rbs

Produced and issued by: RBS Equities (Australia) Limited

Equi

ty |

Aus

tral

ia

Important disclosures can be found in the Disclosures Appendix.

Daily Bulletin

IN BRIEF… A summary of today’s research 2

AUSTRALIA STRATEGY & ECONOMICS

Australia Strategy High-conviction calls Weekly topical thoughts

Alva Devoy (+61 2 8259 5831) 3 11

Economics Weekly Debt comparisons – Australia & NZ versus the world

Kieran Davies (+61 2 8259 5171) 23

INDUSTRIALS Resmed (A$2.95) Hold TP A$2.98

Pressure set to increase Dr Derek Jellinek (+61 2 8259 5848) 37

TP% Primary Healthcare (A$3.15) Hold TP% A$3.20 One overhang lifted

Dr Derek Jellinek (+61 2 8259 5848) 45

Australia Small/Mid Caps Weekly Informer #38, 2011

Julian Guido (+61 2 8259 5838) 49

RESOURCES TP& Woodside Petroleum (A$33.60) Buy TP& A$39.00

Solid 3Q, but Shell overhang remains Jason Mabee, CFA (+61 2 8259 5380) 65

GLOBAL Global Views

Quick thoughts on EFSF and the need for Collateral guarantees

Equity Research 69

Airlines September traffic (relevant to QAN and VBA)*

Andrew Orchard (+852 3988 7191) 71

Tiger Airways Thriving in times of recession (relevant to QAN and VBA)*

John Rachmat (+65 6518 7996) 87

Wynn Macau 3Q11 results in line with estimates (relevant to CWN)

Philip Tulk (+852 3988 7189) 101

Global Action Pack RBS Research 105

DATABASE Company financial forecasts Sector valuation aggregates Price performance

Thiva Nagaratnam (+61 2 8259 5373) 115 123 127

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

24 October 2011

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.

AGMs Company Where Time BEN Bendigo 2.00pm ORG Syd 1.30pm WTF Bris 2.30pm Source: IRESS

EX DIVs Code DPS Frnkd Ex date HVN 2H 6.0c 100% 28 Oct CLH 2H 3.1c 100% 7 Nov 1H = interim, 2H = final; SP = special Source: IRESS

TRADING ALERTs Code Open Open Indictv Exp (ST rec) date price close date AIO (Buy) 22 Aug 1.56 1.64-1.67 21 Oct Catalyst: Resolution of wage negotiations TEN (Sell) 27 Sep 0.87 0.81-0.83 27 Nov Catalyst: 20 October trading update

Daily Bulletin | 24 October 2011

2

IN BRIEF…

STRATEGY & ECONOMICS Australia Strategy Alva Devoy (+61 2 8259 5831)

High-conviction calls 3

Since inception, our Mid-cap resources long recommendations have outperformed funding source recommendations by a cumulative 80%. Last week our analyst, Sam Berridge, recommended long Regis Resources funded out of Kingsgate Consolidated. To date this call has generated alpha of 4.4%.

Weekly topical thoughts 11

The RBA has held its nerve through powerful cross-currents in 2011, but has made room for a rate cut at its 1 November meeting. We think the impact on the domestic market will be limited unless a sustained rate-cutting cycle is entered, which itself is unlikely outside of a fully-fledged euro-zone crisis.

Economics Weekly Kieran Davies (+61 2 8259 5171) 23

We have compared gearing in Australia and New Zealand with gearing in the major advanced economies plus China. For economy-wide gearing, Japan takes top honours by an enormous margin, followed by Europe and the US. Australia and New Zealand are at the bottom, while China has the lowest gearing ratio of the lot.

INDUSTRIALS Resmed (A$2.95) Hold TP A$2.98 Dr Derek Jellinek (+61 2 8259 5848) 37

We believe the progression of Medicare competitive bidding looks to change OSA market dynamics, as DMEs focus on driving greater price concessions and using lower priced products/manufacturers, while the price differential with private insurers diminishes, intensifying margin headwinds for RMD. Hold.

Primary Healthcare (A$3.15) Hold TP% A$3.20 Dr Derek Jellinek (+61 2 8259 5848) 45

While PRY's debt refinance has done little to our estimates, it has alleviated much of the uncertainty around its capital structure in tight credit markets. However, with soft profitability metrics, aggressive accounting and trading at 14x FY12F earnings, the stock looks to us fully valued. Hold maintained.

Australia Small/Mid Caps Julian Guido (+61 2 8259 5838) 49

The Small Ords (-2.5%) underperformed the All Ords (-2.3%) by 23bp for the week, with the Small Resources down 4.4%. The Small Ords is at a premium to the S&P/ASX 100 at a PE relative of 114.0%, above the 99.5% eight-year average.

RESOURCES Woodside Petroleum (A$33.60) Buy TP& A$39.00 Jason Mabee, CFA (+61 2 8259 5380) 65

WPL delivered a solid 3Q production result. Market sentiment remains weighed down as the November escrow period draws closer and uncertainty over key growth projects is worrying investors. In our view, Shell is likely to extend the current escrow period and this should help to kick up the share price. Buy.

GLOBAL Global Views Equity Research 69

Some interesting spanners are being thrown in the plans for the EFSF to be made larger via the insurance model. According to a story from the credible source of the WSJ European correspondents, the Euro leaders are looking at providing collateral to back up bond issues of troubled countries.

Aussie Alpha comment: Ahead of the 23 October meeting of European leaders, mixed messages are emerging in terms of a possible resolution to the European crisis. European lawyers have apparently been warned that using the bailout fund to provide direct guarantees violates the EU Treaty, ruling out the Allianz model on providing insurance on a first-loss basis for periphery risk. That's a negative for market sentiment. (Alva Devoy +61 2 8259 5831)

Airlines* Andrew Orchard (+852 3988 7191) 71

This note summarises the latest traffic data from the global industry. Passenger data in September held up well, but red flags abound. Cargo traffic remains soft, usually a precursor to softer travel ahead. RBS analysts globally currently prefer LCCs to network carriers in this volatile environment for premium travel.

Aussie Alpha comment: This is our second monthly collaborative piece on global traffic trends. With trends apparently worsening, we continue to prefer airlines with lower exposure to premium travel . (Mark Williams +61 2 8259 6921)

Tiger Airways* Andrew Orchard (+852 3988 7191) 87

In times of recession consumers generally downgrade to cheaper products. At this time, Tiger Airways, one of the world's lowest-cost carriers, stands to benefit from a volume spurt and falling oil price to boot. Its Australian problem is, in our view, in the process of being resolved, and we reiterate our Buy rating.

Aussie Alpha comment: QAN and VBA continue to benefit from Tiger's reduced flying schedule, though it is beginning to again ramp-up operations. The question is just how damaged the Tiger brand is in Australia and how sticky recent market share win by Jetstar and Virgin is. (Mark Williams +61 2 8259 6921)

Wynn Macau Philip Tulk (+852 3988 7189) 101

Wynn's 3Q11 results were in line with our estimates. We have anticipated a qoq decline due to the strength of Galaxy Macau. Wynn noted that its property is at capacity and growth will likely be achieved through optimizing table utilization. We believe growth will remain a concern in the near term. Hold.

Aussie Alpha comment: 3Q11 result note for Galaxy provides a read through for the upcoming Melco Crown result. Melco Crown is 33%-owned by Crown Ltd. (Michael Nolan +61 2 8259 1316)

Global Action Pack RBS Research 105

Friday 21 October 2011

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

2

Produced by: RBS Equities (Australia) Limited

Equi

ty |

Aus

tral

ia


Australia Strategy

RBS high-conviction calls

Since inception, our Mid-cap resources long recommendations have outperformed funding source recommendations by a cumulative 80%. Last weekour analyst, Sam Berridge, recommended long Regis Resources funded out ofKingsgate Consolidated. To date this call has generated alpha of 4.4%.

Chart 1 : Mid-cap resources sector – high-conviction calls alpha

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Nov-10 Dec-10 Jan-11 Feb-11 M ar-11 Apr-11 M ay-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11

Long Funding source M id-cap resources alpha

Source: IRESS, RBS

Mid-cap resources sector – cumulative return of 80% The Mid-cap resources high conviction calls have returned a cumulative alpha of 80% since inception. Last week our analyst, Sam Berridge, replaced OM Holdings (OMH) with Kingsgate Consolidated (KCN) as the preferred funding source for Regis Resources (RRL). 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, so therefore achieving FY12 production guidance will be difficult.

Positive research alpha since 5 November inception of market-neutral approach The RBS research team adopted a market-neutral approach to recommending high-conviction calls on 5 November 2010 and, since then, the average sector alpha has been a cumulative +16%. The average long recommendation has delivered -4%, outperforming the S&P/ASX 200 Index over the same period (which returned -13%). Meanwhile, funding-source positions have returned an average of -20%, 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 there are no changes to the RBS high-conviction calls.

21 October 2011

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

3

Australia Strategy | Analysis | 21 October 2011

2

Table 1 : Banks

Long ANZ Bank (ANZ) Andrew Lyons 1. ANZ's Asian franchise is a key differentiator in a sluggish domestic growth environment, 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 is robust. Firstly, ANZ's asset quality is showing good improvement and the group is strongly provisioned. 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 Commonwealth Bank (CBA) 1. We believe CBA's domestic operations will be less exposed to the improvement in business credit growth that we forecast will come through in FY12. 2. We expect CBA to face cost headwinds in FY12 as the amortisation charge relating to its investment spend increases. 3. CBA's core franchise is performing strongly and we believe its business mix should sustainably deliver an ROE premium compared with its peers, but at an 8.5% premium to the sector we think the stock is fairly valued.

Source: RBS forecasts

Table 2 : Capital Goods

Long Downer EDI (DOW) Andrew Hodge1. 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 DOW’s 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. Source: RBS forecasts

Table 3 : Transportation

Long Asciano (AIO) Mark Williams1. 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, CFA1. On our current NAV forecast, an investor is only paying for 30% of PLNG’s 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.


4


3

Table 5 : Gaming

Long Crown (CWN) Michael Nolan1. In essence, casinos are a property play, which means the key success factor is location, location, location. CWN’s Australian casinos tick that box in spades. And so does its 33% interest in Melco Crown in Macau, the world’s 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 Nolan1. 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 GFF’s 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 Jellinek1. 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 Allott1. 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.


5


4

Table 9 : Insurance/Diversified Financials

Long Suncorp-Metway (SUN) Richard Coles1. 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 Fagan1. 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 Fagan1. 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 Berridge1. 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. Source: RBS forecasts

Table 12 : Materials – Steel

Long Sims Metal (SGM) Todd Scott1. 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.


6


5

Table 13 : Basic Materials

Long Amcor (AMC) Andrew Scott1. 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 McLeishWe 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 Broeren1. 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 McLeish1. 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.


7


6

Table 17 : Utilities

Long Duet (DUE) Jason Mabee, CFA1. 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 DUE’s 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 Guido1. 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 Nicholas1. 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 Nicholas1. In our view, one of the best-placed mining services companies for strong earnings growth (in a capacity-constrained 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 Guido1. 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.

8

Australia S

trategy | Analysis | 21 O

ctober 2011 7

Table 20 : RBS earnings forecasts

B/SHEET ANALYSISASX code Company name Market

cap (A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs. YTD -Rel. Earnings Quality*

IBES 3m EPS

revisions

EPS CAGR

Div yield

Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)

P/ NTA ROE ND/EBITDA

Actual Fcst 1 Fcst 2 Actual Actual Fcst 1 Fcst 2 12m fwd Fcst 1 Fcst 2 3 yr Actual Fcst 1 Fcst 2 Fcst 1 Fcst 1 Fcst 1 Fcst 2 Fcst 1 Fcst 1 Fcst 2 Fcst 1 Fcst 1 Fcst 1 Fcst 1 Fcst 1

LongAIO Asciano Group 4,389 Jun 11 1.49 1.91 2.06 28% Buy -7% 5% 189.9 268.3 353.4 1.3 6.5 9.2 12.1 2.3% 41% 32% 30% 2.0 3.0 3.5 2.0% 0 16.4 12.4 0.5 1.54 1.27 10.9 7.4 6.7 8.1% 2.7 ANZ ANZ Banking Group 54,836 Sep 10 21.24 23.60 26.22 11% Buy -9% 4% 5,122.0 5,612.0 6,074.9 n.a. 198.4 211.7 223.3 -3.2% 7% 5% 5% 126.0 139.0 146.0 6.6% 100 10.0 9.5 2.0 0.82 0.89 7.0 6.0 2.0 16.2% n.a.DOW Downer EDI 1,262 Jun 11 2.89 5.01 5.01 73% Buy -35% -22% 155.9 190.1 221.3 0.5 42.6 44.3 51.5 -5.9% 4% 16% 14% 0.0 21.0 27.0 7.1% 0 6.6 5.7 0.5 0.62 0.58 5 3.2 1.3 12.7% 1.1 CCL C-C Amatil 9,064 Dec 10 12.00 13.43 13.43 12% Buy 10% 23% 506.6 543.5 600.0 0.8 67.3 71.7 78.8 -0.4% 7% 10% 9% 48.5 55.0 58.5 4.6% 100 16.7 15.2 1.8 1.37 1.43 11.7 9.4 19.6 28.8% 1.1 FXJ Fairfax Media 2,046 Jun 11 0.87 1.45 1.60 68% Buy -38% -26% 273.8 284.8 328.6 1.2 11.6 12.1 14.0 -9.3% 4% 15% 10% 3.0 3.6 7.0 4.2% 100 7.2 6.2 0.7 0.68 0.64 6.6 5.4 - 6.3% 2.1 MAP MAp Airports 6,142 Dec 10 3.28 3.68 3.68 12% Buy 10% 22% 127.2 120.0 131.9 1.1 7.1 6.4 7.1 -42.8% -9% 10% 6% 33.5 21.0 21.0 6.4% 0 51.2 46.6 8.2 4.18 4.38 21.1 13.6 - 2.5% 6.0 SGM Sims Metal Mgt 2,752 Jun 11 13.30 19.10 19.10 44% Buy -38% -26% 182.0 279.6 364.1 0.5 88.9 136.1 177.3 -5.6% 53% 30% 32% 47.0 68.0 88.6 5.1% 45 9.8 7.6 0.3 0.93 0.77 6.5 5.1 1.4 9.3% 0.2 FMG Fortescue Metal 13,419 Jun 11 4.23 8.01 8.01 89% Buy -35% -23% 1,649.2 2,038.1 1,699.6 1.6 53.0 65.5 54.6 -10.4% 24% -17% 16% 6.9 8.0 8.0 1.8% 0 6.3 7.4 0.4 0.60 0.75 5.4 5.1 3.0 61.1% 1.5 TLS Telstra 39,196 Jun 11 3.14 3.50 3.50 11% Buy 13% 25% 3,231.0 3,551.0 3,666.1 1.0 25.9 28.5 29.4 4.3% 10% 3% 5% 28.0 28.0 28.0 8.9% 100 11.0 10.7 2.1 1.04 1.09 8.7 5.0 7.8 29.3% 1.3 SHL Sonic Health 4,249 Jun 11 10.85 13.12 13.13 21% Buy -6% 6% 294.5 308.0 338.1 1.0 75.5 78.6 86.3 -4.4% 4% 10% 8% 59.0 61.0 67.0 5.6% 32 13.9 12.7 1.7 1.31 1.30 11.4 9.2 - 12.1% 2.3 SUN Suncorp Group 10,550 Jun 11 8.24 9.87 9.87 20% Buy -4% 8% 637.6 1,073.9 1,231.6 n.a. 49.7 83.5 95.7 -1.7% 68% 15% 29% 35.0 50.1 57.4 6.1% 100 9.8 8.6 0.3 0.92 0.88 45.3 28.3 1.3 6.9% n.a.DUE DUET 1,807 Jun 11 1.65 2.00 2.00 21% Buy -1% 11% 124.9 90.7 89.0 1.0 14.1 9.2 8.1 -19.9% -35% -11% -17% 20.0 16.0 16.5 9.7% 0 18.1 20.4 -1.1 1.70 2.09 12.3 9.1 - 6.5% 6.8 OSH Oil Search 7,550 Dec 10 5.89 7.50 7.50 27% Buy -16% -4% 156.6 178.4 144.4 2.1 11.9 13.5 10.8 -6.2% 13% -20% -11% 4.0 4.0 4.0 0.7% 0 42.2 51.0 -3.8 3.45 4.80 22.4 19.9 2.7 6.5% 2.0 JBH JB Hi-Fi 1,396 Jun 11 14.28 17.25 17.25 21% Buy -20% -8% 134.4 137.7 155.6 0.7 120.2 138.4 155.1 -8.5% 15% 12% 12% 77.0 85.0 96.0 6.0% 100 10.2 9.1 0.9 0.96 0.93 7.5 6.5 12.1 79.4% 0.7 RRL Regis Resources 1,241 Jun 11 2.90 2.96 2.57 2% Hold 21% 33% 37.2 75.2 215.4 1.0 8.6 17.5 50.0 32.8% 102% 186% 86% 0.0 0.0 0.0 0.0% 0 16.5 5.8 0.2 1.55 0.59 16.1 14.5 10.0 56.9% 0.2 AMC Amcor 8,615 Jun 11 7.15 7.54 7.54 5% Buy 6% 19% 570.3 659.2 741.1 0.7 46.5 53.7 60.4 -2.7% 15% 12% 14% 35.0 36.0 40.0 5.1% 0 13.1 11.6 0.9 1.23 1.19 10.4 7.3 4.4 17.5% 1.9 CWN Crown 5,961 Jun 11 7.87 9.00 9.00 14% Buy -5% 8% 335.9 386.9 422.4 0.8 44.3 52.6 58.0 5.3% 19% 10% 15% 37.0 37.0 37.0 4.7% 60 15.0 13.6 1.0 1.41 1.39 14.8 10.3 2.5 12.1% 2.0

Funding SourceCBA Commonwealth Bank 74,377 Jun 11 47.51 49.69 58.46 5% Hold -6% 6% 6,793.0 7,386.1 7,930.4 n.a. 420.7 450.3 475.5 -3.0% 7% 6% 6% 320.0 343.0 363.0 7.2% 100 10.6 10.0 1.8 1.00 1.03 7.2 6.5 2.7 19.2% n.a.LEI Leighton 6,905 Jun 11 20.53 20.67 20.67 1% Hold -32% -19% -107.7 609.7 672.2 1.7 -35.1 181.2 199.7 - - 10% 84% 60.0 116.0 128.0 5.7% 100 11.3 10.3 0.1 1.07 1.05 7.2 3.8 2.8 25.0% 0.1 BXB Brambles 9,764 Jun 11 6.60 7.01 7.01 6% Hold -7% 5% 532.1 600.4 718.4 1.0 36.6 40.2 48.2 -2.0% 10% 20% 16% 25.9 30.0 34.0 4.4% 20 15.8 12.8 1.0 1.48 1.31 12.6 8.2 15.8 25.0% 2.0 ERA Energy Resource 1,056 Dec 10 2.05 1.91 1.91 -7% Sell -82% -69% 52.8 31.2 76.8 0.6 27.7 6.0 14.8 -45.7% -78% 146% -71% 8.0 0.0 0.0 0.0% 100 33.9 13.8 -0.5 2.77 1.29 5.9 3.5 0.9 2.6% 7.0- GFF Goodman Fielder 915 Jun 11 0.53 0.60 0.80 13% Hold -58% -45% 135.2 128.9 141.5 1.0 9.8 7.1 7.2 -34.6% -27% 2% -9% 7.8 5.7 5.8 10.9% 40 7.4 7.3 -0.8 0.69 0.74 6.1 4.7 28.3 8.9% 2.1 CSL CSL Ltd 15,862 Jun 11 29.98 29.31 29.31 -2% Hold -17% -5% 940.6 954.9 1,004.2 1.0 173.6 180.9 190.7 -2.3% 4% 5% 5% 80.0 81.0 88.0 2.7% 0 16.6 15.8 3.1 1.56 1.61 12.6 11.0 5.0 24.6% 0.2- KCN Kingsgate 1,018 Jun 11 7.30 9.06 9.06 24% Buy -33% -20% 32.0 206.7 205.7 0.4 23.6 152.7 152.0 6.9% 547% 0% 81% 15.0 35.0 59.0 4.7% 0 4.9 4.9 0.1 0.46 0.51 3.7 3.2 1.3 30.1% 0.4- OST OneSteel 1,666 Jun 11 1.24 2.10 2.10 70% Buy -52% -40% 235.0 275.4 285.1 1.0 17.6 20.6 21.4 -15.6% 17% 4% 19% 10.0 8.2 10.7 6.6% 50 6.0 5.8 0.3 0.57 0.60 6.5 4.8 0.8 6.0% 2.7 TEN Ten Network 857 Aug 10 0.82 0.95 1.06 17% Hold -42% -30% 96.9 78.1 80.6 1.0 9.3 7.5 7.7 -16.4% -19% 3% 4% 11.0 5.0 5.8 6.1% 100 11.0 10.6 2.9 0.90 1.00 9.1 7.7 - 8.7% 2.4 TEL Telecom Corp 4,923 Jun 11 1.97 2.01 2.01 2% Hold 20% 33% 296.6 363.8 383.9 1.0 15.5 18.9 19.9 1.6% 22% 6% 13% 18.0 21.0 23.0 8.2% 100 10.8 10.1 0.8 1.02 1.03 9.1 4.1 4.1 19.9% 1.3 MQA Macquarie Atlas 613 Dec 10 1.36 1.88 1.88 39% Buy -11% 2% -281.7 -57.0 108.5 0.0- -62.3 -12.6 24.0 -88.2% 394% - -57% 0.0 0.0 7.0 0.0% 0 - 5.6 - - 0.53 -223.2 -247.9 - 20.5% n.a.STO Santos 11,481 Dec 10 12.09 15.00 15.00 24% Buy -8% 5% 356.1 520.5 573.7 1.4 50.3 61.0 62.8 -4.7% 21% 3% 11% 30.0 30.0 31.0 2.5% 100 19.8 19.2 1.8 1.62 1.81 12.9 7.6 1.4 6.5% 0.0- ASX Aust Securities Exchang 5,156 Jun 11 30.05 31.77 31.77 6% Hold -20% -8% 356.6 385.9 424.8 0.9 204.0 219.3 239.2 -0.6% 7% 9% 7% 183.2 196.5 214.3 6.5% 100 13.7 12.6 1.9 1.29 1.29 9.4 9.0 7.2 12.7% 0.8- MTS Metcash 3,183 Apr 11 4.15 4.25 4.25 2% Hold 1% 14% 248.3 276.9 304.4 1.2 32.3 36.0 39.6 -0.3% 12% 10% 8% 27.0 29.0 32.0 7.0% 100 11.5 10.5 1.4 1.08 1.07 8.1 7.2 217.9 19.9% 1.2 SPN SP AusNet 2,697 Mar 11 0.98 1.00 1.15 3% Hold 12% 25% 252.9 244.5 251.2 0.9 9.0 8.6 8.7 -0.1% -4% 1% 0% 8.0 8.0 8.0 8.3% 0 11.2 11.1 -81.5 1.05 1.14 11.5 7.9 10.3 41.1% 5.0 TAH Tabcorp 2,019 Jun 11 2.83 3.00 3.00 6% Hold -9% 4% 486.3 364.5 222.7 0.9 74.1 51.6 30.6 -7.2% -30% -41% -27% 43.0 25.8 21.4 9.3% 100 5.4 9.1 -0.2 0.51 0.93 4.3 3.5 - 26.2% 0.7 BLD Boral 2,480 Jun 11 3.44 4.04 4.04 17% Hold -29% -16% 173.5 203.1 275.3 0.9 24.0 28.1 38.0 -15.4% 17% 35% 29% 14.5 16.0 17.0 4.6% 100 12.3 9.1 0.4 1.15 0.93 12.5 6.6 0.8 6.1% 2.4

Small capLongSAI SAI Global 937 Jun 11 4.70 5.20 5.20 11% Buy -4% 9% 57.8 66.4 77.9 0.8 29.8 33.3 39.0 -3.8% 12% 17% 16% 14.3 16.3 20.3 3.5% 100 14.1 12.0 0.9 1.33 1.23 11.0 9.8 - 20.1% 1.3 BKN Bradken 1,198 Jun 11 7.40 9.85 9.85 33% Buy -18% -5% 90.1 120.3 143.9 0.2 63.5 72.3 84.0 0.9% 14% 16% 17% 39.5 45.0 52.5 6.1% 100 10.2 8.8 0.6 0.96 0.90 8.0 6.5 2.2 16.6% 1.7 Funding SourcePRG Programmed Group 236 Mar 11 2.00 2.14 2.14 7% Hold 16% 28% 28.6 29.1 33.7 0.1 24.2 24.7 28.5 1.2% 2% 16% 9% 9.0 11.0 13.0 5.5% 100 8.1 7.0 0.9 0.76 0.72 6.0 5.1 2.0 8.1% 1.5 TGR Tassal Group 233 Jun 11 1.60 1.30 1.30 -19% Hold -6% 7% 21.6 25.0 27.4 1.2 14.8 17.1 18.6 -2.1% 16% 9% 11% 2.0 6.0 7.0 3.8% 100 9.4 8.6 0.9 0.88 0.88 8.0 5.8 0.9 8.8% 1.5

EPS ANALYSIS DIVIDEND ANALYSIS VALUATIONPE (x)

(pre goodwill)PE rel

(pre goodwill)NPAT pre abnormals (A$m) EPS pre goodwill (c) EPS growth

(pre goodwill)DPS (c)

Priced at 3.52pm on 21 October 2011. * Earnings quality: Net operating cash flow/(Net profit + Depreciation & amortisation). Source: Company data, RBS forecasts

9


Equi

ty |

Aus

tral

ia


Australia Strategy

Weekly topical thoughts

The RBA has held its nerve through powerful cross-currents in 2011, but has made room for a rate cut at its 1 November meeting. We think the impact on thedomestic market will be limited unless a sustained rate-cutting cycle is entered, which itself is unlikely outside of a fully-fledged euro-zone crisis.

Chart 1 : RBA rate cutting cycles have historically spurred building activity

75

100

125

150

175

200

225

1992 1997 2002 200775

100

125

150

175

200

225

RBA rate cutting phase Bui lding approvals

Uni ts (000s) Units (000s)

Source: RBA, ABS, RBS

Upcoming RBA meeting a key domestic catalyst in midst of Europe & China risks The upcoming RBA meeting on 1 November promises to be again an important waypoint for the market, with interest rate futures fully pricing a 25bp cut, while economists are split on the outlook (6 for, 19 against, as of Bloomberg’s last count). The RBA has held rates at 4.75% for nigh on a year, with the last hike occurring at the Melbourne-cup meeting of 2010. Powerful cross-currents have buffeted the Australian economy over the ensuing period, including century-high levels of the terms of trade and record mining investment offsetting the impact of the cautious consumer and the AUD’s surge on manufacturing and tourism. Through this, the Reserve Bank Board has chosen to respond with a calming ‘wait-and-see’ strategy. So have conditions changed sufficiently for the RBA to change tack?

Softening in RBA rhetoric reflective of global uncertainty The statement and minutes of the October Board referred to the less-inflationary outlook over 2012, on the basis of weaker global growth and a downward revision to CPI. This effectively made room to cut interest rates, should that be deemed necessary.

Outside of systemic crisis scenario, no major change of income dynamics expected A one-off 25bp rate cut would, in our view, be intended to shore up confidence, and this could indeed help to put a floor under the residential construction market, where approvals have continued to slide. We think this may help names highly-leveraged to the cycle (eg, GWA and GUD) and would result in a near-term softening in the AUD (Greg Gibbs is forecasting 0.93 by year-end). But we note household income dynamics will not be materially affected unless the RBA embarks on a sustained cutting cycle, which remains unlikely (outside of a Euro-zone triggered systemic crisis). As such, we recommend against taking a wholesale domestic tilt (banks and consumer) and retain our overweight in resources.

21 October 2011

Analysts

Alva DeVoy +61 2 8259 5831 [email protected]

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 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

11


2

Weekly indicators Risk appetite, as gauged by the RBS risk-appetite indicator, was down slightly this week, remaining depressed 1.7 standard deviations below 12-month trend. The indicator has been below -1 standard deviations for the past 12 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 the biggest contributor to the decrease in risk-appetite was the sharp sell off of commodities. The CRB Index was down 3% at 307.7, 1.4 standard deviations below 12 month trend. The decline in the copper price was more severe, dropping 11% to US$3.05/lb. Copper has now fallen 31% since the end of July when it was trading at US$4.45/lb. Copper is currently over 3 standard deviations below the 12-month trend. The VIX Index also spiked by 23% over the week to be 34.8%, 1.5 standard deviations above the 12-month trend.

On the flow side this week, we saw outflows from the Australian market for the 14th time in the past 15 weeks. Active equity fund outflows were -US$26.8m, with the four-week total declining to -US$228m.

Chart 2 : Risk-appetite indicator at -1.7 std deviations Chart 3 : CBOE VIX and CHF/AUD

-4

-3

-2

-1

0

1

2

2004 2005 2006 2007 2008 2009 2010 2011

RBS risk appetite (lhs)

Euphoria

Capitulation

Std dev

0.90

1.00

1.10

1.20

1.30

1.40

1.50

2000 2002 2004 2006 2008 20100

10

20

30

40

50

60

70

80

90

CHF/AUD (lhs) CBOE VIX (rhs)

A$ %

Source: Bloomberg, RBS Source: Bloomberg, RBS

Chart 4 : EPFR active equity fund flows into Australia Chart 5 : European periphery spreads

-800

-600

-400

-200

0

200

400

Jun 05 Jun 07 Jun 09 Jun 11

Active equity fund flows into Australia - 4wk total

US$m

0

200

400

600

800

1,000

1,200

1,400

Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

Ger. Spain Italy Ireland Port.

bp

Source: EPFR Global Source: Bloomberg, RBS

12


3

Equity markets – performance and valuations

Table 1 : Market performance and valuation

Local currency US$ unhedged A$ unhedged Valuation (x) Index % 1d % 1w % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytd PE 12 P/B 11 DY CY11Australia S&P/ASX 200 4,145 -1.6 -2.3 3.4 3.4 -12.7 9.5 9.5 -12.7 3.4 3.4 -12.7 10.1 1.48 5.23MSCI World 1,167 -0.7 -1.6 5.7 5.7 -8.8 5.7 5.7 -8.8 -0.2 -0.2 -8.8 10.4 1.39 3.03US S&P 500 1,215 0.5 1.0 7.4 7.4 -3.4 7.4 7.4 -3.4 1.5 1.5 -3.3 11.0 1.73 2.17US NASDAQ 2,599 -0.2 -0.8 7.6 7.6 -2.0 7.6 7.6 -2.0 1.6 1.6 -2.0 13.0 2.23 1.39MSCI Europe 82.1 0.6 0.2 4.8 4.8 -13.9 7.8 7.8 -11.4 1.8 1.8 -11.4 9.1 1.21 4.44Germany DAX 5,766 -2.5 -2.5 4.8 4.8 -16.6 7.8 7.8 -14.2 1.9 1.9 -14.1 8.3 1.06 4.31France CAC 3,084 -2.3 -3.2 3.4 3.4 -18.9 6.4 6.4 -16.6 0.5 0.5 -16.6 8.1 0.93 5.19UK FTSE 5,385 -1.2 -0.3 5.0 5.0 -8.7 6.4 6.4 -7.7 0.5 0.5 -7.6 8.8 1.38 4.16Japan Nikkei 746 -0.7 -1.7 -2.0 -2.0 -17.0 -1.8 -1.8 -12.3 -7.2 -7.2 -12.3 11.5 0.83 2.53South Korea 1,805 -2.7 -1.0 2.0 2.0 -12.0 5.2 5.2 -13.7 -0.6 -0.6 -13.9 8.2 1.05 1.64Taiwan 7,244 -1.5 -2.5 0.3 0.3 -19.3 1.5 1.5 -22.2 -4.1 -4.1 -22.2 11.5 1.40 4.42Singapore 2,694 -1.0 -1.5 0.7 0.7 -15.5 3.3 3.3 -15.0 -2.5 -2.5 -15.0 11.6 1.22 3.57MSCI AP ex-Japan 468.5 1.2 -0.2 5.3 5.3 -17.4 5.3 5.3 -17.4 -0.5 -0.5 -17.4 9.9 1.35 3.07Hong Kong 17,983 -1.8 -4.1 2.2 2.2 -21.9 2.3 2.3 -22.0 -3.4 -3.4 -22.0 8.8 1.15 4.13China Shanghai 2,331 -1.9 -4.4 -1.2 -1.2 -17.0 -1.2 -1.2 -14.3 -6.7 -6.7 -14.3 9.1 1.45 2.74Thailand 909 -3.1 -3.0 -0.8 -0.8 -12.0 0.1 0.1 -14.5 -5.4 -5.4 -14.5 9.5 1.56 4.42India 16,937 -0.9 0.3 2.9 2.9 -17.4 1.2 1.2 -25.9 -4.4 -4.4 -25.9 12.5 2.17 1.63Indonesia 3,623 -1.7 -1.4 2.1 2.1 -2.2 3.2 3.2 -1.3 -1.5 -1.5 -0.9 12.1 2.53 2.34Brazil 54,010 -1.7 -1.1 3.2 3.2 -22.1 8.9 8.9 -27.4 2.8 2.8 -27.4 8.4 1.07 3.92

Source: Bloomberg estimates

Chart 6 : Market performance (local currency) Chart 7 : Market performance (unhedged USD)

-20%

-15%

-10%

-5%

0%

5%

10%

S&P/ASX200

MSCIWorld

US S&P500

MSCIEurope

UK Japan MSCIAPxJ

China

Local currency returns qtd (%) local currency returns ytd (%)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

S&P/ASX200

MSCIWorld

US S&P500

MSCIEurope

UK Japan MSCIAPxJ

China

US$ returns qtd (%) US$ returns ytd (%)


Chart 8 : RBS risk appetite vs AUD/USD Chart 9 : Risk appetite vs forward market returns

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

2000 2002 2004 2006 2008 2010-4

-3

-2

-1

0

1

2

3

AUD/USD (lhs) RBS Risk Appetite (rhs)

Std devUS$

-3

-2

-1

0

1

2

3

2000 2002 2004 2006 2008 2010-30%

-20%

-10%

0%

10%

20%

30%

RBS risk appetite (inverted, lhs) S&P/ASX 200 fwd 3m % chg. (rhs)

Capitulation

Euphoria

Std dev


13


4

Table 2 : Global sector performance (absolute)

MSCI World US S&P 500 MSCI Europe MSCI Asia ex-Japan S&P/ASX 200 % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytdTotal Index 5.7 5.7 -8.8 7.4 7.4 -3.4 4.8 4.8 -13.9 5.3 5.3 -17.4 3.4 3.4 -12.7Energy 11.6 11.6 -4.8 13.6 13.6 -0.7 10.9 10.9 -4.5 1.5 1.5 -19.6 5.7 5.7 -18.1Materials 5.3 5.3 -20.7 11.0 11.0 -14.5 6.9 6.9 -26.0 2.6 2.6 -24.5 1.8 1.8 -21.6Industrial 6.2 6.2 -13.9 9.4 9.4 -8.2 6.1 6.1 -20.3 4.2 4.2 -29.2 3.7 3.7 -12.7Cons Discretionary 6.5 6.5 -7.3 9.6 9.6 2.2 7.0 7.0 -14.2 3.1 3.1 -7.0 2.9 2.9 -19.0Cons Staples 2.9 2.9 1.4 3.8 3.8 4.9 2.6 2.6 -3.0 2.8 2.8 -3.7 0.0 0.0 -2.0Healthcare 1.4 1.4 0.7 2.3 2.3 3.1 -0.1 -0.1 -0.7 -1.4 -1.4 -20.1 2.8 2.8 -12.5Financials 4.2 4.2 -19.9 8.4 8.4 -19.7 4.2 4.2 -24.3 3.0 3.0 -24.5 5.3 5.3 -8.6Utilities 0.9 0.9 -7.2 2.0 2.0 9.4 2.6 2.6 -13.0 1.5 1.5 -8.7 2.0 2.0 -1.4Telecoms 2.6 2.6 -4.5 1.3 1.3 -4.0 3.5 3.5 -6.7 -1.0 -1.0 1.7 1.4 1.4 12.3IT 7.4 7.4 -3.2 7.7 7.7 0.7 4.8 4.8 -10.8 3.8 3.8 -20.2 -1.3 -1.3 -26.3Large caps 5.7 5.7 -8.6 7.4 7.4 -3.4 3.5 3.5 -14.5 2.7 2.7 -18.8 3.1 3.1 -11.7Small caps 5.8 5.8 -12.2 8.1 8.1 -11.1 4.4 4.4 -18.6 3.1 3.1 -25.6 4.0 4.0 -19.7Growth 5.9 5.9 -8.1 7.4 7.4 -2.1 4.1 4.1 -13.3 - - - 1.7 1.7 -17.5Value 5.4 5.4 -9.6 7.6 7.6 -6.8 5.4 5.4 -14.5 - - - 4.8 4.8 -8.0

Source: Bloomberg

Table 3 : Global sector performance (relative)

MSCI World US S&P 500 MSCI Europe MSCI Asia ex-Japan S&P/ASX 200 Relative returns % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytd % mtd % qtd % ytdEnergy 5.9 5.9 4.1 6.2 6.2 2.7 6.1 6.1 9.4 -3.9 -3.9 -2.2 2.3 2.3 -5.5 Materials -0.4 -0.4 -11.9 3.5 3.5 -11.2 2.2 2.2 -12.0 -2.8 -2.8 -7.1 -1.6 -1.6 -8.9 Industrial 0.5 0.5 -5.0 2.0 2.0 -4.9 1.3 1.3 -6.3 -1.2 -1.2 -11.7 0.3 0.3 -0.0 Cons discretionary 0.8 0.8 1.5 2.2 2.2 5.6 2.3 2.3 -0.3 -2.2 -2.2 10.4 -0.5 -0.5 -6.4 Cons staples -2.8 -2.8 10.2 -3.6 -3.6 8.2 -2.2 -2.2 10.9 -2.5 -2.5 13.7 -3.4 -3.4 10.6 Healthcare -4.3 -4.3 9.5 -5.2 -5.2 6.5 -4.9 -4.9 13.2 -6.7 -6.7 -2.6 -0.6 -0.6 0.2 Financials -1.5 -1.5 -11.1 1.0 1.0 -16.3 -0.6 -0.6 -10.3 -2.3 -2.3 -7.0 1.9 1.9 4.0 Utilities -4.8 -4.8 1.6 -5.4 -5.4 12.7 -2.2 -2.2 0.9 -3.9 -3.9 8.8 -1.4 -1.4 11.3 Telecoms -3.1 -3.1 4.3 -6.1 -6.1 -0.6 -1.3 -1.3 7.2 -6.3 -6.3 19.2 -2.0 -2.0 25.0 IT 1.7 1.7 5.7 0.3 0.3 4.1 -0.0 -0.0 3.1 -1.5 -1.5 -2.8 -4.7 -4.7 -13.7 Large caps 0.0 0.0 0.3 - - - -1.3 -1.3 -0.5 -2.6 -2.6 -1.4 -0.3 -0.3 1.0 Small caps 0.1 0.1 -3.4 0.7 0.7 -7.8 -0.4 -0.4 -4.7 -2.2 -2.2 -8.2 0.6 0.6 -7.0 Growth 0.2 0.2 0.7 0.0 0.0 1.3 -0.6 -0.6 0.6 - - - -1.7 -1.7 -4.9 Value -0.2 -0.2 -0.7 0.2 0.2 -3.4 0.7 0.7 -0.6 - - - 1.4 1.4 4.7

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 10.4 1.4 3.03 11.0 1.7 2.17 9.1 1.2 4.44 9.9 1.4 3.07 10.1 1.5 5.23Energy - - - 10.2 1.6 1.98 8.6 1.2 4.35 8.5 1.4 3.57 20.8 1.5 2.53Materials - - - 11.5 1.8 2.44 8.4 1.1 3.21 8.7 1.2 3.57 9.4 1.7 2.85Industrial - - - 13.0 2.1 2.48 11.7 1.6 3.87 10.6 1.1 2.85 14.5 1.4 4.49Cons discretionary - - - 14.5 2.5 1.55 10.3 1.4 3.55 11.1 1.8 1.74 10.7 1.2 5.46Cons staples - - - 14.8 3.1 3.08 14.4 2.4 3.50 18.0 2.5 2.27 14.6 2.1 5.31Healthcare - - - 11.2 2.0 2.36 10.6 2.4 4.12 20.4 2.7 1.01 16.6 2.5 3.13Financials - - - 11.1 0.8 1.92 8.4 0.6 5.00 9.5 1.1 3.71 10.3 1.2 7.16Utilities - - - 13.8 1.4 4.17 11.1 1.1 6.14 15.8 1.3 2.96 14.5 1.2 6.36Telecoms - - - 17.3 1.6 5.49 9.7 1.3 8.36 12.5 1.8 4.55 11.2 3.1 8.71IT - - - 12.0 2.4 1.08 13.9 1.9 2.47 15.0 1.7 2.69 13.9 3.4 4.42 Large caps 11.1 1.4 3.16 12.2 1.7 2.17 - - - 10.9 1.4 3.18 10.9 1.6 5.35 Small caps 15.3 1.2 2.40 20.5 1.4 - 12.7 1.1 3.57 9.0 1.0 3.30 15.0 1.3 3.51 Growth 13.3 1.9 2.09 14.5 2.8 1.60 11.9 1.7 3.25 - - - 11.3 1.8 3.51Value 10.2 1.1 4.01 11.7 1.2 2.72 8.7 0.9 5.65 - - - 10.5 1.3 6.96

Source: Bloomberg estimates

14


5

Chart 10 : Relative industry returns – quarter-to-date

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

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

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Energy Materials Industrials Cons. Disc Cons. Staples Healthcare Financials Utilities Telecoms IT


Source: Bloomberg

Chart 12 : Relative PE, 2012 Chart 13 : Relative PB, 2011

0

2

4

6

8

10

12

14

S&P/ASX200

MSCIWorld

US S&P500

MSCIEurope

UK Japan MSCIAPxJ

China

Price-earnings ratio (2012 estimates)

x

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

S&P/ASX200

MSCIWorld

US S&P500

MSCIEurope

UK Japan MSCIAPxJ

China

Price-book ratio (2011 estimates)

x

Source: Bloomberg forecasts Source: Bloomberg forecasts

15


6

Chart 14 : Relative size and style returns – quarter-to-date

-3%

-2%

-1%

0%

1%

2%

Large caps Small caps Growth Value


Source: Bloomberg

Chart 15 : Relative size and style returns – year-to-date

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%



Source: Bloomberg

Chart 16 : Size/style PE, 2012 Chart 17 : Size/style PB, 2011

0

5

10

15

20

25



x

0.0

0.5

1.0

1.5

2.0

2.5

3.0



x

Source: Bloomberg forecasts Source: Bloomberg forecasts

16


7

Fixed income, currency and commodity markets

Table 5 : Fixed income markets

Rates (%) Yield ∆ mtd ∆ qtd ∆ ytd Spreads (bp) Current ∆ qtd ∆ ytd3m 0.42 0.04 0.04 0.11 3m FRA/OIS 44.0 1.3 26.02yr 0.26 0.02 0.02 -0.33 5yr swap spread 34.6 4.8 17.410yr 2.19 0.27 0.27 -1.10 Moody’s AAA 291 -10.0 3.4

US

Long (30yr) 3.22 0.30 0.30 -1.12 Moody’s BBB 433 6.0 35.43m 0.68 0.30 0.30 0.29 3m FRA/OIS 70.0 5.3 37.52yr 0.59 0.04 0.04 -0.28 5yr swap spread 84.7 5.1 12.310yr 2.00 0.11 0.11 -0.97 AAA 5yr (BFV) 175.0 3.4 59.4

Europe

Long (20yr) 2.79 0.15 0.15 -0.68 BBB 5yr (BFV) 281.6 -19.7 71.63m 0.53 0.02 -0.01 -0.03 3m FRA/OIS 53.0 -0.3 28.22yr 0.58 0.00 0.00 -0.52 5yr swap spread 50.4 9.3 6.210yr 2.45 0.02 0.02 -0.94 AAA 5yr (BFV) 192.4 9.9 58.3

UK

Long (20yr) 3.18 -0.12 -0.12 -0.94 BBB 5yr (BFV) 267.3 -16.1 90.93m 0.10 0.00 0.00 -0.02 3m FRA/OIS 13.3 -0.5 2.72yr 0.15 0.00 0.00 -0.03 5yr swap spread 10.5 -0.7 -6.210yr 1.01 -0.02 -0.02 -0.12 AA 5yr (BFV) 24.9 -0.9 2.1

Japan

Long (20yr) 1.77 0.04 0.04 -0.09 BBB 5yr (BFV) 77.2 -27.0 -24.63m 4.72 -0.20 -0.20 -0.32 3m FRA/OIS -19.0 -19.02yr 3.94 0.27 0.27 -1.23 5yr swap spread 90.3 0.0 35.0

Australia

10yr 4.46 0.24 0.24 -1.09

Source: Bloomberg, iTraxx, RBS

Chart 18 : Yield curves – current Chart 19 : Yield curves – six months prior

0%

1%

2%

3%

4%

5%

6%

3M 2Y 10Y >15Y

US Europe UK Japan Australia

0%

1%

2%

3%

4%

5%

6%

3M 2Y 10Y >15Y

US Europe UK Japan Australia


Chart 20 : US bonds vs equities Chart 21 : Aus government 10yr yield vs S&P/ASX 200

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2005 2006 2007 2008 2009 2010 2011-200

-150

-100

-50

0

50

100

150

US S&P 500 returns (lhs) US 30yr Treasury yield (rhs)

3m bp change3m % change

2,000

3,000

4,000

5,000

6,000

7,000

2000 2002 2004 2006 2008 20103%

4%

5%

6%

7%

S&P/ASX 200 (lhs) CGS 10 yr yield (rhs)

Index


17


8

Table 6 : Australian CDS vs stock performance

Ticker Company CDS spread (bp)

1wk bp chg

1mthbp chg

3mthbp chg

6mthbp chg

1yrbp chg

Shareprice (A$)

1wk % chg

1mth % chg

3mth % chg

6mth% chg

1yr% chg

BHP BHP Billiton 116.5 6.6 11.1 39.1 44.9 31.1 35.48 -5.7% -4.4% -18.6% -25.0% -13.9%SGT SingTel 142.2 -0.2 7.5 53.2 66.7 74.8 2.43 -1.2% 3.4% 0.0% 8.2% 5.9%CWN Crown 193.3 -3.3 15.0 56.7 98.0 111.3 7.86 -1.1% -3.7% -12.9% -6.7% -7.0%WOW Woolworths 125.1 -3.5 14.2 49.3 57.1 67.4 24.59 -0.2% -1.1% -11.0% -8.1% -13.7%TLS Telstra Corp 143.7 -4.9 1.8 47.0 65.3 75.9 3.15 2.3% 2.3% 2.9% 10.5% 19.3%TEL Telecom Corp 123.2 -5.3 7.0 34.1 46.4 55.4 2.00 0.5% -4.1% -2.9% 25.6% 29.7%TAH Tabcorp 192.0 -5.4 -44.4 7.5 30.9 64.6 2.79 2.2% 4.1% -13.9% -17.7% -12.9%AMC Amcor 140.9 -5.7 5.4 59.1 69.5 80.8 7.03 1.9% 5.1% -1.8% -1.3% 6.5%FGL Fosters 113.7 -5.9 -18.0 18.9 34.7 34.3 5.30 0.4% 8.4% 3.7% 13.6% 8.0%CCL Coca-Cola Amatil 104.2 -6.0 6.1 40.6 48.7 46.9 11.99 1.9% 1.6% 4.7% -1.4% -3.4%WES Wesfarmers 127.0 -6.1 15.7 51.4 60.5 61.5 31.54 -0.8% 2.9% 2.3% -7.2% -6.6%CSR CSR 143.5 -6.4 -3.2 57.1 72.7 87.1 2.47 -1.2% 6.0% -5.7% -20.3% -35.4%WBC Westpac 175.3 -11.7 -15.3 46.3 70.3 69.1 21.53 -1.0% 11.5% 1.8% -15.5% -3.5%MQG Macquarie Bank 317.5 -11.8 37.7 127.6 160.4 123.9 23.00 -7.1% 4.6% -21.0% -34.8% -30.5%CBA Commonwealth Bank 175.2 -12.0 -15.3 46.4 70.2 69.2 47.72 0.3% 8.6% -4.1% -10.2% -4.4%NAB National Australia Bank 175.2 -12.2 -15.3 46.4 69.8 68.2 24.28 -0.2% 9.4% -1.3% -9.4% -0.9%ANZ ANZ 175.2 -12.2 -15.0 46.4 70.2 68.4 21.12 0.1% 8.9% -0.7% -12.4% -9.2%RIO Rio Tinto 186.8 -13.8 31.2 85.9 98.0 110.5 62.85 -9.4% -9.7% -23.7% -25.3% -23.1%AMP AMP Group Holdings 190.9 -15.7 -5.8 53.3 67.3 44.8 4.07 -3.1% 2.5% -13.4% -27.5% -24.9%WDC Westfield Group 287.0 -15.9 22.0 151.2 177.9 164.3 7.56 -1.2% -0.9% -8.3% -18.4% -21.9%QAN Qantas Airways 298.3 -18.4 21.6 111.8 145.2 147.3 1.48 -5.4% -3.3% -21.3% -31.5% -47.5%LLC Lend Lease 431.6 -20.1 68.7 213.8 249.6 266.0 7.57 -1.0% 0.0% -15.5% -16.0% 2.3%QBE QBE Insurance 331.6 -22.4 53.0 169.4 204.5 180.4 13.82 -2.6% 11.2% -18.9% -27.8% -18.6%WPL Woodside Petroleum 170.2 -26.4 -5.4 47.5 66.7 35.4 33.60 -5.4% -0.2% -15.9% -29.8% -23.9%GPT GPT 288.8 -27.1 21.2 144.3 166.2 158.5 3.10 -1.0% -2.2% 3.0% -1.6% 6.9%

Priced at close of business 21 July 2011. Source: Bloomberg, RBS

Chart 22 : Australian CDS vs stock performance, one week

-15

-10

-5

0

5

10

15

20

25

30

BHP

SGT

CW

N

WO

W

TLS

TEL

TAH

AMC

FGL

CC

L

WES

CSR

WBC

MQ

G

CBA

NAB

ANZ

RIO

AMP

WD

C

QAN LL

C

QBE

WPL

GPT

1w CDS tightening (bp) 1w Stock performance (%)

bp / %

Source: Bloomberg, RBS

18


9

Table 7 : Commodity price movements

Spot % 1d % 1w % mtd % qtd % ytdCrude oil (US$/bbl) 85.3 -0.9 1.3 7.7 7.7 -6.7Natural gas (US$/mcf) 3.63 1.2 2.8 -1.0 -1.0 -17.6Aluminium (US$/lb) 0.94 -4.5 -5.2 -2.8 -2.8 -16.1Copper (US$/lb) 3.05 -6.6 -7.8 -4.0 -4.0 -30.3Lead (US$/lb) 0.80 -4.4 -12.7 -12.6 -12.6 -31.1Nickel (US$/lb) 8.15 -4.2 -2.4 2.3 2.3 -27.3Tin (US$/lb) 9.60 -3.3 -3.7 4.0 4.0 -21.4Zinc (US$/lb) 0.78 -5.4 -9.7 -6.4 -6.4 -29.6Iron ore – fines (US$/t cfr Tianjin) 145.8 -1.3 -9.0 -14.9 -14.9 -14.3Coal – steaming (US$/t fob Newcastle) 120.2 - - -1.7 -1.7 -4.7Uranium (US$/lb) 52.9 0.7 0.7 -0.3 -0.3 -14.1Gold (US$/oz) 1612 -2.1 -3.3 -0.5 -0.5 13.4Silver (US$/oz) 30.57 -0.1 -5.1 2.1 2.1 -1.1Platinum (US$/oz) 1499 0.2 -3.6 -1.8 -1.8 -15.4Palladium (US$/oz) 588.5 0.2 -5.8 -3.8 -3.8 -26.6CRB index 307.7 -1.0 -1.1 3.2 3.2 -7.5Soy (US$/bu) 12.25 0.0 -2.5 3.9 3.9 -12.1Corn (US$/bu) 6.50 1.7 1.8 9.6 9.6 3.3Wheat (US$/bu) 6.31 1.8 2.1 3.5 3.5 -20.6Sugar (USc/lb) 26.80 -0.6 -0.4 1.7 1.7 -16.6

Source: Bloomberg, CRB, LME, The Steel Index

Table 8 : Exchange rate movements

Currency AUD vs % 1d % mtd % qtd % ytd Currency vs USD % 1d % mtd % qtd % ytdUS dollar USD 1.0229 0.0 5.9 5.9 0.0 Australian dollar AUD 1.0229 0.0 5.9 5.9 0.0New Zealand dollar NZD 1.2894 -0.1 1.7 1.7 -1.7 New Zealand dollar NZD 0.7933 0.1 4.2 4.2 1.7Euro EUR 0.7426 0.0 2.9 2.9 -2.8 Euro EUR 1.3776 0.0 2.9 2.9 2.9Sterling GBP 0.6478 0.0 4.5 4.5 -1.1 Sterling GBP 1.5789 0.0 1.3 1.3 1.1Yen JPY 78.60 0.0 -5.3 -5.3 5.6 Yen JPY 76.84 0.0 0.2 0.2 5.6Hong Kong dollar HKD 7.9586 -0.1 5.8 5.8 0.0 Hong Kong dollar HKD 7.78 0.0 0.1 0.1 -0.1Canadian dollar CAD 1.0391 0.0 2.4 2.4 1.7 Canadian dollar CAD 0.9844 0.0 3.4 3.4 -1.7Singapore dollar SGD 1.3041 -0.1 3.2 3.2 -0.7 Singapore dollar SGD 0.7844 0.0 2.5 2.5 0.7Real BRL 1.8230 -0.1 0.3 0.3 7.3 Real BRL 1.782 0.0 5.5 5.5 -6.8Ruble RUB 32.08 0.0 2.9 2.9 2.6 Ruble RUB 31.4 -0.1 2.8 2.8 -2.7Rupee INR 50.9 0.0 7.7 7.7 11.7 Rupee INR 49.8 -1.3 -1.7 -1.7 -10.2Renminbi RMB 6.531 -0.1 5.9 5.9 -3.1 Renminbi RMB 6.39 0.0 0.0 0.0 3.2Rand ZAR 8.351 -0.3 0.0 6.8 23.1 Rand ZAR 8.16 0.3 -0.8 -0.8 -18.8

Source: Bloomberg

Chart 23 : Copper price vs AUD/USD Chart 24 : Oil vs gold ratio

0

1

2

3

4

5

2004 2006 2008 20100.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

Copper price (lhs) A$/US$ (rhs)

US$/lb US$

0

5

10

15

20

25

30

1990 1995 2000 2005 2010

bbl/oz


19


10

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

Source: Bloomberg, RBS forecasts

Table 10 : RBS energy price forecasts

Unit 1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F 2011F 2012F 2013F LTBrent Crude US$/bbl 106 95 90 87 86 89 95 94 93 95 99 97 94 91 96 90Uranium oxide US$/lb 64 56 50 48 46 44 45 45 45 45 50 50 55 45 48 65

Source: Bloomberg, RBS forecasts

Table 11 : RBS FX forecast summary

Per USD 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12FJPY 93.4 88.6 83.5 81.1 82.8 80.6 76.5 78.0 76.0 73.0 75.0 73.0GBP1 1.52 1.50 1.57 1.56 1.61 1.61 1.56 1.55 1.54 1.62 1.65 1.70CHF 1.05 1.08 0.98 0.94 0.92 0.84 0.90 0.90 0.92 0.88 0.87 0.85AUD1,2 0.92 0.85 0.97 1.02 1.04 1.07 1.06 0.93 0.95 1.02 1.10 1.10CAD 1.02 1.06 1.03 1.00 0.97 0.96 0.99 0.98 0.98 1.00 0.98 0.98ZAR 7.27 7.66 6.98 6.63 6.77 6.76 7.87 8.00 7.80 7.60 7.45 7.30SGD 1.40 1.40 1.32 1.28 1.26 1.23 1.28 1.18 1.17 1.16 1.15 1.14KRW 1131 1222 1140 1126 1097 1068 1170 1050 1040 1030 1020 1010CNY 6.83 6.78 6.69 6.61 6.55 6.46 6.39 6.35 6.29 6.22 6.16 6.10MXN 12.33 12.87 12.60 12.34 11.90 11.71 13.45 11.80 11.50 11.50 11.00 10.50BRL 1.78 1.80 1.69 1.66 1.63 1.56 1.80 1.65 1.65 1.70 1.70 1.70

Per EUR USD 1.35 1.23 1.36 1.34 1.42 1.45 1.36 1.33 1.31 1.36 1.38 1.41JPY 126.5 108.6 113.7 108.5 117.5 116.9 104.0 103.7 99.6 99.3 103.5 102.9GBP 0.89 0.82 0.87 0.86 0.88 0.90 0.87 0.86 0.85 0.84 0.84 0.83CHF 1.42 1.32 1.34 1.25 1.30 1.22 1.22 1.20 1.20 1.20 1.20 1.20SEK 9.74 9.52 9.19 8.99 8.95 9.17 9.20 9.30 9.25 9.15 9.00 9.00NOK 8.03 7.96 8.01 7.79 7.84 7.83 7.75 7.60 7.55 7.55 7.65 7.75PLN 3.86 4.13 3.97 3.96 4.03 3.98 4.40 4.35 4.20 4.10 4.00 4.00CZK 25.40 25.70 24.58 25.02 24.53 24.39 24.50 24.50 24.30 24.00 24.00 23.70HUF 265.6 284.7 276.7 278.7 266.0 265.9 287.0 295.0 285.0 285.0 280.0 280.0

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

20

Australia S


ctober 2011 11

RBS GBM economic forecasts

Table 12 : Global economic forecast database

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

1. End period. 2. Weighted average based on PPP GDP weightings, World GDP is 85% of IMF world PPP weightings. Source: Bloomberg, RBS forecasts

21

Australia S


ctober 2011 12

Table 13 : Key economic forecast changes

Gross domestic product Inflation – headline Policy rate 2010E 2011F 2012F 2010E 2011F 2012F 2011F 2012F US 3.0↑ (2.9) 1.7↓ (2.5) 2.1↓ (3.2) 1.6 3.1↑ (3.0) 2.4 0.12 0.12↓ (1.50) Euro area 1.7 1.6↓ (2.0) 1.1↓ (1.6) 1.6 2.6↓ (2.7) 1.7 1.50↓ (1.80) 2.00↓ (2.80) Germany 3.6↑ (3.5) 2.8↓ (3.4) 1.3↓ (2.0) 1.2 2.4 1.5↓ (1.6) - - - - France 1.4 1.6↓ (2.3) 1.2↓ (1.9) 1.7 2↓ (2.2) 1.2↓ (1.5) - - - - Italy 1.3↑ (1.2) 0.8↓ (1.1) 0.9↓ (1.5) 1.6 2.4↓ (2.6) 1.4↓ (1.7) - - - - Spain -0.1 0.7 0.7↓ (1.0) 2.0 3↓ (3.2) 1.1↓ (1.4) - - - - UK 1.4 1.1↓ (1.2) 1.8↓ (1.9) 3.3 4.3↓ (4.5) 2.8↓ (3.0) 0.50 0.50↓ (1.00) Japan 4.0 -0.5↑ (-0.9) 2.3↑ (2.1) -0.7 0.2↓ (0.3) 0.3 0.10 0.10 Asia (ex-Japan) 9.6 8.1 7.7 5.2 5.7 4.5 - - - - China 10.3 9.6 9.0 3.3 5.6 4.7 7.06 7.81 India 10.1 7.6 7.6 12.1 7.8 5.1 6.75 6.75 Australia 2.7 1.6↓ (2.3) 4.4↓ (4.9) 2.8 3.5↑ (3.3) 3.1↓ (3.5) 4.75↓ (5.30) 5.50↓ (6.00) New Zealand 1.7↑ (1.5) 2.7↑ (2.0) 4.9 2.3 4.4↑ (4.2) 2.2↑ (2.0) 3.00 4.00↓ (5.00) Emerging Europe and South Africa 4.7 4.4 3.7 6.0 6.0 6.4 - - - - Poland 3.8 4.3 4.2 2.7 4.1 3.3 4.75 5.00 Russia 4.0 4.1 3.5 6.8 7.5 8.5 8.25 9.00 Turkey 8.9 6.8 4.4 8.6 6.5 6.0 5.25↓ (6.30) 5.25↓ (7.30) Latin America Mexico 5.4 4.0 3.9 4.2 3.4 3.9 4.50 4.75↓ (5.80) Brazil 7.5 4.0 4.0 5.0 6.5 5.4 12.50 12.00 Argentina 9.1 6.6 3.1 10.4 13.9 18.0 - - - - World2 5.0 3.9↓ (4.1) 4↓ (4.3) 3.2 4.2 3.5 3.30↓ (3.40) 3.70↓ (4.20)

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

22

Important disclosures can be found in the Disclosures Appendix

Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

Economics Kieran Davies

+612 8259 5171

[email protected]

Felicity Emmett

+612 8259 5835

[email protected]

www.rbsm.com/strategy

21 October 2011

Debt comparisons – Australia & NZ versus the world We have compared gearing in Australia and New Zealand with gearing in the major advanced economies plus China. For economy-wide gearing, Japan takes top honours by an enormous margin, followed by Europe and the US. Australia and New Zealand are at the bottom, while China has the lowest gearing ratio of the lot. For public-sector debt, the story is very much the same, although the US features higher up the ladder, while public-sector gearing is the least in Australia by an extremely large margin, followed closely by New Zealand and China. Corporate debt has more differences, though, in that Spain takes the top spot from Japan, and the US joins Australia and New Zealand at the bottom of the rankings (we do not have a complete sector split for China, but it has the lowest non-government gearing of any country in the group). Household debt shows much less dispersion, with English-speaking countries at the top of the list. Australian households share the top spot with British households, followed closely by the US. Only in this instance does continental Europe feature at the bottom of the list. All this shows that Australia and New Zealand (and China) are the best-placed countries to respond on the fiscal front in a worst-case scenario where the European debt crisis dragged the world economy into recession, although households would be exposed given Australians and Kiwis are so heavily indebted.

