Australian Equity Research

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1 8 March 2018 Australian Equity Research MARCH 2018 Top Stock Picks Mid & Small Caps Overall: We select the top picks from our 86 mid and small cap universe, as well as the outlook for the economy and equity market. We also provide key insights from our listed investment company (LIC) coverage. RESEARCH TEAM Nicolas Burgess Head of Research nburgess@baillieuholst.com.au Nick Caley Analyst Industrials ncaley@baillieuholst.com.au Luke Macnab Analyst Industrials lmacnab@baillieuholst.com.au Michael Nolan Analyst Industrials michaelnolan@baillieuholst.com.au Piers Flanagan Analyst Industrials pflanagan@baillieuholst.com.au Warren Edney Analyst Resources wedney@baillieuholst.com.au Malcolm Wood Chief Investment Officer mwood@baillieuholst.com.au Reporting season verdict: The February 2018 reporting period delivered a net downgrade of 0.1% to ASX 200 EPS, which was better than the median downgrade over the last 15 years of 0.5% during a reporting period. Excluding the three heavy-weights on market earnings Commonwealth Bank, Wesfarmers and Fletcher Building analysts upgraded EPS by 0.8%. The gain in profit expectations was driven by stronger revenue guidance. However, operating costs rose by more than revenues did. Revisions were relatively broad, with 36% of companies enjoying EPS upgrades and 34% suffering downgrades. There was a clear cyclical tilt to the upgrades with Industrials (ex-infrastructure), Energy, Tech and Financials (ex the Big 4 banks and REITs) all delivering the biggest upgrades. Our top stock picks are shown in the table below (alphabetical order). Equity market outlook: Looking through the recent volatility, we foresee further strong returns from international equities, but more subdued returns from the Australian market. While the US is the focus of attention, we see better opportunities in other international markets they are cheaper, policy is more accommodative and their business sentiment is at multidecade highs, driving earnings growth of 18-27%YoY. We expect the Australian market to move in a sideways pattern in 2018, with valuation likely to moderate as global rates rise, whilst earnings growth is modest a reflection of the muddle-through economy and China policy tightening. Within the Australian market we emphasise Australian Global Leaders, companies providing significant exposure to the boom economies of the US, Eurozone and some Emerging Markets. Listed Investment Companies (LICs): Baillieu Holst provides performance reporting and insights across a universe of 57 LICs. Based on that analysis, our top picks include Diversified United Investment (DUI) and Milton Corporation (MLT) in large caps; WAM Leaders (WLE) in mid-caps; Acorn Capital Investment Fund (ACQ) in the small caps; and MFF Capital Investments (MFF), PM Capital Global Opportunities Fund (PGF) and Templeton Global Growth (TGG) internationally. Rating System: The Baillieu Holst stock rating system is based on BUY (stock s total return is expected to increase by at least 10-15% from the current share price over the next 12 months), HOLD (total return is expected to trade within a range of ±10-15%) and SELL (total return is expected to decrease by at least 10-15%). Each stock is also assigned a risk rating of Low, Medium, High or Speculative. SUMMARY OF TOP PICKS Share Price Stock Code Rating Risk Price Target Analyst AUB Group AUB BUY Low Nicolas Burgess Credit Corp Group CCP BUY Medium Nick Caley Event Hospitality EVT BUY Medium Nick Caley Hansen Technologies HSN BUY Low Nicolas Burgess Infomedia IFM BUY High Nicolas Burgess Janus Henderson JHG BUY Medium Nicolas Burgess Red River Resources RVR BUY High Warren Edney SpeedCast International SDA BUY High Luke Macnab 1

2 Top Stock Picks March 2018 Table of Contents Equity market view and strategy 3 Top Stock Picks: AUB Group (AUB) 8 Credit Corp Group (CCP) 10 Event Hospitality (EVT) 12 Hansen Technologies (HSN) 14 Infomedia (IFM) 16 Janus Henderson (JHG) 18 Red River Resources (RVR) 20 SpeedCast International (SDA) 22 Listed Investment Companies (LICs) 24 Coverage universe 26 Disclaimer 32 2

3 Top Stock Picks March 2018 Equity Market Strategy STRATEGY International appeal Recent history for Small & Mid-Caps: Despite a volatile period of late, equity markets have, on the whole, performed strongly since our last Top Picks report (7 September 2017). The Australian market surged from early October into the New Year, before a sell-off in early February created some panic among investors. Australian small caps (Small Ordinaries) outperformed large caps (S&P/ASX 100) by approximately 6% in the last six months. Meanwhile, resources (S&P/ASX 300 Resources) outperformed industrials (S&P/ASX 300 Industrials) by 5%. Equity market outlook: Looking through the recent volatility, we foresee further strong returns from international equities, but more subdued returns from the Australian market. While the US is the focus of attention, we see better opportunities in other international markets they are cheaper, policy is more accommodative and their business sentiment is at multidecade highs, driving earnings growth of 18-27%YoY. We expect the Australian market to move in a sideways pattern in 2018, with valuation likely to moderate as global rates rise, whilst earnings growth is modest a reflection of the muddle-through economy and China policy tightening. The dividend yield remains supportive for the market, particularly when compared to cash or bond rates. In addition, gross equity issuance is at more moderate levels, while corporate balance sheets are generally in strong shape. Within the Australian market we emphasise Australian Global Leaders, companies providing significant exposure to the boom economies of the US, Eurozone and some Emerging Markets. Reporting season summary: The February 2018 reporting period delivered a net downgrade of 0.1% to ASX 200 EPS, which was better than the median downgrade over the last 15 years of 0.5% during a reporting period. Excluding the three heavy-weights on market earnings Commonwealth Bank, Wesfarmers and Fletcher Building analysts upgraded EPS by 0.8%. The gain in profit expectations was driven by stronger revenue guidance. However, operating costs rose by more than revenues did. Revisions were relatively broad, with 36% of companies enjoying EPS upgrades and 34% suffering downgrades. There was a clear cyclical tilt to the upgrades with Industrials (ex-infrastructure), Energy, Tech and Financials (ex the Big 4 banks and REITs) all delivering the biggest upgrades. Dividend performance: Dividends were guided higher by 0.4%, or $260m, during the reporting period. Over the last 15 years, the median DPS downgrade has been 0.2%. For June 2018, all the growth in dividends is set to be in Commodities. In June 2019, bottom-up expectations are for a broadening in sectors growing distributions. In addition to $260mn of dividends, companies have also announced $1.8bn in new buybacks. Historically, Australian companies have tended to not complete buybacks announced. So, we may see shares on issue fall by less than indicated here. 3

