Health Funds & Wealth Mgt - Macquarie...Transfer of coverage: We transfer analyst coverage of IFL to...

Please refer to page 16 for important disclosures and analyst certification, or on our website

www.macquarie.com/research/disclosures.

AUSTRALIA

15 September 2015 Macquarie Securities (Australia) Limited

Health Funds & Wealth Mgt Australian Health & Wealth Ranking Event

We review and rank the listed Australian Health Funds and Wealth Managers

under Macquarie Securities coverage.

Impact

We rank the stocks on the basis of: 1) growth; 2) margin; 3) capital; 4)

regulatory factors; and 5) relative performance, valuation and earnings

metrics. We also review the structural position of Health and Wealth stocks.

Health Funds have similarities with the Australian superannuation system.

Parallels can be drawn between the structure of:

the direct to individual compulsory defined contribution private

superannuation market, supported by the taxpayer funded Government

pension system; and

the direct to individual Health Fund sector supported by government

policy, operating alongside the taxpayer funded public hospital system.

In addition, recent policy changes in both systems have seen government

policy target its support away from higher income earners. Both the Health

Fund market and the compulsory superannuation system are supported by

structural, regulatory and demographic tailwinds.

Our Australian Health Funds and Wealth Managers order of ranking is:

#1 Challenger (CGF AU, A$6.93, Outperform, TP: $7.95): As the leading

retirement products provider, CGF should benefit from: 1) demographic

trends; 2) product mix; and 3) removal of retirement income barriers.

#2 Medibank (MPL AU, A$2.31, Outperform, TP: $2.65): MPL operational

improvement upside and ideally placed to fund growing private health care.

#3 IOOF (IFL AU, A$8.88, Outperform, TP: $11.10): IFL’s relative valuation

has opened up following media reports on compliance issues.

#4 nib (NHF AU, A$3.14, Outperform, TP: $3.70): Modest market

underperformance is more pronounced vs MPL and a discount has opened up

on this pair. As a health fund in the current volatile market conditions nib

should outperform. Also the market does not appear to have updated for

additional FY16 outlook detail that should see consensus earnings upgraded.

#5 Clearview (CVW AU, A$ 0.92, Outperform, TP: $1.15): CVW is well

positioned in the Wealth Management sector. The absence of legacy products

and processes support it strategic and product options.

#6 AMP (AMP AU, A$ 5.67, Neutral, TP: $6.30): We expect AMP’s organic

growth to be broadly in line with overall market driven by FUM with a drag

from revenue fee margin pressure resulting from regulatory factors and

product mix.

Transfer of coverage: We transfer analyst coverage of IFL to Tim Lawson

from Bryan Raymond. See review on page 8-9 of this report.

Outlook

We believe structural support to be most significant for Health Funds and

Retirement products and rank #1 CGF and #2 MPL.

http://www.macquarie.com/research/disclosures

Macquarie Wealth Management Health Funds & Wealth Mgt

15 September 2015 2

Stock ranking factors: Growth, Margins, Capital, Regulation, Valuation & Structural Position

Macquarie Securities cover the following listed Australian Health Funds and Wealth Managers:

Health Funds: Medibank and nib.

Wealth Managers: AMP, Challenger, Clearview and IOOF.

We have adopted a non-traditional grouping of Health Funds and Wealth Managers (Life and

Health is more typical) for our ranking purposes. We believe that listed Australian health and

wealth stocks have similarities across growth, margin, regulatory and capital factors.

In addition, ranking Australian Health Funds and Wealth Managers is more valuable than

comparing Health Funds and General Insurance stocks as the claims risk reduces the

comparability across these groupings and results in different capital requirements. The growth

outlook is also fundamentally different for General Insurance and Health Funds.

Macquarie rank the stocks on the following basis:

1) growth outlook;

2) margin expectations;

3) capital position;

4) regulatory factors;

5) relative stock performance, valuation and earnings metrics; and

6) structural position (current focus issue).

Based on the above metrics the Macquarie Health and Wealth stock ranking is: #1 CGF, #2 MPL,

#3 IFL, #4 nib, #5 CVW, #6 AMP.

Underpinning our analysis is our expectation that structural support will be most significant in Health

Funds and Wealth Retirement products, as the demands on government expenditure from these

areas is most significant.

The chart below reflects fiscal impact of increased health utilisation and ageing. The increased

demands from the public pension are less transparent but are no less of an issue for the government

fiscal position as the population ages and individual life expectancy increases.

Fig 1 Change in Aust. Governments’ expenditure (% above CPI & relative to GDPg)

Notes: Categories shown are the 10 largest expenditure categories for 2012-13. ‘Other’ comprises all expenditure not elsewhere included, including (from largest to smallest) community services, government operations, superannuation, disability services, emergency services, foreign affairs, climate change and environment, employment, legal, immigration and customs, arts and sport, housing, emergency services, communications, and water.

Source: Grattan Institute analysis of Commonwealth and State budget papers for 2002-03 and 2012-13.


15 September 2015 3

Fig 2 Summary of stock rankings (most preferred to least preferred)

Growth Margin Capital Valuation Structural Position Overly

#1: CGF Retirement incomes: CGF is

well positioned as the leading independent provider of

retirement income products in Australia.

Funds Management: CGF is a top ten Funds Management

group in Australia and is expanding its boutique structure

internationally.

Three years of stable net margins and stable 2H15

product margins versus 1H15 has exceeded market

expectations.

We believe the margin risk remains on the upside.

CGF can improve capital efficiency as it continues to add

longevity risk to its currently investment risk heavy

regulatory capital base and derives a capital aggregation

benefit

CGF ranks as the second most attractive Health and

Wealth stock under our coverage on a relative

composite value measure (PE, PB, Div Yield and

ROE).

We believe that this valuation reflects the

credit risk that CGF takes to achieve the investment

returns necessary to sustain product margins

and is a constant focus of investors.

As the leading independent provider of retirement income product in

Australia CGF should benefit from 1) demographic trends (ageing); 2) product mix; 3) government and

regulator removal of barriers in the retirement income market (as

recommended by the FSI).

#2: MPL For MPL specifically, in the short to medium term we expect

improved operating performance can reduce loss of

market share and support revenue growth.

Over the long term Health Funds are ideally placed to fund

community expectations of health care in a private hospital setting and reduce pressure on the funding of public health care

provision.

As MPL focus on claims management and improved

management expense efficiency we expect that net

margins should expand to more than 6.0% and stay at that level

over the medium term.

Health Funds are low capital intensity due to the short tail,

non-catastrophe exposed nature of claims.

MPL ranks as the least attractive Health and



ROE).

This relative valuation ranking reflects the long term growth of Health

Funds in Australia.

Health Funds are ideally placed to fund community expectations of health care in a private hospital

setting and reduce pressure on the funding of public health care

provision.

The acquisition of Health.com.au by GMHBA indicate that entry by new

start-ups is difficult.

#3: IFL We expect IFL organic growth to be broadly in line with overall

market growth.

Acquisitions may drive IFL growth ahead of overall levels of growth across the Wealth

Management Sector.

We expect IFL cost performance to partially offset the decline in revenue margin. This is expected to moderate

the decline in net margin.

IFL operates a portfolio of low capital intensity businesses.

The acquisitive nature of IFL will either limit the dividend payout

ratio or require new equity capital.

IFL ranks as the most attractive Health and



ROE).

This relative valuation has opened up following

media reports on compliance issues.

As a leading independent diversified wealth management business without exposure to legacy life

insurance products and processes, IFL is well placed to participate in the

growth of the sector.

#4: nib For nib specifically, in the short to medium term we expect nib

will continue to win market share. This was evident in the

net new client additions achieved in 2H15.

Over the long term Health Funds are ideally placed to fund

community expectations of health care in Australia in a private hospital setting and

reduce pressure on the funding of public provision of health

care.

We expect nib can continue to deliver net margins of more than 5% over the medium to

long term.

Health Funds are low capital intensity due to the short tail,

non-catastrophe exposed nature of claims.

The FY16 outlook statement has caused nib to modestly underperform the market since the result release (we would expect nib, as predominantly a

health fund to outperform in current volatile market

conditions).

This modest relative underperformance versus

the market is more pronounced versus MPL

and a discount has opened up on this pair

valuation.

Health Funds are ideally placed to fund community expectations of health care in a private hospital

setting and reduce pressure on the funding of public health care

provision.

The acquisition of Health.com.au by GMHBA indicate that entry by new

start-ups is difficult.

#5: CVW The completion of the investment phase being

undertaken by management should support strong growth

over the medium term.

Profitability is currently impacted by ‘expense overruns’ as the business achieves scale.

As a rapidly expanding Life company CVW has relatively high capital requirements to

support growth.

CVW is the fifth most attractive Health and



ROE).

The value raking reflects the growth phase of the

business (CVW ranks #1 on earnings momentum).

We believe that CVW is well positioned in the Wealth

Management sector.

The absence of legacy products and processes support it strategic and

product options.

#6: AMP We expect AMP’s organic growth to be broadly in line with overall market growth driven by FUM growth with a drag from revenue fee margin pressure

resulting from regulatory factors and product mix.

Improved operational efficiency has been a consistent focus

and is necessary to moderate net margin pressure.

Low capital intensity, with the exception of the Life company.

AMP is the third most attractive Health and



ROE).

AMP is broadly exposed to the attractive Australian Wealth

Management sector.

