AUSTRALIA Reporting season outlook

24 July 2008 Battered & bruised - earnings growth for most still under pressure We approached the February 2008 reporting season with fears that EPSg would wilt under the pressures of the ‘credit crunch’ and slowing economic growth. Although FY08 EPSg forecasts weakened throughout that reporting season, the negative earnings momentum accelerated from that point onwards. Forecasts for FY08 have indeed succumbed to those pressures, with the Australian market and all sectors now forecasting EPSg of zero to negative. So as we approach this reporting season and with FY08 EPSg forecasts already downgraded we ask: is the worst over? While FY08 expectations may now be sufficiently negative, the EPSg forecasts for FY09 however still appear optimistic, particularly industrials which are still around +10% we believe significant risks remain. So as the focus shifts to the upcoming year’s EPSg downgrades will still be potent.

Focus and risks shifting to FY09 EPSg forecasts

Inside Overall EPSg for FY08 may slip further as we progress through this reporting season. Stock performance will be driven in our view by two critical factors: Table of contents 2 ƒ Earnings delivery on FY08 EPSg forecasts, be it high or low; and Reporting season calendar 3 ƒ Guidance or commentary around the expectations for EPSg in FY09. Any Stock Index 4 stock where the market is forced to lower its FY09 EPSg expectations is likely to see its share prices under significant pressure. Battered & bruised - earnings growth for most still under pressure 5 Despite the downgrades seen already, our analysis suggests that the forecasts are expecting operating margin expansion to come from domestic, mid-size, and

Analysis of profit and cashflow forecasts13 cyclical stocks at a time of a sharp slowdown in the local non resource economy. Quantitative method to predicting earnings ƒ Stocks include: QAN, SEV, VPG, CWN, DJS, BEN, FXJ, CCL, GMG, CRG, surprises 29 LLC, FGL, NAB, GFF, AWC (even beyond the capex downgrade), BKW, Profit tables 35 IOF, MGR (already downgraded), OST, CER, AMC, FCL, CMJ, AIO. Profit Outlook – by sector 39 Stocks with no excessive EBITDA margin forecasts that may surprise given the current favourable industry dynamics are: ƒ WPL, OSH, LGL, WOR, BLY, LEI, OXR, WOW, UGL, ASX and COH. FY09 EPSg forecasts for industrials are the key downgrade risk Forecast EPS growth for Forecast EPS growth year shown (%) EPSg following previous periods of slowing for year shown (%) economic growth and rising inflation 20 20 04 So will FY09 EPSg follow previous pattern of EPSg 16 95 downgrades? 16 03 05 12 09 12

00 8 99 07 8

97 02 4 98 06 4 08 96 01 0 0 Jan-93 Jul-94 Jan-96 Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08

-4 -4 Source:Macquarie Research, July 2008

Macquarie Research Equities - Report Profit Outlook

Table of contents Reporting season calendar 3 Stock Index 4 Battered & bruised - earnings growth for most still under pressure 5 Analysis of profit and cashflow forecasts 13 Quantitative method to predicting earnings surprises 29 Profit tables 35 Profit outlook by sector: Consumer discretionary – media 39 Consumer discretionary – retailing 43 Consumer discretionary – hotels, restaurants and leisure 50 Consumer staples – food and beverages 55 Emerging leaders 59 Energy 75 Financials – banks 79 Financials – diversified 82 Financials – insurance 87 Healthcare and biotechnology 92 Infrastructure 97 Materials – building, chemicals, paper, packaging, and contractors 101 Materials – metals, mining and steel 109 Real estate 117 Telecommunications 130 Transport 134 Utilities 138

24 July 2008 2 Macquarie Research Equities - Report Profit Outlook

Reporting season calendar July/August 2008 MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY 21 22 23 24 25 PFI NZ Int result NZ$8.2m GUD FY result $36.8m ERA Int result $22.9m

28 29 30 31 1 ALZ Int result $62.9m ALS FY result $57.6m AWC Int result $108.2m ALS FY result $57.6m OGC Int result $20.8m CNA Int result $241.6m

4 5 6 7 8 AXA Int result $82m CXP Int result $35.4m TAH FY result $521.3m TEL NZ FY result

NVT FY result $35.8m NWS FY result US$3413.4m NZ$711.2m WAN FY result $119.2m

11 12 13 14 15 BEN FY result $222.9m APN Int result $72.6m BOL FY result $19.4m ASX FY result $369.9m SAI FY result $14.4m CRG FY result $60.5m BKN FY result $56.4m CBA FY result $5099.6m CCP FY result $4.9m SGN Int result $16.9m RKN Int result $5.5m COH FY result $116.5m CPU FY result US$301.3m FCL FY result $64.6m UGL FY result $119.4m WOR FY result $320.7m FBU NZ FY result NZ$440.9m LEI FY result $601.9m REF FY result $20.9m PMP FY result $86m TLS FY result $3765m SGP FY result $1022.1m

18 19 20 21 22 ANN FY result US$99.4m BLD FY result $235.6m AGK FY result $127.2m ABC Int result $50.2m AWE FY result $298m COU FY result $24.1m CFX FY result $521.7m AIO FY result $-95.1m AIA NZ FY result NZ$93.3m BBG FY result $182m IIN FY result $19.4m CMJ FY result $6101.9m BXB FY result US$645.1m AMC FY result $321.6m CTX Int result $321.5m OIC NZ Int result NZ$7.9m CPA FY result $363.8m CCL Int result $166.1m CAB FY result $62.8m CYG FY result $5.6m SEK FY result $76.4m GWT FY result $53.3m CEY FY result $282.4m CLO FY result $63.5m EBO NZ FY result HTA Int result $-88.2m CSL FY result $714.6m DOW FY result $157.4m NZ$15.7m JBH FY result $64.4m CWN FY result $367.3m DXS FY result $608.6m IAG FY result $58.3m LEP FY result $27.7m KZL FY result $71.7m FUN Int result $10.8m PPC FY result $45.9m LGL Int result US$50.4m MAH FY result $47.6m FXJ FY result $399.1m SLM FY result $14.8m MND FY result $65.9m MAP Int result $87.9m HSP FY result $73.5m NCM FY result $215.4m MOF FY result $356.7m ILU Int result $10.7m OKN FY result $26.1m MYO Int result $-5.7m IVC Int result $13.5m OSH Int result US$128.7m OXR Int result $-31.5m KCN FY result $49m OST FY result $276.4m PBG FY result $117m MIG FY result $1661.8m PGW NZ FY result NZ$70.3m PPT FY result $128.3m MIN FY result $47.2m TSO FY result $34.7m SFH FY result $24.1m MLE FY result $43m THL NZ FY result NZ$16.4m PPX FY result $63m TRS FY result $16.9m QAN FY result $1000.7m WYL FY result $11.4m QBE Int result $919.4m SHL FY result $246.3m STO Int result $328.9m WES FY result $1019.6m 25 26 27 28 29 AEO FY result $48.9m AIR NZ FY result NZ$186.1m ABP FY result $92m ALL Int result $92.1m AFG FY result $31.6m ASB FY result $47.5m APA FY result $72.3m AVG FY result $7.1m AMP Int result $340m BBP FY result $82.4m CDR FY result $-266.4m BLY Int result US$106.8m BBC FY result $38.7m CNP FY result $-1021.1m DUE FY result $115m CGF FY result $-29m BVA FY result $6.4m CER FY result $-147.2m FKP FY result $162.9m FWD FY result $33.3m FAN FY result $19.3m CHC FY result $75.1m CEU FY result $-7.5m HGI Int result GB$33.6m IGO FY result $57.2m GFF FY result $192.8m CND FY result $11.3m ENE FY result $22.9m IIF FY result $331.5m MCC FY result $85.3m IOF FY result $209.7m FGL FY result $825.7m ENV FY result $157.4m LLC FY result $451.6m PEM FY result $11m PRT FY result $38.1m FLT FY result $148.7m GCL FY result $22m MCG FY result $-409.4m ROC Int result US$35m RHC FY result $114.2m HWI FY result $20.4m GPT Int result $208.7m MDT FY result $40m TAP Int result $-7.8m RIC FY result $19m MGR FY result $518.4m HST FY result $37.6m ORG FY result $570.5m SKC NZ FY result NZ$51.2m PGA FY result $22.6m MCQ FY result $67.9m POT NZ FY result NZ$42.6m SKI Int result $18.5m PRY FY result $-99.9m MCW FY result $136.1m TTS FY result $263m SPT FY result $38.9m RDF FY result $10.2m MMG FY result $54.9m TSE FY result $82.6m SMX FY result $25.3m MRE Int result $79m VBA FY result $90.1m SUN FY result $586.1m MRM FY result $17.7m VPG FY result $-1.3m RCY FY result $17.8m WOW FY result $1594m RPX FY result $9.6m SFC FY result $11.1m SUL FY result $27.4m TCL FY result $-32.7m TGR FY result $20m TPI FY result $175.4m WDS FY result $17.3m WPL Int result $991.2m WTF FY result $34.7m

24 July 2008 3 Macquarie Research Equities - Report Profit Outlook

Stock Index ASX Code Company name Page No. ASX Code Company name Page No. ASX Code Company name Page No. Australian stocks GUD GUD Holdings Ltd 59-74 SFC Schaffer Corporation 59-74 ABC Adelaide Brighton 101-108 GWT GWA International 59-74 SFH Specialty Fashion Group 59-74 ABP Abacus Property Group 117-129 HFA HFA Holdings 59-74 SGB St George Bank 79-81 ABS ABC Learning Centres 59-74 HGI Henderson Group plc 82-86 SGM Sims Group Limited 109-116 AEO Austereo Group 39-42 HSP Healthscope Limited 92-96 SGN STW Communications Group 59-74 AFG Allco Finance Group 59-74 HST Hastie Group 59-74 SGP Stockland 117-129 AGK AGL Energy 138-141 HTA Hutchison Telecommunication 130-133 SGT SingTel 130-133 AHE Automotive Holdings Group 59-74 HVN Harvey Norman 43-49 SGX Sino Gold Mining 109-116 AIO Asciano Group 97-100 HWI Housewares International Ltd 59-74 SHL Sonic Healthcare Ltd 92-96 AIX Aust Infrastructure Fund 97-100 IAG Insurance Australia Group 87-91 SIP Sigma Pharmaceuticals Ltd 92-96 ALL Aristocrat Leisure 50-54 IBA IBA Health 92-96 SKI Spark Infrastructure Group 138-141 ALS Alesco 59-74 IGO Independence Group NL 109-116 SLM Salmat 59-74 ALZ Australand Holdings 117-129 IIF ING Industrial Fund 117-129 SMX SMS Management & Technology Ltd 59-74 AMC Amcor 101-108 IIN iiNet Limited 130-133 SOT SP Telemedia Limited 130-133 AMP AMP Limited 87-91 ILU Iluka Resources 109-116 SPN SP AusNet 138-141 ANN Ansell Limited 92-96 INL Intec 109-116 SPT Spotless Group Ltd 59-74 ANZ ANZ Bank 79-81 INP Innamincka Petroleum 75-78 SRL Straits Resources 109-116 APA APA Group 138-141 IOF ING Office Fund 117-129 SRV Servcorp 59-74 API Australian Pharmaceutical Industries 92-96 IPL Incitec Pivot Limited 101-108 SRX Sirtex Medical Limited 92-96 APN APN News and Media Ltd 39-42 IRE IRESS Market Technology 59-74 STO Santos 75-78 APZ Aspen Group 117-129 IRN Indophil Resources NL 109-116 SUL Super Cheap Auto Group 59-74 ARP ARB Corporation Ltd 59-74 IVC Invocare Limited 59-74 SUN Suncorp 87-91 ARQ ARC Energy 75-78 JBH JB Hi-Fi 59-74 TAH TABCorp Holdings 50-54 ASB Austal Limited 59-74 JHX James Hardie Industries 101-108 TAP Tap Oil Limited 75-78 ASX ASX Ltd 82-86 JST Just Group Ltd 59-74 TCL Transurban City Link 97-100 AVG Australian Vintage 55-58 KCN Kingsgate Consolidated Ltd 109-116 TEN Ten Network Holdings 39-42 AWB AWB Ltd 59-74 KZL Kagara Ltd 109-116 TGR Tassal Group 59-74 AWC Alumina Limited 109-116 LEI Leighton Holdings 101-108 TLS Telstra Corporation 130-133 AWE Aust Worldwide Exploration 75-78 LEP ALE Property Group 117-129 TNE Technology One Limited 59-74 AXA AXA Asia Pacific Holdings 87-91 LGL Lihir Gold 109-116 TOL Toll Holdings 134-137 BBC Babcock & Brown Communities Group 117-129 LLA Living and Leisure Australia Group 59-74 TPI Transpacific Industries Group 59-74 BBG Billabong International 43-49 LLC Lend Lease Corp 117-129 TRS The Reject Shop 59-74 BBP Babcock & Brown Power 138-141 LNN Lion Nathan 55-58 TSE Transfield Services Limited 59-74 BDG Bendigo Mining 109-116 LYL Lycopodium 59-74 TSO Tishman Speyer Office Fund 117-129 BEC Becton Property Group 117-129 MAH Macmahon Holdings 59-74 TTS Tatts Group 50-54 BEN Bendigo and Adelaide Bank 79-81 MAP Macquarie Airports 97-100 UGL United Group Limited 59-74 BHP BHP Billiton 109-116 MCC Macarthur Coal 109-116 VBA Virgin Blue 134-137 BKN Bradken 59-74 MCG Macquarie Communications Infrastructure Group 97-100 VPG Valad Property Group 117-129 BKW Brickworks 101-108 MCQ Macquarie Capital Alliance Group 82-86 WAN West Australian News 39-42 BLD Boral Limited 101-108 MCR Mincor Resources NL 109-116 WBC Westpac Bank 79-81 BLY Boart Longyear 101-108 MCW Macquarie Countrywide Trust 117-129 WDC Westfield Group 117-129 BOL Boom Logistics 59-74 MDT Macquarie DDR Trust 117-129 WDS WDS 59-74 BOQ Bank of Queensland 79-81 MGR Mirvac Group 117-129 WES Wesfarmers 43-49 BPT Beach Petroleum 75-78 MGX Mount Gibson Iron 109-116 WHG WHK Group Limited 59-74 BSL BlueScope Steel 109-116 MIG Macquarie Infrastructure Group 97-100 WOR WorleyParsons 59-74 BTT BT Investment Management 59-74 MIN Mineral Resources 59-74 WOW Woolworths 43-49 BVA Bravura Solutions 59-74 MLE Macquarie Leisure Trust 59-74 WPL Woodside Petroleum 75-78 BXB Brambles 134-137 MMG Macquarie Media Group 39-42 WSA Western Areas NL 109-116 CAB Cabcharge Australia 59-74 MND Monadelphous Group 59-74 WTF Wotif.com 59-74 CBA Commonwealth Bank 79-81 MOF Macquarie Office Trust 117-129 WYL Wattyl 59-74 CBH CBH Resources Limited 109-116 MRE Minara Resources 109-116 CCL Coca-Cola Amatil 55-58 MRM Mermaid Marine 59-74 CCP Credit Corp Group 59-74 MTS Metcash Ltd 43-49 CDR Commander Communications 130-133 MYO MYOB Limited 59-74 CER Centro Retail Group 117-129 NAB National Australia Bank 79-81 CEU ConnectEast 97-100 NCM Newcrest 109-116 NZ stocks CEY Centennial Coal 109-116 NFE Northern Iron 109-116 AIA Auckland International Airport 134-137 CFX CFS Retail Property Trust 117-129 NUF Nufarm 101-108 AIR Air New Zealand 134-137 CGF Challenger Financial Services Group 82-86 NVT Navitas 59-74 APT AMP NZ Office Trust 117-129 CHC Charter Hall Group 117-129 NWS News Corporation 39-42 BGR Briscoes Group Limited 43-49 CLO Clough Limited 59-74 NXS Nexus Energy 75-78 CAV Cavalier Corporation 43-49 CMJ Consolidated Media Holdings 39-42 OGC OceanaGold Corporation 109-116 CCC Cavotec MSL Holdings 101-108 CNA Coal & Allied 109-116 OIF Orchard Industrial Property Fund 117-129 CEN Contact Energy Ltd 138-141 CND Clarius Group 59-74 OKN Oakton 59-74 EBO Ebos Group 92-96 CNP Centro Properties Group 117-129 ORG Origin Energy Ltd 75-78 FBU Fletcher Building 101-108 COH Cochlear 92-96 ORI Orica 101-108 FPA Fisher & Paykel Appliances 43-49 COU Count Financial Ltd 59-74 OSH Oil Search 75-78 FPH Fisher & Paykel Healthcare 92-96 CPA Commonwealth Property Office 117-129 OST OneSteel 109-116 FRE Freightways 134-137 CPU Computershare Ltd 82-86 OXR Oxiana 109-116 GMT Goodman Property Trust 117-129 CRG Crane Group Holdings 59-74 PAN Panoramic Resources 109-116 GPG Guinness Peat Group 82-86 CSL CSL 92-96 PBG Pacific Brands 43-49 HLG Hallenstein Glasson 43-49 CSR CSR 101-108 PDN Paladin Energy 109-116 IFT Infratil Limited 134-137 CTX Caltex Australia 75-78 PEM Perilya Ltd 109-116 IMP ING Medical Properties 117-129 CWN Crown 50-54 PGA Photon Group 39-42 ING ING Property Trust 117-129 CXP Corporate Express 59-74 PME Pro Medicus Ltd 92-96 KIP Kiwi Income Property Trust 117-129 CYG Coventry Group Limited 59-74 PMM Portman 109-116 LPC Lyttelton Port Company 134-137 DJS David Jones 43-49 PMP PMP Limited 59-74 MFT Mainfreight Ltd 134-137 DOW Downer EDI 59-74 PPC Peet 59-74 MHI Michael Hill International Ltd 43-49 DUE DUET Group 138-141 PPT Perpetual Ltd 82-86 NAP National Property Trust 117-129 DXS Dexus Property Group 117-129 PPX PaperlinX Ltd 101-108 NPX Nuplex Industries 101-108 EBB Everest Babcock & Brown 59-74 PRG Programmed Maintenance Service 59-74 NZO New Zealand Oil and Gas 75-78 ENE Energy Developments 59-74 PRT Prime Media Group 59-74 NZR New Zealand Refining Company 75-78 ENV Envestra 138-141 PRY Primary Healthcare Ltd 92-96 NZS NZ Farming Systems Uruguay 55-58 ERA Energy Resources of Australia 109-116 QAN Qantas 134-137 OIC Opus 101-108 FAN Fantastic Holdings Ltd 59-74 QBE QBE Insurance 87-91 PFI Property For Industry 117-129 FCL Futuris Corporation 59-74 RCY Rivercity Motorway Group 97-100 PGW PGG Wrightson 55-58 FGL Foster's Group 55-58 RDF Redflex Holdings 59-74 POT Port of Tauranga 134-137 FKP FKP Property Group 117-129 REF Reverse Corp 59-74 PPL Pumpkin Patch 43-49 FLT Flight Centre Ltd 59-74 RHC Ramsay Health Care Limited 92-96 RBD Restaurant Brands 50-54 FLX Felix Resources 109-116 RHD Ross Human Directions Limited 59-74 RYM Ryman Healthcare 92-96 FMG Fortescue Metals Group 109-116 RIC Ridley Corporation Limited 59-74 SAN Sanford 55-58 FUN Funtastic 59-74 RIO Rio Tinto 109-116 SKC Sky City Entertainment Group 50-54 FWD Fleetwood Corporation Ltd 59-74 RKN Reckon 59-74 SKL Skellerup Holdings 55-58 FXJ Fairfax Media 39-42 RMD Resmed 92-96 SKT Sky Network Television 39-42 GCL Gloucester Coal 109-116 ROC ROC Oil Company Ltd 75-78 STU Steel and Tube 109-116 GFF Goodman Fielder 55-58 RPX RP Data 59-74 TEL Telecom NZ 130-133 GMG Goodman Group 117-129 SAI SAI Global 59-74 THL Tourism Holdings 134-137 GNS Gunns Ltd 101-108 SBM St Barbara 109-116 TPW TrustPower 138-141 GPT GPT Group 117-129 SEK Seek 39-42 VCT Vector 138-141 GTP Great Southern 59-74 SEV Seven Network 39-42 WHS The Warehouse Group 43-49

24 July 2008 4 Macquarie Research Equities - Report Profit Outlook

Battered & bruised - earnings growth for most still under pressure The economic This reporting season’s profit results and earnings outlooks will be, more than any reporting backdrop to this season in the last seven years, impacted by the economic environment – both domestically reporting season is and offshore. As for the economy – earnings risks are high. the toughest in seven years After a long period of strong growth, Australia is now part way through this cyclical economic slowdown, indeed the most significant economic slowdown we believe since the early 1990s. As we have seen in past slowdowns, the downturn in the earnings cycle tends to be underestimated by investors, partly due to the stable earnings climate of the preceding years, but also due to the inevitable operating margin squeeze that a slowdown creates. Due to the previous economic buoyancy, costs across the economy are still rising strongly, and given normal lags, will continue to feed through for several quarters yet. This means that as revenues have now started to soften the squeeze on operating margins is quick and usually dramatic. This squeeze is we believe still not reflected in consensus forecasts for industrial EPSg particularly FY09. Given this, the outlook statements that will accompany the FY08 profit result releases for the upcoming year will be of unusually high importance. The equity market has fallen sharply YTD, and so many investors are now questioning the emergence of “value”. While the market’s valuation has improved from the significantly overvalued position of early 2007, we continue to see earnings risks as high, and that earnings delivery lack of it, rather than valuations will remain the key share price driver – at least for now.

For financials the key focus will be on both the carrying value of assets (capitalisation rates) and the degree of cashflow cover of all outgoings, most particularly dividends. In many cases the change or non change to the dividend payout policy will be the focus of investor interest. For resources, where growth is still strong and balance sheets are still rapidly improving, the focus will be on threats from rising operating and capital costs. The reality is that unless commodity prices are going up then earnings will be under pressure given the savage cost escalation still underway. Cost growth is uneven hence the impact by stock will vary widely. Management comments on costs and the scope for restraint will be the focus here. The twin risks of slower top line growth and rising operating costs, at all levels, holds the prospect of a tough reporting season

We had approached the last reporting season (February 08) with fears that EPSg would wilt under the pressures of the ‘credit crunch’ and slowing economic growth. While the FY08 EPSg forecasts weakened through that reporting season, the negative earnings momentum accelerated from that point. The Australian market, as a whole, has struggled to secure any strong momentum over the last nine months, as the forecast EPSg for the market in FY08 has steadily fallen to now stand at -0.3%. So as we approach this reporting season with EPSg for FY08 for the market and all major sectors zero to negative, is the worst over? For FY08 perhaps it is, but FY09 is now key. The FY08 EPSg for Fig 1: Market and sector EPS growth (%) the market is Current 1 yr forecast to be Pro-rated to June FY07A FY08E FY09E FY10E Fwd negligible after All companies 13.7 -0.3 27.2 11.4 26.4 months of Banks 12.0 3.0 2.5 3.52.6 downgrades... Property trusts 3.1 0.2 -3.1 2.4 -2.9 Resources 24.9 -1.6 66.1 15.963.6 ...the focus will be Industrials (All cos ex res, LPTs, banks) 5.7 -0.9 9.8 11.0 9.9

on any further ASX 100 13.8 -0.3 27.4 10.9 26.6 slippage to FY08 Small companies 18.5 5.4 30.3 22.3 29.9 and the outlook for Source: Macquarie Research, 18 July 2008 EPSg in FY09

24 July 2008 5 Macquarie Research Equities - Report Profit Outlook

While a strong recovery in EPSg growth is forecast for FY09 (the EPSg forecasts for the market currently stand at +27.2%), the resource sector alone is responsible for almost all of this growth. As we stand today the resource sector is forecast to contribute over 85% of the market’s forecast FY09 EPSg, thus highlighting the weakness in the growth forecast for the remainder of the Australian market. Earnings delivery Overall EPSg for FY08 may slip further as we progress through this reporting season. Stock and FY09 EPSg performance will be driven in our view by two critical factors: guidance will drive ƒ share price Simple earnings delivery on FY08 EPSg forecasts, be it high or low, will be key; and performance ƒ Guidance or commentary around the expectations for EPSg in FY09. Any stock where the market is forced to lower its FY09 EPSg expectations is likely to see its share price under significant pressure. The results of property trusts and banks (although only one major and the two remaining regionals will report) will be closely scrutinised. With the FY09 EPSg forecasts for these sectors having seen substantial downgrades already, the EPSg forecasts here may have already adjusted sufficiently. The industrials however present in our view a much greater risk. With the FY09 EPSg forecasts for industrials still holding around +10% there appears a significant mismatch between the FY08 EPSg performance (now negative), and the continuing tough economic environment on the one hand, and the rebounding FY09 EPSg forecasts on the other. The key risks lie we believe for EPSg of stocks closest to consumer spending, and those that continue to run with high gearing of short duration. Furthermore despite the downgrades seen already, our analysis suggests that FY09 EPSg is premised on operating margin expansion for many domestic, mid-size, and cyclical stocks at a time of a sharp slowdown in the local non resource economy. ƒ Stocks include: QAN, SEV, VPG, CWN, DJS, BEN, FXJ, CCL, GMG, CRG, LLC, FGL, NAB, GFF, AWC (even beyond the capex downgrade), BKW, IOF, MGR (already downgraded), OST, CER, AMC, FCL, CMJ, AIO.

Stocks with not excessive EBITDA margin forecasts that may surprise given the current favourable industry dynamics are: ƒ WPL, OSH, LGL, WOR, BLY, LEI, OXR, WOW, UGL, ASX and COH. Conversely, we continue to expect that the stocks exposed to commodities (soft and hard), particularly the large and dominant operators in this sector, and those stocks providing key services directly to these companies are less likely to disappoint. Fig 2: Negative FY09 EPSg momentum set to to continue due to higher costs

With the Forecast EPS growth Earnings revisions for downgrades for year shown (%) year shown (x) 30 4.0 continuing, FY08 Profile of eps growth forecasts FY09 EPSg has recently (LHS) fallen below zero, 25 FY05 3.5 FY06 while the strong EPSg recovery 20 3.0 forecast in FY09 is FY07 almost entirely 15 FY04 2.5 down to resource FY10 10 2.0

FY03 5 FY08 1.5

0 1.0 Net<1= downgrades Net >1= upgrades

-5 Profile of FY1 earnings revisions (RHS) 0.5

-10 0.0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Monthly

Source: Macquarie Research, IBES, July 2008

24 July 2008 6 Macquarie Research Equities - Report Profit Outlook

So again like EPSg in FY05 and FY06, the balance of growth is again forecast to move to an extreme as we pass from FY08 into FY09. The negligible growth now forecast for the market in FY08 is evenly balanced with all sector’s forecasting zero to slightly negative EPSg in FY08. In FY09, however (refer chart below), the market’s EPSg forecast is being almost entirely driven by resources, where their 65%+ EPSg accounts for more than 85% of the market’s +27.2% EPSg forecast. For all sectors downside earnings risk to earnings are from ongoing cost increases and this is indeed the major risk for resources. The market’s EPSg therefore is almost entirely dependent on the resources sector delivering its earnings growth in FY09. The remaining 15% of the market’s growth in FY09 is expected to come from the core industrial sector which is also expecting a significant rebound in growth from negative back toward +10%. In our view, herein lies the greatest earnings risk as we move toward this reporting season. No sector is Fig 3: Resources are expected to contribute over 85% of the market’s EPSg in expected to FY09 contribute substantially to EPS growth ppts EPSg in FY08 while 30% 27.2% resources alone Actual Forecast 22.6% account for the lion 25% 20.5% share of EPSg in FY09 20% 13.7% 15% 11.4%

10%

5% -0.3% 0% FY05A FY06A FY07A FY08E FY09E FY10E -5% Resources Banks LPT's Industrials

Source: Macquarie Research, IBES, July 2008

Our analysis of the EPSg trends has shown that the industrial sector’s FY08 EPSg forecast has fallen dramatically in recent months from +6.8% before the last reporting period of February 08, to the current FY08 EPSg forecast of -0.9%. While there is still some risk to the delivery of this growth, the key risk for industrials in this reporting season lies in the forecast growth in FY09 being downgraded. We would highlight that there has already been substantial slippage in the industrial’s FY09 EPSg forecast. Expected growth in FY09 for industrials has already seen a decline from +14.2% at the end of April 2008 to now stand at +9.8%. Higher oil and other commodity prices have placed pressure on costs while slower demand has seen revenue growth and margin expectations under pressure. Our analysis of EPSg forecasts during this period of substantial economic slowdown suggests the upcoming reporting season will in large part determine if FY09 EPSg follows the same path as FY08 (refer chart below). EPSg expectations during the first year of slowdown generally adjust downwards rapidly, as was seen in FY96 and FY01. It is only once this downgraded growth is confirmed through the first reporting season and analysts and company management themselves focus on the subsequent year’s growth outlook that the second year’s growth forecasts adjust.

24 July 2008 7 Macquarie Research Equities - Report Profit Outlook

Fig 4: Negative FY09 EPSg momentum set to to continue for industrials due to FY09 industrials higher costs and slowing demand EPSg is expected to Forecast EPS growth for Forecast EPS growth year shown (%) EPSg following previous periods of slowing for year shown (%) come under economic growth and rising inflation pressure over the 20 20 04 So will FY09 EPSg course of this follow previous reporting season pattern of EPSg 16 95 downgrades? 16

03 05 12 09 12

00 8 99 07 8

97 02 4 98 06 4 08 96 01 0 0 Jan-93 Jul-94 Jan-96 Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08

-4 -4

Source: Macquarie Research, IBES, July 2008

That said, resources too have seen downgrades to their near-term growth forecasts in recent months as significantly higher input costs have pushed FY08 EPSg into negative territory ( - 1.6%). While these cost pressures are expected to continue into FY09, the ongoing strong demand from emerging markets and the limited supply response for most commodities has seen strong rises in spot and subsequently contract prices. This has resulted in significant upgrades to the resource FY09 EPSg forecast in the last six months which now stands at over +65% (refer chart below).The primary risk to resource EPSg forecasts remains costs, although substantial cost pressures have already been built into the current strong growth forecast. Fig 5: Higher input costs have driven FY08 EPSg negative, but contract price upgrades in FY09 are expected to push EPSg above +66% Resources’ FY08 Forecast EPS growth Earnings revisions EPSg forecasts for year shown (%) FY1 (x) have been cut from 80 3.0 its peak of +20% to Profile of eps growth below zero forecasts (LHS) FY09 60 FY05 2.5 FY06 However, FY09 40 2.0 EPSg forecasts have been FY07 FY10 consistently 20 FY04 1.5 upgraded to very FY08

high levels FY03 >1= Net upgrades 0 1.0

-20 0.5 Profile of FY1 earnings revisions (RHS) <1= Net downgrades

-40 0.0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Monthly

Source: Macquarie Research, IBES, July 2008

24 July 2008 8 Macquarie Research Equities - Report Profit Outlook

Financials, both banks and LPTs, too have experienced major earnings downgrades for FY08, however unlike industrials and resources, the FY09 forecasts for both sectors have already been significantly downgraded. The LPT FY08 EPSg forecast has fallen 7.3ppt in the last six months to now stand at -3.1%, although downside risks remain still we believe for this reporting season. While cuts to earnings forecasts have been reasonably broad-based, CNP, GPT and MGR have been the major drivers of negative EPSg for the sector. Notably, FY10 EPSg is not expected to rebound from low levels in FY08 and FY09, with EPSg of just 2.4% forecast.

Fig 6: LPT earnings have been cut by 3.1% in FY09 Earnings for the property sector have Forecast EPS growth Earnings revisions for been downgraded in for year shown (%) year shown (x) 12 4 FY09, falling to -3.1% Profile of eps growth forecasts (LHS) This weakness is particularly notable FY03 due to the moderate 8 3 EPSg environment of FY06 3–7% in recent years and is not expected FY04 FY07 to rebound in FY10 4 2 FY05 FY10 FY08 <1= Net downgrades >1= Net >1= Net downgrades <1= 0 1

FY09 Profile of FY1 earnings revisions (S) -4 0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Monthly

Source: Macquarie Research, IBES, July 2008

For the banks falling expectations initially from higher provisions for bad & doubtful debts has and subsequently falling levels of credit growth have led to substantial EPSg downgrades across all three forecast years for the banks. The immediate impact of the credit crunch and the effect that is expected to flow from the higher cost of debt and the slowing domestic economy has seen the sector’s EPSg for FY08 and FY09 driven from around 10% to now stand at just 3% and 2.5% respectively. While only CBA and BEN are reporting in August, downside risks to forecasts remain. Some further deterioration in credit quality cannot be discounted, particularly given that this remains the first major downturn for banks under AIFRS reporting standards. Furthermore, the increasing need/desire of both household and corporates to de-lever may slow the outlook for credit growth more that may be expected. So while a substantial deterioration in credit quality and growth is built into the EPSg numbers, we believe there is still some further downside risk to the current EPSg forecasts for this sector.

24 July 2008 9 Macquarie Research Equities - Report Profit Outlook

Fig 7: banks’ EPSg has been downgraded towards 3% as credit growth slows and Over just six bad and doubtful debts increase months we have Forecast EPS growth Earnings revisions for year shown (%) FY1 (x) seen the FY08 and 14 8.0 FY09 EPSg Profile of EPS growth forecasts (LHS) forecasts FY07 12 FY09 7.0 downgraded from FY06 10% to now 10 6.0 approaching zero FY05 FY10 8 FY03 5.0

6 FY04 4.0

4 FY08 3.0 <1= Net<1= downgrades Net >1= upgrades

2 2.0

0 1.0 Profile of FY1 earnings revisions -2 0.0 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Monthly

Source: Macquarie Research, IBES, July 2008 Revisions trend weak particularly for industrials The EPSg While the deterioration in the earnings growth outlook for the Australian has been downgrades seen clearly evident in the large fall in EPSg forecast, the breadth of these downgrades is are been broadly equally notable as evidenced through the earnings revisions ratio analysis (refer based charts that follow).

This weakening of earnings forecasts is evident in the market’s earnings revisions ratio, which has reached a record low of 0.36 for the market as a whole, 0.31 for large caps and 0.26 for Industrials (market ex banks, resources, LPTs). The speed and consistency of the downward trend is notable, as it has steadily fallen since early 2007 with only some short-term improvements in revisions along the way. The ratio has been below 1.0 since September 07 and below 0.5 since April 08. Fig 8: The earnings revision ratio for the market, large cap and small has fallen to The a record low of just 0.4 upgrade/downgrade FY1 earnings revisions ratio for the market (rolling monthly) ratio Market ex 100 ASX100 and large caps has 2.2 2.2 hit a record low Net upgrades

1.8 1.8

1.4 1.4

1.0 1.0

0.6 0.6

Net downgrades 0.2 0.2 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Weekly

Source: Macquarie Research, IBES, July 2008

24 July 2008 10 Macquarie Research Equities - Report Profit Outlook

The near term weakness in the industrials EPSg outlook is also evident when their downgrade ratio trend is compared to that of resources. As seen in the analysis below (the first time we have been able to present the revision ratio split between industrials and resources), the falling revision trend for industrials has weakened sharply in the last three months and appears to be both more severe and more rapid the revision trend seen during the last major slowdown in the global and domestic economies in 2001 and 2002. Fig 9: Industrial earnings revisions ratio has fallen to a record low of 0.26 The upgrade/downgrade FY1 earnings revisions Resources Market Industrials ratio for industrials (rolling monthly) ratio has hit a record low 2.2 2.2 of 0.26 with Net upgrades significant downside risk from 1.8 1.8 here.

1.4 1.4

1.0 1.0

0.6 0.6

Net downgrades 0.2 0.2 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Weekly

Source: Macquarie Research, IBES, July 2008 So which stocks are forecast to drive FY09 EPSg?

With the Australian market’s EPSg tempo forecast to accelerate strongly into FY09, it is important to identify those stocks most significantly contributing to this higher EPSg. For the market a broad base on resource stocks, and not just the major miners, as well as insurers are forecast to contribute to the recovery in EPSg in FY09 versus FY08. The miners, both Fig 10: Major miners are driving FY09 EPSg ‘major ’ and ‘minor’ are the key drivers ppts ppts 30 30 of the +27.2% EPSg 27.2 AXA PMM QBE for the market in CEY OST AWC SRL Other FY09 along with 25 STO 25 ANZ FMG insurers, ANZ and AMP WPL WES IAG 20 SUN 20 WES OZM 15 15

10 10

Major Miners 5 5

-0.3 0 0 FY08 EPSg FY09 EPSg -5 -5

Source: Macquarie Research, IBES, July 2008

24 July 2008 11 Macquarie Research Equities - Report Profit Outlook

While the contribution of the resource stocks to the market’s growth is unsurprising it is the forecast lift in the EPSg of the industrial sector in FY09 that is most notable and worth of further investigation. Our top down analysis would suggest that the industrial sector’s EPSg should continue to be under pressure in FY09, as the ongoing margin pressures from rising costs and slowing revenue growth impede any significant earnings recovery. The bottom-up forecasts appear to be suggesting otherwise. In our view, the delivery of EPSg close to 10% in FY09 is optimistic in the current environment and is where much of the risk to EPSg lies. Notably, the positive contributors to FY09 EPSg are primarily stocks with already negative or very low EPSg in FY08 forecast, a recovery from this depressed earnings FY08 base is forecast – the insurers, ALL, PPX, AMC, JHX, BLD, TAH, TTS are notable. Similarly, some key negative contributors to the FY09 earnings growth are stocks that in a relatively defensive area of the market whose stable earnings growth forecast in FY08 is forecast weaken, TLS, and WOW are notable here. This is interesting and perhaps even counterintuitive, particularly if the cost pressures and the slowdown in the economy is prolonged well into FY09. There indeed seems therefore to be some downside risk to the FY09 forecasts because it is the EPSg of many stocks that are infact forecast to recover strongly that are the key drivers of the industrial EPSg in FY09. Likewise, for some of the defensive and strong growth stocks where EPSg is forecast to slow into FY09, the risks here may be to the upside. WES and the Fig 11: Significant increase in EPSg still forecast for FY09, with insurance and a insurance sector are long tail of various stocks contributing expected to drive

the uplift in EPSg in ppts ppts FY09, although this 16 16 appears optimistic GTP RMD NWS TAH 14 TTS AFG 14 PPX AMC BLD ALL JHX 12 QBE BLY 12 AXA 9.8 10 10 AMP Other 8 8

IAG 6 6

4 4 SUN

2 2

0 0

WES -2 -0.9 -2 FY08 EPSg FY09 EPSg

Source: Macquarie Research, IBES, July 2008

24 July 2008 12 Macquarie Research Equities - Report Profit Outlook

Analysis of profit and cashflow forecasts In our search for understanding the risks of the upcoming reporting season a detailed analysis of the profit and loss and cashflow forecasts for the market and sectors are set out below. Fig 12: Profit and loss 12-month aggregate vs pcp (%) for all companies (pro-rated to June)

All Companies FY05 (A) FY06 (A) FY07 (A) FY08 (E) FY09 (E) Total revenue growth 13.2 10.8 7.3 7.2 15.0 EBITDA growth 20.5 14.7 14.2 6.3 29.9 Net interest expense 9.0 28.3 13.1 29.7 0.0 Tax consolidated growth 21.6 18.0 15.8 11.2 37.5 Adjusted NPAT growth 25.6 22.6 14.3 2.0 30.2 Adjusted EPS Growth 23.3 21.5 13.8 0.1 27.5 Growth in Total dividends (ord + spec) 19.8 15.6 2.6 2.5 5.5 Payout ratio 61.5 60.9 55.7 58.3 48.7 Jun 05A Jun 06A Jun 07E Jun 09E Industrials (Market ex resources, banks, LPTs, life insurance) FY05 (A) FY06 (A) FY07 (A) FY08 (E) FY09 (E) Total revenue growth 10.0 8.3 6.1 3.4 10.9 EBITDA growth 13.2 8.9 5.9 5.5 12.6 Net interest expense 10.3 22.9 13.5 26.8 10.3 Tax consolidated growth 15.0 6.8 7.4 2.1 17.8 Adjusted NPAT growth 15.9 6.5 7.2 4.5 12.4 Adjusted EPS Growth 14.0 5.3 4.8 0.4 9.4 Growth in Total dividends (ord + spec) 33.7 11.3 -3.7 3.2 4.4 Payout ratio 70.8 75.1 69.5 73.9 70.7 Jun 05A Jun 06A Jun 07A Jun 09E Resources FY05 (A) FY06 (A) FY07 (A) FY08 (E) FY09 (E) Total revenue growth 24.8 24.8 14.3 15.9 28.0 EBITDA growth 41.5 32.7 22.6 11.4 52.8 Net interest expense -4.9 27.0 -0.8 80.9 -31.9 Tax consolidated growth 48.1 44.4 32.3 29.5 65.6 Adjusted NPAT growth 66.4 56.4 22.7 -3.4 67.7 Adjusted EPS Growth 66.8 58.2 25.5 -1.8 66.1 Growth in Total dividends (ord + spec) 13.2 47.5 7.9 -0.3 15.9 Payout ratio 33.4 31.1 27.0 27.3 19.1 Mar 05A Mar 06A Mar 07A Mar 09E Banks (pro-rated to March) FY05 (A) FY06 (A) FY07 (A) FY08 (E) FY09 (E) Total revenue growth 6.9 5.5 -3.3 7.8 8.5 EBITDA growth 10.5 11.1 5.5 6.2 8.1 Tax consolidated growth 9.2 16.9 4.9 -1.4 12.2 Adjusted NPAT growth 7.6 11.9 12.7 6.1 8.6 Adjusted EPS Growth 4.1 10.9 12.1 4.6 4.4 Growth in Total dividends (ord + spec) 8.4 8.7 11.1 8.7 4.2 Payout ratio 71.6 70.2 69.6 72.4 72.2 Jun 05A Jun 06A Jun 07A Jun 09E LPTs FY05 (A) FY06 (A) FY07 (A) FY08 (E) FY09 (E) Total revenue growth 16.8 23.1 11.3 12.7 1.9 EBITDA growth 10.0 22.9 27.7 -12.6 11.8 Net interest expense 26.8 39.1 27.3 5.3 3.6 Tax consolidated growth 14.4 15.6 2.1 -0.6 16.0 Adjusted NPAT growth 14.7 21.1 8.9 9.4 -1.2 Adjusted EPS Growth 2.4 10.0 3.1 0.2 -3.1 Growth in Total dividends (ord + spec) 5.7 8.5 1.9 -5.6 -1.1 Payout ratio 101.0 103.0 102.1 95.0 97.1 Source: Macquarie Research, July 2008

24 July 2008 13 Macquarie Research Equities - Report Profit Outlook

Margin pressures, higher net interest and tax expenses are the key drivers of the almost zero EPSg now forecast for the market in FY08. Margins in particular will be a key area of focus this reporting season given that the EPSg forecasts for FY09 are predicated on a strong recovery in EBITDA margins. The economic evidence is mounting that margin pressures are actually accelerating rather than abating as we move to FY09. The recently released Australian Produce Price Index (PPI) showed clearly that while final stage prices continued to rise around 4.5%, preliminary and intermediate price rises accelerated to around 8% in the last quarter. This clearly suggests that companies are either choosing, or being forced to absorb an increasing amount of the rising cost of inputs, suggesting that operating margins are under increasing pressure. While the June PPI Fig 13: Margins under pressure as June quarter PPI rose by just 1% was below consensus the YoY% Producer prices YoY% analysis of all input 12 12 cost increases Final stage 10 10 indicates Intermediate Margin Squeeze Preliminary companies are not 8 8 passing on the rising cost o inputs 6 6 and as a result 4 4 margin squeeze is

intensifying 2 2

0 0

-2 -2

-4 -4 M ar 01 Dec 02 Sep 04 Jun 06 M ar 08 Quarterly

Source: Macquarie Research, IBES, July 2008

The currency is yet another potential headwind for many companies’ profits this reporting season. The AUD has continued to appreciate against the USD chiefly, however we have also seen the AUD strengthen against a broader range of currencies, such the GBP. The A$ continues to Fig 14: A$ continues its upward climb towards parity on US$ weakness appreciate on US A$/US$ economic weakness 30-Jun-07 31-Dec-07 30-Jun-08 31-Dec-08 1.00 1.00 and forward interest Actual Forecast avg Actual AUDUSD avg 08H2 if rate differentials. AUDUSD avg 08H1 = 0.9237 AUDUSD sta ys 07H2 = 0.87 at 0.95 0.95 0.95 The A$ is forecast to Actual fall towards the end AUDUSD avg of the year , on 07H1 = 0.81 narrowing interest 0.90 0.90 rate differentials as the market prices in 0.85 0.85 rate cuts in MQG AUDUSD Australia and rate forecasts hikes in the US for quarter ends 0.80 0.80 2009.

0.75 0.75 Dec-06 Mar-07 Jun-07 Aug-07 Nov-07 Jan-08 Apr-08 Jun-08 Sep-08 Nov-08 Daily

Source: Macquarie Research, IBES, July 2008

The industrials (ex life insurance) are now expected to achieve just +0.4% EPSg in FY08, with forecasts consistently having been downgraded over the last year. And unlike resources, industrials have not had the benefit of the increasingly stronger FY09 growth outlook, with FY09 EPSg forecasts now at +9.4% having fallen from +14.2% over just 3 months.

24 July 2008 14 Macquarie Research Equities - Report Profit Outlook

Current FY09 EPSg As already discussed, we believe there are downside risks to these FY09 EPSg forecasts forecast for given the current economic environment of slowing domestic demand and rising costs. We industrials continue would note the current FY09 EPSg forecasts continue to embed +10% revenue growth and to embed +10% ongoing margin expansion. Interest expense, while still higher in FY09 than FY08, is forecast revenue growth and to grow below that of revenue and EBITDA. We therefore expect FY09 EPSg risks in this margin expansion reporting season will be greatest for those industrials not able to pass-on their higher costs to the consumers of their products. Those most at risk are stocks which currently are relying on margins to achieve their forecast EPSg (refer Fig 16).

FY08 EPSg forecasts for LPTs have also consistently been downgraded over a period of 9 months to currently stand at just +0.2%. The required de-leveraging is starting to be seen through the dilutionary drag on EPSg, which compares with NPATg which is surprisingly high forecast to be +9.4%. We believe there is significant scope for the sector to disappoint, particularly since interest expense growth is expected to be just 5%. FY09 interest expense growth also appears low at 3%. For resources, higher costs and net interest expense (due to large M&A activity rather than high gearing levels) have resulted in the FY08 EPSg forecasts to drift lower (-0.3%), FY09 EPSg is expected to benefit from a strong recovery in revenue growth which in turn sees significant margin expansion, both thanks to the higher negotiated price recently settled for iron ore and coal. Fig 15: Six-month forecast growth for all companies with Jun/Dec year end (%) 6 month data pro-rated to June 6 month data prorated to December All Companies Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) Total revenue growth 11.1 21.7 9.2 12.0 10.1 18.3 EBITDA growth 13.2 16.4 15.8 19.3 4.0 27.0 Net Interest Expense 14.6 26.7 -2.0 18.9 21.8 11.1 Tax consolidated growth 15.3 21.5 19.7 17.7 6.1 31.7 Adjusted NPAT growth 13.0 12.3 18.3 21.9 2.4 27.9 Adjusted EPS Growth 11.0 9.3 17.5 22.1 -0.9 26.9 Growth in Total dividends (ord + spec) 6.7 2.5 9.0 1.4 6.8 9.0 Payout ratio 55.8 53.5 50.0 49.5 54.3 47.2

Industrials (Market ex resources, banks, LPTs, life insurance) Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) Total revenue growth 11.2 24.8 6.4 8.4 12.2 15.8 EBITDA growth 8.5 13.2 10.2 10.0 9.1 14.6 Net Interest Expense 17.1 20.9 2.9 11.6 22.8 10.4 Tax consolidated growth 12.4 17.4 12.8 3.7 12.6 16.4 Adjusted NPAT growth 16.9 12.4 13.3 9.0 11.8 14.3 Adjusted EPS Growth 11.8 9.3 12.0 5.0 6.4 13.3 Growth in Total dividends (ord + spec) -0.6 3.6 6.5 1.7 13.4 5.9 Payout ratio 75.8 73.5 70.1 65.0 70.0 66.2

Resources Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) Total revenue growth 10.6 13.6 14.9 20.9 2.9 24.2 EBITDA growth 14.8 20.1 22.3 32.8 -6.5 45.9 Net Interest Expense -12.0 86.2 -21.9 18.0 30.6 14.8 Tax consolidated growth 24.8 22.5 25.4 39.8 -2.7 47.9 Adjusted NPAT growth 9.0 8.1 24.0 41.5 -10.9 46.2 Adjusted EPS Growth 12.1 9.8 25.5 43.3 -8.5 47.9 Growth in Total dividends (ord + spec) 22.6 2.6 11.9 -3.3 1.2 11.2 Payout ratio 27.0 25.4 22.7 26.7 29.6 22.3

LPTs Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) Total revenue growth 13.2 3.8 6.4 11.6 13.7 9.0 EBITDA growth 25.9 -5.4 6.4 26.0 8.8 6.7 Net Interest Expense 24.5 -3.6 8.5 31.9 2.1 9.0 Tax consolidated growth 6.0 50.7 9.8 -12.0 76.9 12.9 Adjusted NPAT growth 7.9 10.0 5.6 12.9 9.4 5.2 Adjusted EPS Growth 2.2 5.9 5.4 6.9 3.0 4.8 Growth in Total dividends (ord + spec) 4.3 -5.2 14.0 2.0 -2.3 15.0 Payout ratio 104.9 91.8 99.3 99.6 92.2 101.1

Banks Sep 07 (A) Sep 08 (E) Sep 09 (E) Mar 07 (A) Mar 08 (A) Mar 09 (A) Total revenue growth 9.2 8.8 7.3 8.0 7.9 9.2 EBITDA growth 13.9 12.6 9.5 13.6 12.0 12.5 Tax consolidated growth 11.8 13.8 9.8 8.4 8.5 13.8 Adjusted NPAT growth 13.1 12.2 9.7 13.5 11.2 12.1 Adjusted EPS Growth 12.1 9.6 8.6 12.6 9.8 10.1 Growth in Total dividends (ord + spec) 12.3 8.0 8.2 10.3 8.3 10.2 Payout ratio 73.7 72.7 72.5 65.3 64.4 64.5 Source: Macquarie Research, July 2008

24 July 2008 15 Macquarie Research Equities - Report Profit Outlook

So where are the risks? In order to examine these EPSg risks on a stock by stock basis, we have again extracted the contribution (in percentage points) that the key components of the P&L made to the EPSg delivered in FY07, and that are forecast to make to EPSg in FY08 and FY09: ⇒ Sales revenue (or in the case of banks net interest plus non interest income); ⇒ Margin (EBITDA margin); ⇒ Net interest expense; ⇒ Dilution The results of this analysis are presented in the three tables that follow. The first of these tables shows all stocks (with a market cap > $700m) where 50% or more of FY08 EPSg is forecast to come from EBITDA margin expansion, the second table shows all stocks where the EBITDA margin contribution to FY08 EPSg is forecast to be negative. And the third table shows all stocks where between zero and 50% of FY08 EPSg is forecast to come from EBITDA margin. Despite the downgrades seen already, our analysis suggests that the forecasts are expecting operating margin expansion to come from domestic, mid-size, and cyclical stocks at a time of a sharp slowdown in the local non resource economy. From a universe of 126 stocks (with a market cap > $700m) included in this analysis: ⇒ 40 stocks continue to have FY08 EPSg forecasts where more than 50% of the growth is dependent on EBITDA margin expansion. ⇒ Of these 40 stocks, 20 we would classify as cyclical, excluding mining and energy stocks. We highlight the following stocks from this table including DOW, QAN, SEV, VPG, CWN, BXB, DJS, BEN, FXJ, CCL, GMG, CRG, BOQ, LLC, FGL, NAB, BKW, IOF, MGR, OST, CER, AMC, FCL, CMJ and AIO. ⇒ Given the economic environment, one would have expected that our many of our ‘price maker’ stocks would have appeared in this first table. This, however, is not the case. Of the ‘price makers’ only four – CPU, CSL, ORI and BBG – are forecast to have FY08 EPSg benefit from significant margin expansion. The only conclusion that we draw from our analysis, be it macro ‘top down’ or micro ‘bottom- up’, is that FY08 EPSg forecasts still have substantial downside risk. On the flipside, stocks that are forecasting significant negative contribution from EBITDA margins in FY08 are: ⇒ MAH, PRY, RHC, SHL, ORG, SGM, HVN, WBC, SGP, AGK, LNN, CBA, WAN, RMD, WDC, ALZ, ABP, GNS, TAH, MOF, TSE, APA, GFF, PPT, ANZ, SIP, TEN, GPT, BLD, CTX, CGF, AWC and ABS. Of these however, only MAH, PRY, RHC, SGM, HVN, CBA, WAN, ABP, MOF, TSE, GFF, PPT, TEN, GPT and BLD, do not have significant margin recovery in FY09. Stocks with not excessive EBITDA margin forecasts that may surprise given the current favourable industry dynamics are: ⇒ WPL, OSH, LGL, WOR, BLY, LEI, OXR, WOW, UGL, ASX and COH. Stocks with optimistic (read large) margin expansion forecasts that are significantly contributing to both FY08 and FY09 EPSg and so we believe have significant downgrade risks are: ⇒ SEV, VPG, CWN, ORI, BEN, FXJ, CCL, CRG, BOQ, LLC, FGL, OST, AMC. While CMJ and AIO do not have meaningful numbers for FY08, their FY09 EPSg forecasts appear optimistic. ⇒ TLS is not flagged in FY08 as a major risk (39% of EPSg coming from margins), however margin expansion in FY09 is forecast to contribute 9.4ppt to EPSg of just 3.4%. Compare this to SGT which is forecast for margin contraction in FY08 and 7.7ppts contribution to FY09 EPSg of 6.3%. We therefore see relative downside risk to TLS versus SGT. ⇒ Also from the above analysis, WBC and CBA’s EPSg appear to be relatively ‘less risky’ than the other bank majors; ANZ, NAB and the small regionals which are all forecasting large contributions from EBIT margin expansion in FY09. 24 July 2008 16

Macquarie Research Macquarie 24 July 2008 EPSg decomposition analysis – Contribution (ppt) of key P&L components (EBITDA margins, interest tax & dilution) to FY07–09 EPSg forecasts Fig 16: All stocks with EBITDA margins are forecast to contribute more than 50% of FY08 EPS growth (ranked by FY08 EPSg) Company name 1 Year EPS Growth Sales revenue EBITDA margin % of EPSg accounted for Net interest Dilution by EBITDA margins 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 1 FLX Felix Resources -44.0 457.9 323.7 32.3 589.1 174.0 -144.9 2147.5 74.6 -330% 469% 23% -9.7 20.2 6.5 -0.9 4.1 0.1 2 IPL Incitec Pivot Limited 171.2 190.5 23.6 49.5 113.0 67.6 124.5 141.3 -27.3 73% 74% -116% -14.6 -8.3 -9.1 18.8 -19.7 -9.5 178.3 199.4 112% 3 DOW Downer EDI nmf 11.7 56.3 17.9 19.6 385.4 -7.8 nmf -66% -17.9 -13.1 4.6 0.9 -5.4 -1.3 Equities - 4 NCM Newcrest 48.7 159.5 24.5 57.1 106.8 13.5 21.2 126.6 7.1 44% 79% 29% -5.8 17.8 4.7 0.3 -41.5 0.0 5 PMM Portman -16.2 135.6 42.3 10.2 69.0 15.6 -33.1 76.9 17.8 -204% 57% 42% 3.4 0.9 4.0 0.0 -3.4 0.0 6 QAN Qantas 13.0 54.0 -52.4 26.3 17.4 11.0 1.3 41.8 -54.9 10% 77% -105% 4.3 -0.2 -3.9 -3.4 1.2 2.1 7 GCL Gloucester Coal -55.6 53.0 398.4 -1.0 -9.8 222.0 -43.4 67.9 176.7 78% 128% 44% 0.8 1.4 7.6 -0.8 -7.5 0.0

8 CPU Computershare Ltd 63.7 45.1 1.1 101.5 -0.4 5.8 -34.5 26.1 -0.4 -54% 58% -35% 2.0 -2.8 -4.1 0.6 5.9 1.3 Report 9 PDN Paladin Energy nmf 40.4 nmf -1211.6 61.3 1303.2 169.7 nmf 3223% nmf -30.3 -45.2 15.2 0.2 10 CEY Centennial Coal 99.7 37.6 200.4 132.6 -79.8 27.5 131.6 103.2 157.9 132% 275% 79% -18.5 61.4 18.7 -5.9 -4.5 -1.9 11 CSL CSL 49.2 33.5 25.3 16.1 10.4 14.9 38.8 23.5 8.3 79% 70% 33% 0.8 -0.8 1.0 -0.4 -0.6 0.0 12 SEV Seven Network 43.8 24.3 -0.7 -46.3 -1623.7 -46.7 63.8 1506.8 50.0 146% 6207% 7264% 1.3 84.4 -12.1 -1.0 1.3 5.2 13 VPG Valad Property Group -1.5 19.3 -16.9 45.5 138.4 -8.5 -8.8 52.7 -15.6 -608% 273% 92% -5.8 -80.1 13.8 -26.9 -93.8 -4.3 14 CWN Crown nmf 18.4 7.3 3.5 3.8 14.3 15.7 nmf 78% 214% 14.7 -11.8 0.0 0.0 15 BXB Brambles 5.4 16.3 7.8 -56.5 9.3 15.3 34.6 13.4 -3.5 640% 82% -45% 5.6 -8.8 -1.2 11.5 10.7 0.7 16 DJS David Jones 32.6 12.8 4.4 12.6 11.5 4.7 40.0 11.2 -2.0 123% 87% -45% -15.4 -1.4 3.4 -2.1 -8.4 -1.5 17 ORI Orica 19.5 12.5 19.4 5.4 17.8 10.9 29.5 13.2 10.6 151% 106% 55% -5.8 -9.8 0.5 -3.1 -1.1 -1.1 18 BEN Bendigo and Adelaide Bank 13.3 11.9 14.1 13.4 42.0 26.5 7.1 13.4 12.0 53% 113% 85% -0.1 -0.3 -0.2 -1.7 -44.7 -22.8 19 FXJ Fairfax Media -5.2 11.8 6.7 16.6 56.7 9.9 2.9 15.8 2.9 56% 134% 43% -4.1 -16.8 -1.8 -14.4 -36.1 -0.5 20 BBG Billabong International 14.4 11.5 17.9 22.7 5.1 11.1 -11.0 14.3 6.0 -76% 124% 34% -4.6 -2.7 0.9 -0.2 -0.7 0.0 21 CCL Coca-Cola Amatil 12.8 11.4 10.1 1.7 -14.2 8.0 9.1 25.9 5.0 71% 228% 49% 1.1 1.4 0.1 -0.4 2.3 -0.3 22 GMG Goodman Group 15.5 10.9 5.2 -7.1 -21.2 4.5 48.2 36.3 -0.6 310% 333% -11% -6.5 -1.9 5.2 -13.6 -2.2 -1.0 23 CRG Crane Group Holdings 11.0 10.3 9.2 13.2 18.4 9.8 -13.9 6.7 8.0 -126% 65% 87% -6.3 -10.8 -2.7 -3.2 -6.8 -3.0 24 BOQ Bank of Queensland 17.5 9.1 7.8 19.6 18.7 9.9 0.2 6.9 11.8 1% 75% 152% 0.0 0.0 0.0 -5.9 -23.6 -12.4 25 LLC Lend Lease Corp 14.9 8.8 7.9 17.7 -2.0 -0.3 -23.9 33.0 12.5 -160% 376% 159% 12.9 -8.0 -5.2 -0.3 -0.3 0.0 26 FGL Foster's Group 13.1 5.5 -0.1 -12.4 -5.4 0.4 14.6 6.5 2.6 112% 117% 2352% 6.5 2.2 -0.4 -0.1 3.0 0.1 27 MND Monadelphous Group 101.7 3.5 8.8 94.8 -0.1 10.1 9.6 9.0 0.7 9% 259% 8% 5.6 -1.2 0.2 -1.1 -0.8 -1.0 28 NAB National Australia Bank 13.4 2.4 4.3 4.3 5.8 5.8 9.4 4.4 -0.7 70% 179% -15% 0.0 0.0 0.0 0.2 -0.5 -4.9 29 BKW Brickworks 0.3 1.2 8.3 14.8 -4.1 10.5 -14.2 12.2 -2.1 -4168% 1030% -25% -1.5 -4.4 3.6 0.1 0.0 0.0 30 IOF ING Office Fund 0.9 -0.2 0.6 1.9 -7.8 17.2 11.9 24.6 -3.4 1343% 12345% -602% -7.9 -8.6 -11.9 -9.9 -7.7 -1.3 31 TTS Tatts Group 6.8 -1.6 19.7 -2.8 32.6 9.7 70.9 5.8 6.9 1048% 459% 35% -4.0 -15.4 -2.4 -48.5 -14.1 0.0 32 MGR Mirvac Group 4.2 -2.0 -27.3 16.1 -2.2 -14.2 -2.8 9.6 9.8 -66% 585% 36% -0.5 2.5 0.3 -11.2 -8.0 -4.7 33 OST OneSteel 9.1 -2.1 80.0 12.5 83.5 40.2 3.2 12.2 36.9 35% 695% 46% 0.3 -29.9 0.0 -1.2 -42.8 -1.5 34 CER Centro Retail Group 4.5 -8.2 12.2 17.5 237.2 24.0 1.0 27.3 -0.3 22% 432% -2% -27.1 -65.0 9.7 -41.6 -114.0 -21.3 35 AMC Amcor -3.4 -8.8 6.0 -12.0 -27.9 -1.4 2.2 3.2 14.7 65% 136% 246% 6.1 5.5 -1.6 -1.3 2.5 3.2 36 FCL Futuris Corporation -2.7 -24.7 -9.5 -7.0 1.0 19.0 14.5 5.2 -14.6 536% 121% -154% -8.8 -17.1 -8.1 -8.0 -3.1 -8.4 37 WSA Western Areas NL -113.1 -36.6 nmf -1396.8 -175.1 80.8 1272.0 187.6 402.2 1124% 612% nmf 6.8 -49.6 -24.9 26.1 7.1 -3.7 38 FMG Fortescue Metals Group -55.2 -65.8 nmf 27.6 280.0 2753.5 -929.7 235.8 951.5 -1683% 458% nmf -1092.6 -568.2 -475.1 1652.6 -30.6 -350.6 39 CMJ Consolidated Media Holdings nmf nmf 14.9 20.9 0.0 51.9 12.1 nmf nmf 81% 4.6 2.7 0.0 0.0 40 AIO Asciano Group nmf nmf 151.2 15.7 180.1 nmf nmf 119% -28.6 0.0 ProfitOutlook 17

Macquarie Research Macquarie 24 July 2008 EPSg decomposition analysis – Contribution (ppt) of key P&L components (EBITDA margins, interest tax & dilution) to FY07-09 EPSg forecasts Fig 17: All stocks with EBITDA margins are forecast to contribute negatively to FY08 EPS growth (ranked by FY08 EPSg) Company name 1 Year EPS Growth Sales revenue EBITDA margin % of EPSg acccounted for Net interest Dilution by EBITDA Margins 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 1 BPT Beach Petroleum 33.8 86.0 94.6 418.9 40.4 36.5 46.4 -16.0 66.9 137% -19% 71% -130.2 54.6 10.8 -95.9 7.5 0.0 2 AWB AWB Ltd -0.2 57.6 -17.3 19.6 71.8 -1.8 22.5 -16.8 -13.3 13235% -29% 77% -15.5 -19.5 0.0 0.0 -0.6 -2.2

3 JBH JB Hi-Fi 54.7 57.4 18.0 51.3 57.9 31.4 13.8 -0.8 -5.4 25% -1% -30% -1.1 -3.0 -1.7 -1.2 -1.5 -0.8 Equities - 4 MAH Macmahon Holdings 6.1 40.3 22.7 25.7 62.2 40.0 9.1 -20.0 -18.6 149% -50% -82% -6.8 2.5 2.8 -15.1 -1.2 -1.4 5 STO Santos -30.1 37.1 -5.1 -19.7 37.0 -10.8 -10.3 -6.4 -4.1 34% -17% 81% -1.7 5.5 10.8 1.0 0.8 0.0 6 NUF Nufarm 1.1 22.3 21.2 10.2 68.4 20.9 -0.8 -6.0 10.6 -74% -27% 50% -3.4 -13.9 0.3 -1.1 -3.5 -4.9 7 PRY Primary Healthcare Ltd 6.1 21.7 2.7 18.4 158.8 147.9 -0.2 -40.2 -40.8 -3% -185% -1504% -6.5 -66.0 -30.3 -3.0 -41.6 -41.1 8 SGT SingTel 11.3 21.3 6.3 9.5 8.0 10.1 6.0 -1.0 7.7 53% -5% 122% -0.1 4.0 -2.5 3.1 2.6 -0.3 Report 9 BKN Bradken 43.1 15.0 11.5 29.1 30.6 21.7 21.8 -2.7 -3.8 51% -18% -33% -1.2 -7.5 -5.3 -1.8 0.0 0.0 10 RHC Ramsay Health Care Limited 18.8 13.5 17.7 13.6 54.7 46.8 5.4 -7.1 1.6 29% -53% 9% 7.5 -15.6 -15.2 -0.7 0.0 0.0 11 SHL Sonic Healthcare Ltd 12.6 12.1 14.6 20.4 34.2 13.0 -1.8 -10.7 8.7 -14% -88% 60% -4.0 -5.1 -0.3 -2.3 -10.0 -2.1 ProfitOutlook 12 ORG Origin Energy Ltd 8.3 12.0 12.8 20.6 34.3 2.1 11.8 -18.2 18.8 142% -152% 147% -10.4 -2.9 -1.3 -5.0 -5.5 -0.7 13 ABC Adelaide Brighton 11.5 9.1 12.7 17.4 19.3 8.7 -0.2 -2.3 4.3 -1% -25% 34% -4.9 -5.2 0.7 -0.1 -0.1 0.0 14 SGM Sims Group Limited 16.6 8.3 5.6 49.9 8.0 15.9 -11.8 -12.2 3.0 -71% -146% 53% -3.9 1.8 0.3 -11.0 -0.4 -0.1 15 HSP Healthscope Limited 29.8 8.3 15.3 43.3 22.2 11.4 7.8 -0.9 12.0 26% -11% 79% -7.1 -3.0 1.2 -7.3 -2.0 -0.9 16 HVN Harvey Norman 40.9 7.6 -3.6 3.7 18.8 16.5 28.7 -8.2 -19.2 70% -109% -529% -0.4 1.3 -0.3 -0.1 0.0 0.0 17 WBC Westpac Bank 13.3 6.9 3.1 11.4 9.0 8.1 3.5 -3.8 1.0 27% -55% 32% 0.0 0.0 0.0 -0.6 -1.7 -3.0 18 DXS Dexus Property Group 2.4 5.4 2.4 0.5 1.0 -0.3 -1.8 -2.0 -2.2 -76% -37% -91% -0.8 6.0 1.0 -3.5 -2.0 -0.2 19 SGP Stockland 6.1 5.2 3.2 23.5 9.1 8.0 4.1 -4.4 0.3 67% -84% 10% -16.6 3.1 -3.7 -4.1 -4.9 -0.7 20 SPN SP AusNet -6.5 4.3 2.9 10.3 10.8 28.8 -15.2 -0.4 8.1 -235% -10% 282% -0.4 -9.6 -27.0 0.0 0.0 0.0 21 AGK AGL Energy 15.9 4.1 7.9 12.0 33.3 -2.0 -57.5 -3.7 14.9 -362% -90% 189% 9.1 -12.9 -5.6 47.2 -3.4 0.0 22 CXP Corporate Express 10.0 4.0 4.1 6.1 5.3 5.4 2.4 -0.9 -0.3 24% -23% -8% -5.6 -1.6 -0.4 8.2 2.6 0.0 23 LNN Lion Nathan 3.9 3.9 8.4 9.7 10.3 7.2 -3.1 -8.0 18.3 -80% -208% 219% -2.5 -2.6 -2.9 0.1 0.0 0.0 24 CBA Commonwealth Bank 13.8 3.8 2.3 10.0 7.2 7.3 5.7 -5.6 -0.5 42% -147% -24% 0.0 0.2 0.0 -0.6 -1.9 -3.8 25 WAN West Australian News 19.5 3.2 0.9 16.5 7.3 3.3 -0.5 -5.8 -1.8 -3% -183% -210% -1.1 2.5 0.7 0.0 0.0 0.0 26 RMD Resmed 10.8 2.8 15.3 15.6 1.2 19.6 -3.3 -7.6 2.3 -31% -275% 15% 3.3 0.0 1.3 -1.8 -1.1 -0.1 27 WDC Westfield Group 0.8 2.7 5.8 -6.5 8.1 12.1 -2.1 -3.2 3.9 -258% -119% 67% 9.8 3.2 -10.3 -4.5 -5.7 -0.1 28 CPA Commonwealth Property Office -3.7 2.4 1.6 6.7 9.8 2.5 5.3 -0.8 -0.4 141% -36% -22% -13.7 -7.3 -0.6 -2.0 0.7 0.0 29 ALZ Australand Holdings 2.0 1.7 4.9 14.3 58.6 6.6 11.3 -43.4 2.0 580% -2517% 40% -20.9 -5.0 0.1 -3.2 -0.3 0.0 30 ABP Abacus Property Group 11.4 1.5 1.0 40.2 21.4 28.9 26.4 -5.4 -21.9 232% -374% -2193% -18.5 -6.9 -4.1 -30.5 -12.9 -1.9 31 GNS Gunns Ltd -17.9 1.0 28.7 5.5 60.8 18.7 -12.1 -8.6 8.0 67% -865% 28% -10.3 -25.0 0.0 -3.6 -13.2 0.0 32 TAH TABCorp Holdings -3.8 -0.3 8.8 0.7 3.6 4.6 -3.8 -1.4 2.5 -100% -526% 29% -0.9 0.2 0.2 0.0 0.0 0.0 33 MOF Macquarie Office Trust -0.8 -0.3 0.8 2.1 5.1 0.6 31.9 -12.1 -12.9 3996% -4185% -1689% -35.5 0.4 11.4 -5.2 -1.7 -0.5 34 TSE Transfield Services Limited 46.3 -0.7 12.4 53.5 34.9 23.9 38.5 -64.2 0.7 83% -9259% 6% -20.9 14.9 -3.6 -19.4 -3.3 0.0 35 APA APA Group -20.4 -1.0 -3.0 85.7 202.5 15.1 17.6 -56.8 3.5 86% -5460% 115% -72.3 -102.3 -18.5 -14.8 -25.2 -2.3 36 ALL Aristocrat Leisure 4.4 -2.2 20.4 5.1 5.0 17.7 -6.2 -0.4 8.4 -141% 19% 41% -1.1 -2.3 -3.2 0.3 0.9 0.3 37 KZL Kagara Ltd 100.8 -4.5 44.7 152.1 10.3 29.0 -29.9 -8.6 24.4 -30% -192% 55% -1.0 -1.7 -1.9 -6.0 -1.7 -1.0 38 WES Wesfarmers -24.5 -5.1 44.2 11.5 220.1 90.9 -29.3 -121.1 18.4 -119% -2392% 42% -2.0 -42.0 -0.1 -0.4 -37.5 -42.9 39 GFF Goodman Fielder 12.2 -5.4 4.5 3.0 10.7 9.1 3.6 -15.5 -2.2 30% -287% -48% 0.2 -2.3 -1.2 0.0 0.0 0.0 40 PPT Perpetual Ltd 18.0 -5.6 -3.8 17.1 6.9 -0.4 0.3 -10.8 -0.2 2% -192% 5% 0.7 -0.5 -0.5 -1.1 -0.9 -2.4 41 ANZ ANZ Bank 8.1 -7.4 6.9 9.9 10.8 5.8 0.5 -14.9 6.0 6% -201% 87% 0.0 0.0 0.0 -1.0 -3.8 -2.9 42 NXS Nexus Energy -68.8 -11.9 nmf -74.1 58.7 101.1 33.8 -89.8 69.8 49% -752% nmf 18.2 -13.8 31.9 67.4 147.8 0.2 43 SIP Sigma Pharmaceuticals Ltd 5.5 -12.1 12.2 33.1 12.6 20.6 23.9 -13.8 17.2 437% -115% 141% -7.7 -10.9 -27.9 -34.2 4.9 5.3 44 TEN Ten Network Holdings 12.9 -13.9 -15.5 28.1 4.7 -0.4 -48.5 -12.0 -13.4 -377% 87% 86% 26.1 40.3 -1.5 -1.0 -85.6 1.4 45 GPT GPT Group 6.9 -17.4 4.2 6.5 9.6 8.4 -17.6 -37.2 -1.5 -253% -213% -35% -5.9 -1.1 -4.0 -1.6 0.2 0.0 46 BLD Boral Limited -19.1 -21.3 3.5 4.2 4.2 11.9 -16.0 -18.6 -4.5 84% 87% -126% -2.4 -2.5 -3.2 -1.3 -0.4 1.4 47 CSR CSR -1.6 -21.9 -2.9 12.0 5.4 21.3 -12.4 -3.9 -2.8 -789% 18% 97% -1.9 -11.9 -8.5 2.2 -2.3 -8.5 48 CTX Caltex Australia 2.2 -22.0 -0.1 4.5 -5.1 -9.6 1.1 -15.5 13.0 50% 71% 17676% 1.1 0.1 0.9 0.0 0.0 0.0 49 JHX James Hardie Industries 6.9 -24.7 -30.2 4.1 -16.2 -22.7 5.9 -10.9 -11.2 86% 44% 37% -2.0 2.4 -3.5 -1.6 1.7 0.8 18

Macquarie Research Macquarie 24 July 2008

EPSg decomposition analysis – Contribution (ppt) of key P&L components (EBITDA margins, interest tax & dilution) to FY07-09 EPSg forecasts Fig 17: All stocks with EBITDA margins are forecast to contribute negatively to FY08 EPS growth (ranked by FY08 EPSg) (cont’d) Company name 1 Year EPS Growth Sales revenue EBITDA margin % of EPSg acccounted for Net interest Dilution by EBITDA Margins 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 50 CGF Challenger Financial Services 41.2 -27.0 17.5 24.5 16.6 14.7 16.7 -33.0 7.7 41% -122% 44% 0.6 -4.3 -1.9 -8.3 -7.1 -2.9 Equities - 51 MRE Minara Resources -19.6 -28.5 16.7 2.4 -4.3 -0.7 -12.3 -16.3 20.5 63% 57% 123% 3.7 -2.9 -0.3 0.0 0.1 0.0 52 AWC Alumina Limited -27.5 -34.5 87.2 -9.1 3.1 37.8 -13.4 -24.7 43.3 48% 71% 50% -2.1 -3.5 0.3 1.5 -0.4 -5.1 53 PPX PaperlinX Ltd 12.0 -40.0 80.1 16.9 -4.4 -0.1 19.7 -8.6 91.5 164% 21% 114% -6.4 11.8 -6.1 -0.4 -0.4 0.0

54 ABS ABC Learning Centres 15.2 -50.7 -65.4 315.6 51.1 -117.7 -207.7 -47.9 41.2 -1371% 94% 63% -41.8 -34.0 0.7 -34.5 -12.7 -0.7 Report 55 ILU Iluka Resources -57.0 -72.0 -62.3 -13.2 -27.0 175.6 -12.4 -20.1 2.2 22% 28% 4% -12.1 12.3 -42.1 -1.2 -18.7 -2.9

EPSg decomposition analysis – Contribution (ppt) of key P&L components (EBITDA margins, interest tax & dilution) to FY07-09 EPSg forecasts Fig 18: All stocks with EBITDA margins are forecast to contribute between 0 and 50% to FY08 EPS growth (ranked by FY08 EPSg) Company name 1 Year EPS Growth Sales revenue EBITDA margin % of EPSg acccounted for Net interest Dilution by EBITDA Margins 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 1 AWE Aust Worldwide Exploration nmf 666.4 -12.1 124.0 927.6 -23.7 633.1 266.6 2.0 nmf 40% 17% -86.2 6.6 4.2 -66.3 -3.6 -0.2 2 MGX Mount Gibson Iron -24.9 248.1 198.5 88.7 222.8 137.8 19.2 109.7 63.2 77% 44% 32% -21.7 2.4 -45.5 -43.9 0.0 3 MIN Mineral Resources nmf 128.6 34.2 118.3 43.7 59.8 1.1 nmf 47% 3% 0.0 -5.5 -2.1 -4.5 -0.8 4 WPL Woodside Petroleum -16.1 99.7 -18.7 6.2 79.5 -3.5 -9.1 32.7 -10.5 57% 33% 56% 0.8 -1.9 -0.1 -0.9 -4.1 -3.4 5 OSH Oil Search -32.2 78.6 4.8 0.2 13.0 1.1 -23.2 34.4 -2.0 72% 44% -42% -0.3 1.5 2.9 0.0 0.0 0.0 6 LGL Lihir Gold 37.5 55.8 81.8 47.7 37.6 70.7 28.1 7.8 23.7 75% 14% 29% 3.6 2.2 2.8 -26.3 -10.0 0.0 7 WOR WorleyParsons 52.8 38.6 26.3 51.4 49.5 19.9 15.6 12.2 2.9 30% 32% 11% -5.1 -5.4 0.0 -11.8 -9.2 -0.1 8 SEK Seek 52.9 38.6 19.9 48.3 37.5 23.8 16.1 4.1 5.6 30% 11% 28% -2.3 -2.7 -0.2 -1.6 1.0 -1.9 9 FLT Flight Centre Ltd 29.2 38.3 12.7 19.0 27.4 20.6 4.1 17.4 -0.5 14% 45% -4% 3.2 -0.1 1.4 0.0 -4.3 -1.8 10 BLY Boart Longyear nmf 36.5 10.4 13.3 14.8 14.8 3.7 nmf 40% 36% 2.3 0.1 -0.1 0.0 11 TPI Transpacific Industries Group 98.0 34.3 16.2 176.3 130.3 15.0 102.0 15.7 14.9 104% 46% 92% -101.5 -51.3 -1.4 -35.5 -25.9 0.1 12 LEI Leighton Holdings 62.5 33.6 18.9 43.2 41.9 26.0 4.4 12.7 3.8 7% 38% 20% 3.3 -14.6 -2.4 0.0 0.0 0.0 13 OXR Oxiana -46.7 32.3 105.4 -26.5 27.9 113.9 -0.1 12.2 8.0 0% 38% 8% 1.0 -1.3 2.6 -6.7 1.1 0.0 14 ANN Ansell Limited -8.7 27.3 26.6 12.2 4.9 19.6 -20.4 0.8 6.1 -234% 3% 23% -2.3 -0.1 2.3 6.0 6.5 1.7 15 NWS News Corporation 19.2 21.0 13.9 11.7 -3.5 -0.2 1.8 4.4 2.2 9% 21% 16% 0.9 -0.7 -1.0 2.6 10.0 9.3 16 WOW Woolworths 20.2 20.7 6.8 19.4 14.4 8.2 11.7 7.7 -0.4 58% 37% -7% 1.1 2.1 -0.9 -7.3 -2.7 2.0 17 UGL United Group Limited 7.2 18.4 19.6 18.7 40.3 16.5 9.5 7.3 0.7 132% 39% 3% -8.0 -4.8 -0.7 -11.7 -17.0 -1.4 18 CAB Cabcharge Australia 32.6 17.5 16.1 -413.2 16.6 10.3 446.8 6.4 7.4 1369% 36% 46% -3.5 -2.8 1.7 -3.2 -3.4 0.0 19 IRE IRESS Market Technology 33.5 16.9 10.6 40.2 19.6 7.6 -4.8 3.1 5.0 -14% 18% 47% -1.1 -0.4 0.0 -5.2 -1.6 0.0 20 TLS Telstra Corporation -12.9 15.7 3.4 7.8 9.1 3.4 -10.7 6.1 9.4 83% 39% 278% -2.9 -1.0 -3.0 0.0 0.0 0.0 21 ERA Energy Resources of Australia 75.3 15.4 130.5 28.7 21.6 86.9 58.2 6.1 46.6 77% 39% 36% -5.2 -0.3 2.2 0.6 -0.5 0.0 22 ASX ASX Ltd 42.7 14.0 8.1 68.4 11.7 8.3 27.3 3.9 1.3 64% 28% 16% 10.3 3.5 0.7 -61.6 -4.0 -0.1 23 COH Cochlear 30.1 12.4 15.2 29.3 8.2 20.0 11.1 3.7 -1.3 37% 30% -8% -6.3 4.2 -1.5 -2.6 0.3 0.2 24 PBG Pacific Brands 4.8 10.5 -5.3 16.8 26.5 0.7 0.6 1.3 3.1 12% 12% 58% -8.0 -13.7 0.5 0.1 0.1 0.0 ProfitOutlook 25 MTS Metcash Ltd 9.2 7.8 6.0 26.5 6.2 6.5 6.1 3.3 0.6 66% 42% 10% 6.3 2.4 -0.3 -24.6 -1.6 -0.2 26 IIF ING Industrial Fund 10.3 7.7 3.7 35.4 20.6 4.5 7.8 1.7 -1.9 76% 23% -53% -12.1 -3.8 1.5 -20.3 -11.5 -0.3 27 APN APN News and Media Ltd 5.7 6.9 3.2 1.7 7.1 3.3 3.8 3.2 2.2 66% 46% 69% 1.1 -3.4 -0.7 3.5 4.3 0.0 28 SGB St George Bank 12.7 6.5 2.1 11.1 9.0 9.2 1.5 0.2 -0.5 11% 3% -23% -0.1 -0.3 -0.1 -0.4 -4.9 -4.2 29 CFX CFS Retail Property Trust 5.5 2.8 5.5 13.6 12.7 7.6 -1.4 0.6 0.2 -25% 21% 4% -5.6 -3.7 -1.4 -2.1 -6.7 -0.9 30 MCW Macquarie Countrywide Trust -2.9 2.0 -1.2 4.6 16.4 0.8 4.9 1.0 -2.4 170% 49% -203% -6.4 -9.9 3.0 -4.5 -6.3 -2.5 Source: Macquarie Research, July 2008 19

Macquarie Research Equities - Report Profit Outlook

As set out in the analysis that follows (refer Fig 19 - Fig 22), our Trend Analyser, which decomposes EPSg into its contributing parts shows the progression of the forecasts over the 12 months leading to the actual result in 2007, while the analysis for 2008 and 2009 shows the progression of the forecasts for both years to date. Fig 19: Trend Analyser - industrials

ppt contribution Forecast Comparison Industrials to EPS growth 25 Industrial EPSg 20 forecast has 15 downside risk given margin expansion in 10

FY08 and revenue 5 growth in FY09 appear particularly 0 optimistic -5

-10

-15 12M 6M 3M 2007A 12M 6M 3M 2008E 12M 6M 3M 2009E Sales revenue EBITDA margin Net interest Depn/amortisation Tax rate Net Assoc & Minority Other Dilution EPS growth normalised Source: Macquarie Research, July 2008 While FY08 EPSg forecasts have been downgraded, these have been manifest entirely through lower revenue growth. Margins, on the other hand, have actually been upgraded over the last 6 months! The EPSg downgrades for FY09 are now accelerating as the focus shifts from FY08 to FY09, and unlike the resources sector, the industrial sector does not have the opportunity to offset higher costs with higher prices in FY09 EPSg, and so margin pressures we believe are far higher than most companies and analysts currently expect. Fig 20: Trend Analyser – resources

ppt contribution Forecast Comparison Resources to EPS growth 80

Ongoing upgrades 60 seen for Resources – Trend Analyser 40 shows the next phase in the 20 ‘stronger for longer’ commodity price 0 cycle

-20

-40 12M 6M 3M 2007A 12M 6M 3M 2008E 12M 6M 3M 2009E Sales revenue EBITDA margin Net interest Depn/amortisation Tax rate Net Assoc & Minority Other Dilution EPS growth normalised Source: Macquarie Research, July 2008 The resources sector’s FY09 EPSg rate stands currently at +66.1%, a significant upgrade on barely positive forecasts of a year ago. While all manner of cost pressures remain a risk for EPSg in the longer term, with commodity prices still ranging above our forecasts, near term earnings risks remain to the upside. What is also significant is the combined contribution from revenue growth and margin expansion. We note however that revenue growth continues to be upgraded not only in FY09, but the revenue contribution to EPSg in FY08 has been upgraded as well.

