share Price ($) ESG MSCI rating
Transcript of share Price ($) ESG MSCI rating
DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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Asia Pacific/Australia
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Australian ESG/SRI SOCIALLY RESPONSIBLE INVESTING
ESG overlay on key stock calls
■ MSCI analyst outlooks – more upside than downside. Our analysts have
reviewed the current MSCI Intangible Value Add (IVA) rating, which looks at
Environment, Social Governance (ESG) issues across Australian stocks.
MSCI publishes an IVA rating (AAA to CCC) on most of the stocks we cover.
Our analysts have formed an opinion based on ‘on the ground’ information
and stock views, and set a Positive, Neutral or Negative view on the current
MSCI rating. We have 30 Positive outlooks and 15 Negatives.
■ AAA rated outperformance: We have compared the performance of stocks
by their current MSCI rating. While this type of analysis does have issues,
our interest is drawn to the outperformance of the AAA (MSCI IVA rated)
stocks over the one-month–three-year period, compared to many lower
ratings and to the market. The AAA rated stocks are dominated by the
Australian banks, which have outperformed by ~20%–23%.
■ Outperformance of worse rated stocks: The outperformance of the MSCI
IVA B and CCC lower rated stocks over a three-year period is affected by
small cap resource stocks, such as AUT (rated B) and BTU (rated CCC),
where exploration and production success has been the driver. The challenge
here is to ensure issues in production do not affect future performance.
■ Key calls: We have taken key strategy team, sector analysts, and quant
calls and overlaid those with our ESG views. As a result, our key long calls
are BXB (strategy), RMD, TAH, WBC (sector analysts) and BOQ, ILU, PRU
(quant). Our key short call on ASX and TWE (both from sector analyst).
Figure 1: ESG overlay on key calls Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI rating
Market cap Key call criteria
ASX.AX ASX 30.22 28.50 UNDERPERFORM BBB Negative 5,293 Analyst Negative view on ESG rating
plus Analyst key Short call
BOQ.AX Bank of
Queensland
7.62 8.00 OUTPERFORM BBB Positive 2,353 Analyst positive view on ESG rating
plus Quant call on Growth and Value
BXB.AX Brambles Limited 6.84 7.88 OUTPERFORM AAA Neutral 11,047 AAA rated (MSCI IVA) and Strategy
sector call on Global cyclicals
ILU.AX Iluka Resources 10.41 13.50 OUTPERFORM BBB Positive 4,359 Analyst positive view on ESG rating
plus Quant call on Growth and Value
PRU.AX Perseus Mining 2.70 3.10 OUTPERFORM B Positive 1,236 Analyst positive view on ESG rating
plus Quant call on Growth and Value
RMD.AX ResMed Inc. 3.84 3.93 OUTPERFORM BB Positive 6,206 Analyst positive view on ESG rating
plus Analyst key Long call
TAH.AX Tabcorp Holdings 2.83 3.30 NEUTRAL AAA Neutral 2,066 AAA rated (MSCI IVA) plus Analyst key
TWE.AX Treasury Wine 4.82 3.50 UNDERPERFORM B Neutral 3,120 Low MSCI IVA Rating of B plus Analyst
key Short call (paired with TAH)
WBC.AX Westpac 24.54 26.75 OUTPERFORM AAA Negative 75,587 AAA rated (MSCI IVA) and Analyst key Source: Company data, Credit Suisse estimates, MSCI IVA ratings
Research Analysts
Sandra McCullagh
61 2 8205 4729
27 September 2012
Australian ESG/SRI 2
MSCI IVA ratings – analyst views MSCI rating
■ MSCI IVA ratings: MSCI produces an Intangible Value Index (IVA) for many of the
listed Australian stocks. This IVA looks at Environmental, Social and Governance
(ESG) issues affecting each stock, scoring each of these three factors out of 10.
Combining these scores produces a rating for each stock ranging from AAA to D. In
the Australian space, most companies are rated in the A range (AAA to A) and B
range (BBB to B), with a handful rated CCC.
■ Analysts’ forward looking views on MSCI IVA ratings: Analysts have reviewed the
stocks under their coverage and formed a view on what MSCI has considered. Where
the analyst believes there have been subsequent material changes that are not
reflected the MSCI report, the analyst has flagged this through a Positive or Negative
watch/outlook on the MSCI rating. For a full discussion of the analyst views on ESG
for each stock, see our sector-by-sector commentary in our detailed report.
■ Banks and REITS dominate MSCI IVA top ratings: Our top rated companies (AAA)
include many of our banks (CBA, ANZ, WBC) and REITS (SGP, GPT, DXS) and
perhaps surprising some of our gaming stocks (CWN, TAH). Despite operating in more
high risk industries, some of our contractors scored AAA (WOR, EHL, IDL). Our analysts
had Negative outlooks on ANZ, WBC, IDL and PPT. The ANZ and WBC AAA ratings do
not consider headcount reductions and outsourcing initiatives currently underway, and
hence we place both of them on Negative watch. For PPT, we see downside from the
AAA rating from key man risk and strategic cost initiatives. For IDL, its initial AAA rating
does not match commentary of weak efforts in relation to key emissions and waste risks.
■ Outperformance of AAA-rated stocks: On a one-month or more basis, the AAA-
rated stocks have outperformed the XJO. Over the three-year period, this
outperformance was 23% and over a 12-month period it was 19.6%.
Figure 2: MSCI IVA AAA-rated stocks Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
ANZ.AX Australia and New Zealand Bank 24.50 25.00 NEUTRAL AAA Negative 1/10/2011 -1.8% 8.2% 31.3% 16.6% 66,574
BXB.AX Brambles Limited 6.85 7.88 OUTPERFORM AAA Neutral 1/03/2012 3.1% -1.2% 12.2% -3.3% 11,029
CBA.AX Commonwealth Bank Australia 55.37 54.00 UNDERPERFORM AAA Neutral 1/10/2011 1.8% 14.5% 29.0% 27.0% 88,158
CPA.AX Commonwealth Property Office 1.04 1.03 UNDERPERFORM AAA Neutral 1/10/2011 -1.0% 8.8% 17.1% 27.9% 2,441
CWN.AX Crown 9.10 8.80 NEUTRAL AAA Neutral 1/02/2012 2.3% 6.9% 16.9% 14.8% 6,628
DXS.AX Dexus Property Group 0.97 1.00 NEUTRAL AAA Neutral 1/10/2011 0.0% 14.0% 21.3% 40.2% 4,670
EHL.AX Emeco Holdings 0.73 1.25 OUTPERFORM AAA Neutral 25/05/2012 -17.0% -29.2% -19.8% 15.8% 461
GPT.AX GPT Group 3.50 3.60 UNDERPERFORM AAA Neutral 1/10/2011 -1.4% 15.2% 14.9% 23.2% 6,184
IAG.AX Insurance Australia Group 4.37 4.00 NEUTRAL AAA Neutral 18/04/2012 7.9% 32.1% 48.9% 29.8% 9,085
IDL.AX Industrea Ltd 1.24 1.27 NEUTRAL AAA Negative 3/05/2012 -0.8% 21.0% 4.1% 5.3% 459
LLC.AX Lend Lease 7.70 8.48 NEUTRAL AAA Neutral 25/07/2012 -3.4% 6.0% 11.4% -4.0% 4,410
PPT.AX Perpetual 26.30 28.00 NEUTRAL AAA Negative 25/06/2012 -2.2% 5.2% 26.5% -16.7% 1,104
SGM.AX Sims Metal Management 9.60 11.00 OUTPERFORM AAA Neutral 1/12/2011 4.2% -34.6% -18.9% -53.2% 1,961
SGP.AX Stockland 3.33 3.30 NEUTRAL AAA Neutral 1/10/2011 6.1% 17.3% 21.4% 0.4% 7,337
TAH.AX Tabcorp Holdings 2.84 3.30 NEUTRAL AAA Neutral 1/02/2012 -2.7% 8.5% 18.5% 11.5% 2,074
WBC.AX Westpac 24.52 26.75 OUTPERFORM AAA Negative 1/10/2011 -1.4% 15.8% 26.6% 10.7% 75,525
WOR.AX WorleyParsons 27.75 27.55 NEUTRAL AAA Neutral 1/12/2011 7.9% -1.3% 11.9% 1.3% 6,720
AAA Weighted average 0.4% 12.2% 26.7% 16.7% 294,819
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 0.5% 13.1% 19.8% 23.0% Source: MSCI IVA ratings, Credit Suisse estimates
■ Some upside for our worst rated stocks: Only a few companies are rated in the
CCC range. However, our analysts have Positive outlooks on ABC and BTU. We see
Positive upside for ABC, from reduced carbon emissions with the potential for ABC to
import cement, or use alternative fuels or cement substitutes. We believe the recent
announcement that one party has withdrawn their appeal against BTU’s Buller
Escarpment coking coal project in New Zealand is positive. BTU has revised its
construction plan to be more environmentally considerate.
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Australian ESG/SRI 3
■ BTU outperformance dominates CCC rated stocks: Over a 12-month period, the
CCC-rated stocks have outperformed the XJO by 9.0%, much lower than the
outperformance of the AAA-rated stocks. Over a three-year period, the 65%
outperformance of the CCC-rated stocks is distorted by the ~500% return of BTU.
Figure 3: MSCI IVA CCC-rated stocks Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance
ABC.AX Adelaide Brighton 2.96 3.15 NEUTRAL CCC Positive 25/05/2012 0.0% 4.7% 21.1% 29.9%
BTU.AX Bathurst Resources 0.41 0.80 OUTPERFORM CCC Positive 1/12/2011 -1.2% -45.0% -42.3% 521.6%
PMV.AX Premier Investments Ltd 5.82 5.95 NEUTRAL CCC Neutral 8/06/2012 16.9% 7.5% 17.5% -8.1%
TRS.AX The Reject Shop 11.95 11.00 UNDERPERFORM CCC Neutral 1/06/2011 4.4% 0.9% 33.2% 2.4%
CCC Weighted average 4.8% 0.9% 15.9% 58.7%
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 4.9% 1.7% 9.0% 65.0% Source: MSCI IVA ratings, Credit Suisse estimates
■ Positive outlooks on many BBB–B rated stocks: Across the universe of Credit
Suisse Australian stock coverage, analysts have a Positive outlook on the MSCI IVA
rating for 30 stocks and a negative outlook on 15 stocks (refer Figure 4 and Figure 179
in Appendix 1). The Positive outlooks were concentrated in the stocks rated in the B
range (BBB–B), while Negative outlooks were concentrated in the A range rated
stocks (AAA–A).
Figure 4: Stock ratings (MSCI IVAS) and analyst outlook
17 17
23
32
28
23
4
- 1 2
8
5
12
2 4
2 3 4
1 1 - -
5
10
15
20
25
30
35
AAA AA A BBB BB B CCC
Total Positives Negatives
Source: Credit Suisse estimates, MSCI IVA ratings
Performance by MSCI IVA rating
■ AAA-rated outperformance over the shorter term: We have compared the
performance of stocks by their current MSCI rating over a short term (one-month, six-
month and 12-month period) and longer term of three years. While this type of
analysis does have issues, our interest is drawn to the outperformance of the AAA
(MSCI IVA rated) stocks over the one-month–three-year period, compared to many of
the lower ratings and to the All Ordinaries index. The AAA-rated stocks are dominated
by the Australian banks, which have outperformed the market by ~25%–30%.
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Australian ESG/SRI 4
■ Outperformance of worse rated stocks: Initially surprising is the outperformance of
the B and CCC (MSCI IVA) rated stocks. These categories are dominated by smaller
cap resource stocks, such as AUT (rated B) and BTU (rated CCC). AUT has moved
from exploration to production, delivering ~2150% upside over the past five years.
BTU is has moved into production with upside factored into the share price for the
possible approval of another project, delivering ~500% upside.
■ The challenge of junior resource companies: The challenge here is to ensure
issues in production do not affect the companies’ performance. MSCI raises issues on
lack of processes and disclosure for many junior resource companies. With many of these
companies focussed on advancing projects to production, the expectation is that the Board
and management will turn their attention to improved processes and disclosure.
Figure 5: Performance by MSCI IVA rating
MSCI
ESG
Rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
AAA Weighted average 0.4% 12.2% 26.7% 16.7% 294,819
AA Weighted average 0.5% 0.3% 6.3% -1.7% 322,627
A Weighted average 0.2% 1.6% 18.4% 11.2% 117,700
BBB Weighted average 1.1% -1.6% 6.0% 21.6% 258,130
BB Weighted average 1.7% 5.3% 14.6% 10.0% 149,812
B Weighted average 2.4% 2.8% 13.4% 128.0% 40,069
CCC Weighted average 4.8% 0.9% 15.9% 58.7% 3,388
Not rated Weighted average 1.3% 0.0% 15.2% 45.2% 17,375
Australian All ORDS -0.1% -0.8% 6.9% -6.3% - Source: MSCI IVA ratings, Credit Suisse estimates
Figure 6: Recent performance by MSCI IVA rating Figure 7: 3 year MSCI rating performance
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1 month total return 6 months total return 12 months total return
AAA
AA
A
BBB
BB
B
CCC
Not rated
Australian All ORDS
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
3 year performance
AAA
AA
A
BBB
BB
B
CCC
Not rated
Australian All ORDS
Source: MSCI IVA ratings, Company data, Credit Suisse estimates Source: MSCI IVA ratings, Company data, Credit Suisse estimates
Positive views
■ Positive upside in NAB: Of the AA-rated stocks, NAB has been placed on Positive
outlook by our analysts, with an expectation that this stock could move to the highest
AAA MSCI IVA rating when next reviewed by MSCI. For NAB, MSCI considers that its
reliance on wholesale funding warrants a lower Governance score than peers such as
CBA and WBC, leading to an AA score compared to AAA for WBC, CBA and ANZ. We
do not believe its wholesale funding proportion is significantly higher than peers so we
believe an upgrade may be warranted.
27 September 2012
Australian ESG/SRI 5
Figure 8: Analyst POSITIVE views on MSCI IVA rating Ticker Company name Actual
share
price ($)
Target
Price
($)
Rating MSCI
ESG
Rating
View on
MSCI rating
Anlyst MSCI view
ABC.AX Adelaide Brighton 3.00 3.15 NEUTRAL CCC Positive We see upside risk to the MSCI rating given ABC's has flexibility to increase its cement/clinker import
capabilities, and hence reduce carbon emissions. Increasing the use of alternative fuels and cement substitutes
(slag) should further assist with reducing carbon emissions. This is not captured in the MSCI assessment.
AIO.AX Asciano Group 4.37 5.95 OUTPERFORM BBB Positive While staff engagement is a key concern at Patrick, the conclusion of negotiations and the signing of a new
workplace agreement should result in immediate productivity improvements and staff engagement. On this basis
we do not agree with the poor MSCI rating in this category and believe there is scope for a re-rating.
AQA.AX Aquila Resources 2.62 2.75 NEUTRAL B Positive AQA has sold its Isaac plains operations and we expect it to further reduce its coal exposure which should
improve environmental scores
AUT.AX Aurora Oil & Gas 3.50 4.02 NEUTRAL B Positive AUT ranks poorly due to weak disclosure on carbon management systems, no management strategy to mitigate
risks to the environment or safety risks. It would not take much to improve this ranking.
BEN.AX Bendigo and Adelaide Bank 7.67 8.75 NEUTRAL BBB Positive Rating does not consider environmental and community initiatives being undertaken by BEN.
BOQ.AX Bank of Queensland 7.54 8.00 OUTPERFORM BBB Positive Rating does not consider"green" initiatives being undertaken by BOQ.
BTU.AX Bathurst Resources 0.42 0.80 OUTPERFORM CCC Positive BTU recently announced that one party (the Fairdown Whareatea Residents) has withdrawn their appeal against
BTU's Buller Escarpment coking coal project and that it revised its construction plan to be more environmentally
considerate
CSR.AX CSR 1.58 1.17 UNDERPERFORM BB Positive We see upside to MSCI's 'BB' rating. CSR is invlolved in the manufacture of building products that facilitate the
construction of 6-star green rating homes (smart glass; insulation). This is not captured in the MSCI
commentary. CSR is also active in sourcing renewable energy for manufacturing purposes.
CTX.AX Caltex Australia 15.89 15.55 UNDERPERFORM A Positive The announcement to close the Kurnell refinery will likely see CTX improve on its Environmental score.
DJS.AX David Jones 2.51 2.20 UNDERPERFORM B Positive David Jones was recently downgraded to 'B' from 'BB' as the company lacks transparency on its ability to
manage issues such as product safety, supply chain labour standards, and carbon reductions in its operations.
We view these issues as being manageable, largely requiring more disclosure on their operations alone. With
this in mind and with no obvious additional MSCI risks surrounding the business we have a positive outlook for its
rating.
DUE.AX DUET Group 2.07 2.07 NEUTRAL BB Positive DUE has recently been downgraded from BBB to BB, with a lack of disclosure on environmental issues such as
biodiversity and land use, and Social issues such as Employee benefits and programs. We believe as DUE
moves to internalise management and acts more as an integrated company rather than as a manager of asset
companies, disclosure will improve.
EVN.AX Evolution Mining Limited 1.87 1.70 NEUTRAL B Positive Current 'B' rating would appear to be weighed down by Evolution only recently being formed (merger of Catalpa
Resources and Conquest Mining). We'd expect ESG policies to be gradually developed over time.
FLT.AX Flight Centre 23.71 26.35 OUTPERFORM BB Positive We believe the MSCI rating is not appropriate for FLT given that it highlights water stress as a key area of
exposure. FLT is a retail travel agent and we believe this risk has been miscategorised.
GBG.AX Gindalbie Metals Ltd 0.27 1.00 OUTPERFORM B positive MSCI notes environmental risks in monitoring water draw from borefield. However, potential positive social
influence on town of Geraldton through deliberate employment of local businesses and additional power security
as Government links Mid-West electrical distribution to Perth Area power for benefit of the mine.
HGG.AX Henderson group 1.66 1.47 OUTPERFORM A Positive Retention of both AuM and staff post Gartmore acquistion has been ahead of expectations.
HVN.AX Harvey Norman 1.96 2.15 NEUTRAL B Positive Harvey Norman was recently downgraded to 'B' from 'BB' as the company lacks transparency on its ability to
manage issues such as supply chain labour standards and in its handling of chemicals used by its electronics
suppliers. With the downgrading relating only to disclosure of issues we see a future upgrade as being relatively
inexpensive to achieve and so carry a positive outlook.
ILU.AX Iluka Resources 10.27 13.50 OUTPERFORM BBB Positive Rating primarily based on negative impact from carbon tax - CO2 numbers quoted were for all 4 kilns, whereas
only two are operational. Furthermore, Iluka expects to being eligible for assistance making the financial impact
small.
KAR.AX Karoon Gas 5.32 7.65 OUTPERFORM B Positive KAR ranks poorly due to weak disclosure on carbon management systems, no management strategy to mitigate
risks to corruption and instability from operating in Peru and Brazil. It would not take much to improve this
ranking.MDL.AX Mineral Deposits Ltd. 5.58 9.09 OUTPERFORM BBB Positive MDL has experience in Senegal through building the Sabodala gold mine. Recent political disturbance subsided
when President Wade accepted defeat after 2nd round presidential elections.
MMS.AX McMillan Shakespeare 12.27 13.55 OUTPERFORM B Positive We belive the MSCI rating is not appropriate for MMS given it highlights "operational losses related to labour
management" as key area of weakness. We believe that MMS's proactive approach to human capital and
rigorous internal/external audit and focus on risk management is not represented in its 0.6/10 "Labor
Management" score.
MSB.AX Mesoblast 6.79 7.40 NEUTRAL B Positive B' rating. MSB is penalised for not having programs in place to mitigate human capital loss. We believe the
report has overlooked the fact that MSB's senior employees are all granted equity options. MSB is also
penalised for its 2010 Angioblast acquisition, which is cited as having the potential to destabilise moral. In our
view this is not an issue. Further, it is noted that MSB does not have a strategy to improve healthcare in
emerging markets. Given MSB is still undertaking clinical studies into its products, this last point appears
misguided. We expect an upgrade to MSB's ESG rating, however whether this happens in the near or long term
is unknown.
NAB.AX National Australia Bank 25.53 26.00 NEUTRAL AA Positive Rating is based on a high proportion of wholesale funding reliance, however, it is comparable to major bank peers
and does not increase its financial instability.
NVT.AX Navitas Ltd 4.15 4.80 OUTPERFORM BB Positive We belive the MSCI rating is not appropriate for NVT given that the two areas of weakness highlighted are
"Human Capital Development" and "Carbon Emissions". We believe that NVT's internal human capital initiatives
and small carbon footprint are not representative of the ratings allocated.
PRU.AX Perseus Mining 2.82 3.10 OUTPERFORM B Positive Recent downgrrade to 'B' rating reflects poor biodiversity and land use, health & safety scores. Given the project
is in early stages, as production ramps up at Edikan in Ghana, we expect an increased focus by management
on addressing these issues in future.
QUB.AX Qube Logistics 1.47 1.90 OUTPERFORM B Positive Given the indirect environmental benefits of shifting up to 1 million containers from road to rail which the
Moorebank facility could provide, we believe the MSCI environment rating should be higher.
RMD.AX ResMed Inc. 3.85 3.93 OUTPERFORM BB Positive BB' rating. RMD's rating suffers as it does not disclose initiatives to improve healthcare in developing regions, nor
does it provide evidence of anti-corruption measures. RMD was also penalised for a lack of carbon emission
disclosures. In our view, RMD's disclosure on carbon should improve as the carbon tax legislation in Australia SFR.AX Sandfire Resources NL 8.28 7.20 UNDERPERFORM B Positive B rating (coverage just initiated) noted concerns over "a weak management approach to all key issues
assessed". Given SFR's operational mine has only just commenced production, risk is to the upside that focus
may, in time, gradually increasingly turn to improving ESG awareness.
SUN.AX Suncorp Group Limited 9.29 9.00 NEUTRAL BBB Positive SUN has a 'BBB' rating which will likely be revised up in the near term. SUN has been marked down due to
weather-related claims, whereas for IAG this was rated as a positive. We also consider SUN's low rating for
responsible investment to be addressed in the near term with the sale of their Brisbane head office. When these
issues are addressed SUN will likely move up to an 'A' or 'AA' rating in our view.
TLS.AX Telstra Corporation 3.93 4.00 NEUTRAL BBB Positive We see medium to long term upside risks to TLS ESG rating driven by 1) the reduction in unionised labor force
as NBN rolls out. This will reduce risks for industrial disputes going forward adding to TLS Social rating. 2)
Secondly after the NBN is rolled out TLS will not longer be in the business of fixed line access, this has been a
large source of regulatory disputes / fines historically. Hence we see upside risk to TLS governance rating as
regulatory disputes become a thing of the past as NBN progresses.
UGL.AX UGL Limited 10.65 13.00 OUTPERFORM BBB Positive UGL scores only 2.8 on corruption purely due to lack of policy. Track record is actually good. Hence formation of
anti corruption policies would see a sharp reversal in this indicator which is 38% of total weighting. Upside from
environment rating based on expected increase in property services earnings as % group.
Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 6
Negative views
■ Downsides for AAA-rated stocks: Analysts have rated 15 stocks with negative
outlook on their MSCI IVA scores. Of the AAA-rated stocks, analysts have Negative
watches on the Financials: ANZ, WBC and PPT; as well as IDL.
Figure 9: Analyst NEGATIVE views on MSCI IVA rating Ticker Company name Actual
share
price ($)
Target
Price
($)
Rating MSCI
ESG
Rating
View on
MSCI rating
Anlyst MSCI view
AGO.AX Atlas Iron 1.42 2.70 OUTPERFORM B Negative Usage of highways for trucking iron ore to Port Hedland is ongoing which may expose the company to social
pressure from local community groups if the movements impact Port Hedland. It also increases risks of a road
accident involving passenger vehicles.
ANZ.AX Australia and New Zealand
Bank
24.50 25.00 NEUTRAL AAA Negative Rating is based on FY11 and does not consider the headcount reduction programs currently underway and push
for greater outsourcing.
ASX.AX ASX 29.85 28.50 UNDERPERFORM BBB Negative Negative watch reflects potential adverse impacts from change in regulatory environment (particularly in clearing
and settlement).
AWC.AX Alumina Limited 0.85 0.84 NEUTRAL AA Negative CO2 emmissions mainly from Victorian smelters is the main high profile environmental issue. Industry get 96.5%
protection in year 1, but AWAC smelters run on Victorian electricity generated by burning brown coal so subsidy
less than industry average.
AWE.AX AWE Ltd 1.34 1.75 OUTPERFORM BBB Negative Since the last rating review, AWE has invested in Indonesia which will most likely lower the company's score for
corruption and instability.
BHP.AX BHP Billiton 32.81 35.85 NEUTRAL AA Negative Labour disputes in Queensland could negatively impact social rating
CAB.AX Cabcharge Australia 5.37 6.40 NEUTRAL BBB Negative We believe the MSCI rating is not appropriate given it does not factor in CAB's various areas of regulatory risk.
