SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

SILVER BULLETS 

Q 3 2010

EUROPEAN EQUITY CONTACTS 

Aerospace & Defence 

Edward Stacey +44 20 7456 9135 

Banks 

Fiona Swaffield +44 20 7456 1693 

Alan Broughton +44 20 3364 6761 

Anke Reingen +44 20 7456 1653 

Joseph Dickerson +44 20 7426 4228 

Robert Noble 

Capital Goods 

+44 20 3364 6752 

Nick Paton +44 20 7456 1190 

Rob Virdee 

Food & Beverages 

+44 20 7426 4222 

James Edwardes Jones +44 20 7456 1697 

Martin Dolan +44 20 7456 1674 

Ved Vyas 

Diversified Financials 

+44 20 7426 4262 

Nitin Arora 

General Insurance 

+44 20 3364 6786 

Joy Ferneyhough +44 20 7456 1670 

Santosh Singh 

Healthcare 

+91 22 4211 0999 

Stefan Hamill +44 20 3364 6768 

Chirag Talati 

Leisure 

+44 20 3364 6769 

Alistair Macdonald +44 20 7456 9126 

Geetanjali Sharma 

Media 

+44 20 3364 6774 

Giasone Salati +44 20 7456 1163 

Mark Evans 

Real Estate 

+44 20 3364 6753 

Michael Burt +44 20 3364 6784 

Retail 

Caroline Gulliver +44 20 7456 9173 

Richard Cathcart +44 20 7456 9155 

Rob Evans +44 20 7426 4210 

Sanjay Vidyarthi 

Support Services 

+44 20 3364 6788 

David Brockton 

Technology 

+44 20 3364 6780 

Arun George +44 20 3364 6783 

Vijay Anand 

Telecommunications 

+44 20 3364 6775 

Will Draper +44 20 7456 1694 

Andrew Hogley +44 20 7456 1652 

Nick Brown 

Utilities 

+44 20 7456 1669 

Lawson Steele +44 20 3364 6771 

Andrew Fisher +44 20 3364 6773 

Lucas Ocelewicsz +44 20 3364 6772 

Sales 

Dipesh Patel +44 20 7456 1675 

Austin Quick +44 20 7456 1160 

Catherine Pitcher +44 20 7456 9134 

Chris Wilson +44 20 7456 1685 

Derek Buckley +44 20 7456 1149 

Duncan Haward +44 20 7456 1148 

Iain Whiteley +44 20 7456 1651 

James Goldstone +44 20 7456 1681 

Jeremy McKeown +44 20 3364 6732 

Mileen Rash +44 20 3364 6734 

Patrick Mayhew +44 20 7456 9156 

Patrick Mortensen +44 20 7456 1147 

Vicki Miller +44 20 3364 6737 

David Walker (US) +1 203 622 8713 

Amy Johnston (US) +1 203 983 3222 

Burr Clark (US) +1 617 531 7100 

Elena Newman (US) +1 212 843 8810 

Jan Halaska (US) +1 617 531 7101 

Kevin Steuerer (US) +1 203 983 3232 

Laura Burke (US) 

Sales Trading Europe 

+1 212 843 8811 

Garreth Hodgson +44 20 7456 1150 

John Moore +44 20 7456 1140 

Alistair Thomson +44 20 7456 1690 

Andy Leonard +44 20 3364 6731 

Chris Haase +44 20 7456 1159 

James Lawless +44 20 7456 1125 

Laura Mould +44 20 3364 6733 

Peter Homan +44 20 7456 1677 

Peter Ward +44 20 7456 1145 

Richard Archbold +44 20 7456 1666 

Russell Clifton +44 20 7456 1680 

Chris Davidson (US) +1 203 622 8733 

Mike Cahill (US) 

Corporate Access 

+1 203 983 3224 

Danielle Poulain +44 20 7456 1699 

Pippa Todd +44 20 7456 9170 

Suzanne King +44 20 7456 9175 

Marianne Headey +44 20 7426 4263 

Derivatives 

Nick Tranter +44 20 7426 4255 

David Gibbs +44 20 7456 4251 

Jim Hoogewerf +44 20 7456 1691 

Christophe de la Celle +44 20 3364 6738 

Andrew Miller +44 20 7426 4253 

Jiban Nath +44 20 7456 1657 

Simon Dooley +44 20 7426 4256 

Simon West 

Portfolio and Electronic Trading 

+44 20 7426 4254 

Tony Nash +44 20 7456 1156 

Ben Johnson +44 20 7456 1655 

Nishad Vallonthaiel +44 20 3364 6711

THIRD QUARTER 2010 

Q3 Silver Bullets 

Load Up with Silver Bullets 

For Q3 2010, Execution Noble Silver Bullet Buys are ABB, Aviva, 

Cable & Wireless Communications, Centrica, Credit Suisse, 

Finmeccanica, H&M, Lloyds Banking Group, Mitchells & Butlers, 

Prysmian, Reed Elsevier, Unilever & Vodafone 

Silver Bullet Sells are BBVA, Deutsche Telekom, Electrolux, Home 

Retail Group, Reckitt Benckiser, Rolls Royce, RWE and Wolters 

Kluwer. 

Do look back in anger 

Ouch, glad that quarter’s behind us. The second quarter of 2010 started with 

increasing acknowledgement of a Southern European sovereign debt crisis and 

ended with a shocking drop in US consumer confidence figures and had very few 

bright spots in between. Against that background, the 7.7% decline in the key Pan 

European benchmark index (SXXP) may not appear that bad but this hides 

extreme uncertainty in terms of future momentum and sentiment as evinced by the 

drying up of European equity volumes. 

Bullets or duds 

Nor did we cover ourselves in glory either. Our Silver Bullets portfolio declined by 

5%. Sure this was better than the market but given that the portfolio was only 22% 

net long, we would have hoped for better. In the second quarter we produced a 

negative alpha of 3.5% which is the second poorest excess return since we 

instigated Silver Bullets in Q3 2007 – albeit only the fourth time in twelve quarters 

we have produced a negative alpha. Our Q2 picks certainly suffered from Greecian 

contagion most directly in the case of Hellenic Telecom but also for Axa and BNP. 

In hindsight Hellenic Telecom was not our most inspired pick ever and certainly 

one which suffered from the choose and hold for the quarter discipline. However to 

a certain extent this was counterbalanced by the increased weighting of UK 

domiciled stocks where we received a significant performance boost (+1.8% in 

total) from the 8% move in the £/€ rate in our € based portfolio. 

Q3 2010 – Onwards and upwards 

Enough reflection – let’s look forward. This quarter’s picks as ever contain a fair 

mix of brand new, retained and re-invigorated calls. Aviva, Lloyds, Cable & Wireless 

Communications and Prysmian are retained as Buys. Deutsche Telekom, Home and 

Wolters Kluwer are rolled over from last quarter as high conviction Sells. Centrica, 

Electrolux, H&M, Finmeccanica, Mitchells & Butlers, RWE and Rolls Royce are all 

brand new ideas to Silver Bullets and Reckitt Benckiser makes its first appearance 

on the Sell side of the list (good luck James). Overall the portfolio is 24% net long 

which is roughly the average position of the portfolio since inception and for the 

first time UK calls outweigh those domiciled in continental Europe. 

http://www.execution-noble.com 

Q3 Silver Bullet Buys 

ABB 3 

Aviva 5 

Cable&Wireless Comms 7 

Centrica 9 

Credit Suisse 11 

Finmeccanica 13 

H&M 15 

Lloyds Banking Group 17 

Mitchells & Butlers 19 

Prysmian 21 

Reed Elsevier 23 

Unilever 25 

Vodafone 27 

Q3 Silver Bullet Sells 

BBVA 29 

Deutsche Telekom 31 

Electrolux 33 

Home Retail Group 35 

Reckitt Benckiser 37 

Rolls Royce 39 

RWE 41 

Wolters Kluwer 43 

Page 1 of 44


Figure 1: Looking back at Q2 performance 

(1) Silver Bullet sector relative performance measures stock performance relative to a corresponding net (long or short) investment in the relevant sector index 

(2) Silver Bullet market relative performance measures stock and sector performance relative to the move in the market (not adjusted for direction of call) 

(3) Silver Bullet portfolio alpha is an amalgamation of individual stock calls relative to a corrresponding position (long or short) in the market 

Performance based in € Quarterly Share Price Silver Bullet € Rebased Silver Bullet Sector Silver Bullet Market Silver Bullet Portfolio 

Move (local currency) Performance Relative Performance Relative Performance Market Alpha 

WPP Buy -7.0% 1.1% 6.5% 8.8% 9.5% 

Wolters Kluw er Sell -1.7% 1.7% -3.7% 9.4% -5.6% 

Silver Bullets Media 1.4% 6.8% 9.1% 1.4% 

Media Sector (SXMP) -5.4% -5.4% 

Cable & Wireless Coms Buy 4.3% 13.4% 19.6% 21.1% 22.8% 

Hellenic Telecom Buy -32.5% -32.5% -26.4% -24.8% -26.9% 

Deutsche Telecom Sell -3.3% 3.3% -2.8% 11.0% -4.0% 

Silver Bullets Telecom -5.3% 0.9% 2.4% -2.8% 

Telecom Sector (SXKP) -6.2% -6.2% 

Aviva Buy -18.6% -11.5% 0.6% -3.8% -4.1% 

AXA Buy -23.4% -23.4% -11.3% -15.7% -17.0% 

RSA Sell -6.2% -1.9% -14.1% 5.7% -8.9% 

Silver Bullets Insurance -12.3% -0.2% -4.6% -10.0% 

Insurance Sector (SXIP) -12.1% -12.1% 

Enterprise Inns Buy -29.1% -23.0% -19.6% -15.3% -16.5% 

DSGI Buy -29.0% -22.9% -19.5% -15.2% -16.5% 

Home Retail Sell -20.8% 14.0% 10.6% 21.7% 5.8% 

Silver Bullets Retail -10.6% -7.2% -2.9% -8.3% 

Retail Sector (SXRP) -3.4% -3.4% 

Lloyds Banking Group Buy -14.4% -7.0% 5.9% 0.7% 0.7% 

BNP Paribas Buy -21.2% -21.2% -8.3% -13.5% -14.6% 

Santander Sell -11.2% 11.2% -1.7% 18.9% 3.2% 

Nordea Sell -8.9% 6.8% -6.1% 14.5% -0.8% 

Silver Bullets Banks -2.6% 10.4% 5.1% -2.6% 

Banks Sector (SX7P) -12.9% -12.9% 

Pernod Ricard Buy 1.8% 1.8% -0.4% 9.5% 10.2% 

ABI Buy 6.7% 6.7% 4.5% 14.4% 15.6% 

L'Oreal Sell 4.0% -4.0% -1.8% 3.7% -10.9% 

Silver Bullets Consumer 1.5% -0.7% 9.2% 4.2% 

Consumer Sector (SX3P) 2.2% 2.2% 

Prysmian Buy -18.6% -18.6% 8.9% -10.9% -11.8% 

Qinetiq Buy -12.6% -5.0% 22.5% 2.7% 2.9% 

BAE Systems Sell -16.1% 8.9% -18.7% 16.5% 1.1% 

Silver Bullets Industrials -4.9% 22.6% 2.8% -2.4% 

Industrials Sector (SXNP) -27.5% -27.5% 

Suez Environment Buy -20.2% -20.2% -6.7% -12.5% -13.5% 

Silver Bullets Utilities -20.2% -6.7% -12.5% -13.5% 

Utilities Sector (SX6P) -13.5% -13.5% 

Silver Bullets Portfolio -6.8% -5.0% 2.7% -3.5% 

Market (SXXP) -7.7% 

Source: ExecutionNoble 

Figure 2: Indexed Performance and Benchmarks 

120 

110 

7 100 

0 

2 

e 90 

n 

u 

J 

to 80 

d 

e 

x 

e 

d 70 

In 

s 

rn 

60 

tu 

e 

R 

50 

40 

30 

Q2 

2007 


Silver Bullets Absolute Performance 

Credit Suisse/Tremont Equity long/short (€) 

SXXP Index 

Q3 

2007 

Q4 

2007 

Q1 

2008 

Q2 

2008 

Q3 

2008 

Q4 

2008 

Q1 

2009 

Q2 

2009 

Q3 

2009 

Q4 

2009 

Q1 

2010 

Q2 

2010 


Page 2 of 44


ABB 

Right end markets, wrong valuation 

We do not believe ABB’s valuation reflects the recovery that its core 

Power market is currently experiencing. It is one of the highest 

quality franchises in the European Capital Goods sector having 

leading positions in both Transmission and Distribution (T&D) and 

Industrial Automation. Fears over Chinese competition for its 

products are subsiding now, which coupled with the potential for a 

beat on restructuring savings could be a catalyst for the stock over 

the 2Q results. We reiterate our Buy rating and CHF24 price target. 

Transmission and distribution is recovering strongly 

In 2010 we estimate ABB’s Power division will generate 53% of group revenues and 

61% of group EBIT. Anecdotal evidence that orders have recovered for both 

Transmission and Distribution has increased steadily through the quarter and 

ABB’s exposure to this business is the highest in the European Capital Goods 

sector. We believe ABB is likely to show an orderbook which has recovered 

materially in this business and thus 2011 revenues and EBIT will be substantially 

improved over 2010 which is suffering from the trough in orders in 2009. 

$5bn still to spend on the acquisition programme 

We view CEO Hogan’s restraint in not chasing Emerson’s bid for Chloride as 

positive news – it was neither a game-changing or must-do acquisition in our view 

and will not impact ABB’s ability to compete in its core end markets. Ventyx, 

however, has the potential to be a transformational deal and despite the high price 

at 3.3x 2011E EV/Sales and around 30x 2011E EV/EBITA, we see it as positive. The 

potential for this business to generate revenues within the structure of ABB and 

the potential of the smartgrid industry warrants the high price. The acquisition of 

ABB’s Indian minorities was strategically and economically smart in our view. At 

0.6x 2011E EV/Sales and 7.5x 2011E EV/EBITA it was a relatively inexpensive way 

to get greater exposure to a high-growth market and with low risk. Investors are 

cautious on ABB’s execution of its acquisition programme but we believe this is 

somewhat unfair (particularly in light of the Chloride withdrawal) and that any 

future acquisitions may be taken more positively. 

Restructuring programme could positively surprise 

ABB has a target to generate $1.5bn incremental cost savings to achieve the total 

savings for the whole programme of $3.0bn. This would imply a run-rate of 

$375mn per quarter that ABB missed 1Q10, generating only $325mn. We believe 

the company will catch up in the 2Q and that this will be taken positively by the 

market. Savings for such programmes are inherently lumpy due to the timing of 

reductions in the workforce. While the short-cycle companies see the benefit of 

the restructuring taken during 2009 in their valuations, the same cannot be said of 

the long-cycle companies. The dramatic order falls late 2008 and 2009, translate 

into revenue contraction and falling margins due to the operational gearing, which 

has masked the impact from restructuring at the long-cycle companies we believe. 

Valuation: At an all-time low sector-relative 

ABB has historically enjoyed a 10-15% premium to the European Capital Goods 

sector on 12-month forward EV/EBITA but is now trading on a >15% discount to 

the sector. Its FCF yield at 8.1% is above the sector average 7.0x and the likelihood 

of earnings upgrades from this point is high. We ascribe a 10.0x 2011E EV/EBITA 

multiple to ABB on which we find CHF24 fair value, which is our target price. ABB 

has not rested at such a large discount to the European Capital Goods sector since 

the (long since resolved) asbestos issues of 2000-2002. We reiterate our Buy 

rating. 


BUY 

23% upside 

Fair Value CHF 24 

RIC, Bloomberg Code ABB.VX, ABBN VX 

Share Price CHF 19 

Market Capitalisation $40,795m 

Free Float 100% 

$m 2009 2010E 2011E 2012E 

Sales 31,795 32,280 34,707 35,839 

Adjusted EBITA 4,157 3,425 4,509 4,642 

Adjusted EPS 1.35 1.03 1.38 1.44 

Dividend 0.51 0.39 0.52 0.55 

FCF* 3,549 1,540 3,237 3,263 

EV Adjustments** 4,528 3,740 4,849 5,021 

Net Debt / (Cash) -7,219 -7,684 -10,086 -12,239 

* FCF = EBITDA - capex - NWC - int ex. - tax 

** Pension, Tax, Equity and non-consolidated assets 

X (unless stated) 2009 2010E 2011E 2012E 

EV/Sales 1.1 1.1 1.0 0.9 

EV/EBITA Adjusted 8.3 10.8 7.9 7.2 

P/E Adjusted 12.8 18.1 13.5 13.0 

Dividend Yield (%) 2.7% 2.0% 2.7% 2.9% 

FCF Yield (%) 9.5% 3.8% 7.9% 8.0% 

Net Debt/EBITDA -1.5 -1.8 -1.9 -2.2 

Analysts 

Nick Paton, CFA 

+44 20 7456 1190 

nick.paton@execution-noble.com 

Rob Virdee 

+44 20 7456 9222 

rob.virdee@execution-noble.com 

Page 3 of 44


ABB 

Valuation Metrics 2008 2009 2010E 2011E 2012E 

Recommendation: BUY Execution P/E 16.3 13.1 18.4 13.7 13.2 

Fair Value: 24 Reported P/E 16.3 13.1 18.4 13.7 13.2 

EV / Sales 1.4 1.1 1.1 1.0 0.9 

Share Price: CHF 24 EV / Ex. EBITDA 9.3 7.2 8.5 6.6 6.1 

Upside / Downside -1.8% EV / Ex. EBITA 10.6 8.3 10.7 7.8 7.2 

FCF Yield 6.8% 9.5% 3.8% 8.0% 8.1% 

Previous Fair Value CHF 24 Dividend yield 2.0% 2.1% 1.6% 2.2% 2.3% 

% change to fair value -1.8% 

Bloomberg: ABBN VX Key ratios 2008 2009 2010E 2011E 2012E 

T-One: ABB.VX 

Model Published On: 02 July 2010 Ex. EBITDA margin 15.0% 15.1% 13.4% 15.3% 15.3% 

Ex. EBITA margin 13.1% 13.1% 10.6% 13.0% 13.0% 

Capex / Revenue 3.4% 2.4% 2.7% 2.7% 2.7% 

Shares In Issue, mn 2,289.4 Capex / Depreciation -1.77 -1.15 -0.97 -1.16 -1.16 

Market Cap 54,946 Net Debt / Ex. EBITDA -1.0 -1.5 -1.8 -1.9 -2.2 

Net Debt -10,086 Ex. EBITDA / Net Interest 153.7 -41.8 -363.0 -85.0 -43.5 

Adjustment for Minorities 4,661 ROE 28% 21% 15% 17% 16% 

Nuclear provisions 155 

Unrecognised tax losses/deferred tax assets -867 

Power Transformer EU fine 300 P&L Summary 2008 2009 2010E 2011E 2012E 

SEC/DoJ Suspect payments fine 300 

HV DC Cable fine 300 Revenue 34,912 31,795 32,280 34,707 35,839 

Enterprise Value (2011E) 48,810 % change 19.3% -8.9% 1.5% 7.5% 3.3% 

Execution EBITDA 5,227 4,812 4,321 5,318 5,477 

% change 14.6% -7.9% -10.2% 23.1% 3.0% 

Forthcoming Catalysts % margin 15.0% 15.1% 13.4% 15.3% 15.3% 

AGM 26 April 2010 Depreciation 661 655 896 810 835 

2Q10 results 27 April 2010 Execution EBITA 4,566 4,157 3,425 4,509 4,642 

Execution Investor Trip 25 May 2010 % change 15.3% -9.0% -17.6% 31.6% 3.0% 

3Q10 results 28 October 2010 % margin 13.1% 13.1% 10.6% 13.0% 13.0% 

Execution EBIT 4,566 4,157 3,425 4,509 4,642 

Net Financials -34 115 12 63 126 

Execution Analyst Other Pre-tax Income 0 0 0 0 0 

Nick Paton, CFA Pre Tax Profit 4,518 4,120 3,406 4,540 4,736 

(44) 20 7456 1190 Income Tax Expense -1,119 -1,001 -962 -1,282 -1,337 

nick.paton@executionlimited.com Minority Interests -260 -235 -194 -259 -270 

Net Income 3,139 2,884 2,250 2,999 3,129 

Execution Net Income 3,155 2,884 2,250 2,999 3,129 

Revenue Breakdown 

Reported EPS 1.47 1.38 1.06 1.41 1.47 

Execution EPS 1.46 1.35 1.03 1.38 1.44 

DPS 0.48 0.51 0.39 0.52 0.55 

Payout Ratio 32.6% 37.0% 36.8% 36.8% 37.3% 

Shares In Issue (mn) 2,287 2,289 2,289 2,289 2,289 

Cash Flow Summary 2008 2009 2010E 2011E 2012E 

Net Income 3,139 2,884 2,250 2,999 3,129 

Discontinued operations -21 17 18 18 19 

Depreciation & Amortisation 661 655 896 810 835 

Change in Working Capital -94 339 -629 -370 -22 

EBIT Breakdown Increase in Provisons 720 78 -317 458 0 

Other Operating Cash Flow 230 332 194 259 270 

Operating cash flow 4,635 4,305 2,412 4,174 4,231 

Capital Expenditure -1,171 -756 -872 -937 -968 

Free Cash Flow 3,464 3,549 1,540 3,237 3,263 

Acquisitions & Disposals -513 -157 0 0 0 

Dividends Paid To Shareholders -1,060 -1,027 -1,075 -835 -1,110 

Equity Raised / Bought Back -621 0 0 0 0 

Other Financing Cash Flow -1,263 -589 0 0 0 

Net Cash Flow 7 1,776 465 2,401 2,153 

Balance Sheet Summary 2008 2009 2010E 2011E 2012E 

Margin Trends Cash & Equivalents 7,806 9,552 9,251 10,890 12,239 

Margin 

18% 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Automation 

Technology 

49% 

Automation 

Technology 

42% 

Power Technology 

51% 

Power Technology 

58% 

2007 2008 2009 2010E 2011E 2012E 

Ex. EBITDA margin Ex. EBIT margin 

Tangible Fixed Assets 3,562 4,072 4,048 4,175 4,308 

Goodwill & Intangibles 3,228 3,469 3,469 3,469 3,469 

Associates & Financial Investments 3,797 3,398 3,398 3,398 3,398 

Other Assets 14,788 14,237 15,088 16,570 17,110 

Total Assets 33,181 34,728 35,254 38,502 40,524 

Interest Bearing Debt 2,363 2,333 1,567 804 0 

Other Liabilities 19,048 17,922 17,827 19,397 19,915 

Total Liabilities 21,411 20,255 19,394 20,201 19,915 

Shareholders' Equity 11,158 13,790 14,983 17,165 19,202 

Minority Interests 612 683 877 1,136 1,406 

Total Equity 11,770 14,473 15,860 18,301 20,609 

Net Debt / (Cash) -5,443 -7,219 -7,684 -10,086 -12,239 


Page 4 of 44


Aviva 

Turning the Corner 

Technical headwinds from the proposed Prudential rights issue, plus 

the macroeconomic uncertainty for the entire sector meant Aviva 

underperformed in Q2 as a Silver Bullet. However, we have stuck 

with it for Q3 2010 as we believe Q1 results proved our fundamental 

thesis on cost savings, sales recovery and margin expansion is on 

track and expect full H1 figures on Aug. 5 th to reinforce this. 

Furthermore we expect fresh disclosure and increased investor 

marketing by new CFO Pat Regan in the coming quarter will provide 

further impetus to the buy case. 

Prudential Deal Failure Relives Selling Pressure 

The collapse of Prudential’s bid for AIA has relieved some of the technical pressure 

on Aviva’s share price seen in Q2 as UK investors looked to free up cash to invest 

in the proposed $20bn rights issue of the Pru. Furthermore with the uncertainty 

this now throws up over the Pru’s management and strategy we would expect 

Aviva’s constant strategic message of organic growth focus in the UK and Europe 

and delivery of cost savings /restructuring to attract new and old investors back to 

the underlying story. 

Q1 Sales Figures Ahead of Consensus Bodes well for H1 

Despite the difficult share price trading in Q2, the Aviva Q1 trading statement and 

conference call was more upbeat on top line experience and outlook than at Q4 

and vs Q1 consensus. With two consecutive quarters of double digit sales growth 

(+14% Q4, 16% Q1) under their belt, management admitted that the trends “bode 

well” for FY10. With new product launches in France, Italy and Ireland, we believe 

there is evidence of Aviva looking to target specific market segments rather than 

the historic “all things to all people” approach. As such we believe Q2 sales figures 

( Aug 5 th ) should show further improvement and given positive comments on costs 

at Q1 we expect further progress on restructuring to drive better margins. 

Greater Transparency and new CFO to Provide Catalyst 

New CFO Pat Regan will meet analysts for the first time on July 2 nd followed by 

meetings with key investors. Regan has already stated that one of his key targets is 

to improve disclosure at Aviva in order for the market to more easily track cash 

flows and life insurance profit drivers and to able to more readily compare these 

like for like with European peers. We expect this new transparency will form part of 

the H1 results disclosure. The recently announced cash flow target for 2010 of 

£1.3bn (a 30% yoy increase) also highlights how internal strategy is increasing its 

focus on improving capital efficiency and growing the cash generation within the 

firm. 

