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NAB OnLine Trading
04 March 2008
Property sentiment still
sinking
Timing can make all
the difference
Education
Perspective
Sentiment towards the property sector
remains weak in the aftermath of the Centro
debacle. After a thorough review of the
sector, however, we believe it would be a
mistake for investors to cast all property
stocks into the "sin bin".
The first major casualty from the US sub-prime contagion came from the
property sector, with the announcement by Centro (CNP and CER) that it
had difficulty refinancing $3.5B in unsecured debt. In the wake of the
panic that gripped the sector, we have reviewed the way we value the
sector to more appropriately price risk.
As a result of the re-rating of the property sector, we have grouped our
coverage of LPT stocks into the following three groups: Australian
focused REITs, global diversified REITs (including modest Australian
exposure) and pure or majority offshore exposure (in particular US).
Using this classification, we have revised the beta applied to individual
stocks in an effort to re-price risk more appropriately. No recommendation
has been affected by the change in betas, except for Commonwealth
Office (CPA).
The current market turmoil has also prompted investors to more carefully
scrutinise balance sheets, as recent cases have shown that good cash
flow alone is not always enough.
As with most things in life, timing is an
important factor when it comes to investing.
While no one can always get their timing right,
being able to make an informed guess about
which part of the market cycle we are in could
make a big difference.
Investors intuitively know that timing can make all the
difference to a portfolio. As some large fund collapses have
shown, when the analysis is right but the timing is off, there
can be disastrous consequences.
The US$6B Tiger Funds run by high-profile hedge fund
investor Julian Robertson is one prime example. Robertson
short sold overpriced technology stocks during the tech
bubble of 2000, but suffered massive losses as investors
continued to greedily jump blindly into the sector.
Unfortunately, there is no formula to help you perfect your
timing. However, investors can take a leaf out of a technical
trader’s handbook on market cycles to help with their
decision process. Trading courses often talk about the
stages of each cycle and the investment psychology that is
often associated with each stage.
(cont on P3)
(cont on P2)
Properties in hot locations
Stock Ideas
The ongoing credit crisis has rocked the foundations of the property sector. After our strategic review, we found
that some REITs have been unfairly sold down. Furthermore, many of these undervalued stocks have attractive
and sustainable dividend yields.
(cont on P4)
In this issue
Stocks in Focus
Economic Report
P4
Centro Properties Group: Not in an ideal
Portfolio Analysis
P5
location
P5
Westfield Group: Giant on a firm footing
P15
Sector Strategist
P5
Aurora Sandringham : Blue Book Extract
P9 Scarborough Equities: Blue Book Extract
Macquarie Countrywide Trust: Unfairly oversold P10 Global Mining Investments: Blue Book Extract
P14
Market Summary
Analyst Watch
P6
Valad Property Group: Well-diversified earnings P11
P8 Goodman Group: Positioned for gains
P13
P16
base
Challenger Diversified Property Group: On safe P12
ground
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 1
MARKET ANALYSIS
brought to you by NAB OnLine Trading
04 March 2008
Property sentiment still sinking
CALENDAR OF EVENTS
(from P1)
EGM: GLN
04/03/2008
Additional emphasis has been placed on greater transparency of debt through to operating cash
flows, high interest cover, and the timing of debt refinancing.
Another major concern is the reduction in asset values and the resulting increase in gearing levels.
The US and European direct property markets are exhibiting strain to maintain cap rates as flow-on
effects from the US economy affect investment activity. Furthermore, stocks with heavy US exposure
may experience negative earnings growth and yields are likely to revert to more sustainable levels
after enjoying the temporary boost of in-the-money hedging.
Recent results may offer a small ray of hope for US-exposed REITs at the operational level, as the
companies said that the slowdown in the US has not affected their businesses by as much as the
market feared. However, we are awaiting 2H08 results to get a clearer picture of performance. With
negative economic data still streaming out of the US, risks are on the downside and it is way too
early to try to pick the bottom of the market.
Fortunately, fundamentals remain strong in Australia for the short to medium term. Having said that,
the office sector here remains the safer bet due to the anticipated lack of supply in Sydney CBD until
late 2009. This applies to premium-grade assets as we see risk in lower-grade tenancies, which
could result in a re-rating of lower-grade office real estate. Retail is up against increasing pressure
due to constant interest rate hikes and their effect on consumer spending. Like the office sector, we
see this posing a threat only to lower-grade assets.
Ex-Dividend: AEO, AHI, AQE, CRT, GCL, GRD,
GWT, GWT, HAP, HST, IAN, ITX, LMC, NCK,
ORG, PCBPA, SDM, SHL, SUL, SUN, TPX,
TRG, TSE, WIG, WLL, WOWHB, ZGL
05/03/2008
EGM: BNE, NDL, PFL, PYM
Ex-Dividend: ACK, DKS, FAN, FGI, FZN, GBT,
MMA, MTU, NWS, PEM, RRT, SHR, SUNPA
06/03/2008
EGM: KIS
Ex-Dividend: ABC, AHE, BEPPA, BKL, GCS,
OAK, SFC, SKC, TPC, WCTPA, WOR
07/03/2008
EGM: HRD, LCT, LNG, TEE
Ex-Dividend: AAU, AIZ, ASL, BYI, CDD, CHR,
CLH, CPR, CSV, CYA, DBS, DOM, DTL, DWS,
EPL, FLX, HMC, LEI, MIN, PLB, PPG, RHD,
ROK, SDG, SMX, SNL, TOL, TTS, WYL
09/03/2008
Meanwhile, industrial property looks to remain solid as the resilient Australian economy, backed by
the resources industry, looks to continue. We do, however, point out that the industrial sub-sector is
the first to react to changes in economic activity. Also, the weight of funds in our marketplace will
apply downward pressure on cap rates and help maintain stability. The strong investment market
experienced over the past two years is forecast to continue, albeit at a slightly subdued rate.
Property companies with high funds management contributions to earnings are likely to remain under
pressure following the Centro debacle, which took the market and us by surprise, as a number of
REITs had easily refinanced their debt just a few months earlier.