Such as, credit card surcharging, taxi industry oversight and competition concerns.
DOW.AX Downer EDI 3.55 4.10 OUTPERFORM A Negative We see downside risk to DOW's MSCI rating based on social issues that could extend from NZ restructure. In
addition we note DOW has scored extremely well (9.6/10) for carbon emissions which are 18% of overall
weighting. We highlight potential downside risks to this given DOW's involvment in asphalt production (which
currently falls under the carbon tax threshold) and expansion of its contract mining operations.
ERA.AX Energy Resources of
Australia
1.35 1.65 NEUTRAL BB Negative Going underground increases health and safety risk. Operating in extremely sensitive Kakadu World Heritage
Area and political ambiguity around uranium.
IDL.AX Industrea Ltd 1.24 1.27 NEUTRAL AAA Negative We belive the MSCI rating is not appropriate given IDL's end market exposures in relation to carbon emissions
and waste management.
MQG.AX Macquarie Group 28.55 35.00 OUTPERFORM A Negative Rating is based on FY11 and does not consider the headcount reduction programs currently underway.
ORI.AX Orica 24.79 29.40 OUTPERFORM BBB Negative We see risks around ORI's 'BBB' rating. This follows a series of production issues at its Kooragang Island
ammonium nitrate facilities involving toxic chemical release. Implicit within the MSCI report is a section on "Toxic
Release" (33% weighting) and "Product Safety" (17% weighting) component. These sections make no
consideration for the recent toxic issues.
PPT.AX Perpetual 26.30 28.00 NEUTRAL AAA Negative Negative risk relates to key man risk as well as the implementation of strategic cost initiatives.
QBE.AX QBE Insurance Group 12.98 14.79 OUTPERFORM A Negative Recently downgraded from 'AA' to 'A' which is justified based on environmental risks, but we consider a further
downgrade likely as the CEO looks to retire and move on to the board later in 2012.
WBC.AX Westpac 24.52 26.75 OUTPERFORM AAA Negative Rating is based on FY11 and does not consider the headcount reduction programs currently underway and push
for greater outsourcing. Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 7
Stock screening
■ ESG overlays on key calls: We have taken key strategy team, sector analysts, and
quant calls and overlaid those with our ESG views of AAA-rated (MSCI IVA) or
analysts’ Positive outlook on the MSCI IVA rating. As a result, our key long calls are
BXB (strategy), RMD, TAH, WBC (sector analysts) and BOQ, ILU, PRU (quant). Our
key short call on ASX and TWE (both from sector analyst).
■ RMD key Long call has a Positive outlook on its MSCI IVA rating: RMD is a key
call by our analyst, based on valuation and the defensive nature of the health care
sector.
■ TAH is a key Long call with an AAA MSCI IVA rating: TAH has the top AAA MSCI
IVA rating. Our analyst has selected it as a key Long call based on a preference for
the less risky domestic wagering businesses, with TAH representing better value than
TTS. Wagering revenue growth reached 7% in the June qtr and variable contribution
margin increased sequentially to 36.4% from 36.1%. We upgraded our revenue
projections. Customer growth and market share were solid in FY12. Strong growth in
fixed odds, sports bets and on-line bets which attract lower taxes and fees continue to
lift margins. These trends are likely to continue for a few years. The Victorian license
refund claim has been lodged. The payment could be as high as A$686mn before a
partial tax assessment. This is not in our valuation.
■ WBC – key long call has an AAA MSCI IVA rating: WBC is AAA rated (MSCI IVA)
with an analyst Outperform call. WBC is a key Long call and our top pick amongst the
major banks, based on asset quality defensiveness, domestic consumer banking
orientation, good cost restructuring potential and undemanding multiples. We note our
analyst has a Negative outlook on the MSCI IVA AAA rating for WBC, based on
concerns over the impact of headcount reductions (Negative Social concerns), which
paradoxically is also part of the upside thesis for the Key Long call (good cost
restricting potential).
■ BXB – fits our Global Cyclicals Strategy call: For BXB, our Strategy team has a
preference for Global Cyclicals over Domestic Cyclicals and prefers BXB. BXB is AAA
rated (MSCI IVA) with an analyst Outperform call. We continue to believe Brambles is
the highest quality name in the Australian Transport universe. While the business is
considered by some to be expensive, trading at a 30% premium to market on PE
basis, we believe the growth prospects and operating characteristics continue to justify
such a multiple. The business is highly leveraged to an FMCG volume and pricing
recovery in Western markets, particularly the US where we are starting to see
tentative signs of pricing increases. In addition the business continues to expand in
emerging markets like China and EMEA, where we see growth accelerating. Finally,
the business continues to earn very high margins and returns on capital, helped by
reasonably high barriers to entry and longstanding relationships with customers. For
ESG, BXB continues to improve its sourcing of sustainable lumbar for its CHEP
business, with 94% of lumbar coming from certified sources (up from 91%), with a
target of 100% certified sourcing (independently verified) by 2015. Its CHEP business
is also working on a carbon neutral pallet for customers.
■ Favour BOQ, ILU and PRU for our Quant theme of growth and value: BOQ, ILU
and PRU are stocks we have highlighted in our recent Quant note as providing growth
and value. All these stocks have a Positive analyst outlook on the MSCI IVA rating and
an Outperform analyst call.
o BOQ FY12 result upside: We believe BOQ could modestly beat
consensus at the 18 October FY12 result through lower-than-expected
bad debts (larger impaireds have been divested, underlying impaireds
are stabilising). BOQ also undertook strong provision restocking earlier in
the year.
27 September 2012
Australian ESG/SRI 8
o ILU growth in FY13 volumes: We see ILU as undervalued, based on
mineral sands prices, with expected increases in sales volumes in FY13.
Operations are cash positive and high margin.
o PRU growth in FY13: PRU is our favoured pick amongst junior gold
exposures. It is leveraged to gold price, Tengrela construction and
primarily Edikan ramp-up to 8Mtpa. If Edikan reaches the guided to
8Mtpa by mid-2013, the current share price is supported by Edikan NPV
alone.
■ ASX – key Short call: Stocks that we have a Negative Outlook on the MSCI IVA
rating and an Underperform analyst rating are ASX and TWE. ASX is also on our Key
Short Call, based on weak volumes, lack of cost cutting initiative, new revenue
initiatives not hitting until FY14 and viewed as expensive (15x PE) with 0% EPS
growth and 20% premium to the ASX200.
■ TWE – short call and a low MSCI IVA rating: Our Analyst has a key Short call on
TWE (paired with a Long call on TAH) combined with a weak B ESG rating under the
MSCI IVA system. We continue to regard this stock as expensive relative to the
market, intrinsic value and its peers. It is trading on ~22x FY13 and 17x FY14. We
question if the low 2H12 overheads can be maintained in North America and Asia. For
FY13, management expects constant currency EBIT to grow less than the historic two-
year CAGR (16%) due to rising IT costs, rising grape costs and distributor destocking.
Figure 10: ESG overlay on key stock calls Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap Key call criteria
ASX.AX ASX 30.34 28.50 UNDERPERFORM BBB Negative -0.1% -3.2% 9.9% 3.1% 5,329 Analyst Negative view on ESG rating
plus Analyst key Short callBOQ.AX Bank of Queensland 7.74 8.00 OUTPERFORM BBB Positive 2.4% 4.4% 29.1% -13.6% 2,387 Analyst positive view on ESG rating
plus Quant call on Growth and ValueBXB.AX Brambles Limited 6.74 7.88 OUTPERFORM AAA Neutral 4.1% -1.6% 9.6% -5.2% 11,010 AAA rated (MSCI IVA) and Strategy
sector call on Global cyclicalsILU.AX Iluka Resources 10.73 13.50 OUTPERFORM BBB Positive 16.4% -36.2% -7.3% 207.7% 4,572 Analyst positive view on ESG rating
plus Quant call on Growth and ValuePRU.AX Perseus Mining 2.82 3.10 OUTPERFORM B Positive 6.4% 17.8% -14.2% 118.5% 1,301 Analyst positive view on ESG rating
plus Quant call on Growth and ValueRMD.AX ResMed Inc. 3.79 3.93 OUTPERFORM BB Positive 7.3% 25.4% 32.4% 44.8% 6,135 Analyst positive view on ESG rating
plus Analyst key Long callTAH.AX Tabcorp Holdings 2.88 3.30 NEUTRAL AAA Neutral 0.3% 10.3% 19.5% 11.1% 2,103 AAA rated (MSCI IVA) plus Analyst key
Long callTWE.AX Treasury Wine 4.80 3.50 UNDERPERFORM B Neutral 1.7% 16.7% 36.3% #NULL! 3,074 Low MSCI IVA Rating of B plus Analyst
key Short call (paired with TAH)WBC.AX Westpac 24.49 26.75 OUTPERFORM AAA Negative -0.1% 16.0% 40.1% 10.8% 75,833 AAA rated (MSCI IVA) and Analyst key
Long call Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 9
Common ESG concerns by sector
■ In Figure 11 we have summarised some of our key ESG concerns for each sector.
The Financials sector is dominated by Social issues, whereas the Resources sector
has issues right across the ESG spectrum.
Figure 11: ESG issues by Sector Sector Subsector Issues
Financials Banks Social: regulatory changes arising from social pressures,
Social: pressure to pass on full reserve Bank rates cut to home borrowers
Diversified Financials Social: key man risk for fund managers
Social: regulatory changes to monopoly/dominant market positions
Social: large scale redundancies
Insurance Social: regulatory changes for capital requirements
Resources Coal Environmental: ability to develop new resources
Energy Social: landowner compensation for coal seam gas
Governance: country specific risk
Diversified resources Social: labour disputes
Governance: country specific risk
Other metals Environmental: ability to develop new resources
Governance: country specific risks
Steel Environmental: impact of carbon tax
Social: layoff of staff and viability of domestic production
Industrials Building materials Social: asbestos liability
Chemicals, paper, packaging Environmental: carbon tax impact
Construction Social: OH&S
Governance: bribery and reputation damage
Food and beverage Environmental: emissions and water usage
Gaming Social: potential responsible gaming legislation and employee initiatives
Healthcare Governance: disclosure and family domination
Media Governance: family domination
Retail Social: labour supply chain concerns
Social: gaming and liquor asset concerns
Telcos Social: privacy of data, upside from improving regulation (NBN)
Transport & infrastructure Environment: fuel efficient of fleet
Social: labour productivity
Utilities Environment: ability to develop coal seam gas in NSW
Social: rising electricity prices; landowner compensation for coal seam gas
REITS Environment: upside potential from strong environmental sustainability
Small caps Building Products Environment: carbon impact
Social: labour rights and OH&S
Governance: anti bribery
Consumer Retail Environment: waste
Social: labour rights and OH&S
Governance: supply chain labour issues
Consumer Services Social: privacy and data security; labour rights and OH&S
Corporate Services Environment: regulation
Social: labour rights and OH&S
Governance: anti bribery and corruption
IT Services Social: privacy and data security; labour rights and OH&S
Mining services Environment: policy and management systems
Social: labour rights and OH&S
Governance: anti bribery
Travel Environment: carbon offsetting
Social: privacy and data security
Governance: contracts and anti competitive regulations
Source: Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 10
Financial Banks
Analyst: Jarrod Martin, James Ellis, Omkar Joshi
MSCI ratings views
■ Positive on BEN, BOQ and NAB: We have a positive outlook on the MSCI IVA
ratings for BEN, BOQ and NAB. The MSCI ratings for these banks were last reviewed
in October 2011.
■ Community banking initiatives should lift BEN’s BBB: For BEN, we do not believe
the BBB rating considers environmental initiatives undertaken by BEN recently, as well
as BEN’s community banking strategy.
■ Green initiatives should lift BOQ’s BBB: For BOQ, we do not believe the BBB
rating considers the green initiatives undertaken by BOQ. These green initiatives
include investments in new energy efficient equipment; power saving modules for air
conditioning and office equipment and incorporating environmental considerations
when evaluating suppliers. BOQ is also a participant in the Carbon Disclosure Project
(CDP), a global database of climate change information which assists BOQ in
disclosing greenhouse gas emissions and reduction targets.
■ NAB reliance on wholesale funding not out of line with peers: For NAB, MSCI
considers that its reliance on wholesale funding warrants a lower Governance score
than peers such as CBA and WBC, leading to an AA score compared to AAA for
WBC, CBA and ANZ. We do not believe its wholesale funding proportion is
significantly higher than peers so we believe an upgrade may be warranted.
■ Headcount reductions affect our views on ANZ, WBC and MQG ratings: We have
a Negative outlook on ANZ, MQG and WBC. MQG was last reviewed in March 2012,
whereas ANZ and WBC were last reviewed in October 2011. The ANZ and WBC AAA
ratings do not consider headcount reductions and outsourcing initiatives currently
underway, and hence we place both of them on Negative watch. Similarly the A rating
for MQG does not consider recent headcount reductions.
ESG concerns in the sector
■ Current ESG compliance valued in Target Price: The Australian banks’ recent
focus has shifted to cost and FTE reduction programs with the prospect of significant
offshoring of personnel gaining increased attention. Given the systemic importance of
the banks within the Australian financial system, each bank pursues significant ESG
policies and compliance. Our valuation methodology is based on the assumption that
banks are ESG compliant. We have factored in the current internal cost reduction
programs in our Target Prices, and hence have no explicit downside ESG risk in our
Target Prices.
■ Further downside potential scenarios: However, downside risk potential remains
from Social pressures and Regulatory changes. This downside risk impact can be
calculated by increasing the equity risk premium by 1% above what we would expect
in a more benign ESG environment (cost of equity of 11.3% for commercial banks and
13.7% for MQG), to account for greater social and governance risks. Based on an
analysis of past episodes in which there has been the threat of intervention/regulation
such as fee caps, capital imposts and/or super-profits tax, the sector has traded at up
to a 1 PE point discount. We consider this will manifest itself through demand for a
higher equity return and therefore, we have judged the maximum threat to sector
valuations as an increase in the cost of equity by 1%. This results in potential
downside risk from ESG non-compliance of 10.1%, which we have not factored into
our Target Prices.
27 September 2012
Australian ESG/SRI 11
■ Declining cash rate environment: Given the start of a cash rate easing cycle, there
is the expectation that banks will pass on the full rate cuts to borrowers. However, due
to funding cost pressures, banks are inclined to withhold a portion of these rate cuts.
This pressure to pass on rate cuts in full has potential negative ESG consequences.
We have not valued this in our Target Price, believing the banks will withstand the
political and social pressures. In the last 25 bps Reserve Bank cuts, ANZ passed on
the full 25 bps, but CBA passed on 21bps, WBC passed on 20bps and NAB passed
on 21bps.
■ Social pressures on fees is reflected in recent class actions against ANZ. All banks
have cut the punitive type fees associated with late payments and overdrawn account,
and we do not forecast such fee income in our assumptions. Any successful outcome
from class actions on repayment of past fees would have minimal impact on valuations.
Summary of analyst views on MSCI rating
Figure 12: Analyst views on MSCI IVA rating
Company
Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction Comments
Env
rating
Soc
rating
Gov
rating
Rating
date
ANZ.AX Australia and New Zealand Bank 25.00 0.0% AAA Negative Rating is based on FY11 and does not consider the headcount
reduction programs currently underway and push for greater
outsourcing.
8.5 6.8 8.4 1/10/2011
BEN.AX Bendigo and Adelaide Bank 8.75 0.0% BBB Positive Rating does not consider environmental and community
initiatives being undertaken by BEN.
4.1 5.3 10.0 1/10/2011
BOQ.AX Bank of Queensland 8.00 0.0% BBB Positive Rating does not consider"green" initiatives being undertaken
by BOQ.
3.5 5.3 9.8 1/10/2011
CBA.AX Commonwealth Bank Australia 54.00 0.0% AAA Neutral Rating is appropriate based on its consideration of all relevant
factors.
8.7 6.1 10.0 1/10/2011
MQG.AX Macquarie Group 35.00 0.0% A Negative Rating is based on FY11 and does not consider the headcount
reduction programs currently underway.
3.5 6.3 4.9 1/03/2012
NAB.AX National Australia Bank 26.00 0.0% AA Positive Rating is based on a high proportion of wholesale funding
reliance, however, it is comparable to major bank peers and
does not increase its financial instability.
7.1 6.4 7.0 1/10/2011
WBC.AX Westpac 26.75 0.0% AAA Negative Rating is based on FY11 and does not consider the headcount
reduction programs currently underway and push for greater
outsourcing.
9.1 5.4 10.0 1/10/2011
Average 6.4 5.9 8.6 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 13: MSCI IVA analysis: ANZ Figure 14: MSCI IVA analysis: CBA Overall ESG rating AAA
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 12
Figure 15: MSCI IVA analysis: WBC Figure 16: MSCI IVA analysis: NAB Overall ESG rating AAA
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 17: MSCI IVA analysis: MQG Figure 18: MSCI IVA analysis: BEN Overall ESG rating A
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 19: MSCI IVA analysis: BOQ Overall ESG rating BBB
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 13
Diversified Financials
Analyst: John Heagerty, David Bailey
MSCI ratings views
■ Upside possible for HGG: We have a Positive outlook on the MSCI IVA A rating for
HGG (last reviewed June 2012), and Negative outlook on PPT’s AAA rating and ASX’s
BBB rating.
■ Upside for HGG: For HGG, post the Gartmore acquisition, staff retention and AuM
have been ahead of expectations. Hence we see upside to HGG’s A rating which was
downgraded to A from AA in June 2012.
■ Downsides for PPT: For PPT, we see downside from the AAA rating set in June
2012, from key man risk and strategic cost initiatives.
■ Downside for ASX: For ASX, we see downside from the BBB rating set in July 2011,
from potential changes in the regulatory (clearing and settlements) environment.
■ IOOF upgraded to AA from A in June 2012, based on the strong integration of ESG
into the investment analysis of its subsidiary, Perennial Investment Partners.
■ No near-term change for low rating on PTM and IRE: Both IRE and PTM rate a
relatively low B, compared to the rest of the sector. IRE suffers from concerns over
poor employee benefits and programs and concerns over a lack of policies on data
protection. We do not see any near-term changes. For PTM, a lack of any ESG
consideration in investment decisions, plus a lack of employee benefits for all staff,
leads to a low B rating. We do not see any near-term change to this rating.
ESG concerns in the sector
■ Key man risk for fund managers: The key risk currently facing all fund managers is
that of key man risk whereby the departure of an important individual can negatively
impact flows and hence revenues. This was witnessed in 2011 when PPT suffered the
loss of over $2bn of FUM following the departure of its Head of Equities. We have
considered a scenario of 10% downside to our Target Price should PPT lose $2bn
(8%) of FUM.
■ Regulatory risk leading to market share changes also a concern: For ASX, any
regulatory change to promote competition in clearing would be damaging to ASX’s
monopoly position. We have considered a scenario of halving of fees, which would
result in a 6% downside to Target Price, but we have not factored this into our Target
Price. Similarly, CPU and IRE enjoy dominant market shares in most of their
operations; changes to the competitive environment stemming from regulatory change
could have damaging impacts on profitability. We have considered a 4% Target Price
downside scenario for CPU should competition in the USA intensify.
■ Market environment the biggest threat: While only relevant to ESG in the broader
sense of the phrase, the exposure of diversified financial stocks to global
macroeconomic shocks leaves them vulnerable to large earnings swings and therefore
greater social upheaval, e.g. PPT recently announced that 300 FTE would be made
redundant over the next two years.
27 September 2012
Australian ESG/SRI 14
Summary of analyst views on MSCI rating
Figure 20: Impact of ESG on Target Prices for Diversified Financials Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating date
ASX.AX ASX 28.50 0.0% BBB Negative Negative watch reflects potential adverse impacts from change
in regulatory environment (particularly in clearing and
settlement).
5.0 5.2 7.5 1/07/2011
BTT.AX BT Investment Management 2.10 0.0%
CGF.AX Challenger Financial Services Group5.00 0.0%
CPU.AX Computershare 9.38 0.0% BBB Neutral We see the rating as appropriate given balance of risks
between increased IT functions and reduced paper usage as
well as focus on data security.
7.7 4.4 7.0 25/05/2012
HGG.AX Henderson group 1.47 0.0% A Positive Retention of both AuM and staff post Gartmore acquistion has
been ahead of expectations.
6.8 5.6 7.0 25/06/2012
IFL.AX IOOF Holdings 6.50 0.0% AA Neutral We see the rating as appropriate given balance of risks
between socially responsible investing and staff retention /
development.
6.2 6.5 7.0 25/06/2012
IRE.AX IRESS Limited 7.30 0.0% B Neutral We see the rating as appropriate given consideration of key
criteria.
4.2 3.8 7.0 25/05/2012
PPT.AX Perpetual 28.00 0.0% AAA Negative Negative risk relates to key man risk as well as the
implementation of strategic cost initiatives.
7.0 7.0 7.0 25/06/2012
PTM.AX Platinum Asset Management 3.35 0.0% B Neutral We see the rating as appropriate given balance of risks
between socially responsible investing and key man loss.
4.5 1.9 7.0 25/06/2012
Average 5.9 4.9 7.1 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 21: MSCI IVA analysis: ASX Figure 22: MSCI IVA analysis: CPU Overall ESG rating BBB
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 23: MSCI IVA analysis: HGG Figure 24: MSCI IVA analysis: IFL
Overall ESG rating A
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 15
Figure 25: MSCI IVA analysis: IRE Figure 26: MSCI IVA analysis: PPT Overall ESG rating B
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 27: MSCI IVA analysis: PTM Overall ESG rating B
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 16
Insurance
Analyst: John Heagerty, Andrew Adams
MSCI ratings views
■ QBE on Negative outlook, post CEO resignation: We have a Negative outlook on
QBE’s A rating, set in April 2012 (down from AA). We believe a further downgrade is
possible, with the resignation of long standing CEO, Frank O’Halloran, and his
expected return to the board before the 2013 AGM.
■ SUN on Positive outlook: For SUN, we see upside to its BBB rating, set in April
2012. SUN received a relatively low score for Insuring Climate Change Risk,
compared to peers such as IAG. However, we see SUN leading the industry in flood
mapping, especially post the 2011 flooding in Queensland. We also see the low score
for Responsible Investing improving as SUN moves to sell its head office (viewed as
an illiquid asset and subject to climate change issues). SUN has also joined the
FTSE4Good Index. SUN has commented that responsible management of financial,
social and environmental performance was integral to the group's way of doing business
and shaping operations for the future, emphasising the achievements in reducing
environmental impact, promoting a flexible and diverse workplace and the many
volunteering, sponsorship and community investment programs that SUN has initiated.
ESG concerns in the sector
■ Government policy re capital requirements: As a reaction to the recent financial
crisis and changes to global capital requirements for insurers, the local regulator,
APRA, has released final proposals for new capital requirements. While the exact
impact on insurers is still unknown it is likely that the outcome is an increase in the
levels of capital held. This and potential further changes, puts pressure on the return
on equity achieved by insurers and hence their valuations as they gradually try to
recover this from policyholders. We have not included any impact from this in our
Target Prices.
■ Government pressure on disaster coverage and payout: As a result of the extreme
flooding in Queensland in early 2011, the Government recently enacted legislation to
give a standard definition of flood. There is also the requirement for flood cover to be
compulsory in home insurance policies. With some risks being uninsurable it is yet to
be seen how this will play out with the potential for the industry to have to share in the
losses from these extreme risks. We have not included any impact from this in our
Target Prices.
■ Impact of affordability: With increases in reinsurance costs, additional flood, falling
bond yields and other factors impacting the cost of insurance, insurers are looking to
increase insurance premiums by more than 10% on some policies. In the current
economic environment it is however difficult for some consumers to cover this cost
and hence insurers face the risk that they will be required to offset their own cost
increase over a period of a few years. This could pressure on earnings in the near
term. We have not included any impact from this in our Target Prices.
■ Regulated price products: In addition to the affordability issue, in some products
(Compulsory Third Party and workers compensation) the Government regulator is
require to approve premium rate increases. There is a risk that the Government caps
the level of premium rates increases and hence the insurers could suffer some short-
term margin contraction as a result of inadequate premiums being charged. We have
not included any impact from this in our Target Prices.
27 September 2012
Australian ESG/SRI 17
Summary of analyst views on MSCI rating
Figure 28: : Impact of ESG on Target Prices for Insurance Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
AMP.AX AMP 4.65 0.0% A Neutral An 'A' rating is appropriate based on AMP's exposure and the
company's current management of ESG.
7.0 4.4 9.3
AUB.AX Austbrokers 7.95 0.0% No rating
IAG.AX Insurance Australia Group 4.00 0.0% AAA Neutral Recently upgraded to AAA from A and we support this rating.
The recent few years (large claim events) have given IAG the
opportunity to demonstrate its ESG focus.
