established: 1994, ASX code: ADB, homepage: www.adelaidebank.com.au

Overview:
With only 25 branches across Australia, Adelaide Bank is one the smallest and youngest Australian banks formed only about 13 years ago. Its 2007 income seem to be evenly spread across various banking categories - business lending and wealth management were each responsible for 26% of the total profits, retail banking contributed by further 25% and the remaining 23% was made on wholesale mortgages.

Analysis of 2007 financial results:

• Market Cap: Depending on the daily stock price the market cap of this company, the total market capitalization is around $1.7 billion over 108 million shares on issue
• Shareholders Equity: $651 million making the stock’s book value approx. $6.03 per share (1.25% growth on FY2006)
• Earnings per share: $0.93 making the average EPS growth in last 3 years about 13.6%
• Return on Equity: 15.4%, averaging about 14.2%pa in last 3 years
• Return on total Assets: 0.32%, averaging about 0.4%pa in last 3 years
• Balance Sheet: Total assets $31.4 billion versus total liabilities of $30.5 billion (TA/TL ratio of 1.03)

Sharemaket’s valuation:
Average ADB’s Price to Earnings ratio of 14 suggests the share price around $13 ($0.93 EPS x 14 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 8.5%
• Share price in 10 years time: about $29.3 (EPS in year 10 based on fore casted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $39.45 (share price of $29.30 plus $10.15 of the 10 years worth of dividends if the current payout ratio of 68% persists)
• Rate of Return in next 10 years based on mid November 2007 price of $14.50 per share: 10.5%

Pros and cons:
+++ Well established stable banking institution
+++ Good ROE
— Total assets vs. total liabilities ratio uncomfortably
— Rather low and still decreasing returns on total managed assets

Note: Upcoming merger with Bendigo Bank in the current time of credit markets instability may bring some new and unknown risks into this long established business.

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established: 1861, ASX code: ASX, homepage: www.asx.com.au

Overview
ASX Limited was established as separate state based exchanges in 1861. Today it is the primary securities exchange in Australia and one of the world’s top 10 listed exchange groups by market capitalization. In 2006 it expanded its reach by a merger with Sydney Future Exchange (SFE) and changed its name from Australian Stock Exchange to Australian Securities Exchange.

Analysis of 2007 financial results:

• Market Cap: Depending on the daily stock price the total market capitalization is around $9.5 billion over 170 million shares on issue
• Shareholders Equity: $2.8 billion making the stock’s book value approx. $16.2 per share (365% growth on FY2006, largely affected by an the Sydney Future Exchange merger)
• Earnings per share: $1.72 making the average EPS growth in last 3 years about 29%
• Return on Equity: 10.6%, averaging around 28.7%pa in last 3 years
• Balance Sheet: Working capital of $369.9 million (ie. $2.18 per share) and no debt

Sharemaket’s valuation:
Average ASX’s Price to Earnings ratio of 21.5 suggests the share price around $37 ($1.72 EPS x 21.5 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 15%
• Share price in 10 years time: about $149 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $183 (share price of $149 plus about $34 of the 10 years worth of dividends if the current payout ratio of 85% persists)
• Rate of Return in next 10 years based on the mid November 2007 price of $55 per share: 13%pa

Pros and cons:
+++ Established leader with effective monopoly on trading in Australia
+++ Strong ROE and EPS growth
+++ Strong balance sheet with no debt
— Popular issue constantly trading on higher P/Es => little margin of safety at prevailing stock price

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established: 2001 by merger of BHP (est. 1885) and Billiton (est. 1860), ASX code: BHP, homepage: www.bhpbilliton.com

Overview
BHP Billiton is one of the world’s largest resources and commodities giants operating across 25 countries and employing in excess of thirty thousand people. It is a market leader or major player in number of commodity markets such as uranium, coal, copper, manganese, iron ore and many more.

Analysis of 2007 financial results:

• Market Cap: Depending on the daily stock price of this company the total market capitalization is around $250 billion over 5,783 million shares on issue
• Shareholders Equity: $34.96billion making the stock’s book value approx. $6.04 per share (11.3% growth on FY2006)
• Earnings per share: $2.73 making the average EPS growth in last 3 years about 20%
• Return on Equity: 45.2%, averaging around 40.1%pa in last 3 years
• Balance Sheet: Working capital of $987.4 million versus total debt of $13.8 billion

Sharemaket’s valuation:
Average BHP’s Price to Earnings ratio of 15 suggests the share price around $41 ($2.73 EPS x 15 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 13%
• Share price in 10 years time: about $139 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $150 (share price of $139 plus $11 of the 10 years worth of dividends if the current payout ratio of 20% persists)
• Rate of Return in next 10 years based on beginning of November 2007 price of $45 per share: 12.8%pa

Pros and cons:
+++ Established market leader in large number of profitable markets
+++ Extraordinary ROE and EPS growth not only in currently prevailing booming market conditions, but also if averaged long term
+++ Reasonably strong balance sheet (entire debt could be paid off by one year’s profits if necessary)
— Stability in earnings could be somehow affected by high exposure to weak US currency

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