International Watch
Source: IRESS/Aegis Equities
(click chart to enlarge)
Source: IRESS/Aegis Equities
Source: IRESS/Aegis Equities
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 2
MARKET ANALYSIS
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04 March 2008
Timing can make all the difference
TECHNICAL VS
FUNDAMENTAL
(from P1)
Recommendations in agreement
The first stage is Accumulation, which normally occurs after the market has bottomed and the smart
money starts to pour back in as valuations look very attractive. Sentiment at this phase remains
overwhelmingly bearish, with plenty of news about the financial pain that still lies ahead. However,
you will also notice that buyers are starting to trickle back into the market. If you think back to 2003,
you will get a sense of how things are now.
The next phase is Early Appreciation, where the early majority has caught a whiff of the turnaround.
This group could be made up of many technical traders who have noticed a series of higher lows and
higher highs on their charts. At this stage, you will likely hear news about a probable turnaround,
although there will still be some negative news weighing on sentiment.
Then comes Late Appreciation, when everybody else wants to get in on the “action”. By this time,
sentiment has not only swung from bearish to bullish, but a sense of euphoria is also likely to be
present as valuations stretch beyond historical norms. Quite often, the market will attempt one last
short and sharp move upwards as buying climaxes and greed takes over from common sense. Smart
investors have already begun to take some profits here.
At the peak of the cycle comes the Distribution phase. Sentiment is becoming mixed and any attempt
to take the market higher is met with fierce profit taking from smart money. Prices tend to be stuck in
a trading range over this period as sentiment swings wildly, adding to market volatility.
The last phase is Depreciation. Unless you are a net short seller or have exited the market, this is
likely to be a painful time as the market can fall substantially. Those with poor quality stocks in their
portfolio will likely suffer more. When the pain becomes too great and stubborn investors finally close
out their positions for a massive loss, that is when the cycle is likely to start anew.
Adding to the complexity of deciding which phase our market is in is the fact that each phase could
last from a few short weeks to several months, if not longer. Because no one can consistently pick
the peaks and troughs, investors are often better off staying invested in the market as over the longterm they are still likely to come out on top as long as they continue to hold the “right” stocks.
Stock
Fundamental
Technical
CNP
SELL
SELL
QAN
BUY
BUY
WES
BUY
BUY
WOW
BUY
BUY
Opposing recommendations
Stock
Fundamental
Technical
AMC
SELL
BUY
BLD
SELL
BUY
QBE
BUY
SELL
TEL
SELL
BUY
MARKET SUMMARY
Index/Security
Close Chg %Chg
All Ordinaries
5,511 -189.0
-3.3
ASX 200
5,406 -215.8
-3.8
ASX Small Ords
3,306 -65.3
-1.9
Industrials
5,555 -103.8
-1.8
Fin.-x-Prop Trusts
5,157 -509.8
-9.0
15,080 -34.7
-0.2
Cons. Staple
7,864 -157.8
-2.0
Telecom Serv.
1,636 -66.4
-3.9
Materials
10y Bond Yield
AUD / USD
6.19 -0.26
-4.0
0.940 +0.01
+1.4
(Weekly comparison)
Australian Watch
Source: IRESS/Aegis Equities
(click chart to enlarge)
Source: IRESS/Aegis Equities
Source: IRESS/Aegis Equities
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 3
MARKET ANALYSIS
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04 March 2008
Properties in hot locations
RECO CHANGES
Changed to BUY
(from P1)
Centro Properties Group (CNP) reported a 1H08 loss of $1,112.4M, which is due to a $578M noncash write-down of goodwill in New Plan and a $278M write-down of direct US property and losses
on the market value of currency and interest rate hedges. No distribution will be paid for the half and
CNP has suspended guidance on its distributable income until the outcome of the recapitalisation
process is known. We maintain our SELL on CNP.
Westfield Group (WDC) is in an enviable position as it sits on a $7.7B war chest and has a $10B
development pipeline. In January, WDC signalled its intention to invest US$625M to jointly own circa
488,000sqft of retail facilities at the old New York World Trade Center site. However, at current
prices, we believe WDC is fairly priced and we have a HOLD on the stock.
Macquarie Countrywide Trust (MCW) reported a 1H08 distributable profit of $97.7M, up 3.0% on
the pcp and broadly in line with our expectations. However, NTA slipped 4.5%, to $1.91/unit at the
end of 2007, following downgrades in asset valuations. We continue to see strength in the MCW
business. The majority of the US portfolio is anchored by large grocer chains, which have been
relatively unaffected by the US consumer spending slowdown. We have upgraded MCW to a BUY.
DEXUS RENTS (DXRPA) - from NONE
FKP Property Group (FKP) - from
HOLD
Macquarie Countrywide Trust (MCW)
- from HOLD
Changed to HOLD
A.B.C. Learning Centres Ltd (ABS) from BUY
ABC Notes (ABSG) - from BUY
Goodman Fielder (GFF) - from BUY
Changed to SELL
Incitec Pivot (IPL) - from HOLD
Lihir Gold (LGL) - from HOLD
Valad Property Group (VPG) and Challenger Diversified Property Group (CDI) issued pleasing
results recently that have reaffirmed our BUY call on both. Following VPG’s result and outlook
statement provided by VPG management, we have made no material changes to our forecasts. We
continue to expect double-digit earnings growth in FY08 driven primarily by the Scarborough
acquisition. While there is some downside risk associated with potential further property
devaluations, VPG's value-add approach and diversified revenue source should provide some offset.
Meanwhile, CDI’s conservative gearing of 30.9% provides significant funding capacity for future
acquisition and development activity. Proactive management to mitigate risk, and continued rental
income, give us confidence the group is on track to meet its distribution guidance of 8.45cpu in FY08.
However, there may be some headwind for CDI asset valuation over the next 12 months, in particular
its Industrial allocation.
Goodman Group (GMG) reported an operating profit for 1H08 of $290.3M, representing EPS of
17.5c, up 11% pcp. We believe GMG's prime assets and portfolio quality will perform well in a market
that rewards for asset quality and transparent structures in the current environment. Our FY08 EPS
forecasts for GMG increase by 29% to 35.4cps and we upgrade GMG to a BUY.
Economic Watch
The RBA has raised interest rates by 0.25% for the 12th consecutive time today as
expected. The move was to contain inflation and to slow consumer demand. The
cash rate now stands at 7.25%, the highest it has been since mid 1996.
