IMF class action specialist - equity research initiation report

1. Stock Focus
IMF (Australia) (IMF)
1
IN A CLASS OF ITS OWN
RECOMMENDATION : POSITIVE
GLOBAL LEADER IN LITIGATION FUNDING
IMF is a global leader in litigation funding, measured by:
 The $1.5bn value of its litigation portfolio;
 An excellent track record (lost only 5 cases out of 147); and
 Successful outcomes against mostly institutional defendants
including the likes of Microsoft, Ericsson and PriceWaterhouseCoopers.
UNCORRELATED TO MACROECONOMIC EVENTS
Litigation funding is an alternative asset class, with outcomes that are
completely independent of the economic drivers impacting other stocks
Accordingly, while it can also be traded around litigation events, inclusion of
IMF should enhance portfolio diversification and reduce volatility.
VALUATION SUPPORT
IMF is trading close to our liquidation value of $1.28 and below our
blended valuation of $1.96 (average of discounted cash flow and PE-
multiple approaches), offering a substantial margin of safety.
We believe IMF is trading at a discount because:
 Its dividend distribution policy creates a volatile income stream; and
 Growth in the litigation portfolio has slowed.
Catalysts include a smoother dividend distribution profile, portfolio growth
and case wins in scalable causes of action (such as the banks fees’ class
action and sub-prime mortgages litigation). We initiate coverage with a
Positive recommendation.
Trading Data
Last Price $1.41
12 month range $1.28 - $1.58
Market Cap $175m
Free Float $151m (86%)
Avg. Daily Volume 0.2m
Avg. Daily Value $0.2m
12 month return (historical) (4.6)%
Return on capital is forecast to decline in
FY13-14 as the current litigation portfolio
matures, but in absolute terms remains
attractive at ~20-30%.
IMF’s business model is highly scalable, with
litigation costs outsourced to third party law
firms. Profit margins consistently exceed 60%.
Earnings Forecasts
Yr to June 09A 10A 11A 12E 13E 14E
EBITDA ($m) 27.2 15.2 31.4 63.4 53.4 32.6
Rep NPAT ($m) 20.8 11.9 22.9 42.4 35.4 20.9
Adj NPAT ($m) 20.8 11.9 22.9 42.4 35.4 20.9
EPS (¢) 17.4 9.8 18.6 34.4 28.6 16.9
EPS Gth (%) 15.3 (43.7) 89.9 85.3 (16.8) (40.9)
PER (x) 8.1 14.4 7.6 4.1 4.9 8.3
PEG Ratio (x) 1.2 0.1 0.1 (0.1)
DPS (¢) 10.0 5.0 15.0 10.0 14.0 14.5
Yield (%) 7.1 3.5 10.6 7.1 9.9 10.3
Franking (%) 100% 100% 100% 100% 100% 100%
ROE (%) 32% 16% 26% 33% 25% 14%
EV/EBITDA (x) 4.2 8.6 4.9 2.5 3.0 4.8
Net Debt/EBITDA (x) (2.2) (2.8) (0.7) (0.3) (0.3) (0.6)
Int. Cover (x) (8.0) (8.3) (19.2) 23.7 21.0 13.1
Valuation (blended) $1.96
George Gabriel, CFA
ggabriel@evansandpartners.com.au
June 29, 2012
+61 3 9631 9853

2. 2
CONTENTS
1. Investment Considerations 3
2. Industry Overview 5
 Industry History
 Business Model
 Regulation
 Licensing
3. Business Overview 6
 History
 Competitive Advantages
 People, process, performance
4. Shareholder Value Drivers 8
 Litigation portfolio value
 Net win rate
 Time duration of cases
5. Valuation 10
 Blended valuation
 Liquidation value
 Stock catalysts
6. Capital Management 11
 Dividend policy
 Share buyback
 Convertible note
7. Risks 12
 Competition
 Contingency Fees

