Embed Size (px)
Citation preview
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, 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.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
19 March 2015
Asia Pacific/Australia
Equity Research
Utilities (Utilities (AU))
AGL Energy
(AGL.AX / AGL AU) SOCIALLY RESPONSIBLE INVESTING
I can see clearly now
■ Fresh eyes: A new CEO can be refreshing in how he looks at parts of the
business, especially troublesome or underperforming assets. The incoming
AGL CEO, Andy Vesey, has no emotional attachment to AGL's Upstream
Gas business, which we have previously highlighted as an asset with risks to
the AGL brand from environmental and social issues to do with coal seam
gas. This is in addition to the Upstream Gas business continuing to
underperform, delivering negative NPAT.
■ Impact on retail brand estimated at ~$100mn or less: We believe the
risks to AGL's energy retail brand are moderate, at the moment, even given
an expected NSW focus of the GetUp! campaign against the three major
energy retailers. Previous campaigns in Victoria have had limited takeup
from GetUp! members, even when savings in energy costs are on offer from
alternate suppliers. We estimate at most the loss of 30,000 dual fuel
customers for AGL in NSW at a value of ~$100mn.
■ CEO decision likely to be more economic, balanced with risks of CSG
operations: We estimate the project needs a gas price of $6/GJ to deliver
an IRR of 10%, and at our $7/GJ gas price it would deliver an IRR of 12.7%
and an NPV of $160mn. This must be balanced against the ongoing risks of
operating a CSG field, and the ability to contract for supply. We believe that
the market is ascribing far less than the ~$350mn book value to these
assets, hence any decision to exit at a loss will not be received unfavourably.
■ We maintain our $16.90 TP and Outperform rating on AGL. In our target
price, we include only $100mn for the NSW CSG assets.
Total return forecast in perspective
Mean^
CS tgt^
Sh Prc
-20%
-10%
0%
10%
20%
30%
12mth Volatility* 52wk Hi-Lo IBES Consensustarget return^
Performance over 1M 3M 12M
Absolute (%) -3.3 9.8 2.4
Relative (%) -3.0 0.3 -6.7
Financial and valuation metrics
Year 06/14A 06/15E 06/16E 06/17E
Revenue (A$mn) 10,428.0 10,549.6 11,212.2 11,627.4
EBITDA (A$mn) 1,330.0 1,511.0 1,817.4 2,038.5
EBIT (A$mn) 1,004.0 1,111.0 1,395.1 1,619.7
Net income (A$mn) 562.0 617.0 806.2 989.8
EPS (CS adj.) (Ac) 100.69 93.01 117.72 142.55
Change from previous EPS (%) n.a. — — —
Consensus EPS (Ac) n.a. 93.60 106.80 115.30
EPS growth (%) -5.3 -7.6 26.6 21.1
P/E (x) 14.6 15.8 12.5 10.3
Dividend (Ac) 63.00 63.00 66.15 72.76
Dividend yield (%) 4.3 4.3 4.5 5.0
P/B (x) 1.1 1.1 1.0 1.0
Net debt/equity (%) 42.9 38.6 30.5 21.8
Relative performance versus S&P ASX 200.See Reference Appendix for
a description of the chart. Source: CSEC estimates, * Consensus, mean
range from Thomson Reuters
Source: Company data, ASX, Credit Suisse estimates, * Adj. for goodwill, notional interest and unusual items. Relative P/E against
ASX/S&P200 based on pre GW in AUD. Company PE calculation is based on displayed EPS Currency.
Rating OUTPERFORM*
Price (19 Mar 15, A$) 14.68
Target price (A$) 16.90¹
Market cap. (A$mn) 9,886.30
Yr avg. mthly trading (A$mn) 506
Last month's trading (A$mn) 607
Projected return:
Capital gain (%) 15.1
Dividend yield (net %) 4.4
Total return (%) 19.5
52-week price range 15.5 - 12.7
* Stock ratings are relative to the relevant country benchmark.
¹Target price is for 12 months.
