Severfield — Update 7 December 2016

Severfield (LSE: SFR)

Last close As at 12/07/2024

GBP0.81

2.00 (2.54%)

Market capitalisation

GBP249m

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Research: Industrials

Severfield — Update 7 December 2016

Severfield

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Written by

Industrials

Severfield

Well-founded progress

H117 results

Construction & materials

7 December 2016

Price

71.25p

Market cap

£212m

Net cash (£m) at end September 2016

24.4

Shares in issue

297.5m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.8

20.8

(2.7)

Rel (local)

15.3

22.0

(9.3)

52-week high/low

73.25p

43.75p

Business description

Severfield is a leading UK structural steelwork fabricator operating across a broad range of market sectors. An Indian facility currently undertakes structural steelwork projects for the local market and is fully operational.

Next events

Ex-divided (H117 DPS 0.7p)

15 December 2016

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Severfield is a research client of Edison Investment Research Limited

Severfield’s (SFR’s) H117 results were well ahead of the previous year; margin performance and order book development cause us to raise our FY17 profit expectations. This combination has also proved to be a catalyst for share price outperformance following the results. Revenue growth and further margin development towards management’s stated aim of doubling FY16 PBT by 2020 can sustain further progress.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

201.5

8.8

2.5

0.5

28.5

0.7

03/16

239.4

13.7

3.8

1.5

18.8

2.1

03/17e

256.9

18.4

5.2

2.0

13.7

2.8

03/18e

261.7

20.5

5.8

2.2

12.3

3.1

Note: *PBT and EPS are normalised, excluding pension net finance costs, intangible amortisation and exceptional items.

Margins and order book ahead in H1

H117 results (on 22 November) demonstrated that margin development in recent years has been well founded and further progress was achieved in the period, moving towards a target of doubling PBT by 2020. Given that revenue was only up slightly, a 220bp EBIT margin uplift (to 7.0%) was the standout feature of the first half. As previously announced, the UK order book has risen to a six-year high, pointing to an increasing rate of top-line growth from here. The Indian JV performance was stable y-o-y and the prospect of moving into profitability (from new business mix and debt reduction) is nearing. A good cash performance and a 40% increase in the interim dividend were further positives in the results, with scope for more progress.

Estimates upgraded, strong order book position

Severfield’s margin progression has come at a faster pace than we had anticipated and the strides forward in the UK order book (at £315m currently versus £185m a year ago) support our increased EPS estimates for FY17 (up by 9%), while those for subsequent years are largely unchanged at the PBT level. As a result, our dividend expectations have increased by c 20% in all three years. We acknowledge that the prospects for some of the sectors addressed by SFR may have become more uncertain but, arguably, others have improved. The current order position suggests that fabrication facilities will see high utilisation rates for the remainder on FY17 at least, with a healthy base load of work to be carried forward into FY18.

Valuation: Follow orders and margins higher

Surprisingly, previous notices regarding rising UK order books had not provided a positive catalyst for the share price despite being a key business indicator. After trading in the 50-60p range for much of this year, Severfield’s share price has risen sharply on the H117 results. Even on upgraded estimates, Severfield’s FY17e rating now stands at 13.7x P/E and c 8.2x EV/EBITDA. Beyond this, both multiples track downwards to c 11.4x and c 6.1x respectively by FY19e. The growth trajectory of our estimates is consistent with management’s FY20 underlying PBT target of c £26m. For the current year, the prospective dividend yield is 2.8% (including the declared interim of 0.7p).

H117 results overview

First half results both reinforced the margin progress message and included a further step-up in the UK order book. This translated to an EBIT uplift of c 60% y-o-y – a little more at the PBT/EPS level – a further increase in the net cash positon and a 40% rise in the interim dividend. We have increased our FY17 estimates on the back of this performance.

Exhibit 1: Severfield interim splits

£m

H116

H216

FY16

H117

Chg H117-on-H116

Group revenue

117.1

122.3

239.4

118.2

0.9%

Group operating profit

5.0

8.6

13.7

8.2

63.2%

Op. margin

4.3%

7.1%

5.7%

7.0%

+270bp

Group operating profit - adjusted*

5.8

9.4

15.2

9.2

58.8%

Op. margin - adjusted*

5.0%

7.7%

6.4%

7.8%

+280bp

Source: Company, Edison Investment Research. Note: *Reported operating profit is adjusted for share-based payments and pension net finance costs. Neither profit line includes any contribution from JV/associates.

