ANZ Bank. Turning the corner? Earnings and target price revision. Price catalyst. Catalyst: 1Q17 Trading update, February 2017.

Transcription

1 AUSTRALIA ANZ AU Price (at 11:16, 3 Nov 216 GMT) Outperform A$27.35 Valuation A$ Sum of Parts/GG month target A$ month TSR +1.2 Volatility Index Low/Medium GICS sector Banks Market cap A$m 8,53 3-day avg turnover A$m Number shares on issue m 2,927 Investment fundamentals Year end 3 Sep 216A 217E 218E 219E Net interest Inc m 15,95 15,433 15,525 15,868 Non interest Inc m 5,482 5,775 5,362 5,66 Underlying profit m 1,155 11,369 11,899 12,438 Reported profit m 5,79 6,832 7,216 7,512 Adjusted profit m 5,889 6,832 7,216 7,512 EPS adj EPS adj growth PER adj x PER rel x Total DPS Total div yield Franking ROA ROE Equity to assets P/BV x ANZ AU vs ASX 1, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, November 216 (all figures in AUD unless noted) 4 November 216 Macquarie Securities (Australia) Limited Turning the corner? Event After what was a challenging year for ANZ the key question for investors now is, has ANZ turned the corner in FY17? Notwithstanding the two recent downgrades, 2H16 result appears to mark the turning point in credit quality whilst revenue trends held-up despite reduction in RWAs (supported by solid markets income performance). While constructive for the investment thesis, in order to justify further outperformance we believe ANZ will need to demonstrate its ability to manage expenses better than peers without relying on ongoing restructuring charges. We continue to believe this is achievable and should ultimately lead to better returns, albeit recognise that execution is likely to take longer than one year. Impact ANZ s FY16 pre-provision result was largely in line with our expectations, while the BDD charge was marginally lower. We expect the market to like (i) solid capital position (pro forma CET1 of is now sector leading), (ii) normalising credit charges (the stress in the institutional portfolio is past its peak suggesting ANZ s negative differentiation to peers should continue to abate), and (iii) improved pre-provision returns (we estimate 8bps improvement in 2H16). While revenue was largely in line with our expectations we note that it was supported by an $8m uplift in underlying markets and trading income in 2H16 (which we generally view as lower quality). Should markets income normalise in 1H17 it will have a ~1 drag to ANZ s revenue performance. In the current low growth revenue environment, we believe expense management is likely to be the key differentiator in the sector. Our earlier analysis suggested that ANZ should have scope over the medium term to deliver cost savings of $7m-$1bn. In that regard we view ANZ s $2m FY17 expense reduction target from FY16 restructuring as conservative. ANZ was able to deliver additional ~$12bn reduction in Institutional Credit RWA in 2H16 (~$9bn reduction in 1H16). This supported its capital positon (now sector leading) and provided scope to improve pre-provision returns on RWA by 8bps. Ongoing optimisation of RWA should provide further scope for medium-term ROE uplift. Earnings and target price revision EPS changes of -1 in FY17 and +1 in FY18 to reflect higher cost and lower BDD expectations. Our target price remains unchanged at $28.5 Price catalyst 12-month price target: A$28.5 based on a Sum of Parts/GG methodology. Catalyst: 1Q17 Trading update, February 217. Action and recommendation Maintain Outperform. Please refer to page 12 for important disclosures and analyst certification, or on our website

