Fund Managers. Aust. Fund managers review & rank AUSTRALIA. Event. Stock Views

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1 AUSTRALIA 4 February 2016 Macquarie Securities (Australia) Limited Aust. Fund managers review & rank Event We review and rank the listed Australian under Macquarie Securities coverage, assessing fund performance, flows, and other key drivers following the Dec qtr 2015 flows and FUM updates. Stock Views Macquarie rank the stocks on the following metrics: 1) FUM Capacity; 2) Fund Performance; 3) Distribution; 4) Valuation; and 5) Sundry Issues. Our current stock ranking is: #1: Henderson (HGG AU, A$5.37, Outperform, TP: $6.50). Henderson provides attractive fundamentals with available capacity, positive net flows to opening FUM, successful distribution, attractive valuation vs Australian comparatives (and a reasonable premium to UK peers). #2: BT Investment Management (BTT AU, A$9.86, Outperform, TP: $11.05). The growth outlook continues to rely on strong JOHCM performance and flows, which has been realised in recent times. Australia is a more mature business, however the group continues to push into low beta, higher margin products to drive returns. Transfer coverage to Tim Lawson from Jodie Bannan. #3: HFA Holdings (HFA AU, A$2.61, Outperform, TP: $2.88). We incorporate HFA into this review and ranking for the first time. HFA is an Australian holding company for its wholly owned subsidiary, US-based fund manager Lighthouse Investment Partners. Lighthouse has a strong performance and solid net inflow track record in the context of a fund of hedge fund industry under pressure, and we believe the company will continue to hold its own in this market. AUMA and costs are predominately US$ denominated, and while the company reports in US$, HFA is a beneficiary of the weaker A$ on translation. We maintain Outperform. Transfer coverage to Tim Lawson from Jodie Bannan. #4: Magellan Financial Group (MFG AU, A$21.39, Downgrade to Neutral (previously Outperform), TP: $21.91). Fund performance remains solid and we remain attracted to the longer term distribution opportunity in the US and the prospect of additional product strategies over time. Transfer coverage to Tim Lawson from Jodie Bannan. #5: Perpetual (PPT AU, A$40.61, Downgrade to Neutral (previously Outperform), TP: $41.10). Net flows over 1H16 were broadly flat (+$100m), mix impacts leave margins also largely unchanged. The Global strategy needs to deliver above benchmark performance. Downgrade to Neutral from Outperform. #6: Platinum Asset Management (PTM AU, A$6.31, Neutral, TP $6.09). The key Platinum International Fund s performance has lagged the benchmark, although net flows have recovered from the net outflow position. Transfer coverage to Tim Lawson from Jodie Bannan. We summarise the earnings and target price changes on the following page. Please refer to page 13 for important disclosures and analyst certification, or on our website

2 Earnings and target price change summary The summary below provides earnings changes across the listed Australian under Macquarie Securities coverage. The changes largely reflect mark to market adjustments. The variance in adjustments between the different stocks largely reflects timing as we have previously adjusted estimates for the stocks where the changes are small. Henderson: FY %, FY17-8.0%, FY %. Target price -11.0% to $6.50. Changes reflect adjustment for mark to market. BTT: FY16-7.8%, FY %, FY %. Target price -4.6% to $ Changes reflect adjustment for mark to market. HFA: FY16-2.3%, FY17-3.1%, FY18-3.9%. Changes reflect adjustment for mark to market. Target price +8.3% to $2.88 reflects increased long term growth assumptions. Magellan: FY %, FY %, FY %. Target price +1.5% to $ Changes reflect adjustment for mark to market more than offset by inclusion of estimates for performance fees (which may be volatile and Macquarie has not included in forecasts previously). Perpetual: FY16-0.3%, FY17-1.3%, FY18-1.3%. Small earnings changes reflect previous adjustment for mark to market. Target price -11.0% to $41.10 reflects reduced long term growth assumptions. Platinum: FY %, FY %, FY %. Target price -17.8% to $6.09. Changes reflect