Australian Equity Strategy

Transcription

1 AUSTRALIA ASX 200 Cumulative Price Returns 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% 01-Mar 07-Mar 13-Mar 19-Mar 25-Mar 31-Mar ASX 200 Daily Price Returns 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% ASX 200 Cumulative Price Returns Equity Market Performance Source: IRESS, Macquarie April % -2.0% 01-Mar 07-Mar 13-Mar 19-Mar 25-Mar 31-Mar Total return (%), March Daily ASX 200 Returns Utilities Health Care Consumer Staples Consumer Discretionary Industrials Energy Financials Information Technology S&P/ASX 100 S&P/ASX Leaders S&P/ASX Leaders Real Estate Telecommunication Services Materials April 2017 Macquarie Securities (Australia) Limited March Equity Market Review Key developments / changes: ASX300 total return index was up +% in March 2017, boosted by Utilities (+6.3%), Health Care (+5.6%), Staples (+5.5%), Discretionary (+4.7%), Industrials (+%) and Energy (+%). Materials and Telcos were once again the drags, flat for the month at 0.2% and 0.3%, respectively. NTM Industrials P/E modestly higher MoM at 19.4x (LTA ~16.4x), 2017 Industrial EPSg down from 5.7% to 5.4%. Banks & REITs EPSg relatively stable at % and 2.2%, respectively. The A$ finished the month largely unchanged at $0.763 (Feb-17 A$0.7657). Weaker commodity prices (iron ore down -12%) were largely offset by weakness in the US$ and stronger Chinese data. A mixed month for commodity markets. Aluminium prices (+2.7%) reached two-year highs; precious metals were down (Gold -0.9%); and Crude fell 5%. The Bloomberg Commodity Index was down -2.4%. Australia s economic data was patchy. The labour market came in softer unemployment rate rising to 5.9%, and under-utilisation rate reaching 14.6% (from 14.1%). Acceleration in house price inflation (4.1% QoQ) continued in 4Q16. RBA cash rate remained unchanged at 1.5% Australian Equities: A strong month for the market with the ASX200 rising % and finishing just a touch off a two-year high. The market showed significant resilience, absorbing a six-day string of losses out of the US as disappointment around President Trump s policy proposals intensified. The major banks led performance (CBA, NAB and WBC all returning more than 4%) as investors cheered out-of-cycle rate rises that came despite a flattening domestic yield curve. Broader financials also delivered strong returns, with Div Fins (+4.2%) and Insurers (+3.1%) both posting gains. With the exception of Materials, Telecoms and Real Estate, it was a solid month for the remainder of the market. Utilities (+6.3%), Health Care (+5.6%), Consumer Staples (+5.5%) Consumer Discretionary (+4.7%), Industrials (+%) and Energy (+%) all led the market higher. Gamers were amongst the top performers (TAH and TTS both up 11.5% with ALL, SGR and CWN also posting positive returns). Global Equities: Global Equities led higher by Europe which absorbed UK exit plans (triggering Article 50) as well as elevated political risk out of France. Better-than-expected economic data and the potential for the ECB to be confident enough to accelerate the reversal of its bond-buying programme were generally behind the upbeat sentiment. In the US, after swinging in and out of negative territory, the S&P 500 (+0.1%) ended the month largely unchanged, but up ~5.5% for the quarter. Overall, the market showed strong resilience, after investor confidence was shaken following Trump s failure to gain enough support for proposed healthcare reforms, which in turn has triggered concerns about his ability to push through tax cuts. (Continued ) Please refer to page 13 for important disclosures and analyst certification, or on our website

