Australia Investment Strategy - Credit Suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

26 July 2016 Asia Pacific/Australia

Equity Research Investment Strategy

Australia Investment Strategy Research Analysts

Hasan Tevfik ,CFA

61 2 8205 4284

[email protected]

Damien Boey

61 2 8205 4615

[email protected]

Peter Liu

61 2 8205 4071

[email protected]

STRATEGY

3Q Outlook: Sideways

■ Global economics: The surprise of the UK referendum and slowing

activity in China have led our economists to shave their Global GDP

forecasts to 2.4% in 2016 and 2.6% in 2017. The global economy

continues to travel at stall speed and remains vulnerable to shocks.

■ Australian equities: After the sharp rally we forecast sideways markets in

the near-term. Further upside is capped by a combination of testing

valuations and broader macro concerns. The downside is also capped, in

our view, as the global-search-for-yield will continue to bring investors to

Aussie equities. We recently lowered our December 2016 ASX 200 target

to 5500. Investors should anticipate less beta and more alpha.

■ Aussie sectors, global perspective: We provide a snapshot of how

Australian sectors compare to their international peers. We find Aussie

Healthcare stocks trade at a 50-60% P/E premium vs the global sector

average. This is despite weaker profit margins and EPS momentum.

Meanwhile, Australian Building Materials may look expensive vs the

domestic market but remain relatively cheap versus international peers.

■ Buybacks: The cost of debt for Australia Inc. is back down to record lows.

Despite higher equity valuations a lower cost of debt makes a buyback in

Australia extremely accretive. Companies in a position to announce an

EPS accretive buyback but currently not doing so include Qantas, Caltex,

Boral and AGL Energy. We add AGL Energy to our Long Portfolio. We also

add Dulux to our Short Portfolio.

Figure 1: Aussie P/E ratio now at a post-financial crisis high

12 month trailing P/E ratio for ASX 200

Source: Company data, Credit Suisse

5

10

15

20

25

70 74 78 82 86 90 94 98 02 06 10 14

Average = 15.3x

17.8x

26 July 2016

Australia Investment Strategy 2

Table of contents

3Q outlook: Sideways 3

Market returns in 1Q ................................................................................................. 3

Global economics ..................................................................................................... 4

Bonds, credit, FX, commodities ................................................................................ 5

Australian economics ............................................................................................... 7

Global equities .......................................................................................................... 8

Australian equities: Sideways 9

Valuation 9

Growth 10

Gummy rally 11

Buybacks ................................................................................................................ 13

Stock changes ........................................................................................................ 16

Australian sectors, global perspective 18

Energy (4.3% ASX 200, 7.0% Global) ................................................................... 19

Chemicals (1.0% ASX 200, 2.4% Global) .............................................................. 20

Building Materials (1.8% ASX 200, 0.8% Global) .................................................. 21

Packaging (1.5% ASX 200, 0.2% Global) .............................................................. 22

Metals & Mining (8.0% ASX 200, 1.3% Global) ..................................................... 23

Gold (2.0% ASX 200, 0.3% Global) ....................................................................... 24

Commercial Services (1.2% ASX 200, 0.8% Global) ............................................. 25

Transport (3.0% ASX 200, 2.1% Global) ............................................................... 26

Infrastructure (3.1% ASX 200, 0.5% Global) .......................................................... 27

Gaming (2.3% ASX 200, 0.4% Global) .................................................................. 28

Media (1.3% ASX 200, 2.4% Global) ..................................................................... 29

Retail (1.1% ASX 200, 3.6% Global) ...................................................................... 30

Food Retail (5.0% ASX 200, 2.3% Global) ............................................................ 31

Food & Beverage (1.7% ASX 200, 9.0% Global) ................................................... 32

Healthcare (8.0% ASX 200, 10.7% Global) ........................................................... 33

Banks (25.0% ASX 200, 9.2% Global) ................................................................... 34

Diversified Financials (4.9% ASX 200, 3.5% Global) ............................................. 35

Insurance (3.6% ASX 200, 3.6% Global) ............................................................... 36

Real Estate (9.4% ASX 200, 3.6% Global) ............................................................ 37

Software (1.3% ASX 200, 8.7% Global) ................................................................. 38

Telecoms (5.9% ASX 200, 5.3% Global) ............................................................... 39

Utilities (2.7% ASX 200, 3.7% Global) ................................................................... 40

26 July 2016


3Q outlook: Sideways After the sharp rally in Aussie equities we forecast sideways markets in the near term.

Further upside is capped by a combination of testing valuations and broader macro

concerns. The downside is also capped, in our view, as the global-search-for-yield will

continue to bring investors to Aussie equities. We recently lowered our December 2016

ASX 200 target to 5500. Investors should anticipate less beta and more alpha.

An area of potential alpha within the Aussie market are the beneficiaries of a record low

cost of debt. We highlight companies that are in a position to do an EPS accretive buyback

and take advantage of the unusual pricing on offer by credit markets. Our screen includes

Qantas, Caltex, Boral and AGL Energy. We add AGL Energy to our Long Portfolio. We

also add Dulux to our Short Portfolio.

Finally, we introduce a new section to the Australian Equity Quarterly and provide a global

perspective on Australian sectors. Our work highlights that Aussie Healthcare stocks trade

at a 50-60% P/E premium vs the global sector average. This is all despite weaker profit

margins and EPS momentum. Meanwhile, Australian Building Materials may look

expensive vs the domestic market but remain relatively cheap versus international peers.

Market returns in 2Q

Expectations of further global central bank policy were reflected in asset prices in 2Q16.

Gold, government bonds and credit all performed well. The gold price rallied 45% in A$

terms. The rally in government bonds now means that 20% of global sovereign debt

provides a negative yield. Meanwhile the strong performance of corporate bonds means

yields have hit a record low again. There was little separating DM and EM equities in

2Q16, although EM has performed better in 3Q so far. The iron ore price was volatile. It

plunged more than 7% in US$ terms (4% in A$) in 2Q which has since rebounded in 3Q.

Figure 2: Gold and fixed income outperform Figure 3: Weak Sterling helps UK equities

Major asset class returns in Q2 2016 (in AUD) Major stock index returns in Q2 2016 (in local currency)

Source: the BLOOMBERG PROFESSIONAL™ service Source: the BLOOMBERG PROFESSIONAL™ service

To the surprise of many, UK equities were the best performer of the major markets in

2Q16, and the performance has continued into 3Q. Of course local stocks have benefited

immensely from a weaker currency as three quarters of UK Plc earnings come from

-6%

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0%

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6%

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Gold

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10 Year+

US

High Y

ield

DM

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ear

Aus E

quities

EM

Equities

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Cash

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Iron Ore F

utures

Q3 to dateQ2 16

45%

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Canada

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Japan

Q2 16 Q3 to date

26 July 2016


abroad. Canadian and Australian equities also performed well. In Australia's case at least

this is in line with previous Gummy Rallies following benign bear markets. It seems that

Japanese equities suffered the most post Brexit as a stronger Yen weighed on profits. But

the performance here has since recovered, as the Yen has weakened.

Global economics

Our economists forecast Global GDP to grow 2.4% in 2016 and have shaved their 2017 forecast to 2.6% following the Brexit vote. Our economists believe a recession in the UK, a slowdown in continental Europe, and renewed headwinds for China will not be offset by resilience in other emerging markets and the US. We expect the BoJ, BoE and PBoC to ease policy further in 2H16. Political risk remains acute after Brexit, with the US election and Italy’s constitutional referendum adding to market volatility in 2H16.

Figure 4: Credit Suisse Real GDP and CPI Forecasts

Year average annual change (%)

Real GDP Growth Inflation

2015 2016E 2017E 2015 2016E 2017E

Global 2.6 2.4 2.6 2.4 3.4 4.0

US 2.4 1.9 2.2 0.1 1.2 2.0

Euro Area 1.6 1.5 1.0 0.0 0.3 1.5

Japan 0.5 0.4 0.2 0.6 -0.3 0.0

UK 2.3 1.0 -1.0 0.0 0.7 2.1

Switzerland 0.9 1.0 1.5 -1.1 -0.5 0.0

China 6.9 6.5 6.5 1.4 2.0 1.7

Australia 2.5 2.5 3.2 1.5 2.1 2.4

Source: Credit Suisse estimates

US – Fed back in 2017

The current US economic expansion has been primarily driven by consumer spending,

which is supported by rising labour income, improving consumer confidence and strong

household balance sheets. Slowing payroll growth is not a sign of concern as the US

approaches full employment. However, high uncertainty related to Brexit and the US

election could weigh on consumer confidence in 2H16. The housing sector has seen

improvement and investment will likely boost growth through the rest of 2016. Government

spending could be another tailwind to growth, but the continuation of a divided government

is unlikely to usher in major fiscal expansion in the near-term. Core PCE inflation is

forecast to reach the Fed's 2% target by the end of 2017, but heightened political

uncertainty after Brexit, weak global growth and volatile domestic data will put the Fed on

hold until May 2017.

Europe – little Britain

In Europe, the political uncertainty after Brexit may deter corporate investment and lead to

slower growth in 2H16, but corporate spending could prove resilient because of rising

capacity utilisation and years of underinvestment in capital stock. Still our economists

forecast a mild recession in the UK and weak growth in Continental Europe. The concern

around European banks' profitability is likely to persist given the mix of 'even lower rates for

even longer'. A potential bailout of troubled Italian banks could be reached to avoid the

political repercussion on the EU. Persistently low inflation would prompt the ECB to extend

asset purchases into late 2017 or early 2018. The ECB appears to have little appetite to

push rates further into negative territory when its monetary policy is at limits. Still, the political

capacity for coordinated fiscal stimulus is not yet available. We expect the Bank of England

will cut rates in August to 0.05% from 0.5%, and launch another round of QE of £75bn.

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Japan – pushing the policy boundaries

Without substantial Yen depreciation, Japan will re-enter deflation in 2017. The BoJ is

under increasing pressure to ease policy further in anticipation of further CPI weakness.

Maintaining current policy for too long may risk further JPY strength as real interest rates

rise amid a fall in expected inflation rates. Given the BoJ’s limited capacity for conventional

monetary easing, fiscal and monetary authorities may take coordinated action to launch

another fiscal package, possibly an expansion of deficit bond issuance and JGB

purchases by the BoJ. Our economists believe 'helicopter money' is unlikely any time

soon.

China – peaking

Despite a recent bounce in 2Q16 GDP growth, China's structural slowdown will likely

resume in 2H16 when the excessive liquidity boost to infrastructure and credit fades. The

central government has shifted back to a focus on supply-side reform from demand

stimulus. It is attempting to rein in leverage and cutting excess capacity especially

amongst the SOEs. Although the boost from fiscal policy has effectively increased public

fixed asset investment, it has not prevented a material slide in private investment growth.

The efficacy of fiscal and credit stimulus in propping up GDP growth is diminishing.

Excessive debt and supply is holding back the main policy tools. Monetary policy is likely

to play only a passive role in any future stimulus, with the PBoC potentially cutting the

reserve requirement ratio (RRR) by 100 bps, and the policy guidance rates by another 25

bps in 2H16 if the Fed remains dovish.

Bonds, credit, FX, commodities

Our strategists think government bond yields will continue to rally in the short term and

Australian rates will benefit from its 'high-yielder' status and supportive monetary policy.

Credit conditions will ease further, while GBP and AUD are expected to become weaker.

The gold price is expected to strengthen while iron ore price will stabilise.

Government bonds

The post-Brexit bond rally has driven government bond yields around the world to historic

lows. Despite solid US June retail sales and payrolls data, there has not been a sharply

higher reassessment in the pace of US rate hikes. US 10-year Treasury yields are

currently 1.56%, and weaker data in 3Q16 may support a further rally across the yield

curve. 10-year Treasury yields could reach 1.2% by the end of 3Q16 before reversing

modestly higher to 1.4% by year-end. Without a meaningful reversal in yields, the ECB

could run out of German Bunds it can purchase in 2H16. Consequently, the German yield

curve is likely to flatten.

Australian rates are likely to benefit from a combination of favourable domestic and global

factors. Low inflation and fiscal consolidation are expected to keep monetary policy

supportive. Weak global growth prospects and negative rate regimes should make

Australian rates more attractive due to its 'high-yielder' status in the developed world. Our

rates strategists expect yields will move lower, the curve to remain flat and the current

Australian rates rally would continue and outperform the US on a relative basis.

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Figure 5: Plenty of negative yield about Figure 6: Correlation breakdown Energy vs US HY

Government bond yields curves to 10 years US HY Yields (%) vs WTI Crude Oil Price (RHS, inverted)

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Credit

Credit conditions have eased significantly since early 2016. The trend is expected to

continue into 2H16 given the global appetite for fixed income assets after Brexit. The

favourable combination of higher oil prices, easier central bank policy and improving US

economic data have helped drive down credit yields. US HY bonds are yielding 6.63%,

down from 9.57% in February, while Energy sector HY has dropped below 10% for the first

time since July 2015. The fall in yields is in spite of rising energy company default rates

which is now at a six-year high of 5.1%. More recently, HY credit continues to rally even

though energy prices sell-off (Figure 6). Perhaps buying by the ECB in Europe is affecting

credit markets around the world.

FX

Our FX strategists remain bearish on Sterling and forecast a further 5-10% depreciation

from here. The combination of easing by the Bank of England and an extended period of

uncertainty will weigh on the currency. While the Yen has rallied considerably, we forecast

a reversal as Japanese policymakers engage in fiscal and monetary coordination. Slowing

Chinese growth and falling investment returns in China will reinforce trend CNY weakness

through capital outflows. The AUDUSD is expected to reach 0.72 in three months because

short-term FX volatility and elevated risk aversion could diminish the appeal for risk-on

sensitive currencies like the AUD, but ongoing political instability in Europe and uncertainty

from the US presidential election could drive long-term portfolio capital flows to Australia.

A slim majority for the Coalition government carries downside risks for the AUD but will be

small in magnitude, as the government will push further for fiscal consolidation under

pressure from international rating agencies.

Commodities

Mini-cycles of commodities have returned. Our analysts expect the iron ore price will likely

recede from a June spot price of $51/t to $45/t in 3Q16 as demand slows. However an

increase in China's infrastructure build in 4Q16 should raise steel demand and production

above seasonal norms, lifting iron ore prices back to $50/t. Continued tight supply,

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Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16

US High Yield

US Energy High Yield

WTI Crude Oil Price(RHS, inverted)

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26 July 2016


increasing financial market volatility and heightened political instability will prolong the

strength of gold. We have revised up our forecasts for 3Q16 gold price from US$1,300 to

US$1,350 per ounce. Our oil team is concerned that the demand outlook for crude oil has

become weaker as the Brexit vote has become the latest and the strongest catalyst for a

looming slow-down of global growth. Although production outside OPEC is forecast to

decline, total global oil supply may not experience a substantial change in 2017. Our team

forecasts the crude price to finish 2016 at $44 a barrel and $55 a barrel at the end of 2017.

Australian economics

Australian GDP has surprised to the upside recently, with year-ended growth picking up to

3.1% in 1Q. However, most of the strength is attributable to rising resource export

volumes. Domestic demand growth remains weak — below 1% annualised. In early 2Q,

the evidence is that domestic demand has remained sluggish. Retail sales were flat

through to May, while capex has continued to head backwards. Residential investment still

looks like it has some room to rise given the elevated level of building approvals — but

there are question marks as to whether there are enough resources in the country to build

all of the homes implied by the approvals data. Also, developers may respond pre-

emptively to falling demand by cutting back supply. In our view, housing remains the

weakest link in the economy. Leading indicators point to a sharp decline in housing

demand towards the end of the year, reflecting the delayed effects of macro-prudential

regulation on local buyers and reduced foreign demand.

