Qube Holdings. Moorebank to give QUB a lift A$2.90 AUSTRALIA. Event. Impact. Earnings and target price revision. Price catalyst

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1 AUSTRALIA QUB AU Price (at 05:10, 27 Mar 2015 GMT) Outperform A$2.90 Valuation A$ DCF (WACC 8.9%, beta 1.0, ERP 5.0%, RFR 3.8%, TGR 4.0%) 12-month target A$ month TSR % Volatility Index Low GICS sector Transportation Market cap A$m 3, day avg turnover A$m 7.6 Number shares on issue m 1,054 Investment fundamentals Year end 30 Jun 2014A 2015E 2016E 2017E Revenue m 1, , , ,096.0 EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x QUB AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 2015 (all figures in AUD unless noted) 30 March 2015 Macquarie Securities (Australia) Limited Moorebank to give QUB a lift Event With an expected announcement regarding the Moorebank Intermodal Terminal (MIT) potentially by end April, we review the project and its potential implication to QUB. Impact While Moorebank has been talked about since 2004, in our view the market hasn t adequately factored in the earnings upside While Moorebank has been discussed for 10 yrs, the market still doesn t ascribe adequate earnings or value to the project. In our view, container growth over the medium-term will trend towards 1.7x GDP, implying ~5m TEU by FY31 (FY14 ~2.2m) and clearly rail will need to increase its share (currently ~14%) for the volume to be moved efficiently in the system. With a soft target of 40% by 2031, the MIT is expected to generate FY20 EBIT of ~$200m, which we value at 73cps (QUB). value proposition comes from a) strategic location (property) and b) leverage to increasing use of rail infrastructure (logistics): Moorebank s value comes from both property and logistics. Strategically the location of Moorebank is attractive (relative to Yennora) to both major road corridors and also rail and which we think will likely prove attractive to many of Australia s major importers, including Woolworths and Wesfarmers. From a logistics perspective, the obvious benefit is QUB and AZJ bringing volume from ports and interstate, creating a beneficial investment cycle of increased volume, meaning increased site efficiency meaning increased warehouse utilisation and increasing property value. Uniquely, the Moorebank IMT is structured as open-access with significant (~300,000m 2 ) planned warehouse capacity. Our revised earnings estimates place us 30% ahead of consensus in FY17E. After factoring in additional logistics revenue, compared to our previous forecasts, we now expect FY17E EPS of 19.5cps, which compares to consensus expectations of 15cps. We attribute the difference principally to the earnings contribution of the Moorebank Intermodal Terminal which is expected to commence operations in FY17. Earnings and target price revision Our FY15E/FY16E estimates remain unchanged, however our FY17E/FY18E/FY19E EBITDA changes by -7%/+3%/+11%, respectively, reflecting inclusion of logistics earnings and re-phasing of property earnings. Price catalyst 12-month price target: A$3.29 based on a DCF methodology. Catalyst: Moorebank announcement end April 2015 Action and recommendation We upgrade to Outperform. A consistent theme for QUB is that it is expensive and at ~19x FY16E PE, it is more expensive than both AZJ and AIO (15.4x and 14x respectively). However, with expectations for Moorebank not yet factored into the price and with the PE dropping to ~12x by FY18E as a result, now is the time to buy, in our view. Please refer to page 22 for important disclosures and analyst certification, or on our website

2 Moorebank Intermodal Terminal The Moorebank Intermodal Terminal will be a freight terminal situated in the suburb of Moorebank approximately 27km South West of Sydney s CBD. The project will provide increased capacity for rail transport with the key goal of addressing concerns of anticipated road congestion in and out of Port Botany. The Moorebank site is located adjacent to the Southern Sydney Freight Line (SSFL), providing a direct dedicated rail link between Port Botany and Moorebank following the upgrade works completed on the Port Botany rail line. Fig 1 SSFL showing location of Moorebank Intermodal Terminal Source: Department of Infrastructure and Transport, Macquarie Research, March 2015 The project will provide both a logistics and a property component. The intermodal terminal will include an import/export terminal connected to the Southern Sydney Freight Line as well as an interstate terminal with access to the Australian Rail Track Corporation (ARTC) rail freight network. When in operation, the terminal will have capacity to handle ~1m TEU s pa as well as an additional ~0.5m TEU via the interstate terminal. The project will also include the development of on-site open access warehouse facilities. Key Milestones 2004: Intermodal Terminal on Moorebank School of Military Engineering (SME) site first proposed 2010: In the Federal Budget, the Government announced a two-year study of the SME site's development as an Intermodal Terminal. Apr-2012: The Commonwealth announced it will proceed with the recommended model for an intermodal terminal at the SME site. Dec-2012: The Commonwealth established the Moorebank Intermodal Company (MIC), a Government Business Enterprise (GBE) to take the project to market to be developed by the private sector. May-2013: Moorebank Intermodal Company (MIC) called for Registrations of Interest in the Moorebank Intermodal Terminal to establish a process for interaction with respondents who could potentially take a lead role in the project. May-2014: MIC announced its intention to begin negotiating with Sydney Intermodal Terminal Alliance (SIMTA) for a period up to six months. 30 March

3 Oct-2014: MIC s Environmental Impact Statement was placed on public exhibition. Dec-2014: Government agreed to SIMTA s (QUB 67%, AZJ 33%) proposal to develop an interstate freight hub sharing both federal land and private property owned by QUB and AZJ. Apr-2015: Commonwealth Government final approval expected : Construction of the IMEX terminal will begin in 2015 with commencement of operations expected during Combined SIMTA and Moorebank Intermodal Company Facility In Dec-14 it was announced that the Moorebank Intermodal Company (MIC) and Sydney Intermodal Terminal Alliance (SIMTA) (QUB & AZJ) had agreed to develop the Moorebank project on a whole precinct basis. This is subject to Board (AZJ and QUB separately) and Commonwealth Government approval. QUB has indicated it expects to receive board approval by the end of March 2015, with the commonwealth government approval likely to be a further month beyond that. Our expectation is that an announcement will be made towards the end of April 2015, with details then released to market around specifics such as capex plans, growth expectations, and detailed site plans. We expect that given the strategic location of the SIMTA site (adjacent to the proposed IMT site), which SIMTA owns, it could develop this site into warehouse storage, thus Whilst the terminal will be developed as a combined precinct, capacity constraints will still remain with a physical limit on rail infrastructure along the Southern Sydney Freight Line. An additional issue for QUB will be direct rail access to the SIMTA site as this would need to share access along the East Hills passenger rail line, which would limit its attractiveness. An alternative would be a spur on the combined Moorebank site, which is what we assume QUB will be proposing. Fig 2 Combined Moorebank and SIMTA property layout Source: MICL, Macquarie Research, March March