Company Profit/Inventory Figures: According to the ABS, Australian company profits rose in the
4Q by 3.9% QoQ, beating forecasts of 2%. Inventories rose 0.7% QoQ, versus forecasts of 1%.
Commodity Price Index: The Reserve Bank commodity price index for February showed a 1.4%
decline YoY in A$ terms and a 0.6% increase MoM.
Commodity / Currency Watch
Source: IRESS/Aegis Equities
Source: IRESS/Aegis Equities
(click chart to enlarge)
Source: IRESS/Aegis Equities
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 4
PORTFOLIO ANALYSIS
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04 March 2008
Portfolio Analysis
PORTFOLIO STOCKS
Babcock & Brown Infrastructure Group (BBI) increased its sales revenue to $1.012B, 68% up on
1H07. Operational EBITDA was $345M, up 32% over 1H07. BBI declared an interim distribution of
7.5 cps, a 7.1% increase on 1H06. We have a BUY on BBI with a 12-month price target of $2.02.
Market Summary
SECTOR PERFORMANCE
Source: IRESS/Aegis Equities
5 BEST / WORST STOCKS
The following stocks are
currently in our balanced
portfolio:
Stock
Code
Babcock & Brown Infrastructure
Group
BBI
BHP Billiton Limited
BHP
Macquarie Group Limited
MQG
News Corporation
NWS
Orica
ORI
St George Bank
SGB
Transurban
TCL
Toll Holdings
TOL
United Group
UGL
Westpac
WBC
Wesfarmers Ltd
WES
WorleyParsons Ltd
WOR
You must consult your financial planner before
investing in this portfolio as to the suitability of it
for your risk profile and the appropriate
weightings for each stock in the portfolio
Source: IRESS/Aegis Equities
Energy stocks have performed well as crude oil surged above US$100/barrel. On the flip side, jitters
about the impact of a large corporate collapse have further dented sentiment towards the banks,
which are already under a cloud due to expected interest rate hikes.
Zinifex (ZFX) performed strongly on news that it planned to merge with fellow miner Oxiana (OXR)
to create the third-largest diversifed miner on our market. We have a HOLD on ZFX and a BUY on
OXR with 12-month price targets of $10.22 and $4.40, respectively.
TRANSACTIONS
Date
Bought
Sold
29-Feb-2008
WOR
AFG
29-Feb-2008
WBC
ANZ
03-mmm-yy
WES
PPT
The details in this column only pertain to the
Sector Strategist
holdings and transactions in the Balanced
Portfolio. For details on our Growth and Income
Our sector outlook is largely unchanged from last week. We note that the latest apparant casualties
of the credit crisis, ABC Learning Centres (ABS) and City Pacific (CIY), have further soured
sentiment towards the banking sector due to possible credit exposures.
Portfolios, please log in to your account on the
website.
As we mentioned several weeks ago, the great threat to our retail banks comes from a sizable
corporate collapse. At this stage we leave our forecasts for the sector unchanged but will keep a
close eye on further developments.
Portfolio Returns*
(click chart to enlarge)
* Past performance is not a guide to future performance. Inception date of portfolio is 30 Sep 2000. Please read full disclaimer on the last page of this document.
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 5
STOCK IDEAS
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04 March 2008
TRADER WATCH*
Analyst Watch
Price:
Daily % Change in Shareprice
This is a summary of major events
Babcock & Brown (BNB): Settlement of
outstanding US Promoter Penalty Investigation
A.B.C. Learning Centres Ltd (ABS):
Suspended from quotation; no debt covenants
breached
Babcock & Brown (BNB): Joint Venture to
unlock value of Wind Energy Portfolio
A.B.C. Learning Centres Ltd (ABS): Moving
recommendations to HOLD
Babcock & Brown Japan Property Trust
(BJT): Gearing further reduced
ABC Notes (ABSG): Recommendation
downgrade
Agenix Limited (AGX): 1H08 result: Short-term
funding may become an issue
Allco Finance (AFG): AHUGA's plummet and
three of AFG's executive directors resign
Allco Finance (AFG): AFG to close and sell its
Mortgage Business
Boart Longyear (BLY): FY07 result: Strong
result; exceeds Prospectus forecast
Allco Finance (AFG): New note to 1H08
Accounts highlighting reclassification of FY07
debt facilities
Brambles (BXB): Acquires US Supply Chain
Solutions provider LeanLogistics
Alumina Ltd (AWC): Litigation by Aluminium
Bahrain
Arc Energy (ARQ): 1H08 Result: Non-cash
charges reduce NPAT by 70%
+9.2
+6.0
+5.9
+4.2
+4.0
AFG
CIY
AFGHA
VPG
AUW
-28.7
-21.6
-15.6
-11.4
-10.4
*All figures above are on stocks in the All
Ordinaries Index only
Babcock and Brown Wind Partners (BBW):
1H08 result: Unlocking portfolio value
BHP Billiton Limited (BHP): Approves
optimisation project at the Douglas-Middleburg
collieries in South Africa
Allco HIT (AHUG): HIT 1H08 results confirm
concerns
ZFX
LYC
CMR
SGX
NCM
BT Investment Management (BTT): Weaker
equity markets slash FY08 profit forecast
Caltex Aust (CTX): FY07 Result: NPAT of
$444M in line with our expectations
Centro Properties Group (CNP): 1H08 result:
Loss of $1.1B due to write-downs and
distribution suspended
Asciano Group (AIO): 1H08 (unaudited) Result: Centro Retail Trust (CER): 1H08 result: Risk
guidance provided at the corporate level,
Rail drags down good result from ports
operational level sustainable
Aust Worldwide (AWE): 1H08 Result: Tui
City Pacific (CIY): 1H08 balance sheet items
production leads to a near tenfold increase in
reclassified
- highlighted increased risk levels
profit
Aust. Infrastructure Fund (AIX): Tiger to begin Computershare (CPU): QMT Directors and
major shareholder accept CPU takeover offer
Melbourne-Alice Springs service
Austar (AUN): FY07 result: Growth fairly
reflected
David Jones (DJS): FY09-FY12 strategic plan
for future growth
Australian Equity Strategy (STRATEGY):
Recommended portfolio changes
DUET (DUE): 1H08 result: New investments
help deliver improved returns
Quantitative Watch
Source: IRESS/Aegis Equities
(click chart to enlarge)
Source: IRESS/Aegis Equities
Source: IRESS/Aegis Equities
