AUSTRALIA GXL AU Price (at 09:46, 13 Jul 2015 GMT) Outperform A$5.00 Valuation - EV/EBITA A$ 7.15-8.05 12-month target A$ 7.50 12-month TSR % +53.9 Volatility Index Medium GICS sector Health Care Equipment & Services Market cap A$m 563 30-day avg turnover A$m 4.6 Number shares on issue m 112.5 Investment fundamentals Year end 30 Jun 2014A 2015E 2016E 2017E Revenue m 370.3 645.4 751.0 849.3 EBIT m 30.9 70.5 83.3 95.4 Reported profit m -127.8 19.3 45.2 54.0 Adjusted profit m 13.9 37.8 45.2 54.0 Gross cashflow m 25.8 55.1 65.6 76.9 CFPS 37.9 49.6 57.4 66.4 CFPS growth % 37.5 31.0 15.7 15.6 PGCFPS x 13.2 10.1 8.7 7.5 PGCFPS rel x 1.43 1.13 1.11 1.07 EPS adj 22.4 34.0 39.5 46.6 EPS adj growth % 13.4 51.6 16.3 17.9 PER adj x 22.3 14.7 12.6 10.7 PER rel x 1.35 0.91 0.99 0.98 Total DPS 12.5 17.0 20.0 24.0 Total div yield % 2.5 3.4 4.0 4.8 Franking % 100 100 100 100 ROA % 9.3 10.4 10.1 11.0 ROE % 7.6 10.5 10.6 11.7 EV/EBITDA x 17.3 8.9 7.7 6.7 Net debt/equity % 8.3 58.0 53.0 48.6 P/BV x 1.6 1.4 1.3 1.2 GXL 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, July 2015 (all figures in AUD unless noted) 13 July 2015 Macquarie Securities (Australia) Limited Check up Event We review the outlook for GXL. Impact Our forecast of FY15 adjusted EPS of 34cps is within the 33.5-35c EPS guidance range. The revisions to guidance through 2H15 were disappointing, however the forecast still reflects over 40% earnings growth driven by the benefits of the Mammoth merger, the acquisition of City Farmers as well as growth in underlying operations. While we expect positive updates on operational KPIs, result quality will be impacted by the previously flagged acquisition and restructuring costs and an increase in working capital. The May update flagged gross debt of $260m, up from $230m at end-1h15. We estimate the 2H increase includes ~$50m in capex and acquisition activities, as well as increased inventory investment. We expect only a small further increase in debt levels in FY16 before GXL becomes self-funding in FY17E. With ~ $90m undrawn debt facilities, we believe GXL has sufficient balance-sheet capacity to fund our current rollout and acquisition forecasts. FY16 should be a cleaner period and provide a better reflection of underlying growth in the now expanded business. We still believe remains well positioned as a market leader in an attractive market to deliver 15%+ earnings growth. Our growth forecasts are underpinned by new Petbarn store rollout of ~20 per year, maturation of the ~25 stores opened in FY15 and the annualisation and ongoing acquisition of ~$20m per annum of vet revenues. We see FY16/17 as the first years to materially benefit from the revenue synergy opportunities presented from the original merger of the Pet and Vet formats. GXL now has 4 collocations which we understand are performing well. We expect greater near-term upside from rollout of groupwide loyalty program and cross referral between the respective customer bases. It takes time to effectively mine the databases, develop effective marketing strategies and change organisational behaviour. After a slow start in 1H15 we understand the rate of cross-referral has increased significantly in recent months. The increase in average spend from customers that frequent more than one format should continue to drive LFL s over the medium term. Earnings and target price revision No material change to EPS. Price target reduced from $8.50 to $7.50. Price catalyst 12-month price target: A$7.50 based on an EV/EBITA methodology. Catalyst: FY15/6 results Action and recommendation