CBA CBA CBA CBA AUSTRALIA Changes to lending rates (bps) bps Owner Occupier Investor P&I IO P&I IO 0 20 25 36 CBA 3 25 24 26 7 7 25 25 3 8 23 28 BEN 0 0 25 25 Source: Company data, Macquarie research, March 2017 New lending rates % 6.0 5.5 5.0 4.5 4.0 5.79 5.80 5.80 5.85 5.90 5.94 5.96 5.96 5.25 5.25 5.32 5.32 5.42 5.45 5.47 5.49 P&I Owner occupier I/O Owner occupier P&I Investor I/O Investor Australia: Household debt servicing % % 14 12 10 8 6 Housing debt 4 4 Jun-89 Jun-93 Jun-97 Jun-01 Jun-05 Jun-09 Jun-13 Jun-17 Source: Company data, Macquarie research, March 2017 Note: The black square represents a 50bps increase from Sept 16 rates & the orange triangle is a 100bps increase. 24 March 2017 Macquarie Securities (Australia) Limited 14 12 10 8 6 If it s too good to be true Event We estimate the recent round of repricing initiatives by the majors boosted banks earnings by ~ or ~$260m-420m (on a full year basis). In our view, the combination of ongoing strong investor lending growth and the 10% growth cap imposed by the Regulator provides scope for banks to manage their margins in the current environment (as we highlighted in Australian Banks - Banking s golden goose). In the short term we see banks ongoing ability to reprice and maintain earnings growth as a positive for the sector. However additional pressure on the household sector may ultimately have adverse implications on credit quality and we believe that banks ability to continue to reprice is diminishing (particularly in the rising rate environment). Impact Repricing boosts earnings by ~ - and CBA were the last of the majors to announce repricing today. We estimate this round of repricing will boost earnings by ~ on a full year basis. We note that we already had 10bps of investor repricing in the first calendar half of 2017 in our numbers and hence our earnings upgrades are smaller than implied by the figure below (i.e. 1- in FY18). Furthermore, given banks desire to continue to invest and to manage positive Jaws, we have offset some of the revenue benefits with higher expenses. Impact of repricing and capital from additional 10% investor RWA Earnings impact (%) Capital from Revenue benefit ($m) NIM impact (bps) Earnings uplift (%) additional RWA 262 3.5 2.6 684 CBA 420 5.1 3.0 1107 313 4.5 3.3 946 381 5.2 3.2 1265 Earnings benefit for now but not risk free While banks move to increase investor mortgage profitability is positive for earnings in the short term, we recognise that it puts additional pressure on the already highly leveraged household sector. This coupled with rising global rates outlook suggests the risk around the investor portfolio appears to be increasing. We continue to believe that the Regulator will increase RWA on investor mortgages which will partially offset the benefit (although banks are likely to re-price again at that point). Based on our estimates a 10% increase in investor risk weights would add $0.7bn-1.3bn of capital per bank. Outlook The recent earnings trends appear to be supportive for the sector. Although this suggests that banks should continue to see share-price support, we remain Neutral on the sector given relatively full valuations and increasing regulatory risks. Please refer to page 11 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Macquarie Wealth Management Recent repricing continues to provide margin support The recent repricing initiatives undertaken by the sector coupled with reduced level of front book discounting has improved banks profitability on mortgages. In the latest round of repricing, the majors increased their investor variable rates by 23-36bps and owner occupier books by 0-8bps. We estimate the full year impact to margins and full-year earnings from the latest round of repricing to be 3-5bps and ~, which equates to a ~$260-420m revenue uplift across the majors. Fig 1 NIM and full-year earnings impact of most recent repricing Revenue benefit ($m) NIM impact (bps) FY earnings uplift (%) 262 3.5 2.6 CBA 420 5.1 3.0 313 4.5 3.3 381 5.2 3.2 In our view, a combination of ongoing strong investor lending growth and the 10% growth cap imposed by the Regulator provides scope for banks to manage their margins in the current environment. As we highlighted in - Banking s golden goose), we believe that buoyant growth in investor lending is underpinned by a significant ramp-up of new construction activity. Based