Research Analysts
Sector analyst
Peter Wilson
61 2 8205 4107
ESG analysts
Sandra McCullagh
61 2 8205 4729
Chris Parks
61 2 8205 4577
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 2
Figure 1: Financial summary
AGL Energy (AGL) Year ending 30 Jun In AUDmn, unless otherwise stated2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Share Price: A$14.69 Earnings 06/13A 06/14A 06/15E 06/16E 06/17ERating c_EPS_SHARESEquiv. FPO (period avg.) mn 550.5 558.1 663.3 684.9 694.4
Target Price A$ 16.90 c_EPS*100EPS (Normalised) c 106.3 100.7 93.0 117.7 142.6
vs Share price % 15.08 EPS_GROWTH*100EPS Growth % -5.3 -7.6 26.6 21.1
c_EBITDA_MARGIN*100EBITDA Margin % 12.4 12.8 14.3 16.2 17.5
c_DPS*100DPS c 63.0 63.0 63.0 66.2 72.8
c_PAYOUT*100Payout % 59.2 62.6 67.7 56.2 51.0
FRANKING*100Franking % 100.0 100.0 100.0 100.0 100.0
c_FCF_PS*100Free CFPS c 76.1 79.5 128.9 151.0 179.9
Profit & Loss 06/13A 06/14A 06/15E 06/16E 06/17E c_TAX_RATE*100Effective tax rate % 29.1 28.0 28.0 28.0 28.0
Sales revenue 10,618.8 10,428.0 10,549.6 11,212.2 11,627.4 Valuation
EBITDA 1,318.0 1,330.0 1,511.0 1,817.4 2,038.5 c_PE P/E x 13.8 14.6 15.8 12.5 10.3
Depr. & Amort. (287.1) (326.0) (400.1) (422.3) (418.8) PEG PEG x 2.2 -2.7 -2.1 0.5 0.5
EBIT 1,030.9 1,004.0 1,111.0 1,395.1 1,619.7 c_EBIT_MULTIPLE_CURREV/EBIT x 12.3 13.1 12.1 9.2 7.5
Associates 0.0 0.0 0.0 0.0 0.0 c_EBITDA_MULTIPLE_CUEV/EBITDA x 9.6 9.9 8.9 7.1 6.0
Net interest Exp. (205.5) (223.0) (253.6) (274.8) (244.2) c_DIV_YIELD*100Dividend Yield % 4.3 4.3 4.3 4.5 5.0
Other 0.0 0.0 0.0 0.0 0.0 c_FCF_YIELD*100FCF Yield % 5.2 5.4 8.8 10.3 12.3
Profit before tax 825.4 781.0 857.4 1,120.3 1,375.5 c_PB Price to Book x 1.1 1.1 1.1 1.0 1.0
Income tax (240.0) (219.0) (240.4) (314.2) (385.7) Returns
Profit after tax 585.4 562.0 617.0 806.2 989.8 c_ROE*100Return on Equity % 8.0 7.4 6.7 8.3 9.5
Minorities 0.0 0.0 0.0 0.0 0.0 c_I_NPAT/c_I_SALES*100Profit Margin % 5.5 5.4 5.8 7.2 8.5
Preferred dividends 0.0 0.0 0.0 0.0 0.0 c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.8 0.7 0.7 0.7 0.7
Associates & Other 0.0 0.0 0.0 0.0 0.0 c_ASSETS/c_EQ_COMMONEquity Multiplier x 1.8 1.9 1.8 1.7 1.6
Normalised NPAT 585.4 562.0 617.0 806.2 989.8 c_ROA*100Return on Assets % 4.4 4.0 3.8 4.9 5.9
Unusual item after tax (209.6) 8.0 6.0 0.0 0.0 c_ROIC*100Return on Invested Cap. % 7.2 6.7 6.3 7.9 9.2
Reported NPAT 375.8 570.0 623.0 806.2 989.8 Gearing
(SUM ( c_BORROW, -c_B_CASH , -c_B_CASH_OPER, -c_B_RESTR_CASH, c_NET_DEBT_ADJ) / SUM (c_EQ_SUM, c_BORROW, -c_B_CASH , -c_B_CASH_OPER, -c_B_RESTR_CASH, c_NET_DEBT_ADJ))*100Net Debt to Net debt + Equity % 27.8 30.0 27.9 23.4 17.9
Balance Sheet 06/13A 06/14A 06/15E 06/16E 06/17E SUM ( c_BORROW, -c_B_CASH , -c_B_CASH_OPER, -c_B_RESTR_CASH, c_NET_DEBT_ADJ)/c_I_EBITDANet Debt to EBITDA x 2.1 2.4 2.3 1.6 1.1
Cash & equivalents 281.0 456.0 527.2 598.3 795.3 c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x 6.4 6.0 6.0 6.6 8.3
Inventories 133.0 191.0 191.5 203.5 211.0 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 5.0 4.5 4.4 5.1 6.6
Receivables 1,844.0 1,902.0 1,924.2 2,045.0 2,120.8 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 5.4 4.9 7.8 4.4 4.6