24 July 2008 20 Macquarie Research Equities - Report Profit Outlook

Fig 21: Trend Analyser – property trusts

ppt contribution Forecast Comparison Property Trusts to EPS growth 25

FY08 EPSg forecast 20 for the sector has 15 approached zero 10 with equity raisings 5 and lower margin expectations the 0 main drivers -5 -10

-15 FY09 EPSg now -20 forecast to be 12M 6M 3M 2007A 12M 6M 3M 2008E 12M 6M 3M 2009E negative, with Sales revenue EBITDA margin Net interest Depn/amortisation Tax rate Net Assoc & Minority significant Other Dilution EPS growth normalised downside risk due Source: Macquarie Research, July 2008 to interest costs and further dilution The EPSg (and DPSg for that matter) revision trend is heavily negative and we note the FY09 EPSg forecasts are already negative. Leverage in a sector with a near 100% dividend payout ratio is nearing a dangerous 2x and in the current credit environment is unsustainable. We therefore believe there are significant risks to FY09 EPSg forecasts due to the likely outcome of higher than expected interest expense and further equity raisings. Fig 22: Trend Analyser – banks

ppt contribution Forecast Comparison Banking to EPS growth 30 The downgrades to bank EPSg 20 forecasts were initially drive by the 10 rising B&DD debt but are now being 0 driven by slowing

credit growth -10

-20

-30 12M 6M 3M 2007A 12M 6M 3M 2008E 12M 6M 3M 2009E Int earning assets Interest margin Non interest income Operating costs Bad/doubtful debts Tax rate Net Assoc & Minority Other Dilution EPS growth normalised Source: Macquarie Research, July 2008 The bank sector EPSg is now clearly showing a cyclical slowdown with bad & doubtful debts rising, and credit growth slowing while interest margins under pressure of the credit crunch remains an ongoing drag on EPSg. The FY08 (pro-rated to September) EPSg for banks currently stands at just +1.2%, and FY09 at +1.5%. While the sector has already been heavily downgraded, we believe there remains risk to both the B&DD charge (currently a -2ppt drag on FY09 EPSg), and credit growth (currently +12.8ppt positive to EPSg) to detract from the current FY09 EPSg forecasts. With the domestic consumer slowing rapidly under the twin pressures of inflation and interest rates, it is likely that lending growth will continue to slow to mid single digit levels, the slowest growth since the early 1990s.

24 July 2008 21 Macquarie Research Equities - Report Profit Outlook

All-important cash profit growth For some time, we have been focusing on the transparency offered by the analysis of cash profit, which we have defined as operating cashflow (refer to footnote below for definition) in a post-AIFRS world. In this reporting season, it will again be important to identify any divergence between EPSg (on either an adjusted or reported basis) and cash profit growth. Change in working capital will again be the key to cash profit growth and, importantly, to cash conversion rates, especially for industrial stocks. This will be particularly important for the relative performance of individual stocks. Strong performance in these metrics signals market pricing power in addition to the prospect of DPSg above that of EPSg. Fig 23: Operating cashflow growth 12-month aggregate vs pcp (%) for all companies

Data prorated to June 12 month data All companies (Ex financials) FY05 (A) FY06 (A) FY07 (A) FY08 (E) EBITDA growth 21.6 27.2 12.3 7.6 Maintenance capex growth 5.1 11.6 9.6 10.6 Net interest expense growth 15.4 29.4 13.5 29.8 Tax paid growth 23.2 44.5 3.3 35.5 % change in Working Capital -99.0 -501.0 -0.1 -845.4 Operating cashflow growth 25.9 18.6 19.3 5.0 Operating cashflow per share growth 26.4 18.1 19.7 5.7 Dividends paid growth 13.6 24.7 4.5 8.4 Cash payout ratio 45.9 55.2 48.3 49.6

Industrials* (Market ex resources, financials, LPTs) FY05 (A) FY06 (A) FY07 (A) FY08 (E) EBITDA growth 12.0 9.2 5.8 5.8 Maintenance capex growth 4.8 7.1 5.4 4.2 Net interest expense growth 9.6 25.2 15.5 28.2 Tax paid growth 23.2 13.6 -13.7 21.1 % change in Working Capital -96.3 -270.2 -134.7 87.4 Operating cashflow growth 3.7 6.7 -3.1 12.7 Operating cashflow per share growth 2.3 6.6 -3.2 13.0 Dividends paid growth 14.1 24.4 5.1 9.5 Cash payout ratio 54.3 64.5 69.2 67.7

Resources* FY05 (A) FY06 (A) FY07 (A) FY08 (E) EBITDA growth 41.5 32.7 22.8 26.3 Maintenance capex growth 5.7 18.8 15.5 19.0 Net interest expense growth 40.6 1.4 4.2 76.8 Tax paid growth 22.9 96.1 19.8 45.2 % change in Working Capital -146.2 -3536.4 81.6 600.0 Operating cashflow growth 72.7 31.7 40.9 -4.1 Operating cashflow per share growth 78.2 32.9 42.6 -1.7 Dividends paid growth 8.0 51.8 0.1 8.6 Cash payout ratio 27.8 31.7 22.7 25.6

LPTs FY05 (A) FY06 (A) FY07 (A) FY08 (E) EBITDA growth 13.1 117.6 6.4 -40.7 Maintenance capex growth 1.7 228.0 140.3 44.7 Net interest expense growth 7.0 66.8 14.7 9.1 Tax paid growth 37.3 14.8 -6.4 19.5 % change in Working Capital 597.2 176.5 -131.8 -822.4 Operating cashflow growth -5.4 32.4 12.3 33.9 Operating cashflow per share growth -17.0 18.4 8.6 24.2 Dividends paid growth 27.3 1.5 8.9 5.6 Cash payout ratio 160.0 128.8 123.2 99.7 Source: Macquarie Research, July 2008 Note: Operating cashflow is defined as EBITDA - cash interest expense - cash tax expense - maintenance capex - net change in working capital.

24 July 2008 22 Macquarie Research Equities - Report Profit Outlook

The cashflow performance of the Australian market over FY04–07 has been exceptional. In most of these years “cash” profit growth has exceeded that of profit growth as reported through the P&L statements. The key driver of this additional cash profit performance has been the strong performance of many Australian companies in the area of working capital. This was not a feature in FY07 but FY08 forecasts are again factoring a strong working capital position and we will be focusing on how the results fare in this regard. Fig 24: Six-month forecast growth for all companies with Jun/Dec year end (%) 6 month data pro-rated to June 6 month data prorated to Decemebr All Companies Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) EBITDA growth 12.2 14.9 22.8 5.9 26.0 17.0 Maintenance capex growth 10.5 41.1 -11.2 6.7 13.4 8.2 Net interest expense growth -4.2 59.5 26.8 15.0 24.3 -11.1 Tax paid growth 7.5 16.3 7.9 2.1 52.3 19.7 % change in Working Capital 76.2 -1242.9 60.5 -83.2 -141.0 -219.4 Operating cashflow growth 17.6 19.5 18.4 7.1 39.8 17.6 Operating cashflow per share 18.0 17.7 16.9 11.1 37.6 16.7 Dividends paid growth 17.4 12.8 10.7 2.2 12.3 10.7 Cash payout ratio 9.5 8.8 8.3 50.0 39.9 37.6

Industrials Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) (Market ex resources, banks, LPTs, life insurance) EBITDA growth 7.4 10.9 11.3 8.0 12.1 11.6 Maintenance capex growth 22.3 39.1 -1.9 14.0 28.2 26.7 Net interest expense growth -11.9 30.8 17.2 3.7 -2.4 12.3 Tax paid growth 3.4 9.9 5.6 9.9 9.0 8.8 % change in Working Capital -57.9 134.7 -294.9 -63.6 233.8 -157.2 Operating cashflow growth 8.3 17.8 -0.2 -20.1 40.2 48.6 Operating cashflow per share 7.8 14.7 -1.3 -23.2 36.3 45.3 Dividends paid growth 19.0 15.3 9.8 16.2 21.4 11.3 Cash payout ratio 17.2 17.5 19.2 25.0 22.5 17.6

Resources Jun 07 (A) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) EBITDA growth 14.4 54.3 34.3 32.9 5.7 77.7 Maintenance capex growth -0.5 92.9 -61.6 15.1 60.0 -25.3 Net interest expense growth 2.1 79.4 31.5 43.7 22.4 75.5 Tax paid growth 13.2 24.8 10.6 19.1 18.1 13.5 % change in Working Capital 118.3 -283.5 89.9 159.5 -56.0 97.4 Operating cashflow growth 23.0 20.9 38.9 68.1 -25.5 108.4 Operating cashflow per share 25.3 21.3 37.0 70.0 -23.2 104.1 Dividends paid growth 14.2 12.0 23.1 49.7 -14.9 36.4 Cash payout ratio 3.2 2.3 2.1 3.1 3.4 2.0

LPTs Jun 07 (E) Jun 08 (E) Jun 09 (E) Dec 06 (A) Dec 07 (A) Dec 08 (E) EBITDA growth 20.6 -58.8 5.1 -9.4 -8.1 -17.9 Maintenance capex growth -5.2 17.0 8.8 46.4 2.9 -1.4 Net interest expense growth -21.5 -17.5 2.2 20.8 61.2 -40.4 Tax paid growth 166.6 9.7 7.9 103.1 109.8 8.3 % change in Working Capital 133.5 886.0 100.5 223.0 78.5 289.3 Operating cashflow growth 37.2 18.9 -12.8 -15.0 60.0 -8.0 Operating cashflow per share 32.6 11.4 -13.1 -18.7 47.5 -11.0 Dividends paid growth 10.8 -8.0 -2.4 9.9 -5.3 -5.7 Cash payout ratio 8.4 6.9 7.7 14.5 8.6 8.9

Source: Macquarie Research, January 2008

OpCFPSg (+13.0%) for industrials is again forecast to exceed EPSg (+0.4%) in FY08; however, we believe this outcome is premised on an optimistic forecast for margins. Clearly with earnings under pressure and investors coming to the view that ‘manufactured yields’ are no longer sustainable in the current environment, sustainability of dividends and payout ratios will be paramount this reporting season. To assess the stocks most at risk we have listed the free-to-invest cash payout ratio and earnings payout ratio in the table that follows. We highlight the following industrial stocks as having cash payout ratios that exceed 75% (as defined by cash dividends paid / free-to-invest cashflow, adding back dividends paid) and which are reliant on margin expansion in FY08: ⇒ CWN, FCL, FGL, SEV, CCL, DJS and BXB. LPTs that are forecast to have excessive cash payout ratios are: ⇒ CPA, SGP, GPT, DXS, MOF, WDC, IIF, ALZ and MCW. 24 July 2008 23 Macquarie Research Equities - Report Profit Outlook

Dividends and payout ratios – sustainability the key Fig 25: Cash dividend payout ratio vs earnings-based payout ratio Free to Invest Cash Earnings Payout Ratio Payout Ratio Payout Ratio Differential Dividends Paid/(Free to DPS/EPS (%) Cash payout ratio Invest Cash Flow + - payout ratio (ppts) Dividends Paid) (%) Code Company Name 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 1 AMC Amcor 213 -1105 85 76 84 79 137 -1189 6 2 WPL Woodside Petroleum 66 -292 -146 59 60 60 7 -352 -206 3 SIP Sigma Pharmaceuticals Ltd 58 -102 69 80 73 69 -22 -175 0 4 MCQ Macquarie Capital Alliance Group -916 -76 0 0 0 0 -916 -76 0 5 CWN Crown 0 -22 81 0 96 100 0 -118 -19 6 FCL Futuris Corporation 143 -14 21 75 99 104 69 -113 -83 7 CEY Centennial Coal -84 -5 30 64 61 14 -148 -66 16 8 FGL Foster's Group 132 1282 53 69 73 81 64 1210 -28 9 ANN Ansell Limited 18 364 41 45 41 36 -27 323 5 10 SEV Seven Network 61 363 85 56 60 60 5 302 25 11 TSE Transfield Services Limited 15 294 88 57 67 66 -43 227 22 12 FKP FKP Property Group 27 172 74 52 57 53 -25 115 21 13 CPA Commonwealth Property Office 1583 171 176 110 100 98 1473 72 78 14 PPT Perpetual Ltd 103 167 77 102 100 100 1 67 -23 15 SKI Spark Infrastructure Group 136 166 181 320 445 681 -184 -278 -499 16 CPU Computershare Ltd 33 149 32 36 34 35 -2 114 -3 17 MAP Macquarie Airports 13 146 237 132 131 137 -119 15 100 18 ALL Aristocrat Leisure 142 145 120 74 70 70 68 76 50 19 CCL Coca-Cola Amatil 64 143 76 73 75 76 -9 68 0 20 SPN SP AusNet 96 138 104 146 144 143 -50 -6 -39 21 TLS Telstra Corporation 186 132 85 107 93 87 79 39 -2 22 SGP Stockland 44 129 162 101 100 99 -57 29 63 23 FLX Felix Resources 136 128 -2454 80 23 20 56 105 -2474 24 MRE Minara Resources 128 125 12 69 57 61 59 67 -49 25 APA APA Group 450 123 161 172 182 197 279 -59 -36 26 GPT GPT Group 60 116 112 98 99 100 -38 17 13 27 DXS Dexus Property Group 116 114 107 100 100 100 17 14 7 28 LLC Lend Lease Corp 76 106 77 74 70 66 2 36 11 29 MOF Macquarie Office Trust 71 101 126 100 100 99 -28 1 26 30 BKN Bradken 61 100 83 68 61 59 -7 39 24 31 WDC Westfield Group 39 100 106 106 103 103 -66 -3 3 32 COH Cochlear 98 96 76 66 72 70 32 24 6 33 GFF Goodman Fielder 79 96 89 82 80 80 -3 16 9 34 HVN Harvey Norman 76 94 66 36 43 44 40 51 22 35 GWT GWA International 750 92 98 100 103 103 650 -11 -5 36 TTS Tatts Group 68 91 83 85 93 95 -17 -2 -12 37 APN APN News and Media Ltd 134 88 69 92 91 91 42 -3 -22 38 SGT SingTel 368 87 93 103 52 50 265 35 43 39 MND Monadelphous Group 42 87 87 93 92 90 -51 -5 -3 40 IIF ING Industrial Fund 14 87 88 100 100 97 -86 -13 -8 41 ASX ASX Ltd 97 85 87 86 90 90 11 -5 -3 42 ALZ Australand Holdings 32 85 104 96 100 100 -65 -15 4 43 MCW Macquarie Countrywide Trust 59 83 87 104 98 95 -45 -15 -8 44 LNN Lion Nathan 108 82 74 80 80 80 28 2 -5 45 DJS David Jones 34 82 39 89 90 91 -55 -8 -51 46 LEI Leighton Holdings 35 80 61 68 67 70 -33 13 -9 47 TAH TABCorp Holdings 90 79 90 96 97 90 -6 -18 -1 48 WAN West Australian News 131 78 89 99 87 97 31 -9 -8 49 BXB Brambles -35 78 59 35 68 72 -70 9 -13 50 BLD Boral Limited 42 75 64 68 86 84 -26 -11 -20 51 MTS Metcash Ltd 68 75 77 73 84 85 -5 -9 -8 52 SEK Seek 54 75 77 71 70 70 -17 5 7 53 IRE IRESS Market Technology 29 74 78 77 79 79 -49 -4 -1 54 QAN Qantas 25 74 31 79 61 140 -54 13 -109 55 ABC Adelaide Brighton 114 71 85 71 70 75 43 1 10 56 CXP Corporate Express -161 69 65 65 65 65 -226 5 0 57 PBG Pacific Brands 67 67 71 78 76 80 -11 -9 -9 58 GNS Gunns Ltd 162 67 28 66 74 62 96 -7 -34 59 WOR WorleyParsons 16 66 63 58 60 55 -41 6 9 60 CMJ Consolidated Media Holdings 0 66 858 0 108 90 0 -42 768 61 BBG Billabong International 148 63 61 63 60 51 85 3 10 62 WOW Woolworths 45 58 60 69 70 71 -24 -11 -11 63 MIN Mineral Resources 11 57 53 57 51 50 -45 6 3 64 GMG Goodman Group 37 56 99 103 100 98 -65 -44 1 65 AWC Alumina Limited 302 54 42 68 135 91 234 -81 -50 66 MCG Macquarie Communications Infrastructure Group 20 54 59 125 135 124 -106 -81 -64 67 AGK AGL Energy 2 50 52 46 64 60 -44 -14 -8 68 IOF ING Office Fund 41 50 107 107 100 100 -66 -50 8 69 MGR Mirvac Group 52 49 104 97 102 98 -44 -53 6 70 FXJ Fairfax Media 64 48 65 86 85 80 -22 -36 -15 71 ABP Abacus Property Group 52 46 93 87 92 96 -35 -47 -3 72 NUF Nufarm 22 46 69 48 44 36 -27 2 33 73 BSL BlueScope Steel 29 45 67 49 58 69 -20 -13 -2 74 CFX CFS Retail Property Trust 79 45 107 103 103 103 -24 -58 4 24 July 2008 24 Macquarie Research Equities - Report Profit Outlook

Fig 25: Cash dividend payout ratio vs earnings-based payout ratio (cont’d) Free to Invest Cash Earnings Payout Ratio Payout Ratio Payout Ratio Differential Dividends Paid/(Free to DPS/EPS (%) Cash payout ratio Invest Cash Flow + - payout ratio (ppts) Dividends Paid) (%) Code Company Name 2007A 2008E 2009E 2007A 2008E 2009E 2007A 2008E 2009E 75 JHX James Hardie Industries 50 45 2360 40 54 89 9 -9 2271 76 SGM Sims Group Limited 43 44 58 59 64 61 -16 -20 -3 77 RHC Ramsay Health Care Limited 54 44 43 53 53 53 1 -10 -11 78 JBH JB Hi-Fi 17 41 46 29 39 39 -12 2 7 79 CER Centro Retail Group N/A 41 100 100 0 100 N/A 41 0 80 TEN Ten Network Holdings 113 40 50 100 121 100 13 -81 -50 81 CRG Crane Group Holdings 41 39 61 73 73 71 -32 -34 -10 82 TOL Toll Holdings -87 38 37 352 42 43 -439 -4 -6 83 MAH Macmahon Holdings 23 37 44 48 51 55 -25 -14 -11 84 DOW Downer EDI -2474 36 42 120 53 50 -2594 -17 -8 85 BKW Brickworks 216 36 31 49 52 52 166 -16 -21 86 ERA Energy Resources of Australia 50 35 35 50 47 74 0 -12 -39 87 BLY Boart Longyear 0 35 33 14 35 35 -14 1 -2 88 ORI Orica 129 35 52 59 56 56 70 -21 -4 89 CAB Cabcharge Australia 130 35 69 67 70 70 63 -35 -1 90 ORG Origin Energy Ltd 17 35 29 47 48 46 -30 -13 -18 91 OST OneSteel 65 33 41 52 62 60 13 -29 -19 92 TPI Transpacific Industries Group 4 33 36 26 30 30 -22 2 6 93 FLT Flight Centre Ltd 25 33 55 42 60 62 -17 -28 -6 94 CSL CSL 44 32 37 36 34 32 7 -2 6 95 PPX PaperlinX Ltd 10 32 21 67 59 71 -57 -28 -50 96 STO Santos 35 27 23 52 33 36 -18 -6 -12 97 GCL Gloucester Coal 20 24 351 62 50 40 -42 -26 311 98 UGL United Group Limited 43 23 82 72 68 62 -29 -45 20 99 VBA Virgin Blue 6 23 0 18 38 0 -12 -15 0 100 CTX Caltex Australia 68 23 50 49 49 49 19 -26 1 101 CSR CSR 70 22 46 56 71 81 15 -50 -35 102 SHL Sonic Healthcare Ltd 86 22 63 67 67 65 18 -45 -2 103 HSP Healthscope Limited 31 21 64 60 63 63 -29 -42 1 104 SRL Straits Resources 5 21 282 -40 30 30 45 -9 252 105 OXR Oxiana 28 19 11 40 30 18 -11 -11 -7 106 WES Wesfarmers 96 18 41 107 96 78 -11 -78 -37 107 OSH Oil Search 29 17 17 64 28 28 -35 -12 -11 108 BVA Bravura Solutions 11 13 27 32 29 38 -21 -17 -11 109 MCC Macarthur Coal 191 12 33 59 72 50 132 -60 -17 110 BPT Beach Petroleum 7 10 9 37 20 11 -30 -9 -2 111 VPG Valad Property Group 27 10 112 117 100 84 -90 -91 28 112 IPL Incitec Pivot Limited 34 9 57 65 60 60 -31 -51 -3 113 NWS News Corporation 19 7 6 10 8 7 10 -2 -1 114 PRY Primary Healthcare Ltd 72 4 55 108 76 77 -37 -72 -22 115 NCM Newcrest 7 1 4 9 4 3 -2 -3 1 116 FMG Fortescue Metals Group 0 0 11 0 0 36 0 0 -25 117 LGL Lihir Gold 0 0 0 0 0 0 0 0 0 118 PDN Paladin Energy 0 0 0 0 0 0 0 0 0 119 PMM Portman 0 0 0 0 0 0 0 0 0 120 RMD Resmed 0 0 0 0 0 0 0 0 0 121 MGX Mount Gibson Iron 0 0 0 0 0 0 0 0 0 122 SGX Sino Gold Mining 0 0 0 0 0 0 0 0 0 123 ILU Iluka Resources 15 0 0 46 0 0 -32 0 0 124 WSA Western Areas NL 0 0 7 0 0 47 0 0 -40 125 AWB AWB Ltd -23 0 0 48 30 37 -71 -30 -37 126 NXS Nexus Energy 0 0 0 0 0 0 0 0 0 127 AWE Aust Worldwide Exploration 0 0 0 0 0 0 0 0 0 128 ARQ ARC Energy 0 0 0 0 0 0 0 0 0

1 TEL Telecom NZ 61 -96 140 74 72 74 -13 -168 66 2 GPG Guinness Peat Group 5 -46 63 9 19 18 -4 -66 45 3 WHS The Warehouse Group 50 175 73 54 83 74 -4 92 -1 4 FPH Fisher & Paykel Healthcare 165 119 206 107 167 127 58 -47 80 5 NZR New Zealand Refining Company 93 117 61 98 74 77 -5 43 -16 6 APT AMP NZ Office Trust 24 114 127 81 99 106 -57 15 21 7 KIP Kiwi Income Property Trust 85 109 121 100 105 109 -16 4 12 8 POT Port of Tauranga 81 99 66 113 75 71 -32 24 -5 9 TPW TrustPower 71 93 88 85 90 89 -14 3 -1 10 VCT Vector 94 88 41 65 81 92 29 7 -51 11 FBU Fletcher Building 26 76 91 44 58 74 -18 17 18 12 SKC Sky City Entertainment Group 20 59 101 94 91 92 -75 -32 9 13 SKT Sky Network Television 41 53 41 50 55 49 -9 -2 -9 14 PGW PGG Wrightson 130 50 78 117 99 91 13 -49 -13 15 CEN Contact Energy Ltd 50 45 49 72 67 67 -22 -23 -18 16 IFT Infratil Limited 653 41 33 242 76 192 412 -35 -159 17 RYM Ryman Healthcare 105 18 22 48 34 77 57 -16 -55 18 GMT Goodman Property Trust 17 16 100 102 96 101 -85 -80 -1 19 AIR Air New Zealand Ltd 36 13 11 97 38 38 -61 -24 -26 Source: Macquarie Research, July, 2008

24 July 2008 25 Macquarie Research Equities - Report Profit Outlook

Market and sector growth & valuation table Pro-rated to June FY07A FY08E FY09E FY10E Current 1Yr fwd

EPS growth (%) Industrials FY09 All Companies 13.7 -0.3 27.2 11.4 26.4 EPSg has continued All Companies ex Resources 7.7 0.6 5.9 7.5 6.0 its downward trend, Resources 24.9 -1.6 66.1 15.9 63.6 now +11.0% down Banks 12.0 3.0 2.5 3.5 2.6 Property Trusts 3.1 0.2 -3.1 2.4 -2.9 from +14.2% at the Industrials (All Cos ex Res, LPTs, Banks) 5.7 -0.9 9.8 11.0 9.9 end of April S&P/ASX 100 13.8 -0.3 27.4 10.9 26.6 Small Companies 18.5 5.4 30.3 22.3 29.9 Small Resources 81.8 -10.5 149.9 44.1 144.7 Small Industrials 7.9 9.4 7.8 15.4 8.2 In contrast, resources FY09 DPS growth (%) EPSg forecasts All Companies 3.7 2.9 4.2 8.4 4.4 remain strong at All Companies ex Resources 2.7 3.6 1.9 7.7 2.3 Resources 8.5 -0.3 15.9 11.3 15.6 +66.1% Banks 11.2 7.3 3.9 4.7 3.9 Property Trusts 2.7 -5.6 -1.1 5.2 -0.7 Industrials (All Cos ex Res, LPTs, Banks) -1.9 4.1 1.6 10.2 2.2 ASX 100 2.2 4.5 3.8 8.4 4.1 Small Companies 22.4 -1.8 9.7 16.4 10.2 Small Resources 58.2 -39.8 59.5 87.1 61.3 Small Industrials 17.3 -8.9 6.5 9.7 6.7

OpCFPS growth (%) Strong OpCFPSg All Companies 19.4 18.9 5.4 38.4 14.7 All Companies ex Resources, Banks 9.2 -1.3 13.5 13.9 12.5 forecast in FY09 for Resources 32.9 42.6 -2.1 63.6 15.5 industrials, however Banks na na na na na by removing TLS Property Trusts 13.8 8.6 24.1 -10.2 3.0 from this analysis, Industrials (All Cos ex Res, LPTs, Banks) 8.1 -4.2 12.8 19.0 15.0 ASX 100 22.5 16.8 3.7 39.8 10.7 industrials’ Small Companies -12.0 40.3 30.7 28.6 18.2 OpCFPSg falls to Small Resources -26.5 363.9 -12.2 70.3 45.7 14% in FY09 Small Industrials -7.0 7.5 37.9 16.4 7.2

PER (x) All Companies 13.5 13.2 10.3 9.3 10.3 Improved valuations All Companies ex Resources 12.7 12.1 11.3 10.5 11.3 but PERs are Resources 14.8 15.2 9.2 8.0 9.1 understated based Banks 10.8 10.5 10.2 9.8 10.2 Property Trusts 10.3 9.7 10.0 9.8 10.0 on our top down Industrials (All Cos ex Res, LPTs, Banks) 14.5 13.6 12.2 11.0 12.2 view on growth ASX 100 13.4 13.2 10.3 9.3 10.3 Small Companies 15.1 13.7 10.6 8.6 10.5 Small Resources 22.4 25.8 10.4 7.2 10.2 Small Industrials 13.2 11.5 10.8 9.3 10.7

Dividend Yield All Companies 4.1 4.4 4.6 5.0 4.6 LPT yield appears All Companies ex Resources 5.6 6.1 6.4 6.9 6.4 attractive, however Resources 1.8 1.8 2.0 2.3 2.0 Banks 6.2 6.7 7.0 7.3 7.0 significant risks to Property Trusts 9.9 9.7 9.6 10.1 9.7 future distributions Industrials (All Cos ex Res, LPTs, Banks) 4.8 5.4 5.6 6.2 5.7 exist ASX 100 4.0 4.4 4.7 5.1 4.7 Small Companies 4.8 4.9 5.4 6.3 5.4 Small Resources 1.9 1.1 1.7 3.2 1.8 Small Industrials 6.7 6.3 6.6 7.3 6.7

P/OpCFPS All Companies 18.5 15.6 14.7 10.6 9.3 Resources offering All Companies ex Resources 14.9 14.9 12.7 11.1 9.9 Resources 21.5 15.2 15.8 9.6 8.4 compelling value on Banks na na na na na a P/OpCFPS Property Trusts 14.5 13.3 10.5 11.6 11.3 measure Industrials (All Cos ex Res, LPTs, Banks) 15.3 15.9 13.7 11.4 9.9 ASX 100 18.1 15.5 14.9 10.6 9.7 Small Companies 23.2 16.6 12.7 9.8 8.3 Small Resources 68.7 15.1 18.2 10.3 7.0 Small Industrials 17.2 16.0 11.2 9.8 9.1 Source: Macquarie Research, July 2008

24 July 2008 26 Macquarie Research Equities - Report Profit Outlook

Highlighting changes to EPSg, OpCFPSg and PER Fig 26: EPS growth, OpCFPS growth, PER changes since 29 February 2008 Security EPS Growth Change in EPSg OpCFPS Growth Change in PER Change in PER Balance month (%) since 29 Feb (%) OpCFPS since 29 (x) since 29 Feb 2008 2008 (ppts) Feb 2008 (%) (x) FY08 FY09 FY08 FY09 FY08 FY09 FY08 FY09 FY08 FY09 FY08 FY09 1 MRE -70.1 41.7 -65.7 59.9 111.6 -0.2 -43.9 110.8 12.1 8.5 0.5 -5.7 December 2 ERA 6.0 134.2 -39.1 -20.2 61.0 63.1 167.4 10.5 56.8 24.3 19.7 9.7 December 3 QAN 29.8 -71.2 -31.3 -53.1 -0.1 40.4 -26.8 -11.6 7.3 25.3 0.4 16.9 June 4 OXR -29.1 67.7 -27.3 -35.7 68.5 31.8 -108.5 58.4 14.5 8.7 -5.5 -1.2 December 5 DUE 50.1 5.7 -23.4 13.3 -93.3 449.5 57.0 -303.7 18.5 17.5 2.7 0.5 June 6 TEN -13.9 -15.5 -22.5 -25.5 -63.6 2.1 129.1 -74.1 13.8 16.3 -3.9 0.2 August 7 GNS -10.0 27.3 -21.8 12.3 47.4 2.2 488.8 43.8 12.9 10.1 -1.0 -2.0 June 8 JST -1.8 0.4 -21.6 -11.9 25.0 18.0 -34.5 22.6 11.7 11.7 1.5 2.6 July 9 OST -2.6 69.0 -21.1 43.9 73.1 19.9 nmf 60.7 19.6 11.6 2.5 -2.1 June 10 AXA -36.9 57.8 -20.0 36.2 nmf nmf nmf nmf 20.7 13.1 2.4 -1.9 December 11 ALL -2.2 20.4 -19.3 -3.3 16.2 14.9 24.6 -7.4 12.3 10.2 -4.5 -3.4 December 12 FCL -24.7 -9.5 -19.2 -14.6 nmf -20.7 nmf nmf 14.5 16.0 -2.2 0.1 June 13 KZL -21.3 23.0 -19.0 7.9 28.0 39.6 -21.6 -16.5 10.3 8.4 -2.9 -3.1 June 14 MGX 212.5 212.8 -18.6 17.5 6.5 nmf 144.7 nmf 18.9 6.0 -4.6 -1.9 June 15 IAG -65.9 148.9 -18.4 80.0 nmf nmf nmf nmf 31.2 12.6 11.5 0.9 June 16 PPX -48.6 66.4 -15.7 -7.1 52.2 -25.2 8.0 58.7 23.8 14.3 4.6 3.2 June 17 GPT -31.4 2.1 -14.0 -2.2 9.8 0.7 -82.1 5.6 8.7 8.5 -4.5 -4.1 December 18 CTX -29.6 -2.4 -13.6 -13.2 -65.8 6.5 157.3 -68.0 10.7 10.9 -0.1 1.2 December 19 APN -6.5 1.0 -13.5 -2.2 2.8 2.9 19.6 0.6 11.1 11.0 -2.3 -2.0 December 20 ANZ -7.5 0.2 -11.9 -8.7 nmf nmf nmf nmf 9.7 9.7 -0.3 0.5 September 21 NAB 1.0 1.8 -9.8 -12.6 nmf nmf nmf nmf 11.0 10.8 1.2 2.3 September 22 PPT -7.1 -4.4 -9.1 -3.0 71.0 7.1 -100.8 59.0 13.6 14.2 -1.7 -1.3 June 23 ALZ -6.5 1.8 -8.1 -2.9 1.8 6.5 -74.8 -5.8 6.5 6.3 -4.6 -4.3 December 24 GWT -3.1 1.9 -7.8 -4.8 -3.9 5.9 577.1 -6.1 13.8 13.5 0.4 1.0 June 25 TSE -0.7 12.4 -7.5 -5.9 189.3 25.2 -124.2 167.2 14.8 13.2 -5.2 -3.7 June 26 NVT 11.2 21.4 -7.0 4.5 12.9 7.4 -13.0 4.0 20.0 16.5 2.7 1.7 June 27 CWN 11.8 -3.3 -6.6 -10.6 -5.3 67.4 45.4 -2.3 14.9 15.4 -4.9 -3.1 June 28 AMP -17.6 21.5 -6.3 0.7 nmf nmf nmf nmf 16.1 13.2 -1.7 -1.5 December 29 IVC 7.6 15.5 -6.0 3.0 8.8 24.9 -23.3 -9.4 19.6 16.9 -2.5 -2.7 December 30 PRY 7.1 6.7 -5.8 -36.5 nmf 57.2 nmf nmf 15.4 14.5 -4.4 0.6 June 31 SUN -44.3 47.9 -5.7 2.4 nmf nmf nmf nmf 14.0 9.5 1.1 0.6 June 32 AMC -8.8 6.0 -5.5 -6.9 12.6 16.4 -43.8 -2.0 13.6 12.9 -2.8 -1.7 June 33 SPT -4.9 18.7 -5.4 -0.5 44.2 11.6 -72.6 30.3 12.5 10.5 -3.8 -3.1 June 34 CCL 8.0 10.0 -5.3 0.6 8.9 9.1 -15.1 -3.4 14.6 13.3 -2.9 -2.7 December 35 COH 11.3 14.7 -5.0 -2.6 71.0 13.8 -48.6 53.4 22.3 19.4 -2.1 -1.3 June 36 WTF 30.5 25.2 -5.0 -2.0 10.7 17.0 4.1 10.7 19.4 15.5 -5.5 -4.1 June 37 ORI 9.7 14.5 -4.8 -4.6 28.4 16.2 5.1 9.8 16.6 14.5 -0.1 0.5 September 38 MGR 0.3 -34.1 -4.5 -25.0 -14.6 3.4 nmf -18.4 7.6 11.5 -3.6 -0.8 June 39 AWC -49.7 40.1 -3.9 -21.5 -20.2 -52.1 211.1 -389.0 24.9 17.8 -8.8 -3.1 December 40 MTS 7.8 6.0 -3.7 2.9 8.1 -2.7 16.6 10.2 15.7 14.8 -0.4 -0.8 April 41 BBG 8.0 15.4 -3.5 -2.0 8.3 22.5 150.2 -2.9 12.7 11.0 -1.3 -0.9 June 42 WDC 2.7 5.8 -3.2 2.7 5.6 3.4 -4.0 0.6 16.3 15.4 0.1 -0.4 December 43 CBA 3.5 0.3 -3.1 -7.7 nmf nmf nmf nmf 12.4 12.4 1.0 1.8 June 44 ASX 13.8 5.3 -3.0 -5.3 1.5 10.5 17.2 -10.0 15.3 14.5 -3.7 -2.6 June 45 BLD -21.3 3.5 -3.0 -11.6 17.3 15.5 -65.8 -25.3 14.6 14.1 -0.2 1.3 June 46 WOR 38.6 26.3 -2.8 3.7 20.2 20.6 46.9 4.3 23.1 18.3 -2.4 -2.5 June 47 ALS 13.0 2.8 -2.6 2.0 19.6 9.8 -23.0 14.0 9.3 9.0 -3.0 -3.1 May 48 WBC 6.8 1.5 -2.5 -7.2 nmf nmf nmf nmf 10.9 10.7 -0.4 0.3 September 49 FGL 5.5 -0.1 -2.4 -5.3 91.3 0.8 -53.4 87.4 13.5 13.5 -1.0 -0.3 June 50 SGB 6.4 -1.2 -2.3 -10.3 nmf nmf nmf nmf 12.4 12.5 2.3 3.3 September 51 FXJ 11.8 6.7 -2.0 -4.4 21.4 8.1 -10.9 12.1 11.9 11.2 -2.7 -2.0 June 52 ABC 10.7 13.6 -2.0 -1.6 2.3 26.6 nmf -23.9 15.2 13.4 0.2 0.3 December 53 JHX -24.7 -39.7 -1.9 -33.6 -98.6 576.7 296.1 -151.1 12.2 20.3 -1.2 5.9 March 54 BOQ 9.1 7.8 -1.8 -5.5 nmf nmf nmf nmf 14.9 13.8 1.2 1.7 August 55 MAP 4.3 -0.6 -1.8 -6.6 -45.3 -28.8 -33.6 -64.6 12.9 13.0 -3.9 -2.9 December 56 CRG 10.3 9.2 -1.6 -1.6 127.9 4.2 -53.4 122.1 13.9 12.7 -0.8 -0.6 June 57 HVN 7.6 -3.6 -1.4 -2.8 41.9 10.8 -88.0 42.4 10.2 10.6 -3.4 -3.1 June 58 DJS 12.8 4.4 -1.3 -3.5 60.9 -35.7 -28.8 49.1 11.9 11.4 -2.4 -1.9 July 59 NWS 21.0 13.9 -1.2 -12.0 11.7 7.9 87.9 4.6 12.2 10.7 -2.1 -0.6 June 60 PBG 10.5 -5.3 -1.0 -8.8 -2.2 -7.5 8.3 -0.4 8.3 8.7 -1.2 -0.4 June 61 TAH -1.1 7.2 -0.9 4.4 -11.8 10.0 20.9 -7.3 9.5 8.9 -6.1 -6.3 June 62 LEI 33.6 18.9 -0.7 4.2 67.3 66.2 nmf -131.0 21.1 17.7 -0.1 -0.7 June 63 TEL -20.2 -14.0 -0.7 -7.8 -42.3 29.7 -67.8 -56.7 9.3 10.8 -0.9 0.0 June 64 QBE 4.4 5.1 -0.6 -0.6 nmf nmf nmf nmf 9.9 9.4 0.2 0.2 December 65 HSP 8.3 15.3 -0.6 -5.0 -18.2 15.3 98.7 -37.5 13.7 11.9 -2.5 -1.6 June 66 UGL 18.4 19.6 -0.6 5.5 283.4 32.6 -156.0 264.0 16.2 13.6 0.7 0.0 June 67 RMD 4.1 14.3 -0.6 -10.3 69.9 19.3 -64.6 59.6 21.7 19.0 -0.6 1.1 June 68 GFF -5.4 4.5 -0.6 -1.4 5.5 25.3 -13.2 -11.0 8.3 7.9 -3.6 -3.3 June 69 MCQ 86.5 nmf -0.5 nmf nmf 13.1 -3.9 nmf nmf 229.3 nmf 66.8 June Continued next page

24 July 2008 27 Macquarie Research Equities - Report Profit Outlook

Fig 26: EPS growth, OpCFPS growth, PER changes since 29 February 2008 (cont’d) Security EPS Growth Change in EPSg OpCFPS Growth Change in PER Change in PER Balance month (%) since 29 Feb (%) OpCFPS since 29 (x) since 29 Feb 2008 2008 (ppts) Feb 2008 (%) (x) FY2008 FY2009 FY2008 FY2009 FY2008 FY2009 FY2008 FY2009 FY2008 FY2009 70 SEK 38.1 15.1 -0.5 -10.4 24.1 28.6 -27.4 1.4 18.6 16.1 -6.1 -3.5 June 71 CPA 2.4 1.6 -0.3 -1.1 -22.0 -2.0 989.7 -19.8 15.1 14.8 1.0 1.2 June 72 MOF -0.3 0.8 -0.3 -2.1 1.9 2.4 -26.0 0.9 7.9 7.8 -1.8 -1.6 June 73 ABP 1.5 1.0 -0.2 -0.1 20.1 2.4 -26.9 17.1 8.2 8.1 -1.3 -1.3 June 74 TTS -1.8 19.1 -0.2 -0.5 0.8 10.6 22.3 -12.5 12.1 10.1 -6.8 -5.6 June 75 DXS 5.4 2.4 -0.2 -0.2 8.9 -0.6 1.0 9.6 11.5 11.2 -2.5 -2.5 June 76 MND 3.4 8.8 -0.1 -0.1 4.6 10.1 -29.8 -5.4 18.0 16.6 1.1 1.0 June 77 IOF -0.2 0.6 0.0 -1.0 -34.5 0.2 84.4 -33.3 12.2 12.1 -0.2 -0.1 June 78 FLT 38.3 12.7 0.0 -3.6 3.8 36.7 -30.1 -11.2 12.5 11.0 -5.5 -4.4 June 79 APA -1.0 -3.0 0.0 0.0 7.3 -21.1 267.9 28.4 18.4 19.0 -1.4 -1.4 June 80 CFX 2.8 5.5 0.0 0.0 14.8 3.3 -12.9 11.4 17.2 16.3 -1.0 -1.0 June 81 CPU 45.1 1.1 0.0 0.0 -1.7 11.6 20.1 -13.3 16.6 16.4 2.9 2.9 June 82 AGK 4.1 7.4 0.0 -0.5 101.3 -9.3 676.0 98.8 17.1 16.0 3.3 3.1 June 83 CMJ 103.6 14.9 0.0 0.0 -96.4 34.6 2706.6 -131.0 18.1 15.8 -7.6 -6.6 June 84 WAN 3.2 0.9 0.0 0.0 6.7 -1.6 51.0 8.3 14.5 14.4 -3.5 -3.4 June 85 CAB 17.5 16.1 0.0 -2.8 37.9 11.9 56.9 26.2 15.2 13.1 -3.0 -2.2 June 86 DOW 178.3 11.7 0.0 0.0 -9.5 12.4 nmf -21.9 14.3 12.8 1.5 1.4 June 87 SGP 5.2 3.2 0.0 -1.9 6.7 14.7 -40.5 -9.5 11.6 11.3 -3.6 -3.2 June 88 BEN 11.9 14.1 0.0 0.0 nmf nmf nmf nmf 11.6 10.2 0.7 0.7 June 89 MMG 6.7 28.0 0.0 -41.6 -37.1 19.6 39.9 -47.7 12.1 9.5 -1.4 1.5 June 90 LLC 8.8 7.9 0.0 0.0 24.9 72.4 -22.1 -47.5 9.1 8.4 -3.2 -3.0 June 91 IIF 7.7 3.7 0.0 0.0 5.2 1.0 35.3 4.2 7.7 7.4 -4.0 -3.8 June 92 FKP -1.6 11.5 0.0 0.0 208.6 7.1 nmf 201.5 7.6 6.8 1.5 1.4 June 93 CER -8.2 12.2 0.0 0.0 83.4 3.3 nmf 80.1 2.6 2.3 -0.6 -0.5 June 94 ORG 12.0 12.8 0.0 0.1 18.8 15.4 -19.0 3.4 32.1 28.5 14.4 12.7 June 95 SEV 24.3 -0.7 0.1 -7.1 665.4 -12.1 -9.1 695.9 12.0 12.1 -5.5 -4.4 June 96 RHC 13.5 17.7 0.2 -0.1 18.4 15.0 42.2 3.8 15.2 13.0 -3.0 -2.5 June 97 SHL 12.1 15.3 0.3 3.1 36.4 8.5 8.6 22.9 17.9 15.5 -0.9 -1.2 June 98 BKW 1.2 8.3 0.4 0.9 -4.0 3.5 766.7 -9.2 14.9 13.8 2.2 2.0 July 99 IRE 16.9 10.6 0.4 0.1 5.3 8.7 10.9 -2.4 15.6 14.1 -1.4 -1.3 December 100 TPI 34.8 11.8 0.5 -4.4 30.1 19.1 152.9 16.6 12.7 11.3 -3.4 -2.5 June 101 GMG 10.9 5.2 0.5 -1.6 -7.4 4.4 -11.4 -15.1 8.1 7.7 -4.9 -4.5 June 102 MCW 2.0 -1.2 0.8 -3.5 6.8 -2.2 15.9 7.4 5.8 5.8 -2.5 -2.2 June 103 SPN 4.3 2.9 1.1 13.5 36.0 -23.6 30.9 33.5 14.1 13.7 -1.6 -3.9 March 104 HFA 0.9 25.6 1.1 -61.4 -44.9 43.2 173.2 -82.7 12.3 9.8 -0.7 2.9 June 105 TLS 15.7 6.2 1.3 1.6 55.3 30.7 -0.2 19.0 14.2 13.4 -2.0 -2.1 June 106 WOW 22.1 8.4 1.5 1.6 3.0 7.5 4.7 -6.8 19.4 17.9 -2.7 -2.8 June 107 MAH 40.3 22.7 1.6 -4.4 12.2 27.4 -2.1 -11.9 19.2 15.6 -0.4 0.2 June 108 LNN 3.9 8.4 2.0 -3.5 15.1 18.2 13.1 -4.1 17.0 15.7 -1.7 -1.1 September 109 CXP 6.1 3.1 2.1 -1.0 10.1 4.8 -4.6 4.8 12.9 12.5 0.2 0.3 December 110 BXB 16.3 7.8 2.6 -4.8 20.4 9.3 -12.2 12.5 17.7 16.4 -2.4 -1.4 June 111 CSR -21.9 -11.7 2.7 -25.0 -18.7 39.6 -7.9 -40.7 9.5 10.8 -7.1 -3.9 March 112 NUF 22.1 39.2 2.9 24.0 nmf 3.4 11445.3 nmf 21.2 15.2 1.0 -2.3 July 113 SIP -12.1 12.2 3.3 -5.5 22.9 16.6 -27.8 14.2 9.8 8.7 -5.2 -4.0 January 114 CSL 35.9 22.1 3.3 -5.9 7.4 29.8 75.7 -29.6 26.2 21.4 -2.7 -1.1 June 115 SGT 21.3 4.1 5.7 -8.7 -43.6 23.2 39.0 -55.6 14.6 14.1 -0.6 0.5 March 116 JBH 57.4 18.0 7.6 -1.9 3.1 15.0 4.0 -11.0 21.0 17.8 2.2 2.1 June 117 ANN 19.9 20.4 7.7 1.3 8.3 25.6 -4.5 -8.4 15.8 13.1 0.4 0.2 June 118 VPG 19.3 -16.9 8.3 -22.7 -25.4 2.7 nmf -29.6 4.8 5.8 -4.1 -2.7 June 119 BKN 15.0 11.5 8.7 -0.9 31.1 20.3 -61.9 16.0 16.8 15.1 3.5 3.3 June 120 WES 0.6 45.2 10.1 13.9 24.3 -7.1 33.6 32.2 16.8 11.6 -3.0 -3.5 June 121 CEY 31.8 469.6 11.3 205.9 nmf 178.4 nmf nmf 29.2 5.1 -0.7 -3.1 June 122 SGM 8.4 16.2 11.8 -4.4 37.6 8.5 -38.7 30.5 15.4 13.2 -1.1 -0.5 June 123 BLY 37.1 13.7 15.8 0.5 22.0 8.2 102.4 19.3 13.4 11.8 0.3 0.3 December 124 MCC -9.1 554.9 18.9 69.4 nmf 172.7 nmf nmf 54.0 8.2 -0.4 -1.1 June 125 LGL 51.1 86.2 20.5 33.3 55.5 99.1 156.3 -325.0 26.9 14.4 -13.2 -11.8 December 126 MIN 128.5 34.8 25.9 8.0 42.1 30.4 45.8 -27.6 14.9 11.0 -0.1 -0.8 June 127 PMM 135.6 42.3 28.7 5.3 10.7 7.9 289.7 2.1 13.1 9.2 3.7 2.4 December 128 CGF 12.5 16.2 30.2 2.8 nmf nmf nmf nmf 7.3 6.3 0.6 0.3 June 129 BPT 88.7 108.2 36.5 2.9 67.0 -10.4 -69.0 77.1 13.2 6.4 -7.0 -3.5 June 130 NCM 137.0 22.2 38.4 -3.3 -43.4 -3.9 134.8 -101.9 24.5 20.1 -11.3 -8.4 June 131 WSA 32.5 nmf 46.2 nmf nmf 45.0 nmf nmf nmf 69.7 nmf 45.5 June 132 AWB 57.6 -17.3 49.4 -12.4 nmf -86.0 -167.2 nmf 10.6 12.8 -2.4 -0.8 September 133 WPL 115.0 -15.5 66.0 -3.0 241.8 -1.9 nmf 272.4 14.8 17.5 -7.0 -7.4 December 134 IPL 190.5 23.6 66.5 21.4 21.9 1.6 172.4 34.1 14.1 11.4 -2.3 -4.6 September 135 STO 61.0 -8.9 77.9 -3.2 16.3 -43.3 40.6 12.8 14.3 15.7 -6.0 -5.9 December 136 OSH 123.2 1.7 102.5 -3.1 -4.6 -16.1 83.7 -1.1 17.7 17.4 -6.4 -5.6 December 137 AWE 735.5 6.7 223.6 41.5 -5.7 -28.8 7329.8 -2.7 5.6 5.3 -1.7 -5.9 June 138 CNA 583.4 67.4 382.8 -16.7 62.5 18.0 288824.6 61.8 12.9 7.7 -13.3 -6.5 December Source: Macquarie Research, July, 2008

24 July 2008 28 Macquarie Research Equities - Report Profit Outlook

Quantitative method to predicting earnings surprises Looking ahead to the reporting season Macquarie’s quantitative research team reviews the upcoming reporting season from a quantitative research perspective.

We identify companies most likely to surprise in the upcoming reporting season, based on Macquarie’s quantitative models. Impact

A positive or negative earnings surprise occurs when a stock reports a profit (either interim or final) that is significantly higher or lower than what the market was expecting. The market expectation is measured by the consensus analyst forecast. The measures we use in our earnings surprise prediction models are earnings revisions, earnings certainty, price momentum and the Macquarie Sentiment Indicator. Companies most likely to deliver a positive surprise in the upcoming reporting season include Mount Gibson Iron (MGX), Felix Resources (FLX), Gloucester Coal (GCL), Centennial Coal (CEY), Incitec Pivot (IPL) and Sims Group (SGM). Those most likely to disappoint with a negative surprise include ABC Learning Centres (ABS), Virgin Blue (VBA), Oceanagold Corp (OGC), Paladin Energy (PDN), Primary Health Care (PRY) and Toll Holdings (TOL). Analysis

Our method for predicting surprises is based around four quant factors: Earnings revisions – the change in the consensus EPS forecast for both FY1 and FY2 for each of the past six months (with more weighting being given to recent months). Earnings certainty – the dispersion of analyst forecasts for both FY1 and FY2, divided by the consensus EPS. Price momentum – the relative price performance over the past six or 12 months. Macquarie Sentiment Indicator (MSI) – is a newer, “smarter” earnings revision-type signal created by the Macquarie Quant team (see Standing out from the crowd, May 06). It uses detailed analyst earnings forecasts to detect early changes in the consensus earnings estimates. Why these factors predict earnings surprises

ƒ Earnings revisions are based around the idea of trending, ie revisions are usually followed by further revisions. Increased earnings numbers lead to outperformance (and vice versa). ƒ Analysts revise in stages due to a delayed approach in adjusting to new information. This is influenced by such factors as analyst reputation and company news flow. Earnings certainty (the dispersion of analyst forecasts) relates to analyst reputation and the range of forecasts that an analyst will sit within. When the dispersion of forecasts is high (ie earnings certainty is low), analysts are optimistic with their forecasts because they do not feel the need to keep within set boundaries. Low earnings certainty translates into a greater likelihood of a negative surprise while high earnings certainty is predictive of positive surprises. Price momentum is in general a powerful indicator of future stock performance as ‘recent winners’ are likely to continue outperforming (and vice versa). Our research suggests such stocks are also likely to deliver positive surprises. This is likely to be due to correlation with earnings revisions and perhaps some information leakage.

24 July 2008 29 Macquarie Research Equities - Report Profit Outlook

Macquarie Sentiment Indicator (MSI) is a newer, “smarter” earnings revision-type signal created by the Macquarie Quant team (see Standing out from the crowd, May 06). It uses detailed analyst earnings forecasts to detect early changes in the consensus earnings estimates. It improves upon the traditional earnings revision signal by combining the following two sub signals: ƒ A direction weighted earnings residual (DWER) signal which detects high conviction earnings revisions away from the consensus; and ƒ A time weighted earnings residual (TWER) signal which favours more recent revisions. As such the MSI is a strong complement our earnings revisions signal and is also likely to be a good predictor of stocks making earnings surprises. Constructing our earnings surprise prediction models

Our earnings surprise models are constructed by comparing the average factor exposures just before stocks surprise the market. This is done for both positive and negative earnings surprises. The graph below shows the average factor exposures of stocks before they surprised.

Fig 27: Earnings surprise fingerprints

Standardised factor exposure 0.50

0.40 Positive Surprises Negative Surprises 0.30

0.20

0.10

0.00

-0.10

-0.20

-0.30

-0.40

-0.50 Earnings Rec'd 1 month 3 month 6 month 12 month Earnings MSI Revision Revision momentum momentum momentum momentum Certainty

Source: Macquarie Research, July 2008

We find that stocks that have a positive surprise typically have a small exposure to the MSI, while those stocks that have a negative surprise typically have a large negative exposure to the MSI. The following table shows the final weightings for our earnings surprise models.

Fig 28: Weights of optimal earnings surprise models Optimal Weights Factor Name Positive Negative Earnings Revision 20% 25% 6 month momentum 15% 12 month momentum 50% 5% Earnings Certainty 35% MSI 30% 20% Total Weight 100% 100% Source: Macquarie Research, July 2008

24 July 2008 30 Macquarie Research Equities - Report Profit Outlook

Positive surprises – post-announcement profits Once an earning surprise is announced there is still the opportunity to profit as the chart below indicates.

Fig 29: Performance around a positive earnings surprise

Excess Return 3.0%

Median Mean 2.0%

1.0%

0.0% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-1.0%

-2.0%

-3.0%

-4.0% Days Relative to Announcement Date

Source: Macquarie Research, July 2008

Specifically we find that 62% of stocks that issue a positive earnings surprise continue outperforming with a median return of 2.1% over the following month. A very powerful ‘sweet spot’ occurs when filtered on consensus recommendation. Companies with a below average broker recommendation that issue a positive surprise leads to a stock rerating with 70% of stocks outperforming post a positive surprise (median one-month return 2.9%). For 50 leaders stocks with a below average broker recommendation, over 90% outperform. Stocks to watch here include Woodside Petroleum (WPL), Santos (STO), Fortescue Metals (FMG), Worley Parson (WOR) and Wesfarmers (WES).

Fig 30: Unloved large caps about to report Code Company Name WPL Woodside Petroleum Limited STO Santos Limited FMG Fortescue Metals Limited WOR Worleyparsons Limited WES Wesfarmers Limited Ordered by probability of positive earnings surprise Source: Macquarie Research, July 2008

It is worth noting that this reporting season, according to our model, only 28% of unloved large cap stocks have chance of a positive earnings surprise. This compares to last year where our model predicted 51% of large cap unloved stocks had a high chance of a positive earnings surprise. Poor momentum, earnings revision and earnings certainty have noticeably taken their toll on the market, specifically the large caps.

24 July 2008 31 Macquarie Research Equities - Report Profit Outlook

Negative surprises – underperformance continues

ƒ Once an earning surprise is announced there is still the opportunity to profit as the chart below indicates.

Fig 31: Performance around a negative earnings surprise

Excess Return 1.0%

Median Mean 0.5%

0.0% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-0.5%

-1.0%

-1.5%

-2.0% Days Relative to Announcement D

Source: Macquarie Research, July 2008

“Glamour” stock (those with a PE greater than the market) perform especially poorly post a negative earnings surprise, with over 60% underperforming in the month following. Stocks to watch here are Virgin Blue Holdings Ltd (VBA), Paladin Energy Ltd (PDN), Primary Health Care (PRY), James Hardie Industries Nv (JHX) and Ten Network (TEN).

Fig 32: Glamour (high fwd PE) stocks about to report

Code Company Name VBA Virgin Blue Holdings Limited PDN Paladin Energy Limited PRY Primary Health Care JHX James Hardie Industries Nv TEN Ten Network SGX Sino Gold Mining Limited ROC Roc Oil Company Limited) IFL Ioof Holding Limited AXA Axa Asia Pacific Holdings Limited ENE Energy Development ENV Envestra Limited PPT Perpetual Limited SEV Seven Network Limited AUN Austar United Communications Limited AIO Asciano Group Ordered by probability of negative earnings surprise Source: Macquarie Research, July 2008

24 July 2008 32 Macquarie Research Equities - Report Profit Outlook

Positive surprises – post-announcement profits Once an earning surprise is announced there is still the opportunity to profit as the chart below indicates.

Fig 33: Performance around a positive earnings surprise

Excess Return 3.0%

Median Mean 2.0%

1.0%

0.0% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-1.0%

-2.0%

-3.0%

-4.0% Days Relative to Announcement Date

Source: Macquarie Research, July 2008

Specifically we find that 62% of stocks that issue a positive earnings surprise continue outperforming with a median return of 2.1% over the following month. A very powerful ‘sweet spot’ occurs when filtered on consensus recommendation. Companies with a below average broker recommendation that issue a positive surprise leads to a stock rerating with 70% of stocks outperforming post a positive surprise (median one-month return 2.9%). For 50 leaders stocks with a below average broker recommendation, over 90% outperform. Stocks to watch here include Woodside Petroleum (WPL), Santos (STO), Fortescue Metals (FMG), Worley Parson (WOR) and Wesfarmers (WES).

Fig 34: Unloved large caps about to report Code Company Name WPL Woodside Petroleum Limited STO Santos Limited FMG Fortescue Metals Limited WOR Worleyparsons Limited WES Wesfarmers Limited Ordered by probability of positive earnings surprise Source: Macquarie Research, July 2008

It is worth noting that this reporting season, according to our model, only 28% of unloved large cap stocks have chance of a positive earnings surprise. This compares to last year where our model predicted 51% of large cap unloved stocks had a high chance of a positive earnings surprise. Poor momentum, earnings revision and earnings certainty have noticeably taken their toll on the market, specifically the large caps.

24 July 2008 33 Macquarie Research Equities - Report Profit Outlook

Negative surprises – underperformance continues

Once an earning surprise is announced there is still the opportunity to profit as the chart below indicates.

Fig 35: Performance around a negative earnings surprise

Excess Return 1.0%

Median Mean 0.5%

0.0% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-0.5%

-1.0%

-1.5%

-2.0% Days Relative to Announcement D Source: Macquarie Research, July 2008

“Glamour” stock (those with a PE greater than the market) perform especially poorly post a negative earnings surprise, with over 60% underperforming in the month following. Stocks to watch here are Virgin Blue Holdings Ltd (VBA), Paladin Energy Ltd (PDN), Primary Health Care (PRY), James Hardie Industries Nv (JHX) and Ten Network (TEN).

Fig 36: Glamour (high fwd PE) stocks about to report

Code Company Name VBA Virgin Blue Holdings Limited PDN Paladin Energy Limited PRY Primary Health Care JHX James Hardie Industries Nv TEN Ten Network SGX Sino Gold Mining Limited ROC Roc Oil Company Limited) IFL Ioof Holding Limited AXA Axa Asia Pacific Holdings Limited ENE Energy Development ENV Envestra Limited PPT Perpetual Limited SEV Seven Network Limited AUN Austar United Communications Limited AIO Asciano Group Ordered by probability of negative earnings surprise Source: Macquarie Research, July 2008

24 July 2008 34 Macquarie Research Equities - Report Profit Outlook

Profit tables Fig 37: Full year reporting season – for all June/July year end companies ASX Company Name Analyst Name Sector Rep Date Rep Net Prof Adj Net Prof Adj EPS Code FY07A FY08E FY07A FY08E FY07A FY08E ABP Abacus Property Group Paul Checchin Financials 27-Aug-08 118.8 92.0 79.8 92.0 14.4 14.6 ABS ABC Learning Centres Mark Carew Consumer Discretionary 143.1 -163.8 127.7 75.4 32.1 15.8 AEO Austereo Group Alex Pollak Consumer Discretionary 25-Aug-08 46.5 48.9 46.5 48.9 12.7 14.0 AFG Allco Finance Group Mark Carew Financials 29-Aug-08 211.7 31.6 201.3 31.6 60.4 9.8 AGK AGL Energy Gavin Maher Utilities 20-Aug-08 239.7 127.2 325.6 350.4 77.6 80.8 AHE Automotive Holdings Group Andrew Wackett Consumer Discretionary 28.0 55.3 27.8 50.8 18.9 26.5 AIA^ Auckland International Airport Warren Doak Industrials 21-Aug-08 92.0 93.3 102.0 106.1 8.4 8.7 AIO Asciano Group Ian Myles Industrials 20-Aug-08 -95.1 27.5 4.2 AIR^ Air New Zealand Ltd Warren Doak Industrials 26-Aug-08 214.0 186.1 193.1 186.1 18.5 17.7 AIX Aust Infrastructure Fund Ian Myles Industrials 168.2 207.7 43.5 39.1 11.6 10.3 AMC Amcor John Purtell Materials 21-Aug-08 533.7 321.6 397.0 352.6 44.6 40.6 ANN* Ansell Limited Rob Gallagher Health Care 18-Aug-08 80.6 99.4 79.1 89.1 53.2 63.9 APA APA Group Gavin Maher Utilities 26-Aug-08 56.9 72.3 56.9 72.3 16.3 16.2 APT^ AMP NZ Office Trust Stephen Ridgewell Financials 15-Aug-08 301.3 51.8 51.3 51.8 9.6 7.5 APZ Aspen Group Rowena Causley Financials 18-Aug-08 74.4 72.0 33.5 41.8 15.7 16.7 ARP ARB Corporation Ltd Adam Simpson Consumer Discretionary 15.8 18.8 15.8 18.8 23.6 28.2 ARQ ARC Energy Andrew Blakely Energy 25-Aug-08 6.1 32.9 6.1 44.5 2.8 14.1 ASB Austal Limited Andrew Wackett Industrials 25-Aug-08 45.1 47.5 45.1 47.5 23.9 25.1 ASX ASX Ltd Deana Mitchell Financials 14-Aug-08 290.5 369.9 313.1 369.9 189.6 215.7 AVG Australian Vintage Andrew Kovacs Consumer Staples 27-Aug-08 -5.9 7.1 -4.0 7.1 -3.3 5.6 AWE Aust Worldwide Exploration Andrew Blakely Energy 22-Aug-08 35.4 298.1 35.4 298.1 7.9 66.3 BBC Babcock & Brown Communities Callum Bramah Financials 27-Aug-08 38.7 34.0 5.2 BBG Billabong International Greg Dring Consumer Discretionary 22-Aug-08 167.2 182.0 167.2 182.0 80.8 87.3 BBP Babcock & Brown Power Jeff Evans Utilities 29-Aug-08 -75.7 82.4 -15.6 9.8 -4.4 1.9 BDG Bendigo Mining Jim Copland Materials -239.7 -6.8 -32.3 -6.8 -6.5 -1.4 BEC Becton Property Group Callum Bramah Financials 26-Aug-08 84.6 57.0 36.3 52.3 30.1 33.3 BEN Bendigo and Adelaide Bank Tom Quarmby Financials 11-Aug-08 121.8 222.9 118.5 199.5 82.8 92.7 BKN Bradken Andrew Wackett Industrials 12-Aug-08 49.1 56.4 49.1 56.4 46.3 53.2 BKW Brickworks Douglas Macphillamy Materials 107.5 103.4 102.2 103.4 77.0 77.9 BLD Boral Limited Douglas Macphillamy Materials 19-Aug-08 298.0 235.6 298.0 235.6 50.1 39.5 BOL Boom Logistics Andrew Wackett Industrials 13-Aug-08 36.6 19.4 36.6 22.3 21.5 13.0 BPT Beach Petroleum Andrew Blakely Energy 103.3 120.9 43.8 78.4 4.7 8.9 BSL BlueScope Steel Sophie Spartalis Materials 18-Aug-08 702.9 447.6 686.4 636.6 95.4 86.0 BVA Bravura Solutions Benn Skender Information Technology 26-Aug-08 5.4 6.4 8.4 15.0 6.6 10.5 BXB* Brambles Russell Shaw Industrials 20-Aug-08 1290.1 645.1 612.2 648.1 39.3 45.7 CAB Cabcharge Australia Mark Carew Industrials 21-Aug-08 51.8 62.8 51.8 62.8 44.9 52.8 CAV^ Cavalier Corporation Stephen Hudson Consumer Discretionary 14.3 17.8 15.9 19.1 24.2 28.8 CBA Commonwealth Bank Tom Quarmby Financials 13-Aug-08 4463.0 5099.6 4479.0 4722.6 347.3 359.5 CBH CBH Resources Limited Jim Copland Materials 38.7 -10.5 38.7 -10.5 4.6 -1.2 CCP Credit Corp Group Benn Skender Industrials 14-Aug-08 19.6 4.9 19.6 8.4 45.9 19.2 CDR Commander Communications Andrew Levy Information Technology 25-Aug-08 -4.2 -266.4 10.3 -131.1 4.5 -57.1 CEN^ Contact Energy Ltd Stephen Hudson Utilities 26-Aug-08 239.6 240.2 216.3 239.2 37.5 41.5 CER Centro Retail Group Rowena Causley Financials 27-Aug-08 273.7 -147.2 85.5 218.7 12.7 11.7 CEU ConnectEast Ian Myles Industrials 27-Aug-08 -2.1 -7.5 -2.1 -7.5 -0.2 -0.5 CEY Centennial Coal Sophie Spartalis Energy 20-Aug-08 3.3 282.4 37.4 53.4 12.4 16.4 CFX CFS Retail Property Trust Rowena Causley Financials 19-Aug-08 1121.0 521.7 239.0 262.5 11.3 11.6 CGF Challenger Financial Services Deana Mitchell Financials 25-Aug-08 255.2 -29.0 182.2 214.2 31.2 35.1 CHC Charter Hall Group Callum Bramah Financials 26-Aug-08 43.2 75.1 32.5 55.1 8.9 12.8 CLO Clough Limited Andrew Wackett Industrials 21-Aug-08 -105.3 63.5 -105.3 29.8 -18.5 4.7 CMJ Consolidated Media Holdings Alex Pollak Consumer Discretionary 19-Aug-08 62.0 6101.9 58.0 118.1 8.4 17.1 CND Clarius Group Benn Skender Industrials 26-Aug-08 13.6 11.3 13.6 12.1 24.6 21.8 CNP Centro Properties Group Callum Bramah Financials 28-Aug-08 467.4 -1021.1 320.7 249.9 38.7 29.6 COH Cochlear Rob Gallagher Health Care 12-Aug-08 100.1 116.5 107.6 119.2 190.2 211.7 COU Count Financial Ltd Mark Carew Financials 18-Aug-08 22.7 24.1 22.7 24.1 8.9 9.3 CPA Commonwealth Property Office Paul Checchin Financials 19-Aug-08 535.1 363.8 145.8 148.2 9.0 9.2 CPU* Computershare Ltd Deana Mitchell Information Technology 13-Aug-08 233.2 301.3 218.8 301.3 36.7 53.3 CRG Crane Group Holdings Andrew Wackett Industrials 11-Aug-08 47.8 60.5 54.0 63.5 88.6 97.7 CSL CSL Rob Gallagher Health Care 20-Aug-08 539.3 702.8 521.3 702.8 96.0 128.1 CWN Crown Steve Wheen Consumer Discretionary 20-Aug-08 297.0 367.3 342.0 382.4 49.6 55.4 CYG Coventry Group Limited Andrew Wackett Consumer Discretionary 22-Aug-08 -1.4 5.6 -1.4 5.6 -3.6 14.1 DJS David Jones Greg Dring Consumer Discretionary 24-Sep-08 208.6 144.7 109.5 133.7 24.7 27.9 DOW Downer EDI Andrew Wackett Industrials 21-Aug-08 101.5 157.4 55.0 157.4 17.5 48.7 DUE DUET Group Gavin Maher Utilities 29-Aug-08 27.2 115.0 53.2 115.0 11.3 19.3 DXS Dexus Property Group Paul Checchin Financials 21-Aug-08 1168.8 608.6 324.6 348.8 11.3 11.9 EBO^ Ebos Group Steve Hodgson Health Care 22-Aug-08 10.3 15.7 10.3 15.7 31.4 35.0 ENE Energy Developments Mark Carew Utilities 27-Aug-08 -16.6 22.9 27.1 17.9 18.3 11.9 ENV Envestra Gavin Maher Utilities 27-Aug-08 -3.0 157.4 -20.9 4.2 -2.5 0.5 FAN Fantastic Holdings Ltd Adam Simpson Consumer Discretionary 25-Aug-08 16.4 19.3 17.4 19.3 18.5 20.4 FBU^ Fletcher Building Stephen Hudson Materials 13-Aug-08 483.8 440.9 483.8 402.9 103.0 82.1 FCL Futuris Corporation Andrew Wackett Consumer Staples 14-Aug-08 91.8 64.6 92.8 74.0 12.7 9.6 FGL Foster's Group Andrew Kovacs Consumer Staples 26-Aug-08 967.5 825.7 690.0 703.3 34.3 36.2 FKP FKP Property Group Paul Checchin Financials 28-Aug-08 194.8 162.9 134.9 158.7 61.4 60.4 FLT Flight Centre Ltd Adam Simpson Consumer Discretionary 26-Aug-08 119.4 148.7 103.7 148.7 109.0 150.8 FLX Felix Resources Sophie Spartalis Energy 29-Aug-08 47.2 167.9 14.8 81.8 7.5 41.6 FMG Fortescue Metals Group Len Eldridge Materials -68.4 -937.7 -20.2 -25.0 -0.8 -1.2 FRE^ Freightways Warren Doak Industrials 25.1 32.8 30.9 32.8 24.5 26.0 FWD Fleetwood Corporation Ltd Andrew Wackett Consumer Discretionary 29-Aug-08 26.6 33.3 26.6 33.3 53.4 65.0 FXJ Fairfax Media Alex Pollak Consumer Discretionary 21-Aug-08 263.4 399.1 251.3 391.4 23.3 26.0 24 July 2008 35 Macquarie Research Equities - Report Profit Outlook

Fig 37: Full year reporting season – for all June/July year end companies (cont’d) ASX Company Name Analyst Name Sector Rep Date Rep Net Prof Adj Net Prof Adj EPS Code FY07A FY08E FY07A FY08E FY07A FY08E GCL Gloucester Coal Sophie Spartalis Energy 27-Aug-08 18.0 22.0 18.0 22.0 22.6 26.0 GFF Goodman Fielder Andrew Kovacs Consumer Staples 25-Aug-08 239.8 192.8 218.7 206.9 16.5 15.6 GMG Goodman Group Callum Bramah Financials 628.4 578.5 515.5 583.9 30.7 34.0 GNS Gunns Ltd John Purtell Materials 28-Aug-08 74.5 80.1 74.5 76.5 21.1 19.0 GUD GUD Holdings Ltd Adam Simpson Consumer Discretionary 24-Jul-08 33.6 36.8 35.9 42.8 60.4 72.3 GWT GWA International Adam Simpson Industrials 19-Aug-08 56.3 53.3 61.4 59.8 22.1 21.4 HFA HFA Holdings Mark Carew Financials 20.3 35.0 20.3 32.9 9.3 9.4 HLG^ Hallenstein Glasson Warren Doak Consumer Discretionary 24-Sep-08 21.4 19.2 21.4 19.2 36.1 32.4 HSP Healthscope Limited Rob Gallagher Health Care 21-Aug-08 84.4 73.5 68.7 75.9 29.1 31.5 HST Hastie Group Andrew Wackett Industrials 27-Aug-08 22.2 37.6 22.2 37.6 18.4 27.6 HVN Harvey Norman Greg Dring Consumer Discretionary 407.2 348.7 324.0 348.7 30.6 32.9 HWI Housewares International Ltd Adam Simpson Consumer Discretionary 26-Aug-08 -34.0 20.4 19.9 20.7 15.5 15.9 IAG Insurance Australia Group Tony Jackson Financials 22-Aug-08 552.4 195.3 607.4 265.3 36.4 14.4 IBA IBA Health Rob Gallagher Health Care 22.9 14.8 23.0 21.7 6.6 5.4 IGO Independence Group NL Jim Copland Materials 29-Aug-08 105.3 57.2 105.3 57.2 90.4 48.4 IIF ING Industrial Fund Callum Bramah Financials 28-Aug-08 397.9 331.5 166.5 200.2 16.7 18.0 IIN iiNet Limited Andrew Levy Telecomm Services 18-Aug-08 23.3 19.4 10.9 18.7 8.5 14.2 IMP^ ING Medical Properties Stephen Ridgewell Financials 29-Aug-08 23.5 13.0 10.2 13.0 7.4 9.3 INL Intec Jim Copland Materials -1.2 15.0 -5.1 15.0 -0.9 2.4 INP Innamincka Petroleum Andrew Blakely Energy -2.2 -1.0 -2.0 -1.0 -1.9 -0.6 IOF ING Office Fund Paul Checchin Financials 25-Aug-08 572.7 209.7 124.3 134.0 10.8 10.7 JBH JB Hi-Fi Adam Simpson Consumer Discretionary 19-Aug-08 40.4 64.4 40.4 64.4 37.6 59.2 JST Just Group Ltd Adam Simpson Consumer Discretionary 64.0 51.1 61.4 56.6 28.6 28.1 KCN Kingsgate Consolidated Ltd Jim Copland Materials 21-Aug-08 -12.6 49.0 -23.0 17.2 -24.5 17.6 KZL Kagara Ltd Jim Copland Materials 20-Aug-08 89.8 71.7 89.8 71.7 40.7 32.0 LEI Leighton Holdings John Purtell Industrials 14-Aug-08 450.0 601.9 450.0 601.9 161.6 215.8 LEP ALE Property Group Rowena Causley Financials 19-Aug-08 97.8 27.7 12.4 13.7 13.6 16.2 LLA Living and Leisure Australia Group Mark Carew Financials 14.2 -67.8 11.2 -2.6 7.0 -1.5 LLC Lend Lease Corp Callum Bramah Financials 28-Aug-08 497.5 451.6 413.7 451.6 103.5 112.6 LPC^ Lyttelton Port Company Stephen Hudson Industrials 9.6 11.9 9.6 11.9 9.4 11.7 LYL Lycopodium Andrew Wackett Industrials 8.9 11.5 8.9 11.5 23.5 30.4 MAH Macmahon Holdings Andrew Wackett Industrials 20-Aug-08 44.5 47.6 33.4 47.6 6.3 8.8 MCC Macarthur Coal Sophie Spartalis Materials 29-Aug-08 66.5 85.3 57.3 57.3 30.6 27.8 MCG Macquarie Comm Infrastructure Ian Myles Consumer Discretionary 28-Aug-08 88.0 -409.4 88.0 -409.4 18.7 -79.4 MCQ Macquarie Capital Alliance Group Andrew Levy Financials 27-Aug-08 -60.8 67.9 -30.1 -56.4 -11.4 -21.3 MCR Mincor Resources NL Jim Copland Materials 101.3 67.6 101.3 67.6 51.3 33.6 MCW Macquarie Countrywide Trust Callum Bramah Financials 27-Aug-08 493.3 136.1 187.7 203.9 15.0 15.3 MDT Macquarie DDR Trust Callum Bramah Financials 28-Aug-08 185.3 40.0 93.1 92.4 10.0 9.9 MGR Mirvac Group Callum Bramah Financials 26-Aug-08 556.3 506.8 319.0 337.4 33.0 32.3 MGX Mount Gibson Iron Len Eldridge Materials 11-Aug-08 47.8 113.1 29.0 110.5 4.5 14.0 MHI^ Michael Hill International Ltd Warren Doak Consumer Discretionary 21.0 27.1 21.7 26.2 5.5 6.9 MIG Macquarie Infrastructure Group Ian Myles Industrials 21-Aug-08 1540.6 1661.8 1082.4 256.0 42.6 10.4 MIN Mineral Resources Andrew Wackett Industrials 21-Aug-08 20.2 47.2 20.2 47.2 16.8 38.3 MLE Macquarie Leisure Trust Mark Carew Financials 20-Aug-08 47.9 43.0 34.4 43.0 16.7 19.5 MMG Macquarie Media Group Alex Pollak Consumer Discretionary 27-Aug-08 37.7 54.9 54.3 60.2 26.3 28.1 MND Monadelphous Group Andrew Wackett Industrials 19-Aug-08 60.4 65.9 60.4 62.8 71.2 73.6 MOF Macquarie Office Trust Callum Bramah Financials 21-Aug-08 967.7 356.7 222.7 225.9 11.2 11.2 MRM Mermaid Marine Andrew Wackett Industrials 27-Aug-08 12.5 17.7 12.5 17.7 8.7 11.3 NCM Newcrest Jim Copland Materials 19-Aug-08 72.0 215.4 194.5 573.5 53.5 126.8 NPX^ Nuplex Industries Stephen Hudson Materials 26.2 49.2 37.7 49.2 47.7 60.9 NUF Nufarm John Purtell Materials 25-Sep-08 148.6 129.4 115.2 145.1 67.2 82.0 NVT Navitas Mark Carew Consumer Discretionary 05-Aug-08 32.2 35.8 32.2 35.9 9.3 10.3 NWS* News Corporation Alex Pollak Consumer Discretionary 06-Aug-08 3425.7 3413.4 3066.7 3499.4 101.4 122.7 NWSLV* News Corporation Prefs Alex Pollak Consumer Discretionary 06-Aug-08 3425.7 3723.4 3066.7 3499.4 101.4 122.7 NXS Nexus Energy Andrew Blakely Energy 30-Sep-08 35.8 10.9 -19.7 -46.6 -4.9 -8.7 NZO^ New Zealand Oil and Gas Stephen Hudson Energy 29-Aug-08 6.6 95.5 6.6 95.5 2.6 36.5 NZS* NZ Farming Systems Uruguay Lyall Taylor Consumer Staples 14-Aug-08 0.2 -11.0 -1.3 1.5 -0.9 0.6 OIF Orchard Industrial Property Fund Callum Bramah Financials 27-Aug-08 38.6 17.6 5.1 OKN Oakton Benn Skender Information Technology 19-Aug-08 20.5 26.1 20.5 26.1 24.1 28.9 ORG Origin Energy Ltd Gavin Maher Energy 28-Aug-08 456.9 570.5 370.2 436.6 44.5 49.9 OST OneSteel Sophie Spartalis Materials 19-Aug-08 207.0 276.4 203.4 302.0 35.4 34.5 PAN Panoramic Resources Jim Copland Materials 88.1 63.5 112.1 63.5 58.1 32.7 PBG Pacific Brands Andrew Kovacs Consumer Discretionary 20-Aug-08 106.0 117.0 106.0 117.0 21.1 23.3 PDN* Paladin Energy Len Eldridge Energy -37.6 -38.1 -37.6 -38.1 -7.4 -6.1 PEM Perilya Ltd Jim Copland Materials 29-Aug-08 82.5 11.0 82.5 -0.2 43.1 -0.1 PGA Photon Group Alex Pollak Consumer Discretionary 26-Aug-08 16.7 22.6 16.7 22.6 23.0 30.1 PGW^ PGG Wrightson Steve Hodgson Consumer Staples 19-Aug-08 26.2 70.3 28.9 37.9 9.3 13.1 PME Pro Medicus Ltd Rob Gallagher Health Care 7.1 8.3 7.1 8.3 7.1 8.3 PMP PMP Limited Benn Skender Industrials 14-Aug-08 46.4 86.0 47.7 48.6 15.9 15.0 POT^ Port of Tauranga Stephen Hudson Industrials 28-Aug-08 38.0 42.6 38.0 42.6 28.4 31.8 PPC Peet Andrew Wackett Financials 22-Aug-08 45.5 45.9 45.5 45.9 21.1 20.6 PPL^ Pumpkin Patch Warren Doak Consumer Discretionary 27.7 22.0 27.7 22.0 16.6 13.2 PPT Perpetual Ltd Deana Mitchell Financials 20-Aug-08 181.9 128.3 144.9 135.8 351.8 326.9 PPX PaperlinX Ltd John Purtell Materials 21-Aug-08 80.1 63.0 73.5 37.9 16.4 8.4 PRT Prime Media Group Benn Skender Consumer Discretionary 25-Aug-08 32.5 38.1 29.9 33.2 23.9 26.2 PRY Primary Healthcare Ltd Rob Gallagher Health Care 26-Aug-08 56.9 -87.7 51.9 90.8 30.0 36.5 QAN Qantas Russell Shaw Industrials 21-Aug-08 719.4 1000.7 743.9 970.9 38.1 49.4 RCY Rivercity Motorway Group Ian Myles Industrials 27-Aug-08 15.5 17.8 15.5 17.8 2.2 2.4 RDF Redflex Holdings Benn Skender Information Technology 26-Aug-08 3.2 10.2 7.5 10.2 8.5 11.5 REF Reverse Corp Adam Simpson Telecomm Services 13-Aug-08 20.8 20.9 20.8 20.9 22.8 22.7 RHC Ramsay Health Care Limited Rob Gallagher Health Care 25-Aug-08 107.1 114.2 94.6 107.3 54.6 62.0 24 July 2008 36 Macquarie Research Equities - Report Profit Outlook