UK operations

UK revenue was in line with the previous year. The significant y-o-y EBIT increase confirmed that the margin uplift delivered in H216 was well founded and effectively sustained in H117 (company-defined EBIT margin +270bp to 70%). In H116, Severfield worked on “over 80” projects and stated that an equivalent H117 number in H117 of “over 90”. We are aware of a number of larger contract awards, but conclude that workflow in the period was dominated by smaller ones cycling through the order book. Following this logic, the larger projects – with the possible exception of the London development project (a new London HQ in Farringdon for a major investment bank) – are early stage or yet to start, which provides a good, visible underpin to the order book.

The foundation for improved margins lies in the original estimation-tender-negotiation-award contract phase. The extent to which the target margin is achieved (or leaked) obviously depends on project execution. As previously commented, enhanced operational and commercial processes put in place over the previous three years have successfully addressed these phases as evidenced by ongoing margin improvement over this time. As far as the H117 trading performance is concerned, management identified improved workflow through the factories using new equipment and the commercial relationship with new JV partner CMF1 (supplying a range of metal decking products) as having additional positive margin effects. Also, better management of contract variations had a favourable impact and reinforces the perception that integrated contract management across the group has taken root.

The CMF JV contributed a share of profit after tax of c £0.2m in H117. It is reported in the separate share of results of JVs and associates line – along with the Indian JV – and is not included in references to UK margins.

A split of revenue by sector is not provided. Taking the November 2015 order book breakdown as a guide, we believe that commercial offices, industrial/distribution, power/energy, transport and, to a lesser extent, stadia were the dominant project types. Some examples include:

Commercial – One Angel Court, Goldman Sachs HQ (both in London);

Industrial/distribution – BAE assembly hall (Barrow), internet fulfilment distribution centre (Doncaster);

Power/energy – waste-to-energy plant (Dublin); and

Transport – Ordsall Chord railway bridge (Manchester).

This demonstrates a range of project capability and regional diversity. There is also spread of main contractors behind these projects.

Looking ahead, Severfield’s UK order book – having risen to £270m in June - stood at £315m in November versus £185m a year earlier. The sectors that have made the strongest contributions to this increase are stadia & leisure (including the new Tottenham Hotspur stadium, Wimbledon No 1 court) and Commercial (22 Bishopsgate). These two sectors together accounted for 76% of orders on hand and there are further opportunities in the pipeline in both. This is not to say that work in other sectors has dried up; industrial/distribution remains strong with retail and transport (ie bridges) also having a favourable outlook, although with a lower average project value compared to the two leading sectors. This base load of work should facilitate good levels of utilisation across all four UK fabrication facilities where a programme of rolling out an upgraded production management IT system is underway. Sherburn is now using this for new contracts, to be followed shortly by Dalton/ Lostock with Enniskillen to be upgraded thereafter. This is designed to improve the visibility and timeliness of project status information to relevant staff members and link into other software, further tightening project and margin control. The current group order position may also enable a greater degree of contract selectivity in choosing the pipeline opportunities to bid for that intrinsically have higher margins or fit particularly well with other workflow.

Indian JV

In financial terms, this investment contributed a small (share of after-tax) loss in H117, in line with the prior year. Against H116, achieved revenue was slightly lower (c £18.5m vs £20m), while operating margin was slightly higher (ie 7.6% vs 7.4%). Repayment of the entity’s debt began last year and is scheduled to be complete in FY19. Consequently, the associated net interest – currently slightly above generated EBIT – should be trending down.

Operationally, fabricated volumes in the period were 21,000 tonnes compared to 18,000 tonnes in H116. As these projects progress, this may support improved revenue and margin performance. This will partly depend on project mix, which we understood to include both industrial and commercial work. The order book has remained stable at £35m and we sense that more complex commercial projects are in the identified pipeline, which includes opportunities outside India (eg Oman). We currently assume a neutral contribution to our estimates from the Indian JV, but reducing interest costs and/or higher activity levels represent upside potential here.

