AUSTRALIA The momentum battle Event We reassess the earnings outlook following adjustments to commodity prices across the steel complex and adjustments to foreign exchange expectations. Impact Ticker Opinion Current T/P Previous T/P BSL AU Outperform $7.00 $7.20 SGM AU Neutral $8.90 $9.40 Prices as of 18 May: BSL - $5.85, SGM - $8.65 Source: FactSet, Macquarie Research, May 2016 Better near-term pricing. Our commodity team have adjusted estimates for steel pricing to reflect better near-term fundamentals, with our price assumptions rising for both US and Asian HRC. We have also added ~$20/t to Asian HRC assumptions in FY17 (now at $320/t). We do however consider current prices unsustainable, both in Asia and the US. Supply responding. Steel prices have performed strongly, underpinned by better demand and a slow supply response. The signs of change are afoot though, with a supply response now halting inventory declines, especially among traders. Sentiment indicators in our proprietary steel survey have turned rapidly in May. EPS momentum versus Steel prices. While steel prices risk a reversal from recent fortunes, we still see potential positive EPS momentum, particularly for BSL. We have made adjustments in our earnings estimates to reflect the fulsome adjustment in our commodity and fx estimates, which have resulted in downward revisions for both BSL and SGM, but remain ahead of consensus estimates. Stock prices could find support from EPS revisions, but would need to scale the downdraft of falling commodity prices. Outlook We maintain an Outperform opinion on BSL. While the pressure of falling steel prices, particularly in Asia, could be a headwind, we think the case is supported by: 1. Further, albeit more limited, upside in its cost-out in Australia, 2. Valuation BSL is the cheapest steel stock under our global coverage and 3. Increased exposure to the US, where steel market support from increased tariffs could support prices for a little longer than in Asia. Target price revised to $7.00. We maintain a Neutral opinion on SGM. Volatility in scrap prices continues to be a risk for intake volumes. While post-industrial and some sources of obsolete scrap (e.g. autos, demolitions) should respond well to higher prices, other less formal supply sources are likely to be slower to respond, if at all (if prices fall away again as we expect). Cost-out has underpinned SGM s confirmation of a $140m EBIT exit run-rate by late FY16, but we still see sustained volume improvement as a key catalyst to seek from here. 19 May 2016 Macquarie Securities (Australia) Limited Please refer to page 8 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Macquarie Wealth Management Sentiment, Steel price reversal and Earnings Our latest China Steel Survey has seen a rapid retracement in sentiment, which has been surprisingly bullish since CNY. While demand looked pretty strong in early May, sequential demand has slowed, albeit that this is partly a seasonal occurrence. However, with supply continuing to ramp up, it means inventory should start to build, resulting in downward price pressure. Fig 1 Sentiment fell sharply in May 100 90 Are you positive or negative on the market over the next three months? Mills Increasing number of respondents positive Steel traders Iron ore traders 80 70 60 50 40 30 20 10 Increasing number of respondents negative 0 Source: Macquarie Research, May 2016 Mill profitability continues to incentivise production growth and steel inventories have slowed their decline, with surveyed traders witnessing a slight increase in inventory this is one of the key data points we have been looking for to imply that the market is finally moving into surplus. This reversion in sentiment and fundamentals has driven a sharp retracement in Asian export HRC prices in the last fortnight. From an equities point of view, the question now becomes whether steel prices get the overhand over the stocks, irrespective of the benefits to earnings that would flow from the recent increase in prices in Asia and the US. BlueScope and Sims both have the benefits of meaningful exposures to the US, where tariff imposition seems likely to sustain some of the benefits of the price rally for longer. The momentum battle So while steel prices, and the steel complex more broadly, risk a reversal from its recent fortunes, we still see potential positive EPS momentum, particularly for BSL. We have made adjustments in our earnings estimates to reflect the fulsome adjustment in our commodity and fx estimates, which have resulted in downward revisions for both BSL and SGM, but remain ahead of consensus estimates. So, stock prices could find support from EPS revisions, but would need to scale the downdraft of falling commodity prices. We chart this perspective for BSL and SGM below. 19 May 2016 2