3. 3
INVESTMENT CONSIDERATIONS
We summarise key investment considerations below.
(i) Earnings are not correlated to other asset classes
Litigation funding is an alternative asset class, with outcomes being completely independent of the
economic drivers impacting other stocks. Accordingly, we expect that inclusion of IMF in a stock portfolio
will enhance portfolio diversification and reduce volatility.
IMF is also a relatively defensive stock, given the value of its litigation claim portfolio is counter-cyclical,
with volumes expected to increase post a cyclical downturn (eg. increased insolvency & continuous
disclosure cases).
Indeed, Chairman Rob Ferguson has said: “Whilst we at IMF do not wish instability, meltdowns and
whipsaw stockmarkets on anyone, it has to be said that all these events create a wonderful environment
for our business”.
(ii) Excellent track record
IMF has been operating in various forms since 1998 (listed since 2003). It has the longest operating history
and track record of any litigation funder (LF) in Australia, and possibly globally.
IMF has only lost 5 matters out of 147 since listing, and it is currently appealing the loss in Collyer Bristow.
IMF has won ~78% of matters it has commenced and withdrawn from 19% of matters. Importantly,
withdrawals cost less than $75k per matter, highlighting IMF’s strong focus on due diligence and risk
management prior to taking a matter to trial.
(iii) Attractive valuation
IMF currently offers valuation support, with the share price trading at only a slight premium to our
liquidation valuation of $1.28 per share and a material discount to our blended valuation of $1.96.
Our blended valuation is the simple average of our discounted cash flow valuation of $2.07 and PE
valuation of $1.86 (applying 10x PE to average of next three years’ EPS forecasts).
Our liquidation value represents the net present value of the liquidation of the current $1.5bn litigation
portfolio over the next 3 years, assuming that no more cases are commenced & operations cease in 3
years.
We believe IMF is trading at a discount to valuation because:
 Its dividend distribution policy creates a volatile dividend stream; and
 Growth in the litigation portfolio has slowed.
Catalysts include a smoother dividend distribution profile, portfolio growth and case wins in scalable
causes of action (eg. major banks’ exception fees class action applicable to other classes of consumer
exception fees; and sub-prime mortgages sales litigation applicable to other vendors of this asset).

4. 4
(iv) Maturing domestic market; offshore growth incrementally developing
A key shareholder value driver is the value of IMF’s litigation portfolio.
IMF has grown the value of its litigation portfolio over time, but our base case is that the value of the
portfolio will stabilise at ~$1.5bn.
Whilst the US remains a growth option, we believe it is 2-5 years before it will have a material
earnings impact – accordingly, we have attributed zero value to IMF’s USA litigation funding
business.
(v) Limited, ad hoc competition
IMF is the dominant Australian litigation funder. Competition is ad hoc, leaving IMF mostly uncontested as
effectively the primary LF challenging large institutional defendants such as Microsoft, Ericsson, Lehman
Brothers, the 4 major banks, the “Big 4” audit firms etc. Indeed, IMF’s smaller competitors often refer
major institutional litigation to IMF (eg. National Potato and Ericsson cases).
In theory, barriers to new entrants in litigation funding are low, but barriers to achieving scale are relatively
high (ie. expertise, track record, dealflow and access to capital).
There is little sign of scalable, institutionalised competition confronting IMF. However, the
theoretical risks are:
 A large, offshore law firm enters the Australian market; or
 It becomes permissible for domestic law firms to charge contingency fees.
We believe that the Australian market is no more attractive than offshore markets, so it is unclear why any
large offshore entrant would specifically target Australia.
Furthermore, IMF’s response to contingency fees would be to change its business model from LF to law
firm.
(vi) High scalability and operating leverage
IMF’s business model is highly scalable, with a relatively low fixed cost base and high variable costs
linked to the volume of litigation. Arguably, IMF’s existing infrastructure can support from $2.5-
$3.0bn of litigation claim value.
Currently, fixed costs comprise ~$3.2m of annual employee expenses and ~$3.0m of corporate/office
expenses.
Litigation management is outsourced to third party law firms like Slater and Gordon, Maurice Blackburn
Cashman and some smaller firms. In the last 12 months, IMF expensed ~$26m in third party legal fees.