4 Initial concept didn t take into account a whole of precinct approach. Moorebank will be NSW s largest intermodal terminal. The industrial site will consist of, an import/export terminal, an interstate terminal, a rail yard as well as warehousing facilities. The terminal is expected to have four rail sidings, with areas for container handling and storage. The site will be almost 2km in length and will be able to accommodate for ~ km interstate freight trains. An estimated ~300,000m 2 of open-access warehousing facilities will be constructed on the SIMTA site along Moorebank Avenue as well as a ~8,000m 2 on-site freight village. Within close proximity of the Southern Freight Line, the Hume Highway, M5 and M7 motorways the site is clearly well positioned for an intermodal terminal. Importantly, while this site plan would appear to be less than ideal from a SIMTA perspective, this was issued pre the decision to develop the precinct on a whole site basis. Fig 3 Moorebank indicative layout, final design to be determined by QUB/AZJ Source: MICL, Macquarie Research, March 2015 Who are the competitors? There are currently 6 intermodal terminals in operation in Sydney, although one of those (Cooks River) is an empty container storage facility, so is not a competitor to the proposed Moorebank Intermodal Facility. The combined capacity of the 5 direct competitors is 1.1m TEUs per annum, which compares to the proposed capacity at Moorebank of ~1.5m to 1.7m TEUs at its peak, which is likely to be available from around 2030, post the completion of stage 2 of the construction project, namely the interstate terminal. This corresponds to our estimates of 1.2m TEUs at Moorebank by FY31. Fig 4 Current Intermodal Terminals in Sydney Facility Market Max Throughput (TEU) Max train length Chullora Interstate 600,000 1,800m Yennora Interstate, IMEX 170, m MIST (Minto) IMEX 45, m Villawood IMEX 15,000 20, m Cooks River Empty container storage 150, m Enfield IMEX 300,000 1,000m Source: Macquarie Research, March March

5 Yennora, with ~150,000 TEU throughput is nearing its capacity limit and while Chullora has available capacity, it is not open access, has limited warehousing and limited ability to provide any warehousing in the future. Fig 5 NSW Intermodal Terminal Network Source: Australian Government Department of Finance, Macquarie Research, March 2015 Modal shift: from road to rail The historical split between rail and road at Port Botany shown in the figure below indicates that after peaking at ~25% in 2001/02, road has been the increasingly preferred mode of transport. Currently, Port Botany transports about ~14% (0.3m TEU) of imports via rail. NSW Ports Corporation expects this to grow to 40% (2.8m TEU) by A NSW government submission indicates that ~85% of containers imported at Port Botany are destined for an area within 40km. Hence, it is no coincidence rail volumes have remained relatively stable over the last ~15 years. In saying this, it is clear that rail will need to cater for an increased modal share with expected growth in container throughput and the already congested roads around the Port Botany site. 30 March

6 Annual TEU (m) 78% 75% 74% 76% 79% 81% 79% 80% 81% 80% 81% 86% 86% 86% 86% 22% 25% 26% 24% 21% 19% 21% 20% 19% 20% 19% 14% 14% 14% 14% Macquarie Wealth Management Fig 6 Historical TEU split of rail vs. Road at Port Botany Fig 7 % Split of Rail vs. Road at Port Botany % % 80% 70% 60% 50% 40% 30% 20% 10% 0 0% Road TEU (m) Rail TEU (m) Road mode (%) Rail mode (%) Source: Port Authority NSW, Macquarie Research, March 2015 Source: : Port Authority NSW, Macquarie Research, March 2015 Issues around Modal Shift Modal shift from Road to Rail will only occur if rail presents a viable alternative to road. This manifests itself in three ways: delivery time; price; and reliability. In regards to delivery time, road congestion will be the principal driver of increased delivery times and given current container volumes at Port Botany are already causing congestion, given our expectation for ~4.9% growth per annum in container volumes, congestion will only get worse. The second issue or impediment in the shift from road to rail is price, given freight distribution costs typically increase with increased handling requirements. Transporting a container via an Intermodal Terminal requires at least one additional container lift compared to a direct movement by road. Therefore the ability of an Intermodal Terminal to capture freight generally depends on the cost-saves on the line-haul component of the trip. The last element of consideration is reliability and despite the fact that the Southern Sydney Freight Line is only a one-way corridor currently, the corridor of land is available to develop a second track, with loops currently under development. Truck slot performance at Port Botany Trucks must enter Port Botany within a given time frame known as a slot, similar to the way a runway operates in Airports. In FY14 the weekly average of slots remaining was 1,773 according to Transport NSW Port Botany performance statistics. Currently, the total number of slots available is greatest on Tuesday with a high of 3107 slots recorded on 10 th Feb Using this as a proxy for theoretical capacity each day, we estimate Port Botany could handle an additional ~4,811 slots for trucks. During February 2015, there have been a total of 11,257 trucks handling a total 14,897 containers. This implies a ratio of 1.32 containers per truck and an additional weekly capacity of 6367 TEU (331,066 TEU annually). This represents theoretical capacity if operators were to continue to operate the way they do today. In practise, this analysis is not as simple as we anticipate a change in behaviour and more efficient supply chain to be adopted. As such we believe the ratio of 1.32 containers per truck will trend upwards as slots become more competitive. Fig 8 Additional Port Botany capacity - Trucks Slots Containers/Trucks Additional annual TEU 21, , , , , , , , , , , , Source: Transport NSW, Macquarie Research, March March