Valuation Attractive; Earnings Momentum Ahead of Peers 

Aviva is now trading at 0.9x 2010e TBV despite an operating ROE of 15% and a 

dividend yield of 6.5% which is >2x covered. Whilst we expect macro concerns 

over the global recovery and the potential for a double dip recession will cause 

short term volatility we expect that H1 10 results should underpin Aviva’s positive 

fundamental restructuring story. Relative to peers we expect Aviva to show better 

earnings momentum with operating earnings growth of +7% for FY10, ahead of 

European peers Allianz and RSA and in line only with AXA . This is driven by the 

weighting to life and asset management which we believe will continue to recover 

in 2010 and 2011. Finally we still believe Aviva could easily achieve a further £200m 

of cost saves in 2010e as the European operation consolidates to one holding 

company in Dublin. If delivered these £200m cost savings imply a 10% upgrade to 

IFRS earnings in 2010e vs. current consensus. 


BUY 

80% upside 

Fair Value 550p 

RIC, Bloomberg Code AV.L, AV/ LN 

Share Price 306 

Market Capitalisation £8,470m 


£m (unless stated) 2008 2009 x 2010e x 2011e x 

Gross Written Premium 36,206 36,594 36,123 36,200 

Net Income -885 1,492 1,847 2,227 

EPS -36.78 37.86 57.13 68.31 

TBV per share 281 268 336 429 

Combined ratio 98.4% 98.6% 98.1% 98.2% 

Investment Yield 4.9% 4.8% 4.6% 4.6% 

DPS 33.0p 24.0p 25.0p 27.5p 

X (unless stated) 2008 2009 x 2010e x 2011e x 

P/E -8.3 8.1 5.4 4.5 

P/TBV 1.1 1.1 0.9 0.7 

ROE 17.6% 16.4% 16.5% 14.8% 

Yield incl. buybacks 10.8% 7.8% 8.2% 9.0% 

Premium growth 16.8% 1.1% -1.3% 0.2% 

Book Value growth -14.6% -6.3% 18.2% 21.2% 

Analysts 

Joy Ferneyhough 

+44 20 7456 1670 

joy.ferneyhough@execution-noble.com 

Santosh Singh 

+91 22 2570 1152 

santosh.singh@execution-noble.com 

Page 5 of 44


Aviva 

Valuation Metrics 2008 2009 2010E 2011E 

Recommendation: BUY Reported P/E -8.3 8.1 5.3 4.5 

Fair Value: GBp 525 Operating P/E 5.3 6.8 6.1 5.4 

P/NTA 1.1 1.1 0.9 0.7 

Share Price: GBp 305 RONTA -13.1% 14.2% 17.0% 15.9% 

Upside / Downside 72.1% Op. RONTA 17.6% 16.4% 16.6% 14.8% 

Dividend yield 10.8% 7.9% 8.2% 9.0% 

Bloomberg: AV/ LN Buy back yield 

Model Published On: 1st April 2010 

Key ratios 2008 2009 2010E 2011E 

Shares In Issue 2,767 Loss ratio 62.6% 66.7% 66.2% 66.8% 

Market Cap 8,439 Expense ratio 35.4% 32.3% 31.8% 31.0% 

Free Float 100% Combined ratio 98.2% 99.1% 98.0% 97.8% 

Accident year combined ratio 105.7% 102.2% 101.4% 100.5% 

Net Tangible Assets 7,399 Running yield on investments 4.9% 4.8% 4.6% 4.6% 

NTA per share GBp 267 Reported ROI 1.0% 4.0% 4.5% 4.6% 

Investable asset base/NTA 14.2 14.2 11.6 9.5 

Dividend payout ratio -90% 63% 44% 40% 

Forthcoming Catalysts Ceded Reinsurance ratio 5.1% 5.2% 5.2% 5.2% 

Tax rate 21.2% 27.1% 22.0% 22.0% 

AGM April 28th 2010 Minority -2.3% 12.7% 15.0% 18.0% 

1Q 2010 New Business May 11th 2010 

Q2 2010 Results August 5th 2010 

Q3 new business 4th November 2010 P&L Summary (GBP m) 2008 2009 2010E 2011E 

Gross Written Premium 36,206 36,594 36,123 36,200 

Net Written Premium 34,365 34,685 34,241 34,309 

Execution Noble Analysts Net Earned Premium 34,642 34,755 34,261 34,319 

Joy Ferneyhough Net claims incurred -29,353 -27,890 -28,516 -29,111 

(44) 20 7456 1670 Underwriting expenses -8,095 -6,942 -7,073 -7,355 

joy.ferneyhough@execution-noble.com Underwriting Result 

Investment income 

Rakshit Ranjan Realised and Unrealised gains 

(44) 20 3364 6787 Other income 

rakshit.ranjan@execution-noble.com Other expenses 

Finance charges -436 -697 -691 -692 

Revenue Breakdown Pre Tax Profit -1,300 1,805 2,296 2,734 

Income Tax Expense 415 -490 -506 -606 

Net Income -885 1,315 1,790 2,128 

Diluted EPS -37 38 57 68 

Operating EPS 58 45 50 57 

DPS 33.0 24.0 25.0 27.5 

Growth rates 2008 2009 2010E 2011E 

Gross Written Premium 1% -1% 0% 

Net Written Premium 1% -1% 0% 

Net Earned Premium 0% -1% 0% 

Investments Breakdown Net Tangible Assets -1% 25% 28% 

Cost of capital, Combined ratio, RONTA trend 

Margin 

Life 

51% 

ST 

investments 

3% 

20% 

18% 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Cash 

6% 

Loans 

19% 

Asset 

managament 

4% 

ABS/MBS 

7% 

Other 

8% 

P&C 

45% 

Governments 

28% 

Corporates 

29% 

2007 2008 2009 2010E 2011E 

Underwriting margin Cost of capital RONTA 

EPS -203% 51% 20% 

DPS -27% 4% 10% 

Balance Sheet Summary (GBPm) 2008 2009 2010E 2011E 

Investable asset base 106,035 105,069 107,452 112,905 

Goodwill & Intangibles -3,578 -3,381 -3,381 -3,381 

Shareholders' Equity 11,052 10,356 12,242 14,837 

Net Tangible Assets 7,474 7,399 9,285 11,880 

NTA per share 281 267 336 429 

Interest Bearing Debt 6,715 6,782 6,782 6,782 

Preference shares 200 200 200 200 


Page 6 of 44


Cable&Wireless Communications 

Cyclical upside and strong cashflow 

CWC Group’s results for the full year 2009/10 were robust, with 

many encouraging signs for the year ahead. Foremost amongst these 

is the prospect of a cyclical recovery, which appears to be well 

established in three of four CWC regions. Our analysis of leading 

indicators in these regions suggests that the recovery in tourism, 

hotel occupancy, gambling and GDP is continuing, with 

improvements in the Caribbean too, and we believe it will act as a 

driver of CWC’s FY10/11 results starting with Q1 on 21 st July. 

Growing evidence of cyclical upside 

A cyclical recovery appears to be well established in Macau, Panama and Monaco & 

Islands. Macau has been particularly strong with gaming revenue more than 

doubling in the first quarter of 2010 and real GDP growth of 30% y-o-y. CWC’s 

other region, the Caribbean, seems to have stabilized and we continue to see 

improvements in both GDP growth and the growth of tourist arrivals (see chart 

below). We believe this recovery will translate into a better performance for CWC 

in the coming months. Even the biggest problem area – Jamaica – has seen 

improving GDP growth and tourist arrival trends (the latter up 9% in 1Q 2010). 

Figure 1: Growth of tourist arrivals in the Caribbean 

Tourist Arrivals (y-o-y growth, %) 

40% 

30% 

20% 

10% 

0% 

-10% 

-20% 

-30% 

-40% 

Jan-04 

May-04 

Sep-04 

Jan-05 

May-05 

Sep-05 

Jan-06 

May-06 

Sep-06 

Jan-07 

Jamaica Barbados East Caribbean North Caribbean Average 

Source: ExecutionNoble, Caribbean Tourism Organisation. Note: East Caribbean excludes St. Kitts & Nevis and North Caribbean 

excludes Turks & Caicos compared to CWC's definitions of the regions. 

We have not made many allowances for a recovery in our forecasts (1% revenue 

growth for FY10/11), recognizing the potential fragility. It could be much better 

than this especially if Caribbean swings into recovery. If there was 3% growth in all 

the regions for the next couple of years, EPS and FCFE would rise by 10-20%. 

Strong cashflow generation supports dividend 

Management is making a clear commitment to the dividend, which although being 

a “full payout” is covered by strong cashflow generation which will no longer have 

to support Cable&Wireless Worldwide. Moreover, the dividend policy has been set 

at the “low point” of the company’s cycle. On our forecasts the company will 

continue to deliver sufficient cashflow to pay a progressive dividend even without 

allowing for any potential cyclical upside. 

May-07 

Sep-07 

Jan-08 

May-08 

Sep-08 

Jan-09 

May-09 

Sep-09 

Jan-10 


BUY 

29.9% upside 

Fair Value £0.75 

RIC, Bloomberg Code CWC.L, CWC LN 

Share Price £0.58 

Market Capitalisation £1.5bn 

Free Float 100.0% 

GBP m (unless stated) Mar-09 Mar-10 Mar-11 Mar-12 

Net revenue 2,447 2,346 2,379 2,380 

EBITDA 871 866 881 877 

Capex 337 310 350 325 

FCF 301 218 368 378 

Net Debt 571 664 733 758 

EPS (GBP) 0.10 0.12 0.07 0.08 

DPS (GBP) 0.15 0.05 0.08 0.08 

All financial estimates are "as reported" 

DPS includes special dividends 

Mar-09 Mar-10 Mar-11 Mar-12 

EV / Sales 1.6 1.7 1.7 1.6 

EV / EBITDA 4.7 4.8 4.6 4.6 

P/E 9.0 6.5 11.1 9.7 

FCF Yield (%) 10.7% 7.8% 13.1% 13.5% 

FCFE Yield (%) 6.6% 6.3% 12.7% 13.5% 


Net Debt / EBITDA 0.7 0.8 0.8 0.9 

All multiples based on underlying financials 

Proportionate adjustments made where appropriate 

Analysts 

Will Draper 

+44 20 7456 1694 

will.draper@execution-noble.com 

Andrew Hogley 

+44 20 7456 1652 

andrew.hogley@execution-noble.com 

Nick Brown 

+44 20 7456 1669 

nick.brown@execution-noble.com 

Page 7 of 44


CWC Group 

Valuation Metrics Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 

Recommendation: BUY 

Fair Value: GBP 0.75 Execution P/E 13.5 9.0 6.5 11.1 9.7 

Reported P/E 9.9 8.5 7.0 11.8 9.9 

Share Price: GBP 0.58 EV / Sales 1.1 1.1 1.2 1.2 1.2 

Upside / Downside 29.9% EV / EBITDA 5.4 4.7 4.8 4.6 4.6 

EV / EBIT 6.2 5.2 6.0 5.7 5.3 

Previous Fair Value GBP 0.75 FCF Yield 10.1% 10.7% 7.8% 13.1% 13.5% 

% change to fair value 0.0% Dividend yield 17.9% 17.8% 6.2% 9.5% 9.7% 

Bloomberg: CWC LN 

T-One: CWC-LN Key ratios Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 

Model Published On: 01 July 2010 

EBITDA margin 31.4% 35.6% 36.9% 37.0% 36.8% 

EBIT margin 18.5% 21.8% 19.9% 20.5% 22.2% 

Shares In Issue (Less Treasury) 2,544 Capex / Revenue 14.9% 14.7% 12.3% 14.7% 13.7% 

Market Cap 2,139 Capex / Depreciation 1.29 1.23 0.84 0.89 0.87 

Net Debt 664 Net Debt / EBITDA -0.6 0.7 0.8 0.8 0.9 

Adjustments For Associates & Minorities 0 EBITDA / Net Interest 14.9 5.5 10.3 9.1 9.8 

Enterprise Value 2,803 ROE 12% 9% 73% 47% 54% 

Net Pension Deficit 165 

P&L Summary Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 

Forthcoming Catalysts 

Revenue 2,462 2,447 2,346 2,379 2,380 

1Q IMS 21 July 2010 % change 6.6% -0.6% -4.1% 1.4% 0.0% 

AGM 21 July 2010 EBITDA 774 871 866 881 877 

% change 0.9% 12.5% -0.6% 1.7% -0.5% 

% margin 31.4% 35.6% 36.9% 37.0% 36.8% 

Depreciation & Amortisation -284 -291 -344 -392 -372 

Associates 77 60 30 31 30 

EBIT 455 534 468 488 529 

% change -2.4% 17.4% -12.4% 4.3% 8.5% 

Execution Analyst % margin 18.5% 21.8% 19.9% 20.5% 22.2% 

Will Draper Net Financials -52 -159 -84 -97 -89 

(44) 20 7456 1694 Other Pre-tax Income 31 19 -1 0 0 

will.draper@executionlimited.com Pre Tax Profit 434 394 383 391 440 

Income Tax Expense -106 -88 -120 -109 -123 

Disconitinued Operations 0 91 180 0 0 

Revenue Breakdown Minority Interests -112 -146 -139 -100 -101 

Net Income 216 251 304 182 216 

Macau 

23% 

Execution Net Income 158 237 327 193 222 

Reported EPS 0.09 0.10 0.12 0.07 0.08 

Execution EPS 0.06 0.09 0.13 0.07 0.09 

DPS 0.15 0.15 0.05 0.08 0.08 

Payout Ratio 171.6% 149.3% 44.4% 113.8% 98.1% 

Shares In Issue (Less Treasury) 2,424 2,486 2,544 2,544 2,544 

Cash Flow Summary Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 

Panama 

26% 

EBITDA 774 871 866 881 877 

Taxes Paid -92 -115 -110 -99 -117 

EBITDA Breakdown Interest Paid / Received -52 -159 -105 -97 -89 

Change in Working Capital -631 496 -3 -3 2 

Margin Trends 

Margin 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Monaco & 

Islands 

13% 

Monaco & 

Islands 

16% 

Macau 

20% 

Panama 

33% 

Caribbean 

38% 

Caribbean 

31% 

2008 2009 2010 2011 2012 

EBITDA margin EBIT margin 

Associate & Minority Dividends 8 -77 -106 -140 -141 

Other Operating Cash Flow 708 -380 24 218 225 

Operating cash flow 715 636 566 761 755 

Capital Expenditure -367 -359 -288 -350 -325 

Free Cash Flow 284 301 239 368 378 


Dividends Paid To Shareholders -277 -258 -268 -207 -205 

Equity Raised / Bought Back 24 5 23 0 0 

Other Financing Cash Flow -689 259 -107 -230 -199 

Net Cash Flow -702 283 -89 -69 -26 

Balance Sheet Summary Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 

Cash & Equivalents 1,360 790 573 504 479 


Goodwill & Intangibles 453 1,727 414 1,614 1,558 

Associates & Financial Investments 299 327 231 250 275 

Other Assets 806 1,707 733 725 717 

Total Assets 4,578 7,527 3,676 4,836 4,780 

Interest Bearing Debt 873 1,336 1,237 1,140 1,051 



Shareholders' Equity 1,738 2,650 414 389 399 

Minority Interests 383 315 447 270 230 

Total Equity 2,121 2,965 861 659 629 

Net Debt -487 571 664 733 758 


Page 8 of 44


Centrica 

Oasis in the UK 

Massive turmoil in Continental European utilities sets the UK 

surprisingly apart. Prime within this group is Centrica. We have long 

argued that earnings, dividend and cash flow sustainability is key in 

these turbulent times. Not only does Centrica offer this, but it also 

has sustainable growth - a precious commodity. With multiples in line 

with the sector, it is a steal, tripling sector EPS CAGR of 4% 2009- 

2013. We think that avoidance of the stock, simply because it is a 

consensus long, is misplaced. 

Utility sector in turmoil 

Many Continental European utility stocks are reeling from political backlash. 

Germany shocked the sector with a proposed windfall tax (even the companies did 

not see that one coming). Belgium has decided that might also be a good idea. 

Finland may follow suit with a tax discussed in 2009. Spain undid a decade of 

liberalization by freezing tariffs. French Finance Minister likes the idea of freezing 

gas tariffs, another step backward. 

Oasis in the UK 

Conversely, there has been no such talk in the UK. Nor do we think there will be. 

The over-riding rationale is that the UK is running out of power (see pg 14 of our 

Centrica Upgrade, 14 th June 2010). And this new government is more pragmatic, 

understanding these issues. Any sniff of a windfall tax would scare away muchneeded 

investment. 

Wrong to avoid a consensus long 

This is one of the more often-used excuses for not investing in Centrica. If nothing 

else, share price performance attests to the fact that this is a weak argument. Sure, 

we, like many investors, generally start from the principle that performance is likely 

to lie elsewhere than consensus views. However, in some cases, such as Centrica, 

the fundamentals and valuation stack up. 

Forecasts recently upgraded; consensus has to catch up 

On June 14 th , we raised our forecasts; we are now 1% to 8% ahead of consensus 

EPS in 2010-2012 and 9% to 21% for DPS. We believe consensus forecasts will rise 

as Centrica’s strategy delivers. Our changes reflect a mark to market in 

commodities and our expectations of a tighter generation market evolving in the 

UK, which favours cleaner generation and gas over coal. We continue to believe 

that Centrica’s growth strategy is largely deliverable. Growth comes from 

• British Gas Residential (electricity and gas supply): more stable margins 

with lower margin volatility and lower customer churn. 

• Services growth. We assume a doubling in EBIT by 2013. 

• Upstream gas: increased production from Venture and new fields. 

• Power generation: combination of higher CCGT output (as gas continues 

to displace coal in the merit order) and new offshore wind capacity. 

On sector multiples yet triple the growth 

On 14 th June, we raised our fair value by 9% to 375p per share, implying 26% 

upside. This reflects the improved cash flows we are now forecasting on the back 

of our earnings upgrades. Centrica looks attractive on multiples, trading at a 2010 

PE of 11.9x, in line with the sector average, yet offering far superior EPS growth 

(13% vs. 4% CAGR 2009-2013). Dividend yield of 5% is also tempting, with DPS 

growth matching EPS growth. A healthy balance sheet makes this even more 

compelling. 


BUY 

26.4% upside 


RIC, Bloomberg Code CNA.L, CNA LN 


Market Capitalisation £15,194 


EUR 2009A 2010E 2011E 2012E 

Revenues m 21,963 22,716 24,169 25,586 

EBITDA m 2,538 3,062 3,325 3,884 

EPS 0.22 0.25 0.27 0.32 

DPS 0.13 0.15 0.16 0.19 

FCF ps 0.32 0.20 0.17 0.26 

EV 20,233 20,233 20,233 20,233 

Net Debt 3,386 3,609 4,411 4,813 

Net Debt/Ebitda 1.3 1.2 1.3 1.2 

At Current Price: 2009A 2010E 2011E 2012E 

PE 13.7 12.0 11.1 9.3 

EV/Ebitda 8.0 6.6 6.1 5.2 


FCF Yield (%) 10.9% 6.9% 5.7% 8.8% 

At Target Price: 2009A 2010E 2011E 2012E 

PE 17.3 15.1 14.0 11.8 

EV/Ebitda 10.6 8.8 8.1 6.9 


Analysts 

Lawson Steele 

+44 20 3364 6771 

lawson.steele@execution-noble.com 

Andrew Fisher 

+44 20 3364 6773 

andrew.fisher@execution-noble.com 

Page 9 of 44


Centrica 

25.0% 

20.0% 

15.0% 

10.0% 

£ per Share 

5.0% 

0.0% 

0.40 

0.35 

0.30 

0.25 

0.20 

0.15 

0.10 

0.05 

0.00 

Centrica Storage 

7% 

Centrica Energy 

41% 

Direct Energy 

11% 

British Gas 

41% 

ROIC Group WACC 

2005A 2006A 2007A 2008A 2009A 2010E 2011E 2012E 2013E 

2007A 2008A 2009A 2010E 2011E 2012E 2013E 

Actual Consensus EPS 

Key Metrics (Year to Dec) 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

Recommendation Buy Execution adj P/E 13.7 12.0 11.1 9.3 8.5 7.7 7.5 

Fair Value 3.75 EPS growth 0% 14% 8% 19% 10% 10% 3% 

EV / EBITDA 8.0 6.6 6.1 5.2 4.8 4.5 4.4 

Share Price 2.97 FCF Yield 10.9% 6.9% 5.7% 8.8% 11.3% 14.6% 13.6% 

Upside / Downside 26.4% Dividend yield 4.3% 5.0% 5.4% 6.4% 7.1% 7.8% 8.0% 

DPS growth 5% 16% 8% 19% 10% 10% 3% 

Previous Fair Value 3.45 Net Debt / EBITDA 1.6 1.4 1.5 1.4 1.2 1.0 0.9 

% change to previous Fair Value 8.7% ROIC 22.9% 18.5% 18.2% 18.6% 18.1% 18.6% 18.4% 

SOP DCF/EVA 3.73 

Bloomberg CNA LN Equity Key Drivers (Year to Dec) 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

T-One CNA-LN 

Model Published On 14 Jun 2010 Achieved Power Price (core GBP/MWh) 57.52 48.69 45.60 50.54 53.76 56.34 57.91 

Output sold forward (core market) 100.0% 50.0% 0.0% 0.0% 0.0% 0.0% 0.0% 

Market Coal Price (core GBP/MWh) 114.95 96.56 96.23 101.79 106.87 111.45 114.20 

Market Cap 15,194 Achieved Gas Price (core GBP/MWh) 20.25 14.04 13.87 14.86 16.76 17.67 17.67 

Economic Net Debt (ie inc nuclear provisions) 4,976 Achieved CO2 Price (GBP/t) 13.42 12.34 13.25 13.85 14.74 14.78 14.78 

Adjustments For Associates & Minorities 63 

Enterprise Value 20,233 

o/w nuclear provisions 0 P&L Summary (Year to Dec, £m) 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

Revenue 21,963 22,716 24,169 25,586 27,789 29,389 30,666 

Forthcoming Catalysts EBITDA by division 

1H 2010 Results 28 Jul 2010 British Gas 1,061 1,231 1,273 1,407 1,426 1,499 1,535 

3Q 2010 Results 17 Nov 2010 Centrica Energy 1,077 1,260 1,493 1,786 1,998 2,228 2,244 

Centrica Storage 191 199 191 245 293 286 290 

Direct Energy 242 345 342 418 461 506 552 

European Energy 0 0 0 0 0 0 0 

Other 0 0 0 0 0 0 0 

Execution Analysts EBITDA 2,538 3,062 3,325 3,884 4,205 4,546 4,647 

Lawson Steele / Andrew Fisher % change -3.2% 20.6% 8.6% 16.8% 8.3% 8.1% 2.2% 

(44) 20 3364 6771 / 6773 % margin 11.6% 13.5% 13.8% 15.2% 15.1% 15.5% 15.2% 

lawson.steele@execution-noble.com / andrew.fisher@execution-noble.com o/w associates 1 74 77 64 85 109 123 

Depreciation & Amortisation (724) (851) (861) (888) (915) (930) (935) 

EBIT 1,814 2,211 2,464 2,996 3,290 3,616 3,712 

EBITDA Breakdown (2010) % change -8.9% 21.9% 11.5% 21.6% 9.8% 9.9% 2.7% 

% margin 8.3% 9.7% 10.2% 11.7% 11.8% 12.3% 12.1% 

Net Financials (179) (221) (239) (280) (300) (297) (289) 

Exceptional items (454) (50) 0 0 0 0 0 

Pre Tax Profit 996 1,940 2,225 2,716 2,990 3,318 3,423 

Income Tax Expense (346) (709) (838) (1,074) (1,191) (1,332) (1,386) 

Disconitinued Operations 206 0 0 0 0 0 0 

Minority Interests 12 12 12 12 12 12 12 

Net Income 856 1,231 1,387 1,642 1,799 1,986 2,037 

Execution Net Income 1,104 1,281 1,387 1,642 1,799 1,986 2,037 

Reported EPS 0.17 0.24 0.27 0.32 0.35 0.39 0.40 

Execution EPS 0.22 0.25 0.27 0.32 0.35 0.39 0.40 

DPS 0.13 0.15 0.16 0.19 0.21 0.23 0.24 

Group ROIC vs WACC Payout Ratio 59.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0% 

30.0% 

Weighted average shares in issue (m) 5,145 5,145 5,145 5,145 5,145 5,145 5,145 

EPS Forecasts vs Consensus (GBP ps) 

Cash Flow (Year to Dec, £m) 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

Operating cash flow 2,386 2,061 2,208 2,491 2,653 2,872 2,937 

Maintenance CAPEX (724) (1,014) (1,341) (1,161) (934) (647) (864) 

Free Cash Flow 1,662 1,046 866 1,330 1,719 2,225 2,072 

Growth CAPEX (474) (607) (907) (907) (600) (600) (600) 

Acquisitions & Disposals + Other (3,010) 2 0 0 0 0 0 

Cash used for investing (4,208) (1,619) (2,248) (2,068) (1,534) (1,247) (1,464) 

Cash used for financing 143 (227) 40 (423) (978) (1,072) (1,185) 

o/w Dividends Paid To Shareholders (635) (655) (761) (825) (978) (1,072) (1,185) 

Net Cash Flow (1,619) 215 0 0 141 553 288 

Balance Sheet (Year to Dec, £m) 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

Cash & Equivalents 1,294 1,500 1,500 1,500 1,641 2,194 2,482 

Tangible Fixed Assets 9,650 10,546 11,934 13,113 13,732 14,049 14,579 

Intangible Non-Current Assets 2,822 2,822 2,822 2,822 2,822 2,822 2,822 

Other Assets 5,676 5,354 5,656 5,951 6,408 6,741 7,006 

Total Assets 19,442 20,223 21,912 23,386 24,604 25,806 26,889 

Interest Bearing Debt 4,680 5,109 5,911 6,313 6,313 6,313 6,313 

Other Liabilities 10,507 10,293 10,554 10,809 11,206 11,494 11,724 

Total Liabilities (exc equity) 15,187 15,401 16,465 17,122 17,519 17,807 18,037 

Shareholders' Equity 4,192 4,758 5,384 6,201 7,022 7,936 8,789 

Minority Interests 63 63 63 63 63 63 63 

Total Equity 4,255 4,821 5,447 6,264 7,085 7,999 8,852 

Net Debt 3,386 3,609 4,411 4,813 4,671 4,119 3,831 

Economic Net Debt (ie inc nuclear provns) 3,951 4,174 4,976 5,378 5,236 4,684 4,396 


Page 10 of 44


Credit Suisse 

Passes all the tests 

CS screens well on our sector criteria and is one of the banks in our 

universe that shows upside after taking account of regulatory hits to 

earnings and a delay in the macro recovery. Our fair value of CHF60 

(down from CHF70) would be closer to CHF50 taking into account 

potential regulatory hits showing upside of over 20% at these levels. 