2 Fig 1 Global Equity Market Performance Fig 2 Australian Equity Market Performance Total return (%), March Total return (%), March Utilities 6.3 Utilities 6.3 Health Care 5.6 Health Care 5.6 Consumer Staples Consumer Discretionary Industrials Energy Financials Information Technology S&P/ASX 100 S&P/ASX Leaders S&P/ASX Leaders Real Estate Telecommunication Services Materials Consumer Staples Consumer Discretionary Industrials Energy Financials Information Technology S&P/ASX 100 S&P/ASX Leaders S&P/ASX Leaders Real Estate Telecommunication Services Materials Global Equities (continued ): Shares in Asia were mixed. The Hang Seng (+1.7%) was up for the month but the SSE (-0.6%) retreated on the back of tightening liquidity concerns and stepped-up regulation in the housing market. Positive data on industrials profits was not enough to see the index finish in positive territory - PMI readings suggest that China s economy continued to perform well in March. The official manufacturing PMI was up from 51.6 in February to 51.8 on its way to a five-year high. The Nikkei (-0.4%) was also down during March as the yen climbed to its highest level against the dollar since November, on the back of rising US uncertainty. Economics: There was little over the month to alter pre-existing trends across the broader economy. The release of February labour market proved disappointing, with the economy losing ~6,400 jobs vs the consensus forecast for a 16,500 increase. This represented the first drop since Sep-16 and pushed the unemployment rate to a 14-month higher of 5.9% (from 5.7%). Data also confirmed that there remains significant slack in the labour market, with the under-utilisation rate up from 14.1% to a two-year high of 14.6%. On the housing front, there was more bad news for the RBA, with 4Q16 house price inflation accelerating to 4.1% QoQ, well above the consensus forecast of a 2.5% QoQ gain. In addition, there was a strong uptick in lending to property investors to 6.7% YoY with data showing annual price rises for Sydney and Melbourne of 19% and 14% respectively. APRA began its long-awaited additional macro prudential tightening but to mixed reviews, with the critics being broadly underwhelmed by the level of restrictions. They have placed a 30% speed limit on interest-only residential loans (from 40%) of total new residential mortgage loans and within that has instructed banks to implement strict and closely monitored internal risk limits on those with a LVR above 80%. The RBA remained upbeat about the nation s economy, leaving the cash rate unchanged at 1.5% and signalling that it does not intend to move interest rates this year. Economist expectations remain split on whether the RBA will need to provide additional stimulus but market-based expectations are now pricing in the next move as a rate hike in early April

3 Commodities: It was a mixed month for commodity markets. Amongst the Industrial Metals, Aluminium prices (+2.7%) were a highlight, reaching two-year highs and finishing the month at $1,946.50, on hopes that China will follow through with its pledge to cut aluminium capacity by 30% in winter, to curb pollution. Precious metals were all down - copper (-1.5%), Silver (-1.2%) and Platinum (-7.9%). Gold slipped ~$10 to $1,244.85/ounce, leaving it 0.9% lower for the month. The prices of most agricultural commodities fell through March, with the biggest fall seen in the price of sugar (-13.2%). Crude fell ~5%, from $55.59/bbl to $52.8/bbl (hitting a low of $50.75/bbl), as speculation that OPEC will extend output cuts beyond the June deadline failed to excite the market. There was some recovery of losses in the last week of the month following renewed fighting in Libya which disrupted oil production, and positive economic data (oil demand) coming out of Europe. Currencies: USD weakness was the story for FX markets, as investors abandoned the dollar in response to Trump s withdrawal of the health care bill and rising concerns of his ability to push through proposed tax cuts. The dollar depreciated sharply against the major currencies - down -1.22% and -0.74% against the Yen and Euro, respectively. The A$ finished the month largely unchanged at $0.763 (Feb-17 A$0.7657). Weaker commodity prices (iron ore down -12% for the month and ~15% of its peak YTD) were largely offset by weakness in the US$ and stronger Chinese data. 3 April

4 Fig 3 Market and sector performance (S&P/ASX 300) Sector No S&P Sector Price Index % Change % Change % of S&P 300 Accum 1 Mth 12 Mth Index 1 Mth 12 Mth 31/03/17 28/02/17 31/03/16 AMV $m Daily Turn $m 25 Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Serv Utilities Leaders Leaders S&P/ASX S&P/ASX S&P/ASX Source: IRESS, Macquarie Research, April 2017 Fig 4 Sector & industry performance (S&P/ASX300) Sector No S&P Sector Price Index % Change % Change % of S&P 300 Accum 1 Mth 12 Mth Index 1 Mth 12 Mth 31/03/17 28/02/17 31/03/16 AMV $m Daily Turn $m 2510 Automobiles & Comp Banks Capital Goods Comm. & Profess. Services Cons. Durables & Apparel Consumer Services Diversified Financials Energy Food & Drug Retailing Food Beverage & Tobacco Health Care Equip & Serv Household & Pers. Prod Insurance Materials Media Pharm. Biotech. & Life Sc Real Estate Real Estate Invest. Trusts Retailing Software & Services Tech. Hardware & Equip Telecommunication Transportation Utilities Source: IRESS, Macquarie Research, April April

