HSBC Investment Edge

Investment Edge©

An evolutionary & detailed database on Australian companies

October 1997 Australia Portfolio research

ContactAndrew DalzielBrisbane +61-7-3223 7899

ContactColin RitchieMelbourne +61-3-9229 3572

ContactMark WiseNew York +1-212-658 4055

ContactBruce BellLondon +44-171-283 6141

ContactCharles WittenoomHong Kong +852-2996 6711

Our compact disk (CD) product – symbolically named Investment Edge© –has been exclusively produced for the benefit of clients of HSBC JamesCapel. This is Version 2.0.

Investment Edge© represents a novel and dynamic approach to analysisof Australia’s major publicly listed industrial and resources companies.It has been designed, developed and produced by the Research Team atHSBC James Capel Australia.

This is a forerunner product among electronically-based researchservices for the investment community, and hence the Investment Edge©

name to reflect the advantages offered by this new service-orientedproduct.

The key benefit of this CD disk is that it is dynamic: it allows users tomanipulate the extensive text and numerical database to their specificinvestment and research needs, and to update all price-drivenapplications of the product.

Investment Edge© gives easy access to current, historical and user-generated information relating to a particular stock, or range of stocks.This enables ready comparison of performance across a broad spreadof investment parameters, thereby enhancing the all-important stockselection process.

This is the package you have received: adistinctive design to denote a distinctiveproduct. While Investment Edge© may appearsimilar to other CD products, it provides fargreater depth of research, allowing you to“mine” and manipulate the HSBC James Capeldatabase to suit your needs.

Investment Edge © is a companion product to HSBC James Capel’s CD product Pathfinder © (Versions 1.0 and 2.0), a detaileddynamic database on Australian small capitalisation companies.

Research text menu

Investment Edge© carries a full archive of all HSBC James Capel Australia’spublished research (since May 1996). The menu system is laid out simply,containing the date, company name, market sector, document type and globalextracts from published research.

General research

This section gives a date ordered view of the research. Initially presentedwith the previous day’s research, the investor is able to scan throughtitles that were published over a specific date range. If the desiredheadline is found, a single mouse click will present a synopsis of thefull article, or the investor can choose to read the entire article by pressingthe [View] button. This facility is available in all the Research text menusdetailed below.

Stock research

This section allows for the selection of all articles on a company. Thisnot only refers to articles directly written about the company, but alsoencompasses those articles which may reference that company.

Sector research

The Australian sharemarket has 24 sectors, as defined by the AustralianStock Exchange (ASX). The Broken Hill Proprietary Co Ltd (BHP), forinstance, has been classified in the Diversified Resources sector. However,BHP has substantial oil and gas interests. Hence, if a BHP publicationcontains detail on oil and gas, it is not only associated with theDiversified Resources sector but also with the Energy sector. In theexample below, Metal Manufactures Ltd (MMF) has been selected fromthe Diversified Industrials sector.

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General research

Stock research

Sector research

Publication type

General search

Global comments

Stocks covered

MethodologyCompany menu

Portfolio menu

Strategy/economicsAnalysis tools

Price update

Extra links

About us

Disclaimer

Research text menu

Right-hand mousebutton

In almost all the screens theright-hand mouse buttoncan be used. Typically,sorting and filtering of thedata is available. Just placethe mouse over the columnon which you wish towork, and press the right-hand mouse button.

Publication type

HSBC James Capel produces a series of regular publications, such asTalking Small, which encompasses all small industrial companies.Below are some of the document types that can be accessed throughthis screen:

Talking Small – a weekly review of the small companies sector.Capel Communications – a fortnightly review of the media sector.Trust Deeds – a weekly review of the property trust sector.Mining Monthly – a global commodity outlook (ex-London).Australian Economics, Strategy & Equity Review (The Red Book) – a bi-monthly economic and market strategy wrap.Redtops – daily and periodical news and reviews of sector and companyevents (such as company announcements, drilling results, and so on).Morning Call – a concise daily amalgam of global and domesticresearch, including a snapshot of the previous day’s Australian marketaction and London Metals Exchange prices.

General search

This screen displays headlines of all published research for allcompanies in a selected sector, company and/or analyst for a selecteddate range (default = 1 year) with selected keywords. Enter a companycode, or if you do not know the code click the [?] button to select thecode via the company name. Select a sector by clicking in the sectorselection list box or [All] for all sectors. Select an analyst by clicking inthe analyst selection list box. Enter a keyword that you wish to searchon. Change the date range by clicking on the date part that you wish tochange (eg. click on [from year] to change the starting year) then clickon the up/down arrows to change the date. When you have changedyour date range (if applicable) and sector, click the [Get data] button toretrieve the headlines. By clicking on a line, a synopsis of the article isdisplayed in the bottom half of the screen. If applicable, clicking the[View] button or double-clicking will display the full text of the report.