7 Alternative developments M5 East duplication project WestConnex Stage 2 Currently the M5 East consists of two lanes in each direction. This is clearly insufficient, as the motorway has been subject to congestion issues since opening. The WestConnex stage 2 project will involve the construction of a new twin tunnel which will run from the existing M5 East corridor at Beverly Hills via tunnel to St Peters. This will provide a significant upgrade in traffic congestion between South Sydney and Port Botany. The project timeline has been accelerated following the commonwealth government s concessional loan. Construction work is expected to commence mid-2015 with expected completion by This project is expected to alleviate congestion and is likely to delay the anticipated increase in modal shift from road to rail, as it has potential to make road travel more efficient. However, we believe that unless absolute capacity in the form of truck slots at Port Botany is increased this will arguably not materially impact the modal shift. Port rental agreements could provide a catalyst for modal shift At the port of Botany, port rental agreements are tied to performance metrics, one of which is the relative performance of moving TEUs by rail vs. road and while this incentive (or performance measure) is available for all stevedores, the rental benefit only applies to the stevedore who moves the most containers out of the port on rail. In addition, the government has placed a $15 cap on rail movements, meaning that rail operators are not incentivised to increase the proportion of freight transported by rail, as it is uneconomic. Current operators are lobbying to have this cap removed Volume Assumptions With a proposed capacity of ~1m plus a 0.5m interstate facility, Moorebank will be the largest Intermodal terminal in NSW. We outline below, the large opportunity for Moorebank to develop a strong market position, with potential to handle a significant proportion of rail in and out of Port Botany. Outlook for container growth Key to Moorebank s value proposition is the outlook for container growth out of Port Botany. Port Botany handled ~2.2m TEU s in 2014, with expectations of significant growth in coming years. The anticipated increase in container throughput will inevitably require an increased share of rail out of Port Botany. With this in mind the NSW government and industry forecasts have adopted a soft target of ~40% of containers to be transported via rail by Under our base case scenario, we assume Port Botany throughput will grow to ~5.05m TEU pa. Given the lack of detail and sensitivity of our assumptions to container growth and modal shift from road to rail; we consider two additional scenarios under which capacity reaches 7m and 6.2m TEU by We outline the potential impacts on Moorebank accordingly. 30 March

8 Port Botany TEU's (annual, m) Macquarie Wealth Management Fig 9 Base case, Scenario 1 and Scenario 2 outline and assumptions Base Case Scenario 1 Historical Growth Scenario 2 Port Authority of NSW 2031 TEU(m) CAGR (%) to % 6.20% 6.90% Scenario assumptions Over the last decade, container Container growth over the last Port Authority of NSW forecast of 7m growth has averaged ~2.1x annual GDP growth, trending down in recent years. We estimate 1.7x in the long run. We have assumed GDP remains constant at ~3% from We have assumed Moorebank will moderate its capacity to maintain % rail throughput as outlined in scenario 2 (Throughput/Total Port Botany (%) rail remains constant) decade has had a CAGR of 6.2%. If we project growth from the last decade until 2031 this results in throughput capacity of ~6.2m TEU s pa at Port Botany. We have assumed Moorebank will moderate its capacity to maintain % rail throughput as outlined in scenario 1 (Throughput/Total Port Botany (%) rail remains constant) TEU by We assume Moorebank will gradually ramp up its rail throughput at a rate of ~0.1m TEU pa from 2017 until 2027, when the interstate freight facility will come online with an additional 0.5m TEU of throughput (0.1m TEU pa). Underlying Assumptions & limitations ~40% of containers transported out of Port Botany will be transported via rail by 2031, with constant CAGR assumed Remaining rail TEU s attributed to Road. Rail infrastructure will require ongoing investment albeit below demand growth. Ignores the impact of the share of imports vs. exports and considers only total throughput. All revenues will be split 67% QUB, 33% AZJ The interstate freight facility will come online with an additional 0.5m TEU of throughput from 2027 (0.1m TEU pa). Additional capacity via other IMT will be required in NSW in order to meet the 40% target. Source: Port Authority of NSW, Macquarie Research, March 2015 Base Case: Using our container growth estimates for AIO, which we outlined in the report AIO: Competition Biting but not for AIO. GDP growth multiplier of ~1.7x, which when used with our Macquarie Economics GDP estimates equates to container volumes of ~5m at Port Botany by This is broadly comparable to BITRE forecasts, which expect 4.8m TEUs to pass through port Botany by end FY31. The implied CAGR using the BITRE forecasts is 4.7% vs. MRE at 4.9%. Fig 10 Road vs. Rail under base case scenario (TEU s) Road (TEU's) Rail (TEU's) - ex Moorebank Rail - Moorebank Source: Port Authority of NSW, Macquarie Research, March March

9 Port Botany TEU's (annual, m) Port Botany TEU's (annual, m) Macquarie Wealth Management We have also looked at two other container volume estimates to benchmark our base case estimates: the first is that derived by the NSW Ports Consortium. It expects a CAGR between 2031 and 2014 of ~6.9%, leading to an estimated 7m TEUs at Port Botany in 2031; the second, is that outlined by the Moorebank Intermodal Container Terminal co., which uses historical growth as the basis for its forecasts, implying a 6.2% CAGR and expecting TEU volumes of 6.2m in In our view both these forecasts are optimistic. Fig 11 NSW Ports expects 7m TEUs by 2031, implying a CAGR of 6.9% p.a. Fig 12 with MICT expecting 6.2m TEUs, implying a CAGR of 6.2% p.a., both optimistic in our view Road (TEU's) Rail (TEU's) - ex Moorebank Rail - Moorebank Road (TEU's) Rail (TEU's) - ex Moorebank Rail - Moorebank Source: Port Authority of NSW, Macquarie Research, March 2015 Source: MICT, Macquarie Research, March 2015 Each of these scenarios assumes that road volumes continue to increase, albeit at a slower rate than that for rail. This means that post-2020, additional road infrastructure investment is likely to be required to handle the expected growth (~3% CAGR between 2014 to 2031). In addition, further rail infrastructure investment will also be required to handle the expected volumes, particularly given the current dedicated Port Botany rail and South Sydney Freight Line is single track currently and is unlikely to be able to handle the volumes currently expected. What is the potential revenue impact from IMT? Whilst indirect benefits of the IMT are difficult to quantify, we attempt to assess the potential incremental logistics and property revenue generated by a whole of precinct IMT. Our cost assumptions include handling and storage costs. Offsetting the revenue somewhat will be the cost to lease the Moorebank IMT site from MICL. Our assumption in this regard is that annual rent to be paid by QUB/AZJ would be broadly equivalent to the rent received from a developed SIMTA site, namely ~$36m per annum. Based on a rental yield of 7%, this would imply land value of ~$530m (which is equivalent to recent land sale data from Jones Lang La Salle). This cost is broadly equivalent to our previous estimates of the average rental revenue QUB would receive in FY16 and FY17 from the SIMTA site stand-alone, hence the new revenue estimates would be considered to be net incremental revenue to QUB/AZJ. Basis of estimates As compared to road transport, rail incurs additional costs. These include track access fees as well as duplicate handling charges for rail, intermodal facility and trucks transport. A Metropolitan Intermodal Terminal study in 2011 outlined the costs associated with transport of a container from the port through the intermodal facility to the end customer. We have used these assumptions to estimate the revenue QUB will earn. Intermodal facility revenue Assuming QUB provides the intermodal service which involves handling the container off the train, storing it and putting it onto a truck for final delivery using costs outlined in the 2011 study, we estimate the IMT will earn revenue as follows; Handling costs - lift off/lift-on, storage full container load handling costs ~ $143 Loading costs at the IMT for transport to final destination ~ $17 30 March

