0900b8c084c8d5da

Deutsche Bank Markets Research
Australasia
Australia
Developers & Contractors
Industry
Date
Engineers & Contractors
06 March 2012
Running The Numbers

Craig WongPan
Sector outlook & key themes from Dec 11 reporting period

3 negative themes identified from reporting season Following a review of the Dec 11 results, we have become more negative on the sector. We believe the sector wide pursuit of new markets suggests growth in existing markets is slowing. We believe that costs associated with entering new markets, an industry shift to less alliance work and increased labour costs will prevent margins returning to peak levels. Lastly we see a number of permanent changes that will lead to lower levels of future cashflow. BLY and UGL are our top picks in the sector We have Buy recommendations on BLY and UGL. BLYs result revealed the company continues to benefit from strong demand for its services & products, and pricing & productivity has been improving. UGLs result revealed the Infrastructure, Rail and Services divisions continue to experience robust demand and have been performing above our expectations. With both stocks trading at substantial discounts to their long run average PE relative to the ASX Industrials (ex banks), we believe they offer compelling value. Guidance statements confirmed, downside risks to TSE achieving guidance All June year end companies confirmed their guidance statements. While the guidance statements do imply a second half weighting of 53%-66%, our analysis shows that the skew is generally in line with historic levels. The one exception is TSE, with its implied 2H12 NPAT being higher than the companys historic 2H skew levels. While the company did report a higher 2H skew in FY11, we note in that period the company benefited from a windfarm sale. Hence we believe there are risks of TSE not achieving its guidance. Future growth to come from new markets Most companies indicated future growth is expected to be from entry into new markets. In our view, the companies are targeting new markets because the growth in their existing markets is slowing. We believe this is due to the entry of new competitors (both offshore and domestic) and difficulties in increasing market share. Factors preventing margins recovering to peak levels We expect future margins to expand slightly as legacy contracts roll-off, markets recover and framework agreements minimize future bidding costs. However these positive factors will be partially offset by higher costs associated with entry into new markets, industry shift to less alliance work, increased training costs and lower productivity levels. Therefore while we expect margins to increase, we do not believe they will reach the peak levels achieved in 2007-08. Valuation & risks Our TP valuations are LEI $23.87, WOR $27.88, UGL $14.14, DOW $4.36, TSE $2.50 and BLY $4.65. Our TP valuations are mostly derived from the average of sum-of-the-parts multiple based valuations, P/E valuations and DCF valuations. Key sector risks to our investment thesis include slowdown in key markets and project specific issues.
Research Analyst (+612) 8258 2848 craig.wongpan@db.com Cameron McDonald Research Analyst (+61) 3 9270-4235 cameron.mcdonald@db.com Top Picks Boart Longyear Ltd. (BLY.AX),AUD4.30 UGL (UGL.AX),AUD12.17 Companies Featured Leighton Holdings Ltd (LEI.AX),AUD25.47 2011A 2012E P/E (x) 16.9 13.7 Div yield (%) 2.0 5.7 Price/book (x) 2.6 3.0 Boart Longyear Ltd (BLY.AX),AUD4.30 2011A 2012E P/E (x) 11.4 9.8 Div yield (%) 2.6 3.2 Price/book (x) 1.2 1.6 Downer EDI (DOW.AX),AUD3.96 2011A 2012E P/E (x) 10.4 9.8 Div yield (%) 0.0 0.0 Price/book (x) 1.1 1.1 Transfield Services (TSE.AX),AUD2.45 2011A 2012E P/E (x) 16.3 12.7 Div yield (%) 4.1 4.7 Price/book (x) 1.6 1.2 UGL (UGL.AX),AUD12.17 2011A 2012E P/E (x) 15.5 12.3 Div yield (%) 4.7 6.2 Price/book (x) 2.0 1.7 WorleyParsons (WOR.AX),AUD28.73 2011A 2012E P/E (x) 21.8 19.6 Div yield (%) 3.2 3.3 Price/book (x) 3.8 3.6 Hold 2013E 12.5 6.0 2.8 Buy 2013E 9.1 3.4 1.4 Hold 2013E 9.4 5.3 1.0 Hold 2013E 11.1 5.4 1.1 Buy 2013E 11.1 6.7 1.6 Hold 2013E 15.4 4.2 3.2 Buy Buy
________________________________________________________________________________________________________________ Deutsche Bank AG/Sydney All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011.
06 March 2012
Recommendation changes and preferred picks

During the Dec 11 reporting season we downgraded Leighton to a Hold recommendation as the companys result highlighted ongoing issues in the Middle East, weak cashflow generation for CY12 and higher capital requirements. Our preferred picks in the sector are Boart Longyear and UGL. Boart Longyears Dec 11 result revealed the company continues to benefit from strong demand for its services & products, and pricing & productivity has been improving. With the stock continuing to trade at significant discount of 30% to the ASX Industrials (ex banks) and offering 20% EPS CAGR over the next 2 years, we believe the stock still offers compelling value. While UGLs cashflows and resource margins were weaker than expected, the Dec 11 result revealed the Infrastructure, Rail and Services divisions continue to see robust demand and have been performing above our expectations. We believe the company stands to benefit from the integration of the DTZ acquisition, a high level of tendering activity and delivery of its current orderbook, which is at an all time high. With the stock trading at a 13% discount to the ASX Industrials (ex banks) and offering double digit earnings growth in FY13 and FY14, we believe the stock offers compelling value. We have elevated Downer to our third preference in the sector. The Dec 11 result revealed that the company has been making good progress on improving revenues, margins and underlying earnings. However with the stock trading in line with its historical PE relative to the ASX Industrials (ex banks) we rate the stock a Hold. WorleyParsons Dec 11 result showed that the company continues to benefit from a recovery in its core markets. While we forecast the company delivering strong growth of 20% CAGR over the next 3 years, we believe this is reflected in the company current share price as it is trading broadly in line with its historical average PE premium relative to the ASX Industrials (ex banks). While Transfield Services is trading at the lower end of its historical trading range, we believe this is justified given we see risks of the company missing its FY12 guidance. Figure 1: Sector preferences and relative valuations
Div yield Pref 1 2 3 4 5 6 "
Source: Deutsche Bank
LEI was downgraded to a Hold
BLY and UGL are our top picks
DOW is a Hold but is elevated to our 3rd preference
EPS growth TSR 18% 20% 12% 3% 10% 3% FY12 34% 3% -1% 20% -7% 6% FY13 8% 11% 5% 27% 14% 9%
EV/EBIT FY12 7.0 9.0 6.4 13.0 10.0 9.1 FY13 6.5 8.4 6.4 10.4 9.1 8.7 FY12 9.3 12.6 9.7 19.0 12.3 13.2
P/E FY13 8.6 11.4 9.3 15.0 10.8 12.1
Company BLY UGL ! DOW WOR TSE LEI
Rec Buy Buy Hold Hold Hold Hold
TP 4.65 14.14 4.36 27.88 2.50 23.87
CP 4.08 12.45 3.91 27.92 2.37 24.56
FY12 3.6% 6.1% 0.0% 3.4% 4.9% 5.9%
Page 2
Deutsche Bank AG/Sydney
06 March 2012
Figure 2: LEI 12 mth fwd PE rel to ASX Ind (ex banks)

1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4
Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Feb-12
Figure 3: WOR 12 mth fwd PE rel to ASX Ind (ex banks)

2.10 1.90 1.70 1.50 1.30 1.10 0.90 0.70 0.50 Feb-05 Feb-06 WOR PE rel
Source: Deutsche Bank, Datastream
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
LEI PE rel
Avg (00-12)
+1 Std dev
-1 Std dev
Avg (05-12)
+1 Std dev
-1 Std dev
Figure 4: UGL 12 mth fwd PE rel to ASX Ind (ex banks)

1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 Feb-04 Feb-05 UGL PE rel
Figure 5: DOW 12 mth fwd PE rel to ASX Ind (ex banks)

1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30
Feb-06
Feb-07 Avg (05-12)
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-05
Feb-06 DOW PE rel
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
+1 Std dev
-1 Std dev
Avg (05-12)
+1 Std dev
-1 Std dev
Figure 6: TSE 12 mth fwd PE rel to ASX Ind (ex banks)

1.60 1.40 1.20
Figure 7: BLY 12 mth fwd PE rel to ASX Ind (ex banks)

2.50 2.00 1.50
1.00 0.80 0.60 0.40 0.20 Feb-05 Feb-06 TSE PE rel

1.00 0.50 0.00
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12 BLY PE rel

Avg (07-12)
+1 Std dev
-1 Std dev
Avg (07-12)
+1 Std dev
-1 Std dev
Page 3
06 March 2012
Key outlook themes from reporting season

