banks

Deutsche Bank

Markets Research

Australasia Periodical

Australia

Australia/NZ Equities

Daily



15 December 2011

AUSTRALIA Today's events





Stocks & Sectors Economics DB Forecast*/[Previous]

Orica Ltd (ORI) – Mark Wilson, CFA, Daniel Pi, Anthony Hanna Motor vehicle sales (Nov)

Ammonia plant to resume operations Buy MI consumer inflation expec. (Dec)

APA Group (APA) – John Hirjee, Hugh Morgan, Andrew Lewandowski [2.5%]

Takeover bid for HDF, Allgas divested Buy (earnings change) US Current account (Q3)

[USD -118.0bn]

Boral (BLD) – Emily Behncke, John Hynd

Unseasonal weather may lead to construction delays Hold (earnings downgrade) US TICS data (Oct)

[USD 68.6bn]

Investa Office Fund (IOF) – Jason Weate, Matthew Bertram

US PPI (Nov) 0.1% mom

Assessing the drivers: Upgrade from Hold to Buy Buy (Upgrade) [-0.3% mom, 5.9% yoy]

Downer EDI (DOW) – Craig WongPan, Cameron McDonald Core 0.2% mom

Announced sale of CPG Asia Hold [0.0% mom, 2.8% yoy]



Australian Banking Sector – James Freeman, ACA, James Wang, Andrew Triggs US IP (Nov)

Putting higher wholesale funding costs in perspective US Empire state manf. (Dec) 5

[0.61]

DB A-REIT Strategy – Ian Randall, Matthew Bertram, Jason Weate, Stuart McLachlan

Compare and contrast US Philly Fed (Dec) 8

[3.6]

Insurance & Div Fins – Kieren Chidgey, Shreyas Patel, Murray Aitken

ECB December Report

Insights: Issue 5, 2011



AGM

Emerging Companies

NAB

SAI Global Ltd (SAI) – Tim Plumbe, Raymond Gonzalez, Dominic Rose

Factoring in higher investment costs in FY12 Buy ORI

* Dividends are as declared by the companies

Perpetual (PPT) – Kieren Chidgey, Murray Aitken, Shreyas Patel Source: Company data, ASX, DBAG estimates

Sevior to depart Hold



Overnight Reports

Macmahon Holdings (MAH) – Dominic Rose, Raymond Gonzalez, Tim Plumbe

Initiate with Hold Hold



Macro

Data Flash – Adam Boyton, Phil O’Donaghoe

Consumer sentiment – now versus other rate cut cycles



Daily Financial Data

Daily Financial Data









________________________________________________________________________________________________________________

Deutsche Bank AG/Sydney

This research has been prepared in association with Craigs Investment Partners Limited.

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced

from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject

companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus,

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. DISCLOSURES AND

ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011

AUSTRALIAN & NEW ZEALAND EQUITIES

Michael Ormaechea Head of Global Markets 612 8258 3613

Russell Deal Chief Operating Officer 612 8258 1785

Tim King, Vic Jokovic Head of Institutional Client Group 612 8258 1585

CFA, Head of Company Research and ESG Research 612 8258 1633 Glenn Morgan Head of Research Sales 612 8258 1509

Matt Milsom Head of Trading 612 8258 2840



ANALYSTS SALES AND TRADING

Emerging Companies Sydney Sales 612 8258 1555

Raymond Gonzalez Emerging Companies 612 8258 1872 Grant Mundell 612 8258 1516

Tim Plumbe Emerging Companies 612 8258 1643 Karen Jorritsma 612 8258 2760

Dominic Rose Emerging Companies 612 8258 2313 Martin Baker 612 8258 1559

Jennifer Kruk Emerging Companies 612 8258 2613 Mathew Tricks 612 8258 1581

Energy/Utilities Michael Rudland 612 8258 2335

John Hirjee Deputy Head Co Research. Energy, Utilities 613 9270 4318 John Deakin-Bell Head of Emerging Companies 612 8258 2304

Hugh Morgan Energy, Utilities 613 9270 4385 Jonas Fitzgerald Emerging Companies 612 8258 1341

Andrew Lewandowski Energy, Utilities 613 9270 4241 James Cornell Real Estate 612 8258 1524

Sydney Sales Traders

Infrastructure, Transport/Developers & Contractors

David Summerfield Co-Head of Execution 612 8258 2875

Cameron McDonald Transport, Infrastructure/Developers Chris McDermott 612 8258 2761

& Contractors 613 9270 4235 Julian Henwood 612 8258 2872

Entcho Raykovski Transport, Infrastructure 613 9270 4165 Michelle Chinnery Real Estate 612 8258 3096

Craig Wong-Pan Developers & Contractors 612 8258 2848 Phillip Janis 612 8258 1584

Financial Services Sue Delmenico 612 8258 1503

James Freeman Banks 612 8258 2492 Melbourne Sales

Andrew Triggs Banks 612 8258 2378 Scott Mailer Head of Melbourne Sales 613 9270 4283

James Wang Banks 612 8258 2054 Will Baylis 613 9270 4182

Kieren Chidgey Insurance, Diversified Financials 612 8258 2844 Chris Kiel 613 9270 4189

Shreyas Patel Insurance, Diversified Financials 612 8258 2764 Andrew Emmett 613 9270 4180

Murray Aitken Diversified Financials, Banks 612 8258 1788 Brett Hucker 613 9270 4183

Healthcare/Biotechnology PT/eCommerce Sales

David Low, CFA Healthcare 612 8258 2319 David Foodey Co-Head of Execution 612 8258 1835

Nicholas Cameron Healthcare 612 8258 1645 Steve Castellan 612 8258 1742

Jennifer DeJesus 612 8258 2617

Consumer/Materials

Ben Radclyffe 612 8258 1520

Paul van Meurs Retail, Food & Beverage 612 8258 2334 James Harwood 612 8258 2858

Michael Simotas Retail 612 8258 1543 Vaibhav Singh 612 8258 1685

Matthew Iser Retail, Food & Beverage 612 8258 1791

Facilitation

Emily Behncke Building Materials, Steel 612 8258 2297

Richard Bao 612 8258 3454

John Hynd Building Materials, Steel 612 8258 1621

Craig Kooyman 612 8258 3455

Gaming/Paper & Packaging Justin Wiles 612 8258 1357

Mark Wilson Gaming, Chemicals, Paper & Packaging 612 8258 1564 Matthew Chan 612 8258 1501

Daniel Pi Gaming, Chemicals, Paper & Packaging 612 8258 1679 Eugene Budovsky 612 8258 2426

Telecoms/Media Hedge Fund Sales

Andrew Anagnostellis Telecoms/Media 612 8258 2218 Joe Cruz 612 8258 3110

James Brown Media 612 8258 1635 Dwane Clark, CFA 612 8258 2022

Vikas Gour Telecoms 612 8258 2871 Mike Wenzel 612 8258 1591

Real Estate Institutional Derivatives Sales

Ashley Cox 612 8258 2870

Ian Randall Real Estate 612 8258 2609

David Starkey 612 8258 1222

Matthew Bertram Real Estate 612 8258 2607

Stuart Murray 612 8258 2216

Jason Weate Real Estate 612 8258 3099

Stuart McLachlan Real Estate 612 8258 3156 Global Prime Finance

James Jennings 612 8258 3084

Resources/Commodities Simone Broadfield 612 8258 2372

Paul Young Resources 612 8258 2587 Peter Knight 612 8258 1615

Kaan Peker Resources 612 8258 1424 Damien Jasczyk 612 8258 2855

Levi Spry Resources 612 8258 2611 Andrew McCabe 612 8258 2302

Chris Terry Resources 612 8258 2528

Xiao Fu Commodities 44 20 754 71558 ASIA 852 2203 6099, 613 9270 4283

Steven Marchio, CFA 852 2203 6099

Environmental, Social & Governance

Scott Mailer 613 9270 4283

Tim King Environmental, Social & Governance 612 8258 1633 Alana Barron 852 2203 6046

Tim Jordan Environmental, Social & Governance 612 8258 2612

UK/EUROPE 4420 7547 9133, 612 8258 2534

Strategy Chris Bagley 4420 7545 9335

Tim Baker Strategy 612 8258 1376 Chris Chan 4420 7545 9339

David Jennings Strategy 612 8258 1630 Michelle Malouf 4420 7545 9336

Quantitative Database Jim O’Connor Sales Trading 4420 7545 9332

Paul Branson Database 612 8258 1639 USA 1212 250 5905, 612 8258 2531

New Zealand – Craigs Investment Partners James Hetherington 1 212 250 6706

Geoff Zame Head of NZ Research, Telco, Media, Transport 64 9358 7803 Sally Bertouch 1 212 250 7599

Grant Swanepoel Utilities, Energy 64 9926 2243 Mateen Chaudhry Sales Trading 1 212 250 7474

Dennis Lee Industrials, Manufacturing, Finance 64 9358 7547 NEW ZEALAND - Craigs Investment Partners

Chris Byrne Diversified Financials, Property, Retail, Quant 64 9358 7967 Craig Lindberg Head of NZ Sales 64 9358 7509

Selwyn Blinkhorne Small Caps 64 4917 4342 Bill Cunninghame 64 9970 2194

James Schofield Healthcare 64 9358 7531 Daniel Reynolds NZ Sydney Sales 612 8258 2013

New Zealand email: firstname.lastname@craigsip.com Stephen Carroll Sales Trading 64 9358 7808

Lukas Niall 64 9358 7692

Economics

New Zealand email: firstname.lastname@craigsip.com

Adam Boyton Chief Economist Aust 612 8258 1688

Darren Gibbs Chief Economist 649 351 1001 TOLL FREE NUMBERS (Sales and Trading)

Philip Odonaghoe Economics 612 8258 1606 From New Zealand to Melbourne Office 0800 540 500

David Plank Strategist 612 8258 1475 From Hong Kong to Sydney Office 800 901 183

From Hong Kong to Melbourne Office 800 966 361

WEB SITE http://gm.db.com From Singapore to Sydney Office 800 616 2097

E-mail firstname.lastname@db.com From Singapore to Melbourne Office 800 616 1101

From USA to Sydney Office 1800 851 7816

From Canada to Sydney Office 1888 733 1526

From London to Sydney Office 0800 0288 027

Australasia Australia

Company



Chemicals







14 Dec 2011 - 07:03:53 PM EST

Global Markets Research









COMPANY ALERT Company Update

Orica Ltd Buy

Ammonia plant to resume operations Reuters:ORI.AX Exchange:ASX Ticker:ORI







Price (AUD) 25.61 DB view

We view the revocation of the ammonia plant prevention notice by the NSW

Price target (AUD) 29.50

EPA as a slight positive for Orica as Orica will be able to restart the ammonia

52-week range (AUD) 27.75 - 21.44 plant from December 15. This follows the resumption of AN production on

Market cap (USDm) 9,399 December 12 following the successful restart of some of the nitric acid and

Shares outstanding (m) 364.0

AN plants over the weekend. The restart of the ammonia plant is in-line with

our expectations and we estimate the earnings impact of the plant shut-

Daily volume (USDm) 34.56 downs to be A$28m pre-tax. We retain our Buy rating and $29.50/share

Net debt/equity (%) 52.8 valuation.

Book value/share (AUD) 9.79 Background information

Price/book (x) 2.6

Following a recommendation from today's Start Up Committee meeting,

the NSW EPA has lifted the prevention notice applying to Orica's ammonia

plant at Kooragang Island.

FYE 9/30 2011A 2012E 2013E The EPA has issued Orica with a notice today that allows it to restart its

Sales (AU- 6,182 6,635 7,077 ammonia plant from tomorrow 15 December 2011. The Start Up Committee

Dm) has required Orica to provide the community with information about the

Net profit 656.8 710.7 782.8 start up prior to it taking place. The EPA has also imposed additional con-

(AUDm) ditions on Orica's environment protection licence to ensure that the plant's

EPS (AUD) 1.83 1.95 2.15

performance continues to meet acceptable standards.

The ammonia plant has been closed under a Prevention Notice issued by

PER (x) 13.9 13.1 11.9

the EPA after the incident that occurred at the Orica ammonia plant on 8

Yield (net) 3.5 3.7 4.1 August 2011. Recommended improvements, including operational, techni-

(%)

cal, staff training, clean up and emergency procedures, have been under-

taken by Orica and have been assessed by the Start Up Committee and

verified by an independent engineer.









Mark Wilson, CFA Daniel Pi Anthony Hanna

Research Analyst Research Analyst Research Associate

(+61) 2 8258-1564 (+61) 2 8258-1679 (+61) 2 8258-3463

mark.wilson@db.com daniel.pi@db.com anthony.hanna@db.com

Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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.

THE VIEWS EXPRESSED ABOVE ACCURATELY REFLECT PERSONAL VIEWS OF THE AUTHORS ABOUT THE SUBJECT

COMPANY(IES) AND ITS(THEIR) SECURITIES. THEY HAVE NOT AND WILL NOT RECEIVE ANY COMPENSATION FOR PRO-

VIDING A SPECIFIC RECOMMENDATION OR VIEW IN THIS REPORT. FOR OTHER DISCLOSURES PLEASE VISIT HTTP://

GM.DB.COM MICA(P) 146/04/2011.

Australasia Australia

Company

Utilities



14 December 2011

Forecast Change

APA Group

Reuters: APA.AX Bloomberg: APA AU Exchange: ASX Ticker: APA Buy

Price at 14 Dec 2011 4.59



Takeover bid for HDF, Allgas

Global Markets Research









Price target - 12mth 5.30

52 week range (AUD) 4.70 - 3.73

ALL ORDINARIES 4,252





divested Key changes

Price target

Sales (FYE)

4.50 to 5.30

1,114 to 1,090

17.8%

-2.2%

John Hirjee Hugh Morgan Andrew Lewandowski

EBIT margin (FYE) 39.9 to 38.2 -4.0%

Research Analyst Research Analyst Research Analyst

Net profit (FYE) 133.3 to 135.9 2.0%

(+61) 3 9270-4318 (+61) 3 9270-4385 (+61) 3 9270-4241

john.hirjee@db.com hugh.morgan@db.com andrew.lewandowski@db.com

Price/price relative



Sound strategic rationale for HDF bid 4.8



While presenting no great surprise to us, APA's proposed off-market acquisition of 4.4

4.0

HDF offers a clear strategic rationale in our view. If the deal is successful, APA will

3.6

own all three major pipelines radiating from the Cooper Basin. However, with the 3.2

proposal subject to ACCC and FIRB approval, and discussions yet to commence 2.8

between APA and HDF, we do see execution risks and do not include the deal in 2.4

our base case APA valuation. Leverage to growing Australian gas demand 12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11

underpins our Buy rating for APA Group. PA

A Group

LL RDINA

A O RIES (Rebased)

Allgas divestment points to competition concerns on HDF proposal

Performance (%) 1m 3m 12m

We believe the separate divestment of APA’s Allgas business underlines the Absolute 2.5 15.7 12.0

company’s concern on potential ACCC issues over a bid for HDF. In our view ALL ORDINARIES -3.0 3.9 -12.4

ownership of both the Cooper to Adelaide pipeline and 50% of the SEA Gas pipeline

could present competition concerns in the South Australian gas market. However, Stock data

divestment channels demonstrated by the Allgas deal, and the potential for increased Market cap (AUDm) 2,968

Market cap (USDm) 2,993

regulation on one or both SA pipelines could address competition concerns. Shares outstanding (m) 646.7

Allgas, Diamantina Power Station and growth outlook support valuation Daily volume (USDm) 9.06

Free float 87.00

The Allgas transaction was completed at a 12% premium to our valuation, adding

15cps to our APA NAV. In addition, we have included the previously announced Key indicators (FY1)

Diamantina Power Station in our valuation (+14cps), and increased our terminal ROE (%) 8.2

growth rate from 2% to 3% (+49cps) to reflect the robust outlook for gas demand ROA (%) 8.1

in Australia, underlined by the Government’s recent draft Energy White Paper. Net debt/equity (%) 170.5

Book value/share (AUD) 2.50

Valuation and key risks (see page 7-8 for earnings and valuation changes) Price/book (x) 1.8

Our valuation for APA is derived from a DCF-based NAV of $5.28/sh (prev Net interest cover (x) 1.8

EBIT margin (%) 38.2

$4.50/sh). We use a WACC of 7.8% and a long-term growth rate of 3%. Our target

price of $5.30/sh (prev $4.50/sh) is based on our DCF valuation. Key risks include

gas volume risks, acquisition strategies, unplanned capex, and regulatory risk.



Forecasts and ratios

Year End Jun 30 2010A 2011A 2012E 2013E 2014E

Sales (AUDm) 962 1,041 1,090 1,113 1,185

EBITDA (AUDm) 460 490 536 547 582

Net Profit (AUDm) 100 109 136 145 160

EPS (AUD) 0.19 0.20 0.21 0.22 0.24

OLD EPS (AUD) 0.19 0.20 0.21 0.22 0.26

% Change 0.0% 0.0% 2.0% -1.4% -7.9%

EPS Growth (%) 18.7 2.7 6.2 4.7 7.9

PER (x) 16.9 20.3 21.8 20.9 19.3

EV/EBITDA (x) 10.2 10.9 11.1 10.7 10.4

DPS (net) (AUD) 0.33 0.34 0.35 0.36 0.37

Yield (net) (%) 10.1 8.6 7.7 7.9 8.1

Franking (%) 0 0 0 0 0

Source: Deutsche Bank estimates, company data

1

Pre-exceptionals/extraordinaries

2

Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the

year end close





Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

MICA(P) 146/04/2011.

14 December 2011 Utilities APA Group





Model updated: 14 December 2011 Y/E 30 June 07/08 08/09 09/10 10/11 11/12E 12/13E 13/14E

SUMMARY

Equity Research Normalised EPS (A$) 0.183 0.162 0.193 0.198 0.210 0.220 0.237

Asia Pacific P/E ratio normalised (x) 19.1 18.1 16.9 20.3 21.8 20.9 19.3

Normalised EPS growth (%) na -11.1 18.7 2.7 6.2 4.7 7.9

Australia EPS FD (A$) 0.149 0.162 0.193 0.197 0.210 0.220 0.237

Infrastructure & Utilities P/E ratio FD (x) 23.3 18.1 16.9 20.4 21.8 20.9 19.3

Operating CFPS (A$) 0.414 0.467 0.514 0.619 0.389 0.462 0.474

P/CFPS (x) 8.4 6.3 6.3 6.5 11.8 9.9 9.7

APA Group DPS (A$) 0.295 0.310 0.328 0.344 0.353 0.362 0.371

Dividend yield (%) 8.5 10.5 10.1 8.6 7.7 7.9 8.1

Reuters: APA.AX Bloomberg: APA AU

Price/BV (x) 1.30 1.15 1.27 1.35 1.83 1.92 2.01

Buy Enterprise Value (A$m)

EV/EBITDA (x)

4,709

10.9

5,052

11.7

5,084

11.1

5,336

10.9

5,929

11.1

5,873

10.7

6,059

10.4

Price as at 13-Dec A$4.59 EV/EBIT (x) 14.0 15.0 13.8 13.7 14.2 13.7 13.1



Target price A$5.30 DIVISIONAL EBIT (A$m)

Gas transmission & distribution 418 307 365 424 454 461 493

Company website Asset Management 30 21 29 39 42 42 45

http://www.apa.com.au Energy Investments 5 12 19 27 40 43 44

Electricity transmission 15 4 0 0 0 0 0

Company description Other -153 -8 -44 -98 -119 -117 -121

APA Group owns and operates gas transmission

PROFIT & LOSS (A$m)

assets and distribution networks across Sales revenue 849 908 962 1,041 1,090 1,113 1,185

Australia, with assets in New South Wales, EBITDA (incl significant items) 409 432 460 492 536 547 582

Victoria, Queensland, South Australia and Depreciation/amortisation -94 -96 -91 -100 -119 -117 -121

Western Australia. The Group is internally EBIT (incl significant items) 314 336 369 392 417 430 461

Net interest income (expense) -224 -222 -229 -247 -236 -237 -244

managed with a stapled security stucture to

Income tax expense 23 36 39 36 45 48 57

deliver tax-efficient distributions. Associates/affiliates 0 0 0 0 0 0 0

Minorities/preference dividends 0 0 0 0 0 0 0

Reported profit 67 79 100 109 136 145 160

Significant items -15 0 0 0 0 0 0

Net profit (excl significant items) 82 79 100 109 136 145 160

EBIT (excl significant items) 336 336 369 389 417 430 461



CASH FLOW (A$m)

Cash flow from operations 186 226 268 341 252 304 320

Research Team Movement in net working capital -504 448 28 40 -27 1 0

Capex -194 -302 -135 -212 -188 -276 -210

John Hirjee Free cash flow -7 -75 132 128 64 28 110

+61 3 9270 4318 john.hirjee@db.com Other investing activities -656 415 -212 -162 477 0 0

Equity raised/(bought back) 123 78 142 70 52 59 62

Hugh Morgan Dividends paid -97 -144 -160 -185 -209 -233 -244

+61 3 9270 4385 hugh.morgan@db.com Net inc/(dec) in borrowings 682 -271 100 109 -350 200 100

Other financing cash flows 0 0 -30 1 0 0 0

Andrew Lewandowski Total cash flows from financing 708 -336 52 -4 -506 26 -83

+61 3 9270 4241 andrew.lewandowski@db.com Net cash flow 45 3 -28 -38 34 54 27

Movement in net debt/(cash) 636 -274 128 147 -384 146 73



BALANCE SHEET (A$m)

Cash and other liquid assets 105 109 81 95 113 167 195

Tangible fixed assets 3,237 3,362 3,483 3,768 3,382 3,547 3,642

Goodwill 521 521 521 0 0 0 0

Other intangible assets 172 169 179 708 703 697 692

Associates/investments 136 388 404 479 479 479 479

Other assets 926 198 315 376 354 366 374

Total assets 5,097 4,747 4,982 5,428 5,032 5,257 5,382

Interest bearing debt 3,401 3,057 3,157 3,240 2,890 3,090 3,190

Other liabilities 446 412 431 520 514 574 628

Total liabilities 3,847 3,469 3,587 3,760 3,404 3,664 3,818

Absolute Price Return (%)

Shareholders' equity 1,250 1,278 1,395 1,668 1,628 1,593 1,563

0% 5% 10% 15% 20%

Minorities/other 0 0 0 0 0 0 0

Total shareholders' equity 1,250 1,278 1,395 1,668 1,628 1,593 1,564

2.9%

1m Net working capital -10 47 21 21 37 39 41

16%

3m Net debt/(cash) 3,296 2,948 3,076 3,145 2,777 2,922 2,995

12m 13%

RATIO ANALYSIS

52-week High/Low: A$4.70 - 3.73 Sales growth - pcp (%) na 7.0 5.9 8.3 4.7 2.2 6.5

Market Cap (m) A$ 2,935 EBITDA/sales (%) 50.7 47.6 47.8 47.0 49.1 49.1 49.1

US$ 2,957 EBIT/sales (%) 39.6 37.1 38.3 37.4 38.2 38.6 38.9

Payout ratio (%) 65.1 109.5 159.5 176.0 167.7 164.7 156.5

DCF VALUATION (A$) ROA (%) 7.4 7.0 7.7 7.6 8.1 8.6 9.0

Beta (MRP - 6.00) 0.93 ROE (%) 6.8 6.2 7.5 7.1 8.2 9.0 10.2

Debt/mkt value ratio (%) 49.3 Operating Return on Capital (%) 5.6 5.4 6.0 6.2 7.0 7.0 7.4

WACC (6.25% bond yield) 8.8 Tax rate (%) 25.5 31.3 27.8 24.8 25.0 25.0 26.3

Capex/sales (%) 22.8 33.2 14.1 20.4 17.2 24.8 17.7

Net value per share ($) 5.28 Capex/depreciation (x) 2.2 3.3 1.6 2.2 1.7 2.5 1.8

Price/NPV (x) 0.87 Net debt/equity (%) 263.6 230.6 220.5 188.5 170.5 183.5 191.5

Net interest cover (x) 1.5 1.5 1.6 1.6 1.8 1.8 1.9

Source: Company data, DB estimates



12mth Fwd P/E Relative (x) Trends Return Ratios (%) Net Debt (Cash) / Equity (%)

60 12 3500 300

2.40



2.30 50 3000

10 250



2.20 2500

40 8 200

2.10

2000

2.00 30 6 150

1500

1.90

20 4 100

1.80 1000



1.70 10 2 50

500

1.60 0

0 0 0

1.50

08 09 10 11 12E 13E 14E 08 09 10 11 12E 13E 14E

08 09 10 11 12E 13E 14E

12/06 12/07 12/08 12/09 12/10 12/11 EBITDA/sales (%) ROE (%) ROA (%) Net debt / (cash) (AUD m)

EBIT/sales (%) op ROC (%) Net debt/equity (%)









Page 2 Deutsche Bank AG/Sydney

14 December 2011 Utilities APA Group





APA bids $2.00/sh for HDF

Offer summary

$2.00/sh bid for HDF, 12.6% APA Group is making an off-market takeover bid for the remaining 79.3% stake Hastings

premium to 5-day VWAP Diversified Utilities Fund (HDF.AX) not currently owned by APA



The bid implies $2.00 per HDF share, and will comprise $0.50 per HDF share in cash,

and 0.326 APA shares per HDF share



The bid represents a 13% premium to the last close, 12.6% premium to the 5-day

VWAP, and 20.6% premium to the 3-month VWAP



If HDF makes any distribution prior to offer closure, the APA bid price will fall by the

value of the distribution



The deal has not yet received regulatory approvals, and APA is yet to engage with HDF



Key conditions

Key conditions of the proposed acquisition include:



Bid is conditional on 90% 90% minimum acceptance to allow compulsory acquisition of remaining minorities

minimum acceptance, and

ACCC and FIRB approval

regulatory approvals

Capping of performance fee for HDF external manager of no more than $57.4m,

comprising $26.6m in accordance with arrangements in the HDF Constitutions, and

$30.8m if the offer becomes unconditional



Other conditions include:



No material acquisitions or divestments by HDF during the offer period



No change of control in HDF



The S&P ASX200 does not fall below 3,800 and remain below 3,800 for three

consecutive days during the offer period



Deal timeline

Figure 1: HDF bid timeline

Event Date

Announcement of bid 14 Dec 2011

Bidder’s statement lodged with ASIC Shortly

Bidder's statement dispatched to HDF securityholders Early Jan 2012

Offer closes 31 Mar 2012

Source: Company data, Deutsche Bank







HDF’s board has not yet formally responded to APA’s offer other than to advice shareholders

to await further guidance, and APA has indicated it has not yet engaged in takeover

discussions with HDF. Given the deal is subject to a number of key conditions, we have not

included the acquisition of HDF in our base case valuation of APA at this stage. We believe

there are some significant execution risks associated with this proposed take-over offers –

bid price, mezzanine debt details, market moves etc. We discuss the impact of a successful

acquisition scenario later in this report.









Deutsche Bank AG/Sydney Page 3

14 December 2011 Utilities APA Group





HDF overview

HDF owns four gas Hastings Diversified Utilities Fund is an externally managed energy infrastructure investment

transmission pipelines in fund. The external manager is Hastings Funds Management, a subsidiary of Westpac. The

Australia Fund holds a 100% investment in Epic Energy, a gas pipeline transmission company.



Epic Energy owns four gas transmission pipelines across Australia, summarized in the

following table.



Figure 2: HDF asset summary

Pipeline Location Length Capacity Revenue mechanism

(including

laterals)

South West Queensland Links Moomba to APA's Roma to 985km 168TJ/d Unregulated, long term transportation agreements with gas

Pipeline Brisbane pipeline shippers

Moomba to Adelaide Pipeline Links Moomba and Adelaide 1,184km 250TJ/d Unregulated, long term transportation agreements with gas

System shippers

South East Pipeline System Links the Katnook gas plant to 83km 12-15TJ/d Unregulated, long term transportation agreements with gas

the SEAgas pipeline shippers

Pilbara Pipeline System Links Carnarvon Basin gas fields 323km 187TJ/d Unregulated, long term transportation agreements with gas

to Karratha, Port Headland and shippers

Pilbara mining operations

Source: Company data, Deutsche Bank









APA to divest Allgas into an unlisted vehicle

Divestment of Allgas into an In a separate transaction, APA announced it will divest its APA Gas Networks business into a

unlisted vehicle 20% owned separate unlisted entity. This transaction is independent of the outcome of the proposed HDF

by APA acquisition. APA Gas Networks owns the Allgas gas distribution business in southern

Queensland. APA will hold a 20% stake in the new entity, GDI EII, and be responsible for

managing and operating the asset via a 10 year asset management and operation agreement

with plus an addition two five year options.



The transaction implies a net enterprise value of $526m post transaction costs, and an FY11

EBITDA multiple of 15x. APA will realise net proceeds of around $477m. In addition to

retaining a 20% stake in the assets, APA will hold a 10 year asset management agreement

plus two additional five year options with the GDI EII fund.



Proceeds from the sale of its 80% stake in Allgas of $477m will be used to repay existing

APA debt facilities. If the proposed acquisition of HDF were to occur, the $0.50/sh cash

component would be funded from debt draws, effectively representing a portion of the

proceeds from the Allgas sale. We note the proposed $0.50/sh cash payment to the

remaining 79.3% of HDF shareholders represents c.$210m in total, or 44% of the Allgas

proceeds.



The sale price (EV of $526m) is in line with APA’s book value, and represents a price/RAB

multiple of c.1.2x. We previously valued Allgas at an EV of $390m (0.9x price/RAB), implying

a 35% premium to our NAV.



We have included the Allgas With the transaction not reliant on the outcome in the proposed HDF acquisition, nor on

sale in our base case regulatory approvals, we have included the Allgas sale in our APA valuation. As a result of the

valuation of APA, adding Allgas transaction, our NAV for APA increases 15cps.

15cps









Page 4 Deutsche Bank AG/Sydney

14 December 2011 Utilities APA Group





Allgas overview

Allgas is a gas distribution APA Gas Networks owns the Allgas business, a gas distribution network in Queensland

business in south-east including Oakey, Toowoomba, southern Brisbane and Gold Coast regions. APA acquired the

Queensland business from the Queensland Government for $521m in 2006 upon privatization. The asset

is regulated, with the current reset period commencing on 1 Jul 2011.



The Allgas network services over 75,000 customers via 2,800km of distribution pipelines.

Total gas usage through the network is currently c.13PJ pa. A 3-year $17m expansion

program to extend the network to an additional 9,000 households on the Gold Coast is

currently underway.



Figure 3: APA Gas Networks (Allgas) assets









Source: APA Group









Deutsche Bank AG/Sydney Page 5

14 December 2011 Utilities APA Group





DB view – sound strategic rationale, may face ACCC and

execution issues

We see strong strategic As we have previously written, we see a strong strategic rationale for APA to acquire HDF.

rationale in the HDF bid… The strategic fit of HDF’s gas transmission pipelines with APA’s gas transmission portfolio is

clearly evident. Acquisition of HDF’s South West Queensland Pipeline (SWQP) would provide

APA with full control over the gas pipeline linking the Cooper Basin to the Brisbane region, as

well as linking the Cooper Basin to Mt Isa via the SWGP and APA’s Carpentaria Gas Pipeline.

In addition, APA would own all three major gas pipelines linking the Cooper Basin to major

markets: the Cooper Brisbane, Cooper Sydney and Cooper Adelaide pipelines.



…however we believe there However, given this level of control over gas transmission on Australia’s east coast, we do

may be competition see some potential for ACCC concerns on the HDF deal. In our view the decision to divest

concerns the Allgas business in the Brisbane region by APA was a pre-emptive move to reduce

competition concerns on APA owning both the Cooper to Brisbane transmission and

Brisbane gas distribution assets.



We believe there may be competition concerns in Adelaide, given APA would own 100% of

the Cooper Adelaide pipeline, and 50% of the SEA Gas pipeline, the two transmission

pipelines into Adelaide.



We estimate the HDF acquisition is value accretive to APA up to a price of $2.25/sh, and as a

result we do see some potential for APA to increase the current $2.00/sh bid. In our view an

increase would likely involve more APA scrip rather than an increase in the cash component

given the similar investment opportunities APA and HDF offer. However as we noted earlier

in this report, the Allgas divestment proceeds could fund a doubling of the cash component

in the bid.



Scenario analysis: value accretive up to $2.25/sh

Given the HDF bid remains subject to regulatory approvals, HDF board backing, and

acceptance from HDF shareholders, we do not include the transaction in our base case

valuation for APA Group.



3% value accretive, earnings However, running a scenario analysis we estimate the transaction is value accretive by 3% at

accretive immediately the proposed $2.00/sh takeover price. We estimate the transaction is also immediately earnings

accretive, measured as operating cash flow per share. While EPS dilutive, we note EPS is a less

reliable measure of underlying earnings for regulated utilities, especially for HDF given its

externally managed fund structure. We estimate the takeover is value neutral at around

$2.25/sh. At these levels, we believe the transaction would be earnings accretive by 2014.



Figure 4: HDF takeover scenario analysis

OpCF per share accretion EPS accretion Value accretion

FY12 FY13 FY14 FY12 FY13 FY14

$2.00/sh bid price 0.1% 2.1% 3.3% -3.9% -1.7% 0.2% 3.0%

$2.25/sh bid price -2.7% -0.7% 0.7% -7.3% -5.1% -2.7% 0.2%

Source: Deutsche Bank







APA could pay up to As a result, we conclude APA could increase its bid for HDF to up to $2.25/sh and remain

$2.25/sh and remain value value accretive.

accretive









Page 6 Deutsche Bank AG/Sydney

14 December 2011 Utilities APA Group





Updated company guidance

Effective upgrade to FY12 In addition to announcing the Allgas transaction and proposed HDF acquisition, APA Group

EBITDA guidance provided updated FY12 guidance:



FY12 EBITDA guidance remains unchanged at $530m-$540m (DB $536m, prev $545m

including Allgas). The updated guidance includes the impact of the Allgas divestment (we

estimate lost EBITDA of $16m on the divestment), but is prior to any impacts from the

proposed HDF transaction. As a result, the unchanged guidance implies an upgrade to

the earnings outlook for the remaining APA business.



FY12 distribution guidance remains unchanged, at least 34.4cps (DB 35.3cps). In

addition, the company indicated the interim distribution would be 17cps, implying a final

distribution of at least 17.4cps.





Incorporating Diamantina Power Station and growth outlook

The Diamantina Power We have now incorporated the impact of APA’s plans to jointly develop the Diamantina

Station adds 14cps to our Power Station at Mt Isa with AGL Energy, announced on 6 Oct 2011. APA and AGL will

APA NAV construct the $500m, 242MW CCGT power station, underpinned by 17 year electricity supply

agreements with Xtrata Mount Isa Mines, and Ergon Energy. Gas will be supplied to the

power station via APA’s Carpentaria Gas Pipeline. The Diamantina Power Station adds 14cps

to our NAV for APA Group.



Increasing our terminal We have reviewed our long-term growth outlook for APA in light of strong domestic and

growth rate for APA to 3% export demand for natural gas in Australia. We have increased our long-term growth rate

(from 2%) adds 49cps to our from 2% to 3% to reflect this strong outlook. The Australian Government’s recently released

NAV draft Energy White Paper forecasts 5% annual gas production growth in Australia to 2035,

and we believe a 3% terminal growth rate for APA’s businesses adequately reflects the

outlook for gas transportation and capacity demand. The increase to our terminal growth rate

to 3% (from 2%) adds 49cps to our NAV for APA Group.





Earnings and valuation changes

The following table summarises changes to key financials. We have not included the impact

of the company’s proposed acquisition of Hastings Diversified Utilities Fund given the bid

remains conditional at this stage. We have included the Allgas transaction in our forecasts,

along with the Diamantina Power Station and higher terminal growth rate. These factors drive

our NAV and Target Price increase. Our EBITDA and EPS declines reflect the Allgas

divestment, but note that in FY12 we were previously of guidance, which is now reduced to

within guidance post removal of the Allgas contribution.



Figure 5: Changes to key financials

Underlying EPS (cps) Underlying EBITDA ($m) NAV Target Price

FY12E FY13E FY14E FY12E FY13E FY14E ($/sh) ($/sh)

Old 20.6 22.3 25.8 545 577 616 4.50 4.50

New 21.0 22.0 23.7 536 547 582 5.28 5.30

Change (%) +2% -1% -8% -2% -5% -6% +17% +18%

Source: Deutsche Bank estimates







Our valuation for APA is derived from a DCF-based NAV of $5.28/sh (prev $4.50/sh). We use

a WACC of 7.8% and a long-term growth rate of 3% in line with our view on long-term gas

demand in Australia. Our target price of $5.30/sh (prev $4.50/sh) is based on our DCF

valuation. We use a WACC of 7.8% for APA based on a risk free rate of 6.0%, equity risk

premium of 6.5% and beta of 0.8. We also assume target gearing of 60% and a debt margin

of 1.9%.



Deutsche Bank AG/Sydney Page 7

14 December 2011 Utilities APA Group





Key risks

Gas volumes

Gas volumes are a fundamental revenue driver for APA. Notwithstanding APA earns the bulk of

its revenue from ‘take-or-pay’ contracts, the company faces downside risk to revenue with any

decline in gas distribution volumes. Milder winters pose downside risks to demand for gas.



Hastings Diversified Utilities Fund acquisition

APA has launched a full takeover bid for HDF.AX, with the company previously acquiring a

20.7% stake. Failure of the bid, or a need to increase the bid above value accretive levels are

a potential source of downside risk to APA.



Unplanned capex

APA faces downside risk to cash flows from unplanned capex expenditure. Unplanned capex

could also be associated with network outages, a second source of downside risk.



Regulatory risk

Numerous APA assets operate in a regulated environment, and APA is thus exposed to

unfavourable changes in legislation, including the risk of reductions to regulated returns.









Page 8 Deutsche Bank AG/Sydney

14 December 2011 Utilities APA Group









Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

APA Group APA.AX 4.57 (AUD) 14 Dec 11 NA

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.





For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=APA.AX.



Special Disclosures

Deutsche Bank AG and/or an affiliate is acting as the investment manager to an institutional client in the purchase of the

ALLGAS business from APA.





Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject

issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any

compensation for providing a specific recommendation or view in this report. John Hirjee









Historical recommendations and target price: APA Group (APA.AX)

(as of 12/14/2011)

5.00 Previous Recommendations

3

4.50 Strong Buy

2 4 Buy

1 Market Perform

4.00

Underperform

3.50 Not Rated

Suspended Rating

S ecurity Price









3.00 Current Recommendations



2.50 Buy

Hold

2.00 Sell

Not Rated

Suspended Rating

1.50

*New Recommendation Structure

1.00 as of September 9, 2002



0.50



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Da te

1. 24/6/2010: Buy, Target Price Change AUD4.30 3. 23/6/2011: Buy, Target Price Change AUD4.45

2. 23/2/2011: Buy, Target Price Change AUD4.40 4. 24/8/2011: Buy, Target Price Change AUD4.50









Deutsche Bank AG/Sydney Page 9

14 December 2011 Utilities APA Group







Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price 120 48 % 50 %

from current price to projected target price plus pro- 100

jected dividend yield ) , we recommend that investors

80

buy the stock.

Sell: Based on a current 12-month view of total share- 60

holder return, we recommend that investors sell the 40 25 % 19 %

stock 20 3 % 17 %

Hold: We take a neutral view on the stock 12-months 0

out and, based on this time horizon, do not recommend

Buy Hold Sell

either a Buy or Sell.

Notes:

1. Newly issued research recommendations and target Companies Covered Cos. w/ Banking Relationship

prices always supersede previously published research. Australia Universe

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of

10% or more over a 12-month period

Hold: Expected total return (including dividends)

between -10% and 10% over a 12-month period

Sell: Expected total return (including dividends) of -

10% or worse over a 12-month period









Page 10 Deutsche Bank AG/Sydney

14 December 2011 Utilities APA Group





Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent

or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at

http://gm.db.com.









3. Country-Specific Disclosures

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of

the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and

its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly

affected by revenues deriving from the business and financial transactions of Deutsche Bank.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

http://www.globalmarkets.db.com/riskdisclosures.

Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration

number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117.

Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan,

Japan Securities Investment Advisers Association. Commissions and risks involved in stock transactions - for stock

transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission

rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors.

Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's",

"Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless “Japan” is

specifically designated in the name of the entity.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any

appraisal or evaluation activity requiring a license in the Russian Federation.









Deutsche Bank AG/Sydney Page 11

Deutsche Bank AG/Sydney



International locations



Deutsche Bank Securities Inc. Deutsche Bank AG London Deutsche Bank AG Deutsche Bank AG

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Tel: (1) 212 250 2500 Tel: (44) 20 7545 8000 Tel: (49) 69 910 00 Sydney, NSW 2000

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Tel: (61) 2 8258 1234

Deutsche Bank AG Deutsche Securities Inc.

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1 Austin Road West,Kowloon, Chiyoda-ku, Tokyo 100-6171

Hong Kong Japan

Tel: (852) 2203 8888 Tel: (81) 3 5156 6770









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Australasia Australia

Company

Building Materials



14 December 2011

Forecast Change

Boral

Reuters: BLD.AX Bloomberg: BLD AU Exchange: ASX Ticker: BLD Hold

Price at 14 Dec 2011 3.64



Unseasonal weather may lead

Global Markets Research









Price target - 12mth 3.19

52 week range (AUD) 5.59 - 3.15

ALL ORDINARIES 4,252





to construction delays Key changes

Price target

Sales (FYE)

3.38 to 3.19

5,278 to 4,929

-5.6%

-6.6%

Emily Behncke John Hynd

EBIT margin (FYE) 5.6 to 5.6 -0.2%

Research Analyst Research Associate

Net profit (FYE) 167.8 to 149.7 -10.8%

(+61) 2 8258-2297 (+61) 2 8258-1621

emily.behncke@db.com john.hynd@db.com

Price/price relative



Unseasonal weather conditions to impact earnings 7.0

DB expects the recent heavy rain in Australia and flooding in Thailand to negatively 6.0

impact FY12 earnings. Given national rain levels in November 2011 were at the

5.0

same levels as in November 2010 (which caused a negative impact to earnings),

we remain cautious around the strong possibility that this may lead to project 4.0

delays into 2012. Hold retained. 3.0



September quarter housing starts were below consensus expectations 12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11

Boral

Housing starts declined 11.5% yoy to 35.7k (143k annualised) in QS11, in line with

ALL ORDINARIES (Rebased)

DB’s FY12 forecast of 127k. We note housing starts declined in all states qoq and

Performance (%) 1m 3m 12m

yoy excluding Qld which recorded a qoq increase of 8%. Most notably housing Absolute 1.1 9.3 -24.3

starts declined 15.2% qoq and 19.3% yoy in Vic (starts remain 37% above the ALL ORDINARIES -3.0 3.9 -12.4

historical average in Vic).

Stock data

Concrete and aggregates price increases a potential positive Market cap (AUDm) 2,653

Boral announced concrete and quarries price increases (effective 1 April 2012) of Market cap (USDm) 2,675

9% ($14.5/cum) and 15% ($5/t) respectively on 12 Dec. The increases are broadly Shares outstanding (m) 728.8

in line with recently announced industry increases. While we view the price Daily volume (USDm) 10.24

increases positively we believe it will be difficult to pass on the full price increases Free float 100.00



in the current demand environment (DB factors in 50% success). Key indicators (FY1)

Valuation declines in line with earnings ROE (%) 4.5

Our TP is based on DCF analysis. Key assumptions include beta of 1.2x, TGR of ROA (%) 4.7

Net debt/equity (%) 38.4

2% (in line with CPI), WACC 10.81%, coe 13.45%, cod 7.6%. Upside risks include Book value/share (AUD) 4.91

a faster turnaround in the housing market than we expect (especially NSW) and Price/book (x) 0.7

stronger than expected pricing. Downside risks include continued pricing Net interest cover (x) 3.1

weakness in cement and concrete in Australia (see page 8 for details). EBIT margin (%) 5.6

.



Forecasts and ratios

Year End Jun 30 2010A 2011A 2012E 2013E 2014E

Sales (AUDm) 4,599 4,710 4,929 5,574 6,161

EBITDA (AUDm) 505 565 560 767 918

Net Profit (AUDm) 132 175 150 206 321

EPS (AUD) 0.22 0.24 0.21 0.28 0.43

OLD EPS (AUD) 0.22 0.24 0.23 0.29 0.44

% Change 0.0% 0.0% -10.6% -5.3% -3.6%

EPS Growth (%) -1.0 10.6 -15.4 34.5 53.9

PER (x) 25.2 19.4 17.7 13.2 8.6

PE Relative (x) 2.09 1.81 1.78 1.48 1.01

EV/EBITDA (x) 9.2 7.6 6.5 5.4 4.6

DPS (net) (AUD) 0.14 0.14 0.12 0.22 0.28

Yield (net) (%) 2.4 3.1 3.3 5.9 7.7

Franking (%) 100 100 100 100 100

Source: Deutsche Bank estimates, company data

1

Pre-exceptionals/extraordinaries

2

Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the

year end close





Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

MICA(P) 146/04/2011.

14 December 2011 Building Materials Boral





Model updated: 14 December 2011 Y/E 30 June 06/07 07/08 08/09 09/10 10/11 11/12E 12/13E 13/14E

SUMMARY

Equity Research Normalised EPS (A$) 0.501 0.412 0.222 0.219 0.243 0.205 0.276 0.425

Asia Pacific P/E ratio normalised (x) 15.8 16.1 20.4 25.2 19.4 17.7 13.2 8.6

Normalised EPS growth (%) na -17.7 -46.3 -1.0 10.6 -15.4 34.5 53.9

Australia EPS FD (A$) 0.501 0.406 0.240 -0.151 0.232 0.655 0.276 0.425

Building Materials P/E ratio FD (x) 15.8 16.4 18.9 nm 20.3 5.6 13.2 8.6

Operating CFPS (A$) 0.806 0.987 0.213 0.766 0.485 0.998 0.661 0.824

P/CFPS (x) 9.8 6.7 21.3 7.2 9.7 3.6 5.5 4.4

Boral Ltd DPS (A$) 0.340 0.340 0.130 0.135 0.145 0.120 0.215 0.280

Dividend yield (%) 4.3 5.1 2.9 2.4 3.1 3.3 5.9 7.7

Reuters: BLD.AX Bloomberg: BLD AU

Price/BV (x) 1.59 1.34 0.97 1.25 0.91 0.74 0.73 0.72

Hold Enterprise Value (A$m)

EV/EBITDA (x)

4,408

5.8

4,390

6.4

4,376

8.1

4,246

8.4

4,303

7.6

3,641

6.5

4,140

5.4

4,194

4.6

Price as at 14-Dec A$3.64 EV/EBIT (x) 8.3 9.8 15.9 16.9 13.4 13.2 11.0 8.1



Target price A$3.19 DIVISIONAL EBIT (A$m)

Australian Construction Materials 318 351 231 201 204 218 247 267

Company website Cement Division 108 88 96 86 94 102

http://www.boral.com.au Building Products 99 114 53 101 85 53 65 83

USA 95 -27 -109 -104 -99 -102 -94 -7

Company description Other 19 -22 -78 -319 -8 348 64 76

Boral Limited is a manufacturer and supplier of

PROFIT & LOSS (A$m)

building and construction materials in Australia Sales revenue 4,880 5,179 4,875 4,599 4,711 4,929 5,574 6,161

and internationally. Boral supplies building EBITDA (incl significant items) 762 656 470 220 522 888 767 918

products to the Australian residential and Depreciation/amortisation -231 -240 -263 -253 -245 -285 -392 -397

commercial building markets, operates clay brick EBIT (incl significant items) 531 416 206 -33 277 603 375 521

Net interest income (expense) -111 -112 -98 -97 -64 -88 -118 -119

business in the U.S. (for clay roof tiles and

Income tax expense 122 62 -34 -41 40 37 51 80

flyash) and produces plasterboard in Indonesia, Associates/affiliates 0 0 0 0 0 0 0 0

Malaysia and China and supplies concrete in Minorities/preference dividends 0 1 0 -1 -5 0 0 0

Indonesia. Reported profit 298 243 142 -91 168 478 206 321

Significant items 0 -4 11 -222 -8 328 0 0

Net profit (excl significant items) 298 247 131 132 175 150 206 321

EBIT (excl significant items) 531 448 276 252 320 275 375 521



CASH FLOW (A$m)

Cash flow from operations 480 590 126 459 351 727 492 623

Research Team Movement in net working capital -71 47 -48 89 5 -36 -105 -96

Capex -404 -393 -231 -180 -345 -400 -394 -457

Emily Behncke Free cash flow 76 198 -105 279 6 327 99 166

+61 2 8258 2297 emily.behncke@db.com Other investing activities 8 -87 223 45 -40 -825 -43 0

Equity raised/(bought back) 0 -113 -31 -42 480 45 61 0

John Hynd Dividends paid -148 -163 -94 -2 -32 -90 -121 -192

+61 2 8258 1621 john.hynd@db.com Net inc/(dec) in borrowings 219 -136 45 52 -275 -273 671 5

Other financing cash flows 0 0 0 0 0 0 0 0

Total cash flows from financing 71 -413 -81 8 173 -318 610 -187

Net cash flow 155 -303 37 332 139 -816 666 -21

Movement in net debt/(cash) 64 166 7 -280 -413 543 5 27



BALANCE SHEET (A$m)

Cash and other liquid assets 36 47 101 157 561 361 361 361

Tangible fixed assets 2,990 3,089 3,104 2,785 2,895 4,163 4,208 4,268

Goodwill 0 0 0 0 0 0 0 0

Other intangible assets 340 326 308 278 256 256 256 256

Associates/investments 788 729 329 321 248 248 248 248

Other assets 1,663 1,704 1,650 1,669 1,708 1,777 1,980 2,165

Total assets 5,817 5,895 5,491 5,209 5,668 6,805 7,053 7,298

Interest bearing debt 1,518 1,563 1,614 1,340 1,067 1,738 1,743 1,770

Other liabilities 1,311 1,423 1,124 1,244 1,445 1,478 1,576 1,665

Total liabilities 2,829 2,985 2,738 2,583 2,512 3,216 3,319 3,435

Absolute Price Return (%)

Shareholders' equity 2,984 2,908 2,752 2,624 3,109 3,541 3,687 3,815

-30% -20% -10% 0% 10% 20%

Minorities/other 3 2 1 3 48 48 48 48

Total shareholders' equity 2,987 2,910 2,754 2,626 3,156 3,589 3,734 3,863

1.1%

1m Net working capital 697 714 767 669 665 696 787 870

9.3%

3m Net debt/(cash) 1,482 1,515 1,514 1,183 505 1,376 1,382 1,409

-24%

12m

RATIO ANALYSIS

52-week High/Low: A$5.59 - 3.15 Sales growth - pcp (%) na 6.1 -5.9 -5.7 2.4 4.6 13.1 10.5

Market Cap (m) A$ 2,711 EBITDA/sales (%) 15.6 13.3 11.1 11.0 12.0 11.4 13.8 14.9

US$ 2,732 EBIT/sales (%) 10.9 8.7 5.7 5.5 6.8 5.6 6.7 8.5

Payout ratio (%) 68.6 81.0 110.7 57.0 57.6 61.5 60.5 60.1

DCF VALUATION (A$) ROA (%) 9.4 7.7 4.9 4.9 6.6 4.7 5.7 7.6

Beta (MRP - 6.00) 1.20 ROE (%) 10.4 8.4 4.6 4.9 6.1 4.5 5.7 8.6

Debt/mkt value ratio (%) 32.5 Operating Return on Capital (%) 8.7 7.5 6.0 4.2 7.2 5.2 5.8 7.7

WACC (6.25% bond yield) 10.8 Tax rate (%) 29.1 20.4 -30.8 31.4 18.9 7.3 20.0 20.0

Capex/sales (%) 8.3 7.6 4.7 3.9 7.3 8.1 7.1 7.4

Net value per share ($) 3.19 Capex/depreciation (x) 1.7 1.6 0.9 0.7 1.4 1.4 1.0 1.2

Price/NPV (x) 1.14 Net debt/equity (%) 49.6 52.1 55.0 45.0 16.0 38.4 37.0 36.5

Net interest cover (x) 4.8 4.0 2.8 2.6 5.0 3.1 3.2 4.4

Source: Company data, DB estimates



12mth Fwd P/E Relative (x) Trends Return Ratios (%) Net Debt (Cash) / Equity (%)

18 12 1600 60

2.20

16 1400

2.00 10 50

14

1200

1.80 12 8 40

1000

10

1.60 6 800 30

8

1.40 600

6 4 20

4 400

1.20

2 10

2 200

1.00

0 0 0

0

0.80

07 08 09 10 11 12E 13E 14E 07 08 09 10 11 12E 13E 14E

07 08 09 10 11 12E 13E 14E

12/06 12/07 12/08 12/09 12/10 12/11 EBITDA/sales (%) ROE (%) ROA (%) Net debt / (cash) (AUD m)

EBIT/sales (%) op ROC (%) Net debt/equity (%)









Page 2 Deutsche Bank AG/Sydney

14 December 2011 Building Materials Boral









Key details

What’s new?

Following recent unseasonal rain in Australia and flooding in Thailand we have reduced

our forecasts for Boral’s Australian Construction Materials, Cement and Building

Products segments given the likelihood earnings will be negatively impacted.