on our model, we estimate that lending to newly constructed properties underpins a significant share of total lending growth. We estimate that settlement of off-the-plan purchased properties drives ~40-50% of overall lending flow and ~50-60% of total investor flow. Based on our forecasts we estimate that the flow from off-the-plan settlements alone will underpin 5-6% of investor lending volume growth until the middle of 2018. Combined with estimated existing turnover less repayments we estimate investor credit growth is likely to run at 7-9% during the course of 2017 and 2018. Our forecasts are based on domestic investors representing ~35% of overall new purchases. Should this figure increase towards 50%, we believe it will result in the system level of investor growth potentially going above the Regulator's 10% cap. Such a scenario is likely to have an adverse impact on banks' development books and subsequently on their investor lending portfolios. Fig 2 Forecast New Investor lending % of outstanding investor lending % 10.0 8.0 6.0 4.0 2.0 Fig 3 Estimated apartment completions No. of completions 30,000 25,000 20,000 15,000 10,000 5,000 - - Implied credit growth from new flow Total implied credit growth Offshore Investor Owner Occupier Source: ABS, RBA, Macquarie Research, March 2017 Source: ABS, RBA, Macquarie Research, March 2017 As at 2H16, mortgages represented ~$250bn-410bn of the majors balance sheets. Within this, offset balances were $24bn-35bn and fixed rate mortgages were $31bn-63bn, leaving the variable component exposed to repricing at ~$190bn-320bn. Of this variable component investor loans make up 34-4 of variable loans, with interest-only ranging between 3 and 4 of variable loans. 24 March 2017 2
Fig 4 Mortgage book composition Fig 5 Composition of variable mortgages $bn $bn 450 350 400 350 300 250 200 150 100 50 0 30 35 60 63 25 24 44 31 320 306 191 213 CBA Variable Fixed Offset balances 300 250 200 150 100 50 0 34% 39% 39% 4 3 34% 4 37% 66% 6 6 58% 66% 68% 6 58% CBA Owner-occupier Investor P&I Interest-only The figure below highlights banks sensitivities to 10bps of repricing across the various loan books. We note that depending on the structure of repricing, banks can generate 1-4bps uplift to Group s margins or 1- earnings uplift from 10bps repricing. Fig 6 Repricing sensitivities for 10bps of repricing on various parts of the book Variable loans ($bn) +10bps entire book +10bps investor loans +10bps interest-only loans NIM benefit Earnings Investor NIM benefit Earnings Interest-only NIM benefit (bps) uplift (%) loans ($bn) (bps) uplift (%) loans ($bn) (bps) Earnings uplift (%) 193 2.6 1.9 66 0.9 0.7 71 0.9 0.7 CBA 324 3.9 2.3 106 1.3 0.8 129 1.6 0.9 214 3.1 2.3 90 1.3 1.0 68 1.0 0.7 308 4.2 2.6 121 1.7 1.0 129 1.8 1.1 Note: For CBA and assumed their sub-brands (Bankwest, St. George, Bank of Melbourne and BankSA) are repriced by the same amount 24 March 2017 3
CBA CBA CBA CBA Macquarie Wealth Management Not so standard variable rates now differ across four different product categories In recent periods, the majors have moved away from a single mortgage SVR reference rate and currently offer four distinct pricing points. Moreover, rates across the majors vary and while higher product pricing provides scope to earn more on the back book we believe front book pricing needs to remain competitive to attract flow. In that regard, we believe that banks with higher SVRs will generally offer higher discounts to compensate for their higher reference rate. Over time, we expect pricing across each category to converge. We generally view higher pricing and additional discounting to drive flow as an inferior long-term strategy. Since 2008, the majors have gradually repriced mortgages, which has led to a widening of the spread between the standard variable rate and the cash rate. After an extended period where spreads remained unchanged at 180bps between Jul-99 and Dec-07, spreads widened to 375bps on owner-occupier mortgages and 400bps on investor mortgages. Fig 7 Owner-occupier and investor SVR spreads to the cash rate % 10 9 8 7 6 5 4 3 2 1 0 Spread (OO) Spread (inv.) Cash rate SVR (OO) SVR (inv.) Source: RBA, Macquarie Research, March 2017 After the most recent round of repricing each of the majors now has differentiated pricing across owner-occupier, investor and interest-only loans. What we have also see is a convergence of back-book rates across the various mortgage products. Fig 8 Majors standard variable rates % 6.0 Fig 9 Difference from the average bps 5 4 5.5 5.0 4.5 5.79 5.80 5.80 5.85 5.90 5.94 5.96 5.96 5.25 5.25 5.32 5.32 5.42 5.45 5.47 5.49 3 2 1 0-1 -2 4.0-3 -4 P&I Owner occupier I/O Owner occupier P&I Investor I/O Investor -5 CBA P&I Owner occupier P&I Investor I/O Owner occupier I/O Investor 24 March 2017 4
