During this week's Invast Insights we cover: ► Key ASX stocks following reporting season ► Santos versus Woodside Petroleum ► Contrarian's view on Newcrest Mining GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER) http://invast.com.au/insights CONNECT WITH INVAST TODAY Facebook ► https://www.facebook.com/invastglobal Twitter ► http://twitter.com/InvastGlobal Linkedin ► http://www.linkedin.com/company/invast Invast ► http://www.invast.com.au Google+ ► https://plus.google.com/+InvastAu/

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This week…
• Key ASX stocks following
reporting season
• Santos versus Woodside
Petroleum
• Contrarian's view on
Newcrest Mining

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This week we look at the following topics:
• Key ASX stocks following reporting season
• Santos versus Woodside Petroleum
• Contrarian's view on Newcrest Mining

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Over the first two weeks of September we will be highlighting the top 30
companies listed on the ASX and providing a brief analysis of how we
think their results have been. We covered the first 15 stocks last week
and this week we will touch on the next 15 to round out the top 30. We
feel that it is important to spend time going through each company
individually, a lot can be overlooked during reporting season when
results are all dropped in one large heap on investors. Our criteria will
look at the company, the result and more importantly our investment
conviction following the numbers. This will be the third column in the
report, as we have done previously in our Invast Insights reports. The
September series of reports will be comprehensive enough to give you a
good footing for moving forward in October.

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QBE Insurance (QBE) Result: Interim US$392m
It’s going to take a long time for QBE to win back market trust. The result was disappointing with
plenty of excuses tabled to shareholders from management. At the end of the day QBE is starting to
fight with global investors who have access to very cheap money and thus are willing to demand a
lower return on investment. This drives down the investment returns QWBE was used to having in its
reinsurance business. The glory days are over.
There might be some short term turnaround given so much bad news has been taken through the
stock in recent years, but is that a good enough reason to buy the company? Probably not, just
because bad news is ending that doesn’t make the situation any better. For us QBE remains an avoid,
the numbers, yield, multiple etc don’t really mean much because a total year’s earnings base can be
completely wiped out by a one off event or something that an individual investor knows very little
about. Past history has shown this can occur.
Stay away and don’t be tempted by the valuation.

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Transurban Group (TCL) Result: $252.2m
Transurban continues to surprise the market by the growth in its underlying infrastructure
assets. It’s not the most exciting business but it doesn’t need to be nor does it pretend to
be. The business is effectively a great inflation hedge, as cheap money floods the financial
system and drives up inflation, Transurban’s assets will increase in value and the income
from those assets have inflation hedges in place to ensure a smooth transition. The largest
threat to this business is that at some stage in the cycle, management might be tempted
to take on-board too much debt and do something silly. Nothing yet in that order, but who
knows.
At a 30x price to earnings ratio of next year’s earnings, we see little value and plenty of
downside if things don’t go according to plan.

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Insurance Aust. Group (IAG) Result: $1.23bn
In stark contrast to QBE, this was actually a fairly straight forward and good report card. One of the
things we like about IAG is the fact that they have taken the hard decision of cutting their losses in the
UK and moving on into Asia and Australia where they have core markets. This has been the primary
driver behind the share price rally.
IAG will continue to benefit from this differentiation and clear distinct strategy. Exposure into Asia will
start to yield benefits over the next few years. The only issue for us is price, because the stock has run
up so hard we would be inclined to sit on the sideline and wait for a 10-20% pullback before relaxing
our assumptions.
We might not see the stock in the mid to high $5 range for a while, but we don’t see a point of
chasing it either. As QBE has shown, insurance businesses are poised to eventually disappoint and
chasing makes this a risky proposition.

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Westfield Corp (WFD) Result: -US$871 (pre
adjustments)
This is our preferred Westfield vehicle. We think the separation was desperately needed
and Westfield Corp is now a high growth property development, management and
income vehicle which is leveraged to growth in economies where the cost of capital is
very low.
The separation of lower growth but high quality properties now means that Westfield
corp can focus on high growth opportunities – particularly in joint venture developments
– without the capital constraints. The Westfield brand has a long history of management
performance, a well-defined strategy and focus on capital returns.
We liked the result and continue to back this stock as a core holding in a very well
diversified portfolio.

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Brambles (BXB) Result: $1.34bn
We don’t really have a strong view on the stock at the moment and think it is trading
within a narrow band range as the business consolidates and the global economy
improves. The macro themes are important for Brambles but they are not the only issues
that matter.
There is a strong interest among the market of Brambles ability to maintain its
competitive advantages and stave off competition. If it can manage to do this and reinvent
itself, there will be large upside. But if vulnerabilities come back and bite the business
despite recently clean results, it will be a matter of back to the future.
A hold at best for now. Let’s wait and see.

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Santos (STO) Result: Interim $258m
Our preference in the energy space is Woodside Petroleum, we have made no secret
about this. Santos’ result was well received by the market and we do see some real upside
opportunity here, it just comes down to risk tolerance.
The actual production numbers were slightly disappointing for us, but that might be
because we have a very high standard with our Woodside preference. We have probably
relaxed our views slightly since the result but still not willing to call this a buy. Readers of
Invast Insight would have read last month our very bullish view on the energy space, this
stock will be a beneficiary if oil prices head higher over the next few years.