While we expect it will take delivery on earnings forecasts through FY16 with improved cash flow performance to rebuild market confidence, the stock is now already back at a substantial discount to market with in our view a far better than market growth outlook. Outperform retained. Please refer to page 7 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Analysis Fig 1 Earnings expectations FY14(a) 1H15(a) 2H15(e) FY15(e) Change FY16(e) FY17(e) Vet 56.0 77.2 85.0 158.2 183% 188.8 216.9 Petbarn 315.0 175.0 190.1 365.1 16% 552.2 622.4 City Farmers 55.3 61.7 117.0 0.0 0.0 Total revenues 445.5 307.5 337.9 645.4 45% 751.0 849.3 Vet 9.6 13.0 12.3 25.3 164% 31.0 36.2 Petbarn 34.7 19.1 22.9 42.0 21% 70.5 79.7 City Farmers 18.5 0.0 0.0 Total EBITDA 54.3 41.6 44.2 85.8 58% 101.4 115.9 D&A 11.8 6.9 8.4 15.3 29% 18.1 20.5 EBIT 42.6 34.7 35.8 70.5 66% 83.3 95.4 Net int. exp. 9.2 6.1 7.5 13.6 47% 15.5 15.5 Pre-tax profit 33.3 28.6 28.4 57.0 71% 67.5 79.6 Tax 9.9 8.6 8.5 17.1 73% 20.2 23.5 NPAT 23.4 20.0 19.8 39.9 70% 47.4 56.3 OEI 1.8 1.1 1.0 2.1 17% 2.2 2.3 Total NPAT 21.6 19.0 18.8 37.8 75% 45.2 53.8 Reported NPAT -127.8 2.6 16.7 19.3 45.2 54.0 Adjusted NAPT 13.9 19.0 18.8 37.8 45.2 54.0 EPS 24.0 17.1 16.9 34.0 39.7 46.6 EPS growth 21% 48% 36% 42% 16% 17% DPS 12.5 8.0 9.0 17.0 20.0 24.0 Store/clinic numbers 113 122 135 135 155 175 Petbarn 135 147 158 158 220 239 City Farmers 42 42 42 Source: Macquarie Research, July 2015 The table above presents our near-term earnings forecasts for the group. Our forecast of FY15 adjusted EPS of 34cps is up over 40% on pcp and is within the 33.5-35c EPS guidance range. The trading update provided in May was disappointing but we believe can largely be attributed to the underperformance of City Farmers and the supply chain disruption. LFL sales through the first 43 weeks remained strong with Vet up 6%, Australian Retail up 6.4% and NZ Retail 7.6%. We expect LFL sales in Vet remain strong, benefitting from the HPP program and increase in cross referrals. NZ retail momentum appeared to be building and we expect only a modest slowing in Aust retail in what has been a patchy retail environment. As flagged at the start of the year and was evident at end 1H15, results will be messy, with quality impacted by one-off acquisition and merger costs and increased working capital investment. 1H15 results included previously flagged $19.5m of acquisition ($7.8m) and restructuring costs ($11.7m) related to City Farmers acquisition. These compared to guidance at time of acquisition of $10m and $14m respectively. We expect further ~$2m of restructuring costs in H2 but for the total to be within the $14m initial guidance. GXL had $260m of drawn debt in May, up from $230m at end 1H15. We estimate the debt drawdown includes ~$50m in 2H capex and acquisition activities. completed the acquisition of a number of small pet chains, including My Pet Warehouse, as well as the sizeable ARH vet emergency and specialty centre in 2H15. Capex will include ~10 new Petbarn store openings and ongoing IT investment. We expect operating cashflows in H2 to reflect increased inventory investment associated with the City Farmers re-merchandising, growth in private label and direct supply, as well as the build-up ahead of and then disruption from the IT implementation. The disruption to the group's supply chain during the implementation of a third party warehouse management system was identified as impacting H2 sales by $4m-$5m. The warehouse management system implementation is now complete and we understand fill rates are now back at targeted levels. 13 July 2015 2