Summary
We identified 3 key themes from the Dec 11 reporting period which we think will continue to impact the engineering & contracting sector over the next few years. These are: 1. Future growth to come from new markets While the companies reported strong revenue growth, most of the future growth is expected by companies to be from entry into new markets. In our view, the companies are targeting new markets because the growth in their existing markets is slowing. We believe this is due to the entry of new competitors (both offshore and domestic) and difficulties in increasing market share. While we do not disagree with the expansion strategy and think the expansion into new markets should allow the companies to keep delivering EPS growth, we think the rate of future growth will be slower than historic levels. 2. Factors preventing margins recovering to peak levels Margins in the Dec 11 period were weaker than we expected. While the companies outlined a number of causes (legacy contracts, weak markets, labour issues, increased bidding costs and mix shift) we believe the low margins were also caused by higher costs associated with entry into new markets, an industry shift to less alliance work and additional training costs required for lower skilled employees. We expect future margins to expand slightly as legacy contracts roll-off, markets recover and framework agreements minimize future bidding costs. However these positive factors will be partially offset by higher costs associated with entry into new markets, shift to less alliance work, increased training costs and lower productivity levels. Therefore while we expect margins to increase, we do not believe they will reach the peak levels achieved in 2007-08. 3. Lower level of future cashflow generation Operating cashflows in the Dec 11 period were impacted by a build-up in net working capital. We believe the increase in working capital was caused by organic growth, an intentional slowing of payments by clients, slower debtor collections as accounts receivables teams struggle with processing greater volumes, delays as major customers consolidate invoice payments, project ramp up on new contracts, a lower level of advanced billings from less construction work and headcount increases. While some of these factors are temporary and should reverse in the next period, we believe major customers consolidating invoice payments and a lower level of construction work are more permanent changes and will lead to a lower level of future cashflow generation.
Future cashflow generation will be lower than historic levels Future margins are unlikely to reach peak levels again
Future rev growth rates are likely to slow
Page 4
06 March 2012
1. Future growth should come from new markets

Most companies reported double digit revenue growth and achieved new peak levels of revenue in the 6 months to Dec 11. Our analysis shows that the key driver was organic revenue growth (contributed 5%-31%), while acquisitions contributed 1%-8% growth. The organic revenue growth was primarily caused by:
# #
Recovering markets (Leighton, WorleyParsons, Boart Longyear) Growth in the Australian resources sector (Leighton, WorleyParsons, UGL, Downer, Transfield Services, Boart Longyear) Growth in Australian infrastructure revenues (Leighton, UGL) Growth in offshore markets (Leighton, WorleyParsons, UGL, Boart Longyear). Figure 9: Dec 11 revenue drivers
# #
Figure 8: Revenue indexed to 1H08

2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1H08 LEI 2H08 1H09 WOR 2H09 UGL 1H10 2H10 DOW 1H11 2H11 TSE 1H12
LEI Reported Dec 11 growth 25.4%
WOR 16.5%
UGL 4.3%
DOW 14.5%
TSE 2.5%
BLY 34.2%
Comprising: Acquisitions Divestments FX Organic

BLY
Source: Deutsche Bank estimates
0.8% -2.2% -1.8% 28.5%
6.3%
1.7%
8.0% -11.4%
-11.8% 22.0%
-1.9% 4.5% 14.5%
-1.7% 7.6%
3.4% 30.8%
Source: Deutsche Bank, company reports
However while the companies delivered very strong organic revenue growth driven by growth in the resources market and a recovery in markets, we note the companies are expecting future growth to be mainly driven by growth and entry into new markets. These new markets are:
# #
Asian markets for Leighton Developing markets (i.e. South Africa, China) and unconventional oil & gas for WorleyParsons The Australian structural, mechanical and piping market for Downer Defence and global commercial real estate for UGL Energy and coal seam gas markets for Transfield Services
# # #
In our view, the companies are targeting new markets because the growth in their existing markets is slowing. We believe this is due to the entry of new competitors (both offshore and domestic) and difficulties in increasing market share. While we do not disagree with the expansion strategy and think the expansion into new markets should allow the companies to keep delivering EPS growth, we think the rate of future growth will be slower than historic levels.
Page 5
06 March 2012
Figure 10: Offshore company contract wins

30,000
Figure 11: Australian infrastructure market shares

35%
Company market share
25,000 20,000 15,000 10,000 5,000 0 2006 O&G Minerals 2007 Port infra 2008 Utilities infra 2009 Road infra 2010 Rail infra 2011 Other
30% 25% 20% 15% 10% 5% 0% 31% 45% 14%
50%
60% 50% 40% 30%
5%
5%
20% 4% 3% 3% 1% 10% 0%
Mkt share (LHS)

Source: Deutsche Bank estimates
Cumulative mkt share (RHS)
Source: Deutsche Bank, press articles
2. Factors preventing margins recovering to peak levels

For all companies except for Boart Longyear, Dec 11 EBIT margins were below our expectations. We note that underlying EBIT margins have generally remained close to their lowest levels over the last 4 years. Reasons cited by the companies include:
# # # # #
Low margin legacy contracts (Leighton, WorleyParsons, Downer) Weak markets (Transfield Services, Downer) Labour/productivity issues (WorleyParsons) Increased bidding costs (UGL, Transfield Services) Mix shift to lower margin work (UGL, Boart Longyear). Figure 13: Underlying EBIT margins
20.0% 18.0% 16.0% 14.0% 12.0% 10.0%
Figure 12: Dec 11 EBIT margins actual vs DBe

14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% LEI WOR Actual
8.0% 6.0% 4.0% 2.0% 0.0% UGL DOW Expected TSE BLY 1H08 LEI 2H08 1H09 2H09 UGL 1H10 2H10 DOW 1H11 2H11 TSE 1H12 BLY
WOR
In our view the low margins have also been caused by a number of changes in the industry. These include:
# # #
Higher costs associated with entry into new markets Shift to less alliance work, thereby requiring more detailed tenders Additional training costs required for lower skilled employees
Page 6
Cumulative market share
31%
55%
59%
62%
65%
66%
70%
06 March 2012
a) Higher costs associated with entry into new markets In the last section we noted that companies have articulated growth strategies into new markets. In our view margins will be negatively impacted as the companies incur a higher level of business development costs to build their presence and require a greater investment in systems to oversee a wider span of control. b) Shift to less alliance work, thereby requiring more detailed tenders We have witnessed a shift in the industry away from alliance work. While not all companies have disclosed how much alliance work represents of their total WIH, we believe UGL and Transfields declining levels of alliance work is representative of the sector. Figure 14: UGL orderbook vs alliance work
10,000 9,500 9,000 8,500 8,000 7,500 7,000 2H 09 1H 10 Total orderbook
Figure 15: TSE WIH vs cost plus/KPI/alliance work

45% 40% 12,000 54% 53% 53% 53% 43% 60% 50% 40% 11,000 30% 10,500 20% 10,000 10% 0% 2H 09 1H 10 2H 10 1H 11 2H 11 1H 12 % total
40% 33%
35% 30% 20% 16% 15% 7% 25% 20% 15% 10% 5% 0% 2H 10 1H 11 2H 11 1H 12
11,500
41%
9,500
Alliance work as % total
Cost reimbursable, KPI/Alliance

In our view a lower level of alliance work will mean more costs being incurred because a contract under the traditional structure requires more detailed costing and project information than under an alliance structure. While we do expect the level of alliance work to remain at low levels, we see the growing prevalence of framework agreements partially offsetting the negative impacts from less alliance work. Figure 16: Recent framework agreements
Period awarded in Company Leighton WorleyParsons WorleyParsons Monadelphous NRW Decmil Southern Cross Electrical Framework agreement Earthworks, structural, mechanical and piping work for Rio Tinto's 353 expansion program Provision of engineering & procurement and EPCM services to Shell's downstream US and Canadian operations Preparation of project studies and execution of sustaining capital projects for BHP Program of structural, mechanical and piping work and a program of electrical and instrumentation work for Rio Tinto Provision of earthworks services for BMA's project development group's operations in Qld Provide civil works for the Western Stream of Rio Tinto's 333 programme Provide electrical and instrumentation works for Rio Tinto's 333 programme Duration (yrs) 5 5 5 5 2 5 5 X X X X 1H12 2H12 X X
Source: Deutsche Bank, company announcements
Page 7
06 March 2012
c) Additional training costs required for lower skilled employees The companies averaged 11% headcount growth in the 6 months to Dec 11. We were surprised by the headcount growth given the known tightness in the Australian resources employment market. We believe the headcount growth was primarily achieved through immigration or headcount growth in offshore markets. We believe this will lead to higher labour costs due to additional training costs and reduced productivity associated with lower skilled employees. Figure 17: Headcount
60,000 50,000 40,000 30,000 20,000 10,000 0 1H08 LEI
2H08
1H09
2H09 WOR
1H10
2H10 UGL
1H11
2H11 BLY
1H12
We expect future margins to expand slightly as legacy contracts roll-off, markets recover and framework agreements minimize future bidding costs. However these positive factors will be partially offset by higher costs associated with entry into new markets, an industry shift to less alliance work, increased training costs and lower productivity levels. Figure 18: Future margin drivers
Positive impacts Framework agreements Recovering markets Roll off of legacy contracts
Negative impacts Higher costs associated with entering into new markets Industry shift to less alliance work Increased training costs and lower productivity levels
Therefore while we expect margins to increase, we do not believe they will reach the peak levels achieved in 2007-08.
Page 8
06 March 2012
Figure 19: EBIT margins

7.0%
Figure 20: EBIT margins

16.0% 14.0%
6.0%
12.0% 10.0% 8.0%
5.0%
4.0%
6.0% 4.0% 2.0%
3.0%
2.0% FY07 LEI

0.0%
FY08
FY09 UGL
FY10
FY11 DOW
FY12f
FY13f TSE
FY14f
FY07
FY08
FY09 WOR
FY10
FY11
FY12f BLY
FY13f
FY14f
3. Lower level of future cashflow generation