May 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 Macquarie Wealth Management Fig 2 BSL EPS Estimates and Share price Fig 3 Asian HRC and BSL Share Price 7.0 6.0 5.0 4.0 0.85 0.75 0.65 0.55 0.45 0.35 $A/t 650 600 550 500 450 8.0 7.0 6.0 5.0 3.0 2.0 0.25 0.15 0.05 350 4.0 3.0 300 2.0 BSL Share Price [lhs] BSL FY1 EPS BSL FY2 EPS Asia HRC (/t) BSL Share Price [rhs] Source: Factset, Macquarie Research, May 2016 Source: SBB, Factset, Macquarie Research, May 2016 Fig 4 SGM EPS Estimates and Share Price Fig 5 Turkish HMS Scrap price and SGM Share Price 14.0 1.25 $A/t 500 14 13.0 12.0 11.0 1.05 0.85 450 12 10 10.0 9.0 8.0 7.0 6.0 0.65 0.45 0.25 0.05 350 300 250 8 6 4 200 2 SGM Share Price [lhs] SGM FY1 EPS SGM FY2 EPS Turkey HMS Scrap (/t) SGM Share Price [rhs] Source: Factset, Macquarie Research, May 2016 Source: Bloomberg, Factset, Macquarie Research, May 2016 In this context, we think it will take some additional factors to support the investment case. We maintain our Outperform opinion on BSL, backed by the following: o o o While we do not believe there to be the scale of upside in the cost-out benefits in its Australian unit as we have witnessed through the course of 1HFY16, we nonetheless believe that there is still some space for further efficiency gains from the revised enterprise agreement at Port Kembla. The acquisition of North Star has bolstered BSL s exposure to the US market, where trade protection seems to be having good effect and could see steel prices materially higher than expected and for it to carry through into FY17 to some extent. Exposure to the US is generally advantageous for any steel industry player at this stage albeit that we do not see this benefit sustained in the long term. BSL remains the cheapest steel stock in Macquarie s coverage universe. 19 May 2016 3
Fig 6 Global Steel Valuation Comparisions - FY17 EV/EBIT 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Source: Factset, Macquarie Research, May 2016 EV / EBIT FY17 Revisions in value drivers Despite a FY17e EPS downgrade for BSL, we remain 17% above consensus. The difference to consensus is largely due to our bullish expectations in Australian Steel Products and Hot Rolled Products North America. Both these businesses have benefitted from adjustments in our steel prices assumptions. Fig 7 EPS adjustments FY16 FY17 FY18 Bluescope Steel New Adjusted EPS (cps) 39.0 64.3 58.4 Old Adjusted EPS (cps) 54.0 70.8 51.2 Adjusted Consensus EPS (cps) 39.5 55.3 65.6 Sims Metal Management New Adjusted EPS (cps) 6.1 45.3 59.2 Old Adjusted EPS (cps) 9.3 51.6 57.4 Adjusted Consensus EPS (cps) 6.9 45.6 63.8 Source: FactSet, Macquarie Research, May 2016 In the context of the recent rebound in prices across the steel complex, and the subsequent fall, our commodity team has revised estimates for a range of key value drivers. Our estimates for iron ore have also seen some meaningful revisions in the medium term, helping to open up spreads somewhat in FY18. 19 May 2016 4
