AUSTRALIA SPO AU Price (at 05:45, 31 Jan 2017 GMT) Neutral A$0.94 Valuation - Peer multiples A$ 1.02 12-month target A$ 1.02 12-month TSR % +18.3 Volatility Index High GICS sector Commercial & Professional Services Market cap A$m 1,032 30-day avg turnover A$m 5.4 Number shares on issue m 1,098 Investment fundamentals Year end 30 Jun 2016A 2017E 2018E 2019E Revenue m 3,176.1 3,090.3 3,177.4 3,296.9 EBIT m 207.8 185.4 204.0 219.8 Reported profit m 122.2 101.7 113.5 124.4 Adjusted profit m 129.2 109.4 121.9 132.8 Gross cashflow m 222.9 218.2 227.7 236.3 CFPS 20.3 19.9 20.7 21.5 CFPS growth % 1.9-2.1 4.3 3.8 PGCFPS x 4.6 4.7 4.5 4.4 PGCFPS rel x 0.39 0.46 0.49 0.52 EPS adj 11.8 10.0 11.1 12.1 EPS adj growth % -13.0-15.3 11.4 9.0 PER adj x 8.0 9.4 8.5 7.8 PER rel x 0.38 0.54 0.57 0.60 Total DPS 8.5 8.5 9.6 11.1 Total div yield % 9.0 9.0 10.2 11.8 Franking % 18 0 50 100 ROA % 9.7 8.3 9.0 9.7 ROE % 15.8 13.2 14.5 15.7 EV/EBITDA x 5.8 6.0 5.7 5.4 Net debt/equity % 95.5 97.0 97.7 99.4 P/BV x 1.2 1.2 1.2 1.2 SPO AU vs Small Ordinaries, & 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, January 2017 (all figures in AUD unless noted) 31 January 2017 Macquarie Securities (Australia) Limited FY17 a transitional year Event 1H17 result preview (SPO reports 28 Feb). We forecast $38m of reported 1H NPAT down on pcp of $48m. At its AGM, SPO described FY17 as a transitional year as SPO bears the full year impact of some significant contract losses, margin pressure in some sectors as well as increased depreciation from investments in prior years. Contract losses in FY16 included RIO (won by Sodexo), Suncorp Stadium and Western Properties but with a negative full year effect in FY17. There is no specific guidance for FY17. Prior guidance was for "growth in FY17 and beyond" but there was no quantitative guidance provided for FY17 and growth at what level was not specified. Our revised FY17 EPS is down 15% on pcp. SPO expects a more pronounced skew to 2H than normal due to the above factors. We now forecast a 37:63 NPAT skew (1H:2H) below last year s 40:60 skew and FY15's 42:58 skew. Impact SPO faces declining revenue in FY17 (we forecast -3%) which is attributable to prior disinvestment in business development (BD) and competitive market activity. This manifested in a below average win rate of only 12% in FY16 (by revenue) vs 20-27% in prior two years along with a below average contract renewal rate (73% in FY16 vs 91% pcp). BD investment has now been rectified but with a lag to flow through to new contract wins and revenue generation. Success rate here will be a key focus area going forward. Competitive market conditions and BD re-investment costs ($2-3m) are likely to see margins pressured. We forecast 8.8% 1H17 Facility Services EBITDA margins which is up on reported pcp of 8.4% but below underlying 9.5% if exclude $14 tender/bid costs written off as previously disclosed. We note that SPO s net debt is typically seasonally higher in 1H (working capital tends to build in 1H before releasing in 2H). Hence net debt is likely to increase in 1H17 relative to 2H16 and we forecast $833m of 1H17 net debt (2.7x net debt to EBITDA) vs $790m in FY16 before reducing to $810m by end of FY17. Earnings and target price revision We have reduced our FY17 and FY18 EPS by 18% and 13%, respectively, to more fully reflect impact of contract losses, higher depreciation and margin pressure as per AGM commentary. Our FY17 EBITDA is 2% below pcp on a reported basis but -6% below on an adjusted basis if exclude $14m of tender/bid costs written off last year. Price