Aussie Afternoon Institutional Market Wrap Mathan Somasundaram Baillieu Holst Quant Strategy 30 June 2016

Transcription

1 Sunset Strip Market Snapshot after close & Intraday S&P 200 Chart Categories Last Daily % Daily Daily % Daily Categories Last Change Change Change Change S&P/ASX Gold US - DOW US - S&P US 10 Year T-Bond Canada US 30 Year T-Bond UK Germany $A/$US France $NZ/$A China STG/$A Japan Euro/$A Hong Kong $US/YEN NZ $US/CAD HOLIDAY SEASON > NEXT SUNSET STRIP ON TUESDAY 12 th July MARKET SUMMARY MACRO/STOCK EVENTS: Tonight Overseas data: US jobless claims (weekly), US Chicago PMI (June), Canada GDP (April), Hong Kong retail sales (May), South Korea industrial output (May), Japan industrial output (May), euro-area CPI (June), German unemployment (June), UK GDP (first quarter). Fed speaker: James Bullard. Overseas earnings: Constellation Brands, Micron Technology. Yahoo holds annual shareholder meeting. Tomorrow AUSTRALIA Manufacturing PMI, CoreLogic-RP dwelling prices, RBA commodity prices. US Manufacturing PMI, Manufacturing ISM. China Officials Manufacturing PMI, Caixin Manufacturing PMI. EU Unemployment Rate, Manufacturing PMI. Japan Code CPI, Tankan. MARKET FUTURES AT 4:30PM: CHART OF THE DAY: The chart below shows the relationship between Emerging Markets, AUDUSD and US Dollar Index over the past decade on common base. The Frexit (US Fed exiting the rate rise cycle) is expected to weaken US Dollar Index after Brexit (British exiting the EU). The flow of money chasing better returns will drive Emerging Markets higher and that will increase demand for commodities and AUDUSD. The Brexit has driven the final nail in the US Fed rate rise cycle in the short to medium term due to already weak Asian and European growth outlook. We see high risk of the 2014/15 run up in US Dollar Index unwinding partially and driving Emerging Markets, AUDUSD and Commodities higher in the short to medium term. Page 1

2 MARKET COMMENTARY: Aussie market started with a rocket on the back of health care sector in the first hour and then went sideways for the rest of the day. Even if it s not window dressing for the end of quarter and end of financial year, the bounce in the market form the lows this week have been way too strong. The selling was overdone on Brexit worries and the buying is also overdone in the short term. We are likely to see some profit taking and sideways trading in the first week of July while markets assess central bank reaction from all parts of the world.including RBA. We suggested staggering buying from Tuesday and it still remains favourable to buy small caps as the bounce in the market was mainly in the large caps. Tax loss selling is over and institutional investors will be handing over the market to retail investors over the next few weeks. US markets were on stretched multiples and needed a pullback while European and Japanese markets are carrying a lot of risk and were always on the edge. Aussie market continues to compare well on relative risk to growth and yield basis. Forget the election.coalition to win with reduced margin and senate to be ruled by bigger cross bench.malcolm will not last three years after inaction with policy paralysis. The global trend shows governments are moving to power share mode as the disenfranchised poor move away from the major parties. Growth risks in Europe will play into the hands of China as they maintain stimulatory policies into their National Congress in Banks are likely to be the main beneficiary of the $9b worth of dividends hitting bank accounts in the first week of July. We see Frexit (US Fed exiting rate rise cycle) as a catalyst that will drive down USD and push up Emerging Markets, commodities and AUDUSD. Health Care had a cracker day today with MYX leading the way while profit taking in gold was likely to balance out the tax loss selling. We remain very positive on the outlook for gold due to continued raised level of risk in the market as seen from historically low bond yields. Gold macro risk trade ideas since May: (1) Daily Double > Buy gold for Brexit and Trump win.spot gold going to US$1500!!! (2) Box Trifecta > Buy gold for Brexit, US inflation and Trump win.spot gold going to US$2000!!! Why we are positive medium to long term (1) US Fed is unlikely to cut rates in 2016 (2) PBOC, ECB, BOE and BOJ on easing bias and more stimulus (3) RBA remains in rate cut cycle into 2017 (4) Domestic economy expected to slow further and support lower rates (5) Aussie market is highly correlated to AUDUSD and its likely to recover on USD weakness (6) Banks remain cheap on yield premium albeit with macro risks while dividends will come back in July (7) Resources likely to see support with short term commodity assumptions and weakening USD (8) Dividend yield to bond yield premium expanding as bond yields hit historical lows (9) Domestic election odds show government to return on lower margin while senate likely to be out of their control (10) School holidays will see retail investors take over from institutional investors. Main thematics > yield, currency, gold, global diversification, demographic changes, Asian middle class Buys on the pullback for yield > Banks, Infrastructure, Utilities Buys on the pullback for growth > Small Cap Industrials, Big Miners, Tourism, MITCH (i.e. Media, Information, Telco, Consumer and Health) Take Profit Sectors > Residential Property, Domestic Consumer Sectors, Discretionary Retail, Health Insurance Interesting moves of the day (1) MYX (+28%) after the capital raising to acquire the US generic drug business (2) KMD (+17%) after a better than expected trading update in a tough macro environment (3) NSR (-6%) after the capital raising for latest acquisition Best picks, stock level information, sector breakdown and performance analysis starts on page 6. The stock ideas of the day are IPH for growth/currency thematic, IMF for growth/yield thematic, ICQ for growth/consumer thematic and SDA for telco/growth thematic. Things to keep an eye on.. (1) NBN > The key infrastructure to drive innovation will be second rate and will struggle to meet the demands in the next few years. There is no other option but to spend even more to upgrade it in the next 5 years. The project is behind on rollout and blown the budget even compared to the downgraded expectations. (2) WestConnex > The new road plan for the Western Sydney will not even handle current traffic while substantial apartment building with no school, health or rail services will flood the streets even before this project is finished. The project is built to deliver transport solution for corporates while putting up toll gates on the public. Developers are going to make a killing while the public are going to pay toll for years for more traffic. WestConnex is very much like NBN the solution is not complete costs have blown out will require billions to fix.average person will not get much out of it and will pay more. (3) Budget Outlook > Neither party has been able to deliver surplus since the economy ran out of the China puff. Budget forecasts are a fantasy while opposition is not in the running to take over. There is a lot of slogans and no reform agenda. The only strategy forward is hope and that won t pay the bills. (4) Corporate Tax Cut > The main assumption behind even getting a minor growth dividend is that the corporates than decide to do less tax evasion. In an environment of rising interest rates in the next 10 years, we are very unlikely to see corporates choosing to pay more tax. Then the logic suggests that we are unlikely to see much benefit from the corporate tax cut over the next decade while giving up substantial revenue model. I am yet to see a country that has benefitted over the long term by reducing corporate tax rate to very low levels. (5) Super Reform > The accountants are already setting up family trust to leverage the tax benefits of the rest of the family to avoid tax. Super changes had to be comprehensive and in synch with negative gearing and capital gains changes or it becomes irrelevant. Piecemeal approach to reform means tax avoidance will move to other areas. The government s move will deliver little benefit for the large voter backlash. There is a high possibility of a ScoMo backflip.watch this space!!! (6) Multi-National Tax Reform > Substantial part of the bad boys are US firms and they will deduct any tax they pay to Australia from the tax they pay in US. Do you really think Australian government is going to take tax from US government? There will be loopholes and very highly paid accountants would already be building up the next tax write-off to get through. Watch this space.tax collected after cost will be irrelevant. Page 2

3 (7) Negative Gearing > Apart from property sector and the government, everyone else seems to realise that Australia is sitting on a geared up housing bubble that will never survive a rate normalisation, weaker economy or higher unemployment. We are almost certain to see slower growth and higher unemployment in Rate normalisation is very likely in 2018 as US rate cycle and lower currency driven inflation kicks in. The property cycle is over. Negative gearing is a minor part of that problem, but it adds to the risk in the financial system. We can address it and deflate the bubble or ignore it and run into the brick wall. NZ is again moving to slow down their housing bubble. Watch this space.government is playing ignorant. (8) Election Forecast > Coalition government to win by reduced margin and expect another PM change before the next election cycle. Incumbent first term governments mainly win with reduced margin in Australia for the second term. The third term government are unlikely unless they had delivered big reform. If they don t, usually we will have a leadership change and rebadge of the same policies to save seats. Australia needs a generational change in politics and it is happening slowly and in a messy way. Labor will get rid of the dead wood after this election loss and the Coalition will do the same after the next election cycle loss. The generational change in the population over the next few election cycle will favour the Labor over the Coalition. The Coalition government called a DD election to get their way, but the most likely scenario suggests that they will end up with lower margin in the lower house and even less cooperative senate in the upper house. (9) China > The latest Brexit growth killer in EU will help China in dealing with a fractured EU compared to a consolidated block of nations. The weakening USD will drive investment into Emerging Markets. (10) Domestic Retail Sales further confirms our theory that low unemployment data is masking under employment. Historical low wages and under employment will drive huge risk to consumer spending house prices in the next 6-12mths. (11) Backward looking GDP data was solid, but not going to be sustainable. The commodity volumes were ramped up on the expectations of lower prices while the Chinese stimulus delivered higher prices. Housing and consumer spending are unlikely to be maintained as well. As we expected the AUDUSD bounced on the data, but this will be short lived. (12) Japan delivered a complete backflip to move back tax reform into 2019 as we expected. Japan, like many other economies, is suffering from politicians making weak decisions based on their own employment security rather than the reform needed for the country..bit like Australia. (13) Australia remains in a false economy expecting endless demand for commodities at high prices from China. China has been locking up cheap commodities from Asia, Europe, Africa and South America for number of years while setting up transport corridors. China also wants to rule the commodity trading business. Commodity business is going to remain volatile but unlikely to reach margins we saw in the last decade. (14) The biggest reform agenda is about cutting corporate tax. Singapore is the main culprit with substantially low corporate tax haven used by multi-national companies. Singaporean economy is in real trouble and its property bubble has popped. Not sure what the long term plan from the government is showing but Singapore is not what Australia wants to be. (15) Election cycles in US and Aus have already moved to scare campaign and personal attack mode. The lack of real policy reform meant that we are likely to hear fantasy policies costed on unicorn assumptions. The election cycle in US and Australia are going to hurt consumer sentiment as pork barrelling and broken promises are thrown around like confetti. Politicians have a proven track record in this space. The government s marketing pitch is simple. We are the least worst option. now that s a great marketing pitch.aren t we the lucky country!!! Get ready for Aussie and US elections to get nasty. Brand is Crisis. Political parties with weak reform policy setting inevitably resort to scaremongering to get elected this is a well-worn path for old school politicians declining consumer sentiment will be part of the collateral damage!!! Page 3

4 MARKET MACRO SUMMARY We maintain our long term bull market view from It was based on weakness in interest rates, currency, economic growth, commodities and government policy while asset prices and dividend yield thematic will be the key positive drivers. Global investors looking for yield are likely to react in line with AUDUSD. Currency to pull back to high 60 s in 2017 with local economic slowdown, recovering US and China slowdown. In the short to medium term, we see currency moving back up to cents as US Fed steps away from rate rise cycle (i.e. Frexit). Tidal wave of unemployment to push it up to 6.5% in 2016H2 and remain above 6% into Consumer sentiment expected to remain low till 2016 due to unemployment, property bubble, falling real wages and government policy backflips. Property bubble in the making in parts of Australia and that will eventually come back to bite margin loan unit investors. Economic woes will drive RBA to cut interest rates down to 1.25% in 2017 next cut in 2016Q3 then 2017Q2 Investors after solid return to cover rising costs will chase equity dividend yield over fixed interest investments. Global economy is expected to experience more growth downgrades, currency wars and stimulus plans. Iron Ore and Oil price to average below $60 over the next 12mths. For more customised service or further macro views, please contact Baillieu Holst or refer to the latest edition of Equity Market Engineer, Equity Resources Engineer, Equity Financial Engineer and Equity Industrial Engineer publications. INVESTMENT MOTTO: Life is all about cycles. You evolve with the cycle or the cycle runs over you. Page 4

5 AROUND THE GROUNDS Source US FEAR AND GREED INDEX Source Page 5

6 TRADING IDEA OF THE DAY IPH Limited (IPH) Baillieu Holst Industrial Analyst Nick Caley has BUY rating and $8.30 price target. Investment view: BUY call with revised DCF valuation of A$8.32 (prev. A$8.15) and price target of A$8.30 (prev. A$8.15). BUY call supported by: 1) full period inclusion of recent acquisitions in 2H16 and 1H17; 2) growing the Asian footprint through organic means, acquisitions, opening new offices in the region and leveraging recent domestic acquisition into Asia; 3) attaining efficiencies from recent acquisitions through combining back office services; 4) continuing to grow the data business Practice Insights; and 5) looking at opportunities in the patent renewals industry. Our valuation includes A$0.82 for future acquired growth in Asia although this is not yet contemplated in earnings forecasts. CHART IDEA OF THE DAY IMF Bentham (IMF) Baillieu Holst Industrial Analyst Nick Caley has BUY rating and $1.85 price target. Investment view: BUY retained with revised DCF valuation of A$1.83 (prev. A$1.74) and price target of A$1.85 (prev. A$1.75). After a disappointing 1H16 IMF appears to have returned to its traditional winning form. Positive outcomes from S&P and a further A$9.9m windfall from a previously settled US case would appear to have de-risked 2H16 and should facilitate a catch-up dividend in 2H16 after non-payment in 1H16. Page 6

