Australasian Equities Outlook - Devon Funds · Outlook. September 2019. Mark Brown, CFA Over 20 years’ industry experience ... NZX 50 ASX 200 S&P 500 FTSE 100 Nikkei Hang Seng 1yr

Australasian Equities Outlook

September 2019

Mark Brown, CFAOver 20 years’ industry experience

Chris Gaskin, CFAOver 15 years’ industry experience

Mark has primary responsibility for stock selection and portfolio construction for the Alpha Fund and the New Zealand Equity funds. Mark is also responsible for overseeing the overall research and investment process at Devon.

Chris has primary responsibility for stock selection and portfolio construction for the Australasian Equity funds. Chris also has primary research responsibility for the Healthcare, Telecoms, and Utilities sectors.

Tama Willis Over 15 years’ industry experience

Nick Dravitzki, CFAOver 13 years’ industry experience

Tama has primary responsibility for stock selection and portfolio construction for the Trans-Tasman and Australian funds. Tama also has primary research responsibility forthe Resources and Financials sectors.

Nick has primary responsibility for stock selection and portfolio construction for the Dividend Yield Fund, and the Diversified Income Fund. Nick also has primary research responsibility for the Property, Discretionary and Staples sectors.

Shenci Tang2 years’ industry experience

Slade Robertson, Managing DirectorOver 20 years’ industry experience

Shenci has primary responsibility for stock selection and portfolio construction for the Devon Sustainability Fund. He also has primary research responsibility for the Industrial sector.

Shenci has held positions at KPMG Corporate Finance, Goldman Sachs, and the Royal New Zealand Navy.

After spending 6 years as a Portfolio Manager for Devon, in March 2017 Slade became the Managing Director and as such now has overall responsibility for the business. Slade continues to contribute to the investment process as a member of the Investment Committee.

Devon Funds ManagementSkilled and experienced investment team

2For the informed investor.


Performance of global markets

Source: Forsyth Barr

New Zealand has been a remarkably consistent performer (local currency terms including dividends)

-15.0%

-10.0%

-5.0%

+0.0%

+5.0%

+10.0%

+15.0%

+20.0%

NZX 50 ASX 200 S&P 500 FTSE 100 Nikkei Hang Seng

1yr 5yr 10yr


Australia and New Zealand growth outlook

Source: UBS

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2013 2014 2015 2016 2017 2018 2019 2020

Annu

al G

DP G

row

th (

%)

AU GDP Growth NZ GDP GrowthUBS AU Forecasts UBS NZ Forecasts


New Zealand market looks expensive on a PE basis

Source: Forsyth Barr


… but relative to bonds, equities look cheap

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Aug

-14

Oct

-14

Dec

-14

Feb-

15A

pr-1

5Ju

n-15

Aug

-15

Oct

-15

Dec

-15

Feb-

16A

pr-1

6Ju

n-16

Aug

-16

Oct

-16

Dec

-16

Feb-

17A

pr-1

7Ju

n-17

Aug

-17

Oct

-17

Dec

-17

Feb-

18A

pr-1

8Ju

n-18

Aug

-18

Oct

-18

Dec

-18

Feb-

19A

pr-1

9Ju

n-19

BY/EY

Source: IRESS


Australian earnings growth

Source: Citi

-15

-10

-5

0

5

10

15

20

25

30

Market Resources Banks Market exResources

Healthcare

FY18 FY19 FY20 FY21


Style performance for the ASX200

Source: MST

0

50

100

150

200

250

300

Sep 09 Sep 11 Sep 13 Sep 15 Sep 17 Sep 19

ASX 200 Growth ASX 200 Value

Performance of value versus growth over time Resources versus Banks

50

100

150

200

250

Sep 09 Sep 11 Sep 13 Sep 15 Sep 17 Sep 19

ASX 200 Banks

ASX 200 Resources


Earnings, not rates, continue to drive the market

Source: Citi

Long bull market has been driven by earnings And near term earnings look reasonable


But the risk to earnings is lurking as more tariffs due

Source: UBS

Tariffs to date resulted in sharp contraction of imports from China Most likely cause of sharp slowdown in Q4 18


NewscorpManagement “acutely focused” on value creation

Source: Devon, Factset, Company Information

New York Times Valuation Implies Material UpsideWSJ the key value driver of News & InformationN&I Divisional Valuation FY19F FY20F Multiple Value Multiple Value

Estimated EBITDADow Jones 202.2 214.8GrowthConsumer 193.2 205.7 8.0x 1,646.0 18.5x 3,806.4GrowthInstitutional 9.1 9.1 8.0x 72.5 8.0x 72.5GrowthAustralia 39.4 39.8 8.0x 318.5 8.0x 318.5GrowthUK 59.3 59.9 8.0x 478.9 8.0x 478.9GrowthNews America Marketing 134.1 125.2 8.0x 1,002.0 8.0x 1,002.0GrowthNY Post -38.8 -38.8 8.0x -310.3 8.0x -310.3GrowthTotal EBITDA 396.3 401.0 3,207.7 5,368.0Growth

