The Research Monitor - Q1 2020 Performance - Shaw and Partners
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The Research Monitor
June Quarter 2020
inside this issue
Q1 2020 Performance
Banks and Dividends
Opportunities in Hybrids
Flattening the Curve of Covid-19
Oil prices - Future Recovery
JobKeeper - A Downturn Beater
+ stock recommendations
Q1 2020 Performance
The Australian Share Market, as measured by the S&P/ASX 300 Index,
fell sharply in the March quarter of 2020 following increases of 8.0%,
2.5% and 0.7% respectively over the previous three quarters. The March
quarter saw returns of -24.3% in price terms and -23.4% including
dividends, marking the worst quarter since December 1987.
Whilst we thought that we Investors’ initial concerns focused moved through February and into March,
on a “supply shock” in China, as it became clear that the only way to
were likely to experience
manufacturing was shut down in Wuhan stop the virus from spreading at speeds
increased volatility in and throughout the Hubei province. that would overwhelm health services
equity markets in 2020, few This was followed by a realization that was to restrict peoples’ movement and
investors could honestly say demand in China for imported goods interaction for all but essential needs,
a global pandemic was what was also dropping rapidly, but it was including shopping for food, and to allow
not until Italy reported a dramatic key workers to carry out critical jobs.
they had in mind.
increase in infections in early February
that investors recognized the game had At this point, investors feared a global
The advent of the new coronavirus
changed. At this point, politicians, recession and that certain sectors of the
outbreak is one of those events
investors and the public became economy would be closed completely
often referred to as “Black Swans”
aware that the medical emergency for an indeterminate time. Investors
that are completely unforecastable but
was rapidly becoming an economic with leverage quickly began to unwind
do happen from time to time.
and monetary emergency. As we positions, and this panic began to feed
It seems like a long time ago now, but
equity markets began the year strongly,
and investors expected 2020 to mark Sector Performance Market Cap
a return to better economic growth, Pharmaceuticals, Biotech & Life Sciences 6.3% 137,527
particularly as the US and China settled
Food & Staples Retailing -0.8% 66,151
on a stage-one trade agreement,
which significantly reduced investors’ Health Care Equipment & Services -10.3% 54,785
concerns regarding ongoing trade Utilities -10.8% 30,062
wars. Monetary conditions had also
Food Beverage & Tobacco -11.7% 32,652
eased, particularly in the US, which
also encouraged investors to look Telecommunication Services -11.9% 43,128
positively on equity markets, and Materials -23.8% 256,097
accordingly, the S&P/ASX index hit a
Software & Services -24.1% 37,239
new all-time high on February 20.
Retailing -24.4% 49,526
Sadly, this milestone was very short- Insurance -25.3% 50,062
lived, as it became clear that the
Commercial & Professional Services -26.4% 33,949
coronavirus outbreak prevalent in China
during January was spreading rapidly Transportation -28.5% 65,729
around the world. Initial hopes that Banks -28.7% 269,822
the region could contain the virus in
Diversified Financials -31.1% 65,605
a relatively short time, such as in the
manner of SARS in 2002–2003 and Real Estate -34.8% 85,143
MERS in 2012, quickly dissipated. Once Capital Goods -37.2% 9,819
it became clear that this coronavirus Media & Entertainment -37.4% 10,767
was extremely contagious, new models
began showing very large numbers Consumer Services -40.1% 32,454
of people infected with a high level of Energy -49.2% 50,684
fatalities, particularly among the elderly.
2 | Research Monitor | Jun 2020
Largest quarterly falls of more than 10% in Australian shares
0.0%
-5.0%
-10.0%
Mar-52
Sep-92
Mar-65
Dec-41
Mar-42
Jun-10
Dec-70
Jun-84
Sep-71
-15.0%
Sep-68
Sep-11
Sep-01
Jun-40
Sep-08
Sep-73
Mar-08
Dec-60
-20.0% Sep-81
Dec-08
Mar-82
-25.0%
Jun-74
Mar-20
-30.0%
-35.0%
Sep-74
-40.0%
Dec-87
-45.0%
Source: FactSet and Shaw and Partners
on itself as risk-parity funds and other markets responded. Firstly, we saw a who avoided the banks and stuck
systematic portfolios were forced to sell steep fall in long term interest rates in with the pharma sector would have
their underperforming equities in favor of both the United States and Australian handsomely outperformed the index
cash. bond markets. Aussie long term bond once again in the March quarter.
yields went from 1.354% to 0.7314%
Shortly thereafter, central banks and and US long term bond yields went The largest component of the S&P/ASX
governments stepped in with dramatic from 1.9184% to 0.6585% over the 300 Index is still the Banks Sector (down
combinations of monetary stimulus to quarter. to 19.4% index weight) but gaining fast
offset liquidity concerns, particularly in is the Materials sector (18.4% index
the credit markets, and fiscal stimulus Among Australian equity weight) which fell 23.8%, with bellwether
to provide businesses with enough time BHP down 25.5%.
sectors, performance was
to get through the economic trough that
was forming. These measures allowed
widely dispersed. At one end There were once again some
investors to take a breath and consider of the spectrum we have the spectacular returns amongst small
the fact that China was beginning to Pharmaceuticals, Biotech & Life companies, even as the broader
overcome the medical emergency. As Small Ordinaries Index fell 27.6% with
Sciences sector, containing
a result, restrictions on China’s people ventilator manufacturer Fisher and
heavyweight CSL Limited Paykel Healthcare (FPH) up 36.7%, and
and businesses were slowly lifted, which
boosted economic activity. There was no
(CSL) which once again saw an digital storage company NextDC (NXT)
apparent “light at the end of the tunnel,” increase, this quarter of 6.8% up 35.6%. At the other end of the table
though markets experienced a strong over the quarter and in stark was Ardent Leisure Group (ALG) which
rally in the last week of the quarter. saw a 83.8% fall and highly geared
contrast to the performance of
Southern Cross Media (SXL) which fell
The Australian market was driven the Energy sector which fell 80.1%.
especially by the shifting sentiment 49.2% in price terms and 48.2%
Global equity markets performed
toward the price war being waged including dividends.
between two of the biggest oil similarly to Australian markets in the
producers being the Russia and The Bank sector was also weaker, March quarter, with the MSCI World ex
Saudi Arabia. The Energy Sector down 28.7% as each bank seemed to Australia Index in Australian dollars down
traded 49.2% lower in price terms. experience more and more bad news 20.4%.
regarding dividend cuts, compliance
As fears regarding a global recession in issues, capital raising etc. Given that
2020 brought about by these and other the banks and pharma sectors make
confidence factors built, bond and equity up 29.2% of the index, investors
Research Monitor | Jun 2020 | 3
Brett Le Mesurier
Senior Analyst, Banking and Insurance
Banks and
dividends
4 | Research Monitor | Jun 2020
The issues The judgment of future The impact of
bad debts which involves deteriorating credit
confronting a decision on the length quality on the risk
banks of the COVID-19 lock weighting applied to
down, the speed of loans.
the recovery and which
sectors recover quicker.
The level of capital that The impact of the The cost and availability
needs to be retained. forthcoming higher loan of funding, both from
loss rates on the pricing deposits and the
of loans. wholesale markets.
The credit practices to The allocation of The actions of the
be adopted in view of resources to deal with regulator.
rising bad debts. increasing levels of
delinquent loans, intense
regulatory scrutiny and
the need to continually
improve efficiency.
