Ralton Australian Shares Portfolio Update | 31 January 2019

Total returns

3 yrs 5 yrs 7 yrs 10 yrs Inception % p.a. At 31 January 2019 1 mth % 3 mths % 6 mths % 1 yr % % p.a. % p.a. % p.a. % p.a. (Feb 2008) Ralton Australian Shares 3.42 0.65 -5.95 -0.91 9.61 9.06 11.48 11.68 7.05 Income return 0.34 1.09 2.48 4.52 4.14 3.92 4.07 4.27 4.27 Growth return 3.08 -0.44 -8.43 -5.43 5.47 5.14 7.41 7.41 2.78 S&P/ASX 300 Acc Index 3.87 1.38 -4.68 1.08 10.04 7.05 9.26 9.87 4.79 Difference -0.44 -0.73 -1.27 -1.99 -0.43 2.01 2.21 1.81 2.26

Performance review

• The S&P/ASX 300 Accumulation Index returned January as strong underlying product performance was 3.87% for the month of January, with Materials and confirmed by industry surveys. This follows a period of Energy the top performing sectors and Utilities and underperformance driven by a weaker than expected Financials the weakest performers for the period. FY18 result and increased investor uncertainty relating to • The Ralton Australian Shares portfolio returned a period of elevated investment as well as the level and 3.42% for the month, underperforming the timeline of returns. Given the pullback, we have recently benchmark by 0.44%. added to our position and remain positive on the outlook • For the month of January, being underweight for the company as we see the company’s willingness to Financials and Healthcare added relative value to invest behind their strong competitive position as a core the portfolio. The portfolio’s overweight to Materials driver of ALL’s long-term performance. We remain vigilant and Consumer Staples were the key detractors from to key competitors gaining market traction through portfolio returns. increasing investment, however, key offshore competitors remain over-indebted and continue to underspend on Performance attribution product development. As such, we remain confident that ALL’s current suite of land-based products will Key contributors continue to take share in a market that is supported by solid US consumer confidence. In addition, at the current Key contributors Positioning valuation we feel the Australian market is discounting the Healius Ltd Overweight strong earnings outlook supported by multiple growth Aristocrat Leisure Overweight options within ALL’s core slot operations, expansion into Overweight adjacent markets, and continued momentum in its digital businesses broadly supported by a strong US economic Healius Ltd (HLS, +30.49%) – performed strongly in backdrop. January as its major shareholder Jango put forward an offer to acquire the Healius Group. While the offer was Woodside Petroleum (WPL, +9.58%) – outperformed materially above the prevailing share price, we broadly the market in January following a 13% gain in the Brent agree with the Board of the group in concluding that USD oil price. WPL posted a good December 2018 a price of $3.25 does not offer the control premium quarter result with growth in sales and production and necessary to progress with the takeover. Furthermore, full year 2018 realised production of 91.4 million barrels the bid is conditional on clarification of funding as well of oil equivalent (mmboe) above the top end of WPL’s as FIRB approval. We view that these objectives will guidance range. WPL has further demonstrated good be met and expect the two parties to engage more operational performance at all of its key production constructively in the period ahead. In the absence of a assets, particularly Pluto LNG. Unfortunately, WPL’s 2019 bid we continue to support the strategic initiatives of production guidance of 88-94 mmboe was below market new CEO, Dr Malcolm Parmenter, to deliver a turnaround expectations and has potential to be towards the low end across its operational divisions and see the potential for if planned downtime for asset maintenance (turnarounds) strong medium-term growth. We look for key indicators is extended. In the absence of the delivery of material of success, such as GP hiring numbers, to gain increased production growth, we expect WPL share price confidence in the turnaround. As the stock is trading performance over 2019 to be largely driven by progress at a discount to the market and peers, we maintain an on its next wave of projects, namely Pluto LNG expansion overweight position. (Scarborough), Browse for North West Shelf LNG backfill, and the Senegal oil FID. In January, WPL further advanced Aristocrat Leisure (ALL, +12.77%) – gained support in Ralton Australian Shares Portfolio Update | 31 January 2019