Figure 7: Residential investment to continue Figure 8: Housing demand to weaken sharply

Change in bank credit and change in net loan approvals Auction clearance rate and mortgage availability

Source: RBA, ABS, Credit Suisse Source: APM, APRA, Credit Suisse

We expect the RBA to cut rates further in this environment. CPI and wage data continue to

register disinflation, consistent with the sluggishness in domestic demand, and a fairly

wide output gap. Also, there is tightening coming through other channels. Credit standards

have tightened, as evidenced by falling loan approvals, while the AUD/USD remains

substantially overvalued.

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1986 1990 1994 1998 2002 2006 2010 2014 2018

YoY% Change in BankCredit (LHS)

YoY% Change in NetLoan Approvals (RHS,Smoothed)

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Auction Clearance Rate (LHS)

Mortgage Availability (RHS, Led 1 Year)

26 July 2016


Global equities

Our global strategy team expects flat equity markets from here. They expect S&P 500 to

finish the year at 2000 (in a full Brexit scenario by invoking Article 50) or at 2,100

(assuming 'Brexit-lite'). While discount rates remain low, absolute valuations remain high,

especially for the S&P 500. As of July the US equity market is trading at a post-tech

bubble peak on 12-month forward P/E at 18.4. This is 1.6 standard deviations above trend.

Our US Strategists note that valuations at these levels have preceded declines in the

equity market over the coming 12 months more than half the time. Amongst the major

regions our strategists are Overweight Emerging Market equities and Underweight

Continental European equities. They are neutral UK equities despite obvious headwinds.

Our team believes the FTSE 100 is 10-15% cheap and three-quarters of FTSE earnings

come from outside the UK which would benefit from a weaker Sterling. They highlight the

tactical risks of higher global bond yields in the near term. Most economic variables, such

as ISM new orders and commodity prices, are consistent with a rebound in yields. If bond

yields rise, financials and cyclicals are likely to outperform, while consumer staples and

utilities would underperform.

Figure 9: S&P 500 valuations are testing Figure 10: Asian Materials sector to outperform

US S&P large cap 12-m fwd P/E, with avg = 15.4 Asian Materials sector performance around the US Fed tightening

Source: S&P Capital IQ, Thomson Reuters/IBES, Compustat, Credit Suisse Source: MSCI, Credit Suisse, 0m is the first Fed tightening in that cycle

Our Asian equity strategist, Sakthi Siva, notes we are seeing the first signs of EPS

upgrades and sectors leading the way include Materials, Energy and Technology. Our

Asian team is currently overweight Banks, Technology and Materials. Amongst the

countries Sakthi prefers Korea, Taiwan and MSCI Hong Kong where investors can find the

best combination of price-to-book and RoEs. While Sakthi is overweight Materials she is

underweight Australia given the excessive valuations for our market when compared to the

rest of the regions.

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Australian equities: Sideways We think the Aussie equity market is caught between conflicting forces. Supporting further

upside are low cash rates and bond yields, prospect of a market-wide earnings recovery

and yet another potential round of global policy stimulus. However, providing some

downside risk are high absolute valuations and concerns about the broader global profits

outlook following the recent UK referendum.

We were previously of the view that the Aussie dividend yield would compress to about

4% by year-end and this would take us to a ASX 200 index level of 6000. As we highlight

below, much of this compression is now done, but we are concerned about the outlook for

future earnings and dividends given our economists' recent GDP downgrades. We

recently cut our year-end target to 5500 — where the index currently sits. Further upside

could be upon us in 2017 as there are clearer signs of a profits recovery and policy

continues to remain ultra-accommodative, in our view. But for now, we expect Aussie

equities will be range bound.

Below we outline the building blocks of our market view.

Valuation

The ASX 200 has rallied hard from the post Brexit lows. Now the trailing P/E ratio is

nudging 18x. This is a new post-financial crisis record (Figure 10). While the Aussie P/E is

above long-term averages our market does not look particularly expensive when

compared to others around the world. For example, the June 2017 P/E ratio remains lower

than those for US and Pan-European equity markets. However, it is higher than markets in

Asia.

While our entire market does not look particularly expensive on a global basis, some of the

sectors in our market certainly do. For example, Healthcare stocks in Australia trade at a

50-60% P/E premium to global peers (Figure 96), despite weaker earnings trends. For

more detail on how Australian sectors compare to global peers, please see our new

section 'Aussie sectors, Global perspective'.

Figure 11: P/Es high vs history Figure 12: P/Es in-line with global markets

12 month trailing P/E ratio for ASX 200 June 2017 P/E ratio

Source: Company data, Credit Suisse Source: IBES, Credit Suisse Estimates

5

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70 75 80 85 90 95 00 05 10 15

Average = 15.3x

20.3 18.5

17.5 17.3 16.3 16.0

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omm

odities

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urope

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X 200

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omm

Japan

Big 4 B

anks

Asia ex Japan

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26 July 2016


Aussie valuations look more attractive when we focus on dividends rather than earnings.

The current trailing dividend yield is close to 4.4%. This is 70 basis points lower than at the

start of the year but still 30 basis points higher than the long-term average. There is more

room for yield compression, especially when we consider cash rates and global fixed

income yields are hovering around record lows. Dividend yields for our market also

continue to look attractive when compared to global indices. For example, an income

seeking investor should expect to benefit from less than a 2% yield in the US over the next

12 months. This is marginally higher than Aussie cash rates. Meanwhile, a buyer of Aussie

banks is forecast to reap a yield of more than 6% (pre-franking). No wonder Australia's

income seeking investors much prefer to stay home.

Figure 13: Yield compression Figure 14: Considerable global yield spread

12 month trailing Dividend Yield ratio for ASX 200 June 2017 Dividend Yield

Source: Company data, Credit Suisse Source: IBES, Credit Suisse Estimates

Growth

We think the risks to the growth outlook are to the downside, at least in the near term.

Expectations are now for Aussie EPS to grow by almost 10% over the 12 months to June

2017. This will be amongst the fastest of the major global equity markets. We calculate

that just over 40% of this growth is expected to come from the commodity companies

(Mining and Energy). Commodity company profits have declined by almost 80% since the

peak in 2011. They are forecast to recover by 40% (from current depressed levels over the

next 12 months) but still be 65% below 2011 peak level EPS.

We highlight three reasons why the risks to the growth outlook are to the downside. First,

our economists highlight a near-term peak in the growth outlook for China. This could have

obvious repercussions for commodity prices and commodity company profits. Second, our

global economists are in the process of lowering their economic outlook following the UK

referendum. We are yet to see the ramifications of this in markets or aggregate profits.

Could we be at that rare point in time when economists' revisions collectively lead financial

markets? Third, in addition to these international concerns we remain concerned that the

lost decade in Australia will continue to weigh on top-line growth, especially for our equity

index which remains overweight domestic housing.

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70 75 80 85 90 95 00 05 10 15

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X 200

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inancials

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omm

odities

US

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26 July 2016


Figure 15: Aussie EPS rebound ahead Figure 16: Sluggish DPS outlook

June 2017 EPS growth forecast (now vs 3 months ago) June 2017 DPS growth forecast (now vs 3 months ago)

Source: IBES, Credit Suisse estimates Source: IBES, Credit Suisse estimates

The outlook for Aussie DPS growth is a little more muted than EPS. Expectations are just

3% growth June 2017. This should help lower the Australian payout ratio to the low 70s. It

was around 80% in June 2015. All of the increase in dividends is expected to come from

the Industrial companies (excluding Financials and Commodities). Aussie DPS growth is

expected to be amongst the weakest in the world over the next 12 months. The only major

market forecast to report even weaker growth is Pan-Europe.

Gummy rally

Earlier this year we highlighted our expectation that Aussie equities were in the midst of a

typical rally which has previously followed benign bear markets. We christened this the

Gummy Rally and in Figure 17 we illustrate how the current episode (beginning in early

February) has tracked the historical average closely. But from here we think the rally will

stall for a while.

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3 mths agoJun '17

+41%

-5

0

5

10

Aus Industrials

US

Japan

Asia ex Japan

AS

X 200

Pan-E

urope

Aus B

ig 4 Banks

Aus C

omm

odities

3 mths agoJun '17

-16%

https://plus.credit-suisse.com/r/gCaSkf

26 July 2016


Figure 17: Current Gummy Rally tracking average closely but expected to stall

ASX 200 (rebased) after previous 20% draw-downs

Source: Thomson Reuters Datastream, Credit Suisse, Credit Suisse estimates

Previous Gummy Rallies have occurred against a backdrop of falling credit yields and

rising indicators of economic activity. Indeed, the cost of corporate debt has eased and

PMIs have increased since the last bear market ended. While credit conditions should

remain underpinned with easy central bank policy, we expect PMIs will retrace lower,

consistent with our economists' weaker GDP forecasts. A weakening growth outlook is

enough reason to expect the rally to stall for a while.

Figure 18: Easier credit conditions good for Gummy Figure 19: Economic activity supported Rally

Moody's BAA Yield Change (%) after ASX 200 draw-down of 20% US ISM New orders after previous 20% retracements in ASX 200

Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters Datastream, Credit Suisse

Source: Thomson Reuters Datastream, Credit Suisse

We stick to our recently revised target of 5500 for the ASX 200 by December 2016. Our

forecast implies that Aussie equities have made their gains for the year. Beta will matter

less from here, alpha is set to take over.

70

80

90

100

110

120

130

0 25 50 75 100 125 150 175 200 225 250Tradng days after initial 20% decline

ASX 200 during Gummy Rally's

ASX 200 during Grizzly Bears

ASX 200 after 10/Feb (most recent bear)

CS Dec-16 f'cast

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

0 25 50 75 100 125 150 175 200 225 250

Tradng days after initial 20% decline

US BAA Yield during Gummy Rally's

US BAA Yield during Grizzly Bears

Now40

42

44

46

48

50

52

54

56

58

60

0 1 2 3 4 5 6 7 8 9 10 11 12

Months After Initial 20% decline

ISM New Orders after Gummy Bears

ISM New Orders during Grizzly Bears

Now

26 July 2016


Buybacks

The cost of debt has again pushed down to generation lows and we think it is time for

Australia Inc. to lock it in. Our measure of the cost of debt is the A-rated 3-5 year corporate

bond yield. It is currently just over 3%. It hit a 2016 high of 3.9% in March and a global

financial crisis high of more than 9%. We think the low cost of debt continues to provide

opportunities for Australia Inc. For example, we expect the low cost of debt will finance

more and bigger M&A. But instead of paying a premium to buy someone else's stock, we

think Aussie companies should first consider buying themselves. Despite the sharp rally in

equity markets, and P/E ratios at post-financial crisis highs, a buyback continues to be

immensely accretive for the average Industrial stock. We calculate a 1% buyback provides

more than 50 basis points of EPS accretion. This is in line with levels we highlighted this

time last year, when equity valuations were lower but the cost of debt was higher.

Figure 20: Aussie cost of debt back to record lows Figure 21: Aussie EPS accretion from 1% buyback

A-Rated 3-5 Year Australian Corporate Bond Yield EPS accretion from a 1% buyback for average ASX 200 Industrial

Source: Company data, the BLOOMBERG PROFESSIONAL™ service, Thomson Reuter Source: the BLOOMBERG PROFESSIONAL™ services Datastream, Credit Suisse

We think EPS accretion is just one reason why those companies doing buybacks have a

long history of outperformance. In addition, those corporate managers investing in their

own stock signal to investors that they understand the process of capital allocation, in our

view. They are actively working to lower their cost of capital. Also, it highlights that

management are shrewd enough to wait for the right opportunity to come along to expand.

2

3

4

5

6

7

8

9

10

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

Aug 96 Aug 00 Aug 04 Aug 08 Aug 12 Aug 16

More accretion

Less accretion

Dilution

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26 July 2016


Figure 22: Aussie buybackers have delivered

Total median return of ASX 200 listed companies that have shrunk their share count by 2% or more over the last 12 months. Portfolio reweighted quarterly.

Source: Company data, Thomson Reuters Datastream, Credit Suisse

We have noticed that more buybacks tend to get announced at the full year results. And

given the reporting season is just around the corner we think it is an opportune time to

highlight potential buyback candidates. In Figure 23 we screen for these stocks. These

stocks all have a cost of equity (our crude measure is the reciprocal of the P/E ratio)

higher than their cost of debt. The cost of debt for each company is estimated by our

analysts. We exclude those companies with excessively geared balance sheets and we

also include our analysts' thoughts on a potential buyback. The most interesting stocks are

those in the middle of the table, in our view. These companies are in a position to do an

accretive buyback but are yet to announce it. Importantly, our analysts believe the

probability of these companies announcing a buyback is relatively high.

0

100

200

300

400

500

600

700

800

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

ASX 200 buyback basket

ASX 200 Accumulation Index

26 July 2016


Figure 23: Potential Aussie Buybackers

Stocks where cost of debt is less than cost of equity and leverage is reasonable and/or CS analyst believes buyback is possible

Sector Mkt

Cap

(A$b)

Cost of

Eqty

(1/PE)

Cost of

Debt

Net Debt/

EBITDA

Comment

Buyback underway/announced

Telstra Telecoms 70.8 6.4% 5.0% 1.3 $1.5b buyback announced post the sale of Autohome. NBN payments may finance further buybacks

CSL Health Care 40.6 3.5% 2.5% 1.4 Forecast a further US$700mn buy-back in FY17

Aurizon Industrials 10.5 5.4% 5.1% 2.3 c$100m to complete current program. Not expecting a significant increase

James Hardie Materials 7.4 4.1% 3.4% 0.9 Started current buyback program. Unlikely to extend given share price rally. Special dividends possible

Computershare Technology 3.7 7.6% 3.0% 2.4 Unlikely to extend buyback. Require funds for recent acquisitions and mortgage services business.

CSR Materials 2.0 8.5% 4.9% -0.2 Current $150m buyback is underway (over 2-yrs). Few shares have been acquired to date.

OZ Minerals Materials 2.0 4.0% 5.0% -1.5 $60mn buyback (<4% capital) currently ongoing

Regis Res Materials 1.8 9.4% 5.0% -0.5 5% on-market share buyback (25m shares) announced 12 months ago but not executed

Seven Wst Med Discretionary 1.6 12.1% 5.0% 1.7 Announced a "disciplined" $75m buyback at the half-year result.

Sims Metal Materials 1.6 6.3% 6.5% -1.5 Net cash, 10% buyback announced Nov 15, well progressed but completed. Further buy back possible

Henderson Grp Div Fins 1.4 7.5% 2.5% -1.2 Commenced c3% buyback 1/June set to complete in December

Sigma Pharma Health Care 1.4 4.6% 3.0% 0.3 c5m shares still to be bought back under current program. Expect more in FY17.

Asaleo Care Staples 0.8 6.9% 5.5% 2.2 70% through current buyback program. Not expected to extend given operating issues

Nine Ent Discretionary 0.9 14.4% 5.0% 0.2 10% buyback in place, unlikely to continue given operating pressures

Buyback possible

AMP Div Fins 17.3 6.0% 5.0% n.a Will finalise life structure before capital management. Can release additional c$1.5bn to shareholders.

Insurance Aust Insurance 14.4 5.8% 5.0% n.a Has mentioned alternative capital management options. Buyback has merit over special dividend.

AGL Energy Utilities 13.8 6.0% 5.5% 1.5 Potential to announce a buyback in next 12 mths. Press reports of bid for Alinta the main impediment.

Caltex Aust Energy 8.5 6.8% 6.5% 0.4 Large franking credit balance suggests off market buyback more likely. Expect another one in 2017

South 32 Materials 7.2 6.2% 4.0% -0.1 Option of pursuing acquisitions, committing to mine expansions or buybacks.