Other current assets 578.0 862.0 862.0 862.0 862.0 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 198.7 155.8 204.6 118.1 128.1
Current assets 2,836.0 3,411.0 3,504.8 3,708.8 3,989.1 MSCI IVA (ESG) Rating
Property, plant & equip. 6,175.7 6,236.0 8,027.4 8,052.4 8,131.4 TP ESG Risk (%): 2.23
Intangibles 3,149.4 3,248.0 3,248.0 3,248.0 3,248.0
Other non-current assets 1,204.7 1,239.0 1,358.0 1,358.0 1,358.0
Non-current assets 10,529.8 10,723.0 12,633.4 12,658.4 12,737.4
Total assets 13,365.8 14,134.0 16,138.2 16,367.2 16,726.5
Payables 1,444.0 1,417.0 1,407.9 1,465.8 1,496.3
Interest bearing debt 3,109.0 3,714.0 4,064.0 3,564.0 3,064.0
Other liabilities 1,473.8 1,415.0 1,508.8 1,618.4 1,745.5 MSCI IVA Risk: Neutral
Total liabilities 6,026.8 6,546.0 6,980.8 6,648.2 6,305.8
Net assets 7,339.0 7,588.0 9,157.5 9,719.0 10,420.8
Ordinary equity 7,339.0 7,588.0 9,157.5 9,719.0 10,420.8
Minority interests 0.0 0.0 0.0 0.0 0.0
Preferred capital 0.0 0.0 0.0 0.0 0.0
Total shareholder funds 7,339.0 7,588.0 9,157.5 9,719.0 10,420.8
Net debt 2,828.0 3,258.0 3,536.8 2,965.7 2,268.7 Source: MSCI ESG Research
Cashflow 06/13A 06/14A 06/15E 06/16E 06/17E Share Price Performance
EBIT 1,030.9 1,004.0 1,111.0 1,395.1 1,619.7
Net interest -214.2 -194.0 -217.3 -237.2 -205.3
Depr & Amort 287.1 326.0 400.1 422.3 418.8
Tax paid -71.1 -191.0 -146.6 -204.6 -258.6
Working capital -455.4 -272.0 -31.7 -75.0 -52.8
Other 24.5 26.0 0.0 0.0 0.0
Operating cashflow 601.8 699.0 1,115.4 1,300.6 1,521.8
Capex -570.4 -508.0 -818.7 -498.8 -536.7
Capex - expansionary -387.4 -253.0 -558.0 -232.3 -264.2
Capex - maintenance -183.0 -255.0 -260.7 -266.5 -272.5
Acquisitions & Invest 4.2 -77.0 -1,543.0 0.0 0.0
Asset sale proceeds -33.1 -33.0 0.0 0.0 0.0
Other 49.8 -151.0 15.0 14.0 0.0
Investing cashflow -549.5 -769.0 -2,346.7 -484.8 -536.7
Dividends paid -213.9 -269.0 -351.6 -384.8 -453.0
Equity raised -6.1 -4.0 1,337.0 140.1 165.0
Net borrowings -1,258.9 528.0 350.0 -500.0 -500.0
Other -105.2 0.0 -43.0 0.0 0.0 1 Month 3 Month 12 Month
Financing cashflow -1,584.1 255.0 1,292.4 -744.7 -788.1 Absolute -3.3% 9.8% 2.4%
Total cashflow -1,531.8 185.0 61.1 71.1 197.0 Relative -3.0% 0.3% -6.7%
Adjustments 0.0 0.0 0.0 0.0 0.0
Net change in cash -1,531.8 185.0 61.1 71.1 197.0 Source: Reuters 52 week trading range: 12.69-15.51
MSCI IVA Risk Comment: As expected, MSCI has downgraded
its IVA rating for AGK from A to BBB due to LYA emissions. We
now agree with MSCI's IVA rating and have a Neutral rating
outlook.
3/19/2015 10:38
AGL Energy is an Australia-based integrated energy retailer. AGL is an integrated
renewable energy company and is a private owner, operator and developer of renewable
generation assets.
Credit Suisse View
TP Risk Comment: We have excluded upside from
Gloucester CSG and removed a prie on carbon post the
repeal of the carbon tax legislation from 1 July 2014
OUTPERFORM
12.10
12.60
13.10
13.60
14.10
14.60
15.10
15.60
16.10
16.60
7/03/2014 7/05/2014 7/07/2014 7/09/2014 7/11/2014 7/01/2015 7/03/2015
AGL.AX XJO
3.6
4.6
5.6
6.6
7.6
8.6
Environment Social Governance
Stock Local Sector
Country Global Sector
Source: Company data, Credit Suisse estimates
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 3
Does AGL's upstream business belong with AGL?
