Equity Strategy. March Equity Market Review AUSTRALIA. Event. Impact. Market and sector EPS growth (%) Market and sector PEs (x)

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1 AUSTRALIA Market and sector EPS growth (%) Pro-rated to June FY14A FY15E FY16E Market and sector PEs (x) Market and sector DPS growth (%) Market and sector Dividend Yield (%) Source: Macquarie Research, April 2015 All Companies Banks Property Trusts Resources Industrials (All Cos ex Res, LPTs, Banks) Pro-rated to June FY14A FY15E FY16E All Companies Banks Property Trusts Resources Industrials (All Cos ex Res, LPTs, Banks) Pro-rated to June FY14A FY15E FY16E All Companies Banks Property Trusts Resources Industrials (All Cos ex Res, LPTs, Banks) Pro-rated to June FY14A FY15E FY16E All Companies Banks Property Trusts Resources Industrials (All Cos ex Res, LPTs, Banks) March Equity Market Review Event The S&P/ASX300 Accumulation Index was broadly flat in March (-0.1%), following two months of strength. The Market ex Resources (+1.2%) outperformed Resources (-6.2%) led by Banks (+2.5%), Div Fins (+2.5%), and Health Care (+2.4%). Small caps lagged the ASX 100 (-1.9% vs +0.1%). Impact Australia performance relative to global equity markets was mixed. The ECB s ramp up of quantitative easing saw European equity markets outperform (Germany +4.9%, France +1.7%, Italy +3.7%, Spain +3.1%). The US lagged (S&P %) as the latest non-farm payrolls report beat expectations fuelling speculation that the Fed is nearing its first interest-rate rise in nearly a decade. US employers added 295k jobs in Feb and the unemployment rate fell to 5.5%, now lower than at the start of any previous post-recession tightening cycle in over 40 years. This strong data point saw the US dollar climb almost 4c against the AUD and bond yields back up +25bp to 2.24% (Aust 10yr bond rate +27bp to 2.73%), although both subsequently retreated on more mixed data. The A$:US$ finished the month 2c lower at $ China s central bank cut interest rates for the second time in just three months at the start of March, citing historically low inflation and the need to keep real interest rates low to boost slumping growth. The equity market responded positively with the Shanghai Composite Index finishing +13.2%. On the domestic economic front there were few surprises in the labour market data with employment growth continuing at a modest pace, and notwithstanding a fall in the unemployment rate to 6.3% (courtesy of a flattering dip in the participation rate) the broader trend remains negative. Housing finance approvals fell by more than expected, but investor lending growth held up. Consumer confidence failed to build on the rate cut momentum from Feb, falling back into net pessimistic territory. Australia s unemployment rate has recently moved above the US rate for the first time in over 15 years % Comparison of Unemployment Rates % April 2015 Macquarie Securities (Australia) Limited 5 US Australia 3 Feb-78 Feb-83 Feb-88 Feb-93 Feb-98 Feb-03 Feb-08 Feb-13 Source: Datastream, Macquarie Research, April Please refer to page 5 for important disclosures and analyst certification, or on our website

2 March Market Analysis Resources (-6.2%) underperformed the Market ex Res (+1.2%) with Metals & Mining (-6.4%), and Energy (-5.7%) both losing ground. Energy stocks reacted to a fall in oil prices (Brent -11% to $55/bbl) with STO (-10.1%) the weakest performer despite announcing a significant oil discovery in Malaysia, with lingering concerns around liquidity and balance sheet strength. OSH (-9.8%) & STO (-7.4%) followed suit, while WPL (-1.9%) outperformed its peers. Elsewhere CTX (-3.8%) fell late in the month after long-time major shareholder Chevron announced it had entered into an underwriting agreement to divest its 50% stake, and DLS (+11.2%) was a notable outperformer on no new news. Iron ore prices fell ~US$10/t over the month to finish at US$51/t, driving underperformance from the major miners. BHP (-5.4%) fell despite reiterating cost out targets and amid the release of South32 demerger documents later in the month, and RIO (-8.8%) investors reacted negatively to news that its 360mt expansion will be complete in the coming months. FMG (-20.1%) was the worst performing stock in the ASX 100 this month following news it had withdrawn its US$2.5bn debt offering and abandoned its debt restructuring plans. In the gold space the likes of NCM (-7.1%), IGO (-6.8%) & NST (-1.7%) fell in response to a -2.5% fall in the gold price, and steel stocks were mixed with ARI (-22.7%) falling sharply, BSL (- 12.7%) also weaker, but SGM (+2.6%) bucking the trend. In the broader Materials space the Builders were mixed. ABC (+8.1%) was the standout for the second month in a row, BLD (+3.9%) also outperformed on news of a share buyback. Meanwhile JHX (+0.8%) and FBU (+0.7%) just beat the broader market, while CSR (-6.5%) lagged. Financials (+1.4%) outperformed this month driven by the Banks (+2.5%) and Div Fins (+2.5%), while the REITS (-2.0%) fell in response to bond yields backing up and Insurance (-1.1%) also underperformed. In the Diversified Financials space MQG (+5.2%) recorded a third consecutive month of outperformance, and HGG (+9.3%) continued its strong run fuelled by the ECB s QE program. CGF (+4.2%) also outperformed. These gains were partially offset by weakness from ASX (- 4.1%) and MFG (-1.2%), the latter likely impacted by its ascent into the ASX100 index. REITs underperformed as US and Aust bond yields backed up over the course of the month (US 10yr bond rate backing up by as much as +25bps to 2.24%, before finishing lower at 1.92%). LLC ( -4.1%), SGP (-4.1%) and DXS (-4.1%) were the weakest performers in the sector, with SCG (-3.1%), MGR (-3.4%) & GPT (-2.8%) also down. NVN (+2.0%), and GMG (+1.8%) bucked the trend. The Big 4 Banks performed well this month with ANZ (+3.7%) & WBC (+3.6%) outperforming CBA (+1.6%) & NAB (+1.7%). Meanwhile both regionals detracted from performance with BEN (-2.1%) falling and BOQ (-1.2%) giving up some of last month s strong gains following a soft 1H15 result that was marred by a miss on cash profit and weak capital generation. Insurance was dragged lower by MPL (-9.4%) which fell despite the release of positive industry data, and SUN (-3.4%) underperformed after revealing it no longer expects to achieve its 10% ROE target for FY15. AMP (-1.9%) was also weaker. IAG (+2.1%) performed well though the company unexpectedly announced a series of management changes & QBE (+2.1%) also helped to offset some of the sector s weakness despite a LMI credit rating downgrade. Consumer Discretionary was flat over the month with modest gains from Retail (+0.7%) and Media (+0.9%), offset by Consumer Services (-0.5%). There were some notably divergent performances in the Consumer Services space this month with AGI (+17.6%) & ALL (+13.3%) leading the outperformers, followed by NVT (+6.3%) despite slower than expected growth in first semester enrolments, and EGP (+3.2%). However these were largely offset by share price declines from CWN (-11.4%), AAD (-6.7%) on news of its CEO retiring & FLT (-2.6%). 2 April

