.2% 5.0%

Ave. Recovery 90% 91% 92% 91% 91% 91% 90% 93% 93% 92%

Ni Tonnes in Concentrate Produced 9.6 25.7 25.6 26.5 25.3 30.2 12.7 13.0 13.0 12.6

Ni Tonnes in Concentrate Sold 10.6 25.1 26.3 27.0 25.8 30.2 11.8 13.3 11.2 15.0

Total Nickel Tonnes Sold 10.6 27.5 26.6 27.0 25.8 30.2 13.2 14.3 11.6 15.0

Total Nickel Sold (mlb) 23.4 60.6 58.7 59.5 56.8 66.5 29.2 31.4 25.6 33.2

Total Nickel Payable (est. at 70%) (mlb) 16.4 42.4 41.1 41.6 39.8 46.6 20.4 22.0 17.9 23.2

Nickel stockpiles (mlb of contained Ni) 18.9 17.8 17.2 17.2 18.6 21.6 13.1 13.6 20.5 18.9

Cash Costs FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Cash cost Ni in conc (as reported) (A$/lb) 3.05 2.12 2.43 2.76 2.85 2.88 1.97 2.27 2.17 2.69

Cash cost Ni in conc (as reported) (US$/lb) 2.70 2.11 2.50 2.84 2.79 2.72 1.86 2.34 2.24 2.78

Payable cash cost (ex. Royalties) (A$/lb) 4.35 3.03 3.48 3.94 4.07 4.11 1.97 2.27 2.17 2.69

Payable cash cost (ex. Royalties) (US$/lb) 3.85 3.01 3.57 4.06 3.98 3.89 1.86 2.34 2.24 2.78

C1 Payable cash cost (US$/lb) 5.40 3.98 4.19 4.71 4.59 4.46 1.86 2.34 2.24 2.78

Total payable cash cost (US$/lb) 6.28 4.36 4.58 5.10 4.98 4.78 2.95 3.54 2.90 3.65

C3 payable cost (incl. D&A, interest) (US$/lb) 9.23 6.64 7.06 7.34 7.04 6.41 4.80 5.54 5.19 5.52

Consolidated P&L (A$mn) FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Sales 170.4 468.7 330.7 317.2 312.6 366.6 149.1 181.6 159.0 158.2

Other sales revenue 0.3 - - - - - - - - -

Total revenues 170.7 468.7 330.7 317.2 312.6 366.6 149.1 181.6 159.0 158.2

Operating expenses 69.6 123.3 131.5 163.4 163.2 183.3 57.6 95.3 92.2 94.5

Royalties 7.2 20.4 15.1 14.3 14.0 17.0

Admin & other 21.1 19.6 10.0 12.1 11.0 11.0

Total operating costs 97.9 163.3 156.6 189.7 188.2 211.3

EBITDA 72.8 305.3 174.1 127.4 124.4 155.3 91.5 86.3 66.8 63.7

Depreciation and amortisation 41.8 80.0 87.9 85.7 81.3 82.0 43.8 47.9 44.2 44.4

EBIT 31.0 225.3 86.1 41.8 43.0 73.3 47.7 38.4 22.6 19.2

Net interest -28.1 -30.0 -28.7 -21.7 -18.9 -13.9 -13.0 -15.7 -12.9 -8.9

Profit before tax 2.9 195.3 57.5 20.0 24.1 59.3 34.7 22.7 9.7 10.3

Tax -2.6 -60.3 -17.3 -6.3 -7.2 -17.8 -10.6 -6.7 -3.2 -3.1

Normalised NPAT 0.2 135.0 40.2 13.7 16.9 41.5 24.1 16.1 6.5 7.2

Net significant items (post tax) 14.0 - - -4.3 - - - - -4.3 -

Reported NPAT 14.2 135.0 40.2 9.4 16.9 41.5 24.1 16.1 2.1 7.2

Normalised EPS - basic (cps) 8.0 75.4 22.4 4.7 8.4 20.7 13.4 8.9 3.4 3.6

DPS (cps) 6.00 25.0 11.0 3.5 3.2 7.9 5.0 6.0 2.0 1.5 Source: Company data, Credit Suisse estimates

24 April 2013


Figure 2: WSA Financial summary Key financials FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Normalised EPS - diluted (cps) 7.5 75.4 21.1 4.5 8.0 19.7 12.7 8.5 3.3 3.5

Reported EPS - basic (cps) 8.0 75.4 22.4 4.7 8.4 20.7 13.4 8.9 1.1 3.6

Reported EPS (diluted) 7.5 75.4 21.1 4.5 8.0 19.7 12.7 8.5 1.1 3.5

Cash EPS (diluted) 29.7 120.1 69.3 46.8 46.5 58.5 35.7 33.6 25.5 24.7

EPS growth -138% 901% -72% -79% 79% 146% -64% -76% -74% -59%

Diluted average shares 188.7 178.9 190.2 209.3 211.2 211.2 190.2 190.2 198.8 209.3

PER (x) (norm EPS - basic) 34.0x 3.6x 12.1x 57.6x 32.2x 13.1x 20.2x 30.3x 78.9x 74.4x

PER (x) (norm EPS - diluted) 36.0x 3.6x 12.8x 60.6x 33.9x 13.8x 21.4x 32.1x 83.3x 78.4x

Payout ratio (%) 80% 33% 52% 77% 40% 40% 39% 71% 62% 40%

Dividend yield (net) 2.2% 9.2% 4.1% 1.3% 1.2% 2.9% 1.8% 2.2% 0.7% 0.5%

Franking 0% 0% 16% 100% 100% 100% 0% 30% 100% 100%

Dividend yield (gross) 2.2% 9.2% 4.3% 1.8% 1.7% 4.1% 1.8% 2.5% 1.1% 0.8%

Key operational financials FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

EBITDA margin (%) 43% 65% 54% 41% 40% 42% 61% 48% 42% 40%

EBIT margin (%) 18% 48% 26% 13% 14% 20% 32% 21% 14% 12%

NPAT margin (%) 0% 29% 12% 4% 5% 11% 16% 9% 4% 5%

Tax rate (%) 93% 31% 30% 32% 30% 30% 31% 29% 33% 30%

Gearing FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Net Debt (cash) 230.1 92.9 193.6 143.9 110.4 33.9 146.9 193.6 171.8 143.9

Net Debt / Equity (%) 134% 32% 67% 41% 31% 9% 51% 67% 52% 41%

Net Debt / (Equity+Net Debt) (%) 57% 24% 40% 29% 24% 8% 34% 40% 34% 29%

Interest cover (x) (EBITDA) 2.6x 10.2x 6.2x 6.0x 6.6x 11.2x 7.0x 5.5x 5.2x 7.2x

Interest cover (x) (EBIT) 1.1x 7.5x 3.0x 1.9x 2.3x 5.3x 3.7x 2.4x 1.8x 2.2x

Cashflows (A$mn) FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Operating cashflows 87.2 276.2 159.3 102.9 99.0 130.5 64.4 94.8 48.1 54.8

Capex - maintenance -12.0 - - -8.0 -16.0 -16.0 - - - -8.0

Free cash flow 75.2 276.2 159.3 94.9 83.0 114.5 64.4 94.8 48.1 46.8

Capex - growth -82.6 -84.1 -81.1 -49.8 -20.0 -8.0 -46.6 -34.5 -29.8 -20.0

Exploration (and other investing c/f) -19.9 -22.2 -129.8 -39.4 -20.0 -20.0 -38.6 -91.1 -29.4 -10.0

Financing cashflows 12.4 -26.5 8.2 -102.5 -69.8 -105.9 -27.3 35.5 -68.5 -33.9

Net increase in cash -14.8 143.5 -43.4 -96.8 -26.8 -19.4 -48.1 4.6 -79.7 -17.1

Cash at end of the year 65.4 208.9 165.5 68.7 41.9 22.5 160.8 165.4 85.8 68.7

Balance Sheet (A$m) FY10 FY11 FY12F FY13F FY14F FY15F 1H12 2H12F 1H13F 2H13F

Cash 65.4 208.9 165.5 68.7 41.9 22.5 160.9 165.5 85.8 68.7

Receivables 16.7 27.7 25.4 26.3 26.3 26.3 29.0 25.4 26.3 26.3

Inventories 25.2 30.9 42.1 41.7 41.7 41.7 50.8 42.1 41.7 41.7

Plant & equipment 111.1 111.7 107.1 120.2 115.5 98.5 106.9 107.1 114.4 120.2

Deferred tax assets 24.7 0.5 - - - - - - - -

Intangibles 170.7 468.7 330.7 317.2 312.6 366.6 149.1 181.6 159.0 158.2

Other assets 106.9 -156.1 104.2 87.3 71.2 -3.8 215.4 253.3 257.7 246.3

Assets 520.7 692.3 775.0 661.3 609.2 551.7 712.1 775.0 684.9 661.3

Payables 46.8 55.6 66.4 43.8 43.8 43.8 60.4 66.4 43.8 43.8

Provisions 5.9 7.5 7.5 7.6 7.6 7.6 9.1 7.5 7.6 7.6

Tax liabilities - - 10.6 3.1 3.9 10.8 7.0 10.6 - 3.1

Borrowings 295.4 301.8 253.7 212.6 152.3 56.3 204.3 253.7 257.6 212.6

Other liabilities 0.6 39.0 146.9 46.5 46.5 46.5 143.1 146.9 46.5 46.5

Liabilities 348.7 403.9 485.1 313.7 254.2 165.1 424.0 485.1 355.6 313.7

Net Assets 172.1 288.5 289.9 347.6 355.0 386.6 288.1 289.9 329.3 347.6

Net Tangible Assets 172.1 288.5 289.3 347.1 354.5 386.1 287.6 289.3 328.8 347.1

Period end shares 178.2 179.7 179.7 200.7 200.7 200.7 179.7 179.7 196.8 200.7

NAV per share 0.9 1.6 1.5 1.7 1.7 1.8 1.5 1.5 1.7 1.7

ROE (%) 0% 59% 14% 4% 5% 11% 17% 11% 4% 4%

P / NAV (P/BV) 4.1x 1.7x 1.8x 1.6x 1.6x 1.5x 3.4x 1.8x 1.6x 1.6x

NTA per share 0.9 1.6 1.5 1.7 1.7 1.8 1.5 1.5 1.7 1.7

ROTE (%) 36% 93% 46% 31% 28% 33% 47% 44% 33% 31%

P / NTA (x) 4.1x 1.7x 1.8x 1.6x 1.6x 1.5x 3.4x 1.8x 1.6x 1.6x

EV ($mn) 904 580 681 688 654 578 1,062 681 705 688

EV/EBITDA (x) 12.4x 1.9x 3.9x 5.4x 5.3x 3.7x 5.8x 3.9x 5.3x 5.4x Source: Company data, Credit Suisse estimates


24 April 2013


Equity Research

Oil & Gas Exploration & Production (Oil & Gas (AU))

Woodside Petroleum

(WPL.AX / WPL AU) COMPANY UPDATE

Special dividend plus raising payout ratio

■ Capital management: WPL has announced a fully franked US$0.63 special

dividend (US$520m) to be paid on 29 May, ex dividend date for entitlement

is 30 April. The Board has also raised its target payout ratio to 80% of

underlying NPAT and said, “the payout ratio is expected to be maintained for

several years”. This will apply to FY13 and is in addition to the special

dividend implying total dividends of US$2.45 on our forecasts. Given the

franking balance was over US$3bn, we expect future dividends to be fully

franked. The DRP continues to be suspended.

■ WPL div. yield now rivals Aussie banks: We have adjusted our WPL

model – FY13 div. yield is 6.4% falling to 6.2% in FY14. Gearing (ND:ND+E)

in FY3/14 is a modest 13%/10% moving to net cash in FY17. ROE is now

forecast at 12%/15% for FY13/14. Banks trade on a div. yield of ~5.5% so

investors now have another yield play to consider.

■ Higher share price makes it easier to deal with the Shell stake: With

WPL’s shares up 10% today and B/S capacity, we wouldn’t rule out selective

buy back of a portion of Shell’s 23.1% stake. Shell may accept a ~7%

discounted price (A$35 in hand but $A40 grossed up for franking) presuming

it can access the franking – effectively splitting the benefits with WPL. For

WPL this would be value accretive given our ~A$38 DCF SOTP valuation.

■ Valuation unchanged: From a purely valuation perspective, we would have

preferred an offmarket buyback which, putting aside Shell considerations,

could have been effected at a ~14% discount to the market. We have rolled

forward our valuation to Jan 2014 and adjusted for the dividend payment. Our

valuation is now A$37.8/share and our target price is unchanged at A$38.5.


Mean^CS tgt^

Sh Prc

-30%

-20%

-10%

0%

10%

20%

30%


Performance Over 1M 3M 12M Absolute (%) 2.8 7.1 8.6 Relative (%) 1.8 2.3 -6.7


Year 12/12A 12/13E 12/14E 12/15E Production (mmboe) 85.0 90.7 92.7 90.3 Revenue (US$mn) 6,348.0 5,936.5 6,862.5 6,648.0 EBITDAX (US$mn) 4,654.5 4,371.0 5,246.4 5,010.6 EBIT (US$mn) 2,968.2 2,759.5 3,513.5 3,134.9 Net income (US$mn) 2,061.2 1,878.0 2,333.8 2,055.8 EPS (CS adj.) (USc) 252.82 227.66 282.91 249.22 Change from previous EPS (%) n.a. 0.41 0.77 0.60 Consensus EPS (USc) n.a. 243.20 276.60 275.60 EPS growth (%) 32.8 -9.9 24.3 -11.9 P/E (x) 15.4 17.1 13.7 15.6 Dividend (USc) 130.00 245.00 226.00 199.00 Dividend yield (%) 3.3 6.4 6.2 5.6 EV/EBITDAX 7.3 7.8 6.5 6.8 Net debt/equity (%) 12.1 14.5 11.4 7.4






Rating NEUTRAL* Price (23 Apr 13, A$) 37.96 Target price (A$) 38.50¹ Market cap. (A$mn) 31,275.65 Yr avg. mthly trading (A$mn) 1,710 Last month's trading (A$mn) 2,077 Projected return: Capital gain (%) 1.4 Dividend yield (net %) 6.4 Total return (%) 7.6 52-week price range 39.1 - 30.3


benchmark.


