Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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EQT Holdings (EQT) | Movement at the station

Overall: We review the outlook for EQT given a strong rebound in equity markets since our last update and a number of industry developments. We maintain a BUY rating and increase our price target from $28.00 to $30.00.

Industry developments: There have been a number of recent corporate developments across Australia’s financial services landscape, with the royal commission and the COVID-19 crisis acting as catalysts. In general, Australian banks are exiting wealth management; often each business (i.e. life insurance, asset management and platform/product) going to different parties. Corporate activity is often a catalyst for outsourcing of various functions within these businesses, including trustee arrangements. We believe this could provide EQT with potentially significant new business opportunities within its superannuation (where the trustee is known as a RSE Licensee) and investments business (where the trustee is known as the Responsible Entity). In this note, we look at the potential opportunity offered by CBA divesting 55% of Colonial First State to private equity group KKR.

Changes to earnings: We upgrade our EPS estimates by 3-10% over the forecast period, driven by the strong rebound in equity markets. Since our last update (30 Mar-20) the Australian All Ordinaries Index is up 14% and the MSCI World in AUD terms is up 4% (17% MSCI World USD terms gain offset by 13% rise in AUD/USD). On the back of these changes, our valuation and price target increase from $28.00 to $30.00.

Investment view: We maintain a BUY rating. Given the rebound in equity markets, the impact of the COVID-19 on EQT’s earnings should be less than initially anticipated. Meanwhile, Australia’s financial services sector is undergoing significant corporate activity and change at the moment. This should provide EQT with potential new business opportunities in superannuation (RSE Licensee) and investments (Responsible Entity) businesses over the next few years. More broadly, we believe EQT is a well-run, high-quality company with a number of growth opportunities, a strong financial position and leverage to a recovery in global equity markets. Click here to read full report

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