■ New CEO presents an opportunity for a refresh: AGL's incoming CEO, Andrew
Vesey, who commenced in the role on 11 February 2015, presents an opportunity for
a "refresh" on company strategy, especially on the troublesome and underperforming
Upstream Gas Business.
■ Swift action in announcing a review: The new CEO announced a review of the
upstream gas business on 18 February (only one week after his arrival) and the early
departure of the head of that business, Mike Moraza. No doubt he is very aware of
recent controversies associated with the coal seam gas operations (see separate
section below) and the potential risk to the AGL brand that could flow.
■ New CEOs can be fresh eyes on a problem part of a business. We surmise that
both Mike Moraza and the former AGL CEO, Michael Fraser, had a lot invested
emotionally in the coal seam gas business, having been part of the decision making
team when these assets were bought. No such emotion binds for the new CEO.
■ What issues does the CEO need to consider:
o The economics of the Upstream Gas business including developing the
Gloucester coal seam gas field.
o The impact of continuing to develop coal seam gas on the AGL retail energy
brand.
o The other potential sources of gas supply for the business, if AGL does not
develop its own gas, and the risks (and upsides) of buying gas versus producing
its own gas.
o The management distraction from the Upstream Gas Business.
o The writedown of assets if development is not pursued.
o The ongoing environmental and social risks associated with coal seam gas.
The economics of Gloucester
■ $6/GJ gas price needed: We estimate that the Gloucester project requires a gas
price of $6/GJ in order to achieve the required rate of rate for AGL (assumed at 10%).
Given our long-term gas price forecast of $7/GJ for AGL, we estimate an IRR of 12.7%
and an NPV of $160mn. AGL still carries the Gloucester and other NSW gas assets on
its books at $350mn, so we do not rule out further writedowns, even if the assets are
developed.
■ Capex estimates at a discount to Qld: We estimate capex of $600mn to develop
Gloucester Stage 1, with 110 wells and 25PJa production. We estimate upfront capex
of $1.20/GJ which is ~20% lower than that observed from the upstream CSG projects
in Queensland. This reflects a lower cost for the pipeline tie-in due to the proximity to
the Sydney-Newcastle pipeline; and assumes a fall in contracting costs from peaks
driven by the development of three concurrent upstream projects in Queensland.
■ Opex in line with Qld projects: We estimate ongoing opex at $1.50/GJ, in line with
Qld CSG projects.
■ We include only $100mn net value for Gloucester in our AGL valuation, which is
50% of our estimated NPV of the developed project.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 4
What are the risks to the AGL brand?
■ AGL has a strong retail brand. AGL has been around for over 175 years, resulting in
a brand that is strong. The intangibles (mostly the value of the retail customer base) sit
on AGL's balance sheet at $3.2bn versus the residual carrying value of NSW gas at
~$350mn. We value the 3.75 mn customer base at $1380/customer versus the
$870mn carrying value. We understand AGL is acutely aware of the potential for bad
practices and community opposition to coal seam gas to impact on its retail brand and
has been monitoring any potential brand impact.
Figure 2: AGL asset base – customer base valued at $3.249bn
Source: Company data
■ GetUp! campaigns: GetUp!, Australia's largest grassroots activist group with 885,000
members, has been running a campaign in Victoria against the three major energy
retailers, AGL, ORG and Energy Australia (EA – owned by CLP in Hong Kong). The
campaign has focussed on the major retailers' lack of support for renewable energy
and their investment in coal fired generation. The campaign has encouraged people to
switch retailer to Powershop, a subsidiary of MEL.NZ (Meridian Energy, from New
Zealand), which has a discounted online retail offering backed by wind energy. So far
GetUp! has reported that of 120,000 targeted consumers, 6,000 have switched, a 5%
conversion rate. We found that conversion rate is quite low, given the constituency
base of GetUp! members and the savings on offer.
■ GetUp! has flagged that the campaign will move to NSW: GetUp! has a national
campaign against both coal seam gas (CSG) and coal mining. The GetUp! campaign
to stop CSG in the Great Artesian Basin has over 110,000 signatures. The campaign
to stop AGL fracking at Gloucester has over 30,000 signatures (refer Figure 4) and
rated as the fourth highest priority issue of GetUp! members (refer Figure 6). GetUp!
has indicated that it will move its campaign against the three major energy retailers to
NSW.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 5
Figure 3: GetUp! Campaign signatures Figure 4: GetUp! 2014 survey
-
50,000
100,000
150,000
200,000
250,000
300,000
GetUp! Campaign Signatures
Signatures
60%
65%
70%
75%
80%
85%
90%
95%
0%
5%
10%
15%
20%
25%
30%
Overall rank (LHS)
High priority (RHS)
Source: GetUp!, Credit Suisse Source: GetUp!, Credit Suisse
Figure 5: GetUp! Community campaign 2015
Source: Getup!