Fig 8 Iron ore short term gain... Fig 9 Asian HRC steel price 65 60 55 50 45 40 2016 2017 2018 2019 2020 2021 LT $2015 Spot 62% Fe iron ore China (new) Spot 62% Fe iron ore China (old) 380 370 360 350 340 330 320 310 300 290 HRC Asian Import (US$/t - Old) HRC Asian Import (US$/t) Source: Macquarie Research, May 2016 Source: Macquarie Research, May 2016 Fig 10 US HRC Price Fig 11 AUD/USD 600 550 500 450 0.78 0.76 0.74 0.72 0.7 0.68 0.66 0.64 AUD/USD (per period end) HRC US Domestic (US$/t - Old) HRC US Domestic (US$/t) AUD/USD (per end) Series2 Source: Macquarie Research, May 2016 Source: Macquarie Research, May 2016 Fig 12 Macquarie Commodity Price Forecasts Steel-related commodities Changes in Commodity price forecasts 2016 2017 2018 2019 2020 2021 Unit CY CY CY CY CY CY HRC Asian Import (US$/t - new) $/tonne 324 320 310 330 350 350 HRC Asian Import (US$/t - old) 302 300 325 340 350 350 HRC US Domestic (US$/t - new) $/tonne 492 423 410 430 435 435 HRC US Domestic (US$/t - old) 436 423 425 440 435 435 Steel Scrap - average #1HMS (new) $/tonne 206 160 155 163 192 192 Steel Scrap - average #1HMS (old) 162 145 175 192 192 192 Spot 62% Fe iron ore China (new) $/t cfr 51 50 47 50 60 60 Spot 62% Fe iron ore China (old) 50 45 55 60 60 60 Source: Macquarie Research, May 2016 19 May 2016 5
Fig 13 BSL estimate summary Profit and loss FY15a FY16e FY17e FY18e Ratio Analysis FY15a FY16e FY17e FY18e Number of shares m 561 571 571 571 EPS (adjusted earnings) cps 23.7 39.1 64.3 58.4 Sales revenue P/E (adjusted) x 24.7x 15.0x 9.1x 10.0x Australian Steel Products m 4792 4394 4454 4542 EV/EBITDA x 5.5x 4.2x 3.4x 3.6x NZ & Pacific Steel Products m 972 868 946 957 EV/EBIT x 11.8x 7.8x 5.4x 5.9x Global Building Solutions m 1538 1691 1789 1844 Operating Cashflow per share cps 96.0 101.6 136.4 134.3 Building Products ASEAN, Nth Am & India m 1791 1755 1753 1759 P/CF x 6.1x 5.8x 4.3x 4.4x Intersegment m -572-558 -558-558 DPS cps 6.0 6.0 6.0 14.0 Other revenue (Including HRP NA) m 32 886 1346 1318 Net debt m 275 1,175 730 350 Total Revenue m 8,552 9,035 9,730 9,863 Gearing (ND/E) % 6% 23% 13% 6% Grow th 7% 6% 8% 1% ND/EBITDA x 0.4x 1.4x 0.7x 0.4x COGS m (7,927) (8,195) (8,678) (8,864) Interest coverage x 4.5x 5.3x 7.5x 8.1x Grow th 7% 3% 6% 2% Applied assumptions FY15a FY16e FY17e FY18e EBITDA (underlying) m 645 840 1,053 998 HRC US$/t 510 329 328 318 EBITDA margin 7.5% 9.3% 10.8% 10.1% Scrap (Korean HMS 1) US$/t 336 221 239 190 Iron Ore - Benchmark US$/t 82 52 52 49 Depreciation m (343) (383) (397) () Hard coking coal US$/t 119 93 83 86 Total non-cash costs - - - - AUD$/US$ 0.83 0.74 0.68 0.65 NZ$/AUD 0.93 0.91 0.91 0.89 EBIT: Australian Steel Products m 150 290 397 305 NZ & Pacific Steel Products m (33) (61) (3) (3) Global Building Solutions m 44 67 79 85 m 2,000 1,800 1,600 1, 25% 20% Building Products ASEAN, Nth Am & India m 98 130 138 145 1,200 15% Hot Rolled Products North America m 107 107 122 144 1,000 Corporate & Group m (65) (77) (77) (77) 800 10% Intersegment m - - - - 600 Other m - - - - Total EBIT (Underlying) m 302 457 655 599 Margin 4% 5% 7% 6% 200 0 FY15a FY16e FY17e FY18e 5% 0% Net interest expense m (67) (86) (88) (73) Cash Borrowings Gearing (ND/E) NPBT m 235 371 568 525 Income tax expense m (60) (90) (136) (126) Minority interest m (41) (55) (58) (60) Reported NPAT m 136 308 373 339 Non-recurring item 2 81 - - Adjusted NPAT m 134 226 373 339 Adjusted PER (x) 30x 25x 20x Cashflow FY15a FY16e FY17e FY18e EBITDA m 645 840 1,053 998 ch. In Working Capital m 69 (58) (61) (18) Net Interest Paid m (67) (87) (88) (73) Tax Paid m (50) (63) (67) (80) Other m (59) (52) (58) (60) Total Operating Cashflow m 539 581 779 767 Capex m (376) (340) (300) (330) Total Investing Cashflow m (411) (1,299) (300) (330) Proceeds from Equity Issues m - - - - Borrow ings Movement m - - - - Dividends Paid m (17) (34) (34) (57) Other m (47) (20) - - Total Financing Cashflow m (64) (54) (34) (57) Net cash movement m 52 167 445 380 Balance Sheet FY15a FY16e FY17e FY18e Cash m 519 686 1132 1512 PPE m 3733 3883 3786 3716 Total Assets m 7878 9442 9912 10258 Borrow ings m 794 1861 1861 1861 Total Liabilities m 3138 4377 4439 4457 Total shareholder equity m 4739 5064 5473 5801 Source: Company data, Macquarie Research, May 2016 15x 10x 5x 0x EBIT (m) 700 600 500 300 200 100 - FY15a FY16e FY17e FY18e EBIT FY15a FY16e FY17e FY18e 19 May 2016 6