6.8 4.3 8.2
QBE.AX QBE Insurance Group 14.79 0.0% A Negative Recently downgraded from 'AA' to 'A' which is justified based
on environmental risks, but we consider a further downgrade
likely as the CEO looks to retire and move on to the board
later in 2012.
4.8 3.5 8.7
SUN.AX Suncorp Group Limited 9.00 0.0% BBB Positive SUN has a 'BBB' rating which will likely be revised up in the
near term. SUN has been marked down due to weather-related
claims, whereas for IAG this was rated as a positive. We also
consider SUN's low rating for responsible investment to be
addressed in the near term with the sale of their Brisbane head
office. When these issues are addressed SUN will likely move
up to an 'A' or 'AA' rating in our view.
4.9 3.0 7.0
TWR.AX Tower Limited 1.72 0.0% No rating
Average 5.9 3.8 8.3 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 29: MSCI IVA analysis: AMP Figure 30: MSCI IVA analysis: IAG Overall ESG rating A
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 31: MSCI IVA analysis: QBE Figure 32: MSCI IVA analysis: SUN Overall ESG rating A
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 18
Resources and Energy Coal
Analyst: Paul McTaggart, James Redfern, Martin Kronberg
MSCI ratings views
■ Upside possible for BTU’s CCC rating: Few of our covered coal companies are
rated by MSCI. We have a Positive outlook on the CCC MSCI IVA rating for BTU, set in
December 2011. We believe the recent announcement that one party has withdrawn
their appeal against BTU’s Buller Escarpment coking coal project in New Zealand is
positive. BTU has revised its construction plan to be more environmentally considerate.
ESG concerns in the sector
■ Environmental challenges: The Australian coal sector faces stiffer environmental
approvals, including delays, and some opposition from farmers and environmentalists
for development of new and expanded mines. We have risk weighted or excluded
assets exposed to these risks in assessing the ESG impacts on the coal sector.
Summary of analyst views on MSCI rating
Figure 33: Impact of ESG on Target Prices for Coal Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
BND.AX Bandanna Energy Limited 0.70 -10.0% No MSCI rating
BTU.AX Bathurst Resources 0.80 -18.0% CCC Positive BTU recently announced that one party (the Fairdown Whareatea
Residents) has withdrawn their appeal against BTU's Buller
Escarpment coking coal project and that it revised its construction
plan to be more environmentally considerate
1.4 3.4 3.8
COK.AX Cockatoo Coal 0.20 0.0% No MSCI rating
NHC.AX New Hope Corporation 4.60 -3.0% No MSCI rating
SMR.AX Stanmore Coal 0.65 -15.0% No MSCI rating
TIG.AX Tigers Realm Coal 0.30 -17.0% No MSCI rating
WHC.AX Whitehaven Coal 4.40 -4.0% BB Neutral We do not see the merger with Azton providing any change to
WHC's ratings
1.6 5.6 5.0
YAL.AX Yancoal Australia 1.50 -10.0%
Average 1.5 4.5 4.4 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 34: MSCI IVA analysis: BTU Figure 35: MSCI IVA analysis: WHC Overall ESG rating CCC
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 19
Energy
Analyst: Paul McTaggart, Ben Combes, James Redfern
MSCI ratings views
■ AUT upside from improved disclosure: We have Positive outlooks on the MSCI IVA
ratings for AUT, CTX and KAR. AUT receives a low B rating from MSCI for its IVA.
This rating was last reviewed in May 2012. Poor disclosure and lack of a proactive
approach on sensitive environmental concerns and safety are the substantial
contributors to this low rating. We set a Positive outlook on the assumption that
disclosure may now improve, post the change of operatorship to Marathon.
■ KAR upside possible on improved disclosure: Similar to AUT, KAR receives a low
B rating, set in May 2012. Concerns about poor disclosure and weak management
systems for environments risks, combined with concerns over expected ultra deep
water drilling in offshore Brazil has led to the B rating. KAR is yet to announce the
outcome of an expected farmout of a portion of its Brazil acreage, and we are
expecting any partner will be an experienced offshore operator, thus bringing some
confidence back into the process of drilling in Brazil. In Australia, COP is undertaking
the offshore drilling. COP has an MSCI IVA rating of A, with stronger individual rating
for environmental practices and health and safety.
■ Upside in CTX from refinery closure: With CTX announcing its decision to close one
of its two Australian refineries, we see upside to its existing A rating, which was
upgraded from BBB in April 2012.
■ Downside risk for AWE’s BBB rating: AWE was downgraded to BBB (from A) in
May 2012. AWE has now invested in Indonesia, which the report does mention, but
we believe there is further downside possible to AWE’s current strong score for
Corruption and Instability issues.
ESG concerns in the sector
■ Country risk issues impact OSH, KAR and AWE valuations: We have factored in a
higher WACC for OSH (0.5% higher than that used for STO and WPL) to account for
the PNG country risk. This reduces our valuation by 4.5% ($427mn). For KAR, we
apply a 25% downside risk weighting to account for higher country risk for its Brazilian
and Peru assets. This results in a large 11.7% downside to our valuation.
■ Social Licence to operate costs have small impact on STO: We have taken a view
that both STO and ORG (under Utilities section) will have to offer improved landowner
compensation as political and social pressure is brought to bear on the coal seam gas
operators. The Federal Opposition’s policy of allowing landowners to say No to coal
seam gas companies seeking to develop is aimed at forcing the CSG companies to
offer enticing compensation sufficient for the vast majority of landowners to accept
CSG drilling on their land. We have factored in an additional 2.5% royalty cost to
reflect expected higher landowner compensation.
■ Environmental issues: For small cap stocks such as MPO, the moratorium on
fraccing in Quebec has reduced our Target Price by a large 15%. This moratorium is
unlikely to be resolved in the near term, meaning we remove the affected assets
entirely when setting our Target Price.
■ CTX faces higher redundancy and remediation costs: As CTX ponders a decision
to close one or both of its Australian refineries, we expect any such decision will come
with improved redundancy costs. We factor in an addition 25% in redundancy costs on
top of the announced $62.5mn and add $50mn in additional remediation costs (on top
of $250mn).
27 September 2012
Australian ESG/SRI 20
Summary of analyst views on MSCI rating
Figure 36: Impact of ESG on Target Prices for Energy Company Target
Price
(AUD)
ESG
downside
included
MSCI
IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
AUT.AX Aurora Oil & Gas 4.02 -3.0% B Positive AUT ranks poorly due to weak disclosure on carbon management
systems, no management strategy to mitigate risks to the environment
or safety risks. It would not take much to improve this ranking.
0.9 1.6 4.1 25/05/2012
AWE.AX AWE Ltd 1.75 -0.4% BBB Negative Since the last rating review, AWE has invested in Indonesia which will
most likely lower the company's score for corruption and instability.
2.5 5.7 5.7 25/05/2012
CTX.AX Caltex Australia 15.55 -0.2% A Positive The announcement to close the Kurnell refinery will likely see CTX
improve on its Environmental score.
4.5 7.4 7.0 1/04/2012
KAR.AX Karoon Gas 7.65 -11.7% B Positive KAR ranks poorly due to weak disclosure on carbon management
systems, no management strategy to mitigate risks to corruption and
instability from operating in Peru and Brazil. It would not take much to
improve this ranking.
0.5 3.1 3.5 25/05/2012
MPO.AX Molopo Australia 0.70 -15.0%
OSH.AX Oil Search 8.70 -4.5% BB Neutral It will be difficult for OSH to improve their rating due to the fact they
operate entirely in PNG which is deemed to have a weak rule of law and
high levels of corruption
4.1 1.5 2.0 25/05/2012
STO.AX Santos Ltd 12.65 -1.0% A Neutral STO is the top ranked company under our coverage and scores well in
all areas. Carbon emissions are the biggest concern, however STO have
a strong emphasis on carbon emission reductions.
4.4 7.3 3.8 25/05/2012
TAP.AX Tap Oil Ltd 0.85 -1.8%
WPL.AX Woodside Petroleum 38.55 -0.2% AA Neutral WPL has been upgraded from "A" to "AA" as there are suitable
alternatives for its proposed LNG project at James Price Point that will
allow the company to avoid community issues, potential litigation and
regulatory intervention which could threaten costs and/or delay the
project. While we think the preferred development of Browse is a NWS
backfill, we do not see a decision on this until 2013 therefore no change
to our view on rating.
4.1 7.0 7.2 25/05/2012
Average 3.0 4.8 4.8 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 37: MSCI IVA analysis: AUT Figure 38: MSCI IVA analysis: AWE Overall ESG rating B
Source: MSCI IVA Rating
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 39: MSCI IVA analysis: CTX Figure 40: MSCI IVA analysis: KAR Overall ESG rating A
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 21
Figure 41: MSCI IVA analysis: OSH Figure 42: MSCI IVA analysis: STO Overall ESG rating BB
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 43: MSCI IVA analysis: WPL Overall ESG rating AA
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 22
Gold
Analyst: Michael Slifirski, Sam Webb
MSCI ratings views
■ We have a Positive outlook on the B MSCI IVA ratings for EVN and PRU. These
ratings were reviewed in March 2012. For EVN the rating reflects a lack of policies for
environmental and safety issues, post the merger of Catalpa Resources and Conquest
Mining. We expect these policies will be developed over time, thus improving the
current B rating. PRU was downgraded to B (from BB) in March 2012, as the company
lacked key policies despite moving into production. We expect this will be addressed
and result in an upgrade.
ESG concerns in the sector
■ African concerns: The raft of royalty and tax changes on top of coups in Africa have
severely reduced the appeal of otherwise commercial looking mineral deposits. Ghana
in Africa now appears relatively low risk having already implemented tax, royalty and
tax depreciation changes (PRU), however explorers or operators across wider West
Africa (AMX, GRY) may find it challenging to get equity market support, debt facilities,
etc., if investors are unable to make robust assumptions about project returns.
■ Industry-wide cost pressures also impact Gold sector: Despite historically high
commodity prices, project capex and opex estimates are coming in materially above
estimates that already appeared elevated. In the Gold space, we have seen cash cost
forecast revision of typically $100/oz or about 15% above forecasts made 12–18
months ago at concept stage. As contractor quotes are received at Detailed
Feasibility Stage (DFS), we are seeing significant opex surprises. We are seeing
similar inflation with regards to capex as well, with up to 50% inflation above early
estimates and understanding of projects made sometimes as little as 18 months ago.
The unknown is how much of the cost pressure is temporary and how much is
structural. The advent of very generous FIFO rosters to remote operations and the
need for additional crews to cover the imposts of the generous rosters suggests that
much of the cost pressure might actually be structural.
■ No country risk concerns included in NCM: We do not include any country risk in
our Newcrest valuation. Indonesian country risk is mitigated by a Contract of Work
(COW) agreement, which defines its fiscal arrangements until ~2028/29 which is
beyond the current expected life of the operation, and provides a high degree of
protection against any external legislation changes. PNG country risk is already
inferred in our assumed production costs. Bonikro (Cote D’Ivoire) only contributes
~60cps to our NPV, a small part of our NCM valuation.
27 September 2012
Australian ESG/SRI 23
Summary of analyst views on MSCI rating
Figure 44: : Impact of ESG on Target Prices for Gold Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
AMX.AX Ampella Mining Limited 1.50 0.0%
AQG.AX Alacer Gold Corp. 7.72 0.0%
EVN.AX Evolution Mining Limited 1.70 0.0% B Positive Current 'B' rating would appear to be weighed down by
Evolution only recently being formed (merger of Catalpa
Resources and Conquest Mining). We'd expect ESG policies
to be gradually developed over time.
2.1 2.9 5.0 23/03/2012
GRY.AX Gryphon Minerals Limited 1.25 -9.0% A Neutral Given GRY remains in an early exploration phase, we see little
risk in near-term to any MSCI rating change.
4.7 3.1 5.6 1/03/2012
KGD.AX Kula Gold 1.15 -25.0%
NCM.AX Newcrest Mining 26.00 0.0% BB Neutral Given performance and rating provided, feel change in rating in
near-term may be unlikely.
3.5 3.7 4.7 1/03/2012
PRU.AX Perseus Mining 3.10 0.0% B Positive Recent downgrrade to 'B' rating reflects poor biodiversity and
land use, health & safety scores. Given the project is in early
stages, as production ramps up at Edikan in Ghana, we
expect an increased focus by management on addressing
these issues in future.
3.3 2.5 3.0 1/03/2012
Average 3.4 3.1 4.6 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 45: MSCI IVA analysis: EVN Figure 46: MSCI IVA analysis: GRY Overall ESG rating B
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 47: MSCI IVA analysis: NCM Figure 48: MSCI IVA analysis: PRU Overall ESG rating BB
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 24
Diversified Resources
Analyst: Paul McTaggart, James Redfern, Martin Kronberg
MSCI ratings views
■ We have a Negative view on the AA MSCI rating for BHP, given recent labour
disputes at BHP’s coal operations in the Bowen Basin Queensland. The last MSCI
report on BHP was published in December 2011 so it does not cover the labour
issues, which resulted in reduced production.
ESG concerns in the sector
■ Higher WACC for BHP impacts Target Price by 2%: While BHP is a leader in ESG
management, we include an additional 0.5% WACC (9% real post tax WACC) to
account for operations in numerous high risk places. This leads to a 2% downside to
our BHP Target Price.
■ Higher WACC for RIO impacts Target Price by 3%: For RIO, we have used a 0.5%
higher WACC (9% real post tax WACC) to account for projects in sensitive areas. This
results in a 3% negative impact on our RIO Target Price.
Summary of analyst views on MSCI rating
Figure 49: : Impact of ESG on Target Prices for Other Metals Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
BHP.AX BHP Billiton 35.85 -2.0% AA Negative Labour disputes in Queensland could negatively impact social
rating
4.9 5.9 8.2 17/02/2012
RIO.AX Rio Tinto 73.32 -3.0% BBB Neutral We are not aware of any events since last issued MSCI report
(December 1) that is likely to change RIO's rating
4.1 4.7 5.3 1/12/2011
Average 4.5 5.3 6.8 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 50: MSCI IVA analysis: BHP Figure 51: MSCI IVA analysis: RIO Overall ESG rating AA
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 25
Other Metals
Analysts: Paul McTaggart, Mike Slifirski, Matthew Hope, James Redfern, Martin
Kronberg, Sam Webb
MSCI ratings views
■ We have a Positive outlook on the MSCI ratings for AQA, GBG, ILU, MDL and
SFR. All these companies had their MSCI IVA ratings set in December 2011. For
AQA, a reduction in its coal exposure is expected to result in an improvement in its
B rating. We see upside to GBG’s B rating from positive social influences, through
direct local employment opportunities. For ILU, we see upside from reduced emission
since the MSCI review, with only two of four kilns operating. We see upside for MDL
as recent political disturbances in Senegal are subsiding. We expect SFR to improve
on its B rating, as it turns its attention to ESG matters post startup of production.
■ We see downside risk to AGO, AWC, and ERA. All these companies had their MSCI
IVA ratings set in December 2011. For AGO, ongoing road trucking of iron ore may
expose the company to social pressure from local communities, hence we place its
B rating on a Negative view. For AWC, it is exposed to carbon tax for the AWAC
Victorian smelters which use the higher emitting brown coal generators. AWC has a
reasonably high AA MSCI IVA rating and we have a Negative outlook on this rating.
For ERA, we see downside to its BB rating, from safety concerns from underground
mining. In Australia, political ambiguity over uranium mining plus operations in the
sensitive Kakadu world heritage site continues to place pressure on ERA.
ESG concerns in the sector
■ ERA has 36% downside in Target Price: Most impacted is ERA, with 36% downside
included in the Target Price. We include only 50% of our valuation for the Ranger
Uranium mine.
■ Country specific risk leads to 13% downside for BSE and MDL: We have applied
2% higher WACCs (than the 9.5% used for ILU) to BSE and MDL to handle country
risk concerns for Kenya and Senegal.
■ 5% downside in AQA for project approval: We have included 5% downside in our
AQA valuation to take account of concerns on the approval of the Washpool HCC
project, as well as a higher 11% WACC.
■ 4% downside in AWC for carbon tax concerns: We have valued the impact on
AWC’s earning from the carbon tax, with $20mn impact in FY13 and 4% downside
included in our Target Price.
27 September 2012
Australian ESG/SRI 26
Summary of analyst views on MSCI rating
Figure 52: Impact of ESG on Target Prices for Other Metals Company Target
Price
(AUD)
ESG
downside
included
MSCI
IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
AGO.AX Atlas Iron 2.70 0.0% B Negative Usage of highways for trucking iron ore to Port Hedland is
ongoing which may expose the company to social pressure
from local community groups if the movements impact Port
Hedland. It also increases risks of a road accident involving
passenger vehicles.
2.6 4.9 7.0 1/12/2011
AOH.AX Altona Mining Limited 0.46 0.0%
AQA.AX Aquila Resources 2.75 -5.0% B Positive AQA has sold its Isaac plains operations and we expect it to
further reduce its coal exposure which should improve
environmental scores
1.6 3.5 3.4 1/12/2011
AWC.AX Alumina Limited 0.84 -4.0% AA Negative CO2 emmissions mainly from Victorian smelters is the main
high profile environmental issue. Industry get 96.5% protection
in year 1, but AWAC smelters run on Victorian electricity
generated by burning brown coal so subsidy less than industry
average.
4.5 7.3 6.6 1/12/2011
BSE.AX Base Resources Ltd 0.80 -13.0%
ERA.AX Energy Resources of Australia 1.65 -36.0% BB Negative Going underground increases health and safety risk. Operating
in extremely sensitive Kakadu World Heritage Area and
political ambiguity around uranium.
1.1 7.9 5.1 1/12/2011
FMG.AX Fortescue Metals Group Ltd Restricted BBB 4.3 5.8 7.0 1/12/2011
GBG.AX Gindalbie Metals Ltd 1.00 0.0% B positive MSCI notes environmental risks in monitoring water draw from
borefield. However, potential positive social influence on town
of Geraldton through deliberate employment of local
businesses and additional power security as Government links
Mid-West electrical distribution to Perth Area power for benefit
of the mine.
1.6 6.4 7.0 1/12/2011
IGO.AX Independence Group NL 3.50 -2.0% BB Neutral MSCI concerns include general issues with underground
mining, managing carbon emissions and applying consistent
OH&S standards for its multiple exploration projects. Above
all, MSCI notes a more proactive approach to each issue is
desired and, as we are not aware of any significant shift in IGO
policies, we expect the rating to remain unchanged.
2.5 4.2 4.7 1/12/2011
ILU.AX Iluka Resources 13.50 -3.9% BBB Positive Rating primarily based on negative impact from carbon tax -
CO2 numbers quoted were for all 4 kilns, whereas only two are
operational. Furthermore, Iluka expects to being eligible for
assistance making the financial impact small.
3.3 5.9 5.6 1/12/2011
MBN.AX Mirabela Nickel 0.53 -6.0% BB Neutral MSCI notes that operational risks are significantly higher in
Brazil compared to Australia and that MBN has taken limited
steps to adress these. With a loss making operation we do
not think ESG score improvement will be MBN's highest
priority.
3.2 3.9 3.2 1/12/2011
MDL.AX Mineral Deposits Ltd. 9.09 -11.0% BBB Positive MDL has experience in Senegal through building the Sabodala
gold mine. Recent political disturbance subsided when
President Wade accepted defeat after 2nd round presidential
elections.
5.5 3.3 2.4 1/12/2011
MGX.AX Mount Gibson Iron 1.00 0.0% B Neutral MSCI ESG risks related to water mangement and carbon
emission policies, whereas we are more focussed on
corporate governance, which we consider is improving. Recent
change in management may change policy focus.
1.6 5.0 7.0 1/12/2011
OZL.AX OZ Minerals 9.70 0.0% BB Neutral Recent downgrade to 'BB' rating appears to be over relatively
minor issues. From our experience and visits to Prominent
Hill, health & safety appear to be very conscious elements of
day-to-day operations. Carbon tax impact is yet to be fully
quantified in our view.
2.6 3.7 5.2 1/12/2011
PAN.AX Panoramic Resources 1.25 0.0% AA Neutral PAN rates strongly on MSCI ratings thanks excellent health
and safety record and strong environmental risk management.
Planned new developments should not expose PAN to
materially higher risks.
4.5 8.1 6.8 1/12/2011
PNA.AX PanAust 3.13 0.0% BBB Neutral Main operations in Laos/Thailand place geopolitical risk on
PNA that is shown in its 'BBB' rating. It is unlikely PNA will
move from these operating jurisdictions, as such, feel MSCI
rating unlikely to change in the near-term.
4.1 4.4 4.9 1/12/2011
SFR.AX Sandfire Resources NL 7.20 0.0% B Positive B rating (coverage just initiated) noted concerns over "a weak
management approach to all key issues assessed". Given
SFR's operational mine has only just commenced production,
risk is to the upside that focus may, in time, gradually
increasingly turn to improving ESG awareness.
2.0 3.0 3.2 1/12/2011
WSA.AX Western Areas NL 4.70 0.0% BB Neutral With a recent transition to underground mining at Spotted
Quoll, safety risks have increase but we note that the
company maintains an excellent safety record, has brought in
MYR Risk consultants and is working on expanding its
medical facilities
2.6 5.3 3.5 1/12/2011
MSCI_Total Average 3.0 5.2 5.2 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 27
MSCI IVA ratings in context
Figure 53: MSCI IVA analysis: AGO Figure 54: MSCI IVA analysis: AQA Overall ESG rating B for AGO.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for AQA.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 55: MSCI IVA analysis: AWC Figure 56: MSCI IVA analysis: ERA Overall ESG rating AA for AWC.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for ERA.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 57: MSCI IVA analysis: GBG Figure 58: MSCI IVA analysis: IGO Overall ESG rating B for GBG.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for IGO.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 59: MSCI IVA analysis: ILU Figure 60: MSCI IVA analysis: MBN
Overall ESG rating BBB for ILU.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for MBN.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 28
Figure 61: MSCI IVA analysis: MDL Figure 62: MSCI IVA analysis: MGX
Overall ESG rating BBB for MDL.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for MGX.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 63: MSCI IVA analysis: OZL Figure 64: MSCI IVA analysis: PAN
Overall ESG rating BB for OZL.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA for PAN.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 65: MSCI IVA analysis: PNA Figure 66: MSCI IVA analysis: SFR
Overall ESG rating BBB for PNA.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for SFR.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 67: MSCI IVA analysis: WSA
Overall ESG rating BB for WSA.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 29
Steel
Analyst: Michael Slifirski, Sam Webb
MSCI ratings views
■ No upside or downside seen in Steel stock MSCI rating: We are Neutral on the
MSCI IVA rating outlook for all three Steel stocks. These MSCI IVA ratings were last
updated in December 2011. SGM has the top rating of AAA, but is not involved in
production, so we see limited downside risk.
ESG concerns in the sector
■ Long-term viability of domestic steel making industry continues to be a
concern: Domestic steel producers ARI and BSL have been impacted by multiple
macro and ESG factors, resulting in significant share price depreciation over the past
24 months. From a macro standpoint, a high Australian dollar, weak global and
domestic demand and high import costs have decimated steel making earnings and
returns. From an ESG standpoint, carbon tax implications in particular overlays future
concerns for the industry. Both the macro and carbon tax issues have the potential to
impact labour demand in the future.
■ Steel Transformation Plan (STP): Under a facility, originally announced by the Prime
Minister in August last year, eligible steelmakers have been able to apply for advances
to provide competitiveness assistance. The Plan is a $300mn program operating over
six payment years from 2011–12 that aims to encourage investment, innovation and
competitiveness in the Australian steel manufacturing industry in order to assist the
industry to transform into an efficient and economically sustainable industry in a low
carbon economy.
■ Although near-term carbon impact alleviated, long-term impact unknown: The
small ESG downside include in our Target Prices (5cps for both ARI and BSL) reflect
uncertainty regarding the future of the domestic steel industry. Whilst short-term
carbon tax issues have been eased via the STP, similar mid- to long-term solutions
are less certain.
Summary of analyst views on MSCI rating
Figure 68: Impact of ESG on Target Prices for Steel Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
ARI.AX Arrium 1.15 0.0% BBB Neutral Neutral rating maintained, consistent with our Steel exposures. 4.5 6.9 7.0 1/12/2011
BSL.AX BlueScope Steel Restricted BBB 3.8 6.3 7.0 1/12/2011
SGM.AX Sims Metal Management 11.00 0.0% AAA Neutral As SGM is not involved in production of steel or Iron Ore, and
is not anticipated too, we expect low risk of a MSCI rating
downgrade
7.4 8.2 7.0 1/12/2011
Average 5.2 7.1 7.0 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 30
MSCI IVA ratings in context
Figure 69: MSCI IVA analysis: ARI Figure 70: MSCI IVA analysis: BSL Overall ESG rating BBB for ARI.AX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB for BSL.AX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 71: MSCI IVA analysis: SGM Overall ESG rating AAA for SGM.AX
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 31
Industrials Building materials
Analyst: Andrew Peros
MSCI ratings views
■ Upside potential for ABC: We see Positive upside to the CCC MSCI IVA rating for
ABC, from reduced carbon emissions with the potential for ABC to import cement, or
use alternative fuels or cement substitutes. The MSCI IVA rating for ABC was last
reviewed in May 2012.