2 ANZ 2H16 Result Analysis What we liked What we didn t like What else was interesting Adjusted pro forma cost growth contained at -.4 Cost growth of -9.8 HoH was in line with MRE for -9.7 HoH. Adjusted pro forma cost growth was -.4 HoH as personnel expenses began to decline from restructuring. The underlying costto-income ratio in 2H16 was When additional amortisation expense is included ANZ s expenses were broadly flat. Solid capital generation assisted by underlying RWA reduction ANZ's CET1 ratio came in at 9.61 compared with our forecast for 9.45, driven by a reduction in credit RWA. ANZ's organic generation for the half was 52bps net of the dividend and DRP. We estimate its pro forma CET1 ratio after adjusting for the Asia retail sale to be ~9.8. Impairment slightly better than our expectations BDD expense came in at $1,47m or 36bps of GLAAs for 2H16. This was up from 32bps in 1H16, but better than our expectations for 4bps. The increase was driven primarily by the settlement of the Oswal legal dispute ($147m) and increases in Australia Retail and NZ Agri. Asset growth stronger than expected GLAA growth was above our expectations for growth, coming in at 3. HoH with solid growth in NZ lending (+3 in NZD) and Australia division (+2) driven by 9 growth in corporate banking and 2 growth in home loans. This was partially offset by ongoing run-off in the institutional division. Cost savings of $2m in FY17 seem conservative ANZ delivered ~$1m of annual savings in FY16, it expects a further $2m in FY17 and an additional ~$1m in FY18. Given it has incurred $278m of restructuring charges this benefit seems low to us. Margin pressure driven by Institutional business The NIM was down 1bps HoH to 2. (MRE est. flat HoH at 2.1). The NIM movement was driven by pressure from funding costs and deposits, partially offset by asset mix improvement. The institutional NIM (ex-markets) was up 4bps HoH, offsetting a 5bps decline in the NZ NIM and 2bps in Australia. New Zealand result was weak with cash profit down 4 HoH Cash profit declined 4 (in NZD) driven by an increase in impairment expense (+8 to $83m NZD) with preprovision profit flat HoH. Corporate & commercial banking under pressure in Australia and New Zealand Revenue fell 2 in Australia and NZ HoH due to margin pressure while increasing provisions resulted in a 13 reduction in NZ CCB cash profit. Institutional result was soft, down 6 HoH (pro forma basis) Institutional cash profit declined 6 HoH on a pro forma basis (-33 on a cash basis) driven by an 8 decline in NII and a 29 increase in impairment (Oswal settlement), partially offset by a 6 reduction in costs. ANZ Life, advice and superannuation business up for sale ANZ noted it had completed its review of the Australian wealth business and was considering a sale of its life insurance, advice and superannuation business, which we estimated could be worth between $3-5bn and provide ~7-1bps of capital uplift. The NZ wealth business will be reviewed in 217. Guided to flat BDDs in FY17 ANZ have guided to flat BDDs as a of GLAAs, which we think is a little conservative given the FY16 experience. Pro forma dividend payout of 67 for FY16 ANZ s payout ratio has come down to 67 for FY16 on a pro forma basis (79 cash basis) as it moves towards its reduced payout range of DRP will operate with no discount applied The DRP will operate with no discount. APRA leverage ratio of 5.3 (APRA basis) up 2bps HoH ANZ's leverage ratio improved 2bps to 5.3 (APRA basis) and 6. on an internationally comparable basis. LCR of 125 in 2H16 The LCR was 125 at 2H16, down from 126 at 1H16. ANZ has a surplus of $35bn ($37bn at 1H16). NSFR estimated to be over 15 at a group level ANZ estimates its Group NSFR is modestly over 15. We, however, suspect the domestic NSFR is lower than the rest of the group. 4 November 216 2

3 Key Issues Costs are still very much a moving target In the current low growth revenue environment, we believe expense management is likely to be the key differentiator in the sector. Our earlier analysis suggested that ANZ should have scope over the medium term to deliver cost savings of $7m-$1bn. In that regard we view ANZ s $2m FY17 incremental cost benefits form FY16 restructuring as conservative. We note than NAB provided cost target of ~$2m of cost saves without taking restructuring charges. In our expense bridge analysis below, we assumed that ANZ will deliver additional $1m of cost saves (which we see as a low hurdle target). On that basis we estimate underlying expenses for FY17 are likely to be ~$9.6bn. Furthermore, we note that ANZ s P&L investment spend is towards the upper end of peers (following its amortisation policy changes in FY16), hence should not be an ongoing drag in FY17. Fig 1 FY17 cost bridge Fig 2 Investment spend expensed through P&L $m 1,1 1, 9,9 9,8 9,7 9,6 9,5 9,4 9,3 9,2 9,1 9, $m Expensed through P&L ($m) Impact on earnings () (RHS) Capital Generation ANZ was able to deliver additional ~$12bn reduction in Institutional Credit RWA in 2H16 (~$9bn reduction in 1H16). This supported its capital positon (now sector leading) and provided scope to improve pre-provision returns on RWA by 8bps. As the figure below highlights, ANZ s organic capital generation was ahead of peers. We believe that ongoing optimisation of RWA should provide further scope for medium term ROE uplift ANZ Fig 3 FY16 capital generation Fig 4 Pro forma CET1 ratios bps CET1 Uplift from sale ANZ CBA NAB Organic Dividend Other Net movement 8.6 Note: We have excluded the impact of mortgage risk weights and CBA s capital raising for a like-for-like comparison Source: Company data, Macquarie Research, October November 216 3