Fig 14 SGM estimate summary Profit and loss FY15a FY16e FY17e FY18e Applied assumptions FY15a FY16e FY17e FY18e Total Revenue m 6328 4963 5299 4914 Scrap - Asia ($/t) US$/t 311 224 215 188 Growth % -11.3% -21.6% 6.8% -7.3% Scrap - Europe($/t) US$/t 282 199 190 163 Source: Company data, Macquarie Research, May 2016 Scrap - US ($/t) US$/t 248 154 145 123 EBITDA m 263 166 264 317 AUD$/US$ $ 0.83 0.74 0.68 0.65 Growth % 8.3% -36.7% 59.0% 20.1% EBITDA margin % 4.1% 3.3% 5.0% 6.5% Sales volumes FY15a FY16e FY17e FY18e North America Metals % -14% -12% 1% 3% Depreciation & amortisation m (121) (129) (136) (139) ANZ Metals % -9% -12% 4% 3% Europe Metals % -1% -8% 3% 3% EBIT by region Aggregate volumes '000 t 10,481 9,300 9,473 9,727 North America Metals m 12 (21) 26 37 - Growth % -11% -11% 2% 3% Australia and New Zealand Metals m 59 36 52 56 Europe metals m 25 12 21 27 Ratio Analysis FY15a FY16e FY17e FY18e Global E-recycling m 44 8 30 58 Unallocated m 2 2 (1) (1) EPS (adjusted earnings) cps 34 50 6 45 59 Total EBIT m 142 37 128 178 EPS growth % 48% -88% 646% 31% EBIT margin % 2.2% 0.7% 2.4% 3.6% P/E x 17.4x 142.4x 19.1x 14.6x EV/EBITDA x 5.5x 8.4x 5.0x 3.8x Net interest expense m (1) (9) (6) (5) EV/EBIT x 10.3x 37.7x 10.3x 6.8x NPBT m 141 28 122 173 GCFPS cps 103 146 107 120 126 Income tax expense m (39) (16) (29) (52) GCFPS growth % 42% -27% 12% 5% NPAT m 102 12 93 121 P/CF x 5.9x 8.1x 7.2x 6.9x Growth % 47.5% -87.8% 645.6% 30.8% DPS cps 29.0 20.0 24.0 29.0 Non-recurring item m 8 (232) - - Dividend Yield % 3.4% 2.3% 2.8% 3.4% Net debt m (314) (371) (455) (551) NPAT attributable to shareholders m 110 (220) 93 121 Gearing (ND/[ND+E]) % -17% -24% -30% -37% Return on equity % 5.1% 0.6% 4.8% 6.1% Adjusted NPAT m 102 12 93 121 Interest coverage (EBIT/Net Int) x 177.1x 4.1x 19.9x 35.8x Growth % 47.5% -87.8% 645.6% 30.8% Return on Cap (NOPAT/Eq+ND) % 5.5% 1.7% 6.0% 8.4% Cashflow FY15a FY16e FY17e FY18e Valuation - EV/EBIT m EBITDA m 263 166 264 317 ch. In Working Capital m 74 73 16 (3) FY16e FY17e FY18e FY16e FY17e FY18e Net Interest Paid m 8 8 6 5 North America Metals NAV-based 12.0 10.0 161 311 368 Tax Paid m 41 23 29 52 Australia and New Zealand Metals 10.0 10.5 9.0 362 541 508 Other m 158 155 32 (7) Europe metals 10.5 9.0 9.0 124 190 247 Total Operating Cashflow m 298 218 245 257 Global E-recycling 11.5 11.0 11.0 91 330 636 Capex m (95) (104) (120) (110) Investments movement m 127 126 - - Total 21.2 10.7 9.9 738 1,372 1,758 Investing casfhlow m 42 (100) (120) (110) - Growth Proceeds from Equity Issues m 1 0 - - Net (debt)/cash 371 455 551 Borrowings Movement m (48) (7) - - Equity value 1,110 1,828 2,310 Dividends Paid m (53) (47) (41) (51) # of shares 204 204 204 Other m (0) (12) - - Value per share 5.43 8.94 11.30 Financing cashflow m (100) (66) (41) (51) Exchange rate adjustments m 19 11 - - Net cash movement m 259 63 84 96 Balance sheet FY15a FY16e FY17e FY18e Cash m 316 379 463 559 PPE m 1,032 1,009 1,008 994 Total assets m 2,882 2,599 2,626 2,701 Borrowings m 2 8 8 8 Total liabilities m 769 694 669 674 Total shareholders equity m 2,113 1,905 1,957 2,027 m 200 150 100 50 0 FY15a FY16e FY17e FY18e Total EBIT EBIT margin 4.0% 3.0% 2.0% 1.0% 0.0% m 600 500 300 200 100 0 EV FY15a FY16e FY17e FY18e 0% -10% -20% -30% -40% Cash Borrowings Gearing (ND/[ND+E]) 19 May 2016 7
Important disclosures: 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 Macquarie Wealth Management, a division of Macquarie Equities 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 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 March 2016 AU/NZ Asia RSA USA CA EUR Outperform 50.34% 59.09% 46.67% 44.76% 60.66% 46.12% (for global coverage by Macquarie, 3.72% of stocks followed are investment banking clients) Neutral 34.14% 25.66% 32.00% 49.90% 30.33% 35.10% (for global coverage by Macquarie, 4.79% of stocks followed are investment banking clients) Underperform 15.52% 15.26% 21.33% 5.33% 9.02% 18.78% (for global coverage by Macquarie, 2.31% of stocks followed are investment banking clients) BSL AU vs ASX 100, & rec history SGM AU vs Small Ordinaries, & rec history 19 May 2016 8