Net cash position continues to build

At the end of September, Severfield’s net cash position had grown to £24.4m (including £0.2m unamortised debt arrangement fees), an increase of £5.7m since the end of March. (In context, this cash has all been generated organically in the 30 months subsequent to the FY14 year-end, where the balance sheet was effectively in a neutral funds position.)

Severfield generated a trading cash inflow of £12.3m, c £1m higher y-o-y, although the composition was rather different. Consistent with the EBIT progression, EBITDA was up by over £3m in H117. Moreover, cash outflows associated with Leadenhall remediation work last year (which we estimate to have been in the order of £2m) were not repeated this time. Conversely, a reversal of a favourable end-FY16 receivables position and build-up of activity levels together led to a c £7m debtor increase, compared to a c £7.5m inflow in H116. There was also some absorption into work in progress this time, but not materially so. These items were more than offset by a c £10m increase in payables – again consistent with rising activity levels – including some advances. So, while the overall working capital cash movement was positive, the inflow was lower than the prior year (at £1.7m and £8.2m respectively) which offset most but not all of the relative improvements in cash flow described earlier. Net interest and tax together came to £1m. Net capex of £2.1m was slightly above depreciation in the period and an outflow of c £0.4m represented the completion adjustment on last year’s CMF investment. Lastly, the dividend cash payment of c £3m (for the FY16 final) was twice the H116 level. Hence, the overall cash movement for the group was an inflow of £5.7m.

By the end of FY17, we expect the net cash position to have reduced slightly to c £23m. We would highlight capex of in excess of £3m (including c £2m for new welding equipment at Lostock to facilitate deeper bridge sections) and a substantial reversal of the end-H1 creditor/advances inflow as the primary elements of this H2 movement, notwithstanding further profit progression over H1. The actual year-end working capital position will depend on the stage of projects on hand at that time and the agreed contractual payment schedule. Beyond FY17, our estimates project increasing net cash balances (FY18 +£10m increase, FY19 + £12m). Management has reiterated its strategy and unchanged investment priorities, ordered as:

growth investment in working capital and equipment capability;

core dividend progression;

strategic investment opportunities (in associates, JVs and/or acquisitions); and

additional shareholder returns.

Management feels that cash balances in the order of £20m are currently satisfactory and provide commercial benefit. Our estimates indicate net cash building well above this after normal trading cash requirements. It should be pointed out that there is no automatic trigger point or quantum for additional shareholder returns, but we consider that the prospects for core dividend growth (where our expectations are raised) and special/one-off returns (none currently projected) are good.

Note that our estimates still include a net interest charge despite the net cash position. Obviously, the deposit rate is very low currently. Severfield does have a £25m RCF in place to July 2019 and the associated amortisation, and non-utilisation fees, together with some small finance lease costs, explain the group charge.

FY17 estimates raised

Sentiment towards London property, including commercial space, has cooled since the Brexit result in June and leading property companies such as British Land (16 November) and Land Securities (15 November) have commented on this. That said, projects such as 22 Bishopsgate support reasonable activity levels for now, while planning activity (eg 1 Undershaft, Paddington Cube) and a prospective new Google HQ at King’s Cross indicate a pipeline of distinctive projects. Outside London, regional office markets looks to be firmer and demand for new, large-scale distribution facilities around the country appears to be undiminished. Severfield has also highlighted a number of potential prospects. In the medium to longer term, road and rail infrastructure (especially bridges) and large retail schemes (eg Croydon, Brent Cross) may translate to new work in due course.

We believe that the increased order position will start to feed into current year revenues and we have raised our revenue expectations here, along with a 40bp EBIT margin uplift (to 7.1%, per company definition). This is partly offset by factoring in fee-related financing costs and higher expected share-based payments but the net result is +9.5% uplifts in both our FY17 PBT and EPS estimates. Reflecting some sector uncertainty, the revenue adjustment beyond this is more modest at this stage and, consequently, the effects described above cancel each other out, leaving our FY18 and FY19 headline estimates unchanged.

