Aus Tin 20104493

Equity | Australia
31 October 2011
Produced and issued by: RBS Equities (Australia) Limited
Daily Bulletin
AUSTRALIA
STRATEGY & ECONOMICS
Australia Strategy High-conviction calls Weekly topical thoughts Economics Weekly The RBA on the verge of an insurance rate cut
Alva DeVoy (+61 2 8259 5831) 5 13 Kieran Davies (+61 2 8259 5171) 25
INDUSTRIALS
Macquarie Group (A$25.15) Buy TP& A$29.75 Bring on the buyback Goodman Group (A$0.62) Buy TP A$0.81 By volume or margin Consolidated Media (A$2.66) Hold& TP A$2.68 Move to Hold following strong run Australia Small/Mid Caps Weekly Informer #39, 2011 Aquila Resources (A$6.18) Sell& TP& A$5.12 Still rattling the tin Transpacific Industries (A$0.69) Buy% TP& A$0.79 Raising has arrived
Andrew Lyons (+61 2 8259 6086) 33
TP& EPS& DPS&
Andrew Hodge (+61 2 8259 6608)
45
Fraser McLeish (+61 2 8259 5543)
57
Rec&
Julian Guido (+61 2 8259 5838)
61
Sam Berridge (+61 2 8259 5955)
77
Rec& EPS% TP&
Roger Leaning (+61 7 3334 4554) RBS Morgans
81
Rec% EPS% TP&
RESOURCES
Carbon Steel Materials Magnetite winners and wannabes
Todd Scott (+61 2 8259 5865) 87
AGMs 31 OCT
Company CTD NXT
Source: IRESS
Where Bris Bris
Time 10.00am 10.00am
Kingsgate Consolidated (A$7.97) Hold TP& A$7.77 Holding back the tide OceanaGold (A$2.45) Buy TP A$2.88 Costs steady, margins improving
Sam Berridge (+61 2 8259 5955)
105
TP&
EPS& DPS&
Phillip Chippindale (+61 2 8259 6859) 109
EX DIVs
Code CLH SOL BOQ TEN NAB API 2H 2H 2H 2H 2H 2H DPS 3.1c 25.0c 28.0c 5.3c 88.0c 1.5c Frnkd 100% 100% 100% 100% 100% 0% Ex date 7 Nov 8 Nov 9 Nov 9 Nov 10 Nov 11 Nov
GLOBAL
Global Views EU summit RBS reaction* Basic Elements Great divide between aluminium giants* Melco Crown Ent Resilient 3Q expected; TP raised (relevant to CWN)
Exp date
Jacques Cailloux (+44 7702 938 698) 113
Jeannette Sim (+852 3988 7186)
117
1H = interim, 2H = final; SP = special Source: IRESS
Philip Tulk (+852 3988 7189)
131
TRADING ALERTs
Code (ST rec) Open Open date price Indictv close AIO (Buy) 25 Oct 1.49 1.56-1.59 23 Dec Catalyst: Resolution of wage negotiations TEN (Sell) 27 Sep 0.87 0.81-0.83 27 Nov Catalyst: 27 October trading update WOW (Buy) 27 Sep 24.0825.29-25.77 26 Dec Catalyst: 27 October trading update
Global Action Pack
RBS Research
137
DATABASE
Company financial forecasts Sector valuation aggregates Price performance
Thiva Nagaratnam (+61 2 8259 5373) 149 157 161
* Extract. For further details please refer to our website (http://research.rbsm.com/Research). RBS Equities (Australia) Limited
ABN 84 002 768 701, AFS Licence 240530
Level 29, RBS Tower, 88 Phillip Street Sydney NSW 2000, Australia http://research.rbsm.com
= ex-100 company
%&
= result = flashnote Rec = recommendation TP = target price = change in EPS or DPS of at least 5%, or any change in recommendation or target price.
Important disclosures can be found in the Disclosures Appendix.
IN BRIEF STRATEGY & ECONOMICS

Australia Strategy RBS high-conviction calls
Alva DeVoy (+61 2 8259 5831) 5
Since inception, our Retail long recommendations have outperformed funding source recommendations by a cumulative 9.5%. Our analyst, Daniel Broeren, currently recommends long JB Hi-Fi funded out of Metcash, reflective of his preference for discretionary stocks over staples.
Weekly topical thoughts

European liquidity crisis averted, a re-opening of access to primary markets to ensue... but sovereign guarantees for bank term debt only increases the circularity of the system, as sovereigns at risk will find it difficult to support bank issuance, in our view. Avoid risk on trades, focus on growth differentials instead.
13
Economics Weekly
Kieran Davies (+61 2 8259 5171)
25
There has been a major change in the RBAs view (and our own view too) on monetary policy over the past month. After almost hiking in August, the RBA switched to an easing bias in October, noting that a low CPI would give it room to cut rates if demand needed support. With Q3 underlying inflation extremely low, the RBA now has a trigger for cutting rates from a slightly restrictive 4.75% to a neutral 4.5% in November. Although economic data have improved over the past month and markets are in better shape, such that we only narrowly favour a November move, overriding concerns about Europe and a likely downgrade to the Banks forecast profile are likely to see the Bank act on its bias. Research suggests that fine-tuning has little impact a 25bp rate cut boosts growth by 20bp spread over three years so we suspect that an insurance rate cut would be aimed at shoring up confidence, which has stabilised and improved slightly recently after dropping sharply this year.
INDUSTRIALS
Macquarie Group (A$25.15) Buy TP& A$29.75
Andrew Lyons (+61 2 8259 6086) 33 MQG's 1H12 results were disappointing and we have downgraded EPS by 4-8% over the next few years. However, trading at 0.9x NTA, the share price takes too dim a view of the company's ROE potential and while obstacles remain to capital returns, at current prices it represents significant upside risk to EPS. Buy.
Goodman Group (A$0.62) Buy TP A$0.81
Andrew Hodge (+61 2 8259 6608)
45
We believe the structural shortage in high-grade Chinese and Japanese industrial property positions GMG for strong growth in development and management. We believe FY12 NPAT will modestly exceed guidance, with above-average margins expected from an increased weighting to Asian markets. Buy.
Consolidated Media (A$2.66) Hold& TP A$2.68
Fraser McLeish (+61 2 8259 5543)
57
We move CMJ to Hold (from Buy) following recent share price appreciation. The stock is up 17% since the FY11 result in August and is now trading in line with our A$2.68 target price.
Australia Small/Mid Caps
Julian Guido (+61 2 8259 5838)
61
The Small Ords (4.7%) underperformed the All Ords (4.7%) by 1bp for the week, with the Small Resources up 7.3%. The Small Ords is at a premium to the S&P/ASX 100 at a PE relative of 112.8%, above the 99.6% eight-year average.
Aquila Resources (A$6.18) Sell& TP& A$5.12
Sam Berridge (+61 2 8259 5955)
77
Quarterly production was up significantly qoq as Isaac Plains operations recovered from flooding impacts. Exploration and admin contributed to cash reducing to A$146m at the end of the quarter. Should asset sales not meet expectations or be delayed, AQA could be forced into an equity raising. Sell.
Transpacific Industries (A$0.69) Buy% TP& A$0.79
Roger Leaning (+61 7 3334 4554)
81
The debt restructuring and capital raising remove a significant headwind for TPI. The announcements will go a long way to appeasing concerns about the group's heavy debt burden and may well act as a material catalyst for the stock. Fundamental debt metrics now stack up more favourably. We upgrade to Buy.
RESOURCES
Carbon Steel Materials
Todd Scott (+61 2 8259 5865) 87 For magnetite project development, first-mover advantage is critical to beat escalating construction costs and enjoy the current window of high iron ore prices. In this report, we analyse 33 major magnetite projects in Australia and highlight the projects we believe are most likely to succeed.
Kingsgate Consolidated (A$7.97) Hold TP& A$7.77
Sam Berridge (+61 2 8259 5955)
105
Production for the quarter was significantly below our forecasts on the back of flooding in Thailand and maintenance issues at Challenger. Flooding and permit approvals remain issues and will negatively impact December quarter production. We maintain our preference for MML and OGC for gold exposure.
OceanaGold (A$2.45) Buy TP A$2.88
Phillip Chippindale (+61 2 8259 6859)
109
OGC reported cash costs of US$956/oz, up slightly qoq, with gold production of 59koz slightly below our estimate. We continue to expect elevated cash costs to persist, but with 4Q11 likely to benefit from a weaker NZD. With positive catalysts lining up, we like OGC for leveraged exposure to gold. Buy maintained.
Daily Bulletin | 31 October 2011
IN BRIEF (contd) GLOBAL

Global Views*
Jacques Cailloux (+44 7702 938 698) X Summary: Markets will enjoy a short period of euphoria since EU heads of States have come up with a more comprehensive response than was probably anticipated given how low expectations were going into the meeting. The Greek deal, bank recaps and a leveraged EFSF will contribute to reduce the systemic risk premium that has built up over the last few weeks. Aussie Alpha comment: Markets have rallied hard as the results of the European summit exceeded expectations, however our economists note many risks at the implementation stage. (Daniel Blake +61 2 8259 5016)
Basic Elements*
Jeannette Sim (+852 3988 7186)
UC Rusal and Chalco are among the largest producers of aluminium globally, with similar operating scale and structure. Yet a great disparity persists in their financial metrics, which we expect to be reflected in share price performance. We initiate on Rusal with a Buy recommendation and maintain Chalco at Sell.
Melco Crown Ent
Philip Tulk (+852 3988 7189)
We increase our FY11-13 estimates and raise our target price to US$14.00 as we maintain that MPEL's business will remain resilient despite an increasingly competitive environment, particularly in Cotai. We expect 3Q results to show qoq growth, one of the few operators to do so, in our view. We reiterate Buy. Aussie Alpha comment: CWN owns 33% of the Nasdaq-listed Melco Crown. It represents about 30% of our $9.00/share target price. (Michael Nolan +61 2 8259 1316)
Global Action Pack

Friday 28 October 2011
RBS Research
* Extract. For further details please refer to our website (http://research.rbsm.com/Research).
Daily Bulletin | 31 October 2011
Equity | Australia
28 October 2011
Produced by: RBS Equities (Australia) Limited
Australia Strategy
RBS high-conviction calls
Since inception, our Retail long recommendations have outperformed funding source recommendations by a cumulative 9.5%. Our analyst, Daniel Broeren, currently recommends long JB Hi-Fi funded out of Metcash, reflective of his preference for discretionary stocks over staples.
Chart 1 : Retail sector high-conviction calls alpha
30% 20% 10% 0% -10% -20% -30% -40% Nov-10 Dec-10
Jan-11
Feb-11 Mar-11 Long
Apr-11 May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Funding source
Retail alpha
Source: IRESS, RBS
Retail sector cumulative return of 9.5% The Retail high conviction calls have returned a cumulative alpha of 9.5% since inception. Our analyst, Daniel Broeren, currently recommends long JB Hi-Fi (JBH) funded out of Metcash (MTS). This reflects his sector preference for discretionary stocks over staples, citing the likelihood of accelerating food price deflation into 2Q12 and the potential for cash rate cuts by the RBA. Positive research alpha since 5 November inception of market-neutral approach The RBS research team adopted a market-neutral approach to recommending highconviction calls on 5 November 2010 and, since then, the average sector alpha has been a cumulative +16%. The average long recommendation has delivered -1%, outperforming the S&P/ASX 200 Index over the same period (which returned -9%). Meanwhile, funding-source positions have returned an average of -15%, thus increasing the portfolio alpha. We believe these high-conviction calls are just as relevant for long-only managers, acting to highlight our sector preferences even in down-markets. Changes to RBS high-conviction calls This week we replace CBA with WBC as the funding source for ANZ in the Banks sector. Analyst
RBS Australia Research
RBS Equities (Australia) Limited, ABN 84 002 768 701, AFS Licence 240530 Level 29, RBS Tower, 88 Phillip Street, Sydney NSW 2000, Australia http://research.rbsm.com
Table 1 : Banks
Long ANZ Bank (ANZ) Andrew Lyons
1. ANZ's Asian franchise is a key differentiator in a sluggish domestic growth environment, in our view, and we believe the group is relatively well positioned on funding in uncertain money markets. 2. ANZ's lower relative exposure to retail banking means it should be less affected by the volume, margin and fee headwinds we believe the sector faces in FY11-12, while the group has good exposure to the recovery in business credit growth that we have forecast. 3. ANZ's balance sheet looks robust. Firstly, ANZ's asset quality is showing good improvement and the group is strongly provisioned, in our view. Secondly, we think ANZ is not only best in class on capital, but one of the best prepared for additional Basel III standards. Funding source Westpac Bank (WBC)
1. We believe WBC's domestic operations will be less exposed to the improvement in business credit growth that we forecast will come through in FY12. 2. In an increasingly difficult revenue environment, we believe WBC has less flexibility on costs and we are yet to see results from the multi-brand strategy. 3. While funding markets remain problematic, WBC has the largest reliance on short-term wholesale funding, has a larger term-funding requirement than peers and has the lowest liquid asset portfolio in the sector (compared to banking assets).
Source: RBS forecasts
Table 2 : Capital Goods

Long Downer EDI (DOW) Andrew Hodge
1. We believe DOW's management continues to make steady progress towards where it believes the business should operate. 2. In our view, the short-term key to DOWs share price performance is three upcoming potential catalysts: Reliance Rail funding, further delivery of Waratah trains and the successful ramp-up of the FMG Christmas Creek contract. Funding source Leighton Holdings (LEI) Although we don't believe there are structural problems within the business, we continue to believe LEI is too expensive relative to its likely growth profile over the next three years.
Table 3 : Transportation
Long Asciano (AIO) Mark Williams
1. Looks cheap relative to peers given that AIO is trading on a rail multiple despite the fact that one-third of its earnings are exposed to ports. 2. We see momentum in the ports division following a contract win with Maersk. 3. Catalysts we see remain in the form of wage negotiations concluded and potential coal rail contract announcements.
Funding source Brambles (BXB) 1. Consumer spending in key markets such as the USA and Europe looks set to remain under pressure, with economic conditions remaining volatile. 2. BXB is trading at an FY12F PER of over 15x, about a 40% premium to the ASX200. We do not consider this premium justified at this point given the fragility of BXB's key markets.
Table 4 : Energy
Long Oil Search (OSH) Jason Mabee, CFA
1. On our current NAV forecast, an investor is only paying for 30% of PLNGs third-train expansion. This includes very conservative capex forecasts on PLNG T 1& 2. 2. OSH is embarking upon a very active drilling programme in 4Q which we believe will be enough to underpin PLNG T3 with the potential for further expansion (T4) in the future. Funding source Santos (STO)
1. We see no near-term positive catalysts ahead. 2. Disproportionate market reaction to any bad news regarding CSG. 3. We have concerns about capital expenditure blowouts.
Australia Strategy | Analysis | 28 October 2011
Table 5 : Gaming
Long Crown (CWN) Michael Nolan
1. In essence, casinos are a property play, which means the key success factor is location, location, location. CWNs Australian casinos tick that box in spades. And so does its 33% interest in Melco Crown in Macau, the worlds fastest growing gaming market. A portfolio of AAA-rated properties with a domestic and international flavour, a strong board and executive management team is a potent mix, and makes CWN a potent franchise, in our view. Funding source Tabcorp (TAH)
1. The demerged entity is predominantly a wagering business, and wagering is in secular decline. We believe such businesses warrant portfolio inclusion in exceptional circumstances only. TAH does not qualify on that basis, in our view.
Table 6 : Food & Beverages

Long Coca-Cola Amatil (CCL) Michael Nolan
1. We believe CCL has a strong medium-term growth profile driven by high-return-generating capital projects over the next four years. 2. Strong brands and footprint position business relatively well in a difficult pricing environment, in our view. 3. Not cheap on PE multiples, in our view, but trading towards the bottom end of its historical range despite having a superior medium-term growth profile. 4. Indonesia should be a positive earnings driver as relative immaturity and rising incomes continue to drive strong growth. Funding source Goodman Fielder (GFF)
1. With key food CPI segments flat, we believe any further material margin improvement would require brand emphasis and new product development (NPD) programmes, which are medium-term propositions. 2. The medium-term outlook appears uncertain, in our view, with risks in a tough CPI environment, private label substitution and supermarkets bargaining power all likely to affect GFFs earnings growth profile. 3. While GFF trades on a low P/E, we do not see it as cheap given its low growth potential.
Table 7 : Health care

Long Sonic Healthcare (SHL) Dr Derek Jellinek
1. Lower cost base increases leverage as domestic volumes return and the new funding agreement takes effect. 2. Offers higher-margin services and products through specialist channels. 3. Growing offshore footprint diversifies revenue base, decreases reliance on domestic business and offers upside via increasing coverage and volume. Funding source CSL Limited (CSL)
1. Constant currency NPAT growth has waned over the last three years (FY09-11: 45%; 22%; 14%), with 10% guided in FY12. 2. The return of Octagam, slowing product mix shift and increasing competition has negative implications on last litre economics. 3. The R&D pipeline appears underfunded (7.8% of revs) and lacks strong growth drivers over the near/medium term. 4. Growth looks muted in Human Health (18% of total sales) with soft Gardasil sales, concerns surrounding the seasonal influenza vaccine and ongoing FDA discussions with compliance issues for the Parkville facility.
Table 8 : Infrastructure
Long MAp Airports (MAP) Will Allott
1. We see strong traffic growth and operating leverage driving short-term earnings growth, with upside potential from better-than-expected traffic growth and cost performance. 2. Completion of the proposed OTPP transaction should unlock material upside from the move to a single-asset vehicle, removal of dilution of the Australasian airport premium, streamlining the structure (reducing costs and potentially increasing foreign ownership limit) and the deployment of surplus cash. 3. MAP has indicated it will return about 80cps to shareholders by the end of CY11, underpinning the share price. Funding source Macquarie Atlas Roads Group (MQA)
1. Weak economic conditions in the UK and the US affecting CY11 traffic. 2. Weak 1H revenue figures indicate Dulles Greenway is unlikely to pass the distribution test in December 2011. 3. Likely to tread water until we get closer to the 3.6bn Eiffarie debt refinancing in late CY11/early CY12, in our view.
Table 9 : Insurance/Diversified Financials

Long Suncorp-Metway (SUN) Richard Coles
1. Looks significantly undervalued to us at current market levels. 2. We see evidence of growing stability in its non-core bank run-off. 3. GI back-office integration appears on track. 4. Likely future capital returns. Funding source Australian Securities Exchange (ASX)
1. Ongoing negative news flow as commencement of the Chi-X market draws near. 2. Potential for competition in clearing, in our view LCH Clearnet has reaffirmed interest in entering the Australian market. 3. Softening volumes in cash equities trading and listings.
Table 10 : Materials Resources (large-cap)

Long Fortescue Metals Group (FMG) Lyndon Fagan
1. FMG is highly leveraged to the buoyant iron ore market, which is leading to strong cash flow. This cash flow is underpinning significant production growth, in our view. 2. The stock is also trading at a deep discount to our NPV, and at low PEs relative to the sector. 3. We foresee a number of positive news flow events in the medium term, including potential resource expansions, increased port capacity and the ramp-up of production. Funding source Energy Resources Australia (ERA) Lyndon Fagan
1. We continue to see significant risks around the upcoming wet season, difficulty in gaining a mine lease extension, and potential upward revision of rehabilitation costs. 2. We believe in the current uncertain environment, the stock is likely to trade at a discount to valuation near term. 3. We recommend investors look elsewhere at quality miners such as FMG trading at a material discount to our fair value estimate, rather than ERA, which continues to carry significant risks, and does not look overly cheap to us.
Table 11 : Materials Resources (mid-cap)

Long Regis Resources (RRL) Sam Berridge
1. RRL FY11 earnings of A$36m was above Bloomberg consensus and supported by robust cash flow from operations of A$48m. While not particularly cheap on our numbers, RRL's pure gold exposure and well established record of over-delivery on expectations is appealing in a volatile market, in our view. 2. The near-term positive catalysts for RRL are reserve expansions at Garden Well through extensional drilling, and at Moolart Well through infill drilling and optimisation of oxide pits. We expect an ongoing incremental positive impact on valuation via mine life extensions at both operations over the next six to nine months. Funding source Kingsgate Consolidated (KCN) We expect KCN will present a tough quarterly report at the end of October on the back of heavy rains in Thailand, reported as the worst in 50 years. While the worst of the rain appears to have been confined to the tail end of the September quarter, we anticipate the extent of the flooding will have a negative read-through for the December quarter as well. In addition, KCN has not reported receiving its factory license for the Chatree expansion. At the time of the FY11 result, management guidance was that FY12 production guidance would hold as long as the factory license was received by mid-September. It's now mid October. So it looks as though achieving FY12 production guidance will be tough.
Table 12 : Materials Steel

Long Sims Metal (SGM) Todd Scott
1. Relatively less exposed to high AUD:USD compared with domestic steel manufacturers. 2. Trading at 11x FY12F PE, with forecast 40% EPS CAGR over FY11-14F. Funding source OneSteel (OST)
1. Sluggish domestic steel demand. 2. Weakening iron ore prices. 3. Costs and timing risks on iron ore expansion plans.
Table 13 : Basic Materials

Long Amcor (AMC) Andrew Scott
1. We see further potential upside from the integration of the Alcan acquisition. 2. Above-market earnings growth means the stock is attractively priced on FY12F and FY13F multiples. 3. A mix of growth and defensive characteristics should see the stock perform well in both rising and declining equity markets, in our view. Funding source Boral (BLD)
1. While longer-term value is evident, BLD appears more expensive than peers ABC and CSR on a PE basis. 2. We continue to see risks to consensus expectations for domestic construction activity, particularly Australian housing starts. We believe that this may lead to a risk of earnings downgrades. 3. We expect that the market will remain sceptical until it sees evidence that earnings can reach the levels required to deliver an adequate return on the LBGA acquisition.
Table 14 : Media
Long Fairfax Media (FXJ) Fraser McLeish
We believe that the online assets are significantly undervalued at the current share price. Key potential catalysts include the proposed sale of the radio business and IPO of a 30-35% stake in Trade Me. Costs are under control and, while the advertising market remains weak, we would expect a significant rerating if conditions improve. Funding source Ten Network Holdings (TEN)
1. Ten's 'post-Masterchef' ratings have been very weak, and are below ratings share in the pcp, when it was down a second multi-channel. 2. If the weak ratings continue then this raises downside risk to FY12 EBITDA and NPAT forecasts. We calculate that +/-1ppt in market share can result in +/-14% to FY12F EBITDA and +/-20% to NPAT. 3. On a PE multiple of 10x FY12F, Ten trades at a premium to 'traditional' media peers such as FXJ and APN on about 5-6x.
Table 15 : Retailing
Long JB Hi-Fi (JBH) Daniel Broeren
1. JBH has significant rollout potential remaining, in our view, although we believe a saturation point is now in sight. At the current guided store opening rate of 13-15 pa, we estimate JBH can grow its trading space by 7-10% pa for the next four years. 2. Tablet sales are set to boost JBH's computer category's earnings in FY12, more than the likely drop in CDs, DVDs and Gaming. JBH looks well leveraged to any uptick in consumer discretionary spend and technology advances. While JB Hi-Fi Now isn't likely to bring in material earnings, in our view, the company is clearly looking for new growth opportunities in areas using the online sphere. 3. JBH is now trading at a notable discount to the S&P/ASX 200 Industrials Index multiple for FY13, its lowest since early in the financial crisis. In our view, this is not reflective of the space growth potential and category growth opportunities available to the business. Funding source Metcash (MTS)
1. The recent poor trading performance of Franklins (an A$18m loss in FY11) has reduced the value of the business for MTS, in our view. We now expect it to contribute longer and deeper retail trading losses, and a lower sale price when stores are ultimately on-sold to retailers. 2. The ramp-up in promotional activity of the major retailers has seen them build market share in CY11 to date. We believe the independents have been affected as the chains led the promotional programmes. 3. We believe margins have further eroded in the back half of 2H11 and the operating leverage is likely to be nearer to 0.9x.
Table 16 : Telecommunications
Long Telstra Corporation (TLS) Fraser McLeish
1. Passage of NBN legislation reduces uncertainty and improves visibility of A$11bn in NBN compensation. Expect announcement of capital management plans prior to shareholder vote. 2. Telstra has confirmed a 28c fully franked dividend for FY11 and FY12. 3. Turnaround plan on track, with strong subscriber growth in the 6M to December. Funding source Telecom Corporation (TEL)
Competitive headwinds and uncertainty surrounding UFB will continue to weigh on the stock price.
Table 17 : Utilities
Long Duet (DUE) Jason Mabee, CFA
1. Simplified asset portfolio post ATCO transaction. DUE is a much-simplified beast post the divestments of WAGN and Duquesne. In addition, all corporate debt and intercompany loans having been removed. 2. Expansion of the DBP is DUEs next major growth project. Rising industrial and mining demand and the potential switch from coal- to gas-fired generation would drive further compression/looping of the DBP, in our view. 3. Mixture of yield and growth places DUE in a very attractive position. We believe DUE offers investors not only a defensive holding, but also a stock that offers leverage to growth opportunities not to mention a 10% yield with 3%+ growth. Funding source SP AusNet (SPN)
1. SPN has been a solid performer in the sector so far this year, with the stock up 15% on a TSR basis vs the ASX200, which is down 5.5%. With limited upside to our target price and uncertainty around bushfire litigation hanging over the stock, we see limited upside potential from here.
Table 18 : Small Caps defensive pair

Long SAI Global (SAI) Julian Guido
1. SAI is a high-quality business with both defensive and growth characteristics, and a unique play on the strong macro theme of regulation and compliance, in our view. 2. Valuation appears undemanding in light of the premium EPS growth profile (about 20% EPS growth pa over the next three years, on our estimates). 3. We believe SAI has the opportunity to be both predator and prey. Funding source Tassal Group (TGR) Matthew Nicholas
1. The company has rejected a change of control proposal at A$1.90 the data room has closed and due diligence has ceased. 2. The near-term outlook for margin recovery is clouded, in our view, by: 1) a weak wholesale channel; and 2) import competition for smoked. 3. We believe weakness in wholesale is exacerbating the business skew to lower-margin retail, where pricing power remains limited.
Table 19 : Small Caps cyclical pair

Long Bradken (BKN) Matthew Nicholas
1. In our view, one of the best-placed mining services companies for strong earnings growth (in a capacityconstrained environment) over the next three years. 2. BKN has overweight exposure to mining consumables revenue (directly leveraged to production) and we think it is therefore a lower-risk play than its industry peers that are more exposed to less-predictable mining capex and exploration. 3. Potential margin upside to our medium-term forecasts as the new Chinese manufacturing facility (30% lower cost) begins to service global GET markets. Funding source Programmed Group (PRG) Julian Guido
1. We remain cautious on painting, assuming only a marginal EBITA increase in FY12. 2. Our caution is in relation to potential cost savings needing to be shared or reinvested with customers. 3. Demand from key customer segments (retail and commercial) is currently weak and may deteriorate further.
Please see our latest published research on each of these stocks for further details.
10
Table 20 : RBS earnings forecasts

ASX code Company name Market cap (A$m) Last year end Price (A$) Target FV (A$) Up/ price down (A$) Rec YTD -Abs. YTD -Rel. NPAT pre abnormals (A$m) Earnings Quality* 12m
Actual Fcst 1 Fcst 2 Actual EPS pre goodwill (c) EPS ANALYSIS EPS growth IBES 3m EPS (pre goodwill) revisions 12m fwd Fcst 1 Fcst 2 EPS CAGR DIVIDEND ANALYSIS DPS (c) Div yield PE (x) Div frank (pre goodwill) (%) Fcst 1 Fcst 1 PEG VALUATION PE rel EV/ (pre goodwill) EBIT (x) EV / P/ NTA EBITDA (x) Fcst 1 Fcst 1 B/SHEET ANALYSIS ROE ND/EBITDA
Actual
Fcst 1
Fcst 2
3 yr
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2 Fcst 1
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Fcst 1
Long
AIO ANZ DOW CCL FXJ MAP SGM FMG TLS SHL SUN DUE OSH JBH RRL AMC CWN WBC LEI BXB ERA GFF CSL KCN OST TEN TEL MQA STO ASX MTS SPN TAH BLD Asciano Group ANZ Banking Group Downer EDI C-C Amatil Fairfax Media MAp Airports Sims Metal Mgt Fortescue Metal Telstra Sonic Health Suncorp Group DUET Oil Search JB Hi-Fi Regis Resources Amcor Crown Westpac Banking Corp Leighton Brambles Energy Resource Goodman Fielder CSL Ltd Kingsgate OneSteel Ten Network Telecom Corp Macquarie Atlas Santos Aust Securities Exchange Metcash SP AusNet Tabcorp Boral 4,521 57,121 1,288 9,299 2,129 6,272 2,917 15,661 39,320 4,385 11,116 1,823 8,343 1,620 1,302 8,995 6,196 68,481 7,521 10,134 1,066 932 15,762 1,079 1,686 967 4,808 642 12,660 5,226 3,260 2,767 2,142 2,890 Jun 11 Sep 10 Jun 11 Dec 10 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Sep 10 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Aug 11 Jun 11 Dec 10 Dec 10 Jun 11 Apr 11 Mar 11 Jun 11 Jun 11 1.57 22.11 3.00 12.34 0.96 3.35 14.11 5.02 3.12 11.08 8.64 1.67 6.45 16.33 2.97 7.10 8.25 22.87 22.30 6.81 2.04 0.56 29.13 7.66 1.27 0.92 1.94 1.44 12.95 30.43 4.21 0.97 2.94 3.98 1.91 23.60 5.01 13.43 1.45 3.68 19.10 7.57 3.50 13.12 9.87 2.00 7.50 17.25 2.87 7.54 9.00 22.68 21.67 7.01 1.81 0.60 29.31 8.06 2.10 0.81 2.01 1.88 15.00 31.77 4.25 1.00 3.00 4.04 2.06 26.22 5.01 13.43 1.60 3.68 19.10 7.57 3.50 13.13 9.87 2.00 7.50 17.25 2.49 7.54 9.00 26.68 21.67 7.01 1.81 0.80 29.31 8.06 2.10 0.90 2.01 1.88 15.00 31.77 4.25 1.15 3.00 4.04 22% 7% 67% 9% 52% 10% 35% 51% 12% 18% 14% 20% 16% 6% -3% 6% 9% -1% -3% 3% -11% 8% 1% 5% 66% -11% 4% 31% 16% 4% 1% 3% 2% 1% Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Buy Buy Hold Hold Hold Sell Hold Hold Hold Buy Sell Hold Buy Buy Hold Hold Hold Hold Hold -2% -5% -32% 14% -32% 12% -35% -23% 12% -4% 0% 0% -8% -9% 24% 5% 0% 3% -26% -4% -72% -56% -20% -30% -51% -35% 18% -5% -2% -19% 2% 11% -5% -18% 6% 3% -24% 22% -23% 20% -26% -15% 20% 4% 9% 8% 0% 0% 32% 14% 8% 11% -18% 4% -64% -47% -11% -21% -43% -27% 27% 3% 7% -11% 11% 20% 3% -9% 189.9 5,122.0 155.9 506.6 273.8 127.2 182.0 1,649.2 3,231.0 294.5 637.6 124.9 156.6 134.4 36.3 570.3 335.9 5,879.0 -107.7 532.1 52.8 135.2 940.6 32.0 235.0 74.1 296.6 -281.7 356.1 356.6 248.3 252.9 486.3 173.5 268.3 5,612.0 190.1 543.5 284.8 120.0 279.6 2,122.6 3,551.0 308.0 1,073.9 90.7 181.8 137.7 52.9 659.2 386.9 6,332.5 609.7 632.6 39.5 128.9 954.9 209.8 275.4 53.6 356.6 -57.0 520.5 385.9 276.9 244.5 364.5 203.2 353.4 6,074.9 221.3 600.0 328.6 131.9 364.1 1,729.3 3,666.1 338.1 1,231.6 89.0 150.3 155.6 193.5 741.1 422.4 6,654.1 672.2 723.3 92.5 141.5 1,004.2 208.3 285.1 75.2 384.3 108.5 573.7 424.8 304.4 251.2 222.7 275.6 1.3 n.a. 0.5 0.8 1.2 1.1 0.5 1.6 1.0 1.0 n.a. 1.0 2.1 0.7 0.9 0.7 0.8 n.a. 1.7 1.0 0.6 1.0 1.0 0.4 1.0 1.8 1.0 0.0 1.4 0.9 1.2 0.9 0.9 0.9 6.5 198.4 42.6 67.3 11.6 7.1 88.9 53.0 25.9 75.5 49.7 14.1 11.9 120.2 8.4 46.5 44.3 192.1 -35.1 36.6 27.7 9.8 173.6 23.6 17.6 7.1 15.5 -62.3 50.3 204.0 32.3 9.0 74.1 24.0 9.2 211.7 44.3 71.7 12.1 6.4 136.1 68.2 28.5 78.6 83.5 9.2 13.7 138.4 12.2 53.7 52.6 203.9 181.2 42.4 7.6 7.1 180.9 155.0 20.6 5.1 18.5 -12.6 61.0 219.3 36.0 8.6 51.6 28.2 12.1 223.3 51.5 78.8 14.0 7.1 177.3 55.5 29.4 86.3 95.7 8.1 11.2 155.1 44.6 60.4 58.0 211.2 199.7 48.5 17.9 7.2 190.7 153.9 21.4 7.2 20.0 24.0 62.8 239.2 39.6 8.7 30.6 38.0 2.3% -3.2% -5.9% -0.4% -9.3% -42.8% -5.6% -10.4% 4.3% -4.4% -1.7% -19.9% -6.2% -8.5% 32.8% -2.7% 5.3% -2.9% -2.0% -45.7% -34.6% -2.3% 6.9% -15.6% -16.4% 1.6% -88.2% -4.7% -0.6% -0.3% -0.1% -7.2% -15.4% 41% 7% 4% 7% 4% -9% 53% 29% 10% 4% 68% -35% 15% 15% 46% 15% 19% 6% 16% -72% -27% 4% 557% 17% -28% 20% 394% 21% 7% 12% -4% -30% 17% 32% 5% 16% 10% 15% 10% 30% -19% 3% 10% 15% -11% -18% 12% 266% 12% 10% 4% 10% 14% 134% 2% 5% -1% 4% 40% 8% 3% 9% 10% 1% -41% 35%
30% 5% 14% 9% 10% 6% 32% 13% 5% 8% 29% -17% -12% 12% 80% 14% 15%
2.0 126.0 0.0 48.5 3.0 33.5 47.0 6.9 28.0 59.0 35.0 20.0 4.0 77.0 0.0 35.0 37.0 139.0 60.0 25.9 8.0 7.8 80.0 15.0 10.0 5.3 18.0 0.0 30.0 183.2 27.0 8.0 43.0 14.5
3.0 139.0 21.0 55.0 3.6 21.0 68.0 8.0 28.0 61.0 50.1 16.0 4.0 85.0 0.0 36.0 37.0 153.0 116.0 30.0 0.0 5.7 81.0 37.0 8.2 3.8 21.0 0.0 30.0 196.5 29.0 8.0 25.8 16.0
3.5 146.0 27.0 58.5 7.0 21.0 88.6 8.0 28.0 67.0 57.4 16.5 4.0 96.0 20.0 40.0 37.0 157.0 128.0 34.0 0.0 5.8 88.0 60.0 10.7 5.4 23.0 7.0 31.0 214.3 32.0 8.0 21.4 17.0
1.9% 6.3% 7.0% 4.5% 4.0% 6.2% 4.8% 1.5% 8.9% 5.4% 5.8% 9.6% 0.6% 5.2% 0.0% 4.9% 4.5% 6.7% 5.2% 4.1% 0.0% 10.7% 2.7% 4.6% 6.5% 4.2% 8.4% 0.0% 2.3% 6.4% 6.8% 8.1% 8.7% 4.1%
0 100 0 100 100 0 45 0 100 32 100 0 0 100 0 0 60 100 100 20 100 40 0 0 50 100 100 0 100 100 100 0 100 100
16.9 10.4 6.8 17.2 7.5 52.3 10.4 7.8 11.1 14.4 10.4 18.2 48.8 11.9 24.6 13.7 15.5 11.2 12.3 17.1 27.0 7.5 16.5 5.1 6.1 18.0 10.6 21.8 13.9 11.8 11.4 5.7 13.8
12.8 9.9 5.8 15.6 6.5 47.6 8.0 8.9 10.7 13.1 9.0 20.6 58.9 10.6 6.7 12.2 14.1 10.8 11.2 13.9 11.5 7.4 15.7 5.2 5.9 12.9 9.8 5.9 21.2 12.8 10.7 11.4 9.7 10.2
0.6 2.1 0.5 1.8 0.8 8.4 0.3 0.6 2.1 1.7 0.4 -1.1 -4.2 1.0 0.3 1.0 1.0 2.2 0.1 1.2 -0.3 -0.8 3.1 0.1 0.3 2.8 0.8 2.0 1.9 1.4 -83.6 -0.2 0.5
1.48 0.81 0.60 1.33 0.66 4.06 0.92 0.69 0.98 1.26 0.91 1.61 3.79 1.04 2.17 1.20 1.37 0.87 1.09 1.51 2.10 0.66 1.45 0.45 0.54 1.59 0.93 1.70 1.23 1.04 1.01 0.50 1.21
1.22 0.87 0.55 1.37 0.62 4.19 0.76 0.85 1.02 1.24 0.86 1.96 5.19 1.01 0.64 1.16 1.34 0.95 1.06 1.32 1.02 0.70 1.49 0.49 0.56 1.22 0.94 0.52 1.86 1.22 1.02 1.08 0.92 0.97
11.1 7.3 5 11.9 6.8 21.3 6.9 6.4 8.7 11.7 47.7 12.3 25.7 8.6 23.7 10.7 15.3 7.6 7.8 13.6 4.8 6.2 12.6 3.9 6.6 11.9 8.9 -225.8 14.2 9.6 8.2 11.6 4.5 13.8
7.6 6.2 3.2 9.6 5.5 13.7 5.4 6.0 5.0 9.4 29.8 9.1 22.7 7.4 16.5 7.6 10.6 6.8 4.1 8.8 3.0 4.8 11.0 3.3 4.9 10.1 4.0 -250.8 8.4 9.1 7.4 8.0 3.7 7.3
6.9 2.0 1.4 20.1 1.5 3.6 7.9 1.4 3.1 14.1 9.8 4.6 2.6 2.4 3.0 17.2 0.9 28.8 4.9 1.4 0.8 4.0 1.5 7.3 223.2 10.6 0.9
8.1% 16.2% 12.7% 28.8% 6.3% 2.5% 9.3% 60.8% 29.3% 12.1% 6.9% 6.5% 6.5% 79.4% 38.7% 17.5% 12.1% 16.0% 25.0% 25.0% 3.3% 8.9% 24.6% 30.5% 6.0% 6.6% 19.9% 20.5% 6.5% 12.7% 19.9% 41.1% 26.2% 6.1%
2.7 n.a. 1.1 1.1 2.1 6.0 0.2 1.5 1.3 2.3 n.a. 6.8 2.0 0.7 0.2 1.9 2.0 n.a. 0.1 2.0 6.4 2.1 0.2 0.4 2.7 2.8 1.3 n.a. 0.0 0.8 1.2 5.0 0.7 2.4
Funding Source
5% 84% 15% -83% -9% 5% 79% 19% 6% 13% -57% 11% 7% 8% 0% -27% 29%
Small cap Long

SAI BKN PRG TGR SAI Global Bradken Programmed Group Tassal Group 941 1,279 234 233 Jun 11 Jun 11 Mar 11 Jun 11 4.72 7.90 1.98 1.59 5.20 9.85 2.14 1.30 5.20 9.85 2.14 1.30 10% 25% 8% -18% Buy Buy Hold Hold -3% -12% 14% -6% 5% -4% 23% 2% 57.8 90.1 28.6 21.6 66.4 120.3 29.1 25.0 77.9 143.9 33.7 27.4 0.8 0.2 0.1 1.2 29.8 63.5 24.2 14.8 33.3 72.3 24.7 17.1 39.0 84.0 28.5 18.6 -3.8% 0.9% 1.2% -2.1% 12% 14% 2% 16% 17% 16% 16% 9%
16% 17% 9% 11%
14.3 39.5 9.0 2.0
16.3 45.0 11.0 6.0
20.3 52.5 13.0 7.0
3.5% 5.7% 5.6% 3.8%
100 100 100 100
14.2 10.9 8.0 9.3
12.1 9.4 6.9 8.6
0.9 0.7 0.9 0.9
1.25 0.96 0.71 0.82
1.15 0.90 0.66 0.82
11.1 8.4 6.0 7.9
9.8 6.8 5.0 5.8
2.3 2.0 0.9
20.1% 16.6% 8.1% 8.8%
1.3 1.7 1.5 1.5
Funding Source
Priced at 2.45pm on 28 October 2011. * Earnings quality: Net operating cash flow/(Net profit + Depreciation & amortisation). Source: Company data, RBS forecasts
11
Equity | Australia
28 October 2011
Australia Strategy
Weekly topical thoughts
European liquidity crisis averted, a re-opening of access to primary markets to ensue... but sovereign guarantees for bank term debt only increases the circularity of the system, as sovereigns at risk will find it difficult to support bank issuance, in our view. Avoid risk on trades, focus on growth differentials instead.
Chart 1 : A schematic of the proposed SPIV, including the ECB indirectly
Source: RBS European Economics and Strategy
Risk on/risk off a jaded trade Negotiations continue, a willingness to avert a crisis is in place, and obviously a more comprehensive (than expected) announcement was made post the European summit meeting. Yet while Italian equities rallied 5%, Italian 10yr bonds dropped by only 6bp to 5.87%, indicating that while risk assets were positioned for the worst and due a relief rally on any announced measures appearing sensible, bond investors continue to be wary and rightly so, in our view, as now the sovereigns are on the hook for senior bank debt. Grand plan light on grand details Sovereigns will guarantee the senior debt of banks. This will likely restore banks access to primary markets a welcome and necessary development to avert a liquidity driven systemic event. Term debt guarantees have proven historically to be a good way to re-open private sector markets. However, the crucial point for the successful implementation of these measures, in our view, remains ECB involvement and the involvement of external capital (ie, private or from non-European sovereigns). The presence of a guarantor of last resort, or of non-correlated capital, is the only way to make sure guarantees will work in a stress scenario, in our view. We highlight that euro-area banks need to raise around 500bn of unsecured debt next year, or 5% of GDP, but for some countries this is 10% of GDP. EFSF 3 still sub-optimal watch risk roll in and out of markets We see the special purpose investment vehicle (SPIV) version of the European Financial Stability Facility (EFSF) as better than the insurance option as it could leverage 4-5x, with with widespread market speculation that EFSF 3 will have firepower of up to 1trn too small to restore confidence, in our view, and therefore we expect sovereigns to remain under pressure. In the medium term, there are implementation and political risks around the EFSF 3 solution, but for now we trade the reduction in liquidity risk. Important disclosures can be found in the Disclosures Appendix.
Analysts
Alva DeVoy
+61 2 8259 5831 alva.devoy@rbs.com
Daniel Blake
+61 2 8259 5016
Jonathon Brycki
+61 2 8259 6831
Thiva Nagaratnam, CFA

+61 2 8259 5373
Muditha Weeratunga, CFA

+61 2 8259 6920
13
Weekly indicators
Risk appetite, as gauged by the RBS risk-appetite indicator, was up this week, currently 1 standard deviation below 12-month trend. The indicator has been at or below -1 standard deviations for the past 13 weeks. The only previous period where the indicator has been this low for an extended period was between September 2008 and January 2009 (16 weeks). This week, all seven components of the RBS risk-appetite indicator moved to indicate increased risk-appetite among market participants. Most notably, copper increased 14% over the week but remains 1.2 standard deviations above 12-month trend. Volatility, as measured by the VIX Index, decreased substantially from 31.3% to 25.5% over the week as risk markets rallied. Treasuries were sold off, resulting in the US yield curve steepening by 12bp as both 2yr and 10yr yields backed up to 31bp and 238bp respectively. On the flow side this week, we saw outflows from the Australian market for the 15th time in the past 16 weeks. Active equity fund outflows were -US$24.2m, with the four-week total increasing to -US$145.6m. Chart 2 : Risk-appetite indicator at -1.7 std deviations
Std dev 2 Euphoria 1.50
Chart 3 : CBOE VIX and CHF/AUD

A$ % 90 80
1.40 70
1.30
60 50
-1
1.20 40
-2
1.10
30 20
-3 Capitulation -4 2004 2005 2006 2007 2008 2009 2010 2011
1.00 10 0.90 2000 2002 2004 2006 2008 2010 0
RBS risk appetite (lhs)
CHF/AUD (lhs)
CBOE VIX (rhs)
Source: Bloomberg, RBS
Chart 4 : EPFR active equity fund flows into Australia

US$m 400
Chart 5 : European periphery spreads

bp 1,400 1,200 1,000
200
0
800
-200
600
-400
400
-600
200 0
-800 Jun 05 Jun 07 Jun 09 Jun 11
Jan 09
Jul 09 Ger.
Jan 10 Spain
Jul 10 Italy
Jan 11 Ireland
Jul 11 Port.
Active equity fund flows into Australia - 4wk total
Source: EPFR Global
14
Equity markets performance and valuations

Table 1 : Market performance and valuation
Index Australia S&P/ASX 200 MSCI World US S&P 500 US NASDAQ MSCI Europe Germany DAX France CAC UK FTSE Japan Nikkei South Korea Taiwan Singapore MSCI AP ex-Japan Hong Kong China Shanghai Thailand India Indonesia Brazil
Source: Bloomberg estimates
% 1d 2.5 0.4 3.4 3.3 0.2 5.3 6.3 2.9 2.2 1.5 0.4 2.8 0.3 3.3 0.3 2.3 0.2 2.0 3.7
Local currency US$ unhedged % 1w % mtd % qtd % ytd % mtd % qtd % ytd 4.9 2.9 5.7 5.4 3.3 9.9 9.2 6.1 2.2 6.5 4.4 4.7 5.3 9.5 4.5 2.3 1.2 5.3 9.7 8.5 8.7 13.5 13.4 6.6 15.2 13.0 11.4 0.2 8.6 4.7 6.4 8.2 11.9 3.2 4.8 5.1 7.4 13.3 8.5 8.7 13.5 13.4 6.6 15.2 13.0 11.4 0.2 8.6 4.7 6.4 8.2 11.9 3.2 4.8 5.1 7.4 13.3 -8.4 -6.2 2.1 3.2 -12.4 -8.3 -11.5 -3.2 -15.1 -6.3 -15.7 -10.7 -15.2 -14.5 -13.3 -7.0 -15.7 3.0 -14.5 20.2 8.7 13.5 13.4 13.0 22.1 19.7 15.1 1.7 14.7 6.2 12.1 8.2 12.2 3.6 7.3 3.9 8.8 24.5 20.2 8.7 13.5 13.4 13.0 22.1 19.7 15.1 1.7 14.7 6.2 12.1 8.2 12.2 3.6 7.3 3.9 8.8 24.5 -4.1 -6.2 2.1 3.2 -7.1 -2.8 -6.1 -0.1 -9.4 -5.4 -17.8 -7.7 -15.2 -14.5 -9.9 -8.3 -23.9 4.8 -16.9
A$ unhedged % mtd % qtd % ytd 8.5 -1.9 2.4 2.3 1.9 10.1 8.0 3.8 -8.3 4.6 -4.2 1.2 -2.4 1.2 -6.6 -3.2 -6.2 0.3 12.3 8.5 -1.9 2.4 2.3 1.9 10.1 8.0 3.8 -8.3 4.6 -4.2 1.2 -2.4 1.2 -6.6 -3.2 -6.2 0.3 12.3 -8.4 -10.4 -2.4 -1.4 -11.3 -7.2 -10.3 -4.6 -13.4 -9.3 -21.5 -11.8 -19.0 -18.3 -13.9 -12.4 -27.3 0.9 -20.6
Valuation (x) PE 12 P/B 11 DY CY11 10.7 10.7 11.7 13.8 9.3 9.2 9.0 9.4 11.8 8.8 12.3 12.3 10.3 9.7 9.5 10.2 12.8 12.8 9.3 1.56 1.42 1.83 2.36 1.24 1.16 1.01 1.47 0.85 1.12 1.50 1.29 1.40 1.25 1.52 1.66 2.21 2.73 1.07 4.95 2.97 2.06 1.34 4.35 3.91 4.72 3.90 2.46 1.51 4.24 3.37 2.98 3.77 2.64 4.15 1.61 2.21 3.63
4,348 1,200 1,285 2,739 83.6 6,338 3,369 5,714 763 1,922 7,565 2,848 481.1 19,689 2,436 960 17,289 3,813 59,270
Chart 6 : Market performance (local currency)

15% 10% 5% 0% -5% -10% -15% -20% S&P/ASX MSCI US S&P MSCI 200 World 500 Europe Local currency returns qtd (%) UK Japan MSCI APxJ China
Chart 7 : Market performance (unhedged USD)

25% 20% 15% 10% 5% 0% -5% -10% -15% -20% S&P/ASX MSCI US S&P MSCI 200 World 500 Europe US$ returns qtd (%) UK Japan MSCI APxJ China
local currency returns ytd (%)
US$ returns ytd (%)
Chart 8 : RBS risk appetite vs AUD/USD

US$ 1.20 1.10 1.00 0.90 0 0.80 -1 0.70 0.60 0.50 0.40 2000 2002 2004 2006 2008 2010 -2 -3 -4 Std dev 3 2 1
Chart 9 : Risk appetite vs forward market returns

3 Std dev 30% Capitulation
20%
10%
0%
-1 Euphoria
-10%
-2
-20%
-3 2000 2002 2004 2006 2008 2010
-30%
AUD/USD (lhs)
RBS Risk Appetite (rhs)
RBS risk appetite (inverted, lhs)
S&P/ASX 200 fwd 3m % chg. (rhs)
15
Table 2 : Global sector performance (absolute)

MSCI World % mtd % qtd % ytd Total Index Energy Materials Industrial Cons Discretionary Cons Staples Healthcare Financials Utilities Telecoms IT Large caps Small caps Growth Value
Source: Bloomberg
US S&P 500 % mtd % qtd % ytd 13.5 21.8 21.9 16.8 14.3 5.9 7.4 19.0 4.9 3.1 13.3 13.5 18.8 13.7 14.7 13.5 21.8 21.9 16.8 14.3 5.9 7.4 19.0 4.9 3.1 13.3 13.5 18.8 13.7 14.7 2.1 6.4 -6.1 -2.0 6.5 6.9 8.2 -11.9 12.4 -2.3 5.9 2.1 -2.3 3.6 -0.6
MSCI Europe % mtd % qtd % ytd 6.6 14.1 11.2 8.9 11.4 3.8 1.0 4.4 1.4 4.2 8.4 6.8 9.0 6.7 6.5 6.6 14.1 11.2 8.9 11.4 3.8 1.0 4.4 1.4 4.2 8.4 6.8 9.0 6.7 6.5 -12.4 -1.8 -23.0 -18.1 -10.8 -1.8 0.4 -24.1 -14.0 -6.1 -7.7 -11.7 -15.0 -11.2 -13.7
MSCI Asia ex-Japan % mtd % qtd % ytd 8.2 9.2 9.5 11.3 9.0 5.8 2.4 8.5 4.4 1.2 9.0 8.2 7.0 8.2 9.2 9.5 11.3 9.0 5.8 2.4 8.5 4.4 1.2 9.0 8.2 7.0 -15.2 -13.5 -19.4 -24.3 -1.7 -0.9 -17.0 -20.5 -6.0 4.0 -16.3 -14.4 -22.8 -
S&P/ASX 200 % mtd % qtd % ytd 8.5 12.9 9.9 8.2 8.1 1.1 3.3 10.2 2.4 1.6 0.9 8.1 8.9 4.5 7.1 8.5 12.9 9.9 8.2 8.1 1.1 3.3 10.2 2.4 1.6 0.9 8.1 8.9 4.5 7.1 -8.4 -12.6 -15.4 -8.9 -14.9 -0.9 -12.0 -4.3 -1.0 12.6 -24.7 -7.4 -15.9 -15.2 -6.0
8.7 15.3 9.2 8.7 8.6 3.5 2.9 6.4 1.2 2.6 9.2 8.6 9.9 9.3 8.2
8.7 15.3 9.2 8.7 8.6 3.5 2.9 6.4 1.2 2.6 9.2 8.6 9.9 9.3 8.2
-6.2 -1.6 -17.8 -11.8 -5.5 2.1 2.2 -18.2 -7.0 -4.5 -1.5 -6.1 -8.8 -5.2 -7.2
Table 3 : Global sector performance (relative)

MSCI World % mtd % qtd % ytd 6.6 0.5 -0.0 -0.1 -5.2 -5.8 -2.3 -7.6 -6.1 0.5 -0.1 1.2 0.5 -0.6 6.6 0.5 -0.0 -0.1 -5.2 -5.8 -2.3 -7.6 -6.1 0.5 -0.1 1.2 0.5 -0.6 4.6 -11.5 -5.6 0.7 8.3 8.5 -12.0 -0.7 1.8 4.7 0.1 -2.6 1.0 -1.0 US S&P 500 % mtd % qtd % ytd 8.3 8.3 3.3 0.7 -7.7 -6.2 5.5 -8.7 -10.5 -0.3 5.3 0.2 1.2 8.3 8.3 3.3 0.7 -7.7 -6.2 5.5 -8.7 -10.5 -0.3 5.3 0.2 1.2 4.3 -8.3 -4.1 4.4 4.8 6.1 -14.0 10.2 -4.5 3.7 -4.5 1.5 -2.8 MSCI Europe % mtd % qtd % ytd 7.5 4.5 2.3 4.7 -2.8 -5.6 -2.3 -5.2 -2.4 1.8 0.1 2.3 0.1 -0.1 7.5 4.5 2.3 4.7 -2.8 -5.6 -2.3 -5.2 -2.4 1.8 0.1 2.3 0.1 -0.1 10.6 -10.6 -5.7 1.6 10.6 12.8 -11.7 -1.6 6.3 4.7 0.7 -2.6 1.3 -1.2 MSCI Asia ex-Japan % mtd % qtd % ytd 1.0 1.4 3.1 0.9 -2.3 -5.8 0.3 -3.8 -7.0 0.8 0.0 -1.1 1.0 1.4 3.1 0.9 -2.3 -5.8 0.3 -3.8 -7.0 0.8 0.0 -1.1 1.7 -4.2 -9.1 13.5 14.3 -1.8 -5.3 9.2 19.2 -1.1 0.8 -7.6 S&P/ASX 200 % mtd % qtd % ytd 4.4 1.5 -0.3 -0.4 -7.4 -5.1 1.8 -6.1 -6.9 -7.6 -0.3 0.4 -3.9 -1.4 4.4 1.5 -0.3 -0.4 -7.4 -5.1 1.8 -6.1 -6.9 -7.6 -0.3 0.4 -3.9 -1.4 -4.2 -7.0 -0.5 -6.6 7.4 -3.7 4.0 7.3 20.9 -16.4 1.0 -7.6 -6.9 2.4
Relative returns Energy Materials Industrial Cons discretionary Cons staples Healthcare Financials Utilities Telecoms IT Large caps Small caps Growth Value
Source: Bloomberg
Table 4 : Global sector valuations

(x) MSCI World US S&P 500 MSCI Europe MSCI Asia Ex Japan S&P/ASX 200 Sector valuation PE 12 PB 11 DY 11 (%) PE 12 PB 11 DY 11 (%) PE 12 PB 11 DY 11 (%) PE 12 PB 11 DY 11 (%) PE 12 PB 11 DY 11 (%) Total Index Energy Materials Industrial Cons discretionary Cons staples Healthcare Financials Utilities Telecoms IT Large caps Small caps Growth Value 10.7 11.4 15.8 13.7 10.4 1.4 1.4 1.3 2.0 1.1 2.97 3.09 2.33 2.05 3.92 11.7 10.9 12.7 13.9 15.2 15.1 11.7 11.9 14.1 17.9 12.7 12.9 22.5 15.4 12.4 1.8 1.7 2.0 2.2 2.6 3.2 2.1 0.9 1.5 1.7 2.6 1.8 1.5 3.0 1.3 2.06 1.84 2.22 2.32 1.49 3.03 2.25 1.75 4.06 5.40 1.05 2.06 1.53 2.55 9.3 8.9 8.8 12.1 10.7 14.5 10.7 8.4 11.0 9.8 14.2 13.1 12.2 8.8 1.2 1.3 1.2 1.7 1.5 2.4 2.5 0.6 1.1 1.3 2.0 1.2 1.7 1.0 4.35 4.20 3.05 3.77 3.41 3.48 4.07 4.95 6.22 8.32 2.40 3.44 3.18 5.57 10.3 9.1 9.7 11.3 11.7 18.7 21.5 10.0 16.3 12.8 16.3 11.6 9.4 1.4 1.5 1.3 1.2 1.9 2.6 3.0 1.1 1.3 1.8 1.8 1.5 1.1 2.98 3.30 3.28 2.65 1.64 2.20 0.97 3.51 2.86 4.46 2.57 3.01 3.14 10.7 22.2 10.6 15.2 11.3 14.8 15.2 10.8 14.5 11.2 14.6 11.6 15.7 11.8 10.7 1.6 1.7 1.8 1.5 1.3 2.1 2.3 1.3 1.2 3.1 3.6 1.6 1.4 1.9 1.4 4.95 2.36 2.56 4.26 5.17 5.23 3.13 6.82 6.35 8.72 4.23 5.07 3.33 3.39 6.80
16
Chart 10 : Relative industry returns quarter-to-date

10%
5%
0%
-5%
-10%
-15% Energy Materials Industrials Cons. Disc Cons. Staples Healthcare Financials Utilities Telecoms IT
MSCI World
US S&P 500
MSCI Europe
MSCI APxJ
S&P/ASX 200
Source: Bloomberg
Chart 11 : Relative industry returns year-to-date

25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Energy Materials Industrials Cons. Disc Cons. Staples Healthcare Financials Utilities Telecoms IT
MSCI World
US S&P 500
MSCI Europe
MSCI APxJ
S&P/ASX 200
Source: Bloomberg
Chart 12 : Relative PE, 2012

x 14 12 10 8 6 4 2 0 S&P/ASX MSCI 200 World US S&P MSCI 500 Europe UK Japan MSCI APxJ China
Chart 13 : Relative PB, 2011

x 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 S&P/ASX MSCI US S&P MSCI 200 World 500 Europe UK Japan MSCI APxJ China
Price-earnings ratio (2012 estimates)
Price-book ratio (2011 estimates)
Source: Bloomberg forecasts
17
Chart 14 : Relative size and style returns quarter-to-date
6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Large caps MSCI World Small caps US S&P 500 MSCI Europe Growth MSCI APxJ S&P/ASX 200 Value
Source: Bloomberg
Chart 15 : Relative size and style returns year-to-date

4% 2% 0% -2% -4% -6% -8% -10% Large caps Small caps MSCI World US S&P 500 MSCI Europe Growth MSCI APxJ S&P/ASX 200 Value
Source: Bloomberg
Chart 16 : Size/style PE, 2012

x 25
Chart 17 : Size/style PB, 2011

x 3.5 3.0
20 2.5 15 2.0 1.5 1.0 5 0.5 0 Large caps MSCI World Small caps MSCI Europe Growth MSCI APxJ Value S&P/ASX 200 0.0 Large caps MSCI World Small caps MSCI Europe Growth MSCI APxJ Value S&P/ASX 200
10
US S&P 500
US S&P 500
18
Fixed income, currency and commodity markets

Table 5 : Fixed income markets
Rates (%) US 3m 2yr 10yr Long (30yr) Europe 3m 2yr 10yr Long (20yr) UK 3m 2yr 10yr Long (20yr) Japan 3m 2yr 10yr Long (20yr) Australia 3m 2yr 10yr
Source: Bloomberg, iTraxx, RBS
Yield 0.43 0.31 2.38 3.43 0.56 0.66 2.21 3.00 0.53 0.60 2.62 3.35 0.10 0.14 1.01 1.77 4.70 3.98 4.49
mtd 0.05 0.07 0.46 0.52 0.18 0.11 0.32 0.36 0.02 0.02 0.19 0.05 0.00 0.00 -0.02 0.04 -0.22 0.31 0.27
qtd 0.05 0.07 0.46 0.52 0.18 0.11 0.32 0.36 -0.01 0.02 0.19 0.05 0.00 0.00 -0.02 0.04 -0.22 0.31 0.27
ytd Spreads (bp) 0.13 3m FRA/OIS -0.28 5yr swap spread -0.92 Moodys AAA -0.90 Moodys BBB 0.17 3m FRA/OIS -0.21 5yr swap spread -0.76 AAA 5yr (BFV) -0.47 BBB 5yr (BFV) -0.03 3m FRA/OIS -0.50 5yr swap spread -0.78 AAA 5yr (BFV) -0.78 BBB 5yr (BFV) -0.02 3m FRA/OIS -0.04 5yr swap spread -0.12 AA 5yr (BFV) -0.09 BBB 5yr (BFV) -0.34 3m FRA/OIS -1.18 5yr swap spread -1.05
Current 40.9 28.6 276 414 69.3 77.2 155.6 268.5 51.3 52.4 187.3 259.6 13.5 11.2 25.9 78.5 #N/A N/A 87.3
qtd -1.9 -1.2 -25.2 -13.2 4.5 -2.4 -16.0 -32.8 -2.0 11.3 4.8 -23.8 -0.3 0.0 0.1 -25.7 -19.0 -3.0
ytd 22.9 11.5 -11.8 16.2 36.7 4.8 40.0 58.5 26.5 8.2 53.2 83.2 3.0 -5.5 3.1 -23.3 -19.0 32.0
Chart 18 : Yield curves current

6%
Chart 19 : Yield curves six months prior

6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0% 3M 2Y 10Y >15Y
0% 3M 2Y 10Y >15Y
US
Europe
UK
Japan
Australia
US
Europe
UK
Japan
Australia
Chart 20 : US bonds vs equities

40% 30% 20% 10% 0 0% -50 -10% -20% -30% -40% 2005 2006 2007 2008 2009 2010 2011 -100 3m % change 3m bp change 150 100
Chart 21 : Aus government 10yr yield vs S&P/ASX 200

Index 7,000 7%
6,000 50 5,000 5% 4,000 4% 3,000 -150 -200 2,000 2000 2002 2004 2006 2008 2010 3% 6%
US S&P 500 returns (lhs)
US 30yr Treasury yield (rhs)
S&P/ASX 200 (lhs)
CGS 10 yr yield (rhs)
19
Table 6 : Australian CDS vs stock performance

Ticker Company CDS spread (bp) 360.0 119.2 311.5 169.8 138.0 123.1 139.9 101.7 185.9 118.7 120.1 139.5 167.7 168.1 168.1 184.0 179.0 167.5 134.5 182.7 277.7 105.1 280.3 286.0 424.0 1wk bp chg 27.8 3.4 1.6 0.1 -3.1 -3.6 -3.6 -4.1 -4.2 -4.5 -4.5 -4.9 -5.8 -6.3 -6.3 -6.7 -6.7 -7.2 -7.3 -7.3 -8.1 -8.6 -9.0 -10.5 -15.2 1mth bp chg 33.3 -12.8 -26.4 -25.9 -13.7 -5.3 -18.9 -11.7 -32.0 -13.0 -8.3 -17.3 -47.0 -46.5 -46.5 -16.0 3.9 -47.5 -17.3 -83.4 -33.8 -12.2 -44.1 -23.3 10.0 3mth bp chg 201.6 45.7 124.5 49.0 59.3 49.1 53.5 39.5 59.4 32.6 43.5 46.2 43.1 43.5 43.5 48.0 80.5 42.8 44.4 5.1 142.6 15.6 136.2 101.3 210.1 6mth bp chg 233.5 47.2 155.9 67.0 66.6 56.7 69.0 46.0 62.5 42.2 51.6 60.9 64.6 65.1 65.0 89.3 91.2 64.4 58.8 22.7 170.3 26.0 158.2 133.4 241.1 1yr bp chg 211.0 33.6 119.0 42.6 77.2 61.1 84.1 44.7 43.7 50.3 63.4 70.1 62.5 63.3 62.4 93.3 103.4 62.1 66.2 50.5 158.4 26.1 148.2 139.3 258.3 Share price (A$) 14.58 38.35 24.35 35.80 7.34 32.68 2.45 12.30 4.32 1.92 24.08 3.16 22.00 49.99 25.87 8.17 69.70 22.76 2.43 2.96 7.59 5.33 3.22 1.57 7.79 1wk % chg 5.5% 8.1% 5.9% 6.5% 4.4% 3.6% -0.8% 2.6% 6.1% -3.8% -2.1% 0.3% 4.2% 4.8% 6.5% 3.9% 10.9% 5.7% 0.0% 6.1% 0.4% 0.6% 3.9% 6.1% 2.9% 1mth % chg 14.9% 8.0% 8.0% 12.1% 8.1% 2.5% 3.8% 2.6% 12.8% -4.5% -4.0% 2.3% 11.4% 9.9% 12.7% 0.9% 8.8% 10.2% -1.6% 13.8% -4.5% 0.6% 0.3% 8.3% 7.4% 3mth % chg -11.7% -8.8% -13.0% -8.0% 3.7% 11.3% -7.5% 9.5% -6.5% -7.5% -11.5% 5.3% 4.8% 1.1% 7.0% -9.9% -14.2% 10.2% 2.1% -10.0% -5.7% 7.0% 6.3% -15.1% -12.5% 6mth % chg -24.1% -17.2% -30.2% -24.9% 4.4% -2.6% -18.1% 1.3% -22.0% 20.5% -9.4% 9.3% -9.5% -6.8% -4.5% -3.3% -16.4% -9.9% 8.6% -12.2% -16.0% 15.2% 2.2% -26.3% -12.4% 1yr % chg -15.3% -8.7% -29.5% -18.9% 9.2% -2.5% -35.4% -0.3% -21.5% 21.6% -15.5% 16.6% -11.0% 1.4% 2.1% -2.4% -16.8% -0.8% 5.9% -9.0% -23.2% 10.8% 14.2% -45.5% 7.7%
QBE BHP MQG WPL AMC WES CSR CCL AMP TEL WOW TLS ANZ CBA NAB CWN RIO WBC SGT TAH WDC FGL GPT QAN LLC
QBE Insurance BHP Billiton Macquarie Bank Woodside Petroleum Amcor Wesfarmers CSR Coca-Cola Amatil AMP Group Holdings Telecom Corp Woolworths Telstra Corp ANZ Commonwealth Bank National Australia Bank Crown Rio Tinto Westpac SingTel Tabcorp Westfield Group Fosters GPT Qantas Airways Lend Lease
Priced at close of business 21 July 2011. Source: Bloomberg, RBS
Chart 22 : Australian CDS vs stock performance, one week

bp / % 20 15 10 5 0 -5 -10 -15 -20 -25 -30 MQG AMC AMP QBE BHP TLS CBA NAB QAN TAH CSR TEL CCL FGL WES WBC SGT WOW CWN WDC WPL GPT ANZ LLC RIO
1w CDS tightening (bp)
1w Stock performance (%)
20
Table 7 : Commodity price movements

Spot Crude oil (US$/bbl) Natural gas (US$/mcf) Aluminium (US$/lb) Copper (US$/lb) Lead (US$/lb) Nickel (US$/lb) Tin (US$/lb) Zinc (US$/lb) Iron ore fines (US$/t cfr Tianjin) Coal steaming (US$/t fob Newcastle) Uranium (US$/lb) Gold (US$/oz) Silver (US$/oz) Platinum (US$/oz) Palladium (US$/oz) CRB index Soy (US$/bu) Corn (US$/bu) Wheat (US$/bu) Sugar (USc/lb)
Source: Bloomberg, CRB, LME, The Steel Index
% 1d 4.3 -1.8 1.9 6.1 6.2 4.1 3.2 5.0 -5.7 -1.6 1.4 5.1 2.6 3.1 2.6 2.0 2.2 4.0 1.9
% 1w 10.3 -2.9 8.4 21.1 14.3 10.6 4.0 12.0 -17.6 -1.6 8.4 14.6 9.5 13.8 5.4 0.8 0.3 2.1 0.2
% mtd 18.8 -3.9 5.3 16.4 -0.1 13.1 8.1 4.8 -29.8 -2.8 -1.9 7.8 17.2 7.3 9.2 8.8 4.7 10.0 5.7 2.0
% qtd 18.8 -3.9 5.3 16.4 -0.1 13.1 8.1 4.8 -29.8 -2.8 -1.9 7.8 17.2 7.3 9.2 8.8 4.7 10.0 5.7 2.0
% ytd 2.9 -20.0 -9.1 -15.6 -21.3 -19.5 -18.2 -21.2 -29.3 -5.8 -15.5 22.9 13.4 -7.5 -16.6 -2.6 -11.4 3.6 -18.9 -16.4
94.1 3.52 1.01 3.69 0.92 9.02 9.99 0.87 120.2 118.8 52.0 1747 35.08 1638 668.5 324.3 12.35 6.52 6.44 26.86
Table 8 : Exchange rate movements

Currency US dollar New Zealand dollar Euro Sterling Yen Hong Kong dollar Canadian dollar Singapore dollar Real Ruble Rupee Renminbi Rand
Source: Bloomberg
AUD vs USD NZD EUR GBP JPY HKD CAD SGD BRL RUB INR RMB ZAR 1.0709 1.3054 0.7548 0.6652 81.36 8.3184 1.0623 1.3292 1.8310 32.05 53.0 6.811 8.267
% 1d 3.0 0.6 0.9 2.2 -2.6 2.9 1.7 0.6 0.1 0.6 2.6 3.1 0.1
% mtd 10.8 2.9 4.6 7.3 -8.5 10.6 4.7 5.2 0.7 2.9 11.6 10.6 0.0
% qtd 10.8 2.9 4.6 7.3 -8.5 10.6 4.7 5.2 0.7 2.9 11.6 10.6 5.6
% ytd Currency 4.7 Australian dollar -1.3 Euro 1.5 Sterling 2.1 Yen 4.6 Hong Kong dollar 4.0 Canadian dollar 1.2 Singapore dollar 7.8 Real 2.6 Ruble 15.9 Rupee 0.7 Renminbi 21.8 Rand AUD EUR GBP JPY HKD CAD SGD BRL RUB INR RMB ZAR -0.5 New Zealand dollar NZD
vs USD 1.0709 0.8204 1.4188 1.6099 75.97 7.77 1.0081 0.8057 1.710 29.9 49.5 6.36 7.72
% 1d % mtd 3.0 2.4 2.0 0.8 0.3 0.1 1.2 2.4 2.8 2.6 0.7 -0.1 2.9 10.8 7.7 6.0 3.3 1.4 0.2 5.9 5.3 9.9 7.6 -1.1 0.3 4.9
% qtd 10.8 7.7 6.0 3.3 1.4 0.2 5.9 5.3 9.9 7.6 -1.1 0.3 4.9
% ytd 4.7 5.2 6.0 3.1 6.8 0.1 0.6 3.4 -2.8 2.1 -9.7 3.9 -14.1
Chart 23 : Copper price vs AUD/USD

US$/lb 5 US$ 1.20 1.10 4 1.00 3 0.90 0.80
Chart 24 : Oil vs gold ratio

30
25
20
15
0.70 0.60
10
1 0.50
5
0 2004 2006 2008 2010 A$/US$ (rhs)
0.40
0 1990 1995 2000 2005 2010
Copper price (lhs)
21
Commodities and currency forecasts

See Global Economic Forecasts: Debt overhang hits back, Jacques Cailloux (ed), 18 August 2011, for the full set of RBS forecasts and contributors. Table 9 : RBS Metals & Mining commodity price forecast summary
Unit Aluminium Copper Lead Zinc Nickel Tin Gold Silver Platinum Palladium Iron ore fines Coal steaming US$/lb US$/lb US$/lb US$/lb US$/lb US$/lb US$/oz US$/oz US$/oz US$/oz US$/t US$/t 1Q11 1.14 4.37 1.18 1.09 12.20 13.57 1388 31.97 1,792 790 148 225 110 2Q11 1.18 4.15 1.16 1.02 10.97 12.97 1508 38.50 1,784 760 171 330 130 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F 2011F 2012F 2013F 1.10 4.17 1.13 1.02 10.05 8.15 1750 40.00 1,825 770 167 310 120 1.20 4.40 1.12 1.07 10.55 8.40 1950 42.00 1,900 820 164 285 120 1.13 4.42 1.13 1.02 10.20 8.60 1900 40.00 1,850 825 160 305 120 1.18 4.45 1.16 1.07 10.90 8.60 1800 38.00 1,900 850 154 305 115 1.20 4.51 1.20 1.13 10.90 9.05 1700 36.00 1,950 925 149 305 115 1.25 4.63 1.22 1.18 12.00 9.05 1600 34.00 2,100 1000 149 305 115 1.27 4.72 1.30 1.22 12.45 9.55 1550 30.00 2,150 1100 144 275 115 1.27 4.72 1.30 1.20 12.45 9.55 1550 30.00 2,150 1100 139 275 105 1.43 4.99 1.50 1.45 13.50 10.00 1500 29.00 2,250 1150 139 265 105 1.43 4.99 1.50 1.45 13.50 10.00 1500 29.00 2,250 1150 129 265 105 1.15 4.27 1.15 1.05 10.94 10.77 1649 38.12 1,825 785 162 288 120 1.19 4.50 1.18 1.10 11.00 8.83 1750 37.00 1,950 900 153 305 116 1.35 4.86 1.40 1.33 12.98 9.78 1525 29.50 2,200 1125 138 270 108 LT 1.15 3.00 0.95 1.00 8.50 6.80 1100 18.00 1,850 700 85 180 100
Coal hard coking US$/t
Source: Bloomberg, RBS forecasts
Table 10 : RBS energy price forecasts

Unit Brent Crude Uranium oxide US$/bbl US$/lb 1Q11 106 64 2Q11 95 56 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F 2011F 2012F 2013F 90 50 87 48 86 46 89 44 95 45 94 45 93 45 95 45 99 50 97 50 94 55 91 45 96 48 LT 90 65
Source: Bloomberg, RBS forecasts
Table 11 : RBS FX forecast summary

Per USD JPY GBP1 CHF AUD1,2 CAD ZAR SGD KRW CNY MXN BRL Per EUR USD JPY GBP CHF SEK NOK PLN CZK HUF 1.35 126.5 0.89 1.42 9.74 8.03 3.86 25.40 265.6 1.23 108.6 0.82 1.32 9.52 7.96 4.13 25.70 284.7 1.36 113.7 0.87 1.34 9.19 8.01 3.97 24.58 276.7 1.34 108.5 0.86 1.25 8.99 7.79 3.96 25.02 278.7 1.42 117.5 0.88 1.30 8.95 7.84 4.03 24.53 266.0 1.45 116.9 0.90 1.22 9.17 7.83 3.98 24.39 265.9 1.36 104.0 0.87 1.22 9.20 7.75 4.40 24.50 287.0 1.33 103.7 0.86 1.20 9.30 7.60 4.35 24.50 295.0 1.31 99.6 0.85 1.20 9.25 7.55 4.20 24.30 285.0 1.36 99.3 0.84 1.20 9.15 7.55 4.10 24.00 285.0 1.38 103.5 0.84 1.20 9.00 7.65 4.00 24.00 280.0 1.41 102.9 0.83 1.20 9.00 7.75 4.00 23.70 280.0 1Q10 93.4 1.52 1.05 0.92 1.02 7.27 1.40 1131 6.83 12.33 1.78 2Q10 88.6 1.50 1.08 0.85 1.06 7.66 1.40 1222 6.78 12.87 1.80 3Q10 83.5 1.57 0.98 0.97 1.03 6.98 1.32 1140 6.69 12.60 1.69 4Q10 81.1 1.56 0.94 1.02 1.00 6.63 1.28 1126 6.61 12.34 1.66 1Q11 82.8 1.61 0.92 1.04 0.97 6.77 1.26 1097 6.55 11.90 1.63 2Q11 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 80.6 1.61 0.84 1.07 0.96 6.76 1.23 1068 6.46 11.71 1.56 76.5 1.56 0.90 1.06 0.99 7.87 1.28 1170 6.39 13.45 1.80 78.0 1.55 0.90 0.93 0.98 8.00 1.18 1050 6.35 11.80 1.65 76.0 1.54 0.92 0.95 0.98 7.80 1.17 1040 6.29 11.50 1.65 73.0 1.62 0.88 1.02 1.00 7.60 1.16 1030 6.22 11.50 1.70 75.0 1.65 0.87 1.10 0.98 7.45 1.15 1020 6.16 11.00 1.70 73.0 1.70 0.85 1.10 0.98 7.30 1.14 1010 6.10 10.50 1.70
1. USD per currency unit. 2. AUD forecasts provided by RBS GBM FX team and currency assumptions of the RBS Australian equity research team may differ. Source: Bloomberg, RBS forecasts
22
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Australia Strategy | Analysis | 28 October 2011 11
RBS GBM economic forecasts