7 THURSDAY S TECH IDEA OF THE DAY icar Asia (ICQ) Baillieu Holst Industrial Analyst Nick Caley has BUY rating and $1.20 price target. Investment view: BUY maintained with unchanged DCF valuation of A$1.09 and price target of A$1.20. A 10% corporate appeal premium is retained as part of our price target due to carsales.com.au s 20% equity. FY15 revenue growth confirms that the story is on track and is edging closer to run-rate profitability by FY17. We have a high regard for the top-down thematic of the shift of this industry s move to digital where revenues can build very quickly (carsales.com.au s domestic business revenues increased from A$29m in FY06 to A$272m in FY15 at CAGR of 28%). The current cash balance should see the group to break-even. MICRO CAP IDEA OF THE DAY SpeedCast International (SDA) Baillieu Holst Industrial Analyst Luke Macnab has BUY rating and $4.87 price target. Investment view: Ongoing weakness in the Energy sector is likely to result in lower-than-expected organic revenue growth for SDA this year. In addition, the later-than-expected financial close of the ST Teleport acquisition will also negatively impact forecasts. As a result of these changes, our new valuation is A$4.87 (-8% from A$5.30), based on a DCF analysis and FY16 EV/EBITA multiple of 15x. This is also our new 12-month target price. We believe SDA is a quality medium-term growth stock and is good value at current levels, trading on a FY17 P/E ratio of 12.3x, with a 3-year CAGR in EPS of 26%. Any acquisitions would add further upside to our target price. Page 7

8 Stock Performance Breakdown MARKET MOVERS AND SHAKERS Top 10 Best and Worst Performers (%) MYX KMD SVW MLD WSA LNG CCV RCG MSB BPT SDA CKF HSN MLX SBM BBG IFM AGI TGA NSR MAJOR SECTOR PERFORMANCES OVER THE DAY Page 8

9 TODAY S TOP 30 WINNERS AND LOSERS IN S&P 300 Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash MYX Mayne Pharma Ltd Buy Mayne soars following US drug acquisitions KMD Kathmandu Hold Ltd Hold KMD Trading update June 2016 SVW Seven Group Holdings Hold N/A MLD MACA Limited Buy N/A WSA Western Areas Ltd Hold N/A LNG Liquefied Natural Buy N/A CCV Cash Converters Strong Buy N/A RCG RCG Corporation Ltd Strong Buy N/A MSB Mesoblast Limited Hold N/A BPT Beach Energy Limited Hold N/A GMA Genworth Mortgage Buy N/A PRY Primary Health Care Hold N/A NWS News Corp Buy N/A IPL Incitec Pivot Buy N/A CSV CSG Limited Buy N/A IGO Independence Group Hold N/A ORG Origin Energy Buy Appendix 3B LYC Lynas Corporation Buy Response to ASX Price Query FXJ Fairfax Media Ltd Buy N/A JHX James Hardie Indust Hold N/A BSL BlueScope Steel Ltd Buy N/A JBH JB Hi-Fi Limited Hold N/A BLA Blue Sky Limited Buy Appendix 3B DOW Downer EDI Limited Hold N/A CSL CSL Limited Hold Daily share buy-back notice - Appendix 3E ILU Iluka Resources Hold N/A GBT GBST Holdings Buy Becoming a substantial holder BLD Boral Limited Hold N/A APA APA Group Hold N/A WOR WorleyParsons Ltd Hold N/A Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash NSR National Storage Hold NSR Completes Institutional Offer and Placement TGA Thorn Group Limited Underperform Director Appointment/Resignation AGI Ainsworth Game Tech Hold N/A IFM Infomedia Ltd Buy N/A BBG Billabong Buy N/A SBM St Barbara Limited Hold N/A MLX Metals X Limited Strong Buy N/A HSN Hansen Technologies Buy N/A CKF Collins Foods Ltd Buy N/A SDA Speedcast Int Ltd Buy N/A UGL UGL Limited Hold N/A BTT BT Investment Mngmnt Hold N/A IFN Infigen Energy Buy N/A N/A N/A 1PG 1-Page Limited Strong Buy N/A Change in substantial holding DCG Decmil Group Limited Hold N/A CDD Cardno Limited Hold N/A PDN Paladin Energy Ltd Hold N/A CVO Cover-More Grp Ltd Buy N/A MGC Mg Unit Trust Hold N/A N/A WBA Webster Ltd Buy N/A NCM Newcrest Mining Hold N/A SYR Syrah Resources Buy N/A EVN Evolution Mining Ltd Hold N/A SAR Saracen Mineral Hold N/A MOC Mortgage Choice Ltd Hold N/A RSG Resolute Mining Buy Syama DFS delivers long life mine with strong margins WHC Whitehaven Coal Hold N/A AAC Australian Agricult Buy N/A N/A PRT Prime Media Grp Ltd Underperform N/A RFF Rural Funds Group Buy N/A Page 9

10 CHECKING S&P 300 BY THE SECTOR Energy stocks: Brexit pulled down growth and oil price, but central bank stimulus to reverse that trend soon. Oil price now closer to balance and we see more upside in H2. Sector is beginning to show medium to longer term positive dynamics. Stocks in play: OSH and WPL remains the better quality large cap while KAR and AWE are preferred small caps. News Snippet: Caltex Australia Caltex Australia has advised that its core profit for the first half will be roughly flat, as gains in earnings from the supply and marketing business were wiped out by lower earnings from its refinery in Brisbane. Net operating profit excluding significant items for the June half is likely to be between $245 million and $260 million, compared with $251 million last year, Caltex said on Wednesday. This figure is more closely watched by analysts than the historical cost net profit, which Caltex said would likely fall to between $310 million and $330 million, down from $375 million. Raw earnings from the supply and marketing division are expected to rise to $335 million-$350 million, an increase of more than 10 per cent. But underlying earnings before interest and tax from Caltex's Lytton refinery in Brisbane is expected to fall, to $85 million-$95 million, down from $154 million in the June half of The company closed its Kurnell refinery south of Sydney two years ago and has since converted it into a fuel import terminal. The drop in refining earnings is driven by a decline in the refining margin Caltex receives, which is driven by margins in Singapore and averaged $US9.80 a barrel in the first five months of the year, down from an average of $US16 a barrel in the first half of last year. Caltex said the decline reflected refiner margins returning "towards more normalised levels". The weakening in refining margins had been advised by Caltex and contributed to the decline in Caltex shares over the past few weeks. The stock closed at $30.90 on Tuesday, down from a high of $38.64 touched in January. AFR Origin Energy Origin Energy has reported the first LNG shipment to Kansai Electric Power from its Australia Pacific LNG project in Queensland and confirmed the second production line at the plant would start exports by the year-end. Until now, most cargoes from the $25 billion APLNG venture in Gladstone have been shipped to the dominant foundation customer for the venture, China's Sinopec. The shipment to Kansai Electric left Gladstone's Curtis Island on Wednesday on the LNG Fukurokuju, built specifically to carry LNG from APLNG to the Japanese power supplier, which signed a contract four years ago to buy about 1 million tonnes a year for 20 years from the new Australian venture. APLNG chief executive Page Maxson said the milestone of the first cargo to Kansai Electric marked the 27th shipment in total since exports began from the project early this year. "We have been pleased with our operations from Train 1 and we expect to deliver the first cargo from Train 2 by the end of CY2016," Mr Maxson said. The signalled timing for the first cargo from Train 2 may disappoint some market watchers, however, given expectations in the market that the start-up of production from that unit could come in about October or even earlier. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash LNG Liquefied Natural Buy N/A BPT Beach Energy Limited Hold N/A ORG Origin Energy Buy Appendix 3B WOR WorleyParsons Ltd Hold N/A WPL Woodside Petroleum Hold N/A STO Santos Ltd Hold Change of Directors Interest Notice SXY Senex Energy Limited Buy N/A OSH Oil Search Ltd Buy N/A CTX Caltex Australia Buy N/A SEH Sino Gas Energy Buy N/A N/A N/A KAR Karoon Gas Australia Buy N/A AWE AWE Limited Buy TEG: Completion of Cliff Head Acquisition FAR FAR Ltd Buy N/A WHC Whitehaven Coal Hold N/A PDN Paladin Energy Ltd Hold N/A Material (Ex Mining) stocks: Sector looks stretched with investors chasing safe yield, but the growth outlook in chemicals are showing value after recent pullback. Sector back in selective buy area with chemical stocks. Stocks in play: IPL, NUF and ORI are likely to benefit from central bank stimulus driven commodity support. News Snippet: Orica Orica chief executive Alberto Calderon says lower prices for bulk commodities will persist over the medium term, which will likely stall the development of major new projects for the better part of a decade. The gloom will come despite more stability within the battered mining industry over the past few months, he told the West Australian Mining Club on Thursday. Mr Calderon said Orica, which supplies explosives to some of the world's biggest miners, was working to adapt following a "paradigm shift" from the industry's decade of unprecedented growth. Orica's net profit for the six months to March 31 fell 33 per cent to $149 million as its revenue plunged 22 per cent to $2.6 billion over the period. Other groups exposed to the mining industry, such as mining contractors, equipment hire companies and drilling companies, have also been hard hit by a sustained decline in commodity prices which have forced mining companies to reduce orders and prune pricing. Contrary to cries another mining boom could be driven by India, Mr Calderon said India's industrialisation would be "a very different experience to China". "India's industrial intensity is never likely to be as high as China's, and it is also moving towards the consumption-based phase," Mr Calderon said. AFR Page 10

11 Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash IPL Incitec Pivot Buy N/A JHX James Hardie Indust Hold N/A BLD Boral Limited Hold N/A BKW Brickworks Limited Hold N/A ABC Adelaide Brighton Hold Change of Director's Interest Notice TFC TFS Corporation Ltd Strong Buy N/A FBU Fletcher Building Buy N/A CSR CSR Limited Hold N/A AMC Amcor Limited Hold N/A HFR Highfield Res Ltd Buy N/A NUF Nufarm Limited Buy N/A ORA Orora Limited Buy Ceasing to be a substantial holder AJX Alexium International Strong Buy N/A DLX Duluxgroup Limited Hold N/A ORI Orica Limited Hold N/A PGH Pact Group Hldgs Ltd Hold N/A Gold stocks: Global risks keeps Spot gold in play. Sector remains the best commodity pick with upgrade cycle profit taking ahead after Brexit jump but macro market issues will drive the next leg up!!! Stocks in play: Short term profit taking to open another buying opportunity EVN, NST, SAR and NCM. News Snippet: Dacian Gold Blue Ocean Equities' Steuart McIntyre has increased his price target for Dacian Gold by 27 per cent to $4.20, based on 12 per cent higher gold prices of $US1,400/oz (from $US1,250/oz) and an unchanged 20 per cent discount to net present value. "With its strong management team, compelling project metrics at Mt Morgan and raft of near-term news flow, Dacian remains our top pick in the ASX gold space," McIntyre said. McIntyre expects "strong" newsflow from Dacian over the next three to six months, noting the company had $17 million in cash at the end of March and seven drill rigs on site. "Westralia underground drilling results are due shortly..a key catalyst in our view.. while Callisto drilling (is set) to begin in July with initial results by month end." AFR Evolution Mining Evolution Mining has doubled its dividend rate after a strong performance on production and costs in the 2016 financial year. Evolution provided preliminary guidance for the June quarter and the full 2016 financial year on Tuesday, ahead of an investor day in Sydney at which chairman Jake Klein said the miner had "achieved record results on every measure" during the period after integrating the two projects it acquired in Mungari and Cowal. The full-year result is expected to deliver record production, costs and net mine cash flow, all in line with previous guidance, including production of 800,000 ounces of gold, up from 438,000 ounces in the previous period, at an all-in sustaining cost of $1000 an ounce. The company said it generated an estimated net mine cash flow of $405 million. Providing a three-year production and cost outlook for the first time, Australia's second-largest gold miner said it expected to produce at least 800,000 ounces of gold each year for the next three years and gradually reduce its all-in sustaining costs over the period to as low as $910 an ounce. Mr Klein said the sustainable long-term outlook enabled the company to double the dividend rate it expected to return to shareholders to 4 per cent of revenue, effective immediately. AFR Perseus Mining Macquarie Capital is seeking to raise $100 million for West African-focused gold producer Perseus Mining, sources told Street Talk on Monday night. The company, capitalised at $493 million, is looking to raise $60 million via an institutional placement and $40 million via a rights issue. The offer price is 50, a 9.4 per cent discount to the theoretical ex-rights price. Shares in Perseus Mining have been placed in a trading halt. Analysts are tipping further mergers and acquisitions in the West African-focused gold space driven by strong acquirers out of North America, following a proposed tie-up between Canada's Teranga Gold and Australian junior Gryphon Minerals. It follows Perseus' bid to expand its presence in West Africa by taking over London-listed Amara Mining and Endeavour Mining's acquisition of True Gold Mining. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash AQG Alacer Gold Corp Hold N/A BDR Beadell Resource Ltd Hold N/A PRU Perseus Mining Ltd Hold MSR- Change in Substantial Holding RRL Regis Resources Underperform Change in substantial holding OGC OceanaGold Corp Hold Appendix 3B NST Northern Star Underperform Jundee Update GOR Gold Road Res Ltd Buy Final Directors Interest Notice RSG Resolute Mining Buy Syama DFS delivers long life mine with strong margins SAR Saracen Mineral Hold N/A EVN Evolution Mining Ltd Hold N/A NCM Newcrest Mining Hold N/A MLX Metals X Limited Strong Buy N/A SBM St Barbara Limited Hold N/A Mining (Ex Gold) stocks: Miners to benefit from weaker USD and central bank stimulus. Sector now offering risky high beta small caps and safer cash churning big miners!!! Stocks in play: The big miners are likely to see more interests while small caps remain a long term multiyear story. BHP, RIO, FMG, S32 are the best exposure in play. News Snippet: Page 11