catalyst 12-month price target: A$1.02 based on a Peer multiples methodology. Catalyst: 1H17 result 28 Feb Action and recommendation Maintain Neutral with TP of $1.02 ($1.19 prior). Earnings headwinds continue in the short term and a more pronounced skew puts pressure on the 2H to deliver. On the positive side, we expect stronger cash conversion in 1H17 (71% vs pcp of 30%). New contract wins are required to drive top-line growth (and SPO still has solid market positions), but there is a lag for this to flow through. Please refer to page 6 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Analysis Fig 1 Spotless earnings by division $m 1H15a 2H15a FY15a 1H16a 2H16a FY16a 1H17e 2H17e FY17e FY18e Revenue Facility services 1,153.5 1,207.4 2,360.9 1,168.9 1,188.8 2,357.7 1,100.1 1,154.4 2,254.6 2,328.5 growth 4% 6% 5% 1% -2% 0% -6% -3% -4% 3% - Health, Education & Gov 511.5 622.6 1,134.1 552.5 556.5 1,109.0 515.9 552.9 1,068.8 1,138.2 growth 14% 26% 20% 8% -11% -2% -7% -1% -4% 6% - Commercial & Leisure 362.2 317.6 679.8 335.9 313.4 649.3 302.3 308.0 610.3 606.8 growth -6% -11% -8% -7% -1% -4% -10% -2% -6% -1% - Base & Township 279.8 267.2 547.0 280.5 318.9 599.4 281.9 293.5 575.4 583.5 growth 1% -9% -4% 0% 19% 10% 0% -8% -4% 1% Facility Serv acquisitions 10.0 174.0 184.0 288.2 263.8 552.0 262.0 277.1 539.1 546.6 Laundries 139.0 139.2 278.2 148.9 146.4 295.3 148.9 147.8 296.6 302.3 growth 5% 13% 9% 7% 5% 6% 0% 1% 0% 2% Other 0.0 0.0 0.0 0.0-28.9-28.9 0.0 0.0 0.0 0.0 growth Group revenue 1,302.5 1,520.6 2,823.1 1,606.0 1,570.1 3,176.1 1,511.0 1,579.3 3,090.3 3,177.4 growth 1% 14% 8% 23% 3% 13% -6% 1% -3% 3% EBITDA Facility services 116.9 151.2 268.1 122.7 156.3 279.0 120.3 148.3 268.6 281.8 growth 39% 60% 50% 5% 3% 4% -2% -5% -4% 5% Laundries 41.4 45.8 87.2 37.2 34.2 71.4 37.2 39.9 77.1 81.6 growth 15% 24% 19% -10% -25% -18% 0% 17% 8% 6% Group EBITDA -21.2-17.7-38.9-22.3-16.5-38.8-23.2-17.3-40.5-41.6 growth 137.1 179.3 316.4 137.6 174.0 311.6 134.3 171.0 305.2 321.9 14% 36% 25% 0% -3% -2% -2% -2% -2% 5% EBITDA margin Facility services 10.1% 10.9% 10.5% 8.4% 10.8% 9.6% 8.8% 10.4% 9.6% 9.8% Laundries 29.8% 32.9% 31.4% 25.0% 23.4% 24.2% 25.0% 27.0% 26.0% 27.0% Group EBITDA margin 10.5% 11.8% 11.2% 8.6% 11.1% 9.8% 8.9% 10.8% 9.9% 10.1% Source: Company data, Macquarie Research, Jan 2017 1H17 result preview At its AGM, SPO described FY17 as a transitional year as it bears the full year impact of some significant contract losses, margin pressure in some sectors as well as increased depreciation from investments in prior years. Contract losses in FY16 included RIO (won by Sodexo), Suncorp Stadium and Western Properties but with a negative full year effect in FY17. There is a lack of revenue growth (we forecast -3% in FY17) which is largely attributable to prior disinvestment in business development (BD). This manifested in a below average win rate of only 12% in FY16 (by revenue) vs 20-27% in prior two years along with a below average contract renewal rate (73% in FY16 vs 91% pcp). This is particularly apparent in 1H17 (-6%) given a lack of new wins and flow through of relatively weak 2H16 revenue. We note there is a traditional skew in SPO s revenue and profit reflecting greater amount of government spending that occurs in 2H. Competitive market conditions and BD re-investment costs ($2-3m) are likely to see margins pressured. We forecast 8.8% 1H17 Facility Services EBITDA margins which is up on reported pcp of 8.4% but below underlying 9.5% if exclude $14 tender/bid costs written off as previously disclosed. Laundries should have an