■ CSR upside from environmentally friendly building products: We note CSR, with
a BB MSCI IVA rating, was last reviewed in August 2011. We have a Positive outlook
on this rating, given its does not take account of the upside from CSR’s manufacturing
of products such as smart glass and insulation that facilitate the construction of 6-star
green rating homes and buildings.
ESG concerns in the sector
■ Average 13.2% downside from asbestos liabilities and carbon: We have included
13.2% average downside to our Target Prices for the Building Materials sector stocks,
due mostly to the cost of asbestos liabilities for both CSR and JHX. We include the
liabilities as disclosed by the companies, and have factored in 39% reduction to our
Target price for CSR and 18% for JHX for these asbestos liabilities. For stocks such
as ABC and BLD, we have 3.4% and 0.8% downside, respectively, to our Target Price
for the impact of the carbon legislation. We have calculated this as the net exposure to
carbon liabilities (net of any Government assisted offsets).
Summary of analyst views on MSCI rating
Figure 72: Impact of ESG on Target Prices for Building Materials Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
ABC.AX Adelaide Brighton 3.15 -3.4% CCC Positive We see upside risk to the MSCI rating given ABC's has
flexibility to increase its cement/clinker import capabilities, and
hence reduce carbon emissions. Increasing the use of
alternative fuels and cement substitutes (slag) should further
assist with reducing carbon emissions. This is not captured in
the MSCI assessment.
2.1 4.7 7.0 25/05/2012
BLD.AX Boral 3.95 -0.8% AA Neutral We are comfortable with BLD's MSCI rating. With a large
component weighted towards carbon, we see upside in the
furture as BLD further develops carbon friendly products
("smog eating roof tile") and shifts more towrds light weight
Building Products to reduce emissions.
4.7 6.5 7.0 25/05/2012
CSR.AX CSR 1.17 -39.0% BB Positive We see upside to MSCI's 'BB' rating. CSR is invlolved in the
manufacture of building products that facilitate the construction
of 6-star green rating homes (smart glass; insulation). This is
not captured in the MSCI commentary. CSR is also active in
sourcing renewable energy for manufacturing purposes.
3.2 7.5 5.2 1/08/2011
JHX.AX James Hardie Industries SE 9.24 -18.0% BB Neutral JHX has appropriately provided for the asbestos liability on its
B/S and cash payments (35% op CF) are made into the
asbestos fund. A reduction in the projected future number of
asbestos claims to be reported for a number of disease types
implies the liability is appropriately provided for.
4.0 5.1 3.5 25/05/2012
MSCI_Total Average 3.5 6.0 5.7 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 32
MSCI IVA ratings in context
Figure 73: MSCI IVA analysis: ABC Figure 74: MSCI IVA analysis: BLD Overall ESG rating CCC for ABC.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA for BLD.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 75: MSCI IVA analysis: CSR Figure 76: MSCI IVA analysis: JHX Overall ESG rating BB for CSR.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for JHX.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 33
Chemicals, paper & packaging
Analyst: Larry Gandler, Andrew Peros
MSCI ratings views
■ Expecting downside for ORI: We have ORI on a Negative outlook for its BBB MSCI
IVA rating, which was set in September 2011. ORI has had a series of issues at its
Kooragang Island and Botany plant involving toxic and chemical releases, which have
not been fully considered in this report.
ESG concerns in the sector
■ Average 2.7% downside from carbon liabilities: We have included 2.7% average
downside to our Target Prices for the Chemicals, Paper and Packaging sector stocks,
due mostly to the cost of carbon tax liabilities, which commenced on 1 July 2012. For
ORI, we have also included the costs for groundwater remediation, HCB
remediation, and Botany mercury remediation, which amount to less than 1% of
the Target Price on an NPV basis.
Summary of analyst views on MSCI rating
Figure 77: Impact of ESG on Target Prices for Chemicals, Paper & Packaging Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
AMC.AX Amcor 7.70 -3.0% A Neutral We remain comfortable with MSCI's 'A' rating. The only
identifiable risk surrounds "Labour" given the expected
synergies from recent acquisitions (plant closures) and
Carbon.
6.5 6.3 7.0 1/10/2011
IPL.AX Incitec Pivot Ltd. 3.50 -1.3% BB Neutral We remain comfortable with MSCI's 'BB' rating. Key risks
surround the "Toxic Release" component (31.7% weighting)
following recent issues at ORI's Kooragang Island and botany
plant.
2.4 3.7 7.0 1/02/2012
NUF.AX Nufarm 5.80 -4.0% BBB Neutral NUF is not typically a Carbon intensive company, although this
carries a 31.7% weighting per MSCI. Of greater concern, in our
view, surrounds Governance. This involves Board
independence, Accounting treatment and management
integrity (5% weighting). Given NUF's recent history, we
believe these issue should carry significantly more weighting.
4.3 4.0 4.5 1/02/2012
ORI.AX Orica 29.40 -3.0% BBB Negative We see risks around ORI's 'BBB' rating. This follows a series
of production issues at its Kooragang Island ammonium nitrate
facilities involving toxic chemical release. Implicit within the
MSCI report is a section on "Toxic Release" (33% weighting)
and "Product Safety" (17% weighting) component. These
sections make no consideration for the recent toxic issues.
5.6 6.1 7.0 1/09/2011
Average 4.7 5.0 6.4 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 78: MSCI IVA analysis: AMC Figure 79: MSCI IVA analysis: IPL Overall ESG rating A
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 34
Figure 80: MSCI IVA analysis: NUF Figure 81: MSCI IVA analysis: ORI Overall ESG rating BBB
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 35
Construction
Analyst: Brad Clibborn, Emma Alcock
MSCI ratings views
■ Downside potential for DOW from carbon emissions: We see downside to the
MSCI IVA rating of A for DOW, which was last reviewed in March 2012. DOW scored
highly (9.6 out of 10) for carbon emissions, which was 18% of the total weighting. We
see downside given DOW’s involvement in asphalt production and expansion of its
contract mining operations.
■ Upside for UGL from Corruption policy: We see upside to the MSCI IVA rating of
BBB for UGL, last reviewed in April 2012. UGL scored lowly on Corruption (2.8 out of
10), due to a lack of policies. This component had a 38% weighting in forming the
MSCI IVA rating. Formulation of a policy should deliver upside.
ESG concerns in the sector
■ No ESG impact but LEI reputation impacts and possible business exit scenario
considered: We have included no downside to our Target Prices for ESG risks in the
Construction sector. However, we have considered a scenario for a 1.3% downside to
our LEI Target Price, due to the risk that LEI may exit its offshore business. This
business has been the subject of recent bribery claims. In this scenario, we risk weight
our valuation of this overseas business down by 50% to reflect this risk.
Summary of analyst views on MSCI rating
Figure 82: Impact of ESG on Target Prices for Construction Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
BLY.AX Boart Longyear Group 3.04 0.0% AA Neutral We are comfortable with the current MSCI rating 3.8 6.3 6.8 24/04/2012
ALQ.AX ALS Limited 10.16 0.0% A Neutral We are comfortable with ALQ’s A rating . We see medium
term upside risk to ALQ's labour management score of 2.2
which compares to the industry average of 3.8 and represents
40% of the MSCI rating. Upside risk comes from the lack of
outstanding labour disruptions within the company.
10.0 4.7 7.0 25/05/2012
DOW.AX Downer EDI 4.10 0.0% A Negative We see downside risk to DOW's MSCI rating based on social
issues that could extend from NZ restructure. In addition we
note DOW has scored extremely well (9.6/10) for carbon
emissions which are 18% of overall weighting. We highlight
potential downside risks to this given DOW's involvment in
asphalt production (which currently falls under the carbon tax
threshold) and expansion of its contract mining operations.
6.0 6.7 3.2 1/03/2012
LEI.AX Leighton Holdings 17.60 0.0% BB Neutral MSCI flagged "substantial fines and reputational damages"
associated with the recent LEI offshore bribery claims. Under a
'guilty scenario' LEI could close the LEI offshore business to
signal it has 'dealt with' the problem and cast it aside. This
would reduce our LEI Target Price by -1.3% . Under this 'guilty
scenario' we ascribe a 50% probability to LEI exiting the
offshore business. This forms the basis of our valuation risk
adjustment.
4.4 4.7 2.4 25/04/2012
TSE.AX Transfield Services Ltd 2.05 0.0% A Neutral The only risk we would highlight to watch is potential corporate
governance issues surrounding 10.5% blocking stake of
Bellgiorno-Nettis family. However Governance is only 5% of
total rating, so minimal risks to overall group ESG rating from
this.
5.8 6.2 5.3 1/03/2012
UGL.AX UGL Limited 13.00 0.0% BBB Positive UGL scores only 2.8 on corruption purely due to lack of policy.
Track record is actually good. Hence formation of anti
corruption policies would see a sharp reversal in this indicator
which is 38% of total weighting. Upside from environment
rating based on expected increase in property services
earnings as % group.
2.8 8.1 2.9 24/04/2012
WOR.AX WorleyParsons 27.55 0.0% AAA Neutral We are comfortable with WOR's AAA rating. WOR has limited
exposure to operational, regulatory and environmental risks
versus its peers.
9.2 10.0 9.0 1/12/2011
Average 6.0 6.7 5.2 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 36
MSCI IVA ratings in context
Figure 83: MSCI IVA analysis: BLY Figure 84: MSCI IVA analysis: DOW Overall ESG rating AA for BLY.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for DOW.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 85: MSCI IVA analysis: LEI Figure 86: MSCI IVA analysis: TSE Overall ESG rating BB for LEI.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for TSE.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 87: MSCI IVA analysis: UGL Figure 88: MSCI IVA analysis: WOR Overall ESG rating BBB for UGL.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for WOR.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 37
Food and Beverage
Analyst: Larry Gandler, Ruvani Fernando
MSCI ratings views
■ Neutral outlook on MSCI IVA ratings: We have a Neutral outlook on the MSCI IVA
ratings for CCL and TWE (last updated in June 2012) and GFF (last updated in
December 2011).
ESG concerns in the sector
■ No TP impact from ESG: We have not included any impact on our Target Prices for
ESG issues in the Food and beverage sector.
Summary of analyst views on MSCI rating
Figure 89: Impact of ESG on Target Prices for Food and Beverage Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
CCL.AX Coca-Cola Amatil 12.50 0.0% A Neutral CS ESG risk assessment in line with MSCI 5.5 5.2 7.0 8/06/2012
GFF.AX Goodman Fielder 0.60 0.0% BB Neutral CS ESG risk assessment in line with MSCI 2.0 3.4 7.0 1/12/2011
TWE.AX Treasury Wine 3.50 0.0% B Neutral CS ESG risk assessment in line with MSCI
rating
3.3 3.7 7.0 8/06/2012
Average 3.6 4.1 7.0 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 90: MSCI IVA analysis: CCL Figure 91: MSCI IVA analysis: GFF Overall ESG rating A for CCL.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for GFF.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 92: MSCI IVA analysis: TWE Overall ESG rating B for TWE.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 38
Gaming
Analyst: Larry Gandler, Ruvani Fernando
MSCI ratings views
■ Neutral outlook on MSCI IVA ratings: We have a Neutral outlook on the MSCI IVA
ratings for Gaming stocks, with these ratings last updated in February 2012. Both
CWN and TAH achieved the highest AAA rating.
ESG concerns in the sector
■ Explicit ESG impact not included in gaming stocks: We have not included any
explicit impact for ESG concerns in our Target Price for gaming stocks. Harm
minimisation reforms in Australia are not likely to have a material valuation impact. The
most severe gaming reform, mandatory pre commitment, is unlikely to be implemented
in the medium term, if at all. Other proposed reforms should have broadly neutral
impacts on gaming operators, and if negative, only mildly. Our key concerns for potential
downside risk to earnings include the emergence of a tighter regulatory environment
and/or a significant change in social attitudes towards gambling.
■ Reforms in Queensland may offset extra gaming tax: In its September 2012
Budget, the Queensland Government announced it would increase the level of gaming
tax paid by Clubs. Effective Monday, 1 October 2012 these clubs will pay an additional
5.0% in gaming tax for their taxable metered win between $850,000 and $1.4mn. The
State Government has also indicated it may introduce favourable gaming reforms to
assist these 25 clubs offset the new gaming tax. This suggests that the Qld Govt is
more positively disposed towards reducing the regulatory burden on clubs.
Anecdotally, we have previously received similar feedback on the new State
Government’s view of the regulatory burden on Qld casinos. Echo (ECP) is working
with the Queensland Government on its announcement to increase the casino
industry's contributions to tax revenues, including implementation of a range of
regulatory reform proposals, made with the release of the State Budget. We are
presently not incorporating any impact from potential casino tax changes into our
valuation or earnings.
Summary of analyst views on MSCI rating
Figure 93: Impact of ESG on Target Prices for Gaming Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
ALL.AX Aristocrat Leisure 2.60 0.0% A Neutral CS ESG risk assessment in line with MSCI rating 5.0 4.2 4.4 1/02/2012
CWN.AX Crown 8.80 0.0% AAA Neutral CS ESG risk assessment in line with MSCI rating 3.5 7.6 5.3 1/02/2012
EGP.AX Echo Entertainment 3.80 0.0% BB Neutral CS ESG risk assessment in line with MSCI 1.9 3.7 4.6 1/02/2012
TAH.AX Tabcorp Holdings 3.30 0.0% AAA Neutral CS ESG risk assessment in line with MSCI rating 2.8 5.4 7.2 1/02/2012
TTS.AX Tatts Group 2.60 0.0% A Neutral CS ESG risk assessment in line with MSCI rating 7.6 4.7 4.2 1/02/2012
Average 4.2 5.1 5.1 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 39
MSCI IVA ratings in context
Figure 94: MSCI IVA analysis: ALL Figure 95: MSCI IVA analysis: CWN Overall ESG rating A for ALL.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for CWN.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 96: MSCI IVA analysis: EGP Figure 97: MSCI IVA analysis: TAH Overall ESG rating BB for EGP.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for TAH.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 98: MSCI IVA analysis: TTS Overall ESG rating A for TTS.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 40
Healthcare
Analyst: Saul Hadassin, Will Dunlop
MSCI ratings views
■ We have positive views on the MSCI ratings for MSB and RMD. MSB, rated as B,
was last reviewed in September 2011. For MSB, we believe the concerns over
programs for human capital losses ignores the equity options granted to senior
employees, and concerns over the staff morale impacts of the 2010 Angioblast
acquisition are now outdated. RMD was rated as BB in December 2011. We see
upside for the MSCI IVA rating for RMD from improved carbon impact disclosure.
ESG concerns in the sector
■ Disclosure concerns: We have disclosure concerns for COH, CSL, MSB, PRX which
are factored into explicit downsides in our Target Prices of 1%–5%.
■ Governance concerns: With 24% shareholder, Washington Soul Pattison, having
strong board representation on API, we have factored in 5% downside to our Target
Price for Governance concerns. For PRY, we have included 5% downside in our
Target Price for concerns over a concentration of family on the board (three of nine
board members) and senior management positions. Similar family concerns at RMD
have led to 1 3% downside being included in our Target Price.
27 September 2012
Australian ESG/SRI 41
Summary of analyst views on MSCI rating
Figure 99: Impact of ESG on Target Prices for Healthcare Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating date
API.AX Australian Pharmaceutical Ind 0.46 -5.0%
COH.AX Cochlear 65.50 -2.0% BBB Neutral COH has an average BBB rating largely due to susceptibility of corrupt
payments to heatlhcare providers, for which it has been convicted in the
past by the US DoJ. Further, COH are penalised for their short-term
initatives in improving healthcare in emerging markets. We disagree with
this point, noting that COH has been instrumental in raising cochlear
implant awareness and educating healthcare providers in developing
countries (i.e. China). However, given COH's relative lack of disclosure on
these matters, and also its anti-corruption policies, we do not foresee an
upgrade in the near term. More robust disclosure would, in our view, lead
to a materially higher MSCI ESG rating.
4.3 5.5 4.9 1/12/2011
CSL.AX CSL Ltd 44.30 -1.0% AA Neutral Current 'AA' rating. We expect civil lawsuits against CSL may emerge
given the deaths of children in Western Australia in 2010 due to CSL's
Fluvax vaccine.
5.0 6.1 7.0 1/09/2011
MSB.AX Mesoblast 7.40 -3.0% B Positive B' rating. MSB is penalised for not having programs in place to mitigate
human capital loss. We believe the report has overlooked the fact that
MSB's senior employees are all granted equity options. MSB is also
penalised for its 2010 Angioblast acquisition, which is cited as having the
potential to destabilise moral. In our view this is not an issue. Further, it is
noted that MSB does not have a strategy to improve healthcare in
emerging markets. Given MSB is still undertaking clinical studies into its
products, this last point appears misguided. We expect an upgrade to
MSB's ESG rating, however whether this happens in the near or long term
is unknown.
5.0 3.6 7.0 1/09/2011
PRY.AX Primary Health Care 3.65 -5.0% A Neutral A' rating. PRY has been sighted for a lack of policies on corruption and
ethical business conduct, as well as lack of evidence that PRY traces its
supplies to ethicall producers. We see no change in PRY's lack of
disclosure soon, and further, do not believe PRY has robust policies in
place to mitigate these concerns.
5.8 6.4 3.2 25/05/2012
PXS.AX Pharmaxis 1.70 -5.0%
RHC.AX Ramsay Health Care 25.00 -1.0% A Neutral A' rating. Long history of good governance, high quality service offering.
There is some risk RHC could come under scrutiny in the UK for
incentives to surgeons, and to a lesser extent perhaps in Australia - this
is a matter of judgement though. Nothing would cause us to think a
controversy / adverse event may arise at the moment though - anything
adverse would likely be politically motivated given we understand RHC has
been operating in its current form for years.
8.8 5.6 2.5 25/05/2012
RMD.AX ResMed Inc. 3.93 -3.0% BB Positive BB' rating. RMD's rating suffers as it does not disclose initiatives to
improve healthcare in developing regions, nor does it provide evidence of
anti-corruption measures. RMD was also penalised for a lack of carbon
emission disclosures. In our view, RMD's disclosure on carbon should
improve as the carbon tax legislation in Australia becomes operative. As
such, we believe ESG risk is positively skewed
4.8 4.6 5.5 1/12/2011
SHL.AX Sonic Healthcare 13.50 -2.0% AA Neutral AA' rating. Cited for not showing compliance with ISO 9001 / quality
management standards. We do not expect this to change in the near
term, and further, do not consider it meaningful to SHL's business.
Negative risk is limited in our view given the mature nature of pathology
businesses and strong government regulation of the industry in most
countries in which SHL operates.
6.7 6.8 3.8 25/05/2012
SIP.AX Sigma Pharmaceuticals 0.74 0.0% AA Neutral AA rating. SIP has been noted as having a lack of product quality
management disclosure. We see no change in SIP's lack of disclosure in
the near future, noting that it is likely not warranted from an investment
perspective given SIP to not manufacture / create products.
7.0 5.8 4.5 25/05/2012
Average 5.9 5.6 4.8 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 100: MSCI IVA analysis: COH Figure 101: MSCI IVA analysis: CSL Overall ESG rating BBB for COH.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA for CSL.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 42
Figure 102: MSCI IVA analysis: MSB Figure 103: MSCI IVA analysis: PRY Overall ESG rating B for MSB.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for PRY.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 104: MSCI IVA analysis: RHC Figure 105: MSCI IVA analysis: RMD Overall ESG rating A for RHC.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for RMD.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 106: MSCI IVA analysis: SHL Figure 107: MSCI IVA analysis: SIP Overall ESG rating AA for SHL.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA for SIP.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 43
Retail
Analyst: Grant Saligari, Samantha Carleton
MSCI ratings views
■ We have a Positive outlook on the MSCI IVA ratings for DJS, and HVN. The MSCI
IVA ratings for DJS and HVN (both rated B) were last reviewed in June 2012. Both
were low rated, mostly due to lack of disclosure on managing issues such as product
safety, supply chain labour standards, handling of chemicals (HVN) and carbon
emissions reductions. We believe disclosure on these issues can be addressed and
will monitor for a possible Positive outlook. For PMV, its initial rating of CCC rating was
in June 2012 and is impacted by a low score for mitigating environmental impacts of
carbon and raw material sourcing, disclosure on mitigating supply chain labour
standards, and regulatory risks from use of certain chemicals.
■ Possible upside for PMV on a Neutral outlook: We see upside from investments by
PMV to address these issues and, like HVN and DJS, we will monitor for a possible
Positive outlook.
■ Near-term profitability focus may put downside pressure on ratings for MTS,
PBG and TRS. We have a Neutral outlook on the MSCI ratings for MTS, PBG and
TRS. MTS was upgraded to A from BBB in June 2011 but we believe a deteriorating
operating position could push ESG issues to a lower priority. We will monitor this for a
possible downgrade. In June 2012, the MSCI IVA rating for PBG was upgraded to
BBB from BB. We believe this rating will be under pressure in future as PBG attempts
to shift its labour force into low cost countries with higher social issues. We maintain a
Neutral outlook on PBG but will monitor this for change. In June 2011, TRS has its
MSCI IVA rating downgraded to CCC from B. for a lack of transparency on supply-
chain labour standards and oversight into the chemicals used by textile suppliers.
For the company to improve its rating significant investment is required that could
inhibit operational profitability. We currently have a bleak outlook for The Reject
Shop’s capability to sustain earnings and so do not anticipate these investments
to be forthcoming. These factors leave us seeing more downside than upside to
TRS's MSCI rating, however with no evidence of deterioration we carry a Neutral
outlook.
ESG concerns in the sector
■ 5% downside for WOW and WES: We have included 5% downside risk in our WOW
and WES Target Prices to account for ESG concerns over the possible tightening
regulations on liquor and gaming. No ESG impact has been included in any of the
other Retail sector stocks.
27 September 2012
Australian ESG/SRI 44
Summary of analyst views on MSCI rating
Figure 108: Impact of ESG on Target Prices for Retail Company Target
Price (AUD)
ESG
downside
included
MSCI
IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
BBG.AX Billabong International Restricted A 2.5 5.7 7.0 1/09/2011
DJS.AX David Jones 2.20 0.0% B Positive David Jones was recently downgraded to 'B' from 'BB' as the company lacks transparency on its
ability to manage issues such as product safety, supply chain labour standards, and carbon
reductions in its operations. We view these issues as being manageable, largely requiring more
disclosure on their operations alone. With this in mind and with no obvious additional MSCI risks
surrounding the business we have a positive outlook for its rating.
4.0 3.6 7.0 1/06/2011
FAN.AX Fantastic Holdings 2.80 0.0%
GNC.AX Graincorp Restricted B 0.6 5.4 7.0 1/12/2011
HVN.AX Harvey Norman 2.15 0.0% B Positive Harvey Norman was recently downgraded to 'B' from 'BB' as the company lacks transparency on its
ability to manage issues such as supply chain labour standards and in its handling of chemicals
used by its electronics suppliers. With the downgrading relating only to disclosure of issues we see
a future upgrade as being relatively inexpensive to achieve and so carry a positive outlook.
5.0 3.7 7.0 1/06/2011
JBH.AX JB Hi-Fi 9.70 0.0% BBB Neutral JB Hi-Fi has a 'BBB' rating and lags its peers in the Specialty Retail subset in managing regulatory
risk related to end-of-life electronic waste handling. It is not at risk of supply-chain labour issues as
it has no private label product but is susceptible to labour union disputes more common in Australia
than other countries. Balancing these issues, we have a neutral outlook for JB Hi-Fi’s MSCI rating.
5.6 4.2 7.0 25/05/2012
MTS.AX Metcash 3.85 0.0% A Neutral Metcash was recently upgraded to 'A' from 'BBB' following initiatives aimed at minimizing the
propensity for labour disruptions. Our outlook for MTS is Neutral however we are conscious of
transparency issues relating to produce sourcing and carbon impacts affecting competitors in the
industry coupled with a deteriorating operating position which we believe may make ESG issues a
secondary priority for the business. Evidence of these issues continuing to evolve would warrant a
downgrade to our outlook.
4.3 6.5 7.0 1/06/2011
MYR.AX Myer Holdings 2.70 0.0% BBB Neutral Myer Holdings was recently upgraded to 'BBB' from 'B' as the company has several strong labour
management initiatives and some promising initiatives in supply chain oversight. The key downside
risk remaining to Myer’s MSCI rating relates to transparency on its cotton sourcing and supply
chain-management however with these requiring relatively less capital input than past issues we do
not view them as likely to pull back Myer’s new rating and so carry a neutral outlook.
