Morningstar Equities

Morningstar Equities

Macquarie Group Limited MQG| Macquarie Is on Track to Deliver Strong Fiscal 2014 Earnings Growth
Morningstar Recommendation: Hold
David Ellis, Morningstar Analyst - 02 9276 4582
Macquarie Group's (Macquarie) first-quarter update for fiscal 2014 demonstrates the group is on track to achieve its general guidance for improved full-year earnings compared with fiscal 2013. More positive market conditions, a lower Australian dollar, increased fund inflows and increased business volumes support our positive investment view. Operating earnings for first-quarter fiscal 2014 were not specified, but management confirm an improvement on a subdued fiscal 2013 first quarter and an increase on fourth-quarter 2013. We leave our fiscal 2014 earnings forecast of AUD 1.05 billion for the no-moat firm unchanged, as our current forecasts already imply significant earnings growth of 28% to AUD 3.15 per share. As expected, capital and balance sheet funding remain strong.

Kiwi Income Property Trust KIP-NZ| Kiwi Income Property Trust Considers Proposal to Internalise Management
Morningstar Recommendation: Hold
Tony Sherlock, Morningstar Analyst - 02 9276 4584
Kiwi Income Property Trust is externally managed by subsidiaries of the Commonwealth Bank of Australia. The board of Kiwi Income Properties Limited (KIPL), the manager of Kiwi Income Property Trust has received an indicative, incomplete and non-binding proposal from Commonwealth Bank to internalise the management of Kiwi Income Property Trust. Independent directors of KIPL are considering the proposal and are requesting further information from Commonwealth Bank. In any case, the proposal would also require the approval of the Trust's unitholders to proceed.

Carsales.com Limited CRZ| We Upgrade Carsales.com to a Narrow-Moat Rating Due to the Network Effect
Morningstar Recommendation: Hold
Tim Montague-Jones, Morningstar Analyst - 02 9276 4469
Following a review of the company, we have decided to assign Carsales.com a narrow economic moat rating, due to the network effect derived from its operation of the largest online aggregator of vehicle classifieds in Australia. This upgrade in rating from none to narrow leads us to increase our fair value estimate from AUD 7.20 to AUD 10.00. This reflects the lengthening in our second-stage earnings growth assumptions from five to ten years to reflect the strong competitive advantage obtained through the network effect. This extends the firm's ability to obtain returns above its cost of capital for a longer period than we initially assumed.

Oil Search Limited OSH| No Change in View With Oil Search's PNG LNG on Track
Morningstar Recommendation: Reduce
Mark Taylor, Morningstar Analyst - 02 9276 4478
Second-quarter production rose 4% to 1.56 million barrels of oil equivalent, in line with expectations. Sales revenue jumped 16% to USD 171 million, with inventory drawdowns offsetting an 8% decline in oil price to USD 105 per barrel. Strong gas and other field revenue boosted earnings to higher-than-anticipated levels, and we increase our 2013 earnings forecast 20% to AUD 0.12 per share, off a low base. At the current share price, Oil Search trades on a hefty 2013 price/earnings (P/E) multiple of more than 65 times, which could decline to mid-single digits by late in the decade if a third Papua New Guinea (PNG) LNG train is added to the two already under construction.

Platinum Asset Management Limited PTM| Platinum Asset Management Delivers Strong Funds Under Management Growth in Fiscal 2013
Morningstar Recommendation: Reduce
Ravi Reddy, Morningstar Analyst - 02 9276 4581
We update our forecasts following the release of Platinum Asset Management's June 2013 funds under management (FUM) and fund performance statistics. We have also reviewed and reaffirmed our narrow economic moat rating on Platinum.

Transfield Services - Upgrade due to price change
Briscoe Group - Upgrade due to price change
CFS Retail Property Trust - Downgrade due to price change
SP AusNet - Upgrade due to price change
Echo Entertainment Group - Upgrade due to price change

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