5. 5
INDUSTRY OVERVIEW
Industry History
Historically, there was some debate as to the legal status of third party litigation funders. However, this has now
been unequivocally removed by endorsement of the High Court, Federal Government & Law Council of Australia.
Institutional litigation funders have grown to meet a market gap created by the rising cost of litigation, risk-averse
plaintiffs and the legal prohibition on contingency fees.
Historically, common law opposed litigation funding on the grounds of (i) maintenance; (ii) champerty; and (iii)
abuse of process. However, the High Court’s 2006 Fostif case over-ruled these objections on the grounds that
litigation funders provide:
(i) Increased access to justice in an environment of rising litigation costs;
(ii) Increased efficiency (particularly in the administration of complex multi-party actions); and
(iii) Commercial objectivity during legal proceedings.
Litigation funding has been quite common in insolvency matters where an insolvent company is financed by the LF
to pursue claims against third party defendants. It is only recently that litigation funders have facilitated the
conduct of substantial group claims.
Before the High Court’s Fostif case, litigation funders relied on statutory exceptions in specific legislation to
operate. However, the Fostif case removed the common law uncertainty and moved the policy debate onto
appropriate regulation and licensing of the sector.
Business Model
Litigation funders typically manage the litigation process on behalf of plaintiffs, assuming all the costs of litigation
but in return receiving an agreed percentage of the gross settlement achieved (typically between 15-40%).
LFs have evolved from insolvency matters to large class actions, especially securities class actions. Litigation
funding does not assist with the vast majority of civil claims in Australia due to the unattractive risk/reward
equation. Personal injury, workers compensation and other actions for which the risks may be predicted with
reasonable accuracy are generally funded by solicitors on a “no win, no fee” basis (eg. “no win, no fee” personal
injury law is Slater and Gordon’s primary business model).
Regulation
The regulatory context has evolved over time to become increasingly supportive of litigation funding companies:
 March 1992. Part IVA of the Federal Court Act 1976 was introduced to enable class actions.
 Sep 2006. Standing Committee of Attorneys General argued in favour of litigation funding.
 Oct 2006. The High Court of Australia decided in the Fostif case to over-turn historical common law
prohibitions on litigation funding.
 May 2010. Federal Corporate Law Minister Bowen announced Government policy to overturn the Federal
Court’s Multiplex case which created uncertainty by ruling that litigation funders were operating managed
investment schemes and so required specific Australian Financial Services Licences (AFSL). Instead, the
Minister took the view that court rules and procedures sufficiently regulated the conduct of litigation and so
litigation funders do not require separate licences.
Licensing
IMF has been advocating for further regulation on the sector. In fact, IMF is the only LF which currently has an
AFSL. Greater regulation would arguably benefit incumbents such as IMF as another barrier to entry is erected.

