Alpha POWER Shares (Aegis) Portfolio

aMail
Research & Education Articles
- Covered Call Strategy Suited to Super
- The Future of Fixed Income
Education
- SMAs – professional share portfolios for every investor
- BlackRock Customised Portfolio Service - Offering your clients a professionally managed share portfolio

Alpha POWER Shares (Aegis) Portfolio - August 2007

Aegis Market Commentary

The Australian sharemarket took a rollercoaster ride through August, with a significant correction early in the month on the back of concerns about the fallout from the sub-prime lending market in the US and the flow-on effects on credit markets in general and US economic growth. As August progressed, the market staged a strong recovery and ended the month higher than the July close. The market rallied on the back of a strong domestic company reporting season and moves by the Federal Reserve to calm the US markets.

For the month of August, the S&P/ASX 100 Accumulation Index rose 3.05%. In terms of stocks contributing to the index's movement during the month, the main positive drivers included BHP Billiton, QBE, Brambles, Woolworths, National Australia Bank and Westfield Group. The main negative drivers were Macquarie Bank, Telstra and IAG.

Aegis comments on major out-performers:

QBE Insurance Group - QBE (+16.3%) put in a remarkable performance for the month after the company announced a better than expected 1H07 result, with earnings rising by more than 50%. The strong earnings growth saw shareholders rewarded with a 43% increase in the interim dividend. The result benefited from a low frequency and severity of claims, higher investment yields and recent acquisitions. The strong result prompted QBE to upgrade its FY07 earnings outlook.

DB RREEF Trust (+10.7%) reported a sound FY07 result, which saw NPAT rise 13.5% on FY06 and FY07 distributable income grow 6%. All divisions within the portfolio travelled well, with the occupancy rate holding high at 96.7% and average lease term steady at 5.3 years. Implementation of DRT's strategic plan progressed well in FY07. DRT expanded internationally through acquisitions in the US and Europe. Since the end of FY07, DRT announced its intention to sell a significant component of its retail assets, consistent with its strategy of recycling out of retail assets and maintaining a focus on industrial and office. An FY07 distribution of 11.3cps was declared, up 2.7% on FY06. Management provided an FY08 distribution growth per share guidance of 5%+ on FY07.

GPT Group (+7.6%) delivered a solid 1H07 result with realised operating income increasing 7.9% on 1H06, which was ahead of expectations. Overall, the result reflected a strong performance across all divisions. The interim distribution increased by 5.1% to 14.3cps and GPT confirmed that it was targeting distribution growth of 5% for FY07.

Aegis comments on major under-performers:

Tabcorp (-3.0%). The FY07 result was lower than expected and was impacted by poor cost controls and smoking bans that saw adjusted NPAT decline 11% over the year. Earnings from two of the three major divisions (Casinos and Wagering) were down, while Gaming only managed a marginal rise in earnings of 1%. The FY07 dividend was 94cps, up 6% on FY06. The poor result, flat FY08 earnings growth guidance and concerns about the potential impact of the equine flu have weighed on the stock. We do not expect the flu impact to be material, based on current information. At this stage, the flu has not been identified in thoroughbreds in Victoria. Assuming the current status prevails, we estimate the outbreak will not have a material impact on TAH's earnings. TAH shares continue to offer a high, fully franked dividend yield.

Telstra (-2.0%). During August, the stock weakened on the back of the FY07 result that disappointed the market. While Telstra’s growth forecasts were not outstanding, we believe there is room for potential growth, with fibre-to-the-node still up in the air and TLS on the lookout for value-accretive acquisitions. Meanwhile, we believe TLS will focus on organic growth and improving cost efficiencies in its current markets via leveraging scale economies through the consolidation of legacy networks as well as enhancing its scope economies across platforms to drive revenues. We continue to hold Telstra for its attractive, fully franked yield.

IMPORTANT NOTICE:Aegis Investment Partners Pty Ltd (ABN 98 096 109 125, AFSL 226 957) (“Aegis”) is the stock selector for the Alpha Model Portfolio – Aegis. The information contained in this document is prepared by Aegis for use solely by professional investment advisers and is not intended to be provided to retail clients. In preparing this information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether information contained in this document is appropriate to their investment objectives, financial situation or particular needs before acting on that information. Prior to deciding whether to acquire, hold, or sell the Alpha Model Portfolio - Aegis, you should obtain and consider the Alpha Customised Portfolio Service Product Disclosure Statement dated 19 December 2006 (to be read in conjunction with individual financial advice), available on request from Alpha Structured Investments (1300 769 694 or www.alpha-invest.com.au). While all information is provided by Aegis in good faith, Aegis makes no warranties as to its accuracy, reliability, completeness or whether it is free from error or omission. Subject to statutory limitations, Aegis, together with its directors, officers, employees and related body corporates, do not accept any responsibility or liability arising from decisions made relying upon information contained within this document. This document is only to be distributed to Australian residents. All intellectual property relating to this document vests with Aegis unless otherwise expressly agreed.