Alpha POWER Shares (Lonsec) Portfolio

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Alpha POWER Shares (Lonsec) Portfolio - September 2007

Lonsec comments on major out-performers:

BHP (+16.8%) rallied strongly over the month on a ‘perfect storm’ of positive news including a firming in metal prices after the US Fed cut interest rates by 50bp, a rising market expectation that iron ore and coal prices are set to increase by at least 20% over the next year and a significant resource upgrade to the flagship Olympic Dam mine*.

*Olympic Dam’s mineral resources have been upgraded by 77% while the contained copper resource was upgraded by 38%. Olympic Dam resources are 7,738mt at 0.87% Cu, 0.29 kg/t U3O8 and 0.30 g/t Au. Contained metal in this resource is 6.7mt of copper, 2.2mt of U3O8 and 75moz of gold. Significant factors contributing to this increase are a lower cut-off grade to reflect open-pit mining, modelling changes, additional drilling and higher metal prices.

Lonsec comments on major under-performers:

Tabcorp (-0.9%) is being negatively affected by the short-term impact of the Equine Horse Influenza on horse racing and wagering which will lead to a loss of $5m in NPAT. This could increase further if extended for longer into the Spring racing carnival but so far this seems unlikely. To put the loss into context, Tabcorp just reported a NPAT of $515.6m – so the impact is about 1% of NPAT to date. Tabcorp has three divisions – Casinos, Gaming and Wagering.

The EBIT split as at June 30 was:

Casinos	$386.2m
Gaming	$262.1m
Wagering	$253.7m

So the business is well diversified across three key divisions.

Clearly the Equine influenza will have a negative impact on wagering revenue but its effects are likely to be short-term and should not be capitalized into the share price to any great degree. However, the timing of this event could not have been worse with Tabcorp recently reporting a soft result resulting in the new CEO embarking on an operational improvement drive particularly focused on Star City and NSW wagering.

Lonsec reminds investors that TAH is in the Alpha Powers Portfolio for its defensive cash flows and reliable dividend. The current yield is 6.2% fully franked.

Lonsec Limited ABN 56 061 751 102
Published by Participant of ASX Group
Level 22, 500 Collins Street, Melbourne, 3000 - P.O. Box 46 Collins Street West, Victoria, 8007
General Inquiries: (03) 9623 6345 Dealing Room: 1800 649 518 Fax: (03) 9629 6990