adjustment for mark to market. Stock ranking: Capacity, Performance, Distribution, Valuation & Sundry We rank the Australian listed fund managers under Macquarie coverage on the following basis: #1 Capacity: The extent to which core strategies are able to continue to attract new flows without impacting performance. #2 Performance: The performance of a fund versus benchmark is a key element in assessing the rank of funds management investment opportunities. #3 Distribution: The success of distribution strategies, measured by Net Flow to Opening FUM. #4 Valuation: For the purposes of this stock valuation ranking we compare the forward PE ratio. #5 Sundry factors: In addition to the core ranking factors noted above we also review the impact of sundry factors that may impact performance. These issues may change over time. Currency: The major current sundry issue that we consider relevant is currency. Macquarie s currency forecasts continue to support funds management business with non-aud funds. The table below highlights our order of preference among listed wealth managers in Australia based on the ranking factors described above. 4 February

3 Fig 1 Summary of stock rankings (most preferred to least preferred) #1: HGG Capacity Performance Distribution Valuation Other Diverse multi strategy, multi asset class fund offering sees limited issues on FUM growth from capacity. 32 funds generated performance fees in 1H15 (76 in FY14, 92 in FY13). Consistently strong funds performance across a large portion of fund offerings. 70% of funds outperforming over 1 year and 83% over 3 years at June For the scale of the Henderson offering Net flows to opening FUM performance since turning positive in 2H13 has been exceptional. Average annualised Net Flow to Opening FUM has exceeded 10% per qtr Sept 2013 to Sept On a simple PE measure HGG remains attractive versus the Australian Listed. For AUD investors HGG benefits from expected lower AUD currency forecasts. #2: BT Multi-strategy asset management dominated by Australian, UK and Europeanfocused products. Will look to grow capacity within existing strategies in UK/Europe. USA provides the greatest opportunity for FUM growth. Australia is mature, but the breadth of product range leaves BTT in a strong position. JOHCM s key Global Select and International Select funds continue to outperform and attract strong inflows. BTIM s funds have performed well on a 1 and 3 year view. Small cap product remains a solid outperformer. Annualised Net Flows to Opening FUM for JOHCM has exceeded 10% since acquisition. Strong inflows into US pooled funds in recent periods. US distribution the key growth focus. BTIM s distribution remains linked to the Westpac platform, but they are diversifying via other wholesale platforms to attract retail FUM. On a PE basis BTT s valuation appears relatively full, however a lower AUD and strong JOHCM flows are likely to continue to drive momentum in the stock. FUM translation benefits from a depreciating AUD:GBP. 3#: HFA Lighthouse is one of the largest multi-managers in the North American fund of hedge fund market. Fund of fund business structure reduces capacity issues. Performance has been solid at ~7% p.a. and remains attractive to institutional and pension clients who are seeking steady return with low volatility. One of Lighthouse s key strengths is its proprietary Managed Accounts Program (accounts for ~85% of AUMA), which improves client transparency, flexibility and redemption control and reduces lock-up risk which plagued the sector during the GFC. HFA ranks first in the Macquarie comp sheet driven by Earnings momentum and Earnings change. AUMA and costs are predominately US$ denominated, and while the company reports in US$, HFA is a beneficiary of the weaker A$ on translation. #4: MFG Specialises in global equities and has infrastructure capability. Theoretical capacity of global equities and infrastructure strategies is considered to be ~US$50bn. Intent on growing product suite over time. Building a global business, attracting FUM from offshore institutional clients, Australian retail investors (ASX- listed fund attracting new inflows from SMSFs) and ANZ institutional investors. Highly concentrated