Fig 37: Full year reporting season – for all June/July year end companies (cont’d) ASX Company Name Analyst Name Sector Rep Date Rep Net Prof Adj Net Prof Adj EPS Code FY07A FY08E FY07A FY08E FY07A FY08E RHD Ross Human Directions Limited Benn Skender Industrials 5.0 4.2 5.4 4.2 6.6 5.0 RIC Ridley Corporation Limited Andrew Wackett Consumer Staples 25-Aug-08 22.7 19.0 22.7 19.0 7.9 6.4 RMD* Resmed Rob Gallagher Health Care 66.3 109.4 126.0 132.5 16.0 16.6 RPX RP Data Adam Simpson Information Technology 27-Aug-08 2.7 9.6 8.1 10.5 5.8 7.4 SAI SAI Global Benn Skender Industrials 15-Aug-08 18.8 14.4 24.8 24.7 17.2 17.1 SBM St Barbara Jim Copland Materials 29-Aug-08 -2.9 -14.6 -14.0 -20.9 -1.5 -2.0 SEK Seek Alex Pollak Industrials 18-Aug-08 55.5 76.4 55.5 76.4 19.3 26.6 SEV Seven Network Alex Pollak Consumer Discretionary 1622.0 184.1 119.5 146.8 52.1 64.7 SFC Schaffer Corporation Andrew Wackett Consumer Discretionary 27-Aug-08 10.3 11.1 10.3 11.1 69.9 78.6 SFH Specialty Fashion Group Adam Simpson Consumer Discretionary 20-Aug-08 32.1 24.1 25.1 24.1 12.5 12.1 SGM Sims Group Limited Sophie Spartalis Materials 254.4 353.2 254.4 353.2 202.5 219.5 SGP Stockland Callum Bramah Financials 14-Aug-08 1716.3 1022.1 611.0 674.2 44.0 46.2 SHL Sonic Healthcare Ltd Rob Gallagher Health Care 21-Aug-08 205.2 246.3 205.2 253.2 68.2 76.5 SKC^ Sky City Entertainment Group Steve Wheen Consumer Discretionary 25-Aug-08 98.3 51.2 98.3 111.2 22.3 24.2 SKL^ Skellerup Holdings Stephen Hudson Consumer Staples 0.6 14.1 11.4 12.8 10.6 11.6 SKT^ Sky Network Television Steve Hodgson Consumer Discretionary 77.9 98.7 77.9 98.7 20.0 25.4 SLM Salmat Benn Skender Industrials 22-Aug-08 44.3 14.8 29.0 30.5 23.7 20.9 SMX SMS Management & Technology Benn Skender Information Technology 26-Aug-08 18.0 25.3 18.0 25.3 28.0 38.8 SOT SP Telemedia Limited Andrew Levy Telecomm Services 15-Sep-08 44.9 10.9 13.0 12.0 3.2 3.0 SPT Spotless Group Ltd Benn Skender Industrials 25-Aug-08 47.3 38.9 53.4 51.2 24.8 23.6 SRV Servcorp Mark Carew Financials 26.3 30.6 26.3 30.6 32.7 38.1 SRX Sirtex Medical Limited Rob Gallagher Health Care 1.6 5.9 1.6 5.9 2.9 10.6 STU^ Steel and Tube Stephen Hudson Materials 14-Aug-08 27.8 21.0 27.8 23.3 31.6 26.4 SUL Super Cheap Auto Group Adam Simpson Consumer Discretionary 27-Aug-08 22.3 27.4 22.3 27.4 21.0 25.7 SUN Suncorp Tony Jackson Financials 26-Aug-08 1064.0 586.1 1173.0 912.2 175.7 97.9 TAH TABCorp Holdings Steve Wheen Consumer Discretionary 07-Aug-08 450.4 521.3 515.6 509.8 98.2 97.1 TCL Transurban City Link Ian Myles Industrials 27-Aug-08 -151.2 -32.7 -151.2 -32.7 -15.9 -3.0 TEL^ Telecom NZ Steve Hodgson Telecomm Services 08-Aug-08 3027.8 711.2 958.8 711.2 47.2 37.7 TGR Tassal Group Mark Carew Consumer Staples 27-Aug-08 16.0 20.0 16.0 20.9 14.1 16.8 THL^ Tourism Holdings Warren Doak Industrials 20-Aug-08 13.1 16.4 23.1 19.6 23.5 19.9 TLS Telstra Corporation Andrew Levy Telecomm Services 13-Aug-08 3253.0 3765.0 3253.0 3765.0 26.1 30.3 TNE Technology One Limited Benn Skender Information Technology 19-Nov-08 14.8 17.0 14.8 17.0 4.9 5.6 TOL Toll Holdings Russell Shaw Industrials 1284.6 494.2 427.0 375.8 26.0 37.9 TPI Transpacific Industries Group Adam Simpson Industrials 27-Aug-08 103.0 175.4 103.0 175.4 45.2 60.9 TRS The Reject Shop Adam Simpson Consumer Discretionary 20-Aug-08 12.3 16.9 12.3 16.9 47.9 65.0 TSE Transfield Services Limited Andrew Wackett Industrials 25-Aug-08 114.3 82.6 103.9 106.5 54.2 53.8 TSO Tishman Speyer Office Fund Paul Checchin Financials 19-Aug-08 263.6 34.7 56.8 41.8 18.1 12.2 TTS Tatts Group Steve Wheen Consumer Discretionary 28-Aug-08 286.8 263.0 231.4 261.8 21.1 20.7 UGL United Group Limited Andrew Wackett Industrials 11-Aug-08 92.7 119.4 92.7 128.7 66.7 79.0 VBA Virgin Blue Russell Shaw Industrials 25-Aug-08 215.8 90.1 231.8 111.1 21.9 10.5 VCT^ Vector Stephen Hudson Utilities 101.8 165.7 200.0 165.7 20.0 16.6 VPG Valad Property Group Callum Bramah Financials 26-Aug-08 108.9 -1.3 66.9 169.9 9.3 11.1 WAN West Australian News Alex Pollak Consumer Discretionary 06-Aug-08 53.9 119.2 128.4 132.5 61.4 63.3 WDS WDS Andrew Wackett Industrials 27-Aug-08 11.1 17.3 12.0 17.3 15.2 19.2 WES Wesfarmers Greg Dring Consumer Staples 21-Aug-08 794.7 1019.6 796.7 1194.6 205.2 206.5 WHG WHK Group Limited Mark Carew Industrials 24.4 29.1 25.3 30.6 10.9 12.0 WHS^ The Warehouse Group Warren Doak Consumer Discretionary 12-Sep-08 97.9 84.4 98.5 77.4 32.2 25.3 WOR WorleyParsons Andrew Wackett Energy 12-Aug-08 224.8 320.7 236.1 353.0 104.3 144.5 WOW Woolworths Greg Dring Consumer Staples 26-Aug-08 1294.0 1594.0 1294.0 1594.0 107.9 131.7 WSA Western Areas NL Jim Copland Materials -12.1 -17.0 -12.1 -17.0 -7.7 -10.2 WTF Wotif.com Adam Simpson Consumer Discretionary 27-Aug-08 26.4 34.7 26.4 34.7 12.9 16.8 WYL Wattyl Andrew Wackett Materials 20-Aug-08 16.6 11.4 16.6 11.4 19.5 13.2

*USD ^NZD

Source: Macquarie Research, July 2008

24 July 2008 37 Macquarie Research Equities - Report Profit Outlook

Fig 38: Interim reporting season - for all Dec/Jan year end companies ASX Company Name Analyst Name Sector Rep Date Rep Net Prof Adj Net Prof Adj EPS Code FY07A FY08E FY07A FY08E FY07A FY08E ABC Adelaide Brighton Douglas Macphillamy Materials 21-Aug-08 53.4 50.2 53.4 50.2 9.9 9.3 ALL Aristocrat Leisure Steve Wheen Consumer Discretionary 28-Aug-08 125.9 92.1 125.9 92.1 26.8 19.8 ALZ Australand Holdings Paul Checchin Financials 28-Jul-08 119.7 62.9 63.6 62.9 6.9 6.8 AMP AMP Limited Tony Jackson Financials 28-Aug-08 470.5 372.9 553.5 372.9 29.4 19.8 APN APN News and Media Ltd Alex Pollak Consumer Discretionary 12-Aug-08 72.5 72.6 73.2 72.6 14.9 14.8 AWC Alumina Limited Brendan Harris Materials 31-Jul-08 284.3 108.0 271.0 108.0 23.5 9.5 AXA AXA Asia Pacific Holdings Tony Jackson Financials 05-Aug-08 374.0 205.3 377.9 214.5 21.8 12.7 BLY* Boart Longyear John Purtell Industrials 26-Aug-08 72.0 106.8 72.0 106.8 4.8 7.2 CCL Coca-Cola Amatil Andrew Kovacs Consumer Staples 20-Aug-08 140.9 166.1 160.9 163.3 21.3 22.1 CNA Coal & Allied Brendan Harris Energy 29-Jul-08 70.0 241.6 70.0 241.6 80.8 279.0 CTX Caltex Australia Andrew Blakely Energy 22-Aug-08 367.7 321.5 254.5 181.0 94.3 67.0 CXP Corporate Express Adam Simpson Industrials 06-Aug-08 34.3 35.4 35.3 37.7 19.9 22.4 EBB Everest Babcock & Brown Mark Carew Financials 8.2 5.8 9.5 7.1 3.8 2.7 ERA Energy Resources of Australia Brendan Harris Energy 25-Jul-08 5.7 22.9 5.7 22.9 3.0 12.0 FUN Funtastic Adam Simpson Consumer Discretionary 21-Aug-08 4.7 10.8 6.7 6.3 4.0 3.7 GPT GPT Group Callum Bramah Financials 27-Aug-08 736.7 208.7 296.3 207.7 14.5 9.6 HGI Henderson Group plc Deana Mitchell Financials 28-Aug-08 89.5 33.6 51.6 35.8 7.1 4.8 HTA Hutchison Telecommunication Andrew Levy Telecommunication Services 19-Aug-08 -197.3 -88.2 -197.3 -88.2 -8.6 -0.6 ILU Iluka Resources Jim Copland Materials 21-Aug-08 42.0 10.7 42.0 10.7 15.9 3.4 IRE IRESS Market Technology Mark Carew Information Technology 19-Aug-08 12.6 15.7 17.4 23.4 14.9 19.4 IRN Indophil Resources NL Jim Copland Materials 0.0 -2.3 0.0 -2.3 0.0 -0.6 IVC Invocare Limited Adam Simpson Consumer Discretionary 21-Aug-08 11.5 13.5 11.5 13.5 11.5 13.3 LGL* Lihir Gold Jim Copland Materials 19-Aug-08 -53.4 50.4 53.0 77.2 3.3 4.1 MAP Macquarie Airports Ian Myles Industrials 20-Aug-08 1994.5 87.9 405.4 52.5 23.6 3.1 MRE Minara Resources Jim Copland Materials 27-Aug-08 246.5 79.0 246.5 79.0 52.8 16.9 MYO MYOB Limited Adam Simpson Information Technology 20-Aug-08 8.7 -5.7 10.9 11.6 2.8 2.9 NFE Northern Iron Len Eldridge Materials 0.2 0.2 0.1 OGC OceanaGold Corporation Jim Copland Materials 31-Jul-08 -9.3 20.8 -9.3 20.8 -5.6 11.0 OSH* Oil Search Andrew Blakely Energy 19-Aug-08 46.9 262.2 46.9 132.2 4.2 11.8 OXR Oxiana Jim Copland Materials 20-Aug-08 172.6 184.0 181.1 180.9 11.3 11.5 PMM Portman Len Eldridge Materials 57.1 83.6 57.1 83.6 32.5 46.6 QBE QBE Insurance Tony Jackson Financials 21-Aug-08 921.1 870.6 926.1 886.6 105.5 102.4 RKN Reckon Adam Simpson Information Technology 11-Aug-08 5.0 5.5 5.0 5.5 3.7 4.1 SGN STW Communications Group Benn Skender Consumer Discretionary 15-Aug-08 19.5 16.9 16.7 16.9 8.1 8.4 SGX Sino Gold Mining Jim Copland Materials -2.7 4.2 -2.7 4.2 -1.2 1.7 SKI Spark Infrastructure Group Gavin Maher Utilities 25-Aug-08 14.1 18.5 14.1 18.5 1.4 1.8 SRL Straits Resources Jim Copland Materials 25.2 25.3 7.5 25.3 3.9 11.2 STO Santos Andrew Blakely Energy 21-Aug-08 261.6 328.9 280.0 311.8 46.8 53.2 TAP Tap Oil Limited Andrew Blakely Energy 29-Aug-08 -0.3 -7.8 -0.3 -7.8 -0.2 -4.8 WDC Westfield Group Callum Bramah Financials 29-Aug-08 1973.9 983.8 835.7 983.8 47.6 50.7 WPL Woodside Petroleum Andrew Blakely Energy 27-Aug-08 610.6 991.2 545.9 991.2 80.8 144.0 CCC Cavotec MSL Holdings Warren Doak Industrials 3.2 4.7 3.2 4.7 5.1 7.5 GPG Guinness Peat Group Lyall Taylor Financials 94.0 27.0 99.1 30.5 8.0 2.7 NZR^ New Zealand Refining Company Stephen Hudson Energy 21-Aug-08 59.5 46.9 58.4 46.9 24.3 19.5 OIC^ Opus Stephen Hudson Industrials 18-Aug-08 7.0 7.9 7.0 7.9 5.1 5.6 PFI^ Property For Industry Stephen Ridgewell Financials 21-Jul-08 7.6 8.3 7.6 8.3 3.6 3.9 SIP Sigma Pharmaceuticals Ltd Rob Gallagher Health Care 22-Sep-08 30.3 40.3 36.6 40.3 3.8 4.7 BGR^ Briscoes Group Limited Warren Doak Consumer Discretionary 10.5 2.5 10.5 2.5 5.0 1.2

*USD ^NZD

Source: Macquarie Research, July 2008

24 July 2008 38 Macquarie Research Equities - Report Profit Outlook

Profit outlook – by sector Consumer discretionary – media Key recommendations ƒ Companies such as FXJ and NWS have a number of avenues for earnings growth which are not (or are less) NWS – Outperform reliant on the traditional advertising market. FXJ, which SEV – Outperform now only has ~20% exposure to the metro advertising market, has emerging digital assets and exposure to CMJ – Neutral regional economies, while NWS has a number of FXJ – Outperform subscription businesses and also a substantial online AEO – Outperform play. MMG – Outperform ƒ Seek too is looking for other avenues to drive earnings growth, signalling its intentions by investing a further APN – Neutral US$45m and lifting its stake in Beijing-based recruitment SEK – Outperform company Zhaopin to 42.9% (on a fully diluted basis). WAN – Underperform ƒ In contrast, companies such as TEN and WAN, which TEN – Underperform are heavily reliant on single earnings streams, will struggle to find good growth through an advertising Performance drivers downturn. Metro advertising slowdown looms New media still outperforming old media ƒ Most of the leading economic indicators coming from ƒ There appears to be a continuing theme of new media Australia, New Zealand and the US suggest a metro outpacing old media. The significant growth of online and advertising slowdown is increasingly likely. As a result, digital divisions shows no signs of abating, driving media stocks have fallen in line with this negative revenue increases. sentiment. ƒ FXJ and NWS have online franchises that are ƒ A profit warning has thus far been issued by TEN while supplementing its traditional media enterprises in management commentary in general has been fairly television, radio and print. guarded on the outlook for the metro advertising market. ƒ Within the FXJ group, Fairfax Digital and TradeMe are ƒ We have formalised our view that the metro television expected to contribute circa 15% of the company’s advertising market in Australia will be down 8% in FY09. second half EBITDA and we are forecasting this to grow Given the uncertainty of the revenue market and how at double digit rates into FY09. quickly it appears to have fallen off (according to TEN), this would be an appropriate starting point for the media ƒ Similarly, NWS has clearly signalled its intention for new market and the TV market into FY09. It could be worse; it media with its focus on its online strategy with the Wall is unlikely to be better. Street Journal, its investment in Fox Interactive Media (in particular MySpace) and the joint venture with NBC ƒ Print is also likely to be hard hit by a metro advertising Universal. slowdown, with FXJ’s The Sydney Morning Herald and The Age already recording weak results in 1H, while Key picks most major US newspapers reported a slowdown in ƒ Our key picks in the sector are SEK, FXJ and NWS advertising spend in 1Q CY08. based on strong fundamentals. NWS is forecast to have ƒ Radio is predominantly a local advertising medium, so strong growth in earnings on cashflow, driven by its there is less exposure to national and international cable division, a turnaround at Sky Italia and its growing brands, and as such AEO sales are not expected to online divisions, although the strong AUD presents a show the weakness which is likely to occur in TV and significant headwind to share price performance in print. Australia. FXJ should continue to perform via its emerging online and digital assets, while SEK still has Diversifying the revenue base legs of growth driven by the continuing structural ƒ Given the potential for a metro advertising market migration, emerging markets and the potential for further downturn, the importance of having a diversified revenue yield increases. base is coming to the fore. This has been highlighted by the diverging outlooks of media companies that have drivers of growth to see them through an advertising slowdown and those that do not.

24 July 2008 39 Macquarie Research Equities - Report Profit Outlook

Profit preview ƒ The NZ publishing business should struggle given the effects of tough trading conditions in NZ and a Austereo Group (AEO) – 25 August depreciating NZD, with some benefit from FXJ’s ƒ Radio metro advertising revenue grew 5.8% on pcp for exposure to rural NZ with its buoyant dairy industry. the 12 months to the end of June 2008, according to Macquarie Media Group (MMG) – 27 August figures released by Commercial Radio Australia. meaning 2H08 was up ~3.6% on pcp. This is in line with ƒ MMG recently announced a final distribution of 22.5cps. AEO management forecasts that the metro advertising ƒ The 15% increase on pcp of net operating earnings per market would be up between 2% and 4% in 2H. security for FY08 reflects the solid performance of ƒ We expect AEO to achieve 2H08 revenue growth in Macquarie Southern Cross Media (especially radio) as excess of the market as it continues to increase its well as Taiwan Broadband Communications (sale now market share off the back of solid ratings. complete for A$392m), coupled with a contribution from its American Consolidated Media platform. We have ƒ Cost growth is likely to be up in line with inflation this half slightly scaled back our numbers for ACM in FY09, in at around 3% due to higher talent costs and double rent part due to new currency forecasts but also to account as the company transitions to new premises. for a slowdown in economic activity in the US. APN News and Media (APN) – 12 August ƒ The integration of the TV assets purchased from ƒ APN announced that 1H08 NPAT would be "broadly in Southern Cross Broadcasting ”remains on track to line with the prior year", while operating earnings "will be deliver A$9m of annualised cost synergies for the 12 marginally behind ... due to increased costs of months ending 30 June 2009”. investment projects". Revenue on a constant currency ƒ To reiterate, in selling Taiwan Broadband, MMG has basis was up 2% on pcp. We are forecasting 1H group significantly de-risked the company, reducing net debt to EBIT of A$139.8m, down 1.8% on pcp and adjusted ~A$679m, eliminating its exposure to the Taiwanese group NPAT of A$72.6m, down 0.8% on pcp. currency (which has fallen heavily in line with the US$) ƒ This announcement comes as no surprise given the and the regulatory uncertainty in Taiwan related to tough trading conditions in metropolitan NZ and the industry rationalisation. forecast depreciation of the NZD as well a metro News Corporation (NWS) – 6 August advertising slowdown in Australia (per the TEN announcement). ƒ We are forecasting 4Q08 group EBIT of US$1,581m; growth of 30% on pcp. The result itself should throw up ƒ Divisionally, in line with company guidance we expect no surprises, as management has provided good the 1H result to be held up by solid performances from guidance on NWS’ progress throughout the year. regionals and outdoor, offset by weakness in the NZ businesses. Online is yet to make positive contributions ƒ This quarter should continue the trends that have been to the bottom line with APN lagging in this area evident throughout the first nine months of the year, with compared to rivals Seek and FXJ’s Trademe and its cable rate hikes continuing to drive growth and solid Australian digital business. The company continues to performances coming from Sky Italia and online. We benefit from a low effective tax rate, expected to remain have factored in a slight slowdown to television, in line at ~20% this half. with a weakening US economy, however this is partially mitigated by the now profitable MyNetworkTV. Fairfax Media (FXJ) – 21 August ƒ Thus far, there has been mixed commentary coming ƒ FXJ’s 2H08 result will feature the first full half from the US as to the state of the advertising market. contribution from the SBC assets FXJ picked up from Post the quarterly results (ending 31 March 2008), most MMG. We anticipate strong organic growth, driven major US newspapers reported a slowdown in primarily by FXJ’s high growth digital assets in both advertising spend, however this is yet to be Australia and New Zealand and its regional publishing substantiated in television. businesses, notwithstanding a 10% reduction in metropolitan EBITDA. This should drive EPS higher, ƒ Of greater focus in this result will be the outlook counteracting the dilutionary effect of a higher EFPOWA statement. We have already heavily downgraded our figure and increased interest expense associated with FY09 earnings, so unless management guidance is to financing the RUP and SBC/MMG deals. the extreme on either end of the scale, we do not expect to be drastically revising our estimates. ƒ In the Australian digital business we expect solid growth in classifieds to underpin revenues increases. The key factor for the growth of online in general has been the increased penetration of broadband, which has allowed FXJ to expand its video content and advertising offerings.

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Seven Network (SEV) – TBC* ƒ This implies that in 4Q television will only generate circa ƒ Again the focus will be on the cash on SEV’s balance $16m of EBITDA compared to $53.1m in 4Q07, a sheet and also more disclosure on the $715m SEV decline of ~70% on pcp. The television division is a invested into the equity markets last half or at the very ~25% margin business therefore this suggests 4Q least some more clarity surrounding SEV’s strategic television revenue will be down ~16% on pcp. Around direction. The investments made by SEV to date – West half of this is understood to have been expected (related Australian News, Engin, Unwired, GRD and CMJ, appear to the Beijing Olympics) with the other 8% decline market to lack strategic coherency. related. ƒ SEV executives originally cited the $715m invested into ƒ We have taken the view that TEN’s revenue decline in the equity markets was “a short-term, tax-effective 2009 will annualise to around -8% (ie the non-Olympic strategy to harvest dividends” (The Sydney Morning component, which also assumes no market share Herald, 08/07/08) with the shares likely to be sold by 30 change for TEN) so that EBITDA for the TV business June. However, with Kerry Stokes recently saying “there comes in at $190m, down 12% on pcp. was a partly strategic element to the investments” it is West Australian News (WAN) – 6 August unclear to what extent the equity portfolio has been ƒ This quarter is expected to be one where cost-out as liquidated. opposed to top-line revenue growth is driving overall ƒ Focusing on the numbers, we are expecting 2H08 earnings growth. WAN’s significant capex investment of adjusted profit of $57.9m. The forecast earnings the Herdsman Press upgrades should be starting to pay comprises $31m in dividends from SEV’s equity dividends with cost savings, additional capacity and investments, an equity accounted loss of $8m from its increased margins. We have forecast total group 47% stake in Seven Media Group (SMG), and $46m in expenses to be up only 1% on pcp mainly attributable to interest income. lower personnel and newsprint costs. ƒ SMG is a cyclical business, with the bulk of the earnings ƒ At the group level, we estimate 4Q total recurring EBIT (circa 70%) coming in the first half. While 2H08 earnings to increase 14% on normalised pcp, with the bulk of this decrease relative to the 1H, the interest expense growth coming from The West Australian (+11% on pcp accruing on the ~$2.5bn of debt does not and hence and accounting for ~88% of group earnings). SMG (for 100% of the business) is expected to record a ƒ Of concern, we forecast the revenue growth trend at The loss of $17m at the EBIT line in 2H. West Australian to continue to be in single digits. For the SEEK (SEK) – 18 August first three quarters this fiscal year revenue growth on pcp ƒ We forecast 2H08 adjusted NPAT of $40.8m, up 29% on recorded at The West Australian was 11%, 6% and 3% pcp, bringing the full-year forecast adjusted NPAT to respectively. ANZ job ad data supports this thesis with $76.4m, an increase of 38% on pcp. print job classifieds in WA showing a decline this quarter. ƒ We estimate SEK classifieds revenue in the 2H08 to be Consolidated Media Holdings Limited (CMJ) – 19 up 26% on pcp to $97.6m. Revenue growth is still being August fuelled by volume growth (structural shift, early stage ƒ The group adjusted profit figure will be of little assistance markets and growing SME segment), yield increases in giving clarity on company performance or for (shifting product mix) and new product expansion. This comparative purposes to the pcp. What will be of interest should flow through to 2H08 EBITDA of $56m, growth of is how the individual investments at the asset level have 30% on pcp. performed. We forecast good growth coming from CMJ’s stakes in Seek, Foxtel and Fox Sports, with a downturn ƒ Although ANZ job ad data depicts online job ad volumes expected at PBL Media. growth rates to have fallen sharply in 2H (January data showed growth of 33.4% on pcp now down to 11.7% for ƒ The most important dynamic affecting this stock is its the month of June) we believe this will not affect FY08 potential as an acquisition target given it has a suite of numbers and is more relevant for FY09. strategic media assets that could prove attractive if purchased at the right price. Ten Network Holdings (TEN) – TBC* ƒ TEN’s performance to date this year has been overshadowed by the outlook statement in the 3Q08 result in which management stated that "recent further deterioration in external economic conditions is now adversely impacting the free-to-air television advertising market in Australia. Given these influences, combined with the already anticipated impact of the Beijing Olympic Games in the fourth quarter, management forecasts now indicate that TEN's (television) 2008 EBITDA will be down by approximately 10% when compared with the $237 million achieved in (for the full year) 2007”. NB:* Company is yet to confirm exact reporting date 24 July 2008 41 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/EquityYear ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Media

Austereo Group AEO Outperform 06/2007A 46.546.5 12.7 11.3 0.87.0 9.8 9.0 6.3 70.7 100 $1.47 $542m 6x 06/2008E 48.948.9 14.0 10.3 0.87.4 8.6 10.0 7.0 72.0 100 Medium 0.03% 35% 12/2008E(i) 27.927.9 8.0 N/A N/A N/A N/A 5.2 N/A 65.0 100 06/2009E 49.549.5 14.1 10.2 0.77.3 8.5 10.2 7.1 72.0 100 06/2010E 52.152.1 14.9 9.7 0.77.6 8.1 10.7 7.5 72.0 100

APN News and Media Ltd APN Neutral 12/2007A 167.4 169.4 34.4 9.4 1.517.3 6.6 31.5 9.7 91.5 30 $3.25 $1,689m 5x 06/2008E(i) 72.672.6 14.8 N/A N/A N/A N/A 13.5 N/A 91.0 30 Medium 0.10% 66% 12/2008E 157.5 157.5 32.2 10.1 1.615.4 6.9 29.3 9.0 91.0 30 12/2009E 159.1 159.1 32.5 10.0 1.515.5 6.8 29.6 9.1 91.0 30 12/2010E 168.3 168.3 34.4 9.4 1.516.2 6.5 31.3 9.7 91.0 30

Consolidated Media Holdings CMJ Neutral 06/2007A 62.058.0 8.4 34.7 35.3101.8 33.6 0.0 0.0 0.0 - $2.94 $2,134m - 06/2008E 6101.9 118.1 17.1 17.1 21.4156.3 16.8 18.5 6.3 107.8 0 Low/Medium 0.12% -158% 12/2008E(i) 64.164.1 9.3 N/A N/A N/A N/A 8.4 N/A 90.0 0 06/2009E 135.8 135.8 19.7 14.8 -301.4 14.6 17.7 6.1 90.0 0 06/2010E 148.5 148.5 21.5 13.6 --251.4 13.4 19.4 6.6 90.0 0

Fairfax Media FXJ Outperform 06/2007A 263.4 251.3 23.3 11.3 0.87.1 7.9 20.0 7.6 86.0 100 $2.71 $4,162m 4x 06/2008E 399.1 391.4 26.0 10.2 0.87.8 7.5 22.0 8.3 84.6 75 Low/Medium 0.34% 40% 12/2008E(i) 215.2 206.9 13.7 N/A N/A N/A N/A 10.9 N/A 80.0 75 06/2009E 436.3 419.7 27.7 9.5 0.88.1 7.2 22.2 8.4 80.0 75 06/2010E 478.9 462.3 30.6 8.6 0.78.7 6.6 24.4 9.3 80.0 75

Macquarie Media Group MMG Outperform 06/2007A 37.754.3 26.3 12.0 0.98.4 8.4 45.5 14.4 172.7 0 $3.09 $684m 1x 06/2008E 54.960.2 28.1 11.2 0.98.1 7.6 47.0 14.9 167.1 0 Medium 0.05% 134% 12/2008E(i) 42.642.6 19.7 N/A N/A N/A N/A 25.8 N/A 130.9 0 06/2009E 77.977.9 36.0 8.8 0.910.3 7.1 50.6 16.1 140.7 0 06/2010E 86.386.3 39.5 8.0 0.911.4 6.5 54.3 17.3 137.4 0

News Corporation NWS Outperform 06/2007A 3425.7 3066.7 101.4 13.9 1.29.8 10.7 10.0 0.7 9.9 0 $15.11 $12,153m 11x 06/2008E 3413.4 3499.4 122.7 11.5 0.89.3 8.9 10.0 0.7 8.1 0 Medium 0.44% 15% 12/2008E(i) 1795.0 1795.0 69.9 N/A N/A N/A N/A 5.0 N/A 7.2 0 06/2009E 3589.9 3589.9 139.8 10.1 0.88.2 7.7 10.0 0.7 7.2 0 06/2010E 3909.8 3909.8 152.0 9.3 0.78.3 7.1 10.0 0.7 6.6 0 Adjusted equity accounted net profit All data is expressed in USD

Photon Group PGA Outperform 06/2007A 16.716.7 23.0 11.8 1.112.0 7.2 22.2 8.1 96.5 100 $2.80 $211m 4x 06/2008E 22.622.6 30.1 9.1 0.911.4 5.9 27.6 10.1 91.8 100 Low/Medium N/A 49% 12/2008E(i) 9.89.8 13.1 N/A N/A N/A N/A 12.4 N/A 95.0 100 06/2009E 24.324.3 32.2 8.5 0.911.0 5.6 30.6 11.2 95.0 100 06/2010E 26.326.3 34.8 7.8 0.911.7 5.2 33.1 12.1 95.0 100

Seek SEK Outperform 06/2007A 55.555.5 19.3 23.5 12.259.8 21.7 13.7 3.0 71.1 100 $4.62 $1,392m - 06/2008E 76.476.4 26.6 17.0 9.764.5 15.8 18.6 4.1 70.0 100 High 0.09% -29% 12/2008E(i) 41.941.9 14.4 N/A N/A N/A N/A 10.1 N/A 70.0 100 06/2009E 88.988.9 30.6 14.8 9.063.9 13.8 21.4 4.7 70.0 100 06/2010E 114.3 114.3 39.4 11.5 7.771.9 10.9 27.6 6.1 70.0 100

Seven Network SEV Outperform 06/2007A 1622.0 119.5 52.1 14.5 0.77.8 12.1 29.0 3.9 55.7 100 $7.77 $1,663m 46x 06/2008E 184.1 146.8 64.7 11.6 0.76.2 11.6 39.1 5.2 60.4 100 Medium 0.09% -112% 12/2008E(i) 85.485.4 39.7 N/A N/A N/A N/A 15.4 N/A 38.9 100 06/2009E 138.4 138.4 64.3 11.7 0.75.8 11.7 38.6 5.1 60.0 100 06/2010E 146.0 146.0 67.8 11.1 0.76.1 11.1 40.7 5.4 60.0 100 Adjusted equity accounted net profit

Sky Network Television SKT Neutral 06/2007A 77.977.9 20.0 20.7 1.47.0 9.9 10.0 2.4 50.0 100 NZD$4.15 NZD$1,615m 4x 06/2008E 98.798.7 25.4 16.4 1.48.6 9.0 14.0 3.4 55.2 100 Low/Medium N/A 49% 12/2008E(i) 53.653.6 13.8 N/A N/A N/A N/A 7.0 N/A 50.8 100 06/2009E 110.2 110.2 28.3 14.6 1.39.2 8.1 14.0 3.4 49.4 100 06/2010E 126.7 126.7 32.6 12.7 1.310.1 7.5 18.0 4.3 55.3 100 All data is expressed in NZD

Ten Network Holdings TEN Underperform 08/2007A 66.152.3 13.0 10.4 2.09.8 5.8 13.0 9.6 100.1 100 $1.44 $1,345m 2x 08/2008E 285.0 104.8 11.2 12.1 1.313.5 9.2 13.5 10.0 120.6 100 Medium 0.05% 83% 02/2009E(i) 46.246.2 5.0 N/A N/A N/A N/A 5.0 N/A 100.0 100 08/2009E 83.787.2 9.5 14.3 1.39.2 10.3 9.5 7.0 100.0 100 08/2010E 89.192.7 10.0 13.5 1.39.5 9.7 10.0 7.4 100.0 100 Adjusted equity accounted net profit

West Australian News WAN Underperform 06/2007A 53.9128.4 61.4 13.0 19.5111.7 11.4 61.0 7.6 99.4 100 $7.95 $1,697m 6x 06/2008E 119.2 132.5 63.3 12.6 18.5150.8 11.1 55.0 6.9 86.9 100 Low/Medium 0.14% 572% 12/2008E(i) 65.465.4 31.2 N/A N/A N/A N/A 32.0 N/A 102.4 100 06/2009E 133.7 133.7 63.9 12.5 16.3138.9 11.0 62.0 7.8 97.0 100 06/2010E 138.6 138.6 66.2 12.0 16.0133.9 10.7 64.2 8.1 97.0 100 Adjusted equity accounted net profit

Source: Macquarie Research, July 2008

24 July 2008 42 Macquarie Research Equities - Report Profit Outlook

Consumer discretionary – retailing Key recommendations Wesfarmers (WES) – 21 August BBG – Outperform ƒ We expect Wesfarmers might report an FY08 NPAT of $1,020m and an adjusted NPAT of $1,194m. At the WOW – Neutral group level we expect sales of $32bn and EBIT of HVN – Underperform $2,059m. Wesfarmers is a coal and Coles (food, liquor & fuel) story for the next two to three years. It is unlikely WES – Neutral earnings volatility or investment thematics could emerge DJS – Neutral from within the other industrial and retail business which would affect the Wesfarmers story or profit and loss. PBG – Underperform ƒ The recent extraordinary strength that has emerged from Profit preview the bulk commodity price cycle has seen Macquarie’s Billabong (BBG) – 22 August Japanese hard coking coal reference price increase to US$300/tonne in JFY08 and JFY09. ƒ We expect FY08 NPAT of $182m, an 8.6% increase on pcp. Management has provided FY08 NPAT growth of ƒ In the next few years we believe Wesfarmers will need to 5–10%, which was left unchanged at the 1H08 result. invest in Coles rather than reduce costs. We believe this will be a revenue-driven recovery. Kick-starting “comps” ƒ The increase in reported NPAT reflects sales growth will be critical to driving Coles profitability and the first from acquisitions, organic growth and translation losses step to doing this was the launch of its complex that exceed transaction gains associated with a stronger promotions technology (Retek 3) in May. We will be AUD/USD. Our recommendation on BBG currently is looking at the total costs in the F&L business at year end Outperform. Thematics are dominating pricing of this as this will allow us to rebase our estimates and see if stock as fears of a US recession and resultant decline in any cost savings were to be had. near-term sales growth crimps profit growth for Billabong. Woolworths (WOW) – 26 August ƒ The market is likely to be preoccupied with currency ƒ Woolworths has provided FY08 NPAT growth guidance when it comes to the FY08 results. BBG has both a of 19% to 23% (excluding profit from property sales, transaction and translation exposure with the AUD/USD. which if included would increase guidance to 21 to 25%). Over FY08 there was a mismatch such that transaction We are expecting the FY08 result will be at the top end gains are less than the translation losses. This is due to of the range due to WOW’s market share gains in the lag between COGS purchasing and earnings grocery at the expense of Coles. We expect WOW will translation, as COGS will have been purchased at an report an FY08 NPAT of $1,615m up 23% on pcp. average rate of 0.799 USD/AUD while translation will be ƒ Will WOW provide FY09 guidance? If they fail to provide at rates between 0.874–0.925 USD/AUD. This mismatch guidance this may indicate that FY08 was the peak in will revert over FY09. BBG’s Americas division and the super cycle of earnings as easy share gains begin to specifically US performance and forward orders are also dissipate. We expect that if WOW provides guidance it likely to attract significant scrutiny, as was the case with would be for NPAT growth of at least 10%. If WOW does the 1H08 result. not provide guidance we see this as an indication that ƒ We remain attracted to Billabong’s global brand management is expecting NPAT growth of at least 10% proposition due to its extensive global expansion both to be challenging. through its emerging markets and brands. The result will ƒ The usual areas of scrutiny are expected to receive be driven by continued category and emerging brand attention. Within the food and liquor businesses, expansion of Von Zipper, Element, Kustom, Nixon and standard operating ratios remain the quantum of Honolua both domestically and internationally. This reduction in the CODB and gross profit margins. Other specific individual brand expansion has and will continue divisions are subject to the same scrutiny. The former is to create growth in overall representation, without usually higher than the latter. CODB reductions are compromising the brand image through flooding. The expected to continue their decline with management role of company-owned retail will also increase in targeting a 20–25bp reduction pa. Areas influencing this contribution (BBG recently increased their US retail include supply chain initiatives such as DC outlets by 11 stores with the Quiet Flight Acquisition) and developments and roll cages combining to create in expectation in the FY08 result and beyond. store efficiencies, cost savings and thus profitability.

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ƒ Other areas of interest include inventory day reductions ƒ Offshore retail growth is starting to contribute a larger and private label. WOW management has previously share of company revenue growth. We will look with forecast a one–two day reduction in food and liquor days great interest to the result of the New Zealand business pa. In reference to private label, WOW may provide in particular and how Harvey Norman copes in a detail on their progression towards their aim of producing struggling economy (industry consumer electronics products in 130 – 140 categories. WOW currently has participants reporting up to 10% like for like decline since private label products in ~30–40 categories on April). supermarket shelves. ƒ How long will consumers continue to show a preference ƒ Rollback continues to receive attention as a pricing and for an early adoption of new technologies? Management loyalty tool. While Coles now has this capability and is expects growth into the medium term. actively promoting it, WOW believe that it has a ƒ Our concern is that when brands go ex-growth margins competitive advantage in the Rollback offer as they are compress. In Australia there is a real risk of this as well more advanced in their understanding of Rollback as a as a breakdown in the relationship between volume promotional tool. growth and price. How is management trying to deal with ƒ The repositioning of Big W was a significant this risk? By segmenting the Australian market by development over FY08 and it will be interesting to see redefining its multi-brand, variable format retail concept how EBIT will fare with a rapidly slowing consumer. by repositioning Joyce Mayne. The acquisition of While in the past Big W sales growth has been driven by Retravision stores is a part of this strategy. The market space growth, 1H08 saw improved Big W comps and the segment Harvey Norman is targeting is a low margin FY08 will reveal if this trend has continued into 2H08. segment, but Harvey Norman still does have a high cost base. ƒ Consumer electronics may also receive focus as a review of the division’s positioning and range has been David Jones (DJS) – 24 September undertaken. It will also be of interest to gauge how the ƒ We expect FY08 NPAT of $133.7m, a 22% increase on consumer electronics customer has reacted after pcp. DJS have provided guidance of 8–13% NPAT increased interest rates, petrol prices etc compared to growth for 2H08 and it is expected that this will be the declining sales growth experienced by HVN. comfortably met and exceeded. Implied FY08 NPAT ƒ WOW may provide further details on the fast developing guidance is 19–21%. Our recommendation on DJS is Everyday Rewards loyalty program and associated Neutral. financials services offer. WOW may also provide ƒ RBA rate increases and fears of a slowing information specifically on the credit card that they are macroeconomic environment continue to put pressure on developing. the price of this stock. This is despite management Harvey Norman (HVN) – TBC* taking the bold move of providing FY09–12 NPAT guidance of growth of at least 5–10%. DJS has ƒ We estimate Harvey Norman FY08 NPAT of $354m and successfully built cost flexibility into its asset base and EBIT of $582m. When HVN last reported their quarterly expanded the market potential of the brand. Earnings sales Harvey Norman’s “comps” over 3Q08 “proxy” (4 from the introduction of DJS’ Amex partnered credit card months to April 08) as 2.5% and have slowed in addition to space growth should put DJS in a significantly from the pcp. respectable position to meet their long term guidance. ƒ Traditional promotional programs including extended Further details may be provided on the imminent launch interest free promotional offers have driven domestic of the DJS amex credit card to be launched in 2H CY08 sales growth. However, continued strength in at the FY08 result. technology driven products such as plasmas, LCDS, ƒ It will be interesting to review margins in the FY08 result portable audio and digital products and games (Wii was given that DJS has been prominently discounting in a big seller) to drive strength in this space albeit in a very order to maintain minimal inventory in preparation for competitive environment. slowing comps. Significant deterioration in margins is not ƒ Looking at operating metrics the relationship between expected given that one of DJS’ seven sources of future revenue growth and cost growth a relationship we have value as outlined in their strategic plan is to improve commented on several times before, it is clear within the profit margin through the cycle to within a range of 39.5– Australian franchising operations a profit shift is 40% (FY07 39.3%). CODB will also be an area of occurring from the franchisee to the shareholder which is scrutiny as DJS are targeting to continue to reduce improving this relationship. Over FY08 revenue growth CODB. will exceed cost growth. Management intervention in the ƒ Management may provide further details on locations or operating costs of franchisees is driving this specifics of their 4–8 stores that they are proposing they improvement. will open between FY09 and FY12.

24 July 2008 44 Macquarie Research Equities - Report Profit Outlook

Pacific Brands (PBG) – 20 August PPL – Outperform ƒ We expect FY08 NPAT of $117.0m, a 10.4% increase ƒ We retain a high conviction over PPL’s future growth on pcp. PBG have provided FY08 guidance of 15–20% prospects. However, PPL is not immune to the prevailing EBITA growth, and NPAT growth in excess of 10%. Our trading environment and it may take tangible evidence recommendation on PBG is Underperform. that that cycle has turned before investor attention refocuses on these prospects. ƒ While we remain confident that PBG will meet its FY08 guidance, the outlook for FY09 will no doubt be BGR – Underperform informative. To date, management has been relatively ƒ We retain an Underperform recommendation. While confident about the future. In contrast we expect that recognising that the underlying trading conditions and they will be subject to significant challenges in FY09 general business pressures are not unique to BGR, and including slowing demand, cost pressures and difficulty will result in other listed peers lowering profit guidance, in achieving price increases. BGR’s regular discounting/sales strategy leaves it with ƒ In 1H08, PBG intended to underwrite its dividend in relatively few tools to address the softening sales line. order to preserve cash. However, it subsequently ƒ With BGR also enjoying high regard as operators, there announced to the market that it would not underwrite the does not appear to be many low hanging fruit to be pluck 1H08 dividend given the low share price. Therefore, any to underpin significant margin expansion in 2H09. statements on FY09 dividend policy will be worth examining as a potential signal into managements ƒ BGR provided its second profit warning in six weeks, comfort with debt levels and/or view on the share price. yesterday announcing that it expect 1H09 NPAT of between $2–3m, down on previous guidance of $5–6m ƒ For FY08 divisional performance, we are expecting and materially below the $10.5m reported in 1H08. modest sales growth in the underwear & hosiery (+2%) and outerwear & sport (+0.6% in underlying business ex MHI – Underperform Yakka and Brands Collective acquisitions). The ƒ We continue to rate MHI’s operational model, integration and associated realisation of synergies of management, competitive position, and growth Yakka (and to a lesser extent Brands Collective) will be prospects very favourably from a long-term perspective. of interest in the FY08 result. However, the macro-economic outlook has deteriorated ƒ Based on trade feedback, we expect there will be materially and has introduced significant risk to FY09 negative sales growth in footwear (-1.5%). We expect earnings, and at current fully-valued prices we do not that Home Comfort will deliver sales growth (+5%) in believe MHI offers sufficient upside potential to justify FY08 due to increasing sales from the Sheridan assuming this risk. acquisition. Home Comfort however will be the category RBD – Outperform that is most impacted by slowing consumer spending due to the high exposure to discretionary purchases ƒ We expect RBD to demonstrate the defensive such as mattresses, premium linen and floor coverings. characteristics synonymous with the fast food industry globally. KFC and Starbucks appear well positioned to ƒ Trends and outlook for COGS inflation will be important weather any prolonged economic slowdown. to note. At the 1H08 result Chinese wage inflation was reported to be in excess of 10% and we expect that ƒ If RBD is able to arrest the sales decline in Pizza Hut (or wage inflation pressures will have increased. Given that make other structural changes to the brand), and KFC 1H08 saw an increase in CODB due to a combination of and Starbucks continue to deliver, we would expect a re- factors, it will be telling to see if this trend was repeated rating in the RBD share price. in the 2H. One area in which PBG has discretion to ƒ The forecast FY09 dividend of 7.5cps offers an attractive reduce costs is in 4Q08 marketing costs for, which could dividend yield provide some temporary relief for rising costs. HLG – Neutral

ƒ HLG became the latest NZ retailer to acknowledge the NZ Retail clear deterioration in underlying trading conditions. While Warren Doak (649) 363 1416 an unseasonably long summer and the timing of Easter also negatively impacted trading, the NZ consumer is * Please note all NZ stocks are in NZD certainly struggling. Key recommendations ƒ We see limited scope for an improvement in the underlying trading environment in the near term. WHS – Neutral ƒ HLG’s strong balance sheet (debt free) and attractive ƒ WHS is still the subject of potential corporate activity. dividend yield should provide some share price support The next step is the Court of Appeal decision, and and underpins a Neutral recommendation. whether this clears the way for either WOW or Foodstuffs to bid for WHS.

24 July 2008 45 Macquarie Research Equities - Report Profit Outlook

Performance drivers ƒ Despite strong trading in May (+4.8%), The Warehouse has experience a marked slowdown since then, with ƒ The listed retail sector comprises two broad-based June and July trading now expected to be well below retailers (Warehouse and Briscoes), three specialty previous expectations. retailers – MHI (Australasian jewellery focus); Pumpkin Patch (children’s wear global focus) and Hallensteins ƒ WHS Stationery continues to struggle, with sales in May (Australasian men’s and women’s apparel focus), and and June 7.7% below pcp. fast food operator Restaurant Brands. ƒ Margins are also under pressure, in part due to sales ƒ Consumer confidence has collapsed in the face of deleverage and in part due to inflationary pressures on commodity and food price inflation, coupled with a major cost lines. deteriorating outlook for both house prices and ƒ The near-term catalyst remains the prospect of corporate employment levels. There appears to be limited activity. prospects of any near term recovery. ƒ The Court of Appeal has heard the Commerce ƒ Listed retailers characterise recent trading as volatile Commission appeal of the High court decision and its and challenging, perhaps the most challenging most decision is expected by the end of July. We would retailers have ever faced. expect WOW to bid for WHS if cleared to do so. ƒ Even at the branded end of the market, retailers are not Pumpkin Patch (PPL) – TBC* immune, with HLG flagging an earnings downgrade in a statement that described trading conditions as “difficult” ƒ The PPL investment case is built around its ability to and citing “intense competition” in both markets. participate fully on the global stage. ƒ All retailers continue to face cost pressures, with rental ƒ FY08 was a challenge for PPL as trading condition in all rates continuing to escalate and material wage major markets deteriorated significantly and PPL inflationary pressures. The spike in oil prices has led to invested heavily in its growth strategy particularly in the significant cost increases in supply chain and higher raw US. This disconnect resulted in a weaker store level material costs. performance that in turn resulted in increased losses from the developing markets. ƒ Operating margins are under significant pressure, with almost all the listed retailers flagging earnings ƒ However, while FY08 earnings will be depressed, PPL’s downgrades and pointing to significant margin investment in growth will ensure that the company is well contraction. positioned to benefit from the inevitable turnaround in trading conditions. The strength of the core NZ and ƒ The length and severity of the current cycle is unknown, Australian businesses will again be demonstrated at both but is now broadly expected to continue for at least 12 the revenue and margin levels. months, and will almost certainly impact Christmas 2008 trading. ƒ While the costs associated with that strategy will depress near-term earnings, investors are encouraged to look ƒ Over this period we expect to see a continuation in past near-term earnings momentum and closely examine disparity of results from similar/comparable retailers and the key features of PPL’s investment case: wholesalers due to differences in merchandising offers, execution, internal efficiency gains and the demographic ⇒ A core competence, and unique focus, in fashion target market. orientated childrenswear; ƒ Inventory reduction will remain a theme across the ⇒ A multi-faceted global growth model; industry. In some instances this has put real pressure on ⇒ An inter-related wholesale and retail business; retailers supply chain logistics, while for others it has provided a competitive advantage. ⇒ Proven and successful management team; and Profit preview ⇒ Low levels of debt. Warehouse (WHS) FY08 result– 12 September ƒ We expect PPL to report a NPAT of around $17.5m (under IFRS) for FY08. A final dividend of 4.0cps is ƒ WHS directors lowered guidance for FY08 following a expected. sharp deterioration in trading conditions in the past six weeks, and an expectation that the prevailing trading Briscoes (BGR) 1H09 result– TBC* conditions will continue for some time. ƒ BGR provided its second profit warning in six weeks, ƒ FY08 NPAT is now expected to be in the range of $84– announcing that it expect 1H09 NPAT of between $2– 88m, including the reversal of warranty provisions of 3m, down on previous guidance of $5–6m and materially $7.2m. This is 11% below previous guidance and 21% below the $10.5m reported in 1H08. below pcp. ƒ Management also stated that 2H09 NPAT is expected to be below pcp, albeit not to the same magnitude.

24 July 2008 46 Macquarie Research Equities - Report Profit Outlook

ƒ 1H09 revenue is forecast to be 6% or $11m below the ƒ We forecast FY08 NPAT of $19.2m, 10% below pcp. A $190m reported in 1H08, despite the contribution form final dividend of 18.0cps is expected (unchanged on 12 new stores opened since 1Q08. pcp). ƒ In addition to the inherent operating deleverage for such Michael Hill (MHI) FY08 result – TBC* a sales shortfall, BGR is also facing material increase in operating costs, particularly salary and warehouse and ƒ MHI will report its FY08 result on or around 18 August distribution costs. 2008. We are expecting a FY08 NPAT of $25.2m, up 16.1% on the pcp of $21.7m. MHI earns more than two- ƒ This has resulted in a material contraction in EBIT thirds of its earnings in the first half, so the impact of the margin, which we estimate will be around 2% in the recent slowdown in retail conditions will likely prove 1H09 period. relatively modest on FY08, with the impact likely to ƒ We expect an interim dividend of NZ2.00cps. become more evident in FY09. ƒ MHI's price has de-rated significantly recently. However, Restaurant Brands (RBD) – TBC* with the outlook for retail conditions in Australasia ƒ We expect RBD to report 1H09 NPAT of NZ$6.1m continuing to deteriorate, we see few reasons for the ($4.5m in pcp). shares to perform in this environment. Underperform. ƒ The continuing momentum from the KFC transformation process continued, with solid same store sales growth,

despite lapping a strong pcp.

ƒ The transformation process and strong promotional activity is having a positive spin-off on the non- transformed stores, with most also delivering good same

store sales growth.

ƒ Pizza Hut continues to struggle, with same store sales stubbornly in negative territory.

ƒ Starbucks has delivered 18 consecutive quarter of same store sales growth.

ƒ The exit from Pizza Hut Victoria has been completed,

leaving the focus clearly on NZ and Pizza Hut in particular.

Hallensteins (HLG) – TBC* ƒ Not surprisingly, HLG confirmed the deterioration in underlying trading conditions reported by other listed

retailers.

ƒ HLG advised that sales for the 14 week period ended 11 May of $50.3m were 5.3% below pcp. ƒ HLG stated that the retail environment during autumn was particularly challenging, with a number of events

combining to compound the sales impact.

ƒ Consumer demand is under considerable pressure, and the resulting lacklustre consumer response was compounded by the Indian summer (not favourable for

winter apparel), and the early timing of Easter (which traditionally provides a catalyst for the commencement of sales of winter apparel).

ƒ As with other retailers, HLG did comment that the recent

onset of cooler weather has triggered a strong demand for winter apparel. We note this in part reflects pent up demand, more than an improvement in underlying

consumer demand.

ƒ We also note that the Feb-April quarter is the least significant of the four trading period, reflecting its trans- seasonal bias. Trading in 4Q08 will have a more

significant impact on annual profitability. NB: * Company is yet to confirm exact reporting date 24 July 2008 47 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Consumer Durables & Apparel

Billabong International BBG Outperform 06/2007A 167.2 167.2 80.8 12.3 2.7 22.8 10.9 50.5 5.1 62.5 100 $10.16 $2,174m 15x 06/2008E 182.0 182.0 87.3 11.4 2.5 22.9 10.2 52.5 5.3 60.2 100 High 0.17% 33% 12/2008E(i) 124.2 124.2 59.5 N/A N/A N/A N/A 25.5 N/A 42.8 100 06/2009E 210.2 210.2 100.7 9.9 2.2 23.9 9.0 51.0 5.1 50.6 100 06/2010E 255.4 255.4 126.8 7.8 2.1 27.7 7.2 53.0 5.3 41.8 100

Cavalier Corporation CAV Underperform 06/2007A 14.315.9 24.2 8.9 2.2 24.8 6.7 19.0 8.8 78.4 100 NZD$2.15 NZD$144m 6x 06/2008E 17.819.1 28.8 7.5 1.8 26.6 5.5 21.1 9.8 73.4 100 Medium N/A 101% 12/2008E(i) 8.89.5 14.1 N/A N/A N/A N/A 10.1 N/A 71.8 100 06/2009E 19.821.1 31.4 6.8 1.7 26.0 5.1 23.2 10.8 73.9 100 06/2010E 21.222.5 33.5 6.4 1.6 26.1 4.8 24.8 11.6 74.1 100 All data is expressed in NZD

Fisher & Paykel Appliances FPA Neutral 03/2008A 54.265.5 23.1 8.5 0.9 9.9 4.8 18.0 9.2 78.0 50 NZD$1.95 NZD$555m 4x 09/2008E(i) 7.727.8 9.8 N/A N/A N/A N/A 9.0 N/A 92.2 50 Low/Medium N/A 46% 03/2009E 17.062.1 21.8 8.9 0.9 9.8 4.9 18.0 9.2 82.5 50 03/2010E 78.778.7 27.7 7.1 0.9 12.4 4.3 18.0 9.2 65.1 60 03/2011E 81.881.8 28.7 6.8 0.8 12.4 4.1 22.0 11.3 76.6 60 All data is expressed in NZD

Retailing

Briscoes Group Limited BGR Underperform 01/2008A 22.422.4 10.6 8.5 1.6 19.5 6.3 8.0 8.9 75.6 100 NZD$0.90 NZD$191m - 07/2008E(i) 2.52.5 1.2 N/A N/A N/A N/A 2.0 N/A 166.9 100 Medium N/A -42% 01/2009E 9.39.3 4.4 20.5 1.6 7.9 10.4 4.0 4.4 91.2 100 01/2010E 13.813.8 6.5 13.8 1.6 11.5 8.7 4.6 5.1 70.9 100 01/2011E 25.625.6 12.1 7.4 1.5 20.3 5.7 8.6 9.5 70.8 100 All data is expressed in NZD

Hallenstein Glasson HLG Neutral 07/2007A 21.421.4 36.1 7.3 2.4 32.8 5.8 35.0 13.3 97.0 100 NZD$2.63 NZD$157m - 07/2008E 19.219.2 32.4 8.1 2.6 30.3 6.2 35.0 13.3 108.2 100 Low/Medium N/A -43% 01/2009E(i) 10.510.5 17.7 N/A N/A N/A N/A 17.0 N/A 96.1 100 07/2009E 21.421.4 36.0 7.3 2.5 35.0 5.7 35.0 13.3 97.1 100 07/2010E 21.921.9 36.9 7.1 2.5 35.3 5.6 35.0 13.3 94.9 100 All data is expressed in NZD

Harvey Norman HVN Underperform 06/2007A 407.2 324.0 30.6 9.8 1.9 21.3 7.8 11.0 3.7 36.0 100 $3.02 $3,187m 14x 06/2008E 348.7 348.7 32.9 9.1 1.6 18.7 7.4 14.0 4.7 42.6 100 High 0.18% 23% 12/2008E(i) 204.9 204.9 19.3 N/A N/A N/A N/A 7.0 N/A 36.2 100 06/2009E 335.9 335.9 31.7 9.5 1.4 15.4 7.6 14.0 4.7 44.2 100 06/2010E 362.7 362.7 34.2 8.8 1.2 14.4 7.2 14.0 4.7 40.9 100

Michael Hill International Ltd MHI Underperform 06/2007A 21.021.7 5.5 13.7 4.0 29.5 10.3 2.6 3.4 47.0 100 NZD$0.76 NZD$291m 8x 06/2008E 27.126.2 6.9 11.1 3.3 32.6 8.3 3.2 4.2 46.6 83 Low/Medium N/A 57% 12/2008E(i) 18.918.9 5.0 N/A N/A N/A N/A 1.3 N/A 26.2 61 06/2009E 26.026.0 6.8 11.1 2.9 27.4 8.0 3.4 4.5 49.8 66 06/2010E 31.731.7 8.3 9.1 2.4 28.7 6.7 4.0 5.3 48.0 63 All data is expressed in NZD

Pacific Brands PBG Underperform 06/2007A 106.0 106.0 21.1 8.7 0.7 8.1 7.3 16.5 9.0 78.3 100 $1.90 $949m 4x 06/2008E 117.0 117.0 23.3 7.9 0.7 8.8 6.4 17.6 9.6 75.6 100 Medium 0.09% 61% 12/2008E(i) 58.658.6 11.7 N/A N/A N/A N/A 8.5 N/A 72.9 100 06/2009E 110.8 110.8 22.1 8.3 0.7 8.2 6.7 17.6 9.6 79.8 100 06/2010E 114.0 114.0 22.7 8.1 0.7 8.3 6.6 18.5 10.1 81.3 100

Pumpkin Patch PPL Outperform 07/2007A 27.727.7 16.6 8.6 2.2 26.7 5.6 9.0 6.3 54.1 100 NZD$1.43 NZD$239m 13x 07/2008E 22.022.0 13.2 10.8 2.2 19.9 6.0 8.0 5.6 60.6 100 Medium N/A 34% 01/2009E(i) 12.512.5 7.5 N/A N/A N/A N/A 4.5 N/A 60.0 100 07/2009E 26.526.5 15.9 9.0 2.0 22.8 5.1 9.0 6.3 56.5 100 07/2010E 34.534.5 20.7 6.9 1.7 26.4 4.3 10.4 7.2 50.0 100 All data is expressed in NZD

Restaurant Brands RBD Outperform 02/2008A 9.014.2 14.6 5.6 2.2 41.4 3.0 6.5 8.0 44.6 100 NZD$0.81 NZD$79m 4x 08/2008E(i) 6.17.8 8.0 N/A N/A N/A N/A 4.0 N/A 49.8 100 Low/Medium N/A 118% 02/2009E 10.514.0 14.4 5.6 2.0 37.4 2.9 7.5 9.3 52.0 100 02/2010E 12.014.5 15.0 5.4 1.8 35.0 2.8 7.5 9.2 49.8 100 02/2011E 13.715.2 15.6 5.2 1.6 32.9 2.7 9.6 11.9 61.8 100 All data is expressed in NZD

The Warehouse Group WHS Neutral 07/2007A 97.998.5 32.2 12.0 2.8 26.3 8.8 17.5 4.5 162.9 100 NZD$3.86 NZD$1,194m 23x 07/2008E 84.477.4 25.3 15.2 3.6 20.9 10.2 21.0 5.4 82.9 100 High N/A 10% 01/2009E(i) 49.549.5 16.2 N/A N/A N/A N/A 12.0 N/A 74.1 100 07/2009E 71.171.1 23.3 16.6 3.5 21.3 10.5 17.2 4.5 74.0 100 07/2010E 86.586.5 28.3 13.6 3.2 24.2 9.1 19.3 5.0 68.2 100 All data is expressed in NZD

Food & Drug Retailing

Metcash Ltd MTS Neutral 04/2008A 197.3 193.0 25.1 15.5 2.4 16.1 12.1 21.0 5.4 83.7 100 $3.96 $3,021m 7x 10/2008E(i) 102.5 102.5 13.3 N/A N/A N/A N/A 9.0 N/A 67.7 100 Very High 0.30% 35% 04/2009E 205.0 205.0 26.6 14.6 2.3 16.2 11.5 22.5 5.8 84.6 100 04/2010E 210.3 210.3 27.3 14.3 2.2 16.1 11.2 21.0 5.4 76.9 100 04/2011E 221.1 219.1 28.4 13.7 2.2 16.1 10.8 21.0 5.4 73.8 100 24 July 2008 48 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Wesfarmers WES Neutral 06/2007A 794.7 796.7 205.2 15.2 3.5 23.9 10.6 219.6 7.0 107.0 100 $32.40 $21,338m 10x 06/2008E 1019.6 1194.6 206.5 15.1 1.3 10.4 10.0 198.4 6.4 96.1 100 Low/Medium 2.55% 140% 12/2008E(i) 1060.7 1060.7 135.6 N/A N/A N/A N/A 65.0 N/A 47.9 100 06/2009E 2370.5 2370.5 299.9 10.4 1.2 11.7 7.3 235.0 7.5 78.4 100 06/2010E 2409.8 2411.8 299.2 10.4 1.2 11.2 6.6 245.0 7.9 81.9 100

Woolworths WOW Neutral 06/2007A 1294.0 1294.0 107.9 21.7 5.4 27.8 14.8 74.0 3.2 68.6 100 $24.39 $29,869m 9x 06/2008E 1594.0 1594.0 131.7 17.8 5.3 29.9 12.9 92.0 3.9 69.8 100 Low/Medium 2.92% 41% 12/2008E(i) 963.9 963.9 79.4 N/A N/A N/A N/A 48.4 N/A 61.0 100 06/2009E 1717.5 1717.5 142.8 16.4 4.7 30.4 11.9 101.2 4.3 70.9 100 06/2010E 1853.4 1853.4 154.2 15.2 4.3 29.7 11.1 111.3 4.7 72.2 100

Source: Macquarie Research, July 2008

24 July 2008 49 Macquarie Research Equities - Report Profit Outlook

Consumer discretionary – hotels, restaurants and leisure Key recommendations ƒ The NSW government has also implemented its own version of race fields legislation which prohibits the TTS – Outperform publication of race fields without approval from the CWN – Outperform relevant racing body (Racing NSW, Harness Racing NSW and Greyhound Racing NSW). It also allows the ALL – Outperform controlling bodies to set conditions for approval including SKC – Neutral a fee of up to 1.5% of wagering turnover. The three codes of racing in NSW have not yet determined what TAH – Underperform percentage of turnover they will charge for the use of Industry commentary race fields. It is logical to assume that other states will now respond with their own version of race fields Gaming sector premium unwind legislation which will likely see an increase in the cost ƒ In times of increasing uncertainty this sector typically base of corporate bookmakers, betting exchanges an outperforms the market. However, recently this has not pari-mutuel operators alike. This will in turn affect the been the case. Recent share price movements reflect an odds offered by the NT Bookmakers and Betting unwinding of premiums normally attributed to regulated Exchanges and effectively level the playing field with monopolies plus a removal of takeover premiums. totalisators. Private equity (PE) has long been assumed interested in Wagering this space in light of its stable cashflows, however credit market weakness has clearly impacted debt funding ƒ Wagering growth in Victoria has had a tumultuous year. potential and therefore PE interest is now assumed to An outbreak of equine influenza in late August 2007 have waned considerably. resulted in the locking down of horses which saw NSW and Queensland meetings cancelled for a period of 16 ƒ The premium unwind in this sector has been weeks. Once racing resumed, wagering turnover in exacerbated by the heavy hand of government Victoria staged a dramatic rebound in intervention and the associated uncertainty this creates. December/January 2008 but unfortunately it was short- In April 2008, the Victorian government removed the lived. For the period 1 January 2008 to 30 June 2008, gaming duopoly structure held by TTS and TAH in favour Victorian wagering turnover appears to have grown an of a heavily fragmented owner operator model akin to unimpressive 0.4%. NSW and Queensland. Furthermore, the government announced that they were reneging on their obligation to ƒ Historically, Victorian wagering turnover has been quite refund TTS and TAH $598m and $670m respectively robust relative to the typical weakness of wagering should they not be awarded the licence post 2012. This growth in NSW. Unfortunately, 2H08 will not have this move highlighted the sovereign risk for businesses in luxury. NSW has also continued to show little growth Victoria and will likely spark a spate of litigation over the during the period and looks to be in a state of structural next few years. At the same time, investors have turned decline. on gaming assets in other states as they contemplate ƒ Queensland wagering, on the other hand, in 2H08 the impact of wall to wall Labor Governments. appears to have bucked the Victorian trend finishing the Australian racing year very strongly. We suspect this is largely a result of the strength of Queensland field sizes, due in part to a ƒ As a result of the Victorian decision, post 2012, the strong horse community. In February 2008, wagering Victorian racing industry will no longer have access to was weak in Queensland but it surged in March, April the profits from gaming machines. The new funding and May and looks set to deliver turnover growth of circa model is yet to be determined with some clarity imminent 6–7% for the six months ended 30 June 2008. when the Victorian wagering licence is renewed. No ƒ The wagering industry will continue to be supported, in doubt the Victorian Govt will revisit its race fields part, by the stellar growth rates in sports-betting, legislation (particularly in light of the recent NSW however, these numbers are relatively small by changes) to assist. comparison. Greyhounds and harness racing also will maintain stronger growth than the thoroughbreds. Attention to marketing, programming, additional meetings and access to a younger demographic have helped stimulate these codes.

Gaming ƒ The introduction of whole of venue smoking bans across each of the Australian states over the past few years rebased EGM revenue and the rebound in gaming spend up to now has been relatively impressive, providing pleasant surprise to all gaming machine operators.

24 July 2008 50 Macquarie Research Equities - Report Profit Outlook

ƒ Gaming expenditure growth of 3.5% on pcp in ƒ TTS have further increased its exposure offshore with Queensland has been particularly resilient, given the the purchase of the remaining 50% of Talarius from current period has been disrupted by a continuation of Macquarie Group. The departure of the well respected high petrol prices and interest hikes. Unfortunately the CEO Nick Harding has proven to be a blow for this same cannot be said for Victoria, where growth for 2H08 business with no further signs of the promised roll up has been an unimpressive 1.2%. emerging since the business was bought 18 months ago. On 7 July 2008, at the cessation of Nick Harding’s non- ƒ NSW is one of the last states to implement this compete clause, it was reported that he had acquired 31 legislation and has only just completed a full 12 months adult gaming centres in the UK with further intention to since it was introduced. Star City Casino in Sydney has consolidate the industry through more acquisitions. This suffered at the hands of this regulation with gaming will increase Talarius’s competition significantly as Nick revenues poised to report a sluggish six months. Harding has an excellent reputation in this sector. Share market weakness points to opportunities for consolidation Profit preview Tatts Group Ltd (TTS) – 28 August ƒ Consolidation opportunities have become increasingly difficult to come by especially in light of funding concerns ƒ We forecast 2H08 reported NPAT of $130.1m with a as a result of the tight credit markets. dividend of 9.8 cents fully franked. This translates into FY08 reported and adjusted NPAT of $263.0m and ƒ Crown has moved aggressively offshore into Macau, $261.8m respectively, (up 13.1% on normalised pcp). British Colombia, Miami, Las Vegas and Pennsylvania. Investors are increasingly coy about Greenfield projects ƒ Going into reporting season TTS is our preferred pick in and the associated construction risk which has seen this the tourism and leisure space with largely domestic and stock totally unsupported. defensive earnings, high dividend yield and no debt issues. The result is unlikely to surprise but is likely to ƒ ALL appears to have let an opportunity go begging since demonstrate its defensive/resilient characteristics. The Bally (BYI) has recently re-rated on the back of its strength of Queensland field sizes has underpinned success in the five reel stepper market and as a result of TTS’s growth in wagering, which is set to deliver TTS the significant decline in ALL’s share price the shoe is turnover growth of circa 6–7% for the six months ended now on the other foot, with ALL coming up on the radar 30 June 2008. We forecast combined Queensland and of BYI. South Australia wagering revenue for 2H08 of $277.2m, ƒ The cornerstone stake of 30% held by the various up 6.6% on pcp. members of the Ainsworth family makes a takeover ƒ Gaming growth in Victoria has been disappointing during difficult, however most of this shareholding does not the period, delivering growth of 1.2% for the five months have voting rights attached. If a takeover of ALL were to to 31 May 2008. Gaming spend has been disrupted by occur, BYI would assume complete control with only a the continuation of higher petrol prices and a number of 70% stake. interest rate hikes during the period. Over the period to ƒ The cessation of the duopoly gaming structure in Victoria 2012, TTS have indicated they will reduce operating has opened up the opportunity for a TTS and TAH costs by circa $10m per annum as well as reduce capex merger. This strategy would involve spinning-off the in an attempt to maximise their returns. We forecast casino business held by TAH into a separate listed entity Victorian Gaming revenue for 2H08 of $614.7m, up 0.7% and combining the remaining business (wagering, on pcp. gaming and lotteries). The scheme would be a ƒ Finally, we understand Golden Casket has contributed compelling move as it would help re-rate the TAH casino positively in 2H08 where Ticket sales have increased business which has been dragged down in the share significantly as a result of a number of key products price of TAH and also create an Australian wagering jackpotting to high profile levels, eg Powerball monolith. jackpotting at $60m. This will be difficult to cycle in ƒ Elsewhere in the gaming space, TAH has applied for a forthcoming years. We forecast lottery revenue for 2H08 NT corporate bookmakers licence in an attempt to stem of $514.0m, up 74.3% on pcp. the losses in wagering turnover that they were Crown Ltd (CWN) – 20 August experiencing in NSW and VIC. According to TAH, it will be able to ‘win’ back up to $77m of EBIT through ƒ We forecast CWN to report NPAT of $170.9m for 2H08 establishing NT corporate bookmakers operations. We and FY08 reported and adjusted NPAT of $359.6m and are of the view that the implementation of NSW race $382.4m respectively. fields legislation and the subsequent fee that TAH’s NT ƒ CWN’s Macau property has had a very strong operations will be required to pay to the NSW racing performance in 2H08 coming off the back of a deal with industry will make this extremely difficult. the junket operator A-MAX which helped Crown Macau increase their VIP market share significantly over the period. It is also worthwhile noting that this period has been disrupted by the Macau Specialist Administrative Regime (SAR) implementing visa restrictions. 24 July 2008 51 Macquarie Research Equities - Report Profit Outlook

ƒ Elsewhere, we understand CWN’s joint venture (New ƒ US replacement cycle remains weak amidst the current World Gaming) in Canada is performing particularly well economic situation. There were no new jurisdictions as it benefits from the Western Canadian Provinces opened during the half, however regulations in California exposure to the resources boom. We forecast New on select Tribal Indian casinos have allowed for an World Gaming to contribute marginally to CWN’s 2H08 increase in the number of slot machines. While this result. appears positive for ALL, we understand a number of these casinos have been cautious and taken a ƒ The Australian gaming assets are expected to perform measured approach to increasing their slot machine well, contributing $314.3m of normalised EBITDA for numbers due to the per-machine tax. Add to this the fact 2H08, (up 8.5% on pcp) and $630.9m for FY08, (up that ALL’s five reel stepper has not hit the mark. We 7.1% on pcp). Burswood casino, trading largely on the have forecast 6,675 units to be sold in the half, down back of the strength of the WA economy, is expected to 12.3% on pcp. We forecast USA SCP for FY08 of generate in excess of $90m of EBITDA for 2H08. Crown $193m, a decrease of 5.3% on pcp. Melbourne looks set to perform positively on pcp, a noteworthy concept, considering the period has been ƒ Encouragingly, casinos continue to indicate significant marred by high petrol prices and interest rate hikes. As strength in ALL machine performance which has helped we contemplate 1H09 we expect management will ALL maintain its market share, but not grow it. We are dampen guidance to reflect the impact of Crown and also expecting some improvement in participation units. Burswood’s refurbishment and any associated We expect some downward pressure on the fee per day disruptions. to $46.02, (down 6.9% on pcp). This is a direct result of declining US gaming spend due to the slowing economy. ƒ High roller activity across both casinos decreased by 1.2% or $366m to $29.6bn in FY08. We originally ƒ Elsewhere, the roll-out of the Viridian cabinet in the forecast this volume as being unsustainable, particularly Australian gaming market has come with mixed reviews. in light of the additional capacity that has gone into This is a disappointing outcome, however sluggish Macau during the half. The reasons for this stable growth gaming spend across the Australian states are most we believe are twofold: likely weighing on these results. We expect this market to perform in line, considering venues continue to have ⇒ CWN is making advances on TAH’s ICB market an appetite for replacing software (which carries a higher share. margin). ⇒ MPEL’s footprint in Macau is proving a very ƒ Rest of world (ROW) is likely to feature with a relatively successful platform for introductions to high rollers impressive performance from the Macau market with that CWN never had access to before. ALL commanding market share in excess of 60% on ƒ ICB margins at CWN have generally remained flat, which recent placements. It is worth noting however, that a demonstrates superior cost management. This cost number of casinos have reduced the number of on floor management is vital in times of increasing economic slot machines due to the strength in demand for table uncertainty, particularly when global casino peers are games. struggling to stay afloat. The strength of the CWN brand ƒ Overall, there is little left to surprise on the upside for this and the experience of management will underpin CWN’s stock from an operational point of view and it is difficult ability to become a global gaming player. to comprehend the fact that ALL has to achieve 63% of Aristocrat Leisure (ALL) –28 August sales in 2H08 to perform in line with pcp. By the same token at these price levels, we feel any potential for ƒ We forecast 1H08 profit of $92.1m which is (down 26.9% disappointment on this front has well and truly been on pcp). priced in. ƒ Currency strength during the half will weigh heavily on this stock considering 75% of its business is offshore. Sky City Entertainment Group (SKC) – 25 August The currency has stabilised around 94 cents for several ƒ We forecast 2H08 reported and adjusted NPAT of weeks now, with suggestions that the AUD/USD is on its NZ$49.9m (down 6% on normalised pcp) and FY08 way to parity. This will continue to cause concern for reported and adjusted NPAT of 51.21 and 111.21 ALL. respectively, (up 13% on normalised pcp). ƒ 1H08 in Japan has enjoyed strong sales of Maha Go Go ƒ Turnover at SKC’s flagship casino is expected to be Go 2. We forecast 35,800 unit sales in Japan for 1H08. lacklustre with management pointing to the impact of 2H08 is expected to be relatively strong with the much higher petrol prices and interest rates. Construction anticipated release of a second blockbuster game disruption at Darwin and Auckland casino and a mix shift (Kyojin-no-hoshi 3). The release of this will be ‘make-or- towards lower margin revenue business (ie ICB and non break’ in the fickle Japanese market. Furthermore, we gaming) is likely to once again characterise the result. understand that whilst pricing has been under some pressure margins have held firm for ALL in this business unit. We forecast Japan SCP for FY08 of $33.6m, an increase of 468.9% on pcp.

