Construct the ideal SMSF equities portfoliogo.lincolnindicators.com.au/rs/lincolnindicators/images/Lincoln_SMS… · SMSFs are a vehicle to have control over your retirement through

SMSF equities portfolioConstruct the ideal

with confidence and control

Exclusiv

e Report

We are pleased to provide you with a complimentary copy of our ‘Construct the ideal SMSF equities portfolio with confidence and control’ report. This special report aims to show you exactly how long-term success can be achieved by investing in direct equities.

Direct equities are an essential asset class for most individuals, in particular self-directed investors and retirees. This report will illustrate how you can quickly identify stocks for the ideal SMSF equities portfolio, whether you are in:

The accumulation phase and seeking long-term capital appreciationThe income phase and seeking high dividend yield, lower market risk and regular incometo help fund your retirement A combination of the above phases

Before we delve into the specifics of stock selection and our current pick of the top growth and income stocks and those to avoid, we have included some detail on our methodology and approach.

I hope this report demonstrates how you can construct your SMSF equities portfolio with confidence and control.

For more information please contact our Membership Services Team on 1300 676 333.

Yours sincerely

Tim LincolnManaging Director

LincolnIntelligent sharemarket solutionsTM

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Call 1300 676 333 Visit www.lincolnindicators.com.auEmail [email protected]

of 35Page 2© 2013 Lincoln Indicators Pty Ltd. All rights reserved.

Fundamental analysisFundamental analysis identifies the true quality of any shareholding, which is essential in order to successfully manage your SMSF equities portfolio. It allows you to measure a company’s Financial Health - the most important of our investment criteria. Without knowing the Financial Health of a business, you are purely speculating within your equities portfolio. Financial Health provides you with a high degree of confidence and peace of mind in your portfolio management decision making.

Whether you are in the accumulation or income stream phase of your SMSF, our Stock Doctor research software provides an ideal solution to help maximise your portfolio returns. Stock Doctor accurately analyses the fundamental quality and Financial Health of all ASX listed companies and provides you with timely and dynamic Analyst commentary and valuations. Stock Doctor also provides you with all the research you need, saving you time and effort in analysing individual financial reports so you can focus on making important equity portfolio management decisions.

The stocks in your complimentary report have been selected using Stock Doctor and our proprietary Nine Golden Rules investment framework to highlight examples of top growth and top income stocks, as well as comparative stocks to avoid in the same sectors. Stock Doctor helps you to quickly and easily identify the best companies on the ASX relative to your investment objectives and life phase.

Our approach

© 2013 Lincoln Indicators Pty Ltd. All rights reserved.

Call 1300 676 333 | Visit www.lincolnindicators.com.au | Email [email protected] of 35Page 3

Financial HealthDeveloped by esteemed academic and former Olympian, Dr Merv Lincoln, our Financial Health model has been academically proven and forms the basis of Stock Doctor.

The Lincoln Financial Health score allows us to quickly and easily identify the true health of a business through the analysis of 12 key accounting ratios including assessing a company’s:

balance sheetprofit and loss statementcash flow statement

Stock Doctor accurately screens every ASX -listed stock for Financial Health and highlights companies showing signs of financial distress. This way you can confidently assess which stocks warrant further investigation and, just as importantly, exclude those that don't, as identified in the sample stocks provided later in this report.

Nine Golden RulesTo build a successful SMSF equities portfolio, it is important to remain dedicated and focused with a disciplined investment framework.

To help our clients identify investment grade opportunities we have developed our own investment framework - the Lincoln Nine Golden Rules of successful investing. This disciplined framework combines fundamental and qualitative factors to help you isolate quality, undervalued stocks from potential disasters before you invest.

•••

Stock Doctor Star StocksStar Stocks are our shortlist of fundamentally superior companies who exceed the benchmark of our first three and most important Golden Rules. Shortlisted for their consistent Financial Health, strong management and future growth prospects, these stocks offer outstanding long-term growth potential.

If you are in the accumulation phase of your SMSF and seeking long-term capital appreciation, it is ideal to select financially healthy stocks with good growth trajectories, as recognised by our Star Stocks with 15 years’ proven performance of 12.9% p.a.^

Benefits of long-term investing in equitiesThe graph to the right illustrates the power of compounding interest, based on investing $500 a month with an initial investment of $50,000. These returns have been calculated using the 15 year Star Stock performance of 12.9% p.a.^ and have been compounded monthly over the course of 10 years for Jack and 15 years for Jill. With 5 extra years of contributions to Jack, Jill's total retirement savings at age 65 is substantially higher. (Please note: These are not actual returns. Personal results may vary. Past performance is not a reliable indicator of future performance.)

Lincoln preferred income stocksLincoln preferred income stocks highlight a group of companies which may be ideal for selection if you are in the income stream phase of your SMSF and seeking regular income and lower volatility and risk to your investments.

This select group allows the income orientated investor to focus on stocks in a position of Strong Financial Health with strong profitability and cash flow ratios, ensuring the sustainability of dividends.

Initial investmentStarts contributing at age Years of contributions Monthly deposits Total retirement savings

Jack$50,0005510$500$285,759

Jill$50,0005015$500$565,632

50 55 60 65$50,000

$150,000

$250,000

$350,000

$450,000

$550,000

$650,000

Stock Doctor Star Stock

12.9%OVER 15 YEARS^

performance – 31 January 2013

1 year 10 years 15 years Star Stocks All Ordinaries Index

25.0%

13.3% 13.4%

5.3%

12.9%

4.3%

Discover the power of Stock Doctor with a free trial

Experience the confidence and control that Stock Doctor Platinum, Australia’s premier fundamental analysis research solution can add to your investment decisions for your SMSF equities portfolio. Sign up for a free 30 day Stock Doctor Platinum trial today.

Trial nowTrial now



http://lincolnindicators.com.au/Offer/investment-trends-platinum-free


SMSFs are a vehicle to have control over your retirement through your own tailored investment strategy, which can be made even easier using Stock Doctor. Lincoln has over 25 years’ experience in Australian equities and fundamental analysis, and with our academically-proven Financial Health model and disciplined Nine Golden Rules investment approach, we can help you create long-term portfolio wealth by selecting the best stocks on the ASX with confidence and control.

The overall objective of your SMSF is determined by the stage of life you are at which, impacts your asset allocation and your individual investment selection significantly. The accumulation phase of your SMSF is when you’re amassing a superannuation investment portfolio in the anticipation of funding your retirement at some point in the future. For example, the objective for a person with 30 years until retirement might be to grow their capital as much as possible over those years with no specific cashflow requirements other than to pay for the expenses of the fund.

The income stream phase of your SMSF is when your super fund is paying you an income stream (known as a pension), on your retirement or reaching a certain age. For example, the objective for a retiree may be to preserve capital as much as possible whilst providing enough income to sustain their pension payments for the next 20 years, within a low risk tolerance.

Strategies and ideal stocks for a successful SMSF equities portfolio

Accumulation phaseAppropriate strategies to adopt for your SMSFDuring the accumulation phase, the investment objective is typically to maximise the total return from investments whilst staying within personal risk and volatility tolerance levels. Given the nature of the SMSF and its objective to provide income during retirement, it is best to take a prudent approach with asset allocation and stock selections.

In the initial stage of the accumulation phase, growth companies are attractive due to the preference for capital appreciation. The longer time frame for the ‘lock-up’ period allows investors to recover from shorter term volatility and hence facilitates greater appetite for risk/reward. Income received (e.g. dividends and interests) are taxable, whereas capital gains can be deferred to the pension phase and hence tax exempt. Whilst capital gains and income are both taxed at 15%, stocks held for at least 12 months are entitled to a one third discount, reducing the effective CGT rate to 10%.

With 15 years’ proven performance of 12.9% p.a.^, our Stock Doctor Star Stocks and Borderline Star Stocks (companies that, after conducting detailed analysis, our Equities Analysts believe are likely to become Star Stocks within the next 12 months) are well suited for investors in the accumulation phase. These stocks offer superior fundamentals and sustainable earnings growth potential in the future which typically translate to share price appreciation and low stock turnover.



Income Stream phaseAppropriate strategies to adopt for your SMSFAs the SMSF transitions from accumulation to income stream phase, the preference will gradually shift from growth to capital preservation as the appetite for risk and volatility decreases with the shorter time frame to retirement. During this phase, it becomes increasingly important to select stocks with consistently Strong or Satisfactory Financial Health to avoid exposure to companies with insolvency risks.

During the pension phase, where one has satisfied the ‘condition of release’, income companies become more important to the SMSF. Investors in this phase are tax exempt, benefiting from the full benefits of franking credits, realising capital gains, whilst paying no Capital Gains Tax. As investors typically drawing down on and not contributing to their superannuation funds during this phase to fund their retirement, the investment objective is focused on capital preservation and income.