the proposed Scarborough to Pluto LNG facility project concerns relating to a weakening domestic consumer towards a targeted 2020 final investment decision after outlook and lower visitation and spending from offshore awarding four major contracts for Front End Engineering visitors as the slowdown in China impacted international Design (FEED) related activities. arrivals. We view the current weakness and attractive valuation as a strong opportunity to acquire the Key detractors company’s superior industry position and future growth potential, which is driven by its major project pipeline. Key detractors Positioning In past periods of consumer weakness, management has Northern Star Resources Overweight demonstrated its ability to attract customers through Woolworths Overweight incentives and manage operating costs. Additionally, Star Entertainment Overweight SGR has moved to diversify its VIP players away from China toward other jurisdictions following the 2017 Northern Star Resources (NST, -5.09%) – underperformed VIP slowdown. The company should benefit from its the market in January. NST December quarter result FY19 recently refurbished Gold Coast resort and has proven cost guidance disappointed the market after it posted it is successfully managing disruption to its key Sydney new All In Sustaining Cost (AISC) guidance of A$1,125- operations. We are becoming increasingly confident 1,225/oz, up +6.8% from prior guidance of A$1,050- that SGR will extract strong returns from its project 1,150/oz. This was because NST made the deliberate pipeline due to the quality and position of its assets. decision to “mine to margin” and take advantage of a The company’s strategic relationship with Chow Tai Fook strong AUD gold price and mine lower grade gold ore and Far East Consortium not only provides capital and at Kalgoorlie whilst maintaining margins. Early benefits expertise but also access to a deep set of future offshore of the productivity drive at Pogo are also beginning to customers that will drive spend across SGR’s integrated flow through, with mined ore tonnes up 22% and mill resorts. Valuation remains attractive with SGR trading at a throughput up 33% to date. These combined efforts have discount to domestic and international peers. lowered the total cost per ore tonne by 23% (adoption of a more bulk mining approach). While deliberate mine Portfolio changes sequencing over the December quarter has delivered lower grades, this could be partially reversed as the Key additions and material adjustments company mine plan expects grades to be higher at all three operating areas in the current half (2H FY19). Bought We continue to expect NST to deliver/surpass its Nil FY19 production guidance, revitalise Pogo and deliver continued exploration success that underpins growth in Key disposals and material adjustments resources and reserves. Sold Woolworths (WOW, -0.17%) – underperformed the Nil market after a period of strong outperformance as the market looked to fund higher risk investments from recent winners in the preceding December quarter Sector allocation pullback. We remain attracted to the company’s strong market position in an industry that should deliver GICS sector Ralton Index +/- sustainable growth. We also see a strong cashflow Materials 27.2% 18.4% 8.7% outlook as the company is moving into a period of Consumer Discretionary 11.9% 6.4% 5.5% reduced capital expenditure. WOW recently announced Consumer Staples 10.7% 5.7% 5.0% the sale of the petrol business and the commensurate Energy 7.9% 5.8% 2.1% $1.75bn funds received are likely to be distributed Utilities 3.4% 2.0% 1.3% to shareholders in a tax-effective manner through a Information Technology 2.3% 2.3% 0.0% buyback or special dividend. Moreover, we view the Health Care 8.3% 8.8% -0.5% outlook for the supermarket industry as strong as we see Telecommunication Services 1.2% 3.7% -2.4% further evidence of an increasingly rational competitive Real Estate 4.0% 7.8% -3.8% environment and the easing of deflation that has weighed Financials 23.0% 31.0% -7.9% on supermarket top line growth. Management execution Industrials 0.0% 8.0% -8.0% remains strong and balance sheet strength offers Total 100.0% 100.0% 0.0% flexibility. Valuation remains undemanding compared to domestic defensive names.

Star Entertainment (SGR, -2.63%) – underperformed on Ralton Australian Shares Portfolio Update | 31 January 2019

Top 10 holdings# Performance comparison of $20,000*

Company name ASX code $40,000 BHP Group Limited BHP Portfolio $30,859 $35,000 Woolworths Group Ltd WOW

ANZ Banking Grp Ltd ANZ $30,000 Woodside Petroleum WPL Aristocrat Leisure ALL $25,000 Limited AMC $20,000 Index $28,122 Ltd SUN

Commonwealth Bank. CBA $15,000 Banking Corp WBC VCX $10,000

$5,000

$- Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 $ Ralton Australian Shares $ S&P/ASX 300 Acc Index

CONTACT COPIA 1800 442 129 | [email protected] | copiapartners.com.au

JohnCONTACT Clothier COPIA General Manager,1800 442 Distribution 129 | [email protected] 488 549 | [email protected] | copiapartners.com.au Iain Mason Director, Institutional Business 0412 137 424 | [email protected] Mani Papakonstantinos Distribution Manager 0439 207 869 | [email protected] Matthew Roberts Distribution Manager 0438 297 616 | [email protected]

Performance of the Ralton Wholesale Australian Shares Model Portfolio is based on a model portfolio and is gross of investment management and administration fees, but net of transaction costs. The total return performance figures quoted are historical and do not allow the effects of income tax or inflation. Total returns assume the reinvestment of all portfolio income. Past performance is not a reliable indicator of future performance.

*The performance comparison of $20,000 over 5 years is for illustrative purposes only. Performance is calculated on a gross basis. Actual performance will vary depending on the amount of fees charged by the relevant platform that a client uses to implement the portfolio. The comparison with the S&P/ASX 300 Accumulation Index is for comparative purposes only. Index returns do not allow for transaction, management, operational or tax costs. An index is not managed and investors cannot invest directly an in index. There is no guarantee these objectives will be met.

#Portfolio holdings may not be representative of current or future recommendations for the portfolio. The securities listed may not represent all of the recommended portfolio’s holdings. Future recommended portfolio holdings may not be profitable.

This document is for general information only and does not take into account the specific investment objectives, financial situation or particular needs of any specific reader. As such, before acting on any information contained in this document, readers should consider whether the information is suitable for their needs. This may involve seeking advice from a qualified financial adviser. Ralton Asset Management (ABN 45 114 924 382) (Ralton) is the provider of the Ralton Wholesale Australian Shares Model Portfolio. To subscribe, contact Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) by calling 1800 442 129 or email [email protected]. Any opinions or recommendations contained in this document are subject to change without notice. Ralton and Copia are under no obligation to update or keep information contained in this document current.

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