Outlook for strong growth into FY16/17 Looking ahead, FY16 should provide a cleaner period and provide a better reflection of underlying growth in the now expanded business. Our current EPS forecast of ~40c implies 17% growth in FY16 and is predicated on current rollout and acquisition plans and does not include further major acquisitions. We have made no change to assumptions of rollout of ~20 new Petbarn stores, ~$20m per annum of vet revenue acquisitions and ~10 collocations. Results will continue to benefit from the maturation of ~25 new stores opened in FY15. We have combined City Farmers into the Pet Segment from FY16. Given the rebranding of East Coast stores through FY15 we do not expect further stand alone reporting. As we flagged in our April note we have reduced our City Farmers forecast to below targets set at time of acquisition given expectation of tougher trading conditions in WA. Our forecasts assume a moderation of Australian retail LFL s in FY16 to the low end of targeted range with the inclusion of City Farmers stores from week 3. Vet LFL s should benefit from increased cross referrals. After a slow start in 1H15, we understand the rate of cross referral has increased significantly in recent months. The increase in client numbers and average spend from customers that frequent more than one format, should continue to drive LFL s over the medium term. We believe GXL is relatively well positioned compared to retail peers in a lower A$ environment. While the majority of pet foods are imported, they are typically purchased off Australian distributors in A$. Inflationary pressures are therefore typically shared and price increases are an industry-wide phenomena. GXL has the potential margin offset provided by growth in private and exclusive brands which currently represents ~13% of sales and are higher margin. Balance sheet capable of funding existing growth forecasts Our forecasts assume only a small further increase in debt levels in FY16 before becoming selffunding in FY17. Based on our FY16 forecasts, this equates to debt /EBITDA of ~2.5x s. Covenants have not been disclosed but we would highlight that debt facilities were only extended in February. With ~ $90m undrawn, we believe GXL has sufficient balance sheet capacity to fund our current rollout and acquisition forecasts. We would expect any additional sizeable acquisitions (not currently factored in our forecasts) would come with equity funding. Increasing competition for Vet acquisitions? The listing of National Vet Care if successful would see a second vet aggregator emerge with reasonable scale and access to future funding. Given the GXL success and attractive returns still available it is not surprising that new competitors are attracted to the vet market. Industry feedback indicates at least two other corporate entities have or are exploring various roll up strategies. Similar to other sectors, increased competition for centres can in time be expected to result in acquisition multiple inflation. We note the vet industry has always had an active market for clinics and a ready supply of funders and we do not expect NVC in isolation to drive a step change in multiples in the near term. From a GXL perspective clearly an increase in acquisition prices for clinics would be a negative but we would highlight the reduced contribution of vet acquisitions now to the overall GXL growth outlook. While management continue to target ~$20m of acquired vet revenues per annum, the pace of rollout of the retail network and the ability