Portfolio Changes - Buy ORI, AZJ, VCX

Changes to both Australian Equities Income Portfolio & Blended Australian Equities Portfolio

We have recently added Aurizon (AZJ) and Orica (ORI) to the portfolio—two industrial

businesses with distinct exposures but a shared focus on capital discipline, shareholder aligned frameworks, and undemanding valuations. Both have shifted toward prioritising

returns on capital, supported by conservative balance sheets and active capital return

programs through buybacks and dividends.

Each business operates in asset-intensive sectors where operating leverage, capital efficiency, and disciplined reinvestment are key to long-term value creation. Trading at 10–15% discounts to their historical valuation ranges, both offer compelling entry points into essential service providers leveraged to production and infrastructure activity rather than commodity price cycles. With clearer capital frameworks and improving earnings quality, we see scope for valuation recovery as their repositioning continues.

Orica Limited (ORI)

Orica (ORI) is a global provider of commercial explosives and mining services, operating

across more than 100 countries and supporting over 400 mine sites. It’s vertically integrated platform spans Blasting Systems, Specialty Mining Chemicals, and Digital Solutions. FY24 EBIT rose 15% to $806 million, driven by contract repricing and product mix upgrades.

While Blasting remains the primary earnings driver (>90% of group EBIT), management is

actively shifting the earnings base toward higher-margin, recurring revenue segments which

now contribute 16% of EBIT.

The company’s operations are underpinned by a global manufacturing and distribution network capable of delivering hazardous materials into complex jurisdictions at scale.

Product platforms such as WebGen™ and RHINO™ are embedded within mine planning and

operational systems, supporting pricing differentiation and customer retention. Over 50% of revenue is now tied to energy transition commodities, including copper, gold, and lithium,

while the portfolio is increasingly aligned with regulatory priorities around safety and

decarbonisation.

In March 2025, Orica formalised a capital framework anchored in WACC-based investment

hurdles, a 1.25x–2.0x leverage range, and a $400 million on-market buyback. WACC-based

investment hurdles, and a $400 million on-market buyback. Gearing remains conservative at 26.2%, with interest cover of 5.1x. The dividend payout ratio of 56% is within policy, and

Return on Assets (RONA) targets have been raised to 13–15%, reflecting greater focus on

capital efficiency.

At 15.7x forward earnings and 6.6x EV/EBITDA—both trading 11-12% below five-year averages—valuation does not fully reflect the company's reshaped earnings base and strengthened capital position. Continued execution across digital and chemical adjacencies,

coupled with improved capital discipline, provides a constructive foundation for longer-term

returns.

Aurizon Holdings (AZJ)

Aurizon is Australia’s largest rail freight operator, with integrated exposure to haulage (Coal, Bulk) and regulated infrastructure (Network). The Network segment, underpinned by the $6.1bn Central Queensland Coal Network (CQCN), contributes 61% of EBITDA and operates under a regulated model with WACC reset to 8.51%, offering stable, inflation-linked returns.

In 1H25, Network delivered $495m EBITDA at a 67.3% margin, supported by 3% volume growth and lower energy costs. The Coal division remains cash-generative despite yield pressure, while Bulk underperformed due to derailments, weak grain volumes, and elevated credit provisions.

Aurizon has pivoted towards capital returns, completing 92% of its $250m buyback

and maintaining an 80% dividend payout ratio, supported by reduced capex and

stable cash flow from contracted and regulated earnings. A capital structure and

Network ownership review is underway, raising optionality for asset realisation.

Aurizon trades at a 12x forward P/E (12% below 4-year avg) and 6.1x EV/EBITDA

(15% below 5-year avg), underpinned by a resilient infrastructure core and a growing

capital return profile. It offers a compelling yield-oriented value proposition, with

potential upside from structural simplification or rerating of its Network business.

We have also initiated a position in Vicinity REITs (VCX)

Vicinity Centres (VCX) owns a $15.1bn retail portfolio anchored by Chadstone,

DFOs, and CBD centres, generating $464m in NPI in 1H25 with 99.4% occupancy

and 4.8% rent escalators. Specialty productivity sits at $12,907/sqm with a low

14.1% OCR, supporting +3.5% leasing spreads and rental growth visibility.

Premium assets now comprise 64% of the portfolio, where leasing spreads reached

6.7% and MAT/sqm exceeded $15,900. These centres benefit from strong footfall,

resilient luxury and omni-channel demand, and constrained competition due to

planning restrictions and minimal new retail supply—driving tenant consolidation into

dominant locations.

Over $1.0bn of non-core asset divestments have been recycled into premium

acquisitions, including Chatswood Chase and Lakeside Joondalup, further

concentrating portfolio quality.

With gearing at 26.4%, 85% of debt hedged, and $1.4bn in liquidity, the balance sheet is sound. Trading at 0.85x NTA ($2.35) and yielding 5.44%, VCX offers exposure to high-barrier assets with embedded reversion, income resilience, and structural tailwinds.