Table 12 : Global economic forecast database
GDP 2009 US Euro area Germany France Italy Spain UK Japan Asia (ex Japan) China India Australia New Zealand Emerging Europe and South Africa Poland Russia Turkey Latin America Mexico Brazil Argentina World2 -6.1 -0.6 0.9 -1.0 5.4 7.5 9.1 5.0 4.0 4.0 6.6 3.9 3.9 4.0 3.1 4.0 5.0 4.9 6.3 1.8 4.2 5.0 10.4 3.2 3.4 6.5 13.9 4.2 3.9 5.4 18.0 3.5 4.50 8.75 2.37 4.50 10.75 2.70 4.50 12.50 3.30 4.75 12.00 3.70 -3.5 -4.3 -5.1 -2.6 -5.2 -3.7 -4.9 -6.3 6.4 9.1 6.8 1.3 -2.0 -5.0 1.6 -7.9 -4.7 2010 3.0 1.7 3.6 1.4 1.3 -0.1 1.4 4.0 9.6 10.3 10.1 2.7 1.7 4.7 3.8 4.0 8.9 2011F 1.7 1.6 2.8 1.6 0.8 0.7 1.1 -0.5 8.1 9.6 7.6 1.6 2.7 4.4 4.3 4.1 6.8 2012F 2.1 1.1 1.3 1.2 0.9 0.7 1.8 2.3 7.7 9.0 7.6 4.4 4.9 3.7 4.2 3.5 4.4 Inflation headline 2009 -0.3 0.3 0.2 0.1 0.8 -0.2 2.2 -1.3 2.5 -0.7 10.8 1.8 2.1 8.4 3.8 12.3 6.2 2010 1.6 1.6 1.2 1.7 1.6 2.0 3.3 -0.7 5.2 3.3 12.1 2.8 2.3 6.0 2.7 6.8 8.6 2011F 3.1 2.6 2.4 2.0 2.4 3.0 4.3 0.2 5.7 5.6 7.8 3.5 4.4 6.0 4.1 7.5 6.5 2012F 2.4 1.7 1.5 1.2 1.4 1.1 2.8 0.3 4.5 4.7 5.1 3.1 2.2 6.4 3.3 8.5 6.0 3.50 8.75 6.50 3.50 7.75 6.50 4.75 8.25 5.25 5.00 9.00 5.25 0.50 0.10 5.31 3.25 3.75 2.50 0.50 0.10 5.81 5.25 4.75 3.00 0.50 0.10 7.06 6.75 4.75 3.00 0.50 0.10 7.81 6.75 5.00 4.00 4.11 1.30 5.50 3.39 1.13 5.56 2.00 1.05 4.75 3.20 1.60 5.00 13.02 1.74 3.80 12.34 1.66 3.98 11.50 1.65 4.20 11.60 1.70 4.30 2.86 30.04 1.50 2.96 30.54 1.54 2.78 29.00 1.75 2.60 28.50 1.50 1.61 93.1 6.83 46.53 0.90 0.73 1.56 81.1 6.61 44.71 1.02 0.78 1.65 78.00 6.35 46.50 1.06 0.85 1.74 73.00 6.10 44.00 1.10 0.86 2009 0.12 1.00 Policy rate1 2010 0.12 1.00 2011F 0.12 1.50 2012F 0.12 2.00 2009 3.85 3.39 10yr yield1 2010 3.30 2.96 2011F 1.80 2.28 2012F 1.70 3.45 2009 1.43 FX vs USD1 2010 1.34 2011F 1.42 2012F 1.44
1. End period. 2. Weighted average based on PPP GDP weightings, World GDP is 85% of IMF world PPP weightings. Source: Bloomberg, RBS forecasts
23
Australia Strategy | Analysis | 28 October 2011 12
Table 13 : Key economic forecast changes

Gross domestic product 2011F (2.9) (3.5) (1.2) 1.7 1.6 2.8 1.6 0.8 0.7 1.1 -0.5 8.1 9.6 7.6 1.6 (1.5) 2.7 4.4 4.3 4.1 6.8 4.0 4.0 6.6 3.9 (4.1) (2.3) (2.0) (1.2) (-0.9) (2.5) (2.0) (3.4) (2.3) (1.1) Inflation headline 2011F 3.1 2.6 2.4 2 2.4 3 4.3 0.2 5.7 5.6 7.8 3.5 4.4 6.0 4.1 7.5 6.5 3.4 6.5 13.9 4.2 (3.3) (4.2) (2.2) (2.6) (3.2) (4.5) (0.3) (3.0) (2.7) Policy rate 2012F 2.4 1.7 1.5 1.2 1.4 1.1 2.8 0.3 4.5 4.7 5.1 3.1 2.2 6.4 3.3 8.5 6.0 3.9 5.4 18.0 3.5 (3.5) (2.0) (1.6) (1.5) (1.7) (1.4) (3.0) 2011F 0.12 1.50 0.50 0.10 7.06 6.75 4.75 3.00 4.75 8.25 5.25 4.50 12.50 3.30 (3.40) (6.30) (5.30) (1.80) 2012F 0.12 2.00 0.50 0.10 7.81 6.75 5.50 4.00 5.00 9.00 5.25 4.75 12.00 3.70 (4.20) (7.30) (5.80) (6.00) (5.00) (1.50) (2.80) (1.00)
2010E US Euro area Germany France Italy Spain UK Japan Asia (ex-Japan) China India Australia New Zealand Emerging Europe and South Africa Poland Russia Turkey Latin America Mexico Brazil Argentina World2 5.4 7.5 9.1 5.0 3.0 1.7 3.6 1.4 1.3 -0.1 1.4 4.0 9.6 10.3 10.1 2.7 1.7 4.7 3.8 4.0 8.9
2012F 2.1 1.1 1.3 1.2 0.9 0.7 1.8 2.3 7.7 9.0 7.6 4.4 4.9 3.7 4.2 3.5 4.4 3.9 4.0 3.1 4 (4.3) (4.9) (3.2) (1.6) (2.0) (1.9) (1.5) (1.0) (1.9) (2.1)
2010E 1.6 1.6 1.2 1.7 1.6 2.0 3.3 -0.7 5.2 3.3 12.1 2.8 2.3 6.0 2.7 6.8 8.6 4.2 5.0 10.4 3.2
1. End-period. 2. Weighted average based on PPP GDP weightings, world GDP is 85% of IMF world PPP weightings. Numbers in bold show forecast changes, numbers in brackets are forecasts as they stood the previous month. Source: Datastream, RBS forecasts
24
Australia/NZ Economics Weekly
28 October 2011
The RBA on the verge of an insurance rate cut

Contents
There has been a major change in the RBAs view (and our own view too) on
Overview Economic diary Economics analysis The week ahead Monthly calendar
monetary policy over the past month. After almost hiking in August, the RBA switched to an easing bias in October, noting that a low CPI would give it room to cut rates if demand needed support. With Q3 underlying inflation extremely low, the RBA now has a trigger for cutting rates from a slightly restrictive 4.75% to a neutral 4.5% in November. Although economic data have improved over the past month and markets are in better shape, such that we only narrowly favour a November move, overriding concerns about Europe and a likely downgrade to the Banks forecast profile are likely to see the Bank act on its bias. Research suggests that fine-tuning has little impact a 25bp rate cut boosts growth by 20bp spread over three years so we suspect that an insurance rate cut would be aimed at shoring up confidence, which has stabilised and improved slightly recently after dropping sharply this year.
Economic diary
AEST Indicator NZ building permits Aus AIG/HIA construction PCI Aus RP Data-Rismark house price Aus TDMI inflation gauge Aus RBA private-sector credit US Chicago PMI NZ average hourly earnings NZ private wages Aus AIG/PWC manufacturing PMI Aus ABS house price index Aus RBA cash rate decision US ISM Aus HIA new home sales Aus building approvals US ADP employment report US FOMC funds rate decision NZ unemployment rate NZ employment Aus AIG/CBA services PSI Aus nominal retail trade Aus real retail trade US non-manufacturing ISM Aus RBA Statement on Monetary Policy US non-farm payrolls US unemployment rate Oct Oct 000 % +103 9.1 na na +100 9.1 Period Sep Oct Sep Oct Sep Oct Q3 Q3 Oct Q3 Nov Oct Sep Sep Oct Nov Q3 Q3 Oct Sep Q3 Oct Unit % mom Index % mom % mom % mom Index % qoq % qoq Index % qoq % Index % mom % mom 000 % % % qoq Index % mom % qoq Index Previous +12.5 30.0 -0.4 +0.1 +0.2 59.0 +1.2 +0.5 42.3 -0.1 4.75 51.6 +1.1 +11.4 +91 0-0.25 6.5 Flat 50.3 +0.6 +0.3 53.0 RBS na na na na na na na na na na 4.5 na na -6.0 na 0-0.25 6.3 +0.8 na +0.4 +0.6 na Market na na na na na 60.4 -0.9 +0.5 na -1.5 4.5 52.2 na -5.0 +100 0-0.25 6.4 +0.4 na +0.4 -0.6 53.9
Monday, 31 October 08:45 09:30 10:30 10:30 11:30 00:45 08:45 08:45 09:30 11:30 14:30 01:00 11:00 11:30 23:15 03:30 08:45 08:45 09:30 11:30 11:30 01:00 11:30 23:30
Tuesday, 1 November
Wednesday, 2 November
Thursday, 3 November
Friday, 4 November
Economics Kieran Davies +612 8259 5171 kieran.davies@rbs.com Felicity Emmett +612 8259 5835 felicity.emmett@rbs.com
23:30
Source: ABS, Bloomberg, Dow Jones, RBS & Reuters
www.rbsm.com/strategy
Important disclosures can be found in the Disclosures Appendix
25
The Royal Bank of Scotland
The RBA on the verge of an insurance rate cut

Kieran Davies and Felicity Emmett Key points There has been a major change in the RBAs view (and our own view too) on monetary policy over the past month. After almost hiking in August, the RBA switched to an easing bias in October, noting that a low CPI would give it room to cut rates if demand needed support. With Q3 underlying inflation extremely low, the RBA now has a trigger for cutting rates from a slightly restrictive 4.75% to a neutral 4.5% in November. Although economic data have improved over the past month and markets are in better shape, such that we only narrowly favour a November move, overriding concerns about Europe and a likely downgrade to the Banks forecast profile are likely to see the Bank act on its bias. Research suggests that fine-tuning has little impact a 25bp rate cut boosts growth by 20bp spread over three years so we suspect that an insurance rate cut would be aimed at shoring up confidence, which has stabilised and improved slightly recently after dropping sharply this year. 1. After almost hiking in August, the RBA switched to an easing bias in October There has been a significant shift in the Reserve Banks thinking on monetary policy over the past few months, which has seen us adapt our own hawkish views. The Bank last raised rates by 25bp to 4.75% in November last year, when the banks topped this up by almost increasing lending rates by an extra 25bp. Since then, the Bank has considered raising rates further a few times, most recently almost hiking in August. It held fire in August, though, because of the deepening crisis in Europe. By October, however, the Bank had switched to an easing bias as Europe had worsened, with the Board noting that an improved inflation outlook, if confirmed by further data, would increase the scope for monetary policy to provide some support to demand, should that prove necessary. 2. Lower inflation gives the green light to reduce rates in November Since then, the Q3 CPI showed extremely low underlying inflation of 0.3%, which was the second-smallest increase in the three and a half decades worth of data we have. This should result in a significant downward revision to the Banks near-term inflation outlook, even though the Bank may have some reservations about the accuracy of the Q3 result. That is, a significant change to the seasonal adjustment methodology used to calculate underlying inflation, as well as a shift to regular seasonal re-analysis, has seen large revisions to recent history, making it harder to judge the trend in inflation. Also, the Q3 result was well out of line with the fundamentals in that it significantly undershot model predictions. For example, the our modified version of the Banks preferred Phillips Curve model pointed to underlying inflation of 0.7% in Q3. 2 Australia/NZ Economics Weekly
26
Underlying inflation was exceptionally low in Q3

RBA average underlying inflation (% qoq annualised) 14 12 10 8 RBA inflation target 6 4 2 0 75 80 85 90 95 00 05 10
Source: ABS, RBA and RBS
3.
The Bank is likely to lower its outlook for inflation in its Statement on Monetary Policy This low result suggests that the Reserve Bank will likely significantly lower its near-term inflation outlook in its November Statement on Monetary Policy. We expect the Bank will lower its end-2011 forecast for underlying inflation from 3.25 to 2.5%. The mid-2012 forecast should go from 3 to 2.25%, while the end-2012 (ex-carbon tax) estimate will probably be reduced from 3 to 2.75%. The end-2013 forecast is harder to pick and may be lowered from 3.25 to either 2.75 or 3%. The change to the near-term outlook is largely a reflection of base effects, while likely end-2012 and end-2013 forecast revisions are more likely to come from a judgment call about the impact of Europe and some uncertainty as to how well the Banks inflation models are performing.
4.
We narrowly favour a rate cut in November Given that the Board had repeatedly said it was waiting for the Q3 CPI, this suggests that the Bank is likely to cut rates by 25bp in November, taking policy from a slightly restrictive cash rate of 4.75% to a neutral 4.5%. We subjectively put the odds of a cut at 55% given that the Bank has said that a lower CPI would give it room to cut, but that there was still an important judgment to be made on whether demand requires support. On that front, local and overseas economic data have generally been better than expected over the past month, while markets are in better shape. These developments temper the case for a cut. Nonetheless, the Bank is likely to be driven by concerns about the European debt crisis, while it should lower its growth forecast for end-2011 from 3.25% to 2-2.25%, even as it will probably leave the end-2012 and end-2013 forecasts unchanged at 3.75%.
5.
The Reserve Bank has delivered insurance rate cuts before
27
It is unusual for the Bank to consider changing policy in this way, but there have been instances where it has taken out insurance before. Typically this months. For example: After the October 1987 stock market crash, when share prices fell by 25%, the Reserve Bank cut the cash rate by 50bp to 10.5% in December, starting to raise rates in April 1988. After the Russian debt default/LTCM crisis in August/September 1998, the Bank cut the cash rate by 25bp in December. It started raising rates in November the following year, lagging the Federal Reserve. After the September 11 terrorist attacks in 2001, the Bank cut the cash rate by 25bp to 4.5%. It cut again in December, before signalling higher rates in March 2002 and hiking in May. A 13% drop in consumer confidence in September 2005 (subsequently revised to a 15% drop), which was attributed to higher petrol prices at the time, reportedly caused the Bank to delay raising interest rates. The Bank resumed raising rates in May 2006. 6. Is fine-tuning worth the trouble? In terms of the effect of a 25bp rate cut on the economy, it is relatively small. Broadly speaking, monetary policy affects inflation by influencing activity, the exchange rate, and asset prices. Pinning down the effect of the cash rate on the exchange rate and asset rates is extremely difficult, with more work done on the impact of interest rates on activity. Previous research by the Reserve Bank suggests that a sustained 1pp reduction in the real cash rate would boost growth by 0.8pp. This impact would be spread over three years in a roughly 40:40:20 ratio. This means that if the Bank were to cut the cash rate to 4.5%, the 25bp cut would boost growth by 20bp over a relatively long time. This is not much considering that the economy is likely to grow in the high 3s to 4% next year and is the sort of forecast error you can make when estimating currentquarter growth. Instead, it would likely have more impact on confidence, which has fallen sharply this year, before stabilising and improving slightly recently. Consumer spending has been much stronger than what confidence would indicate, although companies have hesitated to hire recently and the unemployment rate has risen from 5 to 5.2%. While its own research suggests that there is not much benefit in trying to fine-tune the economy which is why we only narrowly favour a cut - the Banks Board may feel that there is no harm in trying to shore up confidence given the extreme global uncertainty at present. Australia/NZ Economics Weekly 4 involves a small cut in rates, which is usually reversed over the following
28
The week ahead

Australia/NZ Economics Weekly 5
Tuesday, 1 November RBA cash rate decision, October

Released: Forecast: 2:30pm 4.50% Previous: Market: 4.75% 4.50%
We narrowly favour a 25bp rate cut to 4.5% given the extremely low Q3 underlying inflation print should see a substantial downward revision to the RBAs near-term inflation outlook. The Bank has said that a cut depends on its judgment of whether demand needs support. With recent data, both here and overseas, better than expectations and markets in better shape, the Bank might well decide to hold, but we suspect that the overriding concern about Europe will see the Bank cut rates, especially when it is also likely to trim what seemed an overly-optimistic forecast for growth this year. If it does cut rates, the Bank is likely to characterise this as a one-off shift from slightly restrictive policy to a broadly neutral setting. rate cut. KD Wednesday, 2 November Australia building approvals, September
Released: Forecast: 11:30am -6% Previous: Market: +11.4% mom -5%
The market pricing is for an 80% chance of a 25bp
We expect approvals to partly reverse the strong rise in August with 6% fall. While the recovery in housing finance points to a modest rise in house approvals, we think this will be more than offset by a large fall in unit approvals with business surveys suggesting that the sector is coming under pressure. FE Thursday, 3 November NZ employment & unemployment, Q3
Released: Forecast: 8:45am +0.8% / 6.3% Previous: Market: Flat qoq / 6.5% +0.4% / 6.4%
Quarterly employment should continue its see-saw pattern, up 0.8% in Q3. This should capture some hiring ahead of the Rugby World Cup, with the new monthly filled jobs series up 1% in August. Unemployment should fall to 6.3%. KD Thursday, 3 November Australia nominal retail trade, Sep
Released: Forecast: 11:30am +0.4% Previous: Market: +0.6% mom +0.4%
After a very sluggish first half of the year, retail sales have picked up over the past two months, posting solid 0.6% rises in both July and August. With anecdotes suggesting that the retail environment has improved modestly, we expect this more solid tone to continue into September and look for a rise of 0.4% in the month. FE
29
Australia real retail trade, Q3

Released: Forecast: 11:30am +0.6% Previous: Market: +0.3% qoq +0.6%
With nominal sales up 0.9% in the quarter and retail prices likely show a moderate rise of around 0.3%, real retail sales look to be up around 0.6% in Q3. Note, though, that real retail trade has been a very poor predictor of total consumer spending over recent quarters. FE Friday, 4 November RBA Statement on Monetary Policy
Released: 11:30am
We expect the Bank will lower its end-2011 forecast for underlying inflation from 3.25 to 2.5%. The mid-2012 forecast should go from 3 to 2.25%, while the end2012 estimate will probably be reduced from 3 to 2.75%. The end-2013 forecast is harder to pick and may be lowered from 3.25 to either 2.75 or 3%. The change to the near-term outlook is largely a reflection of base effects, while likely end-2012 and end-2013 forecast revisions are more likely to come from a judgment call about the impact of Europe and some uncertainty as to how well the Banks inflation models are performing. Despite growth in 2010-11 being revised higher, the Bank is also likely to revise its near-term growth outlook lower. This is because their forecasts for the rest of the year seem too aggressive as they probably factored in a much quicker recovery in coal exports after the flooding earlier this year than what seems likely. That is, we see end2011 growth revised down from 3.25% to 2-2.25% (where the weakness largely reflects the flood-driven contraction at the start of the year), although end-2012 and end-2013 growth will probably be unchanged at 3.75% each. KD
30
Thursday, 3 November
The Royal Bank of Scotland Australia/NZ Markets Navigator | Weekly
Calendar
Monday
31 October Aus RBA private-sector credit, Sep Aus RP data-Rismark house price, Sep NZ building permits, Sep NZ M3, Sep US Chicago PMI, Oct US Milwaukee NAPM, Oct US Dallas Fed PMI, Oct
Tuesday
1 November Aus RBA cash rate decision (2:30pm) Aus AIG/PWC manufacturing PMI, Oct Aus ABS house price, Q3 NZ private wages, Q3 NZ ANZ commodity prices, Oct US construction spending, Sep US ISM, Oct US vehicle sales, Oct
Wednesday
2 US FOMC funds rate decision, Nov
Thursday
3 Aus AIG/CBA services PSI, Oct Aus nominal retail trade, Sep Aus real retail trade, Q3 NZ employment & unemployment, Q3 US non-farm productivity, Q3 US non-manufacturing ISM, Oct US factory orders, Sep
Friday
4 US non-farm payrolls, Oct US unemployment rate, Oct US average hourly earnings, Oct
Aus HIA new home sales, Sep Aus building approvals, Sep US Challenger lay-offs, Oct US ADP employment report, Oct
7 November Aus AIG/HIA construction PCI, Oct Aus TDMI inflation gauge, Oct Aus ANZ job ads, Oct NZ card spending, Oct NZ QV house prices, Oct US consumer credit, Sep Aus trade balance, Sep Aus NAB business survey, Oct US JOLTS, Sep US NFIB survey, Oct
8 Aus WMI consumer sentiment, Nov Aus housing finance, Sep US consumer credit, Sep
10 Aus RBA Assistant Governor (Economic) Lowe speaks (9:30am, Melbourne) Aus employment & unemployment, Oct Aus WMI consumer inflation expectations, Oct NZ Business NZ PMI, Oct NZ ANZ consumer confidence, Nov US import price, Oct US trade balance, Sep US Treasury statement, Oct NZ food prices, Oct US Michigan consumer confidence (preliminary), Nov
11
14 November Aus lending finance, Sep NZ PSI, Oct NZ real retail sales, Q3
15 Aus RBA Board minutes (1 Nov meeting) Aus new motor-vehicle sales, Oct US PPI, Oct US retail sales, Oct US NY Fed Empire PMI, Nov US business inventories, Sep US FOMC funds rate decision, Nov Aus wage price index, Q3 US CPI, Oct US industrial production, Oct US NAHB survey, Nov
16 Aus RBA Governor speaks (8:30am, Sydney) Aus AWOTE, Q3 Aus customs imports, Oct NZ PPI, Q3 US housing starts, Oct US Philadelphia Fed index, Nov 23 US FOMC minutes Aus RBA Governor speaks (8:30am, Sydney) NZ trade balance, Oct
17 US leading index, Oct
18
21 November Aus RBA Assistant Governor (Financial Markets) Debelle speaks (Sydney, 2pm) US existing home sales, Oct
22
24 U
25
NZ net migration, Oct NZ RBNZ 2Y expected inflation, Q4 US GDP (revised), Q3 US Richmond Fed PMI, Nov
Aus real construction work done, Q3 Aus state GDP, 2010-11 US durable goods orders, Oct US personal spending, Oct US core PCE deflator, Oct US Michigan consumer confidence (final), Nov US Kansas City Fed PMI, Nov
31
Equity | Australia | Diversified Financials
28 October 2011
Macquarie Group
Buy
Target price
Bring on the buyback

MQG's 1H12 results were disappointing and we have downgraded EPS by 4-8% over the next few years. However, trading at 0.9x NTA, the share price takes too dim a view of the company's ROE potential and while obstacles remain to capital returns, at current prices it represents significant upside risk to EPS. Buy.
Key forecasts
FY10A Reported PTP (A$m) 1,294 1,050 317.4 317.4 2.90 186.0 7.92 0.80 7.40 10.60 FY11A 1,271 956.0 275.0 275.0 -13.4 186.0 9.14 0.81 7.40 8.45 FY12F FY13F FY14F 1,639 1,276 348.9 348.9 18.20 7.21 0.70 7.95 9.61
A$29.75 (from A$31.00)

Price
A$25.15
Short term (0-60 days)
n/a
1,194 & 1,376 863.0 & 1,067 242.4 & 295.3 242.4 & 295.3 -11.9 10.40 0.75 6.36 7.24 & 21.80 8.52 0.73 7.16 8.41
Price performance
(1M) Price (A$) Absolute (%) Rel market (%) Rel sector (%)
Oct 08 60 50 40 30 20 10 MQG.AX S&P/ASX200 Nov 09
Reported net profit (A$m)

(3M) 27.57 -8.8 -6.5 -3.2
Nov 10
(12M) 36.20 -30.5 -25.2 -24.8
Reported EPS (c) Normalised EPS (c) Normalised EPS growth (%) Dividend per share (c) Normalised PE (x) Price/book value (x) Dividend yield (%) Return on avg equity (%)
Use of %& indicates that the line item has changed by at least 5%. 1. Pre non-recurring items and post preference dividends Accounting standard: IFRS Source: Company data, RBS forecasts
22.51 11.7 3.7 0.8
160.0 & 180.0 & 200.0
year to Mar, fully diluted
Weak 1H 12 results and FY12 guidance watered down MQG today reported a disappointing headline 1H12 result, with NPAT down 24% on pcp to A$305m, and 13% below our expectations. MQG lowered its interim dividend per share to A$0.65 from A$0.86 in the pcp. The result quality was reasonable and we note the lack of reclassification gains included in the pcp. Management watered down its FY12 guidance statement and it now only expects its result to be broadly in line with the A$956m achieved in FY11 if markets recover to the those experienced in 2H11. We struggle to see 2H12 conditions reverting to anything like 1H11EPS down 4-8% We see it as unlikely that operating conditions improve significantly in the near term and therefore pitch our FY12 forecasts well below those of the pcp. We have downgraded FY12F EPS by 8% and FY13F (and beyond) by 4%, driven entirely by the capital markets businesses. As a result our target price falls to A$29.75. ROE potential remains intact While we concede that competition, particularly in MQGs home market and Asia, is likely to drive the sustainable ROEs in MQGs capital markets businesses lower than where it has been on average over the last five years (20%), the market is currently implying it reaches only 7% by FY14F. To this end, if the capital markets businesses can reach an ROE of 10% by FY14F, we believe the stock is today worth ~A$30, 20% above the current share price. Earnings upside if capital management delivered and valuations supportiveBuy While earnings continue to be impacted by cyclically weak conditions, the stock will provide good leverage to any improvement in markets and we believe the business can sustainably deliver an ROE higher than that implied by the current share price. While obstacles remain before MQG can start returning capital to shareholders, at around the current share price this could ultimately deliver more than 7% EPS upside. Therefore, trading at 0.9x NTA, we remain comfortable recommending buying the stock at current levels. Important disclosures can be found in the Disclosures Appendix.
Market capitalisation
A$8.76bn (US$9.36bn)
Average (12M) daily turnover
A$69.46m (US$71.84m)
Sector: BBG AP Banks Part of: ASX/S&P 20 Leaders RIC: MQG.AX, MQG AU Priced A$25.15 at close 29 Oct 2011. Source: Bloomberg
Analysts
Andrew Lyons
+61 2 8259 6086 andrew.lyons@rbs.com
Michael Leonard
+61 2 8259 5767 michael.leonard@rbs.com
33
Summary
MQG recommendation: Buy Target price: A$29.75
Strengths 1. Management 2. Diverse revenue streams 3. Strong domestic brand Weaknesses 1. Lacks global scale 2. ROE 3. Greater leverage to markets Opportunities
1. Offshore expansion 2. Further product diversification 3. Reinvigorating ROE
MQG today reported a disappointing headline 1H12 result, with NPAT down 24% on pcp to A$305m, and 13% below our expectations. MQG lowered its interim dividend per share to A$0.65 from A$0.86 in the pcp, which we had expected would be maintained. However, the payout ratio remained above MQGs target range of 50%-60% at 74%. The result quality was reasonable, noting the lack of reclassification gains included in the pcp. Although there was some earnings impact from mark to market losses on resource sector equity holdings and interest rate assets. MQG did a good job of managing discretionary expenses, with non-staff expenses down c8% and the tax rate was marginally higher than expected at 26%. Management watered down its guidance statement, and now only expects its FY12 result to be broadly in line with the A$956m achieved in FY11 if markets recover to those experienced in 2H11. If conditions remain unchanged, management now expects the result FY12 to be lower than FY11. We see it as unlikely that operating conditions will improve significantly in the near term and therefore pitch our FY12 forecasts below those of the pcp.
Threats
1. Staff retention 2. Continued weak equity markets 3. Domestic competition
Earnings changes
We have downgraded our earnings forecasts, as detailed in Table 1. The key drivers of the changes were: Lower M&A/ECM fees as well as brokerage and commissions to account for ongoing weakness in these markets. Significantly lower trading income forecasts, given lower first half results in commodity, equity and interest rate trading lines; Significantly lower other income given the large sequential decline in 1H12. The revenue downgrades highlighted above were partially offset by a significant reduction in our non-staff expenses forecast, given MQGs effective cost reduction program. Table 1 : Changes to forecasts
FY10A NPAT (A$m) Old forecast Current forecast % change Diluted cash EPS (A$ps) Old forecast Current forecast % change Dividend (A$ps) Old forecast Current forecast % change
Source: Company data, RBS forecasts
FY11A 956 956 n/c 2.75 2.75 n/c 1.86 1.86 n/c
FY12F 943 863 -8.5% 2.64 2.42 -8.1% 1.86 1.60 -14%
FY13F 1,117 1,067 -4.4% 3.08 2.95 -4.2% 1.90 1.80 -5%
FY14F 1,338 1,276 -4.6% 3.65 3.49 -4.4% 2.07 2.00 -3%
1,050 1,050 n/c 3.17 3.17 n/c 1.86 1.86 n/c
As a result of our earnings changes our 12 month share price target falls by 4% to A$29.75
As a result of the earnings changes outlined above our DDM valuation and 12-month share price target falls by 4% to A$29.75.
Investment view
While earnings continue to be impacted by cyclically weak conditions, the stock will provide good leverage to any improvement in markets and we believe the business can sustainably deliver an ROE higher than that implied by the current share price. While obstacles remain before MQG can starting returning capital to shareholders, at around the current share price this could ultimately deliver more than 7% EPS upside. Therefore, trading at 0.9x NTA, we remain comfortable recommending buying the stock at current levels.
Macquarie Group | Investment View | 28 October 2011
34
Table 2 : MQG 1H12 result summary

1H12A / 1H12A / 1H12A / 1H11A 2H11A 1H12A 1H12F Summary profit and loss (A$m) Average interest assets NIM Net Interest Income Total base fees Total performance fees M&A fees (incl. underwriting) Brokerage and commissions Other income Net fee and commission income Equities Commodities Forex Interest rate products Total trading income Other Income Net operating income Personnel costs %age of revenues Other costs Sequential growth Pre-tax profit Tax Tax rate Preference dividends and minorities NPAT Basic shares on issue Cash earnings per share (c) - basic Dilutive adjustments Diluted shares on issue Cash earnings per share (c) - diluted Dividends per share (c) Key ratios Growth (pcp) Net interest growth Fees and commissions growth Trading income growth Other income growth Efficiency Staff cost/income Cost/income Other Tax rate Dividend payout Excess capital ROE
1H12F 1H11A 2H11A 0.1% 9.2% 12.8% 4.2% 2.0% large
Comment As expected Lower because of liquids Lower Lower due to pcp including CMT Weak market sentiment Weak market sentiment NII + F&C income only 3% below PCP included (un)realised profits
99,776 96,608 108,930 108,816 1.21% 1.39% 605 496 15 402 582 500 1,995 178 156 83 189 606 532 3,738 670 454 21 529 555 337 1,896 214 397 109 42 762 706 4,034 1.28% 1.35% 698 463 89 339 488 387 1,766 129 207 119 -81 374 405 3,243 735 473 27 397 522 384 1,803 182 270 98 76 626 576 3,739
-0.07% 0.07% -0.11% -5.0% 15.4% -2.2% large -6.7% large
-14.6% -15.7% -35.9% -6.5% -16.2% -12.1% 0.8% -22.6% 14.8% -2.1% -11.5% -6.9% -29.1% -27.5% -39.7% -23.3% 32.7% -47.9% 21.3% 43.4% large large 9.2% large
-40.2% -38.3% -50.9% -29.7% -23.9% -42.6% -13.3% -13.2% -19.6% -13.9% -13.1% -15.1% -0.4% -11.6% -12.2% 0.1% -7.5% n.a. 2.5% -7.6% -7.7%
Driver of weaker than expected result higher impairments on investments Lower Good outcome in light of revenues Further opportunity here
-1,771 -1,813 47.4% 44.9% -1,394 -1,395 n.a. 573 -85 15% -85 403 338 1.19 16 358 1.17 0.86 85% 0% 826 -197 24% -76 553 346 1.60 16 367 1.55 1.00 80%
-1,539 -1,788 47.5% 47.8% -1,289 -1,459 -8% 415 -107 26% -3 305 348 0.87 16 364 0.85 0.65 87% 5% 492 -123 25% -16 352 348 1.01 16 369 1.00 0.86 87%
-15.6% -27.6% -49.8% -13.0% 25.9% -45.7% 0.8% 10.9% 1.9% Weaker driven by trading -81.8% -96.5% -96.1% -13.4% -24.3% -44.8% 0.1% 0.0% -1.3% 3.0% 0.0% 1.8% 0.5% 0.0% -0.8%
-14.5% -27.4% -45.8%
-14.6% -27.2% -45.0% -24.4% -24.4% -35.0%
42.4% 6.0%
2.3% 3.1%
15.4% 21.4% -6.7% -4.6% -1.3%
-6.0% -27.0% 13.1% -2.1% -12.7% large large -9.8% large
-4.3% 14.4% 493.3% 81.6% 79.7% 54.1% -15.7% 47.4% 44.9% 84.7% 79.5% 14.8% 23.8% 73.4% 64.5% 3,964 7.2% 2,867 9.9%
-14.4% -95.4% -69.8% -0.4% 0.4% 0.1% 2.5% 2.5% 7.7% 1.9%
47.5% 47.8% 87.2% 86.8% 25.8% 25.0% 76.2% 86.0% 3,532 5.7% n.a. 6.0%
0.8% 10.9% -9.8% -0.3%
2.8% 11.7% -1.5% -4.2%
n.a. -10.9% 23.2%
35
Stock driver #1: What do MQGs ROE targets imply for Group profitability? MQG today provided some new disclosure around its divisional capital allocation and its historic divisional ROE performance, which allows us to draw some conclusions about its medium term profitability potential (Figure 1). Figure 1 : MQGs divisional ROE in a Basel III world
New disclosures around its divisional capital allocation and historic divisional ROE performance allows us to draw some conclusions about MQGs medium-term profitability potential
Source: Company data
Using this data, Table 3 attempts to highlight the means by which we can back out the implied capital markets ROE when we assume a target Group ROE. Table 3 : What capital markets ROE does Group ROE = Ke imply?
A$bn Comment Basel III Group average ordinary equity Capital in run-off Sustainable Group average ordinary equity Target Group ROE Target Group NPAT on Basel III equity If MQG achieves only half its historic capital markets businesses ROE, the Group ROE rises to its cost-of-equity Annuity-style businesses' equity Target ROE for annuity-style businesses Target profit from annuity-style businesses Implied profit from capital market businesses Capital market businesses' equity ROE from capital market businesses Historic average ROE from capital market businesses
10.7 As per Figure 1 -0.4 As per Figure 1 10.3 Calculation 12% Assumption: MQGs Ke (RBSe) 1.2 Calculation 3.8 As per Figure 1 20% As per Figure 1 (five year average) 0.8 Calculation 0.5 Calculation 4.5 As per Figure 1 10.2% Calculation 20.3% Calculation as per Figure 1
The Table highlights that if we assume the Group can achieve a through the cycle ROE equivalent to its cost-of-equity (RBSe = 11.85%), then if the less volatile annuity-style businesses can deliver their average ROE over the last five years (20%), the capital markets business only needs to deliver an ROE of 10%, which is half what it has achieved on average over the last five years (on a Basel III capital base). While we concede the last five years includes some very strong years, as 1H12 highlighted, it also has included some very weak years. Furthermore, while we concede that competition, particularly in MQGs home market and Asia, is likely to drive MQGs sustainable ROEs lower than where they have been on average over the last five years, we do not think it has halved the ROE potential of these businesses.
36
Chart 1 attempts to highlight how the capital markets ROE shifts as we shift the target for the Group ROE. Conversely, it also highlights that if we assume the capital markets business can achieve its historic average ROE (on a Basel III capital base), then the Group would deliver an ROE of approximately 16%. Chart 1 : Implied capital markets ROE subject to Group ROE target
25% Implied capital markets ROE
20%
15%
10%
5%
0% 7% 9% 10% 12% MQG's Ke Target group ROE Implied capital markets ROE 5-yr average capital markets ROE 13% 15% 16%
So what does this mean for valuation? Table 4 highlights the Gordon-growth derived valuation when we flex the capital market businesses ROE (assumes annuity-style businesses ROE is constant at 20%) and the fiscal year that it actually achieves this ROE. We would remind investors that this relates not to the current capital markets businesses ROE but rather what one assesses as the sustainable capital markets businesses ROE.
If the capital markets businesses can reach an ROE of 10% by FY14F, we believe the stock is today worth cA$30, 20% higher than the current share price
Table 4 : Gordon-growth derived MQG valuation, flexing capital markets sustainable ROE and fiscal year this is achieved
Capital markets target ROE 0% 4% 7% 10% 14% 17% 20%
Note: valuation is as at today Source: Company data, RBS forecasts
Fiscal year MQG reaches capital markets target ROE FY12 17.11 22.75 28.38 34.02 39.65 45.28 50.92 FY13 15.96 21.21 26.47 31.72 36.97 42.23 47.48 FY14 14.98 19.91 24.84 29.77 34.70 39.63 44.56 FY15 14.05 18.68 23.30 27.93 32.56 37.18 41.81
For completeness, we have included Table 5, which simply highlights the upside/(downside) to current share price from the analysis in Table 4. Table 5 : Upside/(downside) to current share price from Gordon-growth derived MQG valuation, flexing capital markets sustainable ROE and fiscal year this is achieved
Capital markets target ROE 0% 4% 7% 10% 14% 17% 20% Fiscal year MQG reaches capital markets target ROE FY12 -32% -10% 13% 35% 58% 80% 102% FY13 -37% -16% 5% 26% 47% 68% 89% FY14 -40% -21% -1% 18% 38% 58% 77% FY15 -44% -26% -7% 11% 29% 48% 66%
Note: boxes shaded in grey is where there is upside to current share price Source: Company data, RBS forecasts
37
Stock driver #2: Assessing MQGs capital position For the first time MQG today provided a detailed breakdown of its best assessment of how its capital position will be impacted by the introduction of Basel III. In Table 6, we have attempted to breakdown how the new capital regime will impact both its capital and risk weighted assets and then reconcile this back to how MQG calculates its capital surplus position. We have undertaken this exercise for both the full APRA-harmonised Basel III ratio, as well as the benefits MQG expects it will enjoy from the optimisation of its capital base. Table 6 : Reconciling MQGs various balance sheet scenarios
Basel II Core equity tier 1 ratios: Core equity tier 1 RWA Core equity tier 1 ratio Macquarie Group eligible capital: Bank Tier 1 Capital Non-bank eligible capital Eligible capital Macquarie Group capital requirement: Risk weighted assets Capital for RWA Non-bank deductions within the bank Total bank capital requirements Non-bank capital requirement Total capital requirement Capital surplus
Basel 3 adjustments -0.9 13.2 -3.4%
APRA Optimisation Basel III adjustment 5.6 70.8 7.9% 0.0 -14.3 2.0%
Optimised RBS Comment capital 5.6 56.5 9.9% As disclosed
6.5 57.6 11.3%
7.0 3.1 10.1
-1.3 0.0 -1.3
5.7 3.1 8.8
0.0 0.0 0.0
5.7 Core equity tier 1 plus eligible hybrids 3.1 Page 66 MD&A - no change due to B3 8.8 Calculation
57.6 -4.0 0.1 -4.0 -2.6 -6.6 3.5
13.2 -0.9 0.0 -0.9 0.0 -0.9 -2.2
70.8 -5.0 0.1 -4.9 -2.6 -7.5 1.3
-14.3 1.0 0.0 1.0 0.7 1.7 1.7
56.5 Higher RWA for B3 but then optimised -4.0 At 7% 0.1 Page 66 MD&A - no change due to B3 -3.9 Calculation -1.9 We assume some of the legacy -5.8 ...businesses relieve non-bank capital
3.0 As disclosed
On todays capital base, MQG estimates that Basel III will reduce its Core Equity Tier 1 (CET1) ratio from 11.3% to 7.9%, which will subsequently drive its capital surplus down from A$3.5bn to A$1.3bn, assuming a 7% APRA CET1 ratio within the bank. We believe a 7% CET1 ratio is too low in light of the global push by investment banks to increase capital ratios and we would prefer to see MQG run its banking CET1 ratio at 8%, which equates to a globally harmonised CET1 ratio of close to 10%. As Table 7 highlights, before any optimisation, this would leave the bank with very little excess capital and only A$600m of surplus capital at the Group level. Table 7 : Flexing MQGs APRA Basel III excess capital for target bank CET1 ratio
Using a banking CET1 ratio of 8%, we estimate MQG has A$600m of excess capital Target APRA CET1 ratio Target Basel III CET1 ratio Bank excess capital Non-bank excess capital Group excess capital
6.0% 7.8% 1.5 0.5 2.0
7.0% 8.8% 0.8 0.5 1.3
8.0% 9.8% 0.1 0.5 0.6
9.0% 10.8% -0.6 0.5 -0.1
10.0% 11.8% -1.4 0.5 -0.8
However, MQG also believes its can further optimise its capital position through improving capital efficiency (we note this added A$400m to surplus capital or 70bp to CET1 ratio in 1H12) and the exit of legacy businesses. We assume the capital optimisation comes entirely through the banking group, whereas the exit of legacy businesses benefits both the banking and non-banking group. As Table 6 highlights, MQG estimates it can add 2% to its banking CET1 ratio and A$1.7bn to its capital surplus via optimisation. Again, we would prefer to see the bank managed at an APRA CET1 ratio of at leas 8% and as Table 8 highlights, this would know approximately A$600m off the excess capital within the bank and bring Group excess capital back to A$2.4bn.
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Table 8 : Flexing MQGs Optimised Basel III excess capital for target bank CET1 ratio
Target APRA CET1 ratio Target Basel III CET1 ratio Bank excess capital Non-bank excess capital Group excess capital
6.0% 7.8% 2.3 1.2 3.6
7.0% 8.8% 1.8 1.2 3.0
8.0% 9.8% 1.2 1.2 2.4
9.0% 10.8% 0.6 1.2 1.9
10.0% 11.8% 0.1 1.2 1.3
We would also note that our analysis assumes no future retained earnings. Management also noted the potential to raise Basel III-compliant hybrid debt as a means to increase its capital capacity. In light of its perception of its own capital position, management today announced that it plans to undertake an off-market buyback of up to 10% of the Groups ordinary shares. Given our belief that MQGs true excess capital position is currently only approximately A$600m and basically zero in the banking group, we do think one or a combination of the following two issues will need to be met before any capital return can be contemplated: further capital optimisation, largely in the banking group; and the raising of additional hybrid securities. On top of this, given the current regulatory environment, any buyback would likely be heavily scrutinised by APRA. Therefore, we expect any capital initiatives will be completed at the earliest in 1H13 (MQG fiscal year).
If MQG was able to buyback the full 10% of issued capital, we estimate it would be 8% accretive to FY13 EPS, all else equal
That said, Table 9 highlights the attraction of completing a buyback with the share price at current levels. If MQG was to buy back the full 10% of issued capital at a share price 10% above the current share price, we estimate it would be 8% accretive to FY13 EPS, all else equal. Table 9 : MQG buyback scenarios
Percentage of stock bought back Number of shares bought back Share price Value of shares purchased Bill rate Lost earnings (post tax, no bonus share*) Current FY13 earnings Current FY13 average SOIs Current FY13 EPS FY13 earnings - post buyback FY13 average SOIs - post buyback FY13 EPS - post buyback Earnings accretion
Note: * we assume MQG pays no bonus on its earnings on capital Source: Company data, RBS forecasts
2.5% 8.7 27.67 241 4.75% -8.0 1,067 351 3.04 1,059 343 3.09 1.8%
5.0% 17.4 27.67 482 4.75% -16.0 1,067 351 3.04 1,051 334 3.15 3.6%
7.5% 26.1 27.67 723 4.75% -24.0 1,067 351 3.04 1,043 325 3.21 5.6%
10.0% 34.8 27.67 964 4.75% -32.0 1,067 351 3.04 1,035 317 3.27 7.7%
Stock driver #3 opportunities in the cost base At the FY11 result we highlighted the specific challenges that MQG faced in relation to its cost base. With regard to staff expenses, the key issue has been that MQGs rapid post-GFC offshore expansion has coincided with an environment that has combined strong competition for investment banking talent set against the backdrop of subdued investment markets. The additional headcount has not been supported by the revenue lift that may have been expected early in 2H10 when the operating environment appeared to be rapidly improving. While the staff expense ratio rose again in 1H12, the recent increase stabilised to some degree with the increase due to revenue decline in the period. Staff expenses were down 15% (RBS basis) on previous half, as headcount was reduced by approximately 450 during the period. MQG today flagged the potential for further staff expense efficiencies, as it looks to centralise support staff across the group. However, despite reduced staff profit share expense in 1H12, it still appears that staff are receiving a higher share of revenue than a 5.7% ROE would traditionally Macquarie Group | Investment View | 28 October 2011
39
imply. Hence, we believe shareholders should enjoy strong leverage to any improvement in the revenue environment. Chart 2 : Staff expense to income ratio (RBS basis) Chart 3 : Non-staff costs have driven higher total expenses
3.0% 86% 55% 50% 45% 40% 0.5% 35% 0.0% 30% FY95A FY99A FY03A FY07A FY11A Other expenses / average assets (LHS) Staff expenses / total income Total expenses / total income FY95A FY99A FY03A FY07A FY11A 66% 2.5% 2.0% 1.5% 1.0% 71% 81%
60%
76%
Source: Company data, RBS
We also note the level of non-staff expenses (we term this discretionary expense) that has been built up in the business over the last five years (Chart 3). We expect this higher level of discretionary spend has been used to support the offshore expansion that MQG has undertaken over the last five years. MQG today outlined the cost initiatives that it undertook during the half across all divisions, which lowered total expenses by 12%. Despite this, the significant dip in revenue meant the total expense ratio increased to 87% in the half. However, we believe a better way to look at discretionary expense management is in relation to average assets. As highlighted in Chart 3, on this measure, discretionary expenses declined in the half for the first time since FY06. Given a period of potential consolidation and focus on organic growth, and the continuation of the cost initiative program, we believe there is scope for management to further remove some of these discretionary expenses that have built up over time. Stock driver #4 stock undervalued
MQG is now at a discount to major US peers and in line with European investment banks which are potentially exposed to additional capital requirements
After adjusting for todays earnings changes, our three-stage DDM valuation and share price falls 4% to A$29.75. With the share price currently at A$25.15, this still represents 18% potential upside. On a peer relative basis, Chart 4 highlights that MQG is now at a discount to major US peers and in line with European investment banks which are potentially exposed to additional capital requirements following the recent agreement with regards the European sovereign crisis. Chart 4 : 12 month forward investment bank PERs
12.0
10.0
8.0
6.0
4.0
2.0
0.0 Deutsche JPM Citi CS UBS MQG MS Goldmans
40
This is at odds with MQGs historical premium to this peer group, but the market has now questioned this premium rating for some time, as MQG transforms into a more conventional investment banking model. However, we believe there are a number of points that should be considered against this: A more favourable business mix for the current environment MQG has a greater portion of its business in higher PE asset management, through its Macquarie Funds business. The c20-25% of MQG revenue derived from asset management has been relatively consistent in recent years. The AUM that was lost following the restructure of the specialist funds business was more than replaced by the lower margin AUM gained with the acquisition of Delaware Investments at the beginning of CY10. Additionally, MQG has significantly lower exposure to FICC trading than the major US investment banks. We see this as a significant advantage given this is the area of investment banking that is most impacted by the Basel III capital requirements and other recent regulatory changes. Only 13% of MQGs operating income was derived from the FICC division in the six months to 30 September compared to 31% for Goldman Sachs and Morgan Stanley for the same period (Chart 5). Each of these banks was troubled by difficult conditions in FICC markets over this period. Chart 5 : % of revenues arising from Asset Management and FICC businesses
35% 31% 30%
31%
MQG has traditionally traded at a healthy premium to peers on a price to book and PER basis, but this was eroded during the GFC
25% 20% 15% 10% 5% 0%
24%
23%
13%
4%
MQG
GS Asset Management FICC
MS
Source: Company data. Based on revenue / operating income for the 6 months to 30 September 2011
A higher geographic weighting to the Asia-Pacific time zone despite an increased exposure to the North American market in recent years, 52% of MQGs income was still derived in the Asia-Pacific time zone in 1H12. Longer-term dynamic of infrastructure investment remains intact with a renewed focus on developing markets. While it will be some time before revenue from unlisted specialist funds is able to go close to replacing the virtuous circle created by the listed funds, this remains a longer-term positive thematic for MQG. While competition in the space has grown significantly the Macquarie name is now synonymous with infrastructure globally. Additionally, it is possible that MQG will again start receiving relatively lumpy performance fees from the major European and US unlisted infrastructure funds that were raised between 2003 and 2006. These funds have generally performed very well, but performance fees cannot be realised until a liquidity event and investors are typically locked in for 10 years. So we may see the return of material performance fees in FY14 FY16 (see discussion in previous section). This is not currently incorporated in our forecasts.
41
Result analysis (growth is 1H12 on pcp unless specified)

Net interest income up 15% to A$698m
Net interest income Net interest income up 15% to A$698m vs RBSe $735m. Average interest earning assets up 13% on 2H11, in line with our growth forecasts. Net interest margin at 1.28% vs RBSe 1.35%, and up 7bp on 1H11. NIM expansion over the year was driven by the ongoing increase in higher yielding loans and financing leases through CAF. Net fee and commission income
Net fee and commission income down 12% to A$1,896m
Net fee and commission income was down 12% to A$1,766m vs RBSe A$1,803m. Total base fees down 7% to A$463m vs RBSe A$473m, partly due to the impact of the higher AUD over the period on base fees earned offshore, as well as the decline in equity markets. Total performance fees up significantly to A$89m vs RBSe A$27m due to outperformance of benchmarks by MEAP, MQA, Thames Water and the Asia Alpha hedge fund. Total M&A fees down 16% to A$339m vs RBSe A$397m, with volumes down due to weak investor confidence.
Total trading income down 38% to A$374m
Total brokerage and commission fees down 16% to A$488m vs RBSe $522m, driven by weaker market conditions and reduced client activity. Total trading income Total trading income was down 38% to A$374m vs RBSe A$626m. Equities trading income down 28% to A$129m vs RBSe A$182m, impacted by fair value adjustments on assets used to hedge exposures to liabilities under the Directors profits share plan.
Other income fell 24% to A$706m
Commodities trading income up 32% off a weak pcp to A$207m (incl. of fair value adjustments) vs RBSe A$270m. This increase was largely driven by volatile energy prices driving client activity. Forex trading income up 43% to A$119m vs RBSe A$98m, driven by increased volatility in forex markets. Interest rate trading income fell dramatically to negative A$81m vs RBSe positive A$76m. This result was impacted valuation adjustments due to the widening of credit spreads during the quarter.
Total expenses were down 12%
Other income Other income: fell 24% to A$405m vs RBSe A$576m The fall is largely due to the lack of reclassification gains versus the A$114m benefit from MAp in the pcp, as well as lower asset sales. Expenses 1H12 staff cost/income ratio was relatively steady at 47.5%, vs RBSe 47.9%, but up from 45.0% in 2H11 given the decline in revenues Total expenses were down 12% to A$2.8 vs RBSe A$3.2b, due to cost initiatives, lower headcount and reduced profit share expense. Tax rate 1H12 tax rate of 26% vs RBSe 25% and 2H11 24%. Capital Excess capital rose to A$3.5bn from A$2.9bn in March. Management has flagged it is looking at doing an on-market buyback of up to 10% of issued capital, subject to a hybrid issue and regulatory approvals.
1H12 tax rate of 26%
42
10
Macquarie Capital earnings drivers chart pack Chart 4 : Global M&A activity (announced) US$bn
US$bn 1600 1400 1200 1000 8,000 800 6,000 600 400 200 0 1Q001Q011Q021Q031Q041Q051Q061Q071Q081Q091Q101Q11 Value (USDbn) No. of deals (RHS) 4,000 2,000 0 10 0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Value (USDbn) No. of deals 20 30 No. 14,000 12,000 10,000
Chart 5 : Australian M&A activity (announced) US$bn

US$b 60 50 40 No. 500 450 400 350 300 250 200 150 100 50 0
Source: Dealogic
Source: Dealogic
Chart 6 : Global IPO raisings US$bn

US$bn 140 120 100 80 60 40 20 0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Value (US$bn) No. of deals (RHS) No. 700 600
Chart 7 : Global secondary raisings US$bn

US$bn 250 No. 1,600 1,400 200 500 400 300 200 50 100 0 0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Value (US$bn) No. of deals (RHS) 150 1,200 1,000 800 100 600 400 200 0
Source: Dealogic
Source: Dealogic
Chart 8 : Asia (ex Japan) IPO raisings US$bn

US$bn 80 70 60 50 40 30 20 10 0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Value (US$bn) No. of deals (RHS) 50 0 200 150 100 No. 300 250
Chart 9 : Asia (ex Japan) secondary raisings US$bn

US$bn 60 No. 350 300 250 200 30 150 20 100 50 0 Value (US$bn) No. of deals (RHS)
50
40
10
0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11
Source: Dealogic
Source: Dealogic
43
11
MQG financial summary

Company: ASX code: B'berg code: Share price: No. of shares (m): Market cap (A$m): Yr to 31 Mar Reported NPAT (A$m) Growth (%) NPAT attributable (A$m) Growth (%) Cash NPAT (A$m) Growth (%) Reported EPS (A$) Growth (%) Cash EPS (A$) Growth (%) DPS (A$)
20x 15x 10x 5x 0x -5x -10x -15x -20x -25x FY10A FY11A Cash PE ratio FY12F Cash EPS growth (RHS) FY13F 15.8x
Macquarie Group MQG MQG AU $25.15 348.3 8,759 FY10A 1,071 18.5 1,050 20.6 1,050 20.6 3.17 2.9 3.17 2.9 1.86 FY11A 982 -8.3 956 -9.0 956 -9.0 2.75 -13.4 2.75 -13.4 1.86 Recommendation: Price target: DDM Valuation: Upside/(downside): Implied cash PE: FY12F 889 -9.5 863 -9.7 863 -9.7 2.42 -11.9 2.42 -11.9 1.60 FY13F 1,093 23.0 1,067 23.7 1,067 23.7 2.95 21.8 2.95 21.8 1.80
% 10.4x
Profit & Loss (A$m) Buy A$29.75 A$29.75 18.3% 12.3x FY14F 1,302 19.1 1,276 19.6 1,276 19.6 3.49 18.2 3.49 18.2 2.00 Add: Goodwill Amortisation Net Interest Income Fee and Comm. Income Trading Income Other Income Total Income Op. Expenses Underlying Profit B&DD Expense Goodwill Amortisation Abnormals (pre tax) Pre-Tax Profit Taxation Profit After Tax Minorities Reported NPAT Pref. dividends NPAT attributable
FY10A 1,080 3,721 1,299 754 6,854 5,344 1,510 216 0 0 1,294 201 1,093 22 1,071 21 1,050 0 0 1,050 32 341 3.17
FY11A 1,275 3,891 1,368 1,238 7,772 6,373 1,399 128 0 0 1,271 282 989 7 982 26 956 0 0 956 32 359 2.75
FY12F 1,428 3,576 882 1,273 7,159 5,879 1,280 86 0 0 1,194 298 895 6 889 26 863 0 0 863 32 369 2.42
FY13F 1,547 3,965 1,170 1,087 7,769 6,295 1,474 97 0 0 1,376 275 1,101 8 1,093 26 1,067 0 0 1,067 32 372 2.95
FY14F 1,675 4,390 1,264 1,194 8,522 6,775 1,747 108 0 0 1,639 328 1,311 9 1,302 26 1,276 0 0 1,276 32 375 3.49
13.3x 8.5x
50 30 10 -10 -30 -50 -70
Less: Sig. Items (net) Cash NPAT EPS adjustment (A$m) Diluted weighted avg shs (m) Reported EPS (A$)
Balance sheet (A$m) Gross Loans B&DD provisions Cash and Securities Other IEAs
FY10A 52,734 -216 19,287 42,534 4,846 22,148 1,900 0 2,707 145,940 24,492 91,582 4,864 13,233 134,171 6,684 391 280 4,268 11,623 146 11,769 32.63 25.82
FY11A 55,961 -128 23,688 45,499 5,059 19,841 5,007 0 2,641 157,568 38,232 87,323 5,055 15,026 145,636 6,513 391 310 4,581 11,795 137 11,932 32.88 26.16
FY12F 62,676 -84 26,531 50,959 5,666 22,222 5,608 0 2,899 176,476 42,928 98,049 5,676 16,872 163,524 7,231 391 310 4,883 12,815 137 12,952 35.51 28.79
FY13F 68,944 -82 29,184 56,055 6,233 24,444 6,169 0 3,178 194,124 47,420 108,310 6,270 18,637 180,637 7,333 391 310 5,315 13,350 137 13,487 36.72 29.99
FY14F 75,838 -90 32,102 61,660 6,856 26,889 6,785 0 3,496 213,536 52,347 119,563 6,921 20,574 199,405 7,411 391 310 5,882 13,994 137 14,131 38.31 31.59
Pricing & valuation Price/earnings ratio (x) Cash PE ratio (x) Price/underlying profit (x) Price/book ratio (x) Dividend yield (%) Return on Equity (%)
12 10 8.4% 8 6 4 2 0 FY10A FY11A %
FY10A 15.8 15.8 11.4 1.5 3.7 10.6
FY11A 13.3 13.3 9.4 1.1 5.1 8.4
FY12F 10.4 10.4 7.3 0.7 6.4 7.2
FY13F 8.5 8.5 6.4 0.7 7.2 8.4
FY14F 7.2 7.2 5.4 0.7 8.0 9.6
Insurance Assets Associates/Investments Property, Plant & Equ't Goodwill Other assets Total Assets Deposits
10.6%
Borrowings Insurance Liabilities

8.4% 7.2%
Other Liabilities Total Liabilities Ordinary share capital Pref/hybrid capital Reserves Retained Earnings Equity (excl. mins) Minorities
FY12F
FY13F
Equity (incl. mins) Book value per share (A$)
Return on Equity
Key ratios Revenue growth Net interest growth (%) Fees and Comms growth (%) Trading Income growth (%) Other Income growth (%) Efficiency Cost/Avg.Assets (%) Cost/income (%) Capital Adequacy Tier 1 Ratio (%) Capital Adequacy Ratio (%) Other Tax rate (%) Dividend payout (%)
FY10A 15.1 -8.0 12.3 -767.3 3.62 78.0 na na 15.5 58.6
FY11A 18.1 4.6 5.3 64.2 4.20 82.0 na na 22.2 67.6
FY12F 12.0 -8.1 -35.5 2.8 3.46 82.1 na na 25.0 66.0
FY13F 8.3 10.9 32.7 -14.6 3.37 81.0 na na 20.0 61.0
FY14F 8.3 10.7 8.0 9.9 3.29 79.5 na na
NTA (A$) Valuation Risk Free Rate Of Return (rf) Expected Ret. On Market (rm) Beta Cost of equity Terminal growth rate DDM Valuation Book value Trading Data
5.25% 6.0% 1.1 11.85% 3.0% $29.75 $32.88
20.0 57.3
52 wk range (A$) Index weighting - S&P/ASX200
20.03 - 41.78 1.3%
44
12
Equity | Australia | Industrial REIT
28 October 2011
Goodman Group
Buy
Target price
By volume or margin
We believe the structural shortage in high-grade Chinese and Japanese industrial property positions GMG for strong growth in development and management. We believe FY12 NPAT will modestly exceed guidance, with above-average margins expected from an increased weighting to Asian markets. Buy.
Key forecasts
FY10A Total property income (A$m) 578.9 -562 310.0 5.25 -66.2 3.40 5.48 11.82 59.40 -36.9 FY11A 669.3 392.0 383.9 5.31 1.14 3.50 5.65 11.68 55.70 -36.9 FY12F 658.2 476.3 476.3 6.21 17.00 3.75 6.05 9.98 61.30 -21.8 FY13F 696.3 527.9 527.9 6.62 6.54 4.15 6.69 9.37 63.70 -16.2 FY14F 729.0 549.4 549.4 6.89 4.07 4.35 7.02 9.00 66.20 -10.9
A$0.81
Price
A$0.62
n/a
Market view
Underweight
Price performance
Oct 08 1.2 1.0 0.8 0.6 0.4 0.2 0.0 GMG.AX S&P/ASX200 Nov 09
Reported net profit (A$m) Normalised net profit (A$m)

(3M) 0.71 -13.3 -9.5 2.8
Nov 10
(12M) 0.63 -2.4 4.4 20.3
0.57 7.8 -0.7 -1.4
Normalised EPS (c) Normalised EPS growth (%) Dividend per share (c) Dividend yield (%) Normalised PE (x) Book value per share (c) Disc/(prem) to NTA (%)
1. Pre non-recurring items and post preference dividends Accounting standard: IFRS Source: Company data, RBS forecasts
year to Jun, fully diluted
GMG positioned to benefit from improving Chinese and Japanese industrial markets Availability of appropriately zoned land in GMGs target cities in China remains tight. We believe the group is well positioned to achieve strong development earnings growth from its existing development sites, with a current GFA of 1,000,000sqm. We see this opportunity pipeline further expanding following planning approval at the 10sqkm mixed-use Langfang site. We see the strong online retailer sector as a key catalyst for strengthening demand for industrial property in mainland China. The Japanese market also presents significant earnings potential, with relatively high developer margins and customers upgrading to modern facilities to achieve operational efficiencies. Funds business platform the quiet achiever While around 12% of operational EBIT, we expect recurring earnings from the funds business to grow strongly over the coming one to three years, reflecting the IIF acquisition, pull through from GMGs development activities and an expectation of further equity commitments from GMGs strategic investors. We do not forecast a significant increase in performance fees (as these are generally lower quality earnings), although given improving markets, this is an increasingly likely source of future earnings upgrades. No changes to our current forecasts but increasing confidence
A$4.58bn (US$4.92bn)
A$19.16m (US$19.80m)
Sector: BBG AP Real Estate Part of: ASX/S&P 100 RIC: GMG.AX, GMG AU Priced A$0.62 at close 27 Oct 2011. Source: Bloomberg
Analysts
Andrew Hodge
+61 2 8259 6608 andrew.hodge@rbs.com
Our earnings forecasts are unchanged, with GMGs recent development commitments (ie, A$300m Osaka bay) increasing our confidence in our FY12 forecasts. Development and funds have further upside potential Buy maintained GMGs expanding presence in China and Japan and strategic relationship with the China Investment Corporation (CIC) and other large investment funds positions the business for strong growth in its development workbook (overshadowing current weakness in the UK) and funds platform over the next two to three years. With asset prices continuing to offer good yields, we believe conditions are supportive of further inflows of investor funds. Buy. Important disclosures can be found in the Disclosures Appendix.
Tony Sherlock
+61 2 8259 5548 tony.sherlock@rbs.com
45
Stacking up the numbers

With development activities being the primary driver for GMGs FY12 NPAT growth, we take a more detailed look at what is required for GMG to hit our forecast FY12 operating NPAT of A$476m, 3.5% ahead of GMGs guidance of A$460m. We believe our growth forecasts are underpinned by: 1) strengthening business fundamentals across all of GMGs three operating divisions (detailed in Table 1); 2) full-year run-rate benefits for acquisitions completed in late FY11; and 3) improved development business fundamentals in Asia, which more than offset the expected weakness in the United Kingdom. We believe the combination of rising rents across the direct portfolio, new funds on the GMG platform and a WIP of A$1.8bn leading into FY12, plus the locked-in gains on the Interlink project, all support our FY12 forecasts. From a compositional perspective, our FY12 EBIT forecasts imply EBIT from development and management activity making up 43.2% of FY12 operating EBIT (up from 36% in FY11). This is consistent with GMGs guidance at the FY11 results, for these two activities to contribute 40-50% of operating EBIT in the short term. The following outlines the constituent components of our forecast FY12 EBIT growth across GMGs three business disciplines: Property Investment (up A$22.2m or 6.7%) We believe the EBIT increase will be driven by a combination of the following: 1) a full year contribution of IIF (acquired end-March 2011); 2) acquisition of Moorabbin Airport site; and 3) increase in net operating income across the portfolio reflecting annual escalations and positive outcomes from re-negotiated leases, particularly in the Australian Eastern seaboard where industrial rents have continued to strengthen, particularly in Melbourne according to CBRE. Funds Management (up A$11.9 or 19%) Our forecast growth for GMGs funds management EBIT reflects accretion from a full-year impact of the IIF acquisition (acquired in late March 2011), which increased assets under management (AUM) by A$2.5bn, further acquisitions by GMGs managed funds of GMG developments such as Interlink and an expectation of further institutional inflows onto the GMGs funds platform throughout FY12. Chart 1 : GMG assets under management
A$bn 18.0 15.9 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 14.3 14.3 12.6 12.6 11.6 14.2 17.1
Development (up A$71.4m or 58.7%) We forecast the largest single contributor to the increase in FY12 EBIT will be development gains from the Interlink projects, with 60% of the forecast A$90m in development gains expect to accrue in FY12. We forecast the gains on the sale of GMGs share in Interlink will deliver an additional A$30m of EBIT in FY12. We expect the remaining EBIT uplift of A$41.4m to come from a step-up in completions outside Interlink from the A$0.8bn in FY11 to A$1.1bn-1.2bn. While GMG has indicated it is likely to achieve a FY12 WIP of around A$1.8bn, we do not believe GMG is working towards an absolute number with regard to completions, with GMG able to achieve EBIT growth by increasing the proportion of developments in higher margin regions such as Japan, where GMG advised its development margins are frequently around 30%.
Goodman Group | Investment View | 28 October 2011
46
Development to generate about A$1.8bn of new WIP during FY12F

We remain comfortable with our forecasts for GMG to achieve a year-end FY12 WIP of around A$1.8bn, comprised of A$550m-650m for Australia/NZ, A$550m-650m for Continental Europe, A$400m-500m for Asia, and A$200m-300m for the UK. This level of development is underpinned by GMG direct and fund owned land banks, which GMG advises can deliver 6.8msqm of gross lettable area (GLA) or around A$10bn of completed development. Our forecasts for Asia are based upon GMGs strengthening regional pipeline (excluding the A$600m Interlink, which completes in early 2012), with the A$400m-500m forecast for FY12 supported by GMGs regional land-bank and expanding regional presence. GMGs development announcements post June 2011 (A$300m Osaka Bay development and the Jinxi and Yushan developments in China, both with A$31m) increase our confidence in our current forecasts. Our forecast for Australia/NZ WIP of A$550m-650m is based on GMGs Australian developable GLA, which stood at 2.6msqm at June 2011 and average five-year development WIP (refer Chart 2) of around A$650. We see the recently acquired IIF portfolio (now GTA) and Moorabbin Airport site as key sources of near-term new developments, complementing GMGs fund controlled and directly owned development land (A$485m). For Continental Europe, our forecasts reflect continued investment by online retailers, such as Amazon, in modern industrial facilities and continued demand from the European automotive sector. At its 3Q11 operational update in May 2011, GMG had over 420,000sqm of active development enquiries, which are typically developments where GMG has either a signed head-of-agreement or is progressing one-on-one negotiations. Barring unforeseen events, we would expect GMG to convert most if not all of these opportunities into active developments over the coming 12 months, which underpins our forecast for GMG securing A$550m-650m of new developments in FY12. In this regard, we are aware of GMG having reached agreement with Zalando (online fashion retailer) to develop a 78,000sqm facility in Germany in late October, being its eighth pre-committed development in Germany in 2011. Within Europe, we expect Germany, with FY11 and FY12 forecast industrial production growth rates of 7.8% and 2.9% respectively, to be a key growth area, primarily for online retailers and the automotive industry. Our forecasts for the UK are around half of GMGs five-year average UK WIP, reflecting the relatively anaemic economic outlook. Notwithstanding the weak market conditions, we expect GMGs UK operations to achieve a baseline level of office/industrial developments work of A$200m-300m. We expect the Arlington Business Parks Partnership Fund (ABPP) to be a key contributor following the 140m sale of the Verizons HQ, with capital expected to be recycled into the development of ABPPs 8.0msqft of consented land bank. Key development opportunities include Phase III of the Reading International Business Park, which has capacity for 300,0000sqft of further office development, and for the Greater Manchester Police at Manchester central park. Chart 2 : Australia WIP
A$m 1600 1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 5yr average 2011 163 217 645 1076 1347
Chart 3 : Continental Europe WIP

A$m 800 697 700 600 500 400 300 200 100 0 2007 2008 2009 2010 5yr average 2011 157 338 576 474
Australia and NZ
Continental Europe
47
Chart 4 : Asia WIP

700 600 500 A$m 637 602
Chart 5 : United Kingdom WIP

A$m
1200 1004 1000 778
800 400 300 400 200 100 0 2007 2008 Asia 2009 2010 5yr average 2011 160 77 200 364 600
255 96 18 0 2007 2008 Uk 2009 2010 5yr average 2011
Chart 6 : GMG development EBIT margin on completion value

15.2%
16% 14% 12% 10.1% 10% 8% 6% 4% 2% 0% FY07A FY08A FY09A FY10A 5.2%
10.0%
9.6%
6.5% 5.7%
FY11A
FY12F
FY13F
Table 1 : GMG operational EBIT outlook

(A$m) Property investment Change on prior year A$m Change on prior year % Management Change on prior year A$m Change on prior year % Development Change on prior year A$m Change on prior year % Total operating EBIT Change on prior year A$m Change on prior year % Management and development EBIT as percentage of total operating EBIT
FY10A 329.2 -52.8 -13.8% 53.7 20 59.3% 41.7 -78.5 -65.3% 424.6 -111.3 -20.8% 22.5%
FY11A 329.5 0.3 0.1% 62.6 8.9 16.6% 121.6 79.9 191.6% 513.7 89.1 21.0% 35.9%
FY12F 351.7 22.2 6.7% 74.5 11.9 19.0% 193 71.4 58.7% 619.2 105.5 20.5% 43.2%
FY13F 366.5 14.8 4.2% 79 4.5 6.0% 204.9 11.9 6.2% 650.4 31.2 5.0% 43.7%
48
Asia development
We expect GMGs Asian development pipeline to generate strong growth going forward. The bulk of the growth of GMGs Asian development WIP is attributable to the Interlink project in HK (which completes in January 2012). We expect the decline in Asia WIP from the completion of Interlink to be back-filled from a combination of recently announced awards and pipeline projects. Figure 1 : GMGs key target end markets in China and Japan
WIP and completion outlook Following the completion of Interlink, GMGs WIP will decline by around A$600m from the A$1.8bn at June 2011. To date, GMG has made good progress on secured new developments to rebuild WIP, the most significant being the A$300m Osaka Bay development (scheduled to complete in Sept 2013) with other smaller developments in China accounting for a further A$62m of WIP. While GMG still has to continue to progress existing leads into signed development agreements, we also focus on WIP composition in assessing how GMG is tracking against our development EBIT forecasts. This is relevant, as an increase in the proportion of developments in higher margins geographies such as Japan will still enable GMG to hit our forecasts, making the absolute WIP number of less significance.
49
Table 2 : GMG Asia development

Major development projects Country Lettable area (sqm) 38,138 Owner Expected completion End value (US$m) 18.9 End value per sqm (US$) 495 Comment
Projects completing in FY11 Kunshan Lujia logistics centre Projects expected to complete in FY12 Interlink Moriya Beijing Airport logistics centre Phase 2 Kunshan Jinxi logistics - Phase 1 Kunshan Yushan logistics - Phase 2 Chengdu logistics centre Pudong Airport - Phase 1 HK Japan-Tokyo China China China China China 220000 GHKLF 50% 33000 26,048 46,693 28,608 80,300 42,800 Third party GCLH GMG GCLLH GMG GMG Jan-12 Dec-11 3Q-2012 Aug-12 3Q-2012 4Q-2012 3Q-2012 600 tba 16.4 n/a 15.1 41.8 31.8 629 704 527 520 742 High specification refurbished and new warehouse Oct 11 construction start Pre-committed to Schenker Nov 11 construction start 1Q12 construction start China GCLH May-11 c90% lease and under option
Projects expected to complete beyond FY13 Osaka Bay development Kunshan Jinxi logistics - Phase 2 Pudong Airport - Phase 2/3 Pending opportunities China - landbank LangFang, Beijing China China 1,000,000 Tbc 700 700 Initial 32ha at LangFang secured to develop now Pending approval for further development land on 10sqkm mixed use site cA$950m Readily executable opportunities Japan China China 130000 27,507 151,000 GMG GMG GMG Sep-13 tba end-2014 300 32.9 tba 2308 704 742 Four storey logistics facility
Japan - Other opportunities

Japan
Chart 7 : Asian development WIP as percentage of total

60% 50.3% 50%
Chart 8 : Asian development historical WIP

700 600 500 A$m 637 602
40% 33.1% 30%
400 300 200 160
364
20% 11.9% 10% 5.4% 12.9%
100 0
77
0% 2007 2008 2009 2010 2011
2007
2008 Asia
2009
2010 5yr average
2011
China development outlook We believe the Chinese industrial property market presents favourable long-term dynamics, reflecting the structural under supply of warehouses property as illustrated in Chart 11, coupled with the strong long-term GDP growth outlook. With respect to this latter point, the IMF is forecasting Chinas GDP (based on purchasing power parity per capita) will grow at an average annual rate of 10.2% over the period 2010 to 2016. In isolation this GDP outlook would support strong year-on-year growth in industrial capacity. Added to this is the structural shortage in Chinese warehouse capacity, which at 0.38sqm per capita is significantly below that of Singapore (1.38sqm), Japan (3.76sqm) and the US (5.16sqm). In our view, the lower level of warehouse space per capita in China is largely due to the fact that Goodman Group | Investment View | 28 October 2011 6
50
China is still a developing country, with a large proportion of the population living in underdeveloped areas. However, when we normalise these figures to look at warehouse space per unit of GDP US$m (refer Chart 12), it is still apparent that Chinas warehouse space per unit of GDP (US$m) at 45.3sqm is around 60% below the corresponding figures for the US and Japan. If we combine the effects of the structural shortage in Chinese warehouse capacity (for which we use the 60% proxy) with Chinas c10% GDP growth outlook, the underlying industrial market appears to have a very promising long-term outlook. We believe this structural shortage will be addressed over time, however given the quantum of the shortfall and the size of the Chinese warehouse market, we believe it is reasonable to assume this c60% structure shortage will take 10 years to address. Combining this 60% shortfall (to be filled over 10 years, which implies an annual 9.1% CAGR) with the IMFs six-year GDP CAGR of 10.2%, results in annual growth in Chinese warehouse capacity of 19.3%. While this figure is high and operationally and logistically may not be achievable, it does nonetheless indicate the magnitude of the potential long-term growth in the Chinese industrial logistics market. Key drivers of improving conditions in the Chinese industrial property market: Online retailing is driving demand in China. Recent CBRE market reports indicated the Chinese industrial market is being buoyed by rising demand, particularly from Chinese retail growth, with online retailers being a key source of increased logistics demand. CBRE also indicated that logistics space in China is getting progressively more difficult to source (with shortages in Beijing being particularly acute), leading to an imbalance between supply and demand a key factor in the rising property prices. In addition to the strengthening local conditions, CBRE has indicated that Chinese warehouse demand is also benefiting from cross-border manufacturers looking to reduce costs in order to retain profitability. In the longer term, we believe the demographic shift towards major cities in China will also lead to increasing longer-term demand for higher quality logistics solutions. We acknowledge that this migration to larger cities will increases the challenges for GMG and its competitors in sourcing suitable development sites, however we believe GMGs growth prospects will not be adversely impacted. We expect GMG to continue to source suitable development sites from an expanding local presence and by further leveraging its strategic long-term relationship with CIC. Chart 9 : Warehouse rents, 2010
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Beijing - warehouse Shanghai - warehouse Chengdu - warehouse 2Q11 % chg yoy 8% 6% 4% 2% 0% Beijing - warehouse Shanghai - warehouse Chengdu - warehouse 2Q11 % chg yoy
Chart 10 : Indicative land value, 2010

18% 16% 14% 12% 10%
1Q11 % chg yoy
1Q11 % chg yoy
Source: CB Richard Ellis
Source: CB Richard Ellis
51
Chart 11 : Warehouse space per capita, 2010

sqm per capita 6 5.16 5
Chart 12 : Warehouse space, 2010

sqm / GDP US$m 120
109.4
107.2
100
3.76
80
60 45.3
2 1.38 1 0.38 0 China Singapore Japan USA
40 23.0 20
0 China Singapore Japan USA
Source: CBRE, GMG
Source: CBRE, GMG, RBS
Chart 13 : China real GDP forecasts

10% 9% 8%
Chart 14 : China industrial production forecasts

16%
8.90% 8.60%
9.30%
9.10%
14.10% 14% 12%
13.80%
13.10%
13.00%
7% 6% 5% 4% 3%
10% 8% 6% 4%
2% 1% 0% 2011F May-11 Sep-11 2012F
2% 0% 2011F May-11 Sep-11 2012F
Source: Consensus Economics Inc
Table 3 : Demographic information on GMGs key focus cities in mainland China, 2010
Shanghai Resident population (m) Urbanisation rate Nominal GDP (US$bn) Real GDP growth % yoy Real GDP growth 3yr CAGR Retail sales : 3yr CAGR Total trade value: US$bn Total trade value: 3yr CAGR
Beijing 19.6 85.0% 216 10.2% 9.8% 18% 301 16.0%
Chengdu 14.0 65.5% 87 14.0% 13.9% 21% 25 37.3%
Chongqing 28.8 49.9% 124 17.1% 15.5% 20% 12 18.6%
23.0 88.6% 264 9.9% 9.3% 16% 685 9.5%
Japan development outlook In our view the outlook for Japanese industrial property continues to improve, with both recent economic forecasts continuing to point to GDP growth in 2012 (refer Chart 17) and an even stronger growth outlook for industrial production (refer Chart 18). We believe the long-term fundamentals for industrial property remain positive, with a number of factors supporting an improved outlook for GMGs Japanese development pipeline. The factors include:
52
Limited supply of modern investment grade logistics product in Japan, where modern logistics facilities (more than 10,000sqm and less than 10 year old) are estimated by Jones Lang LaSalle (JLL) at 1.9% of total Japanese logistics facilities (refer chart 16); Improving outlook for Japanese industrial production, with consensus economic forecasts for 2012 industrial production growth of 6.7%, notwithstanding the effects of the Fukushima earthquake in April 2011 and the recent increase in economic uncertainty. Chart 15 : Japanese industrial production
20% 15% 10% 5% 0% -5% -10% -15% 100 -20% -25% 2007 2008 -21.8% 2009 2010 2011F 2012F 0 Modern logistics facilities Total logistics facilities 9 -1.50% -3.4% 200 300 2.9% 8.50% 500
Chart 16 : Japanese logistics landscape, 2010

600 m sqm
16.6%
480
400
Source: JLL, GMG
Chart 17 : Japan change in real GDP forecasts
Chart 18 : Japan change in industrial production forecast