We note housing starts to QS11 declined -6.8% qoq and 11.5% yoy to 35,672 or 143k

on an annualised basis. We note that the decline is in line with our forecasts for a -18.5%

yoy decline to 127.3k housing starts in FY12.



Australian rain levels are currently above the historical average which we think will likely

impact December quarter demand. October rainfall was 52% above historical levels and

November 75% above historical levels. Given the impact of unseasonally high rainfall to

Boral 1HFY11 EBIT, we remain cautious and have made some minor earnings

adjustments.



Thailand has also experienced unfavorable weather conditions in the past 3 months

including high levels of rain and floods in October and November. While we are yet to

observe the full impact from the floods in Thailand’s GDP numbers (released quarterly),

Consumer Confidence figures declined 13% mom in October and Thailand’s Production

Index declined 35.8 points or 107% mom in October (largest monthly decline on record).

We note that 24% of Boral Gypsum Asia revenue is derived from Thailand, where Boral

is the #1 plasterboard producer with 55% market share.



Australian concrete volumes to October 2011 are flat yoy on an annualised basis (-

0.3%). However we note the picture is mixed on a state by state basis with NSW

+2.4%, VIC +2.7%, QLD -3.8%, SA -1.1%, WA -5.7% (annualised yoy). Monthly

concrete volumes declined 7.8% mom and -2% yoy due to the sharp decline in volumes

in NSW (-10.8% mom) and QLD (-12.2% mom).



Boral announced concrete and quarries price increases (effective 1 April 2012) of 9%

($14.5/cum) and 15% ($5/t) respectively on 12 Dec. The increases are broadly in line with

recently announced industry increases. While we view the price increases positively we

believe it will be difficult to pass on the full price increases in the current demand

environment (DB factors in 50% success). If we were to assume full success of the April

2012 price increases this would lead to a 20% increase to our FY13 Boral EBIT forecasts.



As a result we have reduced Boral FY12 NPAT expectations -11% to $150m which is

18% below consensus.



DB remains cautious on Australian housing

We forecast housing starts to decline 18.4% yoy to 127.3k in FY12 and then increase 9.8%

yoy to 139.7k in FY13 respectively (consensus 145k in FY12 and 163k in FY13).



We note that QS11 housing starts declined 6.8% qoq and 11.5% yoy to 35,672 units (in line

with DB’s view), which is the lowest quarterly housing starts figure since QD09.









Deutsche Bank AG/Sydney Page 3

14 December 2011 Building Materials Boral





Figure 1: DB housing start forecasts vs BIS and HIA Figure 2: Australian annualised housing starts by state

(historically)

200 70,000

173.4

180

60,000

160 150.0 152.0

140.2 139.7

50,000

No. of units in '000s









140 127.3

120 40,000

100 30,000

80

20,000

60

40 10,000

20 -

0









QD87

QD88

QD89

QD90

QD91

QD92

QD93

QD94

QD95

QD96

QD97

QD98

QD99

QD00

QD01

QD02

QD03

QD04

QD05

QD06

QD07

QD08

QD09

QD10

FY12 FY13



DB HIA BIS NSW Vic QLD SA WA





Source: Deutsche Bank Source: Deutsche Bank, ABS









Rain has been above the historical average

In Australia, rain levels were 52% and 75% above their historical levels in October and

November respectively. We view the rain as a key negative to BLD earnings as we believe

this will potentially result in project delays into CY12.



The average rainfall for November 2010 was 71% above the historical average and increased

a further 87% to 104mm (100% above the monthly historical average) in December 2010.

Rain levels remained at that level through January, February and March 2011. We note in

February 2011 at the 1HFY11 result Boral advised that asphalt volumes declined 16% and

site access was delayed during the period due to the higher than average rainfall.



While rain levels are not yet at the levels seen last year we believe that Boral’s Building

Products, Cement and ACM businesses may have been negatively impacted. We will closely

watch rainfall reports which may signal further downside risk to Boral’s Building Products,

Cement and ACM earnings.



Figure 3: Australian Monthly Rainfall (mm)





160 2009



140 2010



120 2011



Average over 1961-1990

100



80



60



40



20



0









Source: Deutsche Bank, BOM









Page 4 Deutsche Bank AG/Sydney

14 December 2011 Building Materials Boral





Thailand floods expected to impact demand

After experiencing significant levels of rainfall since September 2011, Thailand experienced

floods in October and November. While it has been reported in the media that Bangkok

appears to be over the worst of the floods we expect Boral’s Thailand earnings to be

negatively impacted by the floods in coming months.



Given Thailand’s GDP is measured quarterly, we are yet to see the full impact from the floods

in this figure. However, Thailand Consumer Confidence declined 13% mom in October to

62.8 and 13% vs the average rate throughout CY11 and Thailand’s Production Index declined

-35.8 points or 107% mom in October 2011 which is the largest monthly decline on record

(2000).



Figure 4: Thailand Production Index (monthly) Figure 5: Thailand Consumer Confidence (monthly)



40 120





30 100



20 80



10 60



0 40

Aug-2000





Aug-2001





Aug-2002





Aug-2003





Aug-2004





Aug-2005





Aug-2006





Aug-2007





Aug-2008





Aug-2009





Aug-2010





Aug-2011

Feb-2000





Feb-2001





Feb-2002





Feb-2003





Feb-2004





Feb-2005





Feb-2006





Feb-2007





Feb-2008





Feb-2009





Feb-2010





Feb-2011









-10 20



-20 0

Nov-1998





Nov-1999





Nov-2000





Nov-2001





Nov-2002





Nov-2003





Nov-2004





Nov-2005





Nov-2006





Nov-2007





Nov-2008





Nov-2009





Nov-2010

May-1999





May-2000





May-2001





May-2002





May-2003





May-2004





May-2005





May-2006





May-2007





May-2008





May-2009





May-2010





May-2011

-30





-40



Source: Bloomberg Finance LP Source: Bloomberg Finance LP









Australian concrete volumes in decline

On a national basis annualised concrete production has declined -0.2% mom and -0.3% yoy

to $23.3m/cum to October 2011.



On a state basis, annualised concrete volumes declined in QLD, SA and WA by -3.8%, -1.1%

and -5.7% yoy respectively and increased by +2.4% and +2.7% yoy in NSW and VIC

respectively in October 2011.



Figure 6: Annualised pre-mixed concrete production Figure 7: Annualised pre-mixed concrete production by

state

30000 9000

8000

25000

Cubic M etres ('000s)









7000

000 Cubic M etres









6000

20000

5000

15000 4000

3000

10000 2000

1000

5000

0

Oct-86

Oct-87

Oct-88

Oct-89

Oct-90

Oct-91

Oct-92

Oct-93

Oct-94

Oct-95

Oct-96

Oct-97

Oct-98

Oct-99

Oct-00

Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11









0

Sep-78

Sep-79

Sep-80

Sep-81

Sep-82

Sep-83

Sep-84

Sep-85

Sep-86

Sep-87

Sep-88

Sep-89

Sep-90

Sep-91

Sep-92

Sep-93

Sep-94

Sep-95

Sep-96

Sep-97

Sep-98

Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11









NSW VIC QLD SA WA





Source: ABS Source: ABS









Deutsche Bank AG/Sydney Page 5

14 December 2011 Building Materials Boral





Boral Gypsum Asia update

Boral announced the acquisition of the remaining 50% of LBGA on 17 August 2011 and

completed the acquisition on 9 December 2011.



We note that the recent Thailand floods severely impacted Bangkok where BGA (previously

LBGA) has 81% of its total Thailand capacity (Saraburi) or 20% of its total Asian capacity.



Key Boral Gypsum in Asia forecasts are shown in Figure 9:



Figure 8: Revenue by geography Figure 9: BGA EBIT A$m (historical vs forecast)



Other 120

India 5%

6% Korea

Malaysia/Singapo 28% 100

re

6%

80



Indonesia 60

10%



40





20

China Thailand

21% 24%

0









FY12F





FY13F

CY01





CY02





CY03





CY04





CY05





CY06





CY07





CY08





CY09





CY10





CY11

Source: Boral Company data Source: Deutsche Bank, Boral Company data









Concrete and quarries price increases announced

Boral advised on 12 December 2011 it will increase concrete and quarries prices effective 1

April 2012 by 9% ($14.5/cum) and ~15% ($5/t) respectively.



The price increase announcement follows Holcim and Hanson price increases on 30

November and 5 December respectively.



We currently factor in a 7% aggregates price increase and a 4.5% concrete price increase in

FY13, implying cost recovery (~50% success).



Figure 10: Recent industry price increase announcements

Boral Hanson Holcim

Concrete (cum) $14.50 $14 $15

Aggregates (per tonne) $5 $5 $5

Roadbase (per tonne) $3 $3 $3.25

Sand (per tonne) $3 $3 $3

Announced to 12-Dec-11 05-Dec-11 28-Nov-11

customers

Source: Boral, Hanson and Holcim Company data









International Comps

Boral is trading at a 19% premium to Australasian peers on a FY12 PE basis.









Page 6 Deutsche Bank AG/Sydney

14 December 2011 Building Materials Boral





Figure 11: International Comps









Source: Deutsche Bank, Bloomberg Finance LP









Boral historical average PE

Boral is currently trading at a 5% premium to its historical average 12 month forward PE.



Figure 12: Boral 12 month forward PE vs average

30





25





20





15





10





5





0









Source: Deutsche Bank









Deutsche Bank AG/Sydney Page 7

14 December 2011 Building Materials Boral





Old vs New

Given the unfavorable weather conditions we have reduced our earnings forecasts for ACM,

Cement and Building Products. As a result of the changes our FY12 and FY13 NPAT forecasts

decline 11% and 5% to $150m and $206m respectively.



Figure 13: Old vs New forecasts

FY12 FY13

Old New % change Old New % change

Revenue

Total Reported 4,995 4,929 -1% 5,644 5,574 -1%

Revenue





EBIT

ACM 225 218 -3% 252 247 -2%

Cement 92 86 -6% 100 94 -6%

Building Products 58 53 -8% 66 65 -3%

USA -102 -102 0% -94 -94 0%

Construction Related 11 11 0% 12 12 0%

Businesses

Unallocated & -18 -18 0% -18 -18 0%

Significant

BGA (Asian 31 27 71 71

Plasterboard)

Reported EBIT 295 275 -7% 388 375 -3%





Interest Income -86 -88 3% -115 -118 3%

(Expense)

Net Profit Before Tax 538 515 -4% 273 257 -5%

Tax -42 -37 -11% -55 -51 -6%

Net Profit After Tax 168 150 -11% 219 206 -5%

Source: Deutsche Bank









Valuation and risks

Our 12-month share price target is based on fundamental DCF analysis: beta 1.2x, terminal

growth rate 2.0% (in line with CPI), WACC 10.81%, cost of equity 13.45%, cost of debt

7.6%. We prefer DCF since it evaluates the cash-generating features of building and

construction materials.



Key upside risks:



Faster turnaround in the Australian housing market (especially NSW)



Cost-cutting initiatives may yield better outcome than expected



Stronger pricing outcomes (we currently expect competition in WA bricks and QLD

concrete markets; however, there is an upside risk to earnings if domestic prices

increase more than expected).



Key downside risks:



Potential large acquisitions



Further decline in the Australian & US housing sectors



Increased import competition for cement







Page 8 Deutsche Bank AG/Sydney

14 December 2011 Building Materials Boral









Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

Boral BLD.AX 3.64 (AUD) 14 Dec 11 14

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.





Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See

“Important Disclosures Required by Non-US Regulators” and Explanatory Notes.

14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within

the past year.





For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=BLD.AX.





Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject

issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any

compensation for providing a specific recommendation or view in this report. Emily Behncke









Historical recommendations and target price: Boral (BLD.AX)

(as of 12/14/2011)

7.00 Previous Recommendations



Strong Buy

6.00 1 8 Buy

9 Market Perform

2 4 6 Underperform

7 1011

5.00 5 Not Rated

3

12 Suspended Rating

14

S ecurity Price









13 Current Recommendations

4.00

15

16 Buy

Hold

3.00 Sell

Not Rated

Suspended Rating

2.00

*New Recommendation Structure

as of September 9, 2002

1.00





0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Da te









Deutsche Bank AG/Sydney Page 9

14 December 2011 Building Materials Boral





1. 10/2/2010: Upgrade to Hold, Target Price Change AUD5.67 9. 11/4/2011: Sell, Target Price Change AUD4.84

2. 6/7/2010: Hold, Target Price Change AUD5.13 10. 18/5/2011: Upgrade to Hold, Target Price Change AUD4.90

3. 18/8/2010: Hold, Target Price Change AUD4.80 11. 2/6/2011: Hold, Target Price Change AUD4.82

4. 20/9/2010: Hold, Target Price Change AUD4.75 12. 19/7/2011: Hold, Target Price Change AUD4.85

5. 26/10/2010: Hold, Target Price Change AUD4.86 13. 10/8/2011: Hold, Target Price Change AUD4.40

6. 21/12/2010: Hold, Target Price Change AUD4.60 14. 17/8/2011: Hold, Target Price Change AUD3.70

7. 9/2/2011: Hold, Target Price Change AUD5.00 15. 23/9/2011: Hold, Target Price Change AUD3.40

8. 1/3/2011: Downgrade to Sell, AUD5.00 16. 27/9/2011: Hold, Target Price Change AUD3.38



Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price 120 50 %

48 %

from current price to projected target price plus pro-

100

jected dividend yield ) , we recommend that investors

buy the stock. 80

Sell: Based on a current 12-month view of total share- 60

holder return, we recommend that investors sell the 40 25 % 19 %

stock 20 3 % 17 %

Hold: We take a neutral view on the stock 12-months

0

out and, based on this time horizon, do not recommend

either a Buy or Sell. Buy Hold Sell

Notes:

1. Newly issued research recommendations and target Companies Covered Cos. w/ Banking Relationship

prices always supersede previously published research.

Australia Universe

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of

10% or more over a 12-month period

Hold: Expected total return (including dividends)

between -10% and 10% over a 12-month period

Sell: Expected total return (including dividends) of -

10% or worse over a 12-month period









Page 10 Deutsche Bank AG/Sydney

14 December 2011 Building Materials Boral





Regulatory Disclosures

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Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent

or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at

http://gm.db.com.









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the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

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affected by revenues deriving from the business and financial transactions of Deutsche Bank.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

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number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117.

Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan,

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specifically designated in the name of the entity.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any

appraisal or evaluation activity requiring a license in the Russian Federation.









Deutsche Bank AG/Sydney Page 11

Deutsche Bank AG/Sydney



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Australasia Australia

Company

Property



14 December 2011

Recommendation Change

Investa Office Fund

Reuters: IOF.AX Bloomberg: IOF AU Exchange: ASX Ticker: IOF Buy

Price at 14 Dec 2011 0.60



Assessing the drivers:

Global Markets Research









Price target - 12mth 0.67

52 week range (AUD) 0.66 - 0.54

ALL ORDINARIES 4,252





Upgrade from Hold to Buy Key changes

Rating

Price target

Hold to Buy

0.64 to 0.67 4.7%

Jason Weate Matthew Bertram

Net prop revenue (FYE) 158 to 158 0.1%

Research Associate Research Analyst

Net profit (FYE) 128.8 to 127.9 -0.7%

(+61) 2 8258-3099 (+61) 2 8258-2607

jason.weate@db.com matthew.bertram@db.com

Price/price relative



Superior growth potential with reduced execution risk. Upgrade to Buy. 0.68

IOF has significantly reduced execution risk re offshore asset sales & its share 0.64

0.6

buyback, yet it appears the market is unwilling to price MT growth prospects prior

0.56

to further guidance at 1H12 results. Our base case ests assume sale proceeds are

0.52

applied to debt reduction, reducing gearing to 11% (vs 25-35% target) yet still 0.48

generating ~3% FY13f EPU growth. This lifts by 7% should IOF deploy borrowing 0.44

headroom into Aus acquisitions ($380m), increasing gearing to 24%. IOF's FY13f 12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11

AFFO yield is 8.0% (or 8.5% releveraged) vs CPA & DXS at 6.8% & 7.0%. Buy. Investa Office Fund

ALL ORDINARIES (Rebased)

Market pricing does not appear to be factoring in upside potential just yet

Performance (%) 1m 3m 12m

Our base case estimates conservatively assume offshore divestments are applied Absolute -1.6 1.7 6.1

to debt repayment, decreasing gearing to 11% (vs 24.4% Oct-11). Consensus ALL ORDINARIES -2.5 2.2 -12.2

estimates (IBES) reflect ~2% premium to our base case MT forecasts, but also a

~4% discount to our upside estimates. Our upside estimates assume IOF deploys Stock data

pro forma facility headroom into acquisitions at a net yield on cost of 6.8% Market cap (AUDm) 1,541

(equivalent to 241 Exhibition St on our est), lifting gearing to 24%. Our PT of $0.67 Market cap (USDm) 1,554

Shares outstanding (m) 2,547.9

implies 11% share price upside, an FY13f A-FFO yield of 7.2% and P/BV of 0.92x Daily volume (USDm) 12.13

(vs 0.93x sector avg), which we believe is justified given IOF’s growth profile. Free float 100.00



Recent news flow provides us with increased comfort re execution risk Key indicators (FY1)

We have previously flagged (refer: FY13 could surprise to the upside, 29-Sep) that Net debt/assets (x) 0.07

an IOF market re-rating would in our view require: 1) further clarity re offshore NTA/share (Ac) 73.3

asset sale timing; 2) further buyback execution, & 3) continued leasing progress at Price/NTA (x) 0.8

10-20 Bond St. IOF has since announced the sale of 2 US assets & guided to Net interest cover (x) 7.8

MER (%) 0.0

remaining offshore asset sale timing over CY12, progressed the lease up of 10-20

Bond (90% committed vs 80% at Aug-11), and completed 96% of its share

buyback. We believe IOF possesses greater MT growth prospects than its peers,

and should increasingly be priced on its growth potential given materially reduced

execution risk in our view.

PT $0.67 (prev $0.64), ~2% disc. to SOTP $0.68ps (prev $0.67), val + risks pg 8

Our SOTP has lifted by 2% to $0.68ps following the sale of Homer Building at an

11.7% prem to BV. Further, we lift our PT by 5% to account for significantly

reduced risk associated with offshore divestment execution. Offshore asset sale

proceeds account for $0.11ps on our est. We apply 7.9% cap rate to FY12f Aus

NPI, 5.8% to DOF A-FFO, and apply a 10x multiple to RE fee leakage. Risks

primarily revolve around offshore divestment execution, domestic leasing, DOF

sale prospect over MT & the potential for an attempted premature equity raising.



Forecasts and ratios

Year End Jun 30 2011A 2012E 2013E 2014E 2015E

EPU (AUD) 0.05 0.05 0.05 0.05 0.06

EPU Growth (%) -11.1 1.0 3.2 4.2 3.2

DPU (net) (AUD) 0.04 0.04 0.04 0.04 0.04

Yield (net) (%) 6.5 6.4 6.7 7.0 7.2

Source: Deutsche Bank estimates, company data

1

Pre-exceptionals/extraordinaries

2

Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the

year end close





Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

MICA(P) 146/04/2011.

14 December 2011 Property Investa Office Fund





M odel updated: 14 December 2011 Y / E 3 0 J une 07/ 08 08/ 09 0 9 / 10 10 / 11 11/ 12 E 12 / 13 E 13 / 14 E 14 / 15 E 15 / 16 E

Equity Research S UM M A R Y

Year end unit s (m) 1263 1806 2729 2729 2456 2456 2456 2456 2456

Asia Pacific EFPOWA (m) 1247 1535 2704 2729 2548 2456 2456 2456 2456

DPU ($) 0.108 0.097 0.039 0.039 0.039 0.040 0.042 0.043 0.045

Australia DPU growth (% ) -6.9 -10.2 -59.3 0.0 -0.8 3.6 4.2 3.2 3.6

Property Trusts EPU ($) 0.109 0.096 0.056 0.050 0.050 0.052 0.054 0.056 0.058

EPU growt h (% ) 1.0 -12.0 -41.6 -11.1 1.0 3.2 4.2 3.2 3.6

PER (x) 14.0 8.8 10.3 12.2 12.0 11.6 11.1 10.8 10.4

Investa Office Fund NTA/share ($) 1.81 0.99 0.74 0.73 0.73 0.73 0.76 0.80 0.84

Price/ NTA (x) 0.84 0.85 0.78 0.83 0.82 0.82 0.79 0.75 0.71

Reut ers: IOF.AX Bloomberg: IOF AU

Dividend yield (% ) 7.1 11.5 6.8 6.5 6.5 6.7 7.0 7.2 7.5

Buy Yield rel Propet y t rust s (x) 1.80 0.64 0.53 0.62 0.93 0.91 0.90 0.88 na

Yield rel All Ind (x) 1.65 1.86 1.32 1.16 1.12 1.07 1.05 0.97 na

P rice as at 14-Dec A$0.60 Average M arket Cap (A$m) 1,888 1,180 1,561 1,653 1,594 1,594 1,594 1,594 1,594

Target price A$0.67 P R O F IT & LO S S ( A $ m )

Net invest ment income 185 211 180 164 158 147 154 158 163

Co mpany website

Int erest income 4 2 6 1 1 1 1 1 1

http://www.ingrealestate.co m.au Corporation income 0 0 0 0 0 0 0 0 0

Net associat es 0 0 0 0 0 0 0 0 0

C o mp any d escr i p t i o n Ot her income 8 -1 3 5 3 1 0 0 0

ING Of f ice Fund is involved in propert y invest ment, Total t rust income 198 211 188 170 162 149 155 159 164

leasing and development in Aust ralia. The Group's Int erest accrued 47 48 22 17 20 10 9 9 9

portf olio includes commercial propert ies and of f ice M anagers fee 10 11 8 9 9 9 9 9 9

Ot her expenses 3 3 4 8 3 3 3 3 3

buildings in Sydney and Brisbane.

Total t rust expenses 59 61 34 33 32 21 21 21 22

Net operat ing income 138 150 155 137 130 128 133 137 142

Adjust ments -3 -3 -4 -2 -2 -1 -1 -1 -1

Income ret ained 1 7 44 28 32 28 29 30 31

Dist ribut able income 135 140 107 107 96 99 103 107 111



C A SH F LOW ( A $m)

Operat ing prof it /loss 136 147 151 136 128 127 133 137 142

Ot her -4 -71 -49 34 0 0 0 0 0

Net cash f rom operating act ivit ies 132 76 102 170 128 127 133 137 142



Total propert y investment -84 -52 181 -59 53 -27 -23 -24 -25



R esear ch T eam Proceeds f rom borrowings 20 -308 -550 -7 100 -31 -1 1 1

Proceeds f rom equit y 77 401 402 0 -166 0 0 0 0

J a s o n We a t e Dist ribut ion paid -133 -129 -119 -107 -96 -99 -103 -107 -111

+61 2 8258 3099 jason.weat e@db.com Cash f rom f inancing act ivities -36 -36 -268 -114 -163 -130 -104 -106 -110



Ia n R a nda ll Net inc/ (dec) in cash 13 -13 15 -3 18 -29 5 7 7

+61 2 8258 2608 ian.randall@db.com

B A LA N C E SHEET ( A $m)

M a t t he w B e rt ra m Cash 31 19 29 23 41 11 16 24 31

+61 2 8258 2608 matt hew.bert ram@db.com Debt ors 18 9 7 5 5 5 5 5 5

Trust propert ies 2,482 2,196 1,924 2,021 1,712 1,802 1,861 1,923 1,986

Int angibles 0 0 0 0 0 0 0 0 0

Ot her 1,015 745 594 456 325 240 252 276 305

Total asset s 3,545 2,969 2,553 2,505 2,083 2,058 2,135 2,227 2,327



Credit ors & accruals 20 23 30 30 30 30 30 30 30

Dist ribut ion payable 0 0 0 0 0 0 0 0 0

Financial debt 0 1,003 403 365 136 137 136 134 133

Ot her 1,211 133 74 93 93 93 93 93 93

Total liabilit ies 1,231 1,159 507 488 259 260 259 257 255



Equit y at issue price 1,494 1,907 2,098 2,098 1,931 1,931 1,931 1,931 1,931

Absolute Price Return (%)

-4% -2% 0% 2% 4% 6% Reserves 526 -396 -440 -529 -620 -678 -659 -624 -586

Retained income 267.3 280.5 368.3 424.9 489.0 545.0 603.4 663.6 725.9

1m -2.4% Ot her 27 19 20 24 24 0 0 0 0

3m Total t rust equit y 2,315 1,810 2,046 2,017 1,824 1,798 1,876 1,970 2,071

1.7%

12m 4.3%





52-week High/ Low: A$0.67 - 0.55

M arket Cap (m) A$ 1,594

US$ 1,607









Asset Type (%) Geographic spread (%) 3500

Gearing 40





3000 35



30

NSW 27% 2500



25

2000

VIC 9%

20

1500

QLD 14% 15



1000

Other 10



Office 46%

500 5

#REF!

ACT 2%

WA 2% 0 Total as s ets (A$m) (LHS) 0

Debt/as sets (RHS)

09 10 11 12E 13E 14E 15E 16E









Page 2 Deutsche Bank AG/Sydney

14 December 2011 Property Investa Office Fund





IOF looking increasingly attractive relative to peers

In our last published note (refer: FY13 could surprise to the upside, 29-Sep), we had flagged

that for IOF to achieve a market re-rating, it would require further clarity re asset sale timing,

continued lease up success at 10-20 bond St, and progress re upcoming domestic leasing

challenges (such as 628 Bourke & 383 La Trobe). Last week’s unitholder meeting provided

the clarity we were seeking re asset sale timing (in addition to bullish commentary re pricing),

as well as incremental positive leasing at 10-20 Bond (90% committed vs 80% at Aug-11).

We now have increased comfort viewing IOF on its FY13 EPU growth merits relative to

peers, given a material decrease in execution risk in our view.



On our revised base case estimates, IOF trades at an FY13f A-FFO yield of 8.0% vs sector

peers CPA & DXS trading at 6.8% & 7.0% respectively. Our base case forecasts assume IOF

completes its share buyback program by end-CY11 and executes on offshore divestment by

end-CY12 (ex DOF), applying net proceeds to debt reduction which would see gearing reduce

to ~11%. Were we to allow for full utilization of IOF’s debt capacity (est ~$380m) for

reinvestment into domestic assets at a yield on cost of 6.8% (net basis), it would see IOF’s

FY13 A-FFO yield lift to 8.5% on our estimates (or +7.0% EPU accretion).



Our revised PT of $0.67ps (prev $0.64) reflects 11% upside to current pricing and would see

IOF trading at an A-FFO yield of 7.2%. It would also result in IOF trading at an implied Price /

Book of 0.92x (currently 0.83x), which in our view is justified given IOF’s earnings growth

potential (see below). We upgrade the stock from Hold to Buy.



Unitholder meeting update and key takeaways

IOF’s unitholder meeting last week provided an operational and strategic update including: 1)

plans to initiate a share consolidation; 2) progress re documenting an option to purchase 50%

of Investa Property Group’s office management company, which would likely lead to

internalization of IOF once critical mass has been achieved ($3.5B Australian assets vs

current level of $1.7b). IOF reaffirmed that a platform acquisition would require unitholder

ratification, an Independent Expert report, and was “unlikely to occur in the short-term”; and

3) While an option to acquire 50% of 242 Exhibition St expired on 30-Sep, IOF indicated that

the eventual redeployment of offshore asset sale proceeds would include revisiting the

potential to acquire 242 Exhibition St (50% share).



IOF also highlighted execution success re its share buyback program, where 80% of its

target level (10% of stock on issue) had been achieved over a 3 month period vs an initial

expectation of 12 months. As at the time of writing, IOF has since increased this level to

96% (9.6% of stock on issue). IOF’s average price paid per share stands at $0.61ps, which

compares to an assumption of $0.65ps factored into FY12 EPU guidance of 5.0cpu (“broadly

in-line with FY11”).



Increased clarity provided re asset sale timing expectations

FY11 result commentary indicated that IOF would look to execute on the sale of all remaining

US assets during FY12, the sale of NVH Building (France) during FY12, while Bastion Tower

(Belgium) required increased lease-up before the asset was taken to market. Last week’s

unitholder meeting provided further clarity re timing of asset sales as per figure 1 below.









Deutsche Bank AG/Sydney Page 3

14 December 2011 Property Investa Office Fund





Figure 1: Offshore asset sale progress

US Location Comments Expected sale

timing

Homer Building Washington DC Contracts exchanged for US$252m (80% share), reflecting 11.7% prem to Jun-11 BV Jan-12

Computer Associates Plano Contracts exchanged for US$36.8m, or 1.1% discount to BV Jan-12

900 Third Avenue New York JV partner right of first refusal expires next month. Will be Jun-12

put to market if unable to agree terms. Expect prem to book nonetheless.

Europe

Neuilly Victor Hugo Paris Negotiating terms with buyer, IOF expect to transact at a Prem to Jun-11 BV. Jan-12

Bastion Towers Brussels Plan to increase occupancy prior to marketing 2nd half CY12

DOF Netherlands Demand remains weak, will likely hold ST-MT. Beyond FY12

Source: IOF







Capital allocations assumed in our FY12f; we do not allow for incremental acquisitions

We have revised our base case earnings estimates to reflect recent US asset sales (contracts

exchanged), in addition to bringing forward our timing expectation re IOF’s buyback program

to end-CY11 (previously end-1Q CY12). We had previously assumed an average buyback

price point of $0.65ps, which we have now reduced to $0.61ps.



Figure 2 below shows our capital allocation estimates over FY12. Over 1H FY12, we estimate

IOF’s share buyback (est cost $166m) is entirely funded by corporate facility debt and

Waltham Woods sale proceeds (A$38m, settled in Aug-11). Over 2H FY12, we assume net

proceeds from the sale of Homer Building, Computer associates, Neuilly Victor Hugo (France)

and 900 Third Avenue are applied to debt reduction. As part of the Homer Building sale, all

fund level US$ interest rate hedges will be closed out at a cost of ~US$16m.









Figure 2: DB base-case capital allocation assumptions over FY12

Capital allocation over 1H12 Capital allocation over 2H12

Sources A$m Application A$m Sources A$m Application A$m

Increase in Corporate 164 Buy-back 166 Homer Building net 82 50% of 10-20 Bond 11

facility debt proceeds (Jan-11) spend remaining

Waltham Woods sale 38 50% of 10-20 Bond 11 Computer Associates 35 Maintenance capex 0

spend remaining proceeds (Jan-11)

Maintenance capex 10 900 Third Ave (Jun-11), at 6 Debt repayment 194

Jun-11 BV

US interest swap close out 16 Neuilly-Victor Hugo 81

Total 203 Total 203 Total 205 Total 205

Source: Deutsche Bank Estimates







The net effect of these assumptions results in an FY12 EPU estimate of 5.02cpu (prev 4.97c).

The increase of 1.0% largely reflects the timing effect of bringing forward the accretive buyback

(+0.6%), whilst the part year cost savings associated with the buyback contributes +0.3% on

our estimates. EPU increments of ~1% in FY13 onwards primarily reflect the full year impact of

reduced costs associated with IOF’s buyback ($166m vs previous estimate of $177m).









Page 4 Deutsche Bank AG/Sydney

14 December 2011 Property Investa Office Fund





Figure 3: Minimal changes to base case forecasts

Changes to forecasts FY11a FY12f FY13f FY14f FY15f FY16f

EPU - New 4.97 5.02 5.18 5.40 5.57 5.77

EPU - Old 4.97 4.97 5.13 5.35 5.52 5.68

Change (%) 0.0% 1.0% 1.0% 0.9% 1.0% 1.6%

Growth (%) -11.1% 1.0% 3.2% 4.2% 3.2% 3.6%

Consensus (IBES) 5.10 5.30 5.50 6.00 6.30

Prem / (disc) to DB base case 1.6% 2.3% 1.9% 7.7% 9.2%

Source: Deutsche Bank Estimates / IBES







Base case estimates reflect underleveraged capital position . . .

IOF’s gearing as at 31-Oct was 24.4%, and we estimate ~ 5.6% of IOF’s buyback had been

funded at this time. Allowing for remaining buyback funding requirements (initially debt

funded), capex assumptions and subsequent debt repayment via offshore asset sale

proceeds, would see gearing reduce to ~11% on our estimates.



Whilst IOF has indicated that it expects to acquire domestic assets as certainty emerges re

receipt of offshore asset sale proceeds, our base case estimates do not allow for

redeployment of capital into domestic asset acquisitions.



Figure 4 below shows our pro forma gearing estimates implied in our base case earnings

forecasts.



Figure 4: DB balance sheet forecast (base-case & debt facility utilization)

BS Residual Homer Homer Computer US Int. 300 Third Eur asset Eur sale 10-20 Est FY12

estimate buyback sale net Assoc. rate swap Ave sale sales net Bond + gearing

at Oct-11 funding proceeds sale close proceed main.

requireme after fees Capex

nt + DTL

Total Property assets 2,550 -247 -36 -156 -173 31 1,969

Other assets 131 131

Total assets (LT) 2,682 2,100





Drawn Borrowings 594 74 -130 -82 -35 16 -130 -57 -114 31 168

Implied DOF debt 60 60

Look-through borrowings 655 228

Gearing 24.4% 10.9%

Source: Deutsche Bank Estimates







. . . allowing for material acquisition funding capacity on existing sources of liquidity

On our estimates in figure 5 below, IOF would possess ~A$380m of acquisition capacity

from existing lines of credit (core facility syndicate debt) post ST capex requirements and

divestment of offshore assets. Including proceeds already received from the sale of Waltham

Woods ($38.4m, settled 9-Aug), our estimates show total $A net offshore asset sale

proceeds of $264.8m vs IOF’s estimate of $245.1m provided at FY11 results. Changes in $A

FX rates vs the $USD & $EUR since Jun-11 have largely offset each other, leaving the sale of

Homer Building at a premium to BV (+11.2%) as the primary driver of our contrasting net

proceeds estimate (relative to IOF).









Deutsche Bank AG/Sydney Page 5

14 December 2011 Property Investa Office Fund





Figure 5: Pro forma facility capacity $A(m)

Syndicate facility capacity $552.0

Drawn at Oct-11 293.0

Remaining buyback spend 74.5

US sale proceeds (ex Waltham Woods) -113.1

European asset sale proceeds (includes Bastion Tower sale, est 2H CY12) -113.2

Capex (10-20 Bond spend + maintenance capex & TI’s) 31.0

Pro forma drawn balance estimate 172.1



Acquisition capacity $379.9

Source: Deutsche Bank estimates







Incremental cost of debt funding should see material EPU accretion off our base-case

At FY11 results, IOF indicated a desire to increase $EUR denominated borrowings to a

gearing level of ~75% relative to DOF net assets (vs ~58% at Jun-11). Post divestment of

offshore assets, we assume that IOF’s estimated debt balance of ~A$172m (figure 5 above)

is almost entirely denominated in $EUR and reflects DOF leverage of ~58% on our

estimates.



In figure 6 below we estimate a blended incremental debt funding cost of 4.41%, assuming

DOF is re-leveraged to 75% and remaining facility capacity is sourced in $A denominated

borrowings. We would highlight that as at Jun-11, IOF did not possess any $A interest rate

swaps, thus we assume $A denominated borrowings would be accessed at prevailing

market rates (~3.9%). Further, we estimate IOF’s syndicate facility carries an incremental

usage fee of 0.85%.



Figure 6: Estimated accretion resulting from utilization of facility capacity

Source of funds Increase in Estimated Estimated All-in cost

borrowings incremental incremental

A$(m) margin cost base rate

Incremental $Eur debt (DOF releverage) 62.9 0.85% 1.50% 2.35%

Incremental $A debt 317.0 0.85% 3.90% 4.75%

Incremental facility capacity 379.9 4.35%

Application of funds Est Return

Incremental acquisitions 379.9 6.80%

Est incremental FY13 EPU accretion 7.0%

Source: Deutsche Bank Estimates







IOF intends on reviewing acquisition opportunities upon receipt of offshore asset sales,

including Investa Property Group’s 242 Exhibition St. As an example, 242 Exhibition St (as at

Mar-11) generated a passing yield of 7.15%, and held a valuation of $212.5m (50% share).

Assuming stamp duty leakage and other associated transaction fees, we estimate a passing

yield on cost of 6.8% could be generated. Relative to IOF’s incremental cost of borrowings,

full utilization of IOF’s borrowings capacity into an investment yielding the equivalent of 242

Exhibition St would see our FY13 EPU increase by 7.0%, increase look-through gearing to

24.4% (vs IOF’s target range of 25-35%), and see total Australian assets increase to just over

$2b ($1.66b Jun-11) on our estimates.



Figure 7 below depicts IOF’s potential EPU profile following full utilization of its existing

facility capacity vs our existing base case and consensus estimates. Relative to consensus

estimates, our base case profile is conservatively pitched, however, we believe the full extent

of IOF’s growth potential is not being captured in current pricing.









Page 6 Deutsche Bank AG/Sydney

14 December 2011 Property Investa Office Fund









Figure 7: DBf EPU yield profiles vs consensus (IBES)



Base-Case EPU yield Bull-Case EPU yield IBES consensus yield



10.5%







10.0% 9.9%

9.9%

9.5%

9.5%

9.2%

9.2%

9.0% 9.1%



8.9%

8.8%

8.5% 8.4% 8.6%

8.3%

8.3%

8.0%

FY12f FY13f FY14f FY15f



Source: Deutsche Bank estimates / IBES









Figure 8 below depicts IOF’s A-FFO profiles for both our base case and releveraged scenario.

Further, we compare these to our existing CPA and DXS profiles.



Figure 8: A-FFO yield relativities



IOF Base-case IOF Bull-case DXS CPA



9.4%

9.3% 9.1%





8.8% 8.8%

8.5%

8.6%

8.3%



8.0%

7.8% 7.6%

7.4%

7.3% 7.6%

7.3% 7.1%

6.9%

7.1%

6.8%

6.8%



6.4%

6.3%



5.9%

5.8%

FY12 FY13 FY14 FY15



Source: Deutsche Bank estimates









Deutsche Bank AG/Sydney Page 7

14 December 2011 Property Investa Office Fund





Valuation & Risks

Our SOTP valuation applies a cap rate (Jun-11 actual) to Australian & DOF income streams

only, given our FY12 net debt estimate captures offshore divestment assumptions (and is

adjusted for Bastion Tower sale expected in 2H CY12). We illustrate net offshore sale value

estimates implicit within out SOTP valuation at the bottom of figure 9 below.



We have increased our SOTP valuation by 2% to $0.68ps (prev $0.67), reflecting the effect

of: 1) the premium achieved for the sale of Homer Building; 2) partially offset by payments for

the closure of US interest rate swaps (US$16m); and 3) the net effect of the AUD weakening

against the US, but gaining against the Euro since Sep-11 (our last published valuation).



We increase our price target by ~5% to $0.67ps (prev $0.64), reflecting 11% upside to IOF’s last

close of trade. Our revised PT also reflects a reduced discount of ~2% to our SOTP valuation

(prev 4.5%) to incorporate contraction of risks associated with offshore asset sale execution.

Excluding DOF, three assets sales remain, with 900 Third Avenue (US) & NVH (France) expected

to transact in Jan-12, whilst Bastion Tower is expected to transact in 2H CY12.



Figure 9: SOTP valuation summary

Investment Assets NPI local Spot FX Cap rate/multiple Gross Value $A

Australian NPI (ex 10-20 Bond) 119.7 7.9% 1,514.8

10-20 Bond (WIP), 50% share 176.8

DOF 12.8 0.76 5.8% 289.7

Gross Portfolio Value 1,981.3

Australian net other assets/(liabilities) -39.4

Net debt -150.7

Corporate Costs (RE fees + other expenses) -11.6 10x -116.3

Value to Equity 1,674.9

Shares (post buyback) 2,456.2

Value per IOF share $0.68



Implict offshore divestment net value

US assets 152.5 1.01 151.5 $0.06

Europe assets 86.3 0.76 113.2 $0.05

Total implicit offshore value $A 264.8 $0.11

Source: Deutsche Bank estimates







Downside risks include:



Execution risk associated with offshore divestments remaining;



Upcoming domestic leasing challenges at 628 Bourke and 383 La Trobe St;



Prospects of releasing capital tied up in DOF holdings (~15% net assets) over the ST –

MT remain uncertain, which is a drag on earnings currently generating a cash yield of

~5.8%;



The potential for management to attempt a premature equity raising in order to reach a

Australian assets target of $3.5b, which would likely trigger an option for IOF to purchase

50% of Investa Property Group’s management business. However, unitholder ratification

would be required to approve such a proposal.









Page 8 Deutsche Bank AG/Sydney

14 December 2011 Property Investa Office Fund









Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

Investa Office Fund IOF.AX 0.60 (AUD) 13 Dec 11 6

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.





Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See

“Important Disclosures Required by Non-US Regulators” and Explanatory Notes.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company

calculated under computational methods required by US law.





Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the “Important Disclosures Required by US Regulators” and the Explanatory Notes.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company

calculated under computational methods required by US law.





For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=IOF.AX.





Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject

issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any

compensation for providing a specific recommendation or view in this report. Jason Weate









Deutsche Bank AG/Sydney Page 9

14 December 2011 Property Investa Office Fund





Historical recommendations and target price: Investa Office Fund (IOF.AX)

(as of 12/13/2011)

0.80 Previous Recommendations



Strong Buy

0.70

4 Buy

3 Market Perform

1 2 Underperform

0.60

Not Rated

Suspended Rating

0.50

S ecurity Price









Current Recommendations



0.40 Buy

Hold

Sell

0.30 Not Rated

Suspended Rating

0.20 *New Recommendation Structure

as of September 9, 2002

0.10





0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Da te

1. 22/2/2010: Sell, Target Price Change AUD0.54 3. 18/8/2010: Hold, Target Price Change AUD0.63

2. 5/7/2010: Upgrade to Hold, Target Price Change AUD0.60 4. 5/4/2011: Hold, Target Price Change AUD0.64



Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price 140

from current price to projected target price plus pro- 120 50 %

47 %

jected dividend yield ) , we recommend that investors 100

buy the stock. 80

Sell: Based on a current 12-month view of total share- 60

holder return, we recommend that investors sell the

40 25 % 19 %

stock 3 % 17 %

20

Hold: We take a neutral view on the stock 12-months

0

out and, based on this time horizon, do not recommend

either a Buy or Sell. Buy Hold Sell

Notes:

1. Newly issued research recommendations and target Companies Covered Cos. w/ Banking Relationship

prices always supersede previously published research.

Australia Universe

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of

10% or more over a 12-month period

Hold: Expected total return (including dividends)

between -10% and 10% over a 12-month period

Sell: Expected total return (including dividends) of -

10% or worse over a 12-month period









Page 10 Deutsche Bank AG/Sydney

14 December 2011 Property Investa Office Fund





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Australasia Australia

Company



Developers & Contractors







14 Dec 2011 - 01:24:16 PM EST

Global Markets Research









COMPANY ALERT Breaking News

Downer EDI Hold

Announced sale of CPG Asia Reuters:DOW.AX Exchange:ASX Ticker:DOW







Price (AUD) 3.26 Downer have announced the sale of its CPG Asia Business for A$147m,

subject to customary conditions precedent (regulatory approvals and no

Price target (AUD) 4.43

material adverse changes to the business prior to completion). This follows

52-week range (AUD) 4.75 - 2.75 the company's announcement on the 3 Aug 2011 that it was conducting a

Market cap (USDm) 1,411 review of its consultancy practices. We believe Downer received a fair value

Shares outstanding (m) 429.1

for the business (broadly in line with book value).

Key points from the transaction:

Daily volume (USDm) 3.42

1. The transaction is expected to be completed around the end of Q1 CY12.

Net debt/equity (%) 24.8

Downer will retain the CPG Australia and CPG New Zealand businesses.

Book value/share (AUD) 3.79

2. Based on an assumed EBIT margin of 7.8%, we calculate the transaction

Price/book (x) 0.9 implies an EV/EBIT multiple of 7.4x. This is at the high end of management

expectations of a 6x-7x EV/EBIT multiple.

FYE 6/30 2011A 2012E 2013E

3. The transaction will have a neutral impact on Downer's guidance for 2012.

We understand this is because the profit on sale of CPG Asia will offset the

Sales (AU- 6,933 7,131 7,194 earnings forgone in FY12. Therefore based on assumed interest savings of

Dm)

$3.7m and $5m of CPG Asia earnings forgone, we calculate the profit on

Net profit 156.0 179.5 200.0 sale was only $1.3m. This suggests the CPG Asia business was sold at close

(AUDm)

to its book value.

EPS (AUD) 0.41 0.42 0.47

4. While the transaction will have a neutral impact on Downer's 2012 guid-

PER (x) 10.4 7.8 7.0 ance, we estimate it will reduce EBIT by -$5.3m and NPAT by -$6.3m in

Yield (net) 0.0 0.0 7.1 FY13 (-3% change). The greater impact to NPAT than EBIT is due to the

(%) lower tax rates paid in Asia.

5. We estimate the CPG Asia business has a RoFE of 14%, which compares

to the Engineering division's ROFE of 18% reported at FY11. As the CPG

Asia business is included within the Engineering division's results, the En-

gineering division's RoFE should improve as a result of divesting the lower

RoFE CPG Asia business.

6. We understand that most of the proceeds will be used to reduce debt

levels. We estimate the company's FY12 gearing on a ND/ND+E basis will

reduce from 26% to 20%. Given the company does not have excessive

gearing levels, this could suggest market conditions have remained weak

as there are not many growth opportunities to invest in.

We have revised our forecasts for the sale of CPG Asia business. This has

resulted in the following EPS changes: FY12 0%, FY13 -3%, FY14 -3%. De-

spite the upside implied by our TP, we maintain a Hold recommendation

given the subdued outlook, risk to earnings and risks related to funding the

Waratah contract.

Craig WongPan Cameron McDonald

Research Analyst Research Analyst

(+612) 8258 2848 (+61) 3 9270-4235

craig.wongpan@db.com cameron.mcdonald@db.com

Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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.

THE VIEWS EXPRESSED ABOVE ACCURATELY REFLECT PERSONAL VIEWS OF THE AUTHORS ABOUT THE SUBJECT

COMPANY(IES) AND ITS(THEIR) SECURITIES. THEY HAVE NOT AND WILL NOT RECEIVE ANY COMPENSATION FOR PRO-

VIDING A SPECIFIC RECOMMENDATION OR VIEW IN THIS REPORT. FOR OTHER DISCLOSURES PLEASE VISIT HTTP://

GM.DB.COM MICA(P) 146/04/2011.

Deutsche Bank

Markets Research

Australasia Industry Date

Australia 14 December 2011

Australian Banking

Banking & Finance Industry Update

Sector

James Freeman, ACA James Wang

Research Analyst Research Analyst

Putting higher wholesale funding (+61) 2 8258-2492 (+61) 2 8258-2054

james.freeman@db.com james-z.wang@db.com

costs in perspective

Andrew Triggs

Impact from rising wholesale funding costs has been overstated

Research Analyst

While offshore wholesale funding costs have risen materially over recent (+61) 2 8258-2378

months, the impact on banks margins and hence P&L will be contained with andrew.triggs@db.com

other cheaper sources of funding available to banks. Our analysis suggests

that the majors have capacity to issue domestic debt, short term debt and raise

excess deposits all of which remain cheaper than L/T overseas funding and Top Picks

remain similarly priced to 6mth ago. As such we do not see material downside ANZ (ANZ.AX),AUD20.97 Buy

risk to our margin assumption. We believe that from a funding perspective National Australia Bank Ltd (NAB.AX),AUD23.86 Buy

ANZ is the best positioned given the benefit from Asian deposits. Companies Featured

Overseas requirement of FY12 funding task small ANZ (ANZ.AX),AUD20.97 Buy

We believe that the $17bn-$27bn task per bank will be comfortably achieved 2011A 2012E 2013E

even if overseas markets remain challenging with: i) domestic term debt P/E (x) 10.7 9.1 8.4

issuances; ii) excess deposit generation; and iii) short term deposits and Div yield (%) 6.2 7.3 7.8

covered bonds/RMBS well positioned to cover the gap. Our analysis suggests Price/book (x) 1.4 1.4 1.3

that in total Aus banks will only need $12bn (max) from overseas markets Commonwealth Bank (CBA.AX),AUD49.38 Hold

which appears manageable given Aus banks strong relative credit rating. 2011A 2012E 2013E

Offshore term funding costs have risen but the impact is not significant P/E (x) 11.8 10.7 10.1

Whilst spreads on offshore term debt have risen significantly in recent months Div yield (%) 6.3 7.1 7.4

(we estimate a 100bps increase over the last 6 months), we expect the impact Price/book (x) 2.2 1.9 1.8

on major banks will be small given the tiny proportion of funding to be raised in National Australia Bank Ltd (NAB.AX),AUD23.86 Buy

these markets. We believe that banks will be more leveraged to domestic term 2011A 2012E 2013E

funding spreads (which are up only 30bps) and short term funding spreads P/E (x) 10.0 8.6 8.0

which have reduced over the recent periods. Div yield (%) 7.0 7.9 8.5

Cumulative impact of rising funding costs small Price/book (x) 1.2 1.2 1.1

Our analysis suggests that at current funding spreads the banks margins would Westpac (WBC.AX),AUD20.80 Hold

only fall by 3-4bps before any offset from asset repricing and benefit from 2011A 2012E 2013E

excess deposit generation. This could be more than offset by a ~6bp increase P/E (x) 11.0 9.6 8.9

in housing rates or an ~8-10bps increase in business rates. Div yield (%) 7.0 7.8 8.4

Price/book (x) 1.5 1.4 1.3

Comfortable with our margin forecasts

Given the above sensitivity we believe that our 2-6bps margin decline in FY12

for the majors is appropriate and covers current market conditions. Clearly

deposit competition is key here and at present we have not seen aggressive

pricing which would suggest margin pressure from this line item.

ANZ best positioned, while NAB has the biggest pressures

We believe ANZ is best positioned to withstand margin pressure from rising

wholesale funding costs, thanks to strong domestic deposit growth and access

to large pools of Asian deposits. Meanwhile, NAB appears most at risk, given:

i) large FY12 wholesale funding task due to strong asset growth which is likely

to outstrip deposit growth; and ii) Greatest exposure to UK/European debt

markets and S&P downgrade of Clydesdale Bank. However this is unlikely to

impact NAB until 2H12.

Valuation and risks

We value our banking stocks using a combination of sum of the parts, DCF and

PE based methodologies. Key downside risks include slow loan growth and

increases in funding costs. Upside risks include improvement in wholesale

funding markets and a rebound in business lending. (See page 25 for details.)

________________________________________________________________________________________________________________

Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced

from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject

companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus,

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. DISCLOSURES AND

ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011.

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research







Funding market concerns look

overplayed

Given recent volatility in European funding markets, there has been a great deal of focus

on the issue of wholesale funding for the major Australian banks, both in terms of

access to funding and cost of funds.



Whilst we accept that the risk to earnings from funding costs has increased, we still

believe the impact will not be significant enough to materially impede banks

profitability, for the following reasons:



1. Access to funding unlikely to be a constraint: Our analysis suggests that there

are many sources of funding available to Australian Banks leaving the overseas

senior unsecured term markets requirement to be relatively small. These other

funding sources include: i) above system deposit growth, ii) access to term

funding in the domestic markets and iii) reverse inquiries.



2. Increasing cost of funds unlikely to materially impact earnings: with the

overseas term funding requirement small and deposit competition reasonable

at this point the impact on funding costs is immaterial. The bill / OIS spread is

the main source of pressure and we view this as a temporary issue.



Whilst deposit growth will help reduce this requirement even further, of what is left to

be raised in term markets, we estimate that Australian banks should be able to achieve

~50% of their funding task from domestic issues, 25% from reverse inquires, a small

proportion from covered bonds, leaving only a small senior unsecured overseas term

debt requirement.



Furthermore major banks still have very good access to short dated money such as US

CP or 90 day- 180 paper which is substantially cheaper than the term funding market.

In fact banks are able to issue short dated bills at 20-30bps below $US LIBOR.



With overseas term wholesale likely to be a very small proportion of the total funding

requirement, deposit spreads remaining reasonable, domestic term issuance

substantially cheaper than international issues, short term wholesale funding still

relatively cheap and banks having flexibility on assets (particularly business loans) to

reprice, we do not see the issues around wholesale funding as a major drag on

earnings.



The biggest drag current is coming from the bills / OIS spread which has increased from

~20bps to ~45bps. Whilst this will have very short term drag on margins, we do

believe that this is temporary in nature and given the short duration can swing back

quickly.



The key risk to this view remains deposit competition. Should we see a big increase as

a result of the dislocation in credit markets then this could cause further risk to margins.

At present we are not seeing a deterioration in spreads and the access to short term

funding helps ensure that deposit spreads do not go out of control. We will watch this

area over the coming months.



We will discuss these issues in more detail below.





Page 2 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research









Actual wholesale funding

tasks are small

While clearly the volatility in offshore wholesale funding markets is concerning, the

major banks’ wholesale funding tasks are relatively small due to:



Benign asset growth;



Upcoming refinancing requirements that are not particularly onerous; and



Deposit growth has been very strong of late, with all banks (except NAB)

generating substantial excess deposits over the last few months.