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 6
STOCK IDEAS
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04 March 2008
Analyst Watch (Cont'd)
EARNINGS CHANGES
Aristocrat Leisure (ALL): Earnings
Energy Developments (ENE): 1H08 result: Hurt Macquarie Media Group (MMG): 1H08 results:
One-offs impact bottom line
by falling energy credit prices
Envestra (ENV): 1H08 result: Marginal increase
in sales, but outlook still uncertain
Metals X (MLX): MLX to close Collingwood
FKP Property Group (FKP): 1H08 result: Wellrounded performance, impressive outlook -BUY
Mirvac Real Estate Investment Trust (MRZ):
1H08 result: Solid result tainted by exposure to
equities
GRD Ltd (GRD): FY07 result: Offshore growth
partly offset by tight labour market impacts in
Australia
Great Southern (GTP): Woodchip price
renegotiated
Metals X (MLX): Tin strategy update
upgrade as the company cycles through
the impacts of smoking bans in Australia
and gains traction in the US and Japanese
markets
APA Group (APA): FY08 earnings
downgrade due to the increased higher
interest expense incurred on
developments and an increase in the
Origin Energy (ORG): 1H08 result: A solid
result, with an upgrade to FY08 earnings
guidance
number of stapled securities
Arc Energy (ARQ): Earnings downgrade
largely as the result of the increased
Oxiana Limited (OXR): Oxiana and Zinifex to
Gunns Limited (GNS): 1H08 result: NPAT down merge, creating a A$12B mining house
28%
Pacific Brands (PBG): Change to DRP plans
depreciation
Babcock and Brown Power (BBP): FY08
earnings upgrade due to strong 1H08
Gunns Limited (GNS): Higher woodchip prices
take root
Peet (PPC): 1H08 result: Below our expectations
due to settlement timing delay
Harvey Norman (HVN): 1H08 result: Another
high-quality performance
Ramsay Health (RHC): Ramsay acquires
Nottingham hospital
IMSA
Henderson Group (HGI): FY07 result: Profit up
35% - challenge will be to repeat in FY08
Roc Oil (ROC): FY07 result: Exploration
expenses and hedging losses result in 85% drop
in NPAT
Earnings downgrade due to company
Hillcrest Litigation Services (HLS): 1H08
result: A tough first half, but improved conditions
look likely
Seven Network (SEV): 1H08 result: Mixed bag
generates cash
Hillcrest Litigation Services (HLS): Placement
Hills Industries (HIL): Termination of HIL / BSA
merger
Sino Gold (SGX): FY07 result: FY08 looks
promising after Jinfeng achieves commercial
production
Incitec Pivot (IPL): Sell into the strength!
Suncorp-Metway (SUN): 1H08 result
disappoints and well below expectations
Insurance Australia Group (IAG): 1H08 result:
IAG disappoints again in challenging trading
conditions
James Hardie Industries NV (JHX): 3Q08
result: US housing slump affects sales and
margins
Tap Oil (TAP): FY07 result: Underlying NPAT of
$11M, but exploration write-offs result in a loss
Tatts Group (TTS): 1H08 result: A good
performance during a challenging year
result and guidance BlueScope Steel
(BSL): Earnings upgrade due to higher
steel prices and synergies from SSX and
BT Investment Management (BTT):
profit downgrade and challenging equity
market conditions
ConnectEast (CEU): FY08 earnings
upgrade due to the quick completion of the
EastLink project
Caltex Aust (CTX): Earnings downgrade
due to the review of our long-term refining
margin assumptions
DUET (DUE): Earnings upgrade due to
expansion of the Dampier to Bunbury
(DBP) pipeline and the contributions from
Duquesne Light
Envestra (ENV): Earnings upgrade due to
Telecom NZ (TEL): TEL completes buy back
marginal increase in sales in 1H08 result
FKP Property Group (FKP): Earnings
Leighton Holdings (LEI): Contract won to
deliver Ipswich Motorway upgrade
Telstra Corp (TLS): FTTN prompts investment
review
Transpacific Industries (TPI): 1H08 result:
Strong result all round
Lend Lease (LLC ): 1H08 result: Solid result
despite weakening UK exposure
United Group (UGL): Confirms new locomotive
supply
downgrade due to higher than expected
Lihir Gold (LGL): FY08 result: Underlying profit
up 281% after hedge book closure
Westfield Group (WDC): FY07 result: Solid
performance, but slower retail growth outlook
expected
Leighton Holdings (LEI): Wins Didipio goldcopper open-cut mining contract
Macarthur Coal Ltd (MCC): 1H08: We
incorporate Middlemount
Macquarie Countrywide Trust (MCW): 1H08
result: Favourable restructure of debt, we move
to BUY
upgrade due to strong 1H08 result and
impressive outlook
Gunns Limited (GNS): Earnings
increase in debt expense
See website for full listing
Wilson HTM Investment Group (WIG): 1H08
result: NPAT up, outlook linked to market
performance
Zinifex (ZFX): Oxiana and Zinifex to merge
Zinifex (ZFX): 1H08: The beginning of a new era
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 7
STOCK IDEAS
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04 March 2008
Centro Properties Group (CNP):
Not in an ideal location
KEY STATISTICS
Market Cap ($M):
380.3
CNP has managed to persuade the banks to extend the finance arrangements to
30 April 2008. While this short-term reprieve is welcomed, it further adds to the
uncertainty surrounding its recapitalisation process. Our 12-month target is $0.39.
Equiv. Shares (M):
896.4
Price:
$0.41
Price as at:
04-Mar-08
% Market:
0.02
12Mth Range ($):
Turnover ($M pa):
Index:
Company Risk:
Share Price Risk:
Ethical Rating:
0.34 - 10.06
10,575.7
S&P/ASX 50
Sector:
Financials
Industry Group:
What to do (Investors): SELL
While the extension may be an improved sign of the refinancing outcome in the short term, the
company can potentially go into liquidation subject to a highly uncertain recapitalisation process if it is
advanced.
What to do (Trader):
SELL - stock still vulnerable
CNP has attempted to base over the past month but it remains below critical resistance. Downward
momentum has subsided and the RSI and the MACD have turned up from oversold levels. However,
action in these two indicators remains weak, suggesting that a re-test of the January lows is possible.