4.5 4.8 7.0 1/06/2011
ORL.AX OrotonGroup 8.00 0.0%
PBG.AX Pacific Brands 0.60 0.0% BBB Neutral Pacific Brands was recently upgraded to 'BBB' from 'BB' for demonstrating strong performance in
improving energy efficiencies from its operations and across its supply chain. We see potential for
this rating to come under threat as Pacific Brands attempts to shift its labour force into low-cost
countries as they may generate social concerns threatening their rating. While we are conscious of
this we are yet to see any evidence and therefore carry a Neutral outlook.
10.0 3.8 3.3 10/07/2012
PMV.AX Premier Investments Ltd 5.95 0.0% CCC Neutral Premier Investments lags its industry on ESG issues, carrying a 'CCC' based on a lack of tangible
evidence that the company is reducing its environmental impact or mitigating regulatory risks. While
these problems will require investment to address, we view these changes as manageable for
Premier to make and therefore carry a Neutral outlook with the intention of moving to Positive
should we see evidence of these issues being handled.
1.4 1.6 7.0 8/06/2012
SFH.AX Specialty Fashion Group 0.30 0.0%
SUL.AX Super Retail Group 8.40 0.0% BB Neutral Super Retail Group was recently upgraded to 'BB' from 'B' based on improvements in measuring
employee job satisfaction which could result in improved performance. Because Super Retail’s
focus is car accessories rather than parts, we believe it has relatively less exposure to growing
demand for clean technology and so should have a more stable MSCI rating than its peers which
warrants a neutral outlook.
2.0 4.6 7.0 25/05/2012
TRS.AX The Reject Shop 11.00 0.0% CCC Neutral The Reject Shop was recently downgraded to 'CCC' from 'B' for a lack of transparency on supply-
chain labour standards and oversight into the chemicals used by textile suppliers. For the company
to improve its rating significant investment is required that could inhibit operational profitability. We
currently have a bleak outlook for The Reject Shop’s capability to sustain earnings and so do not
anticipate these investments to be forthcoming. These factors leave us seeing more downside than
upside to TRS's MSCII rating however with no evidence of deterioration we carry a Neutral outlook.
5.0 3.1 7.0 1/06/2011
WES.AX Wesfarmers 31.50 -5.0% BBB Neutral Wesfarmers was recently downgraded to 'BBB' from 'A' for a lack of transparency on livestock
sourcing and carbon output. We view both coal production and cost-savings in the supermarket’s
division as integral to the company’s future earnings growth and therefore do not foresee these
being jeopardised to improve ESG standards. We therefore believe the currently rating reflects
Wesfarmers’ likely ongoing position and so carry a neutral rating.
4.0 5.1 4.5 1/06/2011
WOW.AX Woolworths 25.40 -5.0% BB Neutral Woolworths was recently downgraded to 'BB' from 'A' for lacking a comprehensive approach to
managing environmental issues created by its handling of raw materials such as beef and dairy. We
believe in an increasingly competitive Australian supermarket industry these issues will be less
prioritised in favour of cost-saving measures and so do not anticipate Woolworth’s contributing
investments that would improve their rating. Our outlook for the rating is therefore neutral.
3.7 4.4 7.0 1/06/2011
MSCI_Total Average 4.0 4.3 6.5 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 109: MSCI IVA analysis: DJS Figure 110: MSCI IVA analysis: HVN
Overall ESG rating B for DJS.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for HVN.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 45
Figure 111: MSCI IVA analysis: JBH Figure 112: MSCI IVA analysis: MTS Overall ESG rating BBB for JBH.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for MTS.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 113: MSCI IVA analysis: MYR Figure 114: MSCI IVA analysis: PBG Overall ESG rating BBB for MYR.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB for PBG.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 115: MSCI IVA analysis: PMV Figure 116: MSCI IVA analysis: SUL Overall ESG rating CCC for PMV.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for SUL.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 117: MSCI IVA analysis: TRS Figure 118: MSCI IVA analysis: WES Overall ESG rating CCC for TRS.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB for WES.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 46
Figure 119: MSCI IVA analysis: WOW Overall ESG rating BB for WOW.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 47
Telcos
Analyst: Brad Clibborn, Emma Alcock
MSCI ratings views
■ Upside expected for TLS from NBN: We see upside to TLS’ BBB MSCI IVA rating
(last reviewed in Feb 2012) as the NBN rollout removes a lot of regulatory and labour
risks for TLS. Without a fixed line business, we expect TLS will have fewer
labour/industrial issues as well as fewer regulatory issues.
ESG concerns in the sector
■ Regulatory changes deliver more certainty of asset value: Telstra’s key
challenges historically have been driven by regulatory and or Government intervention
relating to its ownership of the copper fixed access network. With the $11bn NBN
agreement now approved by the regulators, Government and TLS shareholders,
Telstra has the most certainty in a decade on the value of its fixed line network value.
On the fixed line retail side of the business, Telstra’s NBN retail resale business only
drives around 15% of our valuation. Hence we believe risks from a ‘level playing field’
in fixed line retail are: 1) captured in our valuation; and 2) not material to the overall
group valuation.
■ Change of government unlikely to change value: We believe risks from a change
in government are low, given indications of planned policy from the opposition and the
legislative instruments underpinning Telstra’s $11bn deal. We expect to see Telstra’s
NBN payment arrangements largely unchanged, with the NBN moving to a FTTN
rollout rather than FTTH. The implications of this for Telstra will be a faster realisation
(and higher NPV) of NBN payments, but a faster run off of copper of cash flows.
■ A more favourable regulatory environment for TLS post the NBN deal reduces
risk and could add 16cps to the valuation: The conclusion: Exiting the fixed line
access business substantially reduces the regulatory risk for Telstra. Being paid to exit
the fixed line access business is a bonus which actually drives a higher NPV outcome
for Telstra as the NBN cash payments plus run-off copper cash flows are higher than
the copper network into perpetuity in our view. In addition, we believe this reduced
regulatory risk could see a lower beta being applied to Telstra’s valuation. If we were
to reduce our beta from 1.0 to 0.9 to reflect this improved risk profile, it would drive a
+4.7% (16 cps or $2.2bn) positive impact on our Target Price for TLS.
Summary of analyst views on MSCI rating
Figure 120: Impact of ESG on Target Prices for Telcos Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
IIN.AX iiNet 3.50 0.0%
TLS.AX Telstra Corporation 4.00 0.0% BBB Positive We see medium to long term upside risks to TLS ESG rating
driven by 1) the reduction in unionised labor force as NBN rolls
out. This will reduce risks for industrial disputes going forward
adding to TLS Social rating. 2) Secondly after the NBN is
rolled out TLS will not longer be in the business of fixed line
access, this has been a large source of regulatory disputes /
fines historically. Hence we see upside risk to TLS governance
rating as regulatory disputes become a thing of the past as
NBN progresses.
7.9 4.6 4.5 1/02/2012
TPM.AX TPG Telecom 2.40 0.0% BB Neutral We are comfortable with TPM's MSCI rating. Any expansion
into emerging markets would could create a positive risk to
this rating by improving TPM's social rating (accounts for 79%
total rating score). We agree with MSCI view of TPG risks on
privacy and data security given 1) a lack of policies
surrounding data protection and 2) offshoring of call centre
4.6 3.5 5.1 1/02/2012
Average 6.3 4.1 4.8 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 48
MSCI IVA ratings in context
Figure 121: MSCI IVA analysis: TLS Figure 122: MSCI IVA analysis: TPM Overall ESG rating BBB
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 49
Transport and Infrastructure
Analyst: Nick Markiewicz
MSCI ratings views
■ AIO upside: While staff engagement is a key concern at Patrick, the conclusion of
negotiations and the signing of a new workplace agreement should result in immediate
productivity improvements and staff engagement. On this basis we do not agree with
the poor MSCI rating in this category and believe there is scope for a re-rating from
the BBB MSCI IVA rating set in March 2012.
■ QUB upside despite governance concerns: QUB was given an initial B rating from
MSCI for IVA in October 2011. Governance is the biggest issue for QUB, with poor
disclosure of financial information as well as limited visibility into future earnings
growth. Given the environmental benefits of shifting container transport from road to
rail, we disagree with the low environment MSCI rating, and see upside as more
disclosure of policies is made.
■ TOL Neutral after substantial upgrade: TOL was upgraded substantially to AA from
CCC in June 2011. In the MSCI index TOL has received a low social score which is
primarily due to poor disclosure of employee benefits.
■ BXB top rated: While Brambles is AAA rated, we believe the MSCI social score of 7.3
should be higher, as concerns over the use of illegal immigrants in the IFCO business
relates to the 2003–2006 period, which was prior to its acquisition by Brambles.
Adequate provisions have been made. Furthermore, the high risk MSCI places on
Privacy and Data security as a result of the Recall business should disappear with its
impending sale. With a near-term improvement in the Social score and a stable AAA
rating, we believe this could be one of the highest ESG related businesses in the
Australian market.
ESG concerns in the sector
■ 1.3% downside ESG impact included in Target Prices: We have assessed 1.3%
overall downside ESG impact on Target Prices for the Australian transport stocks
covered.
■ AIO risk of delivering on improved productivity: The biggest ESG downside impact
is from AIO, with low staff engagement and poor productivity at Patrick. A new EBA
has been signed with potential upside likely, but the analysts are concerned about the
risk of delivering on that upside. The analysts have included 3.2% downside risk in
their AIO Target Price.
■ QAN impacted by inefficient fleet: We include 9.2% downside in our Target Price for
fuel inefficiency at QAN. This may improve post fleet investment.
■ QRN, QUB and TOL all impacted by Social issues: We have concerns about ESG
issues at QRN, QUB and TOL, but have not included explicit downside risks in their
Target Prices. At QRN the concern is the impact of staff redundancies. At QUB, the
analysts are concerned about disclosure and low staff engagement at QUB. For TOL,
the analysts are concerned about workplace issues in the USA with truck drivers.
27 September 2012
Australian ESG/SRI 50
Summary of analyst views on MSCI rating
Figure 123: Impact of ESG on Target Prices for Transport and Infrastructure Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov rating Rating date
AIO.AX Asciano Group 5.95 -3.1% BBB Positive While staff engagement is a key concern at Patrick, the conclusion of
negotiations and the signing of a new workplace agreement should
result in immediate productivity improvements and staff engagement.
On this basis we do not agree with the poor MSCI rating in this
category and believe there is scope for a re-rating.
3.7 5.1 7.0 1/03/2012
BXB.AX Brambles Limited 7.88 0.0% AAA Neutral While Brambles is AAA rated, we believe the MSCI social score of
7.3 should be higher, as concerns over the use of illegal immigrants in
the IFCO business relates to the 2003-2006 period, which was prior to
its acquisition by Brambles. Adequate provisions have been made.
Furthermore, the high risk MSCI places on Privacy and Data security
as a result of the Recall business should disappear with its impending
sale. With a higher MSCI re-rating likely, we believe this could be one
of the highest ESG ranked businesses in the Australian market.
7.8 7.3 7.0 1/03/2012
QAN.AX Qantas Airways 1.95 -9.2% BB Neutral Contrary to the MSCI overview, staff engagement remains a key
concern, though the impact to productivity remains hard to quantify.
Fuel burn and energy efficiency is low relative to other airlines with
newer fleets, however with $15bn of capital expenditure on new
aircraft in the medium term, we see this risk as gradually subsiding,
particularly once the B787 enters service.
4.5 6.1 7.0 10/07/2012
QRN.AX QR National 3.80 0.0% BB Neutral No change to MSCI 2.2 5.1 7.0 1/03/2012
QUB.AX Qube Logistics 1.90 0.0% B Positive Given the indirect environmental benefits of shifting up to 1 million
containers from road to rail which the Moorebank facility could
provide, we believe the MSCI environment rating should be higher.
2.7 0.1 5.2 1/10/2011
TOL.AX Toll Holdings 4.80 0.0% AA Neutral We are satisfied with the MSCI IVA rating. 8.0 4.3 5.8 1/06/2011
VAH.AX Virgin Australia Holdings 0.50 0.0% BBB Neutral We are satisfied with the MSCI IVA rating. 4.9 2.7 7.0 10/07/2012
Average 4.8 4.4 6.6 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 124: MSCI IVA analysis: AIO Figure 125: MSCI IVA analysis: BXB Overall ESG rating BBB for AIO.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for BXB.AX
Source: MSCI IVA Rating
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 126: MSCI IVA analysis: QAN Figure 127: MSCI IVA analysis: QRN Overall ESG rating BB for QAN.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for QRN.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 51
Figure 128: MSCI IVA analysis: QUB Figure 129: MSCI IVA analysis: TOL Overall ESG rating B for QUB.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA for TOL.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 130: MSCI IVA analysis: VAH Overall ESG rating BBB for VAH.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 52
Utilities
Analyst: Ben McVicar
MSCI ratings views
■ One upside in Utilities space: In the Utilities sector, MSCI ratings range from AA
(e.g. ORG, APA) to BB for SPN, given the overhang of litigation from the 2009
Victorian bushfires. Our analyst has placed one stock, DUE, on Positive watch (see
discussion below). Post the recent downgrade to AGK’s MSCI IVA rating to A (from
AA), we move to a Neutral view on AGK (see discussion below).
■ DUE rating reflects lack of disclosure: DUE’s MSCI IVA rating was downgraded
from BBB to BB in July 2012. DUE received a very low Social score of 1.5, due to lack
of disclosure on employee benefits and programs. By comparison, SKI has a Social
rating of 9.1, and SPN had 10. In addition, the recent downgrade addressed the lack
of disclosure on biodiversity and land use, giving DUE a very low score of 0.7. By
comparison, SKI is rated at 3.1, SPN at 2.0, ENV at 5.1 and APA at a strong 7.8.. We
expect DUE management to address this lack of disclosure and therefore an upgrade
from the current BB to at least BBB is possible.
■ AGK MSCI rating downgraded to A to reflect Loy Yang purchase: AGK has
recently acquired the Loy Yang brown coal generator in Victoria. The MSCI IVA rating
of A and Environmental rating of 5.6 was downgraded from AA in July 2012, post the
acquisition of the Loy Yang brown coal generator in Victoria. AGK had previously
stated its aim was to have carbon emission of at least 50% below the average in the
NEM (National Electricity Market), which will now not be met.
ESG concerns in the sector
■ Integrated Utilities have Environmental and Social issues around coal seam gas
development: We have formed the view that it will be quite difficult for AGK to
develop parts of its coal seam gas tenements in NSW, especially those in the wine
growing areas of the Hunter Valley. We exclude all the value paid for the NSW coal
seam gas assets from our AGK Target Price, resulting in a 2.2% discount. ORG has
environmental approval for fields it requires for the APLNG coal seam gas to LNG
project in Queensland, and has no CSG acreage position in NSW. Hence we feel
more comfortable with ORG’s ability to develop its CSG assets.
■ ORG may face increased landowner compensation: In Queensland, coal seam gas
development is well underway, with strong regulation of the sector. Both ORG and
STO have been proactive in their environmental and social responsibilities, and the
costs of compliance are factored into our Target Price. However, we have considered
a scenario of a further downside cost for increased landowner compensation, which
would reduce our Target Price by 0.9%.
■ Regulated utilities have Social concerns on rising electricity prices: The
Regulators in Australia are reviewing parts of the electricity and gas regulations. A
focus is on the allowance for the debt margin, as part of the WACC in the Building
Block approach to setting network and transmission charges. We assume that the
debt margin will drop back to levels around 330bps for any regulatory resets post
2015, and we include that fall in WACC in our Target Price for all Regulated assets.
We therefore value the ESG impact as the valuation impact of the difference between
the current margin and the assumed 330bps.
27 September 2012
Australian ESG/SRI 53
■ Conflicting views on the renewables target: An interesting ESG conundrum is
developing in the Utilities space. ORG is challenging the federal Government’s policy
of a 20% target for renewable generation by 2020. ORG’s position is that the target is
now more like a ~27% target, with lower-than-projected electricity demand leaving the
2020 volume target of an additional 45TWh of renewals too high. Recent disclosure
has highlighted the contribution to rising electricity prices of various jurisdictional
emission initiatives outside the carbon tax, focussing community views on the cost of
these schemes to electricity prices.
Summary of analyst views on MSCI rating
Figure 131: Analyst views on MSCI IVA rating Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating date
AGK.AX AGL Energy 16.60 -2.5% A Neutral Post the acquisition of the Loy Yang brown coal generator, AGK’s
MSCI IVA rating has been downgraded to A. We move out Outlook to
neutral from Negative, as a result.
6.0 7.8 7.0 10/07/2012
APA.AX APA Group AA 5.6 7.9 7.0 1/09/2011
DUE.AX DUET Group 2.07 -2.6% BB Positive DUE has recently been downgraded from BBB to BB, with a lack of
disclosure on environmental issues such as biodiversity and land use,
and Social issues such as Employee benefits and programs. We
believe as DUE moves to internalise management and acts more as an
integrated company rather than as a manager of asset companies,
disclosure will improve.
4.3 1.5 7.0 10/07/2012
ENV.AX Envestra 0.83 -5.7% BBB Neutral No current concerns 3.8 7.3 7.0 1/09/2011
ORG.AX Origin Energy 16.00 0.0% AA Neutral Although Environmental and Social concerns around the APLNG project
continue, ORG is considered to be handling these well.
6.1 7.9 7.5 1/09/2011
SKI.AX Spark Infrastructure Group1.63 -7.4% BBB Neutral No current concerns 4.2 9.1 7.0 1/01/2012
SPN.AX SP AusNet 1.03 -13.2% BB Neutral The Rating includes the impact of the bushfire issues 3.7 10.0 7.0 1/01/2012
MSCI_Total Average 4.8 7.4 7.1 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 132: MSCI IVA analysis: AGK Figure 133: MSCI IVA analysis: APA Overall ESG rating A for AGK.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AA for APA.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 134: MSCI IVA analysis: DUE Figure 135: MSCI IVA analysis: ENV
Overall ESG rating BB for DUE.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB for ENV.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 54
Figure 136: MSCI IVA analysis: ORG Figure 137: MSCI IVA analysis: SKI Overall ESG rating AA for ORG.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BBB for SKI.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 138: MSCI IVA analysis: SPN Overall ESG rating BB for SPN.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 55
REITS Analyst: Stephen Rich, John Richmond, John Lee
MSCI ratings views
■ Five AAA rated stocks in REITS: We have a Neutral Outlook on the MSCI IVA
ratings for the covered stocks in the REITS sector. Five companies achieved the top
AAA rating: CPA, DXS, GPT, LLC and SGP, with strong environmental scores. Recent
issues at LLC regarding discrepancies in profit recognition may impact on the AAA
rating (governance concerns), so we will monitor this issue.
■ No near-term upside for B-rated stocks: CQR, CRF and WRT achieved a lowly B
MSCI IVA rating and we see little upside in the near term to these ratings.
ESG concerns in the sector
■ Current ESG compliance valued in Target Price: Our valuation methodology is
based on the assumption that A-REITs are ESG compliant, particularly against a
backdrop where REITs have progressively upgraded the environmental sustainability
rating of their portfolios over the past three years. ESG compliance is factored into our
Net Asset Valuation by deducting an intangible liability from the value of the passive
portfolio. The application of a multiple to forward expenses (management and other
ranging from 7.5x–10x) incorporates the costs of running a vehicle (implicitly
incorporating ESG considerations), and becomes the primary driver of the discount
between our valuation and book NTA. Hence, we have no explicit downside ESG risk
in our Target Prices.
■ Further upside potential scenarios: However, upside risk potential remains from
social pressures and regulatory changes with tenants (most notably Government
tenants) increasingly looking for accommodation solutions of a particular Green Star
rating. However, this is yet to manifest itself into greater demand, and hence higher
rents paid for green buildings just yet and as such we have not factored these into our
Target Prices.
■ LLC the standout - upside of 2%: Consistent with the Credit Suisse Australian
Equities valuation approach, we have incorporated an explicit valuation of ESG into
our LLC target price. LLC pursues significant ESG policies and compliance, most
notably across safety and environment within its construction and development
businesses, and is regarded as a leader in the development of green commercial
buildings. Going forward, we feel this will be a greater source of competitive
advantage for LLC as ESG policies tighten, enabling higher development margins
through competitive tendering, tenant pre-commitments and faster government
approvals. We have explicitly captured this in our valuation of LLC’s development
business, assigning 1x higher multiple on LLC’s Australian development business,
resulting in a 2% increase to valuation – which is incorporated in our $8.48 target price.
27 September 2012
Australian ESG/SRI 56
Summary of analyst views on MSCI rating
Figure 139: : Impact of ESG on Target Prices for REITS Company Target
Price
(AUD)
ESG
downside
included
MSCI
IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating date
ALZ.AX Australand 2.91 0.0% BBB Neutral We see the potential for ALZ's BBB rating to be upgraded, as newly developed commercial
assets improve its average green ratings.
4.9 5.0 7.0 1/10/2011
CFX.AX CFS Retail Property Trust 1.97 0.0% A Neutral We agree with MSCI's A rating for CFX. CFX continues to perform strongly on green
building certifications and energy and water efficiency improvements compared to most
peers, though several have accelerated their adoption of green building certifications and
demonstrated more rapid improvements in energy and water use than CFS Retail
5.2 5.0 7.0 1/10/2011
CPA.AX Commonwealth Property Office Fund 1.03 0.0% AAA Neutral We concur with MSCI 'AAA' rating for CPA as it continues to improve on the standard of its
green building certifications relative to peers as well as make improvements in energy and
water intensity across its portfolio.
7.9 5.0 7.0 1/10/2011
CQR.AX Charter Hall Retail REIT 3.07 0.0% B Neutral We agree with MSCI's B rating for CQR as it continues to show relatively little attention to
energy and water intensity relative to a number of more proactive peers, and since it holds
no recognized green building certifications. Meanwhile, a number of its retail property
owning peers have increased their efforts to achieve green certifications for their assets and
set transparent targets for further improvement.
0.7 5.0 7.0 1/10/2011
CRF.AX Centro Retail Australia 2.00 0.0% B Neutral We agree with MSCI's B rating for CRF as the company lacks policies to take advantage of
growth opportunities in green properties' management and development, and displays no
explicit management capabilities on tenant engagement and service quality. However,
Centro does display moderate programs to improve the energy efficiency of its operations.
2.4 4.1 7.0 31/07/2012
DXS.AX Dexus Property Group 1.00 0.0% AAA Neutral We concur with MSCI's 'AAA' rating for DXS as it outperforms its peers across the
environmental key issues that we assess, and has best-in-class performance in energy
and water consumption intensity.
7.8 5.0 7.0 1/10/2011
GMG.AX Goodman Group 3.98 0.0% A Neutral We agree with MSCI's A rating for GMG as it outperforms its peers in the area of green
building and energy efficiency, despite facing relatively high exposure to the tightening
regulations relating to climate change and building energy efficiency in Australia. With 61%
of assets in industrial properties, the company's rating benefits from the low energy
intensity of industrial properties. However, we are concerned that its inactive approach in
water management will result in increases in its operational costs over time.
5.5 5.0 7.0 1/10/2011
GPT.AX GPT Group 3.60 0.0% AAA Neutral We agree with MSCI's AAA rating for GPT as it continues to lead most in its industry in
the adoption of green building certifications and its improvement trend and targets for
energy and water efficiency
8.0 5.0 7.0 1/10/2011
IOF.AX Investa Office Fund 2.95 0.0% AA Neutral We concur with MSCI's AA rating for IOF it has achieved significant improvements in
green building development and management, energy efficiency, and water efficiency.
6.2 5.0 7.0 1/10/2011
LLC.AX Lend Lease 8.48 2.0% AAA Neutral While LLC continues to pursue best practice standards in green building certifications,
energy and water efficiency, the recent disclosure issues within its Abigroup business may
see MSCI review LLC's AAA rating.
8.4 6.5 9.2 25/07/2012
MGR.AX Mirvac Group 1.48 0.0% AA Neutral We agree with MSCI's AA rating for MGR due to MGR's above average performance
across the three key issues that we assess: opportunities in green building, energy
efficiency, and water stress. It is one of relatively few Australian REITs in the peer set that
have set specific targets in obtaining both NABERS Energy and Water ratings. By
identifying energy efficiency opportunities and upgrading NABERS Energy ratings for
existing assets, the company has achieved above average performance in green building
and energy efficiency.
