ECONOMIC & STRATEGY RESEARCH
21 June 2016
Equity Research Extract from a report
Equity Outlook
European equities have significant room to recover
■ After a terrible start to 2016 and recovery by the end of March, the second quarter
Josef Němý, CFA has not brought any clear trend. The result season for Q116 came rather as a mild (420) 222 008 560 [email protected] disappointment, and rising expectations of the Fed’s potential interest rate hike in
Miroslav Frayer June reduced stock prices to grow. However, U.S. payrolls and higher volatility (420) 222 008 567 connected with the Chinese economy buried these expectations. Uncertainty ahead miroslav_ frayer @kb.cz of the Brexit referendum was also headwind to increasing equity markets, and the Jana Steckerová (420) 222 008 524 MSCI World index is now moving close to a level at the end of March. jana _steckerova @kb.cz
■ The PSE’s PX index has lagged behind a majority of major and regional indices since the end of 2015 as it has extended its losses in Q216. The Hungarian BUX is the most successful in CEE region.
■ The PX index was dragged down above all by financial stocks . The biggest loser on the PSE was Vienna Insurance Group after a profit warning and an unexpected dividend cut.
■ The trio of banking stocks was completed in May by shares of Moneta Money Bank. Since its IPO, share prices have gone up 6.5%. The shares are a part of the PX index from 20 June. On the contrary, on the same day, NWR stocks were removed from the index after trading with them was suspended on 5 May. We stopped covering NWR on 20 June.
■ Stock Spirits became the winner of the incomplete second quarter; its shares have grown almost 10%, followed by textile company Pegas Nonwovens with roughly a 9% gain. Other companies, including ČEZ, have performed with positive zero.
■ Société Générale lowered the weight of equities in its global portfolio from 50% to 45% in order to reduce risk in the portfolio.
■ After the recent declines, European equity indices have an interesting upside potential to SG’s targets . We expect an improved performace in Q3 16 as equities should be supported by a higher inflation outlook and better economic momentum in the eurozone. The result of the British referendum could be a short-term trigger.
■ From a sectoral perspective, financials, autos and components, and intergrated oil companies are among our preferred European industries. On the other hand, utilities and telecommunications are seen as unattractive sectors.
■ The Prague Stock Exchange could deliver a double-digit return in the next 12 months . We believe financial stocks are among the most attractive on the Czech equity market. From other stocks under our coverage, we have four Buy recommendations out of which O2 Czech Republic shares currently have the largest upside potential to our target price.
Please see back page for important disclaimer.
Economic & Strategy Research Equity Research
Prague Stock Exchange statistics
2011 2012 2013 2014 2015 5/2016 PX Index (eoy) 911 1,039 989 947 956 981 Change (CZK) -25.6 14.0 -4.8 -4.3 1.0 2.7 Change (USD) -29.3 18.4 -8.9 -16.7 -7.0 2.9 Traded volumes (CZK m) 369,750 250,608 184,571 158,222 169,202 191,677 Traded volumes (USD m) 20,904 12,810 9,461 7,648 6,941 8,438 Market capitalization (CZK m) 1,060,767 1,093,799 1,074,426 1,018,162 1,011,989 1,036,295 Market capitalization (USD m) 53,737 57,540 54,189 44,434 40,696 42,254 Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka
KB/SG recommendations for the PSE titles
Company Price Target price Recomm. From date Year high Year low CEZ 421.6 420.0 Buy 12/II/16 603.0 362.1 CME 56.5 65.0 Hold 12/VIII/15 68.5 43.0 Erste Bank 598.2 893.2 Buy 5/V/16 785.6 555.5 Fortuna 88.7 96.0 Hold 20/V/16 105.0 56.0 Kofola 438.0 - - - 522.0 346.3 Komercni banka 920.0 - - - 1,142.2 862.0 Moneta Money Bank 73.1 - - - 76.4 68.0 O2 CR 221.1 260.0 Hold 22/III/16 265.9 94.1 Pegas Nonwovens 796.6 863.0 Buy 20/V/16 966.9 685.1 Philip Morris CR 12,202.0 13,500.0 Buy 13/VI/15 13,696.0 10,400.0 Stock Spirits 58.3 - - - 75.8 38.8 Unipetrol 173.0 - - - 194.9 139.3
VIG 486.4 - - - 894.4 452.3 Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka
Companies overview
Price Monthly year-to-date change Avg. daily volumes CZK change CZK USD 1-5/2016 1-5/2016 Company 21-Jun-16 (%) (%) (%) (CZK m) (USD m) CEZ 421.6 -2.7 -5.1 -1.6 209.3 8.7 CME 56.5 -2.5 -15.7 -12.6 1.9 0.1 Erste Bank 598.2 -3.9 -21.2 -18.3 75.6 3.2 Fortuna 88.7 5.8 10.1 14.2 1.7 0.1 Kofola 438.0 2.6 -10.6 -7.3 0.9 0.0 Komercni banka 920.0 -4.5 -7.1 -3.6 199.0 8.3 Moneta Money Bank 73.1 -1.9 n.a. n.a. 37.1 1.5 O2 CR 221.1 -5.1 -11.9 -8.7 32.3 1.3 Pegas Nonwovens 796.6 1.5 9.0 13.0 7.9 0.3 Philip Morris CR 12,202.0 -6.8 1.7 5.4 12.1 0.5 Stock Spirits 58.3 4.0 14.6 18.8 2.3 0.1 Unipetrol 173.0 -0.9 8.1 12.1 7.7 0.3
VIG 486.4 -6.3 -29.4 -26.8 10.4 0.4 Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka
Economic & Strategy Research Equity Research
The Prague Stock Exchange underperformed other equity markets in Q216
Global equity market The global equity markets had a terrible start to 2016. The first week was the worst ever in 420 history, and for the whole of January the major indices tumbled up to 10%. The main reasons were most likely global deflation fears caused by the collapse of oil prices and other 400 commodities and fears from the slowdown of the Chinese economy. All this has pushed down
380 banks, miners, energy and automotive companies in particular. In February, sentiment improved and equity markets recovered. The second quarter has not brought any clear trend. 360 The result season for Q116 came rather as a mild disappointment, and rising expectations of the Fed’s potential interest rate hike in June reduced stock prices to grow. However, U.S. 340 IX-15 XI-15 I-16 III-16 payrolls and higher volatility connected with the Chinese economy buried these expectations.
Source: Bloomberg, MSCI World index Uncertainty ahead of the Brexit referendum was also headwind to increasing equity markets, and the MSCI World index is now moving close to a level at the end of March. Since the beginning of 2016, Japenese Nikkei 225 belongs among the worst performers with a fall of 16%. European Stoxx 600 has lost 8%, while the U.S. S&P 500 erased all the losses and has slightly increased more than 1%.
The Prague bourse ’s performance The PSE’s PX index has lagged behind a majority of major and regional indices since the lagged behind main and regional end of 2015 (-12%) as it has extended its losses in Q216 (roughly 7% lower). The Hungarian regional indices. BUX is the most successful with a more than 10% gain, as shown in the left-hand chart below (but without additional gain in the second quarter). In Q216, the least favourable trading has been seen in Poland, where WIG20 has dropped more than 10% (-3.5% ytd).
