SPEAKER: Ben Clark, TMS Capital

LOCATION: Sydney

DATE: July 2013

ASX INVESTMENT TALKS

Stocks to watch

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Stocks to Watch

Ben Clark Portfolio Manager TMS Capital July 2013

TMS Capital Pty Ltd (AFSL – 333008)

Disclaimer

If any information, recommendation or advice is supplied with this publication

TMS Capital and its employees to the full extent permitted by law disclaim any liability for that information, recommendation or advice and to the

extent liability is imposed by law and is not avoided by the disclaimer, the liability of TMS Capital and all of its employees does not extend to any

consequential or economic loss. As each person’s circumstances will be different, if any recommendation is contained in this publication, no action

should be taken without advice from TMS Capital.

Contents

August reporting season – what to look for

2013 Stocks to watch

RMD – ResMed Inc.

IIN – iiNet Ltd

MBLHB – Macquarie Income Sec.

Who we are

Ben Clark

Financial markets since 2001

Bachelor of Commerce (Sydney)

Appears on CNBC and Sky Business

TMS Capital

Established in 2004

Independent ; owned by staff

Full service

Structural advice

Direct investments

SMSFs

FUM $300m

A strong and growing business

Reporting Season

ResMed

Global leading developer, manufacturer and distributor of medical devices to treat sleep-disordered breathing and other respiratory conditions.

ResMed

Track Record has been outstanding:

73 consecutive quarters of revenue growth

Since 2007 EPS has grown 144%

Gross margin last quarter was 62.4%

Company has net cash of $670m

On market buyback continues

ResMed

Source – ResMed Q3 2013 Investor Presentation

ResMed

How have they achieved this?

Sleep-disordered breathing (SDB) recently estimated to occur in 25% of adult population.

Market Leader

Innovative product renewal

Diversified by region

ResMed

Why we are recommending RMD?

Market will continue to grow

New ways to diagnose patients

Move to Singapore

Weaker AUD

Capital Management

ResMed

Threats to the business

Competitive bidding process in the US

Increased competition

Resmed

Key numbers

Price $4.90

Year high/low: $5.26/$3.02

ROE 19%

FY14 PE 17.9x

FY13 Dividend yield 1.7%

Target price: $6.00

iiNet Ltd

Who they are?

Number 2 provider of DSL broadband in Australia

Recent acquisitions of Internode & TransAct

iiNet Ltd

Track Record has been strong:

Since 2007 EPS has grown 157%

EBITDA margin ~ 20.3%

Subscriber numbers have grown from 196K in 2008 to 826K today = considerable operating leverage

iiNet

Source – iiNet Macquarie conference May 2013

iiNet Ltd

How have they achieved this?

Growth in market share - service & brand

Recent acquisitions have been game changers

Innovation

Scale

iiNet’s record

Why we are recommending IIN?

Continued acquisition led cost savings

Subscriber growth

New products

Potential lift in payout ratio

Corporate potential?

iiNet

Threats to the business

Fixed voice line rental is a concern and must be closely watched

National Broadband Network

iiNet

Key numbers

Price $5.75 - Year high/low: $6.74/$3.25

ROE 19%

FY14 PE 14.6x

FY14 Dividend yield 3.7% ff – 50% payout

Net debt of $158m; Net Debt / EBITDA 1.7x

Target price: $6.50 (price volatility)

Interest rate securities

Basel III changes

APRA reassessment Tier 1 capital has led to reconstructed IRS

Focus turns to perpetual securities

“Transitional arrangements”

Strong yields

Potential for capital outcomes

MBLHB

Issued November 1999

$400m of Tier 1 capital securities

Rate: 90d BBSW + 170bps

Quarterly income

Face value $100

Current price $72.50

Running yield 6.11%

Target price $80

www.tmscapital.com.au bc@tmscapital.com.au

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