PIR MONITOR Market Strategy | Quarterly Report

PIR

Equita Research Team | [email protected] PIR MONITOR MARKET STRATEGY Analyst: Equita Research Team | [email protected] Quarterly report – September 2020

EQUITY RESEARCH CONSERVATIVE APPROACH STILL WEIGHING ON THE NEW PIR FLOWS Italy Traditional PIR funds (3.0) returned to slightly positive net inflows in 2Q20 (€+58.7mn) vs. outflows in 1Q20 and 4Q19, thus bringing the balance YTD to about € -200mn. However, net inflows are still lacklustre because of a very conservative approach in investment decisions by retail customers due to the uncertainty caused by Covid-19, in our opinion. We expect a return to positive net inflows for the traditional PIRs in the second half of the year when the distribution networks will once again intensify their commercial efforts on the product, as the new PIR (3.0) system, in force since January 2020, is effective for its relaunch. As for the new Alternative PIRs, the August decree (pending conversion into law) has strengthened the appeal of the instrument, raising the annual tax-free investment threshold per person from € 150k to € 300k per year. Given the magnitude of inflows expected from the new Alternative PIRs and the focus on SMEs (>70% of AUM not in FTSE MIB and FTSE MID stocks), we think it is crucial for the Government to continue to support the listing of SMEs and the access to the Capital Market, in order to better match supply and demand. ◼ Net outflows in PIR funds (3.0) € -175.5mn in 1H20 According to the official data of Assogestioni in 2Q20 the PIR funds recorded positive inflows worth € +58.7mn vs. outflows in 1Q20 of €-234mn. Total AUMs is now at € 16.8bn (+11% QoQ). According to IlSole24ore, inflows of traditional PIR funds were still negative for € -24mn in July, thus jeopardising the positive balances of April/May, when the products seemed to be on the way to recovery following a tough 1Q20 due to the Covid19 pandemic. In addition to the seasonal factor, which has not favoured new subscriptions for these instruments, we believe that a still very conservative approach to investment choices by retail customers - due to the uncertainty caused by the Covid-19 – is to blame. ◼ New Alternative PIRs ready for the launch. Appeal further improved by new government initiative to raise the maximum personal threshold The new Alternative PIRs are in the launch phase, with still limited flows in 2020 but a pronounced impact from 2021 onwards. According to the technical report accompanying the August Decree, the Government estimates € 5.65bn of funding for Alternative PIRs in 2021, € 6.7bn in 2022 and € 7.9bn in 2023 then reaching AUM of ca. € 25bn in 2023. For 2020, the Government assumes 60k plans for an average amount of € 75k and total inflows of € 4.5bn. The August decree (pending conversion into law) has further strengthened the appeal of alternative PIRs, with the annual tax-free investment threshold per person raised from € 150k to € 300k per year and up to a total of € 1.5mn. We remind that, for the funds related to Alternative PIRs, the investment threshold for instruments issued by Italian listed or not listed companies that are not included in the FTSEMIB nor FTSEMID index is set >70% of AUM vs. >3.5% of AUM in traditional PIR (3.0). This means that these instruments can be crucial to channel significant financial resources to SMEs, even in our more prudent scenario (€ 2-3 bn inflows per year).

ANALYSTS ◼ An extension of the incentives for IPOs would be crucial to match supply and demand Gianmarco Bonacina Emanuele Gallazzi Given the magnitude of the inflows expected from the new Alternative PIRs, we Massimo Bonisoli, CFA Stefano Gamberini think it is crucial for the Government to continue to promote the access to the Paola Carboni Domenico Ghilotti market for corporates and in particular SMEs. As an example, we highlight the Alessandro Cecchini Roberto Letizia expiry in 2020 of incentives for the listing of SMEs with fiscal credits equal to 50% Martino De Ambroggi Andrea Lisi of IPO costs, up to € 500K. We think the extension of this initiative for the next Luigi de Bellis Luigi Pedone, CFA few years (and the introduction of similar initiatives) can support a better Giovanni Razzoli, CFA matching between supply (new equity) and demand (Alternative PIR inflows).

September 10, 2020 1 IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT #300 PIR MONITOR – September 10, 2020

UPDATE ON INFLOWS AND AUM OF PIR FUNDS

According to the official data by Assogestioni in 2Q20 the PIR funds recorded net inflows worth € +58.7mn, compared to the net outflows in 1Q20 of €-234.2mn and vs. €-380mn in 4Q19. Total AUMs – promoted by 72 funds (vs. 69 at the end of 4Q19) is now at € 16.8bn (+11% QoQ, due to positive market performance). According to IlSole24ore (August 29th, 2020), PIR products recorded net outflows in July of €-24mn, bringing YTD net outflows to a negative of € -200mn.