PX vs. other stock indices in 2016 (%) PX vs. other stock indices in Q216 (%)
20 20 year to date in CZK terms quarter to date in CZK terms
10 10
0 0
-10 -10
-20 -20 PX WIG20 BUX Stoxx600 S&P500 Nikkei225 PX WIG20 BUX Stoxx600 S&P500 Nikkei225
Source: Economic & Strategy Research, Komerční banka, Bloomberg Source: Economic & Strategy Research, Komerční banka, Bloomberg
The PX index was dragged down The biggest loser so far on the PSE this year is Vienna Insurance Group, as its shares above all by financial stocks. have plummeted 32%. The first quarter brought the biggest selloffs in reaction to a profit warning and an unexpected dividend cut to EUR 0.60 from EUR 1.40 per share a year ago. In Q216, its market capitalisation declined by a mere 5% affected by global sentiment. The other two financial stocks, Erste and Komercni banka, negatively influenced the performance of the whole PX index (-9.5 %, or -13.7%, respectively).
The trio of banking stocks was completed in May by shares of Moneta Money Bank. Since its IPO (6 May), share prices have gone up 6.5%. The shares are a part of the PX index from 20 June.
On the contrary, on the same day, NWR stocks were removed from the index after trading with them was suspended on 5 May. We stopped covering NWR on 20 June.
Among other losers in Q216, we can find O2 Czech Republic (-11%), Philip Morris CR (-7%) and Unipetrol (-5%). The drop in shares of the telecommunication company could be affected
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Economic & Strategy Research Equity Research
by its lower weight in the PX index after Moneta shares were included, but with the exception of the potential sale of PPF’s stake in the company, there was no news. Unipetrol started building a new polyethylene unit slated for completion in mid-2018 and restored a dividend payment after eight years.
Stock Spirits became the winner of the incomplete second quarter; its shares have grown almost 10%, also supported by an announcement of a special dividend payment in amount of GBp 10 per share, and followed by textile company Pegas Nonwovens with roughly a 9% gain. Pegas announced construction of a new factory in the Czech Republic. Moreover, the company is considering purchasing land in South Africa. Other companies, including ČEZ, have performed with positive zero.
Development of Czech stocks (performance in %) 30 Q4 15 Q1 16 Q2 16 YTD 20
10
0
-10
-20
-30 KB PX O2 VIG CEZ PLG TMR CME Erste UNIP Stock Kofola Pegas PMCR Moneta Fortuna
Source: Economic & Strategy Research, Komerční banka, Bloomberg; data at 5 April 2016
Trading activity on the PSE fell in Trading activity on the PSE fell in the Average daily trading volume (CZKbn) the first five months. first five months of the year. The 1,25 average trading volume was 9% below the 2015 level (excluding Moneta Money 1,00 Bank). The trading volume structure on the PSE continues to be dominated by a 0,75 few of the biggest stocks, in particular ČEZ and Komerční banka (both 37% of 0,50 total turnover), followed by Erste Group 0,25 (13%) and O2 (9%). Within this III/13 IX/13 III/14 IX/14 III/15 IX/15 III/16
breakdown, the proportion of Komerční Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka banka’s stocks again increased during the past few months. As of the third quarter, we will see the impact of Moneta Money Bank, whose volume should be significant.
Miroslav Frayer +420 222 008 567 [email protected]
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Economic & Strategy Research Equity Research
Global economic outlook
United States: Growth is driven by demand The U.S. economy is likely to Growing prospects of the U.S. economy were revised by SG economists just marginally. grow 1.9% this year. The main driver remains domestic demand. The labour market has already reached full
employment (NAIRU), which creates pressure on wage growth. The unemployment rate is still likely to mildly decline, and unit labour costs are already growing well above 2%, while the participation rate substantially increased. Household consumption is supported by low energy prices, while savings accumulated over the past year contribute to the willingness of households to spend, as well. Residential investments are also likely to boost GDP. On the other hand, business investments still remain under the pressure of lower energy prices and a stronger U.S. dollar (although the dollar has weakened against the euro since January, it is still 18% stronger than in summer 2014). Lower investments in the energy sector are likely to reduce this year’s GDP by 0.4%, while net exports are likely to diminish growth by another 0.5%. All together, the U.S. economy is expected to add 1.9% this year. Next year, the economy is likely to slightly pick up speed to 2.3%.
This year, the Fed is likely to hike U.S. core inflation has kept its solid dynamics despite global disinflationary pressures. rates just once. Core prices are rising especially thanks to the labour market tightening and development of the housing market. Mortgage loans are the lowest in the past three years, which together with the undersupply of housing creates pressure on core prices. At the end of this year, core prices are likely to hover around the current 2.1%, according to SG economists. Headline inflation is expected to reach 2% at the beginning of 2017 on the back of higher energy prices. Regarding monetary policy settings, SG economists expect the Fed to hike rates just once this year (in December). The market is even more pessimistic, expecting one rate hike with the probability of just 34%. The Fed itself anticipates two rate hikes this year although the number of Fed members who would prefer just one rate hike is growing. Next year, SG economists expect three rate hikes.
U.S.: development of interest rates (%) U.S.: inflation (%, yoy)
Fed funds rate 6.0 yoy CPI Headline US SG forecast change 8.0 FOMC median projection (as of March 2016) 5.0 CPI Core US Rate path implied by the market (as of May 17) 7.0 4.0 6.0 3.0 5.0 2.0 4.0 1.0 3.0 0.0 2.0
1.0 -1.0
0.0 -2.0 00 02 04 06 08 10 12 14 16 18 20 2007 2009 2011 2013 2015 2017 2019 Sources: SG Cross Asset Research/Economics
Euro area: No rate hike till 2020
Inflation has likely temporarily Inflation in the euro area is at a persistently low level. According to SG economists, it is reached the target. likely to hover around zero through the summer, but in H216 inflation is likely to accelerate given the base effects. Nevertheless, consumer prices are unlikely to exceed 0.4% on average this year. At the beginning of 2017, inflation is likely to rise temporarily to close to 2%, which might spark a discussion about setting interest rates. For 2016-20, however, inflation is likely to average around 1.4%, still substantially below the ECB’s inflationary target of 2%. As a result, SG economists do not believe the ECB will hike rates over the forecasted period (2020). This year, we cannot expect many actions from the ECB. More interesting, however, will be
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which instruments the ECB chooses in 2017 should inflation still persist substantially below the target. In such a case, the ECB would (according to SG economists) prolong the asset purchase programme till the end of 2017 and prolong or extend the TLTRO programme. GDP growth is expected to rise 1.6% this year. Growth is driven especially by domestic demand, while investments still lag behind and net exports represent a drag. The forecast for 2017 counts with GDP growth of 1.5%.
The strong labour market The German economy is expected to rise just 1.7% this year and the next. Private supports household consumption. consumption is likely to remain the key source of GDP growth while investment is likely to remain sluggish, and exports will probably wipe out part of the growth. Household consumption is well supported by the positive situation on the labour market. The number of vacancies is at a record high, and slow inflation growth boosts the real disposable income of households. Inflation persists at low levels. This year, it is likely to reach 0.5% on average, according to SG economists, and 1.8% next year. In their view, the risks are balanced. Inflation is expected to be pushed higher by oil prices in H216. On the other hand, there is a risk for wage growth, which could be lower as a consequence of lower external demand and higher labour supply (refugees).