Qantas Industrials 6.2 21.0% 5.9% 0.9 Forecast another buyback announced at FY16 results of $500mn

Harvey Norman Discretionary 5.2 6.6% 3.5% 0.9 Possible to do off-market buyback to distribute franking credits

Boral Materials 5.1 5.4% 5.2% 1.2 Potential for a buyback to be announced because M&A targets have been difficult to identify

Incitec Pivot Materials 4.9 6.0% 3.5% 1.9 Likely to commence buyback in 2017 due to completion of US ammonia capex

JB Hi-Fi Discretionary 2.5 7.3% 3.5% 0.2 Will depend on acquisition opportunities in the sector.

Ansell Health Care 2.1 6.9% 1.6% 1.8 US$100mn buyback almost complete. Forecast a further buy-back in FY17.

Independ Grp Materials 2.0 5.4% 5.0% 1.7 Will be debt free in 12 months may consider buyback then.

Metcash Staples 2.0 9.4% 3.5% 0.8 Will depend on acquisition of HTH. Dividend likely to be reinstated for FY17 final.

Buyback would be accretive, but unlikely

BHP Billiton Materials 45.4 4.8% 4.0% 1.9 More likely to invest

Rio Tinto Materials 15.2 5.3% 3.5% 1.2 More likely to buy or invest

Newcrest Mining Materials 13.0 7.0% 3.9% 1.4 Focus has been on debt reduction. Expect resumption in divs before buyback.

Amcor Materials 13.3 5.3% 4.0% 2.7 More interested in acquisitions

Fortescue Metals Materials 9.4 8.1% 5.5% 1.7 Would rather grow dividend

Sonic Healthcare Health Care 9.4 5.1% 3.3% 2.7 More likely focused on acquisitions

ResMed. Health Care 9.2 4.1% 1.5% 0.9 Buy-back on hold post Brightree acquisition.

Orica Materials 5.0 8.5% 3.5% 2.1 Priority is to reduce debt

BlueScope Steel Materials 4.6 10.6% 5.5% 0.8 Cash generation likely applied to debt reduction. Divs to increase before buyback.

Adelaide Bright. Materials 3.8 5.4% 4.6% 0.8 Preference for special dividend due to franking credits and 33% holding by Barro Group

Fairfax Media Discretionary 2.3 6.5% 5.0% 0.0 Recently completed buyback. Unlikely to extend given focus on restructuring.

Nufarm Materials 2.1 6.7% 6.0% 1.4 Potentially saving balance sheet for acquisitions post the current global mega mergers

Downer EDI Industrials 1.7 9.9% 5.6% 0.2 Preference to utilise balance sheet for M&A

Myer Discretionary 1.0 7.6% 3.5% 0.4 Only recently completed a capital raising. More likely to use surplus funds to accelerate restructuring.

G.U.D. Holdings Discretionary 0.8 6.7% 5.5% 1.8 Likely to focus on divesting Dexion, followed by a further acquisitions

SAI Global Industrials 0.8 7.5% 4.0% 1.5 Has a stated inorganic growth focus - acquisitions likely over buybacks.

Source: Company data, Credit Suisse estimates

26 July 2016


Stock changes

For most of this year we have been overweight commodity companies but today we

lighten our position here given the strong rally to date. We remove BHP Billiton from our

Long portfolio and replace with AGL Energy. As we highlight above AGL has the balance

sheet to do an accretive buyback. Importantly, the company continues to generate plenty

of free cash and is attractively valued as it trades at about a 7% FCF yield. While the stock

has rallied with falling bond yields, it has not outperformed the market more recently.

Within the market it seems like investors prefer the more expensive infrastructure stocks

than boring Utilities.

We remove ALS Services from our Short Portfolio and replace with Dulux. We have

obviously been on the wrong side of ALS and today we cut our losses. Dulux is one of the

most expensive Chemical companies in the world. It trades at more than 11x EBITDA while

the Global Chemical sector trades at 9x. Dulux operates on a 14% EBITDA margin vs 18%

for the global benchmark. Andrew Peros estimates the paint business within Dulux trades at

14x EV/EBITDA which seems excessive against a backdrop of a slowing end-market.

https://plus.credit-suisse.com/r/H2ZCoW

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26 July 2016


Figure 24: Credit Suisse Australia Strategy Long/Short Ideas

Long Ideas MCap (bn) Year End P/E (x) DY (Net, %)" FCF Yield (%) Comment

Westpac 102.5 Sep 12.4 6.2 n.a Strong capital position

Fastest DPS growth of 4-big banks

Profits supported by productivity program

Rio Tinto 20.4 Dec 18.6 3.2 5.7 Solid balance sheet

Continues to restructure

Bottom of the cycle commodity prices

Macquarie Group 25.1 Mar 11.7 5.9 n.a Exposed to many de-equitisation drivers

Double-digit DPS growth outlook

Efficient mgt team

Amcor 17.9 Jun 19.0 3.9 5.5 Excess cash-flow

Solid FCF Margins

Accretive acquirer

AGL Energy 13.7 Jun 16.7 4.2 7.6 Solid balance sheet

Attractive valuation

Rising electricity prices

ResMed Inc. 12.3 Jun 24.5 2.0 4.7 Net-cash on balance sheet

20% FCF Margin

Buying back stock

Aurizon 10.5 Jun 18.7 5.4 6.5 Double-digit FCF margins

Valuations imply excessive volume decline

Attractive infrastructure assets

South 32 9.6 Jun 16.7 2.4 10.2 Undervalued

Impressive cost-out program

Net cash on balance sheet

Caltex Australia 8.5 Dec 14.3 3.5 4.5 Growing distributions

Inexpensive infra-like assets

Attractive valuation

Boral 5.1 Jun 18.6 3.5 6.0 Strong infrastructure pipeline

Solid cash-flow and B/S

Not expensive vs international peers

Primary Health

Care

2.1 Jun 20.5 2.7 3.2 Attractive M&A target for foreign buyer

Actively strengthening B/S

Cheap vs international peers

Syrah Resources 1.3 Dec 14.3 - 0.6 Low production cost

Global demand for graphite set to boom

FCF positive in 2017

Short Ideas MCap (b) Year End P/E (x) DY (Net, %) FCF Yield (%) Comment

Brambles 21.5 Jun 24.2 2.2 2.2 Little FCF generation

Limited DPS growth

<10% EPS growth for 22x PE

Newcrest Mining 17.3 Jun 14.5 0.6 10.4 30% expensive vs NPV

Serial value destroyer

Healthscope 5.2 Jun 25.0 2.6 1.3 Poor cash generator

Testing valuations

Uncertainty from Healthcare Reviews

Dulux Group 2.6 Sep 19.2 3.8 2.7 Testing valuations

Slowing end-market

Potential to disappoint on UK expansion

Northern Star

Res

2.9 Jun 8.5 3.5 14.7 Excessive valuations

Gold price risk around Fed hiking cycle

Short mine life"

SCA Property 1.7 Jun 16.7 5.4 n.a 50% of EBIT from Woolworths

Premium P/E multiples"

Source: Company data, Credit Suisse estimates

26 July 2016


Australian sectors, global perspective Over the following pages we provide a global perspective on Australian equity sectors. We

compare Australian sectors to their international peers on various valuation, return and

profitability measures. All of the data, except market cap and stock return, is from IBES

consensus and is for a rolling 12 months forward period. The market cap data is free float

adjusted. Our three-month returns include dividends.

26 July 2016


Energy (4.3% ASX 200, 7.0% Global)

Australian Energy stocks de-rated considerably vs global peers. Valuations seem to have

been driven lower once it became apparent that dividends would be cut. Energy is one of

the few Australian sectors where the dividend yield is less than international peers.

Figure 25: Top 10 stocks, sector aggregate and sector median comparisons

Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Woodside 23 18.0 4.1 7.9 70 -3 ExxonMobil (US) 523 24.9 3.2 9.0 16.4 8 5

Oil Search 11 36.3 1.3 9.9 69 6 Chevron Corp. (US) 267 31.1 4.1 7.4 22.1 4 1

Origin Energy 10 16.0 2.4 6.7 21 15 Royal Dutch Shell (Neth) 248 16.9 6.7 5.4 17.2 18 24

Santos 9 31.8 1.7 6.1 46 9 Total (Fra) 159 12.6 5.7 5.9 15.7 0 -1

Caltex 8 15.5 3.5 8.5 7 0 Schlumberger (US) 152 51.0 2.4 15.0 24.1 4 0

WorleyParsons 2 14.6 2.7 7.0 6 23 BP (UK) 149 18.6 6.6 5.9 11.7 22 28

Whitehaven 2 27.3 0.1 7.8 21 127 Shell (UK) 142 17.8 6.4 5.4 17.2 23 29

Beach Energy 1 9.1 1.5 3.0 50 -9 Occidental Petro (US) 77 n/a 4.0 11.6 42.9 0 -4

CNOOC (HK) 76 28.3 3.1 4.9 55.2 2 -1

ENI (Italy) 76 30.8 5.6 4.7 20.7 3 3

Sector Aggregate 67 19.3 2.8 7.4 24 6 4,291 19.8 3.6 7.2 17.8 5 49

Sector Median 9 16.9 2.0 7.4 34 7 13 13.6 2.9 8.4 24.7 3 23

Figure 26: 12-month forward P/E and P/E Relative Figure 27: 12-month forward DY and DY Spread

Figure 28: 12-month forward EPS (rebased) Figure 29: 12-month fwd EBITDA Margin and Spread

Source: Company Data, IBES

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

6

8

10

12

14

16

18

20

22

24

Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16

Australia Global PE Rel (RHS)

-1.5

-1.0

-0.5

0.0

0.5

1.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0


Australia Global DY Spread (RHS)

20

40

60

80

100

120

140

160

180


Australia (AUD) Global (AUD) Relative

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

14%

16%

18%

20%

22%

24%

26%


Australia Global Margin Spread (RHS)

26 July 2016


Chemicals (1.0% ASX 200, 2.4% Global)

Five years ago Australian Chemical stocks traded at P/E parity with global peers. They

have since de-rated and now trade at 15% discount. It seems the de-rating has been

driven by weaker margin trends which have weighed on EPS.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Orica 5 11.9 4.4 6.6 18 -13 BASF SE (Germany) 97 14.9 4.2 7.8 17.3 5 4

Incitec Pivot 5 12.0 4.6 7.8 24 -7 DuPont (US) 79 19.7 2.5 11.1 21.9 3 -1

Dulux Group 3 19.0 3.7 11.4 14 8 Dow Chemical (US) 79 14.0 3.6 7.5 19.9 1 -3

Nufarm 2 15.6 1.7 6.5 13 10 Monsanto (US) 62 21.5 2.1 13.1 29.4 13 9

Syngenta (Switz) 49 20.9 3.1 13.1 21.3 -1 -4

Air Liquide (Fra) 48 17.3 2.9 9.1 25.3 -7 -8

Ecolab (US) 47 25.2 1.2 13.1 22.0 3 -1

Lyondell (US) 45 8.1 4.3 5.9 22.0 -11 -15

Praxair Inc. (US) 45 20.1 2.6 11.6 34.0 -1 -5

Air Prod & Chem (US) 43 18.6 2.3 10.7 33.6 1 -3


Sector Median 4 13.8 4.1 7.2 16 0 11 15.1 2.6 8.4 18.2 -1 1

Figure 31: 12 month forward P/E and P/E Relative Figure 32: 12-month forward DY and DY Spread



0.7

0.8

0.9

1.0

1.1

9

10

11

12

13

14

15

16

17

18



0.6

0.9

1.2

1.5

1.8

2.1

2.4

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5



60

70

80

90

100

110

120



-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

14%

15%

16%

17%

18%

19%

20%

21%

22%



26 July 2016


Building Materials (1.8% ASX 200, 0.8% Global)

Australian Building Materials companies trade at a premium to the local market, but the

P/E ratio is in line with global peers. There is a solid case for Australian companies to

trade at a premium given their higher dividend yield, stronger EPS momentum and rising

relative margins.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

James Hardie 10 25.5 2.9 14.0 26 20 Lafargeholcim (Switz) 36 15.9 3.8 7.4 20.4 -6 -9

Fletcher Building 6 14.5 4.6 7.6 10 16 Daikin Industries (Japan) 34 19.1 1.3 8.9 14.2 2 -4

Boral 5 17.7 3.6 7.9 15 7 CRH (Ire) 32 15.4 2.6 8.4 11.5 4 3

Adelaide Brighton 4 18.7 4.6 10.5 24 13 Assa Abloy (Swe) 31 24.3 1.6 15.1 18.4 15 16

Brickworks 2 16.4 3.2 12.2 26 -1 Saint-Gobain (Fra) 30 14.1 3.6 6.9 10.4 -8 -9

CSR 2 12.3 5.7 5.5 14 24 Siam Cement (Thai) 23 12.3 3.6 9.0 17.6 4 3

GWA GROUP Limited 1 11.7 6.6 9.2 18 -4 Vulcan Matls (US) 22 30.0 0.6 12.4 29.8 15 11

Ultratech Cement (India) 20 28.9 0.3 15.0 21.4 11 9

Heidelbg (Germany) 20 12.8 2.6 7.0 18.9 -7 -9

Geberit (Switz) 18 23.9 2.6 16.1 28.6 5 3

Sector Aggregate 30 19.3 3.7 10.1 15 14 489 17.4 2.3 9.1 16.4 4 5

Sector Median 4 16.4 4.5 9.2 18 13 9 18.5 2.5 8.9 18.9 4 4

Figure 36: 12 month forward P/E and P/E Relative Figure 37: 12-month forward DY and DY Spread



0.8

0.9

1.0

1.1

9

11

13

15

17

19

21



1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5



60

70

80

90

100

110

120

130

140



-3.0%

-2.0%

-1.0%

0.0%

12%

13%

14%

15%

16%

17%

18%



26 July 2016


Packaging (1.5% ASX 200, 0.2% Global)

Amcor is the second-largest packaging company in the world and despite EBITDA

margins below the global sector average the stock trades at a P/E and EV/EBITDA

premium.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Amcor 18 19.4 3.8 11.0 15 1 International Paper (US) 25 12.6 4.1 7.1 17.4 5 0

Orora 3 19.8 3.4 9.4 10 14 Amcor (Aust) 18 19.4 3.8 11.0 14.9 1 1

Pact Group Holdings 2 17.1 3.9 9.0 16 17 WestRock (US) 15 16.0 3.5 6.2 16.0 19 14

Ball Corporation (US) 13 18.0 0.7 10.3 15.4 -6 -10

Sealed Air Corp. (US) 13 17.3 1.3 11.5 17.2 -6 -10

Crown Holdings Inc. (US) 10 13.0 n/a 9.1 15.4 -2 -6

Packaging Corp (US) 9 15.8 3.1 7.8 19.2 13 9

Avery Dennison (US) 9 17.8 2.3 10.2 12.8 -1 -5

CCL Industries (Can) 8 21.4 0.8 11.5 19.7 1 0

Klabin (Braz) 6 11.2 3.0 8.3 39.4 -6 -17


Sector Median 3 19.2 3.8 9.4 15 14 10 17.3 2.3 9.7 16.0 -1 4



Source: Company Data, IBES,

0.8

0.9

1.0

1.1

1.2

1.3

1.4

8

10

12

14

16

18

20



1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0



40

60

80

100

120

140

160



-3.0%

-2.0%

-1.0%

0.0%

1.0%

12%

13%

14%

15%

16%

17%



26 July 2016


Metals & Mining (8.0% ASX 200, 1.3% Global)

Australian Metal & Mining companies have endured declining profit margins, declining

EPS and declining dividends when compared to their international peers. Despite all this,

they trade at an ever expanding P/E premium. Now at 30%.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

BHP Billiton 63 30.1 2.1 7.3 42 -4 BHP Billiton (Aust) 63 30.1 2.1 7.3 42.4 -4 -4