Economic diary

AEST Indicator Period Unit Previous RBS Market

Monday, 24 October 11:30 Aus SoP PPI Q3 % qoq +0.8 +0.7 +0.8 11:30 Aus SoP PPI Q3 % yoy +3.4 +2.7 +2.9

Tuesday, 25 October 08:45 NZ CPI Q3 % qoq +1.0 +0.6 +0.7 08:45 NZ CPI Q3 % yoy +5.3 +4.8 +4.9 10:00 Aus RBA Deputy Governor Battellino speaks (Sydney)

Wednesday, 26 October 01:00 US consumer confidence Oct Index 14 na 15 11:00 NZ NBNZ activity outlook Oct Index 35.4 na na 11:00 NZ NBNZ business confidence Oct Index 30.3 na na 11:30 Aus CPI Q3 % qoq +0.9 +0.5 +0.6 11:30 Aus CPI Q3 % yoy +3.6 +3.4 +3.5 11:30 Aus RBA underlying inflation Q3 % qoq +0.6 +0.7 +0.6 11:30 Aus RBA underlying inflation Q3 % yoy +2.6 +2.7 +2.6 23:30 US durable goods orders Sep % mom -0.1 na -0.6

Thursday, 27 October 01:00 US new home sales Sep ‘000 295 na 300 07:00 NZ RBNZ cash rate decision Oct % 2.5 2.5 2.5 08:45 NZ trade balance Sep NZD m -641 na na 23:30 US real GDP Q3 % ar +1.3 na +2.4 05:00 US Fed Beige Book

Friday, 28 October 01:00 US pending home sales Sep % mom -1.2 na Flat 01:00 US ECI Q3 % qoq +0.7 na +0.6 23:30 US personal spending Sep % mom +0.2 na +0.6 23:30 US core PCE deflator Sep % mom +0.2 na +0.6

Saturday, 29 October 00:55 US Michigan cons confidence (final) Oct Index 57.5 na 58.0

Source: ABS, Bloomberg, Dow Jones, RBS & Reuters

Contents

Overview

Economic diary

Economics analysis

The week ahead

Monthly calendar

23

The Royal Bank of Scotland

Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

2

Debt comparisons – Australia & NZ versus the world Kieran Davies and Felicity Emmett

Key points

We have compared gearing in Australia and New Zealand with gearing in the major advanced economies plus China. For economy-wide gearing, Japan takes top honours by an enormous margin, followed by Europe and the US. Australia and New Zealand are at the bottom, while China has the lowest gearing ratio of the lot. For public-sector debt, the story is very much the same, although the US features higher up the ladder, while public-sector gearing is the least in Australia by an extremely large margin, followed closely by New Zealand and China. Corporate debt has more differences, though, in that Spain takes the top spot from Japan, and the US joins Australia and New Zealand at the bottom of the rankings (we do not have a complete sector split for China, but it has the lowest non-government gearing of any country in the group). Household debt shows much less dispersion, with English-speaking countries at the top of the list. Australian households share the top spot with British households, followed closely by the US. Only in this instance does continental Europe feature at the bottom of the list. All this shows that Australia and New Zealand (and China) are the best-placed countries to respond on the fiscal front in a worst-case scenario where the European debt crisis dragged the world economy into recession, although households would be exposed given Australians and Kiwis are so heavily indebted.

1. We compared Australian and NZ debt with debt in the major advanced economies plus China

We have used new data-sets on non-financial debt from the Bank for International Settlements, International Monetary Fund to analyse economy-wide and sectoral gearing in Australia and New Zealand versus the major advanced countries and China.

The countries we chose account for about two-thirds of the world economy.

1. USA (23.1% of world GDP in 2010) 2. China (9.4%) 3. Japan (8.7%) 4. Germany (5.2%) 5. France (4.1%) 6. UK (3.7%) 7. Italy (3.3%) 8. Canada (2.5%) 9. Spain (2.2%) 10. Australia (1.9%) 11. New Zealand (0.2%)

The gearing ratios are relatively simple in that they relate to gross debt and hence ignore contingent liabilities (such as financial debt guaranteed by Government) and financial assets.

24


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

3

Our sample group of countries accounted for almost two-thirds of the world economy

0

2

4

6

8

10

12

14

16

USA China Japan Germany France UK Italy Canada Spain Australia NZ0

5

10

15

20

25Nominal GDP (USD trillion, 2010) Nominal GDP (% world GDP)

Source: IMF and RBS

2. Australian, New Zealand and Chinese economy-wide gearing is low by world standards

In the first instance, calculating economy-wide gross debt, Japan is the stand-out, both at the moment and for the past thirty years (current gearing is 463% of GDP). The Europeans are next, with Spain (349%) in second place, followed by a cluster in the roughly 300-320% range (UK at 318%, France at 306% and Italy at 300%). The North Americans are next at between 270 and 290% (Canada at 285% and the US at 271%). Germany is on the low side of the major economies (248%), followed by Australia (194%) and New Zealand (186%). China is at the bottom of the group (153%).

In terms of the trend, every country has seen a rise in gearing over the past three decades, with the exception of Canada, and often building pace recently, which is no surprise given the extremely large Budget deficits of many countries. China’s gearing ratio has risen sharply, but this is exaggerated by a significant structural break in 2009 that affects the comparison (public debt was revised significantly higher in 2010, but China is yet to provide revised historical estimates). The rise in the gearing ratios for Australia and New Zealand has been modest by word standards.

25


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

4

Australian, New Zealand and Chinese economy-wide gearing is low by world standards

0

50

100

150

200

250

300

350

400

450

500

USA China Japan Germany France UK Italy Canada Spain Australia NZ

Economy-wide debt (% of GDP, end 2009 and 2010 data)

0

50

100

150

200

250

300

350

400

450

500

80 85 90 95 00 05 10

Economy-wide debt (% of GDP)

USA

Japan

China* * structural break in 2009

0

50

100

150

200

250

300

350

400

450

500

80 85 90 95 00 05 10


Germany

France

UK

0

50

100

150

200

250

300

350

400

450

500

80 85 90 95 00 05 10


Italy

Canada

Spain

0

50

100

150

200

250

300

350

400

450

500

80 85 90 95 00 05 10


NZ

Australia

Source: BIS, IMF and RBS

26


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

5

3. Australian, New Zealand and Chinese public-sector gearing is extremely low by world standards

For the public sector, the gearing ratios are for general government debt in order to ensure a fair comparison across countries (for example, in Australia’s case, this means that debt covers Commonwealth, State and local Government).

On this basis, the ranking is a little different. Japan is still at the top (220% of GDP in 2010), and the Europeans are next, although North America is now blended in. That is, Italy is in second place (119%), followed by the US (94%), Germany and Canada (both 84%), France (82%), the UK (76%) and Spain (60%). China is towards the bottom (34%), with New Zealand (31%) and Australia (20%) having the lowest gearing ratios by a very large margin.

In terms of the trend, the deterioration in Japan has been under way for many years as incomes have stagnated. The recent jump in US and UK debt has been very sharp given massive Budget deficits, while the rest of Europe and Canada have seen large increases too. The increase in Chinese gearing is overstated for the above-mentioned reason, while the rise in Australian and New Zealand debt has been modest by world standards.

Australian, New Zealand and Chinese public-sector gearing is extremely low by world standards

0

50

100

150

200

250


Public-sector debt (% of GDP, end 2009 and 2010 data)

27


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

6

0

50

100

150

200

250

80 85 90 95 00 05 10

Public-sector debt (% of GDP)

USA

Japan

China*

* structural break in 2009

0

50

100

150

200

250

80 85 90 95 00 05 10


Germany

France

UK

0

50

100

150

200

250

80 85 90 95 00 05 10


Italy

Canada

Spain

0

50

100

150

200

250

80 85 90 95 00 05 10


NZ

Australia


4. Non-financial corporate gearing is lowest in the US, Australia, and New Zealand

For the corporate sector, the gearing ratios are for non-financial company debt, which blurs the distinction between public and private companies.

On this basis, Japan slips from first place to second (161% of GDP in 2009), easily beaten by Spain (199%). France is third (155%), followed by the UK (133%) and Italy (129%). Canada (107%) and Germany (100%) have lower gearing. Surprisingly, US companies (77%) join Australia (65%) and New Zealand (61%) at the bottom of the rankings.

Over time, most countries have seen a trend increase in corporate gearing, with an extremely big increase in Spanish gearing. The exceptions are Canada and Australia, where the gearing ratios are relatively stable over time, and Japan, which has seen a dramatic reduction in gearing over the past two decades from a record level – for Japan and for any other country - of 217% of GDP at the end of the 1980s.

Note that we do not have a corporate split of debt for China. We calculate Chinese non-government debt at the lowest gearing of any country in our

28


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

7

group (the median ratio for the major advanced economies is 212%, with Australia at 175% and New Zealand at 212% and China at 119%).

Australian, New Zealand and US corporate gearing is very low by world standards

0

50

100

150

200

250


Corporate debt (% of GDP, end 2009 and 2010 data)

NA

0

50

100

150

200

250

80 85 90 95 00 05 10

Corporate debt (% of GDP)

USA

Japan

0

50

100

150

200

250

80 85 90 95 00 05 10


Germany

France

UK

0

50

100

150

200

250

80 85 90 95 00 05 10


Italy

Canada

Spain

0

50

100

150

200

250

80 85 90 95 00 05 10


NZ

Australia


29


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

8

5. Household gearing is led by the English-speaking countries, with Australia and the UK at the top

For the household sector, the gearing ratios span mortgage and consumer debt.

On this basis, the rankings are much closer and are dominated by trhe English-speaking countries. That is, Australia shares the top slot with the UK (both 110% of GDP). The US is next (99%), followed by Canada and New Zealand (both 94%). Spain is next (90%), with Japan (82%) afterwards. The lowest gearing ratios are in countries with lower home-ownership rates, with France (69%), Germany (64%) and Italy (52%) at the bottom.

For household gearing, the trend has been up in most countries over recent decades. The exceptions are Japan and Germany. The Japanese ratio has drifted lower over the past decade, while Germany is the only country where the ratio has fluctuated around a relatively stable long-term average. In recent years, gearing ratios have tended to stabilise or fall modestly in most countries, consistent with increased household saving.

(Note that we do not have a household split of debt for China for the reason outlined above.)

Household gearing is led by the English-speaking countries, with Australia and the UK at the top

0

20

40

60

80

100

120


Household debt (% of GDP, end 2009 and 2010 data)

NA

30


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

9

0

20

40

60

80

100

120

80 85 90 95 00 05 10

Household debt (% of GDP)

USA

Japan

0

20

40

60

80

100

120

80 85 90 95 00 05 10


Germany

France

UK

0

20

40

60

80

100

120

80 85 90 95 00 05 10


Italy

Canada

Spain

0

20

40

60

80

100

120

80 85 90 95 00 05 10


NZ

Australia


31


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

10

The week ahead

Monday, 24 October Australia PPI, Q3 Released: 11:30am Previous: +0.8% qoq Forecast: +0.7% Market: +0.8%

Our simple partial model points to a 0.7% rise in the PPI, although it has tended to slightly underestimate inflation recently. Oil prices should fall, with the PPI’s rise driven by domestic cost pressures. The PPI does not have any useful relationship with the CPI given its different composition and weights, although motor-vehicle and house prices, along with a handful of other smaller items, do map across to their CPI equivalents. FE

Tuesday, 25 October NZ CPI, Q3 Released: 11:30am Previous: +1.0% qoq / +5.3% yoy Forecast: +0.6% / +4.8% Market: +0.7% / +4.9%

The CPI should grow at a slower rate of 0.6%, although annual headline inflation will still be very high because it includes tax increases from last year. Food prices should be up sharply, increasing by 1.8%, which would be the largest rate since last year. Petrol prices should fall sharply. Our forecast is marginally below the RBNZ’s forecast of 0.7%. For underlying inflation, the RBNZ uses a complicated sectoral factor model to estimate core inflation (this is an unusual choice as we cannot think of another central bank measuring using this approach as its main measure of core inflation). It is currently running at an annual rate of 2.3% and will be updated by the RBNZ within a few hours of the release of the CPI. FE

Wednesday, 26 October Australia CPI, Q3 Released: 11:30am Previous: +0.9% qoq / +3.6% yoy Forecast: +0.5% / +3.4% Market: +0.6% / +3.5%

Average underlying inflation, Q3 Released: 11:30am Previous: +0.6 qoq / +2.5% yoy Forecast: +0.7% / +2.7% Market: +0.6% / +2.6%

Ahead of the PPI and NZ CPI, we are expecting a rise of 0.5% in the unadjusted headline CPI for Q3, with annual inflation nudging down to 3.4%. For seasonally adjusted underlying inflation, using the average of the trimmed mean and weighted median CPI, we expect a rise of 0.7%, which would see annual inflation rise to 2.7%.

The largest contribution to Q3 inflation should come from housing costs, with electricity and other utilities charges and rents making significant contributions. Domestic holiday travel should also add to inflation in the quarter, as well as the heavy-hitting restaurant and take-away categories. Keeping inflation in check though will be a large fall in fruit prices as the supply of bananas and other fruit recovers after the hit from the Queensland floods and Cyclone Yasi. Added to

32


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

11

this will be ongoing weakness in prices impacted by the higher exchange rate (especially computers and tvs).

CPI

Q3 10 Q4 10 Q1 11 Q2 11 Q3 11f

Headline inflation

Headline CPI % qoq 0.7 0.4 1.6 0.9 0.5 % yoy 2.8 2.7 3.3 3.6 3.4

Underlying inflation

Weighted median* % qoq 0.5 0.7 0.8 0.5 0.7 % yoy 2.6 2.4 2.4 2.6 2.8 Trimmed mean CPI* % qoq 0.5 0.4 0.9 0.7 0.6 % yoy 2.6 2.1 2.2 2.5 2.6 Average % qoq 0.5 0.5 0.8 0.6 0.7 % yoy 2.6 2.3 2.3 2.6 2.7

Contribution to CPI (ppc) Q3 10 Q4 10 Q1 11 Q2 11 Q3 11f

Food -0.1 0.4 0.5 0.2 -0.2

Alcohol & tobacco 0.2 0.1 0.1 0.1 0.1

Clothing & footwear 0.0 -0.1 0.0 0.1 0.0

Housing 0.5 0.1 0.3 0.1 0.5 Household furnishings 0.1 -0.1 -0.1 0.1 0.0

Health 0.0 -0.1 0.2 0.1 0.0

Transportation -0.1 0.0 0.3 0.1 0.0 Communication 0.0 0.0 0.0 0.0 0.0

Recreation 0.1 0.0 -0.1 -0.1 0.0

Education 0.0 0.0 0.2 0.0 0.0 Financial services 0.0 0.0 0.2 0.1 0.1

CPI (% qoq) 0.7 0.4 1.5 0.9 0.5 Note: numbers may not add because of rounding

Source: ABS, RBA and RBS

Note that this CPI includes significant changes flowing from the five-yearly review of the CPI that increase the uncertainty around our inflation forecasts.

(1) The weights will be updated and most of the controversial deposit and loans series will be dropped from the CPI. We think this will bias the CPI down slightly given it will increase the weight of computers, av equipment, etc, which are falling rapidly in price and since the deposit and loans series was growing at a faster rate than the CPI (eg, we calculate on these changes, the Q2 CPI would have been 0.7% rather than 0.9%).

(2) The CPI will also include a substantial increase in the numbers of goods and services that are adjusted for seasonality, with the seasonality of each item re-analysed every quarter. This will allow the publication of a seasonally adjusted CPI, although inflation-indexed swaps and bonds will still be priced off the unadjusted CPI. The change in seasonal adjustment has made us less certain of our trimmed mean and median CPI forecasts, particularly with the concurrent seasonal adjustment, although we think we have accounted for this.

In terms of other risks, falling fruit prices are a key issue. The bad weather in Queensland earlier this year has magnified the already large volatility in these prices and hence their impact on the CPI. It’s also quite difficult to get a good handle on fruit and vegetable prices, as composition-driven price movements at the wholesale level generally aren’t reflected in retail prices. While there is potential for it to go either way, we think on balance that this risk is tilted towards a lower headline CPI.

For what it’s worth, the monthly TDMI inflation gauge is pointing to a 0.2% rise in the CPI in Q3, although it has provided a poor guide to the actual CPI over

33


Aus

tral

ia/N

Z Ec

onom

ics

Wee

kly

12

recent years and we are not sure whether its weights have been updated at this point. FE

Thursday, 27 October RBNZ cash rate decision Released: 07:00am Previous: 2.5% Forecast: 2.5% Market: 2.5%

The RBNZ should keep the cash rate unchanged at a record low of 2.5%. The local economy continues to do well, with a big temporary boost from the Rugby World Cup, although the rebuilding effort in Christchurch is proceeding slowly given aftershocks. However, global uncertainty should keep the RBNZ on hold, particularly when policy-makers struggle to present a united response to the European debt crisis. FE

34


Australia/N

Z Markets N

avigator | Weekly

13

Calendar Monday Tuesday Wednesday Thursday Friday

24 October

Aus SoP PPI, Q3 US Chicago Fed national activity index, Sep

25

Aus RBA Deputy Governor Battellino speaks (Sydney, 10am) NZ CPI, Q3 US S&P/CS house price, Aug US TCB consumer confidence, Oct US Richmond Fed PMI, Oct US FHFA house price, Aug

26

Aus CPI, Q3 NZ NBNZ business survey, Oct US durable goods orders, Sep US new home sales, Sep

27

NZ RBNZ cash rate decision NZ trade balance, Sep US GDP, Q3 US pending home sales, Sep

28

US ECI, Q3 US personal income and spending, Sep US core PCE deflator, Sep US Michigan consumer confidence (final), Oct

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

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

2

US FOMC funds rate decision, Nov Aus HIA new home sales, Sep Aus building approvals, Sep US Challenger lay-offs, Oct US ADP employment report, Oct

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 ordersm Sep

4

US non-farm payrolls, Oct US unemployment rate, Oct US average hourly earnings, 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

8

Aus trade balance, Sep Aus NAB business survey, Oct US JOLTS, Sep US NFIB survey, Oct

9

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

11

NZ food prices, Oct US Michigan consumer confidence (preliminary), Nov

35


Equi

ty |

Aus

tral

ia |

Hea

lth C

are

Equi

p &

Ser

v


ResMed Inc

Pressure set to increase

We believe the progression of Medicare competitive bidding looks to changeOSA market dynamics, as DMEs focus on driving greater price concessions andusing lower priced products/manufacturers, while the price differential with private insurers diminishes, intensifying margin headwinds for RMD. Hold.

Key forecasts

FY10A FY11A FY12F FY13F FY14F

EBITDA (US$m) 306.6 338.5 346.0 375.8 411.7 Reported net profit (US$m) 194.8 227.8 227.0 245.5 272.7 Normalised net profit (US$m)¹ 194.8 227.8 227.0 245.5 272.7 Normalised EPS (US$)¹ 2.51 1.45 1.49 1.65 1.83 Normalised EPS growth (%) 32.20 15.40 2.59 11.10 11.10 Dividend per share (US$) 0.00 0.00 0.00 0.00 0.00 Dividend yield (%) 0.00 0.00 0.00 0.00 0.00 Normalised PE (x) 12.03 20.85 20.32 18.29 16.47 EV/EBITDA (x) 13.80 11.70 11.70 10.30 8.81 Price/net oper. CF (x) 5.69 20.30 18.50 16.50 14.00 ROIC (%) 21.20 21.60 18.20 18.30 19.30

1. Pre non-recurring items and post preference dividends Accounting standard: US GAAP Source: Company data, RBS forecasts

year to Jun, fully diluted

Competitive bidding set to heat up with Round 2 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.

Medicare reimbursement cut likely to flow-on to private insurers While 13% of RMD’s sales are exposed to US Medicare, 37% emanates from US private insurers. Although some private payers may garner volume-based discounts at rates 15-20% below those of Medicare, a recent survey of 4k DME professionals suggests a significant amount of Medicare price matching (47% of Rnd 1 contract winners), with high expectations for other insurers to follow suit (90%). Taken together, we estimate 29% of total revenue is at risk with Rnd 2 Medicare competitive bidding.

Scenario analysis – consensus looks optimistic 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 20-320bp 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 vs Bloomberg consensus, with EBITDA margins -290bp and revenue -4.4% below on average for FY13-15.

Maintain Hold; no changes to estimates; target price A$2.98 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.

21 October 2011

Analysts

Dr Derek Jellinek +61 2 8259 5848 [email protected]

Elliott Crane +61 2 8259 6729 [email protected] 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

Price performance

(1M) (3M) (12M)Price (A$) 2.85 2.97 3.15Absolute (%) 3.5 -0.7 -6.3Rel market (%) 0.9 9.0 4.5Rel sector (%) 4.4 15.0 6.5

2.0

2.4

2.8

3.2

3.6

4.0Oct 08 Oct 09 Nov 10

RMD.AX S&P/ASX200

Market capitalisation A$4.50bn (US$4.61bn) Average (12M) daily turnover A$17.90m (US$18.40m) Sector: BBG AP Health Part of: ASX/S&P 200 RIC: RMD.AX, RMD AU Priced A$2.95 at close 21 Oct 2011. Source: Bloomberg

Hold Target price A$2.98 Price A$2.95 Short term (0-60 days) n/a

37

ResMed Inc | Investment View | 21 October 2011

2

Competitive bidding – the story so far The Medicare Prescription Drug Improvement and Modernisation Act of 2003 (MMA) established a competitive acquisition program for certain durable medical equipment, prosthetics, orthotics and supplies (DMEPOS), which includes continuous positive airway pressure (CPAP) devices and related accessories. Administered by the Center for Medicare and Medicaid Services (CMS), the initiative aims to lower Medicare reimbursement by replacing Medicare’s existing fee schedule amounts with market-based prices based on several rounds of progressively large tendering followed by nationwide implementation according to the below timelines:

Round 1 (Rnd 1): implementation, Jan 2011; affected 9 metropolitan statistical areas (MSA) or ~6% of the US population.

Round 2 (Rnd 2): affects a further 91 MSAs; 2HCY11, CMS announced bidding schedule and registration; 2HCY12 bidding begins; mid-2013 implementation;

Nationwide rollout: 2016

Rnd 1 implementation entailed substantial cost savings for Medicare beneficiaries in regions affected, with cost savings averaging 34% across products used to treat obstructive sleep apnoea.

Chart 1 : Reimbursement rate impact under Rnd 1

-39%

-34%-31%

-29%

-23%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

Flow generators Heated humidifiers Nasal masks Full face masks Heated tubing

Source: CMS

Little effect observed for OSA manufacturers… While sizable cost savings were seen with Rnd 1, RMD and other national industry participants have claimed negligible effects on earnings. This observation is not surprising, however, as Rnd 1 only covers around 0.6% of RMD’s total revenues (50% US sales; 20% Medicare; 6% Medicare beneficiaries covered in Rnd 1).

Chart 2 : FY11 Revenue distribution Chart 3 : US revenue split by payer

US50%

EU34%

ROW16%

Medicare20%

Medicaid5%

Private75%

Source: Company data Source: Company data

38


3

…but more pain for DMEs; repealing and replacing not likely Durable Medical Equipment (DME) suppliers are the main distributor of RMD’s US products. While DMEs should be in an opportune spot with baby boomers coming of age and increased expenditures on homecare products, the industry is undergoing challenging times as it battles with sharp reductions in fee schedules, rising costs and increased regulation, along with an audit-frantic environment. These businesses continue to restructure and reorganise to adapt to the changing environment and have claimed hundreds of Medicare beneficiary complaints unable to compete against competitive bidding cost constraints, with negative implications for service levels. In addition, attempts to repeal the program are underway, with the latest bill (H.R. 1041) having more than 145 co-sponsors. Nevertheless, CMS officials continue to speak favourably about the program, with only a small number of complaints and no changes in beneficiary health outcomes. Importantly, a recent rescoring by the Congressional Budget Office (CBO) pegs the 10-year cost to repeal the program at US$20bn. Thus, we continue to believe the train has left the station and the days of hoping competitive bidding would go away are like to fade away.

Rnd 2 set to pick-up the pace and is bigger than expected We believe the financial impact of Rnd 2 is likely to be much more significant then Rnd 1, as the program’s scope is slated to increase more than 10 fold and cover at least 60% of the US population. In fact, the program appears to be larger than most observed expected, with recently released zip codes for the additional 91 MSAs including those in areas around MSAs (some areas including up to 400 zip codes), effectively bringing in higher population areas. As such, we believe DMEs are more likely to push for greater price concessions and volume discounts from manufacturers. In addition, while private payers discounts may have rates below Medicare, we believe there is an increasingly likelihood these insurers follow Medicare with their price decline and beyond the borders of the directly effected areas.

How bad could it be? To better understand the potential impact from reimbursement cuts to both government and private payers, we analysed RMD’s total exposure (ie, worst case) assuming similar cost-savings as seen in Rnd 1 and complete pass-on concessions to DME from manufacturers. In the table below, Rnd 2 cuts to Medicare revenue would decline by 2.1%, shaving 9% off of earnings. If private insurers follow suit, we estimate nearly 8% decline in revenue or 34% earnings impact. Taken together, we estimate a total impact from Rnd 2 of 10% in lost revenues and 43% negative impact on the bottom line.

Table 1 : Summary of revenue exposure and worst case pricing impacts

ResMed Round 1 Round 2 Full competitive biddingCompetitive bidding price cut -34% -34% -34%

Medicare worst case Medicare revenues as % of total 10% 10% 10%% of Medicare patients covered under competitive bidding

6% 60% 100%

% of RMD revenues exposed 0.6% 6.0% 10.1%Cuts effect on total revenues -0.2% -2.1% -3.4%NPAT impact -0.9% -9.0% -15.0%

Private insurance US Private insurance as % of revenues 37.7% 37.7% 37.7%% of Private insurance revenues exposed 6% 60% 100%% of RMD revenues exposed to US private insurance

2.3% 22.6% 37.7%

Private cuts effect on total revenues -0.8% -7.7% -12.8%NPAT impact -3.4% -33.7% -56.1%

Collective impact Collective revenue impact -1.0% -9.7% -16.2%Collective NPAT impact -4.3% -42.6% -71.1%One-off revenue impact -1.0% -8.8% -6.5%One-off NPAT impact -4.3% -38.4% -28.4%

Source: Company data, RBS forecasts, CMS

39


4

Trying to determine the most likely effects of competitive bidding To better understand the real world effects from competitive bidding, we analyse key topics noted below:

How likely are private insurers to implement cuts and have DMEs responded?

What is the relationship between the DME and manufacturers like RMD?

What are the market emerging dynamics?

Private insurers likely to pass along cuts and DME look for cost savings A recent sleep survey of 4k HME professionals conducted by HME business magazine (75 responders; 2% participation rate) offers some valuable insights into competitive bidding effects on private insurers and what steps DME have taken with manufacturers to soften the pressure on margins. We highlight below key takeaways:

47% who won Rnd 1 contracts have seen other insurers matching Medicare bid rates

90% expect other insurers to cut reimbursement based on Medicare bid levels (10% are unsure)

50% switched to lower-end products from their existing manufacturers

29% switched to lower priced manufacturers

Chart 4 : HME Survey: Have other insurers cut reimbursement based on Medicare bid levels?

Chart 5 : HME Survey: Do you expect other insurers to cut reimbursement based on Medicare bid levels?

Yes47%

No40%

Unsure13%

n=15

Yes90%

Unsure10%No

0%

n = 52

Source: HME Business Magazine Source: HME Business Magazine

Chart 6 : Effects of competitive bidding from surveyed DMEs

100%

50%

29%

0%

20%

40%

60%

80%

100%

120%

Negotiated lower pricing withmanufacturers

Switched to lower-end products from thesame manufacturer

Switched manufactuers

Source: HME Business Magazine

40


5

Given the flow-though to private insurers from the relatively small-scope of Rnd 1 Medicare reimbursement cuts, we believe it portends more widespread impacts on private insurers as Rnd 2 comes to fruition. However, our channel checks suggest the degree to which private insurers will institute reimburse cuts for OSA products is likely to be less than the full extent of that seen by Medicare, as the former tends to reimbursement these products around 15-20% below those of the government due to volume-based concessions. Thus, we estimate private insurers are likely to pass-on 40% of the rates imposed by Medicare. In terms of DMEs negotiating lower pricing with manufacturers or switching manufacturers or switching to lower-end products, we view increasing likelihood for price concessions and possible brand switching as DMEs look to support their margins.

DME and manufacturer dichotomy…flat Medicare reimbursement is to blame

As the main product distributors, we believe the relationship with DME is critical for product uptake. Even though RMD is not directly associated with reimbursement, the ability to sell products into this channel is contingent upon adequate patient uptake and thus, payment from third-party payers (as discussed previously: Feeing the pressure; 27 July 2011). This dynamic is important to acknowledge as we believe there is a growing dichotomy between manufacturers pushing high-end products into the channel and DMEs focusing on the lower-priced products patients will comply with as Medicare reimbursement rates under Part B are flat across product categories regardless of product quality or wholesale price. Thus, although RMD’s ongoing mix-shift away from lower priced basic CPAP to higher end APAP support margin uplift (12% price differential), DMEs fair no better between the two products as the reimbursement codes are identical, but will look for products offering compliance monitoring as patient adherence is required for continued coverage (ie Medicare covers up to 3mo, with continuation of coverage up to 13mo only if patient is compliant greater than or equal to 4 hours per night on 70% of nights during a consecutive 30-day period).

Manufacturers have avoided large price concession

Historically, manufacturers have largely avoided the push from DME looking for large price concession (above the typical 3-5%/yr average), with our discussions with DME providers indicating that competitive bidding is just one of many cuts end distributors have faced over the last 5 years on both the public and private side as reimbursement rates have fallen over 40% over that time. According to DMEs we surveyed, manufacturers have avoided major price cuts due to several reasons:

Aggressively marketed higherend product directly to prescription referral sources, driving prescription rates

Selling directly to physicians despite a conflict of interest, with physicians prescribing and selling the same equipment

Adamantly holding their pricing line with their “head in the sand”

High competition among DME ensuring wide model choice offering

Emerging market dynamics- lower priced products with higher data capabilities Given a reimbursement rate that is not finely tuned to free market dynamics and manufacturers avoiding the brunt of the reimbursement cuts for as long as DMEs can survive under them, we believe continued market pressure are changing industry dynamics where the divide between manufacturers’ focus on premium high end products and DMEs push for lower pricing while maintain compliance is beginning to close. In fact, we note Philips Respironics recently released REMstar Pro with AutoIQ (October 2011), a CPAP with data capabilities that allow it to track a patients progress over several nights, establish or readjust an ideal therapy pressure, reassess the patients progress as needed without the provider needing to visit the patients home and delivers key compliance information. According to CPAP.com, the REMstar Pro retails 12% below RMD’s S9 Escape, the most basic CPAP in that series.

Scenario analysis Given changing market dynamics with the geographic expansion of competitive bidding, DME’s strengthening buyer power and lower cost sourcing and private insurers likely to pass-on price cuts, we performed a scenario analysis to better assess the impact to RMD. Specifically, we assessed:

41


6

DME’s passing on pricing cuts to manufacturers

Private insurers own follow-on cuts

DME’s move to lower priced manufacturers’ products

DME’s sourcing lower margin/lower end products

Across all scenarios, we assumed the following: Rnd 2 entails 30% price cuts in-line with total Rnd 1 cuts; that it commences in mid-2013, with full coverage effects starting in 2016; 5% GM difference between high and low end products.

Bear: 70% of Rnd 2 cuts are passed on to manufacturers, given the DME’s already tight margins. DMEs move to lower margin products (50% Medicare; 5% private insurers) or lower priced manufacturers (30% Medicare; 20% private insurers). This migration is in line with the recent survey by HME Business Magazine.

Base: 40% of Rnd 2 cuts are passed on to manufacturers. DMEs mover to lower margin products (25% Medicare; 0% private insurers) or lower priced manufacturers (16% Medicare; 10% private insurers).

Bull: 10% or Rnd 2 cuts are passed on to manufacturers. DMEs mover to lower margin products (5% Medicare; -5% private insurers) or lower priced manufacturers (5% Medicare; 0% private insurers).

Table 2 : Scenario assumptions

Competitivebidding cuts

Private insurance cuts

Passed on cuts

% Medicare businessgoing lower margin

%PHI business going lower margin

% Medicare business going to lower cost manf

% of PHI businessgoing lower cost manf

Bull -30% -2% 10% 5% -5% 5% 0%Base -30% -15% 40% 25% 0% 16% 10%Bear -30% -30% 70% 50% 5% 30% 20%


We highlight below effects on revenues and GM under the scenarios stated above. If we assume impacts are not factored into our model, the base case suggest a 200-320bp negative hit to EBITDA margins for FY13-15, along with top-line downgrades of 6-8%.

Chart 7 : Revenues for differing scenario assumptions Chart 8 : Gross Margin impact for differing scenario assumptions

1,820

2,084

2,2782,291

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2012 2013 2014 2015 2016 2017 2018

Bear Base Bull No change

Revenues (A$m)

-10.7%

-3.8%

-0.3%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2012 2013 2014 2015 2016 2017 2018

Bear Base Bull

Gross Margin impact (%)

Source: RBS forecasts Source: RBS forecasts

Consensus looks overly optimistic – we make no changes to our numbers We had previously factored in competitive bidding through moderate reductions in revenues and significant lower EBITDA margins. In comparing our FY13-15F revenues and EBITDA margin to Bloomberg consensus, our EBITDA margin is 290bp below consensus and 100bp below the EBITDA margin implied when we overlay our scenario analysis base case to consensus’ numbers. On a revenue basis across the same time period, our estimates are 4.4% below consensus and 0.3% above the revenues implied when we overlay our base case scenario to consensus. Hence, we believe our forecasts accurately capture the negative impacts of competitive bidding implied with our scenario analysis and make no changes to our estimates.

42


7

Chart 9 : Revenues: RBS versus Consensus and Consensus with the base case scenario overlay

Chart 10 : EBITDA margin: RBS versus Consensus and Consensus with the base case scenario overlay

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

FY12 FY13 FY14 FY15Consensus RBS Consensus + base case overlay

Revenue (US$m)

0%

5%

10%

15%

20%

25%

30%

FY12 FY13 FY14 FY15Consensus RBS Consensus + base case overlay

EBITDA margin

Source: RBS forecasts, Bloomberg Source: RBS forecasts, Bloomberg

43


8

RMD – financial summary

Year to 30 Jun (US$m) US GAAP US GAAP US GAAP US GAAP US GAAP Closing price (A$) 2.95 2.98Income statement 2009A 2010A 2011A 2012F 2013F Valuation metricsDivisional sales 920.7 1092.4 1243.2 1415.0 1597.3 Preferred methodology Val'n (A$) 2.99$ Total revenue 920.7 1092.4 1243.2 1415.0 1597.3 DCF valuation inputsEBITDA 243.7 306.6 338.5 346.0 375.8 Rf 4.26% 10-yr rate (US) 4.26%Associate income Rm-Rf 4.50% Margin 2.0%Depreciation/Amortisation -46.3 -53.5 -61.4 -69.9 -79.0 Equity Beta 1.05 Kd 6.26%EBITA 190.3 245.1 266.9 266.0 286.7 CAPM (Rf+Beta(Rm-Rf)) 9.0% Ke 9.0%Goodwill amortisation -7.1 -8.0 -10.1 -10.1 -10.1 E/EV*Ke+D/EV*Kd(1-t) NPV cash flow (US$m) 5771.6EBIT 190.3 245.1 266.9 266.0 286.7 Equity (E/EV) 90.0% Minority interest (US$m) 0.0EBIT(incl associate profit) 190.3 245.1 266.9 266.0 286.7 Debt (D/EV) 10.0% Net debt (US$m) -635.1Net interest expense 10.2 14.0 26.0 32.7 35.4 Interest rate 6.26% Investments (US$m) 0.0Pre-tax profit 201.7 265.3 301.7 300.6 325.1 Tax rate (t) 24.5% Equity market value (US$m) 6406.7Income tax expense -55.2 -70.5 -73.9 -73.7 -79.7 WACC 8.5% Diluted no. of shares (m) 157.2After-tax profit 146.4 194.8 227.8 227.0 245.5 DCF valuation (US$) 40.76Minority interests 0.0 0.0 0.0 0.0 0.0NPAT pre significant items 146.4 194.8 227.8 227.0 245.5 Multiples 2010A 2011A 2012F 2013FSignificant items 0.0 0.0 0.0 0.0 0.0 Enterprise value (US$m) 4245.3 3977.3 4056.9 3862.9Reported NPAT 146.4 194.8 227.8 227.0 245.5 EV/Sales (x) 3.9 3.2 2.9 2.4

EV/EBITDA (x) 13.8 11.7 11.7 10.3Divisional sales revenue 2009A 2010A 2011A 2012F 2013F EV/EBIT (x) 17.3 14.9 15.3 13.5Air flow generators 506.2 633.6 695.9 772.4 857.4 PE (normalised) (x) 12.0 20.8 20.3 18.3Masks, accessories, motors and diagnostics products 414.5 458.8 547.3 642.5 739.9 PEG (normalised) (x) 0.9 1.5 1.5 1.3

Cash flow statement 2009A 2010A 2011A 2012F 2013F At target price 2010A 2011A 2012F 2013FEBITDA 243.7 306.6 338.5 346.0 375.8 EV/EBITDA (x) 14.0 11.9 11.9 10.4Change in working capital -27.1 0.0 -64.9 -58.0 -61.6 PE (normalised) (x) 12.2 21.1 20.5 18.5Net interest (pd)/rec 5.0 2.2 29.5 32.7 35.4Taxes paid 16.9 96.7 -73.9 -73.7 -79.7 Comparable company data (x) 2011A 2012F 2013FOther oper cash items 0.0 0.0 0.0 0.0 0.0 Cochlear EV/EBITDA 12.1 14.5 11.8Cash flow from ops (1) 239.7 411.7 234.4 249.0 273.0 Year to 30 Jun EV/EBIT 13.5 16.5 13.0Capex (2) -107.9 -56.8 -61.4 -69.9 -79.0 PE 18.3 23.8 18.0Disposals/(acquisitions) -1.7 -9.1 0.0 -30.0 0.0 PEG 1.1 1.4 1.1Other investing cash flow -7.9 9.7 0.0 0.0 0.0Cash flow from invest (3) -117.5 -56.3 -61.4 -99.9 -79.0Incr/(decr) in equity -65.7 -70.0 -50.0 -228.7 0.0Incr/(decr) in debt 0.0 0.0 -75.0 0.0 0.0Ordinary dividend paid 0.0 0.0 0.0 0.0 0.0Preferred dividends (4) 0.0 0.0 0.0 0.0 0.0Other financing cash flow 0.0 0.0 0.0 0.0 0.0 Per share data 2010A 2011A 2012F 2013FCash flow from fin (5) -65.7 -70.0 -125.0 -228.7 0.0 No. shares 77.5 156.7 148.7 148.7Forex and disc ops (6) 0.0 0.0 0.0 0.0 0.0 EPS (cps) 251.1 144.9 148.7 165.1Inc/(decr) cash (1+3+5+6) 56.5 285.3 48.0 -79.6 194.0 EPS (normalised) (c) 251.1 144.9 148.7 165.1Equity FCF (1+2+4) 131.8 354.8 173.0 179.1 194.0 Dividend per share (c) 0.0 0.0 0.0 0.0

Dividend payout ratio (%) 0.0 0.0 0.0 0.0Balance sheet 2009A 2010A 2011A 2012F 2013F Dividend yield (%) 0.0 0.0 0.0 0.0Cash & deposits 415.6 488.8 735.3 655.6 849.7Trade debtors 212.1 226.9 274.4 312.3 352.5 Growth ratios 2010A 2011A 2012F 2013FInventory 157.4 185.6 200.8 228.5 258.0 Sales growth 18.6% 13.8% 13.8% 12.9%Investments 0.0 0.0 0.0 0.0 0.0 Operating cost growth 16.1% 15.1% 18.2% 14.3%Goodwill 213.2 198.6 235.5 235.5 235.5 EBITDA growth 25.8% 10.4% 2.2% 8.6%Other intangible assets 35.0 30.9 47.9 48.3 50.0 EBITA growth 28.8% 8.9% -0.4% 7.8%Fixed assets 377.6 387.1 462.1 451.6 439.8 EBIT growth 28.8% 8.9% -0.4% 7.8%Other assets 97.0 108.4 113.0 143.0 143.0 Norm. NPAT gwth 33.0% 16.9% -0.3% 8.1%Total assets 1508.0 1626.4 2068.9 2074.8 2328.4 Norm. EPS gwth 32.2% 15.4% 2.6% 11.1%Short-term borrowings 67.5 121.7 0.2 0.2 0.2Trade payables 48.3 57.5 55.2 62.8 70.9 Operating performance 2010A 2011A 2012F 2013FLong-term borrowings 94.2 0.0 100.0 100.0 100.0 Asset turnover (%) 17.4 16.8 17.1 18.1Provisions 11.1 10.8 8.1 8.1 8.1 EBITDA margin (%) 28.1 28.1 27.2 24.5Other liabilities 171.6 148.8 174.8 174.8 174.8 EBIT margin (%) 22.4 22.4 21.5 18.8Total liabilities 392.8 338.9 338.2 345.8 353.9 Net profit margin (%) 17.8 17.8 18.3 16.0Preference shares 0.0 0.0 0.0 0.0 0.0 Return on net assets (%) 17.1 18.8 18.6 19.5Hybrid equity 0 0 0 0 0 Net debt (US$m) -367.1 -635.1 -555.5 -749.5Share capital 468.6 523.3 453.3 453.3 453.3 Net debt/equity (%) -22.8 -24.0 -32.0 -39.2Other reserves 207.8 105.8 105.8 105.8 105.8 Net interest/EBIT cover (x) -17.5 -10.3 -8.1 -8.1Retained earnings 548.3 694.8 874.6 1076.2 1324.7 ROIC (%) 15.2 19.2 20.6 24.2Other equity -143.0 -208.7 -208.7 -208.7 -208.7Total equity 1081.8 1115.2 1225.0 1426.6 1675.1 Internal liquidity 2010A 2011A 2012F 2013FMinority interest 0.0 0.0 0.0 0.0 0.0 Current ratio (x) 3.2 3.4 4.1 4.8Total shareholders' equity 1081.8 1115.2 1225.0 1426.6 1675.1 Receivables turnover (x) 5.0 5.0 4.8 4.8Total liabilities & SE 1406.0 1508.0 1634.0 1842.9 2099.8 Payables turnover (x) 14.8 16.0 18.1 18.3

CDI Price target (A$)

DCF, EV/EBITDA, PE

Source: Company data, RBS forecasts

44


Equi

ty |

Aus

tral

ia |

Hea

lth C

are

Equi

p &

Ser

v


Primary Health Care

One overhang lifted

While PRY's debt refinance has done little to our estimates, it has alleviated muchof the uncertainty around its capital structure in tight credit markets. However,with soft profitability metrics, aggressive accounting and trading at 14x FY12F earnings, the stock looks to us fully valued. Hold maintained.

Key forecasts


EBITDA (A$m) 331.0 318.6 350.9 368.5 387.4 Reported net profit (A$m) 132.0 78.30 115.7 132.9 145.4 Normalised net profit (A$m)¹ 132.0 96.50 115.7 132.9 145.4 Normalised EPS (c)¹ 26.82 19.49 23.18 26.24 28.70 Normalised EPS growth (%) 8.33 -27.4 19.00 13.20 9.38 Dividend per share (c) 25.00 8.00 18.00 20.00 23.00 Dividend yield (%) 7.94 2.54 5.71 6.35 7.30 Normalised PE (x) 11.70 16.20 13.60 12.00 11.00 EV/EBITDA (x) 7.64 8.24 7.41 7.08 6.75 Price/net oper. CF (x) 6.89 7.85 7.54& 7.15 6.66 ROIC (%) 5.51 4.87 5.12 5.52 5.75

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

year to Jun, fully diluted

Capital structure concerns lifted with debt refinance 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. Associated costs include an FY12 interest expense of A$83m (-5.3% yoy; A$44m 1HFY12; A$39m 2HFY12), with higher amortisation of borrowing costs at A$14.5m (+60% yoy; A$8.5m 1HFY12; A$6m 2HFY12), dropping to A$4.5m in FY13.

What have we done to our numbers? 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.

One overhang lifted, but poor earnings metrics remain 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. However, we remain cautious on the name given soft profitability metrics (ROE -870bp to 3.9% over the last four years) and a current negative ROCE-WACC spread of -1.7%.

Maintain Hold; target price A$3.20 (previously A$2.84) 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.

21 October 2011

Analysts

Dr Derek Jellinek +61 2 8259 5848 [email protected]

Elliott Crane +61 2 8259 6729 [email protected] 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

Price performance

(1M) (3M) (12M)Price (A$) 2.95 3.45 3.34Absolute (%) 6.8 -8.7 -5.7Rel market (%) 4.1 0.2 5.2Rel sector (%) 7.7 5.7 7.2

2

3

4

5

6

7Oct 08 Oct 09 Nov 10

PRY.AX S&P/ASX200

Market capitalisation A$1.55bn (US$1.59bn) Average (12M) daily turnover A$7.53m (US$7.76m) Sector: BBG AP Health Part of: ASX/S&P 100 RIC: PRY.AX, PRY AU Priced A$3.15 at close 20 Oct 2011. Source: Bloomberg

Hold Target price A$3.20 (from A$2.84) Price A$3.15 Short term (0-60 days) n/a

45

Primary Health Care | Investment View | 21 October 2011

2

Details of the refinance Primary’s A$1.02bn refinance is broken up into the following tiers:

A A$770m three-year four-month non-amortising facility, maturing February 2015;

A A$100m three-year four-month revolving working capital facility, maturing February 2015;

A A$150m five-year non-amortising facility, maturing October 2016.

Valuation

Table 1 : Primary valuation table

Metric Weight Valuation (A$ps) Blended valuation (A$ps)DCF valuation 33% 2.86 0.95P/E valuation* at (13x FY2) 33% 3.50 1.17EV/EBITDA valuation* at (7.5x FY2) 33% 3.23 1.08Blended equity valuation 100% 3.20Target price 3.20

*Based on the FY12F peer group average of companies under our coverage Source: Company data, RBS forecasts

46

Primary Health Care | Investment View | 21 October 2011

3

PRY – financial summary

Year to 30 Jun (A$m) AIFRS AIFRS AIFRS AIFRS AIFRS Closing price (A$) 3.15 3.20Income statement 2010A 2011A 2012F 2013F 2014F Valuation metricsDivisional sales 1286.8 1312.9 1361.6 1421.0 1484.9 Preferred methodology Val'n (A$) 3.20$ Total revenue 1296.6 1312.9 1361.6 1421.0 1484.9 DCF valuation inputsEBITDA 331.0 318.6 350.9 368.5 387.4 Rf 5.25% 10-year rate 5.25%Depreciation/Amortisation -72.9 -82.2 -92.9 -90.1 -94.0 Rm-Rf 6.00% Margin 2.75%EBITA 258.1 236.4 258.0 278.5 293.3 Equity Beta 1.21 Kd 8.00%Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 CAPM (Rf+Beta(Rm-Rf)) 12.5% Ke 12.5%EBIT 258.1 236.4 258.0 278.5 293.3 E/EV*Ke+D/EV*Kd(1-t) NPV cash flow (A$m) 2507.0Associate & Other income 0.0 -9.2 -10.1 -9.3 -8.1 Equity (E/EV) 65.0% Minority interest (A$m) 7.2EBIT(incl associate profit) 258.1 227.2 247.9 269.2 285.2 Debt (D/EV) 35.0% Net debt (A$m) 1051.6Net interest expense -75.0 -87.9 -81.9 -78.1 -76.3 Interest rate 8.00% Investments (A$m) 1.2Pre-tax profit 180.3 139.3 166.0 191.1 209.0 Tax rate (t) 29.0% Equity market value (A$m) 1449.4Income tax expense -46.1 -41.3 -48.1 -55.4 -60.6 WACC 10.1% Diluted no. of shares (m) 506.5After-tax profit 134.2 98.0 117.9 135.6 148.4 DCF valuation (A$) 2.86Minority interests -2.2 -1.5 -2.2 -2.7 -3.0NPAT pre significant items 132.0 96.5 115.7 132.9 145.4 Multiples 2011A 2012F 2013F 2014FSignificant items 0.0 -18.2 0.0 0.0 0.0 Enterprise value (A$m) 2624.4 2601.7 2608.1 2613.8Reported NPAT 132.0 78.3 115.7 132.9 145.4 EV/Sales (x) 2.0 1.9 1.8 1.8

EV/EBITDA (x) 8.2 7.4 7.1 6.7Divisional sales revenue 2010A 2011A 2012F 2013F 2014F EV/EBIT (x) 11.1 10.1 9.4 8.9Medical Centres 259.0 274.6 298.1 318.7 341.8 PE (normalised) (x) 16.2 13.6 12.0 11.0Pathology 720.7 740.1 768.4 797.6 827.8 PEG (normalised) (x) 12.7 10.6 9.4 8.6Diagnostic Imaging 289.1 285.0 291.9 299.0 306.8Health Technologies 46.4 48.9 51.3 53.9 56.6 At target price 2011A 2012F 2013F 2014FUnallocated -28.4 -48.1 -48.1 -48.1 -48.1 EV/EBITDA (x) 8.3 7.5 7.1 6.8

PE (normalised) (x) 16.4 13.8 12.2 11.1Divisional EBIT 2010A 2011A 2012F 2013F 2014FMedical Centres 124.4 122.8 132.3 145.9 156.1 Comparable company data (x) 2012F 2013F 2014FPathology 117.0 95.3 101.5 107.5 111.8 Sonic Healthcare EV/EBITDA 9.2 8.3 7.6Diagnostic Imaging 15.0 13.0 17.0 17.8 18.0 Year to 30 Jun EV/EBIT 11.4 10.4 9.4Health Technologies 13.3 11.9 12.2 13.9 15.3 PE 13.9 12.7 11.4Unallocated/Corporate synergies -11.5 -15.9 -15.2 -15.9 -16.0 PEG 1.6 1.5 1.4

Cash flow statement 2010A 2011A 2012F 2013F 2014FEBITDA 331.0 318.6 350.9 368.5 387.4Change in working capital 7.4 0.7 -2.2 -2.7 -2.9Net interest (pd)/rec -59.3 -79.4 -81.9 -78.1 -76.3Taxes paid -28.4 -24.7 -48.1 -55.4 -60.6 Per share data 2011A 2012F 2013F 2014FOther oper cash items No. shares 491.7 506.5 506.5 506.5Cash flow from ops (1) 225.0 198.6 208.5 223.0 239.5 EPS (cps) 15.8 23.2 26.2 28.7Capex (2) -104.3 -99.1 -81.5 -87.8 -91.7 EPS (normalised) (c) 19.5 23.2 26.2 28.7Disposals/(acquisitions) -71.5 -97.6 -39.5 -45.5 -47.3 Dividend per share (c) 8.0 18.0 20.0 23.0Other investing cash flow 0.0 0.0 0.0 0.0 0.0 Dividend payout ratio (%) 65.2 77.0 78.0 79.0Cash flow from invest (3) -175.8 -196.6 -121.0 -133.3 -138.9 Dividend yield (%) 2.5 5.7 6.3 7.3Incr/(decr) in equity 268.1 0.1 0.0 0.0 0.0Incr/(decr) in debt -1459.8 -167.4 0.0 0.0 0.0 Growth ratios 2011A 2012F 2013F 2014FOrdinary dividend paid -52.3 -45.2 -64.9 -96.2 -106.3 Sales growth 2.0% 3.7% 4.4% 4.5%Preferred dividends (4) 0.0 0.0 0.0 0.0 0.0 Operating cost growth 4.0% 1.6% 4.1% 4.3%Other financing cash flow 997.2 266.3 0.0 0.0 0.0 EBITDA growth -3.8% 10.1% 5.0% 5.1%Cash flow from fin (5) -246.8 53.8 -64.9 -96.2 -106.3 EBITA growth -8.4% 9.1% 7.9% 5.3%Forex and disc ops (6) 0.0 0.0 0.0 0.0 0.0 Divisional EBIT growthInc/(decr) cash (1+3+5+6) -197.6 55.7 22.7 -6.4 -5.7 Medical Centres -1.2% 7.7% 10.2% 7.0%Equity FCF (1+2+4) 120.7 99.5 127.0 135.2 147.8 Pathology -18.5% 6.5% 5.8% 4.1%

Diagnostic Imaging -13.4% 30.9% 4.8% 1.2%Balance sheet 2010A 2011A 2012F 2013F 2014F Health Technologies -10.7% 3.3% 13.8% 9.6%Cash & deposits 25.8 43.3 66.0 59.5 53.8 Unallocated/Corporate synergie 37.7% -3.9% 4.3% 0.6%Trade debtors 149.7 156.7 162.5 169.6 177.2Inventory 24.3 25.6 26.6 27.7 29.0 EBIT growth -8.4% 9.1% 7.9% 5.3%Investments 3.2 1.2 30.5 66.7 105.9 Norm. NPAT growth (pre GW) -26.9% 19.9% 14.9% 9.4%Goodwill 2999.8 3081.6 3081.6 3081.6 3081.6 Norm. NPAT growth -26.9% 19.9% 14.9% 9.4%Other intangible assets 75.6 82.4 66.9 60.2 53.3 Norm. EPS growth (pre GW) -27.4% 19.0% 13.2% 9.4%Fixed assets 367.7 397.9 402.0 406.3 410.9 Norm. EPS growth -27.4% 19.0% 13.2% 9.4%Other assets 50.1 37.1 47.2 56.5 64.6Total assets 3696.3 3825.7 3883.2 3928.2 3976.2 Operating performance 2011A 2012F 2013F 2014FShort-term borrowings 4.1 3.8 3.8 3.8 3.8 Asset turnover (%) 8.7 8.8 9.1 9.4Trade payables 113.5 122.5 127.0 132.6 138.5 EBITDA margin (%) 24.3 25.8 25.9 26.1Long-term borrowings 1000.7 1113.8 1113.8 1113.8 1113.8 EBIT margin (%) 18.0 18.9 19.6 19.8Provisions 0.0 0.0 0.0 0.0 0.0 Net profit margin (%) 7.3 8.5 9.4 9.8Other liabilities 107.7 81.2 105.4 112.9 121.4 Return on net assets (%) 9.4 10.2 10.9 11.3Total liabilities 1226.0 1321.3 1350.0 1363.1 1377.6 Net debt (A$m) 1074.3 1051.6 1058.0 1063.8Share capital 2318.6 2337.8 2337.8 2337.8 2337.8 Net debt/equity (%) 42.9 41.5 41.2 40.9Other reserves 8.4 7.4 7.4 7.4 7.4 Net interest/EBIT cover (x) 2.7 3.2 3.6 3.8Retained earnings 138.9 154.3 180.9 210.1 240.6 ROIC (%) 4.9 5.1 5.5 5.7Other equity 0.0 0.0 0.0 0.0 0.0Total equity 2465.8 2499.4 2526.0 2555.2 2585.8 Internal liquidity 2011A 2012F 2013F 2014FMinority interest 4.4 5.0 7.2 9.9 12.9 Current ratio (x) 1.3 1.3 1.3 1.2Total shareholders' equity 2470.2 2504.4 2533.2 2565.1 2598.7 Receivables turnover (x) 8.6 8.5 8.6 8.6Total liabilities & SE 3696.3 3825.7 3883.2 3928.2 3976.2 Payables turnover (x) 8.4 8.1 8.1 8.1

Price target (A$)

DCF, EV/EBITDA, PE


47


Equi

ty |

Aus

tral

ia


Australia Small/Mid Caps

Weekly Informer #38, 2011

The Small Ords (-2.5%) underperformed the All Ords (-2.3%) by 23bp for the week, with the Small Resources down 4.4%. The Small Ords is at a premium to theS&P/ASX 100 at a PE relative of 114.0%, above the 99.5% eight-year average.

Chart 1 : Index performance - rolling 12 months

65

75

85

95

105

115

Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11

All Ords Small Ords Small Industrials Small Resources

Source: IRESS

Research summary over the week Key research pieces this week include SKE (AGM update – Buy), SMX (AGM update – Buy), EHL (update – Buy), GUD (AGM update – Buy), IMD (strong 1Q12 result – Buy), GWA (profit warning – Hold), Casinos/gaming (sector update), Chemicals (RBS Agriculture Investment Summit), COH (update – Buy), OZL (3Q production update – Buy), Construction materials (US starts/permits), CGF (1Q12 FUM update – Buy), and productions updates for GRR (Buy) and OMH (Sell).

Sector performance The Small Ords (-2.5%) underperformed the All Ords (-2.3%) by 23bp for the week. Small Industrials (-1.3%) outperformed Small Resources (-4.4%) by 314bp. Ytd, Small Industrials (-13.2%) has outperformed Small Resources (-27.4%) by 1,421bp.

Price-to-earnings performance In terms of PE relative, the Small Ords is at a premium to the S&P/ASX 100 at 114.0% (based on one-year forward earnings). The eight-year average is 99.5%.

Stock performance – best and worst performers The best-performing Small Industrials over the week were Gunns (+42.5%), Pharmaxis (+16.1%) and iiNet (+10.9%), with the worst performing being Pacific Brands (-14.9%), Super Retail Group (-13.8%) and Silex Systems (-11.4%). The best-performing Small Resources over the week were Mineral Deposits (+8.9%), Horizon Oil Ltd. (+8.1%) and Flinders Mines Ltd. (+6.9%), with the worst being Gindalbie Metals (-16.8%), Allied Gold Min PLC (-16.2%) and OceanaGold (-15.5%). The top three weekly contributors in the Small Ords index were GrainCorp (+2.67bp), Gunns (+2.05bp) and Aurora Oil & Gas (+1.97bp), with the worst three being Perseus Mining (-4.54bp), Fletcher Building (-3.53bp) and Medusa Mining (-3.08bp).

21 October 2011

Analysts

Julian Guido +61 2 8259 5838 [email protected]

Matthew Nicholas +61 2 8259 6168 [email protected]

Brewin Kwong +61 2 8259 6891 [email protected] 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

49

Australia Small/Mid Caps | Sector Dynamics | 21 October 2011

2

Weekly Informer #38, 2011

Table 1 : Key stock performance in the last week – best and worst performers

Rank Small Industrials Small Resources Small Ords Small Ords attribution (bp)

Best 1 GNS +42.5% MDL +8.9% GNS +42.5% GNC +2.67 2 PXS +16.1% HZN +8.1% PXS +16.1% GNS +2.05 3 IIN +10.9% FMS +6.9% IIN +10.9% AUT +1.97Worst 1 PBG -14.9% GBG -16.8% GBG -16.8% PRU -4.54 2 SUL -13.8% ALD -16.2% ALD -16.2% FBU -3.53 3 SLX -11.4% OGC -15.5% OGC -15.5% MML -3.08

* Companies mentioned: GrainCorp (GNC), Gunns Ltd. (GNS), Aurora Oil & Gas (AUT), Perseus Mining (PRU), Fletcher Building (FBU), Medusa Mining (MML), Pharmaxis (PXS), iiNet (IIN), Gindalbie Metals Ltd (GBG), Allied Gold Min PLC (ALD), OceanaGold (OGC), Mineral Deposits (MDL), Horizon Oil Ltd (HZN), Flinders Mines Ltd (FMS), Pacific Brands (PBG), Super Retail Group (SUL) and Silex Systems (SLX). Source: IRESS

We provide a summary of RBS research and research snippets from the past week.

Summary of research reports and snippets Tuesday, 18 October 2011

Casinos & Gaming: 'The writing is on the wall…' Analyst - Michael Nolan

The Australian Greens released their gambling policy last Friday, which contains three measures, namely A$1 bet limit, A$500 maximum jackpot and A$20 maximum cash payout on all EGMs nationwide. It is an alternative approach to Independent MP Wilkie's mandatory pre-commitment scheme. The A$1 bet limit was also among the key recommendations in the Productivity Commission's 2010 Gambling report.

The current proposal leaves high intensity players free to play once registered for the scheme, subject to their daily limit. By comparison, the A$1 limit restricts player losses to a fraction of current levels, with greater negative implications for EGM revenue. To illustrate, the average player would need to stay 10x longer for the same revenue outcome at Crown Melbourne and The Star, where the A$10 limit applies to the MGF, based on the Productivity Commission data.

EGMs have a low labour requirement and, as a result, are a rich revenue source for the casinos. We forecast the introduction of either a mandatory pre-commitment scheme or a A$1 bet limit will reduce Crown's and Echo's consolidated EBITDA by about 10% each; this presupposes EGMs experience a 20% revenue decline and achieve a 50% EBITDA margin.

Wednesday, 19 October 2011

Skilled Group (SKE): 'AGM Update' Buy, TP A$2.30. Analyst - Julian Guido

As expected, have exited the Excelior call centre business. Excelior has been sold to Serco Group PLC for A$8.2m on the completion of the transaction, plus a further A$5m of earnouts over the next two years (subject to revenue targets). Assuming 50% of earn-outs are achieved, this will generate a pre-tax profit on sale in FY12 of A$4.5m

On a divisional basis, Workforce Services' growth rate has slowed to low single digits, especially in the metropolitan areas (RBS forecasts FY12 sales and EBITDA flat yoy at A$945.9m and A$42.3m, respectively). Other Staffing Services' division continues to see revenue growth, in particular Swan and Mosaic IT. Engineering and Marine Services division has experienced increasing activity levels through 2Q and this is expected to run through to 3Q.

We have already factored in a slower sales growth rate in FY12 to +1% (from +8%) and believe that the continued cost-out program will drive bottom-line performance. Furthermore, with the sale of Excelior, the balance sheet is in a much stronger position and allows SKE to focus on its core franchises. Stock looks cheap on 9.8x FY12 PE - whilst we acknowledge macro concerns will limit short-term investor appeal, we do see longer term value at these levels.

50


3

SMS Management & Technology (SMX): 'AGM Update' Buy, TP A$6.82. Analyst - Julian Guido

The update reported a strong performance in 1Q12 in the Financial Services, Resources and Infrastructure, Transport and Utilities, and ICT sectors, with an average EBITDA across all regions ex-NSW up about 16% from 1Q last year. NSW has had a slow start given its exposure to State Government, with a number of project delays that have led to a A$2m negative impact on its forecast 1Q EBITDA performance.

Positively, Renewtek has been 'consistently profitable' throughout 1Q. Utilisation remains the focus, with management having slowed down recruitment from October to bring utilisation back towards its benchmark of 90%.

RBS view - overall the update was as expected - we do expect a pick-up in NSW to occur in 2Q. Whilst macro concerns may act as an overhang, utilisation remains key and we note SMX's solid performance during the GFC (NPAT flat in FY09). We maintain SMX as the highest quality play in the IT space, and on ~10.5x PE, valuation is not demanding at these levels.

Chemicals: 'RBS Agriculture Investment Summit' Analyst - Andrew Scott

We attended the RBS hosted Agriculture Investment Summit in Singapore. Presentations highlighted the huge demand for global agriculture that will come from the significant population growth expected over the next 10-20 years. China's current and future production of meat alone suggests that a huge increase in demand for corn (which provides around 2/3 of the average feed animal diet) is required.

Presentations made it clear that simply increasing land under cultivation is neither a practical nor sustainable solution. Instead, a focus on grain technologies (including both conventional breeding and genetically modified developments), use of crop chemicals and changes to more efficient practices will all be required if future demand is to be met.