APRA has told banks to be During this period, APRA expects We have already seen companies
that ADIs and insurers will seriously taking a careful approach to capital
mindful of the economic consider deferring decisions on the and dividends. Some examples of this
uncertainty in deciding on appropriate level of dividends until the are:
outlook is clearer. However, where a
their interim dividends. Board is confident that they are able Bank of Queensland has already
deferred a decision on its interim
Part of APRA’s 7th April to approve a dividend before this, dividend;
on the basis of robust stress testing
letter to all Authorised results that have been discussed with QBE Insurance paid its final dividend
Deposit-taking Institutions APRA, this should nevertheless be at on 9th April and within a week had
a materially reduced level. raised US$750M from institutions
(ADIs) and insurers is when it said it had lost US$500M
reproduced here: Dividend payments should be offset from its investments in 1Q20; and
to the extent possible through the use
Challenger sold many of its risky
of dividend reinvestment plans and assets at possibly the bottom of
other capital management initiatives. the market to reduce its capital
APRA also expects that Boards will requirements.
appropriately limit executive cash
bonuses, mindful of the current
challenging environment.
Banks and Dividends
Bad debt charges for major banks ($m)
2,500
2,000
1,500
1,000
500
0
1H09 1H10 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 1H19 1H20F
Source: Companies and Shaw and Partners ANZ CBA NAB WBC
Actions which are IAG’s capital return following the The current forecast FY20 and FY21
bad debt charges for our major banks
increase in its capital of $450M
unlikely to occur this from the sale of its Indian insurance are 0.41%, 0.33%, 0.37% and 0.35%
of credit exposure for ANZ, CBA,
year because of the business; and
NAB and WBC, respectively. This
CBA’s $4B capital return following
increased focus on the sale of its asset management
represents 3 to 4 times the bad debt
charges they experienced in FY19.
capital: business, CFSGAM.
The following chart shows this and
The bad debt charges of our major puts them in the context of the bad
banks will be the major focus of debt charges since the GFC.
the forthcoming 1H20 result. Some
indication of what may be coming has The forecast interim dividends
been announced in the USA. Recently, for major banks are zero for WBC
JP Morgan said that the increase in and 50 cps for ANZ. NAB has paid
the bad debt charge to cope with 30cps. WBC has a $1B after-tax
the COVID-19 fallout in 1Q20 was provision for AUSTRAC in 1H20
US$6.8B, which equates to 0.67% of which impairs its dividend paying
its loans. Wells Fargo allowed for an ability.
additional US$3B bad debt charge in
1Q20, which equates to 0.3% of its
loans.
All banks may decide its prudent to defer the declaration
of interim dividends as they determine the implications of
APRA’s yet-to-be-published stress scenario.
6 | Research Monitor | Jun 2020Credit Markets update
and opportunities
in Hybrid Securities
Cameron Duncan
Co-Head, Income Strategies
Research Monitor | Jun 2020 | 7Major bank hybrid daily turnover
$90,000,000
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
Jan 2018 May 2018 Sep 2018 Jan 2019 May 2019 Sep 2019 Jan 2020
Source: FactSet and Shaw and Partners
ANZ CBA NAB WBC
Credit Markets Update This was aided by the recent ASX Listed Hybrids
initiative from the Federal Reserve
In financial markets’ terms, to buy corporate paper which had Where much of the “Over-the-
the COVID-19 crisis has been the effect of freeing up the primary Counter” debt market was locked
characterized by extreme volatility issuance market to BBB and BB rated up over March and into April, ASX
across nearly all asset classes. companies. listed major bank hybrids actually
turnover rose from an average of
Even risk-free assets such as US With the rush to cash that we saw $25m per day to > $50m per day.
and Australian government bonds in early to mid-March, most listed
displayed unprecedented volatility in markets were heavily impacted by This has presented some compelling
early March, as investors looked to sell virtue of the liquidity they offer. Due to opportunities across the bank
any liquid assets and realize cash. their transparency with an observable hybrid universe. Investors may take
bid and offer, and being able to advantage of this liquidity driven
Central bank actions taken to add be traded by retail and institutional dislocation by undertaking the
enormous liquidity to the system via investors - albeit with great volatility - purchase of hybrid securities at
repo and the buying of government these securities offered a mechanism significant discounts to their $100
securities stabilized these markets. for investors to realize cash. face value. The median margin across
Meanwhile, credit markets having financial hybrids has widened from
been impacted along with other “risk” 3.38% on 28 February to around
markets, have staged an impressive 5.53% over three-month bank bill.
rebound from lows on 23 March.
8 | Research Monitor | Jun 2020Australian major bank hybrid securities - Traded margins over BBSW
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
01-Jan-20 16-Jan-20 31-Jan-20 15-Feb-20 01-Mar-20 16-Mar-20 31-Mar-20 15-Apr-20
Hybrid Income Portfolio v Major Bank Equity
$1.55
$1.45
$1.35
$1.25
$1.15
$1.05
$0.95
$0.85
Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20
Hybrid Income Portfolio Major Bank Equity
While there has been some concern While Hybrids have displayed far This is a far more prescriptive stance
over the certainty of hybrids being greater than normal volatility recently, than we have seen taken in Australia
called at the optional call date due, it remains much lower compared to thus far by the Australian Prudential
Challenger not redeeming the CGFPA’s bank equity volatility. Furthermore, Regulatory Authority (APRA).
recently, we note that subsequently in an environment of impending
BOQ has indicated its intention to lower bank equity dividends, hybrids
redeem its OTC hybrid due for call have the advantage of their dividend
in May, and also note that both NAB stopper. The dividend stopper
and Macquarie cash redeemed their provision dictates that the full hybrid
NABPB and MBLPA securities in the dividend must be paid if any part of
latter part of March. the ordinary share dividend is paid.
Even if no ordinary share dividend is
Furthermore, Challenger has relayed paid, the hybrid dividend may still be
that APRA has no objection to paid in full.
Challenger applying to call CGFPA
on any subsequent dividend date Recently, we have seen equivalent
prior to the Mandatory Conversion hybrid securities in the UK, Europe
date, which we expect them to do and New Zealand continue to pay
when it becomes feasible to market dividends even though the share
a replacement security in more stable dividends have been omitted for the
market conditions. current period at the insistence of their
respective regulators.
Research Monitor | Jun 2020 | 9Flattening the curve
of COVID-19
Martin Crabb
Chief Investment Officer
10 | Research Monitor | Jun 2020Daily rate of change
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
20 Feb 29 Feb 09 Mar 18 Mar 27 Mar 05 Apr 14 Apr
Source: Shaw and Partners
Much has been written about the COVID-19 pandemic so we don’t want
to simply repeat what has already been said, but rather seek to analyse
the daily case data to ascertain the likely path of the health issues with a
view to understanding how Governments are likely to react to normalise
behaviour which in turn impacts companies, profits and dividends.
Firstly, we determine This is known as “flattening the curve”. patient dying. This morbid question
Be reducing the number of human can be answered by looking at the
that the number of new interactions, we can slow the growth experience of two countries that were
infections follows a of the virus. The number of new cases early victims of the pandemic – China
cumulative lognormal is falling now suggesting this action is and South Korea. Here we look at the
working. distance between the peak and the
distribution. This function trough in new active cases. In both
is common in nature and The rate at which the number of new cases, it is between 23 and 25 days.
infections is one thing, but it is the
the virus will follow natural number of “active” cases that is most
laws of contagion and important as (i) only active cases can
fatality if untreated. pass the virus on to others, (ii) active
cases is what drives demand for
medical attention, and (iii) the number
of future mortalities is a function of
active, not infected patients.