Euro area: Inflation (%, yoy) Euro area: GDP (%)
3.5 4.0 Euro area - Cpi Headline 3.5 Euro area - Real Gdp 3.0 3.0 2.5 Annual 2.0 Annual 2.5 change 1.5 change 1.0 0.5 2.0 0.0 -0.5 1.5 -1.0 -1.5 -2.0 1.0 -2.5 -3.0 -3.5 0.5 -4.0 -4.5 0.0 -5.0 00 02 04 06 08 10 12 14 16 18 00 02 04 06 08 10 12 14 16 18 Source: SG Cross Asset Research/Economics
Asia: China, Japan: Growth prospects have improved The Chinese 2016 GDP forecast SG economists slightly revised their outlook for the Chinese economy upward. The new was revised slightly upward. forecast counts with GDP growth of 6.5% this year, which is in line with the government growth target for 2016-20. The surprisingly strong revival on the housing market and the start of infrastructure investments were the main reasons for the revision. Nevertheless, both were the result of higher credit accelerations, which according to SG economists is unlikely to be long-lasting, however. In the coming years, structural problems are likely to overweight and the Chinese economy will slow down a bit (6% in 2017). Inflation is expected to move slightly higher at the end of the year (to 2.2% yoy), mostly thanks to a positive base effect. The central bank’s policy is still to a large extent driven by the inflexible currency and the capital outflow. As a result, currency movements will probably remain the key driver of the monetary calls. The main SG scenario expects with 80% probability that USD/CNY will trade at 6.75 at the end of the year. PBoC is expected to aim to follow a basket of currencies and keep the CFETS index within a range of 95–100. In that case, the PBoC would according to SG economists be cautious in cutting the required reserve ratio (100 bb RRR cuts). The new policy rate is expected to be cut by 25bp in H216.
Japan: No additional monetary SG’s 2016 growth forecast remained unchanged (0.7%). The 2017 outlook, however, was easing by the end of 2016. revised upward (1.6%). The forecast is based on the assumption that unemployment will fall further (below 3% in 2017), which should create strong pressure on wage growth; structural reforms will help corporations maintain high levels of profitability; fiscal measures will bear fruit; and, in addition, the government will implement further measures after the election in July
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Economic & Strategy Research Equity Research
2016 (amounting at least JPY5tn), according to SG economists. Inflation is likely to hover around zero in the short term. In the medium term, it is expected to stabilise around 1%, which is based on the assumption that the output gap will tighten, wages will go up and yen depreciation will continue. As a result, SG economists do not expect additional monetary easing by the end of 2016. The BoJ has already lowered interest rates into the negative (-0.1% for current accounts, which financial institutions held at the central bank). By this measure, the BoJ tries to create pressure on financial institutions to lend more or invest. If JPY strengthens further and goes below USD/JPY 105, the probability of further quantitative and qualitative easing (QQE) would increase to 40%, according to SG economists (they perceive the current probability of additional QQE at 25%). If there is a risk, USD/JPY would reach the psychological level of 100 USD/JPY; additional QQE by the end of 2016 would become SG’s main scenario.
China: GDP growth Japan: output gap
3.5 1 % yoy 2 Annual change 3.0 14.0 2 1 2.5 1 2 2.0 12.0 1 2 1.5 1 2 1.0 10.0 1 2 0.5 0 1 0.0 8.0 -0.5 0 1 -1.0 0 1 6.0 -1.5 0 1 -2.0 0 4.0 1 00 02 04 06 08 10 12 14 16 18 20 07 09 11 13 15 17 19 Cpi Headline Cpi Core Source: Ekonomický a strategický výzkum, Komerční banka
Jana Steckerová +420 222 008 524 [email protected]
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Economic & Strategy Research Equity Research
Outlook for equity markets
SG cut the weight of equities in its Our outlook for equity markets is based on Société Générale’s Multi Asset Portfolio – global portfolio from 50% to 45%. Contradictions abound: pick your battles (published on 7 June). Société Générale lowered
the weight of equities in its global portfolio from 50% to 45%. The aim was to reduce risk in the portfolio. From other asset classes, the weight of government bonds was increased from 17% to 22%, but the weight of corporate bonds was cut from 15% to 13%. SG keeps a minimum weight of cash (5% in the portfolio) and raised the weight of commodities to a maximum of 10%.
SG still prefers European equity After the recent declines, European equity indices have an interesting upside potential to markets. SG’s targets , as shown in the table below. We expect an improved performace in the third quarter of this year as equities should be supported by a higher inflation outlook and better economic momentum in the eurozone. The result of the British referendum (to be announced in the morning of 24 June) could be a short-term trigger for European bourses (see the box below). SG now recommends overweigting UK equities (currency hedged) due to their international and commodity exposure.
U.S. equities should stagnate. U.S. equities should be more or less flat in the coming quarters . Their upside potential seems limited due to relatively high valuation and our expectation that corporate margins should contract. SG expects the U.S. economy to start slowing down in H2 18, which should put the top of the equity market cycle around mid-2017. For Asian markets, SG forecasts a re-rating of Japanese equity indices, while Chinese assets are now perceived as vulnerable.
SG/KB outlook for equity indices
Last price IX.16 XII.16 III.17 VI.17 change change Index 20-Jun est. est. est. est. end 16'(%) 1 year (%) S&P 500 (USA) 2 071 2 100 2 000 2 050 2 100 -3 1 DJ Stoxx 600 (Europe) 334 370 355 365 380 6 14 FTSE 100 (UK) 6 142 6 700 6 500 6 700 7 000 6 14 CAC 40 (France) 4 303 4 900 4 750 4 800 5 000 10 16 DAX 30 (Germany) 9 893 10 500 10 000 10 300 10 500 1 6 FTSE MIB (Italy) 17 305 20 000 19 000 20 000 21 000 10 21 IBEX 35 (Spain) 8 586 9 700 9 250 9 500 9 750 8 14 Nikkei 225 (Japan) 15 965 18 000 17 500 17 500 18 000 10 13 HSCEI (China) 8 640 9 000 8 700 8 300 8 100 1 -6 ASX 200 (Australia) 5 257 5 600 5 700 5 700 5 800 8 10 KOSPI (South Korea) 1 981 2 000 1 950 2 000 2 050 -2 3 SENSEX (India) 26 776 29 000 27 000 28 000 30 000 1 12 PX (KB/SG, market prices) 842 880 910 940 940 8 12 PX (KB/SG, consensus) 842 890 940 990 1 000 12 19 Source: SG Cross Asset Research (Multi Asset Portfolio from 7 June, 2016); Economic & Strategy Research, Komerční banka
BOX: The probability of Brexit
Several recent polls have shown that there might be more people in the UK in favour of leaving the European Union than those who prefer to stay. On the other hand, there is still a large number of undecided voters. The left-hand chart on the following page shows Bloomberg’s composite indicators from various surveys over the past five months. Based on this data, i t seems the result of the referendum could be very tight.
Equity markets have reacted strongly and negatively to the rising risk of Brexit. However, we believe investors have possibly overestimated the risk . The right-hand chart on the
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following page shows the implied probabilities based on bookmaker quotes by the Oddschecker website. Betting agencies have prov ed quite successful in predicting this kind of event in the past, and we can see that the ’Remain’ result seems to have a comfortably high probability of more than 60%. A similar outcome (the risk of Brexit of less than 40%) is currently predicted by the methodology called Number Cruncher, which analyses various data from polls and past referendums 1.