6. 6
BUSINESS OVERVIEW
History
IMF commenced operations in 1998 and listed in 2001. CEO Hugh McLernon initially commenced litigation funding
in a private vehicle in 1992. As part of its listing in 2001, IMF acquired the litigation funding businesses of John
Walker and Clive Bowman, both of whom remain investment managers with IMF today.
Competitive Advantages
IMF is Australia’s only listed litigation funder & possibly the world’s largest player. Its competitive advantages are:
(i) Long track record, indicative of its case selection skills and internalised corporate knowledge and a key
driver of a steady stream of case referrals;
(ii) Access to public capital, allowing larger institutional defendants to be prosecuted; and
(iii) Scale, which generates higher margins on the fixed cost base (comprising ~$3.2m in employee expenses
and $3.0m in corporate/office expenses).
Its competitive advantage is evidenced by the fact that other litigation funders often refer matters to IMF once the
original funder’s financial or legal resources have been exhausted, eg. The Uniloc case (vs Microsoft); the major
banks’ exception fee class action; and the Ericsson case.
People, Process, Performance
Given IMF is an alternative asset manager, analysis of its people, process and performance is relevant.
People
IMF has a total of 27 staff, of which 12 are investment managers with senior litigation experience. CEO Hugh
McLernon is highly regarded both within the legal industry and by the investment market. He is a former
barrister and Clayton Utz litigation partner (with 20 years experience).
Chairman Rob Ferguson has extensive senior corporate experience, was CEO of IMF from 2007-2009, and
was CEO of BT Investment Bank from 1985-1999.
Process
Similar to a private equity firm, IMF invests in <10% of cases it reviews. Key elements of its process:
(i) Commerciality. Initial focus on commercial over legal outcomes. The initial primary focus is on
identification on a defendant with financial capacity.
(ii) Legal analysis. Legal merits are then considered. The objective is to identify cases with a high
probability of success. This may involve internal analysis of the legal issues or engagement of external
advice from senior counsel or relevant industry experts. IMF generally prefers matters predicated on
documentary (and not oral) evidence.
(iii) Plaintiff class development. Building a plaintiff class usually occurs next. This may be through direct
marketing, or through online plaintiff class accumulation (eg. as in the major banks’ exception fee
class action).
(iv) Risk management. Risk management involves a combination of:
 Careful case selection;
 Case withdrawals with limited capital loss;
 A portfolio approach to investing;
 Maintaining a minimum cash balance to ensure financial liquidity does not undermine the legal
process;
 Limiting total capital at risk on any individual matter by not over-investing relative to the overall
portfolio; and
 Maintaining adverse costs insurance to cover litigation costs to a certain amount.

7. 7
(v) Case withdrawal. As a matter is developed and evidence accumulated, IMF may choose to withdraw
from a particular matter. This may be either because the evidence is not as compelling as initially
thought or because the plaintiff class may not have gathered sufficient scale.
Importantly, of IMF’s 25 withdrawals in total, the cost has only been $1.8m (less than 2% of total
invested costs) or $72k per case. IMF will outlay a small sum to initially explore and develop a case,
but it limits capital at risk if the matter is not considered legally robust or commercial.
Performance
IMF has been operating in various forms since 1998 (listed since 2003).
It has the longest operating history and track record of any LF in Australia, and possibly globally.
As at 23 Feb 2012, it had only lost 4 matters out of 130 since listing (3%) and won 78% of matters it has
commenced and withdrawn from 19% of matters.
TABLE 1: IMF TRACK RECORD
Source: IMF, EAP, as at 23 February 2012.

8. 8
SHAREHOLDER VALUE DRIVERS
There are three key shareholder value drivers:
(i) Litigation portfolio value;
(ii) Net win rate; and
(iii) Case duration.
Litigation portfolio value
A key value driver is the total value of litigation claims. Chart 1 illustrates the historical trend.
Since IMF listed, the lowest value of its litigation portfolio was $520m. Since then, the average value has been
~$1bn. Although IMF had previously targeted a $2bn litigation claim portfolio by June 2011, it peaked at $1.778bn
as at 30 June 2011 and has since declined to $1.535bn (as at March 2012).
CHART 1: IMF LITIGATION PORTFOLIO
0
250
500
750
1,000
1,250
1,500
1,750
2,000
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Mar-12
IMF Litigation Claims Portfolio Value
A$m
Source: IMF, EAP, as at 23 February 2012.
There are opposing views on the outlook for the litigation portfolio claim value:
 The bearish view is that IMF’s litigation claim portfolio has reached a permanent plateau at around ~$1.5bn.
 The bullish view is that it takes 2-5 years before cases develop from a specific event.
For example, IMF is still pursuing defendants who sold toxic sub-prime mortgage assets (eg. Lehman Brothers)
during the Global Financial Crisis.
Also, IMF is potentially setting new precedent in the class action against the major banks on over-charging of
exception fees. If these matters are sustained, then IMF can potentially apply the precedents to wider
categories of defendants.
Also, over time, the US may become a real growth option for IMF. However, we believe it is appropriate to
grow incrementally in this market and not undermine risk management procedures in the search for growth.
Our base case view is that the portfolio stabilises at ~$1.5bn, but we believe upside risks exist.

