Weekly, BUY on QBE |NZR |BHP |EBO |TJX

3 October 2018

Weekly Report

Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.

New Stock Reports
QBE INSURANCE (QBE:AX) BUY: Settling After the Storm
QBE shares jumped after its 2018 interim net profit jumped +4% from last year to $358m. The result
came in better than expected, due to premium growth, rate increases and fewer weather catastrophes
– which were a welcome relief after a challenging period. QBE also announced a number of changes
it made to its businesses, selling and exiting underperforming and over-complicated businesses as
part of its plan to reduce complexity and simplify the portfolio. While the changes won’t happen
overnight, it is promising to see improvement in operating ratios already. As we have discussed in the
past, QBE is one of the only Australasian listed company’s which benefits directly from higher US
interest rates (as it improves QBE’s investment income), which we believe wil be a key theme over
the medium term.

NZR shares are up following their interim result, posting a $2.8m loss which was expected by the
market due to a planned maintenance shutdown. The market was made aware of this earlier in the
year, and it can be viewed as a significant one-off that does not materially impact the business or our
outlook on NZR. NZR also reported near record throughput volumes of 7.6 million barrels of oil during
July and August following the maintenance work. In other news, the US dollar continues to strengthen
versus the NZ dollar, and has been trading at a two-year high between 65 to 67 cents over the last
few months. This should provide an uplift in NZR’s processing income if the USD continues to hold at
these levels, or the NZD falls further. NZR has the potential for further upside for investors with an
appetite for risk, willing to make a bet on a weakening NZD (versus the USD) and assuming refining
margins hold up.

BHP BILLITON (BHP:AX) BUY: Upside from Oil
BHP shares have been trading near highs for the year as the market prices in the strong recovery in
commodity prices earlier in the year. BHP reported net profit after tax of US$3.7 billion for the 2018
financial year, with revenue from continuing operations up +21% from last year to $43.6 billion. The
majority of the gains were made on the back of stronger commodity prices, while overall production

volumes were up marginally due to improved productivity. BHP also raised its full year dividend by
+42% to US 118 cents per share, and the proceeds of the sale of their US offshore shale assets are
also likely to be returned to shareholders, as debt levels remain on the lower end of their target range.
With pressure from trade tension rising weighing on China’s economic growth prospects, it is unlikely
commodity prices will experience a similar price rise as they have in the past year and could be a
potential risk. However, BHP believe demand is expected to remain firm enough over the near term
to prevent a significant price drop. We see BHP as our preferred portfolio holding to gain exposure to
the commodity space, particularly late in the economic cycle when commodity prices usually rise with

EBO shares continue to climb higher as they reported their 2018 full year result and managed to lift
operating earnings up +10.3% from last year, despite having revenue fall -2.5%. Performance was
driven by strong earnings growth across both the Healthcare and Animal Care segments of the
business. EBOS have also made a number of acquisitions, and with a focus on improving margins
are confident to achieve further profit growth into the 2019 financial year. On top of that, there is plenty
of growth forecast over the medium term, with the commencement of their supply agreement with
Chemist Warehouse at the start of 2020 financial year. At the current level of 21x price to earnings
the stock looks fairly priced as a healthcare play. We remain positive on EBO given our healthcare
investment thematic and EBO’s track record of delivering earnings growth year on year.

TJX Companies (TJX:NYSE) BUY: Bargain Hunting Experience
TJX shares jumped +4.6% after delivering a solid 2019 second quarter result, which beat market
expectations. The “off-price” brick and mortar retailer appears to be immune to pressure caused by
online giant Amazon, as its net sales jumped +11.6% to $9.33 billion, by adding another 53 stores to
its growing portfolio. Same store sales growth was up +6%, which is impressive as not only was it
double TJX’s comparable same store sales growth for the previous year’s first quarter, but was also
well above managements guidance of 1-2% growth. This was due to increased foot traffic in its stores
as TJX frequently rotates its merchandise, which encourages shoppers to keep returning to its stores
to hunt for bargains. We believe that despite the risks of further disruption in the sector, TJX are
slightly more immune to these risks given their cost advantage and ability to create a ‘bargain hunting

Stock ratings

Given the dynamic nature of share prices ’s rating can become out of sync with the projected total return as the share price moves. The rating
must only be viewed as valid with respect to projected total return at the time of rating or target price changes.
Individual stock ratings are determined by the projected total return on a stock.
Based on a current 12 to 36- month view of total share-holder return (percentage change in share price from current price to projected target price
plus projected dividend yield), we recommend the following:
BUY: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors buy the stock
SELL: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors sell the stock
HOLD: We take a neutral view on the stock 12 to 36-months out and, based on this time horizon, do not recommend either a Buy or Sell
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comprises general securities information only, and has not been prepared taking into account the particular investment objectives, financial situation
and needs of any particular person. Individuals should therefore assess whether it is appropriate in light of individual circumstances, or discuss, with
their financial planner or advisor, the merits of each recommendation for their own specific circumstances.
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