4 Top Stock Picks March 2018 Equity Market Strategy Recent history for Small & Mid-Caps: Despite the recent volatility, equity markets have, on the whole, performed strongly since our last Top Picks report (7 September 2017). The Australian market surged from early October into the New Year, before a sell-off in early February created some panic among investors. Australian small caps (Small Ordinaries) outperformed large caps (S&P/ASX 100) by approximately 6% in the last six months. Meanwhile, resources (S&P/ASX 300 Resources) outperformed industrials (S&P/ASX 300 Industrials) by 5%. FIG.1: AUSTRALIAN EQUITY MARKET PERFORMANCE VARIOUS SECTORS (COMMON BASE = 100) Source: Bloomberg S&P/ASX 100 S&P/ASX Small Ordinaries S&P/ASX 300 Industrials S&P/ASX 300 Resources 4

5 Top Stock Picks March 2018 Reporting Season The February 2018 reporting period delivered a net downgrade of 0.1% to ASX 200 EPS, which was better than the median downgrade over the last 15 years of 0.5% during a reporting period. Excluding the three heavy-weights on market earnings Commonwealth Bank, Wesfarmers and Fletcher Building analysts upgraded EPS by 0.8%. FIG.2: ASX 200 REPORTING SEASON EPS UPGRADES/DOWNGRADES FOR THE 12MTHS TO JUNE Source: Company data, IBES, BH estimates The gain in profit expectations was driven by stronger revenue guidance. However, operating costs rose by more than revenues did. Revisions were relatively broad, with 36% of companies enjoying EPS upgrades and 34% suffering downgrades. There was a clear cyclical tilt to the upgrades with Industrials (ex-infrastructure), Energy, Tech and Financials (ex the Big 4 banks and REITs) all delivering the biggest upgrades. Looking ahead, consensus bottom-up expectations are now for 7% EPS growth for June 2018 and a further 6% in June 19. Both these forecasts have been upgraded since the August-2017 reporting period. All three cyclical major sectors in Australia, Commodities, Industrial Cyclicals and Other Financials (which includes the Fund Managers, Insurers and Macquarie Group) are expected to deliver around double-digit EPS growth for June The latter two sectors are also forecast to deliver double digit growth for June While ASX 200 EPS was guided lower by 0.1%, dividends were guided higher by 0.4% or $260mn. Over the last 15 years, the median DPS downgrade has been 0.2%. 5

6 Top Stock Picks March 2018 FIG.3: DIVIDEND UPGRADES TOO ASX 200 reporting season DPS upgrades/downgrades for the 12 months to June Source: Company data, IBES, BH estimates For June 2018, all the growth in dividends is set to be in Commodities. In June 2019, bottom-up expectations are for a broadening in sectors growing distributions. In addition to $260mn of dividends, companies have also announced $1.8bn in new buybacks. Historically, Australian companies have tended to not complete buybacks announced. So, we may see shares on issue fall by less than indicated here. For the second consecutive reporting period, companies guided to higher business investment. Despite a few obvious pockets of weakness, balance sheets in Australia are solid and can easily fund an incremental increase in capex and dividends. We find that non-financial companies are currently operating with net debt to EBITDA of 1.3x. This is around a cycle low. The Big 4 Banks, the traditional home of excessive leverage in Australia, have also de-geared. FIG.4: CAPEX UPGRADES ASX 200 non-financials reporting season upgrades/downgrades to capex for the 12 months to June FIG.5: BANKS HAVE DE-GEARED Asset-to-equity ratios for the Big 4 banks Source: Company data, IBES, BH estimates Source: Company data, IBES, BH estimates 6

7 Top Stock Picks March 2018 Outlook After a period of unusual calm in global equity markets, we have seen renewed volatility in markets in early Looking through this volatility, we foresee further strong returns from international equities, but more subdued returns from the Australian market. While the US is the focus of attention, we see better opportunities in other international markets they are cheaper, policy is more accommodative and their business sentiment is at multi-decade highs, driving earnings growth of 18-27%YoY. For investors prepared to look through short-term volatility, we would add to Europe, Japan and Emerging Markets. We expect the Australian market to move in a sideways pattern in 2018, with valuation likely to moderate as global rates rise, whilst earnings growth is modest a reflection of the muddle-through economy and China policy tightening. The dividend yield remains supportive for the market, particularly when compared to cash or bond rates. In addition, gross equity issuance is at more moderate levels, while corporate balance sheets are generally in strong shape. Within the Australian market, we emphasise four major investment themes. First, Australian Global Leaders, companies providing significant exposure to the boom economies of the US, Eurozone and some Emerging Markets. Second, the tourism sector, which we expect to benefit from on-going strong inbound tourism, hopefully accentuated by a more competitive currency. Third, the energy sector, supported by higher oil prices, reflective of a tight supply-demand balance, and improving prospects for LNG. China s increasing focus on the environment is a major positive for LNG demand, as it seeks to replace dirty coal plants with clean-burning gas for electricity and heating. Finally, we remain underweight bond-sensitive sectors, such as utilities, A-REIT s and telecoms, and underweight domestic sectors challenged by sluggish demand outlook, intensifying competition and structural change, including retail, housing related and the banks. 7