Positive trends for global agriculture will support the agriculture chemical stocks. Both fertiliser and crop protection chemicals will form an important part of a yield maximization focus going forward. NUF's growing seeds business will also be ideally positioned to provide the needed seed technology to boost yield enhancement via both traditional and GM based technological advances. We retain our Buy recommendation for both IPL and NUF.

Thursday, 20 October 2011

Cochlear (COH): "What doesn't kill you..." Buy, TP A$63.05. Analyst - Dr Derek Jellinek

Management quarantined the impact of voluntarily recalling the Nucleus CI500 series implants with a A$130m-150m provision for 1H12, post-tax cash cost of A$20m-30m, based on "conservative" estimates of recalled units, stock writedowns and other future costs, which are likely accounted for by the increase in CI500 failure rates recently observed.

As it has previously noted in clinic reports, management indicated moisture appears to be the main culprit stopping the implant from working and pointed to some change in process variability in early stage manufacturing, likely ruling out post-implantation concerns. Since the recall, A$1bn in market value has been erased, equating to A$365m in lost sales (3x EV/S; 54% of total cochlear implant sales). In addition, the market is discounting earnings losses into perpetuity, failing to reflect potential cushioning via a functionally equivalent Freedom implant.

We update our scenario analysis, with a base case for FY13F sales/EPS impacts of -4.5%/-8%, a PE of 16x and a valuation 18% above current trading levels. While questions remain, we believe some concerns have been alleviated, with the long-term story intact, above-peer profitability metrics remaining and risk/return skewing to the upside.

OZ Minerals (OZL): 'Gold not as prominent' Buy, TP A$14.10. Analyst - Lyndon Fagan

3Q11 copper production of 27kt was in line with our estimate. However, lower-than-expected gold grades reduced gold output to 36koz, significantly below our 45koz forecast. Cash costs came in at US$0.72/lb vs RBS forecast at US$0.60/lb due to lower-than-expected by-product credits. OZL has now downgraded gold production for the year to 150-160koz (from 185koz+), with a similar outlook for 2012.

During the quarter the decline reached the ore body, with work commencing on development

51


4

of the first level. Capex for this project has increased to A$148m (less than 10%); however, it remains on track for the first production in 1Q12. Exploration around Prominent Hill is continuing, with an initial resource for the Munda and Ankata zones due by end-CY2011.

OZL offers exposure to relatively low-risk copper production, very high margins, a strong balance sheet and relatively cheap valuation metrics. However, near term, the uncertain macro environment and recent pressure on the copper price are likely to weigh on the share price. Longer term, we think the key challenge for the company remains growing the business beyond Prominent Hill. If it can do this through a value-accretive acquisition, we believe it would be a key overhang removed and a rerating event for the stock.

Friday, 21 October 2011

Emeco Holdings (EHL): 'This time it's different' Buy, TP A$1.23. Analyst - Matthew Nicholas

Industry feedback suggests that the lead times for purchasing large earthmoving equipment show no signs of shortening. Global manufacturing capacity from leading OEMs has increased, in some cases, three-fold over the past five years, yet still not enough to service incremental demand in a more timely manner.

We anticipate utilisation remaining at elevated levels over the medium term given strong ongoing demand. Given our view that further price rise opportunities will be limited (with dealer pricing for new kit fairly stable), the vast majority of future growth will be generated by expanding the rental fleet (ie, capex). With demand robust, the key swing factor for earnings is the timing of new kit. Indeed, this is the key driver behind the minor (<3%) downgrade to our FY12 EPS forecast.

For investors anticipating a market rally, we would prefer to own more leveraged Mining Services plays (particularly BKN, ASL and IMD). However, if the current volatility is to be prolonged, then we believe EHL's stable earnings profile and strong market position will see the stock outperform. Nonetheless, given the relatively low earnings risk, we view current valuation (9.1x FY12F PE) as undemanding and maintain our Buy call.

GUD Holdings (GUD): 'As good as can be expected' Buy, TP A$9.00. Analyst - Matthew Nicholas

GUD has confirmed a softer-than-expected 1Q12. Normalised NPAT has arrived flat on the pcp despite a full three month contribution of the Dexion acquisition (vs a loss making ~4 week contribution in the pcp). Management has cited a number of contributing factors: 1) Offshore volatility and domestic political uncertainty impacting (already fragile) consumer confidence, and 2) Project work for Dexion being 'few and far between'.

Commentary surrounding the weak consumer environment comes as no surprise and was the driver of our downgrades at the July result (we continue to forecast Consumer EBIT to decline 7%, despite the stronger currency which, we believe, will largely offset softer volumes). It would appear the major change since July has been Dexion's performance, and is the sole driver of the 6-7% EPS downgrades we apply across FY12-13F..

We remain buyers on a long-term view, noting: 1) reasonable valuation (10.7x) and attractive, fully franked yield (8.4%), 2) solid balance sheet (we believe acquisitions will be a focus given many of the key Dexion business restructuring decisions have been made), and 3) GUD's suite of well-managed, branded products which will perform well in a very difficult retail environment. A material interest rate cut is the only potentially positive catalyst on the horizon.

Imdex (IMD): 'Fast out of the blocks' Buy, TP A$2.60. Analyst - Matthew Nicholas

IMD has reported 1Q sales of A$72.3m, up 54% on pcp (and more importantly up 20% on the strong 4Q11 run rate). Similarly, EBITA of A$21.1m was up 81% on the pcp. The implied EBITA margin is up c500bp on the pcp, reflecting: 1) fixed cost leverage (especially in fluids), 2) strong growth in the higher margin Reflex rental fleet, and 3) we suspect price rises in the fluids business.

Not surprisingly, management is not providing full-year guidance given the global market uncertainty but nonetheless remain 'optimistic' about FY12. Notwithstanding the recent volatility, commodity prices (particularly gold) remain at levels that encourage exploration activity (i.e. well above the average global cash costs).

52


5

While IMD's business profile implies it is one of the riskier plays in Small Cap Mining Services, we note a number of features that reflect positively on IMD relative to the sector: 1) A business model that facilitates strong growth in an industry faced with capacity constraints, and 2) We regard IMD as one of the more capital efficient exposures in a sector that is generally capital hungry at present. At 7.2x FY12 EBIT or a 20% discount to the RBS Small Industrials average, valuation remains very reasonable and we maintain our Buy call.

GWA Group (GWA): 'Profit warning' Hold, TP A$2.16. Analyst - Julian Guido

GWA provided its 1Q12 update today with a 1H profit warning and sale of Sebel. Revenue for 1Q was flat on pcp, despite the inclusion of the Gliderol garage door business (lfl sales down 10% in the core GWA business). Whilst previous guidance was for a reduction in lfl sales of 3-4%, the reduction in 1Q has been 'greater than expected'. Consequently, whilst headline revenue in 1H will be flat (inc Gliderol), 1H Group EBIT is likely to be down 5-10% on pcp.

Reasons for greater than expected decline have been attributed to: 1) Further decline in NSW, 2) Dux water heating sales down 40%, and 3) weak renovation markets. In addition, Sebel has been sold as expected for A$23m (RBSe A$24m), with lower working capital the driver of the slight difference. GWA has also decided to exit Caroma Nth America which has been struggling for some time. Other restructuring initiatives are progressing to plan.

RBS View - bearish update doesn't come as a major surprise. We had recently pulled back our numbers ~5% below consensus (RBSe of EBIT down 10.4%), and assuming the trend in 1H is extrapolated for the remainder of the year (barring aggressive rate cuts from the RBA, which appears a reasonable assumption), we expect consensus EPS to come back 4-5%. The stock is starting to look more attractive from a valuation standpoint (noting yields of 8.6% - DPS has been held flat for eight years) and the company is prepared to continue to use its balance sheet to seek acquisition opportunities.

Construction Materials: 'US starts & permits rise in September' Analyst - Andrew Scott

While we focus on original data relative to the pcp, seasonally adjusted starts came in at 658k, 15% above August 2011 levels. This was driven by multi-family starts, which rose 53%. Single-family starts were up 2%. On this basis, permits were 594k, 5% below August levels. Single-family permits were in line with August levels, while multi-family permits fell 14%.

We focus on original data versus the pcp, which provides the greatest insight for volumes, in our view. On this basis starts were 60k, 13% above September 2010 levels and 1.2% ahead of our forecast of 59.4k. However, we note that the increase was driven by the multi-family segment, which was 62% above pcp. We note that three of the last four months have now showed an increase in starts vs pcp. Comps over this period were no longer distorted by government tax incentives, which boosted activity in early 2010.

This data is consistent with our view that we are at or around the bottom of the second dip in housing starts, and that we will begin to see stabilisation and some initial signs of improvement (albeit gradual and off a low base) through 2H11. We retain our Buy on JHX and Hold on BLD.

Challenger Financial Svcs (CGF): '1Q12 FUM Flows' Buy, TP A$5.10. Analyst - Richard Coles

CGF has produced another quarter of strong growth in retail annuity sales, up 48% on pcp to a quarterly record of A$509m. This was well ahead of management's FY12 guidance of 25% sales growth. Total life investment assets rose c4% over the quarter to A$8.75bn, positioning CGF well to achieve its targeted 10% net book growth for FY12. The funds management boutiques attracted positive net flows of A$336m during the quarter despite the difficult environment for wealth managers.

Given the strength of 1Q12 retail annuity sales, we have marginally increased our FY12 sales growth to roughly 30%. This has increased FY12F NPAT by 2%, with little change in FY13F. However, EPS forecasts for both years have fallen 4% to account for dilution from the recent conversion of the 60m options previously held by James Packer. We previously had these options converting in FY13F.

CGF's underlying sales momentum continues to impress. If current momentum in annuity sales growth can be sustained over the remainder of FY12, we see upside to our current

53


6

forecasts. Despite widening credit spreads impacting investment experience by cA$80m, CGF's balance sheet remains robust given excess capital of A$675m at the FY11 result and a cash balance bolstered by the exercise of the Packer options. With CGF showing clear earnings momentum and trading at a 15% discount to our valuation, we maintain our Buy.

Grange Resources (GRR): 'Oversold and overlooked' Buy, TP A$0.70. Analyst - Todd Scott

September quarter pellet production at Savage River of 506kt was below our expectations (RBS 540kt). Pellet unit costs remained high at A$128/t, as access to higher grade ore in the North pit was regained only late in the quarter. Importantly, however, management maintained FY11 guidance of pellet production of 2Mt and operating costs of A$215m.

Mining production at Savage River had been hampered since a pit wall collapse in June 2010. Remediation of the East Wall is now reaching its conclusion, with access to higher grade ore in the North pit now achieved. It appears this has lifted average grades of ore mined from 33% to 41%. We estimate the current GRR share price implies iron ore pellet prices of US$110/t; this is 39% below current pellet spot rates near US$180/t (cfr China). Notwithstanding the weak macro sentiment for raw materials demand, in our view this is likely an overly bearish scenario.

GRR continues to generate strong margins at current pellet prices near US$180/t. 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 40% 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.

OM Holdings (OMH): 'Up Bootu Creek without a paddle' Sell, TP A$0.50. Analyst - Todd Scott

Sept quarter production at Bootu Creek of 231kt was below our expectations (RBS 260kt). Production declined 13% over the June quarter despite virtually no rainfall occurring in the quarter. Lower production and higher strip ratios increased unit costs to A$4.95/dtmu from A$3.43.dmtu in the June quarter (unadjusted costs). Manganese prices remain unchanged at US$5.30/dtmu (44% Mn grade, lumpy). Near record high manganese ore inventories at Chinese ports have kept prices depressed.

Additionally, events at the corporate level add complexity to the investment case. These include a strategic review which could result in mining operations being demerged from smelting and trading; and a decision on a proposed US$450m Malaysian smelter project due this month. Also, we understand OMH is in the process of renegotiating US$87m of debt.

With the share price trading 17% above our NPV, operational challenges at the Bootu Creek mine, a weak macro outlook for manganese prices, and uncertainty on corporate level issues, we maintain our Sell recommendation. Until manganese production costs decline, and manganese prices begin to lift, we remain cautious on the investment outlook for OMH.

54


7

Table 2 : Small-cap vs large-cap performance

1 week 1 month 3 months 6 months 12 months 2011 ytdSmall Ordinaries -2.5% -1.9% -11.7% -17.6% -13.4% -19.7%Small Industrials -1.3% 1.3% -8.7% -13.9% -10.0% -13.2%Small Resources -4.4% -6.2% -15.7% -22.4% -18.0% -27.4% All Ordinaries -2.3% 2.0% -8.9% -14.8% -10.4% -13.2%S&P/ASX 300 Industrials -0.7% 5.5% -4.4% -10.6% -8.2% -8.3%S&P/ASX 300 Resources -6.1% -4.5% -18.7% -23.9% -15.7% -22.5% Relative performance (bp) Small Ords vs All Ords -23 -385 -278 -273 -306 -646Small Ind vs S&P/ASX 300 Ind -61 -421 -431 -334 -177 -493Small Res vs S&P/ASX 300 Res 173 -171 294 152 -236 -495Small Ind vs Small Res 314 751 704 848 807 1421

Source: IRESS

Chart 2 : Index performance – rolling 12 months

65

75

85

95

105

115

Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11


Source: IRESS

Chart 3 : Index performance – ytd

60

65

70

75

80

85

90

95

100

105

Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Aug 11 Sep 11


Source: IRESS

The Small Ords underperformed the All Ords by 23bp over the past week

Small Industrials has outperformed Small Resources by 807bp over the past 12 months

The Small Ords has underperformed the All Ords by 646bp ytd (CY)

55


8

Chart 4 : Small-cap vs large-cap PE (x)

8

9

10

11

12

13

14

15

16

17

18

Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11

Small Ords Index S&P ASX 100 Index

x

Source: Datastream, RBS

Chart 5 : Small-cap PE relative

70%

80%

90%

100%

110%

120%

130%

140%

Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11

Small Ords PE rel Average

Source: Datastream, RBS

Chart 6 : Australian market (All Ords) PE

6

8

10

12

14

16

18

20

Oct 91 Oct 93 Oct 95 Oct 97 Oct 99 Oct 01 Oct 03 Oct 05 Oct 07 Oct 09 Oct 11

Market PE Average +1.5 SD -1.5 SD

X

Source: IRESS

The Small Ords one-year forward PE is 12.1x vs the S&P/ASX 100 at 10.7x (source: Datastream), although our FY12 earnings forecasts yield a Small Ords PE of 12.5x and an S&P/ASX 100 PE of 10.4x

The Small Ords one-year forward PE relative is now 114.0%, above the eight-year average of 99.5%

The overall market is trading below its long-term average one-year forward PE

56


9

Small Ordinaries Index – performance over the week

Chart 7 : Small Ords – best performers Chart 8 : Small Ords Index – worst performers

0% 10% 20% 30% 40%

Gunns LimitedPharmaxis Ltd

iiNet LimitedVirgin Blue Holdings

Mineral DepositsImdex Limited

Horizon Oil LimitedCharter Hall GroupFlinders Mines Ltd

Tassal Group LimitedGrainCorp Limited

Transpacific Indust.Samson Oil & Gas Ltd

Coalspur Mines LtdSTW Communications

Aurora Oil & GasPlatinum Asset

SigmaStarpharma Holdings

Clough Limited

-20% -15% -10% -5% 0%

Gindalbie Metals LtdAllied Gold Min PLC

OceanaGold Corp.Pacific Brands

Northern Iron LtdBrockman Resources

Super Ret Rep LtdMurchison Metals Ltd

Matrix C & E LtdRamelius Resources

Silex SystemsKagara Ltd

Medusa Mining LtdAlkane Resources Ltd

Ivanhoe AustraliaGloucester Coal

Panoramic ResourcesMincor Resources NL

Mirabela Nickel LtdTroy Resources NL

Source: IRESS Source: IRESS

Small Industrials Index – performance over the week

Chart 9 : Small Industrials – best performers Chart 10 : Small Industrials – worst performers

0% 10% 20% 30% 40%

Gunns LimitedPharmaxis Ltd

iiNet LimitedVirgin Blue Holdings

Charter Hall GroupTassal Group Limited

GrainCorp LimitedTranspacific Indust.

STW CommunicationsPlatinum Asset

Sigma PharmaceuticalStarpharma Holdings

Clough LimitedHills Holdings Ltd

SP AusNetAspen Group

Unilife CorporationSpotless Group Ltd

IRESS Market Tech.FKP Property Group

-15% -10% -5% 0%

Pacific BrandsSuper Ret Rep Ltd

Silex SystemsAristocrat Leisure

Mineral Resources.Ausdrill Limited

Thorn Group LimitedFletcher Building

Ten Network HoldingsSthn Cross Media

Wotif.com HoldingsSedgman LimitedPerpetual Limited

M2 TelecommunicationCeramic Fuel Cells

Ausenco LimitedPremier Investments

Flight CentreThe Reject Shop

BWP Trust


Small Resources Index – performance over the week

Chart 11 : Small Resources – best performers Chart 12 : Small Resources – worst performers

-5% 0% 5% 10%

Mineral DepositsHorizon Oil LimitedFlinders Mines Ltd

Samson Oil & Gas LtdCoalspur Mines Ltd

Aurora Oil & GasNexus Energy Limited

Molopo Energy LtdSilver Lake Resource

Hunnu Coal LimitedTap Oil Limited

AWE LimitedBow Energy Limited

Cudeco LimitedSundance Resources

Bandanna EnergyWhite Energy Company

Rex Minerals LimitedBeach Energy Limited

Intrepid Mines

-20% -10% 0%

Gindalbie Metals LtdAllied Gold Min PLC

OceanaGold Corp.Northern Iron Ltd

Brockman ResourcesMurchison Metals LtdRamelius Resources

Kagara LtdMedusa Mining Ltd

Alkane Resources LtdIvanhoe Australia

Gloucester CoalPanoramic ResourcesMincor Resources NL

Mirabela Nickel LtdTroy Resources NL

Ampella MiningMount Gibson Iron

Grange Resources.Platinum Australia


57


10

Small Ordinaries Index – performance over the month

Chart 13 : Small Ords – best performers Chart 14 : Small Ords Index – worst performers

0% 10% 20% 30% 40%

CSG LimitedGunns LimitedInfigen Energy

Karoon Gas AustraliaTassal Group Limited

Mesoblast LimitedPharmaxis Ltd

Virgin Blue HoldingsBandanna Energy

SigmaUnilife Corporation

Linc Energy LtdAWE Limited

Coalspur Mines LtdSpotless Group LtdIOOF Holdings LtdFlexiGroup Limited

Aristocrat LeisureFKP Property Group

Aurora Oil & Gas

-55% -45% -35% -25% -15% -5%

Murchison Metals LtdIvanhoe Australia

Brockman ResourcesNexus Energy

Allied Gold Min PLCAlkane Resources

Kagara LtdRamelius Resources

Carbon EnergyNorthern Iron Ltd

Elemental MineralsElders Limited

Prima Biomed LtdStraits Res Ltd.

South Boulder MinesGreenland Min En

Perseus Mining LtdEldorado Gold Corp

Fletcher BuildingMedusa Mining Ltd


Small Industrials Index – performance over the month


0% 10% 20% 30% 40%

CSG LimitedGunns LimitedInfigen Energy

Tassal Group LimitedMesoblast Limited

Pharmaxis LtdVirgin Blue Holdings

SigmaUnilife CorporationSpotless Group LtdIOOF Holdings LtdFlexiGroup Limited

Aristocrat LeisureFKP Property Group

iiNet LimitedAdelaide Brighton

Fleetwood CorpGrainCorp Limited

Decmil Group LimitedAcrux Limited

-25% -15% -5%

Elders LimitedPrima Biomed LtdFletcher Building

Energy World Corpor.NRW Holdings Limited

Starpharma HoldingsThorn Group Limited

Credit Corp GroupOakton LimitedPacific Brands

Ten Network HoldingsAustin EngineeringSuper Ret Rep Ltd

Biota HoldingsIndustrea Limited

Qube Logistics HldgCeramic Fuel Cells

Astro Jap Prop GroupSedgman Limited

Ausdrill Limited


Small Resources Index – performance over the month


0% 10% 20% 30%

Karoon Gas AustraliaBandanna Energy

Linc Energy LtdAWE Limited

Coalspur Mines LtdAurora Oil & GasMineral DepositsEastern Star Gas

Western Areas NLRex Minerals LimitedKingsrose Mining Ltd

Molopo Energy LtdMetminco Limited

Hunnu Coal LimitedFlinders Mines Ltd

Silver Lake ResourceResolute MiningSaracen Mineral

Independence GroupMount Gibson Iron

-55% -45% -35% -25% -15% -5%


Brockman ResourcesNexus Energy

Allied Gold Min PLCAlkane Resources

Kagara LtdRamelius Resources

Carbon EnergyNorthern Iron Ltd

Elemental MineralsStraits Res Ltd.

South Boulder MinesGreenland Min En

Perseus Mining LtdEldorado Gold CorpMedusa Mining LtdGalaxy ResourcesOceanaGold Corp.

Ampella Mining


58


11

Small Ordinaries Index – performance ytd

Chart 19 : Small Ordinaries – best performers Chart 20 : Small Ordinaries – worst performers

0% 30% 60% 90% 120% 150%

Sigma PharmaceuticalMesoblast Limited

Samson Oil & Gas LtdFlexiGroup Limited

Hunnu Coal LimitedKathmandu Hold LtdBow Energy Limited

Beach Energy LimitedAlacer Gold Corp.

Aston Res LtdAurora Oil & Gas

Starpharma HoldingsAustar United

Envestra LimitedTelecom Corporation

GrainCorp LimitedSilver Lake Resource

Regis ResourcesFocus Minerals Ltd

Macmahon Holdings

-90% -70% -50% -30% -10%

Hastie Group LimitedMurchison Metals Ltd

Ivanhoe AustraliaPlatinum Australia

Carnarvon PetroleumEnergy Resources

Straits Res Ltd.Pharmaxis Ltd

Brockman ResourcesIndophil Resources

Nexus Energy LimitedSilex Systems

Mincor Resources NLCarbon Energy

Gindalbie Metals LtdOM Holdings LimitedArafura Resource Ltd

Galaxy ResourcesAPN News & Media

Gunns Limited


Small Industrials Index – performance ytd


0% 30% 60% 90% 120% 150%

Sigma PharmaceuticalMesoblast Limited

FlexiGroup LimitedKathmandu Hold Ltd

Starpharma HoldingsAustar United

Envestra LimitedTelecom Corporation

GrainCorp LimitedMacmahon Holdings

Acrux LimitedProgrammed

ARB CorporationSP AusNet

Centro Retail GroupArdent Leisure GroupSingapore Telecomm.

NRW HoldingsCharter Hall Retail

Qube Logistics Hldg

-90% -70% -50% -30% -10%

Hastie Group LimitedPharmaxis LtdSilex Systems

APN News & MediaGunns LimitedElders Limited

Transpacific Indust.Alesco Corporation

Infigen EnergySthn Cross Media

Ten Network HoldingsFKP Property Group

Hills Holdings LtdAstro Jap Prop Group

Austal LimitedCash Converters

Pacific BrandsWatpac LimitedGWA Group Ltd

Perpetual Limited


Small Resources Index – performance ytd


0% 20% 40% 60% 80%

Samson Oil & Gas LtdHunnu Coal LimitedBow Energy Limited

Beach Energy LimitedAlacer Gold Corp.

Aston Res LtdAurora Oil & Gas

Silver Lake ResourceRegis Resources

Focus Minerals LtdResolute Mining

Ramelius ResourcesAlkane Resources Ltd

Troy Resources NLMineral Deposits

Beadell Resource LtdSt Barbara LimitedFlinders Mines Ltd

Eastern Star GasElemental Minerals

-80% -60% -40% -20% 0%


Platinum AustraliaCarnarvon Petroleum

Energy ResourcesBrockman Resources

Indophil ResourcesNexus Energy LimitedMincor Resources NL

Carbon EnergyGindalbie Metals LtdOM Holdings LimitedArafura Resource Ltd

Galaxy ResourcesGreenland Min En Ltd

Intrepid MinesAmpella Mining

White EnergyKagara LtdPanoramic


59


12

Small Ordinaries Index – top 20 index contributors in the last week

Chart 25 : Small Ords – top 20 contributors (bp) Chart 26 : Small Ords – bottom 20 contributors (bp)

0 1 2 3

GrainCorp Gunns

Aurora Oil & Gas Coalspur Mines

Bradken Mineral Deposits

Virgin Blue Holdings Sigma

Monadelphous Group Platinum Asset

Imdex Charter Hall Group

iiNet Pharmaxis Ltd

Mesoblast Austar United

IOOF Holdings Transpacific

Spotless Group Flinders Mines

-5 -4 -3 -2 -1 0

Perseus Mining Fletcher Building

Medusa Mining Super Retail Group

Pacific Brands Ausdrill

Aristocrat Leisure Alacer Gold Corp.

Mineral Resources Mirabela Nickel

Gindalbie Metals LtdMount Gibson Iron

Perpetual Extract Resources Ltd

Ten Network Holdings OceanaGold Corporation

Southern Cross Media Group Aquila Resources

Ramelius Resources Seven Group Holdings


Small Ordinaries Index – top 20 index contributors in the last month

Chart 27 : Small Ords – top 20 contributors (bp) Chart 28 : Small Ords – bottom 20 contributors(bp)

0 2 4 6 8

Mesoblast Karoon Gas Australia

Aurora Oil & Gas Sigma Pharmaceuticals

IOOF Holdings Adelaide Brighton

GrainCorp Western Areas NL

Virgin Blue Holdings Aristocrat Leisure

AWE Austar United

Gunns Coalspur Mines

CSG Spotless Group

Australian Infrastructure FundLinc Energy Ltd

Platinum Asset Management Carsales.Com

-10 -8 -6 -4 -2 0

Perseus Mining Fletcher Building

Medusa Mining Ivanhoe Australia

Alkane Resources Ramelius Resources

Aquila Resources Nexus Energy Beach Energy

Murchison Metals LtdBeadell Resources Mineral Resources

Kagara LtdNRW Holdings Mirabela Nickel

Energy WorldAllied Gold Mining PLC

Bathurst Resources Gryphon Minerals

Intrepid Mines


Small Ordinaries Index – top 20 index contributors ytd

Chart 29 : Small Ords – top 20 contributors (bp) Chart 30 : Small Ords – bottom 20 contributors (bp)

0 5 10 15

Sigma Pharmaceuticals LimitedMesoblast Limited

Telecom Corporation of New ZealandLimited

GrainCorp LimitedBeach Energy Limited

Aurora Oil & Gas LimitedGiralia Resources NL

Alacer Gold Corp.Aston Resources LimitedRegis Resources Limited

FlexiGroup LimitedStraits Resources Limited

Austar United Communications LimitedSP AusNet

Bow Energy LimitedCrane Group Limited

Envestra LimitedRHG Limited

Kathmandu Holdings LimitedSilver Lake Resources Limited

-20 -15 -10 -5 0

Aquila Resources LimitedKaroon Gas Australia Limited

Gindalbie Metals LtdIntrepid Mines Limited

Independence Group NLEnergy Resources of Australia

Silex Systems LimitedPharmaxis Ltd

APN News & Media LimitedWhite Energy Company Limited

Mount Gibson Iron LimitedFletcher Building Limited

Southern Cross Media Group LimitedMirabela Nickel Limited

Kingsgate Consolidated LimitedFlight Centre Limited

Ivanhoe Australia LimitedWhitehaven Coal Limited

AWE LimitedTranspacific Industries Group Ltd


60

Australia S

mall/M

id Caps | S

ector Dynam

ics | 21 October 2011

13

Table 3: RBS small/mid-cap coverage ASX Company RBS Share Price Rec Mkt EV/EBIT (x)Code Name analyst price target Cap Ex assoc.

(A$) (A$) (A$m) FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY11F FY12F FY11F FY12FCONSUMER DISCRETIONARY (Media/Gaming)

APN APN Fraser McLeish 0.86 1.37 Buy 539 103.1 83.1 96.4 105.9 17.2 13.5 15.6 17.1 5.0 6.4 5.5 5.0 5.6 6.3 5.4 8.1 9.3 9.4 10.9ALL Aristocrat Michael Nolan 2.16 2.60 Buy 1,173 54.4 56.6 94.6 117.6 10.2 10.5 17.4 21.5 21.2 20.6 12.4 10.0 17.3 15.4 9.3 5.4 8.7 2.5 4.0AUN Austar Fraser McLeish 1.20 1.37 Buy 1,526 54.1 84.4 101.6 130.2 4.2 6.5 7.8 10.0 28.7 18.6 15.4 12.0 18.4 14.4 12.9 0.0 0.0 0.0 0.0CMJ Consolidated Media Fraser McLeish 2.52 2.68 Buy 1,416 89.5 94.8 92.7 96.6 14.0 16.6 16.5 17.2 18.1 15.2 15.3 14.7 n/a n/a n/a 16.5 16.5 6.5 6.5EGP Echo Entertainment Michael Nolan 3.69 4.30 Hold 2,539 270.7 184.3 135.6 179.9 39.3 26.8 19.7 25.8 9.4 13.8 18.7 14.3 12.9 11.4 12.3 0.0 10.0 0.0 2.7SXL Southern Cross Media Ashley Wallace 1.06 1.50 Buy 748 48.0 68.6 98.9 110.3 14.9 14.8 14.0 15.6 7.1 7.1 7.6 6.8 9.2 10.5 6.9 10.0 9.1 9.4 8.6PRT Prime TV Ashley Wallace 0.67 0.72 Hold 244 18.4 27.2 28.8 29.2 5.0 7.4 7.9 8.0 13.3 9.0 8.5 8.4 10.3 7.7 7.1 4.5 5.5 6.7 8.2REA REA Group Ashley Wallace 12.02 11.25 Hold 1,583 51.4 68.7 80.2 95.0 40.2 53.1 61.1 71.3 29.9 22.6 19.7 16.9 20.9 15.4 12.7 26.0 30.5 2.2 2.5SEK SEEK Limited Fraser McLeish 5.46 7.15 Buy 1,840 82.9 104.6 131.1 153.9 24.5 31.0 38.8 45.6 22.2 17.6 14.1 12.0 17.6 15.1 11.5 14.3 21.4 2.6 3.9SGN STW Communications Matthew Nicholas 0.89 1.44 Buy 326 38.7 40.6 43.1 45.5 10.8 11.4 12.3 13.0 8.2 7.8 7.2 6.9 6.5 6.5 6.2 7.4 8.6 8.4 9.7SWM Seven West Media Ltd. Fraser McLeish 3.33 3.47 Hold 2,150 96.2 115.1 281.3 293.6 44.9 37.5 41.9 41.8 7.4 8.9 7.9 8.0 15.9 19.6 7.1 45.0 35.0 13.5 10.5TTS Tatts Group Michael Nolan 2.31 2.20 Hold 3,097 282.4 279.5 329.8 197.4 22.1 21.5 25.0 15.0 10.4 10.7 9.2 15.4 9.4 8.2 7.0 21.5 22.5 9.3 9.7TEN Ten Network Fraser McLeish 0.82 0.95 Hold 857 96.9 78.1 80.6 108.5 9.3 7.5 7.7 10.4 8.8 11.0 10.6 7.9 6.5 9.1 9.0 5.0 5.8 6.1 7.1

CONSUMER DISCRETIONARY (Retail)ARP ARB Corporation Matthew Nicholas 8.16 8.65 Hold 591 32.6 37.9 42.0 46.1 46.3 52.2 58.0 63.6 17.6 15.6 14.1 12.8 12.8 11.1 9.6 23.0 26.5 2.8 3.2BBG Billabong Daniel Broeren 3.52 3.65 Hold 898 145.9 118.0 111.7 124.6 57.2 46.3 43.7 48.6 6.2 7.6 8.1 7.2 6.2 9.1 8.1 29.0 29.0 8.2 8.2DJS David Jones Daniel Broeren 3.02 2.95 Hold 1,573 174.0 168.1 147.6 158.3 34.1 33.0 28.8 30.7 8.9 9.2 10.5 9.8 6.4 6.7 7.7 28.0 24.0 9.3 7.9GUD GUD Holdings Matthew Nicholas 7.55 9.00 Buy 529 46.4 49.0 49.7 55.3 76.5 71.7 71.6 79.5 9.9 10.5 10.5 9.5 7.5 8.1 7.7 64.0 64.0 8.5 8.5HVN Harvey Norman Daniel Broeren 2.21 2.60 Buy 2,348 290.0 242.0 243.7 270.7 27.3 22.8 22.9 25.5 8.1 9.7 9.6 8.7 6.0 7.1 6.8 12.0 11.0 5.4 5.0JBH JB Hi-Fi Daniel Broeren 14.14 17.25 Buy 1,396 118.6 134.4 137.7 155.6 106.1 120.2 138.4 155.1 13.3 11.8 10.2 9.1 8.1 8.2 7.5 77.0 85.0 5.4 6.0MYR Myer Daniel Broeren 2.37 2.55 Buy 1,383 163.5 163.2 142.0 160.7 28.1 28.0 24.3 27.6 8.4 8.5 9.7 8.6 6.3 6.8 7.7 22.5 20.0 9.5 8.4PBG Pacific Brands Julian Guido 0.63 0.92 Buy 587 90.3 103.4 86.5 104.3 9.7 11.1 9.3 11.2 6.5 5.7 6.8 5.6 5.0 4.4 5.0 6.2 6.1 9.8 9.6PMV Premier Investments Julian Guido 5.05 5.58 Hold 783 63.2 61.1 61.1 71.3 41.8 39.4 39.4 46.0 12.1 12.8 12.8 11.0 6.9 9.4 7.5 36.0 35.5 7.1 7.0TRS The Reject Shop Julian Guido 10.00 12.70 Hold 261 23.5 16.1 23.7 29.1 89.5 61.4 89.6 109.4 11.2 16.3 11.2 9.1 8.7 11.5 8.1 31.0 68.0 3.1 6.8

CONSUMER STAPLES (Agriculture + Food/Beverage)GFF Goodman Fielder Michael Nolan 0.52 0.60 Hold 942 183.5 135.2 128.9 141.5 13.4 9.8 7.1 7.2 3.9 5.3 7.3 7.2 5.4 6.2 6.1 7.8 5.7 14.9 11.0MTS Metcash Daniel Broeren 4.14 4.25 Hold 3,193 238.5 248.3 276.9 304.4 31.1 32.3 36.0 39.6 13.3 12.8 11.5 10.5 9.1 9.0 8.1 27.0 29.0 6.5 7.0TGR Tassal Group Matthew Nicholas 1.60 1.30 Hold 233 22.6 21.6 25.0 27.4 16.1 14.8 17.1 18.6 10.0 10.8 9.4 8.6 10.0 9.2 8.0 2.0 6.0 1.3 3.8

FINANCIALS (Banks)BOQ Bank of Queensland John Buonaccorsi 8.07 12.38 Buy 1,819 189.1 166.9 262.9 292.7 83.8 71.3 104.3 112.3 9.6 11.3 7.7 7.2 6.6 7.4 4.7 54.0 69.0 6.7 8.6BEN Bendigo & Adelaide Bank John Buonaccorsi 9.15 9.32 Hold 3,347 291.0 336.2 337.2 364.7 77.1 87.0 85.7 90.5 11.9 10.5 10.7 10.1 7.6 6.9 6.6 60.0 61.0 6.6 6.7

FINANCIALS (Diversified)AUB Austbrokers Julian Guido 6.00 6.46 Buy 333 20.3 23.9 26.8 29.5 39.0 43.6 48.4 53.1 15.4 13.8 12.4 11.3 18.7 16.1 15.6 25.5 30.0 4.3 5.0BTT BT Investment Mgmt Julian Guido 2.00 3.02 Buy 536 30.9 32.7 35.9 39.3 19.3 20.4 22.4 24.6 10.4 9.8 8.9 8.1 6.0 5.5 4.8 17.5 20.0 8.7 10.0CGF Challenger Fin.Group Richard Coles 4.45 5.10 Buy 2,462 232.5 248.0 275.4 300.6 42.7 48.1 51.2 53.4 10.4 9.3 8.7 8.3 8.2 6.9 5.9 16.5 18.5 3.7 4.2HGG Henderson Group PLC Julian Guido 1.84 2.72 Buy 2,081 84.6 122.4 151.2 163.6 10.0 11.9 13.8 14.8 18.5 15.5 13.4 12.4 11.2 7.8 6.4 7.2 9.2 3.9 5.0IFL IOOF Limited Julian Guido 6.04 7.50 Buy 1,388 97.2 111.5 120.2 130.7 42.1 48.1 51.6 55.8 14.3 12.6 11.7 10.8 9.6 8.3 7.6 43.0 47.0 7.1 7.8IMF IMF Australia Julian Guido 1.42 2.17 Buy 176 11.9 22.9 36.4 27.5 9.7 16.8 29.2 22.0 14.6 8.4 4.9 6.4 10.0 5.5 3.0 15.0 32.0 10.6 22.5MOC Mortgage Choice Julian Guido 1.24 1.38 Hold 149 14.8 15.9 16.2 16.8 12.3 13.2 13.4 13.9 10.1 9.4 9.2 8.9 6.6 6.1 4.8 13.0 13.4 10.5 10.8PPT Perpetual Richard Coles 22.38 25.35 Hold 1,000 72.8 72.9 67.8 69.2 169.2 165.5 156.7 162.9 13.2 13.5 14.3 13.7 6.1 6.2 7.1 185.0 146.0 8.3 6.5PTM Platinum Asset Mgmt Julian Guido 3.90 5.25 Hold 2,189 155.0 190.5 211.2 227.8 26.6 32.4 35.9 38.7 14.7 12.0 10.9 10.1 9.1 6.9 6.3 27.5 30.5 7.1 7.8TSM Think Smart Matthew Nicholas 0.44 1.00 Buy 57 8.9 8.7 12.0 17.9 8.3 6.6 9.1 13.4 5.3 6.7 4.8 3.3 3.7 4.3 3.0 3.5 4.8 8.0 10.8WHG WHK Group Julian Guido 0.83 1.15 Buy 221 28.5 25.8 29.6 32.8 10.6 9.6 11.0 12.2 7.8 8.6 7.5 6.8 5.7 6.2 5.8 7.0 7.6 8.4 9.1

HEALTHCAREANN Ansell Dr Derek Jellinek 13.46 13.92 Hold 1,766 106.2 121.7 136.3 152.0 80.0 91.5 102.9 117.0 16.8 14.7 13.1 11.5 15.4 13.9 12.5 32.4 42.2 2.4 3.1COH Cochlear Dr Derek Jellinek 55.44 63.05 Buy 3,155 155.2 180.1 139.1 183.2 274.5 316.1 244.0 321.4 20.2 17.5 22.7 17.3 14.7 12.9 15.8 225.0 240.0 4.1 4.3PRY Primary Health Care Dr Derek Jellinek 3.15 2.84 Hold 1,576 132.0 96.5 118.5 129.7 26.8 19.5 23.7 25.6 11.7 16.2 13.3 12.3 9.8 11.1 9.9 8.0 18.0 2.5 5.7RHC Ramsay Health Care Dr Derek Jellinek 18.60 17.95 Hold 3,759 178.8 204.7 227.7 252.1 88.2 101.1 112.4 124.4 21.1 18.4 16.6 15.0 14.8 12.1 10.8 52.0 58.0 2.8 3.1RMD Resmed Dr Derek Jellinek 2.90 2.98 Hold 4,513 194.8 227.8 227.0 245.5 251.1 144.9 148.7 165.1 1.2 2.0 2.0 1.8 17.0 14.6 15.0 0.0 0.0 0.0 0.0

(cps)Net yield (%)Dividends

Pre goodwillPER (x)NPAT (A$m)

Pre abormalsEPS (cps)

Pre goodwill

Priced at close of business 20 October 2011. Recommendations may lie outside the structure outlined in the disclosure page. Source: Company data, RBS forecasts

61

Australia S

mall/M

id Caps | S

ector Dynam


14

RBS small/mid-cap coverage (cont’d)

ASX Company RBS Share Price Rec Mkt EV/EBIT (x)Code Name analyst price target Cap Ex assoc.

(A$) (A$) (A$m) FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY11F FY12F FY11F FY12F

IT & TELCOSAMM Amcom Alan Stuart 0.81 0.97 Buy 192 18.4 21.6 16.3 18.9 5.7 9.0 6.8 7.8 14.2 9.0 12.0 10.4 12.4 9.2 7.8 4.8 3.5 5.9 4.3CRZ Carsales Ashley Wallace 4.90 5.38 Buy 1,146 43.2 58.2 67.1 76.0 18.6 24.9 28.5 32.0 26.3 19.7 17.2 15.3 18.2 13.7 11.6 19.9 22.8 4.1 4.7CUS Customers Julian Guido 1.10 1.68 Buy 148 21.1 21.5 17.0 23.8 15.3 15.9 12.6 17.7 7.2 6.9 8.7 6.2 5.8 6.9 6.2 5.0 6.5 4.5 5.9DWS DWS Advanced Business Julian Guido 1.32 1.42 Hold 175 18.5 17.4 19.1 20.7 14.0 13.1 14.4 15.6 9.4 10.1 9.2 8.4 6.1 6.7 6.0 12.0 11.0 9.1 8.3HTA Hutchison Telec Ian Martin 0.06 0.13 Buy 787 41.5 -90.6 28.0 107.4 0.3 -0.7 0.2 0.8 19.6 n/a 29.1 7.6 n/a n/a n/a 0.0 0.0 0.0 0.0IIN iiNet Ian Martin 2.55 3.20 Buy 382 34.8 38.0 44.4 49.2 22.9 25.0 29.8 33.8 11.1 10.2 8.6 7.5 9.0 7.9 6.6 12.0 15.0 4.7 5.9IRE IRESS Market Tech Julian Guido 7.05 8.70 Hold 896 58.4 63.0 75.2 83.6 46.3 48.6 57.0 62.4 15.2 14.5 12.4 11.3 10.2 9.7 7.9 39.0 45.5 5.5 6.5OKN Oakton Julian Guido 1.73 2.43 Buy 162 20.9 16.8 19.6 23.4 22.9 18.0 20.8 24.8 7.6 9.6 8.3 7.0 5.5 7.0 5.5 8.5 16.0 4.9 9.2RKN Reckon Julian Guido 2.60 2.37 Hold 347 15.7 18.1 21.0 22.9 11.8 13.6 15.8 17.2 22.1 19.1 16.5 15.1 15.1 13.4 11.9 8.5 9.5 3.3 3.7SGT SingTel Ian Martin 3.16 3.16 Hold 50,371 3,911.7 3,800.0 3,745.5 4,011.1 24.6 23.9 23.5 25.2 12.9 13.2 13.5 12.6 10.6 10.7 10.3SMX SMS Management Julian Guido 5.34 6.82 Buy 365 27.9 29.8 35.5 39.6 41.9 44.3 52.3 58.2 12.7 12.1 10.2 9.2 8.8 8.2 7.0 30.0 35.5 5.6 6.6TEL Telecom Corp Alan Stuart 2.00 2.01 Hold 3,840 379.7 387.0 457.0 490.7 19.8 20.2 23.7 25.5 10.1 9.9 8.4 7.8 10.0 9.6 9.1 18.0 21.0 9.0 10.5

INDUSTRIALS (Construction)BLY Boart Longyear Andrew Hodge 3.00 4.03 Buy 1,383 84.5 149.4 193.4 214.8 18.5 32.8 42.5 47.3 16.2 9.1 7.1 6.3 12.3 7.4 5.7 9.8 12.8 3.3 4.3BLD Boral Andrew Scott 3.45 4.04 Hold 2,569 144.5 173.5 203.1 275.3 24.1 24.0 28.1 38.0 14.3 14.4 12.3 9.1 14.6 12.9 12.5 14.5 16.0 4.2 4.6CSR CSR Ltd Andrew Scott 2.47 3.25 Buy 1,250 173.4 90.2 100.3 127.8 38.0 17.8 19.8 25.3 6.5 13.8 12.5 9.8 5.7 5.5 6.6 41.7 15.7 16.9 6.4JHX James Hardie Andrew Scott 5.85 6.78 Buy 2,549 133.0 116.7 134.4 180.1 30.7 26.7 31.6 43.5 19.0 21.9 18.5 13.4 12.9 14.1 13.4 0.0 6.0 0.0 1.0

INDUSTRIALS (Miscellaneous)ALS Alesco Julian Guido 1.33 1.81 Hold 125 24.0 15.6 14.7 18.9 25.5 16.5 15.5 20.0 5.2 8.1 8.6 6.6 7.6 5.6 6.7 14.0 9.0 10.5 6.8ASB Austal Limited Julian Guido 2.17 3.75 Buy 408 39.0 40.5 49.7 50.2 20.7 21.5 26.4 26.7 10.5 10.1 8.2 8.1 9.3 6.7 5.2 6.0 7.0 2.8 3.2ASL Ausdrill Limited Matthew Nicholas 2.81 3.80 Buy 848 52.7 78.5 96.7 116.0 25.9 29.0 32.1 38.5 10.8 9.7 8.8 7.3 11.1 7.9 6.4 12.0 13.0 4.3 4.6DLX DuluxGroup Julian Guido 2.61 3.13 Buy 959 71.5 79.1 80.9 84.3 19.5 21.5 22.0 22.9 13.4 12.1 11.8 11.4 9.4 8.6 8.4 15.0 16.0 5.7 6.1GWA GWA International Julian Guido 2.15 2.16 Hold 648 55.5 63.4 56.6 60.4 18.5 21.0 18.8 20.0 11.6 10.2 11.5 10.7 8.7 7.9 8.7 18.0 18.0 8.4 8.4HIL Hills Industries Matthew Nicholas 1.12 1.19 Hold 276 40.9 24.7 32.7 36.6 17.0 9.9 13.4 15.3 6.6 11.3 8.3 7.3 4.7 9.0 7.0 10.0 11.0 8.9 9.8IMD Imdex Limited Matthew Nicholas 2.04 2.60 Buy 417 11.8 31.0 41.5 48.5 6.1 15.6 20.4 23.8 33.7 13.0 10.0 8.6 26.3 9.8 7.1 4.5 5.5 2.2 2.7IVC Invocare Julian Guido 6.98 7.60 Hold 768 34.1 40.4 46.7 51.1 33.6 38.9 43.1 46.9 20.8 17.9 16.2 14.9 15.3 13.5 11.5 31.3 36.0 4.5 5.2NVT Navitas Julian Guido 3.85 4.12 Hold 1,445 64.3 76.0 88.0 103.8 18.8 21.3 23.4 27.6 20.5 18.1 16.4 13.9 15.6 14.0 11.8 20.7 23.5 5.4 6.1PPC Peet Matthew Nicholas 1.20 2.00 Buy 382 42.1 44.0 39.6 44.4 14.1 14.5 12.5 14.0 8.5 8.2 9.6 8.6 8.0 8.0 9.4 8.5 7.5 7.1 6.3REX Regional Express Michael Newbold, CFA 0.96 1.26 Buy 116 19.3 17.4 21.7 24.0 17.4 15.7 19.7 21.9 5.5 6.1 4.9 4.4 5.0 5.1 3.2 7.1 7.6 7.4 7.9SAI SAI Global Julian Guido 4.70 5.20 Buy 950 40.6 57.8 66.4 77.9 25.9 29.8 33.3 39.0 18.2 15.8 14.1 12.0 16.9 12.5 11.0 14.3 16.3 3.0 3.5VBA Virgin Blue Mark Williams 0.35 0.41 Buy 785 9.7 -48.1 64.5 114.9 0.4 -2.2 2.9 5.2 80.3 n/a 12.1 6.7 22.7 n/a 11.4 0.0 0.0 0.0 0.0

INDUSTRIALS (Support Services)CAB Cabcharge Australia Julian Guido 4.30 6.63 Buy 518 57.7 65.6 66.0 70.6 47.9 54.5 54.8 58.7 9.0 7.9 7.9 7.3 9.0 9.0 8.7 30.0 37.5 7.0 8.7CND Clarius Group Matthew Nicholas 0.51 0.65 Hold 45 3.3 4.7 6.9 8.2 4.1 5.4 8.0 9.4 12.5 9.4 6.4 5.4 8.2 5.6 3.7 4.0 5.5 7.8 10.8PRG Programmed Maintenance Julian Guido 2.00 2.14 Hold 236 27.4 28.6 29.1 33.7 25.7 24.2 24.7 28.5 7.8 8.3 8.1 7.0 5.9 7.4 6.0 9.0 11.0 4.5 5.5SGH Slater & Gordon Julian Guido 1.80 2.50 Buy 272 19.8 27.9 37.3 41.2 16.7 18.3 23.6 25.5 10.8 9.8 7.6 7.1 9.3 6.9 5.5 5.5 7.5 3.1 4.1SKE Skilled Group Julian Guido 1.77 2.30 Buy 414 19.2 26.1 43.8 51.9 11.0 12.5 18.3 21.7 16.1 14.2 9.7 8.2 11.9 8.9 7.1 3.0 7.0 1.7 4.0SLM Salmat Julian Guido 2.65 4.49 Buy 423 55.9 51.6 60.7 68.2 35.1 32.4 37.9 42.6 7.5 8.2 7.0 6.2 6.2 7.9 6.2 24.0 27.1 9.1 10.2SPT Spotless Group Julian Guido 2.03 2.25 Hold 539 46.4 43.1 52.0 58.8 18.4 16.5 19.8 22.3 11.0 12.3 10.2 9.1 7.5 8.0 7.2 11.0 13.0 5.4 6.4TWO Talent2 International Matthew Nicholas 1.15 1.70 Buy 169 9.8 13.8 16.9 21.9 7.4 9.7 11.5 14.7 15.5 11.9 10.0 7.8 15.9 10.4 8.0 5.5 6.0 4.8 5.2

INDUSTRIALS (Engineering contractors)BKN Bradken Matthew Nicholas 7.40 9.85 Buy 1,233 78.4 90.1 120.3 143.9 60.2 63.5 72.3 84.0 12.3 11.7 10.2 8.8 10.7 9.4 8.0 39.5 45.0 5.3 6.1BOL BOOM Logistics Matthew Nicholas 0.27 0.49 Buy 126 4.1 5.4 17.4 21.6 1.3 1.2 3.7 4.6 20.6 23.1 7.2 5.8 14.3 10.7 6.9 0.0 0.0 0.0 0.0EHL Emeco Matthew Nicholas 0.99 1.23 Buy 625 40.7 56.3 68.7 78.2 6.4 8.9 10.9 12.4 15.4 11.1 9.1 8.0 11.0 9.0 7.9 10.0 6.0 10.1 6.1DOW Downer EDI Andrew Hodge 2.94 5.01 Buy 1,262 186.2 155.9 190.1 221.3 52.1 42.6 44.3 51.5 5.6 6.9 6.6 5.7 5.6 5.8 5.3 0.0 21.0 0.0 7.1HST Hastie Group Julian Guido 0.11 0.12 Hold 151 40.4 18.7 23.6 31.8 17.1 7.4 1.7 2.3 0.6 1.5 6.4 4.7 4.6 8.3 5.3 0.0 0.0 0.0 0.0MND Monadelphous Andrew Hodge 18.82 23.09 Buy 1,669 83.2 96.3 114.5 135.1 95.5 110.2 130.3 153.2 19.7 17.1 14.4 12.3 13.6 11.7 9.4 95.0 112.0 5.0 6.0NFK Norfolk Group Julian Guido 1.13 1.65 Buy 180 18.3 21.1 24.4 27.9 13.7 13.3 15.4 17.5 8.3 8.5 7.4 6.4 6.3 5.3 4.2 2.0 4.0 1.8 3.5TSE Transfield Services Andrew Hodge 2.12 2.13 Hold 1,165 123.7 128.2 126.3 144.0 29.9 26.0 23.4 28.4 7.1 8.1 9.0 7.5 9.8 8.7 8.2 14.0 14.0 6.6 6.6UGL United Group Andrew Hodge 11.99 14.47 Buy 1,991 151.1 164.4 179.8 205.3 91.2 98.8 107.5 122.4 13.1 12.1 11.2 9.8 9.6 8.6 7.7 70.0 75.0 5.8 6.3

MATERIALSABC Adelaide Brighton Andrew Scott 2.86 3.16 Buy 1,820 151.5 153.1 165.5 197.4 23.9 24.1 26.1 31.1 12.0 11.9 11.0 9.2 10.7 10.6 9.9 19.0 23.6 6.6 8.2NUF Nufarm Andrew Scott 4.46 5.05 Buy 1,168 48.4 86.1 101.9 118.5 21.3 32.9 38.9 45.3 20.9 13.6 11.5 9.9 13.2 8.5 7.6 0.0 11.7 0.0 2.6SGM Sims Group Todd Scott 13.40 19.10 Buy 2,761 126.7 182.0 279.6 364.1 65.7 88.9 136.1 177.3 20.4 15.1 9.8 7.6 13.0 9.9 6.5 47.0 68.0 3.5 5.1




Pre goodwill


62

Australia S

mall/M

id Caps | S

ector Dynam


15

RBS small/mid-cap coverage (cont’d)

ASX Company RBS Share Price Rec Mkt EV/EBIT (x)Code Name analyst price target Cap Ex assoc.

(A$) (A$) (A$m) FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY13F FY10A FY11F FY12F FY11F FY12F FY11F FY12F

UTILITIES/INFRASTRUCTUREAIX Aust Infrastructure Fund William Allott 1.86 1.92 Hold 1,151 191.3 212.3 160.6 166.5 33.2 34.2 25.9 26.8 5.6 5.4 7.2 6.9 5.4 4.8 6.1 10.0 10.5 5.4 5.6APA APA Group Jason Mabee, CFA 4.26 4.80 Buy 2,724 100.3 108.5 117.4 132.9 19.4 19.7 18.2 20.1 21.9 21.6 23.4 21.2 15.3 14.1 13.3 34.4 35.4 8.1 8.3CEU ConnectEast William Allott 0.55 0.55 Hold 2,147 -53.6 -10.3 -13.5 5.5 -1.4 -0.3 -0.3 0.1 n/a n/a n/a 397.4 576.0 78.3 47.2 2.0 2.2 3.6 4.0CIF Challenger Infrastructure William Allott 1.09 1.35 Buy 345 -210.7 -0.8 11.0 22.3 -64.4 -0.3 3.5 7.0 n/a n/a 31.4 15.5 12.2 13.0 15.3 14.0 10.0 12.8 9.2DUE DUET Group William Allott 1.65 2.00 Buy 1,807 140.0 124.9 90.7 89.0 16.3 14.1 9.2 8.1 10.1 11.7 18.0 20.4 11.6 13.4 12.3 20.0 16.0 12.1 9.7ENV Envestra William Allott 0.65 0.80 Buy 962 36.6 47.2 63.0 69.7 2.7 3.3 4.1 4.3 23.8 19.6 15.7 15.1 13.9 12.0 10.9 5.8 5.9 8.9 9.1EPW ERM Power Limited Jason Mabee, CFA 1.53 1.90 Buy 248 21.5 2.0 31.5 36.7 13.5 1.5 19.4 22.6 11.4 104.2 7.9 6.8 11.3 7.9 5.7 3.5 7.7 2.3 5.0HDF Hastings Diversified Util William Allott 1.63 1.95 Buy 864 35.6 39.7 26.8 19.7 7.1 7.7 5.1 3.7 23.0 21.2 31.9 43.9 19.9 24.0 15.2 10.0 10.0 6.1 6.1IFN Infigen Energy William Allott 0.29 0.80 Buy 221 -66.7 -26.0 -42.7 -24.4 -8.5 -3.4 -5.6 -3.2 n/a n/a n/a n/a 69.9 39.6 28.4 1.0 0.0 3.4 0.0MQA Macquarie Atlas Roads William Allott 1.36 1.88 Buy 629 -281.7 -57.0 108.5 23.0 -62.3 -12.6 24.0 5.1 n/a n/a 5.7 26.8 807.2 n/a 30.3 0.0 7.0 0.0 5.1SPN SP Ausnet William Allott 0.96 1.00 Hold 2,751 209.0 252.9 244.5 251.2 7.7 9.0 8.6 8.7 12.5 10.6 11.1 11.0 12.1 11.6 11.5 8.0 8.0 8.3 8.3SKI Spark Infrastructure William Allott 1.21 1.35 Hold 1,605 78.4 153.0 165.2 165.9 6.7 11.5 12.4 12.5 18.2 10.5 9.7 9.7 9.4 10.1 9.6 9.5 9.7 7.9 8.0

ENERGY (Oil & Gas)LNC Linc Energy Jason Mabee, CFA 2.06 3.75 Buy 1,037 -14.4 -204.0 81.0 186.4 -3.4 -41.1 16.1 37.0 n/a n/a 12.8 5.6 n/a n/a 0.1 0.0 0.0 0.0 0.0

OTHER RESOURCESAGO Atlas Iron Lyndon Fagan 2.95 4.43 Buy 2,623 -40.8 168.6 222.9 243.1 -8.6 20.4 26.9 29.4 n/a 14.5 10.9 10.0 n/a 11.3 6.5 3.0 6.0 1.0 2.0AQA Aquila Resources Sam Berridge 5.26 5.98 Hold 1,969 -33.1 -63.5 -41.0 -156.0 -9.3 -17.0 -10.9 -41.7 n/a n/a n/a n/a n/a n/a 111.3 0.0 0.0 0.0 0.0ERA Energy Resources Lyndon Fagan 2.04 1.91 Sell 389 52.8 31.2 76.8 3.5 27.7 6.0 14.8 0.7 7.4 33.9 13.8 302.3 10.4 5.9 3.9 0.0 0.0 0.0 0.0GBG Gindalbie Metals Todd Scott 0.55 0.85 Buy 619 -3.7 -5.3 13.4 93.5 -0.5 -0.6 1.1 7.5 n/a n/a 50.8 7.3 n/a n/a 37.6 0.0 0.0 0.0 0.0GRR Grange Resources Todd Scott 0.42 0.70 Buy 485 33.9 82.8 95.8 76.3 3.0 7.2 8.3 6.6 14.2 5.8 5.1 6.4 7.2 1.9 2.6 3.6 2.1 8.6 5.0ILU Iluka Resources Sam Berridge 15.40 19.00 Buy 6,448 36.1 476.8 1,092.2 1,296.1 8.6 113.9 260.9 309.5 178.6 13.5 5.9 5.0 78.2 9.1 3.4 50.0 105.0 3.2 6.8IRD Iron Road Todd Scott 0.62 0.77 Buy 88 -11.3 -17.5 -17.2 -17.1 -11.8 -13.6 -12.2 -12.1 n/a n/a n/a n/a n/a n/a n/a 0.0 0.0 0.0 0.0MIN Mineral Resources Todd Scott 10.35 11.50 Hold 1,903 97.2 151.0 184.6 205.6 66.6 89.8 101.8 113.4 15.5 11.5 10.2 9.1 21.2 8.7 7.0 42.0 51.0 4.1 4.9OGC OceanaGold Phillip Chippindale 2.18 3.00 Buy 572 29.8 67.1 78.0 46.9 11.4 25.6 29.8 17.9 19.1 8.5 7.3 12.2 8.7 5.4 5.1 0.0 0.0 0.0 0.0MML Medusa Mining Ltd Phillip Chippindale 6.61 7.90 Buy 1,248 65.8 111.5 130.0 121.3 35.0 59.3 69.2 64.5 18.9 11.1 9.6 10.2 19.1 11.0 9.1 10.0 10.0 1.5 1.5OMH OM Holdings Todd Scott 0.58 0.50 Sell 295 47.2 4.4 16.3 26.7 9.4 0.9 3.2 5.3 6.2 65.9 17.9 10.9 6.0 35.3 11.7 1.0 0.8 1.8 1.4KCN Kingsgate Consolidated Sam Berridge 7.52 9.06 Buy 1,046 75.6 32.0 206.7 205.7 75.2 23.6 152.7 152.0 10.0 31.8 4.9 4.9 11.3 31.3 3.7 15.0 35.0 2.0 4.7MGX Mount Gibson Iron Lyndon Fagan 1.45 1.85 Buy 1,570 130.4 233.8 390.1 378.9 12.1 21.7 36.2 35.2 12.0 6.7 4.0 4.1 6.9 3.7 1.8 4.0 4.0 2.8 2.8PDN Paladin Lyndon Fagan 1.54 1.87 Buy 1,287 -52.9 -59.0 -23.6 26.5 -7.4 -7.9 -3.0 3.4 n/a n/a n/a 45.3 n/a n/a 68.7 0.0 0.0 0.0 0.0PRU Perseus Mining Sam Berridge 3.01 3.64 Hold 1,284 -9.7 -30.0 126.6 113.3 -2.3 -7.1 29.7 26.6 n/a n/a 10.1 11.3 n/a n/a 7.7 0.0 0.0 0.0 0.0ALK Alkane Resources Sam Berridge 1.10 2.30 Buy 296 7.8 -5.4 -9.9 -50.0 2.9 -2.0 -3.7 -18.6 38.0 n/a n/a n/a 39.0 n/a n/a 0.0 0.0 0.0 0.0RRL Regis Resources Sam Berridge 2.88 2.96 Hold 1,250 -10.1 37.2 75.2 215.4 -2.4 8.6 17.5 50.0 n/a 33.3 16.5 5.8 n/a 31.4 16.1 0.0 0.0 0.0 0.0




Pre goodwill


63


Equi

ty |

Aus

tral

ia |

Ener

gy


Woodside Petroleum

Solid 3Q, but Shell overhang remains

WPL delivered a solid 3Q production result. Market sentiment remains weigheddown as the November escrow period draws closer and uncertainty over key growth projects is worrying investors. In our view, Shell is likely to extend thecurrent escrow period and this should help to kick up the share price. Buy.

Key forecasts


EBITDA (US$m) 2,448 2,861 2,961 4,167 5,065%Reported net profit (US$m) 1,474 1,575 1,582 2,094 2,659%Normalised net profit (US$m)¹ 1,052 1,418 1,807 2,094 2,659%Normalised EPS (c)¹ 149.6 185.1 225.4 255.3 316.0%Normalised EPS growth (%) -32.8 23.80 21.80 13.20 23.80 Dividend per share (c) 95.00 105.0 110.0 130.0 150.0 Dividend yield (%) 2.76 3.05 3.19 3.77 4.35 Normalised PE (x) 23.05 18.62 15.29 13.50 10.91 EV/EBITDA (x) 13.40 11.00 10.20 8.17 6.51 Price/net oper. CF (x) 16.30 12.50 12.80 9.64 9.25 ROIC (%) 18.10 10.30 11.70 12.90 14.10

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

year to Dec, fully diluted

3Q production of 16.1mmboe was slightly ahead of our 15.8mmboe forecast A stronger bounce back in oil production (Stybarrow) was the key positive variance (+1.9%), which gives us increased comfort in our FY forecast of 63.4mmboe (guidance 62-64). Sales revenue of US$1.312.6bn also outperformed our expectations (+5%), generally aided by very strong average realised liquids prices (US$116.2./bbl for crude and US$96.9/bbl for condensates vs Brent avg US$112.5/bbl) and the shift in timing of shipping from 2Q to 3Q.