10 Macquarie Wealth Management Assuming average inflation of 2.75%, and our forecast ramp-up of Moorebank capacity from , this implies additional recurring revenue as outlined in the table below under each of the 3 scenarios. Fig 13 Potential incremental revenue ($m) from Moorebank Intermodal Facility operations Scenario Scenario Base Case Source: Port Authority of NSW, Metropolitan Intermodal Terminal Study 2011, Macquarie Research, March 2015 End-to-end service revenue According to the Metropolitan Intermodal Terminal Study, the complete end-to-end service including rail movement from port to IMT as well as delivery to the end customer generates average revenue of ~ $476/TEU (2011 prices). Adjusting for inflation, this implies potential incremental revenue between ~ $942-1,305m by 2031 under the 3 scenarios. Fig 14 Potential incremental revenue ($m) for end-to-end service created my Moorebank Intermodal Facility Scenario ,305.8 Scenario ,162.8 Base Case Source: Port Authority of NSW, Metropolitan Intermodal Terminal Study 2011, Macquarie Research, March 2015 Fig 15 Incremental revenue from Moorebank IMT Fig 16 Incremental revenue for complete end-end service Incremental Revenue ($m) - Scenario 2 Incremental Revenue ($m) - Scenario 1 Incremental Revenue ($m) - Base Case 1,400 1,200 Incremental Revenue ($m) - Scenario 2 Incremental Revenue ($m) - Scenario 1 Incremental Revenue ($m) - Base Case 350 1, Source: Metropolitan Intermodal Terminal Study 2011, Macquarie Research, March 2015 Source: Metropolitan Intermodal Terminal Study 2011, Macquarie Research, March March

11 Sensitivity to modal share It is inevitable that rail will take on increasing throughput out of Port Botany given the current container growth outlook. How much modal share rail will have by 2031 is a contentious issue. We have assumed ~40% under our base case scenario given that is the target set by the NSW government and industry, however the economics of road vs. rail is key to our valuation outlook. Whilst we believe rail will take on increasing throughput, road will still be the primary mode of transport out of Port Botany. As such, it would be reasonable to expect the number of TEU s transported via road increase, albeit at a decreasing rate. Theoretically this is only possible up to a point under which road infrastructure will reach a theoretical maximum capacity. On face value, from this point forward the modal share of rail should increase. The counter argument to this however, is that the government is unlikely to leave roads inefficient and at full capacity. Furthermore, if road infrastructure were to improve as a result, this would once again likely change the economics of the road vs. rail debate, with the M5 east duplication a case in point. Whilst we have assumed our revenue forecast based on a 40% rail modal share by 2031 this is a relatively sensitive assumption given rail s current modal share is ~14% (FY14). We look at the sensitivity of revenues, EBIT and on our valuation to our base case, under the assumption rail modal share by 2031 is, 30%, 20% and 14% (same as FY14). We also note the following assumptions; Fig 17 Sensitivity of FY20 EBIT and valuation to changes in overall rail market share Share of rail (%) by % 35% 30% 25% 20% FY20 EBIT ($m) Valuation ($) Source: Macquarie Research, March 2015 Property Considerations and Valuation Whilst Moorebank presents an exciting opportunity for QUB to grow its logistics network it also presents an attractive property play. Prior to the government approval, both QUB and AZJ estimated a cost of~$1b for the development of Moorebank including a rail terminal and warehousing. QUB s $1b investment roughly translates to ~$200m land, $250m freight terminal with the remaining $500m for warehousing. One of the key attractions of Moorebank compared to other IMT facilities, will be on-site warehousing. For the purposes of this analysis we have assumed the warehouse facility will be ready for operation by the 2H17, with additional rental income from this point forward. Preliminary assessments indicate that property will incorporate ~ 300,000sqm of warehousing facilities, plus an additional ~8000sqm of support services on the SIMTA site. Using Jones Lang LaSalle sales reports and assessing similarly located facilities we have attempted to estimate the price and yield of the facility. Given the size of the proposed warehouse, there is no obvious comparative. As such, we have looked specifically at other distribution centres in the Sydney-NSW area. We have estimated a Sales Rate $/m 2 by taking a weighted average of comparable facilities with respect to size. We have also calculated a price based on lower and upper bounds. As outlined in the table below, a weighted average rate of 1469 $/ m 2 implies a value of ~$440.8m with an upper and lower range of between $510m ($1700/m 2 ) and $330m ($1100/m 2 ). Using an initial yield of 8.1% without adjusting for inflation this implies $35.6m/pa ($1469/m 2 ), $41.3 m/pa ($1700/m 2 ) or $26.7m ($1100/m 2 ) at full capacity (in real terms) 30 March

