Wilson HTM Valuation Dashboard (17 Sept 2013)

VALUATION DASHBOARD

Prices as at Australian [email protected] +612 8247 3101

Source: Wilson HTM, Bloomberg Source: Bloomberg

Quantitative Strategy - Valuation Dashboard

Current Market Theme - Sovereign Risk

Issued by Wilson HTM Ltd ABN 68 010 529 665 - Australian Financial Services Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding

companies that are subject of this report and an explanation of recommendations can be found at the end of this document.

Tuesday, 17 September 2013

1 Week Price Changes in Major Asset Classes

11.3

6

7

8

9

10

11

12

13

Aug-94 Aug-96 Aug-98 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12

PE This shows the P/E of the stock at the

10th percentile P/E in the ASX 100 - i.e.

the cheapest stocks

250

236

200

220

240

260

280

300

320

Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13

Italy

Spain

Sovereign risk was the theme for 2012 holding prices back. Going into 2013 sovereign debt has the potential to come to a head but has faded as a market key theme.

The RBA minutes out this morning continue to point to a slow Australian economy, with retail spend, capex plans and employment being weak. The only (domestic) positive the RBA could see was nascent signs of growth in housing construction. One of the concerns over the next year has to be housing prices which continue to increase without sparking a construction boom. At that point the RBA will need to consider which is more important - keeping rates low to encourage growth in a weak Australian economy or restrain interest rates to avoid a (bigger) housing bubble... more to come on this theme over the next few months I fear. The second thing I note this week is the increasing P/Es in the mid caps and at the bargain end of the market (see chart below) - the hunt for value is getting increasingly difficult. Interactive charts are at http://bit.ly/oecTbW

Italy opening up a risk premium

over Spain recently

Chart of the Week: The ASX 100 "Bargain Bin" - 12m forward P/E

Small Ords ASX 200

China US

Eur Japan

AUD / Yen AUD / EUR

AUD / Yuan AUD / USD

US Junk US BBBCorp US 10y+Gov't

US 1-3yGov't Au 1-3yGov't Au 3-5yGov't

Au 10y+Gov't Au BBBCorp

Aust. Resi

-5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7%

Equities

Fixed Interest

FX

Residential Property

Only twice in 20 years has its been

harder to find a bargain - pre financial

crisis and pre-tech boom

mailto:[email protected]

Table of Contents

1 Week Chg: ASX 200 +1% Small Ords -0% 1 Week Chg: 90d -2bp 2yr -8bp 10yr -8bp 1 Week AUD Chg: US +1% Jpn +5% Eur +3% China +1%

1 Week Chg: BBB Yield -7bp CDS -1bp 1 Week Chg: 5 Capital City 1 Week Chg: US Aust.Source (all charts): Wilson HTM, Thomson Reuters, Bloomberg, Thomson Reuters, RP Data

+0.3%

1. Valuation Stats – Australian Equities 3. Valuation Stats – International Equities

4. Val’n Stats – Corporate Bonds

2. Valuation Stats – Australian Bonds

6. Valuation Stats – Risk Measures5. Valuation Stats – Aust. Residential Prop.

-34bp-15bp

14.5

350

360

370

380

390

400

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

24-Jun 08-Jul 22-Jul 05-Aug 19-Aug 02-Sep 16-Sep

ASX 200 12m Fwd PE

ASX 200 12m Fwd EPS (RH)

EPS edging lower in

recent weeks,

5.65

110

90

100

110

120

130

140

150

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

6.0

19-Aug 26-Aug 2-Sep 9-Sep 16-Sep

5y BBB Bond Yield (LH)

5y $A Corp. CDS (RH)

Yields and CDS both falling

over the week

2.5 2.6 2.6 2.6

2.5 2.6

2.9

3.3

4.0

2.0

2.5

3.0

3.5

4.0

4.5

O/Night 1m 3m 6m 12m 2Y 3Y 5Y 10Y

60d range

Last Week

Bond Yield Curve (%)

Bank Bills Gov't bonds

Yields falling across the

curve this week

UK

Sth Africa

Euro Stoxx

US S&P 500 Canada

Switz'd

China

Norway

NZ

Japan

India

World X Aust

Spain

Hong Kong

Finland

Italy

Singapore

Germany

US Nasdaq

France

Australia

Holland

7%

9%

11%

13%

15%

17%

19%

21%

9 11 13 15 17 19FY1 P/E Ratio

EPS Growth FY1 to FY2

US 14.4

Aust 14.3

10

12

14

16

18

20

22

24

19-Jul 02-Aug 16-Aug 30-Aug 13-Sep

Implied Vol. (%)