4 Underlying returns improve as RWA are optimised ANZ was able to deliver additional ~$12bn reduction in Institutional Credit RWA in 2H16 (~$9bn reduction in 1H16). This supported its capital positon (now sector leading) and provided scope to improve pre-provision returns on RWA by 8bps. Fig 5 change in Return on RWA Fig 6 change in pre-provision RoRWA ANZ CBA NAB YoY Δ in RoRWA HoH Δ in RoRWA ANZ CBA NAB YoY Δ in pre-prov. RoRWA HoH Δ in pre-prov. RoRWA BDD charges should be less of an earnings drag in FY17 2H16 BDD expense of $1.5bn or 36bps of GLAAs was better than our expectations of 4bps. Furthermore, management highlighted that the stress in the institutional portfolio is past its peak suggesting ANZ s negative differentiation to peers should continue to abate. While the elevated level of BDDs has an ongoing impact on earnings, we expect a smaller drag to ANZ s EPS from a normalising BDD charge relative to peers that should converge towards ANZ in FY17 and FY18. Additionally ANZ s specific provision coverage has been trending upwards and is now highest of the majors, which could potentially provide scope for write-backs if credit conditions remain benign. Fig 7 Majors BDDs to non-housing loans Fig 8 Specific provisions to impaired assets bps H16 1H17 2H17 1H18 2H18 1H H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 Source: Company data, Macquarie Research, October November 216 4

5 Result analysis On a cash earnings basis ANZ s 2H16 result was 2 above our expectations and in line with consensus. The beat vs. our expectations was driven by improved impairment expense. Operating revenue growth in line Revenue growth of -.5 HoH was in line with MRE. On an adjusted pro forma basis revenue grew 1 HoH. Adjusted pro forma cost growth contained at -.4 Cost growth of -9.8 HoH was in line with MRE for -9.7 HoH, with adjusted pro forma cost growth -.4 HoH as personnel expenses begin to decline from restructuring. Impairment expenses were better than our expectation at 36bps BDD expense came in at $1,47m or 36bps of GLAAs for 2H16. This was up from 32bps in 1H16, but better than our expectations for 4bps. Fig 9 Result summary compared to forecasts and HoH growth (A$mn) Actual MRE Actual Diff vs MRE Growth vs. 1H16 Pro forma Adjusted Growth vs. 1H16 Half Year ended 31 March 1H16 2H16 2H16 () () 1H16 2H16 () Net interest income 7,568 7,55 7, ,537 7, Non-interest income 2,748 2,737 2, ,91 2, Total income 1,316 1,287 1, ,438 1,498.6 Operating expenses 5,479 4,949 4, ,71 4, Pre-provision profit 4,837 5,337 5, ,737 5, Impairment expense 918 1,128 1, , Net profit before income tax 3,919 4,21 4, ,832 4, Corporate tax expense 1,133 1,158 1, ,329 1, Minority Interest ANZ Cash NPAT 2,782 3,48 3, ,499 3, Diluted EPS ($) Basic EPS ($) Source: Macquarie Research, November 216 Based on Macquarie earnings quality screen the quality of the reported profit has remained strong. In calculating our earnings number we adjust for recurring items excluded from cash earnings (ie. Litigation expenses, acquisition/integration costs), adjust for the implied collective provision usage and back out the movement in capitalised software balances and the major driver in this period was the fact ANZ took their reduction in software balances above the line. Fig 1 Macquarie earnings quality November 216 5