12 Fig 18 Comparable building characteristics price and yield Building Name Minto Distribution Centre Campbelltown Distribution Centre Moorebank Distribution Centre Suburb Site Area (m 2 ) Bldg Area (m 2 ) Sale Date Price Sales Price Type Rate / (m 2 ) Initial Yield (%) MINTO 25,830 10,711 May-2014 $12,600,000 Actual $ 1, % MINTO 12,400 5,725 Feb-2014 $5,600,000 Actual $ 978 MOOREBANK 4,528 2,968 Jul-2014 $5,100,000 Actual $ 1,718 CAMPBELLTOWN 32,760 16,642 Apr-2014 $19,400,000 Actual $ 1, % CASTLE HILL 13,130 5,052 Jun-2014 $9,250,000 Actual $ 1,831 CHULLORA 35,000 Oct-2014 $15,750,000 Estimate CHULLORA 9,613 6,428 Jun-2014 $8,250,000 Actual $ 1, % CONDELL PARK 32,180 10,794 Jun-2014 $9,750,000 Actual $ % MOOREBANK Unknown ~300,000 - $440,843,621 Estimate $ 1, % MOOREBANK Unknown ~300,000 - $510,000,000 Estimate $ 1, % MOOREBANK Unknown 300,000 - $330,000,000 Estimate $ 1, % Source: Jones Lang LaSalle, Macquarie Research, March 2015 Likely to be sold by QUB/AZJ Whilst we believe developing warehousing is an attractive property play for QUB and would fit within the Logistics division s remit, we note this does not directly align with core business operations. As such, we believe it is increasingly likely that QUB will consider monetising this opportunity, selling the development rights to a property developer similar to GMG s development of the Bungarribee facility to Toll. We believe the warehousing capability of Moorebank compared to other IMT will provide strategic value to a potential developer. In order for a property developer to see key value in the warehousing facilities presumably, QUB would need to establish some sort of rental lease agreement with potentially long term attractive contracts. We believe Moorebank is well positioned and will become increasingly attractive given its open-access set up and ~300,000 sqm of space. Assuming a cap rate of ~6%, we believe the saving in capex as well as the cash generated from the sale of the property will translate to a ~$0.05 increase in our valuation. Risks Other Intermodal facilities It is unlikely that current volumes would be transferred to Moorebank facilities unless the economics make sense. Currently, QUB s container volumes are transported to facilities in Yennora and Minto. With a large market share of current freight transport in Australia, we believe Pacific National presents the biggest threat to the success of Moorebank. We believe Moorebank location and size presents a strategic advantage with a large proportion of imports directed towards Sydney s western suburbs. However, with the ramp up of volumes at Moorebank still a few years away there is some risk that AIO develops a more compelling solution in the near term on the back of strong investment and market position. Pacific national flagged a ~112m upgrade of its freight terminals with an upgrade to its Chullora facility. In saying this, the key difference with Moorebank is with respect to warehousing. It will not only offer on-site warehousing facilities but these will also be open-access. This is likely to drive increased volume and flexibility. We believe Moorebank will cater for a large proportion of throughput in the coming years. However, if throughput is to reach the government s 40% rail target and container growth is as strong as expected, there will be an inevitable need to increase capacity at other intermodal facilities. We believe this presents a risk to Moorebank with the potential for other facilities in Enfield, Chullora, Minto, Yennora, Eastern Creek, Badgerys Creek and Villawood to increase in capacity in coming years. Whilst we believe there will be a push to promote rail transport there will be an inevitably be a required investment in road infrastructure. Road will continue to be the primary mode of transport out of Port Botany. With continued investment in road infrastructure there is potential risk that Moorebank becomes less compelling. Further, this may delay the expected modal shift to rail transport as asset utilisation of trucks reduces at a slower rate. 30 March

13 Other risks Perhaps the biggest risk to QUB is if expected container growth at Sydney s Port Botany does not eventuate. As such, this will materially affect the economics of rail as a viable transport alternative or potentially slow down the modal shift from road to rail that is expected. Ultimately, this will impact margins, given additional stevedoring and intermodal costs associated with rail. Another potential risk is the upgrade or modernisation of truck fleet or road infrastructure, which would also make Moorebank a less attractive preposition. If demand in Sydney s West and South Western regions does not eventuate, this may pose further risk to being able to leverage scale efficiencies. Macquarie View Our base case is for container growth with ~5.05m TEU by Whilst this is below the Port Authority of NSW forecast we still believe this will leaves QUB well positioned to increasing container growth. Simply having access to increased volumes is not the only positive for QUB as Moorebank also presents an attractive property play. With integrated operations of both the warehouse facility and rail QUB will have good visibility of volumes and being to drive further cost efficiencies. With the lack of information surrounding both the timing and the rate at which volumes at the Moorebank facility will be ramped up, there is much uncertainty surrounding Moorebank s true value. This is further complicated by the economics between road and rail which will drive the expected modal shift, the rate of which is difficult to estimate. What remains though, is there will inevitably be an increased need for rail transport out of Port Botany. As the largest intermodal facility in NSW, if rail is the answer to traffic congestion, QUB is well positioned to benefit. 30 March

14 Background to QUB Acquisitions A large proportion of growth in the last two years has been acquisition funded, as QUB has continued to diversify operations. As always, it is difficult to forecast acquisition growth, but we expect more opportunities to become apparent, as lower scale players come under increasing pricing pressure. Further, we believe this will be in line with QUB s strategy to diversify its operation and build scale. 2H15 will also include the integration and acquisition of ISO limited completed earlier this year. As a result a large proportion of the 2H15 capex will be in the Ports and Bulks business. We also anticipate further investment in Quattro grain with the facility expected to be in operations by Oct-15, with only a marginal contribution in 2H15. Fig 19 QUB Recent acquisition history Date Company Consideration ($m) Jan-15 Jul 14/ Sep-14 Dec-14 Feb-14/ Mar-14 ISO Limited NZ Stevedoring and marshalling operations across 7 ports (NZ & AUS) OzTran Bulk haulage transport in Port Hedland Australian Heavy Logistics Ltd ( AHL ) Brisbane based heavy industry logistics operator with key customers across oil and gas. CRT Group Pty Ltd ( CRT) Australian Polymer, food and industrial sectors - bulk freight handling, packaging, warehousing and distribution Walmsley Bulk Haulage - Port Hedland based specialist haulage business servicing Pilbara area Beaumont Transport Bulk tipper and pneumatic market operating out South and central QLD and NSW. Dec-13 Intercon Holdings Pty Limited (IML Logistics) Based in WA providing mining and resource project logistics, specialised transport, warehousing and distribution services Source: Macquarie Research, March 2015 NZ$80 with additional compensation payable in Jun-18 if earnings targets are met FY16-FY excluding stamp duty and transaction costs 16.7 Capex 1H15 capex was $176.3m. A large proportion of this incorporated the acquisitions of OzTran, AHL and CRT during the half as well as land acquisition for future investment in Darwin. Full year capex guidance is for $ m implying 2H15 capex of $ m. The company has already flagged the acquisition of ISO limited in Jan-15 which will contribute a large proportion of 2H15 capex. Fig 20 FY15 capex Fig 21 1H15 net debt H15 2H15 Logistic Ports & Bulk Strategic Assets 2H15 Capex Source: Macquarie Research, March 2015 Source: Macquarie Research, March March