Vix Indices

$580k

$585k

$590k

$595k

4.0%

4.1%

4.2%

4.3%

4.4%

4.5%

16-Aug 23-Aug 30-Aug 6-Sep 13-Sep

Est. Unit Net Yield (LH)

Median 5 City House Price (RH)

Daily prices continue their recent

upward trend US Vix and Australian Vix both

edge lower over the week

Quantitative Strategy - Valuation Dashboard 17/09/2013 Page 2

Section 1: Valuation Stats - Australian Equities

12m Forward P/E Distributions

Source (all charts): Wilson HTM, Thomson Reuters, Bloomberg, Thomson Reuters

19.0

15.1

12.9

11.3

24.1

14.5

5

10

15

20

25

3025th to 75th PE Percentiles Median 10th 90th Wtd Av.

ASX 100 Distribution

The top end of the market as

"frothy" as its been at any time in

the last four years

0%

5%

10%

15%

Aug-94 Aug-95 Aug-96 Aug-97 Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13

ASX 100 Small Ords% of index with P/E > 50 (which are

excluded from the above charts)

17.7

13.0

9.5

6.9

22.4

13.4

5

10

15

20

25

30

Small Ords Distribution Interesting to see the weighted

average above the median - i.e.

"larger" small caps are looking more

expensive



Shiller PE (Price / 10 year average inflation adjusted earnings) 12m Forward Earnings Yield (E / P) less 10Y Govt. Bond Yield

Long Term Trailing P/E Ratio (ASX 200) Long Term Trailing Earnings Yield (E / P) less 10Y Govt. Bond Yield

Direct


14.8

0

5

10

15

20

25

30

69 73 77 81 85 89 93 97 01 05 09 13

P/E

2.3

-8

-6

-4

-2

0

2

4

6

8

77 81 85 89 93 97 01 05 09 13

2.9

-1

0

1

2

3

4

5

6

7

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Equities cheap rel. to bonds

Over the last year

equities have gone

from extremely

cheap vs bonds to

more normally priced

Trailing P/E roughly at "pre-

European crisis" levels

15.9

6

9

12

15

18

21

69 73 77 81 85 89 93 97 01 05 09 13

P/E



2013 EPS Growth – how analyst forecasts have changed 2014 EPS Growth – how analyst forecasts have changed

Key Sector Stats P/Book

Jun-13 Jun-14 Jun-15

12m

FwdFY0

Jun-13 Jun-14 Jun-15 Jun-13 Jun-14 Jun-15

12m

Fwd Jun-13 Jun-14 Jun-15

12m

Fwd Jun-13 Jun-14 Jun-15

12m

Fwd

Size Indices

S&P/ASX 20 16.2 14.7 13.5 14.4 2.3 -3 10 8 4.5 4.7 5.0 4.8 11.8 11.0 10.1 10.8 9.0 8.8 8.1 8.6

S&P/ASX 50 16.0 14.7 13.5 14.4 2.1 -1 10 9 4.4 4.6 4.9 4.7 12.5 11.5 10.4 11.2 9.5 9.1 8.3 8.9

S&P/ASX 100 16.1 14.7 13.5 14.5 2.1 -1 11 10 4.4 4.6 4.9 4.6 12.5 11.5 10.5 11.2 9.4 9.0 8.2 8.8

S&P/ASX 200 16.1 14.7 13.5 14.5 2.0 -2 11 10 4.3 4.5 4.8 4.6 12.5 11.5 10.5 11.2 9.4 8.9 8.2 8.8

S&P/ASX 300 16.0 14.7 13.4 14.4 2.0 -1 12 11 4.3 4.5 4.8 4.5 12.5 11.4 10.4 11.2 9.4 8.9 8.1 8.7

Other Indices

Resources 15.8 13.4 11.5 12.9 1.7 -23 30 20 2.9 3.2 3.5 3.2 11.2 10.0 8.6 9.5 7.9 7.1 6.2 6.9

Adjusted Industrials* 18.0 16.5 14.9 16.4 2.5 4 9 11 3.8 4.1 4.4 4.1 13.0 12.2 11.1 12.1 9.1 8.6 8.0 8.6

Mining excluding BHP & RIO 15.8 14.3 11.8 13.6 1.3 -14 39 30 2.4 2.7 3.2 2.7 13.5 11.3 9.2 10.4 8.9 7.5 6.3 7.2