A focus on Strong Financial Health and a long term track record of sustainable earnings is the key to capital preservation. From an income perspective, the Australian imputation tax system provides eligible Australian investors with a substantial tax advantage in the form of franking credits to SMSFs in the pension phase. Unlike most other investors, they are able to recoup the full 30% tax paid by companies to enhance their earnings.

Franking credits are receivable in the form of franked dividends and off market share buybacks.

Dividends: A fully franked dividend of $0.70 comes with imputation credit of $0.30, which equates to a total income of $1.

Off market share buybacks: For example, if ABC shares are currently trading at $10 and conduct a share buyback at $9, a 10% discount to the market price. Of the $9, capital comprises $2 and the remaining $7 is a fully franked dividend. Accommodating for the imputation credits, the dividend component equals $10 on a pre-tax basis resulting in a total return of $12.

Lincoln preferred income stocks fit the above criteria extremely well, and highlight a group of companies that are backed by Lincoln’s classification of Strong Financial Health. These stocks are typically mature businesses with strong track records, fitting capital preservation requirements. They have high dividend payout ratios relative to earnings, focusing on returning profits to shareholders, high franking credit balance, facilitating sustainable above-market gross dividends yields and more likely to conduct off-market share buybacks. They are also known for their strong profitability and cash flow generating abilities for liquidity to pay sustainable dividends.

Whilst the core focus of Lincoln preferred income stocks is income and capital preservation, some capital growth will be needed to keep up with inflation, as such investors should consider a small allocation of growth investments in their portfolio as well. Given the large benefit of franking credits, it is important to remember the ’45-day’ rule when investing in dividend paying stocks. This rule was created to eliminate franking credit trading, where franking benefits are received by someone other than the true economic owner of the underlying shares.

Whether you are in the growth or income stream phase of your SMSF, Stock Doctor provides an ideal solution to help you maximise your portfolio returns. Long term SMSF investment success requires a proven fundamental stock selection strategy, comprehensive and timely information and a simple approach that offers you confidence and peace of mind.

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and avoid in an ideal Stocks to include

SMSF equities portfolio Table of contentsGrowth Stocks

Mermaid Marine Australia Limited (MRM)Wesfarmers Limited (WES)Leighton Holdings Limited (LEI)

Income Stocks

Ardent Leisure Group (AAD)Telstra Corporation Limited (TLS)FKP Property Group (FKP)

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ACCUMULATION PHASEAn ideal growth stock to include in a SMSF equities portfolio


MRM Mermaid Marine Australia LimitedCurrent Share Price

$4.00 Fair

Share Price Value

Lincoln's Nine Golden Rules 11 22 33 44 55 66 77 88 99

STAR STOCK CRITERIA

Analysis Published: 22 Feb 2013Research Analyst: James Samson

Half year result - strong but as expected across

Please note the date of this analysis as it may not align with our current company data.Refer to Stock Doctor and/or your adviser for the latest analysis.

Current Share Price

$4.00Lincoln Valuation

$3.85Premium

3.80%

UndervaluedUndervalued FairFair OvervaluedOvervalued

Announced Headline

21 Feb 13 10:02 Half Yearly Report and Accounts

18 Jan 13 18:53 MMA takes delivery of the Mermaid Inscription

08 Jan 13 19:55 MMA Secures a Long Term Vessel Contract

44

88

Share price value

Latest Price Sensitive Announcements

|-15% -5% +5% +15%

Share Price$4.00

11 Financial HealthFinancial Health Consistently HealthyConsistently Healthy

StrongStrong(as at 04 Mar 13)

44 Share Price Value

66 Liquidity and Size

77 Principal Activities

Dividend Information

99 Follow all the Golden Rules

22 Management Assessment

2011(A) 2012(A)EPS ¢ 20.32 22.93EPS growth % 21.94 12.82ROA % 12.20 12.83ROE % 21.13 22.25Revenue ($000) 285,268 380,358

33

FY13(F)27.7020.8013.0524.07

420,374

Company Data

Share price $ 4.00Lincoln Valuation $ 3.85Lincoln Discount % 3.80%Consensus Target $ 3.90Consensus Discount % 2.56% 2011(A) 2012(A) FY13(F)PE ratio (adj) x 15.70 12.30 14.44Ind Avg PE x 10.86 13.11 15.21PEG 0.72 0.96 0.69

Avg daily traded ($000) 2,187,495Market cap ($000) 895,331

Industrials See page 3

Jun 12 (A) Current FY13 (F)Div yield (pa) % 3.90 2.88 3.25Gross div yield % 5.57 4.11 4.64Amount ¢ 6.00 5.50 13.00Franking % 100 100Ex date 03 Sep 12 04 Mar 13

55 Share Price Sentiment

12 mth return (inc div) 28.66% pa

◣

· MRM · XAO

the board

We are pleased to advise that vessel charter and supply base business Mermaid Marine Australia Limited (MRM) has remained a Consistently Healthy Star Stock following further analysis of the company’s latest interim result. As mentioned in our commentary yesterday, the result was one that exhibited strength across the business’ division, and is indicative of elevated levels of demand being experienced as capital expenditure off the coast of North Western Australia is ramped up. We are pleased with the performance and outlook for the business and have upgraded our Lincoln Valuation from $3.70 to $3.85.


Call 1300 676 333 | Visit www.lincolnindicators.com.au | Email [email protected]



$4.00 Fair

Share Price Value


STAR STOCK CRITERIA










33

FY13(F)27.7020.8013.0524.07

420,374

Company Data







◣

· MRM · XAO

Result overview

This was another strong result from MRM. Vessel utilisations remained high at 81%, the Supply bases in both Dampier and Broome made positive contributions to earnings, and the Dampier Slipway continued to both provide positive earnings from external customers and service the MRM fleet providing the business with a strong competitive advantage. Looking at the reported numbers, group revenue increased 15% when compared to the previous corresponding period (pcp) to $222 million. Net profit grew by an accelerated amount of 18% to $32.5 million. This can be attributed to lower depreciation charges, and finance costs (as the company paid down debt without drawing any additional funds). From a cash flow perspective, net operating cash flow was slightly weaker due to an expansion in working capital that is reflected in an increased trade receivables balance. Whilst this is worth watching, and we have spoken to management on the matter, it is reflective of timing issues arising from new vessel contracts commenced during the half. All in all, the result is clean and positive.

Segment overview

The Vessels segment once again contributed the lion’s share of revenue to the business at $142.1 million. Whilst this was down when compared to the pcp, it was higher than the second half of FY12. The reason for the period comparable drop was due to some one-off contracting for vessels in the pcp that produced an artificial lift in revenue. Despite the fall, this is a strong result from the division and reflective of continued growth as the division benefits from continued high activity levels on the Gorgon project amongst others. Earnings before interest and tax for the division was also lower than the pcp, down by 28.9% to $23.9 million.

The company’s two supply base operations in Dampier and Broome (via a JV with Toll) contributed a strong uplift during the period, with revenue 114% higher than the pcp at $71.4 million from Dampier. This performance translated into EBIT of $27.4 million, up 109% on the pcp and is consistent with continued high wharf utilisation and strong drilling activity driving demand for storage and infrastructure services at the base. The Broome supply base announced a long term supply base contract with INPEX, valued at $20 million. As such the outlook and performance of this sector remains bright.

Finally, the company’s Dampier Slipway operations also made a somewhat more meaningful contribution to revenue and earnings at $13.4 million and $2.4 million (EBIT) respectively. These figures represent strong growth of 41% and 500% when compared to the pcp, and were driven by some unique one-off third party projects. Whilst the strong performance will not be replicated in the second half, the Slipway remains a strategic asset likely to experience continuing demand for the remainder of FY13.

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$4.00 Fair

Share Price Value


STAR STOCK CRITERIA










33

FY13(F)27.7020.8013.0524.07

420,374

Company Data







◣

· MRM · XAO

Outlook and dividend

MRM remains positioned in a sweet spot of the market, both in terms of operations provided and geographical positioning. We believe that elevated activity levels surrounding Dampier and the North West coast are likely to continue unabated, and demand for MRM’s vessels, supply bases and slipway will remain strong.

MRM has advised that the company is on track to record growth for the full year, without providing any quantum of guidance. It has been noted that the second half will likely be weaker than the first, with the total effect seeing growth in FY13 when compared to FY12. The company has mentioned that the third quarter has seen a flattening in vessel demand and that the second half result will be driven by how that demand changes for the remainder of the year. Nonetheless, the company remains comfortable with the general market estimates for full year earnings.

As the company satisfies our criteria, the company will remain a Star Stock with an upgraded Lincoln Valuation of $3.85. We are pleased with the performance of the business and note its consistency over recent years, as the company has remained a Star Stock since reporting annual results for FY09 – no mean feat. Finally, MRM has declared a 5.5 cent fully franked interim dividend, with the stock trading on an ex-dividend basis on the 4 March 2013.