Research Analysts

Paul McTaggart

61 2 8205 4698

[email protected]

James Redfern

61 2 8205 4779

[email protected]

Martin Kronborg

61 2 8205 4369

[email protected]

24 April 2013


Figure 1: Financial Summary

Woodside Petroleum (WPL) Year ending 31 Dec In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % 1.42 EPS_GROWTH*100EPS Growth % 32.8 -9.9 24.3 -11.9


c_DPS*100DPS c 110.0 130.0 245.0 226.0 199.0

c_PAYOUT*100Payout % 57.8 51.4 107.6 79.9 79.9




Sales revenue 4,802.0 6,223.4 5,811.5 6,737.5 6,523.0 Valuation

EBITDA 2,839.0 4,262.2 3,949.2 4,717.8 4,341.2 c_PE P/E x 20.4 15.4 17.1 13.7 15.6

Depr. & Amort. (627.0) (1,294.0) (1,189.7) (1,204.4) (1,206.3) c_EBIT_MULTIPLE_CURREV/EBIT x 16.8 11.4 12.4 9.6 10.6

EBIT 2,212.0 2,968.2 2,759.5 3,513.5 3,134.9 c_EBITDA_MULTIPLE_CUEV/EBITDA x 13.1 8.0 8.7 7.2 7.6




Profit before tax 2,186.0 2,831.2 2,668.6 3,417.4 3,008.6 ReturnsIncome tax (677.0) (831.0) (800.6) (1,093.6) (962.8) c_ROE*100Return on Equity % 11.8 13.6 12.6 15.2 13.0

Profit after tax 1,509.0 2,000.2 1,868.0 2,323.8 2,045.8 c_I_NPAT/c_I_SALES*100Profit Margin % 31.4 33.1 32.3 34.6 31.5



Associates & Other (2.0) 61.0 10.0 10.0 10.0 c_ROA*100Return on Assets % 6.6 8.3 7.2 8.8 7.7

Normalised NPAT 1,507.0 2,061.2 1,878.0 2,333.8 2,055.8 c_ROIC*100Return on Invested Cap. % 8.4 11.1 10.9 13.4 12.1

Unusual item after tax (148.0) 922.0 0.0 0.0 0.0 Gearing

Reported NPAT 1,359.0 2,983.2 1,878.0 2,333.8 2,055.8 c_GEARING*100Net Debt to Net debt + Equity % 27.6 10.8 12.7 10.3 6.9



Cash & equivalents 41.0 2,422.0 1,869.5 2,091.2 2,505.3 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 85.1 21.7 30.3 36.6 24.8




Current assets 1,014.0 3,289.0 2,760.2 3,007.2 3,448.2 MSCI IVA (ESG) Rating AA

Property, plant & equip. 62.0 60.0 60.3 57.7 54.1 TP ESG Risk (%): -0.2

Intangibles 3.0 0.0 5.0 5.7 6.6



Total assets 22,740.0 24,810.0 25,919.1 26,435.2 26,694.0

Payables 1,214.0 829.0 812.4 796.2 780.2




Net assets 13,269.0 15,827.0 15,499.3 15,973.5 16,389.7

Ordinary equity 12,725.0 15,192.0 14,919.8 15,389.3 15,803.5






EBIT 2,212.0 2,968.2 2,759.5 3,513.5 3,134.9

Net interest -190.0 -193.0 -90.9 -96.1 -126.3

Depr & Amort 627.0 1,294.0 1,189.7 1,204.4 1,206.3

Tax paid -496.0 -604.0 -875.8 -947.1 -1,028.2

Working capital -327.0 -336.0 -40.5 -41.7 -42.9

Other 416.0 345.8 547.9 656.0 799.7

Operating cashflow 2,242.0 3,475.0 3,489.9 4,289.0 3,943.5

Capex -2,768.0 -1,521.0 -2,100.2 -1,287.8 -915.6

Capex - expansionary -2,429.9 -1,136.0 -1,689.7 -868.2 -506.5


Acquisitions & Invest


Other -765.0 1,682.0 -517.2 -639.4 -677.3

Investing cashflow -3,533.0 161.0 -2,617.4 -1,927.2 -1,592.8

Dividends paid -652.0 -867.0 -1,206.9 -1,942.7 -1,753.0

Equity raised 648.0 0.0 0.0 0.0 0.0

Net borrowings 172.0 -772.0 0.0 0.0 0.0

Other 194.0 387.0 -218.1 -197.4 -183.6 1 Month 3 Month 12 Month

Financing cashflow 362.0 -1,252.0 -1,425.0 -2,140.1 -1,936.6 Absolute 2.8% 7.1% 8.6%

Total cashflow -929.0 2,384.0 -552.5 221.7 414.1 Relative 1.8% 2.3% -6.7%

Adjustments 7.0 0.0 0.0 0.0 0.0

Net change in cash -922.0 2,384.0 -552.5 221.7 414.1 Source: Reuters 52 week trading range: 30.30-39.07

MSCI IVA Risk Comment: WPL has been upgraded from "A" to

"AA" as there are suitable alternatives for its proposed LNG

project at James Price Point that will allow the company to

avoid community issues, potential litigation and regulatory

intervention which could threaten costs and/or delay the

project. While we think the preferred development of Browse is

a NWS backfill, we do not see a decision on this until 2013

therefore no change to our view on rating.

23/04/2013 17:32

Woodside explores for and produces oil and gas from offshore facilities located in Western

Australia and the USA. Its key assets include an interest in and operatorship of the North

West Shelf LNG project, Pluto LNG and etc.

Credit Suisse View

TP Risk Comment: Reducing Browse capex by $750mn for

landowner payments increases valuation by $0.07/share or

0.2%

NEUTRAL

28.67

30.67

32.67

34.67

36.67

38.67

40.67

42.67

44.67

11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

WPL.AX XJO

3.2

3.7

4.2

4.7

5.2

5.7

6.2

6.7

7.2


Stock Local Sector



24 April 2013


Figure 2: WPL Valuation Metrics

AUD/USD 1.03 1.01 0.96 0.94 0.92 0.90 0.89

Valuation metrics FY12A FY13F FY14F FY15F FY16F FY17F FY18F

Production (mmboe) 85.0 90.7 92.7 90.3 96.3 95.1 93.8

Sales Revenue (US$m) 6,348 5,812 6,737 6,523 6,534 6,413 6,319

Revenue grow th 32% -8% 16% -3% 0% -2% -1%

Cost 1,694 1,440 1,491 1,512 1,539 1,526 1,516

EBITDAX 4,655 4,371 5,246 5,011 4,996 4,887 4,803

Exploration expenses 392 422 529 669 563 459 456

D&A 1,294 1,190 1,204 1,206 1,257 1,230 1,214

EBIT 2,968 2,760 3,513 3,135 3,176 3,198 3,134

Net Interest cost 137 91 96 126 104 78 48

Tax 831 801 1,094 963 983 1,110 1,069

Underlying earnings (US$m) 2,061 1,878 2,334 2,056 2,099 2,021 2,027

Abnormals 922 - - - - - -

Reported Earnings 2,983 1,878 2,334 2,056 2,099 2,021 2,027

Average shares on issue (mn) 815 825 825 825 825 825 825

Reported EPS (Usc) 362 228 283 249 254 245 246

Underlying EPS (Usc) 253 228 283 249 254 245 246

EPS grow th 21% -10% 24% -12% 2% -4% 0%

PE 15.3x 16.5x 12.7x 14.1x 13.5x 13.7x 13.6x

P/Cash Earnings 9.4x 10.1x 8.7x 9.5x 9.2x 9.5x 9.5x

EV/EBITDA 7.9x 8.6x 7.1x 7.6x 7.2x 7.0x 6.9x

Net Assets 15,827 15,499 15,973 16,390 16,811 17,217 17,623

Book Value (US$/share) 19.41 18.79 19.36 19.87 20.38 20.87 21.36

P/NAV (P/B) 1.9x 2.0x 1.9x 1.9x 1.8x 1.8x 1.8x

DPS (USc) 130 245.0 226.0 199.0 203.5 196.0 196.5

Payout ratio 51% 108% 80% 80% 80% 80% 80%

Div Yield 3.4% 6.5% 6.3% 5.7% 5.9% 5.8% 5.9%

EBITDA 4,262 3,949 4,718 4,341 4,433 4,428 4,347

FCF 3,629 937 2,427 2,372 2,443 2,517 2,811

FCF/share 4.45 1.14 2.94 2.88 2.96 3.05 3.41

ROIC (%) 9% 9% 12% 10% 10% 10% 10%

ROE - underlying NPAT (%) 14% 12% 15% 13% 13% 12% 12%

Cash Flow FY12A FY13F FY14F FY15F FY16F FY17F FY18F

Operating cash flow US$mn 3,475 3,490 4,289 3,943 4,008 3,772 3,802

Maintenance Capex US$mn 385 411 420 409 436 430 425

Expansion Capex US$mn 1,143 1,690 868 506 577 374 120

Total Capex US$mn 1,528 2,100 1,288 916 1,013 805 545

Exploration US$mn 393 452 575 656 552 450 447

FCF US$mn 3,629 937 2,427 2,372 2,443 2,517 2,811

Gearing

Net Debt (net cash) 1,918 2,253 1,826 1,216 438 -430 -1,622

Net Debt / (Net Debt + Equity) (%) 11% 13% 10% 7% 3% -3% -10%

Net Debt / Equity (%) 27% 27% 25% 23% 21% 20% 18%

Margins

EBITDAX margin 73% 75% 78% 77% 76% 76% 76%

EBITDA margin 67% 68% 70% 67% 68% 69% 69%

EBIT margin 47% 47% 52% 48% 49% 50% 50% Source: Company data, Credit Suisse estimates

24 April 2013


Figure 3: CS sum of the parts valuation

CS forecast

Project $Amn $ps WPL share Reserves (mmboe) $/boe Pr weighting

NWS 10,237 12.4 16.7% 619 16.54$

Cossack - Wanaea 823 1.0 33.3% 32 25.72$

Enfield 267 0.3 60.0% 20 13.33$

Stybarrow 118 0.1 50.0% 13 9.47$

Vincent 1,108 1.3 60.0% 30 36.93$

Laminaria 129 0.2 65.6% 7 17.92$

Mutineer 0 0.0 8.2% 0 -$

Neptune 51 0.1 20.0% 8 6.60$

Pluto 15,319 18.6 90.0% 741 20.68$

Total production assets 28,051 34.0 1,469 19.09$

Cash & investments 1,870 2.3

Debt -4,102 -5.0

Net debt -2,233 -2.7

Corporate overhead -1,040 -1.3

Net cash and other -3,273 -4.0

BASE VALUATION 24,778 30.0

Laverda 300 0.4 60.0% 60 10.00$ 50.0%

Cimatti 60 0.1 60.0% 12 10.00$ 50.0%

Brow se 3,773 4.6 31.3% 1439 2.62$ 75.0%

Sunrise 245 0.3 33.4% 301 0.82$ 25.0%

Pluto Train 2 555 0.7 45.0% 336 1.65$ 25.0%

Leviathan (Domgas) 333 0.4 30.0% 65.0%

Leviathan (LNG) 381 0.5 30.0% 25.0%

Leviathan 714 0.9

Contingent Resource/Exploration 794 1.0 337 2.36$ 100%

Exploration & contingent 6,441 7.8

TOTAL VALUATION 31,220 37.8 7.90$

Unrisked valuation 36,562 44.3 8.53$

WPL Target Price $38.50 ESG valuation impact: -0.2%

Shares Outstanding (mn) 824.9

Average Daily Trade ($Amn) $79.3

Reducing Brow se capex by $750mn for landow ner payments increases

valuation by $0.07/share or 0.2%



24 April 2013


Equity Research

Healthcare Facilities (Health Care (AU))

ResMed Inc.

(RMD.AX / RMD AU) PRE RESULTS COMMENT

3Q result preview; reports on 26 April Date: 26 April 2013 AEST Time: 6:30AM (Sydney) Period: Quarterly (3Q13) Earnings Risk: Neutral

Credit Suisse estimates Briefing and dial-in details

Revenue: US$391mn (3Q13)

NPAT: US$86.8mn (3Q13) incl

US$3mn hedge gain

06:30 SYD (25 Apr); 21:30 LON; 13:30 PST (24 Apr)

Call details: US 847-585-4405, Outside US: +1 847-585-

4405. Participant Passcode: 34598681

■ RMD reports 3Q13 results on 26 April AEST: We forecast revenues of

US$391mn (12% constant currency growth), gross margin (including D&A)

of 62.0%, US$4.0mn hedge gain and US$86.8mn NPAT (up 34% on pcp).

■ Focus areas: (1) US mask sales – RMD posted strong 16% pcp growth in

2Q13, ahead of 1Q13 at 13%. Despite FPH and Respironics releasing new

masks RMD still managed to post high growth. We still expect a degree of

competitive pressures to materialise and forecast 12% growth in 3Q; (2) US

flow generator sales growth – we expect growth of 13% primarily driven by

APAP sales; (3) RoW constant currency sales growth (CS forecast 11%)

and impact of EUR macro factors on result (austerity and pricing, general

patient demand); (4) gross margin and contributions from manufacturing

efficiencies/shift to Singapore – we expect margin uplift as proportionate

production moves from Sydney; and (5) number of shares repurchased in

the quarter (CS forecast 1.0mn).

■ Share price implications: RMD is trading at 19.0x 12-month forward

consensus EPS, in line with its three-year average. Clearly uncertainty

remains over future US pricing following low Rd 2 competitive bidding rates;

however, the market has factored in only 11% EPS growth in FY14 (CS at

8%), well below the 20% average since FY03. In addition the impact of

competitive bidding on RMD (if at all) is unlikely to be seen until 1Q/2Q

FY14. Positive earnings surprise in the 3Q13 result is likely to see the stock

re-rate higher, which would not be unexpected given the slow but ongoing

US economic recovery and growing awareness of OSA.


Mean^CS tgt^Sh Prc

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%



Absolute (%) 3.7 5.0 49.0

Relative (%) 3.8 1.2 34.9


Year 06/12A 06/13E 06/14E 06/15E

Revenue (US$mn) 1,368.5 1,514.0 1,616.7 1,750.8

EBITDA (US$mn) 380.1 447.7 475.3 521.5

EBIT (US$mn) 294.4 371.1 398.9 445.2

Net income (US$mn) 254.8 323.8 348.6 390.1

EPS (CS adj.) (USc) 17.15 22.08 23.74 26.50

Change from previous EPS (%) n.a. 0.2 -2.2 -1.9

Consensus EPS (USc) n.a. 21.90 24.40 28.40

EPS growth (%) 18.4 28.7 7.5 11.7

P/E (x) 26.6 20.7 19.2 17.2

Dividend (USc) 1.70 7.20 8.26 9.19

Dividend yield (%) 0.4 1.6 1.8 2.0

P/B (x) 4.2 3.7 3.4 3.2

Net debt/equity (%) net cash net cash net cash net cash

Relative performance versus S&P ASX 200. See Reference





Rating NEUTRAL*

Price (23 Apr 13, A$) 4.44





Projected return:






benchmark.


Research Analysts

Saul Hadassin

61 2 8205 4679

[email protected]

William Dunlop, CFA

61 2 8205 4405

[email protected]

24 April 2013



ResMed Inc. (RMD) Year ending 30 Jun In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015





c_DPS*100DPS c 0.0 1.7 7.2 8.3 9.2

c_PAYOUT*100Payout % 0.0 9.9 32.7 34.0 34.0








Net interest Exp. 26.0 29.1 33.4 36.8 42.8 c_FCF_YIELD*100FCF Yield % 3.0 5.0 4.6 5.3 5.7

Other 10.7 8.4 (0.2) 0.0 0.0 c_PB Price to Book x 4.1 4.2 3.7 3.4 3.1







Unusual item after tax 0.0 0.0 0.0 0.0 0.0 GearingReported NPAT 227.0 254.8 323.1 356.6 397.9 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash Net Cash Net Cash Net Cash

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -13.0 -13.1 -13.5 -13.2 -12.4

Cash & equivalents 735.3 809.5 1,040.7 1,228.0 1,441.2 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -10.2 -10.1 -11.2 -11.1 -10.6




Current assets 1,292.5 1,361.2 1,656.7 1,879.8 2,134.6 MSCI IVA (ESG) Rating BProperty, plant & equip. TP ESG Risk (%): -3

Intangibles 283.4 311.0 332.6 322.6 312.6



Total assets 2,068.9 2,137.9 2,447.5 2,657.3 2,906.8

Payables 159.0 182.4 206.6 222.7 237.4




Net assets 1,730.7 1,607.6 1,817.7 1,950.3 2,122.8

Ordinary equity 1,730.7 1,607.6 1,817.7 1,950.3 2,122.8




Net debt -635.1 -558.7 -710.0 -837.7 -991.3 Source: MSCI ESG Research


EBIT 266.9 294.4 374.1 408.9 454.5

Net interest 26.0 37.5 33.2 36.8 42.8

Depr & Amort 70.5 85.7 76.6 76.4 76.3

Tax paid -128.5 -21.7 -83.4 -87.7 -96.7

Working capital -19.6 64.2 -39.0 -19.6 -27.0

Other 67.8 -77.0 -0.6 0.0 0.0


Capex -66.6 -47.1 -56.5 -63.1 -71.0

Capex - expansionary 0.0 0.0 0.0 0.0 0.0




Other 12.5 -2.5 4.2 0.0 0.0


Dividends paid 0.0 0.0 -101.7 -118.6 -132.3

Equity raised 94.7 62.5 117.2 93.4 113.8

Net borrowings -25.2 144.4 44.6 59.6 59.6

Other -148.8 -384.0 -142.5 -198.8 -206.9 1 Month 3 Month 12 Month

Financing cashflow -79.3 -177.1 -82.3 -164.4 -165.8 Absolute 3.7% 5.0% 49.0%

Total cashflow 127.3 104.4 221.0 187.3 213.2 Relative 2.8% 0.2% 33.7%

Adjustments 119.2 -30.2 10.1 0.0 0.0

Net change in cash 246.5 74.3 231.1 187.3 213.2 Source: Reuters 52 week trading range: 2.97-4.58

MSCI IVA Risk Comment: BB' rating. RMD's rating suffers as it

does not disclose initiatives to improve healthcare in developing

regions, nor does it provide evidence of anti-corruption measures.