9. 9
Net win rate
The “net win rate” is the percentage of litigation claim value which translates to gross revenue to IMF.
IMF estimates a 15% net win rate on their portfolio claims face value.
Our analysis of historical case wins confirms that a 15% assumption is reasonable.
However, we apply a more conservative 14% win rate in perpetuity in our base case so there is some
upside risk to our valuation.
Table 2 summarises the derivation of the 15% net win rate calculation. Note that the 15% of cases which IMF does
not win mostly consist of withdrawn cases (with very infrequent losses at trial).
TABLE 2: NET WIN RATE
Source: EAP.
Time duration of cases
IMF’s target is to reduce the time duration of cases to 2.5 years. Currently, it is within the 2.5-3.0 year range.
Since listing, IMF’s investments have had an average weighted investment period of 4.1 years and have generated
3.0x cash on cash return. However, shorter time durations have become possible given:
 Litigation has settled many unclear legal areas.
 Court efficiency has improved, eg. The “Rocket Docket” system in the Supreme Court of Victoria.
 Institutional defendants are now unlikely to seek to deplete IMF’s financial resources as a litigation tactic given
it is now clear that IMF is well funded and retains ongoing access to public capital markets.
Our base case assumes a 3 year case duration across the IMF portfolio, so there is some upside risk to our
discounted cash flow valuation if cases are concluded sooner.

10. 10
VALUATION
IMF currently offers substantial valuation support, with the share price trading at only a slight premium to our
liquidation valuation of $1.28 per share and a material discount to our blended valuation of $1.96.
Blended valuation
Our blended valuation is the simple average of our discounted cash flow valuation of $2.07 and PE valuation of
$1.86 (applying 10x PE to average of next three years’ EPS forecasts).
Liquidation value
Our analysis of liquidation value is for the purposes of determining the “bargain price” at which investors can
purchase IMF shares.
Our liquidation value represents the net present value of the liquidation of the current $1.5bn litigation portfolio
over the next three years, assuming that no more cases are commenced and operations cease within 3 years.
Stock catalysts
We believe IMF’s discount to valuation is due to:
 Its dividend distribution policy, which creates a volatile income stream. IMF did not distribute a 1H12 dividend
(though it may do so retrospectively at the FY12 result), which disappointed some investors.
 Softness in the growth of the litigation claims portfolio.
Catalysts for improving the share price include:
 More frequent, reliable dividend distributions. IMF could achieve this through a more “cross-cycle” approach to
dividend distribution, as opposed to distributing all of the excess cash over a certain threshold. We expect
investors will value steadily growing, reliable dividends more than infrequent but large ones.
 Growth and diversification in the litigation claim portfolio.

11. 11
CAPITAL MANAGEMENT
Dividend policy
IMF considers the following issues in determination of its dividend:
 Any excess over a cash or “near-cash” (ie. debtors) amount of $70m is available for distribution.
 Consideration is given to whether there is a substantial use for funds in excess of $70m (ie. funding litigation).
 Franking of dividends is determined by the magnitude of the dividend franking account. The policy is to pay
dividends to shareholders from earnings if they can be fully franked. There has not been an unfranked dividend
since 1H07.
Share buyback
On 11 August 2011, IMF announced an on-market buy back of a maximum of 12,320,171 ordinary shares (9.99%
of issued shares). To date, no shares have been bought back.
A similar buyback was announced on 10 August 2009. From September 2009 to May 2010, IMF bought back
996,829 shares (~1% of issued shares) at an average price of $1.42 a share.
Convertible note
IMF typically avoids bank debt, most likely due to the lumpy nature of its earnings.
Instead of bank debt, IMF raised ~$38m in convertible notes ($1.65 conversion into ordinary equity, with 10.25%
annual running yield) to fund portfolio growth to its $2bn target by 30 June 2011.
Classifying the convertible notes as debt, IMF reported gearing of 38% as at 30 June 2011.