S&P/ASX Small Ordinaries 15.1 13.6 12.0 13.4 1.4 -8 28 22 3.1 3.5 4.0 3.5 11.9 10.6 9.4 10.4 8.6 7.9 7.0 7.9

S&P/ASX Small Resources 11.4 9.7 7.9 9.0 0.8 -27 256 54 0.7 0.9 1.3 0.9 10.4 6.9 5.3 6.5 6.1 4.5 3.5 4.8

S&P/ASX Small Industrials 15.9 14.8 13.4 14.8 1.8 -6 10 14 3.8 4.2 4.7 4.2 12.2 11.5 10.7 11.4 9.1 8.8 8.2 8.7

Adjusted Small Industrials* 16.1 15.0 13.5 15.0 1.9 -11 8 16 3.5 3.9 4.4 3.9 11.3 11.0 9.9 10.9 8.4 8.1 7.6 8.1

GICS Sectors

S&P/ASX 300 Energy 18.0 17.1 14.0 15.6 1.5 -2 23 26 2.9 3.3 3.5 3.3 15.2 13.4 10.7 11.9 10.3 9.1 7.4 8.4

S&P/ASX 300 Materials 15.6 12.7 11.0 12.4 1.9 -25 30 18 3.0 3.3 3.7 3.3 10.5 9.4 8.3 9.2 7.6 6.8 6.1 6.7

S&P/ASX 300 Industrial 15.9 16.2 15.2 16.0 1.9 13 5 17 3.6 3.9 4.4 3.9 14.0 13.3 12.0 13.1 8.2 7.9 7.3 7.8

S&P/ASX 300 Consumer Discretionary 18.1 16.5 14.8 16.4 2.0 -8 10 12 3.2 3.3 3.7 3.4 12.4 11.8 10.8 11.7 9.7 9.3 8.6 9.3

S&P/ASX 300 Consumer Staples 19.0 18.1 16.6 18.0 2.5 4 6 9 4.2 4.5 4.8 4.5 13.3 12.8 11.8 12.8 10.4 10.0 9.3 10.0

S&P/ASX 300 HealthCare 24.8 20.3 18.1 20.2 4.8 19 24 13 2.1 2.4 2.7 2.4 18.3 16.0 14.3 15.9 15.5 13.6 12.2 13.5

S&P/ASX 300 Information Technology 20.6 18.2 16.2 17.9 4.6 19 11 16 3.6 3.3 3.6 3.3 18.5 13.8 12.5 13.7 11.6 12.5 11.2 12.4

S&P/ASX 300 Utilities 16.4 15.7 14.4 15.5 1.4 7 6 10 5.6 5.7 6.0 5.7 12.8 12.2 11.5 12.1 9.5 9.2 8.6 9.2

S&P/ASX 300 Telecommunication Services 16.1 15.2 14.4 15.2 5.0 12 6 6 5.5 5.8 6.0 5.8 11.5 11.0 10.6 11.0 7.0 6.7 6.6 6.7

S&P/ASX 300 A-REIT 15.3 14.4 13.8 14.3 1.1 -3 6 4 5.5 5.7 5.9 5.8 16.9 15.7 14.8 15.4 16.8 15.7 14.8 15.4

S&P/ASX 300 Financials-x-A-REIT 14.7 13.8 13.0 13.6 2.1 7 6 6 5.2 5.4 5.7 5.4 9.2 9.7 9.3 9.6 9.6 9.9 9.3 9.8

Price/Earn. (x) EPS Growth (%) Yield (%) EV/EBIT (x) EV/EBITDA (x)

10% 8%

30%

6%

0%

5%

10%

15%

20%

25%

30%

35%

Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13

Industrials

Small Industrials

Resources

Financials

Downgrades to

industrial earnings in

recent weeks.

7%

-11%

-23%

7%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13

Industrials

Small Industrials

Resources

Financials



Source (all charts): Wilson HTM, Thomson Reuters, Bloomberg, * Industrials Less Banks, Insurers, REITs, Infrastructure, Utilities

ASX 100: P/E vs Dividend Yield


For interactive version of these charts http://bit.ly/nbPZim

Cheap on both

measures

Expensive on both

measures



Distribution of 12m Forward P/E (ASX100) Small Cap discount – P/E vs Market Cap (measured by median P/E in market cap deciles)