8 Top Stock Picks March 2018 INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk Low Price Target $14.50 Share Price $12.70 SNAPSHOT Monthly Turnover $62.4mn Market Cap $811mn Shares Issued 63.8mn 52-Week High $ Week Low $11.09 Sector Financials BUSINESS DESCRIPTION Austbrokers Holdings Limited (AUB) operates a network of insurance broking and financial service firms, focusing on Australian SME clients. Austbrokers operates an "owner driver" model, whereby it takes equity stakes in broking firms. Its services include general insurance broking, underwriting agency, life insurance and investment products. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nicolas Burgess, CFA nburgess@baillieuholst.com.au Nick Caley ncaley@baillieuholst.com.au Disclosure The author owns no shares in AUB. AUB Group (AUB) COMPANY REPORT Top gear Overall: AUB s recent result showed positive trends across most business areas and refined guidance of the top end of 5-10% underlying profit growth for FY18F. We believe the premium rate environment should provide a solid organic tailwind to the business, with additional upside likely to come from positive operating leverage and margin expansion. We reiterate a BUY rating. 1H18 result: AUB reported adjusted NPAT of $16.7m, up 15% on the pcp and 6% ahead of our $15.8m forecast. EBITA was up 9.5% on the pcp to $62.3m. Reported NPAT of $23.8m included an $8.1m upwards adjustment to the carrying value of associates. AUB declared an interim dividend of 13.5cps (fully franked), up 8% on the pcp and in line with our 13.4cps forecast. Drivers/surprises: Australian Broking saw EBITA growth of 9.5% to $41.1m and it was the biggest contributor to group profit growth over the period. Income was strong (+9.6%) and organic growth of 6.6% was boosted by positive premium rates. Premium funding revenue was also strong (+5.9%) but Life Income and Profit Commissions were both down on the pcp. The Risk Services division also made a positive contribution, with EBITA growing 23% to $7.9m on the back of 11% revenue growth being higher than cost growth (9%). New Zealand Broking reported an 18% increase in EBITA to $6.4m. Underwriting Agencies saw EBITA decline 4% to $7.0m based on various acquisitions and divestments. Organic growth, net of these changes, was 4%. Overall, AUB increased its EBITDA margin by 0.5ppt to 25.8%. Key takeaways: AUB is now guiding to the top end of its 5-10% adjusted NPAT growth range in FY18F. This is based on mid-single digit increases in premium rates, partially offset by ongoing uncertainty around the changes to NSW Workers Compensation and its potential impact to Risk Services. Looking into FY19F, AUB is expecting to save more than $1m pa from a technology outsourcing program to be completed in 2H18F. Investment view: We reiterate a BUY rating. Notwithstanding some headwinds in 2H18F, we expect the company to have two solid years of profit growth ahead of it, driven by the positive premium rate environment, improved operating margins given technology cost savings, and further upside in Risk Services. INVESTMENT SUMMARY Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % PER (Reported) x PER (Adjusted) x Dividend Yield % Franking %

9 Top Stock Picks March 2018 Financial summary Code: AUB Rating: BUY Analyst: Nicolas Burgess Price Target: $14.50 Date: 07 March, 2018 Upside/downside: 14.2% Share Price: $12.70 Valuation: $14.50 Market Capitalisation: $803m Valuation method: DCF / PE blend Year End: 30 June Risk: Low PROFIT & LOSS (A$m) EARNINGS Commission & fees EPS - Underling cash (diluted) Other revenue EPS Growth - underlying 0.5% 6.4% 10.6% 8.8% 7.4% Interest EPS - Reported (diluted) Operating revenue Diluted shares (m) Operating expenses DPS (cps) Minorities Payout Ratio 67% 66% 65% 65% 65% Net corporate costs Franking 100% 100% 100% 100% 100% EBITDA VALUATION Depreciation P/E (x) EBITA EV/EBITA (x) Interest expense EV/EBITDA (x) Underlying PBT Dividend Yield (%) 3.1% 3.3% 3.6% 3.9% 4.2% Tax Price/Book (x) Underlying cash NPAT Price/NTA (x) Amortisation Price/FCF per Share (x) Non-recurring (net tax) GROWTH Reported NPAT Revenue growth -1.5% 2.6% 8.8% 7.4% 4.8% BALANCE SHEET (A$m) Operating cost growth -0.4% -1.2% 10.1% 7.4% 3.5% Assets EBITDA growth 1.2% 17.6% 9.5% 8.6% 6.3% Cash EBITA growth 1.1% 18.3% 9.8% 8.8% 6.4% Cash - Trust PBT growth 3.3% 8.1% 10.2% 8.8% 7.4% Receivables Underlying NPAT growth 3.3% 7.5% 11.0% 8.8% 7.4% PPE Reported NPAT growth 20.4% -11.3% 9.6% 9.7% 8.1% Intangibles Other Assets MARGINS & RETURNS Total Assets EBITDA Margin 16.5% 18.9% 19.0% 19.2% 19.4% Liabilities EBITA Margin 15.8% 18.3% 18.4% 18.7% 19.0% Payables NPBT Margin 15.0% 15.7% 16.0% 16.2% 16.6% Loans & Borrowings ROIC (pre-tax) 17.3% 19.3% 21.4% 25.8% 33.1% Provisions ROE 13.5% 13.5% 14.5% 15.0% 15.3% Other Liabilities ROA 8.2% 9.1% 9.2% 8.9% 8.5% Total Liabilities Effective Tax Rate 30.2% 30.5% 3% 3% 3% Equity GEARING Contributed Capital Net Debt (A$m) Reserves Enterprise value Retained Earnings Net Debt/Equity (%) NA NA NA NA NA Minority Interests EBITDA/Gross interest Total Equity BV per share (cps) NTA Per Share (cps) CASH FLOW (A$m) Cash at Start Cash Flow from Ops Capex Free cash flow Free cash per share (cps) Cash Flow from Investing Cash Flow from Financing Cash At End