Source: Macquarie Research, September 2015


15 September 2015 4

Focus issue: Structural position Health, Wealth and General Insurance

As we have noted above we have adopted a non-traditional grouping of Health Funds and Wealth

Managers (Life and Health is more typical) for our ranking purposes. We believe that listed Australian

health and wealth stocks have similarities across growth, margin, regulatory and capital factors. In

addition, ranking Australian Health Funds and Wealth Managers is more valuable than comparing

Health Funds and General Insurance stocks. We expand on these comments below, considering the

structural position on the sectors across various metrics.

The Australian Health Fund sector has some similarities with the Australian superannuation

system worth highlighting. Parallels can be drawn between the structure of:

the direct to individual compulsory defined contribution private superannuation market in

Australia, supported by the taxpayer funded Government pension system; and

the direct to individual Health Fund sector in Australia, operating alongside the available to all

taxpayer funded public hospital system.

In addition, recent policy changes in both systems have seen government policy target its support

for the respective systems away from higher income earners.

Both the Health Fund market and the compulsory superannuation system in Australian are

supported by structural, regulatory and demographic tailwinds.

Fig 3 Summary of Health, Wealth and General Insurance structural position

Health Funds Wealth Managers General Insurance Conclusion

Growth Outlook

Health funds play an integral role in funding individual private hospital health

care in Australia with Government legislation ensuring high (~47%) health

fund membership.

We expect that Government policy will continue to support high levels of health funds membership and this will support growth in total premiums over the long

term.

Growth in Wealth Management FUM is positive for the Wealth Management

sector and government policy will continue to be supportive.

Consistent with the factors driving Health Funds growth and supported by recommendations from the Financial

Services Inquiry we expect that stocks positioned in the retirement income

market (e.g. Challenger) will experience the most supportive FUM growth.

Compulsory Third Party (CTP) and Workers Compensation (WC)

statutory schemes are the only Government mandated insurance

programs.

Not all states or territories have privatised their CTP and WC

statutory schemes, although we expect privatisation to be likely in

the Medium term.

All other major lines of insurance are not government mandated.

We expect that growth will be limited in the relatively mature Australian and New Zealand General Insurance markets.

We expect that government policy will be most supportive of growth in: 1#

Health Funds, 2# Wealth Management and #3 General Insurance.

The support for Health Insurance reflects fiscal impact of increased

health utilisation and ageing that is evident in the chart presented earlier.

Within the Wealth Management sector stocks positioned in the retirement

income market (e.g. Challenger) will experience the most supportive FUM

growth among Wealth Managers.

Margin Expectations

Management Expenses: We expect that increased operational efficiency will deliver 60bps improvement in the Management Expense Ratio for

Medibank.

Claims management efficiency should

support net margins expansion to more than 6.0% for MPL and over 5.0% for nib

and stay at that level over the medium term.

Improved operational efficiency has been a consistent focus for companies across the sector and is necessary to moderate

net margin pressure.

Despite commercial premium rate pressure moderating and extensive cost out programs being undertaken

across the sector we expect that margins will decline over the

medium term.

#1: Health Funds. We believe the outlook for margins is most positive for

Health Funds.

2# Wealth Management businesses and then #3 General Insurance.

Capital Position

Health Funds are low capital intensity due to the short tail, community rated and non-catastrophe exposed nature of

claims.

Low capital intensity, with the exception of the Life company operations.

Capital intensity reflects mix of short tail (catastrophe exposed) and long

tail insurance risks.

Health funds reflecting the risk exposures are lower capital intensity than Life and General Insurance risk.

Government policy

Health is one of the largest components of consolidated federal and state

expenditure and is growing faster than GDP growth.

The growth is largely due to the combined impact of ageing, increased utilisation

across all age groups.

We believe that capping of the growth in the PHI rebate reduces the pressure on

government financials and this may facilitate increased private health care

funding over the medium and long term.

While Australia’s superannuation system is supportive of growth in total FUM,

regulatory change that has the impact of reducing revenue margins and the impact

of ‘lost’ tax receipts as income is channelled into a superannuation

environment may see government policy limit the potential growth and profitability

of the sector.

Privatisation of CTP and WC statutory schemes in the medium

term may boost growth.

Otherwise we don’t expect a material impact from government

policy in the short to medium term.

We expect that government policy will be most supportive for Health Funds

versus Wealth Management and General Insurance.

Claims frequency

High claims frequency. Life: Low claims frequency.

Superannuation: Not applicable

Medium claims frequency. The area where we consider Health Funds and General Insurance

companies are most similar (versus Health and Wealth) is in claims

Source: Macquarie Research, September 2015


15 September 2015 5

Australian Wealth and Health: Stock Ranking

The tables below rank Health Funds (Medibank and nib) and Wealth Managers (AMP,

Challenger, Clearview and IOOF) and on the following metrics:

momentum (price);

value (PE, PB, Div Yield and ROE);

earnings change; and

earnings momentum.

Based on these metrics, and incorporating an overly of fundamental factors and consideration of

structural position, we rank the listed Australian Wealth and Health stocks: #1 CGF, #2 MPL, #3 IFL,

#4 nib, #5 CVW, #6 AMP.

As we have noted previously in this report we apply a fundamental and structural overlay to nib

and CVW to increase their rank in the Macquarie Health and Wealth stock ranking.

Overall stock ranking (pre-overly of fundamental factors and consideration of structural

position): The overall stock ranking is a composite of: 1) Momentum (price), 2) Value (P/E, P/B, Div

Yield and ROE), 3) Earnings change and 4) Earnings momentum.

Overall, Challenger ranks first in the Macquarie comparative sheet driven by consistently high

rankings (top 3) across Momentum (price), Value, Earnings change and Earnings momentum.

Overall, Medibank ranks second in the Macquarie comparative sheet driven by the top ranking in

relative price performance and the top ranking in Earnings change. The relative value ranking of

6th is not enough to mark Medibank down.

Fig 4 Summary of rankings for Australian Health and Wealth

Source: FactSet, Macquarie Research, September 2015

Momentum: Composite 3, 6 and 12 month price performance.

Medibank is the best performing listed Health and Wealth stock in Australia based on a 3, 6 and

12 month price performance composite (note that MPL has been listed for less than 12 months),

largely as a result of strong outperformance in the past month (i.e. following the release of the

FY15 result).

Challenger has also performed well on a 3 and 6 month basis, again largely as a result of strong

out performance in the past month (i.e. following the release of the FY15 result).

Fig 5 Momentum metrics for Australian Health and Wealth


15-Sep-15

Stock code Company Name Mkt cap

($m)

Shares on

issue (m)

Share

price

Target

price

Rating Upside

(/downside)

Overall

Rank

Price perf

rel rank

Value

composite rank

Earnings mom

composite rank

Earnings change

composite rank

Australian Health Insurers

MPL Medibank 6,417 2,778 2.31 2.65 Outperform 15% 2 1 6 4 1

NHF NIB Holdings 1,378 439 3.14 3.70 Outperform 18% 6 4 4 5 6

Australian Wealth Managers / Life Insurers

AMP AMP 17,214 3,036 5.67 6.30 Neutra l 11% 4 3 3 6 2

CGF Chal lenger 4,011 579 6.93 7.95 Outperform 15% 1 2 2 3 3

CVW Clearview Wealth 539 586 0.92 1.15 Outperform 25% 5 5 5 1 4 IFL Ioof Holdings 2,695 304 8.88 11.10 Outperform 25% 3 6 1 2 5

Ranks

15-Sep-15

Stock code Company Name Price perf

rel rank

Price perf rel

composite2

5 days 1 month 3 months 6 months 1 year 5 days 1 month 3 months 6 months 1 year


MPL Medibank 1 12.9% 2.7% 22.1% 20.7% 5.1% - 4.0% 11.5% 8.9% -9.0% -

NHF NIB Holdings 4 2.4% 2.0% -1.2% -2.9% -1.8% 11.8% 3.3% -11.8% -14.7% -15.8% 4.0%


AMP AMP 3 4.1% 2.4% -1.4% -0.8% 0.9% 12.3% 3.7% -12.0% -12.6% -13.1% 4.5%

CGF Chal lenger 2 9.8% 0.9% 8.8% 14.1% 14.3% 1.1% 2.2% -1.8% 2.3% 0.3% -6.8%

CVW Clearview Wealth 5 -0.7% -7.0% 9.0% 3.8% 2.5% -8.5% -5.6% -1.6% -8.0% -11.5% -16.4%

IFL Ioof Holdings 6 -0.9% 2.9% 7.8% -5.2% -1.3% 3.9% 4.2% -2.8% -17.0% -15.4% -4.0%

Absolute PerformanceRelative Performance (v S&P ASX 200)1


15 September 2015 6

Valuation: Price to Earnings, Price to Book, Dividend Yield and ROE.

Overall Value Composite Rank: IOOF, having been sold off following compliance issue

allegations, ranks as the most attractive listed Australian Health and Wealth stock under

Macquarie coverage under the Value Composite Rank.

We also note the following:

Overall Value Composite Rank: The Health Stocks are rated higher than Wealth Stocks

under the Value Composite Rank, causing IFL, CGF and AMP to hold positions #1, #2 and

#3. The rating of Clearview reflects the expected strong growth in the forecast period.

ROE: The Health Stocks have materially higher ROE than the Wealth Stocks.

Relative PER: nib is trading at a material discount to Medibank on a simple PE basis.

Fig 6 Valuation metrics for Australian Health and Wealth


Earnings change and Earnings momentum: EPS growth and EPS change.

On the basis of earnings change and earnings momentum there is no clear ranking preference

among the listed Australian Health and Wealth stocks.

nib has seen its earnings marked down following the FY16 guidance statement issued with the

FY15 result.