CS is far less impacted by concerns on funding, the speed of a macro 

recovery and capital than peers and its key challenge has been 

earnings downgrades due to lower equity markets, which is more 

than discounted at current levels. The current share price is factoring 

in 1x TBV for the investment bank and 10x the non investment bank 

on 2010 assumptions. 

Earnings downgrades discounted 

CS is one of the banks in the sector that has been most correlated to consensus 

earnings changes year to date with the stock down 20% vs cumulative 

downgrades of some 14% (including Q2 revisions) for 2012. In advance of the Q2 

results we are downgrading our forecasts by 7% for 2012 and 9% for 2010/11 largely 

on account of weaker equity markets. These downgrades have been driven by a 

combination of a higher tax rate and weaker equity markets, which have affected 

our AUM growth forecast, equity revenues in the investment bank and held back 

the expected improvement in private banking gross margins. At this stage this is 

more than in the price and the market is pricing in a continued subdued outturn in 

markets. Importantly even after bringing down our investment banking forecasts 

the Q2 assumed ROE in the IB is some 19% annualized post tax, albeit down from 

31% in Q1 but still a respectable level. The pre-tax margin assumed in the private 

bank is low for 2010 at 28% vs the 40% goal and we now only expect 32% by 2012. 

CS screens well on regulatory changes 

Regulation and the impact on both the p&l and the capital base remain a key 

consideration for any bank. On our regulatory screen a combination of new 

liquidity rules, OTC derivative changes and likely taxes take some 15% off net profit. 

CS is one of the few banks in Europe that screens well to the upside post taking 

into account regulatory earnings. In addition there remains uncertainty over the 

new capital rules under B3 and CS screens well relative to peers due to a starting 

core T1 of 10% and strong capital generation from the private bank as well as a 

relatively limited impact from the proposals other than on DTAs, which should be 

largely used by the time of implementation. On a stress test CS screens well. 

Private bank remains a differentiator 

The private bank remains a source of significant capital generation. In spite of the 

issues with the European offshore business the net inflows have remained 

relatively robust and net new money growth of over 5% remains achievable. The 

Asian business is growing flows at over 20% and growth in Europe remains 

positive in spite of the impact of German funds flowing offshore. The gross margin 

has been an issue with clients being far slower to re risk than initially expected but 

consensus has now come down and assumptions are that gross margins will be 

towards 120bp below the bank’s range of 125-135bp. We still expect the business to 

show decent operating leverage in an event of an equity market upturn. 

Valuation attractive 

A price to book model on current forecasts CS looks significantly undervalued. 

Adding in regulatory impacts at 15% hit to earnings brings our FV down to CHF50. 

We also look at CS on a SOP and the current price is valuing the IB at 1x TBV (GS 

trades on 1.2x) and the non investment bank on 10x 2010 earnings, which is a low 

level (Julius Baer trades on 12x 2010). 


BUY 

47% upside 

Fair Value CHF 60.0 

RIC, Bloomberg Code CSGN.VX, CSGN VX 

Share Price CHF 41 

Market Capitalisation CHF 47,235m 


CHFm (unless stated) 2009 2010E 2011E 2012E 

Pre-provision profit 10,125 9,672 10,695 12,146 

Pre-tax profit 8,269 8,558 9,505 10,927 

Adjusted net profit 6,593 5,974 6,684 7,648 

EPS adj (CHF) 5.67 5.02 5.65 6.46 

BVps (CHF) 30.1 33.2 36.9 41.5 

BVps adj (CHF) 21.9 24.8 28.4 33.0 

LLP as % Loans -0.21 -0.07 -0.10 -0.11 

Cost income ratio (%) 67.8 68.5 67.1 66.0 

X (unless stated) 2009E 2010E 2011E 2012E 

Adjusted P/E 7.2 8.1 7.2 6.3 

Pre-provision multiple 4.7 4.9 4.4 3.9 

Price / book 1.36 1.23 1.11 0.98 

Price / book adj 1.87 1.65 1.44 1.24 

Yield (%) 4.9 4.9 4.9 4.9 

ROE (%) 19.6 16.2 16.5 16.9 

ROE (adj) (%) 28.6 22.2 21.9 21.7 

Tier 1 ratio (%) 10.0 9.8 10.9 12.0 

Analysts 

Fiona Swaffield 

+44 20 7456 1693 

fiona.swaffield@execution-noble.com 

Page 11 of 44


Credit Suisse 


Recommendation: BUY PER (adjusted) (x) -5.7 7.2 8.1 7.2 6.3 

Fair Value: CHF 60.00 Price/Pre Provis Profit per share (x) -4.7 4.7 4.9 4.4 3.9 

P/NAV (adjusted) (x) 2.12 1.87 1.65 1.44 1.24 

Share Price: CHF 40.90 RoE (%) (adjusted) -29.2 28.6 22.2 21.9 21.7 

Upside / Downside RoRWA (%) -2.85 2.75 2.48 2.49 2.67 

Implied cost of equity (curve) (%) 17.0 14.5 14.9 14.8 

Bloomberg: CSGN Yield (net) (%) 0.2 4.9 4.9 4.9 4.9 

Key ratios 2008 2009 2010E 2011E 2012E 

Core tier 1 ratio 7.9 10.0 9.8 10.9 12.0 

Shares In Issue 1,155 Leverage ratio 52.2 40.3 38.2 34.6 31.5 

Market Cap 47,235 Cost income ratio 205.9 67.8 68.5 67.1 66.0 

Free Float 90% Loan loss charges / loans -0.34 -0.21 -0.07 -0.10 -0.11 

RoE (%) (adjusted) -29.2 28.6 22.2 21.9 21.7 

NAV 2010E 28,598 RoA (stated) -0.65 0.60 0.56 0.60 0.65 

NAV per share 2010 24.8 RoRWA -2.85 2.75 2.48 2.49 2.67 


P&L Summary 2008 2009 2010E 2011E 2012E 

Q2 results 22 July 2010 Net interest income 8,349 6,760 6,860 7,360 7,361 

Total non interest income 1,241 24,649 23,865 25,165 28,375 

Total gross operating income 9,590 31,409 30,725 32,525 35,736 

Costs -19,744 -21,284 -21,053 -21,830 -23,590 

Pre Provision Net Operating Income -10,154 10,125 9,672 10,695 12,146 

Execution Noble Analysts Loan loss charges -813 -506 -164 -240 -270 

Post provision profit -10,967 9,619 9,508 10,455 11,877 

Fiona Swaffield Pre Tax Profit -12,223 8,269 8,558 9,505 10,927 

(44) 20 7456 1693 Net profit -8,278 6,593 5,974 6,684 7,648 

fiona.swaffield@execution-noble.com 

EPS adj. -7.14 5.67 5.02 5.65 6.46 

Growth rates % 2008 2009 2010E 2011E 2012E 

Operating income -70 228 -2 6 10 

Pre provision profit -201 -200 -4 11 14 

EPS adj. -202 -179 -11 12 14 

NAV (adjusted)/share -33 14 13 15 16 


Total adj assets 1,170,350 1,031,427 1,091,427 1,135,084 1,203,189 


Shareholders' Equity (adjusted) 22,433 25,584 28,598 32,832 38,168 

NAV (adjusted)/share 19.3 21.9 24.8 28.4 33.0 

NAV per share 27.7 30.1 33.2 36.9 41.5 

RWA 257,467 221,609 261,041 276,704 296,073 

Tier 1 equity 34,208 36,207 39,624 43,998 49,334 

Core tier 1 equity 20,367 22,267 25,684 30,058 35,394 


Page 12 of 44


Finmeccanica 

Ready to rebound 

Finmeccanica has market leading positions, under-recognised 

cyclical recovery upside, and potential asset disposal upside. The 

stock is trading at 10 year lows on EV/Sales or on P/E relative, which 

we attribute to market fears of further earnings downgrades. We 

argue that the EPS downgrade cycle has in fact played out, and we 

would buy ahead of Farnborough airshow and H1 results in July. 

Earnings bottom 

The share price underpeformance in Finmeccanica in the past 2 years has been 

driven by falling earnings expectations. Consensus 2010e EPS stood at €1.48 a year 

ago (Bloomberg June 30 th 2009) compared with €1.15 now. The stock has derated 

in P/E terms due to market loss of confidence in the EPS outlook, and 

Finmeccanica now trades on a 2010e PE of 7.7x, at the bottom of its historic range 

and the bottom of our A&D coverage universe. 

We believe that the company’s high visibility for the remainder of 2010 means it is 

unlikely that earnings will fall below our €1.12 forecast. We believe the downgrade 

cycle is over, and the stock will rerate significantly when the market recognises 

this. 

Recovery 

In 2011 we believe that earnings will recover materially, based on groupwide cost 

savings, the ramp-up of the Boeing 787 programme benefitting Aeronautics, 

ongoing growth in the US part of Defence Electronics, and a recovery in some of 

the cyclical businesses. In particular, we believe that demand is now bottoming in 

the 30% civil portion of Helicopters. 

Portfolio change 

We believe Finmeccanica may be close to announcing a partner for Ansaldo 

Energia (AE), probably a developing world player, as a preliminary step to a 2011 

IPO. A recent report in Milano Finanza suggested that the Russian group OAO 

Power Machines will take a 20% stake in AE as a first step. We believe that AE 

could be worth over €1bn, and any step towards crystalising this value would be 

positive for the share price. 

Catalysts 

The Farnborough airshow, July 19-23 rd , is the main industry event of the year, and 

often serves as a catalyst for share price moves in the sector. 

The following week Finmeccanica will report H1 results, July 28 th . We believe that if 

the company is able to confidently reaffirm 2010 guidance then this could begin to 

convince the market that the downgrades are over. 

Finally, at any time during the coming months the company could reveal a partner 

for the Ansaldo Energia exit strategy, which we believe would be positive for the 

shares. 

Valuation 

In addition to P/E near its 10 year low on an absolute or relative basis, the stock is 

also trading at a 10 year low on EV/Sales. Although the defence sector generally is 

trading at a discount to historic levels, we believe that in the case of Finmeccanica 

the extent of the discount implies further declines in earnings, which we do not 

believe will happen. 

Our fair value of €11.50 would apply a 2011e P/E of 9x, which is the midpoint of the 

valuations of BAE Systems and Thales, which are Finmeccanica’s closest peers. 


BUY 

34.1% upside 

Fair Value € 11.50 

RIC, Bloomberg Code SIFI.MI, FNC IM 

Share Price € 8.57 

Market Capitalisation € 4,954m 


Eur m (unless stated) 2009 2010E 2011E 2012E 

Sales 18176 18119 18740 19185 

Ebitda 2146 2214 2305 2352 

Adj. EPS (Eur) 1.31 1.12 1.29 1.39 

Dividend (Eur p/s) 0.41 0.45 0.45 0.45 

FCF 489 231 733 893 

EV adjustments 0.0 0.0 0.0 0.0 

Net Debt 5014 5020 4547 3914 


EV/Sales 0.55 0.55 0.53 0.52 

EV/Ebitda 4.65 4.50 4.33 4.24 

PE 6.53 7.68 6.65 6.16 

Dividend Yield (%) 4.78 4.78 5.25 5.25 

FCF Yield (%) 4.90 2.32 7.35 8.95 


Analysts 

Edward Stacey 

+44 20 7456 9135 

edward.stacey@execution-noble.com 

Rob Virdee 

+44 20 7456 9222 


Page 13 of 44


Finmeccanica 


Recommendation: Buy Execution P/E 6.4 6.5 7.7 6.6 6.2 

Fair Value: € 11.5 Reported P/E 7.3 7.3 7.9 7.0 6.5 

EV / Sales 0.7 0.5 0.6 0.5 0.5 

Share Price: € 8.6 EV / EBITDA 5.4 4.6 4.5 4.3 4.2 

Upside / Downside 34.1% EV / EBIT 8.2 7.16 7.05 6.63 6.43 

FCF Yield 2.6% 4.9% 2.3% 7.3% 9.0% 

Previous Fair Value € 11.5 Dividend yield 4.8% 4.8% 5.2% 5.2% 5.2% 

% change to fair value 0.0% 

Bloomberg: FNC IM Key ratios 2008 2009 2010E 2011E 2012E 

T-One: FNC-MI 

Model Published On: 01 July 2010 EBITDA margin 12.2% 11.8% 12.2% 12.3% 12.3% 

Adj. EBITA margin 8.0% 7.7% 7.8% 8.0% 8.1% 

Capex / Revenue 4.8% 2.6% 3.4% 3.7% 3.6% 

Shares In Issue (Less Treasury) 578 Capex / Depreciation 1.17 0.63 0.76 0.88 0.88 

Market Cap (mn) 4,954 Net Debt / EBITDA 2.8 2.3 2.3 2.0 1.7 

Net Debt (incl Pension liability) 5,020 EBITDA / Net Interest 6.2 7.3 5.6 7.2 8.7 

ROE 9% 11% 9% 10% 10% 


P&L Summary 2008 2009 2010E 2011E 2012E 


Revenue 15,037 18,176 18,119 18,740 19,185 

1H 2010 Interim results 29 July 2010 % change 12.0% 20.9% -0.3% 3.4% 2.4% 

3Q 2010 results 04 November 2010 EBITDA 1,832 2,146 2,214 2,305 2,352 

% change 2.2% 17.1% 3.2% 4.1% 2.0% 

% margin 12.2% 11.8% 12.2% 12.3% 12.3% 


EBIT 1,210 1,392 1,415 1,505 1,552 

% change 11.6% 15.0% 1.7% 6.4% 3.1% 


Edward Stacey Associates 16 17 16 16 16 

(44) 20 7456 9135 Operating Profit 1,226 1,409 1,431 1,521 1,568 

edward.stacey@executionlimited.com Net Financials -294 -293 -395 -320 -270 

Minority Interests -50 -64 -64 -64 -64 

Pre Tax Profit 882 1,052 972 1,137 1,234 

Revenue Breakdown Income Tax Expense -367 -377 -348 -432 -469 

Net Income 515 675 624 705 765 

Transportation 

12% 

Energy 

Helicopters 

20% 

Execution Net Income 

Reported EPS 

609 

1.17 

755 

1.17 

709 

1.08 

790 

1.22 

850 

1.32 

9% 

Execution EPS 1.33 1.31 1.12 1.29 1.39 

DPS 0.41 0.41 0.45 0.45 0.45 

Payout Ratio 35.1% 35.1% 41.7% 36.9% 34.0% 

Shares In Issue (Weighted, Less Treasury) 441 578 578 578 578 


Pre Tax Profit 882 1,052 972 1,137 1,234 

EBITA Breakdown Depreciation & Amortisation 622 754 799 800 800 

Margin Trends 

Margin 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Defence System 

7% 

Space 

7% 

Defence System 

9% 

Space 

4% 

Aeronautics 

17% 

Energy 

8% 

Aeronautics 

17% 

Transportation 

8% 

Defence 

Electronics 

28% 

Helicopters 

24% 

Defence Electronics 

30% 

2008 2009 2010E 2011E 2012E 

Adj. EBITDA margin Adj. EBIT EBIT margin margin 

Taxes Paid -200 -377 -348 -432 -469 

Change in Working Capital -518 -488 -630 -120 -20 


Operating cash flow 989 967 841 1,433 1,593 


Free Cash Flow 264 489 231 733 893 


Equity Raised / Bought Back 1,206 0 0 0 0 

Other Financing Cash Flow 0 0 0 0 0 

Net Cash Flow 1,283 252 -6 473 633 


Cash & Equivalents 2,297 2,630 2,624 3,097 3,730 




Other Assets 14,512 14,892 16,398 16,960 17,363 

Total Assets 29,922 30,485 31,812 32,763 33,714 

Interest Bearing Debt 7,387 7,644 7,644 7,644 7,644 





Total Equity 6,130 6,549 7,000 7,509 8,078 

Net Debt (including pension liability) 5,090 5,014 5,020 4,547 3,914 


Page 14 of 44


Hennes & Mauritz 

Maur of the Same 

H&M has sold off 14% since its April highs and has underperformed 

the SXRP by 6% following its second quarter earnings release. With 

easier comps in the second half, H&M’s likely ability to pass on price 

inflation and an almost unparalleled predictability of strong 

cashflows, we see this underperformance and the absolute and 

relative valuation as providing an attractive entry point for the 

longer-term growth story. . 

Trading conditions improve post 2Q10 

At first glance, H&M’s second quarter results last week were a mixed bag with the 

disappointment of May’s +6% constant currency sales growth offset by an 

impressive 480bps improvement in gross margin (80bps ahead of consensus). 

Importantly however, current trading through June was reported as up 22% in 

constant currency, significantly ahead of our 13% FY10 and our 17% 3Q10 estimates. 

Whilst this performance reflects an improvement for just a short period, it 

highlights two important issues; firstly that trade rebounded strongly when the 

weather improved across Europe and second, the comps become significantly 

easier across much of Western Europe in the coming quarter (-6% versus -2%). 

H&M will report June sales on 15 July and 9m results on 29 September which could 

prove to be a catalyst for the shares. 

Concerns over gross margin seemingly misplaced 

Much of the share price deterioration and investor comment seems to concern the 

impact to gross margins from adverse currency moves and higher input costs. We 

are more sanguine on the impact of such pressures because we consider H&M best 

placed amongst its peers to cope, for two reasons. First, H&M’s higher income 

customer has shown themselves to be relatively price inelastic in the past so we 

believe H&M will be able to pass on price inflation as it sees fit in each of its 

markets (H&M has said it will follow the market on pricing while – of course – still 

investing in a competitive, fashionable offer). Second, and fairly obviously, H&M’s 

market leading high operating margin (of 21.3% in 2009) means H&M is less 

sensitive than its competition to a deterioration in either LfL sales growth or gross 

margins. We estimate each 1% change in LfL impacts EBIT by 3% and each 100bps 

of gross margin impacts EBIT by only 4%. We would also note that H&M has 

already warned the market that markdowns may be higher in this year’s June sale 

so we see the risk to the upside. 

Longer-term growth story in tact, under-represented brand 

From our demographic analysis first published in February, where we evaluated 

the potential store footprint relative to the urban population under 49 years of age, 

we deduced that the growth profile of H&M will only be arrested by the availability 

of property. Excluding the Nordics, we concluded that with less than 5 stores per 

1m population within this catchment, H&M has significant scope to grow space by 

10-15% per annum driving a return to 14% EPS growth in FY2011e. 

Multiple, stability of cashflow and dividend yield supportive 

With high operating margins and stable enough cash flows to warrant a DCFbased 

valuation, H&M is a rare example in the general retailer space and our DCF 

valuation of SEK250 suggests 19% upside. We appreciate the ‘de-risking’ mentality 

affecting the sector but with only 7% PIGS revenue exposure, we feel H&M’s 

underperformance has been overdone. H&M’s premium to the European market 

has contracted to 60% versus the 70% 6 year average and, although still expensive 

in absolute terms, H&M now trades on 17.5x cons 12m fwd EPS, versus the 6-year 

average of 20x. Add to this a growing net cash position and a 4.3% dividend yield 

and we feel SEK 211 is a good entry point for the longer term growth story and 

cyclical recovery (when it comes). 


BUY 

18% upside 

Fair Value SEK250 

RIC, Bloomberg Code HMb.ST, HMB SS 

Share Price SEK212.50 

Market Capitalisation SEK351,703m 


Y/e 30 Nov, SEKm 2009 2010E 2011E 2012E 

Sales 101,393 108,228 121,920 136,836 

PBT 22,103 24,854 28,285 32,043 

EPS (SEK) 9.90 11.11 12.65 14.33 

Dividend (SEK) 16.00 9.20 10.58 12.17 

FCF*1 12,219 15,315 16,856 19,044 

Invested Capital 21,248 24,308 28,349 32,979 

Net Debt 

1. Post CAPEX 

22,025 22,113 21,458 20,365 

Y/e 30 Nov, X 2009 2010E 2011E 2011E 

EV / Sales 3.7 3.5 3.1 2.7 

EV / Ebitda 15.3 13.6 12.0 10.6 

PE 21.5 19.1 16.8 14.8 


FCF Yield (%) 3.5 4.4 4.8 5.4 

ROIC (%) 84.7 79.3 77.9 75.8 

Net Debt / Ebitda 0.9 0.8 0.7 0.6 

Analysts 

Caroline Gulliver 

+44 20 7456 9173 

caroline.gulliver@execution-noble.com 

Robert Evans 

+44 20 7426 4210 

robert.evans@execution-noble.com 

Richard Cathcart 

+44 20 7456 9155 

richard.cathcart@execution-noble.com 

Page 15 of 44


H&M 



Fair Value: SEK 250 Reported P/E 11.6 10.8 19.2 16.9 14.9 

EV / Sales 3.7 3.3 3.1 2.7 2.4 

Share Price: SEK 213.7 EV / EBITDA 14.8 13.5 12.1 10.7 9.4 


FCF Yield 3.7% 3.6% 4.5% 4.9% 5.5% 

Previous Fair Value N/A Dividend yield 7.3% 7.5% 4.3% 5.0% 5.7% 

% change to fair value N/A 

Bloomberg: HMB SS Key ratios 2008 2009 2010E 2011E 2012E 

T-One: HM'B.SK 

EBITDA margin 25.2% 24.1% 25.3% 25.5% 25.7% 

EBIT margin 22.7% 21.3% 22.5% 22.7% 22.9% 

Capex / Revenue 5.3% 5.4% 5.3% 5.4% 5.5% 

Shares In Issue (Less Treasury) 1,655 Capex / Depreciation 2.1 1.9 1.9 1.9 2.0 

Market Cap 353,689 Net Debt / EBITDA (1.0) (0.8) (0.8) (0.7) (0.6) 

Net (debt) / cash (22,113) EBITDA / Net Interest (21.2) (53.3) (60.7) (56.3) (54.7) 

Adjustments For Associates & Minorities 0 ROE 41% 40% 42% 44% 47% 


Net Pension Deficit 

P&L Summary 2008 2009 2010E 2011E 2012E 

Forthcoming Catalysts Revenue 88,532 101,393 108,228 121,920 136,836 

% change 14.5% 14.5% 6.7% 12.7% 12.2% 

Monthly sales figures 15th of each month EBITDA 22,340 24,474 27,424 31,125 35,198 

9M results 29 September 2010 % change 19.3% 9.6% 12.1% 13.5% 13.1% 

% margin 25.2% 24.1% 25.3% 25.5% 25.7% 

Depreciation & Amortisation (2,202) (2,830) (3,022) (3,393) (3,799) 

EBIT 20,138 21,644 24,402 27,733 31,399 

% change 20.0% 7.5% 12.7% 13.6% 13.2% 

% margin 22.7% 21.3% 22.5% 22.7% 22.9% 

Associates 0 0 0 0 0 

Execution Analysts Operating Profit 20,138 21,644 24,402 27,733 31,399 

Caroline Gulliver +44 207 456 9173 Net Financials 1,052 459 452 553 644 

Robert Evans +44 207 426 9210 Other Pre-tax Income 0 0 0 0 0 

Richard Cathcart +44 207 456 9155 Pre Tax Profit 21,190 22,103 24,854 28,285 32,043 

Income Tax Expense (5,896) (5,719) (6,462) (7,354) (8,331) 


Revenue Breakdown (2009) Net Income 15,294 16,384 18,392 20,931 23,712 


Reported EPS 18.5 19.8 11.1 12.6 14.3 

Execution EPS 18.5 19.8 11.1 12.6 14.3 

DPS 15.50 16.00 9.20 10.58 12.17 

Payout Ratio 83.9% 80.8% 82.8% 83.7% 84.9% 

Shares In Issue (Less Treasury) 828 828 1,655 1,655 1,655 


EBITDA 22,340 24,474 27,424 31,125 35,198 

Taxes Paid (5,940) (6,468) (6,462) (7,354) (8,331) 

Sales growth trends Interest Paid / Received 1,052 459 452 553 644 

Sales growth 

Profit margin trends 

Gross profit margin 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

-2% 

-4% 

-6% 

62.2% 

62.0% 

61.7% 

61.5% 

61.3% 

61.1% 

Rest of World 

27% 

12% 12% 

5% 

-1% 

Nordic 

16% 

Euro ex- 

Finland 

57% 

9% 

-5% 

10% 

3% 

9% 

3% 

2008 2009 2010E 2011E 2012E 

New space sales growth LFL sales growth 

2008 2009 2010E 2011E 2012E 

Gross profit margin EBIT margin 

24% 

23% 

22% 

21% 

20% 

Operating profit margin 

Change in Working Capital 442 (518) (370) (878) (957) 

Associate & Minority Dividends 0 0 0 0 0 

Other Operating Cash Flow 72 26 (17) (34) (37) 


Capital Expenditure (4,724) (5,481) (5,712) (6,556) (7,472) 

Free Cash Flow 13,242 12,492 15,315 16,856 19,044 

Acquisitions & Disposals (820) (93) 0 0 0 

Dividends Paid To Shareholders (11,584) (12,825) (15,227) (17,511) (20,137) 


Other Financing Cash Flow (446) (180) 0 0 0 

Net Cash Flow 392 (606) 88 (655) (1,093) 






Other Assets 12,645 17,057 14,632 16,001 17,492 

Total Assets 51,243 54,363 57,717 61,594 65,665 

Interest Bearing Debt 0 0 0 0 0 

Other Liabilities (14,293) (13,750) (13,974) (14,498) (15,069) 

Total Liabilities (14,293) (13,750) (13,974) (14,498) (15,069) 



Total Equity 36,950 40,613 43,744 47,096 50,596 

Net debt / (cash) (22,726) (19,024) (22,113) (21,458) (20,365) 


Page 16 of 44


Lloyds Banking Group 

Reaping the rewards of deleveraging 

This is the fourth consecutive quarter we recommend LLOY as a 

Silver Bullet BUY. This quarter, we are pairing the LLOY long with a 

SELL call on BBVA. We continue to like LLOY for three key reasons: 

1) the rigorous stress testing carried out by the UK's FSA in 2009, 

which substantially improved the leverage profile of the bank (and 

which should continue to improve as the group runs off assets and 

retains earnings); 2) improving fundamental backdrop against which 

LLOY should see materially lower levels of loan impairments 

(£10.7bn for 2010E, v £24bn in 2009; 3) compelling risk/reward - we 

estimate a tangible book value of 79p in 2012 and a 14pct ROTE. Our 

fair value is based on 1.4x 2012 tbv/share and generates 112% upside, 

which we view as extremely compelling. 