10 Top Stock Picks March 2018INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk Medium Price Target $23.35 Share Price $20.24 SNAPSHOT Monthly Turnover $84.9mn Market Cap $966mn Shares Issued 47.7mn 52-Week High $ Week Low $16.07 Sector Financials BUSINESS DESCRIPTION Credit Corp Group Limited (CCP) is a receivables management company, specialising in debt purchase and debt collection services, primarily focusing on the acquisition of purchased debt ledgers comprised of distressed consumer debt from Australian, New Zealand and US financial institutions. It also provides consumer lending to people with an impaired credit history. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nick Caley ncaley@baillieuholst.com.au Nicolas Burgess, CFA nburgess@baillieuholst.com.au Disclosure The author owns no shares in CCP. Credit Corp Group (CCP) COMPANY REPORT CCP remains a collectable Synopsis: The CCP share price has fallen 17% since the delivery of a strong but in-line interim result. We attribute the fall to: 1) the share price was strong into the result with speculation of a profit upgrade that did not occur; 2) cautious language around price based competition in the domestic PDL market and guidance for a 30% reduction in domestic purchasing in FY18; 3) a lower PDL amortisation rate adopted in the US of 50% compared to 65% previously, which raised quality questions despite improved fundamentals; and 4) general market volatility. Our response: Post the 1H18 result, we upgraded our call to a BUY with a DCF valuation of A$23.34 and price target of A$ Reasons to buy CCP: 1) track record current management has delivered 10-year EPS CAGR of 28% with progressive EPS and DPS in every year since FY08 and the mid-point of FY18 guidance implies EPS growth of 15%; 2) since FY10 CCP s actual PDL purchasing has exceeded interim result guidance in every year with an average 15% beat to the midpoint of interim guidance; 3) whilst we don t doubt that the domestic PDL market is currently more competitive, Collection House and Pioneer Credit are guiding to relatively static purchasing in FY18; 4) the maturation of its Consumer Lending business means that CCP is now attaining its target ROA of 12%, although biased to 2H; and 5) the US PDL business has moved into profit in FY18 due to increased supply, lower pricing and a marked improvement in CCP s collection efficiency. The wild cards: 1) the return of the three major sellers to the US PDL market remains a wild card with the new head of the CFPB stating that the debt collection industry will now be a focus in FY17 Wells Faro, Bank of America and JP Morgan Chase had aggregate credit card net charge offs totalling US$7.9bn; 2) the redefinition of impaired debt under AASB 9 from the start of 2018 will increase charge offs and may increase supply of PDL s in Australia; 3) acquisitions remain possible with the consumer lending space most likely; and 4) the auto lending business advances from pilot phase and creates another revenue stream. So what are the risks?: 1) loss of key executives current CEO has now been with CCP for 10 years; 2) material influx of new capital into the Australian and/or US PDL markets without a commensurate increase in supply of impaired debt; and 3) a material lift in unemployment and/or interest rates which could adversely impact collection rates although this should be offset by reduced acquisition prices. INVESTMENT SUMMARY Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % PER (Reported) x PER (Adjusted) x Dividend Yield % Franking %

11 Top Stock Picks March 2018 Financial summary Credit Corp Group Ltd Analyst: Nick Caley Date: 07-March-2018 Rating: BUY Market Cap (A$m) $966 Price Target: $23.35 Share Price ($A): $20.24 Valuation: $23.34 Year End: 30 June Risk: Medium PROFIT & LOSS (A$mn) EARNINGS Purchased Debt Ledger Collections EPS - Basic Consumer Loan Book Interest EPS - Diluted Other Interest Received 0.1 EPS Growth (%) 19% 17% 17% 11% 7% Other Revenue DPS Total Revenue Franking (%) Total Cash Operating Expenses Payout Ratio (%) 51% 51% 50% 50% 50% EBITDA VALUATION Dep, Amortisation & Impairment P/E (x) EBIT EV/EBIT (x) Net Interest Expense EV/EBITDA (x) Net Profit Before Tax Dividend Yield (%) 2.5% 2.9% 3.4% 3.7% 3.9% Income Tax Expense Price/Book (x) NPAT - Continuing Price/NTA (x) Discontinued Operations Price/Cash/Flow per Share (x) NPAT - Reported GROWTH BALANCE SHEET (A$mn) Total Rev. Growth (% pcp) 19% 17% 14% 10% 7% Cash Cash Op. Exp. Growth (% pcp) 16% 14% 12% 10% 7% Receivables EBITDA Growth (% pcp) 24% 24% 18% 11% 7% Purchased Debt Ledgers EBIT Growth (% pcp) 23% 24% 19% 10% 7% Other NPBT Growth (% pcp) 19% 20% 17% 11% 7% Total Current Assets NPAT Growth (% pcp) 20% 20% 18% 11% 7% Purchased Debt Ledgers MARGINS & RETURNS Property, Plant & Equipment EBITDA Margin (%) 31% 33% 34% 35% 35% Deferred Tax Assets EBIT Margin (%) 31% 32% 34% 34% 34% Intangibles NPBT Margin (%) 29% 30% 31% 31% 31% Other ROIC (%) 23% 24% 24% 24% 23% Total Non Current Assets ROE (%) 23% 24% 24% 24% 23% Total Assets ROA (%) 14% 12% 12% 11% 11% Payables Effective Tax Rate (%) 30% 30% 30% 30% 30% Payables Under Contract of Sale GEARING Loans & Borrowings Net Debt (A$mn) Other Net Debt/Equity (%) 65% 82% 75% 71% 69% Total Current Liabilities Net Debt/PDL & Loan Carrying Value (%) 38% 43% 39% 38% 38% Loans & Borrowings Int. Cover (x) - EBITDA/Net Int Deferred Tax Liabilities Other SEGEMENTAL/OPERATING Total Current Liabilities Revenue Total Liabilities Debt Ledgers (Inc Int.& Other Rev.) Contributed Capital Consumer Lending Reserves Total Revenue Retained Earnings EBITDA Total Equity Debt Ledgers Consumer Lending CASH FLOW (A$mn) Total EBITDA Cash at Start EBITDA Margins % Cash Flow from Ops Debt Ledgers 36% 35% 36% 36% 36% Cash Flow From Investing Consumer Lending 16% 26% 30% 31% 31% Cash Flow From Financing Operating Net Cash Flow Gross Debt Ledgers A$m 5,300 5,800 6,100 6,350 6,400 Adjustment Ledger Acquisition Cost A$m Cash At End Gross Consumer Loan Book A$m