6.7 5.0 7.0 1/10/2011
SGP.AX Stockland 3.30 0.0% AAA Neutral We agree with MSCI's AAA rating for SGP as it continues to pursue best practice
standards in green building certifications, and energy and water efficiency
7.6 5.0 7.0 1/10/2011
WDC.AX Westfield 10.20 0.0% BB Neutral We agree with MSCI's BB rating as a number of WDC retail property owning peers have
started to demonstrate more proactive efforts to achieve green certifications across their
portfolios, and while Westfield continues to adopt green certifications at a slow rate and
demonstrates little evidence of improvement in portfolio-wide energy and water efficiency
2.8 4.4 7.0 1/10/2011
WRT.AX Westfield Retail Trust 3.10 0.0% B Neutral We agree with MSCI's B rating for WRT as it has a relatively low proportion of green
certifications and demonstrates little evidence of improvement in portfolio-wide energy and
water efficiency, while a number of other retail property owners demonstrate an increasing
attention to green certifications and resource efficiency
2.0 5.0 7.0 1/10/2011
Average 5.4 5.0 7.2 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 140: MSCI IVA analysis: ALZ Figure 141: MSCI IVA analysis: CFX Overall ESG rating BBB for ALZ.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for CFX.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 57
Figure 142: MSCI IVA analysis: CPA Figure 143: MSCI IVA analysis: CQR Overall ESG rating AAA for CPA.AX
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for CQR.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 144: MSCI IVA analysis: CRF Figure 145: MSCI IVA analysis: DXS Overall ESG rating B for CRF.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for DXS.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 146: MSCI IVA analysis: GMG Figure 147: MSCI IVA analysis: GPT Overall ESG rating A for GMG.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for GPT.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 148: MSCI IVA analysis: IOF Figure 149: MSCI IVA analysis: LLC Overall ESG rating AA for IOF.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for LLC.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 58
Figure 150: MSCI IVA analysis: MGR Figure 151: MSCI IVA analysis: SGP Overall ESG rating AA for MGR.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for SGP.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 152: MSCI IVA analysis: WDC Figure 153: MSCI IVA analysis: WRT Overall ESG rating BB for WDC.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for WRT.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 59
Small cap companies Building Products/Engineering/Construction
Analyst: Paul Buys, Chris Smith
MSCI ratings views
■ Neutral on FWD and GWA MSCI IVA outlook: We have a Neutral view on the MSCI
IVA rating for FWD and GWA. FWD’s BBB rating was set in June 2012 and GWA’s B
rating was set in June 2012.
ESG concerns in the sector
■ No explicit downside for ESG concerns: We have included no explicit downside
impact in Target Prices for ESG concerns. For building products & civil
engineering/construction companies we highlight the key areas for ESG as:
1) Environmental management of the carbon impact and policies; 2) Labour rights and
OH&S given the level of restructuring; and 3) governance surrounding contracts and
anti-bribery regulations.
Summary of analyst views on MSCI rating
Figure 154: Impact of ESG on Target Prices for Small Caps – Builders/Engineering/Construction Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
ALS.AX Alesco Corporation 2.05 0.0%
FWD.AX Fleetwood Corporation 12.08 0.0% BBB Neutral We belive the MSCI rating is appropriate given FWD's labour,
product and environmental exposure and policies.
3.6 7.5 7.0 25/06/2012
GWA.AX GWA GROUP Limited 1.95 0.0% B Neutral We belive the MSCI rating is appropriate given GWA's labour,
product and environmental exposure and policies.
4.8 6.1 7.0 8/06/2012
Average 4.2 6.8 7.0 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 155: MSCI IVA analysis: FWD Figure 156: MSCI IVA analysis: GWA
Overall ESG rating BBB for FWD.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for GWA.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 60
Consumer Retail
Analyst: Paul Buys, Chris Smith
MSCI ratings views
■ Neutral outlook for ARP and GUD: We have a Neutral view on the MSCI IVA ratings
for ARP (BBB rated) and GUD (BB rated). GUD’s BB rating was set in October 2011,
while ARP BBB rating was set in May 2012.
ESG concerns in the sector
■ No explicit downside for ESG concerns: We have included no explicit downside
impact in Target Prices for ESG concerns. For consumer retail and other companies in
the Small Caps sector, we highlight the key areas for ESG as: 1) Environmental
regulation regarding waste; 2) Labour rights; and OH&S; and 3) supply chain
management for labour and raw material sourcing issues.
Summary of analyst views on MSCI rating
Figure 157: Impact of ESG on Target Prices for Small Caps – Consumer Retail Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
ARP.AX ARB Corp 9.80 0.0% BBB Neutral We belive the MSCI rating is appropriate given ARP's labour,
product, manufacturing and environmental exposure and
policies.
2.3 5.6 7.0 25/05/2012
BRG.AX Breville Group 6.30 0.0% No MSCI rating
DMP.AX DOMINO'S PIZZA 10.20 0.0% No MSCI rating
GUD.AX G.U.D. Holdings 9.20 0.0% BB Neutral We belive the MSCI rating is appropriate given GUD's product
and manufacturing exposure and policies.
2.5 3.4 7.0 1/10/2011
Average 2.4 4.5 7.0 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 158: MSCI IVA analysis: ARP Figure 159: MSCI IVA analysis: GUD Overall ESG rating BBB for ARP.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for GUD.AX
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 61
Consumer Services
Analyst: Paul Buys, Chris Smith
MSCI ratings views
■ Upside seen for MMS and NVT: We see upside to the MSCI IVA B rating for MMS set
in May 2012 and the BB rating for NVT set in December 2011. MMS received a low 0.6
score for labour management, but we believe MMS has a proactive approach to human
capital management and with more disclosure this low score could be improved.
■ For NVT, we see upside to its BB rating and the low score for human capital
development does not include current initiatives, which may require more disclosure
from the company. It has also been penalised for lack of disclosure on carbon
emissions despite its low carbon footprint.
■ Downside possible for CAB’s BBB: We see downside potential for CAB’s MSCI IVA
rating of BBB, which was upgraded from BB in March 2012. The rating does not
include social issues in Australia such as concerns over credit card surcharges, taxi
industry oversight and competition issues, which have been given reasonable levels of
media and consumer focus.
ESG concerns in the sector
■ CAB 10% ESG downside from regulation and governance: For CAB, we include in
our base valuation downside to reflect: 1) follow on litigation as a result of the ACCC
settlement for anticompetitive practices; 2) the regulatory risk associated with CAB's
10% commission; and 3) a possible second shareholder vote against the group’s
remuneration report. We capture this ESG risk by assuming CAB trades up to the XSI
rather than at its historic 10% premium to XSI.
■ No explicit downside for ESG concerns for other stocks in this sector: We have
not included any explicit downside impact in Target Prices for ESG concerns outside
those listed above for CAB. For consumer services companies we highlight the key
areas for ESG as: 1) privacy and data security of customer information; and 2) labour
and OH&S.
Summary of analyst views on MSCI rating
Figure 160: : Impact of ESG on Target Prices for Small Caps – Consumer Services Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating date
CAB.AX Cabcharge Australia 6.40 -10.0% BBB Negative We believe the MSCI rating is not appropriate given it does not
factor in CAB's various areas of regulatory risk. Such as, credit
card surcharging, taxi industry oversight and competition
concerns.
4.7 5.1 7.0 1/03/2012
FXL.AX FlexiGroup Limited 3.45 0.0% No MSCI rating
IVC.AX Invocare Group 9.20 0.0% A Neutral We believe the MSCI rating is appropriate given IVC's proactive
approach to human capital and focus on client product and
service quality.
9.3 6.4 7.0 1/12/2011
MMS.AX McMillan Shakespeare 13.55 0.0% B Positive We belive the MSCI rating is not appropriate for MMS given it
highlights "operational losses related to labour management"
as key area of weakness. We believe that MMS's proactive
approach to human capital and rigorous internal/external audit
and focus on risk management is not represented in its 0.6/10
"Labor Management" score.
6.0 0.6 5.0 25/05/2012
NVT.AX Navitas Ltd 4.80 0.0% BB Positive We belive the MSCI rating is not appropriate for NVT given that
the two areas of weakness highlighted are "Human Capital
Development" and "Carbon Emissions". We believe that NVT's
internal human capital initiatives and small carbon footprint are
not representative of the ratings allocated.
2.9 4.6 7.0 1/12/2011
TGA.AX Thorn Group 1.90 0.0% No MSCI rating
Average 5.7 4.2 6.5 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 62
MSCI IVA ratings in context
Figure 161: MSCI IVA analysis: CAB Figure 162: MSCI IVA analysis: IVC Overall ESG rating BBB for CAB.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for IVC.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 163: MSCI IVA analysis: MMS Figure 164: MSCI IVA analysis: NVT Overall ESG rating B for MMS.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for NVT.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 63
Corporate Services
Analyst: Paul Buys, Chris Smith
MSCI ratings views
■ Neutral outlook for Corporate Services stocks: We see no change to the MSCI IVA
ratings for SAI and TPI. SAI is rated BBB (MSCI IVA) and this was last reviewed in
May 2012. TPI was rated BB in March 2012.
ESG concerns in the sector
■ No explicit downside for ESG concerns: We have not included any explicit
downside impact in Target Prices for ESG concerns. For corporate services companies
we highlight the key areas for ESG as: 1) environmental regulations; 2) labour and
OH&S; and 3) governance surrounding contracts and anti-bribery regulations.
Summary of analyst views on MSCI rating
Figure 165: Impact of ESG on Target Prices for Small Caps – Corporate Services Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
PRG.AX Programmed Maintenance Services 2.65 0.0% No MSCI rating
RWH.AX Royal Wolf Holdings 2.45 0.0% No MSCI rating
SAI.AX SAI Global 4.40 0.0% BBB Neutral We belive the MSCI rating is appropriate given SAI's
proactive approach to data security procedures/policies.
6.0 4.8 7.0 25/05/2012
SKE.AX Skilled Group Limited 3.30 0.0% No MSCI rating
SLM.AX Salmat 1.82 0.0% No MSCI rating
TPI.AX Transpacific Industries Group 0.96 0.0% BB Neutral We belive the MSCI rating is appropriate given TPI's
recent environmental performance in relation to specific
occurences and management of its carbon footprint.
1.9 5.7 4.5 1/03/2012
Average 4.0 5.3 5.8 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 166: MSCI IVA analysis: SAI Figure 167: MSCI IVA analysis: TPI Overall ESG rating BBB for SAI.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating BB for TPI.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 64
IT Services
Analyst: Chris Smith
MSCI ratings views
■ Neutral outlook for SMX: We have a Neutral outlook for the MSCI IVA rating of BB
on SMX, given its proactive approach to human capital management and its focus on
data security and management.
ESG concerns in the sector
■ No explicit downside for ESG concerns: We have included no explicit downside
impact in Target Prices for ESG concerns. For IT services companies we highlight key
areas for ESG as: 1) governance surrounding contracts and anti-bribery regulations;
2) privacy and data security of customer information; and 3) labour and OH&S.
Summary of analyst views on MSCI rating
Figure 168: Impact of ESG on Target Prices for Small Caps – IT Services Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating
date
OKN.AX Oakton 1.40 0.0% No MSCI rating
SMX.AX SMS Management & Technology 6.80 0.0% BB Neutral We belive the MSCI rating is not appropriate given SMX's
proactive approach to human capital and focus on data
security and management.
4.8 3.5 7.0 25/05/2012
Average 4.8 3.5 7.0 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 169: MSCI IVA analysis: SMX Overall ESG rating BB for SMX.AX
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 65
Mining Services
Analyst:, Paul Buys, Chris Smith
MSCI ratings views
■ Downside views for top ratings of IDL: We see downside risk to the MSCI IVA top
ratings of AAA for IDL, set in May 2012. For IDL, its initial AAA rating does not match
commentary of weak efforts in relation to key emissions and waste risks.
ESG concerns in the sector
■ No explicit downside for ESG concerns: We have included no explicit downside
impact in Target Prices for ESG concerns. For mining services companies we highlight
the key areas for ESG as: 1) Environmental management systems and policies;
2) Labour rights and OH&S; and 3) governance surrounding contracts and anti-bribery
regulations.
Summary of analyst views on MSCI rating
Figure 170: Impact of ESG on Target Prices for Small Caps – Mining Services Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov
rating
Rating date
AQZ.AX Alliance Aviation Services Limited 2.58 0.0% No MSCI rating
BKN.AX Bradken Limited 6.95 0.0% BBB Neutral We belive the MSCI rating is appropriate given BKN's proactive
approach to human capital and focus on its carbon emissions.
4.4 5.2 7.0 3/05/2012
CLO.AX Clough 0.97 0.0% No MSCI rating
EHL.AX Emeco Holdings 1.25 0.0% AAA Neutral We belive the MSCI rating is appropriate given EHL's sector
leading commitment to human capital management, workplace
accident reduction targets and OHS policies and procedures.
3.0 8.4 3.0 25/05/2012
IDL.AX Industrea Ltd 1.27 0.0% AAA Negative We belive the MSCI rating is not appropriate given IDL's end
market exposures in relation to carbon emissions and waste
management.
6.8 8.0 7.0 3/05/2012
MRM.AX Mermaid Marine Australia 3.61 0.0% B Neutral We belive the MSCI rating is appropriate given MRM's
implementation and enforcement of its environmental policy
and exposure to carbon emissions.
3.9 5.3 7.0 1/02/2012
NWH.AX NRW Holdings Limited 3.10 0.0% AA Neutral We belive the MSCI rating is appropriate given NWH's focus on
human capital management and risk mitigation policies and
procedures.
2.3 6.7 7.4 24/04/2012
Average 4.1 6.7 6.3 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 171: MSCI IVA analysis: BKN Figure 172: MSCI IVA analysis: EHL Overall ESG rating BBB for BKN.AX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating AAA for EHL.AX
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 66
Figure 173: MSCI IVA analysis: IDL Figure 174: MSCI IVA analysis: MRM Overall ESG rating AAA for IDL.AX
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating B for MRM.AX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
Figure 175: MSCI IVA analysis: NWH Overall ESG rating AA for NWH.AX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 67
Travel
Analyst: Paul Buys, Chris Smith
MSCI ratings views
■ Positive upside for FLT’s BB rating: We have a positive outlook for the MSCI IVA
rating of BB for FLT. Set in November 2011, this rating was downgraded from A. It
focuses on FLT’s lack of water management plans, despite this being a low exposure
for an office-based travel business. FLT scores highly on labour relations with a 9.2
score and we see this should be more highly weighted for this type of business.
ESG concerns in the sector
■ No explicit downside for ESG concerns: We have included no explicit downside
impact in Target Prices for ESG concerns. For travel companies we highlight the key
areas for ESG as: 1) privacy and data security of customer information;
2) environmental opportunities for carbon offsetting; and 3) governance surrounding
contracts and anti-competiveness regulations.
Summary of analyst views on MSCI rating
Figure 176: Impact of ESG on Target Prices for Small Caps – Travel Company Target
Price
(AUD)
ESG
downside
included
MSCI IVA
rating
Analyst
view on
rating
direction
Comments Env
rating
Soc
rating
Gov rating Rating date
FLT.AX Flight Centre 26.35 0.0% BB Positive We believe the MSCI rating is not appropriate for FLT given that it
highlights water stress as a key area of exposure. FLT is a retail
travel agent and we believe this risk has been miscategorised.
4.8 9.2 7.0 1/11/2011
WEB.AX Webjet 4.05 0.0% No MSCI rating
WTF.AX Wotif.com Holdings 5.30 0.0% A Neutral Following a recent rating upgrade, we now believe that the rating for
WTF is appropriate given its focus on data security and human
capital management.
6.6 5.9 7.0 10/07/2012
Average 5.7 7.6 7.0 Source: MSCI IVA ratings, Company data, Credit Suisse estimates
MSCI IVA ratings in context
Figure 177: MSCI IVA analysis: FLT Figure 178: MSCI IVA analysis: WTF Overall ESG rating BB for FLT.AX
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Environment Social Governance
Stock Local Sector Country Global Sector
Overall ESG rating A for WTF.AX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Environment Social Governance
Stock Local Sector Country Global Sector
Source: MSCI IVA Ratings Source: MSCI IVA Ratings
27 September 2012
Australian ESG/SRI 68
Appendix 1 – detailed tables Figure 179: Summary of MSCI IVA ratings and analyst outlooks by sector
Sector AAA AA A BBB BB B CCC
No
Rating Total
Postive,
Negative
Banks 1 2 3
2 1 3
Diversified Financials 1 1 1 1 2 - 2 - 2 1
1 1 2
Insurance 1 - 2 1 1 - - - 2 1
1 1
Sub-total - 1 1 3 - - - 5
3 - 2 1 - - - 6
Coal - - - - 1 - 1 1 6 1
-
Energy - 1 2 1 1 1 2 2 - 2 3
1 1
Gold - - 1 - 1 2 2 - 3 2
-
Diversified Resources - 1 - 1 - - - - -
1 1
Other Metals - 2 - 4 2 5 5 3 - 2 5
1 1 1 3
Steel 1 - - 2 - - - - -
-
Sub-total 1 - 4 - 3 1 8 2 8 - 9 7 1 1 13 47 11
- 2 - 1 1 1 - 5
Building materials - 1 - - 2 1 - 1 1 - 2
-
Chemicals, paper & pkg - - 1 2 1 - - - -
1 1
Construction 1 1 3 1 1 1 - - - 1
1 1
Food and beverage - - 1 - 1 1 - - -
-
Gaming 2 - 2 - 1 - - - -
-
Healthcare - 3 2 1 1 1 1 1 - 2 2
-
Retail - - 2 4 2 3 2 2 3 2
-
Telcos - - - 1 1 1 - - 1 1
-
Transport & infrastructure 1 1 - 2 1 2 1 1 - - 2
-
Utilities - 2 1 2 2 1 - - - 1
-
Sub-total 4 - 8 - 12 - 13 3 14 3 6 4 3 1 6 66 11
- - 1 1 - - - 2
REITS 5 2 2 1 1 3 - - -
-
Sub-total 5 - 2 - 2 - 1 - 1 - 3 - - - - 14 -
- - - - - - - -
Building prds/construction - - - 1 - 1 - 1 -
-
Consumer Retail - - - 1 1 - - 2 -
-
Consumer Services - - 1 1 1 1 1 1 - 2 2
1 1
Corporate Services - - - 1 1 - - 4 -
-
IT Services - - - - 1 - - 1 -
-
Mining Service 2 1 - 1 - 1 - 2 -
1 1
Travel - - 1 - 1 1 - - 1 1
-
Sub-total 2 - 1 - 2 - 5 - 5 2 3 1 - - 13 31 3
1 - - 1 - - - 2