As evident on the chart below, the MACD has just moved up to test the signal line – it has spent the
past 8 months below this line, and only a push above it would improve the profile. Similarly, the RSI
remains in the downtrend that commenced early last year.
Fundamental View
The current market sentiment has not been supportive for the group to raise capital on favourable
terms. The stock may experience volatile fluctuation before the 30 April extension deadline due to the
uncertainty surrounding the recaptalisation and refinancing outcome.
Real Estate
Real Estate Investment
Trusts (REITs)
Industry:
Sub Industry:
Retail REITs
FINANCIAL SUMMARY
Yr to Jun
07A
08F
09F
NPAT Rep ($M)
469.7 39.7 74.7
NPAT1 Adj ($M)
335.3 39.7 74.7
EPS (c)
40.7
4.4
8.3
DPS (c)
39.8
0.0
0.0
P/E (x)
Yield (%)
Franking (%)
Deferred Tax (%)
1.0
9.1
4.9
98.3
0.0
0.0
0
0
0
36
0
0
1
Profit & EPS adjusted for options,
goodwill, notional earnings and non
recurring items.
COMPANY OVERVIEW
Centro Properties Group (CNP)
manages a large number of
shopping centres in Australia, NZ
and the US. CNP will maintain
100% exposure to retail property.
CNP generates revenue from
property ownership and a property
services business. Property
services business revenue is
generated through funds
management, leasing,
development and property
management. CNP manages over
30 syndicates and the fees
generated from this are a core
strength and revenue component of
CNP's business.
Source: Proview / Aegis Equities
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 8
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Westfield Group (WDC): Giant on
a firm footing
KEY STATISTICS
Market Cap ($M):
33,988.5
Over the next few years WDC will concentrate mainly on the US and the UK to
grow the business. Due to the negative sentiment, we have also applied a 15%
discount on our 12-month price target, which now stands at $18.95.
Equiv. Shares (M):
1,955.9
Price:
$16.92
Price as at:
04-Mar-08
% Market:
1.97
12Mth Range ($):
16.54 - 22.28
Turnover ($M pa):
38,669.9
Index:
Company Risk:
Share Price Risk:
Ethical Rating:
S&P/ASX 20
Sector:
Financials
Industry Group:
What to do (Investors): HOLD
WDC is the largest LPT on the ASX and recognised as a global market leader in the retail property
sector. Around 80% of earnings is derived from recurring property income. Management has an
enviable track record of delivering earnings-accretive redevelopments and is well regarded for
working its assets hard to improve operational performance. Our expectations are for 3%-4% growth
in property income. A significant development pipeline enhances growth through incremental income
over the long term.
What to do (Trader):
HOLD - could bounce higher but recent highs likely to cap
The stock is trading close to a solid support level ($16.37 - $16.63), which could stem the decline in
the near term. The major concern is the longer-term chart (right) showing the break below the 18month moving average. This has only occurred on 3 prior occasions; 1987, 2001 and briefly in April
2006. The stock reversed quickly in the latter instance, but in 1987 and 2001 it marked the beginning
of a lengthy bear market. At this stage we believe the current situation is more akin to 2001.
Fundamental View
Over the next few years, earnings and distribution growth is expected from a combination of organic
investment growth and property redevelopment income. However, we maintain a cautious stance,
given the risks associated with property development.
Real Estate
Real Estate Investment
Trusts (REITs)
Industry:
Sub Industry:
Retail REITs
FINANCIAL SUMMARY
Yr to Dec
07A
08F
09F
NPAT Rep ($M)
3,437 1,951 2,075
NPAT1 Adj ($M)
1,875 1,951 2,075
EPS (c)
105.2 100.1 106.1
DPS (c)
106.5 106.5 106.5
P/E (x)
16.1
16.9
16.0
6.3
6.3
6.3
Franking (%)
7
7
7
Deferred Tax (%)
0
0
0
Yield (%)
1
Profit & EPS adjusted for options,
goodwill, notional earnings and non
recurring items.
COMPANY OVERVIEW
Westfield Group is the largest retail
property group by market
capitalisation in the world, with
investment in 121 shopping centres
globally valued in excess of
$62.5B. The group is an internally
managed, vertically integrated,
global property group combining
ownership, development, design,
construction, funds management,
property management, leasing and
marketing employing over 4,000
staff worldwide.
Source: Proview / Aegis Equities
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be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 9
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04 March 2008
Macquarie Countrywide Trust
(MCW): Unfairly oversold
KEY STATISTICS
Market Cap ($M):
1,689.9
MCW's diverse portfolio of premium outlets and discount stores should shelter it
from an economic slowdown in the near term. Its favourable restructure of debt
and NTA backing are further pluses. Our 12-month target on MCW is $1.60.
Equiv. Shares (M):
1,316.3
Price:
$1.14
Price as at:
04-Mar-08
% Market:
0.10
12Mth Range ($):
1.16 - 2.30
Turnover ($M pa):
3,404.3
Index:
Company Risk:
Share Price Risk:
Ethical Rating:
S&P/ASX 100
Sector:
Financials
Industry Group:
What to do (Investors): BUY
MCW is a well-managed property vehicle, specialising in neighbourhood shopping centres. Most of
the income is derived from non-discretionary tenant base with less sensitivity to variations in retail
sales. Its US JV partners (Regency Centers and Desco Group) are well regarded for their expertise
in the US retail property sector. MCW has been unfairly sold down due to recent market sentiment
and view the company favourably at current levels.
What to do (Trader):
HOLD - lack of positive price action
Although the stock has been sold off heavily and the recent action appears to be a ‘spike–low’, there
is scant evidence to confirm that a medium-term low has been registered. Momentum indicators
remain weak, with both the RSI and the MACD continuing to trend lower. Additionally, the stock
continues to underperform its peers and the general market. Until there is some positive price action,
from a Technical perspective we must rate the stock as a HOLD.
Fundamental View
MCW offers an attractive distribution yield and trades close to its NTA when compared with its retail
peers. Organic growth, together with repositioning and recycling of assets, is the key driver over the
medium term. Following favourable restructure of its debt profile, we believe MCW has been unfairly
sold down due to recent market sentiment and view the company favourably at current levels.