portfolio with only 25 stocks held in the Global fund can result in performance volatility versus benchmark. Annualised Net Flows to opening FUM tracked below 10% in 2H15 following exceptionally strong net inflows through FY13/FY14/1H15. Institutional distribution has been an important part of MFG s success in offshore markets in particular, however flows tend to be lumpy. Magellan has recently established its own distribution team in the US, likely reducing reliance on third parties over time. New relationships formed in bankaligned advisor market and ASX-listed Magellan Global fund is also driving retail flows from SMSF market. On a PE basis Magellan trades at a premium to some of its domestic peers, however the ability to introduce new products over time and drive offshore distribution remains attractive. Beneficiary of weaker AUD:USD both on a translation of offshore FUM basis as well as look-through stock portfolio perspective. #5: PPT Limited capacity available in core domestic offerings. Perpetual has some domestic strategies that are able to attract new FUM (e.g. Long Short). Success of Perpetual s international strategy provides the greatest upside to FUM without capacity issues. Consistently strong domestic funds performance over long periods. The Global strategy needs to deliver above benchmark performance. Net Flow to FUM had been positive from 1H14 to 2H15. 1Q16 was in net outflow, the mix impact was positive. 2Q16 net inflows of $800m (institutional channel) reflected funding from a previously announced mandate win. Net flows over 1H16 were broadly flat (+$100m), mix impacts leave margins also largely unchanged. On a PE basis Perpetual is the cheapest valuation. The Trust and Perpetual Private earnings in the PPT group reduce the direct comparability to the other stocks in this ranking. Perpetual is less exposed to currency than its peers. #6: PTM Unlikely to see much further diversification of the product suite, capacity on existing strategies therefore limited. Focusing more effort on institutional distribution into UK, Europe and US to expand FUM. Portfolios well spread with holdings in the key International fund. Over the past 12mths the International Fund and the Asia Fund have performed marginally below index. The fund has recovered its net outflow position experienced in 2H15 and is currently reporting monthly net inflows through 1H16, following slightly positive Annualised Net Flows to Opening FUM since 2H13. PTM recently launched a new ASXlisted investment company, Platinum Asia investments, which will focus on equities in the Asia region ex Japan. On a PE basis Platinum trades at a discount to domestic peers, largely reflecting recent fund underperformance and market moves. PTM is a beneficiary of a weaker AUD:USD predominantly on a look-through stock portfolio perspective. Source: Macquarie Research, February February

4 Stock valuation Overall stock value ranking: Momentum, Value, Earnings change and Earnings momentum Overall, HFA ranks first in the Macquarie comp sheet driven by Earnings momentum and Earnings change. On a simple PE basis HGG remains the most attractive Fund Manager (considering 1 yr FWD PE and 2 yr FWD PE). BTT ranks a close second to HFA on earnings momentum and relative price performance. Fig 2 Summary of rankings for fund managers Stock code Mkt cap ($m) Shares on issue (m) Source: FactSet, Macquarie Research, February 2016 Share price Target price Rating Upside (/downside) Price perf rel rank Value composite rank Earnings mom composite rank Earnings change composite rank Australian Wealth Managers HGG 6,259 1, Outperform 36% PPT 1, Neutral 14% MFG 3, Neutral 1% BTT 3, Outperform 17% PTM 3, Neutral 17% HFA Outperform 2% Ranks Overall Rank Momentum: 3, 6 and 12 month price performance HFA s price momentum is highest among the fund managers, with weighted performance over the last 3, 6 and 12 months. Each of BTT, HGG and MFG have delivered very significant outperformance over the past 12 months. Fig 3 Momentum metrics for fund managers Stock code Price perf rel rank 2. Price perf rel composite: Blended 3, 6 and 12 months relative price performance. Source: FactSet, Macquarie Research, February 2016 Relative