5 Fig 5 Top 10 and bottom 10 performances ASX100 S&P Code Top 10 Company Price ($) Total Returns % % S&P 100 % S&P 300 Liquidity Factor 1 Mth 12 Mth 31/01/17 30/12/16 31/01/17 30/12/16 (%) ANN ANSELL LIMITED S32 SOUTH32 LIMITED ILU ILUKA RESOURCES LIMITED SRX SIRTEX MEDICAL LIMITED SGR THE STAR ENTERTAINMENT GROUP LIMITED QUB QUBE HOLDINGS LIMITED SYD SYDNEY AIRPORT TPM TPG TELECOM LIMITED TAH TABCORP HOLDINGS LIMITED TTS TATTS GROUP LIMITED Bottom 10 DOW DOWNER EDI LIMITED HVN HARVEY NORMAN HOLDINGS LIMITED NVT NAVITAS LIMITED JBH JB HI-FI LIMITED CIM CIMIC GROUP LIMITED ORI ORICA LIMITED FMG FORTESCUE METALS GROUP LTD EVN EVOLUTION MINING LIMITED RIO RIO TINTO LIMITED NST NORTHERN STAR RESOURCES LTD Source: IRESS, Macquarie Research, April 2017 AMV (A$m) Fig 6 Market & sector EPSg (%) & P/E multiples Macquarie bottom up EPSg (%) Macquarie bottom up PERs(x) Macquarie EPSg (%), June pro-rated FY15A FY16A FY17E FY18E FY15A FY16A FY17E All Companies Market (ex res) Banks Property Trusts Resources Industrials (All Cos ex Res, LPTs, Banks) S&P/ASX Small Companies Small Industrials Small Resources Source: IRESS, Macquarie Research, April April

6 Fig 7 Solid month for Energy Energy sector total return (%), March BPT 14.9 SOL 12.1 ORG 7.5 CTX 6.6 FAR 5.1 WPL 4.4 SXY 4.4 Energy OSH 3.9 WHC 3.5 WOR 3.4 AWE 3.1 STO 0.0 KAR -1.2 SEH -7.6 LNG Fig 8 Materials underperformance continues Materials sector total return (%), March S32 ILU ABC CSR AMC DLX JHX IPL NCM BSL Materials ORA BLD AWC BHP NST RIO EVN FMG ORI Energy & Materials Energy (+%) outperformed the market, with the sector led by BPT (+14.9%), SOL (+12.1%), ORG (+7.5%) and CTX (+6.6%). On the other side of the ledger, underperformers included LNG (-15.0%), SEH (-7.6%) and KAR (-1.2%). o The ACCC released a statement of issues on CTX s (+6.6%) proposed acquisition of Milemaker. The ACCC s preliminary view is that the acquisition will substantially lessen competition for the retail supply of petrol in Melbourne. Milemaker generally has average prices that are below CTX, is quick to discount and slow to respond to large price increases during the retail petrol cycle - an acquisition by CTX may. Materials (+0.2%) underperformed the market, again, largely pulled back by ORI (-3.8%), FMG (-3.0%), EVN (-2.8%) and RIO (-2.5%). Key positive contributors were S32 (+12.8%), ILU (+12.4%) and ABC (+8.7%). o o FMG (-3.0%) has announced a further early repayment of the term loan of US$1.0bn, which reduces the value of the term loan to US$976m. Our analysts expect FMG s net debt to have fallen to US$2.8bn by the end of March, a reduction of over US$3.0bn over the past twelve months. FMG s debt profile is quickly becoming long dated with +70% of the outstanding debt repayable in FMG is expected to make further early debt payments, particularly while ironore prices remain strong. S32 (+12.8%) announced it will return an additional US$500m to shareholders via an on-market buy-back. The speed of the buy-back is expected to be subject to share price movements but it is anticipated it will be completed over a 12 month period. Our analysts believe the announcement gives a clear indication that the group s net cash position has grown over US$1.0bn as management has previously indicated that a minimum cash balance of US$500m is needed to manage working capital. MRE estimates suggest S32 s net cash position would have increased to US$1.3bn by the end of March. 3 April