Still no long lead time items being ordered for P2 No new drilling results were announced regarding Pluto expansions, but the Noblige-2 appraisal well is the next cab off the rank and, if successful, could give management the confidence to pull the trigger on long lead time items. No update on talks with OROs, but we assume they are bubbling along in the background. We are certainly encouraged by progress on Sunrise and remain bullish that this project will gain new life under the new CEO (RBS 50% risked value of A$1.80/share).

Buy maintained, but in our view WPL's peers are offering a better risk/reward profile Woodside offers solid value at current levels, in our view, but the company's outlook is clouded by some uncertainty. Not only is the new CEO's strategy yet to be fully forged, but also Shell 24% stake overhang is looming large as November draws closer, when Shell’s self-imposed escrow period ends. We would expect Shell to extend the escrow period by six to 12 months given the current circumstances, but we wouldn't be surprised if it dumped the stock on the market before Christmas. Our sum of the parts evaluation remains unchanged at A$46.00, however we have applied a discount of roughly 15% to our valuation to encapsulate the market's concerns.

21 October 2011

Analysts

Jason Mabee, CFA Australia +61 2 8259 5380 [email protected]

Philipp M-O Kin Australia +61 2 8259 6080 [email protected] 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

Price performance

(1M) (3M) (12M)Price (A$) 33.35 39.69 44.15Absolute (%) 0.7 -15.3 -23.9Rel market (%) -1.8 -7.1 -15.1Rel sector (%) 2.5 -0.4 -11.0

28

32

36

40

44

48

52

56Oct 08 Oct 09 Nov 10

WPL.AX S&P/ASX200

Market capitalisation A$26.93bn (US$27.63bn) Average (12M) daily turnover A$149.46m (US$154.47m) Sector: BBG AP Oil & Gas Part of: ASX/S&P 20 Leaders RIC: WPL.AX, WPL AU Priced A$33.60 at close 20 Oct 2011. Source: Bloomberg

Buy Target price A$39.00 (from A$46.00) Price A$33.60 Short term (0-60 days) n/a

65

Woodside Petroleum | Investment View | 21 October 2011

2

Key news items from 3Q Pluto Pluto Train 1 is currently proceeding according to latest guidance, with Pluto first cargo estimated for March 2012. Pluto expansion remains a hot topic, with drilling and discussion with other resource owners continuing.

Browse LNG Browse is progressing on schedule, with front-end engineering and design studies continuing along with work to secure the necessary environmental approvals. Invitations to tender were issued for the construction and installation of the central processing facility topsides and jacket.

During the quarter, Woodside also commenced the Tridacna three dimensional seismic survey of the Torosa lagoon. The survey is on schedule to be completed in November and will assist in defining final volumes of the Browse LNG project.

Sunrise FLNG We are encouraged by Peter Coleman’s visit to Timor Leste in August and we look forward to seeing more engagement and progression on the Sunrise project.

NWS The NWS North Rankin redevelopment project remains on schedule for 2013 completion. The North Rankin jacket was successfully launched and positioned during the last quarter.

The NWS oil redevelopment project recommenced, with production of first oil into the Okha floating production storage and offloading vessel on 24 September, ahead of previous guidance of October. The infield commissioning of the system will continue with the objective of achieving steady state production within a two- to three-week window.

Vincent Phase III production wells came online in September at a rate of 20,000 bbl/day.

Exploration programme A further six exploration wells are planned to be spudded over the period 4Q11 to mid 2012, to enable Woodside to find sufficient equity gas to support Pluto expansions.

There has been a lot of negative speculation (eg Australian Financial Review, 20 October 2011) around the decision to let the Maersk discoverer go early. This decision (after the discoverer completed two commitment wells in the Claudius hub) was born out of economic rationality, as it was described as a very expensive rig. Woodside has confirmed that no wells that were going to be drilled will be delayed, and re-iterated that all scheduled drilling programmes can be completed by the drill ships Ocean America and Nanhai.

Table 1 : Exploration/Appraisal wells planned commencing in 4Q

Well name Basin area Target Woodsideinterest(%)

Water depth

Proposedtotal depth

(meters)

Comments

Opel-1 Exmouth sub-basin, WA-39-R Oil 60 840 2030 Exploration, Bottom hole section

Opel-2 Exmouth sub-basin, WA-39-R Oil 60 840 2150 Appraisal Bottom hole section

Ragnar Exmouth sub-basin, WA-430-P Gas 70 1160 4280 Exploration Cadwallon-1 Outer Exmouth, WA-434 Gas 100 2005 4900 Exploration Genseric-1 Outer Exmouth, WA-434 Gas 100 1880 3510 Exploration Tidepole East -1 Carnarvon basin, WA-5-L Gas 15.78 107 3544 Exploration

Source: Woodside drilling programme

66

Woodside Petroleum | Investment View | 21 October 2011

3

WPL- Financial Summary

Year to 31 Dec (A$m) AIFRS AIFRS AIFRS AIFRS 39.00Income statement 2010A 2011F 2012F 2013F Valuation metricsTotal revenue 4258.0 4669.8 5574.5 5693.0 Net asset value (2011) A$m A$ps A$/BOE Valuation inputsOperating costs -931.0 -1067.0 -1173.9 -529.1 Pluto Train 1 12292 15.33 17 Rf 5.25%EBITDAX 3327.0 3602.8 4400.6 5164.0 Pluto Train 2 4473 5.58 6 Rm-Rf 6.00%Exploration costs -466.0 -417.0 -233.3 -99.0 Pluto Train 3 1388 1.73 0 Beta 1.13EBITDA 2861.0 2960.8 4167.2 5065.0 Browse B2K 2093 2.61 3 Kd 5.75%Depreciation -749.0 -568.8 -839.6 -948.4 Sunrise 1448 1.81 6 Kd 6.00%EBIT 2112.0 2391.9 3327.7 4116.6 Enfield 752 0.94 31 Ke 12.0%Net interest expense 18.0 -35.9 -248.9 -203.6 Lady Nora 17 0.02 6 WACC 9.6%Pre-tax profit 2130.0 2356.0 3078.8 3913.0 Laminaria/Corallina 81 0.10 16Income tax expense -532.0 -736.8 -923.6 -1173.9 Mutineer Exeter Area 23 0.03 16PRRT -165.4 -37.1 -61.1 -80.3 Stybarrow 548 0.68 27NPAT 1418.0 1582.2 2094.1 2658.8 Vincent 237 0.30 24Normalised items 157.0 0.0 0.0 0.0 NSW 13310 16.61 19Reported NPAT 1575 1582 2094 2659 GOM (TOTAL) 241 0.30 20

Exploration Program 2436 3.04Production 2010A 2011F 2012F 2013F Total Operations 39,340 49.08Oil (mmbbl) 20.8 13.0 13.8 13.6 Net Debt -5043 -6.29Condensate (mmbbl) 10.6 11.3 9.4 10.6 Corporate & Franking 2573 3.21Gas (PJ) 96.8 94.8 86.8 86.3 Total Valuation 36,871 46.00LNG (Mt) 2.6 2.6 4.6 5.2 No. of shares (m) 801.6Total production (mmboe) 72.7 63.4 84.1 89.9Gas production (mmboe) 39.1 41.0 59.7 65.8Liquids production (mmboe) 33.6 22.4 24.4 24.1 Key assumptions 2010A 2011F 2012F 2013F

Exchange rate (A$1:US$) 0.925 1.020 1.000 0.950Divisional sales revenue 2010A 2011F 2012F 2013F Brent oil price (US$/bbl) 79.00 107.00 95.00 90.00North West Shelf Business Unit 2791.6 3141.7 2911.7 2702.8Australian Business Unit 1291.7 1128.9 1042.6 972.2 Multiples 2010A 2011F 2012F 2013FPluto Train 1 0.0 0.0 1558.4 1933.9 Enterprise value (A$m) 31584 32481 34033 32950Pluto Train 2 0.0 0.0 0.0 0.0 EV/Sales (x) 7.5 7.4 6.1 5.8Pluto Train 3 0.0 0.0 0.0 0.0 EV/EBITDA (x) 11.0 10.2 8.2 6.5Browse Business Unit 0.0 0.0 0.0 0.0 EV/EBIT (x) 15.0 12.4 10.2 8.0United States Business Unit 118.8 92.3 61.9 84.2 PE (pre-goodwill) (x) 18.6 15.3 13.5 10.9Other 55.9 307.0 0.0 0.0

At target price 2010A 2011F 2012F 2013FDivisional EBIT 2010A 2011F 2012F 2013F EV/EBITDA (x) 12.6 11.6 9.2 7.4North West Shelf Business Unit 1469.0 1756.0 1794.8 2099.7 PE (pre-goodwill) (x) 21.6 17.7 15.7 12.7Australian Business Unit 601.1 563.9 463.3 504.0Pluto Train 1 0.0 0.0 799.3 1276.3 Per share data 2010A 2011F 2012F 2013FPluto Train 2 0.0 0.0 0.0 0.0 No. shares 783.4 801.6 820.3 841.5Pluto Train 3 0.0 0.0 0.0 0.0 EPS (cps) 205.6 197.4 255.3 316.0Browse Business Unit 0.0 0.0 0.0 0.0 EPS (normalised) (c) 185.1 225.4 255.3 316.0United States Business Unit 42.0 36.5 21.3 32.9 Dividend per share (c) 105.0 110.0 130.0 150.0Other 0.0 0.0 0.0 0.0 Dividend payout ratio (%) 60.4 46.6 45.5 42.7

Dividend yield (%) 3.05 3.19 3.77 4.35Per BOE metrics (US$) 2010A 2011F 2012F 2013F Dividend franking (%) 100.0 100.0 100.0 100.0Sales revenue 54.2 75.1 66.3 60.1Sales revenue WTI differential -31% -30% -30% -33% Growth ratios 2010A 2011F 2012F 2013FDepreciation 9.5 9.2 10.0 10.0 Sales growth 20.2% 4.0% 27.8% 2.1%EBIT 26.9 38.5 39.6 43.5 Operating cost growth 33.3% 22.3% -17.7% -55.4%NPAT 18.0 25.5 24.9 28.1 EBITDA growth 16.9% 11.4% 30.8% 21.5%Cash flow from ops 26.8 34.6 34.9 33.1 EBIT growth 24.5% 23.9% 27.2% 23.7%Equity FCF -3.5 0.0 0.0 0.0 NPAT growth -3.8% 11.6% 32.4% 27.0%Capex 38.0 48.8 49.2 25.1 Pre-goodwill NPAT growth -32.3% 27.4% 15.9% 27.0%Exploration expenditure 8.4 6.7 4.2 1.6 Normalised EPS growth 23.8% 21.8% 13.2% 23.8%

Production growth -10.2% -12.8% 32.6% 7.0%Cash flow statement 2010A 2011F 2012F 2013FEBITDA 2861.0 2960.8 4167.2 5065.0 Operating performance 2010A 2011F 2012F 2013FChange in working capital -70.0 27.7 195.7 19.1 Asset turnover (%) 5.6 5.4 5.8 5.2Net interest (pd)/rec -150.2 -35.9 -248.9 -203.6 EBITDA margin (%) 70.0 67.2 63.4 74.8Taxes paid -799.0 -773.9 -984.7 -1254.2 EBIT margin (%) 48.5 49.6 51.2 59.7Cash flow from ops (1) 2104.0 2150.5 2934.0 3135.1 Net profit margin (%) 42.2 33.3 33.9 37.6Capex (2) -2989.0 -3034.1 -4135.0 -2376.6 Return on net assets (%) 18.1 18.1 23.8 23.2Exploration expenditure -660.0 -417.0 -350.0 -148.5 Net debt (A$m) 3952.0 4849.6 6401.0 5318.9Disposals/(acquisitions) 0.0 0.0 0.0 0.0 Net debt/equity (%) 33.8 36.6 45.8 30.0Other investing cash flow 660.0 0.0 0.0 0.0 Net interest/EBIT cover (x) -117.3 66.7 13.4 20.2Cash flow from invest (3) -2989.0 -3451.1 -4485.0 -2525.1 ROIC (%) 10.3 11.7 12.9 14.1Incr/(decr) in equity 1197.0 842.6 951.9 1136.3 ROIC - WACC (%) 0.7 2.1 3.3 4.5Incr/(decr) in debt -42.0 1300.6 1551.0 -610.0Ordinary dividend paid -547.0 -842.6 -951.9 -1136.3 Comparable company data 2011F 2012F 2013FPreferred dividends (4) 0.0 0.0 0.0 0.0 Santos EV/EBITDA 7.6 8.1 8.3Other financing cash flow Year to 31 Dec EV/EBIT 12.9 13.5 13.4Cash flow from fin (5) 608.0 1300.6 1551.0 -610.0 PE 19.8 19.2 17.7Forex and disc ops (6) 0.0 0.0 0.0 0.0 Oil Search EV/EBITDA 19.7 25.5 35.1Inc/(decr) cash (1+3+5+6) -277.0 0.0 0.0 0.0 Year to 31 Dec EV/EBIT 22.3 29.6 42.5Equity FCF (1+2+4) -277.0 0.0 0.0 0.0 PE 42.0 50.7 65.9

Balance sheet 2010A 2011F 2012F 2013F Reserves 2007A 2008A 2009A 2010ACash & deposits 963.0 963.0 962.6 1434.7 Proved (mmboe) 1227.1 1327.7 1295.9 1308.0Total assets 20196.0 22761.1 25466.3 29214.2 Proved & probable (mmboe) 1688.1 1703.2 1651.5 1680.1Debt 4915.0 5812.6 7363.6 6753.6 Contingent resources (mmboe) 2403.0 1939.6 1866.6 1813.0Shareholders' equity 11686.0 13248.4 13974.2 17728.1 Gas reserves (mmboe) (2P) 1365.8 1383.2 1367.6 1405.6

Price target (A$)


67

Produced by: The Royal Bank of Scotland N.V.

Equi

ty |

Euro

pe


Global Views Quick thoughts on EFSF and the need for Collateral guarantees Some interesting spanners are being thrown in the plans for the EFSF to be made larger via the insurance model. According to a story from the credible source of the WSJ European correspondents, the Euro leaders are looking at providing collateral to back up bond issues of troubled countries.

European lawyers have apparently been warned that using the bailout fund to provide direct guarantees violates the EU Treaty. This seems to rule out the Allianz model on providing insurance on a first-loss basis for periphery risk. That's a negative for market sentiment outright because the legality of what is possible has always been tough for investors to get their heads around and while most continue to dream that some idea will pop-up at some point the Treaty is a real hurdle, not least for the German constitutional court.

So what about the alternative? The article says that countries who want the insurance would "borrow an additional amount from the EFSF when they need to tap markets for financing. That extra amount would be kept aside to provide some compensation to creditors in the event of a default."

There is only one positive here and big negatives. The positive is that this is cash up-front and so the correlation risk of Germany and France crashing if Italy crashes, is less relevant if there is a SPV somewhere that has 20% of a bond issue waiting to be a backstop for the recovery value.

The negatives are much more serious. Firstly, we are now talking about dealing with a debt crisis with more hard debt (not a contingent liability). This is simply a bad idea and will erode market confidence further, if this collateral is the chosen path. For instance, if Italy wanted to access markets and now has to add effectively 20% extra liability on roughly EUR 200 bn in bond supply a year then it adds 2.6% to debt/GDP metrics. It simply does not have that wiggle room.

Second, the cost of the insurance here will not be some economic variable decided by politicians but will be the actual funding cost of the EFSF. EFSF bonds have been hit and are likely to be hit even further if there is a big supply pipeline coming due. This will limit the volumes that can be done and so can limit the extent of insurance.

Net/net, and if this story is correct, the EFSF leverage via the collateralised insurance route will be a disappointment to markets. Expect more headlines in coming days but overall we don't see anything that Europe can bring to the table at the G20 to solve the crisis or even buy that much time.

They have neither the legal flexibility, they have a set of flawed policy tools (e.g. The ESM) and as yet they do not have appetite to abuse the ECB balance sheet. When we talk about a near death experience for the Euro, we mean that even core countries get hit, and this is starting with Belgium and France. At the point of pain for Germany, the use of the ECB balance sheet will be a more serious option. Until then risk assets have a lot further to fall. We continue to look for the next 50bp in Bund yields to be lower. Harvinder Sian, RBS

20 October 2011

Analysts

Equity Research 250 Bishopsgate, London, EC2M 4AA, United Kingdom www.research.rbsm.com

AUSSIE ALPHA COMMENTAhead of the 23 October meeting of European leaders, mixed messages are emerging in terms of a possible resolution to the European crisis. European lawyers have apparently been warned that using the bailout fund to provide direct guarantees violates the EU Treaty, ruling out the Allianz model on providing insurance on a first-loss basis for periphery risk. That's a negative for market sentiment. (Alva Devoy +61 2 8259 5831)

69

Produced by: The Royal Bank of Scotland N.V., (Hong Kong) Branch

Equi

ty |

Glo

bal


Airlines

September traffic

This note summarises the latest traffic data from the global industry. Passengerdata in September held up well, but red flags abound. Cargo traffic remains soft,usually a precursor to softer travel ahead. RBS analysts globally currently preferLCCs to network carriers in this volatile environment for premium travel.

Table 1 : Key recommendations

Company Recomm TargetPrice

Actual Price

Company Recomm TargetPrice

Actual Price

Air Berlin Sell € 2.25 € 2.67 Air China Hold HK$ 8.20 HK$ 5.73Air France-KLM Sell € 4.75 € 5.52 China Eastern Airlines Hold HK$ 3.60 HK$ 2.62easyJet* Buy £ 4.50 £ 3.50 China Southern Airlines Buy HK$ 6.25 HK$ 4.18Finnair Buy € 3.50 € 2.83 Asiana Airlines Sell W 8,000 W 8,290Flybe Buy £ 1.50 £ 0.69 Cathay Pacific Hold HK$ 16.50 HK$ 13.16IAG Hold £ 1.65 £ 1.64 Korean Air Hold W 47,000 W 49,800Lufthansa Hold € 10.00 € 9.89 Malaysian Airlines Hold Rm 1.60 Rm 1Ryanair Buy € 4.00 € 3.23 Singapore Airlines Sell S$ 10.00 S$ 11.07SAS Sell Skr 9.50 Skr 11.05 AirAsia Sell Rm 3.40 Rm 3.74Qantas Airways Hold A$ 1.68 A$ 1.49 Tiger Airways Buy S$ 1.20 S$ 0.68Virgin Blue Holdings Buy A$ 0.41 A$ 0.35

* RBS Hoare Govett Ltd is a broker to this company Source: Bloomberg, RBS

A strong September for European carriers, but warning clouds gather Overall, the European airlines witnessed a strong September. However, commentary from the airlines suggests that October numbers could start to look slightly softer. Airlines are guiding for deterioration across different parts of their individual business – Lufthansa is highlighting softness in the back of the plane, while IAG, Flybe and Finnair are warning of declining premium traffic or business related travel. The European low-cost carriers continued to report strong numbers in September with improving load factors.

Asia shows better passenger, weaker cargo data; Australian loads soften Most Asian airlines are still seeing some yoy improvement in passenger travel numbers. However, load factors are trending down as capacity growth continues. Premium traffic has continued to hold up moderately well but with budget cuts coming, airlines believe this is likely to fall. Cargo volumes remain mediocre as well. Over in Australia, Qantas and VBA’s August data both show falling loads too; trends in the former are likely to deteriorate following the current industrial action, with Virgin Blue likely to pick up the slack in this drop-off.

Americas data shows disparity between network and low-cost airlines Overall, network carrier traffic was little changed in the month. Most carriers are reporting better load factors, indicating some capacity discipline. The low-cost airlines continue to grow in the single digits, with loads here also improving. Considering the growth profile of the region, the South American airlines are understandably reporting higher traffic growth rates at the moment.

RBS still prefers low-cost carriers to network Considering the faltering macro backdrop, we continue to see greater risks for carriers with long-haul premium traffic exposure. Our preference remains with the LCCs as we see a more robust environment still existing for leisure travel. Key Buys across our global coverage are Ryanair, Tiger, VBA and China Southern, and our key Sells are Air France and SIA.

20 October 2011

Analysts

Andrew Orchard +852 3988 7191 [email protected]

Andrew Lobbenberg [email protected]

Mark Williams [email protected]

Vince Ng, CFA [email protected]

John Rachmat [email protected] 38/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong http://research.rbsm.com

NASDAQ: 2608.57 Source: Bloomberg

Sector performance

(1M) (3M) (12M)Absolute 3.8 -219.3 177.9Absolute (%) 0.1 -7.8 7.3Rel market (%) 0.0 0.0 0.0

AUSSIE ALPHA COMMENTThis is our second monthly collaborative piece on global traffic trends. With trends apparently worsening, we continue to prefer airlines with lower exposure to premium travel . (Mark Williams +61 2 8259 6921)

71

Airlines | Investment View | 20 October 2011

3

Steady September traffic, but warnings ahead

Globally, passenger data in September held up well, but red flags abound. Cargo traffic remains soft, usually a precursor to softer travel ahead. RBS analysts globally currently prefer LCCs to network carriers in this volatile environment for premium travel.

Key findings Capacity: Across the carriers reviewed, the unweighted average increase in capacity was 6.1% yoy, with the European carriers adding seats the most quickly. Growth of 10.2% in the region was boosted especially by Norwegian, Turkish and Finnair. In Asia Pacific, average growth was 3.4%, but this was weighed down by capacity cuts at JAL; ex-JAL, capacity increased at a rate of 5.5% instead. Over in the Americas, capacity was up just 5% in total as the North American majors such as Delta, American and United Continental kept ASK growth flat to negative.

Traffic: A Passenger traffic growth rate of 5.9% was slightly lower than capacity growth, and overall in line with what was observed in August (+6.3%). The European carriers continue to average a higher rate of growth (+11%), whereas the Asia-Pacific and the Americas are growing at rates of just 1.1% and 6% respectively. For Asia-Pacific, this growth rate moderates to 4.6% yoy after removing Tiger and JAL.

Cargo traffic remains weak. On average, there was a decline of 0.4% yoy across the airlines we reviewed. However, this includes businesses which are expanding. After removing growth rates from Finnair, China Eastern and LAN, average cargo traffic fell by 3.4% instead.

Load factors: On average, load factors declined 0.1ppt despite decent traffic numbers. American carriers showed the biggest improvement, with loads rising 0.7ppt on average as capacity was better controlled. In Europe, loads improved 0.6ppt whereas in Asia, loads declined 1.5ppt in absolute terms, the European carriers reported the highest loads of 81.1%, against 77.6% and 78.7% in Asia-Pacific and America respectively.

Latest IATA commentary We believe that the regular data distributed by IATA tends to be lagging and that the monthly traffic statistics provided by the airlines below provide a reasonably good forward look at what is actually reported. However, we find that the latest commentary from the group will gives investors added colour into where trends might further develop. We thus highlight the most recent commentary from IATA here.

IATA’s passenger traffic data has not shown a significant dip as yet, with RPK up 4.5% in August on a 4.6% increase in capacity. At the same time, IATA is highlighting that the fall in business and consumer confidence is a likely signal that air travel will see further decline in the coming months.

To exacerbate matters, IATA has highlighted that there was a degree of slippage in August load factors as well as decline in twin-aisle aircraft utilization. As a consequence, it added that “the challenges of maintaining favourable supply-demand conditions are growing”, which in turn is likely to have an adverse impact on airlines’ profitability. The group states that yields outside North America are not strong.

The outlook for premium travel is also gloomy. Latest data from IATA still shows positive trends, although the rate of growth slipped from 7.5% in July to 2.3% in August. However, IATA also notes that premium travel has now fallen back to the levels of 4Q10. The strongest flight segment has been within the Far East, whereas European and North American premium traffic is still seeing some deterioration. With trade and business confidence in the manufacturing sector waning, IATA believes that confidence has now fallen to levels consistent with the expansion in premium travel stalling in 4Q11.

As for air freight, August FTK declined 3.8% yoy as opposed to a 1.5% growth in capacity. IATA believes this to be the result of stagnant world trade. The decline in air freight volumes has been taken by the industry body to be an early indication of further declines in trade and economic conditions ahead. Load factors and yields continue to fall.

72


4

Europe Overall, the European airlines witnessed a strong September. However, commentary from the airlines offers a hint that October numbers could start to look slightly softer. Obviously, part of this is likely to be seasonality with winter approaching, but we note too that Lufthansa, Flybe and Finnair have all recently guided for lower than expected profit in the current earnings period. Interestingly, the airlines that have guided for some deterioration are flagging softness across different parts of their individual businesses – Lufthansa is highlighting softness in the back of the plane, while IAG, Flybe and Finnair are warning of declining premium traffic or business related travel.

The European low-cost carriers continued to report strong numbers in September with improving load factors. In general, summer trading has been strong but they are starting to worry about the winter.

Chart 1 : European September passenger traffic growth Chart 2 : European September passenger capacity growth

0.9%

9.3%

4.6%

8.5%

11.9%

4.3%6.0%

0.8%

6.0% 5.5%

27.0%

30.7%

14.9%

0%

5%

10%

15%

20%

25%

30%

35%

AB AF

LH EZJ FIN

IAG BA

IBE

RY

N

SA

S

NA

S TK

VLG

0.7%

7.5% 8.0% 8.2%

14.7%

4.2%5.3%

1.8%

7.2%

5.0%

20.0%

27.6%

9.0%

0%

5%

10%

15%

20%

25%

30%

AB AF

LH EZJ FIN

IAG BA

IBE

RY

N

SA

S

NA

S TK

VLG


Chart 3 : European September passenger load factor Chart 4 : European September passenger load factor change

83%

85%

80%

90%

73%

83% 83% 83%

85%

75%

81%

79%80%

65%

70%

75%

80%

85%

90%

95%

AB AF

LH EZJ FIN

IAG BA

IBE

RY

N

SA

S

NA

S TK

VLG

0.1 pt

1.5 pt

-2.5 pt

0.0 pt

-1.8 pt

0.1 pt0.5 pt

-0.8 pt-1.0 pt

0.0 pt

4.0 pt

1.9 pt

4.1 pt

-3 pt

-2 pt

-1 pt

0 pt

1 pt

2 pt

3 pt

4 pt

5 pt

AB AF

LH EZJ FIN

IAG BA

IBE

RY

N

SA

S

NA

S TK

VLG


73


5

Chart 5 : European September cargo traffic growth Chart 6 : European September cargo capacity growth

1.0%2.3%

16.9%

4.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%A

F

LH FIN

IAG

-3.4%

0.8%

13.3%

3.7%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

AF

LH FIN

IAG


Chart 7 : European September cargo load factor Chart 8 : European September cargo load factor change

64.7% 64.8%64.0%

75.5%

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

AF

LH FIN

IAG

-3.0 pt

-1.0 pt

-2.0 pt

-0.4 pt

-3.5 pt

-3.0 pt

-2.5 pt

-2.0 pt

-1.5 pt

-1.0 pt

-0.5 pt

0.0 pt

AF

LH FIN

IAG


Lufthansa (Hold, TP Eur10.00): Modest negative Group traffic up 4.6%, capacity 8% and hence load down 2.5 points to 80.1%. Cargo load factor down 1 point, with traffic up 0.8% on capacity up 2.3%. Load factor down across all businesses except for Germanwings, which is cutting capacity with vigour to good effect. BMI data was dreadful, Austrian worse than Lufi mainline and Swiss better than in recent months. Commentary flags slightly weakening pricing environment.

By geography, loads decline in every region. Americas hold up the best, with load only down 1.6 points. Asian loads down 3.4 points, mid east Africa down 3.8 points and Europe down 2.4 points.

This is bad data, but then they did profit warn, so not wholly surprising. But the data is slightly worse than we had anticipated. Looking to the future, the key issue is what happens to premium traffic, and Lufthansa has not identified weakening trends yet.

Air France-KLM (Sell, TP Eur4.75): Better than expected September passenger traffic up 9.3% on a capacity increase of 7.5%, hence load factor up 1.5ppt to 85.2%. Indications are that passenger RASK was slightly up for September but commentary hints that October could be less dynamic, which would be consistent with IAG commentary. The high volume growth reflects ATC strike effects last September, aircraft reconfigurations and the switch of some long haul services capacity from Martinair to KLM mainline.

74


6

The commentary flags a recovery on Ivory Coast, which is a notably important route for AF. Cargo traffic down 3.4%, load factor down 3 ppt. Cargo unit revenues were down slightly. Capacity outlook for the company was reiterated – they forecast winter 11/12 capacity to rise 3.4%, weighted to medium haul (6.2%) which reflects the Marseilles base launch. AF plans to hold long haul growth in summer 12 and winter 12/13 to 3%.

Overall better than expected, with no profit warning.

IAG (Hold, TP 165p): Strong September; weaker October? September traffic rose 4.3% on capacity up 4.2%, with load factors thus 0.1ppt higher to 82.8%. Premium traffic rose 9.3% while non premium grew 3.5% in the month. This is better than we anticipated across all metrics. By carrier, loads improved at BA and deteriorated at Iberia as we expected. By region, the impact of network restructuring at Iberia continue to play out with falling short haul capacity.

Whilst September data was good, the company flags a deteriorating outlook: it says indications so far for October point to a softer demand picture in premium traffic and cargo. Overall, then, Sept was indeed decent and better than we expected, but October is declining for cargo and premium, as we would expect. The trends in non premium are unchanged – it has been tough for some time.

Three long-haul planes have been pulled form Iberia for winter, but work is ongoing about optimising the overall networks and of course BA has bought six slot pairs from bmi, which will actually boost BA capacity into the winter. We should expect more details at the investor day on November 11.

In terms of profitability, the company guides to expecting significant growth in operating profit in 2011 compared to 2010. Last year the company made EUR225m. We have lowered our estimate for FY11 operating profit from EUR527m to EUR468m. (Please see our note from 13 September 2011, Baggies not Bolly)

SAS (Sell, TP Skr9.50): In line with expectations September traffic 5.4% higher against capacity growth of 5.0%. Load factor up 0.3ppt to 74.6%. August RASK confirmed up 0.7%, yield down 2.2%. Yield and RASK indicated down yoy for September. Traffic is in line with our expectations, although August RASK was worse than anticipated. Market outlook flags good growth but unpredictable outlook, with added uncertainty to unit revenues in the future. No profit warning yet.

Load factor performance positive at Scandinavian Airlines (up 0.7 points), dismal at Blue1 (down 7.5 points to 57.9%). By region, Norwegian domestic market improves a lot, intra Europe improves a bit, intra Scandinavia, long haul and Sweden deteriorate a bit, Danish domestic a lot.

Finnair (Buy, TP EUR3.50): Slow Asia a warning signal Finnair traffic data for September showed traffic jumped 12% on a 15% rise in capacity, hence, load factor declined 1.8ppt to 73.1%. Load factor fell 5.6 points on Asia routes to 77%, where the notably high 28% growth in capacity was not fully absorbed by the market. In contrast transatlantic and European loads improved. Cargo load factor fell a whopping 8.7 points. As usual, with the traffic data of the closing month of the quarter, Finnair disclosed its RASK performance down 3.2% yoy, principally driven by the weak load factor on Asia routes. The company flags a disappointing performance on Asia routes and European business travel.

Finnair also profit warned this month. It says it will not meet its previous objective of a profitable 2H11. 3Q11 has been profitable but trends into 4Q11 are unfavourable with weak business travel, poor cargo profitability and continuing poor trading in tour operating. The profit guidance is consistent with an EBIT loss above EUR60m for the full year. BBG consensus is for a full year EBIT loss of EUR40m.

This warning is notably depressing for the overall industry since Finnair serves predominantly Asia, which is the least bad economic area of the world and is benefitting from sequentially recovering trends in the Japanese market, recovering post the earthquake.

75


7

Flybe (Buy, TP 150p): Yet another profit warning Flybe published a pre close statement for 1H flagging a marked deterioration in trading from September. 1H12 revenues improved 9%, with unit revenue per seat up 6%, which seems broadly encouraging. However, the management flags that a significant slowdown in September led to 1H revenue in total 1% behind management expectations. Since everything was looking decent through to August, this implies a 4-5% miss relative to management expectations in September. Forward sales for 2H12 are indicated up 1% yoy on flat capacity, which is a marked deterioration on 1H12's 6% unit revenue improvement. The company says the volume slowdown has come in higher- and medium-fare categories, implying that it is business traffic rather than leisure traffic that is weakening.

Ryanair (Buy, TP EUR4.00): Neutral data Ryanair announced traffic that showed a 6% rise in September, although loads were down 1ppt to 85%. This was slightly shy of the flat load factor we predicted, but volumes were as expected. The load factor of 85% is consistent with recent Septembers. Neutral data in our view.

Easyjet (Buy, TP 450p): Strong September traffic Traffic up 8.5% and load factor up 0.3 points to 89.6%. We expected traffic growth in the high single digits and the load factor to be down a point or two from last year's high level of 89%, which had been boosted by the tail of the flight irregularities.

EZJ is outperforming Ryan across volume, absolute load factor and load factor development. Strong data and supportive notably in the context of the profit warning from Flybe. To be fair though, the data should not be astonishing since the company upgraded YE Sept 11 recently, which implied a solid end to the financial year.

Air Berlin (Sell, TP EUR2.25) September data as projected Traffic 1% higher and load factor up 0.1 point to 82.8%. We expected traffic growth traffic up low single digits with the load factor up a couple of points on last year's 82.7%. Very slightly below our expectations but neutral data per se.

76


8

Asia Some Asian carriers, such as MAS, ANZ and JAL (among others) report data with a lag. Based on airlines that have reported, we find that most airlines are still seeing some yoy improvement in passenger travel numbers. However, much like their European peers, a growing number of carriers are now beginning to highlight that forward bookings are looking less impressive. Premium traffic has continued to hold up moderately well but with budget cuts coming, airlines believe this is likely to fall.

Air freight in general continues to be weak, with most of the major cargo carriers like Cathay Pacific and Korean Air stating that they have not as yet seen much of a seasonal pickup in cargo shipments.

Chart 9 : Australia/Asia passenger traffic growth Chart 10 : Australia/Asia passenger capacity growth

5.0%

0.4%

18.2%

5.0%

-2.8%

9.1%7.0%

3.0%

9.0%

0.1%

4.7%

-15.0%

7.2%

-24.3%

7.6%

0.4%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

QA

N- G

rp

QA

N JQ

VB

A

AN

Z

AIR

A

CA

CX

CE

A

CS

A

MA

S

SIA

TGR

AN

A

JAL

JAI

THA

6.4%2.6%

17.4%

7.1%

-2.8%

8.1%9.8%

2.8%5.8%6.8%5.8%

0.0%

9.1%

-23.4%

7.1%5.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

QA

N- G

rp

QA

N JQ

VB

A

AN

Z

AIR

A

CA

CX

CE

A

CS

A

MA

S

SIA

TGR

AN

A

JAL

JAI

THA

Note: August data for QAN, VBA, MAS, ANZ, JAL and Jet, September for others Airasia has to date only reported July traffic numbers Source: Company data

Note: August data for QAN, VBA, MAS, ANZ, JAL and Jet, September for others AirAsia has to date only reported July traffic numbers Source: Company data

Chart 11 : Australia/Asia passenger load factor Chart 12 : Australia/Asia September passenger load factor

78%78%

80%

78%

82%83%

80%79%81%

72%

80%78%

75%74%

77%

70%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

QA

N- G

rp

QA

N JQ

VB

A

AN

Z

AIR

A

CA

CX

CE

A

CS

A

MA

S

SIA

TGR

AN

A

JAL

JAI

THA

-1.2 pt-1.7 pt

0.6 pt

-1.6 pt

0.0 pt0.8 pt

-2.1 pt

0.1 pt1.1 pt

-4.9 pt

-0.7 pt

-9.0 pt

1.4 pt

-0.9 pt

0.3 pt

-4.3 pt

-10 pt

-8 pt

-6 pt

-4 pt

-2 pt

0 pt

2 pt

QA

N- G

rp

QA

N JQ

VB

A

AN

Z

AIR

A

CA

CX

CE

A

CS

A

MA

S

SIA

TGR

AN

A

JAL

JAI

THA



77


9

Chart 13 : Asian September cargo traffic growth Chart 14 : Asian September cargo capacity growth

-6.2%-7.9%

13.5%

2.8%

-8.0%

-2.3%

4.6%

-9.2%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%C

A

CX

CE

A

CS

A

MA

S

SIA JA

I

THA

3.5%

-0.8%

7.9%

3.2%

-1.5%

-2.6%

6.9%

0.6%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

CA

CX

CE

A

CS

A

MA

S

SIA JA

I

THA

Note: August data for MAS and JAL, September for others Source: Company data


Chart 15 : Asian September cargo load factor Chart 16 : Asian September cargo load factor change

57.7%

64.8% 64.4%

50.0%

70.2%

63.7%61.1%

56.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

CA

CX

CE

A

CS

A

MA

S

SIA JA

I

THA

-5.9 pt

-5.0 pt

3.2 pt

0.0 pt

-4.9 pt

0.2 pt

-1.3 pt

-6.1 pt

-8.0 pt

-6.0 pt

-4.0 pt

-2.0 pt

0.0 pt

2.0 pt

4.0 pt

CA

CX

CE

A

CS

A

MA

S

SIA JA

I

THA



Cathay Pacific (Hold, HK$16.50): Still not looking up Overall revenue passenger kilometres (RPK) rose 7% yoy on a 10% increase in capacity. Loads slipped below 80% for the first time since May, although this was expected after the summer peak. Japan continued to recover while the US was buoyed by its new Chicago service. CX states that demand in the economy segment still lags capacity growth and yield is under continued pressure. Premium travel volume and yields held up well in September, with currency movements working in their favour. However, CX guided for a more uncertain outlook as companies begin reviewing travel policies.

Freight tonne kilometres (FTK) declined 10% yoy, the sixth consecutive month of negative yoy growth. Weakness was observed in outbound cargo from Hong Kong and China as demand to long-haul destinations, particularly Europe, was below management's expectations. More worryingly, CX notes there has been little seasonal pick up to the year-end. However, intra-Asia traffic remains strong. The company trimmed cargo capacity by 1% last month as a result of this continued pressure on air cargo.

In both 2001 and 2008, RPKs turned negative after six months of negative FTK growth. We believe this pattern is likely to continue. CX stated last month that October bookings had not kept pace with capacity growth, and it was now offering promotions to stimulate demand. Considering the current macro environment, we think either volumes or yields will decline.

78


10

Singapore Airlines (Sell, S$10.00): SIA registered September revenue passenger kilometre (RPK) growth of 5% yoy, just shy of capacity growth of 6% yoy. Load factor fell 1ppt to 80%. However, with the exception of April 2011 (which was distorted by low-base effects of the volcanic eruption in Europe), the pace of RPK growth last month was the fastest recorded since June 2010.

In addition, Silkair again recorded a strong set of numbers last month. Traffic growth of 13% yoy outpaced capacity growth of 12%. Load factor of 72% was 1ppt higher than what was recorded last year.

SIA saw cargo traffic in freight tonne kilometres (FTK) decline 2.3% yoy even though freight carried actually increased by 4%. We believe this is down to the resilience of cargo demand on the intra-Asia routes in SIA’s network. Cargo capacity fell 2.6% yoy, indicating that SIA, too, believes cargo traffic is likely to weaken further and is trying to manage capacity to buoy loads. The FTK declines last month were the first since November 2009.

Malaysia Airlines (Hold, TP Rm1.60): Softening traffic Passenger traffic in August was down 0.5% yoy. The 0.7% yoy improvement in international traffic was offset by a 3.1% yoy decline in domestic passenger volumes. For the domestic segment, ASK was down 2% yoy, while the international side was up 7.8% yoy, but load were down 1.4pts and 5.4pts respectively. For the 8M11 period, MAS passenger traffic was 4.5% higher than the corresponding period last year. The improvement came mainly on the back of a recovery in international traffic, which was up 9.3% in the period under view, but was negated by a 4% drop in domestic traffic. Ytd domestic capacity was up 1.9%, while international was up 10.7%. Load factor for the domestic segment was down 3.4pts while international loads were up 0.6pts.

On the cargo side, August volumes (measured by load tonne kilometres) were down 19.3% yoy and 14.3% for the 8M11 period. Despite a 12.5% yoy and 4.4% ytd cut in capacity, loads fell 5.6pts and 7.8pts for the respective periods.

Air China (Hold, TP HK$8.20): Humming along Strong summer trading continued. Overall revenue passenger kilometres (RPK) grew 9% yoy against an 8% yoy increase in available seat kilometres (ASK). Load factors did slip mom to 83% but this was still 1ppt higher yoy. Domestic travel remains strong despite perceived high base effects from the Shanghai expo last year. RPKs rose 7% yoy against a 5% yoy increase in ASKs. Load factor of 84% last month was the best ever recorded in September.

International RPKs rose 13% yoy, indicating that demand for overseas travel seems to be holding steady for now. ASKs were up 14% yoy, causing load factors to slip 1ppt to 81%. In light of macro concerns over the month, we see this as a credible performance.

Cargo traffic remains soft, although we think this is as expected. International cargo traffic in freight tonne kilometres (FTK) fell 9% yoy in September against a 1% increase in capacity. Load factors slipped to 61%, a drop of 7ppt.

China Southern (Buy, TP HK$6.25): Still in a groove CSA's domestic RPK traffic rose 3% yoy against a 1% yoy increase in ASK. Even though September is usually a seasonally slower month for travel, domestic load factors of 82% represent the best utilisation rate ever recorded in the month.

Moderately more surprising was the company's 38% yoy improvement in international RPK on a 36% yoy growth in ASK. As a consequence, load factors also improved 1ppt to 76%. Even though CSA is still in a ramp-up phase of its international operations and large gains in traffic are expected, we are optimistic that this is a sign that travel demand can be resilient.

Cargo volumes were better than expected. Overall freight tonne kilometres rose 3%, in line with the rate of growth in capacity.

79


11

China Eastern (Hold, TP HK$3.60): Still lagging peers China Eastern (CEA) did a better job of matching capacity with demand. The company recorded domestic revenue passenger kilometre (RPK) growth of 3.6% yoy against domestic capacity growth of 3.2% yoy. Domestic load factors improved for the first time in three months, rising 0.3ppt on the yoy to 81%. However, load factors are still the lowest among the big three carriers.

International RPKs rose 4% yoy on a 5% yoy rise in international capacity. Load factors fell 0.7ppt to 76%. Among the big three airlines, CEA observed the lowest growth rate in international traffic, as well as the lowest overall load factors and the largest yoy decline in utilization.

International freight tonne kilometres (FTK) grew 20% yoy against an 11% yoy increase in capacity. Load factors of 69% imply a 5ppt change. Freight load factors have hovered around 70% since March, and we attribute this change partially to the restructuring of its air freight unit to incorporate investments and expertise from SIA Cargo and EVA Air.

Tiger Airways (Buy, TP S$1.20): Hurt by Australian grounding Tiger Airways posted a 15% yoy decline in its passenger number for September 2011 to 395,000 people, with load factor also falling from 87% in Sep 2010 to 78% in Sep 2011. Unfortunately, Tiger does not separate its Singapore and Australian operations. Much of the damage arose from the suspension of its Australian operations for six weeks starting in early July, and even after the suspension was lifted, Tiger Airways Australia is operating 22 sectors per day now – compared to the 66 sectors a day that it did before the suspension.

However, we believe the airline has seen the worst of this problem. Tiger Airways Australia said that its Sep 2011 load factor has improved compared to Aug 2011, and we expect the permitted maximum number of sectors per day will gradually rise as the Australian authorities gain increasing confidence that Tiger Airways has resolved the various safety-related issues that resulted in its AOC's suspension in July.

Meanwhile its Singapore-based operations appear to grow strongly. Tiger Airways started new routes between Singapore and Cebu, Davao and Bangalore. In addition Tiger Airways is raising its flight frequencies on a number of existing routes.

80


12

Australia Australian carriers report with a greater lag than other carriers. We expect that comparisons in Qantas’ numbers going forward are likely to be distorted by the effect of the industrial action at present, with Virgin Blue likely to pick up the slack in this drop-off.

Qantas (Hold, A$1.68): Softening loads and yields QAN August operating statistics remained relatively consistent with that of previous months, with 5% demand growth at the Group level on 6% capacity growth. However, slightly surprising is the softening trend in load factor movements and downward trend in yield growth already being seen, despite conditions remaining relatively positive for the airlines. We thought they may have remained marginally stronger at this point. 8% growth in domestic operations was again driven mostly by Jetstar, with 22% growth vs 2% for Qantas. We expect Jetstar growth to moderate over the remainder of the fiscal year as Tiger continues to operate on a reduced network. The Tiger grounding in July and early August again contributed to an improved load factor for Jetstar, with Qantas's 1pt decline mirroring the previous month. Yield growth of only 5.7% (vs 9.4% in July) was surprisingly low in our view given the competitive environment is better for QAN with Tiger's issues ongoing. 6% growth in International operations was mostly due to Jetstar Asia growth, although Qantas recorded marginal growth (2.6%) in the mainline business. Load factors declined 2pts, indicating demand still remains subdued despite the stronger AUD encouraging outbound travel. Yield growth also softened to 4.1% (from 7.0% in July). While QAN is still tracking along reasonably well with underlying fundamentals holding in there, we remain concerned that a slower global economic growth environment will impact Australian airline travel over the next 12 months. QAN is very cheap at current levels in our view, but with industrial action looking like it will get worse before it gets better, we advocate waiting for that to run its course.

Virgin Blue (Buy, A$0.41): Soft loads from overseas growth August saw Group capacity growth of 7.1% outstrip demand growth of 5.0%, leading to a load factor decline of 1.6pts to 78.1%. Total passengers carried declined 2.7%, reflecting the exiting of NZ Domestic operations in October 2010. The decline in load factor was driven primarily by a 3.6pt decline in International as VAustralia continued to build up its presence on the Abu Dhabi route. Domestic loads fell marginally (-0.2pts) to 79.6% as the 5.5% increase in capacity was largely consumed by increased demand.

This was a solid result given that VBA is now flying the larger A330s trans-Tasman and highlights good take-up of this new offering. We expect Domestic traffic in September to be a little stronger with VBA's key competitor, Qantas, experiencing industrial action. Qantas last saw industrial action in 2008 and it resulted in a temporary 2pt shift in market share to VBA.

81


13

Americas RBS does not have coverage of the US airlines. However, considering that airlines generally must be looked at within a global context, we provide below some factual commentary of the US airline data.

Overall, network carrier traffic was little changed in the month. Most carriers are reporting better load factors, indicating some capacity discipline. The low-cost airlines continue to grow in the single digits, with loads here also improving. Considering the growth profile of the region, the South American airlines are understandably reporting higher traffic growth rates at the moment.

Chart 17 : Americas September passenger traffic growth Chart 18 : Americas September passenger capacity growth

3.8%

10.4%

1.9%

-0.9%

7.6%6.4%

-1.7%-1.0%

6.9%

26.4%

10.5%11.1%

4.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

AC

A

AS

A

AA

DA

L

JBU

SW

A

UA

L

US

WJA

CO

PA

GO

L

LAN

TAM

3.0%

7.2%

0.3%

-2.2%

8.7%

3.2%

-1.0%-2.8%

8.0%

22.0%

7.0%

10.4%8.9%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

AC

A

AS

A

AA

DA

L

JBU

SW

A

UA

L

US

WJA

CO

PA

GO

L

LAN

TAM

Source: Company data; Note July data for GOL and TAM, August for others Source: Company data; Note July data for GOL and TAM, August for others

Chart 19 : Americas September passenger load factor Chart 20 : Americas September passenger load factor

83%84%

81%

84%

80%

78%

83% 83%

75%

73%

69%

80%

70%

65%

70%

75%

80%

85%

AC

A

AS

A

AA

DA

L

JBU

SW

A

UA

L

US

WJA

CO

PA

GO

L

LAN

TAM

0.6 pt

2.4 pt

1.3 pt1.1 pt

-0.8 pt

2.3 pt

-0.5 pt

1.5 pt

-0.8 pt

2.5 pt2.2 pt

0.5 pt

-3.3 pt-4 pt

-3 pt

-2 pt

-1 pt

0 pt

1 pt

2 pt

3 pt

AC

A

AS

A

AA

DA

L

JBU

SW

A

UA

L

US

WJA

CO

PA

GO

L

LAN

TAM

Source: Company data; Note July data for GOL and TAM, August for others Source: Company data; Note July data for GOL and TAM, August for others

82


14

Chart 21 : Americas August cargo traffic

-5.2%

1.2%

-15.7%

11.2%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

AA

DA

L

UA

L

LAN


American Airlines (NR): Traffic and load factor up American airlines passenger traffic grew 1.9% yoy on a 0.3% increase in capacity. Load factors rose 1.3 points increase in September over same period last year to 81.4%.

Domestic capacity was down 1.1% yoy while traffic increased 1.7% driving up load factor by 2.3 points to 81.9%. International traffic increased 2.2% yoy driven by 5.7% increase in Pacific operations and 3% increase in Latin America. International capacity was up 2.4% led by 12.5% increase in Pacific and 2.4% increase in Atlantic capacities while Latin American saw capacity decline 0.5%. International load factor was at 80.6%, a decrease of 0.2 points versus the same period last year; Pacific load factor was down 4.9 points.

American’s cargo traffic declined 5.2% yoy.

Delta Airlines (NR): Load factor up, traffic down Delta airlines reported 0.9% decline in traffic for September 2011 with a capacity decline of 2.2% over same period last year. These capacity cuts caused load factor to increase 1.1 points to 83.6%.

Domestic traffic increased 0.5% on 3.3% decline in capacity driving up load factor by 3.2 points to 83%. International traffic declined 2.8% yoy; Latin American traffic increased 13.7% and Pacific by 0.8% while Atlantic traffic declined 7.6% over same period last year. International capacity was marginally down 0.6%, Atlantic capacity declined 7.5% which was partly offset by 8.3% increase in Pacific and 11.1% increase in Latin American capacities. International load factor was down 2.0 points at 84.5% led by drop in Pacific (6.1points) and Atlantic (0.2points) load factor while Latin American saw a up tick of 1.8 points in load factor.

Delta’s cargo increased 1.2%.

United Continental (NR): Loads down, PRASM up United and Continental’s combined traffic declined 1.7% in September versus same period last year. Capacity was down 1.0% reducing load factor by 0.5 points to 82.8%. Consolidated and mainline passenger revenue per available seat mile (PRASM) increased 11.0-12.0% and 10.5-11.5% respectively, on management estimates, as compared to the pro forma results from September 2010.

Domestic traffic was down 2.5% on 3.9% capacity decline bringing up the load factor by 1.2 points at 84.7%. International load factor declined 2.4 points yoy to 82.2% due to increase in capacity (1.6% yoy) and decline in traffic (1.3% yoy). Capacity increase was weighted to Pacific and Latin America while Atlantic and Pacific traffic declined.

United Continental’s cargo declined 15.7%.

83


15

US Airways (NR): Volume down, load factor and PRASM up US airways reported consolidated September traffic down 1.0% with 2.8% decline in capacity driving up load factor by 1.5 points at 83.3%. Consolidated (mainline and express) passenger revenue per available seat mile (PRASM) increased approximately 14% versus the same period last year, as per management estimates.

Domestic capacity and traffic declined 4.6% and 1.8% respectively, leading to 2.5 points increase in load factor at 83.7%. International capacity and traffic increased 2.4% and 1.1% respectively, led by increase in Atlantic capacity (4.3% yoy) and traffic (3.1% yoy). International load factor declined 1.3 points at 82.3%.

Southwest (NR): Volume, load factor and PRASM up Southwest and newly acquired AirTran’s combined September traffic and capacity increased 6.4% and 3.25 respectively, implying an increase in load factor by 2.3 points to 77.8%. For September 2011, the company estimated 12% increase in passenger revenue per ASM (PRASM) as compared to September 2010's combined PRASM.

JetBlue (NR): Traffic and PRASM up, load factor down JetBlue’s September traffic increased 7.6% but load factor was down 0.8points to 79.8% due to 8.7% increase in capacity. JetBlue's preliminary passenger revenue per available seat mile (PRASM) for the month of September increased 13% yoy.

Unit revenue and qualitative data Qualitative data for the month was broadly favourable although there seems to be some disparity between regions. Unit revenue data from the European and Australian carriers suggests slowing (or negative) rates of growth. The difference might be with IAG, which reported strong premium traffic, but even they are warning of further bumps down the road.

On the other hand, the US companies reported strong unit revenue growth last month, with the rate of increase mostly in the low teens. This compares favourably to yield growth of 6-9% in August.

Table 2 : Qualitative data

Region Airline Metric Time period Europe IAG Premium traffic growth Sep yoy 9.3% Non premium traffic growth Sep yoy 3.5% SAS Scandinavian Airlines Yield Sep yoy est Weaker Scandinavian Airlines total RASK Sep yoy est Weaker Norwegian Yield Sep yoy -2.0% RASK Sep yoy 4.0%Oceana Qantas Group Domestic Yield Aug yoy 5.7% International Yield Aug yoy 4.1% Air New Zealand System Yield Aug YTD yoy 6.5% Short haul Yield Aug YTD yoy 4.3% Long Haul Yield Aug YTD yoy 4.9%Americas United Continental PRASM Sep yoy est 11.5% US Airways PRASM Sep yoy 14.0% JetBlue PRASM Sep yoy 13.0% Southwest PRASM Sep yoy 12.0% GOL PRASM Aug yoy -3.6% Yield Aug yoy -6.9%

Source: Company data

84


16

Valuation tables The varying capital structures of carriers globally and the varying nature of competitive pressures lead to different relative rankings of the carriers, depending on whether PE multiples, EV/EBITDAR or dividend multiples are considered.

Among the network carriers, the American carriers have the lowest Bloomberg consensus PE multiples on average. The lowest consensus EV/EBITDAR multiples are generally found in Europe, while the Asian airlines overall have the highest consensus dividend yields.

Amongst the low cost carriers, the lowest consensus PE multiples are seen on average at the European low-cost carriers. However, we note that the more established carriers such as Ryanair, Easyjet, AirAsia and Virgin Blue are all trading above median PEs.

Table 3 : Global network carrier multiples

Ticker RBS

RecomDiv Yield

(%)EV /EBIT

(x)EV/

EBITDA(x)

EV/ EBITDAR

(x)

2 YR FWD EPS CAGR

P/E(x)

P/B(x)

P/CF(x)

Australian Network Carriers Qantas QAN AU Hold 4.0 7.9 3.0 2.4 26.8% 6.6 0.5 1.6 Asia-Pacific Network Carriers Air New Zealand AIR NZ 6.8 6.1 2.7 2.3 8.2% 7.8 0.7 2.7Singapore Airlines SIA SP Sell 4.5 10.1 3.2 n/a 35.2% 14.9 1.0 4.8Cathay Pacific 293 HK Hold 3.6 7.3 4.4 4.2 16.1% 5.4 0.8 3.7China Eastern 670 HK Hold 0.0 15.2 6.1 6.3 4.5% 4.4 0.9 1.9China Southern 1055 HK Buy 0.0 12.5 5.6 5.6 2.6% 5.7 0.8 2.3Air China 753 HK Hold 2.3 13.1 6.4 n/a 5.1% 5.7 1.0 3.7Malaysian MAS MK Hold 0.0 n/a 26.6 n/a n/a n/a 2.5 5.6Asiana 020560 KS 1.2 9.0 5.9 4.0 20.0% 5.5 1.0 2.8Korean 003490 KS Hold 0.3 26.9 8.0 2.1 n/a 10.4 1.3 2.3Thai THAI TB 5.1 11.0 4.9 3.5 45.9% 7.3 0.5 1.6All Nippon Airways 9202 JP 1.1 17.3 5.7 n/a n/a 19.3 1.1 3.5Average 2.3% 12.9 7.2 4.0 17.2% 8.7 1.1 3.2Median 1.2% 11.8 5.7 4.0 12.1% 6.5 1.0 2.8 Europe Network Carriers IAG IAG LN Hold 0.8 11.4 2.9 n/a 36.0% 11.9 0.7 259.4Air France-KLM AF FP Sell 0.0 n/a 3.5 1.6 n/a n/a 0.3 1.2Lufthansa LHA GR Hold 3.6 17.3 3.6 2.0 14.1% 26.2 0.6 2.0Average 1.5% 14.4 3.4 1.8 25.1% 19.1 0.5 87.5Median 0.8% 14.4 3.5 1.8 25.1% 19.1 0.6 2.0 North America Network Carriers American Airlines AMR US 0.0 21.6 5.7 4.1 n/a n/a -0.2 1.0Delta DAL US 0.0 6.4 3.9 3.9 61.5% 4.0 2.2 2.1United Continental UAL US 0.0 4.1 2.7 3.6 24.6% 4.1 1.6 2.2US Airways LCC US 0.0 4.3 3.2 1.8 268.8% 3.8 2.7 1.9Air Canada AC/A CN 0.0 7.4 2.1 1.7 n/a 11.8 5.5 0.6Average 0.0% 8.8 3.5 3.0 1.2% 5.9 2.4 1.6Median 0.0% 6.4 3.2 3.6 0.6% 4.0 2.2 1.9 Global Average 1.5% 11.8 5.6 3.3 41.7% 9.3 1.3 16.1Global Median 0.3% 11.0 4.4 3.6 20.0% 6.5 1.0 2.3

Source: RBS forecasts (where recommendation exists); Bloomberg (all others), valuations as of 19 Oct 2011

85


17

Table 4 : Global low cost carrier multiples

Ticker RBS

RecomDiv Yield

(%)EV /EBIT

(x)EV/

EBITDA(x)

EV/ EBITDAR

(x)

2 YR FWD EPS

CAGR

P/E(x)

P/B(x)

P/CF(x)

Australian LCCs Virgin Blue VBA AU Buy 0.0 11.4 4.4 3.2 58.3% 12.2 0.8 2.4 Asia-Pacific LCCs AirAsia AIRA MK Sell 0.9 10.5 7.4 n/a 18.9% 9.8 1.5 6.0Tiger TGR SP Buy 0.0 8.4 6.3 n/a 19.3% 4.5 1.0 5.0Spicejet SJET IN 0.0 5.6 3.5 n/a n/a 7.4 2.2 3.9Average 0.3% 8.2 5.7 n/a 19.1% 7.2 1.6 5.0Median 0.0% 8.4 6.3 n/a 19.1% 7.4 1.5 5.0 Europe LCCs Ryanair RYA ID Buy 13.8 8.3 4.9 n/a 7.5% 9.9 1.2 5.3Easyjet EZJ LN Buy 2.2 7.9 4.3 3.6 2.8% 9.4 0.9 567.7Air Berlin AB1 GR Sell 0.0 n/a 4.2 1.4 -40.3% n/a 0.7 4.2Norwegian NAS NO 0.0 5.7 3.7 3.6 52.3% 6.2 1.0 3.4Vueling VLG SM 0.0 -4.0 -3.7 n/a 42.6% 6.7 0.6 3.4Average 3.2% 4.5 2.7 2.8 13.0% 8.1 0.9 116.8Median 0.0% 6.8 4.2 3.6 7.5% 8.1 0.9 4.2 North America LCCs JetBlue JBLU US 0.0 7.1 4.5 4.6 79.8% 8.8 0.7 2.8Southwest LUV US 0.2 5.1 3.4 3.8 66.9% 11.1 0.9 5.3Westjet WJA CN 1.7 5.1 3.0 2.8 21.1% 10.0 1.1 4.4Gol GOL US 1.8 n/a n/a n/a n/a 21.3 0.7 2.6Average 0.9% 5.8 3.7 3.8 55.9% 12.8 0.9 3.8Median 1.0% 5.1 3.4 3.8 66.9% 10.6 0.8 3.6 Global Average 1.7% 6.0 3.8 3.3 27.1% 9.6 1.1 51.2Global Median 0.1% 6.4 4.2 3.6 20.2% 9.4 1.0 4.3

Source: RBS forecasts (where recommendation exists); Bloomberg (all others), valuations as of 19 Oct 2011

86

Produced by: The Royal Bank of Scotland Asia Securities (Singapore) Pte Limited

Equi

ty |

Sing

apor

e | T

rans

port

atio

n


Tiger Airways

Thriving in times of recession

In times of recession consumers generally downgrade to cheaper products. Atthis time, Tiger Airways, one of the world's lowest-cost carriers, stands to benefit from a volume spurt and falling oil price to boot. Its Australian problem is, in ourview, in the process of being resolved, and we reiterate our Buy rating.

Key forecasts


Revenue (S$m) 486.2 622.2 569.2 748.7 956.9 EBITDA (S$m) 15.00 69.90 -39.0& 61.40& 96.50&Reported net profit (S$m) 28.20 39.90 -62.3& 30.40& 58.50&Normalised net profit (S$m)¹ 28.20 39.90 -62.3 30.40 58.50 Normalised EPS (S$) 0.06 0.07 -0.09& 0.04& 0.07&Dividend per share (S$) 0.00 0.00 0.00 0.00 0.00 Dividend yield (%) 0.00 0.00 0.00 0.00 0.00 Normalised PE (x) 11.21 10.14 -7.82 18.47 9.59 EV/EBITDA (x) 36.90 12.80 -23.9 13.90 8.02 Price/book value (x) 2.11 2.08 1.67 1.75 1.48 ROIC (%) 2.09 4.38 -0.16 2.31 3.25

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

year to Mar, fully diluted

Tiger Airways: a winner in recessionary times Our price checks indicate that Tiger Airways offers the lowest fares on almost all major routes in Southeast Asia, a region where it has the second lowest CASK (unit operating costs). A recession therefore could even boost Tiger’s passenger growth, in our opinion.

Sweeping management changes should resolve its Australian troubles Tiger stock has lost 68% of its value since its high in August 2010, more recently due to the suspension of its Australian air operator’s certificate. The core issue, in our opinion, lies with the attitude of previous management. We believe Tiger has turned the corner with sweeping management changes. Its new CEO was recently the CEO of Silk Air, whose earnings rose five-fold under his leadership (2007-11) despite rising fuel costs. Tiger Australia has now been allowed to resume operations, and we expect earnings to stabilise by FY13.

Stronger SIA support and Mandala’s stake open up considerable possibilities SIA is also moving aggressively into the low cost carrier sphere, starting up a new long-haul budget carrier that can bring in feeder traffic to Tiger. The JV agreement to revive Mandala Airlines in Indonesia also gives Tiger a 33% stake in a clean-slate airline, with landing rights in 17 domestic airports and route allocation to Singapore, Hong Kong, Macau and others. At a stroke this opens up considerable possibilities for Tiger to expand in the region.

Reiterate Buy with 80% upside potential; 2Q12 results could be a catalyst We reiterate our Buy rating with 80% upside to our DCF-based fair value of S$1.20, reduced from S$1.85 due to rights issue dilution and Australian losses. The stock is attractively priced in our view at 10.1x 2011 PE and a 20% EPS 2011-16F CAGR. Its 2Q12 earnings announcement in mid-November should settle any lingering safety concerns over its Australian operations, clarifying the potential extent of the damage and thus potentially acting as a catalyst for its valuation. The key risks are oil price and the length of time Tiger may need to stabilise its Australian earnings.