As shown below, we estimate the FY12 wholesale funding tasks for the major banks to

be $17bn - $27bn ($88bn in aggregate), as shown below.



Estimated FY12 wholesale funding tasks

$m ANZ CBA NAB WBC

FY12 refinancing task 23,000 29,000 23,000 27,000

AIEA (FY11) 467,422 576,391 580,601 548,202

Growth in AIEA (%) 7.0% 5.0% 6.0% 5.0%

Deposits 296,800 350,903 311,689 331,500

Growth in deposits (%) 13% 10% 10% 10%

Excess lending growth -5,864 -6,271 3,667 -5,740

Implied wholesale funding task 17,136 22,729 26,667 21,260

Source: Deutsche Bank, Company Data







These estimates are based on loan growth of 7% for ANZ, 6% for NAB, and 5% for CBA

and WBC, coupled with deposit growth of 13% for ANZ and 10% for the other banks.

The stronger deposit growth for ANZ reflects their strong deposit growth to date in

Australia and large deposit streaming capacity from its Asian franchise.



Below we highlight the sensitivity of the FY12 wholesale funding tasks to various rates

of deposit growth.



Sensitivity of wholesale funding tasks to various deposit growth rates

Deposit growth rates ANZ CBA NAB WBC

6% 29,008 36,765 39,135 34,520

7% 26,040 33,256 36,018 31,205

8% 23,072 29,747 32,901 27,890

9% 20,104 26,238 29,784 24,575

Base case 17,136 22,729 26,667 21,260

11% 14,168 19,220 23,550 17,945

12% 11,200 15,711 20,433 14,630

13% 8,232 12,202 17,316 11,315

14% 5,264 8,693 14,200 8,000

Source: Deutsche Bank, Company Data. Note: Base case for ANZ is 13% growth and growth rate sensitivity scenarios have been adjusted accordingly







As shown above, every 1 percentage point increase/decrease in deposit growth

reduces/increases the FY12 wholesale funding task by ~$3bn. These estimated FY12

funding tasks are considerably lower than the level of wholesale funding raised in

recent years, as highlighted by the following chart.



Deutsche Bank AG/Sydney Page 3

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





FY12 funding tasks likely to be well below 3 yr average Total aggregate issuance continues to fall



50 $bn 160 $bn



45 140



40 120



100

35

80

30

60

25

40

20

20

15

0

10 Aggregate issuance

ANZ CBA N AB WBC

FY09 FY10 FY11 FY12E 3 yr average

FY09 FY10 FY11 FY12E 3 yr average



Source: Deutsche Bank, Company Data Source: Deutsche Bank, Company Data









On our estimates, no bank will have a higher wholesale funding task in FY12 than their

average task over the last 3 years.



The aggregate wholesale funding task is manageable

As shown below, the aggregate wholesale funding task for the major Australian banks

is manageable. We look at both the stock of Australian financial issuance to total global

issuance (per statistics from the Bank for International Settlements), as well as the flow

of Australian bank issuance by calendar year (per Dealogic statistics).



The BIS figures show that international debt securities on issue from Australian financial

institutions has fallen as a proportion of the global total, whilst it has remained broadly

flat as a percentage of total debt securities (i.e. issuance by all issuers, not just

financials).



Australian financial institution international debt securities Australian financial institution international debt securities

outstanding / global total securities by all issuers outstanding/global total securities by financial institutions

3.0% 7.0%





2.5% 6.0%



5.0%

2.0%

4.0%

1.5%

3.0%

1.0%

2.0%



0.5% 1.0%



0.0% 0.0%









Source: Deutsche Bank. Bank for International Settlements Source: Deutsche Bank, Bank for International Settlements









Looking at the flow of issuance by Australian banks as a percentage of total global

issuance, it’s clear that Australia’s share is falling, as shown below.









Page 4 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Australian bank % of global issuance CY11 global issuance by type



9.00% 700,000 EUR mill



8.00%

600,000

7.00%

500,000

6.00%



5.00% 400,000



4.00% 300,000



3.00%

200,000

2.00%

100,000

1.00%



0.00% 0

2009 2010 2011 2012E Covered Senior Securitised Sub



Source: Deutsche Bank, Dealogic. Note: Excludes some private placement deals and deals with tenors less Source: Deutsche Bank, Dealogic

than 18 months







In terms of covered bonds, the total market is very large in size. According to the RBA,

the total size of the global covered bond market was €2.2 trillion in 2010, with ~90% of

the total issued in the euro area. Even if the Australian majors were to issue our

estimated full capacity, they would only account for just over 5% of total global

issuance. Therefore, we believe that the majors should not have a problem issuing their

full capacities in international markets.



Banks are well placed to meet these wholesale funding tasks

Whilst the market focuses on the need / ability to tap international markets, our analysis

shows that the international unsecured requirement is relatively benign with potential

for the Australian market and covered bonds to help fund the gap.



As shown below, we expect the funding tasks to be met through a combination of:



Domestic senior unsecured term debt ($8.0bn - $10bn);



Private placements of term debt (~$5bn);



Covered bonds (~$3bn). We think this is a conservative estimate given ANZ’s

stated target of $5bn in covered bond funding per annum, with 1-2

transactions per year in EUR, USD and AUD markets; and



RMBS (~$2bn).



This leaves a relatively manageable -$1bn to $9bn in benchmark term debt issuance

requirement. Under these assumptions, ANZ’s would effectively require no benchmark

issuance, while NAB would require the most at $9bn.



Implied offshore senior unsecured funding requirement in periods of market stress

$m ANZ CBA NAB WBC

Estimated wholesale funding task 17,000 23,000 27,000 21,000

Domestic senior unsecured 8,000 10,000 8,000 10,000

Private placements of term debt 5,000 5,000 5,000 5,000

Covered bonds 3,000 3,000 3,000 3,000

RMBS 2,000 2,000 2,000 2,000

Offshore snr unsecured benchmark issues -1,000 3,000 9,000 1,000

Source: Deutsche Bank, Company Data







We discuss each of these funding sources below.







Deutsche Bank AG/Sydney Page 5

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Domestic issuance is very stable

Domestic issuance is the most stable source of wholesale funding for the majors. We

think this is because:



Domestic debt investors are very familiar with the credit of the Australia banks;



Australian fixed income markets are somewhat immune from the shocks faced

by European markets; and



Continued growth in domestic savings pools, partly through superannuation

flows.



On average banks have been able to achieve ~$10bn of funding per bank from the

Australian debt market and we expect that this will be maintained in the coming year.



Private placements also a stable funding source

Private placement of term debt is also a stable source of funding for the majors. Below

we summarise private placements by CBA and NAB over the last two years.



CBA private placements NAB private placements



60 $bn 35 $bn



30 4

50

0

17 25 5 6

40

2

0

20

30 14

15

27 15

20 7 10



5 5

10 9

5

10 11 0

0 FY10 FY11

FY10 FY11

Senior public - domestic Senior public - offshore

Secured funding Subordinated public - offshore

Domestic Offshore public Offshore private

Private placement



Source: Deutsche Bank, Company Data Source: Deutsche Bank, Company Data









CBA issued $17bn of private placement debt funding in FY10 and $7bn in FY11, while

NAB issued $4bn and $6bn, respectively. We would expect similar levels of issuance

going forward.



Private placements are attractive, particularly for those investors that do not want

visible public pricing of the debt instruments they acquire. Discussions with banks’

Treasurers have indicated that the private placement market remains active at present.



Significant covered bond capacity remains

The majors have significant covered bond capacity remaining. As shown below, we

estimate that the majors have $35bn-$42bn of Australian and New Zealand covered

bond issuance capacity remaining.









Page 6 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Significant covered bond issuance capacity remains

ANZ CBA NAB WBC

Australian assets ($m) 407,002 528,055 513,107 502,425

Covered bond capacity (%) 7.0% 7.0% 7.0% 7.0%

Covered bond capacity ($m) 28,490 36,964 35,917 35,170

Issued to date 1,250 - - 1,000

Remaining Australian capacity ($m) 27,240 36,964 35,917 34,170

New Zealand assets ($m) 101,117 60,205 56,285 52,446

Covered bond capacity (%) 8.5% 8.5% 8.5% 8.5%

Covered bond capacity ($m) 8,595 5,117 4,784 4,458

Issued to date 656 - 2,464 1,312

Remaining New Zealand capacity ($m) 7,939 5,117 2,321 3,146

Total capacity 37,085 42,081 40,702 39,628

Total remaining capacity 35,179 42,081 38,238 37,316

Source: Deutsche Bank, Company Data, Interest.co.nz, nbr.co.nz, Business Spectator, Bloomberg L.P. Note: Estimated Australian and NZ assets







CBA has the greatest capacity for issuance from here, given its business is focused on

Australia & New Zealand, and its lack of covered bond issuance to date. If we were to

assume that the banks issued $5bn in covered bonds per annum, it would take several

years for them to hit their caps.



Whilst we accept that the covered bond market is a little difficult at present, we do

expect that over time this will improve. In fact the covered bond market in Europe

remains untapped by Aus banks (largely driven by the higher swap costs) and given the

depth, experience and maturity of investors in this market we expect that over time this

market will represent a real opportunity for Australian banks.



RMBS capacity remains

RMBS markets are likely to absorb up to $2bn of issuance by each bank per annum.

While the majors would prefer to issue covered bonds given it is a cheaper funding

source, to the extent that the capacity may not be there for the desired covered bond

issuance, RMBS remains a reasonable substitute especially in Australia where spreads

are still reasonable.



We would also note there is significant firepower remaining for the AOFM to participate

in RMBS deals which should provide support for issuances in Australia.



Other mitigating factors

There are a range of other factors which we believe will also help banks maintain the

required level of funding, such as:



Wholesale funding requirements can be reduced further through faster deposit

growth which is currently being achieved;



Banks access to short term funding remains strong. Whilst this is not great for

the NSFR, with this legislation not introduced until 2018 and the potential for a

global recalibration on this measure, we believe that banks will not focus on

this issue until 2015 at the earliest;



Wholesale funding is well diversified by geography;



The quality of Australian bank credit stands out on the global stage with

relative credit rating remaining strong; and



Liquid holdings can be run-down in times of stress.



We briefly discuss these issues below.



Deutsche Bank AG/Sydney Page 7

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Funding requirements can be reduced further through higher deposit growth

As shown in the table below, the offshore benchmark term debt funding requirement

would reduce to the extent that deposit growth rates are stronger than assumed above.



Stronger deposit growth would eliminate the need to raise benchmark funding offshore

$m ANZ CBA NAB WBC

Offshore snr unsecured benchmark issues - 1,000 3,000 9,000 1,000

Deposit books 296,800 350,903 311,689 331,500

(1) -0.3% 0.9% 2.9% 0.3%

Incremental excess deposit generation

Implied total deposit growth 12.7% 10.9% 12.9% 10.3%

Source: Deutsche Bank, Company Data, (1) base assumes ~5-7%% lending growth and deposit growth of ~10% - 13%







Based on the above, we estimate that NAB would require ~3% additional deposit

growth (above our base case) or total deposit growth of 13% in deposits in order to

eliminate the benchmark issuance requirement.



In addition, any reduction in loan growth would similarly reduce the wholesale funding

task. Every 1 percentage point reduction in loan growth would reduce the wholesale

funding requirement by $5-$6bn.



Wholesale funding is heavily diversified by geography

The major banks have heavily diversified their funding sources in terms of geography.

On average, the Australian market accounts for just over a third of the majors’ total

wholesale funding, the US accounts for just over a quarter, UK and Europe accounts for

20%, and Japan and other regions also account for 20%.



Wholesale term funding geographic mix is well diversified …with UK/Europe accounting for 13%-27% of the total



100% 30%



80% 25%



60% 20%



15%

40%

10%

20%

5%

0%

ANZ CBA NAB WBC 0%

Other Japan UK & Europe US Australia ANZ CBA NAB WBC

Source: Deutsche Bank, Company Data Source: Deutsche Bank, Company Data. Note: UK/European issuance as a % of total wholesale funding

portfolio







In this context, the exposure to Europe, while not insignificant, is not onerous either.

Recent issuance has been well below these levels.



Credit quality of the Australian majors still stands out post S&P review

The credit of Australian banks continues to be viewed as high quality from an

international perspective. As shown in the table below, the majors remain towards the

top of the tree in terms of their S&P ratings.









Page 8 Deutsche Bank AG/Sydney

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Long term credit ratings of selected large global banks

Bank Issuer credit rating Outlook

Rabobank AA Negative

ANZ AA- Stable

CBA AA- Stable

NAB AA- Stable

WBC AA- Stable

DBS AA- Stable

United Overseas Bank AA- Stable

OCBC AA- Stable

Banco Santander AA- Negative

BNP Paribas AA- Negative

Nordea AA- Stable

Kiwibank AA- Stable

Source: Deutsche Bank, S&P. Note: Includes ratings of top 37 largest banks, and Asia Pacific banks. Excludes subsidiaries







Furthermore, as shown above there is a risk that downgrades to sovereign credit ratings

may also impact the ratings of European banks, given the inter-relatedness of the

anchor rating to sovereign ratings. Three of the highly rated European banks listed

above are on credit-watch negative.



To the extent that Australia is likely to retain its current ‘AAA’ rating for some time to

come, this may place Australian banks at a greater advantage when it comes to

accessing funding on the international markets.



Plenty of room for more short term funding

As shown below, short term wholesale funding has reduced significantly as a

percentage of total funding for the majors. This indicates that there is plenty of latent

capacity for issuance in the short term market as a temporary measure should long

term funding markets encounter excessive volatility.



Short term wholesale funding has dropped considerably, suggesting latent capacity

35.0%



30.0%



25.0%



20.0%



15.0%



10.0%



5.0%



0.0%

ANZ CBA NAB WBC



FY08 FY09 FY10 FY11



Source: Deutsche Bank, Company Data. Note: WBC figures not directly comparable with other banks given WBC includes both short term wholesale funding and

long term wholesale funding with less than 12 months duration remaining









Deutsche Bank AG/Sydney Page 9

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Liquids can also be run down

In reality, the banks have significant buffers over their current liquid requirements, and

hence in times of severe stress would run down their liquids. As shown below, the

banks have all increased their liquid holdings in recent periods.



Liquid holdings have increased… …and are of reasonable quality



140 140

$bn $bn

120 120



100 100



31 55

80 39

80

31



60 60

30

29 31

40 40 40



20 20 40

31 33

21

0 0

ANZ CBA NAB WBC ANZ CBA NAB WBC



2H08 2H09 2H10 1H11 2H11 Internal RMBS Bank bills Cash and government bonds



Source: Deutsche Bank, Company Data Source: Deutsche Bank, Company Data









Although some liquids can be used a short stop on funding if require, ultimately the

level of liquidity run down will be limited given the LCR introduction in FY15. That said,

internal RMBS will play an important part in ensuring banks have sufficient liquidity to

meet requirements and hence if banks do need more liquidity they can internalize more

RMBS to meet any short fall.









Page 10 Deutsche Bank AG/Sydney

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Rising WS funding costs

unlikely to impact estimates

Whilst access to funding should not be a concern for major banks, there is no doubt

that the cost of some of the funding has increased. That said we continue to believe

that any impact from higher wholesale funding costs is accurately captured in our

margin forecasts, given:



1. While wholesale funding spreads have risen, little is being done in the market

and short term debt funding costs have reduced;



2. A lot of pressure is coming from a widening in the Bills-OIS spread which we

believe is a temporary pressure and will reverse over time;



3. Banks have been progressively repricing their business books;



4. Banks don’t have to compete as aggressively on the deposit side given strong

deposit growth; and



5. Banks have shown in historical cycles the ability to reprice their asset books to

recoup higher funding costs.



Below we have provided a summary of the impact of funding costs on the banks’

margins assuming no offset from asset repricing.



Rise in ANZ’s funding costs from spread movements on funding components

$m 2H11 FY12 Increase in Impact on

spread margin

Wholesale funding:

Domestic issuance 10,000 100 130 30 -0.6

Private placements 4,000 150 180 30 -0.2

Offshore senior unsecured - 130 230 100 0.0

Covered bonds 3,000 110 160 50 -0.3

Short term wholesale 60,000 -20 -25 -5 0.6

Total wholesale funding 77,000 -0.5

Bill / OIS 25,781 22 48 26 -1.3

Deposit spreads 124,080 5 -1.2

Total change in FY12 funding cost -3.1

Margin forecast (on 2H11) -2.2

Source: Deutsche Bank, Company Data







As shown above, using ANZ as an example, we estimate that at current spreads

funding costs will drag on the group margins by ~3bps, which is consistent with our

forecasts before allowing for asset repricing. Using similar calculations for the other

banks we estimate the following margin impacts by bank:



Rise in funding costs from spread movements on funding components

ANZ CBA NAB WBC

Estimated FY12 margin impact from rise in funding costs - 3.1 - 3.4 - 5.2 - 4.0

DB margin forecast (FY12 vs 2H11) - 2.2 - 2.9 - 5.7 - 1.8

Source: Deutsche Bank, Company Data







Deutsche Bank AG/Sydney Page 11

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As flagged above, the estimated margin contraction is between 3 and 5bps, and largely

in line with our forecasts. We would flag that this analysis assumes no benefit from

asset repricing despite the banks already having implemented business book repricing.



We address each of these issues in turn below.









1. Offshore spreads have increased but domestic spreads have

risen by less and ST funding costs have fallen

While not a perfect measure of wholesale funding spreads, the movement in CDS

spreads for the major banks does give an indication of the rise in term funding costs. As

shown below, this has led the major banks to stay out of the offshore term debt

markets for a number of months.



Bank average CDS spreads Unsecured term issuance by Australian banks offshore



300 16,000 $m



14,000

250

12,000



200 10,000



8,000

150

6,000



100 4,000



2,000

50

-



0

2/01/2006 2/01/2007 2/01/2008 2/01/2009 2/01/2010 2/01/2011



Source: Deutsche Bank, Bloomberg Finance LP, NB: Bank 5 year senior unsecured debt CDS spreads Source: Deutsche Bank, Bloomberg Finance LP









As shown in the chart above, only ~$940m of term debt has been issued in offshore

markets since July, with the Australian banks having not completed a benchmark

offshore deal since 20 July.



Whilst there are very few deals to benchmark from, in the table below we have

provided the estimated movement in funding spreads over the last 6 months using what

deals have been done and intelligence from our credit team.









Page 12 Deutsche Bank AG/Sydney

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Movements in funding spreads over the last 6 months

120 bps



100





80





60





40





20





0





-20

Domestic Overseas Short term Deposits



Source: Deutsche Bank, Company Data, Cannex







As shown above, while offshore spreads are 100bps wider than 6 months ago,

domestic spreads are only 30bps wider over the same period, and some short term

funding costs have actually fallen marginally (e.g. Australian bank issuances of 3 month

US commercial paper have improved by ~5bps over the last 6 months to now sit at 20-

30bps below $US Libor). Deposit spreads have fallen just 5bps.



While pricing of Australian covered bonds in the secondary market has widened, it still

remains attractive relative to other offshore issuance. Below we summarise the recently

completed deals.



Recent covered bond issuance in Australia/by Australian banks offshore

Bank Date Size of issuance Currency Spread Tenor (years)

Issued by NZ banks in various markets

Westpac NZ Jun-11 1,000 EUR 75 5

Bank of New Zealand Jun-10 425 NZD n/av 5-7

Bank of New Zealand Nov-10 1,000 EUR 62 7

Bank of New Zealand Apr-11 300 NZD n/av 8

Bank of New Zealand Jun-11 700 AUD 88 5

ANZ New Zealand Oct-11 500 EUR 95 5

Issued by other banks in Australia

CIBC Oct-10 750 AUD 48 3

Issued by Australian banks in the US

ANZ Nov-11 1,250 USD 115 5

Westpac Nov-11 1,000 USD 115 5

Source: Deutsche Bank, Company Data, Interest.co.nz, nbr.co.nz, Business Spectator, Bloomberg L.P.







As shown in the table above, the most recent deals by Australian banks priced at wider

levels than earlier deals completed by both NZ banks and Canadian banks within the

Australian market. We note that Canadian deals generally have a higher level of security

attached, and hence attract tighter pricing than Australian deals would.



In addition, these two most recent covered bond issues by ANZ and WBC have traded

wider in the after-market, as shown in the chart below.



Deutsche Bank AG/Sydney Page 13

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Secondary market trading of Australian covered bonds (spread to 5yr swaps)



140 bps



135



130



125



120



115



110









ANZ WBC

Source: Deutsche Bank, Bloomberg L.P. Note: Spread to 5yr swaps







While these spreads are higher than the banks would like to see, given that 5yr senior

CDS spreads are significantly higher at ~180bps, covered bonds are still providing

banks with a cheaper funding option than the most likely alternative. Should European

debt markets stabilize, we would expect these spreads to tighten significantly.



In the table below, we have calculated what the weighted average increase in the cost

of funds for the banks is for FY12. Our detailed calculations for ANZ are below.



Rise in ANZ’s funding costs from spread movements on funding components

Bps $m 2H11 FY12 Increase in Impact on

spread margin

Wholesale funding:

Domestic issuance 10,000 100 130 30 -0.6

Private placements 4,000 150 180 30 -0.2

Offshore senior unsecured - 130 230 100 0.0

Covered bonds 3,000 110 160 50 -0.3

Short term wholesale 60,000 -20 -25 -5 0.6

Total wholesale funding 77,000 -0.5

Margin forecast (on 2H11) -2.2

Source: Deutsche Bank, Company Data







Similar calculations for the other banks give us the following results:



Rise in funding costs from spread movements on funding components

ANZ CBA NAB WBC

Est FY12 margin impact from rise in wholesale funding costs - 0.5 - 0.6 - 2.5 - 1.5

DB margin forecast (FY12 vs 2H11) - 2.2 - 2.9 - 5.7 - 1.8

Source: Deutsche Bank, Company Data







As shown above the impact from this increased cost of wholesale funds would be only

1.3bps on average for the banks in FY12 which is relatively insignificant and within our

forecasts.







Page 14 Deutsche Bank AG/Sydney

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2. Bank Bill-OIS spread will reverse over time

Recently the majors have been calling out increases in the bank bill-OIS spread as a key

reason for rising funding costs.



Basically this spread impacts the banks because the banks essentially have funding

costs linked to the 90 day bank bill rate, however banks receive interest income largely

based on the cash rate which the OIS spreads is used to hedge this funding mix.

Effectively in order to ensure that this interest rate mismatch is managed, banks

progressively hedge this interest rate gap through the 90 bill / OIS curve.



As shown below, on a half on half basis, the bank bill-OIS spread has only increased by

1bp. However there is a headwind in the short term given the spike in the spread in

4Q11 which has continued into 1Q12.



Q4 bank bill-OIS spread 5bps higher than the 2H average Bank bill-OIS spread can snap back pretty quickly



40 0.80

bps

35 0.70



0.60

30

0.50

25

0.40

20

0.30

15

0.20



10 0.10



5 0.00



0

Historical avg 1H11 2H11 3Q 4Q 1Q12



Source: Deutsche Bank, RBA Source: Deutsche Bank, RBA









We estimate that the potential drag from the widening of the 90 day bank bill / OIS

spread to be ~1.3-1.7bps to the margin if we assume the spread remains at current

levels, as highlighted below.



Estimated impact from increased bank bills-OIS spread

Bps $m 2H11 FY12 Increase in Impact on

spread margin

ANZ 25,781 22 48 26 -1.3

CBA 37,060 22 48 26 -1.6

NAB 42,118 22 48 26 -1.7

WBC 35,609 22 48 26 -1.6

Source: Deutsche Bank, Company Data







Whilst this is not an insignificant level, we would flag that that the curve is impacted by

liquidity in the long term market and hence should we see some improvement here we

would expect the curve to narrow to more normal levels quickly taking this drag away.

As such this is more of a temporary issue that can reverse quickly as opposed to a

structural problem.





3. Banks are repricing their business books

Banks have been progressively repricing their business books over recent months. This

repricing is occurring not just through interest rate changes, but by increasing liquidity

fees which are paid on the entire facility rather than just the drawn down amount. For



Deutsche Bank AG/Sydney Page 15

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example, NAB now charges a liquidity fee of up to 93bps on business loans, well above

the 50bps charged by the other major banks.









4. Banks don’t have to compete aggressively for deposits

With ample access to funding markets as discussed in the first part of this report and

given the strong deposit growth being experienced by the banking sector, the majors do

not need to compete as aggressively for deposit funding.



As shown below, over the last 5-9 months, medium term TD rates have fallen by 32bps-

40bps on average. Meanwhile, long term TD rates have fallen by 94bps-104bps on

average over the same period.



Medium term TD rates are down… …while long term TD rates have also fallen



Avg of Avg of

ANZ CBA NAB WBC St. George Bankwest majors ANZ CBA NAB WBC St. George Bankwest majors

0 0





-10 -20



-40

-20

-60

-30

-32 -80

-40

-40 -100 -94

-104

-50 -120



-60 -140



Change in last 5 months Change in last 9 months Change in last 5 months Change in last 9 months



Source: Deutsche Bank, Cannex. Note: Rates as at 3 November Source: Deutsche Bank, Cannex. Note: Rates as at 3 November









Whilst some of this does reflect the fall in the 90 day bank bill rates, product spreads

have been mixed (some have risen while others have fallen). As shown below, deposit

spreads have fallen by only 5bps on average over the last 6 months.



Change in deposit spreads over the last 6 months

10.0 bps



5.0



0.0



-5.0



-10.0



-15.0



-20.0



-25.0

Short term Med term Long term Online savers Average

deposits (1-4 deposits (5-8 deposits (9 - 12

months) months) months)



Source: Deutsche Bank, Company Data, Cannex









Page 16 Deutsche Bank AG/Sydney

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As shown in the chart above, the average rates on TDs and online savers have reduced

by only 5bps over the last 6 months. When calculated over the entire book, this has a

reasonably immaterial impact, as shown in the table below.



Impact from 5bps reduction in deposit spreads

Bps $m 2H11 FY12 Increase in Impact on

spread margin

ANZ 124,080 167 162 5 - 1.2

CBA 137,192 167 162 5 - 1.1

NAB 121,266 167 162 5 - 0.9

WBC 112,617 167 162 5 - 1.0

Source: Deutsche Bank, Company Data









5. Previous crises showed the ability of banks to pass funding

costs on to customers

If we look at the experience of the banks with respect to their margin performance

following the 1991 banking crisis and the GFC, we find that margins recovered strongly

after each crisis, with a 1-2 year lag.



Margins in the early 1990’s Margins post the GFC



4.00% 2.40%



3.95% 2.35%

3.90% 2.30%

3.85%

2.25%

3.80%

2.20%

3.75%

2.15%

3.70%

2.10%

3.65%



3.60% 2.05%



3.55% 2.00%



3.50% 1.95%

FY91 FY92 FY93 FY94 FY95 FY05 FY06 FY07 FY08 FY09 FY10 FY11



Source: Deutsche Bank, Company Data. Note: Average margin of the majors Source: Deutsche Bank, Company Data. Note: Average margin of the majors









This attests to the ability of the majors to pass through the impact of rising funding

costs to their customers.



Furthermore banks in more recent periods have been attempting to break the link to the

cash rate for mortgages and have been moving to reprice business loans suggesting

that steps on the repricing have started.









Deutsche Bank AG/Sydney Page 17

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What this means for our

forecasts

As shown below, our forecasts already incorporate margin decline for the majors, with

~3bps of margin decline in FY12 and FY13 on average across the banks.



Margin forecasts by bank (movement on 2H11 run-rate)

0.00%



-0.01%



-0.02%



-0.03%



-0.04%



-0.05%



-0.06%



-0.07%

ANZ CBA NAB WBC Average



FY12 FY13



Source: Deutsche Bank, Company Data. Note: Margin movements are calculated with reference to 2H11 margins







Whilst this might not seem like a large level of margin decline given the headlines

around wholesale funding costs, in the table below we have looked at what the impact

on the margin is from the higher funding costs and movements in TD spreads.



Rise in funding costs from spread movements on funding components

ANZ CBA NAB WBC

Estimated FY12 margin impact from rise in funding costs - 3.1 - 3.4 - 5.2 - 4.0

DB margin forecast (FY12 vs 2H11) - 2.2 - 2.9 - 5.7 - 1.8

Source: Deutsche Bank, Company Data







As shown above, we estimate that the ultimate impact of these issues is only ~3-5bps

for FY12 which is largely in line with our forecasts of 2-6bps down.



As noted earlier, there are a number of factors which will help to offset these margin

pressures. These positive offsets include:



Lower deposit rates;



Lower short term wholesale funding costs;

The roll-off of expensive GFC funding;



AUD/USD basis swap spreads have fallen dramatically; and



Repricing of the asset book.







Page 18 Deutsche Bank AG/Sydney

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Whilst each of these factors will help offset the rising funding costs, we have provided a

table below which looks at the repricing required to the housing and business loans in

order to offset the margin impact from various increases in wholesale funding costs.



Repricing required to offset impact of rising wholesale funding costs

Increase in wholesale funding costs

Bps 10 20 30 40 50 60 70 80 90 100

Repricing required of Australian housing loans

ANZ 0.9 1.9 2.8 3.8 4.7 5.7 6.6 7.5 8.5 9.4

CBA 0.7 1.5 2.2 2.9 3.6 4.4 5.1 5.8 6.5 7.3

NAB 1.2 2.4 3.6 4.8 6.0 7.3 8.5 9.7 10.9 12.1

WBC 0.7 1.3 2.0 2.7 3.3 4.0 4.7 5.3 6.0 6.6

Repricing required of Australian business loans

ANZ 1.8 3.5 5.3 7.0 8.8 10.5 12.3 14.0 15.8 17.5

CBA 1.5 3.0 4.5 6.0 7.5 9.0 10.5 12.0 13.5 15.0

NAB 1.7 3.3 5.0 6.6 8.3 9.9 11.6 13.2 14.9 16.6

WBC 1.6 3.2 4.8 6.5 8.1 9.7 11.3 12.9 14.5 16.2

Source: Deutsche Bank, Company Data







If we consider our estimated funding cost movements calculated earlier (i.e. taking into

account the movements in spreads on all funding – not just wholesale term funding),

we estimate the following repricing required to neutralize the impacts on bank margins.



Repricing required to offset calculated impact on margin from higher funding costs

Bps ANZ CBA NAB WBC

Margin impact from rising funding costs -3.1 -3.4 -5.2 -4.0

Australian housing repricing required 8.7 6.4 14.9 7.4

Australian business repricing required 16.1 13.2 20.4 17.9

Source: Deutsche Bank, Company Data







As shown above, the actual repricing required is fairly small. Our estimates show that

the majors would only need to raise pricing in Australian housing by ~6-15bps to offset

the calculated rise in funding costs derived above. Similarly, the banks could increase

Australian business lending rates by 13-20bps to offset the same level of increase in

wholesale funding costs. NAB fares the worst of the banks due to its higher offshore

funding requirement.



In reality, the banks are likely to reprice both, along with their repricing of their lending

books in overseas markets. This is particularly the case for ANZ and NAB, who have the

largest international loan books.









Deutsche Bank AG/Sydney Page 19

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Who is best positioned?

ANZ looks best positioned

We believe ANZ is best placed to deal with the challenging wholesale funding

environment for the following reasons:



Lowest refinancing task of the majors in FY12;



ANZ has been experiencing the strongest deposit growth in Australia over the

last 12 months;



The Asian network is generating excess deposit funding that can be streamed

back to the group; and



Modest issuance of covered bonds to date by both the Australian and NZ

entities leaves it with plenty of headroom under issuance limits; and



ANZ short term issuances remain very low at ~10% giving capacity should

longer dated markets remain shut.



Below we have provided further detail on some of the key issues outlined above.



Strongest deposit growth of the majors in Australia

ANZ has recorded the strongest excess deposit growth of the majors in recent periods.

As shown in the chart below, since March 2011, ANZ has generated $6bn of excess

deposits (excluding CD’s) over and above lending growth, vs a nominal amount for

CBA, and -$12bn for NAB. WBC has delivered a similar number to ANZ.



ANZ’s domestic deposit growth has been very strong

25,000 $m



20,000



15,000



10,000



5,000



0



-5,000



-10,000



-15,000

Deposit growth Lending growth Excess deposit growth



ANZ CBA NAB WBC



Source: Deutsche Bank, APRA







Asian deposit streaming advantage

We view ANZ’s access to a large pool of Asian deposits as a key advantage in meeting

funding needs at a time of debt market stress. Below we highlight the low loan/deposit

ratios of the major Asian economies in which ANZ’s APEA division operates.









Page 20 Deutsche Bank AG/Sydney

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Asian economies flush with deposits

25% 140%



120%

20%

100%

15% 80%



10% 60%



40%

5%

20%



0% 0%









System loan/deposit ratio (RHS) Current Account Surplus % of GDP, LHS)



Source: Deutsche Bank, ANZ







As shown below, the APEA division has continued to grow its deposit base strongly.



APEA loan growth has exceeded deposit growth recently …but continues to generate excess deposits (in $ terms)



45% 1.00 10,000 $m



40% 0.90 9,000



35% 0.80

8,000

0.70

30% 7,000

0.60

25% 6,000

0.50

20% 5,000

0.40

15% 4,000

0.30

10% 0.20 3,000

5% 0.10 2,000

0% -

1,000

2H08 1H09 2H09 1H10 2H10 1H11 2H11

-

Net loans and advances (LHS) Deposits (LHS) Loan to deposit ratio (RHS)

2H08 1H09 2H09 1H10 2H10 1H11 2H11



Source: Deutsche Bank, Company Data Source: Deutsche Bank, Company Data









As shown above, ANZ has generated a significant level of excess deposits growth in the

Asian region over the past 3 years. This has lead to ANZ transferring ~$13bn of

deposits back to Australia to help fund the group balance sheet.



In a report entitled “Upgrade to BUY, Asian funding shuts funding gap + provides

growth” published 22 June 2010 we estimated that over time there is the potential for

Asia to transfer ~$50bn-$60bn of funding back to the group to ease funding tasks at the

group level.



Whilst we acknowledge that not a lot has been transferred back to Australia in recent

periods, this is largely due to the excess deposit generation in Australia and the lack of

need. Should external markets prove to be unobtainable, we believe that ANZ can open

the pipe from Asia once again to ease the burden. This tends to come at a lower cost.









Deutsche Bank AG/Sydney Page 21

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Markets Research





NAB most at risk

While ANZ looks best placed to deal with wholesale funding market dislocation, we

think NAB is most at risk from this issue, given:



NAB’s strong asset growth is likely to see it face the largest wholesale funding

task of the majors in FY12;



NAB has the greatest exposure to UK and Europe as a proportion of total

wholesale funding / requirement and Clydesdale bank has been downgraded to

BBB+;



NAB’s deposit growth in Australia has not been able to keep pace with its

lending growth;



NAB has already issued 60% of its NZ covered bond capacity; and



NAB has the worst stable funding position of the majors.



As shown below, Clydesdale’s rating was recently downgraded by S&P from A+ to

BBB+. This places its rating well below both the NAB group rating and the ratings of its

peers in the UK.



Clydesdale funding costs will be impacted by downgrade

Bank Previous ICR Current ICR

Clydesdale Bank A+ BBB+

NAB AA AA-

Barclays A+ A

Lloyds Banking Group A A-

Royal Bank of Scotland A A-

Source: Deutsche Bank, S&P







In addition, NAB’s exposure to UK and European funding markets is significant, as

shown below. Given this is the region that is facing the most challenged funding

markets, we expect debt market volatility to impact NAB the most out of the majors.



NAB has the largest exposure to European debt markets Australian deposit growth is trailing lending growth



25,000 $m

30%

20,000



25% 15,000



10,000

20%

5,000

15% 0



-5,000

10%

-10,000

5% -15,000

Deposit growth Lending growth Excess deposit growth

0%

ANZ CBA NAB WBC

ANZ CBA NAB WBC

Source: Deutsche Bank, Company Data. Note: Chart displays UK/Europe wholesale funding as a % of total Source: Deutsche Bank, APRA. Note: APRA lending and deposit figures since March 2011









On top of this, as shown above NAB is the only bank that has not been able to generate

excess deposits since March 2011. This is compounded by NAB likely having the worst

net stable funding ratio of the majors due to its low level of stable funding and its small

proportion of mortgages in the lending mix.







Page 22 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





NAB has a low level of stable funding… …and mortgages make up a small proportion of the book



85% 82% 80%



80% 78%

77% 70%

75% 73%

60%

70%

50%

65%

61% 40%

60% 58%

30%

55% 51% 52%

20%

50%



45% 10%



40% 0%

Customer Deposits Stable Funding Index ANZ CBA NAB WBC



ANZ CBA NAB WBC Mortgage % of GLA



Source: Deutsche Bank, Company Data Source: Deutsche Bank, Company Data









WBC and CBA also look well placed

Our analysis suggests that WBC and CBA also look very well placed to meet their

funding requirements, without materially impacting their margins, with both banks

benefiting from:



A strong deposit base;



Improvement in TD spreads;



Low asset growth; and



Strong access to domestic funding.



We believe that our current margin assumptions of ~3bps decline on the 2H11 base is

sufficient.









Deutsche Bank AG/Sydney Page 23

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research







Valuation and risks

Valuation

Our price targets are unchanged. Our recommendations for the bank stocks under

overage remain unchanged. We use a combination of sum-of-the-parts, DCF and PE-

based methodologies for valuing banks. We select the methodology and what we see

as an appropriate multiple based on our assessment of relative growth rates and risks.









Risks

Key downside risks include:



Slow loan growth;



Further increases in costs of funding through deposit competition and higher

wholesale funding;



Further competitive pressure on bank product spreads;



Rise in unemployment which will reduce the prospect of deposit growth; and



Weakness in financial markets impacting on funds management income.



Upside risks include:



Improvement in wholesale funding markets;



Further increase in the savings rate for households resulting in greater deposit

growth;



Further improvement to deposit spreads through lower TD and online savings

rates;



Improvement in market conditions resulting in higher wealth management

income; and



A rebound in business lending.









Page 24 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research







Appendix 1

Important Disclosures

Additional information available upon request



Disclosure checklist

Company Ticker Recent price* Disclosure

ANZ ANZ.AX 20.97 (AUD) 14 Dec 11 1,17

Commonwealth Bank CBA.AX 49.38 (AUD) 14 Dec 11 1,4,7,14,15,17

National Australia Bank NAB.AX 23.86 (AUD) 14 Dec 11 1,14,15,17

Westpac WBC.AX 20.80 (AUD) 14 Dec 11 1,4,14,15

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies





Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.

See Important Disclosures Required by Non-US Regulators and Explanatory Notes.

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering

for this company, for which it received fees.

4. The research analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her

household) has a direct ownership position in securities issued by this company or derivatives thereof.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment

banking or financial advisory services within the past year.

14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company

within the past year.

15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received

non-investment banking securities-related services.



Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering

for this company, for which it received fees.

4. The research analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her

household) has a direct ownership position in securities issued by this company or derivatives thereof.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment

banking or financial advisory services within the past year.

17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds,

Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following

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For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr



Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the

subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive

any compensation for providing a specific recommendation or view in this report. James Freeman





Deutsche Bank AG/Sydney Page 25

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Historical recommendations and target price: ANZ (ANZ.AX)

(as of 12/14/2011)



30.00 Previous Recommendations



Strong Buy

1 2 3

25.00 Buy

Market Perform

4 5 Underperform

20.00 Not Rated

Suspended Rating

Security Price









Current Recommendations

15.00

Buy

Hold

10.00 Sell

Not Rated

Suspended Rating

5.00

*New Recommendation Structure

as of September 9,2002



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Date



1. 22/06/2010: Upgrade to Buy, Target Price Change AUD26.00 4. 19/08/2011: Buy, Target Price Change AUD24.75

2. 28/10/2010: Buy, Target Price Change AUD27.00 5. 03/11/2011: Buy, Target Price Change AUD23.50

3. 03/05/2011: Buy, Target Price Change AUD26.64



Historical recommendations and target price: Commonwealth Bank (CBA.AX)

(as of 12/14/2011)



70.00 Previous Recommendations



Strong Buy

60.00 Buy

1 3 4

2 6 Market Perform

5 Underperform

50.00

Not Rated

Suspended Rating

Security Price









40.00

Current Recommendations



30.00 Buy

Hold

Sell

20.00 Not Rated

Suspended Rating

10.00 *New Recommendation Structure

as of September 9,2002



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Date



1. 10/02/2010: Hold, Target Price Change AUD52.00 4. 09/02/2011: Hold, Target Price Change AUD55.60

2. 23/07/2010: Hold, Target Price Change AUD51.50 5. 10/08/2011: Hold, Target Price Change AUD50.60

3. 11/08/2010: Hold, Target Price Change AUD50.00 6. 15/11/2011: Hold, Target Price Change AUD52.70









Page 26 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Historical recommendations and target price: National Australia Bank (NAB.AX)

(as of 12/14/2011)



35.00 Previous Recommendations



Strong Buy

30.00 Buy

1 23 5

4 7 Market Perform

Underperform

25.00

Not Rated

6

Suspended Rating

Security Price









20.00

Current Recommendations



15.00 Buy

Hold

Sell

10.00 Not Rated

Suspended Rating

5.00 *New Recommendation Structure

as of September 9,2002



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Date



1. 18/12/2009: No Recommendation, AUD34.00 5. 05/05/2011: Upgrade to Buy, Target Price Change AUD29.00

2. 12/10/2010: Upgrade to Hold, Target Price Change AUD26.72 6. 09/08/2011: Buy, Target Price Change AUD26.20

3. 27/10/2010: Hold, Target Price Change AUD26.00 7. 27/10/2011: Buy, Target Price Change AUD28.70

4. 08/02/2011: Hold, Target Price Change AUD25.70



Historical recommendations and target price: Westpac (WBC.AX)

(as of 12/14/2011)



30.00

2 Previous Recommendations



67 Strong Buy

5

25.00 1 4 Buy

3

9 Market Perform

8

Underperform

20.00 Not Rated

Suspended Rating

Security Price









Current Recommendations

15.00

Buy

Hold

10.00 Sell

Not Rated

Suspended Rating

5.00

*New Recommendation Structure

as of September 9,2002



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Date



1. 16/02/2010: Upgrade to Buy, Target Price Change AUD28.00 6. 28/04/2011: Downgrade to Hold, AUD26.00

2. 05/05/2010: Downgrade to Hold, Target Price Change AUD27.00 7. 04/05/2011: Hold, Target Price Change AUD25.20

3. 23/08/2010: Hold, Target Price Change AUD25.62 8. 16/08/2011: Hold, Target Price Change AUD22.20

4. 03/11/2010: Hold, Target Price Change AUD24.80 9. 02/11/2011: Hold, Target Price Change AUD23.00

5. 15/02/2011: Upgrade to Buy, Target Price Change AUD26.00









Deutsche Bank AG/Sydney Page 27

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share- 120

48 % 50 %

holder return (TSR = percentage change in share price 100



from current price to projected target price plus pro- 80



jected dividend yield ) , we recommend that investors 60



buy the stock. 40 25 % 19 %

20 3 %1 7 %

Sell: Based on a current 12-month view of total share-

0

holder return, we recommend that investors sell the Buy Hold Sell

stock

Hold: We take a neutral view on the stock 12-months Companies Covered Cos. w/ Banking Relationship



out and, based on this time horizon, do not Australia Universe

recommend either a Buy or Sell.

Notes:

1. Newly issued research recommendations and target

prices always supersede previously published

research.

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends)

of 10% or more over a 12-month period

Hold: Expected total return (including

dividends) between -10% and 10% over a 12-

month period

Sell: Expected total return (including dividends)

of -10% or worse over a 12-month period









Page 28 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Banking & Finance Australian Banking

Sector

Markets Research





Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.









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any appraisal or evaluation activity requiring a license in the Russian Federation.









Deutsche Bank AG/Sydney Page 29

Deutsche Bank

Markets Research





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Deutsche Bank

Markets Research

Australasia Periodical Date

Australia 14 December 2011

DB A-REIT Strategy

Property







Ian Randall

Research Analyst

Compare and contrast (+61) 2 8258-2609

ian.randall@db.com



Matthew Bertram

This week...

Research Analyst

...consumer sentiment data showed an 8.3% decline in Dec, or a 2.6% net fall (+61) 2 8258-2607

since the RBA eased rates in Nov. While this is consistent with the early stages matthew.bertram@db.com

of previous easing cycles, the reading provides further evidence of subdued

discretionary retail conditions over the near term at least. By contrast, GGP's Jason Weate

recent investor update pointed to continued positive momentum for US mall

Research Associate

sales & income growth, along with bullish commentary re investor demand for

(+61) 2 8258-3099

prime malls. Whilst we see FY12 Aust NOI growth for WDC coming in below

jason.weate@db.com

FY11 levels, we believe the US portfolio represents a source of upside risk for

WDC.

Stuart McLachlan

GGP Investor Day: positive read-throughs for WDC US portfolio Research Associate

General Growth Properties (GGP, Buy, TP $17) recent Investor Day provided an (+61) 2 8258-3156

overview of the operating environment, development, capital markets & stuart.mclachlan@db.com

financials. In our view, the commentary & operating statistics put forward by

GGP confirmed our thinking that for US malls, 2012 is likely to be a stronger

year of income growth at the property level, as compared to 2011. This is in Top Picks

contrast to Australian regional malls, where we expect that 2012 is likely to be Investa Office Fund (IOF.AX),AUD0.60 Buy

a year of below trend growth. GGP’s commentary provided a positive outlook Goodman Group (GMG.AX),AUD0.58 Buy

for the investment demand & financing environment for prime malls…see p2. (SGP.AX),AUD3.30 Buy

Australian consumer sentiment: decline consistent with previous easing cycles Westfield Group (WDC.AX),AUD8.06 Buy

The Westpac-Melbourne Institute December consumer sentiment index was (CRF.AX),AUD1.78 Buy

released today, showing an 8.3% decline after a 6.3% increase in November. Companies Featured

While the 2.6% decline in sentiment since the RBA cut rates in November

(CFX.AX),AUD1.84 Hold

points to a continuation of sluggish discretionary retail conditions over the near

2011A 2012E 2013E

term, DB economists note (Adam Boyton 14/12/11) that this is not inconsistent

P/E (x) 14.6 14.2 13.9

with previous easing cycles. The first two months of the last four RBA easing

Div yield (%) 6.8 7.0 7.2

cycles have seen consumer confidence decline by an average 1.8%, with the

Price/book (x) 0.9 0.9 0.8

benefit of lower interest rates feeding through to confidence with a lag.

Westfield Group (WDC.AX),AUD8.06 Buy

Sale of Myer Melbourne at written down value would be accretive to CFX 2010A 2011E 2012E

We consider the implications of a potential sale of CFX’s interest in the Myer P/E (x) 15.7 12.6 12.0

Melbourne development. Taking into account the book value of the project at Div yield (%) 5.2 6.0 6.3

June-11, on our estimates the carrying value of CFX’s interest on completion Price/book (x) 1.3 1.1 1.0

will be $640m; a net write-down of $85m or ~12% on cost. We estimate a sale

at the written down value would be 2% accretive to FY14 earnings & reduce

gearing to 24%. If CFX were to deploy the proceeds to a 10% share buyback,

EPS accretion could rise to 3.2% in FY14, resulting in balance sheet gearing of

31%, close to the mid-point of the target range. In order for acquisitions to

provide a superior uplift to earnings as compared to a share buyback, CFX

would require a yield of atleast 7.5% (pre-costs) on sub-regional assets…see p4

A-REIT sector valuation and risks, p6

PT’s are generally set with reference to our NAV/SOTP valuations. In setting

PTs we also assess forecast cash earnings (A-FFO) multiple & div yield

relativities. Risks to A-REIT pricing include increases to interest rates

(impacting residential demand, consumer sentiment & financing costs),

potential for lower than expected development returns (due to cost overruns or

leasing shortfalls), & adverse FX moves (impacting o/s asset values & income).



________________________________________________________________________________________________________________

Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced

from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject

companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus,

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. DISCLOSURES AND

ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011.

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





GGP Investor Day: key takeaways for WDC

General Growth Properties (GGP, Buy, TP $17) recently held an Investor Day, providing

an overview of the operating environment, development, capital markets & financials.

Our US REIT analyst (John Perry, 8th December 2011) noted that the investor

th









conference crystallized the progress that GGP has made on both the operating &

financing fronts. Fundamentals continue to improve with tenant sales, rent, &

occupancy all moving in the right direction.



GGP expect core NOI growth to increase from 2.1% in 2011 to 2.4% in 2012

GGP provided FY12 guidance for an increase in core FFO of $80m or 9.5%. At the

operating level, key assumptions included a $50m or 2.4% increase in core NOI. This is

an increase from the 2.1% core NOI growth that GGP expect to achieve in 2011,

underpinned by GGP’s expectations that:



Increase in year-end percentage rent from 94% to 95%, with a 200bp reduction

in temporary occupancy (from 7% to 5%) & an increase in permanent

occupancy from 83.5% to 87%.



Termination fee income is expected by GGP to be unchanged at between $10-

$15m.



Of the 2012 leasing budget, GGP have achieved 80% of the required budget for

re-leasing 2012 expiring leases.



In relation to conversion of temporary leases to permanent, GGP are seeking on

average to increase rents from $17/ft² on average to $50-60/ft² on average.



Portfolio occupancy cost average is 13.6%. GGP expect to achieve a 7% initial

cash rent spread on lease deals approved in 2011 & set to commence in 2012

(average of new deals & renewals).



The average initial rent of new deals written in 2011 & set to commence in

2012 is $58.69/ft. Given that expiring rents in 2013 & 2014 average $53.89/ft &

$55.38/ft respectively, GGP expect the positive releasing spreads to continue.



US mall income growth likely to be accelerate in 2012; in contrast to Australia

In our view, the commentary & operating statistics put forward by GGP confirmed our

thinking that for US malls, 2012 is likely to be a stronger year of growth at the

operating/property level, as compared to 2011. This is in contrast to Australian regional

malls, where we expect that 2012 is likely to be a year of below trend growth. If we

annualize the negative Australian rent spreads as implied by WDC’s Q3 result, we

expect property income growth to be in a range of 2-3% in 2012, with the lower end of

the range allowing for a 1% increase in specialty vacancy. This is below the c.4% comp

NOI that we expect for Westfield’s Australian portfolio in 2011, at the top-end of its 3-

4% guidance range. In FY12 we forecast 1.5% comp NOI growth in WDC’s US assets,

as compared to the 1-2% guidance range for FY11. Our forecasts do not assume that

WDC sell its $2b non-core US assets. WDC’s portfolio sales productivity is $433/ft Q3

compared to GGP at $494/ft. We would expect WDC’s comp NOI growth rate to

improve if the sale of the portfolio is completed, albeit likely to be dilutive to earnings

near term.



Store closures. GAP & Borders stores released at higher rents

Of the 20 Borders stores that GGP expect to get back, 13 had been preleased &

approved prior to the bankruptcy being announced. The average rent spread is 18% on

re-leasing to more productive tenants, with a cash on cost return of 9.4%. GGP

identified 29 GAP stores that are at risk of closing. The average occupancy cost is 11%,

with rental upside to the average 13.6% mall occupancy costs. GGP’s commentary



Page 2 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





noted that a number of international retailers are seeking to expand in the better malls,

including H&M, Uniglo, Joe Fresh & Top-Shop.



Department store sales improving; commitment to new store openings

GGP’s commentary noted that with the exception of Sears (-2.4%) all of the Department

Store retailers within the portfolio have posted YoY increase in sales. Saks +10.3% &

Nordtstrom +7.2% delivered the strongest performance, while JC Penney +1.2% &

Dillard’s +4.0% also demonstrated growth. Commentary indicates that a good level of

sales growth continued throughout the Black Friday holiday weekend following

Thanksgiving. Within the GGP portfolio 3 new department store openings are scheduled

for 2011, with a further 4 scheduled for 2012 & 2013. This includes a new 120,000ft²

Bloomingdales at Glendale Galleria, California, as part of the centre’s re-development

(replacing Mervyn’s).



Development. $408m of $1.6b pipeline to commence at +10% stablised yields

GGP’s total identified re-development pipeline stands at $1.6b, with $408m expected to

be spent in the next 2 years (100% share including JV partner spend). GGP seek to

achieve a double-digit stabilized year cash on cost return. The Glendale Galleria project

for example is a renovation of an existing mall, where 37% of in-line leases expire in

2012 & 2013. GGP expect to re-tenant a significant component of the mall, lifting the

average rental rate. The centre is currently generating sales of $674/ft². The centre was

last redeveloped in 1997. The development has a forecast spend of $150m & is due to

commence in January 2012.



Capital markets. CMBS liquidity has improved, life companies consistent lenders

GGP provided an update with respect to capital market initiatives that aim to simplify

the capital structure, reduce recourse debt and reduce total debt in order to achieve an

investment grade rating. From an overall perspective, GGP noted that the company

continues to see plenty of money seeking quality real estate. Liquidity of CMBS markets

has improved, & whilst spreads have moved out in 2011 the CMBS conduits have

remained open. Bank appetite remains healthy across the spectrum of credit products &

life insurance companies are a consistent lender for quality assets. GGP completed

$4.2b of total loans in 2011 at an average interest rate of 5.06% for 10 year term. This

consisted of $2.0b life company loans & $2.2b CMBS. GGP commented that the

company has seen multiple bids from all capital sources across the capital stack during

2011 & expect this to continue.