PIR COMPLIANT MUTUAL FUNDS (€ MN)

FY2017 1Q18 2Q18 3Q18 4Q18 FY2018 1Q19 2Q19 3Q19 4Q19 FY2019 1Q20 2Q20 Net inflows 10,902 1,957 1,355 476 163 3,950 -2.2 -361.0 -353.7 -380 -1,097 -234.2 58.7 AUM 15,769 17,536 18,566 18,915 17,383 17,383 18,780 18,547 18,522 18,725 18,725 15,112 16,767 Total AUM of Italian open 1,011,183 1,004,856 1,004,933 1,001,052 955,114 955,114 1,013,258 1,027,298 1,045,232 1,071,299 1,071,299 958,870 987,361 mutual funds Share 1.56% 1.75% 1.85% 1.89% 1.82% 1.82% 1.85% 1.81% 1.77% 1.75% 1.75% 1.58% 1.70% Source: Assogestioni

PIR FUNDS TREND: AUM AND NET INFLOWS (€ MN)

20,000 5,000

18,000 4,000 16,000

14,000 3,000

12,000 2,000 10,000 AUM 1,000 8,000 NET INFLOWS

6,000 0

4,000 -1,000 2,000 AUM Net inflows 0 -2,000

Source: Equita SIM elaborations on Assogestioni data

In terms of AUM, the leader of the PIR segment is still Banca Mediolanum (25% market share), ahead of Intesa Sanpaolo (21%), Amundi (18%), Arca (12%) and Anima (10%).

PIR FUNDS: MARKET SHARE OF THE MAIN PLAYERS (€ MN, 2Q20 DATA)

Inflows Inflows AUM Share 2Q20 Share FY18* Share Banca Mediolanum 3,721 25% 56 n.m. 722 20% Intesa Sanpaolo group 3,247 21% 17 n.m. 1,139 31% Amundi 2,673 18% 8 n.m. 954 26% Arca 1,874 12% 26 n.m. 307 8% Anima 1,502 10% 21 n.m. 556 15% Lyxor 183 1% -48 n.m. -259 n.m. Source: Assogestioni; *in 2019 new provisions on PIR funds were approved (investment limits of 3.5% on AIM and 3.5% on venture capital) which blocked the product. From 2020, the product has been revamped (with replacement of the investment limits on AIM and VC with a 3.5% share for investments in companies NOT included on the FTSE MIB and FTSE MID index).

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PIR MONITOR – September 10, 2020

In terms of the individual categories, the recovery in the markets caused equity products to increase to 25% as a percentage of total AUM (from 24% in 1Q20), while balanced funds were down to 46% (from 48%) and flexible funds flat at 27%.

BREAKDOWN OF PIR FUNDS BY CATEGORY (€ MN, 2Q20 DATA)

AUM Share in 2Q20 Share in 1Q20 Equity 4,235 25% 24% Balanced 7,752 46% 48% Balanced high risk 395 2% 2% Balanced medium risk 2,290 14% 14% Balanced low risk 5,067 30% 31% Fixed Income 213 1% 1% Flexible 4,567 27% 27% Total AUM 16,767 100% 100% Source: Assogestioni

PIR 3.0: ESTIMATES OF 2020-21E NET INFLOWS

Weak PIR fund inflows in 1Q20 (€ -234mn) were due to the collapse of the markets caused by the Covid-19 crisis (FTSE Italia All-Share index -29% in 1Q20) and increased volatility, which led to a widespread sell-off. In 2Q, Traditional PIR funds (3.0) returned to slightly positive net inflows in 2Q20 (€ +58.7mn), benefitting from the market recovery (FTSE Italia All-Share index +18% in 2Q20). However, net inflows are still lacklustre because of a very conservative approach in investment choices by retail customers due to the uncertainty caused by Covid-19, in our opinion. We will have to wait until Fall to understand the performance of the products. We expect that in the second half of the year the distribution networks will once again intensify their commercial efforts on the product, as the new PIR (3.0) system, in force since January 2020, is effective for its relaunch. We therefore expect a return to positive net inflows for the traditional PIRs, albeit limited given the still very uncertain market environment.

We have slightly fine-tuned our AUM and net inflows estimates for traditional PIR. We have increased AUM stock, expected now at the end of 2020 at € 17.5bn from prev. €17.3bn thanks to a better market effect, while net inflows 2020E moved to about €800mn from prev. € 1bn.

