IBERIA
EQUITY RESEARCH
31 August 2012 TOP STORIES
PSI20 Index - According to a regulatory filing published this week, Euronext decided to include Banif and Cofina in the PSI20 index portfolio, to be effective next 24 September (page 4).
OUT THIS WEEK Snapshots / Company Reports – Cimpor, Semapa, Altri Price Target / Recommendation Changes – Semapa, Banco Popular, Cofina, Portucel Other News – PSI20 Index, Galp Energia, Retail Sector
WEEK AHEAD
Monday - TV audience shares in Portugal; August car sales in Portugal
PORTFOLIOS
This week, Mib Aggressive Portfolio went down 0.94%, underperforming the PSI20 by 3.45pp. Excluding EDP Renováveis, all stocks contributed for this underperformance (page 10).
This week, Mib Liquidity Portfolio went up 2.12%, underperforming the PSI20 by 0.38pp. Excluding Telefónica and Indra, all stocks contributed for this underperformance (page 11).
WEEKLY
António Seladas, CFA
+351 21 003 7826
Av. José Malhoa, Lote 27
1099-010 Lisboa
Tel / Fax: +351 21 003 7800 / 09
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All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the second last page.
Millennium investment banking Weekly 31 August 2012
CHANGES New Previous Motive Rating Target Rating Target
Semapa Reduce 5.35 Reduce 5.30 Valuation update
Banco Popular Neutral 1.95 Buy 1.95 Price Performance
Cofina Sell 0.43 Buy 0.43 Price Performance
Portucel Reduce 2.10 Neutral 2.10 Price Performance EARNINGS
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Millennium investment banking Weekly 31 August 2012
DIVIDENDS
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Millennium investment banking Weekly 31 August 2012
PSI20 PSI20 Index PSI20 – The new PSI20 index portfolio will include Banif and João Mateus, Cofina. Equity Analyst According to a regulatory filing published this week, Euronext decided to include Banif and Cofina in the PSI20 index portfolio, to be effective next 24 September. As we noted in our weekly of last 10 August, the PSI20 was left over with only 18 constituents as from 13 August. According to our final calculations of turnover ranking based on the reference period that ended in 31 July, we confirmed that the two candidates for entrance in September should be Banif and Novabase. As noted previously and shown in our turnover table, Cofina summed a lower turnover than Novabase but was positioned close to Novabase in the ranking and could be also a candidate to enter the index portfolio conditioned to discretionary analysis from Euronext. The decision to include Cofina means that Euronext has effectively used discretionary analysis to disregard a difference of over €1.2mn turnover between Novabase and Cofina. The reasons that took Euronext to take this decision were not disclosed. After the closing of markets on Wednesday 19 September, the new numbers of shares, free float percentages and capping factors for the new index portfolio will be published. After the closing of markets on Friday 21 September, the new index divisor will be published.
Stock ranking according to value traded in the reference period
* Calculated for the period between 01 Aug 2011 and 31 Jul 2012
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Millennium investment banking Weekly 31 August 2012
MEDIA Cofina Sell – High Risk (TargetYE12: €0.43) 2Q12 Earnings Comment - Magazines advertising revenues showed negative João Flores, numbers (-30%) Equity Analyst . Cofina disclosed 2Q12 earnings today after market close. Advertising increased pace of decline (penalized by magazines) while circulation slightly reduced pace of decline (benefiting from magazines). Following 2Q12 numbers, we believe some adjustments would be done, given strong decline in magazines advertising revenues. . Revenues declined 9% YoY to €29.7mn (in line with estimated), penalized by strong decline in advertising revenues both in Newspapers and Magazines. Costs declined by 7% YoY to €25.9mn (slightly above estimated €25.6mn), thus EBITDA dropped 22% to €3.7mn (below estimated €4.0mn) while margin declined to 12.6% (-2.0pp YoY) below estimated 13.5%. . Newspapers revenues declined 6% YoY to €23.2mn (vs €22.5mn estimated), reflecting strong decline in advertising (-18% YoY). We highlight negative numbers from circulation: dropped 5% YoY to €11.4mn (below estimated €11.6mn) while alternative products were a positive surprise (rose 41% YoY to €3.5mn above €2.6mn estimated). Costs were higher than estimated (decreased 1% YoY to €19.1mn vs estimated €18.2mn) thus operational numbers were slightly