RMD was also penalised for a lack of carbon emission disclosures.

In our view, RMD's disclosure on carbon should improve as the

carbon tax legislation in Australia becomes operative. As such, we

believe ESG risk is positively skewed

23/04/2013 16:41

The Company, through its subsidiaries, is a developer, manufacturer and distributor of medical

equipment for treating, diagnosing, and managing sleep-disordered breathing and other

respiratory disorders.

Credit Suisse View

TP Risk Comment: Some risk regarding governance - CEO Peter

Farrell is the founder of the company and also Chaiman. Further,

his son is a senior executive. The company has had a clean ESG

track record and we expect, as a manufacturer that it will meet

carbon tax / emissions disclosure requirements as needed. Our

ESG risk is calculated by adding a small risk premium to our DCF

discount rate.

NEUTRAL

2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

11/04/2012 11/06/2012 11/08/2012 11/10/2012 11/12/2012 11/02/2013 11/04/2013

RMD.AX XJO

2.7

3.2

3.7

4.2

4.7

5.2

5.7

6.2


Stock Local Sector




24 April 2013

Asia Pacific/New Zealand

Equity Research

Investment Strategy

■

NZ Equity Market STRATEGY

Opposition party electricity sector reform

proposals – draining power from NZ equities

■ The Labour and Green parties announced on April 18 a joint policy on the

NZ electricity system which they propose to implement if they win the next

election – due by November 2014.

■ Key points of this policy proposal include:

The establishment of NZ Power – a new independent Crown entity –

which will act as a single buyer of wholesale electricity and will have the

power to set prices.

Each generator will be paid a fair return for their actual costs. The fair

return will be calculated by NZ Power “on the basis of their historic

capital costs, possibly adjusted by inflation, plus operating costs like fuel

depreciation and maintenance”.

■ In support of its proposed Electricity Reform Policy, the Labour party refers

to a paper prepared by Berl Economics which models the economic impact

on the NZ economy of the proposed electricity price changes. These

estimates suggest a rise in GDP of 0.2% (NZ$450mn), a lowering of the CPI

by 0.2-0.3%, together with a rise in employment of 5,000-7,000 employees.

■ In our view, Berl’s estimates surrounding the economic impact of a one-off

reduction in the user cost of electricity leaves out a number of potentially

significant negative effects. In particular, their modelling appears to omit the

incorporation of the likely financial market effects and the potential negative

feedback loop back into the domestic economy resulting from the

implementation of the NZ Power policy.

■ We assess that the implication of a move towards the establishment of a

government agency to act as a single buyer of wholesale electricity would

be a negative for the NZ equity market. In our view such a policy

implementation would elevate concerns regarding potential regulatory risk in

the NZ equity market, together with increased uncertainty surrounding the

risk of further government interventions in markets. We would expect such

interventions to have an adverse impact on the cost of capital (debt and

equity) from both domestic and foreign providers.

■ In the run-up to the 2014 general election we would expect the equity market to

focus on policy releases of the Labour and Green parties and on poll results to

assess the chances of a Labour/Green coalition forming the next government.

Research Analysts

Chris Green

64 9 302 5509

[email protected]

This report is distributed in Australia by Credit Suisse

Equities (Australia) Limited. Please see legal disclaimer and

disclosure annex for further terms and information

Provided by First NZ Capital

24 April 2013


Opposition party electricity reform proposals Labour/Green NZ power policy proposals

The Labour and Green parties announced on April 18 a joint policy on the NZ electricity

system which they propose to implement if they win the next election – due by November

2014.

Key points of this policy proposal include:

The establishment of NZ Power – a new independent Crown entity – to have a central

role in the planning and operation of the electricity system.

NZ Power will have the ultimate government responsible for energy sector planning.

This entity will be required to determine the future investment needs for generation

and seek proposals for the construction of new plant and equipment.

NZ Power will act as a single buyer of wholesale electricity and will have the power to

set prices. Each generator will be paid a fair return for their actual costs. The fair

return will be calculated by NZ Power “on the basis of their historic capital costs,

possibly adjusted by inflation, plus operating costs like fuel depreciation and

maintenance”.

There will be a cost based price pool for wholesale electricity, with generators still

offering bids of available electricity supply and the single buyer dispatching the lowest

cost bids.

NZ Power will plan for new generation and invite offers to build new plants.

Labour estimates of the economic impact of the NZ power policy

In the release of the their “NZ Power – Energising New Zealand” policy document the

Labour party refers to a paper prepared by BERL Economics, which models the economic

impact on the NZ economy of the proposed electricity price changes. The most significant

positive economic effects estimated by Berl following the introduction of the NZ Power

policies include:

Total electricity charges lowered by NZ$500mn-NZ$700mn,

Higher real GDP by 0.2% (NZ$450mn),

Lower CPI by 0.2-0.3%,

Higher employment with a rise in full-time equivalent persons by 5,000-7,500, and

An improvement in the government’s crown balance by between NZ$200mn-

NZ$270mn.

In essence, Berl’s modelling suggests that GDP will increase as households receive a

boost through lower electricity prices, via an increase in their real disposable income. For

producers their analysis suggests that a reduction in the cost of electricity will improve

their cost competitiveness – aiding exports – while output will be also stimulated as

household sector demand rises. The anticipated rise in output is also expected to result in

an expansion in employment. With regards to the government’s fiscal position, Berl

expects that the increase in employment and firm profitability will result in a rise in tax

revenue, as GST receipts increase in line with higher consumption spending.

24 April 2013


Underestimation of negative economic and financial market impacts

We assess that Berl’s estimates surrounding the economic impact of a one-off reduction in

the user cost of electricity leaves out a number of potentially significant negative effects. In

particular, the computable general equilibrium model (CGE) model which Berl uses to

generate its estimates appears one-dimensional in assessing potential impacts. In

particular, their modelling appears to omit the incorporation of the likely financial market

effects and the potential negative feedback loop back into the domestic economy resulting

from the implementation of the NZ Power policy.

Potential economic effects

GDP growth and investment

The positive impact on NZ GDP in the Berl analysis – estimated around a rise of 0.2%

– primarily arises through an increase in consumption spending as falling electricity

prices boost disposable incomes, with a smaller boost to exports through an assessed

improvement in competitiveness. While not formally incorporated in Berl’s economic

assessment of the positive impact on the GDP, they also suggest that lower electricity

costs by improving competitiveness and profitability could “encourage and attract

increased investment in the industrial and commercial sector”.

Absent from Berl’s assessment is the risk that the proposed movement away from

market mechanisms in the electricity sector and the resulting increase of government

intervention in investment decision-making may more widely dampen private sector

involvement in capital formation expenditure. Moreover, this may particularly be the

case if increased uncertainty about the risk of additional government intervention

dampens foreign investment in NZ.

Inflation

The Berl analysis focuses on the fall in the CPI resulting from the one-off reduction in

the cost of electricity following the setting of prices. However, this analysis neglects to

make any assessment regarding the potential negative impact on NZ dollar, which is a

key factor determining tradables inflation. In particular, under a scenario in which NZ’s

risks premium increases through perceptions of an increased risk of government

intervention in markets, a weaker NZ dollar has the potential to more than offset the

around 4% weighting that electricity costs currently comprise in the CPI.

Fiscal position

The economic analysis presented Berl in support of the move towards electricity price

changes suggests that the resulting increase in activity and employment will likely

boost tax revenue, reduce benefit payments and improve the government’s fiscal

position by between NZ$200-NZ$250mn. However, as the analysis itself points out,

these estimates exclude the direct loss of revenue from lower generation dividends

(estimated at around NZ$450mn) and lower tax receipts from their reduced profits,

and thus clearly overstate the positive effects – these calculations were noted to be

outside the scope of Berl’s brief.

Given that the Berl analysis only looks at the impact on the government’s fiscal

balance, it makes no assessment on the likely adjustment to the government’s

balance sheet in light of the expected downward revisions to the valuation of the

government’s electricity generation assets.

24 April 2013


Foreign investment

Completely absent from the economic analysis presented by Berl in support of the

move to make changes in electricity pricing is an assessment of the potential impact

on foreign investment. Increased uncertainty surrounding the potential for government

intervention in markets can be expected to make foreign investment in NZ relatively

less attractive, requiring relatively higher rates of return and consequently lead to

higher NZ funding costs.

Given NZ’s relatively high external sector indebtedness and the requirement to fund

persistent current account deficits, this is a real and continuing burden for the NZ

economy. The likely decline in foreign investment and/or higher cost of borrowed

funds for NZ are factors which should be incorporated in a comprehensive

assessment of the total costs of pursuing a more interventionist policy in the electricity

market.

Potential financial market effects

Interest rates

The likely impact of proposed electricity price changes on short-term interest rate

settings is difficult to determine with precision. The initial effect of a slightly lower CPI

outturn were the policy to be implemented – reflecting a weaker electricity sector

component – would need to be assessed against whether there was a lift in GDP and

the directional move in the NZ dollar.

While the monetary policy response from the RBNZ in response to the implementation

of electricity price changes appears indeterminate at this point, it is likely that long-

term domestic interest rates would be higher than would otherwise be the case in the

absence of the change in policy. Underpinning this assessment would be a likely

higher risk premium for NZ dollar assets, reflecting an increase in investor risk

aversion, in part related to the potential for further government intervention in markets.

NZ dollar

The implementation of price controls in the electricity market is likely to be viewed at

the margin as a net negative for the NZD, particularly if it is seen against a backdrop

of an increasing role for the NZ government in the workings of the market economy

going forward. For instance, any easing in foreign investment in response to

heightening concerns regarding regulatory risks in the NZ equity market and/or

increases in the relative political risk premium associated with increased government

intervention in the economy can be expected to weaken the NZD relative to what

would otherwise have been the case.

While at the current juncture – with a NZD widely assessed to be overvalued – this

may be a positive development, a more generalised wind-back of market reforms and

the prospect of an increasingly heavy-handed government intervention would likely

further dampen foreign investor appetite for NZD dominated assets. The net result of

this will likely be not only a weaker NZD, but also a relatively higher cost of funding

our external sector deficits.

NZ equity market

The implication of a move towards the establishment of a government agency to act

as a single buyer of wholesale electricity is assessed to be a negative for the NZ

equity market. In particular, since the policy proposal has been announced we have

seen the market capitalisation of electricity-sector related equities decline by around

NZ$500mn.

24 April 2013


Underpinning the recent decline in electricity-sector related equities is a reassessment

of their underlying value in the wake of the opposition policy proposal for the

government to step into the role as a monopsony buyer of electricity. Moreover,

perceptions of the risk premium associated with investing in NZ equities are likely to

have risen in tandem with heightened political uncertainty and risks.

The recently announced electricity proposal from the Labour and Green parties may

also be interpreted by market participants as a worrying development, signalling their

intention for potentially other interventions in the economy were they to succeed in

becoming the next government. This is particularly concerning given the relative

importance of number of NZ companies which are exposed to regulatory risk –

including Sky Television, Auckland Airport, Sky City Entertainment and Fletcher

Building.

Reflecting this heightened sensitivity surrounding the potential negative impact on

corporate profitability from regulatory changes, the fortunes of the NZ equity market

will become increasingly attuned to political developments. In particular, the

assessment of probabilities regarding the composition of the next government at the

upcoming November 2014 general election will likely increasingly become a factor in

investment decision making in the NZ equity market.

Given the increasing numbers of New Zealanders with KiwiSaver investments

(currently estimated at 2.1mn) the decline in electricity sector-related equities can be

expected to have a widening negative wealth effect. Again these negative financial

market effects, which are likely to be transmitted through to the real economy, appear

to be completely absent from the economic modelling undertaken by Berl, underlying

the deficiencies in their analysis.

Primarily reflecting the likely rise in equity risk premiums, the attractiveness of NZ

equities relative to other equity markets has declined. As such there are very real risks

of both a combination of either small inflows and/or greater outflows from domestic

and foreign based fund managers involved in the NZ equity market. Any such

reductions in asset allocations to the domestic equities could be expected to result in

less supportive NZ equity market backdrop, together with a higher cost of capital for

the NZ economy.


24 April 2013


Equity Research

Credit Suisse Ratings – Australia

Research Analysts

Adam Indikt

61 3 9280 1659

[email protected]

RATINGS

As of Tuesday, 23 April 2013

Figure 1: Credit Suisse stock ratings – distribution

UNDERPERFORM 22%

NEUTRAL 43%

OUTPERFORM 36%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

See Figure 3 for ratings on each stock covered by Credit Suisse, ranked by expected total return.


Stock ratings

Individual stock ratings are determined by the projected total return on a stock

relative to absolute return benchmarks.

Analysts project a 12-month target share price for each stock. The capital gain

or loss implied by the 12-month target share price, along with the analyst’s

projected prospective dividend yield, generates the analyst’s projected total

return for a given stock.

The absolute return required to achieve an Outperform rating is greater than or

equal to 15%, and to achieve an Underperform rating is less than 7.5%. A

Neutral rating requires a projected total return within this range.


24 April 2013


Figure 2: Stock ratings definitions Stock rating Projected total return

Outperform ≥ 15 % Neutral 7.5% to < 15% Underperform < 7.5% Source: Credit Suisse

Credit Suisse applies a volatility cushion of 2.5% to the 7.5% and 15% total return

benchmarks so as to minimise rating changes caused by short-lived stock price

movements. Accordingly, a stock must trade for more than four consecutive trading days

above 10% or below 12.5% total return before an automatic rating change to Neutral from

either Underperform or Outperform, respectively, is considered appropriate.

Given the dynamic nature of share prices and as expectations regarding earnings

performance are adjusted for new information, it is possible these ratings could change

with some frequency.