Energy SGM

Mining BSL

Industrials OSH

Financials AGO

Property TCL

Utilities SYD

AGK ILU

TOL BLD

BOQ AZJ JHX

RRL WRT TAH NCM CRZ

SPN PNA DJS WPL WES DUE

NAB CPA QBE TTS AMC ANN SUN

SKI IOF GMG MGR AIO FOX FLT SEK

IAG CTX BEN WBC CFX BHP SHL BXB STO RHC

DOW BPT ORI ALQ CBA PRY WOW QAN CWN CSL AWC

ARI LEI DXS IPL ABC WDC WOR HVN MQG ALL RMD WHC

MTS AUT MIN ANZ GPT AMP GNC CCL CPU EGP HGG COH OZL

FMG CGF LLC MND MYR RIO FDC UGL TLS SGP ASX ORG TWE APA LYC

<6x 6-7x 7-8x 8-9x 9-10x

10-

11x

11-

12x

12-

13x

13-

14x

14-

15x

15-

16x

16-

17x

17-

18x

18-

20x

20-

22x

22-

25x >25x

-ve

EPS

Distribution of 12m Forward P/E (Small Ords) ASX 100 12m Forward P/E less Small Ords 12m Forward P/EEnergy MCR

Mining MCE

Industrials MBN

Financials LNC

Property KAR

Utilities IVA

IFN

IAU

HZN HGO

WSA GRY

KRM GGG

ACR GBG

ALK FMS

MQA FML

EVR ERA

MDL ELM

REA DTE

MAD DML

IGO CPL

SRX COK

AWE CFE

TSE MFG BTR

MIO SGT MPO SUL HIL CSR BSE

SLR MLD COE SKE UXC KCN GWA OMH BRU

NWH PRU TEL RCR ALZ CHC FXL PMV DLX PTM DMP BRL

NFE AJA ANG ROC SWM CMW OGC ENV FBU SEA ARP QUB BBG BND

APN BCI TRY TGS FXJ CDD SGN EVN MMS RIC RFG NUF SXY SAI TRS NVT BLY

EHL SVW FGE SDM SBM BKN DLS NST GRR AAD CCP IIN TOX IMF TPM AMM IVC AQA

TGZ CNU CAB APZ MGX DCG TGA ABP AHE MRM CLO GFF JBH IFL WEB TPI AGI AMX

RSG BDR SAR MML PBG FKP GUD CQR FWD SIP SMX CCV AQG CSV PPT SCP GEM ABU

MAH ASL CDA SFR IMD PRG ORL CDI KMD SXL AAX BWP MTU WTF TME BRG IRE AAC

<6x 6-7x 7-8x 8-9x 9-10x

10-

11x

11-

12x

12-

13x

13-

14x

14-

15x

15-

16x

16-

17x

17-

18x

18-

20x

20-

22x

22-

25x >25x

-ve

EPS


P/E

hig

her

wit

hin

gro

up

-->

P/E

hig

her

wit

hin

gro

up

-->

1.1

2.1

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Aug-94 Aug-96 Aug-98 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12

target range

median vs median

average vs average

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

0 200 400 600 800 1,000 1,200 1,400 1,600

PE Rel (x)

Market Cap ($m)

2003 - Risk on, very little relationship

2008 - Risk off, steep line and strong relationship

Latest

Not many stocks

left at this end

The gap between small

and large caps has closed

sharply

The small ords distribution is

back to being incredibly flat

The relationship between

size and market cap is

quite weak at the

moment



2013 EPS Growth Distribution (ASX 100) 2014 EPS Growth (ASX 100)WES

HVN

AIO

SKI

ANN WOR

NAB AMP STO

GPT ABC RMD

ANN CTX COH PNA

EGP AGK AGK GMG RHC

SHL AMC ORG CFX SEK

CPA SEK ANZ FDC BPT

WDC CBA WDC CGF PRY

BXB WOW DOW CCL CSL QBE

STO LLC ANZ DOW FLT IOF SGP FLT WPL

NCM DUE ABC ASX BPT OSH GMG HGG WOW RRL CPA TWE AWC

TAH SGP RIO MGR WES SKI QBE BOQ TAH WBC BXB AZJ CRZ SGM

ILU IPL MTS MIN WRT CPU RHC ALQ TOL WRT TCL ORI ALL BSL

SGM BHP TTS AMP DJS TWE CFX TLS HGG FOX TCL SPN GPT NAB BEN RIO MQG EGP LYC AGO

AGO PNA GNC ORG ORI WOR HVN DXS WBC IOF RMD MND PRY BSL IAG LLC ASX TLS BOQ BHP IPL CWN AUT ARI ILU

OZL LYC SUN COH BEN MYR SPN JHX APA FMG CRZ MQG CSL RRL AWC MND MTS TTS MYR CBA DXS CTX DUE FOX JHX SYD BLD WHC OZL

WHC UGL SYD QAN ARI WPL CCL BLD CGF TOL CWN LEI AZJ AIO IAG AUT QAN ALQ NCM GNC DJS APA LEI CPU MGR SHL AMC UGL MIN FMG OSH SUN