6 Credit Quality ANZ s impaired to non-housing loans continued its upward trend and is towards the higher end of peers in the sector. Conversely, ANZ s level of collective provisions declined in 2H16 driven by the increase in mortgage risk weights and factoring in GRCLs is marginally below peers. Fig 11 Impaired to Non-Housing Loans bps 3 Fig 12 Collective Provision to Credit RWA (bps) H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 3Q16/ 2H16 6 (3Q16) CP to CRWA GRCL top-up to CRWA CP on Derivatives Note: CBA and WBC adjusted for mortgage risk weight increases ANZ s credit quality metrics continue to track below peers with 9 days past due to GLA at 47bps, a slight increase from 1H16. BDDs to non-housing loans also increased, primarily driven by the Oswal settlement ($147m or 12bps of NHL). Fig 13 9 days past due to GLA bps 6 Fig 14 BDDs to non-housing loans bps H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 Revenue trends While revenue was largely in line with our expectation we note that it was supported by an $8m uplift in underlying markets and trading income in 2H16 (which we generally view as lower quality). Should markets income normalise in 1H17 it will have a ~1 drag to ANZ s revenue performance. NIM was down 1bps HoH to 2. (MRE est. flat HoH at 2.1). The NIM movement was driven by pressure from funding costs and deposits, partially offset by asset mix improvement. The institutional NIM (ex markets) was up 4bps HoH, offsetting a 5bps decline in the NZ NIM and 2bps in Australia. 4 November 216 6

7 Fig 15 Margins by division Fig 16 Trading income () H14 1H15 2H15 1H16 2H16 Australia Institutional New Zealand 5 2H8 2H9 2H1 2H11 2H12 2H13 2H14 2H15 2H16 NAB WBC ANZ Note: trading income for ANZ is ex CVA methodology change 4 November 216 7

8 Valuation and risks Our price target remains unchanged at $28.5/share based broadly on the midpoint of our SOTP ($27.47/share) and GG ($29.22/share) based valuations. SOTP (sum of the parts) valuation $27.47/share Our SOTP valuation captures earnings contributions from banking and wealth management and attributes a peer-based multiple. We apply an 11.1x FY18F P/E multiple to our banking earnings, which is representative of the peer average banking P/E multiple after adjusting each bank s multiple to exclude the funds management business. For the wealth business, we apply a 11.5x FY18F P/E multiple, consistent with AMP s multiple. We assume that ANZ should trade at a ~1 discount to peers (in line with the LT average). Fig 17 Segment valuation Division Cash Earnings (A$m) PE Multiple (x) Valuation Bank less distributions 6, ,9 Wealth management ,122 Total 7,216 8,131 Number of shares (last reported) 2,918 Valuation ($/share) Source: Macquarie Research, November 216 Note: Wealth Management multiple is based on AMP FY18 multiple. Bank multiple is based on the average of peers adjusted for their respective WM contributions. We assume that ANZ should trade at a ~1 discount to peers (in line with the LT average). Fig 18 Derivation of P/E multiple for banking earnings Bank EPS (A$/share) PE Multiple (x) WM Contribution Bank Adjusted PE (x) ANZ CBA NAB WBC Average (ex ANZ) 12.3 LT premium to sector -1 Implied multiple 11.1 Source: Macquarie Research, November 216 Gordon Growth (GG) valuation $29.23/share We have derived a GG valuation of $29.23, based on ANZ s estimated sustainable return on tangible equity of ~14. Based on this methodology ANZ is currently trading at ~7 discount to its fundamental valuation, including an additional 1 execution risk discount. Fig 19 Gordon Growth valuation P/NTA (x) CBA WBC ANZ NAB RoTE () Source: Macquarie Research, November November 216 8