Rio Tinto 21 21.5 2.9 7.9 33 -4 Rio Tinto (UK) 58 16.6 3.4 7.2 32.5 2 6

Fortescue Metals 13 17.5 1.7 5.2 41 20 Glencore (UK) 48 34.5 1.1 7.0 5.4 13 18

South 32 10 24.0 1.6 4.3 22 10 BHP Billiton (UK) 35 24.4 2.6 6.9 42.9 -5 -1

BlueScope Steel 5 11.3 1.8 4.9 11 18 NorilskNickel (Russia) 31 9.9 8.2 - 46.7 -1 -7

Alumina Limited 4 22.7 5.2 26.4 n/a -4 Southern Copper (US) 27 24.8 1.0 12.3 38.9 -10 -13

Iluka Resources 3 29.1 3.8 10.0 34 12 Grupo Mexico (Mex) 25 15.4 2.3 8.0 37.2 6 10

Independence Group 2 34.7 0.9 8.0 40 26 Nippon Steel (Japan) 24 11.9 2.3 7.1 11.0 -16 -22

OZ Minerals 2 22.5 2.1 3.0 44 19 Fresnillo plc (UK) 24 45.2 1.0 17.4 51.0 69 76

Sims Metal 2 19.5 2.9 4.8 5 -7 Vale SA (Braz) 23 11.9 1.8 - 41.7 -10 -20


Sector Median 3 22.4 2.1 4.9 39 8 11 15.7 1.8 7.1 20.4 0 16




0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

0

5

10

15

20

25

30

35



-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0



0

20

40

60

80

100

120

140



14%

15%

16%

17%

18%

19%

20%

15%

20%

25%

30%

35%

40%

45%

50%



26 July 2016


Gold (2.0% ASX 200, 0.3% Global)

Australian Gold companies trade at some of the biggest P/E discounts relative to their

international peers at about 40%.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Newcrest Mining 19 20.1 0.9 8.5 45 35 Barrick Gold (Can) 32 25.8 0.4 7.3 46.3 31 30

Evolution Mining 4 10.8 1.7 4.8 51 50 Newmont Mining (US) 29 22.8 0.4 7.5 40.8 30 25

Northern Star 3 9.4 2.5 4.0 54 31 Goldcorp (Can) 21 34.4 0.6 9.5 42.8 10 9

Regis Resources 2 12.8 3.8 5.9 49 43 Newcrest Mining (Aust) 19 20.1 0.9 8.5 45.2 35 35

St Barbara Mining 2 8.3 0.1 4.5 52 37 Franco Nevada (Can) 18 78.0 1.0 25.7 77.9 14 13

Saracen Mineral 1 11.1 0.3 2.1 42 58 Agnico Eagle (Can) 16 7.0 0.6 12.4 42.1 33 3

Randgold (UK) 14 32.5 0.6 16.1 50.4 34 39

AngloGold (Sth Afr) 11 12.9 0.3 4.7 39.7 35 31

Kinross (Can) 8 33.0 0.6 5.4 38.3 13 12

Yamana Gold (Can) 7 31.3 0.4 7.5 41.2 35 33


Sector Median 2 11.0 1.3 4.6 50 40 11 25.8 0.6 7.5 42.1 31 41




0.3

0.5

0.7

0.9

1.1

1.3

1.5

0

5

10

15

20

25

30

35

40



-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5



0

50

100

150

200

250

300

350

400



-2%

0%

2%

4%

6%

8%

10%

12%

14%

30%

35%

40%

45%

50%

55%

60%



26 July 2016


Commercial Services (1.2% ASX 200, 0.8% Global)

The Australian Commercial Services sector is a hodge-podge of companies. The sector

has suffered weak earnings trends but has benefitted from rising P/E ratios as it has been

the beneficiary of M&A activity.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Seek 6 26.5 2.5 13.6 38 1 Waste Management (US) 40 22.8 2.5 9.9 27.3 20 16

ALS Limited 3 21.7 2.6 9.7 20 11 Recruit Holdings (Japan) 28 33.1 1.4 7.9 12.4 13 6

Mineral Rsc 2 23.2 2.1 6.1 20 35 Nielsen Holdings (US) 27 18.4 2.3 12.8 31.2 8 5

Downer EDI 2 11.1 5.2 3.3 7 8 Tyco International (US) 26 20.5 2.0 11.6 15.8 17 13

Spotless Group 1 9.8 7.0 6.2 10 -3 Experian (UK) 25 20.1 2.2 12.4 35.0 19 25

Cleanaway Waste 1 20.5 2.6 5.3 19 11 Republic Services (US) 24 23.1 2.4 9.0 28.5 14 11

IPH 1 21.0 4.1 14.3 45 -4 SGS Surveillance (Switz) 23 24.7 3.3 13.8 20.9 1 -1

McMillan Shkspeare 1 12.8 4.6 8.6 36 18 Equifax Inc. (US) 22 24.4 1.0 14.8 35.6 16 13

SAI Global 1 12.7 4.7 6.8 23 6 Secom (Japan) 22 19.7 1.9 7.3 20.5 -10 -16

Credit Corp 1 12.0 4.2 n/a 31 29 Verisk Analytics Inc. (US) 19 26.0 n/a n/a 51.5 9 5

Sector Aggregate 19 16.9 3.6 7.4 13 9 491 19.4 2.2 9.9 14.8 5 -1

Sector Median 1 12.8 4.2 6.5 20 11 10 20.1 2.3 10.1 19.6 2 1



Source: Company Data, IBES, Credit Suisse

0.6

0.7

0.8

0.9

1.0

1.1

1.2

10

12

14

16

18

20

22



0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0



20

40

60

80

100

120

140

160

180



-2%

-1%

0%

1%

2%

3%

12%

13%

14%

15%

16%

17%



26 July 2016


Transport (3.0% ASX 200, 2.1% Global)

Despite considerable restructuring, Aurizon still operates on lower EBITDA margins vs

North American peers. Qantas trades at 5x EPS. While low in an Australian context this is

in line with the largest airline in the world (by market cap) — Delta.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Brambles 21 23.3 2.9 9.8 28 7 United Parcel (US) 129 18.2 2.9 9.5 17.3 5 1

Aurizon 10 18.6 5.1 8.2 43 19 Union Pacific (US) 101 16.7 2.6 9.1 47.8 2 -2

Asciano Limited 9 20.0 3.4 9.6 31 3 CN Rail (Can) 65 17.6 1.9 10.9 53.7 -1 -2

Qantas 6 5.0 6.0 2.8 19 10 FedEx Corporation (US) 56 13.0 1.0 6.5 13.9 -5 -8

Central Jpn Rail (Japan) 48 10.2 0.7 6.3 47.2 -8 -15

East Japan Rail (Japan) 47 13.7 1.4 8.4 29.1 -7 -13

Deutsche Post (Germany) 46 12.6 3.9 7.5 8.3 3 1

MTR Corp (HK) 43 27.1 7.7 15.0 37.6 26 21

Delta Air Lines, Inc. (US) 38 6.5 2.0 4.3 22.8 -13 -17

Norfolk Southern (US) 36 15.7 2.7 7.9 41.7 1 -3

Sector Aggregate 47 14.7 3.9 7.1 25 7 1,260 12.9 2.4 7.4 18.4 -2 -6

Sector Median 10 19.3 4.2 8.9 30 5 11 14.1 1.8 7.8 18.6 -3 0


Figure 63: 12 month forward EPS (rebased) Figure 64: 12-month fwd EBITDA Margin and Spread


0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

10

12

14

16

18

20

22

24



0.8

1.0

1.2

1.4

1.6

1.8

2.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5



40

60

80

100

120

140

160

180

200

220



0%

1%

2%

3%

4%

5%

6%

7%

8%

15%

20%

25%

30%



26 July 2016


Infrastructure (3.1% ASX 200, 0.5% Global)

Infrastructure stocks have been darlings in Australia and have also performed very well

when compared to their global peers. Despite eye watering P/E and EV/EBITDA ratios

Aussie infrastructure stocks still offer a considerably higher div yield than international

peers.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Transurban 25 62.6 4.0 23.5 76 11 Aena (Spain) 28 19.5 2.8 11.5 60.4 10 8

Sydney Airport 17 51.2 4.3 20.0 82 15 Atlantia (Italy) 27 16.7 4.8 8.5 61.9 -6 -8

Qube Holdings 3 25.4 2.3 n/a 19 - Transurban (Aust) 25 62.6 4.0 23.5 76.4 11 11

Macquarie Atlas 3 29.1 3.4 n/a n/a 22 Airports of Thailand (Thai) 21 25.9 1.7 15.7 61.8 -3 -4

Abertis (Spain) 20 17.3 5.2 8.2 66.0 2 1

DP Wrld (UAE) 19 14.1 2.0 9.8 48.8 -11 -15

Sydney Airport (Aust) 17 51.2 4.3 20.0 82.4 15 15

Aeroports de Paris (Fra) 15 20.1 3.0 9.9 41.8 -5 -7

CCR (Braz) 13 21.5 3.6 7.6 60.3 20 6

China Merch Intl (HK) 10 13.0 3.4 9.5 57.7 -3 -7


Sector Median 10 40.1 3.7 23.5 79 13 6 19.9 3.0 10.1 56.1 1 7




1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

10

15

20

25

30

35

40

45

50

55

60



0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5



40

60

80

100

120

140

160

180



2%

4%

6%

8%

10%

12%

14%

16%

18%

40%

45%

50%

55%

60%

65%

70%



26 July 2016


Gaming (2.3% ASX 200, 0.4% Global)

Strong performance amongst the Australian Gaming companies is mostly attributable to

Aristocrat. Gaming is one of the few Australian sectors that does not provide a dividend

yield premium when compared to the global peers.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Aristocrat Leisure 9 22.6 2.0 11.5 36 51 LVSC (US) 50 19.0 6.3 11.1 35.0 1 -3

Crown 9 19.5 4.3 11.6 24 9 Sands China (HK) 38 20.2 6.8 14.8 30.9 1 -3

Tatts Group 6 21.1 4.4 12.4 17 4 Galaxy Entertainment 18 19.8 1.6 10.3 18.5 -12 -16

Star Entertainment 5 18.5 2.7 9.0 23 0 MGM Resorts Intl (US) 17 23.1 0.8 9.8 25.3 5 0

Tabcorp Holdings 4 19.7 5.5 8.3 24 3 Paddy Power (Ire) 13 25.5 1.9 18.2 25.5 -2 -4

SKYCITY 3 17.7 4.5 9.4 34 3 Wynn Resorts (US) 13 21.8 2.4 11.3 28.1 -2 -6

Wynn Macau (HK) 11 22.0 4.0 13.8 24.0 7 3

Genting Berhad (Malay) 11 17.1 0.6 6.4 33.1 -8 -8

Kangwon Land (Korea) 10 16.1 2.9 n/a 41.5 -3 -7

Genting Singapore (Sing) 10 26.2 1.9 6.9 35.8 -5 -8

Sector Aggregate 36 20.6 3.5 10.6 25 19 263 19.6 3.8 10.7 24.8 1 -13

Sector Median 5 19.6 4.4 10.5 24 3 9 19.5 2.9 10.1 24.4 0 0




0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

10

12

14

16

18

20

22

24



-1.5

-0.9

-0.3

0.3

0.9

1.5

2.1

2.7

3.3

3.9

4.5

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5



40

60

80

100

120

140

160

180

200



-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

22%

23%

24%

25%

26%



26 July 2016


Media (1.3% ASX 200, 2.4% Global)

Despite weaker earnings trends and lower EBITDA margins Australian Media stocks have

outperformed their (mostly broadcasting) international peers.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

REA Group 8 30.8 1.7 17.0 56 28 Comcast (US) 218 17.9 1.8 7.5 33.6 10 6

Fairfax Media 2 15.6 4.3 6.7 17 28 Walt Disney (US) 212 16.1 1.6 10.0 30.5 -5 -9

Sky Network 2 14.0 5.9 7.1 34 0 Charter Comm (US) 85 94.2 n/a 8.3 35.7 10 5

Seven West Media 2 9.5 6.1 6.1 20 10 Naspers (Sth Afr) 85 33.5 0.4 66.6 11.1 12 9

APN Outdoor 1 22.1 2.6 12.0 27 20 Time Warner (US) 82 13.5 2.1 9.2 28.4 2 -2

News Corporation 1 25.5 1.5 6.7 11 2 ThomsonReuters (Can) 43 19.5 3.2 10.6 28.7 10 9

Nine Entertainment 1 7.4 12.2 5.2 16 -2 Twenty-First Fox (US) 40 13.0 1.3 8.6 25.1 -12 -16

Southern Cross Media 1 11.7 5.8 n/a 25 14 WPP (UK) 38 15.0 3.3 10.5 16.6 7 11

Village Road 1 15.2 5.3 7.3 17 5 DISH Network (US) 33 19.6 n/a 11.4 19.8 8 4

APN News & Media 1 14.3 2.9 10.7 30 10 Vivendi (Fra) 32 29.5 5.9 12.6 11.8 -1 -3

Sector Aggregate 20 15.7 4.1 8.9 17 20 1,490 18.1 2.0 9.3 28.5 2 -2

Sector Median 1 14.7 4.8 7.1 22 10 12 17.4 2.1 9.0 29.0 -1 2




0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

8

10

12

14

16

18

20

22

24

Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16Australia Global PE Rel (RHS)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5



60

70

80

90

100

110

120

130

140



-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

15%

17%

19%

21%

23%

25%

27%

29%



26 July 2016


Retail (1.1% ASX 200, 3.6% Global)

Australian Retail could be experiencing an inflection point in EPS momentum when

compared to international peers. Despite this, Aussie companies trade at a 30% P/E

discount and provide a dividend yield which is 300 basis points higher.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Harvey Norman 5 14.6 5.5 9.1 20 7 Amazon com Inc. (US) 469 93.3 n/a 17.8 12.0 20 15

Premier Investments 2 20.2 3.4 11.7 15 0 Home Depot (US) 226 20.3 2.1 11.3 16.3 1 -3

JB Hi-Fi 2 15.2 4.3 8.5 7 14 Inditex (Spain) 141 28.2 2.3 16.0 22.5 5 4

Trade Me Group Ltd 2 22.6 3.5 13.4 66 23 Lowe's (US) 95 18.4 1.7 11.0 12.8 6 2

Super Retail Group 2 14.2 5.0 7.6 11 13 The Priceline Group (US) 88 18.2 n/a 13.7 40.0 0 -4

Bapcor 1 24.4 2.6 9.3 12 13 The TJX Companies (US) 70 21.5 1.4 10.8 13.5 4 0

Automotive Holdings 1 12.8 5.6 9.0 4 11 Hennes & Mauritz (Swe) 59 20.1 3.9 11.2 17.3 -9 -8

Myer Holdings 1 13.3 5.0 5.3 6 20 Target Corporation (US) 58 13.8 3.2 6.8 10.5 -9 -13

Greencross 1 16.4 3.2 9.2 14 1 Netflix, Inc. (US) 49 140.7 n/a 48.9 7.7 -10 -14

Fast Retailing (Japan) 43 36.1 1.1 12.4 10.9 6 -2


Sector Median 2 15.2 4.3 9.1 12 13 10 18.1 1.5 9.1 13.5 -1 0




0.5

0.6

0.7

0.8

0.9

1.0

5

10

15

20

25

30



2.0

3.0

4.0

5.0

6.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0



40

60

80

100

120

140

160

180

200



-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

9%

10%

11%

12%

13%



26 July 2016


Food Retail (5.0% ASX 200, 2.3% Global)

Australian Food Retail EBITDA margins have decreased almost 200 basis points over the

last five years and some 70 basis points when compared to their international peers.