12 Alumina Australia's Alumina Ltd says its opposition to a break-up of US giant Alcoa has been validated by new details of the split. Nine months after it first flagged plans to break itself into two companies, Alcoa officially confirmed on Thursday morning that it would go ahead with the plan to separate its upstream and downstream assets. The New York-based company filed legal documents that outline how the split will be conducted, and those documents confirmed that the assets Alcoa shares with Alumina would be spun into a new legal entity. The two companies jointly own a collection of bauxite mines, alumina refineries and aluminium smelters called the "AWAC joint venture", with Alcoa owning 60 per cent and Alumina owning 40 per cent. Melbourne-based Alumina said confirmation that the joint venture assets would be put into a new legal entity validated its recent legal arguments that the split breached the terms of the 22 year-old joint venture agreement. "Alcoa's separation plan confirms our contention, which is before the Chancery Court in Delaware, that Alcoa intends to exit the AWAC joint venture and transfer its interests in AWAC to a new legal entity," said Alumina Limited chief executive Peter Wasow in a statement on Thursday. "This is in clear breach of the joint venture agreements." AFR Iluka Resources Mineral sands miner Iluka Resources has named the head of Wesfarmers' chemicals and energy division, Tom O'Leary as its new chief executive, effective September 5. He will replace outgoing managing director David Robb, who announced his resignation at the company's annual general meeting in May, after a 10-year stint. Mr O'Leary has held senior positions in Wesfarmers for 16 years, and has previously worked with Nomura and legal firm Allen & Overy. AFR BHP Billiton BHP Billiton said on Monday it plans to boost its exploration budget by 29 per cent to about $US900 million ($1.2 billion) next year, as the global miner counts on new finds of oil and copper to drive growth in a tough market rather than mergers and acquisitions. The figure represents 18 per cent of BHP's total capital budget of $US5 billion over fiscal 2017 and comes amid efforts by big miners to maintain growth while tightening balance sheets. In December, BHP had projected total fiscal 2016 exploration spending of $US700 million. The lift in exploration spending comes as a flurry of M&A deals earlier this year slows, with fewer assets than expected coming up for sale, leaving mining companies to rely on their own projects to grow. Petroleum exploration by BHP will focus on deepwater basins in the Gulf of Mexico, the Caribbean and the Northern Beagle basin, off the coast of Western Australia, the company's head of geoscience, Laura Tyler, told a Citigroup investors' briefing. Copper exploration is targeting deposits in Chile, Peru, the US, Canada and South Australia, according to Tyler. "We are investing at a time when most in our sector continue to reduce discretionary spend," Tyler said. AFR Rio Tinto Rio Tinto Ltd will sever mining links with resource-rich Papua New Guinea, relinquishing ownership of the Panguna copper mine on Bougainville island which has been closed for around 25 years after a secessionist rebellion. The global miner said on Thursday that it would transfer its majority shareholding of 53.8 percent in Bougainville Copper to an independent trustee to manage the distribution of the shares to the Autonomous Bougainville Government and Papua New Guinea. "By distributing our shares in this way we aim to provide landowners, those closest to the mine, and all the people of Bougainville a greater say in the future of Panguna," Rio Tinto said in a statement. In 2013, Rio Tinto investigated restarting the mine after being run off the island amid a secessionist uprising that has since subsided. At the time, the mine was the largest single source of export revenue in Papua New Guinea and comprised about 7 percent of the world's copper production. Between 1972 and 1989 some 3 million tonnes of copper and 9.3 million ounces of gold were mined from Panguna. The mine site is reported to be in disrepair and in need of extensive rehabilitation work before it could be brought back into production. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash WSA Western Areas Ltd Hold N/A IGO Independence Group Hold N/A LYC Lynas Corporation Buy Response to ASX Price Query BSL BlueScope Steel Ltd Buy N/A ILU Iluka Resources Hold N/A PLS Pilbara Minerals Limited Buy N/A N/A OZL OZ Minerals Hold Daily share buy-back notice - Appendix 3E ORE Orocobre Limited Buy N/A FMG Fortescue Metals Grp Underperform N/A BHP BHP Billiton Limited Hold N/A SGM Sims Metal Mgmt Ltd Hold N/A AWC Alumina Limited Hold Alumina reiterates claims over Alcoa JV RIO Rio Tinto Limited Hold Rio Tinto Walks Away From Closed Bougainville Copper Mine SFR Sandfire Resources Hold PMY: Zinc and Copper Exploration to Commence Immediately S32 South32 Limited Hold N/A SYR Syrah Resources Buy N/A Industrial stocks: Value beginning to show after recent pullback with selective exposures worth looking into. Sector in selective buy in unique service sectors. Stocks in play: We see unique stocks like CCP, BXB, SEK and IPH are interesting stocks on any pullback. We remain big fans of SYD and TCL on the transport infrastructure sector with falling energy costs and rising capacity, but rising bond yields will see profit taking. News Snippet: Asciano Asciano said on Monday that it has resolved a legal dispute with a trucking subsidiary that threatened to delay a $9.1 billion buyout led by Toronto-based Brookfield Asset Management. Asciano said it agreed to give its half stake in Sydney trucking business Australian Container Freight Services (ACFS) to the family that owned the other half. It did not say whether the transaction involved payment. Asciano added in a statement that it would also hand over some port leases to the joint venture. The settlement will be a welcome respite for Asciano and the global Page 12

13 consortium of investors from Canada, Australia, China and the Middle East, which has been trying to buy it for more than a year. After a protracted bidding war and some regulatory setbacks delayed the takeover, the co-owners of ACFS last month asked the Supreme Court of New South Wales to make Asciano confirm its rights under the buyout plan. The specifics of ACFS' concerns were not made clear, but Asciano had said it would defend the action, raising the prospect of yet another complication affecting the deal. Asciano added on Monday that by handing its stake in the trucking business to its joint venture partners, it would reduce concerns by the competition regulator that the new company might control too many elements of the supply chain. "The degree of vertical integration following the transaction would be comparable to the current extent of vertical integration and, accordingly, competition concerns would be less likely to arise," Asciano said in the statement. AFR Macmahon Holdings Seven contractors, including three Australians and a South African, have been released four days after they were kidnapped by gunmen in southern Nigeria, officials said. Police had given conflicting accounts of how many had been seized and what their nationalities were but they all worked for cement company Lafarge and were taken on the outskirts of Calabar, capital of Cross River State, in the Niger Delta. Cross River State Commissioner Jimoh Ozi-Obeh said they were released "unhurt" on Sunday. However, Australian contractors Macmahon Holdings said in a statement on Monday that five of the seven had been injured, two seriously. "Macmahon Holdings Ltd is relieved to confirm the release of all seven of its men who were abducted near its operations in Calabar, Nigeria," the company said. Kidnappings of foreigners are common in the region, which holds most of the OPEC member's crude oil and contributes about 70 per cent of national income. Nigeria was Africa's top oil producer until a recent spate of attacks on oil facilities. Lafarge Africa could not immediately be reached for comment. (Reporting by, Anamesere Igboeroteonwu, Ani Akpan and Matt Siegel in SYDNEY. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash SVW Seven Group Holdings Hold N/A MLD MACA Limited Buy N/A DOW Downer EDI Limited Hold N/A SEK Seek Limited Hold Appendix 3B TCL Transurban Group Hold N/A GWA GWA Group Ltd Hold N/A CLH Collection House Hold Final Director's Interest Notice MMS McMillan Shakespeare Buy N/A MND Monadelphous Group Underperform N/A MQA Macq Atlas Roads Grp Buy N/A BXB Brambles Limited Hold N/A CIM CIMIC Group Hold Hong Kong Contract to Generate Revenue of About A$320M AZJ Aurizon Holdings Ltd Buy N/A SPO Spotless Grp Hld Ltd Buy N/A TOX Tox Free Solutions Buy N/A CWY Cleanaway Waste Man Hold N/A QAN Qantas Airways Hold Preliminary Traffic and Capacity Statistics - May 2016 MRM Mmaoffshor Hold N/A QUB Qube Holdings Ltd Hold N/A AIA Auckland Internation Underperform N/A ALQ Als Ltd Underperform AGM - Calculation of Performance Rights SGF SG Fleet Group Ltd Buy N/A SYD SYD Airport Hold N/A PRG Programmed Buy N/A CCP Credit Corp Group Buy N/A INM Iron Mountain Inc Buy Update - Dividend/Distribution - INM SIQ Smartgrp Corporation Buy N/A AIO Asciano Limited Hold N/A ASB Austal Limited Buy Trading Halt CAB Cabcharge Australia Hold N/A MIN Mineral Resources Hold EGO:New working capital facility to refinance ERM Power debt SAI SAI Global Limited Hold N/A IPH IPH Limited Buy Appendix 3B Cullens Acquisition Settlement RCR RCR Tomlinson Strong Buy N/A CDD Cardno Limited Hold N/A DCG Decmil Group Limited Hold N/A UGL UGL Limited Hold N/A Consumer stocks: We maintain our preference to entertainment, media and gambling while we see substantial risk in discretionary retail sector. Media sector rule changes will drive M&A with smaller regional players becoming the target for industry consolidation. Sector mainly stuck in selective buy category after recent selloff. Stocks in play: We remain fans of ALL, AAD, AGI, FXJ and MTR while see M&A appeal in old media stocks. We see big risk to discretionary retail stocks like HVN, JBH, MYR and TRS in falling consumer sentiment. AAD, ALL, AGI and MTR continue to provide upside on gambling and tourism aspect. News Snippet: Ainsworth Game Technology Hedge fund giant Fortress Investment Group has failed to prevent Austria's Novomatic taking a 53 per cent stake in Ainsworth Game Technology. It is understood Fortress and its lawyers Johnson Winter & Slattery went to the Takeovers Panel on Friday night, seeking an 11th hour injunction to stop an Ainsworth shareholder meeting scheduled for Monday morning. Fortress, one of Ainsworth's largest institutional shareholders with a 2 per cent stake, argued Ainsworth's minority shareholders did not have enough time to properly consider earlier issues raised by the Takeovers Panel. However, it is understood the panel opted against any further action and the poker machine company's shareholders will meet at Bankstown Sports Club, as planned. And in a further blow to Fortress and other dissenting shareholders, it's understood proxy votes already received are enough to see Novomatic take founder Len Ainsworth's 53 per cent stake in the company. Proxy solicitation firm GPS has Page 13

14 clearly been hard at work in recent weeks, drumming up support for the transaction. Should the vote go as expected, Novomatic will take the stake once necessary regulatory approvals are received. AFR Kathmandu Outdoor clothing and adventure wear retailer Kathmandu expects profits to rise as much as 71.5 per cent this year despite the warm start to winter. Kathmandu lifted its profit guidance on Thursday, forecasting a net profit between $NZ32 million ($30.5 million) and $NZ35 million compared with its previous guidance of $NZ30.2 million and consensus forecasts of around $NZ29.3 million. The new guidance, which is 57 per cent to 71.5 per cent higher than last year's bottom line profit of $NZ20.4 million, sent Kathmandu shares soaring more than 18 per cent to $A1.48 in early trade on Thursday. Kathmandu said earnings before interest and tax were expected to rise as much as 60 per cent, to between $NZ49 million and $53 million, exceeding consensus forecasts around $NZ46.6 million and the $NZ33.2 million earned in However, the new guidance remains well below Kathmandu's earnings in 2014, when EBIT reached $NZ64.3 million. Kathmandu's underlying earnings halved in 2015 after the retailer was forced to aggressively clear excess winter stock. AFR ooh!media ooh!media will use its acquisition of Junkee Media to publish content across its outdoor network, creating stickier consumers for its advertising offerings. The outdoor advertising business acquired 85 per cent of youth-focused media and publishing group Junkee Media for $11.1 million, on Friday afternoon. The purchase values Junkee Media at $13 million. ooh!media also has the right to acquire the remaining 15 per cent of the company. Junkee Media publications include Junkee, inthemix, FasterLouder and native content plays AWOL and The Cusp. "If you look at our business, we worked out in 2012 that a great outdoor company in the future will have to have an element of content in what they do," ooh!media chief executive Brendon Cook told The Australian Financial Review. "You can't just have digital screens playing ads, you've got to create bespoke content." Mr Cook said ooh! first identified Junkee as a potential partner three years ago and had been in touch with founders Neil Ackland and Tim Duggan since. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash KMD Kathmandu Hold Ltd Hold KMD Trading update June 2016 CCV Cash Converters Strong Buy N/A RCG RCG Corporation Ltd Strong Buy N/A NWS News Corp Buy N/A FXJ Fairfax Media Ltd Buy N/A JBH JB Hi-Fi Limited Hold N/A RFG Retail Food Group Buy N/A HVN Harvey Norman Hold N/A WEB Webjet Limited Buy N/A NVT Navitas Limited Hold N/A MTR Mantra Group Ltd Hold N/A WPP WPP Aunz Ltd Hold Change of Directors Interest Notice ALL Aristocrat Leisure Buy N/A TAH TABCORP Holdings Ltd Hold N/A SGH Slater & Gordon Underperform N/A FLT Flight Centre Travel Hold N/A ADH Adairs Limited Buy N/A BRG Breville Group Ltd Buy N/A APN APN News & Media Buy N/A IVC InvoCare Limited Hold N/A VRL Village Roadshow Ltd Buy N/A SXL Sthn Cross Media Hold N/A SKT Sky Network Hold N/A REA REA Group Hold N/A AMA AMA Group Limited Strong Buy N/A PMV Premier Investments Hold N/A SUL Super Ret Rep Ltd Buy Appendix 3B CWN Crown Resorts Ltd Buy N/A GXL Greencross Limited Buy N/A SWM Seven West Media Ltd Hold N/A TME Trade Me Group Underperform N/A CTD Corp Travel Limited Buy N/A GEM G8 Education Limited Buy N/A APO Apn Outdoor Grp Buy N/A TRS The Reject Shop Buy N/A GUD G.U.D. Holdings Hold N/A DNA Donaco International Strong Buy N/A ARB ARB Corporation Hold N/A AAD Ardent Leisure Group Buy N/A OML Ooh!Media Limited Buy N/A MYR Myer Holdings Ltd Hold N/A AHG Automotive Holdings Hold N/A NZM Nzme Limited N/A N/A N/A N/A N/A N/A N/A N/A N/A TEN Ten Network Holdings Hold N/A N/A SLK Sealink Travel Grp Buy Appendix 3B - exercise of options DMP Domino Pizza Enterpr Hold N/A NEC Nine Entertainment Hold N/A TTS Tatts Group Ltd Hold N/A IEL Idp Education Limited Buy N/A N/A ISU Iselect Ltd Hold Daily share buy-back notice - Appendix 3E SKC Skycity Ent Grp Ltd Underperform Ceasing to be a substantial holder SGR Star Entertainment Group Buy N/A BAP Burson Group Ltd Buy N/A 3PL 3P Learning Ltd Underperform N/A PRT Prime Media Grp Ltd Underperform N/A CKF Collins Foods Ltd Buy N/A BBG Billabong Buy N/A AGI Ainsworth Game Tech Hold N/A TGA Thorn Group Limited Underperform Director Appointment/Resignation Page 14