12. 12
RISKS
Competition
IMF faces little corporatised, consistent competition in its core segment of prosecuting Australian institutional
defendants. The competition IMF faces in larger matters is ad hoc, mostly from:
 Law firms (such as Slater & Gordon, McPherson & Kelly or Maurice Blackburn) or
 Special purpose vehicles speculating on specific cases (eg. International Litigation Funding Partners, a special
purpose vehicle established by Canadian law firm Siskinds, pursued the Multiplex case. Also, Peter Gordon, a
former Slater and Gordon partner, has established Comprehensive Legal Funding).
Domestic competitors tend to be smaller operators focused on smaller commercial and insolvency matters, such as
Hillcrest Litigation Services Limited, Litigation Lending Services Pty Ltd and LCM Litigation Fund Pty Ltd. Ipernica
focuses on intellectual property matters, an area where IMF rarely pursues matters.
We do not believe that the threat of international new entrants is a real and present danger to IMF. International
players who operate corporatised litigation funding models include UK-listed Juridica (JIL) and Burford (BUR).
In theory, there is a medium threat of new international entrants, but we believe that these players are more likely
to compete on a global scale and not simply enter the Australian market in isolation because – to a foreign player -
there is nothing uniquely appealing which differentiates the Australian litigation funding market from other global
markets.
Consequently, we expect that the competition IMF faces for larger institutional matters will continue to be ad hoc.
Contingency Fees
The theoretical risk to IMF is that lawyers will be allowed to charge contingency fees on all cases.
However, there is no political support for this approach given it would move Australia towards the perceived
“ambulance chasing” model of the USA.
Even if Australia moved to this model, IMF could internalise the litigation function and effectively operate as a law
firm rather than outsourcing its litigation work.
However, the changes to the competitive environment would be substantial.