Total 17 - 17 1 23 2 32 8 28 5 23 12 4 2 36 180 30
4 2 3 4 1 1 - 15
6
6
2
7
3
3
7
7
14
3
4
4
7
3
5
10
16
7
2
18
3
4
4 22
9
6
8
9
- - 7
- 5 2 4 5 - 2
3 2 1 1 - -
Source: MSCI IVA ratings, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 69
Figure 180: AAA (MSCI IVA rated) stocks and performance Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
ANZ.AX Australia and New Zealand Bank 24.50 25.00 NEUTRAL AAA Negative 1/10/2011 -1.8% 8.2% 31.3% 16.6% 66,574
BXB.AX Brambles Limited 6.85 7.88 OUTPERFORM AAA Neutral 1/03/2012 3.1% -1.2% 12.2% -3.3% 11,029
CBA.AX Commonwealth Bank Australia 55.37 54.00 UNDERPERFORM AAA Neutral 1/10/2011 1.8% 14.5% 29.0% 27.0% 88,158
CPA.AX Commonwealth Property Office 1.04 1.03 UNDERPERFORM AAA Neutral 1/10/2011 -1.0% 8.8% 17.1% 27.9% 2,441
CWN.AX Crown 9.10 8.80 NEUTRAL AAA Neutral 1/02/2012 2.3% 6.9% 16.9% 14.8% 6,628
DXS.AX Dexus Property Group 0.97 1.00 NEUTRAL AAA Neutral 1/10/2011 0.0% 14.0% 21.3% 40.2% 4,670
EHL.AX Emeco Holdings 0.73 1.25 OUTPERFORM AAA Neutral 25/05/2012 -17.0% -29.2% -19.8% 15.8% 461
GPT.AX GPT Group 3.50 3.60 UNDERPERFORM AAA Neutral 1/10/2011 -1.4% 15.2% 14.9% 23.2% 6,184
IAG.AX Insurance Australia Group 4.37 4.00 NEUTRAL AAA Neutral 18/04/2012 7.9% 32.1% 48.9% 29.8% 9,085
IDL.AX Industrea Ltd 1.24 1.27 NEUTRAL AAA Negative 3/05/2012 -0.8% 21.0% 4.1% 5.3% 459
LLC.AX Lend Lease 7.70 8.48 NEUTRAL AAA Neutral 25/07/2012 -3.4% 6.0% 11.4% -4.0% 4,410
PPT.AX Perpetual 26.30 28.00 NEUTRAL AAA Negative 25/06/2012 -2.2% 5.2% 26.5% -16.7% 1,104
SGM.AX Sims Metal Management 9.60 11.00 OUTPERFORM AAA Neutral 1/12/2011 4.2% -34.6% -18.9% -53.2% 1,961
SGP.AX Stockland 3.33 3.30 NEUTRAL AAA Neutral 1/10/2011 6.1% 17.3% 21.4% 0.4% 7,337
TAH.AX Tabcorp Holdings 2.84 3.30 NEUTRAL AAA Neutral 1/02/2012 -2.7% 8.5% 18.5% 11.5% 2,074
WBC.AX Westpac 24.52 26.75 OUTPERFORM AAA Negative 1/10/2011 -1.4% 15.8% 26.6% 10.7% 75,525
WOR.AX WorleyParsons 27.75 27.55 NEUTRAL AAA Neutral 1/12/2011 7.9% -1.3% 11.9% 1.3% 6,720
AAA Weighted average 0.4% 12.2% 26.7% 16.7% 294,819
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 0.5% 13.1% 19.8% 23.0% Source: MSCI IVA ratings, Credit Suisse estimates
Figure 181: AA (MSCI IVA rated) stocks and performance Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
APA.AX APA Group 4.78 NOT RATED AA 1/09/2011 -0.2% -2.7% 25.7% 84.2% 3,115
AWC.AX Alumina Limited 0.85 0.84 NEUTRAL AA Negative 1/12/2011 16.4% -31.2% -38.2% -45.7% 2,147
BHP.AX BHP Billiton 32.81 35.85 NEUTRAL AA Negative 17/02/2012 0.8% -3.6% -4.6% -3.5% 174,230
BLD.AX Boral 3.68 3.95 OUTPERFORM AA Neutral 25/05/2012 3.7% -7.8% 14.2% -30.4% 2,792
BLY.AX Boart Longyear Group 1.62 3.04 OUTPERFORM AA Neutral 24/04/2012 -29.9% -59.6% -38.0% -37.7% 773
CSL.AX CSL Ltd 45.18 44.30 NEUTRAL AA Neutral 1/09/2011 6.2% 27.2% 59.7% 43.0% 22,829
IFL.AX IOOF Holdings 5.75 6.50 NEUTRAL AA Neutral 25/06/2012 -2.1% 2.6% 15.3% 42.6% 1,321
IOF.AX Investa Office Fund 2.90 2.95 NEUTRAL AA Neutral 1/10/2011 -0.3% 18.8% 26.3% 46.5% 1,781
MGR.AX Mirvac Group 1.41 1.48 OUTPERFORM AA Neutral 1/10/2011 5.2% 22.6% 28.2% 2.9% 4,830
NAB.AX National Australia Bank 25.42 26.00 NEUTRAL AA Positive 1/10/2011 0.7% 7.0% 18.5% -1.0% 58,396
NWH.AX NRW Holdings Limited 2.17 3.10 NEUTRAL AA Neutral 24/04/2012 -25.2% -47.7% -2.1% 43.5% 605
ORG.AX Origin Energy 11.16 16.00 OUTPERFORM AA Neutral 1/09/2011 -5.7% -14.5% -10.8% -18.8% 12,166
PAN.AX Panoramic Resources 0.55 1.25 OUTPERFORM AA Neutral 1/12/2011 -0.9% -51.1% -57.0% -66.4% 139
SHL.AX Sonic Healthcare 13.25 13.50 NEUTRAL AA Neutral 25/05/2012 1.6% 8.6% 17.8% 9.3% 5,203
SIP.AX Sigma Pharmaceuticals 0.66 0.74 OUTPERFORM AA Neutral 25/05/2012 -0.7% 7.9% 15.8% 27.1% 783
TOL.AX Toll Holdings 4.40 4.80 NEUTRAL AA Neutral 1/06/2011 0.6% -22.7% 5.7% -37.8% 3,155
WPL.AX Woodside Petroleum 33.25 38.55 NEUTRAL AA Neutral 25/05/2012 -4.0% -2.7% 7.7% -28.8% 28,362
AA Weighted average 0.5% 0.3% 6.3% -1.7% 322,627
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 0.6% 1.1% -0.6% 4.6% Source: MSCI IVA ratings, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 70
Figure 182: A (MSCI IVA rated) stocks and performance Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
AGK.AX AGL Energy 14.70 16.60 NEUTRAL A Neutral 10/07/2012 -3.6% 5.2% 11.4% 23.7% 8,024
ALL.AX Aristocrat Leisure 2.71 2.60 UNDERPERFORM A Neutral 1/02/2012 -0.4% -8.9% 35.4% -42.5% 1,492
ALQ.AX ALS Limited 8.30 10.16 NEUTRAL A Neutral 25/05/2012 -11.2% -36.3% 4.2% 58.3% 2,826
AMC.AX Amcor 7.72 7.70 UNDERPERFORM A Neutral 1/10/2011 4.3% 6.3% 19.1% 59.4% 9,316
AMP.AX AMP 4.30 4.65 NEUTRAL A Neutral 11/04/2012 -0.8% 2.4% 19.2% -15.4% 12,448
BBG.AX Billabong International 1.34 RESTRICTED A 1/09/2011 -1.5% -39.6% -48.6% -79.1% 639
CCL.AX Coca-Cola Amatil 13.62 12.50 UNDERPERFORM A Neutral 8/06/2012 -0.4% 11.1% 18.1% 51.5% 10,369
CFX.AX CFS Retail Property Trust 1.97 1.97 UNDERPERFORM A Neutral 1/10/2011 1.0% 13.7% 19.0% 21.6% 5,572
CTX.AX Caltex Australia 15.80 15.55 UNDERPERFORM A Positive 1/04/2012 3.8% 15.0% 52.6% 41.6% 4,266
DOW.AX Downer EDI 3.55 4.10 OUTPERFORM A Negative 1/03/2012 -6.3% -11.7% 16.4% -51.2% 1,523
GMG.AX Goodman Group 4.07 3.98 NEUTRAL A Neutral 1/10/2011 3.8% 20.6% 42.9% 51.9% 6,543
GRY.AX Gryphon Minerals Limited 0.88 1.25 OUTPERFORM A Neutral 1/03/2012 26.8% -19.0% -36.8% 121.5% 305
HGG.AX Henderson group 1.70 1.47 OUTPERFORM A Positive 25/06/2012 4.0% -8.3% 3.8% -15.5% 1,956
IVC.AX Invocare Group 8.36 9.20 NEUTRAL A Neutral 1/12/2011 -4.3% 6.2% 26.6% 51.0% 920
MQG.AX Macquarie Group 28.55 35.00 OUTPERFORM A Negative 1/03/2012 6.9% 0.8% 32.9% -42.7% 9,684
MTS.AX Metcash 3.65 3.85 NEUTRAL A Neutral 1/06/2011 0.6% -11.3% -3.9% -1.8% 3,215
PRY.AX Primary Health Care 3.50 3.65 NEUTRAL A Neutral 25/05/2012 -2.2% 24.5% 17.6% -35.5% 1,756
QBE.AX QBE Insurance Group 12.98 14.79 OUTPERFORM A Negative 17/04/2012 -0.3% -5.6% 7.4% -32.8% 15,880
RHC.AX Ramsay Health Care 23.71 25.00 NEUTRAL A Neutral 25/05/2012 -3.9% 23.0% 30.3% 132.9% 4,791
STO.AX Santos Ltd 11.21 12.65 NEUTRAL A Neutral 25/05/2012 -2.8% -20.2% 4.1% -17.2% 10,685
TSE.AX Transfield Services Ltd 1.78 2.05 NEUTRAL A Neutral 1/03/2012 -9.0% -24.8% 0.0% -45.4% 919
TTS.AX Tatts Group 2.73 2.60 UNDERPERFORM A Neutral 1/02/2012 0.7% 14.9% 32.7% 45.2% 3,721
WTF.AX Wotif.com Holdings 4.01 5.30 OUTPERFORM A Neutral 10/07/2012 -2.5% -9.7% 11.2% -13.9% 849
A Weighted average 0.2% 1.6% 18.4% 11.2% 117,700
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 0.3% 2.5% 11.4% 17.5% Source: MSCI IVA ratings, Credit Suisse estimates
Figure 183: BBB (MSCI IVA rated) stocks and performance Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
AIO.AX Asciano Group 4.39 5.95 OUTPERFORM BBB Positive 1/03/2012 -3.7% -9.6% 3.0% -7.7% 4,282
ALZ.AX Australand 2.94 2.91 OUTPERFORM BBB Neutral 1/10/2011 1.4% 18.9% 37.2% 34.5% 1,696
ARI.AX Arrium 0.53 1.15 OUTPERFORM BBB Neutral 1/12/2011 -29.6% -54.8% -53.7% -73.9% 713
ARP.AX ARB Corp 9.74 9.80 NEUTRAL BBB Neutral 25/05/2012 -1.3% 5.9% 17.4% 134.0% 706
ASX.AX ASX 29.85 28.50 UNDERPERFORM BBB Negative 1/07/2011 -1.8% -7.5% 5.3% 2.6% 5,228
AWE.AX AWE Ltd 1.34 1.75 OUTPERFORM BBB Negative 25/05/2012 -7.3% -32.8% 46.4% -46.6% 699
BEN.AX Bendigo and Adelaide Bank 7.63 8.75 NEUTRAL BBB Positive 1/10/2011 -3.7% 2.3% -1.9% 5.3% 3,027
BKN.AX Bradken Limited 5.55 6.95 OUTPERFORM BBB Neutral 3/05/2012 -10.3% -32.8% -10.4% 4.1% 939
BOQ.AX Bank of Queensland 7.60 8.00 OUTPERFORM BBB Positive 1/10/2011 0.4% 8.0% 15.7% -14.4% 2,347
BSL.AX BlueScope Steel 0.40 RESTRICTED BBB 1/12/2011 5.3% 0.0% -36.1% -81.9% 1,323
CAB.AX Cabcharge Australia 5.37 6.40 NEUTRAL BBB Negative 1/03/2012 -2.6% -8.0% 35.5% 16.3% 647
COH.AX Cochlear 66.55 65.50 NEUTRAL BBB Neutral 1/12/2011 -2.0% 9.5% 40.6% 10.1% 3,792
CPU.AX Computershare 8.45 9.38 OUTPERFORM BBB Neutral 25/05/2012 -0.9% -4.6% 14.6% -13.5% 4,861
ENV.AX Envestra 0.89 0.83 UNDERPERFORM BBB Neutral 1/09/2011 8.2% 17.9% 39.7% 93.2% 1,392
FMG.AX Fortescue Metals Group Ltd 3.51 RESTRICTED BBB 1/12/2011 -9.0% -38.9% -20.6% -6.4% 11,315
FWD.AX Fleetwood Corporation 10.17 12.08 UNDERPERFORM BBB Neutral 25/06/2012 -13.2% -13.5% -4.0% 47.3% 603
ILU.AX Iluka Resources 10.16 13.50 OUTPERFORM BBB Positive 1/12/2011 4.0% -41.5% -15.3% 191.2% 4,254
JBH.AX JB Hi-Fi 9.03 9.70 UNDERPERFORM BBB Neutral 25/05/2012 -4.1% -16.1% -36.7% -42.0% 893
MDL.AX Mineral Deposits Ltd. 5.65 9.09 OUTPERFORM BBB Positive 1/12/2011 4.2% -10.0% 15.3% 540.1% 489
MYR.AX Myer Holdings 1.75 2.70 OUTPERFORM BBB Neutral 1/06/2011 -5.9% -21.6% -7.9% N/A 1,018
NUF.AX Nufarm 5.80 5.80 UNDERPERFORM BBB Neutral 1/02/2012 -2.5% 20.8% 35.0% -47.8% 1,520
ORI.AX Orica 24.79 29.40 OUTPERFORM BBB Negative 1/09/2011 -0.2% -10.0% 10.8% 18.0% 9,064
PBG.AX Pacific Brands 0.59 0.60 NEUTRAL BBB Neutral 10/07/2012 -1.7% 0.8% -6.6% -39.9% 539
PNA.AX PanAust 3.04 3.13 NEUTRAL BBB Neutral 1/12/2011 11.2% 1.0% 14.1% 24.0% 1,906
RIO.AX Rio Tinto 52.89 73.32 OUTPERFORM BBB Neutral 1/12/2011 2.2% -18.1% -15.0% -3.6% 88,656
SAI.AX SAI Global 4.28 4.40 OUTPERFORM BBB Neutral 25/05/2012 0.5% -12.8% -6.1% 42.4% 877
SKI.AX Spark Infrastructure Group 1.66 1.63 NEUTRAL BBB Neutral 1/01/2012 5.4% 14.2% 42.5% 79.6% 2,196
SUN.AX Suncorp Group Limited 9.23 9.00 NEUTRAL BBB Positive 18/04/2012 2.9% 15.9% 25.2% 27.9% 11,875
TLS.AX Telstra Corporation 3.90 4.00 NEUTRAL BBB Positive 1/02/2012 3.7% 22.8% 35.3% 46.7% 48,528
UGL.AX UGL Limited 10.47 13.00 OUTPERFORM BBB Positive 24/04/2012 -0.6% -18.0% -4.4% -15.5% 1,741
VAH.AX Virgin Australia Holdings 0.41 0.50 NEUTRAL BBB Neutral 10/07/2012 -14.6% -10.9% 30.2% -1.2% 906
WES.AX Wesfarmers 34.49 31.50 UNDERPERFORM BBB Neutral 1/06/2011 0.6% 18.1% 13.4% 49.1% 40,099
BBB Weighted average 1.1% -1.6% 6.0% 21.6% 258,130
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 1.2% -0.7% -1.0% 27.9% Source: MSCI IVA ratings, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 71
Figure 184: BB (MSCI IVA rated) stocks and performance Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
CSR.AX CSR 1.58 1.17 UNDERPERFORM BB Positive 1/08/2011 12.1% -8.3% -27.5% -3.7% 799
DUE.AX DUET Group 2.08 2.07 NEUTRAL BB Positive 10/07/2012 0.5% 18.7% 36.6% 61.6% 2,323
EGP.AX Echo Entertainment 3.75 3.80 UNDERPERFORM BB Neutral 1/02/2012 -7.6% -10.6% 7.4% N/A 3,096
ERA.AX Energy Resources of Australia 1.35 1.65 NEUTRAL BB Negative 1/12/2011 -4.6% 4.3% -30.7% -90.9% 696
FLT.AX Flight Centre 23.75 26.35 OUTPERFORM BB Positive 1/11/2011 3.2% 11.2% 40.3% 82.4% 2,378
GFF.AX Goodman Fielder 0.52 0.60 NEUTRAL BB Neutral 1/12/2011 -3.7% -25.4% -6.2% -50.5% 1,007
GUD.AX G.U.D. Holdings 8.10 9.20 NEUTRAL BB Neutral 1/10/2011 -5.7% 11.5% 29.7% 22.7% 578
IGO.AX Independence Group NL 4.04 3.50 NEUTRAL BB Neutral 1/12/2011 15.7% 2.3% -8.5% -4.3% 941
IPL.AX Incitec Pivot Ltd. 2.89 3.50 OUTPERFORM BB Neutral 1/02/2012 -4.9% -7.2% -10.0% 9.0% 4,707
JHX.AX James Hardie Industries SE 8.59 9.24 NEUTRAL BB Neutral 25/05/2012 0.6% 16.7% 50.3% 18.2% 3,909
LEI.AX Leighton Holdings 16.50 17.60 NEUTRAL BB Neutral 25/04/2012 -2.1% -21.7% -10.0% -45.5% 5,562
MBN.AX Mirabela Nickel 0.37 0.53 OUTPERFORM BB Neutral 1/12/2011 21.7% -32.4% -73.3% -86.7% 331
NCM.AX Newcrest Mining 27.70 26.00 UNDERPERFORM BB Neutral 1/03/2012 4.6% -5.9% -19.1% -8.3% 21,191
NVT.AX Navitas Ltd 4.20 4.80 OUTPERFORM BB Positive 1/12/2011 -1.2% 21.2% 18.8% 31.2% 1,576
OSH.AX Oil Search 7.47 8.70 OUTPERFORM BB Neutral 25/05/2012 0.9% 7.4% 32.4% 22.4% 10,296
OZL.AX OZ Minerals 6.56 9.70 OUTPERFORM BB Neutral 1/12/2011 -0.7% -31.8% -27.9% -13.7% 1,991
QAN.AX Qantas Airways 1.22 1.95 OUTPERFORM BB Neutral 10/07/2012 2.1% -31.9% -16.2% -56.5% 2,752
QRN.AX QR National 3.36 3.80 NEUTRAL BB Neutral 1/03/2012 -5.4% -8.7% 8.6% N/A 8,198
RMD.AX ResMed Inc. 3.89 3.93 OUTPERFORM BB Positive 1/12/2011 8.8% 30.2% 32.0% 54.4% 6,267
SMX.AX SMS Management & Technology 6.48 6.80 OUTPERFORM BB Neutral 25/05/2012 2.0% 12.9% 19.2% 38.8% 446
SPN.AX SP AusNet 1.04 1.03 NEUTRAL BB Neutral 1/01/2012 2.5% 1.8% 25.4% 50.6% 3,473
SUL.AX Super Retail Group 7.96 8.40 NEUTRAL BB Neutral 25/05/2012 -0.4% 6.8% 52.0% 67.4% 1,563
TPI.AX Transpacific Industries Group 0.88 0.96 NEUTRAL BB Neutral 1/03/2012 2.3% 12.8% 49.4% -34.2% 1,389
TPM.AX TPG Telecom 2.21 2.40 OUTPERFORM BB Neutral 1/02/2012 4.2% 25.7% 64.4% 87.3% 1,754
WDC.AX Westfield 10.13 10.20 NEUTRAL BB Neutral 1/10/2011 2.3% 17.5% 33.6% 11.2% 22,822
WHC.AX Whitehaven Coal 2.84 4.40 OUTPERFORM BB Neutral 1/12/2011 -14.6% -34.8% -30.9% 6.3% 2,877
WOW.AX Woolworths 29.28 25.40 UNDERPERFORM BB Neutral 1/06/2011 3.5% 15.3% 21.8% 13.6% 36,139
WSA.AX Western Areas NL 4.16 4.70 OUTPERFORM BB Neutral 1/12/2011 -0.7% -22.1% -6.2% -0.7% 748
BB Weighted average 1.7% 5.3% 14.6% 10.0% 149,812
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 1.8% 6.1% 7.6% 16.3% Source: MSCI IVA ratings, Credit Suisse estimates
Figure 185: B (MSCI IVA rated) stocks and performance Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
AGO.AX Atlas Iron 1.42 2.70 OUTPERFORM B Negative 1/12/2011 -5.6% -50.7% -54.0% -12.1% 1,285
AQA.AX Aquila Resources 2.65 2.75 NEUTRAL B Positive 1/12/2011 8.6% -47.0% -43.3% -47.2% 1,091
AUT.AX Aurora Oil & Gas 3.50 4.02 NEUTRAL B Positive 25/05/2012 2.9% -7.4% 50.9% 2158.1% 1,623
CQR.AX Charter Hall Retail REIT 3.41 3.07 UNDERPERFORM B Neutral 1/10/2011 -1.7% 12.1% 14.0% 27.8% 1,022
CRF.AX Centro Retail Australia 2.12 2.00 UNDERPERFORM B Neutral 31/07/2012 1.0% 18.8% N/A N/A 3,026
DJS.AX David Jones 2.50 2.20 UNDERPERFORM B Positive 1/06/2011 2.5% 8.1% -6.0% -41.2% 1,322
EVN.AX Evolution Mining Limited 1.92 1.70 NEUTRAL B Positive 23/03/2012 16.0% 10.0% 24.4% 29.2% 1,359
GBG.AX Gindalbie Metals Ltd 0.28 1.00 OUTPERFORM B positive 1/12/2011 -25.3% -54.8% -41.7% -66.9% 349
GNC.AX Graincorp 8.80 RESTRICTED B 1/12/2011 -9.9% 3.1% 37.5% 45.9% 1,852
GWA.AX GWA GROUP Limited 1.82 1.95 NEUTRAL B Neutral 8/06/2012 -1.3% -11.4% 1.5% -12.6% 550
HVN.AX Harvey Norman 1.95 2.15 NEUTRAL B Positive 1/06/2011 -9.3% -0.5% -3.7% -44.6% 2,072
IRE.AX IRESS Limited 7.42 7.30 NEUTRAL B Neutral 25/05/2012 4.1% 7.9% 10.3% 1.9% 954
KAR.AX Karoon Gas 5.36 7.65 OUTPERFORM B Positive 25/05/2012 27.9% -17.7% 90.7% -26.6% 1,187
MGX.AX Mount Gibson Iron 0.78 1.00 OUTPERFORM B Neutral 1/12/2011 1.3% -30.8% -41.8% -22.7% 841
MMS.AX McMillan Shakespeare 12.20 13.55 OUTPERFORM B Positive 25/05/2012 5.9% 13.0% 50.7% 239.9% 909
MRM.AX Mermaid Marine Australia 2.98 3.61 OUTPERFORM B Neutral 1/02/2012 -7.9% -6.7% -1.3% 13.6% 660
MSB.AX Mesoblast 6.77 7.40 NEUTRAL B Positive 1/09/2011 7.3% -13.8% -14.2% 547.8% 1,926
PRU.AX Perseus Mining 2.76 3.10 OUTPERFORM B Positive 1/03/2012 5.7% 17.4% -9.5% 119.0% 1,264
PTM.AX Platinum Asset Management 3.56 3.35 UNDERPERFORM B Neutral 25/06/2012 4.7% -9.1% 2.7% -18.5% 1,998
QUB.AX Qube Logistics 1.48 1.90 OUTPERFORM B Positive 1/10/2011 -0.3% -10.1% 13.7% 145.7% 1,346
SFR.AX Sandfire Resources NL 8.35 7.20 UNDERPERFORM B Positive 1/12/2011 9.4% 5.8% 39.2% 138.0% 1,272
TWE.AX Treasury Wine 5.01 3.50 UNDERPERFORM B Neutral 8/06/2012 6.6% 23.9% 37.1% N/A 3,243
WRT.AX Westfield Retail Trust 2.92 3.10 NEUTRAL B Neutral 1/10/2011 1.0% 16.8% 22.4% N/A 8,918
B Weighted average 2.4% 2.8% 13.4% 128.0% 40,069
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 2.5% 3.6% 6.4% 134.3% Source: MSCI IVA ratings, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 72
Figure 186: CCC (MSCI IVA rated) stocks and performance
Ticker Company name Actual
share
price ($)
Target
Price ($)
Rating MSCI
ESG
Rating
View on
MSCI
rating
Date of
MSCI
rating
1 month
total return
6 months
total return
12 months
total return
3 year
performance Market cap
ABC.AX Adelaide Brighton 2.96 3.15 NEUTRAL CCC Positive 25/05/2012 0.0% 4.7% 21.1% 29.9% 1,887
BTU.AX Bathurst Resources 0.41 0.80 OUTPERFORM CCC Positive 1/12/2011 -1.2% -45.0% -42.3% 521.6% 286
PMV.AX Premier Investments Ltd 5.82 5.95 NEUTRAL CCC Neutral 8/06/2012 16.9% 7.5% 17.5% -8.1% 904
TRS.AX The Reject Shop 11.95 11.00 UNDERPERFORM CCC Neutral 1/06/2011 4.4% 0.9% 33.2% 2.4% 312
CCC Weighted average 4.8% 0.9% 15.9% 58.7% 3,388
All Ords 4382.46 All Ords -0.1% -0.8% 6.9% -6.3%
Relative 4.9% 1.7% 9.0% 65.0% Source: MSCI IVA ratings, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 73
Disclosure of stocks Figure 187: Stock list as at 26 September
Ticker Company name
Actual
share
price ($)
Target
Price ($) Rating
TP rating
risk %
Mcap
($mn)
ESG
Impact
($mn)
MSCI IVA
rating
Analyst
outlook
on rating
Date of
MSCI IVA
rating Analyst Email contact
ABC.AX Adelaide Brighton 3.00 3.15 NEUTRAL -3.4% 1,909 67- CCC Positive 25/05/2012 Andrew Peros [email protected]
AGK.AX AGL Energy 14.77 16.60 NEUTRAL -2.5% 8,062 208- A Neutral 10/07/2012 Benjamin McVicar [email protected]
AGO.AX Atlas Iron 1.43 2.70 OUTPERFORM 0.0% 1,294 - B Negative 1/12/2011 Matthew Hope [email protected]
AIO.AX Asciano Group 4.37 5.95 OUTPERFORM -3.1% 4,258 135- BBB Positive 1/03/2012 Nicholas [email protected]
ALL.AX Aristocrat Leisure 2.71 2.60 UNDERPERFORM 0.0% 1,492 - A Neutral 1/02/2012 Larry Gandler [email protected]
ALQ.AX ALS Limited 8.55 10.16 NEUTRAL 0.0% 2,911 - A Neutral 25/05/2012 Bradley Clibborn [email protected]
ALS.AX Alesco Corporation 2.00 2.05 NEUTRAL 0.0% 188 - Chris Smith [email protected]
ALZ.AX Australand 2.95 2.91 OUTPERFORM 0.0% 1,699 - BBB Neutral 1/10/2011 John Richmond [email protected]
AMC.AX Amcor 7.76 7.70 UNDERPERFORM -3.0% 9,364 290- A Neutral 1/10/2011 Larry Gandler [email protected]
AMP.AX AMP 4.27 4.65 NEUTRAL 0.0% 12,347 - A Neutral 11/04/2012 John Heagerty [email protected]
AMX.AX Ampella Mining Limited 0.70 1.50 OUTPERFORM 0.0% 172 - Michael Slifirski [email protected]
ANZ.AX Australia and New Zealand Bank 24.66 25.00 NEUTRAL 0.0% 66,995 - AAA Negative 1/10/2011 Jarrod Martin [email protected]
AOH.AX Altona Mining Limited 0.28 0.46 OUTPERFORM 0.0% 148 - Michael Slifirski [email protected]
APA.AX APA Group 4.76 NOT RATED 3,102 - AA Neutral 1/09/2011 Benjamin McVicar [email protected]
API.AX Australian Pharmaceutical Ind 0.45 0.46 OUTPERFORM -5.0% 217 11- Saul Hadassin [email protected]
AQA.AX Aquila Resources 2.62 2.75 NEUTRAL -5.0% 1,079 57- B Positive 1/12/2011 Paul McTaggart [email protected]
AQG.AX Alacer Gold Corp. 6.75 7.72 OUTPERFORM 0.0% 714 - Michael Slifirski [email protected]
AQZ.AX Alliance Aviation Services Limited 2.05 2.58 OUTPERFORM 0.0% 185 - Paul Buys [email protected]
ARI.AX Arrium 0.54 1.15 OUTPERFORM 0.0% 727 - BBB Neutral 1/12/2011 Michael Slifirski [email protected]
ARP.AX ARB Corp 9.82 9.80 NEUTRAL 0.0% 712 - BBB Neutral 25/05/2012 Paul Buys [email protected]
ASX.AX ASX 29.64 28.50 UNDERPERFORM 0.0% 5,191 - BBB Negative 1/07/2011 John Heagerty [email protected]
AUB.AX Austbrokers 7.92 7.95 NEUTRAL 0.0% 444 - Andrew Adams [email protected]
AUT.AX Aurora Oil & Gas 3.50 4.02 NEUTRAL -3.0% 1,625 50- B Positive 25/05/2012 Paul McTaggart [email protected]
AWC.AX Alumina Limited 0.84 0.84 NEUTRAL -4.0% 2,125 89- AA Negative 1/12/2011 Matthew Hope [email protected]
AWE.AX AWE Ltd 1.31 1.75 OUTPERFORM -0.4% 684 3- BBB Negative 25/05/2012 Paul McTaggart [email protected]