10%
3% 3% 2% 2% 1% 1% 0.00% 0% -1% -0.50% -1% 2011F May-11 Sep-11
2.80% 2.40%
8.50% 6.70%
8% 6% 4% 2% 0% -2% -1.80% -4% -4.00% -6%
2012F
2011F May-11 Sep-11
2012F
Funds management
We have a positive outlook for GMGs funds management platform, with forecast growth in FY12 EBIT underpinned by the full-year benefit of the IIF acquisition, adding A$2.5bn to AUM. In addition, we expect strong organic growth driven by the pull through from development completions and further equity commitments. In this regard, GMG recently advised that its strategic partners are seeking additional opportunities for core real estate assets alongside GMG in Asia. China GMG has advised it is expecting increasing equity commitments for the recently established GCLH (Goodman China Logistics Holdings). Total assets in GCLH stood at A$0.15bn at June 2011, with GMGs co-investment currently at 20% (A$0.03bn). Japan GMG targeting the launch of the Japan Development Fund by December 2011. Re-branding Japanese management platform to Goodman Japan is currently underway. Goodman Group | Investment View | 28 October 2011
53
Valuation
Our valuation and target price are based on an equally weighted blend of our DCF and SOTP methodologies. Key assumptions underpinning our DCF-based valuation of A$0.79 are a risk-free rate of 5.25%, a market-risk premium of 6.0%, an equity beta of 1.1 and a WACC of 10.2%. Our SOTP valuation of A$0.74 is based on book values for GMGs direct and cornerstone investments growing at 2.5% to reflect mid-cycle annual rent-escalations, and peer-based EBIT multiples for GMGs funds management, development and corporate overheads. In determining our 12-month target price of A$0.81 we roll forward our blended valuation by our forecast FY13 normalised EPS growth rate of 6.5%. At current levels, we believe GMG offers an attractive investment opportunity, with the forecast upside in our valuation coming largely from the Funds & Property management and Development divisions. Table 4 : GMG blended valuation
Weight DCF valuation SOTP Blended equity valuation Target price Forecast growth in FY13 EPS Current share price Potential upside to target price
Valuation (A$ps) 0.79 0.74
Blended valuation (A$ps) 0.39 0.37 0.78 0.81 6.5% 0.62 30.9%
50% 50% 100%
Table 5 : GMG sum-of-the-parts valuation

Metric A$m Direct Investments (NOI) Associates Joint venture entities Funds management Development Corporate services Enterprise Value Net (Debt)/Cash Development assets on balance sheet Minority Interests Market Value
Multiple 2.5% 2.5% 7.7 7.4 8.0
Value A$m 2,468 2,432 224.7 574 1,426 (362) 6,763 (1,570) 1,001 (318) 5,875
Per share 0.31 0.30 0.03 0.07 0.18 (0.05) 0.85 (0.20) 0.13 (0.04) 0.74
Comments Book value at June 2011, growing at 2.5% Book value at June 2011, growing at 2.5% Book value at June 2011 FY12F EBIT multiple based on peers using RBS forecasts FY12F EBIT multiple based on peers using RBS forecasts FY12F EBIT multiple, based on peers Projected net debt at 30 June 2012 Book values as at June 2011 Goodman Plus Hybrids, Book value as at Jun 2011
2,408 2372.7 74.5 193.0 -45.3
Risks to our target price The key downside risks include: 1) lower-than-expected growth in volumes for on-balance-sheet and third-party-specified development; 2) higher-than-forecast lease incentives; 3) lower- than forecast rental increases; 4) lower-than-expected rent-renewal rates; and 5) unexpected losses on development activities. Key upside risks to our forecasts include: 1) faster- and stronger-than-forecast recovery in GMGs development volumes; 2) higher-than-expected development margins and; 3) lower-than-forecast portfolio occupancy rates.
54
10
Chart 19 : GMG consensus 12-month forward PE (x)

25
20
15
10
0 Mar-05 Mar-06 Mar-07 Mar-08 Average Mar-09 +1 std dev Mar-10 Mar-11 -1 std dev
GMG 12M fwd PE
Source: Datastream, RBS
Chart 20 : GMG consensus 12-month forward PE relative to S&P/ASX 200

180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 GMG 12m Fwd PE rel to S&P/ASX200 Average +1 std dev -1 std dev
55
11
GMG financial summary

Year to 30 Jun (A$m) Income statement Divisional sales Revaluations and fair value adj Profit (loss) on disposal Total revenue EBITDA Associate income Depreciation EBITA Impairment EBIT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests Reported NPAT Normalised items Distributable NPAT AIFRS 2010A 578.9 -524.0 29.3 84.2 -328.3 126.8 -8.3 -336.6 -145.4 -482.0 -355.2 -154.1 -374.8 -1.0 -510.3 -52.3 -562.6 872.6 310.0 AIFRS 2011A 669.3 27.1 696.4 231.0 259.8 -5.8 225.2 -73.6 151.6 411.4 -16.9 394.5 -8.8 453.0 -61.0 392.0 -8.1 383.9 AIFRS 2012F 658.2 28.2 686.3 346.0 232.4 -4.5 341.5 0.0 341.5 573.9 -43.3 530.6 -10.6 520.0 -43.7 476.3 0.0 476.3 AIFRS 2013F 696.3 28.7 725.0 382.2 225.8 -5.0 377.2 0.0 377.2 602.9 -40.0 562.9 -11.3 551.6 -23.7 527.9 0.0 527.9 AIFRS 2014F 729.0 29.0 758.0 415.4 211.2 -5.2 410.2 0.0 410.2 621.4 -33.3 588.1 -11.8 576.3 -27.0 549.4 0.0 549.4 Closing price (A$) Valuation metrics Fair value methodology DCF valuation inputs Rf Rm-Rf Beta CAPM (Rf+Beta(Rm-Rf)) E/EV*Ke+D/EV*Kd(1-t) Equity (E/EV) Debt (D/EV) Interest rate Tax rate (t) WACC 0.62 SOTP/ DCF 5.25% 6.00% 1.20 12.4% 70.0% 30.0% 7.25% 30.0% 10.2% Price target (A$) Val'n (A$) 10-year rate Margin Kd Ke Minority interest (A$m) Net debt (A$m) Diluted no. of shares (m) DCF valuation (A$) Investments (A$m) Equity market value (A$m) NPV cash flow (A$m) 2012F 6155.0 9.4 17.8 18.0 10.0 4.0 2012F 21.9 13.1 2012F 14.1 14.1 11.1 4.5 7.5 8.5 8.9 3.6 2012F 7977.0 6.2 6.2 3.8 60.7 6.0 2012F -28.8% 59.7% 62.0% 62.0% 21.5% 24.1% 17.0% 17.0% 2012F 2.2 52.6 51.9 72.4 6.6 1570.3 30.2 7.9 5.1 2013F 6017.8 8.6 15.7 16.0 9.4 3.7 2013F 19.4 12.3 2013F 13.2 13.2 10.5 4.2 6.9 7.7 7.6 3.0 2013F 7977.0 6.6 6.6 4.1 63.0 6.7 2013F 0.6% 10.5% 10.4% 10.4% 10.8% 10.8% 6.5% 6.5% 2013F 2.3 54.9 54.2 75.8 7.0 1433.1 26.5 9.4 5.6 $ 0.81 0.76 5.25% 2.0% 7.25% 12.4% 318.8 1570.3 7667.6 0.79 31.0 6057.4 7915.6 2014F 5858.0 8.0 14.1 14.3 9.0 3.6 2014F 17.5 11.8 2014F 11.9 11.9 10.4 4.2 5.9 6.5 6.5 2.6 2014F 7977.0 6.9 6.9 4.3 63.4 7.0 2014F -0.2% 8.7% 8.8% 8.8% 4.1% 4.1% 4.1% 4.1% 2014F 2.4 57.0 56.3 75.4 7.3 1273.3 22.7 12.3 6.0
Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) PEG (pre-goodwill) (x) At target price EV/EBITDA (x) PE (pre-goodwill) (x)
2011A 6270.7 9.4 29.0 29.7 11.7 4.7 2011A 35.5 15.3
Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex and disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Provisions Other liabilities Total liabilities Share capital Other reserves Retained earnings Other equity Total equity Minority interest Total shareholders' equity Total liabilities & SE
2010A -328.3 -186.7 -19.8 -10.9 755.7 210.0 -0.8 17.9 0.0 17.1 1393.7 -1618.7 -142.3 0.0 427.6 60.3 0.0 287.4 209.2 2010A 515.1 228.0 244.3 2349.1 644.0 285.4 12.7 3319.6 7598.2 84.1 218.3 2192.5 4.5 377.1 2876.5 6588.4 -2321.3 -343.5 0.0 3923.6 798.1 4721.7 7598.2
2011A 231.0 25.9 -40.3 -1.2 79.0 294.4 -1.9 -353.6 0.0 -355.5 78.5 -117.2 -284.1 0.0 96.6 -226.2 0.0 -287.3 292.5 2011A 227.8 226.5 216.2 2628.4 598.2 229.7 6.9 3431.2 7564.9 0.0 214.6 1913.8 209.9 212.7 2551.0 7055.1 -2375.0 -239.3 0.0 4440.8 573.1 5013.9 7564.9
2012F 346.0 -35.2 -129.1 -10.6 0.0 171.0 -5.9 -40.0 0.0 -45.9 275.0 -50.0 -361.7 0.0 0.0 -136.7 0.0 -11.5 165.1 2012F 216.3 263.3 243.5 2628.4 598.2 228.2 9.9 3471.2 7658.9 0.0 243.5 1786.6 209.9 212.7 2452.7 7314.3 -2375.0 -51.9 0.0 4887.4 318.8 5206.2 7658.9
2013F 382.2 -15.3 -120.1 -11.3 0.0 235.6 -3.9 -44.0 0.0 -47.9 0.0 150.0 -324.5 0.0 0.0 -174.5 0.0 13.2 231.7 2013F 229.4 278.5 257.6 2628.4 598.2 226.7 10.2 3515.2 7744.3 0.0 257.6 1662.5 209.9 212.7 2342.8 7314.3 -2375.0 143.5 0.0 5082.7 318.8 5401.5 7744.3
2014F 415.4 -13.1 -101.1 -11.8 0.0 289.5 -4.0 -29.0 0.0 -33.1 0.0 -40.0 -344.6 0.0 0.0 -304.6 0.0 -48.2 285.4 2014F 181.3 291.6 269.7 2628.4 598.2 225.2 10.6 3544.2 7749.2 0.0 269.7 1454.6 209.9 212.7 2146.9 7314.3 -2375.0 344.2 0.0 5283.5 318.8 5602.3 7749.2
Comparable company data (x) Westfield Group EV/EBITDA Year to 31 Dec EV/EBIT PE PEG Lend Lease Corporation EV/EBITDA Year to 30 Jun EV/EBIT PE PEG Per share data No. shares EPS (cps) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) Growth ratios Operating cost growth EBITDA growth EBITA growth Divisional EBIT growth EBIT growth NPAT growth Pre-goodwill NPAT growth Pre-goodwill EPS growth Normalised EPS growth Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Net debt (A$m) Net debt/equity (%) Net interest/EBIT cover (x) ROIC (%) 2011A 7977.0 5.4 5.3 3.5 65.5 5.6 2011A -51.7% -18.1% -17.7% -17.7% -169.7% 23.8% 1.1% 1.1% 2011A 2.2 34.5 22.7 58.6 3.0 1686.0 33.6 9.0 3.2
56
12
Equity | Australia | Media
28 October 2011
Change of recommendation
Consolidated Media
Move to Hold following strong run
We move CMJ to Hold (from Buy) following recent share price appreciation. The stock is up 17% since the FY11 result in August and is now trading in line with our A$2.68 target price.
Key forecasts
FY10A EBITDA (A$m) Reported net profit (A$m) -6.20 392.0 89.50 13.95 15.00 16.50 6.20 19.10 7.74 26.10 -1.53 FY11A -6.20 101.7 94.80 16.61 19.10 16.50 6.20 16.00 7.79 12.00 -2.66 FY12F -6.20 84.00 92.70 16.50 -0.67 16.50 6.20 16.10 7.42 15.40 -2.57 FY13F -6.20 96.60 96.60 17.19 4.21 16.50 6.20 15.50 7.03 15.20 -2.61 FY14F -6.20 106.7 106.7 19.00 10.50 16.50 6.20 14.00 6.56 14.10 -2.63
Hold (from Buy)

Target price
A$2.68
Price
A$2.66
n/a
Price performance
Oct 08 3.6 3.2 2.8 2.4 2.0 1.6 CMJ.AX S&P/ASX200 Nov 09
Normalised net profit (A$m) Normalised EPS (c)

(3M) 2.41 10.4 15.2 23.5
Nov 10
(12M) 3.35 -20.6 -15.1 -4.0
Normalised EPS growth (%) Dividend per share (c) Dividend yield (%) Normalised PE (x) EV/EBITDA (x) Price/net oper. CF (x) ROIC (%)
1. Pre non-recurring items and post preference dividends Accounting standard: IFRS Source: Company data, RBS forecasts
2.44 9.0 0.4 7.6
Share price up 18% since results, now in line with our target price The CMJ share price is up 17% since its FY11 result in August (outperforming the S&P/ASX 200 by 12% performance over the period) and is now trading in line with our A$2.68 target price. Our target price is set at a 10% discount to our A$2.98 valuation to reflect low peer multiples and fact that the majority of media stocks are trading at sizeable discounts to DCF valuations currently. Foxtel subscribers grew in August and September At its AGM yesterday, CMJ said that Foxtel had grown its subscriber base and ARPU in the first two months of FY12, although subscriber growth has slowed in October. CMJ said it expects Premier Media cost growth to normalise in FY12. We forecast Foxtel EBITDA to grow 7% in FY12 to A$592m and Premier EBITDA to remain flat at A$136m. Foxtel/Austar merger ACCC ruling due 30 November The ACCC announcement of its decision on the Foxtel/Austar merger is a key event for CMJ (due on 30 November). We believe Foxtel has a strong case that the bid should be cleared and it is prepared to go to court if necessary. We believe the most likely scenario is that Foxtel offers some remedies to make the merger more palatable to the ACCC (eg, provide its content more widely on a wholesale basis) and that the deal gets cleared without resorting to court. We believe the acquisition represents good value for Foxtel at the A$1.52 bid price once synergy savings are taken into account (we value Austar at A$1.20 on a standalone basis and at A$1.65 including synergies). CMJ has a debt facility in place to cover its share of the acquisition, expected to be up to A$225m. Move to Hold on valuation grounds We move our recommendation to Hold (from Buy) on valuation grounds. While the stock still trades about 10% below our valuation, we see more upside potential in other names in the sector from current levels (eg, Fairfax Media and SEEK). Important disclosures can be found in the Disclosures Appendix.
A$1.49bn (US$1.60bn)
A$1.31m (US$1.36m)
Sector: BBG AP Media & Ent Part of: ASX/S&P 200 RIC: CMJ.AX, CMJ AU Priced A$2.66 intraday 28 Oct 2011. Source: Bloomberg
Analysts
Fraser McLeish
+61 2 8259 5543 fraser.mcleish@rbs.com
Ashley Wallace
+61 2 8259 6356 ashley.wallace@rbs.com
57
Investment view and valuation

Our SOTP (based on divisional DCF) is unchanged at A$2.98. Our target price of A$2.68 is set at a 10% discount to valuation to reflect sector peer multiples and the difficult consumer environment. Table 1 : CMJ sum-of-the-parts valuation
Value (A$m) Foxtel (25%) Premier Media (50%) SEEK Asia (12.5%) Corporate costs Cash/debt Total
Value (A$ps) 1.83 1.04 0.06 -0.10 0.15 2.98
Valuation methodology and implied multiples 8.0x FY12F EBITDA. 8.0x FY12F EBITDA (12x tax normalised PE) A$34.7m invested A$6m pa A$82.5m at 30 June 2011 561.8m shares
1027 582 35 -54 83 1673
The table below compares CMJ to its pay TV peers using the look through EBITDA from its holdings in Foxtel and Premier Media. Table 2 : Pay-TV peer group multiples
Mkt cap YE June adj Austar* SKY Network TV Consolidated Media BSkyB Price A$1.18 NZ$5.56 A$2.63 7.29 (A$m) 1,500 NZ$2,164 1,478 12,779 PE (x) FY12F 17.1x 16.3x 15.9x 14.8x FY13F 13.7x 14.4x 15.3x 13.1x EV/EBITDA (x) FY12F 7.6x 7.5x 7.3x 8.5x FY13F 6.9x 7.0x 7.0x 7.7x Dividend yield FY12F 0.0% 3.8% 6.3% 3.5% FY13F 0.0% 4.4% 6.3% 3.9%
* June YE adjusted. ** CMJ EV/EBITDA multiples takes share of EBITDA in pay-TV operations and share of Foxtel net debt. Source: IRESS for SKY Network TV, RBS forecasts for others
Foxtel and Premier Media summary financials

Table 3 : Foxtel summary financials and valuation metrics
Year end June (A$m) Revenue Growth EBITDA Growth Margin Depreciation* Pre-tax profit Growth CMJ share of NPAT Key assumptions Subscribers (inc Optus) Subscriber growth Penetration ARPU (A$ per month) Capex (RBS estimate)* Valuation summary EV Net debt (Dec 2010) Equity value EV/EBITDA PE (@ 30% tax)
* Numbers not disclosed by company, RBS estimates. Source: Company data, RBS forecasts
FY09 1,843 11% 406 16% 22% -223 135 -14% 24.8 1628 5.7% 31.9% 86 335
FY10 2,024 10% 477 17% 24% -271 160 19% 29.9 1632 0.3% 31.7% 92 316
1H11 1,078 9% 278 17% 26% -154 102 13% 19.2 1632 0.6% 31.1% 94
2H11 1,064 3% 273 14% 26% -147 98 42% 18.4 1652 1.2% 31.6% na
FY11 2,142 6% 551 15% 26% -301 200 26% 37.6 1652 1.2% 31.6% 97 276 4825 -716 4109 8.8x 27.4x
FY12F 2,252 5% 592 7% 26% -307 237 19% 44.0 1688 2.2% 31.8% 100 227
FY13F 2,382 6% 636 7% 27% -314 277 17% 50.0 1741 3.2% 32.3% 103 226
FY14F 2,530 6% 693 9% 27% -320 329 19% 59.1 1797 3.2% 32.9% 106 231
8.2x 24.7x
7.6x 21.2x
7.0x 17.9x
Consolidated Media | Investment View | 28 October 2011
58
Table 4 : Premier Media summary financials and valuation metrics

Year end June (A$m) Revenue Growth Operating costs Growth EBITDA Growth Margin NPAT Growth CMJ share of NPAT Valuation summary DCF valuation EV/EBITDA PE (tax adjusted @ 30%)
FY09 434 13% -289 15% 146 9% 34% 144 7% 53
FY10 447 3% -293 2% 154 5% 34% 144 0% 54
1H11 223 5% -149 2% 74 3% 33% 69 7% 26
2H11 252 9% -180 23% 72 -14% 29% 68 -14% 25
FY11 475 6% -329 12% 146 -5% 31% 137 -5% 51 1164 8.0x 12.2x
FY12F 491 3% -346 5% 145 0% 30% 136 0% 51
FY13F 512 4% -365 6% 147 1% 29% 138 1% 50
FY14F 536 5% -385 6% 151 3% 28% 142 3% 51
8.0x 12.2x
7.9x 12.1x
7.7x 11.7x
59
CMJ financial summary

Year to 30 Jun (A$m) Income statement Divisional sales Total revenue EBITDA Associate income Depreciation EBITA Amortisation/impairment EBIT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Minority interests NPAT Significant item (inc abnorm win) NPAT post abnormals Divisional NPAT PBL Media Foxtel Premier Media Seek Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex and disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4) Balance sheet Cash & deposits Trade debtors Investments Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Provisions Other liabilities Total liabilities Share capital Other reserves Retained earnings Other equity Total equity Minority interest Total shareholders' equity Total liabilities & SE AIFRS 2010A 0.0 -6.2 83.9 -0.2 -6.4 0.0 -6.4 77.5 12.0 89.5 0.0 89.5 89.5 302.5 392.0 2010A 0.0 25.9 46.8 0.0 2010A -6.2 12.0 -2.8 -2.6 65.4 0.0 486.0 486.0 AIFRS 2011A 0.0 -6.2 89.1 -0.1 -6.3 0.0 -6.3 82.7 6.1 88.8 6.0 94.8 94.8 7.0 101.7 2011A 0.0 37.6 51.5 0.0 2011A -6.2 7.3 0.1 0.0 126.2 0.0 -26.4 -26.4 AIFRS 2012F 0.0 -6.2 95.0 -0.1 -6.3 0.0 -6.3 88.7 4.0 92.7 0.0 92.7 92.7 -8.7 84.0 2012F 0.0 44.0 50.5 0.5 2012F -6.2 4.0 0.0 0.0 97.1 0.0 0.0 0.0 AIFRS 2013F 0.0 -6.2 100.4 -0.1 -6.3 0.0 -6.3 94.1 4.0 98.1 -1.5 96.6 96.6 0.0 96.6 2013F 0.0 50.0 49.7 0.7 2013F -6.2 4.0 -1.5 0.0 98.5 0.0 0.0 0.0 AIFRS 2014F 0.0 -6.2 110.9 -0.1 -6.3 0.0 -6.3 104.6 4.0 108.6 -1.9 106.7 106.7 0.0 106.7 2014F 0.0 59.1 51.0 0.8 2014F -6.2 4.0 -1.9 0.0 106.1 0.0 0.0 0.0 Multiples Enterprise value (A$m) EV/EBITDA (x) PE (pre-goodwill) (x) At target price EV/EBITDA (x) PE (pre-goodwill) (x) 2011A 1,574.5 15.8 2011A 7.8 16.1 2012F 1,574.5 7.3 15.9 2012F 7.5 16.2 2012F 5.5 6.8 7.5 1.5 7.3 13.1 15.7 3.5 2012F 561.8 14.9 16.5 16.5 104.7 6.3 2013F 1,574.5 7.0 15.3 2013F 7.1 15.6 2013F 4.6 5.6 6.5 1.3 6.4 10.7 12.2 2.7 2013F 561.8 17.2 17.2 16.5 102.0 6.3 2014F 1,574.5 6.5 13.8 2014F 6.6 14.1 2014F 4.1 4.8 5.9 1.2 5.6 8.9 10.1 2.2 2014F 561.8 19.0 19.0 16.5 99.4 6.3 Closing price (A$) Valuation metrics Preferred methodology DCF valuation inputs Rf Rm-Rf Beta CAPM (Rf+Beta(Rm-Rf)) E/EV*Ke+D/EV*Kd(1-t) Equity (E/EV) Debt (D/EV) Interest rate Tax rate (t) WACC 2.63 SOTP, DCF 6.50% 4.50% 1.09 11.4% 80.0% 20.0% 7.25% 30.0% 10.1% Price target (A$) Val'n (A$) 10-year rate Margin Kd Ke NPV cash flow (A$m) Minority interest (A$m) Net debt (A$m) Investments (A$m) Equity market value (A$m) Diluted no. of shares (m) DCF valuation (A$) $ 2.68 2.98 6.50% 0.7% 7.25% 11.4% 1,614.2 0.0 -82.5 0.0 1,696.7 561.8 3.02
Comparable company data (x) Fairfax Media EV/EBITDA Year to 30 Jun EV/EBIT PE PEG Austar United Comms EV/EBITDA Year to 31 Dec EV/EBIT PE PEG Per share data No. shares EPS (cps) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) 2011A 570.5 17.8 16.6 16.5 99.4 6.3
-105.4 0.0 -278.2 -383.6 0.0 167.8 65.4 2010A 205.0 238.8
-94.2 0.0 -128.2 -222.4 0.0 -122.7 126.2 2011A 82.5 247.1
-97.1 0.0 0.0 -97.1 0.0 0.0 97.1 2012F 82.5 242.9
-98.5 0.0 0.0 -98.5 0.0 0.0 98.5 2013F 82.5 241.1
-106.1 0.0 0.0 -106.1 0.0 0.0 106.1 2014F 82.5 241.9
0.0 443.8 0.0 0.0 0.0 0.0 0.0 55.0 388.8 0.0 443.8 0.0 443.8 443.8
0.0 329.7 0.0 0.0 0.0 0.0 0.0 55.1 274.6 0.0 329.7 0.0 329.7 329.7
0.0 325.4 0.0 0.0 0.0 0.0 0.0 55.1 270.3 0.0 325.4 0.0 325.4 325.4
0.0 323.7 0.0 0.0 0.0 0.0 0.0 55.1 268.6 0.0 323.7 0.0 323.7 323.7
0.0 324.4 0.0 0.0 0.0 0.0 0.0 55.1 269.4 0.0 324.4 0.0 324.4 324.4
Growth ratios EBITDA growth EBITA growth Divisional EBIT growth PBL Media Foxtel Premier Media Seek EBIT growth NPAT growth Pre-goodwill NPAT growth Pre-goodwill EPS growth Normalised EPS growth Operating performance Return on net assets (%) Net debt (A$m) Net debt/equity (%) Net interest/EBIT cover (x) ROIC (%)
2011A 0.0% -0.8% n.m. 45.2% 10.0% n.m. -0.8% 5.9% 5.9% 19.1% 19.1% 2011A -1.9 -82.5 -25.0 -2.7
2012F 0.0% 0.0% n.m. 17.0% -1.8% n.m. 0.0% -2.2% -2.2% -0.7% -0.7% 2012F -2.0 -82.5 -25.4 1.6 -2.6
2013F 0.0% 0.0% n.m. 13.6% -1.6% 40.0% 0.0% 4.2% 4.2% 4.2% 4.2% 2013F -2.0 -82.5 -25.5 1.6 -2.6
2014F 0.0% 0.0% n.m. 18.2% 2.6% 20.0% 0.0% 10.5% 10.5% 10.5% 10.5% 2014F -2.0 -82.5 -25.4 1.6 -2.6
Priced at close of business 28 October 2011. Source: Company data, RBS forecasts
60
Equity | Australia
28 October 2011
Australia Small/Mid Caps

Weekly Informer #39, 2011
The Small Ords (4.7%) underperformed the All Ords (4.7%) by 1bp for the week, with the Small Resources up 7.3%. The Small Ords is at a premium to the S&P/ASX 100 at a PE relative of 112.8%, above the 99.6% eight-year average.
Chart 1 : Index performance - rolling 12 months
120
110
100
90
80
70 Oct 10 Nov 10 Dec 10 Jan 11 All Ords Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11
Small Ords
Small Industrials
Small Resources
Source: IRESS
Research summary over the week Key research pieces this week include SAI (AGM update Buy), BKN (read through from CAT Buy), TGR (1Q update Hold), IMD (earnings upgrade Buy), RMD (1Q update Hold), PRY ( re-fi complete Hold), ABC (downgrade to Hold), Healthcare (Medicare data), SXL (AGM update Buy), RRL (quarterly production Hold), MML (production update Buy), CSR (1H12 result preview Buy), UGL (update FY12 guidance Buy), AUN (3Q11 result Buy), and TEN (downgrade to Sell). Sector performance The Small Ords (4.7%) underperformed the All Ords (4.7%) by 1bp for the week. Small Industrials (2.9%) underperformed Small Resources (7.3%) by 439bp. Ytd, Small Industrials (-10.7%) has outperformed Small Resources (-22.1%) by 1,144bp. Price-to-earnings performance Analysts
Julian Guido
+61 2 8259 5838 julian.guido@rbs.com
In terms of PE relative, the Small Ords is at a premium to the S&P/ASX 100 at 112.8% (based on one-year forward earnings). The eight-year average is 99.6%. Stocksbest and worst performers The best-performing Small Industrials over the week were Pharmaxis (+34.0%), Prima Biomed (+25.0%) and Southern Cross Media (+14.2%), with the worst performing being Elders (-7.4%), Pac Brands (-4.8%) and Cash Converters (-4.5%). The best-performing Small Resources over the week were Nexus Energy (+36.4%), Intrepid Mines (+29.7%) and Mirabela Nickel (+24.6%), with the worst being Greenland Minerals & Energy (-3.7%), Flinders Mines (-3.2%) and Troy Resources (-3.0%). The top three weekly contributors in the Small Ords index were Intrepid Mines (+3.43bp), Mirabela Nickel (+2.85bp) and Independence Group (+2.72bp), with the worst three being Super Retail Group (-1.78bp), Pac Brands (-1.59bp) and Telecom Corp NZ (-1.06bp). Important disclosures can be found in the Disclosures Appendix.
Matthew Nicholas
+61 2 8259 6168 matthew.nicholas@rbs.com
Brewin Kwong
+61 2 8259 6891 brewin.kwong@rbs.com
61
Weekly Informer #39, 2011

Table 1 : Key stock performance in the last week best and worst performers
Rank Best 1 2 3 Worst 1 2 3 Small Industrials PXS PRR SXL ELD PBG CCV Small Resources +36.4% NXS +29.7% PXS +24.6% IAU -3.7% MCE -3.2% ELD -3.0% PBG Small Ords Small Ords attribution (bp) +3.43 +2.85 +2.72 -1.78 -1.59 -1.06
+34.0% NXS +25.0% IAU +14.2% MBN -7.4% GGG -4.8% FMS -4.5% TRY
+36.4% IAU +34.0% MBN +29.7% IGO -8.7% SUL -7.4% PBG -4.8% TEL
* Companies mentioned: Nexus Energy Ltd (NXS), Intrepid Mines (IAU), Mirabela Nickel Ltd (MBN), Greenland Min En Ltd (GGG), Flinders Mines Ltd (FMS), Troy Resources NL (TRY), Pharmaxis Ltd (PXS), Prima Biomed Ltd (PRR), Southern Coss Media (SXL), Elders Ltd (ELD), Pacific Brands (PBG), Cash Converters (CCV), Matrix C & E Ltd (MCE), Independence Group (IGO), Super Retail Group (SUL), and Telecom Corp of NZ (TEL). Source: IRESS
We provide a summary of RBS research and research snippets from the past week.
Summary of research reports and snippets

Monday, 24 October 2011 ResMed Inc (RMD): 'Pressure set to increase' Hold, TP A$2.98. Analyst - Dr Derek Jellinek While Rnd 1 competitive bidding delivered large Medicare reimbursement cuts for OSA products (~34%), the financial impact on RMD was negligible given its small scope (0.6% of US population). However, we believe the more than 10 fold increase in Rnd 2 (on-line mid-2013) is likely to have material impacts, especially as DMEs likely push for greater price concessions and migrate to lower priced products/manufacturers to support margins. We performed a scenario analysis to better assess the changing DME market dynamics from Rnd 2 competitive bidding. Our base case (30% Medicare cuts; 15% cut by private insurers; 40% passed on to RMD; marginal shift to lower priced products/manufacturers) derives a 20320bp decline in FY13-15 EBITDA margins and shaves 1-8% off the top line. We believe our estimates already better reflect the negative impacts of competitive bidding. Given the changing market dynamics via the progression competitive bidding, ongoing uncertainty over growth rates, FX impacts and optimistic consensus margin estimates, we believe share outperformance is limited. Primary Health Care (PRY): 'One overhang lifted' Hold, TP A$3.20. Analyst - Dr Derek Jellinek Primary announced the completion of a A$1.02bn debt refinance at 225-250bp above BBSY, a 50-75bp improvement on its expiring facilities, helping to quash concerns about tight credit markets and a possible rights issue. The debt refinance is broadly in line with our previous estimates, with our FY12 interest cost reducing from A$84m to A$83m, as guided, and with FY12 and FY13 amortisation of borrowing costs changing by +A$5m and -A$5m, respectively, to around A$14.5m and A$4.5m. Given these changes, our FY12F EPS decreases by 2.1% to A$0.23, offset by a 2.3% increase in FY13F to A$0.26, with lower amortisation costs carried throughout. We had previously flagged concerns with the debt position as an overhang, and coupled with a lack of visibility on growth, discounted our valuation by 10% to derive our target price. With this debt refinance, and ongoing strength in Medicare data for GP attendances and pathology volumes, we feel comfortable removing our valuation discount. While the debt refinance has lifted one overhang, and improving volume trends and cost-outs offer support, weak profitability metrics and a stretched valuation (PE of 14x on FY12F) are likely to limit the upside potential. We continue to prefer SHL. Hold maintained. SAI Global (SAI): 'AGM update' Buy, TP A$5.20. Analyst - Julian Guido At the AGM, SAI reported that the trading results for September are 'in line with our expectations and therefore the guidance we provided back in August remains unchanged'.
Australia Small/Mid Caps | Sector Dynamics | 28 October 2011
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Management has reiterated that EBITDA margin expansion will still be 'tempered' in FY12, but will position SAI well for further operating margin expansion in FY13 - which is all in line with what we already have in our numbers. Maintain Buy. Tuesday, 25 October 2011 Adelaide Brighton (ABC): 'At fair value - downgrade to Hold' Hold, TP A$3.20. Analyst - Andrew Scott ABC had outperformed the ASX 200 by 13% since 19 July. Over this period the stock has materially outperformed peers with a total shareholder return of 10%, one of only two stocks under our Construction Materials coverage to deliver a positive absolute return. We note that ABC's closest peers, BLD and FBU returned -10% and -16% respectively over the period. We continue to favour ABC's exposure to the resources sector via the lime business and greater resources skew in its Construction Materials exposure. However, given recent outperformance, we believe ABC is now trading at fair value, particularly in relative terms. We note that with a FY12 PE of 11.2x, the stock is trading at a premium to FBU and CSR, both on an FY12 PE of 10.4x, and in line with BLD (adjusted to a Dec YE). On an EV/EBITDA basis the company is also trading at a premium to peers. With recent outperformance, ABC has narrowed the upside to our revised price target of $3.20 to ~9%. Accordingly, we downgrade our recommendation to Hold. We have raised our price target modestly to reflect updated peer multiples. We remain attracted to ABC's favourable exposure profile, particularly against the backdrop of a softening domestic construction environment. Wednesday, 26 October 2011 Bradken (BKN): 'CAT powering ahead' Buy, TP A$9.85. Analyst - Matthew Nicholas Caterpillar (CAT: US) reported a very strong 3Q result overnight. Reported profit of US$1.71ps was up 40% on the pcp and ahead of Bloomberg consensus expectations of US$1.57. Excluding the impact of the Bucyrus acquisition, profit of US$1.93ps was up 58% on the pcp. We believe it is important to note the driver of the strong sales performance (up 41% on pcp) was stronger volumes, particularly in the markets for new mining equipment. While commodity prices are off their highs, CAT notes that they are at levels that remain favourable for further investment, and this appears the main driver behind management's confidence in the ongoing demand for large mining products. Importantly, the order backlog has "steadily increased throughout the year and is currently at a record level" (up 40% on the pcp). This is clearly a very strong read-through for BKN's North American business (Engineered Products). While ongoing growth in mining production volumes provides strong visibility to the consumables business, this latest update from CAT adds comfort around the order book component of BKN's revenues. Notwithstanding recent share price strength (stock up 16% in October), we believe the stock still presents very good value at 10.7x FY12F PE and remains our top pick in the small/mid cap Mining Services space. Health Care: 'September MBS data - Keeping strong' Analyst - Dr Derek Jellinek September Medicare data showed flat pcp growth on the month (on a tough pcp and after two months of considerable strength from data lumpiness), with continued strength on a rolling 12month average at 7.7% (5.6% long-term average), reinforcing the strength seen since March (7.3% average growth from March to July). GP attendances continued positive indications for growth with 1.7% growth on a 12-month rolling average, up from 1.15% in June and sitting well above the 10-year average of 1.1% but down from last months 12-month high of 2.2%. Benefits per attendance grew by 2.4% yoy on the month, delivering a 12-month rolling average of 2.9% (3.0% in June) on what have been stable improvements for the last six months. DI services recorded positive monthly yoy growth of 3.4% after a strong August (14.2%), that kept the 12-month rolling average up at 6.2%, just down from its two-year high of 6.4% in August. Benefits per test showed signs of improvement, up 2.4% yoy, but wasn't enough to improve the rolling 12-month average, dropping it to 0.7% (0.9% last month), a three-year low. Australia Small/Mid Caps | Sector Dynamics | 28 October 2011 3
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ResMed Inc (RMD): 'Times are changing' Hold, TP A$2.84. Analyst - Dr Derek Jellinek NPAT was US$50.5m (-11% yoy; 33cps) on revenue of US$314.8m (+12% yoy, +8% in cc) vs IBES cons at US$51m (34cps) on revenue of US$326m. Sales growth was at a three-year low, US sales (US$169.3m,+9% yoy) and ROW (US$145.5m,+7% yoy in cc) on waiving some low-end product sales, challenging macros and seasonality. As emphasised in our recent report (Pressure set to increase; 22 October), we see a growing disconnect among manufacturers, DMEs and payers, with RMD's ongoing mix-shift away from lower-priced basic devices to higher-end units as home sleep testing (HST) grows and supports margins, contrasted by payers decreasing reimbursement levels (eg competitive bidding) and increasing distributor pressure to identify low cost leaders, which offer adequate compliance monitoring, as reimbursement between high- and-low end products is the same regardless of quality or wholesale price. Our main FY12F changes include:1) airflow generator sales, -2%; 2) FX adjustments; 3) 50bp lower tax rate; 4) GM, +90bp; 5) increased amortisation expenses. Given changing market dynamics, ongoing uncertainty over growth rates, FX impacts and optimistic consensus margin estimates, we believe share outperformance will be limited. We reduce our target price to A2.84 on the back of our forecast changes. Southern Cross Media (SXL): 'Revenue -2.7% in 1Q; expects flat 2Q' Buy, TP A$1.50. Analyst - Ashley Wallace At its AGM today Southern Cross said its group ad revenues were down 3.0% on the pcp and total revenues were down 2.7% to A$177m. Regional TV ad revenues were down 5.6% in 1Q12, regional radio -0.7% and metro radio -1.8% on the pcp. The outlook Southern Cross gave was largely unchanged from that provided at its result in August: the ad market is still short and visibility limited. Southern Cross said that synergy realisation is running ahead of schedule and that A$7.1m of synergies are expected to be realised in FY12F. Synergies are tracking at A$9.6m on a fullyear run rate basis, up from A$5.7m in August. We forecast A$7.5m of synergies in FY12F. Southern Cross is targeting A$15m of synergies (top end of previous range). SXL is trading on a PE of 7.8x FY12F, an EV/EBITDA of 6.1x and 13% FCF yield, which we view as cheap given the quality of its assets. We retain our Buy on valuation grounds and expect a rerating will be driven largely by an improvement in the ad market, visibility over which is currently limited. We see additional share price upside from the potential removal of the audience reach rule next year, which could be a catalyst for corporate activity. Regis Resources (RRL): 'Steady as she goes' Hold, TP A$3.04. Analyst - Sam Berridge Gold production of 26.5koz was in line with our forecast of 26.6koz and is a solid step towards the upper end of RRL's FY12 production guidance of 95 - 105koz. Cash costs of A$487/oz (pre royalties) were 10% below our forecast of A$546/oz. RRL flagged a A$21/oz downward adjustment to cash costs due to a deferred mining adjustment. RRL generated A$24.4m from operations during the quarter, which was above our forecast of A$19m due to lower costs. This is a particularly pleasing result in the context of sector wide cost pressures. Exploration results from Anchor and Petra look positive in that they support the likelihood of a modest increase in reserve ounces for the Moolart Well processing plant. We don't expect a dividend until after Garden Well is completed in September next year. Once again RRL has delivered quarterly production and cash flow above expectations, confirming our view of RRL as a low risk means of gold exposure. However, we don't see a catalyst to get this stock above A$3ps in the near term and see more upside with MML and OGC. Medusa Mining (MML): 'Building for growth' Buy, TP A$7.73. Analyst - Phillip Chippindale Gold production of 10.5koz for the quarter was below our 14koz estimate, as development work reduced the tonnage going to the mill, whilst the grade of 8.33g/t was broadly as expected. Due to the lower production, cash costs of US$291/oz were also higher than our US$230/oz estimate. Gold sales of 15.4koz were slightly above our estimates, but the achieved price of US$1,587/oz was lower. Australia Small/Mid Caps | Sector Dynamics | 28 October 2011 4
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The Saga shaft is now beyond 150m depth, on its way to level 6 (300m). The company expects this to be reached late in the December quarter, with ore haulage commencing in the March quarter. Once complete, this will significantly increase the rate of ore extracted and gold production. Longer term, the company has reiterated its timeline for the Co-O phase 3 (200kozpa) expansion, while first production from Bananghilig is expected in mid-CY15, despite increasing the permitting time by about nine months. MML offers cash flow from the Co-O mine along with significant growth potential, additional growth through Bananghilig and exploration upside potential from a suite of highly prospective exploration assets. Buy maintained. Possible share price catalysts include resource expansion at both Co-O and Bananghilig, and progress on the Co-O mill expansion. Thursday, 27 October 2011 CSR Ltd (CSR): '1H12 preview - a new floor' Buy, TP A$3.25. Analyst - Andrew Scott We forecast a 1H12 adjusted profit of A$48.6m, up 9.4% on the pcp. Our forecast EBIT of A$91.1m is at the lower end of management's guidance range of A$90m-100m. We expect a broad-based deterioration in operating conditions given the deteriorating macro-economic environment. The Viridian and Aluminium businesses will likely be key sources of weakness. With the trading update and Viridian restructuring announced in early September, management indicated the stagnant domestic commercial construction backdrop and elevated AUD posed material headwinds for Viridian. The update was accompanied by an announcement of the restructuring of the Viridian business at a cost of A$22m, which will be a feature of the 1H12 result. We expect relatively cautious outlook commentary given endmarket weakness is likely to persist, at least through to the end of FY12. We retain our Buy recommendation and A$3.25 target price. We stress this recommendation is predicated on our favourable longer-term valuation, and that the current environment of declining residential and non-residential construction, and a high AUD create a challenging near-term outlook for the company. Tassal (TGR): '1Q update' Hold, TP A$1.30. Analyst - Matthew Nicholas 1Q update light on detail but we make no changes to outlook. Not surprisingly, TGR has sought to further push the domestic (retail) channel even more post an export market that has proven volatile (TGR had previously exited exports in June 2010 only to re-enter the market in early 2011) - to this end the company has reported 'continued sales growth' in the domestic market. On the positive side, the company continues to forecast increased fish size and lower feed costs (both margin positives). The company still believes previous consensus expectations of FY12 NPAT of A$26.5m is 'acceptable' (RBSe of A$25.0m, consensus now at A$25.7m). RBS view - we remain concerned on the: 1) volatility of lower yielding export channel, and 2) increasing skew of sales to domestic retail, and the resulting impact on margins (and to what extent this offsets the benefit of the major capex undertaken since FY08). Post recent strength, the stock is trading on 9.2x FY12F PE - we remain Neutral on the name. Friday, 28 October 2011 Imdex (IMD): 'So far, so good' Buy, TP A$2.83. Analyst - Matthew Nicholas At our July initiation, we emphasised the potential for margin growth within Imdex (IMD). The specific drivers of the expected expansion included: 1) price rises in the fluids business (the first in three years); 2) fixed cost leverage of more volume through IMD's global manufacturing presence (which still operates short of capacity); and 3) relatively stronger growth in the higher margin rental tools fleet (Reflex). This thesis has materialised in the 1Q operating update. Notwithstanding recent commodity price volatility and equity market declines, this update is consistent with our industry feedback suggesting that exploration activity continues to power ahead. Our EPS upgrades (11-13% across FY12-13F) are driven by less-conservative top line and (in particular) margin assumptions. This sees our blended (DCF/PE) target price rise to A$2.83 (from A$2.60). Whilst, from a risk perspective, we prefer the production-biased mining services names such as ASL and BKN, the key drivers behind IMD's business (ie, commodity prices and balance
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sheets) are still conducive to further strength in exploration markets. A sharp downturn in key mineral prices would cause a review to our recommendation; however, this has not occurred to date. Amidst this uncertainty, IMD appears cheap on 8.9x FY12F. UGL Ltd (UGL): 'A rise rather than a boom-for now' Buy, TP A$14.63. Analyst - Andrew Hodge UGL has updated itsr FY12 guidance from "growth" - given at the FY11 result to "growth of around 5%". Acknowledged by the company, contract wins in the resources sector have been slower than the company would have liked (and broadly expected by the market). Management has indicated this is a function of not wanting to take certain risks that customers were asking them to assume. Our FY12 reduction is a reflection of updated guidance and the slower than we had anticipated growth. We debated at length whether changes for FY12 required changes to FY13 and FY14. Prima facie there should be no changes required. However, we believe there are delays in the system for new awards in general and as such it will take longer for the industry to reach the point where risk falls more to the asset owner than to the contractor. We believe UGL is undervalued at current levels. On our 12-month view it is not one of our top picks currently (LLC & DOW). Nevertheless, the company has good industry exposure, historically sound risk management and strong cash generation. We have a Buy recommendation and inherently that makes us positive on the company. However, to become more positive we need to see an environment in which the company will move to double-digit growth coupled with a more compelling relative valuation. Austar United Comms (AUN): 'Awaiting ACCC decision: 30 Nov' Buy, TP A$1.37. Analyst - Fraser McLeish Austar produced a solid 3Q11 result with EBITDA of A$66.2m, up 8% on the pcp despite flat revenue growth (revenue was up 1.2% on the pcp after adjusting for the sale of the mobile business). ARPU grew 1% on the pcp. Our 2011F EBITDA of A$257m (+5%) is largely unchanged. Austar added 1.3k subscribers during the quarter. The overall base of 766k at 30 September was up 0.5% on the pcp. Churn of 1.41% for 3Q was high, up 17bp on the previous year as the impact of FTA multi-channels and the weaker consumer environment impacted customer retention. The company indicated that the outlook for subscriber growth remains challenging, but expects demand conditions will gradually improve. We forecast only 2k net new subs in 2011 and 27k in 2012 as we expect subscriber growth will pick up next year with the improved AFL offering. Austar said that all parties are still committed to the Foxtel transaction. We believe Austar offers value on a risk-reward basis, with 28% upside to the Foxtel bid price. Our DCF is unchanged at A$1.20. Our price target of A$1.37 is set at a 10% discount to the A$1.52 Foxtel bid to reflect risk around regulatory approval. The stock trades on a multiple of only 7.9x 2011F EBITDA. Buy rating retained. Ten Network Holdings (TEN): 'FY12 to be a tough year' Sell, TP A$0.81. Analyst - Fraser McLeish Ten's FY11 EBITDA of A$172.5m was marginally ahead of recent guidance (FY11 cash EBITDA was A$157.3m after adjusting for Eye Corp onerous contract accounting). Underlying NPAT of A$74.1m was 5% below our A$78m forecast due mainly to higher than expected minority interest related to the ELEVEN JV with CBS. We reduce FY12F EBITDA by 13% to A$148m and NPAT by 33% to A$53.6m (A$81m previously). Ten did not give much detail on current trading, but we see Southern Cross Ten's comment that its national TV ad revenue fell 8.5% in the 3M to September as a guide. We forecast Ten's TV revenue to decline 4% in FY12 and costs flat (in line with guidance). Net debt was A$416m at August 2011 (2.5x EBITDA) and we forecast a similar level at the end of FY12 (2.8x EBITDA). The sensitivity to market share assumptions means that if revenue share ends up being lower than we currently forecast then the net debt to EBITDA ratio could increase to 3-3.5x (we estimate +/-1ppt to market share is +/-A$27m to EBITDA). Our valuation falls to A$0.90 (from A$1.06) on downgrade to forecasts. Our target price of A$0.81 (from A$0.95) is at a 10% discount to valuation reflect ongoing market share risks. On a PE of 18x FY12F, Ten trades well above media peers. Move to Sell.
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The Small Ords underperformed the All Ords by 1bp over the past week
Table 2 : Small-cap vs large-cap performance

1 week Small Ordinaries Small Industrials Small Resources All Ordinaries S&P/ASX 300 Industrials S&P/ASX 300 Resources Relative performance (bp) Small Ords vs All Ords Small Ind vs S&P/ASX 300 Ind Small Res vs S&P/ASX 300 Res Small Ind vs Small Res
Source: IRESS
1 month 9.7% 7.4% 13.3% 8.4% 7.8% 10.3%
3 months -8.9% -6.8% -11.5% -4.5% -0.6% -12.2%
6 months -13.6% -11.7% -16.0% -11.1% -7.8% -17.7%
12 months -9.6% -7.9% -11.8% -6.7% -5.4% -9.5%
2011 ytd -15.9% -10.7% -22.1% -9.1% -4.9% -16.4%
4.7% 2.9% 7.3% 4.7% 3.7% 7.8%
-1 -72 -47 -439
130 -46 301 -589
-436 -624 67 472
-251 -387 167 436
-291 -255 -225 384
-677 -573 -568 1144
Small Industrials has outperformed Small Resources by 384bp over the past 12 months
Chart 2 : Index performance rolling 12 months

120
110
100
90
80
70 Oct 10 Nov 10 Dec 10 Jan 11 All Ords Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11
Small Ords
Small Industrials
Small Resources
Source: IRESS
The Small Ords has underperformed the All Ords by 677bp ytd (CY)
Chart 3 : Index performance ytd

105 100 95 90 85 80 75 70 65 60 Jan 11 Feb 11 All Ords Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Aug 11 Sep 11 Small Resources
Small Ords
Small Industrials
Source: IRESS
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The Small Ords one-year forward PE is 12.0x vs the S&P/ASX 100 at 10.7x (source: Datastream), although our FY12 earnings forecasts yield a Small Ords PE of 12.9x and an S&P/ASX 100 PE of 11.1x
Chart 4 : Small-cap vs large-cap PE (x)

18 17 16 15 14 13 12 11 10 9 8 Oct-04 Oct-05 Oct-06 Oct-07 Small Ords Index Oct-08 Oct-09 Oct-10 Oct-11 x
S&P ASX 100 Index
The Small Ords one-year forward PE relative is now 112.8%, above the eight-year average of 99.6%
Chart 5 : Small-cap PE relative

140% 130% 120% 110% 100% 90% 80% 70% Oct-04 Oct-05 Oct-06 Oct-07 Small Ords PE rel Oct-08 Oct-09 Average Oct-10 Oct-11
The overall market is trading below its long-term average oneyear forward PE
Chart 6 : Australian market (All Ords) PE

20 18 16 14 12 10 8 6 Oct 91 Oct 93 Oct 95 Oct 97 Oct 99 Oct 01 Average Oct 03 +1.5 SD Oct 05 Oct 07 Oct 09 Oct 11 X
Market PE
-1.5 SD
Source: IRESS
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Small Ordinaries Index performance over the week Chart 7 : Small Ords best performers
Nexus Energy Limited Pharmaxis Ltd Intrepid Mines Prima Biomed Ltd Mirabela Nickel Ltd Indophil Resources AWE Limited Beadell Resource Ltd Horizon Oil Limited Carbon Energy Karoon Gas Australia Sthn Cross Media Ampella Mining Ramelius Resources Mincor Resources NL Ten Network Alacer Gold Corp. OceanaGold Corp. Aquila Resources Ausdrill Limited 0% 10% 20% 30% 40%
Chart 8 : Small Ords Index worst performers

Matrix C & E Ltd Elders Limited Pacific Brands Cash Converters Telecom Corporation Greenland Min En Ltd Flinders Mines Ltd Troy Resources NL Brockman Resources Bandanna Energy Mesoblast Limited Arafura Resource Ltd Tox Free Solutions Highlands Pacific M2 Telecommunication Hastings Diversified Austar United ROC Oil Company Elemental Minerals Envestra Limited -10% -5% 0%
Source: IRESS
Source: IRESS
Small Industrials Index performance over the week Chart 9 : Small Industrials best performers
Pharmaxis Ltd Prima Biomed Ltd Sthn Cross Media Ten Network Holdings Ausdrill Limited Navitas Limited Starpharma Holdings Flight Centre Industrea Limited IRESS Market Tech. GWA Group Ltd Mineral Resources. Aspen Group McMillan Shakespeare Australand Property Bradken Limited Ausenco Limited Charter Hall Retail Thorn Group Limited Emeco Holdings 0% 10% 20% 30% 40%
Chart 10 : Small Industrials worst performers

Elders Limited Pacific Brands Cash Converters Telecom Corporation Mesoblast Limited Tox Free Solutions M2 Telecommunication Hastings Diversified Austar United Envestra Limited Biota Holdings Watpac Limited Premier Investments Programmed FKP Property Group Acrux Limited STW Communications Ardent Leisure Group CSG Limited Seven Group Holdings -10% -5% 0%
Source: IRESS
Source: IRESS
Small Resources Index performance over the week Chart 11 : Small Resources best performers
Nexus Energy Limited Intrepid Mines Mirabela Nickel Ltd Indophil Resources AWE Limited Beadell Resource Ltd Horizon Oil Limited Carbon Energy Karoon Gas Australia Ampella Mining Ramelius Resources Mincor Resources NL Alacer Gold Corp. OceanaGold Corp. Aquila Resources Gindalbie Metals Ltd Independence Group Alkane Resources Mineral Deposits Eastern Star Gas 0% 10% 20% 30% 40%
Chart 12 : Small Resources worst performers

Greenland Min En Ltd Flinders Mines Ltd Troy Resources NL Brockman Resources Bandanna Energy Arafura Resource Ltd Highlands Pacific ROC Oil Company Elemental Minerals Molopo Energy Ltd Cockatoo Coal Gloucester Coal Rex Minerals Limited Cudeco Limited Samson Oil & Gas Ltd Gryphon Minerals Ltd Bow Energy Limited Extract Resources Hunnu Coal Limited Energy Resources -5% -3% -1% 1% 3% 5%
Source: IRESS
Source: IRESS
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Small Ordinaries Index performance over the month Chart 13 : Small Ords best performers
Pharmaxis Ltd Gunns Limited Nexus Energy Limited Karoon Gas Australia CSG Limited Infigen Energy Coalspur Mines Ltd AWE Limited Aurora Oil & Gas Mineral Deposits Silver Lake Resource Western Areas NL Bandanna Energy Horizon Oil Limited Intrepid Mines Metminco Limited Sthn Cross Media Aditya Birla Imdex Limited Regis Resources 0% 20% 40% 60% 80% 100%
Chart 14 : Small Ords Index worst performers

Allied Gold Min PLC Brockman Resources Matrix C & E Ltd Northern Iron Ltd Elders Limited Murchison Metals Ltd Fletcher Building Pacific Brands Samson Oil & Gas Ltd Ivanhoe Australia Elemental Minerals Teranga Gold Corp Telecom Corporation M2 Eldorado Gold Corp Medusa Mining Ltd Premier Investments Energy World Corpor. ARB Corporation Ampella Mining -20% -10% 0%
Source: IRESS
Source: IRESS
Small Industrials Index performance over the month Chart 15 : Small Industrials best performers
Pharmaxis Ltd Gunns Limited CSG Limited Infigen Energy Sthn Cross Media Prima Biomed Ltd Mesoblast Limited Decmil Group Limited Bradken Limited Tassal Group Limited GWA Group Ltd Ausenco Limited Sigma Pharmaceutical Forge Group Limited Adelaide Brighton iiNet Limited IOOF Holdings Ltd Spotless Group Ltd Flight Centre Navitas Limited 0% 20% 40% 60% 80% 100%

Elders Limited Fletcher Building Pacific Brands Telecom Corporation M2 Telecommunication Premier Investments Energy World Corpor. ARB Corporation Oakton Limited APN News & Media Biota Holdings Super Ret Rep Ltd Qube Logistics Hldg Wotif.com Holdings Silex Systems Watpac Limited SMS Management. Centro Retail Group Singapore Telecomm. Envestra Limited -20% -10% 0%
Source: IRESS
Source: IRESS
Small Resources Index performance over the month Chart 17 : Small Resources best performers
Nexus Energy Limited Karoon Gas Australia Coalspur Mines Ltd AWE Limited Aurora Oil & Gas Mineral Deposits Silver Lake Resource Western Areas NL Bandanna Energy Horizon Oil Limited Intrepid Mines Metminco Limited Aditya Birla Regis Resources Resolute Mining Sandfire Resources Rex Minerals Limited Gindalbie Metals Ltd Independence Group Mirabela Nickel Ltd 0% 20% 40% 60%

Allied Gold Min PLC Brockman Resources Northern Iron Ltd Murchison Metals Ltd Samson Oil & Gas Ltd Ivanhoe Australia Elemental Minerals Teranga Gold Corp Eldorado Gold Corp Medusa Mining Ltd Ampella Mining Alkane Resources Ltd Straits Res Ltd. Kagara Ltd South Boulder Mines OM Holdings Limited Ramelius Resources Carnarvon Petroleum Cudeco Limited Greenland Min En Ltd -20% -10% 0%
Source: IRESS
Source: IRESS
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10
Small Ordinaries Index performance ytd Chart 19 : Small Ordinaries best performers
Sigma Pharmaceutical Mesoblast Limited Samson Oil & Gas Ltd FlexiGroup Limited Alacer Gold Corp. Beach Energy Limited Starpharma Holdings Aston Res Ltd Kathmandu Hold Ltd Hunnu Coal Limited Aurora Oil & Gas Silver Lake Resource Bow Energy Limited Ramelius Resources Regis Resources Resolute Mining Austar United Envestra Limited Focus Minerals Ltd Beadell Resource Ltd 0% 30% 60% 90% 120% 150%
Chart 20 : Small Ordinaries worst performers

Hastie Group Limited Murchison Metals Ltd Ivanhoe Australia Platinum Australia Energy Resources Carnarvon Petroleum Straits Res Ltd. Brockman Resources Silex Systems Arafura Resource Ltd Pharmaxis Ltd Elders Limited Greenland Min En Ltd Matrix C & E Ltd Gindalbie Metals Ltd Galaxy Resources Mincor Resources NL Indophil Resources APN News & Media OM Holdings Limited -90% -70% -50% -30% -10%
Source: IRESS
Source: IRESS
Small Industrials Index performance ytd Chart 21 : Small Industrials best performers
Sigma Pharmaceutical Mesoblast Limited FlexiGroup Limited Starpharma Holdings Kathmandu Hold Ltd Austar United Envestra Limited GrainCorp Limited Macmahon Holdings Telecom Corporation Prima Biomed Ltd Acrux Limited Programmed Charter Hall Retail SP AusNet Centro Retail Group ARB Corporation NRW Holdings Singapore Telecomm. Ardent Leisure Group 0% 30% 60% 90% 120% 150%

Hastie Group Limited Silex Systems Pharmaxis Ltd Elders Limited APN News & Media Gunns Limited Transpacific Indust. Alesco Corporation Infigen Energy FKP Property Group Cash Converters Hills Holdings Ltd Pacific Brands Sthn Cross Media Astro Jap Prop Group Austal Limited Watpac Limited Ten Network Perpetual Limited The Reject Shop -90% -70% -50% -30% -10%
Source: IRESS
Source: IRESS
Small Resources Index performance ytd Chart 23 : Small Resources best performers
Samson Oil & Gas Ltd Alacer Gold Corp. Beach Energy Limited Aston Res Ltd Hunnu Coal Limited Aurora Oil & Gas Silver Lake Resource Bow Energy Limited Ramelius Resources Regis Resources Resolute Mining Focus Minerals Ltd Beadell Resource Ltd Alkane Resources Ltd Mineral Deposits Eastern Star Gas St Barbara Limited Medusa Mining Ltd Bathurst Resources Troy Resources NL 0% 20% 40% 60% 80%

Murchison Metals Ltd Ivanhoe Australia Platinum Australia Energy Resources Carnarvon Petroleum Brockman Resources Arafura Resource Ltd Greenland Min En Ltd Gindalbie Metals Ltd Galaxy Resources Mincor Resources NL Indophil Resources OM Holdings Limited Carbon Energy Highlands Pacific White Energy Kagara Ltd Rex Minerals Limited Nexus Energy Limited Metminco Limited -80% -60% -40% -20% 0%
Source: IRESS
Source: IRESS
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11
Small Ordinaries Index top 20 index contributors in the last week Chart 25 : Small Ords top 20 contributors (bp)
Intrepid Mines Mirabela Nickel Independence Group NL AWE Aston Resources Beach Energy Karoon Gas Australia Nexus Energy Flight Centre Bradken Coalspur Mines Pharmaxis Ltd Alacer Gold Corp. Aurora Oil & Gas Aquila Resources GWA Group Beadell Resources Ausdrill Mount Gibson Iron Ten Network Holdings 0 1 2 3 4
Chart 26 : Small Ords bottom 20 contributors (bp)

Super Retail Group Pacific Brands Telecom Corporation of New Zealand Gloucester Coal Ltd Seven Group Holdings Perpetual Northern Iron Troy Resources NL Matrix Composites & Engineering Austar United Communications IOOF Holdings Premier Investments Mesoblast Rex Minerals Wotif.com Holdings Hastings Diversified Utilities Fund Greenland Minerals and Energy Silex Systems Elders Elemental Minerals -2 -1 0
Source: IRESS
Source: IRESS
Small Ordinaries Index top 20 index contributors in the last month Chart 27 : Small Ords top 20 contributors (bp)
Aurora Oil & Gas Karoon Gas Australia Mesoblast Independence Group Mount Gibson Iron Bradken AWE Western Areas NL GrainCorp Regis Resources Perseus Mining Adelaide Brighton Intrepid Mines Coalspur Mines Monadelphous Group IOOF Holdings Mineral Resources Sundance Resources Beach Energy Silver Lake 0 2 4 6 8 10
Chart 28 : Small Ords bottom 20 contributors(bp)

Fletcher Building Telecom Corporation of New Zealand Allied Gold Mining PLC Super Retail Group Pacific Brands Ivanhoe Australia Northern Iron Matrix Composites & Engineering Elemental Minerals ARB Corporation Elders Samson Oil & Gas Murchison Metals Ltd Premier Investments M2 Telecommunications Group Centro Retail Group Biota Holdings Brockman Resources SAI Global Oakton
-5
-4
-3
-2
-1
Source: IRESS
Source: IRESS
Small Ordinaries Index top 20 index contributors ytd Chart 29 : Small Ords top 20 contributors (bp)
Sigma Pharmaceuticals Limited Beach Energy Limited Mesoblast Limited Aurora Oil & Gas Limited Alacer Gold Corp. Aston Resources Limited Telecom Corporation of New Zealand Limited GrainCorp Limited Giralia Resources NL Regis Resources Limited SP AusNet FlexiGroup Limited Straits Resources Limited Austar United Communications Limited Silver Lake Resources Limited Bow Energy Limited Charter Hall Retail REIT Resolute Mining Limited Crane Group Limited Kathmandu Holdings Limited
Chart 30 : Small Ords bottom 20 contributors (bp)

Aquila Resources Limited Karoon Gas Australia Limited Energy Resources of Australia Limited Gindalbie Metals Ltd Silex Systems Limited APN News & Media Limited Independence Group NL White Energy Company Limited Intrepid Mines Limited Fletcher Building Limited Pharmaxis Ltd Ivanhoe Australia Limited Whitehaven Coal Limited Pacific Brands Limited Mount Gibson Iron Limited Kingsgate Consolidated Limited Southern Cross Media Group Limited Transpacific Industries Group Ltd Murchison Metals Ltd Flight Centre Limited
10
15
-20
-15
-10
-5
Source: IRESS
Source: IRESS
72
12
Australia Small/Mid Caps | Sector Dynamics | 28 October 2011 13
Table 3: RBS small/mid-cap coverage

ASX Code Company Name RBS analyst Share price (A$) 0.88 2.26 1.18 2.63 3.93 1.21 0.68 12.61 6.27 0.89 3.51 2.36 0.93 Price target (A$) 1.37 2.60 1.37 2.68 4.30 1.50 0.72 11.25 7.15 1.44 3.47 2.20 0.81 Rec Mkt Cap (A$m) 551 1,228 1,500 1,478 2,704 854 249 1,661 2,113 324 2,266 3,164 967 NPAT (A$m) Pre abormals FY11F FY12F 83.1 56.6 82.4 94.8 184.3 68.6 27.2 68.7 104.6 40.6 115.1 279.5 74.1 96.4 94.6 98.0 92.7 135.6 98.9 28.8 80.2 131.1 43.1 281.3 329.8 53.6 EPS (cps) Pre goodwill FY10A FY11F FY12F 17.2 10.2 4.2 14.0 39.3 14.9 5.0 40.2 24.5 10.8 44.9 22.1 9.3 13.5 10.5 6.3 16.6 26.8 14.8 7.4 53.1 31.0 11.4 37.5 21.5 7.1 15.6 17.4 7.5 16.5 19.7 14.0 7.9 61.1 38.8 12.3 41.9 25.0 5.1 PER (x) Pre goodwill FY11F FY12F 6.5 21.5 18.7 15.8 14.7 8.2 9.2 23.8 20.2 7.8 9.4 11.0 13.1 5.6 13.0 15.7 15.9 19.9 8.6 8.6 20.6 16.1 7.2 8.4 9.4 18.1 Dividends EV/EBIT (x) (cps) Ex assoc. FY11F FY12F FY11F FY12F 6.3 16.0 14.5 n/a 11.9 11.2 7.8 16.3 17.1 6.4 20.1 8.3 9.7 5.5 9.7 13.1 n/a 12.8 7.4 7.2 13.4 13.0 6.2 7.4 7.1 11.9 8.1 5.4 0.0 16.5 0.0 10.0 4.5 26.0 14.3 7.4 45.0 21.5 5.3 9.3 8.7 0.0 16.5 10.0 9.1 5.5 30.5 21.4 8.6 35.0 22.5 3.8 Net yield (%) FY11F 9.2 2.4 0.0 6.3 0.0 8.3 6.6 2.1 2.3 8.4 12.8 9.1 5.6 FY12F 10.6 3.8 0.0 6.3 2.5 7.5 8.1 2.4 3.4 9.7 10.0 9.5 4.1
FY10A 103.1 54.4 54.1 89.5 270.7 48.0 18.4 51.4 82.9 38.7 96.2 282.4 96.9
FY13F 105.9 117.6 126.7 96.6 179.9 110.3 29.2 95.0 153.9 45.5 293.6 197.4 75.2
FY13F 17.1 21.5 9.7 17.2 25.8 15.6 8.0 71.3 45.6 13.0 41.8 15.0 7.2
FY10A 5.1 22.2 28.2 18.9 10.0 8.1 13.5 31.4 25.5 8.2 7.8 10.7 10.0
FY13F 5.1 10.5 12.2 15.3 15.2 7.7 8.5 17.7 13.8 6.9 8.4 15.8 12.9
FY10A 5.7 17.9 18.2 n/a 13.5 10.2 10.4 21.9 20.2 6.5 16.6 9.5 7.1
CONSUMER DISCRETIONARY (Media/Gaming) APN APN Fraser McLeish ALL Aristocrat Michael Nolan AUN Austar Fraser McLeish CMJ Consolidated Media Fraser McLeish EGP Echo Entertainment Michael Nolan SXL Southern Cross Media Ashley Wallace PRT Prime TV Ashley Wallace REA REA Group Ashley Wallace SEK SEEK Limited Fraser McLeish SGN STW Communications Matthew Nicholas SWM Seven West Media Ltd. Fraser McLeish TTS Tatts Group Michael Nolan TEN Ten Network Fraser McLeish CONSUMER DISCRETIONARY (Retail) ARP ARB Corporation BBG Billabong DJS David Jones GUD GUD Holdings HVN Harvey Norman JBH JB Hi-Fi MYR Myer PBG Pacific Brands PMV Premier Investments TRS The Reject Shop
Buy Buy Buy Buy Hold Buy Hold Hold Buy Buy Hold Hold Sell
Matthew Nicholas Daniel Broeren Daniel Broeren Matthew Nicholas Daniel Broeren Daniel Broeren Daniel Broeren Julian Guido Julian Guido Julian Guido
8.22 4.30 3.53 7.60 2.26 16.40 2.66 0.60 4.99 10.18
8.65 3.65 2.95 9.00 2.60 17.25 2.55 0.92 5.58 12.70
Hold Hold Hold Buy Buy Buy Buy Buy Hold Hold
596 1,097 1,838 533 2,401 1,621 1,552 559 774 265
32.6 145.9 174.0 46.4 290.0 118.6 163.5 90.3 63.2 23.5
37.9 118.0 168.1 49.0 242.0 134.4 163.2 103.4 61.1 16.1
42.0 111.7 147.6 49.7 243.7 137.7 142.0 86.5 61.1 23.7
46.1 124.6 158.3 55.3 270.7 155.6 160.7 104.3 71.3 29.1
46.3 57.2 34.1 76.5 27.3 106.1 28.1 9.7 41.8 89.5
52.2 46.3 33.0 71.7 22.8 120.2 28.0 11.1 39.4 61.4
58.0 43.7 28.8 71.6 22.9 138.4 24.3 9.3 39.4 89.6
63.6 48.6 30.7 79.5 25.5 155.1 27.6 11.2 46.0 109.4
17.8 7.5 10.4 9.9 8.3 15.5 9.5 6.2 11.9 11.4
15.7 9.3 10.7 10.6 9.9 13.6 9.5 5.4 12.7 16.6
14.2 9.8 12.3 10.6 9.9 11.9 10.9 6.4 12.7 11.4
12.9 8.8 11.5 9.6 8.9 10.6 9.7 5.4 10.8 9.3
12.9 7.1 7.5 7.6 6.1 9.4 6.9 4.9 6.8 8.9
11.2 10.4 7.7 8.1 7.2 9.3 7.4 4.2 9.3 11.7
9.7 9.3 8.9 7.7 6.9 8.6 8.4 4.8 7.3 8.2
23.0 29.0 28.0 64.0 12.0 77.0 22.5 6.2 36.0 31.0
26.5 29.0 24.0 64.0 11.0 85.0 20.0 6.1 35.5 68.0
2.8 6.7 7.9 8.4 5.3 4.7 8.5 10.3 7.2 3.0
3.2 6.7 6.8 8.4 4.9 5.2 7.5 10.1 7.1 6.7
CONSUMER STAPLES (Agriculture + Food/Beverage) GFF Goodman Fielder Michael Nolan MTS Metcash Daniel Broeren TGR Tassal Group Matthew Nicholas FINANCIALS (Banks) BOQ Bank of Queensland BEN Bendigo & Adelaide Bank FINANCIALS (Diversified) AUB Austbrokers BTT BT Investment Mgmt CGF Challenger Fin.Group HGG Henderson Group PLC IFL IOOF Limited IMF IMF Australia MOC Mortgage Choice PPT Perpetual PTM Platinum Asset Mgmt TSM Think Smart WHG WHK Group HEALTHCARE ANN Ansell COH Cochlear PRY Primary Health Care RHC Ramsay Health Care RMD Resmed
0.54 4.24 1.59
0.60 4.25 1.30
Hold Hold Hold
960 3,270 233
183.5 238.5 22.6
135.2 248.3 21.6
128.9 276.9 25.0
141.5 304.4 27.4
13.4 31.1 16.1
9.8 32.3 14.8
7.1 36.0 17.1
7.2 39.6 18.6
4.0 13.6 9.9
5.5 13.1 10.8
7.6 11.8 9.3
7.5 10.7 8.6
5.5 9.3 10.0
6.2 9.2 9.2
6.2 8.2 7.9
7.8 27.0 2.0
5.7 29.0 6.0
14.4 6.4 1.3
10.6 6.8 3.8
John Buonaccorsi John Buonaccorsi
8.50 9.55
12.38 9.32
Buy Hold
1,916 3,493
189.1 291.0
166.9 336.2
262.9 337.2
292.7 364.7
83.8 77.1
71.3 87.0
104.3 85.7
112.3 90.5
10.1 12.4
11.9 11.0
8.1 11.1
7.6 10.5
7.0 8.0
7.8 7.2
5.0 6.9
54.0 60.0
69.0 61.0
6.4 6.3
8.1 6.4
Julian Guido Julian Guido Richard Coles Julian Guido Julian Guido Julian Guido Julian Guido Richard Coles Julian Guido Matthew Nicholas Julian Guido
6.30 2.04 4.60 1.91 6.18 1.45 1.23 22.68 4.05 0.44 0.84
6.46 3.02 5.10 2.72 7.50 2.17 1.38 25.35 5.25 1.00 1.15
Buy Buy Buy Buy Buy Buy Hold Hold Hold Buy Buy
349 547 2,545 2,166 1,420 180 148 938 2,273 57 223
20.3 30.9 232.5 84.6 97.2 11.9 14.8 72.8 155.0 8.9 28.5
23.9 32.7 248.0 122.4 111.5 22.9 15.9 72.9 190.5 8.7 25.8
26.8 35.9 275.4 151.2 120.2 36.4 16.2 67.8 211.2 12.0 29.6
29.5 39.3 300.6 163.6 130.7 27.5 16.8 69.2 227.8 17.9 32.8
39.0 19.3 42.7 10.0 42.1 9.7 12.3 169.2 26.6 8.3 10.6
43.6 20.4 48.1 11.9 48.1 16.8 13.2 165.5 32.4 6.6 9.6
48.4 22.4 51.2 13.8 51.6 29.2 13.4 156.7 35.9 9.1 11.0
53.1 24.6 53.4 14.8 55.8 22.0 13.9 162.9 38.7 13.4 12.2
16.2 10.6 10.8 19.2 14.7 14.9 10.0 13.4 15.2 5.3 7.9
14.5 10.0 9.6 16.1 12.8 8.6 9.3 13.7 12.5 6.7 8.7
13.0 9.1 9.0 13.9 12.0 5.0 9.2 14.5 11.3 4.8 7.6
11.9 8.3 8.6 12.9 11.1 6.6 8.8 13.9 10.5 3.3 6.9
19.7 6.1 8.5 12.0 9.9 10.3 6.5 6.2 9.5 3.7 5.7
17.1 5.6 7.1 8.3 8.5 5.6 6.1 6.3 7.3 4.3 6.3
16.5 4.9 6.1 6.8 7.8 3.0 4.7 7.2 6.6 3.0 5.8
25.5 17.5 16.5 7.2 43.0 15.0 13.0 185.0 27.5 3.5 7.0
30.0 20.0 18.5 9.2 47.0 32.0 13.4 146.0 30.5 4.8 7.6
4.0 8.6 3.6 3.7 7.0 10.3 10.6 8.2 6.8 8.0 8.3
4.8 9.8 4.0 4.8 7.6 22.1 10.9 6.4 7.5 10.8 9.0
Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek
13.97 59.00 3.40 18.64 2.59
13.92 63.05 3.20 17.95 2.84
Hold Buy Hold Hold Hold
1,833 3,357 1,701 3,767 4,031
106.2 155.2 132.0 178.8 194.8
121.7 180.1 96.5 204.7 229.3
136.3 139.1 115.7 227.7 232.6
152.0 183.2 132.9 252.1 247.5
80.0 274.5 26.8 88.2 251.1
91.5 316.1 19.5 101.1 145.9
102.9 244.0 23.2 112.4 152.3
117.0 321.4 26.2 124.4 166.5
17.5 21.5 12.7 21.1 1.0
15.3 18.7 17.4 18.4 1.8
13.6 24.2 14.7 16.6 1.7
11.9 18.4 13.0 15.0 1.6
16.7 15.7 10.3 14.8 15.8
15.0 13.7 11.6 12.1 13.5
13.5 16.7 10.6 10.9 13.5
32.4 225.0 8.0 52.0 0.0
42.2 240.0 18.0 58.0 0.0
2.3 3.8 2.4 2.8 0.0
3.0 4.1 5.3 3.1 0.0
Priced at close of business 27 October 2011. Recommendations may lie outside the structure outlined in the disclosure page. Source: Company data, RBS forecasts
73
RBS small/mid-cap coverage (contd)