improved year given an absence of -$3m integration costs and gradually improving acquisition performance through internal changes and a more optimal product mix. We note that SPO s net debt is typically seasonally higher in 1H (working capital tends to build in 1H before releasing in 2H). Hence net debt is likely to increase in 1H17 relative to 2H16 and we forecast $833m of 1H17 net debt vs $790m in FY16. This represents 2.7x net debt to EBITDA in 1H17 based on trailing or CY16 EBITDA and compares to 2.5x in FY16. We expect stronger cash conversion in 1H17 (we forecast 71% vs a poor 1H16 which was 30%). We forecast a flat 1H dividend at 3.5cps. 31 January 2017 2
Fig 2 Net debt profile likely to remain elevated $1,000m $800m $600m $400m $200m $0m 2.5x 2.7x 2.7x 2.1x 1.8x $527m $564m $790m $833m $810m FY14(a) FY15(a) FY16(a) 1H17(e) FY17(e) Net Debt ND:EBITDA 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x Source: Company data, Macquarie Research, January 2017 Fig 3 Global facility management valuation comparisons; SPO at a 48% discount to global peers in FY17 (ex Serco) PE EV/EBIT EV/EBITDA 2016A 2017E 2018E 2016A 2017E 2018E 2016A 2017E 2018E Spotless 8.0 9.4 8.5 8.8 9.9 9.0 5.9 6.0 5.7 Domestic peer Programmed Group 8.9 11.0 10.0 12.7 10.4 9.6 8.9 7.3 7.0 8.9 11.0 10.0 12.7 10.4 9.6 8.9 7.3 7.0 Global peers Compass 23.1 19.6 18.3 18.1 15.4 14.3 14.0 12.0 11.3 Sodexo 22.2 20.1 18.3 13.6 12.4 11.5 10.9 10.0 9.4 Serco (Jun y/e adjusted) 29.7 47.3 29.5 19.9 24.5 18.3 13.1 14.6 12.0 ISS (Jun y/e adjusted) 15.9 15.4 14.5 13.3 12.5 11.8 10.8 10.3 9.7 Aramark 19.3 18.0 15.7 14.4 13.3 11.9 9.6 9.1 8.3 Average 22.0 24.1 19.3 15.9 15.6 13.6 11.7 11.2 10.1 Average ex Serco 20.1 18.3 16.7 14.9 13.4 12.4 11.3 10.3 9.7 Prem/Disc to domestic peers -11% -14% -15% -31% -5% -7% -34% -18% -19% Prem/Disc to global peers -64% -61% -56% -45% -37% -34% -50% -47% -44% Prem/Disc to global peers (ex Serco) -60% -48% -49% -41% -26% -28% -48% -42% -41% Source: FactSet, Macquarie Research, January 2017. SPO is priced as of 31 January all other stocks priced as of 30 January The global facility management sector is currently trading on 24x FY17 PER or 18x ex Serco. Programmed Group (PRG) trades on 11x FY17 PER and is slightly higher than SPO. We have undertaken a global peer valuation approach. We have highlighted the global facility management group which we believe is most similar to Spotless. Companies within this basket include Compass, Sodexo, Serco, ISS and Aramark. These companies have an overlap across either Facility Management, Catering, and/or Cleaning. At the same time a number of these companies have more diverse operations than just these categories (e.g., Aramark also has Uniform rental/sale etc). Relevant considerations when assessing Spotless against peers include SPO s strong EBITDA margins vs peers. However, the AGM update signalled a more challenging earnings outlook for SPO. Also factoring into a discount is SPO's smaller size (vs large globals) and more concentrated Aust/NZ exposure. Our $1.02 TP is based on an average 35% discount to global peers across PE, EV/EBIT and EV/EBITDA measures in FY17/18. 31 January 2017 3