As we note below re Macquarie versus Consensus for nib, we have updated underlying EPS

expectations for the additional FY16 divisional outlook commentary and additional disclosure

provided as part of the Investor Roadshow presentation where it appears not all inputs to the

Consensus number have made the update.

We expect as the market consensus number incorporates the adjustment this will improve the

earnings change and earnings momentum rank for nib.

Fig 7 Earnings metrics for Australian Health and Wealth


Stock code Company Name Last Full Year

reporting date

Value composite

rank1

FY 1

PER

FY 2

PER

FY1

EPS

FY2

EPS

Forecast EPS

dispersion2

Hist. P/

BV

FY 1

P/ BV

5 yr avg

P/ BV

Hist. div

yield

FY 1 div

yield

% pt change

in div yield

1 Yr Fwd Div

payout ratio

(%)

3 yr avg

ROE

ROE Yr1

Forecast


MPL Medibank 21/08/2015 6 20.1x 18.2x 0.11 0.13 0.5% 4.4x 4.2x 4.6x - 3.6% - 73.4% 20.1% 21.6%

NHF NIB Holdings 24/08/2015 4 18.6x 16.3x 0.17 0.19 0.5% 4.0x 3.7x 2.8x 3.4% 3.7% 0.3% 68.9% 21.1% 21.2%


AMP AMP 19/02/2015 3 14.8x 14.1x 0.38 0.40 0.3% 2.0x 2.0x 2.2x 4.7% 5.1% 0.3% 75.3% 13.3% 13.7%

CGF Chal lenger 18/08/2015 2 11.3x 10.5x 0.61 0.66 0.3% 1.6x 1.4x 1.5x 4.5% 4.7% 0.2% 52.7% 12.8% 12.8%

CVW Clearview Wealth 26/08/2015 5 18.3x 14.1x 0.05 0.07 0.2% 1.4x 1.4x 1.1x 3.2% 3.1% -0.1% 56.5% 8.2% 9.6%

IFL Ioof Holdings 28/08/2015 1 14.2x 13.2x 0.63 0.67 0.9% 2.0x 2.0x 2.1x 5.9% 6.4% 0.5% 90.8% 15.2% 15.0%

EPS data Book Value Div Yield ROE15-Sep-15

15-Sep-15

Stock code Company Name Earnings mom

composite rank1

Earnings change

composite rank2

FY1 / Actual

EPS growth

FY2 / FY1

EPS growth

4w EPS %

change

3m EPS %

change

6m EPS %

change

Historic EPS

(H1)

Current yr est.

EPS (FY1)

Next yr est.

EPS (FY2)

EPS std

deviation

ppt change

in div yield

Next FY end


MPL Medibank 4 1 10% 11% 7.8% 9.9% 7.7% 0.10 0.11 0.13 0.3% 0.0% 30/06/2016

NHF NIB Holdings 5 6 -2% 14% -11.1% -7.2% -8.0% 0.17 0.17 0.19 0.5% 0.3% 30/06/2016


AMP AMP 6 2 26% 5% 0.7% -0.5% 0.9% 0.30 0.38 0.40 0.5% 0.3% 31/12/2015

CGF Chal lenger 3 3 12% 8% 0.1% -0.6% 0.6% 0.55 0.61 0.66 1.7% 0.2% 30/06/2016

CVW Clearview Wealth 1 4 107% 30% -4.3% 2.6% -4.9% 0.02 0.05 0.07 0.3% -0.1% 30/06/2016

IFL Ioof Holdings 2 5 31% 7% -1.7% -6.6% -2.9% 0.48 0.63 0.67 1.2% 0.5% 30/06/2016

Rank Earnings mom. Earnings Change EPS Outlook


15 September 2015 7

Earnings Consensus versus Macquarie estimates:

With the exception of nib, Macquarie first and second year EPS forecasts do not differ materially

from consensus.

Fig 8 Consensus versus Macquarie metrics for Australian Health and Wealth


We believe that the variance between Macquarie and consensus forecast EPS is the result of

Macquarie having updated underlying EPS expectations for the additional FY16 divisional outlook

commentary and additional disclosure provided as part of the Investor Roadshow presentation.

The disclosure supports the outlook for Underlying operating profit performance for nib.

The additional nib disclosure included the following:

#1 Expanded FY16 outlook and guidance statement: The additional disclosure supports an

underlying operating profit target range of $95m-$102m in FY16 compared to the FY16 Statutory

operating profit target range of $85m-$90m.

The additional disclosure now includes amortisation of IMAN and nib NZ acquired intangibles

of $4m, which is in addition to the previously disclosed $4m-$5m amortisation of World

Nomads acquired intangibles.

One-off transaction and M&A costs of $2m-$3m were previously disclosed.

#2 Detailed FY16 divisional commentary:

Australian Resident Health Insurance (arhi): above system arhi policyholder growth with

stable net profit margin (FY15 net margin 5.0%, net margin target range 5.0%-5.5%).

International (inbound) health insurance policyholder growth but profitability may be

weaker (FY15: 21.1% net margin).

nib Options loss similar to FY15 ($3.8m) with profitability in FY17.

nib NZ policyholder and profitability growth.

World Nomads Group underlying operating profit of at least $10m.

FY16 investment income forecast to be lower than FY15 but still in line with relevant internal

benchmarks.

15-Sep-15

Stock code Company Name Price

(AUD)

Consensus EPS

forecast (cps)

Mac EPS

forecast

Diff. Consensus EPS

forecast (cps)

Mac EPS

forecast

Diff. Consensus

PER

Mac PER Consensus DPS

forecast (cps)

Mac DPS

forecast

Diff.


MPL Medibank 2.31 0.11 0.11 -0.7% 0.13 0.13 -0.3% 20.1x 20.3x 0.084 0.079 -6.2%

NHF NIB Holdings 3.14 0.17 0.18 8.7% 0.19 0.21 8.4% 18.6x 17.1x 0.116 0.122 4.7%


AMP AMP 5.67 0.38 0.38 0.5% 0.40 0.40 -1.2% 14.8x 14.7x 0.288 0.294 2.2%

CGF Chal lenger 6.93 0.61 0.60 -2.4% 0.66 0.66 -0.7% 11.3x 11.6x 0.323 0.310 -4.0%

CVW Clearview Wealth 0.92 0.05 0.05 1.8% 0.07 0.07 -0.2% 18.3x 18.0x 0.028 0.024 -15.4%

IFL Ioof Holdings 8.88 0.63 0.65 3.4% 0.67 0.69 3.0% 14.2x 13.7x 0.568 0.566 -0.3%

FY 1 EPS FY 2 EPS PER FY 1 DPS


15 September 2015 8

IOOF (IFL AU, A$8.88, Outperform, TP: $11.10)

Transfer of coverage: We transfer analyst coverage of IFL to Tim Lawson from Bryan Raymond.

IFL provides leverage to equity market with optionality around incremental acquisitions at a

reasonable valuation makes IOOF an attractive proposition. This is despite reduced

opportunity for transformational acquisitions, compliance risk uncertainty and ongoing fee

pressure.

IOOF is a vertically integrated wealth management business offering significant market linked

earnings leverage (10% increase in equity markets drives a ~9% EPS upgrade) without life

insurance risk. Diversification across advice and platforms reduces earnings volatility, protects

margins and drives efficiencies across personnel and opex.

From transformational to incremental: IFL has an acquisitive nature, with over 25 acquisitions

over 15 years, accelerating growth above system historically. Following the consolidation that has

occurred among platforms and the high level of institutional alignment of the advisor market, as

well as regulatory barriers, we expect IFL acquisition activity will be incremental rather than

transformational. Limited financial gearing and strong internal cash generation support IFL’s

acquisition capacity.

Growth from adding advisors and small dealer groups: We expect IFL will continue to add

individual advisors and smaller dealer groups despite the already high level of advisor alignment

with major financial institutions. While IFL trails AMP and the major banks in terms of scale, it

remains a key non-institutional pillar in the industry, a valuable niche to attract advisers who do not

want to be aligned to a bank or AMP yet require scale to drive operating efficiencies.

Fee/margin pressure and regulatory factors: Fee pressure in the wealth management sector is

evident across each division of IFL as increased competition and structural shifts impact margins.

Consolidation of market share in advice and platforms benefit those remaining groups with scale.

FY15 result overview

IOOF announced FY15 underlying NPAT of $173.8m in line with MRE $175.6m. +41% above

pcp or +6.2% adjusting for the impact of the Shadforth acquisition. Underlying EPS growth

was +13% yoy to 59.9cps. IFL has stated that the Shadforth acquisition was 3.6cps accretive.

Fig 9 Platform margin has been more stable than gross margin but did drop 3bps in 2H15

Source: Company data, Macquarie Research, Aug ‘15

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

1H

11

A

2H

11

A

1H

12

A

2H

12

A

1H

13

A

2H

13

A

1H

14

A

2H

14

A

1H

15

A

2H

15

A

1H

16

E

2H

16

E

Average AUM (A$bn)

Net Margin Platform Average AUM Platform Net Op Margin

Platform Gross Margin Actual Fcast


15 September 2015 9

EBITDA $246.6m, was -5.8% below MRE estimate of $261.9m. The variance from our EBITDA

expectation was driven by -3bps lower 2H15 Platform Net margin 36bps (1H15 39bps, 2H14

39bps) with ongoing cost control and cost efficiency of new products offset by clients moving into

higher balance / lower fee tiers in a growing FY15 market and profitability reinvested in IT platform

build.