Commentary points to good demand from JV partners for prime malls

GGP’s investment portfolio currently has JV relationships in place over 19% of the

portfolio with a range of US pension & global sovereign wealth funds. Commentary

indicates there has been expression of interest to JV more than half of GGP’s 137 malls,

both A & B class malls. The capital demand is from a range of US domestic institutions,

offshore institutions, private market buyers & sovereign wealth funds. GGP will look to

sell a combination of non-core malls & JV the core portfolio, noting recent transactions

at sub 5% cap rates for class A malls. Non-core asset sales are not in guidance & will

likely be dilutive to FFO. In addition to the spin-off of Rouse Properties expected to

occur in mid January 2012, during 2011 GGP sold 2mft² of non-core assets, with 5mft²

of non-core office buildings & strip malls remaining to be sold, with ~$1b value.



Brazil, investment has achieved 30% IRR. Same store sales up 11% yoy

Following GGP’s initial investment in 2004, GGP’s investment in Brazil has grown from

$125m to ~$500m with an IRR of just under 30%. In 2011 same store sales are up 11%

yoy. GGP estimate 23% FFO growth in FY12 from the Aliansce Shopping Centres.









Deutsche Bank AG/Sydney Page 3

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





CFX, potential for sale of Myer Melbourne site

Recent press reports (The Australian, 8 December) suggest that CFX may potentially

dispose of its interest in the Myer Melbourne project to its existing JV partner,

Government of Singapore Investment Corporation (GIC). In the following section we

have considered the implications from the potential sale & re-investment.



On our estimates CFX’s total cost of funding its interest in the Myer Bourke St store &

Emporium Melbourne is $725m. This includes the remaining cost to complete ($246m),

relating to the construction & leasing budget of Emporium Melbourne. Completion is

scheduled for late 2013.



Taking into account the book value of the project at June-11, on our estimates the

carrying value of CFX’s interest on completion will be $640m, assuming the cost to

complete is supported by the carrying value with no other revaluation adjustments.

Therefore on our estimates the net write-down is $85m or ~12% on cost.



Figure 1: Myer Melbourne, CFX carrying value vs cost

Carrying value ($m) Cost ($m) Write-down ($m)

Myer Bourke St book value June-11 110.8 165.0 -54.2





Myer Emporium book value June-11 283.5

Cost to complete June-11 246.0

Forecast total Myer Emporium 529.5 560 -30.5

Project total 640.3 725.0 -84.7

Source: Deutsche Bank estimates, company data







As shown in the table over page, our estimates assume that CFX derive a 5.1% return

on the carrying value ($640m) in FY14, a 2 year stabilization period & a return of 6.5%

by FY16. The equivalent yield on $725m cost would be 4.5% in year 1, rising to 5.7% on

a stabilized basis.



Our analysis assumes that CFX sell its interest at the $640m written down value. From

an earnings perspective, we have focused on FY14 (and beyond) as the first year of

completion of Emporium Melbourne.



Scenario 1, retire $300m convertibles & repay debt. 2% accretive FY14, ~ neutral FY16

CFX have 2 tranches of convertibles on issue. The August 2014 tranche have $295m

face value, 5.075% coupon & investor put date August 2012. The July 2016 notes have

$300m face value on issue, 5.75% coupon & investor put date July 2014.



Assuming that convertible holders exercise the put option in August 2012 over $295m,

with the balance of proceeds used to repay borrowings, on our estimates EPS accretion

would be 2.2% in FY14. In FY16 the EPS impact would be broadly neutral vs our base

case forecasts, which assume that the convertibles are refinanced at a coupon of

5.75%.



Under this scenario gearing would reduce from 26% to 24%, below the target range of

25-35%.



Scenario 2, buyback 10% of ordinary shares. 3.2% accretive FY14, 1.6% accretive FY16

At the current share price, on our estimates a 10% buyback would require $522m

allocation of capital. On our estimates the combined impact of selling Myer Melbourne

& undertaking a 10% buyback at the current share price would be 3.2% accretive in

FY14 & 1.6% accretive in FY16. We have assumed that the convertibles remain on



Page 4 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





issue. A more conservative allowance would be for the convertibles to be repaid on sale

of Myer Melbourne (investor put excercised) & the buyback funded by ordinary debt. If

we assumed an all-in rate of 6.25% on new debt, the incremental accretion would be

lower at 2.8% in FY14 & 1.2% in FY16.



Under this scenario gearing would increase from 27% to 31%, including the remaining

cost to complete the development program ($435m).



Scenario 3, re-deploy full amount of $640m into acquisitions at 7.5% yield before costs

If we assume CFX acquire sub-regional assets at 7.5% before acquisition costs (7.14%

post), and assume convertibles remain on issue, then accretion is 3.2% FY14 & 1.5%

FY16. Under this scenario gearing would increase from 26% to 30%, at the mid-point of

the target range.



Figure 2: Scenario analysis, sale of Myer Melbourne at written down value

Capital Jun-14 Jun-15 Jun-16

DB estimate of return on carrying value $640m 640.3 5.1% 5.8% 6.5%





Option 1 - retire debt & convertibles

Convertible bonds 1st tranche (DB refinance estimate) 295 5.75% 5.75% 5.75%

Debt 345.3 7.04% 7.04% 7.04%

Average cost of debt funding 6.4% 6.4% 6.4%





Accretion $m 8.5 4.4 -0.4

Accretion % 2.2% 1.1% -0.1%





Option 2 – buyback

Shares on issue 2,840

Buyback 10%

Price 1.84

Cost of buyback $m 522





Earnings / security 13.3 13.8 14.5

Earnings yield 7.2% 7.5% 7.9%





Incremental upside from buyback % EPS 1.0% 1.3% 1.7%

Accretion Myer sale & 10% buyback 3.2% 2.4% 1.6%



Accretion Myer sale & 10% buyback funded by ordinary 2.8% 2.0% 1.2%

debt & convertibles repaid





Option 3 – acquisitions

Passing yield before acquisition costs 7.50%

Passing yield after costs 7.14% 7.1% 7.4% 7.6%

Growth 3.0%

Capital deployed to acquisition 640.3





Accretion from acquisitions 1.1% 1.4% 1.6%

Accretion Myer sale & acquisitions 3.2% 2.4% 1.5%

Source: Deutsche Bank estimates, company data









Deutsche Bank AG/Sydney Page 5

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research









Valuation and Risks

CFS Retail Property Trust (CFX, Hold, PT $1.85)

Our valuation of CFX is based on a forward NAV approach, utilizing an average 6.6% cap

rate on FY12 forecasts, adjusting for the impact of part period development completions.

This consists of 6.5% on the core portfolio of regional & sub-regional assets, together with

8.26% on the outlet centres.



We deduct CFX’s debt, and subtract management fee leakage, applying a 10x multiple to

recurring management fee streams, netting off income from management flowback.

Adopting this approach yields an FY12E NAV of $2.03/s.



Our PT of $1.85 is set at a discount to our valuation, taking into account risks that include of

stage 2 of the Melbourne project, Emporium Melbourne.



Downside risks. While the construction cost of the contract has now been locked in, CFX

require a greater volume of leasing to offset the higher costs. Potentially this project could

cap CFX’s growth rate in the year of completion. Other downside risks also include

redemption of convertible notes in August 2012 & associated refinance risks.



Upside risks include asset sales & potential share buyback. With CFX trading at a reasonable

discount to SOTP valuation, the potential for asset sales in-line with book value could be

used to fund a share buyback, which we expect would be accretive to both earnings &

valuation.



Westfield Group (WDC, Buy, PT $9.42)

Our SOTP methodology adopts cap rates on the income producing portfolio, effectively

marking to market the current NTA. We add valuation for management (of 3rd party property,

funds and developments) plus the future income and capital growth from development

completions. We use FY12 income forecasts.



Adopting this method our SOTP valuation is $9.42/s. Our sum-of-parts valuation consists of

3 components:



We value the income producing portfolio at $8.01/s. As at June-11 NTA was $7.69/s

before deferred tax liabilities.



Plus the value attributed to property & development management fees at $1.15/s.



In addition we value the development pipeline at $0.26/s (after overhead costs) to arrive

at our SOTP $9.42/s.

Key valuation parameters are as follows:



We allow for an average cap rate of 6.0% in the Australian portfolio, in-line with the

average cap rate of 6.0% at June-11 book value. We use 7.5% in NZ, in-line with June-

11 average book value.



US cap rate. We adopt 6.5%, vs 6.4% at book value June-111.

We have revalued the UK portfolio adopting a 5.00% average cap rate for the

completed Westfield London development based on stabilised NOI forecast in FY12.



Downside risks: tenant bankruptcy & lower rental levels. In the Australian portfolio a

key downside risk relates to rental growth, with occupancy costs reported at 18.4% at

June 11. The completion and leasing of development projects remains a key downside

risk, including the stabilization period at Sydney City & Stratford given the rent guarantees

in place at both projects.



Page 6 Deutsche Bank AG/Sydney

Deutsche Bank AG/Sydney









Markets Research

Deutsche Bank

Figure 3: Key Financials

14-Dec-11

Deutsche Bank Property Trust Table Distribution per unit DPS Annualised Yields Earnings per unit EPS Earnings yield

ASX Growth Growth

Trust Code Rating Price 2011 2012F 2013F 2014F 2015F (3 yr) 2011 2012F 2013F 2014F 2015F 2011 2012F 2013F 2014F 2015F (3 yr) 2012F 2013F

Retail

Centro Retail Trust CRF Buy $1.78 n/a 12.3c 12.6c 13.3c 13.9c 4.1% n/a 6.9% 7.1% 7.5% 7.8% n/a 15.1c 15.4c 16.3c 17.1c 4.1% 8.5% 8.7%

CFS Retail Property Trust CFX Hold $1.84 12.7c 13.0c 13.2c 13.3c 13.8c 2.1% 7.1% 7.3% 7.4% 7.5% 7.8% 12.7c 13.0c 13.2c 13.3c 13.8c 2.1% 7.1% 7.2%

Charter Hall Retail CQR Buy $3.29 24.8c 25.9c 27.1c 28.4c 29.4c 4.4% 7.8% 8.2% 8.6% 9.0% 9.3% 28.0c 28.7c 30.2c 31.6c 32.7c 4.4% 8.7% 9.2%

Westfield Group WDC Buy $8.06 48.4c 51.1c 53.8c 55.1c 57.3c 4.2% 6.1% 6.5% 6.8% 7.0% 7.3% 64.2c 67.0c 70.4c 71.8c 74.8c 4.3% 8.3% 8.7%

Westfield Retail Trust WRT Hold $2.57 16.5c 17.0c 17.3c 18.0c 18.9c 3.7% 6.6% 6.8% 6.9% 7.2% 7.5% 18.3c 18.8c 19.2c 20.0c 21.0c 3.7% 7.3% 7.5%

Totals / Weighted statistics 0.9% 4.2% 3.8% 2.8% 4.3% 3.8% 6.2% 6.7% 7.0% 7.2% 7.5% 1.7% 3.5% 3.8% 2.6% 4.4% 3.9% 7.9% 8.2%



Office

Commonwealth Property Office Fund CPA Hold $0.97 5.5c 5.7c 6.2c 6.4c 6.7c 5.5% 5.9% 6.0% 6.6% 6.8% 7.1% 6.9c 7.1c 7.7c 8.0c 8.3c 5.4% 7.4% 8.0%









14 December 2011

Charter Hall Office CQO Hold $3.56 20.3c 14.4c 15.2c 16.8c 18.2c 8.1% 8.3% 5.9% 6.2% 6.9% 7.4% 27.1c 22.0c 19.0c 21.0c 22.7c 1.1% 7.3% 7.8%

Investa Office Fund IOF Buy $0.60 3.9c 3.9c 4.0c 4.2c 4.3c 3.7% 6.6% 6.6% 6.8% 7.1% 7.3% 5.0c 5.0c 5.2c 5.4c 5.6c 3.5% 8.4% 8.6%

Totals / Weighted statistics 2.0% -6.9% 6.5% 5.5% 5.1% 5.7% 6.8% 6.2% 6.5% 6.9% 7.3% -7.2% -3.4% 1.0% 5.5% 5.1% 3.7% 7.6% 8.1%



Diversified

Abacus Property Group ABP Hold $1.93 16.5c 15.6c 16.0c 17.0c 18.5c 5.8% 8.9% 8.4% 8.6% 9.1% 9.9% 19.4c 19.5c 19.9c 21.2c 23.1c 5.8% 10.1% 10.4%

Australand Holdings Limited ALZ Buy $2.62 21.5c 21.9c 22.7c 23.8c 25.0c 4.5% 8.6% 8.7% 9.1% 9.5% 9.9% 23.0c 24.0c 25.3c 26.8c 28.1c 5.4% 9.1% 9.6%

Challenger Diversified Property Group CDI Hold $0.51 4.0c 4.1c 4.1c 4.2c 4.3c 1.6% 8.2% 8.5% 8.5% 8.6% 8.9% 4.9c 4.7c 4.9c 5.2c 5.4c 4.8% 9.3% 9.6%

Charter Hall Group CHC Buy $2.00 16.5c 19.5c 18.5c 19.2c n/a 5.1% 8.7% 10.2% 9.7% 10.1% n/a 20.6c 24.4c 23.1c 24.0c n/a 5.2% 12.2% 11.6%









Property

Cromwell Property Group CMW Hold $0.67 7.0c 7.0c 7.0c 7.0c 7.2c 1.0% 10.8% 10.7% 10.8% 10.8% 11.1% 7.1c 7.3c 7.3c 7.5c 7.8c 2.1% 11.0% 11.0%

Dexus Property Group DXS Hold $0.88 5.2c 5.4c 5.5c 5.8c 6.0c 3.8% 6.1% 6.3% 6.5% 6.7% 7.0% 7.4c 7.6c 7.9c 8.2c 8.6c 3.8% 8.7% 9.0%

General Property Trust GPT Hold $3.20 17.5c 18.0c 18.5c 19.0c 20.0c 3.5% 5.6% 5.8% 6.0% 6.1% 6.4% 22.2c 22.9c 23.5c 24.1c 25.4c 3.5% 7.2% 7.3%

Mirvac Group MGR Hold $1.25 8.2c 8.3c 8.3c 8.4c 8.7c 1.6% 6.7% 6.7% 6.7% 6.8% 7.1% 10.6c 10.6c 10.6c 11.8c 12.4c 5.6% 8.4% 8.4%

Stockland Group SGP Buy $3.30 23.7c 24.0c 26.2c 28.7c 30.6c 8.5% 7.4% 7.5% 8.2% 9.0% 9.6% 32.0c 32.4c 35.0c 38.3c 40.8c 8.0% 9.8% 10.6%

Totals / Weighted statistics 5.8% 2.2% 4.2% 5.0% 5.0% 4.8% 6.8% 7.0% 7.3% 7.7% 7.8% 7.3% 2.2% 3.9% 6.9% 5.3% 5.5% 8.8% 9.2%



Industrial

Goodman Group GMG Buy $0.58 3.3c 3.7c 4.1c 4.4c 4.8c 8.9% 5.9% 6.6% 7.3% 7.9% 8.6% 5.7c 6.2c 6.8c 7.4c 8.0c 8.9% 10.7% 11.8%

Totals / Weighted statistics -0.6% 11.6% 9.9% 8.8% 7.9% 8.9% 5.9% 6.6% 7.3% 7.9% 8.6% 2.2% 8.1% 9.9% 8.8% 7.9% 8.9% 10.7% 11.8%



International

Tishman Speyer Office Fund TSO Hold $0.49 0.0c 0.0c 0.0c 0.0c 0.0c n/a 0.0% 0.0% 0.0% 0.0% 0.0% 4.5c 5.1c 6.0c 8.0c 10.5c 27.5% 10.4% 12.2%

Totals / Weighted statistics 0.0% 0.0% 0.0% 0.0% 0.0% n/a 0.0% 0.0% 0.0% 0.0% 0.0% -55.9% 14.1% 18.1% 33.0% 32.0% 27.5% 10.4% 12.2%



Market statistics 2.7% 2.9% 4.5% 4.2% 4.8% 4.6% 6.4% 6.7% 7.0% 7.4% 7.6% 2.9% 2.7% 4.0% 4.9% 5.1% 4.8% 8.4% 8.8%









DB A-REIT Strategy

Developers/Contractors

Lend Lease LLC Buy $7.38 35.0c 40.7c 44.8c 51.1c 56.7c 11.7% 4.8% 5.6% 6.2% 7.0% 7.8% 85.6c 81.4c 89.7c 102.3c 113.4c 11.7% 11.0% 12.2%

Totals / Weighted statistics 7.6% 16.2% 10.2% 14.0% 10.9% 11.7% 4.8% 5.6% 6.2% 7.0% 7.8% 31.5% -5.0% 10.2% 14.0% 10.9% 11.7% 11.0% 12.2%









Source: Deutsche Bank

Page 7

Page 8









Markets Research

Deutsche Bank

Figure 4: AFFO

14-Dec-11

Deutsche Bank Property Trust Table AFFO per unit AFFO AFFO Annualised Yields Price/AFFO

ASX Growth

Trust Code Rating Price 2011 2012F 2013F 2014F 2015F (3 yr) 2011 2012F 2013F 2014F 2015F 2011 2012F 2013F 2014F 2015F

Retail

Centro Retail Trust CRF Buy $1.78 n/a 12.3c 12.9c 13.8c 14.4c 5.6% n/a 6.9% 7.3% 7.8% 8.1% n/a 14.5x 13.8x 12.9x 12.3x

CFS Retail Property Trust CFX Hold $1.84 10.9c 11.6c 11.5c 12.7c 13.3c 4.6% 5.9% 6.3% 6.3% 6.9% 7.2% 16.8x 15.9x 15.9x 14.5x 13.9x

Charter Hall Retail CQR Buy $3.29 25.8c 26.1c 27.4c 29.7c 30.8c 5.7% 7.8% 7.9% 8.3% 9.0% 9.4% 12.8x 12.6x 12.0x 11.1x 10.7x

Westfield Group WDC Buy $8.06 59.1c 61.1c 64.3c 65.5c 68.3c 3.8% 7.3% 7.6% 8.0% 8.1% 8.5% 13.6x 13.2x 12.5x 12.3x 11.8x

Westfield Retail Trust WRT Hold $2.57 17.5c 17.6c 18.0c 18.8c 19.8c 3.8% 6.8% 6.9% 7.0% 7.3% 7.7% 14.7x 14.6x 14.3x 13.7x 13.0x









14 December 2011

Totals / Weighted statistics -12.3% 3.1% 3.6% 4.0% 4.5% 4.0% 6.7% 7.2% 7.5% 7.8% 8.1% 13.8x 13.9x 13.5x 12.9x 12.4x



Office

Commonwealth Property Office Fund CPA Hold $0.97 4.6c 5.7c 6.6c 6.6c 7.3c 8.8% 4.8% 5.9% 6.8% 6.9% 7.6% 21.0x 17.1x 14.7x 14.6x 13.2x

Charter Hall Office CQO Hold $3.56 9.8c 14.5c 15.5c 17.1c 18.2c 7.9% 2.8% 4.6% 6.3% 7.0% 7.4% 36.3x 21.7x 15.8x 14.3x 13.5x

Investa Office Fund IOF Buy $0.60 4.2c 4.3c 4.8c 5.2c 5.3c 7.4% 7.0% 7.2% 8.1% 8.7% 8.9% 14.4x 13.9x 12.4x 11.5x 11.2x

Totals / Weighted statistics -29.9% 24.2% 12.4% 5.4% 6.9% 8.2% 4.8% 5.9% 7.0% 7.4% 7.9% 23.3x 17.4x 14.3x 13.6x 12.7x



Diversified

Abacus Property Group ABP Hold $1.93 12.1c 11.8c 17.9c 19.1c 20.9c 21.1% 6.3% 6.1% 9.3% 9.9% 10.9% 16.0x 16.3x 10.8x 10.1x 9.2x









Property

Australand Holdings Limited ALZ Buy $2.62 16.3c 17.7c 18.4c 20.2c 21.3c 6.4% 6.2% 6.8% 7.0% 7.7% 8.1% 16.1x 14.8x 14.2x 13.0x 12.3x

Challenger Diversified Property Group CDI Hold $0.51 4.1c 2.5c 3.8c 4.6c 4.8c 24.7% 8.2% 4.9% 7.5% 9.2% 9.5% 12.3x 20.3x 13.3x 10.9x 10.5x

Charter Hall Group CHC Buy $2.00 18.5c 22.1c 20.8c 21.5c n/a 5.2% 9.2% 11.1% 10.4% 10.8% n/a 10.8x 9.0x 9.6x 9.3x n/a

Cromwell Property Group CMW Hold $0.67 5.8c 5.8c 5.6c 5.5c 5.8c -0.3% 8.7% 8.7% 8.4% 8.3% 8.7% 11.6x 11.4x 12.0x 12.1x 11.5x

Dexus Property Group DXS Hold $0.88 4.2c 5.5c 6.1c 6.4c 6.6c 6.3% 4.7% 6.3% 7.0% 7.3% 7.5% 21.1x 16.0x 14.3x 13.8x 13.3x

General Property Trust GPT Hold $3.20 18.2c 18.4c 19.2c 19.8c 21.8c 5.7% 5.7% 5.8% 6.0% 6.2% 6.8% 17.6x 17.4x 16.6x 16.2x 14.7x

Mirvac Group MGR Hold $1.25 7.8c 7.5c 7.7c 9.2c 9.7c 9.3% 6.3% 6.0% 6.2% 7.4% 7.8% 16.0x 16.7x 16.2x 13.5x 12.8x

Stockland Group SGP Buy $3.30 28.7c 25.8c 27.7c 31.8c 34.3c 9.9% 8.7% 7.8% 8.4% 9.6% 10.4% 11.5x 12.8x 11.9x 10.4x 9.6x

Totals / Weighted statistics 6.1% 2.1% 7.4% 10.2% 6.8% 8.1% 6.8% 6.8% 7.2% 8.0% 8.3% 15.6x 15.2x 14.2x 12.9x 11.9x



Industrial

Goodman Group GMG Buy $0.58 4.8c 5.2c 5.9c 6.4c 7.0c 10.2% 8.3% 9.1% 10.2% 11.2% 12.2% 12.0x 11.0x 9.8x 8.9x 8.2x

Totals / Weighted statistics 11.9% 9.4% 12.3% 9.5% 8.7% 10.2% 8.3% 9.1% 10.2% 11.2% 12.2% 12.0x 11.0x 9.8x 8.9x 8.2x



International

Tishman Speyer Office Fund TSO Hold $0.49 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a









DB A-REIT Strategy

Totals / Weighted statistics n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a



Market statistics -2.8% 4.9% 6.3% 6.8% 5.8% 6.3% 6.7% 6.9% 7.4% 7.8% 8.2% 15.1x 14.5x 13.6x 12.7x 11.9x

Deutsche Bank AG/Sydney









Source: Deutsche Bank

Deutsche Bank AG/Sydney









Markets Research

Deutsche Bank

Figure 5: Debt

14-Dec-11

Deutsche Bank Property Trust Table Credit

ASX B/Sheet L/Through Payout Rating Covenant Current Covenant ICR ICR Liquidity Facilty Maturities (bn)

Trust Code Rating Price D/A D/A Policy (S&P) Calculation Measure Gearing Measure Covenant (bn) FY11 FY12 FY13 FY14 FY15 >FY15

Retail

Centro Retail Trust CRF Buy $1.78 41.1% 43.4% 100% AFFO n/a LVR 38.0% 50.0% 2.4x 2.0x $0.0 $0.0 $0.0 $0.6 $0.6 $0.8 $0.0

CFS Retail Property Trust CFX Hold $1.84 27.0% 27.0% 100% A-1/A TL/TA 31.0% 50.0% 2.8x 1.8x $0.2 $0.0 $0.3 $0.2 $0.3 $0.5 $1.0

Charter Hall Retail CQR Buy $3.29 39.1% 42.0% 85%-95% n/a ND/NA 42.3% 60.0% 3.0x 1.8x $0.1 $0.0 $0.0 $0.1 $0.0 $0.2 $0.6

Westfield Group WDC Buy $8.06 36.1% 36.1% 70%-75% A-/Stable ND/NA 38.4% 65.0% 3.3x 1.5x $3.5 $0.1 $2.3 $2.8 $2.4 $0.9 $6.4

Westfield Retail Trust WRT Hold $2.57 20.0% 20.0% 90% A+ ND/NA 20.0% 65.0% 5.7x 1.5x $0.8 $0.0 $0.0 $0.1 $0.4 $0.1 $2.5

Totals / Weighted statistics 32.2% 32.6% 76% 3.4x 1.5x $4.6 $0.1 $2.6 $3.3 $3.1 $1.7 $10.5



Office

Commonwealth Property Office Fund CPA Hold $0.97 20.4% 20.4% 80% A-/A-2 TL/TA 30.0% 45.0% 3.2x 2.0x $0.4 $0.0 $0.1 $0.1 $0.2 $0.1 $0.6









14 December 2011

Charter Hall Office CQO Hold $3.56 19.4% 42.9% 75%-90% n/a LVR 33.0% 60.0% 1.5x 1.5x $0.3 $0.0 $0.0 $0.0 $0.8 $0.3 $0.6

Investa Office Fund IOF Buy $0.60 14.6% 20.5% n/a n/a TL/TA 27.4% 50.0% 5.2x 2.5x $0.4 $0.0 $0.1 $0.0 $0.0 $0.2 $0.2

Totals / Weighted statistics 18.5% 28.5% 81% 2.6x 1.9x $1.1 $0.0 $0.2 $0.1 $1.0 $0.6 $1.3



Diversified

Abacus Property Group ABP Hold $1.93 25.8% 32.1% n/a n/a TL/TTA 30.7% 50.0% 3.1x 2.0x $0.2 $0.0 $0.0 $0.0 $0.3 $0.0 $0.0

Australand Holdings Limited ALZ Buy $2.62 30.7% 30.9% 80%-90% Trust n/a TL/TTA 39.1% 55.0% 3.2x 2.0x $0.4 $0.0 $0.0 $0.6 $0.0 $0.2 $0.5

Challenger Diversified Property Group CDI Hold $0.51 27.1% 27.1% 80%-85% n/a TL/TTA 29.4% 50.0% n/a n/a $0.0 $0.0 $0.0 $0.0 $0.1 $0.1 $0.0

Charter Hall Group CHC Buy $2.00 8.1% 36.6% n/a n/a n/a n/a n/a n/a n/a $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Cromwell Property Group CMW Hold $0.67 49.0% 50.0% 90% n/a LVR 54.4% 59.8% 2.3x 1.5x $0.0 $0.0 $0.0 $0.0 $0.7 $0.1 $0.0









Property

Dexus Property Group DXS Hold $0.88 28.4% 28.4% 70% FFO BBB+ D/TTA 29.1% 55.0% 3.1x 2.0x $0.6 $0.0 $0.1 $0.1 $0.5 $0.6 $1.0

General Property Trust GPT Hold $3.20 21.8% 22.6% 80% A-/Stable ND/NTTA 21.8% 40.0% 4.0x 2.0x $0.4 $0.0 $0.3 $1.4 $0.2 $0.0 $0.1

Mirvac Group MGR Hold $1.25 26.3% 28.0% 70%-80% BBB TL/TTA 39.1% 55.0% 4.0x 2.3x $1.2 $0.0 $0.1 $0.3 $0.5 $0.5 $1.5

Stockland Group SGP Buy $3.30 22.0% 22.0% 75% A-/Stable TL/TTA 31.8% 45.0% 5.3x 2.0x $0.6 $0.0 $0.0 $0.2 $0.7 $0.4 $1.8

Totals / Weighted statistics 25.3% 26.6% 94% 4.0x 2.1x $2.9 $0.0 $0.5 $2.6 $3.0 $2.0 $4.9



Industrial

Goodman Group GMG Buy $0.58 23.0% 36.0% 60% BBB- NL/NTA 29.9% 55.0% 4.5x 2.0x $1.3 $0.0 $0.4 $0.2 $0.4 $0.3 $1.7

Totals / Weighted statistics 23.0% 36.0% 60% 4.5x 2.0x $1.3 $0.0 $0.4 $0.2 $0.4 $0.3 $1.7



International

Tishman Speyer Office Fund TSO Hold $0.49 66.2% 66.2% Suspended n/a D/GAV 67.4% 85.0% 1.2x 1.1x $0.0 $0.0 $0.4 $0.0 $0.4 $0.0 $0.2

Totals / Weighted statistics 66.2% 66.2% n/a 1.2x 1.1x $0.0 $0.0 $0.4 $0.0 $0.4 $0.0 $0.2



Market statistics 28.2% 30.3% 75% 3.5x 1.8x $10.2 $0.1 $4.1 $6.2 $7.9 $4.5 $18.8



Developers/Contractors









DB A-REIT Strategy

Lend Lease LLC Buy $7.38 8.9% 8.9% 40%-60% BBB- ND/NTTA 8.9% 50.0% 6.7x 2.5x $1.9 $0.0 $0.0 $0.1 $0.7 $0.6 $1.3

Totals / Weighted statistics 8.9% 8.9% 50% 6.7x 2.5x $1.9 $0.0 $0.0 $0.1 $0.7 $0.6 $1.3









Source: Deutsche Bank

Page 9

Page 10









Markets Research

Deutsche Bank

Figure 6: Current Valuation

14-Dec-11

Deutsche Bank Property Trust Table Valuation Returns Yield relative to XPK Balance Sheet Prospective Look

ASX NTA/ Price/ DB NAV/ Price/ Price Capital Prosp. Prosp. Historic Yield Total Gross Debt/ Through

Trust Code Rating Price Unit NTA SOTP NAV Target Return Yield TSR Yield Yield Ratio Assets (m) Debt (m) Assets Gearing

Retail

Centro Retail Trust CRF Buy $1.78 $2.35 0.76x $2.27 0.78x $1.90 7.0% 7.0% 14.0% 1.04x n/a n/a $5,494.6 $1,790.9 32.6% 43.4%

CFS Retail Property Trust CFX Hold $1.84 $2.05 0.90x $2.03 0.91x $1.85 0.5% 7.3% 7.8% 1.09x 1.14x 0.96x $9,078.5 $2,451.9 27.0% 27.0%

Charter Hall Retail CQR Buy $3.29 $3.54 0.93x $3.44 0.96x $3.44 4.6% 8.2% 12.7% 1.22x 1.30x 0.94x $1,970.9 $768.0 39.0% 42.0%

Westfield Group WDC Buy $8.06 $7.07 1.14x $9.42 0.86x $9.42 16.9% 6.3% 23.2% 0.94x 0.91x 1.03x $36,696.7 $13,294.7 36.2% 36.1%

Westfield Retail Trust WRT Hold $2.57 $3.21 0.80x $2.98 0.86x $2.83 10.1% 6.7% 16.8% 1.00x 1.02x 0.98x $13,461.6 $3,050.5 22.7% 20.0%

Totals / Weighted statistics Retail 1.00x 0.86x 12.2% 6.6% 18.9% $66,702.2 $21,356.1 32.0% 32.6%



Office

Commonwealth Property Office Fund CPA Hold $0.97 $1.12 0.86x $0.95 1.02x $0.95 -1.6% 6.0% 4.5% 0.90x 0.98x 0.91x $3,530.7 $621.6 17.6% 20.4%









14 December 2011

Charter Hall Office CQO Hold $3.56 $3.76 0.95x $3.51 1.01x $3.40 -3.6% 5.9% 2.3% 0.88x 1.14x 0.77x $1,973.9 $626.5 31.7% 42.9%

Investa Office Fund IOF Buy $0.60 $0.73 0.82x $0.68 0.90x $0.67 11.7% 6.7% 18.3% 1.00x 1.05x 0.95x $2,082.5 $136.2 6.5% 20.5%

Totals / Weighted statistics Office 0.87x 0.98x 1.7% 6.2% 7.9% $7,587.1 $1,384.3 18.2% 28.5%



Diversified

Abacus Property Group ABP Hold $1.93 $2.76 0.70x $2.30 0.84x $2.30 19.5% 8.4% 27.9% 1.25x 1.23x 1.02x $1,573.8 $429.6 27.3% 32.1%

Australand Holdings Limited ALZ Buy $2.62 $3.55 0.74x $3.07 0.85x $3.07 17.2% 8.7% 25.9% 1.30x 1.26x 1.03x $4,284.8 $1,654.1 38.6% 30.9%

Challenger Diversified Property Group CDI Hold $0.51 $0.67 0.75x $0.54 0.94x $0.54 6.9% 8.5% 15.4% 1.27x 1.32x 0.96x $929.6 $275.0 29.6% 27.1%

Charter Hall Group CHC Buy $2.00 $2.21 0.90x $2.44 0.82x $2.40 20.0% 10.2% 30.2% 1.53x 1.32x 1.15x $891.8 $32.4 3.6% 36.6%

Cromwell Property Group CMW Hold $0.67 $0.73 0.91x $0.73 0.91x $0.73 9.8% 10.8% 20.5% 1.61x 1.54x 1.04x $1,597.8 $811.7 50.8% 50.0%









Property

Dexus Property Group DXS Hold $0.88 $1.01 0.87x $0.88 1.00x $0.88 0.0% 6.3% 6.3% 0.93x 1.02x 0.91x $8,433.6 $2,090.0 24.8% 28.4%

General Property Trust GPT Hold $3.20 $3.64 0.88x $3.23 0.99x $3.12 -2.5% 5.7% 3.2% 0.85x 0.93x 0.92x $9,732.2 $2,237.1 23.0% 22.6%

Mirvac Group MGR Hold $1.25 $1.62 0.77x $1.35 0.93x $1.35 8.0% 6.7% 14.7% 1.01x 1.09x 0.93x $9,128.4 $2,651.4 29.0% 28.0%

Stockland Group SGP Buy $3.30 $3.65 0.90x $3.95 0.84x $3.95 19.7% 7.6% 27.3% 1.14x 1.09x 1.05x $15,179.1 $3,303.0 21.8% 22.0%

Totals / Weighted statistics Diversified 0.86x 0.92x 8.7% 7.0% 15.7% $51,751.3 $13,484.4 26.1% 26.6%



Industrial

Goodman Group GMG Buy $0.58 $0.70 0.82x $0.71 0.81x $0.75 30.4% 6.6% 37.1% 0.99x 0.90x 1.10x $7,807.5 $1,838.4 23.5% 36.0%

Totals / Weighted statistics Industrial 0.82x 0.81x 30.4% 6.6% 37.1% $7,807.5 $1,838.4 23.5% 36.0%



International

Tishman Speyer Office Fund TSO Hold $0.49 $1.02 0.48x $0.52 0.94x $0.52 6.1% 0.0% 6.1% 0.00x 2.80x 0.00x $1,537.7 $1,044.1 67.9% 66.2%

Totals / Weighted statistics International 0.48x 0.94x 6.1% 0.0% 6.1% $1,537.7 $1,044.1 67.9% 66.2%



Market statistics 0.93x 0.89x 11.1% 6.7% 17.8% $135,385.7 $39,107.2 28.9% 30.3%



Developers/Contractors









DB A-REIT Strategy

Lend Lease LLC Buy $7.38 $4.05 1.82x $9.55 0.77x $9.50 28.7% 5.6% 34.3% 1.00x n/a n/a $10,637.8 $1,606.3 15.1% 8.9%

Totals / Weighted statistics Developers/Contractors 1.82x 0.77x 28.7% 5.6% 34.3% $10,637.8 $1,606.3 15.1% 8.9%

Deutsche Bank AG/Sydney









Source: Deutsche Bank

Deutsche Bank AG/Sydney









Markets Research

Deutsche Bank

Figure 7: Valuation metrics

14-Dec-11

Deutsche Bank Property Trust Table DB Valuation Cap Rate

ASX Peak Spot DB NTA/ Australia USA Europe/UK Other Dev't EV/EBIT DB NAV/

Trust Code Rating Price WACR WACR WACR unit Retail Office Ind'l Retail Office Ind'l Retail Office Ind'l Trend EBIT Mulitple SOTP

Retail

Centro Retail Trust CRF Buy $1.78 - 7.3% 7.3% $2.35 7.3% - - - - - - - - - - - $2.27

CFS Retail Property Trust CFX Hold $1.84 5.7% 6.6% 6.6% $2.05 6.6% - - - - - - - - - - - $2.03

Charter Hall Retail CQR Buy $3.29 6.4% 8.1% 8.1% $3.54 8.0% - - 8.8% - - 8.4% - - - - - $3.44

Westfield Group WDC Buy $8.06 5.8% 6.2% 5.9% $7.07 6.0% - - 6.5% - - 5.0% - - 7.5% NPV 12-15%IRR $9.42

Westfield Retail Trust WRT Hold $2.57 - 6.1% 6.2% $3.21 6.1% - - - - - - - - 7.4% - - $2.98

Totals / Weighted statistics



Office

Commonwealth Property Office Fund CPA Hold $0.97 6.3% 7.5% 7.6% $1.12 - 7.6% - - - - - - - - - - $0.95

$3.56 6.0% 7.7% 7.9% - 7.9% - - - - - - - -









14 December 2011

Charter Hall Office CQO Hold $3.76 - - $3.51

Investa Office Fund IOF Buy $0.60 6.1% 7.2% 7.4% $0.73 - 7.9% - - - - - 5.8% - - - - $0.68

Totals / Weighted statistics



Diversified

Abacus Property Group ABP Hold $1.93 7.8% 8.5% 8.5% $2.76 6.5% 7.7% 8.2% - - - - - - - - - $2.30

Australand Holdings Limited ALZ Buy $2.62 6.9% 8.3% 8.4% $3.55 - 8.0% 8.8% - - - - - - - 87.4 9.0x $3.07

Challenger Diversified Property Group CDI Hold $0.51 7.1% 8.2% 8.0% $0.67 8.3% 8.1% 8.8% - - - 7.6% - 7.6% - - - $0.54

Charter Hall Group CHC Buy $2.00 - 7.9% 8.1% $2.21 - - - - - - - - - - - - $2.44

Cromwell Property Group CMW Hold $0.67 7.2% 8.2% 8.2% $0.73 - - - - - - - - - - - - $0.73

Dexus Property Group DXS Hold $0.88 6.4% 7.7% 7.8% $1.01 - 7.4% 8.7% - - 8.1% - - 7.8% - - - $0.88









Property

General Property Trust GPT Hold $3.20 6.0% 6.7% 6.7% $3.64 6.3% 7.3% 8.3% - - - - - - - - - $3.23

Mirvac Group MGR Hold $1.25 6.4% 7.6% 7.7% $1.62 7.3% 7.5% 8.3% - - - - - - - 132.0 9.0x $1.35

Stockland Group SGP Buy $3.30 6.4% 7.5% 7.7% $3.65 7.4% 7.9% 8.6% - - - - - - - 378.5 9.0x $3.95

Totals / Weighted statistics



Industrial

Goodman Group GMG Buy $0.58 7.0% 7.9% 8.0% $0.70 - - 8.0% - - - - - - - 190.0 9.0x $0.71

Totals / Weighted statistics



International

Tishman Speyer Office Fund TSO Hold $0.49 5.3% 6.7% 7.0% $1.02 - - - - 7.0% - - - - - - - $0.52

Totals / Weighted statistics



Market statistics



Developers/Contractors

Lend Lease LLC Buy $7.38 - - - $4.05 - - - - - - - - - - 334.0 7.0x $9.55

Totals / Weighted statistics









DB A-REIT Strategy

Source: Deutsche Bank

Page 11

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research







Appendix 1

Important Disclosures

Additional information available upon request



Disclosure checklist

Company Ticker Recent price* Disclosure

Investa Office Fund IOF.AX 0.60 (AUD) 14 Dec 11 6

Charter Hall Retail CQR.AX 3.29 (AUD) 14 Dec 11

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies





Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.

See Important Disclosures Required by Non-US Regulators and Explanatory Notes.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this

company calculated under computational methods required by US law.



Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.

6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this

company calculated under computational methods required by US law.



For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr



Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the

subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive

any compensation for providing a specific recommendation or view in this report. Ian Randall









Page 12 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





Historical recommendations and target price: Investa Office Fund (IOF.AX)

(as of 12/14/2011)



0.80 Previous Recommendations



Strong Buy

0.70

4 5 Buy

3

1 2 Market Perform

0.60 Underperform

Not Rated

Suspended Rating

Security Price









0.50



Current Recommendations

0.40

Buy

0.30 Hold

Sell

Not Rated

0.20

Suspended Rating



0.10 *New Recommendation Structure

as of September 9,2002



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Date



1. 22/02/2010: Sell, Target Price Change AUD0.54 4. 05/04/2011: Hold, Target Price Change AUD0.64

2. 05/07/2010: Upgrade to Hold, Target Price Change AUD0.60 5. 14/12/2011: Upgrade to Buy, Target Price Change AUD0.67

3. 18/08/2010: Hold, Target Price Change AUD0.63



Historical recommendations and target price: Charter Hall Retail (CQR.AX)

(as of 12/14/2011)



4.00 Previous Recommendations



4 8 Strong Buy

3.50 5 7

6 Buy

3 9 Market Perform

3.00 Underperform

Not Rated

Suspended Rating

Security Price









2.50



Current Recommendations

2.00

Buy

1.50 Hold

Sell

Not Rated

1.00

12 Suspended Rating



0.50 *New Recommendation Structure

as of September 9,2002



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Date



1. 19/02/2010: Hold, Target Price Change AUD0.59 6. 17/05/2011: Hold, Target Price Change AUD3.30

2. 05/03/2010: Hold, Target Price Change AUD0.59 7. 29/05/2011: Upgrade to Buy, Target Price Change AUD3.44

3. 13/12/2010: Hold, Target Price Change AUD2.98 8. 09/06/2011: Buy, Target Price Change AUD3.50

4. 22/02/2011: Hold, Target Price Change AUD3.08 9. 23/08/2011: Buy, Target Price Change AUD3.44

5. 20/04/2011: Hold, Target Price Change AUD3.25









Deutsche Bank AG/Sydney Page 13

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share- 120

48 % 50 %

holder return (TSR = percentage change in share price 100



from current price to projected target price plus pro- 80



jected dividend yield ) , we recommend that investors 60



buy the stock. 40 25 % 19 %

20 3 %1 7 %

Sell: Based on a current 12-month view of total share-

0

holder return, we recommend that investors sell the Buy Hold Sell

stock

Hold: We take a neutral view on the stock 12-months Companies Covered Cos. w/ Banking Relationship



out and, based on this time horizon, do not Australia Universe

recommend either a Buy or Sell.

Notes:

1. Newly issued research recommendations and target

prices always supersede previously published

research.

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends)

of 10% or more over a 12-month period

Hold: Expected total return (including

dividends) between -10% and 10% over a 12-

month period

Sell: Expected total return (including dividends)

of -10% or worse over a 12-month period









Page 14 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Property DB A-REIT Strategy



Markets Research





Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.









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meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

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indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

http://www.globalmarkets.db.com/riskdisclosures.

Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.

Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau

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any appraisal or evaluation activity requiring a license in the Russian Federation.









Deutsche Bank AG/Sydney Page 15

Deutsche Bank

Markets Research





Deutsche Bank AG/Sydney





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Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or

promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch

accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the

provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any

decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information

relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche

Bank's prior written consent. Please cite source when quoting.

Copyright © 2011 Deutsche Bank AG

Deutsche Bank

Markets Research

Australasia Periodical Date

Australia 14 December 2011

Insurance & Div Fins

Financial Services







Kieren Chidgey

Research Analyst

Insights: Issue 5, 2011 (+61) 2 8258-2844

kieren.chidgey@db.com



Shreyas Patel Murray Aitken

Deutsche Bank's Insurance & Diversified Financials Periodical

Research Associate Research Associate

"Insights" provides a short and sharp summary of our views in relation to key (+61) 2 8258-2764 (+61) 2 8258-1788

industry, regulatory and macro developments impacting the listed insurers and shreyas.patel@db.com murray.aitken@db.com

diversified financials. This edition covers media suggestions that IAG will buy a

stake in Malaysian insurer Kurnia, the Govt. approving NSW CTP rate hikes

after previously rejecting and ASX's retail corporate bond opportunity.

Table Of Contents

In the news: IAG to buy stake in Kurnia, NSW CTP, ASX retail corp bond mkt IAG to buy Kurnia? Page 02

1. IAG to buy stake in Kurnia? Press reports suggest IAG is looking to buy a NSW CTP rate hikes Page 02

stake in Malaysian insurer Kurnia Insurans (Malaysia) Bhd. ASX Corp bond opportunity Page 03

DB view: Kurnia writes A$320m of annual premium through agency channels

of which ~80% is motor. This deal would help IAG achieve its #1 Malaysian Top Picks

motor target and broader Asian growth strategy. IAG has experience in this Suncorp-Metway Ltd (SUN.AX),AUD8.53 Buy

market through its existing 49% Malaysian JV AmG insurance which writes Challenger Financial (CGF.AX),AUD4.33 Buy

~A$230m annually. Reported P/NAV deal multiples of 2.5-3.0x imply IAG may AMP (AMP.AX),AUD4.36 Buy

inject $100m for a 15-20% stake (based on reported valuation and multiple ASX Ltd (ASX.AX),AUD30.70 Buy

metrics). With IAG having recently raised NZ$325m sub-debt and with excess QBE Insurance (QBE.AX),AUD13.95 Buy

capital of $335-460m (post China deal, pre 1H12 retained profit) IAG could

internally fund this without an equity raise.

http://biz.thestar.com.my/news/story.asp?file=/2011/12/14/business/10089005

&sec=business

2. NSW CTP premium rate rises. NSW Finance minister Greg Pearce and the

MAA allow insurers to lift greenslip rates to cover ‘inflationary’ increases.

DB view: This is a positive step forward following earlier rejection of 1-Jan rate

filings from all insurers. However, our understanding is that earlier filings

consisted of IAG/Zurich pricing much higher increases than SUN/Allianz who

were targeting inflationary style increases anyway. As the impact of lower

yields is unlikely to be fully offset through pricing, returns are likely to revert to

target levels after years of excess returns. Lower wage inflation and negligible

superimposed inflation remain positive offsets that could see insurers lower

reserve assumptions in order to support profitability. Nevertheless we see this

as a drag on IAG and SUNs ITR margins in CY12.

http://news.smh.com.au/breaking-news-national/nsw-motorists-spared-major-

ctp-price-hike-20111214-1otls.html

3. ASX retail corporate bond opportunity. Treasury has released a discussion

paper on reforms to aid development of a retail corporate bond market.

DB view: Reforms aimed at reducing red-tape and lowering costs of issuing

corporate bonds to retail investors along with a commitment to make

Government bonds more readily available are positive steps forward in

developing this market. The renewed effort is also well-timed given increased

risk aversion and strong growth of SMSF and retirement savings pools which

should provide natural demand. While ASX appears well positioned as a listing

and trading venue for these securities, benefits are unlikely to emerge quickly

given the dual challenges of: (i) altering investor asset allocations, and (ii)

narrowing the gap to wholesale funding costs for issuers.

http://www.treasury.gov.au/documents/2266/PDF/Retail_Corporate%20Bonds_

Discussion_paper.pdf



________________________________________________________________________________________________________________

Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced

from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject

companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus,

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. DISCLOSURES AND

ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011.

Deutsche Bank 14 December 2011 Insurance & Div Fins



Markets Research







Industry news

IAG to buy stake in Kurnia?

News: Article suggesting IAG is looking to buy a stake in Malaysian insurer Kurnia.



http://biz.thestar.com.my/news/story.asp?file=/2011/12/14/business/10089005&sec=bus

iness



DB view: Kurnia writes A$320m of annual premium through agency channels of which

~80% is motor. This deal would help IAG achieve its #1 Malaysian motor target and

broader Asian growth strategy. IAG has experience in this market through its existing

49% Malaysian JV AmG insurance which writes ~A$230m annually. Reported P/NAV

deal multiples of 2.5-3.0x imply IAG may inject $100m for a 15-20% stake (based on

reported valuation and multiple metrics). With IAG having recently raised NZ$325m

sub-debt and with excess capital of $335-460m (post China deal, pre 1H12 retained

profit) IAG could internally fund this without an equity raise.



How big could the transaction be? If we assume (i) the multiples 2.5-3.0x book

reported by the press are broadly accurate and (ii) this multiple reflects pro-

forma NAV with IAG’s stake as a capital injection then this would value Kurnia

at A$555-665m (1.8-2.2b RM). We estimate this equates to IAG’s stake being

worth $100m for a 15-20% share.



Can IAG afford it? With IAG having recently raised NZ$325 Tier 2 through its

NZ bond offer, we think it has excess capital of $335-460m per its 1.45-1.5x

MCR target multiple and post an allowance for the Bohai China deal closing

and excluding 1H12 retained earnings. Therefore, we think that this deal is well

within IAG’s funding capacity without the need for an equity raising.



Kurnia Financials

Malaysian Ringit Australian dollars

(m) (m)

CY10 CY11YTD CY10 CY11YTD

GWP 1,059 815 331 255

NEP 852 583 266 182

NIC -647 -405 -202 -127

Expenses -338 -249 -106 -78

Underwriting profit -133 -71 -41 -22

Other income 165 123 52 39

PBT 32 52 10 16

NPAT 15 37 5 11





Equity 345 392 108 122

ROE 4% 13% 4% 13%

Source: Deutsche Bank, Kurnia









Regulators allow insurers to lift greenslip rates from 1-Jan

News: The finance minister Greg Pearce and the MAA allow insurers to increase

greenslip premiums at ‘inflationary’ levels following earlier rejection of rate filings.







Page 2 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Insurance & Div Fins



Markets Research





http://news.smh.com.au/breaking-news-national/nsw-motorists-spared-major-ctp-price-

hike-20111214-1otls.html



DB view: This is a positive step forward following earlier rejection of 1-Jan rate filings

from all insurers. However, our understanding is that earlier filings consisted of

IAG/Zurich pricing much higher increases than SUN/Allianz who were targeting

inflationary style increases anyway. As the impact of lower yields is unlikely to be fully

offset through pricing, returns are likely to revert to target levels after years of excess

returns. Lower wage inflation and negligible superimposed inflation remain positive

offsets that could see insurers lower reserve assumptions in order to support

profitability. Nevertheless we see this as a drag on IAG and SUNs ITR margins in CY12.



Govt willing to approve inflationary increases. The allowance of rate hikes is

clearly a positive for the insurers given lower yields are biting into profitability.

With the headline premium rates still sub the crucial $500 affordability

threshold there could potentially be scope for another 5% before the regulators

take a much harder line with prospect rate hikes.



A split field on rate filings. Industry feedback on the initially rejected rate filings

suggested not all insurers were targeting rises at the upper end in order to

offset lower yields. For example SUN/Allianz were only asking for inflationary

style increases initially with IAG/Zurich at the upper end.



Return profile normalising to adequate levels. Given historically strong

profitability in CTP, those insurers seeking higher rate increases would have

largely been seeking to maintain supernormal returns which have emerged

over the last decade. While inflationary increases will reduce the return profile

relative to history, we think files rates should still support minimum targeted

ROEs of 15%.



Wage inflation and low SI a potential offset. With wage inflation trending

lower, this may provide a potential offset to lower yields. We note that SUN

allows for 4.25% wage inflation in setting reserves, though this appears to be

tracking lower currently at ~3.75%. This could potentially see insurers lower

assumptions to support profitability through reserve releases. Superimposed

inflation (SI) is also negligible though insurers have been allowing 2.5-4%

within rate filings.



Pricing flexibility should support profits. The MAA has allowed insurers to free

up the pricing relativity of the base rate to the top rate. While this does result in

any change of the headline rate, some segments of the market have seen

higher increases go through. For example younger drivers have seen a $43 lift

in prices from 1-Jan across almost all the insurers – this should help lift

profitability to some degree despite not being reflected in headline rates.







Retail Corporate Bond market – a long-term opportunity for ASX

News: The Australian Treasury this week released a discussion paper on reforms to aid

development of a retail corporate bond market in Australia.



http://www.treasury.gov.au/documents/2266/PDF/Retail_Corporate%20Bonds_Discussi

on_paper.pdf



DB view: Reforms aimed at reducing red-tape and lowering costs of issuing corporate

bonds to retail investors along with a commitment to make Government bonds more

readily available are positive steps forward in developing a retail bond market. The





Deutsche Bank AG/Sydney Page 3

Deutsche Bank 14 December 2011 Insurance & Div Fins



Markets Research





renewed effort is also well-timed in our view given increased risk aversion to equities

and strong growth of SMSF and retirement savings pools which should provide natural

demand. While ASX appears well positioned as a listing and trading venue for these

securities, benefits are unlikely to emerge quickly in our view given the dual challenges

of: (i) altering investor asset allocations, and (ii) narrowing the gap to wholesale funding

costs for issuers.



Listed interest rate securities are a small market at present. Currently, the

market capitalization of ASX listed interest rate securities is tiny at only $21bn,

comprising mostly of hybrids ($15bn) and floating rate notes ($4.5bn). This

compares to an equity market capitalization of ~$1,300bn.