ASX Code Company Name RBS analyst Share price (A$) Price target (A$) Rec Mkt Cap (A$m) NPAT (A$m) Pre abormals FY10A FY11F FY12F EPS (cps) Pre goodwill FY10A FY11F FY12F PER (x) Pre goodwill FY11F FY12F Dividends EV/EBIT (x) (cps) Ex assoc. FY10A FY11F FY12F FY11F FY12F Net yield (%) FY11F FY12F
FY13F
FY13F
FY10A
FY13F
IT & TELCOS AMM Amcom CRZ Carsales CUS Customers DWS DWS Advanced Business HTA Hutchison Telec IIN iiNet IRE IRESS Market Tech OKN Oakton RKN Reckon SGT SingTel SMX SMS Management TEL Telecom Corp INDUSTRIALS (Construction) BLY Boart Longyear BLD Boral CSR CSR Ltd JHX James Hardie INDUSTRIALS (Miscellaneous) ALS Alesco ASB Austal Limited ASL Ausdrill Limited DLX DuluxGroup GWA GWA International HIL Hills Industries IMD Imdex Limited IVC Invocare NVT Navitas PPC Peet REX Regional Express SAI SAI Global VBA Virgin Blue INDUSTRIALS (Support Services) CAB Cabcharge Australia CND Clarius Group PRG Programmed Maintenance SGH Slater & Gordon SKE Skilled Group SLM Salmat SPT Spotless Group TWO Talent2 International
Alan Stuart Ashley Wallace Julian Guido Julian Guido Ian Martin Ian Martin Julian Guido Julian Guido Julian Guido Ian Martin Julian Guido Alan Stuart
0.83 4.98 1.10 1.32 0.06 2.55 7.69 1.76 2.70 3.25 5.42 1.92
0.97 5.38 1.68 1.42 0.13 3.20 8.70 2.43 2.37 3.16 6.82 2.01
Buy 198 Buy 1,165 Buy 148 Hold 174 Buy 774 Buy 382 Hold 977 Buy 165 Hold 360 Hold 51,808 Buy 370 Hold 3,696
18.4 43.2 21.1 18.5 41.5 34.8 58.4 20.9 15.7 3,911.7 27.9 379.7
21.6 58.2 21.5 17.4 -90.6 38.0 63.0 16.8 18.1 3,800.0 29.8 387.0
16.3 67.1 17.0 19.1 28.0 44.4 75.2 19.6 21.0 3,745.5 35.5 457.0
18.9 76.0 23.8 20.7 107.4 49.2 83.6 23.4 22.9 4,011.1 39.6 490.7
5.7 18.6 15.3 14.0 0.3 22.9 46.3 22.9 11.8 24.6 41.9 19.8
9.0 24.9 15.9 13.1 -0.7 25.0 48.6 18.0 13.6 23.9 44.3 20.2
6.8 28.5 12.6 14.4 0.2 29.8 57.0 20.8 15.8 23.5 52.3 23.7
7.8 32.0 17.7 15.6 0.8 33.8 62.4 24.8 17.2 25.2 58.2 25.5
14.6 26.7 7.2 9.4 19.6 11.1 16.6 7.7 23.0 13.2 12.9 9.7
9.2 20.0 6.9 10.1 n/a 10.2 15.8 9.8 19.9 13.6 12.2 9.5
12.3 17.5 8.7 9.2 29.1 8.6 13.5 8.5 17.1 13.8 10.4 8.1
10.6 15.5 6.2 8.4 7.6 7.5 12.3 7.1 15.7 12.9 9.3 7.5
12.8 18.5 5.8 6.1 n/a 9.0 11.2 5.6 15.7 10.8 8.9 9.8
9.5 14.0 6.9 6.7 n/a 7.9 10.7 7.2 14.0 10.9 8.3 9.4
8.1 11.8 6.2 6.0 n/a 6.6 8.7 5.6 12.4 10.5 7.1 8.9
4.8 19.9 5.0 12.0 0.0 12.0 39.0 8.5 8.5 30.0 18.0
3.5 22.8 6.5 11.0 0.0 15.0 45.5 16.0 9.5 35.5 21.0
5.8 4.0 4.5 9.1 0.0 4.7 5.1 4.8 3.1 5.5 9.4
4.2 4.6 5.9 8.3 0.0 5.9 5.9 9.1 3.5 6.5 10.9
Andrew Hodge Andrew Scott Andrew Scott Andrew Scott
3.20 3.88 2.45 6.25
4.03 4.04 3.25 6.78
Buy Hold Buy Buy
1,476 2,890 1,240 2,723
84.5 144.5 173.4 133.0
149.4 173.5 90.2 116.7
193.4 203.2 100.3 134.4
214.8 275.6 127.8 180.1
18.5 24.1 38.0 30.7
32.8 24.0 17.8 26.7
42.5 28.2 19.8 31.6
47.3 38.0 25.3 43.5
17.3 16.1 6.4 20.4
9.8 16.2 13.7 23.4
7.5 13.8 12.4 19.8
6.8 10.2 9.7 14.4
13.6 16.3 5.7 14.4
8.1 14.6 5.5 15.7
6.3 13.8 6.5 15.0
9.8 14.5 41.7 0.0
12.8 16.0 15.7 6.0
3.1 3.7 17.0 0.0
4.0 4.1 6.4 1.0
Julian Guido Julian Guido Matthew Nicholas Julian Guido Julian Guido Matthew Nicholas Matthew Nicholas Julian Guido Julian Guido Matthew Nicholas Michael Newbold, CFA Julian Guido Mark Williams
1.38 2.23 3.12 2.70 2.34 1.13 2.10 7.03 4.24 1.21 0.99 4.72 0.37
1.81 3.75 3.80 3.13 2.16 1.19 2.83 7.60 4.12 2.00 1.26 5.20 0.41
Hold Buy Buy Buy Hold Hold Buy Hold Hold Buy Buy Buy Buy
130 419 941 992 706 280 429 774 1,591 387 120 954 807
24.0 39.0 52.7 71.5 55.5 40.9 11.8 34.1 64.3 42.1 19.3 40.6 9.7
15.6 40.5 78.5 79.1 63.4 24.7 31.0 40.4 76.0 44.0 17.4 57.8 -48.1
14.7 49.7 96.7 80.9 56.6 32.7 47.0 46.7 88.0 39.6 21.7 66.4 64.5
18.9 50.2 116.0 84.3 60.4 36.6 54.1 51.1 103.8 44.4 24.0 77.9 114.9
25.5 20.7 25.9 19.5 18.5 17.0 6.1 33.6 18.8 14.1 17.4 25.9 0.4
16.5 21.5 29.0 21.5 21.0 9.9 15.6 38.9 21.3 14.5 15.7 29.8 -2.2
15.5 26.4 32.1 22.0 18.8 13.4 23.1 43.1 23.4 12.5 19.7 33.3 2.9
20.0 26.7 38.5 22.9 20.0 15.3 26.5 46.9 27.6 14.0 21.9 39.0 5.2
5.4 10.8 12.0 13.9 12.7 6.6 34.7 20.9 22.6 8.6 5.7 18.3 84.9
8.4 10.4 10.8 12.5 11.1 11.4 13.4 18.1 19.9 8.3 6.3 15.9 n/a
8.9 8.4 9.7 12.3 12.5 8.4 9.1 16.3 18.1 9.7 5.0 14.2 12.7
6.9 8.4 8.1 11.8 11.7 7.4 7.9 15.0 15.3 8.7 4.5 12.1 7.1
7.8 9.5 12.2 9.7 9.3 4.8 27.0 15.4 17.2 8.0 5.2 16.9 23.0
5.7 6.9 8.7 8.8 8.4 9.1 10.0 13.6 15.4 8.0 5.2 12.5 n/a
6.8 5.4 7.1 8.6 9.3 7.1 6.5 11.5 12.9 9.5 3.4 11.1 11.5
14.0 6.0 12.0 15.0 18.0 10.0 4.5 31.3 20.7 8.5 7.1 14.3 0.0
9.0 7.0 13.0 16.0 18.0 11.0 5.5 36.0 23.5 7.5 7.6 16.3 0.0
10.1 2.7 3.8 5.6 7.7 8.8 2.1 4.4 4.9 7.0 7.2 3.0 0.0
6.5 3.1 4.2 5.9 7.7 9.7 2.6 5.1 5.5 6.2 7.7 3.5 0.0
Julian Guido Matthew Nicholas Julian Guido Julian Guido Julian Guido Julian Guido Julian Guido Matthew Nicholas
4.32 0.52 1.98 1.86 1.78 2.79 2.07 1.15
6.63 0.65 2.14 2.50 2.30 4.49 2.25 1.70
Buy Hold Hold Buy Buy Buy Hold Buy
520 47 234 281 415 446 549 169
57.7 3.3 27.4 19.8 19.2 55.9 46.4 9.8
65.6 4.7 28.6 27.9 26.1 51.6 43.1 13.8
66.0 6.9 29.1 37.3 43.8 60.7 52.0 16.9
70.6 8.2 33.7 41.2 51.9 68.2 58.8 21.9
47.9 4.1 25.7 16.7 11.0 35.1 18.4 7.4
54.5 5.4 24.2 18.3 12.5 32.4 16.5 9.7
54.8 8.0 24.7 23.6 18.3 37.9 19.8 11.5
58.7 9.4 28.5 25.5 21.7 42.6 22.3 14.7
9.0 12.7 7.7 11.2 16.2 7.9 11.2 15.5
7.9 9.6 8.2 10.2 14.3 8.6 12.6 11.9
7.9 6.5 8.0 7.9 9.7 7.4 10.4 10.0
7.4 5.5 6.9 7.3 8.2 6.5 9.3 7.8
9.0 8.4 5.9 9.6 11.9 6.5 7.6 15.9
9.1 5.8 7.3 7.1 9.0 8.1 8.2 10.4
8.7 3.8 6.0 5.7 7.1 6.4 7.3 8.0
30.0 4.0 9.0 5.5 3.0 24.0 11.0 5.5
37.5 5.5 11.0 7.5 7.0 27.1 13.0 6.0
6.9 7.7 4.5 3.0 1.7 8.6 5.3 4.8
8.7 10.6 5.6 4.0 3.9 9.7 6.3 5.2
INDUSTRIALS (Engineering contractors) BKN Bradken Matthew Nicholas BOL BOOM Logistics Matthew Nicholas EHL Emeco Matthew Nicholas DOW Downer EDI Andrew Hodge HST Hastie Group Julian Guido MND Monadelphous Andrew Hodge NFK Norfolk Group Julian Guido TSE Andrew Hodge Transfield Services UGL Andrew Hodge United Group MATERIALS ABC Adelaide Brighton NUF Nufarm SGM Sims Group
7.90 0.28 1.04 3.00 0.11 19.26 1.17 2.28 12.94
9.85 0.49 1.23 5.01 0.12 23.09 1.65 2.13 14.63
Buy Buy Buy Buy Hold Buy Buy Hold Buy
1,316 133 660 1,287 151 1,708 186 1,253 2,149
78.4 4.1 40.7 186.2 40.4 83.2 18.3 123.7 151.1
90.1 5.4 56.3 155.9 18.7 96.3 21.1 128.2 164.4
120.3 17.4 68.7 190.1 23.6 114.5 24.4 126.3 171.2
143.9 21.6 78.2 221.3 31.8 135.1 27.9 144.0 196.7
60.2 1.3 6.4 52.1 17.1 95.5 13.7 29.9 91.2
63.5 1.2 8.9 42.6 7.4 110.2 13.3 26.0 98.8
72.3 3.7 10.9 44.3 1.7 130.3 15.4 23.4 102.4
84.0 4.6 12.4 51.5 2.3 153.2 17.5 28.4 117.3
13.1 21.4 16.1 5.8 0.6 20.2 8.6 7.6 14.2
12.4 23.9 11.7 7.0 1.5 17.5 8.8 8.8 13.1
10.9 7.5 9.6 6.8 6.4 14.8 7.6 9.7 12.6
9.4 6.0 8.4 5.8 4.7 12.6 6.7 8.0 11.0
11.3 14.7 11.4 5.6 4.6 13.9 6.5 10.4 10.3
9.9 11.0 9.3 5.9 8.3 12.0 5.4 9.2 9.3
8.4 7.1 8.2 5.4 5.3 9.6 4.3 8.7 8.7
39.5 0.0 10.0 0.0 0.0 95.0 2.0 14.0 70.0
45.0 0.0 6.0 21.0 0.0 112.0 4.0 14.0 71.5
5.0 0.0 9.6 0.0 0.0 4.9 1.7 6.1 5.4
5.7 0.0 5.8 7.0 0.0 5.8 3.4 6.1 5.5
Andrew Scott Andrew Scott Todd Scott
2.93 4.68 14.20
3.20 5.05 19.10
Hold Buy Buy
1,864 1,225 2,951
151.5 48.4 126.7
153.1 86.1 182.0
165.5 101.9 279.6
197.4 118.5 364.1
23.9 21.3 65.7
24.1 32.9 88.9
26.1 38.9 136.1
31.1 45.3 177.3
12.3 22.0 21.6
12.2 14.2 16.0
11.2 12.0 10.4
9.4 10.3 8.0
10.9 13.6 13.8
10.8 8.8 10.5
10.1 7.8 6.9
19.0 0.0 47.0
23.6 11.7 68.0
6.5 0.0 3.3
8.1 2.5 4.8
74
RBS small/mid-cap coverage (contd)

ASX Code Company Name RBS analyst Share price (A$) Price target (A$) Rec Mkt Cap (A$m) NPAT (A$m) Pre abormals FY11F FY12F EPS (cps) Pre goodwill FY10A FY11F FY12F PER (x) Pre goodwill FY11F FY12F Dividends EV/EBIT (x) (cps) Ex assoc. FY11F FY12F FY11F FY12F Net yield (%) FY11F FY12F
FY10A
FY13F
FY13F
FY10A
FY13F
FY10A
UTILITIES/INFRASTRUCTURE AIX Aust Infrastructure Fund APA APA Group CEU ConnectEast CIF Challenger Infrastructure DUE DUET Group ENV Envestra EPW ERM Power Limited HDF Hastings Diversified Util IFN Infigen Energy MQA Macquarie Atlas Roads SPN SP Ausnet SKI Spark Infrastructure ENERGY (Oil & Gas) LNC Linc Energy OTHER RESOURCES AGO Atlas Iron AQA Aquila Resources ERA Energy Resources GBG Gindalbie Metals GRR Grange Resources ILU Iluka Resources IRD Iron Road MIN Mineral Resources OGC OceanaGold MML Medusa Mining Ltd OMH OM Holdings KCN Kingsgate Consolidated MGX Mount Gibson Iron PDN Paladin PRU Perseus Mining ALK Alkane Resources RRL Regis Resources
William Allott Jason Mabee, CFA William Allott William Allott William Allott William Allott Jason Mabee, CFA William Allott William Allott William Allott William Allott William Allott
1.91 4.36 0.55 1.10 1.67 0.64 1.50 1.60 0.29 1.42 0.99 1.18
1.92 4.80 0.55 1.35 2.00 0.80 1.90 1.95 0.80 1.88 1.00 1.35
Hold Buy Hold Buy Buy Buy Buy Buy Buy Buy Hold Hold
1,189 2,788 2,147 348 1,823 947 246 848 225 659 2,822 1,572
191.3 100.3 -53.6 -210.7 140.0 36.6 21.5 35.6 -66.7 -281.7 209.0 78.4
212.3 108.5 -10.3 -0.8 124.9 47.2 2.0 39.7 -26.0 -57.0 252.9 153.0
160.6 117.4 -13.5 11.0 90.7 63.0 31.5 26.8 -42.7 108.5 244.5 165.2
166.5 132.9 5.5 22.3 89.0 69.7 36.7 19.7 -24.4 23.0 251.2 165.9
33.2 19.4 -1.4 -64.4 16.3 2.7 13.5 7.1 -8.5 -62.3 7.7 6.7
34.2 19.7 -0.3 -0.3 14.1 3.3 1.5 7.7 -3.4 -12.6 9.0 11.5
25.9 18.2 -0.3 3.5 9.2 4.1 19.4 5.1 -5.6 24.0 8.6 12.4
26.8 20.1 0.1 7.0 8.1 4.3 22.6 3.7 -3.2 5.1 8.7 12.5
5.8 22.4 n/a n/a 10.2 23.5 11.1 22.6 n/a n/a 12.8 17.7
5.6 22.1 n/a n/a 11.8 19.3 102.2 20.8 n/a n/a 10.9 10.2
7.4 23.9 n/a 31.7 18.2 15.4 7.7 31.3 n/a 5.9 11.4 9.5
7.1 21.7 397.4 15.7 20.6 14.9 6.6 43.1 n/a 27.9 11.4 9.4
5.6 15.5 576.0 12.3 11.6 13.8 11.3 19.7 70.1 817.6 12.2 9.3
5.0 14.3 78.3 13.0 13.4 11.9 7.7 23.8 39.8 n/a 11.7 9.9
6.3 13.4 47.2 15.3 12.3 10.8 5.6 15.0 28.5 30.7 11.6 9.5
10.0 34.4 2.0 14.0 20.0 5.8 3.5 10.0 1.0 0.0 8.0 9.5
10.5 35.4 2.2 10.0 16.0 5.9 7.7 10.0 0.0 7.0 8.0 9.7
5.2 7.9 3.6 12.7 12.0 9.1 2.3 6.3 3.4 0.0 8.1 8.1
5.5 8.1 4.0 9.1 9.6 9.3 5.1 6.3 0.0 4.9 8.1 8.3
Jason Mabee, CFA
2.13
3.75
Buy
1,072
-14.4
-204.0
81.0
186.4
-3.4
-41.1
16.1
37.0
n/a
n/a
13.2
5.8
n/a
n/a
0.4
0.0
0.0
0.0
0.0
Lyndon Fagan Sam Berridge Lyndon Fagan Todd Scott Todd Scott Sam Berridge Todd Scott Todd Scott Phillip Chippindale Phillip Chippindale Todd Scott Sam Berridge Lyndon Fagan Lyndon Fagan Sam Berridge Sam Berridge Sam Berridge
3.23 5.84 2.06 0.61 0.45 16.32 0.67 11.18 2.45 6.95 0.64 7.97 1.59 1.54 3.30 1.22 3.00
4.06 5.23 1.81 0.72 0.62 18.05 0.77 10.75 2.88 7.46 0.48 8.06 1.77 1.89 3.37 1.92 2.87
Buy Hold Sell Buy Buy Buy Buy Hold Buy Buy Sell Hold Buy Buy Hold Buy Hold
2,872 2,186 905 687 519 6,833 95 2,061 643 1,312 325 1,108 1,716 1,287 1,408 328 1,302
-40.8 -33.1 52.8 -3.7 33.9 36.1 -11.3 97.2 29.8 65.8 47.2 75.6 130.4 -52.9 -9.7 7.8 -10.1
168.6 -63.5 39.5 -5.3 86.1 497.9 -17.5 151.0 54.5 111.5 4.1 32.0 233.8 -59.0 -30.0 -5.4 36.3
233.2 -35.2 92.5 18.2 102.7 1,161.2 -17.2 190.1 90.4 128.2 17.3 209.8 410.9 -22.6 132.9 -9.9 52.9
215.2 -154.1 0.7 93.8 80.1 1,273.8 -17.1 211.7 38.3 121.1 26.5 208.3 384.0 26.5 114.7 -50.1 193.5
-8.6 -9.3 27.7 -0.5 3.0 8.6 -11.8 66.6 11.4 35.0 9.4 75.2 12.1 -7.4 -2.3 2.9 -2.4
20.4 -17.0 7.6 -0.6 7.5 118.9 -13.6 89.8 20.8 59.3 0.8 23.6 21.7 -7.9 -7.1 -2.0 8.4
28.2 -9.4 17.9 1.5 8.9 277.3 -12.2 104.9 34.5 68.2 3.4 155.0 38.2 -2.9 31.2 -3.7 12.2
26.0 -41.2 0.1 7.6 6.9 304.2 -12.1 116.8 14.6 64.4 5.3 153.9 35.7 3.4 27.0 -18.6 44.6
n/a n/a 7.4 n/a 15.3 189.3 n/a 16.8 21.5 19.9 6.8 10.6 13.1 n/a n/a 42.1 n/a
15.8 n/a 27.0 n/a 6.0 13.7 n/a 12.4 11.8 11.7 78.6 33.8 7.3 n/a n/a n/a 35.8
11.5 12.4 n/a n/a 11.5 1,546.5 41.5 8.1 5.1 6.5 5.9 5.4 n/a n/a 10.7 9.6 7.1 16.8 10.2 10.8 18.7 12.2 5.1 5.2 4.2 4.5 n/a 45.3 10.6 12.2 n/a n/a 24.6 6.7
n/a n/a 10.5 n/a 7.8 82.7 n/a 23.0 10.2 21.0 6.5 12.1 7.6 n/a n/a 43.4 n/a
12.5 n/a 4.8 n/a 2.0 9.2 n/a 9.4 7.8 12.1 38.5 33.1 4.2 n/a n/a n/a 33.7
6.9 84.6 3.1 34.7 2.6 3.3 n/a 7.3 5.2 10.3 12.1 3.9 2.0 69.4 8.1 n/a 23.7
3.0 0.0 0.0 0.0 3.7 50.0 0.0 42.0 0.0 10.0 1.0 15.0 4.0 0.0 0.0 0.0 0.0
6.0 0.0 0.0 0.0 2.2 111.0 0.0 52.6 0.0 10.0 0.9 37.0 4.0 0.0 0.0 0.0 0.0
0.9 0.0 0.0 0.0 8.2 3.1 0.0 3.8 0.0 1.4 1.6 1.9 2.5 0.0 0.0 0.0 0.0
1.9 0.0 0.0 0.0 4.9 6.8 0.0 4.7 0.0 1.4 1.3 4.6 2.5 0.0 0.0 0.0 0.0
75
Equity | Australia | Energy
28 October 2011
Aquila Resources
Still rattling the tin
Quarterly production was up significantly qoq as Isaac Plains operations recovered from flooding impacts. Exploration and admin contributed to cash reducing to A$146m at the end of the quarter. Should asset sales not meet expectations or be delayed, AQA could be forced into an equity raising. Sell.
Key forecasts
FY10A EBITDA (A$m) -51.9 -37.6 -33.1 -9.31 -33.1 0.00 0.00 -66.4 -39.4 3,023 -40.0 Reported net profit (A$m) Normalised net profit (A$m) FY11A -83.9 -64.6 -63.5 -16.9 82.20 0.00 0.00 -36.4 -25.4 -29.0 -47.1 FY12F 8.51 & -29.2 % -29.2 % -7.80 % -54.0 0.00 0.00 -79.3 277.7 50.00 & 1.05 FY13F -160 -160 -42.7 448.6 0.00 0.00 -14.4 -713 -13.6 -2.29 FY14F -201 -201 -53.9 26.10 0.00 0.00 -11.5 45.60 -30.0 % 3.12
Sell (from Hold)

Target price
A$5.12 (from A$5.23)

Price
A$6.18
n/a
-7.04 & 148.1 &
Price performance
Oct 08 12 10 8 6 4 2 0 AQA.AX S&P/ASX200 Nov 09
(3M) 6.75 -8.4 -4.5 16.6

Nov 10
(12M) 8.05 -23.2 -17.9 -8.2
Normalised EPS (c) Normalised EPS growth (%) Dividend per share (c) Dividend yield (%) Normalised PE (x) EV/EBITDA (x) Price/net oper. CF (x) ROIC (%)
5.14 20.2 10.7 11.1
Production up on flood recovery Isaac Plains returned much improved quarterly production as operations returned to normal after a flood-impacted 1HCY11. Coal production of 623kt was up 80% qoq, while sales were flat. Isaac Plains looks a much healthier operation but cash generation was offset by exploration and development expenses throughout the rest of the business. All eyes on cash and cash requirements Cash reduced by A$39m during the quarter to A$146m. AQA agreed to a budget of A$70m for Eagle Downs in FY12. In association with funding for West Pilbara and other development projects, we forecast cash reserves being depleted by 2QCY12. We highlight the A$250m debt facility announced 30 September being contingent on the sale of Washpool, Avontuur and meeting agreed financial ratios. As AQA has consistently generated negative cash flow from operations, we remain cautious on the proposed debt facility being signed off. Legal dispute likely to delay funding The West Pilbara project includes a JV with RHI (the RHIOJV) covering roughly 75% of tenements and resources to be included in stage I of the West Pilbara development. Under the terms of the agreement, RHI retains a participating interest of 40% over tenements included in the RHIOJV, reducing to 20% upon the first delivery of ore to customers. RHI contends that the development of Anketell port and rail are activities of the RHIOJV, which API (AQA 50%) disputes. We believe West Pilbara capex is unlikely to be funded, as future ownership of infrastructure is subject to legal dispute. Investment view move from Hold to Sell We remain cautious with regard to the likelihood that AQA can raise sufficient cash from asset sales and debt financing to meet its development ambitions. Further, cash reserves are depleting and we believe an equity raising is possible in the next six months. Important disclosures can be found in the Disclosures Appendix.
A$2.31bn (US$2.48bn)
A$3.67m (US$3.79m)
Sector: BBG AP Mining RIC: AQA.AX, AQA AU Priced A$6.18 at close 28 Oct 2011. Source: Bloomberg
Analysts
Sam Berridge
+61 2 8259 5955 sam.berridge@rbs.com
Lyndon Fagan
lyndon.fagan@rbs.com
Warren Edney
warren.edney@rbs.com
Todd Scott
todd.scott@rbs.com
Phillip Chippindale
phillip.chippindale@rbs.com
77
Changes to earnings and valuations

Earnings have increased in FY12F due to improved sales mix and production. Earnings from FY13F onwards have decreased as it factors in higher costs. The net impact of our adjustments has reduced our NPV to A$5.12ps. Table 1 : Changes to earnings and valuation
2011A Normalised NPAT (A$m) - revised Normalised NPAT (A$m) - previous Change (A$m) Change (%)
2012F -29.2 -35.2 6.0 17%
2013F -160.2 -154.1 -6.1 -4%
2014F -201.9 -195.9 -6.0 -3%
2015F NPV (A$ps) -63.5 -57.3 -6.2 -11% 5.12 5.23 -0.11 -2%
-63.5 -63.5 0.0 0%
Production
As seen in the chart below, production was much improved qoq, while sales remained flat. We would expect sales to improve in 2H12F. The positive impact to earnings was a result of an improved sales mix, as higher value coking coal increased from 5 to 25% of total sales. Chart 1 : Isaac Plains production and sales
(kt) 900 800
Chart 2 : Isaac Plains production mix

60% 50%
700 600 500 400 300 200 100 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
40% 30% 20% 10% 0% 4Q09 1Q10 2Q10 Coking 3Q10 4Q10 PCI 1Q11 2Q11 3Q11
Thermal
Product coal (kt)
Coal Sold (kt)
Source: RBS
Source: RBS
Valuation and target price

Our base-case valuation for AQA is A$5.12ps, which is the basis of our target price. We factor in the expansion of Isaac Plains and the successful development of the Eagle Downs, Washpool, Thabazimbi, Avontuur and West Pilbara projects. Medium-term upside to our valuation and target price could result from asset sales above our valuations and commodity price increases. Downside risks include ongoing JV disputes and potential delays to project development timelines, financing difficulties and higher-than-anticipated capital costs.
Aquila Resources | News Highlights | 28 October 2011
78
AQA financial summary

Capital Profile Number of shares (m) Market capitalisation (A$m) Enterprise value (A$m) Enterprise value (US$m) Resources (equity) Eagle Downs Belvedere Washpool Total coal West Pilbara Thabazimbi Total iron ore EV/t resources (coal) EV/t resources (IO) Valuation Description Isaac Plains Eagle Downs Washpool Belvedere West Pilbara Hardey Thabazimbi Avontour Total Operations Net (debt)/cash MRRT Corporate overheads Exploration Total Valuation P/NPV Operational NPV split
Avontuur Thabazimbi 4% 13%
374 2314 2262 2465 (Mt) 447 606 185 1239 612 35 647 Reserves Isaac Plains Washpool Total coal (Mt) 33 108 141
June year end NPAT Reported (A$m) NPAT Normalised (A$m) EPS (A) CFPS (A) DPS (US) P/E (x) P/CF (x) EV/EBITDA (x) EPS Growth Yield (%) Equity Production Isaac Plains (kt) Eagle Downs (kt) Washpool (kt) Belvedere (kt) West Pilbara (kt) Hardy (kt) Thabazimbi (kt) Avontuur (kt) Costs Isaac Plains (A$/t) Eagle Downs (A$/t) Washpool (A$/t) Belvedere (A$/t) West Pilbara (A$/t) Hardy (A$/t) Thabazimbi (US$/t) Avontuur (A$/t) Assumptions AUD/USD Hard coking coal (US$/t) LV PCI coal (US$/t) Thermal coal (US$/t) Iron ore fines (USc/dmtu) West Pilbara fines (US$/t) Manganese ore (US$ dmtu) Profit & Loss (A$m) Sales revenue Other revenue Total revenue Operating costs EBITDA Depreciation EBIT Net interest expense (benefit) Pre-tax profit Tax (paid) / benfit Profit after tax Minorities NPAT (underlying) Significant items NPAT (reported) Profitability Analysis (%) EBIT margin EBITDA margin Effective tax rate ROA - EBIT / (total assets - cash) ROE - NPAT / equity Cashflow EBITDA Operating cashflow Capex Free cashflow Investing cashflow Financing cashflow Net Change in cash Balance Sheet Analysis Debt Equity Assets Cash Net debt Gearing - net debt/equity Gearing - net debt/ (net debt + equity) Net debt / EBITDA EBIT / net interest EBITDA / net interest
2010A -37.6 -33.1 -9.3 -14.6 0.0 -66.4 -42.3 -39.4 -33% 0.0% 2010A 1085 0 0 0 0 0 0 0 2010A 106 0 0 0 0 0 0 0 2010A 0.88 146 107 76 119 58 6.3 2010A 130 3 133 184 -52 7 -59 -9 -50 17 -33 0 -33 -5 -38 2010A -44% -39% -33% -35% -8% 2010A -52 -59 -5 -64 -10 277 207 2010A 13 405 448 281 -268 -66% -196% 5.2 6.5 5.7
2011A -64.6 -63.5 -17.0 -23.6 0.0 -36.4 -26.2 -25.4 82% 0.0% 2011A 810 0 0 0 0 0 0 0 2011A 141 0 0 0 0 0 0 0 2011A 0.99 247 196 108 249 121 7.2 2011A 133 1 134 218 -84 8 -92 -8 -84 21 -64 0 -64 -1 -65 2011A -69% -63% -25% -42% -17% 2011A -84 -80 -19 -98 -25 8 -96 2011A 0 367 406 185 -185 -50% -101% 2.2 11.7 10.7
2012F -29.2 -29.2 -7.8 2.4 0.0 -79.3 258.0 277.7 -54% 0.0% 2012F 1151 0 0 0 0 0 0 0 2012F 94 0 0 0 0 0 0 0 2012F 1.01 298 218 119 255 124 5.8 2012F 194 0 194 185 9 6 3 44 -42 13 -29 0 -29 0 -29 2012F 1% 4% -30% 1% -9% 2012F 9 46 -187 -141 -262 3000 2784 2012F 3007 328 3365 2958 48 15% 13% 5.7 0.1 0.2
2013F -160.2 -160.2 -42.8 -2.0 0.0 -14.4 -311.7 -713.1 449% 0.0% 2013F 1050 0 0 0 0 0 0 0 2013F 88 0 0 0 0 0 0 0 2013F 1.09 290 217 113 236 115 6.6 2013F 170 0 170 177 -7 5 -12 217 -229 69 -160 0 -160 0 -160 2013F -7% -4% -30% 0% -173% 2013F -7 -170 -2429 -2599 -2489 1800
2014F -201.9 -201.9 -53.9 41.7 0.0 -11.5 14.8 45.6 26% 0.0% 2014F 1050 0 925 0 0 0 638 250 2014F 90 0 106 0 0 0 54 2 2014F 1.07 275 216 103 211 103 5.9 2014F 494 0 494 345 148 23 125 409 -284 82 -202 0 -202 0 -202 2014F 25% 30% -29% 3% 966% 2014F 148 -77 -1601 -1678 -1661 400
2015F -63.5 -63.5 -17.0 114.6 0.0 -36.5 5.4 18.3 -69% 0.0% 2015F 1050 0 1295 0 2050 0 1915 750 2015F 89 0 106 0 28 0 51 3 2015F 0.97 235 188 98 193 94 5.4 2015F 996 0 996 589 407 54 353 441 -88 25 -63 0 -63 0 -63 2015F 35% 41% -28% 7% -189% 2015F 407 -25 -605 -630 -665 200
2016F 399.7 399.7 106.8 326.9 0.0 5.8 1.9 6.5 -730% 0.0% 2016F 1050 800 2590 625 8200 0 2936 1000 2016F 90 93 105 1 28 22 51 3 2016F 0.88 210 168 100 173 84 4.7 2016F 2332 0 2332 1171 1161 154 1007 452 555 -155 400 0 400 0 400 2016F 43% 50% -28% 16% 58% 2016F 1161 755 -784 -29 -844 0 -89 2016F 5407 687 6433 182 5224 760% 88% 4.5 2.2 2.6
1.83 3.50
A$m 389 307 249 291 100 102 240 74 1753 185 -131 -121 231 1917
A$ps 1.04 0.82 0.67 0.78 0.27 0.27 0.64 0.20 4.68 0.49 -0.35 -0.32 0.62 5.12 1.21
Isaac Plains 21%
Hardey 13% West Pilbara 5% Belvedere 15% Eagle Downs 16%
Washpool 13%
Valuation inputs Rf rate MRP Equity beta Ke Kd Gearing Tax rate WACC DCF (A$) Prem/disc Target (A$)
5.3% 6.0% 1.7 15.5% 8.0% 30% 30% 12.5% 5.12 0% 5.12
Sensitivity (A$m) NPV / NPAT 10% increase in LV PCI 10% increase in LV PCI 10/t increase in LVPCI 10/t increase in LVPCI +1c AUD/USD +1c AUD/USD Coal production and costs
6000 5000 4000 3000 2000 1000 0
NPV(A$) 5.12 0.06 1% 0.04 1% 4.99 3%
2011F -64 0.00 0% 0.00 0% -63.5 0%
2012F -29 2.91 -10% 1.33 -5% -37.6 -29%
150 100 50 0 2009A 2010A 2011A 2012F 2013F 2014F 2015F 2016F Belvedere equity production Washpool equity production Eagle downs equity production Isaac Plains equity production weighted average ccosts ($A/t) - RHS
-859 -1338 -490 2013F 2014F 2015F 4807 5207 5407 93 -21 34 4933 5245 5536 2099 761 272 2708 4445 5135 2923% -21272% 15259% 97% 100% 99% -384.5 30.0 12.6 -0.1 0.3 0.8 0.0 0.4 0.9
Aquila Resources | News Highlights | 28 October 2011
79
Equity | Australia | Comm Serv & Supplies
28 October 2011
Produced by: RBS Morgans Limited
Transpacific Industries
Raising has arrived
The debt restructuring and capital raising remove a significant headwind for TPI. The announcements will go a long way to appeasing concerns about the group's heavy debt burden and may well act as a material catalyst for the stock. Fundamental debt metrics now stack up more favourably. We upgrade to Buy.
Key forecasts
FY10A EBITDA (A$m) 419.0 67.10 52.00 4.71 -84.4 0.00 0.00 14.65 5.82 2.63 4.66 FY11A 425.1 -276 50.00 4.45 -5.62 0.00 0.00 15.52 5.36 3.06 4.65 FY12F 447.0 FY13F 474.7 FY14F 481.6
Buy (from Hold)

Target price
A$0.79 (from A$0.80)

Price
A$0.690
n/a
Price performance
Oct 08 5 4 3 2 1 0 TPI.AX S&P/ASX200 Feb 10

(3M) 0.88 -21.6 -15.5 -8.8 (12M) 1.29 -46.7 -41.1 -39.1
51.90 & 109.4 % 120.4 % 84.20 % 111.4 % 125.4 % 6.00 % 35.10 0.00 0.00 11.49 4.72 16.40 % 5.81 8.59 % 43.00 0.00 0.00 8.04 4.33 2.53 6.71 9.85 % 14.70 0.00 0.00 7.00 4.02 2.47 6.79
0.67 3.0 -6.2 -3.2
Use of %& indicates that the line item has changed by at least 5%. 1. Pre non-recurring items and post preference dividends Accounting standard: IFRS Source: Company data, RBS Morgans forecasts
Dec 10
Debt facilities restructured, resulting in meaningful interest savings TPI announced it has replaced its existing A$1.4bn debt facility with a new A$1.5bn facility, which has seen the average debt maturity increase to 4.1 years (from 1.9 years). Due to more favourable interest rate margins, management estimates the new facility will result in annualised interest savings of A$21.8m-$24.8m in FY12 and A$31.3m - A$34.3m thereafter. Plus a A$309m renounceable entitlement offer TPI will undertake a A$309m renounceable entitlement offer at A$0.50 per share, comprising a fully underwritten institutional offer to raise ~$260m and a retail component (not underwritten) to raise ~$49m. TPI's largest shareholder, Warburg Pincus (34%), has committed to take up its full entitlement (~A$105m) and underwrite a further A$102m. Warburg Pincus could potentially hold anything from 34%-49.9% subject to the take-up of the offer. TPI directors also intend to take up their entitlements. FY12 guidance (pre-raising) - in line with our previous forecasts TPI also issued FY12 guidance (pre-raising), including EBITDA of $452m and NPAT (pre significant items) of A$73m for FY12, which was in line with our previous forecasts. Management said 1Q12 results indicate that the group is on track to hit this number. Investment view - significant cloud lifted, upgrading to Buy The debt restructuring and capital raising remove a significant headwind for TPI, in our view. Key investment concerns on the stock in recent years have surrounded the group's heavy debt burden and refinancing risk, and the announcements will go a long way to appeasing these concerns and may well act as a material catalyst for the stock. The fundamental debt metrics (pro-forma FY12) now stack up more favourably: net debt/EBTDA 2.5x; EBITDA interest cover 3.3x; and gearing (ND/ND+E) of 34.2%. We upgrade our rating to Buy and recommend investors take up their entitlements at the A$0.50 offer price. Important disclosures can be found in the Disclosures Appendix.
A$876.02m (US$910.51m)
A$2.38m (US$2.49m)
Sector: BBG AP All Industrial Part of: ASX/S&P 200 RIC: TPI.AX, TPI AU Priced A$0.69 at close 25 Oct 2011. Source: Bloomberg
Analysts
Roger Leaning
Australia +61 7 3334 4554 roger.leaning@rbsmorgans.com
Alexandra Clarke
Australia +61 7 3334 4804 alexandra.clarke@rbsmorgans.com
James Lawrence
Australia +61 7 3334 4547 james.lawrence@rbsmorgans.com
81
Key components of the re-financing package are:

New A$1,525m facility (conditional upon completion of the entitlement offer) will: increase the average maturity of the companys debt to 4.1 years from 1.9 years, with maturities ranging from three to five years and no re-financing requirements until November 2014; reduce TPI's funding costs, leading to an annualised interest savings of between A$21.8m$24.8m in FY12 and A$31.3m - A$34.3m thereafter; and reduce the groups effective interest rate by ~100bp. Figure 1 : Debt maturity profile pre and post capital raising and debt refinancing
Source: Company data, 1) On 7 December 2012, holders of convertible notes have the right to request redemption. However, the final maturity date of the convertible notes is 7 December 2014 2) USPP lenders have the right to put the December 2012 and December 2017 debt as at September 2012 3) The difference in facility sizes between current and post refinance represents net equity proceeds received, a reduction in debt and facility size.
Entitlement offer - nine new shares for every 14 shares at a price of A$0.50. This is at a 27.5% discount to the last closing price, or 18.8% discount to the theoretical ex rights price of A$0.62 The offer consists of a fully underwritten institutional component to raise about $260m and a retail component, which will not be underwritten, to raise about $49m. TPI's largest shareholder, WP X Holdings B.V. has committed up to $207m to take up its entitlement in full and to sub-underwrite a portion of the institutional component. TPI's directors also intend to take up their entitlement Terry Peabody (major shareholder) will not be taking up his entitlement. The rights are renounceable.
Transpacific Industries | Investment View | 28 October 2011
82
Figure 2 : Interest savings from entitlement issues
Source: Company data. Assumes no retail take-up in the retail entitlement offer such that the total amount raised under the entitlement offer is $260m raised under the fully underwritten institutional entitlement offer. If the entitlement offer raised $309m, pro forma forecast FY2012 interest savings will be $34.3m. Interest savings includes interest on drawn facilities, commitment fees on undrawn portions, interest rate swap payments, amortisation of capitalised borrowing costs, amortisation of Convertible Note face value discount. Based on 90 day BBSY of 4.80%. USD/AUD exchange rate of 1.00
Guidance Based on current economic trends and conditions for the sector in Australia and New Zealand, the outlook for the company remains positive. TPI is forecasting EBITDA of $452m (vs RBSM at A$455m) and profit before tax and significant items of $119m for the year ending 30 June 2012, vs EBITDA of $425m and profit before tax and significant items of $73m for FY 2011. TPI believes their first quarters trading indicates that they are on track to meet this forecast
Changes to forecasts
We make a number of changes to our forecasts. We add new shares on issue assuming TPI will be successful in raising the full A$309m. This increases our FY12 shares on issue to 1.27bn (weighted average and ~1.6bn from FY13). We take into account the interest savings (A$21.8m on a proforma basis) in FY12, and we assume A$31m of interest saving over the medium term. While on a share basis the capital raising adds a third more shares on issue, the interest expense savings allow the company to de-gear even further in later years assuming future free cash flow forecasts of A$100m. This results in only ~8% dilution to our FY12 EPS forecasts. Our gearing (net debt/equity) falls to 57% from 71% in FY12. More importantly, EBITDA interest cover increases from 2.4x in FY11 to 3.3x in FY12, while net debt to EBITDA falls from 3.3x in FY11 to 2.7x in FY12. At this stage, we assume no dividends will be paid while Warburg Pincus is in control. Table 1 : Changes to forecasts
FY12F Prev Revenue (A$m) EBITDA (A$m) NPAT (A$m) (pre prefs) EPS (c) normalised DPS (c)
Source: RBS Morgans forecasts
FY13F Diff -1.6% -1.7% 6.3% -7.6% 0.0% Prev 2354.5 482.9 89.8 6.5 0.0 Rev 2309.3 474.7 109.4 8.6 0.0 Diff -1.9% -1.7% 21.9% 31.1% 0.0% Prev 2409.5 483.2 89.8 6.9 0.0
FY14F Rev 2364.2 481.6 120.4 9.9 0.0 Diff -1.9% -0.3% 34.0% 42.4% 0.0%
Rev 2264.5 447.0 52.0 6.0 0.0
2302.0 454.9 48.9 6.5 0.0
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Valuation & risks

We had previously valued TPI on a DCF basis with a 50% discount to due to the risk of a highly significant capital raising. Post the capital raising and the unwinding of TPIs balance sheet, we believe it would be more appropriate to now value TPI on an SOTP valuation (DCF, PE, EV/EBITDA) to reflect a market multiple for the group. We believe TPI on a multiple basis should be at a 10% discount to the small industrials (RBS coverage) due to its higher level of gearing relative to its peers, lower earnings growth and high capital expenditure requirements. Table 2 : SOTP valuation
Method DCF Valuation PE (8.4x FY12) EV/EBITDA (5.7x FY12) SOTP valuation (cents)
Weighting 50.00% 25.00% 25.00%
Valuation 1.17 0.50 0.29
Weighted valuation 0.58 0.13 0.07 0.78
Investment View
As we had flagged in our last note, TPI was at the risk of a capital raising due to the upcoming maturity of its debt facility. While at the result TPI had outlined a plan to cover these maturities, we believe there was very little wriggle room for anything to go wrong for the group to be able to internally manage this re-financing. The question really comes down to what has changed since the result and today. We suspect it has more to do with banks putting a squeeze on TPI to contribute equity in order to re-finance the facilities. We acknowledge the entitlement offer is dilutionary, but we believe this dilution is outweighed by the reduction of the companys debt facilities and the associated interest cost savings. Pleasingly the company has extended its maturity tenor from 1.9 years to 4.1 years. We believe this will allow management time now to focus on TPIs underlying business not the corporate structure. The debt restructuring and capital raising remove a significant headwind for the group, in our view. The announcements will go a long way to appeasing long-term concerns surrounding the groups heavy debt burden and may well act as a material catalyst for the stock. The fundamental debt metrics (pro-forma FY12) now stack up more favourably, in our view: net debt/EBTDA 2.5x; EBITDA interest cover 3.3x; and gearing (net debt/net debt + equity) of 34.2%. TPI, on a proforma FY12 basis, is trading on 10x at the A$0.50 offer price, offering defensive earnings that are not highly cyclical. We upgrade our recommendation to Buy and recommend investors take up their entitlements at the A$0.50 offer price.
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TPI financial Summary

Year to 30 Jun (A$m) Income statement Divisional sales Total revenue EBITDA Associate income Depreciation EBITA Amortisation/impairment EBIT EBIT(incl associate profit) Net interest expense Pre-tax profit Income tax expense After-tax profit Preference Dividends Minority interests Attributable NPAT Significant items Normalised profit Reported profit AIFRS 2010A 2065.5 2071.4 419.0 1.4 -168.6 250.4 0.0 250.4 251.8 -166.8 88.0 -19.3 68.7 0.0 -1.6 55.0 0.0 52.0 67.1 AIFRS 2011A 2170.2 2179.2 425.1 5.0 -174.7 250.5 0.0 250.5 255.5 -180.8 74.7 -8.7 66.0 0.0 -1.3 50.0 -340.7 50.0 -276.0 AIFRS 2012F 2264.5 2264.5 447.0 5.0 -178.1 268.9 0.0 268.9 273.9 -155.2 118.7 -34.4 84.2 0.0 0.0 84.2 -32.3 84.2 51.9 AIFRS 2013F 2309.3 2309.3 474.7 5.0 -183.4 291.3 0.0 291.3 296.3 -138.5 159.8 -46.4 113.4 0.0 -2.0 111.4 0.0 111.4 109.4 AIFRS 2014F 2364.2 2364.2 481.6 5.0 -187.1 294.6 0.0 294.6 299.6 -126.2 179.4 -52.0 127.4 0.0 -2.0 125.4 -1.0 125.4 120.4 Closing price (A$) Valuation metrics Preferred methodology DCF valuation inputs Rf Rm-Rf Beta CAPM (Rf+Beta(Rm-Rf)) E/EV*Ke+D/EV*Kd(1-t) Equity (E/EV) Debt (D/EV) Interest rate Tax rate (t) WACC 0.69 Risk weighted 5.25% 6.00% 2.40 19.7% 50.0% 50.0% 7.25% 30.0% 12.4% Price target (A$) Val'n (A$) $ 0.79 1.18 5.25% 2.0% 7.25% 19.7% 2247.2 1.8 1232.1 48.1 1061.3 1124.7 0.94 2014F 1953.9 0.8 4.0 6.5 7.0
10-year rate Margin Kd Ke NPV cash flow (A$m) Minority interest (A$m) Net debt (A$m) Investments (A$m) Equity market value (A$m) Diluted no. of shares (m) DCF valuation (A$) 2012F 2108.2 0.9 4.7 7.8 11.5 2013F 2063.7 0.9 4.3 7.0 8.0
Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) PE (pre-goodwill) (x) PEG (pre-goodwill) (x) At target price EV/EBITDA (x) PE (pre-goodwill) (x)
2011A 2278.0 1.0 5.4 9.1 15.5
Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid & remediation Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex and disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4) Balance sheet Cash & deposits Trade debtors Inventory Investments Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Provisions Other liabilities Total liabilities Preference shares Hybrid equity Share capital Other reserves Retained earnings Other equity Total equity Minority interest Total shareholders' equity Total liabilities & SE
2010A 419.0 48.2 -155.7 -21.8 0.0 289.8 -134.4 7.0 0.0 -127.4 801.1 -787.2 -1.2 -12.1 -92.7 -92.1 0.5 70.8 143.3 2010A 141.0 276.8 147.4 19.0 0.0 2412.9 1128.0 122.3 4247.3 47.3 214.1 1654.9 13.9 114.6 2044.7 249.8 1821.6 0.0 64.8 306.7 2193.1 9.5 2202.6 4247.3
2011A 425.1 -25.1 -158.1 12.1 0.0 254.0 -148.6 5.5 0.0 -143.1 0.0 -162.9 0.0 -14.7 4.6 -173.0 0.0 -62.1 90.7 2011A 88.7 310.9 131.6 28.1 0.0 1997.3 1029.4 123.0 3709.1 85.2 230.3 1405.5 9.2 142.5 1872.7 249.8 1821.6 0.0 -231.7 244.6 1834.5 1.8 1836.4 3709.1
2012F 447.0 0.0 -155.2 -21.5 0.0 47.2 -181.7 0.0 0.0 -181.7 309.0 -200.0 0.0 -16.7 0.0 92.3 0.1 -42.2 -151.2 2012F 46.6 235.8 101.9 48.1 0.0 2061.9 1033.0 58.4 3585.6 39.6 348.6 1239.1 -328.0 122.4 1421.7 249.8 2130.6 0.0 -213.1 244.6 2162.1 1.8 2163.9 3585.6
2013F 474.7 0.0 -138.5 -40.4 0.0 300.6 -192.6 0.0 0.0 -192.6 0.0 -75.0 0.0 -16.7 0.0 -91.7 3.1 19.5 91.3 2013F 66.0 240.4 103.9 48.1 0.0 2061.9 1042.2 58.4 3621.0 48.1 351.4 1205.6 -341.0 114.7 1378.8 249.8 2130.6 0.0 -135.0 244.6 2240.3 1.8 2242.1 3621.0
2014F 481.6 0.0 -126.2 -49.2 0.0 307.6 -187.1 0.0 0.0 -187.1 0.0 -100.0 0.0 -16.7 0.0 -116.7 6.0 9.9 103.9 2014F 75.9 246.1 106.4 48.1 0.0 2061.9 1042.2 58.4 3639.0 46.1 360.3 1107.6 -317.7 109.6 1305.9 249.8 2130.6 0.0 -44.0 244.6 2331.3 1.8 2333.1 3639.0
2011A 5.7 17.7
2012F 5.0 13.1 2012F 5.6 8.3 11.8 8.3 12.8 16.2 7.4 2012F 960.6 3.1 6.0 0.0 0.0 0.0 2012F 4.3% 4.2% 5.2% 7.4% 7.4% 68.5% 68.5% 35.1% 35.1% 2012F 15.5 19.7 11.9 3.7 12.4 1232.1 56.9 1.7 5.8 2012F 0.8 8.3 6.3
2013F 4.6 9.2 2013F 5.0 7.6 11.5 7.3 10.8 13.2 6.0 2013F 960.6 8.4 8.6 0.0 0.0 0.0 2013F 2.0% 0.9% 6.6% 9.1% 9.1% 32.3% 32.3% 43.0% 43.0% 2013F 16.0 20.6 12.6 4.8 13.0 1187.7 53.0 2.1 6.7 2013F 0.8 9.7 5.2
2014F 4.3 8.0 2014F 4.6 7.0 10.9 6.7 9.7 11.8 5.4 2014F 960.6 9.4 9.9 0.0 0.0 0.0 2014F 2.4% 2.6% 1.9% 1.8% 1.8% 12.5% 12.5% 14.7% 14.7% 2014F 16.3 20.4 12.5 5.3 12.6 1077.8 46.2 2.3 6.8 2014F 0.9 9.7 5.3
Comparable company data (x) Tox Free Solutions EV/EBITDA Year to 30 Jun EV/EBIT PE PEG Brambles EV/EBITDA Year to 30 Jun EV/EBIT PE PEG Per share data No. shares EPS (cps) EPS (normalised) (c) Dividend per share (c) Dividend payout ratio (%) Dividend yield (%) Growth ratios Sales growth Operating cost growth EBITDA growth EBITA growth EBIT growth NPAT growth Pre-goodwill NPAT growth Pre-goodwill EPS growth Normalised EPS growth Operating performance Asset turnover (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Net debt (A$m) Net debt/equity (%) Net interest/EBIT cover (x) ROIC (%) Internal liquidity Current ratio (x) Receivables turnover (x) Payables turnover (x) 2011A 960.6 -24.5 4.4 0.0 0.0 0.0 2011A 5.1% 6.0% 1.5% 0.0% 0.0% -9.0% -3.8% -5.6% -10.8% 2011A 13.6 19.6 11.5 2.3 13.6 1402.0 76.3 1.4 4.7 2011A 1.2 7.4 7.9
Source: Company data, RBS Morgans forecasts
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Equity | Metals & Mining | Australia
28 October 2011
Carbon Steel Materials

Magnetite winners and wannabes
For magnetite project development, first-mover advantage is critical to beat escalating construction costs and enjoy the current window of high iron ore prices. In this report, we analyse 33 major magnetite projects in Australia and highlight the projects we believe are most likely to succeed.
Chart 1 : Magnetite project capex escalation over time
350
A$/t of capacity
300
250
200
150
100 2005 2006 2007 2 008 2009 2010 2011
Karara
Sout hdown
Ja ck Hills
Sino Iron Project
Extension Hill
Source: Company data, RBS estimates
The best magnetite project is one that is already in production Due to escalating construction costs, tightening funding availability and long development times, first mover advantage is critical, in our view. Our investment preference is for projects that are already in, or nearing production. Only two developments in Australia fit this criteria: GRR and GBG, which we believe are well placed to benefit from iron ore prices and strong margins for the next several years. Numerous magnetite projects in Australia, but few are likely to be developed Analysts
Todd Scott
+61 2 8259 5865 todd.scott@rbs.com
Lyndon Fagan
We have analysed 33 magnetite projects in Australia, adding up to a total 28bn of resources. Despite the scale of opportunities we se, we believe a lack of infrastructure access, high capital intensity nearly twice that of direct shipping iron ore and tightening funding availability will mean few projects will be developed. Additionally, we estimate development times can take over six years from initial feasibility studies to first production, implying projects that are not currently in advanced stages may miss out on a near-term window of strong iron ore prices. Margins can still be attractive once capital investments made While the IRRs for magnetite iron ore projects are lower than typical direct shipping iron ore due to higher upfront capital costs, once in production, margins can still be attractive. Iron ore concentrate produced by magnetite projects is often at an attractive a premium price to benchmark due to higher grades and lower impurities. In our view, despite higher operating costs, we believe magnetite projects can still be viable through the cycle and well placed near the middle of the global iron ore cost curve.
Sam Berridge
sam.berridge@rbs.com
Warren Edney
Phillip Chippindale
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Executive summary
Magnetite vs Hematite Magnetite and hematite are both iron ore. Hematite ore, however, contains a higher iron content, often between 5564%. Hematite is also called direct shipping ore. Magnetite contains lower iron content between 17-45%. Before magnetite ore can be sold, it is beneficiated into a concentrate grade near 68%. We have taken a thorough look at the landscape of magnetite iron ore projects in Australia as well as several ASX-listed magnetite developers with offshore projects. We have found that while there are an increasing number of magnetite projects either entering production or approaching the project readiness stage, there remain significant barriers preventing many of these projects from progressing. These include; 1) resource size, 2) access to infrastructure, and 3) development partners with access to project funding. In our view, escalating capex requirements have raised hurdles for projects to go ahead and intensified competition for scarce capital. We estimate there are roughly 33 major magnetite projects in Australia. Only three of these are currently in production, with two others now entering the late construction stages. The remaining 28 projects form a list of potential projects fighting for the attention of investors and development partners in an effort to secure financing and production offtake agreements with Asian steel mills. Attractive industry, but with high hurdles for development Due to high capital requirements for magnetite iron ore projects, we estimate typical IRRs are lower than typical for hematite iron ore. However once in production, we believe the better quality projects be viable through the cycle, and reasonably placed in near the middle of the cost curve. Numerous large scale magnetite projects competing for capital Magnetite iron ore is relatively abundant compared to hematite iron ore, synonymous with the large Pilbara iron ore miners. We estimate there are 13 magnetite projects in Australia with over 500Mt of resources; all owned by ASX-listed companies, and all competing to obtain development and offtake partners, and project funding. In our view, not all of these projects will be successful. Capex requirements are rapidly escalating
Since 2007, capital intensity for magnetite projects has nearly doubled
Escalating capital costs to develop resource projects in Australia have been particularly evident in the magnetite sector. We estimate that, since 2007, capital intensity for magnetite projects has nearly doubled to A$272/t of annual production capacity. We anticipate this figure will continue to increase as project delays occur and capital estimates are revised. In our view, capex escalation has made finding development partners to help fund projects more challenging. Large resource scale and development partners critical to development A large project resource is critical to supporting high production levels and long mine life and lowering costs and maximising investment returns. Of the two magnetite projects in Australia currently under construction, both have total resources over 2.5bn tonnes. While increasing the scale of production improves project economic return, it also increases the capital requirements. This makes finding a development partner with access to funding essential, particularly as most magnetite stocks are small companies with market capitalisation of A$150m or less. Several noteworthy projects showing potential In our report we highlight seven projects that fulfil one or more of the above criteria: Jack Hills (MMX), Balmoral South (ARH), Southdown (GRR), Mount Forest (MDX), Fusion (CXM), Centrye Erye (IRD), and Ridley (AGO). We provide more details on these on pages 10 and 11.
Carbon Steel Materials | Industry Dynamics | 28 October 2011
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Chart 2 : ASX-listed magnetite stocks based on an EV/t resource

4.50 EV/t 4.00 3.50 3.00 2.50 2.00 1.59 1.50 1.02 1.00 0.50 0.00 MMX MDX EMG VMC LML CXM GBG* GRR* NFE* ROY ZNC AON ARH IXR* CAP PDY PLV ACS IFE CFE IOH IRD 0.33 0.35 0.40 0.41 0.42 0.42 0.20 0.24 0.27 0.29 0.07 0.10 0.14 0.15 0.02 1.22 1.30 1.85 2.78 3.86
Source: Company data, Bloomberg, RBS estimates
First-mover advantage is essential

The best magnetite project is one that is already in production; only GRR fits this description
The best magnetite project is one that is already in production. In our view, high iron ore prices are unlikely to last forever as large scale and low-cost hematite iron ore producers bring a wave of planned production into operation. Magnetite projects that get into production early are likely to enjoy reasonable returns, de-risking projects. Latecomers risk low prices and unviable projects. Projects not already in an advantaged stage of development risk missing the window of higher iron ore prices and more attractive investment returns. Using the Karara project as an example; we estimate it will take six years from the time the project was granted major project status by the Federal Government in 2006, until it reaches first magnetite ore production next year. In the Australian magnetite sector, Grange Resources (GRR) is the only magnetite focused stock currently in production via its Savage River mine in Tasmania. Following this, the next attractive developments are those that are fully funded, currently under construction and approaching the production phase. Gindalbie Metals (GBG) is the only company listed on the ASX that is currently at this stage. Grange Resources Recommendation Buy (TP A$0.62ps): Top sector pick GRR is the only magnetite focused stock in Australia that has a large-scale development in production, allowing it to benefit from margins near A$100/t. In our view, GRR highlights that magnetite projects can be very profitable once in production. We estimate production at Savage River will generate long-term EBITDA margins of roughly 40%. GRR also has the Southdown magnetite project currently in the definitive feasibility study stage (DFS). While the project is relatively advanced in terms of obtaining approvals and gaining port, mining and environmental permits, the project lacks a development partner with access to capital funding. The projects resource size is also smaller than several other competing magnetite projects, which may also have appeal to perspective development partners. Gindalbie Metals Recommendation Buy (TP A$0.57ps): Approaching first production
Within the next year GBG will become Australia's second large scale magnetite producer
We expect that, within the next year, GBG will become Australias second large-scale magnetite iron ore concentrate producer through its Karara project. While the project is likely to cost roughly A$2.6bn to achieve a stage one concentrate production rate of 8Mtpa, once in production we anticipate long-term EBITDA margins of 40% are achievable. Karara production remains port constrained to 16Mtpa through Geraldton until the proposed Oakajee port and rail project is developed. Oakajee has been delayed due to issues related to escalating capital cost estimates. However, we estimate nearly half of all the magnetite resources in Australia (JORC) are dependent on Oakajee Port being developed in order for the development to progress. We believe this supports the case that Oakajee Port will ultimately be built at some point in the future, although the timing remains highly uncertain. We currently to not include concentrate export out of Oakajee in our GBG forecasts.
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Iron Road Recommendation Hold (TP A$0.62ps): Finding a development partner remains key hurdle IRDs Central Eyre Iron Ore project has a large 1.3bn tonne resource and is a potential viable project, in our view. However, it currently lacks a port solution and has not yet found a development partner to assist with project financing. Until a solution to one or both of these issues is found, we anticipate the project will likely be delayed. A port development has been proposed by Centrex Metals (CXM.AX) at Sheep Hill, which could potentially accommodate both CXM and IRD projects. CXM has partnered with Chinese steel producer WISCO, which enhances the chance for development, in our view. However, CXMs flagship Fusion project current is limited to only 319Mt of resources, which is low compared to other Australian prospects. We understand IRD will investigate options to develop Sheep Hill themselves should development by CXM not occur.
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Magnetite projects can be viable through the cycle

Due to the high capital requirement for magnetite projects, our estimated IRRs for a notional project are less than stunning (see table below). While we believe this does not preclude some projects from being viable, in the current funding-constrained world, it appears more likely that capital will be diverted first to hematite projects with lower capital intensity and development risks. Table 1 : Notional returns of a magnetite project (operating costs A$68/t, sustaining capex A$7/t, 50-year mine life)
IRR 0% 200 210 220 230 240 250 260 270 280 290 300 310 320 330 340 350 80 85 2% 2% 2% 2% 2% 90 5% 4% 4% 4% 4% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 2% 95 6% 6% 6% 6% 5% 5% 5% 5% 4% 4% 4% 4% 4% 3% 3% 3% 100 8% 8% 7% 7% 7% 6% 6% 6% 6% 5% 5% 5% 5% 5% 4% 4% 105 10% 9% 9% 9% 8% 8% 8% 7% 7% 7% 6% 6% 6% 6% 6% 5% Iron ore price (A$/t) 110 115 120 12% 13% 15% 11% 13% 14% 11% 12% 13% 10% 11% 13% 10% 11% 12% 9% 11% 12% 9% 10% 11% 9% 10% 11% 8% 9% 11% 8% 9% 10% 8% 9% 10% 7% 9% 10% 7% 8% 9% 7% 8% 9% 7% 8% 9% 6% 8% 8% 125 16% 15% 15% 14% 14% 13% 13% 12% 12% 11% 11% 11% 10% 10% 10% 9% 130 18% 17% 16% 16% 15% 14% 14% 13% 13% 12% 12% 12% 11% 11% 11% 10% 135 19% 18% 18% 17% 16% 16% 15% 14% 14% 14% 13% 13% 12% 12% 12% 11% 140 21% 20% 19% 18% 17% 17% 16% 16% 15% 15% 14% 14% 13% 13% 13% 12% 145 22% 21% 20% 19% 19% 18% 17% 17% 16% 16% 15% 15% 14% 14% 13% 13% 150 23% 22% 22% 21% 20% 19% 18% 18% 17% 17% 16% 16% 15% 15% 14% 14% 155 25% 24% 23% 22% 21% 20% 20% 19% 18% 18% 17% 17% 16% 16% 15% 15%
Source: RBS estimates
Capex (A$/t)
Australian magnetite reasonably placed on the cost curve Despite high upfront capital costs, we believe Australian magnetite developments can be reasonably placed on the global cost curve and viable through the cycle. Based on the Karara project, we believe US$/t CIF China equivalent operating costs can be achieved near US$75/t. This places Karara in roughly the middle of the third quartile of the global cost curve. In addition, Karara is placed to benefit from a 9-11% premium to benchmark pricing it has negotiated with its offtake partner for its higher grade and low impurity product. While Karara is a higher-quality magnetite development than most, we believe similar outcomes may be achieved on other prospective developments. Chart 3 : Notional magnetite project placement on the cost curve
Karara Project estimated cost curve placement
Source: BHP, RBS estimates
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Capital requirements escalating rapidly

Additional processing required for magnetite ore can increase capital intensity by about A$100/t
The capital required to develop large scale magnetite projects can be immense, due to the additional processing requirements for magnetite iron ore into a saleable grade concentrate iron ore. Installation of grinding and thickening equipment must be installed, which alone can add A$100/t to the capital intensity of the project. Also, the concentration process requires large amounts of power for grinding and water, which is used in filtering the concentrate material. This, in turn, needs large-scale power lines and water pipelines to the mine site, often necessitating the construction of desalinisation plants for water use. Of the four advanced magnetite projects that have completed or updated detailed construction estimates in the past year, none has submitted estimates below A$2.5bn (see table below). Table 2 : Recent capital cost estimates (A$m)
Project Owner Concentrate production (Mtpa) Capital item (A$m)* Processing plant & minesite infrastructure Power transmission Roads, rail & port Project management & design Other Total (A$m) Capital intensity A$/t pa 1,341 269 416 375 169 2,570 321 1,610 320 600 0 45 2,575 258 1,031 196 756 183 424 2,590 209 1,693 170 3,773 0 1,169 6,805 309 Karara GBG 8 Southdown GRR 10 Central Eyre IRD 12.4 Jack Hills MMX 22
* Some capital cost items have been standardised for presentation purposes. Source: Company data, RBS estimates
Capital intensity for magnetite development nearly double hematite iron ore
Of eight advanced magnetite projects, all have higher capital intensity than hematite developers
On a capital intensity basis, compared with hematite direct shipping iron ore, which does not undergo a similar level of processing, magnetite projects can be up to double the cost to develop. Based on eight magnetite projects that have advanced to the PFS stage or further, all have higher capital intensity requirements than recent estimates from hematite iron ore developers. Additionally, we note the magnetite projects at the top of the cost curve are those that are either under construction or have recently completed revised construction cost estimates; which, in our view, are a more realistic representation of costs. Chart 4 : Capital intensity of magnetite vs hematite iron ore expansion projects
350 A$/t 300 250 200 150 100 50 0 FMG Southdown BHP RIO Central Eyre Sino Iron Project Extension Hill Balla Balla Jack Hills Karara OST Ridley 84 130 180 183 198 205 209 Hematite Magnetite 225 226 258 309 321
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Construction costs for magnetite projects have nearly doubled since 2007 We have followed the capital cost estimates of the five most advanced projects in Australia since first completion of their detailed construction forecasts. Since the release of the first construction forecasts, on average these projects have upwardly revised their capital cost estimates twice. On average across the five projects, capital costs per tonne of annual production capacity have increased from A$154/t in 2007 to A$272/t in 2011. This is an increase of 76% in four years.
Karara construction costs were revised upwards twice in a 10month period
We anticipate costs will continue to rise as labour and supplies shortages persist in the Western Australia resources market, and as true costs are revealed during the construction phase. Using the Karara project as an example, once construction had started estimated construction costs were upwards revised twice in a 10-month period. First, in May 2010, when construction costs increased to A$2bn (from A$1.65bn) and, more recently, in March 2011, lifting the cost estimate to A$2.6bn. In total, capital intensity per tonne of production increased 58%. Chart 5 : Escalation of capex estimates over time
350 A$/t 300
250
200
150
100 2005 2006 Karara 2007 Southdown 2008 Jack Hills 2009 Sino Iron Project 2010 Extension Hill 2011
Readily available and cheap funding sources increasingly tough to find The Karara project is often used as a benchmark in the magnetite sector for project financing. In this funding arrangement, GBGs development partner AnSteel assisted in arranging debt financing for the project with Chinese banks under a 70/30 debt/equity funding ratio. The equity portion of the project costs was split between AnSteel and GBG. As a result, GBGs equity portion of the total construction costs was reduced to roughly 15%. Moreover, debt financing was achieved at very attractive interest rates. With support from AnSteels 100% parent company guarantee, pricing for the loan was secured at a margin we estimate between 150-250bps over US six-month Libor, on a 12-year term (the current US six-month Libor is 0.6%).
With credit tightening appearing in China, securing financing terms as attractive as historically is unlikely
With credit availability in China showing signs of tightening, we believe securing equally attractive financing terms for new magnetite projects will be difficult. We anticipate debt/equity ratios will likely require increased equity components and interest rate pricing is likely to stick at levels closer to typical market rates. Discussions we have had with project developers and consultants in the magnetite sector appear to confirm this view.
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Mid West Western Australia projects leading the way

We have catalogued 33 significant magnetite projects in Australia, totalling over 28bn tonnes of JORC resources. We found an overwhelming 82% of magnetite resources for these projects were in Western Australia (WA), followed in distant second by South Australia (SA) at 12%. Of the projects in WA, 54% or 13bn tonnes of resources are based in the Mid West iron ore province, relying on port and rail infrastructure related to Geraldton, the proposed Oakajee port and rail network, and includes proposals to ship as far as the existing port of Esperance. The second-largest concentration of magnetite resources is centred near Port Preston, currently being built as part of the Sino Iron Ore Project. We understand the port could potentially also accommodate export volumes for the nearby Balmoral South project (owned by ARD). Chart 6 : Aggregate resource size by state
25 Bt
20
15
10
0 WA SA NSW TAS
Important implications for port access

High concentration of resources in the Mid West increase the likelihood that Oakajee port will eventually be developed
In our view, the high concentration of resources in the Mid West increases the likelihood that Oakajee port and rail will eventually be developed. However, due to escalating costs for the project placing pressure on the ability to fund the project, delays to first iron ore shipments appear likely. We anticipate projects with ability to export from Geraldton, Port Preston, Albany, or Esperance are best placed to secure port tonnage allocations. Longer term export through the proposed Anketell Port may be an option for some producers. While in our view capacity constraints at Port Hedland diminish the likelihood of magnetite projects gaining new export allowances. Chart 7 : Aggregate resource size by targeted port in WA
9 Bt 8 7 6 5 4 3 2 1 0 Oakajee Port Preston Esperance Geraldton Port Hedland Anketell Albany Irvine Island
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Large resource, infrastructure, and development partners critical

We see three critical features a magnetite project needs to have in order for it to be developed: 1) Large long-life resource base A large resource base is key to improving project economics by supporting high production levels and lowering capital intensity per tonne of annual production. Magnetite projects often require large-scale installation of power lines, water pipelines, rail networks and, in many cases, greenfield port facilities. Operations on this scale can lead to funding requirements twice as much as hematite iron ore projects based on a capital intensity per tonne. We note the two Australian projects currently under construction (GBGs Karara Iron Ore Project, and Citic Pacifics Sino Iron Ore Project), both have magnetite resources in excess of 2.5bn tonnes and implied mine lives longer than 25 years. Resource grade and strip ratios are equally important as these impact on the operational costs for the project. Iron content levels in magnetite can be half the amount contained in hematite iron ore (see chart below). Assuming comparable strip ratios, this means twice as much material would need to be moved in a magnetite mine compared to a hematite mine to achieve the same total iron content. This does not factor in yield losses that may occur in the magnetite beneficiation phase which may make this metric worse. 2) Access to port and rail infrastructure The scale of operations required to ensure magnetite project viability can place pressure on finding adequate rail and port infrastructure. Of the 29 major projects in Australia not currently in production or construction; we estimate only five or fewer are positioned to gain access to a port that is currently operational, capable of exporting iron ore and is not capacity constrained. 3) Development partners with access to capital
Ideal development partners are often large Chinese steel mills, which are state-owned enterprises
The cost of developing magnetite projects can be billions of dollars. We estimate the average capital intensity per tonne of annual concentrate production is now A$274/t. Based on a typical 10Mtpa project, this equates to nearly A$3bn. Considering the market cap of most ASX-listed magnetite developers is under A$100m, this can make obtaining project funding highly challenging. Ideal development partners, therefore, have access to funding, the ability to secure sales for concentrate production and experience in developing magnetite projects. The partners fitting these criteria are large Asian-based steel mills with access to cheap debt. Most often, these partners are large Chinese steel mills, often state-owned enterprises.
Chart 8 : Iron content Magnetite vs Hematite in Australia (Fe %)

70% 60% 50% 40% 30% 20% 10% 0% Hawsons Iron Project Gum Flat Carrow Mt Forrest Mt Alexander Mount Oscar Southdown FMG Fusion Project Razorback Bungalow Sino Iron Ore Project Yalgoo Iron Ore Project Central Eyre Iron Project Magnetite Range Balmoral South Karara Beyondie Kestrel Middleback Range Snaefell Lake Giles Irvine Island Central Yilgarn Maitland River Peak Hill Jack Hills Ridley Wilcherry Hill Koolanooka Balla Balla AGO BHP RIO Hematite Magnetite
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Magnetite projects that tick the boxes

Judging against the above criteria, no projects fulfil all the proposed requirements. Still we believe some are more attractive than others which we believe are worth highlighting below: Table 3 : Summary of notable projects
Project Jack Hills Balmoral South Southdown Mount Forest Fusion Project Central Eyre Ridley Owner Murchison Metals Australasian Resources Grange Resources Mindax Centrex Metals Iron Road Atlas Iron >1bn tonne resource Access to port & rail Development partner
Jack Hills (MMX.AX): The Jack Hills project owned by Murchison Metals is the largest undeveloped magnetite project in Australia. At 3.2bn tonnes of resource, it ticks the box on project scale; however, it has been hindered by lack of infrastructure and port access associated with the Oakajee Port and Rail development. Jack Hills also lacks a development partner for its mining operations (Mitsubishi has a 50% stake in the Oakajee port and rail project). Balmoral South (ARH.AX): The Balmoral South project is large scale, at 1.6bn tonnes of resource, with relatively close proximity Port Preston. According to management, port allowance for Balmoral South and a deepwater Port Development Plan is available; pursuant to ARHs access rights via the facilities deed it has in place with the resource owner Mineralogy. Discussions with Shougang to take a 50% stake in the project fell through in 2009. Southdown (GRR.AX): The Southdown project is currently in the definitive feasibility study stage (DFS) making it one of the most advanced projects not currently in production or under construction. Additionally, critical port approvals have been obtained at Albany, which will facilitate concentrate export subject to the construction of a new berth (est capex A$350m). The projects resource size, however, is relatively small at this stage at 654Mt. Management believes the resource size could grow to 1.2bn tonnes with further exploration of the Eastern limb of the ore body. We believe a larger resource could help attract a development partner to supply project funding, which is currently lacking. Mount Forest (MDX.AX): The Mount Forest project has a significant resource size of 1.4bn tonnes. However, it is hindered by its large distance to its proposed port of Esperance, which is 820km away from the site (660km by train plus 160km by road). Esperance Port, however, is attractive as it currently handles 9.2Mtpa of iron ore shipments in cape size vessels, and has plans that could see port capacity increase to over 30Mtpa.
The Fusion project is one of only a few with backing of a Chinese steel mill
Fusion Project (CXM.AX): The Fusion project in South Australia is a JV between Centrex Metals (40%) and Chinese steel producer WISCO (60%). The project is one of only a few with the backing of a Chinese steel mill (see Table 2 for full list). WISCO appears committed to the project and, to date, has paid A$78m for its stake in the JV, and will be funding the first A$75m in exploration and study costs (this also includes the smaller associated Carrow project). At this point, however, the resource size remains too small for commercial development at 319Mt. Management has an exploration target of 1.1bn to 2.4bn tonnes (both Fusion and nearby Carrow). If this is achieved, it would increase the likelihood of the project proceeding. If the project goes ahead, CMX has proposed building a multi-user port at Sheep Hill with stage 1 of the project accommodating 2Mtpa of hematite iron ore and a later stage 2 of the project exporting up to 20Mtpa of iron ore from its own and third-party mines. CMX estimates a stage 1 port could be operational by 2014. CMX has not given a timeline for stage 2 readiness.
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Central Eyre (IRD.AX): IRDs Central Eyre Iron Ore project has a large 1.3bn tonne resource and is a potentially viable project, in our view. However, it currently lacks a port solution and has not yet found a development partner to assist with project financing. Until a solution to one or both of these issues is found, we anticipate the project will likely be delayed. The port development proposed by CXM at Sheep Hill could potentially accommodate both CXM and IRD projects. CXMs partnership with WISCO enhances the chance for development, in our view. However, CXMs flagship Fusion project is currently limited to only 319Mt of resources. Additionally, CXM only plans to accommodate a 2Mtpa of iron ore capacity in stage 1 of the port project, which would be insufficient for IRD. We understand IRD will investigate options to develop Sheep Hill itself should development by CXM not occur.
AGO has been attempting to sell the Ridley project, but without success
Ridley (AGO.AX): The Ridley project owned by Atlas Iron is a relatively large project at 970Mt of magnetite iron ore, situated near Port Hedland. However, the port is currently capacity constrained due to high demand from existing and expanding hematite iron ore mines in the Pilbara region. At present, we do not believe there is capacity to accommodate the 15Mtpa concentrate iron ore production planned for the project. We anticipate AGO to continue to show a preference for developing its less capital intensive hematite projects in the region over Ridley. We note additionally that AGO has been attempting to sell the project without success. In our view, the capital intensity of the project and lack of port access are the key detractors of the project.
Chart 9 : Australian magnetite projects based on resource size vs port access availability
Port Readiness 14 Access near ready Development partner 12 Balmoral South Mount Forest Capacity 10 constrained 8 Upgrading required Southdown No development partner
Ridley
6 Jack Hills Fusion Project Central Eyre Iron Project Resource size Bn tonnes 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Proposed
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Table 4 : Summary of major Australian magnetite projects

Project In production Savage Middleback Range Cairn Hill Under construction Karara Sino Iron Ore Project Development partner Fusion Project Carrow Bungalow Extension Hill Koolanooka Large scale resource >1bn tonnes Jack Hills Balmoral South Hawsons Iron Project Mt Forrest Lake Giles Medium scale resource 1.0 to 0.5bn tonnes Ridley Peak Hill Southdown Irvine Island Razorback Beyondie Central Yilgarn Emerging projects Balla Balla Yalgoo Iron Ore Project Mt Alexander Magnetite Range Maitland River Wilcherry Hill Kestrel Snaefell Gum Flat Mount Oscar Atlas Iron Venus Metals Zenith Minerals Accent Resources Iron Ore Holdings Accent Resources OneSteel IMX Resources Lincoln Minerals Apollo Minerals AGO VMC ZNC ACS IOH IFE OST IXR LML AON 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 456 444 393 391 310 267 220 110 99 72 45% 30% 30% 30% 35% 36% 36% 28% 24% 34% WA WA WA WA WA SA SA SA SA WA Port Hedand Oakajee Anketell Oakajee Anketell Port Bonython Whyalla Port Bonython Port Lincoln Anketell Atlas Iron Padbury Mining Grange Resources Pluton Resources Royal Resources Emergent Resources Jupiter Mining AGO PDY GRR PLV ROY EMG JMS 100% 70% 70% 100% 100% 100% 100% 970 850 654 633 569 561 530 36% 27% 37% 28% 26% 28% 32% WA WA WA WA SA WA WA Port Hedand Oakajee Albany Irvine Island Port Pirie Port Hedand Esperance Murchison Metals Australasian Resources Carpentaria Exploration Mindax Macathur Minerals MMX ARH CAP MDX IRD non-ASX 100% 100% 60% 100% 100% 3,234 1,605 1,400 1,430 1,334 1,300 32% 31% 16% 32% 17% 30% WA WA NSW WA SA WA Oakajee Port Preston Port Pirie Esperance Sheep Hill Oakajee Centrex Metals Centrex Metals Centrex Metals Asia Iron Holdings Mid West SinoSteel CXM CXM CXM non-ASX non-ASX 40% 40% 80% 319 159 103 1,400 430 35% 22% 27% 29% SA SA SA WA WA Sheep Hill Sheep Hill Sheep Hill Oakajee Oakajee Wisco Wisco Baogang Sinom & Chonhqing Chonggang Steel SinoSteel Gindalbie Metals Citic Pacific / MCC GBG non-ASX 50% 2,518 5,089 34% 23% WA WA Geraldton Port Preston AnSteel Citic Pacific / MCC Grange Resources OneSteel IMX Resources GRR OST IXR 100% 100% 51% 300 234 16 52% 39% 49% TAS SA SA Port Latta Whyalla Adelaide NA NA Sichuan Taifeng Owner (ASX code) Ownership Resource (Mt) Grade (Fe%) State Port Development / offtake partner
Central Eyre Iron Project Iron Road
* Ports are proposed, not currently in construction, or not currently used for iron ore export Source: Company data, RBS
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Carbon Steel Materials | Industry Dynamics | 28 October 2011 13
Figure 1 : Locations of significant magnetite projects in Australia
Ports 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. Projects Savage River Middleback Ranges Cairn Hill Sino Iron Ore Project Koolanooka Karara Fusion Project Carrow Bungalow Extension Hill Jack Hills Balmoral South Hawsons Iron Ore Project Mt Forrest Central Eyre Iron Project Lake Giles Ridley Peak Hill Southdown Irvine Island Razorback Beyondie Central Yilgarn Balla Balla Yalgoo Iron Ore Project Mt Alexander Magnetite Range Maitland River Wilcherry Hill Kestrel Snaefell Gum Flat Mount Oscar
20
Port Hedland Anketell Cape Preston

28 33 4 12 26 22 18 11 24 17
Oakajee
25 5 6 10
14 16 23 27 29 2 15 7 32 19 21 8 9 31 3 30 13
Geraldton
Port Bonython Whyalla
Esperance Port Lincoln Port Pirie Sheep Hill
Albany
Port Latta
1
* Project locations are approximate Source: RBS
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Comparable valuations
Chart 10 : EV/t resources (contained iron)
4.50 EV/t 4.00 3.50 3.00 2.50 2.00 1.59 1.50 1.02 1.00 0.50 0.00 MMX MDX EMG VMC LML CXM GBG* GRR* NFE* 795 GBG* ROY CAP PDY ACS ZNC AON ARH IXR* 534 NFE* PLV CFE IFE IOH IRD 0.33 0.35 0.40 0.41 0.42 0.42 0.20 0.24 0.27 0.29 0.07 0.10 0.14 0.15 0.02 1.22 1.30 1.85 2.78 3.86
* in production or under construction Source: Bloomberg, RBS forecasts
Chart 11 : Market capitalisation (A$m)