12 Top Stock Picks March 2018INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk Medium Price Target $15.40 Share Price $13.39 SNAPSHOT Monthly Turnover $19.5mn Market Cap $2,150mn Shares Issued 160.6mn 52-Week High $ Week Low $11.95 Sector Consumer Discretionary BUSINESS DESCRIPTION Event Entertainment & Hospitality (EVT) is an Australian provider of entertainment, hospitality and tourism & leisure services. EVT conducts its operations in Australia and overseas. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nick Caley ncaley@baillieuholst.com.au Nicolas Burgess, CFA nburgess@baillieuholst.com.au Disclosure The author owns no shares in EVT. Event Hospitality (EVT) COMPANY REPORT EVT should become your Mantra Synopsis: We view EVT as a quality player in the domestic entertainment and leisure industry. The company s main businesses are in Australian Cinema Exhibition (JV with Village Roadshow), German Cinema, Australasian Hotels and Thredbo (master lease owner). Our call: BUY call with DCF valuation of A$15.40 and price target of A$ Whilst there will always be earnings risks (both upside and downside) from the success of cinema content, we continue to look at the medium-term fundamentals, in particular: 1) quality of assets with a diversity of revenue/geographies; 2) extremely strong balance sheet with modest debt and a substantial land bank employed in the operating divisions; 3) yield attraction; 4) valuation; and 5) due to the general absence of accommodation related stock, we see EVT as the logical proxy for Mantra (ASX:MTR) when its merger with Accor SA is completed. 1H18 result: Normalised NPAT of A$67.8 (+18% pcp) and EBITDA of A$145.7m (+16% pcp). Interim dividend of A21cps (1H17: A20cps). Key takeaways from 1H18 result: 1) generally in line with expectations, with predicted weakness in Australian box office, due to a poorly performing film slate, offset by a turnaround in German Entertainment and strong profit trends in Hotels & Resorts and at Thredbo; 2) stand-out division was Hotels & Resorts which delivered a 49% pcp lift in segment profit, characterised by strong growth across all operating metrics strongest growth came from the maturation of QT Melbourne; 3) a very strong result at Thredbo was characterised by a surge in visitations in both the winter and summer months, and is approaching break-even EBITDA for the summer period; 4) divisional disclosure of operating metrics has improved markedly this should reduce forecasting risk; 5) balance sheet remains in a strong position with net debt of A$244m and net debt/equity at 1H18 of 23% (FY17: 22%) against a substantial tangible asset base; and 6) no decisions following a group asset review have been made, which includes the German operations. Outlook: 1) no numerical guidance for FY18 as expected; 2) Australian Entertainment: stronger film slate expected in 2H18; 3) German Entertainment: no specific outlook commentary, although we expect the business to benefit from the same improved Hollywood film slate in 2H18 and the outlook for local content looks somewhat thin; and 4) Hotels & Resorts: continued roll-out of new properties, expansions and plans for new property developments QT Perth opens in July INVESTMENT SUMMARY Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn 1,281 1,294 1,315 1,393 1,482 EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % PER (Reported) x PER (Adjusted) x Dividend Yield % Franking %

13 Top Stock Picks March 2018 Financial summary Event Hospitality & Entertainment Analyst: Date: Nick Caley 07-March-2018 Rating: BUY Market Cap (A$m): $2,150 Price Target: $15.40 Share Price ($A): $13.39 Valuation: $15.40 Year End: 30 June Upside/(Downside): 15% PROFIT & LOSS (A$mn) Risk: Medium Operating Revenue 1,28 1, , , ,481.3 EARNINGS Other Income EPS - Reported Interest Revenue EPS - Normalised Total Revenue 1, , , , ,482.3 EPS Growth (%) 15% -10% 11% 11% 7% Total Cash Operating Expenses 1, , , , ,156.7 DPS Equity Accounted Profits Franking (%) EBITDA Payout Ratio (%) 65% 72% 71% 70% 71% Depreciation & Amortisation VALUATION Asset Impairment Charges P/E (x) EBIT EV/EBIT (x) Net Interest Expense EV/EBITDA (x) NPBT Dividend Yield (%) 3.8% 3.8% 4.2% 4.6% 4.9% Income Tax Expense Price/Book (x) Minority Interests Price/NTA (x) Contribution - Disc.Operations Price/Cash/Flow per Share (x) NPAT - Reported GROWTH Less Significant Items Less Tax Total Rev. Growth (% pcp) 9% 1% 2% 6% 6% Less Contribution Disc.Operations Cash Op. Exp. Growth (% pcp) 7% 4% -1% 5% 6% NPAT - Normalised EBITDA Growth (% pcp) 18% -9% 12% 9% 7% BALANCE SHEET (A$mn) EBIT Growth (% pcp) 22% -14% 16% 10% 7% Cash NPBT Growth (% pcp) 22% -15% 15% 9% 7% Receivables NPAT Norm Growth (% pcp) 15% -10% 11% 12% 7% Inventories MARGINS & RETURNS Other EBITDA Margin (%) 22% 19% 21% 22% 22% Total Current Assets EBIT Margin (%) 15% 13% 15% 15% 15% Receivables NPBT Margin (%) 15% 12% 14% 14% 14% Financial Assets/For Sale Assets ROIC (%) 14% 12% 13% 14% 14% Equity Accounted Investments ROE (%) 13% 11% 12% 13% 13% Property, Plant & Equipment ROA (%) 9% 7% 7% 8% 8% Investment Properties Effective Tax Rate (%) 30% 30% 31% 28% 28% Intangibles GEARING Other Non Current Assets Net Debt (A$mn) Total Non Current Assets Net Debt/Equity (%) 6% 22% 19% 13% 6% Total Assets Int. Cover (x) - EBITDA/Net Int Payables SEGMENTAL Loans & Borrowings Revenue Other Australian Entertainment Total Current Liabilities Cinema Exhibition - New Zealand Loans & Borrowings Cinema Exhibition - Germany Deferred Tax Hotels Provisions Thredbo Alpine Resorts Other Property & Other Investments Total Non Current Liabilities Finance Revenue Total Liabilities Unallocated Revenue/Elim. 0.1 Contributed Capital Total Revenue 1, , , , ,482.3 Reserves OPERATING MTERICS Retained Earnings Minority Interests Number of Cinema Sites - Aust Total Equity Number of Cinema Screens - Aust CASH FLOW (A$mn) Cash at Start Number of Hotel Properties Cash Flow from Ops Number of Rooms 8,871 9,132 9,300 9,610 9,920 Cash Flow From Investing Cash Flow From Financing Net Cash Flow Adjustment Cash At End