As the figures above highlight, following the recent changes in rates the gap between peers has narrowed. We continue to believe that in the medium term the majors SVRs will converge towards the average rate across the four pricing categories. As the figure below highlights, we continue to see scope for CBA to improve earnings by ~0.4% from converging rates. On the other hand, we believe is over-earning by ~0.6% as a result of its pricing being above peers. Fig 10 Margin and earnings impact from SVR convergence to majors average Principal & Interest Interest-only Owner-occupier Investor Owner-occupier Investor Total NIM (bps) -0.5 0.1 0.0 0.1-0.3 CBA -0.7 0.0 0.1 0.0-0.7 0.5-0.1-0.1-0.3 0.1 0.7-0.1 0.2 0.2 1.0 Earnings (%) -0.4 0.1 0.0 0.1-0.2 CBA -0.4 0.0 0.0 0.0-0.4 0.4 0.0-0.1-0.2 0.1 0.4-0.1 0.1 0.1 0.6 State of play at the regional banks While we haven t at this stage incorporated the changes for the regional banks, the figure below highlights sensitivities for 10bps repricing. Fig 11 Regional bank mortgage repricing sensitivity Variable loans ($bn) +10bps entire book NIM benefit (bps) Earnings uplift (%) Investor loans ($bn) +10bps investor loans NIM benefit (bps) Earnings uplift (%) BEN 27 4.2 4.4 10 1.6 1.7 BOQ 23 4.7 4.3 10 2.0 1.8 24 March 2017 5
Earnings changes We have upgraded our EPS forecasts across the sector by ~1- following recent repricing. Fig 12 Earnings and TP changes EPS Change (%) Target Price FY17 FY18 FY19 ($) 0.1 0.6 0.6 33.0 CBA 0.2 2.4 2.4 89.5 (89.0 prev) 0.6 1.0 1.0 35.0 0.4 1.6 1.7 37.0 Source: Macquarie Research, March 2017 Fig 13 Bank Investment Fundamentals Victor German Anita Stanley Brendan Carrig victor.german@macquarie.com anita.stanley@macquarie.com brendan.carrig@macquarie.com +612 8232 6089 +612 8232 9869 +612 8237 6043 CBA BEN BOQ CYB ( ) Recommendation Neutral Neutral Outperform Outperform Underperform Neutral Neutral Price target (A$) 33.00 89.50 35.00 37.00 11.50 12.50 2.93 Upside/downside to TP (%) 5.4 7.3 9.3 9.2 1.6 8.3 10.8 12 month TSR (%) 10.7 12.7 15.0 14.8 7.6 14.9 14.3 Last Price (A$) 31.31 83.41 32.02 33.88 11.32 11.54 2.65 Cash NPAT (A$mn) 2016a 5,889 9,450 6,483 7,822 439 360 178 2017f 7,050 9,854 6,627 8,280 455 372 182 2018f 7,361 10,605 6,841 8,796 457 389 204 2019f 7,677 11,046 7,046 9,136 477 393 237 Fully diluted EPS (cps) 2016a 193 544 235 229 86 91 20 2017f 229 555 237 239 87 92 21 2018f 239 592 241 252 87 94 23 2019f 250 612 245 260 89 94 27 EPS grow th (%) 2016a -22.7 0.5-0.8-6.0-4.1-2.6 2017f 18.6 1.9 0.7 4.4 2.1 0.6 2.1 2018f 4.5 6.7 1.9 5.4-0.7 3.0 11.4 2019f 4.5 3.4 1.7 3.1 3.0-0.1 15.6 Price/Earnings Ratio (x) 2016a 16.2 15.3 13.6 14.8 13.2 12.7 13.1 2017f 13.7 15.0 13.5 14.2 12.9 12.6 12.8 2018f 13.1 14.1 13.3 13.4 13.0 12.2 11.5 2019f 12.5 13.6 13.0 13.0 12.7 12.2 10.0 PE rel to All Industrials ex banks (x) 2016a 0.85 0.80 0.71 0.78 0.69 0.66 0.67 2017f 0.70 0.77 0.69 0.73 0.66 0.65 0.66 2018f 0.73 0.79 0.74 0.75 0.73 0.68 0.59 2019f 0.76 0.83 0.79 0.79 0.77 0.74 0.51 Price/Earnings rel to bank sector (x) 2016a 1.08 1.02 0.91 0.99 0.88 0.84 0.87 2017f 0.97 1.07 0.96 1.00 0.92 0.89 0.91 2018f 0.97 1.05 0.98 1.00 0.97 0.91 0.85 2019f 0.96 1.04 1.00 1.00 0.97 0.94 0.76 DPS (A$) 2016a 1.60 4.20 1.98 1.88 0.68 0.76 0.00 2017f 1.65 4.31 1.86 1.88 0.68 0.76 0.07 2018f 1.69 4.55 1.77 1.89 0.68 0.76 0.11 2019f 1.78 4.71 1.85 1.91 0.68 0.76 0.16 Current Yield (%) 2016a 5.1 5.0 6.2 5.5 6.0 6.6 0.0 2017f 5.3 5.2 5.8 5.5 6.0 6.6 2.7 2018f 5.4 5.5 5.5 5.6 6.0 6.6 4.3 2019f 5.7 5.6 5.8 5.6 6.0 6.6 6.0 Price/Book ratio (x) 2016a 1.6 2.4 1.7 2.0 1.0 1.2 0.8 2017f 1.5 2.3 1.6 1.9 1.0 1.2 0.8 2018f 1.5 2.2 1.5 1.8 1.0 1.2 0.8 2019f 1.4 2.1 1.5 1.7 1.0 1.2 0.8 ROE 2016a 10.2 16.8 12.1 14.1 8.9 10.4 6 2017f 12.0 16.0 12.6 13.9 8.8 10.3 5 2018f 12.2 16.2 12.4 14.1 8.4 10.4 6 2019f 12.3 16.0 12.1 13.9 8.4 10.1 7 Price/NTA ratio (x) 2016a 1.8 2.9 1.8 2.4 1.5 1.6 0.9 2017f 1.8 2.7 1.8 2.2 1.5 1.6 0.9 2018f 1.7 2.5 1.7 2.1 1.4 1.5 0.8 2019f 1.6 2.4 1.6 2.0 1.4 1.5 0.9 1 yr fwd PE ratio 13.4 14.4 13.4 13.8 13.0 12.4 12.2 1 yr fwd PE ratio (adj for div) 13.2 14.3 13.1 13.5 12.9 11.9 Relative premium/discount - 6% - 0% -4% -1 1 yr fw d div yield 5.3 5.4 5.7 5.6 6.0 6.6 3.5 24 March 2017 6