$4.00 Fair

Share Price Value


Status: TradingListed: 21 Jun 99Website: www.mma.com.au

Sector: IndustrialsInd-Group: TransportationIndustry: MarineSub Industry: Marine

Mermaid Marine Australia Limited (MRM) is an Australian marine services provider to the offshore oil and gas industry, specialising in theprovision of marine logistics and supply base services throughout all phases of the oil and gas development cycle. The business is split intothree divisions: Vessels, Supply Bases and Slipway.

Vessels:Vessel operations are the core business with over 35 vessels throughout Australia and internationally. MRMs international operating entity,Mermaid Marine Asia Pte Ltd (MMAS), is responsible for managing the international vessel fleet. MMAS operates under its own document ofcompliance and works closely with the MMA Projects and Operations teams to conduct project mobilisations, vessel acquisitions and tosource vessels for short term charter to complement the Groups fleet of owned vessels.

Supply Bases:MRM operates strategically located supply bases in Dampier and Broome. The Company Dampier Supply Base has a private wharf facilityand ship repair facility capable of servicing the array of vessels engaged in offshore support activities. MRM Broome Supply Base operationsencompass over 11 hectares of land, strategically located to service exploration, production and construction activities in the Browse Basin.The Broome Supply Base operations, conducted through an incorporated joint venture between MMA and Toll Holdings Ltd, offers clientsopen laydown and undercover storage, recently built offices, casing storage and washdown facilities.

Slipway:The Slipway provides maintenance and repair for the Companys fleet in the North West. The division also provides services to third partyoperators including routine and emergency dockings, mobilisations and a range of marine repairs and maintenance services.

◣





$4.00 Fair

Share Price Value


Status: TradingListed: 21 Jun 99Website: www.mma.com.au

Sector: IndustrialsInd-Group: TransportationIndustry: MarineSub Industry: Marine

Direct Shares: 456,943 Indirect Shares: 219,305 Options: Convertibles:

Direct Shares: 40,000 Indirect Shares: 1,550,671 Options: Convertibles:

Direct Shares: 777,193 Indirect Shares: 320,000 Options: 3,363,433 Convertibles:

Chairman/ExecutivesMr Anthony (Tony) John HowarthNon-Executive Chairman,Non-Executive Director

Mr Howarth is also currently a Non-Executive Director of Wesfarmers Ltd and Alinta Holdings. Tony worked in the banking and finance industry for over 30years. His work has involved a number of overseas appointments. He has previously held the positions of Managing Director of Challenge Bank Ltd, CEOof Hartleys Ltd, Chairman of Alinta Ltd, Deputy Chairman of the Bank of Queensland Ltd, a Non-Executive Director of AWB Ltd and Chairman of HomeBuilding Society Ltd. Tony is also Chairman of St John of God Health Care Inc. He is also Adjunct Professor (Financial Management) at the University ofWestern Australia Business School. Tony is also involved in a number of community and business organisations including the Senate of the University ofWestern Australia, Chairman of the Committee for Perth Ltd, a member of the Rio Tinto WA Future Fund and the University of Western Australia BusinessSchool Advisory Board, Chairman of the International Chamber of Commerce Australia Ltd, the Chamber of Commerce and Industry of Western Australia(Inc) and West Australian Rugby Union Inc.

Mr James Henry CarverExecutive Director

Mr Carver is a Ships' Master with over 30 years' direct experience in the marine industry. As Woodside Petroleum's first Ships' Master, he carried outmarine operations in LNG development. Captain Carver, who has been involved in exploration, construction and production for most of the oil and gasprojects on the North West Shelf, has a knowledge of the industry, its needs and its future.

Mr Jeffrey Andrew WeberManaging Director

Mr Weber began his career as a Marine Engineer with BHP Transport. During his 19 years with BHP, Jeff gained project management experience andhelped develop new business for BHP Transport in Australia and South-East Asia. He also managed a major initiative with BHP's steel division, reviewingits logistics arrangements and developing processes to improve services and reduce costs. In 1998, Jeff joined Riverside Marine in Queensland and helpedexpand its operations Australia-wide. This included forming a joint venture company with Wijsmuller International Towage BV, RiverWijs and negotiatingwith Woodside Petroleum to take over that company's harbour towage operation in Dampier, Western Australia. Jeff is also a Non-Executive Director ofMaritime Super Pty Ltd, a superannuation fund dedicated to employees in the Maritime Industry.

◣

Important Information Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740. This communication may containgeneral financial product advice. It has been prepared without taking into account your personal circumstances, and you shouldtherefore consider its appropriateness in light of your objectives, financial circumstances and needs before acting on it. If ouradvice relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and considerthe Financial Services Guide (FSG) before making any decision.

Disclosure of interest - A tick appearing next to the words 'Disclosure of Interest' indicates that Lincoln, its employees and/orassociates hold interests in this ASX listed company. This position could change at any time without notice.

ASX-listed company data is derived from data provided by Morningstar

Disclosure of interest



ACCUMULATION PHASEAn ideal growth stock to include in a SMSF equities portfolio

Stock Doctor Borderline Star Stock | Lincoln preferred income stock

WES Wesfarmers LimitedCurrent Share Price

$41.09 Overvalued

Share Price Value


STAR STOCK CRITERIA

Analysis Published: 15 Feb 2013Research Analyst: Ivy Cayayan

Interim result - strong Retail earnings offsetting Resources


Current Share Price


$37.18Premium

10.52%


Announced Headline

01 Mar 13 16:15 Wesfarmers Issues Medium Term Notes

14 Feb 13 11:52 2013 Half-year Results Announcement

30 Jan 13 09:14 Quarterly Statement of Production, Development,...

44

88

Share price value


|-15% -5% +5% +15%

Share Price$41.09






Income Data



2011(A) 2012(A)EPS ¢ 166.30 193.17EPS growth % 22.73 16.16ROA % 6.63 7.46ROE % 10.68 12.32Revenue ($mil) 54,989 58,169

33

FY13(F)216.81

12.248.12

13.5161,002

Company Data


Avg daily traded ($000) 105,903,267Market cap ($000) 41,363,329

Consumer Staples See page 4

Jun 12 (A) Current FY13 (F)Div yield (pa) % 5.52 4.19 4.38Gross div yield % 7.88 5.98 6.26Amount ¢ 95.00 77.00 180.00Franking % 100 100Ex date 21 Aug 12 19 Feb 13



◣

· WES · XAO

We are pleased to advise that diversified conglomerate Wesfarmers Limited (WES) remains a Borderline Star Stock and Lincoln preferred income stock following its interim result yesterday. The company achieved an overall pleasing result, with stronger growth from Coles, Bunnings and Kmart offsetting weakness in Target and the Resource division. We maintain our positive outlook for the company but note a number of potential risks moving forward especially in regards to continued price deflation in retail and persistent volatility in commodity prices. As such our Lincoln Valuation remains unchanged at $37.18.





$41.09 Overvalued

Share Price Value


STAR STOCK CRITERIA






Income Data




33

FY13(F)216.81

12.248.12

13.5161,002

Company Data







◣

· WES · XAO

Operational overview

Total group revenue grew 3.2% from $29.7 billion to $30.6 billion as compared to the previous corresponding period (pcp). An improvement in the top line was driven by positive contributions from Coles, Bunnings and Kmart. It was pleasing to see positive growth in revenue translate to improvements in earnings before interest, tax, depreciation and amortisation (EBITDA), which increased by 5.8% from $2.4 billion to $2.6 billion in the pcp. Operational efficiencies in the period saw margins expand from 8.2% to 8.4%, driven by a drop in net insurance claims as a result of better underwriting performance along with a reduction in claims. Efficiency gains flowed through to the bottom line with reported net profit after tax up 9.3% to $1.3 billion, lifting earnings per share by 9.2% from $1.01 to $1.11 cents per share.

Retail division performance

Momentum from Coles continued in the period with growth in customer numbers and transactions driving divisional earnings to $755 million, 15.1% higher than the pcp. The performance was achieved on the back of the sound implementation of a turnaround strategy which focused on building customer loyalty, along with continued improvements in supply chain efficiency and the streamlining of in-store processes. Comparable sales for food and liquor improved by 3.8%, driven by increased fresh produce supply as well as the division’s reinvestment in lower food prices. The home improvement market continues to yield strong results for Bunnings as sales growth was observed in both the commercial and consumer segments. Growth in the headline carried through to earnings with reported earnings before interest and tax (EBIT) up by 6.8% to $518 million. Bunnings store rollouts remain on track with 11 sites under construction and six expected to open in the second half of FY13. Whilst there is no doubt that Bunnings will face increasing competition from Woolworths’ Masters, the $40 billion hardware market is large and fragmented and in our view there is room for both Bunnings and Masters to co-exist profitability at this stage. Ongoing price deflation in technology products did not faze the financial results of Officeworks, which achieved earnings growth of 11.8% to $38 million compared to the pcp. Again, the streamlining of operational processes and the careful management of costs helped the division achieve from an earnings standpoint. Despite the division’s outperformance this period, we expect the technology market to remain challenging moving forward with price deflation a common theme in this space. Kmart earnings benefited from further price reductions which helped the business reinforce its value proposition for price conscious consumers. Earnings for the division grew by 24.9% to $246 million, aided by improvements in sourcing and strong transaction growth. Target on the other hand reported an earnings decrease of 20.4% from $186 million to $148 million on continued deflation in electrical and entertainment categories.