24 July 2008 52 Macquarie Research Equities - Report Profit Outlook

ƒ CEO Nigel Morrison (ex-Galaxy) rolled out a number of management changes throughout the period and indicated SKC were out to pursue increased turnover through the ICB business. We expect focus on this area to disappoint due to the competitive pressure from Macau and the falling NZD relative to HKD. ƒ During the period SKC’s attempt to offload the cinema business failed due to the inability of the bidder to receive favourable financing. While this will have little impact on the result, we note that the proceeds were to be used to reduce SKC’s large debt exposure. ƒ The other concern we continue to entertain centres around the capex profile of the group now that trade sale of underperforming assets is off the agenda. ƒ All in all the result is likely to be uninspiring considering the state of the NZ economy. Tabcorp Holdings (TAH) – 7 August ƒ We forecast 2H08 adjusted normalised NPAT at $247.9m (down 1.1% on pcp) and reported (normalised) NPAT of $247.9m (up 9.6% on pcp). This translates into FY08 reported and adjusted NPAT of $521.3m and $509.8m (down 1.1% on normalised pcp). ƒ Gaming in Victoria was dealt a massive blow in April when the Victorian government indicated they were ending the duopoly licence shared with TTS in favour of an owner operated model. This change takes effect at the cessation of TAH’s gaming licence in 2012. Over the period to 2012, TAH have indicated they will reduce operating costs by circa $10m per annum as well as reduce capex in an attempt to maximise their returns. ƒ Gaming growth in Victoria has been disappointing during the period, delivering growth of 1.2% for the five months to 31 May 2008. Gaming spend has been disrupted by the continuation of higher petrol prices and a number of interest rate hikes during the period. We understand TAH has held onto their market share during the period and we forecast Victorian Gaming to deliver revenue of $486.9m for 2H08, up 2% on pcp. ƒ We expect Queensland revenues to be relatively solid as a result of a strong Queensland economy which has been fuelled by the mining boom. We continue to forecast circa 4% growth for TAH’s Queensland casino division, however there is some small risk to the downside, considering Queensland gaming growth has grown at 3.0% to 30 June 2008 and the ICB business is unlikely to surprise on the upside considering the competitive pressure of Macau. TAH’s NSW casino division is unlikely to surprise on the upside, we therefore forecast TAH’s casino division to deliver revenue of $677.6m for 2H08, up 4% on pcp.

24 July 2008 53 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%)(x) (¢) (%) (%) (%)

Consumer Services

Aristocrat Leisure ALL Outperform 12/2007A 247.2 247.2 52.8 11.6 8.9 72.110.3 39.0 6.3 92.8 81 $6.21 $3,021m 56x 06/2008E(i) 92.192.1 19.8 N/A N/A N/A N/A 13.7 N/A 119.4 60 Very High 0.23% 35% 12/2008E 239.4 239.4 51.6 11.9 5.7 58.3 10.4 35.9 5.8 108.4 69 12/2009E 287.5 287.5 62.1 9.9 4.8 52.88.8 43.5 7.1 102.2 69 12/2010E 344.5 344.5 74.5 8.3 4.2 54.37.5 54.0 8.8 99.4 69

Crown CWN Outperform 06/2007A 297.0 342.0 49.6 15.9 1.2 15.111.7 0.0 0.0 0.0 - $8.32 $5,839m - 06/2008E 367.3 382.4 55.4 14.2 1.3 8.710.4 53.2 6.8 96.1 51 Very High 0.35% -7% 12/2008E(i) 182.5 182.5 26.4 N/A N/A N/A N/A 26.4 N/A 100.0 50 06/2009E 369.8 369.8 53.6 14.7 1.3 8.610.5 53.6 6.8 100.0 50 06/2010E 530.5 530.5 76.9 10.2 2.0 15.38.0 76.9 9.8 100.0 40

Sky City Entertainment Group SKC Neutral 06/2007A 98.398.3 22.3 13.5 3.6 28.77.8 21.0 7.0 94.1 100 NZD$3.02 NZD$1,420m 2x 06/2008E 51.2 111.2 24.2 12.5 3.8 29.97.0 22.0 7.3 90.9 100 Medium N/A 253% 12/2008E(i) 64.564.5 13.9 N/A N/A N/A N/A 11.0 N/A 78.9 100 06/2009E 120.9 120.9 26.1 11.6 3.5 31.56.4 24.0 7.9 92.0 100 06/2010E 129.3 129.3 27.9 10.8 3.2 30.86.1 26.0 8.6 93.2 100 All data is expressed in NZD

TABCorp Holdings TAH Underperform 06/2007A 450.4 515.6 98.2 9.3 1.4 15.37.3 94.0 10.3 95.7 100 $9.53 $5,050m 5x 06/2008E 521.3 509.8 97.1 9.4 1.4 15.07.2 94.0 10.3 96.8 100 Medium 0.50% 63% 12/2008E(i) 281.3 281.3 53.6 N/A N/A N/A N/A 47.0 N/A 87.7 100 06/2009E 546.3 546.3 104.1 8.8 1.4 15.96.9 94.0 10.3 90.3 100 06/2010E 571.9 571.9 108.9 8.4 1.4 16.36.5 94.0 10.3 86.3 100

Tatts Group TTS Outperform 06/2007A 286.8 231.4 21.1 11.1 1.1 14.98.1 18.0 7.7 104.2 100 $2.40 $3,012m - 06/2008E 263.0 261.8 20.7 11.3 1.1 10.17.9 19.3 8.3 93.1 100 High 0.30% 14% 12/2008E(i) 157.3 157.3 12.4 N/A N/A N/A N/A 11.8 N/A 95.0 100 06/2009E 312.0 312.0 24.7 9.5 1.1 12.17.2 23.4 10.1 95.0 100 06/2010E 344.6 344.6 27.2 8.6 1.1 13.26.8 25.9 11.1 95.0 100

Source: Macquarie Research, July 2008

24 July 2008 54 Macquarie Research Equities - Report Profit Outlook

Consumer staples – food and beverages Key recommendations ƒ Price growth has remained strong but volume has declined, while the mix shift towards premium also CCL – Outperform appears to be slowing. The average retail price per litre AVG – Outperform of beer increased by 4.8% for the financial year to May and is comparable to the 5.3% increase in FY07. FGL – Underperform Overall beer volumes have also been soft, with GFF – Underperform ACNielsen reporting a decline of 3.4% compared to +2.6% in FY07. Industry commentary Commodity cost inflation remains an issue Wine a rollercoaster ride ƒ Agricultural commodity cost pressure (from sugar, wheat, ƒ Just 12 months ago the international wine industry oilseeds and dairy) as well as packaging cost inflation appeared as if it were moving toward a “better place”. (PET, aluminium and glass) still remain a challenge for Global demand (particularly in the US) was strong, while food and beverage manufacturers. While hedging global oversupply appeared to be diminishing profiles exist in many cases and help to smooth out the (particularly assisted by a small Australian V’07). volatility in the spot pricing, of more concern is the ability ƒ However, the situation has quickly changed. US volume of manufacturers to pass these costs through to the growth has decelerated, as a result of the slowing consumer who are already ‘feeling the pinch’ of higher economy. We note that in previous economic cycles interest costs and higher cost of petrol. Combine this wine and brandy spending has been more volatile than with the recent ACCC enquiry into grocery pricing and overall household expenditure, and thus we expect the the broad range of private label products on offer, the wine market to endure further slowing over the coming ability to continue passing on these costs looks difficult. 12 months. Profit preview ƒ The Australian wine market has its own set of Coca-Cola Amatil (CCL) – 20 August challenges. The massive oversupply that had been dogging the industry was greatly reduced thanks to the ƒ Management last provided a trading update on 15 May small Australian vintage in 2007. However, V’08 has (only 6 weeks out from year end). At the time the thrown a spanner in the works. company suggested “high single digit” NPAT (pre ISIs) growth for the first half and for the full year. We are ƒ Water restrictions and predictions of a <1mt crush saw forecasting NPAT to increase by 7.6% to $167.6m for wineries enter inflated grape contracts early in the V’08 1H08. growing season. A flurry of early water buying activity followed – however, then so too did increased ƒ We recently examined the challenges that CCL is facing, government water allocations. The net result is that the its 1H08 trading performance and its FY08 earnings Australian 2008 crush is estimated to have come in at a outlook in our note “Look to soft drinks in hard times” (10 remarkably large 1.67mt. However, grape prices are also July 2008). Here we found that soft drink demand was high due to the growers’ purchase of water. relatively resilient in economic downturns observed in the past 17 years. ƒ With grape cost inflation back in the system, the ability of manufacturers to realise selling price increases will be a ƒ Australia (ex SPC), which accounts for ~75% of CCL’s key determinant of company margins over the short to group earnings, would appear on track to meet volume medium term. However, this is likely to prove difficult in and earnings guidance. After an extremely challenging Australia due to the continuing over-supply. In offshore first quarter, CCL looks to have enjoyed an improved markets, this challenge will be compounded by the AUD 2Q08. Trade feedback suggests CCL has grown strength. volumes in a softer petrol and convenience channel (10% of CCL volume) while the decline in the grocery Price continues to drive beer, but growth slowing channel (50% of CCL volume) has moderated. ƒ Price gains continue to underwrite growth in the beer ƒ Indonesia should be another key contributor to the category, however, the overall rate of growth appears to group’s earnings growth in 1H08 as it is cycling a small be slowing. ACNielsen data suggests that for the base. Although the Indonesian economy is showing financial year to May, beer retail sales increased by signs of stress through high inflation, rising interest rates 2.8% – down from the 8.7% growth enjoyed in FY07. and reduction in the government fuel subsidy, we suspect the 1H08 result will still deliver substantial earnings growth. This is due to a price ‘premiumisation’ strategy playing out via mix shift to one way packs versus returnable bottle sales.

24 July 2008 55 Macquarie Research Equities - Report Profit Outlook

ƒ Despite commodity price volatility, COGS inflation is Goodman Fielder (GFF) – 25 August decelerating and we remain confident that FY08 ƒ We are forecasting FY08 NPAT of $206.9m for beverage COGS inflation guidance of 3% to remain Goodman Fielder. We note that management has guided intact. Aluminium and sugar requirements are hedged for full-year NPAT to be “around the same level” as with PET as the only swing factor which has FY07, “with a sensitivity of plus or minus 5%”. We are demonstrated divergence from the oil price on the back more bearish than this, forecasting a full-year 2008 of oil capacity. NPAT decline of 5.7%. Note that this includes a first time ƒ The outlook for 2H08 will obviously be a key focus of the revenue contribution from Paradice Foods, acquired in result and we expect to be more difficult than 1H08. CCL March 2008. remains a fundamentally strong and attractive business ƒ Goodman Fielder faced intense commodity inflation in and we are forecasting 5.4% FY08 NPAT growth and 8% FY07 from increased wheat, edible oils and dairy costs, FY08 EPS growth in what is clearly an extremely and this will have continued in FY08. Commodity cost challenging environment. increases of 32% were reported in 1H08, and Foster’s Group (FGL) – 26 August management is anticipating a 68% increase in 2H08. This will translate to an expected increase in FY08 of ƒ Foster’s revised its FY08 earnings guidance on 10 June, around $220m. While GFF will attempt to pass on so there should be little surprise in the bottom line profit increased costs or alternatively reduce other costs, delivery. Management is forecasting NPAT pre SGARA significant earnings risk remains. of $700–715m, and EPS pre SGARA of 36.2–36.9cps. We are forecasting $706.2m NPAT, or $703.3m on a ƒ GFF managed to pass-on most of the FY07 commodity Macquarie adjusted profit basis (which includes a inflation via selling prices and grow group margin, SGARA loss of $2.9m, as reported in the 1H08). however FY08 will have been more challenging. GFF’s selling prices do not appear to have risen fast enough in ƒ The composition of the result, however, will be of many divisions to offset the COGS inflation. This is interest. Foster’s recent write-downs on the Australian particularly true in the NZ dairy and Australian and US wine assets clearly indicate that their profit commercial divisions, where aggressive competitor delivery has been weak. activity is taking its toll. We expect this to weigh on group ƒ Foster’s US wine business is battling a slowing economy margin, and thus drive the earnings decline. and a seeming diminution of consumer interest in ƒ In terms of outlook, key areas of interest include GFF’s Australian wine. This is being compounded by commodity price expectations and hedging profile, operational and brand health issues, while the rapidly management’s view on the pricing environment and rising AUD (+14% vs pcp) is crimping margins (as implementation plans for FY09, new product imported COGS increase) and translated profits. We are development programs and success in FY08 and any forecasting the Americas division to report a 31% decline further business and manufacturing facilities in EBITS in FY08. restructuring plans. Private-label trends will also be of ƒ The Australian wine business also appears to be interest given the inflationary environment and potential suffering from operational and brand health issues. As a increased consumer adoption of private label product. result, we expect the division to report double digit Consumers may react to the slowing macroeconomic volume declines, and negative sales. We acknowledge, environment by substituting full price products for private however, that this is at least partially a managed label. Commentary on GFF’s approach to acquisitions outcome with FGL implementing price increases and would also be informative, given that bolt-on acquisitions tactically cutting its production of low end cask wine. As form a key part of GFF’s strategy for growth and such margins will expand (also assisted by synergies) relatively high debt burden. and EBITS is expected to increase by 20% in FY08 Australian Vintage Group (AVG) – 27 August (+48% 1H08). ƒ At the first half, Australian Vintage Group management ƒ The Australian beer business, the jewel in the Foster’s maintained confidence of achieving a “small profit” for crown, also appears to be suffering from a relatively FY08. We are forecasting FY08 NPAT of $7.1m in light significant decline in its volumes. Foster’s reported a of easing water issues and a higher than expected 2008 0.8% decline in AAP beer volumes in 1H08. We expect vintage. this to have accelerated in the 2H to -2.2%, to deliver a FY08 beer volume decline of 1.5%. While price ƒ Unfortunately, the biggest determinant of AVG’s fortunes realisation will ensure sales growth stays in the black, is something that is largely out of its control – the 2008 the rate will be less than previous years. Margin Australian wine grape crush. As an infrastructure expansion will once again underwrite EBIT growth provider to the wine industry (grape crushing, wine (Macquarie +6.5%) with underlying COGS pressure making, storage) AVG is dependent on big volumes to being overcome by duty savings from the VB alcohol drive plant utilisation and efficiencies. reduction.

24 July 2008 56 Macquarie Research Equities - Report Profit Outlook

ƒ After three successive record vintages, the 2007 vintage ƒ Overall we do not expect the result to contain too many (V’07) fell 26% to 1.4mt. Original estimates of the V’08 surprises, and the focus is likely to be more on the crush were lower than V’07 at 0.8 to 1.3mt. However, outlook for FY09, and we believe the outlook recently ABARE have revised their V’08 estimates to commentary will be relatively upbeat. A combination of ~1.67mt or a 19% increase on V’07 due to weather rising farmgate beef and sheep prices, ongoing conditions being optimal at the right times through the buoyancy in NZ’s dairy sector, and continued internal season. operating improvements, should underpin a second year of solid gains in profitability. We have recently lifted our ƒ While AVG’s overall profitability will be mostly driven by forecast for FY09 operating NPAT to $45m and FY10 to the Australian crush, AVG can employ some tactics to $50m, and consider the risks to these forecasts to be on assist its bulk wine and processing division earnings at the upside. Any FY09 guidance provided with the result the margin. The sales of underutilised wineries such as could prove to be another short term catalyst for PGW. Griffith, Hunter Ridge and recently Loxton will have helped to reduce AVG’s cost base significantly. ƒ We continue to rate PGW shares as an Outperform, and Efficiencies would be gained via consolidated believe that PGW offers attractive exposure to an winemaking, packaging, warehousing and distribution agricultural-services play, with a favourable earnings operations in and around Mildura. outlook that is largely immune from the uncertainties confronting the broader NZ economy at the present time. ƒ Furthermore, the sale of wineries has helped to reduce Despite PGW’s recent outperformance, the stock debt and improving the balance sheet with gearing at remains below our $2.75 DCF valuation, and our $2.90 ~30% and FY09 interest cover to a comfortable ~3.6x. price target offers attractive upside. Outperform. ƒ AWEC data has shown Australian export wine pricing to

be improving with the volume of underpriced bulk wines declining on pcp. This is a positive for AVG as they focus on their bottled wine business that attracts higher margins. ƒ Although FY08 earnings will be important at the result, the development of the AVG business model into a “sustainable modern wine company” will be more important for the future outlook. As such we are keen to see signs of management’s success in redeploying the low-cost business model into the higher-margin branded wine business. We will also watch with interest for any cost-savings gained through the consolidation of their operations.

NZ Food and Beverage * Please note all NZ stocks are in NZD PGG Wrightson (PGW) – 19 August ƒ We have forecast a FY08 operating profit of $37.9m, up 31% on the pcp of $28.9m. Our forecast is slightly short of company guidance of $39.0m, as we believe dry conditions may have impacted late-season Australian seed sales, as well as some dairy herd transactions in NZ. However, at the same time, the strong performance of PGW’s listed satellite entity NZS will drive performance fees and revaluations gains (which are not included in operating NPAT) above previous guidance. This will bring overall reported NPAT to ~$70m (guidance ~$61m).

24 July 2008 57 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢)(%) (%) (%)

Food Beverage & Tobacco

Australian Vintage AVG Outperform 06/2007A -5.9 -4.0 -3.3 - 0.5 -1.2 21.9 0.00.0 - - $1.17 $147m 0x 06/2008E 7.17.1 5.6 21.6 0.4 2.1 8.8 0.00.0 0.0 - Medium N/A 44% 12/2008E(i) 8.5 8.5 6.7 N/A N/A N/A N/A 3.0N/A 45.1 100 06/2009E 26.114.1 10.9 11.0 0.4 3.9 6.4 7.05.8 64.3 100 06/2010E 18.318.3 13.5 8.9 0.4 4.7 5.7 9.07.5 66.7 100

Coca-Cola Amatil CCL Outperform 12/2007A 339.8 366.3 48.5 14.3 3.7 25.2 9.7 35.55.1 73.2 100 $7.24 $5,413m 5x 06/2008E(i) 166.1 163.3 22.1 N/A N/A N/A N/A 17.5N/A 79.2 100 High 0.35% 103% 12/2008E 390.2 387.4 52.4 13.3 3.7 27.4 8.9 39.55.7 75.4 100 12/2009E 427.6 427.6 57.6 12.1 3.4 29.6 8.3 44.06.3 76.3 100 12/2010E 475.1 475.1 63.6 10.9 3.2 30.2 7.6 47.56.8 74.6 100

Foster's Group FGL Underperform 06/2007A 967.5 690.0 34.3 12.6 1.9 15.2 10.3 23.55.4 68.6 100 $4.45 $8,704m 8x 06/2008E 825.7 703.3 36.2 12.0 2.1 16.4 9.7 26.36.1 72.6 100 Low/Medium 0.85% 55% 12/2008E(i) 381.4 381.4 19.6 N/A N/A N/A N/A 13.5N/A 68.9 100 06/2009E 704.6 704.6 36.1 12.0 2.0 17.2 9.7 29.36.8 81.0 100 06/2010E 796.0 796.0 40.2 10.8 1.9 18.1 8.9 32.37.4 80.2 100

Goodman Fielder GFF Underperform 06/2007A 239.8 218.7 16.5 7.9 0.9 12.1 6.2 13.510.4 81.8 65 $1.35 $1,809m 5x 06/2008E 192.8 206.9 15.6 8.3 0.9 11.0 6.5 12.59.6 80.0 65 Medium 0.18% 54% 12/2008E(i) 91.291.2 6.9 N/A N/A N/A N/A 6.8N/A 98.0 65 06/2009E 216.2 216.2 16.3 8.0 0.9 11.2 6.3 13.110.0 80.0 65 06/2010E 248.6 248.6 18.8 6.9 0.9 12.6 5.6 15.011.5 80.0 65

Lion Nathan LNN Neutral 09/2007A 282.1 267.2 50.2 16.5 5.3 33.9 12.3 40.04.8 79.7 100 $8.40 $4,536m 5x 09/2008E 277.5 277.5 52.1 15.9 5.0 32.4 12.5 41.55.0 79.7 100 Low/Medium 0.24% 123% 03/2009E(i) 159.9 159.9 30.0 N/A N/A N/A N/A 21.5N/A 71.6 100 09/2009E 300.8 300.8 56.5 14.7 4.7 32.9 10.2 45.05.4 79.7 100 09/2010E 332.3 332.3 62.4 13.3 4.4 34.0 9.5 50.06.0 80.2 100

NZ Farming Systems Uruguay NZS Outperform 06/2007A 0.2-1.3 -0.9 - 2.0 -1.1 - 0.00.0 - - USD$1.38 USD$338m - 06/2008E -11.0 1.5 0.6 227.0 1.5 0.9 126.8 0.00.0 0.0 - N/A N/A -2% 12/2008E(i) -2.3 1.4 0.6 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 1.95.5 2.3 61.0 1.4 2.3 36.9 0.00.0 0.0 - 06/2010E 14.914.9 6.1 22.8 1.2 5.5 16.6 2.01.4 32.9 0 All data is expressed in USD

PGG Wrightson PGW Outperform 06/2007A 26.228.9 9.3 27.4 1.9 7.0 22.9 10.94.3 116.6 100 NZD$2.55 NZD$738m 3x 06/2008E 70.3 37.9 13.1 19.4 1.5 8.5 16.7 13.05.1 98.9 100 Low/Medium N/A 56% 12/2008E(i) 18.0 18.0 6.2 N/A N/A N/A N/A 5.5N/A 88.2 100 06/2009E 44.644.6 15.4 16.5 1.5 9.1 14.4 14.05.5 90.9 100 06/2010E 50.450.4 17.4 14.6 1.5 10.2 12.8 15.56.1 88.9 100 All data is expressed in NZD

Sanford SAN Outperform 09/2007A 19.716.7 17.9 28.7 1.0 3.3 14.8 22.04.3 123.2 100 NZD$5.13 NZD$480m 3x 09/2008E 47.5 25.3 27.0 19.0 0.9 5.0 11.7 22.04.3 81.5 100 Low/Medium N/A 29% 03/2009E(i) 16.9 16.9 18.0 N/A N/A N/A N/A 10.0N/A 55.4 100 09/2009E 38.138.1 40.7 12.6 0.9 7.3 8.8 25.04.9 61.4 100 09/2010E 48.548.5 51.8 9.9 0.9 8.9 7.3 27.05.3 52.1 100 All data is expressed in NZD

Skellerup Holdings SKL Outperform 06/2007A 0.611.4 10.6 7.9 2.4 26.4 5.4 2.93.5 27.7 100 NZD$0.84 NZD$111m 0x 06/2008E 14.1 12.8 11.6 7.3 1.5 23.4 5.2 5.06.0 43.2 100 Low/Medium N/A 285% 12/2008E(i) 6.7 6.7 5.1 N/A N/A N/A N/A 2.0N/A 39.4 100 06/2009E 13.313.3 10.1 8.3 1.5 18.0 6.0 5.56.5 54.5 100 06/2010E 14.514.5 11.0 7.6 1.3 18.2 5.6 6.07.1 54.6 100 All data is expressed in NZD

Source: Macquarie Research, July 2008

24 July 2008 58 Macquarie Research Equities - Report Profit Outlook

Emerging leaders The Macquarie Emerging Leaders Group has previewed Crane (CRG), Neutral – 11 August expectations for the upcoming reporting period in further ƒ 18% growth guidance implies NPAT of $63.7m detail in the following Form Guides. compared to our $63.5m forecast. The major driver of Volume 1: Services and consumables profit growth this year will be the Kingston bridge acquisition which should contribute approximately Andrew Wackett 618 9224 0867 $10.8m in EBIT. Volume 2: Engineering, non-res construction and Downer (DOW), Outperform – 21 August consumables ƒ Downer issued AGM guidance of a flat underlying EBIT Rob Martino 618 9224 073 outlook for FY08 ($280m). This is a good result Volume 3: Consumer disc & misc. industrial considering combination of bad weather, lower than expected production volumes in the coal industry and Adam Simpson 612 8232 4439 missed contract opportunities in the first half. Volume 4: Regional media & IT Fleetwood (FWD), Outperform – 18 August Benn Skender 61 2 8232 6846 ƒ We expect NPAT growth of 25% this year after 28% and Volume 5: Diversified financials & misc. industrials 19.5% in the past two years. We expect continuing strength in manufactured accommodation to drive Mark Carew 612 8232 9679 results. 1H08 was boosted by the sale of a large mining Services and consumables camp. However, we expect this division to grow earnings in 2H due to the ramp up of the Woodside contract. ƒ The outlook for the infrastructure and engineering sectors is positive, although some cost pressures and Futuris Corporation (FCL), Neutral – 14 August project delays are impacting. This is underpinned by ƒ Futuris has given earnings guidance of underlying NPAT record high order books across the board and a of $80–85m before hybrid dividends of approximately favourable macroeconomic demand profile for at least $9m. MIS sales are expected to be $35–45m, down another 18 months. Favoured stocks include FWD, HST, from $60m in FY07 and AACo earnings are to be UGL and TSE. We also like PPC and ASB, however negative. sentiment is against these stocks in the near term. Hastie (HST), Outperform – 27 August Key recommendations ƒ We are expecting 50% EPS growth in FY08 driven by FWD – Outperform the UAE business, Rotary and CDC acquisitions. In addition, the Heyday acquisition will contribute for the full HST - Outperform 12 months. UGL – Outperform Mermaid Marine (MRM), Outperform – 27 August TSE – Outperform ƒ We expect 40% earnings growth in FY08 driven by strong growth in both the vessels and supply base businesses. The key drivers of our earnings forecasts in Austal (ASB), Outperform – 25 August FY08 are the net three extra vessels, higher day rates ƒ 1H profits are likely to be greater than 2H earnings. We and utilisation in the low 70% range. expect 2H earnings to be lower due to the cancellation of Peet (PPC), Outperform – 22 August the second LCS boat. Stripping out advance payments, we estimate net cash on the balance sheet should finish ƒ Peet gave a May profit warning due to a civil contractor the year at approximately $150m. voluntary administration. This will push some settlements into FY09 and cause FY08 earnings to be relatively flat Coventry Group (CYG), Outperform – 22 August on FY07. ƒ FY08 results have been impacted by the twin impacts of Ridley (RIC), Neutral – 25 August the new IT system and warehouse move on the automotive division. We expect these issues have ƒ Ridley lowered full year profit expectations to $24.0– impacted the auto business in the second half and will $27.0m (pre significant items) at the half year. High feed continue to into FY09. costs continue to impact producer economics. We expect underlying EBIT this year to be flat at $55.8m driven by continued volume falls offset by strict cost controls.

24 July 2008 59 Macquarie Research Equities - Report Profit Outlook

Transfield Services (TSE), Outperform – 25 August ƒ Management noted the New Zealand housing market has deteriorating in line with the economic environment. ƒ Transfield issued a shock profit warning in May caused The New Zealand housing market represents ~10% of by margin pressure in US maintenance, integration costs ALS’ revenue. ALS has reconfirmed previous FY08 EPS associated with the Horizon and Whelan acquisitions growth guidance (pre amortisation and significant items) and snow business. We are expecting flat results at the of slightly higher than 12.2%. We estimate ~70% of adjusted net profit level for FY08. forecast FY08 EPS growth will be driven by recent United Group (UGL), Outperform – 11 August acquisition contributions. ƒ While EBITA in FY08 is expected to be up 44%, this is Automotive Holdings (AHE), Outperform, TBC* below earlier expectations. The result has been ƒ Our forecasts assume AHE will organically grow impacted by increased overheads, some problem automotive revenue by ~3% in FY09. This translates into contracts in the infrastructure division and the delay of the Australian automotive market deteriorating by ~2% the Dyno contract. UGL has stated that the over the same period. AHE grew organic automotive infrastructure problems have been rectified and the revenue at ~15% in 1H08, compared to market growth of outlook should be much stronger. 8.8% over the same period. We believe AHE generates WorleyParsons (WOR), Neutral – 12 August above market growth due to excellent dealership micro- management, greenfield dealership start-ups and an ƒ We are expecting a strong result with earnings growth of extensive vehicle brand portfolio. 49%. The primary driver is a full year contribution from the Colt acquisition. Excluding acquisitions, we estimate Boom Logistics (BOL), Underperform, 13 August the underlying EBIT growth rate in FY07 was over 40% ƒ Previous accounting adjustment resulted in breaches of driven by rate increases and high utilisation. Our BOL’s banking covenants. Financiers provided waivers expectations currently are for this to fall to 28% in FY08. rescinding their right to immediate repayment of the Wattyl (WYL), Neutral – 20 August debt. We believe the waivers were based on BOL’s previous internal FY08 forecast and are subject to further ƒ We are expecting a 32% fall in EPS in FY08 and have review in July. This remains a key concern given BOL cut our FY08 forecasts 4x this year reflecting continuing has revised is FY08 earnings guidance down to ~$22m, tough housing conditions. The company stated that 3Q from $29–30m. Revised guidance was attributed to was behind last year and that this was expected to underperforming WA operations (despite strong industry continue into 4Q. Wattyl cited wet weather, low activity conditions), excessive cross hire, poor acquisition levels and New Zealand in particular. integration, severe QLD rains and management turnover Engineering, non-res construction and (five key employees). consumables Bradken (BKN), Neutral, 12 August ƒ Australia is experiencing a period of strong growth in ƒ Bradken has guided to FY08 earnings slightly ahead of engineering and non residential construction spending. 20% EBITDA growth and 15% EPS growth. We have identified $70.5bn in resource construction Management noted increased mining production projects committed or under construction and in excess volumes driven by the commencement of previously of $166bn in planned Australian state government delayed mining projects. The FY08 result will also be infrastructure spending. boosted by recent acquisition contributions and the ƒ Demand for construction activity is being driven by the completion of a low-margin contract in the power and urbanisation of developing nations, commodity prices cement division. We mining production volumes in FY09 well above historical averages, consistent levels of will be driven by upcoming iron ore and coal expansions. mineral production, supportive equity markets and BKN is also set to benefit from the full year impact of decades of infrastructure under-spending. recent acquisitions. Key recommendations Clough (CLO), Outperform, 21 August CLO – Outperform ƒ We estimate CLO has a $1.3bn order book, with ~95% of FY09 revenue secured. CLO is expected to have LYL – Outperform surplus vessel capacity in FY09. Our forecasts do not MAH – Outperform include utilisation of the excess capacity and any further contract wins would provide upside risk to our forecasts. WDS. - Outperform ƒ We have identified in excess of $55bn in oil and gas projects either committed, under construction or under Alesco (ALS), Neutral, 29 July study in Australia. The concentration of major oil and gas clients serviced by CLO provides a strong platform for ƒ ALS has noted recent interest rate increases have growth (BP, Chevron, Apache, Woodside and impacted on consumer demand within the Australian ConocoPhillips). housing market. Excessive 2H08 rain in Qld has also impacted on the Total Eden McCracken's acquisition.

24 July 2008 60 Macquarie Research Equities - Report Profit Outlook

Lycopodium (LYL), Outperform, TBC* Consumer disc & misc. industrial ƒ Management has previously guided to FY08 NPAT of Profit previews $11.5m, up 29% on pcp. The completion of lower margin ‘design and construct’ work in 1H08 has allowed LYL to ARB Corporation (ARP), Outperform – TBC* focus on higher margin EPCM (engineering, ƒ FY08 reported profit is expected to be up 20% on pcp. procurement and construction management) work. We We expect the domestic operations to be the primary estimate LYL has 60% of FY09 and 30% of FY10 driver of the strong revenue growth. Domestic demand forecast revenue secured, supported by an 82% for 4WD parts and accessories from fleet and other increase in 1H08 project studies. Project studies are a commercial users has remained strong. ARB provides key driver of future EPCM work, with demand for studies solid exposure to the ongoing strength in the resources expected to have remained high throughout FY08 due to sector. Results both domestically and in export markets client’s expansion plans. continue to benefit from an enhanced distribution Macmahon (MAH), Outperform, 20 August network and an increase in manufacturing capacity. ARB faces three headwinds into FY09: higher steel prices, ƒ MAH has confirmed FY08 NPAT guidance of ~$47m escalating fuel prices and the continued strength of the (Macquarie $47.6m). The FY08 result is expected to be A$. On the positive side ARB should continue to benefit driven by a significant increase in east coast civil from its strong brand position, enhanced distribution construction activity. Our forecasts assume 23% FY09 network, new product releases and exposure to the EPS growth, compared to management guidance of 20– resources sector. 30%. We estimate MAH has 76% of forecast FY09 Corporate Express (CXP), Neutral - 6 August revenue secured, supported by a $2.1bn order book and strong core markets. We have identified $166bn in ƒ We are forecasting 7% NPAT growth with 3.5% revenue planned Australian government infrastructure spending growth translating into 10% EBIT growth. Reported and $71bn in Australian resource projects either NPAT will be impacted by $1.7m in one-off costs related committed or under construction. to the new NSW warehouse. Revenue growth is forecast to remain subdued with new business lines and Mineral Resources (MIN), Neutral, 21 August expansion into the mid market does not sufficient to ƒ Management has reiterated FY08 guidance of ~$40.4m offset the declines from the mature large office products NPAT. This implies a 2H result equal to 1H. We believe business. Gross margin expansion is again expected to there is upside risk to this, with realised spot prices in be the key driver of the margin improvement in the excess of ~$10/mtu FOB compared to the estimated result. The 2H08 is shaping as a challenging period for average 1H08 manganese price of $6.40/mtu. MIN is CXP. Business confidence levels are back at seven-year benefiting from continued manganese and iron ore price lows and we expect sales will remain under pressure in a strength. Further, we have identified a strong pipeline of softening economic environment. In addition to a slowing crushing opportunities. However, we believe this is macro environment there is the risk of distraction from priced into the near-term share price. the warehouse and IT upgrade underway. Speculation regarding the Staples holding is likely to remain the key Monadelphous (MND), Neutral, 19 August driver of the stock in the near term. ƒ MND maintains consistent operational performance in Fantastic (FAN), Neutral – 25 August strong core markets, with a significant pipeline of ƒ Fantastic issued a downgrade in June. The update opportunities. However, labour constraints and project indicated pre-tax profits would be not less than $27m delays are impacting on organic growth, with forecast (Macq est $33m). After a 1H result up over 40% the EPS growth of 8.8% and 10.0% in FY08 and FY09 guidance implies 2H08 down over 20%. Results in 2H08 respectively. have been impacted by a number of costs related to the ƒ The company’s $45.1m net cash position provides recently announced acquisitions and expansion plans. flexibility to pursue acquisitions and capital management With its ungeared balance sheet we expect FAN will initiatives, and maintain working capital requirements. continue to make opportunistic purchases and increase WDS Limited (WDS), Outperform, 27 August market share in the current tough retail environment. We expect it will come out of this cyclical downturn in better ƒ FY08 earnings are expected to be driven by recently shape than most. However, the macro conditions look awarded pipeline construction contracts and a part year set to deteriorate further before they improve. contribution from the MacCormack acquisition. WDS has now deployed a previously dormant continuous miner with all five continuous miners now in operation (3 wet hire, 2 dry hire). This is anticipated to drive earnings in 2H08 and FY09. We estimate WDS has 75% of forecast FY09 revenue secured and an order book of ~$450m.

24 July 2008 61 Macquarie Research Equities - Report Profit Outlook

Flight Centre (FLT), Neutral - 26 August Housewares (HWI), Neutral - 26 August ƒ At their trading update in June, FLT upgraded guidance ƒ FY08 EBITDA is expected to be ~$37m which is up 10% for FY08 pre-tax profit to exceed $210m, up over 40% on on pcp. We are forecasting sales in the Australian pcp. Management also commented it would be operations to be largely flat. Cost increases out of China disappointed if pre-tax profit growth of 10–15% was not are expected to have offset much of the sourcing achieved in FY09 given offshore opportunities. Despite benefits from the stronger A$. The international weak retail environment, domestic demand for flights operations are expected to be the major drivers of the offshore have remained robust driven by the strong $A. result. FY09 is shaping as a tough year with a softening FLT is also expected to have achieved solid growth in consumer outlook and the stronger A$ impacting offshore regions with the North American operations international operations. Management uncertainty benefiting from a full period contribution from the Liberty remains following the sudden resignation of CEO Paul Acquisition. While the valuation is once again attractive, Hill. Sector rationalisation remains the most likely near we expect the macro outlook and concerns regarding the term positive catalyst. recent strategy to diversify into non travel related sectors Invocare (IVC), Outperform - 21 August will continue to weigh on the stock ƒ We are forecasting 1H NPAT to be up 17% on pcp. The Funtastic (FUN), Neutral – 21 August strong result is expected to be driven by higher death ƒ We are forecasting a 1H08 result adjusted down numbers, pricing increases, contributions from approximately 10% on pcp. Reported results will acquisitions and recent store openings. May update included the $5.5m gain on the sale of the publishing showed Invocare well on the way to achieving these division. 1H08 results will be impacted by consultancy forecasts. Given the recent market correction, we fees, restructuring costs and increased marketing estimate the contribution from the pre need surplus will expenditure. The costs savings targeted in this be reduced by ~$1m impacting earnings and margins. restructure are likely to be 2H weighted. FY08 results 2H07 will provide a tough comparative period where the should benefit from the $6m stock write-down taken in death rate is estimated to have increased to around 7%. FY07. The takeover proposal from Archer Capital is the Invocare’s defensive earnings streams are attractive in main near term price driver. the current economic uncertainty. While fully priced in the near term, Invocare’s medium term outlook remains GUD Holdings (GUD), Neutral - 24 July positive. ƒ We are forecasting FY08 adjusted NPAT of $43m up ~20% and is broadly in line with recent guidance to JB Hi-Fi (JBH), Neutral - 19 August achieve the top end of the previous 10–15% EBIT ƒ JB upgraded NPAT guidance in June to ~$64.0m, up growth target. Strong results from the consumer and 58% on pcp (Macq. $61.5m). Comp store sales growth auto division are expected to more than offset a soft for the 11 months to the end of May was 15.8% (18.8% performance from the water division. FY08 reported LFL sales in 1H08). Sales growth for the Australian JB results will be impacted by $5.9m post tax in stores is believed to be stronger than this. The ongoing restructuring costs ($2.9m cash costs) relating to the store rollout program continues to take market share in a closure of the Oates Perth and Melbourne manufacturing consumer electronics market that is outperforming the plants. The weakening consumer outlook means FY09 is broader retail sector. FY09 guidance is for sales of circa shaping as a tougher year for GUD. The balance sheet $2.35bn, up 30% on pcp. A further 21 JB Hi-Fi stores are is in a good position, and the yield together with the planned for FY09. Our forecasts assume comp store ongoing buyback is expected to support the stock sales slow to ~5% in what is expected to be a tougher around these levels. With industry consolidation now retail environment. While trading on a premium multiple appearing unlikely, a major acquisition is needed for the JB Hi-Fi remains one of our preferred emerging leader stock to outperform from here. retail exposures given its strong management team, store rollout driven growth profile and attractive market GWA International (GWT), Neutral - 19 August segment. ƒ We expect a largely flat result from GWA. Reported NPAT will be impacted by ~$6.5m in restructuring costs. Just Group (JST), Neutral – TBC* Volumes through 2H08 are expected to have remained ƒ JST downgraded FY08 guidance in July with EBITA under pressure. We expect an improved margin before defence costs now expected to be $89.6–93.8m performance following the rectification of the versus previous guidance was $103.9m. 2H08 EBITA is manufacturing issues that plagued 1H results. FY09 is now expected to be down ~20% on pcp. Commentary shaping as another challenging year with little recovery suggests a circa 10% LFL sales shortfall in the large in volumes in sight. The restructuring undertaken in the casual wear brands in June. Earnings in the near term past four years to reduce GWA’s fixed cost base and its are expected to remain under pressure and our forecasts strong market position in vitreous china should allow it to now assume 1H09 earnings down ~10% on pcp before continue to weather the current downturn better than improving in 2H08. The PMV offer is ongoing although most. While the yield should continue to provide support we do not rate the chance of success in its current form around these levels we expect the stock will continue to as high. The need to accept a significant portion of the trade at a discount to valuation until there is further value in an illiquid LIC reduces the offer’s appeal for JST clarity on the timing of the housing recovery. shareholders. 24 July 2008 62 Macquarie Research Equities - Report Profit Outlook

MYOB (MYO), Outperform - 20 August Specialty Fashion Group (SFH), Neutral - 20 August ƒ June update indicated 1H sales will be up 6% and ƒ Our FY08 forecast of $24.1m NPAT is down ~5% on pcp EBITDA up 9%. Revenue growth was well below our and implies 2H08 NPAT down ~30%. The downgrades expectations due largely to a softer performance from from JST and NBL highlighted the challenging winter the NZ business division. Performance was impacted by sales environment for apparel retailers. SFH’s balance increased competition, a soft retail market, and delay in sheet is now only lightly geared and the company is in the timing of new contracts in the mid market space. Our far better shape to weather this downturn than in 2005.

forecasts assume a stronger 2H08 for MYOB. Continued The on-market buyback is continuing. growth in Cover revenues has reduced the previous 1H Super Cheap Auto (SUL), Outperform - 28 August bias of the business. In addition 2H08 is expected to benefit from a reduction in the start up losses in ƒ We are forecasting FY08 NPAT of $27.4m up 23% on Accountants Resourcing, growth in the mid market pcp. Our forecasts reflect double digit earnings growth sector and an improved performance from NZ. from the SCA format and a large increase in contribution from BCF. FY08 results will also include ~$2m in costs Reckon (RKN), Outperform - 11 August associated with the Melbourne DC. With the retail ƒ We are forecasting 1H08 NPAT up 10% on pcp driven environment weakening, FY09 is shaping as a tough by the margin uplift from better utilisation of APS year. We expect a largely flat result from the SCA format consultants that were added last year and a solid with the maturation of the 18 BCF stores opened in FY08 performance from the Quicken business. The launch of the primary driver of FY09 earnings growth forecast. the QBi series occurred in March 2008. We expect a FY09 will see the rollout of the third format, Goldcross transitional lag of adopting the new product will see cycles. While earnings risk remains high we believe further revenue growth in 2H. current prices offer longer term value. Reverse Corp (REF), Neutral - 13 August The Reject Shop (TRS), Outperform - 20 August ƒ We expect a largely flat FY08 result from REF. The UK ƒ 26% sales growth is forecast to translate into 37% NPAT business will be flat in local currency with volume growth. Our strong sales growth forecasts are driven by declines being offset by pricing increases. REF has been 7% LFL growth, the ongoing store rollout program, and unhedged since January, the weak £ is forecast to result the additional sales contribution from the extra week’s in revenue down ~7% and EBITDA down ~3%. The trading. Our forecasts assume comps slow to ~6% in Australian business will benefit from the full period 2H08 (9.2% in 1H08) against the tough pcp. The margin contribution from the Virgin Mobile Agreement, Tritel improvement reflects the strong operating leverage and acquisition and price increases. With the weak £, the benefits of the stronger A$. Our FY09 forecast of 8% volumes from existing mobile contracts mature and earnings growth assumes comp store sales of ~2%, the payphone volumes in decline we are forecasting FY09 maturation of the 21 stores opened in FY08 and the 20 earnings down ~10%. The recently announced Ireland stores forecast for FY09 to drive FY09 sales contract is a positive for sentiment however financial performance. impact is small. At current prices, Reverse Corp’s strong Transpacific (TPI), Outperform - 27 August free cash generation and ungeared balance sheet means it is cheap on most valuation metrics. A re-rating ƒ Our FY08 forecast of $175.4m NPAT is up 70% on pcp. is, however, unlikely until there is some certainty that the The solid waste division with a full period contribution volume decline from existing contracts can be arrested from Cleanaway is the key driver of the strong earnings and or new origination agreements are secured. growth forecast. We expect a record result from the commercial vehicles division and solid growth in the RP Data (RPX), Outperform - 27 August liquids, industrial services and energy divisions. FY09 ƒ We are forecasting FY08 EBITDA of $20.8m, up 27% on forecasts assume the 2H08 earnings run rate is pcp and broadly in line with guidance of 25% growth. sustained thus the importance of a high quality FY08 We expect continued solid growth in the core property result in confirming the starting earnings base. information business, initial contribution from valuation services, together with the contribution from recent acquisitions to be the main drivers of the circa 50% revenue growth forecast. In addition to lower margin sales from PPT, FY08 is a period of increased investment and therefore the operating leverage we would normally expect from the high fixed cost RP Data business model will not be realised. The outlook into FY09 remains positive. The core property information services business is subscription based on the number of services and regions required, it is not based on transactional volumes. The ramp up of valuation services will again be the key focus.

24 July 2008 63 Macquarie Research Equities - Report Profit Outlook

Wotif.com (WTF), Outperform - 27 August Oakton Limited (OKN), Neutral – 19 August ƒ Wotif.com is on track to deliver a solid FY08 result. At ƒ Oakton is expected to release its full year result on 19 the latest trading update management announced that August. We forecast FY08 adjusted NPAT of $26.1m vs they expected FY08 NPAT to be $34.5m up 30%. $20.5m pcp – EPS up 20%. We consider it possible that Volume growth for the Wotif.com site is expected to be Oakton will miss guidance ($27.8–31.3m), following ~19% with circa 5% growth in average room rates. quieter project activity in Canberra during the year. The Earnings have been impacted by lower interest revenue acquisition of Acumen and work on establishing an following the acquisition of Travel.com and AsiaWeb. Indian labour base has effectively sacrificed the The second half also includes ~$2m of advertising costs company’s fixed cost leverage to buoyant project that have not translated into additional bookings. FY09 demand. The outcome of June tendering activity will be results will include full period contributions from the key driver of sentiment. travel.com and AsiaWeb. We do not expect Wotif.com to PMP Limited (PMP), Neutral – 14 August be immune from an economic slowdown but expect it to do better than most in the travel sector. Strong online ƒ PMP is expected to release its full year result on 14 migration of bookings is expected to continue in FY09. August. We forecast FY08 EBIT of $85m vs $90.9m pcp As overall demand weakens and hotel vacancies – EPS down 7%. Deterioration in economic conditions increase we expect the online channel and the high- has rapidly impacted PMP’s earnings, with management volume, third-party sites like Wotif.com will again come issuing a downgrade only three months after confirming into their own as a means to clear excess inventory. guidance at the half year result. Volumes should be okay given a number of long-term contracts entered into

during the first half, but margins are likely to be under Regional media & IT pressure. Bravura Solutions (BVA), Restricted – 26 August Prime Media Group (PRT), Neutral – 25 August ƒ Bravura is expected to release its full year result on 26 ƒ PRT is expected to release its full year result on 25 August. We had previously forecast EBITDA of $23.4m, August. We forecast FY08 adjusted NPAT of $33.4m vs however this is now likely to be between $19–20m $29.9m pcp – EPS up 10%. The solid result is primarily following the company’s second earnings downgrade in due to Seven’s ratings success driving solid advertising as many months. The business has experienced revenue growth in the Television operations. Radio is still significant disruption this year following issues with expected to be struggling. Prime is facing tough comps director shares being subject to margin loans and going forward as Seven coughs up ground in the ratings corporate activity. Margins likely to be under pressure and a weakening economy dampens ad revenues. given lower utilisation of staff base. Reckon Limited (RKN), Outperform – 11 August Credit Corp (CCP), Underperform – 14 August ƒ Credit Corp is expected to release its full year result on ƒ RKN is expected to release its half year result on 11 14 August. We forecast FY08 adjusted NPAT of $8.4m August. We forecast 1H08 adjusted NPAT of $5.5m vs vs $19.6m pcp – EPS down 58%. Credit Corp $5m pcp – EPS up 10%. Double-digit EPS growth management expect to hit the bottom end of guidance should be achieved as a result of the margin uplift from ($10–12m NPAT), which means earnings have virtually better utilisation of APS consultants that were added last halved year on year. With the departure of key staff, year, and an aggressive push into the New Zealand lower productivity from collections personnel, intense market following the acquisition of the company’s industry competition and a high level of balance sheet distributor early last year. Net cash on the balance sheet gearing we remain concerned about the timing of any provides plenty of flexibility for further acquisitions and/or turnaround. FY09 guidance should be provided with the capital management initiatives. FY08 result. Redflex Holdings (RDF), Neutral – 26 August Clarius Group (CND), Neutral – 27 August ƒ RDF is expected to release its full year result on 26 ƒ Clarius is expected to release its full year result on 27 August. We forecast FY08 adjusted NPAT of $10.2m vs August. We forecast FY08 adjusted NPAT of $12.1m vs $7.5m pcp – EPS up 35%. This would be a record profit $13.6m pcp – EPS down 11%. Clarius has been result for the company, driven by FY07 contract wins that significantly impacted by staff departures in Lloyd were more than double that of the previous year. We Morgan, the company’s major permanent placement think the company has a healthy backlog of installation business. Business improvement opportunities are being work, and with FY08 being another record for contract pursued, but much will rest on the economic outlook wins the FY09 outlook is positive. which will drive hiring activity going forward.

24 July 2008 64 Macquarie Research Equities - Report Profit Outlook

SAI Global (SAI), Outperform – 15 August Diversified financials & misc. industrials ƒ SAI is expected to release its full year result on 15 ABC Learning (ABS), Underperform – TBC* August. We forecast FY08 adjusted NPAT of $24.7m vs $24.8m pcp, with EPS flat. A 40% half-on-half increase ƒ ABC Learning is expected to report a loss in excess of in EBITDA should see SAI Global hit its guidance. $160m following the write-downs associated with the Compliance is demonstrating signs of a turnaround, and USA division sale. The poor performance from its core Business Publishing has had a cracker year. Investor Australia/New Zealand has not helped the FY08 result focus will be on the status of the North American and ABC will endeavour to clear up the confusion restructure of Professional Services, Assurance and the surrounding the developer payments with an investor newly acquired QMI, which is the primary driver of our day presentation on 7 August in Sydney. The behaviour 20%+ EPS growth forecasts next year. of the group continues to suggest that it is under heavy pressure to repay bank debt with assets being sold in Salmat (SLM), Neutral – 22 August unfavourable market conditions. ƒ SLM is expected to release its full year result on 22 Allco Finance Group (AFG), Underperform – 29 August. We forecast FY08 EBITA of $55.2m vs $47m August pcp – EPS down 12%. This will be the second year of EPS declines, as a tight labour market and rising freight ƒ Allco remains under heavy pressure from the banks to costs hit the catalogue distribution business, and the call pay down its $1bn+ debt towards $400m by June 2009. centre business returns to normal levels of utilisation. Recent asset sales inclusive of the Tehachapi wind farm The market is giving Salmat the benefit of the doubt have assisted but we believe these are the most liquid given the significant upside in FY09 from the merger with and attractive assets. It is difficult seeing Allco returning HPA, and news regarding this should be the driver of to its former self with a damaged reputation, limited sentiment. access to capital and clients likely to be hesitant on the counterparty risk. The reported result could see a $1.5bn STW Communications Group (SGN), Neutral – 15 write-down of the goodwill associated with the merger of August Record Investments. ƒ SGN is expected to release its half year result on 15 BT Investment Management (BTT), Neutral – 28 August. We forecast 1H08 adjusted NPAT of $16.9m vs October $16.7m pcp – EPS up 4%. The first half is typically weak, but we expect modest growth on the pcp given SOM and ƒ BTT is a September year end company and has recently JWT suffered from client losses last year which should reconfirmed FY08 profit guidance of 10–15% down on now have been replaced. Investor focus will be on the prospectus. The company is highly correlated to the outlook for client spend given advertising spend appears Australian equities market given the other three divisions to be waning in light of a weakening economy. of Macro strategies, Multi strategies and Income strategies are yet to reach profitability. FY09 will now be SMS Management & Technology (SMX), Neutral – 26 a challenge to grow given the significantly lower starting August FUM point following the market falls and recent outflows. ƒ SMX is expected to release its full year result on 26 Cabcharge (CAB), Outperform – 28 August August. We forecast FY08 adjusted NPAT of $25.3m vs $18m pcp – EPS up 38%. This would be a record profit ƒ Cabcharge should deliver another year of 15%+ EPS result, with a significant lift in billable consultant growth largely from 12%+ revenue growth from the core numbers. The company’s balance sheet should be in payment system. This strong growth however has been excellent shape to consider acquisitions and/or capital overshadowed by Cabcharge’s recent move to management initiatives. However, after four years of potentially acquire Custom Coaches through the 30%+ EPS growth the earnings profile is now likely to Westbus joint venture. The joint venture results of slow given weakening economic conditions and a much Westbus and the UK have already been flagged, so the expanded personnel base. result will largely be a check on costs and any outlook commentary. A potential Australian economic downturn Spotless Group (SPT), Underperform – 25 August could also test the stability of taxi demand. ƒ SPT is expected to release its full year result on 25 Count Financial (COU), Neutral – 18 August August. We forecast FY08 EBIT of $102.9m vs $97m pcp – EPS down 5%. We expect a disappointing result, ƒ Quarterly updates inclusive of profit guidance should see driven by an inability to fully capitalise on contracts in the the FY08 result contain few surprises. Count is expected Managed Services division and continued weakness in to deliver EBIT of $34m, up 7% and EPS up 9% with the Retailer Services. We flatten the potential for a further costs associated with Countplus to provide a free kick in write-down of the $175m in goodwill attributable to the FY09 as these acquisitions begin to assist. The company coathanger business, which would be particularly bad for has good exposure to the growth in compulsory investor sentiment. superannuation and the recent uplift in fees from the BT wrap platform highlights the strong industry positioning of Count.

24 July 2008 65 Macquarie Research Equities - Report Profit Outlook

Energy Developments (ENE), Underperform – 27 Macquarie Leisure Trust (MLE), Outperform – 20 August August ƒ ENE is expected to deliver a poor FY09 result with EPS ƒ We expect Macquarie Leisure to deliver FY08 EPS down 35% due to falling NGAC prices, delays in projects growth of 17% with the final dividend already flagged at and cost overruns on West Kimberley. The company 10¢, up 20%. The key focus of the result will be outlook under pressure from shareholders has called a strategic commentary with the performance of the $60m Main review to take around three to six months whereby the Event acquisition and Dreamworld the keys. Goodlife is company may be sold or other strategic options pursued. expected to drive strong growth into FY09 with a full year This has put a floor under the share price in the short contribution from both the Goodlife and Zest health club term as the market speculates on potential asset sales. chains. Bowling has been a strong performer of late with Given the current high cost of capital across the market, constant centre EBITDA growth nudging 10% and the we believe it will be difficult to see a price materially marinas business is insulated given the boats are too surprising on the upside. large to be put on trailers. Everest Babcock & Brown (EBB), Neutral – TBC* Navitas (NVT), Outperform – 5 August ƒ EBB reset expectations lower at the full year result with ƒ Navitas has outperformed in recent times and remains group assets under management forecast to fall around close to its record high. The macroeconomic theme of 10%. The group has engaged advisers in recent times to strong growth out of China, India and South East Asia deal with the activist investors on the EBI listed fund and and the surge in student numbers sees the company it is possible that Babcock and Brown’s 30% well positioned heading into FY09. The FY08 result will shareholding in EBB may be under review. The franchise largely be a quality check with EPS growth of 10% that EBB has developed is attractive in terms of its forecast. The stock is not relatively cheap anymore, but footprint and position within the alternative space and it with an on-market buy-back and tight register, the stock is possible that the current low price may spark some should continue to hold its high levels and Outperform. interest. Servcorp (SRV), Outperform – TBC* HFA Holdings (HFA), Outperform – 28 August ƒ Servcorp is a candidate for a positive earnings surprise ƒ In a falling market, HFA has distinguished itself by at the FY08 result. We are forecasting FY08 EPS to reporting flat performance for the 12-months to June in increase by 16% which represents 71% 1H08 EPS the core Diversified fund and >$500m of FY08 net growth and a decline of 18% in 2H08 EPS. It is likely inflows across the group. In contrast, the other listed that given the momentum out of the 1H08 result has domestic asset managers have been reporting outflows continued into 2H08, the second half could go close to and negative performance. The FY08 forecast EPS fall replicating the 1H08 result of $17.5m at the NPAT line. of 5% is driven by the fall in performance fees with just It is important to remember that Servcorp is also $8m expected (all in 1H08) compared to $38m in FY07, expensing around $3m per annum of Office Squared however base management fees should be well up development costs which is yet to contribute to earnings. insulating the result. Tassal Group (TGR), Neutral – 27 August IRESS Market Technology (IRE), Outperform – 19 ƒ We are expecting close to 20% EPS growth for Tassal in August FY08 on the back of increased production and the ƒ IRESS will report its half year result in late August. We Superior Gold EPS accretive acquisition in 2H08. This expect 1H08 adjusted EPS of 19.8¢, up 25% and an would be a strong effort given this implies >40% EPS interim dividend of 15.3¢ which represents a payout ratio growth in 2H08. The key will be to lift EBITDA per kg of 80%. The stock has a high degree of earnings above $2.40 by delivering on cost savings while certainty heading into this result with management maintaining healthy sales growth. The quality of the providing both revenue growth and profit margin result will be closely monitored particularly around non- guidance for each division in May. The key positive recurring items and cash flow conversion. Tassal will surprise could be the performance out of Canada with also need to reiterated its aggressive EPS growth industry acceptance of the product exceeding guidance of 30% given the economy has slowed expectations. significantly since this was set last year.

24 July 2008 66 Macquarie Research Equities - Report Profit Outlook

WHK Group (WHG), Outperform – TBC*

ƒ WHK appears fundamentally cheap with a solid accounting franchise and a higher growth financial

services division. The market has been disappointed however with the rising debt levels on the back of numerous acquisitions as well as some operational

issues at Brisbane and Auckland. WHK needs to increase its headroom under its $120m banking facility with the NAB to regain investor confidence by reducing

the financial risk. We are expecting the result to be a non-event given WHK updated FY08 profit guidance highlighting 10% full year EPS growth which implied a

flat 2H08..

NB: *Company is yet to confirm exact reporting date 24 July 2008 67 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Automobiles & Components

Coventry Group Limited CYG Outperform 06/2007A -1.4 -1.4 -3.6 - 0.5-0.9 11.2 17.0 8.7 - 100 $1.92 $79m 1x 06/2008E 5.6 5.6 14.1 13.8 0.43.3 6.1 0.0 0.0 0.0 - Medium N/A 45% 12/2008E(i) 6.1 6.1 15.4 N/A N/A N/A N/A 3.0 N/A 19.5 100 06/2009E 12.5 12.5 31.6 6.2 0.47.1 3.9 6.0 3.1 19.0 100 06/2010E 13.8 13.8 34.8 5.6 0.47.4 3.7 8.0 4.1 23.0 100

Fleetwood Corporation Ltd FWD Outperform 06/2007A 26.6 26.6 53.4 15.7 3.523.1 11.9 23.0 2.7 117.9 100 $8.67 $442m 21x 06/2008E 33.3 33.3 65.0 12.9 3.226.3 10.0 24.0 2.9 98.5 100 High 0.04% 15% 12/2008E(i) 15.7 15.7 30.0 N/A N/A N/A N/A 31.0 N/A 103.3 100 06/2009E 37.4 37.4 70.9 11.9 3.026.5 9.4 65.0 7.7 91.7 100 06/2010E 41.7 41.7 76.9 10.9 2.726.5 8.8 66.0 7.8 85.8 100

Schaffer Corporation SFC Outperform 06/2007A 10.3 10.3 69.9 8.6 1.721.5 5.7 50.0 8.3 71.5 100 $6.35 $88m 4x 06/2008E 11.1 11.1 78.6 7.6 1.621.7 5.0 50.0 8.3 63.7 100 High N/A 105% 12/2008E(i) 5.0 5.0 35.2 N/A N/A N/A N/A 25.0 N/A 71.0 100 06/2009E 11.3 11.3 80.3 7.5 1.520.6 4.7 55.0 9.2 68.5 100 06/2010E 12.1 12.1 86.0 7.0 1.420.7 4.5 60.0 10.0 69.7 100

Materials

Wattyl WYL Neutral 06/2007A 16.6 16.6 19.5 7.2 0.911.5 4.6 15.0 10.7 281.5 100 $1.42 $118m 5x 06/2008E 11.4 11.4 13.2 10.6 0.98.7 5.8 12.0 8.6 90.8 100 High 0.01% 37% 12/2008E(i) 5.1 5.1 5.9 N/A N/A N/A N/A 7.0 N/A 118.0 100 06/2009E 11.3 11.3 13.2 10.6 0.98.6 5.8 12.0 8.6 90.9 100 06/2010E 13.4 13.4 15.6 9.0 0.910.1 5.2 14.0 10.0 89.8 100

Capital Goods

Alesco ALS Neutral 05/2007A 44.0 52.8 74.2 9.3 1.415.6 7.2 63.0 9.2 84.9 100 $6.99 $639m 5x 05/2008E 57.6 72.1 83.9 8.2 1.115.7 6.7 71.0 10.3 84.7 100 Medium 0.06% 85% 11/2008E(i) 37.1 40.7 44.6 N/A N/A N/A N/A 38.0 N/A 85.2 100 05/2009E 71.6 78.8 86.0 8.0 1.113.5 6.5 73.5 10.7 85.4 100 05/2010E 75.5 82.7 88.7 7.7 1.113.8 6.1 76.0 11.1 85.7 100

Austal Limited ASB Outperform 06/2007A 45.1 45.1 23.9 10.3 2.222.9 9.0 12.0 4.9 50.3 100 $2.49 $468m - 06/2008E 47.5 47.5 25.1 9.8 2.021.7 8.6 12.5 5.1 49.8 100 Very High 0.03% -99% 12/2008E(i) 25.7 25.7 13.5 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 47.7 47.7 25.1 9.8 1.819.9 8.4 12.5 5.1 49.8 100 06/2010E 50.1 50.1 26.3 9.3 1.718.9 8.0 12.5 5.1 47.4 100

Bradken BKN Neutral 06/2007A 49.1 49.1 46.3 18.2 5.733.5 12.9 31.5 3.7 68.1 100 $8.26 $857m 7x 06/2008E 56.4 56.4 53.2 15.8 5.033.4 11.1 32.4 3.8 60.8 100 Very High 0.09% 122% 12/2008E(i) 29.9 29.9 28.2 N/A N/A N/A N/A 20.2 N/A 71.7 100 06/2009E 62.9 62.9 59.3 14.2 4.332.7 10.1 35.1 4.2 59.2 100 06/2010E 72.6 72.6 68.4 12.3 3.832.9 8.8 40.6 4.8 59.3 100

Boom Logistics BOL Underperform 06/2007A 36.6 36.6 21.5 3.0 0.413.2 1.6 11.0 16.9 51.2 100 $0.67 $117m 5x 06/2008E 19.4 22.3 13.0 5.0 0.47.6 1.7 4.5 6.9 34.5 100 Very High 0.01% 79% 12/2008E(i) 13.0 13.0 7.6 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 23.9 23.9 14.0 4.6 0.37.7 1.7 0.0 0.0 0.0 - 06/2010E 27.4 27.4 16.0 4.1 0.38.3 1.6 8.5 13.1 53.0 100

Cavotec MSL Holdings CCC Outperform 12/2007A 7.3 7.3 11.5 19.4 2.8 14.2 15.2 4.8 2.1 41.3 100 EUR$2.24 EUR$143m 13x 06/2008E(i) 4.7 4.7 7.5 N/A N/A N/A N/A 1.1 N/A 15.0 100 N/A N/A 0.22 12/2008E 9.8 9.8 15.4 14.5 2.417.6 11.9 2.3 1.0 15.0 100 12/2009E 12.0 12.0 18.8 11.9 2.018.4 9.9 2.8 1.3 15.0 100 12/2010E 14.5 14.5 22.7 9.9 1.719.0 8.4 3.4 1.5 15.0 100 All data is expressed in EUR

Clough Limited CLO Outperform 06/2007A -105.3 -105.3 -18.5 - 8.7-99.3 - 0.0 0.0 - - $0.70 $468m -10x 06/2008E 63.5 29.8 4.7 14.8 3.330.2 8.9 0.5 0.7 10.7 50 High N/A 125% 12/2008E(i) 18.9 18.9 2.6 N/A N/A N/A N/A 0.5 N/A 18.9 50 06/2009E 37.7 37.7 5.3 13.0 2.822.7 8.3 1.5 2.2 28.3 50 06/2010E 41.6 41.6 5.8 11.8 2.421.3 7.0 1.5 2.2 25.7 50

Crane Group Holdings CRG Neutral 06/2007A 47.8 54.0 88.6 13.9 1.511.4 8.6 65.0 5.3 73.4 100 $12.15 $815m 4x 06/2008E 60.5 63.5 97.7 12.6 1.411.9 8.3 71.0 5.8 72.7 100 Medium 0.08% 41% 12/2008E(i) 38.3 38.3 57.5 N/A N/A N/A N/A 38.0 N/A 66.1 100 06/2009E 71.4 71.4 106.7 11.5 1.312.0 7.6 76.0 6.2 71.2 100 06/2010E 78.4 78.4 115.1 10.7 1.312.4 7.0 78.0 6.4 67.8 100

GWA International GWT Neutral 06/2007A 56.3 61.4 22.1 11.5 1.715.0 8.7 22.0 8.7 99.8 100 $2.46 $723m 7x 06/2008E 53.3 59.8 21.4 11.9 1.814.8 9.1 22.0 8.7 102.9 100 Low/Medium 0.06% 47% 12/2008E(i) 31.6 31.6 11.3 N/A N/A N/A N/A 11.5 N/A 101.9 100 06/2009E 61.0 61.0 21.8 11.7 1.815.3 9.0 22.5 8.9 103.3 100 06/2010E 69.4 69.4 24.8 10.2 1.817.4 8.2 25.0 9.8 100.9 100

24 July 2008 68 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Hastie Group HST Outperform 06/2007A 22.2 22.2 18.4 14.1 3.229.2 11.1 11.2 4.3 60.9 100 $2.56 $410m 4x 06/2008E 37.6 37.6 27.6 9.4 1.721.7 7.6 15.8 6.1 57.4 100 High 0.04% 68% 12/2008E(i) 30.8 30.8 18.4 N/A N/A N/A N/A 8.5 N/A 46.2 100 06/2009E 63.3 63.3 37.5 6.9 1.523.2 5.8 19.5 7.5 52.0 100 06/2010E 68.4 68.4 39.1 6.6 1.321.2 5.7 20.0 7.7 51.1 100

Lycopodium LYL Outperform 06/2007A 8.9 8.9 23.5 17.2 5.433.2 15.3 17.5 4.3 74.4 100 $4.01 $159m - 06/2008E 11.5 11.5 30.4 13.3 4.938.7 11.8 23.0 5.7 75.7 100 Low/Medium N/A -37% 12/2008E(i) 6.7 6.7 17.6 N/A N/A N/A N/A 13.0 N/A 73.9 100 06/2009E 13.4 13.4 35.4 11.4 4.540.9 10.3 27.0 6.7 76.3 100 06/2010E 14.9 14.9 39.2 10.3 4.041.2 9.5 30.0 7.4 76.5 100

Macmahon Holdings MAH Outperform 06/2007A 44.5 33.4 6.3 26.1 4.117.5 12.5 3.0 1.8 47.7 100 $1.66 $848m 7x 06/2008E 47.6 47.6 8.8 18.6 3.621.1 10.3 4.5 2.7 51.0 100 Very High 0.07% 26% 12/2008E(i) 29.7 29.7 5.4 N/A N/A N/A N/A 3.0 N/A 55.3 100 06/2009E 59.4 59.4 10.8 15.2 3.222.9 9.2 6.0 3.6 55.4 100 06/2010E 74.2 74.2 13.4 12.3 2.824.6 8.0 7.5 4.6 56.1 100

Monadelphous Group MND Neutral 06/2007A 60.4 60.4 71.2 16.6 10.979.2 14.2 66.0 5.6 92.7 100 $12.18 $1,054m - 06/2008E 66.0 62.8 73.6 16.1 9.765.1 13.2 64.0 5.4 86.9 100 High 0.09% -82% 12/2008E(i) 34.5 34.5 40.1 N/A N/A N/A N/A 36.0 N/A 89.8 100 06/2009E 69.1 69.1 80.1 14.8 9.064.7 12.2 72.0 6.1 89.8 100 06/2010E 76.0 76.0 88.1 13.4 8.365.8 11.1 79.0 6.7 89.6 100

Opus OIC Underperform 12/2007A 14.2 14.0 10.1 15.7 3.722.0 12.3 4.5 2.9 44.6 100 NZD$1.58 NZD$215m - 06/2008E(i) 7.9 7.9 5.6 N/A N/A N/A N/A 2.5 N/A 44.2 100 Low/Medium N/A -36% 12/2008E 15.7 15.7 11.0 14.3 3.323.1 10.6 5.5 3.5 50.0 100 12/2009E 17.9 17.9 12.5 12.7 2.923.4 9.6 6.2 3.9 50.0 100 12/2010E 19.9 19.9 13.8 11.4 2.523.0 8.8 6.9 4.4 50.0 100 All data is expressed in NZD

United Group Limited UGL Outperform 06/2007A 92.7 92.7 66.7 18.3 3.016.6 14.0 48.0 3.9 71.9 100 $12.38 $2,092m 6x 06/2008E 119.4 128.7 79.0 15.5 2.116.4 12.1 54.0 4.4 68.4 100 High 0.20% 45% 12/2008E(i) 60.1 66.3 40.2 N/A N/A N/A N/A 27.0 N/A 67.2 100 06/2009E 144.6 157.0 94.5 12.9 2.015.7 10.4 59.0 4.8 62.4 100 06/2010E 154.0 166.4 100.0 12.2 2.015.9 9.9 64.0 5.2 64.0 100

Commercial Services & Supplies

Cabcharge Australia CAB Outperform 06/2007A 51.8 51.8 44.9 15.9 3.927.7 13.8 30.0 4.2 66.8 100 $7.13 $894m 34x 06/2008E 62.8 62.8 52.8 13.5 3.627.7 12.0 37.0 5.2 70.1 100 High 0.08% 23% 12/2008E(i) 37.1 37.1 30.4 N/A N/A N/A N/A 21.0 N/A 69.1 100 06/2009E 74.9 74.9 61.3 11.7 3.430.2 10.5 43.0 6.0 70.2 100 06/2010E 83.6 83.6 68.4 10.5 3.130.8 9.4 48.0 6.7 70.2 100

Credit Corp Group CCP Underperform 06/2007A 19.6 19.6 45.9 1.7 0.536.1 0.5 22.8 29.2 49.6 100 $0.83 $37m 5x 06/2008E 4.9 8.4 19.2 4.1 0.512.6 0.5 2.0 2.6 10.4 100 Medium .% 182% 12/2008E(i) 4.7 4.7 10.7 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 8.0 8.0 18.3 4.3 0.511.4 0.4 0.0 0.0 0.0 - 06/2010E 4.1 4.1 9.3 8.4 0.45.3 0.5 0.0 0.0 0.0 -

Clarius Group CND Neutral 06/2007A 13.6 13.6 24.6 6.0 1.0 17.3 5.3 19.0 13.0 77.2 100 $1.49 $79m 58x 06/2008E 11.3 12.1 21.8 6.7 0.913.8 6.0 18.0 12.3 82.4 100 Very High N/A 0% 12/2008E(i) 6.5 6.5 11.6 N/A N/A N/A N/A 9.0 N/A 77.8 100 06/2009E 12.8 12.8 22.5 6.5 0.913.9 6.0 18.0 12.3 80.2 100 06/2010E 13.4 13.4 22.9 6.4 0.914.1 6.0 18.0 12.3 78.7 100

Corporate Express CXP Neutral 12/2007A 68.0 70.2 40.7 13.2 5.635.8 11.0 26.5 4.9 65.1 100 $5.50 $939m 15x 06/2008E(i) 35.4 37.7 22.4 N/A N/A N/A N/A 14.0 N/A 62.5 100 Very High 0.04% 79% 12/2008E 65.8 72.7 43.2 12.5 4.9 41.9 10.4 28.0 5.2 64.8 100 12/2009E 72.5 74.9 44.5 12.1 4.338.1 10.0 29.0 5.4 65.2 100 12/2010E 76.0 78.5 46.6 11.5 3.935.3 9.6 30.0 5.6 64.3 100

Downer EDI DOW Outperform 06/2007A 101.5 55.0 17.5 35.4 2.05.7 10.2 21.0 3.4 119.9 0 $6.20 $1,970m 2x 06/2008E 157.4 157.4 48.7 12.7 1.915.2 6.5 26.0 4.2 53.3 0 High 0.19% 63% 12/2008E(i) 73.9 73.9 22.7 N/A N/A N/A N/A 13.0 N/A 57.4 50 06/2009E 178.1 178.1 54.5 11.4 1.715.6 6.2 27.0 4.4 49.6 71 06/2010E 195.0 195.0 59.0 10.5 1.615.5 6.1 28.0 4.5 47.5 100

Mineral Resources MIN Neutral 06/2007A 20.2 20.2 16.8 34.1 9.126.7 22.3 9.5 1.7 56.7 100 $5.80 $719m 18x 06/2008E 47.2 47.2 38.3 14.9 7.053.8 10.8 19.0 3.3 49.6 100 Low/Medium N/A 12% 12/2008E(i) 22.4 22.4 18.0 N/A N/A N/A N/A 9.0 N/A 49.9 100 06/2009E 63.9 63.9 51.4 11.1 5.355.0 8.2 25.5 4.5 49.6 100 06/2010E 76.3 76.3 61.4 9.3 4.150.3 7.0 30.5 5.3 49.7 100

PMP Limited PMP Neutral 06/2007A 46.4 47.7 15.9 5.6 1.019.2 3.1 3.0 3.4 18.9 47 $0.92 $317m 4x 06/2008E 86.0 48.6 15.0 6.0 0.915.8 3.4 4.5 5.1 30.1 40 Very High 0.03% 94% 12/2008E(i) 27.8 27.8 8.2 N/A N/A N/A N/A 1.5 N/A 18.3 40 06/2009E 51.9 51.9 15.3 5.8 0.814.4 3.4 5.0 5.6 32.7 40 06/2010E 55.7 55.7 16.4 5.4 0.714.0 3.3 5.0 5.6 30.5 40 Adjusted equity accounted net profit

24 July 2008 69 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Programmed Maintenance Service PRG Outperform 03/2008A 28.4 27.7 31.7 10.5 1.214.1 6.8 20.0 6.0 63.1 85 $3.33 $318m 3x 09/2008E(i) 11.3 14.7 15.3 N/A N/A N/A N/A 10.0 N/A 65.3 90 High 0.03% 85% 03/2009E 31.0 37.9 39.5 8.4 1.113.5 6.2 21.0 6.3 53.2 90 03/2010E 36.4 43.3 44.2 7.5 1.013.8 5.8 23.0 6.9 52.0 95 03/2011E 41.1 48.0 48.9 6.8 1.014.6 5.4 25.0 7.5 51.1 100

Ross Human Directions Limited RHD Neutral 06/2007A 5.0 5.4 6.6 5.8 0.9 15.6 4.4 4.0 10.5 60.8 100 $0.39 $32m 6x 06/2008E 4.2 4.2 5.0 7.6 0.912.1 4.8 4.5 11.8 89.6 100 Low/Medium N/A 33% 12/2008E(i) 2.3 2.3 2.7 N/A N/A N/A N/A 3.0 N/A 110.7 100 06/2009E 4.3 4.3 5.1 7.4 0.912.5 4.5 6.0 15.8 116.8 100 06/2010E 4.9 4.9 5.8 6.5 1.014.5 4.1 7.0 18.4 120.0 100

SAI Global SAI Outperform 06/2007A 18.8 24.8 17.2 12.7 1.713.1 10.0 11.0 5.1 64.1 85 $2.20 $324m 7x 06/2008E 14.4 24.7 17.1 12.7 1.713.3 9.3 11.0 5.1 64.3 85 Medium 0.03% 47% 12/2008E(i) 10.9 14.8 10.3 N/A N/A N/A N/A 6.0 N/A 58.2 80 06/2009E 23.3 31.1 21.7 10.0 1.616.6 7.6 13.0 6.0 60.0 80 06/2010E 28.7 33.7 23.5 9.3 1.617.2 7.1 14.0 6.5 59.7 80

Salmat SLM Neutral 06/2007A 44.3 29.0 23.7 12.4 3.025.4 7.5 28.0 9.6 118.1 85 $2.96 $475m 11x 06/2008E 14.8 30.5 20.9 14.0 1.715.3 8.0 12.0 4.1 57.5 100 Very High 0.03% 69% 12/2008E(i) 13.8 18.4 11.5 N/A N/A N/A N/A 5.0 N/A 43.5 100 06/2009E 31.6 40.8 25.5 11.5 1.614.3 7.2 13.0 4.4 51.0 100 06/2010E 40.2 49.4 30.9 9.5 1.516.3 6.4 16.0 5.5 51.8 100

Spotless Group Ltd SPT Underperform 06/2007A 47.3 53.4 24.8 10.7 1.615.0 4.7 21.0 7.9 84.6 44 $2.72 $600m 4x 06/2008E 38.9 51.2 23.6 11.2 1.614.3 4.9 21.0 7.9 89.0 40 High 0.05% 68% 12/2008E(i) 27.6 29.0 13.3 N/A N/A N/A N/A 10.5 N/A 78.7 40 06/2009E 58.0 60.8 28.0 9.5 1.616.7 4.6 21.0 7.9 75.0 40 06/2010E 65.3 65.3 30.1 8.8 1.517.1 4.6 21.0 7.9 69.9 40

Transpacific Industries Group TPI Outperform 06/2007A 103.0 103.0 45.2 14.4 1.514.1 8.5 11.7 1.8 25.9 100 $6.68 $1,939m 3x 06/2008E 175.4 175.4 60.9 10.7 1.512.9 6.2 18.5 2.8 30.4 100 Very High 0.11% 160% 12/2008E(i) 97.9 97.9 33.6 N/A N/A N/A N/A 8.5 N/A 25.3 100 06/2009E 198.3 198.3 68.0 9.6 1.313.1 5.7 20.5 3.1 30.1 100 06/2010E 226.5 226.5 76.6 8.5 1.213.6 5.2 26.0 4.0 33.9 100

Transfield Services Limited TSE Outperform 06/2007A 114.3 103.9 54.2 13.3 2.119.9 8.9 31.0 4.3 57.2 100 $7.49 $1,503m 4x 06/2008E 82.6 106.5 53.8 13.4 2.015.3 9.9 36.0 5.0 66.9 100 High 0.11% 49% 12/2008E(i) 38.1 52.2 26.4 N/A N/A N/A N/A 19.0 N/A 72.1 100 06/2009E 91.6119.7 60.5 11.9 2.017.0 8.9 40.0 5.6 66.2 100 06/2010E 105.0 133.2 67.2 10.7 2.018.5 8.2 44.0 6.1 65.4 100

WDS WDS Outperform 06/2007A 11.1 12.0 15.2 14.1 4.834.4 7.4 4.8 2.2 31.5 100 $2.15 $211m 6x 06/2008E 17.3 17.3 19.2 11.1 2.529.9 6.1 9.5 4.4 49.4 100 Medium N/A 114% 12/2008E(i) 12.1 12.1 12.0 N/A N/A N/A N/A 6.0 N/A 50.2 100 06/2009E 24.7 24.7 23.8 9.0 2.024.9 5.2 12.0 5.6 50.4 100 06/2010E 28.4 28.4 26.1 8.2 1.822.7 4.9 13.0 6.1 49.9 100