Performance (v S&P ASX 200) Absolute Performance Price perf rel 5 days 1 month 3 months 6 months 1 year 5 days 1 month 3 months 6 months 1 year composite 2 Australian Wealth Managers HGG % -0.8% -6.8% -5.8% 5.5% 31.7% -1.1% -12.5% -10.5% -6.9% 20.5% PPT 5 0.7% -0.5% -4.4% -2.0% 5.9% -1.7% -0.7% -1% -6.7% -6.5% -12.9% MFG % -9.1% -13.8% 2.0% 30.6% 23.6% -9.3% -19.5% -2.7% 18.2% 12.4% BTT % -3.8% -13.9% -4.7% 18.8% 56.3% -4.1% -19.6% -9.4% 6.4% 45.0% PTM 6-8.7% -5.0% -14.5% -8.1% -2.5% -15.5% -5.3% -20.2% -12.8% -14.9% -26.7% HFA % 3.0% -1.3% -2.3% 24.7% 80.0% 2.7% -7.0% -7.0% 12.3% 68.8% Valuation: PE, PB, Dividend Yield and ROE. On a simple PE basis HGG remains the most attractive Fund Manager (considering 1 yr FWD PE and 2 yr FWD PE). Henderson lags on this value composite metric impacted by poor 1 year forward dividend (given the lower dividend payout) and ROE expectations. HFA ranks highest among the six fund managers on our value composite (PE, PB, Dividend Yield and ROE). 4 February

5 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Macquarie Wealth Management Fig 4 Valuation metrics for fund managers Stock code Last Full Year reporting date Value composite rank 1 Hist. PER FY 1 PER FY 2 PER 1. Value composite rank: Blended PE, PB, ROE and Dividend Yield. Source: FactSet, Macquarie Research, February 2016 EPS data Book Value Div Yield ROE 5 yr avg PE Hist. EPS FY1 EPS FY2 EPS Forecast EPS Hist. P/ dispersion 2 BV FY 1 P/ BV 5 yr avg P/ BV Hist. div yield FY 1 div yield % pt change in div yield 1 Yr Fwd Div payout ratio (%) Australian Wealth Managers HGG 25/02/ x 15.5x 13.6x 12.6x % 3.1x 2.9x 2.7x 4.2% 3.8% -0.4% 58.9% 17.3% 19.5% PPT 27/08/ x 15.2x 14.2x 13.3x % 3.3x 3.2x 4.2x 5.0% 6.0% 1.0% 90.6% 26.9% 21.7% MFG 11/08/ x 19.3x 17.5x 17.4x % 11.6x 9.5x 7.5x 4.3% 4.0% -0.3% 78.2% 45.2% 46.7% BTT 29/10/ x 18.1x 16.4x 16.6x % 4.0x 3.6x 2.3x 3.9% 4.6% 0.8% 83.9% 18.7% 20.8% PTM 20/08/ x 16.2x 15.3x 17.8x % 10.8x 9.9x 10.6x 6.3% 6.1% -0.2% 98.3% 63.6% 62.4% HFA 20/08/ x 16.5x 15.2x 9.4x % 1.3x 1.2x 1.0x 6.9% 6.0% -0.8% 100.0% 13.1% 7.7% 3 yr avg ROE ROE Yr1 Forecast Earnings change and Earnings momentum: EPS growth and EPS change Of the six fund managers, HGG and BTT rank highest on earnings momentum. Of the six fund managers, MFG and PTM rank highest on earnings change. Fig 5 Earnings metrics for fund managers Stock code Earnings mom Rank Earnings mom. Earnings Change EPS Outlook Earnings change composite rank 1 composite rank 2 FY1 / Actual EPS growth FY2 / FY1 EPS growth 1. Earnings momentum: Blended 1yr and 2yr EPS growth. 2. Earnings change: Blended 1yr and 2yr EPS change Source: FactSet, Macquarie Research, February w EPS % change 3m EPS % change 6m EPS % change Historic EPS (H1) Current yr est. EPS (FY1) Next yr est. EPS (FY2) EPS std deviation ppt change in div yield Next FY end Australian Wealth Managers HGG % 14% -3.6% -4.6% -1.3% % -0.4% 31/12/2015 PPT 6 3-2% 6% -1.4% -1.0% -7.8% % 1.0% 30/06/2016 MFG 3 1 1% 11% 3.3% 9.5% 16.6% % -0.3% 30/06/2016 BTT 2 4 9% 11% -3.5% -4.4% -0.9% % 0.8% 30/09/2016 PTM 4 2 6% 6% -1.4% -1.1% -0.9% % -0.2% 30/06/2016 HFA % 9% 0.0% -28.2% -38.8% % -0.8% 30/06/2016 Given our preference for Henderson Group (HGG) among the listed Australian we include funds flow and relative valuation charts below. We expect that funds flow at HGG will continue to benefit given strong European equity flows over the half year. Fig 6 European equity flows have moderated after a stellar March quarter (following QE) US$bn Source: FactSet, Macquarie Research, February February

6 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Macquarie Wealth Management Fig 7 HGG is trading at an 8.8% premium to UK peers and a 17.6% discount to Australian peers (PE Rel) PERel PERel HGG AU PERel to AU HGG UK PERel to UK Source: FactSet, Macquarie Research, February February