14 Top Stock Picks March 2018INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk Low Price Target $5.00 Share Price $4.25 SNAPSHOT Monthly Turnover $27.9mn Market Cap $834mn Shares Issued 196.3mn 52-Week High $ Week Low $3.10 Sector Information Technology BUSINESS DESCRIPTION Hansen Technologies Limited (HSN) is an information technology systems and services provider. It develops, integrates and supports billing system software for the utilities (electricity, gas and water) and telecommunications industries, and delivers innovative tailored outsourcing and facilities management solutions across a range of market segments. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nicolas Burgess, CFA nburgess@baillieuholst.com.au Piers Flanagan pflanagan@baillieuholst.com.au Disclosure The author owns no shares in HSN. Baillieu Holst Ltd has raised capital for HSN and earned fees in relation to that activity in the past 12 months. Hansen Technologies (HSN) COMPANY REPORT It s Enoro! Overall: In the context of the small cap industrials market, we regard HSN as being a low risk investment proposition given a range of factors. BUY. 1H18 result: EBITDA of $33.8m, up 41% on the pcp and 13% ahead of our forecast. NPATA of $22.7m was up 47% on the pcp and well ahead of our $18.4m forecast. Cash flow was again excellent, with GOCF/EBITDA of 94%. Interim dividend of 3cps (fully franked), in line with our forecast. Drivers/surprises: HSN reported revenue of $118.4m, up 35.9% on the pcp and 3.1% ahead of our forecast. The key driver was Enoro (acquired Jul-17) which contributed revenue of $29.1m in the half, 10.2% more than our $26.4m forecast. Excluding Enoro, revenue of $89.3m was up 2.8% and just ahead of our $88.4m forecast. The company achieved 4.0% organic billing growth, with an added contribution from HiAffinity partially offset by fx headwinds and lower call centre revenue. Operating costs of $85.3m were in line with our forecast of $84.9m and up 35.0% on the pcp. The EBITDA margin improved to 28.6% in 1H18 from 27.5% in 1H17 and 25.2% in 2H17, due to a reduction in non-employee expenses (~3ppt gain) and the deferral of some investment into 2H18F. Key takeaways: HSN is guiding to slightly lower revenue in 2H18F, with strong project revenue in 1H18 unlikely to fully repeat. The company is also guiding to a lower EBITDA margin in 2H18F due to increased investment (deferred from 1H18). Overall, HSN expects the FY18F EBITDA margin to be close to the mid-point of the 25-30% target range. Meanwhile, the company expects recent reductions in the tax rate (23.1% in 1H18 versus 27.2% in FY17) to be sustainable given US tax cuts and generally lower tax rates in Norway (24%) and Finland (20%). Investment view: In the context of the small cap industrials market, we regard HSN as being a low risk investment proposition given it has: i) recurring revenue streams through long-term, sticky customer relationships; ii) excellent cash flow history (five-year average gross operating cash flow/ebitda of 100%); iii) a conservative balance sheet (net debt of $17m at Dec-17); and iv) significant earnings diversification by industry, geography and currency. Valuation appeal: Post our EPS upgrades, HSN looks attractive on price/growth metrics. The company is trading on an FY18F PE of 20.6x and offering a two-year EPS CAGR of 24%. Plus, HSN has a five-year track record of faultless acquisition execution and integration. INVESTMENT SUMMARY Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % PER (Reported) x PER (Adjusted) x Dividend Yield % Franking %