Operating cashflows were generally weaker than we expected. This was caused by a build-up in net working capital (which surprised us). We believe the increase in working capital was caused by organic growth, an intentional slowing of payments by clients, slower debtor collections as accounts receivables teams struggle with processing greater volumes, delays as major customers consolidate invoice payments, project ramp up on new contracts, a lower level of advanced billings from less construction work and headcount increases. While some of these factors are temporary and should reverse in the next period, we see some of these factors being permanent and resulting in lower future cashflow generation than historic levels. In our view, these permanent changes include major customers consolidating invoice payments and a lower level of construction work. We also see the potential for continued bottlenecks in accounts receivable processing, unless greater investments are made. However we note that increased investment in accounts receivable processing could lead to lower margins. Figure 21: Dec 11 cashflow actual vs DBe
CFO 60% 40% 20% 0% -20% -40% -60% -80% -100% -120% LEI WOR UGL DOW TSE BLY -10% LEI WOR UGL DOW TSE 0% BLY (RHS) 0% 1H08 -5% 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 10% 20% 5% 30% 15% 10% 50% 40% NWC
Figure 22: Net working capital as % of sales

20% 60%
Page 9
06 March 2012
Reporting season positive vs negative surprises

Revenues were stronger than expected due primarily to stronger resources capex growth. EBIT performance was mixed, although margins were below our expectations and are at their lowest level in 4 years. Net interest costs were above our forecasts due to working capital build up and higher interest rates. WIH balances were generally marginally ahead of our expectations. There were no clear trends across the companies with different sectors (i.e. resources, infrastructure) being higher for some companies and lower for others. We note that WIH balances are generally now at peak levels. Figure 23: P&L components actual vs DBe
Rev 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% LEI WOR UGL DOW TSE BLY EBIT Net interest NPAT 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% LEI WOR UGL DOW TSE BLY
Figure 24: WIH actual vs DBe

WIH
Gearing levels were higher than expected and operating cashflows were weaker than expected due to working capital build up. Figure 25: ND/ND+E actual vs DBe
Gearing 10% 8% 6% 4% 2% 0% -2% -4% LEI WOR UGL DOW TSE BLY 60% 40% 20% 0% -20% -40% -60% -80% -100% -120% LEI WOR UGL DOW TSE BLY
Figure 26: CFO and NWC actual vs DBe

CFO NWC
Page 10
06 March 2012
Summary of mkt conditions

Below is a summary of current market conditions compiled from the Dec 11 results. Figure 27: Market outlook
Market Aus infrastructure Positive commentary
#
Negative commentary Bidding on water projects has been as low as it has ever been (UGL)
# # #
Government infrastructure spending should remain at high # levels due to major rail projects and telecommunications work driven by NBN (LEI)
PPP market has slowed significantly (UGL) Government decision making has been slow (UGL) Government budgetary constraints will delay infrastructure investment (TSE)
High level of tender activity (UGL)
Aus resources
Strong levels of construction work in the gas, coal and iron # ore sectors (LEI)
Some project delays (TSE)
High level of activity in asset maintenance (UGL, TSE)

#
Aus property Aus rail

# #
Weakness in residential property (LEI) Increasing foreign competition is putting pressure on revenues and margins (DOW)
Strong locomotive demand (UGL, DOW) High level of tender activity (UGL) Strong volumes in high voltage power services (TSE)
NZ market
# #
Highly competitive market with tight margins (DOW) Reduction in Central and Local government spending (DOW) Economic uncertainty has led to projects being cancelled or postponed (TSE)
Middle East
Global O&G
Continued high level of activity in offshore upstream market # (WOR)
Some project delays as smaller customers are having difficulty accessing project funding (WOR)
# #
Improvement in downstream market (WOR) Recovering Canadian oil sands market (WOR) Development opportunities in Latin America (WOR) Strong levels of investment in iron ore, coal and copper (WOR)
Lower level of activity and delays to scheduled refinery shutdowns (TSE)
Global minerals
# #
Some project delays as smaller customers are having difficulty accessing project funding (WOR)
Contraction in the aluminum sector (WOR)
Strong demand for exploration drilling (BLY) Improvement in North American markets (WOR) Strength in nuclear new build projects (WOR) Demand in developing markets continues to grow (WOR)
#
Global power
# #
Global infrastructure
Public infrastructure demand in developing markets has been flat (WOR)
Global property services
Tendering levels remain robust (UGL)
# #
Activity in Europe remains slow (UGL) Subdued macroeconomic conditions in the US is impacting transaction volumes (UGL)
Page 11
06 March 2012
Guidance statements
All June year end companies confirmed their guidance statements. While the guidance statements do imply a second half weighting, our analysis shows the skew is generally in line with historic levels. The one exception is Transfield Services, with its implied 2H12 NPAT being higher than the companys historic 2H skew levels. While the company did report a higher 2H skew in FY11, we note in that period the company benefited from a windfarm sale. Hence we believe there are risks of Transfield Services not achieving its guidance. Figure 28: LEI 1H vs 2H NPAT
70% 60% 50% 40% 30% 20% 10% 0% FY08 1H
Figure 29: UGL 1H vs 2H NPAT

70% 61% 56% 44% 60% 50% 40% 30% 20% 10% 0% 39% 46% 39% 41% 54% 42% 61%
58% 50% 50% 42% 53% 47% 41%
59%
59%
58%
FY09 2H
FY10
FY11 Avg 2H skew
FY12f
FY08 1H
FY09 2H
FY10
FY11 Avg 2H skew
FY12f
Figure 30: DOW 1H vs 2H NPAT

70% 60% 50% 40% 30% 20% 10% 0% FY08 1H
Figure 31: TSE 1H vs 2H NPAT

80% 70% 59% 49% 51% 41% 30% 34% 53% 47%
55% 50% 50% 45% 44%
56% 43%
57% 53% 47%
70% 60% 50% 40% 30% 20% 10% 0%
66%
FY09 2H
FY10
FY11 Avg 2H skew
FY12f
FY08 1H
FY09 2H
FY10
FY11 Avg 2H skew
FY12f
Boart Longyear has a December year end. For 2012 the company has guided to revenues of ~US$2.3bn and EBITDA of ~US$460m. This implies 8% revenue growth and 20% EBITDA growth from the annualized 2H11 numbers. We think this is achievable given the run rate delivered in the 2H11 period (11% revenue growth and 16% EBITDA growth) and better pricing to flow into CY12. While our analysis suggests a guidance update is typically given in April and May, we believe that no update will be given in this financial year as the companys new IT system allows for quicker processing times and access to information.
Page 12 Deutsche Bank AG/Sydney
06 March 2012
Figure 32: History of changes to BLYs guidance

Upgrade or downgrade FY08 Feb-08 ! ! ! " " FY09 Feb-09 Apr-09 " FY10 Feb-10 ! ! ! FY11 Feb-11 !
Date
Period
Details
FY07 result FY07 AGM
FY08 guidance of 12-15% rev growth, capex of $130-150m Expect rev growth to be at upper end of guidance (i.e. 15%) Rev growth guidance raised to 20-25% growth
Apr-08 May-08 Aug-08 Oct-08 Dec-08
1H08 result Expect rev growth at upper end of guidance (i.e. 25%) and EBITDA margin of 22%. Capex increased to $160m Reduced rev growth guidance to 22% (vs prev 25%), EBITDA margin maintained at 22% and capex to reduce in 09 Reduced rev growth guidance to 18% (vs prev 22%), EBITDA margin maintained at 22%
FY08 result Apr-09
No guidance given Guidance for revs to be 35%-45% lower than FY08 (i.e. $1bn-$1.2bn) and EBITDA margin of 11%-13%
Aug-09
1H09 result Reduced FY09 rev growth to be 50% lower than FY08 (i.e. $900m), with EBITDA margin of 13%. Expect FY10 rev growth of 15% at mid cycle EBITDA margins achieved in 2005
FY09 result
FY10 guidance of rev growth of 15% ($1125m), EBITDA of $170m and capex of $100m Rev growth upgraded to 33% (vs prev 15%), EBITDA of $195m (vs prev $170m), capex increased to $150m (vs prev $100m)
May-10 Aug-10 Dec-10
1H10 result Rev growth upgraded to 40% (vs prev 33%), EBITDA of $205m (vs prev $195m) Rev upgraded to $1.45bn (vs prev $1.37bn), EBITDA upgraded to $220m (vs prev $205m)
FY10 result
FY11 guidance of rev of $1.75bn, EBITDA of $300m, capex of $200m
Aug-11
1H11 result Increased guidance for rev of $1.9bn (vs prev $1.75bn), EBITDA of $330m (vs prev $300m) and capex of $210m (vs prev $200m)
Page 13
06 March 2012
Model updated: 14 February 2012
Equity Research Asia Pacific Australia Developers & Contractors
Y/E 31 December SUMMARY