24 April 2013


Figure 3: Ranking by projected total return Code Share Price Target Price Total Return* Rating ̂

AMX.AX $0.19 $1.00 426% OUTPERFORM GRY.AX $0.20 $0.85 325% OUTPERFORM KGD.AX $0.09 $0.35 289% OUTPERFORM BND.AX $0.13 $0.50 285% OUTPERFORM COK.AX $0.06 $0.17 166% OUTPERFORM PXS.AX $0.32 $0.80 154% OUTPERFORM AOH.AX $0.19 $0.44 132% OUTPERFORM BSE.AX $0.32 $0.70 122% OUTPERFORM MDL.AX $3.00 $6.50 117% OUTPERFORM AQG.AX $2.47 $5.15 111% OUTPERFORM OZL.AX $4.29 $8.40 96% OUTPERFORM BTU.AX $0.21 $0.40 95% OUTPERFORM MBN.AX $0.14 $0.27 93% NEUTRAL KAR.AX $4.18 $7.85 88% OUTPERFORM NWH.AX $1.20 $1.85 68% UNDERPERFORM BLY.AX $0.92 $1.50 67% OUTPERFORM ARI.AX $0.81 $1.25 67% NEUTRAL ERA.AX $1.05 $1.70 62% OUTPERFORM BKN.AX $4.97 $7.35 57% OUTPERFORM PRU.AX $1.44 $2.25 57% OUTPERFORM WHC.AX $1.92 $3.00 56% OUTPERFORM TIG.AX $0.16 $0.25 56% NEUTRAL SWM.AX $2.01 $3.00 54% OUTPERFORM AGO.AX $0.87 $1.30 54% OUTPERFORM NCM.AX $16.45 $24.50 51% OUTPERFORM EVN.AX $0.90 $1.35 51% UNDERPERFORM EHL.AX $0.47 $0.65 50% NEUTRAL WSA.AX $2.70 $4.00 49% OUTPERFORM IGO.AX $3.23 $4.75 49% OUTPERFORM MSB.AX $5.55 $8.20 48% OUTPERFORM AUT.AX $2.98 $4.15 39% OUTPERFORM AQA.AX $1.98 $2.75 39% NEUTRAL SMR.AX $0.15 $0.20 38% NEUTRAL MGX.AX $0.50 $0.65 35% OUTPERFORM BSL.AX $4.79 $6.45 35% OUTPERFORM FMG.AX $3.77 $5.00 35% OUTPERFORM SLM.AX $2.02 $2.58 34% NEUTRAL RIO.AX $53.84 $70.00 33% OUTPERFORM UGL.AX $9.94 $12.30 31% OUTPERFORM TSE.AX $1.57 $1.95 30% NEUTRAL ILU.AX $8.80 $11.00 28% OUTPERFORM AQZ.AX $1.90 $2.30 27% OUTPERFORM NUF.AX $4.05 $5.05 27% OUTPERFORM WOR.AX $22.72 $27.70 27% OUTPERFORM CGF.AX $4.03 $4.90 26% OUTPERFORM CLO.AX $1.11 $1.34 25% OUTPERFORM BBG.AX $0.48 $0.60 25% NEUTRAL ORI.AX $22.38 $26.70 24% OUTPERFORM DOW.AX $4.70 $5.55 23% NEUTRAL IPL.AX $2.96 $3.50 23% OUTPERFORM GUD.AX $7.27 $8.05 22% NEUTRAL RRL.AX $3.56 $4.10 22% UNDERPERFORM AIO.AX $5.26 $6.29 22% OUTPERFORM API.AX $0.46 $0.52 21% OUTPERFORM MRM.AX $3.76 $4.40 21% OUTPERFORM SKE.AX $3.00 $3.45 21% OUTPERFORM CAB.AX $4.78 $5.40 21% NEUTRAL TWR.AX $1.47 $1.63 20% NEUTRAL HGG.AX $2.32 $2.65 20% OUTPERFORM PNA.AX $2.22 $2.60 19% NEUTRAL GBG.AX $0.19 $0.22 19% NEUTRAL MQG.AX $37.05 $42.00 19% OUTPERFORM SGM.AX $9.50 $11.00 18% UNDERPERFORM OSH.AX $7.30 $8.60 18% OUTPERFORM FXL.AX $3.92 $4.45 18% OUTPERFORM SAI.AX $3.54 $4.00 18% NEUTRAL VOC.AX $2.09 $2.45 18% OUTPERFORM TEN.AX $0.33 $0.38 17% OUTPERFORM AMP.AX $5.16 $5.76 17% NEUTRAL WTF.AX $4.85 $5.40 17% UNDERPERFORM QUB.AX $1.72 $1.94 16% NEUTRAL NHC.AX $3.34 $3.75 16% UNDERPERFORM BHP.AX $31.36 $35.00 16% NEUTRAL SMX.AX $5.04 $5.50 15% NEUTRAL CPU.AX $9.94 $11.15 15% OUTPERFORM ORL.AX $7.00 $7.55 15% NEUTRAL AMC.AX $9.42 $10.35 15% OUTPERFORM YAL.AX $0.71 $0.80 15% NEUTRAL BXB.AX $8.65 $9.60 15% OUTPERFORM MYX.AX $0.42 $0.48 14% OUTPERFORM OKN.AX $1.26 $1.32 14% NEUTRAL PAN.AX $0.31 $0.35 14% NEUTRAL NWS.AX $30.65 $34.50 13% OUTPERFORM TOL.AX $5.62 $6.10 13% NEUTRAL CTX.AX $21.35 $23.60 13% OUTPERFORM FWD.AX $8.80 $9.25 12% UNDERPERFORM BLD.AX $4.95 $5.40 12% OUTPERFORM TAH.AX $3.30 $3.55 12% NEUTRAL RHC.AX $31.87 $34.50 11% NEUTRAL STO.AX $12.27 $13.25 10% NEUTRAL NVT.AX $5.17 $5.50 10% OUTPERFORM LLC.AX $10.39 $10.98 10% OUTPERFORM PPT.AX $40.72 $43.00 10% NEUTRAL IFL.AX $8.64 $9.00 10% NEUTRAL

Source: ASX, Credit Suisse estimates. Correct as of 9PM AET on 23 April 2013. *Projected capital gain or loss plus gross dividend yield.

Figure 3: Ranking by projected total return (continued) Code Share Price Target Price Total Return* Rating ̂

ANZ.AX $29.25 $30.50 10% OUTPERFORM LEI.AX $19.04 $19.65 9% UNDERPERFORM AGK.AX $15.66 $16.50 9% NEUTRAL ALL.AX $3.71 $3.90 8% NEUTRAL CSR.AX $1.92 $2.00 8% UNDERPERFORM SGN.AX $1.42 $1.45 8% NEUTRAL MMS.AX $14.90 $15.50 8% NEUTRAL TTS.AX $3.25 $3.35 8% NEUTRAL PMV.AX $8.42 $8.65 8% OUTPERFORM BTT.AX $3.32 $3.40 8% NEUTRAL WRT.AX $3.26 $3.31 8% OUTPERFORM SHL.AX $13.15 $13.50 8% NEUTRAL WPL.AX $37.96 $38.50 8% NEUTRAL SFR.AX $5.62 $5.55 7% NEUTRAL TLS.AX $4.84 $4.91 7% NEUTRAL QAN.AX $1.81 $1.85 7% OUTPERFORM BEN.AX $10.42 $10.50 7% NEUTRAL COH.AX $65.41 $67.00 6% UNDERPERFORM IAG.AX $5.63 $5.75 6% NEUTRAL RMD.AX $4.44 $4.60 5% NEUTRAL MYR.AX $3.17 $3.12 5% NEUTRAL VAH.AX $0.46 $0.45 5% OUTPERFORM ALZ.AX $3.60 $3.56 5% NEUTRAL MTS.AX $4.10 $4.05 5% NEUTRAL CRZ.AX $9.58 $9.70 5% OUTPERFORM FAN.AX $2.91 $2.90 5% UNDERPERFORM BOQ.AX $9.64 $9.50 4% NEUTRAL APA.AX $6.37 $6.27 4% NEUTRAL WEB.AX $5.07 $5.10 4% NEUTRAL JHX.AX $9.84 $10.00 4% NEUTRAL SPN.AX $1.24 $1.20 4% NEUTRAL QBE.AX $13.10 $13.10 3% OUTPERFORM ABC.AX $3.37 $3.30 3% UNDERPERFORM RWH.AX $3.06 $3.05 3% OUTPERFORM AWC.AX $0.98 $1.00 3% UNDERPERFORM CWN.AX $12.80 $12.80 3% UNDERPERFORM TPI.AX $0.98 $1.00 3% NEUTRAL CPA.AX $1.16 $1.12 3% NEUTRAL SGP.AX $3.87 $3.73 3% UNDERPERFORM SUN.AX $12.18 $11.70 2% NEUTRAL PRT.AX $1.10 $1.05 2% NEUTRAL ORG.AX $12.43 $12.20 2% NEUTRAL SKI.AX $1.79 $1.70 1% NEUTRAL AUB.AX $9.76 $9.55 1% NEUTRAL IOF.AX $3.24 $3.10 1% NEUTRAL CSL.AX $60.87 $60.50 1% OUTPERFORM CFX.AX $2.20 $2.08 1% UNDERPERFORM MGR.AX $1.74 $1.65 0% NEUTRAL TGA.AX $2.00 $1.90 0% NEUTRAL WBC.AX $31.71 $30.00 0% NEUTRAL DXS.AX $1.14 $1.08 0% NEUTRAL SIP.AX $0.75 $0.70 0% NEUTRAL EGP.AX $3.60 $3.50 -1% UNDERPERFORM ARP.AX $12.90 $12.45 -1% UNDERPERFORM PBG.AX $0.87 $0.80 -1% NEUTRAL DUE.AX $2.44 $2.23 -2% NEUTRAL IRE.AX $7.98 $7.45 -2% UNDERPERFORM WDC.AX $11.64 $10.80 -3% NEUTRAL PTM.AX $4.98 $4.60 -3% UNDERPERFORM GMG.AX $5.15 $4.80 -3% NEUTRAL GFF.AX $0.76 $0.70 -3% UNDERPERFORM NAB.AX $32.07 $29.00 -4% NEUTRAL CCL.AX $14.98 $13.70 -4% UNDERPERFORM GPT.AX $4.11 $3.72 -5% UNDERPERFORM TPM.AX $3.44 $3.20 -5% OUTPERFORM BRG.AX $6.75 $6.15 -5% NEUTRAL FLT.AX $36.89 $33.50 -6% NEUTRAL TME.AX $4.09 $3.70 -6% NEUTRAL PRY.AX $5.19 $4.70 -6% NEUTRAL ALQ.AX $9.68 $8.65 -7% UNDERPERFORM ENV.AX $1.05 $0.91 -7% UNDERPERFORM IVC.AX $11.62 $10.40 -7% NEUTRAL SFH.AX $1.19 $1.08 -7% NEUTRAL ASX.AX $36.92 $32.00 -8% UNDERPERFORM CBA.AX $70.01 $60.00 -9% UNDERPERFORM IIN.AX $5.96 $5.20 -10% NEUTRAL SUL.AX $12.43 $10.40 -13% UNDERPERFORM CQR.AX $4.20 $3.37 -13% UNDERPERFORM DJS.AX $3.03 $2.48 -13% UNDERPERFORM WES.AX $43.04 $35.58 -13% UNDERPERFORM FDC.AX $2.49 $2.00 -14% UNDERPERFORM TRS.AX $16.72 $13.55 -15% UNDERPERFORM GWA.AX $2.47 $1.95 -15% NEUTRAL WOW.AX $35.98 $29.25 -15% UNDERPERFORM PRG.AX $2.45 $1.90 -17% NEUTRAL REA.AX $29.79 $24.20 -17% NEUTRAL DMP.AX $13.02 $10.40 -17% NEUTRAL HVN.AX $2.86 $2.25 -18% UNDERPERFORM SXL.AX $1.55 $1.12 -22% UNDERPERFORM FXJ.AX $0.65 $0.48 -22% UNDERPERFORM JBH.AX $15.92 $11.58 -23% UNDERPERFORM SEK.AX $11.07 $7.60 -29% UNDERPERFORM APN.AX $0.35 $0.23 -34% UNDERPERFORM TWE.AX $5.98 $3.60 -37% UNDERPERFORM

Source: ASX, Credit Suisse estimates. Correct as of 9PM AET on 23 April 2013. *Projected capital gain or loss plus gross dividend yield.

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Top 100 Earnings & Dividends Research Analyst

Jason Swinbourne

612 8205 4591

[email protected]

As at 23 April 2013 Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg

to Price Tgt Cap 2012 2013F 2014F 2012 2013F 2014F 2012 2013F 2014F 2012 2013F 2014F 2012 2013F 2014F 2012 2013F 2014F 2012 2013F 2014F 2013F

$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Energy

Aurora Oil & Gas 31-Dec OPFM 2.98 4.15 1,365 56.9 139.8 269.6 12.9 30.5 58.9 23.5 10.0 5.2 152.4 65.4 36.6 0.0 0.0 0.0 0.0 0.0 0.0 10.5 5.6 3.5 0

Caltex Australia 31-Dec OPFM 21.35 23.60 5,765 365.8 455.0 483.0 135.5 168.5 178.9 15.8 12.7 11.9 102.0 83.0 84.4 40.0 42.1 44.7 1.9 2.0 2.1 8.7 6.9 6.6 100

Origin Energy 30-Jun NTRL 12.43 12.20 13,647 893.0 766.4 818.9 82.4 70.2 74.7 15.1 17.7 16.6 97.7 116.0 117.7 50.0 50.0 50.0 4.0 4.0 4.0 8.5 9.4 9.3 0

Oil Search 31-Dec OPFM 7.30 8.60 9,993 154.5 179.1 323.0 11.6 13.3 23.7 64.5 56.2 31.5 417.7 368.3 222.6 4.0 4.0 4.0 0.5 0.5 0.5 32.4 32.2 22.4 0

Santos Ltd 31-Dec NTRL 12.27 13.25 11,832 587.2 484.9 510.4 61.3 50.3 52.7 20.0 24.4 23.3 129.7 159.8 164.7 30.0 30.0 30.0 2.4 2.4 2.4 8.4 9.9 10.0 100

Whitehaven Coal 30-Jun OPFM 1.92 3.00 1,969 57.8 54.7- 3.8- 10.1 -5.3 -0.4 19.1 n.m n.m 123.6 n.m n.m 53.0 0.0 0.1 27.6 0.0 0.0 13.0 164.6 25.5 100

WorleyParsons 30-Jun OPFM 22.72 27.70 5,523 345.6 369.9 429.4 140.6 150.5 174.7 16.2 15.1 13.0 104.6 98.9 92.0 91.0 98.5 114.0 4.0 4.3 5.0 9.9 9.2 8.0 75

Woodside Petroleum 31-Dec NTRL 37.96 38.50 31,992 2,061.2 1,878.0 2,333.8 252.8 227.7 282.9 15.4 17.1 13.7 99.4 111.8 97.1 130.0 245.0 226.0 3.3 6.3 5.8 8.0 8.7 7.2 100

Sector Aggregate 17.9 19.3 15.5 3.5 4.0 4.0 9.3 9.8 8.3

Materials - Chemicals

Incitec Pivot Ltd. 30-Sep OPFM 2.96 3.50 4,821 446.9 370.5 400.6 27.4 22.7 24.6 10.8 13.0 12.0 69.8 85.3 85.2 12.4 13.6 13.5 4.2 4.6 4.6 9.1 7.7 7.0 50

Orica 30-Sep OPFM 22.38 26.70 8,211 650.2 675.1 770.3 180.1 186.7 212.4 12.4 12.0 10.5 80.5 78.6 74.5 92.0 95.0 107.0 4.1 4.2 4.8 8.5 8.3 7.2 39


Materials - Construction Materials

Adelaide Brighton 31-Dec UPFM 3.37 3.30 2,148 154.0 152.8 169.2 24.0 23.8 26.3 14.1 14.2 12.8 91.1 92.9 90.6 17.0 17.5 18.0 5.0 5.2 5.3 9.4 8.8 8.1 100

Boral 30-Jun OPFM 4.95 5.40 3,831 101.2 132.1 260.3 13.5 17.5 34.1 36.7 28.2 14.5 237.4 185.1 102.7 11.0 12.0 17.0 2.2 2.4 3.4 12.1 9.6 7.3 100

James Hardie Industries SE 31-Mar NTRL 9.84 10.00 4,445 140.4 139.4 193.4 32.2 31.8 44.2 31.3 31.6 22.8 202.4 207.3 161.2 42.0 40.0 22.0 4.2 4.0 2.2 16.5 18.0 13.2 0


Materials - Containers & Packaging

Amcor 30-Jun OPFM 9.42 10.35 11,367 634.9 674.7 782.1 51.5 55.1 63.9 18.3 17.1 14.8 118.3 112.1 104.4 37.0 42.0 48.0 3.9 4.5 5.1 9.6 8.6 7.8 0

Materials - Metals & Mining

Atlas Iron 30-Jun OPFM 0.87 1.30 787 72.2 45.3 55.5 7.7 5.0 6.1 11.2 17.3 14.3 72.3 113.7 100.9 3.0 3.0 3.0 3.5 3.5 3.5 3.1 4.8 4.0 0

Arrium 30-Jun NTRL 0.81 1.25 1,095 195.0 215.0 298.4 14.6 15.9 22.1 5.6 5.1 3.7 35.9 33.3 26.0 6.0 7.9 11.0 7.4 9.8 13.6 5.6 4.7 3.3 0

Alumina Limited 31-Dec UPFM 0.98 1.00 2,813 52.5- 5.1- 96.9 -2.2 -0.2 3.5 n.m n.m 29.0 n.m n.m 205.4 0.0 0.0 3.0 0.0 0.0 3.0 n.m n.m n.m 100

