AUSTRALIA NAB AU Price (at 05:32, 30 Mar 2015 GMT) Outperform A$38.32 Valuation A$ - DCF (WACC 9.3%, beta 1.0, ERP 5.0%, RFR 5.8%) 38.97 12-month target A$ 40.58 12-month TSR % +11.1 Volatility Index Low GICS sector Banks Market cap A$m 92,773 30-day avg turnover A$m 171.5 Number shares on issue m 2,421 Investment fundamentals Year end 30 Sep 2014A 2015E 2016E 2017E Net interest Inc m 13,775 14,157 15,097 15,964 Non interest Inc m 5,138 4,947 5,192 5,407 Underlying profit m 8,733 10,163 11,030 11,936 Reported profit m 5,295 6,665 7,342 7,958 Adjusted profit m 5,184 6,485 7,162 7,778 EPS adj 217.0 263.4 285.6 304.5 EPS adj growth % -13.5 21.4 8.4 6.6 PER adj x 17.7 14.5 13.4 12.6 PER rel x 1.04 0.85 0.88 0.88 Total DPS 198.0 199.0 199.0 206.0 Total div yield % 5.2 5.2 5.2 5.4 Franking % 100 100 100 100 ROA % 0.6 0.7 0.8 0.8 ROE % 11.0 13.0 13.3 13.4 Equity to assets % 5.4 5.6 5.7 5.9 P/BV x 1.9 1.8 1.7 1.6 NAB AU vs ASX 100, & 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, March 2015 (all figures in AUD unless noted) A Different Species Event Recent press speculation has suggested the potential for NAB to separate out NAB UK via an in-specie distribution. This is a surprisingly common move in the Australian market and historically has been value creating, particularly in the case of HGG/AMP. Impact Recent press speculation has suggested an in-specie distribution as an option to fulfil the new CEO s goal of exiting the UK - There has been recent press speculation surrounding the potential for NAB to divest of Clydesdale bank through an in-specie distribution (Thorburn closes in on MLC Clydesdale Action Plan, SMH March 1). An in-specie distribution is one where existing shareholders receive stock in the division to be carved out. An in-specie distribution is a common way of separating out non-core assets in the Australian market There have been several instances of inspecie distributions over the last 10 years or so. Notable transactions include AMP/HGG, WOW/SCP and TOL/VAH. A common theme of these transactions was the need for the Headstock to focus on its core business. In some but not all cases, the new entity/headstock raised capital (either to fund acquisition of assets from the Headstock or to generally bolster equity reserves). There was a variety of tax treatments as well. Historically share price performance post an in-specie distribution has been value creating Interestingly in most cases, the head and divested stock (or a synthetic combination of the two) outperformed a month after the separation by 0-20%+. We believe this to be the case for a variety of reasons including greater disclosure/focus from management on the separate entities as well as the tendency of the market to over-react/over-reflect the drag of a troubled business unit in the Headstock s share price. Earnings and target price revision No changes. Price catalyst 12-month price target: A$40.58 based on a DDM/PE methodology. Catalyst: 1H15 results, May 7. Action and recommendation Reiterate Outperform rating. 30 March 2015 Macquarie Securities (Australia) Limited Please refer to page 8 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Analysis There has been recent press speculation surrounding the potential for NAB to divest of Clydesdale bank through an in-specie distribution (Thorburn closes in on MLC Clydesdale Action Plan, SMH March 1). In this note we explore this option in further detail. In specie distributions have been successfully undertaken by numerous Australian companies Mechanically, an in-specie distribution involves existing shareholders receiving a share in the company being disposed of (subject to shareholder approval). In NAB s case, this would involve NAB group shareholders receiving a share in the