15 Staple stocks: Food related stocks with overseas exposure will continue to trade at high multiples and worth acquiring in any pullback. All Supermarket stocks are going to struggle to hold margins with the race to the bottom on prices. Sector back in favour as money moves from discretionary retailers to specialty food retailers with global model. Stocks in play: We see more risk in WES and WOW. WES has UK expansion risk while WOW has restructure risk. A2M, GNC, BAL, BGA, BKL and VIT have global food upside and interest will come back with risk. News Snippet: ACCC, Metcash and Woolworths The competition regulator has postponed a decision on whether Metcash should be cleared to buy Woolworths' Home Timber and Hardware business while it considers undertakings made by the wholesaler. The Australian Competition and Consumer Commission was scheduled to make a final decision on Thursday - just four days before final bids were due for Woolworths' Masters big box chain and the Home Timber and Hardware wholesale business. But the ACCC has extended the timeline while it consults with industry players on the undertakings, the nature of which were not disclosed. Industry sources believe the ACCC will eventually approve the Metcash acquisition, even though the merger of Metcash's Mitre 10 and HTH will reduce the number of full-service hardware wholesalers from two to one. HTH members are understood to have written to the ACCC expressing concerns about the impact on competition in the wholesale market and the impact on retail prices if the merger goes ahead. Metcash could overcome these concerns by undertaking to pass on cost savings and synergy benefits from the merger, which are estimated by analysts to be worth at least $10 million a year. A merger would create a $2.2 billion hardware distributor supplying 900 stores. Industry sources said the ACCC may also force Metcash to divest sooner rather than later about 96 company-owned stores (53 owned by Mitre 10 and 43 by HTH) which would compete with independently-owned stores. AFR Fonterra Fonterra Co-operative Group's Australia unit said it was cutting its farmgate milk price next season to $4.75 per kgms, down from the current price of $5.00 per kgms. The co-operative said that the lower price reflected current market conditions and forecast that it would rise over the 2016/17 season to close at $5.00 per kgms. "Our forecast is based on the Australian dollar holding at around 74 cents to the US dollar and reflects the revenue we expect to earn on products produced using our manufacturing assets," Fonterra chief operating officer of velocity and innovation Judith Swales said in a statement. "Our farmgate milk price in Australia is also impacted by global dairy markets given our mix of domestic and export sales," Swales added. "While we are still seeing an imbalance between global milk supply and demand there are signs in key milk producing areas of a slowdown in production and increased imports into key markets such as China, Asia and Latin America. This supports our view of a recovery in global prices as we move through the season." AFR Murray Goulburn Dairy co-operative Murray Goulburn has forecast a full-year profit of $42 million, with its farmgate milk price again lower. Murray Goulburn says it expects to pay farmers $4.80 per kilogram of milk solids for the 12 months to June 30, 2017, which is at the lower end of the $4.75 to $5.00 range it set in April for the rest of the current financial year. "Global conditions have not improved, and the latest data suggests excess global inventories, including the impact of European intervention, may have surpassed the equivalent of six billion litres of milk," Murray Goulburn interim chief executive David Mallinson said in a statement on Tuesday. AFR Treasury Wine Estates Treasury Wine Estates is trying to revitalise the St Huberts brand as it targets a new generation of drinkers. It will use the Victorian brand as one of the figureheads in a new discounted wine fridge blitz which has been a winner for the owner of Penfolds in the previous two years. Treasury Wine's managing director for Australasia, Angus McPherson, said there would be no cannibalisation of the company's large portfolio because the expansion of St Huberts under a new label called The Stag was in segments that were growing strongly in the domestic market, such as premium chardonnay. "Premium chardonnay is doing well in Australia," he said. "Our focus is on how we grow the total category." Across the market, industry figures showed that bottled chardonnay sales between the $16 to $20 price bracket were growing at an annualised 13 per cent and this was why the modernised The Stag brand had been launched with a chardonnay, and a shiraz version. "We see a real opportunity to broaden the appeal of the master brand," he said. The shiraz category is growing at 6 per cent. The St Huberts brand along with two other regional brands, Coldstream Hills and Devil's Lair, and the flagship Penfolds brand are the main four in the Treasury stable chosen by the company to drive a new iteration of chief executive Mike Clarke's wine fridge discount blitz. AFR Wesfarmers Long-serving Wesfarmers executive Tom O'Leary is swapping chemicals, energy and fertilisers for mineral sands, joining Iluka Resources as its new managing director. Mr O'Leary, who has worked at Wesfarmers for 16 years, with stints running the chemicals, energy and fertilisers business, the coal operations and business development, takes over from outgoing Iluka managing director David Robb, who resigned in March after 10 years at the helm. Mr O'Leary is the third senior Wesfarmers executive to resign or retire in as many months. Resources managing director Stewart Butel announced his retirement last month and former Target managing director Stuart Machin quit in April following a supplier rebate scandal at the discount department store chain. Mr O'Leary's departure follows an organisational restructure at Wesfarmers' non-retail operations last August and is bound to increase speculation the Perth-based conglomerate may be planning to sell or demerge the resources, chemicals, energy and fertilisers and industrials and safety businesses. Under the restructure, Wesfarmers rolled the three industrial businesses chemicals, energy and fertilisers, industrial and safety, and resources into a new industrials division overseen by former insurance chief Rob Scott. AFR Page 15

16 Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash TGR Tassal Group Limited Hold N/A MTS Metcash Limited Hold N/A CCL Coca-Cola Amatil Hold N/A WES Wesfarmers Limited Hold N/A GNC GrainCorp Limited Hold Change of date for AGM WOW Woolworths Limited Hold N/A RIC Ridley Corporation Buy N/A BGA Bega Cheese Ltd Buy N/A SHV Select Harvests Hold N/A A2M The A2 Milk Company Strong Buy N/A N/A ELD Elders Limited Buy N/A TWE Treasury Wine Estate Hold N/A AHY Asaleo Care Limited Buy ASIC Form 484 Cancellation of Shares FSF Fonterra Share Fund Buy N/A CGC Costa Group Holdings Buy N/A N/A BAL Bellamy'S Australia Hold Appendix 3B BKL Blackmores Limited Hold N/A BWX BWX Limited Buy N/A N/A WLD Wellard Limited Buy N/A N/A VIT Vitaco Holdings Limited Buy N/A N/A AAC Australian Agricult Buy N/A N/A WBA Webster Ltd Buy N/A MGC Mg Unit Trust Hold N/A N/A Healthcare stocks: The ever increasing older demographic locally and globally will continue to support this sector with governments cutting back their health care spending. Falling currency will be another free kick to the sector valuation. Sector stuck in must have basket with macro, growth and currency in favour. Stocks in play: We maintain our preference in CSL, RHC and ANN as quality exposures to ageing population and government cutting healthcare budgets. RMD and COH are not for the faint hearted, but still enjoy good margins despite continues worry about competition that has yet to eventuate. MYX will benefit substantially from falling AUDUSD. News Snippet: Clarity Pharmaceuticals Clarity Pharmaceuticals has received a $2.5 million government grant to help build a radiopharmaceutical industry in Australia, taking to $9.5 million the total of investment and grants the disease treatment start-up has raised since being founded in The $2.5 million was awarded under the federal government's Cooperative Research Centres (CRC) program. Even though Clarity is not attached to an established CRC, seed investor and chair Alan Taylor said it recognised that Clarity was acting as its own CRC, partnering with academia and potential customers. The other participants in the grant are the University of Queensland and pharmaceutical company Phebra, which will take the total project spend to $6.5 million in cash and kind, creating 20 high-skilled jobs to develop and commercialise products based on Clarity's core "SAR" technology. Developed by the Australian Nuclear Science & Technology Organisation and the University of Melbourne (which both have equity in Clarity), it's claimed SAR can "personalise" and increase the effectiveness of targeted antibodies-based therapies. The first product developed on SAR is SARTATE, which makes world-first use of copper radioisotopes to identify and kill cancerous cells in a localised way. AFR Mayne Pharma Investment banks Credit Suisse and UBS have crossed fund managers as they prepare to underwrite a rights issue on behalf of Mayne Pharma Group. Mayne Pharma will use the rights issue proceeds to acquire a portion of the assets US giant Teva Pharmaceutical Industries has been forced to divest as part of its $40.5 billion acquisition of Allergan Plc's generic drug portfolio. Teva, the Israeli pharmaceutical company, has been finalising as much as $2 billion in asset sale agreements to win U.S. antitrust clearance to close the deal with Allergan, which is domiciled in Ireland. The rights issue will raise just under $900 million, sources said. Credit Suisse and UBS started crossing fund managers last Thursday. The deal will be announced by Tuesday morning. Mayne Pharma, which has a $1.2 billion market capitalisation, is no stranger to the United States market. The company made 88 per cent of its revenue in the US in the first half of the financial year. Mayne Pharma last raised equity in February 2015 to fund the US marketing rights to a drug called Doryx. That raising was done at 61 each, while Mayne shares last traded at $ AFR Noxopharm Stockbroker APP Securities has a new biotechnology stock for clients this week. Noxopharm is an anti-cancer drug hopeful seeking to raise $6 million at 20 a share in an initial public offering via APP. Biotech investors will recognise some of Noxopharm's backers - and the actual technology - from the once high-flying Novogen. Novogen, which was worth more than $1 billion about 10-years ago, had an anti-cancer drug targeting a similar market, however failed to get through the trial stage and into development. Noxopharm chief executive Graham Kelly - who ran Novogen in various senior roles for the best part of 20-years - is back for a second attempt, having made what he believes are improvements to the drug's dosage and delivery. Noxopharm's NOX66 is expected to begin a phase 1 clinical trial in Georgia later this year. APP is seeking to raise the fresh equity by July 18. If successful, Noxopharm would list with about a $15 million market capitalisation on August 2. AFR Page 16

17 Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash MYX Mayne Pharma Ltd Buy Mayne soars following US drug acquisitions MSB Mesoblast Limited Hold N/A PRY Primary Health Care Hold N/A CSL CSL Limited Hold Daily share buy-back notice - Appendix 3E HSO Healthscope Limited Buy N/A SIP Sigma Pharmaceutical Hold N/A RHC Ramsay Health Care Hold N/A IPD Impedimed Limited Strong Buy N/A ANN Ansell Limited Hold Daily share buy-back notice - Appendix 3E SHL Sonic Healthcare Hold N/A VRT Virtus Health Ltd Hold N/A NAN Nanosonics Limited Buy N/A BNO Bionomics Limited Buy Appendix 3B COH Cochlear Limited Hold N/A RMD ResMed Inc Buy N/A SPL Starpharma Holdings Buy N/A JHC Japara Healthcare Lt Buy FY2016 Financial Results Release Date FPH Fisher & Paykel H Hold N/A REG Regis Healthcare Ltd Hold N/A MVF Monash Ivf Group Ltd Hold N/A SRX Sirtex Medical Buy N/A API Australian Pharm Hold N/A EHE Estia Health Ltd Hold N/A Bank stocks: Regulatory and macro worries hang over the sector. Regionals should see more support with financial sector recommendation favouring them. Potential new bank levy will cut into the margins as will capital requirements, APRA lending restrictions and property bubble driven bad provisions. Sector stuck in core holding basket with global banking sector despite local housing bubble worries. Stocks in play: We maintain our preference in ANZ and NAB in the big four and smaller players ABA and MYS. News Snippet: ANZ Banking Group ANZ Banking Group's preferred exit option, if it pulls the trigger, is understood to be a complete divestment of its wealth and life insurance operations. The bank is immersed in a review of its wealth division but sources told Street Talk the lender was leaning toward a clean exit rather than following in the footsteps of National Australia Bank's life deal. If ANZ were to opt out of wealth and life insurance the local market would digest a hefty $5 billion to $6 billion deal. Last year, NAB sold 80 per cent of its life business to Japan's Nippon Life although has thus far left its broader wealth operations untouched. ANZ is said to be looking at entering distribution arrangements without maintaining minority stakes. Firm decisions at ANZ, are however, yet to be made ahead of the wealth review being wrapped up in August. Alexis George, ANZ's head of wealth, is spearheading the review which comes after new chief executive Shayne Elliott said the bank wanted to simplify its approach in wealth including insurance, superannuation and investments products. As revealed by this column, the bank's online broking arm is slated to be first cab off the rank in its broader sale program. Elliott certainly has a long to-do list as the bank also looks to accelerate its divestment plans for a string of minority stakes in Asia. Elsewhere in financial services, ClearView Wealth which in May confirmed that Morgan Stanley was on board to "solicit and evaluate" strategic offers, is planning to send out documents for a formal sale process after reporting earnings in August. AFR National Australia Bank National Australia Bank must harness the hunger of start-up companies if it is to fend off competition from technology-based rivals, chief executive Andrew Thorburn says. Amid predictions the banking sector will face intense disruption from digital businesses, Mr Thorburn on Tuesday said fintech firms were attracting more and more funding in a world of ultra-low returns. Big banks have a reputation for being bureaucratic institutions, and Mr Thorburn said NAB needed to emulate some of the traits of its smaller start-up rivals. "I actually think we are a fintech company ourselves. We have to have the mindset of a fintech company, and I actually think we've got a lot of the assets of a fintech company," he said in Sydney. Smaller fintech firms tended to be "hungry" and they aggressively pursued opportunities, he said, and NAB wanted to adopt a similar approach. "That's the sort of hunger we need inside our own company." Almost $20 billion was poured into the fintech sector globally last year, according to estimates, as investors eye a slice of the finance industry's profit pool. Mr Thorburn acknowledged fintech firms were increasingly well funded, which he said made sense in a world of negative interest rates and investors chasing returns. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash GMA Genworth Mortgage Buy N/A NAB National Aust. Bank Hold N/A ANZ ANZ Banking Grp Ltd Hold N/A WBC Westpac Banking Corp Buy N/A BOQ Bank of Queensland Hold N/A BEN Bendigo and Adelaide Hold N/A CBA Commonwealth Bank Hold Resignation of a Company Secretary CYB Cybg PLC Buy N/A Director/PDMR Shareholding MOC Mortgage Choice Ltd Hold N/A Diversified Financials / Insurance stocks: Asset managers offer the best way to get exposure to market locally and globally while unique financial companies like EQT, FXL and IMF are worth looking at when value emerges. Global players have another free kick with government trading super rise for mining tax repeal. Sector is in core holding basket while market selloff will see pullback in this sector and offer a good long term buying opportunity. MQG, MFG, PTM, CYB, HGG and BTT are under pressure with Brexit worry.but central bank action to reduce risk after pullback. Page 17