$41.09 Overvalued

Share Price Value


STAR STOCK CRITERIA






Income Data




33

FY13(F)216.81

12.248.12

13.5161,002

Company Data







◣

· WES · XAO

Industrial and Financial divisions performance

Insurance revenue grew by 9.5% to $1.0 billion with earnings up 511.8% on the pcp to $104 million. The exceptional performance was driven by higher premiums and a reduction in claims including catastrophe costs. Growth in broking earnings remains solid. The Chemicals, Energy and Fertiliser division reported a 5.1% growth in earnings, which saw better plant performances and improved chemicals pricing offset lower contributions from Kleenheat Gas and the fertilisers business. Whilst strong demand for ammonia, ammonium nitrate and sodium cyanide is expected to continue, planned plant shutdowns is expected to affect sodium cyanide volumes in the second half of FY13 and ammonium nitrate in early FY14. Fertiliser sales are expected to remain subdued due to a later and poorer harvesting period impacting volumes and margins. The Industrial and Safety businesses performed poorly with reported revenue and earnings down 0.7% and 9.3% respectively. Lower sales contributions and increased margin pressures from mining customers contributed to the poor result as a slump in general business activity was experienced. Despite the tough operating environment, key customer relationships strengthened which provided a solid foundation for future earnings. The company’s Resource division experienced a major setback this period with earnings down 62.8% to $93 million. The reduction in earnings was a reflection of significantly lower export coal prices together with the impact of a strong Australian dollar. Whilst the Australian dollar has been largely stable through the last year, current levels continue to place pressure on margins and competitiveness relative to foreign exporters. Mother nature also had a hand to play in the underperformance with weather effects from Cyclone Oswald impacting mine site production and infrastructure availability.

Dividend

The company increased its interim dividend payment by 10% from 70 cents to 77 cents per share fully franked. The interim dividend will be paid on 28 March 2013 with a record date of 25 February 2013. In terms of dividend sustainability, Wesfarmers has maintained strong cash flow levels, as indicated by continuing strength in the company’s operating cash flows, which bolstered the group’s balance sheet resulting in further improvements in liquidity metrics. We note that gearing levels remained at comfortable levels, which allows greater flexibility in maintaining the current payout ratio which is circa 85%. We retain a positive outlook on Wesfarmers’ prospects and will continue to cover the company as both a Borderline Star Stock and Lincoln preferred income stock. Our Lincoln Valuation remains unchanged at $37.18.





$41.09 Overvalued

Share Price Value


Status: TradingListed: 15 Nov 84Website: www.wesfarmers.com.au

Sector: Consumer StaplesInd-Group: Food & Staples RetailingIndustry: Food & Staples RetailingSub Industry: Hypermarkets & Super Centers

Wesfarmers Limited (WES) is a diversified business operation including supermarkets, department stores, home improvement and officesupplies, insurance, resources, chemicals, energy and fertilisers, and industrials and safety products

Coles:Coles is a food, liquor and convenience retailer. The business operates more than 2,200 retail outlets across Coles, BiLo, 1st Choice LiquorSuperstore, Liquorland, Vintage Cellars, Coles Express and Spirit Hotels.

Home Improvement & Office Supplies:Bunnings is a retailer of home improvement and outdoor living products and a major supplier to project builders, commercial trades peopleand the housing industry.

Target:Target is a mid-market retailer. Product ranges include ladieswear, intimate apparel, menswear, childrenswear and nursery, accessories andfootwear, soft homewares, electrical, toys and other general merchandise.

Kmart:Kmart is a discount department store retailer with 187 stores. Key categories for Kmart include menswear, womenswear, childrenswear,beauty, footwear, toys and sporting, events and food, entertainment, newsagency and home. Kmart division also includes Kmart Tyre & AutoService which is a retail automotive service, repair and tyre business.

Insurance:WES operates in insurance broking business, focusing on insurance and financial services for small and medium-sized enterprises.

Resources:WES operates spanning three coal mines. The divisions operations comprise the Curragh mine, the Premier Coal mine, and Bengalla mine(40%).

Chemicals, Energy & Fertilisers:WES is involved in manufacture and marketing of chemicals for mining, minerals processing and industrial sectors. The division also producesmarkets and distributes liquefied petroleum gas (LPG) and liquefied natural gas (LNG), broadacre and horticultural fertilizers, medical andspecialty gases, and Electricity supply to mining operations and regional centres.

Industrial & Safety:WES provides industrial and safety products and services across mining, oil and gas, construction and infrastructure, retail, manufacturing,health and government.

Other:WES invests in Gresham Partners (50%), Wespine Industries (50%), and BWP Trust (23.5%).

◣





$41.09 Overvalued

Share Price Value


Status: TradingListed: 15 Nov 84Website: www.wesfarmers.com.au

Sector: Consumer StaplesInd-Group: Food & Staples RetailingIndustry: Food & Staples RetailingSub Industry: Hypermarkets & Super Centers

Direct Shares: Indirect Shares: 28,373 Options: Convertibles:

Direct Shares: 324,092 Indirect Shares: 719,137 Options: Convertibles:


Chairman/ExecutivesDr Robert (Bob) Lindsay EveryNon-Executive Chairman

Mr Every was the Chairman of the New Zealand-based listed company Steel and Tube Holdings Limited and a director of OneSteel Limited. Otherexecutive positions previously held include Managing Director of Tubemakers of Australia Limited, President of BHP Steel, and Managing Director andChief Executive Officer of OneSteel Limited, a position from which he retired in May 2005. He is also a Chairman of Boral Limited.

Mr Richard GoyderManaging Director, Chief Executive Officer

Mr Goyder has worked in several commercial roles at Tubemakers of Australia Limited. He has held a number of commercial positions in Wesfarmers'Business Development Department including General Manager.

Mr Terence (Terry) James BowenFinance Director

Mr Bowen has held a number of finance positions with Tubemakers of Australia Limited, culminating in his appointment as General Manager Finance. Terryjoined Wesfarmers in 1996 and undertook various roles with Wesfarmers Landmark Limited, where he was appointed Chief Financial Officer, until itsacquisition by AWB Limited in 2003. He was then appointed the inaugural Chief Financial Officer for Jetstar Airways, prior to rejoining Wesfarmers asManaging Director, Wesfarmers Industrial and Safety in November 2005. Terry became Finance Director, Coles in 2007 and Wesfarmers Finance Directorin May 2009 with responsibility for the Group's Finance, Treasury, Risk & Assurance, Investor Relations and Business Development departments.

◣







ACCUMULATION PHASEA growth stock that should be avoided in a SMSF equities portfolio

LEI Leighton Holdings LimitedCurrent Share Price

$22.62 NA

Share Price Value


STAR STOCK CRITERIA

Latest financials updated


Current Share Price


NADiscount

NA

Announced Headline

28 Feb 13 14:08 Leighton awarded contract for Tin Shui Wai...

25 Feb 13 11:58 Leighton Contractors awarded expanded contract for...

20 Feb 13 14:45 Leighton in negotations to sell 70% of telco...

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Share price value


11 Financial HealthFinancial Health First Healthy PeriodFirst Healthy Period

SatisfactorySatisfactory(as at 04 Mar 13)







2011(A) 2012(A)EPS ¢ 172.00 153.75EPS growth % NA -10.61ROA % 3.91 5.90ROE % 14.00 22.66Revenue ($mil) 10,145 18,904

33

FY13(F)173.10

12.586.74

25.9022,826

Company Data

Share price $ 22.62Lincoln Valuation $ NALincoln Discount % NAConsensus Target $ 21.88Consensus Discount % 3.38% 2011(A) 2012(A) FY13(F)PE ratio (adj) x 11.07 11.63 13.07Ind Avg PE x 10.55 9.28 10.47PEG 1.04






◣

· LEI · XAO

Analysis Published: 14 Feb 2013Research Analyst: Dennis Ng

The Financial Health of local engineering giant Leighton Holdings (LEI) is in a Satisfactory position following the release of the company’s annual results. Whilst LEI’s profitability remains solid, the company’s debt levels continued to be a concern. A recovery in the company’s cashflows provided assistance to the company’s ability to sustain its geared position this period. Previous aggressive acquisition and contract tenders have forced the company to make substantial writedowns in recent years leading to the current issues. Whilst LEI possesses a Satisfactory Financial Health this period, the company has been unable to consistently achieve this. Its exposure to financial risk is deemed unacceptable and the company is unable to satisfy Golden Rule No.1 - Financial Health.