900 A$m 800 700 600 500 394 400 300 200 100 3 0 MMX EMG MDX VMC LML CXM IXR* GRR* ROY CAP PDY ACS PLV IFE ZNC AON ARH CFE IOH IRD 8 10 13 34 39 40 49 62 70 89 96 120 144 172 250 Total sector market cap A$3.0bn
24
27
31
* in production or under construction Source: Bloomberg, RBS forecasts
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Investment view and risks

Grange Resources (Buy, TP A$0.62ps) GRR continues to generate strong margins despite the recent decline in pellet prices. With production rates and unit costs likely to fall at Savage River, the operating outlook is improving. In our view, macro level cautiousness has reduced the share price to a level which shows significant valuation appeal. Trading 28% below our NPV, at an FY12F PE of 5x, an FY12F dividend yield of 5%, and A$0.11ps of net cash, we retain our Buy recommendation and our NPV-based price target of A$0.62ps. Downside risks include: 1) sustained higher mining costs at Savage River, 2) lower-than-forecast iron ore pellet prices, and 3) higher capital costs for Southdown than forecast. Gindalbie Metals (Buy, TP A$0.72ps) GBGs Karara project is a large-scale, long-life mine, which we believe will reach first magnetite production within 12 months. While we anticipate challenges as GBG pushes through the final development phases and into the ramp-up period, ultimately we believe project risk is declining as we construction progresses. We maintain our Buy recommendation and our NPV-based price target of A$0.72ps. Downside risks include: 1) project delays beyond our current forecasts, 2) higher capital costs than we anticipate, and 3) operating costs above our current estimates. Iron Road (Hold, TP A$0.70ps) IRDs Central Eyre Iron Ore project has a large 1.3bn tonne resource and is a potential viable project, in our view. However, it currently lacks a port solution and has yet to find a development partner to assist with project financing. Until a solution to one or both of these issues is found, we anticipate the project will likely be delayed. Upside risks include: 1) increasing resource estimates, 2) agreement on a port solution, and 3) introduction of a development partner. Downside risks include: 1) project delays beyond our current forecasts, 2) higher capital costs than we anticipate, and 3) operating costs above our current estimates. We move from a Buy to a Hold recommendation with a revised NPV-based price target of A$0.70ps (from A$0.77ps). Our NPV has declined due to an increase in long-term AUD:USD exchanges rates to 0.80 (from 0.75), in line with RBS house forecasts. Table 5 : Changes to earnings and NPV
2011A NPAT normalised - revised NPAT normalised - previous Change (A$m) Change (%)
2012F -17.2 -17.2 0.0 0%
2013F -17.1 -17.1 0.0 0%
2014F -45.3 -45.3 0.0 0%
NPVps 0.70 0.77 -0.07 -9%
-16.5 -16.5 0.0 0%
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GRR financial summary

Capital profile Number of shares (m) Market capitalisation (A$m) Enterprise value (A$m) Enterprise value (US$m) Resources (Savage River) Iron ore resources Iron ore reserve Concentrate reserve EV/iron ore resource EV/iron ore reserve EV/concentrate reserve Valuation Description Savage River Southdown Pellet Plant Total Operations Net cash (debt) Corporate overheads Total Valuation P/NPV Operational NPV Split
Southdown 14%
Dec year end 1154 519 474 484 NPAT Reported (A$m) NPAT Normalised (A$m) EPS () CFPS () DPS () P/E (x) P/CF (x) EV/EBITDA (x) EPS Growth Yield (%) Assumptions AUD/USD Iron ore pellet achieved (US$/t) Iron ore pellet achieved (A$/t) Iron ore concentrate achieved (US$/t) Sa Iron ore concentrate achieved (A$/t) So Iron ore fines benmark change (JFY) Shipments (Mt) Fe pellet - Savage River Fe concentrate - Savage River Fe concentrate - Southdown Total sales (Mt) - equity share Cash costs (incl royalties) Average pellet cash costs (A$/t) Average pellet cash costs (US$/t) Profit & Loss (A$m) Sales revenue Other revenue Total revenue Operating costs EBITDA Depreciation EBIT Net interest expense Pre-tax profit Tax Profit after tax Minorities NPAT (underlying) Significant items NPAT (reported) Profitability Analysis (%) EBIT margin EBITDA margin Effective tax rate ROA - EBIT / (total assets - cash) ROE - NPAT / equity Cashflow EBITDA Operating cashflow Capex Free cashflow Investing cashflow Financing cashflow Net Change in cash Balance Sheet Analysis Debt Equity Assets Cash Net debt Gearing - net debt/equity Gearing - net debt/ (net debt + equity) Net debt / EBITDA EBIT / net interest EBITDA / net interest
2009A 81.8 -19.9 -3.1 4.0 0.0 -14.3 11.2 14.4 nm 0.0% 2009A 0.79 133 168 67 80 -33% 2009A 2.25 0.01 0.00 2.26 2009A 91 72 2009A 286 1 288 -255 33 -53 -21 18 -2 -12 -15 -5 -20 102 82 2009A nm nm nm nm nm 2009A 33 144 -21 124 -88 -5 51 2009A 92 484 699 96 -4 -1% -1% -0.1 -1.1 1.8
2010A 77.3 32.6 2.8 5.5 0.0 15.9 8.2 4.8 nm 0.0% 2010A 0.92 117 128 149 178 90% 2010A 2.35 0.02 0.00 2.37 2010A 75 69 2010A 311 0 311 -213 98 -37 61 -4 57 -24 33 0 32.6 45 77 2010A 20% 32% 42% 9% 6% 2010A 98 126 -30 96 -75 27 78 2010A 47 563 800 92 -45 -8% -9% -0.5 -16.6 -26.9
2011F 132.7 86.1 7.5 19.4 3.7 6.0 2.3 2.7 163% 8.2% 2011F 1.03 215 209 142 171 49% 2011F 1.95 0.02 0.00 1.97 2011F 119 123 2011F 420 0 420 -242 178 -36 142 -4 138 -52 86 0 86 47 133 2011F 34% 42% 37% 18% 11% 2011F 178 307 -67 241 -90 -28 190 2011F 39 792 1,069 271 -233 -29% -42% -1.3 -32.7 -41.1
2012F 102.7 102.7 8.9 -3.6 2.2 5.1 -12.6 2.6 19% 4.9% 2012F 1.04 189 182 122 146 -16% 2012F 2.24 0.08 0.00 2.32 2012F 106 110 2012F 419 0 419 -237 181 -34 147 -1 147 -44 103 0 103 0 103 2012F 35% 43% 30% 18% 14% 2012F 181 94 -136 -41 -136 -33 -75 2012F 39 742 1,014 175 -136 -18% -23% -0.8 nm nm
2013F 80.1 80.1 6.9 -0.7 1.7 6.5 -68.3 3.1 -22% 3.8% 2013F 1.09 178 163 107 129 -3% 2013F 2.32 0.08 0.00 2.40 2013F 101 110 2013F 387 0 387 -235 153 -35 118 -3 114 -34 80 0 80 0 80 2013F 30% 39% 30% 13% 11% 2013F 153 94 -102 -8 -102 28 20 2013F 89 748 1,066 176 -87 -12% -13% -0.6 nm nm
Mt Mt Mt A$/t A$/t A$/t
300 113 55 1.6 4.2 8.6
52% 51% 65%
A$m 749 -119 0 630 131 -42 718
A$ps 0.65 -0.10 0.00 0.55 0.11 -0.04 0.62 0.72
Savage River 86%
5.3% 6.0% 1.3 13.1% 6.0% 25% 30% 10.8% 0.62 0% 0.62
Sensitivity (A$m) NPV / NPAT Iron ore +10% increase Iron ore +10% increase Iron ore +US$1/t increase Iron ore +US$1/t increase AUD +10% increase AUD +10% increase AUD +1 increase AUD +1 increase Shipments (equity share)
10 9 8 7 6 5 4 3 2 1 0
Mt
NPV(A$) 0.62 0.38 61% 0.04 6% -0.39 -63% -0.05 -8%
2010F 33 0 0% 0 0% 0 0% 0 0%
2011F 86 9 10% 0 1% -16 -19% -2 -2%
2010A 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F Fe pellet - Savage River Fe concentrate - Southdown Fe concentrate - Savage River
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GBG financial summary

Capital Profile Number of shares (m) Market capitalisation (A$m) Enterprise value (A$m) Enterprise value (US$m) Resources - equity share Iron ore resources Iron ore reserves Concentrate reserves EV/iron ore resource EV/iron ore reserve EV/concentrate reserve Valuation Description Karara Magnetite Karara Hematite Yingkou Pellet Plant Total Operations Net debt Corporate overheads MRRT Total Valuation P/NPV Operational NPV summary
Pellet plant 2% Hematite 20% Magnetite 78%
June year end 1239 756 678 698 NPAT Reported (A$m) NPAT Normalised (A$m) EPS () CFPS () DPS () P/E (x) P/CF (x) EV/EBITDA (x) EPS Growth Yield (%) Assumptions AUD/USD Iron ore fines (US$/t): 61% Fe, 5% H2O Iron ore lump (US$/t): 61% Fe, 5% H2O Iron ore concentrate (US$/t): 68% Fe MaProduction HeIron ore - magnetite concentrate (dMt) Pe Iron ore - hematite (dMt) Total sales (dMt) - equity share Cash costs (incl royalties) Iron ore concentrate (A$/t) Iron ore hematite (A$/t) Average cash costs (A$/t) Average cash costs (US$/t) Profit & Loss (A$m) Sales revenue Other revenue Total revenue Operating costs EBITDA Depreciation EBIT Net interest expense MRRT Pre-tax profit Tax Profit after tax Minorities NPAT (underlying) Significant items NPAT (reported) Profitability Analysis (%) EBIT margin EBITDA margin Effective tax rate ROA - EBIT / (total assets - cash) ROE - NPAT / equity Cashflow EBITDA Operating cashflow Capex Free cashflow Investing cashflow Financing cashflow Net Change in cash Balance Sheet Analysis Debt Equity Assets Cash Net debt Gearing - net debt/equity Gearing - net debt/ (net debt + equity) Net debt / EBITDA EBIT / net interest EBITDA / net interest
2010A -2.5 -3.7 -0.5 -14.8 0.0 nm -4.1 nm nm 0.0% 2010A 0.88 69 80 88 2010A 0.0 0.0 0.0 2010A nm nm nm nm 2010A 0 0 0 -9 -9 -1 -10 6 0 -4 0 -4 0 -4 1 -3 2010A nm nm nm nm nm 2010A -9 -2 -41 -43 -197 293 93 2010A 0 463 517 220 -220 -48% -90% 23.5 -1.6 -1.5
2011A 13.9 -5.3 -0.6 -40.7 0.0 nm -1.5 nm nm 0.0% 2011A 0.99 144 162 186 2011A 0.0 0.1 0.1 2011A nm nm nm nm 2011A 9 0 9 -20 -11 -1 -12 12 0 0 -5 -5 0 -5 19 14 2011A nm nm nm nm nm 2011A -11 -2 -280 -283 -381 403 20 2011A 362 553 1,046 237 125 23% 18% -11.1 -1.0 -0.9
2012F 18.2 18.2 1.5 -32.2 0.0 41.5 -1.9 16.3 nm 0.0% 2012F 1.01 148 159 200 2012F 0.0 0.7 0.7 2012F nm 55 nm nm 2012F 91 0 91 -50 42 -7 34 -8 0 26 -8 18 0 18 0 18 2012F nm nm nm nm nm 2012F 42 283 -681 -398 -687 353 -51 2012F 512 663 1,605 66 445 67% 40% 10.7 -4.1 -4.9
2013F 93.8 93.8 7.6 31.1 0.0 8.1 2.0 3.7 416% 0.0% 2013F 1.09 136 147 170 2013F 1.8 1.0 2.8 2013F 87 57 76 83 2013F 452 0 452 -269 183 -35 148 -14 0 134 -40 94 0 94 0 94 2013F 33% 40% 30% 7% 6% 2013F 183 518 -133 386 -141 0 378 2013F 512 1,488 2,423 444 68 5% 4% 0.4 nm nm
2014F 157.0 157.0 12.7 -70.3 0.0 4.8 -0.9 2.2 67% 0.0% 2014F 1.07 123 131 158 2014F 4.0 1.0 5.0 2014F 87 58 81 86 2014F 975 0 975 -672 304 -62 242 -17 -4 221 -64 157 0 157 0 157 2014F 25% 31% 29% 10% 16% 2014F 304 -615 -255 -870 -264 557 -322 2014F 1,069 959 2,452 122 947 99% 50% 3.1 nm nm
Mt Mt Mt A$/t A$/t A$/t
1,259 489 206 0.5 1.4 3.3
35.9% 36.5% 68.0%
A$m 691 175 21 887 78 -63 -9 892
A$ps 0.56 0.14 0.02 0.72 0.06 -0.05 -0.01 0.72 0.85
5.3% 6.0% 1.46 14.0% 5.0% 25% 30% 11.4% 0.72 0% 0.72
Sensitivity (A$m) NPV / NPAT Iron ore +10% increase Iron ore +10% increase Iron ore +US$1/t increase Iron ore +US$1/t increase AUD +10% increase AUD +10% increase AUD +1 increase AUD +1 increase Production (equity share)
8
Mt
NPV(A$) 0.72 0.27 37% 0.03 4% -0.35 -49% -0.04 -6%
2011F 18.18 0.00 0% 0.00 0% 0.00 0% 0.00 0%
2012F 93.84 4.96 27% 0.26 1% -4.51 -25% -0.45 -2%
7 6 5 4 3 2 1 0 2012F 2013F 2014F 2015F 2016F 2017F Iron ore - hematite (dMt) Iron ore - magnetite concentrate (dMt)
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IRD financial summary

Capital profile Number of shares (m) Market capitalisation (A$m) Enterprise value (A$m) Enterprise value (US$m) 141 95 94 94 June year end NPAT Reported (A$m) NPAT Normalised (A$m) EPS (A) CFPS (A) DPS (A) Resources Magnetite resources (Mt) Magnetite reserves (Mt) Concentrate resources (Mt) EV/t conc resource (A$/t) EV/t conc reserve (A$/t) 1334 na 244 0.39 na 67.0% Fe 0.39 (US$/t) na (US$/t) 16.8% Fe P/E (x) P/CF (x) EV/EBITDA (x) EPS Growth Yield (%) Assumptions FY AUD/USD Valuation Description Central Eyre Iron Ore Exploration Net cash (debt) Corporate Total Valuation A$m 63 26 18 -7 99 A$ps 0.44 0.18 0.13 -0.05 0.70 Iron ore fines (US dmtu) - benchmark Iron ore concentrate (US$/t) - achieved Production Central Eyre Iron Ore (Mt) Cash costs (incl royalties) Average cash cost (A$/t) Average cash cost (US$/t) Profit and Loss ($m) P/NPV 0.95 Revenue Costs NPV split
Exploration 29%
2010A -11 -11 -18 -13 0.0 nm nm nm nm 0.0 2010A 0.88 119
2011A -17 -16 -17 -13 0.0 nm nm nm nm 0.0 2011A 0.99 249
2012F -17 -17 -13 -23 0.0 nm nm nm nm 0.0 2012F 1.01 255
2013F -17 -17 -12 -33 0.0 nm nm nm nm 0.0 2013F 1.09 234
2014F -45 -45 -32 -327 0.0 nm nm nm nm 0.0 2014F 1.07 211
2010A 0 2010A
2011A 0 2011A
2012F 0 2012F
2013F 0 2013F
2014F 0 2014F
2010A 0 11 -11 0 -11 0 0 0 -11 0 -11 0 -11 2010A 30% -157% nm 2010A -11 -1 0 -1 -6 9 2 2010A 0 2 4 3 -3 nm nm 5.2 119.4 119.3
2011A 0 18 -18 0 -18 0 0 0 -18 -1 -17 0 -16 2011A 0% -861% nm 2011A -18 -15 0 -15 -1 13 -3 2011A 0 -1 2 0 0 nm nm 5.2 184.9 184.6
2012F 0 16 -16 0 -16 0 1 0 -17 0 -17 0 -17 2012F 0% -43% nm 2012F -16 -16 -16 -32 -16 42 10 2012F 20 5 28 10 10 nm nm 5.2 -13.3 -13.3
2013F 0 12 -12 0 -12 0 6 0 -17 0 -17 0 -17 2013F 0% -16% nm 2013F -12 -13 -34 -47 -34 49 2 2013F 69 -8 63 12 57 nm nm 5.2 -2.4 -2.4
2014F 0 6 -6 0 -6 1 40 0 -45 0 -45 0 -45 2014F 0% -1% nm 2014F -6 -11 -450 -461 -450 465 4 2014F 534 -18 517 16 518 nm nm 5.2 -0.2 -0.2
Valuation inputs Rf rate MRP Equity beta Ke Kd Gearing

Central Eyre Iron Ore 71%
EBITDA 5.3% 6.0% 1.30 13% 7.0% 30% 30% 11% 0.70 0% 0.70 Depreciation & amortisation EBIT Interest income Interest expense MRRT Pre tax profit Tax expense (benefit) NPAT - underlying Significant items NPAT - reported Profitability analysis EBIT margin
Tax rate WACC DCF (A$) Prem/disc Target (A$)
Production and costs

14 12 10 8 62 6 63 Mt A$/t 64
EBITDA margin Effective tax rate ROA - EBIT / (total assets - cash) ROE - NPAT / equity Cashflow EBITDA Operating cashflow Capex Free cashflow
4 2 0 2011A 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Central Eyre Iron Project Cash cost (RHS)
61
Investing cashflow Financing cashflow Net Change in cash
60
Balance Sheet Analysis Debt Equity Assets Cash Net debt Gearing - net debt/equity Gearing - net debt/ (net debt + equity) Net debt / EBITDA EBIT / net interest EBITDA / net interest
104
18
Equity | Australia | Metals & Mining
28 October 2011
Kingsgate Consolidated
Hold
Target price
Holding back the tide

Production for the quarter was significantly below our forecasts on the back of flooding in Thailand and maintenance issues at Challenger. Flooding and permit approvals remain issues and will negatively impact December quarter production. We maintain our preference for MML and OGC for gold exposure.
Key forecasts
FY10A EBITDA (A$m) 100.4 74.70 75.60 75.19 122.3 35.00 4.39 10.60 10.40 17.10 27.80 FY11A 62.30 20.90 32.00 23.61 -68.6 15.00 1.88 33.75 18.30 43.60 8.70 FY12F FY13F FY14F 242.3 176.3 176.3 130.2 -13.2 48.00 6.02 6.12 2.80 4.67 19.80
A$7.77 (from A$8.06)

Price
A$7.97
n/a
253.0 & 279.1 172.4 & 202.9 172.4 & 202.9 127.4 & 149.9 439.5 3.76 6.26 3.94 4.68 % 20.40 17.70 7.28 5.32 2.95 4.30 24.20 30.00 & 58.00
Price performance
Oct 08 14 12 10 8 6 4 2 0 KCN.AX S&P/ASX200 Nov 09

(3M) 9.33 -14.6 -10.9 8.8
Nov 10
(12M) 10.08 -20.9 -15.5 -5.5
7.42 7.4 -1.1 -0.8
Floods and breakages negatively impact production and costs Production at the Chatree mine in Thailand was severely impacted by the worst floods Thailand has seen in 50 years. Chatree production of 14koz was down 14% qoq (off a low base) and 42% lower than our forecast. The Challenger operation in South Australia also had a tough quarter due to a bore failure limiting water supply. Challenger production of 19koz was down 11% qoq and 18% below our forecast. Group unit cash costs of US$815/oz were 40% above our forecast of US$582/oz due to the lower production. October marks the end of the wet season in Thailand, so flooding impacts should subside, although permitting remains a hurdle for Chatree. Permitting issues remain
A$1.08bn (US$1.16bn)
A$6.35m (US$6.59m)
Sector: BBG AP Mining Part of: ASX/S&P 200 RIC: KCN.AX, KCN AU Priced A$7.97 at close 27 Oct 2011. Source: Bloomberg
Analysts
Sam Berridge
+61 2 8259 5955 sam.berridge@rbs.com
On the conference call, management guided that the factory license had been granted but some other permit(s) remained outstanding, meaning that the first gold pour cannot proceed. KCN forecasts the first gold pour from the expanded Chatree plant to take place in December, roughly 3 months behind previous guidance. Cash generation below forecast Cash and bullion as at September 30 was A$36m, more or less unchanged from June 30. After capex and lower production we expected free cash flow of around $18m. We suspect the difference is attributable to higher than forecast sustaining capex at Challenger, deferred mining and ongoing capex at Chatree. Investment view better off elsewhere September marks another troubled quarter for KCN. We expect existing operations to improve, but uncertainty over permitting of the Chatree expansion remains a stock overhang. Our target price comes down 4% to A$7.77. We prefer MML and OGC for gold exposure. We will reconsider our position once permit approvals for Chatree are received. Important disclosures can be found in the Disclosures Appendix.
Lyndon Fagan
Warren Edney
Todd Scott
todd.scott@rbs.com
Phillip Chippindale
105
Changes to earnings and valuation

Our earnings for FY12 have decreased significantly due to lower production and higher costs at both of KCNs operations. Earnings from FY13 onwards have decreased a little due to slightly increasing costs going forward and increase in net interest changes stemming from a lower cash balance. The net impact of our adjustments is a 4% drop in our valuation to A$7.77 from A$8.06. Table 1 : Changes to earnings and valuation
2011A Normalised NPAT (A$m) - revised Normalised NPAT (A$m) - previous Change (A$m) Change (%)
2012F 172.4 209.8 -37.4 -18%
2013F 202.9 208.3 -5.3 -3%
2014F 176.3 182.0 -5.8 -3%
NPV (A$ps) 7.77 8.06 -0.29 -4%
32.0 32.0 0.0 0%
Production
The charts below highlight the structural decline in grades from Chatree and the impact on gold production and costs. The Chatree expansion will reverse the decline in production near term but grade declines imply structurally higher costs going forward relative to historic levels. Chart 1 : Chatree production and costs
50 45 600 40 35 30 25 20 15 10 100 5 0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Gold produced Source: Company data Total cash cost (US$/oz) - RHS 0 0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Gold produced (koz) Source: Company data Total cash cost (US$/oz) 0 300 10 200 5 200 400 500 20 400 15 600 800 25 1,000 koz US$ 700
Chart 2 : Challenger production and costs

30 koz US$ 1,200
Chart 3 : Chatree ore processed and grade

700 680 2.0 660 kt g/t 2.5
Chart 4 : Challenger ore processed and grade

200 180 160 6 140 1.5 120 100 1.0 80 60 5 4 3 2 0.5 40 20 0.0 0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Ore processed (kt) Source: Company data Gold head grade (g/t) - RHS 1 0 kt g/t 8 7
640 620 600 580 560 540 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Ore processed (kt) Source: Company data Gold head grade (g/t) - RHS
Kingsgate Consolidated | News Highlights | 28 October 2011
106
Valuation and risks

Our DCF valuation for KCN is A$7.77ps. Our target price is set at our NPV. Upside risks to our target price include underground resource potential below Chatree and higher-than-forecast gold prices. Downside risks to our target price include the ability to access higher-grade ore and higher capex for the expansion of the Chatree plant. KCN financial summary
Capital Profile Number of shares (m) Market capitalisation (A$m) Enterprise value (A$m) Enterprise value (US$m) Tonnes (kt) 131,660 63,340 Grade (g/t) 1.13 1.19 135 1079 1046 889 Ounces (koz) 4,774 2,428 219 431 Jun Year End NPAT Reported (A$m) NPAT Normalised (A$m) EPS (A) CFPS (A) DPS (A) P/E (x) P/CF (x) EV/EBITDA (x) EPS Growth Yield (%) Production Chatree Au (koz) Challenger Au (koz) - equity Total production (koz) Costs Chatree (US$/oz) Challenger (US$/oz) Weighted average costs (US$/oz) Assumptions Gold (US$/oz) Silver (US$/oz) AUD/USD Profit & Loss (A$m) Sales revenue Other revenue Total revenue Operating costs EBITDA Depreciation EBIT Net interest benefit / (expense) Pre-tax profit Tax benefit / (expense) Profit after tax Minorities NPAT (underlying) Significant items NPAT (reported) Profitability Analysis (%) EBIT margin EBITDA margin Effective tax rate ROA - EBIT / (total assets - cash) ROE - NPAT / equity Cashflow EBITDA Operating cashflow Capex Free cashflow Investing cashflow Financing cashflow Net Change in cash Balance Sheet Analysis Debt Equity Assets Cash Net debt Gearing - net debt/equity Gearing - net debt/ (net debt + equity) Net debt / EBITDA EBIT / net interest EBITDA / net interest 2010A 74.7 75.6 55.9 13.6 35.0 14.3 58.7 8.9 n/m 4.4% 2010A 133 0 133 2010A 335 0 335 2010A 1092 16.9 0.88 2010A 175 0 176 -75 100 -14 86 -2 85 -9 76 0 76 -1 75 2010A 49% 57% -11% 27% 24% 2010A 100 46 -29 18 -32 4 19 2010A 11 316 369 49 -38 -12% -14% -0.4 -57.5 -66.8 2011A 20.9 32.0 23.6 -59.9 15.0 33.8 -13.3 14.3 -58% 1.9% 2011A 76 37 113 2011A 479 836 595 2011A 1373 29.0 0.99 2011A 172 1 173 -111 62 -28 35 -1 34 -2 32 0 32 -11 21 2011A 20% 36% -5% 5% 5% 2011A 62 34 -112 -78 -108 64 -10 2011A 100 607 795 36 64 11% 10% 1.0 -37.5 -67.6 2012F 172.4 172.4 127.4 142.2 30.0 6.3 5.6 3.5 439% 3.8% 2012F 120 93 213 2012F 305 821 531 2012F 1770 37.2 1.01 2012F 401 0 401 -148 253 -49 204 -5 199 -27 172 0 172 0 172 2012F 51% 63% -13% 28% 24% 2012F 253 232 -22 210 -22 -47 162 2012F 100 730 899 181 -81 -11% -12% -0.3 -42.0 -52.0 2013F 202.9 202.9 149.9 169.3 58.0 5.3 4.7 3.2 18% 7.3% 2013F 195 104 299 2013F 365 731 492 2013F 1600 32.5 1.09 2013F 449 0 449 -170 279 -55 224 2 227 -24 203 0 203 0 203 2013F 50% 62% -11% 31% 22% 2013F 279 251 -22 229 -22 -113 117 2013F 42 919 1028 298 -256 -28% -39% -0.9 89.8 111.7 2014F 176.3 176.3 130.2 154.4 48.0 6.1 5.2 3.7 -13% 6.0% 2014F 187 104 291 2014F 397 710 509 2014F 1475 28.5 1.07 2014F 414 0 414 -172 242 -55 187 9 196 -20 176 0 176 0 176 2014F 45% 58% -10% 25% 16% 2014F 242 231 -22 209 -22 -107 102 2014F 0 1075 1145 400 -400 -37% -59% -1.6 20.4 26.4 2015F 129.5 129.5 95.6 147.5 65.0 8.3 5.4 3.8 -27% 8.2% 2015F 187 104 291 2015F 411 710 518 2015F 1325 25.0 0.97 2015F 419 0 419 -187 233 -63 169 2 172 -42 129 0 129 0 129 2015F 40% 55% -25% 22% 11% 2015F 233 222 -22 200 -22 -88 112 2015F 0 1202 1276 511 -511 -43% -74% -2.2 69.7 95.8 2016F 117.5 117.5 86.8 119.0 48.0 9.2 6.7 4.0 -9% 6.0% 2016F 187 104 291 2016F 422 709 525 2016F 1181 22.1 0.88 2016F 428 0 428 -205 223 -70 153 3 156 -39 117 0 117 0 117 2016F 36% 52% -25% 19% 9% 2016F 223 183 -22 161 -22 -65 96 2016F 0 1314 1393 607 -607 -46% -86% -2.7 47.7 69.5
Resources Gold resources Gold reserves EV/oz Gold resource (A$/oz) EV/oz Gold reserve (A$/oz) Valuation Description Chatree Challenger Total Operations Net debt Hedge Corporate overheads Exploration Total Valuation
A$m 867 246 1113 -64 0 -41 43 1052 P/NPV
A$ps 6.41 1.82 8.23 -0.47 0.00 -0.30 0.32 7.77 1.03
Operational NPV split
Exploration 4% Challenger 21%
Chatree 75%
5.3% 6.0% 1.3 13.1% 9.0% 30% 30% 11% 7.77 0% 7.77
Sensitivity (US$m) NPV / NPAT Au +10% increase ($m) Au +10% increase (%) AUD + 10% ($m) AUD + 10% (%) AUD + 1cent ($m) AUD + 1cent (%) Production and costs
koz 350 300 250 200 150 100 50 0 2010A 2011A 2012F
NPV(A$) 7.77 1.37 18% -0.93 -12% -0.12 -1%
2011F 32 0 0% 0.0 0% 0.0 0%
2012F 172 27 16% -19.8 -12% -2.0 -1%
US$/oz 2000 1500 1000 500 0 2013F 2014F 2015F
Challenger Au (koz) - equity Chatree Au (koz) Gold (US$/oz) Weighted average costs (US$/oz)
Kingsgate Consolidated | News Highlights | 28 October 2011
107
Equity | Australia | Metals & Mining
28 October 2011
OceanaGold
Buy
Target price
Costs steady, margins improving

OGC reported cash costs of US$956/oz, up slightly qoq, with gold production of 59koz slightly below our estimate. We continue to expect elevated cash costs to persist, but with 4Q11 likely to benefit from a weaker NZD. With positive catalysts lining up, we like OGC for leveraged exposure to gold. Buy maintained.
Key forecasts
FY09A EBITDA (US$m) 106.6 54.50 14.00 0.07 n/a 0.00 0.00 40.10 8.13 5.98 n/a FY10A 141.2 44.40 29.90 0.11 74.30 0.00 0.00 23.01 5.32 13.20 9.70 FY11F 170.4 FY12F FY13F
A$2.88
Price
A$2.45
n/a
215.5 & 175.5
Price performance
Oct 08 5 4 3 2 1 0 OGC.AX S&P/ASX200 Nov 09
Reported net profit (US$m) Normalised net profit (US$m)

(3M) 2.83 -13.4 -9.7 10.2 (12M) 3.55 -31.0 -26.2 -17.5
47.80 & 76.50 & 28.90 & 47.80 & 76.50 & 28.90 & 0.18 59.70 0.00 0.00 14.41 4.41 4.45 % 8.56 0.29 & 60.00 0.00 0.00 9.01 3.51 3.41 % 17.00 0.11 -62.2 0.00 0.00 23.85 4.34 4.37 7.44
2.24 9.4 0.7 1.1
Normalised EPS (US$) Normalised EPS growth (%) Dividend per share (US$) Dividend yield (%) Normalised PE (x) EV/EBITDA (x) Price/net oper. CF (x) ROIC (%)
Nov 10
year to Dec, fully diluted
On track to meet full-year guidance Gold production of 59koz and sales of 61koz were slightly below our forecasts. However, cash costs of US$956/oz were marginally lower than our estimate (US$981/oz). The company reiterated cost guidance of US$850-890/oz for 2011. We note the original cost guidance was based on a NZD assumption of 0.88 for 2H11 (currently 0.82), which should help the company achieve guidance. Along with some higher-grade ore from the Souvenir pit at Reefton likely to increase gold production qoq, we expect an improved cost performance in the December quarter. Going forward, we expect costs to remain relatively high (RBS 2012F US$893/oz). All-in-all, the quarterly was broadly neutral, although our focus is on the positive catalysts around the corner. Key catalysts are lining up Likely positive catalysts on a 12-month view: 1) The company is attempting to refinance its convertible bonds (up to US$155m) with a revolving credit facility (target date is 1Q12: If successful, we believe this would remove an overhang on the stock). 2) Exploration programmes around Reefton should generate positive newsflow over the next 12 months, with exploration at Big River continuing and drilling at Blackwater to begin shortly. 3) Work at Didipio is progressing on schedule, with the company targeting first ore into the mill in October 2012. Investment view: Buy maintained We continue to like OGC as it offers: 1) strong operating cash flows, with more than US$200m forecast for 2012; 2) medium-term growth through Didipio; 3) cheap valuation a gold stock trading below NPV; 4) numerous positive catalysts (see above); 5) leveraged gold exposure, against a backdrop of a favourable outlook for the gold price. We expect investors to be rewarded on a 12-month view and maintain our Buy recommendation, with a target price of A$2.88ps. Important disclosures can be found in the Disclosures Appendix.
A$676.35m (US$725.66m)
A$2.55m (US$2.63m)
Sector: BBG AP Mining RIC: OGC.AX, OGC AU Priced A$2.45 at close 27 Oct 2011. Source: Bloomberg
Analysts
Phillip Chippindale
Australia +61 2 8259 6859 phillip.chippindale@rbs.com
Lyndon Fagan
Sam Berridge
sam.berridge@rbs.com
Warren Edney
Todd Scott
todd.scott@rbs.com
109
Highlights from the quarterly

Production of 59koz and sales of 61koz were slightly below our 63koz forecast with slightly lower mill feed at both Macraes and Reefton and lower grade at Macraes. Cash costs of US$956/oz were slightly lower than our estimate of US$981/oz. Guidance for the full year remains US$850-890/oz. We note this was based on an assumed NZD rate of 0.88 (currently 0.82). This should provide some buffer for the company achieving guidance, offset partially by slightly lower gold production. Macraes/Frasers underground: Macraes production was affected by snowstorms in August causing a shutdown in mining for a few days, along with slightly lower grades from the open pit (milled grade was 1.15g/t vs RBS 1.1g/t). The Frasers underground mine had an improved performance, with underground ore mined up 24% qoq. Reefton: Material movements improved (to 4.4Mt) along with mill feed grade. However, tonnage through the mill was slightly lower than we expected. The CEO indicated material movements should increase further, with the mine plan based on 20Mtpa (5Mtpq). For the next six quarters, pre-strip of Globe Deeps stage 7 will be occurring. Refinancing of convertible bonds: The CFO confirmed he was aiming to refinance the convertibles by end 1Q12 (up to US$155m). Big River: Drilling at Big River continues, with the company targeting a 2,000m program for 2011, followed by 8,000m in 2012. Results so far are encouraging, including 2m at 18.5g/t from 147m. We expect further newsflow over the next 12 months. Chart 1 : Total production and cash costs
75000 1200
Chart 2 : Reefton production and mill grade

28000 26000 24000 800 3.0
70000
1000
2.5
65000 600 60000 400 55000
22000 20000 18000 16000
2.0
1.5
1.0
200
14000 12000 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Gold production (oz) Mill feed grade (g/t) RHS
0.5
50000 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Total gold sales (oz) Cash cost - P&L (US$/oz) RHS
0.0
Changes to forecasts
We have lowered our near-term earnings after slight adjustments to the production and cost profile. Furthermore, we have incorporated higher D&A in line with company guidance, which has lowered earnings significantly in 2012F and 2013F. Table 1 : Changes to NPAT and NPV
2010A Normalised NPAT (US$m) - previous Normalised NPAT (US$m) - revised Change (US$m) Change (%)
2011F 54.5 47.8 -6.7 -12%
2012F 90.4 76.5 -14.0 -15%
2013F 38.3 28.9 -9.4 -25%
NPV (A$ps) 2.88 2.88 0.0 0%
29.8 29.8 0.0 0%
OceanaGold | Investment View | 28 October 2011
110
Valuation and risks

Our NPV and NPV-based target price remain unchanged. Key downside risks to our target price include lower-than-estimated sales, higher-than-expected capex at Didipio, and variations in costs and the gold price relative to our forecasts. Upside risks include a higher-than-expected gold price and lower costs. OGC financial summary
Capital Profile Number of shares (m) Market capitalisation (A$m) Enterprise value (A$m) Enterprise value (US$m) Resources Gold resources (Moz) Gold reserves (Moz) EV/oz gold resource (A$/oz) EV/oz gold reserve (A$/oz) 276 676 701 719 Dec Year End NPAT Reported (US$m) NPAT Normalised (US$m) EPS (US) CFPS (US) DPS (US) P/E (x) P/CF (x) EV/EBITDA (x) EPS Growth Yield (%) Production Gold production - Macraes (koz) Gold production - Reefton (koz) Gold production - Didipio (koz) Total gold production (koz) Copper production - Didipio (kt) Costs Cash cost - Macraes (US$/oz) Cash cost - Reefton (US$/oz) Cash cost - Didipio (US$/oz) Cash cost - Total (US$/oz) Gross cash cost - Total (US$/oz) Assumptions Gold price (US$/oz) Gold price received (US$/oz) Copper - spot (US$/lb) NZD/USD AUD/USD Profit & Loss (US$m) Sales revenue Other revenue Total revenue Operating costs EBITDA Depreciation EBIT Net interest expense Pre-tax profit Tax Profit after tax Minorities NPAT (underlying) Significant items NPAT (reported) Profitability Analysis (%) EBIT margin EBITDA margin Effective tax rate ROA - EBIT / (total assets - cash) ROE - NPAT / equity Cashflow EBITDA Operating cashflow Capex Free cashflow Investing cashflow Financing cashflow Net Change in cash Balance Sheet Analysis Debt Equity Assets Cash Net debt Gearing - net debt/equity Gearing - net debt/ (net debt + equity) Net debt / EBITDA EBIT / net interest EBITDA / net interest 2010A 44.4 29.9 11.4 -21.2 0.0 22.0 -11.8 5.1 31% 0.0% 2010A 183 86 0 269 0 2010A 570 571 n.a. 569 845 2010A 1226 1136 3.42 0.72 0.92 2010A 306 0 306 165 141 69 72 15 57 27 30 0 30 15 44 2010A 24% 46% 48% 8% 4% 2010A 141 52 -108 -56 -108 187 131 2010A 207 689 1044 181 26 4% 4% 0.2 4.9 9.6 2011F 47.8 47.8 18.2 6.8 0.0 13.8 36.8 4.2 60% 0.0% 2011F 177 79 0 256 0 2011F 882 817 n.a. 862 1042 2011F 1569 1582 3.97 0.79 1.03 2011F 405 0 405 234 170 85 85 12 73 25 48 0 48 0 48 2011F 21% 42% 34% 14% 10% 2011F 170 155 -137 18 -137 -12 6 2011F 198 488 775 172 26 5% 5% 0.2 6.9 13.9 2012F 76.5 76.5 29.2 -1.9 0.0 8.6 -133.9 3.4 60% 0.0% 2012F 186 84 0 270 0 2012F 940 788 n.a. 893 1078 2012F 1750 1750 3.83 0.81 1.04 2012F 474 0 474 258 216 94 122 11 111 34 76 0 76 0 76 2012F 26% 46% 31% 19% 15% 2012F 216 202 -207 -5 -207 0 -5 2012F 198 520 807 167 31 6% 6% 0.1 11.2 19.9 2013F 28.9 28.9 11.0 -1.9 0.0 22.8 -135.3 4.2 -62% 0.0% 2013F 177 85 10 272 4 2013F 906 763 -332 815 1055 2013F 1525 1525 4.13 0.86 1.09 2013F 453 0 453 278 176 119 57 12 45 16 29 0 29 0 29 2013F 13% 39% 35% 9% 6% 2013F 176 158 -162 -5 -162 -8 -13 2013F 190 479 768 154 36 8% 7% 0.2 4.6 14.3 2014F 52.4 52.4 20.0 36.6 0.0 12.6 6.9 2.6 82% 0.0% 2014F 177 94 58 329 16 2014F 880 665 -183 628 790 2014F 1400 1400 3.66 0.79 1.02 2014F 581 0 581 341 240 141 100 23 77 24 52 0 52 0 52 2014F 17% 41% 32% 19% 11% 2014F 240 194 -98 96 -98 -56 40 2014F 135 472 707 195 -60 -13% -15% -0.2 4.4 10.5 2015F 81.2 81.2 31.0 44.0 0.0 8.1 5.7 2.2 55% 0.0% 2015F 174 94 80 347 18 2015F 741 624 -58 524 635 2015F 1250 1250 3.28 0.71 0.93 2015F 560 0 560 321 239 111 128 12 117 35 81 0 81 0 81 2015F 23% 43% 30% 30% 16% 2015F 239 192 -77 115 -77 0 115 2015F 135 510 742 310 -175 -34% -52% -0.7 nm nm
9.75 3.83 72 183
Grade (g/t) 1.12 Grade (g/t) 1.16 74 (US$/oz) 188 (US$/oz)
Valuation Description Macraes Reefton Didipio Total Operations Net debt Corporate overheads Exploration Total Valuation P/NPV A$m 463 198 148 809 -34 -58 79 796 A$ps 1.68 0.72 0.54 2.93 -0.12 -0.21 0.29 2.88 0.85
Operational NPV split
Didipio 18%
Reefton 24%
Macraes 58%
5.3% 6.0% 1.2 12.5% 9.0% 30% 30% 10.6% 2.88 0% 2.88
Sensitivity NPV / NPAT Gold +10% increase Gold +10% increase Gold +US$10/oz increase Gold +US$10/oz increase AUDUSD 10% increase AUDUSD 10% increase AUDUSD +1c increase AUDUSD +1c increase
NPV(A$) 2.88 0.73 25% 0.07 2% -0.65 -23% -0.08 -3%
2011F 48 8 17% 1 1% -3 -6% 0 -1%
2012F 76 34 45% 2 3% -18 -23% -2 -2%
Production and costs

400 350 300 250 200 150 100 50 0 2010A 2011F 2012F 2013F 2014F Didipio Reefton Macraes Gold price received (US$/oz) Gross cash cost - Total (US$/oz) 2015F 0 500 1000 1500 2000
OceanaGold | Investment View | 28 October 2011
111
AUSSIE ALPHA COMMENT

Markets have rallied hard as the results of the European summit exceeded expectations, however our economists note many risks at the implementation stage. (Daniel Blake +61 2 8259 5016)
EU Summit - Progress Report
27 October 2011
EU summit RBS reaction

Jacques Cailloux European Economics +44 7702 938 698 Jacques.Cailloux@rbs.com
Solving one problem by creating another

Summary: Markets will enjoy a short period of euphoria since EU heads of States have come up with a more comprehensive response than was probably anticipated given how low expectations were going into the meeting. The Greek deal, bank recaps and a leveraged EFSF will contribute to reduce the systemic risk premium that has built up over the last few weeks. However, implementation risks remain elevated for what looks like a very experimental architecture which does little to resolve underlying medium term solvency risks. With the ECB likely to take the back seat, the pressure on EFSF 3 will rise very quickly. Since the ECB started buying Italy and Spain, its annualised run rate of Eur450bn is a number that the new SPIV will struggle to match on a sustained basis.
Biagio Lapolla European Rates Research +44 20 3361 7597 Biagio.Lapolla@rbs.com
Nick Matthews European Economics +44 20 7085 0173 Nick.Matthews@rbs.com This note provides an extensive analysis on the key results of the EU summit including the Greek deal, the bank recaps and new senior debt insurance schemes as well as the latest developments relating to the Italian situation. Finally and most importantly we provide a detailed analysis on the two leverage options for the EFSF, assessing where the key implementation risks lie. We review the insurance solution (which we have already covered in some detail in previous notes) and reiterate our view that this scheme is unlikely to do the trick. We devote special attention to the SPIV. While we recognise that, with the right amount of seed capital, it has the potential to be levered up substantially, we conclude that this remains a structure fraught with high implementation risks. Key to its success will be the appetite from investors to buy the SPIV new debt at a low cost. In a deleveraging environment, placing close to a trillion of the SPIV debt will be no easy task. Contents
Michael Michaelides Supra/Agency Research +44 20 7085 1806 Michael.Michaelides@rbs.com
Silvio Peruzzo European Economics +44 7769 162 018 Silvio.Peruzzo@rbs.com
Harvinder Sian European Rates Research +44 20 7085 6539 Harvinder.Sian@rbs.com
Ian Smillie Equity Research +44 20 7678 5014 Ian Smillie@rbs.com
www.rbsm.com/strategy Bloomberg: RBSR<GO>
113
Summary bullet points

Greece: Private sector 50% haircut on notional points to NPV hit of 65%/70% but the IMFs (optimistic) baseline scenario still brings Greek down to only 120% debt/GDP in 2020. The more aggressive PSI is likely to see rating concerns on other Euro area countries on a rethink of default risk. Bank recapitalisations: Largely as expected with Euro area banks needing 106bn by June 2012 to reach CT1 of 9%. Greece, Spain, Italy and France come up as requiring most. Bank subordinated debt: Bail-in risks are heightened as "Banks should first use private sources of capital, including through restructuring of debt to equity instruments". It is in line with a trend towards layered loss absorbency along banks' liability structure but the wording appears to suggest retrospective loss absorbing risk for existing debt investors as well as new issuance. Bank senior debt guarantees: Public guarantee schemes should be redeployed in order to restart the term unsecured market. This adds to contingent liability. Euro area banks need to raise around 500bn of unsecured debt next year, or 5% of Euro GDP, but for some countries this is 10% of GDP. EFSF3 still sub optimal: The SPIV version of the EFSF is better than the insurance option and the SPIV could leverage 4-5x with sources saying EFSF 3 will have firepower of up to Eur1trn. This is no doubt a large sum but too small to restore confidence. Risks are associated to this structured credit solution which is a big experiment. Foreign participation is positive for sentiment: actual support from the IMF and EM countries helps the firepower and thus could make a very significant difference. Sovereigns to remain under pressure: we find no convincing arguments to suggest sovereign bond spreads in the Euro area will meaningfully tighten. Short term market reaction: The immediate reaction is euphoric but our view into the Summit was that Bunds would sell-off to 2.15% with the next 10/15bp around here essentially noise but that 2 months down the line (in the New Year) the next 50 bp is lower. We have not changed our view. Medium term outlook: There remain many implementation and political risks around the EFSF 3 solution and the markets continue to ignore the solvency risks in large EMU countries. We expect the market to deteriorate and see the ECB as the only ultimate backstop. EU Summit - Progress Report | 27 October 2011 2
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Executive summary
EU Summit - Progress Report | 27 October 2011 3 Greece: Official sector aims at Eur100bn of burden sharing with private sector or 50% haircut of the outstanding bonds on the nominal value, suggesting NPV reduction of close to 70%. Under the IMFs (optimistic) baseline scenario this would bring Greek debt towards a still high 120% debt to GDP in 2020 (although by then the bulk will be with the official sector). The aim is a voluntary debt exchange, implemented early 2012, and excluding the ECB with a new Bail Out II agreed by end year. Despite reiteration in the Statement that this is a one-off, we expect markets to reprice sovereign default risk across the Euro area given the size of losses imposed on Greece. Rating actions are also very likely in other Euro area countries as Agencies rethink the likelihood of default elsewhere. Italy asked to provide more details on the reforms timetable as a matter of urgency: The EU welcomed the letter from the Italian government that presented an ambitious reform plan. However, more details are required and Europe calls for a prompt submission of an ambitious implementation timetable. Europe will be increasingly more intransigent with Italy and the implicit appointment of the Commission as a watchdog of the reform agenda is a clear indication that is the case. Given the sensitivity of some of the items touched by the reform proposal, we continue to believe that domestic political risk will remain very high. Bank recapitalisations: Largely as expected; 70 Euro area banks have been stress tested. Based on end September sovereign prices, Euro area banks need to raise around Eur106bn by June 2012 to reach CT1 of 9%. Greece, Spain, Italy and France come up as requiring most with Eur30bn, Eur26, Eur15bn and Eur8.8bn respectively. Bank subordinated debt: Debt investor anxiety will be further fuelled by an explicit threat of forced bail-ins before banks that fail this stress test can resort to sovereign support. "Banks should first use private sources of capital, including through restructuring of debt to equity instruments". At the very least, this bodes uncomfortably for subordinated debt holders. It is very much in line with a trend towards layered loss absorbency along banks' liability structure that we anticipate for all banks in the new world. However, the wording appears to suggest retrospective loss absorbing risk for existing debt investors as well as new issuance. Bank senior debt guarantees: EU Heads of States agreed public guarantee schemes should be redeployed in order to restart the term unsecured market. The guarantees will be provided by the sovereigns when needed, clearly a negative given the already precarious situation on the sovereign front. A better option would have been guarantees coming at the supranational level. Euro area banks need to raise around Eur500bn of unsecured debt next year or 5% of euro area GDP. In some countries, this might account for up to 10% of GDP. This will contribute to higher funding costs to sovereigns. EFSF 3 still sub optimal: The SPIV version of the EFSF is more promising than the insurance option which we continue to consider as too complex and potentially dangerous. The SPIV option offers potential leverage capacity. The Statement suggests the leverage effect could be 4-5x. Sources suggest leverage might end up being 4x with a capital note (equity) of around Eur250bn giving EFSF 3 a firepower of up to Eur1trn. This is no doubt a large sum but too small in our view to restore confidence for good. To put this number in perspective, if EFSF 3 was to continue buying Italian and Spanish bonds at the same pace as that of the ECB, this would give only 2 years of
115
Sovereigns to remain under pressure: We find no convincing arguments in this new policy response to suggest that sovereign bond spreads in the Euro area will tighten meaningfully vis--vis Germany. If anything, we now know that some sovereigns will need to carry additional contingent liabilities on bank debt and the sovereign support mechanism (EFSF 3) will have a finite level around Eur1trn, which is too small a number to offer help to any country that might require it for a long period of time. Foreign participation could help: On a more positive risk, there is ongoing talk of potential support from the IMF and EM countries. We remain sceptical on that front but do not rule out participation which could provide additional capital to EFSF 3 and therefore increase further its firepower. As such, this would clearly be a positive development. Short term market reaction: The immediate reaction to the EU Summit is likely to revolve around the headline of Eur 1trn firepower and should see liquid hedges for crisis sold and equities rally. The reaction of the periphery is likely to be more tepid given ongoing issuance and either added contingent liability from banks or political reform doubts. News of BRIC/IMF involvement is risk positive. Beyond this, markets will become more cautious on implementation risks for what is essentially an experimental architecture. The SPIV will need several weeks of consultation before its viability can be further assessed. Even then it will also begin to dawn on markets that there is already sizeable intervention occurring to little crisis resolution and expecting a new acronym to do the trick is a matter of hope over experience. Our view into the Summit was that Bunds would sell-off to 2.15% with the next 10/15bp around here essentially noise but that 2-months down the line (in the new year) the next 50 bp is lower. We have not changed our view. Medium term outlook: more needs to be done Aside from the implementation risks around EFSF 3 and Greek debt exchange we believe that major headwinds remain. They include the usual suspects like the quarterly reviews in Greece that will likely continue highlighting difficulties around programme implementation, the fact Portugal will likely need a second bail out, that EFSF 3 if implemented could well still run short of the financial resources needed. Moreover, Political risk remains, as shown by the higher risks of an early election in Greece and/or Italy, for example. Official growth forecasts remain too optimistic and hence fiscal projections across the euro area. Deteriorating fiscal trends will remain a problem in a context of elevated sovereign debt. Ultimately, we remain of the view that only the ECB has sufficient firepower to backstop the system. While todays deal will likely put the ECB in the back seat, events will in our view force it back in.
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EU Summit - Progress Report | 27 October 2011
purchasing power, assuming no other country would require help from the EFSF. There are other risks associated to a structure credit solution including the ability of the vehicle to issue large amounts of debt at a relatively low interest rate, ie to find buyers of potentially around Eur800 of SPIV paper. Traditional bond investors might be reluctant to buy these credit instruments even if they are AAA rated. In fact, the judgement of rating agencies on the rating of this SPIV paper will also be critical to its success. AS such, the structured credit version appears more robust than the insurance scheme but we believe there are still major risks associated to this experiment.
Equity | Metals & Mining | Asia Pacific
27 October 2011
Produced by: The Royal Bank of Scotland N.V., (Hong Kong) Branch
Basic Elements
Great divide between aluminium giants
UC Rusal and Chalco are among the largest producers of aluminium globally, with similar operating scale and structure. Yet a great disparity persists in their financial metrics, which we expect to be reflected in share price performance. We initiate on Rusal with a Buy recommendation and maintain Chalco at Sell.
Chart 1 : Rusal and Chalco revenue (US$m) and EBIT margins
35,000 30,000 25,000 20,000 10% 15,000 5% 10,000 5,000 0 2007 2008 2009 2010 2011F 2012F 2013F 2014F 0% -5% -10% 30% 25% 20% 15%
Rusal revenue - LHS
Chalco revenue - LHS
Rusal EBIT margin - RBS
Chalco EBIT margin - RHS
Similarities in operating scale and structure We see many similarities in the operating scale and structure of UC Rusal and Chalco. Both companies rank among the top five producers of aluminium globally, with about 4m tonnes of aluminium output in 2010. They both have similar scale of alumina capacity, at 10m-11m tonnes. This is in excess of their own requirements. Further upstream, the companies have access to bauxite, a key feedstock, but both are not fully self-sufficient in bauxite. Marked difference in financial performance Despite the similarities in their operations, there is a marked difference in the financial performance of the two companies. Rusal was hit worse by the financial crisis with its large debt burden, necessitating debt restructuring, but it returned to profitability sooner than Chalco and its EBITDA margin at 20% was three times that of Chalco in 1H2011. We see Rusals advantages arising from: 1) more competitive aluminium production costs; and 2) better cash flow generation due to disciplined capital spending. Growth opportunities and risks Analysts
Jeannette Sim, CFA
Hong Kong +852 3988 7186 jeannette.sim@rbs.com
Their long-term strategic focus may vary in the details, but essentially both companies aim to lower costs of production. Rusal is allowed to selectively invest in new capacity and will be adding low-cost aluminium smelting facilities in Russia, extending its competitive position. Chalco is building alumina refineries in areas with access to bauxite resources and aims to improve its coal self-sufficiency. Rusal provides aluminium exposure with lower risks, in our view On our forecasts, Rusal has a more attractive earnings and cash flow profile that is less vulnerable to aluminium price volatility. We initiate Rusal at Buy and maintain Chalco at Sell.
Yi Zhu
Hong Kong +852 3961 3507 yi.zhu@rbs.com
38/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong http://research.rbsm.com
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Great divide between aluminium giants

Rusal and Chalco rank among the top five producers of aluminium globally, with similar operating scale and structure. However, we see marked differences in financial performance between them and expect that to be reflected in share price performance.
Similarities in operating scale and structure

Table 1 : Rusal and Chalco production
2007 Aluminium output (m tonnes) Rusal Chalco Alumina output (m tonnes) Rusal Chalco Bauxite output (m tonnes) Rusal Chalco Alumina net long/(short) (m tonnes) Rusal Chalco Bauxite self-sufficiency (%) Rusal Chalco
2008 4.42 3.25 11.32 9.02 19.10 6.79 2.72 2.68 68% 31%
2009 3.95 3.44 7.28 7.78 11.30 10.66 -0.32 1.07 71% 61%
2010 4.08 3.84 7.84 10.13 11.70 12.73 0.00 2.64 68% 57%
2011F 4.12 3.90 8.24 11.25 12.69 13.40 0.34 3.65 70% 57%
2012F 4.24 3.93 8.41 12.55 13.98 15.44 0.26 4.88 76% 62%
2013F 4.36 4.08 8.84 13.62 14.67 17.30 0.48 5.67 75% 64%
2014F 4.57 4.11 9.13 14.17 15.55 18.94 0.46 6.16 77% 67%
4.20 2.80 11.35 9.57 18.50 4.77 3.16 4.11 68% 20%
In 2010, Rusal and Chalco were among the top five producers of aluminium globally, with output of 4.08m tonnes and 3.84m tonnes, respectively. Besides the scale of their aluminium production, there are several other similarities in their operating scale and structure. Aluminium Rusal has smelter capacity of 4.66m tonnes. It operates 16 smelters, which are located in Siberia, Central Russia, Europe, and Nigeria. In 2010, the company produced 4.08m tonnes of aluminium. Chalco has smelter capacity of 3.96m tonnes. All of its smelting capacity is located in China, and it has 17 smelters in total. In 2010, the company produced 3.84m tonnes of aluminium. Alumina
Rusal has a total capacity of 11.5m tonnes across Russia, Europe, Guinea, Australia and Jamaica
Rusal has 12 alumina refineries located in Russia, Europe, Guinea, Australia, and Jamaica. Total capacity is 11.49m tonnes, and in 2010, the company produced 7.84m tonnes of alumina. As several of its alumina refineries are located in different countries from its smelting facilities, the company may purchase alumina from suppliers near its smelters and selling the alumina in the country it is produced. This helps to reduce the need to transport its self-produced alumina over long distances. Its alumina capacity is not fully utilised, but if we assume full utilisation at its aluminium and alumina facilities, Rusal would be able to produce 2.54m tonnes of alumina in excess of its needs. Chalcos nine alumina refineries are all located in China and its capacity totals 12.37m tonnes. In 2010, the companys alumina output was 10.13m tonnes. Many of Chalcos alumina refineries are located alongside its smelters. At full utilisation of its aluminium and alumina facilities, we estimate that Chalco would have a net long position in alumina of 4.65m tonnes based on 2010 capacity, and the company is further expanding its alumina capacity. Bauxite Rusals bauxite supply comes from mines in Russia, Guinea, and Jamaica. Its bauxite mines produced 11.7m tonnes in 2010, and at full capacity, should be able to supply 80% of the companys bauxite requirement. The company purchases the rest of its requirement from mines located near its refineries or import from its bauxite mines in Guinea and Australia.
Basic Elements | Investment View | 27 October 2011
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Chalco has bauxite capacity of 12m tonnes and produced 12.73m tonnes in 2010. At full capacity, it should be able to supply 41% of its bauxite requirement. Chalco purchases 50% of its bauxite needs from other domestic suppliers and the rest is imported.
Marked difference in financial performance

Rusal has outperformed Chalco since the 2008-09 financial crisis
Despite the similarities in their operating structure, there is a marked difference in the financial performance of the two companies. This has been especially obvious during the 2008-09 financial crisis and the subsequent two years. Rusal was hit harder by the crisis, as it carried a heavy debt burden that eventually saw the company go into debt restructuring. Emerging from the downturn, Rusal has returned to profitability sooner than Chalco and its EBITDA and EBIT margins have been far superior to Chalcos.
Chart 2 : Rusal and Chalco annual EBITDA (US$m)

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010 Rusal
Chart 3 : Rusal and Chalco annual EBIT (US$m)

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 -500 -1,000
2011F Chalco
2012F
2013F
2014F
2007
2008
2009
2010 Rusal
2011F Chalco
2012F
2013F
2014F
Chart 4 : Rusal and Chalco annual EBITDA margin

35% 33% 30% 25% 20% 15% 24% 22% 23% 21% 18% 20% 20%
Chart 5 : Rusal and Chalco annual EBIT margin

30% 27% 25% 20% 15% 10% 5% 0% 19% 16% 19% 17% 13% 16% 16%
10% 5%
7% 9% 9% 7% 4% 6% 7% 7% -5% -10% 2007 2008 2009 2010 Rusal 2011F 2012F 2013F 2014F 2007 0%
2%
3%
3%
2%
4%
3%
-4%
0%
2008
2009
2010 Rusal
2011F
2012F
2013F
2014F
Chalco Source: Company data, RBS forecasts
Chalco
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Chart 6 : Rusal and Chalco quarterly EBITDA margin

30%
Chart 7 : Rusal and Chalco quarterly EBIT margin

30% 20% 10%
20%
10% 0% 0% -10% -10% -20% -20% -30% -40% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Rusal Source: Company data Chalco Source: Company data 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Rusal Chalco
-30%
Table 2 illustrates what we consider are the key drivers of the differences, namely: 1) aluminium price realisations; and 2) cash costs of aluminium production. Rusal scores better on each of these, which gives the company much higher profitability per tonne than Chalco. Table 2 : Rusal and Chalco compared
Pricing and profitability Rusal Chalco Rusal Chalco Rusal Chalco Rusal Chalco Rusal Chalco Rusal Chalco EBITDA per tonne of alumina sold Rusal Chalco Rusal Chalco Impact on EBITDA for every US$10/tonne change in alumina price Rusal Chalco
2007 3,295 2,581 24.9% -2.2% 375 436 1,778 2,145 270 281 989 470 105 124
2008 2,891 2,420 12.6% -5.7% 558 447 1,915 2,281 387 338 363 139 171 56
2009 1,694 1,820 1.3% 8.8% 259 304 1,510 1,718 274 294 184 101 -15 1
2010 2,303 2,161 5.9% -0.6% 317 350 1,657 1,978 300 297 646 183 17 57
2011F 2,596 2,390 6.5% -2.0% 386 397 1,851 2,230 356 336 745 160 29 60 1.5% 2.9% 0.4% 1.7%
2012F 2,546 2,477 6.8% 3.9% 381 404 1,878 2,371 352 353 668 106 30 51 1.9% 3.6% 0.5% 1.7%
2013F 2,764 2,703 6.8% 4.5% 414 442 1,965 2.532 360 371 799 171 54 71 1.6% 2.6% 0.5% 1.7%
2014F 2,710 2,665 7.8% 6.1% 402 435 1,930 2.527 354 363 780 138 48 72 1.6% 2.6% 0.5% 1.6%
Aluminium price realisations (US$/tonne)
Aluminium realised price premium/(discount) versus LME (%)
Alumina realised price (US$/tonne)
Cash cost of aluminium production (US$/tonne)
Cash cost of alumina production (US$/tonne)
EBITDA per tonne of aluminium sold
Impact on EBITDA for every US$10/tonne change in aluminium price
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Rusals aluminium price advantage

Rusal's products have sold at a premium to LME pricing in recent years, while Chalco's have sold at a discount
Rusal has been able to realise a premium to LME pricing for its products and this premium has been rising as the company increases the proportion of value-added products in its mix. It sells its products in various geographies, but developed markets account for 56% of its sales volume. In contrast, Chalco has persistently suffered a discount to the LME price and we believe this is due to the oversupply in the domestic market and an export tax that discourages the export of the excess product. As a result, aluminium prices on the Shanghai Futures Exchange have traded at a discount of as much as 8.3% versus the LME price in 2010.
Chart 8 : Rusal premium over LME (US$/tonne)
Chart 9 : SHFE aluminium price premium/(discount) versus LME

10%
120
100
5%
80
0%
60
-5%
40
-10%
20
-15%
0 2007 2008 2009 2010
-20% 2007 2008 2009 2010
Source: Bloomberg
Rusals aluminium production cost advantage

It is also clear that Rusal enjoys a significant cost advantage in the production of aluminium, with cash costs as much as US$321/tonne lower than Chalco in 2010. Indeed, Brook Hunt places Rusal at the lowest quartile in aluminium smelting costs, whereas Chalco is in the third quartile. Chart 10 : Rusal and Chalco aluminium cash cost (US$/tonne)
3,000 2,532 2,500 2,145 2,000 1,915 1,778 1,718 1,510 1,978 1,657 2,281 2,371 2,230 1,851 1,878 1,965 1,930 2,527
1,500
1,000
500
0 2007 2008 2009 2010 Rusal Source: Company data, RBS forecasts 2011F Chalco 2012F 2013F 2014F
We believe a key reason for Rusals favourable cost positioning lies in its access to low-cost hydropower at its largest Siberian smelters. About 80% of Rusals smelting capacity is located in Siberia and four of its seven Siberian smelters were in the lowest cash cost quartile in 2010.
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Better profitability gives a less volatile earnings stream

With better profitability, Rusals earnings are less vulnerable to swings in aluminium prices, particularly in the event that they move lower. Our analysis shows that a US$10/tonne change in aluminium price will impact Rusal by 1.9%, whereas Chalco will see a3.6% impact (based on 2012F forecasts). Certainly, it would appear that Chalco offers much better operating leverage in a rising price environment, but we also note that Chalco risks falling into losses if aluminium prices should fall to US$2,400/tonne, whereas Rusal can withstand a fall in prices to US$1,900/tonne.
Balance sheet improvements on capex discipline

Rusal beats Chalco on both EBITDA and capex
Apart from generating high EBITDA compared to Chalco, Rusal also has lower capex spend than Chalco. Although this has been due to restrictions on its capex imposed by the debt restructuring agreement, we note that Rusal has been free cash flow positive in the past five years (2006-10), whereas Chalco had negative free cash flow in four of the past five years. Aggregate capex spent by Rusal between 2006 and 2010 totaled US$4.57bn, while Chalco spent an aggregate of US$7.3bn. We expect Rusal to remain free cash flow positive over 2011-14, but project that Chalco will continue to spend in excess of its operating cash flows. Table 3 : Rusal and Chalco compared balance sheet
Balance sheet Net debt (US$bn) Rusal Chalco Net debt-to-equity Rusal Chalco Net debt-to-EBITDA (x) Rusal Chalco Short-term debt as % of total debt Rusal Chalco
2007 8,150 2,597 80% 31% 1.80 0.97 21% 39%
2008 13,170 6,049 293% 70% 3.80 5.86 100% 38%
2009 13,633 8,168 215% 100% 23.07 17.94 20% 41%
2010 11,472 8,855 100% 105% 4.45 5.73 11% 60%
2011F 10,832 10,686 80% 118% 4.18 6.76 2% 58%
2012F 10,112 12,717 65% 136% 4.60 9.04 10% 56%
2013F 9,489 13,931 53% 142% 3.39 6.55 18% 54%
2014F 8.770 14,334 43% 145% 3.15 6.84 24% 53%
As a result, we believe that Rusal will be in a better position to pay down its debt and we forecast that its net debt position will be reduced from US$11.5bn at end-2010 to US$8.8bn by end-2014. In contrast, Chalcos net debt will rise from US$8.9bn to US$14.3bn in 2014, based on our forecasts.
Growth opportunities and risks

Over the long term, both companies aim to lower their costs of production, but each will pursue a different strategy to reach its goal.
Rusal: extending its advantage as low-cost smelter

Rusal is allowed to selectively invest in new capacity and its capex over the next three years is restricted to building the BEMO and Taishet smelters. Both these smelters are located in Siberia, and have access to low-cost hydropower. In aggregate, the two projects will add 1.04 tonnes of smelting capacity when they are completed, a 22.3% increase in Rusals 2010 capacity. We believe these will extend the companys low-cost position in the global aluminium industry.
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Table 4 : Description of the BEMO and Taishet smelters

BEMO Ownership Planned capacity -Hydro power plant -Aluminium smelter Power source of smelter Capex -Total capex -Remaining capex Current status US$1,298m US$518m Major construction works at the BHPP is completed The earthworks at the Boguchansky smelter is completed Planned start-up The first turbines at BHPP are on schedule to be launched in April 2012 The first metal production is expected to commence in March 2013. The first start-up complex (capacity of 147,000 tonnes aluminium) to complete by 2013 and the send complex to complete by end-2015
Taishet Rusal (100%) N/A 750,000 tonnes Hydro US$1,772m US$551m US$1,221m Scheduled restart of construction in 3Q11
RusHydro (50%), Rusal (50%) 3,000MW 580,000 tonnes Hydro
-Capex spent as of 31 Dec 2010 US$780m
Phase 1 (capacity of 375K tonnes aluminium) first metal production in 2013
Apart from the greenfield investments in BEMO and Taishet, the companys priorities lie in raising utilisations at its various facilities. Hence, we do not expect significant capex needs beyond what is required for BEMO and Taishet. Table 5 : Rusals plans
Projects Aluminium BEMO Taishet Alumina Aughinish expansion Windalco Bauxite Windalco BCGI
Location Siberia, Russia Siberia, Russia Ireland Jamaica Jamaica Guinea
Added capacity (000 tonnes) 580 (capacity attributable to Rusal is 290) 750 110 (to increase to 2m tonnes from 1.89m tonnes as of 31 Dec 2010) To increase utilisation rate To increase utilisation rate To increase utilisation rate
Planned start-up Mar-13 2013 2012 Started from 2011 Started from 2011 Started from 2011
Chalco: pursuing restructuring and upstream integration

Chalco aims to lower its costs by shutting its higher-cost aluminium smelters, adding alumina refineries in lower-cost locations and increasing its upstream integration in bauxite and coal. After the financial crisis, Chalco laid out a three-year restructuring plan about alumina and aluminium production. The key objectives of this plan were to reduce production costs and implement an integrated value chain from resources to primary aluminium. To this end, the company said that it would take the following actions: 1) phase out backward production facilities; 2) prioritise the acquisition of resources and increase bauxite self-sufficiency, coal self-sufficiency and self-generated electricity capacity; and 3) emphasise technology upgraded and improve management mechanisms. To date, Chalco has shut 310,000 tonnes of outdated aluminium capacity, but has also added 400,000 tonnes of capacity. It also has 2.65m tonnes of alumina capacity scheduled to come onstream between 2011 and 2014F, raising its current capacity by 20.4%. Chalco has taken steps to extend its value chain upstream to coal mining and bauxite ore, aiming to lower its raw material costs. Its investment in the Zunyi bauxite mine is under way, with designed annual capacity of 1.7m tonnes of bauxite. Together with investments in domestic and overseas bauxite mines, the company aims to achieve 80% of self-produced bauxite ore within the next three to five years. Chalco has also invested Rmb537m in Shanxi Jiexiu Coal Group (coal reserve of 300m tonnes), taking a 34% stake. The company expects production capacity to reach Basic Elements | Investment View | 27 October 2011
123 8
3.9m tonnes by 1H12. In addition, Chalco has signed strategic agreements to build integrated coal-power aluminium production base in Inner Mongolian and Xinjiang province. Table 6 : Chalcos expansion plans
Projects Aluminium Liancheng Alumina Zunyi Shandong improvement project Pingguo improvement project Xing county Zhongzhou Bauxite Zunyi
Province
Added capacity (000 tonnes) 400 400 270 480 800 700 1,700
Planned start-up
Gansu Chongqing Shandong Guangxi Shanxi Henan Guizhou
end-2011 2011 (400,000 tonnes has come on line in 2010) 2011 2011 2013 2012 2013
Chalco also has plans to invest in iron ore mines (Simandou project) and coking coal trading (offtake contract from Mongolia). We see these as not integral to its aluminium business and do not expect significant profit contributions from these projects. As a state-owned enterprise in China, we believe that Chalco should be able to access financing for its projects. However, this could mean that the company has less stringent control over where its capex is spent.
Implications for valuations and stock performance

Rusal also presents a more attractive earnings and cash flow profile than Chalco
On our forecasts, Rusal presents a more attractive earnings and cash flow profile that is less vulnerable to the volatility in aluminium prices. In our view, Rusal is the better leveraged play on aluminium prices, in that investors can participate in the potential upside from the commodity price rise through its improving cash flow and debt repayment, while facing less volatility in earnings should prices weaken. In our earnings forecasts, our aluminium price assumptions are an average of our Global Commodities team forecasts and the aluminium forward curve. Prices on the forward curve for 2012 suggest only a slight progression from current prices, and on a full-year basis are lower than the 2011 average. Hence we forecast lower earnings for both companies in 2012, and for Chalco to report a loss. With higher prices forecast in 2013, we see a larger step-up in earnings in 2013, with substantial upside to our earnings estimates if our more bullish house forecasts of aluminium prices are reached in that year (see Table 7 below).
Table 7 : RBS forecast earnings at various aluminium prices

2012F Current Rusal EBITDA (US$bn) EBIT (US$bn) Net profit (US$bn) Chalco EBITDA (US$bn) EBIT (US$bn) Net profit (US$bn)
2013F Used in model Current RBS forecast Used in model
RBS forecast
US$2,200/tonne US$2,491/tonne US$2,383/tonne US$2,200/tonne US$2,822/tonne US$2,588/tonne 1.44 0.91 1.36 0.48 -0.49 -0.96 2.65 2.12 2.33 1.95 0.99 0.29 2.20 1.67 1.97 1.41 0.44 -0.12 1.14 0.58 1.02 0.03 -1.02 -1.18 3.81 3.25 3.16 3.39 2.34 1.17 2.80 2.25 2.35 2.13 1.07 0.29
Given current investor concerns about the macro outlook and the significant variance in earnings that could arise from swings in commodity prices, we believe that price-to-book valuations are more appropriate. We believe that Rusal deserves to trade at a premium to Chalco and have valued Rusal at 1x FY12 PB and Chalco at 0.7x FY12 PB. Since its listing in January 2010, Rusal has traded at an average premium of 20% versus Chalco. Our target prices of HK$7.96 for Rusal and HK$3.40 for Chalco would suggest potential upside of 16% to Rusals current share price and potential downside of 16% for Chalco.
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Table 8 : PB valuation
Rusal Target PB multiple (x) BVPS (US$) 2012F Target share price (HK$)
Chalco 0.7 0.62 3.40
1.0 1.02 7.96
Although there has not been a significant difference in the share price performance of both companies to date, with the aluminium price being a key driver of the share price, we believe the recent completion of refinancing at Rusal should reduce the uncertainty around the company and lead to greater outperformance versus Chalco in the future. Chart 11 : Share price performance ytd
30% 20% 10% 0% -10% -20% -30% -40% -50% -60% Jan-11
Apr-11 Rusal Chalco
Jul-11 HSCEI
Oct-11
Source: Bloomberg
Chart 12 : Rusal share price versus aluminium price

HK$ 16
14 12 2,600 10 2,400 8
Chart 13 : Chalco share price versus aluminium price

HK$ 10 US$ 3,000
US$ 3,000
2,800
2,800 8 2,600 6 2,400 4
6 4 Jan-11 Apr-11 Jul-11 Oct-11
2,200
2,200
2,000
2 Jan-11 Apr -11 Jul-11 Oct-11
2,000
Rusal share price (HK$) - LHS
LME aluminium price (US$) - RHS
Chal co share pri ce (HK$) - LHS
LME aluminium pr ice (US$) - RHS
Source: Bloomberg
Source: Bloomberg
125 10
10
Appendix
Table 9 : Rusals production facilities
% ownership Capacity as of 31 December 2010 (000 tonnes) Production in 2010 (000 tonnes)
Aluminium smelters Russia (Siberia) Bratsk Krasnoyarsk Sayanogorsk Novokuznetsk Khakas Irkutsk Alukom Other Russia Bogoslovsk Urals Volgograd Volkhov Nadvoitsy Kandalaksha Sweden Kubal Nigeria Alscon Ukraine Zaporozhye Total Projects under development Boguchansky Taishet Alumina refineries Russia (Siberia) Achinsk Other Russia Boksitogorsk Bogoslovsk Urals Jamaica Alpart Windalco Ukraine Zaporozhye alumina and aluminium complex Nikolaev Guinea Friguia Australia QAL Italy Eurallumina Ireland Aughinish Bauxite mines Russia Timan North Urals Guinea Kindia Friguia Bauxite and alumina complext Bauxite Company of Guyana, Inc. Jamaica Alpart Windalco
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 85% 98%
1,006 1,008 542 322 297 529 11 187 75 168 24 81 76 128 96 114 4,664 588 750
978 979 537 270 296 394 0 113 72 155 18.48 71.28 64 93 18 25 4,083 0 0
100% 100% 100% 100% 65% 93% 98% 100% 100% 20% 100% 100%
1,069 149 1,074 740 1,673 1,240 260 1,570 618 4,020 1,085 1,890
1,000 137 990 730 0 238 0 1,534 597 765 0 1,850
80% 100% 100% 100% 90% 65% 93%
2,500 3,400 3,200 2,100 2,200 3,200 3,700
1,900 3,100 2,900 2,100 800 0 900
Basic Elements | Appendix | 27 October 2011
126 11
11
Figure 1 : Map of Rusals production facilities
127 12
12
Table 10 : Chalco's production facilities

Capacity as of 31 December 2010 (000 tonnes) Aluminium smelters Baotou Fushun Gansu Hualu Jiaozuo Wanfang* Qinghai Guizhou Guangxi - Pingguo Shandong Huayu Shandong branch Henan - Zhengzhou Research Institute Lanzhou Shanxi Huasheng Shanxi Huaze Zunyi Aluminum Liancheng Longmen Aluminum Alumina refineries Shanxi Zhengzhou Shandong Guizhou Zhongzhou Pingguo Research Institute Guangxi Huayin* Chongqing branch Chalco Zunyi Bauxite mines Pingguo (Guangxi) Xiaoyi (Shanxi) Guizhou No.2 (Guizhou) Guizhou No.1 (Guizhou) Mianchi (Henan) Yangquan (Shandong) Xiaoguan (Henan) Luoyang (Henan) Nanchuan Mine Zunyi Mine Sanmenxia Yuzhong Jiaozuo Pingdingshan Shanxi other mines 1,300 42 28 383 523 495 900 300 150 180 700 1,650 824 741 168 1,190 950 117 4,080 2,750 4,738 2,531 2,217 2,050 2,000 1,200 2,030 1,730 20 530 200 400 74 1,775 1,922 1,599 1,078 1,693 1,990 388 240 230 412 367 404 140 200 75 56 18 388 220 350 235 225 17 412 206 165 409 384 432 115 216 58 0 11 429 223 342 191 230 12 Production in 2010 (000 tonnes)
*Note: All facilities are wholly owned by Chalco except Jiaozuo Wanfang at 24% and Guangxi Huayin at 33% Source: Company data
128 13
13
Table 11 : Past five years (2006-10) financials for Rusal

(US$m) Revenue EBITDA EBIT Net profit - reported Net profit - recurring Net debt Capex FCF Financial ratios EBITDA margin (%) EBIT margin (%) Net profit margin - reported (%) Net profit margin - recurring (%) Net debt/equity Return on equity Book value/share
Source: Company data,
2006 8,429 3,675 3,312 2,887 2,887 3,983 867 1,923
2007 13,588 4,523 3,647 2,803 2,803 8,150 1,719 1,627
2008 15,685 3,470 2,440 (6,036) (2,348) 13,170 1,374 1,669
2009 8,165 591 5 821 889 13,633 244 1,042
2010 10,979 2,578 2,080 2,867 2,916 11,472 367 1,371
43.6% 39.3% 34.3% 34.3% 126.9% 93.8% 0.35
33.3% 26.8% 20.6% 20.6% 80.4% 27.8% 0.87
22.1% 15.6% -38.5% -15.0% 293.4% -52.3% 0.39
7.2% 0.1% 10.1% 10.9% 215.3% 14.0% 0.51
23.5% 18.9% 26.1% 26.6% 100.1% 25.5% 0.75
Table 12 : Past five years (2006-10) financials for Chalco