Real Estate
Real Estate Investment
Trusts (REITs)
Industry:
Sub Industry:
Retail REITs
FINANCIAL SUMMARY
Yr to Jun
07A
08F
09F
NPAT Rep ($M)
493.3 139.5 208.8
NPAT1 Adj ($M)
207.7 201.6 208.8
EPS (c)
16.6
15.3
15.9
DPS (c)
15.6
15.0
15.0
P/E (x)
Yield (%)
Franking (%)
Deferred Tax (%)
6.9
7.4
7.2
13.7
13.2
13.2
0
0
0
33
33
33
1
Profit & EPS adjusted for options,
goodwill, notional earnings and non
recurring items.
COMPANY OVERVIEW
Macquarie Countrywide Trust
(MCW) has interests in 250
neighbourhood centres with a total
book value of over $4.3B.
Approximately 62% of the portfolio
is in the US, 2% in New Zealand,
25% is in Australia and 11% in
Europe. MCW has entered into a
joint venture with Regency Centers
and Desco Group in the US to
oversee and manage the US
operations.
Source: Proview / Aegis Equities
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04 March 2008
PAGE 10
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Valad Property Group (VPG):
Well-diversified earnings base
KEY STATISTICS
Market Cap ($M):
1,409.9
Our forecasts are largely unchanged following VPG's positive 1H08 result and
we continue to incorporate the management-guided FY08 distribution of 12.5%.
Our 12-month price target is little changed at $1.09.
Equiv. Shares (M):
1,584.3
Price:
$0.82
Price as at:
03-Mar-08
% Market:
0.08
12Mth Range ($):
0.82 - 2.37
Turnover ($M pa):
3,493.9
Index:
Company Risk:
Share Price Risk:
Ethical Rating:
S&P/ASX 100
Sector:
Financials
Industry Group:
What to do (Investors): BUY
VPG has a proven track record of adding value to real estate transactions. VPG's revenue source is
diversified across a broad range of property sectors, including office, industrial, retail and selfstorage, as well as across geographies, reducing volatility of returns to investors. The challenge for
VPG is to boost growth of external funds under management. VPG is well positioned to pursue this
following the recent establishment of the Australia/New Zealand-European platform.
What to do (Trader):
Speculative BUY - stop loss at 84 cents
Momentum indicators remain below resistance (as marked on the left-hand chart) and price
continues to trade below declining moving averages. However, the weekly chart highlights the major
support that is currently being tested. There are also some tentative signs of improvement in
momentum. Although there are no Buy signals at present, we view the profile of VPG as more
encouraging than some of the others in the Property sector, and with a strong yield and a Buy rating
from the Aegis research team, we place a Speculative Buy recommendation on the stock.
Real Estate
Real Estate Investment
Trusts (REITs)
Industry:
Sub Industry:
FINANCIAL SUMMARY
Yr to Jun
VPG's international expansion strategy has been rapid over the recent period, particularly with the
Scarborough acquisition. If successfully integrated, the Scarborough acquisition will provide VPG
with the opportunity to add value to its business through the expansion of its funds management
business. On the basis of current valuation metrics, we have a positive view on VPG on a 12-month
time frame.
07A
08F
09F
NPAT Rep ($M)
109.1 137.3 199.7
NPAT1 Adj ($M)
76.2 190.9 199.7
EPS (c)
11.1
12.6
12.6
DPS (c)
11.1
12.5
13.0
P/E (x)
Yield (%)
Franking (%)
EPS growth (%)
Fundamental View
Diversified REITs
7.4
6.5
6.5
13.5
15.2
15.9
0
0
0
6.5
13.3
0.1
1
Profit & EPS adjusted for options,
goodwill, notional earnings and non
recurring items.
COMPANY OVERVIEW
VPG’s business activities include
passive property ownership, active
property development, funds
management and capital services.
VPG's revenue source is diversified
across a broad range of property
sectors, including office, industrial,
retail and self-storage. Following
the Scarborough acquisition, VPG's
geographic exposure encompasses
mainly Australia, New Zealand and
Europe (including the UK). The
Kimco alliance provides access to
the US and Canadian investor
market.
Source: Proview / Aegis Equities
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be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 11
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Challenger Diversified Property
Group (CDI): On safe ground
KEY STATISTICS
Market Cap ($M):
461.8
CDI's NTA increased from $1.03 per unit as at 30 June 2007 to $1.08 per unit as
at 31 December 2007 (an increase of 4.9%), following an uplift in property
revaluation. Our 12-month price target remains unchanged at $1.00.
Equiv. Shares (M):
538.0
Price:
$0.81
Price as at:
04-Mar-08
% Market:
0.03
12Mth Range ($):
Turnover ($M pa):
Index:
Company Risk:
Share Price Risk:
Ethical Rating:
0.76 - 1.15
244.3
S&P/ASX 300
Sector:
Financials
Industry Group:
What to do (Investors): BUY
The stock has performed relative to its peers since listing in October 2006. The potential for future
acquisitions and development augurs well for the medium- to long-term positive earnings growth.
What to do (Trader):
HOLD - lack of clear signals
The stock spent the best part of 2007 in a range, breaking down in mid December. Over the past
couple of months another range has been developing, between 75 and 90 cents. It is possible that
this will continue to contain price action. Momentum indicators are improving and it is probable that
the recent lows will mark a medium-term low for the stock. From a Technical perspective, given the
prospects for continued volatility within the range, we rate the stock as a HOLD.
Real Estate
Real Estate Investment
Trusts (REITs)
Industry:
Sub Industry:
FINANCIAL SUMMARY
Yr to Jun
07A
NPAT Rep ($M)
61.4 68.6 39.1
NPAT1 Adj ($M)
30.2 42.0 43.6
09F
5.6
7.8
8.1
DPS (c)
5.5
8.5
8.6
14.4 10.4 10.0
Yield (%)
Franking (%)
The property portfolio comprises Australian and French assets and is well diversified by sector and
geography. We have a positive outlook for CDI over the medium term, given the solid portfolio
metrics, conservative gearing and active growth strategy. Based on the current share price, CDI
provides an attractive FY08 yield of more than 10% and we maintain our positive view on the stock.
We maintain a BUY recommendation on a 12-month view.
08F
EPS (c)
P/E (x)
Fundamental View
Diversified REITs
Deferred Tax (%)
6.8 10.5 10.7
0
0
0
50
50
51
1
Profit & EPS adjusted for options,
goodwill, notional earnings and non
recurring items.
