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THIRD QUARTER 2010 Electrolux Valuation Metrics 2008 2009 2010E 2011E 2012E 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 Upside / Downside -6.9% EV / EBITA 43.2 8.6 9.4 9.1 8.9 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% % change to fair value 5.4% Bloomberg: ELUXB SS Key ratios 2008 2009 2010E 2011E 2012E T-One: ELUX'B-SK Model Published On: 02 July 2010 EBITDA margin 3.9% 7.7% 8.6% 8.2% 7.8% Adj. EBITA margin 1.1% 4.5% 5.7% 5.5% 5.2% 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 Cash Flow Summary 2008 2009 2010E 2011E 2012E 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 Operating cash flow 5,184 8,350 6,715 6,576 7,602 Capital Expenditure -3,702 -2,593 -3,069 -3,149 -3,235 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 Balance Sheet Summary 2008 2009 2010E 2011E 2012E Cash & Equivalents 7,305 9,537 11,948 13,955 16,792 Margin Trends Tangible Fixed Assets 17,035 15,315 15,064 14,936 14,917 Goodwill & Intangibles 4,918 5,273 5,449 5,625 5,801 10% Associates & Financial <strong>Investment</strong>s 3,487 3,146 3,146 3,146 3,146 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% Interest Bearing Debt 13,131 13,605 13,605 13,605 13,605 4% 2% Other Liabilities Total Liabilities Shareholders' Equity 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% http://www.execution-noble.com Page 34 of 44
THIRD QUARTER 2010 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. http://www.execution-noble.com SELL 17% downside Fair Value 175p RIC, Bloomberg Code HOME.L, HOME LN Share Price 210p Market Capitalisation £1,832m Free Float 99% 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 Invested Capital 3,080 3,124 3,196 3,139 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 Dividend Yield (%) 7.0 7.0 7.0 7.7 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 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 35 of 44
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Page 47 and 48: IMPORTANT INFORMATION Analyst Certi

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