9 Risks Key downside risks are centred on Asia for ANZ, namely a material deterioration in credit quality, as well as revenue, if low returning businesses are run-off without the required offsetting reduction in costs. A key upside risk would arise should ANZ be able to sell their minority interests in a timely manner at prices at or above book value. Fig 2 ANZ Financial Summary Year Ending 3 September 1H16 2H H17 2H Outperform PER SHARE DATA Cash EPS (AUD) - Macquarie Basis Current Price Target Price Cash EPS Growth () $27.35 $28.5 DPS (AUD) Total Shareholder Return 1.1 BVPS (AUD) NTA PS (AUD) Bloomberg: ANZ AU Shares on issue (m) 2,918 2,927 2,927 2,936 2,941 2,941 2,948 2,956 Reuters: ANZ.AX VALUATION METRICS 15 Macquarie Equities Australian Banks P/E (Cash) Analyst(s) Contact(s) P/B (Stated) Victor German P/NTA Anita Stanley RoE () Brendan Carrig RoA () Dividend Yield () Dividend Payout () Volumes and margins Cost of Equity () PROFIT & LOSS (AUDm) 6 Net Interest Income 7,568 7,527 15,95 7,665 7,767 15,433 15,525 15, Non-Interest Income 2,748 2,734 5,482 3,12 2,764 5,775 5,362 5, Fees & Commissions 1,194 1,193 2,387 1,185 1,216 2,41 2,54 2,751 4 Financial Markets , Life and Funds , ,546 1,611 1, Other Revenue Total Operating Income 1,316 1,261 2,577 1,677 1,531 21,28 2,888 21, Total Operating Costs 5,479 4,943 1,422 5,167 4,672 9,839 8,989 9, Employee Costs 2,79 2,65 5,359 2,583 2,541 5,124 5,9 5,2 1.8 Other Costs 2,77 2,293 5,63 2,584 2,131 4,716 3,899 3,836 1H17 2H Pre-Provision Operating Profit 4,837 5,318 1,155 5,51 5,859 11,369 11,899 12,438 Impairment Charge 918 1,38 1, ,99 1,841 1,895 Net Interest Margin () GLAA growth () Pre-Tax Profit 3,919 4,28 8,199 4,548 4,911 9,459 1,58 1,543 Efficiency and costs Tax Expense 1,133 1,166 2,299 1,25 1,363 2,613 2,828 3,18 Minority Shareholders Other Post Tax Items Macquarie Cash Profit 2,782 3,17 5,889 3,291 3,542 6,832 7,216 7, Extraordinary & Other Items Reported Net Profit 2,738 2,971 5,79 3,291 3,542 6,832 7,216 7, H17 2H Cost / Income Ratio () Cost growth () CET1 ratio and BDD/GLA H17 2H Core Tier 1 Ratio () - Basel III Impairment Charge / GLAA (bp) BALANCE SHEET & CAP AD (AUDm) Risk Weighted Assets* 388,335 48,582 48,582 41, ,87 419,87 438,11 463,99 Average Interest Earning Assets 754, , ,16 759, , ,8 772,42 86,522 Gross Loans, Advances & Acceptances 565,868 58,35 58,35 587, , ,754 62,52 638,97 Interest Bearing Liabilites 789,522 86,975 86, ,62 819,15 819,15 837,66 887,754 Total Assets 895, , , ,29 928,55 928,55 949,35 1,5,68 Shareholders Equity 56,464 57,927 57,927 58,892 59,934 59,934 62,14 64,91 Tier 1 Capital* 45,62 48,285 48,285 49,25 5,292 5,292 52,372 54,449 Tier 1 Ratio ()* Core Tier 1 Ratio () - Basel III ASSET QUALITY Impairment Charge / GLAA (bp) Impairment Charge / NHL (bp) Provisions / NPLs () KEY RATIOS & GROWTH Net Interest Income growth () Non-Interest Income growth () Total Revenue growth () Cost growth () Pre-Provision Profit growth () RWA growth () GLAA growth () Deposit growth () Net Interest Margin () Cost / Income Ratio () CET1 Capital 38,12 39,267 39,267 4,232 41,274 41,274 43,354 45,431 Cash Profit Growth () Weighted Average shares (m) Cash EPS (Basic) Cash EPS growth () November 216 9