BHP Billiton 30-Jun NTRL 31.36 35.00 159,838 17,217.0 13,028.7 13,517.2 322.1 239.3 248.3 10.0 13.4 12.9 64.5 87.9 91.4 112.0 116.9 128.8 3.5 3.6 4.0 5.4 6.5 6.4 100

BlueScope Steel 30-Jun OPFM 4.79 6.45 2,674 237.8- 41.9 163.9 -53.5 7.5 29.4 n.m 63.8 16.3 n.m 418.5 115.4 0.0 0.0 0.0 0.0 0.0 0.0 30.9 7.0 4.1 0

Fortescue Metals Group Ltd 30-Jun OPFM 3.77 5.00 12,008 1,403.0 1,441.7 1,384.2 45.1 46.3 44.5 8.6 8.3 8.7 55.4 54.6 61.4 8.0 4.0 8.0 2.1 1.0 2.1 6.3 6.1 4.7 100

Iluka Resources 31-Dec OPFM 8.80 11.00 3,685 363.2 261.6 575.3 86.7 62.5 137.4 10.1 14.1 6.4 65.7 92.3 45.3 35.0 20.0 50.0 4.0 2.3 5.7 5.4 6.2 3.7 100

Newcrest Mining 30-Jun OPFM 16.45 24.50 12,599 1,084.1 650.1 1,085.5 141.5 84.8 141.6 11.6 19.4 11.6 75.2 127.1 82.2 35.0 40.0 40.0 2.1 2.4 2.4 6.9 9.7 6.3 0

OZ Minerals 31-Dec OPFM 4.29 8.40 1,302 152.0 52.4- 111.4- 49.2 -17.3 -36.7 8.7 n.m n.m 56.4 n.m n.m 30.0 0.0 0.0 7.0 0.0 0.0 1.9 6.9 13.1 100

PanAust 31-Dec NTRL 2.22 2.60 1,399 142.3 97.1 128.5 23.9 16.3 21.6 9.5 13.9 10.5 61.5 91.4 74.5 7.0 4.1 5.4 3.1 1.8 2.4 4.5 4.9 3.9 0

Perseus Mining 30-Jun OPFM 1.44 2.25 657 47.4 52.6 70.1 10.6 11.4 15.2 13.6 12.5 9.4 87.8 82.2 66.6 0.0 0.0 0.0 0.0 0.0 0.0 8.5 4.7 3.9 0

Rio Tinto 31-Dec OPFM 53.84 70.00 86,252 8,626.0 9,704.9 8,453.1 466.5 524.6 456.7 11.8 10.5 12.1 76.4 68.8 85.3 167.0 167.0 183.7 3.0 3.0 3.3 5.5 5.5 5.8 100

Regis Resources Limited 30-Jun UPFM 3.56 4.10 1,689 68.2 151.2 224.7 15.2 31.5 44.9 23.4 11.3 7.9 151.8 74.2 56.1 0.0 20.0 27.0 0.0 5.6 7.6 17.0 6.3 4.3 0

Sims Metal Management 30-Jun UPFM 9.50 11.00 1,941 68.3 36.6 113.9 33.2 17.9 55.7 28.6 53.1 17.0 185.3 347.9 120.6 20.0 8.9 27.9 2.1 0.9 2.9 8.8 11.0 6.8 0


Industrials - Capital Goods

Leighton Holdings 31-Dec UPFM 19.04 19.65 6,421 442.5 597.0 619.3 131.3 177.1 183.7 14.5 10.8 10.4 93.9 70.5 73.3 80.0 121.3 110.2 4.2 6.4 5.8 3.7 3.0 2.9 38

UGL Limited 30-Jun OPFM 9.94 12.30 1,655 160.5 144.3 174.4 96.6 86.9 104.4 10.3 11.4 9.5 66.6 75.0 67.4 70.0 70.0 77.0 7.0 7.0 7.7 7.2 7.9 6.8 100


Industrials - Commercial & Professional Services

ALS Limited 31-Mar UPFM 9.68 8.65 3,326 224.8 235.7 200.9 66.5 69.8 59.5 14.6 13.9 16.3 94.3 90.9 115.0 45.0 40.2 38.7 4.6 4.2 4.0 9.8 9.0 10.0 50

Brambles Limited 30-Jun OPFM 8.65 9.60 13,778 624.5 697.2 796.0 42.1 44.9 51.2 21.0 19.7 17.3 136.2 129.2 122.2 26.0 27.0 32.0 3.0 3.2 3.6 10.5 9.9 9.0 25

Downer EDI 30-Jun NTRL 4.70 5.55 2,037 195.3 214.3 237.1 45.5 50.0 54.8 10.3 9.4 8.6 66.9 61.7 60.7 0.0 24.0 25.0 0.0 5.1 5.3 4.0 3.3 3.0 70

Seek 30-Jun UPFM 11.07 7.60 3,740 130.2 144.6 171.6 38.5 42.6 50.7 28.8 26.0 21.8 186.1 170.3 154.4 17.3 21.4 25.4 1.6 1.9 2.3 20.5 16.5 12.9 100


Industrials - Transportation

Asciano Group 30-Jun OPFM 5.26 6.29 5,131 250.0 376.1 438.3 25.6 38.6 44.9 20.5 13.6 11.7 132.8 89.4 82.8 7.7 10.8 13.0 1.5 2.0 2.5 8.7 8.2 7.4 100

Aurizon 30-Jun RSTR 3.98 8,506 396.5 444.2 474.7 16.3 19.7 22.2 24.5 20.2 17.9 158.6 132.5 126.8 8.0 10.4 11.1 2.0 2.6 2.8 9.2 9.0 8.5 15

Qantas Airways 30-Jun OPFM 1.81 1.85 4,058 65.0 174.9 384.4 2.9 7.9 17.9 63.1 22.9 10.1 408.3 149.8 71.7 0.0 0.0 10.5 0.0 0.0 5.8 4.4 3.9 3.1 100

Toll Holdings 30-Jun NTRL 5.62 6.10 4,030 268.0 286.8 325.9 37.5 40.0 45.7 15.0 14.1 12.3 97.1 92.1 87.0 25.0 26.0 27.5 4.4 4.6 4.9 7.6 6.9 6.7 100

Sector Aggregate 23.4 17.2 13.2 2.0 2.4 3.7 7.3 6.8 6.0n.m n.m n.m

Note: Aggregations are weighted by market cap of the listed companies . Actuals used when available else Credit Suisse Forecasts used in calculations. PE aggregates larger than 100 or negative are shown as nm.

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$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Consumer Discretionary - Consumer Durables & Apparel

Consumer Discretionary - Consumer Services

Aristocrat Leisure 30-Sep NTRL 3.71 3.90 2,046 91.7 99.5 107.5 16.7 18.0 19.8 22.2 20.6 18.7 143.5 135.0 132.5 6.0 11.0 13.0 1.6 3.0 3.5 12.6 11.5 10.9 14

Crown 30-Jun UPFM 12.80 12.80 9,323 415.0 422.3 492.2 56.5 58.0 67.6 22.7 22.1 18.9 146.7 144.7 134.0 37.0 37.0 37.0 2.9 2.9 2.9 15.3 15.6 14.3 40

Echo Entertainment 30-Jun UPFM 3.60 3.50 2,972 140.5 131.0 153.2 19.5 15.8 18.5 18.5 22.7 19.4 119.6 148.9 137.5 4.0 7.0 8.0 1.1 1.9 2.2 10.3 9.3 8.2 100

Flight Centre 30-Jun NTRL 36.89 33.50 3,704 200.1 221.0 233.0 200.0 220.8 232.7 18.4 16.7 15.8 119.4 109.5 112.1 112.0 123.3 129.9 3.0 3.3 3.5 8.4 7.4 6.6 100

Tabcorp Holdings 30-Jun NTRL 3.30 3.55 2,458 340.0 131.4 144.9 47.5 17.8 19.2 6.9 18.5 17.2 45.0 121.3 121.5 24.0 17.5 15.0 7.3 5.3 4.5 4.9 8.0 7.5 100

Tatts Group 30-Jun NTRL 3.25 3.35 4,559 319.1 206.1 234.1 23.8 14.9 16.7 13.6 21.8 19.5 88.4 142.6 137.7 23.0 15.0 16.0 7.1 4.6 4.9 8.9 12.3 11.1 100


Consumer Discretionary - Media

News Corporation 30-Jun OPFM 30.65 34.50 72,619 3,521.0 3,936.5 4,335.2 140.6 170.0 198.8 22.3 18.4 15.8 144.3 120.9 111.6 17.0 17.0 30.0 0.5 0.5 1.0 11.6 10.8 9.8 0


Consumer Discretionary - Retailing

David Jones 31-Jul UPFM 3.03 2.48 1,611 101.1 100.9 87.5 19.4 19.0 16.5 15.7 15.9 18.4 101.3 104.4 130.0 17.5 16.5 14.0 5.8 5.4 4.6 11.7 11.9 13.2 100

Harvey Norman 30-Jun UPFM 2.86 2.25 3,038 191.1 202.7 204.1 18.0 19.1 19.2 15.9 15.0 14.9 102.9 98.2 105.3 9.0 9.1 9.6 3.1 3.2 3.3 9.8 9.4 8.6 100

Myer Holdings 28-Jul NTRL 3.17 3.12 1,850 139.3 129.2 142.4 23.7 22.0 24.4 13.4 14.4 13.0 86.6 94.4 91.9 19.0 19.0 22.9 6.0 6.0 7.2 7.2 7.2 6.6 100


Consumer Staples - Food & Drug Retailing

Metcash 30-Apr NTRL 4.10 4.05 3,611 252.8 277.4 289.9 32.7 32.2 32.8 12.5 12.7 12.5 81.1 83.5 88.4 28.0 27.2 24.7 6.8 6.6 6.0 9.2 8.2 8.1 100

Wesfarmers 30-Jun UPFM 43.04 35.58 49,836 2,138.0 2,297.5 2,524.7 184.9 198.4 217.6 23.3 21.7 19.8 150.7 142.2 139.9 165.0 155.8 171.4 3.8 3.6 4.0 11.9 11.5 10.6 100

Woolworths 24-Jun UPFM 35.98 29.25 44,718 2,182.9 2,339.7 2,450.3 177.7 189.4 197.8 20.2 19.0 18.2 131.0 124.5 128.7 126.8 132.3 136.2 3.5 3.7 3.8 11.5 10.5 10.1 100


Consumer Staples - Food Beverage & Tobacco

Coca-Cola Amatil 31-Dec UPFM 14.98 13.70 11,439 558.4 592.0 632.2 73.5 77.7 82.9 20.4 19.3 18.1 132.0 126.4 127.9 59.5 64.0 69.0 4.0 4.3 4.6 11.8 11.1 10.6 69

Graincorp 30-Sep RSTR 11.60 2,655 204.9 175.4 149.9 102.0 76.9 65.7 11.4 15.1 17.7 73.6 98.8 124.9 65.0 46.9 37.9 5.6 4.0 3.3 7.4 9.0 9.7 100

Treasury Wine 30-Jun UPFM 5.98 3.60 3,870 136.5 130.6 167.7 21.0 20.0 26.0 28.5 29.9 23.0 184.6 196.1 162.4 13.0 14.0 18.0 2.2 2.3 3.0 14.1 13.8 11.5 44


Health Care

Cochlear 30-Jun UPFM 65.41 67.00 3,731 158.1 149.5 154.9 277.8 261.9 269.5 23.5 25.0 24.3 152.4 163.7 171.7 245.0 250.0 261.3 3.7 3.8 4.0 15.6 15.8 15.2 40

CSL Ltd 30-Jun OPFM 60.87 60.50 30,835 1,024.8 1,235.8 1,395.8 197.0 247.1 284.4 31.6 25.2 21.9 204.6 165.2 154.9 83.0 110.0 121.8 1.3 1.8 2.0 21.4 17.9 15.6 0

Primary Health Care 30-Jun NTRL 5.19 4.70 2,615 122.1 146.8 165.0 24.4 29.2 32.7 21.2 17.8 15.9 137.5 116.4 112.4 11.0 14.0 15.6 2.1 2.7 3.0 10.5 9.5 8.9 100

Ramsay Health Care 30-Jun NTRL 31.87 34.50 6,440 235.0 277.4 317.9 120.3 145.8 165.7 26.5 21.9 19.2 171.5 143.3 136.1 60.0 67.6 78.4 1.9 2.1 2.5 12.6 11.8 10.7 100

ResMed Inc. 30-Jun NTRL 4.44 4.60 7,068 254.8 323.8 348.6 17.2 22.1 23.7 26.5 20.6 19.1 171.4 134.8 135.4 1.7 7.2 8.3 0.4 1.6 1.8 17.1 14.2 13.1 0

Sonic Healthcare 30-Jun NTRL 13.15 13.50 5,210 316.0 327.8 366.2 80.7 82.4 90.5 16.3 16.0 14.5 105.5 104.6 102.8 59.0 61.0 66.5 4.5 4.6 5.1 10.9 10.2 9.1 45


Financials - Banks

ANZ Banking Group 30-Sep OPFM 29.25 30.50 80,255 5,860.0 6,577.0 7,003.1 211.7 230.9 243.6 13.8 12.7 12.0 89.4 83.0 85.0 145.0 156.0 167.0 5.0 5.3 5.7 4.9 4.2 3.7 100

Bendigo and Adelaide Bank 30-Jun NTRL 10.42 10.50 4,243 323.0 340.0 357.5 78.9 74.6 77.2 13.2 14.0 13.5 85.5 91.5 95.5 60.0 60.0 62.0 5.8 5.8 6.0 7.8 7.2 6.8 100

Bank of Queensland 31-Aug NTRL 9.64 9.50 3,016 21.0 254.5 293.9 7.4 78.2 88.6 n.m 12.3 10.9 846.2 80.8 77.0 52.0 56.0 56.0 5.4 5.8 5.8 33.3 7.5 6.6 100

Commonwealth Bank Australia 30-Jun UPFM 70.01 60.00 112,659 7,071.0 7,564.8 7,921.5 433.5 457.3 476.5 16.1 15.3 14.7 104.5 100.3 103.9 334.0 354.0 369.8 4.8 5.1 5.3 8.9 8.4 7.9 100

National Australia Bank 30-Sep NTRL 32.07 29.00 75,121 5,449.0 5,970.9 6,460.1 239.3 252.9 272.4 13.4 12.7 11.8 86.7 83.1 83.3 180.0 186.0 200.0 5.6 5.8 6.2 6.6 6.0 5.5 100

Westpac 30-Sep NTRL 31.71 30.00 98,419 6,598.0 7,103.5 7,280.3 209.2 221.6 225.1 15.2 14.3 14.1 98.1 93.8 99.7 166.0 173.0 178.0 5.2 5.5 5.6 8.5 7.8 7.5 100



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Top 100 Earnings & Dividends (continued) As at 23 April 2013 Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Financials - Diversified Financials

ASX 30-Jun UPFM 36.92 32.00 6,466 346.2 348.9 380.6 197.7 199.2 217.3 18.7 18.5 17.0 120.9 121.5 120.2 177.9 179.2 195.5 4.8 4.9 5.3 8.9 7.5 6.8 100

Challenger Financial Services Group 30-Jun OPFM 4.03 4.90 2,145 296.8 297.3 311.3 57.5 56.6 61.0 7.0 7.1 6.6 45.4 46.7 46.8 18.0 18.5 20.0 4.5 4.6 5.0 6.1 5.5 4.8 0

Macquarie Group 31-Mar OPFM 37.05 42.00 12,579 730.0 855.4 1,128.2 202.4 234.2 309.3 18.3 15.8 12.0 118.5 103.7 84.8 140.0 150.0 200.0 3.8 4.0 5.4 8.1 7.3 6.0 0


Financials - Insurance

AMP 31-Dec NTRL 5.16 5.76 15,194 703.6 835.8 1,022.6 29.6 31.1 35.2 17.4 16.6 14.7 112.9 108.8 103.7 25.0 25.5 28.5 4.8 4.9 5.5 22.6 21.7 19.4 60