PIR: ESTIMATED NET INFLOWS AND AUM EVOLUTION (€ MN)

2017 2018 2019 2020E 2021E Net inflows 10,902 3,950 -1,097 774 2,274 AUM 15,769 17,383 18,725 17,532 19,807 Source: Equita SIM estimates and elaborations on Assogestioni data

3 IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT

PIR MONITOR – September 10, 2020

NEW ALTERNATIVE PIR FUNDS

The "Decreto Rilancio" introduced new “Alternative PIR” (article 136), complementary products to the current traditional PIR funds, but with higher investment thresholds, different investment limits (at least 70% of total NAV invested in SMEs) and with the same fiscal incentives as open-end PIR funds (investments are tax exempt on the condition that they are held for at least 5 years).

The “Alternative PIR” are “segregated” investments whose returns and capital gains are exempt from the 26% tax rate as long as they meet the following criteria: - Maximum annual investment of € 300k per person per year (pending the conversion into law of “Decreto Agosto”, alternatively € 150k per year) and up to € 1.5mn (vs. € 30k per year and total € 150k for ordinary PIR); - At least 70% of NAV invested in financial instruments (equities/bonds/loans) – also not listed on regulated markets or MTF - issued by Italian companies or those permanently established in Italy NOT included on the Borsa Italiana FTSE MIB and FTSE MID indexes; - Investments must be held for at least 5 years.

Other technical aspects: - Investments in financial instruments issued by a single company must be limited to 20% (vs. 10% for ordinary PIR); - Individuals are now allowed to invest in more than one PIR fund (but each individual may invest in one ordinary PIR fund and one alternative fund - art. 136, paragraph 2). - PIR funds built through UCITS may now be managed more flexibly. Asset allocation constraints now have to be met by the date specified in the fund regulations (at the end of the investment period and portfolio building), are no longer applied when divestitures are made and are suspended when new capital is raised; these provisions encourage and allow qualified investments to be made via both open-ended funds as well as AIF (art. 136, paragraph 1, in addition to article 2-b).

The regulations for the new PIR funds are easily applicable to ELTIF (European long- term investment funds), whose investment policies largely correspond to those of these new products. The tax regulations for ELTIF have therefore been revoked by article 36-bis of Legislative Decree 34/2019, which had yet to be approved by the European Commission.

Target clients

Compared to ordinary PIR funds, “Alternative PIR funds” are aimed at a wealthier category of investor. Since the funds invest in low liquidity stocks, to be held on a long term basis and with a high risk profile, the products are aimed at a more "evolved" type of client (affluent), one who may benefit from a much higher investment threshold in riskier and more complex instruments, with the capacity to hold investments for a long to very long period.

We believe that alternative PIR funds (together with ordinary PIR 3.0) may fuel the arrival of new funds specialising in Italian SMEs and improve market liquidity, especially for small-mid caps but, above all, create a channel of fresh capital for long- term investments in the real economy.

In a report published last year, we estimated that ELTIFs alone would be able to reach € 7-8bn of AUM in 5-7 years, based on the performance of Venture Capital Trusts in the UK (£ 7.7bn at the end of 2018) from individual investors.

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PIR MONITOR – September 10, 2020

In more detail, we assumed that the number of investors in these funds could reach 173k in 5 years (5% of Private Banking clients in Italy and 15% of the investors in "old PIR"), with an average annual investment of around € 11k for 5 years. Our estimates are conservative as they do not take into account the upside potential stemming from investments by legal entities.

ELTIF: ESTIMATES OF INFLOWS (€ MN)

2020E 2021E 2022E 2023E 2024E A Subscribers 86,750 104,100 112,775 147,475 173,500 B average contribution (€) 11,182 11,182 11,182 11,182 11,182 C = A x B contributions 970 1,164 1,261 1,649 1,940 D Stock of AUM 970 2,134 3,395 5,044 6,984 Source: Equita SIM estimates

HOW MUCH IS THE ITALIAN PRIVATE CAPITAL MARKET WORTH?

There are significant growth opportunities in the private capital sector in Italy: at present, the alternative asset market in Italy accounts for only around € 27bn of AUM (Preqin Pro data - June 2018) or 1.2% of total assets under management (€2,140bn).

ITALY-AUM BY ASSET CLASS (€ BN)

Source: Preqin Pro, June 2018

The UK is the epicentre of the alternative asset market, with approximately € 950bn of AUM (of which € 283bn in PE/VC, € 82bn in private debt).