To understand how active patients
track new infections, we need to make
some assumptions regarding how it
takes for an infection to be resolved
by either the patient recovering or the
Research Monitor | Jun 2020 | 11Change in active cases Iran Daily Growth
4000 800 80.0%
3000 600 70.0%
2000 400 60.0%
1000 200 50.0%
0 0 40.0%
-1000 -200 30.0%
-2000 -400 20.0%
-3000 -600 10.0%
-4000 -800 0.0%
09 Mar
06 Apr
16 Mar
23 Mar
30 Mar
01 Mar
08 Mar
05 Apr
22 Mar
29 Mar
12 Apr
20 Jan
27 Jan
03 Feb
10 Feb
17 Feb
24 Feb
23 Feb
02 Mar
13 Apr
15 Mar
China (LHS) South Korea (23 day delay, RHS) Iran Daily Growth
Infection rate - World ex China/Korea/Iran
0.060%
0.050%
0.040%
0.030%
0.020%
0.010%
0.000%
23 Mar
30 Mar
27 Jan
15 Jun
22 Jun
10 Feb
17 Feb
24 Feb
02 Mar
09 Mar
06 Apr
16 Mar
13 Apr
20 Apr
27 Apr
04 May
11 May
18 May
25 May
01 Jun
08 Jun
20 Jan
03 Feb
29 Jun
World ex China/Korea/Iran Distribution
So, we can express the number of virus grows, and the final infection outbreaks in the latter two countries.
new active cases as (i) the number rate that will be achieved given Doing so presents a “clean” set of
of new infections, less (ii) the the social distancing and other data which is behaving according
number of new fatalities, and (iii) containment measures made and their to the mathematical model which
the number of cases recovering effectiveness. Iran is an interesting suggests a final infection rate of
(which itself is an inverse function case in point. The virus seemed to be 0.0489% of the population.
of the number of new infections following a typical pattern, but then
23-25 days ago). a second wave of infections seemed This model suggests that
to set a new trajectory for the virus. ultimately, 3 million people will
The number of new infections is Now it seems to be becoming under contract the virus, roughly 50%
following a cumulative lognormal control. higher than current infections,
distribution for each country in but that the number of new daily
the world, each having its own We exclude Iran, South Korea and infections has peaked and will
demographic, logistical and China from our analysis of world start to decline from here.
healthcare infrastructure differences. COVID-19 due to the irregularities
These impact the rate at which the with Iran’s data and also the earlier
12 | Research Monitor | Jun 2020Relationship between Deaths and Infections: World ex China/Korea/Iran
140,000
y = 0.00%x2 + 3.95%x - 14530.89%
120,000 R² = 99.98%
100,000
80,000
Deaths
60,000
40,000
20,000
-
- 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,0002,000,000
Infections
Active - World ex China/Korea/Iran New active - World ex China/Korea/Iran
1,600,000 80,000
1,400,000 60,000
1,200,000
40,000
1,000,000
20,000
800,000
-
600,000
-20,000
400,000
200,000 -40,000
- -60,000
31 Jan
11 Jun
22 Jun
06 Apr
04 Mar
06 Apr
17 Apr
15 Mar
26 Mar
17 Apr
28 Apr
09 May
09 May
20 May
31 May
20 Jan
31 Jan
11 Jun
20 Jan
11 Feb
22 Feb
11 Feb
22 Feb
04 Mar
15 Mar
26 Mar
28 Apr
20 May
31 May
Moving back to active cases, we Putting the three components together: new
can model mortality as a function
of infections and this seems to infections, less fatalities less people that became
follow a quadratic function, (it is not infected 23-35 days ago times a factor gives us total
uncommon for the early phases of
a lognormal function to resemble a new active cases. Our analysis forecasts a peak
quadradic function), of the form y = in new infections on the 18th of April and a steep
ax2 + bx + c, where b is the mortality
rate which seems to be around 4%.
decline thereafter as infected patients recover.
We can apply this relationship to our
estimate of infections to forecast
fatalities which unfortunately trends
toward 250,000 across these
countries.
Research Monitor | Jun 2020 | 13Stuart Baker
Senior Analyst, Oil & Gas
Oil prices
Seeds planted for future recovery
14 | Research Monitor | Jun 2020Oil prices have been impacted more than any
other commodity. Approximately 70% of global oil
production is consumed in the transportation sector.
In the OECD, the Covid19 lockdowns have driven
down demand for aviation fuel by 85%, gasoline by
about 50% and diesel by about 30%.
In aggregate, since March global in time. In the USA, where the success The companies we cover
demand for oil has contracted by of the “shale” industry has stunned
at least 30%, or 30MMbopd. The the E&P world, decline rates are far can survive a period of low
outcome of the recent OPEC+ steeper and already, there is clear oil prices, having adapted
meeting was a pledge to reduce evidence of a steep drop in drilling to the previous oil crash of
production by 10MMbopd in May activity, and production.
and June, and 8MMbopd through 2015. In general, balance
to the end of 2020. In summary, while OPEC+ actions sheets are stronger, cost
are helpful, the sudden financial
These cuts are helpful but not enough strangulation faced by the industry will bases lower and capex
to avert a severe glut. Inventories will sow the seeds of the next oil boom. requirements less onerous
build rapidly and once storage facilities Meanwhile, Energy equities have been than previously.
have reached maximum capacity, sold down heavily and we recommend
producers will have no choice other accumulating selected energy stocks
than to limit supply. What is required during the current down-turn.
to restore oil markets is a rapid
recovery in demand back to pre-
covid-19 levels. At this time, the timing
and extent of a recovery is uncertain Brent oil price (US$/bbl)
although some countries are trying
to return to “normal”, notably China 140
and it would be reasonable to expect
a gradual recovery in demand as the 120
year unfolds.
100
Our base case is for a gradual
recovery in oil prices, in line with the
80
current forward curve which shows
Brent oil prices reaching $40/bbl by
year end. In addition to OPEC cuts, 60
a period of low oil prices will render
high-cost production unviable, and 40
constrain the capital investment
required to offset natural decline, 20
which for most fields is 10-15% p.a.
0
Most independent producers have
already guided for substantial cuts in
2000 2004 2008 2012 2016 Spot
capex and lower production will follow
Brent (nominal) Brent (real)
Source: Nymex
Research Monitor | Jun 2020 | 15Oil inventories (mmbbl)
4,500 600
4,000
500
3,500
3,000 400
2,500
300
2,000
1,500 200
1,000
100
500
0 0
Q2 08 Q2 10 Q2 12 Q2 14 Q2 16 Q2 18 Q2 20
OECD Industry Stocks (MMbbls) (LHS) USA (MMbbl) (RHS)
Source: IEA Monthly reports, EIA weekly supply
Our preferred buy Beach has an even split of oil and
domestic gas production. The latter Beach Energy (BPT)
recommendations are
Rating: Buy | Risk: High | Price Target: $1.90
is contracted and sold at A$ priced Well placed to weather the storm
Event
which are CPI-indexed, which provides
March quarter (third quarter) activities report.
Beach Energy and
Highlights
Compared to peers, the quarterly results look good, with production up 8% q-on-q, and
revenue down only 7% despite a 30% reduction in oil prices, helped by stronger
revenue certainty. It has no looming
domestic gas and LPG prices.
Production in the quarter was 6.94MMboe, 8% higher than the December quarter
largely driven by higher oil production in the Cooper Basin following a sustained period
of high drilling activity. Oil production was 2.386MMbbls, a quarterly record.
Santos.
Sales revenue was $431M, lower than December’s $462M and in line with our estimate
large capex projects, and has net cash
of $440M. Oil prices were 30% lower, averaging A$74/bbl compared to A$106/bbl in
December, but the average domestic gas price was 8% higher at $7.6/GJ, and LPG
prices were strong at $740/T, up 19%. Average gas prices exceeded our expectation and
are despite a very weak spot market, because ~75% of gas production is contracted at
CPI-indexed prices
which could be used to acquire cheap
The Otway Basin gas re-pricing process has commenced for new prices to apply from
July 2020, with the customer Origin Energy. The price review has been referred to
arbitration and until determined, current prices will continue. Approximately half of all
BPT’s production is domestic gas, and continuity of pricing is an important buffer should
liquids prices continue to fall.
assets during the downturn.