7 Henderson Global Investors HGG AU HGG LN Share Price: $ p All figures m unless otherwise stated Summary P&L 1H14A 2H14A 1H15A 2H15E 1H16E 2H16E FY12A FY13A FY14A FY15E FY16E FY17E Net Management Fees Transaction fees Performance fees Net income Fixed employee compensation (44.9) (43.5) (47.6) (48.6) (52.3) (53.3) (102.3) (83.2) (88.4) (96.2) (105.6) (109.9) Variable employee compensation (71.1) (72.5) (84.3) (78.0) (9) (83.1) (77.6) (129.0) (143.6) (162.3) (173.1) (179.0) Investment Admin (15.0) (15.2) (15.4) (15.0) (16.1) (17.1) (25.7) (24.4) (30.2) (30.4) (33.2) (37.0) IT (8.2) (8.9) (9.8) (11.3) (11.6) (12.5) (14.4) (17.1) (17.1) (21.1) (24.1) (28.2) Office Expenses (7.0) (8.0) (8.1) (9.3) (9.6) (10.0) (16.8) (13.7) (15.0) (17.4) (19.6) (21.2) Other expenses (17.2) (18.4) (20.8) (22.0) (23.0) (24.6) (37.3) (26.1) (35.6) (42.8) (47.6) (53.0) Total operating expenses (163.4) (166.5) (186.0) (184.1) (202.6) (200.6) (274.1) (293.5) (329.9) (37) (403.2) (428.2) EBITDA () Income from associates and JVs Depreciation (2.2) (2.5) (2.6) (2.6) (2.6) (2.6) (2.9) (3.2) (4.7) (5.2) (5.2) (5.2) EBIT Interest income Interest expense (5.6) (6.0) (5.8) (5.8) (2.9) - (14.3) (11.1) (11.6) (11.6) (2.9) - Profit before tax Tax expense (12.7) (7.9) (15.6) (13.3) (15.7) (17.0) (19.5) (17.9) (20.6) (28.9) (32.8) (41.3) Minority Interests (0.2) Underlying profit after tax Non-recurring items (after tax) (17.3) (11.2) (25.9) (22.9) (22.9) (27.1) (22.3) 91.3 (37.1) (45.8) (46.0) Reported profit after tax Balance Sheet 1H14A 2H14A 1H15A 2H15E 1H16E 2H16E FY12A FY13A FY14A FY15E FY16E FY17E Cash Receivables PPE Total Intangibles Other Total Assets 1, , , , , , , , , , , ,844.1 Payables Debt Other Total Liabilities Net Assets , , , , , , , , ,209.7 Cash Flow 1H14A 2H14A 1H15A 2H15E 1H16E 2H16E FY12A FY13A FY14A FY15E FY16E FY17E EBITDA /- chg Working Capital (72.7) (7.8) (19.6) (65.1) (25.7) (80.5) Net Interest Paid (5.4) (5.5) (5.4) (5.4) (5.4) (5.4) (15.5) (10.9) (10.9) (10.8) (10.8) (10.8) - Tax Paid (1.4) (18.6) (6.5) (6.0) (9.3) (10.6) (1.6) (10.3) (20.0) (12.5) (19.9) (28.3) Other (20.4) (248.5) 13 (169.4) (1.6) (268.9) (39.3) (36.3) Operating Cash Flow (36.8) Capex (2.5) (3.2) - (3.0) (3.0) (3.0) (5.3) (8.1) (5.7) (3.0) (6.0) (6.0) Net Investment 8.1 (47.3) 17.9 (1.3) (1.3) (1.3) 8.1 (30.4) (39.2) 16.6 (2.5) (2.5) Other (57.6) 72.7 (7.2) 1.2 (7.2) (4.1) (3.2) (6.0) (6.0) Investing Cash Flow (108.1) 90.6 (11.4) (3.0) (11.4) (1.3) (41.7) (14.5) (14.5) Dividends Paid (64.0) (28.9) (70.9) (35.4) (84.4) (32.8) (77.6) (78.6) (92.9) (106.3) (117.2) (126.3) Other (19.8) 10.7 (36.6) (25.0) (149.7) - (147.5) (3.8) (9.1) (61.6) (149.7) - Financing Cash Flow (83.8) (18.2) (107.5) (60.4) (234.1) (32.8) (225.1) (82.4) (102.0) (167.9) (266.9) (126.3) Movement in Cash (including FX) 4 (29.6) 4 (108.6) (71.1) (27.1) (77.0) (68.5) (98.2) 73.0 Operating Metrics 1H14A 2H14A 1H15A 2H15E 1H16E 2H16E FY12A FY13A FY14A FY15E FY16E FY17E Assets Under Management ( bn, closing) Assets Under Management ( bn, average) Net inflow ( bn) Net inflow (% of AUM) 13.4% 5.6% 13.8% 5.2% 7.6% 6.1% -7.5% 3.8% 9.5% 9.5% 7.0% 4.5% Net Management Fee Margin (%) 0.50% 0.54% 0.54% 0.56% 0.55% 0.56% 0.57% 0.48% 0.52% 0.55% 0.55% 0.55% Net Income Margin (%) 0.66% 0.68% 0.69% 0.68% 0.71% 0.67% 0.69% 0.66% 0.67% 0.69% 0.69% 0.68% Compensation ratio 45.5% 43.9% 44.5% 44.7% 44.7% 42.8% 41.6% 46.0% 44.7% 44.6% 43.8% 41.3% EBITDA Margin 35.8% 37.0% 37.2% 34.9% 36.3% 37.0% 36.7% 36.4% 36.4% 36.1% 36.7% 38.8% * Continuing AUM (ex Property) Financial Metrics 1H14A 2H14A 1H15A 2H15E 1H16E 2H16E FY12A FY13A FY14A FY15E FY16E FY17E EPS (diluted, reported, p) # EPS (diluted, underlying, p) EPS growth -15% 58% 31% -8% -6% 18% -6% 11% 13% 11% 4% 17% PER (x) DPS (p) Payout ratio 38% 81% 35% 102% 35% 89% 61% 62% 61% 63% 63% 63% Dividend yield 2.2% 5.8% 2.4% 5.9% 1.1% 2.9% 6.4% 4.5% 3.9% 4.0% 4.7% 5.5% Underlying Return on Equity 17.4% 18.1% 20.0% 16.2% 18.1% 18.2% 16.2% 18.3% 18.0% 18.0% 17.9% 19.3% Gross debt / (debt + equity) 13.5% 12.8% 12.9% 12.6% 0.0% 0.0% 16.0% 15.1% 12.8% 12.6% 0.0% 0.0% Net debt / (debt + equity) -11.2% -7.3% -11.5% -2.1% -9.9% -6.8% -5.2% -6.9% -7.3% -2.1% -6.8% -12.3% AUD/GBP (average) EPS (AUD) EPS growth (AUD) % 82.2% 43.0% 6.4% 7.9% 35.9% -9.9% 16.9% 27.7% 23.7% 2% 18.9% Average share price DCF Valuation PERel Valuation Blended Valuation Present Value of Cash flows $3,537 Market Consensus PER (2yr fwd) PERel Price target $6.44 Terminal Value (m) $3,441 PERel 0.88 DCF Price target $6.48 Total (m) $6,978 Fund Manager Cons. PERel (current) 0.95 Blended Price target (A$) $6.50 