$22.62 NA

Share Price Value


Status: TradingListed: 30 Apr 62Website: www.leighton.com.au

Sector: IndustrialsInd-Group: Capital GoodsIndustry: Construction & EngineeringSub Industry: Construction & Engineering

Leighton Holdings (LEI) provides development, construction, contract mining, and operation and maintenance services to the infrastructure,resources and property markets in 20 countries throughout Australia, Asia, the Middle East and Southern Africa. LEI owns and operatesthrough a number of diverse and independent operating companies: Leighton Contractors; Thiess; John Holland; Leighton Asia, India andOffshore; and Leighton Properties.

Mining:LEI is a contract mining and mine services provider in the iron ore, coal and gold markets throughout Australia and New Zealand. LEI has builta reputation providing mid-tier to large-scale projects all elements of mining and mine services from planning and logistics and materialshandling, to engineering, construction, telecommunications, facility management and operation of sites.

Infrastructure:The division plans, finances, designs, constructs, services, manages and maintains vital infrastructure with teams across Australia, NewZealand and Papua New Guinea.

Telecommunications:The division specialises in delivering telecommunication infrastructure and superior network solutions in challenging environments. Thecompany offer total service solutions for carriers, government, channel partners and enterprise industry segments through multipletechnologies.

Services:LEI's services capability combines expertise and proven experience in the long-term operations and maintenance of key infrastructure projectsacross a range of sectors, including transport, education, health, mining and energy. The company offers a range of services - from assetmanagement to maintenance planning, lifecycle analysis and the provision of day-to-day facility management.

Divestment:As at 28 September 2012, LEI announced the completion of the sale of Thiess Waste Management to Remondis AG & Co KG.

◣




$22.62 NA

Share Price Value


Status: TradingListed: 30 Apr 62Website: www.leighton.com.au

Sector: IndustrialsInd-Group: Capital GoodsIndustry: Construction & EngineeringSub Industry: Construction & Engineering

Direct Shares: 1,110 Indirect Shares: Options: 80,000 Convertibles:



Chairman/ExecutivesMr Hamish TyrwhittChief Executive Officer,Managing Director

Mr Tyrwhitt has 26 years experience in the construction industry. Managing Director of Leighton Asia Limited and Leighton Contractors (Asia) Limited fromDecember 2007 to August 2011. Former General Manager of Leighton Contractors Victoria/South Australia/Tasmania/New Zealand and Director ofLeighton Contractors Pty Limited from January 2005 to February 2007. Appointed General Manager and Director of Leighton Contractors(Malaysia)SDNBHD in 2002 having joined in 1994. He joined John Holland in Western Australia in 1986 and in 1990 was appointed as a Project Manager in John HollandConstruction (Malaysia, Laos and Thailand).

Mr Peter Allan GreggChief Financial Officer,Executive Director

Mr Gregg is a Director of Leighton Welspun Contractors Pvt Ltd since April 2011 and an Alternate Director of Habtoor Leighton Group for him sinceNovember 2011. Formerly Chief Financial Officer and Executive General Manager Strategy for the Qantas Group, he was appointed Chief Financial Officerof Leighton Holdings in October 2009. He is a former Director of the following other ASX listed entities include Qantas Airways Limited from September2000 to September 2008 and former Chairman of the Singapore-based Jetstar, and its parent company Orangestar, Stanwell Corporation Limited from July2006 until September 2009, Skilled Group Limited and Skilled Rail Services Pty Ltd from March 2009 to February 2011, and QR Limited (QueenslandRailways), a Queensland Government owned corporation, from May 2009 to November 2009.

Mr Stephen Paul JohnsNon-Executive Director,Non-Executive Chairman

Mr John is a Director of John Holland Group Pty Ltd since 1 July 2011. He is an Executive Director of Westfield Holdings Limited in November 1985, heheld a number of positions within Westfield, including Finance Director from 1985 to 2002 and became a Non-executive Director of the Westfield Group inOctober 2003. He is a Director of Brambles Limited. As at 31 December 2011, he was a Director of the following other ASX listed include WestfieldHoldings Limited since November 1985 and Brambles Limited since December 2006 (formerly Director of Brambles Industries Limited and BramblesIndustries plc since August 2004). He was formerly a Director and Chairman of the ASX listed entity Spark Infrastructure Group from November 2005 to 30September 2011.

◣







INCOME STREAM PHASEAn ideal high yielding income stock to include in a SMSF equities portfolio

Lincoln preferred income stock

AAD Ardent Leisure GroupCurrent Share Price

$1.455 Undervalued

Share Price Value


STAR STOCK CRITERIA

Analysis Published: 21 Feb 2013Research Analyst: Andrea Chu

Interim result - mixed performance


Current Share Price


$1.59Discount

-8.46%


Announced Headline

21 Feb 13 09:26 Half Yearly Report and Accounts

14 Dec 12 17:43 Half Year Distribution Details

29 Oct 12 09:46 Ardent Leisure Reports Strong First Quarter...

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Share price value


|-15% -5% +5% +15%

Share Price$1.455






Income Data




33

FY13(F)13.20

3.218.28

13.83441,290

Company Data

Share price $ 1.455Lincoln Valuation $ 1.59Lincoln Discount % -8.46%Consensus Target $ 1.52Consensus Discount % -4.28% 2011(A) 2012(A) FY13(F)PE ratio (adj) x 10.19 9.97 11.02Ind Avg PE x 13.74 11.65 17.56PEG 1.06 4.45 3.44


Consumer Discretionary See page 3

Jun 12 (A) Current FY13 (F)Div yield (pa) % 9.18 8.11 8.25Gross div yield % 9.45 8.32 8.46Amount ¢ 5.20 6.60 12.00Franking % 7 6Ex date 25 Jun 12 21 Dec 12



◣

· AAD · XAO

Ardent Leisure Group (AAD) has remained a Lincoln preferred income stock after further analysis of its interim result. Overall results were mixed as the Health Clubs portfolio and US based entertainment centres continued to outperform whilst the Theme Parks, Bowling and Marinas divisions detracted from earnings. We retain a positive full year outlook for AAD as recently acquired health clubs will make a full period contribution to earnings as well as earnings growth from new entertainment centre openings in the US. We have updated our estimates and upgraded our Lincoln Valuation from $1.47 to $1.59.





$1.455 Undervalued

Share Price Value


STAR STOCK CRITERIA






Income Data




33

FY13(F)13.20

3.218.28

13.83441,290

Company Data







◣

· AAD · XAO

Results overview

The Health Club division reported slightly lower like-for-like club revenue, down 0.6%. This is attributed to changes in the personal training model. Under the new model, clubs are now contracting out personal trainers instead of employing in-house, which has higher profit margins. This helped to improve earnings before interest, tax, depreciation and amortisation (EBITDA) by 4.1% on a constant club basis despite flat revenue. The acquisition of the Fenix and Fitness First clubs not only contributed to revenue growth, but also enabled AAD to achieve synergy benefits through economy of scale. Including acquisitions the Health Club division increased revenue by 23.7% to $62.8 million and EBITDA by a further 36.0% to $13.6 million with better margins from productivity improvements. The US entertainment centres, Main Event, saw revenue growth of 23% to $32.1 million, due to both constant club growth and contributions from new centre openings. AAD now has 11 Main Event sites, all of which are all based in Texas, USA and benefited from a robust local economy. Operating margins were impacted by higher property costs incurred but were otherwise well managed. Divisional EBITDA rose by 21.6% to $6.3 million. The Theme Parks division reported revenue growth of 5.5% to $55.9 million, however, EBITDA declined slightly by 0.8% to $19.6 million. New marketing campaigns which helped to drive attendance, in addition to higher licence fees by DreamWorks, negatively impacted operating margins. This resulted in a slight decline in earnings despite higher attendance. The Marinas and Bowling divisions continued to underperform and both reported a decline in revenue as well as earnings in the first half. Whilst core earnings rose by 8.1% to $29.5 million, EPS declined as a result of two capital raisings conducted in the first half of 2012. The Institutional Placement and Share Purchase Plan raised a total of $72.2 million, and proceeds were used to fund the Fenix health clubs acquisition. The capital raisings helped AAD maintain modest gearing levels and the company is well placed to pursue future growth.

Outlook

The Health Club and Main Event divisions will continue to drive the group’s growth with full contributions from acquired health clubs and newly opened Main Event sites. Theme Parks were impacted by recent tropical cyclone in Queensland and resulted in theme park closures over the peak Australian Day weekend. Trading in January indicated improvements in the Bowling and Marinas divisions. We continue to retain a positive view on the company’s outlook. Overall it was a mixed result from the group, with strong performance in Health Clubs and the US entertainment centres offsetting weaknesses in Bowling and Marinas.