Global comments

This section contains a synopsis of all global articles produced by theHSBC James Capel group which are pertinent to the Australian market.These articles are taken from HSBC James Capel Australia’s dailyMorning Call product, which has been built to give fund managers aconcise view of the Australian market within a global context.

It is anticipated that in future, full articles from other members of theHSBC James Capel group will be available via this product.

Stocks covered

This screen displays analyst coverage of stocks coupled with the sectorand the level of coverage of that company. Full model coverage includesa detailed half-year profit and loss, balance sheet and cash flow break-downs with all investment ratios and selected graphs. Earnings forecasts

provide full-year earnings numbers and selected investment ratios. Entera company code, or if you do not know the code click the [?] button toselect the code via the company name, or click the [All] button to displayall companies.

Methodology

This screen (as shown below) details HSBC James Capel Australia’sinvestment recommendation methodology.

Viewing entire articles

Investment Edge© utilises Adobe Acrobat© to view “as printed” publications. Within Acrobat, full text searchesare available, as well as the ability to copy sections of the publication for personal distillation. Graphs andtables can also be extracted from the document via the Copy command.

Company menu

Detailed company data, ratio analysis and sensitivities for “what if?”calculations are just part of the functionality available through the companymenu. Stock, sector, and portfolio data can all be viewed, compared and “slicedand diced”.

Earnings

This screen displays the full-year earnings estimates (“E”) and actuals(“A”) together with the latest recommendation and price at which thatrecommendation was last set/confirmed. Net Present Value statisticsare also shown for resources companies. To display earnings data for acompany, enter the company code in the company box. If you do notknow the code click the [?] button to select the code via the name. Clickthe [Get company] button to retrieve the data for the selected company.Where highlighted, this data is supplemented with I/B/E/S* consensusforecasts.

In the example below, Pacific Dunlop Ltd (PDP) has been selected as at19 March 1997. Shown are four years of actual earnings and three yearsof earnings estimates, plus accompanying key investment ratios.

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Research text menu

Earnings

Model

Company overview

Securities data

Ratio analysis

Sensitivities

Quant analysis

I/B/E/S/ comparisonPortfolio menu

Strategy/economicsAnalysis tools

Price update

Extra links

About us

Disclaimer

Company menu

* We choose to use I/B/E/S International (I/B/E/S = Institutional Brokers EstimateSystem) data because of its timeliness and accuracy.

Model

This group of screens provides a detailed look at the data which underlies theInvestment Edge© product. They allow the viewing of profit and loss, balancesheet, and cash flow statements as well as some simple investment ratios.

Profit & loss

This screen displays the Profit & Loss break-down for a selected company.Details include sales, depreciation, interest, tax, preference dividendsand abnormals. Enter a company code, or if you do not know the codeclick the [?] button to select the code via the company name. Move theright-hand horizontal scroll bar to change the years displayed. Click the[Half yearly] button to display half-yearly break-downs. Total columnsare highlighted.

Balance sheet

This screen displays the Balance Sheet break-down for a selectedcompany. Details include cash, fixed assets, intangible asset break-down,current and non-current borrowings, as well as a break-down of equity.Enter a company code, or if you do not know the code click the [?]button to select the code via the company name. Move the right-handhorizontal scroll bar to change the years displayed. Click the [Halfyearly] button to display half-yearly break-downs. Total columns arehighlighted.

Cash flow

This screen displays the Cash Flow break-down for a selected company.The cash flow statement is broken into three sections. Cash flow fromoperations, investing and financing. Details include capex, borrowingsand equity raising. Enter a company code, or if you do not know thecode click the [?] button to select the code via the company name. Movethe right-hand horizontal scroll bar to change the years displayed. Clickthe [Half yearly] button to display half-yearly break-downs. Totalcolumns are highlighted.

Investment ratios

This screen displays a limited number of investment ratios for a selectedcompany. See the Ratio analysis screen for more detailed “slicing anddicing” of ratios. Enter a company code, or if you do not know the codeclick the [?] button to select the code via the company name. Move theright-hand horizontal scroll bar to change the years displayed. Click the[Half yearly] button to display half-yearly ratios.

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Research text menu

Earnings

Model

Company menu

Profit & loss

Balance sheet

Cash flow

Investment ratios

Segmental

Valuations

Segmental

This screen displays various supplementary graphs for full modelcoverage companies. Enter a company code, or if you do not know thecode click the [?] button to select the code via the company name. Eachgraph for this company is then entered in the graph selection list box –click to display. A default graph type and year is displayed. Each yearavailable to be graphed is then displayed in the year selection list box –click to display or click [All] to display all years. Various graph typesare available to choose from in the graph selection list box – click onthe graph type you wish to use, or select Tabular data to display theraw data.