<-

50%

-50: -

30%

-30: -

20%

-20: -

15%

-15: -

10%

-10: -

5%

-5:

0% 0: 5%

5:

10%

10:

15%

15:

20%

20:

25%

25:

35%

35:

50%

50:

75%

75:

100% - to +

>100

%

<-

50%

-50: -

30%

-30: -

20%

-20: -

15%

-15: -

10%

-10: -

5%

-5:

0% 0: 5%

5:

10%

10:

15%

15:

20%

20:

25%

25:

35%

35:

50%

50:

75%

75:

100% - to +

>100

%

2013 EPS Growth Distribution (Small Ords) 2014 EPS Growth Distribution (Small Ords)SBM Energy Energy ELM

KCN Mining Mining HZN

BBG Industrials Industrials KRM

WSA Financials Financials BSE

EVR Property Property ACR

KRM Utilities Utilities PEM

ALK TAP

TEN PTM NFE

AAC UXC CFE

PDN CQR MAD

KAR ALZ SAR WDR

PEM BTR AQG MCE

NXS PBG IIN ALK

WDR FBU MAH AQA MRM SDL RED

RMS AAD AWE SBM WTF SKE ERA MPO WSA

BLY SIP BCI GEM SLR ALZ TME TOX GRR HGO

CFE NVT AHE ENV PRU PRG ARP QUB DMP MGX AWE IGO

VAH CDI IFL IIN TGS TGZ BRG APN CLO SWM IRE TSE EVN BLY AAC

COK ASL PRG FXL ERA IGO EHL PBG FGE TGA IFL ENV NVT FWD MBN NEN GBG

BND SAR GWA CAB CMW CCP NST SFR ORE NST CHC AHE IVC RIC RCR BND MFG FML MDL

TAP NWH GUD QUB MML CHC BRL SLX BDR BBG GUD MLD CDI DCG GEM AGI CSV NUF MML LNC

RXM SMX NUF RSG SAI SGT WEB ARP JBH FGE ELM SXY RMS MCR CAB CCV PMV TPM AMX PPT BDR OGC RXM TGS

FML FMS HIL TEL SLR BKN PXS PMV DLX PRR DML MFG EVR KAR CNU ANG CQR JBH FXL DLX WEB REA PXS ROC ABU

RED ROC SWM GFF CCV DCG TGA BRG SUL KMD REA SPL GGG NFE NXT KCN IMD FKP BKN ABP AAD PAN UXC TRS IFN SRX SIR IMF

BSE PIR AGI ORE CDD PRU ABP IVC TME MMS PPT MTU MLD CLO AMX IAU OMH SYR SVW APZ FXJ CPL RFG BWP CCP TPI MIO SXY AAX BCI PDN SEA

GBG FXJ COE MIO TRS WTF ORL TPI SRX SKE TOX OGC TPM DTE LNC NXT CSV BTR CDA NWH MMS SFR MSB SGN CMW SUL PIR COE MTU DLS SCP VAH

MCR EVN MAH RIC IRE PAN ANG RFG BWP DMP MSB SVW SDL IFN CDA IVA DLS OMH RSG GRY SDM SMX SIP AJA SGT KMD GFF FBU SAI TRY IVA CSR BRU

AQA EHL AQG AJA APN SXL ACR ABU SGN MBN MRM GRY AMM RCR HGO MCE RFE MQA SLX ORL MQA GGG ASL SPL TEL IAU CDD SXL AMM PTM GWA HIL NXS FMS COK BRL

<-

50%

-50: -

30%

-30: -

20%

-20: -

15%

-15: -

10%

-10: -

5%

-5:

0% 0: 5%

5:

10%

10:

15%

15:

20%

20:

25%

25:

35%

35:

50%

50:

75%

75:

100% - to +

>100

%

<-

50%

-50: -

30%

-30: -

20%

-20: -

15%

-15: -

10%

-10: -

5%

-5:

0% 0: 5%

5:

10%

10:

15%

15:

20%

20:

25%

25:

35%

35:

50%

50:

75%

75:

100% - to +

>100

%


EP

S G

row

th h

igh

er

wit

hin

gro

up

-->

EP

S G

row

th h

igh

er

wit

hin

gro

up

-->

About half the companies in the

ASX 100 are forecast to grow

faster than 10%

There is about to be a big cleanout of

many of the stocks in this category

next week with the recent index

changes



Change in 2014 Consensus EPS – ASX 100 over last 1 week


For interactive version of these charts


Quiet week overall



Change in 2014 Consensus EPS – ASX 100 over last 1 month



The last month is dominated

by downgrades for large

caps



Change in 2014 Consensus EPS – Small Ordinaries Index over last 1 week



A mixed week - a fair few upgrades

in iresources

Lots of changes to forecasts for

small resource stocks this week



Change in 2014 Consensus EPS – Small Ordinaries Index over last 1 month




Section 2: Valuation Stats - Australian Government Bonds

Bank Bill / Australian Government Bond Yield Curve RBA Cash Rate implied by SFE Interbank Futures (%)

International Yield Curve Steepness (10 Year Yield less 2 Year Yield %) Australian Yield Curve Steepness (10 Year Yield less 2 Year Yield %)


2.5 2.6 2.6 2.6

2.5 2.6

2.9

3.3

4.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0

O/Night 1m 3m 6m 12m 2Y 3Y 5Y 10Y

Latest

6m ago

2 years ago

12m ago

2.00

2.25

2.50

2.75

3.00

Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14

This Week

Current RBA Rate

Last Week

Rate hikes in 2014 as mining

capex really begins to slow? Not

likely in my view

-1

0

1

2

3

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

10y-2y Bonds

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Spain

Italy

US

UK

Mexico

France

Germany

Canada

Australia

Sweden

Japan

China

Brazil

India

Yield curve steepening has been the big

trend. I don't have a problem with this

conceptually, but I think it should have come

from short term rates falling rather than

long term rates rising. I expect a reversal.

at the long end.


Section 2: Valuation Stats - Australian Government Bonds

International - Real Return on 10Y Bonds Implied Inflation

International Risk / Return Australian Government Bond CDS


51.8

0

20

40

60

80

100

120

140

160

180

Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13

Austr. 5 Yr CDS Decent sized

increase recently

from recent lows

US

Canada

UK

France Germany

Italy

Sweden

Australia

-1

0

1

2

3

4

0 1 2 3 4 5 6 7Infla

tio

n Im

plie

d b

y in

fla

tio

n lin

ked b

onds (

%)

10y Bond Rate (%)

Negative real yields

Real yields have increased substantially over the

past few months, all these countries had negative

real yields four months ago

US

Mexico

Brazil

UK

France

Germany

Italy

Spain

Japan

Australia

China

20

40

60

80

100

120

140

160

180

200

0 1 2 3 4 5 6 7 8

5y C

DS

5y Bond Rate (%)

High Yield Low Risk

Low Yield High Risk

Values on edge scaled to fit graph

Highest yield of

the "low risk"

countries

2.4

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Sep-02 Sep-03 Aug-04 Aug-05 Sep-06 Sep-07 Aug-08 Aug-09 Sep-10 Sep-11 Aug-12 Aug-13

Inflation implied by Inflation linked bond pricing (10Y or closest)