20 October 2011

Analyst

John Rachmat Singapore +65 6518 7996 [email protected] RCB Reg 198703346M, Permit MICA (P) 155/08/2011, Level 21, One Raffles Quay, South Tower, 048583, Singapore http://research.rbsm.com

Price performance

(1M) (3M) (12M)Price (S$) 0.90 1.13 1.89Absolute (%) -26.1 -41.4 -64.8Rel market (%) -25.1 -33.3 -58.7Rel sector (%) -25.4 -37.1 -59.0

0.4

0.8

1.2

1.6

2.0

2.4May 10 Oct 10 Apr 11

TAHL.SI Straits Times Index

Market capitalisation S$549.07m (US$432.27m) Average (12M) daily turnover S$6.03m (US$4.73m) Sector: BBG AP Transport RIC: TAHL.SI, TGR SP Priced S$0.67 at close 20 Oct 2011. Source: Bloomberg

Buy Target price S$1.20 (from S$1.85) Price S$0.67 Short term (0-60 days) n/a Market view Overweight

AUSSIE ALPHA COMMENTQAN and VBA continue to benefit from Tiger's reduced flying schedule,though it is beginning to again ramp-up operations. The question is just how damaged the Tiger brand is in Australia and how sticky recent market share win by Jetstar and Virgin is. (Mark Williams +61 2 8259 6921)

87

Tiger Airways | The Basics | 20 October 2011

2

The basics

Catalysts for share price performance We expect Tiger’s 2Q12 earnings announcement in mid-November 2011 to be a catalyst to its valuation. Investor concerns about the potential damage from its safety record in Australia are, in our opinion, the main factor dragging down Tiger’s stock price performance at the moment. We expect management to give sufficient guidance to provide far greater clarity on the full extent of this downside risk.

Earnings momentum While we expect the damage from the Australian troubles to be substantial, and we have reduced our FY12 forecast from S$68m profit to a S$62.3m loss, and our FY13 net profit forecast from S$82.6m to S$30.4m to reflect this risk, we also believe this issue is in the past. Over the next five years (2011-16), we expect Tiger Airways to deliver 20% EBITDAR and EPS CAGRs on the back of strong organic growth in its current operations in Southeast Asia, plus new expansion possibilities that will come with its investment in Mandala Airlines in Indonesia.

Valuation and target price We have reduced our DCF-based target price to S$1.20 per share (from S$1.85) to account for the dilution from the recent rights issue and the potential damage from Tiger’s difficulties in Australia. This still offers 80% upside potential from current trading levels.

How we differ from consensus Our earnings forecasts over 2012-14 are substantially lower than Reuters consensus expectations – as much as 58% lower on 2012F EPS. The main issue for us is that Tiger Airways does not maintain sufficiently high disclosure standards for the investing community to work out the potential damage of its Australian difficulties with a high degree of confidence. Hence, we have decided to make stern assumptions about the potential losses from Australia, and the length of time needed to stabilise operations there.

There might therefore be some renewed stock price weakness if the 2Q12 earnings announcement comes with guidance that comes close to our new, reduced forecasts. However, we expect the removal of uncertainty to be a positive catalyst in itself, as we believe Tiger’s stock price has been severely oversold; not just on the back of the bad news coming out of Australia, but also due to uncertainty about the full extent of that bad news.

Risks to central scenario The key risks to our earnings forecasts and valuation are (1) the time needed by Tiger Airways to stabilise its operation in Australia, and (2) the oil price.

Our earnings forecasts assume that Tiger’s Australian operation will only break even in FY13, and will then stabilise going forward. We assume that the Australian operation will stay stagnant with a fleet of six aircraft (vs ten deployed prior to the AOC suspension, and eight currently in use), as we expect Southeast Asia to be the main driver of Tiger’s earnings growth in future. We believe this is a severe set of assumptions, and the remaining downside risk to these assumptions would be if Tiger Airways Australia were to close down completely. We rate that risk as negligible.

On the oil price, we assume jet fuel costs stay stable around US$120 per barrel over the next five years. If anything, we expect the oil price to face stronger downward pressure in recessionary times due to weakening demand in the face of declining economic activity. Table 2 shows the sensitivity of Tiger’s FY13 earnings to the jet fuel price. A 10% reduction in its jet fuel cost would improve Tiger’s earnings by 85%. Given that fuel costs account for 41% of its CASK and Tiger is minimally hedged, it is no surprise that the oil price would have such an outsized impact.

Vs consensus (S$ cents)

EPS Ours Cons % diff 2012F (8.6) (3.6) (58) 2013F 3.6 6.2 (42) 2014F 7.0 10.4 (33)

Source: Reuters, RBS forecasts

Key events

Date Event 14 Nov 2011

2Q12 earnings announcement

14 Feb 2012

3Q13 earnings announcement

14 May 2012

FY12 earnings announcement

Source: Company

Forced ranking*

Company Rec Upside / Downside

Tiger Airways Buy 80% China Southern Buy 50% Cathay Pacific Hold 25% Korean Air Hold -6% AirAsia Sell -9% Singapore Airlines Sell -10%

* by difference to target price as at time of publication. Recommendations may lie outside the structure outlined in the disclosure page. Source: RBS forecasts

88

Tiger Airways | The Basics | 20 October 2011

3

Key assumptions and sensitivities

Table 1 : Critical assumptions

FY ending March Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016ASK (millions) - Consolidated 5,046.9 6,459.5 7,847.0 9,583.0 10,885.4 12,223.4 15,046.6 16,813.1 18,600.0ASK (millions) - Singapore 5,685.3 8,422.8 9,692.8 12,516.1 14,282.6 16,069.5ASK (millions) - Australia 3,897.7 2,462.6 2,530.5 2,530.5 2,530.5 2,530.5RPK (millions) - Consolidated 4,134.9 5,245.2 6,768.0 8,209.0 8,330.2 10,532.9 13,022.6 14,696.0 16,421.8RPK (millions) - Singapore 4,869.4 6,437.7 8,351.9 10,832.4 12,483.9 14,187.5RPK (millions) - Australia 3,339.6 1,892.6 2,180.9 2,190.2 2,212.1 2,234.2Passenger load factor 81.9% 81.2% 86.2% 86.4% 76.5% 86.2% 86.5% 87.4% 88.3%Number of passengers ('000 people) 2,223.5 3,166.9 4,872.0 5,968.0 5,513.5 7,001.1 8,659.4 9,782.0 10,917.8Passengers growth rate 50.7% 42.4% 53.8% 22.5% (7.6%) 27.0% 23.7% 13.0% 11.6%Ancillary income per PAX (S$) 6.71 15.85 19.31 21.38 23.03 24.44 25.86 27.37 28.91Ancillary income per PAX Growth Rate 158.0% 136.4% 21.9% 10.7% 8.0% 5.8% 5.8% 5.8% 5.8%Passenger yield (S$ cents per RPK) 6.99 6.25 5.79 6.03 5.31 5.48 5.63 5.78 5.93Revenue per ASK (S$ cent) 6.02 5.85 6.20 6.49 5.23 6.12 6.36 6.65 6.93Cost per ASK (S$ cent) 5.90 6.59 5.86 6.00 5.80 5.83 5.89 5.99 6.13W T I (US$ per barrel) 82.26 86.18 70.56 83.37 101.27 101.27 101.27 101.27 101.27Jet fuel price (US$ per barrel) 96.96 107.79 77.35 98.79 120.00 120.00 120.00 120.00 120.00USD SGD average exchange rate 1.476 1.440 1.427 1.260 1.170 1.185 1.132 1.081 1.060USD AUD average exchange rate 1.153 1.296 1.181 0.990 0.943 0.995 0.970 0.946 0.935AUD SGD average exchange rate 1.281 1.134 1.214 1.273 1.240 1.191 1.167 1.143 1.134Singapore 3M Sibor 1.1% 1.1% 0.7% 0.5% 0.6% 2.1% 2.5% 2.8% 3.0%Singapore CPI 7.1% 2.6% 1.5% 5.2% 3.2% 2.3% 2.3% 2.3% 2.3%Australia CPI 4.2% 2.5% 2.9% 3.3% 2.7% 2.9% 2.9% 2.9% 2.9%Singapore real GDP growth 8.4% 1.9% (0.8%) 14.5% 6.0% 5.0% 5.0% 5.0% 5.0% Split of year end balance no. of aircraft based in Singapore 10 14 17 22 25 29 32 based in Australia 9 10 6 6 6 6 6Fleet for own use 12 16 19 24 23 28 31 35 38 operated in the Philippines (associate) - - - 2 5 7 9 11 13 operated in Indonesia (associate) - - - - 3 7 12 16 19 operated in Thailand (associate) - - - - - - - - -Total 12 16 19 26 31 42 52 62 70


Table 2 : Tiger Airways FY13 earnings sensitivity to jet fuel price assumptions

Jet fuel price (US$ per barrel) 96.00 108.00 120.00 132.00 144.00 FY13F earnings (S$m) 82.3 56.3 30.4 4.5 (21.5)


89

Tiger Airways | Investment View | 20 October 2011

5

Thriving in times of recession

Tiger’s valuation was devastated by its troubles in Australia. We believe it has now turned the corner with the appointment of highly successful new management, plus Tiger stands to benefit from a spurt in passenger volume that recessionary downtrading should bring.

Tiger Airways: the investment choice in troubled times At first glance, this may sound like an outrageous idea. The stock price has fallen 68% from its peak in August 2010 (vs the Straits Times index down 10% over this period). This is largely driven by regulatory issues in Australia that resulted in Tiger Airways Australia operations being suspended for six weeks, harming the airline’s reputation for safety.

Chart 1 : Tiger Airways EBITDAR track record and RBS forecasts

24.2

63.0

17.5

84.8

132.2

25.9

152.1

210.2

269.5

332.9

0

50

100

150

200

250

300

350

FY07 FY08 FY09 FY10 FY11 FY12F FY13F FY14F FY15F FY16F

S$m


We argue, however, that this issue is in the process of being resolved satisfactorily. The core issue, in our opinion, is the poor attitude adopted by the previous management. Tiger has now instituted sweeping management changes. The new CEO came with a sterling track record, having helped SilkAir to quintuple its earnings in four years (2007-11), despite rising fuel costs during that period. These changes have allowed Tiger Airways Australia to resume operations, and we expect this division to stabilise its profitability by end-FY13.

At the same time, the looming risks of recession should remind investors that low cost carriers stand to gain from the established trend of consumers downtrading to cheaper products at times of economic hardship. Tiger Airways, with the second lowest CASK (cost per ASK, a unit measure of airline operating costs) worldwide, is well positioned to benefit from this trend.

In addition, its recent JV agreement to revive Mandala Airlines in Indonesia opens up vast new expansion opportunities. Currently, Tiger is limited to serving just Jakarta and no other destination in Indonesia. Mandala has landing rights in 17 domestic airports in that country, with established routes between Indonesia and Singapore, Hong Kong and Macau. At a stroke, therefore, Tiger can break free of routing limitations on its future expansion.

The key risk to this positive outlook is the length of time that Tiger may need to stabilise its operations in Australia. We deal with this risk by slashing our FY12 forecast from S$68m profit to an S$62.3m loss, and our FY13 net profit forecast from S$82.6m to S$30.4m – essentially assuming the worst extent of losses for the Australian operation stabilise by March 2013. The remaining downside risks to our forecasts therefore are minimal, in our view.

The stock is currently trading at 10.1x 2011 PE and on our estimates the company offers a 20% CAGR in both EBITDAR (see Chart 1 above) and EPS over the next five years. We consider this highly attractive and reiterate our Buy recommendation with 80% upside to our new DCF-based target price of S$1.20.

90

Tiger Airways | Performance and Valuation | 20 October 2011

6

A winning combination

In a recession, consumers generally downgrade to lower-priced products. This should benefit Tiger Airways, one of the world’s lowest cost airlines. Its new venture with Mandala Airlines and stronger collaboration with SIA also open up significant new growth potential.

Tiger ’s low fares will shine in recessionary times While investors may understandably be focusing on Tiger’s woes in Australia today, we should not forget that Tiger also stands to benefit in a recessionary time.

During economic hard times, consumers generally try to maintain their consumption level but economise by buying lower-priced products. In aviation, low cost carriers benefit from this trend and Tiger Airways, being one of the lowest cost airlines in the world (see Chart 2), is well positioned to benefit from any such downtrading by air travellers.

Chart 2 : Comparison of various airlines CASK (Costs per ASK) and sector length (2010)

Cathay Pacific

SIA

JetStar

VBA

Qantas

JetBlue

Ryanair

SouthWest

AirTranWestJet

EasyJetGOL

Tiger

AirAsia

0

2

4

6

8

10

0 1,000 2,000 3,000 4,000 5,000 6,000

Average Stage Length (km)

Cost per ASK (US$ cents)


It is indeed the case that Tiger Airways often offers the cheapest air fares. We conducted a quick price check in early September. We looked at four of the popular routes in the region: Singapore – Jakarta, Singapore – Kuala Lumpur, Singapore – Phuket and Singapore – Manila Clark. For each route, we compared the total air fares of three competing budget airlines (except for Singapore – Manila Clark, which is served by only two low cost carriers) and we compared the prices for flights taking place one month ahead and six months ahead. To standardise the comparison, the only ancillary charge we include is for a 20kg checked-in baggage.

Chart 3 : Fare comparison (Singapore – Kuala Lumpur) Chart 4 : Fare comparison (Singapore – Phuket)

95

117.8

160.8

81

105

160.8

0

20

40

60

80

100

120

140

160

180

TIGERAIRWAYS

AIR ASIA FIREFLY TIGERAIRWAYS

AIR ASIA FIREFLY

SG$Next month flight Flight in six months

171.00

220.40 214.95

170.83

244.00

208.00

0

50

100

150

200

250

300

TIGERAIRWAYS

AIR ASIA JETSTAR TIGERAIRWAYS

AIR ASIA JETSTAR

SG$

Next month flight Flight in six months

Source: RBS Source: RBS

Investors are too focused on Tiger's Australia woes ..

... to notice that Tiger stands to benefit significantly from worsening economic times

91


7

The results show Tiger to offer the lowest fares in all cases bar one (Singapore – Jakarta, for flights departing in six months’ time, where Lion Air offered the lowest fare). Please see Charts 3 to 6. While this is a small sample only, its overwhelming conclusion indicates to us that this is likely to be the norm. Indeed, given Tiger’s low cost base (world-wide, only AirAsia has a lower cost base), it is also a logical conclusion in our opinion.

Chart 5 : Fare comparison (Singapore – Jakarta) Chart 6 : Fare comparison (Singapore – Manila Clark)

112.00

154.60

180.00

112.00

141.00

98.00

0

20

40

60

80

100

120

140

160

180

200

TIGERAIRWAYS

AIR ASIA LION AIR TIGERAIRWAYS

AIR ASIA LION AIR

SG$


176.4191.2

152.45

171.2

0

50

100

150

200

250

TIGERAIRWAYS

CEBU AIR TIGERAIRWAYS

CEBU AIR

SG$


Source: RBS Source: RBS

As travellers are forced to downtrade their travel expenses during a recession, Tiger’s cost advantage should allow it to benefit from additional passenger volume growth. Even without a recession, its low fares have allowed Tiger to carve strong positioning in a number of important markets. For example, Tiger Airways runs the highest number of seats on Singapore – Thailand routes – higher than the national full service carriers (SIA, Thai Airways, Cathay Pacific or SilkAir) and competing low cost carriers (Thai AirAsia or Jetstar). See Chart 7 below. Likewise, Tiger runs the highest number of seats for Singapore – Vietnam routes, beating both national airlines (SilkAir, Vietnam Airlines) as well as competing low cost carriers (Jetstar or Lion Air). This shows clearly, in our opinion, that there is strong demand for the market segment that Tiger is targeting – ie air passengers at the very bottom of all price ranges. We believe this segment can be expected to grow even more strongly in times of economic hardship.

Chart 7 : Seat capacity on Singapore – Thailand routes

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12

Tiger Thai airways international SIA

Thai AirAsia Jetsrat SilkAir

Cathay Myanmar Airways International Bangkok Airways

Source: Centre of Asia Pacific Aviation

Furthermore, Tiger does not earn big money only from country routes in which it dominates. Even routes where Tiger faces stiff competition (such as the crowded Singapore – Kuala Lumpur and Singapore – Hong Kong routes) rank highly in terms of contributions to Tiger’s revenue. Those two crowded routes in fact are the No 2 and No 4 routes for Tiger Airways (in terms of number of seats flown every week). See Chart 8.

92


8

Chart 8 : Tiger Airways top 10 routes (No. of seats flown, 26 Sep – 2 Oct 2011)

3,960

4,320

4,680

5,040

5,040

5,040

7,560

10,080

10,440

11,160

0 2,000 4,000 6,000 8,000 10,000 12,000

Singapore - Tiruchirapally

Singapore - Manila

Singapore - Macau

Singapore - Phuket

Singapore - Chennai

Singapore - Jakarta

Singapore - Hong - Kong

Singapore - Ho - Chi - Minh - City

Singapore - Kuala - Lumpur

Singapore - Bangkok


The point here is that Tiger dominates this “bottom of the bottom” price segment. Its dominance is in our opinion secure, due to its long-term cost advantages (like Ryanair, Tiger has worked out how to strip costs to the very bare necessities). And this is the market segment that can be expected to grow long term, regardless of how economies are doing – indeed, it may well grow even more strongly during recessionary periods due to customers’ need to downtrade.

Tiger’s low costs may get lower with recession The other potentially positive effect of a recession is the prospect of a declining oil price. Recession tends to result in a sharp reduction in demand for oil, and hence its price, as the decline in economic activity also reduces the need for energy consumption.

Chart 9 : Tiger Airways operating expenses breakdown (y/e March 2011)

Depreciation2%

Fuel Costs 41%

Marketing and Distribution costs

1%

Route Charges6%

Others3%

Staff Costs14%Airport and Handling

11%

Aircraft Rentals11%

Maintenance, material and repair

11%


Fuel (including hedging costs) accounted for 41% of Tiger’s operating expenses in the year to March 2011, by far its largest cost component. In our analysis, every 1% reduction in its fuel costs would translate to an 8.5% increase in its earnings in the year to March 2013. (The next “normal period” in our view, as earnings to March 2012 will be dominated by the negative impact of its troubles in Australia.) Ironically, therefore, we believe a global recession would in fact help boost Tiger’s profitability through a spurt in passenger growth and lower fuel costs.

Oil demand, and hence oil price, tends to decline in recessionary times

93


9

Mandala opens up vast possibilities One of Tiger’s key weaknesses, in our opinion, is that it only has one hub in Southeast Asia (its main theatre of operations) compared to its major competitors such as AirAsia (with 11 hubs, soon to rise to 12 after adding Makassar in South Sulawesi, Indonesia).

The main barrier for Tiger Airways is that it does not have a foothold in countries outside of Singapore, again unlike AirAsia with its associate operations in Thailand and Indonesia. As a result, the routes that Tiger can serve depend on the availability of country rights (up to fourth freedom – the right to carry passengers from the airliner’s country of origin to another country) stipulated in bilateral agreements between Singapore and other countries in the region. For example, the only route that Tiger serves to Indonesia is the Singapore – Jakarta route, because Singapore has already parcelled out all its fourth freedom rights entitlement with Indonesia among all Singapore-based airlines.

Yet the potential for Tiger in Indonesia is extensive, in our view. This can be seen from the fact that, despite the limited service, Tiger’s Singapore – Jakarta service is its No 5 busiest route (see Chart 8 above). So this barrier to Tiger’s growth in Indonesia is constricting Tiger’s ability to fulfil its potential.

This will soon change, we believe. On 23 September, Tiger Airways finalised an agreement to purchase a 33% stake in Mandala Airlines in Indonesia. Saratoga Investama acquires a 51% stake, creditors swap their debt for a 15% stake and the previous shareholders hold the remaining 1% stake.

Chart 10 : Indonesian airlines’ market share of domestic air passengers (2009)

Lion Air32%

Garuda Indonesia19%

Batavia Air14%

Sriwijaya Air12%

Merpati Nusantara5%

Others3%

Mandala Airlines8%

Indonesia AirAsia

3%

Wings Air3%

Trigana Air

Service1%

Source: INACA

Mandala Airlines is one of Indonesia’s oldest airlines, founded in 1969 by Army and Air Force officers and originally owned by Yayasan Dharma Putra KOSTRAD, a foundation linked to KOSTRAD, the strategic reserve command of the Indonesian army. In 2001, it suffered a scandal when a senior KOSTRAD officer stole Rp135.5bn from the airline, and in 2005 it suffered a high profile accident when its Boeing 737-200 jet crashed into a heavily populated residential area a few minutes after taking off from Polonia International Airport in Medan, North Sumatera. At the same time, political development in Indonesia forced the military to divest many of its businesses, and Mandala Airlines was purchased by Cardig International for Rp300bn (US$34m at the time) in April 2006. Later on, Indigo Partners bought a 49% stake in this airline in October 2006. Indigo Partners currently owns a 4.96% stake in Tiger Airways.

Last year, Mandala Airline started to hit financial difficulties, cancelling flights from August 2010 and finally ceasing all flying in January 2011. Yet prior to this terminal downturn, Mandala ran a substantial operation – commanding an 8.1% share of Indonesia’s domestic air passengers in 2009 (the last year when it had a full year of operations – see Chart 10) as well as flying to a number of international destinations (Singapore, Hong Kong and Macau) from its bases in Terminal 3, Soekarno Hatta International Airport Jakarta and Sepinggan International Airport Balikpapan (in East Kalimantan). Domestically, Mandala Airlines at that time served 17 destinations in Sumatera, Java, Bali, Kalimantan and Nusa Tenggara.

Absence of foothold outside of Singapore is in our view the main barrier to Tiger's earnings growth

94


10

We believe Tiger’s stake in Mandala Airlines will bring the following advantages:

1. Tiger is buying into an “almost clean slate” airline: All costs of terminating aircraft leases and employment contracts, and all other costs associated with closing down its operations, have been worked over. Unsecured creditors have agreed to swap their Mandala debt into equity. Secured creditors (including Bank Victoria, which is still owed Rp49.9bn by the airline) will receive cash payments – the cash will come from Saratoga Investama’s equity cash injection of Rp157.3bn (for a 51% stake). So Tiger will face no risks from the past financial history of Mandala Airlines.

2. Tiger is effectively buying the AOC and associated landing and country rights: While Mandala’s AOC (air operator certificate) is currently suspended, we believe this can be reactivated by January 2012. Director General for Air Transportation at the Ministry of Transportation Herry Bhakti Gumay was quoted in the media as naming two important conditions before Mandala Airlines is allowed to fly again: (a) it must show that both crew and aircraft are ready for operation, and (b) it must fulfil the new conditions that will apply to all AOCs in Indonesia – namely, the airline must own at least five aircraft and operate at least 10 aircraft. This should not be a huge barrier as Mandala Airlines had operated eight aircraft up to the point when it ceased flying, and we are confident the authorities will allow the newly-revived airline a suitable period in which to ramp up its operations towards this fleet size. Indeed, Indonesia Finance Today reported that the revived airline plans to bring in five A320s by the end of 2011. With this resuscitated AOC, Tiger will have access to the fourth freedom country rights that Indonesia has with other countries in the region, and landing rights in numerous domestic airports.

3. The investments come at little risk to Tiger: Tiger is not paying cash for this 33% stake (only a S$1 nominal investment), but rather “in-kind contributions” under a separate licensing and technical assistance agreement. The purchase cost of this investment will be entered in Tiger’s balance sheet at Rp101.78bn (S$14.6m).

Chart 11 : Indonesia air passenger growth (million people)

7.6 9.2 12.319.2

23.828.8

3439.2 37.4

43.551.4

4.7 4.74.8

4.35.4

5.75.7

6.6 7.3

8.1

11.7

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

m

Domestic International

2000 - 2010 CAGR 17.8% (21% domestic and 9.5% international)

Source: Biro Pusat Statistik

We should not underestimate the growth potential that Indonesia opens up to Tiger Airways. We believe Tiger’s business model, the lowest fares for a high safety standard, is particularly suited to Indonesia. Its “bottom of the bottom price segment” is a market that is growing strongly at this stage of Indonesia’s economic development. Indonesia’s domestic air travel has grown at a 21% CAGR over the past ten years (see Chart 11), driven mostly by the low cost carriers.

At the same time, Mandala’s history of operations in 17 domestic airports will also allow Tiger to develop international routes connecting Indonesia’s second tier cities to regional centres such as Singapore, Kuala Lumpur, Bangkok and Perth. Prior to its cessation of flights, Mandala Airlines had already served the Balikpapan – Singapore route. Up to now it is only Indonesia AirAsia that has demonstrated the commerciality of connecting such second tier cities (Bandung, in its case) to regional centres; according to management, Makassar is likely to be added in 2012. There are not many airlines that possess the low cost base needed to execute such a concept successfully. Indonesia AirAsia has proven that it can be done, and we believe Tiger Airways’ Mandala venture can do the same.

Indonesia offers significant potential for Tiger's low-fare business model...

…and the Mandala set up will offer Tiger a head-start in opening up international routes to second-tier cities

95


11

Indonesia’s international air travel has seen a 9.5% CAGR over the past ten years (again, see Chart 11). We believe this growth rate will accelerate once international routes to such under-served secondary cities are opened up. We expect Tiger Airways to drive this accelerated growth.

Another strong point of this venture is the strategic partner with whom Tiger Airways is teaming up.

Saratoga Capital was founded in 1998 by Edwin Soeryadjaya and Salahudin Sandiaga Uno. As one of the first private equity firms focused on Indonesia, it has engineered some of the largest restructuring events in Indonesia, including the largest Leveraged Buy Out and largest IPO in Indonesia post the 1998 Asian financial crisis. Saratoga currently employs over 20,000 people through its portfolio of companies with over US$2bn assets under management. Its current business interests span natural resources, energy, infrastructure, telecommunications and consumer goods. The portfolio includes Adaro Energy, Bonecom, Global Kalimantan Makmur, iForte, and Tower Bersama Group.

Salahudin Sandiaga Uno, also known as Sandi Uno (born in Rumbai, Pekanbaru on 28 June, 1969), is listed as the 29th richest man in Indonesia in 2009 according to Forbes magazine, with an estimated net worth of US$795m. He began his career with Bank Summa in 1990, and had worked for MP Group and NTI Resources Ltd in Canada before moving back to Indonesia and co-founding PT Recapital Advisors with his high school friend, Rosan Perkasa Roeslani, in 1997. In 1998, he co-founded Saratoga Capital with Edwin Soeryadjaya.

Philippines venture may take longer to take off Collaboration and investments in Southeast Asian Airlines (SEAir) in the Philippines is the other overseas venture that Tiger Airways focuses on at the moment. Unlike the Mandala venture, we are not so optimistic that this venture can take off in a material manner any time soon.

Commercially, this is not a venture that we view with much excitement. The reason is that the Philippines is a market that used to be tightly controlled, and is only now gradually starting to open up. This situation can be clearly seen from the current market share of airports where Manila’s Ninoy Aquino International Airports has a substantial dominance (see Chart 12 below). This airport, however, is also the home base of the national legacy carrier Philippine Air, and we do not expect SEAir or other low cost carriers to find it easy to win a rising presence in this airport.

Chart 12 : Philippines airports market share (2010)

Cebu Mactan International Airport

9.2%

Manila Ninoy Aquino International Airport

84.1%

Davao Mati Airport0.1%

Kalibo Airport1.6%

Clark International Airport

5.0%


The collaboration with SEAir started in Nov 2010 when it signed a marketing arrangement with Tiger Airways. This allows the Singaporean carrier to sell SEAir flights to passengers through Tiger’s website. At the same time, SEAir also started offering international flights using aircraft leased from Tiger Airways. Its first flights will be between Clark Freeport in Pampanga and Singapore. Approval from the Civil Aeronautics Board was obtained for the lease then.

However, in May 2011, Philippine authorities issued SEAir with a cease-and-desist order on two new routes over concerns that arrangements with part-owner Tiger Airways violated local laws. Four rival domestic carriers had filed a joint opposition to the partnership, saying SEAir was selling

96


12

tickets and accepting bookings through Tiger's website, which they said was not allowed under the agreement covering the lease of two of Tiger's Airbus 320 jets to SEAir.

The CAB order is to temporarily stop the Manila-Cebu and Manila-Davao flights. However, SEAir's international flights are not affected. SEAir is therefore focusing now on developing its new Manila-Macau flights, in addition to the current international routes Bangkok – Clark, Hong Kong – Clark, Macau – Clark and Singapore – Clark.

Tiger is now exploring another route to participate in the Philippines market with its proposal to buy a 32.5% stake in SEAIR for S$6m. At the time of writing, this plan is still being negotiated.

Chart 13 : Airport to city centre distances (km)

7

10

14

17

20

24

25

25

34

50

57.5

73

85

0 10 20 30 40 50 60 70 80 90

Manila Ninoy Aquino International Airport

Halim Perdanakusuma Airport

Haneda Airport

Changi Airport

Soekarno Hatta Airport

Don Muang Airport

Sultan Abdul Aziz Shah Airport

Suvarnabhumi Airport

Hong Kong International Airport

Kuala Lumpur International Airport

Narita Airport

Incheon International Airport

Diosdado Macapagal International Airportkm


In our opinion, success for a regional low cost carrier such as Tiger in the Philippines would depend on these two factors:

1. Resolving the “total cost of travel” issue – Given the difficulty that low cost carriers face in using Manila’s Ninoy Aquino International Airport, the logical alternative is to use Diosdado Macapagal International Airport instead. This was previously the US Air Force air base in Clark. The airport has one huge disadvantage, however, in that it is located 85km away from Manila’s city centre. This makes it the furthest away-from-city-centre airport in Asia Pacific (see Chart 13 above), and with limited transport infrastructure connecting this airport to centre Manila, it also adds significantly to the total cost of travel for the passengers. For budget travellers, this is a significant disadvantage.

2. Overcoming local opposition – The existing legacy carriers in the Philippines are trying to hinder the entry of low cost competitors into the country, as can be seen with their concerted efforts to nullify the marketing arrangement between SEAir and Tiger. While we do not see this as an unsurpassable barrier, we do expect it to slow down Tiger’s full participation in the Philippines market.

Stronger collaboration with SIA To counter-balance its slow progress in the Philippines, we expect Tiger to benefit from closer collaboration with SIA (Singapore Airlines), Tiger’s controlling shareholder. SIA is planning to start an entirely new long- and medium-haul budget carrier based in Singapore. The plan is still at its early stage, but SIA clearly has the resources to develop such a new venture – the premier airline has a S$7.53bn cash balance as at 30 June 2011 – even if the project may take a number of years and iterations before success is finally achieved.

Currently, Tiger’s low cost competitors in the region – AirAsia and Jetstar groups – both have long- and medium-haul budget operations that deliver feeder traffic to their Southeast Asian operations. At the moment Tiger does not have this benefit – those travelling long-haul on SIA’s premium fares are clearly the wrong kind of passengers to then hop on Tiger’s low-cost, no-frills service for short-haul travel within Southeast Asia. SIA’s new long- and medium-haul low cost carrier can therefore be expected to change this and help improve Tiger’s future profitability.

97

Tiger Airways | Management | 20 October 2011

13

Easily resolvable issues in Australia

Many investors fear that the suspension of Tiger Australia’s licence is the beginning of its demise. We believe the core of the problem was the non-compliant attitude adopted by its previous management – this makes the problems both self-inflicted and easily resolvable.

The Aussie problem: nothing a new management can’t fix Tiger Airways’ problems in Australia started to become public when Australia’s Civil Aviation Safety Authority (CASA) issued a show cause notice on 23 March, giving Tiger Airways Australia 21 days to respond. According to media reports by AAP (the Australian Associated Press), CASA raised concerns that the airline was not following proper procedures to ensure the utmost safety of passengers. CASA also demanded answers on concerns that pilot training standards had slipped, and that the airline had taken shortcuts on its maintenance and other operations.

A “show cause notice” is a serious action by CASA. On the basis of the reasons set out in the notice, the airline operator is invited to “show cause” why CASA should not act to suspend or cancel that airline’s licence (or AOC – air operator certificate). CASA rarely issues a show cause notice. The notice issued to Tiger Australia was the first issued by CASA since Ansett was hit with a similar warning in 2001, just months before that airline went bankrupt.

Tiger Airways management handled the issue with an attitude that, in our opinion, was confrontational and impertinent towards its regulators in Australia. Likewise, its disclosures of the unfolding process to the exchange authorities in Singapore are unapologetically non-transparent in our view. To date, Tiger Airways has yet to disclose all the safety issues raised by CASA, and therefore we list the major issues that have been reported in the mass media and/or commented on publicly by the authorities (CASA and ATSB – Australian Transport Safety Bureau).

Safety Issue (1) : Not reporting and flying a plane with a faulty wing

This is an account of the incident cited in the Australian Transport Safety Bureau report:

On 18 May 2009, an Airbus Industrie A320-232 aircraft, registered VH-VNC was on a regular public transport flight from Mackay, Queensland to Melbourne, Victoria when at about 12:49 Eastern Standard Time, the aircraft started to vibrate. Cockpit indications showed that the left aileron was oscillating. The crew diverted the aircraft to the Gold Coast Aerodrome, Queensland and landed.

The source of the aileron oscillation was an internal fault in one of the left aileron’s hydraulic servos. The fault was introduced during manufacture by an incorrect adjustment of the servo, which caused internal wear in a number of the servo’s hydraulic control components. The aileron servo manufacturer has incorporated a new method of adjusting the aileron servos during assembly to minimise the likelihood of a recurrence of the problem.

During the investigation, it was found that an identical fault had occurred to the same aircraft 8 months prior to this incident. The previous incident was not reported to the Australian Transport Safety Bureau by the operator as required by the Transport Safety Investigation Act 2003.

The newspaper daily Herald Sun reported that Tiger Airways spokeswoman Vanessa Regan said that the first incident in 2008 was not safety related, and that it was considered inappropriate to report the event to the ATSB. "At no time was safety compromised or was safety a risk,'' she said, noting that after the first incident a decision was made to undertake a technical assessment in Melbourne where a technician was available. The investigators’ report attributed the incident to a servo valve controlling the movement of the flaps on the trailing edge of the left wing.

"That issue was resolved at that time,'' Ms Regan said, adding that the second incident was immediately reported to the ATSB.

We view this response as surprisingly aggressive. It is a legal requirement in Australia that airlines report every incident to the authorities. Whether the airline assesses it to be safety-related is not relevant, and hence for an airline to choose which incidents to report and which ones not to report is a direct challenge to the authority, in our opinion.

Tiger Australia's problems, while highly damaging, are resolvable in our view, and Tiger is in the process of addressing concerns

98


14

Safety Issue (2a) : Tiger’s plane flying too low, 7 June 2011

This is the account of the incident cited in the Australian Transport Safety Bureau report:

At 21:02 Eastern Standard Time on 7 June 2011, an Airbus A320 aircraft, registered VH-VNG and operated by Tiger Airways, was on an approach to runway 27 at Melbourne Airport, Victoria. Air traffic control (ATC) had cleared the flight crew of the aircraft to descend to 2,500 ft. Shortly after, the aircraft’s track was seen on the ATC radar to descend to 2,000 ft. ATC notified the flight crew, who climbed the aircraft to 2,500 ft, continued the approach and landed.

Safety Issue (2b) : Tiger’s plane flying too low, 30 June 2011

This is the account of the incident cited in the Australian Transport Safety Bureau report:

At 23:02 Eastern Standard Time on 30 June 2011, an Airbus A320 aircraft, registered VH-VNC and operated by Tiger Airways, conducted a missed approach procedure after an unsuccessful approach to land on runway 18 at Avalon Airport, Victoria. The flight crew contacted air traffic control (ATC) and was directed to climb to 3,000 ft and, after further discussion, to position as required to return to Avalon for a landing on runway 36. During that re-positioning, the flight crew left the assigned altitude without clearance and descended to 1,600 ft, which was below the minimum safe altitude for that area of 2,000 ft. The aircraft landed on runway 36.

According to media reports, these two incidents were the final straw that persuaded CASA to suspend Tiger Airways Australia’s AOC (air operator’s certificate) on 2 July 2011. CASA was concerned that Tiger’s pilot training standards had slipped, such that incidents such as these occurred. CASA spokesperson Peter Gibson told media that it took the action because it believed permitting the airline to continue to fly posed a serious and imminent risk to air safety. “The Civil Aviation Safety Authority has lost confidence in Tiger’s ability to manage safety appropriately,” he said.

Safety Issue (3) : Some Tiger pilots fail flying test

CASA Director of Aviation Safety John McCormick told the media the number of staff employed by Tiger was not sufficient. “We certainly didn’t have confidence that the (110) pilots were at a standard we required,” he said. “As a result, we had to put them all through a test; it was a normal simulator test you’d expect any airline pilot to be able to pass. There were some failures.”

Safety Issue (4) : Pilot and cabin crew too tired to fly

In the Australian Senate’s inquiry into air safety on 27 May 2011, Tiger Airways Australia’s Director of Operations Captain Tim Berry stated that there were 17 cases of fatigue reported by crew and cabin staff since January 2010. This is a small number compared to the 76,000 rostered shifts during that period; however, Captain Berry conceded that it could be “the tip of the iceberg”. He admitted that Tiger’s fatigue management system did not take into account factors outside work such as pilots suffering from sleep disturbances due to caring for small children. Tiger instituted new rostering protocols in 2010 that welcomed reports from staff or crew calling in to be removed from flights if they were tired. However, Captain Berry told the inquiry that, “We realise the last thing you want to do when you are tired is to sit down and write a report.” As the daily newspaper The Daily Telegraph puts it in its news headline, “Tiger Airways pilots are too tired to protest.”

Safety Issue (5) : Maintenance

When CASA suspended Tiger Airways Australia’s AOC on 2 July, its press release on the subject specifically states that CASA demands improvements to Tiger’s maintenance control and ongoing airworthiness systems. We contacted CASA directly on this subject, and its spokesman Peter Gibson confirms that “ineffective oversight of maintenance issues” is a cause for concern. We believe this issue is now largely resolved, with Tiger Airways Australia recruiting additional maintenance-oversight personnel. This function was previously handled in Singapore.

Safety Issue (6) : Management

CASA’s press release on suspending Tiger Airways Australia’s AOC on 2 July also states clearly that it demands that Tiger ensures appropriately qualified people fill management and operational positions. Since the previous Tiger Airways Australia management consisted of highly experienced people, we interpret the specific requirement of “appropriately qualified” as referring to the attitude rather than the technical/managerial qualification of the management.

In hindsight, we do not find this surprising.

99


15

The night after CASA suspended Tiger Airways Australia’s AOC on 2 July, its then Group CEO Tony Davis went to an interview with ABC News (broadcast in Australia), where he rejected CASA’s verdict that Tiger posed an immediate risk to public safety. It is a highly confrontational act to contradict one’s industry regulator in public, in our opinion, and this broadcast is likely an indication of the aggressive attitude adopted by Tiger’s management then in its dealing with the regulators. It has come to such a state that CASA demanded “appropriately qualified people” to fill management and operational positions in Tiger Airways Australia.

Solutions in progress Looking at the above list of issues raised by CASA, we assess all of them as being capable of quick and conclusive resolutions. Not reporting an incident, flying a plane too low on approach to land, rostering schedules that resulted in pilots and cabin crew fatigue – we believe all these can be remedied by appropriate changes in Tiger’s internal procedures. Pilots not passing flying tests can be remedied by future recruitment being made contingent on pilots being properly certified by the Australian authority. The maintenance oversight issue, as we mentioned above, appears to have been resolved to CASA’s satisfaction also. There is no technical barrier to instituting such changes, in our opinion – the only barrier apparently having been the previous management’s attitude, which gave the impression that it considered those practices acceptable.

Turning a new page The key development we would focus on is that Tiger Airways has instituted sweeping management changes. We view these as a critical first step in resolving the core issue of Tiger’s problems today – i.e. the confrontational attitude taken by the previous management.

The quality of the new management installed in Tiger Airways, in our opinion, is impressive and its members have a proven track record. See pages 16-17 where we discuss this in detail.

We are therefore confident that Tiger Airways Australia will be able to win the regulator’s approval to operate fully, as before, within the next 12 months.

100

Produced by: The Royal Bank of Scotland N.V., (Hong Kong) Branch

Equi

ty |

Hon

g K

ong

| Cas

inos

& G

amin

g

Flas

hnot

e

Wynn Macau

3Q11 results in line with estimates

Wynn's 3Q11 results were in line with our estimates. We have anticipated a qoq decline due to the strength of Galaxy Macau. Wynn noted that its property is at capacity and growth will likely be achieved through optimizing table utilization. We believe growth will remain a concern in the near term. Hold.

Sequential decline expected

Wynn Macau reported 3Q11 results through parent company Wynn Resorts (Wynn US, NR) this morning. Overall, the results were in line with our estimates. Net revenue was US$951m, down 3% qoq but up 42% yoy, while adjusted EBITDA was US$296m, down 6% qoq but up 50% yoy. The decline in performance was consistent with our view and was primarily driven by a qoq decline in VIP rolling chip volume but was partially offset by a higher than theoretical VIP win rate.

The company reported US$31.4bn in VIP rolling chip volume, down 4% qoq and in line with our estimate while the VIP win rate came in at 2.95%, slightly higher than the theoretical win rate of 2.85% and slightly above our estimate of 2.90%. Adjusting for win rate, we estimate that adjusted EBITDA would have likely missed our estimate by 5%.

During the quarter, Wynn Macau generated US$260m in mass market tables and slots revenue, down 4% qoq and 8% below our estimate. In particular, the decline was mainly due to a 16% qoq drop in mass market gaming volume. We believe this decline can be partially attributed to the shifting of customers to from the Wynn property to Galaxy Macau.

The parent company declared a cash dividend of US$0.50 per share. However, we do not expect Wynn Macau to pay a dividend this quarter as we expect that they will conserve cash for the Cotai project.

Conference call

Management noted that they have reached their capacity at the Wynn Macau property. Going forward, management noted that they will likely need to adjust gaming mix and table betting limits to grow. This is consistent with our view that capacity constraints will hurt the company's growth in the near term.

In terms of the company's performance in October, management said that the company generated approximately US$73m in adjusted EBITDA in the first 18 days and is on track to make US$100m+ in adjusted EBITDA this month. In addition he noted that gaming volume after Golden Week remained strong. However, Steve Wynn acknowledged that he has seen a

(Continued on page 2)

Wynn Macau: 3Q11 comparative results

Source: Company data, RBS estimates


20 October 2011

Analysts

Philip Tulk +852 3988 7189 [email protected]

Frank Hung +852 3988 7245 [email protected] 38/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong http://research.rbsm.com

Hold Target price HK$22.80 Price HK$19.56

Chg ChgUS$m 3Q11A 3Q11E Variance 2Q11A Qoq 3Q10A YoyNet revenue 951.4 961.7 -1.1% 976.5 -2.6% 671.4 41.7%Gross gaming revenue (GGR) 1,185.9 1,186.6 -0.1% 1,215.7 -2.4% 824.9 43.8% VIP GGR 926.3 904.3 2.4% 944.5 -1.9% 625.0 48.2% VIP rolling chip volume (US$bn) 31.4 31.2 0.7% 32.7 -4.0% 21.7 44.7% VIP win rate 2.95% 2.90% 0.05 ppts 2.89% 0.06 ppts 2.88% 0.07 ppts MM / slots GGR 259.6 282.3 -8.0% 271.2 -4.3% 199.9 29.9%Adjusted property EBITDA 296.0 303.9 -2.6% 314.3 -5.8% 198.0 49.5%Adj. Ppty EBITDA margin 31.1% 31.6% -0.5 ppts 32.2% -1.1 ppts 29.5% 1.6 pptsAdj. EBITDA - adjusted for win rate 283.4 297.6 -4.8% 308.8 -8.2% 195.4 45.1%

AUSSIE ALPHA COMMENT3Q11 result note for Galaxy provides a read through for the upcoming Melco Crown result. Melco Crown is 33%-owned by Crown Ltd. (Michael Nolan +61 2 8259 1316)

101

Wynn Macau | 20 October 2011

slight shifting of customers to other properties but noted that this likely return to normal once the new property excitement is over.

In terms of Wynn Cotai, management discussed the potential financing of the project. In particular, management noted that they will likely fund the project through a combination of internally generated cash flow and bank debt. As of 3Q11, Wynn Macau had approximately US$1.1bn in cash and is in a net cash position.

Management also addressed questions relating to the tightening of liquidity in China. They noted that the company have not seen any impact yet and noted that credit repayment cycle remained stable.

Valuation and recommendation

The 3Q11 results were in line with our expectation. We are reviewing our estimates but are likely to maintain our views at this stage. The company is currently trading on 10.2x 2012F EV/EBITDA, a premium to the sectors 8.1x. In our view, capacity constraints will likely remain in the near term while competition will likely increase further once Sands Cotai Central opens in 2012. Maintain Hold.

102

Wynn Macau | Key Financial Data | 20 October 2011

Income statement

HK$m FY09A FY10A FY11F FY12F FY13FRevenue 14077 22439 29930 33832 37901Cost of sales -7931 -12847 -17266 -19407 -21729Operating costs -2968 -3716 -4516 -5019 -5570EBITDA 3178 5876 8148 9407 10602DDA & Impairment (ex gw) -762.6 -1183 -2062 -1258 -1266EBITA 2415 4693 6086 8149 9336Goodwill (amort/impaired) n/a n/a n/a n/a n/aEBIT 2415 4693 6086 8149 9336Net interest -311.6 -253.5 -183.2 -105.8 -105.8Associates (pre-tax) n/a n/a n/a n/a n/aForex gain / (loss) n/a n/a n/a n/a n/aExceptionals (pre-tax) n/a n/a n/a n/a n/aOther pre-tax items -29.5 26.5 25.0 0.00 0.00Reported PTP 2074 4466 5928 8043 9230Taxation -5.59 -44.1 -11.9 -40.2 -46.2Minority interests n/a n/a n/a n/a n/aExceptionals (post-tax) n/a n/a n/a n/a n/aOther post-tax items 0.00 -0.00 -0.00 0.00 -0.00Reported net profit 2069 4422 5916 8003 9184Normalised Items Excl. GW 0.00 0.00 0.00 0.00 0.00Normalised net profit 2069 4422 5916 8003 9184

Source: Company data, RBS forecasts year to Dec

Balance sheet

HK$m FY09A FY10A FY11F FY12F FY13FCash & market secs (1) 5229 3819 8106 8927 8592Other current assets 688.9 1091 1892 3158 3223Tangible fixed assets 8528 8352 8392 11042 17692Intang assets (incl gw) 398.3 398.3 400.0 400.0 400.0Oth non-curr assets 798.3 688.1 748.3 708.3 668.3Total assets 15642 14348 19539 24235 30576Short term debt (2) n/a n/a n/a n/a n/aTrade & oth current liab 3553 4981 5890 6155 6420Long term debt (3) 8017 4950 4350 3850 4350Oth non-current liab 301.5 121.0 760.4 830.4 830.4Total liabilities 11872 10051 11000 10835 11600Total equity (incl min) 3771 4297 8539 13400 18976Total liab & sh equity 15642 14348 19539 24235 30576Net debt 2628 970.7 -3857 -5177 -4342

Source: Company data, RBS forecasts year ended Dec

Cash flow statement

HK$m FY09A FY10A FY11F FY12F FY13FEBITDA 3178 5876 8148 9407 10602Change in working capital 1330 1004 1036 -111.9 83.0Net interest (pd) / rec -349.7 -210.5 -207.8 -133.0 -133.0Taxes paid -21.0 -6.99 18.1 -40.2 -46.2Other oper cash items 30.7 4.73 40.4 80.2 83.0Cash flow from ops (1) 4168 6668 9035 9202 10589Capex (2) -2324 -996.5 -1140 -3750 -7750Disposals/(acquisitions) -12561 0.00 0.00 0.00 0.00Other investing cash flow -79.0 -21.3 -425.8 -930.0 0.00Cash flow from invest (3) -14964 -1018 -1566 -4680 -7750Incr / (decr) in equity 14490 0.00 0.00 0.00 0.00Incr / (decr) in debt 0.26 -3117 -500.0 -500.0 500.0Ordinary dividend paid -1009 -3943 -2700 -3201 -3674Preferred dividends (4) n/a n/a n/a n/a n/aOther financing cash flow 0.00 0.00 0.00 0.00 0.00Cash flow from fin (5) 13481 -7060 -3200 -3701 -3174Forex & disc ops (6) 0.00 0.00 18.0 0.00 0.00Inc/(decr) cash (1+3+5+6) 2685 -1410 4287 820.7 -334.9Equity FCF (1+2+4) 1844 5671 7895 5452 2839

Lines in bold can be derived from the immediately preceding lines. Source: Company data, RBS forecasts

year to Dec

103

Produced by: The Royal Bank of Scotland N.V.

Equi

ty |

Glo

bal


21 October 2011

Global Action Pack

Friday 21 October 2011 Table 1 : This morning’s research

Subject Title No of pages

European Research AkzoNobel Flash: Paints under-delivers significantly 4Anglo American Flash: 3Q production report - initial thoughts 5BowLeven* Drill up, sell down 10Casino Flash: Big C rights issue/Thailand floods 4Cove Energy Flash: Press reports gas find off Mozambique 4Deutsche Lufthansa 3Q11 preview 4Drax Group Flash: UK govt to increase biomass support 5Ericsson Flash: Initial thoughts on 3Q11 results 5Friday Market Views Time after time....earnings beat 44Getinge Getting there 10Home Retail Group Rebasing (cost) expectations 12Klepierre Flash: 3Q11 - Calm before the storm? 4Kone Flash: Strong EM orders, cost inflation in Asia 6Mobistar Limited downside from here 10Nestle Flash: Striving for margin improvement 4Nokia Flash: 3Q11 initial look 5Ophir Energy Flash: Buy into Tanzania drilling campaign 5Pace Flash: Hard disk shortages 4Pernod Ricard Flash: Strong set of results 4Ryanair 2Q12 preview 4Schneider Electric Flash: Emerging market cost shock 5Silic Mexican standoff 10SKF 10% further cuts ahead, at least 13Specialty Finance - United Kingdom Flash: 3Q11 hedge fund industry flows 3STMicroelectronics Flash: Initial thoughts on ST-E results 6Tech Hardware & Equip - Europe Flash: Thai floods impact 4Transportation - United Kingdom Flash: And the winner is.....Abellio 3Umicore Flash: Strong 3Q11 update 5Whitbread Sleep well 11Yara Preview 3Q11 results 4

Asian Research Airlines - Global September traffic 32Bajaj Auto Peak performance continues 11Banks - China Flash: Bond trials for local governments 5BAT Malaysia Encouraging performance 8Bursa Malaysia A good quarter 4Cairn India Flash: 2Q12- near term production constraints 5China Dongxiang Flash: Resignation of CEO hurting sentiment 4China Mobile Flash: 3Q earnings below consensus 5Construction & Eng - Korea Flash: Pumyang going bankrupt Coromandel Intl Flash: High margins, but volume uncertainty 5Crompton Greaves Challenging outlook 11

*RBS Hoare Govett Ltd is broker to this company. Source: RBS

Analyst

RBS European Research 250 Bishopsgate, London, EC2M 4AA, United Kingdom http://research.rbsm.com

105

Table 1 : This morning’s research (cont’d)

Subject Title No of pages

Asian Research (cont’d) Galaxy Entertainment Flash: GEG: hogging the ball in 3Q 5IDBI Bank Concerns and lack of triggers 9Indiabulls Real Estate Flash: 2Q12: Improvement despite headwinds 5Info Edge India Flash: Collections slow down 5Keppel Corp Flash: 3Q better on solid offshore margin 6Largan Precision Unflattering 4Q11 guidance 8LG Chem A good defensive player 11LG Display Balance sheet leverage increasing 11Maanshan Iron & Steel Flash: Weak 3Q11, lower than expected 5New World Dept Store Flash: Feedback from NDR in Hong Kong 5NIIT Technologies Going for big hits 9Rallis India Flash: Analyst meet highlights 5Tiger Airways Thriving in times of recession 28Tingyi Likely weak beverage sales in 3Q11 8UltraTech Cement Flash: Cost pressures rising 5Yes Bank Margins up, credit quality steady 10

Source: RBS

Global Action Pack | 21 October 2011

2106

Global Action Pack summaries

Table 2 : Europe – Upgrades/downgrades and initiations

Company Ticker Last Actual EPS new EPS old Change (%) Curr Price Target Recom Year End FY1 FY2 FY3 FY1 FY2 FY3 FY1 FY2 FY3 New Old Chg (%) New OldBowLeven* BLVN LN Jun-10 -0.17 -0.05 -0.04 -0.10 -0.06 -0.07 -69.6 26.5 36.2 £ 1.65 2.50 -34.0 Buy Buy

Reason for EPS Change: Incorporating exploration and FX write-offs for 2011 Home Retail Group HOME LN Feb-11 10.02 10.43 13.90 15.25 16.81 18.48 -34.3 -38.0 -24.8 £ 1.25 1.70 -26.5 Buy Buy

Reason for EPS Change: Reduced cost savings expectations for FY12 and FY13 and lower Argos lfl Mobistar MOBB BB Dec-10 3.63 3.58 3.63 3.72 3.73 3.82 -2.5 -3.9 -5.0 € 40.00 42.00 -4.8 Hold Sell

Reason for EPS Change: We lower our forecasts following a weak 3Q11 SKF SKFB SS Dec-10 13.89 13.24 14.28 14.00 14.04 15.13 -0.8 -5.7 -5.6 SKr110.00 115.00 -4.3 Sell Sell

Reason for EPS Change: Lower volumes and margin in automotive and industry division Whitbread WTB LN Feb-11 128.73 140.49 153.48 126.64 137.00 147.36 1.6 2.5 4.2 £ 20.50 20.50 n/a Buy Buy

Reason for EPS Change: Lower interest rate and central costs

*RBS Hoare Govett Ltd is broker to this company. Source: Company data, RBS forecasts

Table 3 : Asia – Upgrades/downgrades and initiations

Company Ticker Last Actual EPS new EPS old Change (%) Curr Price Target Recom Year End FY1 FY2 FY3 FY1 FY2 FY3 FY1 FY2 FY3 New Old Chg (%) New OldBajaj Auto BJAUT IN Mar-11 102.38 111.45 121.60 98.32 109.15 120.26 4.1 2.1 1.1 Rs 1226 1082 13.4 Sell Sell Reason for EPS Change: Recent vehicle price hikes and easing commodity costs Crompton Greaves CRG IN Mar-11 9.19 11.54 13.06 10.74 13.42 15.29 -14.4 -14.0 -14.6 Rs 155.00 180.00 -13.9 Hold Buy Reason for EPS Change: Disappointing 2QFY12 results reflect structural margin decline IDBI Bank IDBI IN Mar-11 19.80 22.02 24.35 20.80 22.50 24.71 -4.8 -2.1 -1.5 Rs 114.00 161.00 -29.2 Hold Buy Reason for EPS Change: There is no material change to earnings. Largan Precision 3008 TT Dec-10 41.34 52.50 64.02 40.96 53.96 64.75 0.9 -2.7 -1.1 NT$ 750.00 750.00 n/a Buy Buy Reason for EPS Change: Slightly trimmed our numbers due to cautious guidance LG Chem 051910 KS Dec-10 34700 36311 48790 36346 41310 51263 -4.5 -12.1 -4.8 W 470000 515000 -8.7 Buy Buy Reason for EPS Change: We decrease EPS reflecting petrochemical product demand pick-up delay. LG Display 034220 KS Dec-10 -2775 -1670 1954 -2263 -1613 1824 -22.6 -3.5 7.1 W 21000 19000 10.5 Hold Hold Reason for EPS Change: We increase our 2011F loss to factor in higher-than-expected 3Q11 losses. NIIT Technologies NITEC IN Mar-11 30.90 34.26 37.25 30.44 32.35 35.30 1.5 5.9 5.5 Rs 278.00 263.00 5.7 Buy Buy Reason for EPS Change: Large deal wins and currency change Tiger Airways TGR SP Mar-11 -0.09 0.04 0.07 0.12 0.15 0.18 n/m -76.1 -60.7 S$ 1.20 1.85 -35.1 Buy Buy Reason for EPS Change: Rights issue dilution and impact from losses in its Australian division. Tingyi 322 HK Dec-10 7.17 10.01 12.67 8.35 10.90 13.65 -14.1 -8.2 -7.2 HK$ 20.00 21.10 -5.2 Hold Hold Reason for EPS Change: Weaker beverage sales and gross margin pressure



3107

Europe AkzoNobel (Hold, TP €36.00) - Paints under-delivers significantly 3Q11 EBITDA is in line with consensus, but the mix is disappointing. The Paints division misses EBITDA by 8% due to raw material inflation and customer down-trading. Chemicals saved the day, but we wonder for how long. http://track.sumnet.com/home/00000275/T036FA1/akz_bel_10084812.pdf Anglo American (Buy, TP £35.25) - 3Q production report - initial thoughts This release was mildly disappointing, with copper and nickel volumes well below forecast, offsetting slightly better or in-line volumes elsewghere. There was no comment on demand - a disappointment in the current environment, and we have concerns relating to Codelco's Chilean copper acquisition option. http://track.sumnet.com/home/00000275/T037007/ang_can_10084850.pdf BowLeven (Buy, TP £1.65) - Drill up, sell down A successful placing has given BowLeven a renewed mandate to prove up the Etinde resource. However, we believe management will come under increasing pressure to validate its positive view of Etinde's value through a farm-out and/or an outright sale. We stay at Buy, although reduce our TP to 165p (from 250p). http://track.sumnet.com/home/00000275/T0370F1/bow_ven_20104051.pdf Casino (Buy, TP €83.00) - Big C rights issue/Thailand floods Big C the 63% owned Casino subsidiary has announced a rights issue to raise €595m, according to Big C this is to pay down some debt and to help fund growth. This should cost Casino c€375m, with FY11F net debt/EBITDA at 2.1x. The floods in Thailand are a concern but have had minimal impact thus far. http://track.sumnet.com/home/00000275/T03704E/cas_ino_10084878.pdf Cove Energy (Hold, TP £0.64) - Press reports gas find off Mozambique Press reports of Eni making a 15 Tcf gas discovery offshore Mozambique should be positive for Cove. Given the exploration success on Cove's neighbouring Area 1 licence, a discovery on Area 4 would not come as a surprise, in our view, but the scale of the reported find is impressive. http://track.sumnet.com/home/00000275/T036FE7/cov_rgy_10084840.pdf Deutsche Lufthansa (Hold, TP €10.00) - 3Q11 preview Lufthansa is scheduled to report its 3Q11 results on 27 October. We forecast a solidly profitable quarter with operating profit of €646m, moderately below 3Q10's €783m, but delivering 9M results slightly up yoy. We see revenue trends softening into 4Q11 and believe attention will focus on the pace of profit erosion. http://track.sumnet.com/home/00000275/T0370A8/deu_nsa_10084902.pdf Drax Group (Buy, TP £5.60) - UK govt to increase biomass support The UK government has published the long-awaited review of banding in the Renewables Obligation. Support for wind has been slightly reduced, tidal has been significantly boosted. However the most striking change is the support for enhanced biomass burning and ultimate conversion at coal stations. http://track.sumnet.com/home/00000275/T037014/dra_oup_10084854.pdf Ericsson (Hold, TP SKr75.00) - Initial thoughts on 3Q11 results Ericsson reported 3Q11 results this morning. The company beat on revenues and adjusted EPS. Gross margin was however down qoq due to increasing revenues from western Europe and decreasing revenues from North America. In line with our views. Maintain Hold. http://track.sumnet.com/home/00000275/T036FAE/eri_son_10084815.pdf Friday Market Views - Time after time....earnings beat We think the Q3 2011 results season will prove stronger than widely feared. Earnings forecasts have been re-based lower ahead of the event, and may now be too low given the performance of the global economy through the period. Inflation in the major corporate cost lines has likely lagged the top-line advance. http://track.sumnet.com/home/00000275/T0370A3/fri_ews_10084895.pdf Getinge (Buy, TP SKr187.00) - Getting there Organic order growth was 7.1% in 3Q11 (consensus 5.6%, RBS 6.6%) - the fourth consecutive quarter of order growth acceleration. Based on this acceleration, management reiterated that it should reach the upper end of its 3-5% organic sales target for FY11 (consensus 3.9%, RBS 4.5%). Remaining at Buy. http://track.sumnet.com/home/00000275/T0370E9/get_nge_20104052.pdf


4108

http://track.sumnet.com/home/00000275/T036FA1/akz_bel_10084812.pdf

http://track.sumnet.com/home/00000275/T037007/ang_can_10084850.pdf

http://track.sumnet.com/home/00000275/T0370F1/bow_ven_20104051.pdf

http://track.sumnet.com/home/00000275/T03704E/cas_ino_10084878.pdf

http://track.sumnet.com/home/00000275/T036FE7/cov_rgy_10084840.pdf

http://track.sumnet.com/home/00000275/T0370A8/deu_nsa_10084902.pdf

http://track.sumnet.com/home/00000275/T037014/dra_oup_10084854.pdf

http://track.sumnet.com/home/00000275/T036FAE/eri_son_10084815.pdf

http://track.sumnet.com/home/00000275/T0370A3/fri_ews_10084895.pdf

http://track.sumnet.com/home/00000275/T0370E9/get_nge_20104052.pdf

Home Retail Group (Buy, TP £1.25) - Rebasing (cost) expectations Home Retail's 1H12 results forced us to reassess our cost expectations for FY12 and FY13. We make no change to our Argos FY12F lfl of -9.5%, but cut our FY13 lfl forecast to -2.0% vs flat previously. We cut our FY12 and FY13 EPS forecasts 34% and 38%, respectively. In our view, FY12F EPS remains the nadir. http://track.sumnet.com/home/00000275/T036F7A/hom_oup_20103998.pdf Klepierre (Buy, TP €32.50) - 3Q11 - Calm before the storm? 3Q11 total revenue was virtually unchanged versus 2Q11, however the like-for-like change a bit better. The positive tenant performance in the beginning of the year has started to decline, and business up until August 2011 was flat for retailers. http://track.sumnet.com/home/00000275/T0370AC/kle_rre_10084904.pdf Kone (Hold, TP €35.00) - Strong EM orders, cost inflation in Asia Key takeaways from this release: 1) EM orders still strong despite terminal price action in Asia (due to Kone’s favourable mix, in our view), 2) Kone is now the second company this reporting season commenting on excessive wage inflation in Asia holding back margins. http://track.sumnet.com/home/00000275/T03702D/kone_10084860.pdf Mobistar (Hold, TP €40.00) - Limited downside from here Mobistar reported a slightly weaker 3Q11, with mixed underlying trends. We expect continuing EBITDA decline and lower our forecasts for 2011-13, which results in small dividend cuts (still 9% yield). We remain negative on the business prospects, but upgrade to Hold on valuation with a new €40 TP (from €42). http://track.sumnet.com/home/00000275/T0370F8/mob_tar_20104057.pdf Nestle (Hold, TP SFr53.70) - Striving for margin improvement Q3 organic sales growth was bang in line with expectations. However, they are now 'striving for margin growth' for the full year. At the 1H stage they were 'confident', so a slight negative nuance. We remain holders. http://track.sumnet.com/home/00000275/T036F8C/nes_tle_10084810.pdf Nokia (Sell, TP €3.30) - 3Q11 initial look Strong Q3 with headline revs 5% above cons for D&S. Adj EPS came 3c vs consensus of -2c. The smartphone business posted -5.9% EBIT margin vs -6.2% in 2Q11 while the mobile phone business reported 10.2% vs 8.6% in 2Q11. Nokia said that they expect D&S revenues to be up sequentially. Reiterate Sell. http://track.sumnet.com/home/00000275/T037052/nokia_20104034.pdf Ophir Energy (Buy, TP £3.00) - Buy into Tanzania drilling campaign The CMD reiterated the scale and comparatively low risk of offshore Tanzania gas resource, which should deliver positive share price momentum into the E&A campaign. Management were also convincing in articulating the wider exploration upside. We are buyers into near-term drilling. http://track.sumnet.com/home/00000275/T036FCB/oph_rgy_10084822.pdf Pace (Buy, TP £1.32) - Hard disk shortages Hard disk shortages as a result of flooding in Thailand is causing major disruption to the set-top box industry's supply chain. This is likely to lead to lower profitability at Pace until supply volumes are restored. http://track.sumnet.com/home/00000275/T036FB7/pace_20104014.pdf Pernod Ricard (Hold, TP €62.00) - Strong set of results Pernod reported a strong set of 1Q12 sales this morning along with issuing its full year guidance. There does not look to be any mention of one-off factors that flattered the group's organic sales growth of 11%, and we would expect the shares to react positively this morning. http://track.sumnet.com/home/00000275/T036FC7/per_ard_20104015.pdf Ryanair (Buy, TP €4.00) - 2Q12 preview We forecast a record September quarter for Ryanair, with net earnings to €395m versus €330m last year and a net margin of 26%. On the results call, we expect the focus to be on the winter outlook, and fuel and currency hedging into FY13. http://track.sumnet.com/home/00000275/T037041/rya_air_10084872.pdf Schneider Electric (Hold, TP €45.00) - Emerging market cost shock 10% consensus downgrades on rising EM cost inflation; no comments on inventories at this stage; we expect a sharp 4Q volume slowdown, which may then identify a higher inventory level and pose further downside EPS risks. That said, the 10% downgrades are priced in, in our view. http://track.sumnet.com/home/00000275/T037039/sch_ric_10084864.pdf


