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Week Commencing September 1, 2014

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This week we look at the following topics:
• ASX reporting season review
• Key blue chip companies & how they faired
• Australian Banks and how they reported

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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 will do the first 15 stocks in the week commencing 1 September and stock 16-30 in
the following week. 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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Commonwealth Bank (CBA) Result: Full year A$8.6bn
The largest stock on the market and now one of the largest businesses in the Asia Pacific
region. The result needed to be good and it was, very solid indeed. Moderate economic
growth, low interest rates, increasing household wealth and relatively low unemployment
drove loan quality higher, with bad debts falling to pre-GFC lows. Loan impairment costs
as a percentage of gross loans are 0.16%, down from 0.20% in 2013.
CBA is likely to remain in favour with investors for as long as interest rates remain low in
Australia. In the long term there are some serious issues around the growth of the loan
book relative to national income and the exposure to residential property in Australia –
not issues which are likely to becoming problematic in the short term but worth
considering as part of a medium term view. Hold or take profit.

5. BHP Billiton (BHP) Result: Full year US$13.5bn
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Result was ok, probably not as strong as required to reassert its once dominant position as the largest
stock on the Australian market. Copper is tracking better than expected but is offset by petroleum
costs. Oil and gas operating costs remained considerably higher than anticipated, encouraging harsher
future assumptions.
The big question for BHP in the short term is where the iron ore price goes to from here. We have
written about iron ore this week on the Invast blog section of the website, so check out that note.
BHP Billiton shares have retreated since confirming plans to spin-out non-core assets and
disappointing the market with the lack of a share buyback. U.K. resident shareholders don't seem
thrilled that "Newco" will only list on the Australian and Johannesburg stock exchanges. We prefer if
the company didn’t split up at all. Hold with a view to Buy on further price falls.

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Westpac Banking (WBC) Result: Awaiting quarterly
We’re waiting to see where Westpac’s quarterly update comes in at over the next few
weeks. It has a different balance date to most industrial companies, similar to NAB and
ANZ.What we do know though is that Westpac’s loan growth has been impressive.
APRA Banking Statistics indicate strong growth for the 12 months to June 2014, with
Westpac's business lending up 9%, home loans up 6% and household deposits up 11%.
The increased business flows combined with lower funding costs bode well for future
revenue and earnings growth.
Shouldn’t really have a problem meeting market expectations for full year profit of around
$7.7bn to be reported in late October/early November. Hold with a view to Sell on any
further rally.

7. ANZ Bank (ANZ) Result: Third quarter A$1.7bn
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Lacked the upside that the market was hoping in its quarterly update, but no real surprise for us. Full-year
guidance is maintained but revenue growth is now expected to be at the bottom end of the 4%
to 5% target range. Modestly softer third-quarter revenue surprised as lending and deposit volumes
remain strong.
Lower bad debts partially offset softer revenue. The improvement in loan quality reflects tight
underwriting standards, continued low interest rates and low levels of corporate leverage. We have
written about ANZ previously in Invast Insights and said that while we like the Asian growth strategy,
we think there will be losses in that region over the next couple of years before ANZ learns the hard
lessons of doing business in Asia.
Should that occur, we would be inclined to Buy but only in the high $20’s range. Until then, happy to
Sell and take profit.

8. National Aust. Bank (NAB) Result: Third quarter A$1.6bn
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Usually not one to impress on the upside and no real change again with NAB. It remains a
Sell, we don’t buy into the promises of a turnaround. The numbers themselves weren’t
too bad, it’s just a case of track record which doesn’t look all that good over the past
decade or so.
The third-quarter bad debt expense of $241m is modestly lower than the average of the
two previous quarters, but is 50% lower than third-quarter 2013. Troublesome U.K. issues
continue to cloud the near-term outlook, but we remain positive in the longer term and
look forward to solid earnings and dividend growth as the Australian economy picks up
through 2015 and 2016. The big disappointment remains the U.K. The company expects to
take additional non-cash provisions of at least GBP245m ($450m) when the full-year 2014
results are finalised in October.

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Telstra Corp (TLS) Result: Full year A$4bn
A great result. Telstra is emerging into one of the most exciting technology companies in
Australia and the commitment to a solid dividend – with reliability – has seen it feature
prominently in many self-managed super fund portfolios.
Telstra’s superior mobile and network infrastructure is a key differentiator from
competitors. We continue to expect mobile, its network application and services business,
and digital media to underpin medium-term revenue growth. Confirmation of a $1bn off-market
share buyback was a key positive takeaway.
Telstra remains a solid Buy as core part of a well-diversified portfolio.

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Wesfarmers (WES) Result: Full year A$2.4bn
Not the best result but the market liked it. Our preference in this space is still Woolworths which
disappointed slightly, we feel through that Woolworths has a much more sustainable platform in the
domestic food and liquor space.
For Wesfarmers, the retail assets, which contribute to 85% of earnings are the largest driver to
growth offsetting weakness from the resource and industrial safety divisions. Coles and Bunnings
remain the stand out contributors to group earnings as they continue to increase their operating
margins by lifting sales volumes while offering customers better value by lowering product prices.
Target continues to bleed earnings and head backwards and we think the problem is unlikely to
disappear overnight.
Our preference is to Sell here and rotate into Woolworths which seems to provide better relative
value.

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Woolworths (WOW) Result: Full year A$2.5bn
Nice and clean set of numbers. Earnings were within the guidance range and Woolworths is still
predicting the business to grow at around twice the rate of GDP despite problems in its home
improvement division.
One of the most important parts of a running a business is admitting your mistakes and to us
we actually think the errors in the home improvement division are a positive. Woolworths will
learn from its mistakes and take a more prudent and measured approach to expansion,
stopping any large leakage.
With food inflation set to return, we think Woolworths is a standout core portfolio holding with
the share price weighed down by home improvement issues which will be addressed in the
coming years.