(all figures in AUD currency unless noted) (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, May 2016 12-month target price methodology BSL AU: 7.00 based on a Sum of Parts methodology SGM AU: 8.90 based on a EV/EBIT methodology Company-specific disclosures: BSL AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Bluescope Steel's equity securities. SGM AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Sims Metal Management Ltd's equity securities. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Target price risk disclosures: BSL 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. SGM 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 Ltd total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Limited and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie Equities South Africa (Pty) Ltd; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale 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 the information in 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. MGL has established and implemented a conflicts policy at group level (which may be revised and updated from time to time) (the "Conflicts Policy") pursuant to regulatory requirements (including the FCA Rules) which sets out how we must seek to identify and manage all material conflicts of interest. 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. In preparing this research, we did not take into account your investment objectives, financial situation or particular needs. Macquarie salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions which are contrary to the opinions expressed in this research. Macquarie Research produces a variety of research products including, but not limited to, fundamental analysis, macro-economic analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do 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. No member of the Macquarie Group accepts any 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. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. The date and timestamp for above share price and market cap is the closed price of the price date. #CLOSE is the final price at which the security is traded in the relevant exchange on the date indicated. Country-specific disclaimers: Australia: In Australia, research is issued and distributed by Macquarie Securities (Australia) Ltd (AFSL No. 238947), a participating organisation of the Australian Securities Exchange. New Zealand: In New Zealand, research is issued and distributed by Macquarie Securities (NZ) Ltd, a NZX Firm. Canada: In Canada, research is prepared, approved and distributed by Macquarie Capital Markets Canada Ltd, a participating organisation of the Toronto Stock Exchange, TSX Venture Exchange & Montréal Exchange. Macquarie Capital Markets North America Ltd., which is a registered brokerdealer and member of FINRA, accepts responsibility for the contents of reports issued by Macquarie Capital Markets Canada Ltd in the United States and sent to US persons. Any US person wishing to effect transactions in the securities described in the reports issued by Macquarie Capital Markets Canada Ltd should do so with Macquarie Capital Markets North America Ltd. The Research Distribution Policy of Macquarie Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom: In the United Kingdom, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated by the Financial Conduct Authority (No. 193905). Germany: In Germany, this research is issued and/or distributed by Macquarie Capital (Europe) Limited, Niederlassung Deutschland, which is authorised and regulated by the UK Financial Conduct Authority (No. 193905). and in Germany by BaFin. France: In France, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority (No. 193905). Hong Kong & Mainland China: In Hong Kong, research is issued and distributed by Macquarie Capital Limited, which is licensed and regulated by the Securities 19 May 2016 9
and Futures Commission. In Mainland China, Macquarie Securities (Australia) Limited Shanghai Representative Office only engages in non-business operational activities excluding issuing and distributing research. Only non-a share research is distributed into Mainland China by Macquarie Capital Limited. Japan: In Japan, research is Issued and distributed by Macquarie Capital Securities (Japan) Limited, a member of the Tokyo Stock Exchange, Inc. and Osaka Exchange, Inc. (Financial Instruments Firm, Kanto Financial Bureau (kin-sho) No. 231, a member of Japan Securities Dealers Association). India: In India, research is issued and distributed by Macquarie Capital Securities (India) Pvt. Ltd. (CIN: U65920MH1995PTC090696), formerly known as Macquarie Capital (India) Pvt. Ltd., 92, Level 9, 2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai 051, India, which is a SEBI registered Research Analyst having registration no. INH000000545. Malaysia: In Malaysia, research is issued and distributed by Macquarie Capital Securities (Malaysia) Sdn. Bhd. (Company registration number: 463469-W) which is a Participating Organisation of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission. Taiwan: In Taiwan, research is issued and distributed by Macquarie Capital Securities Ltd, Taiwan Branch, which is licensed and regulated by the Financial Supervisory Commission. No portion of the report may be reproduced or quoted by the press or any other person without authorisation from Macquarie. Nothing in this research shall be construed as a solicitation to buy or sell any security or product. Research Associate(s) in this report who are registered as Clerks only assist in the preparation of research and are not engaged in writing the research. Thailand: In Thailand, research is produced, issued and distributed by Macquarie Securities (Thailand) Ltd. Macquarie Securities (Thailand) Ltd. is a licensed securities company that is authorized by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is an exchange member of the Stock Exchange of Thailand. The Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the Securities and Exchange Commission of Thailand. Macquarie Securities (Thailand) Ltd does not endorse the result of the Corporate Governance Report of Thai Listed Companies but this Report can be accessed at: http://www.thai-iod.com/en/publications.asp?type=4. South Korea: In South Korea, unless otherwise stated, research is prepared, issued and distributed by Macquarie Securities Korea Limited, which is regulated by the Financial Supervisory Services. Information on analysts in MSKL is disclosed at http://dis.kofia.or.kr/websquare/index.jsp?w2xpath=/wq/fundmgr/disfundmgranalyststut.xml&divisionid=mdis03002001000000&serviceid=sdis03002 001000. South Africa: In South Africa, research is issued and distributed by Macquarie Equities South Africa (Pty) Ltd, a member of the JSE Limited. Singapore: In Singapore, research is issued and distributed by Macquarie Capital Securities (Singapore) Pte Ltd (Company Registration Number: 198702912C), a Capital Markets Services license holder under the Securities and Futures Act to deal in securities and provide custodial services in Singapore. Pursuant to the Financial Advisers (Amendment) Regulations 2005, Macquarie Capital Securities (Singapore) Pte Ltd is exempt from complying with sections 25, 27 and 36 of the Financial Advisers Act. All Singapore-based recipients of research produced by Macquarie Capital (Europe) Limited, Macquarie Capital Markets Canada Ltd, Macquarie Equities South Africa (Pty) Ltd and Macquarie Capital (USA) Inc. represent and warrant that they are institutional investors as defined in the Securities and Futures Act. United States: In the United States, research is issued and distributed by Macquarie Capital (USA) Inc., which is a registered broker-dealer and member of FINRA. Macquarie Capital (USA) Inc, accepts responsibility for the content of each research report prepared by one of its non-us affiliates when the research report is distributed in the United States by Macquarie Capital (USA) Inc. Macquarie Capital (USA) Inc. s affiliate s analysts are not registered as research analysts with FINRA, may not be associated persons of Macquarie Capital (USA) Inc., and therefore may not be subject to FINRA rule restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Information regarding futures is provided for reference purposes only and is not a solicitation for purchases or sales of futures. Any persons receiving this report directly from Macquarie Capital (USA) Inc. and wishing to effect a transaction in any security described herein should do so with Macquarie Capital (USA) Inc. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures, or contact your registered representative at 1-888-MAC-STOCK, or write to the Supervisory Analysts, Research Department, Macquarie Securities, 125 W.55th Street, New York, NY 10019. Macquarie Group 19 May 2016 10