Consumer Durables & Apparel

Funtastic FUN Neutral 12/2007A 5.2 13.0 7.8 6.1 0.59.0 4.5 4.0 8.4 51.6 100 $0.50 $83m 2x 06/2008E(i) 10.8 6.3 3.7 N/A N/A N/A N/A 0.0 N/A 0.0 100 Very High N/A 56% 12/2008E 16.8 13.1 7.7 6.1 0.4 7.5 4.8 2.0 4.2 25.8 100 12/2009E 14.3 15.7 9.3 5.1 0.48.6 4.2 5.0 10.5 54.0 100 12/2010E 17.0 19.0 11.2 4.2 0.410.0 3.7 5.5 11.6 49.2 100

GUD Holdings Ltd GUD Neutral 06/2007A 33.6 35.9 60.4 12.4 3.225.6 9.2 61.0 8.1 101.0 100 $7.65 $437m 6x 06/2008E 36.8 42.8 72.3 10.4 3.431.8 7.9 68.0 9.1 94.1 100 High 0.05% 68% 12/2008E(i) 21.4 21.4 36.3 N/A N/A N/A N/A 33.0 N/A 91.0 100 06/2009E 40.6 40.6 68.9 10.9 3.431.4 8.6 70.0 9.3 101.5 100 06/2010E 42.6 42.6 72.3 10.4 3.432.9 8.5 71.0 9.5 98.2 100

Consumer Services

ABC Learning Centres ABS Underperform 06/2007A 143.1 127.7 32.1 2.4 0.26.8 1.8 17.0 21.8 53.0 100 $0.80 $450m 4x 06/2008E -163.8 75.4 15.8 4.9 0.23.7 2.6 8.0 10.3 50.6 100 Very High 0.04% 81% 12/2008E(i) 70.2 0.2 0.0 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 100.1 30.1 5.5 14.3 0.21.3 5.0 3.0 3.8 54.9 100 06/2010E 38.9 38.9 7.1 11.0 0.21.7 4.5 4.0 5.1 56.6 100

Flight Centre Ltd FLT Neutral 06/2007A 119.4 103.7 109.0 14.7 3.123.1 10.9 46.0 2.9 60.5 100 $16.64 $1,663m - 06/2008E 148.7 148.7 150.8 10.6 2.526.4 8.3 91.0 5.7 60.3 100 Very High 0.08% -22% 12/2008E(i) 72.2 72.2 72.0 N/A N/A N/A N/A 45.0 N/A 62.5 100 06/2009E 170.5 170.5 170.0 9.4 2.325.2 7.2 105.0 6.5 61.7 100 06/2010E 189.1 189.1 188.6 8.5 2.025.3 6.6 115.0 7.2 61.0 100

Invocare Limited IVC Outperform 12/2007A 27.7 27.1 26.9 21.0 9.551.6 15.8 22.5 4.0 83.8 100 $5.70 $572m 4x 06/2008E(i) 13.5 13.5 13.3 N/A N/A N/A N/A 11.5 N/A 86.2 100 Medium 0.05% 241% 12/2008E 29.3 29.3 28.9 19.6 8.847.2 14.8 24.0 4.2 83.1 100 12/2009E 33.5 33.5 33.4 16.9 7.949.0 13.1 26.0 4.6 77.9 100 12/2010E 37.2 37.2 37.1 15.2 7.048.5 12.0 27.8 4.9 75.0 100

24 July 2008 70 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Navitas NVT Outperform 06/2007A 32.2 32.2 9.3 21.4 7.027.8 17.6 9.3 4.7 99.9 100 $1.99 $686m 303x 06/2008E 35.8 35.9 10.3 19.2 7.036.2 15.5 10.3 5.2 99.6 100 Low/Medium N/A 10% 12/2008E(i) 18.6 18.6 5.4 N/A N/A N/A N/A 0.5 N/A 9.3 100 06/2009E 43.5 43.6 12.6 15.8 7.044.0 14.0 12.6 6.3 100.3 100 06/2010E 48.9 49.0 14.1 14.1 7.049.6 12.8 14.1 7.1 99.9 100

Energy

WorleyParsons WOR Neutral 06/2007A 224.8 236.1 104.3 31.5 5.725.4 28.5 60.3 1.8 57.8 26 $33.30 $7,782m 25x 06/2008E 320.7 353.0 144.5 22.7 5.324.5 20.7 86.0 2.6 59.5 27 High 0.58% 29% 12/2008E(i) 192.5 208.6 85.3 N/A N/A N/A N/A 45.0 N/A 52.8 25 06/2009E 414.0 446.2 182.5 18.0 4.728.2 16.5 100.0 3.0 54.8 25 06/2010E 495.7 528.0 215.9 15.2 4.229.6 14.0 110.0 3.4 51.0 25

Media

Prime Media Group PRT Neutral 06/2007A 32.5 29.9 23.9 10.3 2.121.4 7.8 16.5 6.7 69.0 100 $2.50 $325m 5x 06/2008E 38.1 33.2 26.2 9.4 1.921.5 6.6 17.5 7.1 66.8 100 High N/A 124% 12/2008E(i) 17.2 17.2 13.6 N/A N/A N/A N/A 8.5 N/A 62.4 100 06/2009E 33.8 33.8 26.7 9.2 1.820.2 6.5 17.5 7.1 65.5 100 06/2010E 34.9 34.9 27.6 8.9 1.719.5 6.4 18.0 7.3 65.2 100

STW Communications Group SGN Neutral 12/2007A 42.7 41.6 20.3 5.9 0.916.7 4.5 12.0 10.0 59.1 100 $1.27 $276m 10x 06/2008E(i) 16.9 16.9 8.4 N/A N/A N/A N/A 5.0 N/A 59.4 100 Medium 0.02% 36% 12/2008E 38.8 43.0 21.5 5.6 0.916.1 4.0 12.0 10.0 55.8 100 12/2009E 44.6 44.6 22.4 5.3 0.815.6 3.9 12.0 10.0 53.6 100 12/2010E 49.2 49.2 24.7 4.8 0.816.1 3.6 14.0 11.7 56.7 100

Retailing

Automotive Holdings Group AHE Outperform 06/2007A 28.0 27.8 18.9 10.6 1.313.3 7.5 12.0 6.0 63.4 100 $2.00 $401m 4x 06/2008E 50.7 50.7 26.5 7.6 1.216.8 6.0 17.5 8.8 66.1 100 Medium N/A 159% 12/2008E(i) 24.2 24.2 12.6 N/A N/A N/A N/A 8.0 N/A 63.3 100 06/2009E 53.7 53.7 28.0 7.1 1.216.8 5.8 18.0 9.0 64.2 100 06/2010E 56.7 56.7 29.6 6.8 1.116.7 5.5 19.5 9.8 65.9 100

ARB Corporation Ltd ARP Outperform 06/2007A 15.8 15.8 23.6 14.4 3.324.3 11.3 13.0 3.8 55.0 100 $3.51 $240m 60x 06/2008E 18.8 18.8 28.2 12.0 2.925.7 9.6 15.0 4.4 53.1 100 Medium N/A 10% 12/2008E(i) 10.0 10.0 15.0 N/A N/A N/A N/A 7.5 N/A 50.2 100 06/2009E 20.2 20.2 30.4 11.2 2.624.6 8.8 16.5 4.9 54.4 100 06/2010E 22.7 22.7 34.1 10.0 2.324.6 8.0 18.0 5.3 52.8 100

David Jones DJS Neutral 07/2007A 208.6 109.5 24.7 10.9 2.425.2 8.2 22.0 8.1 89.0 100 $2.86 $1,402m 16x 07/2008E 144.7 133.7 27.9 9.7 2.425.2 7.5 25.0 9.3 89.6 100 High 0.14% 109% 01/2009E(i) 49.9 49.9 10.3 N/A N/A N/A N/A 14.5 N/A 140.9 100 07/2009E 141.6 141.6 29.1 9.3 2.224.4 7.3 26.5 9.8 91.0 100 07/2010E 156.4 156.4 31.9 8.5 2.024.6 6.7 29.0 10.7 91.0 100

Fantastic Holdings Ltd FAN Neutral 06/2007A 16.4 17.4 18.5 11.4 3.836.1 9.9 11.0 5.2 59.6 100 $2.06 $199m - 06/2008E 19.3 19.3 20.4 10.3 3.334.8 8.8 12.5 6.0 61.2 100 Low/Medium N/A 6% 12/2008E(i) 21.2 21.2 22.4 N/A N/A N/A N/A 7.0 N/A 31.3 100 06/2009E 18.5 18.5 19.6 10.7 3.029.6 8.8 13.0 6.2 66.4 100 06/2010E 21.9 21.9 23.1 9.1 2.731.3 7.5 14.0 6.7 60.5 100

Housewares International Ltd HWI Neutral 06/2007A -34.0 19.9 15.5 6.9 1.114.5 6.0 0.0 0.0 0.0 - $1.07 $138m -5x 06/2008E 20.4 20.7 15.9 6.7 1.117.1 5.8 10.5 9.8 66.1 100 High N/A 61% 12/2008E(i) 11.0 11.0 8.4 N/A N/A N/A N/A 5.0 N/A 59.3 100 06/2009E 18.6 18.6 14.2 7.5 1.014.6 6.4 10.0 9.3 70.2 100 06/2010E 20.8 20.8 15.9 6.7 1.015.5 5.9 10.5 9.8 65.9 100

JB Hi-Fi JBH Neutral 06/2007A 40.4 40.4 37.6 28.8 10.042.1 22.3 11.0 1.0 29.3 100 $10.82 $1,161m 11x 06/2008E 64.4 64.4 59.2 18.3 7.548.4 15.0 23.0 2.1 38.9 100 High 0.11% 80% 12/2008E(i) 51.3 51.3 46.7 N/A N/A N/A N/A 13.0 N/A 27.8 100 06/2009E 76.6 76.6 69.9 15.5 5.743.2 12.3 27.0 2.5 38.7 100 06/2010E 88.6 88.6 80.8 13.4 4.538.7 10.6 31.0 2.9 38.4 100

Just Group Ltd JST Neutral 07/2007A 64.0 61.4 28.6 9.6 10.481.6 7.3 19.5 7.1 68.1 100 $2.80 $548m 18x 07/2008E 51.1 56.6 28.1 9.8 8.595.6 7.0 19.5 7.1 69.4 100 High 0.05% 157% 01/2009E(i) 35.4 35.4 17.6 N/A N/A N/A N/A 10.0 N/A 56.8 100 07/2009E 56.8 56.8 28.2 9.8 6.877.4 6.8 20.0 7.2 70.8 100 07/2010E 69.5 69.5 34.5 8.0 5.274.1 5.8 22.5 8.2 65.2 100

Specialty Fashion Group SFH Neutral 06/2007A 32.1 25.1 12.5 6.4 8.156.6 4.3 12.5 15.6 128.4 100 $0.81 $152m - 06/2008E 24.1 24.1 12.1 6.6 8.5128.2 4.1 10.0 12.5 82.6 100 Very High 0.01% 32% 12/2008E(i) 23.4 23.4 11.9 N/A N/A N/A N/A 8.0 N/A 67.2 100 06/2009E 25.1 25.1 12.7 6.3 6.5119.4 3.9 10.0 12.5 78.5 100 06/2010E 28.2 28.2 14.3 5.6 5.0103.1 3.5 11.0 13.8 76.7 100

24 July 2008 71 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Super Cheap Auto Group SUL Outperform 06/2007A 22.3 22.3 21.0 9.8 1.818.8 6.1 10.5 5.1 50.0 100 $2.05 $220m 6x 06/2008E 27.4 27.4 25.7 8.0 1.620.8 5.1 12.0 5.9 46.6 100 High 0.01% 76% 12/2008E(i) 12.7 12.7 12.0 N/A N/A N/A N/A 4.0 N/A 33.5 100 06/2009E 29.1 29.1 27.3 7.5 1.419.9 4.7 14.0 6.8 51.3 100 06/2010E 34.1 34.1 32.0 6.4 1.321.1 4.1 16.0 7.8 50.0 100

The Reject Shop TRS Outperform 06/2007A 12.3 12.3 47.9 19.8 8.243.8 14.0 31.0 3.3 64.8 100 $9.34 $245m 33x 06/2008E 16.9 16.9 65.0 14.6 6.952.2 10.4 48.0 5.1 73.8 100 Medium 0.02% 6% 12/2008E(i) 15.4 15.4 58.8 N/A N/A N/A N/A 34.0 N/A 57.9 100 06/2009E 18.3 18.3 70.0 13.5 6.148.7 9.4 56.0 5.9 79.9 100 06/2010E 21.0 21.0 80.0 11.8 5.348.7 8.2 64.0 6.8 80.0 100

Wotif.com WTF Outperform 06/2007A 26.4 26.4 12.9 21.8 19.3121.5 19.2 13.0 4.6 101.1 100 $2.76 $593m - 06/2008E 34.7 34.7 16.8 16.7 15.8104.9 15.0 16.0 5.7 95.4 100 High 0.03% -355% 12/2008E(i) 21.2 21.2 10.0 N/A N/A N/A N/A 10.0 N/A 99.9 100 06/2009E 44.4 44.4 21.0 13.3 15.1117.9 12.2 20.5 7.3 97.7 100 06/2010E 54.3 54.3 25.6 10.9 14.3137.0 10.0 25.0 8.9 97.6 100

Food & Drug Retailing

AWB Ltd AWB Neutral 09/2007A 27.1 58.0 16.8 14.6 0.85.2 8.4 8.0 3.3 47.7 100 $2.49 $840m 2x 09/2008E 65.5 91.9 26.4 9.2 0.78.0 6.3 8.0 3.3 30.3 100 High 0.08% 254% 03/2009E(i) 31.4 31.4 8.8 N/A N/A N/A N/A 4.0 N/A 45.3 100 09/2009E 77.9 77.9 21.8 11.2 0.76.4 7.2 8.0 3.3 36.6 100 09/2010E 83.1 83.1 22.8 10.7 0.76.4 7.1 8.0 3.3 35.1 100

Food Beverage & Tobacco

Futuris Corporation FCL Neutral 06/2007A 91.8 92.8 12.7 9.3 0.99.3 6.6 9.5 8.0 74.6 100 $1.20 $956m 3x 06/2008E 64.6 74.0 9.6 12.4 1.07.6 7.5 9.5 8.0 99.1 100 High 0.09% 57% 12/2008E(i) 18.4 18.4 2.3 N/A N/A N/A N/A 4.0 N/A 176.2 100 06/2009E 73.2 73.2 8.7 13.7 1.07.3 8.4 9.0 7.6 103.7 100 06/2010E 80.1 80.1 8.9 13.4 1.07.6 8.8 9.0 7.6 101.5 100

Ridley Corporation Limited RIC Neutral 06/2007A 22.7 22.7 7.9 13.9 1.06.7 6.5 7.0 6.4 88.6 50 $1.09 $352m 3x 06/2008E 19.0 19.0 6.4 17.2 1.05.6 7.8 7.0 6.4 109.2 50 Medium 0.03% 44% 12/2008E(i) 19.4 19.4 6.4 N/A N/A N/A N/A 3.5 N/A 54.4 50 06/2009E 29.5 29.5 9.8 11.3 0.98.4 5.9 7.0 6.4 71.8 50 06/2010E 31.1 31.1 10.0 11.0 0.98.4 5.9 7.0 6.4 69.7 50

Tassal Group TGR Neutral 06/2007A 16.0 16.0 14.1 17.3 2.717.2 15.7 5.3 2.2 37.3 0 $2.31 $317m 6x 06/2008E 20.0 20.9 16.8 14.5 1.814.7 13.1 6.7 2.8 39.9 0 Low/Medium 0.0002 50% 12/2008E(i) 10.4 10.4 7.8 N/A N/A N/A N/A 3.9 N/A 50.2 0 06/2009E 25.7 25.7 19.2 12.7 1.713.9 11.5 9.6 4.0 50.0 0 06/2010E 30.1 30.1 22.5 10.8 1.615.2 9.9 11.2 4.6 49.9 100

Diversified Financials

Allco Finance Group AFG Underperform 06/2007A 211.7 201.3 60.4 0.7 0.114.5 0.4 44.0 103.5 72.9 71 $0.38 $134m 2x 06/2008E 31.6 31.6 9.8 4.3 0.11.4 1.0 0.0 0.0 0.0 - Very High 0.01% 257% 12/2008E(i) -36.2 -36.2 -9.8 N/A N/A N/A N/A 0.0 N/A - 75 06/2009E -80.4 -80.4 -21.5 - 0.1-3.7 11.6 0.0 0.0 - - 06/2010E -99.3 -99.3 -26.2 - 0.1-4.8 - 0.0 0.0 - -

BT Investment Management BTT Neutral $3.05 $488m 09/2008E 16.0 38.2 23.9 13.0 1.813.7 12.9 10.8 3.5 45.2 100 N/A N/A - 03/2009E(i) 10.0 15.6 9.7 N/A N/AN/A N/A 12.5 N/A 128.3 100 09/2009E 25.1 36.4 22.7 13.6 1.813.1 13.4 18.2 5.9 80.1 100 09/2010E 30.2 39.6 24.8 12.5 1.814.4 12.2 19.8 6.4 79.9 100

Count Financial Ltd COU Neutral 06/2007A 22.7 22.7 8.9 17.1 13.381.4 16.8 8.0 5.2 89.5 100 $1.51 $388m - 06/2008E 24.1 24.1 9.3 16.5 14.479.0 16.2 10.0 6.5 107.9 100 Medium N/A -70% 12/2008E(i) 13.2 13.2 5.0 N/A N/A N/A N/A 4.2 N/A 84.1 100 06/2009E 27.1 27.1 10.2 15.0 12.482.7 14.8 8.7 5.7 85.1 100 06/2010E 32.4 32.4 12.1 12.7 11.084.5 12.6 10.9 7.1 90.3 100

Everest Babcock & Brown EBB Neutral 12/2007A 17.1 19.7 7.6 6.5 0.46.8 6.4 6.0 12.1 79.0 100 $0.50 $126m - 06/2008E(i) 5.8 7.1 2.7 N/A N/A N/A N/A 2.1 N/A 80.0 100 Medium N/A -3% 12/2008E 13.8 16.4 6.1 8.1 0.44.8 8.0 5.5 11.1 90.0 100 12/2009E 15.7 18.2 6.8 7.3 0.45.3 7.2 6.1 12.3 90.0 100 12/2010E 20.6 23.1 8.6 5.8 0.46.7 5.7 7.7 15.6 90.0 100

HFA Holdings HFA Outperform 06/2007A 20.3 20.3 9.3 10.5 10.3139.9 10.0 6.1 6.2 65.6 100 $1.02 $483m 162x 06/2008E 35.0 32.9 9.4 10.4 0.710.2 9.8 6.2 6.4 66.3 100 Low/Medium 0.0003 -19% 12/2008E(i) 22.7 26.9 5.8 N/A N/A N/A N/A 3.8 N/A 65.0 100 06/2009E 45.6 54.0 11.7 8.3 0.78.5 7.9 7.6 7.8 64.7 100 06/2010E 51.4 59.8 13.0 7.5 0.79.3 7.2 8.5 8.7 65.3 100

24 July 2008 72 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%) WHK Group Limited WHG Outperform 06/2007A 24.4 25.3 10.9 10.0 1.112.3 9.0 5.5 5.0 50.5 100 $1.06 $297m 10x 06/2008E 29.1 30.6 12.0 9.1 1.011.7 7.3 6.0 5.5 50.0 100 Medium N/A 12% 12/2008E(i) 15.2 16.0 6.1 N/A N/A N/A N/A 2.7 N/A 44.2 100 06/2009E 32.2 33.7 12.9 8.5 0.911.5 6.8 7.3 6.7 56.9 100 06/2010E 35.4 36.9 14.0 7.8 0.811.4 6.3 6.0 5.5 42.9 100

Real Estate

Living and Leisure Australia Group LLA Neutral 06/2007A 14.2 11.2 7.0 0.5 0.012.7 0.2 10.2 299.1 145.3 0 $0.03 $7m 2x 06/2008E -67.8 -2.6 -1.5 - 0.1-2.0 0.6 0.0 0.0 - - N/A N/A 96% 12/2008E(i) 8.0 8.0 0.4 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 1.7 1.7 0.1 27.0 0.51.2 4.6 0.0 0.0 0.0 - 06/2010E 2.2 2.2 0.1 41.9 0.51.2 5.1 0.0 0.0 0.0 -

Macquarie Leisure Trust MLE Outperform 06/2007A 47.9 34.4 16.7 7.8 0.68.5 5.8 17.1 13.2 102.4 7 $1.37 $331m 8x 06/2008E 43.0 43.0 19.5 6.7 0.68.6 4.7 20.0 15.4 102.5 7 Medium 0.03% 30% 12/2008E(i) 26.8 26.8 11.8 N/A N/A N/A N/A 9.8 N/A 83.1 15 06/2009E 51.4 51.4 22.6 5.7 0.610.0 4.0 20.4 15.7 90.2 7 06/2010E 60.5 60.5 26.6 4.9 0.611.7 3.5 24.0 18.5 90.1 7

Peet PPC Outperform 06/2007A 45.5 45.5 21.1 9.6 3.349.7 9.5 19.5 9.6 92.5 100 $2.11 $462m - 06/2008E 45.9 45.9 20.6 9.9 3.233.0 9.8 19.5 9.6 94.8 100 Medium N/A 94% 12/2008E(i) 15.5 15.5 6.9 N/A N/A N/A N/A 9.0 N/A 129.8 100 06/2009E 51.5 51.5 23.1 8.8 3.035.4 8.7 19.5 9.6 84.6 100 06/2010E 57.3 57.3 25.6 7.9 2.937.6 7.8 23.1 11.4 90.0 100

Servcorp SRV Outperform 06/2007A 26.3 26.3 32.7 10.1 2.424.1 7.5 13.0 3.9 70.2 100 $3.30 $257m - 06/2008E 30.6 30.6 38.1 8.7 2.125.8 6.4 15.0 4.5 52.5 100 Low/Medium N/A -50% 12/2008E(i) 18.0 18.0 22.4 N/A N/A N/A N/A 9.0 N/A 40.2 100 06/2009E 33.7 33.7 41.9 7.9 1.824.8 6.0 17.0 5.2 40.6 100 06/2010E 36.4 36.4 45.3 7.3 1.623.2 5.5 18.0 5.5 39.8 100

Software & Services

IRESS Market Technology IRE Outperform 12/2007A 25.5 40.2 33.7 17.8 7.253.2 16.1 26.0 4.3 77.0 100 $6.08 $743m - 06/2008E(i) 15.7 23.4 19.4 N/A N/A N/A N/A 15.3 N/A 79.0 100 Medium 0.05% -20% 12/2008E 32.3 47.8 39.5 15.2 7.548.1 13.5 31.1 5.2 78.8 100 12/2009E 36.6 52.8 43.6 13.7 7.855.6 12.0 34.3 5.7 78.6 100 12/2010E 41.2 57.4 47.4 12.7 8.162.6 10.9 37.5 6.3 79.1 100 Adjusted equity accounted net profit

MYOB Limited MYO Outperform 12/2007A 18.8 24.4 6.2 16.6 1.49.1 6.5 3.3 3.2 52.8 100 $1.02 $400m - 06/2008E(i) -5.7 11.6 2.9 N/A N/A N/A N/A 2.8 N/A 95.2 100 Very High 0.02% -11% 12/2008E 5.4 24.2 6.1 16.7 2.2 10.6 6.6 7.1 7.0 116.2 100 12/2009E 24.5 28.8 7.2 14.1 2.115.6 5.9 5.2 5.1 71.9 100 12/2010E 30.1 34.7 8.7 11.7 2.118.4 5.3 6.5 6.4 74.8 100

Oakton OKN Neutral 06/2007A 20.5 20.5 24.1 12.0 5.449.7 11.6 20.3 7.0 84.0 100 $2.95 $260m 115x 06/2008E 26.1 26.1 28.9 10.0 4.649.0 9.6 22.0 7.6 76.1 100 Very High 0.02% 33% 12/2008E(i) 13.2 13.2 14.5 N/A N/A N/A N/A 11.0 N/A 76.0 100 06/2009E 30.4 30.4 33.1 8.7 4.047.4 8.5 25.0 8.7 75.6 100 06/2010E 33.5 33.5 35.8 8.1 3.545.2 7.9 29.0 10.0 81.0 100

Redflex Holdings RDF Neutral 06/2007A 3.2 7.5 8.5 23.0 2.710.9 8.0 3.5 1.8 41.2 100 $1.90 $186m 7x 06/2008E 10.2 10.2 11.5 17.0 2.414.6 6.7 3.5 1.8 30.5 100 Very High 0.02% 17% 12/2008E(i) 5.1 5.1 5.7 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 13.7 13.7 15.2 12.8 2.117.3 5.0 3.5 1.8 23.0 100 06/2010E 17.4 17.4 19.2 10.2 1.819.1 3.9 3.5 1.8 18.2 100

Reckon RKN Outperform 12/2007A 9.9 9.9 7.4 14.1 4.030.1 10.2 5.5 5.2 73.9 77 $1.07 $151m - 06/2008E(i) 5.5 5.5 4.1 N/A N/A N/A N/A 2.5 N/A 60.6 100 Very High N/A -41% 12/2008E 11.5 11.5 8.6 12.2 3.7 31.3 9.0 6.0 5.7 69.8 100 12/2009E 13.1 13.1 9.8 10.7 3.332.0 8.1 6.5 6.2 66.2 100 12/2010E 14.5 14.5 10.8 9.7 2.931.0 7.5 4.3 4.1 40.0 100

RP Data RPX Outperform 06/2007A 2.7 8.1 5.8 19.6 8.443.2 13.3 1.8 1.5 30.1 100 $1.15 $162m 20x 06/2008E 9.6 10.5 7.4 15.3 7.351.7 10.7 4.5 3.9 60.5 100 Low/Medium N/A 20% 12/2008E(i) 5.6 6.1 4.3 N/A N/A N/A N/A 2.5 N/A 58.8 100 06/2009E 12.0 12.9 9.0 12.7 6.153.5 8.9 5.5 4.8 61.1 100 06/2010E 14.7 15.6 10.9 10.5 5.154.1 7.7 6.7 5.9 61.5 100

SMS Management & Technology Ltd SMX Neutral 06/2007A 18.0 18.0 28.0 14.0 4.433.6 13.7 21.0 5.3 74.9 100 $4.02 $262m - 06/2008E 25.3 25.3 38.8 10.1 3.739.7 10.0 25.0 6.4 64.4 100 Very High 0.03% -34% 12/2008E(i) 11.9 11.9 18.3 N/A N/A N/A N/A 11.0 N/A 60.0 100 06/2009E 26.9 26.9 41.4 9.5 3.236.1 9.3 27.0 6.9 65.2 100 06/2010E 28.8 28.8 44.4 8.9 2.834.0 8.6 30.0 7.6 67.6 100

24 July 2008 73 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield RatioFranking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Technology One Limited TNE Neutral 06/2007A 14.8 14.8 4.9 16.9 5.735.4 15.4 3.8 4.5 76.3 100 $0.80 $244m - 09/2008E 17.0 17.0 5.6 14.8 5.136.0 13.2 4.2 5.0 74.2 100 High N/A -54% 03/2009E(i) 8.1 8.1 2.7 N/A N/A N/A N/A 1.5 N/A 56.1 100 09/2009E 18.9 18.9 6.3 13.3 4.435.3 12.0 4.3 5.1 68.0 100 09/2010E 22.4 22.4 7.4 11.3 3.836.3 10.3 5.0 6.0 67.8 100 9 months included for the period ending Sep 2008.

Telecommunication Services

Reverse Corp REF Neutral 06/2007A 20.8 20.8 22.8 6.5 10.9243.5 6.4 22.0 14.9 96.4 100 $1.49 $150m - 06/2008E 20.9 20.9 22.7 6.5 10.8165.9 6.3 22.5 15.2 99.2 100 Low/Medium 0.0001 -48% 12/2008E(i) 9.0 9.0 9.8 N/A N/A N/A N/A 10.5 N/A 107.6 100 06/2009E 19.2 19.2 20.8 7.1 10.9152.4 6.9 21.0 14.2 100.8 100 06/2010E 19.9 19.9 21.5 6.9 10.9158.2 6.7 21.5 14.5 99.8 100

Utilities

Energy Developments ENE Underperform 06/2007A -16.6 27.1 18.3 15.2 1.69.1 6.3 7.5 2.7 40.9 18 $2.75 $423m 0x 06/2008E 22.9 17.9 11.9 23.4 1.66.0 7.0 6.0 2.2 50.4 20 Very High 0.03% 122% 12/2008E(i) 10.0 10.0 6.7 N/A N/A N/A N/A 3.9 N/A 57.8 15 06/2009E 23.1 23.1 15.4 18.2 1.57.4 5.9 7.7 2.8 50.1 8 06/2010E 29.8 29.8 19.8 14.1 1.29.0 5.2 9.9 3.5 50.0 8

Source: Macquarie Research, July 2008

24 July 2008 74 Macquarie Research Equities - Report Profit Outlook

Energy Key recommendations ƒ The drop in demand is not the only factor. Little or no growth in world oil demand over the 12–18 months will OSH – Outperform probably result in a boost to oil inventories as supply WPL – Outperform numbers are unlikely to be affected. As inventory fears NXS – Outperform are probably a major factor in recent price rises, a stock build could produce price declines. Holding up so far in 2008 ƒ Clearly the increase to our WTI price deck has ƒ The following table outlines the average quarterly prices significantly increased our earnings forecasts for all the for crude benchmarks YTD and the Macquarie forecast Australian energy companies (see table below). The for the rest of the year. long-term driver for the larger cap stocks is via a variety of LNG projects and with the assumption that LNG price WTI forecast average for 2008 is US$119/bbl is directly linked to long-term oil price; the impact to Crude benchmark 1Q* 2Q* 3Q 4Q 2008 these stocks is significant. WTI 97.87 123.80 134.00 120.00 119.00 Brent 96.49 122.20 132.50 118.50 117.50 ƒ Our long-term price assumption of US$95/bbl has been Dubai 87.50 102.50 127.00 113.00 112.00 increased from US$82/bbl and holds a message of tight TAPIS 101.99 129.30 - - - global supply and demand. However, we also highlight *Actual prices that the overall tone of our forecast is cautious with the Source: Bloomberg, Macquarie Research, July 2008 assumption that demand destruction could see oil prices decline to ~US$100/bbl by end 2008. Tapis has traded over US$100/bbl supporting Australian projects ƒ A pull-back of this degree would see negative pressure on the sector however, in reality the share prices in the ƒ With most of the Australian crude price relative to Tapis energy sector are already imputing a price significantly the realised oil price has been positive. below this level and therefore hold significant value upside in the longer term. Tapis has maintained a healthy premium to WTI $US/bbl Premium Profit preview 160 TA PIS Pr emium WTI Tapis 30 ƒ We note the profit previews below do not reflect fourth 150 quarter production results (other than WPL) due to be 140 25 incorporated in the upcoming quarterly reporting period. 130 20 120 ƒ West Texas Intermediate (WTI) crude spot oil price 110 15 averaged US$111/bbl in 1H08 with Macquarie 100 forecasting the annual 2008 average to be US$119/bbl. 90 10 Quarterly reporting has kicked off with WPL on 17 July 80 5 70 60 0 2Q08 and 1H08 results outlook/timetable Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Stock 4Q07 4Q07 revenue Financial reporting Adj. NPAT Source: Macquarie Research, July 2008 WPL reported 27 AugA$990m STO 24 Jul A$790m 21 Aug A$312m OSH 22 Jul US$278m 19 Aug US$318m Crude oil prices AWE 31 Jul A$270m 22 Aug FY A$298m BPT 30 Jul A$140m 29 Aug* FY: A$78m ƒ A sharp decline in oil consumption growth could trigger a ROC 31 Jul A$89m 29 Aug A$35m ARQ 31 Jul A$51m 29 Aug* FY: A$44m fall in oil prices as the likely squeeze on refining margins NXS 31 Jul - 30 Sept FY: (A$46m) results in pressure to drop crude prices and oil/ TAP 31 Jul A$14m 29 Aug (A$8m) CTX - - 22 AugA$188m commodity fund investors question the upside potential. * to be confirmed ƒ The US is already showing declines in oil consumption Source: Macquarie Research, July 2008 and Europe may show little or no growth over the next 6–12 months. Out of 6.3m b/d of total growth in world oil demand 2003–07, Asia accounted for 2.8m b/d and almost all of the Asian growth was in countries that subsidise oil prices. The ending of these subsidies could therefore materially impact world oil demand growth.

24 July 2008 75 Macquarie Research Equities - Report Profit Outlook

Woodside Petroleum (WPL), Outperform – 27 August ƒ STO reports its quarterly result on Thursday 24 July with its FY07 result on Thursday 21 August. We highlight that ƒ A$69.50 target price. the 1H08 financial result will be revised at the quarterly ƒ Woodside reported a slightly above forecast 2Q08 result. production result of 19.3mmboe (up 12% QoQ) and ƒ We have adjusted our 2Q expectation to reflect sales revenue of A$1.48bn (up 34% QoQ). downtime from John Brookes due to Varanus Island ƒ We currently forecast a 1H08 NPAT of A$990m with a facility downtime. first half dividend of 86cps. Woodside will report its 1H08 Caltex Australia (CTX), Outperform – 22 August financial result on 27 August. Our earnings outlook includes an exploration write-off of A$163m for the first ƒ A$18.85 target price half of the year (A$233m in 1H07 but with much higher ƒ Caltex Australia (CTX) has provided guidance to the exploration budget). market on its expected 1H08 replacement cost profit ƒ We continue to recommend WPL as a core holding with (RCOP), giving a tighter range between A$175–195m. strong earnings growth in 2008 and medium term This guidance comfortably straddles Macquarie's exposure to additional LNG from 2011 when Pluto is forecast RCOP of A$188m. delivered with long-term growth from commercialisation ƒ Macquarie is now near the upper end of the range rather of large LNG projects such as Sunrise and Browse. than the lower, however, we have not materially adjusted ƒ We envisage a potential share price driver if progress is our earnings forecast or outlook for the company. made on a Pluto II project. Third party gas will be ƒ Transport fuel sales volume increase on 1H07: Total required if this development is to progress but at present transport fuel sales volumes (petrol, diesel and jet) are we do not carry any value for the project. expected to be 7.1bn litres in 1H08, (compared with ƒ We forecast continued volume growth into 2H08 with 6.7bn litres in 1H07). Vincent Oil, Train 5 LNG and Neptune oil contributing to ƒ Improved diesel sales: The main improvement has earnings. The quarterly result has highlighted the asset been in diesel sales volumes, which have increased quality and diversity in Woodside's portfolio as a strongly compared with the same period last year up differentiating factor relative to sector. 13.8% for the first five months of the year and well ahead ƒ We maintain our Outperform recommendation on WPL, of last year. Petrol sales have been flat. currently trading at a 16% discount to our A$69.50 DCF Australian Worldwide Exploration (AWE), Restricted derived target price and within its historic 15–18x PER – 22 August range (15x in 08 and 18x in 09) and P/GCFS of 10.5x (at around its long run average of ~10x). ƒ Macquarie forecasts an adjusted profit of A$298m for FY08. This includes A$55m in exploration write-offs. Oil Search (OSH), Outperform – 19 August ƒ We are forecasting significant growth for FY08 with ƒ A$8.37 target price production of 10mmboe (verses ~3.9mmboe in FY07) ƒ We forecast adjusted profit of US$132m for 1H08, following the contributions of Tui. benefiting form the strong Tapis price. We forecast the Tap Oil (TAP), Outperform – 29 August company to declare a final dividend of US4c which is in line with recent halves, but admit there may be some ƒ A$2.00 target price upside potential given strong earnings. We have ƒ Macquarie forecasts adjusted loss of $8m for 1H08. We assumed a 1H08 exploration write-off of US$53m. have adjusted our model to reflect the down time at HJV ƒ OSH continues to be our key pick in the Australian large following the explosion at the Varanus Island facilities. cap. oil and gas space with expected positive news flow ƒ TAP has contracted all its John Brookes gas option with relating to the PNG LNG project expected to continue. however, John Brookes has also been closed in until ƒ While the market may become concerned about the lack mid-August so there is no gas contract revenue for this of news flow as a positive momentum for the stock we period. can not get past the fundamental value proposition for Roc Oil (ROC), Restricted – 28 August the assets. With the stock trading at a 35% discount to our A$8.37 target price (before any addition of a second ƒ We forecast 1H08 adjusted NPAT of A$35m. With an Phase LNG plant) we see the investment opportunity as aggressive write-off policy, we highlight this as the key compelling. negative risk to our numbers. Santos (STO), Neutral – 21 August ƒ A$22.37 target price ƒ Macquarie forecasts adjusted profit of around $312m for 1H08 (after pref divs), up 11% on 1H07. We have forecast exploration write-offs of $120m for the half. We expect an interim dividend of 20cps to be declared. 24 July 2008 76 Macquarie Research Equities - Report Profit Outlook

Beach Petroleum (BPT), Outperform – 29 August ƒ A$1.91 target price ƒ Macquarie forecasts an adjusted profit of A$38m for 1H FY08.

ƒ BPT previously highlighted that it expects to undertake

an active exploration program in the Cooper having identified a number of new targets and expects to maintain a high level of drilling activity in 2008.

24 July 2008 77 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Energy

Beach Petroleum BPT Outperform 06/2007A 103.3 43.8 4.7 26.6 1.3 7.9 6.2 1.8 1.4 37.2 0 $1.24 $1,245m 4x 06/2008E 120.9 78.4 8.9 14.1 1.0 8.3 5.3 1.8 1.4 19.7 0 High 0.13% 19% 12/2008E(i) 75.7 75.7 8.6 N/A N/A N/A N/A 1.0 N/A 11.7 0 06/2009E 163.1 163.1 18.5 6.8 0.9 14.4 3.8 2.0 1.6 10.8 0 06/2010E 172.0 172.0 19.5 6.4 0.8 13.4 3.9 3.0 2.4 15.4 0

Caltex Australia CTX Outperform 12/2007A 646.0 440.7 163.2 7.9 1.2 16.8 5.7 80.0 6.2 49.0 100 $12.71 $3,478m 25x 06/2008E(i) 321.5 181.0 67.0 N/A N/A N/A N/A 33.5 N/A 50.0 100 High 0.17% 21% 12/2008E 452.0 310.4 115.0 11.2 1.1 10.5 7.1 56.3 4.4 49.0 100 12/2009E 305.2 303.1 112.2 11.4 1.1 9.5 6.9 54.9 4.3 48.9 100 12/2010E 319.6 317.5 117.6 10.9 1.0 9.5 6.5 57.4 4.5 48.8 100

Innamincka Petroleum INP Neutral 06/2007A -2.2 -2.0 -1.9 - 4.9 -11.0 - 0.0 0.0 - - $0.82 $150m 0x 06/2008E -1.0 -1.0 -0.6 - 2.4 -2.5 44.0 0.0 0.0 - - Low/Medium N/A -39% 12/2008E(i) 6.0 6.0 3.6 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 11.7 11.7 6.9 11.6 1.9 18.9 8.8 0.0 0.0 0.0 - 06/2010E 11.6 11.6 6.6 12.1 1.7 15.1 9.4 0.0 0.0 0.0 -

Nexus Energy NXS Outperform 06/2007A 35.8 -19.7 -4.9 - 3.1 -14.6 - 0.0 0.0 - - $1.44 $924m - 06/2008E 10.9 -46.6 -8.7 - 1.7 -14.2 - 0.0 0.0 - - Very High 0.06% -22% 12/2008E(i) -12.9 -12.9 -2.0 N/A N/A N/A N/A 0.0 N/A - 0 06/2009E -18.8 -18.8 -2.9 - 2.0 -4.1 - 0.0 0.0 - - 06/2010E 15.5 15.5 2.4 58.1 1.9 3.4 21.6 0.0 0.0 0.0 -

Oil Search OSH Outperform 12/2007A 137.2 140.8 12.6 43.8 4.4 10.3 14.1 8.0 1.5 63.6 0 $5.77 $6,529m - 06/2008E(i) 262.2 132.2 11.8 N/A N/A N/A N/A 4.0 N/A 33.9 0 High 0.52% -25% 12/2008E 447.9 317.9 28.4 19.4 3.5 20.3 11.4 8.0 1.5 28.2 0 12/2009E 319.4 319.4 28.5 19.3 3.1 17.1 11.7 8.0 1.5 28.0 0 12/2010E 248.1 248.1 22.2 24.9 2.9 12.1 13.9 8.0 1.5 36.1 0 All data is expressed in USD

Santos STO Neutral 12/2007A 440.6 451.1 76.4 24.9 3.3 13.5 7.5 40.0 2.1 52.3 100 $18.90 $11,279m 5x 06/2008E(i) 328.9 311.8 53.2 N/A N/A N/A N/A 20.0 N/A 37.6 100 Low/Medium 1.11% 57% 12/2008E 755.3 721.1 123.0 15.4 2.9 20.3 6.6 40.0 2.1 32.5 100 12/2009E 691.2 657.0 112.1 17.0 2.6 16.4 6.8 40.0 2.1 35.7 100 12/2010E 567.1 567.1 96.8 19.6 2.4 12.9 7.5 40.0 2.1 41.3 100

Tap Oil Limited TAP Outperform 12/2007A -6.9 -6.9 -4.3 - 1.1 -2.9 5.0 0.0 0.0 - - $1.53 $244m - 06/2008E(i) -7.8 -7.8 -4.8 N/A N/A N/A N/A 0.0 N/A - 100 High 0.02% -41% 12/2008E -2.2 -2.2 -1.4 - 1.1 -0.9 4.3 0.0 0.0 - - 12/2009E 33.4 33.4 20.6 7.6 0.9 13.2 3.2 0.0 0.0 0.0 - 12/2010E 23.0 23.0 14.2 11.0 0.9 8.2 4.7 0.0 0.0 0.0 -

WorleyParsons WOR Neutral 06/2007A 224.8 236.1 104.3 31.5 5.7 25.4 28.5 60.3 1.8 57.8 26 $33.30 $7,782m 25x 06/2008E 320.7 353.0 144.5 22.7 5.3 24.5 20.7 86.0 2.6 59.5 27 High 0.58% 29% 12/2008E(i) 192.5 208.6 85.3 N/A N/A N/A N/A 45.0 N/A 52.8 25 06/2009E 414.0 446.2 182.5 18.0 4.7 28.2 16.5 100.0 3.0 54.8 25 06/2010E 495.7 528.0 215.9 15.2 4.2 29.6 14.0 110.0 3.4 51.0 25

Woodside Petroleum WPL Outperform 12/2007A 1030.2 1182.4 175.6 35.4 8.2 25.4 17.1 104.0 1.7 59.2 100 $60.70 $41,713m 152x 06/2008E(i) 1019.1 1019.1 148.0 N/A N/A N/A N/A 88.0 N/A 59.4 100 Low/Medium 2.72% 18% 12/2008E 2795.4 2795.4 406.1 15.3 6.2 46.6 10.6 242.0 3.9 59.6 100 12/2009E 2247.2 2247.2 316.8 19.6 4.9 28.0 12.8 189.0 3.0 59.7 100 12/2010E 1953.9 1953.9 263.5 23.6 4.2 19.4 15.0 157.0 2.5 59.6 100

ARC Energy ARQ 06/2007A 6.1 6.1 2.8 49.3 1.1 2.4 3.8 0.0 0.0 0.0 - $1.38 $450m - 06/2008E 32.9 44.5 14.1 9.9 1.3 13.5 3.3 0.0 0.0 0.0 - High 0.04% 8% 12/2008E(i) 23.4 23.4 7.4 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 36.3 36.3 11.5 12.1 1.2 10.1 4.1 0.0 0.0 0.0 - 06/2010E 29.1 29.1 9.2 15.2 1.1 7.4 5.7 0.0 0.0 0.0 -

Aust Worldwide Exploration AWE 06/2007A 35.4 35.4 7.9 48.7 3.2 6.9 15.7 0.0 0.0 0.0 - $3.84 $1,755m 8x 06/2008E 298.1 298.1 66.3 5.8 1.9 41.2 3.8 0.0 0.0 0.0 - High 0.17% 8% 12/2008E(i) 192.2 192.2 42.6 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 318.6 318.6 70.7 5.5 1.4 29.8 3.8 0.0 0.0 0.0 - 06/2010E 185.2 185.2 40.9 9.4 1.2 14.0 5.8 0.0 0.0 0.0 -

Origin Energy Ltd ORG 06/2007A 456.9 370.2 44.5 36.1 2.4 8.6 16.1 21.0 1.3 47.2 100 $16.08 $14,181m 4x 06/2008E 570.5 436.6 49.9 32.2 3.1 8.3 16.0 24.0 1.5 48.1 100 Medium 1.39% 42% 12/2008E(i) 239.2 239.2 27.2 N/A N/A N/A N/A 13.0 N/A 47.8 100 06/2009E 495.7 495.7 56.2 28.6 2.9 10.5 14.9 26.0 1.6 46.2 100 06/2010E 579.0 579.0 65.4 24.6 2.7 11.4 13.2 28.0 1.7 42.8 100

Source: Macquarie Research, July 2008

24 July 2008 78 Macquarie Research Equities - Report Profit Outlook

Financials – banks Recommendations Credit quality manageable while economic environment remains strong, although deterioration expected CBA - Outperform ƒ While credit quality has passed its peak, deterioration to BEN - Neutral date has been essentially narrowly focused around troubled corporates and to a lesser extent unsecured Banks: Short-term underweight/long term neutral lending. In fact, the major banks continue to highlight credit quality deterioration either in line or slightly better ƒ Behind our outlook for slowing credit growth and further than anticipated. structural margin decline is a view that before interest rates decline (and consumer pressures abate), the ƒ This should remain the case while the economy and economy will face further pressures. employment remain strong. Although risk remains of further deterioration in the consumer segment, there are ƒ Liquidity crisis pressure on earnings has, we believe, been fully discounted in our current earnings forecasts presently no signs of systemic credit issues. The key risk to bad debts for the majors has been corporate defaults. and we maintain a long-held view (since January this year) that a combination of product repricing and liability ƒ Tighter lending conditions as a result of the global mix shift will allow banks to manage toward a relatively liquidity crunch are making it more difficult for some small impact from the global re-pricing of risk. Australian companies to refinance maturing debt. Highly leveraged companies with substantial maturing debt and ƒ We estimate the impact on the Australian bank sector is around 8% of earnings for two years (including dependent on a slowing US or UK economy for income generation presents an ongoing risk for the major banks. secondary impact on investment markets and credit demand). Provisions and capital ƒ Nearer term, we see some positive trends for the sector ƒ Two features from the recent 1H08 reporting by ANZ, in the form of sequential improvement in net interest NAB, and WBC (including CBA’s 3Q08 trading update) margin, and further evidence that impairment risks are were the improvement in banks’ capital positions (led by far from representing a systemic deterioration in asset CBA and WBC), and increase in coverage levels (led by quality. We review key macro trends below. ANZ and NAB). Capital ratios were predominantly Slower credit growth supported by the introduction of Basel II regulatory capital measurements, effectively reducing prudential ƒ Our system lending forecasts were for 12% mortgage capital requirements via a reduction in risk-weighted growth and 24% business lending growth (YoY) for the asset calculations. period ending March 2008, slightly lower than actual ƒ The three Basel II-compliant banks (ANZ, CBA and data reported by APRA for February. WBC) showed 10–15% reduction in credit risk-weighted ƒ However, looking forward, we expect ongoing slowdown assets in 1H08, offset only marginally by the introduction in system credit growth, largely due to slower business of market and operational risk measures (together credit growth. Our forecasts are for FY08 household accounting for only 6–8% of total Basel II RWA). credit growth of ~10.5% and business credit growth of Investors should not expect this newly found capital to ~20% slowing to ~9% in FY09 for household credit be released anytime soon, with APRA enforcing a two- year ‘cooling-off’ period before final reassessment of growth and ~8% for business credit growth. Current minimum CAR requirements. guidance from the individual banks has already highlighted slower credit growth as an imminent event. ƒ ANZ and NAB also took the opportunity to improve coverage ratios in 1H08. Despite different wording on Margin outlook each bank’s management accounts, we believe the ƒ Our dynamic modelling of bank margins has led us to decision to increase coverage reflects a one-off believe the sector can manage toward a small negative adjustment to coverage levels due to increasing risk in margin outcome in terms of the additional impact of the their portfolios. global credit crunch despite a significant increase in Potential easing of wealth management earnings wholesale funding costs (~45% of total funding). ƒ The banks have already flagged slowing wealth ƒ The bad news is that the asset repricing has not been management earnings following a number of years of enough to offset ongoing structural margin pressure with benefiting from good market returns and mandated superannuation growth. While mandated FUM growth the banks still lifting rates to manage cost pressure. We remains positive, this growth will be offset by softer expect a return to normal 8–10bp NIM decline in FY09. market conditions as a result of slowing global growth ƒ Nearer term, however, investors may find some comfort and concerns raised by the ongoing liquidity crunch. in the fact that 2H08 margin trends should show sequential improvement. The relative winners – due largely to higher mortgage and retail deposit exposure assisted by ongoing repricing and rate rises – should be CBA, SGB and WBC.

24 July 2008 79 Macquarie Research Equities - Report Profit Outlook

Profit preview Bendigo Bank (BEN) – 11 August Commonwealth Bank (CBA) – 13 August ƒ We expect BEN to report FY08 cash NPAT of $198.1m, cash EPS of 92.7¢ and a final dividend of 37¢. The 2H08 ƒ We expect CBA to report FY08 cash NPAT of $4,736m, result will be more representative of the underlying cash EPS of 360.6¢ and a final dividend of 158¢. momentum within the combined business of BEN and ƒ CBA should deliver a solid set of results for the full year, ADB as it will represent the full consolidation (6 months) driven by a strong performance from its institutional of the ADB’s business, given that the 1H08 results had banking division in 1H08 (likely easing somewhat during just 1 month of contribution from ADB with the merger 2H08) as foreign banks reduced their willingness to receiving final approval on 12 November 2007 compete in this space, higher financial markets related ƒ The strategic rationale for the merger as provided by income given ongoing volatility and the best funding BEN and ADB included cost synergies, enlarged scale, position of the majors with which to combat the ongoing revenue diversification, geographic extension as well as liquidity crunch. That said, pre-provision profit growth is the ability to offer an expanded product range to a likely to be moderated by higher impairments trends, combined customer base of ~1.3m. Certainly the cost which we expect to be ~23bp of gross loans for FY08. synergies are appealing as the merged entity is targeting ƒ The key focus at the result will be outlook commentary cash EPS accretion for both sets of shareholders in the for FY09 as well as clarity on the precise impact that first full financial year (FY09) with an estimated $60–65m higher wholesale funding costs have had on the banks of pre-tax cost synergies. performance given the global liquidity crunch. We expect ƒ While BEN had a large deposit base and relatively CEO Ralph Norris to reiterate CBA’s relatively strong attractive funding position, ADB was in the opposite competitive position due to its well capitalised balance position with a high wholesale funding dependency for a sheet under Basel II, diversified funding base and regional bank – a clear disadvantage adding cost prudent approach to funding and liquidity management. pressure to the merged entity given the ongoing global ƒ It was clear at the 3Q trading update that institutional liquidity crunch. While ADB was an early mover to lift banking has eased in 2H08, with the key issue being variable mortgage rates independent of any change in how much credit the market is willing to attach to a solid official rates, the combined entity will nonetheless have performance driven by a more volatile institutional result to absorb a comparatively large impact from higher supported by a modestly improving retail division. wholesale funding costs. ƒ To that end, CBA pointed to ongoing improved market ƒ In light of deteriorated funding conditions and weaker share trends in retail banking in the March quarter at the equity markets, it will be crucial that the ADB business, recent 3Q trading update. While this business is still in which BEN acquired, has been extremely disciplined in the early stages of a turnaround, sustained market share managing the profitability of its wholesale mortgage and volume gains during 1H08 and 2H08 will be business at the expense of growth, while closely important to the market, with the risk being the managing increasing pressures on its margin lending sustainability of these recent improvements once the business given soft market conditions, while also having credit market dislocations somewhat subside. to absorb slowing growth in business lending. While FY08 profitability will likely have been carefully ƒ Given the stock’s generally high premium relative to managed, slowing growth in most of the ADB business peers over the past twelve months, the challenge going lines will have a flow-on impact in FY09. forward will be its ability to hold onto such premium. That said, while concern remains intense for the banking ƒ Since merging, BEN’s stock price has fallen to a level sector, we believe CBA is well placed given its better well below its historic PER, currently trading on a -2% capitalised position under Basel II, lower risk loan discount to the bank sector on a rolling forward PER of portfolio, medium term retail banking turnaround 9.2x. Given negative investor sentiment towards smaller potential and relatively strong positioning versus peers to banks with less diversified funding capabilities, we absorb the impacts of the liquidity crunch given its believe a PER re-rating is unlikely in the near term. Any perceived stronger funding base. re-rating will be dependent on an easing of wholesale funding conditions (which is unlikely for sometime to come) and evidence of the merged group’s ability to absorb the impact of the liquidity crunch.

24 July 2008 80 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Banks

ANZ Bank ANZ Neutral 09/2007A 4179.8 3886.8 210.3 8.2 1.5 18.6 - 136.0 7.9 64.7 100 $17.80 $35,514m - 09/2008E 4138.4 3746.0 194.7 8.8 1.4 15.6 - 136.0 7.9 69.8 100 Low 3.46% - 03/2009E(i) 2101.0 2020.6 102.3 N/A N/A N/A N/A 67.0 N/A 65.5 100 09/2009E 4278.5 4117.7 208.2 8.3 1.3 15.4 - 145.0 8.4 69.7 100 09/2010E 4666.7 4505.9 226.7 7.6 1.2 15.8 - 154.0 8.9 67.9 100

Bendigo and Adelaide Bank BEN Neutral 06/2007A 121.8 118.5 82.8 11.0 1.7 13.9 - 58.0 6.4 70.0 100 $9.63 $2,722m - 06/2008E 222.9 199.5 92.7 9.8 0.8 10.1 - 65.0 7.1 70.1 100 Low 0.26% - 12/2008E(i) 143.2 136.6 51.6 N/A N/A N/A N/A 31.0 N/A 60.1 100 06/2009E 294.7 281.0 105.8 8.6 0.8 9.0 - 74.0 8.1 70.0 100 06/2010E 330.9 314.2 116.9 7.8 0.8 9.5 - 82.0 9.0 70.1 100

Bank of Queensland BOQ Neutral 08/2007A 129.8 102.5 92.4 14.0 1.9 14.7 - 69.0 5.3 74.7 100 $13.25 $2,007m - 08/2008E 137.1 139.8 100.8 12.8 1.2 11.4 - 74.0 5.7 73.4 100 Low 0.18% - 02/2009E(i) 77.281.1 52.3 N/A N/A N/A N/A 38.0 N/A 72.7 100 08/2009E 161.5 169.7 108.6 11.9 1.2 9.8 - 80.0 6.2 73.6 100 08/2010E 181.1 189.6 118.2 11.0 1.1 10.4 - 87.0 6.7 73.6 100

Commonwealth Bank CBA Outperform 06/2007A 4463.0 4479.0 347.3 11.2 2.2 20.0 - 256.0 6.6 73.7 100 $40.16 $53,470m - 06/2008E 5112.8 4735.8 360.6 10.8 2.0 17.9 - 271.0 7.0 75.2 100 Low 5.25% - 12/2008E(i) 2500.6 2489.6 184.7 N/A N/A N/A N/A 119.0 N/A 64.4 100 06/2009E 5048.6 5026.6 368.8 10.6 1.8 16.2 - 282.0 7.2 76.5 100 06/2010E 5623.7 5601.7 399.7 9.7 1.7 16.3 - 305.9 7.8 76.5 100

National Australia Bank NAB Neutral 09/2007A 4424.2 4372.5 267.0 9.6 1.6 15.2 - 182.0 7.1 68.2 95 $26.47 $44,825m - 09/2008E 5166.8 4497.8 273.5 9.3 1.5 14.3 - 197.0 7.7 72.0 95 Low 4.28% - 03/2009E(i) 2561.9 2435.9 142.5 N/A N/A N/A N/A 99.0 N/A 69.5 90 09/2009E 5173.1 4921.1 285.4 8.9 1.4 14.1 - 205.0 8.0 71.8 90 09/2010E 5718.1 5466.1 312.6 8.2 1.3 14.5 - 228.2 8.9 73.0 90

St George Bank SGB Neutral 09/2007A 1190.0 1159.8 218.7 11.3 2.3 20.7 - 168.0 6.8 76.8 100 $25.48 $14,273m - 09/2008E 1240.9 1296.4 232.9 10.6 2.0 19.9 - 183.0 7.4 78.6 100 Low 1.41% - 03/2009E(i) 690.1 671.6 116.8 N/A N/A N/A N/A 94.0 N/A 80.5 100 09/2009E 1419.2 1382.2 237.8 10.4 1.8 18.2 - 190.0 7.7 79.9 100 09/2010E 1580.0 1543.0 260.1 9.5 1.7 18.4 - 200.0 8.1 76.9 100

Westpac Bank WBC Outperform 09/2007A 3451.0 3507.0 189.1 9.8 2.2 23.3 - 131.0 7.0 69.3 100 $19.34 $36,010m - 09/2008E 4168.9 3810.9 202.2 9.2 1.9 22.4 - 143.0 7.7 70.7 100 Low 3.61% - 03/2009E(i) 1989.6 1994.6 103.6 N/A N/A N/A N/A 72.0 N/A 69.5 100 09/2009E 4037.2 4047.2 208.4 8.9 1.7 20.6 - 148.0 8.0 71.0 100 09/2010E 4400.8 4410.8 223.2 8.3 1.6 19.8 - 160.0 8.6 71.7 100

Source: Macquarie Research, July 2008

24 July 2008 81 Macquarie Research Equities - Report Profit Outlook

Financials – diversified Recommendations ƒ While competition remains an issue, we believe fears are overplayed as trade execution represents only 10% of ASX – Outperform ASX revenue and the rebate structure provides a barrier to competition, the decision on the new entrants CGF – Outperform continues to be delayed (now to decided by the cabinet) and offshore ECN’s claim to ‘bring new liquidity’ to PPT – Underperform market, potentially unlocking untapped clearing and settlement revenue. Profit previews ƒ Volatile revenue streams, including initial and secondary capital raisings are 11% of total revenue, are forecast to ƒ There has been a material deterioration in the Australian remain subdued throughout the year although we note financial services landscape over the past six months, that Australian corporates may be forced to recapitalise with the malaise in global credit and equity markets with equity issuance in FY09 – particularly some sectors adversely impacting the industry. such as the listed property sector. ƒ Domestic fund flows have dropped to their lowest levels ƒ ASX remains our preferred diversified financials in five years, securitisation issuance has slumped by exposure and we view recent weakness as an more than 95%, merger and acquisition activity is down opportunity to enter an attractive investment into a by a third and equity markets have experienced their quality franchise due to the attractive fundamental worst six month performance since the 1987 crash. valuation and supported by a 6.3% fully franked dividend ƒ The upcoming reporting season is expected to illustrate yield. the strain on the financial services industry with revenue Challenger (CGF) – 25 August down from the preceding period due to declining FUM balances on negative asset growth and redemptions, ƒ Macquarie is expecting CGF to announce FY08 slowing trade activity and/or absence of performance normalised net profit of $214m, up from $182m pcp fees after a near 5-year bull market. despite 2H08 weakness in aspects of the business. Normalised net profit provides a better picture of the Australian Stock Exchange (ASX) – 14 August underlying cash earnings of the business. The forecast ƒ Macquarie expects the ASX to announce FY08 reported includes the full period of the now sold financial planning NPAT of $370m, a 27% increase on pcp. Excluding prior division. period SFE integration costs, the adjusted net profit ƒ As per our Essentials note published on 8 July and growth is better stated as 18% despite a slowing growth consistent with accounting standards which require profile in 2H08 due to deteriorating market conditions. insurers to mark-to-market their investments at the end ƒ With the market experiencing the worst six-monthly of each balance date, we recently revised our FY09 performance since the 1987 crash, average trade value statutory loss to $29m, largely due to changes in the declined in 2H08 to $6.2bn from $6.3bn in the preceding share price of CIF and CDI. half and new listings were just a third of those that came ƒ The aforementioned statutory result also includes to market in 1H08. significant items (excluding investment market revisions) ƒ Benefiting from the record levels of trade activity in of $69m after tax, comprising $9m adjustment on the 1H08, we forecast ASX revenue to grow 11% to $615m sale of the financial planning business and impairments and operating expenses to drop by 1% relative to pcp, on the investments in Homeloans and FBR Capital reflecting the full period synergy benefits associated with Markets of $22m and $42m respectively. the SFE merger which was effective from 25 July 2006. ƒ Our forecasts are consistent with the release of earnings ƒ Despite slowing trade activity forecasts in FY09, we and dividend guidance in June 2008, which stated that highlight that half of the ASX revenue streams are group normalised cash profits before tax would be protected under the large volume participant rebate $270m before significant items. A final dividend of 7.5cps schemes which insulates shareholders against earnings has also been confirmed, implying 35% payout ratio on volatility. normalised cash earnings. ƒ This rebate scheme applies to the trading, clearing and ƒ On a divisional basis, the asset management division is settlement of cash equities and SFE derivatives and is expected to announce cash earnings of $208m, unique relative to other global exchanges, most of which including $95m of fees from $82m pcp due to the adopt a tiered pricing strategy pegged against volume or enlarged size of the annuity book (internal) and base and value metrics. advisory fees associated with satellite and external transactions such as Welcome Break.

24 July 2008 82 Macquarie Research Equities - Report Profit Outlook

ƒ Annuity sales of $144m in 1Q08 were stronger than ƒ CPU has indicated that it expects EPS growth of ‘greater expected (as should 2Q08 be) and annualised sales than 40%’ for FY08. Macquarie is assuming a 45% uplift should more than offset attrition of the in-force book. in EPS, higher than our assumed profit growth of 37% However, we query the sustainability of robust annuity reflecting the accretion from the on-market buyback sales as the current spike reflects risk aversion and flight which was completed in October 2007. to conservative asset classes. ƒ In 2007 a record US$4.5tr worth of global M&A deals ƒ The mortgage management division EBIT is expected to were announced, eclipsing that of the technology boom be $100m despite a slowing 2H08. The business has however, Macquarie’s global leading index indicator is suffered following a material deterioration in debt market down 35% year to date as access to financing for conditions and rising funding costs, with CGF transactions has become more difficult in the current significantly scaling back new loan origination over the credit market conditions. past 8 months. ƒ Despite the decline in M&A corporate actions revenue, ƒ This move has been mimicked by other non-bank CPU is favourably leveraged to the recapitalisation of the financial institutions and recent statistics confirm that the UK banking sector with announced rights issues totalling market share of new loans for non-bank financials has nearly $20bn. This includes HBOS, Royal Bank of slumped to 4.5%, the lowest since data collection began Scotland and Bradford & Bingley which are large in 1995 and well below the 16.5% peak in 2002. shareholder registers managed by CPU. ƒ Following an increase in lending rates of 59bp over and ƒ This is consistent with comments in a recent corporate above RBA rates (now 79bp since 17 July), we expect presentation that CPU staff are “working on capital margins to be insulated in the mortgage management raisings rather than takeovers”. Part of the revenue division given that this increase applies on both the in- benefits from these capital raisings are expected to be force book (where funding has been securitised) and recognised in 1H09. new business. Revenue will also be supplemented by ƒ Corporate actions represent higher-margin revenue last August’s aggregator acquisitions. relative to the core share register maintenance business ƒ The funds management business is expected to deliver as there is increased communication to shareholders. As $32m divisional profit reflecting a decline in average such, CPU is a beneficiary of corporate actions and we FUM balances due to net outflows and negative asset estimate contributes to more than 40% of profits. movements, as well as the absence of performance fees ƒ Although EPS growth for FY08 will be above the group’s apparent in the prior comparable. We expect net fund long-term 20% EPS growth target, we remain outflows to continue given performance of the Australian increasingly cautious about the prospects for FY09 given equity and high yield funds. the deterioration in lead indicators for global M&A activity ƒ Macquarie also expects Challenger’s net debt position to and interest rates. be nil at balance date due to the transfer of the financial ƒ Guidance for FY09 will be critical for CPU given the wide planning sale proceeds of $150m from AXA and the variance in consensus forecasts (ranging from -6% to likely repayment of corporate debt facilities, with surplus +17%). This compares to our flat assumptions reflecting capital within CL2 remaining close to $700m. a more subdued corporate actions backdrop and lower ƒ We recently upgraded Challenger to Outperform on interest rate environment in key markets. valuation grounds. ƒ We retain a Neutral recommendation as our enthusiasm ƒ At 5.2x PER and a 5.8% dividend yield, we believe the is tempered by a slowing EPS growth profile in the face business is undervalued even under bear case scenario of a more subdued corporate actions environment and analysis. The on-market buyback due to commence on without the benefit of rising interest rates in the US, the 21 July should be supportive. The size of the buyback is UK and Canada, albeit downside is partly hedged. 55.7m shares which is the maximum number of shares Perpetual Limited (PPT) – 20 August that can be bought back without shareholder approval. ƒ We are forecasting FY08 reported NPAT of $129m, Computershare (CPU) – 13 August down 29% relative to pcp. Excluding significant items ƒ We are forecasting FY08 reported NPAT of US$301m, and the unrealised losses on the credit portfolio, the up 37% relative to pcp and at the upper end of operating result is better stated as $136m, implying a 6% consensus forecasts. decrease relative to pcp. ƒ Despite a slowing 2H08, the result is expected to benefit ƒ The 2H08 result includes $26.2m of unrealised loss on from the lagged benefit of record levels of global the credit portfolio due to the deterioration in global credit corporate actions activity, cost control and the markets, as Perpetual bears the underwriting exposure depreciation of the US$ against all major currencies. to the Exact Market Cash Fund and the mark-to-market of securities is taken through the profit and loss statement.

24 July 2008 83 Macquarie Research Equities - Report Profit Outlook

ƒ Our forecast compares to guidance provided in the May ƒ Despite initiatives to aggressively reduce the operating trading update that FY08 underlying operating profit cost base by up to 15% in FY08, the interim result will be would be between $130–140m, subject to the health of adversely impacted by the material decline in domestic equity market conditions. performance fees and lower base management fees during the period. ƒ Macquarie expects a sequential decline in operating profit reflecting lower FUM balances from which ƒ The quantum of performance fees is a material swing investment management fees are derived and attrition of factor in our forecasts given they represented 15% of the securitisation book due to lack of new issuance year total fee revenue in FY07 and 5% in FY08. Base to date. The guidance implies a sequential decline in management fees have been impacted by declining profit of between 23% and 35%. FUM balances due to outflows and negative asset movements. ƒ Contributing to the weaker 2H08 outcome is a decline in revenue with closing FUM to $32.8bn at the end of May, ƒ Henderson provided a trading update in May advising down 15% compared to $38.6bn as at 31 December that operating profit before tax would ‘meet or beat’ the 2007. This balance has been impacted by negative asset £110m achieved in FY07. This guidance is premised on movements coupled with net outflows across most asset a 5,700 FTSE Index compared to the most recent close classes. at the time of publication of 5,150 following a significant deterioration in market conditions. ƒ The lack of issuance in securitisation markets has hampered 2H08 revenue for the Corporate Trust ƒ As such, our FY08 forecasts sit near the bottom end of business, with FUA declining 7% to $195.6m as at the consensus at £106m funds management operating end of April. Competitive rivalry has also increased in profit, below the last communicated guidance and we this space with Bank of New York Mellon vowing to identify downside risk to FY09 as well given sharply double its market share. lower average FUM balances. ƒ Despite recent initiatives to reduce the cost base in the ƒ This is largely due to the material deterioration in Corporate Trust division, we see limited scope for investment market conditions (down nearly 20% since Perpetual to have materially reduced the cost base in the trading update was provided) and impact on FUM 2H08, resulting in negative operating leverage in two balances, from which investment management fees are highly scaleable business operations. derived as well as slowing net fund flows due to investor sentiment malaise. ƒ Consistent with the group’s indication that the dividend will be struck on a 90% dividend payout ratio (excluding ƒ The year to date average level of the FTSE index is the credit losses); a final dividend of $1.38ps is expected 5,887, however, if current levels are maintained for the to be announced down from $1.89ps in 1H08. We do not rest of the year, the average index level would be 5,488. believe Perpetual will pay a special dividend. ƒ Given rough sensitivities of a 3% move in the FTSE100 ƒ Our FY09 forecasts are currently premised on an leads to roughly a £5m change in base management improvement in domestic equity market conditions and a revenues, if the FTSE stays at current levels our NPAT 5,700 All Ordinaries as at June 2009, however, given the would fall by at least 5%. To reach an average of 5,700, market movements year to date, we would expecting to the market would have to average 5,500 for the rest of downgrade our FY09 forecasts if current market malaise the year, up 8% from the last close at the time of continues. publication. ƒ Perpetual is our least preferred exposure in the ƒ Macquarie expects a further decline in closing FUM from diversified financials space as operating profits are the £56.2bn as at 30 April to £50.2bn due to negative reliant on asset growth rather than new business flows to asset movements and on the assumption that further underpin earnings momentum and in the absence of withdrawals from the Pearl mandate occurred before the rising equity markets or securitisation issues, FY09 end of June 2008. revenue remains under pressure. ƒ Macquarie expects a decline in fee income to £144m, ƒ Furthermore, management needs to demonstrate the reflecting a 4% drop in base management fees and a ability to provide shareholders with attractive growth 58% decline in performance and transaction fees. The opportunities, given the lack of success of the level of performance fees is skewed towards the first half international business and the unrealised losses on the due to the timing of the recognition of performance fees, credit income book, both of which appear to be testing in accordance with IFRS and consistent with prior investor patience. periods. Henderson Group (HGI) – 28 August ƒ Expenses are expected to decrease by 17% as management has taken a prompt reactive stance on cost ƒ We are forecasting an interim reported net profit after tax reductions due to the downturn in markets. Three of £34m, down 62% on pcp. Excluding significant items, quarters of these cost reductions pertain to staff, with the the interim adjusted profit result is better stated as £36m, remaining £5m being a pension scheme credit due to a down 31% relative to pcp. change in actuarial assumptions.

24 July 2008 84 Macquarie Research Equities - Report Profit Outlook

ƒ Corporate costs are expected to remain steady on pcp but net interest costs of $6m compared to $4m net interest gain on pcp. This is largely due to increased

gearing and the return of capital to shareholders which has reduced the shareholder funds’ investment income. ƒ Despite a higher assumed payout ratio in FY08 to 55% from 50% in FY07, we still expect a 13% decline in the

dividend paid to shareholders this year. Our interim dividend is forecast at 1.8pps, consistent with the historic seasonal skew of dividend payments.

ƒ For investors with longer term investments, there is

emerging value in HGI. However, we identify downside consensus earnings risks and believe it is going to be tough going for the UK fund managers for at least another 6 months and see more attractive investment opportunities elsewhere in the market.

24 July 2008 85 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Diversified Financials

ASX Ltd ASX Outperform 06/2007A 290.5 313.1 189.6 15.1 1.820.1 14.4 163.8 5.7 86.4 100 $30.03 $5,251m - 06/2008E 369.9 369.9 215.7 13.3 1.813.4 12.8 194.6 6.8 90.2 100 Medium 0.51% -14% 12/2008E(i) 192.0 192.0 111.9 N/A N/A N/A N/A 101.0 N/A 90.3 100 06/2009E 389.6 389.6 227.1 12.6 1.713.9 12.1 205.0 7.1 90.3 100 06/2010E 429.1 429.1 250.1 11.5 1.715.0 11.0 225.8 7.9 90.3 100 Adjusted equity accounted net profit

Challenger Financial Services Group CGF Outperform 06/2007A 255.2 182.2 31.2 6.7 0.813.5 6.7 12.5 6.0 40.1 100 $2.19 $1,291m 10x 06/2008E -29.0 214.2 35.1 5.9 0.814.2 5.9 12.5 6.0 35.6 100 High 0.10% 13% 12/2008E(i) 113.6 110.0 18.6 N/A N/A N/A N/A 6.0 N/A 32.2 100 06/2009E 251.1 235.3 40.8 5.1 0.714.7 5.1 13.0 6.3 31.9 100 06/2010E 280.4 236.3 42.4 4.9 0.613.6 4.9 13.0 6.3 30.6 100

Computershare Ltd CPU Neutral 06/2007A 233.2 218.8 36.7 22.0 5.828.9 18.8 13.1 1.6 35.7 0 $8.61 $4,640m 20x 06/2008E 301.3 301.3 53.3 15.2 6.138.6 13.3 18.3 2.3 34.4 0 Very High 0.37% 42% 12/2008E(i) 150.6 150.6 27.0 N/A N/A N/A N/A 9.5 N/A 35.1 0 06/2009E 300.6 300.6 53.9 15.0 5.538.6 13.2 18.9 2.3 35.1 0 06/2010E 340.1 340.1 60.9 13.3 4.939.4 11.8 22.1 2.7 36.3 0 All data is expressed in USD

Guinness Peat Group GPG Outperform 12/2007A 129.0 126.1 10.1 4.9 0.713.8 3.9 0.9 1.8 9.0 0 GBP$0.50 GBP$709m 5x 06/2008E(i) 27.030.5 2.7 N/A N/A N/A N/A 0.0 N/A 0.0 0 Low/Medium N/A 15% 12/2008E 54.7 65.3 5.8 8.7 0.67.1 5.5 1.1 2.2 19.1 0 12/2009E 66.375.1 6.6 7.5 0.68.2 5.0 1.2 2.4 18.2 0 12/2010E 78.583.8 7.4 6.8 0.68.5 4.7 1.3 2.7 18.0 0 All data is expressed in GBP

Henderson Group plc HGI Neutral 12/2007A 132.1 94.2 13.0 7.9 2.724.5 - 6.5 6.4 50.0 0 $2.14 $951m 19x 06/2008E(i) 33.635.8 4.8 N/A N/A N/A N/A 1.8 N/A 37.5 0 Medium 0.10% - 12/2008E 70.772.9 9.9 10.4 2.525.4 - 5.3 5.2 54.0 0 12/2009E 82.082.0 11.1 9.2 2.225.7 - 6.7 6.5 60.0 0 12/2010E 90.490.4 12.2 8.4 2.025.2 - 7.9 7.7 65.0 0 All data is expressed in GBP

Perpetual Ltd PPT Underperform 06/2007A 181.9 144.9 351.8 10.7 4.943.1 9.0 360.0 9.6 102.3 100 $39.12 $1,678m - 06/2008E 129.1 135.8 326.9 11.5 5.441.8 9.6 326.8 8.7 100.0 100 Medium 0.16% -50% 12/2008E(i) 69.964.9 152.6 N/A N/A N/A N/A 152.7 N/A 100.1 100 06/2009E 143.1 133.1 312.5 12.1 5.241.7 9.9 312.0 8.3 99.8 100 06/2010E 151.2 151.2 352.8 10.7 5.145.3 8.9 349.6 9.3 99.1 100

Source: Macquarie Research, July 2008

24 July 2008 86 Macquarie Research Equities - Report Profit Outlook

Financials – Insurance Key recommendations ƒ Macquarie expects QBE to deliver a better than expected insurance margin with the improved General insurance sector: QBE – Outperform underwriting result reflecting the absence of any major Life insurance sector: AMP – Outperform catastrophes (pcp included windstorm Kyril in Feb 2007), rising UK and US bond yields (the reverse of the adverse Industry commentary impact in 2H07), the emergence of integration synergies Headlines hurt by investments and continued favourable prior accident year reserve development. ƒ The deterioration in equity and credit markets since last balance date will obviously result in material adverse Profit previews mark-to-market revisions across most of the insurance AMP (AMP) – 28 August 2008 sector and poor headline results. ƒ AMP is forecast to report 1H08 NPAT of $340m ƒ Over the financial year, the All Ords has declined ~1,000 (excluding non-recurring and mismatch items), down points or 15% (and has fallen a further 15% since) with 39% relative to $561m pcp due to sharply lower global indices also down significantly. The value of bond investment returns and slowing underlying profit due to portfolios has also fallen materially following the credit the equity market malaise. crisis. ƒ The headline result is expected to be buffeted by a ƒ As highlighted in our 7 July Essentials note, we combination of the sale of the Cobalt-Gordian run-off processed negative adjustments to investment returns business in December 07 and a $124m decrease in on the sector: investment income on shareholders’ funds due to ⇒ Suncorp FY08 NPAT downgrade ~9%, with 45% adverse market movements. tangible capital across both the GI and wealth ƒ At a divisional level, Macquarie is forecasting AFS’ management operations invested in equities, contemporary Wealth Management profits to be flat at ⇒ IAG FY08 NPAT downgrade of ~14%, with 32% of $147m, with a 3% decrease in management fees offset tangible capital invested in ‘equities’ (with further by a reduction in variable expenses. operational downgrades yet to be made post the ƒ Macquarie is forecasting a modest 8% lift in Wealth strategy update), Protection profits, with underlying profit growth retarded ⇒ QBE minimal changes as only 19% of tangible by an assumed reduction in experience profits capital invested in equities with exposure and associated with a return to more normalised claims investment return volatility largely hedged during experience. 1H08 (although remaining hedges have been ƒ AMP Capital Investors is forecast to report 1H08 removed post 30 June), operating margins of $65m, down 16% from $78m pcp, ⇒ AMP FY08 downgrade of 4% as 38% of tangible reflecting a 6% decrease in average FUM to $102bn, as capital invested in equities and lower FUM balances well as a decrease in performance fee projections, also reduced forecast investment management fees, despite an estimated gross DUET fee of $27m. ⇒ AXA FY08 downgrade of 23% (and now materially ƒ Investment losses are forecast at $5m, down from below consensus) as 24% of AXA’s tangible capital $119m investment gain pcp. AMP is not as leveraged to is invested in equities and 65% in corporate bonds. equity markets as AXA given that AMP’s superannuation Given the group’s capital intensive business, AXA is business is extremely capital light, and as a result, more highly leveraged to equity markets than AMP. investment income on capital accounts for only ~ 15% of AMP’s NPAT compared with 25% in the case of AXA. ƒ Despite an adverse bond spread related adjustment to investment income on technical reserves for the general ƒ Furthermore, downside risk on equities backing AMP’s insurers, the domestic focused insurers (SUN, IAG) capital base is protected by derivative hedges, such that should post a rebound in 2H08 Australian insurance the group is more sensitive to a market upturn than a margins due to lower claims frequency and severity decline. relative to the preceding half. Nevertheless, the FY08 ƒ AMP’s balance sheet remains undergeared, although we underwriting results will still show a material deterioration believe management is likely to hold off any debt-funded relative to pcp, exacerbated by diminishing prior period buybacks until debt and equity markets stabilise. reserve releases. ƒ AMP is expected to declare an interim dividend of 22¢ps, in line with 1H07 and struck on a dividend payout ratio of 122% or 99% of normalised profits.