Inflation

expectations bounce

back to the middle of

the band


Section 3: Valuation Stats - International Equities

AUD / USD Australian 12m Fwd P/E relative to World ex Australia

Purchasing Power Parity - OECD 6m equities performance vs 1m price performance


1.03

0.90

0.95

1.00

1.05

1.10

1.15

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

0.890

0.932

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13

AUD USD

Consensus Dec-13 F'cast

Switzerland

Norway

Denmark

Australia

Sweden

Canada

NZ

Iceland

Japan

Britain

Euro

S.Korea

Poland

Mexico

Hungary

Turkey

-100 -80 -60 -40 -20 0 20 40 60 80 100

Overvalued

Japan US Nasdaq

Finland Italy

US S&P 500 France South Africa World X Aust

Holland Germany NZ

Euro Stoxx Norway

Spain Hong Kong

Australia Switzerland UK

Canada India

Russia China

Singapore Brazil

-10% -5% 0% 5% 10% 15% 20%

1M Performance

6M Performance

Australia moves down

into 4th place

Some divergent

performance from

emerging markets

The recent bounce in the AUD is

partly improving China, partly

US taper. My medium term

expectation is for further

weakness


Section 3: Valuation Stats - International Equities

Bloomberg FY 1 P/E Bloomberg FY 1 Yield


2.5

2.1

1.3

5.4

4.0

3.7

3.6

3.3

3.2

3.1

2.8

3.5

3.3

1.6

4.5

4.4

4.1

3.9

3.2

3.1

6.2

3.3

3.2

1.7

0 1 2 3 4 5 6 7

World X Aust

US S&P 500

US Nasdaq

Spain

Euro Stoxx

UK

France

Italy

Switzerland

Germany

Holland

Hong Kong

Singapore

Japan

Australia

NZ

Norway

Finland

South Africa

Canada

Russia

Brazil

China

India

12m Fwd Yield (%)

US

Europe

Developed Asia

Commodity Producers

Emerging Markets

Australian yield at

the top

15.0

15.4

18.8

13.0

13.0

13.0

13.2

13.5

14.6

14.8

15.4

11.1

14.7

18.1

12.4

14.7

15.3

15.3

17.2

18.2

9.8

14.2

5 7 9 11 13 15 17 19

World X Aust

US S&P 500

US Nasdaq

Germany

Stoxx

UK

France

Holland

Italy

Spain

Switzerland

Hong Kong

Singapore

Japan

Norway

South Africa

Australia

Canada

NZ

Finland

Russia

China

India

Brazil

12m Fwd P/E (x)

Emerging Markets

Europe

US

Developed Asia

Commodity Producers

In the middle of the

commodity producers

band.


Section 4: Valuation Stats - Corporate Bonds

US BBB bond yield less 10Y Government bond yield

Australian Corporate CDS spreads ASX 200 Dividend Yield vs BBB bond yield


1.7

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12

US Recessions BBB Credit Spreads

Market crash / Great Depression

Recession / WWII Outbreak

Oil Crisis (OPEC)

Intensification of Vietnam war

2nd Oil Crisis

Junk Bonds collapse / Gulf war

Asian crisis

Russian Bonds

End of tech boom / Sept 11 / accounting scandals /

'87 stock market crash

Mexican Peso crisis

Bay of Pigs Invasion

% Spread

Credit Crisis

BBB bond value

worsening vs

gov't bonds

110

0

50

100

150

200

250

300

350

400

Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13

Markit iTraxx Austr. 5 Yr Corporate CDS 5.7

4.6

1.1

0

1

2

3

4

5

6

7

8

9

10

Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

Austr. 5 Yr BBB Yield

ASX 200 12m Fwd Dividend Yield

Difference

Vs gov't bonds, corporate

bonds are about

average, but expensive

vs equities

CDS spreads falling back

recently


Section 5: Valuation Stats - Australian Residential Property

Recent Price Performance Net Rental Yield* vs Equity Dividends vs Borrowing Costs

HIA New Home Sales

Source (all charts): Wilson HTM, Bloomberg, RBA, RP Data, Rismark, ABS

* Houses and units are adjusted for estimated stamp duty, rental management costs, capital spend, maintenance and other typical costs. Values are adjusted for the profile of typical rental stock.

1.6%

1.1%

-2%

0%

2%

4%

6%

8%

10%

Feb-79 Feb-83 Feb-87 Feb-91 Feb-95 Feb-99 Feb-03 Feb-07 Feb-11

ASX 200 Div Yield less units net yield

Standard variable rate less units net yield

The lower the value, the cheaper property is relative to other assets

Given falling mortgage rates, the

spread between mortgage rates and

yield is below financial crisis lows

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

500

1,500

2,500

3,500

4,500

5,500

6,500

Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10 Feb-12

New Home Sales (RH)

New Unit Sales (LH)

The interest rate cuts to

date have increased house

prices, but the effect has

not yet flowed through to

new construction

-4%

0%

4%

8%

12%

16%

20%

Feb-79 Feb-83 Feb-87 Feb-91 Feb-95 Feb-99 Feb-03 Feb-07 Feb-11

Net yield

Annual Price Change

Annual prices

(apartments) back to

increasing

RBA seems to have the view that house construction

boom will start soon. While we can see housing

construction "normalising" from its currently low

levels, we think it will take decisive government

action / incentives to get the housing construction

market to make up for the drop off in mining capex.