Investors seem to be pricing in a further fall with Aussie stocks now trading at a small P/E

discount.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Wesfarmers 47 17.8 5.0 9.7 8 0 Wal-Mart Stores (US) 306 17.0 2.8 7.9 6.5 8 3

Woolworths 29 17.4 4.0 8.6 6 3 CVS Health (US) 139 15.6 1.9 9.3 7.3 -4 -8

Metcash 2 11.0 3.3 5.8 2 21 Walgreens Boots (US) 118 16.5 1.8 10.5 7.7 2 -2

Costco Wholesale (US) 98 28.3 1.0 12.8 4.2 12 7

Walmex (Mex) 57 25.4 3.3 13.6 9.8 12 16

Seven & i (Japan) 50 20.0 2.0 6.5 9.9 -4 -11

Wesfarmers (Aust) 47 17.8 5.0 9.7 7.7 0 0

Kroger Co. (US) 46 15.5 1.3 7.5 5.3 1 -3

Sysco Corporation (US) 39 22.4 2.5 11.6 5.3 14 9

Loblaw Companies (Can) 30 17.3 1.5 8.5 8.1 3 2


Sector Median 29 17.4 4.0 8.6 6 3 10 19.9 2.1 8.6 6.5 3 0




0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

12

13

14

15

16

17

18

19

20



1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

3.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0



60

70

80

90

100

110

120

130



0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%



26 July 2016


Food & Beverage (1.7% ASX 200, 9.0% Global)

Despite a large and growing EBITDA margin deficit to their international peers, Australian

Food, Beverage & Personal Goods companies trade more or less in-line on a P/E basis.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Treasury Wine 7 25.6 2.6 12.8 19 5 Nestle (Switz) 328 22.2 3.1 13.3 19.2 8 5

Coca-Cola Amatil 7 16.3 5.2 8.3 18 3 Procter Gamble (US) 303 21.4 3.2 14.8 26.4 6 2

Blackmores Ltd 3 20.8 3.7 13.5 22 0 Anheuser-Busch (Belgm) 269 27.9 3.1 16.7 38.9 2 0

Graincorp 2 22.7 2.3 9.3 7 6 The Coca-Cola Co. (US) 262 22.7 3.2 19.2 31.7 3 -1

The a2 Milk Company 1 25.4 0.8 13.9 19 14 PepsiCo, Inc. (US) 208 21.8 2.8 10.6 20.5 7 3

Bellamy's 1 17.7 1.9 12.0 23 13 Philip Morris Intl (US) 206 21.1 4.3 13.2 44.1 4 -1

AACo 1 17.2 n/a n/a 13 46 Altria Group (US) 179 21.4 3.6 14.1 48.6 14 10

Costa Group Hldg 1 17.1 4.0 11.1 11 -1 British Am Tobacco (UK) 157 18.8 3.6 14.0 40.8 15 20

Bega Cheese 1 23.0 2.1 11.7 6 -4 L'Oreal (Fra) 143 25.9 2.0 15.3 21.6 8 6

Asaleo Care Limited 1 10.9 7.3 9.7 23 -20 Kraft Heinz (US) 142 24.9 2.7 16.0 30.5 13 8


Sector Median 1 19.6 3.0 11.1 19 5 15 22.0 1.9 12.4 17.9 6 2




0.8

0.9

1.0

1.1

12

14

16

18

20

22

24



0.2

0.5

0.8

1.1

1.4

1.7

2.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0



50

60

70

80

90

100

110

120

130



-5%

-4%

-3%

-2%

-1%

0%

1%

14%

15%

16%

17%

18%

19%

20%



26 July 2016


Healthcare (8.0% ASX 200, 10.7% Global)

Despite relatively weak EPS momentum versus international peers, Australian Healthcare

companies trade at a 50-60% P/E premium and a 30% EV/EBITDA premium. Cochlear,

the most expensive Australian Healthcare stock on a P/E basis, trades at a 100% premium

to the global sector average.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

CSL Ltd 54 27.6 1.6 18.4 32 14 Johnson & Johnson (US) 459 18.1 2.6 12.4 35.4 11 7

Ramsay Health Care 16 29.6 1.8 11.9 15 21 Pfizer (US) 297 14.4 3.3 10.2 43.4 11 7

ResMed Inc. 12 22.3 2.0 14.4 30 14 Novartis (Switz) 291 16.7 3.5 14.3 29.4 10 7

Sonic Healthcare 9 20.1 3.5 11.3 18 15 Roche (Switz) 238 16.3 3.5 10.7 40.3 -1 -3

Cochlear 7 33.1 2.1 19.1 28 22 Merck & Co., Inc. (US) 217 15.7 3.2 8.7 49.1 4 0

Fisher & Paykel 6 31.9 2.2 19.2 31 17 UnitedHealth Group (US) 181 16.7 1.4 9.0 8.3 7 3

Healthscope 5 23.8 2.9 13.2 18 7 Bristol Myers Squibb (US) 168 25.6 2.1 19.9 31.2 7 3

Mayne Pharma 3 23.7 n/a 4.9 39 45 Amgen, Inc. (US) 165 14.0 2.6 10.0 58.2 1 -3

Ansell Limited 3 14.0 2.9 9.3 16 -3 Medtronic (US) 164 18.4 2.0 11.7 32.3 12 7

Primary Health Care 2 19.1 3.3 7.8 22 12 Gilead Sciences, (US) 155 7.2 2.3 5.9 69.7 -14 -17


Sector Median 2 21.9 2.9 11.6 22 13 16 19.8 1.1 12.1 25.5 5 3




1.1

1.2

1.3

1.4

1.5

1.6

8

10

12

14

16

18

20

22

24

26

28



-0.4

-0.1

0.2

0.5

0.8

1.5

2.0

2.5

3.0

3.5



60

80

100

120

140

160

180



-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

17%

18%

19%

20%

21%

Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16Australia Global Margin Spread (RHS)

26 July 2016


Banks (25.0% ASX 200, 9.2% Global)

Recently falling RoE and EPS momentum for the Australian Banks has occurred against a

backdrop of weakening global trends. Perhaps this is a reason why the sector has not de-

rated versus international peers. The dividend yield premium, at 180 basis points, has

been stable for three years now.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Commonwealth Bank 132 13.8 5.5 2.1 16 3 Wells Fargo (US) 328 11.7 3.2 1.3 11.6 -4 -8

Westpac 102 12.5 6.1 1.7 14 0 JPMorgan (US) 312 10.7 3.1 0.9 9.4 0 -4

ANZ Banking Group 74 10.9 6.4 1.2 12 7 China Construction (HK) 224 5.2 5.8 0.7 14.2 13 9

National Australia 69 10.8 7.3 1.4 13 -2 Bank of America (US) 196 10.2 2.3 0.6 6.2 -5 -9

Bendigo Adelaide Bnk 5 11.4 6.8 0.9 9 7 HSBC (UK) 174 10.7 6.9 0.8 6.9 6 10

Bank of Queensland 4 10.8 7.3 1.1 11 -9 Citigroup Inc. (US) 173 9.0 1.4 0.6 6.6 -6 -10

Clydesdale Bank 3 17.2 1.0 0.7 4 0 Commwlth Bank (Aust) 132 13.8 5.5 2.1 16.1 3 3

Genworth Mtg Ins 1 6.2 14.3 0.6 10 46 Royal Bank of Can (Can) 122 11.5 4.2 1.8 16.5 5 4

Toronto Dominion (Can) 108 11.5 4.0 1.5 14.0 2 1

Westpac (Aust) 102 12.5 6.1 1.7 14.0 0 0


Sector Median 37 11.1 6.6 1.2 11 2 13 10.1 3.7 0.9 10.3 -2 0.4


Figure 103: 12-month forward EPS (rebased) Figure 104: 12-month forward RoE and Spread


1.0

1.1

1.2

1.3

1.4

1.5

1.6

4

6

8

10

12

14

16



0.8

1.3

1.8

2.3

2.8

3.3

3.8

3.0

4.0

5.0

6.0

7.0

8.0

9.0



70

80

90

100

110

120

130

140

150



0

1

2

3

4

5

6

8

10

12

14

16

18


Australia Global RoE Spread (RHS)

26 July 2016


Diversified Financials (4.9% ASX 200, 3.5% Global)

Australian Diversified Financials trade at a small premium to international peers despite

strong earnings performance and a considerable dividend yield premium. The largest

Aussie stock, Macquarie, trades at a considerable discount to global asset managers but

at a premium to the global investment banks.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Macquarie Group 25 12.0 5.7 1.6 14 14 Berkshire Hatha (US) 243 18.7 n/a 1.2 6.6 -1 -4

AMP 17 15.1 5.3 1.9 13 -1 Goldman Sachs (US) 89 10.1 1.8 0.9 8.5 -2 -6

ASX 9 21.8 4.1 2.5 11 11 American Express (US) 82 11.6 2.0 2.8 24.5 -2 -5

Challenger Limited 5 13.9 3.7 1.8 14 3 BlackRock (US) 79 17.4 2.6 2.0 11.8 0 -3

Magellan 4 19.1 4.1 8.3 49 -1 Morgan Stanley (US) 75 10.6 2.8 0.8 7.2 6 2

Platinum 3 17.8 5.5 9.6 55 -2 UBS Group AG (Switz) 69 10.1 5.3 0.9 8.7 -14 -15

BTIM 3 17.6 4.7 3.5 20 -12 Bank of New York (US) 57 12.2 2.0 1.1 9.1 -3 -6

IOOF Holdings 3 15.0 6.1 1.9 12 -3 Charles Schwab (US) 50 20.7 1.1 2.4 12.9 -5 -8

Henderson Group 3 13.8 4.9 2.2 15 -16 Brookfield Asset (Can) 47 29.8 1.6 1.5 5.3 9 9

Perpetual Limited 2 15.8 5.7 3.3 21 2 CME Group (US) 46 22.6 4.9 1.6 7.3 9 6

Sector Aggregate 76 14.4 5.1 2.0 16 6 2,124 13.2 2.5 1.2 14.0 -1 2

Sector Median 3 15.1 5.1 2.2 15 -1 9 13.4 2.8 1.5 12.1 0 1.7




0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

8

9

10

11

12

13

14

15

16

17

18



1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0



50

70

90

110

130

150

170



-10

-5

0

5

10

15

20

25

30

0

5

10

15

20

25

30



26 July 2016


Insurance (3.6% ASX 200, 3.6% Global)

Australian Insurers trade at a 30-40% P/E premium and 50% price-to-book premium

versus international peers. Dividends remain an obvious area of valuation support.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Suncorp 17 13.6 5.8 1.2 10 3 AIA Group (HK) 102 19.0 1.9 2.2 11.9 5 2

QBE 15 12.6 5.4 1.0 8 -3 Allianz (Germany) 84 8.3 6.1 0.9 10.9 -14 -15

IAG 14 15.8 5.4 2.1 15 2 AIG (US) 82 11.3 2.4 0.6 6.2 -2 -5

Medibank Private 8 19.6 3.9 4.9 26 -4 CB Limited (US) 80 12.7 2.2 1.2 10.6 9 5

Steadfast 2 18.9 3.1 1.7 9 13 Japan Post (Japan) 74 14.8 3.9 0.4 2.6 -18 -25

Cover-More Group 0.4 14.0 5.4 2.0 15 -12 MetLife (US) 64 7.6 3.9 0.6 9.3 -6 -9

Axa SA (Fra) 61 7.5 6.7 0.6 9.4 -16 -17

Prudential (UK) 60 10.6 3.3 2.2 20.9 -6 0

Zurich Ins Group (Switz) 48 10.1 6.8 1.1 10.9 8 6

Ping An (HK) 47 10.3 1.8 1.4 14.5 0 -3

Sector Aggregate 56 14.5 5.2 1.5 13 0 2,186 10.9 3.7 1.0 12.1 -3 1

Sector Median 11 14.9 5.4 1.8 12 -1 14 10.6 3.5 1.1 10.7 -2 1




0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

8

9

10

11

12

13

14

15

16



0.8

1.3

1.8

2.3

2.8

3.3

3.8

4.3

4.8

2

3

4

5

6

7

8

9

10



40

50

60

70

80

90

100

110

120

130

140



-2

-1

0

1

2

3

6

7

8

9

10

11

12

13

14

15

16

17



26 July 2016


Real Estate (9.4% ASX 200, 3.6% Global)

The dividend yield for the Australian REITs is now within 100 basis points versus their

international peers. It was 250 basis points higher just five years ago.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

Price to

Book

(x)

ROE

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Scentre Group 28 22.5 4.1 1.5 7 16 Simon Property US) 93 34.3 3.0 10.3 42.7 11 8

Westfield Corporation 23 23.1 3.2 1.6 7 10 American Tower (US) 67 44.4 2.0 7.1 16.7 14 10

Vicinity Centres 14 18.5 5.2 1.2 7 10 Public Strg (US) 59 34.6 2.9 5.3 23.2 -1 -4

Goodman Group 13 17.5 3.4 1.6 9 12 Sun Hung Kai (HK) 55 13.3 3.4 0.7 4.9 11 8

Stockland Group 12 16.8 5.1 1.2 8 20 Crown Castle Intl (US) 45 79.7 3.8 5.1 6.4 14 11

GPT Group 10 18.9 4.4 1.3 7 18 COLI (HK) 45 7.3 2.9 1.1 15.8 7 4

Dexus Property Group 9 16.0 4.7 1.2 7 18 Welltower (US) 38 37.8 4.4 1.8 5.9 15 11

Mirvac Group 8 15.7 4.8 1.1 7 19 General Grwth Propt (US) 37 44.7 2.6 3.5 10.9 11 8

Lend Lease 8 10.2 4.4 1.4 14 5 Dalian Wanda (HK) 37 9.1 3.2 0.9 10.8 -4 -7

Investa Office Fund 3 16.9 4.4 1.1 7 12 Prologis, Inc. (US) 37 49.3 3.3 1.6 4.7 16 12


Sector Median 3 16.9 5.0 1.2 8 12 11 18.6 3.5 1.2 7.3 7 1.2




0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

8

10

12

14

16

18

20

22



0.6

1.1

1.6

2.1

2.6

3.1

3.6

2

3

4

5

6

7

8



40

60

80

100

120

140

160

180

200



-3

-3

-2

-2

-1

-1

0

1

1

2

2

6

7

8

9

10

11



26 July 2016


Software (1.3% ASX 200, 8.7% Global)

While not being household names like their international peers, Australian Software stocks

trade at similar P/E multiples and a much higher EV/EBITDA. Aussie Software stocks

operate on the same 30% EBITDA margin as elsewhere.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Computershare 5 12.1 3.8 n/a 26 -11 Microsoft (US) 596 19.4 2.7 11.0 38.2 9 6

Link Administration 3 27.0 2.0 15.4 26 11 Facebook Inc. (US) 464 29.1 n/a 16.3 62.1 10 6

carsales.com.au 3 24.6 3.3 15.4 50 6 Alphabet (US) 349 20.6 n/a 11.4 40.7 2 -1

MYOB Group 2 22.1 3.2 12.4 49 8 Tencent Holdings (HK) 301 31.4 0.3 17.1 42.3 16 12