If, for example, you would like to view EBIT contribution per division,try the segmental screen (as shown below).

Research text menu

Earnings

Model

Home page

Company menu

Outlook comments

SWOT analysis

Latest research

Background

Company overview

Company overview

This menu allows you to view textual analysis of companies by the analyst,as well as historical published research on a company.

Outlook comments

This screen displays the analyst’s outlook for a selected company. Entera company code, or if you do not know the code click the [?] button toselect the code via the company name.

SWOT analysis

This screen (shown below) displays the analysts Strengths/Weaknesses/Opportunities/Threats analysis for a selected company. Enter a companycode, or if you do not know the code click the [?] button to select thecode via the company name. Click on the applicable tab (Strengths/Weaknesses/Opportunities/Threats) to display.

Latest research

This screen displays headlines of all published research for a companyfor a selected date range (default is three months). Enter a companycode, or if you do not know the code click the [?] button to select thecode via the company name. Change the date range by clicking on thedate part that you wish to change (eg click on the [From year] to changethe starting year) then click on the up/down arrows to change the date.When you have changed the date range (if applicable) and company,click the [Get data] button to retrieve the headlines. By clicking on aline, a synopsis of the article is displayed in the bottom half of thescreen. If applicable, clicking the [View] button or double-clicking willdisplay the full text of the report.

Background

This screen displays the analyst’s overview of a selected company. Entera company code, or if you do not know the code click the [?] button toselect the code via the company name.

Securities data

This section encapsulates basic market data on the company. What were itshistorical and forecast dividends? Which securities does the company havelisted? When did the company last go to the market for an equity raising?

The answers to all these questions can be found in this section. We alsosupply headlines of ASX announcements to find specific events, for example,when the last quarterly results were reported.

Dividends

This screen displays historical dividend details for a company togetherwith the forecast half-yearly dividends for full model coverage researchstocks.

Capital changes

This screen displays historical capital changes details for a company,including rights and bonus issues, consolidations and splits and capitalreturns.

Securities

This screen displays current details of listed securities for a company.For instance, if The News Corporation Ltd (NCP) is chosen, then thenumber of listed securities for both the ordinary shares and preferenceshares will result.

Time series

This screen displays historical daily or monthly time series details for acompany over a selected date range. Enter a company code, or if youdo not know the code click the [?] button to select the code via thecompany name. Select either daily, or monthly, time series in the periodselection list box. This sets up a default date range which can bemodified by clicking on the part of the date that you wish to change,and then by clicking the up/down arrows next to the date to effect therequisite change. When all the options have been set, click the [Getdata] button to retrieve the time series.

Report headlines

This screen displays historical headlines of announcements releasedby a company to the ASX. We do not supply the full article, but thissection allows for quick scanning of past events.

Market indices

This screen displays each index of which the selected company is acomponent, together with the weighting of the company within the index.The DCF column displays the Double Counting Factor, which the ASXuses to determine the percentage of an international company listed onthe ASX to be used in weighting a company within an index. For example,Brierley Investments Ltd, a New Zealand-domiciled company isnotionally listed as having 45% of its market capitalisation within theAustralian market.

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DividendsCapital changes

Securities

Time series

ASX Headlines

Market indices

Research text menu

Model

Earnings

Company menu

Company overview

Securities data

Ratio Analysis

One of the pivotal components of Investment Edge©, the Ratio analysisscreen, allows viewing of multiple ratios over multiple stocks. There isvirtually no limit to the way data can be viewed.

What you get is what you see

The image below is a graphic representation of what an InvestmentEdge© user sees on screen. It shows clearly how interactive InvestmentEdge© can be, in this case, for the user undertaking ratio analysiscomparing price-to-cash flow ratios for Email Ltd (EML) and PacificDunlop Ltd (PDP). This chart was generated via the following five simplesteps:

Copying data

Charts and data can becopied into otherdocuments via the Editmenu. Choose Copy tocopy the data or Copygraph to copy the chart.

2. Selecting the desired ratio (or creatinga new one) - this product has 50 options

3. Selecting the type of chart(bar, line series, 3-D) -a choice of 16 options

4. Selecting a set of stocks -this product covers 175 stocks

1. Selecting Ratio analysisfrom Company menu

5. Clicking the Get data button

Other options allow the user to graph half yearly ratios, or consolidatethe data on the basis of averages for the companies selected (by either anarithmetic average or a market capitalisation weighted average).