Dividend paying capacity in 2012? 

There is substantial optionality for shareholders of LLOY given a return to more 

‘normal’ profitability levels by 2012. Further, as the EC mandated prohibition on 

dividend payments to shareholders will be lifted at end 2011 (meaning that the 

company can pay a full year dividend in early 2012 out of 2011 earnings), we 

believe that LLOY will be in a strong position to pay a dividend in early 2012. 

Assuming a 35% payout ratio (or £2.2bn), in-line with the current European 

average, LLOY would yield 5.6% on its current market cap. 

Rewards of de-leveraging 

LLOY is set to reduce its balance sheet by c£40bn per annum through 2013. 

Consequences are that the group will become fundamentally less capital intensive 

(run-off businesses have a 3x RWA/loan load factor to the core business), and also 

less reliant on wholesale funding (run-off businesses rely more on wholesale 

funding than do core businesses). 

Furthermore, while an improving leverage profile means cross-cycle returns in the 

‘new world’ of 10-20%, though given an 81% correlation of price/tbv and leverage, 

we surmise that investors will be prepared to pay a higher multiple for reduced 

leverage and better quality equity base. 

Figure 1: Leverage and price/book multiple progression: 1999 to Date 

40.0 

35.0 

30.0 

25.0 

20.0 

15.0 


31/12/1999 

30/09/2000 

30/06/2001 

31/03/2002 

31/12/2002 

30/09/2003 

30/06/2004 

31/03/2005 

31/12/2005 

30/09/2006 

30/06/2007 

31/03/2008 

31/12/2008 

30/09/2009 

Leverage multiple (LHS) Price/book multiple (RHS) 

5.0 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

0.0 


BUY 

112% upside 


RIC, Bloomberg Code LLOY.L, LLOY LN 

Share Price 53.7p 



£m (unless stated) 2009 2010E 2011E 2012E 


Pre-tax profit -6,815 4,416 8,249 8,991 


EPS adj (p) 4.1 5.6 9.6 10.4 

DPS(p) 0.0 0.0 0.0 3.3 

BVps(p) 63 68 78 88 

BVps (adj) (p) 54 59 69 79 

LLP as % loans -3.5% -1.7% -0.8% -0.7% 

Cost income ratio (%) 

Pre-APS 

48.4% 45.5% 44.4% 44.2% 

Figures are pro forma HBOS 


Adjusted P/E 13.0 9.5 5.6 5.1 


Price / book 0.9 0.8 0.7 0.6 

Price / adj book 1.0 0.9 0.8 0.7 

Yield (%) 0.0% 0.0% 0.0% 6.2% 

ROE (%) 7.4% 8.6% 13.1% 12.5% 

ROE (adj) (%) 5.8% 9.9% 14.9% 14.1% 

Core Tier 1 ratio (%) 

Pre-APS 

Figures are pro forma HBOS 

8.0% 9.1% 11.3% 13.2% 

Analysts 

Joseph Dickerson 

+44 20 7426 4228 

joseph.dickerson@execution-noble.com 

Page 17 of 44


Lloyds Banking Group 


Recommendation: BUY PER (adjusted) (x) -1.2 13.1 9.6 5.7 5.2 

Fair Value: 114p Price/Pre Provis Profit per share (x) 4.0 2.9 2.9 2.8 2.8 


Share Price: 54p RoE (%) (adjusted) -33.9 -18.9 9.9 14.9 14.1 

Upside / Downside 111% RoRWA (%) -1.88 0.57 0.78 1.41 1.62 

Implied cost of equity (curve) (%) -17.0 10.0 15.6 14.5 

Bloomberg: LLOY Yield (net) (%) 0.0 0.0 0.0 0.0 5.8 

Key ratios 2008 2009 2010E 2011E 2012E 





RoE (%) (adjusted) -33.9 -18.9 9.9 14.9 14.1 

NAV 2010E 39,649 RoA (stated) -0.86 0.26 0.38 0.68 0.77 

NAV per share 2010 0.6 RoRWA -1.88 0.57 0.78 1.41 1.62 


P&L Summary 2008 2009 2010E 2011E 2012E 

H1 results 4 August 2010 Net interest income 14,903 12,726 13,582 13,836 13,333 



Costs -12,236 -11,609 -10,536 -10,458 -10,190 

Pre Provision Net Operating Income 9,119 12,355 12,634 13,096 12,860 

Execution Noble Analysts Loan loss charges -14,880 -23,988 -10,673 -5,153 -4,164 

Post provision profit -5,761 -5,533 4,461 8,244 8,998 

Joseph Dickerson Pre Tax Profit -9,230 -6,815 4,416 8,249 8,991 

(44) 20 7456 4228 Net profit -9,218 2,827 3,774 6,399 6,989 


EPS adj. -0.43 0.04 0.06 0.10 0.10 


Operating income -2 12 -3 2 -2 

Pre provision profit -22 35 2 4 -2 

EPS adj. -260 -110 36 70 9 

NAV (adjusted)/share -4 -57 9 16 15 


Total adj assets 1,098,841 969,213 916,610 867,348 832,285 




NAV per share 1.6 0.6 0.7 0.8 0.9 

RWA 498,500 493,300 468,877 436,226 426,190 

Tier 1 equity 47,368 51,056 49,655 56,054 63,057 



Page 18 of 44


Mitchells and Butlers 

Margin expansion on track 

Operating margin expansion is key to upgrades at MAB and the early 

signs from 1H suggest it is on track to hit its three year target. The 

market remains skeptical, but two strong IMS statements this quarter 

should help build confidence in the story. Whilst, consumer concerns 

remain, MAB is stretching average spend northwards replacing price 

sensitive consumers with more affluent ones. This will help it pass 

through price increases in advance of the VAT hike and offer 

protection should spending further deteriorate. Buy, Fair Value 360p. 

Target of 200-300bps is ambitious, but not unrealistic 

MAB’s operating margin seems to lag the food led competition, on a lease adjusted 

basis, despite operating from a larger estate. Management is targeting a c.200- 

300bps increase from the FY2009 operating margin (15.3%) over the next three 

years. Achieving this would imply a margin more in kilter with the competition. 

Big divide between consensus and the company 

MAB told us that there is a ‘big divide between consensus and what we think we 

can do’ as the market, including us, has not fully factored in the targeted margin 

expansion into estimates. Already, MAB surprised the market with an impressive 1H 

margin performance (albeit partly due to one-offs). A flat 2H margin will still imply 

a c.70bps improvement this year, positioning it on track to hit its year three target. 

MAB recognises the food opportunity 

In our Nov 2009 Pub survey we highlighted that consumers were willing to spend 

more per meal than what most pubcos charge. MAB appear to be have recognized 

this and started to push up average spend per head in 1H. MAB believes this 

strategy has seen it replace some of its more price sensitive consumers with more 

affluent ones. This is clearly an opportunity to drive LFL sales and margins for the 

business and reduces exposure from the more price sensitive demographics. 

MAB best positioned to pass through inflation 

VAT is going up, and we may yet see a hike in duty announced in the autumn, but 

MAB dealt with these issues relatively easily last year. Consumer weakness remains 

a concern so pushing through inflation is going to be tough, but we believe MAB is 

the best equipped pubco to do this successfully due to its multi brand strategy. At 

the same time, its food led offer protects it against increases in alcohol duty while 

VAT increases should aid its strategy of gaining more affluent consumers who are 

trading down from more expensive alternatives. 

World Cup washout a good thing…sunshine remains key 

The World Cup is a net negative for MAB due to its food led estate, but a poor 

show by England ended any trading fears. Additionally, Whitbread said the impact 

from the first two England games was less than expected on its pub restaurants. Of 

more importance to MAB is the weather, and although a barbeque is a growing 

temptation, as long as the sun is shining the pub trade will benefit. 

IMS statements to give market confidence over margins 

Confidence over the margin performance will lead to upgrades and with two IMS 

statements this quarter (22 July and late September) the opportunity exists to give 

the market plenty of assurance. LFL comps get tougher in 2H, but there has been 

nothing from the competition to suggest trade has collapsed. Nonetheless, MAB’s 

share price has slipped 13% relative to the FTSE All Share since its positive 1H. On 

an EV/EBITDA basis, MAB trades on 8.1x our calendar 2010 estimates (sector 

average of 8.5x). Additionally, applying a 15% discount to its EPRA adjusted NAV 

(to account for its non REIT status) implies a value of 345p per share. Buy. 


BUY 

31.4% upside 


RIC, Bloomberg Code MAB.L, MAB LN 

Share Price 274p 



£m (unless stated) 2008 2009 2010E 2011E 

Sales 1,908 1,958 1,979 2,013 

Ebitda 477 428 435 458 

EPS (p) 30.6 23.5 25.7 30.4 

Dividend (p) 5 0 0 10 

FCF post asset churn 190 234 156 177 

Net Debt (2,735) (2,600) (2,444) (2,444) 

X (unless stated) 2008 2009 2010E 2011E 

EV/Sales 2.0 1.9 1.8 1.8 

EV/Ebitda 8.1 8.7 8.2 7.8 

PE 8.9 11.6 10.7 9.0 


FCF Yield (%) 17.0% 20.9% 14.0% 15.8% 


Analysts 

Alistair Macdonald 

+44 20 7456 9126 

alistair.macdonald@execution-noble.com 

Geetanjali Sharma 

+44 20 3364 6774 

geetanjali.sharma@execution-noble.com 


+44 20 7456 9173 


Page 19 of 44


Mitchells & Butlers 

Valuation Metrics Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E 


Fair Value: 360.0p Reported P/E 279.5 10.7 9.0 7.9 7.3 

EV / Sales 1.8 1.8 1.8 1.7 1.7 

Share Price: 274p EV / EBITDA 8.3 8.2 7.8 7.5 7.3 


FCF Yield 9.3% 7.6% 6.5% 6.2% 6.3% 

Previous Fair Value 300p Dividend yield 0.0% 0.0% 3.6% 4.4% 4.7% 

% change to fair value 20.0% REP Ratio 0.99 1.01 1.08 1.11 1.13 

NAV 244 274 302 320 339 

Bloomberg: BBG Code LFL sales % 2% 1% 3% 3% 2% 

T-One: MAB NAV goodwill adjusted 244 274 302 320 339 

Model Published On: 01 July 2010 EPRA+ 377 406 433 453 472 

Key ratios Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E 

Shares In Issue (Less Treasury) 408 

Market Cap 1,118 EBITDA margin 21.9% 22.0% 22.8% 23.3% 23.4% 

Net Debt 2,444 EBIT margin 15.3% 15.4% 16.2% 16.7% 16.8% 

Adjustments For Associates & Minorities 0 Capex / Revenue 6.2% 7.1% 8.9% 8.6% 8.5% 

Enterprise Value 3,562 Capex / Depreciation 0.95 1.08 1.36 1.31 1.30 

Net Pension Deficit -130 Net Debt / EBITDA 6.1 5.6 5.0 4.6 4.3 

EBITDA / Net Interest 2.0 2.7 3.0 3.3 3.5 

ROE 0.4% 9.4% 10.1% 10.9% 11.0% 


Adj ROCE 7.0% 7.6% 8.2% 8.7% 9.0% 

Third quarter results 22 July 2010 

Fourth quarter results September 2010 

Full year results November 2010 P&L Summary Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E 

First quarter results January 2011 

Second quarter results April 2011 Revenue 1,958 1,979 2,013 2,052 2,094 

Interims results May 2011 % change 1.1% 1.7% 1.9% 2.0% 

EBITDA 428 435 458 478 489 

% change 1.5% 5.4% 4.2% 2.5% 


Alistair Macdonald Depreciation & Amortisation -128 -129 -132 -134 -137 

(44) 20 7456 9126 EBIT 300 305 326 343 352 

alistair.macdonald@executionlimited.com % change 1.7% 7.0% 5.2% 2.7% 

% margin 15.3% 15.4% 16.2% 16.7% 16.8% 

Operating Profit 300 305 326 343 352 

Revenue Breakdown Net Financials -217 -158 -152 -144 -138 

Pre Tax Profit 83 147 175 200 214 

Income Tax Expense 14 -42 -51 -58 -62 

Net Income 4 105 124 142 152 


Operating Profit Breakdown 

Reported EPS 1.0 25.7 30.4 34.8 37.3 

Execution EPS 23.5 25.7 30.4 34.8 37.3 

DPS (p) 0.0 0.0 10.0 12.0 13.0 

Payout Ratio 0.0% 0.0% 32.9% 34.5% 34.8% 

Shares In Issue (Less Treasury) 408 408 408 408 408 

Cash Flow Summary Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E 

EBITDA 428 435 458 478 489 

Taxes Paid 25 -2 -25 -58 -62 

Interest Paid / Received -160 -158 -152 -144 -138 

Change in Working Capital 0 -22 -23 -23 -23 



Free Cash Flow 171 112 78 76 88 

Acquisitions & Disposals 65 44 99 53 48 

Dividends Paid To Shareholders 0 0 -12 -43 -50 


Other Financing Cash Flow -97 0 0 0 0 

Net Cash Flow 143 156 165 87 86 

Margin Trends Balance Sheet Summary Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E 

Margin 

25% 

20% 

15% 

10% 

5% 

0% 

Restaurants 

51% 

Restaurants 

47% 

Pubs & Bars 

49% 

Pubs & Bars 

53% 

2009 20010E 2011E 2012E 2013E 


Cash & Equivalents 107 97 97 97 97 


Goodwill & Intangibles 0 0 0 0 0 


Other Assets 176 177 178 179 180 

Total Assets 4,769 4,727 4,677 4,667 4,661 




Shareholders' Equity 997 1,118 1,232 1,306 1,385 

Total Equity 997 1,118 1,232 1,306 1,385 

Net Debt 2,600 2,444 2,279 2,192 2,106 


Page 20 of 44


Prysmian 

Order book recovering, profits will follow 

Prysmian’s orderbook for higher margin products has recovered 

during the 2Q which gives us increased confidence on 2010 earnings. 

2011 should see strong earnings growth due to more profitable 

Transmission, Submarine and OGP projects flowing through 

Prysmian’s P&L. We continue to believe the stock is inexpensive, 

trading on 6.9x 2011E EV/EBITA versus the sector on 9.2x. Our target 

multiple of 9.0x 2011E EV/EBITA implies a fair value of €17.5 per 

share. We reiterate our Buy rating. 

T&D newsflow and orderbook are recovering 

Prysmian’s order book fell from 5.4 months to 4.7 months during 1Q2010, due to 

unfavorable weather conditions for the T&D businesses and continued investment 

uncertainty. Over the 2Q, newsflow and orders have improved markedly, with 

Siemens now publicly stating power orders have troughed, some high profile T&D 

orders and most other power players reporting more supportive conditions. This 

has bolstered Prysmian’s order book materially and the company now has 5.9 

months of orders for the group. High Voltage has increased from 6.0 to 9.0 

months during the 2Q, Power Distribution from 3.0 to 4.5 and Industrial from 4.0 

to 5.3. This should give investors improved confidence both on 2010 guidance and 

the potential for growth in 2011. 

2011 earnings growth driven by Utilities and OGP 

Our 2011 adj EBITDA growth is primarily driven the Utilities business (which 

comprises the High Voltage, Distribution and Submarine businesses) and Industrial 

(which includes Oil, Gas and Petrochemicals (OGP) and Nuclear). Both of these 

businesses are long-cycle and order-driven and the recovery in orderbook gives 

considerable visibility on 2011 earnings. In the case of the OGP business, Prysmian 

has a firm order from Petrobras for flexible flowlines worth $600mn in revenues 

with a 30% EBITDA margin. In the Utilities business the recent Borwind2 order 

carries a value of €200mn and will impact revenues over the next three years. We 

have not assumed a dramatic improvement in the more cyclical short-cycle 

businesses such as Trade and Installer (T&I) and the remainder of Industrial: we 

assume T&I generates only €9mn additional EBITDA in 2011 and that Industrial 

(excluding Nuclear and OGP) is flat. We believe our estimates are achievable even 

without incremental economic recovery. 

Optical fibre a big potential positive for Telecom 

We continue to believe that it is a matter of when, rather than if, European 

Telecom operators implement a large expansion of European fibre networks. 

Smaller cable companies are able to offer higher performance and a more 

competitive price than incumbent operators which is allowing the cable players to 

take significant market share. TEF and DT recently raised capex guidance for 2010 

to reflect the requirement for increased fibre rollout but this is yet to be confirmed 

as orders. We estimate the European market could see between €1bn and €2bn 

incremental revenues during the rollout phase, which given Prysmian’s 15% market 

share and 15% EBITDA margin in the business could generate between €23 and 

€45 additional EBITDA, or 6% to 11% upside to FY2009 reported adj EBITDA. . 

Valuation: €17.5 price target on xxx 2011E EV/EBITA 

With the sector now trading on 9.2x 2011E EV/EBITA and Prysmian’s outlook 

relative to the remainder of the sector looking highly attractive, we feel 

comfortable at a target multiple of 9.0x 2011EV/EBITA giving a price target of 

€17.5. On DCF we find fair value of €18.0 for Prysmian and we note that Prysmian 

offers very good value on 15% 2011E FCF yield at the current price. The dividend 

yield of 3.7% for 2011E is very well supported in our view. 


BUY 

41% upside 


RIC, Bloomberg Code PRY.MI, PRY IM 




€m (unless stated) 2009 2010E 2011E 2012E 

Sales 3,731 3,881 4,254 4,530 

Adjusted EBITA 315 307 394 451 

Adjusted EPS 1.1 1.0 1.4 1.7 

Dividend 0.4 0.3 0.4 0.5 

FCF* 252 214 324 301 

EV Adjustments** 23 174 235 297 

Net Debt 544 410 145 -71 




EV/Sales 0.7 0.7 0.6 0.5 


P/E Adjusted 10.0 12.5 8.6 7.1 


FCF Yield (%) 12.7% 9.5% 14.4% 13.3% 

Net Debt/EBITDA 1.4 1.1 0.3 -0.1 

Analysts 


+44 20 7456 1190 


Rob Virdee 

+44 20 7456 9222 


Page 21 of 44


Prysmian 



Fair Value: 17.5 Reported P/E 10.5 8.0 12.1 8.2 6.8 

EV / Sales 0.6 0.7 0.7 0.6 0.5 

Share Price: EUR 11.8 EV / EBITDA 5.8 6.6 7.2 5.4 4.5 

Upside / Downside 47.6% EV / EBITA 6.7 8.1 8.9 6.4 5.3 

FCF Yield 15.6% 12.7% 9.9% 15.0% 14.0% 

Previous Fair Value EUR 18.5 Dividend yield 3.5% 3.5% 2.5% 3.7% 4.5% 


Bloomberg: PRY IM Key ratios 2008 2009 2010E 2011E 2012E 

T-One: I:PRY 



Capex / Revenue 2.3% 2.9% 1.8% 1.8% 1.8% 

Shares In Issue 182m Capex / Depreciation 1.66 1.55 0.95 1.04 1.10 

Market Cap 2,155 Net Debt / EBITDA 1.2 1.3 1.0 0.3 -0.1 

Net Debt 410 EBITDA / Net Interest 3.3 7.8 6.8 16.9 66.1 



Tax Loss carry forward -97 

Umbilicals fine 100 P&L Summary 2008 2009 2010E 2011E 2012E 

Enterprise Value (Dec 2010E) 2,738 

Revenue 5,144 3,731 3,881 4,254 4,530 

% change 0.5% -27.5% 4.0% 9.6% 6.5% 

Forthcoming Catalysts Adj. EBITDA 542 403 394 473 531 

% change 2.4% -25.6% -2.2% 20.1% 12.3% 

Q2 2009 Results 03 August 2010 % margin 10.5% 10.8% 10.2% 11.1% 11.7% 

Q3 2009 Results 10 November 2010 Depreciation & Amortisation -70 -69 -74 -73 -74 

Adj. EBIT 472 334 320 400 457 

% change 3.0% -29.2% -4.1% 24.7% 14.4% 

% margin 9.2% 9.0% 8.3% 9.4% 10.1% 

Operating Profit 448 386 307 394 451 

Execution Analyst Associates 3 3 2 2 2 

Nick Paton, CFA Net Financials -165 -52 -58 -28 -8 

(44) 20 7456 1190 Pre Tax Profit 286 337 251 368 445 

nick.paton@executionlimited.com Income Tax Expense -51 -85 -72 -105 -127 

Minority Interests 2 -4 -2 -1 -1 

Net Income 237 248 177 262 317 

Revenue Breakdown Execution Net Income 218 198 180 262 317 

Reported EPS 1.30 1.36 0.97 1.44 1.74 

Execution EPS 1.20 1.09 0.99 1.44 1.74 

DPS 0.42 0.42 0.30 0.44 0.53 

Payout Ratio 32.0% 30.6% 30.6% 30.6% 30.6% 

Shares in Issue 182m 182m 182m 182m 182m 


Pre Tax Profit 286 337 251 368 445 

Depreciation & Amortisation 66 71 74 73 74 

Taxes Paid -83 -62 -72 -105 -127 

EBIT Breakdown Net Financials 165 52 58 28 8 

Change in Working Capital 66 36 25 50 -20 

Other Operating Cash Flow 5 -75 -52 -14 2 



Free Cash Flow 389 252 214 324 300 

Acquisitions & Disposals -12 11 -4 -4 -5 



Other Financing Cash Flow -167 -61 0 0 0 

Net Cash Flow 134 127 134 265 216 


Margin Trends Cash & Equivalents 492 492 626 891 1,107 

Tangible Fixed Assets 806 872 874 882 895 

14% 

Goodwill & Intangibles 31 43 41 40 40 

12% 


10% 

Other Assets 

Total Assets 

1,693 

3,098 

1,575 

3,044 

1,588 

3,193 

1,633 

3,516 

1,724 

3,838 

8% 


6% 


4% 


2% 

Shareholders' Equity 

Minority Interests 

447 

16 

677 

21 

779 

23 

986 

24 

1,223 

25 

0% 

2008 2009 2010E 2011E 2012E 

Total Equity 463 698 802 1,010 1,248 

Adj. EBITDA margin Adj. EBITA margin 

Net Debt 666 544 410 145 -71 

Margin 

Industrial 

17% 

Trade and 

Installer 

27% 

Telecom 

6% 

Industrial 

11% 

Telecom 

11% 

Other 

24% 

Trade and 

Installer 

4% 

Other 

2% 

Utilities 

43% 

Utilities 

55% 


Page 22 of 44


Reed Elsevier 

Trading buy ahead of numbers 

We believe that Reed Elsevier will give a positive message at interim 

results on 29th July: an improvement in the group’s organic revenue 

growth could be accompanied by an encouraging outlook for H2 

margins, in our view. We remain concerned long term, but we see a 

short term buying opportunity. 