Capex spending was high in the quarter, at $246M and included some expensive
frontier drilling, in addition to 43 wells in the Cooper Basin and Western Flank with the
latter investment providing continued good success. Capex will fall sharply from here
although FY2021 budgets are to be determined. Significantly, the multi-well re-
development drilling program planned at the Otway gas project has been deferred with
the rig contract cancelled. The Otway re-development loomed as a very large capex
commitment. In time that gas will be needed but in the interim, successful drilling from
onshore wells will mitigate with results of the first well BlackWatch#1 positive.
Cash on hand at the end of the quarter was $80M and undrawn credit facilities take
Santos is well diversified by
liquidity to $530M. There is nil debt. Gas revenues are sufficient to cover cash costs and
with-out debt to service, BPT can tolerate a period of very low oil prices, with the only
real detriment being to capex invested into growth projects. In coming months we
expect many industry participants to experience financial distress, and BPT is well
positioned to consider acquisition opportunities.
product and field, and over the past
There are no changes to our forecasts or valuation.
Recommendation
We retain a buy rating and price target of $1.90.
4 years has substantially reduced its
cash-flow break-even to ~US$24/bbl. Stuart Baker | Senior Analyst
+61 3 9268 1148
It has low-cost growth options and
sbaker@shawandpartners.com.au
Shaw and Partners BPT – Equity Report current as at –22/04/2020–Pg. 1
1.25000 0000 000
highly prospective exploration acreage DOWNLOAD BEACH ENERGY REPORT
offshore WA and the NT.
Woodside and Oil Search are Santos (STO)
Rating: Buy | Risk: High | Price Target: $7.50
riskier investments at this time. Hedging to the fore
Both predominantly exposed to Asian
Event
First quarter activities report.
Highlights
Production and revenue results for the quarter were lower than our forecasts but what
LNG markets for revenue and future
is more important are the steps taken since February to protect the business. The 2014
oil crash caught Santos unprepared but that is not the case now. Revenue certainty
from domestic gas, oil hedging, cash & liquidity and deferral of major growth projects
are the full suite of counter measures to defend low oil price and covid19.
First quarter production was 4% lower than the last quarter, due to gas customer
growth, and slow-down in that region
outages and adverse weather impacting WA operations while other business units were
steady or higher. Cooper Basin gas production was 23% higher than the pcp and the
highest since 2011, following major drilling campaigns including the systematic use of
horizontal wells for the first time. Production was 17.9MMboe. Our estimate was
19.2MMboe. Guidance for the full year is adjusted upward to the 81-89MMboe range
reflecting revised timing for settlement of sale of interests in Bayu and Darwin LNG.
may impact on current production and
Sales revenue was 14% lower to US$883M and lower than our estimate of US$980M.
Oil prices were resilient, due to significant premiums and realised US$64/bbl, about a
US$10/bbl premium to Brent. Offsetting this was a lower average domestic gas price
and gas revenue, which are A$ denominated but reported in US$, and the falling
A$/US$ rate detrimental to the translation.
prices. Spot prices for LNG are very
Free cash flow generation in Q1 was US$265M, and at the end of the quarter cash on
hand rose to US$1.15B and net debt stood at US$3.1B. Santos states “there is
significant headroom in its banking covenants which are not under threat at current oil
prices”. Santos target a FCF break-even this year of US$25/bbl. Our estimates imply
~US$28/bbl currently, but opex reductions and capex deferral will drive this lower.
low and won’t help either company’s
Oil hedges have increased, with 14.2MMbbls hedged for the remainder of 2020 at an
average floor price of US$39/bbl. This, and fixed price domestic gas contracts provide
revenue certainty for approximately 70% of 2020 production.
Major growth projects have all been deferred until an improvement in business
conditions. Santos had not taken FID decisions on new projects such as Dorado and
growth aspirations, which require LNG
Barossa so is not locked into an onerous capex phase. If oil prices remain very weak for
much longer, then we anticipate Santos will reducer capex even further than that
advised in March. The base business is in good shape and production levels are broadly
sustainable for a number of years before depletion demands attention.
Our current year estimates will be revised following further analysis but changes are
market opportunities in Asia.
not expected to be material. While revenue and prices are trending lower, so too are
costs. We anticipate favourable trend in exploration expense, PRRT and third party
purchases in addition to opex.
Recommendation
We retain a buy rating and $7.50 price target which is aligned with our SoP DCF.
Stuart Baker | Senior Analyst
+61 3 9268 1148
sbaker@shawandpartners.com.au
Shaw and Partners STO – Equity Report current as at –23/04/2020 –Pg. 1
4.29500 0000 000
DOWNLOAD SANTOS REPORT
16 | Research Monitor | Jun 2020Jonathon Higgins
Analyst, Consumer Discretionary
Information Technology
JobKeeper
A potential unemployment
and downturn beater
Research Monitor | Jun 2020 | 17Stimulus annouced vs % GDP
$140bn 7.0%
$120bn 6.0%
$100bn 5.0%
$80bn 4.0%
$60bn 3.0%
$40bn 2.0%
$20bn 1.0%
$0bn 0.0%
First Economic SME Lending Support RBA term funding Second Economic JobKeeper
Stimulus Package facility Stimulus Package
Stimulus Announced (LHS) % GDP
The Australian Government’s JobKeeper announcement in
March is one regarding the implementation of one of the
most dynamic and important government fiscal support
policies in regards to COVID-19 globally.
JobKeeper entails the Unemployment is sticky in nature and These measures include:
government directly the nature of an un-altered economic
fall-out from COVID-19 is that JobKeeper payments of $1,500 a
paying workplaces to fortnight for 6 months;
SME’s, the workhorses and majority
then pay employees employers of the Australian economy, Doubling of unemployment benefits
that have had turnover would be affected the greatest from to $1,115 per fortnight;
reduced materially quarantines. JobKeeper in our view 2x $750 cash payments to 6m+
(>30% for $1bn & >50% will increase the steepness of recovery Australians;
post lifting of restrictions and is likely
for $1bn+). Up to $100,000 cash payments to
to result in a materially improved
economic result and underwrites lower SME’s;
This payment is
income Australians. $1bn+ in AOFM purchases
equivalent to $1,500 a of financial products and
fortnight per worker There has been a number of important securitisation structures;
across permanent, stimulus measures announced by
the Federal Government to directly Early release of 2x $10,000
casual and is across tranches in superannuation;
combat the economic fall-out from
a large range of COVID-19. These measures total over RBA interest rate cut of 50bps;
industries. $320bn in stimulus to be deployed
Quantitative easing operations
over the next 6 months, which
within Australia by the RBA for the
accounts for ~16% of GDP.
first time ever.
18 | Research Monitor | Jun 2020Net Debt / GDP Select Economies
New Zealand
Korea
Australia
Canada
Taiwan
Netherlands
German
Mexico
South Africa
Brazil
Ireland
Israel
Hungary
UK
USA
Spain
Belgium
France
Portugal
Italy
Japan
0 20 40 60 80 100 120 140 160
The magnitude and violence of the event on economic growth
is comparable to the Great Depression in its spike and the
government response is co-ordinated, massive and unlikely
to be seen again.
The measures announced for be bearing fruit it’s important to note businesses and consumers, with
stimulus by the Australian that in a relative sense Australia is equity capital and debt markets also
government are the most very well placed to respond fiscally to stepping up to the plate to finance
far reaching in the World by the event. The budget was headed liquidity, business support and a whole
magnitude, delivery and spread for a surplus prior to the event and host of measures.
across the economy. Australia’s net debt to GDP was only
20% in 2018 - One of the lowest Since March there has been over
SME’s and businesses are being levels globally, for the 14th largest $13bn+ in equity issuance within
directly supported, incomes are being economy. This leaves further dry the Australian market. Whilst the
paid by, subsidised or augmented by powder above and beyond current majority of issuers haven’t tripped
the government for what we estimate measures that could be implemented covenants (as yet), or encountered
is ~50% of the workforce and the depending on the shape and nature materially difficult earnings
government is acting in a co-ordinated of the event and recovery. In our view trajectories, BS’s are being shored
manner alongside the RBA and other Australia is at a competitive advantage up at a rate greater than the GFC.
nations globally. Everyone is colluding. versus other countries globally.