Organic cost control was once again a highlight. +2.2% underlying opex growth excluding the

impact of the Shadforth acquisition and flat on a pro-forma basis including the impact of the

Shadforth acquisition.

IFL management stated that labour cost growth was below inflation as the business targets

organic cost growth efficiencies through IT investment.

SFG cost synergies of $13.0m realised in the period.

SFG integration remains on track for $20m synergies in FY16.

PWC review on breach reporting and research has resulted in the following:

Research Department: 1) research team restructure and new head appointed March 2015;

and 2) research outsourcing.

Breach Reporting: 1) improvement related to adopting a uniform set of standards and

procedures across IOOF’s various individual licensees and at the Group level; 2) initiatives

already in train are executed without delay in order to strengthen the overall operating

effectiveness of the breach reporting process.

Flows: Management made the comment that flows in July 2015 had not been impacted by

misconduct claims. IFL will release 1Q16 FUMA mid-Oct 2015.

Fig 10 Divisional NPAT boosted by acquisition in FY15 with synergies and organic growth to drive FY16 growth

Source: Company data, Macquarie Research, Aug ‘15

0

20

40

60

80

100

120

1H12A 2H12A 1H13A 2H13A 1H14A 2H14A 1H15A 2H15A 1H16E 2H16E

Divisional Underlying NPAT

Trustee Services

Investment Management

Advice

Platforms

Actual Forecast


15 September 2015 10

Source: Company data, Macquarie Research, September 2015

Challenger (CGF) Price: 6.93$ Year Ending: 30 June Market Cap ($m): $3,835

Profit & Loss Statement ($m) FY13A 1H14A 2H14A FY14A 1H15A 2H15A FY15A FY16E FY17E

Life

Product cash margin 337.4 160.5 163.2 323.7 165.9 180.4 346.3 382.2 410.7

Investment yield - shareholders' funds 78.8 50.8 51.2 102.0 57.4 59.7 117.1 114.5 123.2

Cash earnings 416.2 211.3 214.4 425.7 223.3 240.1 463.4 496.7 533.9

Normalised capital growth 36.0 25.9 29.7 55.6 34.5 45.9 80.4 97.6 108.6

Normalised Cash Operating Earnings (COE) 452.2 237.2 244.1 481.3 257.8 286.0 543.8 594.3 642.5

Personnel expenses 39.1 21.3 24.3 45.6 25.4 25.6 51.0 53.3 55.4

Other expenses 31.2 15.3 16.2 31.5 16.6 19.6 36.2 39.9 43.1

Total expenses 70.3 36.6 40.5 77.1 42.0 45.2 87.2 93.1 98.6

Normalised EBIT 381.9 200.6 203.6 404.2 215.8 240.9 456.7 501.1 543.9

Investment experience 138.1 4.1 14.1 18.2 35.4- 14.6- 50.0- 85.8- 77.4-

Life EBIT 520.0 204.7 217.7 422.4 180.4 226.3 406.7 415.4 466.5

Funds Management

Fidante Partners Net Income 47.9 31.1 33.8 64.9 32.1 30.2 62.3 83.5 92.5

CIP Net Income 51.5 22.7 22.6 45.3 24.0 31.2 55.2 53.2 56.1

Funds Management Net Income 99.4 53.8 56.4 110.2 56.1 61.4 117.5 136.7 148.7

Personnel expenses 45.8 23.4 24.4 47.8 24.8 25.4 50.2 63.7 65.6

Other expenses 19.5 9.7 9.4 19.1 10.5 12.7 23.2 23.0 22.3

Total Expenses 65.3 33.1 33.8 66.9 35.3 38.1 73.4 86.7 87.9

Funds Management EBIT 34.1 20.7 22.6 43.3 20.8 23.3 44.1 50.0 60.8

Corporate

Net Income 4.9 1.2 0.6 1.8 0.7 0.6 1.3 0.7 0.6

Total corporate expenses 56.2 29.7 31.7 61.4 30.9 32.8 63.7 66.0 68.7

Corporate EBIT 51.3- 28.5- 31.1- 59.6- 30.2- 32.2- 62.4- 65.3- 68.0-

Group

Group Net Income 556.5 292.2 301.1 593.3 314.6 348.0 662.6 731.7 791.8

Group Expenses 191.8 99.4 106.0 205.4 108.2 116.1 224.3 245.9 255.1

Group Normalised EBIT 364.7 192.8 195.1 387.9 206.4 232.0 438.4 485.9 536.7

Interest expense 4.6 2.2 1.9 4.1 1.7 2.1 3.8 4.1 4.1

Tax expense 51.7 27.1 28.0 55.1 49.8 50.8 100.6 115.6 127.8

Group Normalised NPAT 308.4 163.5 165.2 328.7 154.9 179.1 334.0 366.2 404.8

Investment experience (after tax) 99.8 2.8 9.1 11.9 24.8- 10.2- 35.0- 60.0- 54.2-

Group Adjusted NPAT 408.2 166.3 174.3 340.6 130.1 168.8 299.0 306.2 350.6

Significant items (after tax) 8.5 - - - - - - 28.0 -

Group Reported NPAT 416.7 166.3 174.3 340.6 130.1 168.8 299.0 334.2 350.6

Investment fundamentals FY13A 1H14A 2H14A FY14A 1H15A 2H15A FY15A FY16E FY17E

Life

Total Life Investment Assets 10,787 10,889 11,087 11,087 12,393 12,795 12,795 14,047 15,435

Retail flows 2,179 1,457 1,342 2,397 1,575 1,178 2,753 2,341 2,411

Investment yield - policyholders' funds 7.49% 6.99% 6.71% 6.85% 6.45% 6.13% 6.29% 6.01% 5.85%

Interest expenses -3.93% -3.73% -3.62% -3.68% -3.52% -3.28% -3.40% -3.15% -3.08%

Fees and commissions -0.25% -0.28% -0.28% -0.28% -0.24% -0.18% -0.21% -0.18% -0.18%

Other income 0.00% 0.01% 0.18% 0.10% 0.15% 0.17% 0.16% 0.18% 0.19%

Product cash margin % 3.32% 3.00% 2.99% 3.00% 2.85% 2.83% 2.84% 2.85% 2.78%

Investment yield - shareholders' funds 0.78% 0.95% 0.94% 0.94% 0.99% 0.94% 0.96% 0.85% 0.83%

Cash earnings 4.10% 3.95% 3.93% 3.94% 3.84% 3.77% 3.81% 3.71% 3.62%

Normalised capital growth 0.35% 0.48% 0.54% 0.51% 0.59% 0.72% 0.66% 0.73% 0.74%

Normalised Cash Operating Earnings (COE) % 4.45% 4.43% 4.48% 4.46% 4.43% 4.49% 4.47% 4.43% 4.35%

Investment experience 1.36% 0.08% 0.26% 0.17% -0.61% -0.23% -0.41% -0.64% -0.52%

Reported Cash Operating Earnings 5.81% 4.51% 4.74% 4.63% 3.82% 4.26% 4.06% 3.79% 3.83%

Cost to income ratio 15.5% 15.4% 16.6% 16.0% 16.3% 15.8% 16.0% 15.7% 15.3%

Funds Management

Average FUM - Fidante (A$m) 24,330 31,550 34,851 33,164 40,494 44,382 42,433 45,866 49,752

Average FUM - CIP (A$m) 11,557 11,400 11,154 11,274 12,067 13,235 13,235 13,413 13,913

Average Fee - Fidante (bps) 19.7 19.7 19.4 19.6 15.9 13.6 14.7 18.2 18.6

Average Fee - CIP (bps) 44.6 39.8 40.5 40.2 39.8 47.1 41.7 39.7 40.3

Cost to income ratio 65.7% 61.5% 59.9% 60.7% 62.9% 62.1% 62.5% 63.4% 59.1%

Group

Revenue growth 5.4% 6.8% 6.5% 6.6% 7.7% 15.5% 11.6% 10.4% 8.2%

Expense growth 1.4% 3.9% 10.3% 7.1% 8.9% 9.5% 9.2% 9.6% 3.8%

Cost to Income 34.5% 34.0% 35.2% 34.6% 34.4% 33.3% 33.8% 33.6% 32.2%

Normalised NPAT growth 3.8% 9.9% 3.6% 6.6% -5.2% 8.2% 1.5% 9.7% 10.5%

EPS (Normalised, diluted) 57.9 30.2 30.5 60.9 26.4 28.7 55.3 59.8 65.9

EPS (Reported, dilited) 78.3 30.8 32.2 63.1 22.8 27.7 50.8 55.8 58.2

EPS Growth (Normalised, diluted) 4.0% 8.8% 1.8% 5.1% -12.7% -5.9% -9.1% 8.1% 10.1%

PER (Normalised, diluted) 12.0x 11.5x 11.3x 11.4x 13.1x 12.1x 12.5x 11.6x 10.5x

DPS 20.0 12.5 13.5 26.0 14.5 15.5 30.0 31.0 34.0

Dividend Yield 2.9% 3.6% 3.9% 3.8% 4.2% 4.5% 4.3% 4.5% 4.9%

Franking 0.0% 0.0% 40.0% 20.0% 70.0% 100.0% 85.0% 100.0% 100.0%

Payout Ratio (normalised earnings) 34.5% 41.3% 44.2% 42.7% 54.9% 53.9% 54.2% 51.8% 51.6%

Return on assets 3.4% 2.8% 2.9% 2.8% 1.9% 2.4% 2.2% 2.3% 2.2%

Return on equity (post tax, normalised profit) 16.9% 16.3% 15.7% 16.0% 13.5% 14.4% 14.2% 13.9% 14.5%