■ Max impact estimated at ~$100mn to AGL's Retail brand: At this stage we do not
believe the GetUp! campaign against coal seam gas and the major retailers will have
any substantial impact on AGL's customer numbers. Only 5% of the estimated
120,000 GetUp! member base in Victoria chose to switch energy retailers. If the
30,000 signatories to stop AGL fracking at Gloucester is an indication of the success
of a campaign in NSW, then we estimate the loss of a maximum of 30,000 dual fuel
retail customers at ~$100mn. This does not assume any loss of wholesale margin for
electricity but the loss of gas wholesale margin of ~$600/customer plus the loss of
$1380/customer value for 30,000 electricity customers and 30,000 gas customers. We
believe this is a worst case scenario.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 6
Figure 6: GetUp! Campaign against major energy retailers Figure 7: GetUp! Campaign against coal seam gas
Source: GetUp! Source: GetUp!
Is this a big issue yet for AGL's brand?
■ Google search trends suggest that CSG issue has little momentum, peaked in
2011: Figure 8 and Figure 9 show that the number of people searching for "coal seam
gas" via google peaked in 2011 at the time of the NSW inquiry into CSG. Search for
"Fracking" appears to increase on a national level possibly becoming part of the
lexicon, however this trend is not seen in NSW where our attention is focused.
■ No evidence that concern about gas prices is increasing: We hypothesise that a
public that is increasingly concerned about gas prices is less likely to support a cause
which constrains supply. The interest in "gas price" has not increased over the last 24
months despite regulated increases from IPART.
■ "Coal seam gas" not significant in context of AGL brand: We compare the number
of searches related to CSG versus the number of searches for "AGL" in Figure 9. We
see that CSG does not capture much attention when compared to the AGL brand
either nationally or in NSW.
Figure 8: Google trends nationwide for coal seam gas etc Figure 9: Google trends in NSW for coal seam gas etc
Source: Google, Credit Suisse Source: Google, Credit Suisse
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 7
Figure 10: Google trends nationwide for AGL etc Figure 11: Google trends in NSW for AGL etc
Source: Google trends, Credit Suisse Source: Google trends, Credit Suisse
AGL has alternatives for gas supply
■ Known gas supply cliff: AGL has not hidden the fact that they need additional gas
supply post 2017 when their existing contract with the Gippsland Basin JV expires
(refer Figure 13). They have also published papers –such as Solving for X – which
predict gas shortfalls in the winter of 2016 and 2017 in NSW due to the lack of
indigenous gas supply and the redirection of the Cooper Basin gas to LNG export.
■ Facing potential opportunity cost rather than supply shortfall risk: Despite the
fall in contracted supply, AGL still does have ~100PJa of contracted supply beyond
2017. This is enough to supply its entire retail load of ~60PJa plus half of its
commercial load of 80PJa. The risk to AGL is not that it won't be able to secure
sufficient gas to supply customers; the risk is solely that it may be forced to use its
high opportunity cost Queensland supply to do so. We assume a price arbitrage will
exist between buying Victorian gas cheaper and selling contracted Queensland gas at
higher prices, post 2017, and factor in 15PJa at $3.50 margin for FY18 – FY21, with a
step down commensurate with contractual step-downs. Currently AGL is unable to
execute on this strategy until it contracts sufficient Victorian gas.
■ Un-contracted supply exists, we expect deal to be done in next 6-12 months: The
Gippsland Basin JV is yet to commit the 200PJa of supply contracts with EA and AGL
that roll off in 2017. We believe that AGL is seeking to finalise a new contract within the
next 6 to 12 months to give certainty on this issue and allow sufficient time for further
expansion of gas pipeline capacity between Victoria and NSW.
Figure 12: AGL's surplus gas being sold in Queensland Figure 13: AGL's gas shortfall
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 8
■ Take equity gas and let someone skilled operate gas fields: AGL also has had the
option in the past to be an upstream gas field participant but as a non-operator,
leaving the more risky and skilled role of operator to those with a long history of
success. AGL did not have that long history of successfully operating upstream gas
businesses, let alone taking a field from exploration into production. This option to get
equity gas through non-operatorship is still a reasonable risk mitigation strategy
available to AGL.