13. 13
FINANCIAL SUMMARY
IMF (Australia) IMF
As at: 29/06/2012 Recommendation: Positive Share Price $1.41
Year end June 2011A 2012E 2013E 2014E
INCOME STATEMENT
Sales Revenue $m 41 73 63 42
Consolidated EBITDA $m 31 63 53 33
D&A $m 0 0 0 0
Consolidated EBIT $m 31 63 53 32
Net Interest $m (2) 3 3 2
Tax Expense $m 10 18 15 9
Associates/Minorities $m 0 0 0 0
Adj NPAT $m 23 42 35 21
NRIs $m
Reported NPAT $m 23 42 35 21
Shares on Issue (end period) m 123 124 124 124
EFPOWA m 136 136 137 137
EPS ¢ 18.6 34.4 28.6 16.9
DPS ¢ 15.0 10.0 14.0 14.5
Franking % 100% 100% 100% 100%
GROWTH/PROFITABILITY RATIOS
Sales Growth % 90.5% 78.6% (13.3)% (32.9)%
EBITDA Growth % 105.7% 102.3% (15.8)% (38.9)%
EBIT Growth % 107.2% 102.9% (15.9)% (39.1)%
EPS Growth % 89.9% 85.3% (16.8)% (40.9)%
EBITDA/Sales % 77.2% 87.4% 84.9% 77.3%
EBIT/Sales % 76.7% 87.1% 84.5% 76.7%
EBIT Interest Cover x (19.2) 23.7 21.0 13.1
Tax Rate % 30.2% 30.0% 30.0% 30.0%
ROE % 26.2% 32.7% 24.6% 14.2%
ROFE % 47.4% 56.2% 41.2% 25.1%
CASH FLOW
EBITDA $m 31 63 53 33
Change in Working Capital $m (29) (3) 2 9
Other $m 0 0 0 0
Gross Operating Cash Flow $m 3 60 56 42
Net Interest Paid $m 1 (3) (3) (2)
Tax Paid $m (4) (18) (15) (9)
Net Operating Cash Flow $m (14) 9 45 48
Maintenance Capex $m
Free Cash Flow $m (7) 41 39 31
Dividends Paid $m (12) 0 (21) (18)
Expansionary Capex $m
Acquisitions $m
Asset Sales $m 0 0 0 0
Dividends Received $m
Shares Issues/Buybacks $m 1 0 0 0
Other $m (9) (45) (20) (11)
Increase in Net Cash/(Debt) $m (27) (4) (2) 3
GOCF/EBITDA % 9% 95% 104% 128%
Total Capex/Sales % 0.0% 0.0% 0.0% 0.0%
Total Capex/Depreciation x 0.0 0.0 0.0 0.0
Year end June 2011A 2012E 2013E 2014E
VALUATION METRICS
PER x 7.6 4.1 4.9 8.3
P/EG (2YR) x 0.1 (0.1)
Dividend Yield % 10.6% 7.1% 9.9% 10.3%
EV/EBITDA x 4.9 2.5 3.0 4.8
EV/EBIT x 4.9 2.5 3.0 4.8
P/FCF x (25.5) 4.3 4.5 5.6
P/BV x 199.2 134.8 121.3 118.6
BALANCE SHEET
Assets
Cash $m 55 51 49 52
Working Capital $m 36 45 41 28
PP&E $m 0 1 1 1
Intangibles $m 0 0 0 0
Investments $m 60 69 88 105
Other $m 1 1 1 1
Total Assets $m 153 167 180 188
Liabilities
Debt $m 34 34 34 34
Working Capital $m 7 13 11 8
Other $m 18 18 18 18
Total Liabilities $m 65 71 69 66
Equity $m 87 130 144 147
Capital Employed $m 66 112 129 129
Net Debt/(Cash) $m (21) (17) (15) (18)
Net Debt/Equity % (24.6%) (13.2%) (10.4%) (12.3%)
Net Debt/Debt+Equity % (32.6)% (15.2)% (11.6)% (14.0)%
Net Debt/EBITDA x (0.7) (0.3) (0.3) (0.6)
Working Capital/Sales % 71.0% 44.1% 47.5% 49.4%
D&A/PP&E % 49.9% 32.5% 25.1% 21.0%
DCF VALUATION $m $/share
Risk Free Rate 6.0% Equity Value 257 $2.08
Market Risk Premium 5.0% (Net Debt)/Cash (18) ($0.15)
Beta 1.00 Franking Credits $
WACC 11.0% DCF Valuation $2.07
67%
71%
75%
79%
83%
87%
91%
2010 2011 2012 2013 2014
Margin Trends
EBITDA/Sales EBIT/Sales
-30
-20
-10
0
10
20
30
-170%
-140%
-110%
-80%
-50%
-20%
10%
2010 2011 2012 2013 2014
Gearing & Interest Cover
Net Debt/Net Debt+Equity (%) EBIT Interest Cover (x)
5%
15%
25%
35%
45%
55%
65%
2010 2011 2012 2013 2014
Return Trends
ROE ROA ROFE - Reported

14. 14
RESEARCH RECOMMENDATION DEFINITIONS
Positive Stock is expected to outperform the S&P/ASX 200 over the coming 24 months
Neutral Stock expected to perform in line with the S&P/ASX 200 over the coming 24 months
Negative Stock is expected to underperform the S&P/ASX 200 over the coming 24 months
Speculative Stock has limited history from which to derive a fundamental investment view or its prospects
are highly dependent on event risk, eg. Successful exploration, scientific breakthrough, high
commodity prices, regulatory change, etc.
Suspended Stock is temporarily suspended due to compliance with applicable regulatory and/or Evans &
Partners policies in circumstances where Evans & Partners is acting in an advisory capacity.
Not Rated Stock is not included in our investment research universe.
Research Criteria Definitions
Recommendations are primarily determined with reference to how a stock ranks relative to the S&P/ASX 200 on
the following criteria:
Valuation Rolling 12 month prospective multiples (composite of Price-to-Earnings Ratio, Dividend
Yield and EV/EBITDA), or long-term NPV for resource stocks.
Earnings Outlook Forecast 2 year EPS growth.
Earnings Momentum Percentage change in the current consensus EPS estimate for the stock (rolling 1 year
forward basis) over the consensus EPS estimate for the stock 3 months ago.
Shareholder Returns Composite of forecast ROE (rolling 1 year forward basis) and the percentage change in
ROE over 2 years.
Debt Servicing Capacity Rolling 12 month EBIT Interest Cover ratio.
Cyclical Risk Qualitative assessment of the 2 year outlook for a stock/industry’s profit cycle.
Industry Quality Qualitative assessment of an industry’s growth/returns potential and company specific
management capability.
Financial Transparency If we don’t understand it, we won’t recommend it.
For stocks where Evans & Partners does not generate its own forecasts, Bloomberg consensus data is used.
Analysts can introduce other factors when determining their recommendation, with any material factors stated in
the written research where appropriate.