Number of diluted shares (m) HGG PERel to UK fund managers (ave 0.93 AUD/GBP 12m forecast Value per share (current) $6.12 HGG Forecast 2yr fwd PER (x) m Price Target ( ) 288p Roll Forward 12m $6.69 MRE 2yr forward EPS forecast $0.51 Less Dividends over next 12m -$ m Price Target (A$) $6.44 Capital Return 21.0% 12m Price Target (A$) $6.48 AUD/GBP 12m forecast Dividend yield 4.0% AUD/GBP 12m forecast m Price Target ( ) 285p TSR (Blended) 25.0% Less Dividends over next 12m -$ m Price Target ( ) 287p Value per share (current) $6.22 Capital Return (DCF basis) 20.6% Capital Return (PERel basis) 19.9% 1 yr fwd PER multiple at Target Price in 12m Dividend yield 4.0% Dividend yield 4.0% 2 yr fwd Dividend Yield at Target Price in 12m 4.50% Total Return (DCF basis) 24.6% Total Return (PERel basis) 23.8% Recommendation Outperform Source: Company data, Macquarie Research, February February

8 BT Investment Management BTT.ASX Year Ending September 30 Source: Company data, Macquarie Research, February 2016 Price: Market Cap $A3,077m Consolidated P&L 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Base management fees $m BTIM $m JOHCM $m Inter-company $m Performance fees $m BTIM $m JOHCM $m Other revenue $m Total revenue $m Employee expenses $m Other expenses $m EBITDA $m Amortisation of intangibles $m Depreciation $m EBIT $m Net Interest expense $m Operating profit before tax $m Tax Expense $m Reported NPAT $m Cash NPAT $m Adjusted NPAT $m Ratio Analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Revenue grow th % -17.4% 33.1% 27.2% 6.6% 63.3% 2.5% 16.7% 9.2% Cost to income ratio % 60.2% 59.5% 59.9% 64.2% 61.7% 59.8% 61.9% 59.6% Adjusted tax rate % 27.0% 27.0% 21.0% 21.0% 25.0% 23.1% 21.0% 21.0% ROA % 22.6% 22.7% 28.6% 21.7% 24.3% 22.2% 24.7% 28.7% ROE % 2% 19.6% 24.1% 17.7% 21.8% 19.2% 20.2% 21.2% Investment Fundamentals 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E EPS (Reported) cps EPS (Cash) cps EPS (Adjusted) cps EPS Grow th % -23.1% 42.5% 34.9% % 109.6% 0.3% 17.2% 12.3% PER (Adjusted) x DPS cps Dividend Yield % 1.7% 2.0% 2.3% 2.1% 3.5% 3.8% 4.5% 5.0% Franking % 40.0% 40.0% 40.0% 40.0% 35.0% 40.0% 40.0% 40.0% Dividend payout ratio % 83.4% 95.1% 82.2% 99.6% 85.8% 89.3% 89.7% 88.3% Closing FUM $b Average FUM $b Net inflow $b Net inflow (% of AUM) % 6.3% 9.3% 4.3% 2.9% 4.2% 7.9% 3.6% 2.8% Margin (bps) bps EFPOWA (basic) m EFPOWA (diluted) m Cashflow analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Operating cash flow $m Investing cash flow $m (0.6) (1.0) (29.5) 18.7 (1.6) (1.6) Financing cash flow $m (69.1) (84.5) (15.2) (46.6) (119.1) (153.6) (61.8) (100.6) Balance Sheet FY14A FY15A FY16E FY17E DCF valuation summary ($m) Assets Cash & cash equivalents $m Intangibles $m Consolidated value ($m) 3,287 PPE $m Shares (m) 312 Other assets $m Value per share $ Total assets $m , ,166.4 Share price target $ Liabilities $m Payables $m Capital return 12.1% Other liabilities $m Dividend yield 4.5% Total liabilities $m Total return 16.6% Net assets $m Recommendation Outperform $ February

9 HFA Holdings (HFA.ASX) Price: 1.85 Source: Company data, Macquarie Research, February 2016 U$ A$ 2.61 Year Ending 30 June Market Cap A$424m Consolidated P&L 1H15A 2H15A 1H16E 2H16E FY15A FY16E FY17E FY18E Total revenue U$m Operating expenses U$m Other expenses U$m EBITDA U$m Depreciation & amortisation U$m EBIT U$m Net interest expense U$m Operating profit before tax U$m Tax Expense U$m Abnormals U$m Reported NPAT U$m Adjusted NPAT U$m Ratio Analysis 1H15A 2H15A 1H16E 2H16E FY15A FY16E FY17E FY18E Revenue grow th % 4.1% -3.8% -6.5% 6.7% -1.3% 1.2% 8.4% 3.1% Cost to income ratio % 65.9% 51.0% 59.8% 57.2% 59.6% 58.5% 58.8% 59.0% Effective Tax Rate % -9% 1.96% 38.50% 38.50% 0.98% 38.50% 38.50% 38.50% ROA % 8.4% 11.5% 7.1% 12.3% 2% 19.5% 26.6% 28.6% ROE % 8.8% 10.0% 2.9% 7.2% 18.6% 1% 14.8% 15.0% Investment Fundamentals 1H15A 2H15A 1H16E 2H16E FY15A FY16E FY17E FY18E EPS (Adjusted) cps EPS Grow th (adjusted) % (0.2) () (0.4) (0.4) () (0.4) 0.0 PER (Adjusted) x DPS cps Dividend Yield % 2.7% 3.0% 2.8% 3.2% 5.7% 6.0% 6.5% 6.7% Franking % Payout ratio % Price to NTA x Closing FUM $b 8,080 8,720 9,223 9,740 8,720 9,740 10,658 11,509 Average FUM $b 8,040 8,400 8,971 9,482 na 