7 Fig 9 DOW a drag on Commercial & Profess. Services Commercial Services sector total return (%), March SPO 34.0 MMS TOX SGF IPH PRG SEK CAB SIQ BXB ALQ Comm. Services CWY -1.6 DOW Fig 10 Transport drives positive returns Transport sector total return (%), March QUB SYD Transport MQA TCL QAN AZJ 2.5 AIA -8.3 Industrials A mixed month for Commercial Services (+1.4%), with gains from SPO (+34.0%) largely offset by losses from DOW (-12.7%). DOW now owns 19.99% of SPO, with 15% acquired at $1.15/sh, which is a 59% premium to pre-bid closing price. DOW made an all-cash offer to acquire 100% of SPO at $1.15/sh. DOW s interest in SPO is to diversify into services and recurring revenue areas (i.e. catering, facilities management) and away from construction. The offer is conditional on a 90% minimum acceptance and no reduction in SPO s $80-90m FY17 earnings guidance. DOW also announced a fully underwritten c$1bn equity raise to fund its potential SPO acquisition. Within Transport (+6.8%), which outperformed the market for the month: o o AZJ (+2.5%) announced a shift back to a divisional structure away from the functional structure, which has been in place for the last 3 years. The divisional structure is Networks, Intermodal with established MD's, with two new divisions being Coal and DiversfedBulk/Freight. AZJ indicated Mauro Neves has also resigned for an external role, which is the third change in the executive committee since December. Broadly AZJ appears to be returning to a more traditional business model with management aligned to their own performance. TCL (+5.8%) announced that TQ has reached an in-principle agreement with Brisbane City Council to deliver the $60m ICB upgrade ($37.5m TCL share). ICB is the connector road between Legacy Way and Coronation Drive, Airportlink. TCL will use internal capital to fund, thus there is no need for additional equity. The gains are: (i) truck multiplier increase from 2.65x to 3.0x; and (ii) controlling all operations and incident responses across the network should ensure contract savings as these contracts are re-tendered. Our analysts note that these transactions are TCL s bread & butter deals. They are incremental and do not require capital, thus value adding. They also demonstrate goodwill with government and the ability to close transactions. 3 April

8 Fig 11 Amazon concerns hurt Retailers Retail sector total return (%), March TRS 10.4 PMV 6.5 VTG 6.4 BAP 5.8 AHG 5.6 MHJ 5.3 GXL WEB 2.3 AMA 1.9 SUL -0.8 MYR -1.2 RCG -1.3 Retail -2.2 TME -2.6 BBN -2.8 JBH -7.9 TGA HVN Fig 12 Media stocks amongst best monthly performers Media sector total return (%), March NEC 23.8 VRL SWM SXL FXJ Media WPP APN OML REA NWS 2.7 SKT APO TEN Consumer Discretionary In Retail (-2.2%), house fillers were hurt by increasing concerns of Amazon s pending entry into Australia, with both HVN (-12.0%) and JBH (-7.9%) down for the month. On the other side of the ledger, PMV (+6.5%) was one of the key positive contributors. The company reported 1H17 Retail sales $588.6m and EBIT $93m (sales pre-announced, EBIT guidance $92-93m). 1H17 constant currency LFL sales of +2.1% were a positive surprise given PMV were cycling such a strong pcp (+6.3%). Aus LFL sales in apparel brands dropped to -4.5% for the month of October and -7.2% in southern capital cities due to unseasonably cold weather. Smiggle and Peter Alexander both had very strong LFL sales, with Just Jeans the best performing established brand and Portmans the worst. PMV did not experience poor Jan sales that other retailers reported and is entering 2H17 with a clean inventory position. In 2H17 PMV expect to benefit from the timing of Easter and alignment of school holidays as well as a later Mother s Day (especially for Peter Alexander). Interim dividend 26cps was declared. A solid month for Media (+7.9%), with NEC (+23.8%), VRL (+20.0%), SWM (+17.5%), SXL (+11.0%) and FXJ (+10.6%) the key positive contributors. SXL (+11.0%) and WIN reached an agreement this month for the sale of Southern Cross Northern NSW (NNSW) TV assets and operations for $55m ($45m payable on completion and $10m payable one year after completion). The sale of NNSW would give Southern Cross a highly complementary footprint to Nine. Without the sale, there would be duplication in the NNSW licence area. As a result, in the context of potential media reforms, the complementary footprint would make any M&A between Southern Cross and Nine easier to execute (e.g., the sale of Southern Cross TV assets to Nine, or a broader combination of the two businesses). A complementary footprint would also exist for Ten/WIN, and has existed for some time for Seven/Prime. 3 April