18 Stock in play: MQG, MFG, PTM, CYB, HGG and BTT are expected to see short term recovery after Brexit fears are priced in. News Snippet: Macquarie Bank The UK's vote to leave the European Union may adversely affect Macquarie Group due to declining asset values and conditions in financial markets, according to Morgan Stanley analysts. The analysts led by Richard Wiles said they continued to see "downside risk" to consensus analyst estimates for Macquarie's earnings in the year ended March 31, They noted that Europe, the Middle East and Africa (EMEA) accounted for about 24 per cent of group revenue in Macquarie's 2016 results. Wiles estimated the UK accounts for about 10 per cent and outlined the EMEA exposure is material in Macquarie's four biggest units; asset management, corporate and asset finance, commodities and financial markets and the advisory unit Macquarie Capital. "Even though MQG has a diverse mix of businesses, we note that about 60 per cent of revenues are linked to markets or asset prices: equity market-related revenues (~20%);commodity-related revenues (~13%); base management fees (~16%); lumpy revenues (gains on sale, loan losses, write-downs) (~8%); FIC revenues (~4%)," the report said, Wiles also said Macquarie's ability to divest assets may prove "more challenging" in the near term after last week's Brexit decision. AFR OzForex Brexit has delivered an Australian forex provider a record number of transactions as the plunging pound pushed investors towards safer currencies such as the US dollar and Japanese yen. Sydney-based OzForex Group recorded the highest foreign exchange volumes in the company's 18-year history; "multiples higher" than during the global financial crisis. On Friday the pound slid by the most on record against the US dollar after Britain voted to leave the European Union after more than four decades. The British currency was still under siege on Monday, plumbing close to 31-year lows. "We usually do around $80 million worth of foreign exchange transactions per day," chief executive Richard Kimber said, who declined to name the exact figure achieved following Brexit. "In the lead-up to Friday's vote, we were stress testing all our infrastructure to make sure we could handle the volumes. And that surprise result led to a big jump in demand." A statement to the market, promoting the record, pushed the stock up up 5.1 per cent to $2.39 late on Monday afternoon, although it remains well below its 12-month high of $3.55 hit in November. Foreign currencies are classified as an over-the-counter asset class, meaning many firms supplying them are vulnerable to asymmetric risk. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash BLA Blue Sky Limited Buy Appendix 3B SUN Suncorp Group Ltd Buy N/A OFX Ozforex Group Ltd Hold N/A PAC Pacific Current Group Ltd Buy N/A AMP AMP Limited Buy Section 259C(2) Exemption IAG Insurance Australia Hold N/A FXL FlexiGroup Limited Buy N/A QBE QBE Insurance Group Buy N/A ASX ASX Limited Hold N/A ECX Eclipx Group Limited Buy Appendix 3B IFL IOOF Holdings Ltd Hold N/A CGF Challenger Limited Buy N/A MPL Medibank Private Ltd Buy N/A HGG Henderson Group Buy Henderson Group - Holding(s) in Company - AMP HFA HFA Holdings Limited Buy N/A NHF NIB Holdings Limited Hold N/A IMF IMF Bentham Ltd Buy European Joint Venture - Update SDF Steadfast Group Ltd Buy N/A PPT Perpetual Limited Hold N/A MFG Magellan Fin Grp Ltd Buy N/A PTM Platinum Asset Hold N/A MQG Macquarie Group Ltd Buy N/A CVO Cover-More Grp Ltd Buy N/A BTT BT Investment Mngmnt Hold N/A Property stocks: We see house prices flattening with most of the positive optimism already priced in the housing stocks. The construction and commercial property stocks still offer improving outlook on new projects, M&A and consolidation. Rising bond yield will put pressure on yield stocks. Sector stuck in high risk basket due to housing bubble worries. Stocks in play: We maintain our preference in NSR and LLC to get storage and construction exposure while pure housing exposure looks risky now. LLC will continue to benefit from the government s road build-a-thon outlook. Smaller caps CWP and VLW look good on yield. News Snippet: Apartment Market The housing boom has delivered massive upside to some sellers but left others, those selling inner city apartments in Melbourne, or regional homes, or properties in Perth, with losses. Across the country more than 90 per cent of all houses and apartments sold in the latest quarter sold for more than the previous purchase price, CoreLogic says in its Pain and Gain Property Report. In fact 31 per cent of all those who sold in the March quarter more than doubled their money. But there were losers. In inner city-melbourne, 19 per cent of all apartment sales were below the previous purchase, which is the highest level of loss recorded by CoreLogic since The Sydney inner city apartment market is holding up, with less than 2 per cent of units selling for less than the purchase price. But in inner city Brisbane, 11 per cent of sales were at a loss and the figures were higher in inner city Canberra (21 per cent), Perth (24 per cent) and Darwin (26 per cent). In regional Australia, which includes many coastal areas and mining towns, 11 per cent of homes, and 19 per cent of apartments, were sold for less than the seller had paid. CoreLogic director Cameron Kusher said the number of loss-making sales was falling in regional areas linked to tourism and lifestyle. "On the other hand, housing markets linked to the resources sector are generally seeing an Page 18

19 elevated level of loss-making resales after housing market conditions in many of these locations have posted a sharp correction." The housing boom, which has been strongest in Sydney and Melbourne, has also had a varied impact on the level of gross profit, or gross loss in the cities. AFR New Home Sales New home sales fell for a second month in May as sales of detached houses declined across the eastern seaboard, particularly in the previously buoyant market of NSW. The 6.7 per cent decline in sales of detached homes followed April's 3 per cent fall, and pulled overall private new home sales down 4.4 per cent, the Housing Industry Association said on Wednesday. A rise in so-called multi-unit sales, which can be volatile from month to month and rose 4.9 per cent in May after a 10.7 per cent fall in April, was insufficient to offset the monthly fall. At a time when house price growth is moderating and banks are reining in credit to buyers and developers, the pace of the long-awaited cyclical slowdown in housing construction is unclear. While only showing one month's figures, the latest report shows there are risks of a sharp decline. The lobby group for volume home builders stressed that the fall, driven by an 11.5 per cent decline in NSW sales, was part of a cyclical downturn. "There is nothing alarming to a reversal in the trend for new home sales," HIA chief economist Harley Dale said. "There is a cyclical downturn ahead for new residential construction activity, as new home sales signal, but the early pullback will be mild by historical standards." New home sales have fallen for two months now in NSW and Queensland. They also declined in Victoria, the largest market, after a strong rise in April. They rose in both South Australia and Western Australia, which the HIA said showed those two markets had troughed. The industry organisation said the report said the fall in NSW which has seen strong activity as a result of pent-up demand caused by a decade of underinvestment in housing to the lowest level in at least three years was no reason to panic. "We want to see a decent recovery in June before becoming overly concerned," the report said. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash LLC Lend Lease Group Buy N/A FET Folkestone Edu Trust Hold N/A SCG Scentre Grp Hold N/A TIX 360 Cap Indust Fund Buy N/A VCX Vicinity Centres Hold N/A GPT GPT Group Hold N/A BWP BWP Trust Underperform N/A SGP Stockland Buy N/A GTY Gateway Lifestyle Group Buy Securities Trading Policy AJA Astro Jap Prop Group Buy N/A HPI Hotel Property Buy N/A AOG Aveo Group Buy N/A CQR Charter Hall Retail Underperform N/A CMW Cromwell Prop Hold N/A SCP Sca Property Group Underperform Sale of New Zealand Assets Unconditional CHC Charter Hall Group Hold N/A IDR Industria REIT Hold N/A WFD Westfield Corp Hold N/A MGR Mirvac Group Buy N/A GMG Goodman Group Buy N/A DXS Dexus Property Group Hold N/A GOZ Growthpoint Property Underperform N/A IOF Investa Office Fund Hold N/A CWP Cedar Woods Prop Buy N/A ABP Abacus Property Grp Hold N/A INA Ingenia Group Buy N/A GDI GDI Property Grp Buy N/A GHC Gen Healthcare REIT Hold N/A VLW Villa World Ltd Buy N/A ARF Arena REIT Hold N/A RFF Rural Funds Group Buy N/A NSR National Storage Hold NSR Completes Institutional Offer and Placement IT stocks: IT sector offers a number of different business models and we see good growth in the sector despite the low global growth outlook. The continued online transition from number of sectors will continue to favour this sector. Sector stuck in high growth potential basket but carries execution risk in global/local growth plans. Stocks in play: We remain big fan of ACX, ALU, GBT, HSN, ICQ and IFM in the long term. Beaten up IT stocks are showing signs of recovery with growth in the market continuing to head south. GBT getting sold down on UK worries. News Snippet: Guvera Guvera is aiming to reduce its monthly cash burn to about $1.6 million and will cut about 60 jobs after a knockback of the embattled music streaming company's initial public offering has left it scrambling to stay afloat. A source close to the company confirmed the job losses to The Australian Financial Review, after the company said in a statement it had placed two of its subsidiaries in voluntary administration on Monday. Guvera is also raising an additional $20 million from its group of 3000 existing shareholders, two of whom are members of the extended Murdoch family. Deloitte Restructuring Services partners Neil Cussen and Enzio Sentatore have been appointed as voluntary administrators of Guvera Australia and Guv Services, but Guvera Limited continues to trade. The company's intention to lower monthly costs to around $1.6 million is a significant reduction on its currently monthly cash burn of between $5 million and $6 million. In the first six months of this financial year the company lost $56 million. The announcement from Guvera comes after the company has spent the past week speaking to its 3000 shareholders in meetings held by AMMA Private Equity in Melbourne, Sydney and Brisbane. The decision by the ASX to block Guvera's float followed a period of intense criticism and speculation about the company's future. AFR MYOB Software provider MYOB has opened a second office in Melbourne to meet the needs of employees, who can be divided into two basic groups those with cars and those without. ASX-listed MYOB, which had its suburban Page 19

20 origins in the eastern suburbs, three years ago opened a large 4900sq m office on top of The Glen shopping centre in Glen Waverley, 30km from the city centre and a site chief executive Tim Reed said was "almost the demographic centre of Melbourne". Many of the company's 500-odd employees lived in the area, it was close to the arterial Monash freeway and offered unlimited car parking. But as MYOB kept growing, and sought to hire an additional 60 software engineers later in the year, it hit a problem. They didn't want to work in Glen Waverley. "By being positioned in The Glen, we weren't able to attract as many of the talented creative and technical people that we now needed to attract in order to grow our workforce," said Alla Keogh, MYOB's head of people & performance. "Whilst The Glen has been a fantastic location and had enabled us to exploit the talent within that particular catchment area, we found as we were recruiting for brilliant technical talent that a lot of those people were currently living close to the CBD or in the inner east. A lot of them, interestingly, don't drive cars. They're looking for workplaces that are reasonably close to where they live." There was also the advantage that Richmond, the former heart of Melbourne's clothing trade, has recut its cloth as a co-working and software development hub. The inner eastern suburb that hosts tech-focused businesses such as carsales.com.au, realestate.com.au, 99designs and Vinomofo was a natural home for MYOB's creatives. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash CSV CSG Limited Buy N/A GBT GBST Holdings Buy Becoming a substantial holder NXT Nextdc Limited Buy N/A CAR Carsales.Com Ltd Hold N/A TNE Technology One Hold N/A ALU Altium Limited Hold N/A LNK Link Administration Hold N/A Becoming a substantial holder - LNK ACX Aconex Limited Buy N/A MYO MYOB Group Limited Buy N/A CPU Computershare Ltd Hold Daily share buy-back notice - Appendix 3E SMX SMS Management Hold SMS Extends Share Buy-Back Program RKN Reckon Limited Hold N/A IRE IRESS Limited Hold N/A ISD Isentia Group Ltd Buy N/A 1PG 1-Page Limited Strong Buy N/A Change in substantial holding HSN Hansen Technologies Buy N/A IFM Infomedia Ltd Buy N/A Telco stocks: This sector will benefit from industry consolidation via M&A while the big telco in Australia and NZ continue to deliver stable yield in low growth environment. The transition to online models and smart phone take up will continue to drive the usage of data from record levels to new record levels. Sector stuck in core holding basket with sector consolidation and economy in transition to online models. Stocks in play: We maintain our preference in TLS, SPK and SDA while remain big fan of merged entities of VOC and TPG. News Snippet: NextDC With the ink barely dry on Vocus' $807 million deal to buy Nextgen, the race to buy up the companies powering Australia's increasingly cloud-hosted business world shows no signs of slowing down. The next cab off the rank could be the well-regarded $834 million ASX-listed data centre operator NextDC. Industry sources told Street Talk the company, which was founded by gun local telco entrepreneur Bevan Slattery after he sold Pipe Networks to TPG Telecom for $373 million, has come to the attention of acquisitive US data centre giant Equinix. Equinix has recent form in big deals, having pulled off a $US3.8 billion buyout of European data centre company Telecity group in January, and is understood to have an investment banking team in Australia, doing preliminary due diligence on a large data centre deal. NextDC is viewed as the most logical local target for predators looking to acquire growth. Equinix, which has already invested millions in building its own Australian data centres, has also recently made moves to acquire data centre operators closer to Australia. It bought Japanese provider Bit-isle in December, noting that Asia Pacific was its fastest growing region globally. Despite the strong logic in support of a deal, it is far from sealed. Equinix is not believed to have formally engaged with NextDC's board. AFR Vocus Communications Vocus Communications has paid 7.3-times forecast earnings for Nextgen, below the 8- times average in past Australian fibre deals. They're the numbers from Deutsche Bank analysts, who said the deal made strategic sense and was done for a reasonable price. "The transaction implies a FY16f pre-synergy EV/EBITDA multiple of 10.7x and a FY16f post-synergy EV/EBITDA of 7.3x," the analysts told clients on Thursday morning. "However, we note those transaction multiples do not include the consideration or earnings from the development projects. "Based on the cost synergies being achieved we consider the transaction multiple of 7.3x to be reasonable given historical transaction multiples of ~8.0x." Vocus Communications's $807 million acquisition of Nextgen was the final move that brings together four telcos and likely marks the end of major transactions for the company in the near term. AFR Telstra Telstra has moved to ease concerns raised by ongoing outages on its mobile and broadband networks by investing $250 million over the next year. The spend is not additional to Telstra's regular intended capital expenditure, rather it has been allocated as part of the telco's existing capital management framework. Telstra chief executive Andy Penn said the company invests roughly $4 billion per year and the $250 million investment over the next six to 12 months will fit into that total. $50 million with be invested in Telstra's mobile network, while $100 million will be put into both the ADSL and core networks. Telstra did not provide comparable figures from previous years to measure the investment against. By going public the figures of planned investment in the its networks, Telstra is hoping to quell concerns raised over recent outages. Telstra has had a series of network outages across its mobile and broadband networks in 2016 and has faced heavy consumer backlash over the issues with the telco basing its business around charging a premium for superior service. Mr Penn admitted that "some customers may leave as a consequence" of Page 20