Improving results 

At the last trading statement in April, Reed Elsevier reiterated its previous trading 

outlook: i) slower growth for the STM division; ii) weak revenue for the legal 

division; iii) lower revenues for B2B, after adjusting for positive effect of biennial 

shows; iv) modest reduction in 2010 group operating margin due to investments in 

legal. But such conservative guidance hides a significant improvement from the 7% 

organic revenue decline recorded in 2009, in our view. We forecast -1% revenue 

growth in H1, though partly due to mechanical factors such as 1- the consolidation 

of Choicepoint (~100bps contribution to group organic growth), 2- the change in 

accounting standards of the directory segment (50bps positive contribution) and 

3- the partial disposal of the business information plus cyclical recovery of the 

exhibition units (400bps positive contribution). 

Legal restructuring uncertain 

Many more quarters will be necessary before the market will be able to judge on 

the complete restructuring of the legal segments, but Reed Elsevier is moving in 

the right direction, in our view. Increased focus on new products’ development 

may succeed in filling the gap opened versus Thomson Reuters’ Westlaw during 

the years of under-investment. However, our law librarian survey still shows no 

significant improvement in preferences for Reed Elsevier. US legal headcount trend 

has improved from 3.4% decline in 2009 to only 1.9% decline in May, but budget 

expectations for 2010 are still conservative (please see Figure 1 below). Longer 

term, we believe that increased competition from Thomson Reuters and continued 

weakness in the reference market will put further pressure on margins. 

Figure 1: Legal survey shows budgets under pressure 

10.0% 

5.0% 

0.0% 

-5.0% 

-10.0% 

-15.0% 

-2.2% 


Valuation 

-3.8% 

summer 2009 "panic" 

-11.7% 

-0.8% 

-2.0% 

-3.2% 

Q109 Q209 Q309 Q409 Q1 10 Q2 10 

Headcount Price Budget 

Expectations 

w orsening in 2010 

On our estimates (broadly in line with consensus for EPS 10, but ~15% below 

consensus on EPS 2011-12), Reed Elsevier trades in line with industry peers on PE 

‘10E. The stock has underperformed the media sector by 10% since we upgraded to 

hold in April and consensus EPS 2010 remained stable. We reaffirm our hold rating 

and target price of 480p / eu8.4. 


HOLD 

4% downside 


RIC, Bloomberg Code REL.L, REL LN 

Share Price 499.0p 



(GBPm) 2008A 2009A 2010E 2011E 

Revenues 5,334 6,071 5,939 6,075 

Adj. EBITDA 1,340 1,540 1,699 1,704 

Adj. EBITA 1,379 1,570 1,527 1,488 

Adj. EPS (GBp)* 44.2 45.5 42.4 39.8 

Dividend (GBp) 20.3 20.4 20.4 20.0 

FCF** 889 780 954 986 

Net Debt 5,767 3,972 3,673 3,184 

* fully diluted, ex. GW amortisation 

** FCF = EBITDA - capex - NWC - int ex. - tax 

2008A 2009A 2010E 2011E 

EV/Sales*** 3.2x 2.6x 2.7x 2.6x 

EV/Ebitda*** 12.6x 10.1x 9.3x 9.3x 

EV/EBITA*** 12.2x 9.9x 10.4x 10.7x 

P/E*** 12.2x 11.8x 12.6x 13.4x 

Dividend Yield*** 3.8% 3.8% 3.8% 3.8% 

FCF Yield*** 8.0% 6.8% 7.9% 7.7% 

Net Debt/Ebitda 4.3x 2.6x 2.2x 1.9x 

*** adjusted for Pension, tax and other assets/liabilities 

Analysts 

Giasone Salati 

+44 20 7456 1163 

giasone.salati@execution-noble.com 

Mark Evans 

+44 20 3364 6753 

mark.evans@execution-noble.com 

Page 23 of 44


Reed Elsevier (PLC) 

Valuation Metrics 2008A 2009A 2010E 2011E 2012E 

Recommendation: HOLD Execution P/E 12.2 11.8 12.6 13.4 13.3 

Fair Value: GBp 480 Reported P/E 22.8 29.2 19.0 19.8 18.5 

EV / Sales 3.2 2.6 2.7 2.6 2.5 

Share Price: GBp 499 EV / EBITDA 12.6 10.1 9.3 9.3 8.8 

Upside / Downside -3.8% EV / EBITA 12.2 9.9 10.4 10.7 10.4 

FCF Yield 8.0% 6.8% 7.9% 7.7% 8.5% 

Previous Fair Value GBp 350 Dividend yield 3.8% 3.8% 3.8% 3.8% 3.8% 


Bloomberg: REL LN Key ratios 2008A 2009A 2010E 2011E 2012E 

T-One: REL-LN 


EBIT margin 16.6% 12.7% 17.9% 17.3% 17.3% 

Capex / Revenue 3.2% 4.0% 5.0% 5.0% 5.0% 


Market Cap 5,696 Net Debt / Adj. EBITDA 4.3 2.6 2.2 1.9 1.5 

Net Debt 3,673 EBITDA / Net Interest 3.7 2.8 4.9 5.4 6.7 

Adjustments 816 ROE 25% 11% 17% 16% 16% 


Net Pension Deficit -380 

P&L Summary 2008A 2009A 2010E 2011E 2012E 


% change 16.4% 13.8% -2.2% 2.3% 4.7% 

Interim management statement 20 April 2010 EBITDA 1,050 995 1,319 1,324 1,394 

AGM 21 April 2010 % change 2.9% -5.2% 32.5% 0.4% 5.3% 

Half year results 29 July 2010 % margin 19.7% 16.4% 22.2% 21.8% 21.9% 

Interim management statement 18 November 2010 Depreciation & Amortisation -167 -223 -255 -273 -295 

Full year results expected 18 February 2011 EBIT 883 772 1,063 1,050 1,099 

% change 1.3% -12.6% 37.7% -1.2% 4.7% 

% margin 16.6% 12.7% 17.9% 17.3% 17.3% 

Associates 18 15 15 16 16 

Execution Analyst Operating Profit 901 787 1,078 1,066 1,116 

Giasone Salati Net Financials -284 -352 -268 -247 -207 

+44 20 7456 1163 Other Pre-tax Income 0 0 0 0 0 

giasone.salati@execution-noble.com Pre Tax Profit 617 435 811 819 908 



Revenue Breakdown Net Income (PLC) 241 195 316 319 349 

International 

Legal 

Execution Net Income (PLC) 486 519 511 503 518 

Reported EPS 21.90 17.07 26.22 25.19 26.95 

Execution EPS 44.22 45.51 42.40 39.78 39.97 

DPS 20.30 20.40 20.44 20.05 20.14 

Payout Ratio 45.5% 44.4% 47.8% 50.0% 50.0% 


Cash Flow Summary 2008A 2009A 2010E 2011E 2012E 

EBITDA 1,340 1,540 1,699 1,704 1,774 

Taxes Paid -215 -120 -124 -128 -141 

Operating Profit Breakdown Interest Paid / Received -179 -293 -268 -247 -207 

Margin Trends 

Margin 

Exhibitions 

11% 

Business 

information 

12% 

Exhibitions 

10% 

International 

Legal 

7% 

25% 

20% 

15% 

10% 

5% 

0% 

North 

American 

Legal 

32% 

9% 

Scientific 

34% 

Business 

information 

5% 

North 

American 

Legal 

34% 

Scientific 

46% 

2008A 2009A 2010E 2011E 2012E 


Change in Working Capital 69 59 7 -7 -14 


Other Operating Cash Flow -2 -164 -63 -32 18 



Free Cash Flow 864 803 969 1,001 1,128 

Acquisitions & Disposals -2,152 -95 50 0 0 



Other Financing Cash Flow -343 -895 -235 0 0 

Net Cash Flow -2,089 190 299 489 612 

Balance Sheet Summary 2008A 2009A 2010E 2011E 2012E 





Other Assets 2,663 2,161 2,363 2,346 2,310 

Total Assets 12,866 11,334 11,197 10,830 10,438 




Shareholders' Equity 953 1,732 1,866 1,980 2,148 


Total Equity 981 1,759 1,898 2,016 2,188 

Net Debt 5,767 3,972 3,673 3,184 2,573 


Page 24 of 44


Unilever 

King of cash 

Unilever is well down the line of delivering a sustainable operating 

performance driven primarily by top line volume growth. More 

importantly management is now incentivised to focus on this. We 

believe. Unilever’s strong cash conversion will now take greater 

precedence in the investment case. We recently upgraded our fair 

value by 10% (“Through to the next round” 24 June 2010) and 

Unilever is now our favourite stock in the Food sector. 

Our favourite food stock 

It took the recent investor trip to Anheuser-Busch InBev to remind us of one of 

Unilever’s undoubted qualities: it’s a strong cash generator. In fact, according to ABI, 

it is the best cash convertor of an exalted peer group. It’s always been a good cash 

generator, but in the past, owing to well founded concerns about its operating 

performance, this has missed the point from an investment perspective. In our view 

the operating performance looks increasingly sustainable for a number of reasons. 

• Emerging markets. It’s hardly breaking new ground to point out that with 

50% of its sales in emerging markets Unilever is more exposed to the 

growthier bits of the world than many others. 

• Europe. Unilever’s European business is predominantly a food business with 

lacklustre market dynamics. Europe is a good test of the extent to which the 

company is genuinely improving rather than being helped out by market 

growth. It seems to be responding to the Polman treatment. 

• Remuneration. The structure of directors’ compensation, particularly the 

focus on ‘underlying’ EPS, has been a big bugbear of ours. This has changed. 

Management’s interests are well aligned with those of shareholders now. 

Some quarterly volatility expected 

That said, the second half of 2010 is not going to be straightforward. As the 

commodity price ‘dividend’ rolls over, further increases in both A&P and margins 

are going to be more modest. Unilever’s primary focus is on re-invigorating top line 

volume growth with a key test case in Western Europe. As we move in to H2 this 

might not be compatible with quarterly margin expansion. The new business model 

calls for progressive incremental volume and revenue growth and annual 

improvement in operating margins. Looking at Unilever’s progress in the context of 

the last two years – so not just mirroring comps from 12 months ago – we believe it 

has scope to do both, even at the expense of potentially volatile quarterly 

performance. 

Stepping up to the plate 

We have been tepid buyers of Unilever so far this year. We believe that the market 

understands the risk of some quarterly volatility now, and that a properly 

sustainable operating model is emerging, facilitating a focus on Unilever’s strong 

cash conversion. We recently increased our fair value by 10% to reflect a closer 

alignment between capex and depreciation moving forward. Unilever already sits 

at the top of the table when it comes to cash conversion but it still has more to do 

– particularly in regard to creditor days. Contrary to popular opinion, the Unilever 

recuperation has not been reflected in superior share price performance and the 

shares have actually only performed in line with the consumer index (+2% vs SX3P) 

since Paul Polman was announced as incoming CEO – and have actually 

underperformed Nestle in a similar time frame (-8% currency adjusted). We are 

happy to re-iterate our Buy and install Unilever as a consumer Silver Bullet for the 

third quarter of 2010. 


Unilever NV 

BUY 

19% upside 

Fair Value €26.9 

RIC, Bloomberg Code UNc.AS, UNA NA 

Share Price €22.54 

Market Capitalisation €65,141m 



Sales 39,823 43,663 46,159 48,546 

Ebitda 6,920 7,536 7,999 8,405 

EPS (€) 1 1.37 1.44 1.57 1.68 

Dividend (€) 0.76 0.83 0.91 0.97 

FCF 4,072 3,477 3,928 4,366 


Net Debt 6,357 5,187 3,784 2,171 

1. pre restructuring charges 

Unilever plc 

BUY 

23% upside 

Fair Value 2,209p 

RIC, Bloomberg Code ULVR.L, ULVR LN 

Share Price 1,801p 




Sales 32,695 35,847 37,896 39,856 

Ebitda 5,681 6,187 6,567 6,901 

EPS (p) 1 95.7 118.0 128.5 137.9 

Dividend (p) 62.4 68.3 74.4 79.8 

FCF (£) 3,343 2,854 3,225 3,584 

Invested capital (£) 29,725 30,012 30,110 30,221 

Net Debt 5,219 4,258 3,107 1,782 

1. pre restructuring charges 

Page 25 of 44


Unilever 



Fair Value: EUR 26.9 Reported P/E 13.0 19.3 17.5 16.0 14.9 

EV / Sales 1.7 1.8 1.6 1.5 1.4 



FCF Yield 3.7% 6.3% 5.3% 6.0% 6.7% 



Bloomberg: UNA NA Key ratios 2008 2009 2010E 2011E 2012E 

T-One: UNA-AE 


EBIT margin 14.6% 14.8% 14.9% 15.1% 15.2% 

Capex / Revenue 2.7% 3.2% 3.5% 3.5% 3.5% 


Market Cap 65,141 Net Debt / EBITDA 1.2 0.9 0.7 0.5 0.3 





P&L Summary 2008 2009 2010E 2011E 2012E 


% change 0.8% -1.7% 9.6% 5.7% 5.2% 

Half Year 2010 results 05 August 2010 EBITDA 6,881 6,920 7,536 7,999 8,405 

Q3 2010 results 04 November 2010 % change 1.2% 0.6% 8.9% 6.1% 5.1% 

% margin 17.0% 17.4% 17.3% 17.3% 17.3% 

Depreciation & Amortisation -982 -1,032 -1,032 -1,032 -1,032 

EBIT 5,899 5,888 6,504 6,967 7,373 

% change 1.4% -0.2% 10.5% 7.1% 5.8% 

% margin 14.6% 14.8% 14.9% 15.1% 15.2% 

Execution Analyst 

James Edwardes Jones Net Financials -400 -429 -359 -289 -219 

(44) 20 7456 1697 Associates 131 115 3 3 3 

james.edwardesjones@executionlimited.com Other Pre-tax Income 231 210 -119 -119 -119 

Pre Tax Profit (underlying) 5,861 5,784 6,029 6,562 7,038 

Income Tax Expense -1,559 -1,527 -1,568 -1,706 -1,830 


Nor recurring items 983 -598 -437 -462 -485 

Revenue Breakdown Execution Net Income 4,044 3,968 4,153 4,525 4,854 

Reported Net Income 5,027 3,370 3,716 4,063 4,369 

Execution EPS 1.39 1.37 1.44 1.57 1.68 

Reported EPS 1.73 1.17 1.29 1.41 1.51 

DPS 0.77 0.76 0.83 0.91 0.97 

Payout Ratio 55.3% 55.3% 57.9% 57.9% 57.9% 



Americas 

Operating profit 7,167 5,020 6,068 6,505 6,888 

32% 

Depreciation 1,003 1,032 1,176 1,341 1,529 

Operating Profit Breakdown Taxes Paid -1,455 -959 -1,568 -1,706 -1,830 

Interest Paid / Received -382 -444 -359 -289 -219 

Margin Trends 

Margin 

20% 

18% 

16% 

14% 

12% 

Europe 

29% 

Europe 

28% 

Americas 

34% 

Asia/Africa 

39% 

Asia/Africa 

38% 

2008 2009 2010E 2011E 2012E 


Change in Working Capital -161 1,701 50 50 -100 

Other Operating Cash Flow -2,683 -1,020 -363 -358 -203 


Capital Expenditure -1,099 -1,258 -1,528 -1,616 -1,699 

Free Cash Flow 2,390 4,072 3,477 3,928 4,366 

Acquisitions & Disposals 2,265 -139 0 0 0 

Dividends Paid To Shareholders -2,086 -2,106 -2,306 -2,526 -2,752 

Equity Raised / Bought Back -1,400 103 0 0 0 


Net Cash Flow 323 1,655 1,170 1,402 1,614 






Other Assets 8,578 8,152 8,828 9,267 9,687 

Total Assets 36,106 36,999 38,026 38,740 39,330 






Total Equity 10,372 12,536 13,946 15,483 17,100 

Net Debt 8,012 6,357 5,187 3,784 2,171 


Page 26 of 44


Vodafone 

VZW continues to act as a driver 

Vodafone is our favourite large cap telco; we like its leading 

positioning in mobile data, exposure to cyclical recovery, the 

lessening regulatory drag, and potential for portfolio rationalisation. 

In the coming quarter we expect improving revenue trends in 

Europe, and increasing discussion around the timing and potential 

scale of a dividend from VZW. We reiterate our BUY rating and 

recently raised fair value of £1.75. 

Operational and dividend upside from Verizon Wireless 

Our survey of 3000 US wireless consumers builds upon the similar survey we did 

last year. It confirms Verizon Wireless as the dominant US wireless operator, with 

the best reputation for network, lowest churn, highest mobile data growth, and 

leading overall customer perception scores. This has all been achieved even 

without the iPhone, which it will probably get in January 2011. If anything VZW has 

increased its dominance over the last 12 months, and this is set to continue as 

customer perception of AT&T weakens under pressure from the network problems. 

VZW’s operational performance is translating directly into its financials: we believe 

it has now fully repaid the intercompany loan to its parent, and it will turn net cash 

positive in 12-14 months’ time. Its enormously strong cashflow generation of 

$1.5bn/month will eventually turn into dividends for Vodafone, with a good chance 

this happens earlier than consensus in 2011 or 2012 at the latest – a view that is 

supported by recent comments from the VZ CFO. There is also the possibility of a 

large one-off distribution from VZW, instead of a drip feed of annual dividends. 

Europe is improving, despite drag from regs and austerity 

We expect Vodafone’s Q1 results on 23 rd July to show another improvement in 

European revenue trends of around 0.4%, with decent growth in Northern Europe 

compensating for weakness in the South. Italy and Greece are likely to be 

particularly weak, as price cuts and austerity measures start to bite. The iPhone in 

Germany and Spain will help in 2H. 

MTR cuts are still creating a c.2% revenue drag, although we see this lessening as 

we move down to the €1-2c/minute floor over the next 2-3 years. The aggregate 

revenue base subject to regulation is falling, with roaming now just 5% of sales and 

no new areas of control on the horizon as the EU turns its attention to Fixed 

instead of Mobile. 

Best positioned for mobile data 

We believe Vodafone has the best or joint-best network in every country in which 

it operates, with very few exceptions and in these cases the country managers 

have a mandate to invest (e.g. Turkey). Its utilisation rates are lower than its peers, 

and this is increasingly acting as a differentiating factor for consumers. 

Vodafone’s moves towards variable pricing for mobile data will enable data 

revenues to capture at least some of the enormous expected future growth in 

volumes. 

Rationalising the portfolio 

Vodafone appears to have re-focussed its strategy down to just three regions: 

Europe, India and sub-Saharan Africa. In our view there are some notable 

exclusions from this footprint including the holdings in USA (£68.4bn in our SOTP), 

China (£4.3bn), Egypt (£2.2bn), Australia & New Zealand (£3.1bn). Within Europe 

we believe France (£9.2bn) may also be deemed non-core. 

Disposals may not come this quarter, but it would be reasonable to expect 

significant proceeds from asset sales in the medium term. 


BUY 

25.8% upside 


RIC, Bloomberg Code VOD.L, VOD LN 


Market Capitalisation £73.3bn 


GBP bn Mar-10 Mar-11E Mar-12E Mar-13E 

Net revenue 44.47 44.07 43.00 42.74 

EBITDA 14.74 13.97 13.71 13.73 

Capex 6.19 6.13 5.52 5.11 

FCFE 6.25 3.56 6.04 7.99 

Net Debt 33.32 34.32 33.20 30.67 

EPS (p) 16.36 15.12 14.90 15.14 

DPS (p) 8.31 9.00 10.00 11.00 



Mar-10 Mar-11E Mar-12E Mar-13E 

EV / Sales 1.7 1.7 1.7 1.7 

EV / EBITDA 4.9 4.9 4.9 4.9 

P/E 6.9 9.2 9.3 9.2 

FCF Yield (%) 7.1% 4.7% 7.0% 8.7% 

FCFE Yield (%) 8.5% 4.9% 8.2% 10.9% 





Analysts 

Will Draper 

+44 20 7456 1694 


Andrew Hogley 

+44 20 7456 1652 


Nick Brown 

+44 20 7456 1669 


Page 27 of 44


Vodafone 

Valuation Metrics Mar 09 Mar-10 Mar-11E Mar-12E Mar-13E 


Fair Value: GBP 1.75 Reported P/E 23.8 8.5 9.2 9.3 9.2 

EV / Sales 1.9 1.8 1.7 1.8 1.7 

Share Price: GBP 1.39 EV / EBITDA 5.4 5.1 5.1 5.1 5.1 


FCF Yield 5.3% 6.8% 4.5% 6.7% 8.4% 

Previous Fair Value GBP 1.70 Dividend yield 5.6% 6.0% 6.5% 7.2% 7.9% 


Bloomberg: VOD LN Key ratios Mar 09 Mar-10 Mar-11E Mar-12E Mar-13E 

T-One: VOD-LN 

Model Published On: 40361 EBITDA margin 35.3% 33.1% 31.7% 31.9% 32.1% 

EBIT margin 18.7% 15.1% 13.6% 13.5% 14.2% 

Capex / Revenue 12.7% 10.9% 13.9% 12.8% 11.9% 




Adjustments For Associates & Minorities 7,000 ROE 4% 10% 8% 8% 8% 



P&L Summary (GBP m) Mar 09 Mar-10 Mar-11E Mar-12E Mar-13E 


% change 15.6% 8.4% -0.9% -2.4% -0.6% 

Ex-Dividend Date 02 Jun 2010 EBITDA 14,490 14,735 13,968 13,711 13,731 

1Q 2010/11 IMS 23 Jul 2010 % change 10.0% 1.7% -5.2% -1.8% 0.1% 

1H 2010/11 Results 09 Nov 2010 % margin 35.3% 33.1% 31.7% 31.9% 32.1% 

Depreciation & Amortisation -6,824 -8,011 -7,984 -7,911 -7,660 

EBIT 7,666 6,724 5,984 5,800 6,071 

% change 6.4% -12.3% -11.0% -3.1% 4.7% 

% margin 18.7% 15.1% 13.6% 13.5% 14.2% 

Associates 4,091 4,742 5,294 5,574 5,631 

Execution Analyst Operating Profit 11,757 11,466 11,278 11,374 11,702 

Will Draper Net Financials -2,419 -1,512 -2,057 -2,051 -2,008 

(44) 20 7456 1694 Other Pre-tax Income -5,149 -1,280 850 867 884 

will.draper@executionlimited.com Pre Tax Profit 4,189 8,674 10,071 10,190 10,578 

Income Tax Expense -1,109 -56 -2,011 -2,132 -2,372 


Revenue Breakdown (Mar11E) Minority Interests -2 27 -100 -200 -204 

Net Income 3,078 8,645 7,960 7,859 8,002 


Reported EPS 5.81 16.36 15.12 14.90 15.14 

Execution EPS 16.95 20.33 15.12 14.90 15.14 

DPS 7.77 8.31 9.00 10.00 11.00 

Payout Ratio 133.7% 50.8% 59.5% 67.1% 72.6% 


Cash Flow Summary (GBP m) Mar 09 Mar-10 Mar-11E Mar-12E Mar-13E 

EBITDA 14,490 14,735 13,968 13,711 13,731 

Taxes Paid -2,421 -2,273 -2,361 -2,482 -2,455 

Operating Profit Breakdown (Mar-11E) Interest Paid / Received 302 195 0 0 0 

Change in Working Capital 274 -980 900 675 450 

Margin Trends 

Margin 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Europe 

63% 

Europe 

48% 

Verizon 

Wireless 

43% 

Africa and 

Central 

Europe 

20% 

Asia, Pacific 

and Middle 

East 

16% 

Common 

Functions 

1% 

Africa and 

Central 

Europe 

6% 

Asia, Pacific 

and Middle 

East 

3% 

Mar-08 Mar-09 Mar-10 Mar-11E Mar-12E Mar-13E 


Associate & Minority Dividends 755 1,577 1,194 2,651 3,717 

Other Operating Cash Flow -130 1,582 340 137 138 



Free Cash Flow 6,000 7,666 5,095 7,573 9,473 

Acquisitions & Disposals -1,043 -1,729 0 0 0 



Other Financing Cash Flow 3,353 -2,295 -1,462 -1,452 -1,405 

Net Cash Flow 3,194 -483 -1,000 1,117 2,524 

Balance Sheet Summary (GBP m) Mar 09 Mar-10 Mar-11E Mar-12E Mar-13E 





Other Assets 18,918 21,285 22,385 23,210 23,760 

Total Assets 152,699 156,985 162,402 166,744 170,461 





Minority Interests -1,385 429 454 578 703 

Total Equity 84,777 90,810 94,377 97,569 100,369 

Net Debt 34,223 33,316 34,316 33,199 30,674 


Page 28 of 44


BBVA 

Uncompelling risk/reward 

We include BBVA in this quarter's Silver Bullets as a SELL, paired 

with a long recommendation in LLOY. The pair is selected based on 

the view that BBVA is over-valued (1.8x P/TNAV 2010) and faces 

deteriorating fundamentals in its domestic market (which accounts 

for >45pct of net earnings). Further the bank's balance sheet has not 

undergone such a purposefully draconian stress test as the UK's FSA 

conducted on LLOY last year (and which resulted in a £13.5bn rights 

issue and £9.0bn debt exchange for that bank). Catalysts for the 

SELL on BBVA will be the likely publication of Europe-wide stress 

tests this summer, as well as Q2 results on 4th August. 