Normalised EPS (A$) P/E ratio normalised (x) Normalised EPS growth (%) EPS FD (A$) P/E ratio FD (x) Operating CFPS (A$) P/CFPS (x) DPS (A$) Dividend yield (%) Price/BV (x) Enterprise Value (A$m) EV/EBITDA (x) EV/EBIT (x)
2006
1.002 18.8 30.5 1.002 18.8 2.966 6.3 0.660 3.5 4.73 8,721 10.4 23.0 116 170 93 0 380 10,034 835 -455 380 -8 94 0 -1 276 0 276 380 817 66 -745 72 44 58 -154 152 0 55 171 -20 810 883 55 0 328 1,728 3,803 392 2,308 2,700 1,103 0 1,103 -294 -418 30.3 8.3 3.8 55.1 14.5 27.7 31.5 25.3 7.4 1.6 -37.9 45.0
2007
1.619 26.3 61.7 1.619 26.3 4.322 9.9 1.100 2.6 8.77 8,779 8.7 15.1 299 227 55 0 580 11,891 1,007 -427 580 4 129 0 -5 450 0 450 580 1,201 249 -1,025 176 110 1 -241 -10 0 -250 37 -47 831 1,259 88 0 440 2,127 4,745 362 3,028 3,391 1,350 4 1,355 -546 -469 18.5 8.5 4.9 53.1 16.9 36.7 37.8 22.1 8.6 2.4 -34.6 nm
2008
2.148 19.5 32.6 2.186 19.1 3.318 12.6 1.450 3.5 7.82 9,425 7.2 10.9 473 259 128 15 876 14,489 1,319 -442 876 -108 159 0 -1 608 11 597 861 922 312 -833 90 -1,005 0 -353 1,154 0 801 -114 1,268 687 1,461 120 0 1,909 2,287 6,464 1,538 3,441 4,979 1,485 0 1,485 -825 852 21.9 9.0 5.9 57.2 17.5 42.1 24.3 20.7 5.7 1.9 57.3 8.0
2009
2.160 12.8 0.6 1.528 18.1 3.041 9.1 1.150 4.2 3.53 10,293 6.3 10.5 595 373 16 -258 726 18,275 1,380 -654 726 -141 146 0 1 440 -170 610 984 876 -148 -1,064 -188 149 691 -415 -283 0 -7 -47 -236 666 1,820 124 0 1,842 3,240 7,692 1,279 4,075 5,354 2,339 -1 2,338 -647 613 26.1 9.0 5.4 94.3 15.3 31.9 24.7 25.0 5.8 1.7 26.2 7.0
2010
1.982 17.3 -8.2 2.034 16.9 5.780 5.9 1.500 4.4 4.07 10,477 5.8 10.6 605 432 -30 0 1,008 18,624 1,832 -824 1,008 -165 228 0 -3 612 16 596 992 1,739 -451 -895 844 -18 46 -359 145 0 -168 658 -513 1,314 2,034 125 0 1,902 3,392 8,766 1,670 4,527 6,198 2,565 3 2,568 -351 357 1.9 9.8 5.3 58.7 14.3 24.3 22.0 27.0 4.8 1.1 13.9 6.0
2011
1.766 13.3 -10.9 -1.277 nm 4.119 5.7 0.600 2.5 2.96 9,722 5.3 10.0 -444 191 -102 0 -355 19,354 511 -866 -355 -137 -85 0 -3 -410 -976 566.5 975 1,321 836 -1,379 -57 -222 783 -437 127 0 473 193 -67 1,503 2,520 156 113 1,062 4,546 9,900 2,144 4,990 7,134 2,684 83 2,767 -1,083 641 3.9 9.5 5.0 -106.8 12.5 21.6 21.8 17.3 7.1 1.6 23.1 7.1
2012E
1.864 13.2 5.5 1.864 13.2 3.028 8.1 1.450 5.9 2.94 9,550 4.4 9.1 398 600 57 0 1,055 22,640 2,162 -1,108 1,055 -165 240 0 -20 629 0 629.1 1,055 1,022 -735 -1,304 -282 93 0 -203 300 0 97 -92 392 1,323 2,617 269 0 1,112 5,256 10,578 2,421 5,253 7,674 2,821 83 2,904 -303 1,098 17.0 9.6 4.7 77.8 11.8 22.9 17.5 27.0 5.8 1.2 37.8 6.4
2013E
2.031 12.1 9.0 2.031 12.1 5.497 4.5 1.520 6.2 2.69 9,670 4.4 8.7 551 518 48 0 1,117 21,892 2,191 -1,074 1,117 -159 253 0 -20 686 0 685.6 1,117 1,855 76 -1,262 594 83 0 -489 0 0 -489 187 -187 1,510 2,706 269 0 1,162 5,121 10,768 2,389 5,216 7,605 3,079 83 3,163 -393 879 -3.3 10.0 5.1 74.8 12.2 23.2 18.1 26.4 5.8 1.2 27.8 7.0
2014E
2.106 11.7 3.7 2.106 11.7 5.065 4.8 1.580 6.4 2.48 9,618 4.4 8.5 589 484 59 0 1,132 20,905 2,162 -1,030 1,132 -159 242 0 -20 711 0 711 1,132 1,710 -51 -1,205 505 -127 0 -523 0 0 -523 -145 145 1,365 2,795 269 0 1,412 4,957 10,798 2,360 5,011 7,371 3,343 83 3,426 -359 995 -4.5 10.3 5.4 75.0 12.0 22.1 17.3 24.8 5.8 1.2 29.0 7.1
Leighton Holdings Ltd

Reuters: LEI.AX Bloomberg: LEI AU
Hold
Price as at 05-Mar Target price Company website http://www.leighton.com.au
Company description Leighton Holdings Limited offers a variety of project development and contracting services to public and private sector clients in the AsiaPacific region. The Company provides design management, civil engineering construction, building, mining, process engineering, telecommunications, waste management and infrastructure operation and maintenance.
A$24.56 A$23.87
DIVISIONAL EBIT (A$m)

Infrastructure Resources Property Other Total PROFIT & LOSS (A$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (A$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (A$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)
Research Team
Cameron McDonald
+61 3 9270 4235 cameron.mcdonald@db.com craig.wongpan@db.com
Craig Wong-Pan
+61 2 8258 2848
Absolute Price Return (%)

-30% -20% -10% 0% 10% 6.3% 19% 20% 30%
1m 3m 12m-19%
52-week High/Low: Market Cap (m)
A$31.18 - 17.32 A$ 8,586 US$ 9,134
12mth Fwd P/E Relative (x)

1.90 1.70 1.50 1.30
12 10 8 6 4
Trends
45 40 35 30 25 20 15 10 5
Return Ratios (%)
1200 1000 800 600 400 200 0 -200 -400 -600
Net Debt (Cash) / Equity (%)
80 60 40 20 0 -20 -40
1.10 2 0.90 0 0.70 3/07 3/08 3/09 3/10 3/11 3/12 07 08 09 10 11 12E 13E 14E
0
EBITDA/sales (%) EBIT/sales (%)
07
08
ROE (%) op ROC (%)
09
10
11
12E 13E 14E
07
ROA (%)
08 09 10 11 12E 13E 14E Net debt / (cash) (AUD m) Net debt/equity (%)
Page 14
06 March 2012
Equity Research Asia Pacific Australia Energy
Y/E 30 June SUMMARY

05/06
0.679 19.6 109.3 0.679 19.6 0.564 23.6 0.410 3.1 5.76 5,468 24.9 27.4 157 48 28 10 -43 2,397 220 -20 200 -3 55 0 -3 139 0 139 200 116 -107 -20 95 -74 0 -66 49 1 -16 5 44 78 61 377 31 46 569 1,162 132 555 687 474 1 475 221 54 92.1 9.2 8.3 0.0 21.6 32.3 22.9 28.0 0.8 1.4 11.3 75.1
06/07
0.936 24.2 37.8 0.936 24.2 0.815 27.8 0.605 2.7 3.94 6,599 18.7 20.7 240 58 43 20 -41 3,478 353 -34 319 -13 80 0 -2 225 0 225 319 196 -200 -34 162 -872 470 -105 392 -4 753 43 348 119 63 1,332 156 86 928 2,684 517 780 1,297 1,386 2 1,388 421 398 45.1 10.2 9.2 64.7 17.7 24.2 15.4 26.1 1.0 2.0 28.7 24.7
07/08
1.422 28.1 52.0 1.422 28.1 0.822 48.5 0.855 2.1 6.83 6,933 11.8 13.3 395 61 81 42 -59 4,607 587 -67 520 -32 141 0 -3 344 0 344 520 199 -201 -80 119 -246 0 -174 282 -7 101 -25 307 82 82 1,395 168 92 1,399 3,218 711 1,090 1,801 1,414 3 1,417 622 629 32.5 12.7 11.3 60.1 18.1 24.6 16.1 28.9 1.7 3.4 44.4 16.4
08/09
1.611 13.4 13.2 1.611 13.4 2.254 9.5 0.930 4.3 3.17 7,025 10.1 11.6 532 67 83 30 -106 5,795 693 -88 605 -44 161 0 -10 391 0 391 605 546 62 -147 399 14 0 -214 -100 -3 -317 97 -196 174 139 1,488 175 123 1,419 3,518 718 1,145 1,862 1,649 7 1,655 560 544 25.8 12.0 10.4 57.8 19.0 25.5 18.1 28.6 2.5 5.2 32.8 13.9
09/10
1.186 22.0 -26.3 1.186 22.0 1.140 22.9 0.755 2.9 3.50 7,106 13.7 16.6 376 39 77 48 -112 5,060 519 -92 427 -34 90 0 -12 291 0 291 427 280 -126 -55 225 -90 0 -230 63 -8 -175 -41 103 141 116 1,587 195 136 1,469 3,642 778 1,025 1,803 1,830 9 1,839 686 638 -12.7 10.3 8.4 63.7 12.4 16.7 12.2 23.0 1.1 2.9 34.7 12.5
10/11
1.216 21.8 2.5 1.484 17.8 1.197 22.1 0.860 3.2 3.53 7,125 12.5 15.0 554 65 103 101 -283 5,605 636 -96 540 -42 116 0 -18 364 66 298.5 474 294 -86 -43 251 -63 0 -205 68 1 -136 52 16 171 108 0 1,697 86 1,754 3,816 676 1,284 1,959 1,842 15 1,857 772 504 10.8 10.2 8.5 58.0 13.3 16.3 13.5 23.3 0.8 3.0 27.2 11.4
11/12E
1.465 19.0 20.4 1.465 19.0 0.668 41.7 0.952 3.4 3.46 7,638 11.0 13.0 630 70 154 121 -387 7,037 692 -104 588 -49 150 0 -29 359 0 359.4 588 164 -291 -49 115 0 0 -250 150 -26 -126 -12 162 160 137 0 1,613 98 2,102 4,110 800 1,315 2,115 1,980 15 1,995 1,063 640 25.5 9.8 8.4 65.0 15.5 18.8 14.5 27.9 0.7 2.4 32.1 12.1
12/13E
1.865 15.0 27.3 1.865 15.0 1.431 19.5 1.212 4.3 3.14 7,719 9.0 10.4 760 76 171 137 -401 7,970 862 -120 742 -50 197 0 -37 458 0 457.6 742 351 -228 -80 271 0 0 -298 0 -5 -303 -31 31 128 192 0 1,517 119 2,403 4,361 795 1,374 2,168 2,177 15 2,192 1,292 666 13.3 10.8 9.3 65.0 18.1 22.0 17.0 28.5 1.0 3.3 30.4 14.7
13/14E
2.124 13.1 13.9 2.124 13.1 2.171 12.8 1.381 5.0 2.87 7,688 8.0 9.2 821 84 181 151 -401 8,737 967 -131 836 -47 225 0 -42 521 0 521 836 533 -124 -87 445 0 0 -357 0 -5 -362 83 -83 212 254 0 1,412 146 2,619 4,642 790 1,454 2,243 2,384 15 2,399 1,416 578 9.6 11.1 9.6 65.0 19.5 22.9 18.5 28.5 1.0 3.3 24.1 17.7
WorleyParsons Ltd
Reuters: WOR.AX Bloomberg: WOR AU
Hold
Price as at 05-Mar Target price Company website http://www.WOR.com
Company description WorleyParsons Limited provides professional services through alliance and integrated service contracts to the energy, resource and complex process industries. The company provides its services to industrial sectors such as oil and gas refining, petrochemicals and chemcials, minerals and metals, power and water and industrial and infrastructure.
A$27.88 A$27.88