$1.455 Undervalued

Share Price Value


STAR STOCK CRITERIA






Income Data




33

FY13(F)13.20

3.218.28

13.83441,290

Company Data







◣

· AAD · XAO

Distribution

AAD declared an interim distribution of 6.6 cents per security (ex-date 21 December 2012) and is payable on 28 February 2013. The Distribution Reinvestment Plan has been suspended for this interim distribution. This is expected to lessen the dilutive impact of recent capital raisings. It is worth noting that AAD announces distributions in June and December, instead of February and August like most ASX companies. AAD securities commence trading on ex-basis in June and December and distributions are payable in February and August. Given the structure of AAD and very low tax paid at a company level, there is often minimal franking credits accompanying distributions. However at current price levels ($1.53 as at 22 February) the distribution yield of 7.8% remains attractive for yield-seeking investors.

We will continue coverage of the company as a Lincoln preferred income stock with an upgraded Lincoln Valuation of $1.59.





$1.455 Undervalued

Share Price Value


Status: TradingListed: 02 Jul 98Website: www.ardentleisure.com.au

Sector: Consumer DiscretionaryInd-Group: Consumer ServicesIndustry: Hotels Restaurants & LeisureSub Industry: Leisure Facilities

Ardent Leisure Group (AAD) is a specialist operator of leisure and entertainment assets across Australia, New Zealand and the United States.AAD operates Dreamworld, WhiteWater World, SkyPoint, dAlbora Marinas, AMF and Kingpin bowling centres and Goodlife fitness centresacross Australia and New Zealand. AAD also operates the Main Event family entertainment centres in the United States.

Theme Park:The business is involved in theme park and attraction operators. Located in QLDs Gold Coast, AADs portfolio consists of the Dreamworldtheme park and WhiteWater World Water Park in Coomera, QLD, and the SkyPoint observation deck on levels 77 & 78 of Surfers Paradise'siconic Q1 Tower in QLD.

Bowling:AAD owns and operates 49 ten-pin bowling centres in Australia, operating under the AMF (portfolio consists of 40+ bowling centres) andKingpin brands. The business provides entertainment, leisure and sporting venues for over 50 years.

Health Club:The Goodlife Health Clubs chain is the dominant branded fitness chain in Queensland and South Australia, with operations in Victoria, NewSouth Wales and Western Australia. The business currently consists of 45 health clubs with operations in QLD, SA, VIC, NSW and WA.

d'Albora Marinas:The business comprises 7 marinas located in NSW and VIC. The marinas can accommodate more than 1400 vessels and are fully supportedby a wide range of marine, leisure and tourist businesses on site. The sites populate well known domestic geographics such as Akuna Bay,Nelson Bay and Pier 35 in Victoria.

Main Event:Headquartered in Dallas, Texas, the business operates indoor family entertainment centres in the south west of North America. The businesscomprises a family entertainment concept with broad appeal to any age group, as well as the corporate market with its cafe, conference andbar facilities across 10 locations. Activities include ten pin bowling, laser tag, games arcade, rock climbing and glow golf.

◣





$1.455 Undervalued

Share Price Value


Status: TradingListed: 02 Jul 98Website: www.ardentleisure.com.au

Sector: Consumer DiscretionaryInd-Group: Consumer ServicesIndustry: Hotels Restaurants & LeisureSub Industry: Leisure Facilities

Direct Shares: Indirect Shares: 1,169,062 Options: Convertibles:

Chairman/ExecutivesMr Neil Richard BalnavesNon-Executive Chairman

Mr Balnaves has worked in the entertainment and media industries for over 47 years previously holding the position of Executive Chairman of SouthernStar Group Limited which he founded. He is a Director of Technicolor Australia Limited and a board member of the Surf Life Saving Foundation. He is aTrustee of the Mosman Public Art Trust, serves on the boards of advisory and community organisations and is a Foundation Fellow of the AustralianInstitute of Company Directors. In 2006, he established The Balnaves Foundation, a philanthropic fund that disperses more than $2 million annually insupporting eligible organisations that aim to create a better Australia through education, medicine, and the arts with a focus on young people, thedisadvantaged and Indigenous communities. In 2010, he was appointed an Officer of the Order of Australia for his services to business and philanthropy.

◣







INCOME STREAM PHASEAn ideal high yielding income stock to include in a SMSF equities portfolio


TLS Telstra Corporation LimitedCurrent Share Price

$4.52 Overvalued

Share Price Value


STAR STOCK CRITERIA

Analysis Published: 07 Feb 2013Research Analyst: Jason Yin

Half year report - strong first half


Current Share Price


$4.16Premium

8.57%


Announced Headline

19 Feb 13 07:58 TELECOM TO CO-INVEST IN AUCKLAND-SYDNEY CABLE

07 Feb 13 08:25 Half Year Accounts

01 Feb 13 10:17 Telstra Confirms Delivery of Remaining $2.7M Beam...

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Share price value


|-15% -5% +5% +15%

Share Price$4.52






Income Data



2011(A) 2012(A)EPS ¢ 28.60 30.56EPS growth % -8.63 6.85ROA % 13.19 13.87ROE % 40.68 46.91Revenue ($mil) 25,304 25,503

33

FY13(F)30.65

0.2945.1745.33

25,782

Company Data

Share price $ 4.52Lincoln Valuation $ 4.16Lincoln Discount % 8.57%Consensus Target $ 4.26Consensus Discount % 6.10% 2011(A) 2012(A) FY13(F)PE ratio (adj) x 10.10 12.07 14.75Ind Avg PE x 12.59 13.13 14.44PEG 1.76 50.07

Avg daily traded ($mil) 236,128,925Market cap ($mil) 56,242

Telecommunication Services See page 4




◣

· TLS · XAO

After an indepth analysis of Telstra Corporation Limited’s (TLS) interim result for FY13, we are pleased to announce the company remains a Lincoln preferred income stock and S&P/ASX 20 company. As a quick recap, group revenue grew by around 2.5% after adjusting for the sale of TelstraClear. The Mobile segment was the largest contributor to revenue, buoyed by increased subscriber numbers and improvements in customer churn levels. Payments from NBN Co. continue to contribute to the group’s overall revenue and cashflows, with $176 million related revenue recognised this period. We expected NBN payments to increase in the coming period as infrastructure, TUSMA and migration payments ramp up – this should help support the current dividend yield. We have adjusted our assumptions and increased our Lincoln Valuation from $3.70 to $4.16.





$4.52 Overvalued

Share Price Value


STAR STOCK CRITERIA






Income Data




33

FY13(F)30.65

0.2945.1745.33

25,782

Company Data







◣

· TLS · XAO

Results overview

On a reported basis, sales revenue was up 1% while total revenue grew by 1.7% as compared to the previous corresponding period (pcp). As stated above, excluding the impact of the sale of TelstraClear, total income increased by 2.5% (full year guidance of low single digit growth). Revenue growth in the recent period can be attributed to an increase in customer numbers, with the company adding 607,000 new domestic customers and 321,000 international mobile customers during the first half. Pleasingly, growth in revenue flowed through to EBITDA, which increased 5% from $4,750 million to $4,986 million. Improvements in earnings (EBITDA) margins from 38% to 39% suggest the company’s productivity and efficiency initiatives are working, with operating expenses down 0.3% on the pcp. Reported net profit after tax (NPAT) grew by 9.7%, resulting in a lift in earnings per share from 11.8 cents to 12.8 cents. From a cash flow perspective, free cash flow for the half was $2,155 million inclusive of cash proceeds from the sale of TelstraClear (of $671 million). When ignoring the impacts of this sale, we note that free cash flow for the period declined by 17% due to continued investment in infrastructure assets and greater working capital spends. This poses a slight concern and one that could negatively affect Telstra’s cash flow ratios.

Segment performance

On a divisional performance basis, revenue from Telstra’s Fixed portfolio decreased by 4% from $3,815 million to $3,663 million. The decline in growth of this segment is expected as customers transition to the NBN which will see further decline of Public Switch Telephone Network (PSTN) revenue (-10.8%). Despite the seemingly higher level of decline, the rate of PSTN line loss appears consistent with the prior period at -10%. It also was pleasing to see that fixed retail broadband revenue was up 4.4%, with growth again underpinned by competitive pricing and further adoption of bundled offers. We have been advised that 56% of the customers in this segment are now on bundled plans, which are made up of both a fixed broadband and PSTN connection. The company’s Mobile segment was again the jewel in the crown this period with revenue experiencing a 4.6% growth up from $4,360 to $4,560. The positive momentum could be seen across the whole mobile product spectrum with post-paid, pre-paid and mobile broadband all contributing to the final result. Telstra’s mobile network is well known for its quality of service and large network coverage and it is this characteristic that has enabled the company to retain and grow mobile customer numbers in what is a tough market environment. We see mobile services as a key growth driver for Telstra moving ahead. In terms of TLS’s growth segments, Network Applications & Sales (NAS) revenue increased by 10.6%, aided by International sales growth of 10.8%. Poor results from Digital Media detracted from overall all segment performance with Sensis continuing to be a drag on earnings. Sensis and advertising revenue fell by 12.6% to $479 million reflective of the trend to migrate from traditional print products to digital offerings.