Stress test to reveal balance sheet weakness 

We have stress tested BBVA's balance sheet using moderately severe cumulative 

loss assumptions across the group's domestic book and also a 10% haircut on 

Spanish sovereign bonds. Our stress test reveals that BBVA would need EUR11bn 

in order to maintain an 8% core T1 ratio following the burndown analysis. 

The Spanish stress tests will need to be sufficiently conservative to draw a line 

under market concerns that the capital position is not strong enough to withstand 

the macro pressures in Spain and dislocation in the international wholesale funding 

markets. In addition publishing assumed haircuts on sovereign bonds may be self 

fulfilling and be negative for the cost of equity. 

Loss absorbing capacity at risk 

Historically the attraction of the Spanish banks was high pre provision earnings so 

that their loss absorbing capacity was not in question. Now net interest income is 

under pressure from the lagged impact of EURIBOR. At the same time wholesale 

funding costs are elevated (as a proxy, BBVA's CDS has increased 170bp in the last 

three months) and likely to further pressure pre-provision profitability. BBVA has a 

significant reliance on wholesale funding in Europe with a 217% loan/deposit ratio 

(group is 127%). This is not reflected in consensus (downgrades of 4% ytd) and we 

are more than 20% below consensus in 2010-2011. 

No escape from Spanish macro 

Iberia is >45% of group earnings and the macro outlook for this market is 

fundamentally deteriorating. We expect negative credit growth of 5% per annum 

over 2010-2012, and NPLs are expected to peak in 2011. 

Valuations 

We value BBVA at EUR 8.6, or a multiple of 1.3x our 2012 book value however such 

a multiple may indeed be hard to fetch in the context of a prospective capital raise 

and ongoing uncertainty in the wholesale funding system. 


SELL 

0% upside 


RIC, Bloomberg Code BBVA.MC, BBVA SM 


Market Capitalisation €32,270 




Pre-tax profit 6,988 5,414 5,872 7,530 


EPS adj 1.45 0.96 1.06 1.37 

DPS 0.42 0.15 0.16 0.21 

BV (adj) ps 4.02 4.69 5.53 6.66 

ROE (adj) (%) 34% 22% 21% 23% 

LLP as % loans -1.62% -1.72% -1.45% -1.03% 

Core Tier 1 ratio (%) 7.6% 7.7% 8.6% 9.8% 

€ (unless stated) 2009 2010E 2011E 2012E 

Adjusted P/E 5.9 8.9 8.2 6.3 


Price / book 1.1 1.0 0.9 0.8 

Price / adj book 2.1 1.8 1.6 1.3 

Yield (%) 4.9% 1.7% 1.8% 2.4% 

ROE (%) 20% 12% 12% 14% 

Cost income ratio (%) 40% 39% 40% 40% 

BVps 7.82 8.54 9.44 10.63 

Analysts 

Joseph Dickerson 

+44 20 7426 4228 


Page 29 of 44


BBVA 


Recommendation: SELL PER (adjusted) (x) 5.8 5.9 8.9 8.2 6.3 

Fair Value: EUR 8.60 Price/Pre Provis Profit per share (x) 2.7 2.6 2.7 2.8 2.7 


Share Price: EUR 8.61 RoE (%) (adjusted) 30.7 33.8 22.2 20.7 22.6 

Upside / Downside -0.1% RoRWA (%) 1.88 1.90 1.21 1.27 1.59 

Implied cost of equity (curve) (%) 18.3 13.2 13.2 14.2 

Bloomberg: BBVA Yield (net) (%) 5.8 4.9 1.7 1.8 2.4 

Key ratios 2008 2009 2010E 2011E 2012E 





RoE (%) (adjusted) 30.7 33.8 22.2 20.7 22.6 

NAV 2010E 17,567 RoA (stated) 1.06 1.01 0.68 0.74 0.95 

NAV per share 2010 4.7 RoRWA 1.88 1.90 1.21 1.27 1.59 


P&L Summary 2008 2009 2010E 2011E 2012E 

Q2 Results 28 July 2010 Net interest income 11,686 13,885 12,973 12,341 12,581 



Costs -6,981 -8,362 -7,725 -7,809 -7,881 

Pre Provision Net Operating Income 11,997 12,307 12,046 11,604 11,916 

Execution Noble Analysts Loan loss charges -2,940 -5,472 -5,729 -4,824 -3,479 

Post provision profit 7,625 6,376 6,117 6,579 8,237 

Joseph Dickerson Pre Tax Profit 7,434 6,988 5,414 5,872 7,530 

(44) 20 7456 4228 Net profit 5,528 5,459 3,626 3,968 5,156 


EPS adj. 1.49 1.45 0.96 1.06 1.37 


Operating income 4 9 -4 -2 2 

Pre provision profit 7 3 -2 -4 3 

EPS adj. -12 -3 -34 9 30 

NAV (adjusted)/share -9 -12 16 18 20 


Total adj assets 538,817 531,194 530,502 532,963 543,449 




NAV per share 6.8 7.8 8.5 9.4 10.6 

RWA 283,320 291,026 306,648 319,175 329,167 

Tier 1 equity 22,365 27,523 29,150 32,882 37,636 



Page 30 of 44


Deutsche Telekom 

T-Mobile USA remains a drag 

Deutsche Telekom is our least favourite large cap Telco. T-Mobile 

USA continues to struggle and we do not believe that the business is 

out of the woods in Germany, in our view there is a significant risk of 

a further dividend cut and recent outperformance provides an 

opportunity to sell the shares. We reiterate our SELL rating on the 

shares with a recently lowered €7.60 per share fair value. 

T-Mobile is getting it all wrong in the USA 

T-Mobile is getting it all wrong in the USA; the business has lost subscribers, 

suffered a sharp decline in ARPU and seen service revenues decline by around 3% 

y-o-y over recent quarters. Over the last four quarters its service revenue market 

share has fallen from 12.7% to 11.9% and its market share of EBITDA and Op FCF 

has fallen even faster. In the context of a growing market this is an abysmal result 

for a challenger operator but we see little prospect of the trends improving. 

Our in depth report “US Mobile Survey: VZW dominates” published on the 2 nd of 

July highlights T-Mobile’s weak customer perception and that churn is likely to stay 

at high levels. The lack of a credible data strategy is another key concern and we 

believe that there is a significant risk that T-Mobile will have to acquire additional 

spectrum in order to compete for data revenue; this is not yet in our numbers. 

German mobile is not out of the woods 

German mobile service revenues returned to growth in the first quarter but we do 

not believe this will be a permanent feature. The next wave of MTR cuts are likely 

to be announced in October and given the precedent from recent announcements 

in UK, Netherlands and Belgium could well be more severe than the cut to €0.05 

assumed in our forecasts. The loss of iPhone exclusivity in the fourth quarter of 

2010 would remove a key support. 

Cable operators are rolling out 100Mbps offers 

Over recent months the German cable operators (Kabel Deutschland and 

Unitymedia) have started to roll out 100Mbps broadband packages over Docsis 3.0 

technology. We believe this will add to the pressure on fixed access line trends 

even with Deutsche Telekom fighting back with its own triple play offering. The 

target for 5 million Entertain customers by 2012 is aggressive and could well 

require further investment in margin. Line loss could also trigger an accelerated 

FTTH rollout, the costs of which are not in our forecasts. 

Dividend may face further pressure 

Given the weak cash cover and negative earnings growth we see significant risk to 

the medium-term dividend, on our numbers it will fall below €0.70 in 2012. The 

recent cut to OTE’s dividend will add further pressure but the requirement to fund 

US Spectrum or FTTH could result in a material cut. 

Shares have outperformed, opportunity to SELL 

Deutsche Telekom has outperformed its European peers over recent months, in 

our view this has not been justified by the financial and operating performance. 

Our DCF-based fair value of €7.60 is more than 20% below the current share price 

and we reiterate our SELL recommendation 


SELL 

21.7% downside 


RIC, Bloomberg Code DTEGn.DE, DTE GY 


Market Capitalisation €42.3bn 


EUR bn 2009 2010E 2011E 2012E 

Net revenue 64.64 61.99 60.04 58.83 

EBITDA 20.67 19.70 18.91 18.05 

Capex 9.20 9.11 9.03 8.49 

FCFE 5.71 3.99 4.51 4.41 

Net Debt 40.91 41.90 40.79 39.79 

EPS (EUR) 0.78 0.87 0.77 0.67 

DPS (EUR) 0.78 0.70 0.70 0.68 



2009 2010E 2011E 2012E 

EV / Sales 1.4 1.5 1.4 1.5 

EV / EBITDA 4.6 4.6 4.7 4.9 

P/E 12.5 11.2 12.7 14.8 

FCF Yield (%) 9.8% 8.0% 8.5% 8.3% 

FCFE Yield (%) 13.5% 9.4% 10.6% 10.4% 





Analysts 

Andrew Hogley 

+44 20 7456 1652 


Will Draper 

+44 20 7456 1694 


Nick Brown 

+44 20 7456 1669 


Page 31 of 44


DEUTSCHE TELEKOM 


Recommendation: SELL Execution P/E 12.4 12.5 11.2 12.6 14.5 


EV / Sales 1.4 1.4 1.5 1.4 1.5 


Upside / Downside -21.7% EV / EBIT 10.0 10.3 9.7 10.5 11.5 

FCF Yield 10.0% 9.8% 8.0% 8.5% 8.3% 



Bloomberg: DTE GY Key ratios 2008 2009 2010E 2011E 2012E 

T-One: DTE-XE 


EBIT margin 14.3% 14.2% 15.0% 14.2% 13.1% 

Capex / Revenue 14.1% 14.2% 16.9% 16.7% 16.0% 






Net Pension Deficit -5,871 

P&L Summary (EUR m) 2008 2009 2010E 2011E 2012E 


% change -1.4% 4.8% -4.1% -3.1% -2.0% 

1Q 2010 results 12 May 2010 EBITDA 19,459 20,668 19,698 18,906 18,049 

2Q 2010 results 05 August 2010 % change 0.7% 6.2% -4.7% -4.0% -4.5% 

3Q 2010 results 04 November 2010 % margin 31.6% 32.0% 31.8% 31.5% 30.7% 

Depreciation & Amortisation -10,639 -11,510 -10,416 -10,396 -10,332 

EBIT 8,820 9,158 9,282 8,510 7,717 

% change 9.1% 3.8% 1.4% -8.3% -9.3% 

% margin 14.3% 14.2% 15.0% 14.2% 13.1% 

Associates 0 0 0 0 0 

Execution Analyst Operating Profit 8,820 9,158 9,282 8,510 7,717 

Will Draper Net Financials -2,936 -3,125 -3,093 -3,053 -2,936 

(44) 20 7456 1694 Other Pre-tax Income 0 0 0 0 0 

will.draper@executionlimited.com Pre Tax Profit 5,884 6,033 6,190 5,457 4,781 

Income Tax Expense -1,889 -2,102 -2,052 -1,801 -1,578 


Revenue Breakdown (2010E) Minority Interests -569 -541 -557 -618 -643 

Net Income 3,426 3,390 3,581 3,038 2,560 


Reported EPS 0.79 0.78 0.82 0.70 0.60 

Execution EPS 0.79 0.78 0.87 0.77 0.67 

DPS 0.78 0.78 0.70 0.70 0.68 

Payout Ratio 99.3% 100.3% 85.3% 99.6% 113.8% 


Cash Flow Summary (EUR m) 2008 2009 2010E 2011E 2012E 

USA 

26% 

EBITDA 19,459 20,668 19,698 18,906 18,049 

Taxes Paid -520 -928 -1,005 -1,065 -1,095 

Operating Profit Breakdown (2010E) Interest Paid / Received -2,257 -2,476 -2,648 -2,563 -2,498 

Margin Trends 

Margin 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Southern & 

Eastern 

Europe 

15% 

Europe 

11% 

Southern & 

Eastern 

Europe 

14% 

Europe 

12% 

Systems 

Solutions 

10% 

USA 

23% 

Systems 

Solutions 

3% 

Germany 

38% 

Germany 

48% 

2007 2008 2009 2010E 2011E 2012E 


Change in Working Capital 156 118 -344 100 50 

Associate & Minority Dividends -548 -856 -319 -454 -514 

Other Operating Cash Flow -922 -731 -363 367 625 



Free Cash Flow 6,100 5,708 3,992 4,506 4,408 

Acquisitions & Disposals 1,252 591 121 0 0 


Equity Raised / Bought Back 3 2 0 -347 -373 

Other Financing Cash Flow -3,127 -903 -1,662 0 0 

Net Cash Flow 826 1,996 -950 1,106 1,008 

Balance Sheet Summary (EUR m) 2008 2009 2010E 2011E 2012E 





Other Assets 21,073 21,839 26,564 25,140 24,119 

Total Assets 123,140 127,774 128,605 127,922 126,968 





Minority Interests 3,115 5,583 5,654 5,519 5,344 

Total Equity 43,112 41,937 43,681 43,483 42,772 

Net Debt 38,158 40,911 41,899 40,794 39,786 


Page 32 of 44


Electrolux 

Squeezed from all sides 

We believe Electrolux is unlikely to replicate its strong performance 

in 2009 for 2010. In 2009 it benefitted from both its US-rebranding 

and a dramatic fall in its raw materials bill. Fundamentally Electrolux 

is in a challenged position, with little power over either its suppliers 

or customers, white-hot competition from Asian manufacturers and a 

raw materials bill that has increased in 2010, despite recent easing of 

some material prices. We reiterate our Sell rating and SEK164 price 

target. 

Raw materials headwind continues into 2011 

Raw materials constitute 17% of sales, and fluctuations in price are a major driver of 

earnings. Since 2004 Electrolux has absorbed an increase in its raw material bill of 

Skr7.0bn. In 2009, the company positioned itself for falling raw materials prices by 

moving to shorter-term contracts. This paid off in 2009, but the company failed to 

lock in these lower rates for 2010 believing they would continue to fall. We believe 

2Q10 will be the first quarter in which Electrolux experiences a headwind and that 

this will continue through the remainder of 2010 (albeit with little additional risk 

given 70% of steel required for 2010 has been locked-in with suppliers). Our 

analysis indicates a Skr1bn raw material headwind in 2010 and a further Skr1.7bn 

headwind in 2011. Without further restructuring savings, this headwind will directly 

impact EBIT margins in the same way it can be shown has happened historically. 

Margin gap to Capital Goods sector has widened 

Electrolux has narrowed the margin gap to its appliance peers from 270bp in 2000 

to 80bp in 2009 through restructuring and brand structure rationalisation, but it 

has actually increased relative to the Capital Goods sector from 400bp in 2000 to 

760bp in 2009. Electrolux’s valuation over the same period has recovered to such 

an extent that it now trades inline with Cap Goods peers. Fundamentally 

Electrolux is coming from a weaker position than the broader European Capital 

Goods due to the characteristics of the appliance industry in which it operates. 

Absent a change in the structure of the white goods industry we would continue to 

argue a significant discount for Electrolux relative to the Capital Goods sector. 

6.0% EBIT margin will be a challenge to achieve 

Electrolux introduced a 6.0% EBIT margin goal in 2007 but even with the boost 

from lower raw materials and ‘crisis management’ initiatives in 2009, it only 

achieved 4.9% last year. In 2010, operational gearing, restructuring savings and the 

North American rebranding will help the margin reach 6.1%, we believe, but 

thereafter we see the margin falling in the absence of another significant 

restructuring programme and charge. This is not inconsistent with Electrolux’s 

guidance which is on a pre-restructuring basis, but we believe the market may be 

overestimating profitability by assuming a 6.0% post restructuring margin. 

Valuation: Deserves a discount to Capital Goods Sector 

Electrolux is currently trading on 9.1x2011E EV/EBITA, inline with the European 

Capital Goods sector average of 9.2x 2011E EV/EBITA. Our target price applies an 

8.5x 2011E EV/EBITA multiple on which we find Skr164 per share value. We believe 

Electrolux deserves this discount because 1. its growth has significantly 

underperformed the sector over the last 10 years, 2. its margins are structurally 

lower and under more pressure, 3. its value proposition to customers is weak 

compared to companies with industrial customers, 4. it has limited emerging 

market exposure and 5. its financial performance is too heavily dependent on raw 

materials and factors beyond management’s control. Our DCF valuation yields 

Skr154 per share value. 


SELL 

13% downside 

Fair Value SEK 164 

RIC, Bloomberg Code ELUXb.ST, ELUXB SS 

Share Price SEK 190 



$m 2009 2010E 2011E 2012E 

Sales 109,132 109,123 112,790 116,696 

Adjusted EBITA 4,940 6,229 6,205 6,054 

Adjusted EPS 11.10 14.22 14.18 13.98 

Dividend 4.00 4.60 4.95 4.62 

FCF* 5,757 3,647 3,427 4,367 

EV Adjustments** 2,168 2,233 2,300 2,369 

Net Debt 4,068 1,657 -350 -3,187 




EV/Sales 0.4 0.6 0.5 0.5 


P/E Adjusted 10.6 13.4 13.4 13.6 


FCF Yield (%) 15.8% 6.2% 5.8% 7.4% 

Net Debt/EBITDA 0.5 0.2 0.0 -0.3 

Analysts 


+44 20 7456 1190 


Rob Virdee 

+44 20 7456 9222 


Page 33 of 44


Electrolux 


Recommendation: Sell Execution P/E 96.6 10.6 12.4 12.5 12.6 

Fair Value: SEK 164 Reported P/E 90.1 14.0 13.5 12.5 13.4 

EV / Sales 0.46 0.39 0.54 0.50 0.46 

Share Price: SEK 177 EV / EBITDA 11.8 5.1 6.2 6.1 5.9 


FCF Yield 4.1% 15.8% 6.7% 6.3% 8.0% 

Previous Fair Value SEK 156 Dividend yield 0.0% 2.3% 2.6% 2.8% 2.6% 


Bloomberg: ELUXB SS Key ratios 2008 2009 2010E 2011E 2012E 

T-One: ELUX'B-SK 



Capex / Revenue 3.5% 2.4% 2.8% 2.8% 2.8% 

Shares in Issue, mn 309 Capex / Depreciation -1.23 -0.75 -0.98 -1.02 -1.05 

Market Cap 54,524 Net Debt / EBITDA 1.4 0.5 0.2 0.0 -0.3 

Net Debt -350 EBITDA / Net Interest 7.7 30.3 55.1 77.7 186.8 

Net Pension Deficit 2,300 ROE 2.2% 13.8% 18.7% 17.8% 15.0% 

Enterprise Value (Dec 2011E) 56,474 

P&L Summary 2008 2009 2010E 2011E 2012E 

Revenue 104,792 109,132 109,123 112,790 116,696 

% change 0.1% 4.1% 0.0% 3.4% 3.5% 

Forthcoming Catalysts Adj. EBITDA 4,136 8,382 9,373 9,305 9,133 

% change -41.8% 102.6% 11.8% -0.7% -1.8% 

% margin 3.9% 7.7% 8.6% 8.2% 7.8% 

2Q 2010 Results 19 July 2010 Depreciation 3,010 3,442 3,144 3,101 3,079 

3Q 2010 Results 27 October 2010 Adj. EBITA 1,126 4,940 6,229 6,205 6,054 

% change -74.2% 338.6% 26.1% -0.4% -2.4% 

% margin 1.1% 4.5% 5.7% 5.5% 5.2% 

Operating Profit 1,188 3,761 5,749 6,190 5,718 

Execution Analyst Net Financials -535 -277 -170 -120 -49 

Nick Paton, CFA Pre Tax Profit 653 3,484 5,579 6,070 5,669 

(44) 20 7456 1190 Income Tax Expense -287 -877 -1,523 -1,700 -1,587 

nick.paton@executionlimited.com Minority Interests - 

- 

- 

- 

- 

Net Income 366 2,607 4,056 4,371 4,082 

Revenue Breakdown 

Execution Net Income 341 3,430 4,392 4,381 4,317 

Reported EPS 1.29 8.44 13.13 14.15 13.21 

Professional 

Indoor 

7% 

Execution EPS 1.21 11.10 14.22 14.18 13.98 

DPS 0.00 4.00 4.60 4.95 4.62 

Payout Ratio 0.0% 47.4% 35.0% 35.0% 35.0% 

Shares in Issue mn 309 309 309 309 309 


Pre Tax Profit 653 3,484 5,579 6,070 5,669 

Depreciation 3,010 3,442 3,144 3,101 3,079 

Taxes Paid -918 -929 -1,523 -1,700 -1,587 

Net Financials 535 277 170 120 49 

Operating profit before items Breakdown Change in Working Capital 1,503 1,919 -485 -895 442 

Other Operating Cash Flow 401 157 -170 -120 -49 



Free Cash Flow 1,482 5,757 3,647 3,427 4,366 

Acquisitions & Disposals -19 - 

- 

- 

- 

Dividends Paid To Shareholders -1,204 - 

-1,236 -1,420 -1,530 

Equity Raised / Bought Back 17 69 - 

- 

- 

Other Financing Cash Flow -1,060 -4,068 - 

- 

- 

Net Cash Flow -784 1,758 2,411 2,007 2,837 



Margin Trends Tangible Fixed Assets 17,035 15,315 15,064 14,936 14,917 


10% 


8% 

Other Assets 

Total Assets 

40,282 

73,027 

36,395 

69,666 

36,540 

72,146 

38,332 

75,994 

39,075 

79,732 

6% 


4% 

2% 

Other Liabilities 

Total Liabilities 


43,807 

56,938 

16,385 

40,250 

53,855 

18,841 

39,910 

53,515 

21,661 

40,807 

54,412 

24,613 

41,992 

55,597 

27,165 

0% 

Minority Interests - 

- 

- 

- 

- 

2007 2008 2009 2010E 2011E 

Total Equity 16,089 15,811 18,631 21,583 24,135 

Adj. EBITDA margin Adj. EBITA margin 

Net Debt 5,826 4,068 1,657 -350 -3,187 

Margin 

Asia Pacific 

7% 

Latin America 

13% 

North America 

33% 

Asia Pacific 

9% 

Professional 

Indoor 

11% 

Latin America 

15% 

North America 

25% 

Europe 

40% 

Europe 

40% 


Page 34 of 44


Home Retail Group 

Far from Home 

Home Retail Group management has affirmed that it expects to be 

able to drive a “similar level of profitability” to last year despite the 

disappointing performance from Argos in the first quarter. Consensus 

estimates reflect this confidence and whilst forecasts have fallen 7% 

since the 1Q IMS in early June, we would argue that consensus 

estimates are still too bullish, particularly for 2011/12. Structural 

pressures remain and as a 100% UK consumer-exposed stock, we 

reiterate our Sell recommendation and downgrade our fair value to 

175p, at which the shares would trade at 9x our cal 2011 EPS. 

Share price underperformance to continue in our view 

Home Retail Group shares are down 21% (18% relative to the SXRP) in the past 

quarter, vindicating our decision to include them as our Silver Bullet Sell in 2Q10, 

but perhaps raising the question as to whether including them for a second 

consecutive quarter is advisable. Trading relative to peers suggests that the 

company is suffering from both structural and cyclical pressures and with our EPS 

estimate 27% below FY12 consensus, we still think the shares represent both an 

excellent absolute and relative short with the 2Q IMS on 9 th September a potential 

catalyst. What’s more, Home Retail Group is currently one of the smallest stocks in 

the FTSE100 and risks dropping out of the index (and the associated index funds) 

in the September review. 