Reforms aimed at reduce red-tape for retail corporate bonds. Treasury has

released a discussion paper aimed assisting development of a retail corporate

bond market in Australia by reducing disclosure requirements and revisiting

director liability. It is hoped this would reduce the time and cost of issuance.



Government will support liquidity with retail CGS. To assist the issue of poor

liquidity and inconsistent supply, the Government has also committed to

making Commonwealth Government Securities (CGS) available to retail

investors. A unit trust retail platform structure is being considered.



Benefits to emerge slowly for ASX. While ASX is well positioned to benefit

from development of the corporate bond market in Australia, we believe

benefits will emerge relatively slowly given: (i) altering investor asset allocation

behavior will take time, and (ii) narrowing the gap to wholesale issuance costs

may prove difficult.









Page 4 Deutsche Bank AG/Sydney

Sector summary

Insurance & Diversified Financials 14-Dec-11

IAG SUN QBE.US AMP CGF PPT ASX CPU

Deutsche Bank









Summary Info

Markets Research









Recommendation Hold Buy Buy Buy Buy Hold Buy Hold









Deutsche Bank AG/Sydney

Price as at 14 December 2011 3.14 8.43 13.86 4.31 4.31 20.29 30.68 7.98

12 Month Price Target 3.45 10.25 16.00 5.65 5.85 23.25 36.30 9.40

Upside to Price Target (%) 10 22 15 31 36 15 18 18

Total Return (Incl. Dividend Yield %) 15 28 25 38 40 21 25 22

Market cap ($m) 6,528 10,846 15,457 12,304 2,379 852 5,373 4,434

Latest financial year-end (Note 3) Jun-11 Jun-11 Dec-10 Dec-10 Jun-11 Jun-11 Jun-11 Jun-11

Price / Earnings metrics1,2

PER (normalised earnings) (x)

Historic FY 13.9 17.4 8.9 11.8 9.0 12.3 15.0 13.9

30 November 2011









1 Year forward 9.4 9.0 8.5 11.0 7.5 15.2 13.7 12.2

2 Year forward 8.4 8.2 8.0 9.9 7.0 11.9 12.5 9.6

PER to ASX All Industrials (x)

Historic FY 1.24 1.55 0.75 1.00 0.80 1.09 1.34 1.24

1 Year forward 0.86 0.83 0.78 1.02 0.69 1.40 1.26 1.12

Profitability4,5

Fully-diluted EPS (cps) (Note 2)

Current FY 29 87 140 36 56 135 216 54

Next FY 36 99 164 39 60 155 235 73

Net profit ($m)

Historic FY 250 518 1,278 770 248 73 361 318

Current FY 579 1,036 1,524 899 284 58 379 300

Next FY 721 1,186 1,866 1,051 298 66 412 404

Shareholder Return

DPS (cps) 17 55 128 31 19 135 195 30

Yield (%) 5.5 6.5 9.2 7.2 4.4 6.6 6.4 3.8

Payout ratio (%) 59 63 91 92 34 120 90 62

Share price performance vs All Ords (%)

1 mth 6 0 -2 2 0 -1 4 2

3 mth 4 4 3 8 -10 -10 4 5

12 mths -6 7 -13 -6 5 -32 -8 -13

Insurance & Div Fins









Notes

Source: Deutsche Bank AG estimates, IRESS Market Technology, Company data Notes (1) PE ratios are based on DB's estimated normalised EPS (pre-goodwill amort, sign. items and investment earnings

based on long-term returns) except SUN, AMP and AXA based on Bloomberg consensus (2) Time periods for valuations based on one-year / two-year forward earnings. (3) Profit used to calculate return on NTA

and return on NAV defined as normalised earnings (pre-goodwill amortisation, sign items). (4) As companies have different year-ends we have denoted year-ends as "Historic", "Current" and "Next" (5) Net profit is









Page 5

Deutsche Bank 14 December 2011 Insurance & Div Fins



Markets Research







Appendix 1

Important Disclosures

Additional information available upon request



For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the

subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive

any compensation for providing a specific recommendation or view in this report. Kieren Chidgey



Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price 140

from current price to projected target price plus pro- 120 50 %

jected dividend yield ) , we recommend that investors

47 %

100

buy the stock.

Sell: Based on a current 12-month view of total share- 80

holder return, we recommend that investors sell the 60

stock 40 25 %

Hold: We take a neutral view on the stock 12-months

19 %

20 3% %

17

out and, based on this time horizon, do not

recommend either a Buy or Sell. 0

Notes: Buy Hold Sell

1. Newly issued research recommendations and target

prices always supersede previously published

Companies Covered Cos. w/ BankingRelationship

research.

2. Ratings definitions prior to 27 January, 2007 were: AustraliaUniverse

Buy: Expected total return (including dividends)

of 10% or more over a 12-month period

Hold: Expected total return (including

dividends) between -10% and 10% over a 12-

month period

Sell: Expected total return (including dividends)

of -10% or worse over a 12-month period









Page 6 Deutsche Bank AG/Sydney

Deutsche Bank 14 December 2011 Insurance & Div Fins



Markets Research





Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.









3. Country-Specific Disclosures

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the

meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and

its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is

indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

http://www.globalmarkets.db.com/riskdisclosures.

Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.

Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau

(Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures

Association of Japan, Japan Securities Investment Advisers Association. Commissions and risks involved in stock

transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction

amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share

price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign

exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit

rating agencies in Japan unless “Japan” is specifically designated in the name of the entity.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,

any appraisal or evaluation activity requiring a license in the Russian Federation.









Deutsche Bank AG/Sydney Page 7

Deutsche Bank

Markets Research





Deutsche Bank AG/Sydney





International locations

Deutsche Bank Securities Inc. Deutsche Bank AG London Deutsche Bank AG Deutsche Bank AG

60 Wall Street 1 Great Winchester Street Große Gallusstraße 10-14 Deutsche Bank Place

New York, NY 10005 London EC2N 2EQ 60272 Frankfurt am Main Level 16

United States of America United Kingdom Germany Corner of Hunter & Phillip Streets

Tel: (1) 212 250 2500 Tel: (44) 20 7545 8000 Tel: (49) 69 910 00 Sydney, NSW 2000

Australia

Tel: (61) 2 8258 1234

Deutsche Bank AG Deutsche Securities Inc.

Filiale Hongkong 2-11-1 Nagatacho

International Commerce Centre, Sanno Park Tower

1 Austin Road West,Kowloon, Chiyoda-ku, Tokyo 100-6171

Hong Kong Japan

Tel: (852) 2203 8888 Tel: (81) 3 5156 6770









Global Disclaimer

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public

sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.

Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including

strategists and sales staff, may take a view that is inconsistent with that taken in this research report.

Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change

without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or

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to value the security; as a result, the recommendations may differ and the price targets and estimates of each may vary widely.

In August 2009, Deutsche Bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for

"Hold" rated stocks having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at

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Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche

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report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK

and authorized by the BaFin. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG,

Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or

promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch

accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the

provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any

decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information

relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche

Bank's prior written consent. Please cite source when quoting.

Copyright © 2011 Deutsche Bank AG

Australasia Australia

Company

Emerging Companies



14 December 2011

Forecast Change

SAI Global Ltd

Reuters: SAI.AX Bloomberg: SAI AU Exchange: ASX Ticker: SAI Buy

Price at 13 Dec 2011 4.67



Factoring in higher investment

Global Markets Research









Price target - 12mth 5.30

52 week range (AUD) 5.11 - 4.17

ALL ORDINARIES 4,252





costs in FY12 Key changes

Sales (FYE)

EBIT margin (FYE)

363 to 363

23.7 to 22.9

0.0%

-3.3%

Tim Plumbe Raymond Gonzalez Dominic Rose

Net profit (FYE) 55.0 to 53.0 -3.7%

Research Analyst Research Analyst Research Analyst

(+61) 2 8258-1643 (+61) 2 8258-1872 (+61) 2 8258-2313

Price/price relative

tim.plumbe@db.com raymond.gonzalez@db.com dominic.rose@db.com



5.2

Investment in FY12 for attractive growth in FY13

Whilst FY12 requires investment within the businesses, we continue to highlight 4.8

the earnings growth potential in FY13 (+25%) as the organic growth is 4.4

complemented by the new initiatives. We think investors should consider the 4.0

earnings growth potential over the two years rather than just focusing on FY12. 3.6

With average growth of 16% p.a and trading on a FY13 PE of 12.9x we think the 3.2

stock looks compelling - maintain Buy.

2.8

Increased investment costs reduces FY12 EPS forecast by 4%

12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11

Upon review of our forecasts, we have marginally increased the investment costs

SAI Global Ltd

in FY12 which predominantly relate to the ANZ back office mortgage processing

contract and the bribery and corruption product development within compliance LL RDINARIES (Rebased)

A O

services. The net impact reduces our EPS forecasts by 4% in FY12 and 1% in Performance (%) 1m 3m 12m

FY13. Absolute 0.2 4.7 -1.5

ALL ORDINARIES -2.5 2.2 -12.2

Still trading at discount to both domestic and international peers

Even with the curbed growth in FY12 SAI is trading on a FY12 PE of 16.2x, which Stock data

is in line with both domestic and international comparable peers (16.1x and 16.4x Market cap (AUDm) 934

respectively). However in FY13 SAI’s PE falls to 12.9x, which represents a 10% Market cap (USDm) 941

Shares outstanding (m) 199.9

discount to domestic peers (exc. REA) and an 11% discount to international peers Daily volume (USDm) 0.62

(exc. IHS) despite having comparable two year growth profiles. Free float 92.00



Valuation & Risks Key indicators (FY1)

Our 12mth price target of $5.30 is derived from our DCF valuation. Key ROE (%) 15.7

assumptions include: Beta 1.10; gearing 30%; WACC 10.7% and TGR 3.25% (in ROA (%) 13.1

line with CPI). Our price target implies a CY12 PE of 16.5x. Key downside risks are Net debt/equity (%) 40.6

changes to the Standards Australia relationship and integration risk following Book value/share (AUD) 1.75

Price/book (x) 2.7

Integrity Interactive acquisition. Net interest cover (x) 7.4

EBIT margin (%) 22.9



Forecasts and ratios

Year End Jun 30 2010A 2011A 2012E 2013E 2014E

Sales (AUDm) 301 340 363 409 442

EBITDA (AUDm) 76 101 108 131 146

Net Profit (AUDm) 34 48 53 69 79

EPS (AUD) 0.23 0.27 0.29 0.36 0.41

OLD EPS (AUD) 0.23 0.27 0.30 0.37 0.41

% Change 0.0% 0.0% -3.7% -0.8% -0.7%

EPS Growth (%) 15.3 17.9 7.0 25.5 13.0

PER (x) 15.8 16.9 16.2 12.9 11.4

EV/EBITDA (x) 9.4 10.4 10.1 8.1 7.0

DPS (net) (AUD) 0.13 0.14 0.17 0.22 0.25

Yield (net) (%) 3.5 3.1 3.7 4.7 5.3

Franking (%) 100 100 100 100 100

Source: Deutsche Bank estimates, company data

1

Pre-exceptionals/extraordinaries

2

Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the

year end close





Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

MICA(P) 146/04/2011.

14 December 2011 Emerging Companies SAI Global Ltd



Model updated: 14 December 2011 Y/E 30 June 06/07 07/08 08/09 09/10 10/11 11/12E 12/13E 13/14E

SUMMARY

Equity Research Normalised EPS (A$) 0.143 0.160 0.199 0.229 0.270 0.289 0.363 0.410

Asia Pacific P/E ratio normalised (x) 25.3 18.6 12.8 15.8 16.9 16.2 12.9 11.4

Normalised EPS growth (%) 24.2 11.9 24.4 15.3 17.9 7.0 25.5 13.0

Australia EPS FD (A$) 0.128 0.105 0.172 0.212 0.225 0.259 0.333 0.381

Retail P/E ratio FD (x) 28.2 28.2 14.8 17.1 20.2 18.1 14.0 12.3

Operating CFPS (A$) 0.188 0.165 0.263 0.324 0.275 0.344 0.428 0.474

P/CFPS (x) 19.2 18.0 9.6 11.2 16.6 13.6 10.9 9.8

SAI Global Ltd DPS (A$) 0.106 0.110 0.115 0.128 0.143 0.173 0.218 0.246

Dividend yield (%) 2.9 3.7 4.5 3.5 3.1 3.7 4.7 5.3

Reuters: SAI.AX Bloomberg: SAI AU

Price/BV (x) 2.79 2.46 1.87 2.72 2.79 2.68 2.44 2.23

Buy Enterprise Value (A$m)

EV/EBITDA (x)

714

16.5

773

15.4

822

12.8

872

11.5

980

9.7

1,080

10.0

1,050

8.0

1,010

6.9

Price as at 13-Dec A$4.67 EV/EBIT (x) 23.6 21.8 17.8 15.4 12.7 13.0 10.0 8.5



Target price A$5.30 Major contributors to EBITDA

Information Services 24 37 42 50 49 49 61 66

Company website Compliance Services 5 5 9 11 34 39 47 55

http://www.saiglobal.com Assurance Services 13 17 23 23 28 31 36 38

Professional Services 2 0 0 0 0 0 0 0

Company description Corporate service eliminations -1 -9 -10 -9 -11 -11 -12 -13

SAI Global Limited is an applied information

PROFIT & LOSS (A$m)

services company that helps organisations Sales revenue 213 243 281 301 340 363 409 442

manage risk, achieve compliance and drive EBITDA (incl significant items) 43 43 64 76 96 108 131 146

business improvement through business Depreciation/amortisation -13 -15 -18 -20 -24 -25 -26 -27

publishing, compliance, training and assurance. EBIT (incl significant items) 30 29 46 57 72 83 105 119

Net interest income (expense) -4 -7 -10 -9 -12 -11 -12 -12

Products and services are based on a collection

Income tax expense 7 6 9 13 15 19 24 28

of more than 6,500 Australian Standards, in Associates/affiliates 0 0 0 0 0 0 0 0

addition to foreign standards, International Minorities/preference dividends 0 0 -1 -1 0 0 0 0

Standards and other business improvement Reported profit 19 15 26 34 45 53 69 79

methodologies. Significant items 0 -4 0 0 -3 0 0 0

Net profit (excl significant items) 19 20 26 34 48 53 69 79

EBIT (excl significant items) 30 35 46 57 77 83 105 119



CASH FLOW (A$m)

Cash flow from operations 27 24 40 51 55 70 88 98

Research Team Movement in net working capital 7 -12 3 9 -5 -2 -2 -3

Capex -6 -4 -10 -13 -17 -21 -16 -17

Tim Plumbe Free cash flow 21 20 30 38 38 49 72 82

+61 2 8258 1643 tim.plumbe@db.com Other investing activities -76 -61 -7 -23 -200 0 0 0

Equity raised/(bought back) 0 0 0 0 125 5 6 7

Raymond Gonzalez Dividends paid -15 -16 -13 -13 -12 -29 -33 -40

+61 2 8258 1872 raymond.gonzalez@db.com Net inc/(dec) in borrowings 36 42 23 13 41 -10 -10 -10

Other financing cash flows 0 13 -26 0 30 0 0 0

Dominic Rose Total cash flows from financing 21 38 -15 -1 184 -34 -37 -43

+61 2 8258 2313 dominic.rose@db.com Net cash flow -34 -3 8 14 21 16 35 39

Movement in net debt/(cash) 70 45 15 -1 20 -26 -45 -49

Jennifer Kruk BALANCE SHEET (A$m)

+61 2 8258 2613 jennifer.kruk@db.com Cash and other liquid assets 15 11 20 33 52 68 103 142

Tangible fixed assets 15 19 23 27 30 38 40 43

Goodwill 218 243 291 300 416 408 400 392

Other intangible assets 80 74 75 67 86 83 78 74

Associates/investments 2 0 2 1 1 1 1 1

Other assets 57 68 99 104 110 119 143 162

Total assets 388 415 510 532 696 716 765 813

Interest bearing debt 102 143 167 179 220 210 200 190

Other liabilities 100 98 132 140 148 154 178 197

Total liabilities 202 241 298 319 369 365 378 387

Absolute Price Return (%)

Shareholders' equity 186 174 208 212 326 350 386 425

-2% -1% 0% 1% 2% 3% 4% 5%

Minorities/other 0 0 4 1 1 1 1 1

Total shareholders' equity 186 174 212 213 327 351 387 426

-1.5%

1m Net working capital -27 -14 -14 -20 -15 -12 -10 -8

4.3%

3m Net debt/(cash) 87 132 146 146 168 143 97 48

-1.3%

12m

RATIO ANALYSIS

52-week High/Low: A$5.11 - 4.17 Sales growth - pcp (%) 33.1 14.3 15.4 7.2 13.0 6.8 12.7 7.9

Market Cap (m) A$ 934 EBITDA/sales (%) 20.3 20.7 22.9 25.3 29.6 29.7 32.0 33.1

US$ 942 EBIT/sales (%) 14.2 14.6 16.4 18.8 22.6 22.9 25.7 27.0

Payout ratio (%) 80.7 80.0 61.9 55.2 54.6 64.4 56.4 59.1

DCF VALUATION (A$) ROA (%) 8.5 9.1 10.4 11.6 13.7 13.1 16.5 18.4

Beta (MRP - 6.00) 1.10 ROE (%) 9.9 11.0 13.7 16.0 17.9 15.7 18.7 19.5

Debt/mkt value ratio (%) 30.0 Operating Return on Capital (%) 8.4 8.1 10.9 12.3 14.3 13.9 17.7 20.4

WACC (6.25% bond yield) 10.7 Tax rate (%) 27.1 27.6 25.6 26.4 25.4 26.1 26.0 26.1

Capex/sales (%) 2.8 1.5 3.4 4.5 4.9 5.8 3.9 3.8

Net value per share ($) 5.32 Capex/depreciation (x) 1.5 0.6 1.0 1.1 1.4 1.6 1.2 1.2

Price/NPV (x) 0.88 Net debt/equity (%) 46.6 75.5 69.0 68.6 51.4 40.6 25.2 11.4

Net interest cover (x) 7.1 4.8 4.8 6.4 6.6 7.4 8.8 10.0

Source: Company data, DB estimates



12mth Fwd P/E Relative (x) Trends Return Ratios (%) Net Debt (Cash) / Equity (%)

35 25 180 80

1.70

160 70

30

1.60

20 140

60

1.50 25

120

50

1.40 20 15

100

40

1.30 15 80

10 30

1.20 60

10

20

40

1.10 5

5

20 10

1.00

0 0 0

0

0.90

07 08 09 10 11 12E 13E 14E 07 08 09 10 11 12E 13E 14E

07 08 09 10 11 12E 13E 14E

12/06 12/07 12/08 12/09 12/10 12/11 EBITDA/sales (%) ROE (%) ROA (%) Net debt / (cash) (AUD m)

EBIT/sales (%) op ROC (%) Net debt/equity (%)









Page 2 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies SAI Global Ltd





Outlook

We maintain our Buy recommendation and price target of $5.30.



We have reduced our FY12 forecasts by 4% to factor in slightly higher investment costs

(predominantly for the ANZ back office mortgage processing contract and the bribery and

corruption product development within compliance services).



Our Buy thesis remains unchanged - we see FY12 as a transition year, whereby SAI is laying

the foundation for strong business growth across: (1) property services (ANZ contracts plus

in our view strong potential for additional contracts of a similar nature); (2) Compliance

services through the new Bribery and corruption product; and (3) Assurance services through

food quality testing. This will result in upfront investment in FY12 with the benefits to flow

through in FY13 and as such we think investors should take the earnings growth potential

over the two years rather than just focusing on FY12. Our forecasts essentially allow for

average EPS growth of 16% over the two years (7% in FY12 and 25% in FY13).



Risks

Key downside risks include changes to the relationship with Standards Australia, and

integration risk following the completion of the Integrity Interactive (“II”) acquisition.



Valuation

Our 12mth price target of $5.30 is derived from our DCF valuation. Key DCF assumptions

include: Beta 1.10; gearing 30%; WACC 10.7% and TGR 3.25% (in line with CPI). Our price

target implies a CY12 PE of 16.5x.



Comparables

As a cross-check we compare SAI’s FY13E valuation metrics to global peers and similar high

quality Australian emerging company stocks. Whilst SAI is trading on a FY12 PE of 16.2x (in

line with domestic and international peers) in FY13 this falls to12.9x, which represents an

11% discount to international peers (exc. IHS) and a 10% discount to domestic peers (exc.

REA) despite having comparable growth profiles.



Figure 1: Comparable companies

PE EV/EBITDA 2yr EPS

Company Ticker Rating Price FY12 FY13 FY12 FY13 CAGR

SAI - DB forecasts SAI Buy 4.67 16.2 12.9 10.0 8.0 16%



Cambell Brothers CPB Hold 50.29 16.2 14.0 10.5 9.1 33%

Monadelphous MND Hold 19.98 16.1 14.0 9.2 8.0 16%

Navitas NVT Hold 3.36 14.8 12.8 9.7 8.5 13%

Iress # IRE Hold 7.30 15.0 13.8 10.1 9.0 12%

Reckon RKN Hold 2.34 15.0 13.4 8.2 7.5 12%

Carsales CRZ Hold 4.64 16.6 14.7 11.0 9.8 15%

REA Group REA Buy 12.29 19.8 17.0 12.2 10.5 18%

Invocare # IVC Hold 7.49 19.3 17.2 12.0 10.8 15%

Domestic Avg 16.6 14.6 10.4 9.2 13%

Domestic Avg (exc. REA) 16.1 14.3 9.8 8.7 16%





International comparables

IHS Inc - Class A # IHS NA 83.97 22.8 19.0 13.7 11.5 21%

Thomson Reuters Corp # TRI Hold 27.26 12.7 11.2 7.9 7.6 13%

SGS SA - Reg # SGSN Hold 1517 19.5 17.3 11.0 9.7 13%

Bureau Veritas # BVI Buy 53.99 16.2 14.6 10.7 9.8 11%

Intertek # ITRK NA 1943.00 17.3 15.0 10.4 9.1 15%

International Avg 17.7 15.4 10.7 9.5 14%

International Avg (exc. IHS) 16.4 14.5 10.0 9.1 13%

#: Adjusted for June Y/E

Source: Deutsche Bank, Bloomberg









Deutsche Bank AG/Sydney Page 3

14 December 2011 Emerging Companies SAI Global Ltd





Changes to forecasts

Upon review of our forecasts, we have marginally increased the investment costs in FY12

which predominantly relate to the ANZ back office mortgage processing contract and the

bribery and corruption product development within compliance services.



The net impact is a 4% reduction to our FY12 EPS forecasts and 1% reduction in FY13.



Figure 2: DB changes to forecasts

Y/E June FY 11 FY12F FY13F

old new chg old new chg

$m $m $m % $m $m %

Revenue 340.0 362.9 363.0 0% 409.1 409.2 0%

Operating expenses 239.3 252.1 255.0 1% 277.6 278.3 0%

EBITDA 100.7 110.8 108.0 -3% 131.5 131.0 0%

D&A 23.7 24.7 24.7 0% 26.0 26.0 0%

EBIT 77.0 86.1 83.3 -3% 105.6 105.0 -1%

Net interest expense 11.7 11.3 11.3 0% 11.9 11.9 0%

Pre-tax profit 65.3 74.8 72.0 -4% 93.7 93.1 -1%

Tax 17.0 19.5 18.8 -4% 24.3 24.2 -1%

Operating profit 48.2 55.3 53.2 -4% 69.3 68.9 -1%

Net profit (pre sig. item s) 48.0 55.0 53.0 -4% 69.1 68.7 -1%

Significant items (3.2) 0.0 0.0 0.0 0.0

Net profit (reported) 44.8 55.0 53.0 -4% 69.1 68.7 -1%



Earnings per share (c) 27.0 30.0 28.9 -4% 36.6 36.3 -1%



EBITDA by division ($m )

Information Services 48.9 51.8 49.3 -5% 60.6 60.7 0%

Compliance Services 34.3 39.6 39.2 -1% 47.7 47.2 -1%

Assurance Services 28.4 30.8 30.8 0% 35.9 35.6 -1%

Corporate service eliminations (10.9) (11.4) (11.3) -1% (12.6) (12.4) -2%

Total EBITDA 100.7 110.8 108.0 -3% 131.5 131.0 0%

Source: Deutsche Bank, Company data







We continue to highlight the strong earnings growth potential in FY13 which we think should

be taken into consideration given the investment in FY12. We are forecasting 21% EBITDA

growth in FY13, as shown in the earnings bridge below. We note that whilst we have a $3m

FX benefit, this is partially offset by higher interest costs (foreign denominated debt).



Figure 3: FY13 EBITDA bridge

FY12e EBITDA - Headline 108

Start up costs 4

FY12e EBITDA - U/lying 112

Organic growth (9%) 10

ANZ contract 5

FX impact (1.05 to 1.00) 3

FY13e EBITDA 131

YoY Growth 21%

Source: Deutsche Bank









Page 4 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies SAI Global Ltd









Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

SAI Global Ltd SAI.AX 4.67 (AUD) 13 Dec 11 NA

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.





For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=SAI.AX.





Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject

issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any

compensation for providing a specific recommendation or view in this report. Tim Plumbe









Historical recommendations and target price: SAI Global Ltd (SAI.AX)

(as of 12/13/2011)

6.00 Previous Recommendations



Strong Buy

4 5 Buy

5.00 6

Market Perform

2 7

Underperform

1 3 Not Rated

4.00 Suspended Rating

S ecurity Price









Current Recommendations



3.00 Buy

Hold

Sell

Not Rated

2.00 Suspended Rating



*New Recommendation Structure

as of September 9, 2002

1.00







0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Da te

1. 11/2/2010: Upgrade to Buy, Target Price Change AUD4.35 5. 4/5/2011: Buy, Target Price Change AUD5.55

2. 13/4/2010: Buy, Target Price Change AUD4.65 6. 19/7/2011: Buy, Target Price Change AUD5.40

3. 17/8/2010: Buy, Target Price Change AUD4.75 7. 17/8/2011: Buy, Target Price Change AUD5.30

4. 12/1/2011: Buy, Target Price Change AUD5.45









Deutsche Bank AG/Sydney Page 5

14 December 2011 Emerging Companies SAI Global Ltd







Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price

140

from current price to projected target price plus pro-

jected dividend yield ) , we recommend that investors 120 47 % 50 %

buy the stock. 100

Sell: Based on a current 12-month view of total share- 80

holder return, we recommend that investors sell the 60

stock

Hold: We take a neutral view on the stock 12-months

40 25 % 19 %

out and, based on this time horizon, do not recommend 20 3%17 %

either a Buy or Sell. 0

Notes:

Buy Hold Sell

1. Newly issued research recommendations and target

prices always supersede previously published research.

2. Ratings definitions prior to 27 January, 2007 were: CompaniesCovered /

Cos. w Banking Relationship

Buy: Expected total return (including dividends) of

10% or more over a 12-month period AustraliaUniverse

Hold: Expected total return (including dividends)

between -10% and 10% over a 12-month period

Sell: Expected total return (including dividends) of -

10% or worse over a 12-month period









Page 6 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies SAI Global Ltd





Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent

or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at

http://gm.db.com.









3. Country-Specific Disclosures

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the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

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its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly

affected by revenues deriving from the business and financial transactions of Deutsche Bank.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

http://www.globalmarkets.db.com/riskdisclosures.

Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration

number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117.

Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan,

Japan Securities Investment Advisers Association. Commissions and risks involved in stock transactions - for stock

transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission

rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors.

Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's",

"Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless “Japan” is

specifically designated in the name of the entity.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any

appraisal or evaluation activity requiring a license in the Russian Federation.









Deutsche Bank AG/Sydney Page 7

Deutsche Bank AG/Sydney



International locations



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Hong Kong Japan

Tel: (852) 2203 8888 Tel: (81) 3 5156 6770









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Australasia Australia

Company



Investment & Financial Services







14 Dec 2011 - 11:16:10 AM EST

Global Markets Research









COMPANY ALERT Company Update

Perpetual Hold

Sevior to depart Reuters:PPT.AX Exchange:ASX Ticker:PPT







Price (AUD) 20.16 Sevior not returning, Williams confirmed as new Head of Equities

PPT has announced John Sevior will be departing and has confirmed Matt

Price target (AUD) 23.25

Williams as its new Head of Equities. In our view, Sevior's departure is un-

52-week range (AUD) 37.01 - 19.24 likely to come as a surprise given his comments he was "a 50/50 chance"

Market cap (USDm) 873 of returning from a six month sabbatical. According to the AFR, Sevior is

Shares outstanding (m) 42.9

looking to start a new fund backed by Treasury Group. While it was sug-

gested PPT may provide seed capital for his new fund, this was not

Daily volume (USDm) 1.70 confirmed in today's release.

Net debt/equity (%) -35.1 Outflows remain a risk but performance has been strong

Book value/share (AUD) 7.71 Following the announcement of Sevior's sabbatical on 28 June 2011, PPT

Price/book (x) 2.6

experienced $1.2bn of net outflows from Australian equity funds in the

Sep-11 quarter with potentially more outflows in Oct/Nov. While confirma-

tion of Sevior's departure may result in further outflows, we believe the bulk

FYE 6/30 2011A 2012E 2013E of outflows has already occurred, especially given: (i) asset consultants have

already largely reflected this in ratings, (ii) PPT reallocated $2.8bn of

Sales (AU- 438 410 436

Dm) Seviour's Concentrated Equity Fund to other Australian equity strategies in

July/Aug, and (iii) key equity funds have continued to outperform the market

Net profit 72.9 58.1 66.5

(AUDm)

over the last 3-6 months highlighting the strength of the remaining team.

EPS (AUD) 1.66 1.35 1.55

Equity markets still the key driver, Hold rating retained

While the potential for further outflows will likely remain an overhang for

PER (x) 18.8 14.9 13.0 several months to come, equity markets still remain the key near-term earn-

Yield (net) 6.0 6.7 7.4 ings driver for PPT. A 5% move in the All Ords equates to a $7.5-10m pa

(%) revenue impact, representing an 11% annualised NPAT impact all other

things equal. With market volatility unlikely to moderate quickly given the

European sovereign debt crisis and concerns around global economic

growth, earnings risks remain elevated. This, combined with PPT's limited

valuation appeal (trading at 13.8x 12m forward EPS - a 24% premium to

AMP) support our Hold rating.









Kieren Chidgey Murray Aitken Shreyas Patel

Research Analyst Research Associate Research Associate

(+61) 2 8258-2844 (+61) 2 8258-1788 (+61) 2 8258-2764

kieren.chidgey@db.com murray.aitken@db.com shreyas.patel@db.com

Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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.

THE VIEWS EXPRESSED ABOVE ACCURATELY REFLECT PERSONAL VIEWS OF THE AUTHORS ABOUT THE SUBJECT

COMPANY(IES) AND ITS(THEIR) SECURITIES. THEY HAVE NOT AND WILL NOT RECEIVE ANY COMPENSATION FOR PRO-

VIDING A SPECIFIC RECOMMENDATION OR VIEW IN THIS REPORT. FOR OTHER DISCLOSURES PLEASE VISIT HTTP://

GM.DB.COM MICA(P) 146/04/2011.

Australasia Australia

Company

Emerging Companies



14 December 2011

Coverage Change

Macmahon Holdings

Reuters: MAH.AX Bloomberg: MAH AU Exchange: ASX Ticker: MAH Hold

Price at 13 Dec 2011 0.58



Initiate with Hold

Global Markets Research









Price target - 12mth 0.60

52 week range (AUD) 0.66 - 0.48

ALL ORDINARIES 4,252



Price/price relative



0.9

Dominic Rose Raymond Gonzalez Tim Plumbe

0.8

Research Analyst Research Analyst Research Analyst

(+61) 2 8258-2313 (+61) 2 8258-1872 (+61) 2 8258-1643 0.7

dominic.rose@db.com raymond.gonzalez@db.com tim.plumbe@db.com 0.6

0.5

Initiate with Hold, $0.60PT 0.4

We initiate on MAH with a Hold and a $0.60PT. MAH is a Perth-based mining and 12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11

construction services provider to clients in Australia, New Zealand, S.E. Asia and Macmahon Holdings



Africa. MAH has a robust $3.1b order book diversified by commodity, geography ALL ORDINARIES (Rebased)



and client. Notwithstanding global macro uncertainty, the outlook for resources Performance (%) 1m 3m 12m

related work appears positive and MAH also offers a turnaround story. However, Absolute -4.2 -2.5 10.6

ALL ORDINARIES -2.5 2.2 -12.2

MAH is trading on a FY12f PER of 9.3x which is broadly in line with peers so we

see the risk-reward as balanced and rate Hold. Our PT implies a FY13f PER of 8.6x. Stock data

Turnaround story following RGP5 write-down and recent contract wins..... Market cap (AUDm) 423

Market cap (USDm) 427

MAH offers an earnings turnaround story following the RGP5 Rail North contract Shares outstanding (m) 736.2

write-down and the string of recent contract wins which have grown the order Daily volume (USDm) 0.75

book to a record $3.1b. Management has restructured the Construction business Free float 100.00

and introduced more stringent tendering and risk management procedures to

avoid a repeat of RGP5. We also regard the prevailing contracting environment as Key indicators (FY1)

more favourable, particularly from a risk perspective. Contract execution remains ROE (%) 13.7

ROA (%) 9.4

the key risk to MAH’s turnaround, in our view. Net debt/equity (%) 21.9

......However, trading in line with our valuation, risk-reward appears balanced Book value/share (AUD) 0.49

Price/book (x) 1.2

Considering MAH is trading on a FY12f PER of 9.3x and EV/EBIT of 7.0x, broadly in Net interest cover (x) 7.1

line with peers and our DCF, we view the risk-reward as balanced. Our FY12f EBIT margin (%) 4.5

NPAT forecast of $47m compares to the $2.7m loss in FY11a (incl. $49m RGP5

write-down and $9m weather impact, pre-tax) and is in line with guidance for

>$45m. We expect FY12f NPAT to be second half weighted (1/3:2/3) due to profit

recognition on construction contracts. 87% of our FY12f revenue is contracted.

Valuation and Risks

We set our $0.60 PT equal to our DCF (Beta 1.25; WACC 11.4%; TGR 3.5%). Key

downside risks: (1) construction contract pricing and execution; (2) a commodity

market downturn; (3) inclement weather; (4) capacity constraints; (5) FX and

political risks to offshore earnings; and (6) competitive threats. Key upside risks: (1)

better than expected margins; (2) material contract wins; and (3) corporate activity.

Forecasts and ratios

Year End Jun 30 2010A 2011A 2012E 2013E 2014E

Sales (AUDm) 896 1,089 1,447 1,411 1,560

EBITDA (AUDm) 63 96 132 144 165

Net Profit (AUDm) 39 -3 47 54 56

EPS (AUD) 0.05 -0.00 0.06 0.07 0.07

EPS Growth (%) 59.5 – – 13.1 4.3

PER (x) 11.7 – 9.3 8.2 7.9

EV/EBITDA (x) 6.7 3.9 3.4 3.8 3.5

DPS (net) (AUD) 0.03 0.00 0.03 0.04 0.04

Yield (net) (%) 4.9 0.0 5.2 7.0 7.0

Franking (%) 0 0 0 0 0

Source: Deutsche Bank estimates, company data

1

Pre-exceptionals/extraordinaries

2

Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the

year end close





Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.

MICA(P) 146/04/2011.

14 December 2011 Emerging Companies Macmahon Holdings





Model updated: 13 December 2011 Y/E 30 June 06/07 07/08 08/09 09/10 10/11 11/12E 12/13E 13/14E 14/15E

SUMMARY

Equity Research Normalised EPS (A$) 0.057 0.092 0.033 0.052 -0.004 0.062 0.070 0.073 0.072

Asia Pacific P/E ratio normalised (x) 10.2 6.3 17.6 11.1 nm 9.3 8.2 7.9 8.0

Normalised EPS growth (%) na 62.3 -64.5 59.5 -107.0 na 13.1 4.3 -1.2

Australia EPS FD (A$) 0.095 0.102 0.057 0.098 -0.040 0.070 0.086 0.085 0.082

Developers & Contractors P/E ratio FD (x) 6.1 5.6 10.1 5.9 nm 8.2 6.7 6.8 7.0

Operating CFPS (A$) 0.129 0.164 0.095 0.157 0.123 0.123 0.154 0.177 0.176

P/CFPS (x) 4.4 3.5 6.0 3.7 4.7 4.7 3.7 3.2 3.3

Macmahon Holdings Ltd DPS (A$) 0.030 0.055 0.015 0.030 0.000 0.030 0.040 0.040 0.040

Dividend yield (%) 5.2 9.6 2.6 5.2 0.0 5.2 7.0 7.0 7.0

Reuters: MAH.AX Bloomberg: MAH AU

Price/BV (x) 1.44 1.23 1.37 1.26 1.31 1.17 1.10 1.03 0.97

Hold

Price as at 12-Dec A$0.58

Target price A$0.60 Major contributors to EBT

Mining 51 54 19 40 46 62 62 63 62

Company website Construction 10 33 17 1 -6 23 26 32 34

http://www.macmahon.com.au Other -19 -18 -19 -20 -5 -20 -21 -21 -22



Company description

Macmahon Holdings is a civil engineering and

PROFIT & LOSS (A$m)

contract mining company headquartered in Sales revenue 900 1,201 1,358 896 1,089 1,447 1,411 1,560 1,674

Perth, WA. Civil capabilities span roads, rail, EBITDA (incl significant items) 98 109 58 63 96 132 144 165 163

ports and resources infrastructure while mining Depreciation/amortisation -35 -40 -43 -44 -57 -67 -77 -91 -89

services span drilling services to contract mining. EBIT (incl significant items) 63 69 15 20 39 65 67 74 75

Net interest income (expense) -10 -8 -9 -6 -12 -9 -10 -9 -9

Income tax expense 14 18 3 11 -1 16 16 18 19

Associates/affiliates 6 6 14 34 -27 7 12 10 8

Minorities/preference dividends 0 1 1 1 -4 0 0 0 0

Reported profit 45 49 18 39 -3 47 54 56 55

Significant items 14 0 0 0 0 0 0 0 0

Net profit (excl significant items) 30 49 18 39 -3 47 54 56 55

EBIT (excl significant items) 42 69 15 20 39 65 67 74 75



CASH FLOW (A$m)

Cash flow from operations 69 88 53 117 92 94 119 137 136

Research Team Movement in net working capital -10 -22 4 38 9 -13 0 -1 -1

Capex -33 -37 -41 -52 -82 -206 -168 -91 -100

Dominic Rose Free cash flow 36 51 12 65 10 -112 -50 46 36

+61 2 8258 2313 dominic.rose@db.com Other investing activities 50 -5 -9 3 1 0 0 0 0

Equity raised/(bought back) 2 2 58 0 0 0 0 0 0

Raymond Gonzalez Dividends paid -9 -12 -19 -11 -11 -7 -30 -30 -30

+61 2 8258 1872 raymond.gonzalez@db.com Net inc/(dec) in borrowings 7 -20 -38 -53 18 40 50 0 0

Other financing cash flows -59 -10 -15 -12 -2 0 0 0 0

Tim Plumbe Total cash flows from financing -59 -40 -14 -76 5 33 20 -30 -30

+61 2 8258 1643 tim.plumbe@db.com Net cash flow 27 6 -11 -8 16 -79 -29 17 6

Movement in net debt/(cash) -20 -26 -27 -45 2 119 79 -17 -6

Jennifer Kruk BALANCE SHEET (A$m)

+61 2 8258 2613 jennifer.kruk@db.com Cash and other liquid assets 115 120 109 102 116 37 8 24 30

Tangible fixed assets 256 258 269 286 311 455 550 553 564

Goodwill 20 22 23 23 23 23 23 23 23

Other intangible assets 0 9 20 17 13 8 4 1 1

Associates/investments 5 6 7 27 4 11 23 33 41

Other assets 165 215 205 125 219 238 232 256 274

Total assets 560 630 633 581 686 771 840 889 933

Interest bearing debt 169 149 111 58 76 116 166 166 166

Other liabilities 180 230 211 183 286 292 287 310 327

Total liabilities 349 379 322 241 363 408 453 476 493

Absolute Price Return (%)

Shareholders' equity 210 249 308 336 323 363 387 414 440

-5% 0% 5% 10% 15%

Minorities/other 1 2 3 4 0 0 0 0 0

Total shareholders' equity 211 251 311 340 323 363 387 414 440

-4.2%

1m Net working capital 24 46 42 5 -4 9 8 9 10

-2.5%3m

Net debt/(cash) 55 29 2 -44 -39 79 159 142 136

12m 11%

RATIO ANALYSIS

52-week High/Low: A$0.66 - 0.48 Sales growth - pcp (%) na 33.4 13.1 -34.0 21.5 32.9 -2.5 10.6 7.3

Market Cap (m) A$ 425 EBITDA/sales (%) 8.6 9.1 4.3 7.1 8.8 9.1 10.2 10.6 9.8

US$ 428 EBIT/sales (%) 4.7 5.7 1.1 2.2 3.6 4.5 4.8 4.7 4.5

Payout ratio (%) 43.2 42.5 161.8 28.4 -405.2 15.7 54.9 52.7 53.3

DCF VALUATION (A$) ROA (%) 10.3 14.4 2.9 4.0 7.6 9.4 8.4 8.8 8.5

Beta (MRP - 6.00) 1.25 ROE (%) 15.8 21.5 6.6 12.0 -0.8 13.7 14.3 14.0 13.0

Debt/mkt value ratio (%) 30.0 Operating Return on Capital (%) 12.7 18.9 3.1 1.9 13.4 10.7 9.1 9.8 9.6

WACC (6.25% bond yield) 11.4 Tax rate (%) 26.3 29.2 42.9 75.1 -3.9 28.0 28.0 28.0 28.0

Capex/sales (%) 3.7 3.1 3.0 5.8 7.5 14.2 11.9 5.8 6.0

Capex/depreciation (x) 0.9 0.9 1.0 1.3 1.6 3.3 2.3 1.0 1.1

Net debt/equity (%) 25.9 11.6 0.6 -12.9 -12.2 21.9 41.0 34.3 30.9

Net interest cover (x) 4.0 9.1 1.7 3.4 3.3 7.1 7.0 8.1 8.7

Source: Company data, DB estimates





Trends Return Ratios (%) Net Debt (Cash) / Equity (%)

12 25 200 50





10 40

20 150



30

8 15 100

20

6 10 50

10

4 5 0

0



2 0 -50 -10



0 -100 -20

(5)

08 09 10 11 12E 13E 14E 15E 08 09 10 11 12E 13E 14E 15E

08 09 10 11 12E 13E 14E 15E

EBITDA/sales (%) ROE (%) ROA (%) Net debt / (cash) (AUD m)

EBIT/sales (%) op ROC (%) Net debt/equity (%)









Page 2 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings









Investment thesis

Outlook

We initiate coverage on Macmahon Holdings Ltd (MAH) with a Hold rating and a $0.60 PT.

MAH is a Perth-based provider of mining and construction services to clients throughout

Australia, New Zealand, South East Asia and Africa. With limited upside potential to our price

target, we rate MAH as a Hold.



Positive investment case factors:



Turnaround story: MAH offers a FY12f earnings turnaround story following the RGP5 Rail

North contract write-down and the string of recent contract wins which have grown the

order book to a record $3.1b. At present, 87% of our FY12f revenue is contracted.



Diversified order book: The order book is diversified by commodity (31% gold, 15% iron

ore, 7% copper), geography (57% WA, 11% QLD, 10% NSW, 10% International) and

client (30% AngloGold/IGO, 24% Govt, 12% BHP, 9% RIO). We estimate Mining (70%

FY12f EBIT) accounts for 75% of the book with Construction (30% FY12f EBIT) at 25%.

We note MAH’s mining exposure is principally production and development related.



Outlook: Notwithstanding global macro uncertainty, the outlook appears positive,

underpinned by the record order book and pipeline of work, particularly resources work.

Major mining and energy companies have recently increased resources capex programs.

Additionally, the contracting environment should be favourable from a risk perspective.

Neutral/negative investment case factors:



Construction risk: Fixed-price construction contracting risks were exposed by the $49m

pre-tax write-down of the RGP5 Rail North contract (see page 16 for details). MAH has

changed its tendering and risk management procedures, however, fixed-price contract

risks cannot be completely eliminated (see page 8 for order book contract break down).



Returns: MAH’s profitability and returns have been low relative to peers, adversely

impacted by the GFC-related downturn in mining activity, problem construction contracts,

inclement weather, and insufficient revenue relative to the cost base.



Valuation: The stock is trading on a FY12f PER of 9.3x and EV/EBIT of 7.0x (incl JVs) which

compares to the ASX ex-100 mining services peer group on 9.7x and 6.9x respectively

(see page 11). Our $0.60PT implies a FY12f PER of 9.7x and EV/EBIT of 7.3x and a FY13f

PER of 8.6x and EV/EBIT of 6.6x.



Valuation

We set our $0.60 price target equal to our DCF valuation (see page 11). DCF methodology

has been selected as we believe it best captures the cyclical nature of the company’s

earnings. The main assumptions underlying our DCF valuation are: Beta 1.25; gearing 30%;

WACC 11.4%; and TGR 3.5% (based on nominal GDP assumption).





Risks

Key downside risks: (1) construction contract pricing and execution; (2) a sustained

commodity market downturn may reduce demand for MAH’s mining services; (3) inclement

weather; (4) capacity constraints may limit MAH’s ability to grow; (5) FX and political risks

relating to African and South East Asian earnings; and (6) competitive threats. Key upside

risks: (1) better than expected margins; (2) material contract wins; and (3) corporate activity.





Deutsche Bank AG/Sydney Page 3

14 December 2011 Emerging Companies Macmahon Holdings









Financial analysis

Earnings forecasts

Figure 1: Earnings forecasts

J une Y/E $m FY07a FY08a FY09a FY10a 1H11a 2H11a FY11a 1H12f 2H12f FY12f FY13f FY14f

Revenue 900.1 1201.2 1358.5 896.4 504.2 585.2 1,089.4 726.3 721.1 1,447.4 1,410.9 1,559.8

Opex -823.2 -1,092.5 -1,300.7 -832.9 -455.5 -537.6 -993.1 -671.4 -644.1 -1,315.5 -1,266.5 -1,394.8

E BITDA 77.0 108.7 57.8 63.5 48.8 47.5 96.3 54.9 77.0 131.9 144.4 165.0

Depreciation -34.8 -40.2 -42.3 -39.2 -24.0 -28.8 -52.8 -28.0 -34.2 -62.2 -73.1 -88.3

E BITA 42.2 68.5 15.5 24.3 24.8 18.7 43.5 26.9 42.8 69.6 71.3 76.7

Amortisation 0.0 0.0 -0.5 -4.3 -2.2 -2.2 -4.3 -2.2 -2.2 -4.3 -4.0 -3.0

E BIT 42.2 68.5 15.1 20.0 22.6 16.6 39.2 24.7 42.3 65.3 67.3 73.7

Net Interest -10.4 -7.5 -8.9 -5.8 -5.8 -6.3 -12.0 -4.7 -4.4 -9.2 -9.6 -9.1

P r e-t a x pr of it 31.7 61.0 6.2 14.2 16.9 10.3 27.2 20.0 36.2 56.2 57.8 64.6

Income tax expense -7.6 -17.8 -2.7 -10.7 7.0 -5.9 1.1 -5.6 -10.1 -15.7 -16.2 -18.1

As s oc ia t es 5.9 5.5 13.6 34.4 -37.1 9.9 -27.2 1.1 3.9 6.7 12.2 9.6

Minorities 0.0 0.6 1.1 0.9 -3.1 -0.7 -3.8 0.0 0.0 0.0 0.0 0.0

NP AT (pr e-a bnor m a ls ) 30.0 49.4 18.3 38.8 -16.3 13.6 -2.7 15.5 29.9 47.1 53.8 56.1

Significant items 14.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

NP AT 44.5 49.4 18.3 38.8 -16.3 13.6 -2.7 15.5 31.6 47.1 53.8 56.1

E P S dilut ed (pr e-a b) ¢ 5.7 9.2 3.3 5.2 -2.2 1.8 -0.4 2.0 4.1 6.2 7.0 7.3

DPS diluted ¢ 3.0 5.5 1.5 3.0 0.0 0.0 0.0 1.0 2.0 3.0 4.0 4.0





Mining 555.9 616.4 644.9 465.6 313.2 361.1 674.4 400.3 399.5 799.8 839.8 881.8

Construction 402.6 628.0 840.7 788.8 287.8 292.2 580.0 388.5 411.9 800.4 824.4 849.2

Revenue (inc l J V s ) 958.5 1,244.4 1,485.6 1,254.4 601.0 653.4 1,254.4 788.8 811.4 1,600.2 1,664.2 1,730.9

yoy growth 13.8% 29.8% 19.4% -15.6% -8.4% 9.2% 0.0% 31.2% 24.2% 27.6% 4.0% 4.0%



Mining 50.6 54.4 18.8 40.0 25.2 23.2 48.4 30.0 34.0 64.0 67.2 70.5

Construction 16.0 38.1 30.2 35.3 -38.6 3.1 -35.4 5.8 22.2 28.0 33.0 34.0

Unallocated / Corp overheads -12.3 -17.8 -19.2 -20.0 -4.2 -0.6 -4.7 -10.0 -10.0 -20.0 -20.6 -21.2

E BIT (inc l J V s ) 54.3 74.7 29.8 55.3 -17.5 25.8 8.3 25.8 46.1 72.0 79.6 83.3

yoy growth 49.6% 37.6% -60.1% 85.4% -152.6% 17.9% -85.1% nm 78.9% 772.4% 10.5% 4.7%



Mining 9.1% 8.8% 2.9% 8.6% 8.0% 6.4% 7.2% 7.5% 8.5% 8.0% 8.0% 8.0%

Construction 4.0% 6.1% 3.6% 4.5% -13.4% 1.1% -6.1% 1.5% 5.4% 3.5% 4.0% 4.0%

E BIT (inc l J V s ) Ma r gin 5.7% 6.0% 2.0% 4.4% -2.9% 3.9% 0.7% 3.3% 5.7% 4.5% 4.8% 4.8%



Source: Deutsche Bank, Company data









87% FY12f sales forecast Sales: DBe FY12f sales forecast to grow 33% yoy to $1,447m (+28% yoy to $1,600m incl

JVs), broadly in line with consensus ($1,492m, source: Bloomberg Finance LP). Key

contracted, 42% FY13f

drivers are Mining (+19% yoy to $800m incl JVs) and Construction (+38% yoy to $800m

incl JVs). Our FY13f sales growth assumption is 4% to $1,664m (incl JVs). 87% of our

FY12f revenue forecast is contracted while 42% of FY13f is covered at this point.



Expect improving EBIT: DBe FY12f EBIT (incl JVs) $72m (4.5% margin), up from $8.3m in FY11a which

Construction margins included the RGP5 write-down and wet weather impacts ($66.2m underlying EBIT, 5.3%

margin). We forecast improving Construction EBIT margins, from 1.5% in 1H12f to 5.4%

in 2H12f, due to better execution and profit recognition timing on new contracts. We

forecast a modest 30bps expansion in EBIT margins in FY13f to 4.8%.



FY12f NPAT in line with NPAT: DBe FY12f underlying NPAT of $47m (vs $2.7m loss in FY11a), broadly in line with

guidance and consensus consensus ($46m, source: Bloomberg Finance LP) and company guidance (>$45m). We

expect FY12f NPAT to be 2H12f weighted (1/3:2/3) due to construction profit timing.



DPS: We expect MAH to resume paying dividends in 1H12f (1cps) with a target payout

ratio of 50%. However, insufficient credits mean dividends will likely be unfranked.



Outlook: Our positive outlook reflects expectations of improving profitability from better

Construction contract execution and contract wins from the solid pipeline of work.



Page 4 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Figure 2: FY12f segment EBIT (pre-corp, incl JVs) mix Figure 3: FY12f Segment EBIT ($m) & margin (%)



120 7%



100

6%

Construction 80

30%

5%

60



40 4%



20 3%



0

2%

FY07a FY08a FY09a FY10a FY11a FY12f FY13f FY14f

-20

Mining 1%

-40

70%

-60 0%



Mining Construction Margin



Source: Deutsche Bank, Company data (figures include JV revenues) Source: Deutsche Bank, Company data (figures include JV revenues)









Order book

Figure 4: Historic order book reconciliation ($m)

FY07a FY08a FY09a FY10a FY11a

O pening ba la nc e 1,218 2,005 2,138 1,412 2,215

Less: Work completed -966 -1,244 -1,486 -1,254 -1,254

Less: Cancellations / scope decreases 0 0 -348 0 0

Add: New contracts 1,317 805 813 872 963

Add: Contract extensions / scope increases 436 572 295 1,185 89

Clos ing ba la nc e 2,005 2,138 1,412 2,215 2,013

net change 787 133 -726 803 -202

Source: Deutsche Bank, Company data (figures include JV revenues)







Record order book reflects MAH has grown its order book from $2.0b as at 30 June 2011 (Figure 4) to a record ~$3.1b

recent contract wins on the back of a string of contract wins (see pages 6 & 7). As illustrated below, MAH has

~$1.4b of work secured for FY12f (87% of DBe FY12f revenue of $1.6b - see Figure 10),

running off to $700m in FY13f (42% of DBe FY13f revenue) and ~$1b from FY14f onwards.