Interim results 1H16/A 2H16/A 1H17/E 2H17/E Profit & Loss 2016A 2017E 2018E 2019E Revenue 1606.0 1570.1 1511.0 1579.3 Revenue $m 3176.1 3090.3 3177.4 3296.9 0% 0% -6% 1% growth 23% -3% 3% 4% EBITDA $m 137.6 174.0 134.3 171.0 EBITDA $m 311.6 305.2 321.9 335.3 Depreciation $m 40.6 47.3 51.8 51.8 Depreciation $m 87.9 103.7 103.3 102.4 Amortisation $m 8.0 7.9 8.1 8.1 Amortisation $m 15.9 16.2 14.6 13.1 EBIT $m 89.0 118.8 74.4 111.0 EBIT $m 207.8 185.4 204.0 219.8 Net Interest expense $m 19.8 20.1 20.8 21.4 Net interest expense $m 39.9 42.1 41.9 42.1 Pre-Tax Profit $m 69.2 98.7 53.6 89.7 Pre-Tax Profit $m 167.9 143.3 162.2 177.8 Tax Expense $m 20.8 24.9 15.5 26.0 Tax Expense $m 45.7 41.6 48.6 53.3 Net Profit $m 48.4 73.8 38.1 63.7 Net Profit $m 122.2 101.7 113.5 124.4 Outside equity $m 0.0 0.0 0.0 0.0 Outside equity interests $m 0.0 0.0 0.0 0.0 Net Abn/Extra $m 0.0 0.0 0.0 0.0 Net Abnormals/Extra. $m 0.0 0.0 0.0 0.0 Reported Earnings $m 48.4 73.8 38.1 63.7 Reported Earnings $m 122.2 101.7 113.5 124.4 Adjusted Earnings $m 51.9 77.3 41.9 67.5 Adjusted Earnings $m 129.2 109.4 121.9 132.8 Gross Cashflow $m 113.5 150.5 93.5 134.1 Gross Cashflow $m 264.0 227.6 234.7 239.5 EPS (Adj/dil) c 4.7 7.0 3.8 6.1 EPS (adj/diluted) c 11.8 10.0 11.1 12.1 EPS growth % 0.0 0.0-19.3-12.7 EPS growth % nmf -15.3 11.4 9.0 CFPS c 10.4 13.8 8.5 12.2 PE (adj) x 8.0 9.4 8.5 7.8 CFPS Growth % 0.0 0.0-18.0-11.6 CFPS c 24.2 20.7 21.4 21.8 EBITDA/Sales % 8.6 11.1 8.9 10.8 CFPS Growth % nmf -14.3 3.1 2.1 EBIT/Sales % 5.5 7.6 4.9 7.0 PGCFPS x 3.9 4.5 4.4 4.3 Earnings Split % 40.2 59.8 38.3 61.7 DPS c 8.5 8.5 9.6 11.1 Revenue Growth % 0.0 0.0-5.9 0.6 Yield % 9.0 9.0 10.2 11.8 EBIT Growth % -5.4-4.1-16.4-6.5 Franking % 17.6 0.0 50.0 100.0 Profit and Loss ratios 2016A 2017E 2018E 2019E Cashflow Analysis 2016A 2017E 2018E 2019E Revenue Growth % 12.5-2.7 2.8 3.8 EBIT Growth % -12.7-10.8 10.0 7.7 Pre-tax Profit $m 167.9 143.3 162.2 177.8 EBITDA/Sales % 9.8 9.9 10.1 10.2 D&A $m 103.8 119.8 117.8 115.5 EBIT/Sales % 6.5 6.0 6.4 6.7 Tax Paid $m -7.7-35.5-45.3-53.7 Effective tax rate % 27.2 29.0 30.0 30.0 Gross cashflow $m 264.0 227.6 234.7 239.5 Payout ratio % 72.2 85.3 86.6 91.7 Chg in working capital $m -85.0-4.8-4.8-6.6 EV/EBIT x 7.7 8.6 7.8 7.3 Other $m -37.3-30.0-15.0 0.0 EV/EBITDA x 5.1 5.2 5.0 4.8 Operating Cashflow $m 141.7 192.8 214.9 233.0 EV/Sales x 0.5 0.5 0.5 0.5 Acquisitions $m -102.9 0.0 0.0 0.0 Capex - Plant & Equip. $m -140.6-120.0-123.4-128.0 Balance sheet ratios Asset Sales $m 13.5 0.0 0.0 0.0 ROE % 15.8 13.2 14.5 15.7 Other $m -15.1 0.0 0.0 0.0 ROA % 10.0 8.4 9.2 9.7 Investing cashflow $m -245.1-120.0-123.4-128.0 ROFE % 12.8 11.3 12.2 13.0 Dividend (ordinary) $m -98.8-93.4-105.5-121.9 Net Debt $m 789.8 810.4 824.4 841.3 Equity raised $m 0.0 0.0 0.0 0.0 Net Debt/Equity % 95.5 97.0 97.7 99.4 Borrowings $m 155.0 0.0 0.0 0.0 Debt/EBITDA x 2.5 2.7 2.6 2.5 Other $m -3.3 0.0 0.0 0.0 Interest Cover x 5.2 4.4 4.9 5.2 Financing cashflow $m 52.9-93.4-105.5-121.9 Price/NTA x -2.8-3.0-3.2-3.4 NTA per share $ -0.33-0.31-0.29-0.28 Net Change in cash $m -50.5-20.6-14.0-16.9 EFPOWA m 1098.3 1098.3 1098.3 1098.3 Historical perf 2011A 2012A 2013A Balance Sheet 2016A 2017E 2018E 2019E Cash $m 54.3 33.7 19.7 2.8 Revenue $m 2505.0 2574.5 2585.9 Receivables $m 429.6 423.4 435.3 451.7 EBITDA $m 146.2 139.6 166.2 Inventories $m 30.0 30.9 31.8 33.0 Depreciation/Amortisation $m 57.3 61.8 63.4 Investments $m 2.0 2.0 2.0 2.0 EBIT $m Property, plant & equipment $m 302.9 306.8 327.0 352.6 88.9 77.8 102.8 Net interest expense $m 32.6 32.6 34.7 Goodwill $m 1195.1 1178.9 1164.4 1151.3 Pre-Tax Profit $m 56.3 45.2 68.1 Other Assets $m 227.0 269.4 284.4 284.4 Tax Expense $m 16.9 13.6 20.4 Total Assets $m 2240.9 2245.2 2264.5 2277.7 Net Profit $m 39.4 31.6 47.7 Payables $m 294.4 284.3 292.3 303.3 Net Abn/Extra $m 0.0 0.0 0.0 Short Term Debt $m 3.8 3.8 3.8 3.8 Long Term Debt $m 840.3 840.3 840.3 840.3 EPS (adj/dil) c nmf nmf nmf Other Liabilities $m 275.1 281.1 284.5 284.1 EPS growth % nmf nmf nmf Total