Weekly, Myer Turnaround |MET|HSO|AIA|WTC

20 September 2018

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MYER (MYR:AX) HOLD: Back to Basics
While Myer reported a weak 2018 full year result, shares in the retailer jumped sharply in a
sharp reversal of sentiment, as the market reassessed the potential of new chief executive
John King’s “Back to Basics” turnaround plan. Mr King is putting his money where his mouth
is, buying another 100,000 shares, taking his stake to 150,000 shares and 2.4 million in
performance rights. Myer is one of the most shorted stocks with about 11% of its shares
shorted on the ASX and the large move was driven by a “short squeeze” when short sellers
cover their positions on a stock (by buying the shares). There is execution risk but the
situation looks more promising given the backdrop of a very tough retail environment. For
now, we maintain our HOLD rating on Myer and current holders may want to hold out for a
possible turnaround led by new CEO John King.

MET shares were up on a sound full year result, with a stronger second half offsetting a weak
first half. MET delivered an underlying profit (which removed unrealised gains in asset values)
of $87.5m which was up +7%, on improved revenue from resales, which was partially offset
by a lower number of new unit sales. The result reflected the impact of a cooling New Zealand
housing market – which we have highlighted as the key shorter-term risk for MET, particularly
given its large exposure to the Auckland market, MET remains our top pick in the as we
believe it is more attractively priced versus peers. We are positive on retirement given the
massive tailwind of an ageing population, but acknowledge risks of a slowing property market
and wage inflation (particularly if immigration restrictions are imposed by the new NZ

HEALTHSCOPE (HSO:AX) BUY: Strategic Transition
HSO shares have also been on a downward trend over the last few months after HSO’s board
decided to reject two takeover offers as they believe the offers undervalued HSO. HSO’s

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2018 full year result disappointed the market, and while pressure in the Australian private
hospital market weighed down on the result, the lower profit was primarily driven by a number
of non-operating expenses including costs associated with the closure of two struggling
hospitals. HSO also announced they sold their Asian Pathology business and will set up a
REIT for most of their hospital properties to free up cash to pay down debt and strengthen
the balance sheet, in order to fund current and future growth projects. HSO is facing
challenges with increased market share from public health sector and a lower participation
rate for private health insurance. However, our positive outlook remains, with optimism the
market will improve and the aging demographic offsets current challenges in the market over
the medium term. We also believe he hospital expansion projects will deliver long-term value.

AIA 2018 underlying net profit after tax was up +6.2% to $263.1m, with strong passenger
numbers and completion of a number of retail stores and investment property lifting revenue
up +8.7%. We see AIA as a beneficiary of the tourism boom as they continue to report
growing passenger numbers. However, we still see AIA as fully-priced, trading on a valuation
at 30.3x earnings and a dividend yield of 3.1%. Further, given the significant infrastructure
spend planned AIA’s earnings and dividend are forecasted to grow moderately. It is likely AIA
will be taking on more debt and with the possibility of an equity raise to fund expansion around
the corner, any future free cashflow growth is likely to be spent on reinvestment. Accordingly,
we believe AIA shares are more or less fully priced at the current juncture.

Shares in logistics software as a service company WTC have surged after releasing their
2018 full year result, with revenue and operating earnings both jumping +44% and +45%
respectively from last year. Continual investment in its software platform with product
enhancements and new features over the year contributed to organic revenue growth, with
impressive customer retention figures and higher revenue per customer. Further, 22
acquisitions throughout the year across Australasia, Asia, Europe and Americas fuelled
overall revenue and earnings growth. The extreme moves experienced by WTC shares this
year reinforce our concerns around the company’s expensive valuation, with the market
pricing in a tremendous amount of growth (although at its recent update we acknowledge it

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managed to more than deliver). WTC is a quality company, however performance may miss
the markets expectations with the bar set high, which can easily send its share price tumbling
as it did earlier this year. Hence, we remain HOLD rated

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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and needs of any particular person. Individuals should therefore assess whether it is appropriate in light of individual circumstances, or discuss, with
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weekly 19 sep 18

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