Hydrocarbons Power Minerals and metals Infrastructure Other PROFIT & LOSS (A$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (A$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (A$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)
Research Team
Cameron McDonald
Craig Wong-Pan
+61 2 8258 2848

-8% -6% -4% -2% 0% 2% 4% 1.8% 5.1% 6%
1m 3m -7.3% 12m
A$33.42 - 23.28 A$ 6,949 US$ 7,393

2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 3/07 3/08 3/09 3/10 3/11 3/12
14 12 10 8 6 4 2 0 07 08
Trends
30 25 20 15
Return Ratios (%)
700 600 500 400 300
50 45 40 35 30 25 20 15 10 5 0
10 5 0 09 10 11 12E 13E 14E

200 100 0
07
08
ROE (%) op ROC (%)
09
10
11
12E 13E 14E
07
ROA (%)
Page 15
06 March 2012
Y/E 30 June SUMMARY

05/06
0.618 18.8 56.4 0.618 18.8 0.471 24.7 0.440 3.8 2.98 1,891 12.6 15.4 36 49 31 24 -17 2,229 150 -27 123 -17 27 0 0 79 0 79 123 60 -98 -24 36 -320 162 -46 213 0 329 45 167 96 136 458 28 4 635 1,356 261 575 836 521 0 521 154 165 77.4 6.7 5.5 58.8 13.3 18.5 13.0 25.6 1.1 1.1 31.7 7.2
06/07
0.676 21.2 9.5 0.676 21.2 0.950 15.1 0.480 3.4 3.31 2,186 11.9 14.3 50 64 42 35 -37 2,543 184 -31 153 -28 34 0 1 93 0 93 153 130 -5 -29 101 -190 43 -61 117 0 99 10 107 103 144 581 38 7 679 1,553 371 588 958 596 -1 595 128 267 14.1 7.2 6.0 65.4 11.3 16.6 11.5 26.9 1.1 1.2 44.9 5.5
07/08
0.796 20.4 17.7 0.796 20.4 1.040 15.6 0.580 3.6 2.51 2,643 10.6 12.8 51 88 51 58 -43 3,477 250 -44 206 -20 53 0 -1 131 0 131 206 171 -85 -35 136 -461 349 -84 187 0 452 127 60 229 156 884 212 17 883 2,381 506 819 1,325 1,056 0 1,056 300 277 36.8 7.2 5.9 63.9 11.8 15.9 11.5 28.6 1.0 1.3 26.3 10.1
08/09
0.867 11.6 8.9 0.867 11.6 1.116 9.0 0.640 6.4 1.48 2,679 9.6 11.9 72 80 57 64 -48 4,858 278 -54 224 -36 45 0 -1 142 0 142 224 183 -39 -56 127 13 3 -103 -19 0 -119 21 -40 253 163 965 250 17 890 2,538 578 840 1,417 1,119 1 1,120 339 324 39.7 5.7 4.6 72.6 10.2 13.1 10.3 23.8 1.2 2.0 29.0 6.3
09/10
0.871 15.7 0.5 0.871 15.7 1.383 9.9 0.640 4.7 1.95 2,679 9.5 12.0 79 55 59 72 -42 4,372 282 -59 223 -27 52 0 1 145 0 145 223 229 78 -39 191 -22 0 -106 -18 0 -124 44 -62 298 161 940 235 33 839 2,505 531 815 1,346 1,158 1 1,159 261 234 -10.0 6.5 5.1 73.3 10.0 12.7 10.1 26.6 0.9 1.3 20.1 8.4
10/11
0.955 15.5 9.6 0.955 15.5 0.908 16.3 0.700 4.7 2.10 2,673 8.8 11.0 83 85 44 76 -45 4,596 303 -60 243 -27 57 0 0 159 0 158.5 243 151 -95 -47 104 -22 -8 -111 -10 0 -128 -47 37 237 157 846 194 52 923 2,409 415 822 1,237 1,166 5 1,171 356 178 5.1 6.6 5.3 70.2 11.0 13.6 11.4 26.5 1.0 1.5 15.2 8.9
11/12E
0.988 12.6 3.4 0.831 15.0 0.681 18.3 0.760 6.1 1.76 2,298 7.1 9.0 83 85 64 81 -82 5,136 297 -67 230 -35 57 0 0 138 -26 164.0 256 113 -91 -71 42 -117 -15 -119 168 0 34 -41 209 196 140 846 229 156 1,096 2,663 583 905 1,488 1,170 5 1,175 447 387 11.8 6.3 5.0 86.2 10.9 14.0 10.1 29.3 1.4 1.4 32.9 7.3
12/13E
1.094 11.4 10.8 1.094 11.4 1.356 9.2 0.821 6.6 1.68 2,389 6.6 8.4 82 80 68 107 -52 5,512 361 -77 284 -35 67 0 0 182 0 181.6 284 225 -33 -64 161 -5 0 -129 -40 0 -169 -14 -27 182 118 846 243 157 1,173 2,719 543 948 1,491 1,223 5 1,228 480 360 7.3 6.6 5.2 70.9 11.3 15.2 11.5 27.0 1.2 1.1 29.3 8.0
13/14E
1.217 10.2 11.2 1.217 10.2 1.552 8.0 0.913 7.3 1.60 2,353 6.0 7.6 80 75 71 133 -48 5,797 391 -81 310 -33 75 0 0 202 0 202 310 258 -25 -63 194 -6 0 -142 -34 0 -177 12 -46 194 99 846 249 158 1,230 2,777 508 981 1,489 1,282 5 1,288 505 314 5.2 6.7 5.3 70.4 12.1 16.1 12.5 27.0 1.1 1.0 24.4 9.3
UGL Ltd
Reuters: UGL.AX Bloomberg: UGL AU
Buy
Price as at 05-Mar Target price Company website http://www.unitedgroup.com.au
Company description United Group Limited is a diversified engineering, construction and maintenance company. The company's operations include railway manufacturing, maintenance and engineering along with providing design, construction, operating and maintenance services in the mining, commercial property, defence and petrochemicals industries.
A$12.45 A$14.14

Infrastructure Rail Resources Services Other PROFIT & LOSS (A$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (A$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (A$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)
Research Team
Cameron McDonald
Craig Wong-Pan
+61 2 8258 2848

-25% -20% -15% -10% -5.1% -10% -5% 0%
1m 3m -24% 12m
A$16.26 - 11.05 A$ 2,024 US$ 2,153

1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 3/07 3/08 3/09 3/10 3/11 3/12
8 7 6 5 4 3 2 1 0 07 08 09
Trends
18 16 14 12 10 8 6 4 2 0
Return Ratios (%)
450 400 350 300 250 200 150 100 50 0
50 45 40 35 30 25 20 15 10 5 0
10
11
12E
13E
14E
07
08
ROE (%) op ROC (%)
09
10
11
12E 13E 14E
07
ROA (%)
Page 16
06 March 2012
Y/E 30 June SUMMARY