to cross sell between existing formats are greater drivers of near term revenue and earnings. The establishment of co-locations across the existing and new store Petbarn network also provides GXL with new to industry vet options to continue to increase its share of the circa $2.5bn vet services market. Only ~20% of vet and retail outlets share a common catchment area. There is therefore significant scope for GXL to increase its reach with new to industry collocations. We note overseas peers operate clinics in 50-60% of retail store locations. This will clearly be dependent on store size and suitability and the ability to recruit sufficient suitable experienced vet staff. 13 July 2015 3
Fig 2 Valuation Valuation EBIT Multiples Valuation EV/EBIT Valuation High Low High Low GXL EBIT FY2016 13 12 $1,091.8 $995.9 EL Industrials 11.8 11.8 Prem/Disc. 10% 2% Less Net Debt $245.8 $245.8 Equity Value $846.0 $750.0 Value Per share $8.05 $7.14 Source: Macquarie Research, June 2015 We have reduced the price target from $8.50 to $7.50 with move in market multiples. Our price target is toward the mid-point of our valuation range. The trading update provided in May was disappointing but we believe can largely be attributed to the underperformance of City Farmers and the supply chain disruption. While we expect it will take delivery on earnings forecasts through FY16 with improved cash flow performance to rebuild market confidence the stock is now already back at a substantial discount to market with in our view a far better than market growth outlook. Outperform retained Fig 3 Valuation comparables Security PER EV_EBITA Dividend Yield EPS Growth 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E DSH 11.2 10.3 9.5 7.2 6.6 6.2 6.0 6.8 7.5 2.8 8.6 8.4 FAN 16.1 14.0 12.8 10.8 9.7 8.9 7.4 5.1 6.0 52.7 15.2 9.7 JBH 14.8 14.1 13.5 9.6 9.1 8.7 4.4 4.7 4.9 3.0 4.9 4.3 KMD 13.4 10.3 8.8 10.1 8.1 7.3 5.7 6.9 8.8-44.1 31.1 15.9 LOV 20.2 17.2 15.3 14.3 12.3 11.0 3.1 3.8 4.3 nmf 17.6 12.4 MYR 10.0 9.6 8.4 7.8 7.4 6.8 8.1 8.5 9.7-24.5 4.1 13.8 PMV 22.5 20.4 18.9 15.4 14.0 13.0 4.0 3.4 3.2 17.7 10.0 7.9 SFH 99.4 12.7 8.4 23.2 7.0 5.1 0.0 3.3 6.7-89.3 684.1 50.1 SUL 16.7 13.8 12.5 12.0 10.2 9.4 4.7 5.2 5.6-1.5 20.4 10.6 TRS 14.2 11.8 10.3 8.6 7.3 6.4 3.9 5.0 5.9-19.4 20.4 14.8 GXL 15.2 12.9 10.9 11.1 9.5 8.4 3.5 4.3 5.0 51.6 17.1 18.3 Source: Macquarie Research, June 2015 13 July 2015 4
(GXL:$5.00) 13-Jul-15 Interim results 1H/14A 2H/14A 1H/15A 2H/15E Profit & Loss 2014A 2015E 2016E 2017E Revenue 63.5 306.8 307.5 337.9 Revenue $m 370.3 645.4 751.0 849.3 EBITDA $m 8.8 32.2 41.6 44.2 EBITDA $m 41.0 85.8 101.4 115.9 Depreciation $m 1.2 8.9 6.9 8.4 Depreciation $m 10.1 15.3 18.1 20.6 Amortisation of goodwill $m 0.0 0.0 0.0 0.0 Amortisation of goodwill $m 0.0 0.0 0.0 0.0 EBIT $m 7.6 23.3 34.7 35.8 EBIT $m 30.9 70.5 83.3 95.4 Net Interest expense $m 0.9 8.7 6.1 7.5 Net interest expense $m 9.7 13.6 15.5 15.4 Pre-Tax Profit $m 6.7 14.5 28.6 28.4 Pre-Tax Profit $m 21.2 57.0 67.8 79.9 Tax Expense $m 2.0 3.5 8.6 8.5 Tax Expense $m 5.5 17.1 20.3 23.6 Net Profit $m 4.7 11.0 20.0 19.8 Net Profit $m 15.7 39.9 47.4 56.3 Outside equity interests $m 0.3 1.5 1.1 1.0 Outside equity interests $m 1.8 2.1 2.2 2.3 Net Abn/Extra $m -1.8-139.9-16.4-2.1 Net Abnormals/Extra. $m -141.7-18.5 0.0 0.0 Reported Earnings $m 2.7-130.4 2.6 16.7 Reported Earnings $m -127.8 19.3 45.2 54.0 Adjusted Earnings $m 4.5 9.5 19.0 18.8 Adjusted Earnings $m 13.9 37.8 45.2 54.0 Gross Cashflow $m 6.0 18.5 29.1 37.6 Gross Cashflow $m 24.5 66.7 68.8 80.2 EPS (Adj/dil) c 11.9 10.5 17.1 16.9 EPS (adj/diluted) c 21.9 34.0 39.7 46.6 EPS growth % 6.6 21.6 43.6 59.9 EPS growth % 10.5 55.2 16.7 17.6 CFPS c 16.2 20.6 26.3 33.7 PE (adj) x 22.8 14.7 12.6 10.7 CFPS Growth % 0.4 83.2 62.5 63.9 CFPS c 38.6 61.0 61.1 69.4 EBITDA/Sales % 13.9 10.5 13.5 13.1 CFPS Growth % 38.7 58.0 0.3 13.5 EBIT/Sales % 12.0 7.6 11.3 10.6 PGCFPS x 13.0 8.2 8.2 7.2 Earnings Split % 32.0 68.0 50.2 49.8 DPS c 12.5 17.0 20.0 24.0 Revenue Growth % 24.0 453.7 384.6 10.1 Yield % 2.5 3.4 4.0 4.8 EBIT Growth % 9.5 316.6 354.7 54.0 Franking % 100.0 100.0 100.0 100.0 Profit and Loss ratios 2014A 2015E 2016E 2017E Cashflow Analysis 2014A 2015E 2016E 2017E Revenue Growth % 247.4 74.3 16.4 13.1 EBIT Growth % 146.1 128.3 18.0 14.5 Pre-tax Profit $m 21.2 57.0 67.8 79.9 EBITDA/Sales % 11.1 13.3 13.5 13.7 Depreciation & Amortisation $m 10.1 15.3 18.1 20.6 EBIT/Sales % 8.3 10.9 11.1 11.2 Tax Paid $m -6.8-5.5-17.1-20.3 Effective tax rate % 25.9 30.0 30.0 29.5 Gross cashflow $m 24.5 66.7 68.8 80.2 Payout ratio % 57.1 50.0 50.4 51.4 Changes in working capital $m 6.6-37.1-14.6 8.4 EV/EBIT x 11.1 11.1 9.7 8.5 Other $m -6.8-18.3-1.6-1.6 EV/EBITDA x 8.4 9.2 7.9 7.0 Operating Cashflow $m 24.3 11.3 52.6 86.9 EV/Sales x 0.9 1.2 1.1 1.0 Acquisitions $m -4.8-51.7-20.0-21.0 Balance sheet ratios Capex - Plant & Equip. $m -26.9-45.0-37.4-32.3 ROE % 7.6 10.5 10.6 11.7 Asset Sales $m 0.6 0.4 0.3 0.3 ROA % 11.5 11.6 10.4 11.2 Other $m -3.2-145.0 0.0 0.0 ROFE % 14.8 14.3 12.5 13.6 Investing cashflow $m -34.2-241.3-57.1-53.0 Net Debt $m 26.5 238.7 243.2 237.1 Dividend (ordinary) $m -5.2-19.1-23.1-27.9 Net Debt/Equity % 8.3 58.0 53.0 48.6 Equity raised $m 103.0 37.6 23.1 0.0 Interest Cover x 3.2 5.2 5.4 6.2 Other $m 0.0-0.7 0.0 0.0 Gross Debt/EBITDA x 3.6 3.0 2.6 2.2 Financing cashflow $m 97.8 17.8 0.0-27.9 Price/NTA x 0.0 0.0 0.0 0.0 NTA per share $ 0.29-0.89-0.47-0.25 Net Change in cash/debt $m 87.9-212.1-4.5 6.1 EFPOWA m 63.6 109.5 112.6 115.5 Historical performance 2011A 2012A 2013A 2014A Balance Sheet 2014A 2015E 2016E 2017E Cash $m 120.7 20.7 20.7 20.7 Revenue $m 61.1 82.2 106.6 370.3 Receivables $m 6.8 18.7 22.5 22.9 EBITDA $m 8.3 11.1 14.5 41.0 Inventories $m 45.9 87.1 99.9 106.2 Depreciation/Amortisation $m 1.1 1.4 1.9 10.1 Investments $m 0.2 29.8 49.8 70.8 EBIT $m 7.2 9.7 12.6 30.9 Property, plant & equipment $m 89.9 119.2 138.2 149.5 Net interest expense $m 1.5 1.9 2.5 9.7 Intangibles $m 288.1 505.1 505.1 505.1 Pre-Tax Profit $m 5.7 7.8 10.0 21.2 Other Assets $m 11.6 12.8 12.8 12.8 Tax Expense $m 1.8 2.3 3.0 5.5 Total Assets $m 563.1 793.4 848.9 888.0 Net Profit $m 4.0 5.4 7.0 15.7 Payables $m 64.6 80.7 82.6 97.7 Net Abn/Extra $m 0.0-0.3-3.5-141.7 Short Term Debt $m 2.2 2.2 2.2 2.2 Long Term Debt $m 145.0 257.2 261.6 255.6 EPS (adj/dil) c 12.8 15.9 19.8 21.9 Other Liabilities $m 29.5 41.8 43.4 45.0 EPS growth % 3.9 23.9 25.0 10.5 Total Liabilities $m 241.3 381.8 389.8 400.5 Ordinary DPS c 6.0 8.0 10.0 12.5 Shareholders Funds $m 317.4 405.2 450.5 476.6 EBITDA/Sales % 13.5 13.5 13.6 11.1 Minority Interests $m 4.3 6.4 8.6 10.9 EBIT/Sales % 11.8 11.8 11.8 8.3 Total Shareholders Equity $m 321.8 411.7 459.1 487.6 ROE % 12.5 14.7 15.8 7.6 ROFE % 16.5 17.8 18.7 14.8 Total Funds employed $m 563.1 793.5 848.9 888.0 EFPOWA m 26.4 29.9 31.6 63.6 FY13 FY14 FY15 FY16 Vet 106.6 132.0 158.2 188.8 Retail 315.0 365.1 552.2 City Farmers 117.0 Total sales 106.6 447.0 645.4 751.0 Vet 14.5 19.6 25.3 31.0 Retail 34.7 42.0 70.5 City Farmers 18.5 Total EBITDA 14.5 54.3 85.8 101.4 Store/Clinic numbers Source: Company data, Macquarie Research, July 2015 Vet 98 113 135 155 Retail 114 135 200 220 Total 212 248 335 375 13 July 2015 5