Exhibit 2: Severfield revised estimates

EPS* (p)

PBT* (£m)

EBITDA (£m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2017e

4.72

5.17

+9.5

16.8

18.4

+9.5

21.8

24.1

+10.6

2018e

5.78

5.75

-0.5

20.5

20.5

---

25.7

26.3

+2.3

2019e

6.61

6.59

-0.3

23.5

23.5

---

28.8

29.5

+2.4

Source: Edison Investment Research. Note: *We exclude pension net finance costs (c £0.5m pa).

Note that we have lifted our full year dividend expectations following H117 results by between 19-21% for each of the next three years.

Exhibit 3: Financial summary

£m

2010

2011

2012

2013

2014

2015

2016

2017e

2018e

2019e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

12m to Dec

12m to Dec

12m to Dec

15m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

PROFIT & LOSS

Revenue

 

 

266.7

267.8

256.6

318.3

231.3

201.5

239.4

256.9

261.7

267.8

Cost of Sales

(242.6)

(246.9)

(268.8)

(330.9)

(217.8)

(186.7)

(219.6)

(232.4)

(235.1)

(238.0)

Gross Profit

24.1

20.9

(12.2)

(12.7)

13.5

14.9

19.8

24.4

26.6

29.7

EBITDA

 

 

21.6

19.5

(13.6)

(13.6)

12.0

13.6

18.9

24.1

26.3

29.5

Operating Profit - Edison

 

 

17.1

15.0

(17.7)

(18.6)

8.4

10.0

15.2

20.2

22.1

25.0

Net Interest

(0.9)

(1.6)

(1.6)

(2.0)

(0.6)

(0.5)

(0.2)

(0.2)

(0.1)

0.0

Associates

(0.4)

(2.5)

0.2

(0.3)

(3.0)

(0.2)

(0.2)

0.0

0.0

0.0

SBP

(0.0)

(0.3)

(0.0)

(0.1)

(0.2)

(0.5)

(1.1)

(1.5)

(1.5)

(1.5)

Intangible Amortisation

(2.7)

(2.7)

(2.7)

(3.5)

(2.7)

(2.6)

(2.6)

(2.6)

(1.7)

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(1.4)

(0.6)

(1.0)

(3.8)

(5.3)

(5.9)

(0.9)

0.0

0.0

0.0

Profit Before Tax (norm) - Edison

 

15.8

10.6

(19.1)

(20.9)

4.5

8.8

13.7

18.4

20.5

23.5

Profit Before Tax (norm)

 

 

15.3

10.1

(19.6)

(21.5)

4.0

8.3

13.2

17.9

20.0

23.0

Profit Before Tax (FRS 3)

 

 

11.1

6.8

(23.3)

(28.9)

(4.1)

(0.2)

9.6

15.3

18.3

23.0

Tax

(3.5)

(0.9)

3.9

5.7

1.4

0.3

(1.0)

(2.9)

(3.4)

(3.8)

Profit After Tax (norm)

11.7

7.7

(16.2)

(17.9)

3.1

7.4

11.4

15.4

17.2

19.7

Profit After Tax (FRS 3)

7.6

5.8

(19.4)

(23.1)

(2.6)

0.1

8.6

12.4

14.9

19.2

Average Number of Shares Outstanding (m)

89.0

89.3

89.3

89.3

295.8

297.5

297.5

298.5

298.5

298.5

EPS - normalised (p) - Edison

 

 

6.82

4.51

(9.42)

(10.42)

1.05

2.47

3.84

5.17

5.75

6.59

EPS - normalised (p)

 

 

6.51

4.21

(9.72)

(9.45)

0.88

2.31

3.67

5.00

5.58

6.42

EPS - FRS 3 (p)

 

 

4.47

3.41

(11.33)

(13.49)

(0.89)

0.05

2.89

4.17

5.00

6.42

Dividend per share (p)

7.5

5.0

1.5

0.8

0.0

0.5

1.5

2.0

2.2

2.4

Gross Margin (%)

9.0

7.8

-4.8

-4.0

5.8

7.4

8.3

9.5

10.2

11.1

EBITDA Margin (%)