Figure 5: Order book run-off ($m)

3,500

3,100 1,400

3,000



2,500 2,215

2,138

2,006 2,013

2,000

700

1,412

1,500

1,000

1,000



500



0

FY07a FY08a FY09a FY10a FY11a FY11a + Run-off Run-off Run-off

recent FY12f FY13f FY14f+

wins



Source: Deutsche Bank, Company data (figures include JV revenues)









Deutsche Bank AG/Sydney Page 5

14 December 2011 Emerging Companies Macmahon Holdings





Figure 6: Key Mining contracts

P r oj ec t Client C'dt y V a lue Dur a t ion S t a r t Finis h S c ope

S ur f a c e - Aus t r a lia



BHP Billiton drill & blast, load & haul, crushing,

Orebody 18 / Wheelarra (WA) Iron Ore A$990m 3 years Feb-10 Feb-13

Iron Ore stacking, train loading



AngloGold planning, drill & blast, load & haul,

Tropicana Gold (WA) Gold A$900m 10 years Jul-12 Jul-22

Ashanti / IGO crusher feed



moving overburden, stockpiling, ROM

Boddington Gold (WA) Newmont Gold A$35m 2 years Jan-11 Dec-12

rehandle



Yancoal planning & development, waste

Cameby Downs (QLD) Coal A$190m 3 years Jul-10 Dec-13

Australia stripping, mining, train loading



Peabody drill & blast, mining, ROM feed,

Eaglefield (QLD) Coal A$150m 2.5 years Mar-10 Sep-12

Energy maintenance



S ur f a c e - Int er na t iona l



equipment supply & maintenace, mine

Tavan Tolgoi Coal (Mongolia) * Erdenes Coal US$500m 5 years Jan-12 Jan-17

planing, drill & blast, load & haul



drill & blast, mining, crushing &

Waihi Gold (New Zealand) Newmont Gold A$70m 4 years Jun-10 Jun-14 conveying system operation &

maintenance



drill & blast, overburden removal,

Ewekoro Cement (Nigeria) Lafarge Limestone US$105m 6.5 years Feb-10 Aug-16

hauling, road upgrade & maintenance



drill & blast, overburden removal,

Calabar Cement (Nigeria) Lafarge Limestone US$126m 7 years Jan-12 Jan-19

excavation, hauling



drill & blast, limestone mining, haul road

Lhoknga Cement (Indonesia) Lafarge Limestone US$60m 7 years Mar-09 Jun-18

construction



U nder gr ound - Aus t r a lia



production & development works, client

Renison Tin (TAS) Metals X Tin A$65m 2 years Mar-10 Feb-12

plant management & maintenance



development works incl. establishing a

Argyle Diamond (WA) Rio Tinto Diamonds A$250m 6.5 years Nov-06 Feb-13 new block cave mine, excavation,

production



development works incl. lateral

Olympic Dam (SA) BHP Billiton Cu / U308 A$60m 1 year ext May-11 May-12 development, cablebolting &

shotcreting



mine shaft eng. design, fabrication,

CSA Engineering (NSW) AG Glencore Copper A$110m 2 years Aug-11 May-12

procurement, construction & mgt

Source: Deutsche Bank, Company data (* denotes JV contract)







FY12 Mining contract wins to date:

$1.7b+ of Mining contracts

won in FY12 YTD 23 Nov 11 – Calabar Cement (Nigeria): US$126m, 7-year quarrying contract for United

Cement Company of Nigeria Ltd (UniCem) which is a JV (Lafarge is a partner), near

Calabar in Nigeria. Scope includes ~5mtpa of overburden and feed material movement.



14 Oct 11 – Tavan Tolgoi Coal (Mongolia): US$500m+, 5-year coal mining contract

(cost reimbursable alliance) for Erdenes Tavan Tolgoi JSC (State-owned mining company),

operating under a 50:50 JV with Operta GmbH. Initially 3mtpa, ramping up to 6mtpa plus.



19 Aug 11 – CSA Engineering (NSW): $110m, 2-year engineering construction contract

(turnkey contract) for Cobar Mgt. Pty Ltd (CMPL), a subsidiary of AG Glencore Intl. Scope

includes extending an existing shaft and constructing a new materials handling system.







Page 6 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





12 Aug 11 – Mining contracts: $90m of mining contracts: (1) predevelopment work

adjacent to current operations at BHP Billiton Iron Ore’s Wheelarra Mine (WA) to

construct haul roads and run of mine pad; (2) Mining operations and ore re-handling at

Newmont’s Boddington Gold Mine (WA); Underground development works at

Newcrest’s Copper / Gold Cadia Hill Mine and Cadia East Project (NSW); and (3)

Production drilling, cablebolting and shotcreting at Panoramic Resources’ Savannah

Project (WA).



15 July 11 – Tropicana Gold (WA): $900m, 10-year mining contract (alliance) for the

Tropicana JV between AngloGold Ashanti Aust. (70%) and Independence Group (30%).

Scope includes mine planning, drill & blast, load & haul, crusher feed and other works.







Figure 7: Key Construction contracts

P r oj ec t Client Cont r a c t V a lue Dur a t ion S t a r t Finis h S c ope

Roa d



Lump Sum / highway construction incl. elevated

South Road Superway (SA) * SA Govt. A$230m 1.5 years Nov-10 2013

Schedule of Rates roadway, road upgrade work



Great Eastern Highway Roe Main Roads bridge design & construction,

Fixed A$74m 1.5 years Nov-10 May-12

Interchange (WA) WA underpasses, bridge modification



Pilbara Integrated Service Main Roads Lump Sum / network operations management,

A$170m 5 years Sep-11 Aug-16

Agreement (WA) WA Schedule of Rates capital works delivery



Ra il



Glenfield Transport Interchange Glenfield Station upgrade, bus/rail

TIDC Alliance A$170m 2 years May-09 2013

(NSW) * interchange, rail flyovers



Res our c e Inf r a s t r uc t ur e



Fortescue Lump Sum / earthworks, rail & bridge construction,

Solomon Rail Spur (WA) A$300m 1 year Aug-11 Dec-12

Metals Group Schedule of Rates level crossings & roadways



Lump Sum / earthworks, rail & bridge design &

Rio Tinto 333 Expansion (WA) Rio Tinto A$129m 1 year Jul-11 2012/13

Schedule of Rates construction



Bechtel earthworks, pavements, roads &

Curtis Island GLNG (QLD) Alliance A$150m 1.5 years Mar-11 Dec-12

Australia drainage



Int er na t iona l



Lump Sum / management expertise, technical

XRL Tunnel (Hong Kong) * MTR Corp A$115m 5 years Mar-10 2015

Schedule of Rates support, project delivery



Source: Deutsche Bank (* denotes JV contract)







FY12 Construction contract wins to date:

~$600m of Construction

work won in FY12 YTD 1 Sep 11 – Pilbara ISA (WA): $170m, 5-year Integrated Service Arrangement (ISA) with

Main Roads WA (MRWA) for the Pilbara region. Scope includes operational asset

management services including network operations, maintenance mgt. and capital works.



16 Aug 11 – FMG Solomon Rail Spur (WA): $300m contract (preferred status) to

construct the first stage of the Solomon Rail Spur for Fortescue Metals Group. Scope

includes more than 6m cubic metres of earthworks, construction of four bridges and

other works.



4 Jul 11 – RIO Iron Ore (WA): 3 contracts worth $129m for Rio Tinto’s 333 expansion

program and ongoing sustaining works. Contracts: (1) Hope Downs 4 – rail earthworks

and bridge construction; (2) Cape Lambert Port B Development – bridges; and (3) Cape

Lambert Port A Sustaining Works – bulk earthworks, roadworks and civil works.







Deutsche Bank AG/Sydney Page 7

14 December 2011 Emerging Companies Macmahon Holdings





Figure 8: Order book & revenue ($m) Figure 9: Contracted revenue vs DB forecasts ($m)



3,500 2,000 100%

3,100 1,600 1,800

1,800 1,664 1,731 90%

3,000 87%

1,600 80%

2,500 2,215 1,400 70%

2,138

2,006 2,013

1,200 60%

2,000

1,600 1,000 42% 50%

1,412 1,486

1,500 1,244 1,254 1,254 800 40%

958

1,000 600 23% 30%

400 14% 20%

500

200 10%

0 0 0%

FY07a FY08a FY09a FY10a FY11a FY12f FY12f FY13f FY14f FY15f



Order book Revenue 5-year Order book average (historic) Contracted Work to win % Contracted



Source: Deutsche Bank, Company data (figures include JV revenues) Source: Deutsche Bank, Company data (figures include JV revenues)









Figure 10: Order book mix – commodities Figure 11: Order book mix – clients



Other New mont Other

LN G 2% 2% Peabody 4%

Diamonds 4% 2%

5% Glencore

Santos /

Limestone 4% AngloGold / IGO

Gold Petronas

6% 31% 4% 30%

Yancoal

Coal 4%

6%

Lafarge

5%

Copper

7%

Rio Tinto

9%







Iron Ore

15% BHP Billiton

Government 12% Government

24% 24%



Source: Deutsche Bank, Company data (figures include JV revenues) Source: Deutsche Bank, Company data (figures include JV revenues)









Figure 12: Order book mix – geography Figure 13: Order book mix – contract style



N T VIC Cost Plus

SA Alliance

2% 1% 4%

9% 7%



Fixed Schedule of

Int'l 8% Rates (SOR)

10% 34%









N SW Lump Sum / SOR

10% WA 17%

57%









QLD

11%

Alliance / SOR

30%

Source: Deutsche Bank, Company data (figures include JV revenues) Source: Deutsche Bank, Company data (figures include JV revenues)









Page 8 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Balance sheet & cash flow metrics

Figure 14: Balance sheet metrics

J une Y/E $m FY07a FY08a FY09a FY10a FY11a FY12f FY13f FY14f

Receivables $m 129 181 159 86 168 174 169 187

Inventories $m 34 33 39 37 45 58 56 62

Creditors & Provisions $m -180 -230 -211 -183 -286 -292 -287 -310

Fixed Assets $m 256 258 269 286 311 455 550 553

Intangibles $m 21 31 42 40 35 31 27 24

Net Other $m 2 1 7 2 6 6 6 6

O p. Ca pit a l E m ploy ed $m 261 274 305 269 279 431 523 523

Investments $m 5 6 7 27 4 11 23 33

Ca pit a l E m ploy ed $m 266 280 313 296 284 442 546 556

Net Debt $m 55 29 2 -44 -39 79 159 142

Tot a l E quit y $m 211 251 311 340 323 363 387 414

Total Assets $m 560 630 633 581 686 771 840 889

Total Liabilities $m -349 -379 -322 -241 -363 -408 -453 -476



Net Debt / (Debt + Equity) % 21% 10% 1% -15% -14% 18% 29% 26%

Net Interest Cover (EBITA) x 4.0 9.1 1.7 4.2 3.6 7.6 7.4 8.4

Net Debt / EBITDA x 0.7 0.3 0.0 -0.7 -0.4 0.6 1.1 0.9



Book value per share $ 40.3 47.0 55.1 45.8 44.0 49.1 52.4 56.0

NTA per share $ 36.3 41.1 47.5 40.5 39.7 45.1 48.8 52.8



ROA % 8.1% 11.5% 2.5% 3.3% 6.2% 9.0% 8.4% 8.5%

ROE % 15.7% 21.4% 6.4% 11.9% -0.8% 13.7% 14.3% 14.0%

ROCE % 11.3% 17.2% 3.5% 5.3% 10.0% 13.2% 9.8% 9.3%

ROIC % 10.5% 15.4% 3.4% 5.7% 9.7% 10.3% 8.8% 9.4%

Source: Deutsche Bank, Company data







Solid balance sheet with MAH has a solid balance sheet with $40m net cash in FY11a, comprising $116m cash and

$40m net cash in FY11a $76m debt ($37.5m current, $38.7m non-current).



As outlined in Figure 15 below, as at 30 June 2011 MAH had drawn $180m of its $422m

facilities leaving $242m available. These facilities include a 3-year syndicated term facility

drawn to $62.5m as at 30 June 2011 and maturing on 18 May 2013. The company has

stated that it is currently considering refinancing options, well ahead of maturity.



FY11a PPE of $311m included $2m of land and buildings, $284m of owned plant and

equipment and $20m of equipment under finance leases. MAH also had $130.5m of

operating leases as at 30 June 2011 relating to offices, workshop facilities and P&E.



Gearing forecast to increase We forecast gearing to increase to 18% in FY12f and 29% in FY13f, largely driven by

due to capex for projects growth capex to support client projects.



MAH’s key return metrics have been relatively low, reflecting insufficient revenue on a

high cost base and impacted by problem contracts and the GFC. Figure 16 overleaf

illustrates MAH’s ROCE – we anticipate improved returns in FY12f to 13% (10% in pcp).



Figure 15: Facilities ($m)

Fa c ilit y Dr a wn Ava ila ble

Equipment finance 107 41 66

Working capital 40 25 15

Bank guarantees 75 44 31

Insurance bonds 200 70 130

Tot a l 422 180 242

Source: Deutsche Bank, Company data









Deutsche Bank AG/Sydney Page 9

14 December 2011 Emerging Companies Macmahon Holdings





Figure 16: Op. capital employed ($m) & ROCE (%) Figure 17: Segment capex & assets ($m)



600 20%

FY07a FY08a FY09a FY10a FY11a

Mining -86 -37 -40 -59 -78

18%

500 Construction -4 -5 -4 -1 -4

16%

Other 0 -5 -13 -1 -1

14%

400 Tot a l Ca pex -90 -47 -56 -61 -82

12%

300 10% Mining 415 457 382 378 466



8%

Construction 78 84 124 65 89

200 Other 63 84 119 110 127

6%

Tot a l As s et s 555 624 625 553 681

4%

100 Investments 5 6 7 27 4

2%

0 0% Mining 220 237 185 150 216

FY07a FY08a FY09a FY10a FY11a FY12f FY13f FY14f Construction 78 85 100 70 105

Other 51 57 37 21 42

Operating Capital Employed (LHS) ROCE (RHS) Tot a l Lia bilit ies 349 379 322 241 363



Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data









Figure 18: Cash flow metrics

J une Y/E $m FY07a FY08a FY09a FY10a FY11a FY12f FY13f FY14f

EBITDA $m 77 109 58 63 96 132 144 165

Change in Working Capital $m -10 -22 4 38 9 -13 0 -1

Maintenance Capex $m -21 -28 -36 -35 -47 -56 -58 -71

Other $m 19 19 16 20 0 0 0 0

O per a t ing Fr ee CF $m 65 78 41 86 58 63 86 93

Net Interest Paid $m -11 -8 -9 -6 -12 -9 -10 -9

Tax Paid $m -6 -10 -15 2 -1 -16 -16 -18

Non-Maintenance Capex $m 0 -3 -2 -12 -33 -150 -110 -20

Fr ee Ca s h Flow $m 48 57 16 70 11 -112 -50 46

Acquisitions $m -29 -1 -2 0 0 0 0 0

Divestments $m 0 0 0 0 0 0 0 0

Other $m 67 -9 -11 -1 0 0 0 0

Dis t r ibut a ble CF $m 86 46 3 68 11 -112 -50 46

Net Dividends Paid $m -9 -12 -19 -11 -11 -7 -30 -30

Equity Issues [inc. DRP] $m 2 2 58 0 0 0 0 0

Other $m 0 0 0 -4 -2 0 0 0

Change in Net Debt $m 79 36 42 54 -1 -119 -79 17



Gross Operating CF $m 90 117 59 85 96 116 128 147

GOCF / EBITDA x 117% 108% 102% 134% 99% 88% 89% 89%

Capex / Depn x 0.6 0.8 0.9 1.2 1.5 3.3 2.3 1.0

Source: Deutsche Bank, Company data







FY11a cash capex was $82m, +$30m on FY10a at $52m. As shown in Figure 17, Mining

accounted for the vast majority of FY11a capex (95%).



Recent contract wins support our forecasts for capex growth in FY12f and FY13f. We

forecast FY12f capex of $206m ($56m maintenance and $150m growth) and FY13f capex

of $169m ($59m maintenance and $110m growth).



Our assumptions imply negative free cash flow in FY12f (-$112m) and FY13f (-$50m) then

moving positive in FY14f ($46m).









Page 10 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings









Valuation

DCF

We value MAH at $0.60ps using DCF methodology which has been selected as we believe it

best captures the cyclical nature of the company’s earnings. The main assumptions

underlying our DCF valuation are: Beta 1.25; gearing 30%; WACC 11.4%; TGR 3.5% (based

on nominal GDP assumption).



Figure 19: DCF valuation

Firm Value $m 405 D/D+E % 30%

Less FY11a Net Debt $m (39) Kd % 9%

Equity Value $m 444 Risk Free Rate (Rf) % 6%

No Shares m 739 Equity Risk Premium % 6%

Value Per Share $ 0.60 Tax Rate % 30%

DB price target $ 0.60 Beta x 1.25

Discount/(Premium) % 5% Cost of Equity (Ke) % 14%

Implied FY13f EV/EBIT x 6.6 WACC % 11.4%



Source: Deutsche Bank, Company data









Peer comparative valuation

Figure 20: Peer comparison

Last Mkt EV/EBITDA EV/EBITDA EV/EBIT EV/EBIT PER PER EPSg EPSg

Prices as at: 13/12/11 Price Cap 2012 2013 2012 2013 2012 2013 2012 2013

Ex-ASX 100 Mining Services Companies

AAX Ausenco Ltd (DB) Buy $2.70 2.87 354 5.8 4.2 7.6 5.2 11.3 8.1 41% 40%

ASL Ausdrill Ltd (DB) Buy $3.70 2.93 888 4.2 3.8 7.2 6.4 9.3 8.1 13% 14%

BKN Bradken Ltd (DB) Buy $8.70 7.46 1243 7.0 6.1 8.5 7.6 10.9 10.1 12% 8%

CDD Cardno Ltd (NR) 5.39 607 5.9 5.2 6.7 5.9 8.7 8.1 10% 8%

CLO Clough Ltd (NR) 0.70 539 5.9 4.8 6.2 4.9 10.3 8.6 6% 19%

DCG Decmil Group Ltd (NR) 2.25 349 6.6 4.7 7.5 5.4 10.8 8.8 10% 22%

EHL Emeco Holdings Ltd (DB) Hold $1.10 1.06 666 3.9 3.5 8.1 7.1 9.4 8.3 27% 13%

FGE Forge Group Ltd (NR*) 4.82 402 5.0 4.5 5.4 5.0 9.3 8.7 15% 6%

IMD Imdex Ltd (DB) Buy $2.45 2.11 431 6.0 5.1 7.3 6.2 10.1 9.0 33% 12%

IDL Industrea Ltd (NR) 1.12 411 3.6 3.1 4.9 4.1 6.0 5.4 26% 12%

LDW Ludowici Ltd (NR) 3.58 106 4.4 3.7 5.4 4.5 6.5 5.5 29% 18%

LYL Lycopodium Ltd (NR) 5.91 228 7.0 6.3 7.5 6.8 11.9 10.9 12% 9%

MAH Macmahon Holdings Ltd (DB) Hold $0.60 0.58 425 3.8 4.0 7.0 7.3 9.3 8.2 nm 13%

MLD Maca Ltd (NR) 1.97 296 4.2 3.4 6.9 5.6 9.9 8.3 2% 19%

MCE Matrix Composites & Engineering Ltd (NR) 3.30 254 6.7 4.0 8.3 4.6 11.3 6.9 -37% 63%

MIN Mineral Resources Ltd (NR) 11.60 2139 6.7 4.9 7.9 5.9 11.0 8.4 17% 31%

NWH Nrw Holdings Ltd (DB) Buy $3.50 2.77 773 4.8 4.1 6.5 5.5 8.8 7.8 102% 13%

RCR RCR Tomlinson Ltd (NR) 1.68 224 4.5 3.8 6.5 5.1 9.3 7.7 22% 20%

SDM Sedgman Ltd (DB) Buy $2.45 1.96 415 5.4 4.4 7.8 6.0 10.6 10.0 34% 6%

SWK Swick Mining Services Ltd (DB) Hold $0.40 0.35 82 2.9 2.3 5.6 3.9 8.4 6.4 105% 31%

Average ex-100 5.2 4.3 6.9 5.6 9.7 8.2 25% 19%



ASX 100 Mining Services Companies

BLY Boart Longyear Ltd (DB) Buy $4.00 3.28 1513 4.4 3.9 6.2 5.2 8.2 7.3 29% 13%

CPB Campbell Brothers Ltd (DB) Hold $51.50 51.23 3458 10.3 9.3 11.9 10.8 16.5 15.2 53% 9%

DOW Downer EDI Ltd (DB) Hold $4.37 3.08 1322 3.6 2.9 6.3 4.9 7.3 6.4 3% 15%

LEI Leighton Holdings Ltd (DB) Buy $23.93 20.61 6936 3.4 3.3 6.4 6.1 11.3 10.3 3% 9%

MND Monadelphous Group Ltd (DB) Hold $20.70 20.20 1791 8.7 7.6 10.2 8.9 15.9 14.0 19% 14%

TSE Transfield Services Ltd (DB) Hold $2.50 2.25 1230 6.1 6.0 9.5 9.2 10.7 9.7 1% 10%

UGL UGL Ltd (DB) Hold $13.77 12.08 2006 7.2 6.6 9.1 8.4 11.6 10.8 9% 7%

WOR WorleyParsons Ltd (DB) Buy $31.70 27.21 6577 10.1 8.0 12.4 9.7 16.9 13.4 32% 26%

Average Top-100 6.7 6.0 9.0 7.9 12.3 10.9 19% 13%

AVERAGE - ALL 5.7 4.8 7.5 6.3 10.4 8.9 23% 17%

Source: Deutsche Bank, Bloomberg Finance LP. *Uses 2011 reported net debt.









Deutsche Bank AG/Sydney Page 11

14 December 2011 Emerging Companies Macmahon Holdings





MAH trading on FY12f PER MAH is trading on a FY12f PER of 9.3x and a FY13f PER of 8.2x which compares to the ASX

of 9.3x and EV/EBIT of 7.0x ex-100 mining services comps on 9.7x and 8.2x respectively. MAH’s FY12f and FY13f EBIT

multiples are 7.0x and 7.3x respectively (including JVs), compared to the ASX ex-100 peers

on 6.9x and 5.6x respectively.



We regard NWH and MLD as the closest comparable ASX ex-100 mining services companies

to MAH which are trading on respective FY12f PE multiples of 8.8x and 9.9x and EBIT

multiples of 6.5x and 6.9x. We believe NWH warrants a premium multiple to MAH to reflect

the strong execution track record, earnings growth potential and higher returns on capital.



Figure 21: Historic PER

20

18

16

14

12

10

8

6

4

2

0

03/07



06/07



09/07



12/07



03/08



06/08



09/08



12/08



03/09



06/09



09/09



12/09



03/10



06/10



09/10



12/10



03/11



06/11



09/11



12/11

Forward PER Average Forw ard PER



Source: Deutsche Bank, Bloomberg Finance LP (note uses Best P/E (MAH AU Equity) Blended 12 Months)







MAH has historically traded on a forward PER of ~12x. However, the range is wide – since

2007, MAH’s forward PER peaked at ~19x (in September 2009) and troughed at 4x (in

December 2008). Recent highs were observed in March 2011 where the forward PER

reached 11.2x before retracing, broadly in line with the sector, to current levels of ~9x.





Earnings sensitivity

Figure 22 below displays sensitivity analysis for DBe FY12f EBIT projection of $72m which is

generated from $1,600m revenue (+28% yoy) and implies an EBIT margin of 4.5% (vs 0.7%

in the pcp). Assessing the downside, 5-10% lower revenue relative to our current forecast

derives FY12f EBIT of $65-68m holding EBIT margins constant at 4.5%. Assuming a 3.5%

margin (-100 bps on current expectations) on 5-10% lower than forecast revenue implies $50-

53m EBIT (26-31% below our $72m forecast).



Figure 22: FY12f EBIT sensitivity

Revenue

FY12f E BIT ($m ) -15% -10% -5% 0% +5% +10% +15%

1,360 1,440 1,520 1,600 1,680 1,760 1,840

3.0% 41 43 46 48 50 53 55

3.5% 48 50 53 56 59 62 64

E BIT 4.0% 54 58 61 64 67 70 74

Ma r gin 4.5% 61 65 68 72 76 79 83

5.0% 68 72 76 80 84 88 92

5.5% 75 79 84 88 92 97 101

6.0% 82 86 91 96 101 106 110

Source: Deutsche Bank, Company data (Revenue & EBIT includes JV income)









Page 12 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings









Key drivers & outlook

Business drivers

Strong exposure to gold, Mining activity: the key driver of MAH’s Mining segment (70% FY12f EBIT, pre-corp &

iron ore and copper mining incl JVs) is mining activity, predominantly the production and project development phases

of the mine cycle. MAH does not generally provide exploration services which we regard

as being at higher risk of cut backs during a downturn. Mining earnings are largely

generated from activities related to volumes of earth/ore moved or services provided,

rather than from commodity price movements. That said, we note commodity prices

impact project economics while financial markets impact debt and equity funding

capabilities. Key commodity exposures are Gold (31% order book), Iron Ore (15% order

book) and Copper (7% order book).



Resource infrastructure Construction activity: the key driver of MAH’s Construction segment (30% FY12f EBIT,

driving Construction work pre-corp & incl JVs) is infrastructure development activity, across road, rail, resource,

landside marine and water infrastructure. Demand for resource infrastructure construction

services has been particularly strong, driven by mining production and development

projects.



Labour: both the Mining and the Construction segments require appropriately skilled

labour to grow. MAH plans to increase its workforce by 41% in FY12f to ~5,000 to meet

client demand (see Figure 24). According to management, labour supply is a key near-

term growth constraint, particularly in Australia. Labour productivity issues are likely to

increase in the current supply-constrained environment, in our opinion.



Capital: the Mining unit is capital intensive, requiring plant and equipment to grow. MAH

has an extensive capex program over the next few years to meet client projects within

the order book. Management views labour as being in tighter supply than capital.



Contract execution: good contract execution is the key profit driver of the Construction

business, in our view. This reflects matching the appropriate contract style with the

project, stringent contract pricing and risk management processes, tight cost control, high

productivity and effective delivery.



Figure 23: Order book & Revenue ($m) Figure 24: Workforce growth



3,500 6,000

3,100

3,000 5,000

5,000

2,500 2,215

2,138

2,006 2,013 4,000 3,628

2,000 3,536

1,600 3,037 3,098 3,021

1,412 1,486

1,500 1,244 1,254 1,254 3,000

958

1,000

2,000

500

1,000

0

FY07a FY08a FY09a FY10a FY11a FY12f

0

Order book Revenue FY07a FY08a FY09a FY10a FY11a FY12f



Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data









Deutsche Bank AG/Sydney Page 13

14 December 2011 Emerging Companies Macmahon Holdings





Outlook

Management’s positive outlook for the business is premised upon the record forward order

book of ~$3.1b, which includes blue chip clients with low cost, long life mines, and strong

industry fundamentals, particularly for resources and resource related infrastructure.



No sign of a slowdown seen, Consistent with WA-based mining services peers, MAH has not seen signs of a macro-related

labour key supply constraint slowdown. Indeed, management believes demand for base metals and bulk commodities is as

strong as it was prior to the GFC. The company has won a significant amount of work and the

key challenge relates to sourcing labour to fulfil the contracts within the order book.



Notwithstanding the global macro uncertainty (European sovereign indebtedness and

potential for a hard landing in China), MAH appears to be relatively well placed for growth

considering the robust order book and pipeline of work.



The major mining companies, such as BHP and RIO, have recently increased their near-term

capex programs, particularly in WA iron ore and QLD coal projects. Additionally, the

Australian energy sector is progressing with significant oil & gas and LNG development

projects. Underpinning these expansionary programs are expectations for continued strong

demand from developing nations and economic underlying commodity prices. Figures 26-31

overleaf display DBe’s key commodity price forecasts – our commodity price expectations

broadly support the development of low cost, long life mines.



Figure 25 below outlines ABARES’ project list as at April 2011. Across the energy, minerals,

infrastructure and processing sectors, there were 94 advanced projects on the list with a

combined $174b of capex. The less advanced list contained 305 projects potentially costing

$256b. This list suggests a strong pipeline of work for contract miners and resource

construction services companies such as MAH, in our view.



Figure 25: Australian project list, April 2011 (ABARES) ($m)

P r oj ec t s E ner gy Miner a ls Inf r a s t r uc t ur e P r oc es s ing Tot a l

# Ca pex # Ca pex # Ca pex # Ca pex # Ca pex

NSW 8 4,202 3 2,146 4 1,897 0 0 15 8,245

VIC 2 4,639 1 32 1 45 1 65 5 4,781

QLD 13 38,204 4 1,964 9 6,138 2 2,644 28 48,950

WA 8 67,077 24 29,172 6 10,934 1 2,268 39 109,451

SA 1 146 2 279 0 0 0 0 3 425

TS 1 345 0 0 0 0 0 0 1 345

NT 2 1,340 1 0 0 0 0 0 3 1,340

Tot a l Adva nc ed 35 115,953 35 33,593 20 19,014 4 4,977 94 173,537

Les s Adva nc ed 112 148,285 147 64,493 34 34,447 12 9,126 305 256,351

Tot a l P r oj ec t s 147 264,238 182 98,086 54 53,461 16 14,103 399 429,888



Source: Deutsche Bank, ABARES







The pipeline of work remains solid and we expect MAH to win its share. Apart from macro

uncertainty, the key risk to the outlook is Construction contract execution, in our view. We

discuss the key downside risks on page 16.









Page 14 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Figure 26: DBe metallurgical coal forecast (US$/t) Figure 27: DBe thermal coal forecast (US$/t)



300 150



250 125



200 100



150 75



100 50



50 25



0 0

FY09a FY10a FY11a FY12f FY13f FY14f FY15f FY16f FY17f FY18f FY19f FY20f FY09a FY10a FY11a FY12f FY13f FY14f FY15f FY16f FY17f FY18f FY19f FY20f

DBe DBe

Source: Deutsche Bank (Standard Hard Coking Coal) Source: Deutsche Bank (Coal Steaming – Japanese Bench mark)









Figure 28: DBe iron ore forecast (US$/t) Figure 29: DBe gold forecast (US$/oz)



180 2,000

160 1,800



140 1,600

1,400

120

1,200

100

1,000

80

800

60

600

40 400

20 200

0 0

FY09a FY10a FY11a FY12f FY13f FY14f FY15f FY16f FY17f FY18f FY19f FY20f FY09a FY10a FY11a FY12f FY13f FY14f FY15f FY16f FY17f FY18f FY19f FY20f

DBe DBe

Source: Deutsche Bank (Australian fines to Asia) Source: Deutsche Bank









Figure 30: DBe copper forecast (US$/lb) Figure 31: DBe nickel forecast (US$/lb)



5.00 12.00

4.50

10.00

4.00

3.50

8.00

3.00

2.50 6.00

2.00

4.00

1.50

1.00

2.00

0.50

0.00 0.00

FY09a FY10a FY11a FY12f FY13f FY14f FY15f FY16f FY17f FY18f FY19f FY20f FY09a FY10a FY11a FY12f FY13f FY14f FY15f FY16f FY17f FY18f FY19f FY20f

DBe DBe

Source: Deutsche Bank Source: Deutsche Bank









Deutsche Bank AG/Sydney Page 15

14 December 2011 Emerging Companies Macmahon Holdings





Downside risks

As illustrated in Figures 32 and 33 below, the Mining and Construction businesses have each

reported a half year EBIT loss in recent periods – Mining lost $6m EBIT in 2H09a while

Construction lost $39m EBIT in 1H11a. We discuss the key drivers of these losses and the

downside risks for each business.



Figure 32: Mining: Half year EBIT ($m) & Margin (%) Figure 33: Construction: Half year EBIT ($m) & Margin



40 10% 40 10%



35 33

8% 30

22 23

30 19 16 5%

25 25

25 25 20 16

25 22 22 23 6% 11

10 5 7

20 18 3 0%

4%

15 0

2% 1H07a 2H07a 1H08a 2H08a 1H09a 2H09a 1H10a 2H10a 1H11a 2H11a

10 -5%

-10

5 0%

-20

0 -10%

1H07a 2H07a 1H08a 2H08a 1H09a 2H09a 1H10a 2H10a 1H11a 2H11a -2% -30

-5



-10 -6 -4% -40 -15%

-39

EBIT EBIT margin EBIT EBIT margin



Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data









(1) Mining – 2H09a EBIT loss driven by the GFC



GFC-related downturn drove The $6m EBIT loss reported by the Mining segment in 2H09a (on $287m revenue) reflected

2H09a Mining loss the sharp downturn in the mining and resources sector during the GFC. The business was

adversely impacted by several contract cancellations and deferrals during 2H09a, resulting in

lost earnings and demobilisation, redundancy and restructuring costs. From the $25m EBIT

reported in 1H09a the incremental fall equated to $31m. The recovery was swift, with 1H10a

reporting $22m EBIT ($28m turnaround). We forecast $30m Mining EBIT in 1H12f.



(2) Construction – 1H11a EBIT loss driven by the RGP5 Rail North contract



RGP5 write-down drove The Construction segment reported a $39m EBIT loss in 1H11a, reflecting a $48.9m pre-tax

1H11a Construction loss write-down of the RGP5 Rail North contract (BHP Billiton Iron Ore) coupled with less contract

awards in the previous year reducing segmental revenue and profits. Excluding the RGP5 Rail

North contract, all other Construction projects operated profitably in 1H11a.



BHP Billiton Iron Ore awarded the RGP5 Rail North contract to MAH in JV with Leighton

Contractors (50:50) on 8 April 2009. MAH’s 50% share of the $500m contract was $250m.

The scope of the fixed-price contract included duplicating 220km of the existing railway line

between Port Hedland and Shaw Siding on the Mt Newman Line in the Pilbara region of WA.



Write-down exposes fixed- The material write-down of the contract value largely related to execution issues given

price contract risks contractor reliance on particular client activity. In our view, this contract better suited a cost-

plus or alliance style contract whereby such risks would likely have been contained.



Following the RGP5 Rail North write-down, MAH has made material changes to the tendering

process, internal risk management procedures and senior management team aimed at

reducing inherent risks in the business. The Construction segment has also been restructured

from a national business, separated into East and West operations. The Construction West

unit now focuses on resources and infrastructure projects while Construction East

concentrates on rail, road, port and dam construction on the east coast of Australia.







Page 16 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings









Business overview

Company background

Headquartered in Perth, MAH provides mining and construction services to clients

throughout Australia, New Zealand, South East Asia and Africa. Capabilities include a full

range of surface and underground contract mining services and construction services

spanning road and rail transport and landside marine, water and resource infrastructure.



Founded in 1963 and listed on the ASX in 1983, the company employs more than 3,700

people and expects to increase the workforce to 5,000 in FY12f to meet client demand. The

client base includes blue chip miners such as BHP Billiton, Rio Tinto, Newmont, AngloGold

Ashanti, Peabody and Lafarge, as well as Federal and State Governments of Australia.



Figure 34: Brief company history

1963 Company established as Macmahon Construction and Macmahon Holdings

1983 Listed on the ASX on 1 December 1983

1987 Acquired FK Kanny & Sons, a WA-based open-cut mining contractor

1995 Acquired National Mine Mgt. Pty Ltd, a WA-based underground mining contractor

2004 Acquired Allplant, a mechanical services business

2005 Acquired the NT civil contracting business from the Henry Walker Eltin Group for $3m

2005 Raised $58.4m via a 1 for 6 rights offer ($0.43ps) and institutional placement (at $0.47ps)

2006 Acquired 60% of MVM Rail Pty Ltd, a rail construction and maintenance business, for $6m

2006 Acquired Australian Raise Drilling and Combined Resource Engineering for $27m

2006 Sold Allplant equipment hire division to Coates Hire for $70m

2007 LEI acquires stake in MAH (initially 4.9%)

2007 MOU with LEI signed for 'partner of choice' to JV on large construction projects (2 years)

2007 Standstill agreement with LEI signed

2008 Made a scrip takeover offer for Ausdrill (unsuccessful)

2009 Raised $57.5m (net) via a 1 for 5 rights offer and institutional placement (at $0.32ps)

2009 MOU with LEI renewed effective 2 November 2009 (no termination date)

Source: Deutsche Bank, Company data, IRESS







In July 2007, Leighton Holdings announced it had acquired a 4.9% stake in MAH and

approached the company about taking a larger stake via a placement. MAH decided not to

pursue Leighton Holdings’ proposal and Leighton Holdings proceeded to build its stake in the

company on market (Leighton Holdings currently owns 19% of MAH).



A Memorandum of Understanding (MOU) between MAH and Leighton Holdings was signed

in November 2007, formalising a partnering relationship whereby Leighton Holdings will

promote MAH as a ‘Partner of Choice’ to joint venture for large infrastructure and resources

related construction projects (contract mining was excluded from the MOU). The MOU was

for an initial two year period and included a Standstill Agreement requiring Leighton Holdings

to obtain written consent before acquiring a stake in MAH beyond 19.9% (at the time,

Leighton Holdings had a 15% stake in MAH). MAH invited a Leighton Holdings

representative, Mr Vyril Vella, to join the Board.



The MOU with Leighton Holdings was extended indefinitely in November 2009, however, the

Standstill Agreement was not extended.









Deutsche Bank AG/Sydney Page 17

14 December 2011 Emerging Companies Macmahon Holdings





Business model

Corporate strategy: MAH’s stated strategy is to grow the business to maximize profits

to shareholders by a combination of:



(1) balanced mix of mining and construction projects;



(2) broad geographical footprint, both domestically and overseas;



(3) blue chip client base with long life / low cost mines;



(4) low gearing; and



(5) focus on people – recruitment, retention and safety.



Revenue model: MAH earns revenue from services provided under Mining and

Construction contracts.



Costs: As illustrated in Figure 35, MAH’s key operating costs are Materials &

Consumables (33% of FY11a opex), Labour (42% of FY11a opex) and Subcontractor

expenses (11% of FY11a opex). Within FY11a ‘Other expenses’ was $26m of equipment

and office expenses under operating leases ($25m in FY10a).



Figure 35: FY11a opex mix









0% 20% 40% 60% 80% 100%





Materials & consumables Labour Subcontractor expenses Other





Source: Deutsche Bank, Company data







Contracts:



(1) Mining contracts: typically comprise both fixed and variable components and tend to

be based on volumes of earth/ore moved and/or services provided. These contracts

usually contain rise and fall provisions designed to allow MAH to pass through

operating cost inflation (eg fuel, labour and consumables).



(2) Construction contracts: delivery methods span construction only, design &

construct, term network contracts, build own operate, alliance, and joint ventures.

Fixed-price contracts are generally associated with a higher risk/reward profile while

alliance style contracts tend to have limited upside and downside risks and rewards.

Lump sum / Schedule of Rates contracts typically contain both fixed and variable

components.









Page 18 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Operating segments

MAH has two operating segments: (1) Mining; and (2) Construction.



(1) Mining (70% FY12f EBIT, pre-corp & incl JVs)



Overview: Provides total mining solutions to mine owners including Surface Mining,

Underground Mining, Plant & Maintenance Services, Mining Services (such as crushing,

raise drilling and shotcreting) and Structural, Mechanical & Electrical Engineering services.

MAH has extensive experience mining commodities such as coal, iron ore, diamonds,

gold, copper, nickel, manganese, limestone and phosphates.



Surface Mining: core capabilities: drill & blast; mining (bulk & selective); crushing &

screening; plant hire & maintenance; mine management; and tailings dam construction.

Key current contracts: Orebody 18 / Wheelarra for BHP Billiton Iron Ore (WA); Tropicana

Gold for AngloGold Ashanti / Independence Group (WA); Boddington Gold for Newmont

(WA); Cameby Downs Coal for Yancoal Australia (QLD); Eaglefield Coal for Peabody

Energy (QLD); Tavan Tolgoi Coal for Erdenes (Mongolia); Waihi Gold Mine for Newmont

(New Zealand); and Ewekoro & Calabar Cement for Lafarge (Nigeria).



Underground Mining: core capabilities: mine development; production drilling; materials

handling; equipment maintenance; and mining services (raise drilling, shotcreting,

cablebolting, infrastructure construction, electrical services, and engineering design &

fabrication). Key current contracts: Renison Tin for Metals X (TAS); Argyle Diamond for Rio

Tinto (WA); Olympic Dam for BHP Billiton (SA); and CSA Copper for AG Glencore.



Figure 36: Mining historic financial metrics ($m) Figure 37: Mining Sales, EBIT ($m), Margin (%)



FY07a FY08a FY09a FY10a 1H11a 2H11a FY11a 1,000 10%

Revenue 556 616 645 466 313 361 674

900 9%

EBITDA 84 92 58 75 48 50 98

800 8%

D&A -33 -38 -39 -35 -23 -27 -49

700 7%

E BIT 51 54 19 40 25 23 48

600 6%

Ma r gin 9.1% 8.8% 2.9% 8.6% 8.0% 6.4% 7.2%

Net interest -9 -8 -7 -5 -3 -3 -6 500 5%



PBT 42 46 12 35 22 20 43 400 4%

300 3%

Capex -86 -37 -40 -59 - - -78

200 2%

Assets 415 457 382 378 - - 466

100 1%

Liabilities -220 -237 -185 -150 - - -216

0 0%

Net Assets 194 220 197 228 - - 250

FY07a FY08a FY09a FY10a FY11a FY12f FY13f FY14f

ROA - 12% 4% 11% - - 11%

ROE - 26% 9% 19% - - 20% Revenue EBIT Margin



Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data









The Mining business targets EBIT margins of 8-9% (pre-corporate). Underground Mining

typically generates a higher margin than Surface Mining.



Mining reported FY11a EBIT of $48m (+20% yoy), generated on $674m of revenue

(+45%), implying a 7.2% EBIT margin (-140bps yoy).



Mining is a capital intensive business – FY11a Mining capex was $78m (+32% yoy),

representing 95% of Group capex of $82m. Surface Mining is typically more capital

intensive than Surface Mining.









Deutsche Bank AG/Sydney Page 19

14 December 2011 Emerging Companies Macmahon Holdings





(2) Construction (30% FY12f EBIT, pre-corp & incl JVs)



Overview: Provides complete construction services for private and public clients in Road,

Rail, Resource Infrastructure, Landside Marine Infrastructure, and Water Infrastructure.

Contract delivery methods span construction only, design & construct, term network

contracts, build own operate, alliance, and joint ventures.



Road: core capabilities: bulk earthworks, road formations, rigid & flexible pavements,

bridges, tunnels & embankments, drainage & supportive infrastructure. Key current

contracts: South Road Superway for the South Australian Department of Transport,

Energy & Infrastructure; Great Eastern Highway Roe Interchange for Main Roads WA; and

Pilbara Integrated Service Agreement for Main Roads WA.



Rail: core capabilities: earthworks & concrete works, bridges, tunnels & embankments,

rail & track formations, drainage & rehabilitation; quarry development & quarrying. Key

current contract: Glenfield Transport Interchange for Transport Infrastructure

Development Corporation (TCA) (NSW). MAH’s rail unit is aided by the MVM Rail JV

(MAH 60%, COMSA EMTE (Spain) 40%).



Resource Infrastructure: core capabilities: bulk earthworks, concrete infrastructure,

access & haul roads, drainage & services installation. Key current contracts: Solomon Rail

Spur for Fortescue Metals Group (WA); 333 Expansion Project for Rio Tinto (WA); Curtis

Island Gladestone LNG Project subcontracted to Bechtel Australia (QLD).



Landside Marine Infrastructure: core capabilities: construction of breakwaters, wharves

& jetties, land reclamation, services & installation.



Water Infrastructure: core capabilities: construction of dams, dam remediation, water

storage, treatment & supply, pipelines, sewer infill & mains.



Figure 38: Construction historic financial metrics ($m) Figure 39: Construction Sales, EBIT ($m), Margin (%)



FY07a FY08a FY09a FY10a 1H11a 2H11a FY11a 900 8%

Revenue 403 628 841 789 288 292 580

800

EBITDA 17 40 34 42 -36 6 -30 6%

700

D&A -1 -2 -3 -6 -3 -3 -6 4%

E BIT 16 38 30 35 -39 3 -35 600

2%

Ma r gin 4.0% 6.1% 3.6% 4.5% -13.4% 1.1% -6.1% 500



400 0%

Capex -4 -5 -4 -1 - - -4 300

-2%

Assets 82 90 131 93 - - 93

200

Net Assets 4 5 31 22 - - -12 -4%

100

ROA - 44% 27% 32% - - -38%

-6%

ROE - 831% 169% 132% - - -680% 0



-100 FY07a FY08a FY09a FY10a FY11a FY12f FY13f FY14f -8%



Revenue EBIT Margin



Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data









The Construction business targets EBIT margins of 4-5% (pre-corporate).



Construction reported a $35m EBIT loss in FY11a (vs $35m EBIT in the pcp) on $580m

revenue of $580m (-26% yoy). As discussed, this largely reflected the RGP5 Rail North

contract write-down and lower contract wins in the prior period reducing revenues and

profits.



While Construction is not relatively capital intensive, the business is high risk, particularly

when delivering fixed-cost contracts.









Page 20 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Industry snapshot

MAH provides contracting services focusing on two key industries: (1) the resources and

mining industry, largely in Australia, New Zealand, South East Asia and Africa, and across a

broad range of commodities; and (2) the infrastructure sector, predominantly in Australia and

spanning road, rail, resource, landside marine, and water infrastructure.



(1) Resources Industry



The key industry drivers are economic commodity prices (which reflect supply and demand),

funding availability, capacity (labour, equipment and infrastructure), and the regulatory

environment (environmental and sovereign).



Demand for resources has been historically strong for a number of years, largely driven by

emerging economies such as China and India. This strong demand has underpinned

commodity prices and mining sector activity, spanning the exploration, development and

production stages. Commodity prices have also been supported by supply constraints.



MAH’s contract mining capabilities span Surface Mining, Underground Mining, Plant &

Maintenance Services, Mining Services (such as crushing, raise drilling and shotcreting) and

Structural, Mechanical & Electrical Engineering services.



The owner-operator mine model tends to be a contract miner’s largest competitor whereby

resource companies elect to mine in-house. The strategic decision to mine in-house or to

outsource is typically made on a case-by-case basis, with many major mining companies

mining some operations in-house whilst outsourcing others. In our view, key decision factors

include internal capex budgets, equipment and labour availability and contractor quality and

availability. Miner’s decisions also take into account contractor’s productivity, reputation and

safety track record.



Key Surface Mining competitors include Leighton Holdings, Downer EDI and NRW Holdings

while Ausdrill competes in drill & blast work in Australia. Key Underground Mining

competitors are privately owned Barminco and Byrnecut.



Barriers to entry in the mining services sector are relatively high given the levels of capital

expenditure required to develop and maintain equipment fleet and the occupational health

and safety requirements to work for the major mining companies.



(2) Infrastructure Industry



Key industry drivers are public and private infrastructure projects (reflect supply and demand

dynamics), funding availability and capacity (labour, equipment and infrastructure).



Demand for infrastructure construction services has been strong in the resources sector in

recent years, driven by mining development projects. Demand from the public sector in

Australia has generally declined due to funding constraints, particularly at the State level.



Key Construction competitors include Leighton Holdings, NRW Holdings and Abbey Group

(private), and Laing O’Rourke (private) to a lesser extent.



Barriers to entry in the infrastructure construction services sector are relatively high given the

levels of labour, expertise and bonding capacity required to work on major infrastructure

projects.









Deutsche Bank AG/Sydney Page 21

14 December 2011 Emerging Companies Macmahon Holdings









Key risks

Downside risks to our earnings estimates and valuation are:



Construction contract pricing and execution: a principal risk for MAH is contract

pricing and execution, particularly in the Construction segment which often contracts

under fixed-price arrangements which may lead to operating losses. This was evidenced

in 1H11a with the Construction business reporting a $39m EBIT loss, largely reflecting a

$48.9m pre-tax write down of the RGP5 Rail North contract with BHP Billiton Iron Ore.

According to management, completely eliminating risk from construction contracts is very

difficult –variations and claims are common. Effective risk management and matching the

right style of contract with the right project are imperative.



Commodity market downturn: a sustained downturn in cyclical global commodity

markets may reduce demand for MAH’s mining services, in our view. Last downturn,

MAH’s EBIT fell from $25m in 1H09a to a $6m EBIT loss in 2H09a ($31m incremental fall)

reflecting several contract cancellations and deferrals which resulted in lost earnings and

demobilisation, redundancy and restructuring costs;



Inclement weather: MAH’s Mining and Construction earnings may be adversely

impacted by inclement weather. Mining margins may fall due to reduced operating hours

and lower productivity while Construction profitability can be impacted by weather-related

delays. For example, inclement weather reportedly impacted the FY11a result by $9m

(pre-tax).



Capacity constraints: MAH’s ability to grow may be limited by industry-wide capacity

supply constraints, such as skilled labour and equipment. Management have highlighted

labour supply constraints as a key near-term growth challenge, along with potentially

diminishing labour productivity and equipment lead times;



FX and political: MAH’s African and South East Asian operations face earnings

translation risk from foreign exchange movements as well as political risk associated with

operating in these countries. According to management, international operations account

for ~10% of the $3.1b order book;



Competitive threats: The contract mining services sector is highly competitive and

increased levels of competition, as witnessed during the GFC when activity retraced, may

place downward pressure on operating margins and returns on capital.







Upside risks to our earnings estimates and valuation are:



Better than expected margins: MAH may outperform by delivering better than expected

operating margins. We currently forecast FY12f and FY13f EBIT margins of 4.5% and

4.8% respectively. Whilst a vast improvement on FY11a at 0.7%, MAH reported EBIT

margins of 5.7% and 6.0% in FY07a and FY08a.



Material contract wins: We see upside risk to our FY12f and FY13f revenue forecasts

from material contract wins. Our FY12f and FY13f revenue forecasts are 87% and 42%

covered by current contracts, respectively.



Corporate activity: upside risk to our valuation could come from corporate activity,

particularly considering Leighton Holdings’ 19% stake in MAH.









Page 22 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Board and ownership structure

MAH’s Board comprises the following members (source company data):



Independent Non-Executive Chairman – Kenneth Scott-Mackenzie: Joined the Board

as a Non-Executive Director (NED) in May 2009 and appointed Chairman in November

2009. He has more than 35 years experience in the engineering, mining and construction

sectors, in Australia and overseas. Previously CEO of Bilfinger Berger Australia Pty Ltd

and Abigroup Ltd. He is also a solicitor of the Supreme Court of New South Wales.



CEO & MD – Nick Bowen: Joined the Board as CEO and MD in February 2000. Mr

Bowen has 26 years experience in the contracting industry covering open cut mining,

underground mining and civil engineering in Australia and overseas. He is also currently a

member of the Executive Council of the Chamber of Minerals and Energy WA and a

Director of the Australian Constructors Association Ltd.



Independent NED & Deputy Chairman – Barry Cusack: Joined the Board as a NED in

June 2002 and appointed Deputy Chairman in September 2009. Previously MD of Rio

Tinto Australia and President of the Minerals Council of Australia. Mr Cusack is an

honorary life member of the Chamber of Minerals and Energy WA and is currently a

Director of Toll Holdings Ltd and Chairman of Brockman Resources Ltd.



Independent NED – Barry Ford: Joined the Board as a NED in July 2006. Previously

worked for General Motors Corp. in Australia and North America, and was CFO of

Goodman Fielder Ltd and Southcorp Holdings and Finance Director of Pratt Industries Pty

Ltd. Mr Ford is currently Chairman of Think Tank Group Pty Ltd.



Non-Independent NED – Vyril Vella: Joined the Board as a NED in November 2007. He

has 39 years experience in the civil engineering, building, property and construction

industries. Previously worked for the Leighton Group. Currently a NED of Devine Ltd and

Chairman of the Supervisory Board for the Airport Link Project (QLD).



Independent NED – Dr David Smith: Previously President of Rio Tinto Atlantic covering

the Simandou Project in Ginea, West Africa, CEO of Rossing Uranium Ltd in Namibia and

President of the Chamber of Minerals and Energy WA. Currently a NED of Bannerman

Resources Ltd and Atlas Iron Ltd.



Independent NED – Eva Skira: Joined the Board as a NED in September 2011.

Previously worked in banking including as an Executive at Commonwealth Bank and

Barclays de Zoete Wedd. Currently a Director of RCR Tomlinson and MDA National

Insurance and Deputy Chancellor of Murdoch University.





MAH’s substantial shareholders currently comprise (source IRESS):



Leighton Holdings: 139,405,224 ordinary shares (19.00%)

BlackRock Investment Management: 42,567,241 ordinary shares (5.76%)



Northcape Capital: 37,084,208 ordinary shares (5.05%)



DFA Group (Dimensional): 36,990,846 ordinary shares (5.01%)









Deutsche Bank AG/Sydney Page 23

14 December 2011 Emerging Companies Macmahon Holdings









Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist

Company Ticker Recent price* Disclosure

Macmahon Holdings MAH.AX 0.58 (AUD) 13 Dec 11 7,8

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.





Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See

“Important Disclosures Required by Non-US Regulators” and Explanatory Notes.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment

banking or financial advisory services within the past year.



8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services

from this company in the next three months.





Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the “Important Disclosures Required by US Regulators” and the Explanatory Notes.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment

banking or financial advisory services within the past year.





For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this

research, please see the most recently published company report or visit our global disclosure look-up page on our

website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=MAH.AX.





Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject

issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any

compensation for providing a specific recommendation or view in this report. Dominic Rose









Page 24 Deutsche Bank AG/Sydney

14 December 2011 Emerging Companies Macmahon Holdings





Historical recommendations and target price: Macmahon Holdings (MAH.AX)

(as of 12/13/2011)

0.90 Previous Recommendations



0.80 Strong Buy

Buy

Market Perform

0.70 Underperform

Not Rated

0.60 Suspended Rating

S ecurity Price









Current Recommendations

0.50

Buy

Hold

0.40

Sell

Not Rated

0.30 Suspended Rating



*New Recommendation Structure

0.20

as of September 9, 2002



0.10



0.00

Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11

Da te







Equity rating key Equity rating dispersion and banking relationships



Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price 140

from current price to projected target price plus pro- 120 50 %

47 %

jected dividend yield ) , we recommend that investors 100

buy the stock. 80

Sell: Based on a current 12-month view of total share- 60

holder return, we recommend that investors sell the

40 25 % 19 %

stock 3 % 17 %

20

Hold: We take a neutral view on the stock 12-months

0

out and, based on this time horizon, do not recommend

either a Buy or Sell. Buy Hold Sell

Notes:

1. Newly issued research recommendations and target Companies Covered Cos. w/ Banking Relationship

prices always supersede previously published research.

Australia Universe

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of

10% or more over a 12-month period

Hold: Expected total return (including dividends)

between -10% and 10% over a 12-month period

Sell: Expected total return (including dividends) of -

10% or worse over a 12-month period









Deutsche Bank AG/Sydney Page 25

14 December 2011 Emerging Companies Macmahon Holdings





Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

“Disclosures Lookup” and “Legal” tabs. Investors are strongly encouraged to review this information before investing.









2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent

or inconsistent with Deutsche Bank’s existing longer term ratings. These trade ideas can be found at the SOLAR link at

http://gm.db.com.









3. Country-Specific Disclosures

Australia and New Zealand: This research, and any access to it, is intended only for “wholesale clients” within the meaning

of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and

its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly

affected by revenues deriving from the business and financial transactions of Deutsche Bank.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

http://www.globalmarkets.db.com/riskdisclosures.

Japan: Disclosures under the Financial Instruments and Exchange Law: Company name – Deutsche Securities Inc.

Registration number – Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho)

No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of

Japan, Japan Securities Investment Advisers Association. Commissions and risks involved in stock transactions – for stock

transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission

rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors.

Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. “Moody’s”,

“Standard & Poor’s”, and “Fitch” mentioned in this report are not registered credit rating agencies in Japan unless “Japan” is

specifically designated in the name of the entity.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any

appraisal or evaluation activity requiring a license in the Russian Federation.









Page 26 Deutsche Bank AG/Sydney

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Copyright © 2011 Deutsche Bank AG









GRCM2011PROD024256

Australasia Australia





14 December 2011

Macro









Data Flash (Australia) Economics

Research Team





Consumer sentiment - now

Adam Boyton

Chief Economist

Global Markets Research









(+61) 2 8258 1688

adam.boyton@db.com



versus other rate cut cycles Phil O’Donaghoe

Economist

(+61) 2 8258-1606

Consumer sentiment fell 8.3% in December after a 6.3% increase in November. philip.odonaghoe@db.com

Since the RBA eased in November consumer sentiment has fallen by 2.6%. While

some may find that surprising, we think it worth nothing that across the last four Figure 3: Six month change in

rate cut cycles (including the December 1998 single move) consumer sentiment consumer sentiment and the

has fallen by an average of 1.8% at the start of the easing cycle (see Figure 1,

below). Further, the magnitude of the fall in consumer sentiment over the past unemployment rate

two months is actually less than that seen at the start of the 2001 and 2008 Consumer sentiment and unemployment rate



cycles. (Note that in reading Figure 1, the dates reflect the months the RBA 40.0

(six month change)

-1.5



started easing, by way of example, November 2011. The change in sentiment

6 mth chg 6 mth chg

(index) (ppts),

30.0 (inverse)



shown in the chart is therefore the percentage change from October 2011 to

-1.0



20.0



December 2011, reflecting the fact the consumer sentiment survey is usually in 10.0

-0.5





the field just after RBA Board meetings. That wasn’t the case in 1996, with an 0.0 0.0



adjustment made to our timing in Figure 1 to reflect that latter point.) -10.0

0.5



-20.0



To be sure lower interest rates will be supportive of confidence – but with a lag. -30.0

Consumer sentiment (lhs)



Unemployment rate (rhs)

1.0





As Figures 1 and 2 together show, while lower interest rates typically lift -40.0 1.5



confidence that doesn’t usually occur straight away (in this regard 1998 was the Jan-96 Jan-01 Jan-06 Jan-11







exception, not the rule). What we suspect happens is that in the very short term Source: Deutsche Bank, WBC-MI, RBA



the negative economic conditions which spark rate cuts dominate sentiment. In

this vein, while the correlation in Figure 3 (on the right) is not overly tight, we note Figure 4: DB’s ‘consumer pressure

that the six month change in consumer sentiment is sitting roughly consistent with

the six month change in the unemployment rate. We should also acknowledge at index’ is consistent with further

this point that the negative news flow out of Europe is likely to be also having a rate cuts

negative impact on sentiment (something reflected in the detail of the survey

across the news heard and news recalled components). DB Consumer pressure index and cash rate changes



6.00

ppt Changes in the cash rate (LHS) Index

change



In summary, we don’t think that the decline in sentiment since the RBA started 0.50 Consumer pressure index (RHS) 4.00







easing should be viewed as ‘bad’, or ‘worse than usual’. It is, in fact, fairly normal 2.00







if we consider these developments in the context of past easing cycles. So while 0.00 0.00







we see these data as consistent with an expectation that the RBA will ease further -2.00







(see our consumer pressure index in Figure 4 on the right); we would not yet get -0.50 -4.00







too carried away by the ‘failure’ of consumer sentiment to ‘bounce’ in the The consumer pressure index is derived from consumer

confidence, consumers' unemployment expectations and

consumers' inflation expectations

-6.00







immediate aftermath of 50bps of rate cuts.

-1.00 -8.00



(Note that in advance of the December release of

unemployment and inflation expectations data we have -10.00

used the November outturns)

-1.50 -12.00



Figure 1: Changes in consumer Figure 2: Six month change in Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11









sentiment over first two month of consumer sentiment and interest Source: Deutsche Bank, RBA, WBC-MI





rate cut cycles rates

Change in consumer sentiment during the first Consumer sentiment and interest rates

two months of a rate cut cycle (six month change)

10.0 40.0 -2.0

% 6 mth chg

low of -4 during GFC 6 mth chg

(index) (ppts),

Note: Dec 1998 30.0 -1.5

(inverse)

5.0 easing was a

single cut 20.0 -1.0





0.0 10.0 -0.5





0.0 0.0



-5.0

-10.0 0.5





-20.0 1.0

-10.0

Consumer sentiment (lhs)

-30.0 1.5

RBA cash rate (rhs)



-15.0

-40.0 2.0

Jul 96 Dec-98 Feb-01 Sep-08 Nov-11 Jan-96 Jan-01 Jan-06 Jan-11







Source: Deutsche Bank, WBC-MI Source: Deutsche Bank, WBC-MI, RBA

Economics









Deutsche Bank AG/Sydney

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local

exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche

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single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN

APPENDIX 1. MICA(P) 146/04/2011.

14 December 2011 Data Flash (Australia)









Appendix 1

Important Disclosures

Additional information available upon request

For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see

the most recently published company report or visit our global disclosure look-up page on our website at

http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.





Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the

undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in

this report. Adam Boyton









Deutsche Bank AG/Sydney Page 2

14 December 2011 Data Flash (Australia)





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(swaptions) also bear the risks typical to options in addition to the risks related to rates movements.









Deutsche Bank AG/Sydney Page 3

David Folkerts-Landau

Managing Director

Global Head of Research



Guy Ashton Marcel Cassard Stuart Parkinson

Head Global Head Associate Director

Global Research Product Fixed Income Research Company Research





Asia-Pacific Germany Americas Europe

Fergus Lynch Andreas Neubauer Steve Pollard Richard Smith

Regional Head Regional Head Regional Head Regional Head





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Market Analysis & Commodity forecasts



MARKET ANALYSIS MARKET SUMMARY

2011 2012E 2013E 2011 2012E 2013E Level Movement (%)

ASX 200 ASX 200 INDUSTRIALS 14-Dec Week YTD

PER (x) 11.9 10.5 9.5 PER (x) 12.8 11.6 10.4 ASX 200 Industrials 5728 -1.8 -6.6

Cash flow multiple (x) 11.1 10.3 9.2 Cash flow multiple (x) 10.3 9.6 8.7 ASX 200 Resources 4617 -3.5 -21.9

EPS growth (%) 14.0 13.6 10.6 EPS growth (%) 6.8 9.6 11.3 ASX 200 4193 -2.3 -11.6

DPS growth (%) 10.8 5.6 7.7 DPS growth (%) 12.3 3.1 7.8

Dividend yield (%) 4.9 5.1 5.5 Dividend yield (%) 5.9 6.1 6.6 USD/AUD 1.008 -1.27 -1.63

Franking (%) 69.5 68.7 69.8 Franking (%) 75.7 74.1 75.8 AUD/GBP 1.541 0.68 0.89

EPS (index) 357.0 404.7 448.5 EPS (index) 446.9 492.4 550.3 AUD/EUR 1.298 -0.43 -0.83

Price/NTA (x) 0.7 0.7 0.7 Price/NTA (x) 0.48 0.47 0.46

10 year gov't bond yield (%) 3.83 -3.16 -32.37

Cash rate (%) 4.25 -5.56 -10.53

ASX 200 (excluding Banks) ASX 200 INDUSTRIALS (excluding Banks)

PER (x) 12.3 10.8 9.7 PER (x) 14.9 13.6 11.9

Cash Flow Multiple (x) 9.4 8.8 7.8 Cash flow multiple (x) 10.3 9.6 8.7

EPS Growth (%) 15.8 14.6 11.3 EPS growth (%) 5.6 8.8 14.1

DPS Growth (%) 11.0 3.8 7.6 DPS growth (%) 14.2 -2.8 7.8

Dividend Yield (%) 4.3 4.4 4.8 Dividend yield (%) 5.3 5.2 5.6

Franking (%) 60.7 59.6 60.9 Franking (%) 60.7 57.9 60.8 Source: Company data, DBAG estimates

1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.









DEUTSCHE BANK RESEARCH - COMMODITY PRICE & EXCHANGE RATE ASSUMPTIONS





Commodity Long Term

Spot Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 2015

USD/AUD 100.8 103.4 101.5 98.4 96.7 95.0 93.4 91.8 90.4 88.3

Oil (WTI US$/bbl) 100.4 111.6 111.6 114.5 115.5 120.0 120.0 123.0 123.0 125.0





Gold ($US/oz) 1660.0 1447.7 1727.1 1800.0 2000.0 1800.0 1800.0 1600.0 1600.0 1550.0

Silver ($US/oz) 31.3 35.1 37.9 38.0 44.0 39.0 39.0 36.0 36.0 35.2

Platinum ($US/oz) 1491.5 1787.9 1710.8 1750.0 2000.0 1950.0 1950.0 1800.0 1800.0 1900.0





Aluminium (LME USc/lb) 91.3 115.8 105.4 115.7 120.2 120.2 120.2 120.2 120.2 122.5

Copper (LME USc/lb) 344.2 426.6 381.8 401.5 419.7 397.0 397.0 376.6 376.6 353.9

Lead (LME USc/lb) 94.1 116.9 109.1 114.6 120.2 120.2 120.2 122.5 122.5 127.0

Nickel (LME USc/lb) 828.5 1159.0 976.0 1020.9 1066.2 1020.9 1020.9 975.5 975.5 952.8

Tin (USc/lb) 890.0 1330.5 1082.7 1111.6 1157.0 1088.9 1088.9 1043.6 1043.6 1020.9

Zinc (LME USc/lb) 86.9 105.4 98.1 102.1 108.9 108.9 108.9 113.4 113.4 115.7





Iron ore - Lump (Usc/dmtu FOB) 284.4 288.4 275.8 260.2 264.1 232.8 232.8 162.5 162.5 146.9

Iron ore - Fines (Usc/dmtu FOB) 269.4 273.5 265.3 249.2 253.2 221.0 221.0 148.4 148.4 132.3

Coal - steaming(US$/t) 130.0 114.0 130.0 127.0 124.0 122.0 120.0 115.0 110.0 110.0

Coal - coking(US$/t) 330.0 277.5 300.0 275.0 275.0 250.0 250.0 225.0 225.0 200.0



Uranium ($US/lb) 61.6 64.5 65.0 65.0 65.0 65.0 70.0 70.0 70.0

Industrials Returns Analysis

Net profit ($m) Last EPS (c) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (c) Weight

Effective ASX Rating Price Target TP/P Mkt EV year pre goodwill amort CAGR Rel Consensus yield ing in ASX Analyst

14-Dec-2011 code (cps) Price (%) Cap (A$b) HY12E 2011 2012E 2013E end 2011 2012E 2013E (3yr) 2012E 2013E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E 200

(cps) (A$b) (x) (x) (%) (%) (%) (%) (%)



2012 2013 2012 2013

Developers & Contractors

Boart BLY Buy 315 400 27.0% 1.5 1.6 88.0 147.1 189.4 213.5 Dec-10 30.9 39.8 44.9 30.9% 7.9 7.0 0.69 4.3 3.9 -6.6 -9.6 4.0 35 12.4 14.0 0.15 Wong-Pan

Downer Edi DOW Hold 322 443 37.6% 1.4 1.8 84.8 156.0 179.5 200.0 Jun-11 40.7 41.8 46.6 8.2% 9.1 6.9 0.68 3.5 3.1 0.5 -1.0 0.0 0 0.0 23.3 0.13 Wong-Pan

Leighton LEI Buy 2021 2393 18.4% 6.8 7.0 275.5 567.2 617.0 675.6 Jun-11 176.8 182.8 200.1 7.4% 9.1 6.3 0.62 6.4 3.3 3.0 -3.5 5.5 100 139.0 119.0 0.34 Wong-Pan

Lend Lease LLC Buy 738 950 28.7% 4.2 5.1 485.3 464.5 512.1 Jun-11 85.6 81.4 89.7 6.1% 9.1 6.3 1.06 6.4 6.6 3.0 -3.0 5.5 40 40.7 44.8 0.38 Randall

Swickmin SWK Hold 34 40 17.6% 0.1 0.1 5.3 4.7 9.7 12.7 Jun-11 2.0 4.1 5.4 39.2% 8.3 6.3 0.62 2.9 2.4 -2.5 -0.5 0.0 0 0.0 0.0 Rose

Ugl Limit UGL Hold 1204 1377 14.4% 2.0 2.2 78.1 158.5 173.0 184.9 Jun-11 95.5 104.3 111.4 7.7% 11.5 10.8 1.06 6.9 6.6 -0.5 -3.0 6.3 100 76.0 82.0 0.20 Wong-Pan

Wtd Average Growth 0.3% 1.7% 9.9% 10.4 9.4 0.92 5.52 74 58.2% -4.3% 1.20



Building Materials

Boral Ltd BLD Hold 364 338 -7.1% 2.7 3.3 175.4 167.8 218.6 Jun-11 24.3 23.0 29.2 22.0% 15.8 12.5 1.22 6.3 5.3 -9.2 -11.6 4.7 30 17.0 21.0 0.27 Behncke

CSR CSR Hold 212 233 9.9% 1.1 1.0 90.2 82.3 108.7 Mar-11 17.9 16.2 21.4 16.5% 13.1 9.9 0.97 3.8 3.3 -2.3 9.8 5.7 100 12.0 17.0 0.11 Behncke

Fletbuild FBU Hold 468 578.4 24% 3.2 4.7 275.4 253.4 394.6 Jun-11 42.8 36.4 56.7 17.1% 12.9 8.3 0.81 6.8 5.3 -7.2 2.1 6.4 100 30.0 36.1 Behncke

J Hardie JHX Hold 672 635 -5.5% 2.9 3.0 123.3 144.0 180.1 Mar-11 28.4 33.9 43.5 29.6% 19.8 15.4 1.51 11.0 8.9 4.7 7.6 1.3 0 8.9 11.4 0.30 Behncke

Wtd Average Growth -25.9% -6.0% 39.1% 15.6 11.2 1.10 4.22 51 -5.9% 25.1% 0.67



Alcohol & Tobacco

Trea Wine TWE Hold 371 400 7.8% 2.4 2.5 171.1 153.7 188.3 Jun-11 49.2 23.8 29.1 -11.9% 15.6 12.7 1.25 8.0 6.7 13.8 16.5 3.6 50 13.2 18.2 0.24 van Meurs

Wtd Average Growth -29.3% -8.1% 10.4% 18.8 17.0 1.66 3.95 10 -41.7% 12.4% 0.24



Food & Household Goods

C-C Amatil CCL Buy 1186 1240 4.6% 9.0 10.6 533.6 592.4 640.4 Dec-10 70.4 77.9 83.9 7.7% 15.2 14.1 1.38 8.9 8.2 -0.0 -1.8 4.7 100 56.0 60.5 0.62 van Meurs

Goodman GFF Hold 52.5 57 8.6% 1.0 1.9 52.7 136.1 111.6 138.0 Jun-11 9.9 6.1 6.8 -10.0% 8.6 7.8 0.76 5.3 4.7 -4.3 -0.7 9.3 20 4.9 5.3 0.10 Iser

Wtd Average Growth -3.4% 0.7% 8.1% 14.0 12.8 1.26 5.26 92 0.5% 8.1% 0.10



Infrastructure & Utilities

Agl Energy AGK Buy 1446 1760 21.7% 6.7 7.1 248.0 431.1 494.8 527.6 Jun-11 93.6 106.0 111.6 7.5% 13.6 13.0 1.27 8.0 7.5 1.3 -1.0 4.6 100 66.8 67.2 0.67 Hirjee

Auck Airpt AIA Buy 181.5 186.8 2.9% 2.4 3.2 92.8 102.7 111.4 Jun-11 7.1 7.8 8.5 10.0% 23.2 21.3 2.09 13.1 12.4 -23.1 -23.4 4.1 100 7.5 8.2 Zame

Apa Group APA Buy 457 450 -1.5% 2.9 6.1 71.8 108.9 133.3 147.0 Jun-11 19.8 20.6 22.3 9.2% 22.2 20.5 2.00 11.3 10.9 5.7 4.8 7.7 0 35.3 36.1 0.24 Hirjee

Duet DUE Hold 184.5 175 -5.1% 2.0 7.6 55.9 151.8 115.1 127.5 Jun-11 13.9 10.3 11.2 -4.8% 17.9 16.5 1.61 9.4 9.0 6.3 6.6 8.7 0 16.0 16.5 0.18 Hirjee

Mapairport MAP Buy 275 300 9.1% 5.1 10.5 97.2 176.6 202.3 134.2 Dec-10 9.5 10.9 7.2 61.6% 25.3 38.1 3.73 11.8 9.8 -11.6 -45.4 7.6 0 21.0 22.0 #VALUE! McDonald

Transurban TCL Buy 565 540 -4.4% 8.2 12.0 90.8 106.1 174.7 243.5 Jun-11 7.4 12.0 16.6 39.0% 46.9 33.9 3.32 18.0 16.4 36.9 38.7 5.3 0 30.0 32.0 0.81 McDonald

Wtd Average Growth 9% 10% 14.3% 15.1 13.2 1.29 4.70 63 -7.5% 9.4% #VALUE!



Paper & Packaging

Amcor AMC Buy 736 840 14% 8.9 12.2 570.3 721.4 827.6 Jun-11 45.6 58.0 67.1 18.2% 12.7 11.0 1.07 7.0 6.2 8.7 9.4 6.0 0 44.5 51.5 0.91 Wilson

PaperlinX PPX Buy 9 30 233.3% 0.1 0.2 -25.5 -8.9 5.2 Jun-11 -7.5 -4.9 -2.6 n/a n/a n/a n/a 5.8 4.5 -4.9 -24.0 11.1 50 1.0 5.0 Wilson

Wtd Average Growth 43.0% 32.7% 18.3% 13.5 11.4 1.12 5.99 0 27.2% 19.8% 0.91



Retail

Billabong BBG Sell 379 330 -12.9% 1.0 1.4 119.1 99.6 104.7 Jun-11 47.0 38.8 40.7 -2.1% 9.8 9.3 0.91 7.1 7.2 -11.7 -16.4 6.3 50 24.0 25.0 0.08 Simotas

David Jones DJS Hold 269 280 4.1% 1.4 1.5 85.5 168.1 139.4 145.4 Jul-11 32.4 26.2 26.8 -4.7% 10.2 10.0 0.98 6.0 5.8 -3.1 -5.9 8.6 100 23.0 23.0 0.13 Simotas

Harvey Norman HVN Hold 208 220 5.8% 2.2 2.7 236.3 252.3 293.5 Jun-11 22.2 23.7 27.6 11.1% 8.8 7.5 0.74 5.5 4.8 8.4 10.5 6.3 100 13.1 15.2 0.12 van Meurs

Metcashltd MTS Hold 421 430 2.1% 3.2 4.0 112.5 248.3 257.3 279.2 Apr-11 32.3 33.3 36.0 6.0% 12.6 11.7 1.14 8.0 7.5 -1.6 -2.2 6.7 100 28.0 30.5 0.32 Simotas

Myer MYR Hold 240 250 4.2% 1.4 1.8 107.9 162.0 148.5 163.8 Jul-11 27.6 25.3 27.8 4.5% 9.5 8.6 0.84 5.1 4.6 1.5 5.2 8.5 100 20.5 23.5 0.14 Simotas

Pacbrands PBG Hold 57 60 5.3% 0.5 0.8 103.4 80.5 91.9 Jun-11 8.9 10.4 0.3% 6.4 5.5 0.54 4.4 3.8 5.5 1.7 9.5 100 5.4 6.2 0.05 van Meurs

Wesfarmers WES Hold 3080 3000 -3% 31.0 35.0 1399.6 1922.0 2499.3 2794.3 Jun-11 215.4 240.9 16.2% 14.3 12.8 1.25 8.3 7.6 1.5 4.0 5.7 100 175.0 195.0 3.58 Simotas

Woolworths WOW Buy 2595 2900 11.8% 31.8 35.4 1199.9 2124.0 2212.2 2438.1 Jun-11 173.6 180.3 197.6 7.1% 14.4 13.1 1.28 8.2 7.6 0.3 1.1 4.9 100 127.0 139.0 3.20 Simotas

Wtd Average Growth 9.8% 13.3% 10.9% 14.0 12.7 1.24 5.34 99 9.5% 10.6% 7.63



Transport & Miscellaneous

Asciano AIO Buy 470 630 34.0% 13.8 16.0 124.9 214.4 242.8 308.4 Jun-11 22.0 24.9 31.6 17.1% 18.9 14.9 1.45 12.1 7.2 1.6 100 7.5 9.0 McDonald

Bramb Ltd BXB Buy 718 770 7.2% 10.6 13.4 289.2 538.4 618.7 796.6 Jun-11 37.1 41.8 53.4 19.7% 17.2 13.4 1.31 8.8 7.4 -3.6 3.9 3.8 20 27.0 28.0 1.06 McDonald

Qantas QAN Buy 153 200 30.7% 3.5 6.0 -26.2 430.5 327.0 458.1 Jun-11 19.0 14.4 20.2 4.0% 10.6 7.6 0.74 3.2 3.1 -10.9 -8.5 0.0 0 0.0 0.0 0.35 McDonald

Qrnational QRN Buy 351 360 2.6% 8.6 9.3 215.5 229.2 420.8 483.6 Jun-11 9.8 17.2 19.8 30.3% 20.4 17.7 1.73 8.5 7.2 2.6 -8.2 2.4 0 8.3 9.9 0.56 McDonald

Toll Holdings TOL Hold 453 535 18.1% 3.2 4.3 153.2 289.9 286.2 319.7 Jun-11 44.6 43.2 47.1 5.0% 10.5 9.6 0.94 6.2 5.8 1.1 -1.4 5.6 100 25.5 27.5 0.30 McDonald

Virgin Aus VAH Buy 33.5 35 4.5% 0.7 1.6 37.6 -39.6 57.9 92.9 Jun-11 -1.8 2.6 4.2 n/a 12.8 8.0 0.78 5.3 5.3 0.0 0 0.0 2.0 McDonald

Wtd Average Growth 51.6% 16.9% 21.4% 19.0 15.7 1.54 3.38 36 -39.3% 8.2% 2.27



Investment & Financial services

Asx ASX Buy 3069 3630 18.3% 5.4 3.7 186.9 360.9 379.2 412.0 Jun-11 204.0 216.5 235.2 8.0% 14.2 13.0 1.28 7.1 6.4 0.7 0.4 6.3 100 194.8 211.7 0.54 Chidgey

Challenger CGF Buy 429 585 36.4% 2.4 2.4 137.8 248.0 283.8 297.8 Jun-11 48.1 56.3 60.0 10.0% 7.6 7.2 0.70 6.0 5.7 6.9 -0.2 4.4 0 19.0 21.0 0.23 Chidgey

Perpetual PPT Hold 2021 2325 15.0% 0.8 0.7 29.8 72.9 58.1 66.5 Jun-11 165.5 135.4 154.7 4.6% 14.9 13.1 1.28 6.6 6.0 -6.1 -6.8 6.7 100 134.8 149.3 0.08 Chidgey

Cshare CPU Hold 799 940 17.6% 4.4 5.1 132.4 318.0 299.8 404.5 Jun-11 57.2 53.9 72.5 17.4% 14.8 11.0 1.08 9.8 7.7 0.1 5.1 3.7 60 30.0 31.3 0.41 Chidgey

Wtd Average Growth -1.1% 3.2% 16.0% 12.7 11.0 1.07 5.08 68 2.4% 8.0% 1.26



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

4. Relative index used is DB Universe of stocks of ASX 200 Industrials ex Property trusts.

Industrials Returns Analysis

Net profit ($m) Last EPS (c) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (c) Weight

Effective ASX Rating Price Target TP/P Mkt EV year pre goodwill amort CAGR Rel Consensus yield ing in ASX Analyst

14-Dec-2011 code (cps) Price (%) Cap (A$b) HY12E 2011 2012E 2013E end 2011 2012E 2013E (3yr) 2012E 2013E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E 200

(cps) (A$b) (x) (x) (%) (%) (%) (%) (%)





2012 2013 2012 2013

Media

APN News APN Hold 72 90 25.0% 0.5 1.4 75.9 92.2 98.4 Dec-10 12.3 14.6 15.6 -3.3% 4.9 4.6 0.45 5.7 5.4 3.0 2.6 12.5 0 9.0 10.0 0.0 Anagnostellis

Fairfax FXJ Hold 74.5 83 11.4% 1.8 3.3 142.1 273.6 233.6 262.6 Jun-11 11.6 9.9 11.2 1.4% 7.8 6.7 0.65 6.2 5.6 -5.4 -2.9 4.7 100 3.5 4.0 0.2 Anagnostellis

Newscorp NWS Buy 1780 2050 15.2% 14.2 24.7 3152.4 3225.8 3947.6 Jun-11 120.5 130.4 168.6 15.5% 7.8 12.0 1.17 10.0 3.3 10.2 -0.2 5.3 0 23.0 25.4 0.8 Anagnostellis

Seven Grp SVW Hold 712 900 26.4% 2.2 3.0 145.0 320.9 291.1 268.3 Jun-11 104.8 91.8 84.6 -4.0% 7.8 12.0 1.17 10.0 6.9 10.2 380.5 5.3 100 38.0 40.0 0.1 Rose

Ten Network TEN Sell 92 78 -15.2% 1.0 1.3 59.5 73.7 71.8 80.6 Aug-11 7.0 6.8 7.7 5.3% 13.4 12.0 1.17 7.6 6.9 -353.5 380.5 5.7 100 5.3 5.5 0.1 Anagnostellis

Sevenwest SWM Hold 334 340 1.8% 2.2 4.1 172.0 141.5 263.8 260.4 Jun-11 46.2 39.8 38.2 -3.5% 8.4 8.7 0.86 7.1 7.0 -2.2 -5.7 10.5 100 35.0 35.0 0.1 Anagnostellis

Wtd Average Growth 11.1% 4.5% 22.7% 12.5 10.1 0.99 3.3 33 15.6% 7.9% 1.3



Banks

ANZ Bank ANZ Buy 2097 2350 12.1% 55.3 55.3 3106.7 5634.0 6375.4 7074.7 Sep-11 209.7 231.3 249.8 9.1% 9.1 8.4 0.82 n/a n/a 4.5 6.5 7.3 100 152.9 163.9 5.5 Freeman

Commonwealth Bank CBA Hold 4938 5270 6.7% 78.1 78.6 3592.8 6793.0 7369.1 7866.3 Jun-11 433.5 463.0 486.9 5.9% 10.7 10.1 0.99 n/a n/a 4.4 4.0 7.1 100 349.7 367.0 7.8 Freeman

Macq Group MQG Hold 2413 2800 16.0% 8.4 8.9 305.0 956.0 906.0 1333.6 Mar-11 276.0 268.9 401.1 22.7% 9.0 6.0 0.59 n/a n/a 7.1 26.6 7.4 0 178.1 231.4 0.8 Freeman

Nat Aust Bank NAB Buy 2386 2870 20.3% 52.6 52.6 3071.1 5460.0 6236.8 6894.6 Sep-11 247.8 278.9 298.5 8.3% 8.6 8.0 0.78 n/a n/a 5.0 5.8 7.9 100 188.2 202.2 5.3 Freeman

Westpac WBC Hold 2080 2300 10.6% 63.1 65.1 3331.2 6301.0 6817.8 7468.5 Sep-11 203.0 216.6 233.2 5.8% 9.6 8.9 0.87 n/a n/a 1.6 5.1 7.8 100 163.0 175.0 6.3 Freeman

Wtd Average Growth 9.0% 8.7% 8.4% 9.7 8.9 0.88 7.3 97 7.6% 7.7% 25.7



Insurance

AMP AMP Buy 433 565 30.5% 12.4 13.3 505.1 898.8 1051.1 1221.3 Dec-10 36.5 39.3 43.6 5.6% 11.0 9.9 0.97 n/a n/a 11.2 7.7 8.1 55 35.0 39.0 1.3 Chidgey

IAG IAG Hold 311 345 10.9% 6.5 8.0 253.9 250.0 578.9 720.7 Jun-11 22.3 29.2 36.0 20.7% 10.6 8.6 0.84 n/a n/a 12.4 2.1 5.6 100 17.4 22.3 0.6 Chidgey

QBE QBE Buy 1371 1600 16.7% 15.3 18.5 923.5 1487.3 1912.8 2174.5 Dec-10 137.1 167.8 184.5 11.2% 8.2 7.4 0.73 n/a n/a 9.1 13.5 9.6 10 131.2 135.9 1.6 Chidgey

SUN SUN Buy 841 1025 21.9% 10.8 12.4 490.0 518.3 1035.8 1185.6 Jun-11 48.8 87.2 98.7 30.2% 9.6 8.5 0.83 n/a n/a 6.8 7.4 6.5 100 55.0 61.0 1.1 Chidgey

Wtd Average Growth 4.0% 29.2% 13% 9.6 8.5 0.83 7.8 57 17.6% 9.6% 1.3



Telecommunications

Telecom of NZ TEL Buy 158 181.6 14.9% 3.0 3.6 53.7 245.8 281.9 Jun-11 2.8 12.8 14.7 80.2% 12.4 10.8 1.05 4.0 3.9 -1.7 0.3 8.2 0 13.0 13.3 0.1 Zame

Telstra TLS Hold 327 305 -6.7% 40.7 52.4 1650.0 3252.6 3374.9 3380.2 Jun-11 26.1 27.1 27.2 1.5% 12.1 12.0 1.18 4.9 4.9 -4.5 -7.3 8.6 100 28.0 28.0 4.1 Anagnostellis

Wtd Average Growth -18.7% 15.2% 2.0% 12.0 11.8 1.15 8.6 93 -2.4% 0.2% 4.2

Telecom NZ franking is 100% for New Zealand investors



Health Care & Biotechnology

Ansell ANN Hold 1472 1375 -6.6% 1.9 1.9 54.6 124.8 131.6 153.0 Jun-11 93.9 101.4 119.4 13.7% 14.5 12.3 1.21 11.2 9.3 0.3 4.0 2.3 0 33.9 39.1 0.2 Low

CSL Ltd CSL Buy 3215 3020 -6.1% 16.8 16.8 461.3 940.6 987.4 1117.8 Jun-11 173.6 186.3 224.3 13.3% 17.3 14.3 1.40 11.9 9.9 -4.2 1.9 2.6 2 84.0 95.0 1.7 Low

Cochlear COH Hold 5610 5250 -6.4% 3.2 3.2 50.1 175.8 113.7 154.2 Jun-11 314.7 204.7 275.6 3.2% 27.4 20.4 1.99 16.0 13.0 -20.7 -6.1 4.5 50 250.0 250.0 0.3 Low

F&P Health FPH Hold 180 245 36.1% 0.9 1.0 50.0 50.9 57.2 Mar-11 9.6 9.8 11.0 8.7% 18.4 16.4 1.60 11.2 10.1 -21.8 -19.8 5.4 94 9.7 10.0 n/a Schofield

Mesoblast MSB Hold 768 785 2.2% 2.2 1.9 -4.1 90.6 -8.6 -17.3 Jun-11 39.8 -2.9 -5.9 n/a n/a n/a n/a -109.4 -80.5 -33.0 -29.2 0.0 0 0.0 0.0 n/a Cameron

Resmed RMD Hold 237 322 36% 3.7 3.1 233.4 227.8 272.1 Jun-11 15.2 15.6 19.1 13.0% 15.2 12.4 1.21 8.5 7.0 -3.4 -5.3 0.0 0 0.0 0.0 0.2 Low

Sonic Healthcare SHL Buy 1146 1230 7.3% 4.5 6.0 144.6 294.5 315.2 350.2 Jun-11 75.5 80.8 89.8 9.4% 14.2 12.8 1.25 9.5 8.9 -1.9 0.1 5.3 25 61.0 66.0 0.5 Low

Sigmapharm SIP Buy 62.5 76 21.6% 0.7 0.5 26.7 32.5 52.4 57.5 Jan-11 2.7 4.4 4.9 24.8% 14.1 12.8 1.25 7.4 6.9 -3.5 3.8 5.6 100 3.5 4.0 0.1 Low

Wtd Average Growth 6.7% -1.6% 18.9% 18.4 15.5 1.52 2.8 14 4.9% 9.6% 2.9



Chemicals

Incitec Pv IPL Sell 311 290 -6.8% 5.1 6.3 475.1 385.5 298.5 Sep-11 29.2 23.7 18.3 -11.8% 13.1 17.0 1.66 8.1 8.5 -26.9 -46.1 3.0 50 9.4 7.3 0.5 Wilson

Nufarm NUF Sell 439 375 -14.6% 1.1 1.6 86.1 79.7 84.4 Jul-11 32.9 30.4 32.2 1.2% 14.4 13.6 1.33 6.3 6.1 -25.4 -32.7 3.4 30 15.0 15.9 0.1 Wilson

Orica ORI Buy 2561 2950 15.2% 9.3 10.9 656.8 710.7 782.8 Sep-11 183.4 195.3 215.1 8.7% 13.1 11.9 1.16 7.9 7.4 -1.0 -2.9 3.7 40 95.8 105.6 0.9 Wilson

Wtd Average Growth 6.2% -4.4% -0.9% 13.4 13.6 1.33 3.4 43 -2.6% 0.6% 0.9



Diversified Industrials

Bluescope BSL Buy 43.5 60 37.9% 1.2 2.4 48.3 -118.2 81.2 175.0 Jun-11 -6.5 3.1 5.2 n/a 13.9 8.3 0.81 3.8 3.3 -3240.6 -26.1 0.0 0 0.0 3.0 0.1 Behncke

Onesteel OST Sell 77.5 89 14.8% 1.0 2.8 235.2 129.0 371.0 Jun-11 17.6 9.6 27.5 11.6% 8.1 2.8 0.28 5.2 3.1 -41.3 0.5 6.5 100 5.0 14.0 0.1 Behncke

Sims Metal SGM Buy 1331 1930 45.0% 2.8 2.9 114.6 192.1 223.0 303.7 Jun-11 93.7 112.3 154.2 11.9 8.6 0.84 5.8 4.7 -3.6 1.7 4.2 74 56.0 78.0 0.2 Behncke

Wtd Average Growth -37.9% 34.5% 87.7% 11.1 6.0 0.59 3.7 64 -22.5% 92.4% 0.5



Tourism & Leisure

Aristocrat ALL Hold 236 250 5.9% 1.3 1.6 38.3 60.3 92.7 126.9 Dec-10 11.3 17.3 23.6 32.0% 13.7 10.0 0.98 8.0 6.3 0.3 9.5 4.2 0 10.0 14.0 0.1 Wilson

Crown CWN Buy 815 1165 42.9% 5.9 6.8 198.1 336.7 405.1 493.2 Jun-11 44.4 54.5 67.7 20.1% 15.0 12.0 1.18 10.1 9.2 0.3 6.3 4.5 50 37.0 37.0 Wilson

Echo Ent EGP Hold 371 380 2.4% 2.6 3.5 196.8 130.6 133.8 Jun-11 28.6 19.0 19.5 -6.4% 19.5 19.1 1.87 8.8 8.1 -10.9 -22.8 2.6 0 9.5 9.7 Wilson

Sky City SKC Hold 262 289.2 10.4% 1.5 1.9 112.3 117.1 119.0 Jun-11 19.4 20.1 20.5 4.8% 13.0 12.8 1.25 7.8 7.4 -13.3 -9.9 5.4 60 14.2 14.5 Wilson

Tabcorp TAH Hold 275 275 0.0% 2.0 2.8 301.6 315.3 147.9 Jun-11 45.4 44.5 20.4 -25.8% 6.2 13.5 1.32 4.2 6.5 -6.1 -12.2 8.1 100 22.3 16.3 0.2 Wilson

Tatts TTS Buy 239 265 10.9% 3.2 4.2 275.5 320.8 225.7 Jun-11 21.2 23.7 16.7 -8.1% 10.1 14.3 1.40 6.5 8.3 -2.1 8.0 9.8 100 23.5 17.0 0.3 Wilson

Wtd Average Growth 6.7% 5.7% -9.3% 12.1 13.4 1.31 5.7 55 -8.7% -11.1% 0.6



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

4. Relative index used is DB Universe of stocks of ASX 200 Industrials ex Property trusts.

Real Estate - Investment Trusts - GICS

EPS versus

Effective ASX Rating Price Target TP/P Mkt EV NTA/ Price/ Gearing DPS Distribution Per Unit (cpu) Annualised Yields (%) Consensus Index Analyst

14-Dec-2011 code (cps) Price (%) Cap (A$b) unit NTA 2012 Growth 2010 2011E 2012E 2013E 2014E 2010 2011E 2012E 2013E 2014E 2012E 2013E (%)

(cps) (A$b) Current (x) (%) (3yr) (%) (%)

2012 2013

Real Estate - Investment Trusts - Retail

Cfs Retail CFX Hold 184.0 185.0 0.5% 5.2 7.4 205 0.90 27% 1.5% 12.5 12.7 13.0 13.2 13.3 6.8 6.9 7.0 7.2 7.2 0.0 -1.3 6.5 Bertram

Chretailrt CQR Buy 329.0 344.0 5% 1.0 1.7 354 0.93 39% 4.6% 26.5 24.8 25.9 27.1 28.4 8.1 7.5 7.9 8.3 8.6 -1.0 -0.1 1.2 Weate

Centro CRF Buy 177.5 190.0 7% 2.4 3.1 33% 0.0 0.0 12.3 12.6 13.3 0.0 0.0 6.9 7.1 7.5 n/a Randall

Westfield WDC Buy 806.0 942.0 16.9% 18.6 33.2 707 1.14 44% 4.4% 63.6 48.4 51.1 53.8 55.1 7.9 6.0 6.3 6.7 6.8 -1.0 -2.3 25.1 Bertram

Westftrust WRT Hold 257.0 283.0 10.1% 7.8 10.4 321 0.80 23% 3.0% 0.0 16.5 17.0 17.3 18.0 0.0 6.4 6.6 6.7 7.0 0.2 -1.2 10.8 Bertram

Totals / Weighted statistics 35.1 55.9 0.94 Growth 8.1 12.3 3.7 2.9 5.4 5.9 6.6 6.8 7.0 43.6



Real Estate - Investment Trusts - Office

Commoffice CPA Hold 96.5 95.0 -1.6% 2.4 3.4 112 0.86 18% 5.0% 5.5 5.5 5.7 6.2 6.4 5.7 5.7 5.9 6.4 6.6 0.0 1.7 3.5 Randall

Investa IOF Hold 60.0 64.0 6.7% 1.6 2.0 73 0.82 8% 2.0% 3.9 3.9 3.9 4.0 4.2 6.6 6.6 6.5 6.7 7.0 -2.6 -3.2 2.6 Weate

Chofficert CQO Hold 356.0 340.0 -4.5% 1.8 2.3 376 0.95 30% -6.0% 18.7 20.3 125.6 15.2 16.8 5.3 5.7 35.3 4.3 4.7 -4.4 -7.8 2.2 Weate

Totals / Weighted statistics 5.7 7.7 0.88 Growth 2.0 154.0 -61.4 5.2 5.8 5.9 15.1 5.8 6.1 8.3



Real Estate - Investment Trusts - Diversified

Abacus ABP Hold 192.5 230.0 19.5% 0.7 1.1 276 2.87 26% 1.0% 15.3 16.5 15.6 16.0 17.0 7.9 8.6 8.1 8.3 8.8 6.5 6.1 0.7 Weate

Chall Div CDI Hold 50.5 54.0 6.9% 0.4 0.7 67 0.75 28% 1.4% 4.2 4.0 4.1 4.1 4.2 8.3 7.9 8.2 8.2 8.2 0.0 -3.0 n/a Bertram

Charter Hg CHC Buy 200.0 240.0 20.0% 0.6 0.6 221 0.90 -2% 5.1% 12.8 16.5 19.5 18.5 19.2 6.4 8.3 9.7 9.2 9.6 1.1 1.4 0.7 Randall

Cromwell CMW Hold 66.5 73.0 9.8% 0.6 1.4 221 0.30 52% 8.0 7.0 7.0 7.0 7.0 12.0 10.5 10.5 10.5 10.5 0.0 -0.9 n/a Weate

Dexus Prop DXS Hold 88.0 88.0 0.0% 4.3 6.6 101 0.87 26% 3.7% 5.0 5.2 5.4 5.5 5.8 5.7 5.9 6.1 6.3 6.6 0.6 1.4 6.2 Randall

Gpt GPT Hold 320.0 312.0 -2.5% 5.8 8.1 364 0.88 23% 2.8% 16.3 17.5 18.0 18.5 19.0 5.1 5.5 5.6 5.8 5.9 0.0 -0.8 8.2 Bertram

Mirvac Grp MGR Hold 125.0 135.0 8.0% 4.3 6.3 162 0.77 26% 0.9% 8.0 8.2 8.3 8.3 8.4 6.4 6.6 6.6 6.6 6.7 -0.4 -5.7 6.5 Bertram

Stockland SGP Buy 330.0 395.0 19.7% 7.6 10.4 365 0.90 25% 6.6% 21.8 23.7 24.0 26.2 28.7 6.6 7.2 7.3 7.9 8.7 1.8 5.9 12.0 Randall

Totals / Weighted statistics 23.7 34.1 0.94 Growth 5.4 2.2 4.1 5.1 6.5 6.8 7.0 7.3 7.6 33.7



Real Estate - Investment Trusts - Industrial

Good Group GMG Buy 57.5 75.0 30% 4.3 6.5 70 0.82 23% 10.1% 3.3 3.3 3.7 4.1 4.4 5.8 5.8 6.4 7.1 7.7 1.0 1.0 5.6 Randall

Totals / Weighted statistics 4.3 6.5 0.82 Growth -0.6 11.6 9.9 8.8 5.8 5.8 6.4 7.1 7.7 5.6



Real Estate - Investment Trusts - International

Tishman Sp TSO Hold 49.0 52.0 6% 0.2 1.2 102 0.48 70% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 n/a -5.9 3.4 n/a Weate

Totals / Weighted statistics 0.2 1.2 0.48 Growth 0.0 0.0 0.0 0.0 0.0 0.0 n/a





Weighted Total 68.9 105.4 0.93 Growth 6.0 19.7 -6.9 4.2 5.8 6.2 7.4 6.9 7.2



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. DPS growth is based on the years 2009 to 2012

4. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

5. Gearing is Net debt divided by Net debt + Equity

Resource Sector Analysis

Net profit ($m) Last EPS (cps) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (cps) Weight

Effective ASX Rating Price Target TP/P Mkt EV Year pre goodwill amort CAGR Rel Consensus yield ing in ASX Analyst

14-Dec-2011 code (cps) Price (%) Cap (A$b) HY12E 2011 2012E 2013E End 2011 2012E 2013E (3yr) 2012E 2013E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E 200

(cps) (A$b) (x) (x) (%) (%) (%) (%) (%)



2013 2012 2013 2012 2013

Other Metals

Atlas Iron AGO Hold 292 310 6% 2.6 2.2 118.9 168.6 243.1 372.2 Jun-11 20.4 27.3 41.8 27% 10.7 7.0 0.9 6.1 3.4 -7.8 11.1 2.7 0 8.0 9.0 0.24 Young

Aqua Plat AQP Buy 251 490 95% 1.2 1.1 -2.0 161.6 47.7 169.0 Jun-11 35.6 10.5 36.4 -6.2% 23.9 6.9 0.9 8.0 3.8 -46.7 -4.4 3.2 0 8.0 8.3 0.10 Young

Discov Met DML Hold 138 153 11% 0.6 0.5 -12.8 -14.9 -25.9 21.0 Jun-11 -4.5 -5.9 4.8 n/a 34.3 28.6 3.8 9.8 11.7 -13.0 -78.6 0.6 0 0.0 0.0 0.05 Spry

Ind Group IGO Buy 400 670 68% 0.8 0.6 5.7 37.1 23.6 83.2 Jun-11 18.3 11.7 41.0 58.9% 34.3 5.8 0.8 9.8 3.0 -13.0 -7.1 0.6 120 2.3 8.2 0.09 Spry

Iluka Res ILU Buy 1654 1835 11% 6.9 7.2 520.4 511.5 1122.2 1188.0 Dec-10 122.2 268.0 283.7 220.5% 6.2 5.8 0.8 3.5 3.0 4.3 -7.1 8.1 0 134.0 141.9 0.69 Young

Lynas LYC Buy 128 242 90% 2.2 2.2 -28.0 -59.1 -77.2 228.8 Jun-11 -3.6 -4.7 13.7 n/a n/a 9.3 1.2 -42.0 7.8 -45.5 0.0 0 0.0 0.0 0.21 Spry

Mirabela MBN Hold 140 183 31% 0.7 1.0 41.1 -39.0 91.2 113.3 Dec-10 -7.7 18.8 23.3 n/a 7.4 6.0 0.8 4.7 3.5 44.2 26.4 0.0 0 0.0 0.0 0.06 Spry

Mincor MCR Hold 74 85 16% 0.1 0.1 2.2 -5.9 6.0 6.9 Jun-11 -2.9 3.0 3.5 n/a 24.5 21.3 2.8 1.9 1.7 -49.2 19.3 5.4 0 4.0 4.0 n/a Spry

Ozminer OZL Buy 1068 1325 24% 3.4 2.0 203.9 309.7 440.4 365.3 Dec-10 96.8 137.6 114.1 -3.6% 7.8 9.4 1.2 4.6 5.5 38.3 4.8 5.2 0 55.7 46.2 0.35 Spry

Panoramic PAN Hold 130 161 24% 0.3 0.2 12.1 22.3 24.7 36.1 Jun-11 10.8 11.9 17.4 9.4% 10.9 7.5 1.0 2.5 2.0 -9.6 9.7 7.7 120 10.0 10.0 0.03 Spry

Panaust PNA Buy 321 493 54% 1.9 1.8 127.3 143.3 313.6 387.4 Dec-10 24.1 52.8 65.3 35.1% 6.1 4.9 0.6 3.7 2.5 16.1 28.4 0.0 0 0.0 0.0 0.15 Spry

Sandfire SFR Buy 659 982 49% 1.0 0.9 -18.2 -27.1 -3.0 66.1 Jun-11 -18.1 -2.0 44.3 n/a n/a 14.9 2.0 39.1 8.2 -41.7 -66.2 0.0 0 0.0 0.0 0.06 Spry

West Areas WSA Buy 531 722 36% 1.0 1.0 48.7 135.0 106.4 121.5 Jun-11 75.1 59.2 67.6 -8.4% 9.0 7.9 1.0 4.3 3.8 29.5 28.8 3.3 0 17.5 15.0 0.08 Spry

Wtd average Growth -8% 71% 39% 10.2 7.4 1.0 0.8 7 52.3% 5.5% 2.12







Diversified Resources

Alumina ** AWC Buy 131 215 65% 3.2 3.5 33.3 138.5 161.4 301.0 Dec-10 5.7 6.6 12.3 96% 19.7 10.6 1.3 19.9 11.7 12.1 5.4 3.9 120 5.1 6.4 0.33 Young

BHPB BHP Buy 3570 5050 41% 114.7 121.0 11476.3 22295.0 23898.0 24976.3 Jun-11 417.0 447.0 467.2 3.9% 8.0 7.6 0.9 4.7 4.4 5.5 -0.7 3.1 120 110.0 115.8 11.56 Young

Fortescue FMG Buy 469 555 18% 14.6 16.5 971.3 1679.7 1850.1 2066.4 Jun-11 53.9 59.4 66.3 6.8% 7.9 7.1 0.9 5.5 4.9 -6.1 -4.4 1.1 0 5.0 9.4 0.80 Young

Mt Gibson MGX Buy 122 175 43% 1.3 1.0 175.6 223.4 419.9 442.0 Jun-11 20.7 38.8 40.8 -6.6% 3.1 3.0 0.4 1.2 0.4 2.1 -14.1 6.6 60 8.0 8.0 0.08 Young

Rio Tinto RIO Buy 6316 9810 55% 27.5 37.4 9016.7 15503.6 17568.9 18236.6 Dec-10 816.3 945.6 981.5 8.3% 6.7 6.4 0.8 4.3 4.1 9.5 3.3 2.1 120 132.8 138.5 2.75 Young

Whitehaven WHC Buy 545 690 27% 2.7 2.7 78.9 77.9 142.8 263.4 Jun-11 15.8 19.5 27.2 44.8% 27.9 20.0 2.4 15.3 11.0 -41.3 -49.1 2.1 120 11.3 13.6 0.16 Young

Wtd average Growth 34.4% 12% 6% 7.7 7.3 1.0 2.3 109 9.1% 7.4% 15.34

** Earnings after minorities,before FX gains/(losses).









Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

4. Relative index used is DB Universe of stocks of ASX 200 Resources.

Resource Sector Analysis

Net profit ($m) Last EPS (cps) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (cps) Weight

Effective ASX Rating Price Target TP/P Mkt EV Year pre goodwill amort CAGR Rel Consensus yield ing in ASX Analyst

14-Dec-2011 code (cps) Price (%) Cap (A$b) HY12E 2011 2012E 2013E End 2011 2012E 2013E (3yr) 2012E 2013E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E 200

(cps) (A$b) (x) (x) (%) (%) (%) (%) (%)



2012 2013 2012 2013

Energy

Awe Ltd AWE Buy 138 155 13% 0.7 0.6 14.0 -16.1 27.9 42.9 Jun-11 -3.0 5.2 8.0 n/a 26.6 17.3 2.1 5.1 4.2 -20.3 -8.4 3.8 0 5.2 0.0 0.07 Hirjee

Caltex CTX Hold 1275 1065 -16% 3.4 4.0 121.7 261.5 269.0 288.6 Dec-10 101.1 103.9 111.1 -2.8% 12.3 11.5 1.4 5.9 5.6 -13.2 -20.5 3.1 120 39.9 53.4 0.17 Hirjee

Energy Res of Aust ERA Hold 134 250 87% 0.7 0.5 42.6 -121.3 85.5 67.8 Dec-10 -34.2 16.5 13.1 -19.0% 19.2 10.2 1.2 6.8 1.2 10.7 12.0 2.3 0 0.0 0.0 0.02 Young

Miclyn MIO Hold 198 195 -2% 0.5 0.7 42.7 56.2 64.2 70.7 Jun-11 20.6 23.1 25.2 11.2% 8.6 7.9 0.9 7.2 6.8 2.1 -0.7 2.8 0 5.5 6.2 n/a Plumbe