Insurance Australia Group 30-Jun NTRL 5.63 5.75 11,705 528.0 921.8 842.4 25.4 42.2 38.5 22.2 13.3 14.6 143.5 87.5 103.6 17.0 25.5 23.5 3.0 4.5 4.2 15.7 9.2 9.7 100

QBE Insurance Group 31-Dec OPFM 13.10 13.10 16,080 761.0 1,103.7 1,420.9 59.9 84.9 108.6 22.4 15.8 12.3 144.9 103.4 87.3 40.0 40.0 53.0 3.1 3.1 4.0 15.6 12.5 10.0 15

Suncorp Group Limited 30-Jun NTRL 12.18 11.70 15,671 724.0 1,056.8 1,189.4 55.8 80.1 89.7 21.8 15.2 13.6 141.4 99.7 96.0 55.0 71.0 80.0 4.5 5.8 6.6 23.9 14.3 12.6 100


Financials - Real Estate

CFS Retail Property Trust 30-Jun UPFM 2.20 2.08 6,223 371.5 384.9 393.9 13.1 13.6 13.9 16.8 16.2 15.8 108.8 106.0 111.8 13.1 13.6 13.9 6.0 6.2 6.3 16.7 17.4 16.5 0

Commonwealth Property Office Fund 30-Jun NTRL 1.16 1.12 2,711 200.8 204.8 210.8 8.3 8.7 9.0 13.8 13.2 12.9 89.6 86.8 91.0 6.1 6.6 6.7 5.3 5.7 5.8 14.3 14.9 14.3 0

Dexus Property Group 30-Jun NTRL 1.14 1.08 5,516 367.8 363.4 375.9 7.7 7.8 8.1 14.9 14.7 14.1 96.4 96.4 99.9 5.4 5.8 6.1 4.7 5.1 5.3 14.8 15.8 15.2 0

Federation Centres 30-Jun UPFM 2.49 2.00 3,555 123.2 218.1 233.5 9.2 15.4 16.4 27.1 16.2 15.2 175.4 106.3 107.7 6.5 13.0 14.0 2.6 5.2 5.6 22.7 14.9 14.9 0

Goodman Group 30-Jun NTRL 5.15 4.80 8,823 463.4 545.9 601.5 30.8 32.6 34.8 16.7 15.8 14.8 108.3 103.4 104.9 18.2 19.4 20.8 3.5 3.8 4.0 20.4 17.3 16.1 0

GPT Group 31-Dec UPFM 4.11 3.72 7,269 431.4 449.5 453.3 24.2 25.4 25.7 17.0 16.2 16.0 109.8 105.9 113.3 19.4 20.4 20.5 4.7 5.0 5.0 16.6 15.8 15.6 0

Investa Office Fund 30-Jun NTRL 3.24 3.10 1,990 128.1 136.4 142.4 20.1 22.2 23.2 16.1 14.6 14.0 104.2 95.6 98.9 17.5 17.8 18.5 5.4 5.5 5.7 15.3 15.5 15.2 0

Lend Lease 30-Jun OPFM 10.39 10.98 5,980 507.5 530.1 576.3 88.8 92.2 99.7 11.7 11.3 10.4 75.8 73.9 73.8 37.9 38.6 49.8 3.7 3.7 4.8 9.6 8.6 8.0 0

Mirvac Group 30-Jun NTRL 1.74 1.65 5,961 366.3 368.0 405.8 10.7 10.7 11.8 16.2 16.2 14.7 105.1 106.2 103.9 8.4 8.6 9.5 4.8 4.9 5.4 16.8 17.5 14.0 0

Stockland 30-Jun UPFM 3.87 3.73 8,524 676.0 508.3 560.1 29.3 23.1 25.4 13.2 16.8 15.2 85.5 109.9 107.7 24.0 24.0 24.0 6.2 6.2 6.2 16.3 22.2 20.3 0

Westfield 31-Dec NTRL 11.64 10.80 25,713 1,485.9 1,511.9 1,627.7 65.4 69.2 74.8 17.8 16.8 15.6 115.3 110.2 110.0 49.5 51.7 54.1 4.3 4.4 4.6 17.4 17.7 17.4 0

Westfield Retail Trust 31-Dec OPFM 3.26 3.31 9,957 570.3 583.7 601.9 18.7 19.2 19.9 17.5 17.0 16.4 113.0 111.3 116.1 18.8 19.8 20.5 5.8 6.1 6.3 17.0 16.8 16.7 0


Information Technology

Computershare 30-Jun OPFM 9.94 11.15 5,655 272.8 312.4 358.8 49.1 56.2 64.4 20.7 18.1 15.8 134.1 118.7 111.7 28.0 28.0 28.0 2.8 2.8 2.8 15.2 13.6 11.5 20

Telecommunication Services

Telstra Corporation 30-Jun NTRL 4.84 4.91 60,224 3,547.0 3,747.4 3,765.8 28.5 30.1 30.3 17.0 16.1 16.0 109.9 105.3 113.2 28.0 28.0 28.0 5.8 5.8 5.8 7.3 7.1 7.0 100

Utilities

AGL Energy 30-Jun NTRL 15.66 16.50 8,679 482.0 623.9 704.6 99.9 113.6 126.8 15.7 13.8 12.4 101.5 90.3 87.4 61.0 62.0 63.2 3.9 4.0 4.0 12.4 8.0 6.9 100

APA Group 30-Jun NTRL 6.37 6.27 5,324 140.3 164.8 186.7 21.9 21.3 22.5 29.0 29.9 28.3 188.0 196.3 200.5 35.0 36.1 37.1 5.5 5.7 5.8 14.9 14.3 13.7 0

DUET Group 30-Jun NTRL 2.44 2.23 2,853 62.3 107.4 127.4 5.8 9.4 10.8 41.9 25.8 22.5 271.3 169.4 159.2 16.0 16.5 17.0 6.6 6.8 7.0 10.5 9.7 9.6 0

Spark Infrastructure Group 31-Dec NTRL 1.79 1.70 2,368 173.9 210.9 231.4 13.1 15.9 17.4 13.6 11.2 10.2 88.2 73.6 72.4 10.5 11.0 11.5 5.9 6.2 6.4 8.3 7.1 6.5 0

SP AusNet 31-Mar NTRL 1.24 1.20 4,176 234.0 272.5 290.6 8.2 9.1 8.5 15.1 13.7 14.6 97.8 89.6 103.4 8.0 8.2 8.4 6.5 6.6 6.7 9.6 9.0 9.2 33


Report Average 15.4 15.3 14.1 3.9 4.1 4.4 8.2 7.9 7.3


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Small Caps Earnings & Dividends

Research Analysts

Jason Swinbourne

612 8205 4591

[email protected]

As at 23 April 2013 Year Rating Share 12M Mkt NPAT PE Relative PE Dividend Dividend Yield EBITDA Multiple F'kg


$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Energy

Aquila Resources 30-Jun NTRL 1.98 2.75 815 62.6- 62.9- 26.8- -15.2 -15.3 -6.5 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100

AWE Ltd 30-Jun RSTR 1.16 606 56.6 31.2 33.9 10.8 6.0 6.5 10.7 19.4 17.8 59.2 107.2 127.5 0.0 0.0 0.0 0.0 0.0 0.0 4.0 4.4 4.9 0

Bandanna Energy Limited 30-Jun OPFM 0.13 0.50 69 2.2 8.4- 6.7- 0.4 -1.6 -0.9 31.1 n.m n.m 172.0 n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 5.5 0.7 n.m 0

Cockatoo Coal 30-Jun OPFM 0.06 0.17 65 7.2- 21.8- 19.1- -0.7 -1.3 -1.1 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 30.0 29.6 15.2 100

Energy Resources of Australia 31-Dec OPFM 1.05 1.70 544 142.4- 151.7- 148.9- -27.5 -29.3 -28.8 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 1.1 2.1 2.7 100

Karoon Gas 30-Jun OPFM 4.18 7.85 926 3.3- 69.0- 29.3- -1.5 -31.2 -13.2 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

New Hope Corporation 31-Jul UPFM 3.34 3.75 2,774 171.1 124.0 97.0 20.6 14.9 11.7 16.2 22.4 28.6 89.8 123.5 204.4 31.0 14.9 11.7 9.3 4.5 3.5 7.8 10.8 17.2 100

Sector Aggregate n.m n.m n.m 4.4 2.1 1.7 6.6 11.1 14.1

Materials - Chemicals

Nufarm 31-Jul OPFM 4.05 5.05 1,064 115.5 90.1 118.0 44.1 34.2 44.0 9.2 11.8 9.2 50.8 65.4 65.8 6.0 8.0 10.0 1.5 2.0 2.5 5.7 6.1 5.0 100

Materials - Construction Materials

Materials - Containers & Packaging

Materials - Metals & Mining

Ampella Mining Limited 31-Dec OPFM 0.19 1.00 47 38.1- 26.9- 18.3- -16.1 -6.8 -3.4 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m 3.1 n.m 0

Altona Mining Limited 30-Jun OPFM 0.19 0.44 100 23.1- 15.6 2.8 -4.4 2.9 0.5 n.m 6.4 36.2 n.m 35.6 258.8 0.0 0.0 0.0 0.0 0.0 0.0 n.m 6.8 6.8 0

Alacer Gold Corp. 31-Dec OPFM 2.47 5.15 728 72.4 54.9 84.0 25.4 19.4 29.7 10.0 13.0 8.5 55.2 71.8 60.8 0.0 0.0 16.3 0.0 0.0 6.5 1.8 1.8 1.8 0

Base Resources Ltd 30-Jun OPFM 0.32 0.70 177 2.4 6.5- 42.0 0.5 -1.2 7.5 61.2 n.m 4.2 338.7 n.m 30.0 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m 3.5 0

Bathurst Resources 30-Jun OPFM 0.21 0.40 143 21.5- 12.6- 11.7- -2.8 -1.7 -1.5 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100

Evolution Mining Limited 30-Jun UPFM 0.90 1.35 634 63.4 75.1 77.6 11.8 10.4 10.8 7.6 8.6 8.3 42.0 47.3 59.3 0.0 0.0 0.0 0.0 0.0 0.0 2.8 2.7 2.2 0

Gindalbie Metals Ltd 30-Jun NTRL 0.19 0.22 276 27.2- 14.1- 21.3 -2.3 -1.0 1.4 n.m n.m 13.0 n.m n.m 92.6 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Gryphon Minerals Limited 30-Jun OPFM 0.20 0.85 80 5.9- 5.1- 10.0- -1.8 -1.4 -1.8 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Independence Group NL 30-Jun OPFM 3.23 4.75 752 2.7 27.8 52.8 1.2 12.0 22.7 n.m 27.0 14.2 n.m 149.2 101.8 3.0 2.0 6.8 0.9 0.6 2.1 16.5 11.5 6.6 100

Kula Gold 31-Dec OPFM 0.09 0.35 11 29.2- 2.1- 5.5- -25.4 -0.8 -1.3 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m 15.9 n.m 0

Mirabela Nickel 31-Dec NTRL 0.14 0.27 126 72.9- 41.0- 40.2- -10.5 -4.6 -4.6 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 15.0 11.9 13.0 0

Mineral Deposits Ltd. 31-Dec OPFM 3.00 6.50 256 20.1 10.2 64.1 24.1 12.2 76.7 12.7 25.2 4.0 70.5 139.3 28.6 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100

Mount Gibson Iron 30-Jun OPFM 0.50 0.65 545 187.7 113.1 74.6 17.3 10.4 6.8 2.9 4.8 7.3 16.0 26.6 52.2 4.0 4.0 2.0 8.0 8.0 4.0 1.8 1.7 1.6 100

Panoramic Resources 30-Jun NTRL 0.31 0.35 80 11.0- 23.3- 16.0- -4.9 -9.4 -6.2 n.m n.m n.m n.m n.m n.m 2.0 1.0 0.0 6.5 3.2 0.0 1.4 3.4 2.5 100

Sandfire Resources NL 30-Jun NTRL 5.62 5.55 864 23.9- 157.2 186.4 -15.9 102.9 119.3 n.m 5.5 4.7 n.m 30.2 33.7 0.0 0.0 59.6 0.0 0.0 10.6 n.m 3.4 3.0 0

Stanmore Coal 30-Jun NTRL 0.15 0.20 30 7.7- 6.6- 9.2- -5.3 -3.4 -2.4 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 100

Tigers Realm Coal 31-Dec NTRL 0.16 0.25 54 5.4- 10.7- 4.1- -1.4 -2.1 -0.5 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m 0.0 0

Western Areas NL 30-Jun OPFM 2.70 4.00 531 40.2 13.7 16.9 21.1 6.5 8.0 12.8 41.2 33.8 70.8 227.7 241.3 11.0 3.5 3.2 4.1 1.3 1.2 4.1 5.2 5.2 100

Yancoal Australia 31-Dec NTRL 0.71 0.80 706 167.8 92.0 557.5 18.9 9.3 56.1 3.8 7.7 1.3 20.8 42.3 9.1 0.0 0.0 4.8 0.0 0.0 6.7 18.0 11.7 6.1 100


Materials - Paper & Forest Products

Sector Aggregate n.m n.m n.m

Industrials - Capital Goods

Bradken Limited 30-Jun OPFM 4.97 7.35 841 100.5 110.7 124.1 59.8 64.8 72.5 8.3 7.7 6.9 46.0 42.3 49.0 41.0 42.5 46.6 8.2 8.6 9.4 5.9 5.5 4.9 100

Boart Longyear Group 31-Dec OPFM 0.92 1.50 432 114.0 43.5 56.9 24.8 9.5 12.4 3.8 9.9 7.6 20.9 54.6 54.0 7.4 2.9 3.8 7.9 3.1 4.0 2.9 3.6 3.1 35

Clough 30-Jun OPFM 1.11 1.34 863 48.1 88.9 98.5 6.2 11.4 12.7 17.9 9.7 8.8 98.9 53.6 62.7 2.6 4.0 6.0 2.3 3.6 5.4 17.7 7.8 6.3 50

CSR 31-Mar UPFM 1.92 2.00 972 90.7 32.1 56.6 17.9 6.3 11.0 10.7 30.5 17.4 59.3 168.4 124.3 13.0 7.0 7.5 6.8 3.6 3.9 3.9 6.1 4.6 0

Emeco Holdings 30-Jun NTRL 0.47 0.65 282 71.2 49.2 52.5 11.4 7.7 8.6 4.1 6.1 5.5 22.8 33.9 39.1 6.0 5.5 5.7 12.8 11.6 12.1 2.5 3.3 3.1 100

GWA GROUP Limited 30-Jun NTRL 2.47 1.95 757 45.6 45.0 56.6 15.0 14.8 18.3 16.4 16.7 13.5 90.9 92.3 96.5 18.0 14.0 15.6 7.3 5.7 6.3 9.9 9.8 8.4 100

NRW Holdings Limited 30-Jun UPFM 1.20 1.85 333 97.1 87.8 79.0 34.7 31.5 28.3 3.4 3.8 4.2 19.0 21.0 30.1 18.0 16.0 16.0 15.1 13.4 13.4 2.0 2.1 2.1 100


* Relative PE Pre GW is calculated against All Industrials companies excluding the Stocks in the ASX Top 100 and Singtel.Calculation is based on Credit Suisse coverage.


