Southern Cross Earnings: Still Work to Do on Costs, but Value Remains

We cut our fair value estimate for Southern Cross by 17% to AUD 1.00 per share. Our intrinsic assessment no longer factors in any potential corporate interest in the group, after the fiasco beginning late last year involving a cast of thousands that all came to naught. More importantly, we downgrade our intrinsic assessment of Southern Cross as a standalone entity with lower-than-expected progress on costs. We are no longer optimistic about a margin recovery.