(Rmbm) Revenue EBITDA EBIT Net profit - reported Net profit - recurring Net debt Capex FCF Financial ratios EBITDA margin (%) EBIT margin (%) Net profit margin - reported (%) Net profit margin - recurring (%) Net debt/equity Return on equity Book value/share
2006 64,827 21,173 17,668 11,842 11,842 5,776 6,495 6,729
2007 85,199 20,454 15,794 10,753 10,753 19,752 10,850 (198)
2008 76,728 7,170 1,834 19 21 42,035 16,791 (11,767)
2009 70,268 3,108 (2,656) (4,643) (4,019) 55,765 9,597 (10,303)
2010 120,995 10,461 4,104 778 1,480 59,948 8,380 (1,276)
32.7% 27.3% 18.3% 18.3% 12.1% 26.8% 3.80
24.0% 18.5% 12.6% 12.6% 30.6% 17.7% 4.49
9.3% 2.4% 0.0% 0.0% 69.8% 0.0% 4.07
4.4% -3.8% -6.6% -5.7% 100.3% -9.2% 3.73
8.6% 3.4% 0.6% 1.2% 104.8% 1.5% 3.81
129 14
14
AUSSIE ALPHA COMMENT

CWN owns 33% of the Nasdaq-listed Melco Crown. It represents about 30% of our $9.00/share target price. (Michael Nolan +61 2 8259 1316)
Equity | Hong Kong | Casinos & Gaming
26 October 2011
Produced by: The Royal Bank of Scotland N.V., (Hong Kong) Branch
Melco Crown Ent

Buy
Target price
Resilient 3Q expected; TP raised

We increase our FY11-13 estimates and raise our target price to US$14.00 as we maintain that MPEL's business will remain resilient despite an increasingly competitive environment, particularly in Cotai. We expect 3Q results to show qoq growth, one of the few operators to do so, in our view. We reiterate Buy.
Key forecasts
FY09A Revenue (US$m) 1,333 -54.6 -319 -308 -0.63 0.00 0.00 -16.6 -167 2.22 -8.20 FY10A 2,642 430.4 -10.5 -10.5 -0.02 0.00 0.00 -529 16.30 2.21 2.38 FY11F 3,867 FY12F 4,237 FY13F 4,667 920.4 390.7 390.7 0.73 0.00 0.00 14.29 6.48 1.60 14.30
US$14.00 (from US$13.65)

Price
US$10.48
n/a
Market view
Neutral
Price performance
(1M) Price (US$) Absolute (%) Rel market (%) Rel sector (%)
Oct 08 16 12 Nov 09
EBITDA (US$m) Reported net profit (US$m)

(3M) 15.33 -31.6 -19.7 -26.3
Nov 10
785.3 % 834.6 208.5 % 317.0 208.5 0.39 0.00 0.00 26.75 8.71 2.03 11.20 317.0 0.59 0.00 0.00 17.61 7.72 1.81 12.00
(12M) 5.88 78.2 122.0 94.0
10.19 2.8 -4.2 1.7
Normalised net profit (US$m) Normalised EPS (US$) Dividend per share (US$) Dividend yield (%) Normalised PE (x) EV/EBITDA (x) Price/book value (x) ROIC (%)
Use of %& indicates that the line item has changed by at least 5%. 1. Post-goodwill amortisation and pre-exceptional items Accounting standard: Local GAAP Source: Company data, RBS forecasts
8 4
year to Dec, fully diluted
0 MPEL.O HSI
Estimates raised moderately to reflect 3Q strength and resilience going forward We increase our FY11 estimates by 3-10% on expectations of a strong 3Q11 performance from both City of Dreams (CoD) and Altira. For FY12-13, we raise our estimates slightly as we maintain our previous view that MPELs business will remain resilient, helped by a better gaming mix at CoD, despite a market share dip given an increasingly competitive environment, particularly in Cotai. Moreover, we expect adjusted EBITDA margins (on net revenue) to improve from 16% in FY10 to about 20% in FY13F as MPEL transforms into a more efficient operator with better mass gaming and non-gaming amenities. 3Q11 results preview We expect MPEL to show sequential improvements in net revenue and adjusted EBITDA, driven by strong VIP rolling chip volumes and a higher-than-theoretical VIP win rate. Moreover, we believe MPEL is one of the few operators in Macau that has managed to grow VIP gaming volumes in 3Q11, benefiting from Galaxy Macaus (GMR) strength and its stable relationship with junkets. We estimate 3Q11 net revenue will increase by 7% qoq to US$1.0bn. We also expect adjusted EBITDA to benefit from the higher gaming volumes and VIP win rate. We estimate 3Q11 adjusted EBITDA to be US$227m, up 5% qoq and 66% yoy.
US$5.58bn
US$80.27m
Sector: BBG AP Leisure & Hotels RIC: MPEL.O, MPEL US Priced US$10.48 at close 25 Oct 2011. Source: Bloomberg
Analysts
Philip Tulk
Hong Kong +852 3988 7189 philip.tulk@rbs.com
Target price raised 3% to US$14.00; reiterate Buy We raise our target price by 3% to US$14.00 after raising our adjusted EBITDA estimates by 1-10% for FY11-13 and reiterate Buy despite increasing competition on Cotai. We expect MPEL to remain resilient as CoD will likely benefit from a potential influx of visitors to Cotai, while strong relationships with junkets will likely provide a steady flow of VIP customers to both CoD and Altira. Moreover, we believe Macau Studio City (MSC), which accounts for 21% of our valuation, will also play a critical role in MPELs growth should it receive approval for a casino component. The stock is trading at 7.7x 2012F EV/EBITDA; a discount to the sectors 8.5x, and is not expensive in our view. Buy. Important disclosures can be found in the Disclosures Appendix.
Frank Hung
Hong Kong +852 3988 7245 frank.hung@rbs.com
38/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong http://research.rbsm.com
131
Estimates raised on forecast resilience

We increase our FY11-13 estimates by 1-10% and raise our TP to US$14.00 as we expect MPELs business to remain resilient despite increasing competition. Also, we believe MPEL is one of the few operators to grow qoq in 3Q. We maintain our Buy rating.
MPEL likely to remain resilient despite Cotai competition

We increase our FY11F net revenue, adjusted EBITDA and EPS by 3-10%, following a review of our estimates and recent channel checks. We are now in line with Bloomberg consensus in terms of revenue and slightly above in terms of adjusted EBITDA. We have adjusted our estimates due mainly to the following: Strong 3Q11 to lift FY11F: We expect MPEL to show qoq growth in 3Q vs qoq declines for most other operators. In our view, this is driven primarily by a higher-than-theoretical VIP win rate and helped by a moderate increase in VIP rolling chip volumes over 2Q. Also we increase our 2011 adjusted EBITDA and EPS estimates to reflect the benefits of the favourable VIP win rate. FY12-13F upped moderately: Our revenue estimates for FY12-13 are largely unchanged as we continue to believe CoD will remain one of Cotais busier VIP properties given its strong relationship with junkets. Moreover, we expect CoD to benefit from a potential influx of massmarket visitors as Cotai gains further traction from the ramp-up and opening of existing and new properties, respectively. However, we expect to see some slippage in terms of market share, but do not view that as severe and would be in line with other operators that do not have new property launches in the near term. In terms of EBITDA margins, we expect to see slight improvements going forward as we expect the company to transform into a more efficient operator with better mass gaming and non-gaming amenities. Table 1 : Old and new forecasts
Year to Dec. 31 2010A 2011F 2012F 2013F
Net revenue (US$m) Forecast New Old revision 2,642.0 3,866.7 4,236.6 4,666.8 2,642.0 3,754.7 4,268.9 4,705.6 0.0% 3.0% -0.8% -0.8%
Adjusted EBITDA (US$m) Forecast New Old revision 430.4 785.3 834.6 920.4 430.4 715.9 819.4 908.8 0.0% 9.7% 1.8% 1.3%
Basic EPS (US$) New (0.020) 0.392 0.595 0.733 Old (0.020) 0.363 0.588 0.728 Forecast revision 0.0% 7.8% 1.2% 0.7%
Table 2 : RBS forecasts vs consensus, % difference

Revenue Year Melco Crown Entertainment
Source: RBS forecasts, Bloomberg
Adjusted EBITDA Next 2.0% This 10.2% Next 8.5%
EPS This -4.2% Next 5.5%
This 1.6%
3Q11 results preview Table 3 outlines our 3Q11 estimates for MPEL. We expect to see sequential improvements in net revenue and adjusted EBITDA. In particular, we estimate 3Q11 net revenue will increase by 7% qoq to US$1.0bn.
Melco Crown Ent | Investment View | 26 October 2011
132
Table 3 : 3Q11 results expectations

US$m December year end Net revenue Gross gaming revenue (GGR) VIP GGR VIP rolling chip volumes VIP win rate Mass / slots Adjusted EBITDA Adj EBITDA margin (on net revenue)
Change 3Q11E 1,030.0 1,346.9 1,064.1 33,600 3.17% 282.8 226.5 22.0% 3Q10A 727.0 928.4 746.5 23,900 3.12% 181.9 136.3 18.7% yoy 41.7% 45.1% 42.5% 40.6% 0.04ppt 55.4% 66.2% 3.2 ppt 2Q11A 960.0 1,224.6 956.6 32,500 2.94% 268.0 216.3 22.5%
Change qoq 7.3% 10.0% 11.2% 3.4% 0.22ppt 5.5% 4.7% -0.5 ppt
Based on our channel checks, we believe MPELs strength in 3Q11 is driven by a combination of strong VIP rolling chip volumes and a higher-than-theoretical VIP win rate. In particular, we believe MPEL is one of the few operators in Macau that has managed to grow VIP gaming volumes in 3Q11 our channel checks indicate this is likely due to CoD benefiting from the increasingly popular Cotai destination, MPELs recent investment in further enhancing customer service, and increasing marketing efforts and strong relationship with junkets. We also expect adjusted EBITDA to benefit from the higher gaming volumes and VIP win rate. For 3Q11, we estimate adjusted EBITDA to be US$227m, up 5% qoq and 66% yoy. We expect MPEL to release 3Q11 results in the second week of November.
Valuation and recommendation

We raise our DCF-derived target price by 3% to US$14.00 after raising our adjusted EBITDA estimates by 1-10% for FY11-13 and reiterate our Buy recommendation. Despite increasing competition in Cotai, we expect MPEL to remain resilient as CoD will likely benefit from a potential influx of visitors to Cotai, while strong relationships with junkets will likely keep a steady flow of VIP customers to both CoD and Altira. Moreover, we believe MSC, which accounts for 21% of our current valuation, will also play a critical role in MPELs growth should it receive approval for a casino component. Our current target price implies 34% potential upside from Tuesdays close. The stock has underperformed the market over the past month, increasing by 3% compared with the sectors 7%. The stock is trading at 7.7x 2012F EV/EBITDA; a discount to the sectors 8.5x, and is not expensive in our view. We reiterate our Buy rating. Chart 1 : Valuation breakdown (total: US$14.00)
Macau Studio City 21%
CoD, Altira, Mocha Clubs 79%
Melco Crown Ent | Investment View | 26 October 2011
133
Income statement
US$m Revenue Cost of sales Operating costs EBITDA DDA & Impairment (ex gw) EBITA Goodwill (amort/impaired) EBIT Net interest Associates (pre-tax) Forex gain / (loss) Exceptionals (pre-tax) Other pre-tax items Reported PTP Taxation Minority interests Exceptionals (post-tax) Other post-tax items Reported net profit Normalised Items Excl. GW Normalised net profit
FY09A 1333 -1130 -257.1 -54.6 -217.5 -272.0 n/a -272.0 0.00 n/a n/a n/a -47.9 -320.0 0.13 n/a n/a 0.00 -319.8 -11.4 -308.5
FY10A 2642 -1943 -268.6 430.4 -331.8 98.6 n/a 98.6 0.00 n/a n/a n/a -108.2 -9.60 -0.92 n/a n/a 0.00 -10.5 0.00 -10.5
FY11F 3867 -2750 -331.5 785.3 -336.8 448.6 n/a 448.6 0.00 n/a n/a n/a -236.9 211.7 -3.18 n/a n/a 0.00 208.5 0.00 208.5
year to Dec
Balance sheet
US$m Cash & market secs (1) Other current assets Tangible fixed assets Intang assets (incl gw) Oth non-curr assets Total assets Short term debt (2) Trade & oth current liab Long term debt (3) Oth non-current liab Total liabilities Total equity (incl min) Total liab & sh equity Net debt
FY09A 212.6 524.6 3501 533.7 91.3 4863 0.00 521.6 1639 193.5 2354 2509 4863 1625
FY10A 441.9 458.5 3329 514.3 141.0 4884 0.00 675.6 1521 164.4 2361 2523 4884 1422
FY11F 1204 363.9 3142 496.1 497.0 5703 0.00 462.6 2323 164.4 2950 2753 5703 1259
FY12F 1602 379.3 3045 496.1 497.0 6019 0.00 449.6 2323 164.4 2937 3082 6019 861.2
FY13F 2079 404.6 2948 496.1 497.0 6424 0.00 451.6 2323 164.4 2939 3485 6424 384.5
year ended Dec
Cash flow statement

US$m EBITDA Change in working capital Net interest (pd) / rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr / (decr) in equity Incr / (decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex & disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4)
Lines in bold can be derived from the immediately preceding lines. Source: Company data, RBS forecasts
FY09A -54.6 -59.2 -27.5 -2.46 3.94 -84.8 0.00 -975.5 -167.6 -1143 383.5 270.7 0.00 n/a -28.8 625.4 n/a -602.5 -84.8
FY10A 430.4 43.3 91.9 -0.92 -70.8 493.8 0.00 -232.3 43.1 -189.2 0.00 40.6 0.00 n/a -115.9 -75.3 n/a 229.3 493.8
FY11F 785.3 -422.1 148.0 -3.18 -322.5 185.6 0.00 -41.8 157.3 115.4 10.4 599.0 0.00 n/a -148.0 461.4 n/a 762.4 185.6
FY12F 834.6 -28.4 149.0 -4.83 -343.5 606.8 0.00 -60.0 0.00 -60.0 0.00 0.00 0.00 n/a -149.0 -149.0 n/a 397.8 606.8
FY13F 920.4 -28.3 151.0 -5.95 -349.5 687.7 0.00 -60.0 0.00 -60.0 0.00 0.00 0.00 n/a -151.0 -151.0 n/a 476.7 687.7
year to Dec
Melco Crown Ent | Key Financial Data | 26 October 2011
134
Standard ratios
Performance Sales growth (%) EBITDA growth (%) EBIT growth (%) Normalised EPS growth (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on avg assets (%) Return on avg equity (%) ROIC (%) ROIC - WACC (%)
Melco Crown FY09A FY10A FY11F FY12F FY13F -5.88 n/a n/a 11185 -3.24 -19.6 -23.1 -6.59 -12.5 -8.20 -17.3 98.2 n/a n/a -96.9 16.3 3.73 -0.40 -0.22 -0.42 2.38 -7.44 46.4 82.5 355.1 n/a 20.3 11.6 5.39 3.94 7.90 11.2 0.89 9.57 6.27 8.76 51.9 19.7 11.5 7.48 5.41 10.9 12.0 1.96 10.2 10.3 15.5 23.3 19.7 12.1 8.37 6.28 11.9 14.3 4.28
Wynn Macau FY11F FY12F FY13F 33.4 38.7 29.7 33.8 27.2 20.3 19.8 35.8 92.2 115.3 105.2 13.0 15.4 33.9 35.3 27.8 24.1 23.7 37.0 73.0 172.1 162.3 12.0 12.7 14.6 14.8 28.0 24.6 24.2 33.9 56.7 112.6 102.8
Galaxy Entertainment FY11F 116.9 146.9 163.0 193.5 13.2 10.8 6.48 11.4 25.6 30.9 19.1 FY12F 35.9 38.0 37.1 101.2 13.4 10.9 9.59 19.0 37.2 36.3 24.8 FY13F 9.18 15.6 18.9 22.0 14.2 11.9 10.7 19.5 32.1 42.9 31.4
year to Dec
year to Dec
year to Dec
Valuation EV/sales (x) EV/EBITDA (x) EV/EBITDA @ tgt price (x) EV/EBIT (x) EV/invested capital (x) Price/book value (x) Equity FCF yield (%) Normalised PE (x) Norm PE @tgt price (x) Dividend yield (%)
5.41 2.65 -167.0 16.3 -210.4 20.6 -27.7 71.1 1.74 1.78 2.22 2.21 -1.66 8.86 -16.60 -529.6 -22.2 -707.4 0.00 0.00
1.77 8.71 11.1 15.3 1.71 2.03 3.33 26.75 35.7 0.00
1.52 7.72 9.97 13.2 1.63 1.81 10.9 17.61 23.5 0.00
1.28 6.48 8.52 10.6 1.54 1.60 12.3 14.29 19.1 0.00
3.38 12.4 14.0 16.6 21.5 12.2 7.52 17.76 20.0 2.57
2.95 10.6 12.0 12.3 12.1 7.78 5.19 13.13 14.8 3.05
2.66 9.50 10.7 10.8 6.87 5.51 2.70 11.44 12.9 3.50
1.65 12.5 14.5 15.3 4.04 5.39 0.26 23.90 27.9 0.00
1.12 8.39 9.80 10.3 3.70 3.70 8.24 11.88 13.9 0.00
0.93 6.54 7.76 7.78 3.28 2.68 9.83 9.74 11.4 0.00
year to Dec
year to Dec
year to Dec
Per share data Tot adj dil sh, ave (m) Reported EPS (USD) Normalised EPS (USD) Dividend per share (USD) Equity FCF per share (USD) Book value per sh (USD)
FY09A FY10A FY11F FY12F FY13F 488.7 531.9 532.3 532.8 532.8 -0.65 -0.02 0.39 0.59 0.73 -0.63 -0.02 0.39 0.59 0.73 0.00 0.00 0.00 0.00 0.00 -0.17 0.93 0.35 1.14 1.29 4.72 4.74 5.17 5.78 6.54
year to Dec
Solvency Net debt to equity (%) Net debt to tot ass (%) Net debt to EBITDA Current ratio (x) Operating CF int cov (x) Dividend cover (x)
FY09A FY10A FY11F FY12F FY13F 64.8 56.4 45.7 27.9 11.0 33.4 29.1 22.1 14.3 5.99 -37.6 3.31 1.60 1.03 0.42 1.41 1.33 3.39 4.41 5.50 4.00 -4.38 -0.28 -3.11 -3.59 0.00 0.00 0.00 0.00 0.00
year to Dec
Priced as follows: MPEL.O - US$10.48; 1128.HK - HK$20.25; 0027.HK - HK$15.42 Source: Company data, RBS forecasts
MPEL US: Valuation overview

Summary of DCF-derived SOTP valuation US$m 100% basis Existing operations Cash flows through concession period Terminal value (1) Sub-total New projects Cash flows through concession period Terminal value (1) Sub-total Total Net cash/(debt) Total Implied EV/EBITDA multiple (x) EV/EBITDA-based on stock price-implied EV (x) Potential upside to valuation multiple 840 1,525 2,365 9,062 -1,259 7,803 969 1,793 2,762 10,018 -861 9,156 904 1,659 2,564 9,540 -1,060 8,480 11.5 8.8 30.9% 12.0 7.7 55.2% 0.95 1.72 2.67 12.88 1.09 2.02 3.11 15.11 1.02 1.87 2.89 14.00 5,150 1,546 6,697 5,437 1,818 7,255 5,294 1,682 6,976 7.86 2.36 10.21 8.99 3.01 12.00 8.42 2.68 11.11 Per share, net (2) DCF assumptions Capital structure at period end Debt Equity WACC calculations WACC Cost of debt Cost of equity Effective tax rate Inflation rate g long-term Risk-free rate Rm Beta 10.3% 6.0% 12.5% 12.0% 3.0% 3.0% 2.5% 11.0% 1.2 2011F 30% 70% End-2011F End-2012F Mid-2012F End-2011F End-2012F Mid-2012F
(1) 2.0-2.5% in perpetuity growth rate, with value discounted 25% to reflect uncertainty of concession renewal. (2) Based on 60% ownership interest in Macau Studio City. Source: Company data, RBS forecasts
Melco Crown Ent | Performance and Valuation | 26 October 2011
135
Equity | Global
28 October 2011
Produced by: The Royal Bank of Scotland N.V.
Global Action Pack

Friday 28 October 2011
Table 1 : This mornings research
Subject Title Bottoming out? Flash: Bullish Queensland metcoal site visit More pain in Spain Patents pending We know, we know Flash: 3Q11 beats, but quality is poor Catalysts not exhausted Flash: Eni upgrades Mozambique gas find CSM: lack of details End markets challenging Mix headwinds limit positive 3Q results Good enough but risks remain Flash: Ericsson sells Sony-Ericsson stake Flash: 3Q small beat, French mobile at risk Flash: 3Q11 will impact sentiment positively Flash: Man on a mission? ITV to take the gold medal in '12 Cautious outlook Covenant headroom in focus Adds loan portfolio Facing incremental headwinds Flash: Qua Mit Vang well unsuccessful 3Q showing pricing improvement Excess capital could be returned Dealing with complexity Cloudy sky Flash: 3Q11 in line with consensus EPS trimmed post 3Q11 Outlook remains challenging Flash: Strong 3Q, FY outlook reiterated Volatility could continue Flash: 3Q11 unlikely to move sentiment Top pick continues to deliver Mixed outlook for FY12 Flash: Tough 4Q target to meet expectations No of pages 10 4 8 10 68 4 11 4 6 8 9 6 6 5 5 5 8 8 8 7 8 4 7 7 14 7 4 6 8 4 5 5 9 7 4
European Research
Aixtron Anglo American Antena 3 AstraZeneca BAE Systems* BASF Bayer Cove Energy CSM CSR Daimler DSV Ericsson France Telecom GDF Suez Home Retail Group ITV Orkla PagesJaunes Paragon Group* Peugeot Premier Oil Renault Rhoen Klinikum Santander Scania Solvay Statoil Telecinco Tessenderlo Tieto Virgin Media Volkswagen Volvo William Hill
Asian Research
Air China Autos & Components - Malaysia Bank Negara Indonesia Bank of Communications Basic Elements >Aluminum Corp of China >United Company Rusal China COSCO Holdings China Minsheng Bank China Shipping Container
*RBS Hoare Govett Ltd is broker to this company. Source: RBS
3Q11 - lacking momentum A brief pause Continued improvement Flash: In line 3Q11: strong sequential NIM Great divide between aluminium giants Trapped in low returns The better-leveraged aluminium play Flash: 3Q11 loss narrowed by 6.4% qoq Flash: 3Q beat; lower than expected provision The bleeding continues
13 9 8 5 17 15 22 5 5 9
Analyst
RBS European Research 250 Bishopsgate, London, EC2M 4AA, United Kingdom http://research.rbsm.com
137
Table 1 : This mornings research (contd)

Subject Title Flash: 3Q11 hit by interest expenses 3Q11 - still looks promising Likely to benefit from a lower CPI Things can only get better (4Q beat) 3Q11 results preview 4Q11 likely to miss, again Flash: In-line 3Q11 results Flash: 3Q in line; strong capital generation Evolution, not a revolution Flash: 2QFY12 result below expectation Better-than-expected coverage Flash: 3Q11 result helped by lower tax charge Pretty much as expected 3Q11 numbers slightly disappointing Flash: In a sweet spot Growing pains Flash: Surprisingly strong adjusted EBITDA Flash: 3Q11 results overall in line Flash: 9M11 profit up 10.3% yoy Flash: The leader of the pack Solid operation Flash: Divesting Chijmes at a good price Sales momentum remains strong Flash: TPH 3Q11 profit up 27.5% yoy Risks priced in Flash: CIMC - 3Q11 profit down 63.6% yoy Flash: 3Q11 results slightly below expectation Earnings to accelerate in 1H12F No of pages 5 12 7 4 5 13 4 5 9 5 9 5 9 4 4 10 6 5 4 6 10 4 8 4 10 3 4 10
Asian Research (contd)

China Shipping Dev China Southern Airlines Consumer Focus Ezra Holdings Giant Interactive Group Hynix Semiconductor Hyundai Motor ICBC LG Uplus NTPC Pacific Basin Shipping PetroChina Powertech Technology PTT E&P Real Estate - Singapore Samsung C&T Corp Sands China Sinopec Sinotrans SK Telecom S-Oil Corporation Suntec REIT Synnex Technology Tianjin Port Development TPK Holding Co Transportation - China Tsingtao Brewery TSMC
*RBS Hoare Govett Ltd is broker to this company. Source: RBS
Global Action Pack | 28 October 2011
138
Global Action Pack summaries

Table 2 : Europe Upgrades/downgrades and initiations
Company Aixtron Antena 3 AstraZeneca BAE Systems* Bayer CSM CSR Daimler DSV ITV Orkla PagesJaunes Paragon Group* Peugeot Renault Santander Scania Statoil Telecinco Tieto Volkswagen Volvo Ticker AIXA GY Last Actual Year End Dec-10 EPS new FY1 1.17 FY2 0.69 FY3 1.90 EPS old FY1 1.18 0.45 FY2 0.77 0.39 FY3 1.92 0.40 Change (%) FY1 FY2 FY3 -1.2 4.4 -0.6 -10.3 -3.2 0.9 Curr Price Target New 11.50 3.90 12.00 3.60 29.15 4.25 55.00 14.00 2.00 63.00 Recom Old -4.2 Hold Hold 8.3 Hold Hold n/a Hold Hold -17.6 n/a n/a Buy Buy Buy Buy Buy Buy Old Chg (%) New
Reason for EPS Change: Lower top-line forecasts A3TV SM Dec-10 0.43 0.40 0.41
Reason for EPS Change: 2011 EPS lowered due to higher-than-expected programming costs AZN LN Dec-10 7.31 5.85 5.59 7.22 5.87 5.61 1.2 -0.3 -0.4 Reason for EPS Change: Minor adjustments to reflect forex and lower SG&A costs following 3Q11. BA/ LN Dec-10 40.40 39.37 41.19 40.45 42.03 44.73 -0.1 -6.3 -7.9
29.15 3.50
Reason for EPS Change: 1H 2011 result and more cautious outlook for US defence businesses in FY12. 55.00 BAYN GY Dec-10 4.82 4.49 5.26 4.73 4.43 5.16 2.0 1.4 2.0 Reason for EPS Change: Model update post 3Q11 CSM NA Dec-10 1.10 1.32 2.00 Reason for EPS Change: Q3 earnings release CSR LN Dec-10 0.19 0.18 0.26 1.05 0.22 1.28 0.20 2.01 4.7 3.4 -0.4 14.00 1.80
0.30 -13.3
-9.2 -15.3
-10.0 Hold Hold -14.3 Buy Buy Buy Buy Buy
Reason for EPS Change: Lower revenue and gross margin assumptions DAI GY Dec-10 5.50 5.40 6.14 6.33 6.39 6.97 -13.1 -15.5 -11.9
54.00
Reason for EPS Change: Weaker outlook for the European truck market, and negative product mix. DSV DC Dec-10 7.88 8.13 8.81 7.71 8.32 8.94 2.3 -2.2 -1.6 DKr115.00 120.00 Reason for EPS Change: Lower gross margin and volume assumptions in sea and air. Share buyback ITV LN Dec-10 7.16 9.20 9.01 7.32 9.37 9.18 -2.2 -1.9 -1.9 1.05 1.15 60.00 7.60 2.28 28.00 44.00 6.50
-4.2 Hold -8.7 n/a Buy Buy
Reason for EPS Change: Cut 4Q advertising forecasts: Nov/Dec advertising should be slightly weaker ORK NO Dec-10 4.59 5.03 5.56 5.05 5.39 5.93 -9.1 -6.6 -6.2 NKr 60.00 Reason for EPS Change: Weaker end markets in Aluminium extrusion PAJ FP Dec-10 0.76 0.75 0.74 0.91 0.95 Reason for EPS Change: EPS cut following continued print declines PAG LN Sep-10 19.19 20.93 21.10 19.19 19.59 20.61 n/a 6.9 2.4 2.33 -16.3 -21.6 3.20
-57.9 Hold Hold 2.2 Buy Buy Buy Buy Sell
Reason for EPS Change: Acquisition of consumer loans portfolio from RBS. UG FP Dec-10 3.85 4.98 5.32 6.49 7.03 7.68 -40.7 -29.2 -30.7 Reason for EPS Change: Pricing pressure and lower volumes RNO FP Dec-10 7.64 9.10 8.42 7.98 9.24 Reason for EPS Change: Lower volumes and pricing pressure SAN SM Dec-10 0.84 0.79 0.73 0.83 0.89 9.03 0.91 -4.2 -1.5 -6.7
18.00 44.00 5.60
-35.7 Hold n/a -13.9 Buy Sell
1.7 -11.7 -19.0
Reason for EPS Change: Post weak 3Q11 results, earnings estimates and TP trimmed SCVB SS Dec-10 12.09 9.14 10.87 12.32 12.28 13.57 -1.9 -25.5 -19.8 Reason for EPS Change: Weaker volumes in Europe FY12 STL NO Dec-10 15.34 18.03 17.58 16.94 Reason for EPS Change: Adjustments post 3Q11 results TL5 SM Dec-10 0.42 0.38 0.40 0.39 18.33 17.95 0.36 0.37 -9.4 8.3 2.6 10.7 -1.6 7.9 2.0 8.7 -2.1 9.0 2.9 8.5
SKr120.00 132.00 NKr134.00 135.00 4.80 4.30 10.20
-9.1 Hold Hold -0.7 Hold Hold 11.6 Hold Hold 15.7 Hold Hold n/a -14.3 Buy Buy Buy Buy
Reason for EPS Change: We raise our EPS due to tight cost management TIE1V FH Dec-10 1.18 1.23 1.36 1.15 1.21 1.32 Reason for EPS Change: Better-than-expected margins in Finland VOW3 GY Dec-10 19.90 19.49 21.40 17.98 17.92 19.72
11.80
175.00 175.00 SKr120.00 140.00
Reason for EPS Change: Stronger pricing power and volume momentum VOLVB SS Dec-10 7.98 7.71 9.03 9.10 10.44 12.47 -12.4 -26.2 -27.5 Reason for EPS Change: Lower volume outlook for European market than previously expected.
*RBS Hoare Govett Ltd is broker to this company. Source: Company data, RBS forecasts
139
Table 3 : Asia Upgrades/downgrades and initiations

Company Air China Ticker Last Actual Year End EPS new FY1 FY2 FY3 EPS old FY1 FY2 FY3 Change (%) FY1 FY2 FY3 Curr Price Target New Recom Old -13.4 Hold Hold -42.0 Sell Sell n/a Buy Buy -23.5 Hold Hold -8.0 Buy Buy 13.2 Hold Hold 16.7 Hold Hold 1.1 Buy Buy -8.6 Hold Hold Buy Buy 7.6 Buy Buy n/a Buy Buy -20.0 Buy Buy n/a Buy Buy n/a Buy n/a Old Chg (%) New
753 HK Dec-10 0.77 0.70 0.78 0.77 0.82 0.85 -0.5 -15.0 -8.7 HK$ 7.10 8.20 Reason for EPS Change: Weaker 2012 outlook due to macro concerns Aluminum Corp of China 2600 HK Dec-10 0.11 -0.06 0.13 0.34 0.53 0.90 -68.3 n/m -85.5 HK$ 3.40 5.86 Reason for EPS Change: We cut our EPS for 2011-13F to factor in lower prices but higher cost. Bank Negara Indonesia BBNI IJ Dec-10 293.24 381.30 464.55 305.23 369.04 447.95 -3.9 3.3 3.7 Rp 5400 5400 Reason for EPS Change: Higher expenses, offset by higher loan growth China Shipping Container 2866 HK Dec-10 -0.23 -0.15 0.16 -0.09 0.09 0.20 -155.4 n/m -22.2 HK$ 1.53 2.00 Reason for EPS Change: Lower freight rate and volume assumptions after 3Q11 result China Southern Airlines 1055 HK Dec-10 0.61 0.50 0.59 0.61 0.60 0.64 -0.5 -17.1 -7.7 HK$ 5.75 6.25 Reason for EPS Change: Trimming earnings to reflect a softer economic outlook Hynix Semiconductor 000660 KS Dec-10 -466.35 -94.64 838.07 59.68 -553.08 774.97 n/m 82.9 8.1 W 21500 19000 Reason for EPS Change: Reflecting currency assumption change and higher volume growth in 2012F LG Uplus 032640 KS Dec-10 380.38 577.70 571.41 424.85 508.17 543.90 -10.5 13.7 5.1 W 6300 5400 Reason for EPS Change: Weak 3Q and uncertain 4Q outlook, improving in 2012 Pacific Basin Shipping 2343 HK Dec-10 0.03 0.05 0.07 0.03 0.05 0.07 6.7 0.6 0.6 HK$ 4.75 4.70 Reason for EPS Change: Better-than-expected coverage rates for Handysize and Handymax vessels Powertech Technology 6239 TT Dec-10 8.14 8.17 9.45 8.82 8.99 9.43 -7.7 -9.1 0.2 NT$ 74.00 81.00 Reason for EPS Change: stock dividend. Samsung C&T Corp 000830 KS Dec-10 2789 3112 3844 3211 3642 4271 -13.1 -14.6 -10.0 W 90000 90000 Reason for EPS Change: Higher SG&A cost due to expanding workforce S-Oil Corporation 010950 KS Dec-10 12471 15835 16204 11712 17249 13329 6.5 -8.2 21.6 W 156000 145000 Reason for EPS Change: Raised EPS to reflect higher-than-expected oil price and refining margin. Synnex Technology 2347 TT Dec-10 4.63 5.03 6.05 4.37 4.96 5.98 5.8 1.2 1.2 NT$ 85.00 85.00 Reason for EPS Change: 3Q11 results - Better than expected non-op gain. TPK Holding Co 3673 TT Dec-10 54.08 58.90 63.23 51.65 69.43 76.92 4.7 -15.2 -17.8 NT$ 720.00 900.00 Reason for EPS Change: We reduce our 2012 and 2013 EPS to reflect ASP and margin pressure TSMC 2330 TT Dec-10 5.14 6.05 6.35 5.06 6.07 6.44 1.6 -0.2 -1.5 NT$ 85.00 85.00 Reason for EPS Change: We fine tune our forecasts to reflect the weaker NT$ and lower capex United Company Rusal 486 HK Dec-10 0.14 0.13 0.15 n/a n/a n/a n/a n/a n/a HK$ 7.96 n/a Reason for EPS Change: Initiation of coverage
140
Europe
Aixtron (Hold, TP 11.50) - Bottoming out? While tool orders could weaken further in 4Q, from the 30-35 tools in 3Q, we believe that we are close to a trough. In saying this, we do not anticipate any sharp rebound in orders over the next 2-3 quarters as a continuing weak LED end-market will likely restrain LED manufacturers tool orders. http://track.sumnet.com/home/00000275/T037834/aix_ron_20104414.pdf Anglo American (Buy, TP 28.50) - Bullish Queensland metcoal site visit Anglo American is currently hosting analysts and investors at its Queensland metallurgical coal operations. The visit is predictably upbeat, with a positive outlook for metcoal and strong volume growth for Anglo. This is an area of its business that the market has underestimated. http://track.sumnet.com/home/00000275/T037723/ang_can_10085416.pdf Antena 3 (Hold, TP 3.90) - More pain in Spain The Spanish TV ad market continues to decline and we forecast it will fall 8% in 4Q. Meanwhile, Antena continues to invest in programming; consequently, we cut our 2011F EPS by 4%. We stay at Hold given the poor Spanish ad market, but nudge our TP up to 3.9 due to lower cost increases from next year. http://track.sumnet.com/home/00000275/T03786C/ant_a_3_20104433.pdf AstraZeneca (Hold, TP 29.15) - Patents pending The main variance between our model and consensus lies in Crestor sales after 2011: we are much more cautious. The FDA delay for dapagliflozin suggests +ve risk to our zero sales forecast, in our view. Cash balance remains a high US$10bn in 3Q11: this could mean risk of either a major deal or higher distribution. Hold. http://track.sumnet.com/home/00000275/T037838/ast_eca_20104416.pdf BAE Systems (Buy, TP 3.50) - We know, we know We believe uncertainty about US defence spending has significantly depressed BAE's valuation, but that uncertainty should largely be gone by the end of 2011. We are cautious about the final outcome and expect 2012 to be a difficult year. That is already in the price, in our view. Our new target price is 350p (from 425p). http://track.sumnet.com/home/00000275/T0376F5/bae_ems_20104326.pdf BASF (Hold, TP 63.00) - 3Q11 beats, but quality is poor BASF reported better than expected 3Q11 results on the headline numbers, but the quality is poor. The company confirms its outlook of at least 10% growth in clean EBIT, but states the slow growth it experienced in 3Q will continue in 4Q. http://track.sumnet.com/home/00000275/T03769B/basf_10085387.pdf Bayer (Buy, TP 55.00) - Catalysts not exhausted 3Q11 results and recent news flow validate key aspects of our investment case: diversified sustainable businesses, emerging market exposure, and broad innovation pipeline. We see the Crop business continuing to perform with the Materials business holding up well. Multiple positive catalysts keep us at Buy. http://track.sumnet.com/home/00000275/T037870/bayer_20104413.pdf Cove Energy (Hold, TP 0.97) - Eni upgrades Mozambique gas find Eni's 50% upgrade to its Mamba South discovery is significant, but it doesn't materially change our view on the investment case for Cove. We continue to believe the shares are fairly priced and a share price significantly in excess of current levels may hamper management's ability to make an attractive sale. http://track.sumnet.com/home/00000275/T03771C/cov_rgy_20104357.pdf CSM (Buy, TP 14.00) - CSM: lack of details CSM's 3Q figures were in line with its guidance provided on 10 October. However, it presented restructuring plans that included few details, as did its comments on the business review. We do see value, but no short-term catalyst. We retain our Buy rating, but remove CSM from our Benelux favourites list. http://track.sumnet.com/home/00000275/T037844/csm_20104422.pdf CSR (Hold, TP 1.80) - End markets challenging Auto infotainment and voice & music are the bright spots amid cautious ordering patterns by CSR customers. However, we do not believe it's enough to offset the headwinds faced by handsets and Zoran-related businesses over the next few quarters. Reiterate Hold; TP cut to 180p. http://track.sumnet.com/home/00000275/T037786/csr_10085452.pdf
141
Daimler (Buy, TP 54.00) - Mix headwinds limit positive 3Q results 3Q revenues were in line with consensus and EBIT missed due largely to one-off items. We believe 4Q EBIT will be up yoy but lower our estimates due to weaker mix and higher launch costs. We lower our TP to 54 and reiterate Buy. http://track.sumnet.com/home/00000275/T037848/dai_ler_20104423.pdf DSV (Hold, TP DKr115.00) - Good enough but risks remain DSV reported EBITA of DKr654m, just 2.6% ahead of SME Direkt consensus at DKr637m. The company indicated that the lower end of its FY11 EBITA of DKr2.4bn-2.55bn guidance range is now most probable, though this is not a shock as consensus is already at the bottom of this range. http://track.sumnet.com/home/00000275/T037719/dsv_20104353.pdf Ericsson (Hold, TP SKr74.00) - Ericsson sells Sony-Ericsson stake Ericsson annouced this morning it would sell its 50% stake in Sony-Ericsson (handset JV) to Sony for Eur 1.05bn. We believe this is a positive step for Ericsson given 1) the valuation of the stake, 2) refocus of the group on core business and 3) strengthening of the balance sheet. http://track.sumnet.com/home/00000275/T0376D3/eri_son_20104340.pdf France Telecom (Hold, TP 13.00) - 3Q small beat, French mobile at risk FT results continue the trend for telcos, revenue 1% light, EBITDA 1.4% ahead. The trends for FT may be slightly disappointing especially the mobile trends in France. Given the YTD run rate we could see a small downgrade to consensus EBITDA (~0.7% for 2011F), although 4Q is an easier comparative http://track.sumnet.com/home/00000275/T0376B5/fra_com_20104336.pdf GDF Suez (Buy, TP 28.00) - 3Q11 will impact sentiment positively We see today's 3Q11 results of GDF Suez, which beat consensus expectations significantly (5% ahead on group EBITDA) and management's confident outlook on the conference call having a significant positive impact on sentiment given the recent overdone underperformance and would be buying shares at this level. http://track.sumnet.com/home/00000275/T0376FA/gdf_uez_10085409.pdf Home Retail Group (Buy, TP 1.25) - Man on a mission? We met with CEO, Terry Duddy this afternoon. We believe broader strategic options are being contemplated. Should operating efficiencies, cost savings and working capital improvement prove insufficient deterrents against a declining market, "Plan B" is likely to evolve. http://track.sumnet.com/home/00000275/T0377DF/hom_oup_10085474.pdf ITV (Buy, TP 1.05) - ITV to take the gold medal in '12 Media buyers say that November and December advertising will be slightly weaker than our forecasts, hence we trim our FY net advertising growth from 2% to 1%. ITV shares still look very cheap at these levels, and with an Olympics boost and a balance sheet restructuring likely in 2012, we reiterate a Buy rating. http://track.sumnet.com/home/00000275/T03783C/itv_20104418.pdf Orkla (Buy, TP NKr60.00) - Cautious outlook Orkla's 3Q11 results came in light of SME Direkt consensus expectations, but it's the outlook statement that investors will focus on. Softening extrusion markets in Europe & North America, a lower order intake in all regions including Asia and uncertain raw material price trends all point to a more cautious outlook for FY12. http://track.sumnet.com/home/00000275/T037840/orkla_20104419.pdf PagesJaunes (Hold, TP 3.20) - Covenant headroom in focus PJ continues its transition to online and we forecast this will account for 60% of revenues by 2013. However, net debt/EBITDA remains high at 3.7x for 2013F and with covenants tightening, we believe a debt restructuring is likely. We cut our TP to 3.2 to reflect continued print revenue declines and lower digital margins. http://track.sumnet.com/home/00000275/T037868/pag_nes_20104424.pdf Paragon Group (Buy, TP 2.33) - Adds loan portfolio Paragon's acquisition of an unsecured consumer loan portfolio should be earnings-enhancing and is in line with its strategy of utilising its free cash on incremental deals. Importantly, the company is very familiar with this particular portfolio, having provided administration servicing for the last two years. Buy. http://track.sumnet.com/home/00000275/T037748/par_oup_20104369.pdf Peugeot (Hold, TP 18.00) - Facing incremental headwinds We downgrade our earnings forecasts for FY11 and FY12, reflecting lost production volumes due to supplier issues in 3Q as well as incremental pricing pressure in Europe. We move to Hold from Buy with a new 18 TP (from 28). http://track.sumnet.com/home/00000275/T037867/peu_eot_20104427.pdf
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Premier Oil (Buy, TP 4.65) - Qua Mit Vang well unsuccessful The Qua Mit Vang well offshore Vietnam is to be plugged and abandoned after flowing trace amounts of gas. We had a risked 5p in our model for the prospect which will be removed. Only a minor disappointment as we don't believe either management or the market had high hopes for this well. http://track.sumnet.com/home/00000275/T0376A3/pre_oil_10085388.pdf Renault (Buy, TP 44.00) - 3Q showing pricing improvement In our view, the highlights of Renault's 3Q sales were positive pricing momentum driven by emerging markets, strong volume growth bucking the trend in France, and a negative currency hit. http://track.sumnet.com/home/00000275/T037859/ren_ult_20104421.pdf Rhoen Klinikum (Buy, TP 17.00) - Excess capital could be returned We believe the negative share price reaction after RHK's 3Q11 earnings miss is overdone. RHK's quarterly performance is notoriously difficult to predict, and management is confident about achieving its FY11 guidance. If M&A doesn't materialise, we believe excess capital could be returned to shareholders. http://track.sumnet.com/home/00000275/T0377D1/rho_kum_10085468.pdf Santander (Sell, TP 5.60) - Dealing with complexity Against a complex operating backdrop, we continue to see double leverage as a structural balance sheet issue which will likely lead to lower EPS and RoTCE. We reduce our FY11F and FY12F EPS by 12% and 18%, respectively. We reiterate our Sell recommendation and cut our TP to 5.60 from 6.50. http://track.sumnet.com/home/00000275/T037879/san_der_20104435.pdf Scania (Hold, TP SKr120.00) - Cloudy sky We reduce our target price for Scania to SKr120 (from SKr132), reflecting a steeper-thanexpected slowdown in the European truck market as well as in Latin America in FY12. http://track.sumnet.com/home/00000275/T037854/sca_nia_20104417.pdf Solvay (Hold, TP 100.00) - 3Q11 in line with consensus 3Q11 results were exactly in line with consensus with the weakness in Plastics offset by lower corporate costs. The company maintains its outlook, which shouldnt come as a surprise. http://track.sumnet.com/home/00000275/T0376CF/sol_vay_20104339.pdf Statoil (Hold, TP NKr134.00) - EPS trimmed post 3Q11 We have trimmed forecast EPS by 1% in 2012 and 2% in 2013. Our forecast is in-line with consensus (Bloomberg) for 2012 and 8% below consensus for 2013. TP adjusted to NKr134/share (from NKr135/share). Remain at Hold. http://track.sumnet.com/home/00000275/T03782C/sta_oil_20104410.pdf Telecinco (Hold, TP 4.80) - Outlook remains challenging The Spanish TV ad market continues to decline. Telecinco has responded by tightly managing costs; consequently, we raise our 2011F EBITDA by 8% and thus our TP to 4.8. However, we forecast the Spanish TV ad market will fall 8% in 4Q and with costs rising next year (due to Euro 2012), we stay at Hold. http://track.sumnet.com/home/00000275/T037861/tel_nco_20104432.pdf Tessenderlo (Hold, TP 28.00) - Strong 3Q, FY outlook reiterated Tessenderlo reported strong 3Q11 results that are again driven by its agricultural activities. The FY outlook for 2011 is reiterated. We remain at Hold given the remaining significant disposal programme. http://track.sumnet.com/home/00000275/T0376A7/tes_rlo_10085390.pdf Tieto (Hold, TP 11.80) - Volatility could continue Following an update by management, we are raising our full-year forecasts. However, until the volatility in the quarterly performance improves, we see better value elsewhere across the sector. Hence we remain at Hold. http://track.sumnet.com/home/00000275/T037830/tieto_20104412.pdf Virgin Media (Buy, TP 18.40) - 3Q11 unlikely to move sentiment 3Q11 results slightly light at both revs and EBITDA (0.8-0.9% below) while cashflow was ahead due to lower capex. Share buyback programme increased by 250m. Operational performance looks to be solid with net adds and ARPUs in line with expectations. We expect little change in expectations or sentiment. http://track.sumnet.com/home/00000275/T0376CB/vir_dia_10085397.pdf Volkswagen (Buy, TP 175.00) - Top pick continues to deliver The VW success story continues, with 3Q results exceeding consensus, due in particular to a strong performance by Audi and the VW brand. We upgrade our forecasts and maintain our target price at 175, with a Buy recommendation. http://track.sumnet.com/home/00000275/T037864/vol_gen_20104425.pdf
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Volvo (Buy, TP SKr120.00) - Mixed outlook for FY12 We downgrade our price target on Volvo from SKr141 to SKr120, mainly to reflect weaker European truck demand in FY12 as well as weaker mix. Having said this, Volvo remains our top truck stock, offering excellent geographical earnings exposure. Buy. http://track.sumnet.com/home/00000275/T03784E/volvo_20104411.pdf William Hill (Sell, TP 1.50) - Tough 4Q target to meet expectations The themes we have been concerned about surfaced in 3Q 11: machine revenue went backwards; OTC net revenue was -9%; and although online revs were strong (+28%), profits fell 7% as additional costs kicked in. After 3Q profits -22%, it is a big ask to reach our -4% estimate for the whole of 2H, in our view. http://track.sumnet.com/home/00000275/T0376C3/wil_ill_20104337.pdf
Asia
Air China (Hold, TP HK$7.10) - 3Q11 - lacking momentum While Air China reported better-than-expected operating profit in 3Q11, we see fewer earnings catalysts than for its peers. We reduce our earnings forecast 15% for FY12 and cut our target price by the same amount to HK$7.10. We reiterate our Hold recommendation. http://track.sumnet.com/home/00000275/T0377F0/air_ina_10085482.pdf Autos & Components - Malaysia - A brief pause The September TIV declined 24% mom to 44,407 units due to the Eid celebration on 30 August, which possibly extended to the Malaysia Day (16 September). We expect unit sales to pick up in coming months. Maintain Overweight. http://track.sumnet.com/home/00000275/T037717/aut_nts_20104354.pdf Bank Negara Indonesia (Buy, TP Rp5400.00) - Continued improvement BNI's 3Q11 net profit came in below our expectation, but we think this was due to transitional factors. We view the bank's key operating metrics as continuing to trend positive. We make modest adjustments to our FY11-13F and reiterate BNI as our second preferred name after BRI. http://track.sumnet.com/home/00000275/T037794/ban_sia_20104392.pdf Bank of Communications (Buy, TP HK$7.27) - In line 3Q11: strong sequential NIM Strong sequential NIM trend drove in line results. Loan mix continued to shift towards personal lending but deposit gathering in 4Q could remain constrained. Mid term capital pressure could emerge subject to outcome of new capital adequacy requirements. However, valuation remains attractive. Maintain buy. http://track.sumnet.com/home/00000275/T037810/ban_ons_20104415.pdf Basic Elements - Great divide between aluminium giants UC Rusal and Chalco are among the largest producers of aluminium globally, with similar operating scale and structure. Yet a great disparity persists in their financial metrics, which we expect to be reflected in share price performance. We initiate on Rusal with a Buy recommendation and maintain Chalco at Sell. http://track.sumnet.com/home/00000275/T03770D/bas_nts_20104350.pdf > Aluminum Corp of China (Sell, TP HK$3.40) - Trapped in low returns We view Chalco as being trapped in an oversupplied market while its restructuring efforts will still take some time to deliver benefits. Its earnings are susceptible to large swings due to its sensitivity to aluminium prices. We believe lower valuations are warranted for its low-margin, lowreturns profile. Sell. http://track.sumnet.com/home/00000275/T03772A/alu_ina_20104352.pdf > United Company Rusal (Buy, TP HK$7.96) - The better-leveraged aluminium play Rusal's low-cost position in the aluminium market enables it to generate positive operating cash flows without aggressive pricing forecasts. On our more bullish price assumptions, we anticipate faster financial deleveraging, while providing what we consider a low-risk operating leverage to aluminium price upside. http://track.sumnet.com/home/00000275/T03770F/uni_sal_20104351.pdf China CITIC Bank (Hold, TP HK$4.29) - Key takeaways post 3Q11 briefing Stronger-than-peers earnings strength in 4Q11 will be driven by upward NIM trend and unlocked loan growth on capital replenishment, in our view. Nevertheless, SML hiked qoq, and credit cost is not sufficient to cover potential NPL. Hold. http://track.sumnet.com/home/00000275/T03767C/chi_ank_20104327.pdf China COSCO Holdings (Hold, TP HK$4.00) - 3Q11 loss narrowed by 6.4% qoq China COSCO reported a loss of Rmb2,066m in 3Q11, compared with a profit of Rmb2,112m in 3Q10. Sequentially, the loss narrowed by 6.4%. The result is worse than our forecast of a Rmb1.1bn loss. http://track.sumnet.com/home/00000275/T0377C4/chi_ngs_10085466.pdf
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China Minsheng Bank (Hold, TP HK$7.17) - 3Q beat; lower than expected provision Strong above consensus 3Q net profit belied lower provisions. Microfinance lending business model that has not been tested by a down cycle points to upside risk for credit cost. Loan and deposit growth constraints mirrors sector realities. Maintain hold. http://track.sumnet.com/home/00000275/T0377D4/chi_ank_10085471.pdf China Shipping Container (Hold, TP HK$1.53) - The bleeding continues Cost and capacity management should reduce FY12F losses. Valuation is not too stretched, at 0.62x FY12F P/B (vs a trough of 0.29x), and we do not expect losses to return to FY09 level. Maintain Hold, given the earnings outlook remains weak. http://track.sumnet.com/home/00000275/T03777F/chi_ner_20104389.pdf China Shipping Dev (Buy, TP HK$7.10) - 3Q11 hit by interest expenses China Shipping reported a 72.6% yoy decrease in 3Q11 earnings to Rmb130.8m, which is 46% below our forecast due to surge in interest expenses. Sequentially, earnings also declined by 46.7% qoq. http://track.sumnet.com/home/00000275/T0377CD/chi_dev_20104403.pdf China Southern Airlines (Buy, TP HK$5.75) - 3Q11 - still looks promising We reiterate our Buy recommendation on China Southern, although we trim our target price to HK$5.75 to reflect weaker-than-forecast operating trends. However, we think domestic traffic will remain resilient and China Southern should benefit most. http://track.sumnet.com/home/00000275/T0377FC/chi_nes_20104405.pdf Consumer Focus - Likely to benefit from a lower CPI Based on our study of historical data, our China consumer staple stocks are likely to re-rate as the CPI peaks and outperform when the CPI remains low. In our sector coverage, we believe Mengniu, Hengan and Tingyi will benefit the most from falling soft commodity prices. http://track.sumnet.com/home/00000275/T03778C/con_cus_20104391.pdf Ezra Holdings (Buy, TP S$2.00) - Things can only get better (4Q beat) Ezra's 4QFY11 earnings came above expectations thanks to its greater than expected revenue contribution from its new subsea division. Subsea orderbook has expanded dramatically to account for over 60% of Ezra's record US$1.2bn orderbook. Maintain Buy, target S$2. http://track.sumnet.com/home/00000275/T037875/ezr_ngs_10085496.pdf Giant Interactive Group (Buy, TP US$10.20) - 3Q11 results preview Giant Interactive will report 3Q11 results after the US market close on Tuesday. We see upside potential to our revenue and earnings estimates from a better performance of ZT2, despite higher marketing costs. Management expectations for ZT2, use of cash and the games pipeline should be the foci of the call. http://track.sumnet.com/home/00000275/T03772C/gia_oup_20104355.pdf Hynix Semiconductor (Hold, TP W21500.00) - 4Q11 likely to miss, again Hynixs 3Q missed consensus estimates, due to lower sales and forex losses. While the company guides for much smaller losses in 4Q11, the target appears quite challenging to us, given weak DRAM demand amid excess inventory. Hold maintained with a new DCF-based target price of W21,500. http://track.sumnet.com/home/00000275/T03776A/hyn_tor_20104384.pdf Hyundai Motor (Buy, TP W247000.00) - In-line 3Q11 results 3Q11 results came in line with our forecasts with net profit rising 20.8% y-y. The company raised gross profit margin by 1.4ppt despite a 5.7% q-q revenue decline on seasonality. We expect 4Q11 to see stronger earnings momentum. Maintain Buy. http://track.sumnet.com/home/00000275/T0377C9/hyu_tor_10085467.pdf ICBC (Buy, TP HK$6.14) - 3Q in line; strong capital generation Strong loan growth but flat deposit growth reflects the challenge for the sector. Improvement in CAR as ICBC showed strongest internal capital generating capability. ICBC remains one of our top picks. Maintain buy. http://track.sumnet.com/home/00000275/T0377E6/icbc_10085478.pdf LG Uplus (Hold, TP W6300.00) - Evolution, not a revolution LG Uplus's results improved, but were weaker than market expectations. We remain concerned that competition may rise again in 4Q11; hence, we see downside risks to consensus numbers. Besides, we feel LGU's LTE targets and expectations are too aggressive. We maintain Hold. http://track.sumnet.com/home/00000275/T0377B4/lg__lus_20104399.pdf NTPC (Hold, TP Rs180.00) - 2QFY12 result below expectation NTPC 2QFY12 adjusted PAT at Rs 18.5 bn (flat yoy) is lower than our expectation of Rs19.8 bn, possibly led by under-recovery of fixed charges due to lower PAF vs normative requirement, lower incentives, etc. We believe fuel sourcing will be the key determinant of NTPCs future growth/profitability. Hold. http://track.sumnet.com/home/00000275/T037818/ntpc_10085493.pdf
145
Pacific Basin Shipping (Buy, TP HK$4.75) - Better-than-expected coverage We upgrade FY11F earnings by 11% to reflect better-than-expected coverage of the Handysize and Handymax fleets. The stock now trades at an undemanding 0.6x FY11F P/B, compared with a trough of 0.5x. We reiterate Buy with higher TP. http://track.sumnet.com/home/00000275/T0377A0/pac_ing_20104395.pdf PetroChina (Hold, TP HK$10.30) - 3Q11 result helped by lower tax charge PetroChina reported 3Q11 net profit of Rmb37.4bn, up 8% yoy and up 29% qoq. However this is mainly attributable to lower tax expense in 3Q11. On EBIT level, 3Q11 operating profit of Rmb44.9bn is flat yoy and qoq. http://track.sumnet.com/home/00000275/T0377DA/pet_ina_10085472.pdf Powertech Technology (Hold, TP NT$74.00) - Pretty much as expected Powertech's results and guidance held no major surprises. On increased outstanding shares, we reduce our 2011-13F EPS by 8-9% and target price to NT$74 (from NT$81). Maintain Hold. http://track.sumnet.com/home/00000275/T03776E/pow_ogy_20104385.pdf PTT E&P (Hold, TP B180.00) - 3Q11 numbers slightly disappointing PTTEP reported 3Q11 earnings of B7.5bn, down 29% yoy and 33% qoq. Numbers missed Bloomberg consensus estimates of B7.8bn. Key reason for the drop in earnings was FX losses, which were reported at B5.5bn. We maintain our Hold recommendation on the stock. http://track.sumnet.com/home/00000275/T0376FE/ptt_eandp_20104346.pdf Real Estate - Singapore - In a sweet spot Growth in capital values of commercial assets were strong at 3-7% qoq in 3Q11 despite moderating rental growths. Private residential market is in a sweet spot now, given lower policy risks, and continued good launch take-ups. We maintain Overweight on Singapore developers. http://track.sumnet.com/home/00000275/T037820/rea_ate_10085494.pdf Samsung C&T Corp (Buy, TP W90000.00) - Growing pains Samsung C&T's 3Q11 results were largely below expectations due to 1) higher SG&A costs, 2) a net debt increase caused by higher working capital needs, and 3) one-off tax expenses. However, rising overseas order wins indicate this should normalise from 2012 as sales grow. Maintain a Buy on attractive valuation. http://track.sumnet.com/home/00000275/T0377A8/sam_orp_10085463.pdf Sands China (Buy, TP HK$23.25) - Surprisingly strong adjusted EBITDA Sands reported 3Q results with adj. EBITDA exceeding our est. by 13%. Strong adj. EBITDA was mainly due to higher exposure to the mass. Overall, we believe Sands held up well against Galaxy. The rebuilding of VIP business continues as two new junkets will be added to the Plaza casino in the coming weeks. http://track.sumnet.com/home/00000275/T037804/san_ina_20104408.pdf Sinopec (Buy, TP HK$9.00) - 3Q11 results overall in line Sinopec reported 3Q11 net profit of Rmb20.2bn, up 3% yoy and down 2% qoq. 9M11 net profit of Rmb61.4bn accounted for 76% of our full-year net profit forecast of Rmb80.9bn. 3Q11 refining loss is 6% less than 2Q11 on slightly lower crude prices. There will be a conference call at 9am on 28 October (HKT). http://track.sumnet.com/home/00000275/T0377C0/sin_pec_20104402.pdf Sinotrans (Buy, TP HK$2.65) - 9M11 profit up 10.3% yoy Sinotrans reported 10.3% yoy growth in 9M11 net profit to Rmb650.2m, based on PRC accounting standards. We like Sinotrans for its cheap valuation, more solid earnings profile and strong financial position. http://track.sumnet.com/home/00000275/T037793/sin_ans_10085461.pdf SK Telecom (Buy, TP W184000.00) - The leader of the pack Despite slightly soft earnings in 3Q due to increased operating costs, overall we are positive on SKTs operations. We believe the company will continue to lead the Korean wireless market through the LTE era and are also positive on upcoming iPhone 4S launch. SKT is our top pick in the Korean telco space. Buy. http://track.sumnet.com/home/00000275/T03775D/sk__com_10085436.pdf S-Oil Corporation (Buy, TP W156000.00) - Solid operation S-Oil announced in-line 3Q11 results. The operating profits in petrochem and lubricants were better than our forecasts and offset a slightly disappointing refinery operation. We believe the outlook in these businesses continues to be strong and will potentially drive earnings going forward. We maintain Buy. http://track.sumnet.com/home/00000275/T037776/s_o_ion_20104387.pdf
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10
Suntec REIT (Buy, TP S$1.70) - Divesting Chijmes at a good price Suntec REIT has agreed to divest Chijmes for S$177m. This will lead to a divestment gain of S$39.5m for the trust. We expect Suntec REIT to reinvest proceeds from the divestment into the refurbishment work at Suntec City Mall. Maintain Buy. http://track.sumnet.com/home/00000275/T03780D/sun_eit_10085490.pdf Synnex Technology (Buy, TP NT$85.00) - Sales momentum remains strong 3Q11 prelim results came in better than expected on higher non-op income. We raise our earnings forecasts by 6%/1%1% for 2011/12/13, and maintain our TP at NT$85. China and Australia continue to provide strong sales momentum. We expect only a 2% seasonal decline in 4Q, better than the historical average of 9%. http://track.sumnet.com/home/00000275/T0377A4/syn_ogy_20104396.pdf Tianjin Port Development (Hold, TP HK$1.38) - TPH 3Q11 profit up 27.5% yoy Tianjin Port Developments (TPDs) 56.8%-owned A-share subsidiary Tianjin Port Holdings (TPH, 600717 CH, NR) reported a 3Q11 net profit of Rmb258.1m, up 27.5% yoy but 10% lower sequentially. http://track.sumnet.com/home/00000275/T037686/tia_ent_20104329.pdf TPK Holding Co (Buy, TP NT$720.00) - Risks priced in We cut our 2012F and 2013F EPS by 16% and 19%, respectively, to reflect margin pressure. However, with the stock trading below 10x 2012F EPS, we believe risks have already been discounted. Potential GDS remains a near-term overhang, however. Maintain Buy with a reduced target of NT$720 (from NT$900). http://track.sumnet.com/home/00000275/T0377EA/tpk__co_10085479.pdf Transportation - China - CIMC - 3Q11 profit down 63.6% yoy China International Marine Containers (CIMC) (000039.CH, NR) reported 63.6% yoy decrease in 3Q11 net profit due to weaker demand for dry cargo containers. Sequentially, earnings has declined 64.6% qoq. http://track.sumnet.com/home/00000275/T0377FD/tra_ion_20104406.pdf Tsingtao Brewery (Hold, TP HK$38.50) - 3Q11 results slightly below expectation Tsingtao reported 3Q11 earnings drop by 3% to Rmb674m, slightly below our expectation, due to weak sales volume growth and margin pressure. We maintain our Hold rating for rich valuation, with target price of HK$38.50. http://track.sumnet.com/home/00000275/T037767/tsi_ery_10085437.pdf TSMC (Buy, TP NT$85.00) - Earnings to accelerate in 1H12F TSMC's 3Q11 results and 4Q11 guidance are in line with the consensus. We believe that customer restocking and an aggressive ramp of 28nm will drive 2012 earnings. We reiterate our Buy recommendation and NT$85 target price. http://track.sumnet.com/home/00000275/T037761/tsmc_20104383.pdf
Note: Links to research are valid for 30 days from the date of publication
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11
RBS Top 100 Earnings Forecasts

28 October 2011
ASX code Company name Market cap (A$m) Last year end Price (A$) Target FV (A$) Up/ price down (A$) Rec 12m YTD - YTD -Rel. Abs.
NPAT pre abnormals (A$m) Earnings Quality* Actual EPS pre goodwill (c) EPS ANALYSIS IBES 3m EPS growth EPS (pre goodwill) revisions 12m fwd Fcst 1 Fcst 2 EPS CAGR 3 yr Actual DIVIDEND ANALYSIS Div yield DPS (c) Div frank (%) Fcst 1 PE (x) (pre goodwill) Fcst 1 Fcst 2 PEG VALUATION PE rel (pre goodwill) Fcst 1 Fcst 2 EV/ EV / P/ NTA EBIT (x) EBITDA (x) Fcst 1 Fcst 1 Fcst 1 B/SHEET ANALYSIS ROE ND/EBITDA Gearing (Tier 1 Analyst ratio for banks) Fcst 1 Fcst 1 Fcst 1
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Banks
ANZ BEN BOQ CBA NAB WBC ANZ Banking Group Bendigo & Adelaide Ban Bank of Queensland Commonwealth Bank National Australia Bank Westpac Banking Corp 57,329 3,469 1,929 77,868 56,389 68,240 Sep 10 Jun 11 Aug 11 Jun 11 Sep 11 Sep 10 22.08 9.70 8.56 49.96 25.99 22.68 23.60 9.32 12.38 49.69 30.18 22.68 26.22 9.81 13.75 58.46 33.54 26.68 7% -4% 45% -1% 16% 0% Buy Hold Buy Hold Buy Hold -5% -3% -18% -2% 10% 2% 3% 6% -9% 7% 18% 10% 5,122.0 336.2 166.9 6,793.0 5,460.0 5,879.0 5,612.0 337.2 262.9 7,386.1 6,155.2 6,332.5 6,074.9 364.7 292.7 7,930.4 6,715.9 6,654.1 n.a. n.a. n.a. n.a. n.a. n.a. 198.4 87.0 71.3 420.7 249.5 192.1 211.7 85.7 104.3 450.3 273.0 203.9 223.3 90.5 112.3 475.5 289.9 211.2 -2.0% -2.1% -6.2% -0.9% -0.9% -0.5% 7% -2% 46% 7% 9% 6% 5% 6% 8% 6% 6% 4%
5% 2% 18% 6% 7% 5%
126.0 60.0 54.0 320.0 172.0 139.0
139.0 61.0 69.0 343.0 188.0 153.0
146.0 63.0 75.0 363.0 200.0 157.0
6.3% 6.3% 8.1% 6.9% 7.2% 6.7%
100 100 100 100 100 100
10.4 11.3 8.2 11.1 9.5 11.1
9.9 10.7 7.6 10.5 9.0 10.7
2.1 5.4 0.4 1.9 1.4 2.2
0.81 1.00 0.72 0.98 0.84 0.86
0.87 1.02 0.73 1.00 0.85 0.95
7.3 7.0 5.0 7.5 6.4 7.5
6.2 6.3 3.9 6.8 5.4 6.7
2.0 1.7 1.2 2.8 1.8 2.4
16.2% 8.3% 10.7% 19.2% 15.9% 16.0%
n.a. n.a. n.a. n.a. n.a. n.a.
10.8% 8.4% 8.3% 10.6% 9.9% 9.8%
Andrew Lyons John Buonaccorsi John Buonaccorsi Andrew Lyons Andrew Lyons Andrew Lyons
Chemicals
IPL ORI Incitec Pivot Orica 5,863 9,357 Sep 10 Sep 10 3.60 25.84 4.40 27.82 4.40 27.82 22% 8% Buy Buy -9% 4% -1% 12% 442.8 659.6 530.0 613.8 568.9 752.1 0.9 0.9 27.3 175.0 32.5 169.2 34.9 207.1 -0.4% 0.2% 19% -3% 7% 22%
10% 9%
7.8 95.0
9.8 90.0
10.5 100.0
2.7% 3.5%
0 49
11.1 15.3
10.3 12.5
1.2 1.8
0.86 1.19
0.91 1.10
9.1 10.8
7.5 8.8
6.0 6.8
14.0% 16.8%
1.3 1.1
29.8% Belinda Moore 36.0% Andrew Scott
Commercial Services & Supplies

BXB DOW SEK TSE Brambles Downer EDI SEEK Transfield Svcs 10,015 1,279 2,110 1,253 Jun 11 Jun 11 Jun 11 Jun 11 6.77 2.98 6.26 2.28 7.01 5.01 7.15 2.13 7.01 5.01 7.15 2.24 4% 68% 14% -7% Hold Buy Buy Hold -5% -33% -6% -32% 3% -24% 3% -24% 532.1 155.9 104.6 128.2 632.6 190.1 131.1 126.3 723.3 221.3 153.9 144.0 1.0 0.6 1.0 0.5 36.6 42.6 31.0 26.0 42.4 44.3 38.8 23.4 48.5 51.5 45.6 28.4 -2.0% -5.8% -4.4% -17.4% 16% 4% 25% -10% 14% 16% 17% 21%
15% 14% 19% 6%
25.9 0.0 14.3 14.0
30.0 21.0 21.4 14.0
34.0 27.0 27.4 15.5
4.1% 7.0% 3.4% 6.1%
20 0 100 100
16.9 6.7 16.1 9.7
13.7 5.8 13.7 8.0
1.1 0.5 0.9 1.5
1.49 0.59 1.42 0.86
1.31 0.55 1.31 0.76
13.5 5.4 13.0 8.7
8.7 3.2 10.2 6.2
17.0 1.3 3.1
25.0% 12.7% 28.8% 11.9%
2.0 1.1 0.9 1.2
120.8% 40.6% 37.0% 28.6%
Mark Williams Andrew Hodge Fraser McLeish Andrew Hodge
Consumer Services
EGP CWN TAH TTS Echo Entertainment Crown Tabcorp Tatts Group 2,628 6,264 2,164 3,138 Jun 11 Jun 11 Jun 11 Jun 11 3.82 8.26 2.99 2.38 4.30 9.00 3.00 2.20 4.30 9.00 3.00 2.44 13% 9% 0% -8% Hold Buy Hold Hold 0% -4% -8% 8% 5% 1% 184.3 335.9 486.3 279.5 135.6 386.9 364.5 329.8 179.9 422.4 222.7 197.4 1.5 0.9 1.0 1.0 26.8 44.3 74.1 21.5 19.7 52.6 51.6 25.0 25.8 58.0 30.6 15.0 1.0% 5.3% -3.8% -2.1% -26% 19% -30% 16% 31% 10% -41% -40%
2% 15% -27% -8%
0.0 37.0 43.0 21.5
10.0 37.0 25.8 22.5
13.1 37.0 21.4 13.5
2.6% 4.5% 8.6% 9.5%
100 60 100 100
19.4 15.7 5.8 9.5
14.8 14.2 9.8 15.9
10.1 1.0 -0.2 -1.3
1.71 1.38 0.51 0.84
1.41 1.36 0.93 1.51
12.6 15.4 4.6 7.2
8.8 10.7 3.8 6.1
4.4 2.6 -
5.6% 12.1% 26.2% 12.8%
2.5 2.0 0.7 1.4
43.7% 45.4% 32.2% 36.8%
Michael Nolan Michael Nolan Michael Nolan Michael Nolan
Construction
BLD CSR FBU.NZ JHX Boral CSR Ltd Fletcher Bldg James Hardie 2,971 1,255 4,617 2,749 Jun 11 Mar 11 Jun 11 Mar 11 3.99 2.48 6.71 6.31 4.04 3.25 7.32 6.78 4.04 3.25 5.67 6.83 1% 31% 9% 7% Hold Buy Hold Buy -17% -51% -12% -7% -9% -43% -4% 1% 173.5 90.2 275.1 123.4 203.2 100.3 286.4 130.7 275.6 127.8 393.0 169.1 0.8 0.7 0.7 0.8 24.0 17.8 42.7 28.2 28.2 19.8 41.6 30.8 38.0 25.3 57.1 40.8 -9.2% -25.2% -17.1% -3.2% 17% 11% -3% 9% 35% 27% 37% 33%
29% 23% 18% 22%
14.5 41.7 33.0 0.0
16.0 15.7 35.0 6.0
17.0 19.0 37.0 12.0
4.0% 6.3% 5.2% 0.9%
100 100 100 0
14.2 12.5 12.6 21.4
10.5 9.8 9.2 15.6
0.5 0.5 0.7 1.0
1.25 1.10 1.11 1.88
1.00 0.93 0.88 1.48
14.1 6.6 10.5 15.1
7.4 4.3 7.7 11.3
0.9 1.0 2.3 -
6.1% 8.1% 9.8% -29.2% -
2.4 0.2 2.2 0.1
38.0% -4.0% 47.7% 3.3%
Andrew Scott Andrew Scott Andrew Scott Andrew Scott
Containers, Packaging & Paper

AMC Amcor 8,639 Jun 11 7.05 7.54 7.54 7% Buy 4% 13% 570.3 659.2 741.1 0.8 46.5 53.7 60.4 -2.2% 15% 12%
14%
35.0
36.0
40.0
5.1%
13.1
11.7
0.9
1.16
1.11
10.4
7.3
4.4
17.5%
1.9
75.6% Andrew Scott
Diversified Financials
ASX CGF MQG PPT SUN Aust Securities Exchang Challenger Financial Svc Macquarie Group Perpetual Suncorp Group 5,209 2,326 8,759 982 11,219 Jun 11 Jun 11 Mar 11 Jun 11 Jun 11 30.46 4.60 25.15 23.41 8.72 31.77 5.10 31.00 25.35 9.87 31.77 5.10 31.00 25.35 9.87 4% 11% 23% 8% 13% Hold Buy Buy Hold Buy -19% -2% -32% -25% 1% -11% 6% -24% -17% 10% 356.6 248.0 956.0 72.9 637.6 385.9 275.4 942.8 67.8 1,073.9 424.8 300.6 1,116.8 69.2 1,231.6 0.9 4.8 n.a. 1.2 n.a. 204.0 48.1 275.0 165.5 49.7 219.3 51.2 263.9 156.7 83.5 239.2 53.4 308.2 162.9 95.7 -0.6% 2.2% -7.9% -13.3% -1.1% 7% 6% -4% -5% 68% 9% 4% 17% 4% 15%
7% 6% 10% 5% 29%
183.2 16.5 186.0 185.0 35.0
196.5 18.5 186.0 146.0 50.1
214.3 19.5 190.0 152.0 57.4
6.5% 4.0% 7.4% 6.2% 5.7%
100 100 30 100 100
13.9 9.0 9.5 14.9 10.4
12.7 8.6 8.2 14.4 9.1
1.9 1.5 1.0 2.9 0.4
1.22 0.79 0.84 1.32 0.92
1.21 0.82 0.78 1.37 0.87
9.5 6.1 6.7 7.5 48.2
9.1 6.0 6.3 6.6 30.1
7.3 1.9 0.7 8.4 1.4
12.7% 16.9% 7.9% 20.3% 6.9%
0.8 0.4 n.a. 0.6 n.a.
-13.6% -8.9% -26.7% 386.3%
Richard Coles Richard Coles Andrew Lyons Richard Coles Richard Coles
Food Beverage & Tobacco

CCL GFF C-C Amatil Goodman Fielder 9,337 976 Dec 10 Jun 11 12.35 0.56 13.43 0.60 13.43 0.80 9% 7% Buy Hold 14% -55% 22% -47% 506.6 135.2 543.5 128.9 600.0 141.5 0.9 1.1 67.3 9.8 71.7 7.1 78.8 7.2 -0.4% -34.6% 7% -27% 10% 2%
9% -9%
48.5 7.8
55.0 5.7
58.5 5.8
4.5% 10.3%
100 40
17.2 7.9
15.7 7.7
1.8 -0.9
1.34 0.69
1.38 0.74
12.0 6.3
9.6 4.9
20.1 30.2
28.8% 8.9%
1.1 2.1
64.8% Michael Nolan 43.4% Michael Nolan
Healthcare
ANN COH CSL PRY RHC RMD SHL Ansell Cochlear CSL Ltd Primary Health Ramsay Health ResMed Inc Sonic Health 1,940 3,327 15,340 1,673 3,791 4,046 4,304 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 14.00 58.78 29.08 3.40 18.76 2.65 11.08 13.92 63.05 29.31 3.20 17.95 2.84 13.12 13.92 63.97 29.31 3.20 18.00 2.84 13.13 -1% 7% 1% -6% -4% 7% 18% Hold Buy Hold Hold Hold Hold Buy 10% -27% -20% -10% 5% -24% -4% 19% -19% -12% -2% 14% -16% 4% 122.9 180.1 940.6 96.5 204.7 231.4 294.5 134.6 139.1 954.9 115.7 227.7 229.7 308.0 139.5 183.2 1,004.2 132.9 252.1 227.1 338.1 0.8 1.0 1.1 1.2 1.2 0.8 1.0 92.4 316.1 173.6 19.5 101.1 14.7 75.5 101.6 244.0 180.9 23.2 112.4 15.0 78.6 107.3 321.4 190.7 26.2 124.4 15.3 86.3 0.2% -22.6% 1.4% -3.0% -0.2% 3.0% -2.8% 10% -23% 4% 19% 11% 2% 4% 6% 32% 5% 13% 11% 2% 10%
11% 9% 5% 14% 11% 5% 8%
32.4 225.0 80.0 8.0 52.0 0.0 59.0
42.2 240.0 81.0 18.0 58.0 0.0 61.0
49.9 240.0 88.0 20.0 64.0 0.0 67.0
2.8% 4.1% 2.8% 5.3% 3.1% 0.0% 5.5%
0 100 0 100 100 0 32
14.6 24.1 16.1 14.7 16.7 18.7 14.1
12.8 18.3 15.2 13.0 15.1 17.1 12.8
1.4 2.6 3.0 1.1 1.5 4.0 1.7
1.29 2.12 1.41 1.29 1.47 1.64 1.24
1.22 1.74 1.45 1.23 1.43 1.62 1.22
13.5 16.6 12.2 10.6 10.9 13.9 11.6
11.3 14.6 10.7 7.8 8.3 10.6 9.3
13.7 17.9 4.8 14.7 2.9 -
22.7% 30.7% 24.6% 4.6% 20.4% 13.4% 12.1%
0.2 0.4 0.2 3.0 1.7 1.6 2.3
6.0% 26.3% -7.6% 41.5% 71.5% -33.0% 56.3%
Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek Dr Derek Jellinek
Infrastructure
CEU MAP TCL ConnectEast MAp Airports Transurban 2,147 6,347 7,665 Jun 11 Dec 10 Jun 11 0.55 3.41 5.31 0.55 3.68 5.90 0.52 3.68 5.90 0% 8% 11% Hold Buy Buy 28% 14% 4% 36% 22% 12% -10.3 127.2 112.5 -13.5 120.0 110.6 5.5 131.9 187.8 0.7 1.1 0.9 -0.3 7.1 7.9 -0.3 6.4 7.7 0.1 7.1 13.0 -31.9% 5.6% -24% -9% -3% 10% 70%
25% 6% 27%
2.0 33.5 27.0
2.2 21.0 29.5
2.4 21.0 32.0
4.0% 6.2% 5.6%
0 0 0
52.9 69.3
48.1 40.8
8.5 2.5
4.11 6.10
37.48 4.24 3.88
47.2 21.5 36.4
20.2 13.8 18.2
1.3 -
-0.8% 2.5% 3.1%
6.7 6.0 6.4
62.2% William Allott 95.7% William Allott 115.2% William Allott
IT
CPU Computershare 4,201 Jun 11 7.56 9.33 9.33 23% Buy -30% -22% 312.3 308.0 323.4 0.8 55.9 55.2 57.9 3.0% -1% 5%
5%
28.0
28.0
32.0
3.5%
60
14.5
12.8
2.9
1.28
1.23
11.7
10.1
23.8%
1.6
63.4% Richard Coles
Insurance
AMP IAG QBE AMP Ltd IAG QBE Insurance 8,265 6,627 16,923 Dec 10 Jun 11 Dec 10 4.38 3.20 15.17 5.50 3.26 16.91 5.50 3.26 16.91 25% 2% 11% Buy Hold Buy -17% -18% -16% -9% -9% -8% 752.0 425.0 1,447.0 898.0 565.0 1,449.3 1,082.2 755.0 1,764.2 n.a. n.a. n.a. 35.9 20.4 133.1 34.0 27.2 124.9 38.3 36.3 147.9 -5.5% -8.7% -9.5% -5% 33% -6% 13% 34% 18%
6% 26% 4%
30.0 16.0 121.2
28.6 21.0 132.0
31.5 23.0 140.7
6.5% 6.6% 8.1%
60 100 10
12.9 11.8 12.7
11.4 8.8 10.6
2.3 0.5 3.1
1.08 1.09 1.10
1.10 0.87 1.04
22.8 17.9
22.8 17.9
3.4 2.5 3.8
18.2% 12.0% 12.3%
n.a. n.a. n.a.
169.6% Richard Coles 30.5% Richard Coles 42.9% Richard Coles
Source: Company data, RBS forecasts, RBS Morgans forecasts. * Share prices as at close of trading on 28 October 2011. Target prices, forecasts and recommendations for some companies featured in 'The Bulletin' may have been updated overnight. ++ Share prices as at close of trading on 28 October 2011. Financial forecasts in NZD. # JHX, ANN and BXB price and market cap reported in AUD. Financial forecasts in USD. * Earnings Quality: Net Operating Cash Flow/(Net Profit + Depreciation & Amortisation)
149