Likely further pressure on consensus forecasts… 

We had assumed that the World Cup would provide a small boost for TV sales, but 

Argos seemingly saw no such benefit (in stark contrast to its specialist 

competitors). We feel this could be an early sign of structural pressures facing the 

business as the market polarises between low-priced commodity products and 

high-priced service-led products, leaving Argos squarely in the middle with little 

point of differentiation. 

Given the weakness in both vision and gaming, we admit to being slightly 

perplexed by the company’s affirmation that it expects to see a “similar level of 

profitability” to last year (although it is unclear if this guidance refers to absolute 

profit or a profit margin). In an attempt to stress-test our assumptions, reverseengineering 

consensus PBT of £276m implies a LfL sales deterioration of c..2.5-3% 

at Argos (assuming gross margins in line with guidance – down 50bps). This is 

where we take issue, particularly given the comps become more difficult for the 

next TWO quarters and hence the implied 2-year LfL is demanding. We expect this 

to become increasingly evident as we head into the 2Q IMS statement on 9 th 

September and note that we are looking for a LfL sales decline of 5% in FY11. 

Given the ‘delay’ to the proposed increase in VAT (the 20% rate will come into 

effect 4 Jan 2011) it was plausible that we would raise our FY11 LfL sales estimate, 

but we are sufficiently concerned that trading will remain difficult that we have left 

this assumption unchanged. We have instead lowered our 2012 LfL sales estimate 

with a corresponding fall in our PBT forecast; we now look for £218m of PBT, 27% 

below current consensus. 

Valuation not compelling even with attractive dividend 

Thus whilst the consensus valuation of 8.6x cal 2011 EPS might look appealing 

given the historic valuation of the stock (12.3x average since demerger in 

November 2006 but as low as sub 7x consensus EPS in 2008), we remain far from 

convinced on the value proposition. On our new lowered forecasts the shares trade 

on 11x our cal 2011 EPS whereas we believe the fair value should be closer to 9x 

given the declining earnings momentum. As such we lower our fair value to 175p, 

implying 17% downside, and retain our Sell recommendation. 


SELL 

17% downside 


RIC, Bloomberg Code HOME.L, HOME LN 




Year to 3 Mar, £m 2010 2011e 2012e 2013e 

Sales 6,023 5,876 5,776 6,012 

PBT 293 245 218 274 

EPS (p) 23.1 20.2 18.8 24.4 

Dividend (p) 14.7 14.7 14.7 16.2 

FCF*1 262 124 82 259 


Net Debt/(net cash) 

1. Post capex 

-414 -268 -231 -358 

Year to 3 Mar, x 2010 2011e 2012e 2013e 

EV / Sales 0.24 0.27 0.27 0.26 

EV / EBITDA 3.4 4.3 4.7 4.0 

PE 9.1 10.4 11.2 8.6 


FCF Yield (%) 14.3 6.8 4.5 14.1 

ROIC (%) 6.2 5.4 4.7 6.0 

Net Debt / EBITDA -1.0 -0.7 -0.7 -0.9 

Analysts 


+44 20 7456 9173 


Robert Evans 

+44 20 7426 4210 

robert.evans@execution-noble.com 

Richard Cathcart 

+44 20 7456 9155 

richard.cathcart@execution-noble.com 

Page 35 of 44


Home Retail Group 

Valuation Metrics, y/e Feb 2009 2010 2011e 2012e 2013e 

Recommendation: SELL Execution P/E 8.2 -9.6 -9.2 11.2 8.6 

Fair Value: 175p Reported P/E -4.5 8.7 10.6 11.2 8.6 

EV / Sales 0.3 0.3 0.3 0.3 0.3 



FCF Yield 18.6% 18.0% 7.8% 4.9% 16.3% 

Previous Fair Value Dividend yield 7.0% 7.0% 7.0% 7.0% 7.7% 

% change to fair value 

Bloomberg: HOME LN Key ratios, y/e Feb 2009 2010 2011e 2012e 2013e 

T-One: HOME-LN 


EBIT margin 5.1% 4.5% 4.1% 3.7% 4.4% 

Capex / Revenue 1.9% 1.2% 2.1% 2.6% 2.7% 


Market Cap 1,783 Net Debt / EBITDA n/a n/a n/a n/a n/a 

Net Debt / (Cash) -268 EBITDA / Net Interest n/a n/a n/a n/a n/a 

Adjustments For Associates & Minorities 0 ROE 8.1% -6.6% -7.1% 5.5% 7.0% 



P&L Summary, y/e Feb 2009 2010 2011e 2012e 2013e 


% change -1.5% 2.1% -2.4% -1.7% 4.1% 

2Q Trading statement 09 September 2010 EBITDA 460 420 363 332 388 

1H2011 results 20 October 2010 % change -17.9% -8.7% -13.5% -8.7% 17.1% 

3Q Sales (tbc) 13 January 2011 % margin 7.8% 7.0% 6.2% 5.7% 6.5% 

0 00 January 1900 Depreciation & Amortisation -159 -150 -121 -119 -124 

Operating profit 300 270 242 213 264 

% change 13.4% -10.2% -10.2% -12.2% 24.4% 

% margin 5.1% 4.5% 4.1% 3.7% 4.4% 

Associates (2) (2) (2) (2) (2) 

Execution Analysts EBIT 298 268 240 211 262 

Caroline Gulliver +44 20 7456 9173 Net Financials 30 5 5 7 12 

Robert Evans +44 20 7426 4210 Other Pre-tax Income (18) 0 0 0 0 

Richard Cathcart +44 20 7456 9155 Pre Tax Profit (core) 328 272 245 218 274 

Income Tax Expense (104) (91) (74) (63) (74) 

Minority Interests 0 (371) (367) 0 0 

Revenue breakdown (2011e) Net Income (core) 224 (190) (195) 155 200 

Net income (published) (413) 210 168 155 200 

Execution EPS 25.6 -21.8 -22.9 18.8 24.4 

Reported EPS -47.1 24.1 19.8 18.8 24.4 

DPS 14.7 14.7 14.7 14.7 16.2 

Payout Ratio 57.5% -67.5% -64.2% 78.1% 66.4% 


Argos 

71% 

Cash Flow Summary, y/e Feb 2009 2010 2011e 2012e 2013e 

EBITDA 460 420 363 332 388 

Taxes Paid (75) (107) (72) (63) (74) 

Profit breakdown (2011e) Interest Paid / Received 17 7 5 7 12 

Sales growth trends 

4% 

2% 

0% 

-2% 

-4% 

-6% 

-8% 

-10% 

-12% 

Homebase 

27% 

Homebase 

17% 

Financial 

Services 

2% 

Financial 

Services 

2% 

Argos 

81% 

2009 2010 2011e 2012e 2013e 

Argos LFL Homebase LFL 

Change in Working Capital 164 30 (46) (43) 93 


Other Operating Cash Flow (157) 4 (5) 0 0 


Capital Expenditure (111) (74) (121) (151) (160) 

Free Cash Flow 298 280 124 82 259 

Acquisitions & Disposals (44) (18) 0 0 0 

Dividends Paid To Shareholders (127) (126) (120) (120) (131) 

Equity Raised / Bought Back (22) (9) (150) 0 0 

Other Financing Cash Flow 6 3 0 0 0 

Net Cash Flow 111 129 (146) (37) 127 

Balance Sheet Summary, y/e Feb 2009 2010 2011e 2012e 2013e 





Other Assets 1,693 1,696 1,708 1,719 1,694 

Total Assets 4,190 4,277 4,142 4,145 4,282 

Interest Bearing Debt 0 0 0 0 0 

Other Liabilities (1,431) (1,411) (1,376) (1,344) (1,413) 

Total Liabilities (1,431) (1,411) (1,376) (1,344) (1,413) 



Total Equity 2,758 2,867 2,765 2,800 2,869 

Net Debt / (Cash) (284) (414) (268) (231) (358) 


Page 36 of 44


Reckitt Benckiser 

Respect the Cincinatti Kid 

Reckitt Benckiser is currently under attack on a number of fronts. 

P&G is trying to make inroads in to stain removers and auto dish and 

we believe air care will be next. Perrigo should get FDA approval for 

store brand Mucinex imminently and surface care is now lapping 

some very difficult swine flu related comparisons. At the same time 

RB’s rate of media investment appears to be lagging behind peers. 

P&G ups the ante….. 

P&G is focusing its firepower at a number of RB’s key categories right now. P&G’s 

new stain removal brand Tide/Ariel Acitilift has already been launched in 20+ 

markets and is due to launch in the key UK market on July 5 th . At the same time the 

latest Fairy auto dishwash variant is being rolled out through Europe and we feel 

sure that the AmbiPur aircare acquisition will be marked by a strong H2 roll-out 

programme – if anyone is any doubt we refer you to the latest presentations on the 

P&G website. This competitive activity should ensure that the promotional pressure 

evident in the last few quarters is at least maintained at similar levels. 

…..and comps get more difficult elsewhere 

As we look into Q3, the comps in surface care - another of RB’s key categories - 

also get more difficult as we begin to lap last year’s swine flu pandemic panic. Sure 

the headline numbers are supported by a few more quarters of Suboxone but 

these incremental revenues have very limited impact on Enterprise value. We have 

already inverted our Suboxone timings and now assume that we will have a 

competitor launch to Suboxonne at some stage in H2 which will reduce revenues 

by 30% this year and another 70% next year. The exact timing of this is still 

unclear, however the FDA action in fast tracking Vivitrol indicates that these 2011 

forecasts may yet prove too conservative – we will hear more on Vivitrol on 

September 16 th . 

Wake me up before you Perrigo 

Perrigo currently have an ANDA pending with the FDA for a 600mg Guaifenesin 

extended release tablet which is basically a generic version of RB’s Mucinex tablet. 

We anticipate that FDA approval is fairly imminent now that Perrigo has been 

granted a favourable judgement in the patent litigation case with Adams (now RB). 

We reckon Adams revenues are around £320m or rougly 5% of group sales. In May, 

Perrigo acquired the generic rights for Delysm, another RB cough/cold medication 

which is a further indication of their ambitions in this category. As a case study it is 

worth noting that when Perrigo launched Omeprazole as a generic store brand 

version of Procter and Gamble’s market leading heartburn medicine Prilosec in 

2008, it captured 35% of the market within 4 months. A similar result in the cough 

cold category would depress RB’s group revenue by 1.5% 

Valuation no great support 

We have no desire to join the graveyard of other analysts who have prematurely 

predicted the demise of Reckitt Benckiser. We are certainly NOT predicting 

anything so drastic, however, we feel there are enough headwinds right now to put 

the model under greater pressure than it has hitherto endured. Against this, the 

valuation is rich as ever with RB currently trading at a PE multiple of some 16.5 

times 2011. This stands at a marked premium to Unilever (14.4x), Nestle (14.7x), ABI 

(12.5x), and more importantly P&G (14.0x), Colgate (14.8x) and Clorox (12.9x). Nor 

can the group rely on its cash flow any more as a 6.6% free cash flow yield is also 

in line with sector averages. By the time of the Q2 results (July 26) RB will have net 

cash on the balance sheet. Clearly any acquisition priced below say 30 times would 

be usefully earnings enhancing – albeit with a questionable IRR - and this is clearly 

the risk to our thesis of earnings losing momentum. We continue to believe any 

move on a share buy-back would not be taken positively. 


SELL 

2% downside 


RIC, Bloomberg Code RB.L, RB/ LN 





Sales 7,753 8,188 8,239 8,590 

Ebitda 2,070 2,048 1,938 2,003 

EPS (£) 1.95 1.99 1.90 1.97 

Dividend (£) 1.00 1.13 1.27 1.39 

FCF 1,841 1,571 1,508 1,571 


Net Debt -220 -1,016 -1,653 -2,256 


EV/Sales 2.8 2.7 2.6 2.5 

EV/Ebitda 10.5 10.6 11.2 10.9 

PE 16.1 15.7 16.5 15.9 


FCF Yield (%) 8.1 6.9 6.6 6.9 

ROIC (%) 26.5 28.1 26.8 28.1 

Net Debt/Ebitda -0.11 -0.50 -0.85 -1.13 

Analysts 

Martin Dolan 

+44 20 7456 1674 

martin.dolan@execution-noble.com 

James Edwardes Jones 

+44 20 7456 1697 

james.ej@execution-noble.com 

Ved Vyas 

+44 20 7426 4262 

ved.vyas@execution-noble.com 

Page 37 of 44


Reckitt Benckiser 



Fair Value: GBP 30.69 Reported P/E 20.4 15.6 15.7 16.6 16.0 

EV / Sales 3.3 2.8 2.7 2.6 2.5 

Share Price: GBP 31.32 EV / EBITDA 13.5 10.5 10.6 11.2 10.9 


FCF Yield 5.0% 8.1% 6.9% 6.6% 6.9% 

Previous Fair Value GBP 35.5 Dividend yield 2.6% 3.2% 3.6% 4.0% 4.4% 


Bloomberg: RB/ LN Key ratios 2008 2009 2010E 2011E 2012E 

T-One: RB.L 


EBIT margin 22.9% 24.9% 23.2% 21.7% 21.5% 

Capex / Revenue 3.2% 1.9% 2.0% 2.2% 2.2% 


Market Cap 22,807 Net Debt / EBITDA 0.7 -0.1 -0.5 -0.9 -1.1 

Net Debt -1,016 EBITDA / Net Interest 52.0 -66.1 -29.4 -19.8 




P&L Summary 2008 2009 2010E 2011E 2012E 


% change 24.6% 18.1% 5.6% 0.6% 4.3% 

Half year results 26 July 2010 EBITDA 1,612 2,070 2,048 1,938 2,003 

% change 25.6% 28.4% -1.1% -5.4% 3.3% 

% margin 24.6% 26.7% 25.0% 23.5% 23.3% 


EBIT 1,505 1,931 1,902 1,790 1,849 

% change 26.5% 28.3% -1.5% -5.9% 3.3% 


James Edwardes Jones Associates 0 0 0 0 0 

(44) 20 7456 1697 Operating Profit 1,505 1,931 1,902 1,790 1,849 

james.edwardesjones@execution-noble.com Net Financials -31 1 31 66 101 

Other Pre-tax Income 0 0 0 0 0 

Pre Tax Profit 1,474 1,932 1,933 1,856 1,950 



Revenue Breakdown Net Income 1,113 1,458 1,449 1,374 1,423 

Execution net income 1,113 1,418 1,449 1,384 1,433 

Reported EPS 153.7 200.3 199.0 188.6 195.4 

Execution EPS 153.7 194.8 199.0 190.0 196.8 

DPS 80.00 100.00 113.00 126.56 139.22 

Payout Ratio 52.0% 49.9% 56.8% 67.1% 71.2% 



EBITDA 1,612 2,070 2,048 1,938 2,003 

Taxes Paid -280 -371 -378 -378 -412 

Operating Profit Breakdown Interest Paid / Received -27 -4 31 66 101 

Margin Trends 

Margin 

28% 

26% 

24% 

22% 

20% 

Developing 

Markets 

23% 

North America 

and Australia 

29% 

Pharma 

11% 

Developing 

Markets 

15% 

North America 

and Australia 

29% 

Pharma 

5% 

Europe 

43% 

Europe 

45% 

2008 2009 2010E 2011E 2012E 


Change in Working Capital -36 247 -30 -10 -10 





Free Cash Flow 1,151 1,841 1,571 1,508 1,571 

Acquisitions & Disposals -1,081 0 0 0 0 




Net Cash Flow -941 1,316 796 636 602 






Other Assets 1,674 1,581 1,660 1,670 1,734 

Total Assets 9,182 8,661 8,759 8,800 8,899 

Interest Bearing Debt 1,575 136 -665 -1,302 -1,905 





Total Equity 3,294 4,014 4,680 5,177 5,635 

Net Debt 1,096 -220 -1,016 -1,653 -2,256 


Page 38 of 44


Rolls Royce 

Challenges converging 

Rolls shares have rallied strongly in the past 12 months with the 

improving civil aerospace market outlook. We argue that a number 

of factors in Q3 could lead to profit taking, with Rolls Royce trading 

near the top end of its historic range on 2010e P/E of 14.3x. We are 

downgrading to Sell, lowering our fair value to 530p from 550p. 

Marine exposure to offshore 

The Marine division, which accounts for 26% of group EBIT in our 2010e forecast 

has 43% exposure to the offshore oil and gas industry, and we believe that demand 

may be negatively affected by the Gulf of Mexico incident. 

The EBIT growth rate for the Marine business has been strong with a 133% increase 

in divisional EBIT from 2007 to 2009. The company has guided for broadly flat 

EBIT for Marine in 2010e, and we would argue that the market would react 

negatively to any evidence of a meaningful downturn. 

R&D requirements in civil 

The company has guided for an increase in expensed R&D in 2010 driven by the 

Trent-XWB engine programme for the Airbus A350. The engine had its first run in 

June 2010 in ground testing and now enters an important phase of development as 

the programme progresses towards flight testing. This is a massive programme for 

Rolls Royce Civil, and any potential escalation in R&D could pose a headwind to 

EBIT in the coming years. 

Furthermore, there are plans currently being discussed by Airbus and Boeing to 

produce new or re-engined families of narrowbody aircraft. This could present 

another upward pressure on R&D spend if Rolls Royce were to decide to 

participate in one of these programmes. 

UK defence 

We estimate that 40% of defence division revenues are from the UK airforce, of 

which approximately half original equipment and half aftermarket. The aftermarket 

portion is vulnerable to cuts in the UK active aircraft fleet, particularly Harrier and 

Tornado aircraft, which could be announced in the UK Strategic Defence Review in 

October or November. Leaks are likely to become public during Q3. 

FX sensitivity 

We estimate that every 10 cent move in the GBP/USD rate creates EBIT impact for 

Rolls Royce of around £110m or 10%, on an unhedged basis. There is substantial 

hedging for the next five years, starting at 1.69 in 2010e (our estimate) meaning 

that recent strengthening of Sterling vs USD does not impact near term earnings. 

However, any further strengthening would be negative for long term value. 

Catalysts 

The Farnborough airshow, July 19-23 rd , is the main industry event of the year, and 

often serves as a catalyst for share price moves in the sector. Rolls Royce will make 

an investor presentation on the morning of Tuesday 20 th . 

The following week Rolls will report H1 results, July 29 th . We believe that in absence 

of an earnings upgrade the stock could succumb to profit taking. 

Valuation 

Our new fair value of 530p would value the shares on a P/E of 13.5x for 2010e, in 

line with the (reduced) average for our coverage universe. Although the downside 

to fair value is modest, we believe that there is strong chance that one or more of 

the negatives we’ve highlighted will crystalise in Q3, and we would sell the stock. 


SELL 

5.5% downside 


RIC, Bloomberg Code RR.L, RR/ LN 





Sales 10108 10250 10410 10850 

Ebitda 921 921 921 921 

Adj. EPS (p) 37.3 39.2 41.3 44.7 

Dividend (pps) 15.00 16.00 16.00 16.00 

FCF -45 454 475 654 

EV adjustments 0.0 0.0 0.0 0.0 

Net Cash -117 -294 -474 -833 


EV/Sales 0.99 0.98 0.97 0.93 

EV/Ebitda 10.92 10.92 10.92 10.92 

PE 15.05 14.33 13.58 12.56 


FCF Yield (%) -0.45 4.51 4.72 6.50 

Net Debt/Ebitda -0.13 -0.32 -0.51 -0.90 

Analysts 

Edward Stacey 

+44 20 7456 9135 

edward.stacey@execution-noble.com 

Rob Virdee 

+44 20 7456 9222 


Page 39 of 44


Rolls Royce 


Recommendation: Sell Execution P/E 15.3 15.0 14.3 13.6 12.6 

Fair Value: 530 Reported P/E 15.3 14.2 14.2 13.6 12.6 

EV / Sales 1.1 1.0 1.0 1.0 0.9 



FCF Yield 14.9% 2.4% 5.1% 5.1% 6.6% 

Previous Fair Value 550p Dividend yield 2.5% 2.7% 2.9% 2.9% 2.9% 


Bloomberg: RR/ LN Key ratios 2008 2009 2010E 2011E 2012E 

T-One: RR.-LN 



Capex / Revenue -6.8% 6.7% 4.9% 4.8% 3.5% 

Shares In Issue (Less Treasury) 1,845 Capex / Depreciation -1.97 2.17 1.59 1.59 1.19 

Market Cap 10,350 Net Debt / EBITDA -0.1 -0.1 -0.2 -0.4 -0.6 

Net Debt (incl Pension liability) -117 EBITDA / Net Interest 29.7 17.7 19.5 29.7 57.1 

ROE 33% 19% 17% 16% 15% 


P&L Summary 2008 2009 2010E 2011E 2012E 


% change 17.0% 10.5% 1.4% 1.6% 4.2% 

Full year Results 2009 11 February 2010 EBITDA 1,160 1,205 1,245 1,305 1,370 

AGM 28 April 2010 % change 16.1% 3.9% 3.3% 4.8% 5.0% 

Farnborough Air Show 19 July 2010 % margin 12.7% 11.9% 12.1% 12.5% 12.6% 

1H 2010 Interim Results 29 July 2010 Depreciation & Amortisation -315 -315 -315 -315 -315 

EBIT 845 890 930 990 1,055 

% change 10.3% 5.3% 4.5% 6.5% 6.6% 


Edward Stacey Associates 74 93 95 95 95 

(44) 20 7456 9135 Operating Profit 919 983 1,025 1,085 1,150 

edward.stacey@executionlimited.com Net Financials -39 -68 -64 -44 -24 


Pre Tax Profit 885 915 961 1,041 1,126 

Revenue Breakdown Income Tax Expense -217 -187 -231 -281 -304 

Net Income 668 728 730 760 822 


Reported EPS 36.70 39.46 39.59 41.19 44.55 

Execution EPS 36.70 37.29 39.16 41.31 44.68 

DPS 14.30 15.00 16.00 16.00 16.00 

Payout Ratio 39.0% 38.0% 40.4% 38.8% 35.9% 

Shares In Issue (Weighted, Less Treasury) 1,820 1,845 1,845 1,845 1,845 

Defence 

Aerospace 

18% 


Pre Tax Profit 885 915 961 1,041 1,126 

EBITA Breakdown Depreciation & Amortisation 315 315 315 315 315 

Margin Trends 

Margin 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Marine 

24% 

Defence Aerospace 

23% 

Marine 

19% 

Energy 

8% 

Energy 

0% 

Civil Aerospace 

50% 

Civil Aerospace 

58% 

2007 2008 2009 2010E 2011E 

Adj. EBITDA margin Adj. EBIT EBIT margin margin 

Taxes Paid -217 -119 -231 -281 -304 

Change in Working Capital -38 -381 4 -5 -13 

Other Operating Cash Flow -79 129 -95 -95 -95 

Operating cash flow 866 859 954 975 1,029 

Capital Expenditure 620 -682 -500 -500 -375 

Free Cash Flow 1,486 177 454 475 654 



Other Financing Cash Flow 

Net Cash Flow 1,018 -73 177 180 359 






Other Assets 6,575 6,483 6,464 6,565 6,842 

Total Assets 15,346 15,491 15,829 15,890 16,681 






Total Equity 2,058 3,864 4,318 4,782 5,309 

Net Debt (including pension liability) -101 -117 -294 -474 -833 


Page 40 of 44


RWE 

Time To Bite The Bullet 

This is not a long note (most of the work is in our modeling). It is our 

third report on the fallout from the proposed German windfall tax 

(‘Your country needs YOU!’, 23rd June, ‘German nuclear levy’, 8th 

June). This time, we see no option but to slash 2011-2012 estimates 

(by 15% and 20%) and fair value (by 15%) for RWE. A dividend cut 

after the tax seems unavoidable in 2011 (-17%) and uncertainty still 

prevails over 2013. Whilst there are still uncertainties as to the final 

outcome, we believe that it is only a matter of degree. RWE 

continues to be a Sell. 

Utility sector in turmoil 

Many Continental European utility stocks are reeling from political backlash. 

Germany shocked the sector with a proposed windfall tax (even the companies did 

not see that one coming). Belgium has decided that might also be a good idea. 

Finland may follow suit with a tax discussed in 2009. Spain undid a decade of 

liberalization by freezing tariffs and there is also talk of a windfall tax. French 

Finance Minister likes the idea of freezing gas tariffs, another step backward. 

We have rebuilt and updated our model, marked to market 

What is more, we have completely rebuilt our RWE model to comply with the new 

reporting format. Our estimates fully reflect the prevailing forward curves (plus our 

own views further out). 

We have assumed windfall tax & life extensions 

• Windfall tax: €15MWh (c€700m) pa till 2020, i.e. beyond 2014 

• Nuclear life extensions: 15 years with 25% clawback 

We are slashing our estimates 

EPS: -15% for 2011, -19% for 2012 and -9% for 2013 

DPS: -17% for 2011, -17% for 2012 and -9% for 2013 

Capex: our spend is now c€4bn lower than company guidance 2009-2013 

We are cutting our fair value 

Whilst DCF value is largely unchanged (life extension off-setting windfall tax, plus 

higher commodity prices), we believe consensus EPS estimates will have to come 

down by 14% in 2011 and 19% in 2012. With this background, we do not believe that 

DCF valuations (€56ps) will be achieved. Instead, the share price will be driven by 

earnings and dividend downgrades and potential growing concerns over the 

impact of the tax on balance sheet gearing. Hence we have cut our fair value by 

15% to €47ps. RWE remains a Sell. 