lower than expected (€4.2mn -22% YoY vs €4.3mn). EBITDA margin declined to 17.9% (-3.5pp) below estimated 19.1%. . Magazines revenues declined by 20% YoY to €6.5mn (below estimated €7.1mn), penalized by negative numbers in advertising (-30% YoY to €2.3mn vs €2.8mn estimated) while circulation numbers were slightly higher than estimated (-9.4% YoY to €3.6mn above estimated €3.5mn). Costs reduction strategy implemented was more efficient than estimated (declined 20% YoY to €6.9mn vs €7.4mn estimated), thus EBITDA was slightly lower than expected (-€0.4mn vs estimated - €0.3mn). EBITDA margin reached minus 6.1% (minus 4.5% estimated). . Below EBITDA, D&A (-€0.8mn vs -€0.9mn) were lower than estimated while financials (-€1.2mn vs - €0.8mn) and taxes (-1.1mn vs -€0.6mn) were higher than expected, which penalized Net income: €0.3mn, below €1.7mn estimated. . Net debt reached €80.2mn vs €85.4mn 2Q11 (€81.3mn 1Q12). We estimate €81mn YE12. (For further details, please refer to our snapshot out this week)
CONGLOMERATE Semapa Reduce – High Risk (Target YE12: €5.35) 2Q12 Earnings Comment and Valuation Update - Contraction in Portugal João Mateus; vs potential of emerging markets Equity Analyst . Semapa released this week the 2Q12 earnings. We updated our estimates for Secil and changed our valuation from €5.30 to €5.35 per share, for the YE12, with a recommendation of Reduce, High Risk. . In the 2Q12, EBITDAP came 17.7% over our estimate and 18.9% higher YoY. The main reason for this deviation was the change in consolidation method that was considered at an earlier time than we had assumed. The reasons behind the margin plunge in Portugal were (i) the fall in average prices, (ii) increase in production costs and (iii) lack of sales of CO2 rights. In our revision, we considered margin in Portugal to remain lower during the 2H12 with a progressive recovery thereafter. In Tunisia and Lebanon, margin remained lower because sales were partially supported by imported clinker together with higher energy costs and maintenance downtimes in Lebanon. . In the 2Q12, the consolidated top line came 7.3% over our estimate and 18% higher YoY , mainly due to the change in consolidation method. If revenues in Portugal showed an 11% YoY decrease in the 1H12, the other markets all proved the volume potential of these emerging markets with top-line growths (+15% in Tunisia and +11.2% in Lebanon on a LfL basis in the 1H12). . The main reason for our downwards revision of assets located in Portugal was the significant fall in
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Millennium investment banking Weekly 31 August 2012
EBITDA margin that persisted in the 2Q12. The positive impact in our valuation of the revision in Secil was mainly due to improvements in our estimates for Tunisia, Lebanon and Angola that together summed a slightly stronger positive impact in valuation than the negative impact of the downwards adjustment of estimated margins in Portugal. . Net financial costs in the 2Q12 increased 25% YoY and 23.65 on QoQ terms. These came on the back of average interest cost increases, together with a higher Net Debt from the acquisitions made. Net Debt to EBITDA may come close to 3.41x at the YE12 and reduce to under 3x after the YE13, a still low leverage multiple, considering the recent acquisition deals. (For further details, please refer to our company update out this week)
RETAIL Retail Sector João Flores, Retail: Retail Sales in Portugal increased pace of decline in July Equity Analyst Portuguese retail-sales were disclosed today at 11:00am (UK and Lisbon time) showing an increasing tough environment Retail sales in Portugal increased pace of decline in July, both in Food and Non-Food Retail sales (overall) declined an annual 7.9% YoY, after dropped 5.4% YoY in June (revised from – 5.2%). On a monthly basis, sales were up 0.1% YoY (+0.1% in June). Food Retail sales declined 4.7% YoY in July (-2.8% YoY in June). Non-food retail sales fell 11.1% YoY in July (-8.0% in June). Recall we estimated LfL sales 2012: Jerónimo Martins: Food +1.3% Sonae Food -0.8% Non-Food -11.9% thus we keep confident with our estimates. We highlight August car sales in Portugal will be disclosed next Monday