Shares 584.8Per share at 8x 5.49$ Per share at 18.5x 9.18$


NewscorpGlobal Real Estate key valuation question

Source: Devon, Zillow

Theoretical US market potential is giganticREA a big part of value, but move negligible


James HardieUS housing market and market share gains

Source: Devon, JP Morgan, UBS

James Hardie US primary demand growthUS housing starts

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

FY13 FY14 FY15 FY16 FY17 FY18 FY19 Q1FY20


James HardieA big “small” company to a small “big” company

Source: Devon, James Hardie

Targeting EUR1bn in revenue in Europe within 10 years


Vista GroupCinema has been a very resilient business

Source: Cinemark


Vista GroupGlobal market share growth continues despite weaker near-term revenue guidance

Source: Cinemark, IRESS

Vista global market share of 20+ screen market

0

1

2

3

4

5

6

7

8-Aug-14 8-Aug-15 8-Aug-16 8-Aug-17 8-Aug-18 8-Aug-19

Vista share price since listing


Trans-Tasman Portfolio

Asset allocation

Company Name Country % FundContact Energy NZ 7.0NAB AU 5.5Spark NZ 5.0CSL AU 5.0Aristocrat Leisure AU 4.3Meridian AU 4.0Westpac AU 3.5a2 Milk NZ 3.5BHP AU 3.5James Hardie AU 3.0Z Energy NZ 3.0Suncorp AU 3.0Fisher & Paykel Healthcare NZ 2.8Newscorp AU 2.8Vista Group NZ 2.8Atlas Arteria AU 2.8


Dividend Yield Portfolio

Asset allocation

Company Name Country % FundContact Energy NZ 6.0Spark NZ 6.0NAB AU 5.5Meridian NZ 5.0Z Energy NZ 5.0Unibail-Rodamco AU 4.0BHP AU 4.0Scentre Group AU 4.0Sydney Airport AU 4.0SkyCity NZ 4.0Mercury NZ 3.0Kiwi Property NZ 3.0Air New Zealand NZ 2.8Rio Tinto AU 2.8Genesis NZ 2.5Fletcher Building NZ 2.5


Alpha Portfolio

Asset allocationCompany Name Country % FundZ Energy NZ 7.0Contact Energy NZ 7.0CSL AU 6.0Aristocrat Leisure AU 6.0Spark New Zealand NZ 6.0James Hardie AU 5.0NAB AU 5.0EBOS NZ 5.0Newscorp AU 5.0a2 Milk NZ 4.0Resmed AU 3.5Brambles AU 3.0Vista Group NZ 3.0


Australian Portfolio

Asset allocation

Company Name Country % FundNAB AU 7.5CSL AU 6.0BHP AU 7.0Westpac AU 6.0Aristocrat AU 5.5Rio Tinto AU 5.0Newscorp AU 4.5Suncorp AU 4.5James Hardie AU 4.0Woodside Petroleum AU 4.0CBA AU 4.0Atlas Arteria AU 3.5ANZ AU 3.0Scentre Group AU 3.0Sydney Airport AU 3.0Macquarie AU 2.5

For the informed investor.

INFORMATION AND DISCLAIMER: This document is not a Product Disclosure Statement (PDS) under New Zealand law or under any other law. It is for information purposes only and contains summarised information. Accordingly, this document neither purports to be exhaustive nor contains all of the information which a prospective investor or the recipient may require to make an investment decision. This document does not contain all of the information which would otherwise be required by New Zealand law or any other law to be disclosed in a PDS or similar disclosure document required under foreign law. Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

A PDS for the fund/s mentioned in this presentation is available free from Devon Funds Management Limited. Investors should read and understand the PDS for the relevant fund(s) in which they invest and satisfy themselves they understand all the terms and conditions of investment in the fund/s. The information in this document is not intended to be advice. In preparing this document, Devon Funds Management Limited did not take into account the investment objectives, financial situation and particular needs of any particular person. Devon Funds Management Limited recommends that potential investors consult their financial adviser and obtain professional financial advice on their individual requirements before making any investment decisions.

Past performance is not indicative of future results. Investments in any of the Devon Funds are subject to investment risk, including possible delays in repayment and loss of income and capital invested. Neither Devon nor any related company of Devon, guarantees any particular rate of return on, or the performance of, the Devon Funds, nor do they guarantee the repayment of capital from the Devon Funds.

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Australasian Equities Outlook - Devon Funds · Outlook. September 2019. Mark Brown, CFA Over 20 years’ industry experience ... NZX 50 ASX 200 S&P 500 FTSE 100 Nikkei Hang Seng 1yr