IRESS 2 22.3 4.3 n/a 31 -3 Alibaba Group US) 285 24.5 n/a 16.4 43.7 7 4

TechnologyOne 2 37.8 1.9 22.4 24 15 Visa Inc. (US) 255 25.9 0.7 n/a 68.4 2 -1

Aconex 2 104.1 n/a 46.6 15 23 Oracle (US) 227 14.6 1.4 9.4 45.4 1 -2

Altium 1 25.4 3.2 17.9 32 16 IBM (US) 209 11.7 3.3 8.8 25.2 10 6

Isentia Group 1 18.3 2.8 13.5 33 -3 SAP (Germany) 139 18.9 1.7 12.3 32.9 10 9

MasterCard Inc. (US) 136 24.2 0.8 n/a 58.2 -3 -6


Sector Median 2 24.6 3.2 15.4 31 8 16 18.6 0.9 11.6 28.7 4 3




0.8

0.9

1.0

1.1

1.2

1.3

1.4

10

12

14

16

18

20

22



1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

3.5

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0



0

25

50

75

100

125

150

175

200

225

250



-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

28%

29%

30%

31%

32%

33%

34%

35%


26 July 2016


Telecoms (5.9% ASX 200, 5.3% Global)

Australian Telecom stocks have benefitted from strong earnings momentum, operate on

higher EBITDA margins and offer a higher dividend yield but still only trade at a small

premium to their international peers.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

Telstra Corporation 71 15.9 5.5 7.2 40 7 AT&T (US) 356 14.6 4.5 6.6 32.9 14 11

TPG Telecom 10 25.2 1.5 12.3 33 15 China Mobile (HK) 342 14.8 2.9 4.2 37.1 8 5

Spark NZ 7 19.2 6.5 7.3 28 14 Verizon Comm (US) 307 14.2 4.1 6.7 35.8 12 8

Vocus Comm 5 21.3 2.2 11.8 24 -1 NTT Docomo (Japan) 136 16.1 2.9 6.6 31.0 8 1

NTT (Japan) 133 12.9 2.5 4.3 27.3 3 -4

Vodafone Group (UK) 110 36.2 5.2 6.4 29.2 7 12

KDDI (Japan) 107 14.4 2.6 6.2 32.1 0 -6

Deutsche Telekom (Ger) 105 16.2 4.1 5.9 30.1 1 0

SoftBank Group (Japan) 82 10.3 0.8 6.3 27.1 -14 -20

Telstra Corporation (Aust) 71 15.9 5.5 7.2 39.5 7 7


Sector Median 8 20.3 3.9 9.5 31 11 14 16.1 4.3 6.5 34.7 3 2




0.8

0.9

1.0

1.1

1.2

1.3

1.4

8

10

12

14

16

18

20



0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5



75

85

95

105

115

125

135

145



3%

4%

5%

6%

7%

8%

9%

30%

32%

34%

36%

38%

40%

42%


26 July 2016


Utilities (2.7% ASX 200, 3.7% Global)

Australian Utility companies now trade at a 60% P/E premium to international peers. The

re-rating has occurred over the last three years as margins have expanded and investors

have increased their focus on the superior dividends on offer.


Australia Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

($A,%)

Global Mcap

($A,b)

P/E

(x)

DY

(%)

EV/

EBITDA

(x)

EBITDA

Margin

(%)

3m Ret

(Lc,%)

3m Ret

($A,%)

AGL Energy 14 17.2 3.7 8.5 16 11 NextEra Ener (US) 80 20.3 2.9 10.4 46.1 14 11

APA Group 11 42.2 4.7 13.3 63 16 Duke Energy (US) 80 18.5 4.0 10.1 39.3 14 10

DUET Group 6 26.6 7.1 n/a 58 22 National Grid (UK) 73 17.1 4.1 11.0 36.0 17 23

AusNet Services 6 21.9 5.1 11.1 59 17 Southern Co (US) 69 18.7 4.2 10.6 40.2 12 8

Spark Infrastructure 4 26.5 5.7 13.9 96 24 Dominion Resourc (US) 65 20.5 3.7 11.9 47.0 13 9

Enel (Italy) 60 12.6 4.7 5.2 20.4 8 7

Iberdrola (Spain) 57 15.0 4.8 8.3 23.5 5 4

Engie (Fra) 54 14.3 5.6 6.9 15.6 11 10

Korea Electric (Korea) 46 4.7 3.7 3.7 36.6 3 -1

Exelon (US) 46 14.4 3.4 8.0 26.7 10 7


Sector Median 6 26.5 5.1 12.2 59 17 11 15.6 3.6 8.7 30.6 8 1




0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

8

10

12

14

16

18

20

22

24

26



0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5



80

90

100

110

120

130

140



6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

20%

22%

24%

26%

28%

30%

32%

34%


26 July 2016


Companies Mentioned (Price as of 25-Jul-2016) AACo (AAC.AX, A$2.12) AGL Energy (AGL.AX, A$20.42) AIA Group (1299.HK, HK$49.0) ALS Limited (ALQ.AX, A$5.21) AMP (AMP.AX, A$5.88) ANZ Banking Group (ANZ.AX, A$25.44) APA Group (APA.AX, A$9.85) APN News & Media (APN.AX, A$4.04) APN Outdoor Group Limited (APO.AX, A$7.75) ASX (ASX.AX, A$48.94) AT&T (T.N, $42.94) AXA (AXAF.PA, €17.93) Abertis (ABE.MC, €13.935) Aconex (ACX.AX, A$8.53) Adelaide Brighton (ABC.AX, A$5.77) Aena (AENA.MC, €128.2) Aeroports de Paris (ADP.PA, €100.9) Agnico Eagle (AEM.TO, C$67.78) Air Liquide (AIRP.PA, €95.72) Air Products & Chemicals (APD.N, $148.52) Airports of Thailand (AOT.BK, Bt397.0) Alibaba Group Holding Limited (BABA.N, $83.19) Allianz (ALVG.F, €126.135) Alphabet (GOOGL.OQ, $757.52) Altium (ALU.AX, A$7.22) Altria Group, Inc. (MO.N, $68.8) Alumina Limited (AWC.AX, A$1.32) Amazon com Inc. (AMZN.OQ, $739.61) Amcor (AMC.AX, A$15.42) American Express Co. (AXP.N, $64.33) American International Group Inc. (AIG.N, $54.66) American Tower Corp (AMT.N, $116.87) Amgen, Inc. (AMGN.OQ, $166.56) AngloGold Ashanti (ANGJ.J, R288.9) Anheuser-Busch InBev (ABI.BR, €114.8) Ansell Limited (ANN.AX, A$19.46) Aristocrat Leisure (ALL.AX, A$14.83) Asaleo Care Limited (AHY.AX, A$1.5) Asciano Limited (AIO.AX, A$9.13) Assa Abloy (ASSAb.ST, Skr186.0) Atlantia (ATL.MI, €22.25) Aurizon (AZJ.AX, A$5.13) AusNet Services (AST.AX, A$1.74) Automotive Holdings Group Ltd (AHG.AX, A$4.35) Avery Dennison Corp (AVY.N, $72.26) BASF SE (BASFn.F, €71.668) BHP Billiton (BHP.AX, A$19.24) BHP Billiton (BLT.L, 921.1p) BP (BP.L, 440.35p) BT Investment Management Limited (BTT.AX, A$8.67) Ball Corporation (BLL.N, $71.06) Bank of America Corp. (BAC.N, $14.37) Bank of Queensland (BOQ.AX, A$10.61) Bapcor (BAP.AX, A$5.61) Barrick Gold (ABX.TO, C$26.21) Beach Energy (BPT.AX, A$0.62) Bega Cheese (BGA.AX, A$5.73) Bellamy's (BAL.AX, A$11.55) Bendigo and Adelaide Bank (BEN.AX, A$10.17) Berkshire Hatha (BRKb.N, $144.14) BlackRock (BLK.N, $361.42) Blackmores Ltd (BKL.AX, A$155.0) BlueScope Steel (BSL.AX, A$8.01) Boral (BLD.AX, A$6.79) Brambles (BXB.AX, A$13.59) Brickworks (BKW.AX, A$15.21) Bristol Myers Squibb Co. (BMY.N, $75.56) British American Tobacco (BATS.L, 4803.0p) Brookfield Asset (BAMa.TO, C$45.82) CB Limited (CB.N, $127.94) CCL Industries (CCLb.TO, C$228.95) CCR (CCRO3.SA, R$17.86) CME Group Inc. (CME.OQ, $101.56) CN Rail (CNR.TO, C$83.99) CNOOC (0883.HK, HK$9.94) COLI (0688.HK, HK$25.95) CRH (CRH.I, €26.84) CSL Ltd (CSL.AX, A$120.86) CSR (CSR.AX, A$3.9) CVS Health (CVS.N, $94.04) Caltex Australia (CTX.AX, A$32.67) Central Japan Railway Company (9022.T, ¥19,185) Challenger Limited (CGF.AX, A$9.33) Charter Communications Inc. (CHTR.OQ, $240.69) Chevron Corp. (CVX.N, $103.07) China Construction Bank (0939.HK, HK$5.35) China Merchant Holdings (0144.HK, HK$21.7)

26 July 2016


China Mobile Limited (0941.HK, HK$97.0) Citigroup Inc. (C.N, $44.04) Cleanaway Waste Management (CWY.AX, A$0.84) Clydesdale Bank (CYB.AX, A$4.34) Coca-Cola Amatil (CCL.AX, A$9.1) Cochlear (COH.AX, A$129.3) Comcast Corporation Inc. (CMCSA.OQ, $67.47) Commonwealth Bank Australia (CBA.AX, A$77.55) Computershare (CPU.AX, A$9.16) Costa Group Hldg (CGC.AX, A$2.93) Costco Wholesale Corporation (COST.OQ, $167.97) Cover-More Group (CVO.AX, A$1.3) Credit Corp (CCP.AX, A$12.75) Crown (CWN.AX, A$13.08) Crown Castle International Corp (CCI.N, $97.32) Crown Holdings Inc. (CCK.N, $53.0) DISH Network Corporation (DISH.OQ, $52.25) DP World (DPW.DI, $17.09) DUET Group (DUE.AX, A$2.65) Daikin Industries (6367.T, ¥9,199) Dalian Wanda (3699.HK, HK$47.55) Delta Air Lines, Inc. (DAL.N, $38.96) Deutsche Post (DPWGn.F, €26.035) Deutsche Telekom (DTEGn.F, €15.27) Dexus Property Group (DXS.AX, A$9.6) Dominion Resources (D.N, $78.61) Dow Chemical Company (DOW.N, $53.27) Downer EDI (DOW.AX, A$4.09) DuPont de Nemours and Co. (DD.N, $68.88) Duke Energy (DUK.N, $86.69) Dulux Group (DLX.AX, A$6.55) ENI (ENI.MI, €14.03) East Japan Railway Company (9020.T, ¥9,582) Ecolab (ECL.N, $119.79) Enel (ENEI.MI, €4.03) Engie (ENGIE.PA, €15.02) Equifax Inc. (EFX.N, $136.43) Evolution Mining Limited (EVN.AX, A$2.7) Exelon Corporation (EXC.N, $37.5) Experian (EXPN.L, 1479.0p) ExxonMobil Corporation (XOM.N, $92.2) Facebook Inc. (FB.OQ, $121.63) Fairfax Media (FXJ.AX, A$1.02) Fast Retailing (9983.T, ¥33,170) FedEx Corporation (FDX.N, $160.23) Fletcher Building (FBU.AX, A$8.74) Fortescue Metals Group Ltd (FMG.AX, A$4.05) Franco Nevada (FNV.TO, C$95.88) Fresnillo plc (FRES.L, 1801.0p) GPT Group (GPT.AX, A$5.57) GWA GROUP Limited (GWA.AX, A$2.02) Galaxy Entertainment Group (0027.HK, HK$24.65) General Growth Properties (GGP.N, $31.8) Genting Berhad (GENT.KL, RM8.92) Genting Singapore (GENS.SI, S$0.8) Genworth Mtg Ins (GMA.AX, A$2.82) Gilead Sciences, Incorporated (GILD.OQ, $88.55) Glencore (GLEN.L, 185.4p) Goldcorp (G.TO, C$23.8) Goldman Sachs Group, Inc. (GS.N, $160.51) Goodman Group (GMG.AX, A$7.46) Graincorp (GNC.AX, A$8.71) Greencross (GXL.AX, A$7.25) Grupo Mexico (GMEXICOB.MX, MXN42.55) HSBC Holdings (HSBA.L, 489.8p) Harvey Norman (HVN.AX, A$4.63) Healthscope (HSO.AX, A$2.98) HeidelbgCement (HEIG.F, €71.307) Henderson Group PLC (HGG.AX, A$3.75) Hennes & Mauritz (HMb.ST, Skr259.0) Home Depot (HD.N, $136.5) IOOF Holdings (IFL.AX, A$8.81) IPH (IPH.AX, A$6.74) IRESS (IRE.AX, A$11.39) Iberdrola (IBE.MC, €6.18) Iluka Resources (ILU.AX, A$6.89) Incitec Pivot (IPL.AX, A$2.89) Independence Group NL (IGO.AX, A$4.15) Inditex (ITX.MC, €30.98) Insurance Australia Group (IAG.AX, A$5.89) International Business Machines Corp. (IBM.N, $162.65) International Paper Co. (IP.N, $45.12) Investa Office Fund (IOF.AX, A$4.56) Isentia Group (ISD.AX, A$3.25) JB Hi-Fi (JBH.AX, A$24.59) JPMorgan Chase & Co. (JPM.N, $63.87) James Hardie Industries plc (JHX.AX, A$22.26) Japan Post (6178.T, ¥1,337)

26 July 2016


Johnson & Johnson (JNJ.N, $124.89) KDDI (9433.T, ¥3,203) Kangwon Land (035250.KS, W40,950) Kinross (K.TO, C$6.24) Klabin (KLBN11.SA, R$16.67) Korea Electric Power (015760.KS, W61,500) Kroger Co. (KR.N, $35.79) L'Oreal (OREP.PA, €175.2) Lafargeholcim (LHN.S, SFr44.11) Las Vegas Sands Corp. (LVS.N, $47.8) Lend Lease (LLC.AX, A$13.2) Link Administration Holdings Limited (LNK.AX, A$8.63) Loblaw Companies Limited (L.TO, C$70.69) Lowe's (LOW.N, $80.99) LyondellBasell Industries (LYB.N, $78.87) MGM Resorts International (MGM.N, $23.32) MTR Corporation (0066.HK, HK$42.7) Macquarie Atlas (MQA.AX, A$5.63) Macquarie Group (MQG.AX, A$73.81) Magellan Financial Group (MFG.AX, A$22.79) MasterCard Inc. (MA.N, $93.0) Mayne Pharma (MYX.AX, A$1.96) McMillan Shakespeare (MMS.AX, A$14.66) Medibank Private Limited (MPL.AX, A$2.99) Medtronic (MDT.N, $86.92) Merck & Co., Inc. (MRK.N, $58.56) MetLife, Inc. (MET.N, $43.11) Metcash (MTS.AX, A$2.14) Microsoft Corporation (MSFT.OQ, $56.73) Mineral Rsc (MIN.AX, A$9.55) Mirvac Group (MGR.AX, A$2.2) Monsanto Company (MON.N, $105.26) Morgan Stanley (MS.N, $29.13) Myer Holdings (MYR.AX, A$1.24) Myob Group (MYO.AX, A$3.65) NTT (9432.T, ¥4,969) NTT DoCoMo (9437.T, ¥2,840) Naspers (NPNJn.J, R2245.44) National Australia Bank (NAB.AX, A$26.2) National Grid (NG.L, 1114.5p) Nestle (NESN.S, SFr78.15) Netflix, Inc. (NFLX.OQ, $87.66) Newcrest Mining (NCM.AX, A$23.42) Newmont Mining (NEM.N, $40.13) News Corporation (NWS.AX, A$17.56) NextEra Energy Inc. (NEE.N, $129.49) Nielsen Holdings (NLSN.N, $55.22) Nine Entertainment (NEC.AX, A$1.1) Nippon Steel & Sumitomo Metal (5401.T, ¥2,120) Norfolk Southern (NSC.N, $91.96) NorilskNickel (GMKN.MM, Rbl9306.0) Northern Star Resources Ltd (NST.AX, A$4.73) Novartis (NOVN.S, SFr82.2) Nufarm (NUF.AX, A$7.97) OZ Minerals (OZL.AX, A$6.52) Occidental Petroleum (OXY.N, $74.51) Oil Search (OSH.AX, A$7.27) Oracle Corporation (ORCL.N, $41.16) Orica (ORI.AX, A$13.45) Origin Energy (ORG.AX, A$5.94) Orora (ORA.AX, A$2.88) Packaging Corp. of America (PKG.N, $74.03) Pact Group Holdings (PGH.AX, A$5.84) Paddy Power (PPB.I, €104.3) PepsiCo, Inc. (PEP.N, $109.02) Perpetual Limited (PPT.AX, A$44.78) Pfizer (PFE.N, $36.78) Philip Morris International (PM.N, $99.71) Ping An (2318.HK, HK$36.3) Platinum Asset Management (PTM.AX, A$5.99) Praxair Inc. (PX.N, $117.74) Premier Investments (PMV.AX, A$15.75) Primary Health Care (PRY.AX, A$4.13) Procter & Gamble Co. (PG.N, $85.8) Prologis, Inc. (PLD.N, $52.99) Prudential (PRU.L, 1341.5p) Public Storage (PSA.N, $251.96) QBE Insurance Group (QBE.AX, A$11.13) Qantas (QAN.AX, A$3.01) Qube Holdings Limited (QUB.AX, A$2.45) REA Group (REA.AX, A$64.55) Ramsay Health Care (RHC.AX, A$78.75) Randgold Resources (RRS.L, 8550.0p) Recruit Holdings (6098.T, ¥3,950) Regis Resources Limited (RRL.AX, A$3.59) Republic Services, Inc. (RSG.N, $52.42) ResMed Inc. (RMD.AX, A$8.83) Rio Tinto (RIO.AX, A$48.14)