15 Net debt & gearing QUB recently refinanced its ~$750m five year debt facility which expires in Dec-19 benefiting from both a lower interest rate environment and improved credit metrics associated with the business restructure n Despite this, the business maintains conservative gearing levels. QUB s leverage as at 1H15 was ~23% Net Debt / (Net debt + equity) up from 17% at FY14. This compares to a target gearing ratio of between 30-40%. Further there appears considerable headroom for future acquisition and growth with ~375min undrawn debt facilities and available cash. Business drivers QUB business model has become increasingly fragmented with no single customer representing >5% of revenue. The bulk and port division has seen rapid growth with a CAGR 26% over the last two years adding $142m of revenue (1H15: $382m vs. 1H13 $241m). In recent periods, much of the growth has been acquisition led as QUB has continued to pursue a strategy of diversification across its business against a backdrop of subdued underlying volumes in motor vehicle imports as well as continued volatility in commodity markets. This has been offset by strong Utah Point volumes, increasing capacity at Vic Dock, and key contract wins in oil and gas. We believe this strategy will be beneficial as QUB builds scale through targeting relatively small bolt on acquisitions to support core operations, as pricing pressure increases for lower scale operators. Furthermore, there remains scope for investment in attractive growth opportunities such as Quattro grain initiative and Moorebank intermodal facility. We take a look at the underlying business drivers for QUB going forward. Container volumes A key driver of revenue and QUB profitability is driven by import/export volume growth. QUB provides container import and export servicing within its freight and intermodal terminals across; VIC (Vic Dock, Dynon Road, Somerton, Altona Freight), NSW (Port Botany, Yennora, Macarthur), QLD (Brisbane, Acacia Ridge, regional terminals), SA (Outer harbour) WA (Fremantle, Jandakot, regional terminals). On face value currency is a key influence on container volumes, with the mix of import/exports being influenced by the strength of the Australian dollar. However, despite recent currency volatility, the mix of has remained relatively constant as shown in the figure below with ~80% of movements reflecting full import and exports. Following strong FY11 and FY12 container growth of 7.4% and 5.6%, volumes have remained relatively subdued with CAGR of ~2-3% over the last two years. 1H15 container volumes have been more positive with ~4% growth across the four major ports reflecting a slight increase in demand. We expect this trend to continue in the second half as well as in the long term supported by increased capacity, streamlined port processes, increasing business activity as well as population growth. Container growth has averaged ~2.1x national GDP growth over the last decade, with this number trending down in recent years. We expect this to trend to moderate slightly towards 1.7 x GDP growths in the long term. 30 March

16 Fig 22 % change in TEUs by city 12 mth rolling Fig 23 Container % mix through 4 major ports 15% 10% 5% 0% -5% -10% Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Sydney Melbourne Brisbane Fremantle Total TEUs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Import - Full Export - Full Import - Empty Export - Empty Source: Macquarie Research, March 2015 Source: Macquarie Research, March 2015 Fig 24 Total TEU s across 4 major ports Total TEU 7,000,000 6,000,000 FY10 FY11 FY12 FY13 FY14 FY15 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN Source: Macquarie Research, March 2015 Iron Ore (MRE ~ $135m, 22% P&B Revenue) Through its stevedoring operations particularly the multi user facility at Utah Point (3 customers) QUB provides bulk haulage of iron ore. According to company data, this represented ~22% of P&B revenue in FY14 generating $135m, up 35% on the pcp. Clearly the impact of the volatility in commodity prices is an area of concern for QUB. Key customers include Atlas Iron, Arrium (QUB s largest customer), Mineral Resources, Consolidated Minerals Manganese and ISM). This market has become increasingly cost focussed. As a result, we expect any contract negotiations with QUB to be focussed around long term stability, which may in some cases mean a reduction in margins going forward. Motor vehicle import sales (MRE ~ $53m of revenue FY14) QUB maintains a strong market share within the automotive import industry representing approximately 9% ($53m) of FY14 revenue up from $20m in the pcp. The underlying backdrop has been subdued, with Australian new vehicle sales declining 1.4% to ~1.1m in FY14, whilst import volumes have stalled. This has also impacted stevedoring and project cargo operations. Future growth of this business is expected to be slightly offset by the winding down of mining investment in Australia. We expect the acquisition of the Australian Heavy Logistics business in 1H15 to drive cost efficiencies despite subdued volumes. QUB will now be able to present an integrated offering, providing both stevedoring and the transport of heavy equipment. 30 March