Sensitivities

The Australian resources sector lends itself to varying profit forecasts,based on varying commodity and exchange rate assumptions. TheSegmentals tab within this section not only presents the sensitivities of astock to its commodities, but also lets the user test the impact of his/herown assumptions. A tally at the bottom of the screen gives the total impactto profit, while still presenting each line item.

The second tab both presents and allows modification of factors such assales growth, EBIT margins and tax rate.

Altering these factors yields new profit, EPS, and cash flow numbers.

Quant analysis

This menu allows you to view the Net Present Value break-downs for resourcesstocks and comparitive valuations for all stocks, and to display the growth insales, costs, interest, tax, net profit, earnings and cash flow per share overtime for a company. Click on the sub-menu description to invoke the requiredmenu item.

Valuations

This screen is divided into two tabs: in the NPV tab a Net Present Valuebreak-down on full model coverage of resources companies is displayed.For full model coverage companies a relative valuation is supplied inthe Market tab for the selected company, that company relative to stocksin its sector, that company relative to All Resources/All Industrialscompanies as applicable, and to the market as a whole. The FinancialYear End can be modified by clicking on the up/down arrows to re-calculate valuations over different years.

Growth drivers

This screen (shown below) graphs and displays the growth rates ofsales, costs, interest, tax, net profit and earnings and cash flow pershare over a number of years for a selection of stocks. To select acompany or companies to display, enter the company code. If you donot know the code click the [?] button to select the code via the companyname, then click the [Get data] button. A clear button is provided toreset the companies selected.

Valuations

Growth drivers

Home page

Research text menu

Company menu

Earnings

Model

Company overview

Securities data

Ratio analysis

Sensitivities

Quant analysis

I/B/E/S/ comparison

This screen is split into two tabs, the Group Analysis tab showing thegrowth rates for each stock together with an average growth rate for theyear, weighted by either the market capitalisation or unweightedaggregate growth. By double-clicking you can expand/collapse theinformation displayed so that the year averages are displayed only oreach individual stock and the year averages. An average of all years isdisplayed at the bottom of the screen. The Individual Analysis taballows you to graph the same information displayed for an individualcompany but in graphical form. This allows for a visual impression ofchanges in sales, costs, EBIT, interest, tax and profit.

Possible senarios to look for are: where has profit growth come from,and where is it now expected to be sourced? Which companies contributemost to growth in the future? How does sales growth compare toearnings growth and cash flow growth?

See the Individual Analysis for graphic details on a company.

I/B/E/S comparison

This screen compares HSBC James Capel analysts’ forecasts and I/B/E/Sconsensus forecasts. We choose to use I/B/E/S International consensusdata because of its timeliness and accuracy. For full details on I/B/E/Sdata, contact I/B/E/S International.

Portfolio menu

This menu provides earnings details of all companies covered by HSBC JamesCapel Australia and index component information. It allows you to designyour own portfolio and perform ratio and growth drivers analysis by portfolio,and sensitivity and production analysis by commodity. Click on the appropriatemenu option to display details.

Index weights

This screen displays the constituent stocks and percentage weightingwithin the All Ordinaries index of all ASX indices. The DCF columndisplays the Double Counting Factor, which the ASX uses to determinethe percentage of an international company listed on the ASX to beused in weighting a company within an index. For example, BrierleyInvestments Ltd, a New Zealand-domiciled company is notionally listedas having 45% of its listed market capitalisation within the Australiansharemarket.

Earnings table

This screen displays earnings estimates for all researched stocks.Earnings, Cash Flow and Dividend Yield are share weighted to givesector averages and an average for the sample as a whole, togetherwith our latest recommendations, recent performance history and NetPresent Value statistics. By clicking the right-hand mouse button, thestocks can be sorted and filtered to suit your requirements.

Altering portfolios

To alter a portfolio, change the weightings or [Copy] and [Paste] a new or adjusted portfolio. You can alsocreate a new portfolio through the Design Portfolio screen. Just take an existing portfolio, alter theweightings, filter out securities, and press the [Save Portfolio] button. The portfolio shown below is aportfolio containing stocks covered by our Small Companies team. For detailed analysis on Australiansmall companies, see our compendium product titled PATHFINDER© (Versions 1.0 and 2.0).

The screen is simple to use. Either start with anexisting portfolio or select a [New] portfolio. Alterthe weights, add or delete securities, then savethe portfolio as a new portfolio using the [Saveas] button. If you alter an exisiting portfolio, thenpress the [Modify] button.

The [Copy] button allows you to take the detailsfrom an existing portfolio, and paste them into aspreadsheet.

The [Paste] button allows you to copy securitiesand their weightings from an existing product, andpaste them into the Portfolio stocks table. Thisfunction contains a unique feature that allows youto replace all the securities and weightings in thePortfolio stocks table or to merge the newsecurities and weightings with existing ones.