24 July 2008 87 Macquarie Research Equities - Report Profit Outlook

ƒ Macquarie’s sum-of-the-parts valuation and 12-month ƒ Macquarie expects a headline 1H08 net profit after tax of price target is $8.49ps, however, this is subject to $919m, flat on pcp, underpinned by an acquisition driven downside risk should recent equity market weakness be 8% increase in GWP on a flat overall insurance margin. sustained (with potentially adverse implications for ƒ The higher AUD will likely see management lower FY08 inflows and FUM as well as investment returns). GWP guidance slightly, eg to $12.9bn from $13.3bn AXA Asia Pacific Holdings (AXA) – 5 August 2008 previously, however, the profit impact of the higher A$ should be compensated for by a higher than originally ƒ AXA is forecast to deliver interim reported NPAT of envisaged insurance margin. $80m, down 79% from $374m pcp, marred by a material $293m adverse investment market adjustment relative to ƒ Management expect FY08 premium rates to decline by pcp. an overall average of 3% across the group which appears realistic given YTD rate reductions across the ƒ With consensus FY08 NPAT for AXA around $440m US book (31% of group NEP but more including compared to our $424m forecast ($386m excluding an cessions to Equator Re) of only 0–1% and industry assumed once-off capitalised loss reversal), there is still feedback suggesting that the Australian commercial some potential risk to consensus FY08 earnings. pricing cycle has bottomed out (~22% of group NEP in ƒ The Australian division is forecast to deliver a 28% (or 1H08). $32m) improvement in operating earnings on pcp, ƒ Macquarie is forecasting a 1H08 insurance margin of largely attributable to a $38m one-off capitalised loss 22%, above FY08 management guidance of 19–20 % reversal in the income protection book associated with and consensus of 21.5%. The improved underwriting favourable claims incidence and duration. Excluding this result reflects the absence of any major catastrophes adjustment, Australian divisional operating earnings will (pcp included windstorm Kyril in Feb 2007), rising UK be down 5% on pcp. and US bond yields (a partial reversal of the $185m ƒ New Zealand business operating margins are expected charge taken in 2H07), the emergence of further US to decline by 19% on pcp to $22m, reflecting lower integration synergies (QBE is targeting $100m after tax) average FUM, increased system costs (with some and continued favourable reserve development. KiwiSaver start-up costs capitalised in FY07), the ƒ Reflecting recent profit growth, balance sheet strength absence of prior period experience gains and and share price appreciation, the interim dividend is exacerbated by the 5.6% depreciation of the NZD over forecast at 69¢ps, up 6% from 65¢ps pcp, struck on a the period. ~57% payout ratio. With abundant capital and a relatively ƒ The Hong Kong business is expected to generate low payout ratio, we do not think there are any issues operating margins of HK$906m, up 16% on HK$708m with capital or dividend sustainability. pcp but down on 2H07, underpinned by the Winterthur ƒ Investors will be expecting strong results from QBE acquisition (which did not contribute in 1H07) and a following the bid for IAG, and as such will be placing 2H07 change in the policyholder dividend payment close attention to the earnings quality of the 1H08 profile on the SmartSeries range (which will boost 1H08 results. Given the direction of US and UK bond yields, by ~HK$42.5m relative to pcp). Notwithstanding these QBE is capable of delivering strong underwriting results positive influences, A$ operating profits are forecast to and maintaining probability of adequacy at 94% at last be flat at A$126m reflecting the 14% depreciation of the balance date. HKD relative to the AUD during the half. ƒ Macquarie’s DCF valuation is $25.69ps (based on an ƒ AXA is expected to declare an interim dividend of increasingly conservative long-term insurance margin of 10.5¢ps, up 14% on pcp, although we acknowledge 12%) with a 12-month price target of $27.39ps, downside risk to the 1H07 level. AXA has an abundance underpinned by an expectation of further acquisition of surplus capital ($944m at 12/07) but like AMP, is initiatives. expected to hold off any further capital management initiatives until debt and equity markets stabilise. Insurance Australia Group (IAG) – 22 August 2008 ƒ Our sum-of-the-parts valuation is currently $6.35ps with ƒ IAG is expected to report a net statutory loss in FY08, the same 12-month share price target, however, this is with the headline result marred by $350m of goodwill subject to downside risk should recent equity market and identifiable intangible write-downs relating to the UK weakness be sustained (with potentially adverse business, $60m of restructure costs and poor investment implications for inflows and FUM as well as investment market returns. Further material, but diminishing, reserve returns). releases on commercial and CTP will support the underwriting results. QBE Insurance (QBE) – 21 August 2008 ƒ QBE will deliver another strong result, with the global commercial pricing cycle softening only gradually (~3% on average across all classes and regions) and claims experience (catastrophe severity and large individual loss frequency) thought to be better than pcp.

24 July 2008 88 Macquarie Research Equities - Report Profit Outlook

ƒ After reporting poor 1H08 underwriting results due in part ƒ Reflecting the aforementioned storm losses as well as to significant adverse catastrophe experience (including some $143m of unrealised losses associated with the $258m of industry insured losses relating to the Sydney blow-out in corporate bond spreads ($85m in 1H08 and and Lismore hailstorms), 2H08 is expected to show a further $53m in 2H08) the FY08 insurance margin is modest improvement, with the only major catastrophe forecast to decline materially to 9.6% (17.8% pcp) ie., related to the February flooding in MacKay, incurring the lower end of the 9–12% guidance provided by industry insured losses of an estimated $128m. Suncorp in May. However, despite better trading profits in Australia, poor ƒ Adverse investment market conditions also will impact performance in the UK business leads to the expectation reported headline profits, with average investment return that insurance margin will be at the lower end of the 6– declining from 5.1% to around 2.7%. Our assumptions 8% guidance. on mark-to-market adjustments reduced pre-tax results ƒ Recently updated FY08 GWP guidance of ~6% by $446m on pcp. announced on 9 July was in line with our original ƒ At the 1H08 result CEO, Mr John Mulcahy, upgraded the estimates, although FY09 GWP growth guidance of 0– group's target for its banking division’s pre-provision 2% was clearly below expectations due to the expected profit growth from 10% to 10–12% (including the adverse disposal of the Hastings/Advantage business in the UK impact of higher funding costs). Given strong asset and a stated change in strategic direction to focus more growth in 1H08 and ongoing solid growth in 2H08, on price than volumes. coupled with cost discipline and a focus on margin ƒ While it is conceivable that IAG could approach its management, we expect SUN will deliver 10.5% in pre- minimum MCR coverage level of 1.50x in the near term provision profit growth in FY08. (on an ex-dividend basis), IAG’s capital position remains ƒ For bank earnings after taking bad debts into account, at an acceptable level allowing for the notional we are forecasting FY08 pre-tax gross profit of $594m, conversion of the $550m RES security (which would up 4.4% on FY07. While SUN has historically had lower dilute EPS only fractionally reflecting the loss of a few provisioning and impairment cost versus the majors, million dollars of profit made on the RES due to franking given increasing pressure on households, rising credit arbitrage). mortgage delinquencies and the potential for higher ƒ Although conversion of the RES security would hold no individually assessed provisions, we believe we have material EPS dilution, prospective capital flexibility would prudently raised our impairment assumptions, resulting be reduced with the optimal MCR increasing to 1.6x in an FY08 pre-tax banking profit growth of 4.4%. resulting in a lower ROE at optimal capitalisation. ƒ Capital is a key focus in the current environment and ƒ As announced at the investor briefing on 9 July, the final SUN’s 1H08 bank capital ratios show the division's dividend was reduced to 9¢ from previous guidance of capital position was reasonably tight, particularly given 16¢, bringing FY08 dividends to 22.5¢ps from 29.5¢ps an increasingly uncertain operating environment. While pcp. the bank’s total capital adequacy ratio was 10.84% versus SUN’s target range of 10–10.5%, the bank's ACE ƒ Our distributable cash profits valuation is currently ratio was at the very low end of the group’s target range $3.64ps, with a 12-month ex-dividend price target of of 4.5–5.0%, closing at 4.54% in 1H08. $3.79ps, however, this is clearly subject to downside risk (once we adjust our forecasts for the recent strategy ƒ Notwithstanding relatively strong asset growth in FY08, update) and should recent equity market weakness be pressure on Suncorp’s banking capital ratios including sustained. Tier 1 and to a large extent the bank’s ACE ratio is expected to abate over the remainder of CY08 reflecting Suncorp (SUN) – 26 August 2008 the combined impacts of the recent $735m Tier 1 hybrid ƒ Suncorp is forecast to report FY08 profit of $586m, down (CPS) issue, expected underwriting of the final FY08 45% on $1,063m pcp due to significant deterioration in dividend to 100%, and an forecast slowing of credit the general insurance result on the back of higher claims growth, especially in more capital intensive areas such experience and sharply lower investment returns, with as business/corporate lending. the banking contribution forecast to be slightly up at ƒ Moreover, the establishment of a NOHC structure is $594m, from $569m pcp. expected to boost GI capital adequacy by as much as ƒ Suncorp’s FY08 GWP is forecast at $6.4bn, up 69% on $200m thereby alleviating recent capital pressure pcp, underpinned by the acquisition of Promina which caused by poor investment returns, adverse storm was completed in March 2007. losses and the impact of the increase in the equities capital adequacy charge from 1 July 2008 (all of which ƒ However, the underwriting result is expected to be down exacerbated bank capital strain by limiting GI dividends). 63%, due to $200m+ of adverse weather experience – increased storm frequency and severity gave rise to ~$410m of catastrophe losses versus an historical average of $200m including the Dec Sydney hailstorms ($170m) and the Feb Mackay floods ($100m net of reinsurance). 24 July 2008 89 Macquarie Research Equities - Report Profit Outlook

ƒ While the outlook for local commercial insurance pricing may be improving with early indications of some price stabilisation (and even increases) the impact of any sustained improvement is unlikely to be felt until CY10 at the earliest, thereby exposing SUN’s GI margin (and IAG’s for that matter) to a larger-than-expected decline as prior year accident releases are exhausted. ƒ However, further sustained severe equity markets could further strain the ability of GI to upstream dividends to the bank, thereby potentially requiring further DRP underwriting in FY09 (not currently forecast in our numbers). ƒ SUN’s final dividend is forecast at 57¢ps, up from 55¢ps pcp. Macquarie’s valuation of SUN is currently $14.64 per share with a 12-month price target of $14.93.

24 July 2008 90 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢)(%) (%) (%)

Insurance

AMP Limited AMP Outperform 12/2007A 986.1 961.1 51.0 12.1 5.8 43.0 - 46.07.4 90.1 85 $6.48 $12,337m - 06/2008E(i) 372.9 372.9 19.8 N/A N/A N/A N/A 22.0 N/A 111.1 85 High 1.20% - 12/2008E 828.2 828.2 44.0 14.0 5.9 41.5 - 46.07.4 104.6 85 12/2009E 982.1 982.1 52.2 11.8 5.6 48.4 - 48.07.8 92.0 85 12/2010E 1090.2 1090.2 57.9 10.7 5.2 50.5 - 52.08.4 89.8 85

AXA Asia Pacific Holdings AXA Neutral 12/2007A 638.7 659.0 38.2 11.6 2.0 17.3 - 22.35.0 58.2 38 $4.50 $7,814m - 06/2008E(i) 205.3 214.5 12.7 N/A N/A N/A N/A 11.0 N/A 86.8 40 Medium 0.36% - 12/2008E 518.9 537.5 31.8 13.9 2.0 14.4 - 24.05.4 75.6 40 12/2009E 635.0 653.2 38.6 11.5 1.8 16.7 - 26.05.9 67.3 40 12/2010E 738.7 757.0 44.8 9.9 1.7 17.7 - 28.06.3 62.6 40

Insurance Australia Group IAG Underperform 06/2007A 552.4 607.4 36.4 9.6 1.3 14.9 - 29.58.4 81.1 100 $3.50 $6,893m - 06/2008E 195.3 265.3 14.4 24.4 1.4 5.6 - 26.57.6 184.6 100 Low/Medium 0.65% - 12/2008E(i) 272.7 307.7 16.2 N/A N/A N/A N/A 10.0 N/A 61.9 100 06/2009E 545.7 615.7 32.2 10.9 1.3 12.6 - 23.06.6 71.5 100 06/2010E 579.1 644.1 33.3 10.5 1.3 12.7 - 25.07.1 75.1 100

QBE Insurance QBE Outperform 12/2007A 1924.6 1945.6 221.7 9.4 2.2 26.4 - 122.0 5.8 55.0 55 $21.60 $19,474m - 06/2008E(i) 870.6 886.6 102.4 N/A N/A N/A N/A 62.0 N/A 60.6 25 Medium 1.89% - 12/2008E 1973.1 2005.1 232.8 9.0 2.0 22.6 - 135.0 6.5 58.0 25 12/2009E 2162.0 2194.0 246.2 8.5 1.8 22.5 - 148.0 7.1 60.1 25 12/2010E 2271.8 2303.8 258.3 8.1 1.7 21.7 - 161.0 7.7 62.3 25

Suncorp SUN Neutral 06/2007A 1064.0 1173.0 175.7 6.7 0.9 13.9 - 105.3 9.0 60.0 100 $12.15 $12,135m - 06/2008E 586.1 912.2 97.9 12.0 0.9 7.4 - 109.0 9.3 111.4 100 Low 1.15% - 12/2008E(i) 553.5 719.7 73.7 N/A N/A N/A N/A 53.0 N/A 71.9 100 06/2009E 1099.5 1431.9 144.8 8.1 0.9 11.2 - 111.0 9.4 76.7 100 06/2010E 1212.2 1442.8 141.7 8.3 0.9 10.8 - 113.0 9.6 79.8 100

Source: Macquarie Research, July 2008

24 July 2008 91 Macquarie Research Equities - Report Profit Outlook

Healthcare and biotechnology Key recommendations ƒ Increased utilisation of its installed base for bilateral implants and sound processor upgrades, and to a lesser COH – Outperform extent the beginnings of sustained growth in the China HSP – Outperform market, made 2008 a strong year for cochlear implant makers, including undisputed market leader Cochlear. ANN – Outperform With over 50% of cochlear implants going to people with SHL – Outperform age-related hearing loss, there is still much room for further market penetration. RHC – Outperform ƒ The pace of acquisition, particularly in Europe, of Industry commentary pathology assets by various players appears to have ƒ The plasma industry strength story remains essentially slowed, with the exception of SHL which has added a unchanged with demand looking to remain ahead of number of small bolt-ons to both its German/Swiss supply for some time. Demand from increasing use of business and its US business at relatively cheap IVIG and coagulants in the developed world along with multiples. Reimbursement for pathology in the near term support for Albumin prices from China will see the looks stable in both the US and EU, whilst in Australia continuation of the profitable litre paradigm and hence the review of the pathology agreement with the federal the preservation of margins. government comes up for review at the end of FY09. ƒ The likely sale (rather than IPO) of private equity owned ƒ The private hospital arena has seen capacity US third largest player Talecris is a potential catalyst for constraints arise in Australia due to the continuing another round of industry consolidation if purchased by strength in health insurance levels combined with the an industry player, or conversely, increased competition aging of the population. However regulatory changes if Talecris remains independent and needs to continue such as the recent lifting of thresholds on the Medicare increasing its collection centre capabilities with its surcharge levy, has put pressure on private health contract for receiving raw plasma for CSL’s collections insurers to consider lifting premiums to compensate for being due to expire by the end of the year. The recent the loss of members to the already capacity constrained IPO of Italian-based Kedrion which has plans for public sector. Regulatory competitive constraints, have expansion into the US market also may impact supply in also seen private hospital industry leader RHC continue the longer term. overseas expansion into the United Kingdom. It has purchased hospitals that rely on increased outsourcing ƒ Regulatory setbacks have been more detrimental to of public hospital work from the troubled British NHS to Gardasil competitor, Cervarix, with US registration now private hospitals such as RHC. delayed at least until late CY09. A delay in registration for an indication for Gardasil in older women in the US is ƒ Although SIP and API are not reporting until later in the unlikely to have an impact on overall growth given the year, the environment for pharmaceutical distributors has low likelihood of reimbursement being provided for this remained clouded with uncertainty given the upcoming group in any case. PBS 25% price cut, actions of newer generics suppliers, API’s joint venture with Alphapharm and the outcome of ƒ After a year of discounting and a partial product recall in the PRY’s attempts to sell the SYB Pharmacy FY07, US market growth in obstructive sleep apnoea (distribution) and Consumer assets. (OSA) appears to have slowed and is showing no signs of a speedy recovery. We do not expect two of the main drivers of strong US growth over the past five years – humidification (29%) and an acceleration of the flow generator replacement cycle (15%) to be important drivers in the future. Over the next five years we believe four key growth drivers will be home testing (30%), market share gains for APAP (11%), improvement in mask replacement (10%) and new patient growth (41%). Although with ongoing doubt surrounding supply chain resourcing with the introduction of home testing, we remain subdued of the immediate growth outlook. ƒ The purchase of Resmed competitor Respironics by Dutch Royal Phillips in December suggests some belief in the future growth potential of this market as the utility of treating OSA in the increasingly common conditions such as hypertension and type 2 diabetes becomes more appreciated by treating clinicians and insurers.

24 July 2008 92 Macquarie Research Equities - Report Profit Outlook

Profit previews ƒ Although a depreciating sales currency together with an appreciating cost currency, poses ongoing risk to COH’s Ansell (ANN) – 18 August gross margins, COH’s hedging policy somewhat ƒ ANN should meet expectations at this result despite the mitigates this risk. price of key input latex increasing significantly in FY08. ƒ Furthermore, COH’s strong cash flow and working ANN has continued to grow its markets and market capital position, together with continuing growth of its share by moving further into developing markets and BAHA product in the US and Europe as well as the segments; evidenced through its recent acquisition of increased sales in the Chinese market will all act to specialist US glove maker, Hawkeye. This has opened support a positive result. We are forecasting an adjusted up a new channel of sales for ANN with the company profit of $119.2m for the full year. increasingly focusing on bolstering its occupational lines (which contain less latex) through movement into areas Healthscope (HSP) – 21 August such as industrial safety. It is focusing on reducing its ƒ Following its failed takeover bid for Symbion, HSP has professional lines’ dependence on latex by converting or entered 2H08 with renewed focus on its domestic selling most of its low-margin examination glove capacity hospital and pathology businesses. Brownfields in favour of surgical gloves, which has reduced exposure expansion and small bolt-ons are likely to be the key to latex costs. Its mainly defensive exposure should see strategies in the medium term, rather than a large it continuing to grow at the top line, with a number of acquisition. Progress on margin improvement, incremental growth options still appearing attractive. We particularly in pathology will be of interest. are forecasting an adjusted profit of $89.1m for the full year. ƒ HSP’s share price suffered a setback following investor concerns that private insurers may push potential cost CSL (CSL) – 20 August increases onto private hospitals following the mooted ƒ Continued strength in demand and pricing for CSL’s increase of the Medicare surcharge threshold in the May plasma products will place it in good stead for this result. Budget. HSP should achieve reasonable operating The rollout of the higher margin Swiss manufactured margin gains over coming periods which should only be Privigen since March will be a positive, albeit with some partially offset by the potential Medicare threshold constraint from the weaker USD versus the CHF. A changes in the longer term. HSP should have enough boost to FY09 could be provided if manufacturing negotiating power due to its scale to resist any push by capacity for Privigen comes on earlier than previously insurers to compensate for margin loss caused by a indicated by the company. Continued strong demand decrease in the younger, lower-claim element of their from China and other developing countries for Albumin reinsurance pool. should see strong prices being sustained for this fraction. Primary Healthcare (PRY) – 26 August The catch-up of supply with demand looks to be some time off, although increasing collections due to ƒ This upcoming result will be clouded by the transaction increasing US unemployment over coming periods may and other costs associated with PRY’s acquisition of see these levels improve. Symbion. That said, the latest rollout of medical centres should start to bear fruit as scale benefits are achieved. ƒ We expect Gardasil revenues to continue to provide support particularly from growth in Europe. The further ƒ A key concern for the stock has been around the delay of competitor Cervarix until at least late CY09 is likelihood of success of selling the Symbion Pharmacy also favourable for Gardasil’s outlook in the medium and Consumer assets in order to improve PRY’s debt term. levels and increase its interest cover over 2.0x EBITDA. With Metcash having withdrawn as a bidder, an update Cochlear (COH) – 12 August on this sales process will be sought. The progress of ƒ For COH, strong earnings growth should come from achievement of the flagged ~$100m synergies by FY10 continued upgrades of the installed base of implants with will also be a major point of interest. the Nucleus freedom sound processor, and an Ramsay Healthcare (RHC) – 25 August increasing frequency of bilateral implants going into both old and new patients. Though it has a relatively high ƒ Australia’s largest private hospital operator is expected PER, Cochlear has a good growth profile and strong to provide another reliable result with adjusted profit defensive characteristics – which may receive more forecasted at $107.3m for the full year. RHC’s recognition in the current market environment. impressive management track record in private hospitals in Australia should continue to place it in good stead to ƒ It maintains about 72% market share in its main take advantage of the growing UK market. business of cochlear implants, with strong exposure to the aging baby-boomer population - given 40–50% of people over 75 have some form of hearing loss.

24 July 2008 93 Macquarie Research Equities - Report Profit Outlook

ƒ Whilst industry drivers have been very supportive, there still remains the issue of capacity constraints in a number

of major hospitals, potentially leading to market share losses before the brownfield expansion program begins to deliver material additional capacity. Confidence in

RHC has also been adversely affected following the Medicare surcharge changes mooted in the May budget (but yet to be passed by the Senate).

ƒ In terms of the UK business, of interest will be how well

the excess capacity in the ex-Capio hospitals is being filled by NHS choose and book patients and whether capex requirements (particularly on operating theatres)

have remained within expectations.

Resmed (RMD) – 6 August

ƒ FY08 has been tough for Resmed, with the decline in growth of the US OSA market being a causal factor in our drop in longer-term expectations.

ƒ The two main drivers of growth over the past five years –

humidification (29%) and an acceleration of the flow generator replacement cycle (15%) – are unlikely to be important drivers in the future. Although growth in new

drivers – home testing (30%), market share gains for APAP (11%) and new patient growth (41%), has driven optimism for underlying market growth, there remains

doubt whether these drivers will do enough to outweigh the drag on earnings from slowing market growth. ƒ In terms of this result, there should be a short-term boost to growth from launches of the SII flow generator and

Swift LT mask early in the fourth quarter. We are forecasting an adjusted profit of $132.5m for the full year.

Sonic Healthcare (SHL) – 21 August . ƒ The international pathology player has had an acquisitive CY06 and CY07 and has continued CY08 in similar fashion, through the recent acquisition of the anatomical pathology practise, Clinical Laboratories of Hawaii (CLH). The initial fruits of the earlier of these acquisitions will be sought in this result with SHL looking to deliver on the synergies it has projected for acquisitions such as AEL in the US (late 06) and Bioscientia and Schottdorf in Germany (late 07). Currency headwinds will not help SHL although these will be somewhat offset by its overseas-denominated debt. For the year we are forecasting adjusted profit of $253.2m, EPS growth of 12.1% (guidance >12%) and ROE of 14.9%.

24 July 2008 94 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation ReportedAdjusted Nom.Payout Price (A$) Mkt Cap (A$M) Int Cover Net Net EPSPERP/BVROEPGCF DPS Yield RatioFranking Profit Profit Volatility Index % S&P/ASX 300 Debt/EquityYear ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Health Care Equipment & Services

Ansell Limited ANN Outperform 06/2007A 80.6 79.1 53.2 17.7 2.7 15.5 13.6 24.0 2.5 45.1 0 9.86 $1,338m 14x 06/2008E 99.489.1 63.9 14.8 2.6 17.8 11.4 26.0 2.8 40.7 0 High 0.0014 0.21 12/2008E(i) 50.350.3 36.7 N/A N/A N/A N/A 12.0 N/A 32.7 0 06/2009E 105.2 105.2 76.8 12.3 2.3 19.8 9.6 28.0 3.0 36.4 0 06/2010E 119.3 119.3 87.2 10.8 2.0 19.6 8.5 31.0 3.3 35.5 0 All data is expressed in USD

Australian Pharmaceutical Industries API Neutral 08/2007A -13.9 7.1 2.8 27.8 0.5 1.7 7.0 3.0 3.9 108.3 100 $0.75 $193m 0x 08/2008E 19.619.6 7.6 10.1 0.5 4.7 5.5 0.0 0.0 0.0 - High 0.01% -3% 02/2009E(i) 13.813.8 5.4 N/A N/A N/A N/A 3.2 N/A 59.6 100 08/2009E 28.528.5 11.1 7.0 0.4 6.5 3.9 6.6 8.6 59.6 100 08/2010E 32.932.9 12.8 6.0 0.4 7.2 3.3 7.5 9.7 58.7 100 10 months included for the period ending Aug 2007.

Cochlear COH Outperform 06/2007A 100.1 107.6190.2 23.2 9.4 46.0 21.2125.0 2.8 66.1 100 $44.60 $2,510m 15x 06/2008E 116.5 119.2211.7 20.8 8.0 41.9 17.6152.0 3.4 71.8 100 High 0.24% 44% 12/2008E(i) 64.766.0117.3 N/A N/A N/A N/A 77.0 N/A 65.6 100 06/2009E 134.8 136.2242.8 18.2 6.9 41.1 15.4171.0 3.9 70.4 100 06/2010E 154.2 154.2277.8 15.9 6.0 40.4 13.4194.0 4.4 69.8 100

Ebos Group EBO Neutral 06/2007A 10.310.3 31.4 13.4 1.6 13.8 11.4 22.5 5.4 71.6 100 NZD$4.20 NZD$197m 8x 06/2008E 15.715.7 35.0 12.0 1.4 13.2 10.2 22.5 5.4 64.3 100 Medium N/A 9% 12/2008E(i) 8.18.1 17.6 N/A N/A N/A N/A 10.0 N/A 56.9 100 06/2009E 17.417.4 37.6 11.2 1.3 11.9 9.7 24.0 5.7 63.9 100 06/2010E 18.618.6 40.3 10.4 1.2 12.1 9.2 24.0 5.7 59.6 100 All data is expressed in NZD

Fisher & Paykel Healthcare FPH Outperform 03/2008A 35.338.0 7.4 31.0 6.0 19.5 22.8 12.4 5.4 166.9 100 NZD$2.30 NZD$1,172m 15x 09/2008E(i) 21.823.1 4.5 N/A N/A N/A N/A 5.4 N/A 119.2 100 Medium N/A 41% 03/2009E 47.450.0 9.8 23.5 6.5 26.7 17.4 12.4 5.4 126.6 100 03/2010E 70.372.9 14.3 16.1 6.3 39.8 12.9 12.4 5.4 86.9 100 03/2011E 86.989.5 17.5 13.1 6.0 46.9 10.7 15.3 6.7 87.4 100 All data is expressed in NZD

Healthscope Limited HSP Outperform 06/2007A 84.468.7 29.1 13.5 1.2 9.0 8.9 17.5 4.5 60.2 100 $3.90 $977m 3x 06/2008E 73.575.9 31.5 12.4 1.1 9.1 8.0 20.0 5.1 63.5 100 High 0.08% 69% 12/2008E(i) 44.244.2 18.2 N/A N/A N/A N/A 10.5 N/A 57.8 100 06/2009E 88.388.3 36.3 10.8 1.1 10.1 7.1 23.0 5.9 63.3 100 06/2010E 96.796.7 39.8 9.9 1.0 10.6 6.5 26.0 6.6 65.4 100

IBA Health IBA Neutral 06/2007A 22.923.0 6.6 8.7 1.3 16.8 6.6 0.9 1.6 14.3 0 $0.59 $466m 860x 06/2008E 14.821.7 5.4 10.5 1.1 12.7 6.7 2.5 4.4 46.0 100 Very High 0.03% -93% 12/2008E(i) 17.0 17.0 4.9 N/A N/A N/A N/A 1.5 N/A 30.4 100 06/2009E 34.534.5 9.8 5.8 1.0 17.5 4.8 3.0 5.3 30.4 100 06/2010E 37.137.1 10.6 5.4 0.8 16.7 4.6 3.2 5.6 30.4 100

Pro Medicus Ltd PME Outperform 06/2007A 7.17.1 7.1 15.2 7.4 51.4 14.3 5.5 5.1 99.1 100 $1.12 $112m - 06/2008E 8.38.3 8.3 12.9 6.7 54.8 12.2 6.8 6.3 87.3 100 Low/Medium N/A -78% 12/2008E(i) 4.24.2 4.1 N/A N/A N/A N/A 3.0 N/A 72.4 100 06/2009E 9.29.2 9.2 11.7 6.0 54.4 11.0 7.5 7.0 87.2 100 06/2010E 9.69.6 9.6 11.1 5.7 52.6 10.5 8.0 7.5 88.4 100

Primary Healthcare Ltd PRY Outperform 06/2007A 56.951.9 30.0 14.6 1.8 13.0 10.4 32.5 7.4 108.5 100 $4.62 $1,796m 8x 06/2008E -87.7 90.8 36.5 12.0 0.4 8.6 9.8 27.9 6.4 76.5 100 High N/A 40% 12/2008E(i) 58.158.1 15.7 N/A N/A N/A N/A 14.0 N/A 89.0 100 06/2009E 138.6 138.6 37.5 11.7 0.9 8.0 8.3 29.0 6.6 77.4 100 06/2010E 182.9 182.9 49.5 8.9 0.9 10.2 6.6 38.0 8.7 76.8 100

Ramsay Health Care Limited RHC Outperform 06/2007A 107.1 94.6 54.6 16.4 1.8 11.0 9.0 29.0 3.2 53.1 100 $8.99 $1,580m 4x 06/2008E 114.2 107.3 62.0 14.4 1.7 11.8 7.3 33.0 3.7 53.2 100 Medium 0.09% 83% 12/2008E(i) 74.065.5 37.9 N/A N/A N/A N/A 18.0 N/A 47.5 100 06/2009E 143.1 126.3 73.0 12.3 1.6 13.1 6.1 39.0 4.4 53.5 100 06/2010E 158.0 141.6 81.8 10.9 1.5 13.8 5.6 43.9 4.9 53.6 100

Resmed RMD Neutral 06/2007A 66.3126.0 16.0 21.9 3.0 15.1 16.5 0.0 0.0 0.0 - $3.86 $3,040m - 06/2008E 109.4 132.5 16.6 21.1 2.5 13.0 15.1 0.0 0.0 0.0 - High 0.11% -17% 12/2008E(i) 64.075.5 9.5 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 128.5 151.6 19.0 18.4 2.2 12.9 13.1 0.0 0.0 0.0 - 06/2010E 147.8 170.9 21.4 16.3 2.0 12.8 11.6 0.0 0.0 0.0 - All data is expressed in USD

Ryman Healthcare RYM Neutral 03/2008A 72.672.6 14.5 11.1 2.2 22.0 10.5 5.0 3.1 34.4 0 NZD$1.61 NZD$805m 23x 09/2008E(i) 18.418.4 3.7 N/A N/A N/A N/A 2.6 N/A 72.0 0 Low/Medium N/A 39% 03/2009E 36.736.7 7.3 21.9 2.1 9.7 19.3 5.7 3.5 77.1 0 03/2010E 59.159.1 11.8 13.6 2.0 14.9 12.4 5.9 3.7 49.9 0 03/2011E 97.597.5 19.5 8.3 1.7 22.0 7.8 6.5 4.0 33.1 0 All data is expressed in NZD

24 July 2008 95 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation ReportedAdjusted Nom.Payout Price (A$) Mkt Cap (A$M) Int Cover Net Net EPSPERP/BVROEPGCF DPS Yield RatioFranking Profit Profit Volatility Index % S&P/ASX 300 Debt/EquityYear ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Sonic Healthcare Ltd SHL Outperform 06/2007A 205.2 205.2 68.2 20.2 2.9 15.2 14.7 46.0 3.3 67.4 100 $13.97 $4,702m 7x 06/2008E 246.3 253.2 76.5 18.0 2.3 14.9 13.6 51.0 3.7 66.7 100 High 0.42% 79% 12/2008E(i) 127.1 133.1 39.4 N/A N/A N/A N/A 23.0 N/A 58.4 100 06/2009E 285.8 297.8 88.2 15.6 2.2 14.7 11.8 57.0 4.1 64.6 100 06/2010E 324.1 336.1 99.4 13.9 2.1 15.7 10.7 60.0 4.4 60.3 100

Sigma Pharmaceuticals Ltd SIP Neutral 01/2008A 77.287.4 9.6 9.7 0.7 6.9 6.8 7.0 7.5 72.6 100 $0.99 $867m 3x 07/2008E(i) 40.340.3 4.7 N/A N/A N/A N/A 3.0 N/A 64.2 100 Very High 0.08% 35% 01/2009E 93.3 93.3 10.8 8.6 0.7 7.7 6.1 7.5 8.0 69.3 100 01/2010E 107.8 107.8 12.5 7.5 0.6 8.6 5.4 8.0 8.6 64.0 100 01/2011E 125.5 125.5 14.6 6.4 0.6 9.7 4.8 9.0 9.6 61.8 100

Pharmaceuticals Biotechnology & Life Sciences

CSL CSL Neutral 06/2007A 539.3 521.3 96.0 35.3 7.6 24.5 27.8 34.7 1.0 36.1 26 $33.95 $18,912m 65x 06/2008E 702.8 702.8128.1 26.4 6.4 27.5 21.4 43.0 1.3 33.6 27 High 1.84% 23% 12/2008E(i) 425.8 425.8 76.9 N/A N/A N/A N/A 24.0 N/A 31.2 0 06/2009E 889.5 889.5160.5 21.1 5.4 28.2 17.6 51.0 1.5 31.8 26 06/2010E 1042.4 1042.4188.0 18.0 4.5 27.1 15.4 58.0 1.7 30.8 27

Sirtex Medical Limited SRX Neutral 06/2007A 1.61.6 2.9 96.8 6.7 7.7 77.8 0.0 0.0 0.0 - $2.77 $156m - 06/2008E 5.95.9 10.6 26.2 5.5 24.3 24.3 3.1 1.1 29.4 100 High N/A -49% 12/2008E(i) 5.25.2 9.1 N/A N/A N/A N/A 2.7 N/A 29.5 100 06/2009E 11.411.4 20.1 13.7 4.2 36.3 13.2 6.0 2.2 29.8 100 06/2010E 15.415.4 27.1 10.2 3.3 37.5 9.9 11.0 4.0 40.5 100

Source: Macquarie Research, July 2008

24 July 2008 96 Macquarie Research Equities - Report Profit Outlook

Infrastructure Key recommendations Profit preview TCL – Outperform Macquarie Airports (MAP) – 20 August MIG – Outperform ƒ We anticipate that MAP will report proportionally consolidated EBITDA of $433m for H108, 1% higher MCG – Outperform than last year, although this is muddied somewhat by the AIX – Outperform disposal of stakes in Rome and Birmingham and small increases the stakes for Brussels and the acquisition of MAP – Outperform an additional 15.1% stake in Sydney Airport from CEU – Outperform Ferrovial in March last year. AIA – Neutral ƒ MAP’s NAV we anticipate will drop from the $5.06 per share to ~$4.39 per share down 13%. Like with our MIG AIO – Neutral expectation we have factored in a 50bps increase in RCY – Neutral credit spreads and the elimination of the constant regearing assumption, with no change to the risk Performance drivers premiums. This is the largest negative effect of $0.60 on ƒ The sector has continued to suffer along side property the valuation. The residual drag from currency and trusts and financials reflecting the high gearing levels. higher interest rates offsets the roll forward. Compounding this pressure is concern over fuel prices ƒ The focus as normal will not be on the reported result as and the behavioural impact on consumers (road users) all the individual assets will have reported there 2Q and airlines. numbers. The focus will be more on the outlook ƒ The successful companies during this reporting season comments and anticipated growth at the airports. The are likely to demonstrate that they have answered the focus will be on effect of fuel prices. We see the threat first issue, and are making initiatives to offset the impact as threefold: of the second. The obvious choice in the sector is TCL, ⇒ Airlines cut capacity which hurt all airports. Sydney which has already raised the equity, and announced its and CPH have already been affected. cost reduction initiative. We anticipate AIO will follow TCL in raising equity and cutting dividends. ⇒ Some airlines fail, CPH and Brussels are the most at risk ƒ The focus is likely to be on the initiatives management announce to contract the valuation gap between their ⇒ Regulatory outcomes are weak. CPH is entering a NAVs/investor valuations and the current share price. regulatory reset period this year. This may involve orderly asset sales, or accelerated cost ƒ MAP’s cash surplus has been generated by the sale of reduction programs. Birmingham and Rome, along with refi proceeds from Industry commentary Sydney and Brussels. The investment in JAT and incremental acquisition of Brussels has had little impact ƒ The sector has been squeezed on numerous fronts. The on the balance. At this stage the IRR of MAP is ~23.7%, obvious concern remained debt, with the sector thus the ability to acquire value adding airports over itself performance been much weaker than European is challenging meaning MAP may have to pass on counterparts. In the case of MIG and MAP it has opportunities in Australia (Cairns, Mackay), Europe and counted little that they have had significant cash on possibly the US (Chicago Midway). balance sheet. Companies like TCL, and AIX arguably have a moral high ground having a structurally lower Asciano (AIO) – 20 August level of leverage. ƒ Asciano has recently re-iterated guidance of $650– ƒ The emerging fear which has hurt performance more in 660m. Our expectation is that EBITDA before one-offs the second half has been the impact of the weaker remains at ~$643m slightly below management economy and higher fuel prices. Whilst operationally we guidance. At this stage all indication are the business will see very little impact in the second half, it is likely to has been performing well. influence outlook comments by management, with the ƒ Port volumes have yet to reflect the consumer closest attention being paid to MAP, AIX and AIA. On slowdown, possibly highlighting imports are benefiting the road assets the focus is more in the US and UK from demand for product for the mining sector. Rail impact on MIG, than TCL. remains in a steady state with inter-modal making some ƒ Finally currency translation has been a drag on the minor volume gains, and coal recovering off a poor June sector which has hurt the performance of MIG, MCG and 2007 which was impacted by floods. to a lesser extent MAP, AIX and TCL.

24 July 2008 97 Macquarie Research Equities - Report Profit Outlook

ƒ However, the actual operating result seems relatively ⇒ TCL’s take on the impact of fuel prices on the minor for the stock. The focus for investors will be on business. how management addresses its leverage and dividend Macquarie Communications Infrastructure Group policy. We think the latter will be a cut to cash earnings, (MCG) – 26 August which we already anticipate. The former is a trade-off ƒ 2008 was a year of transition for MCG. It has been between an asset sale and an entitlement issue, with the hampered by the hold separate on the Arqiva/NGW, likelihood of $0.5–1.0bn to be raised to pay-off debt and which is limiting the possible cost reductions. deliver management some flexibility to pursue other Nonetheless, we anticipate proportionately consolidated opportunities. EBITDA for the group will increase to $604m from Macquarie Infrastructure Group (MIG) – 21 August $364m, including full period contributions from NGW and Airwave and partial year contributions from GTP and ƒ We expect MIG will report proportional consolidated Hostworks. EBITDA of $763m for FY08 (up 3.1%) on proportional consolidated revenues of $1,159m. ƒ Operationally,we believe the focus will be on the performance of the Arqiva/NGW wireless business. This ƒ We anticipate MIG will report June 08 NAV of $4.34 per has been area of weakness, and will have the most share down 5.4% increase on Dec 07. The decrease significant amount of restructuring post hold separate. reflects unfavourable currency movements over the half Any improvement will add to confidence in the revenue (with the AUD up between 1–12%), increased credit outlook. Certainly a positive is the launch of the Apple spreads and traffic weakness. While base rate 3G iphone. movements have been favourable, we have adjusted the rate for Canada and the US to reflect the abnormally low ƒ In the US, investors have been sceptical of GTP. rates in these markets. Delivering on the original growth outlook will improve confidence that this business can continue to organically ƒ Overall macroeconomic factors took 17¢ lift off the NAV and acquisitively grow. while the drop in short term traffic expectations created a further drag of 8¢. We are not forecasting any de-risking ƒ However, it is not the operational focus that is likely to this half. attract investors’ attention. Rather, the focus will be on what management say or announce about how they will ƒ At the asset level, the performance of MIG’s roads has seek to address the exchangeable bonds. Successfully been mixed. While the 407, M6Toll, Skyway, Greenway addressing these bonds through an orderly asset and ITR all put through price rises, of these only the 407 realisation will reducing gearing and eliminate dilution managed to grow traffic volume as the impact of lifting MCG financial attractiveness. elasticity, economic weakness and higher fuel prices started to bite. APRR however, continued its steady Australian Infrastructure Fund (AIX) – 27 August growth and the M7 continued ramping up with strong ƒ We expect that AIX will report profit of $210m, up from traffic growth. $168m in FY07 due primarily to large asset revaluations, Transurban City Link (TCL) – 27 August but also to the benefit of the additional stakes in Melbourne, Perth and NT airports that it acquired from ƒ We expect Transurban to report proportionately BAA in November last year flow through. The underlying consolidated EBITDA of $631m for the year, up 38% as EBITDA growth is forecast to be strong up 8.5% a result of the benefits of a full year of the SRG roads as reflecting the strength of the airport passenger growth well as strong growth of the M7 which had traffic growth and additional property. of 11.2% as the road continued to ramp up. Growth was also boosted by a 4.5% increase in traffic on the Hills ƒ Looking forward, in April the QLD government Motorway, aided by the ramp-up of the M7 and LCT. announced it was going to sell its stakes in the Cairns and Mackay airports, which we think would be very ƒ As both the dividend policy and the capital shortage complementary to AIX’s existing business. Arguably, have been addressed, we anticipate the focus will be on there are potential overhead synergies that could be management’s outline of: gained within the management of the airports through ⇒ Cost reductions. The indication is $20m in savings, Queensland Airport. with little detail of how it will be saved. The colour ConnectEast (CEU) – 27 August should add to confidence that this is achievable and potentially more. ƒ At this stage the earnings results are irrelevant, with the road opening free to traffic on 29 June. ⇒ Clarity over DRIVe and its direction will be need. Clearly holding 75% of the asset they wish to hold ƒ While CEU has released the first week’s traffic for only 25% of is not ideal. Eastlink showing 275,364 ADT trips on the road and an average toll of $2.61, we should be cautious interpreting ⇒ Clarity on detail around the growth opportunities and these numbers given the road is free and the opening the likely capital requirement to fund these week was during a school holiday period. opportunities. ƒ The real test for the road will be once tolling commences at the end of July. 24 July 2008 98 Macquarie Research Equities - Report Profit Outlook

Rivercity Motorway (RCY) – 27 August ƒ With the road still in construction, RCY earnings results are irrelevant. Management has previously indicated it is targeting completion in December 2009, some 9 months early, and any update on this will be more material to the share price. The other issue hanging over the stock is the share price has fallen below the level where the underwriting agreement covers the non-DRP portion of the dividend. The share price would need to be closer to $0.50 for the underwriting condition to be met. In the current environment this seems challenging which could ultimately see either a dividend cut or a mandatory participation in the DRP, both achieving the same effect.

24 July 2008 99 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Infrastructure

Asciano Group AIO Neutral $2.88 $1,930m 06/2008E -95.1 27.5 4.2 65.4 1.0 1.5 6.5 46.0 16.8 1097.3 0 Medium 0.16% - 12/2008E(i) 39.239.2 6.0 N/A N/A N/A N/A 15.5 N/A 259.7 0 06/2009E 69.169.1 10.5 26.0 1.0 3.9 5.6 28.7 10.5 272.2 0 06/2010E 132.3 132.3 20.1 13.6 1.1 7.9 4.4 37.0 13.5 183.7 0

Aust Infrastructure Fund AIX Outperform 06/2007A 168.2 43.5 11.6 20.1 0.9 4.7 20.1 15.5 6.7 133.4 44 $2.33 $750m 217x 06/2008E 207.7 39.1 10.3 22.6 0.8 3.7 22.6 16.5 7.1 160.1 44 High 0.09% -7% 12/2008E(i) 72.330.2 7.9 N/A N/A N/A N/A 9.0 N/A 114.1 0 06/2009E 145.3 61.2 15.9 14.6 0.7 5.1 14.6 17.5 7.5 109.9 0 06/2010E 156.5 86.1 22.0 10.6 0.7 6.7 10.6 18.5 7.9 84.0 0

ConnectEast CEU Outperform 06/2007A -2.1 -2.1 -0.2 - 0.8 -0.2 - 6.5 7.2 - 0 $0.94 $1,566m - 06/2008E -7.5 -7.5 -0.5 - 0.9 -0.5 - 8.5 9.4 - 0 Low 0.15% 74% 12/2008E(i) -78.2 -78.2 -4.8 N/A N/A N/A N/A 5.3 N/A - 0 06/2009E -120.4 -120.4 -7.3 - 1.0 -7.6 - 10.5 11.6 - 0 06/2010E -44.4 -44.4 -2.5 - 1.2 -3.0 28.0 10.5 11.6 - 0

Macquarie Airports MAP Outperform 12/2007A 2695.5 1028.5 59.8 4.3 0.5 14.0 4.3 26.0 10.0 51.8 0 $2.67 $4,279m 4,187x 06/2008E(i) 665.5 46.1 2.7 N/A N/A N/A N/A 13.5 N/A 503.7 0 Low/Medium 0.35% -4% 12/2008E 910.5 157.8 9.2 28.3 0.5 1.8 28.3 27.0 10.4 294.0 0 12/2009E 1105.3 268.4 15.6 16.6 0.5 2.9 16.6 28.0 10.8 179.3 0 12/2010E 1122.6 252.5 14.7 17.7 0.4 2.6 17.7 29.0 11.2 197.4 0

Macquarie Communications Infrastructure Group MCG Outperform 06/2007A 88.088.0 18.7 15.4 1.1 7.3 4.6 42.0 14.5 224.4 0 $3.10 $1,637m 1x 06/2008E -409.4 -409.4 -79.4 - 1.7 -36.0 - 46.0 15.9 - 0 Medium 0.13% 372% 12/2008E(i) -83.9 -83.9 -15.5 N/A N/A N/A N/A 25.0 N/A - 0 06/2009E -143.8 -143.8 -26.3 - 2.3 -18.3 10.6 50.0 17.3 - 0 06/2010E -68.7 -68.7 -11.9 - 3.5 -11.7 5.8 52.0 18.0 - 0

Macquarie Infrastructure Group MIG Outperform 06/2007A 1540.6 1082.4 42.6 5.1 0.6 11.2 5.1 20.0 9.2 47.0 0 $2.30 $5,288m - 06/2008E 1661.8 256.0 10.4 21.0 0.5 2.5 21.0 20.0 9.2 192.5 0 Low/Medium 0.48% -16% 12/2008E(i) -141.0 124.6 5.2 N/A N/A N/A N/A 10.0 N/A 193.1 0 06/2009E 348.0 224.6 9.3 23.4 0.5 2.2 23.4 20.0 9.2 214.3 0 06/2010E 1795.7 245.9 10.2 21.3 0.5 2.2 21.3 20.0 9.2 195.7 0

Rivercity Motorway Group RCY Neutral 06/2007A 15.515.5 2.2 12.8 0.3 2.0 12.8 5.4 19.4 248.4 0 $0.30 $232m - 06/2008E 17.817.8 2.4 11.6 0.3 2.2 11.6 6.0 21.4 249.3 0 Medium 0.02% 34% 12/2008E(i) 0.00.0 0.0 N/A N/A N/A N/A 3.0 N/A - 0

Transurban City Link TCL Outperform 06/2007A -151.2 -151.2 -15.9 - 1.4 -5.0 29.3 54.0 11.6 - 0 $4.86 $6,150m 0x 06/2008E -32.7 -32.7 -3.0 - 1.6 -0.9 15.2 57.0 12.2 - 0 Low/Medium 0.59% 98% 12/2008E(i) 38.638.6 3.0 N/A N/A N/A N/A 11.0 N/A 365.0 0 06/2009E 37.737.7 2.9 158.2 1.5 1.0 15.5 22.0 4.7 747.0 0 06/2010E -109.6 -109.6 -8.6 - 1.6 -2.8 14.9 26.0 5.6 - 0

Source: Macquarie Research, July 2008

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Materials – building, paper, packaging, contractors and chemicals Building Victoria continues to see significant growth, with house prices in Melbourne increasing by ~17% in the 12 months Recommendations to March 2008. This has resulted in deterioration in ABC - Outperform housing affordability, which now sits at almost 37% of wages. Furthermore, the discount to Sydney now sits at BLD – Neutral ~6ppt, significantly lower than the average of 12ppt. Strong CSR – Neutral growth in inward migrations has not helped affordability in Victoria. JHX – Underperform BKW– Neutral In Queensland, housing affordability has deteriorated to a level not seen in more than two decades, with mortgage payments now taking up almost 38% of wages. The Performance drivers discount to Sydney now sits at just 5.5ppt, significantly below the average of 14ppt. We believe deteriorating Expect mixed Australian results affordability and moderating migration levels will moderate Investment decisions in relation to the building material price growth going forward, particularly in Brisbane. The companies remain difficult. We continue to suggest that outlook for price growth in the growth corridors of North investors stay away from the US. While we want to be more Queensland appears stronger. positive on the Australian housing story, it appears we are The decline in WA has been due largely to deteriorating still at least 12 months away from any recovery. The non- affordability and significant new levels of supply coming residential and engineering markets remain in better shape online. Affordability in Perth deteriorated ~1ppt in the March and we continue to favour stocks with exposure to these quarter, with mortgage repayments now taking up ~37% of sectors. wages. Migrations have continued to be very strong Australian outlook however, and in the 12 months to September 2007 were ~32k, double the long-term average. House price growth in We retain our cautious view on the Australian residential Perth has moderated from the level seen up to 2006. We market as a global economic slowdown and high interest believe the level of new projects coming on line in 2008, rate environment weigh on the confidence of potential matched with deteriorating affordability will continue to home buyers. Affordability remains a key issue facing dampen growth in house prices, which we believe will stay Australian residential markets, with all cities experiencing flat of slightly negative in the medium term. deterioration in the March quarter. Engineering construction looks set to remain at high levels, The individual markets remain important and in most cases largely driven by government infrastructure programmes they are running on different growth rates so state exposure and continued resources demand. The engineering for the stocks remains important. The interest rate construction projects include roads, railways, pipelines, environment continues to dominate news flow and this will mines, processing plants, production and storage facilities, be important in terms of household sentiment. Our water, and ports. The outlook for the engineering economics team continues to forecast rate cuts from the construction sector remains strong over the short to RBA coming through in mid-2009. However, if we continue medium term, with the pipeline of work at record levels. to see weakness coming through in retail sales and The value of engineering construction work yet to be done business investment, these could be brought forward. This was $48bn as at December 2007. would provide some welcome relief for the Australian housing market, with affordability still an issue across most In the medium term, non-residential construction should major capital cities. In the near term, while the RBA may remain robust and there remains a continued upswing in hold rates steady the commercial banks still have upwards the non-residential construction cycle. Non-residential pressure on lending rates. buildings include offices, retail centres, schools, universities, factories, hospitals and other buildings not While approvals in 2008 are unlikely to fall much further, we used for long-term residential purposes. The Australian expect growth to be very limited. A best case scenario non-residential building market was valued at $29.8bn in would see a return to growth by the beginning of 2009. March 2008. Builders’ order books remain at record levels The NSW residential market continues to be hampered by of over $18bn in terms of work yet to be done. This is likely an uncertain interest rate environment and deteriorating to underpin continued strength in activity levels. affordability. The outlook remains soft, and company US outlook commentary and industry feedback indicates the market is as yet showing no signs of a pending recovery. Sydney We remain bearish on the US housing market, and while remains the most expensive city to live in, with mortgages we think things might bottom out in late 2008, the recovery, taking up a whopping 43% of wages (up from 41% at the which is more important, is likely to be slow. December quarter). Migrations into Sydney remain fairly strong which will continue to drive demand for housing in the state and put further pressure on rents.

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Companies with US housing exposure will continue to Profit previews struggle for at least 12 months, in our view. If the housing Adelaide Brighton (ABC) – 21 August cycle bottoms out in late 2008 then the earnings cycle will not bottom out until 2009. There is a three- to six-month We expect ABC’s 1H08 result to come in at A$50.2m lag on the impact of housing on the earnings of companies. (reported profit) and a dividend of 8cps. This compares with Therefore we anticipate that earnings growth for US A$44.5m for last year. ABC has kept the market well housing-exposed stocks will not take place until late 2009 / informed with various issues around debt refinancing and early 2010. WA gas issues and has re-enforced FY08 guidance a number of times since the FY07 result. Full year guidance Housing starts fell again in May, off 32.1% YoY to the is currently for an NPAT result of A$118–125m. We are 0.975m level. Permits remain a good lead indicator, and sitting at A$126m, which is broadly in-line with market were down 36.3% YoY to the 0.969m level. We now expectations of A$125m. forecast 0.878m starts for 2008, implying a 35% decline YoY. The single-family data is more important for JHX and ABC’s key markets in the west continue to hold up well BLD because most of their products go into freestanding given the strength in resources demand and population homes. When we look at the single family starts and growth. Sunstate (50:50 JV with ABC and Boral) has permits, they continue to be very weak and were each continued to benefit from the strong levels of activity in the down over 40% YoY in May. infrastructure market in south east Queensland, while SA also appears to be tracking along at reasonable levels. The We remain concerned about the US housing market this residential market is anticipated to remain soft in NSW and year given the lack of activity in the seasonally strong is weakening in Queensland but ABC’s exposure is more spring quarter. If companies do not experience good sales heavily skewed towards the non-residential and into spring and summer then it makes the rest of the year engineering markets where the outlook is more robust. very difficult. This will be a key focus for JHX, because its spring quarter earnings (1Q09) are usually the best. Cost pressure across all industries is an issue that ABC will We continue to watch for signs of stabilisation in the need to deal with. Gas prices are likely to have a large headline data and across each region. The northeast impact, particularly in WA given recent issues. bounced in May but we are mindful of large monthly Cement continues to be the main driver of earnings, moves in the data that are inconsistent with prior trends. accounting for over 60% of EBIT for ABC. Conditions have The west continues to be the region under the been favourable in the domestic cement market creating microscope and house prices have been coming off at a opportunities for cement producers to push prices harder. rapid rate. There have been some signs of life in the The lime business is also an important growth engine for existing home market in the west, with massive price earnings and we continue to forecast a robust outlook for falls inducing some buying in the market. If we look at both volumes and pricing. ABC has 100% of the WA the last 3 months of permits in the west, the YoY change market so future price increases seem likely. has come back from -52.8% (in March) to -38.5% (in the most recent month). While this is a slight positive, ABC’s balance sheet is still in good shape but gearing conditions remain very weak in the west and it will take (ND/E) is now at the top end of managements target range some time to recover. of 40–60%. ABC will be relatively constrained in terms of near term balance sheet capacity and in the near term is unlikely to undertake further large acquisitions, in our view. ABC also intends to reintroduce the DRP with the upcoming FY08 interim dividend, with potential to extend this to the full year dividend. No decision has been made as yet whether the DRP will be underwritten. The reintroduction of the DRP will mean the shares on issue increase so there will be some small EPS dilution in the coming period. We will remain focused on developments within the local market and the opportunities that might create for ABC. However, in our view the Readymix and Hanson assets in Australia remain fairly low on the priority list for CEMEX and HeidelbergCement with both companies unlikely to divest any assets in the near term. There is also uncertainty around BLD’s intentions with the 19.9% stake in ABC, but a sale of this does not look likely in the immediate future. Boral (BLD) – 19 August We forecast FY08 NPAT of A$235.6m, down 21% YoY and in line with market expectations. We anticipate that BLD will pay a dividend of 34cps, which is flat YoY but requires a large increase in the payout ratio compared to last year.

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Boral lowered market expectations for FY08 in early May, With JHX deriving 85% of its earnings from the US housing commenting that earnings were likely to be at the bottom market, we expect earnings will remain under pressure for end of the market range of A$234–256m. This was the remainder of FY09. JHX announced at the 4Q08 result effectively an 8% downgrade to prior guidance, with that the business had been reset for 800k starts. While we earnings impacted by continued weakness in the US are not factoring a fall of this magnitude (we forecast 878k housing market and poor weather on the east coast of starts for calendar year 2008 versus 1.34m in 2007), the Australia. outlook for volumes remains difficult with the US housing market still falling rather than stabilising at low levels. The focus in the result will be the guidance for FY09. The market is still looking for +6% growth (we are looking for 2% We remain concerned that the negative earnings earnings growth). Margins will also be a focus for us, and momentum from 4Q08 will carry into 1Q09 for JHX. While while prices are being pushed harder across the entire a small bump came through in April orders, volumes remain portfolio many of these price rises are needed in order to soft for this period. With a lack of activity in the spring offset the rapid rise in costs throughout the business. quarter, JHX is likely to start FY09 from a very challenging position. The Australian Construction Materials business accounts for nearly 70% of total earnings so it remains the most While prices have held up extremely well for JHX, lower important division for BLD. While some solid price rises volumes and rising costs are now having an impact on were announced recently in ACM these will be required in margins. Cost management is a key area for JHX in terms order to offset costs and maintain margins. Escalating of achieving its target range for EBIT margins of 20–25%. costs in energy, fuel, steel and labour are still a large While cement prices have moderated, pulp prices have concern in the quarrying, concrete and transport increased and energy and freight costs are also unlikely to businesses. alleviate in the near term. In order to reflect a higher cost environment, we now forecast margins of 20.6% for FY09 The cement pricing environment remains robust which has in the US fibre cement business, which is a substantial fall created a good opportunity for BLD to increase prices down from the 27.4% realised in FY08. the east coast. The latest rise in cement prices will be effective from September and are expected to more than We believe softness in volumes will be exaggerated by a offset cost increases. The cement business is an important lack of market share gains for JHX. The siding market driver of total profit and this is a definite positive. remains intensely competitive and with homebuilders increasingly cost-focused, we see risk to JHX’s ability to Building products appears to be tracking along well continue to grow market share at historical rates. The lack considering the lack of recovery in NSW. NSW still makes of growth in primary demand was an issue in 4Q08 and if up around 40% of the Australian revenues so a recovery in this continues into 1Q09 it will make conditions much more this state remains the key focus for investors. Pricing has challenging for JHX. been pushed harder in plasterboard which should assist earnings, but we remain concerned about impacts from a We continue to be cautious on the stock, and with further softening housing market and gas/electricity supply downside risk to the US housing market it is easy to see shortages driving up costs for the brick business in WA. how volumes across the industry could come under further pressure. While there is value emerging we think sentiment While the US is a smaller part of earnings now for BLD, will remain negative and this will make outperformance difficult macro conditions will drag on total earnings, with difficult. JHX might start to look interesting to an acquirer the strength in the A$ not helping things. Capacity but with the Europeans also currently under pressure and utilisation has eroded significantly over the past 18 months with the complexities surrounding JHX’s asbestos exposure and we suspect that the brick and tile businesses will we think a takeover is unlikely in the near term. struggle to breakeven in FY08 and FY09. Conditions also appear to have deteriorated recently in the construction Brickworks (BKW) – 25 September materials business, with poor weather and softening We expect BKW to deliver a reported NPAT (before non- demand likely to impact volumes. regular items) of A$103.4m, up 1.2% YoY. We see James Hardie (JHX) – 20 August downside risk to this number, however, given continued softness in the domestic housing market. We forecast a 1Q09 NPAT result of US$29m (excluding asbestos and legal costs). This represents a 58% fall YoY. BKW was successful in offsetting the weak building product The real focus will be on the US fibre cement EBIT result in 1H08 with stronger contributions from the land and margins, which we forecast to come in at 20.6%. Within development division. Management highlighted that this this, prices are expected to be flat, while volumes are division is likely to deliver another record earnings result in forecast to decline heavily. FY08, but this will be required to offset a softer result in building products.

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BKW has a much higher yield per housing commencement ƒ Amcor’s PET packaging operations (32% of EBIT) in NSW and WA which is likely to exaggerate the impact performed solidly in FY08. We forecast headline EBIT to from weaker housing activity in these two markets. While be down 22% due to the sale of European PET. WA is still tracking above long-term averages, the recent Excluding this we forecast a 3% increase in underlying approval data suggests that NSW is not recovering any EBIT in A$ terms, noting this is despite a 15% adverse time soon and there are concerns around the recent move in currency. Australasia’s non-fibre business is softening housing market in Queensland. There should be performing well, while the fibre operations’ restructuring some more favourable volumes coming from Victoria, but benefits are starting to be realised but are being partly overall there are a number of headwinds which continue to offset by high costs (wastepaper). hamper growth in building product volumes. Costs will also ƒ AMC’s internal restructuring initiatives drive an improved be an issue and we will be focused on EBIT margins in the earnings outlook for FY09 (we forecast 6% EPS growth). division. These include $40m in targeted cost savings from Earnings from residential land sales are likely to be strong Australian box restructuring (converting plant closures), in FY08 on the back of realising various partial payments US$16m in savings from Mexico turnaround (new for the Eastwood (further A$6m profit to be recorded) and management team), and flexibles plant closures (UK and Scoresby (A$50m profit) transactions coming through for Netherlands). The challenge for AMC is to retain these BKW. While these will be beneficial in terms of propping up savings amid a competitive industry backdrop and also earnings in FY08, the real value in the property portfolio is the risk of these being offset by negative externalities in the Property Trust and the associated stream of recurring (A$, resin prices, inflationary costs). rental payments. These rental payments are likely to be a ƒ A rising A$ is negative for AMC but the impacts are smaller part of the total land and development contributions mainly earnings translation based. A 1c move in the in FY08, however the signs are encouraging for this part of A$:US$ impacts AMC’s NPAT by $3m or 0.7%. A 1c the business in years to come. move in the A$:€ impacts AMC’s NPAT by $2m or 0.5%. Overall the FY08 result looks difficult for BKW and the AMC Australasia accounts for 33% of FY08 EBITA with business really will need to deliver in land and property in the rest generated offshore. Based on our FY08 order to grow earnings. A$:US$0.89, this represents an 11c adverse move or | -$33m of NPAT on a full year basis.

PaperlinX (PPX) – 21 August Paper & Packaging ƒ PPX reports its FY08 result on 21 August. We forecast Recommendations adjusted NPAT of $38m versus pcp of $74m. On a Amcor - Neutral reported basis we forecast NPAT of $63m (pre $25m hybrid distribution). We expect a 2H dividend of 2cps PaperlinX - Neutral (unfranked), versus pcp of 6cps. Gunns - Outperform ƒ For the merchanting division, we expect FY08 EBIT of $180m versus pcp of $205m. Deteriorating economic conditions in North America, and UK/Europe and rising Amcor (AMC) – 21 August fuel costs creates a more challenging external ƒ AMC reports its FY08 result on 21 August. We forecast environment for PPX. UK/Europe and North American adjusted NPAT of $353m (pre significant items) which is merchanting represented 64% and 22% of PPX’s 1H08 down 11% on pcp. We expect a 2H dividend of 17cps EBIT respectively. (nil franking). ƒ UK merchanting trade feedback suggests that volumes ƒ We expect EBIT of $647m, down 12% on pcp. This in May and June have been very weak and fuel costs are reflects the sale of the European PET business and the hurting. UK paper prices have actually risen (due to softer Australasian outlook given higher wastepaper weakness of the ₤) but this is being more than offset by costs and weak volumes in food and produce. AMC is lower volumes and higher costs. The UK represents also facing higher resin costs in Europe as well as around 30–40% of PPX’s overall EBIT. Fuel costs broadly higher labour and energy costs across its typically represent 2% of sales; in broad terms, a 10% lift businesses. There are ongoing time lags in passing on in PPX’s fuel bill would be a -$14m hit to earnings these pressures which means that margins get (assuming no recovery). squeezed short term. On the demand side, Sunclipse is most exposed to US economic weakness; however the vast majority of AMC’s sales are food and beverage- related which provides relative defensiveness (~90%). AMC’s asset sales result in $86m of divested EBIT in FY08 with $43m interest saving only partially offsetting (ie EPS negative).

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ƒ North America has been a good news story for PPX in ƒ GNS announced MIS sales of $122m for FY08 (15k recent years, with tight demand/supply seeing positive woodlots vs 21k in prior year in line with expectations). price rises and strong earnings. However, volumes are GNS is scaling back its MIS business going forward as it now falling in line with slower US consumer and print has now secured sufficient wood resource for the mill. spending (US advertising pages down -5% in 1Q). The GNS aims to develop c11k ha of land for MIS, and will Australian Paper merchanting outlook is improving with a focus on mainland Australia softwood resource. We have 3–5% price rise currently going through the market (so incorporated lower MIS sales and forecast EBIT for FY08 far so good). Aust and NZ merchanting represented only of $55m, reducing to $45m in FY09/10. 11% of 1H earnings – North America and Europe are ƒ We expect an update on the pulp mill financing outcome much bigger drivers. at the full year result. Clearly difficult credit markets are a ƒ We forecast EBIT of $4m from Australian Paper tough backdrop. GNS has received approaches for direct (Communications and Packaging Papers) versus pcp of investment by equity investors into the mill which +$11m. This reflects higher pulp prices which have includes investment from current industry participants. continued to rise in CY08. The high AUD:USD has had a Potential third party equity investment would assist in de- significant impact on coated woodfree and publication risking the mill from a capital and management papers prices as has Australian printing industry perspective. overcapacity and consolidation which has made it

difficult for PPX to pass on cost increases. ƒ PaperlinX (PPX) is highly leveraged to A$ and € Contractors currency movements versus the US$. A weak US$ is Recommendations negative for both Australian and European paper prices. We estimate every 1c move in the A$:US$ impacts Leighton Holdings – Outperform PPX’s NPAT by $4m, or 4% of profit on an Boart Longyear – Outperform annualised basis. This reflects the impact on PPX's Australian manufacturing business in terms of import competition and export pricing. PPX’s Communication Leighton Holdings (LEI) – 14 August Papers business is particularly exposed to this. ƒ LEI reports its FY08 result on 14 August 2008. We ƒ PPX’s internal focus remains on successful completion forecast NPAT of $602m up 34% on pcp. We expect a of its $310m pulp mill upgrade. This is expected to be 2H dividend of 85cps (50% franked) up 31% on pcp. completed by September with a c$40m potential EBIT benefit in FY09. Most of the upgrade is now complete, ƒ LEI has guided for 30% FY08 NPAT growth on the pcp except for one final shutdown to install the elemental which implies NPAT of $585m compared to our $602m. chlorine-free (ECF) bleach plant. There is still time and ƒ The recent $4bn Airport Link project win provides a capex risk around this, but the risk of higher costs is strong base load of activity for LEI and underwrites a offset to some extent by pulp prices trending higher. positive outlook for the domestic business over the next Gunns (GNS) – 28 August few years. Airport Link increases LEI’s revenue growth outlook to 15% pa over the next three years vs LEI’s ƒ GNS reports its FY08 result in late August. We forecast “more than 10% pa” guidance. The latter did not include adjusted NPAT of $76.5m versus pcp of $70.8m (pre Airport Link. The project will increase work in hand (WIH) hybrid distribution). On a reported basis we forecast to $32bn from last disclosed $28bn with $34bn now likely NPAT of $80.1m vs last year’s $74.5m. We expect a 2H by the end of June. We look for 19% EPS growth in dividend of 8cps (unfranked), flat on pcp. FY09 driven by 15% growth in revenues. ƒ We forecast woodchip EBIT of $87m in FY08 compared ƒ Our FY08, FY09 and FY10 NPAT margins of 4.1%, 4.3% to $58m in prior year. The woodchips business is and 4.7% respectively are in excess of the 3.6–3.9% performing strongly with sales volumes reported at the levels seen in the early 2000s. This largely reflects the 1H08 result of 1.8mt compared to 1.7mt in the prior year. impact of Al Habtoor in the Middle East which generates Strong demand for fibre from Japan and tighter supply 10% EBIT margins with negligible tax. However, base should see GNS export volumes improve going forward. business margins are also moving higher than before Volumes are forecast to move back towards 2004 levels given the strength of end markets now vs seven years of 4.5mt versus 3.7mt estimated in FY08. ago and sector consolidation which has also occurred ƒ GNS achieved an 11% price rise for CY08 to A$190/t for (all of this means more rational industry pricing). woodchip exports to Japan and expects a 12% increase ƒ A large number of infrastructure projects are still coming in revenues. We forecast a similar price rise over the to the market in Australia over the next few years. This next year assuming a continuance of tight conditions and includes the $3bn desalination plant in Victoria, the $1bn to incorporate cost recovery for higher fuel costs. In real Fiona Stanley Hospital in WA, the $3.5bn Wiggins Island terms, GNS’ woodchip price is down 10% over the last coal export terminal in QLD and the M4 East Tollway in decade. This suggests that some catch-up is due as a Sydney. range of other commodities have recaptured real price declines. 24 July 2008 105 Macquarie Research Equities - Report Profit Outlook

ƒ LEI’s activities in the Gulf and India look set to extend ƒ Given the relatively late onset of weaker economic the duration of LEI’s earnings growth cycle and should conditions during FY08, the outlook commentary will be help offset the eventual decline in the Australian keenly observed. We believe this commentary could be engineering market (there is no sign of this yet). relatively guarded, given the continuing deterioration in the economic prospects in all of NPX’s key markets (bar ƒ Boart Longyear (BLY) – 26 August Asia at this point). NPX’s fortunes are inextricably tied to ƒ BLY reports its 1H08 result on 26 August. We forecast overall economic conditions, and the outlook has NPAT of US$110m. Last year’s 1H represented 43.6% become more uncertain. of full year NPAT. 1H typically accounts for 45-48% of ƒ On the plus side, NPX can be expected to enjoy a full year NPAT, our 1H forecast represents 48.9%. We significant translation benefit in FY09 from a lower NZD, forecast an interim dividend of 2.5cps. and NPX’s strong management and product suite, and ƒ We forecast 36.5% EPS growth in 2008, driven by a full focus on specialty sectors in Europe and US, will provide year impact of rigs added in FY07 (only active on additional insulation. We are currently forecasting FY09 average for four months), a part-year benefit from FY08 EBITDA of $125m, which includes ~$5m in forecast rigs, as well as further price improvement and efficiency currency translation gains (consensus ~$134m). gains. BLY has guided for FY08 revenue growth in the ƒ NPX remains a well-managed business that is currently range of 20-25%. We look for 20% revenue growth. trading at inexpensive multiples. Nonetheless, with the Around 5% of BLY’s revenue comes from acquisitions – risk of recession increasing in a number of key Western most of which are still to be made during the year. economies, NPX remains exposed to this slowdown, and ƒ Margins in the business are being maintained and BLY the stock continues to trade at 2.2x NTA. While our DCF continues to expect the margins achieved in 2H 2007 will valuation stands at $6.60, we presently consider NPX to be achieved over the full 2008 year. Our margin be a Neutral and have a $5.50 12-month price target forecasts are slightly more aggressive and we forecast

23.6% FY08 EBITDA margins vs 22% in 2H07 and 19.4% FY08 EBIT margins vs 2H07's 18.6%.

ƒ BLY’s US$ earnings are benefiting due to translation of foreign currency into USD. Around 25% of revenues

comes from Asia Pacific, 25% Canada, 24% USA and the rest Latin America, Europe, Africa. The stronger A$ and C$ represents a US$7m reported NPAT benefit in

FY08.

ƒ Global mineral exploration spend continues to strengthen. The price of base metals (gold, copper etc) remains at levels well above what is needed to support

exploration.

NZ Chemicals

Recommendations

ƒ NPX – Neutral

* Please note all NZ stocks are in NZD

Nuplex (NPX) – TBC*

ƒ We have forecast FY08 EBITDA of ~$120m, in line with NPX’s original FY08 EBITDA guidance. However, at the 1H08 result, NPX hinted that the $120m could be “on the low side”, so $120m may prove slightly short of expectations (consensus is currently $122.5m).

NB: * Company is yet to confirm exact reporting date

24 July 2008 106 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Materials - Building Materials

Adelaide Brighton ABC Outperform 12/2007A 113.9 113.9 21.0 16.6 2.8 17.1 11.415.0 4.3 88.1 100 $3.48 $1,920m 8x 06/2008E(i) 50.250.2 9.3 N/A N/A N/A N/A 6.5 N/A 70.0 100 High 0.11% 48% 12/2008E 126.2 126.2 23.3 15.0 2.7 18.5 10.416.3 4.7 70.0 100 12/2009E 143.4 143.4 26.4 13.2 2.6 20.1 9.319.8 5.7 75.0 100 12/2010E 165.0 165.0 30.4 11.5 2.4 21.9 8.322.8 6.5 75.0 100

Brickworks BKW Neutral 07/2007A 107.5 102.2 77.0 14.5 1.4 10.0 11.538.0 3.4 49.3 100 $11.40 $1,533m 6x 07/2008E 103.4 103.4 77.9 14.3 1.4 9.6 11.240.5 3.6 52.0 100 Very High N/A 47% 01/2009E(i) 44.9 44.9 33.8 N/A N/A N/A N/A 17.6 N/A 52.0 100 07/2009E 112.0 112.0 84.4 13.2 1.3 10.0 10.443.9 3.9 52.0 100 07/2010E 122.3 122.3 92.2 12.1 1.2 10.4 9.747.9 4.3 52.0 100

Boral Limited BLD Neutral 06/2007A 298.0 298.0 50.1 9.5 1.0 10.4 5.434.0 7.1 67.8 100 $4.88 $2,894m 5x 06/2008E 235.6 235.6 39.5 12.1 0.9 7.8 6.034.0 7.1 86.2 100 Medium 0.29% 50% 12/2008E(i) 111.9 111.9 19.0 N/A N/A N/A N/A 16.7 N/A 87.5 100 06/2009E 240.5 240.5 40.9 11.7 0.9 7.9 5.834.1 7.2 83.5 100 06/2010E 304.7 304.7 51.5 9.3 0.9 9.8 5.136.0 7.6 70.0 100

Fletcher Building FBU Neutral 06/2007A 483.8 483.8 103.0 6.1 1.4 24.1 4.545.0 7.2 43.7 100 NZD$6.25 NZD$3,146m 8x 06/2008E 440.9 402.9 82.1 7.6 1.2 16.9 5.048.0 7.7 58.5 100 Very High N/A 28% 12/2008E(i) 170.8 172.8 34.6 N/A N/A N/A N/A 25.0 N/A 72.2 100 06/2009E 334.9 338.9 68.0 9.2 1.2 13.3 5.850.0 8.0 73.6 100 06/2010E 336.1 340.1 68.2 9.2 1.2 13.0 5.852.0 8.3 76.3 100 All data is expressed in NZD

CSR CSR Neutral 03/2008A 177.4 192.8 21.1 9.5 1.3 14.6 4.815.0 7.5 71.2 100 $2.08 $2,108m 4x 09/2008E(i) 82.182.1 8.3 N/A N/A N/A N/A 6.6 N/A 79.8 100 Medium 0.20% 78% 03/2009E 185.5 185.5 18.6 10.7 1.2 11.9 5.415.0 7.5 80.7 100 03/2010E 227.0 227.0 22.7 8.8 1.2 13.7 4.815.9 7.9 70.0 100 03/2011E 251.6 251.6 25.1 7.9 1.1 14.5 4.516.3 8.2 65.0 100

James Hardie Industries JHX Underperform 03/2008A -71.6 169.7 37.2 10.2 - 605.1 7.720.0 5.3 53.7 0 $3.93 $1,784m - 09/2008E(i) 57.757.7 13.3 N/A N/A N/A N/A 10.0 N/A 75.0 0 High 0.17% - 03/2009E 97.297.2 22.4 16.9 - -47.7 10.620.0 5.3 89.0 0 03/2010E 125.4 125.4 29.0 13.1 - -66.1 8.922.0 5.8 76.0 0 03/2011E 204.5 204.5 47.2 8.0 - -152.8 6.228.3 7.5 60.0 0 All data is expressed in USD

Materials - Chemicals

Incitec Pivot Limited IPL Outperform 09/2007A 205.3 202.5 402.1 44.6 16.9 44.3 37.8260.0 1.5 74.6 100 $178.00 $10,529m 11x 09/2008E 642.4 643.7 1168.3 15.3 4.3 42.5 14.0701.1 3.9 60.0 100 Very High 1.09% 77% 03/2009E(i) 337.9 337.9 559.7 N/A N/A N/A N/A 335.8 N/A 60.0 100 09/2009E 871.7 871.7 1443.7 12.4 3.8 32.7 10.8866.2 4.8 60.0 100 09/2010E 929.2 929.2 1538.9 11.7 3.4 30.7 10.2923.4 5.1 60.0 100

Nufarm NUF Outperform 07/2007A 148.6 115.2 67.2 22.7 2.5 13.3 16.032.5 2.1 48.4 100 $15.24 $2,835m 5x 07/2008E 129.4 145.1 82.0 18.6 2.2 12.6 12.636.0 2.4 43.9 100 High 0.19% 35% 01/2009E(i) 55.248.0 26.0 N/A N/A N/A N/A 13.0 N/A 50.1 100 07/2009E 209.2 194.5 105.2 14.5 2.0 14.6 10.340.0 2.6 38.0 100 07/2010E 229.0 214.4 116.0 13.1 1.8 14.7 9.543.0 2.8 37.1 100 Adjusted equity accounted net profit

Orica ORI Outperform 09/2007A 487.7 467.3 150.4 17.2 3.1 18.0 11.489.0 3.4 59.2 37 $26.70 $8,587m 6x 09/2008E 528.2 518.3 165.1 15.7 2.7 18.5 10.492.6 3.6 56.1 36 Medium 0.83% 50% 03/2009E(i) 291.2 278.3 87.8 N/A N/A N/A N/A 49.2 N/A 56.0 36 09/2009E 650.3 624.6 197.0 13.1 2.4 19.5 9.1110.3 4.3 56.0 36 09/2010E 737.3 711.7 223.4 11.6 2.2 20.2 8.2125.1 4.8 56.0 36

Materials - Contractors

Boart Longyear BLY Outperform 12/2007A 165.0 165.0 11.1 19.0 14.3 75.1 14.11.5 0.7 13.5 35 $2.12 $3,096m 8x 06/2008E(i) 112.5 112.5 7.6 N/A N/A N/A N/A 2.7 N/A 35.3 35 Medium 0.31% 259% 12/2008E 225.4 225.4 15.1 13.9 8.6 77.0 10.35.3 2.5 35.0 35 12/2009E 248.8 248.8 16.7 12.6 5.9 55.7 9.25.8 2.8 35.0 35 12/2010E 263.3 263.3 17.7 11.9 4.5 42.9 8.66.2 2.9 35.0 35 All data is expressed in USD

Leighton Holdings LEI Outperform 06/2007A 450.0 450.0 161.6 27.2 9.1 36.7 13.9110.0 2.5 68.1 30 $45.60 $12,806m - 06/2008E 601.9 601.9 215.8 20.4 7.6 40.6 11.5145.0 3.3 67.2 50 High 0.62% -35% 12/2008E(i) 295.7 295.7 106.0 N/A N/A N/A N/A 74.2 N/A 70.0 50 06/2009E 716.1 716.1 256.7 17.1 6.5 40.9 9.8179.7 4.1 70.0 50 06/2010E 907.3 907.3 325.0 13.5 5.4 43.7 8.2227.5 5.2 70.0 50

Materials - Paper & Packaging Amcor AMC Neutral 06/2007A 533.7 397.0 44.6 11.5 1.3 11.3 5.234.0 6.6 76.3 0 $5.35 $4,489m 4x 06/2008E 321.6 352.6 40.6 12.6 1.3 10.4 5.734.0 6.6 83.7 0 Medium 0.45% 81% 12/2008E(i) 175.4 175.4 20.9 N/A N/A N/A N/A 17.0 N/A 81.5 0 06/2009E 362.2 362.2 43.1 11.9 1.2 10.8 5.334.0 6.6 79.0 0 06/2010E 424.5 424.5 50.5 10.1 1.2 11.9 4.836.0 7.0 71.3 0

24 July 2008 107 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%) Gunns Ltd GNS Outperform 06/2007A 74.5 74.5 21.1 10.6 0.9 9.3 8.514.0 6.3 66.3 100 $2.32 $919m 3x 06/2008E 80.1 76.5 19.0 11.8 0.8 7.7 8.214.0 6.3 73.9 100 High 0.09% 66% 12/2008E(i) 36.434.6 8.1 N/A N/A N/A N/A 6.1 N/A 75.0 100 06/2009E 109.7 106.1 24.2 9.3 0.8 9.0 7.115.0 6.7 62.1 100 06/2010E 141.2 137.5 30.8 7.3 0.8 10.7 5.816.0 7.1 51.9 100

PaperlinX Ltd PPX Neutral 06/2007A 80.173.5 16.4 10.0 0.4 4.2 4.011.0 6.7 67.0 0 $1.72 $725m 3x 06/2008E 63.0 37.9 8.4 19.5 0.4 2.0 4.25.0 3.0 59.3 0 High 0.08% 32% 12/2008E(i) 32.920.4 4.5 N/A N/A N/A N/A 3.0 N/A 66.2 0 06/2009E 88.263.1 14.0 11.7 0.4 3.2 3.510.0 6.1 71.2 0 06/2010E 128.9 103.8 23.1 7.1 0.4 5.2 2.916.0 9.7 69.3 0

Source: Macquarie Research, July 2008

24 July 2008 108 Macquarie Research Equities - Report Profit Outlook

Materials – metals, mining and steel Recommendations ƒ While we remain on research restrictions for BHP Billiton and Rio Tinto, we continue to highlight our preference for OZM – Outperform the global major diversifieds. Forward earnings multiples LGL – Outperform remain attractive and justify our wish to stay over- exposed to the diversified and quality end of the sector. SGM – Outperform ƒ Amid the pure play equities, we prefer exposure to the OST – Outperform bulk commodities of coal and iron ore, while copper WSA – Outperform remains our preferred base metal. Additionally, with global stagflation concerns and global debt market jitters SRL – Outperform continuing, we believe holding some gold in the portfolio MGX – Outperform provides an appropriate hedge. The larger liquid gold equities should attract investors first in any rebounding SGX – Outperform gold market. AWC – Outperform Bendigo Mining (BDG) – TBC* KZL – Outperform ƒ Macquarie expects BDG to report FY08 earnings of NCM – Neutral -A$7m vs -A$32m FY07. BDG is currently in an exploration phase following a “change in strategic BSL – Neutral direction” involving a decision to defer production from MCC – Neutral the Kangaroo Flat mine. Given our difficulty in identifying a positive catalyst (namely, demonstrated operating PMM – Neutral performance) over the next 12 months, and the FMG – Underperform uncertainty that continues to surround grade, ultimate production rates, costs and timing, we remain cautious ILU – Underperform on BDG shares. MRE – Underperform CBH Resources (CBH) – TBC*

ƒ Macquarie expects CBH to announce FY08 earnings of ƒ We expect ever-present inflationary cost pressures, -$10m vs A$39m pcp based on zinc production of 46kt especially due to higher oil prices during 1H08, currency and lead production of 21kt. The Endeavour mine appreciation and related stress in the debt markets to continues to be nursed back to full production rates. With continue to be a feature of this reporting season. In no material zinc hedging and an elevated unit cost base, addition, a sharp turnaround from what has been CBH is effectively a highly margin-leveraged option on unimpeded margin expansion to the stark reality of the zinc price outlook (at least in the short term). We negative earnings momentum will represent an remain cautious on the operational risk at Endeavor (in additional headwind for some, especially for those light of past difficulties), the development challenges in leveraged base metals producers who have experienced Western Australia (cost and timing), the economics of falling LME prices during the preceding 12 months. the Sulphur Springs and Rasp growth projects (on our metal price forecasts) and the medium term zinc market ƒ However, we continue to believe we are in the midst of outlook. an exceptional period for the industry as a whole. The second phase of this super cycle will be characterised by Iluka Resources (ILU) – 21 August a robust (albeit delayed) supply response that will enable ƒ Macquarie expects ILU to report 1H08 earnings of $2.5m the well positioned industry participants to double and vs $42m pcp. In the short term, the outlook for ILU triple the scale of their businesses and subsequently remains challenging – A$ driven price pressures, cost support their longer-term earnings potential. pressures in WA from declining grades/assemblages, ƒ With that in mind, we believe it is wise for investors to and significant upcoming capital calls for development of differentiate between the haves and the have nots when the new generation assets (northern Murray Basin and looking for the equities most likely to deliver additional Eucla Basin projects). ILU offers strategic and market positive earnings momentum. That is, the companies leading leverage to sustained zircon and titanium with; feedstock market strength and also a highly consolidated share register. ILU has a Mining Area C royalty which will ⇒ the ability to execute and deliver material growth contribute around A$60m post-tax in 2008. projects, and ⇒ those with strong exposure to the spectacular bulk commodity, precious and minor metal markets.