Some recent controversies at AGL
■ Gloucester CSG project currently suspended due to potential contamination
concerns: AGL's Gloucester CSG project has faced several challenges to date.
Recently it suspended pilot production following the detection of traces of BTEX in
samples of flowback water. BTEX stands for benzene, toluene, ethyl benzene and
xylenes, which are carcinogenic and potentially harmful to the central nervous system.
It is not yet known the cause of the BTEX chemicals traces and we suspect it will not
be known for some time. AGL has stated that it does not use BTEX substances in the
fraccing fluid though it is argued that hydraulic fracturing can potentially release
naturally occurring BTEX chemicals. Concerns from local residents and environmental
organizations over the potential health impacts for those living near CSG operations is
one of the main reasons driving resistance to CSG in NSW.
■ Slow to report has drawn criticism from the regulator: AGL detected the elevated
BTEX levels on 15 January 2015, though did not notify the EPA until 27 January. In its
own words, the EPA said that it was "very concerned" about the "lack of timeliness
and transparency" from AGL. The timing in an election year for NSW could not have
helped AGL.
■ Concerns about the disclosure: We understand from several local Gloucester
residents that Mike Moraza, former head of the AGL Upstream Gas business,
attended a community forum in Gloucester in the period between 15 January and 27
January without disclosing the elevated BTEX levels. For local residents concerned
that AGL's community forums were not true forums, this was the final straw. The
Gloucester Council has since voted to expel AGL from its Gloucester dialogues
community discussions process.
■ Complex geology may add to issues: In our original 2014 note on AGL's Gloucester
assets, we highlighted the complex geology in play in this valley (refer Figure 14). This
may predispose it to releases of naturally occurring BTEX when fraccing is
undertaken, meaning the geology may be unsuited to CSG production.
■ Flowback water: AGL is also making an application to change its management of
flowback water from the Waukivory Project. Arrangements with several companies to
take AGL flow back water for disposal have fallen through, including with TPI and
Worth Recycling at Windsor.
■ Ground water fluctuations: Separately, AGL's groundwater monitoring has found
large fluctuations in ground water levels. AGL has stated that the fluctuations are not
caused by aquifer interconnectivity. The NSW EPA is conducting an investigation.
However this news is likely to raise concerns that the project could impact the quantity
and quality of groundwater available to agricultural users.
■ Controversial assets risks customer loss: We have published several reports in
2014 about the environmental and social challenges facing AGL (AGL: Goings on at
Gloucester and AGL: What about the vocal minority?). AGL is the only gas and
electricity retailer with NSW CSG operations, which to date, have been more
controversial than CSG in Queensland.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 9
■ Handing back some acreage: AGL has announced that it has sold back to the NSW
Government its PEL5 exploration lease which ran from Wyong to Morisset on the
Central Coast of NSW. This lease covered 398 square km of land around built up
communities. We note that acreage was due for renewal. AGL also has PEL2
(6,694km) at Camden and PEL267 (4,906) due for renewal in the Hunter (refer Figure
15 and Figure 16). Community groups are calling for parts of PEL2 on the Central
Coast to be cancelled. Other licences, not held by AGL, in the Northern Rivers have
been handed back to Government. AGL's PEL 285 over the Gloucester area was
renewed in 2014 for six years.
Figure 14: Gloucester geological Cross Section
Source: ParsonsBrinckerhoff, AGL
Figure 15: AGL's acreage at 1H15.
Source: AGL, Credit Suisse estimates r – due for renewal
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 10
Figure 16: AGL's permits in NSW
Source: NSW Department of Trade & Investment, Resources and Energy
Ongoing environmental and social risks of coal seam
gas
■ The everyday risks and the black swan events. A different business always
introduces a different set of risks. For upstream gas operations, we have seen the
environmental and social risks that have applied to other operators. Examples include
the asbestos in drilling fluids issue that ORG faced, highlighting the extreme
challenges that companies have in managing their supply chain. This incident stopped
drilling activities for 6 days, but could have been more serious had ORG not had
strong systems and processes in place to report the incident immediately and give
confidence to communities, staff and regulators that the company was dealing with the
issue appropriately. An example of a current issue for AGL is that it has no
arrangements for disposal of flowback water from its Waukivory pilot at Gloucester.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 11
■ Further green tape costs?: The NSW's Government's Select Committee on the
Supply and Cost of Liquid Fuels in NSW reported in February 2015 Amongst its
conclusions :
o The Committee did not accept the argument that progressing the state's CSG
industry, by itself, would lead to any meaningful reduction in the domestic gas
price.
o The Committee recommended that the NSW Government fully implement the
Chief Scientist and Engineer's Final Report of the Independent Review of Coal
Seam Gas Activities in NSW (Sep 214) before any expansion of the CSG industry
in NSW is contemplated (refer Figure 17).
o The Committee advocates an Australian wide domestic gas reservation policy, as
well as formalisation of the commitments of STO and AGL to only use their
Gloucester and Narrabri gas to supply NSW customers.