Nexus NXS Hold 25 55 120% 0.3 0.5 -1.8 -31.2 -5.6 -14.9 Jun-11 -2.9 -0.4 -1.1 n/a n/a n/a n/a -2.2 4.7 -53.6 -30.6 0.0 0 0.0 0.0 n/a Hirjee

Origin Ltd ORG Hold 1423 1670 17% 15.5 20.8 451.5 673.0 892.7 855.2 Jun-11 71.0 82.3 78.9 3.2% 17.3 18.0 2.2 9.2 9.7 1.3 -9.0 3.5 120 50.2 50.0 1.58 Hirjee

Oil Search OSH Buy 640 845 32% 8.5 8.2 103.0 205.5 207.2 264.5 Dec-10 15.6 15.8 20.1 19.1% 40.6 31.8 3.8 21.4 18.9 29.2 72.0 0.6 0 4.1 4.2 0.69 Hirjee

Paladin PDN Buy 159 230 45% 1.3 2.0 26.7 -73.1 -22.6 79.4 Jun-11 -9.8 -2.7 8.5 n/a n/a 18.6 2.2 50.3 11.0 -342.4 18.5 0.0 0 0.0 0.0 0.12 Young

Santos STO Buy 1290 1815 41% 12.1 11.0 325.4 527.0 637.7 700.7 Dec-10 57.1 67.2 73.8 19.1% 19.2 7.9 0.9 6.8 6.8 10.7 -0.7 2.3 120 30.0 30.0 1.21 Hirjee

Worleypars WOR Buy 2739 3170 16% 6.6 7.1 182.4 298.5 394.2 497.7 Jun-11 121.6 160.6 202.8 23.7% 17.1 13.5 1.6 10.5 8.3 2.7 9.2 3.8 60 104.4 131.8 0.56 Wong-Pan

Woodside WPL Buy 3163 4465 41% 25.5 29.9 966.8 1788.2 2323.8 3195.8 Dec-10 228.3 296.6 407.9 27.5% 10.7 7.8 0.9 5.9 4.4 29.1 42.5 4.7 120 148.6 203.8 1.93 Hirjee

Wtd average Growth 9.8% 32.8% 23.5% 16.4 13.4 1.8 2.8 93 14.9% 22.0% 6.37







Gold

Alacergold AQG Buy 1056 1365 29% 0.9 0.9 185.9 240.9 411.5 462.3 Dec-10 86.1 140.8 158.2 41.0% 7.5 6.7 0.8 4.3 3.4 36.8 48.4 0.0 0 0.0 0.0 0.08 Spry

Gryphon GRY Buy 124 202 63% 0.4 0.4 n/a -8.9 -4.0 0.0 Jun-11 -3.0 -0.9 0.0 n/a n/a n/a n/a -72.0 -74.9 -66.9 -99.7 0.0 0 0.0 0.0 0.04 Spry

Kingsgate KCN Hold 630 820 30% 0.9 1.0 28.2 41.5 131.0 252.4 Jun-11 35.1 94.2 181.5 69.1% 6.7 3.5 0.4 4.3 2.1 -7.2 5.6 4.5 0 28.3 54.5 0.09 Spry

Medusa MML Buy 493 850 72% 0.9 0.9 39.6 113.5 124.3 175.7 Jun-11 60.3 66.0 93.3 31.0% 7.5 5.3 0.6 6.6 4.3 -3.2 24.3 2.0 0 10.0 10.4 0.09 Spry

Newcrest NCM Hold 3181 3770 19% 24.4 25.1 612.5 1058.0 1434.2 2011.3 Jun-11 138.3 187.5 262.9 28.2% 17.0 12.1 1.5 9.2 6.9 -11.4 0.0 0.6 0 18.7 59.1 2.47 Spry

Regis RRL Buy 355 360 1% 1.6 1.6 37.6 36.3 78.9 386.9 Jun-11 8.4 18.0 87.5 93.0% 19.7 4.1 0.5 16.4 3.3 32.6 48.0 0.0 0 0.0 0.0 0.13 Spry

Resolute RSG Hold 186 160 -14% 0.9 1.0 66.9 44.6 149.7 174.8 Jun-11 9.6 32.0 26.6 27.7% 5.8 7.0 0.8 2.6 2.9 13.3 -17.8 0.0 0 0.0 0.0 0.07 Spry

Stbarbara SBM Hold 210 241 15% 0.7 0.6 56.7 54.4 130.0 140.6 Jun-11 16.7 39.9 43.2 28.0% 5.3 4.9 0.6 2.6 1.6 0.6 12.8 0.0 0 0.0 0.0 0.07 Spry

Wtd average Growth 28.2% 53% 45% 14.1 9.7 1.3 0.8 0 -53.4% 171.8% 2.83



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

4. Relative index used is DB Universe of stocks of ASX 200 Resources.

Small to Mid-cap Returns Analysis

Net profit ($m) Last EPS (c) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (c) Weight

Effective ASX Rating Price Target TP/P Mkt EV year pre goodwill amort CAGR Rel Consensus yield ing in ASX Analyst

14-Dec-2011 code Price (%) Cap (A$m) 2011 2012E 2013E end 2011 2012E 2013E (3yr) 2012E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E 200

(cps) (cps) (A$m) (x) (x) (%) (%) (%) (%) (%)



2012 2013 2012 2013

Banks

Ben Ade Bk BEN Hold 914 860 -5.9% 3344 3344 336.2 357.0 392.9 Jun-11 87.1 90.5 97.6 5.6% 10.1 9.4 0.92 n/a n/a 0.0 1.7 6.4 100 58.8 63.4 0.32 Triggs

Bank Qld BOQ Buy 762 950 24.7% 1717 1717 166.9 252.5 301.6 Aug-11 71.8 99.3 114.4 19.4% 7.7 n/a 0.80 n/a n/a 0.7 4.8 8.3 100 63.1 72.8 0.17 Triggs

Wtd average Growth 2.3% 0.0% 0.0% 9.1 8.2 0.80 7.1 100 0.0% 10.8%



Building Materials

Adelaide Brighton ABC Buy 305 370 21.3% 1941 2092 148.6 164.7 179.9 Dec-10 23.4 25.9 28.3 5.9% 11.8 10.8 1.05 7.2 6.6 1.7 0.1 7.2 100 22.0 22.0 0.15 Behncke

GWA Int'l GWA Hold 236 240 1.7% 712 910 63.4 54.8 59.8 Jun-11 20.9 18.0 19.7 0.4% 13.1 12.0 1.17 7.9 7.4 -0.9 -2.1 7.6 100 18.0 18.0 0.06 Gonzalez

Nuplex NPX Hold 183 227 23.8% 360 423 52.9 56.4 60.0 Jun-11 26.9 28.7 30.5 9.8% 6.4 6.0 0.59 4.3 4.3 -19.5 -24.2 9.5 0 17.3 18.5 n/a Lee

Wtd average Growth -0.5% 4.2% 8.6% 10.9 10.1 0.98 7.6 88 10% 1%



Chemicals

Duluxg DLX Hold 294 260 -11.6% 1080 1302 77.6 79.7 84.5 Sep-11 21.4 21.7 23.0 4.5% 13.6 12.8 21.68 35.1 8.4 -2.3 -2.1 5.2 100 15.2 16.1 0.11 Wilson

Wtd average Growth 1.3% 6.1% 13.6 12.8 1.25 5.2 100 1.3% 6.1%



Developers & Contractors

Ausenco AAX Buy 284 270 -4.9% 350 353 22.0 31.1 43.5 Dec-10 17.9 25.3 35.4 171% 11.2 8.0 0.78 5.9 4.3 -7.6 4.1 4.5 100 12.7 19.7 n/a Gonzalez

Australand ALZ Buy 262 307 17% 1511 3255 132.5 138.3 145.8 Dec-10 23.0 24.0 25.3 4.6% 10.9 10.4 1.01 13.8 13.3 -2.6 -2.8 8.3 56 21.9 22.7 0.06 Bertram

Ausdrill ASL Buy 298 370 24% 903 983 76.1 95.5 109.3 Jun-11 27.9 31.5 36.0 11.9% 9.5 8.3 0.81 4.2 3.8 0.6 -0.5 4.4 30 13.0 15.0 0.07 Rose

Imdex IMD Buy 213 245 15.0% 435 452 29.0 40.9 46.5 Jun-11 15.7 21.0 23.4 16.4% 10.2 9.1 0.89 6.0 5.2 -3.0 -5.4 2.9 100 6.2 6.2 n/a Rose

Monadelphous MND Hold 1996 2070 3.7% 1770 1640 95.1 114.5 131.1 Jun-11 106.6 127.1 144.7 11.7% 15.7 13.8 1.35 8.6 7.5 2.4 1.7 5.3 100 105.0 120.0 0.17 Gonzalez

Nrwholdltd NWH Buy 274 350 27.7% 764 817 41.2 87.6 98.9 Jun-11 15.5 31.4 35.4 31.7% 8.7 7.7 0.76 4.7 4.1 4.7 4.3 6.0 100 16.5 20.0 0.07 Gonzalez

Sedgman SDM Buy 193 245 27.3% 409 394 28.8 39.2 42.4 Jun-11 13.8 18.4 19.6 13.0% 10.5 9.8 0.96 5.5 4.5 -3.2 -8.6 4.7 100 9.0 10.0 n/a Rose

Swickmin SWK Hold 34 40 17.6% 80 88 4.7 9.7 12.7 Jun-11 2.0 4.1 5.4 39.2% 8.3 6.3 0.62 2.9 2.4 -2.5 -0.5 0.0 0 0.0 0.0 n/a Rose

Wtd average Growth 20.2% 25.6% 12.8% 11.2 9.9 0.97 5.7 78 16.3% 12.7%



Diversified Industrials & Engineering

Bradken BKN Buy 749 870 16.2% 1248 1474 87.2 114.1 126.0 Jun-11 61.0 68.6 73.9 9.8% 10.9 10.1 0.99 6.4 6.1 -3.8 -11.0 5.5 100 41.5 45.5 0.12 Gonzalez

Emeco Hldg EHL Hold 103 110 6.8% 650 938 56.0 71.1 80.2 Jun-11 8.9 11.3 12.7 13.7% 9.1 8.1 0.79 3.7 3.5 1.5 -1.6 5.4 100 5.6 6.3 0.07 Gonzalez

F&P App FPA Hold 27 35 30.7% 196 269 23.5 18.1 35.6 Mar-11 3.2 2.5 4.9 25.5% 10.8 5.5 0.54 4.2 2.8 -26.5 -22.1 0.0 50 0.0 1.4 n/a Lee

Programmed PRG Buy 226 240 6.2% 267 386 23.5 29.2 34.4 Mar-11 20.3 24.9 29.2 13.5% 9.1 7.7 0.76 5.6 5.0 -0.5 -2.4 5.4 100 12.2 14.5 n/a Plumbe

Wtd average Growth 11.9% 13.5% 17.4% 10.1 8.6 0.84 5.0 96 -14.8% 11.6%



Media *

APN News APN Hold 72 90 25.0% 454 1354 75.9 92.2 98.4 Dec-10 12.3 14.6 15.6 -3.3% 4.9 4.6 0.45 5.7 5.4 3.0 2.6 12.5 0 9.0 10.0 0.03 Anagnostellis

Austar AUN Hold 122 107 -12.3% 1551 2196 57.1 68.2 85.7 Dec-10 4.6 5.4 6.8 31.8% 22.4 17.8 1.74 7.6 6.5 0.9 0.6 0.0 0 0.0 0.0 0.07 Anagnostellis

Cons Media CMJ Hold 262 250 -4.6% 1472 1301 94.5 88.6 97.7 Jun-11 16.6 15.8 17.4 4.6% 16.6 15.1 1.47 -3.3 -2.3 6.0 100 15.7 16.2 n/a Anagnostellis

Car Sales CRZ Hold 469 535 14.1% 1098 1065 58.3 65.0 76.3 Jun-11 24.4 27.1 31.9 14.7% 17.3 14.7 1.44 -3.1 0.6 4.7 100 22.1 26.0 0.10 Plumbe

Prime Tv PRT Buy 68 90 32.4% 249 384 25.9 31.3 33.4 Jun-11 7.0 8.5 9.1 10.8% 8.0 7.5 0.73 5.8 5.4 11.8 13.5 8.0 100 5.4 4.9 n/a Anagnostellis

Rea Group REA Buy 1229 1350 9.8% 1619 1485 68.7 84.3 104.2 Jun-11 52.5 63.3 76.8 18.6% 19.4 16.0 1.56 11.6 9.4 1.8 6.0 2.6 0 31.7 38.2 n/a Plumbe

Seek Comm SEK Buy 620 740 19.4% 2090 2365 104.6 134.6 164.2 Jun-11 31.0 39.9 48.6 21.7% 15.6 12.7 1.25 11.1 9.2 6.6 7.1 3.2 100 19.9 24.3 0.20 Anagnostellis

Sky Net Tv SKT Hold 409 467 14.1% 1592 1934 93.9 96.9 113.3 Jun-11 24.1 24.9 29.1 11.4% 16.4 14.0 1.37 7.4 6.7 -24.1 -22.4 4.0 100 16.2 18.5 n/a Zame

Sthnxmedia SXL Hold 112 140 25.6% 787 1464 67.7 101.9 113.3 Jun-11 14.7 14.4 16.1 5.2% 7.7 6.9 0.68 6.5 6.0 1.0 2.3 7.2 100 8.0 10.0 0.06 Anagnostellis

Seven Grp SVW Hold 712 900 26.4% 2182 3024 320.9 291.1 268.3 Jun-11 104.8 91.8 84.6 -4.0% 7.8 8.4 0.82 10.0 9.3 10.2 -7.4 5.3 100 38.0 40.0 0.07 Rose

Salmat SLM Hold 250 280 12.0% 400 658 42.4 38.6 44.4 Jun-11 26.5 24.1 27.7 4.1% 10.4 9.0 0.88 6.1 5.7 -17.3 -17.4 9.6 100 24.0 26.0 n/a Gonzalez

Ten Network TEN Sell 92 78 -15.2% 962 1294 73.7 71.8 80.6 Aug-11 7.0 6.8 7.7 5.3% 13.4 12.0 1.17 7.6 6.9 -353.5 380.5 5.7 100 5.3 5.5 0.06 Anagnostellis

Sevenwest SWM Hold 334 340 1.8% 2157 4093 141.5 263.8 260.4 Jun-11 46.2 39.8 38.2 -3.5% 8.4 8.7 0.86 7.1 7.0 -2.2 -5.7 10.5 100 35.0 35.0 0.13 Anagnostellis

Wtd average Growth 6.7% 0.4% 8.4% 12.1 11.2 1.10 5.1 75 -10.6% 9.2%

* NTA includes intang.



Paper & Packaging

Gunns GNS Hold 15 22 51.7% 123 739 -349.5 9.0 22.2 Jun-11 -33.4 0.8 2.1 n/a 17.2 7.0 0.68 10.7 8.3 -23.4 22.4 0.0 0 0.0 0.0 0.01 Wilson

Wtd average Growth -1152% 147% 17.2 7.0 0.68 0.0 0 0.0% 0.0%



Retail

David Jones DJS Hold 269 280 4.1% 1412 1535 168.1 139.4 145.4 Jul-11 32.4 26.2 26.8 -4.7% 10.2 10.0 0.98 6.0 5.8 -3.1 -5.9 8.6 100 23.0 23.0 0.13 Simotas

Jb Hi-Fi JBH Hold 1524 1650 8.3% 1506 1712 134.4 137.1 153.3 Jun-11 123.9 137.3 151.7 10.3% 11.1 10.0 0.98 7.1 6.3 0.4 0.1 5.4 100 82.0 91.0 0.15 van Meurs

Kathmandu KMD Buy 184 225 22.6% 367 400 30.4 36.4 41.8 Jul-11 15.2 18.2 20.8 14.8% 10.1 8.8 0.86 6.2 5.2 -18.1 -14.9 5.2 100 9.5 12.4 n/a Kruk

Pacbrands PBG Hold 57 60 5.3% 520 750 103.4 80.5 91.9 Jun-11 11.1 8.9 10.4 0.3% 6.4 5.5 0.54 4.4 3.8 5.5 1.7 9.5 100 5.4 6.2 0.05 van Meurs

Premier Inv PMV Buy 540 630 16.7% 837 662 51.6 62.2 71.3 Jul-11 33.3 40.1 46.0 16.6% 13.5 11.7 1.15 6.5 5.7 2.1 2.4 6.7 100 36.0 36.0 n/a Kruk

Sai Global SAI Buy 460 530 15.2% 930 1099 48.0 53.0 68.7 Jun-11 27.0 28.9 36.3 14.9% 15.9 12.7 1.24 10.0 8.0 -4.0 3.0 3.8 100 17.3 21.8 n/a Plumbe

Specialty SFH Hold 60 70 17.6% 114 131 14.5 16.4 21.2 Jun-11 7.6 8.5 11.0 14.2% 7.0 5.4 0.53 2.8 2.2 5.5 6.2 3.4 100 2.0 5.0 n/a Kruk

Warehouse WHS Hold 230 242 5% 716 808 58.2 53.1 55.2 Jul-11 18.8 17.2 17.8 2.3% 13.4 12.9 1.26 7.4 7.1 -24.8 -26.6 6.7 0 15.3 16.1 n/a Byrne

Wotif WTF Hold 388 390 0.5% 822 688 51.0 55.0 62.7 Jun-11 24.0 25.8 29.4 11.1% 15.1 13.2 1.29 8.6 7.4 -1.2 1.7 6.0 100 23.3 26.6 0.05 Plumbe

Wtd average Growth -1.9% -2.8% 11.8% 11.4 10.2 0.99 6.4 90 -5.1% 10.0%



Transport

Air NZ AIZ Buy 69 115 67.2% 756 1175 62.0 118.9 107.8 Jun-11 5.8 11.0 10.0 8.5% 6.2 6.9 0.67 2.7 2.9 7.6 100 5.2 4.5 n/a Zame

Virgin Aus VAH Buy 34 35 4.5% 740 1649 -39.6 57.9 92.9 Jun-11 -1.8 2.6 4.2 n/a 12.8 8.0 0.78 5.3 5.3 0.0 0 0.0 2.0 0.04 McDonald

Wtd average Growth -73% 92% 13.2% 8.4 7.4 0.72 3.8 51 24.0% -14.4%



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical)

4. Relative index used is DB Universe of stocks of ASX 200 Industrials ex Property trusts

Small to Mid-cap Returns Analysis

Net profit ($m) Last EPS (c) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (c) Weight

Effective ASX Rating Price Target TP/P Mkt EV year pre goodwill amort CAGR Rel Consensus yield ing in ASX Analyst

14-Dec-2011 code Price (%) Cap (A$m) 2011 2012E 2013E end 2011 2012E 2013E (3yr) 2012E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E 200

(cps) (cps) (A$m) (x) (x) (%) (%) (%) (%) (%)



2012 2013 2012 2013

Health Care & Biotechnology

Ansell ANN Hold 1472 1375 -6.6% 1923 1922 124.8 131.6 153.0 Jun-11 93.9 101.4 119.4 13.7% 14.5 12.3 1.21 11.2 9.3 0.3 4.0 2.3 0 33.9 39.1 0.20 Low

Aust Pharm API Hold 26 34 33% 124 274 20.8 20.6 21.3 Aug-11 4.3 4.2 4.4 1.0% 6.0 5.8 0.57 3.9 4.0 -1.9 -9.0 7.8 100 2.0 2.0 n/a Low

F&P Health FPH Hold 180 245 36.1% 946 1014 50.9 57.2 Mar-11 9.6 9.8 11.0 8.7% 12.0 16.4 1.60 7.5 10.1 6.6 -19.8 4.9 78 9.7 10.0 n/a Schofield

Primary Health PRY Buy 319 370 16.0% 1596 2675 94.8 125.6 144.4 Jun-11 20.5 26.7 30.2 17.5% 12.0 10.5 1.35 7.5 7.8 6.6 4.3 4.9 100 15.5 21.0 0.14 Low

Ramsay Health Care RHC Buy 1861 2100 12.8% 3761 5018 202.5 231.5 271.7 Jun-11 101.1 115.2 135.0 14.7% 16.2 13.8 1.35 8.7 7.8 0.0 4.3 3.1 100 57.5 67.5 0.24 Low

Resmed RMD Hold 237 322 36% 3688 3096 233.4 227.8 272.1 Jun-11 15.2 15.6 19.1 13.0% 15.2 12.4 1.21 8.5 7.0 -1.0 0.5 0.0 0 0.0 0.0 0.17 Low

Wtd average Growth -1.5% 10.5% 17.5% 14.8 12.6 1.23 2.5 52 18.3% 18.8%



Food & Household Goods

Graincorp GNC Hold 791 755 -4.6% 1569 1891 171.6 149.0 129.6 Sep-11 86.6 74.9 65.2 -12.5% 10.6 12.1 74.93 84.6 9.4 -6.9 1.7 6.3 100 50.0 40.0 0.15 Rose

Wtd average Growth -13% -13% 10.6 12.1 1.19 6.3 100 -9% -20.0%



Infrastructure & Utilities

Aust Infra AIX Buy 197 230 16.8% 1223 1144 212.3 129.5 155.8 Jun-11 34.2 20.9 25.1 -9.9% 9.4 7.8 0.77 7.0 5.9 3.3 8.2 5.6 50 11.0 12.0 0.12 McDonald

Infigen IFN Buy 28 70 150% 213 1161 -61.0 -2.7 5.6 Jun-11 -8.0 -0.4 0.7 n/a n/a 38.1 3.73 7.0 5.7 -92.2 -126.3 0.0 0 0.0 0.0 n/a Hirjee

Macq Atlas MQA Hold 139 0 n/a 645 2221 -38.6 103.0 83.9 Dec-10 -8.5 22.8 18.5 6.1 7.5 0.73 34.6 28.7 82 -531.2 0.0 0 0.0 0.0 0.06 McDonald

Sp Ausnet SPN Hold 93 85 -9% 2651 7111 224.9 257.4 259.9 Mar-11 8.1 9.1 8.9 9.0% 10.3 10.4 1.02 7.8 7.8 13.4 5.1 8.6 32 8.0 8.0 0.13 Hirjee

Wtd average Growth -1% -13% 1% 9.6 9.4 0.92 6.3 31 -0.5% 2.1%



Investment & Financial services

Customers CUS Hold 115 95 -17.4% 155 182 13.1 14.2 17.1 Jun-11 9.6 10.5 12.7 5.0% 10.9 9.1 0.89 4.0 3.5 -6.2 -2.5 3.7 0 4.3 5.7 n/a Plumbe

Guinness GPG Buy 46 57 25.9% 129 301 51.2 58.4 64.9 Dec-10 2.7 3.0 3.4 -5.6% 14.9 13.4 1.31 4.2 3.9 -98.5 -98.4 4.0 0 1.8 1.9 n/a Lee

Ioof IFL Buy 557 595 6.8% 1280 1134 93.5 85.0 86.0 Jun-11 40.5 36.7 37.1 -0.7% 15.2 15.0 1.47 9.0 9.2 -19.0 -24.0 7.7 100 43.0 43.0 0.10 Gonzalez

Iress IRE Hold 733 855 16.6% 931 832 65.1 69.4 77.8 Dec-10 51.6 55.0 61.7 10.1% 13.3 11.9 1.16 8.5 7.1 9.4 10.9 5.9 100 43.5 49.3 0.07 Rose

Wtd average Growth 6.9% -1% 8% 14.1 13.1 1.28 6.6 89 11.0% 5.8%



Miscellaneous Industrials

Ardent Lei AAD Buy 110 135 22.7% 357 541 30.8 30.2 38.4 Jun-11 12.5 12.9 15.1 11.8% 8.5 7.3 0.71 6.7 6.0 1.3 7.4 10.5 0 11.5 13.2 0.03 Plumbe

Cabcharge CAB Hold 461 505 9.5% 555 664 61.1 65.5 70.1 Jun-11 50.8 54.4 58.2 7.4% 8.5 7.9 0.77 7.7 7.2 -0.2 0.2 6.8 100 31.3 34.1 0.05 Plumbe

Campbell Brothers CPB Hold 5010 5150 2.8% 3382 3495 132.1 210.0 228.3 Mar-11 202.8 311.0 338.1 23.9% 16.1 14.8 1.45 9.9 9.2 2.5 -3.9 3.8 50 190.0 200.0 0.34 Rose

G8 Educate GEM Hold 57 65 14% 107 114 12.8 15.5 16.6 Dec-10 7.3 8.2 8.7 25.3% 6.9 6.5 0.64 5.0 4.6 -10.7 -15.3 6.9 0 3.9 4.2 n/a Rose

Invocare IVC Hold 758 0 -100% 834 984 38.5 42.7 47.1 Dec-10 36.6 39.4 43.3 7.8% 19.2 17.5 1.71 10.7 10.0 -5.6 -5.5 3.7 100 27.7 29.9 0.08 Gonzalez

Mermaid Mr MRM Hold 305 330 8.2% 664 747 43.1 51.0 55.4 Jun-11 20.7 23.4 25.4 9.5% 13.1 12.0 1.18 7.6 7.0 -1.4 -5.0 3.1 100 9.5 10.2 0.07 Plumbe

Navitas NVT Hold 340 365 7.4% 1276 1377 76.0 80.6 93.3 Jun-11 21.3 21.5 24.9 10.4% 15.8 13.7 1.34 10.1 8.8 -4.5 -4.8 6.3 100 21.5 24.9 0.07 Plumbe

Reckon RKN Hold 239 260 8.8% 317 309 18.5 20.5 22.8 Dec-10 13.9 15.3 17.1 11.4% 15.6 14.0 1.37 8.1 7.1 -3.5 -3.0 4.2 95 10.0 10.9 n/a Kruk

Spotless Group SPT Hold 238 210 -11.8% 632 831 42.8 43.9 55.8 Jun-11 16.4 16.6 20.9 12.4% 14.3 11.4 1.12 4.9 4.4 -8.8 0.3 4.2 60 10.1 12.8 0.06 Plumbe

Skilled Gl SKE Buy 195 225 15.4% 455 552 23.8 42.9 50.4 Jun-11 12.1 18.7 21.8 27.9% 10.4 9.0 0.88 6.2 5.5 2.8 0.8 3.3 100 6.4 7.6 n/a Plumbe

Transpac TPI Buy 79 100 26.6% 1247 2646 44.1 73.1 102.4 Jun-11 6.1 6.7 7.6 14.5% 11.7 10.3 1.01 5.0 4.8 10.6 3.3 0.0 0 0.0 0.0 0.07 Gonzalez

Transfield TSE Hold 221 250 13.1% 1208 1460 100.1 111.1 117.6 Jun-11 20.8 21.0 23.3 5.0% 10.5 9.5 0.93 5.6 5.5 -4.3 -7.7 5.7 100 12.7 14.0 0.10 Wong-Pan

Wtd average Growth 9.5% 15.3% 11.8% 13.7 12.2 1.20 4.2 73 11% 10%



Resources

Alacergold AQG Buy 1056 1365 29.3% 867 890 240.9 411.5 462.3 Dec-10 86.1 140.8 158.2 41% 7.5 6.7 0.65 4.3 3.4 36.8 48.4 0.0 0 0.0 0.0 0.08 Spry

Ind Group IGO Buy 400 670 67.5% 812 595 37.1 23.6 83.2 Jun-11 18.3 11.7 41.0 59% 34.3 9.8 0.95 9.8 5.7 -13.0 37.1 0.6 100 2.3 8.2 0.09 Spry

Kingsgate KCN Hold 630 820 30.2% 887 959 41.5 131.0 252.4 Jun-11 35.1 94.2 181.5 69% 6.7 3.5 0.34 4.3 2.1 -7.2 5.6 4.5 0 28.3 54.5 0.09 Spry

Mirabela MBN Hold 140 183 31% 686 963 -39.0 91.2 113.3 Dec-10 -7.7 18.8 23.3 n/a 7.4 6.0 0.59 4.7 3.5 44.2 26.4 0.0 0 0.0 0.0 0.06 Spry

Mincor MCR Hold 74 85 16% 144 57 -5.9 6.0 6.9 Jun-11 -2.9 3.0 3.5 n/a 24.5 21.3 2.08 1.9 1.7 -49.2 19.3 5.4 0 4.0 4.0 n/a Spry

Mt Gibson MGX Buy 122 175 43% 1321 979 223.4 419.9 442.0 Jun-11 20.7 38.8 40.8 -7% 3.1 3.0 0.29 1.2 0.4 2.1 -14.1 6.6 0 8.0 8.0 0.08 Young

Miclyn MIO Hold 198 195 -2% 544 653 56.2 64.2 70.7 Jun-11 20.6 23.1 25.2 11% 8.6 7.9 0.77 7.2 6.8 2.1 -0.7 2.8 0 5.5 6.2 n/a Plumbe

Medusa MML Buy 493 850 72% 931 873 113.5 124.3 175.7 Jun-11 60.3 66.0 93.3 31% 7.5 5.3 0.52 6.6 4.3 -3.2 24.3 2.0 0 10.0 10.4 0.09 Spry

Nexus NXS Hold 25 55 120.0% 332 481 -31.2 -5.6 -14.9 Jun-11 -2.9 -0.4 -1.1 n/a n/a n/a n/a -2.2 4.7 -53.6 -30.6 0.0 0 0.0 0.0 n/a Hirjee

NZ Oil & Gas NZO Buy 53 78 47.4% 209 215 23.5 25.3 22.5 Jun-11 5.9 6.4 5.7 -3% 8.3 9.4 0.92 2.4 2.1 -36.2 -5.6 7.1 0 3.7 3.7 n/a Swanepoel

Panoramic PAN Hold 130 161 23.8% 269 179 22.3 24.7 36.1 Jun-11 10.8 11.9 17.4 9% 10.9 7.5 0.73 2.5 2.0 -9.6 9.7 7.7 100 10.0 10.0 0.03 Spry

Panaust PNA Buy 321 493 53.6% 1906 1847 143.3 313.6 387.4 Dec-10 24.1 52.8 65.3 35% 6.1 4.9 0.48 3.7 2.5 16.0 28.4 0.0 0 0.0 0.0 0.15 Spry

Regis RRL Buy 355 360 1.4% 1557 1560 36.3 78.9 386.9 Jun-11 8.4 18.0 87.5 93% 19.7 4.1 0.40 16.4 3.3 32.5 41.9 0.0 0 0.0 0.0 0.13 Spry

Resolute RSG Hold 186 160 -14.0% 886 963 44.6 149.7 174.8 Jun-11 9.6 32.0 26.6 28% 5.8 7.0 0.68 2.6 2.9 13.2 -21.2 0.0 0 0.0 0.0 0.07 Spry

Stbarbara SBM Hold 210 241 14.8% 684 616 54.4 130.0 140.6 Jun-11 16.7 39.9 43.2 28% 5.3 4.9 0.48 2.6 1.6 0.6 12.8 0.0 0 0.0 0.0 0.07 Spry

Whitehaven WHC Buy 545 690 26.6% 2696 2667 77.9 142.8 263.4 Jun-11 15.8 19.5 27.2 45% 27.9 20.0 1.96 15.3 11.0 -41.3 -46.9 2.1 100 11.3 13.6 0.16 Young

West Areas WSA Buy 531 722 36.0% 954 1047 135.0 106.4 121.5 Jun-11 75.1 59.2 67.6 -8% 9.0 7.9 0.77 4.3 3.8 29.5 28.8 3.3 0 17.5 15.0 0.08 Spry

Wtd average Growth 25.2% 65.8% 38% 8.3 6.0 0.59 1.9 24 14.8% 19.8%



Tourism & Leisure

Collins Fd CKF Buy 127 250 97.6% 118 218 22.8 18.3 23.4 Apr-11 24.5 19.7 25.2 6.1% 6.4 5.0 0.49 4.3 3.6 -1.5 4.5 4.0 0 5.0 12.0 n/a Gonzalez

Dominos DMP Hold 800 720 -10.0% 553 541 21.4 24.7 27.8 Jun-11 30.9 35.5 39.9 14.1% 22.5 20.1 1.96 12.0 10.8 -3.0 -4.6 3.1 100 24.5 27.6 n/a Kruk

Flight Centre FLT Buy 1985 2550 28.5% 1985 1178 170.7 189.3 206.5 Jun-11 169.4 187.8 204.9 9.0% 10.6 9.7 0.95 3.5 2.9 -1.4 -0.8 4.9 100 97.0 101.5 0.11 Gonzalez

Jetset JET Hold 75 90 20.0% 329 133 24.4 37.4 40.1 Jun-11 6.3 8.5 9.1 14.9% 8.8 8.2 0.81 2.3 1.8 6.0 2.3 6.0 0 4.5 5.0 n/a Gonzalez

Village R'show VRL Buy 303 360 19% 459 512 31.3 45.3 53.4 Jun-11 19.7 29.9 35.3 25.8% 10.1 8.6 0.84 4.3 4.5 -2.5 3.8 4.2 100 12.7 13.4 n/a Plumbe

Wtd average Growth 17% 16% 12% 11.0 9.9 0.96 4.6 87 -1% 10%



Telecommunication Services

Chorus CNU Hold 224 285 27% 863 2177 103.2 146.5 158.5 Jun-11 5.4 38.1 41.2 100.8% 5.9 5.4 0.53 4.2 4.1 -13.3 -3.7 8.8 0 19.7 21.3 0.03 Zame

iiNet IIN Buy 283 315 11% 420 465 43.0 47.3 53.8 Jun-10 28.3 31.2 35.4 15.9% 9.1 8.0 0.78 3.9 3.5 1.8 5.8 5.3 100 15.0 16.3 n/a Gonzalez

Wtd average Growth 610% 8% 5.9 5.4 0.53 8.8 0 49% 8%





Mid-Caps Growth 2.5% 34.9% 10.8% 15.1 15.4 1.51 5.2 77 5.4% 9.3%



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

4. Relative index used is DB Universe of stocks of ASX 200 Industrials ex Property trusts.

New Zealand Analysis

Net profit (NZ$m) Last EPS (c) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (c)

Effective NZSE Rating Price Target TP/P Mkt EV year pre goodwill amort CAGR Rel Consensus yield ing Analyst

14-Dec-2011 code (NZc) Price (%) Cap (NZ$b) 2011 2012E 2013E end 2011 2012E 2013E (3yr) 2012E 2013E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E

(NZc) (NZ$b) (x) (x) (%) (%) (%) (%)

2012 2013 2012 2013

New Zealand

Abano Healthcare Group ABA Hold 375 450 20% 0.1 0.1 2.2 1.6 3.7 May-11 12.0 10.4 23.6 50.8% 36.1 15.9 1.33 4.5 4.4 -13.8 -30.2 5.6 0 21.0 21.0 Blinkhorne

Auckland Int'l Airport AIA Buy 243 251 3% 3.1 4.2 120.7 137.1 148.9 Jun-11 9.2 10.5 11.4 10.2% 23.2 21.4 1.79 13.1 12.4 -17.5 -17.9 4.1 100 10.0 11.0 Zame

Air NZ AIR Buy 92 155 69% 1.0 1.6 80.7 158.8 144.0 Jun-11 7.5 14.7 13.4 8.7% 15.8 8.8 0.73 13.4 2.9 6.0 100 7.0 6.0 Zame

AMP NZ Office Ltd ANO Hold 83 82 -1% 0.8 1.1 61.1 52.4 55.1 Jun-11 6.1 5.3 5.5 -1.1% 15.8 12.0 1.01 13.4 12.9 6.0 100 5.0 5.0 Byrne

Argosy Property Trust ARG Hold 79 79 0% 0.4 0.9 34.0 34.4 35.7 Mar-11 6.3 6.2 6.4 -1.0% 12.7 8.8 0.73 13.0 12.9 7.6 100 6.0 6.0 Byrne

Cavalier Corp CAV Buy 225 304 35% 0.2 0.2 17.3 8.9 15.3 Jun-11 25.5 13.2 22.6 10.2% 17.1 10.0 0.83 9.8 6.9 -41.2 -28.9 4.2 100 9.5 16.5 Lee

Contact Energy CEN Buy 544 635 17% 3.8 4.9 151.0 199.8 220.2 Jun-11 23.4 27.9 30.1 14.8% 19.5 18.1 1.51 10.0 9.5 -17.8 -20.5 4.6 100 25.0 25.0 Swanepoel

Chorus CNU Hold 310 355 15% 1.2 2.9 132.5 185.8 197.4 Jun-11 6.9 48.3 51.3 98.9% 6.4 6.0 0.51 4.3 4.3 -11.5 -3.8 8.1 100 25.0 26.5 Zame

Comvita CVT Hold 250 291 16% 0.1 0.1 3.6 7.7 8.2 Mar-11 13.0 27.3 29.3 32.4% 9.2 8.5 0.72 6.2 5.8 -19.6 -19.8 4.3 100 10.8 11.8 Blinkhorne

Delegats Group DGL Hold 210 212 1% 0.2 0.3 22.8 21.6 25.2 Jun-11 22.6 21.3 24.9 9.1% 9.9 8.4 0.71 6.9 6.2 -21.0 -15.4 3.7 100 7.8 8.3 Schoefield

EBOS Group EBO Buy 600 747 25% 0.3 0.3 22.7 24.5 26.1 Jun-11 43.5 47.0 50.0 6.4% 12.8 12.0 1.01 6.8 6.4 -21.9 -22.1 5.1 100 30.5 32.5 Blinkhorne

Fletcher Building FBU Hold 618 720 17% 4.1 6.1 353.6 321.5 491.3 Jun-11 54.9 46.2 70.6 16.0% 13.4 8.8 0.73 6.9 5.6 -5.3 2.0 6.1 100 38.0 45.0 Behncke

F&P Appliances FPA Hold 35 44 26% 0.3 0.4 30.0 23.2 44.3 Mar-11 4.1 3.2 6.1 24.4% 10.9 5.7 0.48 4.2 2.9 -24.3 -22.2 0.0 100 0.0 1.8 Lee

F&P Healthcare FPH Hold 240 305 27% 1.3 1.4 63.9 65.2 71.2 Mar-11 12.3 12.5 13.7 7.8% 19.2 17.6 1.47 11.6 10.7 -19.4 -19.9 5.2 100 12.4 12.4 Schofield

Freightways FRE Buy 353 370 5% 0.5 0.7 32.1 35.5 40.8 Jun-11 20.9 23.1 26.5 12.8% 15.3 13.3 1.12 9.6 8.7 -20.8 -20.3 4.5 100 16.0 18.3 Zame

Guinness GPG Buy 61 77 26% 0.1 0.2 33.0 36.8 38.5 Dec-10 1.7 1.9 2.0 -5.8% 31.8 30.4 2.55 8.1 8.0 -99.3 -99.3 1.9 100 1.2 1.2 Lee

Hellaby HBY Buy 244 293 20% 0.2 0.2 15.4 18.8 20.1 Jun-11 22.8 25.4 27.2 8.3% 9.6 9.0 0.75 5.7 5.3 -21.6 -25.7 5.2 100 12.8 13.5 Blinkhorne

Heartland HNZ Hold 48 55 15% 0.2 1.7 20.7 8.0 18.0 Jun-11 6.9 2.0 4.6 -5.8% 23.5 10.4 0.87 121.0 76.9 0.0 100 0.0 1.5 Lee

Hallensteins HLG Hold 345 349 1% 0.2 0.2 18.3 17.6 17.9 Aug-11 30.7 29.4 30.0 -0.3% 11.7 11.5 0.96 5.8 5.7 -23.1 -26.3 7.7 100 26.5 27.0 Byrne

Infratil NZ IFT Buy 181 230 27% 1.1 2.7 41.4 66.2 102.5 Mar-11 7.1 11.4 17.6 45.5% 15.8 10.2 0.86 5.4 4.8 -11.0 -2.5 4.2 100 7.5 8.3 Zame

Kiwi Income Property KIP Hold 102 100 -1% 1.0 1.6 68.8 72.0 71.5 Mar-11 7.1 7.4 7.4 1.9% 13.7 13.8 1.16 12.5 13.2 -18.5 -15.7 6.9 100 7.0 7.0 Byrne

Kathmandu Holdings KMD Buy 248 280 13% 0.5 0.5 39.1 46.1 52.1 Jul-11 19.5 23.0 26.0 13.7% 10.8 9.6 0.80 6.5 5.6 -16.8 -15.0 4.8 100 12.0 15.5 Kruk

Mainfreight MFT Hold 991 1130 14% 1.0 1.0 48.0 74.3 81.6 Mar-11 48.8 75.4 82.9 22.7% 13.1 12.0 1.00 7.5 7.4 -19.1 -23.1 2.9 100 29.0 32.0 Zame

Nuplex NPX Hold 243 282 16% 0.5 0.6 68.0 71.5 74.7 Jun-11 33.6 35.4 37.0 9.0% 6.9 6.6 0.55 4.4 4.5 -20.1 -26.2 9.1 100 22.0 23.0 Lee

NZX Ltd NZX Buy 222 257 16% 0.3 0.2 14.6 17.5 20.3 Dec-10 11.6 13.9 16.2 20.1% 16.0 13.7 1.15 8.8 7.7 -23.3 -22.1 5.8 100 12.9 15.0 Blinkhorne

Methven MVN Buy 112 132 18% 0.1 0.1 5.2 7.0 8.3 Mar-11 7.7 10.4 12.4 22.0% 10.7 9.0 0.76 6.4 5.7 -10.7 -13.4 8.0 100 9.0 10.0 Blinkhorne

NZ Refining NZR Hold 310 390 26% 0.9 0.9 49.2 71.5 100.4 Dec-10 17.6 25.5 35.8 20.3% 12.1 8.6 0.72 5.1 4.0 -8.3 6.5 4.5 100 14.0 18.0 Schofield

New Zealand Oil & Gas NZO Buy 71 105 48% 0.3 0.3 30.6 33.8 30.1 Jun-11 7.7 8.5 7.6 -3.3% 8.3 9.4 0.79 2.4 2.2 -31.6 1.2 7.0 100 5.0 5.0 Swanepoel

New Zealand Windfarms NWF Buy 15 22 53% 0.0 0.0 -3.4 1.1 2.3 Jun-11 -1.2 0.4 0.8 36.5 18.5 1.55 5.6 4.0 59.8 4.5 5.2 100 0.8 2.0 Swanepoel

Opus Int'l Consultants OIC Buy 175 254 45% 0.3 0.2 22.8 26.0 29.7 Dec-10 15.4 17.4 19.7 11.4% 10.1 8.9 0.74 5.4 5.0 -15.9 -14.2 6.1 100 10.8 12.0 Blinkhorne

Property for Industry PFI Sell 115 101 -12% 0.3 0.4 15.6 15.8 16.6 Dec-10 7.2 7.2 7.5 -3.8% 16.0 15.3 1.28 13.0 12.9 -19.6 -19.8 6.3 100 7.2 7.5 Byrne

PGG Wrightson PGW Hold 36 65 81% 0.3 0.4 15.9 29.7 40.7 Jun-10 2.1 3.9 5.4 22.2% 9.2 6.7 0.56 5.8 5.0 -10.0 -10.3 2.8 100 1.0 3.0 Schofield

Port of Tauranga POT Hold 1000 1031 3% 1.3 1.5 58.4 66.3 72.8 Jun-11 43.6 49.4 54.3 10.3% 20.2 18.4 1.54 14.6 13.5 -20.2 -19.5 3.4 100 34.0 37.0 Zame

Rakon Limited RAK Hold 49 62 27% 0.1 0.1 8.0 2.2 6.1 Mar-11 2.7 -0.2 1.4 31.1% n/a 36.3 3.04 8.6 6.8 -112.9 -75.4 0.0 100 0.0 0.0 Lee

Ryman Healthcare RYM Buy 265 305 15% 1.3 1.5 100.2 112.2 123.5 Mar-11 20.0 22.4 24.7 11.4% 11.8 10.7 0.90 11.0 9.9 -9.4 -10.3 3.2 100 8.5 9.8 Schofield

Sky City SKC Hold 345 360 4% 2.0 2.5 144.2 148.5 148.2 Jun-11 24.9 25.5 25.5 3.8% 13.5 13.5 1.13 8.0 7.7 -11.5 -10.0 5.2 100 18.0 18.0 Wilson

Skellerup Holdings SKL Buy 135 145 7% 0.3 0.3 20.2 25.1 27.4 Jun-11 10.5 13.0 14.2 13.4% 10.4 9.5 0.80 6.2 5.8 -17.7 -19.3 5.6 100 7.5 8.0 Lee

Sky Network TV SKT Hold 524 581 11% 2.0 2.5 120.6 123.0 141.1 Jun-11 31.0 31.6 36.3 10.4% 16.6 14.5 1.21 7.5 6.9 -22.5 -22.5 3.9 100 20.5 23.0 Zame

Steel & Tube STU Buy 205 261 27% 0.2 0.2 17.3 13.2 22.4 Jun-11 19.6 14.9 25.4 18.6% 13.7 8.1 0.68 8.3 5.6 -25.5 -10.5 5.4 100 11.0 18.5 Lee

Telecom Corp of NZ TEL Buy 213 226 6% 4.1 4.8 69.0 311.8 350.9 Jun-11 3.6 16.2 18.2 78.5% 13.1 11.7 0.98 4.2 4.1 0.2 0.2 7.7 100 16.5 16.5 Zame

TrustPower TPW Hold 710 789 11% 2.2 3.0 108.1 123.0 133.9 Mar-11 36.0 40.8 44.2 6.7% 17.4 16.1 1.35 10.1 9.6 -21.0 -18.1 5.5 100 39.0 46.5 Swanepoel

Vector VCT Hold 238 260 9% 2.4 4.7 203.7 185.4 174.9 Jun-11 20.5 18.6 17.6 -3.9% 12.8 13.6 1.14 7.7 7.9 -20.8 -21.3 6.0 100 14.3 14.3 Swanepoel

Vital Healthcare Property Trust VHP Hold 112 113 1% 0.3 0.5 18.2 22.4 24.9 Jun-11 8.2 7.7 8.5 1.5% 14.5 n/a n/a 12.8 11.7 6.9 100 7.7 8.0 Byrne

Warehouse WHS Hold 312 325 4% 1.0 1.1 76.0 70.9 73.7 Jul-11 23.4 21.8 22.7 2.5% 14.3 13.8 1.15 7.5 7.2 -23.2 -25.2 6.6 100 20.5 21.5 Byrne

Wtd average Growth 22.9% 14.6% 13.7 11.9 1.00 9.1 8.1 5.4 100 8.5%

** GPG is in GBP with the exception of price and target price which are in NZc







US$ Reporting stocks Analysis

Net profit (US$m) Last EPS (c) EPS PER (x) EV/EBITDA EPS versus Div Frank- Dividends (c)

Effective ASX Rating Price Target TP/P Mkt EV year pre goodwill amort CAGR Rel Consensus yield ing Analyst

BHPB code (USc) Price (%) Cap (US$b) 2011 2012E 2013E end 2011 2012E 2013E (3yr) 2012E 2013E 2013E 2012E 2013E 2012E 2013E 2012E 2012E 2012E 2013E

(USc) (US$b) (x) (x) (%) (%) (%) (%)



2012 2013 2012 2013





Ansell ANN Hold 1483 1386 -7% 1.9 1.9 121.7 132.0 146.7 Jun-11 91.6 101.6 114.5 11.8% 14.6 13.0 1.27 11.2 9.8 3.0 5.9 2.3 100 33.9 37.5 Low

Aqua Plat AQG Buy 253 494 95% 0.9 0.9 157.2 47.7 162.0 Jun-11 34.6 10.5 34.9 42.1% 24.1 7.2 0.95 4.5 3.7 -89.8 -67.2 3.2 100 8.0 8.0 Spry

Alumina AWC Buy 132 217 65% 3.2 3.6 141.9 157.4 283.6 Dec-10 5.8 6.5 11.6 97.7% 20.4 11.3 1.49 20.4 12.3 9.3 -0.7 3.8 100 5.0 6.0 Young

Bhp Billiton Ltd BHP Buy 3597 5089 41% 115.5 122.3 21684.0 23897.7 23945.2 Jun-11 405.6 447.0 447.9 2.3% 8.0 8.0 1.06 4.7 4.6 8.1 1.1 3.1 100 110.0 111.0 Young

Boart BLY Buy 317 403 27% 1.5 1.6 150.7 184.7 201.1 Dec-10 31.7 38.8 42.3 31.9% 8.2 7.5 0.73 4.4 4.1 -8.9 -14.8 3.8 100 12.1 13.2 Wong-Pan

Brambles BXB Buy 724 776 7% 10.7 13.7 523.6 618.7 763.7 Jun-11 36.1 41.8 51.2 17.8% 17.3 14.1 1.38 8.8 7.7 -3.6 -0.3 3.7 100 27.0 26.8 McDonald

Cshare CPU Hold 805 947 18% 4.5 5.2 309.3 299.8 387.8 Jun-11 55.7 53.9 69.5 15.5% 14.9 11.6 1.13 9.9 8.0 2.6 7.0 3.7 100 30.0 30.0 Chidgey

Discov Met DML Hold 139 154 11% 0.6 0.5 -14.5 -25.9 20.1 Jun-11 -4.4 -5.9 4.6 n/a n/a 30.1 3.96 -90.1 12.1 270.7 -79.4 0.0 100 0.0 0.0 Spry

Fortescue FMG Buy 473 559 18% 14.7 16.7 1633.7 1850.1 1981.1 Jun-11 52.5 59.4 63.5 5.1% 8.0 7.4 0.98 5.5 5.0 -3.7 -2.7 1.1 100 5.0 9.0 Young

James Hardie JHX Hold 677 640 -6% 3.0 3.0 116.7 145.8 174.1 Mar-11 26.9 34.3 42.1 29.0% 19.7 16.1 1.57 10.9 9.3 8.6 10.4 1.3 100 9.0 11.0 Behncke

Mirabela MBN Hold 141 184 31% 0.7 1.0 -40.0 88.9 106.7 Dec-10 -7.9 18.3 21.9 n/a 7.7 6.4 0.84 40.7 19.1 0.0 100 0.0 0.0 Spry

Medusa MM Buy 497 857 72% 0.9 0.9 110.4 124.3 168.4 Jun-11 58.6 66.0 89.5 28.9% 7.5 5.6 0.73 6.6 4.5 -3.2 19.2 2.0 100 10.0 10.0 Spry

Miclyn MIO Hold 200 197 -2% 0.5 0.7 54.6 64.2 67.8 Jun-11 20.0 23.1 24.2 9.4% 8.6 8.3 0.81 7.2 7.0 2.1 -4.8 2.8 100 5.5 5.9 Plumbe

Newscorp NWS Buy 1794 2066 15% 14.3 25.6 3066.0 3225.7 3784.7 Jun-11 117.2 130.4 161.7 13.6% 13.8 11.1 1.08 4.8 3.5 -4.6 -0.1 1.3 100 23.0 24.3 Anagnostellis

Oil Search OSH Buy 645 852 32% 8.5 8.2 210.6 202.1 249.1 Dec-10 16.0 15.4 19.0 20.0% 41.9 34.0 4.48 21.9 19.8 26.1 69.1 0.6 100 4.0 4.0 Hirjee

Paladin PDN Buy 160 232 45% 1.3 2.0 -71.1 -22.6 76.1 Jun-11 -9.6 -2.7 8.2 n/a n/a 19.5 2.57 50.2 11.3 -342.4 13.6 0.0 100 0.0 0.0 Young

Panaust PNA Buy 323 497 54% 1.9 1.9 146.8 305.9 364.9 Dec-10 24.7 51.5 61.5 36.2% 6.3 5.3 0.69 3.8 2.7 13.3 26.2 0.0 100 0.0 0.0 Spry

QBE Insurance QBE. Buy 1382 1612 17% 15.4 18.7 1523.7 1865.9 2048.3 Dec-10 140.4 163.7 173.8 12.1% 8.4 7.9 0.78 7.8 7.3 6.4 6.9 9.3 100 128.0 128.0 Chidgey

Rio Tinto Ltd RIO Buy 6365 9886 55% 27.7 38.0 15883.7 17137.8 17178.4 Dec-10 836.3 922.4 924.5 9.1% 6.9 6.9 0.91 4.5 4.4 6.8 1.6 2.0 100 129.5 130.5 Young

Resmed Inc. RMD** Hold 2406 3100 29% 3.7 3.1 227.0 227.8 260.9 Jun-11 147.5 156.4 183.1 11.2% 15.4 13.1 1.29 8.7 7.6 -1.0 -12.4 0.0 100 0.0 0.0 Low

Woodside WPL Buy 3187 4499 41% 25.7 30.2 1832.0 2266.7 3010.4 Dec-10 233.9 289.3 384.3 28.5% 11.0 8.3 1.09 6.1 4.7 25.9 34.3 4.5 100 145.0 192.0 Hirjee



** ADR price used for Resmed



Source: Company data, DBAG estimates



1. Past returns may not be a reliable guide to future returns/performance.

2. Returns/performance do not include transaction costs.

3. EV calculation based on current marketcap + net debt (last historical) + minorities (last historical) - associates (last historical).

4. Relative index used is DB Universe of NZ stocks aggregated.

5. Where no US$ price or target price exists or there is an ADR (except for Resmed) we have created a theoretical price and target price using the Australian price or target price converted at spot exchange rate.

Deutsche Bank 15 December 2011 Australia/NZ Equities Daily

Markets Research







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Markets Research





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