Fig 14 Financial Summary Bank Year Ending 30 September 1H16 2H16 2016 Neutral PER SHARE DATA Cash EPS (AUD) - Macquarie Basis 91 102 193 110 118 229 239 250 Current Price Target Price Cash EPS Growth (%) -24% 1-2 8% 7% 19% 5% 4% $31.36 $33.00 DPS (AUD) 80 80 160 82 83 165 169 178 Total Shareholder Return 10.5% BVPS (AUD) 19 20 20 20 20 20 21 22 NTA PS (AUD) 17 17 17 17 18 18 18 19 Bloomberg: AU Shares on issue (m) 2,918 2,927 2,927 2,936 2,941 2,941 2,913 2,921 Reuters:.AX VALUATION METRICS Macquarie Equities P/E (Cash) 17.3 15.4 16.3 14.2 13.2 13.7 13.1 12.6 Analyst(s) Contact(s) P/B (Stated) 1.6 1.6 1.6 1.6 1.5 1.5 1.5 1.4 Victor German +61 2 8232 6089 P/NTA 1.9 1.8 1.8 1.8 1.8 1.8 1.7 1.6 Anita Stanley +61 2 8232 9869 RoE (%) 9.7% 10.9% 10. 11.6% 12. 12.0% 12. 12. Brendan Carrig +61 2 8237 6043 RoA (%) 0.6% 0.7% 0.6% 0.7% 0.8% 0.8% 0.8% 0.8% Dividend Yield (%) 5. 5. 5. 5. 5. 5. 5.4% 5.7% Dividend Payout (%) 88. 78.4% 83.0% 74. 70. 72. 70.7% 71. Volumes and margins Cost of Equity (%) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 2.20% 4% 2.15% 2.10% 2.05% 2.00% 1.95% 1.90% 1.85% 1.80% 50.0% 48.0% 46.0% 44.0% 42.0% 40.0% 38.0% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% Net Interest Margin (%) GLAA growth (%) Efficiency and costs Cost / Income Ratio (%) Cost growth (%) CET1 ratio and BDD/GLA Core Tier 1 Ratio (%) - Basel III 4% 0% - 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Impairment Charge / GLAA (bp) -10.0% 29 28 27 26 25 24 23 22 21 20 PROFIT & LOSS (AUDm) Net Interest Income 7,568 7,527 15,095 7,555 7,622 15,177 15,435 15,970 Non-Interest Income 2,748 2,734 5,482 3,036 2,980 6,016 5,474 5,462 Fees & Commissions 1,194 1,193 2,387 1,142 1,097 2,239 2,253 2,333 Financial Markets 574 402 976 747 612 1,359 1,167 1,224 Life and Funds 880 747 1,627 764 778 1,543 1,601 1,662 Other Revenue 100 392 492 382 493 875 453 243 Total Operating Income 10,316 10,261 20,577 10,590 10,602 21,193 20,909 21,432 Total Operating Costs 5,479 4,943 10,422 5,102 4,700 9,802 8,931 8,878 Employee Costs 2,709 2,650 5,359 2,544 2,516 5,060 5,039 5,149 Other Costs 2,770 2,293 5,063 2,557 2,185 4,742 3,892 3,729 Pre-Provision Operating Profit 4,837 5,318 10,155 5,488 5,902 11,391 11,978 12,554 Impairment Charge 918 1,038 1,956 803 816 1,620 1,616 1,722 Pre-Tax Profit 3,919 4,280 8,199 4,685 5,086 9,771 10,362 10,832 Tax Expense 1,133 1,166 2,299 1,288 1,419 2,707 2,987 3,141 Minority Shareholders 4 7 11 7 7 14 14 14 Other Post Tax Items 0 0 0 0 0 0 0 1 Macquarie Cash Profit 2,782 3,107 5,889 3,390 3,660 7,050 7,361 7,677 Extraordinary & Other Items 44 136 180 0 0 0 0 0 Reported Net Profit 2,738 2,971 5,709 3,390 3,660 7,050 7,361 7,677 BALANCE SHEET & CAP AD (AUDm) Risk Weighted Assets* 388,335 408,582 408,582 407,815 406,850 406,850 429,064 442,839 Average Interest Earning Assets 754,391 753,928 754,160 758,219 761,252 759,735 767,352 793,092 Gross Loans, Advances & Acceptances 565,868 580,035 580,035 585,835 584,664 584,664 598,174 620,509 Interest Bearing Liabilites 789,522 806,975 806,975 815,045 813,415 813,415 832,210 863,285 Total Assets 895,278 914,869 914,869 923,941 922,108 922,108 943,239 978,173 Shareholders Equity 56,464 57,927 57,927 58,957 60,052 60,052 61,177 63,381 Tier 1 Capital* 45,062 48,285 48,285 49,315 50,410 50,410 51,535 53,739 Tier 1 Ratio (%)* 11.60% 11.8 11.8 12.09% 12.39% 12.39% 12.0 12.14% Core Tier 1 Ratio (%) - Basel III 9.8 9.6 9.6 9.88% 10.17% 10.17% 9.9 10.10% ASSET QUALITY Impairment Charge / GLAA (bp) 32 36 34 28 28 28 27 28 Impairment Charge / NHL (bp) 70 81 76 63 66 64 68 72 Provisions / NPLs (%) 75% 7 7 7 7 7 7 7 KEY RATIOS & GROWTH Net Interest Income growth (%) 1. -0.5% 3. 0.4% 0.9% 0.5% 1.7% 3.5% Non-Interest Income growth (%) -3.7% -0.5% -7. 11.0% -1.8% 9.7% -9.0% -0. Total Revenue growth (%) -0. -0.5% 0. 3. 0. 3.0% -1. 2.5% Cost growth (%) 15.0% -9.8% 11.4% 3. -7.9% -5.9% -8.9% -0.6% Pre-Provision Profit growth (%) -13. 9.9% -9.0% 3. 7.5% 12. 5. 4.8% RWA growth (%) -3.4% 5. 1.7% -0. -0. -0.4% 5.5% 3. GLAA growth (%) -0. 2.5% 2.4% 1.0% -0. 0.8% 2. 3.7% Deposit growth (%) 0.5% 0.7% 1. 1.0% -0. 0.8% 2. 3.7% Net Interest Margin (%) 2.0 2.00% 2.00% 2.00% 2.00% 2.00% 2.0 2.0 Cost / Income Ratio (%) 53. 48. 50.6% 48. 44. 46. 42.7% 41.4% CET1 Capital 38,102 39,267 39,267 40,297 41,392 41,392 42,517 44,721 Cash Profit Growth (%) -21.4 11.68% -18.39% 9.1 7.96% 19.7 4.4 4.29% Weighted Average shares (m) 2901 2912 2905 2931 2938 2933 2928 2915 Cash EPS (Basic) 0.96 1.07 2.03 1.16 1.25 2.40 2.51 2.63 Cash EPS growth (%) -24.36% 11.29% -22.14% 8.40% 7.69% 18.56% 4.6 4.75% 24 March 2017 7