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CSL Limited (CSL) Result: Full year US$5.5bn
Announced a better than expected result but is still yet to completely win back market trust.
Notwithstanding a 4% sales decline in bioCSL, the company’s vaccine business, and in
hemophilia products, solid gains were made in all other categories.
Top-line revenue continues to be driven by immunoglobulins, or IG, which grew by 12% year on
year in constant currency terms, buoyed by strong demand of Hizentra, CSL’s subcutaneous
immunoglobulin. Cash from operations for fiscal 2014 was US$1.4bn.
The company is investing heavily in terms of expanding existing facilities in the US, Switzerland
and Germany in addition to the Broadmeadow’s Privigen facility which opened in May 2014. In
addition CSL announced Switzerland as the site for its new recombinant manufacturing facility.
At best, a Hold.

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Woodside Petro. (WPL) Result: Interim US$1.1bn
Our preferred exposure in the energy space. We feel that Woodside’s developed and proven
infrastructure puts it miles ahead of its East Coast peers who are promising so much over the
next few years in terms of increases in production. We feel a lot better going to sleep at night
withWoodside relative to the others, a strong commitment to dividend doesn’t hurt either!
Underlying first-half fiscal 2014 earnings increased 23% to USD 1.14 billion, about 10% below
our US$1.26nn forecast. Higher-than-anticipated depreciation of US$703m or US$15 per barrel
of oil equivalent (boe) was the cause.
Woodside is a cash cow at the moment, in a development capital hiatus, and with strong Pluto
T1 revenues. Coupled with our bullish energy outlook presented last month, Woodside is the
only energy stock we see worthwhile holding as part of a very well diversified portfolio.

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Rio Tinto (RIO) Result: Interim US$5.1bn
The numbers look ok but the huge operating leverage to iron ore marks Rio Tinto a Sell for
us. The company remains all about iron ore, that division reporting a 10% increase in
underlying contribution, and making up more than 90% of earnings overall. The next
largest contributors, copper and aluminium, also exceeded expectations, but they remain
almost immaterial.
We’re not completely sold on the promise of US$3bn in ongoing cost savings over the
next few years and with that in mind would be taking profit off the table. We need to have
a closer look before relaxing our view, at the moment the depressed iron ore price makes
forecasts very difficult.

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Macquarie Group (MQG) Result: Awaiting interim
Waiting to see where the interim profit numbers actually print over the next few months to form a better
judgment around the ability of Macquarie shares to continue rising above A$60 per share. We have seen a
glimpse from the first quarter update.
In typical Macquarie fashion, guidance for fiscal 2015 was cautious, noting that a year ago the firm guided
for improved full-year earnings in fiscal 2014, then subsequently delivered earnings per share growth of
53%.
Speaking ahead of the group's 2014 annual general meeting, CEO Moore reported that the group's annuity-style
businesses for 1Q15 were broadly in line with 1Q14 and 4Q14. The group's capital markets facing
businesses for the first quarter were down on 1Q14 and 4Q14 due to the timing of transactions and lower
volatility and volumes impacting Macquarie Securities and certain Fixed Income, Currencies and
Commodities businesses.
Hold, wait and see. Attractive in the low $50’s per share range.

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Suncorp (SUN) Result: Full year A$1.3bn
Good number but not high on our list of quality exposure, still too many unresolved issues
for us. No major surprises in the 2014 reported profit of $730m (up 48% on fiscal 2013),
with 2014 earnings including a previously flagged A$496m non-cash write-down of the
Suncorp life division intangible assets, following a belated recognition of worse-than-expected
future claims and lapse assumptions.
The life division reported cash earnings of $84m, down 30% on fiscal 2013. The final fully
franked dividend of $0.40 per share and $0.30 special dividend take total dividends to an
attractive $1.05 per share for the year, up significantly on the $ 0.75 paid for fiscal 2013.
Remains a Hold for now.

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Scentre Group (SCG) Result: Interim $5.31bn
New to the market so the earnings numbers need to be treated with caution.
Our preference in this space remains Westfield Corp (WFD).

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AMP Limited (AMP) Result: Interim A$510m
Perhaps one of the greatest turnaround during this reporting season. The market loved the number.
We last wrote about AMP in our Invast Insights report published in early March this year. Click here
for reference. http://www.invast.com.au/downloads/file/resources/140303-Invast-Insights-Final-
023.pdf
In that report we wrote “We think the stock will now try to form some support at around the $4.80
level which was previous resistance. The jury is still out on whether or not this is the turning point for
AMP. We will probably have to wait a few months to see how sustainable this rally is. For now it’s a
Hold, a nice dividend announced. It delivered as it needed to.”
Last week’s number was good enough to win back market trust, the shares are scaling rolling year
highs and it’s hard to buck the trend. Perhaps AMP is finally re-emerging from a deep slumber and
the market likes it relative to peers which seem fully prices.

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Next week we will review the next 15 stocks (stock 16-30) which make up the top 30 on
our market. Remember to book in early for this month’s webinar with details below.

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Opportunities in Trading Blue Chip & Emerging ASX Stocks
Blue Chip ASX stocks have helped the Aussie 200 Index hit fresh 6 year highs recently and with our
banking, property trust and Telco sector running hot, it’s time to identify where the opportunities
are coming from next.
Join Peter Esho, regular contributor on CNBC, Bloomberg and host of ‘Your Money Your Call’ as he
discusses:
• Recent performance & opportunities of key blue-chip companies
• Emerging small ASX stocks you need to keep an eye on
• 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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insights as they are published to our live clients.

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