Home page

Research text menu

Company menu

Portfolio menu

Index weights

Earnings table

Design portfolio

Ratio analysis

Growth drivers

Sensitivities

Production

Portfolio update

Design portfolio

The Design portfolio screen has several features. It allows for theviewing and manipulation of portfolio weights during scenario testing;it allows the checking of the characteristics of an existing portfolio; itallows for viewing a portfolio as an individual company; and it allowsfor the designing of a portfolio through filtering based on a desired setof characteristics.

TemplatesColumns, can be added, deleted, moved, re-sized, and described. Forinstance, to find out how dividend yield is calculated, click the right-hand mouse button over the column. The screen pictured left appears,showing that dividend yield equals dividend per share (adjusted fornew issues, etc) divided by the price of the security.

Once you have layed out the portfolio characteristics you wish to view,then save or modify the template, using the [Save New Template] or[Modify Template] buttons. We have supplied a few base templates,such as the Profit & Loss and Balance Sheet templates as startingpoints.

FilteringThrough the use of filters, a group of stocks can be isolated and chosenas a desired portfolio. The first level of filtering is simply throughchoosing a desired industry sector. If you wish to start with the entiremarket, this is possible through <All coverage>, but if you wish onlyto examine industrial stocks, then choose <Industrial coverage>. Inthe screen above we have chosen to look at stocks covered by HSBCJames Capel Australia’s Small Companies team (<Small Cap>).

The second level of filtering occurs through the use of the right-handmouse key. Their are two primary means of filtering. A normal filterand a colour filter. (See the insert below for details on colour filtering.)As shown at left, we have chosen to filter on a Cash Earnings Ratio(CER) of less than three (3) times.

By pressing the [Apply] button, you can immediately review the effectof the filter. This then allows for the changing of the filter to a greater orlessor extent to meet the desired results. Columns can also be sortedthrough single and multi-column sorts. Once the desired stocks havebeen highlighted through the filtering process, weighting’s can be alteredand the remaining stocks can be saved into a new portfolio using the[Save Portfolio] button. (See the insert Altering portfolios on page16 for more details.)

WeightThere are two columns that can not be altered. One is the companycode, and the other is the weighting factor. The weighting factor isused in some formulae to calculate the consolidated results. In thecase of Sales, the consolidated formula equals the sum of Sales for allthe companies, but in the case of EPS, the consolidated EPS is weightedby the weighting column. Using the ratio buttons at the top of thescreen, this weighting factor can be set to reflect a simple average, or toreflect the market capitalisation of the company, or most importantly toreflect the weightings of the portfolio. Even after setting the weighting’susing these radio buttons, the Weight column can be manuallyadjusted, allowing for on the fly testing such as setting a company tobe overweight/underweight its market weighting.

Colour Filter

One of the unique features of the Design portfolio screen is the ability to filter by usingcolour. The colour filter presents each filtered column in the form of traffic light colours.With a normal filter, the filtered data is no longer visible. Hence a stock just outside thedesired range for one column, but within the desired range of another is lost. The colourfilter, however, does not hide the filtered columns, but rather colour codes them.

As can be seen in this example, any stock witha price-earnings ratio (PER) of greater than 12times is coloured green. With a normal filter,all other stocks would be hidden. In the case ofthe colour filter, a second group of stocks wouldbe coloured amber. The remaining stocks arecoloured red. The colour filter has now visuallyfiltered the stocks, and has allowed stocks inthe amber range not to be lost in the filteringprocess.

Advanced formula manipulation

HSBC James Capel has supplied a series of popularmarket ratios. However, Investment Edge© allowsfor the creation of new formulae. Modifying anexisting formula, or creating a new formula can beachieved by selecting <Customise> in the drop-down formula box. From the pop-up screens, youcan quickly type in a new formula, such as a hybridof “Return on Assets” then save the formula as,say, “ROA - Type 1”. If you need some help in thisarea, please telephone us (see page 1). If we can’thelp you over the telephone, we will send you aformula update file which adds your own set ofratios.

When creating a new formula, be sure to click the>>> button, and adjust the consolidated formula.You will notice with Debt/Gross Cash Flow, thatthe consolidated formula results in a weightedvalue, whereas for sales the consolidated formularesults in an aggregation of sales ie SUM(SALES).Hence changing the weights in the Designportfolio screen does not alter the portfolio totalsfor sales, but does affect Debt/Gross Cash Flowtotals.

Ratio analysis

This screen graphs a variety of investment ratios for a portfolio ofcompanies. This screen allows the graphs to be tailored to meet yourneeds by allowing you to choose from one of the standard ratios suppliedin the ratio selection list box or to create your own ratio from our detailedyearly and half-yearly models, choose a graph type that best suits yourratio or consolidate a number of companies ratios into the one ratio,weighted by either an arithmetic average, market capitalisation weightedor weighted to the portfolio weight entered when the portfolio was lastcreated/updated.