Return on equity (post-tax, statutory profit) 22.9% 16.6% 16.6% 16.6% 11.3% 13.5% 12.7% 12.7% 12.6%

Book Value per share (diluted) 3.66 3.80 3.97 3.99 4.16 4.08 4.21 4.42 4.67

NTA per share (diluted) 2.68 2.83 2.97 2.98 3.23 3.20 3.30 3.46 3.71

Price to book value (diluted) 1.89x 1.82x 1.74x 1.74x 1.66x 1.70x 1.64x 1.57x 1.48x

Price to NTA (diluted) 2.59x 2.45x 2.34x 2.33x 2.14x 2.17x 2.10x 2.00x 1.87x

Balance Sheet ($m) FY13A FY14A FY15A FY16E FY17E Valuation

Life Company Balance Sheet Sum-of-parts valuation ($m)

Investment Assets 10,787 11,087 12,795 14,047 15,435 Life 3,879

Other Assets 612 659 456 505 512 Funds management 1,101

Total Life Assets 11,399 11,747 13,251 14,552 15,947 Corporate - 308

Policy liabilities 8,875 8,897 9,638 10,581 11,626 Operating business valuation 4,672

Other liabilities 660 671 1,204 1,216 1,229

Total Life liabilities 9,534 9,567 10,842 11,798 12,855

Life Net Assets 1,865 2,179 2,409 2,754 3,092 Shares on issue + potentials 623

Group Balance Sheet Valuation per share $7.50

Investment Assets 10,787 11,087 12,795 14,047 15,435 Share price target $7.95

Cash 177 141 99 58 58

Goodwill & Intangibles 521 546 549 590 590 Capital return 14.8%

Other Assets 655 406 373 140 5- Dividend yield 4.3%

Total Group Assets 12,141 12,180 13,816 14,836 16,078 Total Shareholder Return 19.1%

Policy Liabilities 8,875 8,897 9,638 10,581 11,626 Recommendation Outperform

Non-recourse debt 598 529 568 568 568

Other Liabilities 720 601 1,067 1,067 1,067

Total Group Liabilities 10,193 10,027 11,273 12,261 13,350 Group fwd PER at target price (diluted) 13.8x

Group Net Assets 1,947 2,153 2,543 2,575 2,728 Forward P/B at target price 2.01x




Medibank Private Price: 2.31Balance Date: June 30

Private Health Insurance 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E FY18E

Premium revenue 2,943.3 2,991.5 3,107.8 3,156.0 5,648.7 5,934.8 6,263.8 6,637.7 7,053.1

Claims -2,535.1 -2,557.8 -2,665.8 -2,701.6 -4,884.3 -5,092.9 -5,367.4 -5,690.0 -6,032.5

Gross Margin 408.2 433.7 442.0 454.4 764.4 841.9 896.4 947.8 1,020.6

Management Expenses -234.7 -277.9 -245.5 -271.4 -511.1 -512.6 -516.9 -522.8 -560.8

Operating Profit 173.5 155.8 196.5 183.0 253.3 329.3 379.5 425.0 459.8

Complementary Services 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E FY18E

Revenue 331.5 309.7 334.6 319.0 717.5 641.2 653.6 681.3 715.4

Cost of Sales -263.5 -246.1 -263.0 -250.7 -532.9 -509.6 -513.7 -535.5 -562.3

Gross Profit 68.0 63.6 71.6 68.3 184.6 131.6 139.8 145.8 153.1

Management Expenses -60.8 -56.6 -61.9 -58.9 -151.0 -117.4 -120.8 -125.6 -130.7


Medibank Private Group 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E FY18E

Health Insurance premium revenue 2,943.3 2,991.5 3,107.8 3,156.0 5,648.7 5,934.8 6,263.8 6,637.7 7,053.1

Other revenue (Complementary services) 331.5 309.7 334.6 319.0 718.4 641.2 653.6 681.3 715.4

Total Revenue 3,274.8 3,301.2 3,442.4 3,475.0 6,367.1 6,576.0 6,917.3 7,319.0 7,768.4

Net Claims -2,535.1 -2,557.8 -2,665.8 -2,701.6 -4,884.3 -5,092.9 -5,367.4 -5,690.0 -6,032.5

Cost of Sales (Complementary services) -263.5 -246.1 -263.0 -250.7 -533.8 -509.6 -513.7 -535.5 -562.3

Gross Profit 476.2 497.3 513.6 522.6 949.0 973.5 1,036.3 1,093.5 1,173.7

Health Insurance Management Expenses -234.7 -277.9 -245.5 -271.4 -511.1 -512.6 -516.9 -522.8 -560.8

Complementary services Management Expenses -60.8 -56.6 -61.9 -58.9 -151.0 -117.4 -120.8 -125.6 -130.7

Segment Operating Profit 180.7 162.8 206.2 192.4 286.9 343.5 398.5 445.1 482.2

Corporate Overheads -10.9 -12.6 -10.0 -17.0 -31.6 -23.5 -27.0 -28.2 -29.5


Net Investment income 43.4 50.4 43.3 43.5 113.9 93.8 86.8 91.9 97.7

Other income/expense -0.4 -7.6 -7.6 -7.8 -8.1 -8.0 -15.4 -15.9 -16.4

Profit before tax 212.8 193.0 231.8 211.0 361.1 405.8 442.8 492.9 534.1

Tax expense -61.4 -52.6 -67.7 -61.6 -102.6 -114.0 -129.3 -143.9 -155.9

Pro-forma Net Profit After Tax 151.4 140.4 164.1 149.4 258.5 291.7 313.5 349.0 378.1

Balance Sheet 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E FY18E

Cash and Equiv 471 409 579 688 708 409 688 731 777

Financial Assets 1,426 1,972 1,900 1,829 1,491 1,972 1,829 1,943 2,065

Receivables 302 301 359 368 339 301 368 389 413

DAC 46 68 72 73 38 68 73 73 72

PPE 124 106 117 111 138 106 111 100 90

Intangible assets 253 262 285 290 244 262 290 300 310

Other 24 24 23 23 18 24 23 23 23

Total Assets 2,645 3,141 3,334 3,382 2,974 3,141 3,382 3,560 3,750

Payables 309 419 402 411 346 419 411 433 457

Claims Liabilities 382 411 427 433 407 411 433 460 489

UEP 529 726 691 656 665 726 656 643 681

Other 127 144 144 144 162 144 144 144 144

Total Liabilities 1,346 1,699 1,662 1,643 1,580 1,699 1,643 1,680 1,771

Net Assets 1,299 1,442 1,671 1,738 1,394 1,442 1,738 1,880 1,979

Key ratios 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E FY18E

Private Health Insurance:

Net Policyholder growth 0.5% 1.3% 0.9% 0.9% 1.5% 0.9% 0.9% 1.2% 1.3%

PSEU growth 0.7% 0.7% 0.8% 0.7% 1.0% 0.9% 0.7% 0.9% 1.1%

Premium growth 5.2% 4.9% 5.6% 5.5% 5.7% 5.1% 5.5% 6.0% 6.3%

Gross Margin 13.9% 14.5% 14.2% 14.4% 13.5% 14.2% 14.3% 14.3% 14.5%

MER 8.0% 9.3% 7.9% 8.6% 9.0% 8.6% 8.3% 7.9% 8.0%

Net Margin 5.9% 5.2% 6.3% 5.8% 4.5% 5.5% 6.1% 6.4% 6.5%

Complementary Services:

Revenue growth -10.1% -11.4% 0.9% 3.0% 41.4% -10.6% 1.9% 4.2% 5.0%

Revenue growth - ex Immigration contract 0.0% -3.9% 2.0% 3.0% 49.3% -1.8% 2.7% 4.2% 5.0%

Gross Profit Margin 20.5% 20.5% 21.4% 21.4% 25.7% 20.5% 21.4% 21.4% 21.4%

Operating Profit Margin 2.2% 2.3% 2.9% 2.9% 4.7% 2.2% 2.9% 3.0% 3.1%

Operating Profit Margin - ex immigration contract 2.0% 2.5% 2.9% 2.9% 1.8% 2.1% 2.9% 3.0% 3.1%

Group:

EPS 5.5 5.1 6.0 5.4 9.4 10.6 11.4 12.7 13.7

DPS 0.00 5.30 3.60 4.30 0.00 5.30 7.90 8.90 9.70

EPS growth 8.4% 6.4% 6.0% 12.9% 7.4% 11.3% 8.3%

PER (x) 23.5 22.7 19.4 21.3 28.7 23.1 20.3 18.2 16.8

Dividend Yield 0.0% 4.6% 3.1% 3.7% 0.0% 2.3% 3.4% 3.9% 4.2%

Franking n/a 100.0% 100.0% 100.0% n/a 100.0% 100.0% 100.0% 100.0%

ROE 20.8% 20.5% 21.1% 17.5% 14.9% 19.5% 19.7% 19.3% 19.6%

Revenue growth 3.4% 3.1% 5.1% 5.3% 8.8% 3.3% 5.2% 5.8% 6.1%

Revenue growth ex Immigration 4.7% 4.0% 5.2% 5.3% 9.0% 4.4% 5.3% 5.8% 6.1%

Gross Profit Margin 14.5% 15.1% 14.9% 15.0% 14.9% 14.8% 15.0% 14.9% 15.1%

Operating Profit Margin 5.2% 4.5% 5.7% 5.0% 4.0% 4.9% 5.4% 5.7% 5.8%

Operating Profit Margin - ex immigration contract 5.2% 4.6% 5.7% 5.0% 3.7% 4.9% 5.4% 5.7% 5.8%