Figure 17: Chief Scientist's recommendations
Source: Select Committee on the Supply and Cost of Liquid Fuels in NSW 2015
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 12
Management distraction
■ It's the Retail Business…: AGL's primary focus is a Retail and Wholesale energy
business. Upstream Gas is quite a different beast. Very few businesses have
successfully combined both u100pstream gas and energy retailing. ORG has both
businesses, but in the past there had been the view that the early focus on APLNG
might have distracted ORG from its Retail brand, contributing to customer losses in
2011-13.
■ What else could go wrong? We think management distraction is also driven by
ongoing environmental and social risks. We have covered some of those risks in the
above section. For us, the key thing is that the CEO can be more objective about the
business.
The writedown/Valuation
■ Impact on valuation: Our DCF valuation of a development at Gloucester is $160mn,
but we include only $100mn in our valuation due to the environmental, social and
financial uncertainties. Versus book value of $347.5mn, this represents 2.2%
downside for ESG in developing Gloucester CSG.
■ Market unlikely to see an exit as negative: Judging by the lack of concern over a
further 12-month delay announced at the 1H15 results, we do not believe that the
market is attributing a high probability of success for this project. Hence we feel that
any decision to exit the project at a loss would not be a negative for the share price
and may even be viewed favourably if it signalled a clearer direction.
Figure 18: AGL sum-of-the-parts valuation AGL Energy SOTP Valuation Metric EV / Metric
A$mn $ps FY15F FY16F FY15F FY16F
Retail 5,148 7.52 404.5 431.4 12.7x 11.9x 3,780 cust 1,362/cust
Merchant 10,900 15.93 1,276.1 1,533.1 8.5x 7.1x 10017 MW 10,888.6
Total Energy Markets 16,048 23.45 1,681 1,965 9.5x 8.2x 3,780 4,245/cust
Investments* 521 0.76 24.2 40.4 21.6x 12.9x
Upstream gas - production 331 0.48 4.2 15.4 78.9x 21.5x 191 PJ 1.74/GJ
Upstream gas - non-productive 656 0.96 (3.2) 0.1 -203.7x 5,502.2x 3,336 PJ 0.20/GJ
Corporate overhead -2,270 -3.32 (197.9) (202.8) 11.5x 11.2x
Other / working capital growth -242 -0.35 -31.7 -75.0 7.6x 3.2x
Asset valuation 15,043 21.98 1,476.1 1,742.5 10.2x 8.6x
Tax benefit 326 0.48 93.8 109.6 na na
AGK Enterprise value 15,368 22.45 1,569.9 1,852.1 9.8x 8.3x
AGK Net Debt 3,251 4.75
AGK Equity value 12,117 17.70
Less: Moranbah upside (Expl) 555 0.81
Target price 11,562 16.90
EBITDA EV / EBITDA
ESG value impact: 2.2%. We have excluded upside from Gloucester CSG
and removed a prie on carbon post the repeal of the carbon tax legislation
from 1 July 2014 Source: Company data, Credit Suisse estimates
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 13
Reference Appendix
Our new “Total return forecast in perspective” chart helps visualize Credit Suisse and consensus views of a company’s 12-month return within the context of forecasting risks and its historical trading pattern:
12mth Volatility is calculated as the annualised standard deviation of weekly total return series over the past 12 months. It illustrates variability of stock returns; in other words, risk. The way to think about it is that one would rather take 10% forecast return from a stock that has 20% volatility, than from the stock that has 40% volatility. The shaded area shows the one standard deviation range based on past 12 months volatility. In statistical terms, once you make a number of brave assumptions, there is a 68% probability that the share price will end up inside that range in 12 months’ time.
52wk Hi-Lo is maximum and minimum daily closing price over the past 52 weeks. It is often handy to know the price momentum especially when the stock is trading close to its highs and lows: Is the stock trading close to its peak? Is the momentum against the stock?