To choose a ratio to graph, click in the ratio selection list box. A list ofratios is displayed, move up and down the ratios via the up and downarrows on the keyboard or click on a ratio to display. To create a newratio, click on the <Customise> ratio in the selection list box. To choosea graph type, click in the graph type selection list box and click on theappropriate graph type. Tabular data displays the numbers in textformat. To choose a portfolio of previously created companies, click inthe portfolio selection list box and click the selected portfolio, or click[New] to create a new portfolio. The [Show half] button, when clicked,graphs the half yearly ratios, the consolidated check box groups thecompanies ratios and weights them by either an arithmetic average(average button highlighted), market capitalisation (AMV) or portfolioweighted (set at portfolio creation time).

Growth drivers

This screen graphs and displays the growth rates of sales, costs, interest,tax, net profit and earnings and cash flow per share over a number ofyears for a selected portfolio of stocks. To select a portfolio to display,click in the Portfolio Selection list box and click the desired portfolio.This screen is split into two tabs, the Group Analysis tab shows thegrowth rates for each stock together with an average growth rate for theyear, weighted by either the portfolio weight, the market capitalisationor unweighted aggregate growth. By double-clicking you can expand/collapse the information displayed so that the year averages aredisplayed only or each individual stock and the year averages. Anaverage of all years is displayed at the bottom of the screen. TheIndividual Analysis tab allows you to graph the same informationdisplayed for an individual company.

Sensitivities

This screen displays each resources company, within a selectedportfolio, whose earnings are sensitive to foreign exchange orcommodity prices. Select a portfolio from the Portfolio selection boxor click the Market check box to select all companies within the market.Select a commodity from the Commodity selection list box. Coveredresources stocks sensitive to this are then displayed. By entering aprice in the override column, a calculation is performed displaying theimpact in net profit and earnings per share for the financial yeardisplayed. An override price for each individual company can also beentered. A total is provided at the bottom detailing the EPS variance asa result of any overrides entered.

Production

This screen displays each resources company and its production of aselected commodity. Select a commodity from the Commodity selectionlist box, and researched resources stocks producing this are thendisplayed. The screen is divided into two tabs, the first providing agraph of production over a number of years, and the second tabdisplaying the production numbers and a total production for each year.In the graph tab, a [Consolidate] button is provided to group the totalproduction by year for each company. Click this to display a consolidatedproduction graph. Care should be taken when interpreting these graphsto ensure that production numbers are available for a consistent numberof years for each company.

Portfolio update

This screen is used to assign codes to portfolios that have already beencreated. These can then be used to view weighted averages of thatportfolio as if it were a company. This code must be unique to thisportfolio and ASX company codes. Codes for HSBC James Capelsupplied portfolios and your own portfolios can be viewed via the [?]button wherever company codes are requested, then clicking thePortfolio check box. Once a code has been assigned to your portfolio,a weighted average "company" is created using your supplied

weightings. HSBC James Capel supplied portfolios utilise marketcapitalisation as the weighting factor. You can then use this code toview the weighted average portfolio in Growth Drivers, Ratio Analysisand Sales Sensitivities Analysis screens as if it were another company.In the Ratio Analysis screen you can graph your created ratios over youcreated portfolios versus a range of other companies or portfolios. HSBCJames Capel supplied portfolios also have weighted average profit &loss, balance sheet, cash flow and investment ratio break-downs.

Strategy/economics

This menu displays selected commodity and foreign exchange historicaland forecast information, as well as our Australian Economics, Strategy& Equity Review document (the "Red Book"). Click on the appropriatemenu option to display details.

Price assumptions

This screen displays the HSBC James Capel historical and forecastprices for selected exchange rates and commodities. Move the right-hand horizontal scroll bar to change the display of years.

The Red Book

This screen displays a headline for each Australian Economics, Strategy& Equity Review document. Click on a headline to highlight a report toview and click the [View] button or double click to display this report.

Stock trend earnings model

The stock trend earnings model is a new feature and has been includedas part of the September release of Investment Edge©.

Home page

Price assumptions

The Red Book

Stock trend earnings model

Company earnings model

International trend model

Index earnings model

Valuation data

Analysis tools

Extra links

About us

Disclaimer

Research text menu

Company menu

Portfolio menu

Strategy/economics

This model calls up sectors or portfolios and calculates for each stockappearing in it, how much trend earnings growth (beyond year two intoperpetuity) is required to justify current share prices, after discountingthe next two year’s forecast earnings per share (EPS) estimates. It doesthis by setting net present value (NPV) equal to the current share price,and then solving for the required residual growth rate for earnings intoperpetuity (on a nominal, per annum basis).