$4.52 Overvalued

Share Price Value


STAR STOCK CRITERIA






Income Data




33

FY13(F)30.65

0.2945.1745.33

25,782

Company Data







◣

· TLS · XAO

Guidance

In regards to guidance, management has left full year FY13 guidance unchanged, expecting low single digit growth for total income and EBITDA. Given performance in this first half, we anticipate Telstra to comfortably meet this guidance range when it reports its full year results in June 2013. Today’s announcement is a positive and ideally positions Telstra to meet its full year guidance. At current price levels we believe the company is trading at the higher end of the pricing range.

Dividend sustainability and NBN

Dividend growth wise, payout for the interim remains unchanged at 14 cents per share. Despite lack of growth from the pcp, management has flagged intentions to increase the overall payout once enough franking credits have accumulated; which we do not expect to occur until FY14. The full year dividend payout for FY13 is not expected to change. In terms of sustainability of dividends, Telstra will continue to extract cash from the NBN rollout which is expected to reap $2 to $3 billion of free cash flow for the company over the next three years. We believe that the company is well positioned to support current dividend levels going into FY14. Free cash flow inclusive of NBN payments is projected to be between $4.75 and $5.25 billion for FY13 full year. Investors should note that a change in government could potentially see a decline in future NBN cash payments and could negatively affect the company’s ability to support the current yield given a payout ratio of over 100%. We retain our sense of optimism for Telstra after this strong interim result. The company’s future cash flow outlook and Strong Financial Health warrants some share price premium, though we believe the recent share price run places the company towards the higher end of valuation. We will continue coverage of the company as a Lincoln preferred income stock and S&P/ASX 20 company, with an upgraded Lincoln Valuation of $4.16.





$4.52 Overvalued

Share Price Value


Status: TradingListed: 17 Nov 97Website: www.telstra.com.au

Sector: Telecommunication ServicesInd-Group: Telecommunication ServicesIndustry: Diversified Telecommunication ServicesSub Industry: Integrated Telecommunication Services

Telstra Corporation Limited (TLS) is a provider of telecommunications and information products and services through its Australian andoffshore operations. TLS is engaged in the provision of telephone lines; national local and long distance, and international telephone calls,mobile telecommunications, data, internet and on-line, wholesale, telephone directories and pay TV.

Telstra Consumer & Country Wide:The division provides a full range of telecommunication products, services and solutions across fixed lines, mobiles, Internet access and PayTV services to consumer customers in metropolitan, regional, rural and remote areas of Australia.

Telstra Business:The division provides Australia's small to medium enterprises with a full range of telecommunications products, services and solutions.

Telstra Enterprise & Government:The division provides network services and applications and integrated voice, data and mobile solutions via Telstra Next Generation Servicesto enterprise and government customers.

Telstra Operation:The division conducts overall planning, design, engineering and architecture of Telstra networks, technology and information technology; aswell as the construction of infrastructure for TLSs fixed, mobile, Internet protocol (IP) and data networks.

Telstra Wholesale:The division provides a wide range of telecommunication products and services delivered over Telstra networks and associated supportsystems to non-Telstra branded carriers, carriage service providers and internet service providers.

Telstra Media:The division focuses on management of the domestic directories and advertising business as well as the Digital Media content, services andapplications.

Telstra International:(i) CSL New World Mobility Limited provides mobile services in Hong Kong; (ii) Telstra China business provides digital media services in auto,IT and consumer electronics; and (iii) Telstra Global provides managed network services and international data and voice, and satelliteinternationally.

TelstraClear:The division provides full telecommunications services to New Zealand market.

◣





$4.52 Overvalued

Share Price Value


Status: TradingListed: 17 Nov 97Website: www.telstra.com.au

Sector: Telecommunication ServicesInd-Group: Telecommunication ServicesIndustry: Diversified Telecommunication ServicesSub Industry: Integrated Telecommunication Services



Chairman/ExecutivesMr David Ingle ThodeyChief Executive Officer

Mr Thodey was Chief Executive Officer of IBM Australia/New Zealand and previously held several senior executive positions in marketing and sales withIBM across Asia Pacific. He was Chairman of TelstraClear New Zealand and Chairman of Basketball Australia.

Ms Catherine Brighid LivingstoneNon-Executive Director,Non-Executive Chairman

Ms Livingstone has held several finance and general management roles predominantly in the medical devices sector. She was the Chief Executive ofCochlear Limited (1994 - 2000). She is a Member of New South Wales Innovation Council, President of the Australian Museum Trust and Director of TheGeorge Institute. She was Chairman of CSIRO, Chairman and Director of Australian Business Foundation, Director of Future Directions International PtyLtd, Goodman Fielder Ltd, Rural Press Limited, Macquarie Graduate School of Management Pty Ltd and Sydney Institute. Previously, also Member,Department of Accounting and Finance Advisory Board Macquarie University, Business/Industry/Higher Education Collaboration Committee (BIHECC),Federal Government's National Innovation System Review Panel and The Royal Institution of Australia Council.

◣







INCOME STREAM PHASEA stock to avoid when seeking high yielding income stocks for a SMSF equities portfolio

FKP FKP Property GroupCurrent Share Price

$1.67 NA

Share Price Value


STAR STOCK CRITERIA

Lincoln Indicators

Latest financials updated


Current Share Price


NADiscount

NA

Announced Headline

26 Feb 13 09:00 Appendix 4D and Half Year Financial Reports

25 Feb 13 09:21 Sale of Chatswood and Browns Plains Assets for...

18 Dec 12 18:35 Selective Buy Back of Conv Notes/Conditional Sale...

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88

Share price value


11 Financial HealthFinancial Health

Early WarningEarly Warning(as at 04 Mar 13)







2011(A) 2012(A)EPS ¢ 56.34 43.21EPS growth % 6.30 -23.30ROA % 4.00 2.93ROE % 10.60 9.36Revenue ($000) 354,400 213,800

33

FY13(F)12.80

-70.381.424.53

226,760

Company Data

Share price $ 1.67Lincoln Valuation $ NALincoln Discount % NAConsensus Target $ 1.41Consensus Discount % 18.44% 2011(A) 2012(A) FY13(F)PE ratio (adj) x 6.80 4.81 13.05Ind Avg PE x 10.99 12.36 13.93PEG 1.08


Financials See page 2

Jun 12 (A) Current FY13 (F)Div yield (pa) % 7.37 4.59 0.00Gross div yield % 8.72 5.43 0.00Amount ¢ 7.66 0.00Franking % 43Ex date 25 Jun 12


12 mth return (inc div) -34.91% pa

◣

· FKP · XAO

Analysis Published: 27 Feb 2013Research Analyst: Dennis Ng

FKP Property Group’s (FKP) Financial Health continues to be weak. Upon analysing the company’s interim results for FY13, declining profitability and cashflows continue to exacerbate a leveraged balance sheet resulting in Financial Health of ‘Early Warning’ this period. This is further evidenced by the company’s need to raise capital in FY12 and the unlikelihood of a dividend payment in FY13. FKP’s exposure to financial risk is deemed to be unacceptable and the company is unable to satisfy Golden Rule No.1 - Financial Health.


$1.67 NA

Share Price Value


Status: TradingListed: 13 Dec 93Website: www.fkp.com.au

Sector: FinancialsInd-Group: Real EstateIndustry: Real Estate Management & DevelopmentSub Industry: Real Estate Development

FKP Property Group (FKP) is an Australian property and investment group operating in property industry across Australia and New Zealand.FKPs operations involve the development and investment in retirement living, residential communities, commercial and industrial, and fundsmanagement and investments.

Retirement Living:FKP is owner and operator of retirement homes and independent living units under the "Aveo - Live Well" brand. The retirement portfoliocomprises 76 retirement villages offering a variety of retirement living options across Australia. As at 30 June 2012, FKP was responsible forthe management of 9,768 units.

Residential Communities:This division has a positioned portfolio of apartments and master planned communities, which located on the east coast of Australia. In 2012,FKPs master planned communities include The Rochedale Estates (QLD), Saltwater Coast, Point Cook (VIC), Peregian Springs and Ridges(QLD), Shearwater on the Island (VIC) and The Highlands in Maitland (NSW).

Commercial and Industrial:This division engages in creating integrated work, retail, storage and utility spaces and facilities in QLD, NSW and VIC. The key asset isGasworks, a Brisbanes master planned community located near the CBD, of which stage one was completed in 2010. Currently, the area ofdevelopment is focused on (i) Gasometer One, the retail and commercial building, (ii) Gasometer Two, the 14 level commercial tower; and (iii)Gasomerter Three, comprising 15,500sqm of office space.

Funds Management and Investments:FKP is a manager of listed and unlisted property funds, FKP Core Plus Fund and the FKP Core Plus Fund Two, focusing in core and valueadd property assets. The funds strategy is to return liquidity to investors through the divestments of assets in those two funds. During FY2012,FKP successfully acquired the remaining 50% share of Retirement Villages Group Management (RVGM) and became sole manager ofRetirement Villages Group (RVG).