21 the outages. "There's no doubt the last two to three months having had two or three of these issues in a row after a very long period of no issues of that magnitude customers are understandably disjointed and frustrated," Mr Penn said. However, Mr Penn was adamant that Telstra still had the best network in Australia. AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash CNU Chorus Limited Buy N/A TPM Tpg Telecom Limited Buy N/A TLS Telstra Corporation Hold IAB: Telstra Acquires HCS Business Assets for $4.5m AYS Amaysim Australia Buy N/A SPK Spark New Zealand Buy N/A VOC Vocus Comms Ltd Buy N/A SDA Speedcast Int Ltd Buy N/A Utility stocks: We see risks to the sector with falling commodity prices, rising renewables with battery technology and potential interest rate rises in US. Sector now back in favour due to very low risk of interest rate rise worth looking at quality growing yield above 6%. Stocks in play: Valuations in the stocks are full despite the low growth as the market is willing to pay for safety of yield. Rising bond yields will put pressure on valuations. News Snippet: Ausgrid Bidders Bidding parties are understood to be pressing the flesh with the Australian Taxation Office ahead of the final furlong for a $10 billion stake in NSW's biggest electricity network company, Ausgrid. Street Talk can reveal ATO representatives have flown to Asia to meet with heavyweights State Grid Corporation of China and Cheung Kong Infrastructure on tax compliance matters. The discussions form part of securing the all important green light from the Foreign Investment Review Board to enable the acquisition of a majority stake in the NSW government asset. It's evidence that new measures announced by the federal government in February around FIRB and tax compliance conditions are being enforced. CKI had a run in with the ATO three years ago when it, along with subsidiary Power Assets Holdings, were ordered to pay $776 million in unpaid tax and penalties. While the outcome of this weekend's federal election is not expected to significantly alter the auction's timetable a change of government would likely cause further delays. Lending banks, of which there are expected to be a long list, are currently navigating their credit processes ahead of binding bids being submitted. State Grid and CKI are vying for a 50.4 per cent stake in Ausgrid and intend to lodge binding proposals by the final bid deadline of July 25. AFR EnergyAustralia EnergyAustralia has called for expressions of interest for its Wallerawang power station site near Lithgow in what stands to be an interesting test of the potential to re-purpose sites of decommissioned coal generators. The former TRUenergy, one of the country's big three electricity retailers, bought the 1000 megawatt Wallerawang generator from the NSW government three years ago but closed it the following year amid depressed wholesale power prices and declining demand. It is now marketing the 80-hectare site as "prime real estate" suitable for businesses looking at expansion opportunities. The useful sale of the site to a manufacturer could provide an economic spur for the Lithgow region, suffering from the downturn in coal markets. Rumours of the impending invitation for bids for the site sparked incorrect speculation that EA was looking to resume production at Wallerawang, which the Hong Kong-owned energy supplier has been forced to hose down. The site benefits from "well-established concrete roads and landscaping" and is fully serviced with electricity, water, sewerage and communications, with some buildings installed with fire services, according to EA. Heavy-lift crane facilities and a private railway siding connected to the main railway westwards from Sydney are included, as well as "ample open space for new buildings". AFR Code Company Name Daily Price Consensus Consensus 2016 EPS 2017 EPS 2016 Div 2017 Div Market Cap ($m) Price ($) 2016 PE 2017 PE Change (%) Target Price ($) Rating GROWTH GROWTH Yield Yield Newsflash APA APA Group Hold N/A AST AusNet Services Hold Notice of Annual General Meeting - Correction DUE Duet Group Hold SKI: Spark Infrastructure completes its exit of DUET Group AGL AGL Energy Limited Hold AGL announces new General Manager, Capital Markets EPW ERM Power Limited Hold N/A SKI Spark Infrastructure Buy SKI: Spark Infrastructure completes its exit of DUET Group EWC Energy World Corpor Buy N/A N/A N/A N/A N/A N/A N/A IFN Infigen Energy Buy N/A N/A N/A Page 21

22 Macro Charts Market (S&P 200) Brexit has taken the wind out of the global recovery sail. The uncertainty attached to the EU break away will drive global markets down and we are likely to go down on collateral damage. Aussie market beginning to see support after the standard 3 days of panic selling.staggered buying option started on Tuesday!!! Volatility Index (XVI) Volatility peaked for Brexit but now unlikely to go higher as those levels were linked to US Fed rate cycle worries. We expect market to be choppy, but the main profit taking risk has passed. Page 22

23 Currency (AUDUSD) AUDUSD beginning to stabilise around 73 cents after getting crunched on Brexit worries. Easing bias from all the central banks are likely to drive AUD higher on quality and yield. GOLD (Spot Gold in AUD) Spot gold in USD has had a great run YTD while Spot Gold in AUD has more to go with pullback in AUDUSD. Market risk on trade may drive some profit taking.but that opens up another buying opportunity!!! Page 23

24 Bond Yield (10 year Bond) Yield maintains the down trend and makes new lows. Brexit drove investors to safety of the bond market and that drove the yield back down. WTI Oil (West Texas Intermediate Oil) Oil likely to see support on stimulus as market moves back to risk on trade. Page 24

25 Quant Strategy Product Suite Baillieu Holst offers an extensive range of top-down monthly reports that provide comprehensive macro insights to enhance the investment process. The product suite covers everything from the global economic cycles to preferred thematics and stock ideas. Equity Engineer Provides a comprehensive view of the Australian equity market with global perspective on the Australian economy. The report analyses the overall market and the major sectors, such as Resources, Industrials and Financials, through the main growth, value, yield and risk measures. Key macro thematics identified in the global and local economic cycle enables investors to finetune their sector/stock selection process. There are sector specific reports that offer detailed analysis of the breakdown of the major sectors. The reports in this category are: Equity Market Engineer Equity Resource Engineer Equity Industrial Engineer Equity Financial Engineer SHIELD (Sustainable High Yield) Sifts through the market for the best sustainable high yield stocks using a weighted multi-factor proprietary model. It arms the reader with the new ideas and risk/return expectations to improve the yield outlook of their investment portfolio. GARY (Growth At Reasonable Yield) Sifts through the market for optimal balanced outlook, by picking stock ideas with growth and yield at reasonable value through a proprietary model. The report exposes the reader to new potential stock ideas that can improve their portfolio balance by enhancing growth and yield aspect at relatively good value. Market Manager Provides the market outlook and thematic changes through the quant strategy model portfolio. The report allows readers to compare and contrast their portfolio mix and risk/return outlook against the quant strategy model portfolio. The quant strategy model portfolio aims to take get a balanced exposure to all the preferred thematics in the market. Page 25

26 Quant Strategy Model Portfolio June update Yield trade ahead Last Published 22 nd June 2016 Transport large (SYD, TCL) Consumer Services small (AAD, AGI, IPH, MTR, SLK) Media small (VRL), micro (EVT, ICQ) Health Care large (CSL, RHC), mid (RMD) Staple mid (BKL), small (BAL) Banks large (ANZ, NAB) Diversified Financials large (MQG), mid (HGG), small (BTT, IMF) Construction large (LLC) Information Technology small (ALU, GBT, HSN, IFM), micro (HUB) Telecommunications large (TLS), small (SPK), micro (SDA) Model Portfolio Performance Benchmark Index Portfolio Market Cap Weighted Index Portfolio Equal Weighted Index Page 26

27 SHIELD Sustainable High Yield Yield premium is hard to beat Last Update 16 th June 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Macro Outlook: Central bank currency wars, political election cycles and a corporate survival mode will continue to create downward pressure on growth rates and interest rates. The US Fed backflip has forced RBA into an interest rate easing cycle as deflation worries starts to bite. Meanwhile, global growth worries, Brexit, weak US data and a weak local fiscal policy outlook continues to support lower interest rates for longer than expected. The Australian equity market s sustainable dividend yield will attract investors in an environment of low rates and low growth. We continue to favour an investment strategy with a dominant sustainable yield aspect due to weak growth outlook. The historically low bond yields continue to drive investors towards the substantially high premium dividend yields on offer in the equity markets. Cheap Pick: CWP and VLW are the only low growth cheap yield picks from the SHIELD screen that has average earnings and cash flow per share growth of below 10%, an average of priceearnings and price-cash flow below 10, a dividend yield above 5% and a BUY rating. SHIELD Top 20 picks are: large cap WBC, ANZ, TLS and MQG; mid cap MFG, BKL and PPT; small cap IMF, AYS, HFA, VLW, OFX, MOC, DNA, PRG, CWP and EPW; and micro cap DDR, NCK and IRI. Model Portfolio Performance S&P 300 Price Index S&P 300 Accum Index SHIELD Top 20 Weighted Accum Index SHIELD Top 20 Average Accum Index Page 27

28 GARY Growth At Reasonable Yield Never waste a good crisis Last Update 29 th June 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Macro outlook: Central bank support outlook has seen the market start to stabilise after Brexit worries drove profit taking. GARY stocks were not immune to the Brexit selloff as markets moved to reduce risk in low growth outlook. More uncertainty in Europe and Japan will keep the US Fed out of the rate rise cycle in the short term. We continue to see a low growth and low interest rate environment driving the market towards yield support. Falling bond yields and rising market risk further supports the balanced GARY approach to stock picking. GARY (Growth At Reasonable Yield) screen allows us to pick stocks with good yield, good growth and cheap value multiples compared to the overall historical market trend. Resources and related Service stocks carry higher risk due to global growth worries, while Property related stocks carry the bubble risk. GARY Industrial picks are: large cap (LLC, MQG and WBC), small cap (CWP, VLW and GDI) and micro cap (MYS, PPC and SSM). GARY Resource and related picks are: small cap (PRG). Model Portfolio Performance May 2012 Aug 2012 Nov 2012 Feb 2013 May 2013 Aug 2013 Nov 2013 Feb 2014 May 2014 Aug 2014 Nov 2014 Feb 2015 May 2015 Aug 2015 Nov 2015 Feb 2016 May 2016 S&P 300 Price Index G10 Indust Avg Accum Index S&P 300 Accum Index G10 Avg Accum Index Page 28

29 Equity Market Engineer Markets reach Winterfell Last Update 02 nd June 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Global market outlook: Despite short term stimulus reprieves, the medium to long term global market dynamics point to slowing global growth, weaker commodity prices and lower interest rates. The US Fed has flagged a rate rise in June/July whilst December remains the most probable period for the next move. The rising strength of the USD will start to hurt commodity prices and growth in Emerging Markets. The inability of central banks to pull their economies away from stimulus dependencies has created an inefficient distribution of resources. Meanwhile, Central bank effectiveness is running into a law of diminishing marginal returns. The profit taking risk is expected to remain till late June (i.e. US Fed meeting and Brexit vote). Central Banks are forced to keep an easing monetary policy bias due to the lack of a government reform agenda to drive growth. Growing debt and deficit problems have forced governments to deliver a low risk and low growth agenda to support their political election outlook. The conflicting monetary and fiscal policy settings will continue to prolong the recovery cycle. Local market outlook: The Australian equity market is expected to pullback as global and local sentiment fall in the traditional weak local winter season. Australia continues to ignore structural issues after going through 25 years of growth on the back of credit, population and mining boom. The lack of policy planning post boom cycles have delivered asset bubbles and cyclical low growth risks. We expect global investors to buy into Australian equity dividend yields as the currency pulls back to the high 60 s. Australian equities will continue to benefit from global demand for better than bond yield income streams from the rising older demographic. The RBA will be forced to follow with cuts in 2016Q3 and 2017Q2 as the economy slows further. Market view: We maintain a bullish long term view on the Australian equity market with the 12 month index target level of 5,850. We continue to see profit taking in June on macro risks and stretched valuations while longer term dynamics are supported by low growth and low interest rates. The RBA rate cuts and the end of the housing boom has made equities the preferred risk/return option for investors wanting a better than bond yield return in a rising cost environment. We maintain our positive long term view on the yield thematic while small cap industrials offer the best growth and yield to value mix. We continue to favour the new economy (i.e. MITCH Universe Media, Information, Telecom, Consumer and Health) over the old economy on the long term view. Page 29