9 Fig 13 Good fortune from Gamers Consumer Services sector total return (%), March SGR AAD TAH TTS ALL MTR GEM CTD Consumer Services DMP CWN IVC FLT SKC RFG -1.3 NVT Fig 14 Mixed month for IT IT sector total return (%), March ACX 15.2 NXT 10.0 ALU 6.5 HSN 6.1 GBT 5.2 LNK 5.0 CPU 4.1 IT 3.9 WTC 3.7 TNE 2.2 CAR 1.9 IRE 1.2 MYO 0.8 ISD -0.9 CSV -2.1 CL1-3.9 IFM -7.2 Consumer Services A solid performance amongst Consumer Services (+6.5%), with Gamers the key positive contributors. Solid results were posted by SGR (+12.1%), TAH (+11.5%), TTS (+11.5%) and CWN (+2.4%). TAH announced that it had lodged an application with the Australian Competition Tribunal (ACT) for authorisation to proceed with the merger to TAH and TTS. The company believes that the merger authorisation process will likely deliver greater transaction certainty compared to the informal clearance process by requiring the consideration of public benefits (national footprint with enhanced operational platform; additional funding to racing industry and partners; and pathway to national pooling for pari-mutuel wagering) in the decision, which could potentially offset any concerns raised. Timetable for ACT decision is 13 June, which if achieved would mean transaction completion on around 11 July. Information Technology A mixed month for IT (+3.9%) with gains from ACX (+15.2%), NXT (+10.0%), ALU (+6.5%), and HSN (+6.1%), offset by losses from IFM (-7.2%), CL1 (-3.9%), CSV (-2.1%), and ISD (-0.9%). 3 April

10 Fig 15 Out-of-cycle rate rises, a +ve for Majors Fig 16 Divs Fins up with the market Banks sector total return (%), March Div Fins sector total return (%), March GMA CYB MYS CBA NAB WBC Banks ANZ BOQ BEN MOC OFX HFA CGF CCP HGG AMP SCO Div Fins MQG MFG PPT BTT ECX IFL PTM ASX FXL EML BLA IMF Financials A positive month for Banks (+3.9%) led by the major banks as investors cheered out of cycle rates rises that came despite a flattening domestic yield curve- CBA (+4.4%), NAB (+4.2%), WBC (+4.0%) and ANZ (+3.0%) were all up. GMA (+11.7%) announced that it is seeking approval to buy back up to 125m shares over a period of up to 12 month from the AGM on 11 May m shares represent ~24.5% of the issued capital of GMA and a ~20%of daily trading volume for the full year. The buyback is subject to APRA and Genworth Financial, Inc. approval. GMA also confirmed that its second largest customer is terminating its exclusivity agreement for the provision of LMI with the effect of 8 Apr-17. The contract represented 14% of GWP in FY16. The termination does not change guidance that FWP will be down 10-15% in FY17. Diversified Financials (+4.2%) were up with the general market. Outperformers for the month included OFX (+12.6%), HFA (+10.8%), CGF (+9.7%), CCP (+6.7%) and HGG (+6.4%). Fig 17 NHF a bright spot in Insurance Fig 18 REITs underperform the market Insurance sector total return (%), March NHF 12.7 QBE SDF Insurance 3.1 MPL 1.9 CVO IAG SUN -0.5 REITs sector total return (%), March CHC ABP LLC GPT DXS GMG MGR IOF CQR REITs AOG WFD SCP BWP GOZ NSR VVR CMW SCG SGP VCX GTY INM April