COMPANY OVERVIEW
CDI is a domestic diversified
property trust offering exposure to
office, retail and industrial
properties. It is also developing two
further properties and is looking to
acquire properties in both Australia
and abroad to expand the portfolio.
Source: Proview / Aegis Equities
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04 March 2008
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Goodman Group (GMG):
Positioned for gains
KEY STATISTICS
Market Cap ($M):
7,530.9
Following GMG's success in the ongoing execution of its strategy leading to a
good 1H08 result and promising forecasts, coupled with recent unit price falls, we
have revised our 12-month target price from $4.57 to $5.02
Equiv. Shares (M):
1,674.6
Price:
$4.06
Price as at:
04-Mar-08
% Market:
0.44
12Mth Range ($):
3.87 - 7.43
Turnover ($M pa):
9,944.2
Index:
Company Risk:
Share Price Risk:
Ethical Rating:
S&P/ASX 50
Sector:
Financials
Industry Group:
What to do (Investors): BUY
GMG seeks to provide the full suite of property services based on specialision in industrial property.
GMG is actively expanding internationally and seeking to aggressively grow its co-investment and
fund manager businesses to become a global leader in industrial property. The highly fragmented
nature of the global market is an opportunity for GMG to continue to increase its market share.
Real Estate
Real Estate Investment
Trusts (REITs)
Industry:
Sub Industry:
FINANCIAL SUMMARY
Yr to Jun
What to do (Trader):
HOLD - awaiting some positive developments
At the January low, GMG had declined by 50% from its February 2007 high. Price has steadied over
the past month, oscillating between approximately $4.10 and $4.40. Further activity within this range
is likely, but there is a risk that the stock will retest the January lows at $3.87. Failure to hold above
that level would open a downside target of $3.55. While we believe the stock is approaching a
medium-term low, there is continued risk in the near term and insufficient evidence to warrant a Buy
recommendation at this stage.
Fundamental View
The investment portfolio fundamentals are strong, with good rent growth prospects. The global
expansion strategy into the Asia Pacific region is viewed as risk diversifying (by being a co-investor
with experienced local players), with good yield spreads achievable relative to the cost of debt.
Recycling capital is likely to lead to potentially high growth in the funds management revenue stream.
At current levels, we believe the stock to be under-valued on a 12-month view.
Industrial REITs
07A
08F
09F
NPAT Rep ($M)
622.5 570.5 633.8
NPAT1 Adj ($M)
517.4 593.1 664.5
EPS (c)
31.6
35.5
39.4
DPS (c)
31.5
34.0
36.7
P/E (x)
12.9
11.4
10.3
7.8
8.4
9.0
Yield (%)
Franking (%)
EPS growth (%)
0
0
0
15.7
12.4
11.1
1
Profit & EPS adjusted for options,
goodwill, notional earnings and non
recurring items.
COMPANY OVERVIEW
GMG is an internally managed,
vertically integrated business,
being the largest industrial property
group with around 50% of revenue
sourced from recurring property
income. The core focus of the
group is the ownership and
development of industrial
properties in Australia, NZ, Europe
and Asia. Services income from
third party funds management and
property management are
expected to provide significant
growth to earnings.
Source: Proview / Aegis Equities
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04 March 2008
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Aurora Sandringham (AOD)
KEY STATISTICS
Aegis has been commissioned by Aurora Sandringham to include it in the
September 2007 LMI Review and has received a fee for its inclusion.
Price as at:
Price:
$9.05
03-Mar-08
Market Cap ($M):
43.0
Equiv. Shares (M):
Company Details
0.00
AOD is an investment trust that aims to capture dividend income, plus franking credits. The trust
predominantly invests in the largest 30 companies on the ASX and aims to take advantage of the
changes in the market prices of shares around the announcement of their half-yearly and yearly
results. When opportunities exist, the trust may increase exposure through gearing.
12Mth Range ($):
Investment Philosophy
Industry Group:
Success of the strategy is based on two key value propositions: franking credits are systematically
cheap and that, on average, companies outperform the market around their earnings
announcement dates.
Sub Industry:
Style and Process
The trust invests in shares around their results/dividend announcement dates and sells these
shares after it has earned the dividend and franking credits. The trust predominantly invests in the
largest 30 companies, by market capitalisation, listed on the ASX. The stock-holding period needs
to be greater than the 45-day holding period to qualify for franking credits attached to the
dividends. The profit outcome is expected to vary (both positive and negative) from trade to trade.
At the same time, the trust aims to minimise the market risk exposure by predominantly hedging
the portfolio. The hedging strategy uses a combination of index derivatives and single share
derivatives for the top five listed shares. When opportunities exist, as typical around company
reporting seasons, the trust may increase exposure through gearing.
4.4
% Market:
8.72 - 10.48
Turnover ($M pa):
8.2
Index:
N/A
Sector:
Financials
Diversified Financials
Industry:
COMPANY CONTACT
Steuart Roe
steuart.roe@sandringhamcapital.com
61 2 9080 2383
www.aurorafunds.com.au
Investment Team
Steuart Roe, BSc, MAppFin: Managing Director;
David Croll, BBus, ACA: Portfolio Manager
Aegis Comments
Investors should note that the performance in the adjacent “Pre-tax NTA Performance Analytics”
table shows performance with and without franking credits. All performance numbers in the “Tax
Based Returns” table on the next page include franking credits. The expected regular distribution
return is appealing for investors seeking steady income and franking credits, whilst minimising
exposure to market volatility. The ability to gear into the strategy enables the manager to take
advantage of the seasonal company reporting opportunities. Investors should, however, note the
inherent risks associated with the trust, given its use of leverage, derivatives and high stock
concentration characteristics. Taking franking credits into consideration, the trust has outperformed
its benchmark by 7.4% over the past 12 months. Given the reporting season, the trust increased its
investment in stocks over the quarter, with the cash position being dramatically reduced from the
previous quarter end as a result.
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04 March 2008
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Scarborough Equities (SCB)
KEY STATISTICS
Aegis has been commissioned by Scarborough Equities to include it in the
September 2007 LMI Review and has received a fee for its inclusion.