05/06
0.462 15.3 7.6 -0.084 nm 0.302 23.4 0.200 2.8 2.33 1,690 4.9 7.2 -144 62 32 12 -21 4,619 49 -108 -60 -51 -86 0 0 -25 -163 138 234 90 109 -197 -107 -187 143 -37 188 0 294 0 189 168 676 0 542 11 1,363 2,760 640 1,169 1,809 951 0 951 306 472 24.0 7.4 5.1 43.3 9.8 14.9 3.4 77.5 4.3 1.9 49.7 4.6
06/07
0.510 13.4 10.2 0.320 21.3 0.335 20.4 0.210 3.1 1.87 1,827 4.4 6.5 5 74 42 3 6 5,373 267 -137 130 -57 -29 0 0 101 -60 162 282 106 -113 -128 -22 -93 177 -36 47 0 188 73 -26 243 754 0 570 8 1,606 3,180 693 1,317 2,010 1,170 0 1,170 419 450 16.3 7.8 5.3 41.2 10.3 15.2 16.7 -39.7 2.4 1.0 38.5 4.9
07/08
0.479 12.9 -6.1 0.479 12.9 0.854 7.3 0.255 4.1 1.68 1,778 4.4 6.3 66 110 46 96 -36 5,549 400 -118 282 -50 66 0 -11 155 0 155 282 276 94 -260 16 116 1 -55 -71 0 -125 7 -78 246 662 574 5 7 1,689 3,183 567 1,420 1,987 1,196 0 1,196 325 321 3.3 7.2 5.1 53.3 9.6 13.1 11.8 28.5 4.7 2.3 26.8 4.6
08/09
0.544 9.3 13.7 0.544 9.3 1.029 4.9 0.290 5.7 1.26 1,818 4.1 5.9 53 114 61 131 -53 5,908 448 -142 306 -47 70 0 -11 178 0 178 306 336 -93 -292 45 -29 2 -72 103 0 33 48 54 299 846 604 6 8 1,619 3,383 794 1,258 2,053 1,330 0 1,330 418 495 6.5 7.6 5.2 53.3 10.3 14.1 11.4 26.9 4.9 2.2 37.2 5.3
09/10
0.558 13.4 2.5 -0.024 nm 0.612 12.2 0.291 3.9 2.02 1,938 4.0 6.0 68 103 78 113 -305 5,991 216 -160 56 -54 -1 0 -11 -8 -194 186 321 204 28 -208 -3 63 0 -66 91 0 25 85 6 385 862 584 6 22 1,597 3,456 889 1,324 2,213 1,243 0 1,243 390 504 1.4 8.0 5.4 52.1 10.6 14.5 16.2 -47.7 3.5 1.4 40.6 4.9
10/11
0.407 10.4 -27.0 -0.099 nm 0.485 8.7 0.000 0.0 1.26 2,063 4.1 7.1 120 54 75 72 -295 6,933 236 -210 26 -64 -11 0 -10 -38 -194 156.0 292 186 2 -446 -260 126 270 -44 -176 0 50 -84 -92 289 1,055 500 89 37 1,741 3,711 733 1,535 2,268 1,442 0 1,442 388 444 15.7 7.3 4.2 0.0 8.9 11.6 10.4 28.3 6.4 2.2 30.8 3.9
11/12E
0.403 9.7 -1.1 0.234 16.7 0.392 10.0 0.000 0.0 1.08 2,185 3.7 6.4 166 90 82 57 -125 7,579 520 -250 270 -78 80 0 -11 100 -73 173.0 343 168 -224 -417 -249 170 0 -5 0 0 -5 -84 84 205 1,078 500 66 60 1,868 3,777 733 1,495 2,227 1,549 0 1,549 611 528 9.3 7.8 4.5 0.0 9.7 11.6 8.8 41.7 5.5 1.8 34.1 3.8
12/13E
0.422 9.3 4.8 0.422 9.3 1.019 3.8 0.211 5.4 0.98 2,170 3.7 6.4 156 90 51 94 -52 7,510 588 -249 339 -72 75 0 -11 181 0 181.2 339 437 -5 -300 137 3 0 -25 -50 0 -75 65 -115 269 1,154 500 42 87 1,823 3,874 683 1,475 2,157 1,716 0 1,716 616 413 -0.9 7.8 4.5 50.0 9.5 11.1 10.7 28.0 4.0 1.3 24.1 4.1
13/14E
0.464 8.4 9.8 0.464 8.4 0.708 5.5 0.232 5.9 0.90 2,109 3.5 5.9 151 100 51 99 -44 7,681 611 -254 357 -64 82 0 -11 199 0 199 357 304 -161 -242 62 3 0 -57 -50 0 -107 -42 -8 228 1,165 500 18 114 1,830 3,854 633 1,351 1,984 1,870 0 1,870 777 405 2.3 8.0 4.6 50.0 9.8 11.1 10.5 28.0 3.1 1.1 21.7 4.7
Downer EDI Ltd

Reuters: DOW.AX Bloomberg: DOW AU
Hold
Price as at 05-Mar Target price Company website http://www.downeredi.com
Company description Downer EDI provides engineering and infrastructure management services to the public and private rail, road, power, telecommunications, mining and resources sectors in Australia, New Zealand, Asia and the Pacific. Downer provides rolling stock services, drilling services for the exploration industry, mine planning and management services and highway maintenance.
A$3.91 A$4.36

Mining and resources Works Rail Engineering Other PROFIT & LOSS (A$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (A$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (A$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)
Research Team
Cameron McDonald
Craig Wong-Pan
+61 2 8258 2848

0% 5% 10% 15% 12% 24% 20% 25%
1m 3m 0.3% 12m
A$4.09 - 2.75 A$ 1,699 US$ 1,808

1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 3/07 3/08 3/09 3/10 3/11 3/12
9 8 7 6 5 4 3 2 1 0 07 08 09
Trends
18 16 14 12 10 8 6 4 2 0
Return Ratios (%)
600 500 400 300 200 100 0
45 40 35 30 25 20 15 10 5 0
10
11
12E
13E
14E
07
08
ROE (%) op ROC (%)
09
10
11
12E 13E 14E
07
ROA (%)
Page 17
06 March 2012
Equity Research Asia Pacific Australia Miscellaneous Industrials
Y/E 30 June SUMMARY

05/06
0.377 13.9 na 0.346 15.2 0.813 6.5 0.240 4.6 2.43 1,092 6.9 9.9 111 0 111 1,954 159 -48 111 -38 17 0 0 56 0 56 111 131 11 -72 59 -1 0 -35 24 1 -11 47 -23 138 632 0 238 92 375 1,475 672 453 1,125 350 0 350 49 534 na 8.1 5.7 69.5 8.6 15.9 10.0 23.3 3.7 1.8 152.8 2.9
06/07
0.547 12.4 45.1 0.602 11.3 0.570 11.9 0.310 4.6 1.95 1,090 4.6 5.9 243 0 243 2,427 295 -51 243 -56 73 0 0 114 10 104 186 108 -82 -52 56 -592 261 -47 273 0 487 -49 322 92 129 0 715 256 522 1,715 430 592 1,022 693 0 693 130 338 24.2 9.8 7.7 48.8 12.4 19.9 12.2 39.0 2.1 1.1 48.8 3.3
07/08
0.276 29.7 -49.5 0.276 29.7 0.594 13.8 0.360 4.4 2.42 1,485 7.5 10.9 137 0 137 2,993 199 -62 137 -40 15 0 0 82 0 82 137 177 26 -68 109 -320 -8 -71 261 0 182 -29 290 58 181 558 250 295 564 1,906 644 590 1,234 672 0 672 104 586 23.3 6.6 4.6 86.6 7.8 12.0 8.6 15.1 2.3 1.8 87.1 3.4
08/09
0.261 11.9 -5.7 -0.153 nm 0.486 6.4 0.120 3.9 1.64 1,722 7.6 11.6 -23 0 -23 4,320 53 -76 -23 -42 -10 0 -1 -55 -148 93 149 174 22 -52 122 14 254 -53 -304 0 -102 34 -338 98 187 449 262 286 644 1,928 488 663 1,150 777 1 777 82 390 44.3 5.2 3.4 39.0 8.2 12.9 10.7 15.4 1.2 1.2 50.1 3.6
09/10
0.232 16.3 -11.0 0.176 21.4 0.544 6.9 0.140 3.7 1.95 1,757 8.7 13.7 101 0 101 4,052 175 -74 101 -26 1 0 -1 73 -23 96 128 225 45 -37 188 -54 -1 -47 -72 0 -119 15 -87 113 174 443 231 291 599 1,851 387 659 1,047 803 1 804 37 275 -6.2 5.0 3.2 60.1 7.2 12.1 11.1 1.9 0.9 0.8 34.2 4.9
10/11
0.208 16.3 -10.4 -0.041 nm 0.171 19.9 0.140 4.1 1.66 1,968 8.5 13.0 4 0 4 3,974 85 -81 4 -39 -16 0 0 -20 -120 100.1 151 82 -50 -73 9 -289 363 -65 142 0 440 160 -18 266 309 443 301 311 637 2,268 516 627 1,143 1,124 1 1,125 87 250 -1.9 5.8 3.8 67.1 8.4 10.4 6.4 45.5 1.8 1.4 22.2 3.9
11/12E
0.193 12.3 -7.1 0.193 12.3 0.278 8.5 0.116 4.9 1.14 1,578 6.2 10.0 158 0 158 3,943 254 -95 158 -38 18 0 0 102 0 101.8 158 147 -10 -152 -5 116 -101 -77 50 0 -128 -18 68 248 388 443 279 257 627 2,243 566 628 1,194 1,047 2 1,049 97 318 -0.8 6.4 4.0 60.0 7.9 9.4 9.1 14.9 3.9 2.1 30.3 4.2
12/13E
0.220 10.8 14.1 0.220 10.8 0.312 7.6 0.133 5.6 1.09 1,560 5.7 9.1 172 0 172 4,074 275 -102 172 -41 20 0 -1 111 0 111.4 172 158 -14 -99 59 0 0 -60 75 0 15 73 2 321 406 443 258 300 658 2,386 641 645 1,286 1,098 2 1,100 112 320 3.3 6.7 4.2 60.0 8.6 10.4 10.0 15.0 2.4 1.2 29.1 4.2
13/14E
0.228 10.4 3.4 0.228 10.4 0.314 7.5 0.137 5.8 1.05 1,566 5.6 8.8 177 0 177 4,212 281 -104 177 -41 20 0 -1 115 0 115 177 159 -17 -101 58 0 0 -68 0 0 -68 -10 10 311 422 443 238 343 693 2,452 641 663 1,304 1,145 3 1,148 129 330 3.4 6.7 4.2 60.0 8.4 10.2 9.9 15.0 2.4 1.2 28.7 4.3
Transfield Services Ltd