Whilst efforts to control the virus in It’s not just the government that
Australia at this early stage appear to is providing support to Australian
Research Monitor | Jun 2020 | 19Notable Equity Raise Since COVID-19 Start
Oil Search
QBE
Ramsay
Cochlear
Flight Centre
Next DC
Reece
Webjet
G8 Education
Shopping Centres Australia
IEL Education
Kathmandu
Invocare
Southern Cross Media
Centuria Industrial
0bn 0.2bn 0.4bn 0.6bn 0.8bn 1bn 1.2bn
The Australian government The JobKeeper and other stimulus
through initiatives announced measures are designed to protect
is directly subsidising the most and even underwrite the bottom end
vulnerable and lowest income of the Australian working population.
workers within Australia. Notable Typically, higher incomes, ages and
features among the Australian industries have lower gearing, higher
population include: savings and are in typically less
affected industries than lower income
Median incomes in Australia are quartiles.
~$52k per annum, which post
superannuation is $1,820 per
fortnight;
40% of the workforce is under 35;
Industries that likely hit immediate
30% turnover hurdle reductions
JobKeeper could result in
account for 18% of total Australian
employment; one million Australians potentially
Average CC balances are ~2,200
per Australian representing minimum
payment hurdles of $40 a month;
receiving a pay rise
Average weekly earnings in retail
and accommodation/food services
are < $42k a year; and
Median debt to income ratios are
highest in lowest income quartile
households at 1.8x.
20 | Research Monitor | Jun 2020Employment by industry Income by wage bracket
Health Care & social 13.3% $72,000
$60,000
Retail trade 10.0%
$48,000
Construction 9.4% $36,000
Professional, Scientific & Technical 8.5% $24,000
Education & Training 7.9% $12,000
$-
Manufacturing 7.7%Shaw Managed Accounts
Portfolio Performances – March 2020
3 Mth 6 Mth 1yr 2yr Inception
Shaw Income Goal Portfolio Total Portfolio Return -11.58% -11.05% -4.88% 1.53% 2.25%
Objective: RBA Cash +3% Portfolio Objective 0.90% 1.85% 3.99% 4.27% 4.33%
Inception: Sep-17 Excess v Objective -12.48% -12.90% -8.87% -2.74% -2.08%
Shaw Balanced Goal Portfolio Total Portfolio Return -15.75% -15.47% -9.18% -0.52% 1.29%
Objective: RBA Cash +4% Portfolio Objective 1.14% 2.33% 4.97% 5.23% 5.29%
Inception: Sep-17 Excess v Objective -16.89% -17.80% -14.15% -5.75% -4.00%
Shaw Growth Goal Portfolio Total Portfolio Return -20.56% -17.30% -8.18% 0.24% 3.49%
Objective: RBA Cash +5% Portfolio Objective 1.38% 2.83% 6.02% 6.30% 6.36%
Inception: Sep-17 Excess v Objective -21.94% -20.13% -14.20% -6.06% -2.87%
Total Portfolio Return -2.04% -2.49% 1.60% 3.53% 3.20%
Debt Securities Income Portfolio
Inception: Sep-17
Total Portfolio Return -5.45% -6.24% -2.04% 2.58% 4.70%
Hybrid Income Portfolio
Inception: Sep-16
Total Portfolio Return -24.27% -23.62% -13.19% -1.01% -0.27%
Australian Equity (Large Cap) - Income
Inception: Sep-17
Total Portfolio Return -29.74% -30.94% -21.85% -5.61% 2.77%
Australian Equity (Large Cap) - Core
Inception: May-16
Total Portfolio Return -26.76% -21.70% -8.87% 1.72% 5.13%
Australian Equity (Large Cap) - Growth
Inception: Sep-17
Total Portfolio Return -31.61% -30.38% -19.24% -9.37% -4.52%
Australian Equity - Small and Mid Cap
Inception: Sep-17
Total Portfolio Return -0.34% -1.19% 0.73% -0.29%
Shaw Liquid Alternatives Portfolio
Inception: Aug-18
Total Portfolio Return -8.26% -3.31% 9.11% 9.65%
AB Concentrated Global Growth
Inception: Jan-15
Total Portfolio Return -0.91% -0.25% -10.83%
EFG US Future Leaders Portfolio
Inception: Jul-19
22 | Research Monitor | Jun 2020Shaw Managed Accounts
Click on the images below to download the marketing brochure and
SMA Portfolio Factsheets. Download the marketing brochure here.
Shaw Managed Accounts Shaw Managed Accounts Shaw Managed Accounts Shaw Managed Accounts
GOAL BASED PORTFOLIO GOAL BASED PORTFOLIO GOAL BASED PORTFOLIO ASSET CLASS PORTFOLIO
Shaw Income Goal Portfolio Shaw Balanced Portfolio Shaw Growth Goal Portfolio Shaw Debt Securities Income Portfolio
Investment objective Asset classes and strategies may include Investment objective Asset classes and strategies may include Investment objective Asset classes and strategies may include Investment objective The portfolio will be diversified across the
Model Portfolio Details Model Portfolio Details Model Portfolio Details Model Portfolio Details
The primary objective of the Shaw Income cash, Australian debt securities, and The primary objective of the Shaw cash, Australian debt securities, and The primary objective of the Shaw Growth cash, Australian debt securities, and The model invests in a portfolio of ASX above criteria. A key focus of the portfolio
Goal Portfolio is to provide a regular Australian equities including property Model Portfolio Manager Balanced Portfolio is to provide a regular Australian equities including property Model Portfolio Manager Goal Portfolio is to provide regular and Australian equities including property Model Portfolio Manager listed debt and shorter dated hybrid will be the mix of fixed and floating rate Model Portfolio Manager
and sustainable income stream over the securities, international equities and Shaw and Partners Limited and sustainable income stream and securities, international equities and Shaw and Partners Limited sustainable capital growth over the longer securities, international equities and Shaw and Partners Limited securities, debt based ETFs and debt exposure in order to meet the portfolios’ Shaw and Partners Limited
medium term (3–5 years) whilst minimising alternative strategies (ETF and or capital growth over the medium term alternative strategies (accessed via ASX term (5–7 years). It achieves this by alternative strategies (ETF and or specialist managed funds. These objectives. The portfolio will be monitored
risk to capital. It achieves this by investing managed funds). Benchmark Index (4–6 years), together with some capital listed ETFs and or managed funds). Benchmark Index investing in a diversified portfolio of asset managed funds). Benchmark Index products offer potential diversification against the manager’s expectations of Benchmark Index
RBA Cash rate +3% RBA Cash rate +4% RBA Cash rate +5% RBA Cash rate +1.5%
in a diversified portfolio of asset classes growth whilst minimising risk to capital. It classes and strategies. The strategy is benefits to both Australian equities and equity returns, credit market implied
Continual assessment and risk (Gross Income and Total Return) Continual assessment and risk (Gross Income and Total Return) Continual assessment and risk
and strategies. achieves this by investing in a diversified designed to have a high level of risk. It cash or term deposits. volatilities and underlying interest rates
management of bottom-up and top- Indicative Number of Securities, Stocks management of bottom-up and topdown Indicative Number of Securities, Stocks management of bottom-up and top- Indicative Number of Stocks per Indicative Number of Securities, Stocks
portfolio of asset classes and strategies. achieves this by investing in a diversified Asset Class Based Portfolio in order to ensure it is invested across and/or Funds (ETF and Managed)
The strategy is designed to have a down parameters is a core component and/or Funds (ETF and Managed) parameters is a core component of the and/or Funds (ETF and Managed) down parameters is a core component The model’s return will be generated from
portfolio of asset classes and strategies. 30–100 a range of market cycles to meet its 15–25
medium level of risk. of the model. Changes to the portfolio 40–100 The strategy is designed to have a model. Changes to the portfolio will be 60–140 of the model. Changes to the portfolio a combination of interest payments and
Minimum Suggested
return objective, while adhering to the risk Minimum Suggested
will be made as deemed appropriate Minimum Suggested moderate level of risk. made as deemed appropriate by the Minimum Suggested The strategy is designed to have a high will be made as deemed appropriate capital growth (realised and unrealised)
Investment Time Frame tolerances set. Investment Time Frame
by the investment team in order for Investment Time Frame investment team in order for the portfolio Investment Time Frame level of risk. by the investment team in order for from an actively managed portfolio
Investment Strategy and Approach 3 years 4 years 5 years 3 years
The investment process combines the portfolio to have a high probability Investment Strategy and Approach to have a high probability of meeting the portfolio to have a high probability strategy. The model manager has access to new
Asset Allocation Ranges Asset Allocation Ranges Asset Allocation Ranges Asset Allocation Ranges
quantitative and qualitative criteria and of meeting its objectives in all market Investment Strategy and Approach The its objectives in all market conditions. Investment Strategy and Approach of meeting its objectives in all market issues of listed debt securities and is
Shaw Debt Securities Income 0%–30% Shaw Debt Securities Income 0%–50% Shaw Australian Equity Growth The Shaw Debt Income Portfolio seeks to Debt and hybrid securities 70%–100%
analysis to identify asset classes, markets, conditions. The investment process takes investment process combines quantitative The investment process takes into The investment process combines conditions. The investment process takes (Large Cap) 0%–80% able to include these in the portfolio as it Cash 0%–100%
Shaw Hybrid Income 0%–35% Shaw Hybrid Income 0%–50% provide investors with a predictable level
securities and strategies which have into consideration the risk around asset and qualitative criteria and analysis to consideration the risk around asset quantitative and qualitative criteria and into consideration the risk around asset Shaw Australian Equity Growth deems appropriate.