Brexit polls Brexit odds
100% 100% 100% 100%
80% 80% 80% 80%
60% 60% 60% 60%
40% 40% 40% 40%
20% 20% 20% 20%
0% 0% 0% 0% 16.1 15.2 16.3 15.4 15.5 14.6 16.1 15.2 16.3 15.4 15.5 14.6
Rem ain undecided Leave 50% Rema in Leave 50%
Source: Bloomberg
SG bets on sectors exposed to From a sectoral perspective, SG’s major investment themes are: the recovery of the euro area and receding deflation fears. • The recovery of the euro area , which should support construction, transportation and autos and components
• Rising oil prices , which are clearly positive for integrated oil companies
• Receding fears of global deflation , which should support banks, insurance and food retail companies
• No hard landing in China , which is good for basic industries, autos and components and technology hardware
The least preferred sectors still The least preferred sectors include: include utilities and telecoms. • Utilities , which have an unfavourable earnings momentum and a questionable dividend cover
• Telecommunications companies , as the sector is highly leveraged and rather expensive
Our outlook for the Czech equity Similar to equity markets in the eurozone, the Prague Stock Exchange could deliver a market is positive. double-digit return in the next 12 months. We adopt a bottom-up approach because the PX index consists of only 13 issues, with the four largest usually having a combined weight of around 70%. Of the most traded blue chips, we actively cover seven companies (including SG’s coverage of Erste Group shares). For valuing other stocks, we use two approaches, i.e. the actual market price and market consensus. An average of these two estimates shows potential growth of 15% over the one-year horizon (see the table on the previous page).
We see financial stocks among We believe financial stocks are among the most attractive on the Prague Stock the most attractive on the PSE. Exchange although we do not cover any of them directly at KB (Erste Group Bank shares are covered by SG with an expected total return of more than 50%). In general, the undervalued European banking sector should benefit from rising inflation expectations. Additionally, Czech
1 see www.ncpolitics.uk
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banks are very well capitalised. The insurance sector should also be supported by rising inflation and bond yields, which are predicted by our economists.
From other stocks, we have a Buy recommendation for CEZ, O2 Czech Republic, Philip Morris Czech Republic and Pegas Nonwovens. According to our estimates, the first three mentioned issues offer very attractive expected dividend yields in an excess of 7%. Out of these stocks, O2 shares currently have the largest upside potential to our target price.
Josef Němý, CFA +420 222 008 560 [email protected]
Expected domestic corporate events in the following months Date Company Event 21 July Unipetrol Q216 earnings announcement 28 July O2 Czech Republic Q216 earnings announcement 1 August Kofola H116 earnings announcement 3 August Komerční banka Q216 earnings announcement 5 August Erste Group Bank Q216 earnings announcement 9 August ČEZ Q216 earnings announcement 10 August Stock Spirits H116 earnings announcement 11 August Moneta Money Bank Q216 earnings announcement 19 August Philip Morris CR H116 earnings announcement 23 August Vienna Insurance Group Q216 earnings announcement 25 August Pegas Nonwovens Q216 earnings announcement 25 August Fortuna Q216 earnings announcement Source: Bloomberg, companies.
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Foreign markets
S&P 500 (USA) Stoxx600 (Europe)
2 200 380
2 100 360
2 000 340
1 900
320 1 800
1 700 300 11/12 11/01 11/02 11/03 11/04 11/05 11/06 11/12 11/01 11/02 11/03 11/04 11/05 11/06
Zdroj: Bloomberg Zdroj: Bloomberg
Nikkei 225 (Japan) HSCEI (China)
20 000 11 000
19 000 10 000
18 000 9 000
17 000 8 000
16 000 7 000
15 000 6 000 11/12 11/01 11/02 11/03 11/04 11/05 11/06 11/12 11/01 11/02 11/03 11/04 11/05 11/06
Zdroj: Bloomberg Zdroj: Bloomberg
WIG 20 (Poland) BUX (Hungary)
2 100 30 000
2 000 28 000
1 900 26 000
1 800 24 000
1 700 22 000
1 600 20 000 11/12 11/01 11/02 11/03 11/04 11/05 11/06 11/12 11/01 11/02 11/03 11/04 11/05 11/06
Zdroj: Bloomberg Zdroj: Bloomberg
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Utility ČEZ Q1 16: Profits above all estimates, but full-year guidance remains unchanged
CEZ results Buy CZKbn Q1 15 Q1 16 change KB estimate consensus Revenues 54.20 51.88 -4.3% 53.22 53.59 EBITDA 19.16 20.04 4.6% 17.58 17.71 Price 21/06/16 CZK 427 EBIT 12.03 12.97 7.8% 10.31 10.28 12m target CZK 420 Net profit 7.56 9.96 31.6% 7.17 7.15 Adjusted net profit 7.56 9.96 31.6% 7.17 7.14 Upside to TP -1.5% Source: CEZ, Economic & Strategy Research, Komerční banka. *CEZ poll among 9 analysts Dividend CZK 30 Total return 5.5% Quarterly results : On 10 May, CEZ published its Q1 16 results, which brought profits virtually above all estimates on the market . However, despite strong quarterly results, Sector stance Underweight CEZ didn’t change its full-year outlook.
Main surprises and trends Investment type : 1) Quarterly revenues were somewhat lower than expected, Commodity price exposure V but profits exceeded forecasts thanks to lower costs. Operating expenses slightly High dividend yield V decreased year-on-year, but the main reason was a high CZK 1.5bn gain from commodity
1 year performance derivative trading (compared with a nearly CZK 1bn loss a year ago). 2) Among financial items, consolidated profits were supported by a contribution from joint ventures (in Q1 16, 700
600 there was a profit of CZK 0.3bn compared with a loss of CZK 1.0bn a year ago).
500 3) Operating cash flow was stable and CAPEX dropped 30% yoy, which led to a further 400 decline in net debt (CZK 123.3bn compared with 131.2bn at the end of 2015). 4) CEZ 300 lowered its targeted 2016 generation at nuclear power plants from 30 TWh to 28.7 TWh 200 06/15 09/15 12/15 03/16 06/16 which we perceive as negative news. Expected renewable energy production was also
Source: Bloomberg mildly lowered.
Trading volume (in ths of shares) 2016 outlook and impact on forecasts : CEZ’s management reiterated its 2016 guidance 1500 from mid-March (EBITDA of CZK 60bn and adjusted net profit of CZK 18bn). In light of the 1200 Q1 16 financial results, our forecast from February might still be achievable (full-year 900