24 July 2008 109 Macquarie Research Equities - Report Profit Outlook

ƒ Iluka shut-down major production facilities at its Mid Lihir Gold (LGL) – 30 July West and South West mineral sands operations as a ƒ Macquarie expects LGL to report 1H08 adjusted result of gas and electricity disruptions post the Varanus earnings of US$76m, compared to 1H07 earnings of Island explosion. ILU will outline the financial US$64m. 1H08 gold production of 324koz is expected vs implications when it releases its half year results in 376koz pcp. Our positive investment thesis is premised August. We anticipate significantly higher unit costs on a positive outlook for gold, and LGL’s (relatively) offset by product inventory rundown. Although, ILU has unhedged and pure gold price exposure, growing business interruption insurance this is unlikely to be production profile to rates of over 1moz from Lihir Island finalised by August. by 2011, solid balance sheet with no debt, sustainably Independence Group (IGO) – 29 August low cost structure (underpinned by geothermal power) appealing valuation, corporate appeal, and long-life and ƒ Macquarie expects IGO to report FY08 earnings of $57m world class reserve base. vs $105m pcp. Nickel production for the FY08 is forecast at 5.5kt nickel (payable nickel) at a cash cost of ƒ However, the key is delivery of the expansion at Lihir ~US$3.65/lb payable nickel. IGO boasts a solid Island and successful commissioning at Bonriko. LGL’s production track record (fairly consistent and low cost) ability to deliver its expansion plan more or less in line and a robust pipeline of advanced exploration projects with expectations is something the market will remain (including the Tropicana JV). The initial open-cut acutely focused on. Having regard to recent production conceptual resource estimate on the Tropicana and downgrades and disappointments, the onus of proof Havana zones is 62.8mt at 2.01g/t Au for 4.05moz gold rests firmly on LGL. and mineralisation remains open at depth. The pre- Minara Resources (MRE) – 27 August feasibility study is examining mining and processing rates of 4.0–6.5mtpa (240–380koz gold pa) over 10 ƒ Macquarie expects MRE to report 1H08 earnings of years and due for completion in 2H08 (CY). The $25.9m compared to 1H07 earnings of $238m pcp. company continues to be highly leveraged to further MRE reported 1H08 production of 12.7kt nickel vs 17.5kt high-grade, near-mine exploration success at nickel. MRE downgraded full year production guidance Long/Victor. to 31–35kt. Production has been impacted by the disruption of gas supply following the explosion at Kagara Zinc (KZL) – 20 August Varanus Island. ƒ Macquarie expects KZL to report FY08 earnings of $81m ƒ The explosion in sulphur prices in 2008 is set to impact vs $90m pcp. FY08 zinc production is expected to be MRE in the second half, we understand spot sulphur 42kt vs 38kt pcp. The move to owner-operator open pit prices are approaching $820–900/t fob Vancouver mining has increased productivity significantly with versus 1H08 sulphur purchased at ~US$100t. MRE's sufficient copper ore now available to feed both copper margin leverage to a volatile nickel price remains large plants. Expected copper production of 27kt in FY08 vs given its status as an unhedged, medium-high cost 18kt pcp. KZL is our preferred small zinc/copper play producer. given the quality exposure it offers to high grade, low- cost assets (operating and development). KZL has a Mincor Resources (MCR) – TBC* strong organic growth pipeline (Thalanga, Mungana, etc) ƒ Macquarie expects MCR to report FY08 earnings of into our now stronger pricing profile coupled with $68m vs $101m pcp. Total forecast nickel production significant further exploration prospectivity (Red Dome, (payable) of 10.8kt for FY08 vs 8.4kt pcp. Production Forrestania, Admiral Bay). growth is set to be driven by the newly acquired Otter Kingsgate Consolidated (KCN) – 21 August Juan mine and first production from the Carnilya Hill development in 2H08. MCR is carrying out feasibility ƒ Macquarie expects KCN to report FY08 adjusted studies on both the McMahon and Durkin Deeps earnings of $17m compared with -$23m pcp. Gold projects. We expect these projects to be relatively low production has been declining and is expected to be capex, high opex incremental production opportunities. 77koz in FY08 down from 85koz pcp. The Chatree mine continues to operate at ~15–20koz per quarter pending ƒ MCR has a strong management team, diversified the outcome of mining lease application (ie the status production base and multiple brownfields-style quo at operations). KCN has $45m cash, no debt, and is exploration projects with medium-term production covering costs from cashflow on site with its unhedged potential. The narrowing and deeper mineralisation at its production. Chatree is a world-class asset in our view. existing operations does however pose cost and reserve Granting of the mining lease is crucial to the long-term base challenges over the next few years. With its mine plan. One of the two requisite ministerial approvals relatively high unit cost base, MCR remains the most for mining to commence on the Chatree North lease has margin-leveraged of the smaller nickel producers under been obtained and the Thai government granted a key our coverage. mining permit to zinc/lead producer Padaeng, which sets a hopeful precedent.

24 July 2008 110 Macquarie Research Equities - Report Profit Outlook

Newcrest Mining (NCM) – 19 August Panoramic Resources (PAN) – TBC* ƒ Macquarie expects NCM to report FY08 earnings of ƒ Macquarie expects PAN to report FY08 earnings of $215m, up from $72m pcp. Gold production is expected $63m vs $88m pcp. FY08 nickel production is expected to have increased to 1,783koz in FY08 vs 1,617koz pcp. to be 12.7kt, vs 11.5kt pcp. We are forecasting FY10 The main downside risk is Telfer’s operational production of 18.9kt. The key growth driver is expected performance. NCM downgraded FY08 guidance to to be development of the Deacon deposit at Lanfranchi. 700koz (Macq: 617koz). Telfer contributes 23% of our PAN is a strong production growth story with plenty of forecast revenue and had gas supply suspended due to valuation leverage to further exploration success the Varanus Island explosion. NCM will be using diesel (particularly at Lanfranchi). The key bottom-up risk to this to fuel the power station; however diesel stocks are thesis remains development timing in terms of both limited. Deacon underground infrastructure and Sally Malay satellite feed. ƒ NCM is a core holding in any Australian-listed gold stock portfolio. It offers a long life suite of quality assets with Sino Gold (SGX) – TBC* expansion potential, scale and liquidity, favourable ƒ Macquarie expects SGX to report 1H08 adjusted geopolitical risk, and, a low and globally competitive cost earnings of $4m compared to -$3m pcp. 1H08 structure (with copper by-product credits). attributable gold production is expected to be 62koz vs Oceana Gold (OGC) – 31 July 9koz pcp. With its newly commissioned Jinfeng mine, and White Mountain and Beyinhar projects in the ƒ Macquarie expects OGD to report 1H08 adjusted pipeline, SGX has clearly defined medium-term potential earnings of $21m compared to -$9m pcp. 1H08 gold to grow into a significant ~500koz a year gold producer production is expected to be 130koz vs 72koz pcp. OGC at cash costs between US$250–300/oz. However, in the lowered production guidance for 2008 to 265–275koz at short term we remain conscious of the risk associated cash operating costs of US$490–520/oz. The downgrade with the ramp up of Jinfeng. principally reflects lower recoveries and disappointments at Macraes. Western Areas (WSA) – TBC* ƒ We anticipate that with Reefton now increasingly ƒ Macquarie expects WSA to report FY08 earnings of contributing to OGC’s profile, with grades at Macraes -$17m vs -$12m pcp. WSA is an emerging nickel expected to increase, and with Frasers contributing from producer with multiple projects, a strong production 1Q08, OGC should have well passed the low point in its growth profile and compelling exploration potential. production and costs profile. We continue to see value in Flying Fox is WSA’s first producing mine at Forrestania. the Philippines, and believe that it remains one of the Progressive underground development is expected to most inexpensive gold equities in our research universe. deliver production growth from 3.4kt nickel-in- However, the recent capex blowout at Didipio and capital concentrate in FY08, to 9.1kt in FY09, and over 12kt in raising is likely to pose a significant headwind until it is FY10. Cash costs of US$3.72/lb payable nickel in FY09. completed. ƒ In short, the Flying Fox project, and the broader Perilya (PEM) – 29 August Forrestania region, appears set to be truly outstanding nickel assets. Asset location is geopolitically attractive ƒ Macquarie expects PEM to report FY08 earnings of relative to other emerging players and an aggressive $11m vs $82m pcp. Forecast FY08 production of 87kt exploration program is likely to yield further significant, zinc and 54kt lead vs 92kt and 61kt pcp, respectively. and value-adding, resource base increases and PEM’s Broken Hill mine is a mature, challenging production expansions. underground operation that has materially underperformed expectations over the past few years. Fortescue (FMG) – TBC* ƒ Perilya (PEM) has rejected CBH Resources Limited ƒ Macquarie expects FMG to report FY08 adjusted (CBH) alternative offer of 3.5 CBH shares per PEM earnings of -$25m vs -$20m pcp. FMG achieved “first share. At current zinc and lead prices PEM isn’t ore on ship” and is currently ramping up its 55Mtpa DSO especially profitable therefore the focus is on reducing iron ore project. The key driver of shareholder returns will costs (both operational and capital) not growth. At be the ability of FMG to meet its ramp up schedule Broken Hill, this can be best achieved by meeting during CY08 to ship 22Mt of iron ore and to meet ‘project production targets, sourcing higher grade feed (which completion’ around the second week in July which will PEM owns) and phasing in growth from satellite trigger the next round of expansions. resources as prices recover.

24 July 2008 111 Macquarie Research Equities - Report Profit Outlook

Mt. Gibson (MGX) – 11 August Centennial Coal (CEY) – 20 August ƒ Macquarie expects MGX to report FY08 earnings of ƒ Centennial Coal is our preferred stock in the Australian $113m vs $48m pcp. FY08 iron ore production is coal sector. We expect Centennial Coal to report FY08 expected to be 5.1mt vs 1.6mt pcp. MGX is a standout adjusted earnings of A$53.4m vs A$37.4m pcp. While among the next generation of ASX-listed iron ore there is associated development/execution risk producers/aspirants with organic growth set to triple combined with capital cost pressures associated with the FY07 production over the next three years. We are pipeline of projects now incorporated into our base case increasingly attracted to MGX's business model of valuation, we believe the market is not currently factoring developing low capital intensity projects with short lead in this volume upside. times to production during what we believe is the 'peak' ƒ We highlight that Centennial Coal is not suffering from of the iron ore price cycle. With a focus on disciplined export infrastructure bottlenecks (and associated costs) near mine exploration, backed by existing infrastructure as it exports coal from Port Kembla, where vessel we believe MGX provides investors with attractive queues remain short and demurrage costs have not returns per dollar of exploration spend in addition to its been an issue. strong cashflow generation. Coal and Allied (CNA) – 29 August Paladin (PDN) – TBC* ƒ We are forecasting adjusted earnings of A$226.3m for ƒ Macquarie expects PDN to report FY08 earnings of - Coal and Allied for 1H08, up from A$70m in the pcp. We $35m vs -$38m pcp. FY08 production is expected at have recently reviewed our modelling assumptions and 1.82mlb uranium vs 0.12mlb pcp. The result reflects the have upgraded our Coal & Allied recommendation to fact that the flagship Langer Heinrich project remained in Neutral with an A$114.82ps price target. While our coal the ramp-up stage. Management expects nameplate outlook remains strong, the Newcastle coal supply chain production of 2.6mlb pa to be delivered in the calendar bottlenecks are likely to weigh on Coal & Allied’s ability 2008 year. PDN continues to target commissioning of to increase export capacity in the short-term. Kayelekera in March quarter 2009 and reports that construction work is on schedule. Felix Resources (FLX) – 2 September ƒ PDN provides investors with an increasing production ƒ We are forecasting FY08 adjusted earnings of A$81.6m base at Langer Heinrich and a suite of organic growth for Felix Resources, up from A$14.6m in FY07. We projects (albeit with exposure to a change in Australian recently upgraded our rating to Outperform following legislation). Management has flagged its desire to significant upward revisions in our coal price pursue acquisitions (North America appears the likely assumptions. While we downgraded our rating to Neutral hunting ground) and the development of a uranium not too long before this, the sharp pullback we have marketing business. However, management’s seen over the last few weeks provides an attractive entry aggressive strategy increases gearing and raises the point. potential for PDN to experience ‘growing pains’ in the Gloucester Coal (GCL) – 27 August process. OZ Minerals (OZM) – 20 August ƒ Given lower production, increases to our purchased coal forecast (modest margin) combined with surging oil ƒ This will be the first reporting period for OZM following prices and general industry cost pressures, we have the merger of Oxiana and Zinifex. We expect OXR to recently reduced our 2H08 earnings by 25% to A$16.8m report 1H08 earnings of $172m. The quarter will also to bring our FY08 estimate to A$22.0m, marginally below include the merger accounting costs including potential consensus estimates and up from A$18m in FY07. asset valuation adjustments. We are not expecting any ƒ We maintain our outperform recommendation for major production surprises in the quarterly report due 22 Gloucester Coal. With M&A activity continuing to be a July. major theme in the Australian coal space, we believe ƒ We believe the newly formed OZM is well placed to enter Gloucester Coal is more likely to be acquired or merge the ranks of the global diversified base metal miners. than actively pursue bolt-on acquisitions. The OXR share price has suffered since the merger was announced, a period that has coincided with a sharp fall Macarthur Coal (MCC) – 27 August in the zinc price from US$1.25/lb to US$0.91c/lb. With ƒ We recently upgraded our recommendation to Neutral the merger with now completed, we believe the market based on fundamental value. We are forecasting will refocus on fundamental value and its organic growth A$57.3m adjusted earnings for FY08, flat on pcp. Our potential. valuation and 12 month price target for Macarthur Coal is A$15.51ps.

24 July 2008 112 Macquarie Research Equities - Report Profit Outlook

ƒ Following the unravelling of a significant M&A premium Energy Resources Australia (ERA) – 25 July built into the stock combined with a strengthening coal ƒ We are forecasting 1H08 NPAT of A$22.9m vs A$5.7m price outlook, Macarthur Coal’s prospects are improving. in the pcp. However, as is always the case with ERA, the That said, we maintain our view that the company is still level of disclosure provided combined with 1H struggling operationally with the full recovery from the seasonality ensures that accurate forecasting is floods yet to be achieved. problematic. With the progressive rolling of lower priced Onesteel (OST) – 19 August legacy contracts we expect ERA to achieve a higher average realised price for uranium during 1H08 (vs pcp), ƒ We maintain an Outperform recommendation for despite a fall in the spot price in this period. Additionally, OneSteel and have recently increased our 12-month earnings visibility should improve over the coming years. price target to A$8.24ps (+1%) following revisions to our Australian iron ore and steel price outlook. ƒ We are forecasting adjusted profit of A$302m for FY08 for Onesteel. We assume A$41m of synergies are captured in FY08 as a result of the Smorgon Steel acquisition. Given our EBITDA estimate is A$757m, our pre-synergy FY08 EBITDA estimate is A$716m. This compares with current EBITDA guidance (before restructuring and synergy benefits) of A$710–780m. The strong outlook for iron ore volumes and pricing is set to underpin growth from OneSteel’s materials business.

Sims Group (SGM) – 5 September

ƒ Following recent guidance for FY08 earnings of A$345– 361m, we forecast A$353m. Furthermore, this suggests 4Q08 earnings in the range of A$163–179m, up 104– 123% QoQ. We maintain an Outperform rating for Sims Group and 12-month price target of A$41.76ps. ƒ Sims provides a unique exposure to scrap prices. With an improving scrap price outlook, we believe the company’s product and geographic exposure is an attractive investment. Further, with a solid balance sheet position we see Sims likely to continue on its acquisition trail.

Alumina Limited (AWC) – 31 July

ƒ We are forecasting 1H08 adjusted earnings of A$108m vs A$271m in the pcp. Cost and currency pressure continue to weight on Alumina Limited with bottom of the cycle refining margins adding to earnings headwinds. However, while we have been cautious given the propensity for broader earnings downgrades, we can no longer avoid the emerging strategic value that is embedded in this refining portfolio, as such we recently upgraded our recommendation to Outperform. Our DCF approximates A$6.06ps while a conceptual replacement value for AWC also exceeds A$6.00ps. Both figures suggest that an investment return of +30% is on offer if you’re willing to look past today’s dark times.

NB * Company is yet to confirm exact reporting date 24 July 2008 113 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Materials - Metals & Mining

Alumina Limited AWC Outperform 12/2007A 436.4 405.6 35.4 12.7 3.4 25.6 9.6 24.0 5.3 67.8 100 $4.49 $5,257m 16x 06/2008E(i) 108.0 108.0 9.5 N/A N/A N/A N/A 12.0 N/A 126.8 100 Low/Medium 0.51% 66% 12/2008E 204.4 204.4 17.7 25.4 3.5 13.5 16.2 24.0 5.3 135.5 100 12/2009E 318.8 318.8 26.2 17.2 2.9 18.3 12.1 24.0 5.3 91.5 100 12/2010E 296.2 296.2 23.1 19.4 2.4 13.5 12.8 24.0 5.3 103.7 100

Bendigo Mining BDG Underperform 06/2007A -239.7 -32.3 -6.5 - 1.6 -17.8 - 0.0 0.0 - - $0.28 $136m - 06/2008E -6.8 -6.8 -1.4 - 1.7 -8.2 87.3 0.0 0.0 - - Very High N/A -82% 12/2008E(i) -4.9 -4.9 -1.0 N/A N/A N/A N/A 0.0 N/A -0 06/2009E -10.1 -10.1 -2.0 - 1.9 -13.5 374.7 0.0 0.0 - - 06/2010E -7.2 -7.2 -1.4 - 2.2 -10.8 - 0.0 0.0 - -

CBH Resources Limited CBH Underperform 06/2007A 38.738.7 4.6 3.8 0.8 32.2 3.0 0.0 0.0 0.0 - $0.18 $145m - 06/2008E -10.5 -10.5 -1.2 - 0.8 -5.6 52.7 0.0 0.0 - - High 0.01% -12% 12/2008E(i) -22.9 -22.9 -2.6 N/A N/A N/A N/A 0.0 N/A -0 06/2009E -41.1 -41.1 -4.6 - 1.1 -24.9 - 0.0 0.0 - - 06/2010E -32.2 -32.2 -3.6 - 1.4 -25.1 55.8 0.0 0.0 - -

Centennial Coal CEY Outperform 06/2007A 3.337.4 12.4 43.6 2.0 4.4 10.9 8.0 1.5 64.5 0 $5.36 $1,749m 1x 06/2008E 282.4 53.4 16.4 33.1 3.2 7.5 11.6 10.0 1.8 61.1 60 High 0.18% 81% 12/2008E(i) 132.7 132.7 38.4 N/A N/A N/A N/A 6.0 N/A 15.6 100 06/2009E 322.6 322.6 93.2 5.8 2.1 44.3 4.2 13.0 2.4 14.0 100 06/2010E 377.0 377.0 107.7 5.0 1.6 36.0 3.9 13.0 2.4 12.1 100

Coal & Allied CNA Neutral 12/2007A 109.8 109.8 126.9 85.1 12.0 13.6 44.3 25.0 0.2 19.7 100 $108.00 $9,351m 4x 06/2008E(i) 226.3 226.3 261.4 N/A N/A N/A N/A 182.0 N/A 69.6 100 Medium N/A 39% 12/2008E 706.3 706.2 815.7 13.2 7.2 66.5 11.5 570.0 5.3 69.9 100 12/2009E 1256.4 1256.4 1451.1 7.4 5.1 78.9 6.8 1015.0 9.4 69.9 100 12/2010E 1514.7 1514.6 1749.4 6.2 4.1 71.8 5.7 1224.0 11.3 70.0 100

Energy Resources of Australia ERA Outperform 12/2007A 76.176.1 40.1 60.6 7.6 13.1 32.6 20.0 0.8 49.9 100 $23.96 $4,578m - 06/2008E(i) 22.922.9 12.0 N/A N/A N/A N/A 7.0 N/A 58.2 100 Very High 0.15% 6% 12/2008E 81.0 81.0 42.5 57.1 7.3 13.1 32.1 20.0 0.8 47.1 100 12/2009E 189.8 189.8 99.5 24.4 6.2 27.5 18.1 74.0 3.0 74.4 100 12/2010E 337.6 337.6 177.0 13.7 5.2 41.4 11.5 132.0 5.4 74.6 100

Felix Resources FLX Outperform 06/2007A 47.214.8 7.5 255.9 9.4 3.9 117.1 6.0 0.3 80.0 0 $18.61 $3,591m 11x 06/2008E 167.9 81.8 41.6 46.1 7.7 18.4 35.9 9.7 0.5 23.4 0 N/A 0.17% 21% 12/2008E(i) 177.6 175.2 89.1 N/A N/A N/A N/A 17.8 N/A 20.0 0 06/2009E 375.0 372.7 189.5 10.1 5.0 59.4 9.6 37.9 2.0 20.0 0 06/2010E 646.3 646.3 328.6 5.8 3.0 63.9 5.4 92.5 4.8 28.1 0

Fortescue Metals Group FMG Underperform 06/2007A -68.4 -20.2 -0.8 - 48.6 -6.4 - 0.0 0.0 - - $9.38 $27,767m - 06/2008E -937.7 -25.0 -1.2 - 408.3 -9.0 - 0.0 0.0 - - Very High 1.22% 248% 12/2008E(i) 412.9 408.2 14.6 N/A N/A N/A N/A 4.4 N/A 30.4 100 06/2009E 1084.5 1095.1 39.1 23.1 24.6 201.5 20.9 14.0 1.6 35.9 100 06/2010E 1926.1 1965.5 70.2 12.8 10.1 111.8 11.9 12.7 1.4 18.1 100

Gloucester Coal GCL Outperform 06/2007A 18.018.0 22.6 53.7 13.6 26.3 39.6 14.0 1.2 62.0 100 $12.00 $961m 15x 06/2008E 22.022.0 26.0 46.7 14.4 30.4 36.1 12.9 1.1 49.8 0 Very High 0.05% 11% 12/2008E(i) 66.3 66.3 78.3 N/A N/A N/A N/A 31.3 N/A 40.0 0 06/2009E 139.2 139.2 164.3 7.4 6.2 117.4 6.9 65.7 5.4 40.0 0 06/2010E 242.9 242.9 286.8 4.2 3.2 99.7 4.0 114.7 9.5 40.0 0

Independence Group NL IGO Neutral 06/2007A 105.3 105.3 90.4 4.1 4.2 139.7 3.4 18.0 4.9 19.9 100 $3.84 $477m - 06/2008E 57.257.2 48.4 7.6 2.5 40.8 6.1 8.0 2.2 16.5 100 Very High 0.04% -146% 12/2008E(i) 19.1 19.1 16.0 N/A N/A N/A N/A 3.0 N/A 18.8 100 06/2009E 38.438.4 32.1 11.4 2.1 19.8 8.4 6.0 1.6 18.7 100 06/2010E 43.243.2 36.1 10.2 1.8 19.1 8.0 7.0 1.9 19.4 100

Iluka Resources ILU Underperform 12/2007A 51.151.1 19.2 22.3 1.7 7.7 5.2 8.9 2.1 46.4 100 $4.28 $1,656m 2x 06/2008E(i) 2.52.5 0.8 N/A N/A N/A N/A 0.0 N/A 0.0 0 High 0.15% 80% 12/2008E 9.69.6 2.7 160.0 1.6 1.1 7.3 0.0 0.0 0.0 - 12/2009E -20.7 -20.7 -5.4 - 1.6 -2.0 7.6 0.0 0.0 - - 12/2010E -11.4 -11.4 -3.0 - 1.6 -1.1 6.8 0.0 0.0 - -

Intec INL Neutral 06/2007A -1.2 -5.1 -0.9 - 0.7 -15.4 - 0.0 0.0 - - $0.04 $28m -121x 12/2007E(i) 8.38.3 1.3 N/A N/A N/A N/A 0.0 N/A 0.0 100 Low/Medium N/A -9% 06/2008E 15.0 15.0 2.4 1.6 0.4 35.7 1.4 0.0 0.0 0.0 - 06/2009E 5.35.3 0.9 4.5 0.4 10.1 3.3 0.0 0.0 0.0 - 06/2010E 2.42.4 0.4 9.6 0.4 4.2 5.4 0.0 0.0 0.0 -

Indophil Resources NL IRN Neutral 12/2007A -1.0 -3.3 -0.8 - 3.2 -2.1 1127.0 0.0 0.0 - - $1.32 $528m - 06/2008E(i) -2.3 -2.3 -0.6 N/A N/A N/A N/A 0.0 N/A -0 Very High N/A -66% 12/2008E -4.4 -4.4 -1.1 - 3.3 -2.8 - 0.0 0.0 - - 12/2009E -0.7 -0.7 -0.2 - 3.3 -0.4 - 0.0 0.0 - - 12/2010E -12.9 -12.9 -3.3 - 3.6 -8.8 - 0.0 0.0 - -

24 July 2008 114 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Kingsgate Consolidated Ltd KCN Neutral 06/2007A -12.6 -23.0 -24.5 - 2.4 -14.8 - 0.0 0.0 - - $4.90 $451m -6x 06/2008E 49.017.2 17.6 26.6 2.1 8.6 14.8 10.0 2.1 56.8 0 Very High 0.04% 9% 12/2008E(i) 4.4 4.4 4.5 N/A N/A N/A N/A 1.0 N/A 22.1 0 06/2009E 63.863.8 65.9 7.1 1.7 26.3 6.5 16.0 3.4 24.3 0 06/2010E 198.0 198.0 204.6 2.3 1.1 56.9 2.1 50.0 10.7 24.4 0

Kagara Ltd KZL Outperform 06/2007A 89.889.8 40.7 8.8 3.9 60.4 7.3 12.0 3.3 29.5 100 $3.65 $757m 46x 06/2008E 81.181.1 36.2 9.9 3.0 34.1 7.6 11.0 3.1 30.4 100 Very High 0.06% 8% 12/2008E(i) 47.6 47.6 21.1 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 97.197.1 43.0 8.4 2.4 31.8 6.1 13.0 3.6 30.3 100 06/2010E 130.4 130.4 57.7 6.2 1.8 33.2 4.5 17.0 4.7 29.5 100

Lihir Gold LGL Outperform 12/2007A -21.7 125.3 7.1 44.6 2.8 8.4 30.5 0.0 0.0 0.0 - 3.33 $7,068m -60x 06/2008E(i) 50.477.2 4.1 N/A N/A N/A N/A 0.0 N/A 0.0 0 Very High 0.0072 -0.08 12/2008E 151.3 205.0 10.8 29.5 2.5 9.0 21.4 0.0 0.0 0.0 - 12/2009E 310.1 381.7 20.0 15.8 2.1 14.6 12.5 0.0 0.0 0.0 - 12/2010E 332.4 389.7 20.5 15.5 1.8 12.6 12.1 0.0 0.0 0.0 - All data is expressed in USD

Macarthur Coal MCC Neutral 06/2007A 66.557.3 30.6 56.4 7.8 14.2 43.5 18.0 1.0 58.8 100 $17.84 $3,660m - 06/2008E 85.357.3 27.8 62.1 5.4 10.4 42.6 20.0 1.2 71.9 100 Very High 0.16% -19% 12/2008E(i) 149.1 149.1 69.9 N/A N/A N/A N/A 35.0 N/A 50.1 100 06/2009E 388.5 388.5 182.1 9.5 3.8 47.2 9.0 91.0 5.3 50.0 100 06/2010E 791.2 791.2 371.0 4.7 2.5 65.8 4.5 186.0 10.8 50.1 100

Mincor Resources NL MCR Underperform 06/2007A 101.3 101.3 51.3 4.6 3.2 91.5 3.2 12.0 5.1 23.4 100 $2.44 $535m - 06/2008E 67.667.6 33.6 7.0 2.1 35.5 3.5 11.0 4.7 32.7 100 Very High 0.05% -111% 12/2008E(i) 27.1 27.1 13.5 N/A N/A N/A N/A 4.0 N/A 29.7 100 06/2009E 60.760.7 30.1 7.8 1.7 24.1 3.8 9.0 3.8 29.9 100 06/2010E 60.160.1 29.8 7.9 1.5 20.5 4.0 9.0 3.8 30.2 100

Mount Gibson Iron MGX Outperform 06/2007A 47.829.0 4.5 56.5 4.2 10.5 45.4 0.0 0.0 0.0 - $2.55 $2,074m - 06/2008E 113.1 110.5 14.0 18.1 3.5 21.5 13.8 0.0 0.0 0.0 - Very High 0.16% 21% 12/2008E(i) 131.6 131.6 16.7 N/A N/A N/A N/A 0.0 N/A 0.0 100 06/2009E 342.1 342.1 43.4 5.8 2.2 45.9 5.1 0.0 0.0 0.0 - 06/2010E 449.3 449.3 57.0 4.5 1.5 39.4 3.9 0.0 0.0 0.0 -

Minara Resources MRE Underperform 12/2007A 272.4 272.4 58.3 3.8 1.5 37.3 3.3 40.0 17.9 68.6 100 $2.35 $1,134m - 06/2008E(i) 79.079.0 16.9 N/A N/A N/A N/A 10.0 N/A 59.0 100 Very High 0.05% -22% 12/2008E 81.3 81.3 17.4 12.8 1.6 11.8 7.9 10.0 4.5 57.4 100 12/2009E 115.1 115.1 24.7 9.0 1.4 16.1 6.3 15.0 6.7 60.8 100 12/2010E 148.9 148.9 31.9 7.0 1.3 18.9 5.2 20.0 9.0 62.7 100

Newcrest NCM Neutral 06/2007A 72.0194.5 53.5 61.7 13.1 36.5 24.6 4.6 0.1 8.6 0 $32.47 $14,265m 2x 06/2008E 215.4 573.5 126.8 26.0 4.8 28.3 16.0 5.0 0.2 3.9 0 Very High 1.45% 140% 12/2008E(i) 203.1 340.9 75.4 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 425.1 700.7 154.9 21.3 4.2 21.0 13.9 5.0 0.2 3.2 0 06/2010E 520.5 735.3 162.5 20.3 3.7 19.3 13.4 10.0 0.3 6.2 25

Northern Iron NFE Outperform $3.38 $217m 06/2008E(i) 0.20.2 0.1 N/A N/A N/A N/A 0.0 N/A 0.0 100 Very High N/A - 12/2008E 0.1 0.1 0.1 6463.3 4.4 0.1 283.3 0.0 0.0 0.0 - 12/2009E 53.853.8 31.8 11.0 3.1 33.0 10.0 0.0 0.0 0.0 - 12/2010E 172.3 172.3 102.1 3.4 1.6 61.8 3.2 0.0 0.0 0.0 -

Nuplex Industries NPX Outperform 06/2007A 26.237.7 47.7 13.0 1.7 12.2 8.0 36.0 5.8 75.5 34 NZD$6.20 NZD$502m 3x 12/2007E(i) 19.919.9 24.9 N/A N/A N/A N/A 17.0 N/A 68.4 58 Very High N/A 107% 06/2008E 49.4 49.4 61.8 10.0 1.6 16.4 6.9 40.0 6.5 64.7 46 06/2009E 61.061.0 76.3 8.1 1.5 18.8 5.9 49.0 7.9 64.2 20 06/2010E 65.365.3 81.7 7.6 1.4 18.7 5.6 49.0 7.9 60.0 21 All data is expressed in NZD

OceanaGold Corporation OGC Outperform 12/2007A -77.6 -25.2 -15.0 - 0.4 -7.3 27.1 0.0 0.0 - - $0.94 $147m -7x 06/2008E(i) 20.820.8 11.0 N/A N/A N/A N/A 0.0 N/A 0.0 0 Very High 0.02% 28% 12/2008E 41.0 41.0 21.6 4.4 0.6 12.0 1.9 0.0 0.0 0.0 - 12/2009E 57.557.5 30.3 3.1 0.5 18.9 1.6 0.0 0.0 0.0 - 12/2010E 113.0 113.0 59.5 1.6 0.4 29.0 1.1 0.0 0.0 0.0 -

Oxiana OXR Outperform 12/2007A 305.8 320.2 20.2 10.8 2.3 25.3 7.4 8.0 3.7 39.6 0 $2.26 $6,898m 28x 06/2008E(i) 184.0 180.9 11.5 N/A N/A N/A N/A 4.0 N/A 34.7 0 High 0.70% 11% 12/2008E 418.1 419.8 26.7 8.2 1.9 25.2 5.7 8.0 3.7 29.9 25 12/2009E 859.0 862.3 55.0 4.0 1.4 39.7 2.9 10.0 4.6 18.2 100 12/2010E 952.3 955.5 61.2 3.6 1.0 32.6 2.6 11.0 5.0 18.0 100

Paladin Energy PDN Neutral 06/2007A -37.6 -37.6 -7.4 - 3.5 -3.3 - 0.0 0.0 - - $6.37 $3,892m -8x 06/2008E -35.0 -35.0 -5.6 - 3.5 -3.1 - 0.0 0.0 - - Very High 0.39% -9% 12/2008E(i) 3.5 3.5 0.6 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 0.70.7 0.1 5917.5 3.5 0.1 135.4 0.0 0.0 0.0 - 06/2010E 128.6 128.6 20.5 30.7 3.2 10.9 20.0 0.0 0.0 0.0 - All data is expressed in USD

24 July 2008 115 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Panoramic Resources PAN Neutral 06/2007A 88.1112.1 58.1 4.6 4.3 131.3 3.3 12.0 4.5 20.7 100 $2.82 $595m 275x 06/2008E 63.563.5 32.7 8.2 2.6 39.1 5.3 14.0 5.2 42.9 100 Very High 0.05% -87% 12/2008E(i) 36.0 36.0 18.6 N/A N/A N/A N/A 7.0 N/A 37.7 100 06/2009E 71.271.2 36.8 7.3 2.1 31.7 4.7 13.0 4.9 35.4 100 06/2010E 62.862.8 32.4 8.3 1.8 23.5 5.1 11.0 4.1 34.0 100

Perilya Ltd PEM Underperform 06/2007A 82.582.5 43.1 1.5 0.9 58.8 1.0 11.0 16.8 25.5 100 $0.70 $148m - 06/2008E 11.0-0.2 -0.1 - 0.6 -0.1 2.2 1.0 1.5 - 100 Very High 0.01% -88% 12/2008E(i) -18.9 -18.9 -9.4 N/A N/A N/A N/A 0.0 N/A - 100 06/2009E -36.0 -36.0 -17.9 - 0.7 -17.7 6.0 0.0 0.0 - - 06/2010E -21.7 -21.7 -10.8 - 0.8 -12.4 3.4 0.0 0.0 - -

Portman PMM Neutral 12/2007A 96.696.6 55.0 31.7 6.7 23.6 21.2 0.0 0.0 0.0 - $17.05 $2,987m - 06/2008E(i) 83.683.6 46.6 N/A N/A N/A N/A 0.0 N/A 0.0 0 Very High N/A -17% 12/2008E 232.3 232.3 129.6 13.4 4.5 39.8 10.8 0.0 0.0 0.0 - 12/2009E 330.6 330.6 184.3 9.4 3.0 38.2 8.8 0.0 0.0 0.0 - 12/2010E 361.2 361.2 201.5 8.6 2.2 29.8 8.1 0.0 0.0 0.0 -

St Barbara SBM Outperform 06/2007A -2.9 -14.0 -1.5 - 3.4 -14.4 13.1 0.0 0.0 - - $0.31 $324m - 06/2008E -14.6 -20.9 -2.0 - 3.5 -22.6 13.5 0.0 0.0 - - N/A 0.04% 5% 12/2008E(i) -6.4 -6.4 -0.5 N/A N/A N/A N/A 0.0 N/A -0 06/2009E 65.165.1 5.0 6.2 1.5 36.8 3.1 0.0 0.0 0.0 - 06/2010E 121.1 121.1 9.2 3.3 1.1 38.8 2.2 2.0 6.6 21.7 0

Sims Group Limited SGM Outperform 06/2007A 254.4 254.4 202.5 18.1 3.5 20.2 15.0 120.0 3.3 59.3 54 $36.10 $6,772m 15x 06/2008E 353.2 353.2 219.5 16.7 2.1 15.7 13.4 139.8 3.8 63.7 49 Medium 0.51% 23% 12/2008E(i) 236.5 236.5 130.4 N/A N/A N/A N/A 79.6 N/A 61.0 51 06/2009E 463.4 463.4 255.1 14.4 2.0 14.3 12.0 155.6 4.3 61.0 51 06/2010E 478.2 478.2 261.3 14.0 1.9 13.9 11.7 159.4 4.4 61.0 51

Sino Gold Mining SGX Outperform 12/2007A -23.0 -23.0 -12.4 - 3.5 -14.3 - 0.0 0.0 - - $5.03 $1,465m -1x 06/2008E(i) 4.24.2 1.7 N/A N/A N/A N/A 0.0 N/A 0.0 100 Very High 0.12% 9% 12/2008E 22.2 22.2 7.9 69.5 3.7 6.0 29.4 0.0 0.0 0.0 - 12/2009E 129.0 129.0 44.2 12.5 2.8 25.0 8.8 0.0 0.0 0.0 - 12/2010E 227.4 227.4 77.5 7.1 1.9 31.3 5.1 0.0 0.0 0.0 -

Straits Resources SRL Outperform 12/2007A 6.5-26.9 -12.5 - 2.0 -5.4 102.7 5.0 0.8 - 0 $5.99 $1,408m -1x 06/2008E(i) 25.325.3 11.2 N/A N/A N/A N/A 3.4 N/A 30.1 0 Very High 0.12% 45% 12/2008E 240.4 115.2 50.9 11.7 1.9 17.6 3.3 15.3 2.6 30.0 0 12/2009E 1231.1 424.9 188.1 3.2 0.9 39.0 1.4 56.4 9.4 30.0 100 12/2010E 1449.9 513.4 227.3 2.6 0.6 27.3 1.3 68.2 11.4 30.0 100

Western Areas NL WSA Outperform 06/2007A -12.1 -12.1 -7.7 - 13.9 -15.1 - 0.0 0.0 - - $8.98 $1,483m - 06/2008E -17.0 -17.0 -10.2 - 11.4 -14.3 - 0.0 0.0 - - Very High 0.10% 7% 12/2008E(i) 8.4 8.4 4.9 N/A N/A N/A N/A 2.0 N/A 41.0 0 06/2009E 22.122.1 12.8 67.3 9.9 15.8 30.1 6.0 0.7 47.0 0 06/2010E 41.941.9 24.2 35.4 8.3 25.6 20.7 12.0 1.4 49.5 0

Materials - Steel

BlueScope Steel BSL Neutral 06/2007A 702.9 686.4 95.4 11.4 2.1 20.1 7.6 47.0 4.3 49.3 100 $10.50 $8,162m 8x 06/2008E 447.6 636.6 86.0 12.6 2.2 17.1 8.4 50.0 4.6 58.1 100 N/A 0.79% 39% 12/2008E(i) 307.3 307.3 41.8 N/A N/A N/A N/A 22.0 N/A 52.7 100 06/2009E 530.7 530.7 72.2 15.0 2.1 14.2 9.2 50.0 4.6 69.2 100 06/2010E 647.8 647.8 88.7 12.2 1.9 16.4 8.0 54.0 5.0 60.9 100

OneSteel OST Outperform 06/2007A 207.0 203.4 35.4 18.9 2.4 13.4 12.3 18.5 2.8 52.3 0 $6.87 $6,028m 6x 06/2008E 276.4 302.0 34.5 19.4 1.7 11.8 12.7 21.5 3.2 62.4 0 High 0.59% 47% 12/2008E(i) 294.8 294.8 33.4 N/A N/A N/A N/A 20.0 N/A 60.0 0 06/2009E 515.8 515.8 58.3 11.5 1.6 14.1 8.6 35.0 5.2 60.0 0 06/2010E 630.3 630.3 70.3 9.5 1.4 15.8 7.6 34.8 5.2 49.5 0

Sims Group Limited SGM Outperform 06/2007A 254.4 254.4 202.5 18.1 3.5 20.2 15.0 120.0 3.3 59.3 54 $36.10 $6,772m 15x 06/2008E 353.2 353.2 219.5 16.7 2.1 15.7 13.4 139.8 3.8 63.7 49 Medium 0.51% 23% 12/2008E(i) 236.5 236.5 130.4 N/A N/A N/A N/A 79.6 N/A 61.0 51 06/2009E 463.4 463.4 255.1 14.4 2.0 14.3 12.0 155.6 4.3 61.0 51 06/2010E 478.2 478.2 261.3 14.0 1.9 13.9 11.7 159.4 4.4 61.0 51

Steel and Tube STU Neutral 06/2007A 27.827.8 31.6 8.3 1.7 20.0 6.8 29.0 11.0 91.9 100 NZD$2.63 NZD$232m 10x 06/2008E 21.023.3 26.4 10.0 1.7 16.8 7.8 20.0 7.6 75.7 100 Very High N/A 50% 12/2008E(i) 11.1 11.1 12.6 N/A N/A N/A N/A 9.0 N/A 71.2 100 06/2009E 22.022.0 24.9 10.5 1.6 15.6 7.9 20.0 7.6 80.2 100 06/2010E 23.923.9 27.1 9.7 1.6 16.4 7.4 22.0 8.4 81.2 100 All data is expressed in NZD

Source: Macquarie Research, July 2008

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Real estate Recommendations ⇒ Gearing and interest cover; GMG - Outperform ⇒ Asset valuations and whether appropriate capitalisation rates are being applied; WDC - Neutral ⇒ Cashflow and sustainability of distributions & SGP – Neutral dividends; DXS - Neutral ⇒ Quality composition of earnings, in particular from MOF - Neutral funds management businesses (ie: the contribution from recurring earnings streams: asset management IOF - Neutral fees and funds management fees versus non- IIF - Neutral recurring streams: performance fees, development fees, acquisition fees, establishment fees etc...); and MCW – Neutral ⇒ Feasibility of developments given the increased cost VPG – Neutral of debt. APB - Neutral Stockland Group (SGP) –14 August CFX - Underperform ƒ We are forecasting FY08 NPAT of $674.2m, an increase GPT - Underperform of 10.3% on FY07. We expect EPS of 46.2c, up 5.2% (broadly in line with management’s guidance of 5% EPS MGR - Underperform growth) and DPS of 46.1c, up 3.9%. CPA – Underperform ƒ With the trust performing strongly, the focus of this result CER - Underperform will be on the residential markets. We believe that conditions across residential markets have continued to deteriorate. Affordability remains a critical issue for REIT outlook residential markets across all the major states and we came away from SGP's tour of developments on the ƒ Looking forward to August reporting season and FY09, Sunshine Coast with the impression that conditions in we believe earnings downside risk remains to consensus Queensland, particularly in the south east, have cooled earnings forecasts and valuations for the listed property from levels seen last year. We note that 60% of sector from higher-than-expected cost of debt and the residential revenue came from Queensland in 1H08. potential material deterioration in trading conditions. ƒ While we believe SGPs growth will be moderated by a Furthermore, the risk to distributions is even greater due weaker residential environment, SGP is relatively well to the combination of relatively high gearing, declining placed in an uncertain environment with relatively low asset values and the common practice of paying-out in gearing, a strong asset portfolio and development excess of free cashflow. pipeline. ƒ Higher cost of debt: Goodman Group (GMG) – 22 August ⇒ LPTs with a variable cost of debt and/or an ƒ We forecast FY08 NPAT of $583.92m, an increase of upcoming refinancing are susceptible to higher 13.3% on FY07. We forecast EPS of 34.04c, up 10.9% interest costs given increased spreads on loan (and in line with company guidance) and DPS of 34c, up facilities as well as increases in base interest rates. 7.9%. ƒ Operational earnings risk: ƒ We believe GMG is on track to achieve ~$2.5bn in ⇒ Asset owner and manager: As an owner and targeted development completions for FY08. At the 3Q manager of properties, the main operational risks update GMG indicated that they had been a beneficiary surround a slowdown in rental growth as well as of the credit squeezed environment, with high debt costs lower occupancy which can be driven by a fall in and limited availability of capital heavily impacting the demand and tenant bankruptcies. competition. This had led to higher initial yields on developments and in turn, margin expansion. ⇒ Fund managers: Lower forecast returns reduce the demand for new funds, decrease inflows, accelerate ƒ GMG has substantial acquisition capacity within the outflows and reduce the probability of earning funds made up of ~$0.7bn in uncalled equity and performance fees. ~$1.8bn in additional debt capacity. This is split ~60:40 Asia Pacific Europe, and we think GMG would expect to ⇒ Developer: A deterioration in margins due to invest the available capital over the next ~12–24 months. declining demand or asset values and higher construction costs. ƒ Furthermore, the continued upheaval in debt markets will maintain the focus of reporting season on: 24 July 2008 117 Macquarie Research Equities - Report Profit Outlook

ƒ The 1H08 result illustrated the further move from on- Lend Lease (LLC) – 28 August balance sheet asset revenue to revenue derived from ƒ We forecast FY08 NPAT of $451.6m, up 9.1% on FY07. cornerstone investments, and we expect this move to We expect EPS to increase to 112.59c (broadly in line continue in 2H. The shift will continue to have a negative with LLC’s target of 10% EPS growth for the next five impact on divisional earnings, with direct property years) and DPS of 78.8c, up 2.4%. income yields higher than those derived from cornerstone investments. However, we continue to ƒ The key concern presently surrounding LLC is its believe GMG's strategy of investing in total return exposure to the US and UK markets. Of particular focused core plus funds in lower relative interest rate concern is its UK homebuilding division, Crosby. At the markets will provide long-term growth, and over time 1H08 result pre sales for the UK communities business returns are expected to improve. fell off a cliff to $107m, from $467m a year earlier. We are expecting the difficult conditions in the UK to have ƒ We note however that there is a risk to funds continued in 2H. management earnings from a fall in asset values. ƒ Actus’ 1H08 NPAT of $39.6m was an increase of 243% GPT Group (GPT) – 27 August on pcp. The result was driven by increased development ƒ We are forecasting 1H08 NPAT of $207.7m, down 30% fee income as five projects reached final close in the on pcp. EPS is expected to be down 34% to 9.6c and period. Due to the high levels of final project closes in DPS down 20.3% to 11.4c. For FY08 we are expecting the period, we are expecting the contribution in 2H08 to EPS to fall by 31.4% to 20.2c. We note that Macquarie’s be weaker. definition of NPAT does not add back depreciation, ƒ LLC has many levers available to deliver underlying which is the primary reason why our full year EPS earnings growth due to the diversity of its business forecast of 20.2c is below GPT’s guidance of 21.6c. model. In addition, LLC has a strong balance sheet with ƒ GPT announced on 7 June 2008 a cut to its FY08 gearing of only 16% and an average debt maturity of 12 earnings and distribution forecasts and revised its years. distribution policy. FY08 operating income guidance was ƒ * The Macquarie Group is acting as financial advisor to FKP reduced to $464m, 27% short of previous guidance of Property Group in respect of the proposal by Lend Lease $633m (Macquarie $520m). With the exception of the Corporation Limited to acquire all of the securities in FKP as Australian property portfolio all business divisions were announced 20 June 2008. downgraded with a significant increase in corporate costs, partly due to higher debt levels given previously planned asset sales were not realised. Mirvac Group (MGR) – 26 August ƒ With regards to distributions, GPT has amended its ƒ FY08 NPAT is expected to be $337.4m, up 5.8% on distribution policy to exclude development profits and FY07. We are expecting EPS to decline by 2% to 32.3c, pay out 90–100% of other operating income. GPT with DPS of 32.9c, up 3.1% on FY07. commented that "in the current environment [they] believe it is appropriate to retain development profits ƒ On the 24th of June MGR provided an update to the earned, given their lumpy nature and unpredictable market and lowered operating EPS guidance to 31.4cps timing". Management commented that the revised to 34.3cps as a result of settlements potentially being distribution policy should be "substantially" covered by delayed post 30 June. They also reduced carrying operating cashflow with development profits through the values on residential and non-residential developments, cycle likely to cover maintenance capex. intangible values and co-investments in managed listed funds. In 1H08 development margins contracted due to a ƒ We believe financial risk exists, and estimate that only a mix shift in the business leading to a 25% decline in 9% fall in asset values (7% fall if the property derivative earnings. is marked to market at 30 June) would see GPT breach its euro debt facility covenant and hence most likely ƒ We believe conditions have worsened further and are open GPT up to a potential review of other debt facilities. expecting margins to have continued to decline in 2H, in On 9 July GPTs credit rating was cut to BBB by Standard spite of the successful launch of the Newstead and Poors, meaning that margins are likely to increase development in Queensland. 10–20bp on existing debt facilities. GPT commented that Dexus (DXS) – 21 August this step up had been provided for in the revised guidance. ƒ We are forecasting FY08 EPS of 11.9cps which represents growth of ~5.4% on pcp although is being partly driven by a reduction in interest expense from the pay down of debt (at ~6.3%) from sale of the A$928m retail portfolio which was yielding ~5.6%. DXS have advised that the FY08 distribution is 11.9cps.

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ƒ DXS will also realise some benefits from its ƒ We expect a softening in demand in the Sydney CBD internalisation which was announced in February being office market (where 50% of the CPA portfolio is located) derived from i) the earnings benefit exceeding the 100% although with limited supply at least until 2010 and the debt funding cost; ii) the internalisation removes some potential for some projects to be postponed if major pre tax leakage and iii) small cost savings. commitments are not achieved, vacancy rates should remain tight in the near term. CPA produced a sensitivity ƒ We expect solid like-for-like net property income growth analysis showing that a 50% pullback in demand in the from the office portfolio although moderating growth from Sydney CBD office market would increase vacancy the industrial portfolio. In the quarter to March, the levels to ~8% which is around long run equilibrium. portfolio's overall occupancy declined 80bp to 94.2% These dynamics should be supportive of market rental with the decline coming from the US and European growth although certainly not to the extent seen in CY07. industrial portfolios. The WALE was constant at 4.8 years. ING Office Fund (IOF) – 25 August ƒ Total developments underway account for a total ƒ We are forecasting FY08 adjusted profit of A$134.0m or estimated cost of ~$968m. Australian office EPU of 10.74cpu. This is in line with DPU of 10.75cpu. In developments remain on track with Space at Bligh St terms of 2H08, our forecast EPU of 5.48cpu is up 4.3% expected to reach completion in 2H11, Albert St in QLD on the pcp driven by both an increase in rental income in 1H11 and 60 Miller St, North Sydney in 2H09. These as well as income from a capital hedge put in place in three developments will cost ~$771m with the balance 1H08. consisting of industrial developments in Australia ($25m) ƒ Occupancy of the portfolio has also improved with the and North America (~$170m). IOF portfolio 97% occupied at 31 December 2007 Commonwealth Property Office (CPA) – 19 August compared to 96% at 31 December 2006 with IOF making progress at the NVH building in Paris. ƒ We forecast adjusted NPAT of $148.2m or EPU of 9.2¢ for FY08, up ~2.4% on pcp, however given ~$220m of ƒ The outlook for US office markets is uncertain. The full property revaluations in the year, reported profit will be impact of the upheaval in debt markets is yet to be seen much higher. Our forecast underlying EPS is in line with although a fall in employment is already evident and CPA’s announced distribution for the year of 9.2cpu. fears of potential further job losses are mounting. ƒ In terms of 2H08, our adjusted NPAT forecast of $74.4m ƒ Whilst the outlook has also softened in Australia, the or 4.63cps, represents growth of ~1.5% on pcp. Our fundamentals remain solid, particularly in Sydney where forecast net property income of $108m is a ~3.8% ~26% of the IOF portfolio is located. Although we believe increase on pcp driven by primarily by rent growth. reversion in cap rates is inevitable and this will put However, increased borrowing costs and management pressure on property valuations. fee will result in EPS growth of only ~1.5%. Australand Holdings (ALZ) – 28 July ƒ We also expect CPA to accrue a performance fee of ƒ At its AGM in April ALZ maintained guidance of 2.3% ~$5.5m (maximum performance fee of 0.15% of average growth in operating earnings per security in FY08 gross asset value). Although given the requirement to although ALZ noted at the time that markets have post a positive return, the performance fee will not “remained challenging and in some sectors have crystallise until CPA generates a positive total return deteriorated” and ALZ is “carefully monitoring the over a six-month period. situation and will be providing a further update” at its first ƒ During the half, CPA had about half of its portfolio half result. We are forecasting FY08 EPS of 16.5cps, independently revalued with NTA at 30 June expected to down ~6% on pcp. Our 1H08 EPS forecast is 6.8cps. increase 1cpu to $1.61pu with the weighted average cap ƒ ALZ has historically had a very seasonal result with the rate increasing 20bp to 6.5%. first half typically accounting for less than 40% of the full ƒ CPA has also successfully negotiated a new $150m year result. This has arisen from both seasonality in the bank debt facility to replace the MTN's maturing in residential business as well as a continued ramp-up in September 2008. We understand the margin was the commercial and industrial business. Given our ~100bp over BBSW, well up on the historical 30–40bp expectation that growth of the C&I business will slow and achieved but marginally below our forecast ~115bp. the difficult conditions prevailing in the residential markets, our forecasts assume a slightly lower level of seasonality (41/59). ƒ Income growth from the property trust is being driven by acquisitions in the trust which was valued at $1.878bn at 31 December 2007, compared to a starting balance of $1.452bn at 31 December 2006 as well as general rent and occupancy increases across the portfolio.

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ƒ We expect the 1H08 result from the residential business ƒ Management remain reasonably confident on the outlook will be up on pcp driven by some higher margin land for the funds management business, pointing to ~$800m sales such as in Port Coogee, WA and a robust level of of purchasing power within funds. We remain a little activity in Victoria. However, looking forward we are more cautious on the outlook for this business with our more cautious given anecdotal evidence of softer expectation that fund inflow will remain slow for the next residential markets following the string of interest rate 6–12 months and property value write downs to reduce rises and sharp decline in consumer confidence. AUM before any further investment. Although post year end VPG announced the successful launch of its ƒ In the C&I business we are assuming delivery of industrial fund in France known as Parc d'Activites. A 180,000sqm of construction work in 1H08, up from total of A$158m of equity was raised from nine 158,000sqm in the pcp. For the full year we are international investors with Valad taking a 5% co forecasting 400,000sqm is delivered, below the investment stake in the fund (A$8m). The fund will be 424,000sqm pre committed workload at 31 December. seeded with an A$168m portfolio of four industrial parks We can see further downside to our full year forecast acquired from Valad Continental Partners (VCP). given a slowdown in funds management inflow (ALZ intended on launching a new fund for C&I assets in ƒ A key focus of the result will be guidance in relation to CY08), however will seek further clarity from VPG’s distribution. VPG will change its policy to pay out management at the result. a distribution more aligned with "cash earnings" in future years. We are forecasting a distribution equal to our ƒ Capital management will be a focus at the result. ALZ’s estimated free cashflow although note that the board on balance sheet gearing was 40.4% at 31 December may seek to align the distribution to free cashflow over 2007 (or 40.8% on a look through basis) with a weighted time and not necessarily immediately. average debt maturity of only 1.7 years. We would not be surprised if gearing is higher at 30 June 2008 given Macquarie Office Trust (MOF) – 21 August the slowdown in funds management inflow and ALZ’s ƒ We are forecasting EPU (ex asset sale profits) and DPU intention to sell half of the product from the C&I business of 11.2cpu in FY08 which is flat on pcp as 1–2% net into the trust. ALZ’s weighted debt maturity is expected property income growth is offset by higher interest costs to still be ~1.7 years given ALZ successfully rolled the and management fees, on the back of property multi-option facility that was expiring in June 2009 to revaluations conducted in FY07. Including asset sale June 2010 for an increased amount in 1H08. In addition profits, EPU is expected to be ~13.5cpu. ALZ need to consider the upcoming maturity of the first ~$570m CMBS tranche in June 2009 and the ALZ ƒ At its quarterly update in April, management advised that ASSETS which are subject to a 250bp step up in the Australian and European portfolios were 100% October 2008. income producing with significant rental increases seen in Brisbane and Tampa. Looking forward, we are more Valad Property Group (VPG) – 26 August cautious with slowing demand for office space and ƒ We are forecasting FY08 EPS and DPS of 11.1cps. This resultant increases in the vacancy rate likely to limit is in line with guidance provided on 23 June and is ~11% rental growth in the near term. Although markets such as short of the 12.5cps forecast provided in the product Sydney CBD, which are starting with a low vacancy rate disclosure statement post the Teesland/Scarborough and have limited supply will likely continue see positive acquisition and reiterated again in December and rental growth, although well down on the rental growth February. delivered in CY07. ƒ FY08 EPS of 11.1cps implies a 2H08 result of 6.1cps of ƒ At its 1H08 result, MOF management stated an intention which 3.0cps of the earnings are from the sale of to reduce gearing by 200–300bp. We estimated that Goldfields, Digital Campus (UK) and Kennards. These assuming no movement in underlying asset values this transaction type profits consist of a combination of asset would require the sale of A$275–400m. During the half sale profits, funds management fees crystallised as well MOF successfully sold 505 Little Collins St for $83m, as promote fees. representing a 16% premium over book value which was $71.3m at 31 December 2007 and a passing yield of 6%. We will seek an update from management at the result in relation to any further planned asset sales.

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Abacus Property Group (ABP) – 27 August Charter Hall (CHC) – 26 August ƒ We estimate FY08 EPS of 14.6cps, above the ƒ We are forecasting FY08 NPAT of $55.1m, up 69% on announced 1H08 distribution of 13.5cps. Our forecast FY07. We are forecasting EPS of 12.8c, up 43% and implies EPS growth of 1.5% in FY08 although a decline DPS of 12.8c, up 22.7%. of 1.2% in 2H08 (on pcp). ABP remain highly dependant ƒ We are expecting 2H08 earnings growth to be driven by on the delivery of asset sale profits and whilst the strong growth in funds management income, investment management remain very confident in ABP's ability to income (investments in CHC managed funds) and continue to generate asset sale profits and while they development management income (includes share in certainly have the track record and expertise in doing so, profit from investments in CIP, CHOF4 and CHOF5). we remain more cautious given the increased cost of debt and plethora of assets for sale in the market. ƒ CHC has $1.28bn remaining acquisition capacity within CPOF, CPIF, as well as CHOF 4 and 5. Given recent ƒ Much of the upside in ABP lies in the potential market volatility, CHC continues to point to low book development opportunities on the assets such as i) gearing and capability to increase AUM without raising residential apartments at Ashfield Mall; ii) site additional equity. consolidation at Liverpool Plaza; iii) construct or refurbish CSIRO Campbell; iv) construction of a new ƒ Following discussions with management, we believe building at Stafford; and v) redevelopment and significant CPRF will be launched in 1H09. If CPRF is launched and increase in GLA at Aspley Village. Of course such we assume the DRP continues to be underwritten, we developments would require cash, although ABP has calculate that CHCs on balance sheet gearing will move previously pointed to the potential sale of some assets close to zero. such as Ashfield Mall following approval. Becton Property Group (BEC) – 26 August ƒ ABP typically sees lumpy inflows into its funds due to the ƒ We expect BEC to report adjusted profit of $52.3m in timing of fund launches, number of funds open, etc FY08, an increase of 44.1% on FY07. We are although as expected management noted at its update in forecasting EPS to increase by 10.5% to 33.3c. DPS has April that inflows were down ~50%. Management expect been confirmed at 27.2c for FY08. inflows to remain slow at least until the end of the 2008 financial year and then see a pick up in 1H09. ABP will ƒ In June BEC announced that it had hit settlements of continue to look for wholesale dollars to drive the growth $230m, and were on track to reach $300m for FY08. A in the business following the successful wholesale large portion of these settlements relate to projects syndication of the Aspley Shopping Centre development acquired through the Fincorp/EPG acquisitions last year, with Allianz. and have been used largely to repay debt. As a result, we are expecting gearing to reduce from the current ING Industrial Fund (IIF) – 28 August level of 49.9% (look-through). ƒ We expect FY09 NPAT of $200.2m, up 20.2%. ƒ Also in June, BEC announced that inflows for the period However, due to the equity raising in April 2007 of of January to May 2008 were $48m (5% higher than ~$400m and the resultant increase in shares, EPS is corresponding period in FY07). We will be interested to expected to grow by 7.7% to 18.6cps. DPS of 17.9cps hear any commentary surrounding retail inflows from has been confirmed, up 7.5%. management at the result. ƒ We’ll be looking for an update to how the development Babcock and Brown Communities Group (BBC) – 27 pipeline is progressing (both in Australia and Canada) August and also how management is expecting to finance the rollout. IIF have previously commented that they intend ƒ We are forecasting FY08 NPAT of $34.0m or EPS of to sell-off non-core assets to finance the development 5.2cps, below the full year distribution of 6.3cps. pipeline, however, with assets now harder to dispose of Importantly the correlation between earnings and at or near book value, this will be a more difficult task. IIF cashflow is relatively weak for BBC due to non cash advised in early June that they were intending to retirement earnings, tax expense recorded in the P&L underwrite the DRP to finance the development of two which is not paid and the high level of cash conversion projects in Victoria, but after a significant decline in share from the development business. price this was cancelled and will now be financed from ƒ Given the deterioration in residential market conditions undrawn debt. we expect first time unit sales (and settled) for the full ƒ We also believe some assets within IIF’s portfolio have year of ~250, well down on the 339 target provided in the been aggressively valued, in particular those located in PDS of July 2007. Although the weakness from the the Northern Sydney precinct where some business development business is expected to be partly offset by parks are valued on cap rates of as low as 6%, and we a stronger than expect result from the retirement division are expecting these assets to come under some short as well as the waiving of the management fee. term valuation pressure.

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ƒ Babcock and Brown’s management fee was conditional Westfield Group (WDC) – 29 August in FY08 on the achievement of a distribution yield (on ƒ At its March quarter operational update, WDC $1.15) of 8%. This implied a (pro rated) 8.4cpu management reiterated FY08 distribution guidance of distribution. Thus, no management fee will be paid in 106.5¢ (flat on FY07), expected to be paid solely from respect of FY08. forecast operational segment earnings and related ƒ The result will be accompanied with the conclusions of distribution hedging. In FY08 management expects the strategic review currently being undertaken to similar growth in operational earnings per security on a determine the options to reduce the gap between the constant currency basis (~6.0%). underlying asset values and BBC’s current market ƒ Note that WDC has a December year-end. We forecast trading price. 1H08 DPS of 53.25¢ (half of WDC’s FY08 guidance), Tishman Speyer Office Fund (TSO) – 19 August and 1H08 Adjusted NPAT of $983.8m. ƒ We expect TSO to report funds from operations ƒ We will be interested in occupancy changes across (essentially AIFRS earnings adjusted for property and WDC’s US portfolio over the June quarter. Occupancy in derivative revaluations, performance fee accrual and the US fell 130bp in the March quarter to 92.8%, from amortisation of lease incentives) of US$31.1m (or 94.1% at December 2007. WDC however pointed to the A12.2¢pu) for FY08. This is down ~33% on pcp due to: seasonality of occupancy, so occupancy was actually down 40bp from March 2007. 20bp of the reduction was ⇒ Increased vacancy. In particular, USG Corporation due to the acquisition of Broward and Westland centres. vacated 294,843sqf on 1 July 2007. Occupancy in Australia/NZ and the UK remained above ⇒ Higher interest expense. A higher level of debt and 99.5% and 99% respectively. Specialty occupancy costs termination of swap agreements are expected to were up 40bp in the US to 15.1%, and 10bp in result in additional interest cost. Australia/NZ to 16.7%. Specialty store rent growth on pcp was 3.8% in the US, down from 5.2% at December ⇒ Dilution from Beverly Hills acquisition. The Beverly 2007. Hills portfolio, acquired in May 2007, is expected to dilute earnings by ~10–11% in FY08. ƒ WDC’s 12-month comp sales growth slowed across the board in the March quarter. Only slightly in Australia, at ⇒ Increased management fee on the back of 5.9% compared to 6.0% at December 2007 (specialties ~US$410m of asset revaluations in FY07. growth was 6.7%, versus 7.1% at December 2007). In ƒ However, earnings improve dramatically from FY09 the US however specialties sales growth was 0.7% following the recent execution of a lease amendment versus 1.2% at December 2007 (on a 3-month basis, with Colgate Palmolive at 300 Park Avenue, New York. sales were down 1.5%). UK sales growth was 3.7%, Under the amended lease terms, Colgate Palmolive will from 4.3% at December 2007 (London sales growth was lease a minimum of 497,115sqf through to 2023 at a 7.1%, from 7.9% at December 2007). Note also that rental rate of US$107.50/sqf from 1 July 2008 and sales were impacted by the early timing of Easter. stepping up by US$10/sqf in July 2012 and July 2018. ƒ WDC has 12 major projects under construction with an This compares to the current in place rent of estimated total cost of $5.7bn (WDC share $3.8bn). US$30.50/sqf. Colgate now represents ~18% of FY09 Target weighted average yields on US projects fell 10bp gross income. over the March quarter to 8.6–9.1%, while Australia/NZ Orchard Industrial Fund (OIF) - 27 August projects increased 10bp to 8.4–8.9%. WDC expects to commence $4bn new projects in 2008, including ƒ We are forecasting FY08 NPAT of $17.6m and EPS of Stratford City and Sydney City. 5.1c. DPS of 8.1c has been confirmed. ƒ WDC announced in early July it had reached agreement ƒ On 14 July OIF announced that it was revising its with government and Olympic agencies which will distribution policy to align distribution payments with facilitate work to proceed on its £1.5bn Stratford City sustainable cash earnings, removing the portion of the development. Westfield Stratford City will span distribution attainable to capitalising interest. As a result 175,000sqm and be anchored by John Lewis, Waitrose we have reduced our DPS forecasts by 40.8% in FY09 and Marks & Spencer and is due to open in 2011. and 40.9% in FY10. We believe this was a positive step Westfield London is due to open in west London on 30 by OIF, increasing the long-term position of the trust and October later this year. helping gearing (currently 59.7%) from increasing further. CFS Retail Property Trust (CFX) – 19 August ƒ Whilst there is clearly inherent value within the business ƒ CFX has provided 2H08 DPU guidance of 6.0¢, (with the stock price trading at a ~70% discount to last equivalent to its 1H08 DPU. The implied FY08 DPU is in reported NTA), we believe it is OIF's financial risk which line with our forecast and represents a 3.4% increase on will continue to impact investor confidence. OIF are able FY07, driven by fixed annual rental increases and to endure a fall of just 10% across the property portfolio development completions. We forecast adjusted NPAT before breaching its LVR covenant of 70%. (after performance fees) of $252.5m for FY08.

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ƒ CFX recently announced independent revaluations on 10 ƒ MCW’s asset sales so far this year and DRP proceeds of its shopping centres, resulting in a $154.2m increase ($34m in 1H08) have raised the equivalent of ~$86m on its portfolio book value. The valuation increase was equity or ~$154m asset sales. It would be fair to reduce driven by rental growth, partly offset by 3bp cap rate the equity raising or asset sale amounts discussed expansion, taking its weighted average portfolio cap rate above by these amounts as they have been secured to 5.77% at June 2008. Chadstone booked the most during the half. significant uplift in value, post the completion of its stage ƒ Given MCW's exposure to US retail, we will be interested 25 development in December 2007. CFX’s NTA is in changes to its occupancy rate over the quarter. estimated to increase ~6¢ to $2.32 at FY08. Grocery-anchored retail properties are arguably more ƒ CFX's development pipeline represents ~23% of its resilient to economic downturns than other retail property asset base, a key driver of earnings growth. CFX targets types. Our MCW earnings forecasts incorporate 180bp development yields of 7–8% on its development pipeline. fall in occupancy across MCW's US property portfolio Given retail property sector dynamics, CFX has made between 31 December 2007 and 30 June 2009. A further the decision to push back developments on some of its 20bp reduction during the June 2008 quarter would bring more 'sub-regional' centres and focus attention on MCW’s US portfolio occupancy in line with our forecast. regional centres to ensure the best re-leasing prospects ƒ MCW has also renegotiated covenants, facility limits and (CFX envisage more incentives and lower rents would maturity dates on some of its debt facilities during the be required by new tenants at sub-regional centres). half. At the result, we will be looking for any further news Macquarie Countrywide Trust (MCW) – 27 August on debt facility renegotiations. ƒ MCW has announced an estimated 2H08 distribution of Centro Properties Group (CNP) – 28 August 7.2¢, in line with our forecast. The 2H08 distribution ƒ CNP will not pay a 2H08 distribution, as was the case for takes the expected FY08 distribution to 15.0¢. Our FY08 1H08. Under the terms of Centro Property Trust’s adjusted NPAT forecast is $203.9m, equivalent to EPS constitution, an amount equivalent to the trust’s taxable of 15.3¢. income is required to be distributed. However, no taxable ƒ We have highlighted MCW as one of the most likely income is forecast for the FY08 year. Centro announced vehicles in the property sector to raise equity. At to the market that while it expects to record an operating December 2007, MCW’s look-through gearing was distributable profit for the year, it has incurred significant 50.8%, with covenant gearing at 56.1%. MCW's target non-operating refinancing and adviser fees. In addition, gearing range is 45–55%. Around A$615m asset sales, Centro’s financial arrangements are such that it is not in or A$340m new equity, would reduce look-through a position to fund a distribution. gearing to 45% based on December 2007 valuations. ƒ The following three conditions must be met by 30 ƒ The following key cashflows have occurred since September for extension of $2.3bn loans from Australian December 2007: financiers and US$450m from US private placement noteholders to 15 December 2008: i) The Australian ƒ In June MCW settled on the sale of its 75% interest in financiers and US private placement noteholders being the seven property Mid-Atlantic shopping centre satisfied as to Centro's progress in implementing its portfolio, originally announced to the market in strategic plan; ii) the US lending group owed US$1.1bn November 2007. After a long loan assumption process, by CER's New Plan joint venture agreeing to further the final gross sale price of US$108.1m (100% interest) extend those facilities from 30 September 2008 to a date was agreed. This represents a fall of 8.9% from the no earlier than 15 December 2008; and iii) the Australian US$118.6m indicative price when the deal was first financiers, US private placement noteholders and US announced, driven by the acquirer's increased cost of lending group reaching a further agreement by 30 financing over the time period. The sale price represents September 2008 on the terms on which assets can be a loss of 6.7% on the portfolio's combined book value at sold and the proceeds of such sales applied after that 31 December 2007. The December valuation represents date. a cap rate of 7.25%. Although the cap rate on sale was not disclosed, we believe it was in the mid-to-high 7s, ƒ Centro now has A$155m aggregate liquidity facilities, implying cap rate expansion of ~50bp (25–75bp). with ongoing fees and margins of 3.75% pa. Besides the liquidity facility, Centro has advised that interest margins ƒ MCW has also sold ~9% of the ~$102m aggregate payable during the extension period remain as Australian property portfolio auctioned in April. In June, previously announced (175bp pa on each facility). MCW also sold a vacant development site in Maylands, However, we believe an additional $5–10m fees per Perth, to Coles Group. The property was sold for month are being paid to cover Centro's and its financiers' $6.85m, representing a 25.7% gain on book value (given advisory and legal fees, which equates to $60–120m pa. it is a development property, book value is represented We also reiterate that an additional interest margin of by acquisition cost plus any capex spent over the holding 550bp pa will be payable if the extension arrangements period). are terminated following an event of default. We note that Centro's announcement on 8 May 2008 did not define exactly what constitutes an event of default.

24 July 2008 123 Macquarie Research Equities - Report Profit Outlook

ƒ Given the large refinancing under extension and the ƒ CER reported comparable NOI growth across its variable interest rate exposure, CNP's cost of debt and stabilised US portfolio of 1.9% for the nine months ended therefore interest expense is at risk of blowing out. 31 March 2008 on pcp. Comp NOI growth has evidently slowed from the 3.1% reported for the six months ended ƒ We are interested in what happens to comparable NOI 31 December 2007 on pcp. CER's stabilised portfolio growth and occupancy across Centro’s US assets over occupancy fell by 20bp less than Centro's entire AUM, the June quarter. CNP (across all AUM) reported down 100bp to 94.3%. We will be interested in the comparable NOI growth across its stabilised US portfolio change in CER's US portfolio comp NOI growth and of 2.1% for the nine months ended 31 March 2008 occupancy over the June quarter, to be announced at (versus 2.0% for the six months ended 31 December the FY08 result. 2007). Surprisingly, NOI growth held up despite a 120bp fall in US portfolio occupancy (on a stabilised basis) over ƒ We have highlighted CER as one of the most likely the quarter to 91.7%. We believe that over half of the vehicles in the property sector to raise equity. We occupancy decline would have been driven by store calculate CER’s look-through gearing at 57.5% based on closures or bankruptcies of US retailers, with the December 2007 asset values. Management has stated a remainder non-renewals of expiring leases. target 45–50% gearing range. $2.2bn asset sales would have been required to take look-through gearing to 45% ƒ CNP has entered into an agreement to sell 29 of the 31 at December 2007. An equity raising of ~$1.2bn would properties in the Centro America Fund (CAF) for have achieved the same result. US$714m, representing a 10% discount to previous book value. We estimate ~70bp cap rate expansion on ƒ CER has A$2.4bn debt maturing in the next 12 months. the CAF portfolio. The transaction cap rate was not Debt facilities of $1.2bn have been effectively extended disclosed, however we estimate implied cap rate until 30 September 2008. The outcome of Centro’s expansion of ~70bp on CAF’s last valued 6.6% cap rate. strategic plan is expected to be announced by this date, CAF’s properties were of higher quality than Centro's US as CNP will have to satisfy Australian financiers and US property AUM, which was valued at December 2007 on private placement noteholders as to its progress to a 6.95% cap rate. This leads to our belief that on any further extend these debt facilities. CER has an further US asset sales, cap rate expansion of more than additional $1.2bn debt on- and off-balance sheet due to 70bp is likely. CAF's assets were included in the core expire in the next 10 months. portfolio of neighbourhood and community centres Aspen group (APZ) – 20 August acquired as part of Centro's Heritage acquisition, announced in July 2006 on a 7.25% cap rate. ƒ APZ has announced a 3.875¢ DPS for the June quarter, taking FY08 DPS to 15.5¢, in line with management ƒ CNP has an 83% effective interest in CAF (it holds guidance and 21.5% up on FY07. We forecast FY08 46.65% directly, and invests in the DPFI, which holds adjusted NPAT of $41.8m, which equates to FY08 EPS 50%). At December 2007, CAF had A$1bn gross of 16.7¢ (6.9% above FY07). Management said during property assets and A$480m debt (of which ~A$45m the quarter they were comfortable APZ will achieve FY08 was against one of the two properties which will remain underlying EPS of 17–18cps as more performance fees in CAF). Centro will use the net sale proceeds to pay would be booked in the second half. down outstanding debt. We estimate the sale would reduce Centro's look-through gearing by ~60bp. This is a ƒ We will be interested in retail fund inflow figures provided small chunk of the ~A$9.1–10.3bn of assets Centro at APZ's result. Although December/January inflows would need to sell based on December 2007 book were 23% up on last year, February/March was down values to reduce its look-through gearing from 75.2% to 25–30%. Aspen’s Parks Fund and Diversified Fund have its 35–45% target gearing range. gained access to two new super platforms. To enable platform exposure, the Diversified Fund introduced a Centro Retail Group (CER) – 27 August redemption facility limited to 5%. ƒ CER’s 1H08 distribution was suspended as a result of its ƒ APZ launched the Aspen Villages Property Fund during inability to refinance short-term debt on a long-term the half (as previously flagged), which will develop and basis. Under CER's constitution however, it must own a portfolio of modular home villages to provide distribute at least 100% of taxable income for the year. investors with a combination of annuity-style income and CER has announced an estimated FY08 distribution of capital growth returns. The fund will target an average 1.4cps, above our forecast of zero (we had assumed return of 18% pa and will develop villages from largely suspension for the full-year). The 1.4cps equates to greenfield sites for both the lifestyle and tourist $32m in aggregate, and represents CER's estimated markets...with an aim to offer homes at 40–60% of the taxable income for FY08. median house price in each state. The initial portfolio, currently seeded on APZ's balance sheet, will comprise six sites across four Australian states. ƒ APZ is targeting a $40m equity raising for the Villages Fund. Aspen will hold a 20% initial cornerstone investment in the fund.