BBG.AX Billabong International 1.33 RESTRICTED 637 - Grant Saligari [email protected]
BEN.AX Bendigo and Adelaide Bank 7.67 8.75 NEUTRAL 0.0% 3,043 - BBB Positive 1/10/2011 James Ellis [email protected]
BHP.AX BHP Billiton 32.81 35.85 NEUTRAL -2.0% 174,360 3,558- AA Negative 17/02/2012 Paul McTaggart [email protected]
BKN.AX Bradken Limited 5.59 6.95 OUTPERFORM 0.0% 946 - BBB Neutral 3/05/2012 Paul Buys [email protected]
BLD.AX Boral 3.76 3.95 OUTPERFORM -0.8% 2,848 22- AA Neutral 25/05/2012 Andrew Peros [email protected]
BLY.AX Boart Longyear Group 1.65 3.04 OUTPERFORM 0.0% 787 - AA Neutral 24/04/2012 Emma Alcock [email protected]
BND.AX Bandanna Energy Limited 0.33 0.70 OUTPERFORM -10.0% 174 19- Paul McTaggart [email protected]
BOQ.AX Bank of Queensland 7.54 8.00 OUTPERFORM 0.0% 2,328 - BBB Positive 1/10/2011 James Ellis [email protected]
BRG.AX Breville Group 5.47 6.30 OUTPERFORM 0.0% 712 - Paul Buys [email protected]
BSE.AX Base Resources Ltd 0.45 0.80 OUTPERFORM -13.0% 205 31- Matthew Hope [email protected]
BSL.AX BlueScope Steel 0.40 RESTRICTED 1,340 - Michael Slifirski [email protected]
BTT.AX BT Investment Management 2.04 2.10 OUTPERFORM 0.0% 547 - David Bailey [email protected]
BTU.AX Bathurst Resources 0.42 0.80 OUTPERFORM -18.0% 289 63- CCC Positive 1/12/2011 Paul McTaggart [email protected]
BXB.AX Brambles Limited 6.88 7.88 OUTPERFORM 0.0% 11,090 - AAA Neutral 1/03/2012 Nicholas [email protected]
CAB.AX Cabcharge Australia 5.47 6.40 NEUTRAL -10.0% 659 73- BBB Negative 1/03/2012 Paul Buys [email protected]
CBA.AX Commonwealth Bank Australia 55.59 54.00 UNDERPERFORM 0.0% 88,508 - AAA Neutral 1/10/2011 Jarrod Martin [email protected]
CCL.AX Coca-Cola Amatil 13.70 12.50 UNDERPERFORM 0.0% 10,430 - A Neutral 8/06/2012 Larry Gandler [email protected]
CFX.AX CFS Retail Property Trust 1.96 1.97 UNDERPERFORM 0.0% 5,535 - A Neutral 1/10/2011 John Richmond [email protected]
CGF.AX Challenger Financial Services Group 3.27 5.00 OUTPERFORM 0.0% 1,778 - John Heagerty [email protected]
CLO.AX Clough 0.70 0.97 OUTPERFORM 0.0% 538 - Paul Buys [email protected]
COH.AX Cochlear 67.44 65.50 NEUTRAL -2.0% 3,842 78- BBB Neutral 1/12/2011 Saul Hadassin [email protected]
COK.AX Cockatoo Coal 0.12 0.20 OUTPERFORM 0.0% 117 - Paul McTaggart [email protected]
CPA.AX Commonwealth Property Office Fund 1.05 1.03 UNDERPERFORM 0.0% 2,453 - AAA Neutral 1/10/2011 John Lee [email protected]
CPU.AX Computershare 8.36 9.38 OUTPERFORM 0.0% 4,815 - BBB Neutral 25/05/2012 John Heagerty [email protected]
CQR.AX Charter Hall Retail REIT 3.43 3.07 UNDERPERFORM 0.0% 1,028 - B Neutral 1/10/2011 Stephen Rich [email protected]
CRF.AX Centro Retail Australia 2.11 2.00 UNDERPERFORM 0.0% 3,005 - B Neutral 31/07/2012 Stephen Rich [email protected]
CSL.AX CSL Ltd 45.96 44.30 NEUTRAL -1.0% 23,223 235- AA Neutral 1/09/2011 Saul Hadassin [email protected]
CSR.AX CSR 1.58 1.17 UNDERPERFORM -39.0% 798 510- BB Positive 1/08/2011 Andrew Peros [email protected]
CTX.AX Caltex Australia 15.89 15.55 UNDERPERFORM -0.2% 4,290 9- A Positive 1/04/2012 Paul McTaggart [email protected]
CWN.AX Crown 9.03 8.80 NEUTRAL 0.0% 6,574 - AAA Neutral 1/02/2012 Larry Gandler [email protected]
DJS.AX David Jones 2.51 2.20 UNDERPERFORM 0.0% 1,324 - B Positive 1/06/2011 Grant Saligari [email protected]
DMP.AX DOMINO'S PIZZA 10.42 10.20 NEUTRAL 0.0% 730 - Paul Buys [email protected]
DOW.AX Downer EDI 3.63 4.10 OUTPERFORM 0.0% 1,558 - A Negative 1/03/2012 Bradley Clibborn [email protected]
DUE.AX DUET Group 2.07 2.07 NEUTRAL -2.6% 2,306 62- BB Positive 10/07/2012 Benjamin McVicar [email protected]
DXS.AX Dexus Property Group 0.96 1.00 NEUTRAL 0.0% 4,645 - AAA Neutral 1/10/2011 Stephen Rich [email protected]
EGP.AX Echo Entertainment 3.80 3.80 UNDERPERFORM 0.0% 3,133 - BB Neutral 1/02/2012 Larry Gandler [email protected]
EHL.AX Emeco Holdings 0.73 1.25 OUTPERFORM 0.0% 458 - AAA Neutral 25/05/2012 Paul Buys [email protected]
ENV.AX Envestra 0.88 0.83 UNDERPERFORM -5.7% 1,376 83- BBB Neutral 1/09/2011 Benjamin McVicar [email protected]
ERA.AX Energy Resources of Australia 1.33 1.65 NEUTRAL -36.0% 689 387- BB Negative 1/12/2011 Matthew Hope [email protected]
EVN.AX Evolution Mining Limited 1.87 1.70 NEUTRAL 0.0% 1,325 - B Positive 23/03/2012 Michael Slifirski [email protected] Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 74
Figure 188: Stock list as at 26 September (continued)
Ticker Company name
Actual
share
price ($)
Target
Price ($) Rating
TP rating
risk %
Mcap
($mn)
ESG
Impact
($mn)
MSCI IVA
rating
Analyst
outlook
on rating
Date of
MSCI IVA
rating Analyst Email contact
FAN.AX Fantastic Holdings 2.80 2.80 NEUTRAL 0.0% 288 - Samantha Carleton [email protected]
FLT.AX Flight Centre 23.71 26.35 OUTPERFORM 0.0% 2,374 - BB Positive 1/11/2011 Paul Buys [email protected]
FMG.AX Fortescue Metals Group Ltd 3.49 RESTRICTED 11,264 - Matthew Hope [email protected]
FWD.AX Fleetwood Corporation 10.45 12.08 UNDERPERFORM 0.0% 620 - BBB Neutral 25/06/2012 Paul Buys [email protected]
FXL.AX FlexiGroup Limited 3.23 3.45 OUTPERFORM 0.0% 926 - Paul Buys [email protected]
GBG.AX Gindalbie Metals Ltd 0.27 1.00 OUTPERFORM 0.0% 337 - B positive 1/12/2011 Matthew Hope [email protected]
GFF.AX Goodman Fielder 0.50 0.60 NEUTRAL 0.0% 972 - BB Neutral 1/12/2011 Larry Gandler [email protected]
GMG.AX Goodman Group 4.03 3.98 NEUTRAL 0.0% 6,478 - A Neutral 1/10/2011 Stephen Rich [email protected]
GNC.AX Graincorp 8.93 RESTRICTED 1,879 - Grant Saligari [email protected]
GPT.AX GPT Group 3.44 3.60 UNDERPERFORM 0.0% 6,078 - AAA Neutral 1/10/2011 Stephen Rich [email protected]
GRY.AX Gryphon Minerals Limited 0.89 1.25 OUTPERFORM -9.0% 310 31- A Neutral 1/03/2012 Michael Slifirski [email protected]
GUD.AX G.U.D. Holdings 8.15 9.20 NEUTRAL 0.0% 581 - BB Neutral 1/10/2011 Paul Buys [email protected]
GWA.AX GWA GROUP Limited 1.83 1.95 NEUTRAL 0.0% 551 - B Neutral 8/06/2012 Paul Buys [email protected]
HGG.AX Henderson group 1.66 1.47 OUTPERFORM 0.0% 1,942 - A Positive 25/06/2012 John Heagerty [email protected]
HVN.AX Harvey Norman 1.96 2.15 NEUTRAL 0.0% 2,079 - B Positive 1/06/2011 Grant Saligari [email protected]
IAG.AX Insurance Australia Group 4.39 4.00 NEUTRAL 0.0% 9,127 - AAA Neutral 18/04/2012 John Heagerty [email protected]
IDL.AX Industrea Ltd 1.25 1.27 NEUTRAL 0.0% 461 - AAA Negative 3/05/2012 Paul Buys [email protected]
IFL.AX IOOF Holdings 5.73 6.50 NEUTRAL 0.0% 1,317 - AA Neutral 25/06/2012 David Bailey [email protected]
IGO.AX Independence Group NL 4.04 3.50 NEUTRAL -2.0% 941 19- BB Neutral 1/12/2011 Paul McTaggart [email protected]
IIN.AX iiNet 3.65 3.50 UNDERPERFORM 0.0% 588 - Bradley Clibborn [email protected]
ILU.AX Iluka Resources 10.27 13.50 OUTPERFORM -3.9% 4,300 175- BBB Positive 1/12/2011 Matthew Hope [email protected]
IOF.AX Investa Office Fund 2.88 2.95 NEUTRAL 0.0% 1,768 - AA Neutral 1/10/2011 John Lee [email protected]
IPL.AX Incitec Pivot Ltd. 2.99 3.50 OUTPERFORM -1.3% 4,870 62- BB Neutral 1/02/2012 Larry Gandler [email protected]
IRE.AX IRESS Limited 7.48 7.30 NEUTRAL 0.0% 962 - B Neutral 25/05/2012 David Bailey [email protected]
IVC.AX Invocare Group 8.43 9.20 NEUTRAL 0.0% 928 - A Neutral 1/12/2011 Chris Smith [email protected]
JBH.AX JB Hi-Fi 8.99 9.70 UNDERPERFORM 0.0% 889 - BBB Neutral 25/05/2012 Grant Saligari [email protected]
JHX.AX James Hardie Industries SE 8.70 9.24 NEUTRAL -18.0% 3,961 870- BB Neutral 25/05/2012 Andrew Peros [email protected]
KAR.AX Karoon Gas 5.32 7.65 OUTPERFORM -11.7% 1,178 156- B Positive 25/05/2012 Paul McTaggart [email protected]
KGD.AX Kula Gold 0.46 1.15 OUTPERFORM -25.0% 42 14- Michael Slifirski [email protected]
LEI.AX Leighton Holdings 16.35 17.60 NEUTRAL 0.0% 5,511 - BB Neutral 25/04/2012 Bradley Clibborn [email protected]
LLC.AX Lend Lease 7.80 8.48 NEUTRAL 2.0% 4,468 88 AAA Neutral 25/07/2012 John Richmond [email protected]
MBN.AX Mirabela Nickel 0.38 0.53 OUTPERFORM -6.0% 341 22- BB Neutral 1/12/2011 Paul McTaggart [email protected]
MDL.AX Mineral Deposits Ltd. 5.58 9.09 OUTPERFORM -11.0% 483 60- BBB Positive 1/12/2011 Matthew Hope [email protected]
MGR.AX Mirvac Group 1.42 1.48 OUTPERFORM 0.0% 4,871 - AA Neutral 1/10/2011 John Richmond [email protected]
MGX.AX Mount Gibson Iron 0.76 1.00 OUTPERFORM 0.0% 825 - B Neutral 1/12/2011 Matthew Hope [email protected]
MMS.AX McMillan Shakespeare 12.27 13.55 OUTPERFORM 0.0% 914 - B Positive 25/05/2012 Paul Buys [email protected]
MPO.AX Molopo Australia 0.62 0.70 OUTPERFORM -15.0% 152 27- Paul McTaggart [email protected]
MQG.AX Macquarie Group 28.35 35.00 OUTPERFORM 0.0% 9,617 - A Negative 1/03/2012 James Ellis [email protected]
MRM.AX Mermaid Marine Australia 3.07 3.61 OUTPERFORM 0.0% 680 - B Neutral 1/02/2012 Paul Buys [email protected]
MSB.AX Mesoblast 6.79 7.40 NEUTRAL -3.0% 1,932 60- B Positive 1/09/2011 Saul Hadassin [email protected]
MTS.AX Metcash 3.54 3.85 NEUTRAL 0.0% 3,118 - A Neutral 1/06/2011 Grant Saligari [email protected]
MYR.AX Myer Holdings 1.75 2.70 OUTPERFORM 0.0% 1,019 - BBB Neutral 1/06/2011 Grant Saligari [email protected]
NAB.AX National Australia Bank 25.53 26.00 NEUTRAL 0.0% 58,637 - AA Positive 1/10/2011 Jarrod Martin [email protected]
NCM.AX Newcrest Mining 28.09 26.00 UNDERPERFORM 0.0% 21,489 - BB Neutral 1/03/2012 Michael Slifirski [email protected]
NHC.AX New Hope Corporation 4.55 4.60 NEUTRAL -3.0% 3,779 117- Paul McTaggart [email protected]
NUF.AX Nufarm 5.91 5.80 UNDERPERFORM -4.0% 1,549 65- BBB Neutral 1/02/2012 Larry Gandler [email protected]
NVT.AX Navitas Ltd 4.15 4.80 OUTPERFORM 0.0% 1,558 - BB Positive 1/12/2011 Paul Buys [email protected]
NWH.AX NRW Holdings Limited 2.19 3.10 NEUTRAL 0.0% 611 - AA Neutral 24/04/2012 Paul Buys [email protected]
NWS.AX News Corporation 23.74 23.00 NEUTRAL -17.2% 57,670 11,980- CCC 1/04/2012 Samantha Carleton [email protected]
OKN.AX Oakton 1.35 1.40 NEUTRAL 0.0% 124 - Chris Smith [email protected]
ORG.AX Origin Energy 11.30 16.00 OUTPERFORM 0.0% 12,318 - AA Neutral 1/09/2011 Benjamin McVicar [email protected]
ORI.AX Orica 25.06 29.40 OUTPERFORM -3.0% 9,163 283- BBB Negative 1/09/2011 Larry Gandler [email protected]
ORL.AX OrotonGroup 7.00 8.00 OUTPERFORM 0.0% 286 - Grant Saligari [email protected]
OSH.AX Oil Search 7.40 8.70 OUTPERFORM -4.5% 10,212 481- BB Neutral 25/05/2012 Paul McTaggart [email protected]
OZL.AX OZ Minerals 6.71 9.70 OUTPERFORM 0.0% 2,036 - BB Neutral 1/12/2011 Michael Slifirski [email protected]
PAN.AX Panoramic Resources 0.54 1.25 OUTPERFORM 0.0% 137 - AA Neutral 1/12/2011 Paul McTaggart [email protected]
PBG.AX Pacific Brands 0.60 0.60 NEUTRAL 0.0% 548 - BBB Neutral 10/07/2012 Grant Saligari [email protected]
PMV.AX Premier Investments Ltd 5.83 5.95 NEUTRAL 0.0% 905 - CCC Neutral 8/06/2012 Grant Saligari [email protected]
PNA.AX PanAust 3.00 3.13 NEUTRAL 0.0% 1,883 - BBB Neutral 1/12/2011 Michael Slifirski [email protected]
PPT.AX Perpetual 26.18 28.00 NEUTRAL 0.0% 1,099 - AAA Negative 25/06/2012 John Heagerty [email protected]
PRG.AX Programmed Maintenance Services 2.16 2.65 OUTPERFORM 0.0% 255 - Neil Watson [email protected]
PRU.AX Perseus Mining 2.82 3.10 OUTPERFORM 0.0% 1,291 - B Positive 1/03/2012 Michael Slifirski [email protected]
PRY.AX Primary Health Care 3.58 3.65 NEUTRAL -5.0% 1,794 94- A Neutral 25/05/2012 Saul Hadassin [email protected]
PTM.AX Platinum Asset Management 3.52 3.35 UNDERPERFORM 0.0% 1,976 - B Neutral 25/06/2012 David Bailey [email protected]
PXS.AX Pharmaxis 1.10 1.70 OUTPERFORM -5.0% 337 18- Saul Hadassin [email protected]
QAN.AX Qantas Airways 1.21 1.95 OUTPERFORM -9.2% 2,734 276- BB Neutral 10/07/2012 Nicholas [email protected]
QBE.AX QBE Insurance Group 12.97 14.79 OUTPERFORM 0.0% 15,880 - A Negative 17/04/2012 John Heagerty [email protected]
QRN.AX QR National 3.41 3.80 NEUTRAL 0.0% 8,308 - BB Neutral 1/03/2012 Bradley Clibborn [email protected]
QUB.AX Qube Logistics 1.47 1.90 OUTPERFORM 0.0% 1,337 - B Positive 1/10/2011 Nicholas [email protected]
RHC.AX Ramsay Health Care 23.80 25.00 NEUTRAL -1.0% 4,810 49- A Neutral 25/05/2012 Saul Hadassin [email protected]
RIO.AX Rio Tinto 53.14 73.32 OUTPERFORM -3.0% 88,800 2,746- BBB Neutral 1/12/2011 Paul McTaggart [email protected]
RMD.AX ResMed Inc. 3.85 3.93 OUTPERFORM -3.0% 6,202 192- BB Positive 1/12/2011 Saul Hadassin [email protected]
RWH.AX Royal Wolf Holdings 2.20 2.45 OUTPERFORM 0.0% 221 - Paul Buys [email protected] Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 75
Figure 189: Stock list as at 26 September (continued)
Ticker Company name
Actual
share
price ($)
Target
Price ($) Rating
TP rating
risk %
Mcap
($mn)
ESG
Impact
($mn)
MSCI IVA
rating
Analyst
outlook
on rating
Date of
MSCI IVA
rating Analyst Email contact
SAI.AX SAI Global 4.27 4.40 OUTPERFORM 0.0% 875 - BBB Neutral 25/05/2012 Paul Buys [email protected]
SFH.AX Specialty Fashion Group 0.50 0.30 UNDERPERFORM 0.0% 96 - Samantha Carleton [email protected]
SFR.AX Sandfire Resources NL 8.14 7.20 UNDERPERFORM 0.0% 1,239 - B Positive 1/12/2011 Michael Slifirski [email protected]
SGM.AX Sims Metal Management 9.49 11.00 OUTPERFORM 0.0% 1,939 - AAA Neutral 1/12/2011 Michael Slifirski [email protected]
SGP.AX Stockland 3.33 3.30 NEUTRAL 0.0% 7,337 - AAA Neutral 1/10/2011 John Richmond [email protected]
SHL.AX Sonic Healthcare 13.17 13.50 NEUTRAL -2.0% 5,171 106- AA Neutral 25/05/2012 Saul Hadassin [email protected]
SIP.AX Sigma Pharmaceuticals 0.67 0.74 OUTPERFORM 0.0% 789 - AA Neutral 25/05/2012 Saul Hadassin [email protected]
SKE.AX Skilled Group Limited 2.61 3.30 OUTPERFORM 0.0% 609 - Paul Buys [email protected]
SKI.AX Spark Infrastructure Group 1.64 1.63 NEUTRAL -7.4% 2,178 174- BBB Neutral 1/01/2012 Benjamin McVicar [email protected]
SLM.AX Salmat 2.43 1.82 NEUTRAL 0.0% 388 - Paul Buys [email protected]
SMR.AX Stanmore Coal 0.23 0.65 OUTPERFORM -15.0% 41 7- Paul McTaggart [email protected]
SMX.AX SMS Management & Technology 6.42 6.80 OUTPERFORM 0.0% 442 - BB Neutral 25/05/2012 Chris Smith [email protected]
SPN.AX SP AusNet 1.04 1.03 NEUTRAL -13.2% 3,457 528- BB Neutral 1/01/2012 Benjamin McVicar [email protected]
STO.AX Santos Ltd 11.16 12.65 NEUTRAL -1.0% 10,638 107- A Neutral 25/05/2012 Paul McTaggart [email protected]
SUL.AX Super Retail Group 7.77 8.40 NEUTRAL 0.0% 1,526 - BB Neutral 25/05/2012 Samantha Carleton [email protected]
SUN.AX Suncorp Group Limited 9.24 9.00 NEUTRAL 0.0% 11,888 - BBB Positive 18/04/2012 John Heagerty [email protected]
TAH.AX Tabcorp Holdings 2.83 3.30 NEUTRAL 0.0% 2,063 - AAA Neutral 1/02/2012 Larry Gandler [email protected]
TAP.AX Tap Oil Ltd 0.75 0.85 OUTPERFORM -1.8% 181 3- Paul McTaggart [email protected]
TGA.AX Thorn Group 1.76 1.90 OUTPERFORM 0.0% 258 - Neil Watson [email protected]
TIG.AX Tigers Realm Coal 0.16 0.30 OUTPERFORM -17.0% 44 9- Paul McTaggart [email protected]
TLS.AX Telstra Corporation 3.92 4.00 NEUTRAL 0.0% 48,777 - BBB Positive 1/02/2012 Bradley Clibborn [email protected]
TOL.AX Toll Holdings 4.38 4.80 NEUTRAL 0.0% 3,141 - AA Neutral 1/06/2011 Nicholas [email protected]
TPI.AX Transpacific Industries Group 0.87 0.96 NEUTRAL 0.0% 1,373 - BB Neutral 1/03/2012 Paul Buys [email protected]
TPM.AX TPG Telecom 2.21 2.40 OUTPERFORM 0.0% 1,754 - BB Neutral 1/02/2012 Bradley Clibborn [email protected]
TRS.AX The Reject Shop 11.85 11.00 UNDERPERFORM 0.0% 309 - CCC Neutral 1/06/2011 Grant Saligari [email protected]
TSE.AX Transfield Services Ltd 1.76 2.05 NEUTRAL 0.0% 909 - A Neutral 1/03/2012 Bradley Clibborn [email protected]
TTS.AX Tatts Group 2.73 2.60 UNDERPERFORM 0.0% 3,721 - A Neutral 1/02/2012 Larry Gandler [email protected]
TWE.AX Treasury Wine 4.99 3.50 UNDERPERFORM 0.0% 3,230 - B Neutral 8/06/2012 Larry Gandler [email protected]
TWR.AX Tower Limited 1.40 1.72 UNDERPERFORM 0.0% 474 - Andrew Adams [email protected]
UGL.AX UGL Limited 10.47 13.00 OUTPERFORM 0.0% 1,740 - BBB Positive 24/04/2012 Bradley Clibborn [email protected]
VAH.AX Virgin Australia Holdings 0.41 0.50 NEUTRAL 0.0% 906 - BBB Neutral 10/07/2012 Nicholas [email protected]
WBC.AX Westpac 24.44 26.75 OUTPERFORM 0.0% 75,279 - AAA Negative 1/10/2011 Jarrod Martin [email protected]
WDC.AX Westfield 10.14 10.20 NEUTRAL 0.0% 22,833 - BB Neutral 1/10/2011 Stephen Rich [email protected]
WEB.AX Webjet 4.02 4.05 OUTPERFORM 0.0% 286 - Chris Smith [email protected]
WES.AX Wesfarmers 34.46 31.50 UNDERPERFORM -5.0% 40,062 2,109- BBB Neutral 1/06/2011 Grant Saligari [email protected]
WHC.AX Whitehaven Coal 2.76 4.40 OUTPERFORM -4.0% 2,796 117- BB Neutral 1/12/2011 Paul McTaggart [email protected]
WOR.AX WorleyParsons 27.67 27.55 NEUTRAL 0.0% 6,700 - AAA Neutral 1/12/2011 Emma Alcock [email protected]
WOW.AX Woolworths 29.03 25.40 UNDERPERFORM -5.0% 35,830 1,886- BB Neutral 1/06/2011 Grant Saligari [email protected]
WPL.AX Woodside Petroleum 32.99 38.55 NEUTRAL -0.2% 28,173 56- AA Neutral 25/05/2012 Paul McTaggart [email protected]
WRT.AX Westfield Retail Trust 2.92 3.10 NEUTRAL 0.0% 8,903 - B Neutral 1/10/2011 Stephen Rich [email protected]
WSA.AX Western Areas NL 4.03 4.70 OUTPERFORM 0.0% 724 - BB Neutral 1/12/2011 Paul McTaggart [email protected]
WTF.AX Wotif.com Holdings 3.96 5.30 OUTPERFORM 0.0% 838 - A Neutral 10/07/2012 Paul Buys [email protected]
YAL.AX Yancoal Australia 1.18 1.50 OUTPERFORM -10.0% 1,173 130- Paul McTaggart [email protected] Source: MSCI IVA ratings, Company data, Credit Suisse estimates
27 September 2012
Australian ESG/SRI 76
Companies Mentioned (Price as of 26 Sep 12)
For a full list of companies mentioned refer to Figure 187, Figure 188, and Figure 189. Other companies referenced are listed below. BG Group plc (BG.L, 1252 p, NEUTRAL, TP 1,450.00 p) ConocoPhillips (COP, $57.01, NEUTRAL, TP $60.00) (Note Figures 1–186 are intraday pricing)
Disclosure Appendix Important Global Disclosures
I, Sandra McCullagh, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities.
Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months.
Credit Suisse’s distribution of stock ratings (and banking clients) is:
Global Ratings Distribution Outperform/Buy* 44% (52% banking clients) Neutral/Hold* 42% (50% banking clients) Underperform/Sell* 11% (39% banking clients) Restricted 2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
27 September 2012
Australian ESG/SRI 77
Important Regional Disclosures
Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
The following disclosed European company/ies have estimates that comply with IFRS: BG.L.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan-based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. • Sandra McCullagh, non-U.S. analyst, is a research analyst employed by Credit Suisse Equities (Australia) Limited.
Important MSCI Disclosures
The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including any indices. This information is provided on an “as is” basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.
27 September 2012
Asia Pacific/Australia
Equity Research
Australian ESG-SRI 2012 09 27 - ESG overlay on key stock calls.doc
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