Fig 15 CBA Financial Summary Commonwealth Bank of Australia Year Ending 30 June 1H16 2H16 2016 Neutral PER SHARE DATA Cash EPS (AUD) - Macquarie Basis 279 265 544 277 278 555 592 612 Current Price Target Price Cash EPS Growth (%) -5% - 4% 7% A$83.38 $89.50 DPS (AUD) 198 222 420 199 232 431 455 471 Total Shareholder Return 12.5% BVPS (AUD) 34 35 35 36 37 37 39 41 NTA PS (AUD) 28 29 29 30 31 31 33 35 Bloomberg: CBA AU Shares on issue (m) 1,708 1,715 1,715 1,723 1,729 1,729 1,743 1,750 Reuters: CBA.AX VALUATION METRICS Macquarie Equities P/E (Cash) 14.9 15.7 15.3 15.1 15.0 15.0 14.1 13.6 Analyst(s) Contact(s) P/B (Stated) 2.4 2.4 2.4 2.3 2.3 2.3 2.2 2.1 Victor German +61 2 8232 6089 P/NTA 2.9 2.9 2.9 2.8 2.7 2.7 2.5 2.4 Anita Stanley +61 2 8232 9869 RoE (%) - Cash 17.0% 15.7% 16. 16.0% 15.7% 15.9% 16. 15.8% Brendan Carrig +61 2 8237 6043 RoA (%) 1. 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Dividend Yield (%) 4.7% 5. 5.0% 4.8% 5.6% 5. 5.5% 5.6% Volumes and margins Dividend Payout (%) 71.0% 83.7% 77. 72.0% 83.5% 77.7% 77.0% 77.0% 2.20% 6% Cost of Equity (%) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 2.15% 2.10% 2.05% 2.00% 1.95% 1.90% 1.85% 1.80% 44.0% 43.0% 42.0% 41.0% 40.0% 39.0% 38.0% 37.0% 36.0% 10.00% 9.95% 9.90% 9.85% 9.80% 9.75% 9.70% Net Interest Margin (%) GLAA growth (%) Efficiency and Costs Cost / Income Ratio (%) Cost growth (%) CET1 ratio and BDD/GLA Core Tier 1 Ratio (%) - Basel III Impairment Charge / GLAA (bp) 5% 4% 0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 25 20 15 10 5 0 PROFIT & LOSS (AUDm) Net Interest Income 8,364 8,508 16,872 8,743 8,900 17,643 18,812 19,404 Non-Interest Income 4,056 3,819 7,875 4,399 4,001 8,400 8,375 8,842 Fees & Commissions 1,721 1,567 3,288 1,787 1,814 3,601 3,743 3,896 Financial Markets 496 591 1,087 600 562 1,162 1,168 1,228 Life and Funds 1,519 1,292 2,811 1,397 1,386 2,783 2,965 3,171 Other Revenue 320 369 689 615 239 854 500 547 Total Operating Income 12,420 12,327 24,747 13,142 12,901 26,043 27,188 28,246 Total Operating Costs 5,216 5,213 10,429 5,677 5,321 10,998 10,808 11,014 Employee Costs 3,085 3,079 6,164 3,108 3,167 6,275 6,413 6,509 Other Costs 2,131 2,134 4,265 2,569 2,154 4,723 4,395 4,505 Pre-Provision Operating Profit 7,204 7,114 14,318 7,465 7,580 15,045 16,380 17,232 Impairment Charge 564 692 1,256 599 649 1,248 1,522 1,758 Pre-Tax Profit 6,640 6,422 13,062 6,866 6,931 13,797 14,858 15,474 Tax Expense 1,825 1,767 3,592 1,950 1,975 3,925 4,235 4,410 Minority Shareholders 11 9 20 9 9 18 18 18 Other Post Tax Items 0 0 0 0 0 0 0 0 Macquarie Cash Profit 4,804 4,646 9,450 4,907 4,947 9,854 10,605 11,046 Extraordinary & Other Items 186 37 223 12 0 12 0 0 Reported Profit 4,618 4,609 9,227 4,895 4,947 9,842 10,605 11,046 BALANCE SHEET & CAP AD (AUDm) Risk Weighted Assets 392,662 394,667 394,667 436,481 447,963 447,963 478,543 523,091 Average Interest Earning Assets 805,916 829,127 817,522 823,058 844,855 833,957 876,793 919,841 Gross Loans, Advances & Acceptances 675,728 701,730 701,730 719,250 739,386 739,386 774,540 813,745 Total Interest bearing Liabilities 772,388 795,075 795,075 834,142 857,498 857,498 898,274 943,749 Total Assets 903,075 933,078 933,078 971,719 998,546 998,546 1,045,381 1,097,614 Shareholders Equity 59,847 60,756 60,756 61,812 63,844 63,844 67,891 71,483 Tier 1 Capital 47,972 48,553 48,553 50,218 51,250 51,250 54,631 58,223 Tier 1 Ratio (%) 12. 12. 12. 11.5% 11.4% 11.4% 11.4% 11. Core Tier 1 Ratio (%) - Basel III 10. 10.56% 10.6% 9.9 9.9% 9.9% 10.0% 9.8% ASSET QUALITY Impairment Charge / GLAA (bp) 17 20 19 17 18 17 20 22 Impairment Charge / NHL (bp) 49 57 53 49 52 50 59 65 Provisions / NPLs (%) 76% 68% 68% 66% 66% 66% 66% 66% KEY RATIOS & GROWTH Net Interest Income growth (%) 5.8% 1.7% 6.8% 2.8% 1.8% 4.6% 6.6% 3. Non-Interest Income growth (%) 2.9% -5.8% 1. 15. -9.0% 6.7% -0. 5.6% Total Revenue growth (%) 4.8% -0.7% 5.0% 6.6% -1.8% 5. 4.4% 3.9% Cost growth (%) 2.7% -0. 4.4% 8.9% -6. 5.5% -1.7% 1.9% Pre-Provision Profit growth (%) 6.4% -1. 5.4% 4.9% 1.5% 5. 8.9% 5. RWA growth (%) 6.5% 0.5% 7.0% 10.6% 2.6% 13.5% 6.8% 9. GLAA growth (%) 4.6% 3.8% 8.6% 2.5% 2.8% 5.4% 4.8% 5. Deposit growth (%) 2.7% 3.6% 6.4% 3.8% 2.8% 6.7% 4.8% 5. Net Interest Margin (%) 2.06% 2.06% 2.06% 2.1 2.1 2.1 2.15% 2.1 Cost / Income Ratio (%) 42.0% 42. 42. 43. 41. 42. 39.8% 39.0% 24 March 2017 8