SELL 

12.5% downside 


RIC, Bloomberg Code RWEG.DE, RWE GY 


Market Capitalisation €28,629 


EUR 2009A 2010E 2011E 2012E 

Revenues m 47,741 49,557 50,628 51,653 

EBITDA m 9,165 10,041 9,682 10,051 

EPS 5.59 7.08 5.86 5.86 

DPS 3.50 3.55 3.10 3.22 

FCF ps 6.05 3.94 3.91 4.22 

EV 62,177 62,177 62,177 62,177 

Net Debt 13,782 15,328 18,123 20,068 


At Current Price: 2009A 2010E 2011E 2012E 

PE 9.6 7.6 9.2 9.2 

EV/Ebitda 6.8 6.2 6.4 6.2 


FCF Yield (%) 11.3% 7.3% 7.3% 7.9% 

At Target Price: 2009A 2010E 2011E 2012E 

PE 8.4 6.6 8.0 8.0 

EV/Ebitda 5.8 5.3 5.5 5.3 


Analysts 

Lawson Steele 

+44 20 3364 6771 

lawson.steele@execution-noble.com 

Andrew Fisher 

+44 20 3364 6773 

andrew.fisher@execution-noble.com 

Page 41 of 44


RWE 

Key Metrics 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

Recommendation Sell Execution adj P/E 9.8 8.0 9.6 7.6 9.2 9.2 12.0 10.6 9.7 

Share Price 53.70 EPS growth 22% -17% 27% -17% 0% -24% 13% 10% 

Target Price 47.00 EV / EBITDA #DIV/0! 7.1 6.8 6.2 6.4 6.2 6.7 6.3 6.0 

Upside / Downside -12.5% FCF Yield 13.8% 23.9% 11.3% 7.3% 7.3% 7.9% 8.5% 11.1% 12.3% 

Previous target price na Dividend yield 5.9% 8.4% 6.5% 6.6% 5.8% 6.0% 5.0% 5.2% 5.7% 

% change to previous target price na DPS growth 43% -22% 1% -13% 4% -17% 3% 10% 

SOP DCF/EVA 55.99 Net Debt / EBITDA #DIV/0! 1.9 2.9 2.8 3.2 3.2 3.7 3.5 3.6 

ROIC -5.3% 16.6% 15.2% 12.8% 10.8% 10.2% 8.5% 8.8% 9.0% 

Bloomberg RWE GY Equity 

T-One 0 Key Drivers 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

Model Published On 05 Jul 2010 

Achieved Power Price (core EUR/MWh) 47.00 58.00 70.00 61.00 56.07 54.47 55.13 57.15 58.42 

Market Cap 28,629 Output sold forward (core market) 100.0% 100.0% 100.0% 100.0% 70.0% 30.0% 0.0% 0.0% 0.0% 

Economic Net Debt (ie inc nuclear provisions) 30,669 Achieved Coal Price (core EUR/MWh) 76.45 106.39 114.95 96.71 96.99 100.90 106.11 113.78 117.34 

Adjustments For Associates & Minorities 925 Achieved Gas Price (core EUR/MWh) 20.64 21.33 19.82 18.63 21.73 24.02 25.30 25.66 25.66 

Enterprise Value 62,177 Achieved CO2 Price (EUR/t) 10.50 14.20 18.87 14.38 15.03 15.92 16.72 17.26 17.26 

o/w nuclear provisions 9,051 


P&L Summary (EURm) 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

1H 2010 Results 12 Aug 2010 Revenue 42,507 48,950 47,741 49,557 50,628 51,653 53,343 55,094 55,996 

3Q 2010 Results 11 Nov 2010 EBITDA by division 

Germany 0 5,545 5,811 6,419 5,373 5,313 4,065 4,100 3,999 

Netherlands/Belgium 0 0 277 635 666 706 788 862 886 

United Kingdon (npower) 0 714 445 537 687 615 442 520 615 

Execution Analysts Central & Eastern Europe 0 1,142 1,285 1,083 1,072 1,073 1,086 1,110 1,126 

Lawson Steele / Andrew Fisher Renewables 0 103 126 251 516 760 979 1,188 1,394 

(44) 20 3364 6771 / 6773 Gas, Oil and Trading 0 1,235 1,423 1,052 1,304 1,520 1,838 2,074 2,341 

lawson.steele@execution-noble.com / andrew.fisher@execution-noble.com EBITDA 0 8,773 9,165 10,041 9,682 10,051 9,261 9,917 10,425 

% change #DIV/0! #DIV/0! 4.5% 9.6% -3.6% 3.8% -7.9% 7.1% 5.1% 

Company contacts % margin 0.0% 17.9% 19.2% 20.3% 19.1% 19.5% 17.4% 18.0% 18.6% 

Dr Jurgen Grossman CEO o/w associates 0 0 0 0 0 0 0 0 0 

Dr Rolf Pohlig CFO Depreciation & Amortisation 0 (1,947) (2,075) (2,414) (2,582) (2,781) (2,971) (3,069) (3,153) 

Ingo Alpheus IR head EBIT 0 6,826 7,090 7,627 7,100 7,270 6,290 6,848 7,272 

% change #DIV/0! #DIV/0! 3.9% 7.6% -6.9% 2.4% -13.5% 8.9% 6.2% 

EBITDA Breakdown (2010) % margin 0.0% 13.9% 14.9% 15.4% 14.0% 14.1% 11.8% 12.4% 13.0% 

Gas, Oil and 

Renewables Trading 

3% 11% 

Central & 

Eastern 

Europe 

11% 

Net Financials 

Exceptional items 

Pre Tax Profit 

Income Tax Expense 

Disconitinued Operations 

(1,138) 

(149) 

5,246 

(2,081) 

(274) 

(1,475) 

(485) 

4,866 

(1,423) 

(567) 

(1,990) 

498 

5,598 

(1,858) 

91 

(1,804) 

0 

5,824 

(1,790) 

0 

(1,913) 

0 

5,187 

(1,803) 

0 

(2,083) 

0 

5,187 

(1,802) 

0 

(2,201) 

0 

4,089 

(1,444) 

0 

(2,310) 

0 

4,539 

(1,586) 

0 

(2,338) 

0 

4,933 

(1,710) 

0 

United 

Kingdon 

(npower) 

5% 

Netherlands/ 

Germany 

64% 


Net Income 

Execution Net Income 

224 

2,891 

3,314 

318 

2,876 

3,928 

260 

3,831 

3,242 

260 

4,033 

4,033 

5.3% 

260 

3,384 

3,384 

260 

3,385 

3,385 

260 

2,645 

2,645 

260 

2,953 

2,953 

260 

3,223 

3,223 

Belgium 

6% 

Reported EPS 

Execution EPS 

4.74 

5.49 

4.75 

6.71 

6.70 

5.59 

7.08 

7.08 

5.86 

5.86 

5.86 

5.86 

4.47 

4.47 

5.05 

5.05 

5.56 

5.56 

DPS 3.15 4.50 3.50 3.55 3.10 3.22 2.68 2.78 3.06 

Payout Ratio 57.3% 67.1% 62.6% 50.2% 52.9% 55.0% 60.0% 55.0% 55.0% 

Group ROIC vs WACC Weighted average shares in issue (m) 562 538 533 533 533 533 533 533 533 

18.0% 

Cash Flow Summary (EURm) 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

16.0% 

14.0% 

12.0% 

10.0% 

8.0% 

6.0% 

Operating cash flow 

Maitenance capex 

Free Cash Flow 

Growth capex 

Acquisitions & Disposals + Other 

Cash used for investing 

6,085 

(1,923) 

4,162 

(2,142) 

(418) 

(4,483) 

8,853 

0 

6,906 

0 

(3,584) 

(3,584) 

5,299 

0 

3,224 

0 

(8,326) 

(8,326) 

6,335 

0 

2,100 

0 

(6,015) 

(6,015) 

5,900 

0 

2,083 

0 

(6,802) 

(6,802) 

6,103 

0 

2,252 

0 

(6,395) 

(6,395) 

5,512 

0 

2,421 

0 

(5,580) 

(5,580) 

5,914 

0 

3,184 

0 

(4,959) 

(4,959) 

6,320 

0 

3,511 

0 

(7,037) 

(7,037) 

4.0% 

Cash used for financing (2,458) (5,617) 4,904 (1,394) 902 292 68 (954) 716 

2.0% 

ROIC Group WACC 

o/w Dividends Paid To Shareholders (2,199) (2,005) (2,592) (1,866) (1,893) (1,653) (1,719) (1,431) (1,481) 

0.0% 

Net Cash Flow (872) (673) 1,825 (1,074) 0 0 0 0 0 

2008A 2009A 2010E 2011E 2012E 2013E 

Balance Sheet Summary (EURm) 2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 

EPS Forecasts vs Consensus (EUR ps) Cash & Equivalents 12,780 8,984 6,364 5,290 5,290 5,290 5,290 5,290 5,290 

Tangible Fixed Assets 29,478 30,561 39,243 42,844 47,064 50,679 53,288 55,178 59,062 

10.00 

Intangible Non-Current Assets 11,882 11,202 17,320 17,320 17,320 17,320 17,320 17,320 17,320 

8.00 

6.00 

Other Assets 

Total Assets 

Interest Bearing Debt 

29,280 

83,420 

13,285 

42,683 

93,430 

13,483 

30,511 

93,438 

20,146 

30,992 

96,446 

20,618 

31,276 

100,950 

23,413 

31,547 

104,836 

25,358 

31,995 

107,893 

27,145 

32,459 

110,247 

27,622 

32,697 

114,369 

29,819 

4.00 

Other Liabilities 55,476 66,807 59,575 59,944 60,161 60,370 60,713 61,069 61,252 

2.00 

Total Liabilities (exc equity) 68,761 80,290 79,721 80,562 83,575 85,728 87,858 88,691 91,071 

0.00 

2007A 2008A 2009A 2010E 2011E 2012E 



Total Equity 

13,925 

734 

14,659 

11,587 

1,553 

13,140 

12,792 

925 

13,717 

14,959 

925 

15,884 

16,450 

925 

17,375 

18,183 

925 

19,108 

19,109 

925 

20,034 

20,631 

925 

21,556 

22,373 

925 

23,298 

Actual EPS 

Net Debt 505 4,499 13,782 15,328 18,123 20,068 21,855 22,332 24,529 

Economic Net Debt (ie inc nuclear provns) 13,054 17,045 26,328 27,874 30,669 32,614 34,401 34,878 37,075 


Page 42 of 44


Wolters Kluwer 

Strategy differences 

As key competitors stepped up investments in the legal segment, the 

risk of compression in Wolters Kluwer’s operating margins increases, 

in our view. Wolters Kluwer is widely considered a defensive stock, 

but we believe it is set to underperform peers in the near term. We 

reaffirm our sell rating and raise our target price to target price of 

€11.2 from €10.6 to reflect recent currency fluctuations. 

Different strategy 

Both Reed Elsevier and Thomson Reuters have guided for margin decline in their 

legal divisions, over and above the below-the-line restructuring charges due to 

recent M&A deals. In stark contrast, Wolters Kluwer expects "improved operating 

margin” in 2010 though below-the-line charges increased (guidance of eu70m). 

Such a difference in strategy (investment for growth VS savings/rationalization) 

may arise from a different assessment on the potential economic recovery: the more 

conservative the outlook, the lower the level of growth investments one would 

expect. However, Wolters Kluwer’s track record seems to suggest that the company 

is simply underinvesting which may lead to further pressure on organic revenue 

growth and eventually on operating margins. Fig. 1 shows Wolters Kluwer’s legal 

division margins compared to Reed Elsevier and Thomson Reuters. Our long term 

margins are set below industry average because of higher fragmentation, by 

geography (especially in Europe) and by product (compliance, tax, accounting, 

regulatory, etc.). For Wolters Kluwer’s operating margins in 2010 we have used 

company guidance rather than our forecasts. 

Figure 1: Global legal segment - Operating margins by company 

35% 

33% 

31% 

29% 

27% 

25% 

23% 

21% 

19% 

17% 

15% 

1999 

2000 

2001 

Source: ExecutionNoble, Company data 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

REL - Legal TRI - Legal WKL - Legal 

Our estimates are ~17%% below consensus 

Our forecasts for organic revenue growth remain unchanged at 1.3% decline for 

2010 qnd 0.5% decline for 2011, which we believe are broadly in line with 

consensus. In the medium term we forecast group margin compression to 18%-19%, 

below consensus and management guidance of 20%+, to reflect the need for the 

company to start investing again in content, distribution platforms and sales force. 

Valuation 

On our forecasts (~17% below consensus for Ordinary EPS 2010-12E, on average) 

Wolters Kluwer trades on ~5% premium to industry peers, based on P/E and FCF 

yield. Due to its lower growth potential and further earnings downgrade risk, we 

believe that Wolters Kluwer should trade on 20% discount to the sector average. 

We reiterate our sell rating and raise our DCF-based fair value to €11.2 from €10.6 

to reflect favourable currency fluctuations over the past three months. 

2009 

2010E 


SELL 

29% downside 


RIC, Bloomberg Code WLSNc.AS, WKL NA 


Market Capitalisation €4,636m 


(eu m) 2008A 2009A 2010E 2011E 

Turnover 3,374 3,425 3,557 3,644 

EBITDA 756 783 755 783 

EBITA 678 682 650 676 

Adj. EPS (EUR)* 1.47 1.45 1.29 1.35 

Dividend (EUR) 0.65 0.66 0.66 0.67 

FCF** 381 387 364 409 

Net Debt 2,252 2,008 1,969 1,697 

* fully diluted, ex. GW amortisation 

** FCF = EBITDA - capex - NWC - int ex. - tax 

2008A 2009A 2010E 2011E 

EV/Sales*** 2.1x 2.0x 2.0x 1.9x 

EV/Ebitda*** 9.5x 8.9x 9.3x 8.7x 

EV/EBITA*** 10.6x 10.3x 10.8x 10.1x 

P/E*** 11.6x 11.7x 13.1x 12.6x 

Dividend Yield*** 3.8% 3.9% 3.9% 4.0% 

FCF Yield*** 7.8% 7.8% 7.2% 8.0% 

Net Debt/Ebitda 3.0x 2.6x 2.6x 2.2x 

*** adjusted for pension, tax and other assets/liabilities 

Analysts 

Giasone Salati 

+44 20 7456 1163 

giasone.salati@execution-noble.com 

Mark Evans 

+44 20 3364 6753 

mark.evans@execution-noble.com 

Page 43 of 44


Wolters Kluwer 

Valuation Metrics 2008A 2009A 2010E 2011E 2012E 



EV / Sales 2.1 2.0 2.0 1.9 1.8 



FCF Yield 7.8% 7.8% 7.2% 8.0% 8.1% 



Bloomberg: WKL NA Key ratios 2008A 2009A 2010E 2011E 2012E 

T-One: WKL-AE 


EBIT margin 16.4% 9.2% 13.8% 14.2% 14.3% 

Capex / Revenue 4.1% 3.6% 3.6% 3.6% 3.6% 







P&L Summary 2008A 2009A 2010E 2011E 2012E 


% change -1.1% 1.5% 3.8% 2.4% 2.7% 

AGM 21 April 2010 EBITDA 756 783 755 783 804 

Trading update 12 May 2010 % change 1.2% 3.6% -3.6% 3.7% 2.7% 

Second quarter results 28 July 2010 % margin 22.4% 22.9% 21.2% 21.5% 21.5% 

Trading update 03 November 2010 Depreciation & Amortisation -202 -469 -265 -267 -270 

Full year results expected 23 February 2011 EBIT 554 314 490 516 534 

% change 1.5% -43.3% 56.1% 5.2% 3.6% 

% margin 16.4% 9.2% 13.8% 14.2% 14.3% 

Associates -1 2 2 2 2 

Execution Analyst Operating Profit 553 316 492 518 536 

Giasone Salati Net Financials -116 -123 -143 -132 -113 

+44 20 7456 1163 Other Pre-tax Income -51 -80 -70 -45 0 

giasone.salati@execution-noble.com Pre Tax Profit 386 113 279 341 423 


Minority Interests -2 8 0 0 0 

Revenue Breakdown Net Income 313 118 215 262 329 


Reported EPS 1.08 0.40 0.72 0.87 1.07 

Execution EPS 1.47 1.45 1.29 1.35 1.40 

DPS 0.65 0.66 0.66 0.67 0.70 

Payout Ratio 17.8% 44.5% 44.3% 50.8% 49.8% 


Cash Flow Summary 2008A 2009A 2010E 2011E 2012E 

EBITDA 756 783 755 783 804 

Taxes Paid -91 -89 -88 -105 -115 

Operating Profit Breakdown Interest Paid / Received -94 -120 -112 -103 -88 

Change in Working Capital -19 -7 -18 -12 -13 

Margin Trends 

Margin 

Health 

22% 

Corporate & 

Financial 

Services, (NA) 

18% 

25% 

20% 

15% 

10% 

5% 

0% 

Corporate & 

Financial 

Services, (NA) 

15% 

Tax, 

Accounting & 

Legal (NA) 

27% 

Health 

17% 

Tax, 

Accounting & 

Legal (NA) 

33% 

Legal, Tax & 

Regulation 

(EU) 

36% 

Legal, Tax & 

Regulation 

(EU) 

32% 

2008A 2009A 2010E 2011E 2012E 


Other Operating Cash Flow -31 -57 -45 -22 -34 



Free Cash Flow 381 387 364 409 419 




Other Financing Cash Flow 602 -144 -191 0 0 

Net Cash Flow 193 64 39 273 278 

Balance Sheet Summary 2008A 2009A 2010E 2011E 2012E 





Other Assets 1,226 1,242 1,169 1,114 1,054 

Total Assets 6,388 6,053 5,846 5,657 5,464 






Total Equity 1,447 1,355 1,436 1,562 1,751 

Net Debt 2,252 2,008 1,969 1,697 1,418 


Page 44 of 44

IMPORTANT INFORMATION 

Analyst Certifications 

Each of the research analysts referenced in connection with the section of this research report for which he or she is responsible hereby certifies that all of the views expressed 

in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein. 

In addition, each of the research analysts referenced in connection with the section of this research report for which he or she is responsible hereby certifies that no part of his or 

her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to 

any specific investment banking transactions performed by Execution Noble Limited its Group or affiliates thereof. 

Explanation of rating system 

A rating of Buy indicates that the analyst has a high conviction that the stock will outperform their relevant sector index over the next twelve months. 

A rating of Sell indicates that the analyst has a high conviction that the stock will underperform their relevant sector index over the next twelve months. 

A rating of Hold indicates that the analyst believes that the stock should perform in line (+ or – 5%) with their relevant sector index over the next twelve months. 

The relevant sector index is the DJ Stoxx sector subgroup which includes the subject company. 

Distribution of Execution Noble Recommendations for Investment Research (End May 2010 - Rolling twelve month basis) 

All stocks Corporate Clients 

Buy 81 43% 9 100% 

Hold 49 26% 0 0% 

Sell 59 31% 0 0% 

*This distribution of recommendations is data from Execution Noble Limited for the past 12 months; this excludes data from Clear Capital Limited prior to 22nd February 

2010. 

The Corporate relationships disclosed are for the past 12 months. 

The historic Clear Capital Limited ratings regime classified stocks as Positive, Negative, Neutral and Corporate. The table below explains how they are now classified. 

Historic Rating Convention Current Rating Convention 

Positive Buy 

Negative Sell 

Neutral Hold 

Corporate Either dropped coverage or initiated with a buy, Sell or Hold rating 

Investment Research Disclaimer 

This Investment Research is independent and does not constitute a personal recommendation as defined in the Glossary of the FSA Handbook. 

This material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or independent 

explanation of the matters contained in the material. Any recommendations contained in this document must not be relied upon as investment advice based on the 

recipient's personal circumstances. 

In the event that further clarification is required on the words or phrases used in this material, the recipient is strongly recommended to seek independent legal or financial 

advice. 

This research report has been prepared by Execution Noble Limited and is for information purposes only. This research report does not constitute an offer, invitation or 

inducement to invest in securities or other investments. Neither the information contained in this research report nor any further information made available with the subject 

matter contained herein will form the basis of any contract. 

This research report does not purport to be comprehensive or to contain all the information on which a prospective investor may need in order to make an investment 

decision. The information contained herein is based on publicly available information and sources, which we believe to be reliable, but we do not represent it as accurate or 

complete. The recipient of this research report must make its own investigation and assessment of the information presented herein. No representation, warranty or 

undertaking, express or implied, is or will be made or given and no responsibility or liability is or will be accepted by Execution Noble Limited or by any of its directors, 

officers, employees, agents or advisers, in relation to the accuracy or completeness of this presentation or any other written or oral information made available in 

connection with the information presented herein. Any responsibility or liability for any such information is expressly disclaimed. 

In furnishing this research report, Execution Limited undertakes no obligation to provide the recipient with access to any additional information, or to update, or to correct 

any inaccuracies, which may become apparent in this presentation or any other information made available in connection with the information presented herein. 

All prices provided within this research report are taken from the close of business on the day prior to the issue date unless explicitly otherwise stated. 

Please note that Execution Noble Limited is part of the Execution Holdings Limited group of companies. Lloyds Banking Group has a shareholding of 8% in Execution 

Holdings Limited. 

Any opinion reflects the analyst’s judgment at the date of publication and neither Execution Noble Limited, nor any of its affiliated or associated companies, nor any of their 

directors, officers or employees accepts any responsibility in respect of the information or recommendations contained herein which, moreover, are subject to change 

without prior notice. 

This research report is private and confidential and is being made available to the recipient on the understanding that it will be kept confidential and that the recipient shall 

not copy, reproduce, distribute or pass to third parties this research report in whole or in part at any time. It is intended for the information of clients only and is not for 

publication in the press nor is it being issued or distributed to persons who are retail clients. 

The material in this research report is general information intended for recipients who understand the risks associated with investment. It does not take account of whether 

an investment, course of action, or associated risks are suitable for the recipient. 

Execution Noble may provide services (including Corporate Finance, Corporate Broking or Equity Capital Markets advice) where the flow of information is restricted by a 

Chinese Wall. Accordingly, information may be available to Execution Noble that is not reflected in this document. 

This document is intended to be used by market professionals (eligible counterparties and professional clients but not retail clients). Retail clients must not rely on this 

document and should note that the services of Execution Noble Limited are not available to them. 

This research report has been prepared by Execution Noble Limited, who are a correspondent of Execution Noble LLC, 102 Greenwich Avenue, Greenwich, CT06830. 

Execution Noble LLC are distributing this research report in the US and accept responsibility for its contents subject to the terms set out herein. Any US persons receiving 

this research report and wishing to effect a transaction in any security discussed herein, should do so only with Execution Noble, LCC or an individual registered therewith. 

Execution Noble Limited is registered in England and Wales no. 4058971, is a Lloyds Broker, a member of The London Stock Exchange, Xetra, Virt-x, EuroNext, 

NYSE Liffe and Nasdaq OMX and is authorised and regulated by the Financial Services Authority. 

Please see UK Equity Research Conflicts Management Policy on http://www.execution-noble.com/ResearchConflictsPolicy 

Please see UK Disclosures for Investment Research Recommendations on http://www.execution-noble.com/InvestmentResearchDisclosures

UK 

LONDON 

Execution Noble Ltd 

The Old Truman Brewery 

91 Brick Lane 

London E1 6QL 

UK 

T +44 20 7456 9191 

F +44 20 7456 9188 

EDINBURGH 


76 George Street 

Edinburgh 

EH2 3BU 

UK 

T +44 131 225 9677 

F +44 131 225 5831 

SILVER BULLETS 

EUROPE 

PARIS 


59 Rue des Petits Champs 

75001 

Paris 

France 

T +33 1 73 77 55 78 

F +33 1 73 77 55 75 

USA 

GREENWICH 

Execution Noble LLC 

102 Greenwich Avenue 

Greenwich 

CT 06830 

United States 

T +1 203 983 EXEC (3932) 

F +1 203 869 3937 

BOSTON 


22 Batterymarch Street 

Boston 

MA 029109 

United States 

T +1 617 531 7080 

F +1 617 451 1089 

MANHATTAN 


450 Park Avenue, Suite 2700 

New York 

NY 10022 

United States 

T +1 212 843 8805 

F +1 212 486 2843 

ASIA 

HONG KONG 

Execution Noble (Hong Kong) Ltd 

15th Floor, St John’s Building 

33 Garden Road, Central 

Hong Kong SAR 

China 

T +852 3181 4050 

F +852 3575 9001 

MUMBAI 


701 Powai Plaza Hirandani Gardens 

Powai 

Mumbai - 400 076 

India 

T +91 22 2570 1152/3 

F +91 22 2570 1154

SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

Create successful ePaper yourself

Delete template?

Save as template?