NPAT growth 10.8% 15.2% 8.4% 6.4% 6.0% 12.9% 7.4% 11.3% 8.3%

Underlying NPAT growth 20.3% 20.7% 8.8% 5.8% 3.3% 33.5% 7.1% 11.3% 8.3%

Valuation

Valuation as at today 6,924 Capital return 14.9% PER at Current share price (1yr fwd) 20.29

Valuation in 12m time 7,312 Dividend Yield 3.4% PER at Price Target (2yr fwd) 20.11

Number of shares 2,754

Share price target (12m) 2.65 Total Return 18.4% Dividend Yield at Price Target (2yr fwd) 3.5%




IOOF Holdings Limited (IFL AU) Price: 8.88

Profit and Loss 1H13A 2H13A 1H14A 2H14A 1H15A 2H15A 1H16E 2H16E FY12A FY13A FY14A FY15A FY16E FY17E

Revenue 330.8 354.6 359.7 365.7 452.2 474.9 472.1 475.6 614.2 685.4 725.4 926.9 947.7 988.1

Direct Costs -164.7 -174.2 -165.9 -169.9 -184.3 -186.6 -186.0 -186.7 -306.7 -339.1 -335.8 -370.9 -372.7 -387.0

Gross Margin 166.1 180.4 193.8 195.8 267.9 288.3 286.1 288.9 307.5 346.3 389.6 556.0 575.0 601.1

Other Revenue 23.9 23.1 18.4 19.0 19.4 18.8 19.3 19.8 41.7 46.6 37.4 39.1 39.0 41.0

Associate Income 4.1 3.6 3.7 3.8 3.3 3.4 3.4 3.5 8.2 7.7 7.5 6.5 6.9 7.2

Total Revenue 194.0 207.2 215.9 218.6 290.6 310.5 308.8 312.2 357.3 400.6 434.5 601.6 620.9 649.3

Operational expenses -119.8 -122.3 -126.4 -126.6 -171.9 -170.7 -164.4 -163.4 -219.7 -242.2 -253.0 -343.0 -327.8 -338.8

EBITDA 74.2 84.9 89.5 92.0 118.7 139.8 144.4 148.8 137.7 158.4 181.5 258.6 293.2 310.5

Share based payments -1.9 -3.7 -2.8 -2.7 -2.2 -1.4 -2.6 -2.7 -3.0 -5.7 -5.5 -3.6 -5.3 -5.6

Depreciation -2.2 -2.3 -2.8 -2.5 -3.3 -4.5 -4.6 -4.7 -4.4 -4.5 -5.3 -7.9 -9.3 -9.8

Net Interest expense 0.6 -0.1 0.0 -0.6 -2.2 -2.0 -2.1 -2.1 3.8 0.4 -0.6 -4.6 -4.2 -4.1

Profit before tax 70.7 78.7 83.9 86.2 111.0 131.9 135.0 139.2 134.1 148.6 170.1 242.5 274.3 291.0

Tax -19.3 -20.0 -25.1 -20.3 -29.5 -37.1 -37.8 -38.6 -37.4 -39.3 -45.4 -66.5 -76.4 -79.7

Minority interests -0.3 -0.3 -0.9 -1.2 -1.0 -1.2 -1.2 -1.3 -0.3 -0.7 -2.1 -2.2 -2.5 -2.7

Underlying Profit 51.1 58.4 58.0 64.6 80.6 93.6 96.0 99.4 96.4 108.6 122.6 173.8 195.4 208.6

Amortisation -11.1 -12.3 -12.2 -12.1 -12.3 -26.3 -26.3 -26.3 -20.4 -23.6 -24.3 -38.6 -48.7 -48.7

Significant items (after tax) -6.6 1.2 2.3 0.2 -2.3 5.5 -2.1 -1.1 -56.7 -5.4 2.5 3.2 -3.2 0.0

Reported Profit 33.3 47.3 48.1 52.7 65.9 72.8 67.6 72.0 19.4 79.7 100.8 138.5 143.6 159.9

Cash flow 1H13A 2H13A 1H14A 2H14A 1H15A 2H15A 1H16E 2H16E FY12A FY13A FY14A FY15A FY16E FY17E

Receipts 321.9 395.7 379.4 386.3 489.3 548.4 494.8 498.8 680.9 717.7 765.7 1037.7 993.6 1036.4

Payments -268.3 -311.8 -306.1 -285.0 -386.3 -404.9 -350.4 -350.1 -545.1 -580.0 -591.0 -791.2 -700.4 -725.8

Cash EBITDA 53.7 84.0 73.3 101.3 103.1 143.5 144.4 148.8 135.8 137.6 174.6 246.5 293.2 310.6

Tax paid -25.1 -27.9 -15.0 -21.5 -26.3 -36.1 -37.8 -38.6 -39.2 -53.0 -36.4 -62.5 -76.4 -79.7

Other -2.3 -0.4 2.2 -1.3 -1.1 -1.0 -13.1 -2.4 13.4 -2.7 0.9 -2.1 -15.5 -4.1

Operating Cash flow 26.3 55.6 60.5 78.6 75.6 106.4 93.6 107.8 110.1 81.9 139.0 182.0 201.4 226.7

Acquisitions & Inv -46.0 -5.0 0.0 -15.3 -41.5 -5.6 0.0 0.0 -96.7 -51.0 -15.3 -47.1 0.0 0.0

Capex -0.9 -1.0 -0.9 -2.5 -2.2 -4.7 -5.1 -5.2 -3.3 -1.9 -3.4 -6.9 -10.3 -10.8

Other 2.4 7.0 -28.3 28.9 4.9 6.2 -0.1 -0.1 -3.0 9.4 0.5 11.0 -0.3 -0.3

Investing Cash flow -44.4 1.0 -29.3 11.1 -38.9 -4.1 -5.2 -5.4 -103.0 -43.5 -18.2 -43.0 -10.6 -11.1

Dividends Paid -45.6 -46.4 -53.8 -54.3 -78.2 -77.2 -81.0 -88.8 -100.2 -92.0 -108.1 -155.4 -169.9 -181.3

Net change in borrowings 49.0 0.0 4.7 4.4 76.0 -0.5 0.0 0.0 54.5 49.1 4.4 75.4 0.0 0.0

Net change in equity capital -2.3 -8.2 2.1 -8.0 -8.6 -2.8 0.0 0.0 -1.0 -10.5 -5.9 -11.4 0.0 0.0

Other 0.0 0.0 0.0 -4.7 -1.0 -0.3 0.0 0.0 0.0 0.0 0.0 -1.3 0.0 0.0

Financing Cash flow 1.0 -54.5 -47.0 -62.6 -11.8 -80.8 -81.0 -88.8 -46.7 -53.5 -109.6 -92.6 -169.9 -181.3

Key Ratios 1H13A 2H13A 1H14A 2H14A 1H15A 2H15A 1H16E 2H16E FY12A FY13A FY14A FY15A FY16E FY17E

Reported EPS (diluted, cps) 14.2 20.2 20.5 22.4 23.6 24.1 22.4 23.8 8.3 34.4 42.9 47.7 46.2 51.6

Underlying EPS (diluted, cps) 21.8 24.9 24.7 27.5 28.8 31.0 31.8 32.9 41.4 46.7 52.2 59.8 64.7 69.0

Underlying EPS growth (%) 4.1 21.8 13.1 10.3 16.9 12.7 10.3 6.1 -13.5 12.9 11.6 14.7 8.1 6.7

DPS (cps) 19.5 22.5 22.5 25.0 25.0 28.0 27.0 29.6 37.0 42.0 47.5 53.0 56.6 60.4

Payout ratio (%) 89.5 90.3 91.2 90.9 86.7 90.4 85.0 90.0 89.4 89.9 91.1 88.6 87.5 87.5

Dividend yield (%) 4.4 5.1 5.1 5.6 5.6 6.3 6.1 6.7 4.2 4.7 5.3 6.0 6.4 6.8

PER (x) 20.4 17.8 18.0 16.1 15.4 14.3 14.0 13.5 21.5 19.0 17.0 14.8 13.7 12.9

P/B (x) 2.5 2.5 2.5 2.6 1.8 2.0 1.9 1.9 2.5 2.5 2.6 1.9 1.9 1.9

Return on Equity 12.3 14.2 14.2 15.8 14.7 13.6 13.9 14.3 11.1 13.2 15.0 15.9 14.1 14.7

Return on Assets 5.3 6.0 5.9 6.4 6.8 6.8 6.8 7.0 4.8 5.6 6.2 7.2 6.9 7.3

EBITDA margin 38.3 41.0 41.5 42.1 40.8 45.0 46.8 47.7 38.5 39.5 41.8 43.0 47.2 47.8

Gross Margin (bps) 30.4 29.1 31.5 31.2 37.5 38.6 38.7 39.5 28.6 29.7 31.6 37.7 39.1 39.4

Net Margin (bps) 13.6 13.7 14.6 14.7 16.6 18.7 19.5 20.3 12.8 13.6 14.7 17.5 19.9 20.3

Average FUMAS (A$bn) 109.1 123.9 122.9 125.3 142.8 149.3 148.0 146.2 107.5 116.5 123.1 147.6 147.1 152.6

Operating Cost to Income (%) 72.1 67.8 65.2 64.7 64.2 59.2 57.4 56.6 71.4 69.9 64.9 61.7 57.0 56.4