30 Equity Resource Engineer Macro madness continues to support gold Last Update 09 th June 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Macro outlook: Despite short term stimulus reprieves, the medium to long term global market dynamics point to slowing global growth, weaker commodity prices and lower interest rates. The US Fed backflip has delivered another short term relief for commodity prices while longer term inflation pressures will force the USD higher. The US Fed s move back to currency wars will force other central banks back to further easing bias to drive growth. Growing debt and deficit problems have forced governments to deliver a low risk and low growth agenda to support their political election outlook. The conflicting monetary and fiscal policy settings will continue to prolong the recovery cycle. China has continued to pump up old industries to keep unemployment in check despite over supply issues. The markets are likely to experience risk off mode in the near future and commodity prices are likely to be collateral damage. Energy Sector: Remains in the high risk category due to falling global growth, oversupply and historically low ROE at stretched multiples. We struggle to see upside in the short term while supply side actions are beginning to show medium to long term potential. Time to take profit and come back when there is change in the demand/supply dynamics. The short term supply issues recovering and signs of rigs returning to US Shale will keep a cap on oil price above US$50. Metals & Mining (Ex Gold): Remains in the high risk category due to volatile commodity prices, US Fed action, China risk, Brexit and weaker global growth. The recent bounce on short covering has moved the multiples past the optimistic commodity price assumption levels. The sliding ROE and substantial premium to fair value supports the negative outlook. Time to take profit and come back when there is change in the demand/supply dynamics. Gold: The outlook for gold equities (i.e. EVN, MLX, NCM, NST and SAR) remains robust with rising growth and ROE from a long term fair value basis. The rising market/macro risk and eventual fall in currency will favour Aussie gold miners. The quality gold equities continue to be attractive due to their improved balance sheets, better margins and growing free cash generation. Page 30

31 Equity Financial Engineer Banks are a buy after BeEU or Brexit Last Update 20 th June 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Macro outlook: Low growth and low interest rates remain the key risks for financial stocks as central banks run out of ideas. China, Japan and Europe will need more central bank support to manage growth slowdown while there are cracks beginning to appear in the US and UK recovery stories. The US Fed has completely back tracked its interest rate normalisation outlook while the UK is running into Brexit worries. Global macro worries are clearing step by step and the outlook seems to point to low growth and low interest rates for a period of time till economic recovery drives inflation. The substantial dividend yield outlook in the Australian banking sector continues to remain in favour as the currency starts another leg up to high 70 s on the back of weaker US Fed comments. The rising currency and low growth outlook will drive global investors back to the Australian banks in the short term due to the risk weighted yield premium. The growth and yield to value outlook continues to favour banks and global diversified financials while property stocks look stretched. Preferred picks in Banks: ANZ, NAB Preferred picks in Diversified Financials: BTT, HGG, MFG, MQG, PTM Preferred picks in Property Trusts: LLC, VLW Page 31

32 Equity Industrial Engineer Even market darlings get hurt in a bus crash Last Update 14 th June 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Macro outlook: Central banks and global growth worries remain the key risks for industrial stocks. China, Japan and Europe will need more central bank support to manage growth slowdown while the stable US economy will run into growth worries with US Fed uncertainties. Globally diversified industrials with good growth and yield to value outlook will continue to attract investors looking for a premium to bond return. The herd mentality in the market has driven investors into the same market darling sector and stock exposures while macro risks in US and Europe will drive profit taking in crowded trades. The defensive yield and macro growth sectors are now trading at historical high premiums while delivering relatively low yields. The global and local growth risk continues to favour small caps over large caps in the industrial sector. We maintain our preference for new economy exposure through MITCH (Media, Information, Telecommunication, Consumer and Health) sectors. Industrial sector has moved from the preferred buy sector to selective buy sector. We continue to see better growth and yield to value in the industrial sector as the global markets pull back on macro worries. Preferred picks in Commercial & Professional Services: IPH Preferred picks in Consumer Services: AGI and MTR Preferred picks in Media: VRL Preferred picks in Staple: A2M, BAL and BKL Preferred picks in Health Care: SRX Preferred picks in Information Technology: GBT, HSN and IFM Preferred picks in Telecommunication Services: SDA, SPK and TLS Preferred picks in Utilities: DUE and SKI Page 32

33 Tech Down Under Beating the market is MITCH n easy Last Update 21 st April 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Slowing growth, cost reduction, global expansion and global competitors have fuelled the online transition of substantial parts of the economy. The Tech sector continues to attract unique and specialised local/global service models to take advantage of the Asian growth story or as a disrupter of the legacy business models. Australian Tech companies continue to trade at substantial discounts to US counterparts despite offering unique, sustainable and world leading business models. The maturity of the US Tech sector with the US market risks will get global investors to look at the local Tech sector. The MITCH (Media, Information, Telecommunication, Consumer and Health) universe allows us to sieve the Australian market for sectors where growth outlook is heavily aligned to change in technology and the speed in adapting to this change. MITCH stocks have substantially outperformed the market due to the high sustainable growth outlook compared to the declining global growth. MITCH outperformance shows the disparity in the growth outlook of the new economy versus the old economy. Innovation plans by the major parties will deliver improved market sentiment but the cut back in science industry funding and capacity reduction in NBN will slow down the growth of new entrants to the tech sector. The preferred exposure continues to be the MITCH small cap growth picks. MITCH Large Cap Growth Top Ten Picks: DMP, SRX, CSL, REA, COH, CAR, VOC, NVT, JBH and TPM MITCH Small Cap Growth Top Ten Picks: AYS, CCV, SDA, ACX, IEL, GBT, RKN, TNE, WEB and IFM Page 33

34 Market Mapping Big things come in small packages Last Update 16 th May 2016 Note: This report is a Quantitative Strategy product. The report uses consensus rating and forecast data from Thomson/IBES to get coverage of the whole market and avoid a house skew, and as such sometimes the highlighted themes, sectors and stocks will not match our analysts view. Market outlook: Currency wars, deflation worries, political election cycles and a corporate survival mode will continue to put downward pressure on growth rates and interest rates. The RBA has been pushed into an interest rate easing cycle as deflation worries starts to bite. As the monetary policy effectiveness began to fade, the fiscal policy update showed that there are no credible plans to drive structural change in the next few years. The global and local growth slowdown continues to support lower interest rates for longer than expected. The Australian equity market s sustainable dividend yield will attract investors in an environment of low rates and low growth. We continue to favour an investment strategy with a dominant sustainable yield aspect due to the weak growth outlook. Financials offer the best yield aspect while Industrials offer the best mix of growth and yield. The long term series analysis using equal weighted indices and forward multiples helps to sieve the best size, style and sector mix in the Australian market. Preferred Size, Style and Sector mix: Small Cap MITCH (i.e. Media, Information, Telco, Consumer and Health) stocks that deliver exposure to the new economy are the preferred Small Cap Industrials. Best size to sector mix: Small Cap Industrials. Size category in order of preference: Small, Mid and Large. Sector category in order of preference: Industrials, Financials and Resources Large Cap Equal Weighted Index Mid Cap Equal Weighted Index Small Cap Equal Weighted Index Page 34

35 Why crazy will do well in the Federal Election? Two leaders have taken down first term PMs, back flipped on multiple policies, vested interest driven policy settings and have fake budget/plan..while the other two leaders are considered crazy and unstable!!! Global growth keeps running into bear territory!!! Page 35

36 News Wrap OVERNIGHT MARKET PERSPECTIVE Global Market Round Up Global equities are extending their post-brexit rebound as investors await fresh stimulus efforts. ASX futures were up 1.2 per cent at 6am Sydney time, reflecting strong gains across Europe and more gains on Wall Street. The Australian dollar is up 0.7 per cent, helped by higher prices for base metals, gold and oil. Mining and energy shares helped pace the broad rally in equities. The Aussie also is benefiting from a slightly weaker greenback amid speculation policy makers will move to prevent the UK's European secession from hampering global growth. Crude oil gained as American stockpiles fell. The MSCI All-Country World Index had its biggest two-day gain since August as central banks around the world signalled a readiness to act. The S&P 500 Index erased a loss for the year, with a Goldman Sachs Group index of the most-shorted shares surging the most since Britain's FTSE 100 Index erased its post-brexit losses with a 6.3 per cent surge over two days. Emerging-market shares climbed as the greenback fell on odds that the Federal Reserve won't raise rates this year. Oil topped $US49 a barrel. "I don't think it's shocking that cooler heads are prevailing temporarily," said Daniel Kern, chief investment officer of Boston-based TFC Financial Management, which oversees $US850 million. "The markets are discounting that there's very little chance of the Fed raising rates this year. We're definitely in the speculation phase of this process, and it's going to be a while before there's any real economic data to react to. It's somewhat fragile as things are so fluid as new information comes in." AFR US US stocks advanced amid a global rally, with the S&P 500 Index posting its strongest two-day climb in four months. The S&P 500 rose 1.7 per cent to at 4pm in New York, after the biggest one-day rally since February on Tuesday. The gauge has erased its loss for the year after last week wiping out a 2016 advance of as much as 3.7 per cent. Trimmed by Wednesday's rally, the main US equity index's Brexit losses aren't spoiling a third straight quarterly advance, with the S&P 500 currently up 0.5 per cent for the three months. Energy producers remain the strongest performers during the period, on pace for the biggest gain in two years. Adding to the upbeat sentiment, data showed US consumer spending, which accounts for more than two-thirds of economic activity, increased 0.4 per cent in May. General Electric Co's slimmed down financing arm shed its "too big to fail" designation, no longer deemed by the US government "systemically important" and so liable to wreck the economy in the event it runs into distress. AFR Europe European equities rose for a second day, recovering more of the declines triggered in the immediate aftermath of the UK's decision to leave the European Union. The Stoxx Europe 600 Index climbed 3.1 per cent at the close of trading, with miners and energy producers as the best performers. Friday's shock vote for British secession sent the benchmark to its worst two-day rout since 2008, before yesterday's advance. The number of shares changing hands today was 45 per cent higher than the 30-day average. In London, Britain's FTSE 100 closed at its highest level since April on Wednesday, as a two-day rally recouped the losses it suffered after Britain voted to leave the European Union. The index settled up points, 3.6 per cent higher, at points. The gains lifted the FTSE above last Thursday's close of "The counter-movement to the heavy losses after the Brexit shock show that perhaps some realism is starting to set back in, or perhaps that there is hope for an adequate solution," said Thorsten Engelmann, a trader at Equinet Bank in Frankfurt. "We still don't know whether a new referendum would be an option for the UK, or whether there's a way to go around it." AFR Asia China's bid for greater influence in global financial markets will benefit from the U.K.'s decision to leave the European Union, according to Mark Mobius, who sees Asia as the "place to be" in the developing world. The Shanghai Composite Index advanced 0.7 per cent, taking its rally since the start of Friday to 1.4 per cent, the most among 94 benchmark indexes tracked by Bloomberg after the Jakarta Composite Index. Drug makers, industrial and consumer-staples companies have led gains in Shanghai over the period, with traditional medicine maker Beijing Tongrentang climbing 7.6 per cent. "China's market is still a semi-closed one that isn't subject to too much in the way of fund outflows," said Wei Wei, an analyst at Huaxi Securities in Shanghai. China will kick off June economic data releases on Friday, starting with the purchasing managers' index. The manufacturing gauge will probably show a reading of 50, the dividing line between expansion and contraction, according to the median of estimates in a Bloomberg survey. That compares with 50.1 in May. Hong Kong's markets will be closed on Friday for a public holiday. The Jakarta Composite Index entered a bull market as the gauge surged on the passing of a tax amnesty bill. Equities in the Philippines are at the highest in more than a year on optimism President-elect Rodrigo Duterte will speed infrastructure development. Thai stocks are up 18 per cent from the year's low and Singapore capped the biggest two-day rally since April. AFR Currency As for how the RBA will respond, here's what NAB economics think: "In terms of Australian monetary policy, our core view remains for the Reserve Bank to remain on hold although heightened global risks suggest a higher probability of a rate cut in coming months. A cut at the July meeting appears unlikely given the relatively orderly financial market movements to date and a desire to see how the dust settles. In addition, the RBA would prefer to have an up-to-date reading on inflation pressures, which suggests any upcoming cut would be more likely in August after the release of the Q2 CPI." The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slid 0.4 percent following a loss of the same amount in the last session, amid speculation about the path of Fed interest rates. Sterling advanced for a second day against the dollar as investors await Britain's plan for its extrication from the 28-nations bloc. "Markets have calmed down somewhat," said Thu Lan Nguyen, a foreign- Page 36

