For your interest, attached is my monthly 'Over the Horizon' share market commentary for March 2014.

1. March 2014 — ‘Over the Horizon’ Market Commentary by David Offer
Following a strong February, March was a subdued month for the Australian share market, with the All Ordinaries Index
down 12 points to close at 5,402. For the quarter, our market returned a modest 0.9% and, at the three quarter mark of the
financial year, is presently up 13.1%. Including dividends, our share market has returned 0.25% for March, 2.2% for the
March quarter and an impressive 17.5% for the financial year to date.
Despite headlines that relate to mass job layoffs, there are broader economic indicators that suggest Australia is doing a
reasonable job transitioning away from the mining boom. This is supported by last weeks’ stronger February employment
numbers that showed a falling unemployment rate from 6% to 5.8%.
While one month of falling data cannot be viewed as a trend, it does suggest some stabilisation in the unemployment
rate. The national result was more impressive when considering that WA’s unemployment rate spiked from 5.2% to 5.9% in
February. This could suggest that the Eastern States economies are broadly improving while the Western Australian
economy is struggling at the current time.
Supported by record low interest rates, the housing constructing industry is doing its share of the heavy lifting to lower the
national unemployment rate and reposition our economy away from the mining sector as evidenced by the following charts
published by the Australian Bureau of Statistics for building approvals to February 2014.
Supported by property values rising by 13.2% since June 2012, which was when the current growth cycle commenced,
dwelling approvals are up 34.6% over the year. On average, across Australia, capital city property prices are now 4.8%
higher than their previous peak in October 2010.

2. As property prices have risen and home owners have felt wealthier, the benefits have fanned out further into the economy
as consumer confidence has gradually improved. A key beneficiary is the retail sector, with sales having now increased for
10 straight months, albeit off a very low base.
Also worth mentioning within our broader economic recovery is Australia’s long suffering tourism sector. Tourists to
Australia increased with the main growth segment being an influx of nearly three quarters of a million Chinese tourists, up
16.7% on the prior year.
With momentum building across the broader economy, the likelihood of further interest rate cuts is extremely low. To do so,
or even maintain rates at these levels for an extended period of time, runs the risk of creating a boom bust scenario in areas
such as Australia’s property market. While difficult to see from Western Australia, NSW’s property market is currently more
than a little warm.
That our economy is doing better than otherwise expected has resulted in the Australian Dollar proving to be stubbornly
resilient and, at the time of writing, is just shy of 94 cents. While we still expect our currency to fall against key currencies as
other countries raise internal interest rates from GFC emergency lows, this is taking longer than expected. For example, the
US Federal Reserve is indicating that interest rate rises may not commence in America until the second half of 2015, with a
current expectation of an interest rate rise of 1% in December 2015, up from the current interest rate level of 0.25%. The
extent of the current Central Bank emergency interest rate settings in the US, Euro area and Japan is starkly illustrated in
the following chart of 10 year central bank interest rate levels.
While the above economic news should be perceived as being good for the outlook for the Australian share market, we
suspect that the low interest rate settings applied last year have had a greater influence on maintaining a strong share
market. So despite this positive economic news and solid interim reporting season, the Australian share market has largely
flat-lined since last October. However, as mentioned last month, this positive news arguably increases the fair value of our
share market and we would become motivated buyers should our market pull back 5% to around 5,100.
Away from the top end of the market, there are some interesting company specific situations developing. Metcash and
Coca-Cola Amatil are two recognised names that have recently made disappointing company announcements that, post
large share price falls, have arguably moved their share prices into buying territory. While profits in both companies are
expected to fall between 10% and 15%, both companies have fallen by around a third in value over the last 12
months. Metcash is about to implement a transformational plan that appears relatively low risk and, if successful, should
return the company to profit growth in 2016. Coca-Cola Amatil, under new ex Graincorp CEO Alison Watkins, has
announced a strategic review to provide a framework to return the company to long term growth. Both companies should
still be able to continue to pay reasonable dividends going forward as they implement significant internal changes that will
hopefully reward patient long-term investors.

3. Myer Holdings has recently been sold down due to concerns the company would make a takeover offer for David
Jones. However, South African retailer Woolworths has acted first, making a $4 cash offer that values David Jones at
$2.15 billion. With Myer’s market value at $1.3 billion, any thoughts of Myer making a takeover offer should now be
dashed. At current prices, Myer is on an undemanding price earnings (PE) ratio of 11 times and grossed up historical
dividend yield of 11%. With the retail environment gradually improving, Myer should be able to at least modestly grow
profits going forward, so at current prices we believe the company represents an attractive 12 month trade. Should the
shares recover back to their average 12 month price of $2.65, coupled with dividends, this would represent at 30% return.
Transport companies are usually strong beneficiaries of an improving economy and Toll Holdings offers that
exposure. With an expected grossed up yield of 8.5%, investors can afford to be patient. Likewise, Asciano, with its
extensive rail and port assets should offer long-term share price appreciation and, as an infrastructure company, appears
more attractively priced than many of its peers.
While Southern Cross Media is a company that has some company specific issues at the current time due to a change in
presenters impacting its morning radio program ratings and affiliation with the struggling television network Ten, as a media
company, it is leveraged to a broader economic recovery. At current pricing, it is on an undemanding PE ratio of 10 times
and grossed up dividend yield of 9.5%.
Finally, to support the saying ‘every dog has its day’ and to offer hope to Alumina’s long suffering shareholders, there has
been recent commentary by Alcoa management suggesting that aluminium demand will exceed production this year, ending
an almost decade-long surplus driven by Chinese output that has saddled the industry with lower prices. The result has
been a recent recovery in the aluminium price and should this continue, will be very beneficial for Alumina as the company
stands to make a rapid recovery in profits and resume paying dividends.
While none of the above companies represent core portfolio holdings, the inclusion of some of the above shares within
portfolios could assist in generating increased portfolio yield and longer term capital appreciation that is ahead of the
broader market.
Should you wish to discuss any of the above, please do not hesitate to contact our office. We would welcome your call.
Sincerely
David Offer
AUTHORISED REPRESENTATIVE 259188
Director
HORIZON INVESTMENT SOLUTIONS PTY LTD
SUITE 1, POST OFFICE PLAZA, 153 VICTORIA STREET, BUNBURY WA 6230
T. 08 9791 9188 F. 08 9791 9187
E.david.offer@horizonis.com.au www.horizoninvestmentsolutions.com.au
Horizon Investment Solutions Pty Ltd, ACN 083 142 438, ABN 79 668 035 212, AFSL 405897
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