24 July 2008 124 Macquarie Research Equities - Report Profit Outlook

Macquarie DDR Trust (MDT) – 28 August ƒ LEP also announced the acquisition of Boundary Hotel in East Bentleigh, Melbourne for $17.0m, from the Orchard ƒ MDT announced an estimated 2.125¢ distribution for the Diversified Fund on 30 June. The acquisition was funded June quarter, taking FY08 DPS to 9.25¢, in line with our from existing debt facilities and a short-term funding forecast. We forecast FY08 EPS of 9.9¢, equivalent to arrangement pending the sale of the Parkway Hotel in adjusted NPAT of $92.4m for the year. French's Forest, Sydney. The Parkway Hotel is carried in ƒ We have highlighted MDT as one of the most likely LEP's books at $6.5m (development property). LEP vehicles in the property sector to raise equity. MDT’s anticipates overall debt balances to increase by around look-through gearing was 52.7% at December 2007, $10m, which implies a sale price of roughly $8m given while covenant gearing was 55.2%. MDT’s target look- transaction costs for the recent acquisition. LEP had through gearing range is 45–55%, however management $19m available capacity in its NAB facility (maturing in is looking to reduce gearing to below 50%. Around 2011) prior to the acquisition, priced at BBSW plus a $368m asset sales, or $203m equity, would have been margin. required at December 2007 based on asset values at ƒ LEP recently announced that it has entered into an that point to bring look-through gearing down to 45%. additional CPI Hedge that will a) hedge real base interest ƒ Given MDT's exposure to US retail, we will be interested rates at 3.77% on $186m for 15 years, b) hedge real in changes to its occupancy rate over the quarter. base interest rates at 3.55% on LEP's overall debt for 15 Portfolio occupancy fell 60bp from 97.4% at 31 years, c) extend the overall interest rate hedging term December 2007 to 96.8%. Tenant Linens ‘n Things is from 11 to 15 years, d) reduce interest rate risk from currently considering potential closure of two of its stores refinancing in 2011, and e) provide additional free leased from MDT (covering less than 0.5% of MDT’s cashflow of $7–8m. income). Linens ‘n Things last week filed for voluntary ƒ Following the transaction, ~50% of LEP's net CPI petition under Chapter 11 to complete financial indexed income will be matched to CPI indexed interest restructuring. expenses ƒ Under its ‘base case’ modest recession scenario,

Property and Portfolio Research (PPR) expects a further 150bp reduction between now and June 2009. We have NZ Listed Property Trusts reduced our MDT portfolio occupancy assumptions by 300bp over the three halves to June 2009. In a housing Recommendations related consumer slowdown the main casualties in the AMP - Neutral retail space are those with a large exposure to durable IMP - Neutral goods, so we think a larger decline than the average across all retail property types is justified. PFI – Neutral ALE Property Group (LEP) – 19 August * Please note all NZ stocks are in NZD

ƒ LEP announced an expected 2H08 distribution of 16.85c, in line with management guidance of 'at least AMP NZ Office Trust (APT) – 13 August 16.75c', however slightly (-0.8%) below our forecast of ƒ We expect APT to report FY08 distributable NPAT of 16.99c. Our forecast was composed of an 'income DPS' $50.2m, up 22.2% on pcp. We forecast gross DPU will of 16.26c (5.51c of which is funded via capitalised increase 8.0% to 8.4cpu, however cash DPU will fall interest), plus a 0.73c 'capital DPS'. LEP’s implied FY08 3.1% to 7.5cpu. The difference is caused by gross DPU distribution is now 33.6c. incorporating a large increase in non cash imputation ƒ Part of the difference in our numbers could be explained credits. At $1.05 per unit, APT is trading at a forecast by land tax assessments in QLD, which increased by a FY08 cash yield of 7.1%. further 22% on FY07, implying FY08 land tax expense of ƒ APT is in a very strong position in NZ’s prime CBD office $2.0m (our forecast was $1.6m). LEP is contesting the sector. Near-term rental growth should be supported by assessments, however if it is unsuccessful the land tax tight supply of prime CBD office space, and the 12.2% expense is expected to increase to ~$2.55m by FY10. under renting of the trust’s portfolio. ƒ LEP has revalued its entire property portfolio (excluding ƒ For FY09, we forecast cash DPU will grow 4%, implying development properties) over the June half, booking cash DPU of 7.8cpu and pricing APT units at a FY09 13bp cap rate expansion on the portfolio. NTA, which cash yield of 7.7%. Given that prime NZ CBD office rents was $3.40 at December 2007, is expected to decrease continue to show strong (c8% pa) growth, we see by ~15c to ~$3.25 at end June 2008. The completed genuine upside to our FY09 forecast. property portfolio weighted average cap rate increased 13bp from December 2007 to 6.2%. ƒ However, current investor sentiment towards APT (and listed property in general) is negative – the market looks to be pricing in cap rate expansion across all the LPTs in response to weakness in global credit markets.

24 July 2008 125 Macquarie Research Equities - Report Profit Outlook

ING Medical Properties Trust (IMP) – 29 August 2008 ƒ We expect IMP to report FY08 NPAT of NZ$17.9m, up 43.4% on pcp, or $14.8m (up 18.6% on pcp) after

adjusting for the one-off development profit from Ascot Central. We expect 2H08 cash DPU of 4.1cpu, making 8.2cpu for the year.

ƒ There is upside to our DPU forecast if IMP elects to

distribute part of its development profit from Ascot Central. ƒ The highly defensive nature of IMP’s hospital and health service tenants (ie a high weighting of government

organisations with very long lease terms) means we see little vacancy risk in the portfolio. However, like the rest of NZ’s LPT sector there is negative pressure on IMP as

the market prices in softening cap rates across all property classes. Property for Industry (PFI) – 21 July 2008 ƒ We forecast PFI will report 1H08 NPAT of NZ$8.1m, up 7.2% on the pcp. We expect 2Q08 DPS will be 1.55cps,

equal to 1Q08, representing a 2% increase over last year and maintaining PFI’s record of delivering solid YoY DPS growth. Consistent with the pattern of prior years

we expect dividends will be weighted towards the second half, and forecast FY08 DPS of 7.4cps. ƒ Like the other NZ LPTs, the threat of cap rate expansion will continue to put downward pressure on PFI’s share

price. PFI’s 1H08 result should provide some clarity as to the level of risk premium that independent valuers are factoring into NZ industrial cap rates – an issue that is

also important for fellow industrial landlord GMT.

24 July 2008 126 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢)(%) (%) (%)

Real Estate

Abacus Property Group ABP Neutral 06/2007A 118.8 79.8 14.4 7.2 0.7 10.8 7.1 12.512.1 86.9 0 $1.07 $665m 6x 06/2008E 92.092.0 14.6 7.1 0.7 10.4 7.0 13.513.0 92.5 0 Low/Medium 0.07% 47% 12/2008E(i) 46.846.8 7.3 N/A N/A N/A N/A 6.8 N/A 93.1 0 06/2009E 94.794.7 14.7 7.0 0.7 9.6 7.0 14.113.6 95.7 0 06/2010E 96.896.8 15.1 6.9 0.6 9.5 6.8 14.714.2 97.7 0

Australand Holdings ALZ Neutral 12/2007A 269.2 163.2 17.6 5.6 0.6 10.7 4.8 17.017.3 96.3 16 $1.01 $1,002m 4x 06/2008E(i) 62.962.9 6.8 N/A N/A N/A N/A 8.3 N/A 122.3 17 Medium 0.04% 81% 12/2008E 153.0 153.0 16.5 5.9 0.5 9.4 5.0 16.516.8 100.0 17 12/2009E 155.8 155.8 16.8 5.8 0.5 9.1 4.8 16.817.1 100.0 18 12/2010E 165.7 165.7 17.9 5.5 0.5 9.3 4.6 17.217.5 96.1 19

AMP NZ Office Trust APT Neutral 06/2007A 301.3 51.3 9.6 11.0 0.8 6.5 11.0 7.87.4 81.2 0 NZD$1.05 NZD$722m 11x 06/2008E 51.851.8 7.5 14.0 0.8 5.4 14.0 7.57.1 99.3 25 Medium N/A 31% 12/2008E(i) 24.724.7 3.6 N/A N/A N/A N/A 3.8 N/A 104.9 19 06/2009E 50.850.8 7.4 14.2 0.8 5.4 14.2 7.87.4 105.9 20 06/2010E 53.953.9 7.8 13.4 0.8 5.7 13.4 8.17.7 103.2 28 All data is expressed in NZD

Aspen Group APZ Outperform 06/2007A 74.433.5 15.7 6.5 0.7 13.2 6.5 12.612.3 80.1 0 $1.01 $273m 15x 06/2008E 72.041.8 16.7 6.1 0.7 11.7 6.1 15.515.2 92.9 0 Medium 0.0003 49% 12/2008E(i) 22.222.2 8.9 N/A N/A N/A N/A 8.2 N/A 92.9 0 06/2009E 44.544.5 17.8 5.7 0.6 11.4 5.7 16.516.2 92.9 0 06/2010E 47.447.4 18.9 5.4 0.6 11.7 5.4 17.617.3 92.9 0

Babcock & Brown Communities Group BBC Neutral $0.38 $254m 06/2008E 38.734.0 5.2 6.9 0.6 8.2 5.8 6.317.5 120.7 0 Very High 0.02% - 12/2008E(i) 15.7 15.7 2.4 N/A N/A N/A N/A 2.4 N/A 100.1 0 06/2009E 31.531.5 4.8 7.5 0.5 7.2 6.2 5.816.2 120.6 0 06/2010E 41.341.3 6.3 5.7 0.5 8.6 4.9 6.116.8 95.7 0

Becton Property Group BEC Outperform 06/2007A 84.636.3 30.1 4.2 0.6 12.2 4.0 15.512.4 51.5 0 $1.28 $216m 22x 06/2008E 57.052.3 33.3 3.8 1.1 22.1 3.7 27.221.7 81.7 0 Very High 0.02% 40% 12/2008E(i) 28.6 28.6 18.2 N/A N/A N/A N/A 15.4 N/A 84.6 0 06/2009E 55.855.8 35.4 3.5 2.5 43.6 3.5 30.024.0 84.6 0 06/2010E 60.260.2 38.2 3.3 2.0 67.4 3.3 31.525.2 82.5 0

Centro Retail Group CER Underperform 06/2007A 273.7 85.5 12.7 2.4 0.2 5.4 2.4 12.741.0 100.0 0 $0.31 $755m 5x 06/2008E -147.2 218.7 11.7 2.7 0.2 6.4 2.6 0.00.0 0.0 - Very High 0.05% 66% 12/2008E(i) 148.7 148.7 6.5 N/A N/A N/A N/A 6.5 N/A 100.0 0 06/2009E 299.1 299.1 13.1 2.4 0.1 6.1 2.4 13.142.2 100.0 0 06/2010E 309.1 309.1 13.5 2.3 0.1 6.0 2.3 13.543.6 100.0 0

CFS Retail Property Trust CFX Underperform 06/2007A 1121.0 239.0 11.3 15.9 0.8 5.9 15.9 11.66.4 102.7 0 $1.87 $4,309m 14x 06/2008E 521.7 262.5 11.6 15.5 0.8 5.4 15.5 12.06.7 103.3 0 Low 0.34% 31% 12/2008E(i) 140.3 140.3 6.2 N/A N/A N/A N/A 6.4 N/A 103.2 0 06/2009E 279.4 279.4 12.3 14.7 0.8 5.3 14.7 12.67.0 103.2 0 06/2010E 288.7 288.7 12.7 14.2 0.8 5.2 14.2 13.17.3 103.1 0

Charter Hall Group CHC Outperform 06/2007A 43.2 32.5 8.9 9.1 0.6 8.9 9.1 10.4 12.9 116.8 0 $0.76 $374m 15x 06/2008E 75.155.1 12.8 6.3 1.4 15.6 6.3 12.815.8 100.0 0 High 0.03% 29% 12/2008E(i) 34.334.3 7.9 N/A N/A N/A N/A 7.4 N/A 94.7 0 06/2009E 67.267.2 15.4 5.3 1.3 25.9 5.3 14.918.4 96.8 0 06/2010E 74.874.8 17.1 4.7 1.2 25.7 4.7 16.620.5 97.1 0

Centro Properties Group CNP Underperform 06/2007A 467.4 320.7 38.7 0.6 0.1 9.4 0.6 39.8159.2 102.8 0 $0.23 $190m 4x 06/2008E -1021.1 249.9 29.6 0.8 0.0 5.8 0.8 0.00.0 0.0 - Very High 0.02% 96% 12/2008E(i) 61.5 61.5 7.3 N/A N/A N/A N/A 0.0 N/A 0.0 0 06/2009E 87.287.2 10.3 2.4 0.1 2.0 2.3 0.00.0 0.0 - 06/2010E 6.56.5 0.8 32.8 0.1 0.2 23.5 0.00.0 0.0 -

Commonwealth Property Office CPA Underperform 06/2007A 535.1 145.8 9.0 13.1 0.8 6.7 13.1 10.08.4 110.3 0 $1.25 $2,046m 11x 06/2008E 363.8 148.2 9.2 12.8 0.7 6.0 12.8 9.27.8 99.7 0 Low 0.20% 39% 12/2008E(i) 74.376.4 4.8 N/A N/A N/A N/A 4.6 N/A 96.6 0 06/2009E 146.4 150.5 9.4 12.6 0.7 5.8 12.6 9.27.8 98.1 0 06/2010E 147.6 151.8 9.5 12.5 0.7 5.9 12.5 9.27.8 97.3 0

Dexus Property Group DXS Neutral 06/2007A 1168.8 324.6 11.3 10.5 0.7 6.8 9.9 11.39.5 99.9 0 $1.16 $3,557m 8x 06/2008E 608.6 348.8 11.9 10.0 0.6 6.4 9.7 11.910.0 99.8 0 Low 0.35% 58% 12/2008E(i) 183.4 183.4 6.3 N/A N/A N/A N/A 6.3 N/A 100.0 0 06/2009E 357.9 357.9 12.2 9.7 0.6 6.3 9.4 12.210.3 100.0 0 06/2010E 363.5 363.5 12.4 9.6 0.6 6.2 9.3 12.410.4 100.0 0

FKP Property Group FKP 06/2007A 194.8 134.9 61.4 6.8 1.1 19.2 9.7 31.77.6 51.6 62 $4.35 $1,202m 18x 06/2008E 162.9 158.7 60.4 6.9 1.3 17.6 9.7 34.28.2 56.5 62 High 0.11% 73% 12/2008E(i) 85.885.8 32.6 N/A N/A N/A N/A 16.8 N/A 51.5 62 06/2009E 177.3 177.3 67.4 6.2 1.3 20.9 8.6 35.98.6 53.2 62 06/2010E 189.7 189.7 72.1 5.8 1.3 22.2 8.0 37.79.0 52.2 62

24 July 2008 127 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢)(%) (%) (%)

Goodman Group GMG Outperform 06/2007A 628.4 515.5 30.7 7.2 0.8 12.1 7.2 31.514.3 102.6 0 $2.37 $4,530m 8x 06/2008E 578.5 583.9 34.0 6.5 0.8 12.6 6.4 34.015.5 99.9 0 Low/Medium 0.37% 83% 12/2008E(i) 309.0 309.0 17.8 N/A N/A N/A N/A 17.5 N/A 98.1 0 06/2009E 619.8 619.8 35.8 6.1 0.8 13.3 6.1 35.015.9 97.8 0 06/2010E 645.3 645.3 37.3 5.9 0.8 13.7 5.9 36.016.4 96.6 0

Goodman Property Trust GMT Outperform 03/2008A 99.370.4 10.2 10.5 0.8 7.5 10.5 9.99.2 96.5 0 NZD$1.07 NZD$895m 7x 09/2008E(i) 41.741.7 5.0 N/A N/A N/A N/A 5.1 N/A 102.3 13 Low/Medium N/A 39% 03/2009E 86.785.8 10.2 10.5 0.8 7.8 10.5 10.39.6 100.7 12 03/2010E 91.891.8 10.8 9.9 0.8 8.3 9.9 10.69.9 98.1 13 03/2011E 96.996.9 11.3 9.5 0.8 8.6 9.5 10.910.2 97.1 15 All data is expressed in NZD GPT Group GPT Underperform 12/2007A 1182.6 605.1 29.5 4.8 0.4 7.7 4.6 28.920.4 98.0 0 $1.49 $3,431m 7x 06/2008E(i) 208.7 207.7 9.6 N/A N/A N/A N/A 11.4 N/A 118.9 0 Low 0.32% 56% 12/2008E 443.3 442.4 20.2 7.0 0.4 5.3 6.7 20.014.1 98.9 0 12/2009E 455.4 455.4 20.6 6.9 0.4 5.3 6.6 20.614.5 99.8 0 12/2010E 471.6 471.6 21.4 6.6 0.4 5.4 6.3 21.315.0 99.6 0

ING Industrial Fund IIF Neutral 06/2007A 397.9 166.5 16.7 7.5 0.5 7.3 7.5 16.713.4 99.8 0 $1.26 $1,495m 12x 06/2008E 331.5 200.2 18.0 6.9 0.5 6.8 6.9 17.914.4 99.6 0 Low 0.12% 44% 12/2008E(i) 103.0 103.0 9.2 N/A N/A N/A N/A 9.0 N/A 97.6 0 06/2009E 208.2 208.2 18.6 6.7 0.4 6.6 6.7 18.014.5 96.6 0 06/2010E 209.9 209.9 18.8 6.6 0.4 6.1 6.6 18.014.5 95.8 0

ING Medical Properties IMP Neutral 06/2007A 23.510.2 7.4 15.1 0.8 5.6 15.1 7.66.9 103.7 49 NZD$1.11 NZD$155m 9x 06/2008E 13.013.0 9.3 11.9 0.9 7.1 11.9 8.27.4 88.2 39 Low/Medium N/A 29% 12/2008E(i) 5.55.5 3.9 N/A N/A N/A N/A 4.0 N/A 102.5 46 06/2009E 11.311.3 8.1 13.7 0.9 6.4 13.7 8.37.5 102.5 43 06/2010E 11.711.7 8.4 13.2 0.9 6.7 13.2 8.47.6 100.0 45 All data is expressed in NZD

ING Property Trust ING Underperform 03/2008A 71.728.6 5.3 16.0 0.6 4.1 16.0 8.710.2 163.6 25 NZD$0.85 NZD$433m 4x 09/2008E(i) 20.420.4 3.9 N/A N/A N/A N/A 4.4 N/A 112.0 22 Low/Medium N/A 65% 03/2009E 41.541.5 8.0 10.7 0.6 6.0 10.7 8.710.2 109.1 23 03/2010E 43.443.4 8.4 10.1 0.6 6.4 10.1 8.710.2 103.7 29 03/2011E 46.046.0 8.9 9.6 0.6 6.8 9.6 8.910.5 100.0 33 All data is expressed in NZD

ING Office Fund IOF Neutral 06/2007A 572.7 124.3 10.8 10.6 0.7 6.9 10.7 11.610.1 107.3 0 $1.20 $1,529m 14x 06/2008E 209.7 134.0 10.7 10.7 0.6 6.1 10.7 10.89.4 100.1 0 Low 0.15% 54% 12/2008E(i) 68.568.5 5.4 N/A N/A N/A N/A 5.4 N/A 98.7 0 06/2009E 136.5 136.5 10.8 10.6 0.6 5.8 10.6 10.89.4 99.5 0 06/2010E 137.0 137.0 10.8 10.6 0.6 5.8 10.6 10.89.4 99.2 0

Kiwi Income Property Trust KIP Neutral 03/2008A 126.1 61.4 8.6 12.9 0.6 4.6 12.9 9.08.1 105.0 8 NZD$1.11 NZD$801m 4x 09/2008E(i) 30.530.5 4.2 N/A N/A N/A N/A 4.6 N/A 109.1 21 Low/Medium N/A 45% 03/2009E 61.261.2 8.5 13.1 0.6 4.8 13.1 9.38.4 109.0 20 03/2010E 62.562.5 8.6 12.9 0.6 5.0 12.9 9.58.6 110.5 20 03/2011E 75.675.6 9.0 12.4 0.7 6.0 12.4 9.88.9 109.6 21 All data is expressed in NZD

ALE Property Group LEP Outperform 06/2007A 97.812.4 13.6 20.7 0.8 4.5 14.1 32.511.6 239.2 0 $2.76 $255m 5x 06/2008E 27.713.7 16.2 17.4 0.8 4.7 10.6 33.712.0 208.7 0 Low/Medium N/A 155% 12/2008E(i) 6.66.6 8.0 N/A N/A N/A N/A 17.3 N/A 215.9 0 06/2009E 12.712.7 15.4 18.2 0.8 4.4 8.8 34.812.4 225.1 0 06/2010E 13.213.2 16.1 17.5 0.8 4.4 8.8 35.712.7 221.6 0

Lend Lease Corp LLC 06/2007A 497.5 413.7 103.5 8.6 1.1 13.7 8.0 77.08.7 74.4 35 $9.13 $3,787m - 06/2008E 451.6 451.6 112.6 7.9 1.1 14.1 7.4 78.88.9 70.0 35 Low/Medium 0.31% 16% 12/2008E(i) 251.2 251.2 62.6 N/A N/A N/A N/A 41.3 N/A 66.0 35 06/2009E 487.1 487.1 121.4 7.3 1.0 14.7 6.8 80.19.0 66.0 35 06/2010E 543.4 543.4 135.5 6.6 1.0 15.5 6.1 88.19.9 65.0 35

Macquarie Countrywide Trust MCW Neutral 06/2007A 493.3 187.7 15.0 5.0 0.4 7.6 5.0 15.620.7 104.3 0 $0.76 $1,072m 5x 06/2008E 136.1 203.9 15.3 4.9 0.4 7.6 4.9 15.019.9 98.3 0 Low 0.09% 16% 12/2008E(i) 101.7 101.7 7.5 N/A N/A N/A N/A 7.2 N/A 96.5 0 06/2009E 206.6 206.6 15.1 5.0 0.4 7.4 5.0 14.419.1 95.5 0 06/2010E 203.7 203.7 14.8 5.1 0.3 6.8 5.1 14.819.5 99.7 0

Macquarie DDR Trust MDT Underperform 06/2007A 185.3 93.1 10.0 2.8 0.2 8.4 2.2 10.035.1 99.7 0 $0.28 $256m 3x 06/2008E 40.092.4 9.9 2.9 0.3 8.8 2.2 9.332.5 93.0 0 Medium 0.03% 8% 12/2008E(i) 43.043.0 4.6 N/A N/A N/A N/A 4.0 N/A 86.5 0 06/2009E 84.584.5 9.1 3.1 0.2 8.1 2.3 8.028.1 88.0 0 06/2010E 79.379.3 8.5 3.3 0.2 7.0 2.5 8.028.1 93.7 0

24 July 2008 128 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Mirvac Group MGR Underperform 06/2007A 556.3 319.0 33.0 5.9 0.4 9.2 5.7 31.9 16.4 96.7 20 $2.00 $2,323m 5x 06/2008E 506.8 337.4 32.3 6.0 0.5 8.4 6.0 32.9 16.9 101.7 0 Low 0.20% 63% 12/2008E(i) 135.9 135.9 12.4 N/A N/A N/A N/A 11.5 N/A 93.0 0 06/2009E 258.2 258.2 23.5 8.3 0.5 6.4 8.2 23.0 11.8 97.9 0 06/2010E 265.9 265.9 24.2 8.1 0.5 6.6 7.9 24.0 12.3 99.2 0

Macquarie Office Trust MOF Neutral 06/2007A 967.7 222.7 11.2 6.8 0.5 7.6 6.8 11.2 14.7 99.8 0 $0.79 $1,624m 10x 06/2008E 356.7 225.9 11.2 6.8 0.5 7.2 6.8 11.2 14.7 100.1 0 Low 0.14% 42% 12/2008E(i) 113.8 113.8 5.6 N/A N/A N/A N/A 5.6 N/A 99.8 0 06/2009E 228.8 228.8 11.3 6.7 0.5 7.6 6.7 11.2 14.7 99.3 0 06/2010E 229.7 229.7 11.3 6.7 0.5 7.7 6.7 11.2 14.7 99.0 0

MacarthurCook Property Securities Fund MPS Neutral 06/2007A 34.313.5 9.7 7.8 0.7 9.6 7.89.4 12.4 97.3 0 $0.76 $134m 11x 12/2007E(i) 8.47.3 4.3 N/A N/A N/A N/A 5.3 N/A 122.6 0 High N/A 40% 06/2008E 16.615.4 8.9 8.5 0.6 8.4 8.510.5 13.8 117.9 0 06/2009E 16.416.4 9.3 8.2 0.6 7.8 8.210.5 13.8 113.4 0 06/2010E 17.317.3 9.8 7.8 0.6 8.0 7.810.5 13.8 107.3 0

Mirvac Real Estate Investment Trust MRZ Neutral 06/2007A 156.7 68.3 10.9 11.2 0.9 8.4 11.210.3 8.5 94.6 0 $1.22 $765m 10x 12/2007E(i) 32.232.2 5.1 N/A N/A N/A N/A 5.3 N/A 103.2 0 Medium N/A 47% 06/2008E 65.365.3 10.4 11.7 0.9 7.5 11.710.6 8.7 101.8 0 06/2009E 66.466.4 10.6 11.5 0.9 7.5 11.510.8 8.9 102.0 0 06/2010E 63.963.9 10.2 11.9 0.8 7.2 11.911.3 9.3 111.0 0

National Property Trust NAP Neutral 05/2007A 6.86.8 5.4 9.1 0.4 4.7 9.15.5 11.2 101.9 0 NZD$0.49 NZD$94m 2x 05/2008E 16.45.3 2.8 17.6 0.5 2.9 17.65.7 11.5 203.5 0 Low/Medium N/A 57% 11/2008E(i) 5.05.0 2.6 N/A N/A N/A N/A 3.3 N/A 124.1 0 05/2009E 10.010.0 5.3 9.3 0.5 5.5 9.36.5 13.3 123.0 0 05/2010E 10.310.3 5.5 9.0 0.5 5.7 9.05.5 11.1 100.0 0 All data is expressed in NZD

Orchard Industrial Property Fund OIF Underperform $0.30 $105m 06/2008E 38.617.6 5.1 5.6 0.3 5.4 3.58.1 28.4 158.4 0 Low/Medium N/A 154% 12/2008E(i) 9.09.0 2.6 N/A N/A N/A N/A 2.5 N/A 95.6 0 06/2009E 18.018.0 5.2 5.5 0.3 5.3 3.45.0 17.5 96.1 0 06/2010E 17.317.3 5.0 5.7 0.3 4.8 3.45.0 17.6 100.0 0

Property For Industry PFI Neutral 12/2007A 41.515.0 7.2 15.9 0.8 5.1 15.97.1 6.2 99.2 49 NZD$1.14 NZD$241m 7x 06/2008E(i) 8.38.3 3.9 N/A N/A N/A N/A 3.1 N/A 78.9 54 Low/Medium N/A 41% 12/2008E 16.516.5 7.8 14.6 0.8 5.3 14.67.5 6.6 96.4 43 12/2009E 16.916.9 8.0 14.2 0.8 5.5 14.27.8 6.9 97.6 49 12/2010E 18.018.0 8.6 13.3 0.8 5.8 13.38.4 7.3 97.6 51 All data is expressed in NZD

Stockland SGP Neutral 06/2007A 1716.3 611.0 44.0 9.3 0.7 8.4 9.344.3 10.9 100.9 0 $4.20 $6,751m 16x 06/2008E 1022.1 674.2 46.2 8.8 0.7 8.1 8.846.1 11.3 99.6 0 Low 0.61% 37% 12/2008E(i) 346.1 346.1 23.6 N/A N/A N/A N/A 23.3 N/A 98.9 0 06/2009E 700.3 700.3 47.7 8.5 0.7 8.2 8.547.2 11.6 98.8 0 06/2010E 735.6 735.6 50.1 8.1 0.7 8.5 8.149.5 12.1 98.9 0

Tishman Speyer Office Fund TSO Neutral 06/2007A 263.6 56.8 18.1 6.6 0.4 6.7 6.617.0 14.2 94.1 0 $1.22 $412m 6x 06/2008E 34.741.8 12.2 9.8 0.5 4.5 9.817.0 14.2 139.6 0 Medium 0.04% 140% 12/2008E(i) 31.231.2 9.1 N/A N/A N/A N/A 8.5 N/A 93.6 0 06/2009E 64.364.3 18.7 6.4 0.5 7.4 6.417.0 14.2 90.7 0 06/2010E 100.7 64.5 18.8 6.4 0.4 6.9 6.417.0 14.2 90.4 0

Valad Property Group VPG Neutral 06/2007A 108.9 66.9 9.3 5.4 0.3 8.0 4.910.9 21.5 117.0 0 $0.53 $884m 7x 06/2008E -1.3 169.9 11.1 4.6 0.3 10.0 4.511.1 22.0 100.2 0 Low/Medium 0.08% 14% 12/2008E(i) 59.172.5 4.5 N/A N/A N/A N/A 3.8 N/A 83.5 0 06/2009E 121.2 148.0 9.2 5.5 0.3 6.0 5.47.7 15.2 83.6 0 06/2010E 120.1 146.9 9.1 5.5 0.3 5.8 5.47.9 15.6 86.5 0

Westfield Group WDC Neutral 12/2007A 3507.8 1850.6 100.9 14.1 1.0 7.3 14.0106.5 7.5 105.6 8 $14.70 $29,055m 6x 06/2008E(i) 983.8 983.8 50.7 N/A N/A N/A N/A 53.3 N/A 105.0 8 Low 2.53% 51% 12/2008E 2011.3 2011.3 103.6 13.7 1.1 7.5 13.6106.5 7.5 102.8 8 12/2009E 2129.0 2129.0 109.6 13.0 1.0 7.9 12.9113.0 7.9 103.1 8 12/2010E 2205.5 2205.5 113.5 12.5 0.9 7.7 12.4117.1 8.2 103.1 8

Source: Macquarie Research, July 2008

* The Macquarie Group is acting as financial advisor to FKP Property Group in respect of the proposal by Lend Lease Corporation Limited to acquire all of the securities in FKP as announced 20 June 2008.

24 July 2008 129 Macquarie Research Equities - Report Profit Outlook

Telecommunications Recommendations ƒ The third key issue to be addressed at the FY08 result will be an update on the transformation program. The first TLS – Outperform stage of Telstra’s IT transformation was expected to see 5m subscribers cutover onto new billing platforms by 30 TEL – Outperform June 2008. While this deadline has now passed, we expect Telstra to announce it has made substantial SGT – Neutral progress by 13 August. Equally important will be management’s commentary on the impact of projects such as the soft switch deployment that have been put on Profit preview hold. We expect that due to stronger than expected ƒ The Australian, fixed, broadband and mobile market is revenue trends, Telstra will be able to hit its FY10 free dominated by Telstra, which generates close to 85% of cashflow targets even though both capex and revenue industry profit. We currently expect Telstra to Outperform will be at or above the top end of current guidance. the Australian market and it is also an overweight position in our regional Asian telecoms portfolio. Telecom NZ (TEL) – 8 August ƒ The Australian telco market in the first half of 2008 has been characterised by three key trends: ƒ We expect TEL to report FY08 NPAT of NZ$711m, in the middle of TEL’s guidance range of NZ$700–730m. ⇒ The growth of wireless broadband and the early signals of fixed to mobile broadband substitution. ƒ Within this, the key operating performance will be the outcome from TEL’s core NZ business. Guidance is for a ⇒ The continued strategic move by competitors to full year EBITDA decline of 7–8%. Our forecast is for a abandon off-net or resale strategies for fixed line 7% decline. services. ƒ Overall, as this is effectively just a 4Q result and TEL has ⇒ The ongoing tender process to build a national issued detailed, line by line guidance, it is very unlikely broadband network, and the accompanying risk of that there will be significant surprises in the number itself. regulatory change within the sector. ƒ Operating trends are likely to be as for the last couple of quarters with a particular focus on TEL’s underperforming Telstra (TLS) – 13 August mobile business. The closure of TLS’s CDMA network in ƒ Telstra will deliver its FY08 result on 13 August. We see Australia has put significant pressure on TEL’s ability to little downside risk to current guidance for EBIT growth of retain its high revenue SME customers – and this 6–8% given the strong revenue growth trends evident in weakness will persist over the next few months until it 1H that are likely to have continued in 2H. However, can launch its own WCDMA/GSM network in December consensus EBIT growth forecasts of closer to 10% may of this year. prove a stretch if Telstra cannot keep cost levels ƒ The mobile market is set to be the big focus of the NZ subdued. We estimate increased bad and doubtful debt telco industry in the next 12 months as the third player – provisions coupled with an accelerated depreciation NZ Communications – launches its network in addition to charges from CSL New World (Hong Kong) will reduce TEL joining the WCDMA party. Price declines and growth by 1% YoY. increased levels of churn seem inevitable. ƒ We are forecasting sales revenue growth for FY08 of ƒ We retain an Outperform recommendation on TEL versus around 4.5%. The key driver is mobile revenues as data the NZ market – it is a defensive company in a weak revenue growth continues to accelerate. In addition to economic environment. For international investors this, while wireline broadband growth will be robust, the however the weak NZ outlook and the risk of further NZ sector is maturing and facing increasing competition from dollar declines means TLS remains a better bet. wireless products, while fixed line voice declines will remain contained at around 3%. Sensis revenues will Singapore Telecommunications (SGT) – 12 August continue to grow, with the key concern coming from the ƒ SingTel will report its 1Q08 result on 12 August. Our FY09 outlook given the softening of the broader positive thesis for SingTel is premised solely on the economy. collective share-price performance of its key associates ƒ Perhaps more important than the FY08 result will be the and following recent target-price downgrades at Bharti outlook for FY09, and any comments made by and Globe, we no longer see enough upside for SingTel’s management on its FY10 objectives for earnings and share price. Hence, we recently downgraded the stock to cashflow. We expect FY09 earnings guidance to be in a Neutral. the range of 3–5%, with slowing sales revenue growth trends matched with flat to slightly reducing costs. The key risk to this thesis comes from the opex side of the business, where delays to transformation could push back cost outs, and hence suppress earnings growth. 24 July 2008 130 Macquarie Research Equities - Report Profit Outlook

ƒ The core (Optus / Singapore) valuation continues to ƒ We are currently forecasting ARPUs to remain steady, remain at a premium and is facing risks from the recent with 3% growth to $51 per month, per subscriber. A slight Mio TV launch and the upcoming national-broadband upward trend in ARPU is consistent with current trends at network-tender project in Singapore coupled with Telstra. medium-terms risks to the Australian Optus’ ULL program ƒ iiNet reiterated its FY08 guidance at an EGM in June, arising from the Australian NBN/FTTN RFP process. guiding that underlying EBITDA is expected to be in ƒ While the Singapore business remain operationally excess of $46m (up 17.5% vs pcp) while underlying sound, we are forecasting an EBITDA decline of 1% NPAT is expected to exceed $15.2m (up 27.7% vs pcp). CAGR as a result of a 100bp margin decline together Hutchison Telecommunication (HTA) – 19 August with a peaking of revenues. This is driven by a forecast decline in the post-paid mobile business following ƒ HTA has a December year-end and will be reporting its remarkable strength in 2007 partly due to roaming 1H08 results. HTA is expected to continue its positive revenues which are likely to be under pressure in light of growth and is likely to turn EBIT positive in 2H CY08. an economic slow down. The prepaid market is also likely ƒ We forecast EBITDA to hit $86m for the half year, up to see declines as key competitors StarHub and M1 have from $31m in the pcp. This ramp-up in EBITDA comes as now responded to SingTel’s aggressive pricing. Hutchison begins to achieve scale across its network. We ƒ The Optus business continues to face the threat of are expecting EBITDA margins to increase from 8.5% in market share losses in its mobile business as the FY07 to 14% in FY08. industry migrates from 2G to 3G networks. To address ƒ Revenue growth is also expected to remain strong this Optus is undertaking a capex program to expand (up~20% vs pcp), supported by the continuation of their HSDPA network to national coverage. Optus has positive subscriber growth trends. At its AGM, Hutchison recently announced that it will expand deeper into announced it had added another 145k subscribers during regional areas in an attempt to match Telstra’s coverage. the four months to April 2008, of which 93k were wireless Optus will also benefit from wireless broadband which is broadband subs (~50% via handset, ~50% via dongles or driving a new leg of growth across the industry. While equivalent). This indicates further acceleration in Optus’s mobile division represents 67% of EBITDA we subscriber growth from the December 2007 half. expect growth will be driven entirely by the fixed-line Hutchison continues to attract close to 20% of new business. Alone, we expect it will drive 5% EBITDA subscriber adds, well above its existing market share of growth for Optus. 7.3%. However, these trends may be under pressure in ƒ Overall, we think the outlook for associates remains 3Q08 as Hutchison has been unable to secure a reasonable, driven in large part by Bharti. With looming distribution deal for the iPhone – which may reduce foot macro risks of inflation and interest rates, we think traffic and sales until it can offer the device. confidence in long-term forecasts for emerging-market ƒ Hutchison continues to forecast CY08 capex of around telcos is low as the impact of the high-inflationary $200m, down from $240m spent in CY07 that included environment on telecom revenues remains unclear. the rollout of HSDPA and coverage rollout, however the iiNet (IIN) – 18 August focus is shifting to capacity upgrades and selective coverage extension outside the Telstra JV. ƒ Operationally, IIN has continued its strategy to focus on protecting its core through FY08 and has recently ƒ With Hutchison’s strong growth profile we expect that it secured the final part of this strategy by entering into a 15 will be free cashflow positive by 2H09, and have recently year agreement with Pipe Networks as a foundation upgraded to an Outperform – reflecting an FY10 FCF customer for international backhaul on the Sydney-Guam multiple of 12.8x. cable link. SP Telemedia (SOT) – 15 September ƒ Additionally iiNet has continued its acquisition strategy ƒ SP Telemedia continued the Australian broadband through the $81m acquisition of internet service provider consolidation story by merging with TPG, and this is now (ISP) Westnet. The acquisition will therefore give iiNet an the key issue for SP Telemedia’s profitability. At the first increased focus on resale customers, a strategy it so half revenue and margins were under pressure, with explicitly tried to abandon over the past two years, and as revenue declining 2.1% and margins reduced 3% (or a result, margins will dilute post the transaction from 21% 1.5% on management's adjusted EBITDA) to 6% versus in FY08 to 18% in FY10 after synergies. pcp. In order to improve margins from here, Soul will ƒ iiNet is expected to deliver strong operational need to realise synergies from the TPG merger. performance with naked DSL driving strong subscriber Leveraging the lower cost base of TPG’s DSLAMs by growth – on-net subscribers are expected to be up +25% migrating Soul’s resale services to the TPG DSLAM is YoY, while fixed and off-net subscribers have remained the key to this. steady. VOIP growth is also expected to be strong and in May iiNet had over 76k VOIP subscribers.

24 July 2008 131 Macquarie Research Equities - Report Profit Outlook

ƒ In a media release in late June, the executive chairman ƒ The offer of $3.40 is at a 62% premium to closing price David Teoh updated the market on the first 3 months of prior to the offer and 20.5% below the previous 31 combined trading for the group. He announced that the December 2007 directors’ valuation. The driver of the call centre integration was almost complete and that difference in the directors’ valuation has been the fall in “good” progress had been made consolidating value of listed associates, with directors noting that the infrastructure and products. He also announced that average listed directories comparables to EDSA have cashflows have shown strong results. He reported that declined 54%. the group currently holds cash of $27m and achieved

$7m EBITDA in April and $8m EBITDA in May (an average run rate of $90m). ƒ Off setting the strong operating results however is the concern around the possibility of write downs that have

resulted as part of the merger.

Commander Communications (CDR) – 25 August

ƒ FY07 was a difficult year for Commander Communications, and the company has continued to struggle under its debt burden through FY08.

ƒ In June it reduced its EBITDA guidance to $4.5–7m, at

the bottom end of this guidance. This is a reduction of $15.5m from previous guidance given in January. Management attributes part of the downgrade to weaker

than expected sales in Commander's IT hardware products and associated sales. ƒ At 1H result, Commander had begun its turnaround strategy which included the sale of Untiel, however free

cashflow – including proceeds from asset sales as well as redundancy payments was only marginally positive (up $5.5m) during the first 5 months of calendar 2008.

This suggests Commander's debt levels remain close to $350m as per its 1H08 accounts. Commander's existing debt obligations mean the stock is sub-investment grade

unless it can recapitalise. Macquarie Capital Alliance Group (MCQ) – 27 August

ƒ MCQ will report its FY08 result on 27 August; however the key driver for this stock is now the take private offer. Under the indicative time table the scheme is expected to

be implemented on 9 September, with the second court date scheduled for 25 August. ƒ The offer is backed by a consortium of investors, which includes the seven international institutional investors

AlpInvest Partners, HarbourVest, Pantheon Ventures, PartnersGroup, Paul Capital Partner, Portfolio Advisors and Profic who will invest with Macquarie Capital into a

new unlisted fund.

24 July 2008 132 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Technology Hardware & Equipment

Commander Communications CDR Underperform 06/2007A -4.2 10.3 4.5 1.8 0.1 3.8 0.4 2.0 25.0 44.1 100 $0.08 $18m 1x 06/2008E -266.4 -131.1 -57.1 - - -101.5 - 0.0 0.0 - - Very High N/A 88% 12/2008E(i) -38.9 -38.9 -16.9 N/A N/A N/A N/A 0.0 N/A - 100 06/2009E -52.4 -52.4 -22.8 - - 175.7 - 0.0 0.0 - - 06/2010E -35.7 -35.7 -15.6 - - 48.3 2.2 0.0 0.0 - -

Telecommunication Services

Hutchison Telecommunication HTA Outperform 12/2007A -285.2 -285.2 -9.3 - 1.3 74.9 - 0.0 0.0 - - $0.10 $79m -1x 06/2008E(i) -88.2 -88.2 -0.6 N/A N/A N/A N/A 0.0 N/A - 100 Very High N/A 1 12/2008E -135.0 -135.0 -1.0 - 1.5 -13.5 12.4 0.0 0.0 - - 12/2009E 17.517.5 0.1 77.8 1.4 1.8 5.0 0.0 0.0 0.0 - 12/2010E 136.2 136.2 1.0 10.0 1.3 13.5 3.4 0.5 5.0 50.0 100 iiNet Limited IIN Outperform 06/2007A 23.310.9 8.5 15.6 1.2 8.7 5.6 6.0 4.5 70.7 100 $1.36 $210m 20x 06/2008E 19.418.7 14.2 9.3 1.1 11.5 4.3 7.4 5.6 51.9 100 Very High N/A 6% 12/2008E(i) 9.0 9.0 5.8 N/A N/A N/A N/A 1.2 N/A 20.0 100 06/2009E 26.026.0 16.8 7.9 1.0 13.4 3.7 8.4 6.4 50.0 100 06/2010E 30.530.5 19.7 6.7 0.9 14.7 3.4 9.9 7.5 50.0 100

SingTel SGT Neutral 03/2008A 3960.0 3857.0 24.3 14.3 2.6 18.4 9.6 12.5 3.6 51.5 0 $2.65 $1,264m 30x 09/2008E(i) 1949.1 1949.1 12.2 N/A N/A N/A N/A 6.1 N/A 50.0 0 High 0.12% 29% 03/2009E 4025.2 4025.2 25.2 13.8 2.4 18.3 9.2 12.6 3.6 50.0 0 03/2010E 4420.7 4420.7 27.7 12.5 2.2 18.3 8.6 13.9 4.0 50.0 0 03/2011E 4605.5 4605.5 28.9 12.0 2.0 17.4 8.3 14.4 4.2 50.0 0 All data is expressed in SGD

SP Telemedia Limited SOT Neutral 07/2007A 44.913.0 3.2 5.3 0.3 4.5 1.9 3.7 21.7 473.0 100 $0.18 $125m 15x 07/2008E 10.912.0 3.0 5.7 0.3 5.1 2.2 1.9 11.1 63.5 100 Very High N/A -18% 01/2009E(i) 4.0 4.0 1.0 N/A N/A N/A N/A 0.7 N/A 70.0 100 07/2009E 11.511.5 2.8 6.0 0.3 4.8 1.9 2.0 11.7 70.0 100 07/2010E 13.413.4 3.3 5.1 0.3 5.6 1.9 2.3 13.6 70.0 100

Telecom NZ TEL Outperform 06/2007A 3027.8 958.8 47.2 7.0 1.9 41.2 4.2 34.9 10.5 73.8 100 NZD$3.32 NZD$6,061m 6x 06/2008E 711.2 711.2 37.7 8.8 2.2 22.2 4.3 27.0 8.1 71.6 100 Low/Medium 0.47% 41% 12/2008E(i) 301.6 301.6 16.5 N/A N/A N/A N/A 12.0 N/A 72.6 0 06/2009E 591.5 591.5 32.4 10.2 2.1 20.6 4.4 24.0 7.2 74.0 50 06/2010E 558.6 558.6 30.6 10.8 2.0 18.6 4.5 24.0 7.2 78.4 100 Adjusted equity accounted net profit All data is expressed in NZD

Telstra Corporation TLS Outperform 06/2007A 3253.0 3253.0 26.1 16.3 4.3 26.1 7.2 28.0 6.6 107.1 100 $4.29 $46,151m 5x 06/2008E 3765.0 3765.0 30.3 14.1 4.2 30.2 6.6 28.0 6.6 92.5 100 Low 4.39% 117% 12/2008E(i) 1916.7 1916.7 15.4 N/A N/A N/A N/A 14.0 N/A 90.9 100 06/2009E 3997.7 3997.7 32.1 13.3 4.0 31.0 6.4 28.0 6.6 87.2 100 06/2010E 4412.6 4412.6 35.5 12.0 3.8 32.6 6.0 32.0 7.5 90.2 100

Source: Macquarie Research, July 2008

24 July 2008 133 Macquarie Research Equities - Report Profit Outlook

Transport Key recommendations ƒ The ownership structure of VBA remains a headwind for potential investors, with TOL unwilling to divest its 62.7% BXB – Outperform stake at a price below their valuation in the range of $2 QAN – Neutral per share – however the impact of VBA on TOL’s share price may change this view. VBA has only a 9% free VBA – Underperform float after accounting for management shares and Virgin Performance drivers Holdings’ 25% stake. ƒ BXB – With fuel prices remaining at record levels, there Industry commentary will be a strong focus on how margins hold up, especially ƒ The transport industry as a whole has been ravaged by considering the quality initiatives being undertaken and fears over the impact of surging oil prices, which will the emergence of competition in the US and even more have varying degrees of impact on margins. Whilst the so in the UK. bigger B2B players are relatively well protected in the form of pass-through surcharges, those exposed to ƒ The trading update in June provided solid revenue growth numbers, which given the challenging discretionary consumers such as airlines are most at macroeconomic environment in the US was well risk. received by the market, bolstered by CHEP’s biggest Aviation customer win in years. ƒ The outlook for the Australian aviation market has ƒ The business has now completed its restructuring phase nosedived from the record loads enjoyed in 2007. A and is entering its second year of the accelerated growth combination of record oil prices, a widening crack spread strategy. New customer wins for CHEP have effectively between oil and jet fuel, and excessive industry capacity locked in ~6.5% and 5.2% growth for the Americas and growth has placed pressures on both the revenue line Europe respectively, providing a solid platform for and the cost line. New entrants to the domestic market achieving double-digit growth for FY09 and beyond. such as Tiger Airways have put further downward pressure on yields, although QAN with its dual carrier ƒ A change in the UK business towards single fee strategy is better equipped to deal with the new structures, managed recovery and one way trip is likely challenger. to feature heavily in FY09 as customers look to minimise pallet quality issues associated with the exchange ƒ The continued production delays experienced by Airbus method. and Boeing have exacerbated the severity of record fuel prices, although in the current environment liquidation ƒ We retain our $10.60 price target and Outperform damages will provide a windfall for QAN. recommendation on the back of stronger earnings certainty and the continued turnaround in the European ƒ Jet fuel prices have risen significantly over recent business. months leading to large downgrades in global airline profitability, with industry body IATA forecasting a $6.1bn ƒ QAN – The relaunch of the Frequent Flyer Program with loss for airlines in 2008 should jet fuel prices remain at or an ‘Anyseat’ option from 1 July 2008 will bolster FY09 near US$170/bbl. The forward curve currently suggests earnings, which are likely to suffer a double whammy an average FY09 oil price of ~US$144/bbl (compared to from a slowdown in consumer demand and record jet ~US$90/bbl six months ago). Both VBA and QAN are fuel prices. Whilst yields should strengthen as a result of relatively well hedged through to the end of CY08, higher fares, load factors are expected to diminish going however should jet fuel prices remain at current levels as forward. QAN has responded to current fuel levels by the hedges roll off, earnings will deteriorate significantly. reducing capacity, accelerating the retirement of older aircraft, freezing executive pay and raising fares. ƒ VBA is currently caught in a dangerous middle ground between QAN’s premium product offering and low cost service offered by Jetstar and Tiger Airways. New investments in premium economy seating, business class lounges, a New Zealand domestic network and an international long haul carrier has left VBA with several initial loss-making ventures, all of which combined with record fuel prices are placing a severe strain on profitability. ƒ With demand slowing and several new planes expected to be delivered in 2008, VBA is finding its yields under pressure from the low cost segment as well as excessive industry capacity growth.

24 July 2008 134 Macquarie Research Equities - Report Profit Outlook

Profit preview ƒ Looking forward we expect the operating environment will remain challenging for VBA in the short term, given Brambles (BXB) – 20 August the intention of launching long haul international operations to the US under the V Australia brand. ƒ Macquarie is forecasting adjusted NPAT of US$648m for Management estimates it will take approximately 18 FY08, an increase of 6% on FY07. months to break even on this route, providing a cash ƒ Brambles is currently undertaking an on-market buy- drain on the business at the same time jet fuel prices back (although suspended in the lead up to the FY08 and low cost carriers are placing excessive pressure on result). We anticipate this buy-back will be for the domestic business. We contend risk for VBA remains ~US$1.3bn but believe that Brambles may well direct to the downside, with our forward oil forecasts ~10% existing debt capacity towards new customer-related below current spot prices. capex, for which it has set aside $750m. The recent ƒ Furthermore, in the medium term, the VBA share price depreciation in the US dollar works in Brambles’ favour, will likely also be driven by Toll's potential sell-down or however from a valuation perspective it works in the disposal and VBA's subsequent strategic positioning opposite direction. We expect CHEP Americas to be the following a change in ownership. key driver of revenue and earnings growth, with May YTD revenues up 10% on a headline basis and 8% in constant currency terms.

ƒ Key to investor sentiment will be a resolution to the

pending Wal-Mart issue, which could have a negative impact on operating margins if not resolved in a satisfactory manner.

Qantas (QAN) – 21 August

ƒ Macquarie is forecasting a record NPAT of ~$1,001m for FY08. ƒ The result will be positively impacted by strong international yields and overall load factors. International yields are expected to increase by 4.4% (albeit partly fuel surcharge assisted). YTD loads are up ~1.2ppt however capacity has declined 2.6%. ƒ The domestic environment is likely to be a tale of two halves, with strong yield growth and load factors in 1H08 giving way to slowing demand and a return to 2H06 load factors, with yields coming under pressure as several 767s were switched out of the international network to domestic to compete more effectively with VBA in key trunk routes such as Sydney – Melbourne. ƒ QAN’s hedging program, which has secured an estimated all-in oil cost of US$76/bbl for the period, has assisted in negating actual fuel price rises. ƒ However, the short-term operating outlook still has a significant degree of uncertainty due to the extremely volatile fuel price and the difficulty in estimating passenger demand in response to higher ticket prices. Virgin Blue (VBA) – 25 August ƒ Macquarie is forecasting FY08 NPAT of $90m, which includes ~$35m of one-off developmental costs and new initiatives. ƒ Overall, our FY08 NPAT forecast is below management guidance of ~$105m as we believe yields have come under severe pressure in 2H08 due to a combination of excess system capacity, discounting from low cost competitors, and loss-making new routes in New Zealand and Sydney–Canberra. Further, we understand management did not fully hedge for 2H08, leaving them exposed to a rapidly increasing jet fuel price, which would have a significant impact in the cost base. 24 July 2008 135 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢)(%) (%) (%)

Transportation

Auckland International Airport AIA Neutral 06/2007A 92.0 102.0 8.4 22.7 1.2 5.4 16.0 8.24.3 98.1 100 NZD$1.90 NZD$2,322m 3x 06/2008E 93.3 106.1 8.7 21.9 1.2 5.5 15.3 8.34.3 94.9 100 Medium N/A 47% 12/2008E(i) 57.0 57.0 4.7 N/A N/A N/A N/A 4.2N/A 90.0 100 06/2009E 112.0 112.0 9.2 20.7 1.2 5.8 14.4 8.74.6 94.9 100 06/2010E 127.4 127.4 10.4 18.2 1.2 6.6 13.0 9.44.9 90.0 100 All data is expressed in NZD

Air New Zealand Ltd AIR Neutral 06/2007A 214.0 193.1 18.5 5.8 0.6 11.6 2.4 18.016.7 97.2 100 NZD$1.08 NZD$1,141m 17x 12/2007E(i) 103.6 103.6 9.9 N/A N/A N/A N/A 3.7N/A 37.5 100 Medium N/A 19% 06/2008E 186.1 186.1 17.7 6.1 0.6 10.2 2.3 6.66.2 37.5 100 06/2009E 218.0 218.0 20.7 5.2 0.6 11.1 2.2 7.87.2 37.5 100 06/2010E 303.9 303.9 28.9 3.7 0.5 14.3 1.9 10.810.0 37.5 100 Adjusted equity accounted net profit All data is expressed in NZD

Brambles BXB Outperform 06/2007A 1290.1 612.2 39.3 18.8 7.4 28.0 11.6 13.81.9 35.1 45 $7.85 $11,038m 28x 06/2008E 645.1 648.1 45.7 16.2 6.2 41.8 9.5 31.34.2 68.4 15 Medium 1.07% 140% 12/2008E(i) 339.3 339.3 24.1 N/A N/A N/A N/A 17.4N/A 72.2 44 06/2009E 693.9 693.9 49.2 15.0 5.5 38.9 8.9 35.34.8 71.6 44 06/2010E 765.9 765.9 54.4 13.6 4.8 37.6 8.2 37.35.1 68.7 42 All data is expressed in USD Freightways FRE Neutral 06/2007A 25.1 30.9 24.5 12.1 4.8 40.4 10.0 18.06.1 73.5 100 NZD$2.96 NZD$381m 5x 06/2008E 32.8 32.8 26.0 11.4 4.2 39.1 9.2 19.46.6 74.7 100 Low/Medium N/A 194% 12/2008E(i) 18.3 18.3 14.5 N/A N/A N/A N/A 10.7N/A 73.8 100 06/2009E 36.636.6 29.1 10.2 3.8 38.8 8.3 21.57.2 73.8 100 06/2010E 40.740.7 32.3 9.2 3.4 39.1 7.6 23.88.1 73.8 100 All data is expressed in NZD

Infratil Limited IFT Underperform 03/2008A 10.8 35.3 8.3 23.2 1.6 4.4 6.1 6.33.3 75.6 100 NZD$1.92 NZD$844m 2x 09/2008E(i) 13.8 13.8 3.5 N/A N/A N/A N/A 2.6N/A 74.7 100 Low/Medium N/A 129% 03/2009E 9.5 9.5 3.4 56.6 1.9 1.4 5.9 6.53.4 191.7 100 03/2010E 11.711.7 3.0 63.5 2.6 2.2 5.2 6.83.5 223.6 100 03/2011E 14.714.7 3.5 54.7 4.0 3.9 5.0 7.03.7 200.4 100 All data is expressed in NZD

Lyttelton Port Company LPC Neutral 06/2007A 9.6 9.6 9.4 23.9 1.9 7.3 12.1 4.01.8 42.4 100 NZD$2.25 NZD$230m 4x 06/2008E 11.9 11.9 11.7 19.3 1.7 9.3 10.9 4.52.0 38.6 100 Low/Medium N/A 50% 12/2008E(i) 4.7 4.7 4.6 N/A N/A N/A N/A 1.5N/A 32.6 100 06/2009E 11.811.8 11.5 19.6 1.7 8.7 11.3 5.02.2 43.5 100 06/2010E 11.911.9 11.7 19.3 1.6 8.6 11.2 5.52.4 47.1 100 All data is expressed in NZD

Mainfreight Ltd MFT Outperform 03/2008A 102.2 41.3 42.8 14.8 2.4 20.4 11.7 18.02.8 42.1 100 NZD$6.32 NZD$610m 42x 09/2008E(i) 18.9 18.9 19.5 N/A N/A N/A N/A 8.8N/A 45.0 100 Low/Medium N/A 32% 03/2009E 52.0 52.0 53.8 11.7 2.2 19.5 9.4 22.53.6 41.8 100 03/2010E 60.460.4 62.5 10.1 1.9 20.1 8.3 26.24.2 42.0 100 03/2011E 64.364.3 66.6 9.5 1.7 18.9 7.9 27.94.4 41.9 100 All data is expressed in NZD

Mermaid Marine MRM Outperform 06/2007A 12.5 12.5 8.7 15.8 2.5 17.5 10.9 1.00.7 11.5 100 1.36 $262m 6x 06/2008E 17.7 17.7 11.3 12.2 1.7 15.5 8.3 1.00.7 8.8 100 N/A N/A 56% 12/2008E(i) 10.510.5 5.7 N/A N/A N/A N/A 0.0N/A 0.0 100 06/2009E 22.622.6 12.2 11.3 1.5 14.5 7.5 1.00.7 8.2 100 06/2010E 28.528.5 15.3 9.0 1.3 15.8 6.1 1.00.7 6.5 100

Port of Tauranga POT Outperform 06/2007A 38.0 38.0 28.4 22.2 1.3 5.7 16.6 32.05.1 112.7 100 NZD$6.30 NZD$844m 5x 06/2008E 42.6 42.6 31.8 19.8 1.3 6.5 15.3 24.03.8 75.4 100 Medium N/A 27% 12/2008E(i) 23.9 23.9 17.8 N/A N/A N/A N/A 10.0N/A 56.2 100 06/2009E 49.349.3 36.8 17.1 1.3 7.6 13.5 26.04.1 70.6 100 06/2010E 55.055.0 41.1 15.3 1.2 8.2 12.4 28.04.4 68.2 100 All data is expressed in NZD

Qantas QAN Neutral 06/2007A 719.4 743.9 38.1 8.2 1.0 12.1 2.9 30.09.6 78.8 100 $3.17 $6,100m 70x 06/2008E 1000.7 970.9 49.4 6.3 1.1 16.5 2.5 30.09.6 60.7 100 High 0.59% 28% 12/2008E(i) 410.4 133.5 7.1 N/A N/A N/A N/A 10.0N/A 141.8 100 06/2009E 608.2 356.0 18.8 16.6 1.0 6.3 3.0 20.06.4 106.5 100 06/2010E 844.2 893.6 47.1 6.6 1.0 15.0 2.3 30.09.6 63.7 100

Tourism Holdings THL Neutral 06/2007A 13.1 23.1 23.5 5.9 0.8 13.5 2.6 11.07.9 46.7 100 NZD$1.40 NZD$137m 4x 06/2008E 16.4 19.6 19.9 7.0 0.8 11.1 2.7 11.58.2 57.7 100 Low/Medium N/A 44% 12/2008E(i) 7.2 8.3 8.5 N/A N/A N/A N/A 5.0N/A 59.0 100 06/2009E 20.422.5 23.0 6.1 0.7 12.3 2.5 12.08.6 52.3 100 06/2010E 23.025.2 25.7 5.5 0.7 13.1 2.4 14.110.0 54.8 100 All data is expressed in NZD

24 July 2008 136 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Toll Holdings TOL Neutral 06/2007A 1284.6 427.0 52.0 12.1 1.3 9.6 5.3 182.7 29.1 351.6 100 $6.57 $4,135m 5x 06/2008E 494.2 375.8 57.5 10.9 1.1 10.9 5.3 22.73.6 39.6 100 N/A 0.40% 7% 12/2008E(i) 130.2 130.2 20.0 N/A N/A N/A N/A 9.2N/A 46.1 100 06/2009E 288.9 288.9 44.4 14.2 1.1 7.7 5.8 19.33.1 43.5 100 06/2010E 481.3 481.3 73.3 8.6 1.0 12.1 4.1 30.04.8 40.9 100

Virgin Blue VBA Underperform 06/2007A 215.8 231.8 21.9 2.6 0.8 34.4 1.8 4.07.0 18.3 100 $0.53 $531m 21x 06/2008E 90.1 111.1 10.5 5.5 0.7 13.9 2.5 4.07.0 38.2 100 N/A N/A 19% 12/2008E(i) -32.2 -32.2 -3.1 N/A N/A N/A N/A 0.0N/A - 100 06/2009E -29.8 -29.8 -2.9 - 0.7 -3.6 4.1 0.00.0 - - 06/2010E 198.1 198.1 19.0 3.0 0.6 21.5 1.5 0.00.0 0.0 -

Source: Macquarie Research, July 2008

24 July 2008 137 Macquarie Research Equities - Report Profit Outlook

Utilities ƒ As with the pcp, the AGK result will be clouded at the Key recommendations headline number with the mark-to-market that is DUE – Outperform necessary for the wholesale electricity book which may SKI – Outperform cause mark-to-market differences due to the current power price. Industry commentary ƒ Macquarie forecasts AGK will provide a dividend of ƒ Another event filled half for the utilities space saw Origin 26cps for 2H08, bringing the total to 52cps for FY08. Energy bid for by the UK-listed BG, which has just lodged its bidder statement outlining its rational to ORG Spark Infrastructure (SKI) – 25 August shareholders why its $15.50 cash bid for the company ƒ Macquarie forecasts NPAT of $18.5m for 1H08. It needs should be accepted. ORG is expected to lodge its target to be remembered that given SKI’s structure, the actual statement within the next five weeks. reported NPAT of the company reflects little on the ƒ During the 2H08, BG and the Queensland Gas Company actual performance of the underlying assets or (QGC.AU) announced an alliance to build an LNG plant distributable cashflow from the assets. on the Queensland coast using QGC’s coal seam gas as ƒ We expect that SKI will announce its 1H08 distribution of feedback. As part of this deal, AGL Energy’s (AGK.AU) 9.5cps for 2008. previous holding of 27.5% in QGC was diluted down to 24.78%, there was no impact on AGK’s existing gas ƒ SKI does not face a regulator decision in 2008 and contracts as a result of the transaction. following the recent $200m refinance, there are no refinancings expected until 2010. SKI has thus far shown ƒ During the period, we had two regulatory resets in good capital discipline and avoided the extreme prices Victoria, one for SP AusNet’s (SPN.AU) electricity paid for assets in the sector, the risk of an acquisition in transmission network and the other for the gas 2009 remains. distribution networks owned by DUET and Envestra. The overriding thematic to come out of both resets was the Australian Pipeline Trust (APA) – 26 August Regulatory acknowledgement of current credit market ƒ Macquarie forecasts NPAT of $72.3m for FY08, an 11% conditions and the pass-through of higher debt costs in increase on last year. the regulatory process. ƒ The business is expected to generate a steadily growing ƒ Within the energy retail market, both AGK and ORG cashflow stream over time, reflecting growth in gas customers in Queensland can now choose energy usage, inflation-linked increases in tariffs, further suppliers, although the advent of high electricity prices developments to existing pipeline infrastructure and the during the half has resulted in lower than anticipated acquisition of new pipelines. churn rates. ƒ As opposed to the last couple of years, APA has not Profit preview made an acquisition this half. This has been due to a AGL Energy (AGK) – 20 August lack of balance sheet capacity and an underperforming share price. ƒ Macquarie forecasts an adjusted NPAT of $350m for FY08 which is an 8% increase on the on pcp. ƒ Two key drivers are likely to impact the stock over the coming six months. A progress report on the integration ƒ AGK has well flagged that it expects its FY08 NPAT to of its recent acquisitions and speculation on a possible be between $330–360m and while we expect it to be takeover on ENV. towards the top of that range, we can’t see any reason why this guidance will be exceeded. ƒ Macquarie forecasts APA will announce a distribution of 29.4cpu for FY08 a small increase on pcp. ƒ The market will be looking for a reversal of the customer losses experienced last year and a return to steady Envestra (ENV) – 27 August margins in the retail business. ƒ Macquarie forecasts ENV will report an adjusted profit of ƒ At the upcoming result, investors may face a write-down around $4.2m for FY08; this is adjusted for the one-off of the recently purchased Powerdirect business, $153m benefit taken in 1H08 for the restructuring of the although the reduction in value of Powerdirect may in ownership of the Victorian networks, consequent to fact be offset by increases in value of other parts of the Origin Energy exercising its put option on 2 July 2007 business which may well avoid a balance sheet write- and the related increase in tax value of the Victorian down. assets. ƒ An update on the sale of AGK’s stake in the PNG Gas ƒ Customer connections continue to grow as ENV Project is expected. expands its network in South Australia, adding additional earnings to the bottom line.

24 July 2008 138 Macquarie Research Equities - Report Profit Outlook

ƒ The main issue for ENV remains the negative regulatory ⇒ Potential sale of Tamar Power station could provide reset on its Victorian asset, which was completed during good news around the time of the result. FY08. As this asset represents around half of ENV ƒ On 19 June 2008, BBP provided guidance on FY08 business this decision was critical to the company going EBITDA to be in the range of $330–$340m. This was forward and we believe still has the potential to impact slightly below Alinta scheme guidance taking into ENV’s distribution policy going forward. account pro-rata ownership of Alinta assets. In the Alinta ƒ Macquarie forecasts a flat FY08 distribution of 9.5cpu. scheme book released in the second half of 2007, BBP forecast pro-forma FY08 EBITDA of $389.4m post the Origin Energy (ORG) – 28 August Alinta transaction. The result is likely to be messy without ƒ Macquarie forecasts an adjusted profit for FY08 of significant earnings transparency on an asset by asset $438m, a significant increase on the pcp. Origin basis. Additionally pro-forma adjustments, in our view, continues to actively develop a range of new projects, a are subject to various assumptions. policy requiring significant reinvestment of cashflows in ƒ The market has still not been provided with specific the business over the near term rather than it being guidance for FY09 EBITDA, however, BBP noted that it returned to shareholders. As a result, distributions to is likely to be at the lower end of the known analyst shareholders are lower than comparable stocks, we forecast range of $439–528m. This statement was made forecast a distribution for the 2H08 of 12cps fully on a pre asset sale basis and therefore the market will franked, (24cps FY08), representing an annualised cash be looking for FY09 EBITDA guidance post the sale of yield of 1.5%. Uranquinty and Ecogen assets. We anticipate that this ƒ In particular, the Contact Energy business in New could lower the bottom end of consolidated FY09 Zealand offers an integrated/low risk business model EBITDA from $439m to around $370–380m. with a strong position in the NZ energy market and good ƒ Good news leading into result? We understand that the exposure to rising electricity retail prices. Tamar Power station is also up for sale, with the bid DUET (DUE) – 29 August process closing in around five weeks from now – around the end of August. This would provide some additional ƒ Macquarie forecasts DUE will report a FY08 profit of good news for the group in managing its capital position. $68.7m, on an adjusted basis post the $54m Post the sale of Tamar, the market is likely going to look performance fee we estimate the result will be $115m a for fundamental value. At this stage, the lack of significant increase on the pcp. transparency in earnings guidance and asset profitability ƒ Growth will be driven by the Dampier-to-Bunbury Gas restricts this to a large degree. Pipeline (DBGNP). The pipeline is leveraged to the WA Contact Energy (CEN) – 26 August market which continues to see growth in gas demand, a trend we expect to continue given the strong economic * Please note all NZ stocks are in NZD growth currently being seen throughout the state and ƒ Macquarie Securities forecasts FY08 NPAT, EBIT and additional Alumina production capacity. DPS of $240m, $411m and $0.28. These estimates are ƒ In 2006, DUET as part of a consortium completed the almost identical to consensus expectations (Thomson). acquisition of a 29% stake in the US based utility ƒ At its interim result release, the company provided full Duquesne Light Holdings business (DQE). DQE is based year EBITDAF guidance of $566m (Macquarie $572m) in Pennsylvania and its principal subsidiary is a – then, a ~3% upgrade for the market and Macquarie. regulated utility that provides electricity transmission and distribution services and also supplies energy through its ƒ Since that time, it has become apparent that the ‘provider of last resort’ (POLR) obligations. company has possibly borne higher frequency keeping charges than normal (we guess $5–6m more over ƒ Two key catalysts will drive the stock in coming months. autumn and winter compared to the normal $2m Firstly continued progression of the Stage 5 expansion of annualized rate) and has been disadvantageously the DBGNP and secondly continued head count savings caught by a widening of the spread between North Island on the Duquesne acquisition. and South Island wholesale prices (ie buying expensive ƒ DUE has already announced that it expects distributions South Island power to offset falls in hydro output and to be a minimum of 28.1cps in FY09; our forecast is for selling cheaper North Island power). DUE to pay a distribution of 28.5cps, an increase of ƒ We model and forecast CEN on a mean weather basis 5.5% on the pcp. and generally advocate buying the stock when Babcock and Brown Power (BBP) – 29 August temporary weather related issues suppress earnings and selling when the weather is more advantageous. Key points ⇒ FY08 EBITDA guidance of $330–340m already provided in June 2008. ⇒ Indication of FY09 EBITDA (ex asset sales) provided in June 08. Further clarity required post asset sales.

24 July 2008 139 Macquarie Research Equities - Report Profit Outlook

ƒ We concede that since the 30 April announcement by BG Group of its proposal to acquire 100% of Origin Energy, that there has been increased uncertainty regarding ORG’s majority stake in CEN. Specifically, the market has been worried about the prospect of BG or ORG disposing of the ORG stake to expedite the transfer of ownership of ORG’s Australian gas related assets. Indeed, in BG Group’s Bidder’s Statement, BG has indicated that it may look to dispose of ORG’s CEN stake, should it be successful in gaining control of ORG, by way of a distribution to ORG shareholders. Clearly this may give rise to something of an overhang. ƒ Other issues we will be interested in learning about at the result: progress at CEN geothermal expansion projects, retail tariff expectations and the recent Electricity Commission model study and impacts.

24 July 2008 140 Macquarie Research Equities - Report Profit Outlook

ASX Code Recommendation Reported Adjusted Nom. Payout Price (A$) Mkt Cap (A$M) Int Cover Net Profit Net Profit EPS PER P/BV ROE PGCF DPS Yield Ratio Franking Volatility Index % S&P/ASX 300 Debt/Equity Year ($Am) ($Am) (¢) (x) (x) (%) (x) (¢) (%) (%) (%)

Utilities

AGL Energy AGK Neutral 06/2007A 239.7 325.6 77.6 17.1 0.9 5.8 11.2 35.5 2.7 45.7 100 $13.64 $6,109m 5x 06/2008E 127.2 350.4 80.8 16.5 1.1 6.1 10.5 52.0 3.9 64.3 100 Low/Medium 0.60% 33% 12/2008E(i) 202.6 197.6 45.6 N/A N/A N/A N/A 27.3 N/A 60.0 100 06/2009E 371.4 376.4 86.8 15.3 1.1 7.4 10.1 52.1 3.9 60.0 100 06/2010E 392.6 395.3 91.2 14.6 1.1 7.5 10.1 54.7 4.1 60.0 100

Babcock & Brown Power BBP Neutral 06/2007A -75.7 -15.6 -4.4 - 0.3 -1.9 5.1 14.0 22.0 - 0 0.65 $483m 0x 06/2008E 77.6 5.0 1.2 52.8 0.3 0.4 2.8 13.0 20.5 1079.9 0 Very High 0.0004 102% 12/2008E(i) -30.9 -30.9 -4.3 N/A N/A N/A N/A 6.5 N/A - 0 06/2009E -34.0 -34.0 -4.7 - 0.3 -1.9 3.8 13.0 20.5 - 0 06/2010E 8.38.3 1.1 56.4 0.3 0.5 2.7 13.0 20.5 1154.5 0

Contact Energy Ltd CEN Outperform 06/2007A 239.6 216.3 37.5 19.7 1.5 7.9 12.0 27.0 3.6 72.0 100 NZD$7.40 NZD$4,267m 7x 06/2008E 240.2 239.2 41.5 17.8 1.4 8.1 11.0 28.0 3.8 67.5 100 High N/A 29% 12/2008E(i) 128.2 128.2 22.2 N/A N/A N/A N/A 12.0 N/A 54.0 100 06/2009E 268.6 268.6 46.6 15.9 1.4 8.8 10.1 31.0 4.2 66.6 100 06/2010E 313.2 313.2 54.3 13.6 1.3 9.9 9.0 33.0 4.5 60.8 100 All data is expressed in NZD

DUET Group DUE Outperform 06/2007A 27.2 53.2 11.3 26.3 1.2 5.0 6.9 24.5 8.2 216.5 0 $2.98 $1,879m 1x 06/2008E 115.0 115.0 19.3 15.4 1.4 9.0 6.0 27.0 9.1 139.7 0 Low/Medium 0.14% 284% 12/2008E(i) 66.1 66.1 10.8 N/A N/A N/A N/A 14.2 N/A 131.4 0 06/2009E 114.7 114.7 18.8 15.8 1.4 8.9 5.8 28.5 9.6 151.4 0 06/2010E 111.1 111.1 18.2 16.3 1.5 9.0 5.8 29.6 10.0 162.6 0

Energy Developments ENE Underperform 06/2007A -16.6 27.1 18.3 15.2 1.6 9.1 6.3 7.5 2.7 40.9 18 $2.75 $423m 0x 06/2008E 22.9 17.9 11.9 23.4 1.6 6.0 7.0 6.0 2.2 50.4 20 Very High 0.03% 122% 12/2008E(i) 10.0 10.0 6.7 N/A N/A N/A N/A 3.9 N/A 57.8 15 06/2009E 23.123.1 15.4 18.2 1.5 7.4 5.9 7.7 2.8 50.1 8 06/2010E 29.829.8 19.8 14.1 1.2 9.0 5.2 9.9 3.5 50.0 8

Envestra ENV Neutral 06/2007A -3.0 -20.9 -2.5 - 2.9 -10.9 16.3 9.5 13.4 - 0 $0.70 $642m 1x 06/2008E 157.4 4.2 0.5 135.7 1.8 1.5 9.6 9.5 13.4 1816.2 0 Low/Medium 0.03% 924% 12/2008E(i) 9.2 9.2 1.1 N/A N/A N/A N/A 5.7 N/A 541.5 0 06/2009E 4.84.8 0.6 128.9 2.3 1.5 9.3 9.5 13.4 1724.4 0 06/2010E 5.05.0 0.6 123.4 3.2 2.1 9.0 9.5 13.4 1651.2 0

Spark Infrastructure Group SKI Outperform 12/2007A 56.956.9 5.6 28.3 2.8 9.9 28.3 18.1 11.3 320.0 0 $1.65 $1,634m 1x 06/2008E(i) 18.518.5 1.8 N/A N/A N/A N/A 9.5 N/A 520.2 0 Low 0.14% 55% 12/2008E 43.243.2 4.3 37.2 2.8 7.5 37.2 19.1 11.9 444.8 0 12/2009E 28.828.8 2.9 55.8 3.0 5.2 55.8 19.5 12.2 680.8 0 12/2010E 20.020.0 2.0 80.5 3.2 3.8 80.5 19.9 12.5 1006.7 0

SP AusNet SPN Neutral 03/2008A 151.0 168.2 8.0 14.0 3.4 26.5 6.4 11.6 10.3 143.7 9 $1.15 $2,417m 2x 09/2008E(i) 114.9 114.9 5.5 N/A N/A N/A N/A 5.9 N/A 107.8 9 Low 0.12% 158% 03/2009E 173.1 173.1 8.3 13.6 3.8 26.6 6.1 11.8 10.5 143.2 9 03/2010E 180.5 180.5 8.6 13.0 4.3 31.2 5.8 12.1 10.8 140.7 9 03/2011E 180.5 180.5 8.6 13.0 5.0 35.7 5.7 12.4 11.1 144.2 9

TrustPower TPW Neutral 03/2008A 98.1103.9 33.0 23.3 1.9 7.9 18.5 29.5 3.8 89.5 86 NZD$7.67 NZD$2,419m 4x 09/2008E(i) 47.2 47.2 15.0 N/A N/A N/A N/A 14.5 N/A 97.0 70 Medium N/A 51% 03/2009E 103.6 103.6 32.9 23.3 1.9 8.2 16.3 29.4 3.8 89.4 70 03/2010E 141.0 141.0 44.7 17.1 1.9 11.0 12.8 35.8 4.7 80.0 68 03/2011E 147.3 147.3 46.7 16.4 1.8 11.2 12.4 37.4 4.9 80.0 68 All data is expressed in NZD

Vector VCT Outperform 06/2007A 101.8 200.0 20.0 10.0 1.0 11.8 5.7 13.0 6.5 65.0 100 NZD$1.99 NZD$1,990m 2x 06/2008E 165.7 165.7 16.6 12.0 1.0 8.6 6.3 13.5 6.8 81.5 100 Medium N/A 159% 12/2008E(i) 268.6 73.6 7.4 N/A N/A N/A N/A 7.0 N/A 95.0 100 06/2009E 347.4 152.4 15.2 13.1 0.9 7.4 7.1 14.0 7.0 91.9 100 06/2010E 178.9 178.9 17.9 11.1 0.9 8.2 6.7 14.0 7.0 78.3 100 All data is expressed in NZD

Source: Macquarie Research, July 2008

24 July 2008 141 Macquarie Research Equities - Report Profit Outlook

Notes:

24 July 2008 142 Macquarie Research Equities - Report Profit Outlook Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand This is calculated from the volatility of historic price All "Adjusted" data items have had the following Outperform – return >5% in excess of benchmark return movements. adjustments made: (>2.5% in excess for listed property trusts) Added back: goodwill amortisation, provision for Neutral – return within 5% of benchmark return (within Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging, 2.5% for listed property trusts) expected to move up or down 60–100% in a year – IFRS impairments & IFRS interest expense Underperform – return >5% below benchmark return investors should be aware this stock is highly Excluded: non recurring items, asset revals, property (>2.5% below for listed property trusts) speculative. revals, appraisal value uplift, preference dividends & Macquarie - Asia minority interests High Outperform – expected return >+10% – stock should be expected to move up or EPS Neutral – expected return from -10% to +10% down at least 40–60% in a year – investors should = adjusted net profit / efpowa* ROA Underperform – expected return <-10% be aware this stock could be speculative. = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average Macquarie First South - South Africa Medium – stock should be expected to move up or total assets Outperform – expected return >+10% down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds Neutral – expected return from -10% to +10% Gross cashflow = adjusted net profit + depreciation Underperform – expected return <-10% Low–medium – stock should be expected to move *equivalent fully paid ordinary weighted average Macquarie - Canada up or down at least 25–30% in a year. number of shares Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks Underperform – return >5% below benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial Macquarie - USA * Applicable to Australian/NZ stocks only Reporting Standards).

Outperform (Buy) – return >5% in excess of benchmark return Neutral (Hold) – return within 5% of benchmark return Underperform (Sell)– return >5% below benchmark return Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Recommendation proportions – For quarter ending 30 June 2008 AU/NZ Asia RSA USA CA Outperform 41.88% 66.96% 66.13% 50.82% 71.01% Neutral 42.96% 16.30% 22.58% 44.26% 24.64% Underperform 15.16% 16.74% 11.29% 4.92% 4.35%

Macquarie Group Notes: This research has been issued and distributed in Australia by Macquarie Equities Limited ABN 41 002 574 923 ("MEL"). MEL holds Australian Financial Services Licence No. 237504 and is a Participant of the Australian Securities Exchange Group. MEL is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959 and MEL's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MEL. This research has been prepared for the use of the clients of Macquarie Group Limited and its related entities (the "Macquarie Group") and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose the information in this research in any way. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. There are risks involved in securities trading. The price of securities can and does fluctuate and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group or its associates (including MEL), officers or employees may have interests in the financial products referred to in this report by acting in various roles including as investment banker, underwriter or dealer, holder of principal positions, broker, lender, director or adviser. Further, they may act as market maker or buy or sell those securities as principal or agent and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group or its associates (including MEL) may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The analyst(s) principally responsible for the preparation of this research receives compensation based on overall revenues, including investment banking revenues of Macquarie Group Limited and its related entities. Disclosures with respect to issuers, if any, mentioned in this research are available at www.macquarie.com.au/research/disclosures, or can be obtained from your Macquarie representative. © Macquarie Group

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