Shaw Australian Equity Income Shaw Australian Equity Core of income whilst minimising risk to capital. Indicative Cash Holding
a focus toward producing sustainable classes and the underlying securities, (Large Cap) 0%–60% identify asset classes, markets, securities classes and the underlying securities (Large Cap) 0%–60% analysis to identify asset classes, markets, classes and the underlying securities (Small and Mid-Cap) 0%–40% 2%
income as opposed to capital growth. maintaining their income characteristics International Equity 0%–40% and strategies which have a focus toward maintaining their income and growth Shaw Australian Equity Growth securities and strategies which have a maintaining their growth characteristics International Equity 0%–40%
Designed for investors who
whilst ensuring that the risk of a Liquid Alternatives 0%–40% characteristics whilst ensuring that the risk (Small and Mid-Cap) 0%–30% whilst ensuring that the risk of a Liquid Alternatives 0%–40% Investment Strategy and Approach
producing sustainable income and capital focus toward producing capital growth Seek a sustainable income stream over Minimum Model Investment
drawdown is adequately managed. The Cash 0%–100% of a drawdown is adequately managed. International Equity 0%–40% drawdown is adequately managed. The Cash 0%–100%
The portfolio construction is based on growth. over and above income. The model manager aims to achieve the a 3 year + time frame, with a lower risk $5,000
macro-economic and thematic views of Portfolio Managers however manage the Indicative Cash Holding The Portfolio Managers however manage Liquid Alternatives 0%–40% Portfolio Managers however manage the Indicative Cash Holding investment objectives via a qualitative
Cash 0%–100% 3%
of loss than equities, and a higher rate
Shaw’s Research in order to best meet capital value of the portfolio to minimise 3% The portfolio construction is based on the capital value of the portfolio to The portfolio construction is based on capital value of the portfolio to minimise and quantitative investment process. Key of return than cash like investments
Management Fee
the risk and return objectives of the the risk of the portfolio failing to achieve macro-economic and thematic views of minimise the risk of the portfolio failing to Indicative Cash Holding macro-economic and thematic views of the risk of the portfolio failing to achieve criteria and areas of focus are: Investment Fee Nil
its risk and return objectives. Minimum Model Investment achieve its risk and return objectives. 3% its risk and return objectives.
Minimum Model Investment Focus on minimising risk to capital and Indirect Cost Ratio 0.28% p.a.
investment strategy. Shaw’s Research in order to best meet Shaw’s Research in order to best meet $100,000 Credit quality of the issuer
$100,000 low volatility of returns. Performance Fee Nil
the risk and return objectives of the the risk and return objectives of the
The portfolio is a blend of the Shaw and Minimum Model Investment Sector/Industry
Designed for investors who investment strategy. Designed for investors who $100,000 investment strategy. Designed for investors who Management Fee
Partners SMA strategic portfolios based Management Fee Call dates and final maturity details
Seek income as the primary objective Investment Fee Nil Seek a balance of income and capital Seek capital growth as the primary Investment Fee Nil
on their suitability to the income objective. The portfolio is a blend of the Shaw The portfolio is a blend of the Shaw and Indirect Cost Ratio 0.36% p.a. Structure of instrument
and some capital appreciation from a Indirect Cost Ratio 0.34% p.a. growth as the primary objective from Management Fee objective and some income from a
Each goals based portfolio has effectively Performance Fee Nil and Partners SMA strategic portfolios Investment Fee Nil Partners SMA strategic portfolios based Performance Fee Nil
broad range of Australian and Global a broad range of Australian and global broad range of Australian and global Timing and composition of cash flows
its own asset and risk allocation managed based on their suitability to the Balanced asset classes and strategies Indirect Cost Ratio 0.37% p.a. on their suitability to the growth objective.
asset classes and strategies asset classes and strategies Relative valuation of sector as a whole
by the Shaw Portfolio Strategies Team. portfolio objective. Each goals based Performance Fee Nil Each goals based portfolio has effectively
Have an investment horizon of three Have an investment horizon of four Have an investment horizon of five and between relevant securities,
portfolio has effectively its own asset and its own asset and risk allocation managed
years or more years or more years or more including the inclusion of new issues
risk allocation managed by the Shaw by the Shaw Portfolio Strategies Team.
Accept the risk of volatility in their Portfolio Strategies Team. Accept a moderate risk of volatility in Accept the risk of volatility in their Liquidity and potential changes in
investment return. their investment return. investment return. liquidity.
MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE
SP0009 SP0008 SP0010 SP0003
Shaw Income Goal Shaw Balanced Goal Shaw Growth Goal Shaw Debt Securities Income
Shaw Managed Accounts Shaw Managed Accounts Shaw Managed Accounts
Shaw Managed Accounts
ASSET CLASS PORTFOLIO ASSET CLASS PORTFOLIO ASSET CLASS PORTFOLIO ASSET CLASS PORTFOLIO
Shaw Hybrid Income Portfolio Shaw Australian Equity (Large Cap) Income Shaw Australian Equity (Large Cap) Core Shaw Australian Equity (Large Cap) Growth
Investment objective The portfolio will be diversified across Investment objective Continual assessment and risk Investment objective The Investment Process takes into Investment objective The investment process takes into
Model Portfolio Details Model Portfolio Details Model Portfolio Details Model Portfolio Details
The model aims to invest in a portfolio of the above criteria. The portfolio will The primary objective of the Shaw management of bottom-up and top- The objective of the Shaw Australian consideration the yield and capital growth The primary objective of the Shaw consideration the primary objective of
ASX listed debt and preference securities be monitored against the manager’s Model Portfolio Manager Australian Equity Income (Large Cap) down parameters is a core component Model Portfolio Manager Equity (Large Cap) Core Portfolio is objectives of the portfolio and ensures Model Portfolio Manager Australian Equity (Large Cap) Growth capital growth. Although the portfolio will Model Portfolio Manager
that offer diversification benefits to both expectations of equity returns, credit Shaw and Partners Limited Portfolio is to provide a regular and of the model. Changes to the portfolio Shaw and Partners Limited to provide regular income, capital that both are managed simultaneously Shaw and Partners Limited Portfolio is to provide a level of capital generate income, income focused stocks Shaw and Partners Limited
Australian equities and cash or term market implied volatilities and underlying sustainable fully franked dividend income will be made as deemed appropriate appreciation and out performance of the to ensure that the portfolio is not overly appreciation over the longer term will be included if their total return criteria
deposits. interest rates in order to ensure it is Benchmark Index stream over the medium term (3–5 years). by the investment team in order for the Benchmark Index S&P/ASX 100 Accumulation Index over skewed to any style or thematic that Benchmark Index (5–7 years). The portfolio is tilted towards fits the portfolios objective. Benchmark Index
RBA Cash rate +3% S&P/ASX 100 Accumulation Index S&P/ASX 100 Accumulation Index S&P/ASX 100 Accumulation Index
invested across a range of market It achieves this by investing in a portfolio portfolio to have a high probability of the medium term (3–5 years) through would increase the risk of the portfolio stocks that have superior earning growth
The model’s return will be generated from (inclusive of franking credits) Volatility of returns will be managed with
cycles to meet its return objective, while of large-cap Australian listed companies meeting its objectives. The investment investment in large cap shares listed in failing to meet its objectives. capacity and focus is on the total return
a combination of cash (interest payments Indicative Number of Stocks Indicative Number of Stocks Indicative Number of Stocks the objective of a lower standard deviation Indicative Number of Securities, Stocks
adhering to the risk tolerances set. and managed funds. Although the process takes into consideration the risk 15–25 Australia. 15–25 of each stock rather than the dividend and/or Funds (ETF and Managed)
and dividends), franking credits and 10–30 of returns than the benchmark index.
focus is yield generation, the investment around companies growing/maintaining Designed for investors who income as the prime objective. 10–30
capital growth (realised and unrealised) The model manager has access to new process and risk management aims to their dividend characteristics with the
Minimum Suggested Minimum Suggested Investment Strategy and Approach Seek exposure to an Australian share Minimum Suggested Minimum Suggested
from an actively managed portfolio issues of debt and preference securities ensure that risk to capital is minimised result that this portfolio aims for a higher Investment Time Frame Investment Time Frame Designed for investors who
Investment Time Frame Shaw and Partners’ Investment Process portfolio that provides a franked income Investment Strategy and Approach Investment Time Frame
strategy. and is able to include in the portfolio as it 3 years with the goal of some capital appreciation dividend yield than that of the broader 3 years 3 years Seek long term capital growth as the 5 years
deems appropriate. combines quantitative and qualitative stream and capital appreciation The investment process combines
Asset Allocation Ranges via both longer term price appreciation market. The portfolio managers however Asset Allocation Ranges criteria and analysis to identify stocks Asset Allocation Ranges quantitative and qualitative criteria and primary objective from an Australian Asset Allocation Ranges
The Shaw Hybrid Income Portfolio seeks Have an investment horizon of three
Listed Australian hybrid securities 70%–100% and actively locking in gains as deemed manage the capital value of the portfolio Australian Equities 80%–100%
likely to produce above average
Australian Equities 90%–100%
analysis to identify stocks which have a equities portfolio and some income Australian Equities 80%–100%
to provide investors with a predictable The model manager’s institutional Cash 0%–20% years or more Cash 0%–10%
Listed debt securities 0%–80% appropriate to the objectives. to minimise the risk of the portfolio failing earnings growth with positive valuation favourable outlook are likely to produce Those investors in the accumulation Cash 0%–20%
level of income whilst minimising risk to market experience with this asset class Accept the risk of share price volatility.
Cash 0%–20% to achieve its risk and return objectives. Indicative Cash Holding characteristics. Indicative Cash Holding above average earnings growth with phase Indicative Cash Holding
capital. brings specialist knowledge to pricing
Indicative Cash Holding 2% 2% 2%
and liquidity. Active management of the Investment Strategy and Approach positive valuation characteristics. Have an investment horizon of five
2% Designed for investors who The portfolio construction is based on
portfolio will take advantage of relative The investment process combines years or more
Investment Strategy and Approach Minimum Model Investment
macro-economic and thematic views of Minimum Model Investment
The portfolio construction is based on Minimum Model Investment
mispricing between securities and the quantitative and qualitative criteria and Seek franked dividend income as the $5,000 $5,000
The model manager aims to achieve the Minimum Model Investment Shaw and Partners’ Research in order to macro-economic and thematic views of Accept the risk of share price volatility. $5,000
asset class as a whole, while taking into $5,000 analysis to identify stocks and strategies primary objective from an Australian
investment objectives via a qualitative best meet the risk and return objectives Shaw and Partners’ Research in order to
consideration the impact of any micro which have a relatively high dividend equities portfolio and some capital Management Fee Management Fee Management Fee
and quantitative investment process. Key of the investment strategy. Continual best meet the risk and return objectives of
and macroeconomic factors. The ability Management Fee paying capability, and are likely to appreciation Investment Fee Nil Investment Fee Nil Investment Fee Nil
criteria and areas of focus are: Indirect Cost Ratio 0.25% p.a. assessment and risk management of Indirect Cost Ratio 0.00% p.a. the investment strategy.
to lock in gains will be a key feature of the Investment Fee Nil produce above average earnings growth Have an investment horizon of three Indirect Cost Ratio 0.00% p.a.
Credit quality of the issuer Indirect Cost Ratio 0.00% p.a. with positive valuation characteristics. Performance Fee Nil bottom-up and top-down parameters is a Performance Fee Nil Performance Fee Nil
strategy in achieving its objectives. years or more Continual assessment and risk
Sector/Industry Performance Fee Nil core component of the Model. Changes
The portfolio construction is based on Accept the risk of share price volatility. to the portfolio will be made as deemed management of bottom-up and top-down
Call date, conversion dates and final Designed for investors who parameters is a core component of the
macro-economic and thematic views of appropriate by the investment team in
maturity details Seek a sustainable income stream model. Changes to the portfolio will be
Shaw and Partners’ Research in order to order for the portfolio to have a high
Structure of instrument (inclusive of franking credits) over a 3 year best meet the risk and return objectives of probability of meeting its objectives. made as deemed appropriate by the
Timing and composition of cash flows + time frame, with a lower risk of loss the investment strategy. investment team in order for the portfolio
than equities, and a higher rate of return to have a high probability of meeting its
Relative valuation of sector as a whole
than cash like investments. objectives.