INDUSTRIALS Altri Sell – High Risk (Target YE12: €0.85 João Mateus, Altri - 2Q12 Earnings Comment - A remarkable quarter Equity Analyst . Altri released the 2Q12 earnings this week. We maintained our valuation of €0.85 per share, for the YE12, with a recommendation of sell, high risk. . On the 2Q12, EBITDA came 14% over our estimate, 24% higher YoY and 33% higher than in the 1Q12, a remarkable performance that stately came on the back of improvements in both sales and operational efficiency. EBITDA margin came only 0.9pp over our estimate but 2pp higher on YoY terms (+3.3pp QoQ), as expected average price increase was reinforced by operational efficiency improvements. Looking forward, only lower volume sales may probably hamper EBITDA margin in the 2H12. . The top line came 10% over our estimate, for the 2Q12, 15% higher on YoY terms and 17% over the 1Q12. Together with an average output price increase of 13% in QoQ terms, volume sales also contributed to the all-time quarterly record top-line figure with a QoQ growth of 7%. For the next quarters, there are still remaining annual machine stoppages to be implemented in September and the seasonal effect that tends to hamper sales in the 4Q. . Net financial costs came 22% lower on QoQ terms (-17% YoY), only partially explainable by the modest reduction in Net Debt (-2.4% QoQ) and most probably strongly affected by impact of non- recurrent items. Page 6 of 14
Millennium investment banking Weekly 31 August 2012
. Capex during the 1H12 was of €8mn, comparing with our estimate for the FY12 of €18.6mn (3.7% of sales), a still relatively low capex figure explainable by the fact that Altri has invested recently in the renewal and expansion of capacity. (For further details, please refer to our snapshot out this week)
Cimpor Not Covered João Mateus, 2Q12 Earnings Equity Analyst
2Q12 EBITDA of €139.4 went down 19.5% yoy. Top line of €565.7mn down 6% yoy. 2Q12 highlights by business:
Iberia responsible for 64% of total reduction in EBITDA. Due to contraction and despite export sales performance in Portugal. China faced .increased competition and falling demand. North Africa seems to be stabilizing. Fall in Brazil due to depreciation of BRL, volumes up 1.5% YoY in the 2Q12. Higher average price and efficiency improvements offset partially lower volumes, higher energy costs, BRL depreciation and other non-recurrent costs. 83% of EBITDA from outside Europe (emerging marketsNet loss due to impairments in Portugal and Spain. Net Income would be €35.8mn without impairments (-51.8% YoY in the 2Q12). Net Financial Costs increased 205% in the 2S12 YoY due mostly to currency hedging effects, also average interest rate increase and impairments. Net debt dropped to €1.537mn (vis-à-vis €1.623mn at YE11) but Net-Debt-to-EBITDA increased from 2.63x to 2.71x.
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OIL & GAS Galp Energia Buy – High Risk (Target YE12: €17.85) Vanda Mesquita, Interim dividend Equity Analyst Galp announced that it will pay an interim dividend of 12 cents (the first dividend related to the fiscal year of 2012) on September, 18th, with the shares trading from September, 13th (inclusive) onwards ex-dividend. In our model we assume that Galp will pay a dividend of 24 cents (dividend for the fiscal year 2012), meaning that the aforesaid dividend represents 50% of the total dividend. The percentage of the 2012 interim dividend over total dividend is broadly in line with the percentage paid in 2007 and 2008, but higher than the percentage paid in 2009 and 2011. We recall that last year (fiscal year of 2011) the company did not pay an interim dividend and that the company said in its Capital Markets Day (March 2012) that it would resume the practice of paying interim dividend this year.
SECTOR PERFORMANCE
. This week, the PSI20 went up 2.5%. The best performing sector was Telecoms with a 5.7% growth and the worst was Financials with a 1.4% fall. . On a Ytd basis, the PSI20 went down 9.1%. The best performing sector was Retail with a 13.3% growth and the worst was Industrials & Other with a 30.9% fall.
AGGRESSIVE PORTFOLIO . This week, Mib Aggressive Portfolio went down 0.94%, underperforming the PSI20 by 3.45pp. Excluding EDP Renováveis, all stocks contributed for this underperformance. . We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe. It is equal weighted and rebalanced on a weekly basis.
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Millennium investment banking Weekly 31 August 2012
LIQUIDITY PORTFOLIO . This week, Mib Liquidity Portfolio went up 2.12%, underperforming the PSI20 by 0.38pp. Excluding Telefónica and Indra, all stocks contributed for this underperformance. . We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe, excluding the less liquid stocks. It is equal weighted and rebalanced on a weekly basis.