Macquarie Quant View The quant model currently holds a strong negative view on. The strongest style exposure is Growth, indicating this stock has good historic and/or forecast growth. Growth metrics focus on both top and bottom line items. The weakest style exposure is Quality, indicating this stock is likely to have a weaker and less stable underlying earnings stream. 340/388 Global rank in Health Care Equip. & Services % of BUY recommendations 89% (8/9) Number of Price Target downgrades 0 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 (Health Care Equip. & 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. JB Hi-Fi Premier Investments 1.3 1.1 JB Hi-Fi Premier Investments Super Retail Group Dick Smith Holdings G8 Education Kathmandu 0.6 0.2-0.2-0.7-1.1 Super Retail Group Dick Smith Holdings G8 Education Kathmandu -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. JB Hi-Fi Premier Investments Super Retail Group Dick Smith Holdings G8 Education Kathmandu -1.3 1.3 0.6 0.0-0.2-0.1-0.1 JB Hi-Fi Premier Investments Super Retail Group Dick Smith Holdings G8 Education Kathmandu -3.0-2.0-1.0 0.0 1.0 2.0 3.0-60% -40% -20% 0% 20% 40% 60% 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. Operating Margin FY0 Interest Cover Earnings Stability Piotroski Score PEG Ratio Inverted Consensus Recommendation Change in PPE FY0 Sales Growth FY1 Negatives Positives -35% -42% -32% -33% 35% 35% 34% 31% -60% -40% -20% 0% 20% 40% 60% 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 -1.12-0.54 0.68-0.01-0.45-0.16-0.99-2.40-1.51-0.10 0.14 Percentile relative to sector(/388) Percentile relative to market(/414) 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) 13 July 2015 6
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 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 March 2015 AU/NZ Asia RSA USA CA EUR Outperform 48.99% 59.51% 49.30% 43.79% 59.59% 52.20% (for US coverage by MCUSA, 7.42% of stocks followed are investment banking clients) Neutral 34.12% 26.62% 35.21% 50.29% 34.93% 31.32% (for US coverage by MCUSA, 5.68% of stocks followed are investment banking clients) Underperform 16.89% 13.87% 15.49% 5.93% 5.48% 16.48% (for US coverage by MCUSA, 0.87% of stocks followed are investment banking clients) GXL 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, June 2015 12-month target price methodology GXL AU: A$7.50 based on an EV/EBITA methodology Company-specific disclosures: GXL AU: MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Ltd in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Ltd with investment advisory services in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Ltd in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. Date Stock Code (BBG code) Recommendation Target Price 06-May-2015 GXL AU Outperform A$8.50 27-Mar-2015 GXL AU Outperform A$9.50 23-Feb-2015 GXL AU Outperform A$10.50 17-Jul-2014 GXL AU Outperform A$10.30 12-Mar-2014 GXL AU Outperform A$8.46 Target price risk disclosures: GXL 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: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN 94 122 169 279, AFSL No. 318062) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 13 July 2015 7
General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN 58 002 832 126, AFSL No. 238947) 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 41 002 574 923, AFSL No. 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. 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. 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. 13 July 2015 8