26 July 2016


Rio Tinto (RIO.L, 2350.5p) Roche (ROG.S, SFr248.8) Royal Bank of Canada (RY.TO, C$79.87) Royal Dutch Shell plc (RDSa.L, 2038.5p) SAI Global (SAI.AX, A$3.78) SAP (SAPG.F, €77.04) SGS Surveillance (SGSN.S, SFr2165.0) SKYCITY Entertainment Group Ltd. (SKC.AX, A$4.66) Saint-Gobain (SGOB.PA, €36.73) Sands China (1928.HK, HK$28.35) Santos Ltd (STO.AX, A$4.67) Saracen Mineral (SAR.AX, A$1.605) Scentre Group (SCG.AX, A$5.25) Schlumberger (SLB.N, $80.71) Sealed Air Corp. (SEE.N, $48.55) Secom (9735.T, ¥7,860) Seek (SEK.AX, A$16.49) Seven & i (3382.T, ¥4,434) Seven West Media (SWM.AX, A$1.1) Shell (RDSb.L, 2093.5p) Siam Cement (SCC.BK, Bt510.0) Simon Property Group, Inc. (SPG.N, $224.48) Sims Metal Management (SGM.AX, A$8.46) SoftBank Group Corp. (9984.T, ¥5,216) Sonic Healthcare (SHL.AX, A$23.04) South 32 (S32.AX, A$1.84) Southern Company (SO.N, $54.54) Southern Copper Corporation (SCCO.N, $26.19) Southern Cross Media Group (SXL.AX, A$1.21) Spark Infrastructure Group (SKI.AX, A$2.61) Spark NZ (SPK.AX, A$3.65) Spotless Group (SPO.AX, A$1.225) St Barbara Mining (SBM.AX, A$3.05) Star Entertainment Group (SGR.AX, A$5.89) Steadfast (SDF.AX, A$2.1) Stockland Group (SGP.AX, A$4.98) Sun Hung Kai Properties (0016.HK, HK$109.8) Suncorp Group Limited (SUN.AX, A$13.09) Super Retail Group (SUL.AX, A$9.7) Sydney Airport (SYD.AX, A$7.49) Syngenta (SYNN.S, SFr394.7) Sysco Corporation (SYY.N, $52.13) TPG Telecom (TPM.AX, A$12.33) Tabcorp Holdings (TAH.AX, A$4.75) Target Corporation (TGT.N, $76.3) Tatts Group (TTS.AX, A$4.04) TechnologyOne (TNE.AX, A$5.57) Telstra Corporation (TLS.AX, A$5.82) Tencent Holdings (0700.HK, HK$188.0) The Bank of New York Mellon Corp. (BK.N, $39.05) The Charles Schwab Corp (SCHW.N, $28.26) The Coca-Cola Company (KO.N, $45.57) The Kraft Heinz Company (KHC.OQ, $88.41) The Priceline Group Inc (PCLN.OQ, $1321.67) The TJX Companies, Inc. (TJX.N, $80.76) The Walt Disney Company (DIS.N, $97.39) ThomsonReuters (TRI.TO, C$57.41) Time Warner Inc. (TWX.N, $78.5) Toronto Dominion Bank (TD.TO, C$57.17) Total (TOTF.PA, €42.25) Trade Me Group Ltd (TME.AX, A$5.03) Transurban (TCL.AX, A$12.48) Treasury Wine (TWE.AX, A$9.97) Twenty-First Fox (FOXA.O, $26.85) Tyco International, Ltd (TYC.N, $45.17) UBS Group AG (UBSG.S, SFr13.29) Ultratech Cement Ltd (ULTC.BO, Rs3671.95) Union Pacific (UNP.N, $92.28) United Parcel Service Inc. (UPS.N, $110.1) UnitedHealth Group Incorporated (UNH.N, $141.73) Vale SA (VALE3.SA, R$17.42) Verisk Analytics Inc. (VRSK.OQ, $85.52) Verizon Communications Inc (VZ.N, $55.87) Vicinity Centres (VCX.AX, A$3.52) Village Road (VRL.AX, A$5.44) Visa Inc. (V.N, $78.94) Vivendi SA (VIV.PA, €17.37) Vocus Communications (VOC.AX, A$8.68) Vodafone Group (VOD.L, 234.9p) Vulcan Matls (VMC.N, $125.12) WPP (WPP.L, 1695.0p) Wal-Mart Stores, Inc. (WMT.N, $73.75) Walgreens Boots Alliance (WBA.OQ, $81.57) Walmex (WALMEX.MX, MXN45.71) Waste Management, Inc. (WM.N, $67.22) Wells Fargo & Company (WFC.N, $48.12) Welltower (HCN.N, $78.75) Wesfarmers (WES.AX, A$42.25)

26 July 2016


WestRock (WRK.N, $42.84) Westfield Corporation (WFD.AX, A$10.99) Westpac (WBC.AX, A$30.71) Whitehaven Coal (WHC.AX, A$1.77) Woodside Petroleum (WPL.AX, A$27.35) Woolworths (WOW.AX, A$24.3) WorleyParsons (WOR.AX, A$7.83) Wynn Macau (1128.HK, HK$12.3) Wynn Resorts (WYNN.OQ, $97.41) Yamana Gold (YRI.TO, C$6.9) Zurich Insurance Group (ZURN.S, SFr232.5) carsales.com.au (CAR.AX, A$12.56)

Disclosure Appendix

Important Global Disclosures I, Hasan Tevfik ,CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return rel ative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in opera tion from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 51% (43% banking clients) Neutral/Hold* 35% (17% banking clients) Underperform/Sell* 13% (38% banking clients) Restricted 1% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

26 July 2016


Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names

The subject company (0027.HK, 0883.HK, 1928.HK, WFC.N, UNH.N, BHP.AX, BP.L, TOTF.PA, PX.N, 3382.T, AMT.N, SCCO.N, AENA.MC, ABI.BR, VRSK.OQ, DOW.N, 0016.HK, ENEI.MI, NFLX.OQ, AXP.N, VIV.PA, TGT.N, SEE.N, TWX.N, NEM.N, 1299.HK, ADP.PA, NG.L, LHN.S, FB.OQ, UNP.N, KLBN11.SA, ENI.MI, WBC.AX, CMCSA.OQ, KHC.OQ, NESN.S, DIS.N, DTEGn.F, PFE.N, 0688.HK, SCHW.N, SYY.N, DD.N, CRH.I, AIG.N, KO.N, MDT.N, GS.N, SGOB.PA, BMY.N, AMGN.OQ, TD.TO, GLEN.L, BABA.N, SYNN.S, JPM.N, CVS.N, CVX.N, BLT.L, 3699.HK, ENGIE.PA, VZ.N, CME.OQ, 015760.KS, NSC.N, CCRO3.SA, RDSa.L, SLB.N, PCLN.OQ, MON.N, SAPG.F, CBA.AX, RY.TO, HD.N, C.N, TCL.AX, AVY.N, JNJ.N, XOM.N, GILD.OQ, OXY.N, 5401.T, UPS.N, WES.AX, TLS.AX, PM.N, DISH.OQ, 0939.HK, BAC.N, BK.N, SGSN.S, MO.N, TJX.N, WMT.N, AMZN.OQ, GMEXICOB.MX, ECL.N, RSG.N, BLK.N, NCM.AX, BLL.N, IBM.N, NPNJn.J, NOVN.S, 2318.HK, MS.N, L.TO, QAN.AX, SBM.AX, NAB.AX, WFD.AX, QBE.AX, LNK.AX, BTT.AX, GNC.AX, EVN.AX, NWS.AX, OZL.AX, PTM.AX, ILU.AX, AZJ.AX, DLX.AX, WPL.AX, SWM.AX, SKI.AX, ALQ.AX, HGG.AX, SAI.AX, AMP.AX, SEK.AX, SHL.AX, NUF.AX, ANZ.AX, BSL.AX, APN.AX, RHC.AX, IFL.AX, MGR.AX, MYX.AX, QUB.AX, AIO.AX, NST.AX, ORG.AX, PGH.AX, CCL.AX, DUE.AX, CTX.AX, WHC.AX, BXB.AX, MQG.AX, MMS.AX, PMV.AX, CSR.AX, WOW.AX, AST.AX, TAH.AX, VOC.AX, ORI.AX, FMG.AX, ABC.AX, IPL.AX, REA.AX, MQA.AX, RRL.AX, CWN.AX, CYB.AX, MYR.AX, OSH.AX, IGO.AX, 1128.HK, CB.N, CHTR.OQ, DAL.N, GENS.SI, NEC.AX, RIO.L, SPG.N, T.N, WM.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (0027.HK, 0883.HK, WFC.N, UNH.N, BHP.AX, BP.L, TOTF.PA, PX.N, AMT.N, SCCO.N, AENA.MC, ABI.BR, ENEI.MI, AXP.N, VIV.PA, TWX.N, NEM.N, 1299.HK, NG.L, LHN.S, FB.OQ, UNP.N, ENI.MI, WBC.AX, CMCSA.OQ, KHC.OQ, NESN.S, DIS.N, DTEGn.F, PFE.N, SCHW.N, DD.N, AIG.N, KO.N, GS.N, BMY.N, AMGN.OQ, TD.TO, GLEN.L, BABA.N, SYNN.S, JPM.N, BLT.L, ENGIE.PA, VZ.N, RDSa.L, SLB.N, PCLN.OQ, MON.N, CBA.AX, RY.TO, HD.N, C.N, XOM.N, OXY.N, UPS.N, PM.N, 0939.HK, BAC.N, BK.N, MO.N, GMEXICOB.MX, ECL.N, BLK.N, BLL.N, IBM.N, NOVN.S, 2318.HK, MS.N, NAB.AX, WFD.AX, LNK.AX, BTT.AX, EVN.AX, NWS.AX, WPL.AX, SEK.AX, ANZ.AX, BSL.AX, APN.AX, MYX.AX, AIO.AX, ORG.AX, MQG.AX, AST.AX, VOC.AX, FMG.AX, REA.AX, MQA.AX, RRL.AX, OSH.AX, CB.N, CHTR.OQ, DAL.N, RIO.L, SPG.N, T.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (WFC.N, UNH.N, SCCO.N, AXP.N, VIV.PA, TWX.N, WBC.AX, CMCSA.OQ, DIS.N, SCHW.N, AIG.N, GS.N, AMGN.OQ, TD.TO, JPM.N, NSC.N, CBA.AX, RY.TO, C.N, XOM.N, GILD.OQ, UPS.N, 0939.HK, BAC.N, BK.N, GMEXICOB.MX, RSG.N, BLK.N, IBM.N, MS.N, QAN.AX, NAB.AX, PTM.AX, HGG.AX, ANZ.AX, IFL.AX, ORG.AX, MQG.AX, WM.N) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (0883.HK, WFC.N, UNH.N, BP.L, TOTF.PA, PX.N, AXP.N, TWX.N, NG.L, LHN.S, UNP.N, CMCSA.OQ, KHC.OQ, NESN.S, DIS.N, DTEGn.F, PFE.N, SCHW.N, KO.N, GS.N, AMGN.OQ, TD.TO, GLEN.L, JPM.N, RDSa.L, CBA.AX, RY.TO, HD.N, C.N, XOM.N, PM.N, 0939.HK, BK.N, BLK.N, NOVN.S, MS.N, NAB.AX, WPL.AX, ANZ.AX, BSL.AX, APN.AX, MYX.AX, AST.AX, VOC.AX, RRL.AX, CB.N, CHTR.OQ, DAL.N, SPG.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (0027.HK, 0883.HK, WFC.N, UNH.N, BHP.AX, BP.L, TOTF.PA, PX.N, AMT.N, SCCO.N, AENA.MC, ABI.BR, ENEI.MI, AXP.N, VIV.PA, TWX.N, NEM.N, 1299.HK, NG.L, LHN.S, FB.OQ, UNP.N, ENI.MI, WBC.AX, CMCSA.OQ, KHC.OQ, NESN.S, DIS.N, DTEGn.F, PFE.N, SCHW.N, DD.N, AIG.N, KO.N, GS.N, BMY.N, AMGN.OQ, TD.TO, GLEN.L, BABA.N, SYNN.S, JPM.N, BLT.L, ENGIE.PA, VZ.N, RDSa.L, SLB.N, PCLN.OQ, MON.N, CBA.AX, RY.TO, HD.N, C.N, XOM.N, OXY.N, UPS.N, PM.N, 0939.HK, BAC.N, BK.N, MO.N, GMEXICOB.MX, ECL.N, BLK.N, BLL.N, IBM.N, NOVN.S, 2318.HK, MS.N, NAB.AX, WFD.AX, LNK.AX, BTT.AX, EVN.AX, NWS.AX, WPL.AX, SEK.AX, ANZ.AX, BSL.AX, APN.AX, MYX.AX, AIO.AX, ORG.AX, MQG.AX, AST.AX, VOC.AX, FMG.AX, REA.AX, MQA.AX, RRL.AX, OSH.AX, CB.N, CHTR.OQ, DAL.N, RIO.L, SPG.N, T.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (0027.HK, 0883.HK, 1928.HK, WFC.N, UNH.N, BHP.AX, BP.L, TOTF.PA, PX.N, 3382.T, AMT.N, SCCO.N, AENA.MC, ABI.BR, 6098.T, KR.N, VRSK.OQ, DOW.N, 0016.HK, ENEI.MI, NFLX.OQ, AXP.N, VIV.PA, TGT.N, SEE.N, TWX.N, NEM.N, 1299.HK, ADP.PA, NG.L, LHN.S, FB.OQ, UNP.N, KLBN11.SA, ENI.MI, WBC.AX, CMCSA.OQ, KHC.OQ, COST.OQ, NESN.S, DIS.N, DTEGn.F, LOW.N, PFE.N, BATS.L, 0688.HK, SCHW.N, SYY.N, ULTC.BO, DD.N, CRH.I, AIG.N, 6367.T, KO.N, CCK.N, GS.N, SGOB.PA, BMY.N, AMGN.OQ, TD.TO, GLEN.L, BABA.N, SYNN.S, JPM.N, CVS.N, CVX.N, BLT.L, 3699.HK, ENGIE.PA, 9983.T, VZ.N, CME.OQ, 015760.KS, NSC.N, CCRO3.SA, RDSa.L, SLB.N, PCLN.OQ, MON.N, SAPG.F, CBA.AX, RY.TO, HD.N, C.N, TCL.AX, AVY.N, JNJ.N, XOM.N, GILD.OQ, PEP.N, OXY.N, 5401.T, UPS.N, WES.AX, TLS.AX, IP.N, PM.N, DISH.OQ, 0939.HK, AOT.BK, BAC.N, BK.N, SGSN.S, MO.N, TJX.N, AMZN.OQ, GMEXICOB.MX, ECL.N, RSG.N, BLK.N, NCM.AX, APD.N, BLL.N, FRES.L, IBM.N, NPNJn.J, NOVN.S, 2318.HK, MS.N, L.TO, GPT.AX, IAG.AX, SBM.AX, NAB.AX, WFD.AX, QBE.AX, ACX.AX, LNK.AX, BTT.AX, GNC.AX, EVN.AX, NWS.AX, OZL.AX, BLD.AX, ILU.AX, DLX.AX, WPL.AX, SWM.AX, SKI.AX, BPT.AX, ALQ.AX, FXJ.AX, SAI.AX, AMP.AX, SEK.AX, SGR.AX, SHL.AX, NUF.AX, ANZ.AX, GMG.AX, BSL.AX, APN.AX, RHC.AX, IFL.AX, MGR.AX, SGP.AX, MYX.AX, QUB.AX, AIO.AX, NST.AX, CPU.AX, ORG.AX, PGH.AX, CCL.AX, TPM.AX, DUE.AX, CTX.AX, WHC.AX, BXB.AX, MQG.AX, CGF.AX, MMS.AX, PMV.AX, ANN.AX, CSR.AX, CSL.AX, PPT.AX, STO.AX, WOW.AX, AST.AX, TAH.AX, VOC.AX, ORI.AX, TWE.AX, FMG.AX, ABC.AX, IPL.AX, REA.AX, MQA.AX, RRL.AX, CWN.AX, MYR.AX, OSH.AX, IGO.AX, 1128.HK, CB.N, CHTR.OQ, DAL.N, GENS.SI, NEC.AX, RIO.L, SPG.N, T.N, V.N, WM.N) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (WFC.N, UNH.N, SCCO.N, AXP.N, VIV.PA, TWX.N, WBC.AX, CMCSA.OQ, DIS.N, SCHW.N, AIG.N, GS.N, AMGN.OQ, TD.TO, JPM.N, NSC.N, CBA.AX, RY.TO, C.N, XOM.N, GILD.OQ, UPS.N, 0939.HK, BAC.N, BK.N, GMEXICOB.MX, RSG.N, BLK.N, IBM.N, MS.N, QAN.AX, NAB.AX, PTM.AX, HGG.AX, ANZ.AX, IFL.AX, ORG.AX, MQG.AX, WM.N) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (WFC.N, UNH.N, PX.N, AMT.N, SCCO.N, KR.N, VRSK.OQ, DOW.N, NFLX.OQ, AXP.N, TGT.N, TWX.N, NEM.N, FB.OQ, UNP.N, CMCSA.OQ, COST.OQ, DIS.N, CCI.N, TYC.N, LOW.N, MRK.N, PFE.N, SCHW.N, SYY.N, DD.N, AIG.N, KO.N, CCK.N, MDT.N, GS.N, BMY.N, AMGN.OQ, JPM.N, CVS.N, CVX.N, EFX.N, VZ.N, CME.OQ, NSC.N, SLB.N, PCLN.OQ, MON.N, HD.N, C.N, AVY.N, JNJ.N, XOM.N, GILD.OQ, PEP.N, OXY.N, FDX.N, UPS.N, IP.N, PM.N, DISH.OQ, GOOGL.OQ, WBA.OQ, BAC.N, BK.N, MO.N, TJX.N, WMT.N, AMZN.OQ, ECL.N, RSG.N, BLK.N, APD.N, BLL.N, IBM.N, MS.N, CB.N, CHTR.OQ, DAL.N, T.N, V.N, WM.N). Credit Suisse may have interest in (GENT.KL) Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