600 EBITDA of CZK 61.4bn and adjusted net profit of CZK 18.6bn).
300 Potential impact on share price/recommendation : CEZ shares increased 15% since we 0 06/15 09/15 12/15 03/16 06/16 published our latest recommendation (Buy from 12 February). Moreover, shareholders Source: Bloomberg gained a dividend of almost 11% from the purchasing price. We may downgrade our recommendation after this strong performance. The key input for our valuation is expected Share data RIC CEZsp.PR Bloom CEZ CP German electricity prices; Société Générale’s commodity analysts didn’t change their 52-week range 362.1-603 forecast in the June revision. Their estimates for the next few years are slightly lower than Market cap. (CZKbn) 226.8 Market cap. (EURbn) 8.4 the current exchange-traded electricity price. Free float (%) 30 Performance (%) 1m 3m 12m Share -2.7 2.1 -25.9 Major risks to our recommendation : Lower-than-expected electricity prices, higher-than- Rel. PX Index 0.8 9.8 -14.4 expected CAPEX, less generous dividend policy. Source: Bloomberg
The latest reports: Upcoming events : CEZ shares already trade without the right for a CZK 40 per share http://trading.kb.cz/CommentsAnalysis/Detail/f68_cez_ analysis_update_12_2_2016 dividend from last year’s profit. The payout date is 1 August. CEZ’s Q2 16 financial results http://trading.kb.cz/CommentsAnalysis/Detail/1b0_cez s_profits_above_all_estimates_but_fullyear_guidance_r will be announced on 9 August. emains_unchanged
Josef Němý, CFA (420) 222 008 560 [email protected]
21 June 2016 12
Economic & Strategy Research Equity Research
Media CME Operating figures surpassed expectations; however, net loss is deep
Q116 results Hold USDm Q115 Q116 change KB estimate consensus* Sales 126.1 129.0 2.3% 126.6 130.5 OIBDA 11.4 17.1 49.4% 12.4 15.9 Price 21/06/16 USD 2.23 Operating profit -17.2 7.8 n/m 8.9 7.2 CZK 55.4 Net profit -70.2 -40.7 n/m -9.3 -18.3 12m target USD 2.5 Source: Economic & Strategy Research, Komerční banka; *estimate in Thomson Reuters poll CZK 65 Upside to TP 12.1% Company results: CME announced its Q116 results by the end of April. On the operating Dividend USD 0.0 level, the company registered better-than-expected figures; however, the deep net loss CZK 0 came as a disappointment. The impact of USD appreciation was marginal in comparison Total return 12.1% with the previous quarters.
Sector stance Factors and trends: (1) Sales rose 2.3% yoy to USD 129m in the first quarter. In the case Neutral of stable FX rates, they would have recorded an increase of 2pp higher. The weaker impact of USD development should be apparent over the whole year of 2016. (2) Consolidated Investment type Cyclical sector V OIBDA amounted to USD 17.1m and increased almost USD 6m yoy. The total OIBDA margin went up 4.2pp to 13.3%. (3) A segment breakdown showed a mixe d picture. The largest market, the Czech Republic, recorded stagnating OIBDA at USD 10m despite of a 1 year performance 10% increase in sales. The Romanian market contributed the most to yoy improvement of 75 total OIBDA as operating profit before depreciation and amortisation almost tripled to USD 68 9.5m compared with Q115. Slovakia reported OIBDA of USD 2.4m, contrary to last year’s 61
54 loss. Bulgaria and Croatia disappointed where CME recorded a huge drop in sales and
47 operating profit in particular. (4) We consider the financial re sults the biggest 40 disappointment when interest costs increased more than 20% to USD 49.1m. This sent 06/15 09/15 12/15 03/16 06/16
Source: Bloomberg CME into a deeper-than-expected net loss. (5) CME said it had finished the previously announced debt refinancing on 8 April, which should lead to lower int erest costs and longer Trading volume (in ths of shares) debt maturity. In March, management stated that a one-off impairment in the amount of 250
200 USD 150m connected to this transaction would be recorded in Q216. (6) CME improved
150 cash generation in Q116 when free cash flow amounted to USD 33.6 m in comparison with 100 USD 23.3m in Q115. 50 0 Impact on our estimates: Deep net loss will negatively influence our estimates, especially 06/15 09/15 12/15 03/16 06/16
Source: Bloomberg due to higher interest costs. On the contrary, we might slightly improve operating figures. We expect OIBDA around USD 140m. Management said OIBDA was expected to increase
Share data at a double-digit pace but less than 20% based on stable FX rates (USD 122.8m in 2015). RIC CETVsp.PR Bloom CETV CP Free cash flow excluding debt payments should reach USD 85-95m (USD 74m last year). 52-week range 43-68.5 Market cap. (CZKbn) 7.8 Including these debt payments, free c ash flow should be roughly zero. We consider more Market cap. (EURm) 317 Free float (%) 44 significant USD strengthening and weak economic growth to be the biggest risks to our Performance (%) 1m 3m 12m prediction. Share -2.5 -4.7 4.9 Rel. PX Index 1.0 2.5 21.2 Source: Bloomberg Next events: Q216 results will probably be announced by the end of July.
The latest reports (in Czech only): http://trading.kb.cz/CommentsAnalysis/Detail/REPORT _12769 http://trading.kb.cz/CommentsAnalysis/Detail/94a_kom entar_k_vysledkum_cme_za_q1_16
Miroslav Frayer (420) 222 008 567 miroslav_frayer @kb.cz
21 June 2016 13
Economic & Strategy Research Equity Research
Sports betting Fortuna After the Q1 16 results, we set a Hold recommendation
Fortuna results Hold mil. EUR Q1 15 Q1 16 change KB estimate consensus Amounts staked 199.3 251.7 26.3% 238.2 242.3 Gross win 35.4 38.1 7.6% 38.5 37.8 Price 21/06/16 CZK 88.0 EBITDA 7.4 4.6 -37.1% 5.5 5.2 12m target CZK 96 Source: Economic & Strategy Research, Komerční banka; *estimate in Reuters poll Upside to TP 9.2% Latest results : On 5 May, Fortuna announced its Q1 16 financial results, which brought a Dividend EUR 0 CZK 0.0 bigger-than-expected decline of profitability . Nevertheless, the company didn’t change Total return 9.2% its full-year EBITDA guidance. Note that Fortuna reports its complete financial results only semi-annually. Sector stance No rating Main surprises and trends : 1) Amounts staked in the sports betti ng segment continue to grow at a double-digit pace on all markets, in Slovakia even more than 50% yoy thanks to Investment type abolishment of the handling fee. However, gross win increased only slightly in all countries. Defensive V 2) There were several factors behind the EBITDA de cline: higher gambling tax in the Czech Republic (impact of around EUR 0.5m), increased competitive pressure and taxes in 1 year performance Slovakia, lower margins due to unfavourable sporting results in February an d a planned 105 cost increase. Operating expenses grew EUR 2.3m (+13% yoy), mostly due to higher staff 95 costs. 3) The Czech lottery segment achieved significantly lower growth in amounts staked 85 (+3.6% yoy), but lottery EBITDA fell less than in the sports betting segment (-19% yoy 75
65 versus -38% yoy).
55 06/15 09/15 12/15 03/16 06/16 2016 outlook : Fortuna’s management confirmed its guidance (2016 amounts stakes at Source: Bloomberg approximately EUR 1.01bn, EBITDA decline of 10-15% yoy and capital expenditures of Trading volume (in ths of shares) EUR 11-13m). EBITDA should thus reach EUR 18.5-19.9m in the remaining nine months of
500 this year, which would in the worst case mean a 4% yoy decline and in the best case 3% 400 yoy growth. This expectation of more or less stable profits could keep the share price close 300 to its current level in the coming months, in our view. 200 100 Share price and our recommendation : We updated our forecasts and set a one-year 0 06/15 09/15 12/15 03/16 06/16 target price of CZK 96 per share on 20 May (it was CZK 79 until 10 March and then under
Source: Bloomberg review). Our current recommendation is Hold (Buy until 10 March and then under review). In our opinion, Fortuna’s good fundaments (rel atively stable profitability, low indebtedness
Share data and attractive valuation) are balanced by the uncertainty regarding future CAPEX and RIC FOREsp.PR Bloom FOREG CP dividend policy. The company now pays zero dividends and this situation will probably last 52-week range 56-105 Market cap. (CZKbn) 4.6 almost two more years at least. Market cap. (EURm) 170 Free float (%) 33 Performance (%) 1m 3m 12m Major risks to our recommendation : A potential further increase in gambling taxes, Share 5.8 5.5 6.7 Rel. PX Index 9.6 13.4 23.3 uncertainty regarding the size of capital expenditures and possible reluctance of the Source: Bloomberg management to reintroduce a generous dividend policy.