newly listed Clydesdale. In-specie distributions are not uncommon in Australia and have been undertaken by a number of large Australian companies over the last 10 years including AMP, WOW and TOL. Another high profile in-specie distribution that is expected in 2015 is BHP Billiton s in-specie distribution of some of its Southern Hemisphere assets (aluminium, coal, manganese, nickel and silver) to a new company, South32. BHP shareholders will receive a new share in South32 for every share in BHP Billiton held. The table below examines a number of recent Australian in-specie distributions and the treatment and impact to the company and shareholders. Fig 1 In specie distributions are not uncommon, with widely held stocks having previously taken this approach AMP - Henderson (HGG) Woolworths (WOW) - SCA Property Group (SCP) Toll Holdings (TOL) - Virgin Blue (VAH) Date 23-Dec-03 30-Nov-12 22-Aug-08 Distribution Receive 1 HGG share for every 1 AMP share Receive 1 SCP share for every 5 WOW Receive 1 VAH share for every 1 TOL held. shares held. share held. Treatment The following occurred post the AMP Demerger: - 29.2% of AMP shares were cancelled and a cancellation entitlement of $5.91 for each share cancelled. - The remaining AMP shares were then split to obtain the same number of AMP shares after the demerger as before, and The transaction was treated as WOW: - paying a fully franked dividend (dividend amount) equal to 49.3% of the SCP stapled unit volume weighted average price (VWAP); and - making a capital return (capital return amount) equal to 50.7% of the SCP stapled unit VWAP The impact on TOL shareholders was as follows: - Dividend is not assessable income - Value of current cost base to be allocated between TOL and VAH - Eligible shareholders may access Share Sale and Purchase facility - Received shares in HGG equal to the number of AMP shares previously owned before the demerger the cancellation entitlement was applied as payment for these shares. Capital Management HGG raised 100m in conjunction with the stock market listing; AMP undertook a AU$1.5bn capital raising following a $2.6bn write-down Source: Company data, Macquarie Research, March 2015 SCA undertook a public offering, raising $472m to partially fund the acquisition of the portfolio on the date of listing (26 Nov 12) None Share price performance of previous in-specie distributions taken Below we examine the relative share price reaction around the time of the in-specie distribution occurring. AMP/ HGG AMP (A$6.36, UP, TP: A$5.90) and Henderson (HGG AU, A$5.40, OP, TP: A$6.50) saw positive share price performance post divestment - AMP saw strong share price outperformance when AMP traded ex-hgg entitlement (+11% relative outperformance from 3 weeks before the listing to 1 month post). Henderson shares had a strong debut, increasing 22% in the month post listing (17% on a relative basis). 30 March 2015 2
1/12/2003 3/12/2003 5/12/2003 7/12/2003 9/12/2003 11/12/2003 13/12/2003 15/12/2003 17/12/2003 19/12/2003 21/12/2003 23/12/2003 25/12/2003 27/12/2003 29/12/2003 31/12/2003 2/01/2004 4/01/2004 6/01/2004 8/01/2004 10/01/2004 12/01/2004 14/01/2004 16/01/2004 18/01/2004 20/01/2004 22/01/2004 Macquarie Wealth Management Fig 2 AMP shares saw strong performance post the demerger from Henderson 4.80 4.60 4.40 4.20 4.00 3.80 3.60 18/12/03 - AMP shares traded ex entitlement to HGG shares 1.50 1.45 1.40 1.35 1.30 1.25 1.20 1.15 1.10 1.05 3.40 1.00 AMP HGG (LHS) Source: Factset, Macquarie research, March 2015 Examining the synthetic value of the combined entity, we can see that there was an increase in value in the month post the demerger. We have adjusted for the AMP rights issue of $1.2bn and Henderson capital raising in conjunction with the merger of $532m ( 190m). Fig 3 Synthetically combined market cap grew 47% ex rights issue and capital raising $m AMP HGG Combined Mkt Cap Pre De-merger 8,561 8,561 Mkt Cap 1mth Post De-merger 8,710 5,595 14,305 AMP Rights Issue 1,200 HGG Capital Raising 532 Adjusted Mkt Cap 7,510 5,063 12,573 Growth in Mkt Cap 46.9% ASX Growth 4.0% Relative Outperformance 42.9% Source: Factset, Company data, Macquarie Research, March 2015 TOL/VAH TOL (A$8.87, N, TP: A$9.04) and VAH (A$0.51, N, TP: A$0.50) both outperformed post the divestment - Examining the TOL and VAH divestment, we can see that TOL and VAH outperformed relative to the market post the announcement. Fig 4 Relative outperformance at TOL and VAH 1mth post announcement and distribution 1mth post announcement and distribution TOL 19.2% VAH 95.8% Source: Factset, Macquarie Research, March 2015 TOL outperformed on the day the divestment was announced with both companies performing strongly post the announcement. 30 March 2015 3
Fig 5 TOL and VAH outperformed relative to the market post the distribution and announcement 7.50 17/7/08 - shares in TOL trade ex VAH distribution 0.90 7.00 6.50 6.00 5.50 5.00 TOL saw a favourable share price reaction post the announcement of the VAH disposal TOL - Outperformed mkt by 19% in month post disposal announcement VAH - Outperformed mkt by 95% in month post disposal announcement 0.80 0.70 0.60 0.50 0.40 0.30 TOL VAH (RHS) Source: Factset, Company data, Macquarie Research, March 2015 WOW/SCP Woolworths (A$29.48, UP, TP: A$32.94) and SCA Property Group (A$2.03, UP, TP: A$1.69) saw mixed share price performance Woolworths underperformed following the announcement of the SCP distribution, but did see a rally in the two weeks prior to the ex distribution date, before tracking sideways again in the subsequent month. Relative to the market, WOW experienced 2.4% of underperformance from the SCP listing date to one month following the demerger. SCP on the other hand outperformed the market by 1.4% over the same period. Fig 6 Mixed share price performance for WOW, with SCP experiencing Outperformance 33.00 32.00 31.00 30.00 29.00 28.00 27.00 WOW shares rallied into the exdate after Underperforming following the announcement 30/11/12 - WOW shares trade ex SCP distribution 1.70 1.65 1.60 1.55 1.50 1.45 1.40 1.35 1.30 WOW SCP (RHS) Source: Factset, Macquarie Research, March 2015 Examining the synthetically combined market capitalisation of WOW and SCP we saw underperformance of 1.8% relative to the market in the month following the demerger, driven primarily by WOW. 30 March 2015 4
Fig 7 Synthetically combined market cap underperformed the market by 1.8% in the month following the demerger WOW SCP Combined Mkt Cap on demerger date 35,172 820 35,992 Mkt Cap 1mth post Demerger 36,446 879 37,325 Growth in Mkt Cap 3.7% ASX Growth 5.5% Relative performance -1.8% Source: Factset, Macquarie Research, March 2015 In summary, it can be seen that the share price reaction has been generally favourable post an inspecie distribution. An in-specie distribution provides shareholders with the optionality to choose whether they want to continue to invest in the asset being divested There are a number of advantages and disadvantages to undertaking an in-specie distribution. The table below highlights each of these. Fig 8 In-specie distribution can be undertaken quickly and give investors choice on whether they want new co exposure Advantages Provides existing company shareholders with optionality to choose whether they want to continue to have exposure to new company Can provide a more timely approach for asset divestment Investors in new company will be familiar with the stock Source: Company data, Macquarie Research, March 2015 Disadvantages May not be able to find