15 Top Stock Picks March 2018 Financial summary Code: HSN Rating: BUY Analyst: Nicolas Burgess Price Target: $5.00 Date: 7 March, 2018 Upside/downside: 17.6% Share Price: $4.25 Valuation: $5.00 Market Capitalisation: $846m Valuation method: DCF / EV/EBIT Year End: 30 June Risk: Low PROFIT & LOSS ($Am) EARNINGS Operating revenue EPS - Underling cash (diluted) Other revenue EPS Growth - underlying 37.8% -4.5% 37.1% 12.5% 6.8% Group revenue EPS - Reported (diluted) Operating costs Diluted shares (m) EBITDA DPS (cps) Depreciation Payout Ratio 44% 40% 29% 30% 30% EBITA Franking 93% 100% 100% 60% 60% Amortisation EBIT VALUATION Interest expense P/E (x) cash, underlying Underlying PBT EV/EBIT (x) Tax EV/EBITDA (x) Minorities Dividend Yield (%) 1.6% 1.4% 1.4% 1.6% 1.8% Underlying NPATA Price/Book (x) Price/NTA (x) Non-recurring items (net tax) Price/FCF Reported profit GROWTH BALANCE SHEET ($Am) Revenue growth 39.9% 17.2% 34.7% 6.3% 5.8% Assets Operating cost growth 37.6% 25.1% 32.5% 4.8% 5.8% Cash EBITA growth 45.4% -0.7% 41.1% 10.2% 5.8% Receivables PBT growth 47.9% -4.3% 41.2% 11.1% 5.4% Deferred tax assets Underlying NPAT growth 47.6% -3.0% 48.1% 12.5% 6.8% PPE Reported NPAT growth 54.4% -8.3% 33.9% 18.1% 9.7% Intangibles Other assets MARGINS & RETURNS Total Assets EBITDA Margin 30.4% 25.8% 27.0% 28.0% 28.0% Liabilities NPBT Margin 26.8% 21.9% 22.9% 24.0% 23.9% Payables ROIC 29.4% 24.7% 24.4% 21.6% 23.0% Debt ROE 23.0% 19.4% 22.1% 19.9% 19.2% Provisions ROA 25.1% 22.0% 22.7% 20.3% 20.9% Tax liabilities Effective Tax Rate 28.5% 27.5% 24.0% 23.0% 22.0% Other liabilities Total Liabilities GEARING Net Debt / (cash) (A$m) Equity Enterprise value Share capital Net Debt/Equity (%) n/a n/a 3.6% n/a n/a Retained earnings EBITDA/Net interest Other equity Total shareholders equity BV per share (cps) NTA per share (cps) CASH FLOW (A$M) Cash at Start Cash from from ops Capex R&D Free cash flow Free cash flow per share (cps) Cash flow from investing Cash flow from financing Cash at end GOCF / EBITDA 97% 90% 100% 100% 100% FCF / Underlying cash NPAT 89% 65% 85% 82% 84% 15

16 BAILLIEU HOLST RESEARCH Top Stock Picks March 2018INTERNAL ONLY Infomedia (IFM) RECOMMENDATIONS Rating BUY Risk High $0.95 Price Target Share Price $0.83 SNAPSHOT Monthly Turnover Market Cap Shares Issued 52-Week High 52-Week Low Sector $5.9mn $258mn 310.8mn $0.89 $0.67 Information Technology BUSINESS DESCRIPTION IFM is an information and technology company in the after-sales parts and service sector of the global automotive industry. Founded in1987 by Richard Graham, and listed in 2000, the company s traditional core business is electronic parts catalogues (EPCs). COMPANY REPORT Inflection point Overall: After a tough 1H18 period, we believe the growth outlook materially improves for IFM over the next two years. The growth outlook is underpinned by recent contract wins, whilst recent investment into product, people and process should present opportunities to win more deals. On that basis, we reiterate a BUY rating. 1H18 result recap: IFM reported NPAT of $5.7m, down 18% on the pcp and below our $6.2m forecast. Revenue of $35.4m was up 1% on the pcp and just below our $36.1m forecast. Cash flow was strong during the period, with GOCF/EBITDA at 105%. The tax rate was lower than expected at 12% (20% forecast). The company has declared an interim dividend of 1.4cps (fully franked), just below our 1.5cps forecast. Drivers/surprises: Group revenue growth was 1% on pcp and -1% half on half, largely driven by the loss of the JLR contract (4% revenue growth HoH ex JLR). By product, Parts saw an 8% revenue decline on pcp to $23.1m due to the JLR loss, whilst Superservice saw 26% growth on pcp to $11.1m. Operating costs increased 3% on the pcp, whilst EBITDA was down 8% to $12.4m. D&A costs increased in line with recent capitalised R&D expenditure, driving EBIT down 26% to $6.5m. The EBIT margin declined from 25% to 18%. Capitalised costs increased 33% to $9.1m as the company continued to build out its product capability ahead of major contract implementations over the next 12 months. Key takeaways: The company continues to expect year-on-year growth in reported revenue, EBITDA and NPAT in FY18F. This includes the beginning of the Nissan EPC contract and general strong sales momentum in Superservice. Our revised forecasts show 5% NPAT growth in FY18F and improved momentum in FY19F. Meanwhile, the company remains well capitalised with no debt and $13.1m cash on balance sheet. Investment view: We retain a BUY rating. After a tough period managing contract exits and new investment, we believe the growth outlook for IFM materially improves from here. With solid (but by no means aggressive) improvements in revenue, we expect the company to be able to post strong operating leverage over the next two years. Valuation remains modest in the context of the growth outlook, in our view (FY18F PE of 20.7x, dividend yield of 3.6%, three-year EPS CAGR of 15%). 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nicolas Burgess, CFA nburgess@baillieuholst.com.au Nick Caley ncaley@baillieuholst.com.au Disclosure The author owns no shares in IFM. INVESTMENT SUMMARY Year End: 30 June Revenue $mn EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % PER (Reported) x PER (Adjusted) x Dividend Yield % Franking % 2016 (A) (A) (E) (E) (E)