The latest reports (in Czech only): http://trading.kb.cz/CommentsAnalysis/Detail/013_vysl Next events : Full H1 16 financial results will be announced on 25 August. edky_fortuny_za_q1_16 http://trading.kb.cz/CommentsAnalysis/Detail/e36_fortu na_drzet_cilova_cena_96_czk
Josef Němý, CFA (420) 222 008 560 [email protected]
21 June 2016 14
Economic & Strategy Research Equity Research
Telecommunications Services O2 Czech Republic Q1 16: Profitability slightly above expectations
O2 results Hold CZK bn Q1 15 Q1 16 change KB estimate consensus* Sales 9.17 9.05 -1.3% 9.18 9.14 EBITDA 2.38 2.50 5.3% 2.44 2.35 Price 21/06/16 CZK 228 Operating profit 1.38 1.60 15.6% 1.47 1.47 12m target CZK 260 Net profit 1.07 1.24 16.2% 1.16 1.14 Source: O2 Czech Republic, Economic & Strategy Research, Komerční banka, *O2 poll among 9 analysts including KB Upside to TP 14.1% Dividend CZK 17 Latest results : On 26 April, O2 Czech Republic announced its Q1 16 results . Although Total return 21.6% consolidated revenues were closely below estimates, the year-on-year decline of o perating
Sector stance expenses came as a positive surprise and therefore, profitability was above Underweight expectations . Compared with the extraordinary year 2015 , the rate of profit growth was significantly slower (net profit soared 106% yoy in Q1 15 and 33% yoy for the full-year Investment type 2015). Defensive V High dividend yield V Major trends : 1) Mobile revenues in the Czech Repub lic were disappointing to us
1 year performance (a decline of 1.4% yoy compared with slight growth last year), but revenues in Slovakia and
300 in the Czech fixed-line segment were almost perfectly in line with our estimates. 2) On the
250 cost side, we appreciate the overall decline of 0.7% yoy. Both cost of sales and operating 200 expenses were somewhat lower than we expected. Additionally, the company was in the 150 black in the item of other operating income/expenses, compared with net expenses of 100 CZK 127m a year ago. This was caused by lower restructuring costs and above all by a 50 06/15 09/15 12/15 03/16 06/16 one-off gain of CZK 92m from termination of proceedings regarding a fine by the Source: Bloomberg Antimonopoly Office. 3) Depreciation and amortisation dropped 11% yoy, which Trading volume (in ths of shares) significantly contributed to net profit growth. Moreover, the net financial expense was very
5000 low (a mere CZK 16m in Q1 16). On the other hand, the effective tax rate increased mildly.
4000
3000 Impact on forecasts : After the Q1 16 results beat our expectations, we might slightly
2000 improve our net profit forecasts for this year. This could also cause a rise in the expected 1000 dividend. However, the impact of these changes to our valuation will likely be negligib le 0 06/15 09/15 12/15 03/16 06/16 because the earnings were primarily driven by items such as a one-off gain and lower
Source: Bloomberg depreciation expenses.
Target price and recommendation : After the results, we confirmed our Hold Share data RIC SPTTsp.PR Bloom TELEC CP recommendation with a one-year target price of CZK 260 per share . The share price 52-week range 94.1-265.9 Market cap. (CZKbn) 68.6 dropped significantly at the beginning of May, which might have been caused by the IPO of Market cap. (EURm) 2534 Moneta Money Bank as it lowers O2’s weight in the PX index. On the other hand, O2 Free float (%) 28 Performance (%) 1m 3m 12m shares should be supported by the ongoing share buyback; the company so far bought Share -5.1 -12.3 134.0 Rel. PX Index -1.7 -5.7 170.2 0.7% of own shares of the 4% approved for 2016-17. Source: Bloomberg Main risks : Pressure on prices of telecommunication services, development of profitability The latest reports (in Czech only): http://trading.kb.cz/CommentsAnalysis/Detail/931_sniz in Slovakia and a less generous dividend policy than we now expect. ujeme_doporuceni_pro_o2_na_drzet_s_cilovou_cenou_ 260_ http://trading.kb.cz/CommentsAnalysis/Detail/0b4_vysl edky_o2_za_q1_16 Next events : Q2 16 financial results will be announced on 28 July.
Josef Němý, CFA (420) 222 008 560 [email protected]
21 June 2016 15
Economic & Strategy Research Equity Research
Textiles Pegas Nonwovens We assess the results as neutral; we keep our Buy recommendation
Q116 results Buy EUR millions Q115 Q116 yoy KB estimate Consensus Sales 60.56 55.08 -9% 54.65 54.66 EBITDA 12.63 11.60 -8% 12.23 11.51 Price 21/06/16 CZK 802 Operating profit 8.63 7.54 -13% 8.08 7.69 12m target CZK 863 Net profit 14.36 0.47 -97% 2.94 1.50 Source: Pegas, Economic & Strategy Research, Komerční banka, consensus Thomson Reuters Upside to TP 7.6% Dividend EUR 1.3 The company’s results for Q116 were in line with market expectations at the operating CZK 35.2 level. Sales fell 9% yoy to EUR 55.1m, EBITDA stood at EUR 11.6m, 8% y/y down. Decline Total return 12.0% in revenues was attributable to lower polymer prices which have stabilized and are now at Sector stance long-term minimums. Solid company results were little bit distorted by significantly lower Neutral net profit, amounting a mere EUR 500k. Deep FX losses were behind it.
Investment type Investment recommendation: Roughly in the middle of May we revised our analysis. We High dividend yield V recommended to buy Pegas stocks again with a higher target price at CZK 863 Low market capitalisation V (previously CZK 800). Our new target price corresponds to 16.3 multiples of this year’s
1 year performance expected net profit and 10.7 multiples of the estimated average profit for the following
1000 10 years. There are a few reasons behind this 8% increase in our target price: (1) the
920 decline in the cost of equity as a result of a change in decomposition of the future 840 production capacities in the Czech Republic and Egypt, (2) the decline of the risk-free rate, 760 (3) an increase in free cash flow thanks to lower investments in Egypt and the anticipated 680 lower total production capacity, (4) higher operating margins and (5) the delay of the end of 600 06/15 09/15 12/15 03/16 06/16 the CNB’s intervention regime. Source: Bloomberg Expected development in 2016: Process optimatisation should lead to a mild increase in Trading volume (in ths of shares) total production. However, sales should drop almost 8% as a result of lower polymer 100 prices. The management guidance for EBITDA (EUR 43-49m) seems attainable as we 80 predicted its level at EUR 45.4m. This means an increase of EUR 1m compared with 60
40 2015. However, net profit should be more than 15% lower and reach EUR 20.7m,
20 especially due to lower FX gains that were offset only partially by lower interest costs.