28 October 2011
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Management and development

LLC
Lend Lease Corp
4,527
Jun 11
7.93
10.75
10.75
36%
Buy
-8%
0%
485.3
476.3
560.9 -
0.1
90.3
87.7
102.5
-1.9%
-3%
17%
10%
35.0
44.0
51.5
5.5%
70
9.0
7.7
0.9
0.80
0.74
8.6
7.6
1.7
12.8%
1.8
35.6% Andrew Hodge
Media
FXJ NWS TEN SWM
Fairfax Media News Corp Ten Network Seven West Media
2,258 44,248 956 2,350
Jun 11 Jun 11 Aug 11 Jun 11
0.96 16.85 0.92 3.61
1.45 19.70 0.81 3.47
1.60 23.97 0.90 4.77
51% 17% -12% -4%
Buy Buy Sell Hold
-31% 5% -35% -44%
-23% 13% -26% -36%
273.8 2,929.6 74.1 115.1
284.8 3,358.7 53.6 281.3
328.6 3,436.5 75.2 293.6
1.2 1.1 1.8 1.0
11.6 111.3 7.1 37.5
12.1 135.8 5.1 41.9
14.0 148.6 7.2 41.8
-9.3% 11.9% -10.9% -6.9%
4% 22% -28% 12%
15% 9% 40% 0%
10% 14% 6% 5%
3.0 17.0 5.3 45.0
3.6 18.7 3.8 35.0
7.0 20.6 5.4 35.0
3.8% 1.0% 4.2% 9.7%
100 0 100 100
7.9 13.1 17.8 8.6
6.9 11.2 12.7 8.6
0.8 0.9 2.8 1.7
0.70 1.16 1.57 0.76
0.65 1.06 1.21 0.82
7.0 9.0 11.8 7.5
5.7 7.3 10.0 6.7
10.1 -
6.3% 12.0% 6.6% 10.8%
2.1 0.6 2.8 2.9
27.6% 15.5% 49.7% 66.1%
Fraser McLeish Fraser McLeish Fraser McLeish Fraser McLeish
Other Capital Goods

BLY LEI UGL
Boart Longyear Leighton UGL
1,526 7,538 2,282
Dec 10 Jun 11 Jun 11
3.31 22.40 13.63
4.03 21.67 14.63
3.40 21.67 13.15
22% -3% 7%
Buy Hold Buy
-27% -26% -6%
-19% -17% 3%
91.8 -107.7 164.4
145.1 609.7 171.2
186.0 672.2 196.7
0.3 1.8 0.7
20.1 -35.1 98.8
31.9 181.2 102.4
40.9 199.7 117.3
2.2% -2.1%
58% 4%
28% 10% 15%
29% 84% 10%
5.5 60.0 70.0
9.8 116.0 71.5
12.8 128.0 81.5
2.8% 5.2% 5.2%
35 100 100
10.8 12.4 13.3
8.3 11.2 11.6
0.4 0.1 1.3
0.84 1.09 1.24
0.73 1.07 1.15
8.4 7.8 9.2
5.8 4.1 7.7
2.1 3.0 13.4
13.4% 25.0% 13.8%
0.9 0.1 0.4
25.6% Andrew Hodge 6.5% Andrew Hodge 9.1% Andrew Hodge
Real Estate
WDC GMG
Westfield Group Goodman Group
17,742 4,696
Dec 10 Jun 11
7.68 0.63
8.69 0.81
8.69 0.76
13% 29%
Hold Buy
-20% -3%
-12% 5%
1,745.7 383.9
1,482.4 476.3
1,575.7 527.9
1.0 0.8
75.7 5.3
64.2 6.2
68.2 6.6
-1.2% -1.6%
-15% 17%
6% 7%
-2% 9%
63.6 3.5
48.4 3.8
50.6 4.2
6.3% 5.9%
0 0
12.0 10.2
11.3 9.6
-7.7 1.1
0.93 0.90
0.99 0.91
16.0 18.3
16.0 18.1
1.0 1.2
8.8% 10.2%
7.0 4.5
79.9% Andrew Hodge 30.2% Andrew Hodge
Retail
BBG DJS HVN JBH MTS MYR WES WOW
Billabong David Jones Harvey Norman JB Hi-Fi Metcash Myer Wesfarmers Woolworths
1,095 1,772 2,304 1,641 3,237 1,534 37,960 29,413
Jun 11 Jul 11 Jun 11 Jun 11 Apr 11 Jul 11 Jun 11 Jun 11
4.29 3.52 2.16 16.62 4.21 2.63 32.69 23.82
3.65 2.95 2.60 17.25 4.25 2.55 29.45 29.10
3.65 2.95 2.60 17.25 4.25 2.55 29.45 29.10
-15% -16% 20% 4% 1% -3% -10% 22%
Hold Hold Buy Buy Hold Buy Hold Buy
-47% -21% -27% -7% 2% -26% 2% -12%
-39% -13% -18% 1% 11% -18% 10% -3%
118.0 168.1 242.0 134.4 248.3 163.2 1,870.0 2,124.0
111.7 147.6 243.7 137.7 276.9 142.0 2,370.4 2,224.8
124.6 158.3 270.7 155.6 304.4 160.7 2,787.9 2,471.8
0.2 0.9 1.1 0.7 1.3 1.0 1.0 1.0
46.3 33.0 22.8 120.2 32.3 28.0 161.6 171.5
43.7 28.8 22.9 138.4 36.0 24.3 203.1 179.7
48.6 30.7 25.5 155.1 39.6 27.6 234.6 199.6
-20.1% -17.4% -5.1% -1.3% -0.3% -15.0% -2.9% -4.8%
-6% -13% 1% 15% 12% -13% 26% 5%
11% 7% 11% 12% 10% 13% 16% 11%
3% -3% 8% 12% 8% 2% 18% 9%
29.0 28.0 12.0 77.0 27.0 22.5 150.0 122.0
29.0 24.0 11.0 85.0 29.0 20.0 180.0 131.0
31.0 27.0 13.0 96.0 32.0 22.5 200.0 141.0
6.8% 6.8% 5.1% 5.1% 6.9% 7.6% 5.5% 5.5%
100 100 100 100 100 100 100 100
9.8 12.2 9.4 12.0 11.7 10.8 16.1 13.3
8.8 11.5 8.5 10.7 10.6 9.5 13.9 11.9
3.3 -4.3 1.2 1.0 1.4 4.4 0.9 1.5
0.86 1.08 0.83 1.06 1.03 0.95 1.42 1.17
0.84 1.09 0.81 1.02 1.01 0.91 1.33 1.14
9.3 8.8 6.6 8.7 8.2 8.3 10.8 9.9
7.4 7.2 5.3 7.5 7.3 6.1 8.7 7.6
2.5 1.0 14.3 221.6 6.3 10.1
9.2% 19.0% 10.8% 79.4% 19.9% 16.9% 9.1% 28.2%
2.3 0.5 0.6 0.7 1.2 1.3 0.9 0.9
40.6% 18.1% 13.0% 88.0% 44.2% 50.8% 16.8% 47.9%
Daniel Broeren Daniel Broeren Daniel Broeren Daniel Broeren Daniel Broeren Daniel Broeren Daniel Broeren Daniel Broeren
Telecommunication Services
TLS
Telstra
38,698
Jun 11
3.11
3.50
3.50
13%
Buy
11%
20%
3,231.0
3,551.0
3,666.1
1.0
25.9
28.5
29.4
0.7%
10%
3%
5%
28.0
28.0
28.0
9.0%
100
10.9
10.6
2.1
0.96
1.01
8.6
5.0
7.7
29.3%
1.3
107.3% Fraser McLeish
Transportation
AIO QAN QRN TOL
Asciano Group Qantas Airways QR National Toll Holdings
4,609 3,500 8,076 3,508
Jun 11 Jun 11 Jun 11 Jun 11
1.58 1.54 3.31 4.94
1.91 1.68 3.35 5.42
2.06 2.55 3.45 5.49
21% 9% 1% 10%
Buy Hold Hold Buy
-1% -39% 20% -14%
7% -31% 29% -6%
189.9 416.0 172.4 269.0
268.3 507.4 390.6 309.4
353.4 642.8 459.5 356.9
1.2 1.1 0.9 1.1
6.5 18.4 7.1 38.1
9.2 22.4 16.0 42.7
12.1 28.1 18.8 48.6
0.9% -4.8% 4.5% -2.8%
41% 22% 127% 12%
32% 26% 18% 14%
30% 25% 40% 13%
2.0 0.0 3.7 25.0
3.0 6.0 8.3 27.0
3.5 9.0 8.6 31.0
1.9% 3.9% 2.5% 5.5%
0 100 0 100
17.2 6.9 20.7 11.6
13.0 5.5 17.6 10.2
0.6 0.3 0.5 0.9
1.51 0.61 1.82 1.02
1.24 0.52 1.67 0.97
11.2 8.1 15.9 10.2
7.7 3.1 8.6 6.5
7.0 0.6 1.1 3.2
8.1% 8.0% 5.5% 10.8%
2.7 1.5 1.5 1.8
71.4% 49.1% 22.8% 43.4%
Mark Williams Mark Williams Mark Williams Mark Williams
Utilities
AGK APA DUE SKI
AGL Energy APA Group DUET Spark Infra
6,703 2,743 1,828 1,566
Jun 11 Jun 11 Jun 11 Dec 10
14.53 4.29 1.67 1.18
16.55 4.80 2.00 1.35
16.55 2.00 1.35
14% 12% 20% 14%
Buy Buy Buy Hold
-5% 6% 0% 4%
4% 14% 8% 13%
431.1 108.5 124.9 78.4
486.2 117.4 90.7 153.0
533.6 132.9 89.0 165.2
1.0 1.5 1.1 0.6
94.4 19.7 14.1 6.7
105.0 18.2 9.2 11.5
114.4 20.1 8.1 12.4
0.0% -11.1% -19.9% -0.8%
11% -7% -35% 73%
9% 10% -11% 8%
10% 4% -17% 23%
60.0 34.4 20.0 13.5
64.0 35.4 16.0 9.5
68.0 36.5 16.5 9.7
4.4% 8.3% 9.6% 8.1%
100 0 0 0
13.8 23.5 18.3 10.2
12.7 21.4 20.7 9.5
1.4 6.5 -1.1 0.4
1.22 2.07 1.61 0.80
1.21 2.03 1.97 0.83
10.5 13.3 12.3 9.9
8.7 10.5 9.1 9.9
2.0 3.3 1.1
7.5% 7.3% 6.5% 10.7%
1.2 5.4 6.8 3.8
16.8% 189.2% 292.3% 67.6%
Jason Mabee, CFA Jason Mabee, CFA William Allott William Allott
Source: Company data, RBS forecasts, RBS Morgans forecasts * Share prices as at close of trading on 28 October 2011. Target prices, forecasts and recommendations for some companies featured in 'The Bulletin' may have been updated overnight. ++ Share prices as at close of trading on 28 October 2011. Financial forecasts in NZD. * Earnings Quality: Net Operating Cash Flow/(Net Profit + Depreciation & Amortisation)
150

28 October 2011
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Aluminium & Steel

AWC BSL OST SGM Alumina BlueScope Steel OneSteel Sims Metal Mgt 3,708 1,594 1,699 2,915 Dec 10 Jun 11 Jun 11 Jun 11 1.52 0.87 1.27 14.19 1.81 0.94 2.10 19.10 1.81 1.26 2.10 19.10 19% 8% 65% 35% Buy Buy Buy Buy -39% -61% -51% -34% -30% -53% -43% -26% 39.9 -113.8 235.0 182.0 148.7 -68.9 275.4 279.6 39.1 94.4 285.1 364.1 5.5 0.1 1.0 0.5 1.6 -6.2 17.6 88.9 6.1 -3.8 20.6 136.1 1.6 5.1 21.4 177.3 -35.2% -55.9% -9.1% -5.6% 273% 65% 17% 53% -74% 4% 30%
53% 15% 19% 32%
6.0 2.0 10.0 47.0
6.0 0.0 8.2 68.0
2.0 2.6 10.7 88.6
3.7% 0.0% 6.5% 4.8%
100 100 50 45
26.0 6.2 10.4
97.8 16.8 5.9 8.0
0.5 0.3 0.3
2.02 0.54 0.92
8.61 1.60 0.57 0.76
24.1 241.1 6.6 6.9
24.1 9.0 4.9 5.4
1.2 0.5 0.8 1.5
4.8% -1.7% 6.0% 9.3%
2.3 3.9 2.7 0.2
13.3% 32.4% 44.4% 4.1%
Lyndon Fagan Todd Scott Todd Scott Todd Scott
Energy
OSH ORG PDN STO WPL WOR Oil Search Origin Energy Paladin Santos Woodside WorleyParsons 8,408 15,449 1,217 12,555 28,857 6,909 Dec 10 Jun 11 Jun 11 Dec 10 Dec 10 Jun 11 6.47 14.50 1.57 13.20 36.00 28.12 7.50 16.50 1.89 15.00 39.00 26.60 7.50 18.35 1.89 15.00 39.00 21.81 16% 14% 20% 14% 8% -5% Buy Buy Buy Buy Buy Hold -8% -10% -68% 0% -15% 5% 0% -2% -60% 9% -7% 13% 156.6 673.0 -59.5 356.1 1,540.5 321.6 181.8 911.4 -22.3 520.5 1,755.2 377.7 150.3 1,038.6 24.3 573.7 2,013.5 443.5 2.1 0.7 2.3 1.5 1.0 0.7 11.9 71.0 -8.0 50.3 201.1 130.0 13.7 84.1 -2.9 61.0 219.0 152.4 11.2 92.5 3.1 62.8 245.5 178.9 -5.9% -5.1% -45.0% -1.1% -6.3% 1.6% 15% 18% 179% 21% 9% 17% -18% 10% 3% 12% 17%
-12% 11% 3% 11% 6% 17%
4.0 50.0 0.0 30.0 105.0 86.0
4.0 52.0 0.0 30.0 110.0 93.0
4.0 56.0 0.0 31.0 130.0 113.0
0.6% 3.6% 0.0% 2.3% 2.8% 3.3%
0 100 0 100 100 55
49.2 17.2 21.6 17.1 18.5
59.4 15.7 49.3 21.0 15.1 15.7
-4.2 1.6 2.0 3.0 1.1
3.82 1.52 1.68 1.33 1.78
5.23 1.49 4.70 1.85 1.33 1.55
25.9 12.0 70.1 14.1 13.8 13.3
22.9 8.6 27.2 8.3 11.4 11.9
3.1 2.2 1.0 1.5 2.4 22.0
6.5% 7.3% -1.8% 6.5% 14.8% 18.6%
2.0 2.0 9.4 0.0 1.5 0.6
29.4% 33.3% 52.2% -0.1% 36.6% 19.3%
Jason Mabee, CFA Jason Mabee, CFA Lyndon Fagan Jason Mabee, CFA Jason Mabee, CFA Andrew Hodge
Diversified Metals & Mining

BHP FMG ILU LYC MCC OZL PNA RIO BHP Billiton Fortescue Meta Iluka Resources Lynas Macarthur Coa OZ Minerals PanAust Rio Tinto 205,969 15,567 7,009 2,228 4,900 3,874 2,049 134,555 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Dec 10 Dec 10 Dec 10 38.69 5.00 16.74 1.30 16.22 11.96 3.45 70.22 45.87 7.57 18.05 1.84 16.00 12.10 4.14 102.72 45.87 7.57 18.05 1.84 12.88 12.10 4.14 102.72 19% 51% 8% 42% -1% 1% 20% 46% Buy Buy Buy Buy Hold Hold Buy Buy -14% -24% 83% -37% 27% -30% -22% -18% -6% -15% 91% -29% 35% -22% -14% -10% 21,889.8 23,130.0 22,678.9 1,649.2 2,122.6 1,729.3 36.1 497.9 1,161.2 -57.5 16.4 614.9 241.4 255.8 283.9 398.2 273.6 252.4 173.9 169.2 275.0 15,195.0 16,830.9 17,236.3 1.2 1.6 0.7 0.6 0.1 1.1 1.2 1.0 411.2 53.0 8.6 -3.4 79.9 127.6 5.9 770.3 438.6 68.2 118.9 1.0 84.7 88.4 28.1 900.2 430.0 55.5 277.3 35.9 94.0 81.5 44.9 934.3 -6.4% -4.3% 3.7% -39.5% -10.2% -20.3% -14.0% -5.6% 7% 29% 1279% 6% -31% 378% 17% -2% -19% 133% 3643% 11% -8% 60% 4%
2% 13% 11% -16% 5%
101.0 6.9 8.0 0.0 40.0 190.0 0.0 108.0
116.0 8.0 50.0 0.0 42.3 42.3 0.0 119.0
124.0 8.0 111.0 0.0 47.0 36.7 1.0 125.5
2.8% 1.5% 3.0% 0.0% 2.6% 3.5% 0.0% 1.6%
100 0 100 0 100 0 0 100
9.3 7.8 14.1 19.2 13.5 12.8 8.1
8.9 8.9 6.0 3.6 17.3 14.7 7.9 7.8
5.8 0.6 1.8 -0.8 1.7
0.82 0.68 1.09 11.94 1.69 1.05 1.00 0.63
0.84 0.84 0.53 0.34 1.64 1.29 0.70 0.68
6.7 6.3 9.4 66.9 13.3 9.1 8.5 6.7
5.8 6.0 7.4 35.5 11.9 6.2 7.1 5.8
3.1 3.6 3.9 3.5 2.5 1.5 2.8 3.0
36.6% 60.8% 34.0% 2.6% 13.7% 9.5% 24.3% 26.7%
0.4 1.5 0.2 0.4 0.9 1.3 0.3 0.3
25.7% 121.3% -12.0% -3.9% -17.9% -26.3% -8.6% 9.1%
Lyndon Fagan Lyndon Fagan Sam Berridge Sam Berridge Tom Sartor Lyndon Fagan Tom Sartor Lyndon Fagan
Gold & Precious Metals

NCM Newcrest Mining
Exchange rate (A$/US$)
26,184
Gold
Jun 11
34.22
38.31
Copper LME (US$/lb)
27.36
12%
Buy
-15%
Nickel LME (US$/lb) 8.79 9.89 10.87 10.92 10.41 11.00 11.95 12.98 8.50
-7%
908.0
1,660.5
1,790.9
1.4
118.7
217.0
234.0
16.0%
83%
8%
31%
18.0
43.0
47.0
1.3%
100
15.8
14.6
0.5
1.39
1.39
10.7
8.8
1.7
11.3%
0.2
4.4% Sam Berridge
Oil WTI (US$/oz) (US$/bbl) 1092 1223 1370 1637 1838 1750 1600 1525 1100 77.2 82.6 93.2 94.4 87.8 91.0 94.3 96.0 90.0
Aluminium Zinc LME LME (US$/lb) (US$/lb) 0.91 0.99 1.08 1.15 1.15 1.19 1.25 1.35 1.15 0.94 0.98 1.02 1.05 1.04 1.10 1.18 1.33 1.00
Coal coking steaming (US$/t) (US$/t) 146.0 190.5 247.3 287.5 301.3 305.0 290.0 270.0 180.0 76.3 90.0 108.3 120.0 118.8 116.3 112.5 107.5 100.0
Iron ore lump fines (US$/t) (US$/t) 86.4 219.9 279.3 219.9 281.0 219.9 252.9 219.9 151.5 73.7 118.1 154.1 162.9 161.8 153.2 145.4 137.9 84.8
FY10 CY10 FY11 CY11 FY12 CY12 FY13 CY13 LT (2015+)
0.88 0.92 0.99 1.03 1.01 1.04 1.09 1.09 0.80
3.03 3.42 3.93 4.25 4.33 4.50 4.65 4.86 3.00
Source: Company data, RBS forecasts, RBS Morgans forecasts. Share prices as at close of trading on 28 October 2011. Target prices, forecasts and recommendations for some companies featured in 'The Bulletin' may have been updated overnight. ** BHP, LGL, PDN & RIO price and market cap reported in AUD. Financial forecasts in USD. * Earnings Quality: Net Operating Cash Flow/(Net Profit + Depreciation & Amortisation)
151
RBS Ex-100 Earnings Forecasts

28 October 2011
ASX code Company name Market cap (A$m) Last year end Price (A$) Target FV (A$) Up/ price down (A$) Rec YTD -Abs. 12m YTD Rel.
NPAT pre abnormals (A$m) Earnings Quality * Actual EPS pre goodwill (c) EPS ANALYSIS EPS growth IBES 3m EPS (pre goodwill) revisions 12m fwd Fcst 1 Fcst 2 EPS CAGR 3 yr Actual DIVIDEND ANALYSIS Div yield DPS (c) Div frank (%) Fcst 1 PE (x) (pre goodwill) Fcst 1 Fcst 2 PEG VALUATION PE rel (pre goodwill) Fcst 1 Fcst 2 EV/ EV / P/ NTA EBIT (x) EBITDA (x) Fcst 1 Fcst 1 Fcst 1 B/SHEET ANALYSIS ROE Gearing (Tier 1 Analyst ND/EBITDA ratio for banks) Fcst 1 Fcst 1 Fcst 1
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Chemicals
DLX NUF Duluxgroup Nufarm 974 1,246 Sep 10 Jul 11 2.65 4.76 3.13 5.05 3.13 5.05 18% 6% Buy Buy -4% -7% 5% 1% 71.5 86.1 79.1 101.9 80.9 118.5 1.5 1.0 19.5 32.9 21.5 38.9 22.0 45.3 -1.1% -9.4% 11% 18% 2% 16%
6% 15%
3.0 0.0
15.0 11.7
16.0 13.6
5.7% 2.5%
100 50
12.3 12.2
12.0 10.5
2.2 0.8
0.96 1.08
1.06 1.00
8.7 7.9
7.5 6.0
29.9 1.3
77.3% 6.4%
1.2 1.6
161.5% Julian Guido 27.4% Andrew Scott
Commercial Services & Supplies

CAB CPB CND CLQ COF CUS CLH DCG MIN PRG RUL SAI SLM SKE SPT TOX TPI TWO WLL Cabcharge Campbell Bros Clarius Group Clean TeQ Coffey Customers Collection Hse Decmil Group Mineral Resources Programmed Group Runge SAI Global Salmat Skilled Group Spotless Group Tox Free Transpacific Industries Talent2 Wellcom Group 517 3,173 45 3 91 148 79 267 2,049 236 49 955 438 425 539 211 876 181 88 Jun 11 Mar 11 Jun 11 Jun 10 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Mar 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 4.29 47.01 0.52 0.04 0.38 1.10 0.80 2.15 11.15 2.00 0.40 4.79 2.75 1.83 2.05 2.20 0.69 1.25 2.25 6.63 44.77 0.65 0.30 0.46 1.68 0.87 2.51 10.75 2.14 0.64 5.20 4.49 2.30 2.25 2.44 0.79 1.70 2.74 6.63 44.77 0.65 0.30 0.46 1.68 0.87 2.51 10.75 2.14 0.64 5.20 4.49 2.30 2.25 2.44 1.18 1.70 2.74 55% -5% 24% 641% 21% 53% 9% 17% -4% 7% 59% 9% 63% 26% 10% 11% 14% 36% 22% Buy Hold Hold Buy Hold Buy Hold Buy Hold Hold Buy Buy Buy Buy Hold Buy Buy Buy Buy -27% 19% -27% -56% -61% -40% 18% -19% -10% 16% -29% -2% -37% 1% -2% 3% -49% -18% 3% -18% 27% -19% -47% -53% -32% 26% -11% -1% 24% -20% 6% -29% 9% 6% 12% -41% -10% 11% 65.6 132.1 4.7 1.3 4.8 21.5 10.1 23.5 151.0 28.6 4.9 57.8 51.6 26.1 43.1 13.1 50.0 13.8 9.1 66.0 176.3 6.9 1.3 17.6 17.0 11.3 26.4 190.1 29.1 6.4 66.4 60.7 43.8 52.0 18.1 84.2 16.9 9.8 70.6 199.6 8.2 1.7 25.9 23.8 12.7 29.8 211.7 33.7 6.7 77.9 68.2 51.9 58.8 19.1 111.4 21.9 10.4 0.3 0.9 1.6 1.1 0.6 1.1 1.0 1.1 0.7 0.1 0.7 0.8 0.5 1.0 0.7 0.9 1.1 0.5 1.1 54.5 202.4 5.4 1.8 3.5 15.9 10.3 18.9 89.8 24.2 3.9 29.8 32.4 12.5 16.5 13.9 4.4 9.7 23.3 54.8 261.1 8.0 2.1 7.4 12.6 11.6 21.2 104.9 24.7 5.2 33.3 37.9 18.3 19.8 18.3 6.0 11.5 24.9 58.7 295.7 9.4 2.7 10.8 17.7 12.9 24.0 116.8 28.5 5.4 39.0 42.6 21.7 22.3 18.8 8.6 14.7 26.6 -2.0% 2.6% -24.1% -2.7% -14.5% 4.8% 1.1% 0.4% -9.2% 0.0% -8.2% 3.6% -9.0% -8.4% 0% 29% 48% 20% 107% -20% 12% 12% 17% 2% 31% 12% 17% 47% 20% 32% 35% 19% 7% 7% 13% 18% 29% 47% 40% 11% 13% 11% 16% 4% 17% 12% 18% 13% 3% 43% 27% 7%
4% 14% 23% 24% 50% 9% 13% 12% 4% 9% 12% 16% 11% 27% 13% 13% 30% 21% 6%
30.0 140.0 4.0 0.0 0.0 5.0 6.2 6.0 42.0 9.0 2.0 14.3 24.0 3.0 11.0 3.0 0.0 5.5 16.5
37.5 157.0 5.5 0.0 0.0 6.5 6.9 7.0 52.6 11.0 4.0 16.3 27.1 7.0 13.0 4.0 0.0 6.0 17.5
38.0 177.0 6.5 0.0 3.0 10.2 7.7 8.0 57.6 13.0 4.0 20.3 31.2 13.0 14.5 4.0 0.0 7.0 18.6
8.7% 3.3% 10.6% 0.0% 0.0% 6.0% 8.6% 3.3% 4.7% 5.5% 10.1% 3.4% 9.9% 3.8% 6.3% 1.8% 0.0% 4.8% 7.8%
100 50 100 0 100 0 100 0 0 100 100 100 100 100 40 100 100 50 100
7.8 18.0 6.5 5.0 5.2 8.7 6.9 10.1 10.6 8.1 7.6 14.4 7.2 10.0 10.3 12.0 11.5 10.8 9.0
7.3 15.9 5.5 3.9 3.5 6.2 6.2 9.0 9.5 7.0 7.3 12.3 6.5 8.4 9.2 11.7 8.0 8.5 8.5
1.7 1.3 0.3 0.2 0.1 1.0 0.5 0.8 2.6 0.9 0.6 0.9 0.7 0.4 0.8 0.9 0.4 0.5 1.5
0.69 1.58 0.57 0.16 0.46 0.76 0.61 0.89 0.94 0.71 0.67 1.27 0.76 0.90 0.91 1.06 1.01 0.95 0.79
0.70 1.51 0.52 0.14 0.33 0.59 0.59 0.85 0.91 0.67 0.70 1.17 0.72 0.81 0.87 1.11 0.76 0.81 0.81
8.7 12.9 3.8 -1.2 4.3 6.1 7.3 5.2 7.3 6.0 4.1 11.2 6.4 7.3 7.2 8.4 7.8 8.6 5.2
7.1 10.9 3.5 -0.8 3.5 3.7 2.5 4.7 6.0 5.1 3.1 10.0 5.0 6.0 4.2 5.7 4.7 5.7 4.7
2.1 8.1 2.1 1.3 3.5 10.5 1.0 3.2 2.8 2.0 2.8 7.5 2.3 6.6 9.1 3.7
20.8% 20.5% 7.7% 8.5% 11.7% 9.9% 11.5% 21.4% 27.8% 8.1% 13.3% 20.1% 18.0% 9.8% 11.3% 16.0% 4.8% 10.8% 18.0%
1.3 1.0 0.4 1.7 1.5 0.6 1.3 1.8 0.1 1.5 0.5 1.3 1.7 1.1 1.2 0.5 2.8 0.1 1.3
34.7% 36.5% -5.3% -29.1% 37.9% 16.9% 87.6% -56.7% -4.5% 27.9% -13.2% 39.1% 75.5% 22.0% 45.8% 16.1% 56.9% 1.9% -34.2%
Julian Guido Roger Leaning Matthew Nicholas Roger Leaning Roger Leaning Julian Guido Scott Murdoch Alexandra Clarke Todd Scott Julian Guido Roger Leaning Julian Guido Julian Guido Julian Guido Julian Guido Alexandra Clarke Roger Leaning Matthew Nicholas Josephine Little
Construction
ABC BKW CLO EAL MAH MND NWH Adel Brighton Brickworks Clough E&A Macmahon Monadelphous NRW Holdings 1,842 1,665 610 17 466 1,629 703 Dec 10 Jul 11 Jun 11 Jun 10 Jun 11 Jun 11 Jun 11 2.90 11.28 0.79 0.18 0.63 18.60 2.52 3.20 10.13 0.92 0.18 0.64 23.09 3.08 3.20 10.13 0.92 0.18 0.64 23.09 3.08 11% -10% 17% -1% 2% 24% 22% Hold Hold Buy Hold Hold Buy Buy -12% 0% 5% -10% 21% 2% 17% -4% 9% 14% -2% 29% 10% 25% 151.5 100.8 53.6 2.5 1.0 96.3 41.2 153.1 111.4 58.6 3.1 42.8 114.5 68.0 165.5 128.0 64.0 4.2 45.7 135.1 78.4 0.9 0.7 0.7 1.3 1.0 0.7 1.1 23.9 68.3 6.7 2.7 0.2 110.2 16.1 24.1 75.5 7.4 3.2 5.8 130.3 24.4 26.1 86.8 8.0 4.4 6.1 153.2 28.1 -1.7% -25.9% -2.9% 11.2% 2.4% 12.3% 1% 10% 9% 21% 2453% 18% 52% 8% 15% 9% 36% 7% 18% 15%
9% 8% 8% 23% 17% 24%
21.5 40.5 3.0 1.5 0.0 95.0 9.0
19.0 42.5 3.0 1.5 3.0 112.0 13.0
23.6 44.5 3.0 1.5 3.0 130.0 15.0
6.6% 3.8% 3.8% 8.3% 4.7% 6.0% 5.2%
100 100 0 0 100 100 0
12.0 14.9 10.7 5.6 11.0 14.3 10.3
11.1 13.0 9.8 4.1 10.3 12.1 9.0
1.3 1.8 1.4 0.2 0.9 0.4
0.94 1.32 0.95 0.43 0.97 1.26 0.91
0.98 1.24 0.93 0.36 0.98 1.16 0.85
10.7 23.4 8.1 6.0 7.0 9.3 7.1
8.3 17.5 7.6 4.9 3.8 8.1 4.6
2.4 1.2 1.9 1.5 7.7 2.5
16.2% 6.5% 18.2% 5.9% 12.6% 55.7% 23.7%
0.8 2.1 3.6 2.8 0.2 0.9 0.4
21.2% 13.2% -58.7% 41.7% 6.1% -74.6% 20.5%
Andrew Scott Alexandra Clarke Alexandra Clarke Alexandra Clarke Scott Murdoch Andrew Hodge Scott Murdoch
Consumer products
GUD MCP SYM GUD Holdings McPherson's Symex 540 165 49 Jun 11 Jun 11 Jun 11 7.82 2.28 0.36 9.00 3.17 0.53 9.00 3.17 0.53 15% 39% 47% Buy Hold Buy -22% -28% -31% -13% -19% -23% 49.0 28.0 10.0 49.7 28.5 12.3 55.3 29.5 12.8 1.0 1.1 0.2 71.7 39.0 7.3 71.6 39.7 6.5 79.5 41.1 6.8 -4.9% -9.2% 0% 2% -11% 11% 4% 4%
6% 3% -1%
64.0 26.0 2.5
64.0 26.0 3.0
70.0 27.0 3.4
8.2% 11.4% 8.3%
100 100 100
10.9 5.7 5.5
9.8 5.5 5.3
1.7 1.9 -4.4
0.96 0.51 0.49
0.94 0.53 0.51
7.9 4.6 4.7
6.5 4.1 4.2
5.7 5.3 2.6
18.9% 13.8% 11.0%
0.9 0.9 2.3
32.3% Matthew Nicholas 21.6% Josephine Little 52.5% Josephine Little
Diversified Financials
BTT EQT HGG IMF IFL MOC PTM TRU TSM SOL WHG BT Investment Mgt Equity Trustees Henderson Group IMF Aust IOOF Holdings Mortgage Choice Platinum Asset Mgt The Trust Company ThinkSmart WH Soul Pattinson & Co WHK Group 326 113 2,059 198 1,461 149 2,272 182 57 3,293 224 Sep 10 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 10 Feb 11 Dec 10 Jul 11 Jun 11 2.04 13.15 1.92 1.46 6.36 1.25 4.05 5.63 0.43 13.80 0.83 3.02 13.17 2.72 2.17 7.50 1.38 5.25 5.41 1.00 16.06 1.15 3.02 14.63 2.72 2.17 7.50 1.38 5.25 5.41 1.00 20.07 1.15 48% 0% 42% 49% 18% 10% 30% -4% 132% 16% 39% Buy Hold Buy Buy Buy Hold Hold Hold Buy Buy Buy -29% -17% -8% 1% -18% -6% -19% -11% -41% 10% -23% -20% -9% 1% 9% -10% 2% -11% -2% -33% 18% -15% 30.9 7.8 142.1 22.9 111.5 15.9 155.0 12.4 8.9 161.2 25.8 32.7 9.2 191.0 36.4 120.2 16.2 190.5 12.1 8.7 226.3 29.6 35.9 10.0 234.1 27.5 130.7 16.8 211.2 13.1 12.0 215.6 32.8 0.7 1.0 1.3 0.6 1.2 0.8 1.3 0.8 0.5 1.1 1.1 19.3 91.7 16.7 16.8 48.1 13.2 26.6 38.4 8.3 67.5 9.6 20.4 106.9 18.5 29.2 51.6 13.4 32.4 36.7 6.6 94.8 11.0 22.4 114.3 21.3 22.0 55.8 13.9 35.9 38.7 9.1 90.3 12.2 -16.7% -6.7% -10.1% 6.1% -5.2% 10.0% -7.7% -3.4% -7.1% -3.2% 6% 17% 11% 74% 7% 2% 22% -4% -20% 40% 14% 10% 7% 15% -25% 8% 4% 11% 5% 38% -5% 11%
8% 10% 12% 0% 7% 4% 13% 2% 17% 7% 10%
28.0 100.0 6.5 15.0 43.0 13.0 23.5 35.0 3.5 40.0 7.0
17.5 96.0 7.2 32.0 47.0 13.4 27.5 35.0 3.5 46.0 7.6
20.0 100.0 9.2 18.4 50.0 13.9 30.5 36.0 4.8 52.0 8.6
8.6% 7.3% 5.6% 21.9% 7.4% 10.7% 6.8% 6.2% 8.1% 3.3% 9.1%
100 100 0 100 0 100 100 100 0 100 100
10.0 12.3 10.8 5.0 12.3 9.3 12.5 15.3 6.5 14.6 7.6
9.1 11.5 9.3 6.6 11.4 9.0 11.3 14.6 4.7 15.3 6.9
1.2 1.2 0.9 -17.1 1.7 2.3 0.9 6.2 0.4 2.0 0.8
0.78 1.08 0.94 0.44 1.09 0.82 0.97 1.35 0.51 1.28 0.67
0.80 1.09 0.90 0.63 1.08 0.85 0.99 1.38 0.42 1.45 0.65
5.6 8.1 8.3 3.1 8.1 4.9 7.3 10.4 4.3 4.9 5.8
5.6 7.5 8.2 3.1 7.9 4.6 7.3 9.3 3.7 4.1 5.0
6.2 7.2 3.7 9.6 1.7 6.2 4.7 1.7 1.1 4.9
11.5% 16.5% 20.9% 37.1% 13.5% 17.9% 63.3% 10.9% 19.7% 7.9% 10.5%
1.4 0.4 0.0 0.8 1.1 1.5 1.4 0.1 0.2 8.2 0.8
-22.9% -11.1% -0.8% -37.7% -20.4% -40.6% -96.7% -2.7% -8.5% -53.4% 14.2%
Julian Guido Scott Murdoch Julian Guido Julian Guido Julian Guido Julian Guido Julian Guido Scott Murdoch Matthew Nicholas Roger Leaning Julian Guido
Consumer Services
ALL CTD DMP FWD FLT IVC JET NVT SGH WEB Aristocrat Corp Trave Domino's Pizza Fleetwood Flight Centre Invocare Jetset Navitas Slater & Gordon Webjet 1,247 136 458 682 1,996 756 329 1,561 292 181 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 2.29 1.90 6.69 11.90 19.97 6.96 0.75 4.16 1.92 2.41 2.60 2.50 7.00 13.56 25.25 7.60 1.16 4.12 2.50 2.50 2.60 2.50 7.00 15.05 25.25 7.60 1.16 4.12 2.50 2.50 14% 32% 5% 14% 26% 9% 55% -1% 30% 4% Buy Buy Buy Buy Buy Hold Buy Hold Buy Buy -23% 12% 7% -8% -19% -4% -17% 8% -4% 0% -15% 20% 15% 0% -11% 4% -8% 16% 4% 8% 54.4 8.6 21.4 52.1 170.7 34.1 25.6 76.0 27.9 11.3 56.6 12.0 25.0 58.2 193.5 40.4 35.5 88.0 37.3 12.6 94.6 14.8 27.7 64.0 210.2 46.7 38.5 103.8 41.2 14.0 1.8 1.3 1.2 0.8 0.7 1.0 1.6 0.8 0.7 1.3 10.2 14.0 31.3 90.0 169.6 33.6 6.6 21.3 18.3 14.5 10.5 16.9 36.6 100.6 192.2 38.9 8.1 23.4 23.6 17.0 17.4 20.7 40.4 109.7 208.9 43.1 8.8 27.6 25.5 19.5 -6.1% 5.7% 4.2% 3.3% 0.4% -2.0% -2.7% -5.1% 1.9% 3% 20% 17% 12% 13% 16% 22% 10% 29% 17% 66% 23% 11% 9% 9% 11% 9% 18% 8% 15%
28% 19% 14% 8% 10% 12% 12% 14% 16% 14%
5.0 5.0 21.9 73.0 84.0 28.3 3.0 20.7 5.5 11.0
5.4 8.4 25.6 86.0 96.1 31.3 3.8 23.5 7.5 12.4
8.7 10.3 28.3 93.0 104.4 36.0 4.4 27.6 8.6 13.7
2.4% 4.4% 3.8% 7.2% 4.8% 4.5% 5.1% 5.6% 3.9% 5.1%
0 100 100 100 100 100 100 100 0 100
21.8 11.3 18.3 11.8 10.4 17.9 9.3 17.7 8.1 14.1
13.2 9.2 16.5 10.8 9.6 16.1 8.5 15.0 7.5 12.3
0.8 0.6 1.3 1.4 1.1 1.5 0.8 1.2 0.5 1.0
1.69 0.99 1.61 1.04 0.91 1.39 0.82 1.56 0.72 1.25
1.16 0.88 1.57 1.03 0.91 1.42 0.81 1.43 0.72 1.17
16.2 7.4 12.5 8.1 6.5 13.5 5.9 12.7 5.8 9.4
11.6 6.8 9.7 6.8 5.5 11.5 4.9 11.5 5.5 9.1
9.5 38.0 7.0 4.5 4.0 33.2 14.0 1.9 6.9
26.7% 28.6% 22.9% 27.4% 24.5% 40.4% 8.0% 36.3% 17.8% 34.1%
1.8 0.5 0.4 0.0 0.8 2.6 0.2 0.7 0.7 2.2
102.8% -22.0% -14.3% -1.0% -29.7% 209.7% -3.4% 44.7% 20.6% -105.2%
Michael Nolan Belinda Moore Josephine Little Alexandra Clarke Belinda Moore Julian Guido Belinda Moore Julian Guido Julian Guido Belinda Moore
Source: Company data, RBS forecasts, RBS Morgans forecasts. * Share prices as at close of trading on 28 October 2011. Target prices, forecasts and recommendations for some companies featured in 'The Bulletin' may have been updated overnight. * Earnings Quality: Net Operating Cash Flow/(Net Profit + Depreciation & Amortisation)
153

28 October 2011
NPAT pre abnormals (A$m) Earnings Quality * Actual EPS pre goodwill (c) EPS ANALYSIS IBES 3m EPS growth EPS (pre goodwill) revisions 12m fwd Fcst 1 Fcst 2 EPS CAGR 3 yr Actual DIVIDEND ANALYSIS Div yield DPS (c) Div frank (%) Fcst 1 PE (x) (pre goodwill) Fcst 1 Fcst 2 PEG VALUATION PE rel (pre goodwill) Fcst 1 Fcst 2 EV/ EV / P/ NTA EBIT (x) EBITDA (x) Fcst 1 Fcst 1 Fcst 1 B/SHEET ANALYSIS ROE Gearing (Tier 1 Analyst ND/EBITDA ratio for banks) Fcst 1 Fcst 1 Fcst 1
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Food Beverage & Tobacco

AAC ELD GNC MSF PAG RIC TGR WCB Aust Agricultural Co Elders GrainCorp MSF Sugar PrimeAg Australia Ridley Corp Tassal Group Warrnambool Cheese 435 114 1,587 233 292 366 227 214 Dec 10 Sep 10 Sep 10 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 1.39 0.25 8.00 3.37 1.10 1.19 1.55 3.97 1.55 0.31 9.25 4.06 1.25 1.33 1.30 4.05 2.07 0.31 9.25 4.06 1.57 1.33 1.30 4.05 12% 24% 16% 20% 14% 12% -16% 2% Hold Hold Buy Buy Hold Buy Hold Hold -2% -57% 21% -1% -17% -3% -9% 13% 6% -49% 29% 7% -9% 5% -1% 22% 0.9 3.0 80.2 6.9 5.9 29.3 21.6 18.5 7.2 3.6 167.0 -2.5 17.4 31.5 25.0 15.0 9.6 8.8 163.5 11.1 20.9 33.8 27.4 15.0 5.0 3.8 0.7 2.3 0.2 0.8 1.2 1.5 0.3 0.7 39.4 13.5 3.9 9.5 14.8 38.5 2.5 0.8 83.1 -3.6 6.8 10.2 17.1 27.9 3.1 2.0 82.5 16.1 7.9 11.0 18.6 27.9 2.4% -36.6% 2.3% 10.0% -12.5% -0.7% -2.1% -15.5% 627% 12% 111% -127% 73% 7% 16% -28% 23% 148% -1% 16% 7% 9% 0%
88% 19% 11% 24% 6% 11% -7%
0.0 0.0 30.0 6.5 1.0 7.5 2.0 15.0
0.0 0.0 41.5 5.9 2.7 7.8 6.0 11.2
0.0 0.0 41.2 8.0 3.1 8.0 7.0 11.1
0.0% 0.0% 5.2% 1.7% 2.5% 6.5% 3.9% 2.8%
0 0 100 100 100 25 100 100
56.1 32.2 9.6 16.2 11.6 9.1 14.2
45.4 13.0 9.7 21.0 13.9 10.8 8.4 14.2
0.4 0.5 0.7 1.8 0.8 -2.2
4.36 2.50 0.75 1.42 1.02 0.80 1.25
4.00 1.14 0.85 1.85 1.33 1.03 0.79 1.36
18.2 12.4 6.8 218.2 8.4 9.5 7.8 11.1
15.0 7.3 5.2 33.0 7.5 7.3 5.7 7.0
0.6 0.2 1.6 1.3 0.8 1.4 0.9 1.4
1.1% 0.4% 12.6% -1.5% 4.8% 10.7% 8.8% 9.7%
6.0 5.5 0.5 5.9 6.6 1.7 1.5 0.8
42.8% 44.7% 12.6% 28.3% -31.6% 36.3% 28.7% 17.9%
Belinda Moore Belinda Moore Belinda Moore Belinda Moore Belinda Moore Belinda Moore Matthew Nicholas Belinda Moore
Healthcare
ACR ACL API BTA BKL IPD MSB PXS QRX TIS Acrux Alchemia Aust Pharma Biota Blackmores ImpediMed Mesoblast Pharmaxis QRxPharma Tissue Therap 550 54 144 141 492 75 1,158 324 208 99 Jun 11 Jun 11 Aug 11 Jun 11 Jun 11 Jun 11 Jun 10 Jun 11 Jun 11 Jun 11 3.45 0.28 0.29 0.79 29.41 0.56 8.45 1.31 1.66 0.59 4.59 1.06 0.35 1.98 29.86 1.14 2.08 2.46 2.95 0.95 4.59 1.06 0.35 2.47 29.86 1.50 2.08 3.08 2.95 0.95 33% 278% 21% 150% 2% 103% -75% 88% 78% 61% Buy Buy Hold Buy Hold Buy Buy Buy Buy Buy -3% -56% -34% -20% 5% -31% 81% -56% 19% -17% 6% -47% -26% -12% 13% -23% 89% -48% 28% -9% 57.1 -13.4 20.8 -28.1 27.3 -14.8 -13.2 -45.8 -25.6 -5.3 5.5 -10.0 22.8 -9.3 30.4 -13.2 -14.5 -22.4 -22.5 -3.3 28.1 14.8 28.8 20.0 33.4 4.5 -1.6 -16.2 4.2 6.4 1.1 1.0 1.2 1.5 0.7 0.8 0.8 0.9 0.9 0.8 34.4 -7.0 4.3 -15.7 162.9 -9.5 -9.6 -20.0 -20.5 -3.4 3.3 -4.5 4.7 -5.2 181.8 -8.4 -9.4 -9.1 -15.6 -2.0 16.9 6.7 5.9 11.2 199.7 2.9 -1.0 -6.6 2.9 3.8 -70.6% -8.1% 3.7% -119.2% -90% 55% 9% 202% 12% 12% 2% 121% 31% 73% 415% 26% 10% 800% 38% 16% 51% 12% 4% 11% 32% -24% -8% -29% 39%
60.0 0.0 2.5 0.0 122.0 0.0 0.0 0.0 0.0 0.0
1.0 0.0 3.0 0.0 136.0 0.0 0.0 0.0 0.0 0.0
7.0 0.0 3.0 0.0 150.0 0.0 0.0 0.0 0.0 0.0
0.3% 0.0% 10.2% 0.0% 4.6% 0.0% 0.0% 0.0% 0.0% 0.0%
0 0 100 100 100 100 0 0 0 0
6.3 16.2 -
20.4 4.2 5.0 7.1 14.7 19.3 56.3 15.6
0.5 1.4 -
9.24 0.56 1.42 -
1.94 0.40 0.48 0.67 1.40 1.83 5.36 1.49
107.8 -5.0 4.7 -6.6 11.1 -5.2 -91.2 -13.2 -8.7 -21.2
67.4 -5.1 3.3 -10.9 10.2 -5.5 -91.2 -15.2 -8.7 -21.2
11.3 0.0% 147.9 -54.7% 0.4 4.0% 2.1 -12.9% 5.8 36.5% 15.2 -93.2% 48.2 -51.9% 5.1 -33.3% 23.1 -267.1% 7.4 -21.7%
5.6 n.a. 1.3 n.a. 0.3 n.a. n.a. n.a. n.a. n.a.
-84.0% -11.9% 16.3% -97.1% 14.8% -60.2% -88.9% -26.0% -86.8% -89.2%
Scott Power Scott Power Scott Power Scott Power Scott Power Scott Power Dr Derek Jellinek Scott Power Scott Power Scott Power
Infrastructure
AIX AIA.NZ LAU MQA SWL Aust Infrastructure Fund Auckland Int'l Airport Lindsay Macquarie Atlas Seymour Whyte 1,173 3,016 27 651 139 Jun 11 Jun 11 Jun 11 Dec 10 Jun 11 1.89 2.33 0.16 1.44 1.78 1.92 2.20 0.20 1.88 2.70 1.92 1.87 0.20 1.88 2.70 2% -6% 27% 31% 52% Hold Hold Buy Buy Buy 1% 7% -16% -5% -19% 9% 15% -8% 3% -11% 212.3 92.6 1.4 -281.7 12.2 160.6 104.1 3.2 -57.0 14.8 166.5 115.6 5.2 108.5 17.9 0.2 1.0 0.9 0.0 0.7 34.2 7.0 0.6 -62.3 15.6 25.9 7.9 1.5 -12.6 19.0 26.8 8.7 2.4 24.0 22.9 2.4% 0.0% -80.0% -10.7% -24% 12% 131% 394% 22% 4% 11% 62% 21%
-8% 11% 79% -57% 21%
10.0 8.7 0.7 0.0 8.0
10.5 9.5 1.0 0.0 11.0
11.0 10.5 1.6 7.0 11.0
5.6% 4.1% 6.2% 0.0% 6.2%
50 100 100 0 100
7.3 23.0 10.5 9.4
7.0 20.8 6.5 6.0 7.8
-0.9 2.1 0.1 0.4
0.64 2.03 0.92 0.82
0.67 1.98 0.61 0.53 0.74
6.2 15.4 10.5 -226.6 4.8
6.2 12.4 3.9 -251.7 4.5
0.6 1.2 0.8 3.1
8.9% 5.4% 6.2% 20.5% 36.1% -
0.3 3.3 2.5 n.a. 1.8
-3.2% 42.0% 94.5% -865.2% -89.8%
William Allott William Allott Alexandra Clarke William Allott Alexandra Clarke
IT
ASZ CRZ CSV DTL DWS IRE MLB NXT OKN OTH RKN SLX SMX TNE ASG Group Carsales CSG Ltd Data#3 DWS Adv Business Soln IRESS Melbourne IT NEXTDC Oakton Onthehouse Reckon Silex Systems SMS Mgt & Technology Technology One 141 1,175 324 195 173 999 113 241 164 31 358 377 373 313 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Dec 10 Dec 10 Jun 11 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Sep 10 0.87 5.02 1.14 12.50 1.30 7.65 1.40 1.68 1.75 0.38 2.68 2.33 5.50 1.03 1.30 5.38 1.20 14.40 1.42 8.70 1.50 2.44 2.43 1.50 2.37 8.51 6.82 1.09 1.30 5.38 1.36 14.40 1.42 8.70 1.50 2.44 2.43 1.50 2.37 8.51 6.82 1.09 50% 7% 5% 15% 9% 14% 7% 45% 39% 295% -12% 265% 24% 6% Buy Buy Hold Buy Hold Hold Hold Buy Buy Buy Hold Buy Buy Hold -27% 7% -23% 3% -8% -12% -26% -4% -26% 15% -60% -17% 7% -19% 15% -15% 11% 0% -4% -18% 4% -18% 23% -52% -9% 16% 15.7 58.2 40.6 15.0 17.4 58.4 16.1 -1.7 16.8 -1.8 15.7 -31.5 29.8 17.8 18.7 67.1 41.8 16.5 19.1 63.0 13.2 -8.3 19.6 2.0 18.1 -15.1 35.5 20.5 21.7 76.0 45.3 17.6 20.7 75.2 15.4 0.3 23.4 3.8 21.0 -29.7 39.6 23.7 0.9 1.0 0.3 0.3 0.8 1.2 0.8 0.5 0.7 0.4 1.2 1.2 0.7 1.4 9.7 24.9 15.6 97.5 13.1 46.3 20.2 -1.7 18.0 -19.1 11.8 -19.5 44.3 5.9 10.7 28.5 14.7 107.4 14.4 48.6 16.4 -5.8 20.8 2.4 13.6 -9.4 52.3 6.8 12.0 32.0 15.8 114.4 15.6 57.0 18.9 0.2 24.8 4.6 15.8 -18.4 58.2 7.8 -2.3% -0.4% -8.0% -0.5% -1.9% -3.4% -15.7% -12.2% -1.5% -248.6% -4.6% -1.2% 11% 14% -6% 10% 10% 5% -19% -70% 16% 16% 108% 18% 14% 12% 12% 8% 7% 9% 17% 16% 19% 93% 16% -49% 11% 15%
9% 12% 4% 7% 8% 10% -2% 83% 16% -29% 13% 31% 13% 15%
7.5 19.9 6.0 77.0 12.0 41.5 15.0 0.0 8.5 0.0 8.0 0.0 30.0 5.7
8.0 22.8 5.6 85.0 11.0 39.0 11.0 0.0 16.0 0.6 8.5 0.0 35.5 4.8
9.0 25.6 6.1 90.0 12.0 45.5 13.0 0.0 19.5 1.2 9.5 0.0 39.5 5.5
9.2% 4.5% 4.9% 6.8% 8.5% 5.1% 7.9% 0.0% 9.1% 1.6% 3.2% 0.0% 6.5% 4.6%
100 23 100 100 100 100 100 0 100 0 90 100 100 100
8.1 17.6 7.8 11.6 9.0 15.7 8.6 8.4 15.7 19.7 10.5 15.2
7.2 15.7 7.2 10.9 8.3 13.4 7.4 7.1 8.1 17.0 9.5 13.2
0.9 1.5 2.2 1.7 1.1 1.5 -4.9 0.5 -0.5 1.5 0.8 1.0
0.71 1.55 0.68 1.02 0.80 1.22 0.66 0.74 1.38 1.53 0.93 1.18
0.69 1.49 0.69 1.04 0.79 1.18 0.65 73.21 0.67 0.77 1.50 0.90 1.16
6.0 11.9 7.9 5.4 5.9 10.6 7.5 -19.1 5.6 7.9 13.8 -15.3 7.2 10.6
4.7 11.6 6.0 5.2 5.8 9.9 4.8 -27.6 5.1 3.2 10.4 -27.1 7.0 8.7
24.3 138.3 6.5 4.9 13.2 1.7 5.3 11.7 42.1 3.1 8.6 5.9
16.8% 56.2% 13.5% 51.4% 32.0% 46.4% 14.2% -6.6% 18.0% 3.2% 34.9% -10.2% 32.0% 30.9%
0.9 0.6 1.9 2.7 0.5 0.8 1.0 n.a. 0.5 0.6 0.3 n.a. 0.5 1.1
29.1% -41.3% 45.8% -196.1% -21.1% -53.0% 32.5% -7.5% -13.8% -8.2% -16.2% -42.4% -20.8% -51.2%
Nick Harris Ashley Wallace Nick Harris Nick Harris Julian Guido Julian Guido Nick Harris Nick Harris Julian Guido Belinda Moore Julian Guido Scott Power Julian Guido Nick Harris
Insurance
AUB Austbrokers 347 Jun 11 6.25 6.46 6.46 3% Buy 22% 30% 23.9 26.8 29.5 1.2 43.6 48.4 53.1 0.7% 11% 10%
8%
25.5
30.0
32.0
4.8%
12.9
11.8
1.6
1.31
1.27
16.4
14.5
4.1
16.1% -
3.3
-37.5% Julian Guido
Media
APN AUN CMJ SXL PRT REA SGN TEN APN Austar United Comms Consolidated Media Southern Cross Media Prime Media REA Group STW Group Ten Network 541 1,500 1,562 889 249 1,686 316 956 Dec 10 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Dec 10 Aug 11 0.88 1.18 2.78 1.26 0.68 12.93 0.88 0.92 1.37 1.37 2.68 1.50 0.72 11.25 1.44 0.81 1.53 1.20 2.98 1.79 0.80 11.77 1.44 0.90 56% 16% -4% 19% 6% -13% 63% -12% Buy Buy Hold Buy Hold Hold Buy Sell -54% 24% -11% -34% 5% 5% -17% -35% -46% 32% -3% -26% 13% 13% -9% -26% 103.1 54.1 94.8 68.6 27.2 68.7 38.7 74.1 83.1 82.4 92.7 98.9 28.8 80.2 40.6 53.6 96.4 98.0 96.6 110.3 29.2 95.0 43.1 75.2 1.2 1.0 1.3 0.6 0.9 1.0 2.0 1.8 17.2 4.2 16.6 14.8 7.4 53.1 10.8 7.1 13.5 6.3 16.5 14.0 7.9 61.1 11.4 5.1 15.6 7.5 17.2 15.6 8.0 71.3 12.3 7.2 -13.8% -8.1% 0.8% -4.0% -2.3% -2.1% -3.0% -10.9% -21% 51% -1% -6% 6% 15% 6% -28% 15% 19% 4% 11% 1% 17% 8% 40%
0% 32% 5% 7% 3% 15% 6% 6%
12.0 0.0 16.5 10.0 4.5 26.0 6.5 5.3
8.1 0.0 16.5 9.1 5.5 30.5 7.4 3.8
9.3 0.0 16.5 10.9 5.6 42.8 8.6 5.4
9.3% 0.0% 5.9% 7.2% 8.1% 2.4% 8.4% 4.2%
30 0 0 100 100 100 100 100
6.5 18.7 16.9 9.0 8.6 21.2 7.7 17.8
5.6 15.7 16.2 8.1 8.5 18.1 7.2 12.7
-45.3 0.6 3.7 1.4 3.4 1.4 1.2 2.8
0.50 1.45 1.48 0.79 0.76 1.86 0.60 1.57
0.49 1.38 1.54 0.77 0.81 1.73 0.63 1.21
6.3 14.5 -261.3 7.6 7.2 13.8 6.4 11.8
6.2 7.9 7.7 6.6 6.0 12.4 5.8 10.0
4.8 10.7 335.2 -
9.2% -39.2% 28.3% 6.5% 18.3% 37.4% 11.1% 6.6%
2.9 1.9 n.a. 2.7 2.0 1.4 1.1 2.8
59.3% -279.8% -25.4% 39.1% 75.8% -70.4% 20.1% 49.7%
Fraser McLeish Fraser McLeish Fraser McLeish Ashley Wallace Ashley Wallace Ashley Wallace Matthew Nicholas Fraser McLeish
154

28 October 2011
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Other Capital Goods

AJL ALS AAX ASB ASL BOL BKN CDD EGN EHL GWA HST HIL LDW NFK RFX RQL SDM WTP AJ Lucas Alesco Ausenco Austal Ausdrill BOOM Logistics Bradken Cardno Engenco Emeco GWA Group Hastie Group Hills Ludowici Norfolk Group Redflow Resource Equip Sedgman Watpac 89 130 331 433 938 135 1,282 583 112 638 700 137 281 99 186 70 89 413 215 Jun 11 May 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Dec 10 Mar 11 Jun 11 Jun 11 Jun 11 Jun 11 1.35 1.38 2.69 2.30 3.11 0.29 7.92 5.32 0.09 1.01 2.32 0.10 1.13 3.73 1.17 0.85 0.42 1.97 1.17 2.28 1.81 3.97 3.75 3.80 0.49 9.85 7.10 0.15 1.23 2.16 0.12 1.19 4.92 1.65 2.04 0.99 1.93 1.96 2.28 1.81 6.08 3.75 3.80 0.49 9.85 7.10 0.15 1.23 2.16 0.12 1.70 4.92 1.65 2.04 1.28 1.93 1.96 69% 31% 48% 63% 22% 68% 24% 34% 72% 22% -7% 20% 5% 32% 41% 140% 135% -2% 67% Hold Hold Buy Buy Buy Buy Buy Buy Buy Buy Hold Hold Hold Buy Buy Buy Buy Hold Buy -44% -49% -13% -34% 0% -24% -12% -4% -40% -6% -24% -88% -40% -24% -8% -50% -28% -14% -36% -36% -40% -4% -26% 9% -15% -4% 4% -32% 2% -16% -80% -31% -16% 0% -42% -19% -5% -27% -8.5 15.6 0.8 40.5 78.5 5.4 90.1 58.8 7.2 56.3 63.4 18.7 24.7 11.6 21.1 -7.3 12.2 28.9 16.8 6.2 14.7 22.9 49.7 96.7 17.4 120.3 69.3 18.0 68.7 56.6 23.6 32.7 13.5 24.4 -10.8 13.4 36.7 28.3 10.4 18.9 35.5 50.2 116.0 21.6 143.9 72.8 21.7 78.2 60.4 31.8 36.6 16.7 27.9 3.4 14.4 37.9 35.0 1.4 1.2 1.8 3.3 0.7 0.9 0.2 1.0 1.5 1.2 1.1 1.8 0.3 0.5 1.1 0.9 0.9 0.6 1.3 -12.5 16.5 0.7 21.5 29.0 1.2 63.5 55.4 0.6 8.9 21.0 7.4 9.9 44.7 13.3 -8.8 5.6 13.8 9.2 9.0 15.5 18.6 26.4 32.1 3.7 72.3 63.2 1.4 10.9 18.8 1.7 13.4 46.0 15.4 -13.0 5.7 17.5 15.4 15.2 20.0 28.9 26.7 38.5 4.6 84.0 65.9 1.7 12.4 20.0 2.3 15.3 57.0 17.5 4.1 6.1 18.1 18.9 -22.9% -48.0% -4.5% -14.5% 2.8% 16.4% 0.5% 2.3% -1.5% -15.6% -51.1% -8.2% -1.0% 12.2% -4.3% -6% 2719% 23% 11% 219% 14% 14% 152% 22% -11% -77% 35% 3% 16% -32% 2% 27% 67% 68% 29% 55% 1% 20% 24% 16% 4% 20% 14% 7% 35% 14% 24% 14% 8% 3% 23%
17% 14% 12% 13% 62% 17% 8% 52% 14% 1% -27% 23% 13% 14% 9% 5% 11% 31%
0.0 14.0 0.0 6.0 12.0 0.0 39.5 34.0 0.0 10.0 18.0 0.0 10.0 20.0 2.0 0.0 0.0 7.0 6.0
0.0 9.0 9.3 7.0 13.0 0.0 45.0 36.0 0.0 6.0 18.0 0.0 11.0 23.0 4.0 0.0 0.0 8.0 10.0
0.0 13.0 14.4 8.0 14.5 0.0 52.5 38.5 0.0 6.5 18.0 0.3 13.0 29.0 6.0 0.0 1.0 8.5 12.0
0.0% 6.5% 3.5% 3.0% 4.2% 0.0% 5.7% 6.8% 0.0% 5.9% 7.8% 0.0% 9.7% 6.2% 3.4% 0.0% 0.0% 4.1% 8.5%
100 100 75 100 100 100 100 60 0 100 100 100 100 100 100 100 0 100 100
15.0 8.9 14.4 8.7 9.7 7.8 11.0 8.4 7.3 9.3 12.4 6.4 8.5 8.1 7.6 7.4 11.3 7.6
8.9 6.9 9.3 8.6 8.1 6.3 9.4 8.1 6.0 8.2 11.6 4.7 7.4 6.5 6.7 20.9 6.9 10.9 6.2
0.9 0.6 0.7 0.8 0.1 0.7 1.0 0.1 0.6 8.8 -0.2 0.4 0.6 0.5 1.6 1.0 0.2
1.32 0.78 1.12 0.77 0.89 0.68 0.96 0.74 0.55 0.82 1.09 0.51 0.74 0.63 0.67 0.65 1.06 0.67
0.85 0.66 0.82 0.82 0.78 0.60 0.90 0.77 0.49 0.78 1.10 0.41 0.71 0.58 0.64 1.99 0.65 1.10 0.59
8.3 6.8 9.2 5.6 7.1 7.2 8.4 6.9 4.1 8.0 9.2 5.0 7.1 6.3 4.3 -5.8 5.4 7.7 6.2
4.4 4.6 6.8 4.5 4.3 3.8 6.8 6.1 3.1 3.8 7.6 3.9 5.2 4.9 3.5 -6.9 4.3 5.7 4.1
1.0 1.4 4.5 1.3 1.4 0.6 2.3 0.9 1.4 11.7 2.0 0.8 1.5 3.2 6.9 1.3 3.0 0.7
3.0% 3.2% 9.5% 15.7% 13.7% 5.7% 16.6% 18.3% 9.6% 11.1% 12.8% 6.9% 8.5% 13.9% 24.7% -61.9% 15.1% 21.5% 9.1%
2.4 1.6 0.1 0.8 0.4 1.8 1.7 1.0 0.4 1.4 1.6 1.8 1.5 1.4 0.5 n.a. 0.4 0.7 1.0
49.6% 16.3% -1.0% -20.0% 11.9% 40.3% 56.2% 29.9% 7.5% 56.0% 41.7% 29.4% 27.7% 36.2% -22.9% -35.1% 9.7% -27.1% 21.6%
Alexandra Clarke Julian Guido Roger Leaning Julian Guido Matthew Nicholas Matthew Nicholas Matthew Nicholas Roger Leaning Alexandra Clarke Matthew Nicholas Julian Guido Julian Guido Matthew Nicholas Roger Leaning Julian Guido Scott Power Alexandra Clarke Roger Leaning Scott Murdoch
Property
AAD CWP CMW DVN FKP PPC SDG Ardent Leisure Cedar Woods Cromwell Devine FKP Property Peet Sunland Group 350 219 637 143 574 385 189 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 1.10 3.54 0.66 0.22 0.49 1.22 0.87 1.45 5.24 0.76 0.28 0.88 2.00 0.70 1.45 5.24 0.76 0.28 0.88 2.00 0.70 32% 48% 16% 27% 80% 64% -19% Buy Buy Buy Buy Buy Buy Hold 9% 1% -13% -21% -43% -39% 16% 17% 9% -5% -13% -35% -31% 24% 39.4 28.1 65.3 20.2 121.0 44.0 17.9 41.3 34.6 71.5 21.0 125.4 39.6 21.3 44.7 38.4 74.0 23.5 134.9 44.4 22.1 1.0 1.4 1.0 3.6 0.4 1.3 2.1 12.5 45.8 7.1 3.2 10.3 14.5 7.8 13.0 55.2 7.4 3.3 10.6 12.5 10.0 13.8 60.8 7.6 3.6 11.3 14.0 10.9 -6.6% 3.2% -3.7% -9.6% -6.3% -12.0% -3.9% 3% 20% 4% 3% 3% -14% 29% 6% 10% 3% 10% 7% 12% 8%
6% 15% 6% 10% 6% 1% 15%
11.5 23.0 7.0 2.0 3.0 8.5 0.0
11.7 28.0 7.0 2.1 3.3 7.5 0.0
12.4 30.0 7.1 2.3 3.4 8.5 3.0
10.6% 7.9% 10.6% 9.5% 6.8% 6.1% 0.0%
0 100 18 100 70 100 100
8.5 6.4 8.9 6.9 4.6 9.7 8.7
8.0 5.8 8.7 6.2 4.3 8.7 8.0
1.4 0.4 1.6 0.7 0.7 8.5 0.6
0.75 0.56 0.79 0.61 0.40 0.86 0.76
0.76 0.55 0.83 0.59 0.41 0.83 0.76
8.9 5.3 11.6 6.4 7.1 9.5 6.9
5.8 5.3 11.6 6.3 7.0 9.2 6.4
1.1 1.5 0.9 0.4 0.5 1.4 0.5
9.6% 24.9% 10.1% 6.0% 11.3% 14.8% 6.1%
1.8 1.0 6.4 2.8 4.0 3.7 1.1
37.5% 34.4% 109.2% 32.6% 49.1% 87.2% 11.5%
Josephine Little Scott Murdoch Fiona Buchanan Scott Murdoch Josephine Little Matthew Nicholas Fiona Buchanan
Retail
APE ARP AHE KMD ORL PBG PMV TRS RFG RHL SUL TGA WTF AP Eagers ARB Corp Automotive Holdings Kathmandu OrotonGroup Pacific Brands Premier Inv Reject Shop Retail Food Ruralco Super Retail Thorn Group Wotif.com 363 585 544 375 334 567 783 260 270 193 741 239 790 Dec 10 Jun 11 Jun 11 Jul 11 Jul 11 Jun 11 Jul 11 Jun 11 Jun 11 Sep 10 Jun 11 Mar 11 Jun 11 11.51 8.07 2.10 1.88 8.19 0.61 5.05 10.02 2.50 3.50 5.53 1.63 3.74 15.00 8.65 2.23 2.20 8.87 0.92 5.58 12.70 2.65 3.80 7.40 2.15 4.07 15.00 8.65 2.22 2.20 8.86 0.92 5.58 12.70 2.83 3.80 7.40 2.15 4.07 30% 7% 6% 17% 8% 51% 10% 27% 6% 9% 34% 32% 9% Buy Hold Hold Buy Buy Buy Hold Hold Hold Buy Buy Buy Hold -8% 10% -14% 38% -5% -38% -19% -27% -14% 27% -4% -18% -25% 0% 18% -6% 46% 4% -29% -10% -19% -6% 35% 5% -9% -17% 32.6 37.9 52.4 30.0 24.8 103.4 61.1 16.1 28.0 13.0 55.6 23.0 51.0 39.3 42.0 59.7 34.6 26.8 86.5 61.1 23.7 30.4 15.1 89.8 26.8 56.0 39.6 46.1 69.5 39.0 29.9 104.3 71.3 29.1 32.7 17.0 114.9 30.4 61.7 0.8 0.9 0.9 0.9 0.7 0.8 1.0 0.7 0.9 1.5 0.5 0.6 1.5 108.7 52.2 22.7 14.7 60.8 11.1 39.4 61.4 26.1 23.5 43.1 17.6 23.9 124.5 58.0 23.0 17.3 65.7 9.3 39.4 89.6 27.9 27.5 51.4 18.3 26.3 125.4 63.6 26.8 19.5 73.4 11.2 46.0 109.4 29.5 30.9 58.8 20.7 29.0 3.4% 2.0% -7.9% 6.1% 5.0% -11.6% -4.2% -2.4% -4.5% -7.5% -3.6% -9.4% -7.8% 15% 11% 1% 17% 8% -16% 0% 46% 7% 17% 19% 4% 10% 1% 10% 17% 13% 12% 20% 17% 22% 6% 12% 14% 13% 10%
7% 10% 8% 12% 9% 2% 8% 25% 5% 12% 16% 10% 10%
64.0 23.0 17.0 10.0 50.0 6.2 36.0 31.0 14.5 16.0 29.0 8.5 22.0
78.0 26.5 17.0 11.3 54.0 6.1 35.5 68.0 16.7 18.0 31.0 9.2 24.0
80.0 29.5 19.0 12.7 60.0 7.4 36.5 83.0 18.0 20.0 35.0 10.4 26.5
6.8% 3.3% 8.1% 4.6% 6.6% 9.9% 7.0% 6.8% 6.7% 5.1% 5.6% 5.6% 6.4%
100 100 100 0 0 100 0 100 100 100 100 100 100
9.2 13.9 9.1 11.1 12.5 6.6 12.8 11.2 9.0 12.7 10.8 8.9 14.2
9.2 12.7 7.8 9.9 11.2 5.4 11.0 9.2 8.5 11.3 9.4 7.9 12.9
1.3 1.4 1.1 0.9 1.4 3.0 1.6 0.5 1.6 1.0 0.7 0.9 1.4
0.72 1.22 0.80 0.98 1.10 0.58 1.13 0.98 0.79 0.99 0.95 0.79 1.25
0.81 1.21 0.74 0.94 1.06 0.52 1.05 0.87 0.81 1.00 0.90 0.75 1.23
6.8 9.5 8.4 7.7 8.6 4.8 7.5 8.1 6.7 6.8 7.6 5.8 8.2
6.1 8.5 6.9 6.9 7.1 4.4 5.9 6.1 6.5 5.9 6.3 5.2 7.5
1.4 4.2 2.0 15.6 11.2 4.3 2.3 3.9 2.3 24.5 2.3 145.2
10.7% 29.9% 13.0% 16.6% 82.7% 7.2% 4.9% 39.1% 18.2% 10.0% 18.5% 22.8% 60.7%
4.3 0.7 3.1 0.5 0.1 1.2 2.0 0.8 1.1 1.0 2.2 0.1 1.7
108.0% -28.6% 95.3% 13.6% 18.0% 16.8% -16.4% 61.9% 32.3% 23.0% 59.1% -3.0% -153.5%
Josephine Little Matthew Nicholas Josephine Little Josephine Little Josephine Little Julian Guido Julian Guido Julian Guido Scott Murdoch Belinda Moore Josephine Little Scott Murdoch Belinda Moore
Telecommunication Services
AMM HTA IIN MAQ
SGT TEL.NZ
TPM
Amcom Hutchison Telecom (Aus iiNet Macq Telecom SingTel Telecom Corp TPG Telecom
197 801 392 176 51,734 4,846 1,140
Jun 11 Dec 10 Jun 11 Jun 11 Mar 11 Jun 11 Jul 11
0.82 0.06 2.57 8.38 3.25 2.53 1.46
0.97 0.13 3.20 13.51 3.16 2.45 1.64
0.97 0.13 3.38 15.01 2.48 1.90 1.64
18% 117% 25% 61% -3% -3% 12%
Buy Buy Buy Buy Hold Hold Buy
15% -40% -11% -6% 7% 17% -10%
24% -32% -3% 2% 15% 25% -2%
21.6 41.5 38.0 17.7 3,024.8 296.6 78.2
16.3 -90.6 44.4 18.6 3,006.0 356.6 111.9
18.9 28.0 49.2 22.5 3,276.2 384.3 127.1
0.8 0.0 1.2 1.2 1.0 1.0 0.8
9.0 0.3 25.0 84.5 19.0 15.5 10.1
6.8 -0.7 29.8 89.2 18.9 18.5 14.3
7.8 0.2 33.8 107.6 20.5 20.0 16.1
-32.0% -117.2% -7.9% -7.9% -3.4% 5.6% -2.7%
-25% -318% 19% 6% -1% 20% 42%
16% 14% 21% 9% 8% 13%
-2% 37% 15% 9% 5% 13% 20%
4.8 0.0 12.0 22.0 18.0 4.5
3.5 0.0 15.0 24.0 21.0 7.0
4.1 0.0 17.0 28.0 23.0 8.0
4.2% 0.0% 5.8% 2.9% 4.9% 8.3% 4.8%
0 0 0 100 0 100 100
12.2 8.6 9.4 13.8 10.7 10.2
10.6 50.9 7.6 7.8 12.9 9.9 9.0
-7.8 0.6 1.0 2.7 0.8 0.5
1.07 0.76 0.83 1.22 0.94 0.90
1.00 2.52 0.72 0.74 1.23 0.94 0.86
8.1 -612.5 6.6 5.8 10.5 9.0 7.5
5.8 -612.5 4.0 3.3 7.7 4.1 5.1
2.2 1.0 2.1 3.5 4.1 18.9
11.6% -6.4% 18.8% 22.0% 15.2% 19.9% 20.4%
0.2 n.a. 0.7 0.7 0.9 1.3 0.7
-4.8% -0.3% 34.3% -32.0% 17.8% 101.9% 29.8%
Alan Stuart Alan Stuart Alan Stuart Nick Harris Ian Martin Alan Stuart Nick Harris
Transportation
MRM RCR REX VBA Mermaid Marine Aust RCR Tomlinson Regional Express Virgin Blue 616 189 108 795 Jun 11 Jun 11 Jun 11 Jun 11 3.14 1.43 0.98 0.36 3.58 2.13 1.26 0.41 3.58 2.13 1.58 0.45 14% 49% 29% 15% Buy Buy Buy Buy 4% -3% -11% -16% 13% 6% -3% -8% 43.2 19.5 17.4 -48.1 52.1 21.2 21.7 64.5 56.3 25.8 24.0 114.9 1.3 0.4 1.2 1.4 20.8 14.8 15.7 -2.2 23.5 16.0 19.7 2.9 25.2 19.5 21.9 5.2 0.5% -5.1% 12.3% -7.1% 13% 8% 26% 7% 22% 11% 79%
10% 14% 16% 50%
9.0 4.0 7.1 0.0
10.0 5.0 7.6 0.0
11.0 6.0 8.6 0.0
3.2% 3.5% 7.8% 0.0%
0 100 100 0
13.4 8.9 5.0 12.4
12.5 7.3 4.5 6.9
1.4 0.6 0.3 0.2
1.18 0.78 0.44 1.09
1.19 0.70 0.43 0.66
9.0 6.4 3.3 11.4
7.0 4.2 2.3 4.5
2.3 1.3 0.7 0.9
18.2% 9.8% 12.9% 6.7%
1.0 0.1 0.1 2.5
32.9% 1.0% -1.8% 100.8%
Alexandra Clarke Alexandra Clarke Michael Newbold, CFA Mark Williams
Utilities
CIF ENV EPW GDY HDF SPN Challenger Infrastructure Envestra ERM Power Geodynamics Hastings Diversified SP AusNet 353 937 246 66 838 2,851 Jun 11 Jun 11 Jun 11 Jun 10 Dec 10 Mar 11 1.12 0.65 1.52 0.22 1.61 1.02 1.35 0.80 1.90 1.48 1.95 1.00 1.35 0.80 2.32 1.74 1.95 1.15 21% 23% 25% 571% 21% -2% Buy Buy Buy Buy Buy Hold -7% 25% -23% -42% -5% 17% 2% 33% -15% -34% 4% 26% -0.8 47.2 2.0 -14.8 35.6 252.9 11.0 63.0 31.5 -50.9 39.7 244.5 22.3 69.7 36.7 -52.8 26.8 251.2 1.6 1.4 6.6 0.4 1.6 0.9 -0.3 3.3 1.5 -5.1 7.1 9.0 3.5 4.1 19.4 -13.8 7.7 8.6 7.0 4.3 22.6 -11.9 5.1 8.7 -60.0% 7.9% -13.6% 28.6% -0.1% 25% 1224% -63% 8% -4% 102% 4% 17% 16% -33% 1%
13% -19% 0%
14.0 5.8 3.5 0.0 12.0 8.0
10.0 5.9 7.7 0.0 10.0 8.0
10.0 6.1 8.1 0.0 10.0 8.0
9.0% 9.1% 5.1% 0.0% 6.2% 7.8%
0 0 0 0 0 0
32.1 15.8 7.8 21.0 11.8
15.9 15.2 6.7 31.5 11.7
1.2 -1.1 -86.2
2.83 1.39 0.69 1.63 1.04
1.51 1.45 0.64 2.77 1.12
15.3 10.9 5.6 -0.2 23.8 11.7
9.5 9.0 4.9 -0.8 18.1 8.1
19.8 1.4 0.3 1.5 10.9
3.6% 10.5% 19.2% -18.1% 7.1% 41.1%
7.3 6.1 2.0 n.a. 9.6 5.0
268.8% 299.1% 105.0% -18.4% 169.9% 158.5%
William Allott William Allott Jason Mabee, CFA Roger Leaning William Allott William Allott
155