likely on-sellers of new stock (was not an issue however at HGG) Could be costly to carry out an in-specie distribution (cost to AMP/HGG was A$214m) Risk of capital raising before listing (AMP/HGG) We discuss these in further detail below. Provides optionality - An in-specie distribution is also beneficial to shareholders as it gives them optionality to choose whether they want to continue to have exposure to the newly separated company. Post the distribution, it will also allow investors to only invest in the group or in the new entity if they choose. Relative timely - An in-specie distribution could be favourable as it would provide the company with a relatively timely disposal (compared to other potential disposal options available) given that they would be in control of when the distribution occurs (subject to shareholder approval of the distribution). Fig 9 In-specie distributions can be relatively timely Announced Occurred (date Headco traded ex new co) Months Post Announcement AMP 2/05/2003 18/12/2003 8 TOL 14/07/2008 17/07/2008 1 WOW 5/10/2012 30/11/2012 2 Source: Company data, Macquarie Research, March 2015 New investors will be familiar with the stock Another benefit to a company utilizing an inspecie distribution method is that the investors in the newly listed company will be familiar with the stock. AMP undertook a capital raising in conjunction with Henderson in-specie distribution - On the downside there is the potential that the parent company would need to undertake a capital raising, as AMP, did to cover any outstanding intercompany transactions between the parent and new company. It should be noted however, that a large portion of the capital raising AMP undertook was to cover a write-down of Henderson s goodwill. On-sellers may be difficult to find, however this was not an issue for Henderson - There is also the risk that with an in-specie distribution, there could be difficulty in finding on-sellers of the stock. However, Henderson, which faced stagnant operating market conditions at the time of its listing, saw strong investor demand (see figure 2 above). 30 March 2015 5
Could be costly; however, all disposal options are likely to incur costs The cost to undertake the in-specie distribution could be costly, at AMP the cost was $214m. However, it should be noted that whichever disposal option is undertaken there will be a cost involved. Investment View Recent press speculation has suggested the potential for NAB to separate out NAB UK via an inspecie distribution. This is a surprisingly common move in the Australian market and historically has been value creating. Fig 10 NAB Financial Summary Year Ending 30 September 2013 1H14 2H14 2014 1H15 2H15 2015 2016 2017 Outperform PER SHARE DATA Cash EPS (AUD) - Macquarie Basis 251 131 85 216 131 132 263 286 304 Current Price Target Price Cash EPS Growth (%) 5% 3% -35% -14% 54% 0% 22% 8% 7% A$38.32 $40.58 DPS (AUD) 190 99 99 198 99 100 199 199 206 Total Shareholder Return 11.1% BVPS (AUD) 17.89 18.21 18.41 18.41 18.78 19.07 19.07 19.86 20.79 NTA PS (AUD) 14.64 14.88 15.15 15.15 15.63 15.98 15.98 16.91 17.96 Bloomberg: NAB AU Shares on issue (m) 2,349 2,354 2,366 2,366 2,416 2,432 2,432 2,471 2,509 Reuters: NAB.AX VALUATION METRICS Macquarie Equities Australian Banks P/E (Cash) 15.3 14.6 22.5 17.7 14.6 14.5 14.5 13.4 12.6 Analyst(s) Contact(s) P/B (Stated) 2.1 2.1 2.1 2.1 2.0 2.0 2.0 1.9 1.8 Michael Wiblin +61 2 8232 6089 P/NTA 2.6 2.6 2.5 2.5 2.5 2.4 2.4 2.3 2.1 Anita Stanley +61 2 8232 9869 RoE (%) 12.2% 13.6% 8.6% 11.1% 13.1% 12.8% 12.9% 13.3% 13.4% Brendan Carrig +61 2 8237 6043 RoA (%) 0.7% 0.7% 0.5% 0.6% 0.7% 0.7% 0.7% 0.8% 0.8% Dividend Yield (%) 5.0% 2.6% 2.6% 5.2% 2.6% 2.6% 5.2% 5.2% 5.4% Margins & Volumes Dividend Payout (%) 75.8% 75.4% 116.3% 91.5% 75.3% 75.8% 75.5% 69.7% 67.7% Net Interest Margin (%) GLAA growth (%) Sustainable RoE used in Valuation (%) 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 7.0% Cost of Equity (%) 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% 2.