8.1

7.3

-5.3

-4.3

5.2

6.7

7.9

9.4

10.1

11.0

Operating Margin - Edison (%)

6.4

5.6

-6.9

-5.8

3.6

4.9

6.4

7.8

8.5

9.4

BALANCE SHEET

Fixed Assets

 

 

165.0

156.9

155.6

154.9

147.7

145.1

149.3

149.0

148.6

149.6

Intangible Assets

75.2

72.9

70.4

69.8

64.6

61.8

59.2

56.4

54.7

54.7

Tangible Assets

82.9

79.6

76.2

76.1

74.1

76.6

77.4

79.3

80.1

80.7

Investments

6.9

4.4

8.9

8.9

9.0

6.7

12.7

13.2

13.7

14.2

Current Assets

 

 

88.1

100.5

69.8

80.5

72.2

76.3

75.1

86.2

98.0

112.0

Stocks

12.6

9.1

7.1

8.2

5.8

4.8

5.3

5.6

5.7

5.7

Debtors

71.9

89.2

61.2

71.6

60.8

64.6

50.7

57.0

58.7

60.7

Cash

3.6

2.3

1.4

0.7

5.5

6.9

19.0

23.6

33.6

45.6

Current Liabilities

 

 

(99.8)

(103.6)

(97.0)

(112.5)

(57.9)

(59.7)

(58.2)

(62.1)

(63.2)

(64.2)

Creditors

(81.2)

(70.3)

(66.1)

(70.9)

(52.7)

(59.5)

(58.1)

(61.9)

(63.0)

(64.1)

Short term borrowings

(18.6)

(33.3)

(30.9)

(41.7)

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Long Term Liabilities

 

 

(22.3)

(21.6)

(21.7)

(20.4)

(18.5)

(21.1)

(17.9)

(23.4)

(23.4)

(23.4)

Long term borrowings

0.0

(0.3)

(0.3)

(0.2)

(0.0)

(0.6)

(0.4)

(0.3)

(0.3)

(0.3)

Other long term liabilities

(22.3)

(21.3)

(21.4)

(20.2)

(18.5)

(20.5)

(17.5)

(23.1)

(23.1)

(23.1)

Net Assets

 

 

130.9

132.3

106.6

102.4

143.4

140.6

148.2

149.6

160.0

174.0

CASH FLOW

Operating Cash Flow

 

 

(5.8)

(5.4)

12.9

3.1

2.1

11.4

24.8

18.2

24.6

27.5

Net Interest

(0.8)

(2.0)

(1.3)

(1.7)

(0.8)

(0.8)

(0.2)

(0.2)

(0.1)

0.0

Tax

(5.4)

(3.7)

(2.7)

(2.3)

0.4

(1.0)

(0.9)

(1.9)

(2.9)

(3.4)

Capex

(2.8)

(1.5)

(0.2)

(1.4)

(1.5)

(1.3)

(4.3)

(5.8)

(5.0)

(5.0)

Acquisitions/disposals

(2.9)

(0)

(2)

(3.0)

(3.5)

(1.7)

(4.1)

(0.5)

(0.5)

(0.5)

Financing

0

0

0

0.0

44.8

0

0

0

0

0

Dividends

(8.9)

(3.6)

(4.5)

(4.5)

0.0

0.0

(3.0)

(5.1)

(6.1)

(6.7)

Net Cash Flow

(26.6)

(16.3)

1.7

(9.7)

41.5

6.7

12.4

4.6

10.0

12.0

Opening net debt/(cash)

 

 

(11.5)

15.0

31.3

31.3

41.2

(0.3)

(6.1)

(18.4)

(23.1)

(33.1)

HP finance leases initiated

0

0.0

0.1

0.0

(0.2)

(0.3)

(0.2)

(0.1)

0.0

0.0

Other

0

(0)

(0)

(0)

0.2

(0.6)

0.2

0

0

(0)

Closing net debt/(cash)

 

 

15.0

31.3

29.7

41.2

(0.3)

(6.1)

(18.4)

(23.1)

(33.1)

(45.1)

Source: Company accounts, Edison Investment Research

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Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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