17 The company expects the trend of declining motor vehicle sales to reverse in the short to medium term driven by population growth. In the context of a declining Australian dollar, we do not see any material impact for QUB, given the progressive removal of domestic manufacturers in Australia. In saying this, we do expect to see the same demand for mining/resources vehicle imports going forward. Oil and Gas (MRE~$17m of FY14 revenue (3%)) Oil and gas represents a relatively small proportion of QUB s revenue. However, its main competitive advantage in this space is its lack of legacy issues, as incumbents have high cost structures. QUB s ability to maintain a flexible cost base, given a high percentage of its workforce are flexible contractors, will allow it to pursue further growth and opportunities. Whilst there is some concern in the wake of a falling oil price there has been no sign of concern with company volumes remaining above expectations. Oil and gas operations include; Dampier Transfer Facility - supply base to service the oil and gas industry with the construction of a major new barge transfer and laydown facility in Dampier. Chevron Contract: Loading and unloading freight moving between Fremantle and Chevron operated assets on Barrow Island. Fig 25 Divisional revenue ($m) Fig 26 Divisional revenue growth (%) Logistics ($m) Ports & Bulk ($m) Strategic Assets ($m) % Logistics Port & Bulk Strategic Assets % 35% % % 20% % % 400 5% 0% 200-5% 0-10% 1H13 2H13 FY13 1H14 2H14 FY14 1H15 2H15 FY15 1H16 2H16 FY14 FY15 FY16 Source: Macquarie Research, March 2015 Source: Macquarie Research, March 2015 Key growth opportunities Quattro Grain: QUB s involvement in the Quattro Grain deal provides a platform for future growth. Construction is expected to be completed by October 2015 with the first of the silos already erected at Port Kembla. At its completion, the joint venture involving Hong Kong Noble Group, Cargill Australia and Emerald Grain will provide capacity for ~1.3m tonnes of grain per annum. The Quattro facility is specifically designed to receive grain by rail and will utilise the existing Inner Harbour rail. While the Quattro Grain initiative presents a new opportunity for QUB the potential for further roll outs of this model remains to be seen. According to the Australian Bureau of Agriculture and Resource Economics (ABARES) export earnings from farm commodities are forecast to be ~$40.5b in compared with $40.3b in This is expected to be ~41.2b by 2019/20. This implies relatively modest CAGR of 0.4% over the next 5 years, after some decline in recent years. Recent weakness in agribusiness volumes has largely been driven by adverse weather conditions. Whilst the outlook for export volumes remains modest the JV provides QUB with an entry point into a market traditionally dominated by larger players as well as an opportunity to continue to diversify its earnings base. 30 March

18 CRT acquisition With annual turnover ~$100m the business provides land and warehousing activities with the strategic advantage of being adjacent to rail head at Altona. Whilst we are positive on QUB s track record in realising cost efficiencies through warehousing and transport, the fact remains that there is limited scope for further expansion of the Altona terminal. As such we note this may very much remain a cost out rather than volume story. Furthermore, heightened competition from established rail providers DP World and AIO at the Port of Melbourne will present challenges in making further inroads to market share. Vic Dock and Freemantle: QUB has also made investments in Vic Dock and Hardstand at Freemantle to draw scale efficiencies and increasing capacity Recent investment in new warehouses at the Vic Dock intermodal terminal & warehouse facility will increase storage space to ~13,000 containers. This upgrade is expected to be completed before June-15 and position QUB to potentially win new major import contracts. Logistics Division (1H15 EBIT of 30.8m ~ 32.2% Group EBIT) Operations Core operations primarily involve import & exports services for containerised cargo. This end to end service incorporates physical and documentary processes as well as road and rail transport across both Intermodal terminals and International freight. This division also provides rail services which specialise in transporting containers form the port of entry to an inland metropolitan location, or alternatively to transport goods from regional centres to the port. Further to this, QUB operates full and empty container parks, provides customs and quarantine service as well as warehousing. In line with a decline in mining and project related cargo in Qld, the groups geographic exposure to QLD has reduced whilst NSW represents QUB s biggest market ~35% of revenue in FY14. We expect to see contribution from Victoria grow in line with investment in the Vic Dock facility. Rail represented ~ $136m of revenue in FY14 up 16% on the pcp. QUB is the only operator of metropolitan rail in Sydney from Port Botany to Yennora and Minto. In real terms the growth hasn t been large however this has largely been due to a lack of opportunities within the industry. The impact of Moorebank is likely to drive QUB s NSW exposure higher in line with higher rail transport. However, as noted above, this is a long term story. Fig 27 Logistics geographical revenue (%), ($m) Fig 28 Logistics revenue split ($m) Global Forwarding $12 2% SA $53 9% WA $65 11% NSW $213 36% 100% 90% 80% 70% 60% 50% 40% $14 $9 $12 $67 $74 $71 $86 $100 $101 $81 $118 $136 QLD $125 21% 30% 20% 10% 0% $229 $238 $273 FY12 FY13 FY14 VIC $125 21% Transport Freight Handling / Warehouse Freight Forwarding Rail Container handling Source: Macquarie Research, March 2015 Source: Macquarie Research, March 2015 Strategy With origins as a predominantly road based import focussed logistics operator, this business has continued to diversify its operations more evenly across importing and export activities. This leaves QUB well positioned should the state governments look to facilitate increased modal shift away from road on environmental grounds. Further, QUB has responded to increasing demand for logistical services between regional areas and ports expanding its operations into containerised rail and agricultural commodities. 30 March

19 Port and Bulk Division (1H15 EBIT of $45.3m ~ 50.4% of Group EBIT) Operations Port and Bulk (53% FY14 revenue) is primarily involved in the import and export of non-containerised freight. P&B has benefited from a strong demand for commodities within Australia over the last decade. The growth strategy for this business has been to continually diversify its services across automotive and bulk and break bulk products. This growth has been primarily acquisition led with the OzTran, AHL and ISO acquired in 1H15. Whilst this presents significant opportunities going forward, traditional stevedoring port activity has remained relatively subdued in recent times. Key drivers of this have been lower automotive imports as well as adverse weather conditions which have impacted agricultural business. Utah Point continues to be a bright spot in this business with volumes continuing to be above expectations ~19m tonnes in FY14. Fig 29 P&B geographical revenue (%) Fig 30 P&B revenue split ($m) Other % QLD % NSW % Ancillary Services $59 10% Other $100 16% Iron Ore $135 22% WA % SA % VIC % Facilitiy Operations $53 9% Oil & Gas $18 3% Vehicles/Mach inery/boats/w HSS $53 9% Bulk Scrap and Other $41 7% Source: Macquarie Research, March 2015 Source: Macquarie Research, March 2015 Coal $18 3% Concentrates $82 14% Mineral Sands $41 7% Strategy The key focus across this business is to diversify its earnings base, as the landscape across Australia changes from mining investment and with an increasing focus on costs. We believe this strategy is beginning to show dividends with declines in motor vehicle imports offset by new contract wins, investment in oil and gas facilities and record volumes at Utah Point. Australia s non-containerised trade has historically been export (iron ore and coal) driven with ~90% of total 978.7m tonnes exported in FY13 (BITRE). According to BITRE forecasts, total Noncontainerised freight has grown ~5.5% over the last 14 years with expected growth of 3.9% over the next 20 years. 30 March