10 Fig 21 Investment Fundamentals Victor German Anita Stanley Brendan Carrig BEN BOQ CYB ( ) Recommendation Outperform Neutral Neutral Outperform Underperform Neutral Neutral Price target (A$) Upside/downside to TP () month TSR () Last Price (A$) Cash NPAT (A$mn) 215a 7,216 9,137 5,887 7, f 5,889 9,45 6,483 7, f 6,832 9,587 6,473 8, f 7,216 9,991 6,49 8, Fully diluted EPS (cps) 215a f f f EPS grow th () 215a f f f Price/Earnings Ratio (x) 215a f f f PE rel to All Industrials ex banks (x) 215a f f f Price/Earnings rel to bank sector (x) 215a f f f DPS (A$) 215a f f f Current Yield () 215a f f f Price/Book ratio (x) 215a f f f ROE 215a nmf 216f f f Price/NTA ratio (x) 215a nmf 216f f f yr fwd PE ratio yr fwd PE ratio (adj for div) Relative premium/discount yr fw d div yield November 216 1

11 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a strong positive view on. The strongest style exposure is Valuations, indicating this stock is under-priced in the market relative to its peers. The weakest style exposure is Growth, indicating this stock has weak historic and/or forecast growth. Growth metrics focus on both top and bottom line items. 37/744 Global rank in Banks of BUY recommendations 5 (8/16) Number of Price Target downgrades 1 Number of Price Target upgrades 3 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Banks) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. DBS DBS Westpac Banking Corporati.5 Westpac Banking Corporati HSBC.4 HSBC Commonwealth Bank.2 Commonwealth Bank National Australia Bank -.4 National Australia Bank Standard Chartered -1.5 Standard Chartered Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. DBS Westpac Banking Corporati HSBC Commonwealth Bank National Australia Bank Standard Chartered DBS Westpac Banking Corporati HSBC Commonwealth Bank National Australia Bank Standard Chartered Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price to Cash FY Price to Sales FY1 Price to Sales NTM Price to Sales FY Net Income Margin NTM EBITDA Revisions 3 Month Earnings Stability CPS Growth FY1 Negatives Positives How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/744) Percentile relative to market(/423) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 4 November

12 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 >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie South Africa Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 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 3 index return Neutral (Hold) return within 5 of Russell 3 index return Underperform (Sell) return >5 below Russell 3 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 6 1 in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6 in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 4 in a year. Low medium stock should be expected to move up or down at least 25 3 in a year. Low stock should be expected to move up or down at least 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 3 September 216 AU/NZ Asia RSA USA CA EUR Outperform (for US coverage by MCUSA, 8.2 of stocks followed are investment banking clients) Neutral (for US coverage by MCUSA, 8.25 of stocks followed are investment banking clients) Underperform (for US coverage by MCUSA, 8. of stocks followed are investment banking clients) Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 14-Sep-216 ANZ AU Outperform A$ Jul-216 ANZ AU Outperform A$ May-216 ANZ AU Outperform A$29. 4-May-216 ANZ AU Outperform A$ Mar-216 ANZ AU Outperform A$ Mar-216 ANZ AU Outperform A$ Feb-216 ANZ AU Outperform A$ Jan-216 ANZ AU Outperform A$ Oct-215 ANZ AU Neutral A$ Oct-215 ANZ AU Neutral A$ Oct-215 ANZ AU Neutral A$ Aug-215 ANZ AU Neutral A$ Aug-215 ANZ AU Neutral A$ Jul-215 ANZ AU Neutral A$ Jul-215 ANZ AU Underperform A$ Jun-215 ANZ AU Underperform A$ May-215 ANZ AU Underperform A$ May-215 ANZ AU Underperform A$ Feb-215 ANZ AU Underperform A$ Oct-214 ANZ AU Underperform A$ Oct-214 ANZ AU Underperform A$ Sep-214 ANZ AU Underperform A$ Sep-214 ANZ AU Underperform A$ Aug-214 ANZ AU Underperform A$ Jul-214 ANZ AU Underperform A$ May-214 ANZ AU Underperform A$ Mar-214 ANZ AU Neutral A$ Feb-214 ANZ AU Neutral A$ Jan-214 ANZ AU Neutral A$ Dec-213 ANZ AU Neutral A$33.1 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 Macquarie Wealth Management, 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 4 November

13 This publication was disseminated on 3 November 216 at 13:42 UTC. Macquarie Wealth Management 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. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. 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 4 November