Fig 16 Financial Summary National Australia Bank Year Ending 30 September 1H16 2H16 2016 Outperform PER SHARE DATA Cash EPS (AUD) - Macquarie Basis 118 118 235 118 119 237 241 245 Current Price Target Price Cash EPS Growth (%) 25% 0% 6% 0% A$32.09 $35.00 DPS (AUD) 99 99 198 99 87 186 177 185 Total Shareholder Return 14.9% BVPS (AUD) 17.67 18.06 18.06 18.32 18.73 18.73 19.54 20.30 NTA PS (AUD) 15.09 16.06 16.06 16.34 16.77 16.77 17.59 18.38 Bloomberg: AU Shares on issue (m) 2,645 2,657 2,657 2,679 2,694 2,694 2,728 2,763 Reuters:.AX VALUATION METRICS Macquarie Equities P/E (Cash) 13.7 13.6 13.6 13.6 13.5 13.5 13.3 13.1 Analyst(s) Contact(s) P/B (Stated) 1.8 1.8 1.8 1.8 1.7 1.7 1.6 1.6 Victor German +61 2 8232 6089 P/NTA 2.1 2.0 2.0 2.0 1.9 1.9 1.8 1.7 Anita Stanley +61 2 8232 9869 RoE (%) 13. 13.6% 13.4% 12.7% 12.6% 12.6% 12.4% 12. Brendan Carrig +61 2 8237 6043 RoA (%) 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% Dividend Yield (%) 3. 3. 6. 3. 2.7% 5.8% 5.5% 5.8% Volumes and margins Dividend Payout (%) 84. 84.0% 84. 83.8% 73. 78.5% 73. 75. 1.85% 6% Cost of Equity (%) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 1.80% 43.0% 42.5% 42.0% Interest (%) GLAA growth (%) Net Margin Efficiency and Costs 5% 4% 0% 4% PROFIT & LOSS (AUDm) Net Interest Income 6,600 6,330 12,930 6,462 6,686 13,149 13,789 14,348 Non-Interest Income 2,109 2,394 4,503 2,449 2,461 4,910 5,113 5,353 Fees & Commissions 1,027 1,066 2,093 1,085 1,107 2,192 2,289 2,377 Financial Markets 350 595 945 608 574 1,182 1,196 1,254 Life and Funds 598 595 1,193 616 637 1,253 1,332 1,414 Other Revenue 134 138 272 140 143 284 296 308 Total Operating Income 8,709 8,724 17,433 8,912 9,147 18,059 18,902 19,701 Total Operating Costs 3,755 3,683 7,438 3,781 3,838 7,619 7,787 8,011 Employee Costs 2,210 2,144 4,354 2,159 2,160 4,319 4,321 4,379 Other Costs 1,545 1,539 3,084 1,622 1,677 3,300 3,466 3,632 Pre-Provision Operating Profit 4,954 5,041 9,995 5,131 5,309 10,440 11,114 11,689 Impairment Charge 375 425 800 442 562 1,004 1,378 1,667 Pre-Tax Profit 4,579 4,616 9,195 4,689 4,747 9,436 9,736 10,022 Tax Expense 1,295 1,293 2,588 1,336 1,353 2,689 2,775 2,856 Distributions 64 60 124 60 60 120 120 120 Other Post Tax Items 0 0 0 0 0 0 0 1 Macquarie Cash Profit 3,220 3,263 6,483 3,293 3,334 6,627 6,841 7,045 Extraordinary & Other Items 4,962 67 5,029-60 -60-120 -120-120 Reported Profit -1,742 3,196 1,454 3,353 3,394 6,747 6,961 7,165 41.5% 41.0% 40.5% 40.0% 39.5% Income (%) Cost growth (%) Cost / Ratio 0% BALANCE SHEET & CAP AD (AUDm) Risk Weighted Assets * 361,433 388,445 388,445 394,434 408,285 408,285 441,567 462,757 Interest Earning Assets 683,958 695,138 689,548 710,869 726,153 718,511 752,966 789,152 Gross Loans, Advances & Acceptances 532,313 545,760 545,760 556,675 569,479 569,479 598,016 626,759 Total Interest bearing Liabilities 741,959 726,307 726,307 740,665 757,380 757,380 794,937 832,811 Total Assets 868,730 777,622 777,622 793,068 811,187 811,187 851,572 892,245 Shareholders Equity 50,082 51,315 51,315 52,403 53,807 53,807 56,634 59,434 Tier 1 Capital 42,535 47,336 47,336 48,214 49,617 49,617 51,955 54,755 Tier 1 Ratio (%) * 11.8% 12. 12. 12. 12. 12. 11.8% 11.8% Core Tier 1 Ratio (%) - Basel III 9.7% 9.77% 9.8% 9.8% 9.85% 9.9% 9.6% 9.8% 9.9% 9.9% 9.8% 9.8% CET1 ratio and BDD/GLA 30 25 20 ASSET QUALITY Impairment Charge / GLAA (bp) 13 16 15 16 20 18 24 27 Impairment Charge / NHL (bp) 30 34 32 35 44 40 53 61 Provisions / NPLs (%) 7 67% 67% 67% 67% 67% 67% 67% 9.7% 9.7% 9.6% 9.6% 9.5% Core Tier 1 Ratio (%) - Basel III Impairment Charge / GLAA (bp) 15 10 5 0 KEY RATIOS & GROWTH Net Interest Income growth (%) -6.7% -4. -7.8% 2. 3.5% 1.7% 4.9% 4. Non-Interest Income growth (%) -20.6% 13.5% -14.7% 2. 0.5% 9.0% 4. 4.7% Total Revenue growth (%) -10.5% 0. -9.7% 2. 2.6% 3.6% 4.7% 4. Cost growth (%) -32. -1.9% -24.9% 2.7% 1.5% 2.4% 2. 2.9% Pre-Provision Profit growth (%) 18.5% 1.8% 6. 1.8% 3.5% 4.5% 6.5% 5. RWA growth (%) -9.6% 7.5% -2.8% 1.5% 3.5% 5. 8. 4.8% GLAA growth (%) -8.9% 2.5% -6.6% 2.0% 2. 4. 5.0% 4.8% Deposit growth (%) -8.6% 1.4% -7. 2.0% 2. 4. 5.0% 4.8% Net Interest Margin (%) 1.9 1.8 1.88% 1.8 1.84% 1.8 1.8 1.8 Cost / Income Ratio (%) 43. 42. 42.7% 42.4% 42.0% 42. 41. 40.7% 24 March 2017 9