20 Fig 31 QUB Investment Fundamentals, FY12 FY17E Income statement 1H14A 2H14A 1H15A 2H15E FY12A FY13A FY14A FY15E FY16E FY17E Revenues Bulk & Ports $m ,002 1,177 Logistics $m Other $m Total revenues $m ,065 1,211 1,511 1,762 2,096 Revenue growth % 10.5% 17.0% 23.1% 26.1% 238.0% 36.2% 13.7% 24.7% 16.6% 19.0% EBITDA $m Margin % 4.2% 17.5% 17.6% 18.7% 18.2% 19.9% Depreciation and amortisation $m EBIT Logistics (ex-pota) $m Ports & Bulk (ex-poags) $m Other incl. corporate $m Associate earnings $m EBIT recurring (inc. associates) $m EBIT non-recurring $m Total EBIT (incl. associates) $m EBIT margin % % 13.0% 12.8% 14.8% 14.6% 16.6% Net interest $m Pretax profit $m Tax $m Net profit after tax $m Profits attr to non-controlling SHs $m Reported profit $m Adjusted profit $m Adjusted EPS EPS Growth % 18% 13% 4% 57% -76.7% 193.7% 15.6% 31.5% 23.8% 29.6% DPS PE (adj) x EV/EBITDA x EV/EBIT x PGCFPS x P/BV x Dividend yield % 1.4% 1.6% 1.8% 2.4% 3.2% 4.1% Franking % Cash flow analysis EBITDA $m Net Interest Paid $m Tax Paid $m Other (inc Working Capital & Associates) $m Net Operating Cashflow $m Investing Cashflow - Capex $m Acquisitions/ investments $m Other $m Net Investing Cashflow $m Financing Cashflow - Distributions/Dividends paid incl. NCSH $m Equity Movements (inc. DRP) $m Debt Movements $m Net Financing Casflow $m Net increase/decrease in cash $m Balance Sheet Cash $m Current assets $m Investments $m Fixed $m Intangible $m Other assets $m Total Assets $m 1,721 1,841 2,063 2,260 2,420 2,788 Short Term Debt $m Long Term Debt $m Other Liabilities $m Total liabilities $m ,164 Shareholders Funds $m 1,091 1,142 1,445 1,536 1,666 1,833 Financial metrics Book value per share $ NTA per share % Return on assets % 1.7% 4.2% 4.5% 5.9% 6.8% 8.0% Return on invested capital % 5.4% 9.1% 9.3% 12.1% 12.5% 15.0% Return on Equity % 2.5% 6.6% 6.8% 8.6% 10.0% 11.9% Net debt/ Equity % 30% 41% 19% 29% 28% 37% Net debt/net debt + equity % 23% 29% 16% 23% 22% 27% Valuation Logistics (ex-pota) $m ,052 1,089 1,123 Bulk & Ports (ex-poags) $m 1,222 1,382 1,601 1,765 1,852 1,945 AAT (proportionate) $m NSS (proportionate) $m Prixcar (proportionate) $m Properties $m 927 1,030 1,105 1,197 1,427 1,550 Overheads and Management fees $m Net Debt $m Valuation 2,259 2,493 3,093 3,293 3,565 3,585 EFPOWA m per share Source: Macquarie Research, March March

21 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a reasonably positive view on Qube Holdings. The strongest style exposure is Earnings Momentum, indicating this stock has received earnings upgrades and is well liked by sell side analysts. The weakest style exposure is Profitability, indicating this stock is not efficiently converting its investments to earnings as proxied by ratios such as ROE, ROA etc. 99/368 Global rank in Transportation % of BUY recommendations 25% (3/12) Number of Price Target downgrades 1 Number of Price Target upgrades 12 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Transportation) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. Qantas Airways 1.1 Qantas Airways 0.7 Recall Holdings 0.6 Recall Holdings Seek 0.6 Seek Spotless Group Holdings 0.5 Spotless Group Holdings Asciano -0.1 Asciano ALS -0.9 ALS % -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. Qantas Airways Recall Holdings Seek Spotless Group Holdings Asciano ALS Qantas Airways Recall Holdings Seek Spotless Group Holdings Asciano ALS % -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price to Cash NTM Price to Cash FY1 Dividend Yield FY1 Price to Book FY1 Turnover (USD) 20 Day Return on Equity NTM 3M Price Target Revisions EBITDA Revisions 3 Month -31% -35% Negatives Positives -28% -22% 18% 24% 30% 34% -40% -20% 0% 20% 40% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/368) Percentile relative to market(/409) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 30 March

22 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 2014 AU/NZ Asia RSA USA CA EUR Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients) QUB AU vs Small Ordinaries, & rec history AZJ AU vs ASX 100, & rec history (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March month target price methodology QUB AU: A$3.29 based on a DCF methodology AZJ AU: A$5.50 based on a DCF methodology Company-specific disclosures: QUB AU: Macquarie Capital (Australia) Limited or one of its affiliates is advising Moorebank Intermodal Company about the development and operation of the Moorebank Intermodal Terminal. AZJ AU: Macquarie Capital (Australia) Limited or one of its affiliates is advising Moorebank Intermodal Company about the development and operation of the Moorebank Intermodal Terminal. Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 24-Feb-2015 QUB AU Neutral A$ Aug-2014 QUB AU Neutral A$ Mar-2014 QUB AU Neutral A$ Feb-2014 QUB AU Neutral A$ Aug-2013 QUB AU Neutral A$ Aug-2013 QUB AU Neutral A$ Mar-2013 QUB AU Outperform A$ Feb-2013 QUB AU Outperform A$ Dec-2012 QUB AU Outperform A$ Aug-2012 QUB AU Neutral A$ Aug-2012 QUB AU Neutral A$ May-2012 QUB AU Neutral A$ Mar-2012 QUB AU Underperform A$1.69 Target price risk disclosures: QUB AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. 30 March