17 BAILLIEU HOLST RESEARCH Top Stock Picks March 2018 Financial summary Code: IFM Rating: BUY Analyst: Nicolas Burgess Price Target: $0.95 Date: 7 March, 2018 Upside/downside: 13.9% Share Price: $0.83 Valuation: $0.95 Market Capitalisation: $259m Valuation method: DCF / EV/EBIT Year End: 30 June Risk: High PROFIT & LOSS ($Am) EBITDA EPS - Reported (diluted) Depreciation Diluted shares (m) Revenue Operating costs EBITA Amortisation EBIT Net interest EARNINGS EPS - Underling cash (diluted) EPS Growth - underlying DPS (cps) 30% 30% % 3.5% 3.6% 4.4% 5.2% EV/EBIT (x) EV/EBITDA (x) Price/Book (x) Price/NTA (x) Price/FCF VALUATION Dividend Yield (%) Reported profit Receivables Deferred tax assets BALANCE SHEET ($Am) Assets Cash PPE Intangibles % % Tax % P/E (x) Non-recurring items (net tax) Franking % 75% 20.2% % 75% % % 75% % % Hedgin gain/loss NPAT 3.3 Payout Ratio Underlying PBT Minorities GROWTH Revenue growth 12.8% 3.5% 5.3% 11.0% 8.0% 8.9 Operating cost growth 27.4% 0.5% 2.5% 6.0% 6.0% EBITA growth -8.3% 9.5% 10.4% 19.5% 11.0% PBT growth -27.7% 23.1% -1.9% 29.7% 21.4% Underlying NPAT growth -22.0% 15.8% 4.5% 20.2% 19.8% Reported NPAT growth -22.0% 15.8% 4.5% 20.2% 19.8% Other assets Total Assets MARGINS & RETURNS Payables EBIT Margin 21.1% 22.0% 21.1% 23.6% 26.5% Provisions NPBT Margin 18.5% 22.1% 20.5% 24.0% 27.0% Tax liabilities ROIC 42.8% 38.1% 36.2% 40.6% 50.8% Unearned income ROE 23.5% 25.4% 24.8% 28.4% 31.6% Other liabilities ROA 25.1% 25.7% 23.3% 26.7% 30.1% Total Liabilities Effective Tax Rate 18.2% 23.1% 18.0% 24.0% 25.0% Share capital GEARING Retained earnings Net Debt / (cash) (A$m) Enterprise value Net Debt/Equity (%) n/a n/a n/a n/a n/a EBITDA/Net interest n/a n/a n/a n/a n/a Liabilities Equity Other equity Total shareholders equity BV per share (cps) NTA per share (cps) CASH FLOW (A$M) Cash at Start Cash from from ops Capex & RD Free cash flow Cash flow from investing Free cash flow per share (cps) Cash flow from financing Cash at end GOCF / EBITDA 70% 105% 95% 95% 95% FCF / Underlying cash NPAT 91% 58% 60% 93% 116% 17

18 BAILLIEU HOLST RESEARCH Top Stock Picks March 2018INTERNAL ONLY Janus Henderson (JHG) RECOMMENDATIONS Rating BUY Risk Medium $55.00 Price Target Share Price $44.00 SNAPSHOT Monthly Turnover Market Cap Shares Issued 52-Week High 52-Week Low Sector $821.2mn $3,917mn 89.0mn $52.39 $36.10 Financials BUSINESS DESCRIPTION Janus Henderson Group (JHG) is a global asset manager listed on the ASX and NYSE. In 2017 London-based Henderson Group merged US-based Janus Capital to form Janus Henderson. The company provides investment management services across the retail and institutional channels throughout Europe, North America and Asia COMPANY REPORT Solid foundation Overall: As JHG transitions from integration mode to business as usual, quarterly new business progress is likely to be variable. That said, the main attraction we see in the stock is a potential unwinding of its discount valuation. As the company executes its growth plan, we believe the outlook is very strong over the next two years and that valuation should improve. FY17 result recap: JHG reported adjusted operating income of US$732m, just ahead of our $714m forecast and ~4% ahead of consensus expectations of ~US$700m (based on Bloomberg). Adjusted EPS of US248cps was also ahead of our forecast (US242cps) and 4% ahead of consensus (US238cps). Reported EPS of US346cps was well ahead of our forecast due to a one-off, non-cash adjustment relating to new US tax legislation. The company declared a final dividend of US32cps, in line with our forecast and the previous couple of quarters. Drivers/surprises: The key driver of the beat was costs. Adjusted 4Q17 operating expenses of US$285m were below our US$298m forecast. Performance fees of US$34m in 4Q17 also provided a boost, but this was in line with our forecast (US$32m). Overall, adjusted revenue was up 11% to US$1.9bn and in line with our forecast. Total FUM of US$370.8bn was up 2.9% over the quarter and up 16.1% over the year, and just ahead of our US$366bn forecast. 4Q17 net flows overall were disappointing at -US$2.9bn, a reversal of the positive contribution in 3Q17 of US$0.7bn. Modest outflows were seen across equities, quant equities and multi-asset. Key takeaways: The company provided guidance of a 12-14% increase in non-staff costs in FY18F, plus a further US$19m of research costs (MiFID), which adds up to a slightly higher cost base than we were expecting. That said, the company expects to maintain its operating margin in the high 30s. Meanwhile, improving investment performance should stimulate new business over the next couple of years, in our view. Investment view: We retain a BUY rating. We expect the new business environment to improve on the back of better investment performance. We expect a stable operating margin and 14% EPS CAGR over the next two years. With a 4.0% dividend yield, the stock remains cheap (FY18F PE of 11.7x) and is also our preferred large cap wealth management exposure. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nicolas Burgess, CFA nburgess@baillieuholst.com.au Piers Flanagan pflanagan@baillieuholst.com.au Disclosure The author owns no shares in JHG. INVESTMENT SUMMARY Year End: 31 December Revenue US$mn EBITDA US$mn EBIT US$mn Reported Profit US$mn Adjusted Profit US$mn EPS (Reported) US EPS (Adjusted) US EPS Growth % PER (Reported) x PER (Adjusted) x Dividend A Yield % Franking % 2016 (A) 2, (A) 2, (E) 2, (E) 2, (E) 2,