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$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Industrials - Commercial & Professional Services

Cabcharge Australia 30-Jun NTRL 4.78 5.40 576 66.1 70.8 72.7 54.9 58.8 60.3 8.7 8.1 7.9 48.2 44.9 56.6 35.0 35.9 36.9 7.3 7.5 7.7 8.0 7.4 6.6 100

McMillan Shakespeare 30-Jun NTRL 14.90 15.50 1,110 54.3 63.1 74.2 74.1 82.9 96.9 20.1 18.0 15.4 111.3 99.3 109.9 47.0 52.0 60.8 3.2 3.5 4.1 8.2 7.5 6.2 100

Programmed Maintenance Services 31-Mar NTRL 2.45 1.90 290 31.4 32.7 34.8 26.6 27.7 29.4 9.2 8.8 8.3 51.0 48.8 59.5 13.0 13.3 14.2 5.3 5.4 5.8 5.6 5.7 5.1 100

Royal Wolf Holdings 30-Jun OPFM 3.06 3.05 307 15.6 19.4 21.6 15.6 19.3 21.6 19.6 15.8 14.2 108.7 87.4 101.4 8.0 9.9 10.8 2.6 3.3 3.5 11.0 9.3 8.4 0

SAI Global 30-Jun NTRL 3.54 4.00 740 44.7 42.0 52.9 22.0 20.3 25.1 16.1 17.4 14.1 89.2 96.3 100.8 15.0 15.3 17.6 4.2 4.3 5.0 9.6 9.1 7.7 100

Skilled Group Limited 30-Jun OPFM 3.00 3.45 701 52.4 58.8 63.6 21.9 24.6 26.5 13.7 12.2 11.3 75.7 67.4 80.8 13.0 15.5 17.3 4.3 5.2 5.8 8.2 7.6 6.8 100

Salmat 30-Jun NTRL 2.02 2.58 323 45.8 19.9 25.7 28.7 12.4 15.9 7.0 16.3 12.7 39.0 90.0 91.0 22.1 24.4 9.1 11.0 12.1 4.5 5.4 6.8 6.3 100

Transpacific Industries Group 30-Jun NTRL 0.98 1.00 1,547 58.0 77.6 103.3 4.3 4.9 6.5 22.8 19.9 15.0 126.5 110.1 107.1 0.0 0.0 1.0 0.0 0.0 1.0 5.9 5.9 5.2 100

Transfield Services Ltd 30-Jun NTRL 1.57 1.95 805 78.4 67.6 83.0 14.5 13.2 16.2 10.9 11.9 9.7 60.1 65.9 69.3 14.0 8.0 10.0 8.9 5.1 6.4 7.8 8.4 6.9 40


Industrials - Transportation

Alliance Aviation Services Limited 30-Jun OPFM 1.90 2.30 201 19.1 22.8 27.2 23.8 22.7 26.0 8.0 8.4 7.3 44.3 46.3 52.3 5.6 10.5 12.1 2.9 5.5 6.3 5.7 4.4 3.8 100

Mermaid Marine Australia 30-Jun OPFM 3.76 4.40 857 51.0 63.8 71.5 22.9 28.6 31.3 16.4 13.1 12.0 90.8 72.6 85.9 11.0 13.0 14.5 2.9 3.5 3.9 9.0 7.9 6.9 100

Qube Logistics 30-Jun NTRL 1.72 1.94 1,593 15.8- 58.0 77.6 -1.9 6.3 8.4 n.m 27.2 20.4 n.m 150.4 145.5 4.1 5.2 5.0 2.4 3.0 2.9 58.2 14.6 12.2 100

Virgin Australia Holdings 30-Jun OPFM 0.46 0.45 1,169 72.5 58.7 129.5 3.3 2.7 5.9 13.9 17.1 7.8 76.8 94.5 55.5 0.0 2.0 3.0 0.0 4.4 6.6 9.1 8.7 5.9 100


Consumer Discretionary - Automobiles & Components

Consumer Discretionary - Consumer Durables & Apparel

Billabong International 30-Jun NTRL 0.48 0.60 230 11.7 15.5 22.4 3.9 3.3 4.6 12.4 14.4 10.3 68.9 79.6 73.8 3.0 0.0 0.0 6.3 0.0 0.0 4.5 5.5 5.7 50

Fleetwood Corporation 30-Jun UPFM 8.80 9.25 533 53.2 27.6 46.6 89.2 46.0 76.0 9.9 19.1 11.6 54.6 105.6 82.7 76.0 60.4 65.2 8.6 6.9 7.4 5.7 10.4 6.4 100

G.U.D. Holdings 30-Jun NTRL 7.27 8.05 519 44.1 42.0 47.7 62.9 58.8 66.8 11.6 12.4 10.9 63.9 68.2 77.8 100.0 78.6 86.4 13.8 10.8 11.9 6.4 7.4 6.7 100


Consumer Discretionary - Consumer Services

Domino's Pizza 01-Jul NTRL 13.02 10.40 914 26.9 30.7 36.4 38.4 43.4 51.4 33.9 30.0 25.3 187.7 165.5 181.1 27.1 31.6 37.4 2.1 2.4 2.9 19.2 16.8 14.2 100

Invocare Group 31-Dec NTRL 11.62 10.40 1,279 43.0 49.7 55.8 39.3 45.5 51.0 29.6 25.6 22.8 163.6 141.1 162.9 34.0 37.1 40.9 2.9 3.2 3.5 16.1 14.8 13.6 100

Navitas Ltd 30-Jun OPFM 5.17 5.50 1,941 73.1 76.9 95.9 19.5 20.5 25.6 26.5 25.2 20.2 146.9 139.4 144.6 19.5 19.4 20.4 3.8 3.8 4.0 16.2 15.5 12.6 100


Consumer Discretionary - Media

APN News & Media 30-Dec UPFM 0.35 0.23 232 54.4 50.3 48.4 8.4 7.6 7.3 4.2 4.6 4.8 23.1 25.4 34.2 1.5 0.0 0.0 4.3 0.0 0.0 4.7 4.6 4.6 33

Fairfax Media 30-Jun UPFM 0.65 0.48 1,517 205.4 139.5 114.2 8.7 5.9 4.9 7.4 10.9 13.3 40.9 60.0 95.0 3.0 2.0 2.0 4.7 3.1 3.1 4.7 4.2 5.2 100

Prime Media Group 30-Jun NTRL 1.10 1.05 403 33.2 37.0 37.2 9.1 10.1 10.2 12.1 10.9 10.8 67.2 60.0 77.3 6.6 7.8 7.6 6.0 7.1 6.9 7.6 7.5 7.1 30

REA Group 30-Jun NTRL 29.79 24.20 3,924 87.2 108.5 130.1 66.4 82.4 98.8 44.9 36.2 30.2 248.5 199.6 215.6 33.0 42.0 50.0 1.1 1.4 1.7 29.7 22.8 19.2 100

STW Communications Group 31-Dec NTRL 1.42 1.45 573 44.0 50.6 55.8 12.0 12.6 13.9 11.8 11.3 10.2 65.4 62.1 72.9 7.9 8.2 9.1 5.6 5.8 6.4 8.5 6.5 5.7 100

Seven West Media Ltd 30-Jun OPFM 2.01 3.00 2,008 226.9 228.7 258.1 26.7 20.2 24.1 7.5 9.9 8.3 41.7 54.9 59.6 25.0 10.0 10.0 12.4 5.0 5.0 7.5 6.9 6.1 100

Southern Cross Media Group 30-Jun UPFM 1.55 1.12 1,093 95.0 90.4 98.1 13.5 12.8 13.9 11.5 12.1 11.1 63.8 66.7 79.6 10.0 8.5 9.0 6.5 5.5 5.8 7.5 8.4 8.1 100

Ten Network Holdings 31-Aug OPFM 0.33 0.38 841 9.7 3.4- 30.0 0.9 -0.2 1.2 37.3 n.m 28.1 206.3 n.m 200.6 0.0 0.0 0.0 0.0 0.0 0.0 10.9 19.4 9.2 0


Consumer Discretionary - Retailing

ARB Corp 30-Jun UPFM 12.90 12.45 935 38.5 43.7 50.3 53.1 60.2 69.4 24.3 21.4 18.6 134.5 118.2 132.8 25.0 28.8 33.3 1.9 2.2 2.6 15.6 13.6 11.7 100

Breville Group 30-Jun NTRL 6.75 6.15 878 46.0 49.1 47.2 35.3 37.7 36.3 19.1 17.9 18.6 105.7 98.7 132.9 24.0 26.0 25.1 3.6 3.9 3.7 11.5 10.5 10.8 60

Fantastic Holdings 30-Jun UPFM 2.91 2.90 299 22.0 24.3 25.9 21.4 23.7 25.2 13.6 12.3 11.5 75.3 67.9 82.4 13.0 14.0 15.0 4.5 4.8 5.1 8.0 7.5 6.8 100

JB Hi-Fi 30-Jun UPFM 15.92 11.58 1,575 104.6 109.7 106.7 105.9 110.9 107.7 15.0 14.4 14.8 83.3 79.3 105.7 65.0 67.7 65.8 4.1 4.3 4.1 8.8 8.3 8.3 100

OrotonGroup 28-Jul NTRL 7.00 7.55 286 24.9 28.8 18.3 61.0 70.6 44.8 11.5 9.9 15.6 63.5 54.8 111.7 50.0 80.0 38.0 7.1 11.4 5.4 6.3 5.3 8.4 100

Pacific Brands 30-Jun NTRL 0.87 0.80 790 72.7 72.1 73.9 7.9 7.9 8.0 10.9 11.0 10.8 60.5 60.7 77.4 4.5 5.4 5.6 5.2 6.2 6.4 6.8 6.9 6.4 100

Premier Investments Ltd 28-Jul OPFM 8.42 8.65 1,307 68.2 74.9 83.7 43.5 48.0 53.9 19.3 17.6 15.6 107.1 96.9 111.7 36.0 37.0 46.3 4.3 4.4 5.5 11.0 9.5 8.6 100

Specialty Fashion Group 30-Jun NTRL 1.19 1.08 229 2.8- 14.1 14.6 -1.5 7.3 7.6 n.m 16.3 15.7 n.m 89.7 112.3 0.0 4.0 2.4 0.0 3.4 2.0 10.3 5.0 4.9 100

Super Retail Group 30-Jun UPFM 12.43 10.40 2,442 96.7 119.0 137.9 53.0 60.6 70.2 23.4 20.5 17.7 129.8 113.2 126.5 32.0 37.8 43.6 2.6 3.0 3.5 20.5 17.6 16.0 100

Thorn Group 31-Mar NTRL 2.00 1.90 295 29.6 29.6 32.3 20.2 20.2 21.7 9.9 9.9 9.2 54.7 54.8 65.8 9.5 10.0 10.8 4.8 5.0 5.4 6.7 6.9 6.1 100

Trade Me Group Ltd 30-Jun NTRL 4.09 3.70 1,976 72.3 77.6 87.6 18.3 19.6 22.1 27.3 25.5 22.6 151.3 140.6 161.4 6.8 15.7 17.7 1.4 3.1 3.5 19.7 17.4 15.5 0

The Reject Shop 01-Jul UPFM 16.72 13.55 436 20.0 21.6 29.6 76.0 80.5 102.8 22.0 20.8 16.3 121.8 114.7 116.3 33.5 33.5 77.9 2.0 2.0 4.7 10.5 9.3 7.3 100

Webjet 30-Jun NTRL 5.07 5.10 403 13.8 15.8 21.4 18.8 21.0 27.0 27.0 24.2 18.8 149.4 133.6 134.5 13.0 13.0 18.2 2.6 2.6 3.6 19.7 16.3 11.7 100

Wotif.com Holdings 30-Jun UPFM 4.85 5.40 1,027 58.0 56.6 62.6 27.4 26.7 29.6 17.7 18.1 16.4 98.1 100.2 117.3 25.0 24.8 25.4 5.2 5.1 5.2 11.0 10.9 9.9 100



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$ $ $m $m $m $m ¢ ¢ ¢ x x x % % % ¢ ¢ ¢ % % % x x x %

Consumer Staples - Food Beverage & Tobacco

Goodman Fielder 30-Jun UPFM 0.76 0.70 1,476 55.5 78.6 95.1 3.1 4.0 4.9 24.0 18.8 15.5 132.9 103.8 111.0 0.0 1.0 3.5 0.0 1.3 4.6 9.3 7.8 7.3 0

Health Care

Australian Pharmaceutical Ind 31-Aug OPFM 0.46 0.52 222 22.2 25.3 26.8 4.5 5.2 5.5 10.0 8.8 8.3 55.4 48.5 59.3 3.0 3.0 3.0 6.6 6.6 6.6 4.8 4.6 4.4 100

Mesoblast 30-Jun OPFM 5.55 8.20 1,747 71.1- 58.7- 101.8- -25.0 -19.4 -31.9 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Mayne Pharma 30-Jun OPFM 0.42 0.48 236 3.7 5.7 11.4 2.4 1.5 1.9 17.4 28.7 22.0 96.3 158.4 157.5 0.0 0.0 0.0 0.0 0.0 0.0 20.8 14.2 8.2 10

Pharmaxis 30-Jun OPFM 0.32 0.80 97 38.7- 40.2- 24.2- -13.4 -13.0 -7.8 n.m n.m n.m n.m n.m n.m 0.0 0.0 0.0 0.0 0.0 0.0 n.m n.m n.m 0

Sigma Pharmaceuticals 31-Jan NTRL 0.75 0.70 858 52.2 53.6 54.7 4.4 4.5 4.7 16.9 16.5 16.0 93.4 90.8 114.2 5.0 4.0 4.5 6.7 5.4 6.0 9.5 9.9 9.1 100

Sector Aggregate n.m n.m n.m 2.3 1.9 2.1 n.m n.m n.m

Financials - Diversified Financials

BT Investment Management 30-Sep NTRL 3.32 3.40 910 42.3 62.3 66.9 14.8 20.9 22.1 22.4 15.9 15.0 124.2 87.7 107.6 12.5 17.0 19.0 3.8 5.1 5.7 16.0 10.4 9.6 100

FlexiGroup Limited 30-Jun OPFM 3.92 4.45 1,128 61.3 70.9 85.3 22.1 24.7 29.3 17.7 15.9 13.4 98.0 87.6 95.6 12.5 14.9 17.6 3.2 3.8 4.5 12.5 11.5 10.3 100

Henderson group 31-Dec OPFM 2.32 2.65 2,875 126.8 136.9 156.3 11.7 12.6 14.4 13.3 12.4 10.8 73.5 68.2 77.4 7.2 8.3 9.5 4.6 5.3 6.1 17.3 14.8 12.7 0

IOOF Holdings 30-Jun NTRL 8.64 9.00 2,005 96.4 109.1 131.2 41.5 47.0 56.5 20.8 18.4 15.3 115.1 101.5 109.2 37.0 42.5 51.0 4.3 4.9 5.9 14.7 13.3 10.9 100

Perpetual 30-Jun NTRL 40.72 43.00 1,709 67.6 78.7 100.9 162.1 192.9 245.3 25.1 21.1 16.6 139.0 116.5 118.7 90.0 130.0 200.0 2.2 3.2 4.9 14.4 13.1 10.2 100

Platinum Asset Management 30-Jun UPFM 4.98 4.60 2,796 126.4 128.8 154.5 21.5 22.0 26.3 23.1 22.7 18.9 128.0 125.2 135.2 21.0 22.0 25.0 4.2 4.4 5.0 15.4 15.0 12.4 100


Financials - Insurance

Austbrokers 30-Jun NTRL 9.76 9.55 562 24.8 28.6 31.6 44.3 49.9 54.4 22.0 19.6 17.9 121.9 108.1 128.3 31.0 33.0 35.0 3.2 3.4 3.6 20.9 13.5 11.9 100

Tower Limited 30-Sep NTRL 1.47 1.63 371 55.8 80.7 65.8 20.9 30.0 24.5 8.6 6.0 7.3 47.5 33.0 52.4 11.0 16.3 16.5 6.1 9.1 9.2 5.7 3.5 4.5 0


Financials - Real Estate

Australand 31-Dec NTRL 3.60 3.56 2,082 142.0 148.0 153.0 24.6 25.7 26.5 14.6 14.0 13.6 81.0 77.5 97.0 21.5 21.5 21.5 6.0 6.0 6.0 13.2 13.0 11.7 0

Charter Hall Retail REIT 30-Jun UPFM 4.20 3.37 1,418 86.3 95.4 102.3 28.8 30.0 31.2 14.6 14.0 13.4 80.7 77.3 96.1 26.1 27.0 28.2 6.2 6.4 6.7 16.5 15.3 14.8 0


Information Technology

IRESS Limited 31-Dec UPFM 7.98 7.45 1,026 54.4 51.8 57.5 42.5 39.8 43.2 18.8 20.0 18.5 104.0 110.6 132.2 38.0 33.0 35.0 4.8 4.1 4.4 11.6 12.2 11.0 90