Balance Sheet 1H13A 2H13A 1H14A 2H14A 1H15A 2H15A 1H16E 2H16E Valuation

Sum of the parts Value

Cash 96.2 98.3 82.5 109.5 134.4 150.5 157.8 171.5 Platform 1,639

Receivables 74.9 69.7 78.0 80.4 101.9 103.3 103.8 99.5 Advisers 2,148

Intangibles 600.3 578.1 578.1 578.1 1,230.4 1,013.1 1,013.1 1,013.1 Funds Management 457

Other 1,177.9 1,201.1 1,267.2 1,251.0 1,240.2 1,536.1 1,549.6 1,552.4 Trust 155

Total Assets 1,949.2 1,947.1 2,005.8 2,019.0 2,707.0 2,803.1 2,824.3 2,836.5 Corporate -987

Debt -208

Payables 65.3 57.1 54.5 60.1 77.9 71.5 80.8 74.7 Group 3,203

Borrowings 106.6 106.6 111.3 111.1 208.3 207.8 207.8 207.8 Shares 302

Investment contract liabilities 795.4 807.1 857.3 870.3 873.5 901.2 901.2 901.2 Valuation per share 10.58

Other 155.0 159.7 160.9 164.2 173.4 250.2 250.2 250.2 Price Target 11.10

Total Liabilities 1,122.4 1,130.6 1,184.0 1,205.6 1,333.2 1,430.7 1,440.0 1,433.9 Capital Return 25.0%

Dividend Yield 6.4%

Net Assets 826.9 816.6 821.8 813.3 1,373.8 1,372.3 1,384.3 1,402.6 Total Return 31.4%




nib holdings Price: 3.14$

Year Ending June 30

Consolidated P&L ($m) 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E

Premium revenue 802.3 832.6 878.6 911.7 1,491.6 1,634.9 1,790.3 1,960.4

Claims expense 560.6 590.8 624.4 657.9 1,040.0 1,151.4 1,282.4 1,418.9

Risk equalisation Levy 94.7 90.8 92.0 91.6 190.6 185.5 183.6 190.4

State levies 14.2 14.0 14.6 15.1 28.2 28.2 29.7 31.9

Increase/(Decrease) in PPB 0.6 1.3 0.0 0.0 -3.3 1.9 0.0 0.0

Net claims incurred 670.1 697.0 731.1 764.5 1,255.5 1,367.1 1,495.6 1,641.3

Gross underwriting result 132.2 135.6 147.5 147.2 236.2 267.8 294.6 319.1

Management expenses 86.5 92.7 97.8 101.5 162.1 179.2 199.3 215.3

Net underwriting result 45.7 42.9 49.6 45.7 74.1 88.6 95.3 103.8

Other income 2.7 2.4 21.8 30.8 5.7 5.1 52.6 66.1

Other expenses 6.4 5.6 25.6 32.0 7.5 12.0 57.7 64.4

Operating Profit 42.1 39.6 45.8 44.4 72.3 81.7 90.3 105.5

Normalised investment income 10.4 10.0 9.6 10.6 20.1 20.4 20.2 24.1

Investment experience 9.6 1.3 0.0 0.0 9.6 11.0 0.0 0.0

Interest Expense 1.7 1.7 3.4 4.2 2.7 3.4 7.6 8.5

Profit before tax 60.4 49.3 52.0 50.8 99.2 109.7 102.8 121.1

Tax 19.3 15.1 15.4 15.0 29.4 34.3 30.4 35.8

Non-controlling Interest -0.2 -0.3 -0.3 -0.3 -0.1 -0.5 -0.6 -0.6

Reported NPAT 41.4 34.5 36.9 36.1 69.9 75.8 73.0 85.9

Investment experience (post tax) -6.7 -0.9 0.0 0.0 -6.7 -7.7 0.0 0.0

One-off & intangible amort. 0.0 0.0 3.9 3.9 0.0 0.0 7.7 6.0

PPB (post tax) 0.4 0.9 0.0 0.0 -2.3 1.3 0.0 0.0

Underlying NPAT 35.1 34.4 40.8 39.9 60.9 69.5 80.7 91.9

Ratio Analysis 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E

Premium grow th 9.1% 10.1% 9.5% 9.5% 15.6% 9.6% 9.5% 9.5%

Claims ratio 83.5% 83.7% 83.2% 83.9% 84.2% 83.6% 83.5% 83.7%

Expense ratio 10.8% 11.1% 11.1% 11.1% 10.9% 11.0% 11.1% 11.0%

Combined ratio 94.3% 94.8% 94.4% 95.0% 95.0% 94.6% 94.7% 94.7%

Underwriting margin 5.7% 5.2% 5.6% 5.0% 5.0% 5.4% 5.3% 5.3%

Net Insurance Margin 7.0% 6.4% 6.7% 6.2% 6.3% 6.7% 6.5% 6.5%

Underlying NPAT grow th 6.3% 23.1% 16.3% 15.9% 4.0% 14.0% 16.1% 13.9%

ROA 10.6% 8.2% 8.3% 7.4% 9.3% 9.5% 7.9% 8.4%

ROE 24.0% 20.4% 21.1% 20.0% 20.3% 22.0% 20.6% 22.6%

Investment Fundamentals 1H15A 2H15A 1H16E 2H16E FY14A FY15A FY16E FY17E

EPS (Reported) 9.4 7.9 8.4 8.2 15.9 17.3 16.6 19.6

EPS (Adjusted) 8.0 7.8 9.3 9.1 13.9 15.8 18.4 20.9

EPS Grow th 6.3% 23.1% 16.3% 15.9% 4.0% 14.0% 16.1% 13.9%

PER (Adjusted) 19.7x 20.0x 16.9x 17.3x 22.6x 19.8x 17.1x 15.0x

Total DPS 5.50 6.00 5.60 6.60 20.00 11.50 12.20 13.90

Special Dividend 0.00 0.00 0.00 0.00 9.00 0.00 0.00 0.00

Dividend Yield 3.5% 3.8% 3.6% 4.2% 6.4% 3.7% 3.9% 4.4%

Dividend payout ratio (adj EPS) 69% 76% 60% 73% 144% 73% 66% 66%

Price to NAB 4.1 4.0 3.9 3.8 3.9 4.0 3.8 3.5

Price to NTA 5.8 5.4 8.1 7.6 5.3 5.4 7.6 6.6

EFPOWA 439 439 439 439 439 439 439 439

Balance Sheet ($m) FY14A FY15A FY16E FY17E

Assets

Cash & cash equivalents 149 124 179 246 Sum of distributable cash profits 314

Intangibles 95 90 185 185 Surplus Capital 10

Other assets 554 623 612 641 Terminal value 1,231

Total assets 798 837 976 1,072 Total valuation 1,555

Liabilities Shares on issue 439

Unearned Premiums 114 127 139 152 Value per share A$3.55

Outstanding claims 94 97 108 120 Target price A$3.70

Borrow ings 65 63 156 156

Other liabilities 169 206 207 252 Capital Return 17.8%

Total liabilities 442 493 610 679 Dividend Yield 4.1%

Retained Earnings 320 307 329 356 Total Return 21.9%

Total shareholder equity 356 344 366 393 Recommendation Outperform




Clearview Wealth Limited Share price:P&L Summary 1H15A 2H15A 1H16E 2H16E FY12A FY13A FY14A FY15A FY16E FY17E

Life Insurance

Planned Profit after tax 9.3 9.9 11.6 13.3 9.8 10.2 15.1 19.2 24.8 32.4

Claims experience 0.1 -0.2 0.0 0.0 2.9 -1.9 1.1 -0.1 0.0 0.0

Lapse experience -0.2 0.3 -0.3 0.0 -1.2 -0.8 -0.9 0.1 -0.3 0.0

Expense experience -2.2 -2.3 -1.8 -1.3 -0.6 0.1 -4.5 -4.5 -3.0 -1.8

Other 0.3 0.3 0.0 0.0 0.2 0.8 0.1 0.6 0.0 0.0Life Insurance Underlying NPAT 7.3 8.0 9.5 12.0 11.1 8.4 10.9 15.3 21.5 30.6

Wealth Management

Fee revenue 15.2 16.1 15.6 15.0 30.4 29.9 30.4 31.3 30.6 28.5

Interest income 0.3 0.2 0.2 0.2 2.1 1.2 0.8 0.5 0.4 0.5

Commissions expense -3.5 -3.7 -3.6 -3.5 -7.0 -7.3 -7.1 -7.2 -7.0 -6.5

Operating expenses -10.7 -11.7 -8.6 -8.3 -15.7 -14.7 -16.1 -22.4 -16.8 -15.7

Income tax expense -0.2 -0.2 -1.1 -1.1 -2.3 -2.5 -2.1 -0.4 -2.1 -2.0Wealth Mgmt Underlying NPAT 1.1 0.7 2.5 2.5 7.5 6.6 5.9 1.8 5.0 4.7

Advice

Fee revenue 8.7 10.2 9.2 9.6 15.1 15.4 16.3 18.9 18.8 18.6

Interest / other income 0.2 0.2 0.2 0.2 0.2 0.4 0.2 0.4 0.5 0.5

Adviser fees expense -1.7 -2.0 -1.7 -2.0 -2.3 -2.6 -3.6 -3.7 -3.7 -3.7

Operating expenses -4.6 -4.8 -4.6 -4.7 -13.9 -12.1 -7.9 -9.4 -9.3 -9.0

Income tax expense -0.7 -1.1 -0.9 -0.9 0.3 -0.3 -1.5 -1.8 -1.9 -1.9

Advice Underlying NPAT 1.9 2.5 2.2 2.2 -0.6 0.8 3.5 4.4 4.3 4.5Business Unit Underlying NPAT 10.3 11.2 14.2 16.7 18.0 15.8 20.3 21.5 30.9 39.8