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Amcor (AMC) Result: $737m
We think this is an Avoid, regardless of where the numbers end up. We have been
following this business for many years and one of the most obvious issues for us is the
constant one-off and abnormal charges that are taken through the profit and loss
statement. This distorts the investment metrics. Amcor has some strong competitive
advantages, we don’t dispute that. What we do dispute is the investment metrics, the
high debt and the commoditised nature of the industry. Not good enough for us to bother.

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Oil Search (OSH) Result: Interim US$152m
Oil Search is playing a high stakes game with its offshore expansion. As we have said
above, our preference in the energy space is Woodside Petroleum, we have made no
secret about this. We couldn’t really find anything in Oil Search’s numbers to change our
view. Its not a stock that we can sleep comfortably at night owning because of possible
sovereign risk ramifications and the high capital cost that has gone into recent project
developments.
Unlike Santos, we haven’t relaxed our views slightly since the result. Readers of Invast
Insight would have read last month our very bullish view on the energy space, this stock
will be a beneficiary if oil prices head higher over the next few years but execution risk is
high at this stage of the cycle for this business.

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Aurizon Holdings (AZJ) Result: Underlying $523m
Poor result and more excuses. There are too many factors outside the control of this
business. Industrial issues, commodity prices, geography, government changes etc. All this
on a very capital intensive business structure.
Most of the bulls on the stock point to Warren Buffett being invested in railroads oversees
to which we argue that those are not as heavily reliant on commodities like coal and iron
ore. We don’t think Buffett would buy a rail and haulage business like Aurizon.

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Sydney Airport (SYD) Result: Interim $53.9m
Like our comments on Transurban, Sydney Airport is very well placed to benefit from
rising inflation and the financial impact this has on asset prices. Outside of this, the
investment case is fairly straight forward. The most interesting decision for the company
will be whether or not to use its right to develop Sydney’s proposed second airport at
Badgery’s Creek. The market will view that decision as crucial and we don’t have a view on
how that will go.
Because of this, we don’t see any compelling reason to be in the stock as of this point in
time.

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Stockland (SGP) Result: Underlying $555m
Stockland is a major beneficiary of the real estate investment boom currently taking place
along the east coast of Australia. The residential development division is just one of the
business pillars and there are still other areas like retail and industrial which Stockland is
exposed to, but as interest rates remain low and the RBA continues to see a need to
stimulate through building and investment, it’s hard to shy away from stocks like this.
The only issue becomes valuation and pricing as opposed to cyclical trend. Starts to look
attractive in the low $4 per share range which might eventuate on a market pullback.

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AGL Energy (AGK) Result: Underlying $562m
AGK is a perfect example of why we think Oil Search isn’t worth the risk to reward ratio.
The stock had been bid up fairly strongly into the result and an ordinary and lacklustre set
of numbers was enough to see the market punish it towards a base of stability.
We much rather prefer industrial businesses like Woolworths and Telstra who not only
provide stable dividends but equally important capital upside as they are leveraged to real
economic inflation.

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Goodman Group (GMG) Result: $601m
Like our comments on Stockland, Goodman is very well placed to benefit from low
interest rates and a focus on building. The industrial portfolio is different to many listed
peers and Goodman has always traded at a premium because of its strong ability to
generate strong development returns. It’s hard to fault the stock and it probably deserves
a place in a very well diversified portfolio with an undemanding price to earnings ratio of
15x next year’s earnings. This translates to an earnings yield of around 6.7% with inflation
growth as opposed to the RBA cash rate of 2.5%.

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Newcrest Mining (NCM) Result: Underlying $432m
Newcrest has taken a lot of the hard pain required over the past few years and is
now in a consolidation phase. The earnings and share price profile are now
completely leveraged to the gold price and so an investment view here is based
on where an investor thinks the gold price will go.
The stock is trading near 10 year lows and while there are few very reasons to be
bullish on gold at the moment given price movements, a contrarian investor
could see this as an opportunity to hold for the long term as part of a very well
diversified portfolio. We wouldn’t argue with that, as long as the time frame is
not an issue.

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Orica (ORI) Result: Interim $263m
At some point in the next couple of years the commodities cycle will turn and Orica will
again find itself as a beneficiary. We don’t know when this will occur, it could take a while.
This might be one of the primary motivations for separating the chemicals division from
the rest of the business. We think if this is executive successfully and a reasonable
turnaround in sentiment towards the mining and resources space, there might be some
good upside in the stock over the next two years. There are two big variables here which
need to be monitored, we will update in the next few months and explain in more detail
in our webinar at the end of this month.

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Next week we will review a collection of smaller companies which we found interesting
during reporting season. These are generally smaller and sometimes more volatile
businesses but we will be screening those which we think can become larger businesses
and with decent balance sheets to facilitate this.

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Stocks outlook: Join the webinar to discuss these points
Invast Insights editor and contributing author Peter Esho will summarise the September
outlook guide for the Australian stock market in this exclusive webinar. Esho is a regular
contributor on CNBC, Bloomberg and host of ‘Your Money Your Call’. In his webinar he will
outline:
Performance of key blue-chip companies
Performance of emerging smaller companies
Outlook for the ASX200 index
Portfolio management tips and tricks
Peter’s webinar will cover both the fundamental and technical outlook going forward plus the
key drivers to look out for and is expected to fill fast. Q&A will be open straight after the
webinar. Register now by visiting http://www.invast.com.au/webinars.aspx.

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Go to www.invast.com.au/insights to get a
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insights as they are published to our live clients.

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