3 Fig 1 Sector No. The Retail sector was mixed with strong performances from JBH (+6.8%), BRG (+4.6%), and AHE (+3.4%). PMV (+8.7%) outperformed for the second month in a row after reporting a better than expected 1H result and special dividend. MYR (-23.2%) gave up all last month s outperformance plus some after the company reported a weak result that was ~15% below expectations. KMD (-8.7%) continued its slide from February, and DSH (-6.9%) also underperformed. The Media sector was mixed this month. NEC (+5.0%) & APN (+3.1%) did well, the latter amid news of a sell-down by two large shareholders and the subsequent acquisition of a 15% stake by NWS (-2.8%). REA (-0.9%) & FXJ (-0.5%) underperformed. Healthcare (+2.4%) was one of the strongest performing sectors this month led by PRY (+18.4%) which rallied on speculation of a leveraged buyout, and RMD (+13.0%) on no new news. Elsewhere in the space ANN (+9.5%), SHL (+6.6%) & HSO (+5.6%) also did well. The big disappointment was SRX (-41.5%) which fell sharply on news that the SIRFLOW study's primary end point missed statistical significance. In the defensive space Telcos (+0.1%) performed in line with the market, with Consumer Staples (-0.6%) & Utilities (-0.5%) lagging. In Telcos the big news was TPM s (+20.3%) acquisition of IIN (+36.2%). Elsewhere market heavyweight TLS (-0.9%) underperformed. Utilities were mixed with AGL (+1.0%) leading, SKI (-4.8%) the sector laggard, & APA (- 1.5%) also weaker. In Consumer Staples the weakest performers were GNC (-4.7%) and TWE (-4.6%) with the latter announcing a series of supply chain optimisation plans and cost savings late in the month. WOW (-1.8%) again underperformed, and MTS (-1.3%) also lagged. WES (+0.3%) did marginally better. CCL (+3.6%) was the standout performer this month. Sector performance S&P Sector AMV Daily $m Turn $m % of S&P 300 Price % Change Accum. % Change 31/03/15 28/02/15 31/03/14 Index 1 Mth 12 Mth Index 1 Mth 12 Mth 10 Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Property Trusts (GICS) Financials ex Property (GICS) Information Technology Telecommunication Services Utilities Leaders Leaders S&P/ASX S&P/ASX S&P/ASX Source: IRESS, Macquarie Research, April April

4 Fig 2 Top 10 and bottom 10 performances March (ASX100) S&P Liquidity AMV % S&P 100 % S&P 300 Total Return % Code Company Price ($) Factor (%) (A$m) 31/03/15 28/02/15 31/03/15 28/02/15 1 Mth 12 Mth Top 10 TPM TPG TELECOM LIMITED PRY PRIMARY HEALTH CARE LIMITED ALL ARISTOCRAT LEISURE LIMITED RMD RESMED INC TPI TRANSPACIFIC INDUSTRIES GROUP LTD ILU ILUKA RESOURCES LIMITED ANN ANSELL LIMITED HGG HENDERSON GROUP PLC MND MONADELPHOUS GROUP LIMITED ABC ADELAIDE BRIGHTON LIMITED Bottom 10 FMG FORTESCUE METALS GROUP LTD MIN MINERAL RESOURCES LIMITED ALQ ALS LIMITED BSL BLUESCOPE STEEL LIMITED AWC ALUMINA LIMITED CWN CROWN RESORTS LIMITED STO SANTOS LIMITED OSH OIL SEARCH LIMITED MPL MEDIBANK PRIVATE LIMITED RIO RIO TINTO LIMITED Source: IRESS, Macquarie Research, April April

5 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2014 AU/NZ Asia RSA USA CA EUR Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients) Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. 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