5109

http://track.sumnet.com/home/00000275/T036F7A/hom_oup_20103998.pdf

http://track.sumnet.com/home/00000275/T0370AC/kle_rre_10084904.pdf

http://track.sumnet.com/home/00000275/T03702D/kone_10084860.pdf

http://track.sumnet.com/home/00000275/T0370F8/mob_tar_20104057.pdf

http://track.sumnet.com/home/00000275/T036F8C/nes_tle_10084810.pdf

http://track.sumnet.com/home/00000275/T037052/nokia_20104034.pdf

http://track.sumnet.com/home/00000275/T036FCB/oph_rgy_10084822.pdf

http://track.sumnet.com/home/00000275/T036FB7/pace_20104014.pdf

http://track.sumnet.com/home/00000275/T036FC7/per_ard_20104015.pdf

http://track.sumnet.com/home/00000275/T037041/rya_air_10084872.pdf

http://track.sumnet.com/home/00000275/T037039/sch_ric_10084864.pdf

Silic (Hold, TP €76.00) - Mexican standoff 3Q11 earnings deteriorated from 1H11. Indexation in 2012 (4%) and management optimism about development leasing could be positive for earnings, but this could largely be mitigated by negatives - effective vacancy down, development rents offset by capitalised interest, LTV too high. Hold with a new €76 TP. http://track.sumnet.com/home/00000275/T0370F5/silic_20104050.pdf SKF (Sell, TP SKr110.00) - 10% further cuts ahead, at least We continue to expect the stock to underperform following 3Q results. We cut our FY12F and FH13F EPS by 7% each, below pre-results Bloomberg consensus by 8% and 10%, respectively. Sell with a new SKr110 target price (from SKr115). http://track.sumnet.com/home/00000275/T037064/skf_10084885.pdf Specialty Finance - United Kingdom - 3Q11 hedge fund industry flows Global hedge fund net flows declined to $8.7bn in 3Q but remained positive. While we expect flows to deteriorate further, investment performance looks robust and should act in the sector's favour. Man Group's flows appear to have underperformed the industry. http://track.sumnet.com/home/00000275/T036F94/spe_nce_10084811.pdf STMicroelectronics (Buy, TP €6.30) - Initial thoughts on ST-E results ST-E reported a mixed set of results for 3Q11 with revenues ahead of our expectations but operating loss only in line. The company is guiding 4Q11 revenues to be 'slightly up', which imply a sharp acceleration (+8% to +11% qoq) we believe ex IP sales in 3Q11. http://track.sumnet.com/home/00000275/T036F99/stm_ics_20104011.pdf Tech Hardware & Equip - Europe - Thai floods impact We believe the impact of the floods in Thailand could be substantial to the PC, gaming and set-top box supply chain. While we believe the European semiconductor suppliers are less likely to suffer given their low exposure to PCs, we believe it is unlikely they would be immune. http://track.sumnet.com/home/00000275/T036FF8/tec_uip_10084845.pdf Transportation - United Kingdom - And the winner is.....Abellio Abellio has been awarded Greater Anglia. We had thought this was the least likely outcome. GOG would have had more to gain from a win than SGC, the other short-listed bidder, so is likely to see the greatest investor disappointment. We also expect Southern to now become the investor focus at GOG. http://track.sumnet.com/home/00000275/T036FCF/tra_ion_10084825.pdf Umicore (Hold, TP €30.00) - Strong 3Q11 update Umicore's 3Q11 sales growth of 13% was strong and accellerated compared to 1H11. Catalysis and Recycling outperformed, while Performance materials underperformed. Umicore reiterated its FY guidance of REBIT of €400-425m. We expect Vara consensus to move up by some 2-3%. Conference call at 10:00 CET. http://track.sumnet.com/home/00000275/T036F9D/umi_ore_20104012.pdf Whitbread (Buy, TP £20.50) - Sleep well Headline growth rates remain attractive, slightly tarnished by a smidgen of uncertainty derived from 'volatile' current trading. Leading budget brand positioning, coupled with both a robust balance sheet and cash flow should promote ongoing growth. http://track.sumnet.com/home/00000275/T0370ED/whi_ead_20104053.pdf Yara (Buy, TP NKr330.00) - Preview 3Q11 results Yara will report 3Q11 results tomorrow at 08.00 CET followed by a webcast at 09.30, accessible at www.yara.com. We forecast EBITDA of NKr4,882m, which is 2% below company-compiled consensus. http://track.sumnet.com/home/00000275/T036FDE/yara_20104016.pdf

Asia Airlines - Global - September traffic This note summarises the latest traffic data from the global industry. Passenger data in September held up well, but red flags abound. Cargo traffic remains soft, usually a precursor to softer travel ahead. RBS analysts globally currently prefer LCCs to network carriers in this volatile environment for premium travel. http://track.sumnet.com/home/00000275/T037085/air_nes_20104042.pdf Bajaj Auto (Sell, TP Rs1226.00) - Peak performance continues Bajaj's 2Q PBT result was 5% higher than our forecast as its EBITDA margin recovered to 20% on strong product mix. Building in recent vehicle price hikes and easing commodity costs, we marginally raise our EPS forecast. Given rich valuations and increasing competition, we remain cautious and maintain a Sell. http://track.sumnet.com/home/00000275/T0370B8/baj_uto_10084907.pdf


6110

http://track.sumnet.com/home/00000275/T0370F5/silic_20104050.pdf

http://track.sumnet.com/home/00000275/T037064/skf_10084885.pdf

http://track.sumnet.com/home/00000275/T036F94/spe_nce_10084811.pdf

http://track.sumnet.com/home/00000275/T036F99/stm_ics_20104011.pdf

http://track.sumnet.com/home/00000275/T036FF8/tec_uip_10084845.pdf

http://track.sumnet.com/home/00000275/T036FCF/tra_ion_10084825.pdf

http://track.sumnet.com/home/00000275/T036F9D/umi_ore_20104012.pdf

http://track.sumnet.com/home/00000275/T0370ED/whi_ead_20104053.pdf

http://track.sumnet.com/home/00000275/T036FDE/yara_20104016.pdf

http://track.sumnet.com/home/00000275/T037085/air_nes_20104042.pdf

http://track.sumnet.com/home/00000275/T0370B8/baj_uto_10084907.pdf

Banks - China - Bond trials for local governments A successful bond issuance needs to change the market perception that the quality of the underlying assets of the bonds is problematic. Transparency and pricing are key for successful implementation in our view. We expect more measures to solve the LGFV problem. http://track.sumnet.com/home/00000275/T0370DE/banks_20104056.pdf BAT Malaysia (Buy, TP RM48.60) - Encouraging performance In encouraging 3Q11 results, BAT's normalised net profit grew 2% qoq and 10% yoy on higher sales volume driven by trade loading. The 9-month normalised net profit was up 0.5% yoy and constituted 76% of our 2011F forecast. Maintain Buy. http://track.sumnet.com/home/00000275/T0370E2/bat_sia_20104058.pdf Bursa Malaysia (Sell, TP RM5.84) - A good quarter Bursa’s 9M11 earnings increased by 38% yoy and constituted 77% of our full year estimates. While we are encouraged by the pickup in trading value and derivative contracts, we think that it will not be spared from the impact of external uncertainties. Valuations are hefty at 25.1x FY12 PE and 3.8x P/B. Sell. http://track.sumnet.com/home/00000275/T036F7B/bur_sia_20103999.pdf Cairn India (Buy, TP Rs310.00) - 2Q12- near term production constraints Cairn India reported net profit was 54% above expectations due forex gains, with operational earnings in line. Company’s disclosures on constraints in crude evacuation infrastructure will result in some cuts in our FY12-14 oil production estimates. http://track.sumnet.com/home/00000275/T03709C/cai_dia_20104045.pdf China Dongxiang (Hold, TP HK$1.60) - Resignation of CEO hurting sentiment DX announced the resignation of its CEO, Ms Sandrine Zerbib. We view this negatively in terms of short-term sentiment but will likely be a non-event in the longer run. Our conversations with investors in the past nine months suggested that the investment society seems to think ex-CEO, Qin, has done a better job. http://track.sumnet.com/home/00000275/T037031/chi_ang_20104029.pdf China Mobile (Buy, TP HK$88.00) - 3Q earnings below consensus Revenue and EBITDA are in line with expectation, but high depreciation may be the culprit for the lower than expected earnings. Afterall, the consensus seems high in the first place. We think the fourth quarter looks challenging for the company, but meeting full year consensus may not be impossible. http://track.sumnet.com/home/00000275/T037061/chi_ile_20104035.pdf Construction & Eng - Korea - Pumyang going bankrupt A mid-sized builder, Pumyang Construction filed for a court receivership today, leading major builders' stock prices down 5-8%. However this reaction is over-done, because Pumyang's failure is due to aggressive overseas expansion before 2008. Buy GS E&C, Daelim. http://track.sumnet.com/home/00000275/T03700B/con_eng_20104023.pdf Coromandel Intl (Buy, TP Rs365.00) - High margins, but volume uncertainty In the concall, management indicated that DAP prices were hiked to Rs18200/T (+30%) in end Sep, which should keep margins high for 2H. However, supply issues remain especially from Tunisia. Too early to say if demand is impacted on higher price. http://track.sumnet.com/home/00000275/T037094/cor_ntl_10084897.pdf Crompton Greaves (Hold, TP Rs155.00) - Challenging outlook Post disappointing 2QFY12 results, we reduce our earnings by 14-15% for FY12-14F, a reflection of structural margin decline across segments. Our new DCF-based target price of Rs155 implies a target PE of 13.4x FY13E EPS versus the average PE of 17x over the past five years. We move to Hold from Buy. http://track.sumnet.com/home/00000275/T0370BC/cro_ves_10084908.pdf Galaxy Entertainment (Buy, TP HK$18.00) - GEG: hogging the ball in 3Q GEG's 3Q11 results were impressive and in line with our recently increased estimates. Despite mass market segment at GMR being a bit light, we believe the introduction of new amenities will help boost performance. We expect GEG's strength and momentum to likely be maintained in the near term. Reiterate Buy. http://track.sumnet.com/home/00000275/T037045/gal_ent_20104032.pdf IDBI Bank (Hold, TP Rs114.00) - Concerns and lack of triggers IDBI Bank's asset quality disappointed yet again in 2QFY12. Further, management expects no significant improvement in asset quality in 2HFY12. The bank plans to focus on CASA improvement, meeting priority sector requirements and targets a muted yoy loan growth in FY12. We downgrade the stock to Hold. http://track.sumnet.com/home/00000275/T037098/idb_ank_20104044.pdf


7111

http://track.sumnet.com/home/00000275/T0370DE/banks_20104056.pdf

http://track.sumnet.com/home/00000275/T0370E2/bat_sia_20104058.pdf

http://track.sumnet.com/home/00000275/T036F7B/bur_sia_20103999.pdf

http://track.sumnet.com/home/00000275/T03709C/cai_dia_20104045.pdf

http://track.sumnet.com/home/00000275/T037031/chi_ang_20104029.pdf

http://track.sumnet.com/home/00000275/T037061/chi_ile_20104035.pdf

http://track.sumnet.com/home/00000275/T03700B/con_eng_20104023.pdf

http://track.sumnet.com/home/00000275/T037094/cor_ntl_10084897.pdf

http://track.sumnet.com/home/00000275/T0370BC/cro_ves_10084908.pdf

http://track.sumnet.com/home/00000275/T037045/gal_ent_20104032.pdf

http://track.sumnet.com/home/00000275/T037098/idb_ank_20104044.pdf

Indiabulls Real Estate (Buy, TP Rs120.00) - 2Q12: Improvement despite headwinds While IBREL in 2Q12 reported 11% and 26% yoy revenue and EBITDA growth respectively, higher interest cost (one time) led to 23% yoy decline in PAT. Sequential improvement in sales run-rate (given the current slowdown) and marginal improvement in net debt were positives. http://track.sumnet.com/home/00000275/T0370B4/ind_ate_10084906.pdf Info Edge India (Hold, TP Rs725.00) - Collections slow down Info Edge reported in-line 2Q12 revenues and operating profit. However, a dip in deferred sales implies collections slowed down to 19% yoy vs 25% in 1Q12. A strong 26% ytd outperformance to the BSE IT Index despite deteriorating macros does not leave room for disappointment in our view. http://track.sumnet.com/home/00000275/T037075/inf_dia_10084893.pdf Keppel Corp (Hold, TP S$11.60) - 3Q better on solid offshore margin Keppel’s 3Q was as better than expected, but we believe this and its record high 2011F orders have been priced in. We maintain our Hold, as we believe orders will peak in 2011F and prefer SMM on stronger near-term order momentum. http://track.sumnet.com/home/00000275/T037025/kep_orp_20104027.pdf Largan Precision (Buy, TP NT$750.00) - Unflattering 4Q11 guidance Management had guided for a cautious 4Q11. Pixel migration should continue but the overall momentum in 4Q11 could slow due to macro uncertainty. We continue to like the stock as technology migration persists and ASP remains steady. Valuation appears attractive at 12.7x 2012F EPS, below its 5-yr average of 15.2x. http://track.sumnet.com/home/00000275/T0370C8/lar_ion_20104047.pdf LG Chem (Buy, TP W470000.00) - A good defensive player LG Chem announced in-line 3Q11 results. The information and electronics division's operating margin is relatively resilient, vs our previous concern. To reflect concerns of a global recession, we cut our EPS forecasts for 2011 by 5% and for 2012 by 12% and lower LG Chem's target price to W470,000. http://track.sumnet.com/home/00000275/T037089/lg__hem_20104043.pdf LG Display (Hold, TP W21000.00) - Balance sheet leverage increasing Although LGD's 3Q11 loss was inflated by non-operating items, normalised results still fell short of the consensus. Cash capex of W4tr in 2012 is higher than we expected, which should lead to a greater need for external sources of financing. We maintain Hold with an increased target price of W21,000. http://track.sumnet.com/home/00000275/T0370B0/lg__lay_10084905.pdf Maanshan Iron & Steel (Buy, TP HK$4.33) - Weak 3Q11, lower than expected Maanshan reported 3Q11 net profit of Rmb15m, down 93% qoq and below our forecast. Higher raw material costs and increased finance costs were the main reason. 9M11 profit only accounts for 49% of our full year forecast, and we see risks of further margin squeeze in 4Q11. http://track.sumnet.com/home/00000275/T037090/maa_eel_10084896.pdf New World Dept Store (Buy, TP HK$5.60) - Feedback from NDR in Hong Kong We took management to meet investors in Hong Kong. We discussed: 1) ytd sales trend and outlook; 2) expansion and rebranding progress; and 3) margins protection and cost reduction. NWDS is now more open with guidance which we believe will help narrowing the valuation gap vs peers. Buy; TP: HK$5.10. http://track.sumnet.com/home/00000275/T037010/new_ore_20104024.pdf NIIT Technologies (Buy, TP Rs278.00) - Going for big hits We see NTL's focus moving from steady growth and margins to aggressive growth with margin volatility. This was seen in 2QFY12: USD revenue growth of 11.6%, order intake of US$200m and adjusted EBITDA margin dip of 57bp. We believe the move will pay off in the medium term and increase FY13F EPS by 6%. http://track.sumnet.com/home/00000275/T036FA6/nii_ies_20104013.pdf Rallis India (Buy, TP Rs210.00) - Analyst meet highlights Company said sales were impacted due to many small factors like sub optimal monsoon distribution, product ban and lower acreage in bajra (for seeds). Product launches continue and Rallis brand strength remains high. 2H outlook is better, and debtors should also decline. http://track.sumnet.com/home/00000275/T03706D/ral_dia_20104037.pdf Tiger Airways (Buy, TP S$1.20) - Thriving in times of recession In times of recession consumers generally downgrade to cheaper products. At this time, Tiger Airways, one of the world's lowest-cost carriers, stands to benefit from a volume spurt and falling oil price to boot. Its Australian problem is, in our view, in the process of being resolved, and we reiterate our Buy rating. http://track.sumnet.com/home/00000275/T037079/tig_ays_20104039.pdf


8112

http://track.sumnet.com/home/00000275/T0370B4/ind_ate_10084906.pdf

http://track.sumnet.com/home/00000275/T037075/inf_dia_10084893.pdf

http://track.sumnet.com/home/00000275/T037025/kep_orp_20104027.pdf

http://track.sumnet.com/home/00000275/T0370C8/lar_ion_20104047.pdf

http://track.sumnet.com/home/00000275/T037089/lg__hem_20104043.pdf

http://track.sumnet.com/home/00000275/T0370B0/lg__lay_10084905.pdf

http://track.sumnet.com/home/00000275/T037090/maa_eel_10084896.pdf

http://track.sumnet.com/home/00000275/T037010/new_ore_20104024.pdf

http://track.sumnet.com/home/00000275/T036FA6/nii_ies_20104013.pdf

http://track.sumnet.com/home/00000275/T03706D/ral_dia_20104037.pdf

http://track.sumnet.com/home/00000275/T037079/tig_ays_20104039.pdf

Tingyi (Hold, TP HK$20.00) - Likely weak beverage sales in 3Q11 Tingyi is due to report 3Q results on 14/15 November. Based on our channel checks, it will likely post weak beverage sales. We cut our reported earnings forecasts by 7-13% for FY11-13, assuming weaker beverage sales and lower gross margins. Maintain Hold with a reduced target price of HK$20. http://track.sumnet.com/home/00000275/T037035/tin_gyi_20104030.pdf UltraTech Cement (Sell, TP Rs878.71) - Cost pressures rising UT's costs rose sharply both qoq (11%) and yoy (21%) basis, largely offsetting the 24% yoy rise in cement prices. 2QFY12 EBITDA at Rs5.81bn was in-line. We expect volatility in cement margins to persist for the next 4-6 quarters due to surplus conditions, and, at current valuations, the risk reward is unfavourable. http://track.sumnet.com/home/00000275/T037021/ult_ent_10084856.pdf Yes Bank (Buy, TP Rs405.00) - Margins up, credit quality steady Yes Bank's 2QFY12 net profit of Rs2.4bn was ahead of our and Street estimates, with qoq NIM improvement and stable credit quality trends. Higher-than-expected branch add was a positive surprise in the quarter, even as costs remained under control. We maintain Buy. http://track.sumnet.com/home/00000275/T0370D4/yes_ank_20104054.pdf Note: Links to research are valid for 30 days from the date of publication


9113

http://track.sumnet.com/home/00000275/T037035/tin_gyi_20104030.pdf

http://track.sumnet.com/home/00000275/T037021/ult_ent_10084856.pdf

http://track.sumnet.com/home/00000275/T0370D4/yes_ank_20104054.pdf

RBS Top 100 Earnings Forecasts

ASX code Company name Market cap

(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs.

YTD -Rel. Earnings Quality*

IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)

P/ NTA ROE ND/EBITDA Gearing (Tier 1 ratio for banks)

Analyst

Actual Fcst 1 Fcst 2 Actual Actual Fcst 1 Fcst 2 12m fwd Fcst 1 Fcst 2 3 yr Actual Fcst 1 Fcst 2 Fcst 1 Fcst 1 Fcst 1 Fcst 2 Fcst 1 Fcst 1 Fcst 2 Fcst 1 Fcst 1 Fcst 1 Fcst 1 Fcst 1 Fcst 1

BanksANZ ANZ Banking Group 55,070 Sep 10 21.21 23.60 26.22 11% Buy -9% 4% 5,122.0 5,612.0 6,074.9 n.a. 198.4 211.7 223.3 -3.2% 7% 5% 5% 126.0 139.0 146.0 6.6% 100 10.0 9.5 2.0 0.82 0.89 7.0 6.0 2.0 16.2% n.a. 10.8% Andrew LyonsBEN Bendigo & Adelaide Ban 3,297 Jun 11 9.22 9.32 9.81 1% Hold -7% 5% 336.2 337.2 364.7 n.a. 87.0 85.7 90.5 -2.1% -2% 6% 2% 60.0 61.0 63.0 6.6% 100 10.8 10.2 5.2 1.01 1.04 6.6 6.0 1.6 8.3% n.a. 8.4% John BuonaccorsiBOQ Bank of Queensland 1,844 Aug 11 8.18 12.38 13.75 51% Buy -21% -9% 166.9 262.9 292.7 n.a. 71.3 104.3 112.3 -6.7% 46% 8% 18% 54.0 69.0 75.0 8.4% 100 7.8 7.3 0.4 0.74 0.74 4.8 3.7 1.1 10.7% n.a. 8.3% John BuonaccorsiCBA Commonwealth Bank 74,112 Jun 11 47.55 49.69 58.46 4% Hold -6% 6% 6,793.0 7,386.1 7,930.4 n.a. 420.7 450.3 475.5 -3.0% 7% 6% 6% 320.0 343.0 363.0 7.2% 100 10.6 10.0 1.8 0.99 1.02 7.2 6.5 2.7 19.2% n.a. 10.6% Andrew LyonsNAB National Australia Bank 52,766 Sep 10 24.32 29.33 32.58 21% Buy 3% 15% 4,581.0 5,500.9 6,154.4 n.a. 214.8 251.3 272.8 -2.0% 17% 9% 11% 152.0 170.0 177.0 7.0% 100 9.7 8.9 0.9 0.79 0.84 6.6 5.3 1.8 15.7% n.a. 9.5% Andrew LyonsWBC Westpac Banking Corp 64,690 Sep 10 21.50 22.68 26.68 5% Hold -3% 10% 5,879.0 6,332.5 6,654.1 n.a. 192.1 203.9 211.2 -2.9% 6% 4% 5% 139.0 153.0 157.0 7.1% 100 10.5 10.2 2.1 0.86 0.96 7.1 6.4 2.3 16.0% n.a. 9.8% Andrew Lyons

ChemicalsIPL Incitec Pivot 5,342 Sep 10 3.28 4.40 4.40 34% Buy -17% -4% 442.8 530.0 568.9 0.9 27.3 32.5 34.9 0.3% 19% 7% 10% 7.8 9.8 10.5 3.0% 0 10.1 9.4 1.0 0.82 0.88 8.4 7.0 5.4 14.0% 1.3 29.8% Belinda MooreORI Orica 8,727 Sep 10 24.10 27.82 27.82 15% Buy -3% 10% 659.6 613.8 752.1 0.9 175.0 169.2 207.1 -0.7% -3% 22% 9% 95.0 90.0 100.0 3.7% 49 14.2 11.6 1.7 1.16 1.09 10.2 8.3 6.3 16.8% 1.1 36.0% Andrew Scott

Commercial Services & Supplies BXB Brambles 9,823 Jun 11 6.64 7.01 7.01 6% Hold -7% 6% 532.1 600.4 718.4 1.0 36.6 40.2 48.2 -2.0% 10% 20% 16% 25.9 30.0 34.0 4.4% 20 15.9 12.9 1.0 1.49 1.32 12.7 8.2 15.9 25.0% 2.0 120.8% Mark WilliamsDOW Downer EDI 1,245 Jun 11 2.90 5.01 5.01 73% Buy -35% -22% 155.9 190.1 221.3 0.6 42.6 44.3 51.5 -5.9% 4% 16% 14% 0.0 21.0 27.0 7.2% 0 6.5 5.6 0.5 0.62 0.58 5.3 3.1 1.3 12.7% 1.1 40.6% Andrew HodgeSEK SEEK 1,965 Jun 11 5.83 7.15 7.15 23% Buy -12% 1% 104.6 131.1 153.9 1.0 31.0 38.8 45.6 -4.2% 25% 17% 19% 14.3 21.4 27.4 3.7% 100 15.0 12.8 0.8 1.41 1.31 12.2 9.5 - 28.8% 0.9 37.0% Fraser McLeishTSE Transfield Svcs 1,176 Jun 11 2.14 2.13 2.24 0% Hold -36% -24% 128.2 126.3 144.0 0.5 26.0 23.4 28.4 -18.1% -10% 21% 6% 14.0 14.0 15.5 6.5% 100 9.1 7.5 1.4 0.86 0.77 8.3 5.9 2.9 11.9% 1.2 28.6% Andrew Hodge

Consumer ServicesEGP Echo Entertainment 2,546 Jun 11 3.70 4.30 4.30 16% Hold 184.3 135.6 179.9 1.5 26.8 19.7 25.8 5.7% -26% 31% 2% 0.0 10.0 13.1 2.7% 100 18.8 14.4 9.7 1.77 1.47 12.3 8.6 4.3 5.6% 2.5 43.7% Michael NolanCWN Crown 5,953 Jun 11 7.85 9.00 9.00 15% Buy -5% 8% 335.9 386.9 422.4 0.9 44.3 52.6 58.0 5.3% 19% 10% 15% 37.0 37.0 37.0 4.7% 60 14.9 13.5 1.0 1.40 1.38 14.8 10.3 2.5 12.1% 2.0 45.4% Michael NolanTAH Tabcorp 2,055 Jun 11 2.84 3.00 3.00 6% Hold -8% 4% 486.3 364.5 222.7 1.0 74.1 51.6 30.6 -7.2% -30% -41% -27% 43.0 25.8 21.4 9.1% 100 5.5 9.3 -0.2 0.52 0.95 4.4 3.6 - 26.2% 0.7 32.2% Michael NolanTTS Tatts Group 3,099 Jun 11 2.35 2.20 2.44 -6% Hold -9% 4% 279.5 329.8 197.4 1.0 21.5 25.0 15.0 -2.1% 16% -40% -8% 21.5 22.5 13.5 9.6% 100 9.4 15.7 -1.2 0.88 1.61 7.1 6.0 - 12.8% 1.4 36.8% Michael Nolan

ConstructionBLD Boral 2,480 Jun 11 3.45 4.04 4.04 17% Hold -29% -16% 173.5 203.1 275.3 0.8 24.0 28.1 38.0 -15.4% 17% 35% 29% 14.5 16.0 17.0 4.6% 100 12.3 9.1 0.4 1.15 0.93 12.5 6.6 0.8 6.1% 2.4 37.9% Andrew ScottCSR CSR Ltd 1,245 Mar 11 2.46 3.25 3.25 32% Buy -51% -38% 90.2 100.3 127.8 0.7 17.8 19.8 25.3 -25.2% 11% 27% 23% 41.7 15.7 19.0 6.4% 100 12.4 9.7 0.5 1.17 1.00 6.6 4.3 1.0 8.1% 0.2- -4.0% Andrew ScottFBU.NZ Fletcher Bldg 4,411 Jun 11 6.41 7.32 5.67 14% Hold -16% -4% 275.1 292.2 392.6 0.7 42.7 42.5 57.1 -18.8% -1% 34% 19% 33.0 35.0 37.0 5.5% 100 12.0 8.8 0.6 1.13 0.90 10.2 7.4 2.2 9.8% 2.2 47.7% Andrew ScottJHX James Hardie 2,484 Mar 11 5.70 6.78 6.83 19% Buy -16% -3% 123.4 126.3 165.0 0.8 28.2 29.7 39.9 -2.7% 5% 34% 23% 0.0 6.0 12.0 1.0% 0 18.5 13.4 0.8 1.74 1.38 13.1 9.8 - -29.2% 0.1- 3.3% Andrew Scott

Containers, Packaging & PaperAMC Amcor 8,762 Jun 11 7.15 7.54 7.54 5% Buy 6% 19% 570.3 659.2 741.1 0.8 46.5 53.7 60.4 -2.7% 15% 12% 14% 35.0 36.0 40.0 5.0% 0 13.3 11.8 0.9 1.25 1.21 10.5 7.4 4.5 17.5% 1.9 75.6% Andrew Scott

Diversified Financials ASX Aust Securities Exchang 5,157 Jun 11 30.16 31.77 31.77 5% Hold -20% -7% 356.6 385.9 424.8 0.9 204.0 219.3 239.2 -0.6% 7% 9% 7% 183.2 196.5 214.3 6.5% 100 13.8 12.6 1.9 1.29 1.29 9.4 9.0 7.2 12.7% 0.8- -13.6% Richard ColesCGF Challenger Financial Svc 2,250 Jun 11 4.45 5.10 5.10 15% Buy -5% 7% 248.0 275.4 300.6 4.8 48.1 51.2 53.4 2.4% 6% 4% 6% 16.5 18.5 19.5 4.2% 100 8.7 8.3 1.4 0.82 0.85 5.9 5.8 1.9 16.9% 0.4- -8.9% Richard ColesMQG Macquarie Group 7,847 Mar 11 22.53 31.00 31.00 38% Buy -39% -26% 956.0 942.8 1,116.8 n.a. 275.0 263.9 308.2 -16.0% -4% 17% 10% 186.0 186.0 190.0 8.3% 30 8.5 7.3 0.9 0.80 0.75 6.0 5.7 0.7 7.9% n.a. - Andrew LyonsPPT Perpetual 920 Jun 11 21.93 25.35 25.35 16% Hold -30% -17% 72.9 67.8 69.2 1.2 165.5 156.7 162.9 -13.8% -5% 4% 5% 185.0 146.0 152.0 6.7% 100 14.0 13.5 2.7 1.32 1.38 7.0 6.1 7.9 20.3% 0.6- -26.7% Richard ColesSUN Suncorp Group 10,614 Jun 11 8.25 9.87 9.87 20% Buy -4% 9% 637.6 1,073.9 1,231.6 n.a. 49.7 83.5 95.7 -1.7% 68% 15% 29% 35.0 50.1 57.4 6.1% 100 9.9 8.6 0.3 0.93 0.88 45.6 28.5 1.3 6.9% n.a. 386.3% Richard Coles

Food Beverage & TobaccoCCL C-C Amatil 9,080 Dec 10 12.01 13.43 13.43 12% Buy 11% 23% 506.6 543.5 600.0 0.9 67.3 71.7 78.8 -0.4% 7% 10% 9% 48.5 55.0 58.5 4.6% 100 16.8 15.2 1.8 1.37 1.43 11.7 9.4 19.6 28.8% 1.1 64.8% Michael NolanGFF Goodman Fielder 924 Jun 11 0.53 0.60 0.80 13% Hold -58% -45% 135.2 128.9 141.5 1.1 9.8 7.1 7.2 -34.6% -27% 2% -9% 7.8 5.7 5.8 10.8% 40 7.5 7.3 -0.8 0.70 0.75 6.1 4.8 28.5 8.9% 2.1 43.4% Michael Nolan

HealthcareANN Ansell 1,885 Jun 11 13.60 13.92 13.92 2% Hold 7% 20% 122.9 127.8 138.5 0.8 92.4 96.4 106.6 0.8% 4% 11% 12% 32.4 42.2 49.9 3.0% 0 13.6 11.9 1.2 1.28 1.22 12.6 10.5 12.8 22.7% 0.2 6.0% Dr Derek JellinekCOH Cochlear 3,281 Jun 11 57.98 63.05 63.05 9% Buy -28% -15% 180.1 139.1 183.2 1.0 316.1 244.0 321.4 -23.3% -23% 32% 9% 225.0 240.0 240.0 4.1% 100 23.8 18.0 2.6 2.24 1.85 16.5 14.5 19.1 30.7% 0.5 29.9% Dr Derek JellinekCSL CSL Ltd 15,825 Jun 11 30.00 29.31 29.31 -2% Hold -17% -5% 940.6 954.9 1,004.2 1.1 173.6 180.9 190.7 -2.3% 4% 5% 5% 80.0 81.0 88.0 2.7% 0 16.6 15.7 3.1 1.56 1.61 12.6 11.0 5.0 24.6% 0.2- -7.6% Dr Derek JellinekPRY Primary Health 1,624 Jun 11 3.30 2.84 2.84 -14% Hold -12% 0% 96.5 118.5 129.7 1.2 19.5 23.7 25.6 -2.7% 22% 8% 13% 8.0 18.0 20.0 5.5% 100 13.9 12.9 1.1 1.31 1.32 10.2 7.6 - 4.7% 3.0 41.6% Dr Derek JellinekRHC Ramsay Health 3,809 Jun 11 18.85 17.95 18.00 -5% Hold 6% 19% 204.7 227.7 252.1 1.2 101.1 112.4 124.4 -0.2% 11% 11% 11% 52.0 58.0 64.0 3.1% 100 16.8 15.2 1.5 1.58 1.55 11.0 8.3 14.8 20.4% 1.7 71.5% Dr Derek JellinekRMD ResMed Inc 4,504 Jun 11 2.95 2.98 2.99 1% Hold -15% -3% 229.9 212.7 223.7 0.8 14.6 13.9 15.0 -0.8% -5% 8% 7% 0.0 0.0 0.0 0.0% 0 20.4 18.3 3.0 1.91 1.87 15.3 11.7 3.1 13.1% 1.6- -32.1% Dr Derek JellinekSHL Sonic Health 4,214 Jun 11 10.85 13.12 13.13 21% Buy -6% 6% 294.5 308.0 338.1 1.0 75.5 78.6 86.3 -4.4% 4% 10% 8% 59.0 61.0 67.0 5.6% 32 13.8 12.6 1.7 1.30 1.29 11.4 9.1 - 12.1% 2.3 56.3% Dr Derek Jellinek

InfrastructureCEU ConnectEast 2,147 Jun 11 0.55 0.55 0.52 0% Hold 28% 41% -10.3 -13.5 5.5 0.7 -0.3 -0.3 0.1 - -24% - 25% 2.0 2.2 2.4 4.0% 0 - - - - 40.29 47.2 20.2 1.3 -0.8% 6.7 62.2% William AllottMAP MAp Airports 6,142 Dec 10 3.30 3.68 3.68 11% Buy 10% 23% 127.2 120.0 131.9 1.1 7.1 6.4 7.1 -42.8% -9% 10% 6% 33.5 21.0 21.0 6.4% 0 51.2 46.6 8.2 4.18 4.38 21.1 13.6 - 2.5% 6.0 95.7% William AllottTCL Transurban 7,824 Jun 11 5.42 5.90 5.90 9% Buy 6% 19% 112.5 110.6 187.8 0.9 7.9 7.7 13.0 16.5% -3% 70% 27% 27.0 29.5 32.0 5.4% 0 70.7 41.7 2.6 6.65 4.26 36.8 18.4 - 3.1% 6.4 115.2% William Allott

ITCPU Computershare 4,051 Jun 11 7.29 9.33 9.33 28% Buy -32% -20% 312.3 292.3 321.2 0.8 55.9 52.4 57.5 -5.8% -6% 10% 6% 28.0 28.0 32.0 3.7% 60 13.4 11.8 2.2 1.26 1.22 10.8 9.3 - 23.8% 1.6 63.4% Richard Coles

InsuranceAMP AMP Ltd 7,642 Dec 10 4.05 5.52 5.52 36% Buy -23% -11% 752.0 949.3 1,090.8 n.a. 35.9 36.0 38.6 -8.3% 0% 7% 6% 30.0 29.6 31.8 7.3% 60 11.3 10.5 1.9 0.99 1.07 - - 3.1 19.2% n.a. 169.5% Richard ColesIAG IAG 6,379 Jun 11 3.08 3.26 3.26 6% Hold -21% -8% 425.0 565.0 755.0 n.a. 20.4 27.2 36.3 -7.4% 33% 34% 26% 16.0 21.0 23.0 6.8% 100 11.3 8.5 0.4 1.12 0.90 22.0 22.0 2.4 12.0% n.a. 30.5% Richard ColesQBE QBE Insurance 15,361 Dec 10 13.77 16.91 16.91 23% Buy -24% -11% 1,447.0 1,422.5 1,695.0 n.a. 133.1 122.6 142.1 -10.7% -8% 16% 5% 121.2 132.0 140.7 9.3% 10 11.0 9.2 2.4 1.01 0.96 15.5 15.5 3.3 12.3% n.a. 42.9% Richard Coles

Source: Company data, RBS forecasts, RBS Morgans forecasts.* Share prices as at close of trading on 21 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 21 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)

EPS pre goodwill (c)B/SHEET ANALYSISDIVIDEND ANALYSIS

PE rel (pre goodwill)

PE (x) (pre goodwill)

21 October 2011VALUATION

DPS (c)EPS ANALYSIS

EPS growth (pre goodwill)

NPAT pre abnormals (A$m)

115



(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs.


IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)


Analyst






DPS (c)EPS ANALYSIS



Management and developmentLLC Lend Lease Corp 4,287 Jun 11 7.51 10.75 10.75 43% Buy -13% 0% 485.3 476.3 560.9 0.1- 90.3 87.7 102.5 -1.8% -3% 17% 10% 35.0 44.0 51.5 5.9% 70 8.6 7.3 0.9 0.81 0.75 8.2 7.3 1.6 12.8% 1.8 35.6% Andrew Hodge

MediaFXJ Fairfax Media 2,058 Jun 11 0.88 1.45 1.60 65% Buy -37% -24% 273.8 284.8 328.6 1.2 11.6 12.1 14.0 -9.3% 4% 15% 10% 3.0 3.6 7.0 4.2% 100 7.2 6.3 0.8 0.68 0.64 6.6 5.4 - 6.3% 2.1 27.6% Fraser McLeishNWS News Corp 43,618 Jun 11 16.61 19.70 23.97 19% Buy 4% 16% 2,929.6 3,187.4 3,413.0 1.1 111.3 128.9 147.5 12.2% 16% 14% 16% 17.0 18.7 20.6 1.1% 0 12.4 10.5 0.8 1.17 1.08 8.5 6.9 9.5 12.0% 0.6 15.5% Fraser McLeishTEN Ten Network 862 Aug 10 0.82 0.95 1.06 16% Hold -42% -29% 96.9 78.1 80.6 1.0 9.3 7.5 7.7 -16.4% -19% 3% 4% 11.0 5.0 5.8 6.1% 100 11.0 10.7 2.9 0.90 1.01 9.1 7.7 - 8.7% 2.4 46.8% Fraser McLeishSWM Seven West Media 2,181 Jun 11 3.35 3.47 4.77 4% Hold -48% -35% 115.1 281.3 293.6 1.0 37.5 41.9 41.8 -10.2% 12% 0% 5% 45.0 35.0 35.0 10.4% 100 8.0 8.0 1.5 0.75 0.82 7.2 6.4 - 10.8% 2.9 66.1% Fraser McLeish

Other Capital GoodsBLY Boart Longyear 1,374 Dec 10 2.98 4.03 3.40 35% Buy -35% -22% 91.8 142.4 178.7 0.3 20.1 31.3 39.3 3.0% 55% 26% 30% 5.5 9.8 12.8 3.2% 35 9.3 7.2 0.3 0.76 0.68 7.3 5.0 1.8 13.4% 0.9 25.6% Andrew HodgeLEI Leighton 6,919 Jun 11 20.56 20.67 20.67 1% Hold -32% -19% -107.7 609.7 672.2 1.8 -35.1 181.2 199.7 - - 10% 84% 60.0 116.0 128.0 5.6% 100 11.3 10.3 0.1 1.07 1.05 7.2 3.8 2.8 25.0% 0.1 6.5% Andrew HodgeUGL UGL 2,031 Jun 11 12.13 14.47 13.21 19% Buy -16% -3% 164.4 179.8 205.3 0.7 98.8 107.5 122.4 -6.2% 9% 14% 12% 70.0 75.0 85.0 6.2% 100 11.3 9.9 1.0 1.12 1.05 7.8 6.6 11.7 14.5% 0.3 7.2% Andrew Hodge

Real EstateWDC Westfield Group 17,442 Dec 10 7.55 8.69 8.69 15% Hold -21% -8% 1,745.7 1,482.4 1,575.7 1.0 75.7 64.2 68.2 -1.5% -15% 6% -2% 63.6 48.4 50.6 6.4% 0 11.8 11.1 -7.6 0.96 1.04 15.8 15.8 1.0 8.8% 7.0 79.9% Andrew HodgeGMG Goodman Group 4,437 Jun 11 0.60 0.81 0.76 35% Buy -8% 5% 383.9 476.3 527.9 0.8 5.3 6.2 6.6 -1.7% 17% 7% 9% 3.5 3.8 4.2 6.3% 0 9.7 9.1 1.1 0.91 0.93 17.6 17.4 1.2 10.2% 4.5 30.2% Andrew Hodge

RetailBBG Billabong 903 Jun 11 3.54 3.65 3.65 3% Hold -57% -44% 118.0 111.7 124.6 0.2 46.3 43.7 48.6 -23.0% -6% 11% 3% 29.0 29.0 31.0 8.2% 100 8.1 7.3 2.7 0.76 0.74 8.2 6.5 - 9.2% 2.3 40.6% Daniel BroerenDJS David Jones 1,591 Jul 11 3.16 2.95 2.95 -7% Hold -29% -16% 168.1 147.6 158.3 0.9 33.0 28.8 30.7 -17.4% -13% 7% -3% 28.0 24.0 27.0 7.6% 100 11.0 10.3 -3.8 1.03 1.05 8.0 6.5 2.2 19.0% 0.5 18.1% Daniel BroerenHVN Harvey Norman 2,357 Jun 11 2.21 2.60 2.60 18% Buy -25% -12% 242.0 243.7 270.7 1.1 22.8 22.9 25.5 -12.9% 1% 11% 8% 12.0 11.0 13.0 5.0% 100 9.6 8.7 1.2 0.91 0.89 6.8 5.4 1.0 10.8% 0.6 13.0% Daniel BroerenJBH JB Hi-Fi 1,407 Jun 11 14.25 17.25 17.25 21% Buy -20% -8% 134.4 137.7 155.6 0.7 120.2 138.4 155.1 -8.5% 15% 12% 12% 77.0 85.0 96.0 6.0% 100 10.3 9.2 0.9 0.97 0.94 7.6 6.5 12.2 79.4% 0.7 88.0% Daniel BroerenMTS Metcash 3,191 Apr 11 4.15 4.25 4.25 2% Hold 1% 14% 248.3 276.9 304.4 1.3 32.3 36.0 39.6 -0.3% 12% 10% 8% 27.0 29.0 32.0 7.0% 100 11.5 10.5 1.4 1.08 1.07 8.1 7.2 218.4 19.9% 1.2 44.2% Daniel BroerenMYR Myer 1,394 Jul 11 2.39 2.55 2.55 7% Buy -33% -20% 163.2 142.0 160.7 1.0 28.0 24.3 27.6 -14.9% -13% 13% 2% 22.5 20.0 22.5 8.4% 100 9.8 8.7 4.0 0.92 0.89 7.7 5.6 - 16.9% 1.3 50.8% Daniel BroerenWES Wesfarmers 35,997 Jun 11 31.00 29.45 29.45 -5% Hold -3% 10% 1,870.0 2,370.4 2,787.9 1.0 161.6 203.1 234.6 -4.9% 26% 16% 18% 150.0 180.0 200.0 5.8% 100 15.3 13.2 0.9 1.44 1.35 10.3 8.3 6.0 9.1% 0.9 16.8% Daniel BroerenWOW Woolworths 29,709 Jun 11 24.06 29.10 29.10 21% Buy -11% 2% 2,124.0 2,224.8 2,471.8 1.0 171.5 179.7 199.6 -6.2% 5% 11% 9% 122.0 131.0 141.0 5.4% 100 13.4 12.1 1.5 1.26 1.23 9.9 7.7 10.2 28.2% 0.9 47.9% Daniel Broeren

Telecommunication Services TLS Telstra 39,071 Jun 11 3.14 3.50 3.50 11% Buy 13% 25% 3,231.0 3,551.0 3,666.1 1.0 25.9 28.5 29.4 4.3% 10% 3% 5% 28.0 28.0 28.0 8.9% 100 11.0 10.7 2.1 1.04 1.09 8.7 5.0 7.8 29.3% 1.3 107.3% Fraser McLeish

TransportationAIO Asciano Group 4,331 Jun 11 1.48 1.91 2.06 29% Buy -8% 5% 189.9 268.3 353.4 1.2 6.5 9.2 12.1 2.3% 41% 32% 30% 2.0 3.0 3.5 2.0% 0 16.1 12.3 0.5 1.52 1.25 10.8 7.4 6.6 8.1% 2.7 71.4% Mark WilliamsQAN Qantas Airways 3,364 Jun 11 1.49 1.68 2.55 13% Hold -41% -29% 416.0 507.4 642.8 1.1 18.4 22.4 28.1 -2.7% 22% 26% 25% 0.0 6.0 9.0 4.0% 100 6.6 5.3 0.3 0.62 0.54 7.9 3.0 0.6 8.0% 1.5 49.1% Mark WilliamsQRN QR National 7,710 Jun 11 3.16 3.35 3.45 6% Hold 15% 28% 172.4 390.6 459.5 0.9 7.1 16.0 18.8 4.8% 127% 18% 40% 3.7 8.3 8.6 2.6% 0 19.7 16.8 0.5 1.86 1.72 15.3 8.3 1.1 5.5% 1.5 22.8% Mark WilliamsTOL Toll Holdings 3,274 Jun 11 4.61 5.42 5.49 17% Buy -20% -7% 269.0 309.4 356.9 1.1 38.1 42.7 48.6 -7.6% 12% 14% 13% 25.0 27.0 31.0 5.9% 100 10.8 9.5 0.9 1.02 0.97 9.7 6.2 3.0 10.8% 1.8 43.4% Mark Williams

Utilities AGK AGL Energy 6,740 Jun 11 14.61 16.55 16.55 13% Buy -4% 9% 431.1 479.1 529.7 1.0 94.4 103.4 113.6 0.7% 10% 10% 10% 60.0 64.0 68.0 4.4% 100 14.1 12.9 1.4 1.33 1.32 10.6 8.8 2.0 7.4% 1.1 15.0% Jason Mabee, CFAAPA APA Group 2,704 Jun 11 4.23 4.80 - 13% Buy 4% 17% 108.5 117.4 132.9 1.5 19.7 18.2 20.1 -11.1% -7% 10% 4% 34.4 35.4 36.5 8.4% 0 23.2 21.1 6.4 2.18 2.16 13.3 10.4 3.2 7.3% 5.4 189.2% Jason Mabee, CFADUE DUET 1,801 Jun 11 1.65 2.00 2.00 21% Buy -1% 12% 124.9 90.7 89.0 1.1 14.1 9.2 8.1 -19.9% -35% -11% -17% 20.0 16.0 16.5 9.7% 0 18.0 20.4 -1.1 1.70 2.08 12.3 9.1 - 6.5% 6.8 292.3% William AllottSKI Spark Infra 1,605 Dec 10 1.21 1.35 1.35 12% Hold 7% 20% 78.4 153.0 165.2 0.6 6.7 11.5 12.4 -0.8% 73% 8% 23% 13.5 9.5 9.7 7.9% 0 10.5 9.7 0.4 0.86 0.91 10.1 10.1 1.1 10.7% 3.8 67.6% William Allott

Source: Company data, RBS forecasts, RBS Morgans forecasts* Share prices as at close of trading on 21 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 21 October 2011. Financial forecasts in NZD.* Earnings Quality: Net Operating Cash Flow/(Net Profit + Depreciation & Amortisation)

116



(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs.


IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)


Analyst






DPS (c)EPS ANALYSIS



Aluminium & SteelAWC Alumina 3,306 Dec 10 1.36 2.21 2.21 63% Buy -45% -32% 39.9 144.2 129.3 5.5 1.6 5.9 5.3 -40.7% 262% -10% 86% 6.0 6.0 6.0 4.3% 100 22.4 24.2 0.3 1.83 2.28 21.0 21.0 1.0 4.8% 2.4 13.3% Lyndon FaganBSL BlueScope Steel 1,529 Jun 11 0.83 0.94 1.26 14% Buy -63% -50% -113.8 -68.9 94.4 0.1 -6.2 -3.8 5.1 -55.9% 65% - 15% 2.0 0.0 2.6 0.0% 100 - 16.1 - - 1.65 235.6 8.8 0.5 -1.7% 3.9 32.4% Todd ScottOST OneSteel 1,653 Jun 11 1.24 2.10 2.10 69% Buy -52% -39% 235.0 275.4 285.1 1.0 17.6 20.6 21.4 -15.6% 17% 4% 19% 10.0 8.2 10.7 6.7% 50 6.0 5.8 0.3 0.56 0.59 6.5 4.8 0.8 6.0% 2.7 44.4% Todd ScottSGM Sims Metal Mgt 2,748 Jun 11 13.38 19.10 19.10 43% Buy -38% -25% 182.0 279.6 364.1 0.5 88.9 136.1 177.3 -5.6% 53% 30% 32% 47.0 68.0 88.6 5.1% 45 9.8 7.5 0.3 0.92 0.77 6.5 5.1 1.4 9.3% 0.2 4.1% Todd Scott

EnergyOSH Oil Search 7,641 Dec 10 5.88 7.50 7.50 28% Buy -16% -4% 156.6 178.4 144.4 2.1 11.9 13.5 10.8 -6.2% 13% -20% -11% 4.0 4.0 4.0 0.7% 0 42.7 51.6 -3.8 3.49 4.85 22.7 20.1 2.7 6.5% 2.0 29.4% Jason Mabee, CFAORG Origin Energy 14,970 Jun 11 14.05 16.50 18.35 17% Buy -13% -1% 673.0 911.4 1,038.6 0.7 71.0 84.1 92.5 -5.1% 18% 10% 11% 50.0 52.0 56.0 3.7% 100 16.7 15.2 1.5 1.57 1.55 11.7 8.4 2.2 7.3% 2.0 33.3% Jason Mabee, CFAPDN Paladin 1,205 Jun 11 1.55 1.87 1.87 21% Buy -69% -56% -59.5 -22.1 24.1 2.3 -8.0 -2.8 3.1 -57.2% 182% - 4% 0.0 0.0 0.0 0.0% 0 - 46.8 - - 4.78 69.0 26.2 1.0 -1.8% 9.6 52.3% Lyndon FaganSTO Santos 11,528 Dec 10 12.12 15.00 15.00 24% Buy -8% 5% 356.1 520.5 573.7 1.5 50.3 61.0 62.8 -4.7% 21% 3% 11% 30.0 30.0 31.0 2.5% 100 19.9 19.3 1.9 1.62 1.81 12.9 7.6 1.4 6.5% 0.0- -0.1% Jason Mabee, CFAWPL Woodside 26,757 Dec 10 33.38 46.00 46.00 38% Buy -22% -9% 1,540.5 1,722.7 1,934.5 1.0 201.1 214.9 235.8 -5.1% 7% 10% 6% 105.0 110.0 130.0 3.2% 100 15.2 13.4 2.5 1.24 1.26 12.4 10.2 2.1 14.8% 1.5 36.6% Jason Mabee, CFAWOR WorleyParsons 6,830 Jun 11 27.80 26.60 21.81 -4% Hold 4% 17% 321.6 377.7 443.5 0.7 130.0 152.4 178.9 0.7% 17% 17% 17% 86.0 93.0 113.0 3.3% 55 18.2 15.5 1.1 1.88 1.65 13.1 11.8 21.8 18.6% 0.6 19.3% Andrew Hodge

Diversified Metals & MiningBHP BHP Billiton 190,051 Jun 11 35.70 50.53 50.53 42% Buy -21% -8% 21,889.8 23,567.8 24,287.9 1.2 411.2 446.9 460.6 -7.5% 9% 3% 6% 101.0 116.0 124.0 3.2% 100 7.7 7.2 1.2 0.72 0.74 5.5 4.7 2.6 38.4% 0.4 21.6% Lyndon FaganFMG Fortescue Meta 13,232 Jun 11 4.25 8.01 8.01 88% Buy -35% -22% 1,649.2 2,038.1 1,699.6 1.6 53.0 65.5 54.6 -10.4% 24% -17% 16% 6.9 8.0 8.0 1.8% 0 6.2 7.3 0.4 0.59 0.74 5.4 5.1 2.9 61.1% 1.5 124.3% Lyndon FaganILU Iluka Resources 6,335 Dec 10 15.13 19.00 19.00 26% Buy 66% 78% 36.1 476.8 1,092.2 0.7 8.6 113.9 260.9 10.8% 1221% 129% - 8.0 50.0 105.0 3.3% 100 13.3 5.8 - 1.09 0.55 8.9 6.9 3.7 33.3% 0.2- -10.8% Sam BerridgeLYC Lynas 1,876 Jun 11 1.10 2.19 2.19 99% Buy -47% -34% -22.4 95.4 1,078.9 0.9 -1.3 5.6 63.0 -35.5% - 1031% - 0.0 0.0 0.0 0.0% 0 19.7 1.7 - 1.85 0.18 16.0 12.7 2.5 13.9% 0.9- -16.3% Sam BerridgeMCC Macarthur Coa 4,900 Jun 11 16.22 16.00 12.88 -1% Hold 27% 39% 241.4 255.8 283.9 0.1 79.9 84.7 94.0 -12.0% 6% 11% 11% 40.0 42.3 47.0 2.6% 100 19.2 17.3 1.8 1.80 1.77 13.3 11.9 2.5 13.7% 0.9- -17.9% Tom SartorOZL OZ Minerals 3,491 Dec 10 10.78 14.10 14.10 31% Buy -37% -25% 398.2 320.1 324.6 1.1 127.6 103.4 104.9 -18.7% -19% 1% -3% 190.0 49.0 47.2 4.5% 0 10.4 10.3 -3.3 0.85 0.97 6.6 4.7 1.3 10.8% 1.2- -27.4% Lyndon FaganPNA PanAust 1,687 Dec 10 2.84 4.14 4.14 46% Buy -36% -23% 173.9 166.0 264.2 1.2 5.9 27.5 43.2 -14.1% 369% 57% - 0.0 0.0 1.0 0.0% 0 10.1 6.2 - 0.82 0.59 6.7 5.5 2.2 24.3% 0.3- -8.6% Tom SartorRIO Rio Tinto 119,896 Dec 10 62.57 109.09 109.09 74% Buy -27% -14% 15,195.0 16,877.2 17,968.9 1.0 770.3 902.6 974.0 -9.9% 17% 8% 8% 108.0 119.0 125.5 1.9% 100 6.8 6.1 0.8 0.55 0.57 5.6 4.9 2.5 27.2% 0.2 8.4% Lyndon Fagan

Gold & Precious MetalsNCM Newcrest Mining 25,480 Jun 11 33.30 42.33 30.23 27% Buy -18% -5% 908.0 1,721.4 1,939.3 1.4 118.7 225.0 253.4 4.5% 90% 13% 35% 18.0 45.0 51.0 1.4% 100 14.8 13.1 0.4 1.39 1.34 10.1 8.3 1.6 11.7% 0.2 3.7% Sam Berridge

Exchange Gold Oil Zinc Nickelrate WTI LME LME coking steaming lump fines

(A$/US$) (US$/oz) (US$/bbl) (US$/lb) (US$/lb) (US$/t) (US$/t) (US$/t) (US$/t)

FY10 0.88 1092 77.2 0.94 8.79 146.0 76.3 86.4 73.7CY10 0.92 1223 82.6 0.98 9.89 190.5 90.0 219.9 118.1FY11 0.99 1370 93.2 1.02 10.87 247.3 108.3 279.3 154.1CY11 1.04 1637 94.4 1.05 10.92 287.5 120.0 219.9 162.9FY12 1.06 1838 87.8 1.04 10.41 301.3 118.8 281.0 161.8CY12 1.08 1750 91.0 1.10 11.00 305.0 116.3 219.9 153.2FY13 1.10 1600 94.3 1.18 11.95 290.0 112.5 252.9 145.4CY13 1.08 1525 96.0 1.33 12.98 270.0 107.5 219.9 137.9LT (2015+) 0.75 1100 90.0 1.00 8.50 180.0 100.0 151.5 84.8

Source: Company data, RBS forecasts, RBS Morgans forecasts.Share prices as at close of trading on 21 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)

4.65 1.254.86 1.353.00 1.15

0.910.991.081.151.151.19

3.934.254.334.50

(US$/lb)

3.033.42

(US$/lb)

AluminiumCopper LME

Iron oreLME

Coal

117

RBS Ex-100 Earnings ForecastsB/SHEET ANALYSIS


(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs. YTD -Rel.

