June 2014 — Over the Horizon Market Commentary by David Offer

June was a marginally negative month for the Australian share market, with the All Ordinaries Index closing down 1.7% to

finish the year at 5,382 points. However, total returns for the financial year were positive, with our share market returning

12.7% and, including dividends, a respectable 17.6%. Australia followed the lead of the US market, which also returned

12.8% over the financial year.

Share markets rallied strongly in the first half of the financial year. Markets remained buoyed in the second half as

investors sought income generating assets, due to record low interest rates globally providing limited investment options

elsewhere. This has resulted in share markets arguably becoming marginally overvalued. We consider fair value for the

Australian share market broadly 5,100. However, we take some comfort from the stronger than expected February interim

reporting season and hope that this positive profit momentum continues next month when companies announce their full

year annual results.

There has been a few tears shed in our office recently with Susan Emerson’s recent retirement after 16 years of loyal

service. We have all been immensely fortunate to have had Sue in our daily lives for so long and a large part of the

success of Horizon can be attributed to Sue’s hard work and dedication. Over this period we have had many staff involved

in the business, a number of business name changes and experienced just about everything that could be experienced on

our share market. Sue has been unwavering through all our trials and tribulations and her stability and level headedness

has been appreciated.

We wish Sue all the best for her retirement and that she enjoys her new found freedom to enable lots of travel and time

with grandchildren. We have been left in great hands with Natalie Spencer, our new office manager. Natalie was with our

firm for several years back in the early ‘2000s’. We are delighted to have Natalie back and we have all appreciated Sue’s

assistance as Natalie is brought up to speed with client administration and office matters.

I thought I would share this lovely picture of Susan as she passes the baton over to Natalie and Bryony to continue to keep

our office and client administration running smoothly. We look forward to regular visits and updates by Sue into the future.

Moving to investment matters, of interest at the current time is the upcoming Healthscope Ltd Initial Public Offering (IPO),

which is likely to be Australia’s largest float for the year. Behind Ramsey, Healthscope is Australia’s second-largest

provider of private hospital services and a leading provider of pathology services in Australia, New Zealand, Malaysia and

Singapore. Healthscope runs 44 private hospitals with approximately 4,400 beds, 30 of which are owned outright by the

Company.

The industry presently enjoys favourable operating dynamics with underlying demand drivers including an aging

population, a continuing shift of medical services from the public to private sector and increasing participation levels by

Australians in private health insurance.

Healthscope is undergoing a rapid expansion program at the current time, adding 318 beds and 18 operating theatres

since 2010. There are another seven projects planned to add another 199 beds and 14 operating theatres by 2017, as

well as the construction of a new 284 bed hospital with 13 operating theatres on the Gold Coast scheduled to open in late

2015. This should ensure solid profit growth occurs over the foreseeable future.

Proceeds of the offer will be used to pay down debt and facilitate a partial sell down of equity by existing shareholders.

We provide Morningstar’s research on Healthscope. The Company will list at a discount to existing listed hospital provider

Ramsey and, given it will be included in the ASX 100 index, there is likely to be strong support from fund managers post

listing. While there is no general offer to the public, we have received an allocation in the IPO. Should you wish to

participate, we ask that you contact our office immediately.

Off the back of Healthscope, our attention has turned to other companies in the health care sector and our interest has

been sparked in Primary Health Care.

Primary Health Care provides a range of medical and related services to its network of 87 medical centres as well as

independent GPs via 87 pathology labs, 782 collection centres and 161 diagnostic imaging service sites across

Australia. The company also has a health technology division that sells and supports health industry related IT and

software products.

The Company is enjoying a solid period of profit growth and, based on Morningstar research, is trading on an

undemanding prospective Price Earnings ratio for this financial year of 11.8 times (versus its historical average of 15

times) and fully franked dividend yield of 4.9%.

Off the back of enclosed Morningstar research, our forecasts for the Company are as follows:

Primary Health Care appears to have been marked down recently by an adverse market view of how the Company will fair

should the Federal Government be allowed by the Senate to implement changes to healthcare spending as announced in

the May Federal budget. However, Morningstar expects these changes to have nominal impact on the Company and, in

any event, there is no certainty the proposed changes will even be passed by the Senate.

Primary Health Care is trading at a significant discount to its listed competitor Sonic Healthcare, which is trading on a

prospective 2015 PE of 16.6 times and forecast dividend yield of 4.2% fully franked. Should the Company grow its profits

as expected a re-rating is likely and would make our end of 2015 financial year share price target of $5.91 achievable. This

implies a total return (growth plus yield) for the year ahead of 34%. Given the potential share price upside, attractive

dividend yield and defensive nature of the business, we consider Primary Health Care a suitable inclusion for most share

portfolios.

Finally, as part of meeting our annual compliance obligations, please find enclosed your annual Fee Disclosure Statement

for the 2014/2015 financial year.

If you would like to discuss the above opportunities or any other aspect of your investment portfolio or financial

circumstances, please do not hesitate to contact our office. We would welcome your call.

Sincerely

David Offer

AUTHORISED REPRESENTATIVE 259188

Director

HORIZON INVESTMENT SOLUTIONS PTY LTD

SUITE 1, POST OFFICE PLAZA, 153 VICTORIA STREET, BUNBURY WA 6230

T. 08 9791 9188 F. 08 9791 9187

E.david.offer@horizonis.com.au www.horizoninvestmentsolutions.com.au

Horizon Investment Solutions Pty Ltd, ACN 083 142 438, ABN 79 668 035 212, AFSL 405897

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