26 July 2016


Credit Suisse may have interest in (ULTC.BO) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (EXPN.L, UNH.N, SYNN.S, 3699.HK, VOD.L, TCL.AX, NCM.AX, 2318.HK, QAN.AX, ORA.AX, S32.AX, GWA.AX, SCG.AX, SBM.AX, MTS.AX, DOW.AX, OZL.AX, ILU.AX, AZJ.AX, APO.AX, ALQ.AX, JBH.AX, BSL.AX, APN.AX, SGP.AX, SGM.AX, NST.AX, IRE.AX, CTX.AX, CGF.AX, CSR.AX, PRY.AX, IOF.AX, IPL.AX, RRL.AX, LLC.AX, AGL.AX). As of the end of the preceding month, Credit Suisse beneficially own between 1-3% of a class of common equity securities of (LHN.S, UBSG.S, NESN.S, SGSN.S, NOVN.S). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (AIRP.PA, 3699.HK, GOOGL.OQ, QAN.AX, BSL.AX). Credit Suisse beneficially holds >0.5% short position of the total issued share capital of the subject company (035250.KS, 015760.KS, OZL.AX). Credit Suisse has a material conflict of interest with the subject company (0883.HK) . Credit Suisse is acting as financial advisor to both CNOOC Ltd. and SINOPEC on the acquisition of Marathon Oil Corporation's 20% interest in Block 32, offshore Angola. Credit Suisse has a material conflict of interest with the subject company (WFC.N) . Credit Suisse is acting as a financial advisor to General Electric Co. (GE) in relation to their potential sale of GE Capital’s Commercial Distribution Finance, North American Vendor Finance and Corporate Finance platforms to Wells Fargo & Co. (WFC). Credit Suisse has a material conflict of interest with the subject company (AMT.N) . Credit Suisse is the exclusive sell-side advisor to Viom Networks and its selling shareholders in American Tower Corp's acquisition of 51% controlling stake in Viom Networks. Credit Suisse has a material conflict of interest with the subject company (SCCO.N) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report Credit Suisse has a material conflict of interest with the subject company (ABI.BR) . Credit Suisse are acting as financial advisor to Altria Group, Inc in connection with AB InBev’s proposed merger with SABMiller plc Credit Suisse has a material conflict of interest with the subject company (1299.HK) . Jack So (IB in HK) is an Independent Non-Exec Director of AIA (previously was a Non-Executive Director). Credit Suisse has a material conflict of interest with the subject company (FB.OQ) . Credit Suisse has been named as a defendant in various putative shareholder class-action lawsuits relating to Facebook, Inc.’s May 2012 initial public offering. Credit Suisse’s practice is not to comment in research reports on pending litigations to which it is a party. Nothing in this report should be construed as an opinion on the merits or potential outcome of the lawsuits. Credit Suisse has a material conflict of interest with the subject company (DTEGn.F) . Detusche Telekom AG - Wulf Bernotat, a Senior Advisor of Credit Suisse, is a supervisory board member of Deutsche Telekom AG (DTE) Credit Suisse has a material conflict of interest with the subject company (AIG.N) . Credit Suisse is acting as financial advisor to New China Trust Co. Ltd., China Aviation Industrial Fund and P3 Investments Ltd. in relation to their announced acquisition of 80.1% of International Lease Finance Corp. Credit Suisse has a material conflict of interest with the subject company (BABA.N) . Credit Suisse acted as the exclusive financial advisor to Alibaba Group in relation to its investment in Snapdeal.com. Credit Suisse is the financial advisor to Alibaba Group Holding Limited’s acquisition of a controlling stake in Lazada Group S.A.” Credit Suisse has a material conflict of interest with the subject company (SLB.N) . Credit Suisse is acting as financial advisor to Cameron International (CAM) on its announced acquisition by Schlumberger (SLB). Credit Suisse has a material conflict of interest with the subject company (MON.N) . Credit Suisse is acting as joint lead financial advisor to Bayer in relation to the proposed offer for Monsanto. Credit Suisse has a material conflict of interest with the subject company (C.N) . Credit Suisse is acting as a financial advisor for Springleaf in relation to the acquisition of OneMain Financial from CitiFinancial Credit Company, a wholly-owned subsidiary of Citigroup. Credit Suisse has a material conflict of interest with the subject company (XOM.N) . Kofi Adjepong-Boateng, a Senior Advisor of Credit Suisse, is a Senior Advisor to Exxon Mobile (XOM). Credit Suisse has a material conflict of interest with the subject company (SGSN.S) . Credit Suisse AG is acting as an agent in relation to the company's announced share buy-back program. Credit Suisse has a material conflict of interest with the subject company (MO.N) . Credit Suisse are acting as financial advisor to Altria Group, Inc in connection with AB InBev’s proposed merger with SABMiller plc Credit Suisse has a material conflict of interest with the subject company (SCG.AX) . Credit Suisse is financial advisor to the Westfield Group for the proposal to restructure and merge with Westfield Retail Trust. Credit Suisse has a material conflict of interest with the subject company (RIO.AX) . Credit Suisse is acting as advisor to Imerys on the proposed acquisition of the Luzenac Talc Group from Rio Tinto. Credit Suisse has a material conflict of interest with the subject company (GNC.AX) . Credit Suisse is the financial advisor to GrainCorp Limited in relation to the proposed acquisition offer by Archer Daniels Midland Inc. Credit Suisse has a material conflict of interest with the subject company (APN.AX) . Paul Connolly, a Senior Advisor of Credit Suisse, is an Outside Board Director of APN News & Media Ltd (APN.AX). Credit Suisse is acting as strategic financial advisor to APN News & Media for the potential divestment of their publishing business, Australian Regional Media (ARM). Credit Suisse has a material conflict of interest with the subject company (MYX.AX) . Credit Suisse Emerging Companies is advisor to Mayne Pharma Ltd in relation to its acquisition of assets relating to Doryx from Actavis plc. Credit Suisse has a material conflict of interest with the subject company (QUB.AX) . Credit Suisse is advisor to Global Infrastructure Partners and Canada Pension Plan Investment Board in relation to the acquisition of an interest in the shares of Asciano Limited. Credit Suisse has a material conflict of interest with the subject company (AIO.AX) . Credit Suisse is advisor to Global Infrastructure Partners and Canada Pension Plan Investment Board in relation to the acquisition of an interest in the shares of Asciano Limited. Credit Suisse has a material conflict of interest with the subject company (CPU.AX) . Credit Suisse is acting as the financial advisor to UK Asset Resolution Limited for the divestment of its mortgage servicing activities to Computershare Limited. Credit Suisse has a material conflict of interest with the subject company (MQG.AX) . Credit Suisse is advisor to Macquarie Group Limited in relation to its acquisition of the Esanda dealer finance portfolio.

26 July 2016


Credit Suisse has a material conflict of interest with the subject company (MMS.AX) . Credit Suisse Emerging Companies is financial advisor to McMillan Shakespeare Limited in relation to its acquisition of United Financial Services. Credit Suisse has a material conflict of interest with the subject company (VOC.AX) . Credit Suisse Emerging Companies is the sole financial advisor to Vocus Communications Ltd for its merger with M2 Group Ltd. Credit Suisse has a material conflict of interest with the subject company (AGL.AX) . Peter Wilson has approx. A$1,000 worth of AGL shares as part of an employee share purchase plan. They won’t become unrestricted for 3 years. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (WFC.N). As of the date of this report, an analyst involved in the preparation of this report, Susan Katzke, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the preferred stock Wells Fargo & Company (WFC). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PFE.N). As of the date of this report, an analyst involved in the preparation of this report, Vamil Divan, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the common stock Pfizer (PFE.N). A member of the analyst's household is an employee of Pfizer (PFE.N). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (TD.TO). As of the date of this report, Kevin Choquette had a long position in the common equity of the company. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (JPM.N). As of the date of this report, an analyst involved in the preparation of this report, Susan Katzke, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the common and preferred stock JPMorgan Chase & Co (JPM). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (CVS.N). Training As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (RY.TO). As of the date of this report, Kevin Choquette had a long position in the common equity of the company. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (C.N). As of the date of this report, an analyst involved in the preparation of this report, Susan Katzke, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the common and preferred stock Citigroup (C). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (BAC.N). As of the date of this report, an analyst involved in the preparation of this report, Susan Katzke, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the preferred stock Bank of America Corp (BAC).

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683. For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=239515&v=-6hp3t4mll9alfl6ln08s5g4g3 .

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (RIO.L). The following disclosed European company/ies have estimates that comply with IFRS: (EXPN.L, BP.L, ASSAb.ST, ABI.BR, ENEI.MI, VIV.PA, ADP.PA, NG.L, LHN.S, UBSG.S, ENI.MI, NESN.S, DTEGn.F, BATS.L, CRH.I, HMb.ST, SGOB.PA, BMY.N, IBE.MC, SYNN.S, BLT.L, ENGIE.PA, RDSa.L, SAPG.F, VOD.L, XOM.N, OREP.PA, ITX.MC, WPP.L, SGSN.S, APD.N, QAN.AX, RIO.AX, RIO.L). An analyst involved in the preparation of this report received third party benefits in connection with this research report from the subject company (CVS.N) Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (0883.HK, WFC.N, UNH.N, 0700.HK, BP.L, TOTF.PA, PX.N, AMT.N, SCCO.N, AENA.MC, ENEI.MI, AXP.N, SEE.N, TWX.N, 1299.HK, ADP.PA, NG.L, LHN.S, FB.OQ, UNP.N, WBC.AX, CMCSA.OQ, KHC.OQ, NESN.S, DIS.N, DTEGn.F, MRK.N, PFE.N, BATS.L, SCHW.N, DD.N, AIG.N, KO.N, GS.N, BMY.N, IBE.MC, AMGN.OQ, TD.TO, GLEN.L, BABA.N, SYNN.S, JPM.N, 3699.HK, ENGIE.PA, VZ.N, CME.OQ, RDSa.L, NLSN.N, SLB.N, WALMEX.MX, CBA.AX, RY.TO, HD.N, C.N, XOM.N, PM.N, 0939.HK, GOOGL.OQ, BAC.N, BK.N, SGSN.S, MO.N, WMT.N, GMEXICOB.MX, ECL.N, BLK.N, IBM.N, NOVN.S, 2318.HK, MS.N, SCG.AX, NAB.AX, BTT.AX, EVN.AX, WPL.AX, SKI.AX, SEK.AX, NUF.AX, ANZ.AX, BSL.AX, APN.AX, MYX.AX, TPM.AX, MQG.AX, MMS.AX, HSO.AX, AST.AX, VOC.AX, RRL.AX, CB.N, CHTR.OQ, DAL.N, GGP.N, PLD.N, SPG.N, T.N, WM.N) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

https://rave.credit-suisse.com/disclosures/view/report?i=239515&v=-6hp3t4mll9alfl6ln08s5g4g3

26 July 2016


For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Siam Cement (Excellent) , Airports of Thailand (Very Good) Credit Suisse has entered into a strategic partnership with First NZ Capital ("FNZC"). Pursuant to this agreement, (FBU.AX, SPK.AX, SKC.AX, TME.AX) is jointly covered by Credit Suisse and First NZ Capital. This research report is authored by: Credit Suisse Equities (Australia) Limited ........................................................................................ Hasan Tevfik ,CFA ; Damien Boey ; Peter Liu To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Equities (Australia) Limited ........................................................................................ Hasan Tevfik ,CFA ; Damien Boey ; Peter Liu

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

26 July 2016


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