15. 15
GENERAL RESEARCH DISCLAIMER, WARNING & DISCLOSURES
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The information is general advice only and does not take into consideration an investor’s objectives, financial situation or needs. Before acting on
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EVANS AND PARTNERS DISCLOSURE OF INTERESTS
Evans and Partners and its respective officers and associates may have an interest in the securities or derivatives of any entities referred to in this
material.
Evans and Partners does, and seeks to do, business with companies that are the subject of its research reports.
EVANS AND PARTNERS CORPORATE RELATIONSHIP DISCLOSURE
AFI: Evans and Partners have arranged, managed or co-managed a public offering of the company or its affiliates in the past 12 months.
AYUHA: Evans and Partners have arranged, managed or co-managed a public offering of the company or its affiliates in the past 12 months.
BHP: A director of Evans and Partners Pty Ltd Advisory Board is a director of BHP Billiton Ltd.
BSL: A director of Evans and Partners Pty Ltd Advisory Board is a director of BlueScope Steel Ltd.
BOQ, BOQPA, BOQPC: A director of Evans and Partners Pty Ltd Advisory Board is a director of Bank of Queensland.
CNGHA: Evans and Partners managed or co-managed a public offering of securities of the company or its affiliates in the past 12 months.
HBSHB: Evans and Partners managed or co-managed a public offering of securities of the company or its affiliates in the past 12 months.
HHY: Evans and Partners has been appointed by the Issuer as Broker to an on-market buy-back. Accordingly, Evans and Partners is unable to give
Sellers advice in respect to a sale of this security.
LLC: A director of Evans and Partners Pty Ltd Advisory Board is a director of Lend Lease Corporation Ltd.
MEF: Evans and Partners has been appointed by the Issuer as Broker to an on-market buy-back. Accordingly, Evans and Partners is unable to give
Sellers advice in respect to a sale of this security.
MQG: MQCPA: A director of Evans and Partners Pty Ltd Advisory Board is a director of Macquarie Group Ltd.
MGR: A director of Evans and Partners Pty Ltd Advisory Board is a director of Mirvac Group.
ORG: A director of Evans and Partners Pty Ltd Advisory Board is a director of Origin Energy Ltd.
PPC: Evans and Partners managed or co-managed a public offering of securities of the company or its affiliates in the past 12 months.
OOH: Evans and Partners have arranged, managed or co-managed a public offering of the company or its affiliates in the past 12 months.
SAR: Evans and Partners managed or co-managed a public offering of securities of the company or its affiliates in the past 12 months.
SPT: Evans and Partners acted in an advisory capacity for the bidder in relation to the proposed offer made to Spotless Group as announced 9 May
2011.
TTSHA: Evans and Partners managed or co-managed a public offering of securities of the company or its affiliates in the past 12 months.
TOX: Evans and Partners managed or co-managed a public offering of securities of the company or its affiliates in the past 12 months.
RESEARCH ANALYST CERTIFICATION
I, George Gabriel, CFA, hereby certify that all the views expressed in this report accurately reflect my personal views about the subject investment
theme &/or company securities. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report.
RESEARCH ANALYST DISCLOSURE OF INTEREST
I, George Gabriel, CFA, &/or entities in which I have a pecuniary interest, have an exposure to the following securities &/or managed products: TGA.
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