*Consensus is IBES consensus supplied by Thomson Reuters. IBES is a survey of sell side research analysts, collecting a few dozen data points such as EPS, DPS, Sales, Target Price, ROE and so on. *Mean is the average of target returns, while the shaded area around the mean represents the range of estimates from the lowest to the highest estimate. This aids visualisation of a number of important factors such as: the range of analyst estimates; where Credit Suisse’s estimates on this stock sit relative to consensus; and where the share price is relative to consensus mean and consensus range target.
Target return is calculated as capital gain plus forecast dividend yield (net) over the next 12 months. For "CS tgt" we have used Credit Suisse’s target price and Credit Suisse forecast for 12-month forward dividend, grossed up for franking. For the consensus mean and range, we have used consensus target price and consensus dividend forecasts for 12 month forward.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 14
Companies Mentioned (Price as of 19-Mar-2015)
AGL Energy (AGL.AX, A$14.64, OUTPERFORM, TP A$16.9) CLP Holdings Limited (0002.HK, HK$66.15) Meridian Energy (MELCA.NZ, NZ$2.075) ^ Origin Energy (ORG.AX, A$11.6) Santos Ltd (STO.AX, A$7.15) Transpacific Industries Group (TPI.AX, A$0.78) * * CSEC Coverage ^ FNZC Coverage
Disclosure Appendix
Important Global Disclosures
I, Peter Wilson, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for AGL Energy (AGL.AX)
AGL.AX Closing Price Target Price
Date (A$) (A$) Rating
13-Apr-12 13.78 13.91 N
24-May-12 13.85 15.24
03-Jul-12 14.07 *
13-Jul-12 14.37 15.24 N
22-Aug-12 15.03 15.91
04-Oct-12 14.47 15.04
19-Oct-12 14.39 15.43
27-Feb-13 15.21 15.81
02-May-13 14.47 15.24
05-Jun-13 13.76 14.76
09-Jul-13 14.13 14.76 *
28-Aug-13 14.45 15.14
26-Feb-14 15.28 14.85 U
25-Jun-14 14.55 15.14 N *
17-Jul-14 14.29 14.95
19-Aug-14 14.07 14.70 *
22-Oct-14 13.71 15.60 O
11-Feb-15 15.08 16.90
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
U N D ERPERFO RM
O U T PERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 15
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (53% banking clients)
Neutral/Hold* 38% (50% banking clients)
Underperform/Sell* 16% (43% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for AGL Energy (AGL.AX)
Method: We have a DCF based valuation (unrisked) of $17.70 and a 12-month target price of $16.90 for AGL Energy. Our DCF employs a weighted average cost of capital (WACC) of 9.28%. In setting our target price, we remove upside potential from AGK's Bowen basin upstream gas assets as we don't expect the market to pay for these assets given the difficulties in monetising these assets.
Risk: The risks to our A$16.90 target price for AGL Energy include: loss of retail customer market share, wholesale electricity costs, lower cost savings, lower returns on generation assets, and failure to realise wind farm development fees.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse has a material conflict of interest with the subject company (AGL.AX) . Peter Wilson has approx. A$1,000 worth of AGL shares as part of an employee share purchase plan. They won’t become unrestricted for 3 years.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (AGL.AX) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 16
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Equities (Australia) Limited ..................................................................................... Peter Wilson ; Sandra McCullagh ; Chris Parks
Credit Suisse Emerging Companies (Australia) Pty Limited ("CSEC") is the research report provider in relation to this report. Credit Suisse has disclosed its conflicts of interest also in this report as Credit Suisse is a material shareholder in CSEC; the distributor of this research; and has re-branded this document. Despite the foregoing, Credit Suisse is not liable or responsible for the content of this research report and provides it as distributor for informational purposes only
Credit Suisse Emerging Companies (Australia) Pty Limited ("CSEC") is an incorporated joint venture entered into between Credit Suisse and First NZ Capital. Pursuant to this arrangement, Credit Suisse makes available to its clients certain research produced by CSEC. CSEC is not an affiliate or related body corporate of Credit Suisse. Credit Suisse is not liable or responsible for the content of such research and provides such research as its distributor for informational purposes only
CSEAL Analysts involved in the preparation of this report may be co-located with Credit Suisse Emerging Companies (CSEC) analysts.
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
19 March 2015
AGL Energy
(AGL.AX / AGL AU) 17
References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This information is being distributed by Credit Suisse AG, Dubai Branch, duly licensed and regulated by the Dubai Financial Services Authority (DFSA), and is directed at Professional Clients or Market Counterparties only, as defined by the DFSA. The financial products or financial services to which the information relates will only be made available to a client who meets the regulatory criteria to be a Professional Client or Market Counterparty only, as defined by the DFSA, and is not intended for any other person. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright © 2015 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