◣




$1.67 NA

Share Price Value


Status: TradingListed: 13 Dec 93Website: www.fkp.com.au

Sector: FinancialsInd-Group: Real EstateIndustry: Real Estate Management & DevelopmentSub Industry: Real Estate Development


Chairman/ExecutivesMr Seng Huang LeeExecutive Chairman

Mr Lee has financial services and real estate investment experience in the Asian region. He has previously served, in various capacities, on the board ofdirectors of Lippo Limited and Lippo China Resources Limited in Hong Kong, Auric Pacific Group Limited in Singapore and the Export and Industry Bank,Inc. in the Philippines. He is currently the Executive Chairman of Mulpha International Berhad (a Malaysian listed conglomerate with operations inSoutheast Asia, Australia and China) as well as Mulpha Australia Limited and is a Non-Executive Director of Mudajaya Group Berhad, a company listed onthe Bursa Malaysia Securities Berhad.

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© 2013 Lincoln Indicators Pty Ltd. All rights reserved. of 35Page 34

Stock Doctor Star StockStar Stocks are Lincoln’s shortlist of fundamentally superior companies that meet ourbenchmark criteria for Golden Rules 1, 2 and 3. Shortlisted for their consistent FinancialHealth, strong management and earnings growth these stocks offer outstanding long-term growth potential.

Stock Doctor Borderline Star StockBorderline Star Stocks are selected at the Lincoln Analysts’ discretion, however are notselected at random. A Lincoln Valuation will be provided for these companies if it ispossible that the company will be a Star Stock within the next 12 months. In all cases,Lincoln have undertaken detailed analysis of the company and are comfortable that theunderlying fundamentals remain healthy.

Lincoln preferred income stockLincoln preferred income stocks are selected for their strong Financial Health andare stocks that currently pay an annual dividend yield above the market average.These stocks are analysed by the Lincoln Analysts’ for their Financial Health, highdividend yield, earnings stability, and the company’s ability to maintain dividendpayments into the future.

Criteria

Industry & Size Return onAssets (ROA)

Return onEquity (ROE)

Earnings perShare Growth(EPSG)

RevenueGrowth

Small Caps(market capbelow $200m)

More than 14%and on positivetrend


More than 8%over the last 12months andpositive over 18months

Must bepositive overthe year

Resources &Energy(market capover $200m)


More than 8%over the pastyear

FinancialsexcludingREITS (marketcap over$200m)


More than 14%over the pastyear

Industrials &Materialsexcludingresources andincludingREITS (marketcap over$200m)


More than 8%over the last 12months andpositive over 18months

Must bepositive overthe year

Golden Rule 1: Financial Health Financial Health is our most important rule and should form the basis of all investmentdecisions. Lincoln’s unique Financial Health model assesses key accounting ratios foreach company’s profitability, cashflow, liabilities and assets and determines the FinancialHealth rating commensurate with the business risk of the company. To meet this criteriaa stock must exhibit consistently Strong or Satisfactory Financial Health ratings for twoconsecutive periods or more.Golden Rule 2: Management Assessment Management quality and leadership capabilities are important factors when assessingthe ability of a company to fulfil its financial and strategic objectives. Lincoln uses fourmeasurements to determine this: Return on Assets (ROA), Return on Equity (ROE),Earnings per Share (EPS) growth and revenue growth and measures these criteriabased on a company’s market capitalisation and the industry it is in. Refer to the tablebelow.

Golden Rule 3: Outlook/Forecast To determine whether a company’s growth and fundamental quality are sustainable,investors must analyse the company’s outlook and forecast earnings. At Lincoln we wantto gauge whether a company is likely to remain as a Star Stock in the future. For StarStocks and Borderline Star Stocks we provide our estimates as to what we expect thecompany to do in the coming year.

Denotes criteria for Star Stock status

Golden Rule 4: Share Price ValueStar Stocks, Borderline Star Stocks and Lincoln preferred income stocks: Anyof these stocks are undervalued if its current price is below its Lincoln Valuation.There will be times where the market attributes a premium to a company,particularly Star Stocks, due to its strong corporate history, stability of earningsand/or its future growth prospects with the market attributing a value tomanagement’s ability to keep the earnings momentum going. A track record ofquality results may provide comfort that the company will surprise on the upsideonce more.Non-Star Stocks: For Lincoln covered companies such as the ASX20 you can useour Lincoln Valuation. For all others the consensus target, where available,provides an indication of the market’s view on the company. In addition, traditionalprice earnings (PE) and price earnings growth (PEG) ratios can be used. A PE ratioless than the industry average indicates the potential for share price appreciation.Where the PE is greater than the industry average, the PEG ratio (PE/EPS Growth)is used to determine whether earnings growth justifies the premium price. Lincoln’sbenchmark is a PEG ratio of less than one.Golden Rule 5: Share Price SentimentFocus on stocks with a positive trend in share price. Be wary of stocks that arehistorically volatile, underperforming its peers, sector or indices, or trendingdownwards. As a rule of thumb, compare a share’s 12 month share priceperformance versus the All Ordinaries index. Where the stock underperforms theindex it will fail Golden Rule 5.Sometimes the market will fail to acknowledge a company’s fundamental qualities,and a disconnect between the value on the company and the price investors arecurrently willing to pay will occur. This may represent an opportunity for an investorseeking deep value and looking to prosper from this disconnect. If the companyretains its fundamental quality, investors may consider the stock or even acquiremore if they currently hold it.Golden Rule 6: Liquidity and SizeTo ensure an investor can at any time buy or sell a stock at a fair price, we suggestthat the average ‘daily volume traded’ figure is at least five times their exposurelevel. When assessing for Star Stock eligibility, a different set criteria is imposed forcompanies with a market capitalisation of less than $200 million to companieslarger than $200 million (see Golden Rule 2 for more information on these criteria).Golden Rule 7: Principal ActivitiesBefore investing in a company, an investor should have a basic understanding ofthat company’s principal activities, as well as the potential opportunities and threatsthat may impact future earnings of the company or its industry.Golden Rule 8: Price Sensitive AnnouncementsCompany news and announcements, in particular price sensitive announcements,can immediately impact stock prices positively and negatively. Our Analysts willprovide commentary on any Star Stock or Borderline Star Stock. Investors shouldbe wary about investing in companies that have had recent negative news orannouncements.

Golden Rule 9: Follow all of the above rules

Nine Golden Rules for successful sharemarket investing

Important information: Lincoln Indicators Pty Ltd ACN 006 715 573. AFSL 237740. This communication has been prepared without taking into account your personal circumstances. You should therefore consider its appropriateness in light of your objectives, financial situation and needs, before acting on it. Investments can go up and down. Past performance is not a reliable indicator of future performance. © 2012 Lincoln Indicators Pty Ltd. All rights reserved.

All information current as at 5 March 2013. ^Stock Doctor Star Stocks returned 12.9% p.a. over 15 years to 31 January 2013. Star Stock returns were calculated by Lincoln as a measure of the historical performance of the strategy and does not represent an actual investment. The performance over the stated time period/s reflects the capital return on a notional portfolio of $100,000 that is equally invested in each Star Stock. The portfolio is rebalanced to equal weights on when the composition of the Star Stocks changes. For all transactions, closing prices for the next trading day are assumed. Transaction costs of 0.5% on each purchase and sale have been incorporated. Returns are expressed in a per-annum basis. The calculation makes no allowance for dividends or other distributions, government charges or tax, or annual subscription fees payable to Lincoln. The Star Stock criterion has not remained constant but has been revised and updated over time. Therefore the return does not represent actual performance. Past performance is not a reliable indicator of future performance. Important InformationLincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740. This communication may contain general financial productadvice. It has been prepared without taking into account your personal circumstances, and you should therefore consider itsappropriateness in light of your objectives, financial circumstances and needs before acting on it. If our advice relates to theacquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the FinancialServices Guide (FSG) before making any decision. Lincoln, its employees and/or associates hold interests in the ASX listed companies which are in this report. This position may change at any time without notice. Investments go up and down. Past performance is not a reliable indicator of future performance. All calculation are of an historic nature and your personal tax profile may vary from examples shown. Please consult your tax adviser regarding the relevance of this information to your personal situation. The information contained herein is confidential and is intended solely for the addressee(s). Lincoln, its director, employees andagents, makes no representation and gives no warranty as to the accuracy of this communication and does not accept anyresponsibility for any errors or inaccuracies in or omissions from this communication (whether negligent or otherwise) and shallnot be liable for any loss or damage howsoever arising as a result of any person acting or refraining from acting in reliance on anyinformation contained herein. No reader should rely on this communication as it does not purport to be comprehensive. Thisdisclaimer does not purport to exclude any warranties implied by law which may not be lawfully excluded. We have takenprecautions to minimise the risk of transmitting software viruses, but we advise you to carry out your own virus checks on anyattachment to this e-mail. We cannot accept liability for any loss or damage caused by software viruses.

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