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% 2013 1H14 2H14 2014 1H15 2H15 2015 2016 Efficiency Cost / Income Ratio (%) Cost growth (%) 2013 1H14 2H14 2014 1H15 2H15 2015 2016 1.5% 1.0% 0.5% 0.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% PROFIT & LOSS (AUDm) Net Interest Income 13,407 6,843 6,932 13,775 6,998 7,159 14,157 15,097 15,964 Non-Interest Income 5,173 2,644 2,494 5,138 2,438 2,508 4,947 5,192 5,407 Fees & Commissions 3,561 1,804 1,848 3,652 1,912 1,968 3,880 4,138 4,349 Financial Markets 769 249 750 999 765 780 1,545 1,608 1,673 Life and Funds 1,335 723 717 1,440 723 730 1,453 1,478 1,502 Other Revenue -492-132 -821-953 -962-970 -1,932-2,031-2,116 Total Operating Income 18,580 9,487 9,426 18,913 9,436 9,668 19,104 20,290 21,371 Total Operating Costs 8,174 4,456 5,724 10,180 4,406 4,534 8,941 9,260 9,436 Employee Costs 4,362 2,292 2,240 4,532 2,285 2,330 4,615 4,802 4,996 Other Costs 3,812 2,164 3,484 5,648 2,121 2,204 4,325 4,458 4,440 Pre-Provision Operating Profit 10,406 5,031 3,702 8,733 5,030 5,133 10,163 11,030 11,936 Impairment Charge 1,934 528 349 877 437 458 895 821 868 Pre-Tax Profit 8,472 4,503 3,353 7,856 4,593 4,675 9,269 10,209 11,067 Tax Expense 2,337 1,263 1,229 2,492 1,290 1,313 2,603 2,867 3,109 Minority Shareholders -8-3 0-3 0 0 0 0 0 Other Post Tax Items 675 381-315 66 0 0 0 0 0 Stated Net Profit 5,452 2,856 2,439 5,295 3,303 3,362 6,665 7,342 7,958 Extraordinary & Other Items 675 384-315 69 0 0 0 0 0 Hybrid Distributions -188-90 -90-180 -90-90 -180-180 -180 IoRE/Non Controlling Interest -3 0 0 0 0 0 0 0 0 Derivatives & Hedging Revaluation 0 0 0 0 0 0 0 0 0 Macquarie Cash Profit 5,936 3,150 2,034 5,184 3,213 3,272 6,485 7,162 7,778 78% 76% 74% 72% 70% 68% 66% Asset Quality Impairment Charge / GLAA (bp) Coverage (%) 60 55 50 45 40 35 30 25 BALANCE SHEET & CAP AD (AUDm) Risk Weighted Assets * 362,078 367,224 367,652 367,652 366,007 375,833 375,833 398,768 458,191 Interest Earning Assets 662,028 707,170 715,993 711,582 731,198 752,393 741,796 787,752 827,342 Gross Loans, Advances & Acceptances 521,757 534,172 545,361 545,361 556,943 573,087 573,087 607,994 637,294 Total Deposits 559,238 582,739 599,059 599,059 611,781 629,515 629,515 667,859 700,043 Total Assets 808,427 846,014 883,301 883,301 901,691 925,280 925,280 976,036 1,021,510 Shareholders Equity 46,620 47,478 47,908 47,908 50,484 51,965 51,965 55,858 60,250 Tier 1 Capital 37,480 39,774 39,758 39,758 41,968 42,810 42,810 46,612 50,509 Tier 1 Ratio (%) * 10.4% 10.8% 10.8% 10.8% 11.5% 11.4% 11.4% 11.7% 11.0% Core Tier 1 Ratio (%) - Basel III 8.4% 8.6% 8.6% 8.6% 9.3% 9.3% 9.3% 9.7% 9.3% 64% 20 62% 60% 2013 1H14 2H14 2014 1H15 2H15 2015 2016 15 10 ASSET QUALITY Impairment Charge / GLAA (bp) 37 20 13 16 16 16 16 14 14 Coverage (%) 63% 68% 76% 76% 76% 77% 77% 77% 78% 30.0 25.0 20.0 15.0 10.0 5.0 0.0 5.43 Total Stage 1 Dividends DDM Valuation 7.21 Total Fade Period Dividends 25.56 Total Perpetuity Dividends 0.95 Total Surplus Capital Per Share KEY RATIOS & GROWTH Net Interest Income growth (%) 0.8% 0.6% 1.3% 2.7% 0.9% 2.3% 2.8% 6.6% 5.7% Non-Interest Income growth (%) 5.0% 4.5% -5.7% -0.7% -2.2% 2.9% -3.7% 5.0% 4.1% Total Revenue growth (%) 2.0% 1.7% -0.6% 1.8% 0.1% 2.5% 1.0% 6.2% 5.3% Cost growth (%) 4.4% 6.1% 28.5% 24.5% -23.0% 2.9% -12.2% 3.6% 1.9% Pre-Provision Profit growth (%) 0.1% -2.0% -26.4% -16.1% 35.9% 2.1% 16.4% 8.5% 8.2% RWA growth (%) 9.3% 1.4% 0.1% 1.5% -0.4% 2.7% 2.2% 6.1% 14.9% GLAA growth (%) 4.2% 2.4% 2.1% 4.5% 2.1% 2.9% 5.1% 6.1% 4.8% Deposit growth (%) 4.9% 2.8% 4.1% 7.1% 2.1% 2.9% 5.1% 6.1% 4.8% Net Interest Margin (%) 2.03% 1.94% 1.94% 1.94% 1.91% 1.90% 1.91% 1.92% 1.93% Cost / Income Ratio (%) 44.0% 47.0% 60.7% 53.8% 46.7% 46.9% 46.8% 45.6% 44.2% Source: Company data, Macquarie Research, March 2015 30 March 2015 6
Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a reasonably positive view on National Australia Bank. The strongest style exposure is Earnings Momentum, indicating this stock has received earnings upgrades and is well liked by sell side analysts. The weakest style exposure is Profitability, indicating this stock is not efficiently converting its investments to earnings as proxied by ratios such as ROE, ROA etc. 137/670 Global rank in Banks % of BUY recommendations 57% (8/14) Number of Price Target downgrades 0 Number of Price Target upgrades 2 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Banks) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. Commonwealth Bank Westpac Banking Corporati ANZ Bank Scentre Group Westfield Corporation Suncorp 1.0 0.9 0.8 0.8 0.5 0.3 0.2 Commonwealth Bank Westpac Banking Corporati ANZ Bank Scentre Group Westfield Corporation Suncorp -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. Commonwealth Bank Westpac Banking Corporati ANZ Bank Scentre Group Westfield Corporation Suncorp 0.1-0.5 0.9 0.0-0.8-0.8-0.5 Commonwealth Bank Westpac Banking Corporati ANZ Bank Scentre Group Westfield Corporation Suncorp -3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Dividend Yield FY0 Dividend Yield LTM Price to Sales FY0 Dividend Yield FY1 Turnover (USD) 250 Day EBITDA Revisions 3 Month Consensus Recommendation Return on Equity NTM Negatives Positives -26% -26% -27% -29% 26% 25% 24% 31% -40% -20% 0% 20% 40% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score 0.78-0.26 0.04-0.38 0.16 0.12-0.12 0.05 1.15 0.34-0.16 Percentile relative to sector(/670) Percentile relative to market(/408) 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) 30 March 2015 7
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 December 2014 AU/NZ Asia RSA USA CA EUR Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients) Company-specific disclosures: 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 10-Mar-2015 NAB AU Outperform A$40.58 05-Feb-2015 NAB AU Outperform A$39.87 14-Jan-2015 NAB AU Outperform A$36.75 30-Oct-2014 NAB AU Neutral A$32.20 22-Oct-2014 NAB AU Neutral A$32.02 01-Oct-2014 NAB AU Neutral A$32.19 25-Sep-2014 NAB AU Neutral A$33.45 16-Sep-2014 NAB AU Neutral A$34.84 02-Jul-2014 NAB AU Neutral A$35.17 17-May-2014 NAB AU Outperform A$38.14 08-May-2014 NAB AU Outperform A$38.32 20-Mar-2014 NAB AU Outperform A$40.42 21-Feb-2014 NAB AU Outperform A$39.58 22-Jan-2014 NAB AU Outperform A$40.43 04-Dec-2013 NAB AU Outperform A$38.61 31-Oct-2013 NAB AU Outperform A$37.89 23-Sep-2013 NAB AU Outperform A$37.71 16-Sep-2013 NAB AU Outperform A$37.06 05-Sep-2013 NAB AU Outperform A$36.69 20-Aug-2013 NAB AU Outperform A$36.07 09-Jul-2013 NAB AU Outperform A$35.51 21-Jun-2013 NAB AU Outperform A$35.73 28-May-2013 NAB AU Outperform A$35.29 09-May-2013 NAB AU Outperform A$34.85 21-Mar-2013 NAB AU Outperform A$32.71 13-Mar-2013 NAB AU Neutral A$30.77 07-Feb-2013 NAB AU Neutral A$27.50 01-Feb-2013 NAB AU Neutral A$26.68 24-Jan-2013 NAB AU Neutral A$26.20 11-Jan-2013 NAB AU Neutral A$25.92 31-Oct-2012 NAB AU Neutral A$25.63 19-Oct-2012 NAB AU Neutral A$26.72 02-Oct-2012 NAB AU Outperform A$27.64 23-Jul-2012 NAB AU Outperform A$27.22 03-Jul-2012 NAB AU Outperform A$27.66 18-May-2012 NAB AU Neutral A$26.46 10-May-2012 NAB AU Neutral A$26.73 30-Apr-2012 NAB AU Neutral A$26.05 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. 30 March 2015 8
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