If necessary, the user can adjust the discount rate, which consists ofthe 10-year government bond yield plus an equity risk premium, and/orour analysts’ EPS estimates for years one and two (perhaps in an attemptto normalise earnings where this is felt to be necessary). A judgementcan then be made about whether the required hurdle trend growth rateis achievable. The lower the number the better, although well-managedcompanies need not be disqualified for having relatively higher rates ofgrowth priced into them. On average, nominal GDP growth of 5% to 6%might seem a reasonable market benchmark. Our analysts’ specific stockrecommendations are shown alongside and are based on more factorsthan this quantitative exercise alone. For each sector or portfolio, amarket-weighted and unweighted average appears at the bottom.

Company trend earnings and NPV

This section provides more flexibility at the individual stock level. Notonly is the required trend growth to perpetuity shown, but also therequired trend growth over a mid-term period of years selected by theuser. The latter is calculated for a given level of residual growth (againspecified by the user). It enables one to calculate, for example, acompany’s required 10-year growth rate beyond year two, if terminalgrowth is set at, say, 5%.

The user is given the option of discounting EPS, DPS or CFPS.

The model can also calculate an NPV for a company when the userspecifies set growth rates for the mid-term period and for the terminalperiod. It can answer questions such as: “What is the company worth ifit grows by 10% per annum for the next 15 years and by 5% per annumthereafter?” The user has complete freedom to alter our earningsestimates, the discount rate, the mid-term period of years and thegrowth rates applying to both time periods.

Applications for international equity markets

The model can also be applied to international equity markets bydiscounting index-earnings or index-dividends. It can answerquestions such as: “how much earnings (or dividend) growth is requiredover the next x years to justify the current level of the S&P 500?”, or,“what would be fair value for the S&P 500/All Ordinaries/Hang Seng/Topix/etc, if earnings grow by x% per annum for the next y years andby z% per annum thereafter?” The discount rate applied to each marketis its own 10-year bond yield (where available) plus an equity riskpremium that ranges from 3% to 6%, depending on the perceived degreeof riskiness. Again, the user is free to amend our earnings/dividendestimates and the discount rates applying to each market.

Analysis tools

This menu allows you to run the HSBC James Capel Portfolio Risk Analyser,or a K factor generator which calculates the dilutionary impact of new issues,capital returns and consolidations/splits of capital. Click on the appropriatemenu option (with the left-hand mouse key) to display details.

Portfolio analyser

This screen is a link to the HSBC James Capel Portfolio Risk Analyser.Click the run button to invoke this screen. The HSBC James Capel RiskAnalyser utilises an EXCEL© spreadsheet to analyse the risk of a portfolioof Australian equities. The spreadsheet is tailored to the unusualstructure of the Australian equity market – the high concentration ofmining companies. The objective is to highlight the overall risk of aportfolio against a number of different benchmarks and, importantly,the sources of this risk in terms of stocks and sectors. For moreinformation refer to HSBC James Capel’s Risk analysis of Australianequities publication.

K Factor generator

This screen allows you to determine the dilutionary impact of a newissue, capital return or consolidation and split of capital. Enter the closingprice of the security in the appropriate section, the ratio of the issue,the price of the issue or capital return per share (if any), the differencein dividends between the old and the new shares (if any) and the optionexercise price (if applicable). The theoretical opening price and K factor(dilution factor) are then displayed.

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Portfolio analyser

K Factor generator

Price update

The price update screen allows for the altering of security prices withinthe Investment Edge© product. You may wish to alter these prices to reflectcurrent market prices, or more importantly for specific senario testing.

The prices can be updated via the following means:

– Manual updates: individual prices can be set by altering the last pricevalue. Just click on the value and type in your new price.

– Copy and paste: through the Edit menu, securities and prices can becopied to other appplications, such as an EXCEL© spreadsheet. Theprices can then be altered and some or all stocks and prices can be putback into Investment Edge© using the [Paste] button. The securitiesthat have been altered are highlighted for easy reconcilliation.

– DDE: the spreadsheet HSBCUPL.XLS has been supplied containing DDElinks to Bloomberg and Reuters. You can also DDE link this workbookto any other data service. Select the service you require, and then deleteall other sheets in the workbook. The [DDE] button in Investment Edge©

will then read the first two colums in the first sheet in the HSBCUPL.XLSworkbook. Note: it assumes that the first row contains titles, and hencedoes not read this row. The securities that have been altered arehighlighted for easy reconciliation.

When prices are up to date, press the [Update] button to alter the prices inthe database.