Earnings Quality *

IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)


Gearing (Tier 1 ratio for banks)

Analyst


ChemicalsDLX Duluxgroup 963 Sep 10 2.62 3.13 3.13 19% Buy -5% 8% 71.5 79.1 80.9 1.5 19.5 21.5 22.0 -1.1% 11% 2% 6% 3.0 15.0 16.0 5.7% 100 12.2 11.9 2.2 0.99 1.12 8.6 7.4 29.6 77.3% 1.2 161.5% Julian GuidoNUF Nufarm 1,165 Jul 11 4.45 5.05 5.05 13% Buy -13% -1% 86.1 101.9 118.5 1.0 32.9 38.9 45.3 -9.4% 18% 16% 15% 0.0 11.7 13.6 2.6% 50 11.4 9.8 0.8 1.08 1.01 7.5 5.7 1.3 6.4% 1.6 27.4% Andrew Scott

Commercial Services & Supplies CAB Cabcharge 530 Jun 11 4.40 6.63 6.63 51% Buy -25% -12% 65.6 66.0 70.6 0.3 54.5 54.8 58.7 -2.0% 0% 7% 4% 30.0 37.5 38.0 8.5% 100 8.0 7.5 1.8 0.76 0.77 8.8 7.2 2.1 20.8% 1.3 34.7% Julian GuidoCPB Campbell Bros 3,024 Mar 11 44.80 44.77 44.77 0% Hold 13% 26% 132.1 176.3 199.6 0.9 202.4 261.1 295.7 7.1% 29% 13% 14% 140.0 157.0 177.0 3.5% 50 17.2 15.1 1.2 1.61 1.55 12.4 10.4 7.7 20.5% 1.0 36.5% Roger LeaningCND Clarius Group 44 Jun 11 0.51 0.65 0.65 26% Hold -28% -15% 4.7 6.9 8.2 1.6 5.4 8.0 9.4 - 48% 18% 23% 4.0 5.5 6.5 10.8% 100 6.4 5.4 0.3 0.60 0.55 3.7 3.5 2.0 7.7% 0.4- -5.3% Matthew NicholasCLQ Clean TeQ 3 Jun 10 0.05 0.30 0.30 492% Buy -44% -32% 1.3 1.3 1.7 1.1 1.8 2.1 2.7 - 20% 29% 24% 0.0 0.0 0.0 0.0% 0 5.0 3.9 0.2 0.17 0.16 -1.2 -0.8 1.3 8.5% 1.7- -29.1% Roger LeaningCOF Coffey 91 Jun 11 0.38 0.46 0.46 21% Hold -61% -48% 4.8 17.6 25.9 0.6 3.5 7.4 10.8 -24.1% 107% 47% 50% 0.0 0.0 3.0 0.0% 100 5.2 3.5 0.1 0.49 0.36 4.3 3.5 3.5 11.7% 1.5 37.9% Roger LeaningCUS Customers 145 Jun 11 1.08 1.68 1.68 56% Buy -41% -29% 21.5 17.0 23.8 1.1 15.9 12.6 17.7 -2.4% -20% 40% 9% 5.0 6.5 10.2 6.1% 0 8.5 6.1 1.0 0.80 0.62 6.0 3.7 10.3 9.9% 0.6 16.9% Julian GuidoCLH Collection Hse 73 Jun 11 0.75 0.87 0.87 16% Hold 10% 23% 10.1 11.3 12.7 1.0 10.3 11.6 12.9 - 12% 11% 13% 6.2 6.9 7.7 9.3% 100 6.4 5.8 0.5 0.61 0.59 7.1 2.5 0.9 11.5% 1.3 87.6% Scott MurdochDCG Decmil Group 267 Jun 11 2.15 2.51 2.51 17% Buy -19% -7% 23.5 26.4 29.8 1.1 18.9 21.2 24.0 -14.5% 12% 13% 12% 6.0 7.0 8.0 3.3% 0 10.1 9.0 0.8 0.95 0.92 5.2 4.7 3.2 21.4% 1.8- -56.7% Alexandra ClarkeMIN Mineral Resources 1,911 Jun 11 10.40 11.50 11.50 11% Hold -16% -3% 151.0 184.6 205.6 0.7 89.8 101.8 113.4 1.9% 13% 11% 6% 42.0 51.0 55.9 4.9% 0 10.2 9.2 1.6 0.96 0.94 7.0 5.7 2.7 27.0% 0.1- -4.1% Todd ScottPRG Programmed Group 236 Mar 11 2.00 2.14 2.14 7% Hold 16% 28% 28.6 29.1 33.7 0.1 24.2 24.7 28.5 1.2% 2% 16% 9% 9.0 11.0 13.0 5.5% 100 8.1 7.0 0.9 0.76 0.72 6.0 5.1 2.0 8.1% 1.5 27.9% Julian GuidoRUL Runge 48 Jun 11 0.39 0.64 0.64 64% Buy -30% -18% 4.9 6.4 6.7 0.7 3.9 5.2 5.4 - 31% 4% 12% 2.0 4.0 4.0 10.3% 100 7.5 7.2 0.6 0.71 0.74 4.0 3.1 2.8 13.3% 0.5- -13.2% Roger LeaningSAI SAI Global 943 Jun 11 4.73 5.20 5.20 10% Buy -3% 10% 57.8 66.4 77.9 0.8 29.8 33.3 39.0 -3.8% 12% 17% 16% 14.3 16.3 20.3 3.4% 100 14.2 12.1 0.9 1.34 1.24 11.1 9.9 - 20.1% 1.3 39.1% Julian GuidoSLM Salmat 422 Jun 11 2.65 4.49 4.49 69% Buy -39% -27% 51.6 60.7 68.2 0.5 32.4 37.9 42.6 -9.2% 17% 12% 11% 24.0 27.1 31.2 10.2% 100 7.0 6.2 0.6 0.78 0.75 6.2 4.9 - 18.0% 1.7 75.5% Julian GuidoSKE Skilled Group 418 Jun 11 1.79 2.30 2.30 28% Buy -2% 11% 26.1 43.8 51.9 1.0 12.5 18.3 21.7 0.1% 47% 18% 27% 3.0 7.0 13.0 3.9% 100 9.8 8.3 0.4 0.95 0.86 7.2 5.9 7.4 9.8% 1.1 22.0% Julian GuidoSPT Spotless Group 524 Jun 11 2.00 2.25 2.25 13% Hold -5% 8% 43.1 52.0 58.8 0.7 16.5 19.8 22.3 -8.2% 20% 13% 13% 11.0 13.0 14.5 6.5% 40 10.1 8.9 0.8 0.95 0.91 7.1 4.1 - 11.3% 1.2 45.8% Julian GuidoTOX Tox Free 219 Jun 11 2.28 2.44 2.44 7% Buy 7% 20% 13.1 18.1 19.1 0.9 13.9 18.3 18.8 3.6% 32% 3% 13% 3.0 4.0 4.0 1.8% 100 12.4 12.1 1.0 1.17 1.24 8.7 5.9 2.4 16.0% 0.5 16.1% Alexandra ClarkeTPI Transpacific Industries 634 Jun 11 0.66 0.80 1.60 21% Hold -51% -39% 50.0 48.9 72.3 1.1 4.4 4.3 6.5 -2.3% -2% 51% 16% 0.0 0.0 0.0 0.0% 100 15.2 10.1 1.0 1.43 1.03 7.3 4.3 - 3.1% 2.9 71.4% Roger LeaningTWO Talent2 167 Jun 11 1.15 1.70 1.70 47% Buy -24% -12% 13.8 16.9 21.9 0.5 9.7 11.5 14.7 -16.9% 19% 27% 21% 5.5 6.0 7.0 5.2% 50 10.0 7.9 0.5 0.94 0.81 8.0 5.3 8.4 10.8% 0.1 1.9% Matthew NicholasWLL Wellcom Group 87 Jun 11 2.23 2.74 2.74 23% Buy 2% 15% 9.1 9.8 10.4 1.1 23.3 24.9 26.6 - 7% 7% 6% 16.5 17.5 18.6 7.8% 100 8.9 8.4 1.5 0.84 0.86 5.2 4.6 3.7 18.0% 1.3- -34.2% Josephine Little

ConstructionABC Adel Brighton 1,810 Dec 10 2.85 3.16 3.16 11% Buy -14% -1% 151.5 153.1 165.5 0.9 23.9 24.1 26.1 -2.9% 1% 8% 9% 21.5 19.0 23.6 6.7% 100 11.8 10.9 1.3 0.97 1.03 10.5 8.2 2.3 16.2% 0.8 21.2% Andrew ScottBKW Brickworks 1,638 Jul 11 11.10 10.13 10.13 -9% Hold -1% 12% 100.8 111.4 128.0 0.7 68.3 75.5 86.8 -25.9% 10% 15% 8% 40.5 42.5 44.5 3.8% 100 14.7 12.8 1.8 1.38 1.31 23.1 17.2 1.1 6.5% 2.1 13.2% Alexandra ClarkeCLO Clough 602 Jun 11 0.78 0.92 0.92 18% Buy 4% 17% 53.6 58.6 64.0 0.7- 6.7 7.4 8.0 -2.9% 9% 9% 8% 3.0 3.0 3.0 3.8% 0 10.6 9.7 1.4 1.00 0.99 7.9 7.5 1.9 18.2% 3.6- -58.7% Alexandra ClarkeEAL E&A 20 Jun 10 0.21 0.18 0.18 -15% Hold 5% 18% 2.5 3.1 4.2 1.3 2.7 3.2 4.4 - 21% 36% 23% 1.5 1.5 1.5 7.1% 0 6.5 4.8 0.3 0.53 0.45 6.4 5.3 - 5.9% 2.8 41.7% Alexandra ClarkeMAH Macmahon 448 Jun 11 0.61 0.64 0.64 5% Hold 17% 30% 1.0 42.8 45.7 1.0 0.2 5.8 6.1 11.2% 2453% 7% - 0.0 3.0 3.0 4.9% 100 10.6 9.9 - 1.00 1.02 6.7 3.6 1.4 12.6% 0.2 6.1% Scott MurdochMND Monadelphous 1,651 Jun 11 18.85 23.09 23.09 22% Buy 3% 16% 96.3 114.5 135.1 0.7 110.2 130.3 153.2 2.4% 18% 18% 17% 95.0 112.0 130.0 5.9% 100 14.5 12.3 0.9 1.36 1.26 9.4 8.3 7.8 55.7% 0.9- -74.6% Andrew HodgeNWH NRW Holdings 630 Jun 11 2.26 3.08 3.08 36% Buy 5% 17% 41.2 68.0 78.4 1.1 16.1 24.4 28.1 12.3% 52% 15% 24% 9.0 13.0 15.0 5.8% 0 9.3 8.0 0.4 0.87 0.82 6.4 4.1 2.2 23.7% 0.4 20.5% Scott Murdoch

Consumer productsGUD GUD Holdings 520 Jun 11 7.52 9.00 9.00 20% Buy -25% -12% 49.0 49.7 55.3 1.0 71.7 71.6 79.5 -8.5% 0% 11% 6% 64.0 64.0 70.0 8.5% 100 10.5 9.5 1.6 0.99 0.97 7.7 6.3 5.5 18.9% 0.9 32.3% Matthew NicholasMCP McPherson's 168 Jun 11 2.32 3.17 3.17 37% Hold -26% -14% 28.0 28.5 29.5 1.1 39.0 39.7 41.1 -9.2% 2% 4% 3% 26.0 26.0 27.0 11.2% 100 5.8 5.6 1.9 0.55 0.58 4.6 4.1 5.4 13.8% 0.9 21.6% Josephine LittleSYM Symex 49 Jun 11 0.36 0.53 0.53 47% Buy -31% -18% 10.0 12.3 12.8 0.2 7.3 6.5 6.8 - -11% 4% -1% 2.5 3.0 3.4 8.3% 100 5.5 5.3 -4.4 0.52 0.54 4.7 4.2 2.6 11.0% 2.3 52.5% Josephine Little

Diversified Financials BTT BT Investment Mgt 320 Sep 10 2.00 3.02 3.02 51% Buy -30% -17% 30.9 32.7 35.9 0.7 19.3 20.4 22.4 -16.7% 6% 10% 8% 28.0 17.5 20.0 8.7% 100 9.8 8.9 1.2 0.80 0.84 5.5 5.5 6.0 11.5% 1.4- -22.9% Julian GuidoEQT Equity Trustees 107 Jun 11 12.46 13.17 14.63 6% Hold -21% -8% 7.8 9.2 10.0 1.0 91.7 106.9 114.3 -6.7% 17% 7% 10% 100.0 96.0 100.0 7.7% 100 11.7 10.9 1.1 1.10 1.12 7.6 7.1 6.8 16.5% 0.4- -11.1% Scott MurdochHGG Henderson Group 1,936 Dec 10 1.80 2.72 2.72 51% Buy -13% -1% 142.1 185.9 224.7 1.3 16.7 18.0 20.5 -10.1% 8% 14% 12% 6.5 7.2 9.2 6.1% 0 9.9 8.5 0.8 0.91 0.88 7.6 7.5 - 20.9% 0.0- -0.8% Julian GuidoIMF IMF Aust 199 Jun 11 1.47 2.17 2.17 48% Buy 1% 14% 22.9 36.4 27.5 0.6- 16.8 29.2 22.0 6.1% 74% -25% 0% 15.0 32.0 18.4 21.8% 100 5.0 6.7 -17.2 0.47 0.68 3.1 3.1 3.7 37.1% 0.8- -37.7% Julian GuidoIFL IOOF Holdings 1,386 Jun 11 6.03 7.50 7.50 24% Buy -23% -10% 111.5 120.2 130.7 1.2 48.1 51.6 55.8 -7.7% 7% 8% 7% 43.0 47.0 50.0 7.8% 0 11.7 10.8 1.6 1.10 1.10 7.6 7.4 9.1 13.5% 1.1- -20.4% Julian GuidoMOC Mortgage Choice 150 Jun 11 1.26 1.38 1.38 10% Hold -5% 7% 15.9 16.2 16.8 0.8 13.2 13.4 13.9 10.0% 2% 4% 4% 13.0 13.4 13.9 10.6% 100 9.4 9.0 2.3 0.88 0.92 4.9 4.7 1.7 17.9% 1.5- -40.6% Julian GuidoPTM Platinum Asset Mgt 2,188 Jun 10 3.90 5.25 5.25 35% Hold -22% -9% 155.0 190.5 211.2 1.3 26.6 32.4 35.9 -6.6% 22% 11% 13% 23.5 27.5 30.5 7.1% 100 12.0 10.9 0.9 0.98 1.02 6.9 6.9 6.0 63.3% 1.4- -96.7% Julian GuidoTRU The Trust Company 181 Feb 11 5.60 5.41 5.41 -3% Hold -11% 2% 12.4 12.1 13.1 0.8 38.4 36.7 38.7 -3.4% -4% 5% 2% 35.0 35.0 36.0 6.3% 100 15.3 14.5 6.2 1.44 1.48 10.3 9.2 4.7 10.9% 0.1- -2.7% Scott MurdochTSM ThinkSmart 58 Dec 10 0.44 1.00 1.00 127% Buy -40% -27% 8.9 8.7 12.0 0.5 8.3 6.6 9.1 - -20% 38% 17% 3.5 3.5 4.8 8.0% 0 6.6 4.8 0.4 0.54 0.45 4.3 3.8 1.7 19.7% 0.2- -8.5% Matthew NicholasSOL WH Soul Pattinson & Co 3,267 Jul 11 13.69 16.06 20.07 17% Buy 9% 21% 161.2 226.3 215.6 1.1 67.5 94.8 90.3 -7.1% 40% -5% 7% 40.0 46.0 52.0 3.4% 100 14.4 15.2 2.0 1.36 1.55 4.8 4.0 1.1 7.9% 8.2- -53.4% Roger LeaningWHG WHK Group 224 Jun 11 0.83 1.15 1.15 39% Buy -23% -10% 25.8 29.6 32.8 1.1 9.6 11.0 12.2 -2.5% 14% 11% 10% 7.0 7.6 8.6 9.1% 100 7.6 6.9 0.8 0.71 0.70 5.8 5.0 4.9 10.5% 0.8 14.2% Julian Guido

Consumer ServicesALL Aristocrat 1,176 Dec 10 2.16 2.60 2.60 20% Buy -28% -15% 54.4 56.6 94.6 1.8- 10.2 10.5 17.4 -6.1% 3% 66% 28% 5.0 5.4 8.7 2.5% 0 20.6 12.4 0.7 1.68 1.17 15.4 11.0 8.9 26.7% 1.8 102.8% Michael NolanCTD Corp Trave 136 Jun 11 1.90 2.50 2.50 32% Buy 12% 24% 8.6 12.0 14.8 1.3 14.0 16.9 20.7 - 20% 23% 19% 5.0 8.4 10.3 4.4% 100 11.3 9.2 0.6 1.06 0.94 7.4 6.8 38.0 28.6% 0.5- -22.0% Belinda MooreDMP Domino's Pizza 446 Jun 11 6.52 7.00 7.00 7% Buy 4% 17% 21.4 25.0 27.7 1.2 31.3 36.6 40.4 5.7% 17% 11% 14% 21.9 25.6 28.3 3.9% 100 17.8 16.1 1.3 1.68 1.65 12.2 9.4 6.8 22.9% 0.4- -14.3% Josephine LittleFWD Fleetwood 675 Jun 11 11.79 13.56 15.05 15% Buy -9% 3% 52.1 58.2 64.0 0.8 90.0 100.6 109.7 4.2% 12% 9% 8% 73.0 86.0 93.0 7.3% 100 11.7 10.7 1.4 1.10 1.10 8.0 6.8 4.5 27.4% 0.0- -1.0% Alexandra ClarkeFLT Flight Centre 1,779 Jun 11 17.80 25.10 25.10 41% Buy -28% -15% 170.7 188.0 204.0 0.7 169.6 186.8 202.7 3.3% 10% 9% 9% 84.0 93.4 101.4 5.2% 100 9.5 8.8 1.1 0.90 0.90 5.8 4.9 3.6 23.9% 0.8- -30.8% Belinda MooreIVC Invocare 751 Dec 10 6.91 7.60 7.60 10% Hold -5% 8% 34.1 40.4 46.7 1.0 33.6 38.9 43.1 0.4% 16% 11% 12% 28.3 31.3 36.0 4.5% 100 17.8 16.0 1.5 1.45 1.51 13.4 11.5 32.9 40.4% 2.6 209.7% Julian GuidoJET Jetset 338 Jun 11 0.77 1.16 1.16 51% Buy -14% -2% 25.6 35.5 38.5 1.6 6.6 8.1 8.8 -2.0% 22% 9% 12% 3.0 3.8 4.4 4.9% 100 9.5 8.8 0.8 0.90 0.90 6.0 5.1 14.4 8.0% 0.2- -3.4% Belinda MooreNVT Navitas 1,456 Jun 11 3.88 4.12 4.12 6% Hold 1% 13% 76.0 88.0 103.8 0.8 21.3 23.4 27.6 -2.7% 10% 18% 14% 20.7 23.5 27.6 6.1% 100 16.5 14.0 1.2 1.56 1.44 11.9 10.7 - 36.3% 0.7 44.7% Julian GuidoSGH Slater & Gordon 276 Jun 11 1.81 2.50 2.50 38% Buy -10% 3% 27.9 37.3 41.2 0.7 18.3 23.6 25.5 -5.1% 29% 8% 16% 5.5 7.5 8.6 4.1% 0 7.7 7.1 0.5 0.72 0.73 5.5 5.2 1.8 17.8% 0.7 20.6% Julian GuidoWEB Webjet 172 Jun 11 2.29 2.50 2.50 9% Buy -5% 8% 11.3 12.6 14.0 1.3 14.5 17.0 19.5 2.5% 17% 15% 14% 11.0 12.4 13.7 5.4% 100 13.4 11.7 0.9 1.26 1.20 8.8 8.5 6.5 34.1% 2.2- -105.2% Belinda Moore

Source: Company data, RBS forecasts, RBS Morgans forecasts.* Share prices as at close of trading on 21 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)

VALUATIONDPS (c)

EPS ANALYSISEPS growth

(pre goodwill)

DIVIDEND ANALYSISPE rel

(pre goodwill)PE (x)

(pre goodwill)

21 October 2011

EPS pre goodwill (c)NPAT pre abnormals (A$m)

118



(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs. YTD -Rel.

Earnings Quality *

IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)



Analyst


VALUATIONDPS (c)


(pre goodwill)



(pre goodwill)

21 October 2011


Food Beverage & TobaccoAAC Aust Agricultural Co 435 Dec 10 1.39 1.55 2.07 12% Hold -2% 11% 0.9 7.2 9.6 5.0- 0.3 2.5 3.1 2.4% 627% 23% - 0.0 0.0 0.0 0.0% 0 56.1 45.4 - 4.58 4.27 18.2 15.0 0.6 1.1% 6.0 42.8% Belinda MooreELD Elders 121 Sep 10 0.27 0.31 0.31 15% Hold -53% -41% 3.0 3.6 8.8 3.8- 0.7 0.8 2.0 -36.6% 12% 148% 88% 0.0 0.0 0.0 0.0% 0 34.1 13.7 0.4 2.79 1.29 12.6 7.5 0.2 0.4% 5.5 44.7% Belinda MooreGNC GrainCorp 1,573 Sep 10 7.93 9.25 9.25 17% Buy 20% 33% 80.2 167.0 163.5 0.7 39.4 83.1 82.5 1.5% 111% -1% 19% 30.0 41.5 41.2 5.2% 100 9.5 9.6 0.5 0.78 0.90 6.7 5.2 1.6 12.6% 0.5 12.6% Belinda MooreMSF MSF Sugar 218 Dec 10 3.15 4.06 4.06 29% Buy -8% 5% 6.9 -2.5 11.1 2.3 13.5 -3.6 16.1 10.0% -127% - 11% 6.5 5.9 8.0 1.9% 100 - 19.6 - - 1.85 206.5 31.2 1.3 -1.5% 5.9 28.3% Belinda MoorePAG PrimeAg Australia 296 Jun 11 1.11 1.25 1.57 13% Hold -17% -4% 5.9 17.4 20.9 0.2- 3.9 6.8 7.9 -12.5% 73% 16% 24% 1.0 2.7 3.1 2.4% 100 16.4 14.1 0.7 1.54 1.44 8.6 7.7 0.8 4.8% 6.6- -31.6% Belinda MooreRIC Ridley Corp 363 Jun 11 1.18 1.33 1.33 13% Buy -4% 9% 29.3 31.5 33.8 0.8 9.5 10.2 11.0 -0.7% 7% 7% 6% 7.5 7.8 8.0 6.6% 25 11.5 10.7 1.8 1.08 1.10 9.4 7.3 1.4 10.7% 1.7 36.3% Belinda MooreTGR Tassal Group 237 Jun 11 1.62 1.30 1.30 -20% Hold -5% 8% 21.6 25.0 27.4 1.2 14.8 17.1 18.6 -2.1% 16% 9% 11% 2.0 6.0 7.0 3.7% 100 9.5 8.7 0.9 0.89 0.89 8.0 5.9 0.9 8.8% 1.5 28.7% Matthew NicholasWCB Warrnambool Cheese 214 Jun 11 3.97 4.05 4.05 2% Hold 13% 26% 18.5 15.0 15.0 1.5 38.5 27.9 27.9 -15.5% -28% 0% -7% 15.0 11.2 11.1 2.8% 100 14.2 14.2 -2.2 1.34 1.46 11.1 7.0 1.4 9.7% 0.8 17.9% Belinda Moore

HealthcareACR Acrux 532 Jun 11 3.34 4.59 4.59 37% Buy -6% 7% 57.1 5.5 28.1 1.1 34.4 3.3 16.9 -70.6% -90% 415% 16% 60.0 1.0 7.0 0.3% 0 - 19.7 - 9.55 2.02 104.0 65.1 11.0 0.0% 5.6- -84.0% Scott PowerACL Alchemia 56 Jun 11 0.29 1.06 1.06 265% Buy -54% -41% -13.4 -10.0 14.8 1.0 -7.0 -4.5 6.7 - 55% - 51% 0.0 0.0 0.0 0.0% 0 - 4.4 - - 0.45 -5.2 -5.3 153.1 -54.7% n.a. -11.9% Scott PowerAPI Aust Pharma 131 Aug 10 0.27 0.33 0.36 22% Hold -39% -26% 22.6 21.6 25.7 1.1 5.3 4.4 5.3 -7.8% -16% 19% 5% 2.5 2.0 2.0 7.4% 100 6.1 5.1 1.2 0.50 0.48 6.2 4.2 0.4 3.8% 2.2 26.7% Scott PowerBTA Biota 141 Jun 11 0.79 1.98 2.47 150% Buy -20% -7% -28.1 -9.3 20.0 1.5 -15.7 -5.2 11.2 - 202% - 4% 0.0 0.0 0.0 0.0% 100 - 7.1 - - 0.72 -6.6 -10.9 2.1 -12.9% n.a. -97.1% Scott PowerBKL Blackmores 502 Jun 11 29.99 29.86 29.86 0% Hold 7% 20% 27.3 30.4 33.4 0.7 162.9 181.8 199.7 3.7% 12% 10% 11% 122.0 136.0 150.0 4.5% 100 16.5 15.0 1.5 1.55 1.54 11.4 10.4 5.9 36.5% 0.3 14.8% Scott PowerIPD ImpediMed 68 Jun 11 0.50 1.14 1.50 128% Buy -38% -26% -14.8 -13.2 4.5 0.8 -9.5 -8.4 2.9 - 12% - 32% 0.0 0.0 0.0 0.0% 100 - 17.4 - - 1.78 -4.7 -4.9 13.7 -93.2% n.a. -60.2% Scott PowerMSB Mesoblast 1,325 Jun 10 9.67 2.08 2.08 -78% Buy 107% 120% -13.2 -14.5 -1.6 0.8 -9.6 -9.4 -1.0 -119.2% 2% 800% -24% 0.0 0.0 0.0 0.0% 0 - - - - - -104.6 -104.7 55.2 -51.9% n.a. -88.9% Dr Derek JellinekPXS Pharmaxis 232 Jun 11 0.94 1.07 2.89 14% Hold -68% -56% -45.8 -22.5 -15.0 0.9 -20.0 -9.1 -6.1 - 120% 50% -9% 0.0 0.0 0.0 0.0% 0 - - - - - -9.2 -10.6 3.7 -33.6% n.a. -25.9% Scott PowerQRX QRxPharma 182 Jun 11 1.45 2.95 2.95 103% Buy 4% 17% -25.6 -22.5 4.2 0.9 -20.5 -15.6 2.9 - 31% - -29% 0.0 0.0 0.0 0.0% 0 - 49.2 - - 5.03 -7.6 -7.6 20.1 -267.1% n.a. -86.8% Scott PowerTIS Tissue Therap 78 Jun 11 0.47 0.95 0.95 103% Buy -34% -21% -5.3 -3.3 6.4 0.8 -3.4 -2.0 3.8 - 73% - 39% 0.0 0.0 0.0 0.0% 0 - 12.3 - - 1.26 -16.1 -16.1 5.9 -21.7% n.a. -89.2% Scott Power

InfrastructureAIX Aust Infrastructure Fund 1,158 Jun 11 1.87 1.92 1.92 3% Hold -1% 12% 212.3 160.6 166.5 0.2 34.2 25.9 26.8 2.4% -24% 4% -8% 10.0 10.5 11.0 5.6% 50 7.2 7.0 -0.8 0.68 0.71 6.2 6.2 0.6 8.9% 0.3- -3.2% William AllottAIA.NZ Auckland Int'l Airport 3,062 Jun 11 2.36 2.20 1.87 -7% Hold 8% 21% 92.6 106.2 115.5 1.0 7.0 8.0 8.7 -0.2% 15% 9% 11% 8.7 9.5 10.5 4.0% 100 23.4 21.1 2.1 2.20 2.16 15.6 12.6 1.3 5.4% 3.3 42.0% William AllottLAU Lindsay 26 Jun 11 0.15 0.20 0.20 36% Buy -21% -8% 1.4 3.2 5.2 0.9 0.6 1.5 2.4 - 131% 62% 79% 0.7 1.0 1.6 6.4% 100 10.1 6.3 0.1 0.95 0.64 10.4 3.8 0.7 6.2% 2.5 94.5% Alexandra ClarkeMQA Macquarie Atlas 615 Dec 10 1.36 1.88 1.88 38% Buy -11% 2% -281.7 -57.0 108.5 0.0- -62.3 -12.6 24.0 -88.2% 394% - -57% 0.0 0.0 7.0 0.0% 0 - 5.7 - - 0.53 -223.4 -248.1 - 20.5% n.a. -865.2% William AllottSWL Seymour Whyte 135 Jun 11 1.73 2.70 2.70 56% Buy -21% -9% 12.2 14.8 17.9 0.7 15.6 19.0 22.9 -10.7% 22% 21% 21% 8.0 11.0 11.0 6.4% 100 9.1 7.5 0.4 0.85 0.77 4.6 4.3 3.0 36.1% 1.8- -89.8% Alexandra Clarke

ITASZ ASG Group 140 Jun 11 0.87 1.30 1.30 50% Buy -27% -14% 15.7 18.7 21.7 0.9 9.7 10.7 12.0 -2.3% 11% 12% 9% 7.5 8.0 9.0 9.2% 100 8.1 7.2 0.9 0.76 0.74 6.0 4.7 - 16.8% 0.9 29.1% Nick HarrisCRZ Carsales 1,138 Jun 11 4.86 5.38 5.38 11% Buy 3% 16% 58.2 67.1 76.0 1.0 24.9 28.5 32.0 1.7% 14% 12% 12% 19.9 22.8 25.6 4.7% 23 17.0 15.2 1.4 1.60 1.55 11.5 11.2 23.5 56.2% 0.6- -41.3% Ashley WallaceCSV CSG Ltd 324 Jun 11 1.14 1.20 1.36 5% Hold -23% -11% 40.6 41.8 45.3 0.3 15.6 14.7 15.8 -8.1% -6% 8% 4% 6.0 5.6 6.1 4.9% 100 7.8 7.2 2.2 0.73 0.74 7.9 6.0 138.3 13.5% 1.9 45.8% Nick HarrisDTL Data#3 190 Jun 11 12.20 14.40 14.40 18% Buy 0% 13% 15.0 16.5 17.6 0.3 97.5 107.4 114.4 -0.5% 10% 7% 7% 77.0 85.0 90.0 7.0% 100 11.4 10.7 1.7 1.07 1.09 5.2 5.0 6.3 51.4% 2.7- -196.1% Nick HarrisDWS DWS Adv Business Soln 175 Jun 11 1.32 1.42 1.42 7% Hold -7% 6% 17.4 19.1 20.7 0.8 13.1 14.4 15.6 -1.9% 10% 9% 8% 12.0 11.0 12.0 8.3% 100 9.2 8.4 1.1 0.86 0.86 6.0 5.9 5.0 32.0% 0.5- -21.1% Julian GuidoIRE IRESS 938 Dec 10 7.18 8.70 8.70 21% Hold -18% -5% 58.4 63.0 75.2 1.2 46.3 48.6 57.0 -3.4% 5% 17% 10% 41.5 39.0 45.5 5.4% 100 14.8 12.6 1.4 1.21 1.18 9.9 9.3 12.4 46.4% 0.8- -53.0% Julian GuidoMLB Melbourne IT 114 Dec 10 1.41 1.50 1.50 6% Hold -26% -13% 16.1 13.2 15.4 0.8 20.2 16.4 18.9 -15.7% -19% 16% -2% 15.0 11.0 13.0 7.8% 100 8.6 7.5 -4.9 0.70 0.70 7.6 4.8 - 14.2% 1.0 32.5% Nick HarrisNXT NEXTDC 225 Jun 11 1.57 2.44 2.44 55% Buy -10% 2% -1.7 -8.3 0.3 0.5- -1.7 -5.8 0.2 - -70% - 83% 0.0 0.0 0.0 0.0% 0 - - - - 73.55 -17.8 -25.7 1.6 -6.6% n.a. -7.5% Nick HarrisOKN Oakton 164 Jun 11 1.75 2.43 2.43 39% Buy -26% -14% 16.8 19.6 23.4 0.7 18.0 20.8 24.8 -12.2% 16% 19% 16% 8.5 16.0 19.5 9.1% 100 8.4 7.1 0.5 0.79 0.72 5.6 5.1 5.3 18.0% 0.5- -13.8% Julian GuidoOTH Onthehouse 31 Jun 11 0.38 1.50 1.50 295% Buy -1.8 2.0 3.8 0.4 -19.1 2.4 4.6 - - 93% -29% 0.0 0.6 1.2 1.6% 0 15.9 8.2 -0.5 1.49 0.84 8.0 3.2 11.8 3.2% 0.6- -8.2% Belinda MooreRKN Reckon 354 Dec 10 2.65 2.37 2.37 -11% Hold 13% 26% 15.7 18.1 21.0 1.2 11.8 13.6 15.8 -1.5% 16% 16% 13% 8.0 8.5 9.5 3.2% 90 19.5 16.8 1.4 1.59 1.58 13.7 10.3 41.6 34.9% 0.3- -16.2% Julian GuidoSLX Silex Systems 388 Jun 11 2.40 8.51 8.51 255% Buy -59% -46% -31.5 -15.1 -29.7 1.2 -19.5 -9.4 -18.4 -248.6% 108% -49% 31% 0.0 0.0 0.0 0.0% 100 - - - - - -15.9 -28.0 3.2 -10.2% n.a. -42.4% Scott PowerSMX SMS Mgt & Technology 367 Jun 11 5.41 6.82 6.82 26% Buy -19% -6% 29.8 35.5 39.6 0.7 44.3 52.3 58.2 -6.1% 18% 11% 13% 30.0 35.5 39.5 6.6% 100 10.3 9.3 0.8 0.97 0.95 7.1 6.9 8.5 32.0% 0.5- -20.8% Julian GuidoTNE Technology One 336 Sep 10 1.11 1.09 1.09 -2% Hold 16% 28% 17.8 20.5 23.7 1.4 5.9 6.8 7.8 -0.9% 14% 15% 15% 5.7 4.8 5.5 4.3% 100 16.3 14.1 1.1 1.33 1.33 11.5 9.4 6.3 30.9% 1.1- -51.2% Nick Harris

InsuranceAUB Austbrokers 333 Jun 11 6.00 6.46 6.46 8% Buy 17% 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 5.0% 0 12.4 11.3 1.6 1.34 1.31 15.6 13.8 3.9 16.1% 3.3- -37.5% Julian Guido

MediaAPN APN 525 Dec 10 0.85 1.37 1.53 61% Buy -56% -43% 103.1 83.1 96.4 1.2 17.2 13.5 15.6 -13.8% -21% 15% 0% 12.0 8.1 9.3 9.6% 30 6.3 5.5 -44.0 0.51 0.51 6.2 6.1 - 9.2% 2.9 59.3% Fraser McLeishAUN Austar United Comms 1,538 Dec 10 1.21 1.37 1.20 13% Buy 27% 40% 54.1 84.4 101.6 1.0 4.2 6.5 7.8 -8.1% 55% 20% 34% 0.0 0.0 0.0 0.0% 0 18.7 15.5 0.6 1.53 1.46 14.5 7.9 - -40.3% 1.9 -280.9% Fraser McLeishCMJ Consolidated Media 1,405 Jun 11 2.50 2.68 2.98 7% Buy -20% -7% 94.8 92.7 96.6 1.3 16.6 16.5 17.2 -1.2% -1% 4% 5% 16.5 16.5 16.5 6.6% 0 15.2 14.5 3.2 1.43 1.49 -236.5 7.0 4.3 28.3% n.a. -25.3% Fraser McLeishSXL Southern Cross Media 716 Jun 11 1.01 1.50 1.79 49% Buy -47% -35% 68.6 98.9 110.3 0.6 14.8 14.0 15.6 -3.7% -6% 11% 7% 10.0 9.1 10.9 9.0% 100 7.2 6.5 1.1 0.68 0.66 6.7 5.8 - 6.5% 2.7 39.1% Ashley WallacePRT Prime Media 242 Jun 11 0.66 0.72 0.80 9% Hold 2% 14% 27.2 28.8 29.2 0.9 7.4 7.9 8.0 -2.3% 6% 1% 3% 4.5 5.5 5.6 8.4% 100 8.4 8.3 3.3 0.79 0.85 7.1 5.9 - 18.3% 2.0 75.8% Ashley WallaceREA REA Group 1,613 Jun 11 12.37 11.25 11.77 -9% Hold 0% 13% 68.7 80.2 95.0 1.0 53.1 61.1 71.3 -2.1% 15% 17% 15% 26.0 30.5 42.8 2.5% 100 20.3 17.4 1.4 1.90 1.78 13.2 11.8 10.2 37.4% 1.4- -70.4% Ashley WallaceSGN STW Group 325 Dec 10 0.91 1.44 1.44 58% Buy -14% -1% 38.7 40.6 43.1 2.0 10.8 11.4 12.3 -3.0% 6% 8% 6% 6.5 7.4 8.6 8.2% 100 8.0 7.4 1.3 0.65 0.70 6.5 6.0 344.7 11.1% 1.1 20.1% Matthew NicholasTEN Ten Network 862 Aug 10 0.82 0.95 1.06 16% Hold -42% -29% 96.9 78.1 80.6 1.0 9.3 7.5 7.7 -16.4% -19% 3% 4% 11.0 5.0 5.8 6.1% 100 11.0 10.7 2.9 0.90 1.01 9.1 7.7 - 8.7% 2.4 46.8% Fraser McLeish


119



(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs. YTD -Rel.

Earnings Quality *

IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)



Analyst


VALUATIONDPS (c)


(pre goodwill)



(pre goodwill)

21 October 2011


Other Capital GoodsAJL AJ Lucas 89 Jun 11 1.35 2.28 2.28 69% Hold -44% -32% -8.5 6.2 10.4 1.4 -12.5 9.0 15.2 -22.9% - 68% 17% 0.0 0.0 0.0 0.0% 100 15.0 8.9 0.9 1.41 0.91 8.3 4.4 1.0 3.0% 2.4 49.6% Alexandra ClarkeALS Alesco 130 May 11 1.38 1.81 1.81 31% Hold -49% -36% 15.6 14.7 18.9 1.2 16.5 15.5 20.0 -48.0% -6% 29% 14% 14.0 9.0 13.0 6.5% 100 8.9 6.9 0.6 0.84 0.71 6.8 4.6 1.4 3.2% 1.6 16.3% Julian GuidoAAX Ausenco 307 Dec 10 2.50 3.97 6.08 59% Buy -19% -6% 0.8 22.9 35.5 1.8 0.7 18.6 28.9 -5.6% 2719% 55% - 0.0 9.3 14.4 3.7% 75 13.4 8.7 - 1.10 0.81 8.6 6.3 4.2 9.5% 0.1- -1.0% Roger LeaningASB Austal 423 Jun 11 2.25 3.75 3.75 67% Buy -36% -23% 40.5 49.7 50.2 3.3 21.5 26.4 26.7 -14.5% 23% 1% 12% 6.0 7.0 8.0 3.1% 100 8.5 8.4 0.7 0.80 0.86 5.4 4.4 1.3 15.7% 0.8- -20.0% Julian GuidoASL Ausdrill 847 Jun 11 2.81 3.80 3.80 35% Buy -9% 3% 78.5 96.7 116.0 0.7 29.0 32.1 38.5 2.8% 11% 20% 13% 12.0 13.0 14.5 4.6% 100 8.8 7.3 0.7 0.86 0.76 6.4 3.9 1.3 13.7% 0.4 11.9% Matthew NicholasBOL BOOM Logistics 121 Jun 11 0.26 0.49 0.49 87% Buy -32% -19% 5.4 17.4 21.6 0.9 1.2 3.7 4.6 16.4% 219% 24% 62% 0.0 0.0 0.0 0.0% 100 7.0 5.6 0.1 0.65 0.57 6.8 3.6 0.5 5.7% 1.8 40.3% Matthew NicholasBKN Bradken 1,206 Jun 11 7.45 9.85 9.85 32% Buy -17% -5% 90.1 120.3 143.9 0.2 63.5 72.3 84.0 0.9% 14% 16% 17% 39.5 45.0 52.5 6.0% 100 10.3 8.9 0.6 0.97 0.91 8.0 6.5 2.2 16.6% 1.7 56.2% Matthew NicholasCDD Cardno 558 Jun 11 5.16 7.07 7.07 37% Buy -7% 6% 58.8 67.7 70.3 1.0 55.4 62.6 64.5 0.0% 13% 3% 7% 34.0 36.0 38.5 7.0% 60 8.2 8.0 1.1 0.78 0.82 6.4 5.7 - 18.1% 0.7 19.5% Roger LeaningEGN Engenco 118 Jun 11 0.09 0.15 0.15 72% Buy -40% -27% 7.2 18.0 21.7 1.5- 0.6 1.4 1.7 - 152% 20% 52% 0.0 0.0 0.0 0.0% 0 7.3 6.0 0.1 0.62 0.56 4.3 3.2 0.9 9.6% 0.4 7.5% Alexandra ClarkeEHL Emeco 631 Jun 11 1.00 1.23 1.23 23% Buy -7% 5% 56.3 68.7 78.2 1.2 8.9 10.9 12.4 -1.4% 22% 14% 14% 10.0 6.0 6.5 6.0% 100 9.2 8.1 0.6 0.86 0.83 7.9 3.8 1.4 11.1% 1.4 56.0% Matthew NicholasGWA GWA Group 675 Jun 11 2.24 2.16 2.16 -4% Hold -27% -14% 63.4 56.6 60.4 1.1 21.0 18.8 20.0 -17.7% -11% 7% 1% 18.0 18.0 18.0 8.0% 100 11.9 11.2 8.5 1.12 1.14 8.9 7.4 11.3 12.8% 1.6 41.7% Julian GuidoHST Hastie Group 144 Jun 11 0.10 0.12 0.12 20% Hold -88% -76% 18.7 23.6 31.8 1.8- 7.4 1.7 2.3 -51.1% -77% 35% -27% 0.0 0.0 0.3 0.0% 100 6.1 4.5 -0.2 0.57 0.46 5.2 4.1 1.9 6.9% 1.8 29.4% Julian GuidoHIL Hills 274 Jun 11 1.11 1.19 1.70 7% Hold -41% -28% 24.7 32.7 36.6 0.3 9.9 13.4 15.3 -7.5% 35% 14% 23% 10.0 11.0 13.0 10.0% 100 8.2 7.2 0.4 0.77 0.74 7.0 5.1 0.8 8.5% 1.5 27.7% Matthew NicholasLDW Ludowici 100 Dec 10 3.78 4.92 4.92 30% Buy -23% -10% 11.6 13.5 16.7 0.5 44.7 46.0 57.0 - 3% 24% 13% 20.0 23.0 29.0 6.1% 100 8.2 6.6 0.6 0.67 0.62 6.3 5.0 1.5 13.9% 1.4 36.2% Roger LeaningNFK Norfolk Group 181 Mar 11 1.14 1.65 1.65 45% Buy -10% 2% 21.1 24.4 27.9 1.1 13.3 15.4 17.5 -1.0% 16% 14% 14% 2.0 4.0 6.0 3.5% 100 7.4 6.5 0.5 0.70 0.67 4.2 3.4 3.2 24.7% 0.5- -22.9% Julian GuidoRFX Redflow 60 Jun 11 0.72 2.04 2.04 183% Buy -58% -45% -7.3 -10.8 3.4 0.9 -8.8 -13.0 4.1 - -32% - 9% 0.0 0.0 0.0 0.0% 100 - 17.7 - - 1.81 -4.8 -5.7 5.8 -61.9% n.a. -35.1% Scott PowerRQL Resource Equip 85 Jun 11 0.40 0.99 1.28 147% Buy -31% -18% 12.2 13.4 14.4 0.9 5.6 5.7 6.1 - 2% 8% 5% 0.0 0.0 1.0 0.0% 0 7.0 6.5 1.5 0.66 0.67 5.2 4.1 1.2 15.1% 0.4 9.7% Alexandra ClarkeSDM Sedgman 402 Jun 11 1.91 1.93 1.93 1% Hold -16% -4% 28.9 36.7 37.9 0.6 13.8 17.5 18.1 12.2% 27% 3% 11% 7.0 8.0 8.5 4.2% 100 10.9 10.6 1.0 1.10 1.15 7.5 5.5 2.9 21.5% 0.7- -27.1% Roger LeaningWTP Watpac 220 Jun 11 1.20 1.96 1.96 63% Buy -34% -21% 16.8 28.3 35.0 1.3 9.2 15.4 18.9 -4.3% 67% 23% 31% 6.0 10.0 12.0 8.3% 100 7.8 6.4 0.3 0.73 0.65 6.3 4.2 0.8 9.1% 1.0 21.6% Scott Murdoch

PropertyAAD Ardent Leisure 340 Jun 11 1.07 1.54 1.54 44% Buy 6% 19% 39.4 43.2 47.2 1.0 12.5 13.6 14.5 -10.9% 8% 7% 8% 11.5 12.2 13.1 11.4% 0 7.9 7.4 1.0 0.74 0.75 8.5 5.5 1.1 10.0% 1.8 37.4% Josephine LittleCWP Cedar Woods 216 Jun 11 3.50 5.24 5.24 50% Buy 0% 13% 28.1 34.6 38.4 1.4 45.8 55.2 60.8 3.2% 20% 10% 15% 23.0 28.0 30.0 8.0% 100 6.3 5.8 0.4 0.60 0.59 5.3 5.2 1.5 24.9% 1.0 34.4% Scott MurdochCMW Cromwell 642 Jun 11 0.67 0.76 0.76 14% Buy -12% 1% 65.3 71.5 74.0 1.0 7.1 7.4 7.6 -3.7% 4% 3% 6% 7.0 7.0 7.1 10.5% 18 9.0 8.7 1.6 0.85 0.89 11.7 11.6 0.9 10.1% 6.4 109.2% Fiona BuchananDVN Devine 137 Jun 11 0.22 0.28 0.28 27% Buy -21% -9% 20.2 21.0 23.5 3.6 3.2 3.3 3.6 -9.6% 3% 10% 10% 2.0 2.1 2.3 9.9% 100 6.6 6.0 0.7 0.62 0.61 6.2 6.1 0.4 6.0% 2.8 32.6% Scott MurdochFKP FKP Property 610 Jun 11 0.51 0.88 0.88 73% Buy -41% -28% 121.0 125.4 134.9 0.4 10.3 10.6 11.3 -6.3% 3% 7% 6% 3.0 3.3 3.4 6.4% 70 4.9 4.5 0.8 0.46 0.46 7.2 7.1 0.5 11.3% 4.0 49.1% Josephine LittlePPC Peet 360 Jun 11 1.14 2.00 2.00 76% Buy -43% -30% 44.0 39.6 44.4 1.3- 14.5 12.5 14.0 -12.2% -14% 12% 1% 8.5 7.5 8.5 6.6% 100 9.1 8.2 7.9 0.86 0.83 9.1 8.8 1.3 14.8% 3.7 87.2% Matthew NicholasSDG Sunland Group 193 Jun 11 0.89 0.70 0.70 -21% Hold 19% 31% 17.9 21.3 22.1 2.1 7.8 10.0 10.9 -3.9% 29% 8% 15% 0.0 0.0 3.0 0.0% 100 8.9 8.2 0.6 0.84 0.84 7.1 6.5 0.5 6.1% 1.1 11.5% Fiona Buchanan

RetailAPE AP Eagers 375 Dec 10 11.90 15.00 15.00 26% Buy -5% 8% 32.6 39.3 39.6 0.8 108.7 124.5 125.4 3.4% 15% 1% 7% 64.0 78.0 80.0 6.6% 100 9.6 9.5 1.3 0.78 0.89 7.0 6.2 1.4 10.7% 4.3 108.0% Josephine LittleARP ARB Corp 570 Jun 11 7.87 8.65 8.65 10% Hold 7% 20% 37.9 42.0 46.1 0.9 52.2 58.0 63.6 5.0% 11% 10% 10% 23.0 26.5 29.5 3.4% 100 13.6 12.4 1.4 1.28 1.27 9.2 8.3 4.0 29.9% 0.7- -28.6% Matthew NicholasAHE Automotive Holdings 511 Jun 11 1.97 2.23 2.22 13% Hold -20% -7% 52.4 59.7 69.5 0.9 22.7 23.0 26.8 -7.9% 1% 17% 8% 17.0 17.0 19.0 8.6% 100 8.6 7.3 1.0 0.80 0.75 8.1 6.6 1.8 13.0% 3.1 95.3% Josephine LittleKMD Kathmandu 353 Jul 11 1.76 2.20 2.20 25% Buy 29% 42% 30.0 35.3 39.0 0.9 14.7 17.6 19.5 6.2% 20% 11% 12% 10.0 11.3 12.7 5.0% 0 10.3 9.1 0.8 0.97 0.94 7.2 6.4 14.5 16.6% 0.5 13.6% Josephine LittleORL OrotonGroup 314 Jul 11 7.70 8.87 8.86 15% Buy -10% 2% 24.8 26.8 29.9 0.7 60.8 65.7 73.4 5.0% 8% 12% 9% 50.0 54.0 60.0 7.0% 0 11.7 10.5 1.3 1.10 1.07 8.1 6.7 10.5 82.7% 0.1 18.0% Josephine LittlePBG Pacific Brands 577 Jun 11 0.62 0.92 0.92 48% Buy -37% -24% 103.4 86.5 104.3 0.8 11.1 9.3 11.2 -10.6% -16% 20% 2% 6.2 6.1 7.4 9.8% 100 6.7 5.5 3.1 0.63 0.57 4.9 4.4 4.4 7.2% 1.2 16.8% Julian GuidoPMV Premier Inv 770 Jul 11 4.97 5.58 5.58 12% Hold -20% -7% 61.1 61.1 71.3 1.0 39.4 39.4 46.0 -10.7% 0% 17% 8% 36.0 35.5 36.5 7.1% 0 12.6 10.8 1.6 1.19 1.11 7.3 5.8 2.2 4.9% 2.0- -16.4% Julian GuidoTRS Reject Shop 262 Jun 11 10.08 12.70 12.70 26% Hold -27% -14% 16.1 23.7 29.1 0.7 61.4 89.6 109.4 -7.1% 46% 22% 25% 31.0 68.0 83.0 6.7% 100 11.3 9.2 0.5 1.06 0.94 8.1 6.1 3.9 39.1% 0.8 61.9% Julian GuidoRFG Retail Food 260 Jun 11 2.40 2.65 2.83 10% Hold -17% -5% 28.0 30.4 32.7 0.9 26.1 27.9 29.5 -4.5% 7% 6% 5% 14.5 16.7 18.0 7.0% 100 8.6 8.1 1.6 0.81 0.83 6.4 6.3 - 18.2% 1.1 32.3% Scott MurdochRHL Ruralco 174 Sep 10 3.16 3.80 3.80 20% Buy 14% 27% 13.0 15.1 17.0 1.5 23.5 27.5 30.9 -7.5% 17% 12% 12% 16.0 18.0 20.0 5.7% 100 11.5 10.2 0.9 0.94 0.96 6.3 5.4 2.1 10.0% 1.0 23.0% Belinda MooreSUL Super Retail 713 Jun 11 5.32 7.40 7.40 39% Buy -13% 0% 55.6 89.8 114.9 0.5 43.1 51.4 58.8 -3.2% 19% 14% 16% 29.0 31.0 35.0 5.8% 100 10.3 9.1 0.7 0.97 0.93 7.4 6.2 23.6 18.5% 2.2 59.1% Josephine LittleTGA Thorn Group 231 Mar 11 1.58 2.15 2.15 36% Buy -20% -7% 23.0 26.8 30.4 0.6 17.6 18.3 20.7 -9.4% 4% 13% 10% 8.5 9.2 10.4 5.8% 100 8.6 7.6 0.9 0.81 0.78 5.6 5.1 2.3 22.8% 0.1- -3.0% Scott MurdochWTF Wotif.com 756 Jun 11 3.58 4.18 4.18 17% Hold -28% -15% 51.0 56.0 61.7 1.5 23.9 26.3 29.0 -7.6% 10% 10% 10% 22.0 24.0 26.4 6.7% 100 13.6 12.4 1.4 1.28 1.26 7.7 7.1 136.2 60.8% 1.8- -155.6% Belinda Moore

Telecommunication Services AMM Amcom 194 Jun 11 0.81 0.97 0.97 20% Buy 14% 27% 21.6 16.3 18.9 0.8 9.0 6.8 7.8 -32.0% -25% 16% -2% 4.8 3.5 4.1 4.3% 0 12.0 10.4 -7.6 1.13 1.06 7.9 5.7 2.1 11.6% 0.2- -4.8% Alan StuartHTA Hutchison Telecom (Aus 814 Dec 10 0.06 0.13 0.13 117% Buy -40% -27% 41.5 -90.6 28.0 0.0- 0.3 -0.7 0.2 -117.2% -318% - 37% 0.0 0.0 0.0 0.0% 0 - 50.9 - - 2.74 -622.9 -622.9 1.0 -6.4% n.a. -0.3% Alan StuartIIN iiNet 395 Jun 11 2.59 3.20 3.38 24% Buy -11% 2% 38.0 44.4 49.2 1.2 25.0 29.8 33.8 -7.9% 19% 14% 15% 12.0 15.0 17.0 5.8% 0 8.7 7.7 0.6 0.82 0.78 6.6 4.0 - 18.8% 0.7 34.3% Alan StuartMAQ Macq Telecom 172 Jun 11 8.20 13.51 15.01 65% Buy -8% 5% 17.7 18.6 22.5 1.2 84.5 89.2 107.6 -7.9% 6% 21% 9% 22.0 24.0 28.0 2.9% 100 9.2 7.6 1.0 0.86 0.78 5.6 3.3 2.0 22.0% 0.7- -32.0% Nick HarrisSGT SingTel 50,302 Mar 11 3.16 3.16 2.48 0% Hold 4% 16% 3,024.8 2,925.7 3,196.6 1.0 19.0 18.4 20.0 -3.4% -3% 9% 5% - - - 5.1% 0 13.5 12.6 2.8 1.26 1.28 10.3 7.5 3.4 15.2% 0.9 17.8% Ian MartinTEL.NZ Telecom Corp 4,885 Jun 11 2.55 2.45 1.90 -4% Hold 18% 30% 296.6 363.8 383.9 1.0 15.5 18.9 19.9 5.6% 22% 6% 13% 18.0 21.0 23.0 8.2% 100 10.7 10.0 0.8 1.01 1.02 9.0 4.1 4.1 19.9% 1.3 101.9% Alan StuartTPM TPG Telecom 1,058 Jul 11 1.36 1.64 1.64 20% Buy -17% -4% 78.2 111.9 127.1 0.8 10.1 14.3 16.1 -2.2% 42% 13% 20% 4.5 7.0 8.0 5.2% 100 9.5 8.4 0.5 0.89 0.86 7.0 4.7 17.6 20.4% 0.7 29.8% Nick Harris

TransportationMRM Mermaid Marine Aust 605 Jun 11 3.08 3.58 3.58 16% Buy 2% 15% 43.2 52.1 56.3 1.3 20.8 23.5 25.2 0.5% 13% 7% 10% 9.0 10.0 11.0 3.2% 0 13.1 12.2 1.3 1.23 1.25 8.8 6.9 2.3 18.2% 1.0 32.9% Alexandra ClarkeRCR RCR Tomlinson 182 Jun 11 1.38 2.13 2.13 54% Buy -6% 7% 19.5 21.2 25.8 0.4 14.8 16.0 19.5 -5.1% 8% 22% 14% 4.0 5.0 6.0 3.6% 100 8.6 7.1 0.6 0.81 0.72 6.1 4.1 1.3 9.8% 0.1 1.0% Alexandra ClarkeREX Regional Express 104 Jun 11 0.94 1.26 1.58 35% Buy -15% -2% 17.4 21.7 24.0 1.2 15.7 19.7 21.9 12.3% 26% 11% 16% 7.1 7.6 8.6 8.0% 100 4.8 4.3 0.3 0.45 0.44 3.2 2.2 0.6 12.9% 0.1- -1.8% Michael Newbold, CFAVBA Virgin Blue 784 Jun 11 0.35 0.41 0.45 19% Buy -19% -6% -48.1 64.5 114.9 1.4 -2.2 2.9 5.2 -5.2% - 79% 50% 0.0 0.0 0.0 0.0% 0 12.2 6.8 0.2 1.15 0.70 11.4 4.4 0.9 6.7% 2.5 100.8% Mark Williams

Utilities CIF Challenger Infrastructure 346 Jun 11 1.10 1.35 1.35 23% Buy -8% 4% -0.8 11.0 22.3 1.6 -0.3 3.5 7.0 -60.0% - 102% - 14.0 10.0 10.0 9.1% 0 31.5 15.6 - 2.97 1.59 15.3 9.5 - 3.6% 7.3 268.8% William AllottENV Envestra 923 Jun 11 0.64 0.80 0.80 25% Buy 23% 36% 47.2 63.0 69.7 1.4 3.3 4.1 4.3 8.4% 25% 4% 13% 5.8 5.9 6.1 9.2% 0 15.6 15.0 1.2 1.46 1.54 10.8 8.9 19.5 10.5% 6.1 299.1% William AllottEPW ERM Power 251 Jun 11 1.55 1.90 2.32 23% Buy -22% -9% 2.0 31.5 36.7 6.6 1.5 19.4 22.6 -13.6% 1224% 17% - 3.5 7.7 8.1 5.0% 0 8.0 6.8 - 0.75 0.70 5.7 4.9 1.5 19.2% 2.0 105.0% Jason Mabee, CFAGDY Geodynamics 63 Jun 10 0.22 1.48 1.74 571% Buy -42% -29% -14.8 -50.9 -52.8 0.4 -5.1 -13.8 -11.9 - -63% 16% - 0.0 0.0 0.0 0.0% 0 - - - - - -0.2 -0.6 0.3 -18.1% n.a. -18.4% Roger LeaningHDF Hastings Diversified 838 Dec 10 1.61 1.95 1.95 21% Buy -5% 8% 35.6 39.7 26.8 1.6 7.1 7.7 5.1 28.6% 8% -33% -19% 12.0 10.0 10.0 6.2% 0 21.0 31.5 -1.1 1.71 2.96 23.8 18.1 1.5 7.1% 9.6 169.9% William AllottSPN SP AusNet 2,753 Mar 11 0.99 1.00 1.15 1% Hold 14% 27% 252.9 244.5 251.2 0.9 9.0 8.6 8.7 -0.1% -4% 1% 0% 8.0 8.0 8.0 8.1% 0 11.4 11.3 -83.2 1.07 1.16 11.6 8.0 10.5 41.1% 5.0 158.5% William Allott


120



(A$m)

Lastyearend

Price (A$)

Target price (A$)

FV (A$) Up/ down

Rec12m

YTD -Abs. YTD -Rel.