Section 6: Valuation Stats - Risk / Sentiment Measures

VIX Indices Bloomberg Financial Conditions Indices

OECD Leading Economic Indicators Citigroup Economic Surprise

Australia

China

US

Europe

Japan

Source (all charts): Wilson HTM, Bloomberg, ABS, OECD

US 14.4 Aust 14.3

10

12

14

16

18

20

22

24

26

28

30


Implied Vol. (%)

Risk / protection expensive

Risk / protection cheap

94

97

100

103

94

97

100

103

Feb-70 Feb-74 Feb-78 Feb-82 Feb-86 Feb-90 Feb-94 Feb-98 Feb-02 Feb-06 Feb-10 Feb-14

94

97

100

103

94

97

100

103

94

97

100

103

-100

-50

0

50

100

-100

-50

0

50

100


-100

-50

0

50

100

-100

-50

0

50

100

-100

-50

0

50

100

US 1.2

Eur 0.0

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12

z-scores

Tighter Conditions

Easier Conditions

Improving in China, US, Europe

Leading indicators more

negative in Australia and

China than elsewhere Economic surprise rolling

over in Australia, Japan


17 September 2013

Quantitative Strategy

Valuation Dashboard

Quantitative Strategy - Valuation Dashboard 20

Head of Research

Jacqueline Fernley (02) 8247 6661

Head of Institutional Sales

Duncan Gamble (02) 8247 6629

Industrials Sydney

James Ferrier (03) 9640 3827 Jonathan Scales (02) 8247 6613

Andrew Dalziel (07) 3212 1946 Richard Moulder (02) 8247 6603

Stewart Oldfield (03) 9640 3818 Michael Pegum (02) 8247 6602

Daniel Wan (02) 8247 6694 Anthony Wilson (02) 8247 3113

Healthcare and Biotechnology Melbourne

Shane Storey (07) 3212 1351 David Permezel (03) 9640 3885

Resources Adam Dellaway (03) 9640 3824

Cameron Judd (03) 9640 3864

Phillip Chippindale (02) 8247 3149 Wealth Management Research

Liam Schofield (02) 8247 3173 Peter McManus (02) 8247 3186

Nathan Szeitli (03) 9640 3806 John Lockton (02) 8247 3118

Quantitative Strategy/TAA Email: [email protected]

Damien Klassen (02) 8247 3101

National Offices

Brisbane Ph: (07) 3212 1333

Sydney Ph: (02) 8247 6600

Melbourne Ph: (03) 9640 3888

Gold Coast Ph: (07) 5509 5500

Dalby Ph: (07) 4660 8000

Hervey Bay Ph: (07) 4197 1600

Our web site: www.wilsonhtm.com.au

Return Reinvestment Matrix and Risk Measures

For definitions at http://www.wilsonhtm.com.au/Disclosures

Recommendation Structure and Other Definitions

For definitions at http://www.wilsonhtm.com.au/Disclosures

Disclaimer

Whilst Wilson HTM Ltd believes the information contained in this communication is based on reliable information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. To the extent permitted by law Wilson HTM Ltd disclaims all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or arise directly or indirectly in respect of such information. Any projections contained in this communication are estimates only. Such projections are subject to market influences and contingent upon matters outside the control of Wilson HTM Ltd and therefore may not be realised in the future.

The advice contained in this document is general advice. It has been prepared without taking account of any person’s objectives, financial situation or needs and because of that, any person should, before acting on the advice, consider the appropriateness of the advice, having regard to the client’s objectives, financial situation and needs. Those acting upon such information without first consulting one of Wilson HTM Ltd investment advisors do so entirely at their own risk. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever. If the advice relates to the acquisition, or possible acquisition, of a particular financial product – the client should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product. This communication is not to be disclosed in whole or part or used by any other party without Wilson HTM Ltd's prior written consent.

Disclosure of Interest

The Directors of Wilson HTM advise that at the date of this report they and their associates have relevant interests in securities mentioned in this report. They also advise that Wilson HTM and Wilson HTM Corporate Finance A.B.N. 65 057 547 323 and their associates have received and may receive commissions or fees from these companies in relation to advice or dealings in securities. Some or all of Wilson HTM authorised representatives may be remunerated wholly or partly by way of commission.

In producing research reports, members of Wilson HTM Research may attend site visits and other meetings hosted by the issuers the subject of its research reports. In some instances the costs of such site visits or meetings may be met in part or in whole by the issuers concerned if Wilson HTM considers it is appropriate and reasonable in the specific circumstances relating to the site visit or meeting.

Please see disclosures at http://www.wilsonhtm.com.au/Disclosures. Disclosures applicable to companies included in this report can be found in the latest relevant published research.

Documents

Wilson HTM Valuation Dashboard (17 Sept 2013)