37 exchange strategist at Commerzbank AG in Frankfurt. "We may see some short term continuation of the recovery in the pound if there is an increased chance of a new prime minister who can secure the access of the U.K. to the single market. But uncertainty is still high and market participants are jittery." The yen rose 0.1 percent following a 0.7 percent decline on Tuesday. Nomura Holdings Inc. became the latest brokerage to raise its year-end forecast for the currency and now expects a 17 percent increase after the U.K.'s decision to leave the EU spurred a rush for it as a haven. AFR Commodity The Bloomberg Commodity Index, which measures returns on raw materials, extended Tuesday's 1.9 percent rally with a 1 percent advance. Gold recovered most of the previous session's losses, adding 1 percent to $1, an ounce on speculation that the Fed's interest rate policy will boost the precious metal's allure. West Texas Intermediate crude climbed 2.7 percent to $49.17 a barrel, building on last session's 3.3 percent jump. U.S. oil inventories fell by 3.86 million barrels last week, the American Petroleum Institute was said to have reported, ahead of government data due on Wednesday. Copper and nickel climbed to the highest levels in nearly eight weeks on Wednesday, bolstered by a softer US dollar and fading fears about Britain's vote to exit the European Union. Zinc and lead touched three-week highs as the dollar gave up some of its gains made since the Brexit vote last week. Threemonth copper on the London Metal Exchange hit a peak of $US a tonne, the highest since May 5, building on a 2.3 per cent gain in the previous session. It failed to trade in closing open outcry activity and was bid at $US4838 up 0.4 per cent. As for the outlook for copper, Capital Economics is bullish: "We expect prices to recover further and to end the year at around $US5000 per tonne. This compares with a consensus forecast of around $US4750. Further small gains are expected in 2017." LME nickel ended 1.1 per cent firmer at $US9440, the strongest since May 5, while zinc finished up 0.7 per cent at $US2089 and lead climbed 2 per cent to close at $US1770, the latter two touching the highest levels since June 9. Tin ended up 1.2 per cent at $US17,095 and aluminium rose 0.7 per cent to $US AFR MACRO PERSPECTIVE Global Markets and Risk It did not take long for the pundits, commentators, economists and business TV gurus to turn their minds from Brexit to the next biggest threat to global financial market stability Donald Trump. It is not an unreasonable shift in focus given that the outcome of the US presidential election in November will have a significant impact on currencies, bond markets, equity market valuations and other asset prices. But the possibility of a Trump victory may well be felt well before then thanks to the shock Brexit outcome. "One should not underestimate the psychological impact and how quickly markets could link the [Brexit] outcome to a rising risk of Donald Trump winning the US presidential election," Nomura's chief economist and head of global markets research, Robert Subbaraman, told clients at the weekend. He says two lessons were learned from the Brexit referendum. First, opinion polls showing a neck-and-neck race between Trump and Hillary Clinton need to be taken seriously. Second, financial markets can wildly misprice the outcome of a democratic vote. "The upshot is that investors are likely to take the results of opinion polls more seriously now and, as such, financial markets could start pricing in a greater risk of a Trump victory in the November 8 election and, possibly, a greater chance of populist insurgencies in the rest of Europe," Subbaraman said. Gold has been the big winner from the Brexit vote. Bullion has surged in value, as have the shares in gold mining stocks. There are two reasons for this: gold is a safe haven during times of market volatility, and there is an expectation that central banks will be in the market for a range of assets as they flood the world with liquidity during the next bout of uncertainty. AFR Markets and Central Banks Investors are back in risk-taking mode, amid growing confidence that the world's major central banks will unleash a fresh flood of liquidity to counteract the negative economic shock from the Brexit vote, which could sweep global equity markets to fresh highs. The magnitude of the monetary stimulus that could be unleashed is even worrying some central bankers. Overnight, Mario Draghi, the head of the European Central Bank (ECB), pleaded for central banks to be cautious and avoid triggering a major global currency war. Major central banks including the ECB and the Bank of Japan have launched massive bond-buying programs and slashed their key deposit rates into negative territory in a bid to boost economic activity and spur inflation. But the main impact of these policies has been to push their currencies lower, which has helped boost export sales. But Draghi, who would not have been unhappy to see the euro tumble in the wake of the UK's decision to leave the European Union, is clearly worried about the likely Japanese response to surging yen. Addressing an ECB conference in Portugal on Tuesday night, Draghi emphasised it was important that the world's top central banks co-ordinate their policies, and warned that currency devaluations aimed at increasing competitiveness are a "lose-lose" for the global economy. "In a globalised world, the global policy mix matters and will likely matter more as our economies become more integrated", Draghi said. "The speed with which monetary policy can achieve domestic goals inevitably becomes more dependent on others." It's likely that Draghi's concern about the global impacts of monetary policy have been heightened by growing speculation that Tokyo is preparing to intervene directly in foreign currency markets to combat the yen's strength. AFR Frexit (US Fed exiting rate rise cycle) Circle January 31, 2018, on the calendar. That's the soonest the Federal Reserve hikes next. At least if money market derivatives are to be believed. Traders, who have consistently been better at projecting the path of interest rates than the Fed itself, are now pricing in a greater probability that policy makers will cut rates in upcoming meetings than raise them. They don't assign more than a 50 per cent chance of an increase until the beginning of 2018, and don't price in a full rate hike until the final quarter of the year. The sea change in outlook for central bank policy comes after global equities and commodities plunged while government bonds and the US dollar surged following Britain's vote to quit the European Union. That's tightened financial conditions in the world's largest economy, driven down inflation expectations and dimmed the outlook for global growth. "The market is pricing in a non-trivial probability of a Fed rate cut over the next couple of months," said Aaron Page 37

38 Kohli, a fixed-income strategist in New York at BMO Capital Markets, one of 23 primary dealers that trade with the central bank. "The Fed is really boxed in now, so the market doesn't even begin to price in any real chance of hikes until mid-2017." The market's view on the path of Fed policy is hardly set in stone. Rate hike expectations were upended in August and February amid similar bouts of market volatility. Yet implied yields on federal funds futures, which settle upon expiration at the average effective fed-funds rate during the contract month, are now pricing in a real possibility of a rate cut by year end. The effective rate was 0.41 per cent Monday, and is foreseen by traders averaging 0.35 per cent in December. Options on eurodollar futures, the world's most actively traded money-market derivative, imply a 25 per cent chance of a rate cut by September. That's a reversal from just two months ago, when prices signalled that a rate increase by year end was a virtual certainty. AFR EU and Brexit Despite Brexit, insisted European Commission President Jean-Claude Juncker stoutly, "the British remain our friends". To judge by the extraordinary scenes at the European Parliament, I'm not sure that all his colleagues agree with him. In fact, I'm not sure that Mr Juncker agrees with himself. MEPs were holding an emergency meeting in Brussels to debate what to do with Britain now. "Democracy is democracy," sighed Mr Juncker, the President of the European Commission. "And we must respect the way the UK has voiced its view." Sitting across the chamber, Nigel Farage applauded. Mr Juncker eyed him grimly. "That's the last time you're applauding here!" he snapped in English, rather than his usual French. MEPs clapped furiously. Mr Juncker continued to glare at the UKIP leader. "The British people voted for the exit!" he snorted. "Why are you even here?" The President tore himself temporarily away from his foe, and attempted to reassure the chamber. "The British vote has cut off one of our wings but we're still flying!" he cried, sounding like the knight who gets all his limbs hacked off in Monty Python and the Holy Grail. (" 'Tis but a scratch! Just a flesh wound!"). Guy Verhofstadt, the former prime minister of Belgium, was angry with the UKIP leader too. "It was an absolutely negative campaign the posters by Mr Farage were like Nazi propaganda," he gasped, his long, lank fringe flapping angrily. AFR EU and Australia The European Union is manoeuvring to use Britain's planned exit from the bloc to strengthen trade and political ties directly with Australia. The EU's ambassador to Australia, Sem Fabrizi, said in an interview the grouping was committed to pushing ahead vigorously with political and trade agreements with Australia. Mr Fabrizi noted that Europe without Britain would remain the world's largest trading bloc, bigger than the US. Also in the works is the convening of a Europe-Australia Leadership Forum modelled on the US-Australia Leadership Dialogue to help expand Australia-Euro relations across the board. Mr Fabrizi anticipates an "intensified debate" following Britain's exit from Europe in which Australian and EU officials step up their engagement on a whole suite of issues, including commerce, climate change, trade liberalisation, security and counter terrorism. A wide-ranging political agreement between Australia and the EU was close to being signed, and negotiations on a trade agreement would begin in the new year. "Life will go on," Mr Fabrizi said. AFR US Election and Trans-Pacific Partnership Donald Trump vowed to rip up international trade deals and start an unrelenting offensive against Chinese economic practices, framing his contest with Hillary Clinton as a choice between hard-edge nationalism and the policies of "a leadership class that worships globalism". Speaking in western Pennsylvania, Mr Trump sought to turn the page on weeks of campaign turmoil by returning to a core set of economic grievances that have animated his candidacy from the start. He threatened to withdraw from the North American Free Trade Agreement and pledged to label China a currency manipulator and impose punitive tariffs on Chinese goods. He attacked Ms Clinton on her past support for the Trans-Pacific Partnership, a trade pact negotiated by the Obama government, and challenged her to pledge she would void the agreement in its entirety. Noting Ms Clinton had backed free-trade agreements such as NAFTA in the past, Mr Trump warned: "She will betray you again." At a rally later in the day in eastern Ohio, Mr Trump attacked the Trans-Pacific Partnership in more provocative terms, saying it was a "rape of our country". As a policy manifesto, Mr Trump's Pennsylvania speech was an attack on the economic orthodoxy that has dominated the Republican Party since World War II. It is an article of faith among establishment Republicans and allied groups such as the US Chamber of Commerce, which represents the interests of large corporations, that trade is good and more trade is better. AFR Australia and Government Spending Labor is unashamedly defending its plans to permanently expand the size of government with a 10-year budget plan that embeds a record tax take to fund a surge in spending that began during the boom years. However, analysis by The Australian Financial Review of the tax and spending projections of both sides of politics indicates the Coalition is almost certain to match Labor's spending levels unless it ramps up cuts or succumbs to the draw of higher taxes. Failure to trigger either of those options would give a Coalition government little hope of meeting its promise of meaningfully reducing debt and deficits, the analysis shows. Economist Saul Eslake, who confirmed the Financial Review's calculations as credible, said voters were being offered the starkest choice about the size of government since 1993, even though in real terms the differences are modest. While he said there was no statistically significant global evidence to support the idea that the magnitude of government has any bearing on economic growth, it was still clear that neither side has been "wholeheartedly" honest about the affordability of spending hikes and tax cuts delivered during the Howard and Rudd/Gillard years. "Those three governments turned temporary revenue windfalls into permanent, elevated spending commitments," Mr Eslake said. "We have to be prepared to pay for it. Labor has been more honest about that, but perhaps not honest enough." In analysis that underscores how permanent the expansion in government spending as proportion of GDP is likely to become, the 2016 budget papers and Labor's 10-year fiscal plan released on Sunday confirm there is almost no difference between the two sides on spending, which will remain at levels normally associated with recession or economic downturns. AFR Australia and New Home Sales New home sales fell for a second month in May as sales of detached houses declined across the eastern seaboard, particularly in the previously buoyant market of NSW. The 6.7 per cent decline in sales of detached homes followed April's 3 per cent fall, and pulled overall private new home sales down 4.4 per cent, the Housing Industry Association said on Wednesday. A rise in so-called multi-unit sales, which can be volatile Page 38

39 from month to month and rose 4.9 per cent in May after a 10.7 per cent fall in April, was insufficient to offset the monthly fall. At a time when house price growth is moderating and banks are reining in credit to buyers and developers, the pace of the long-awaited cyclical slowdown in housing construction is unclear. While only showing one month's figures, the latest report shows there are risks of a sharp decline. "The latest weakness in new home sales resonates with all the other data on the housing sector - in particular the data on home loans, which has been decidedly more mixed in the past few months," said CommSec economist Savanth Sebastian. "It is clear that housing activity is consolidating with potential home buyers being more circumspect on purchases a result which is encouraging, as it should ensure a much more sustainable housing market." Mr Sebastian said the figures, collected from a sample of Australia's 100 largest home builders and covering about 14 per cent of the home building industry, would not have fully factored in May's surprise rate cut, which was likely to boost demand for property. The lobby group for volume home builders stressed that the fall, driven by an 11.5 per cent decline in NSW sales, was part of a cyclical downturn. "There is nothing alarming to a reversal in the trend for new home sales," HIA chief economist Harley Dale said. "There is a cyclical downturn ahead for new residential construction activity, as new home sales signal, but the early pullback will be mild by historical standards." AFR SOURCE AUSTRALIAN FINANCIAL REVIEW ( THE AUSTRALIAN ( THE SYDNEY MORNING HERALD ( BLOOMBERG ( Page 39

40 BAILLIEU HOLST This document has been prepared and issued by: Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Analysts stock ratings are defined as follows: Buy: The stock s total return is expected to increase by at least percent from the current share price over the next 12 months. Hold: The stock s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months. Sell: The stock s total return is expected to decrease by at least percent from the current share price over the next 12 months. Disclosure of potential interest and disclaimer: Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 55% of any brokerage resulting from any transactions you may undertake as a result of this advice. When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances. If you do not provide us with the relevant information (including updated information) regarding your investment needs, objectives and financial circumstances, our advice may be based on inaccurate information, and you will need to consider whether the advice is suitable to you given your personal investment needs, objectives and financial circumstances. Please do not hesitate to contact our offices if you need to update your information held with us. Please be assured that we keep your information strictly confidential. No representation, warranty or undertaking is given or made in relation to the accuracy of information contained in this advice, such advice being based solely on public information which has not been verified by Baillieu Holst Ltd. Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given. Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Melbourne (Head Office) Address Level 26, 360 Collins Street Melbourne, VIC 3000 Australia Postal PO Box 48, Collins Street West Melbourne, VIC 8007 Australia Phone Facsimile [email protected] Adelaide Office Address 1, 341 Payneham Road Marden, SA 5070 Australia Phone Facsimile [email protected] Bendigo Office Address Cnr Bridge & Baxter Streets Bendigo, VIC 3550 Australia Postal PO Box 40 North Bendigo VIC 3550 Australia Phone Facsimile [email protected] Brisbane Office Address Level 18, 333 Ann Street Brisbane, QLD 4000 Australia Phone [email protected] Geelong Office Address 16 Aberdeen Street Geelong West Vic 3218 Postal PO Box 364 Geelong Vic 3220 Australia Phone Facsimile [email protected] Newcastle Office Address Level 1, 120 Darby Street Cooks Hill, NSW 2300 Australia Postal PO Box 111 The Junction, NSW 2291 Australia Phone Facsimile [email protected] Perth Office Address Level 10, 191 St Georges Terrace Perth WA 6000 Australia Postal PO Box 7662, Cloisters Square Perth, WA 6850 Australia Phone Facsimile [email protected] Sydney Office Address Level 18, 1 Alfred Street Sydney, NSW 2000 Australia Postal PO Box R1797 Royal Exchange, NSW 1225 Australia Phone Facsimile [email protected] Baillieu Holst Ltd ABN Page 40