Earnings Quality *

IBES 3mEPS

revisions

EPSCAGR

Div yield Div frank

(%)

PEG EV/ EBIT (x)

EV / EBITDA (x)



Analyst


VALUATIONDPS (c)


(pre goodwill)



(pre goodwill)

21 October 2011


Aluminium & SteelGBG Gindalbie Metals 681 Jun 11 0.55 0.85 0.95 55% Buy -59% -47% -5.3 13.4 93.5 0.5 -0.6 1.1 7.5 -5.8% - 598% - 0.0 0.0 0.0 0.0% 100 50.8 7.3 - 4.78 0.75 37.8 30.0 0.9 2.0% 10.6 47.8% Todd Scott

EnergyAZT Aston 2,080 Jun 11 10.17 12.06 12.06 19% Buy 26% 39% -16.7 -14.1 -41.0 1.0 -8.1 -6.9 -20.0 - 18% -66% 61% 0.0 0.0 0.0 0.0% 0 - - - - - -253.0 -253.0 4.5 -3.1% n.a. 47.7% Tom SartorESG Eastern Star 823 Jun 11 0.83 0.77 1.24 -7% Hold 2% 15% -4.5 1.1 9.5 15.5 -0.4 0.1 0.9 - - 757% - 0.0 0.0 0.0 0.0% 0 - 89.8 - 72.32 9.18 -407.5 -2,620.2 3.2 0.4% n.a. 8.0% Chris BrownERA Energy Resource 1,056 Dec 10 2.04 1.91 1.91 -6% Sell -82% -69% 52.8 31.2 76.8 0.5 27.7 6.0 14.8 -45.7% -78% 146% -71% 8.0 0.0 0.0 0.0% 100 33.9 13.8 -0.5 2.77 1.29 5.9 3.5 0.9 2.6% 7.0- -49.5% Lyndon FaganGCL Gloucester Coa 1,374 Jun 11 6.77 10.23 10.23 51% Buy -44% -32% 54.6 68.4 89.2 0.9 26.9 33.3 43.4 -47.6% 24% 30% 49% 0.0 0.0 0.0 0.0% 0 20.3 15.6 0.4 1.91 1.59 11.1 8.4 1.3 6.5% 0.1 1.6% Tom SartorHZN Horizon Oil 232 Jun 11 0.20 0.33 0.33 66% Buy -31% -18% 16.4 23.0 40.3 1.6 1.4 1.9 3.4 -26.5% 34% 76% 81% 0.0 0.0 0.0 0.0% 0 10.2 5.6 0.1 0.96 0.58 9.5 6.5 1.4 14.9% 1.1 26.9% Chris BrownIFN Infigen Energy 213 Jun 11 0.28 0.80 0.80 186% Buy -48% -35% -26.0 -42.7 -24.4 0.6 -3.4 -5.6 -3.2 - -39% 75% - 1.0 0.0 0.0 0.0% 0 - - - - - 28.2 6.8 0.8 -6.9% 5.4 144.6% William AllottLNC Linc Energy 1,007 Jun 11 2.00 3.75 3.00 88% Buy -25% -12% -204.0 81.0 186.4 0.4 -41.1 16.1 37.0 -57.8% - 130% -11% 0.0 0.0 0.0 0.0% 100 12.4 5.4 -1.1 1.17 0.55 -0.2 -0.1 1.8 10.4% 8.3- -98.4% Jason Mabee, CFAMAD Maverick Drilling 84 Jun 11 0.22 0.36 0.89 64% Buy 0% 13% 1.7 14.0 25.6 0.1 0.6 3.7 6.9 - 518% 83% - 0.0 0.0 0.0 0.0% 0 5.8 3.1 - 0.54 0.31 4.5 4.0 2.6 49.8% 0.2 12.4% Roger LeaningNCR NuCoal 220 Jun 11 0.34 0.78 0.78 128% Buy -44% -32% -4.7 -5.7 -6.7 1.0 -0.7 -0.9 -1.0 - -18% -15% - 0.0 0.0 0.0 0.0% 0 - - - - - -38.6 -38.6 10.6 -24.3% n.a. 2.4% Tom SartorNHC New Hope Corp 4,923 Jul 11 5.93 5.87 5.87 -1% Buy 22% 35% 133.4 209.4 194.7 0.4 16.1 25.2 23.4 -8.0% 57% -7% 12% 25.3 12.0 11.0 2.0% 100 23.5 25.3 2.0 2.21 2.59 16.7 13.7 2.2 9.0% 6.6- -67.4% Tom SartorNXS Nexus Energy 239 Jun 11 0.18 0.12 0.60 -33% Hold -59% -46% 26.1 -18.7 -2.8 0.4- 2.0 -1.4 -0.2 -473.9% -172% 575% -19% 0.0 0.0 0.0 0.0% 0 - - - - - -54.3 6.2 0.4 -3.0% 1.8 15.6% Chris BrownSMR Stanmore Coal 102 Jun 11 0.77 2.03 2.03 164% Buy -45% -32% -2.0 -4.3 -5.6 1.0 -1.5 -3.3 -4.3 - -54% -22% - 0.0 0.0 0.0 0.0% 0 - - - - - -10.7 -10.7 1.8 -9.7% n.a. -48.0% Tom SartorSXY Senex Energy 341 Jun 11 0.45 0.63 0.63 40% Buy 10% 22% 10.2 31.2 35.9 0.4 1.4 4.1 4.7 16.3% 205% 15% 39% 0.0 0.0 0.0 0.0% 0 10.9 9.5 0.3 1.03 0.97 11.1 9.0 2.4 24.5% 0.3- -7.2% Roger LeaningWHC Whitehaven Coal 2,828 Jun 11 5.72 7.00 6.23 22% Buy -15% -2% 73.3 173.3 243.9 0.7 14.8 34.4 48.4 -6.5% 132% 41% 54% 7.4 18.0 24.0 3.1% 100 16.6 11.8 0.3 1.56 1.21 10.9 9.0 2.6 15.8% 0.2- -5.6% Tom Sartor

Diversified Metals & MiningALK Alkane Resources 296 Dec 10 1.10 2.30 2.30 109% Buy 10% 23% 7.8 -5.4 -9.9 1.0 2.9 -2.0 -3.7 - -169% -45% - 0.0 0.0 0.0 0.0% 0 - - - - - -33.3 -33.3 5.0 -10.3% n.a. -32.7% Sam BerridgeAQA Aquila 1,939 Jun 11 5.18 5.98 5.98 15% Hold -47% -35% -63.5 -41.0 -156.0 1.4 -17.0 -10.9 -41.7 228.3% 55% -74% - 0.0 0.0 0.0 0.0% 0 - - - - - 109.6 83.7 7.0 -12.7% 1.7 14.9% Sam BerridgeAGO Atlas Iron 2,523 Jun 11 3.05 4.43 4.43 45% Buy 3% 16% 168.6 222.9 243.1 1.1 20.4 26.9 29.4 -17.0% 32% 9% 24% 3.0 6.0 6.0 2.0% 0 11.3 10.4 0.5 1.06 1.06 6.8 6.0 1.3 11.9% 1.4- -23.9% Lyndon FaganGRR Grange Resources 502 Dec 10 0.44 0.70 0.70 59% Buy -41% -29% 33.9 82.8 95.8 1.8 3.0 7.2 8.3 -26.1% 143% 16% 31% 0.0 3.6 2.1 8.3% 0 6.1 5.2 0.2 0.50 0.49 2.0 1.6 0.6 12.4% 1.3- -28.7% Todd ScottGRY Gryphon Minerals 459 Jun 11 1.46 2.36 2.36 62% Buy -19% -6% -2.9 -7.0 6.2 1.0 -0.9 -2.2 2.0 - -59% - - 0.0 0.0 0.0 0.0% 0 - 74.2 - - 7.59 -84.1 -85.7 3.4 -6.5% n.a. -22.3% James WilsonIRD Iron Road 88 Jun 11 0.62 0.77 0.77 24% Buy -16% -4% -17.5 -17.2 -17.1 0.9 -13.6 -12.2 -12.1 - 11% 1% - 0.0 0.0 0.0 0.0% 0 - - - - - -6.1 -6.1 18.8 ####### n.a. 218.3% Todd ScottIGO Independence Gp 950 Jun 11 4.81 6.86 6.86 43% Buy -39% -27% 30.3 46.3 61.7 1.0 18.7 22.8 30.4 -34.2% 22% 33% 65% 7.0 5.0 0.0 1.0% 0 21.1 15.8 0.3 1.98 1.62 14.5 10.5 1.6 6.4% 1.2- -15.1% Sam BerridgeIMD Imdex 395 Jun 11 1.98 2.60 2.60 31% Buy 11% 23% 31.0 41.5 48.5 0.8 15.6 20.4 23.8 3.7% 30% 16% 17% 4.5 5.5 6.5 2.8% 100 9.7 8.3 0.6 0.98 0.90 6.9 6.0 3.9 27.7% 0.3 15.2% Matthew NicholasMDL Mineral Deposits 467 Jun 11 5.60 8.00 9.40 43% Buy 4% 16% 39.0 19.3 21.2 0.4 46.7 23.1 25.4 - -51% 10% 8% 0.0 0.0 0.0 0.0% 0 23.3 20.6 2.8 2.19 2.11 10.4 9.2 1.2 5.4% 4.1- -37.0% Chris BrownOMH OM Holdings 302 Dec 10 0.60 0.50 0.50 -17% Sell -57% -44% 47.2 4.4 16.3 0.4 9.4 0.9 3.2 -43.8% -91% 268% -17% 2.8 1.0 0.8 1.7% 0 68.2 18.5 -3.9 5.58 1.74 35.9 16.7 1.3 1.6% 4.3 43.3% Todd Scott

Gold & Precious MetalsCAH Catalpa 280 Jun 11 1.58 1.75 1.75 11% Hold -20% -7% 29.6 26.3 32.8 1.0 16.7 14.8 18.4 29.2% -11% 25% 9% 0.0 0.0 0.0 0.0% 0 10.7 8.6 1.1 1.00 0.88 5.9 3.8 1.4 14.5% 1.0- -29.3% Chris BrownIAU Intrepid Mines 513 Dec 10 0.99 1.62 2.70 63% Buy -51% -38% 5.3 -5.9 -9.9 0.1 1.0 -1.1 -1.9 - -209% -41% - 0.0 0.0 0.0 0.0% 0 - - - - - -42.0 -67.8 2.8 -3.2% n.a. -83.9% Chris BrownIGR Integra Mining 405 Jun 11 0.48 0.80 0.80 67% Buy -32% -20% 41.1 47.0 37.4 0.4 4.9 5.6 4.4 31.4% 14% -20% -18% 0.0 0.0 0.0 0.0% 0 8.6 10.8 -0.5 0.81 1.11 4.8 3.8 1.9 24.9% 0.9- -36.5% Chris BrownKCN Kingsgate 991 Jun 11 7.32 9.06 9.06 24% Buy -33% -20% 32.0 206.7 205.7 0.4 23.6 152.7 152.0 6.9% 547% 0% 81% 15.0 35.0 59.0 4.8% 0 4.8 4.8 0.1 0.45 0.49 3.6 3.1 1.3 30.1% 0.4- -15.2% Sam BerridgeKGL Kentor Gold 97 Dec 10 0.09 0.22 0.24 145% Buy -50% -37% 0.1 -2.0 16.2 1.0 0.0 -0.3 2.8 -17.9% -4070% - - 0.0 0.0 0.0 0.0% 0 - 3.7 - - 0.30 -41.9 -41.9 1.9 -5.9% n.a. -31.7% Chris BrownMML Medusa Mining 1,280 Jun 11 6.79 7.90 7.90 16% Buy 5% 18% 112.5 121.8 110.6 0.8 59.9 64.8 58.8 10.2% 8% -9% 9% 10.0 10.0 10.0 1.4% 0 10.1 10.8 1.1 0.95 1.10 9.3 8.2 3.4 39.1% 0.7- -27.9% Phillip ChippindaleOGC OceanaGold 576 Dec 10 2.14 3.00 3.00 40% Buy -41% -29% 32.4 64.0 72.1 0.5 12.4 24.4 27.5 -6.3% 97% 13% 10% 0.0 0.0 0.0 0.0% 0 8.6 7.4 0.8 0.70 0.69 5.4 3.1 3.2 11.1% 0.0 1.4% Phillip ChippindalePRU Perseus Mining 1,277 Jun 11 3.00 3.64 3.16 21% Hold -11% 1% -30.0 126.6 113.3 0.6 -7.1 29.7 26.6 42.2% - -10% 87% 0.0 0.0 0.0 0.0% 0 10.1 11.3 0.1 0.95 1.15 7.6 6.8 3.5 43.5% 0.6- -29.0% Sam BerridgeRRL Regis Resources 1,258 Jun 11 2.92 2.96 2.57 1% Hold 22% 34% 37.2 75.2 215.4 1.0 8.6 17.5 50.0 32.8% 102% 186% 86% 0.0 0.0 0.0 0.0% 0 16.7 5.8 0.2 1.57 0.60 16.3 14.7 10.1 56.9% 0.2 12.9% Sam BerridgeSAR Saracen Minera 456 Jun 11 0.74 1.07 1.07 44% Buy -12% 1% 47.7 66.2 73.8 0.7 9.2 12.1 13.0 60.6% 32% 8% 16% 0.0 0.0 0.0 0.0% 0 6.1 5.7 0.4 0.58 0.58 4.0 3.8 2.1 41.7% 0.9- -43.2% James Wilson

Miscellaneous Metals & MiningDML Discovery 594 Jun 11 1.36 1.30 1.73 -4% Hold -4% 8% -2.5 -26.0 96.8 3.9 -0.6 -5.9 21.8 -9.4% -90% - - 0.0 0.0 0.0 0.0% 0 - 6.2 - - 0.64 -31.8 -31.8 3.4 -13.6% n.a. -35.2% Chris BrownFND Finders Resources 105 Dec 10 0.38 0.67 0.67 77% Buy -3% 10% -7.4 -7.9 59.3 1.0 -2.6 -2.7 20.4 - -3% - - 0.0 0.0 0.0 0.0% 0 - 1.8 - - 0.17 -17.7 -17.7 1.3 -8.7% n.a. -9.1% Chris BrownHSK Heemskirk 16 Sep 10 0.10 0.16 0.16 63% Hold -58% -46% -5.4 -3.4 5.0 2.6- -3.5 -2.2 3.2 - 59% - 6% 0.0 0.0 1.0 0.0% 100 - 3.3 - - 0.31 28.8 5.7 0.5 -11.9% 2.5 39.1% Chris BrownMBN Mirabela Nicke 639 Dec 10 1.30 2.03 2.25 56% Buy -43% -30% -51.7 -29.2 30.8 7.1 -10.5 -6.0 6.3 -48.4% 77% - 11% 0.0 0.0 0.0 0.0% 0 - 19.6 - - 1.85 -3,701.5 18.9 1.0 -4.8% 6.0 46.6% Tom SartorMGX Mount Gibson Iron 1,561 Jun 11 1.45 1.85 1.85 28% Buy -32% -19% 233.8 390.1 378.9 0.8 21.7 36.2 35.2 -15.5% 67% -3% 6% 4.0 4.0 4.0 2.8% 0 4.0 4.1 0.6 0.38 0.42 1.8 1.7 1.0 28.8% 1.0- -37.6% Lyndon FaganPSH Penrice Soda 13 Jun 11 0.14 0.13 0.13 -4% Sell -62% -49% -26.1 0.5 1.8 0.3- -28.6 0.6 2.0 - - 231% -53% 0.0 0.0 0.0 0.0% 0 24.1 7.3 -0.5 2.27 0.74 8.6 4.5 0.2 0.8% 3.9 110.7% Alexandra ClarkeTXN Texon 160 Dec 10 0.66 1.33 1.33 102% Buy -3% 10% 2.1 9.6 18.9 1.8 1.2 3.7 7.2 - 213% 97% 79% 0.0 0.0 0.0 0.0% 0 18.0 9.1 0.2 1.47 0.86 9.1 6.9 2.8 20.3% 2.0- -59.0% Chris Brown

Exchange Gold Oil Zinc Nickelrate WTI LME LME coking steaming lump fines

(A$/US$) (US$/oz) (US$/bbl) (US$/lb) (US$/lb) (US$/t) (US$/t) (US$/t) (US$/t)

FY10 0.88 1092 77.2 0.94 8.79 146.0 76.3 86.4 73.7CY10 0.92 1223 82.6 0.98 9.89 190.5 90.0 138.5 118.1FY11 0.99 1370 93.2 1.02 10.87 247.3 108.3 176.0 154.1CY11 1.04 1637 94.4 1.05 10.92 287.5 120.0 138.5 162.9FY12 1.06 1838 87.8 1.04 10.41 301.3 118.8 177.0 161.8CY12 1.08 1750 91.0 1.10 11.00 305.0 116.3 138.5 153.2FY13 1.10 1600 94.3 1.18 11.95 290.0 112.5 159.3 145.4CY13 1.08 1525 96.0 1.33 12.98 270.0 107.5 138.5 137.9LT (2015+) 0.75 1100 90.0 1.00 8.50 180.0 100.0 95.4 84.8

Source: Company data, RBS forecasts, RBS Morgans forecasts.* Share prices as at close of trading on 21 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)

4.25 1.154.33 1.15

3.93 1.08

(US$/lb) (US$/lb)

3.03 0.91

LME

3.42 0.99

AluminiumCopper Iron oreCoalLME

4.86 1.353.00 1.15

4.50 1.194.65 1.25

121

S&P/ASX 200 - Sector Aggregations (RBS)Prices updated: 20 October 2011

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

200 CONS DISCRET 14.6 13.5 12.7 11.3 10.2 -24.2 7.3 5.6 11.2 9.9200 ENERGY 25.2 24.9 23.0 18.0 16.9 -21.1 3.1 9.1 27.4 6.2200 HEALTHCARE 16.9 15.1 15.1 14.9 13.5 35.9 11.9 -5.0 1.1 10.7200 INFO TECHNOL 16.6 14.6 14.4 13.6 12.1 4.5 13.0 1.9 6.1 12.2200 MATERIALS 21.4 15.2 10.2 8.3 7.6 -36.9 43.5 54.7 22.8 9.6200 INDUSTRIALS 25.4 19.9 20.8 13.9 11.9 -60.6 37.2 -4.3 48.1 17.4200 PROPERTY 8.1 10.2 11.7 10.8 10.2 -22.2 -19.7 -12.7 8.5 6.0200 CONS STAP 19.2 17.6 16.0 14.2 12.7 -0.4 9.2 9.6 12.3 11.8200 TELECOMS 11.8 11.6 12.7 12.2 11.5 0.5 2.2 -9.1 4.7 5.4200 UTILITIES 16.2 15.4 14.3 14.6 14.1 18.8 3.9 8.0 -1.0 3.8200 FIN EX PROP 13.5 11.4 10.6 9.8 9.2 -17.5 17.8 7.6 8.1 6.7S&P/ASX 200 16.3 13.9 12.1 10.6 9.7 -22.6 17.9 16.0 14.8 8.6

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

200 CONS DISCRET 2.7 3.3 3.3 3.6 3.9 11.8 9.2 9.0 8.2 7.7200 ENERGY 3.0 2.5 2.5 2.9 3.2 14.5 14.7 16.3 11.5 10.8200 HEALTHCARE 2.7 3.2 3.1 3.4 3.7 14.0 11.2 11.5 12.5 11.2200 INFO TECHNOL 3.2 3.9 4.1 4.4 5.0 13.8 11.6 13.8 11.8 10.8200 MATERIALS 1.7 2.2 2.4 2.8 3.1 7.9 6.7 4.4 4.0 3.8200 INDUSTRIALS 3.9 3.7 3.6 4.7 5.4 9.4 7.2 8.0 7.0 5.9200 PROPERTY 12.7 7.9 6.3 6.6 6.9 9.8 11.1 12.8 12.2 11.2200 CONS STAP 3.8 4.5 5.0 5.6 6.1 11.9 10.6 10.7 9.2 9.1200 TELECOMS 6.2 6.5 6.7 6.8 7.0 6.6 6.2 6.5 6.3 6.2200 UTILITIES 7.5 7.0 6.8 6.8 7.1 10.2 9.4 8.5 8.4 8.2200 FIN EX PROP 5.4 6.2 6.8 7.3 7.7 na na na na naS&P/ASX 200 4.0 4.4 4.6 5.1 5.5 9.2 7.9 6.6 6.1 5.7

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

200 CONS DISCRET 1.6 1.5 1.4 1.4 1.3 10.1 11.5 11.5 12.4 12.8200 ENERGY 2.0 2.0 1.8 1.7 1.6 10.3 8.1 8.1 9.7 9.8200 HEALTHCARE 2.6 2.5 2.5 2.4 2.2 17.9 16.8 16.4 16.4 17.0200 INFO TECHNOL 5.6 4.8 4.2 3.8 3.4 36.4 35.3 31.1 29.2 29.3200 MATERIALS 3.1 2.8 2.2 1.8 1.5 17.7 21.7 26.3 25.6 22.6200 INDUSTRIALS 1.8 1.5 1.5 1.5 1.4 7.2 9.1 7.4 10.8 12.1200 PROPERTY 0.7 1.1 1.0 1.0 0.9 8.0 8.6 8.9 9.1 8.9200 CONS STAP 2.2 2.1 2.1 2.0 1.9 12.7 12.4 13.2 14.3 15.4200 TELECOMS 2.7 2.4 2.4 2.4 2.3 22.4 21.9 19.1 19.9 20.1200 UTILITIES 1.4 1.4 1.3 1.3 1.3 9.9 9.4 9.7 9.3 9.5200 FIN EX PROP 1.7 1.6 1.5 1.4 1.4 12.6 14.5 14.9 15.1 15.3S&P/ASX 200 2.1 2.0 1.8 1.7 1.5 13.6 15.4 16.7 17.4 17.0

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

200 CONS DISCRET 27.1 20.9 19.8 21.0 15.1 6.2 6.9 7.0 7.4 7.7200 ENERGY 7.6 10.4 14.5 19.0 22.9 5.1 4.7 4.8 5.6 5.2200 HEALTHCARE 12.6 18.1 18.1 17.1 12.4 10.5 10.6 10.7 10.6 10.9200 INFO TECHNOL 37.1 29.1 25.2 28.3 20.6 29.8 32.1 32.8 33.3 32.8200 MATERIALS 21.3 9.0 10.3 12.1 3.7 9.5 12.8 15.9 16.1 14.9200 INDUSTRIALS 41.0 31.2 31.9 33.8 33.4 3.9 4.9 4.2 5.5 6.1200 PROPERTY 40.0 37.5 38.2 35.8 34.2 5.0 5.5 5.1 5.6 5.8200 CONS STAP 23.4 22.7 22.2 22.3 22.1 7.9 7.8 8.0 8.4 8.9200 TELECOMS 41.7 37.0 35.4 32.1 28.7 11.3 11.3 10.3 10.5 10.7200 UTILITIES 53.0 51.4 49.6 50.7 51.2 6.8 5.7 5.9 5.7 5.8200 FIN EX PROP na na na na na 3.6 3.9 4.6 4.4 4.7S&P/ASX 200 28.6 21.9 21.6 21.9 17.5 7.6 8.9 9.9 10.5 10.3

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013


Source: Company data, RBS forecasts * When comparing to consensus (IBES), RBS forecasts include BHP and RIO, but only a limited number of property stocks

EPS growth (%)*

EV/EBITDA (x)

PCF (x)

ROE (%)

ROA (%)

PE (x)

EV/EBIT (x)

Dividend yield (%)

PB (x)

Gearing - net debt/(net debt+equity) (%)

123

S&P/ASX 200 - Sector Aggregations (IBES)Prices updated: 20 October 2011

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

200 CONS DISCRET 10.2 9.8 9.8 9.9 10.5 -18.3 3.7 0.4 -1.0 -5.3200 ENERGY 21.6 22.9 20.3 17.0 14.7 -17.6 -3.7 12.6 19.5 15.4200 HEALTHCARE 6.5 17.8 17.9 16.9 14.8 103.9 -64.6 -0.7 6.1 13.8200 INFO TECHNOL 15.1 13.7 14.1 13.8 12.0 0.2 10.8 -2.8 1.8 14.7200 MATERIALS 21.1 16.4 10.4 8.7 8.0 -33.0 31.1 56.7 20.0 9.3200 INDUSTRIALS 165.6 22.8 21.6 16.6 13.4 -96.3 497.6 5.6 30.2 23.7200 PROPERTY 6.8 9.9 11.5 11.5 11.0 -35.1 -17.0 -13.6 -0.3 4.9200 CONS STAP 19.0 17.1 15.7 14.1 13.0 -3.3 11.1 8.5 11.8 8.0200 TELECOMS 10.0 10.3 12.2 11.1 10.7 11.5 -3.2 -15.9 10.4 3.2200 UTILITIES 17.2 16.9 17.0 15.8 14.7 12.3 1.9 -0.5 7.4 7.6200 FIN EX PROP 13.9 11.9 10.5 10.1 9.5 -9.8 17.0 13.2 4.2 6.5S&P/ASX 200 15.2 14.0 11.9 10.7 9.9 -18.0 8.7 18.0 10.8 8.0

Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013


Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013


Sector 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013


Source: IBES

PE (x) EPS growth (%)

EV/EBIT (x) EV/EBITDA (x)

Dividend yield (%) Gross dividend yield (%)

ROA (%) ROE (%)

124

Sector Aggregations (RBS)Prices updated: 20 October 2011

Sector 2009 2010 2011 2012 2013 2011 2012 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

Energy 25.9 25.2 23.5 18.3 17.1 1.92 1.72 -14.9 5.3 7.7 28.1 6.7 3.7 2.5 2.6 2.8 3.1Energy 25.9 25.2 23.5 18.3 17.1 1.92 1.72 -14.9 5.3 7.7 28.1 6.7 3.7 2.5 2.6 2.8 3.1

Aluminium & Steel 46.9 20.8 11.0 8.1 7.7 0.90 0.76 -75.6 100.0 91.5 37.1 4.7 1.2 1.7 2.6 2.7 3.6Chemicals 14.5 13.4 12.7 10.8 10.2 1.04 1.02 -29.6 1.8 5.7 17.2 6.6 3.0 3.0 3.3 3.8 4.3Div Metals & Mining 20.5 14.6 8.8 7.5 6.8 0.72 0.70 -35.0 47.2 65.4 18.0 9.1 1.6 2.1 2.4 2.8 3.0Forestry products 0.0 0.0 0.0 0.0 0.0 0.00 0.00 0.0 0.0 0.0 5.1 5.9 0.0 0.0 0.0 0.0 0.0Gold, Precious Metals 49.5 25.2 27.4 13.4 12.0 2.24 1.26 -19.3 100.0 -8.0 100.0 11.9 0.4 0.7 0.5 1.3 1.5Packaging & Paper 16.3 20.0 15.1 13.1 11.6 1.23 1.23 0.4 -18.2 32.1 15.4 12.4 4.8 4.2 5.0 5.1 5.7Materials 21.7 15.5 10.2 8.3 7.6 0.83 0.78 -37.0 44.5 57.1 22.7 9.4 1.7 2.1 2.4 2.8 3.1

Construction 16.3 13.1 18.8 11.4 9.6 1.54 1.07 -22.6 19.2 -30.8 64.0 18.9 3.2 4.5 3.8 5.0 5.6Other Capital Goods 14.6 11.7 19.7 10.4 9.1 1.61 0.98 -21.2 16.8 -41.2 88.8 14.5 3.6 5.6 4.2 5.6 6.3Services & Supplies 14.0 15.5 14.3 12.4 10.5 1.17 1.16 -14.1 -8.8 7.7 14.4 18.5 3.7 3.6 3.6 4.7 5.4Transportation -379.9 41.0 26.9 18.7 15.5 2.20 1.75 -100.0 -100.0 54.0 43.9 19.9 4.3 2.7 3.3 4.2 4.9Industrials 23.0 19.2 20.0 13.7 11.6 1.64 1.28 -57.7 28.2 -4.4 45.4 17.3 3.9 3.7 3.6 4.7 5.4

Consumer Producers 8.3 8.4 9.2 9.2 8.4 0.75 0.86 -20.0 -0.5 -7.8 0.0 9.8 8.7 8.4 7.9 8.2 8.8Consumer Services 11.1 11.4 11.3 11.2 12.0 0.92 1.05 -16.4 -3.9 0.1 0.2 -6.8 5.6 5.8 5.7 5.9 5.5Media 19.0 16.5 14.4 11.8 10.1 1.18 1.11 -31.0 14.7 13.8 20.4 16.2 1.2 1.7 1.8 2.2 2.6Consumer Discretionary 14.7 13.6 12.8 11.3 10.3 1.04 1.06 -23.4 6.8 6.1 11.2 10.1 2.7 3.3 3.4 3.7 4.0

Food Bev & Tobacco 21.6 15.4 14.1 13.4 12.5 1.15 1.26 -20.0 39.6 10.0 4.4 6.3 4.0 4.7 4.9 5.1 5.4Retail 17.7 16.2 15.1 13.6 12.0 1.24 1.28 -1.0 8.2 7.3 11.2 13.0 3.9 4.6 5.2 5.7 6.3Consumer Staples 19.8 17.6 16.1 14.3 12.7 1.31 1.34 -4.3 12.3 9.7 12.4 12.0 3.8 4.4 4.9 5.5 6.0

Healthcare 17.4 15.9 16.4 15.8 13.6 1.34 1.49 41.2 10.1 -6.9 4.4 16.7 2.7 3.2 3.0 3.3 3.7Healthcare 17.4 15.9 16.4 15.8 13.6 1.34 1.49 41.2 10.1 -6.9 4.4 16.7 2.7 3.2 3.0 3.3 3.7

Banks 14.2 11.5 10.4 9.8 9.3 0.85 0.92 -14.7 23.9 9.6 6.3 5.2 5.2 6.2 6.8 7.2 7.6Diversified Financials 11.2 10.7 11.0 10.4 9.4 0.90 0.98 -36.5 2.5 -3.2 5.7 9.7 5.3 6.0 6.3 6.7 7.0Insurance 12.0 12.5 12.7 10.0 8.8 1.03 0.94 -4.2 -4.6 -2.4 26.8 12.9 6.3 6.4 6.9 8.0 8.6Financials ex Property 13.5 11.4 10.6 9.8 9.2 0.87 0.92 -17.5 17.8 7.6 8.2 6.7 5.4 6.2 6.8 7.3 7.7

Mgmnt & Development 8.2 10.1 10.6 10.0 9.3 0.87 0.94 -26.7 -19.1 -5.6 5.9 8.0 11.3 7.3 6.1 6.5 7.0Property 2.9 4.7 6.9 6.7 6.1 0.57 0.63 -42.0 -37.9 -31.6 3.1 10.3 13.6 4.5 9.1 9.7 10.7Property & Development 8.1 10.2 11.7 10.8 10.2 0.96 1.01 -22.2 -19.7 -12.7 8.5 6.0 12.7 7.9 6.3 6.6 6.9

IT 16.9 14.6 14.6 13.4 12.1 1.20 1.26 4.3 15.4 -0.1 8.8 10.4 3.3 4.1 4.3 4.7 5.3Information Technology 16.9 14.6 14.6 13.4 12.1 1.20 1.26 4.3 15.4 -0.1 8.8 10.4 3.3 4.1 4.3 4.7 5.3

Telecommunications 11.9 11.6 13.0 12.2 11.5 1.06 1.15 2.9 2.8 -10.3 6.3 6.6 6.1 6.4 6.6 6.7 6.9Telecommunications 11.9 11.6 13.0 12.2 11.5 1.06 1.15 2.9 2.8 -10.3 6.3 6.6 6.1 6.4 6.6 6.7 6.9

Utilities 16.0 21.6 15.3 15.3 14.4 1.25 1.44 -7.1 -31.8 40.5 0.8 6.7 8.0 7.1 6.8 6.8 7.0Utilities 16.0 21.6 15.3 15.3 14.4 1.25 1.44 -7.1 -31.8 40.5 0.8 6.7 8.0 7.1 6.8 6.8 7.0

INDUSTRIAL ex Banks 15.2 14.5 14.0 12.1 10.9 1.14 1.13 -21.4 5.7 3.1 15.6 11.0 4.5 4.7 4.8 5.3 5.8INDUSTRIAL SECTOR 14.9 13.3 12.6 11.2 10.3 1.03 1.06 -19.5 11.7 5.5 12.0 8.9 4.7 5.1 5.5 5.9 6.4RESOURCE SECTOR 22.7 16.8 11.5 9.4 8.6 0.94 0.88 -30.8 40.0 52.6 23.3 9.2 2.0 2.1 2.2 2.6 2.9S&P/ASX 100 16.3 13.8 11.9 10.4 9.6 0.97 0.98 -23.1 19.3 17.3 14.5 8.4 4.0 4.4 4.6 5.1 5.5SMALL ORDINARIES 16.4 16.5 14.8 12.5 11.2 1.21 1.18 -20.8 2.8 12.7 18.4 11.6 3.8 3.9 4.3 4.6 5.1SMALL INDUSTRIALS 14.9 14.4 13.0 11.8 10.7 1.06 1.11 -20.5 0.2 10.8 9.9 10.5 4.2 4.5 5.0 5.4 5.8SMALL RESOURCES 128.6 93.0 87.6 19.5 16.0 7.16 1.83 -32.1 100.0 80.5 100.0 21.4 0.9 0.4 0.3 0.5 0.6

MARKET AVERAGE 16.3 14.1 12.2 10.6 9.8 1.00 1.00 -22.1 17.1 16.3 15.1 8.8 4.0 4.3 4.6 5.0 5.4Source: Company data, RBS forecasts

EPS growth (%) Dividend yield (%)PE (x) PE rel

125

Sector Aggregations (RBS)Prices updated: 20 October 2011

Sector 2010 2011 2012 2013 2010 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013

Energy 20.2 16.4 12.5 12.2 13.7 12.0 9.4 9.1 1.8 1.7 1.6 8.0 9.6 9.8 4.8 5.6 5.2Energy 20.2 16.4 12.5 12.2 13.7 12.0 9.4 9.1 1.8 1.7 1.6 8.0 9.6 9.8 4.8 5.6 5.2

Aluminium & Steel 13.8 8.1 6.4 5.9 9.6 6.5 5.5 5.0 1.3 1.1 1.0 12.3 15.2 13.9 9.5 11.1 10.2Chemicals 9.8 9.3 8.3 7.4 7.9 7.6 6.8 6.2 1.7 1.7 1.6 13.8 15.9 16.2 9.6 10.6 11.2Div Metals & Mining 8.7 6.2 5.0 4.3 7.1 5.3 4.4 3.7 2.5 1.9 1.5 31.8 29.8 25.3 18.7 18.3 16.6Forestry products 0.0 0.0 10.1 8.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.8 3.3 0.0 0.0 0.0Gold, Precious Metals 24.0 20.0 9.6 8.1 18.4 14.2 7.8 6.6 2.0 1.8 1.5 10.3 14.0 13.7 8.4 11.3 11.1Packaging & Paper 16.1 12.3 10.4 9.4 9.9 8.0 7.3 6.8 2.3 2.2 2.1 14.7 17.5 18.6 6.8 7.7 8.3Materials 9.6 7.0 5.5 4.8 7.7 5.9 4.8 4.1 2.2 1.8 1.5 26.2 25.5 22.5 15.9 16.0 14.8

Construction 10.5 14.6 8.7 7.3 6.6 7.9 5.6 5.0 1.8 1.6 1.5 9.5 14.6 16.0 5.1 7.4 8.3Other Capital Goods 8.7 12.9 7.1 6.2 5.5 6.7 4.6 4.1 1.7 1.6 1.4 8.2 15.6 16.5 4.7 8.0 8.8Services & Supplies 12.6 11.3 9.4 8.1 8.4 7.6 6.5 5.7 2.0 1.9 1.8 15.1 16.3 17.9 8.3 8.6 9.5Transportation 20.6 18.3 14.8 12.5 9.8 9.3 8.1 7.2 1.2 1.2 1.2 4.6 6.4 7.5 3.1 3.7 4.2Industrials 13.8 14.6 10.8 9.3 7.9 8.1 6.6 5.9 1.5 1.4 1.4 7.6 10.9 12.2 4.3 5.6 6.2

Consumer Producers 7.2 8.3 7.6 7.0 6.1 6.8 6.2 5.8 1.2 1.2 1.1 13.6 13.1 13.9 8.3 7.7 8.2Consumer Services 9.6 8.8 8.8 9.4 7.6 6.9 6.9 7.4 1.7 1.6 1.5 13.7 14.7 13.1 8.7 8.9 8.5Media 10.8 9.9 8.4 7.4 7.6 7.0 6.5 5.8 1.4 1.3 1.2 10.3 11.5 12.4 6.3 6.9 7.4Consumer Discretionary 9.6 9.1 8.1 7.7 7.3 6.8 6.5 6.3 1.4 1.4 1.3 11.5 12.4 12.9 7.1 7.4 7.8

Food Bev & Tobacco 11.6 10.2 9.4 8.8 9.2 8.0 7.3 6.9 1.8 1.7 1.6 12.7 13.3 13.3 7.8 8.1 8.3Retail 10.9 10.4 9.6 8.5 8.7 8.3 7.7 6.9 1.9 1.8 1.8 12.9 13.9 15.1 7.9 8.2 8.9Consumer Staples 11.9 11.0 10.0 9.0 9.4 8.7 8.0 7.2 2.0 1.9 1.9 12.7 13.9 14.9 7.7 8.1 8.7

Healthcare 13.1 13.5 12.9 11.2 10.9 11.1 10.5 9.2 2.4 2.4 2.2 14.7 15.3 16.6 9.5 9.7 10.6Healthcare 13.1 13.5 12.9 11.2 10.9 11.1 10.5 9.2 2.4 2.4 2.2 14.7 15.3 16.6 9.5 9.7 10.6

Banks na na na na na na na na 1.6 1.5 1.4 16.4 16.4 16.2 0.0 0.0 0.0Diversified Financials 9.2 5.9 5.9 5.8 8.1 5.4 5.3 5.2 1.1 1.1 1.0 10.1 10.3 10.9 7.1 6.4 6.0Insurance 18.7 16.1 15.6 12.4 16.8 14.7 13.8 11.2 1.2 1.2 1.2 10.3 12.3 13.5 7.6 7.7 7.9Financials ex Property 9.2 7.8 7.8 7.2 8.6 7.3 7.1 6.6 1.5 1.4 1.4 14.9 15.1 15.3 4.6 4.4 4.7

Mgmnt & Development 11.9 14.1 12.6 11.5 11.8 13.8 12.2 11.2 1.0 0.9 0.9 9.7 9.7 9.7 4.9 5.2 5.5Property 5.0 6.6 6.2 5.6 4.9 6.5 6.1 5.5 0.4 0.4 0.4 5.9 6.0 6.5 4.6 4.7 5.0Property & Development 12.8 17.1 14.6 13.5 12.8 17.1 14.6 13.5 1.0 1.0 0.9 8.9 9.1 8.9 5.1 5.6 5.8

IT 11.8 11.1 9.1 8.2 10.0 9.2 7.6 7.0 3.3 3.0 2.8 24.2 23.5 23.8 13.3 13.9 14.1Information Technology 11.8 11.1 9.1 8.2 10.0 9.2 7.6 7.0 3.3 3.0 2.8 24.2 23.5 23.8 13.3 13.9 14.1

Telecommunications 9.5 10.0 9.4 8.9 6.0 6.2 5.9 5.6 2.4 2.3 2.2 18.2 19.2 19.6 9.9 10.3 10.6Telecommunications 9.5 10.0 9.4 8.9 6.0 6.2 5.9 5.6 2.4 2.3 2.2 18.2 19.2 19.6 9.9 10.3 10.6

Utilities 12.9 12.7 11.8 11.3 9.8 9.5 8.9 8.6 1.3 1.3 1.3 8.7 8.6 9.0 5.2 5.2 5.4Utilities 12.9 12.7 11.8 11.3 9.8 9.5 8.9 8.6 1.3 1.3 1.3 8.7 8.6 9.0 5.2 5.2 5.4

INDUSTRIAL ex Banks 11.4 11.1 9.8 8.9 8.1 7.8 7.1 6.6 1.6 1.5 1.4 11.7 13.0 13.6 6.9 7.5 7.9INDUSTRIAL SECTOR na na na na na na na na 1.6 1.5 1.4 13.1 14.0 14.4 6.9 7.5 7.9RESOURCE SECTOR 10.3 7.5 5.9 5.2 8.3 6.3 5.1 4.4 2.3 1.9 1.6 24.7 24.1 21.5 14.8 14.8 13.5S&P/ASX 100 10.6 8.8 7.3 6.5 8.0 6.9 5.9 5.3 1.8 1.6 1.5 17.0 17.7 17.2 10.3 10.8 10.6SMALL ORDINARIES 12.3 11.5 9.5 8.4 8.6 8.1 6.9 6.2 1.8 1.7 1.6 12.3 13.8 14.6 7.3 8.1 8.5SMALL INDUSTRIALS 11.0 10.4 9.2 8.1 7.8 7.4 6.7 6.0 1.7 1.7 1.5 13.5 14.4 15.0 7.7 8.2 8.6SMALL RESOURCES 74.6 57.6 12.3 10.9 34.9 25.3 9.1 8.1 2.1 1.9 1.9 2.8 10.0 11.8 1.7 7.4 7.5

MARKET AVERAGE 10.8 9.1 7.5 6.8 8.1 7.0 6.0 5.4 1.8 1.6 1.5 16.5 17.3 16.9 9.8 10.4 10.2Source: Company data, RBS forecasts

P/BV (x) ROE (%) ROA (%)EV/EBIT (x) EV/EBITDA (x)

126

Absolute performance to 21 Oct 11Stock/sector Price % return over ... Stock/sector Price

last 4Q 3Q 2Q 1Q CY last 4Q 3Q 2Q 1Q CY21/10/11 2011 2011 2011 2011 2010 21/10/11 2011 2011 2011 2011 2010

Materials 11,042.4 +1.9 -19.3 -5.5 +0.9 +10.2 Consumer Disc 1220.1 +3.3 -14.2 -8.2 -0.1 -8.3 Adelaide Brighton $2.85 +8.0 -14.6 -4.0 -1.7 +20.0 APN News & Media $0.85 +1.2 -36.1 -15.4 -19.6 -16.6 Alumina Ltd $1.36 -8.4 -29.9 -14.2 -0.8 +34.8 Aristocrat Leisure $2.16 +2.9 -13.2 -25.5 +8.7 -25.6 Amcor $7.15 +3.2 -3.8 +2.0 +4.6 +8.3 Austar United $1.21 +4.3 -13.8 +2.3 +37.7 -32.7 Aquarius Platinum $2.72 -8.4 -36.8 -12.8 +0.7 -27.2 Billabong $3.54 +6.6 -44.8 -20.4 -7.4 -25.6 Atlas Iron Limited $3.05 +7.0 -23.6 0.0 +26.4 +56.1 Consolidated Media $2.50 +4.2 -8.0 -7.4 -9.6 +2.0 BHP Billiton $35.70 +1.9 -20.0 -5.9 +2.9 +4.9 Crown $7.85 -1.5 -10.8 +9.6 -1.2 +2.6 BlueScope Steel $0.83 +13.7 -39.4 -39.0 -12.2 -27.7 David Jones $3.16 +4.6 -25.6 -14.5 +6.5 -17.4 Boral $3.45 -1.4 -20.5 -12.0 +3.5 -16.6 Fairfax Media $0.88 +6.1 -15.8 -24.0 -7.9 -19.5 Fortescue Metals $4.25 -3.8 -30.4 -0.9 -2.0 +47.3 Flight Centre $17.80 +4.7 -21.4 -3.0 -10.1 +34.5 Gindalbie Metals Ltd $0.55 +14.6 -40.9 -26.4 -18.3 +31.1 Fleetwood Corp $11.79 +4.1 0.0 -6.4 -6.8 +62.6 Gunns $0.27 +80.0 -44.4 -56.5 -0.8 -33.5 GUD Holdings $7.52 +5.5 -21.6 -5.0 -4.0 +10.9 Iluka Resources $15.13 +20.9 -25.4 +26.2 +45.5 +155.3 Harvey Norman $2.21 +2.3 -13.3 -17.0 +2.0 -30.3 Incitec Pivot $3.28 +0.3 -15.3 -10.9 +9.3 +11.5 InvoCare $6.91 +0.1 -10.3 +8.6 -2.7 +18.2 Independence Group $4.81 +11.3 -23.3 -14.6 -17.1 +65.4 JB Hi-Fi $14.25 -6.3 -11.0 -15.2 +12.5 -20.8 James Hardie Indust $5.70 -0.9 -1.9 -3.9 -10.0 -20.2 News Corp $16.61 +1.9 -2.0 -6.8 +11.3 -10.4 Kagara Ltd $0.40 -1.3 -29.8 -7.3 -24.1 -22.9 Pacific Brands $0.62 -7.5 -3.6 -17.8 -13.8 -13.3 Kingsgate Consolid. $7.32 +1.9 -10.3 -7.9 -20.1 +18.1 Seven Network $7.74 -2.6 -17.4 +7.1 +2.2 +27.4 Lynas Corporation $1.10 +0.5 -44.9 -12.0 +9.2 +274.5 STW Communications $0.91 +1.1 -12.2 -15.3 +14.2 +41.3 Macarthur Coal $16.22 +1.9 +45.4 -5.6 -9.4 +13.8 Tabcorp Holdings $2.84 +10.1 -21.6 -24.6 +5.3 +2.3 Minara Resources $0.87 -0.6 +17.4 -2.6 -19.5 +32.2 Tatts Group $2.35 +5.4 -7.1 +2.6 -9.3 +10.8 Mincor Resources $0.76 +8.6 -23.2 -34.2 -27.1 +5.9 Ten Network Holdings $0.83 -6.8 -16.5 -18.8 -7.8 -10.4 Mount Gibson Iron $1.45 +8.2 -27.2 -7.5 -6.1 +28.5 Wotifcom Holdings $3.58 -9.8 -15.4 -14.1 +9.6 -28.3 Murchison Metals $0.26 -23.9 -56.2 -23.1 -22.0 -49.0 Newcrest Mining $33.30 -2.3 -9.6 -5.3 -1.5 +14.5 Nufarm $4.45 +4.0 -4.7 -13.2 +0.6 -50.7 OM Holdings Limited $0.60 +0.8 -35.3 -34.3 -0.4 -27.9 OneSteel $1.24 -0.4 -33.0 -24.2 -5.8 -22.7 Cons Staples 7,455.6 -1.4 -4.2 +2.1 +0.2 -1.2 Orica $24.10 +2.6 -12.8 +2.2 +5.9 +0.5 Coca-Cola Amatil $12.01 +0.7 +4.5 -2.7 +8.1 -5.8 PaperlinX $0.09 +17.8 -54.4 -54.9 -13.4 -35.9 Foster's Group $5.30 +0.4 +2.5 +23.4 +0.7 +3.3 Platinum Australia $0.18 +9.4 -59.0 -33.9 -7.1 -37.8 Goodman Fielder $0.53 +10.4 -51.3 -13.8 -8.6 -17.5 Rio Tinto $62.57 +1.2 -25.5 -2.1 -0.8 +14.1 Metcash $4.15 +1.0 -1.0 -0.2 +1.2 -8.1 Sims Group $13.38 +7.9 -29.7 +0.8 -18.8 -2.8 Wesfarmers $31.00 -1.9 -0.8 +0.2 -0.7 +2.3 St Barbara Limited $2.05 0.0 +4.9 -10.3 +6.9 +15.3 Woolworths $24.06 -3.2 -10.4 +3.2 -0.3 -3.7 Sundance Resources $0.44 +1.2 +26.5 -26.9 -19.1 +271.0 Western Areas NL $5.28 +22.2 -26.8 -12.7 +13.2 +19.4

Inform Tech 476.9 -0.9 -14.0 -4.8 -8.8 -4.2 Health Care 7,861.3 +3.4 -11.1 -3.8 -0.5 +2.1 Computershare $7.29 -2.4 -15.8 -4.2 -14.1 -5.9 Ansell $13.60 +4.1 -7.8 +4.7 +6.6 +16.0 DWS Advanced $1.32 +9.1 -8.3 -8.7 +2.4 -7.8 Cochlear $57.98 +25.0 -35.6 -13.2 +3.2 +16.4 GBST $0.94 -3.1 +21.3 -20.0 +7.5 -3.6 CSL Ltd $30.00 +1.1 -10.2 -7.5 -1.5 +11.7 Iress $7.18 +2.6 -22.3 -3.6 +7.5 +1.6 Ramsay Health Care $18.85 -0.8 +4.5 -4.8 +7.2 +63.5 Oakton $1.75 -0.6 -15.8 -9.1 -3.4 -24.7 ResMed Inc $2.95 +0.3 +2.4 -1.4 -16.6 +17.7 SMS Mgmt & Tech $5.41 0.0 -14.1 -2.6 -2.9 +18.7 Sigma Pharma $0.69 +6.2 +22.6 +56.6 +22.5 -59.6 Technology One $1.11 +3.3 +4.9 +6.3 0.0 +18.2 Sonic Hlthcare $10.85 -4.8 -11.4 +7.4 +3.3 -24.5

Source: RBS, IRESS

% return over ...

127

Absolute performance to 21 Oct 11Stock/sector Price % return over ... Stock/sector Price

last 4Q 3Q 2Q 1Q CY last 4Q 3Q 2Q 1Q CY21/10/11 2011 2011 2011 2011 2010 21/10/11 2011 2011 2011 2011 2010

% return over ...

Industrials 3,271.5 +4.0 -11.0 -6.1 +0.8 -6.7 Finan ex Prop 4,615.3 +6.0 -12.7 -5.1 +3.8 -9.7 AJ Lucas Group $1.35 0.0 0.0 -25.4 -25.2 -41.7 Aust Educ Trust $0.87 0.0 +8.1 -0.6 -6.2 +81.4 Alesco Corporation $1.38 +1.5 -49.1 -14.7 +19.4 -43.6 AMP Ltd $4.05 +2.5 -19.2 -9.9 +2.6 -21.9 Asciano Group $1.48 +2.1 -11.6 -5.7 +9.1 -12.4 ANZ Banking $21.21 +8.7 -11.3 -7.6 +2.0 +2.1 Ausenco Limited $2.50 +12.1 -21.8 -14.9 +8.8 -32.5 Aust Secur Exch $30.16 -0.6 -0.4 -11.5 -8.7 +7.8 Aust Infrastructure $1.87 +2.8 -5.5 +0.3 +1.9 +5.6 Bank of Qld $8.18 +13.8 -12.0 -17.6 -4.5 -9.7 Boart Longyear $2.98 +13.7 -34.3 -14.7 +2.6 +28.5 Bendigo Bank $9.22 +8.6 -4.2 -7.0 -4.2 +1.1 BOOM Logistics $0.26 +15.6 -25.0 -22.1 0.0 -7.2 Comm Bank $47.55 +4.4 -12.9 -0.2 +3.2 -7.4 Bradken $7.45 +12.9 -17.1 +1.4 -12.9 +32.1 Challenger Fin $4.45 +4.7 -13.1 -0.8 +4.9 +11.1 Brambles $6.64 +2.6 -10.4 +2.0 -0.6 +5.0 Cromwell Corp $0.67 -0.7 -2.9 -2.1 -7.2 +4.1 Cabcharge $4.40 +0.9 -15.3 -6.7 -5.5 -2.8 Equity Trustees $12.46 +7.4 -16.5 -11.5 -0.6 -12.2 ConnectEast $0.55 0.0 +18.5 +1.1 +7.1 -2.3 FKP Property $0.52 +14.4 -35.7 -17.6 -0.6 +8.2 CSR Ltd $2.46 +5.6 -19.7 -11.6 -34.9 -6.9 IAG $3.08 +2.0 -11.2 -5.3 -7.5 -3.7 Downer EDI $2.90 +1.0 -22.4 -2.4 -14.5 -50.9 IOOF Holdings $6.03 +10.8 -17.6 -9.0 -7.1 +28.5 Emeco Holdings $1.00 +2.0 -13.3 -7.0 +17.4 +36.7 Lend Lease Corp $7.51 +6.7 -21.5 -1.1 +5.1 -13.0 GWA Intl $2.24 +12.0 -27.3 -16.9 +7.8 -3.8 Macquarie Bank $22.53 -1.5 -26.8 -14.6 -1.1 -23.5 Hastie Group Limited $0.11 +11.7 -32.9 -84.9 -3.1 -49.6 NAB $24.32 +8.7 -12.7 -0.9 +9.1 -13.5 Hills Industries $1.11 +9.4 -15.5 -21.9 -18.0 -8.6 Oaks Hotels 0.0 +43.1 +18.0 -25.6 Leighton $20.56 +10.1 -10.4 -27.7 -4.2 -19.2 Perpetual $21.93 +5.2 -16.4 -14.3 -6.8 -15.9 Macmahon Hldgs $0.61 +1.7 +7.1 -0.9 +7.6 -14.6 QBE Insurance $13.77 +6.9 -25.3 -2.4 -2.6 -29.1 Macq Airports $3.30 +2.2 -3.3 +9.9 +1.7 +2.8 Suncorp $8.25 +3.4 -2.0 -4.0 -1.5 -0.9 Monadelphous Grp $18.85 +8.3 -5.4 -14.0 +16.9 +27.8 Sunland Group $0.89 +16.3 +24.4 -11.5 -7.3 -9.1 PMP $0.60 -9.1 +6.5 -15.6 -21.0 +20.0 Treasury Group $3.41 +6.6 -19.2 -13.9 -8.0 -6.5 Qantas Airways $1.49 +5.3 -23.4 -15.6 -14.2 -15.1 Trinity Group $0.22 +10.3 +8.3 +38.5 +23.8 -22.2 SEEK $5.83 +9.6 -17.4 -4.7 +2.0 -3.9 Trust Company $5.60 +5.7 -3.6 -10.9 -2.1 -2.8 Spotless Group $2.00 +11.1 -23.0 +20.1 -7.6 -28.8 Westfield Group $7.55 -2.6 -10.5 -7.3 -2.5 -2.2 Toll Holdings $4.61 +4.5 -9.1 -18.2 +3.5 -34.4 Westpac $21.50 +5.7 -8.6 -8.5 +9.5 -12.2 Transfield Svcs $2.14 +12.9 -43.4 0.0 -0.3 -18.8 WH Soul Patt $13.69 +7.0 -2.3 +3.6 +0.4 -6.3 Transpacific $0.66 +6.5 -23.9 -27.2 -17.6 +0.4 WHK Group $0.84 +1.8 -10.9 -4.2 -11.1 +0.9 Transurban $5.42 0.0 +3.6 -2.6 +4.9 -7.1 United Group $12.13 +6.0 -17.6 -11.5 +8.7 +1.0 Energy 13,193.4 +5.7 -17.3 -11.1 +5.3 -0.0 Virgin Blue Holdings $0.36 +10.9 +14.3 -11.1 -26.7 -27.1 Aust Wwide Expl $1.15 +10.6 -18.8 -26.5 -2.0 -36.8 Wesfarmers $31.00 -1.9 -0.8 +0.2 -0.7 +2.3 Caltex $13.21 +22.0 -7.9 -24.6 +8.6 +54.5

Aquila Res $5.18 +4.0 -30.5 -23.2 -5.2 -2.5 Beach $1.11 +1.4 +19.1 -5.7 +12.1 -6.0

Infra & Utilities 4,353.1 +2.0 -2.7 +3.2 -3.7 +2.0 Carnarvon $0.13 -10.3 -17.1 -48.5 -28.4 -22.8 AGL Energy $14.61 +2.2 -2.4 +2.4 -6.0 +8.3 Eastnstar $0.83 +7.1 +28.1 -19.9 -6.2 -2.4 APA Group $4.23 +4.4 -0.5 -3.3 +4.0 +15.7 Extract $7.95 +4.2 -3.5 +0.1 -16.0 +13.0 DUET $1.65 +1.9 -3.9 +1.5 -0.6 -6.4 Karoon $3.75 +31.6 -45.5 -27.0 -2.6 -30.7 Energy Wld $0.50 -2.9 +3.0 +3.1 -14.9 +44.3 Linc Enrgy $2.00 +4.2 -33.1 -1.7 +10.2 +75.4 Envestra $0.65 -3.0 -3.6 +15.0 +14.3 +2.9 Molopo $0.72 +1.4 -6.6 -15.1 -15.6 -19.0 Hastings Diversified $1.61 +4.2 -2.2 -1.3 -5.3 +53.6 Nexus $0.18 +28.6 -57.6 -28.2 +7.9 +41.3 SP AusNet $0.99 +5.3 -1.1 +7.4 +1.1 -4.9 Energy Resource $2.04 -30.1 -28.8 -48.4 -28.6 -53.4 Spark Infra $1.21 -2.8 -3.5 +15.2 -1.3 -18.1 Gloucester Coal $6.77 +0.3 -20.5 -21.7 -10.9 +35.7

Horizon Oil $0.21 +10.8 -44.8 -9.5 +25.4 -19.2 New Hope Corp $5.93 +10.0 +3.3 +4.8 +2.7 +6.0 Oil Search $5.88 +3.9 -14.9 -6.6 +1.1 +14.8

Telecoms 1,074.0 +1.0 +7.1 +3.1 +0.4 -18.4 Origin Energy $14.05 +4.9 -15.1 -2.7 +0.2 -1.0 Amcom $0.81 +4.5 -30.2 +10.4 +1.5 +17.9 Paladin $1.55 +27.6 -51.8 -30.2 -26.8 +17.9 Hutchison Telecom $0.06 +3.4 -14.7 -26.9 -6.1 -17.5 Roc Oil $0.33 +4.8 -3.1 -19.0 -3.7 -38.8 iiNet $2.59 +18.8 -16.5 -1.5 -8.6 +55.9 Santos $12.12 +6.6 -16.0 -12.9 +18.3 -6.7 Singapore Tel. $2.45 -2.0 +11.2 +3.5 -1.7 -4.9 Woodside $33.38 +2.8 -20.8 -12.4 +10.0 -9.8 Telecom NZ $1.97 -3.9 +9.8 +27.0 -9.8 -18.8 WorleyParsons $27.80 +5.7 -6.9 -8.8 +15.9 -8.0 Telstra Corporation $3.14 +1.3 +7.3 +2.5 +1.1 -18.7 TPG Telecom $1.36 -4.6 -15.7 +0.9 +2.5 -2.1

S&P / ASX 100 3,378.1 +3.2 -13.1 -4.5 +2.3 -3.4 S&P / ASX 200 4,141.9 +3.3 -13.0 -4.8 +2.0 -2.6 S&P / ASX 300 4,138.5 +3.3 -13.1 -5.0 +1.9 -2.2

Source: RBS, IRESS

128

Daily Bulletin | Disclosures Appendix | 24 October 2011

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 aTrading 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 basedon 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 theresponsibility 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 isthe 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 withinthe 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 columnshows 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.

Regulatory disclosures Subject companies: ASC.AX, WPL.AX, PRY.AX, RMD.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 documentwanting 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 600Washington 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 RBS Equity Capital Markets (Australia) Limited is Underwriter and Joint Lead Manager to Downer EDI Limited for their Accelerated Renounceable Entitlement Offer: 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 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/oroptions. 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 600Washington 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 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/oroptions. 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 documentwanting 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 600Washington 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 documentwanting 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 600Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700.: WPL.AX

Long term recommendations (as at 21 Oct 2011)

Global total (IB%) Asia Pacific total(IB%)

Buy 864 (11) 564 (3)Hold 420 (7) 226 (4)Sell 89 (6) 50 (0)Total (IB%) 1373 (9) 840 (3)

Source: RBS

Trading recommendations (as at 21 Oct 2011)

Global total (IB%) Asia Pacific total (IB%)

Trading Buy 0 (0) 0 (0) Trading Sell 1 (0) 1 (0)Total (IB%) 1 (0) 1 (0)

Source: RBS

Daily Bulletin | Disclosures Appendix | 24 October 2011

Global disclaimer © Copyright 2011 The Royal Bank of Scotland plc and affiliated companies ("RBS"). All rights reserved. This Material was prepared by the legal entity named on the cover or inside cover page. It is provided for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. While based on information believed to be reliable, no guarantee is given that it is accurate or complete. While we endeavourto update on a reasonable basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so. The opinions,forecasts, assumptions, estimates, derived valuations and target price(s) contained in this Material are as of the date indicated and are subject to change at any time without prior notice. The investments referred to may not be suitable for the specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgement. The stated price of any securities mentioned herein is as of the date indicated and is not a representation that any transaction can be effected atthis price. Neither RBS nor other persons shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any wayfrom the information contained in this Material. This Material is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without RBS' prior express consent. In any jurisdiction in which distribution to private/retail customers would require registration or licensing of the distributor which the distributor does not currently have, this Material is intended solely for distribution to professional and institutional investors. THIS MATERIAL IS CLASSIFIED AS INVESTMENT RESEARCH AS DEFINED BY THE FINANCIAL SERVICES AUTHORITY. Australia: This Material is issued in Australia by The Royal Bank of Scotland plc (ABN 30 101 464 528), 88 Phillip Street, Sydney NSW 2000, Australia which is authorised and regulatedin Australia by the Australian Securities and Investments Commission (AFS License No. 241114) and the Australian Prudential Regulation Authority. Canada: The securities mentioned in this Material are available only in accordance with applicable securities laws and many not be eligible for sale in all jurisdictions. Persons in Canada requiring further information should contact their own advisors. EEA: This Material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or independent explanation ofthe matters contained in the Material. Any recommendations contained in this Material must not be relied upon as investment advice based on the recipient's personal circumstances. Inthe event that further clarification is required on the words or phrases used in this Material, the recipient is strongly recommended to seek independent legal or financial advice. Denmark: Royal Bank of Scotland N.V. is authorised and regulated in the Netherlands by De Netherlandsche Bank. In addition, Royal Bank of Scotland N.V. Danish branch is subject to local supervision by Finanstilsynet, The Danish Financial Supervisory Authority. Hong Kong: Material in connection only with equity securities is distributed in Hong Kong by, and is attributable to, RBS Asia Limited which is regulated by the Securities and Futures Commission of Hong Kong. All other material is distributed in Hong Kong by The Royal Bank of Scotland plc (Hong Kong branch), 30/F AIA Central, 1 Connaught Road Central, Hong Kong, which is regulated by the Hong Kong Monetary Authority. India: Shares traded on stock exchanges within the Republic of India may only be purchased by different categories of resident Indian investors, Foreign Institutional Investors registeredwith The Securities and Exchange Board of India ("SEBI") or individuals of Indian national origin resident outside India called Non Resident Indians ("NRIs"). Any recipient of this Materialwanting additional information or to effect any transaction in Indian securities or financial instrument mentioned herein must do so by contacting a representative of RBS Equities (India) Limited. RBS Equities (India) Limited is a subsidiary of The Royal Bank of Scotland N.V.. Italy: Persons receiving this Material in Italy requiring further information should contact The Royal Bank of Scotland N.V. Milan Branch. Japan: This report is being distributed in Japan by RBS Securities Japan Limited to institutional investors only. South Korea: This Material is being distributed in South Korea by, and is attributable to, RBS Asia Limited (Seoul) Branch which is regulated by the Financial Supervisory Service ofSouth Korea. Malaysia: RBS research, except for economics and FX research, is not for distribution or transmission into Malaysia. Netherlands: the Authority for the Financial Markets ("AFM") is the competent supervisor. Russia: This Material is distributed in the Russian Federation by RBS and "The Royal Bank of Scotland" ZAO (general banking license No. 2594 issued by the Central Bank of theRussian Federation, registered address: building 1, 17 Bolshaya Nikitskaya str., Moscow 125009, the Russian Federation), an affiliate of RBS, for information purposes only and is not anoffer to buy or subscribe or otherwise to deal in securities or other financial instruments, or to enter into any legal relations, nor as investment advice or a recommendation with respect tosuch securities or other financial instruments. This Material does not have regard to the specific investment purposes, financial situation and the particular business needs of any particular recipient. The investments and services contained herein may not be available to persons other than 'qualified investors" as this term is defined in the Federal Law "On the SecuritiesMarket". Singapore: Material in connection only with equity securities is distributed in Singapore by The Royal Bank of Scotland Asia Securities (Singapore) Pte Limited ("RBS Asia Securities")(RCB Regn No. 198703346M) under MICA (P) 155/08/2011. All other material is distributed in Singapore by The Royal Bank of Scotland plc (Singapore branch) ("RBS plc Singapore”)under MICA (P) 158/06/2011. Both entities are regulated by the Monetary Authority of Singapore. Singapore recipients should contact RBS Asia Securities or RBS plc Singapore at +656518 8888 for additional information. This material and the securities, investments or other financial instruments referred to herein are not in any way intended for, and will not be availableto, investors in Singapore unless they are accredited investors, expert investors and institutional investors (as defined in Section 4A(1) of the Securities and Futures Act (Cap. 289) ofSingapore ("SFA")). Further, without prejudice to any of the foregoing disclaimers, where this material is distributed to accredited investors or expert investors, RBS Asia Securities and RBS plc Singapore are exempted by Regulation 35 of the Financial Advisers Regulations from the requirements in Section 36 of the Financial Advisers Act (Cap.110) of Singapore ("FAA")mandating disclosure of any interest in securities referred to in this material, or in their acquisition or disposal. Recipients who are not accredited investors, expert investors or institutionalinvestors should seek the advice of their independent financial advisors prior to making any investment decision based on this document or for any necessary explanation of its contents. Thailand: Pursuant to an agreement with Asia Plus Securities Public Company Limited (APS), reports on Thai securities published out of Thailand are prepared by APS but distributed outside Thailand by RBS Bank NV and affiliated companies. Responsibility for the views and accuracy expressed in such documents belongs to APS. Turkey: The Royal Bank of Scotland N.V. is regulated by Banking Regulation and Supervision Authority (BRSA). UAE and Qatar: This Material is produced by The Royal Bank of Scotland N.V and is being distributed to professional and institutional investors only in the United Arab Emirates andQatar in accordance with the regulatory requirements governing the distribution of investment research in these jurisdictions. Dubai International Financial Centre: This Material has been prepared by The Royal Bank of Scotland N.V. and is directed at "Professional Clients" as defined by the Dubai Financial Services Authority (DFSA). No other person should act upon it. The financial products and services to which the Material relates will only be made available to customers who satisfy therequirements of a "Professional Client". This Material has not been reviewed or approved by the DFSA. Qatar Financial Centre: This Material has been prepared by The Royal Bank of Scotland N.V. and is directed solely at persons who are not "Retail Customer" as defined by the QatarFinancial Centre Regulatory Authority. The financial products and services to which the Material relates will only be made available to customers who satisfy the requirements of a"Business Customer" or "Market Counterparty". United States of America: This Material is intended for distribution only to "major institutional investors" as defined in Rule 15a-6 under the U.S. Exchange Act of 1934 as amended (the "Exchange Act"), and may not be furnished to any other person in the United States. Each U.S. major institutional investor that receives these Materials by its acceptance hereof represents and agrees that it shall not distribute or provide these Materials to any other person. Any U.S. recipient of these Materials that wishes further information regarding, or to effectany 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 WashingtonBoulevard, 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 researchreport 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 orwill 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 thosestocks 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.

RBS Equities (Australia)

Randolf Clinton, Head of Equities +61 2 8259 5247

RESEARCH

Michael Morrison, Head of Research +61 2 8259 5832

DATABASE & QUANT Thiva Nagaratnam, CFA +61 2 8259 5373 Stuart Nielsen +61 2 8259 5849 Eben van Wyk, CFA +61 2 8259 5492 STRATEGY, ECONOMICS & ESG Dr Alva DeVoy +61 2 8259 5831 Daniel Blake +61 2 8259 5016 Jonathon Brycki +61 2 8259 6831 Kieran Davies +61 2 8259 5171 FINANCIALS, INSURANCE Andrew Lyons +61 2 8259 6086 John Buonaccorsi +61 2 8259 5660 Richard Coles +61 2 8259 5728 Ashley Dalziell +61 2 8259 5039 Michael Leonard +61 2 8259 5767 MEDIA & TELCOS Fraser McLeish +61 2 8259 5543 Ian Martin +61 3 9612 1585 Alan Stuart +61 2 8259 5834 Ashley Wallace +61 2 8259 6356 GAMING, FOOD & BEVERAGE Michael Nolan +61 3 9612 1316 Alexander Beer +61 2 8259 6834 RETAILING Daniel Broeren +61 2 8259 5381 Chris Cable +61 2 8259 6722 HEALTHCARE Dr Derek Jellinek +61 2 8259 5848 Elliott Crane +61 2 8259 6729 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

ENERGY, UTILITIES & INFRASTRUCTURE Jason Mabee, CFA +61 2 8259 5380 William Allott +61 2 8259 5348 Philipp Kin +61 2 8259 6080 Michael Newbold, CFA +61 2 8259 5663 TRANSPORT Mark Williams +61 2 8259 6921 Michael Newbold, CFA +61 2 8259 5663 RESOURCES, STEEL & COMMODITIES Lyndon Fagan +61 2 8259 5870 Sam Berridge +61 2 8259 5955 Todd Scott +61 2 8259 5865 Tom Sartor +61 7 3334 4503 Phillip Chippindale +61 2 8259 6859 Warren Edney +61 3 9612 1557 Nick Moore +44 207 678 0555 MID/SMALL CAPS Julian Guido +61 2 8259 5838 Matthew Nicholas +61 2 8259 6168 Brewin Kwong +61 2 8259 6891 Michael McNair +61 2 8259 2089 SMALL CAPS – RBS MORGANS Roger Leaning +61 7 3334 4554 Chris Brown +61 7 3334 4885 Fiona Buchanan +61 7 3334 4879 Nick Harris +61 7 3334 4557 Josephine Little +61 7 3334 4505 Belinda Moore +61 7 3334 4532 Scott Power +61 7 3334 4884 Tom Sartor +61 7 3334 4503 James Wilson +61 8 6462 1974

DISTRIBUTION

Nick Caughey, Head of Sales +61 2 8259 2028

SYDNEY Research Sales Nick Caughey +61 2 8259 2028 Sandy Isherwood +61 2 8259 6897 Scott Ramsay +61 2 8259 2087 James Ledgerwood +61 2 8259 6825 Specialist Sales Michael McNair (Small Caps) +61 2 8259 2089 Richard Hitchens (Quant) +61 2 8259 6030 Corporate Broking/Access Georgina Wells +61 2 8259 6896 Sales Trading Justin Gallagher +61 2 8259 2062 Tony James +61 2 8259 2030 Tom Sullivan +61 2 8259 5170 William Tietjens +61 2 8259 6820 Program Trading Jason Milliss +61 2 8259 5357 Facilitation Rod Killick +61 2 8259 2026 Peter Pennisi +61 2 8259 2038 Derivative Sales Richard Brasher +61 2 8259 2005 Robert Gibson +61 2 8259 2003 Alan Issers +61 2 8259 6829

Hedge Fund Sales Aaron Lagerlow +61 2 8259 2082 Ankon Rahman +61 2 8259 2088 Andrew Watson +61 2 8259 2076 MELBOURNE Research Sales James I Smith +61 3 9612 1360 Andrew Chirnside +61 3 9612 1353 Sales Trading Mark Hendel +61 3 9612 1356 David Harris +61 3 9612 1454 Marianna Saliba +61 3 9612 1362 LONDON David Schiller +44 20 7678 5475 Pamela Tironi +44 20 7678 6573 NEW YORK Stuart Nutting +1 203 897 4803 Sanjay Magotra +1 203 897 1520 Tom Roberts +1 203 897 1539 ASIA Mark Skocic +61 3 9612 1355 Daniel Baker +852 3988 7814 Woon Millen (Regional) +61 2 8259 5260

E-MAIL ADDRESSES ONLINE RESEARCH [email protected] http://research.rbsm.com

rbs

Documents

soft profitability

rec taxes

incl associate

durable medical

dr derek jellinek

aussie alpha

core pce deflator

major advanced