9,230 10,199 11,084 Net inflow $b Net inflow (% of AUM) % 0.00% 1.43% 2.79% 2.64% na 5.42% 3.33% 1.98% Margin (bps) bps EFPOWA (basic) m EFPOWA (diluted) m Cashflow analysis 1H15A 2H15A 1H16E 2H16E FY15A FY16E FY17E FY18E Operating cash flow U$m Investing cash flow U$m (0.3) 1.8 (0.6) (0.6) 1.5 (1.1) (1.2) (1.2) Financing cash flow U$m (52.6) (14.1) (8.3) (4.9) (66.7) (13.1) (13.3) (14.6) Balance Sheet FY15A FY16E FY17E FY18E DCF valuation summary ($m) Assets Cash U$m Consolidated value ($m) U$ Intangibles U$m Shares (m) 162 Future income tax benefit U$m Value per share U$ 1.94 Other assets U$m month share price target U$ 2.05 Total assets U$m month share price target A$ 2.88 Liabilities U$m Payables U$m Borrow ings U$m Capital return 10.4% Other Liabilities U$m Dividend yield 6.0% Total liabilities U$m Total return 16.4% Net assets U$m Recommendation Outperform 4 February

10 Magellan Financial Group (MFG.ASX) Year Ending 30 June Source: Company data, Macquarie Research, February 2016 Price: Market Cap A$3,429m Consolidated P&L 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Total revenue $m Operating expenses $m Other expenses $m EBITDA $m Amortisation of intangibles $m Depreciation $m EBIT $m Net Interest expense $m Operating profit before tax $m Tax Expense $m Reported NPAT $m Adjusted NPAT $m Ratio Analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Revenue grow th % 100.4% 69.6% 15.7% 12.5% 61.8% 83.5% 14.1% 11.4% Cost to income ratio % 20.0% 22.6% 23.1% 24.1% 27.1% 21.3% 23.6% 22.9% Effective Tax Rate % 25.0% 23.0% 25.0% 25.0% 24.8% 23.9% 25.0% 25.0% ROA % 102.8% 97.7% 82.1% 87.2% 65.3% 98.2% 87.9% 99.7% ROE % 67.6% 68.6% 57.0% 58.9% 44.8% 64.5% 55.4% 54.1% Investment Fundamentals 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E EPS (Adjusted) cps EPS Grow th % 127.0% 76.2% 8.3% 10.2% 64.9% 97.2% 9.2% 13.6% PER (Adjusted) x DPS cps Dividend Yield % 3.5% 1.8% 3.6% 2.0% 1.8% 3.5% 3.8% 4.4% Franking % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Payout ratio % 83.5% 76.5% 80.0% 80.0% 80.4% 79.9% 80.0% 80.0% Price to NTA x Closing FUM $b 31,625 36,381 39,653 41,993 23,513 36,381 41,993 46,478 Average FUM $b 25,646 28,702 31,340 33,681 20,031 27,143 32,500 36,650 Net inflow $b 3,548 1, ,150 6,825 5,045 2,073 1,900 Net inflow (% of AUM) % 30.2% 9.5% 5.1% 5.8% 46.4% 21.5% 5.7% 4.5% Margin (bps) bps EFPOWA (basic) m EFPOWA (diluted) m Cashflow analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Operating cash flow $m Investing cash flow $m 0.7 (40.2) (9.0) (39.5) Financing cash flow $m (32.2) (56.0) (61.7) (69.9) (34.9) (88.2) (131.6) (149.6) Balance Sheet FY14A FY15A FY16E FY17E DCF valuation summary ($m) Assets Cash $m Investments $m Consolidated value ($m) 3,335 Current receivables $m Shares (m) 160 Other assets $m Value per share $ Total assets $m month share price target $ Liabilities $m Payables $m Long Term Debt $m Capital return 2.4% Other Liabilities $m Dividend yield 3.8% Total liabilities $m Total return 6.2% Net assets $m Recommendation Neutral $ February

11 Perpetual Limited Source: Company data, Macquarie Research, February 2016 Price: Year ending June 30 Market Cap $A1,891m Profit & Loss Statement ($m) FY14A 1H15A 2H15A FY15A 1H16E 2H16E FY16E FY17E FY18E Revenue - Perpetual Investments Perpetual Private Wealth Corporate Trust Corporate Total revenue Operating expenses EBITDA Equity Remuneration and D&A EBIT Interest expense Pre-tax profit Tax expense Net profit Significant items Reported NPAT Underlying NPAT Adjusted NPAT Profit & Loss ratios ($m) FY14A 1H15A 2H15A FY15A 1H16E 2H16E FY16E FY17E FY18E Revenue growth 19.2% 21.0% 5.9% 12.8% -1.8% -3.7% -2.8% 3.7% 4.0% EBITDA growth 34.9% 35.9% 9.3% 20.9% -8.5% -10.5% -9.5% 4.1% 3.9% EBITDA margin 40.0% 42.6% 43.0% 42.8% 39.7% 40.0% 39.9% 40.0% 39.9% Operating profit after tax growth 37.2% 37.2% 16.1% 25.2% -9.8% -15.3% -12.7% 4.3% 4.0% Effective tax rate 29.1% 29.3% 29.1% 29.2% 29.5% 29.5% 29.5% 29.5% 29.5% Return on assets 9.9% 11.2% 12.2% 11.7% 10.0% 10.3% 1% 10.4% 10.6% Return on equity 23.7% 22.1% 23.7% 22.9% 19.2% 19.8% 19.5% 2% 20.7% Revenue Drivers FY14A 1H15A 2H15A FY15A 1H16E 2H16E FY16E FY17E FY18E Aust Equities FUM Total FUM Equity Net Flows Total Net