0 06/15 09/15 12/15 03/16 06/16 Dividend policy: Shareholders approved a management dividend proposal of a EUR 1.25 Source: Bloomberg dividend. We think Pegas will keep its progressive dividend policy, but owing to the anticipated decline in this year’s profit, we expect a n increase of dividend by a mere Share data 5 euro cents to EUR 1.30 per share. Management also has the possibility to launch RIC PGSN.PR Bloom PEGAS CP 52-week range 685.1-966.9 another round of stock buyback in a volume of 10% of total stocks. The stock should offer Market cap. (CZKbn) 7.4 Market cap. (EURm) 272 a dividend yield above 4% over the following years. Free float (%) 99 Performance (%) 1m 3m 12m Risk: We consider rising polymer prices and lower new investments in the Czech Republic Share 1.5 3.2 -3.9 Rel. PX Index 5.1 11.0 11.0 and Egypt as the main risks to our valuation. Source: Bloomberg Next events: Q216 results are to be published on 25 August. The latest reports (in Czech only): http://trading.kb.cz/CommentsAnalysis/Detail/0a8_peg as_nonwovens_koupit_cilova_cena_863_czk http://trading.kb.cz/CommentsAnalysis/Detail/38c_peg as_nonwovens__vysledky_hospodareni_hodnotime_neu tralne_doporuceni_drzime_v_platnosti_
Miroslav Frayer (420) 222 008 567 miroslav_frayer@ kb.cz
21 June 2016 16
Economic & Strategy Research Equity Research
Tobacco Philip Morris CR We left our buying recommendation with a new target price at CZK 13,500
2016 expected results Buy CZKm 2014 2015 2016e 15/14 16e/15 Revenues 14,049 10,866 11,021 -22.7% 1.4% Gross margin 5,980 6,760 6,935 13.0% 2.6% Price 21/06/16 CZK 12305 Operating profit 2,441 3,204 3,258 31.3% 1.7% 12m target CZK 13500 Operating margin 17.4% 29.5% 29.6% 12.1 0.1 Net profit 1,871 2,569 2,642 37.3% 2.9% Upside to TP 9.7% Earnings per share 681 936 962 37.3% 2.9% Dividend CZK 960 Dividend per share 880 920 960 4.5% 4.3% Total return 17.5% Source: Philip Morris Czech Republic; Economic & Strategy Research, Komerční banka
Sector stance Investment recommendation: In the middle of June, we revised our prognosis. We kept Overweight our buying recommendation for Philip Morris shares and increased their target price
Investment type from CZK 11,890 to CZK 13,500. Stocks already reached our previous target price by the High dividend yield V end of last December, and thereafter, their pric es continued growing to a historic maximum of CZK 13,696. Since April, they have being traded without a dividend in an amount of
1 year performance CZK 920. The increase in our target price was attributable to a decline of the risk free rate; fundamentals included a rise in production capacity utilisation followed by higher 15000
14000 profitability and dividends in the following years. An attractive valuation compared to peers
13000 and above-average dividend yield support our Buy recommendation. On the contrary, strict 12000 regulation is unfavour able for the tobacco sector, and we keep our expectation of falling 11000 operating margins and profits for the long-term horizon. The shift of smokers to alternative 10000 06/15 09/15 12/15 03/16 06/16 cigarettes might also make trouble.
Source: Bloomberg We estimate a dividend in the amount of CZK 960 per share from this year’s net profit, Trading volume (in ths of shares) meaning an increase of CZK 40 compared with the last dividend payment. The falling 5 margins should lead to lower net profits with a negative impact on dividend size. Although 4 we slightly reduced the anticipated dividend payments for the next two years, on the 3 contrary, we mildly increased them for the following years in comparison with our last 2
1 prediction. Dividend yield should stay very attractive over the next five years; we forecast
0 more than 6%, and in the longer horizon it sh ould remain above 4%. The expected 06/15 09/15 12/15 03/16 06/16 dividend yield for 2017 should reach 7%. Source: Bloomberg Our valuation corresponds to 14 multiple of this year‘s expected net profit and 18.1
Share data multiple of average earnings for the 2016-25 period. RIC TABKsp.PR Bloom TABAK CP 52-week range 10400-13696 Risks: The stricter regulations for smoki ng and stronger increases in excise duties will be Market cap. (CZKbn) 33.5 Market cap. (EURm) 1238 reflected negatively in the results and the company valuation. Free float (%) 22 Performance (%) 1m 3m 12m Next event: Semiannual report will be published on 19 August. Share -6.8 -5.6 16.8 Rel. PX Index -3.4 1.5 34.8 Source: Bloomberg
The latest reports (in Czech only): http://trading.kb.cz/CommentsAnalysis/Detail/1f8_phili p_morris_cr_koupit_cilova_cena_13500_kc
Miroslav Frayer (420) 222 008 567 [email protected]
21 June 2016 17
Economic & Strategy Research Equity Research
KB ECONOMIC & STRATEGY RESEARCH Chief Economist and Head of Research Jan Vejm ělek, Ph.D., CFA (420 ) 222 008 568 [email protected]
Economists Viktor Zeisel Marek Dřímal David Kocourek Jana Steckerová (420 ) 222 008 5 23 (420) 222 008 598 (420) 222 008 569 (420) 222 008 524 [email protected] [email protected] [email protected] [email protected] Equity Analysts Josef N ěmý, CFA Miroslav Frayer (420 ) 222 008 560 (420 ) 222 008 567 [email protected] [email protected]
SG IN CENTRAL AND EASTERN EUROPE Chief Economist of SG Poland Head of Research of Rosbank Chief Ec onomist of BRD -GSG Jaroslaw Janecki Evgeny Koshelev Florian Libocor (48 ) 225 284 162 (7) 495 725 5637 (40) 213 016 869 [email protected] ekoshelev @mx.rosbank.ru [email protected]
Head of Fin . Market s Research BRD -GSG Economist Equity Analyst Carmen Lipara Simona Tamas Laura Simion, CFA (40 ) 213 014 370 (40 ) 213 01 4 472 (40) 213 014 370 carmen.lipar [email protected] [email protected] [email protected]
SG GLOBAL ECONOMICS RESEARCH Head of Global Economics Michala Marcussen (44 ) 20 7676 7813 [email protected]
Euro area Anatoli Annenkov Michel Martinez Yacine Rouimi Yvan Mamalet (44) 20 7762 4676 (33) 1 42 13 342 1 (33) 1 42 13 84 04 (44) 20 7762 5665 [email protected] [email protected] yacine.rouimi @sgcib.com yvan.mamalet @sgcib.com
North America United Kingdom Latin America Ane ta Markowska Omair Sharif Brian Hilliard Dev Ashish (1) 212 278 66 53 (1) 212 278 48 29 (44 ) 20 7676 7165 (91) 80 2802 4381 [email protected] [email protected] [email protected] [email protected] Asia Paci fic China Japan Klaus Baader Wei Yao Takuji Aida Kiyoko Katahira (852) 2166 4095 (852) 2166 5437 (81 ) 3 5549 5 187 (81 ) 3 5549 5 190 [email protected] [email protected] takuji.aida @sgcib.com [email protected]
Korea India Inflation Sukta e Oh Kunal Kumar Kundu Vaibhav Tandon (82) 2195 7430 (9 1) 80 6716 8266 (91) 80 6731 9449 suktae.oh @sgcib.com [email protected] [email protected]
SG CROSS ASSET RESEARCH – FIXED INCOME & FOREX GROUPS Global Head of Research Patrick Legland (33) 1 42 13 97 79 [email protected]
Head of Fixed Income & Forex Strategy Vincent Chaigneau (44) 20 7676 7707 vin [email protected]
Fixed Income Bruno Braizinha Frances Cheung , CFA Jean -David Cirotteau Cristina Costa (1) 212 278 5296 (852) 2166 543 7 (33) 1 42 13 72 52 (33) 1 58 98 51 71 bruno.braizinha@sgcib .com [email protected] jean [email protected] [email protected]
Rahul Desai Jorge Garayo Ciaran O'Hagan Shakeeb Hulikatti (44) 20 7676 7 904 (44) 20 7676 7404 (33) 1 42 13 58 60 (91) 80 2802 4380 [email protected] [email protected] [email protected] [email protected]
Head of US Rates Strategy Adam Kurpiel Subadra Rajappa Jason Simpson Marc -Henri Thoumin (33) 1 42 13 63 42 (1) 212 278 5241 (44) 20 7676 7580 (44) 20 7676 7770 [email protected] [email protected] [email protected] marc [email protected]
Foreign Exchange Jason Daw Alvin T. Tan Oli vier Korber (Derivatives) (65 ) 63267890 (44) 20 7676 7971 (33) 1 42 13 32 88 [email protected] alvin [email protected] [email protected]
Head of Emerging Markets Strategy Guy Stear (33) 1 41 13 6 3 99 guy.stear @sgcib.com
Amit Agrawal Régis Chatellier Jason Daw (91) 80 6758 4096 (44) 20 7676 7354 (65) 6326 7890 [email protected] [email protected] [email protected]
Roxana Hulea Phoenix Kalen Frances Cheung , CFA (44) 20 7676 7433 (44) 20 7676 7305 (852) 2166 543 7 roxana.hulea @sgcib.com [email protected] [email protected]
21 June 2016 18
Economic & Strategy Research Equity Research
The recommendation in this document and/or the document itself was not disclosed to the issuer before its dissemination.