Liabilities $m 1413.6 1409.5 1420.9 1431.5 Ordinary DPS c nmf nmf nmf Shareholders Funds $m 993.8 993.8 993.8 993.8 EBITDA/Sales % 5.8 5.4 6.4 Minority Interests $m 0.0 0.0 0.0 0.0 EBIT/Sales % 3.5 3.0 4.0 Total Shareholders Equity $m 827.3 835.7 843.7 846.2 ROE % nmf nmf nmf ROFE % nmf nmf nmf Total Funds employed $m 2,240.9 2,245.2 2,264.5 2,277.7 EFPOWA m nmf nmf nmf DIVISIONAL EBITDA 1H16/A 2H16/A 1H17/E 2H17/E Facility Services 122.7 156.3 120.3 148.3 Laundries 37.2 34.2 37.2 39.9 Corporate -22.3-16.5-23.2-17.3 Group EBIT 137.6 174.0 134.3 171.0 Source: FactSet, Macquarie Research, January 2017 31 January 2017 4
Macquarie Quant View The quant model currently holds a marginally positive view on Spotless Group Holdings. The strongest style exposure is Valuations, indicating this stock is under-priced in the market relative to its peers. The weakest style exposure is Price Momentum, indicating this stock has had weak medium to long term returns which often persist into the future. 153/342 Global rank in Comm. & Prof. Services % of BUY recommendations 20% (1/5) Number of Price Target downgrades 1 Number of Price Target upgrades 0 Fundamentals 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 (Comm. & Prof. Services) 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. 1.5 0.2 0.0-0.3-0.6-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 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. 0.3-2.1 0.6-0.6-0.6-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -50% 0% 50% 100% 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 Earnings FY0 Price Upside Price to Cash FY0 EV/EBITDA FY0 Asset Growth Momentum 12 Month Momentum 3 Month Non-current Assets Inc. Negatives Positives -18% -19% -20% -20% -30% -20% -10% 0% 10% 20% 30% 24% 23% 23% 22% 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 0.22 1.12-0.20 0.27-0.29-0.48-0.18 0.20-1.53-0.44-0.57 Percentile relative to sector(/342) Percentile relative to market(/423) 0 50 100 0 50 100 0 0 1 1 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) 31 January 2017 5
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie 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 60 100% 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) SPO AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) 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, January 2017 12-month target price methodology SPO AU: A$1.02 based on a Peer multiples methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 20-Oct-2016 SPO AU Neutral A$1.19 24-Aug-2016 SPO AU Neutral A$1.23 23-Feb-2016 SPO AU Neutral A$1.35 02-Dec-2015 SPO AU Neutral A$1.42 25-Aug-2015 SPO AU Outperform A$2.25 23-Apr-2015 SPO AU Outperform A$2.35 24-Feb-2015 SPO AU Outperform A$2.25 22-Oct-2014 SPO AU Outperform A$2.06 Target price risk disclosures: SPO AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. 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 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by, a division of Macquarie Equities 31 January 2017 6
This publication was disseminated on 31 January 2017 at 08:18 UTC. Limited ABN 41 002 574 923 AFSL 237504 ("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 46 008 583 542, AFSL No. 237502) ( 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 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (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 e-mail and delete the document. We do not guarantee the integrity of any e-mails 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 www.macquarie.com/disclosures Macquarie Group 31 January 2017 7