Reuters: TSE.AX Bloomberg: TSE AU
Hold
Price as at 05-Mar Target price Company website http://www.transfieldservices.com.au
Company description Transfield Services is a provider of specialised operations, maintenance and asset management services within domestic and international markets. TSE also manages and owns a a shareholding in Transfield Services Infrastructure Fund (TSI.AX), which owns a portfolio of power stations and water filtration plants.
A$2.37 A$2.50

Services Other Total PROFIT & LOSS (A$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (A$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (A$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)
Research Team
Cameron McDonald
Craig Wong-Pan
+61 2 8258 2848

-40% -30% -20% -10% 0% 10% 20% 30% 23% -0.4%
1m 3m -29% 12m
A$3.73 - 1.79 A$ 1,330 US$ 1,415

1.60 1.40 1.20 1.00
12 10 8
Trends
25
Return Ratios (%)
700 600 500
100 90 80 70 60 50
20
15 6 4 10
400 300 200
40 30 20 10 0 07 08 09 10 11 12E 13E 14E Net debt / (cash) (AUD m) Net debt/equity (%)
0.80 2 0.60 0 0.40 3/07 3/08 3/09 3/10 3/11 3/12 07 08 09 10 11 12E 13E 14E 0
100 0
07
08
ROE (%) op ROC (%)
09
10
11
12E 13E 14E
ROA (%)
Page 18
06 March 2012
Equity Research Asia Pacific Australia Miscellaneous Industrials
Y/E 31 December SUMMARY

Normalised EPS (US$) P/E ratio normalised (x) Normalised EPS growth (%) EPS FD (US$) P/E ratio FD (x) Operating CFPS (US$) P/CFPS (x) DPS (US$) Dividend yield (%) Price/BV (x) Enterprise Value (US$m) EV/EBITDA (x) EV/EBIT (x)
2007
0.543 33.5 na 0.543 33.5 1.056 17.2 0.015 0.1 12.45 5,899 19.9 24.9 180 115 -58 237 1,576 297 -60 237 -101 55 0 0 81 0 81 237 158 -53 -124 34 -117 1,876 0 -649 -1,085 142 59 -708 88 358 206 29 0 531 1,212 657 336 993 220 0 220 175 569 na 18.8 15.0 0.0 25.2 -28.9 49.0 40.4 7.9 2.2 259.1 2.3
2008
1.041 12.0 91.9 1.041 12.0 0.949 13.2 0.023 0.2 12.29 5,949 16.7 22.1 231 115 -77 269 1,839 356 -86 269 -38 75 0 0 157 0 157 269 143 -41 -146 -3 -136 -2 -57 154 -1 95 -45 199 51 404 235 73 0 532 1,294 815 327 1,142 152 0 152 216 764 16.7 19.3 14.6 36.4 22.4 84.3 18.8 32.2 7.9 1.8 501.7 7.1
2009
-0.061 nm -105.8 -0.061 nm 0.479 4.4 0.000 0.0 1.03 8,127 73.2 360.7 72 16 -66 23 978 111 -89 23 -45 -8 0 0 -15 0 -15 23 117 43 -37 80 -4 698 0 -682 -50 -34 42 -724 88 381 277 84 0 537 1,366 136 292 428 938 0 938 173 48 -46.8 11.4 2.3 0.0 1.8 -2.7 2.4 34.2 3.8 0.5 5.1 0.5
2010
0.184 18.2 na 0.184 18.2 0.113 29.8 0.055 1.6 1.45 1,984 8.9 15.4 118 85 -74 128 1,476 222 -93 128 -5 39 0 0 85 0 85 128 52 -126 -119 -67 -16 0 -10 113 -6 97 14 99 95 439 297 106 0 769 1,707 248 399 647 1,060 0 1,060 300 154 50.9 15.0 8.7 11.5 8.9 8.5 7.5 31.4 8.1 1.4 14.5 24.9
2011
0.348 11.1 89.1 0.348 11.1 0.431 9.0 0.104 2.7 1.55 2,034 5.7 8.3 213 120 -87 246 2,020 356 -111 246 -19 67 0 0 160 0 159.9 246 198 -114 -180 18 -38 0 -38 69 -16 15 -6 74 82 508 294 130 0 934 1,949 313 501 814 1,134 0 1,134 414 231 36.9 17.6 12.2 23.7 14.1 14.6 12.8 29.5 8.9 1.9 20.3 13.0
2012E
0.467 9.3 34.1 0.467 9.3 0.618 7.0 0.146 3.4 1.52 2,349 5.1 7.0 300 116 -79 337 2,308 461 -124 337 -24 91 0 0 222 0 222.2 337 294 -52 -300 -6 0 0 -57 0 0 -57 -62 62 20 693 294 121 0 1,022 2,150 313 537 850 1,300 0 1,300 466 293 14.3 20.0 14.6 25.4 16.6 18.3 15.6 29.0 13.0 2.6 22.5 14.1
2013E
0.503 8.6 7.7 0.503 8.6 0.846 5.1 0.157 3.6 1.35 2,311 4.8 6.5 309 120 -74 355 2,445 477 -122 355 -23 93 0 0 239 0 239.4 355 403 41 -196 207 0 0 -69 0 0 -69 138 -138 158 776 294 112 0 1,002 2,342 313 558 871 1,471 0 1,471 425 155 5.9 19.5 14.5 28.6 17.0 17.3 16.4 28.0 8.0 1.7 10.5 15.7
2014E
0.456 9.5 -9.3 0.456 9.5 0.960 4.5 0.143 3.3 1.22 2,118 5.0 6.7 271 121 -74 318 2,283 422 -104 318 -17 84 0 0 217 0 217 318 457 136 -137 320 0 0 -71 0 0 -71 249 -249 408 818 294 103 0 844 2,466 313 536 849 1,618 0 1,618 289 -95 -6.6 18.5 13.9 32.5 15.9 14.1 15.6 28.0 6.0 1.4 -5.9 19.2
Boart Longyear Ltd

Reuters: BLY.AX Bloomberg: BLY AU
Buy
Price as at 06-Mar Target price Company website http://www.boartlongyear.com
Company description Boart Longyear Limited provides drilling services and products to the global Mineral Industry. The Company operates across the Asia-Pacific region, Canada, United States, South America and Europe, providing specialist contract drilling work during the exploration and development phase of mining, environmental and infrastructure, and energy projects. Boart Longyear also develops, manufactures and sells coring tools, drilling capital equipment, and percussive tools.
A$4.08 A$4.65
DIVISIONAL EBIT (US$m)

Drilling Services Drilling Products Other Total PROFIT & LOSS (US$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (US$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (US$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)
Research Team

-10% 0% 10% 20% 17% 29% 30% 40%
1m 3m -6.5% 12m
A$4.89 - 2.46 A$ 1,983 US$ 2,110

1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 3/07 3/08 3/09 3/10 3/11 3/12
25 20 15 10 5 0 07 08
Trends
100 80 60 40 20 0 (20) (40)
Return Ratios (%)
900 800 700 600 500 400 300 200 100 0 -100 -200
600 500 400 300 200 100 0 -100
09
10
11
12E
13E
14E
07
08
ROE (%) op ROC (%)
09
10
11
12E 13E 14E