This recommendation is not updated at regular intervals. The date of the next update has not yet been determined and finally will be influenced by relevant changes of the facts used as the ground for this recommendation to reflect proper development in the industry and/or the analyzed company.
The main methods Komercni Banka is using for setting target price for stocks are discounted free cash flow analysis and sector comparison. Other methods may also be used if deemed appropriate by the analyst (e.g. sum of parts valuation, discounted dividend valuation, discount / premium to NAV). Target price is set for the time period of 12 months. Komercni Banka is using three grades of investment recommendation: buy, hold and sell. The recommendation is set for the time period of the next three to six months. The most important factor for setting the recommendation is the difference between actual market price and target price calculated by KB equity research. The recommendation should reflect also other factors the analyst expects to influence the stock and market in the time period of the next 3-6 months, i.e. target price substantially above current price does not automatically mean a buy recommendation for the next 3-6 months. Valuation methods and factors key for setting the recommendation are explained in the text of each analysis.
The chart below shows the structure of grades of valid investment recommendations of equity research of KB Economic & Strategy Research (6 recommendations).
Investment recommendations of KB equity research (as of 21 June, 2016)
Sell 0%
Hold Buy 50% 50%
Source: Economic & Strategy Research, Komerční banka
21 June 2016 19
Economic & Strategy Research Equity Research
CEZ O2 CR CME Philip Mo rris NWR Pegas Unipetrol Fortuna VIG CR Nonwovens Overview of last investment research and recommendations related to stocks of particular issuers Recommendaion Stop Stop Stop Buy Hold Hold Buy Buy Hold coverage coverage coverage Target Price CZK 420 CZK 260 USD 2,5 CZK n/a CZK 863 n/a CZK 96 n/a 13500 Date 12/2/16 22/3/16 12/8/15 13/6/16 20/6/16 20/5/16 23/4/15 20/5/16 16/4/15 Overview of investment researches and recommendations for last 12M (quarterly) Recommendation Under Buy Buy Buy Sell Buy revision Target Price CZK 608 CZK 251 CZK - CZK 800 Under 11890 revision Date 18/9/15 12/11/15 2/9/15 11/12/15 3/12/15 10/3/16 Recommendation Under Sell Buy revision Target Price Under CZK 819 CZK 79 revision Date 1/6/15 11/9/15 28/8/15 Recommendation Under Under
revision revision Target Price Under Under revision revision Date 27/8/15 27/8/15 Recommendation Target Price Date Direct or indirect share (5% or more) of the issuer of the registered capital of no no no no no no no no no KB Other significant financial interest of KB and/or its linked persons in the no no no no no no no no no issuer KB direct or indirect share (5% or more) of the registered capital of the no no no no no no no no no issuer. Significant financial interest in the issuer of the persons participating in no no no no no no no yes no elaboration of investment researches and recommendations. Relationships of Komerční banka with particular issuers
KB Management or co- management no no no no no no no no no of public offerings in the past 12 month Agreements or contractual relations for KB can have concluded agreements with the issuer for providing investment services. This information providing investment services with the is protected by bank secret and could not be disclosed. issuer. Agreement with the issuer on production and dissemination of the no no no no no no no no no research KB market making** for common no no no no no no no no no stocks of the issuer? Source: Economic & Strategy Research, Komerční banka
21 June 2016 20
Economic & Strategy Research Equity Research
Disclaimer
The information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell any securities. All information and opinions have been obtained from or are based on sources believed to be reliable, but their completeness and accuracy are not guaranteed by Komerční banka, a.s., even though Komerční banka, a.s. believes them to be fair and not misleading or deceptive. The views of Komerční banka, a.s. reflected in this document may change without notice.
Komerční banka, a.s. and its affiliated companies may from time to time deal in, profit from the trading of, hold or act as market makers of securities, or act as advisers, brokers or bankers in relation to securities or derivatives thereof emitted by persons, firms or entities mentioned in this document.
Employees of Komerční banka, a.s. and its affiliated companies, or individuals connected to them including the authors of this report, may from time to time have a position in or be holding any of the investments or related derivatives mentioned in this document. Komerční banka, a.s. and its affiliated companies are under no obligation to provide any services to their clients on the basis of this document.
Komerční banka, a.s. does not accept any liability whatsoever arising from the use of the material or information contained herein beyond what is required by law. This research document is primarily intended for professional and qualified investors. Should a private customer obtain a copy of this report, they should not base their investment decisions solely on the basis of this document and should seek independent financial advice. The investors must make their own informed decisions regarding the appropriateness of their investments because the securities discussed in this report may not be suitable for all investors.
The performance attained by investment instruments in the past may not under any circumstance serve as an guarantee of future performance. The estimates of future performance are based on assumptions that may not be realized. Investment instruments and investments are connected with different investment risks, the value of any investment can rise and fall and there is no guarantee for the return of the initial invested amount. Investment instruments denominated in foreign currencies are also subject to fluctuations caused by changes in exchange rates, which can have both positive and negative influences particularly on the prices of the investment instrument and consequently on the investment return.
This publication is issued by Komerční banka, a.s. which is a bank/stockbroker according to the applicable legislation and thus regulated by the Czech National Bank. Komerční banka, a.s. applies various measures to prevent conflict of interests in the process of creating investment recommendations, such as the implementation of an appropriate internal separation including information barriers between different departments of Komerční banka, a.s. in compliance with the requirements imposed by applicable regulation. The employees of Komerční banka, a.s. proceed in accordance with the internal regulations governing conflict of interest.
The evaluation of employees creating investment recommendations is never by any means tied with the volume or profit of the trades with instruments mentioned in this document done by Komerční banka, a.s., or the trades of Komerční banka, a.s. with the issuers of such instruments.. However, the evaluation of the authors of this document is linked to the profits of Komerční banka, a.s. which also partially include the results of trading with investment instruments.
The recommendations mentioned in this document are intended for the public and the document before its publication is not available to persons not involved in the creation of this document. As per our practice, the issuers usually do not receive a copy of research reports prior to their publication. Each author of this research report hereby states that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the securities or issuers at stake.
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