Corporate

Corporate Underlying NPAT -0.4 -0.2 -0.6 -0.6 1.2 0.2 -0.5 -0.6 -1.2 -1.6

Interest expense (after tax) 0.0 -0.4 -0.7 -0.7 0.0 0.0 0.0 -0.4 -1.5 -1.5Group Underlying NPAT 9.9 10.6 12.9 15.4 19.2 16.0 19.6 20.5 28.2 36.8

Amortisation -4.5 -4.5 -4.5 -4.5 -6.8 -7.5 -7.4 -9.0 -9.0 -9.0

Other non recurring items 1.8 -0.7 0.0 0.0 9.9 -6.6 1.6 1.1 0.0 0.0Reported NPAT 7.2 5.4 8.4 10.9 22.3 1.9 13.8 12.6 19.2 27.8

Ratios 1H15A 2H15A 1H16E 2H16E FY12A FY13A FY14A FY15A FY16E FY17E

Underlying EPS (diluted) 1.89 1.96 2.34 2.77 4.52 3.65 4.00 3.85 5.11 6.50

Reported EPS (diluted) 1.47 0.89 1.53 1.96 5.23 0.49 2.82 2.36 3.48 4.91

DPS (including special dividend) 0.00 2.10 0.00 2.40 1.80 4.00 2.00 2.10 2.40 3.00

PER (x) 24.3 23.5 19.6 16.6 20.4 25.2 23.0 23.9 18.0 14.2

PBV (x) 1.43 1.46 1.46 1.44 1.52 1.64 1.45 1.49 1.51 1.48

Dividend Yield 0.0% 4.6% 0.0% 5.2% 2.0% 4.3% 2.2% 2.3% 2.6% 3.3%

Payout ratio 0.0% 102.5% 0.0% 85.0% 38.4% 46.1% 46.2% 52.7% 45.4% 44.6%

ROE 6.2% 6.3% 7.6% 8.8% 7.5% 6.2% 7.0% 6.3% 8.3% 10.4%

Return on capital employed 9.8% 10.1% 10.4% 10.3% 12.8% 9.7% 10.7% 9.7% 10.9% 10.8%

Balance Sheet 1H15A 2H15A 1H16E 2H16E Sum of the Parts Valuation

Valuation: A$m cps

Cash & Equiv 163 181 159 145 Life 482 87.7

Goodwill & Intangibles 59 56 55 53 Wealth 32 5.9

Other 17 17 17 17 Advice 45 8.2Total Assets 239 254 231 215 Group Valuation 559 101.8

Price Target 1.15

Life insurance (DAC) -141 -154 -186 -213 Capital Return 25.0%

Other 48 72 72 72 Dividend Yield 2.3%Total Liabilities -93 -82 -114 -141 Total Shareholder Return 27.3%

Net Assets 332 337 345 356 Recommendation Outperform

0.92




AMP Limited Price:

Year Ending December 31

Consolidated P&L ($m) FY11A FY12A FY13A 1H14A 2H14A FY14A 1H15A 2H15E FY15E FY16E FY17EOperating Margins

AMP Financial Services

- Wealth management 261 285 330 183 191 374 207 221 428 453 468

- AMP Banking 61 62 83 42 49 91 50 53 103 107 108

- Wealth protection 215 190 64 91 97 188 99 100 199 206 214

- Mature 153 167 178 87 87 174 80 82 162 160 149

- New Zealand 76 73 97 55 55 110 61 48 109 103 107

AMP Capital investors (Net of minority) 83 99 99 57 58 115 72 66 138 147 154

Business unit operating margins 849 876 851 515 537 1,052 569 570 1,139 1,175 1,200

Corporate office costs (57) (61) (62) (32) (30) (62) (31) (28) (59) (57) (59)

Total operating earnings 792 815 789 483 507 990 538 542 1,080 1,119 1,141

Underlying investment income 183 226 135 69 63 132 60 60 120 120 120

Interest expense on corporate debt (82) (86) (75) (42) (35) (77) (28) (29) (57) (55) (49)

AMP Limited tax loss recognition 16 0 0 0 0 0 0 0 0 0 0

Normalised profit 909 955 849 510 535 1,045 570 574 1,144 1,184 1,212

Investment income market adjustment (50) (12) 2 8 34 42 2 (1) 1 (3) 0

Adjusted profit 859 943 851 518 569 1,087 572 573 1,145 1,181 1,213

Other items (41) 34 (2) (3) 10 7 (2) 0 (2) 0 0

AXA integration/Business Efficiency costs (105) (128) (96) (60) (60) (120) (33) (36) (69) (16) 0

Amortisation of AXA acquired intangibles (75) (99) (91) (44) (45) (89) (42) (40) (82) (80) (80)

Timing differences 69 (17) 22 2 15 17 22 0 22 0 0

Accounting mismatches (19) (29) (12) (31) 13 (18) (10) 0 (10) 0 0

Reported profit 688 704 672 382 502 884 507 497 1,004 1,085 1,133

Investment Fundamentals FY11A FY12A FY13A 1H14A 2H14A FY14A 1H15A 2H15E FY15E FY16E FY17EReported Profit 688 704 672 382 502 884 507 497 1,004 1,085 1,133

Adjusted Profit 859 943 851 518 569 1,087 572 573 1,145 1,181 1,213

Underlying Profit 909 955 849 510 535 1,045 570 574 1,144 1,184 1,212

EPS (Adjusted, Diluted) 33.6 32.4 28.7 17.4 19.1 36.4 19.2 19.2 38.5 39.7 40.7

EPS (Underlying, Diluted) 35.5 32.8 28.6 17.1 17.9 35.0 19.1 19.3 38.4 39.8 40.7

EPS Growth -7.8% -3.8% -11.5% 16.0% 39.3% 27.2% 10.6% 0.9% 5.5% 3.1% 2.7%

PER (Adjusted) 18.3 19.1 21.5 17.8 16.2 16.9 16.1 16.0 16.0 15.6 15.2

PER (Underlying) 17.4 18.8 21.6 18.1 17.2 17.6 16.1 16.0 16.1 15.5 15.2

DPS (¢) 29.0 25.0 23.0 12.5 13.5 26.0 14.0 15.4 29.4 30.8 31.5

Dividend yield 4.7% 4.1% 3.7% 2.0% 2.2% 4.2% 2.3% 2.5% 4.8% 5.0% 5.1%

Franking 40% 60% 70% 70% 80% 75% 85% 85% 85% 85% 85%

Payout ratio (underlying) 82% 76% 80% 73% 75% 74% 73% 80% 77% 77% 77%

Ratio Analysis FY11A FY12A FY13A 1H14A 2H14A FY14A 1H15A 2H15E FY15E FY16E FY17EIssued shares 2,855 2,930 2,958 2,958 2,958 2,958 2,958 2,958 2,958 2,958 2,958

EFPOWA 2,663 2,915 2,973 2,984 2,983 2,983 2,978 2,978 2,978 2,978 2,978

Book Value ps 2.39 2.54 2.73 2.71 2.77 2.77 2.81 2.84 2.72 2.77 2.83

P/BV 2.6 2.4 2.3 2.3 2.2 2.2 2.2 2.2 2.3 2.2 2.2

NTA ps 0.87 1.11 1.34 1.33 1.40 1.40 1.47 1.51 1.39 1.47 1.56

P/NTA 7.1 5.5 4.6 4.6 4.4 4.4 4.2 4.1 4.4 4.2 4.0

ROA 0.7% 0.6% 0.5% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.8% 0.8%

ROE 13.1% 10.5% 8.5% 9.3% 12.2% 10.8% 12.0% 11.9% 12.2% 13.4% 13.7%

Balance Sheets ($m) FY12A FY13A FY14A FY15E FY16E Valuation Summary ($m)

Assets AMP Financial Services 17,682

Cash 4,207 2,938 3,581 3,506 3,506 AMP Capital Investors 2,396

Investments 106,182 121,607 123,113 129,929 134,368 Group office (costs, capital and debt) (2,111)

Other assets 8,362 8,679 8,161 8,514 8,666

Total Assets 118,751 133,224 134,855 141,949 146,540 Total AMP Group 17,967

Liabilities

Policyholder liabilities 92,130 101,707 102,718 108,330 111,055

Operational debt 10,914 14,269 15,352 15,968 17,271 Shares on issue 2,958

Other liabilities 8,176 9,048 8,400 9,075 9,460 Value ps 6.07$

Total Liabilities 111,220 125,024 126,470 133,373 137,787 Share price target 6.30$

Net Assets 7,531 8,200 8,385 8,576 8,753 Total Return 14.8%

Capital Return 11.1%

Minority interests 97 110 199 533 560 Dividend Yield 3.7%

Total Shareholders' Equity 7,434 8,090 8,186 8,043 8,194 Recommendation Neutral

$ 5.67



Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 June 2015

AU/NZ Asia RSA USA CA EUR Outperform 46.23% 58.36% 47.27% 44.20% 60.65% 43.01% (for US coverage by MCUSA, 9.68% of stocks followed are investment banking clients)

Neutral 37.67% 25.65% 29.09% 49.29% 34.19% 40.93% (for US coverage by MCUSA, 5.53% of stocks followed are investment banking clients)

Underperform 16.10% 15.99% 23.64% 6.52% 5.16% 16.06% (for US coverage by MCUSA, 1.38% of stocks followed are investment banking clients)

Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

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