and between relevant securities,
including the inclusion of new issues
Liquidity and potential changes in
liquidity. MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE
SP0002 SP0004 SP0001 SP0005
Shaw Hybrid Income Shaw Australian Equity Shaw Australian Equity Shaw Australian Equity
(Large Cap) Income (Large Cap) Core (Large Cap) Growth
Shaw Managed Accounts Shaw Managed Accounts Shaw Managed Accounts
Shaw Managed Accounts
ASSET CLASS PORTFOLIO ASSET CLASS PORTFOLIO ASSET CLASS PORTFOLIO ASSET CLASS PORTFOLIO
Shaw Australian Equity (Small and Mid-Cap) Growth Shaw Liquid Alternatives Portfolio AllianceBernstein Concentrated Global Growth EFG US Future Leaders
Investment objective The investment process takes into Investment objective research into alternative strategies and Investment objective Designed for investors who Investment objective The investment framework is defined by a
Model Portfolio Details Model Portfolio Details Model Portfolio Details Model Portfolio Details
The primary objective of the Shaw consideration the primary objective The primary objective of the Shaw Liquid return streams is a core component The portfolio seeks long term growth Are considered longer term investors (5 To provide a return exceeding the MSCI disciplined investment process consisting
Australian Equity (Small and Mid-Cap) of capital growth. It aims to invest in Model Portfolio Manager Alternatives Portfolio is to provide regular of the model. Changes to the portfolio Model Portfolio Manager of capital by investing in an actively years +) Model Portfolio Manager US Mid Cap Growth TR index over rolling of several checklists. This ensures that Model Portfolio Manager
Growth Portfolio is to provide a level of companies where the share price does Shaw and Partners Limited and sustainable income and capital will be made as deemed appropriate Shaw and Partners Limited managed concentrated portfolio of listed Seek exposure to a concentrated AllianceBernstein 10-year periods. the investment process used by the EFG Asset Management
capital appreciation over the longer term not fully reflect the potential value of the growth over the medium term (3–5 years) by the investment team in order for securities considered by the portfolio portfolio of high quality global equities team is consistent and repeatable. The
(5–7 years). The portfolio is tilted towards underlying business of the company. Benchmark Index whilst minimising risk to capital. It the portfolio to have a high probability Benchmark Index manager to be of very high quality issued Benchmark Index investment process has four key inputs Benchmark Index
S&P/ASX Small Ordinaries Accumulation Index RBA Cash rate +3%
with superior return potential with MSCI World Index
Investment Description MSCI US Mid Cap Growth TR
small and mid-sized stocks that have achieves this by investing in a diversified of meeting its objectives in all market by companies with predictable growth. generally low turnover The US Future Leaders Model is a that determine a company’s overall
superior earning growth capacity and Designed for investors who portfolio of asset classes and strategies conditions. The investment process takes concentrated US stock portfolio, designed ranking and can be applied across all
Indicative Number of Securities, Stocks Indicative Number of Securities, Stocks Indicative Number of Stocks per Indicative Number of Stocks
focus is on the total return of each stock Seek long term capital growth as the that have low correlation with traditional into consideration the risk around asset and/or Funds (ETF and Managed) Investment Strategy and Approach Asset Class Based Portfolio to provide direct equity exposure to sectors to facilitate stock selection: 20–35
and/or Funds (ETF and Managed)
rather than the dividend income as the primary objective from and Australian equity and debt asset classes. This classes and the underlying securities 3–20 The portfolio manager seeks to achieve 25–35 rapidly growing businesses with significant
15–30 1. Company Quality Grade
prime objective. equities portfolio and some income portfolio is designed to act as a volatility maintaining their growth characteristics the investment objective by composing a opportunity to develop into future mid- Minimum Suggested
Minimum Suggested Minimum Suggested Minimum Suggested 2. Stock Technical Timing Grade
dampener and diversifier to an existing whilst ensuring that the risk of a Investment Time Frame portfolio of highly liquid, listed securities of Investment Time Frame or large-cap companies, primarily via Investment Time Frame
Those investors in the accumulation Investment Time Frame
Investment Strategy and Approach 5 years
portfolio of liquid assets. drawdown is adequately managed. The 3 years quality companies from the MSCI World 5 years organic growth. Stocks are selected 3. Short Term Earnings Growth Grade 10 years
phase portfolio managers however manage the
The investment process combines Asset Allocation Ranges universe. These companies are chosen Asset Allocation Ranges through a proprietary in-house systematic 4. Long Term Earnings Growth Grade Asset Allocation Ranges
Have an investment horizon of five Asset Allocation Ranges
quantitative and qualitative criteria and Investment Strategy and Approach capital value of the portfolio to minimise Liquid alternative assets 80%–100% for their specific growth and business International Equities 90%–100% framework. The team’s objective is International Equities 85%–99%
Australian Equities 80%–100%
years or more the risk of the portfolio failing to achieve Cash 0%–20% Cash 0%–10% The team’s investment framework is Cash 1%–15%
analysis to identify stocks which have a Cash 0%–20% The portfolio is a blend of strategies and characteristics, earnings development, to identify the highest quality, fastest
Accept the risk of share price volatility. investments that can be expected to have its risk and return objectives. Indicative Cash Holding financial position and experienced Indicative Cash Holding growing companies and trade them at the basis for portfolio construction. Minimum Model Investment
relatively high dividend paying capability Indicative Cash Holding
a lower correlation to equities, bonds and 2% management. 2% the right time by adhering to a structured This regimented process helps to $100,000
are likely to produce above average 2%
other traditional beta style investments. Designed for investors who investment process. By identifying consistently find and own the best quality
earnings growth with positive valuation Risk level
Minimum Model Investment The portfolio was designed primarily Investors seeking sustainable and lower Minimum Model Investment Minimum Model Investment
these Future Leaders early, they believe companies. Value is added through active
characteristics. Very High.
$5,000 $5,000 $65,000 management by identifying the best
to lower the downside variance of an volatility returns (mix of income and the portfolio will afford investors with Negative return 6 years in every 20 years.
The portfolio construction is based on income, balanced or growth portfolio that the opportunity to earn superior long- companies in the growth universe, then
capital growth) as the primary objective Management Fee Management Fee Management Fee
macro-economic and thematic views of Management Fee
uses a mixture of bonds and equities that will be less impacted by large term returns. Portfolio construction will owning (or adding to) them when they are
Investment Fee Nil Investment Fee Nil Investment Fee 0.55% p.a. Investment Fee 0.55% p.a.
Shaw and Partners’ Research in order to to derive a given long term return. The be rooted in our fundamentally based timely and selling (or trimming) them when
Indirect Cost Ratio 0.61% p.a. moves in underlying asset prices in Indirect Cost Ratio 0.95% p.a. Indirect Cost Ratio 0.00% p.a. Indirect Cost Ratio 0.00% p.a.
best meet the risk and return objectives of strategies and managers chosen for investment philosophy and process – they are not.
Performance Fee Nil traditional investments such as Equities Performance Fee Nil Performance Fee Nil Performance Fee Nil
the investment strategy. the portfolio have a demonstrable track and Bonds with a focus on the four primary growth
record of minimising risk to capital during As a standalone investment option, sectors of the economy (technology, Designed for investors who
Continual assessment and risk
downturns and when blended in the suitable for investors looking for a lower healthcare, consumer discretionary, and Are interested in emerging leader
management of bottom-up and top-down
appropriate weights can significantly risk/lower return exposure that is not financial services). growth stocks;
parameters is a core component of the
reduce the downside potential of a bond correlated with traditional asset class Are sophisticated investors with long-
model. Changes to the portfolio will be
and equity portfolio. returns Investment Strategy and Approach term investment horizons (5+ years);
made as deemed appropriate by the
investment team in order for the portfolio Asset classes and strategies may Blended with a traditional income, The US Growth Equity team employs Have a high tolerance for risk; and
to have a high probability of meeting its include Global Macro, Managed Futures balanced or growth portfolio to reduce a rigorous, disciplined, and repeatable Seek capital appreciation.
objectives. (Trends), Long/Short and Market Neutral, drawdown and smooth returns process that is a combination of both
Commodities and Dynamic Markets. Investors should have an investment qualitative and quantitative inputs. The
MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE MODEL PORTFOLIO CODE basis of the process starts with industry
MODEL PORTFOLIO CODE
horizon of three years or more
SP0006 Only managers/investments that
have daily pricing and liquidity can be
Accept the risk of volatility in their
investment return.
SP0011 SP0012 centric research performed by the sector
experts on the team. SP0200
considered. Continual assessment and
Shaw Australian Equity Shaw Liquid Alternatives AllianceBernstein Concentrated EFG US Future Leaders
(Small and Mid-Cap) Growth Global Growth
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