11 In Insurance (+3.1%), SUN (+0.5%) provided an update on the financial impact of natural hazard events, including the Feb-17 Sydney hailstorm, for the eight months to 28 Feb-17. The expected impact from the Sydney hailstorm is $ m and SUN c total natural hazard claims costs estimate for the eight months is $ m. The update for Hazard events does not change our analysts rating on SUN earnings forecasts remain materially unchanged. REITs REITS (+1.0%) underperformed the market for the month. Large cap retail bond proxies were amongst the worst performers during the period - SCG (-1.6%) and VCX (-2.1%) both down hurt by increasing concerns of Amazon s pending entry into Australia. Best performers included CHC (+4.9%), LLC (+4.5%), DXS (+4.5%) and GPT, (+4.5%). Fig 19 MSB a standout performer Healthcare sector total return (%), March Fig 20 +ve Returns from Staples Consumer Staples sector total return (%), March MSB ANN SRX JHC SIP PRY VRT NAN API REG CSL Healthcare COH SHL FPH HSO RHC RMD EHE MYX A2M AAC BKL BGA CGC AHY CCL Staples TWE GNC TGR BAL Healthcare & Consumer Staples Healthcare (+5.6%) outperformed the market, led by MSB (+37.3%). The company announced it has successfully completed a fully underwritten institutional placement of 26.5m new shares, raising ~US$40m. The proceeds will be used for MSB s ongoing Phase 3 clinical programs including chronic heart failure, as well as for manufacturing requirements associated with product commercialisation. In Staples (+5.5%), TWE (+3.8%) hosted investor briefings over two days, encompassing updated on the company s strategies across the group and a tour of its assets in Napa Valley. Out Staples teams notes that positive updates include; (i) optimisation and premiumisation of the US production and brands to improve earnings potential; (ii) ongoing expansion plans in Asia; (iii) development of a virtual French portfolio on a négociant basis, and (iv) step up in production of Penfolds in V16 to present opportunity to enter US market with volume and drive up earnings. On the negative side; (i) TWE remains susceptible to the poor vintages of 2013 and 2015 in Australia and this is going to curtail growth over FY18; (ii) Asian growth will be driven by lower-margin products; (iii) the focus of EU region is one of minimising earnings decline from the tough conditions associated with Brexit, and (iv) a conservation tone on FY18 earnings was noted from the typically exuberant management. 3 April

12 Fig 21 Telcos continue to underperform Fig 22 Utilities deliver strongest monthly performance Telcos sector total return (%), March Utilities sector total return (%), March TPM 11.7 EPW 20.6 CNU 6.1 AGL 9.3 AYS 6.0 Utilities 6.3 Telcos 0.3 APA 5.9 TLS -0.1 SPK -0.2 SKI 5.3 VOC -1.4 AST 4.0 SDA -1.8 IFN 1.5 SLC -7.3 DUE 1.5 Telcos & Utilities With Telcos (+0.3%), TPM (+11.7%) reported 1H EBITDA of $417.6m, up 13.2% on the pcp, and 1.6% ahead of MRE expectations. The result puts TPM back on track to come in toward the top end of its guidance range ($ m; MRE: $832.4m). Operational highlights for the half include margin expansion at iinet, improving fundamentals in the Corporate segment, and the shift pf 24k TPM subs onto FTTB (14k organic, 10k acquired). Our Telcos team notes that the earnings run-rate will be tempered in 2H by higher marketing costs and a pick-up in migration to the NBN. A positive month for Utilities (+6.3%), outperforming the market, was led by EPW (+20.6%). EPW revised its FY17 gross margin outlook to $3.50/MWh from $3.00/MWh (MRE $2.74/MWh), up $9m from 23rd Feb. It was a better March with volatility favouring its book, and the recovery of the Callide C hedge (at least $0.6m) as it came out of administration, the major drivers of improvement. EPW also provided FY18 guidance of $3.50/MWh vs market consensus of ~$2.80/MWh. 3 April

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 2016 AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients) Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients) Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% 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 Limited (MGL) 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 , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities Limited ABN AFSL ("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 Apart from Macquarie Bank Limited ABN (MBL), any MGL subsidiary noted in this research,, 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 contains 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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We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. 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 3 April

14 This publication was disseminated on 03 April 2017 at 12:43 UTC. 3 April