Flows Average Fee Investment fundamentals FY14A 1H15A 2H15A FY15A 1H16E 2H16E FY16E FY17E FY18E EPS (Reported) EPS (Adjusted) EPS Growth 27.0% 23.5% 15.7% 19.3% -9.7% -15.4% -12.7% 4.3% 4.0% PER (Adjusted) DPS Dividend Yield 4.3% 5.7% 6.2% 5.9% 5.7% 5.9% 5.8% 6.0% 6.3% Franking 100% 100% 100% 100% 100% 100% 100% 100% 100% Dividend payout ratio 95% 91% 90% 90% 95% 95% 95% 95% 95% Price to NAB Price to NTA EV/EBTIDA EFPOWA Cashflow analysis FY14A 1H15A 2H15A FY15A 1H16E 2H16E FY16E FY17E FY18E Operating cashflow Investing cashflow 8 (12) (6) (19) (6) (10) (16) (16) (16) Financing cashflow (37) (50) (54) (104) (58) (54) (112) (111) (117) Net change in cash / debt 65 (17) EBITDA cashflow conversion 67% 60% 90% 75% 96% 96% 96% 94% 94% CFPS CFPS growth 21% 15% 4% 8% -22% -25% -24% 8% 3% Balance sheet ($m) FY14A FY15A FY16E FY17E Valuation ($m) Assets Cash Sum of distributable cash profits 864 Receivables Terminal value 763 Investments Total valuation 1,627 Structured investment assets Investments 213 Intangibles Total equity value 1,840 Other assets Shares on issue 46 Total assets 1,107 1,123 1,131 1,153 Value per share $ Liabilities Borrowings Share price target $ Structured investment liabilities Upside / downside 1.2% Other liabilities Dividend Yield 5.9% Total liabilities Total Return 7.1% Total equity attributable to shareholders Recommendation Neutral $ 4 February

12 Platimun Asset Management (PTM.ASX) Year Ending 30 June Source: Company data, Macquarie Research, February 2016 Price: Market Cap A$3,675m Consolidated P&L 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Total revenue $m Operating expenses $m Other expenses $m EBITDA $m Depreciation & amortisation $m EBIT $m Net interest and Div income $m Operating profit before tax $m Tax Expense $m Reported NPAT $m Adjusted NPAT $m Ratio Analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Revenue grow th % 2.5% 23.3% 10.7% -1.5% 37.8% 12.7% 4.1% 5.2% Cost to income ratio % 14.8% 17.2% 15.9% 19.9% 18.2% 16.1% 18.0% 17.8% Effective Tax Rate % 28.7% 29.6% 30.0% 30.0% 27.3% 29.2% 30.0% 30.0% ROA % 50.0% 56.9% 58.2% 59.0% 48.1% 55.0% 59.7% 59.4% ROE % 54.0% 62.5% 64.2% 63.8% 52.8% 58.9% 62.1% 62.9% Investment Fundamentals 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E EPS (Adjusted) cps EPS Grow th (adjusted) % PER (Adjusted) x DPS cps Dividend Yield % 5.4% 9.5% 4.8% 5.7% 5.4% 7.4% 5.2% 5.4% Franking % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Payout ratio % 98.0% 156.0% 82.0% 99.7% 103.9% 129.2% 90.8% 89.7% Price to NTA x Closing FUM $b 25,711 26,849 26,511 28,031 22,933 26,849 28,031 28,234 Average FUM $b 24,300 26,280 26,680 27,271 22,300 26,100 27,130 28,331 Net inflow $b 1, ,100 1, Net inflow (% of AUM) % 4.4% 3.2% 1.2% 1.1% 5.6% 8.0% 2.2% 1.8% Margin (bps) bps EFPOWA (basic) m EFPOWA (diluted) m Cashflow analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E Operating cash flow $m Investing cash flow $m (27.1) Financing cash flow $m (108.9) (136.1) (176.0) (88.9) (152.2) (245.0) (264.9) (196.5) Balance Sheet FY14A FY15A FY16E FY17E DCF valuation summary ($m) Assets Cash $m Consolidated value ($m) 3,420 Current receivables $m Shares (m) 582 Other assets $m Value per share $ 5.87 Total assets $m month share price target $ 6.09 Liabilities $m Payables $m Tax Liabilities $m Capital return -3.6% Other Liabilities $m Dividend yield 5.2% Total liabilities $m Total return 1.7% Net assets $m Recommendation Neutral $ February

13 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 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 2015 AU/NZ Asia RSA USA CA EUR Outperform 50.68% 61.04% 53.16% 47.90% 65.22% 43.59% (for global coverage by Macquarie, 5.33% of stocks followed are investment banking clients) Neutral 31.51% 24.66% 34.18% 47.70% 29.71% 34.62% (for global coverage by Macquarie, 5.02% of stocks followed are investment banking clients) Underperform 17.81% 14.30% 12.66% 4.39% 5.07% 21.79% (for global coverage by Macquarie, 3.78% 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: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. 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The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at Macquarie Group 4 February