Extra links

The world-wide resources of the Internet are seemingly endless. To assistfund managers and investors in sorting exactly those types of informationthey want and need, HSBC James Capel is currently developing its ownInternet web site. This will link in with the Internet web sites beingsimultaneously developed by HSBC James Capel affiliates in Hong Kong,London and Tokyo.

About us

This screen displays a consice history of HSBC James Capel Australia anda guide to the services that we offer.

Disclaimer

This screen displays the disclaimer/disclosure information applicable tothis research product. Users must read this information in order to accessthis product.

Price update

When altering prices bemindful of pricemovements due todilutionary factors, such asconsolidations and rightsissues. These dilutionaryeffects may not be reflectedin the earnings numbers.

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Research text menu

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Strategy/economics

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Australian Research Team contactsMelbourne Sydney Brisbane

Fax: (03) 9229 3577 Fax: (02) 9255 2555 Fax: (07) 3223 7890

Andrew Dalziel Head of Research (07) 3229 6199Chris Bedingfield Property Trusts (02) 9255 2676Justin Blaess Property Trusts (02) 9255 2681Stephen Burns Property Trusts (02) 9255 2643Nick Caley Insurance (02) 9255 2473James Casey Food & Retail (03) 9229 3669Jeff Emmanuel Banking (03) 9229 3685Bill Etheridge Gold (02) 9255 2586Kiera Grant Small Companies (02) 9255 2680Amos Hill Assistant Economist (03) 9229 3584Nola Hodgson Media (03) 9229 3658Michael Kirby Commodities (03) 9229 3607Peter Lucas Tourism & Leisure (03) 9229 3591Amanda Miller Small Companies (07) 3229 6199Andrew Perks Energy (03) 9229 3676Kate Prendiville Property Trusts (02) 9255 2569Umit Safak RIO, MIM, NBH, CMC, PAS, ABF, SVR (03) 9229 3560Kessada Sawyer Small Companies (03) 9229 3665Mark Skocic Food & Retail (03) 9229 3599Stuart Smith Energy & Utilities (03) 9229 3570Adam Spowers Telecommunications & Pay TV (02) 9255 2554Andrew Sutherland Diversified Industrials, Engineering & Chemicals (03) 9229 3574John Syropoulo Global Mining (London) (171) 336 4389Mario Traviati Energy (03) 9229 3569Marcus Tuck Strategist & Chief Economist (03) 9229 3589Cherie Zanette Banking (02) 9229 3686

Colin Ritchie Portfolio Research & Quantitative Analysis (03) 9229 3572Geoff Thomas Research Data (03) 9229 3687Martin Summons Research Editor (03) 9229 3609

This research report has been prepared and issued by HSBC James Capel. HSBC JamesCapel has based this document on information obtained from publicly available sourcesit believes to be reliable but which it has not independently verified. HSBC James Capelmakes no guarantee, representation or warranty and accepts no responsibility or liabilityas to its accuracy or completeness. Expressions of opinion herein are subject to changewithout notice.

This document is not and should not be construed as an offer or the solicitation of anoffer to purchase or subscribe or sell any investment. HSBC James Capel is not awarethat any recipient intends to rely on the report or of the manner in which a recipientintends to use it. HSBC James Capel has prepared this report without consideration ofthe investment objectives, financial situation or particular needs of the individual recipient.All recipients should not act or rely on any recommendation in this report withoutconsulting their financial adviser to determine whether the recommendation is appropriateto their investment objectives, financial situation or particular needs. HSBC James Capelwill not be under any liability for loss or damage of any kind whatsoever arising inconnection with the contents of this report.

In the UK it is intended only for distribution to persons who are authorised persons orexempted persons within the meaning of the Financial Services Act 1986 or any ordermade thereunder. It may not be reproduced or further distributed or published in wholeor part, for any purpose.

This document may be distributed in the United States solely to “major US institutionalinvestors” as defined in Rule 15a-6 of the US Securities Exchange Act of 1934; suchrecipients should note that any transactions effected on their behalf will be undertakenthrough HSBC Securities, Inc. in the United States. Each person that receives a copy byacceptance thereof represents and agrees that it will not distribute or provide it to anyother person.

DisclosureBrokerage or fees may be earned by HSBC James Capel or persons associated with it inrespect of any business transacted by it or them in all or any of the securities or classesof securities referred to in this report.

HSBC James Capel is the trading name of HSBC James Capel Australia Limited.

HSBC James CapelLevel 18101 Collins StreetMelbourne VIC 3000Telephone: +61-3-9229 3666Fax: +61-3-9229 3580Level 111 O’Connell StreetSydney NSW 2000Telephone: +61-2-9255 2500Fax: +61-2-9255 2555