ROA (%)
07
Page 19
06 March 2012
Valuation & Risks

Leighton Holdings
Valuation Our target price is based on the average of our DCF, sum-of-the-parts valuation and PE methodologies. Our SOTP uses comparable peer FY12E EV/EBIT multiples for each division: Aus Infrastructure 10x, Aus Contract Mining 8x, Aus Property 7x, Gulf 7x and Other Asia 7x, and values the investment portfolio at $25m. Our DCF valuation uses a WACC 11.44% (RF 6.25%, beta 1.1, target debt/eq of 20%) and TV growth rate 3.5%. Our PE based valuation is derived from applying our 12 months forward EPS estimate to the market multiple of the ASX Industrials (ex banks) and applying a 5% discount to reflect the companys lower earnings profile relative to its historical average. Risks We see the following key upside risks to our investment thesis: 1) Strong growth in the Australian infrastructure market. 2) Recovery in Australian property market. 3) Resolution of project claims. 4) Collection of legacy Gulf receivables. We see the following key downside risks to our investment thesis: 1) Sharp slowdown in commodity production volumes. 2) Faster adoption of bringing contract mining inhouse. 3) Slow down in resource construction spend. 4) Project specific issues resulting in cost increases. 5) Loss of key management personnel.
WorleyParsons
Valuation Our valuation for Worley Parsons uses an average of DCF, sum-of-the-parts and PE valuation methodologies. Our DCF valuation uses a WACC of 11.26% (beta 1.15, coe 13.15%, target debt/equity 25%, risk-free rate 6.25%, terminal growth rate 3.5% - the terminal value growth rate is based on nominal global GDP forecasts. Our SOTP based methodology applies comparable peer EV/EBIT multiples to each business segment (Hydrocarbons 13.2x, Power 10.2x, Minerals & Metals 9.4x, Infrastructure 10.3x). For our PE valuation, we have applied our 12 months forward EPS estimate to the market multiple of the ASX Industrials (ex banks), and adjusted that for the company's historical premium relative to the market. Risks We see the following upside risks to our investment thesis: 1) Stronger recovery in the O&G sector. 2) Acquisitions. 3) Strong growth in the Minerals & Metals division. We see the following downside risks to our investment thesis: 1) Slower recovery in the O&G sector. 2) Increasing levels of competition. 3) Capacity constraints. 4) FX risk.
UGL
Valuation Our 12-month target price is derived from the average of our DCF valuation, SOTP and PE valuations. Our DCF valuation uses a WACC of 11.33% which assumes a beta of 1.1, CoE of 12.85%, risk free rate of 6.25% (assumed long term govt bond rate) and target D/EV of 20%. We forecast explicit cashflows to 2020 and then use a terminal growth value of 3.5% (the terminal value growth rate is based on our nominal global GDP estimates. Our sum-of-the-parts multiples based valuation applies FY12E EV/EBIT multiples to each of UGL's divisions: Infrastructure 8.5x, Rail 7.5x, Resources 7.0x and Services 10.5x. In deriving our P/E based valuation we have applied our 12 months
Page 20 Deutsche Bank AG/Sydney
06 March 2012
forward EPS estimate to the market multiple of the ASX Industrials (ex banks). This is in line with the companys long run historical average PE rel. Risks Downside risks include: 1) Increased competition and ongoing weakness in the rail division. 2) Inability to renew infrastructure pipeline as contracts roll-off. 3) A slowdown in the US commercial real estate market caused by economic uncertainty. 4) Inability to reduce overhead costs in DTZ.
Downer EDI
Valuation Our 12-month target price is based on the average of our DCF valuation, sum-of-theparts multiples-based valuation and FY12E P/E valuation. Our DCF valuation uses a WACC of 13.2%, which assumes a beta of 1.1, CoE of 15.05%, risk free rate of 6.25% (assumed long-term govt bond rate) and target D/EV of 20%. We forecast explicit cash flows to FY14, followed by a 10-year horizon period where cash flow growth fades from 4% to our long-term terminal value growth rate of 3%. The terminal value growth rate is based largely on our nominal GDP estimates. Our sum-of-the-parts multiples based valuation applies peer-group FY12E EV/EBIT multiples to each of Downer's divisions: Downer Australia 7x, Downer New Zealand 5x, Mining 7x and Rail 6x. Our P/E-based valuation is derived from applying a 20% discount to the 12 month forward market multiple (ASX Industrials ex banks), to reflect the company's lower growth profile and potential for greater volatility in earnings compared to the market. Risks Upside risks include: 1) Better-than-expected delivery of the Waratah trains contract. 2) Achievement of cost-out initiatives. Downside risks include: 1) Weakness in Downer Australia & Downer New Zealand divisions. 2) Cost overruns & project specific issues. 3) Issues with delivery of the Waratah trains maintenance contract. 4) Deferral of State Govt project expenditure.
Transfield Services
Valuation Our target price for Transfield Services is the average of our DCF and sum-of-the-parts multiple based valuation methodologies. Our DCF valuation uses a WACC of 11.47% (beta 1.1, CoE 12.85%, target D/EV 20%, risk free rate 6.25% (assumed long-term govt. bond rate), terminal growth rate 3.5%). Our terminal growth is based on nominal GDP estimates. Our SOTP valuation uses applicable EV/EBITDA multiples for each of the company's business segments: Aus/NZ 6x, Easternwell 6x, Americas 6.5x and Middle East & Asia 5x. Our P/E based valuation is derived from applying our 12 month forward EPS estimate to the company's long run historical average PE relative to the ASX industrials (ex banks). Risks We see the following upside risks to our investment thesis: 1) Acquisitions. 2) Increased outsourcing of Government maintenance services. 3) Cost reduction initiatives. We see the following downside risks to our investment thesis: 1) A slowdown in resource capex or maintenance spend. 2) Failure to properly assess and manage project risks. 3) Deterioration in market conditions.
Page 21
06 March 2012
Boart Longyear
Valuation Our target price is derived from an earnings based sum-of-the-parts valuation as we believe this methodology best reflects the cyclical nature of the company. We crosscheck our sum-of-the-parts valuation with DCF and P/E relative to the market valuations. Our SOTP valuation uses comparable peer FY12e EV/EBITDA multiples for each division: Drilling Services 5.3x and Products 5.8x. Our multiple for the Drilling Services division has been adjusted for: (1) a 10% premium to reflect the company's larger scale and greater breadth of service offerings, and (2) a 15% discount for uncertainty and low visibility. Our multiple for the Products division has been adjusted for: (1) a 20% discount for less diversified operations, and (2) a 15% discount for uncertainty and low visibility. We translate our US dollar SOTP valuation at the current spot rate to derive an AUD valuation. Risks Key downside risks to our investment thesis include: 1) Falling commodity prices-key commodity exposures are to Gold (40% of rev) and copper (21% of rev). 2) Labour shortages. 3) Rising raw material costs-steel used in constructing drill rigs. 4) Adverse weather conditions. 5) Competitors gaining market share. 6) Junior miners unable to raise capital.
Page 22
06 March 2012
Appendix 1
Important Disclosures Additional information available upon request
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Craig WongPan Equity rating key Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period Equity rating dispersion and banking relationships
120 100 80 60 40 20 0
49 %
49 %
23 %
24 % 2%0%
Buy
Companies Covered
Hold
Sell
Cos. w/ Banking Relationship
Australia Universe
Page 23
06 March 2012
Regulatory Disclosures 1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.
3. Country-Specific Disclosures
Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://www.globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan, Japan Securities Investment Advisers Association. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.
Page 24

Deutsche Bank AG/Sydney International locations
Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: (1) 212 250 2500 Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) 20 7545 8000 Deutsche Bank AG Groe Gallusstrae 10-14 60272 Frankfurt am Main Germany Tel: (49) 69 910 00 Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234
Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: (852) 2203 8888
Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: (81) 3 5156 6770
Global Disclaimer
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information. Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement. As a result of Deutsche Banks March 2010 acquisition of BHF-Bank AG, a security may be covered by more than one analyst within the Deutsche Bank group. Each of these analysts may use differing methodologies to value the security; as a result, the recommendations may differ and the price targets and estimates of each may vary widely. In August 2009, Deutsche Bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for "Hold" rated stocks having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at http://gm.db.com to determine the target price of any stock. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright 2012 Deutsche Bank AG
GRCM2012PROD025128

0900b8c084c8d5da

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

0900b8c084c8d5da

Uploaded by

Copyright:

Available Formats

Deutsche Bank Markets Research

Engineers & Contractors

Running The Numbers

Sector outlook & key themes from Dec 11 reporting period

Deutsche Bank Markets Research

Developers & Contractors

Engineers & Contractors

Recommendation changes and preferred picks

LEI was downgraded to a Hold

BLY and UGL are our top picks

DOW is a Hold but is elevated to our 3rd preference

P/E FY13 8.6 11.4 9.3 15.0 10.8 12.1

Company BLY UGL ! DOW WOR TSE LEI

Rec Buy Buy Hold Hold Hold Hold

TP 4.65 14.14 4.36 27.88 2.50 23.87

CP 4.08 12.45 3.91 27.92 2.37 24.56

FY12 3.6% 6.1% 0.0% 3.4% 4.9% 5.9%

Deutsche Bank AG/Sydney

Deutsche Bank Markets Research

Developers & Contractors

Engineers & Contractors

Figure 2: LEI 12 mth fwd PE rel to ASX Ind (ex banks)

Figure 3: WOR 12 mth fwd PE rel to ASX Ind (ex banks)

Figure 4: UGL 12 mth fwd PE rel to ASX Ind (ex banks)

Figure 5: DOW 12 mth fwd PE rel to ASX Ind (ex banks)

Feb-07 Avg (05-12)

Feb-06 DOW PE rel

Source: Deutsche Bank, Datastream

Figure 6: TSE 12 mth fwd PE rel to ASX Ind (ex banks)

Figure 7: BLY 12 mth fwd PE rel to ASX Ind (ex banks)

1.00 0.80 0.60 0.40 0.20 Feb-05 Feb-06 TSE PE rel

1.00 0.50 0.00

Feb-12 BLY PE rel

Deutsche Bank AG/Sydney

Deutsche Bank Markets Research

Developers & Contractors

Engineers & Contractors

Key outlook themes from reporting season

Future rev growth rates are likely to slow

Deutsche Bank AG/Sydney

Deutsche Bank Markets Research

Developers & Contractors

Engineers & Contractors

1. Future growth should come from new markets

Figure 8: Revenue indexed to 1H08

LEI Reported Dec 11 growth 25.4%

Comprising: Acquisitions Divestments FX Organic

0.8% -2.2% -1.8% 28.5%

-1.9% 4.5% 14.5%

Source: Deutsche Bank, company reports

Deutsche Bank AG/Sydney

Deutsche Bank Markets Research

Developers & Contractors

Engineers & Contractors

Figure 10: Offshore company contract wins

Figure 11: Australian infrastructure market shares

30% 25% 20% 15% 10% 5% 0% 31% 45% 14%

60% 50% 40% 30%

Mkt share (LHS)

Cumulative mkt share (RHS)

Source: Deutsche Bank, press articles

2. Factors preventing margins recovering to peak levels

Figure 12: Dec 11 EBIT margins actual vs DBe

Source: Deutsche Bank, company reports