Fig 17 Financial Summary Westpac Bank Year Ending 30 September 1H16 2H16 2016 Outperform PER SHARE DATA Cash EPS (AUD) - Macquarie Basis (diluted) 115 114 229 117 122 239 252 260 Current Price Target Price Cash EPS Growth (%) -8% - -6% 4% 4% 5% A$33.90 $37.00 DPS (AUD) 94 94 188 94 94 188 189 191 Total Shareholder Return 14.7% BVPS (AUD) 17.14 17.37 17.37 17.68 18.04 18.04 18.83 19.70 NTA PS (AUD) 13.70 13.93 13.93 14.77 15.15 15.15 15.96 16.84 Bloomberg: AU Shares on issue (m) 3,336 3,346 3,346 3,358 3,369 3,369 3,391 3,412 Reuters:.AX VALUATION METRICS Macquarie Equities P/E (Cash) 14.7 14.9 14.8 14.5 13.9 14.2 13.5 13.0 Analyst(s) Contact(s) P/B (Stated) 2.0 2.0 2.0 1.9 1.9 1.9 1.8 1.7 Victor German +61 2 8232 6089 P/NTA 2.5 2.4 2.4 2.3 2.2 2.2 2.1 2.0 Anita Stanley +61 2 8232 9869 RoE (%) 14.0% 13.7% 13.9% 13.7% 14. 13.9% 14. 13.9% Brendan Carrig +61 2 8237 6043 RoA (%) 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% Dividend Yield (%) 2.8% 2.8% 5.5% 2.8% 2.8% 5.5% 5.6% 5.6% Volumes and margins Dividend Payout (%) 81.7% 82.6% 82. 80.4% 77.0% 78.7% 75.0% 73.5% 2.30% 6% Cost of Equity (%) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 2.20% 2.10% 2.00% 1.90% 42.0% 41.5% 41.0% 40.5% Interest (%) GLAA growth (%) Net Margin Efficiency and Costs 5% 4% 0% 3.0% 2.5% 2.0% PROFIT & LOSS (AUDm) Net Interest Income 7,653 7,695 15,348 7,782 8,121 15,904 16,701 17,312 Non-Interest Income 2,966 2,889 5,855 3,049 3,085 6,135 6,423 6,747 Fees & Commissions 1,375 1,380 2,755 1,415 1,448 2,862 2,994 3,119 Financial Markets 610 514 1,124 577 590 1,167 1,224 1,287 Life and Funds 941 970 1,911 1,027 1,025 2,053 2,189 2,334 Other Revenue 40 25 65 30 22 52 16 7 Total Operating Income 10,619 10,584 21,203 10,832 11,206 22,038 23,124 24,059 Total Operating Costs 4,419 4,479 8,898 4,529 4,560 9,089 9,243 9,484 Employee Costs 2,298 2,293 4,591 2,311 2,301 4,612 4,600 4,672 Other Costs 2,121 2,186 4,307 2,218 2,260 4,478 4,643 4,812 Pre-Provision Operating Profit 6,200 6,105 12,305 6,303 6,646 12,949 13,881 14,575 Impairment Charge 667 457 1,124 482 535 1,018 1,298 1,507 Pre-Tax Profit 5,533 5,648 11,181 5,820 6,111 11,931 12,583 13,068 Tax Expense 1,620 1,724 3,344 1,775 1,864 3,639 3,775 3,920 Minority Shareholders -9-6 -15-6 -6-12 -12-12 Macquarie Cash Profit 3,904 3,918 7,822 4,039 4,241 8,280 8,796 9,136 Extraordinary & Other Items -203-174 -377 0 0 0 0 0 Reported Profit 3,701 3,744 7,445 4,039 4,241 8,280 8,796 9,136 40.0% 39.5% 39.0% 38.5% 38.0% 9.7% Income (%) Cost (%) Cost / Ratio growth CET1 ratio and BDD/GLA 1.5% 1.0% 0.5% 0.0% 22 BALANCE SHEET & CAP AD (AUDm) Risk Weighted Assets* 363,248 410,053 410,053 418,577 437,730 437,730 473,003 498,974 Interest Earning Assets 714,856 728,830 721,843 745,637 764,650 755,143 793,951 834,145 Gross Loans, Advances & Acceptances 644,054 665,256 665,256 682,043 699,918 699,918 735,657 773,217 Total Interest bearing Liabilities 515,451 531,280 531,280 544,562 558,721 558,721 587,006 616,723 Total Assets 831,760 839,202 839,202 858,113 880,171 880,171 924,236 970,533 Shareholders Equity 57,981 58,181 58,181 59,408 60,829 60,829 63,925 67,264 Core Tier 1 Capital 38,041 38,875 38,875 40,102 41,524 41,524 44,619 47,958 Core Tier 1 Ratio (%) 10.5% 9.5% 9.5% 9.6% 9.5% 9.5% 9.4% 9.6% Tier 1 Capital 44,005 45,785 45,785 47,012 48,434 48,434 51,529 54,868 Tier 1 Ratio (%) -Basel 3 12. 11. 11. 11. 11. 11. 10.9% 11.0% 9.6% 9.6% 9.5% 9.5% 9.4% 9.4% 9. Core Tier 1 Ratio (%) Impairment Charge / GLAA (bp) 20 18 16 14 12 10 ASSET QUALITY Impairment Charge / GLAA (bp) 21 14 17 14 15 15 18 20 Impairment Charge / NHL (bp) 63 42 52 44 48 46 57 63 Provisions / NPLs (%) 7 67% 67% 70% 7 7 77% 8 KEY RATIOS & GROWTH Net Interest Income growth (%) 4.8% 0.5% 7.8% 1. 4.4% 3.6% 5.0% 3.7% Non-Interest Income growth (%) -7.7% -2.6% -7. 5.5% 1. 4.8% 4.7% 5. Total Revenue growth (%) 0.9% -0. 3. 2. 3.5% 3.9% 4.9% 4.0% Cost growth (%) 0.9% 1.4% 3.0% 1. 0.7% 2. 1.7% 2.6% Pre-Provision Profit growth (%) 1.0% -1.5% 3.4% 3. 5.4% 5. 7. 5.0% RWA growth (%) 1. 12.9% 14.4% 2. 4.6% 6.7% 8. 5.5% GLAA growth (%) 2.8% 3. 6. 2.5% 2.6% 5. 5. 5. Deposit growth (%) 4. 3. 7.5% 2.5% 2.6% 5. 5. 5. Net Interest Margin (%) 2.14% 2.1 2.1 2.09% 2.1 2.1 2.10% 2.08% Cost / Income Ratio (%) 41.6% 42. 42.0% 41.8% 40.7% 41. 40.0% 39.4% 24 March 2017 10