28 October 2011
Actual
Fcst 1
Fcst 2
Actual
Fcst 1
Fcst 2
Fcst 1
Fcst 2
Fcst 1
Fcst 1
Aluminium & Steel

GBG Gindalbie Metals 718 Jun 11 0.58 0.72 0.72 24% Buy -57% -49% -5.3 18.2 93.8 0.5 -0.6 1.5 7.6 26.1% 416%
-
0.0
0.0
0.0
0.0%
100
39.5
7.7
3.48
0.73
33.8
27.9
1.1
3.0%
10.7
67.2% Todd Scott
Energy
AZT ESG ERA GCL HZN IFN LNC MAD NCR NHC NXS SMR SXY WHC Aston Eastern Star Energy Resource Gloucester Coa Horizon Oil Infigen Energy Linc Energy Maverick Drilling NuCoal New Hope Corp Nexus Energy Stanmore Coal Senex Energy Whitehaven Coal 2,356 892 1,066 1,420 266 225 1,077 92 236 4,956 299 102 387 2,947 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Jul 11 Jun 11 Jun 11 Jun 11 Jun 11 10.97 0.90 2.06 7.00 0.23 0.29 2.14 0.25 0.37 5.97 0.22 0.77 0.51 5.96 11.85 0.77 1.81 9.47 0.33 0.80 3.75 0.36 0.78 5.87 0.12 2.03 0.63 7.00 11.85 1.24 1.81 9.47 0.33 0.80 3.00 0.89 0.78 5.87 0.60 2.03 0.63 6.23 8% -14% -12% 35% 44% 176% 75% 44% 110% -2% -45% 164% 24% 17% Buy Hold Sell Buy Buy Buy Buy Buy Buy Buy Hold Buy Buy Buy 36% 11% -72% -43% -21% -46% -19% 14% -39% 23% -50% -45% 24% -11% 45% 19% -64% -34% -12% -38% -11% 22% -31% 31% -42% -36% 33% -3% -11.1 -4.5 52.8 54.6 16.4 -26.0 -204.0 1.7 -4.7 133.4 26.1 -2.0 10.2 73.3 -11.7 1.1 39.5 55.1 24.2 -42.7 81.0 14.7 -5.7 209.4 -18.7 -4.3 31.2 173.3 -5.8 9.5 92.5 82.0 40.6 -24.4 186.4 25.8 -6.7 194.7 -2.8 -5.6 35.9 243.9 12.3 15.5 0.5 0.9 1.6 0.6 0.4 0.1 1.0 0.4 0.4 1.0 0.4 0.7 -5.1 -0.4 27.7 26.9 1.4 -3.4 -41.1 0.6 -0.7 16.1 2.0 -1.5 1.4 14.8 -5.4 0.1 7.6 26.8 2.0 -5.6 16.1 3.9 -0.9 25.2 -1.4 -3.3 4.1 34.4 -2.7 0.9 17.9 39.9 3.4 -3.2 37.0 6.9 -1.0 23.4 -0.2 -4.3 4.7 48.4 -47.6% -41.3% -26.5% -57.8% -8.0% -473.9% 16.3% -5.0% -5% -72% 0% 41% -39% 551% -18% 57% -172% -54% 205% 132% 102% 757% 134% 49% 68% 75% 130% 75% -15% -7% 575% -22% 15% 41%
90% -83% 45% 79% -11% 12% -19% 39% 54%
0.0 0.0 8.0 0.0 0.0 1.0 0.0 0.0 0.0 25.3 0.0 0.0 0.0 7.4
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.0 0.0 0.0 0.0 18.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 11.0 0.0 0.0 0.0 24.0
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 0.0% 0.0% 0.0% 3.0%
0 0 100 0 0 0 100 0 0 100 0 0 0 100
27.0 26.1 12.2 13.3 6.6 23.7 12.4 17.3
97.4 11.5 17.5 6.8 5.8 3.5 25.5 10.8 12.3
-0.3 0.6 0.2 -1.2 2.0 0.3 0.3
73.41 2.10 2.30 1.07 1.17 0.58 2.08 1.09 1.53
9.26 1.02 1.67 0.64 0.55 0.33 2.42 1.02 1.17
-210.9 -441.0 4.8 12.9 11.2 28.5 5.1 -41.4 16.8 -64.0 -10.7 12.6 11.4
-210.9 -2,835.5 3.0 7.9 7.6 6.8 4.6 -41.4 13.9 7.3 -10.7 10.2 9.4
3.7 3.4 0.9 1.3 1.7 0.8 1.9 2.9 11.4 2.2 0.5 1.8 2.8 2.7
-1.8% 0.4% 3.3% 5.3% 14.9% -6.9% 10.4% 49.8% -24.3% 9.0% -3.0% -9.7% 24.5% 15.8%
n.a. n.a. 6.4 0.0 1.1 5.4 8.3 0.2 n.a. 6.6 1.8 n.a. 0.3 0.2
-35.6% 8.0% -49.8% -0.2% 26.9% 144.6% -98.4% 12.4% 2.4% -67.4% 15.6% -48.0% -7.2% -5.6%
Tom Sartor Chris Brown Lyndon Fagan Tom Sartor Chris Brown William Allott Jason Mabee, CFA Roger Leaning Tom Sartor Tom Sartor Chris Brown Tom Sartor Roger Leaning Tom Sartor
Diversified Metals & Mining

ALK AQA AGO GRR GRY IRD IGO IMD MDL OMH Alkane Resources Aquila Atlas Iron Grange Resources Gryphon Minerals Iron Road Independence Gp Imdex Mineral Deposits OM Holdings 321 2,314 2,614 525 454 95 1,061 419 523 308 Dec 10 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 Jun 11 Jun 11 Dec 10 1.20 6.18 3.16 0.46 1.44 0.67 5.37 2.10 6.27 0.61 1.92 5.23 4.06 0.62 2.36 0.77 5.98 2.83 8.00 0.48 1.92 5.23 4.06 0.62 2.36 0.77 5.98 2.83 9.40 0.48 60% -15% 28% 35% 64% 15% 11% 35% 28% -21% Buy Hold Buy Buy Buy Buy Buy Buy Buy Sell 20% -37% 7% -39% -20% -9% -32% 17% 16% -56% 28% -29% 15% -30% -12% -1% -24% 26% 24% -48% 7.8 -63.5 168.6 33.9 -2.9 -17.5 30.3 31.0 39.0 47.2 -5.4 -35.2 233.2 86.1 -7.0 -17.2 39.8 47.0 20.3 4.1 -9.9 -154.1 215.2 102.7 6.2 -17.1 42.3 54.1 21.4 17.3 1.0 1.4 1.1 1.8 1.0 0.9 1.0 0.8 0.4 0.4 2.9 -17.0 20.4 3.0 -0.9 -13.6 18.7 15.6 46.7 9.4 -2.0 -9.4 28.2 7.5 -2.2 -12.2 19.6 23.1 24.3 0.8 -3.7 -41.2 26.0 8.9 2.0 -12.1 20.9 26.5 25.6 3.4 661.8% -19.7% -26.4% -31.5% 10.8% -63.0% -169% 81% 38% 153% -59% 11% 5% 48% -48% -91% -45% -77% -8% 19% 1% 6% 15% 5% 321%
21% 33% 43% 23% 7% -18%
0.0 0.0 3.0 0.0 0.0 0.0 7.0 4.5 0.0 2.8
0.0 0.0 6.0 3.7 0.0 0.0 5.0 5.5 0.0 1.0
0.0 0.0 6.0 2.2 0.0 0.0 0.0 6.5 0.0 0.9
0.0% 0.0% 1.9% 8.1% 0.0% 0.0% 0.9% 2.6% 0.0% 1.7%
0 0 0 0 0 0 0 100 0 0
11.2 6.1 27.4 9.1 27.3 75.0
12.1 5.1 73.4 25.7 7.9 24.1 17.8
0.5 0.2 0.6 0.4 3.8 -4.2
0.99 0.47 2.41 0.85 2.40 5.82
1.16 0.45 6.99 2.45 0.79 2.29 1.57
-36.4 89.5 6.7 2.1 -83.1 -6.5 19.5 6.5 12.7 36.9
-36.4 73.8 6.0 1.6 -84.8 -6.5 13.5 5.7 11.3 17.1
5.5 -10.3% 6.8 -9.9% 1.4 12.4% 0.7 12.7% 3.4 -6.5% 20.3 ####### 1.8 5.5% 4.0 31.1% 1.4 5.4% 1.3 1.5%
n.a. 1.1 1.4 1.3 n.a. n.a. 1.2 0.3 4.1 4.4
-32.7% 10.2% -24.5% -29.4% -22.3% 218.3% -14.1% 13.9% -37.0% 44.4%
Sam Berridge Sam Berridge Lyndon Fagan Todd Scott James Wilson Todd Scott Sam Berridge Matthew Nicholas Chris Brown Todd Scott
Gold & Precious Metals

AMX CAH IAU IGR KCN KGL MML OGC PRU RRL SAR Ampella Mining Catalpa Intrepid Mines Integra Mining Kingsgate Kentor Gold Medusa Mining OceanaGold Perseus Mining Regis Resources Saracen Minera 412 310 630 447 1,053 103 1,276 648 1,371 1,307 481 Jun 11 Jun 11 Dec 10 Jun 11 Jun 11 Dec 10 Jun 11 Dec 10 Jun 11 Jun 11 Jun 11 1.90 1.74 1.21 0.53 7.78 0.10 6.77 2.41 3.22 3.01 0.78 2.84 1.75 1.62 0.80 8.06 0.22 7.46 2.88 3.37 2.87 1.07 2.84 1.75 2.70 0.80 8.06 0.24 7.46 2.88 2.93 2.49 1.07 49% 0% 34% 51% 4% 120% 10% 20% 5% -5% 37% Buy Hold Buy Buy Hold Buy Buy Buy Hold Hold Buy -43% -12% -40% -25% -28% -44% 5% -34% -5% 25% -7% -35% -4% -32% -17% -20% -36% 13% -26% 4% 34% 1% -24.0 29.6 5.3 41.1 32.0 0.1 112.5 32.4 -30.0 36.3 47.7 -13.6 26.3 -6.0 47.0 209.8 -2.0 126.6 53.0 132.9 52.9 66.2 -13.6 32.8 -10.3 37.4 208.3 16.2 111.1 87.0 114.7 193.5 73.8 0.8 1.0 0.1 0.4 0.4 1.0 0.8 0.5 0.6 0.9 0.7 -11.9 16.7 1.0 4.9 23.6 0.0 59.9 12.4 -7.1 8.4 9.2 -6.5 14.8 -1.1 5.6 155.0 -0.3 67.4 20.2 31.2 12.2 12.1 -5.7 18.4 -2.0 4.4 153.9 2.8 59.1 33.2 27.0 44.6 13.0 -5962.5% 82% 28.3% -11% - -211% 39.2% 14% 16.0% 557% -17.4% -4070% 13.0% 13% -6.3% 63% 31.6% 22.4% 46% 60.6% 32% 14% 25% -42% -20% -1% -12% 64% -14% 266% 8%
-11% 9% -18% 79% 8% 3% 83% 80% 16%
0.0 0.0 0.0 0.0 15.0 0.0 10.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 37.0 0.0 10.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 60.0 0.0 10.0 0.0 0.0 20.0 0.0
0.0% 0.0% 0.0% 0.0% 4.8% 0.0% 1.4% 0.0% 0.0% 0.0% 0.0%
0 0 0 0 0 0 0 0 0 0 0
11.8 9.5 5.0 10.6 12.4 10.3 24.7 6.5
9.5 11.9 5.1 3.7 11.3 7.5 11.9 6.8 6.0
1.3 -0.5 0.1 1.3 4.9 0.1 0.3 0.4
1.04 0.84 0.44 0.94 0.97 0.91 2.17 0.57
0.90 1.14 0.48 0.30 1.07 0.66 1.14 0.64 0.57
-19.7 6.7 -58.4 5.5 3.8 -45.0 10.0 7.6 7.9 23.8 4.3
-19.7 4.3 -94.3 4.2 3.2 -45.0 8.8 4.1 7.0 16.6 4.1
9.9 1.6 3.6 2.1 1.4 1.9 3.6 4.3 3.7 9.8 2.2
-37.1% 14.5% -3.2% 24.9% 30.5% -5.9% 39.2% 9.2% 45.2% 38.7% 41.7%
n.a. 1.0 n.a. 0.9 0.4 n.a. 0.6 0.1 0.6 0.2 0.9
-44.1% -29.3% -83.9% -36.5% -15.7% -31.7% -24.2% 4.5% -30.8% 14.4% -43.2%
James Wilson Chris Brown Chris Brown Chris Brown Sam Berridge Chris Brown Phillip Chippindale Phillip Chippindale Sam Berridge Sam Berridge James Wilson
Miscellaneous Metals & Mining

DML FND HSK MBN MGX PSH TXN Discovery Finders Resources Heemskirk Mirabela Nicke Mount Gibson Iron Penrice Soda Texon
Exchange rate (A$/US$)
614 106 17 826 1,733 13 165
Jun 11 Dec 10 Sep 10 Dec 10 Jun 11 Jun 11 Dec 10
1.40 0.38 0.11 1.68 1.61 0.14 0.68
1.30 0.67 0.16 2.03 1.77 0.13 1.33

Copper LME (US$/lb)
1.73 0.67 0.16 2.18 1.77 0.13 1.33
-7% 77% 48% 21% 10% -4% 96%
Hold Buy Hold Buy Buy Sell Buy
-1% -3% -54% -26% -24% -62% 0%

Nickel LME (US$/lb) 8.79 9.89 10.87 10.92 10.41 11.00 11.95 12.98 8.50
7% 6% -46% -18% -16% -54% 8%
-2.5 -7.4 -5.4 -51.7 233.8 -26.1 2.1
-26.0 -7.9 -3.4 -66.2 410.9 0.5 9.6
96.8 59.3 5.0 33.8 384.0 1.8 18.9
3.9 1.0 2.6 7.1 0.8 0.3 1.8
-0.6 -2.6 -3.5 -10.5 21.7 -28.6 1.2
-5.9 -2.7 -2.2 -13.5 38.2 0.6 3.7
21.8 20.4 3.2 6.9 35.7 2.0 7.2
-10.4% -46.0% -4.2% -
-90% -3% 59% -22% 76% 213%
-7% 231% 97%
6% 12% 4% -53% 79%
0.0 0.0 0.0 0.0 4.0 0.0 0.0
0.0 0.0 0.0 0.0 4.0 0.0 0.0
0.0 0.0 1.0 0.0 4.0 0.0 0.0
0.0% 0.0% 0.0% 0.0% 2.5% 0.0% 0.0%
0 0 100 0 0 0 0
4.2 23.3 18.5
6.4 1.9 3.4 25.2 4.5 7.0 9.4
1.0 -0.4 0.2
0.37 2.05 1.44
0.61 0.16 0.30 2.22 0.43 0.67 0.83
-33.0 -18.0 29.6 -70.2 2.0 8.5 9.5
-33.0 -18.0 5.9 36.5 1.8 4.5 7.2
3.5 1.3 0.5 1.4 1.1 0.2 2.9
-13.6% -8.7% -11.9% -10.9% 30.0% 0.8% 20.3% -
n.a. n.a. 2.5 9.8 1.0 3.9 2.0
-35.2% -9.1% 39.1% 53.0% -38.3% 110.7% -59.0%
Chris Brown Chris Brown Chris Brown Tom Sartor Lyndon Fagan Alexandra Clarke Chris Brown
Gold Oil WTI (US$/oz) (US$/bbl) 1092 1223 1370 1637 1838 1750 1600 1525 1100 77.2 82.6 93.2 94.4 87.8 91.0 94.3 96.0 90.0
Zinc Aluminium LME LME (US$/lb) (US$/lb) 0.91 0.99 1.08 1.15 1.15 1.19 1.25 1.35 1.15 0.94 0.98 1.02 1.05 1.04 1.10 1.18 1.33 1.00
Coal coking steaming (US$/t) (US$/t) 146.0 190.5 247.3 287.5 301.3 305.0 290.0 270.0 180.0 76.3 90.0 108.3 120.0 118.8 116.3 112.5 107.5 100.0
Iron ore lump fines (US$/t) (US$/t) 86.4 138.5 176.0 138.5 177.0 138.5 159.3 138.5 95.4 73.7 118.1 154.1 162.9 161.8 153.2 145.4 137.9 84.8
FY10 CY10 FY11 CY11 FY12 CY12 FY13 CY13 LT (2015+)
0.88 0.92 0.99 1.03 1.01 1.04 1.09 1.09 0.80
3.03 3.42 3.93 4.25 4.33 4.50 4.65 4.86 3.00
Source: Company data, RBS forecasts, RBS Morgans forecasts. * Share prices as at close of trading on 28 October 2011. Target prices, forecasts and recommendations for some companies featured in 'The Bulletin' may have been updated overnight. ** BHP, LGL, PDN & RIO price and market cap reported in AUD. Financial forecasts in USD. * Earnings Quality: Net Operating Cash Flow/(Net Profit + Depreciation & Amortisation)
156
S&P/ASX 200 - Sector Aggregations (RBS)

Prices updated: 27 October 2011
PE (x) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 15.0 26.8 17.1 16.9 23.3 26.6 8.2 19.4 11.9 16.2 14.2 17.1 2010 13.9 26.6 15.2 15.0 16.5 20.8 10.3 17.8 11.6 15.5 12.0 14.6 2011 13.1 24.5 15.3 14.7 11.1 21.7 11.8 16.2 12.8 14.3 11.2 12.8 2012 11.6 19.2 15.1 13.9 9.5 14.6 10.9 14.4 12.2 14.6 10.3 11.3 2013 10.6 18.1 13.7 12.4 8.9 12.4 10.2 12.9 11.6 14.1 9.7 10.5 2009 -24.2 -21.1 35.9 4.5 -36.9 -60.6 -22.2 -0.4 0.5 18.8 -17.5 -22.6 EPS growth (%)* 2010 7.3 3.1 11.9 13.0 43.5 37.2 -19.7 9.2 2.2 3.9 17.8 17.9 2011 5.5 9.2 -5.0 1.9 53.2 -4.3 -12.7 9.6 -9.1 8.0 7.6 15.6 PCF (x) 2012 3.5 2.7 3.3 4.3 2.5 4.5 6.5 5.5 6.7 6.8 6.9 4.8 2013 3.8 3.0 3.7 4.9 2.8 5.2 6.8 6.0 7.0 7.0 7.3 5.2 2009 12.1 15.4 14.1 14.1 8.6 9.8 9.9 12.1 6.6 10.2 na 9.7 2010 9.4 15.6 11.4 11.9 7.3 7.5 11.2 10.7 6.2 9.5 na 8.3 2011 9.1 17.3 11.6 14.1 4.9 8.3 12.9 10.9 6.5 8.6 na 7.0 ROE (%) 2012 1.4 1.8 2.4 3.9 2.0 1.5 1.0 2.0 2.4 1.3 1.5 1.8 2013 1.3 1.7 2.2 3.4 1.7 1.5 0.9 1.9 2.3 1.3 1.4 1.6 2009 10.1 10.3 17.9 36.4 17.7 7.2 8.0 12.7 22.4 9.9 12.6 13.6 2010 11.5 8.1 16.8 35.3 21.7 9.1 8.6 12.4 21.9 9.4 14.5 15.4 2011 11.5 8.2 16.4 31.1 26.0 7.4 8.9 13.2 19.1 9.7 14.9 16.6 ROA (%) 2013 15.2 22.8 11.9 20.6 6.0 33.4 34.2 22.1 28.7 51.6 na 18.7 2009 6.2 5.1 10.5 29.8 9.5 3.9 5.0 7.9 11.3 6.8 3.6 7.6 2010 6.9 4.7 10.6 32.1 12.8 4.9 5.5 7.8 11.3 5.7 3.9 8.9 2011 7.0 4.9 10.7 32.8 15.8 4.2 5.1 8.0 10.3 5.9 4.6 9.9 2012 7.3 5.6 10.6 33.3 15.3 5.5 5.6 8.4 10.5 5.7 4.4 10.2 2013 7.7 5.2 10.9 32.8 14.1 6.1 5.8 8.9 10.7 5.8 4.7 10.0 2012 12.4 9.7 16.5 29.2 24.4 10.8 9.1 14.3 19.9 9.4 15.1 17.0 2013 12.7 9.8 17.0 29.3 21.5 12.1 8.9 15.4 20.1 9.5 15.3 16.6 2012 8.5 12.2 12.5 12.1 4.6 7.4 12.3 9.4 6.4 8.5 na 6.6 2013 8.0 11.5 11.2 11.0 4.4 6.2 11.2 9.2 6.2 8.2 na 6.1 2012 10.9 27.4 1.2 6.1 17.0 48.0 8.5 12.3 4.7 -0.4 8.1 13.0 2013 9.9 5.8 10.8 12.2 7.5 17.5 6.0 11.8 5.4 3.5 6.7 7.9
Dividend yield (%) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 2.6 2.8 2.7 3.2 1.6 3.7 12.6 3.8 6.2 7.4 5.1 3.8 2010 3.2 2.3 3.2 3.8 2.0 3.5 7.9 4.4 6.5 7.0 5.9 4.1 2011 3.2 2.3 3.0 4.1 2.2 3.4 6.2 4.9 6.6 6.8 6.5 4.4 PB (x) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 1.6 2.2 2.6 5.8 3.4 1.8 0.7 2.3 2.7 1.4 1.8 2.2 2010 1.5 2.1 2.6 4.9 3.0 1.6 1.1 2.2 2.5 1.4 1.7 2.1 2011 1.5 1.9 2.5 4.3 2.4 1.6 1.0 2.1 2.5 1.3 1.6 1.9
Gearing - net debt/(net debt+equity) (%) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 27.1 7.6 12.6 37.1 21.3 41.0 40.0 23.4 41.7 53.0 na 28.6 2010 20.9 10.4 18.1 29.1 9.0 31.2 37.5 22.7 37.0 51.4 na 21.9 2011 19.8 14.5 18.1 25.2 10.7 31.9 38.2 22.2 35.4 49.6 na 21.7 EV/EBIT (x) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 10.9 21.1 13.0 16.3 15.7 17.1 13.3 12.4 9.9 13.4 12.8 14.1 2010 9.9 21.4 12.7 13.3 10.7 14.7 12.9 12.0 9.5 12.6 9.3 11.5 2011 9.4 17.1 12.9 11.5 7.8 15.6 17.2 11.0 10.0 12.5 8.0 9.7 2012 8.4 13.3 12.5 9.6 6.6 11.4 14.7 10.1 9.4 11.6 8.1 8.3 2013 8.2 13.1 11.3 8.4 5.8 9.9 13.6 9.1 8.9 11.2 7.4 7.5 2009 8.8 14.2 11.0 15.3 12.0 9.3 13.2 9.9 6.3 10.5 12.0 10.3 2012 21.0 18.8 17.0 28.3 13.1 33.9 35.8 22.3 32.1 50.9 na 22.5
EV/EBITDA (x) 2010 7.5 14.5 10.7 12.7 8.6 8.2 12.8 9.4 6.0 9.9 8.7 8.6 2011 7.0 12.6 10.7 11.0 6.6 8.4 17.2 8.8 6.2 9.7 7.5 7.5 2012 6.8 10.0 10.3 9.2 5.6 6.9 14.6 8.0 5.9 9.1 7.5 6.6 2013 6.6 9.8 9.3 8.1 4.9 6.1 13.5 7.3 5.7 8.8 6.8 6.0
Source: Company data, RBS forecasts * When comparing to consensus (IBES), RBS forecasts include BHP and RIO, but only a limited number of property stocks
157
S&P/ASX 200 - Sector Aggregations (IBES)

PE (x) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 11.9 20.9 8.4 15.5 23.4 23.0 7.5 18.1 9.7 16.1 13.9 15.4 2010 11.2 25.0 18.3 14.0 17.8 16.9 10.4 16.6 10.4 16.0 14.7 15.4 2011 11.4 22.0 17.2 14.3 11.9 17.0 11.4 16.0 12.2 10.9 10.6 12.3 EV/EBIT (x) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 7.3 19.0 13.9 11.5 13.0 18.7 13.1 11.5 10.3 13.4 0.0 12.6 2010 6.5 17.5 13.5 10.9 8.5 15.4 13.4 11.2 9.6 12.6 0.0 10.0 2011 6.4 15.6 12.7 11.6 6.2 13.9 13.6 10.9 6.8 12.9 0.0 8.2 2012 5.7 11.8 12.9 10.3 5.4 11.6 13.1 9.8 6.7 11.7 0.0 7.2 2013 5.1 10.3 11.3 8.9 4.7 9.8 12.7 9.1 6.3 11.2 0.0 6.5 2009 6.2 12.9 11.7 10.4 9.9 9.8 13.1 9.3 6.0 10.5 0.0 9.4 2012 11.0 18.2 17.3 13.9 9.7 14.4 11.4 14.5 11.1 14.4 10.1 11.2 2013 10.4 15.5 15.1 12.2 8.5 12.1 10.9 13.4 10.7 13.7 9.0 10.0 2009 -24.0 -8.9 86.7 1.4 -39.8 -61.0 -35.1 -2.6 3.8 20.7 -0.6 -15.6 EPS growth (%) 2010 6.4 -13.4 -55.1 10.5 34.3 21.4 -17.3 8.8 -6.8 0.4 -5.6 -0.6 2011 -1.2 13.6 6.6 -2.2 49.7 -0.1 -8.9 3.5 -15.1 46.6 38.8 25.1 2012 3.1 20.8 -0.5 2.6 21.9 17.4 0.1 10.8 10.2 -24.3 5.3 10.2 2013 5.8 17.3 14.6 13.8 14.0 19.1 4.6 8.3 3.5 4.8 11.9 11.9
EV/EBITDA (x) 2010 5.1 12.2 11.3 9.4 6.8 8.6 13.3 8.9 5.6 9.9 0.0 7.6 2011 5.1 11.1 10.7 9.8 5.2 8.3 13.4 8.8 4.5 10.4 0.0 6.6 2012 4.6 8.5 10.6 9.1 4.5 7.2 13.2 7.9 4.6 9.1 0.0 5.9 2013 4.2 7.5 9.3 7.9 3.9 6.3 12.8 7.4 4.4 8.7 0.0 5.2
Dividend yield (%) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200 2009 3.4 2.9 2.3 3.2 1.7 3.8 9.9 3.8 8.9 8.0 4.3 3.8 2010 5.3 2.6 2.6 4.0 1.9 3.5 3.6 4.4 9.0 7.2 4.9 3.9 2011 5.1 2.5 2.7 4.0 2.3 3.5 6.6 3.2 8.6 6.7 6.6 4.7 ROA (%) Sector 200 CONS DISCRET 200 ENERGY 200 HEALTHCARE 200 INFO TECHNOL 200 MATERIALS 200 INDUSTRIALS 200 PROPERTY 200 CONS STAP 200 TELECOMS 200 UTILITIES 200 FIN EX PROP S&P/ASX 200
Source: IBES
Gross dividend yield (%) 2012 5.0 2.8 2.8 4.3 2.8 4.3 6.8 5.3 8.6 6.8 7.0 5.2 2013 7.0 3.1 3.7 5.9 4.2 5.7 6.8 5.8 7.6 5.7 7.6 5.8 2009 4.6 3.8 2.6 4.1 2.2 4.5 9.9 5.5 12.3 8.7 5.9 5.0 2010 5.9 3.5 3.1 5.1 2.5 4.0 3.6 6.3 12.3 7.9 6.8 5.2 2011 5.9 3.4 3.1 5.0 3.1 4.1 6.6 4.6 12.0 7.4 8.7 6.0 ROE (%) 2012 12.4 8.8 16.9 22.1 21.3 9.6 5.6 14.3 15.0 7.3 3.3 10.9 2013 12.8 9.7 19.5 19.5 20.8 10.7 5.7 15.2 15.3 7.5 3.5 11.2 2009 20.1 11.9 16.1 36.5 19.7 14.0 6.0 18.7 30.9 12.3 14.5 16.7 2010 18.9 10.0 13.2 34.8 21.2 11.8 3.9 18.6 28.7 13.8 17.6 17.3 2011 15.1 9.4 23.4 28.4 30.0 12.6 8.1 19.9 25.4 7.3 16.6 19.3 2012 15.0 10.9 19.0 27.7 27.0 13.6 7.8 31.8 27.6 8.3 16.1 19.4 2013 15.4 11.6 20.5 28.4 23.9 14.7 8.0 30.8 28.4 8.3 16.6 19.0 2012 6.5 3.8 3.3 5.4 3.7 5.0 6.8 7.6 12.0 7.6 9.3 6.7 2013 9.6 4.3 4.7 8.1 5.3 7.5 6.8 8.2 8.9 7.0 10.7 7.8
2009 12.2 9.8 13.5 24.5 15.1 9.6 3.8 12.7 15.9 6.4 3.1 9.2
2010 12.8 5.7 12.9 21.1 16.6 7.6 2.0 12.0 15.6 6.4 3.2 8.9
2011 8.2 6.7 15.6 16.6 17.0 6.0 5.1 9.4 8.3 4.0 3.2 8.5
158
Sector Aggregations (RBS)

PE (x) Sector Energy Energy Aluminium & Steel Chemicals Div Metals & Mining Forestry products Gold, Precious Metals Packaging & Paper Materials Construction Other Capital Goods Services & Supplies Transportation Industrials Consumer Producers Consumer Services Media Consumer Discretionary Food Bev & Tobacco Retail Consumer Staples Healthcare Healthcare Banks Diversified Financials Insurance Financials ex Property Mgmnt & Development Property Property & Development IT Information Technology Telecommunications Telecommunications Utilities Utilities INDUSTRIAL ex Banks INDUSTRIAL SECTOR RESOURCE SECTOR S&P/ASX 100 SMALL ORDINARIES SMALL INDUSTRIALS SMALL RESOURCES MARKET AVERAGE
PE rel 2012 19.3 19.3 9.3 11.5 8.7 0.0 14.5 13.7 9.5 12.2 11.1 12.9 19.2 14.3 10.0 11.7 12.0 11.7 13.6 13.8 14.4 16.1 16.1 10.3 10.7 10.5 10.3 10.1 7.0 10.9 13.6 13.6 12.3 12.3 15.2 15.2 12.4 11.7 10.7 11.1 12.9 12.0 21.0 11.4 2013 18.2 18.2 9.0 10.8 8.2 0.0 13.5 12.2 8.9 10.2 9.6 10.9 16.0 12.2 9.1 12.5 10.3 10.6 12.8 12.3 12.9 13.8 13.8 9.8 9.7 9.3 9.7 9.3 6.4 10.2 12.4 12.4 11.5 11.5 14.4 14.4 11.2 10.7 10.1 10.3 11.7 10.9 17.6 10.5 2011 1.93 1.93 0.96 1.05 0.75 0.00 2.27 1.23 0.87 1.55 1.62 1.16 2.14 1.62 0.78 0.92 1.13 1.02 1.12 1.20 1.26 1.29 1.29 0.85 0.88 1.04 0.87 0.83 0.56 0.92 1.16 1.16 1.02 1.02 1.19 1.19 1.12 1.02 0.97 0.97 1.20 1.03 8.78 1.00 2012 1.70 1.70 0.82 1.01 0.77 0.00 1.28 1.20 0.84 1.07 0.97 1.14 1.69 1.26 0.88 1.03 1.05 1.03 1.20 1.22 1.27 1.41 1.41 0.91 0.94 0.93 0.91 0.89 0.62 0.96 1.20 1.20 1.08 1.08 1.34 1.34 1.10 1.03 0.94 0.98 1.14 1.06 1.85 1.00 2009 -14.9 -14.9 -75.6 -29.6 -35.0 0.0 -19.3 0.4 -37.0 -22.6 -21.2 -14.1 -100.0 -57.7 -20.0 -16.4 -31.0 -23.4 -20.0 -1.0 -4.3 41.2 41.2 -14.7 -36.5 -4.2 -17.5 -26.7 -42.0 -22.2 4.3 4.3 2.9 2.9 -7.1 -7.1 -21.4 -19.5 -30.8 -23.1 -20.8 -20.5 -32.1 -22.1 2010 5.3 5.3 100.0 1.8 47.2 0.0 100.0 -18.2 44.5 19.2 16.8 -8.8 -100.0 28.2 -0.5 -3.9 14.7 6.8 39.6 8.2 12.3 10.1 10.1 23.9 2.5 -4.6 17.8 -19.1 -37.9 -19.7 15.4 15.4 2.8 2.8 -31.8 -31.8 5.7 11.7 40.0 19.3 2.8 0.2 100.0 17.1
EPS growth (%) 2011 7.8 7.8 91.9 5.7 63.5 0.0 -9.5 32.1 55.6 -30.8 -41.2 7.7 54.0 -4.4 -7.8 0.1 13.7 6.0 10.0 7.3 9.7 -6.9 -6.9 9.6 -3.2 -2.4 7.6 -5.6 -31.6 -12.7 -0.1 -0.1 -10.3 -10.3 40.5 40.5 3.1 5.5 51.0 16.9 12.2 10.8 61.5 16.0 2012 28.1 28.1 33.7 17.2 11.1 5.1 100.0 15.4 17.0 63.5 88.1 14.8 43.9 45.3 0.0 0.4 19.8 10.9 4.4 11.2 12.4 4.4 4.4 6.3 5.7 26.8 8.2 5.9 3.1 8.5 8.8 8.8 6.3 6.3 1.4 1.4 15.3 11.9 17.6 12.4 19.3 10.1 100.0 13.4 2013 6.3 6.3 3.6 6.6 6.9 5.9 7.5 12.4 7.3 19.0 14.6 18.5 19.9 17.3 9.8 -6.8 16.1 10.0 6.3 13.0 12.0 16.9 16.9 5.2 9.7 12.9 6.7 8.0 10.3 6.0 10.4 10.4 6.6 6.6 6.4 6.4 10.9 8.8 7.0 7.7 11.1 10.2 19.3 8.1 2009 3.5 3.5 1.1 2.9 1.5 0.0 0.4 4.6 1.5 3.1 3.4 3.5 4.2 3.8 7.9 5.3 1.2 2.6 3.9 3.8 3.8 2.7 2.7 4.9 5.1 6.0 5.1 11.2 13.0 12.6 3.2 3.2 6.1 6.1 8.0 8.0 4.4 4.6 1.9 3.8 3.7 4.1 0.9 3.8
Dividend yield (%) 2010 2.4 2.4 1.5 2.8 2.0 0.0 0.7 4.0 2.0 4.2 5.3 3.5 2.7 3.5 7.6 5.5 1.7 3.2 4.6 4.6 4.4 3.1 3.1 5.9 5.8 6.1 5.9 7.2 4.3 7.9 4.0 4.0 6.4 6.4 7.0 7.0 4.5 5.0 2.0 4.2 3.8 4.4 0.3 4.1 2011 2.4 2.4 2.3 3.1 2.2 0.0 0.5 4.8 2.2 3.5 3.9 3.5 3.2 3.4 7.2 5.4 1.8 3.3 4.8 5.1 4.9 3.0 3.0 6.5 6.1 6.6 6.5 6.0 8.7 6.2 4.2 4.2 6.6 6.6 6.8 6.8 4.7 5.3 2.1 4.4 4.1 4.9 0.3 4.4 2012 2.6 2.6 2.1 3.6 2.5 0.0 1.2 4.9 2.5 4.7 5.2 4.5 4.1 4.5 7.5 5.6 2.1 3.5 4.9 5.6 5.5 3.3 3.3 6.8 6.5 7.6 6.9 6.5 9.3 6.5 4.6 4.6 6.7 6.7 6.7 6.7 5.1 5.7 2.4 4.8 4.5 5.2 0.4 4.8 2013 2.9 2.9 2.8 4.1 2.7 0.0 1.6 5.4 2.8 5.2 5.9 5.2 4.7 5.2 8.1 5.3 2.5 3.9 5.3 6.2 6.0 3.6 3.6 7.2 6.8 8.1 7.3 6.9 10.2 6.8 5.2 5.2 6.9 6.9 7.0 7.0 5.6 6.1 2.7 5.2 4.9 5.7 0.9 5.2
2009 27.5 27.5 52.8 15.4 22.3 0.0 52.2 17.0 23.6 17.3 15.5 14.7 -388.6 24.1 9.1 11.6 19.1 15.1 22.0 18.0 20.1 17.7 17.7 15.0 11.5 12.6 14.2 8.3 3.1 8.2 17.2 17.2 12.0 12.0 16.1 16.1 15.7 15.4 24.5 17.2 16.9 15.2 139.2 17.1
2010 26.7 26.7 23.4 14.2 15.9 0.0 26.6 20.8 16.9 13.9 12.4 16.2 42.1 20.0 9.2 12.0 16.6 14.0 15.7 16.5 17.8 16.1 16.1 12.1 11.0 13.2 12.0 10.2 5.0 10.3 14.9 14.9 11.7 11.7 21.7 21.7 14.9 13.8 18.2 14.5 17.1 14.7 101.4 14.8
2011 24.8 24.8 12.4 13.5 9.7 0.0 29.2 15.8 11.1 19.9 20.8 15.0 27.6 20.9 10.0 11.8 14.6 13.1 14.4 15.4 16.3 16.6 16.6 11.0 11.3 13.3 11.2 10.7 7.2 11.8 14.9 14.9 13.1 13.1 15.3 15.3 14.4 13.1 12.5 12.5 15.5 13.3 113.0 12.9
159
Sector Aggregations (RBS)

EV/EBIT (x) Sector Energy Energy Aluminium & Steel Chemicals Div Metals & Mining Forestry products Gold, Precious Metals Packaging & Paper Materials Construction Other Capital Goods Services & Supplies Transportation Industrials Consumer Producers Consumer Services Media Consumer Discretionary Food Bev & Tobacco Retail Consumer Staples Healthcare Healthcare Banks Diversified Financials Insurance Financials ex Property Mgmnt & Development Property Property & Development IT Information Technology Telecommunications Telecommunications Utilities Utilities INDUSTRIAL ex Banks INDUSTRIAL SECTOR RESOURCE SECTOR S&P/ASX 100 SMALL ORDINARIES SMALL INDUSTRIALS SMALL RESOURCES MARKET AVERAGE
EV/EBITDA (x) 2012 13.4 13.4 7.2 8.7 6.1 10.1 10.4 10.7 6.6 9.3 7.5 9.9 15.1 11.2 8.1 9.1 8.9 8.4 9.5 9.7 10.1 13.0 13.0 na 6.0 16.5 7.9 12.6 6.5 14.7 9.4 9.4 9.5 9.5 11.8 11.8 10.1 na 7.0 8.1 9.7 9.4 13.1 8.3 2013 13.1 13.1 6.7 7.8 5.3 8.7 9.2 9.7 5.8 7.8 6.6 8.5 12.7 9.7 7.5 9.8 7.8 8.1 9.0 8.7 9.1 11.2 11.2 na 5.9 13.2 7.3 11.6 5.8 13.6 8.4 8.4 8.9 8.9 11.3 11.3 9.2 na 6.2 7.4 8.7 8.3 12.1 7.5 2010 14.7 14.7 10.9 8.3 8.0 0.0 19.4 10.2 8.6 7.1 5.8 8.9 10.0 8.2 6.6 7.9 7.9 7.6 9.3 8.9 9.5 11.0 11.0 na 8.1 17.8 8.8 11.8 5.2 12.8 10.3 10.3 6.1 6.1 9.8 9.8 8.3 na 9.2 8.6 8.9 8.0 38.3 8.6 2011 12.8 12.8 7.3 8.0 6.1 0.0 15.0 8.3 6.6 8.4 7.1 8.0 9.5 8.4 7.3 7.1 7.2 7.1 8.2 8.4 8.8 11.1 11.1 na 5.4 15.6 7.5 13.9 6.8 17.2 9.4 9.4 6.2 6.2 9.5 9.5 8.0 na 7.1 7.4 8.3 7.6 28.5 7.5 2012 10.0 10.0 6.2 7.2 5.2 0.0 8.4 7.6 5.6 6.0 4.9 6.8 8.3 6.8 6.7 7.2 6.8 6.8 7.4 7.8 8.0 10.5 10.5 na 5.4 14.6 7.3 12.3 6.4 14.6 7.8 7.8 5.9 5.9 8.9 8.9 7.3 na 5.9 6.5 7.1 6.8 9.4 6.6 2013 9.7 9.7 5.7 6.5 4.6 0.0 7.3 7.0 4.9 5.3 4.4 6.0 7.4 6.1 6.2 7.7 6.1 6.6 7.0 7.0 7.3 9.2 9.2 na 5.3 11.9 6.8 11.3 5.7 13.5 7.1 7.1 5.7 5.7 8.6 8.6 6.8 na 5.3 5.9 6.4 6.2 8.8 6.0 2011 1.9 1.9 1.5 1.8 2.7 0.0 2.1 2.4 2.4 1.9 1.8 2.1 1.2 1.6 1.3 1.8 1.4 1.5 1.9 2.0 2.1 2.5 2.5 1.7 1.2 1.3 1.6 1.0 0.4 1.0 3.3 3.3 2.4 2.4 1.3 1.3 1.6 1.7 2.5 1.9 1.8 1.8 2.2 1.9
P/BV (x) 2012 1.8 1.8 1.3 1.8 2.2 0.0 1.9 2.3 2.0 1.7 1.6 2.0 1.2 1.5 1.3 1.7 1.3 1.4 1.7 1.9 2.0 2.4 2.4 1.6 1.1 1.3 1.5 1.0 0.4 1.0 3.1 3.1 2.3 2.3 1.3 1.3 1.6 1.6 2.1 1.7 1.7 1.7 2.0 1.7 2013 1.7 1.7 1.1 1.7 1.8 0.0 1.6 2.2 1.7 1.6 1.5 1.8 1.2 1.4 1.2 1.6 1.2 1.3 1.7 1.8 1.9 2.2 2.2 1.5 1.1 1.2 1.4 0.9 0.4 0.9 2.8 2.8 2.2 2.2 1.3 1.3 1.5 1.5 1.7 1.6 1.6 1.6 2.1 1.6 2011 8.0 8.0 12.3 13.8 31.6 0.0 10.2 14.7 25.9 9.5 8.2 15.1 4.6 7.6 13.6 13.7 10.3 11.5 12.7 12.9 12.7 14.7 14.7 16.4 10.1 10.3 14.9 9.7 5.9 8.9 24.2 24.2 18.2 18.2 8.7 8.7 11.7 13.1 24.5 17.0 12.2 13.5 2.3 16.4
ROE (%) 2012 9.6 9.6 14.9 15.9 28.2 2.8 13.7 17.5 24.3 14.5 15.6 16.4 6.4 10.9 13.1 14.7 11.5 12.4 13.3 13.9 13.9 15.3 15.3 16.4 10.3 12.3 15.1 9.7 6.0 9.1 23.5 23.5 19.2 19.2 8.6 8.6 13.0 14.0 22.9 17.2 13.8 14.5 10.0 16.9 2013 9.8 9.8 13.5 16.2 24.1 3.3 12.9 18.6 21.5 16.0 16.5 17.9 7.5 12.2 13.9 13.1 12.4 12.8 13.3 15.1 14.9 16.6 16.6 16.2 10.9 13.5 15.3 9.7 6.5 8.9 23.8 23.8 19.6 19.6 9.0 9.0 13.6 14.4 20.4 16.7 14.5 15.0 11.6 16.5 2011 4.8 4.8 9.5 9.6 18.5 0.0 8.4 6.8 15.7 5.1 4.7 8.3 3.1 4.3 8.3 8.7 6.3 7.1 7.8 7.9 7.7 9.5 9.5 0.0 7.1 7.6 4.6 4.9 4.6 5.1 13.3 13.3 9.9 9.9 5.2 5.2 6.9 6.9 14.7 10.2 7.2 7.7 1.4 9.7
ROA (%) 2012 5.6 5.6 11.1 10.6 17.3 0.0 11.0 7.7 15.2 7.4 8.0 8.7 3.7 5.6 7.7 8.9 6.8 7.4 8.1 8.2 8.1 9.7 9.7 0.0 6.4 7.7 4.4 5.2 4.7 5.6 13.9 13.9 10.3 10.3 5.2 5.2 7.5 7.5 14.1 10.4 8.1 8.2 7.4 10.1 2013 5.2 5.2 10.2 11.2 15.7 0.0 10.4 8.3 14.1 8.3 8.8 9.5 4.2 6.2 8.2 8.5 7.3 7.8 8.3 8.9 8.7 10.5 10.5 0.0 6.0 7.9 4.7 5.5 5.0 5.8 14.1 14.1 10.6 10.6 5.4 5.4 7.9 7.9 12.8 10.2 8.5 8.6 7.4 9.9
2010 21.7 21.7 15.6 10.3 9.8 0.0 25.4 16.6 10.7 11.2 9.2 13.2 21.0 14.3 7.7 10.0 11.2 10.0 11.8 11.1 12.0 13.2 13.2 na 9.2 19.7 9.4 12.0 5.2 12.9 12.1 12.1 9.5 9.5 13.0 13.0 11.8 na 11.4 11.3 12.7 11.2 81.9 11.5
2011 17.6 17.6 9.1 9.8 7.1 0.0 21.4 12.6 7.8 15.6 13.7 11.8 18.6 15.2 8.9 9.1 10.2 9.4 10.4 10.5 11.1 13.6 13.6 na 5.9 17.1 7.9 14.2 6.9 17.2 11.4 11.4 10.1 10.1 12.8 12.8 11.4 na 8.4 9.5 11.9 10.6 67.6 9.8
160
Absolute performance to 28 Oct 11

Stock/sector Price last 28/10/11 11,948.4 $2.90 $1.52 $7.05 $2.95 $3.16 $38.69 $0.87 $3.99 $5.00 $0.58 $0.29 $16.74 $3.60 $5.37 $6.31 $0.42 $7.78 $1.30 $16.22 $0.90 $1.61 $0.30 $34.22 $4.76 $0.61 $1.27 $25.84 $0.10 $0.18 $70.22 $14.19 $2.23 $0.44 $5.96 4Q 2011 +10.2 +9.8 +2.7 +1.7 -0.7 +10.9 +10.5 +18.5 +14.0 +13.1 +20.8 +93.3 +33.8 +10.1 +24.3 +9.7 +3.7 +8.4 +19.3 +1.9 +29.5 +20.1 -10.4 +0.4 +11.2 +2.5 +2.4 +10.1 +35.6 +12.5 +13.6 +14.4 +8.8 +1.2 +38.0 % return over ... 3Q 2Q 2011 2011 -19.3 -14.6 -29.9 -3.8 -36.8 -23.6 -20.0 -39.4 -20.5 -30.4 -40.9 -44.4 -25.4 -15.3 -23.3 -1.9 -29.8 -10.3 -44.9 +45.4 +17.4 -23.2 -27.2 -56.2 -9.6 -4.7 -35.3 -33.0 -12.8 -54.4 -59.0 -25.5 -29.7 +4.9 +26.5 -26.8 -5.5 -4.0 -14.2 +2.0 -12.8 0.0 -5.9 -39.0 -12.0 -0.9 -26.4 -56.5 +26.2 -10.9 -14.6 -3.9 -7.3 -7.9 -12.0 -5.6 -2.6 -34.2 -7.5 -23.1 -5.3 -13.2 -34.3 -24.2 +2.2 -54.9 -33.9 -2.1 +0.8 -10.3 -26.9 -12.7 Stock/sector 1Q 2011 +0.9 -1.7 -0.8 +4.6 +0.7 +26.4 +2.9 -12.2 +3.5 -2.0 -18.3 -0.8 +45.5 +9.3 -17.1 -10.0 -24.1 -20.1 +9.2 -9.4 -19.5 -27.1 -6.1 -22.0 -1.5 +0.6 -0.4 -5.8 +5.9 -13.4 -7.1 -0.8 -18.8 +6.9 -19.1 +13.2 CY 2010 +10.2 +20.0 +34.8 +8.3 -27.2 +56.1 +4.9 -27.7 -16.6 +47.3 +31.1 -33.5 +155.3 +11.5 +65.4 -20.2 -22.9 +18.1 +274.5 +13.8 +32.2 +5.9 +28.5 -49.0 +14.5 -50.7 -27.9 -22.7 +0.5 -35.9 -37.8 +14.1 -2.8 +15.3 +271.0 +19.4 Consumer Disc APN News & Media Aristocrat Leisure Austar United Billabong Consolidated Media Crown David Jones Fairfax Media Flight Centre Fleetwood Corp GUD Holdings Harvey Norman InvoCare JB Hi-Fi News Corp Pacific Brands Seven Network STW Communications Tabcorp Holdings Tatts Group Ten Network Holdings Wotifcom Holdings Price last 28/10/11 1285.0 $0.88 $2.29 $1.18 $4.29 $2.78 $8.26 $3.52 $0.96 $19.97 $11.90 $7.82 $2.16 $6.96 $16.62 $16.85 $0.61 $7.77 $0.89 $2.99 $2.38 $0.92 $3.74 4Q 2011 +8.8 +4.2 +9.0 +1.7 +29.2 +15.8 +3.6 +16.6 +16.4 +17.5 +5.0 +9.7 0.0 +0.9 +9.3 +3.4 -9.0 -2.3 -1.7 +15.9 +6.7 +3.4 -5.8 % return over ... 3Q 2Q 2011 2011 -14.2 -36.1 -13.2 -13.8 -44.8 -8.0 -10.8 -25.6 -15.8 -21.4 0.0 -21.6 -13.3 -10.3 -11.0 -2.0 -3.6 -17.4 -12.2 -21.6 -7.1 -16.5 -15.4 -8.2 -15.4 -25.5 +2.3 -20.4 -7.4 +9.6 -14.5 -24.0 -3.0 -6.4 -5.0 -17.0 +8.6 -15.2 -6.8 -17.8 +7.1 -15.3 -24.6 +2.6 -18.8 -14.1 1Q 2011 -0.1 -19.6 +8.7 +37.7 -7.4 -9.6 -1.2 +6.5 -7.9 -10.1 -6.8 -4.0 +2.0 -2.7 +12.5 +11.3 -13.8 +2.2 +14.2 +5.3 -9.3 -7.8 +9.6 CY 2010 -8.3 -16.6 -25.6 -32.7 -25.6 +2.0 +2.6 -17.4 -19.5 +34.5 +62.6 +10.9 -30.3 +18.2 -20.8 -10.4 -13.3 +27.4 +41.3 +2.3 +10.8 -10.4 -28.3
Materials Adelaide Brighton Alumina Ltd Amcor Aquarius Platinum Atlas Iron Limited BHP Billiton BlueScope Steel Boral Fortescue Metals Gindalbie Metals Ltd Gunns Iluka Resources Incitec Pivot Independence Group James Hardie Indust Kagara Ltd Kingsgate Consolid. Lynas Corporation Macarthur Coal Minara Resources Mincor Resources Mount Gibson Iron Murchison Metals Newcrest Mining Nufarm OM Holdings Limited OneSteel Orica PaperlinX Platinum Australia Rio Tinto Sims Group St Barbara Limited Sundance Resources Western Areas NL
Cons Staples Coca-Cola Amatil Foster's Group Goodman Fielder Metcash Wesfarmers Woolworths
7,620.3 $12.35 $5.32 $0.56 $4.21 $32.69 $23.82
+0.8 +3.5 +0.8 +16.7 +2.4 +3.5 -4.2
-4.2 +4.5 +2.5 -51.3 -1.0 -0.8 -10.4
+2.1 -2.7 +23.4 -13.8 -0.2 +0.2 +3.2
+0.2 +8.1 +0.7 -8.6 +1.2 -0.7 -0.3
-1.2 -5.8 +3.3 -17.5 -8.1 +2.3 -3.7
Health Care Ansell Cochlear CSL Ltd Ramsay Health Care ResMed Inc Sigma Pharma Sonic Hlthcare
7,717.6 $14.00 $58.78 $29.08 $18.76 $2.65 $0.71 $11.08
+1.5 +7.2 +26.7 -2.0 -1.3 -9.9 +9.2 -2.8
-11.1 -7.8 -35.6 -10.2 +4.5 +2.4 +22.6 -11.4
-3.8 +4.7 -13.2 -7.5 -4.8 -1.4 +56.6 +7.4
-0.5 +6.6 +3.2 -1.5 +7.2 -16.6 +22.5 +3.3
+2.1 +16.0 +16.4 +11.7 +63.5 +17.7 -59.6 -24.5
Inform Tech Computershare DWS Advanced GBST Iress Oakton SMS Mgmt & Tech Technology One
495.3 $7.56 $1.30 $0.94 $7.65 $1.75 $5.50 $1.03
+3.0 +1.2 +7.4 -3.1 +9.3 -0.6 +1.7 -3.7
-14.0 -15.8 -8.3 +21.3 -22.3 -15.8 -14.1 +4.9
-4.8 -4.2 -8.7 -20.0 -3.6 -9.1 -2.6 +6.3
-8.8 -14.1 +2.4 +7.5 +7.5 -3.4 -2.9 0.0
-4.2 -5.9 -7.8 -3.6 +1.6 -24.7 +18.7 +18.2
Source: RBS, IRESS
162
Absolute performance to 28 Oct 11

Stock/sector Price last 28/10/11 3,400.6 $1.35 $1.38 $1.58 $2.69 $1.89 $3.31 $0.29 $7.92 $6.77 $4.29 $0.55 $2.48 $2.98 $1.01 $2.32 $0.10 $1.14 $22.40 $0.64 $3.41 $18.60 $0.56 $1.55 $6.26 $2.05 $4.94 $2.28 $0.69 $5.31 $13.63 $0.36 $32.69 4Q 2011 +8.1 0.0 +1.5 +8.6 +20.6 +4.1 +26.3 +28.9 +20.0 +4.6 -1.6 0.0 +6.4 +3.8 +3.1 +16.0 +6.4 +12.4 +19.9 +5.8 +5.6 +6.9 -15.2 +9.6 +17.7 +14.2 +12.0 +20.3 +11.3 -2.0 +19.1 +12.5 +3.5 % return over ... 3Q 2Q 2011 2011 -11.0 0.0 -49.1 -11.6 -21.8 -5.5 -34.3 -25.0 -17.1 -10.4 -15.3 +18.5 -19.7 -22.4 -13.3 -27.3 -32.9 -15.5 -10.4 +7.1 -3.3 -5.4 +6.5 -23.4 -17.4 -23.0 -9.1 -43.4 -23.9 +3.6 -17.6 +14.3 -0.8 -6.1 -25.4 -14.7 -5.7 -14.9 +0.3 -14.7 -22.1 +1.4 +2.0 -6.7 +1.1 -11.6 -2.4 -7.0 -16.9 -84.9 -21.9 -27.7 -0.9 +9.9 -14.0 -15.6 -15.6 -4.7 +20.1 -18.2 0.0 -27.2 -2.6 -11.5 -11.1 +0.2 Stock/sector 1Q 2011 +0.8 -25.2 +19.4 +9.1 +8.8 +1.9 +2.6 0.0 -12.9 -0.6 -5.5 +7.1 -34.9 -14.5 +17.4 +7.8 -3.1 -18.0 -4.2 +7.6 +1.7 +16.9 -21.0 -14.2 +2.0 -7.6 +3.5 -0.3 -17.6 +4.9 +8.7 -26.7 -0.7 CY 2010 -6.7 -41.7 -43.6 -12.4 -32.5 +5.6 +28.5 -7.2 +32.1 +5.0 -2.8 -2.3 -6.9 -50.9 +36.7 -3.8 -49.6 -8.6 -19.2 -14.6 +2.8 +27.8 +20.0 -15.1 -3.9 -28.8 -34.4 -18.8 +0.4 -7.1 +1.0 -27.1 +2.3 Finan ex Prop Aust Educ Trust AMP Ltd ANZ Banking Aust Secur Exch Bank of Qld Bendigo Bank Comm Bank Challenger Fin Cromwell Corp Equity Trustees FKP Property IAG IOOF Holdings Lend Lease Corp Macquarie Bank NAB Oaks Hotels Perpetual QBE Insurance Suncorp Sunland Group Treasury Group Trinity Group Trust Company Westfield Group Westpac WH Soul Patt WHK Group Energy Aust Wwide Expl Caltex Aquila Res Beach Carnarvon Eastnstar Extract Karoon Linc Enrgy Molopo Nexus Energy Resource Gloucester Coal Horizon Oil New Hope Corp Oil Search Origin Energy Paladin Roc Oil Santos Woodside WorleyParsons Price last 28/10/11 4,879.1 $0.88 $4.38 $22.08 $30.46 $8.56 $9.70 $49.96 $4.60 $0.66 $13.15 $0.49 $3.20 $6.36 $7.93 $25.15 $25.99 $23.41 $15.17 $8.72 $0.87 $3.65 $0.20 $5.63 $7.68 $22.68 $13.80 $0.84 14,059.4 $1.39 $13.65 $6.18 $1.21 $0.14 $0.90 $7.85 $4.53 $2.14 $0.71 $0.23 $2.06 $7.00 $0.24 $5.97 $6.47 $14.50 $1.57 $0.30 $13.20 $36.00 $28.12 4Q 2011 +12.0 +1.7 +10.9 +13.1 +0.4 +19.1 +14.3 +9.7 +8.2 -1.5 +13.4 +7.8 +6.0 +16.9 +12.6 +10.0 +16.2 +12.3 +17.8 +9.3 +13.7 +14.1 +2.6 +6.2 -0.9 +11.5 +7.8 +1.8 +12.7 +33.8 +26.0 +24.1 +11.0 -3.4 +16.1 +2.9 +58.9 +11.5 0.0 +60.7 -29.5 +3.7 +27.0 +10.8 +14.3 +8.2 +28.8 -3.2 +16.1 +10.8 +6.9 % return over ... 3Q 2Q 2011 2011 -12.7 +8.1 -19.2 -11.3 -0.4 -12.0 -4.2 -12.9 -13.1 -2.9 -16.5 -35.7 -11.2 -17.6 -21.5 -26.8 -12.7 0.0 -16.4 -25.3 -2.0 +24.4 -19.2 +8.3 -3.6 -10.5 -8.6 -2.3 -10.9 -17.3 -18.8 -7.9 -30.5 +19.1 -17.1 +28.1 -3.5 -45.5 -33.1 -6.6 -57.6 -28.8 -20.5 -44.8 +3.3 -14.9 -15.1 -51.8 -3.1 -16.0 -20.8 -6.9 -5.1 -0.6 -9.9 -7.6 -11.5 -17.6 -7.0 -0.2 -0.8 -2.1 -11.5 -17.6 -5.3 -9.0 -1.1 -14.6 -0.9 +43.1 -14.3 -2.4 -4.0 -11.5 -13.9 +38.5 -10.9 -7.3 -8.5 +3.6 -4.2 -11.1 -26.5 -24.6 -23.2 -5.7 -48.5 -19.9 +0.1 -27.0 -1.7 -15.1 -28.2 -48.4 -21.7 -9.5 +4.8 -6.6 -2.7 -30.2 -19.0 -12.9 -12.4 -8.8 1Q 2011 +3.8 -6.2 +2.6 +2.0 -8.7 -4.5 -4.2 +3.2 +4.9 -7.2 -0.6 -0.6 -7.5 -7.1 +5.1 -1.1 +9.1 +18.0 -6.8 -2.6 -1.5 -7.3 -8.0 +23.8 -2.1 -2.5 +9.5 +0.4 -11.1 +5.3 -2.0 +8.6 -5.2 +12.1 -28.4 -6.2 -16.0 -2.6 +10.2 -15.6 +7.9 -28.6 -10.9 +25.4 +2.7 +1.1 +0.2 -26.8 -3.7 +18.3 +10.0 +15.9 CY 2010 -9.7 +81.4 -21.9 +2.1 +7.8 -9.7 +1.1 -7.4 +11.1 +4.1 -12.2 +8.2 -3.7 +28.5 -13.0 -23.5 -13.5 -25.6 -15.9 -29.1 -0.9 -9.1 -6.5 -22.2 -2.8 -2.2 -12.2 -6.3 +0.9 -0.0 -36.8 +54.5 -2.5 -6.0 -22.8 -2.4 +13.0 -30.7 +75.4 -19.0 +41.3 -53.4 +35.7 -19.2 +6.0 +14.8 -1.0 +17.9 -38.8 -6.7 -9.8 -8.0
Industrials AJ Lucas Group Alesco Corporation Asciano Group Ausenco Limited Aust Infrastructure Boart Longyear BOOM Logistics Bradken Brambles Cabcharge ConnectEast CSR Ltd Downer EDI Emeco Holdings GWA Intl Hastie Group Limited Hills Industries Leighton Macmahon Hldgs Macq Airports Monadelphous Grp PMP Qantas Airways SEEK Spotless Group Toll Holdings Transfield Svcs Transpacific Transurban United Group Virgin Blue Holdings Wesfarmers
Infra & Utilities AGL Energy APA Group DUET
Energy Wld
Envestra Hastings Diversified SP AusNet Spark Infra
4,380.4 $14.53 $4.29 $1.68 $0.57 $0.66 $1.61 $1.02 $1.18
+2.6 +1.6 +5.9 +3.4 +9.7 -1.5 +4.2 +9.1 -5.2
-2.7 -2.4 -0.5 -3.9 +3.0 -3.6 -2.2 -1.1 -3.5
+3.2 +2.4 -3.3 +1.5 +3.1 +15.0 -1.3 +7.4 +15.2
-3.7 -6.0 +4.0 -0.6 -14.9 +14.3 -5.3 +1.1 -1.3
+2.0 +8.3 +15.7 -6.4 +44.3 +2.9 +53.6 -4.9 -18.1
Telecoms Amcom Hutchison Telecom iiNet Singapore Tel. Telecom NZ Telstra Corporation TPG Telecom
1,064.5 $0.83 $0.06 $2.57 $2.43 $1.94 $3.11 $1.46
+0.1 +6.5 +1.7 +17.9 -2.8 -5.4 +0.3 +2.8
+7.1 -30.2 -14.7 -16.5 +11.2 +9.8 +7.3 -15.7
+3.1 +10.4 -26.9 -1.5 +3.5 +27.0 +2.5 +0.9
+0.4 +1.5 -6.1 -8.6 -1.7 -9.8 +1.1 +2.5
-18.4 +17.9 -17.5 +55.9 -4.9 -18.8 -18.7 -2.1
S&P / ASX 100 S&P / ASX 200 S&P / ASX 300

Source: RBS, IRESS
3,550.3 4,353.3 4,349.1
+8.5 +8.6 +8.6
-13.1 -13.0 -13.1
-4.5 -4.8 -5.0
+2.3 +2.0 +1.9
-3.4 -2.6 -2.2
163
Recommendation structure
Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more from the suggested entry price range, and a Trading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading recommendation time horizon is 0-60 days. Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For UK Small/Mid-Cap Analysis a Buy/Sell implies upside/downside of 10% or more, an Add/Reduce 5-10% and a Hold less than 5%. For UK-based Investment Funds research the recommendation structure is not based on upside/downside to the target price. Rather it is the subjective view of the analyst based on an assessment of the resources and track record of the fund management company. For listed property trusts (LPT) or real estate investment trusts (REIT) the recommendation is based upon the target price plus the dividend yield, ie total return. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Sector relative to market: The sector view relative to the market is the responsibility of the strategy team. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value.
Distribution of recommendations
The tables below show the distribution of recommendations (both long term and trading). The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where there is an investment banking relationship. These numbers include recommendations produced by third parties with which RBS has joint ventures or strategic alliances.
Long term recommendations (as at 28 Oct 2011)

Global total (IB%) Buy Hold Sell Total (IB%)
Source: RBS
Trading recommendations (as at 28 Oct 2011)

Global total (IB%) Trading Buy Trading Sell Total (IB%)
Source: RBS
Asia Pacific total (IB%) 563 (3) 230 (4) 51 (0) 844 (3)
Asia Pacific total (IB%) 2 (50) 1 (0) 3 (33)
862 (11) 424 (7) 91 (5) 1377 (10)
2 (50) 1 (0) 3 (33)
Regulatory disclosures
Subject companies: GMG.AX, CMJ.AX, AQA.AX, TPI.AX, KCN.AX, MQG.AX An analyst or a member of any analyst's household who participated in the preparation of this report has a shareholding/financial interest in this company.: MQA.AX RBS trades or may trade as principal in the debt securities that are the subject of the research report.: OSH.AX, TEL.NZ This publication is intended for informational purposes only and the opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures and/or options. Past performance is not necessarily indicative of future results. The risk of loss associated with futures and options trading can be substantial. Any recipient of this document wanting additional information or to effect any transaction in futures markets in the US should contact the registered futures commission merchant, RBS Securities Inc., located at 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700.: OSH.AX, STO.AX RBS was a lead manager of a public offering of securities for this company in the previous 12 months.: AIO.AX, DOW.AX RBS Morgans Corporate Limited is a participating broker to the public offer of ANZ CPS3 by Australian and New Zealand Banking Group Limited and may receive fees in this regard. : ANZ.AX RBS has been appointed as Lead Arranger for a debt financing transaction by Linc Energy Limited: LNC.AX This publication is intended for informational purposes only and the opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures and/or options. Past performance is not necessarily indicative of future results. The risk of loss associated with futures and options trading can be substantial. Any recipient of this document wanting additional information or to effect any transaction in futures markets in the US should contact the registered futures commission merchant, RBS Securities Inc., located at 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700.: IAU.AX RBS Morgans Corporate Limited was the Lead Manager and Underwriter to the Intrepid Mines Limited share placement in November 2010 and received fees in this regard.: IAU.AX This publication is intended for informational purposes only and the opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures and/or options. Past performance is not necessarily indicative of future results. The risk of loss associated with futures and options trading can be substantial. Any recipient of this document wanting additional information or to effect any transaction in futures markets in the US should contact the registered futures commission merchant, RBS Securities Inc., located at 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700.: OGC.AX This publication is intended for informational purposes only and the opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures and/or options. Past performance is not necessarily indicative of future results. The risk of loss associated with futures and options trading can be substantial. Any recipient of this document wanting additional information or to effect any transaction in futures markets in the US should contact the registered futures commission merchant, RBS Securities Inc., located at 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700.: ORG.AX, OSH.AX, RIO.AX RBS trades or may trade as principal in the debt securities that are the subject of the research report.: OSH.AX This publication is intended for informational purposes only and the opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures and/or options. Past performance is not necessarily indicative of future results. The risk of loss associated with futures and options trading can be substantial. Any recipient of this document wanting additional information or to effect any transaction in futures markets in the US should contact the registered futures commission merchant, RBS Securities Inc., located at 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700.: OGC.AX RBS has been appointed as Joint Bookrunner for an unrated offshore RMB (CNH) Reg S notes offering of up to USD350m by Melco Crown Entertainment Limited: MPEL.O An analyst or a member of any analyst's household who participated in the preparation of this report has a shareholding/financial interest in this company.: MQG.AX
Daily Bulletin | Disclosures Appendix |31 October 2011
164
Global disclaimer
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Any U.S. recipient of these Materials that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this Material, should contact and place orders solely through a registered representative of RBS Securities Inc., 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700. RBS Securities Inc. is an affiliated broker-dealer registered with the U.S. Securities and Exchange Commission under the Exchange Act, and a member of the Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FINRA). - Material means all research information contained in any form including but not limited to hard copy, electronic form, presentations, e-mail, SMS or WAP. _______________________________________________________________________________________________________________________________________ The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. _______________________________________________________________________________________________________________________________________ For a discussion of the valuation methodologies used to derive our price targets and the risks that could impede their achievement, please refer to our latest published research on those stocks at research.rbsm.com. Disclosures regarding companies covered by us can be found on our research website. Please use research.rbsm.com for Equity Research and http://strategy.rbsm.com/disclosures for FICC Research. Our policy on managing research conflicts of interest can be found at https://research.rbsm.com/Disclosure/Disclosure.AspX?MI=2. Should you require additional information please contact the relevant research team or the author(s) of this Material.
Daily Bulletin | Disclosures Appendix |31 October 2011
165
RBS Equities (Australia)

Randolf Clinton, Head of Equities +61 2 8259 5247
RESEARCH
Michael Morrison, Head of Research DATABASE & QUANT Thiva Nagaratnam, CFA Stuart Nielsen Eben van Wyk, CFA STRATEGY, ECONOMICS & ESG Dr Alva DeVoy Daniel Blake Jonathon Brycki Kieran Davies FINANCIALS, INSURANCE Andrew Lyons John Buonaccorsi Richard Coles Ashley Dalziell Michael Leonard MEDIA & TELCOS Fraser McLeish Ian Martin Alan Stuart Ashley Wallace GAMING, FOOD & BEVERAGE Michael Nolan Alexander Beer RETAILING Daniel Broeren Chris Cable HEALTHCARE Dr Derek Jellinek Elliott Crane +61 2 8259 5832 +61 2 8259 5373 +61 2 8259 5849 +61 2 8259 5492 +61 2 8259 5831 +61 2 8259 5016 +61 2 8259 6831 +61 2 8259 5171 +61 2 8259 6086 +61 2 8259 5660 +61 2 8259 5728 +61 2 8259 5039 +61 2 8259 5767 +61 2 8259 5543 +61 3 9612 1585 +61 2 8259 5834 +61 2 8259 6356 +61 3 9612 1316 +61 2 8259 6834 +61 2 8259 5381 +61 2 8259 6722 +61 2 8259 5848 +61 2 8259 6729 ENERGY, UTILITIES & INFRASTRUCTURE Jason Mabee, CFA William Allott Philipp Kin Michael Newbold, CFA TRANSPORT Mark Williams Michael Newbold, CFA RESOURCES, STEEL & COMMODITIES Lyndon Fagan Sam Berridge Todd Scott Tom Sartor Phillip Chippindale Warren Edney Nick Moore MID/SMALL CAPS Julian Guido Matthew Nicholas Brewin Kwong Michael McNair SMALL CAPS RBS MORGANS Roger Leaning Chris Brown Fiona Buchanan Nick Harris Josephine Little Belinda Moore Scott Power Tom Sartor James Wilson +61 2 8259 5380 +61 2 8259 5348 +61 2 8259 6080 +61 2 8259 5663
+61 2 8259 6921 +61 2 8259 5663
+61 2 8259 5870 +61 2 8259 5955 +61 2 8259 5865 +61 7 3334 4503 +61 2 8259 6859 +61 3 9612 1557 +44 207 678 0555
+61 2 8259 5838 +61 2 8259 6168 +61 2 8259 6891 +61 2 8259 2089
BASICS (Agriculture, Builders, Chemicals, Developers, Paper, Property) Andrew Hodge +61 2 8259 6608 Andrew Scott +61 2 8259 5847 Belinda Moore +61 7 3334 4532 Niraj Shah, CFA +61 2 8259 5836 Tony Sherlock +61 2 8259 5548
+61 7 3334 4554 +61 7 3334 4885 +61 7 3334 4879 +61 7 3334 4557 +61 7 3334 4505 +61 7 3334 4532 +61 7 3334 4884 +61 7 3334 4503 +61 8 6462 1974
DISTRIBUTION
Nick Caughey, Head of Sales SYDNEY Research Sales Nick Caughey Sandy Isherwood Scott Ramsay James Ledgerwood Specialist Sales Michael McNair (Small Caps) Richard Hitchens (Quant) Corporate Broking/Access Georgina Wells Sales Trading Justin Gallagher Tony James Tom Sullivan William Tietjens Program Trading Jason Milliss Facilitation Rod Killick Peter Pennisi Derivative Sales Richard Brasher Robert Gibson Alan Issers +61 2 8259 2028 Hedge Fund Sales Aaron Lagerlow Ankon Rahman Andrew Watson +61 2 8259 2082 +61 2 8259 2088 +61 2 8259 2076
+61 2 8259 2028 +61 2 8259 6897 +61 2 8259 2087 +61 2 8259 6825
+61 2 8259 2089 +61 2 8259 6030
MELBOURNE Research Sales James I Smith Andrew Chirnside Sales Trading Mark Hendel David Harris Marianna Saliba
+61 3 9612 1360 +61 3 9612 1353
+61 2 8259 6896
+61 3 9612 1356 +61 3 9612 1454 +61 3 9612 1362
+61 2 8259 2062 +61 2 8259 2030 +61 2 8259 5170 +61 2 8259 6820
LONDON David Schiller Pamela Tironi
+44 20 7678 5475 +44 20 7678 6573
+61 2 8259 5357
+61 2 8259 2026 +61 2 8259 2038
NEW YORK Stuart Nutting Sanjay Magotra Tom Roberts
+1 203 897 4803 +1 203 897 1520 +1 203 897 1539
+61 2 8259 2005 +61 2 8259 2003 +61 2 8259 6829
ASIA Mark Skocic Daniel Baker Woon Millen (Regional)
+61 3 9612 1355 +852 3988 7814 +61 2 8259 5260
E-MAIL ADDRESSES
firstname.surname@rbs.com
ONLINE RESEARCH
http://research.rbsm.com
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Equity | Australia

Produced and issued by: RBS Equities (Australia) Limited

Andrew Hodge (+61 2 8259 6608)

Fraser McLeish (+61 2 8259 5543)

Julian Guido (+61 2 8259 5838)

Sam Berridge (+61 2 8259 5955)

Rec& EPS% TP&

Roger Leaning (+61 7 3334 4554) RBS Morgans

Rec% EPS% TP&

Where Bris Bris

Time 10.00am 10.00am

Sam Berridge (+61 2 8259 5955)

Phillip Chippindale (+61 2 8259 6859) 109

Jacques Cailloux (+44 7702 938 698) 113

Jeannette Sim (+852 3988 7186)

1H = interim, 2H = final; SP = special Source: IRESS

Philip Tulk (+852 3988 7189)

Global Action Pack

Important disclosures can be found in the Disclosures Appendix.

IN BRIEF STRATEGY & ECONOMICS

Weekly topical thoughts

Kieran Davies (+61 2 8259 5171)

Goodman Group (A$0.62) Buy TP A$0.81

Andrew Hodge (+61 2 8259 6608)

Consolidated Media (A$2.66) Hold& TP A$2.68

Fraser McLeish (+61 2 8259 5543)

Australia Small/Mid Caps

Julian Guido (+61 2 8259 5838)

Aquila Resources (A$6.18) Sell& TP& A$5.12

Sam Berridge (+61 2 8259 5955)

Transpacific Industries (A$0.69) Buy% TP& A$0.79

Roger Leaning (+61 7 3334 4554)

Kingsgate Consolidated (A$7.97) Hold TP& A$7.77

Sam Berridge (+61 2 8259 5955)

OceanaGold (A$2.45) Buy TP A$2.88

Phillip Chippindale (+61 2 8259 6859)

Daily Bulletin | 31 October 2011

IN BRIEF (contd) GLOBAL

Jeannette Sim (+852 3988 7186)

Melco Crown Ent

Philip Tulk (+852 3988 7189)

Global Action Pack

* Extract. For further details please refer to our website (http://research.rbsm.com/Research).

Daily Bulletin | 31 October 2011

Produced by: RBS Equities (Australia) Limited

Feb-11 Mar-11 Long

Source: IRESS, RBS

Important disclosures can be found in the Disclosures Appendix.

Table 2 : Capital Goods

Australia Strategy | Analysis | 28 October 2011

Table 6 : Food & Beverages

Table 7 : Health care

Australia Strategy | Analysis | 28 October 2011

Table 9 : Insurance/Diversified Financials

Table 10 : Materials Resources (large-cap)

Table 11 : Materials Resources (mid-cap)

Table 12 : Materials Steel

Australia Strategy | Analysis | 28 October 2011

Table 13 : Basic Materials

Australia Strategy | Analysis | 28 October 2011

Table 18 : Small Caps defensive pair

Table 19 : Small Caps cyclical pair