Price as at:
Company Details
Price:
$0.74
29-Feb-08
Market Cap ($M):
14.6
Equiv. Shares (M):
19.1
% Market:
0.00
SCB appointed FSP Equities Management Limited (FSP) as investment manager in December
2004. FSP commenced operations on 3 October 2001 via the launch of the FSP Equities Leaders'
Fund and currently has around 190 wholesale clients. Since inception, the FSP Equities Leaders'
Fund has consistently outperformed the S&P/ASX 200 Accumulation Index. The SCB portfolio
consists of two components, being an investment of A$22.2M in the FSP Equities Leaders' Fund
and A$4.3M invested in ASX-listed oil and gas company Drillsearch Energy Ltd (DLS).
12Mth Range ($):
Investment Philosophy
Sub Industry:
The FSP Equities Leaders’ Fund that SCB invests into is based on the philosophy that equity
markets can display inefficient pricing valuations in the short term that can allow an active
investment style to benefit and ultimately outperform its relevant benchmark.
COMPANY CONTACT
Style and Process
FSP focuses on publicly available information, combined with in-house research, to identify stocks
with the goal of outperforming the S&P/ASX 200 Accumulation Index over the medium term. Around
75% of the equity portfolio is targeted at companies within the ASX 200 Index, with the remaining
25% invested in non–ASX 200 companies. The investment manager is ‘style neutral’ and invests in
growth stocks, value stocks, stocks with maintainable dividend yields and special situations. The
portfolio can be described as index-unaware and high conviction.
0.74 - 1.10
Turnover ($M pa):
2.1
Index:
N/A
Sector:
Financials
Industry Group:
Diversified Financials
Industry:
Farooq Khan
Chairman
fkhan@scarboroughequities.com.au
1300 762 678
www.scarboroughequities.com.au
Investment Team
R Chalmers, BComm(Acc & Fin), ASIA: Investment Director; R Gregory, BComm(Hons) (Econ &
Fin), Pgrad Dip FINSIA; J Harris, MA (Econ), Pgrad Dip (Econ), BSMath: Equities Analyst; V Cook,
BA, LLB: Equities Analyst.
Aegis Comments
As an investment manager, FSP now has a five-year strong track record, during which it has
continued to outperform the S&P/ASX 200 Acc. Index. The manager has built a high-quality
portfolio with high conviction positions in the majority of its top 10 positions, such as BHP, WBC,
HVN and BNB. SCB has outperformed its benchmark over the last 12 months, with pre-tax NTA
(including dividends) increasing 36.99% compared to the benchmark return of 33.58%. Over the
September quarter, SCB marginally underperformed its benchmark, with pre-tax NTA, including
dividends, increasing 4.65% compared to the market’s 5.48%. During the quarter, SCB became
fully invested, further allowing the manager to take part in positive market momentum. The manager
continues to trade at a substantial discount to pre-tax NTA, with the discount being 23.8% as at
September end.
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be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 15
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Global Mining Investments (GMI)
KEY STATISTICS
Aegis has been commissioned by Global Mining Investments to include it in the
September 2007 LMI Review and has received a fee for its inclusion.
Price as at:
Company Details
Price:
$1.86
04-Mar-08
Market Cap ($M):
388.9
Equiv. Shares (M):
157.2
% Market:
0.02
GMI is an LIC that invests in metal and mining companies across global markets. The investment
manager of the GMI portfolio is BlackRock Investment Management (UK) Limited (BlackRock),
based in London. BlackRock is responsible for managing the world’s largest metal and mining mutual
fund and uses these skills to manage GMI’s investments. GMI has been established to provide
Australian investors access to a diversified portfolio of global metal and mining companies.
12Mth Range ($):
1.33 - 2.30
Turnover ($M pa):
166.7
Investment Philosophy
Industry:
Capital Markets
Sub
Industry:
Asset Management &
Custody Banks
GMI will seek to deliver strong returns by investing in global natural resource companies, with the
objective of exceeding the HSBC Global Mining Index (in A$ terms) over the medium to long term.
Style and Process
GMI’s investment strategy is based on a detailed assessment of the performance of companies
within the global metal and mining sector, with the objective of sourcing undervalued companies in
sectors where growth potentials are high. In addition to company visits, BlackRock performs a series
of quantitative analysis, including a combined study of the performance attributes of the individual
stock and of the sector. Essentially, BlackRock applies a combined top-down/bottom-up research
approach.
Investment Team
Index:
N/A
Sector:
Financials
Industry Group:
Diversified Financials
COMPANY CONTACT
John Robinson
info@globalmining.com.au
61 3 8612 7199
www.globalmining.com.au
Graham Birch, PhD and BSc(Mining Geology): Chief Investment Officer;
Evy Hambro, BSc(Hons) Marketing: Lead Fund Manager;
Richard Davis, MSc Min.Expl.: Fund Manager;
Poppy Buxton: Fund Manager;
Robin Batchelor: Fund Manager
Aegis Comments
GMI delivered another strong performance over the September quarter, driven largely by the
continuing strong performance of the Resources sector. On a pre-tax NTA basis, GMI
underperformed its benchmark over the quarter, with GMI’s pre-tax NTA, including dividends,
increasing 7.8%, compared to its benchmark, the HSBC Global Mining Index, which rose 14.4%. The
major negative contributions over the quarter came from positions held in Mintails, Zinifex and
Murchison Metals. On the other hand, the most significant positive contributions came from positions
held in Zijin Mining and China Shenhua Energy. The trading discount remained similar to that of the
previous quarter, with GMI trading at an 11.3% discount to pre-tax NTA as at September end. In
early September, GMI completed a 1-for-3 share rights issue, raising A$78M to be used to increase
exposure to the global resources market. GMI provides investors the opportunity to gain exposure to
a diversified portfolio of global resource companies. The team responsible for GMI has been
assigned an AAA rating by Forsyth Partners and Standard & Poor’s, and the company is well
structured to remain at the forefront of this investment sector. Investors should note that the
performance in the adjacent “Pre-tax NTA Performance Analytics” table is not totally representative
of GMI’s performance because of the dilutionary impact of options exercised during the measured
period.
This page must be read in conjunction with our disclaimer on the last page of this document. It may contain recommendations which may not
be appropriate for all investors. ShareAnalysis Weekly - Copyright © 2007 by Aegis Equities Holdings Pty Ltd
04 March 2008
PAGE 16
STOCK IDEAS
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