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return > in excess of benchmark return Neutral return within of benchmark return Underperform return > 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 57.5 50.7 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.7 of stocks followed are investment banking clients) Neutral 33.90% 33.97% 43.04% 50.1 37.2 35.6 (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients) Underperform 8.56% 15.30% 11.39% 7.6 2.19% 11.59% (for global coverage by Macquarie, 4.6 of stocks followed are investment banking clients) AU vs ASX 100, & rec history CBA AU vs ASX 100, & rec history AU vs ASX 100, & rec history (all figures in AUD currency unless noted) AU vs ASX 100, & rec history (all figures in AUD currency unless noted) BEN AU vs ASX 100, & rec history (all figures in AUD currency unless noted) (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, March 2017 12-month target price methodology AU: A$33.00 based on a Sum of Parts/GG methodology CBA AU: A$89.50 based on a Sum of Parts/GG methodology AU: A$35.00 based on a Sum of Parts/GG methodology AU: A$37.00 based on a Sum of Parts/GG methodology BEN AU: A$11.50 based on a Sum of Parts/GG methodology Company-specific disclosures: AU: MACQUARIE CAPITAL (NEW ZEALAND) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Australia and New Zealand Banking Group Ltd in the past 24 months, for which it received compensation. Macquarie and its affiliates collectively and beneficially own or control or more of any class of Australia and New Zealand Banking Group Limited's equity securities. CBA AU: Macquarie and its affiliates collectively and beneficially own or control or more of any class of Commonwealth Bank of Australia's equity securities. MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of Commonwealth Bank of Australia in the past 12 months, for which it received compensation. AU: Macquarie and its affiliates collectively and beneficially own or control or more of any class of National Australia Bank's equity securities. Macquarie Capital (Australia) Limited or one of its affiliates may provide National Australia Bank Limited investment advisory services for which it may or may not receive compensation. MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed 24 March 2017 11
This publication was disseminated on 24 March 2017 at 09:33 UTC. Macquarie Wealth Management a public offering of securities of National Australia Bank Ltd in the past 24 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 National Australia Bank Ltd in the past 24 months, for which it received compensation. MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of National Australia Bank Ltd in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (EUROPE) LIMITED or one of its affiliates has provided National Australia Bank Ltd with investment advisory services in the past 24 months, for which it received compensation. AU: Macquarie and its affiliates collectively and beneficially own or control or more of any class of Westpac Banking Corporation's equity securities. MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of Westpac Banking Corp in the past 12 months, for which it received compensation. MACQUARIE CAPITAL (NEW ZEALAND) LIMITED or one of its affiliates managed or comanaged a public offering of securities of Westpac Banking Corp in the past 12 months, for which it received compensation. MACQUARIE EQUITIES LIMITED or one of its affiliates managed or co-managed a public offering of securities of Westpac Banking Corp in the past 24 months, for which it received compensation. BEN AU: Macquarie and its affiliates collectively and beneficially own or control or more of any class of Bendigo and Adelaide Bank Limited'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: 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. CBA 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. 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. 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. BEN 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 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. 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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 24 March 2017 12