Oakton 30-Jun NTRL 1.26 1.32 113 9.8 9.8 11.0 10.5 10.5 11.8 12.0 12.0 10.7 66.7 66.5 76.4 11.0 10.2 11.3 8.7 8.1 9.0 6.2 6.6 5.8 100

SMS Management & Technology 30-Jun NTRL 5.04 5.50 350 30.6 25.8 28.4 43.4 37.3 40.4 11.6 13.5 12.5 64.3 74.6 89.1 30.5 30.5 31.5 6.1 6.0 6.2 7.2 8.6 7.7 100


Telecommunication Services

iiNet 30-Jun NTRL 5.96 5.20 961 43.6 56.2 63.9 28.2 34.9 39.5 21.2 17.1 15.1 117.2 94.4 107.8 14.0 17.0 19.0 2.3 2.9 3.2 8.7 6.9 6.4 100

TPG Telecom 31-Jul OPFM 3.44 3.20 2,731 114.2 141.8 157.2 14.5 17.9 19.8 23.8 19.3 17.4 131.6 106.3 124.2 5.5 7.3 8.2 1.6 2.1 2.4 10.9 9.8 9.0 100

Vocus Communications 30-Jun OPFM 2.09 2.45 163 8.1 8.2 10.4 12.2 10.7 13.1 17.1 19.6 15.9 94.7 108.2 113.9 0.0 0.9 1.3 0.0 0.5 0.6 12.3 10.2 7.9 0


Utilities

Envestra 30-Jun UPFM 1.05 0.91 1,813 74.6 108.1 124.9 4.9 6.7 7.6 21.3 15.5 13.8 118.2 85.6 98.8 5.8 6.0 6.1 5.6 5.7 5.8 11.8 10.4 9.9 0


Report Average 18.1 18.1 14.0 3.8 3.7 4.2 9.9 9.2 7.1



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Sector Aggregates

Research Analysts

Jason Swinbourne

612 8205 4591

[email protected]

RAVE Database 02 8205 4591 [email protected]

As at 23 April 2013 PE Rel vs ASX 200(1)

EPS Growth % (1)(5)

Div Yield % (1)

EBIT Multiple (1)

EBITDA Multiple (1)

2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 2012 2013 2014 Top 200 Top 300

Energy (2) 18.5 20.4 16.0 15.8 15.1 12.8 1.2 1.3 1.1 -19.2 10.5 -21.6 3.4 3.9 3.9 13.9 15.1 11.8 9.5 10.1 8.5 5.44% 5.32%

Materials (2) 11.4 13.0 12.3 10.8 13.2 10.5 0.7 0.8 0.9 73 14 -5 3.2 3.2 3.7 7.6 9.1 8.7 5.9 6.5 6.1 21.05% 20.59%

Chemicals (2) 11.5 12.3 10.9 10.8 12.0 10.5 0.7 0.8 0.8 6 7 -12 3.9 4.2 4.5 10.7 10.1 8.8 8.4 7.9 6.9 0.92% 0.90%

Construction Materials (2) 26.3 24.4 16.6 31.9 28.2 14.5 1.7 1.6 1.2 17 -7 -32 3.6 3.6 3.3 21.3 19.2 13.5 12.9 11.7 9.2 0.67% 0.66%

Containers & Packaging (2) 18.3 17.1 14.8 18.3 17.1 14.8 1.2 1.1 1.0 -11 -6 -14 3.9 4.5 5.1 14.1 12.7 11.4 9.6 8.6 7.8 0.74% 0.72%

Metals & Mining (2) 11.0 12.7 12.2 10.1 12.9 9.0 0.7 0.8 0.9 79 15 -4 3.1 3.1 3.6 7.2 8.8 8.6 5.6 6.3 5.9 18.72% 18.31%

Paper & Forest Products (2) 11.5 12.3 10.9 10.8 12.0 10.5 0.7 0.8 0.8 6 7 -12 3.9 4.2 4.5 10.7 10.1 8.8 8.4 7.9 6.9 0.92% 0.90%

Industrials (2) 17.5 15.4 13.0 14.5 13.9 11.7 1.1 1.0 0.9 -26 -12 -16 3.1 3.6 4.3 13.1 11.5 10.0 7.1 6.5 5.9 4.24% 4.15%

Capital Goods (2) 10.5 10.6 9.6 9.3 10.4 8.5 0.7 0.7 0.7 -81 1 -9 6.0 6.6 6.5 7.9 7.1 6.5 4.1 3.8 3.6 0.76% 0.74%

Commercial Services & Supplies (2) 18.1 17.0 15.1 15.3 15.7 14.5 1.2 1.1 1.1 -11 -6 -11 3.0 3.3 3.8 13.8 12.8 11.2 9.2 8.5 7.6 1.83% 1.79%

Transportation (2) 24.2 17.4 13.1 16.4 17.1 12.0 1.6 1.1 0.9 11 -28 -25 1.9 2.5 3.8 17.2 14.1 11.6 7.8 7.1 6.2 1.65% 1.62%

Consumer Discretionary (2) 18.9 18.5 16.0 17.7 17.9 16.3 1.2 1.2 1.1 4 -2 -13 2.1 1.9 2.2 13.2 13.3 11.8 10.8 10.6 9.6 7.99% 7.81%

Automobiles & Components (2) >100 >100 >100 >100 >100 >100

Consumer Durables & Apparel (2) 10.9 14.9 11.1 11.6 14.4 10.9 0.7 1.0 0.8 199 37 -26 10.3 7.2 7.9 7.5 11.5 8.8 5.7 7.9 6.4 0.08% 0.08%

Hotels Restaurants & Leisure (2) 16.9 21.1 18.6 20.3 21.9 19.2 1.1 1.4 1.3 -7 24 -11 3.7 3.4 3.5 13.2 16.1 13.4 10.4 11.4 10.3 1.84% 1.80%

Media (2) 20.4 18.2 15.4 11.5 10.9 13.3 1.3 1.2 1.1 0 -11 -15 1.0 0.8 1.2 13.4 12.7 11.4 11.1 10.5 9.5 4.98% 4.87%

Retailing (2) 17.2 16.6 15.9 17.7 17.6 16.3 1.1 1.1 1.1 13 -3 -4 3.8 4.1 4.5 13.4 12.7 11.8 10.8 10.3 9.6 1.08% 1.06%

Consumer Staples (2) 20.9 19.9 18.6 20.4 19.0 18.1 1.3 1.3 1.3 -3 -5 -6 3.8 3.7 4.0 14.5 13.9 13.1 11.5 10.9 10.3 7.66% 7.50%

Food & Drug Retailing (2) 21.2 19.9 18.6 20.2 19.0 18.2 1.4 1.3 1.3 -6 -6 -6 3.8 3.8 4.0 14.6 13.8 13.0 11.6 10.9 10.3 6.40% 6.26%

Food Beverage & Tobacco (2) 19.6 19.9 18.6 22.2 19.0 17.9 1.3 1.3 1.3 13 1 -7 3.5 3.6 4.1 14.2 14.1 13.3 11.0 10.8 10.2 1.27% 1.24%

Health Care (2) 28.5 23.8 21.2 22.4 19.3 17.5 1.8 1.5 1.5 -8 -16 -11 1.8 2.2 2.5 21.2 18.6 16.5 17.5 15.5 13.9 3.76% 3.67%

Financials (2) 15.6 14.3 13.5 16.8 15.5 14.1 1.0 0.9 1.0 -2 -8 -6 4.9 5.2 5.5 9.3 8.3 7.5 8.6 7.7 7.0 36.54% 35.75%

Banks (2) 14.8 13.8 13.2 14.5 13.3 12.8 1.0 0.9 0.9 -1 -7 -4 5.1 5.4 5.7 7.7 6.8 6.2 7.1 6.4 5.8 24.35% 23.82%

Diversified Financials (2) 16.4 15.2 12.6 18.5 17.1 14.3 1.1 1.0 0.9 14 -7 -17 4.1 4.4 5.4 11.7 10.2 8.4 9.7 8.7 7.3 2.16% 2.11%

Insurance (2) 20.7 15.3 13.6 22.0 15.6 14.1 1.3 1.0 1.0 -17 -26 -11 3.9 4.6 5.1 22.4 14.5 12.9 19.0 13.5 12.1 3.80% 3.72%

Real Estate (2) 16.2 15.7 14.8 16.2 16.0 14.8 1.0 1.0 1.0 -2 -3 -6 4.7 5.0 5.3 16.4 16.3 15.5 16.2 16.1 15.3 6.24% 6.10%

Information Technology (2) 21.7 19.7 16.9 19.8 19.2 17.0 1.4 1.3 1.2 10 -9 -14 3.1 3.1 3.3 18.6 17.8 14.6 15.3 14.2 11.9 0.60% 0.58%

Telecommunication Services (2) 17.2 16.2 16.0 21.2 17.1 16.0 1.1 1.1 1.1 -7 -6 -1 5.6 5.6 5.6 12.8 12.0 11.9 7.4 7.2 7.1 4.16% 4.07%

Utilities (2) 18.8 16.3 15.1 18.5 14.6 14.2 1.2 1.1 1.1 -8 -14 -7 5.3 5.4 5.6 14.5 11.7 10.7 11.4 9.2 8.6 1.64% 1.61%

20 Leaders 14.4 14.6 13.9 16.6 16.0 13.8 0.9 1.0 0.98 27 1 -5 4.2 4.5 4.8 8.8 8.8 8.2 7.3 7.2 6.7 na na

50 Leaders 15.1 15.0 14.0 17.4 16.0 14.1 1.0 1.0 1.0 21 -1 -7 3.8 4.1 4.4 9.5 9.3 8.6 7.7 7.5 6.9 na na

ASX 100 15.4 15.2 14.1 16.3 15.9 14.6 1.0 1.0 1.0 21 -1 -7 3.8 4.0 4.4 9.8 9.6 8.8 7.9 7.7 7.1 na na

MidCap 50 19.0 17.9 15.3 15.8 15.0 14.9 1.2 1.2 1.1 12 -6 -14 4.0 3.7 4.0 13.7 13.1 11.2 10.2 9.6 8.4 na na

S&P/ASX 200 - Industrials 17.1 16.0 14.7 16.8 16.2 14.8 1.1 1.0 1.0 -3 -7 -8 4.2 4.4 4.7 11.4 10.3 9.4 9.4 8.6 7.9 na na

S&P/ASX 200 - Resources 12.1 13.9 12.9 10.9 13.4 11.0 0.8 0.9 0.9 64 14 -7 3.2 3.3 3.7 8.1 9.7 9.1 6.2 6.9 6.4 na na

S&P/ASX 200 - Ind excl BIP 18.8 17.9 16.0 17.0 17.1 15.3 1.2 1.2 1.1 -3.8 -4.6 -10.6 3.5 3.6 3.8 14.5 13.6 12.4 10.3 9.7 8.9 na na

S&P/ASX 200 15.5 15.4 14.1 15.8 15.9 14.2 15.5 15.4 14.1 20 -1 -8 3.9 4.0 4.4 10.1 9.9 9.1 8.1 7.8 7.2 na na

S&P/ASX 300 - Industrials 17.2 16.0 14.6 16.4 15.9 14.6 1.1 1.0 1.0 -3 -7 -8 4.1 4.3 4.6 11.1 10.0 9.1 9.0 8.2 7.5 na na

S&P/ASX 300 - Resources 12.3 14.1 13.0 10.1 10.7 8.4 0.8 0.9 0.9 65 15 -8 3.2 3.3 3.7 8.5 9.9 9.3 6.2 6.9 6.4 na na

S&P/ASX 300 - Ind excl BIP 18.7 17.8 16.0 16.4 16.3 14.8 1.2 1.2 1.1 -4.6 -4.8 -10.6 3.5 3.6 3.9 14.6 13.6 12.4 10.3 9.7 8.9 na na

S&P/ASX 300 15.6 15.5 14.2 15.6 15.2 13.5 1.0 1.0 1.0 20 -1 -8 3.8 4.0 4.3 10.3 10.0 9.2 8.1 7.8 7.2 na na

Small Companies (5) 17.5 18.2 15.3 12.9 14.0 13.0 1.1 1.2 1.1 13 4 16- 3.9 3.9 4.3 19.7 16.6 14.6 10.6 10.1 9.2 na na

Small Industrials 16.6 16.9 15.2 15.2 15.1 13.6 1.1 1.1 1.1 -2 2 -11 4.1 4.2 4.5 16.2 15.6 14.3 11.2 10.8 10.1 na na

Small Resources -627.5 >100 22.8 -1.4 -3.1 4.0 -40.6 9.9 1.6 952 124 -85 0.9 0.6 2.1 -8.2 -126.0 37.7 6.4 5.5 4.6 na na

(1) Includes all companies covered by Credit Suisse analysts (4) Small companies are all companies covered by Credit Suisse analysts excluding top 100 stocks Newscorp and Singtel.

(2) All sectors are based on S&P/ASX200.Companies on restricted list are not included in aggregates (5) LPT's excluded due to Net revaluations aren't forecasted and therefore Growth rates are nm.

(3) No weighting applicable Note: Actuals used when available else Credit Suisse Forecasts used in calculations

Sector Weight PE (1)

Median PE (1)(3)

24 April 2013


Companies Mentioned (Price as of 23-Apr-2013)

*Infratil (IFT.NZ, NZ$2.31, OUTPERFORM, TP NZ$2.62) *TrustPower (TPW.NZ, NZ$7.25, NEUTRAL, TP NZ$7.65) *Sky City Entertainment Group (SKC.NZ, NZ$4.30, NEUTRAL, TP NZ$4.36) *Sky Network Television (SKT.NZ, NZ$5.36, OUTPERFORM, TP NZ$5.70) Auckland International Airport (AIA.NZ, NZ$3.02, NEUTRAL, TP NZ$2.93) Brookfield Infrastructure Partners LP (BIP.N, $37.59) Fletcher Building (FBU.NZ, NZ$8.66, NEUTRAL, TP NZ$9.00) MCC (1618.HK, HK$1.47) Royal Dutch Shell plc (RDSa.L, 2100.5p) Singapore Telecom (SGT.AX, A$2.91) Singapore Telecom (STEL.SI, S$3.69) Tiger Airways (TAHL.SI, S$0.655) Vale (VALE.N, $16.03)

*Denotes a First NZ Capital covered company. For details of Australian companies covered by Credit Suisse refer to the Top 100 and Small Caps earnings & dividends sheets.

Disclosure Appendix

Important Global Disclosures

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings a re based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover m ultiple sectors.

24 April 2013


Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (53% banking clients)

Neutral/Hold* 39% (47% banking clients)

Underperform/Sell* 15% (40% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, an d other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Please find the full reports, including disclosure information, on Credit Suisse's Research and Analytics Website (http://www.researchandanalytics.com)

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.

Research & Sales Responsibilities

EQUITIES

Nick Selvaratnam 612 8205 4105 Head of Cash Equities

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RESEARCH

Adnan Kucukalic 612 8205 4427 Paul McTaggart 612 8205 4698 Co-Heads of Research

Consumer Discretionary/Staples

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Larry Gandler 613 9280 1855 Ruvani Fernando, CFA 613 9280 1754

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Financials

Banks

Jarrod Martin 612 8205 4334 James Ellis 612 8205 4531 Omkar Joshi 612 8205 4858

Diversified Financials

David Bailey 612 8205 4739 James Ellis 612 8205 4531

Insurance Andrew Adams 612 8205 4106

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email: [email protected]

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Utilities Ben McVicar, CFA 612 8205 4577

Materials

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Metals & Mining – Diversified Resources, Nickel

Paul McTaggart 612 8205 4698 Matthew Hope 612 8205 4669 James Redfern 612 8205 4779 Martin Kronborg 612 8205 4369 Justin Teo 612 8205 4426

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Dominic Smith 852 2101 7503

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Paul Bugeja 613 9280 1788 Rohan Congues 612 8205 4728

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INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House,Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Copyright © 2013 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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