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DISCLOSURES . This report has been prepared on behalf of Millennium investment banking (Mib), a registered trademark of Banco Comercial Português, S.A. (Millennium bcp). . Millennium bcp is regulated by Comissão de Mercado de Valores Mobiliários. . Recommendations: Buy means more than 10% absolute return; Neutral means between 0% and +10% absolute return; Reduce means between -10% and 0% absolute return; Sell means less than -10% absolute return. . Unless otherwise specified, the time frame for price targets included in this report is current year-end or next year-end. . Risk is defined by the analyst’s view in a qualitative way (High, Medium, Low). . Usually we update our models and price targets in between 3 and 9 months. . Millennium bcp prohibits its analysts and members of their households to own any shares of the companies covered by them. . BCP group may have business relationships with the companies mentioned in this report. . Millennium bcp, expects to receive or intends to seek compensations for investment banking services from the companies mentioned in this report. . The views expressed above, accurately reflect personal views of the authors. They have not and will not receive any compensation for providing a specific recommendation or view in this report. There were not any agreements between the companies covered and the analysts regarding the recommendation. . Analysts are paid in part based on the profitability of BCP group, which includes investment banking revenues. . BCP group has more than 2% of EDP. . BCP group has more than 2% of Sonaecom. . BCP group was chosen to evaluate EDP regarding the 8th stage of the privatization process. . BCP group was chosen to evaluate REN regarding the 2nd stage of the privatization process. . A member of the Executive Board of Directors of Millennium bcp is member of the General and Supervisory Board of EDP - Energias de Portugal, SA. . Banco Millennium bcp Investimento, S.A. (merged into Millennium bcp) was chosen as a joint global coordinator of the Initial Public Offering of EDP Renováveis. . Banco Millennium bcp Investimento, S.A. (merged into Millennium bcp) was part of the consortium, as a Co-Leader, of BES rights issue, done in April 2009. . Millennium bcp was part of the consortium, as Co-Manager, of BES rights issue completed in May 2012. . Millenniumbcp through its investment banking department is providing investment banking services to Tagus Holdings S.a.r.l. (“Offeror” in the launch of a tender offer over Brisa - Autoestradas de Portugal, S.A. shares). . Recommendations on Millennium bcp covered companies (%) Recommendation Aug-12 Jul-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Buy 70% 85% 78% 72% 68% 93% 76% 79% 79% 63% 54% 41% 37% 30% 63% Neutral 7% 0% 4% 7% 11% 0% 14% 14% 7% 15% 4% 27% 11% 40% 6% Reduce 7% 4% 0% 3% 0% 0% 0% 0% 0% 7% 0% 0% 21% 5% 6% Sell 7% 4% 7% 3% 7% 0% 0% 4% 4% 4% 0% 14% 16% 5% 0% Unrated/Under Revision 7% 7% 11% 14% 14% 7% 10% 4% 11% 11% 42% 18% 16% 20% 25% Performance 6.6% -0.2% -15% 1% -7% -20% -6% 2% -10% 33% -51% 16% 30% 13% na PSI 20 4,999 4,688 4,698 5,557 5,494 5,891 7,324 7,753 7,588 8,464 6,341 13,019 11,198 8,619 7,600 DISCLAIMER This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or of opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not allowed without permission from the BCP group. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results.
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OFFICE LOCATIONS
Millennium investment banking Av. José Malhoa, Lote 27 - 5 1099-010 Lisboa Portugal Telephone +351 21 003 7811 Fax +351 21 003 7819 / 39
Equity Team Luis Feria (Head of Equities)
Equity Research +351 21 115 6220 António Seladas, CFA (Head) Fundamental Analysis Alexandra Delgado, CFA (Telecoms and IT) João Flores (Media and Retail) João Mateus (Industrials and Utilities) Rita Silva (Banks) Vanda Mesquita (Utilities and Oil&Gas) Market Analysis Ramiro Loureiro Sónia Martins Telma Santos Publishing Sónia Primo
Prime Brokerage +351 21 003 7855 Vitor Almeida (Head) Hugo Ferreira Pinto Paula Val
Institutional Equity Sales +351 21 115 6279 Karsten Sommer (Head) Manuel Lança Lopes Rodrigo Roque Pinho
Equity Trading +351 21 003 7850 Paulo Cruz (Head) Diogo Palma Gonçalo Lima Jorge Caldeira Nuno Sousa Paulo Sousa Pedro Ferreira Cruz Pedro Gonçalves Pedro Lalanda
Equity Derivatives +351 21 003 7890 Jorge Pina (Head) Ana Lagarelhos Diogo Justino Marco Barata
Maria Cardoso Baptista, CFA