The ratio of private market to household wealth in Italy is 0.26% vs 4.4% in the UK and 1.2% in France.

The average amount of capital raised in the last 5 years in private equity / venture capital and private debt in Italy is approximately € 2.5bn per year.

PRIVATE CAPITAL: CAPITAL RAISED IN PE, VC AND PD (€ MN)

2015 2016 2017 2018 2019 Avg. Min Max capital raised PE and VC 2,833 1,714 6,263 3,630 1,591 o/w Italy 52% 63% 64% 72% 73% capital raised PE and VC in Italy 1,473 1,080 4,008 2,614 1,161 2,067 1,080 4,008 capital raised Private Debt 383 611 322 506 385 o/w Italy 96% 92% 95% 83% 80% capital raised PD in Italy 368 562 306 420 308 393 306 562

Total capital raised (PE, VC, PD) in Italy 1,841 1,642 4,314 3,034 1,469 2,460 1,469 4,314 Source: AIFI 2019

Based on the above considerations, we believe that annual inflows of € 2-3bn per year for alternative PIR funds would be reasonable, reaching up to € 10-15bn in 5 years and € 14-21bn in 7 years, considering that this is a new challenge for the sector and therefore these goals will not be easy to reach. Should any further incentives be introduced (for example a % tax deduction on the amount invested, as in the case of VCTs in the UK), the sector may exceed these estimates. A further potential opportunity is linked to the Pension funds, which have the possibility of investing a maximum of 10% of their assets (which, as of today, invest a very limited percentage in alternative assets).

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PIR MONITOR – September 10, 2020

PIR FUNDS LISTED INVESTMENT UNIVERSE

New PIR 3.0 fund investment constraints are as follows: - At least 17.5% of total investment must be invested in financial instruments issued by companies NOT included on the FTSE MIB index; - At least 3.5% of the total investment must be invested exclusively in companies NOT included on FTSE MIB or FTSE MID (i.e. in small caps);

As for “Alternative PIR funds”, on the other hand, at least 70% must be invested in companies NOT listed on the FTSE MIB or FTSE MID (i.e. in small caps);

Regarding the minimum threshold of 3.5% of investments to be made exclusively in Small Caps (and alternative PIR funds that choose to invest in listed assets), the potential investment universe for PIR funds in Italy is composed of 257 stocks, with an overall market cap of € 26bn.

Regarding the minimum threshold of 17.5% of total investments to be made in Mid- Caps and/or Small Caps, the PIR fund investment universe is composed of 302 stocks, representing a total market capitalisation of € 108bn. More specifically, PIR funds may invest in a total of 60 MID CAP stocks with an overall market capitalisation of € 81bn, and 242 SMALL CAPs with an overall market cap of € 27bn.

ITALIAN MARKET: # OF STOCKS AND MARKET CAP

Total Market Total Free Avg Market # of stocks cap (€ mn) Float (€ mn) cap (€ mn) Total Italian Market 342 560,987 346,111 1,640 o/w FTSEMIB 40 452,865 288,287 11,322 o/w FTSEMID 60 80,738 34,014 1,346 o/w others 118 21,832 21,919 185 o/w AIM 124 5,553 1,890 45 Source: Bloomberg

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PIR MONITOR – September 10, 2020

PERFORMANCE OF ITALIAN SMALL CAPS

◼ Italian mid-caps underperformed EU indexes YTD

After the sharp decline in 1Q20 caused by the Covid-19 pandemic (Global Equities Index -22%), global stock markets rebounded sharply in 2Q20 (+25% and YTD now +3%), with the Nasdaq and S&P500 notching fresh records.

The market rebound has been driven by hopes that the development of a Covid-19 vaccine may be around the corner, the progressive post-lockdown recovery of global economic activity (albeit to wildly different degrees according to geographic area and sector – e.g. LATAM equity index is down -35% YTD), and despite the recent uptick in new infections across Europe. Nonetheless, we believe that the key market drivers are still the massive liquidity injections by central banks and expectations for the adoption of expansive economic and fiscal policies by governments to shore up their economies.

The Italian markets underperformed the main international indexes (FTSEMIB -17%, FTSEMID -14% vs. Eurostoxx600 -10.7%, DAX -1.2%, S&P500 +4%, Nikkei +2%), penalized by the weak performance of oil and financial sectors, and lower weight in the index of technology stocks. In general, the markets YTD followed a K-shaped recovery, with some sectors significantly outperforming (Technology, Healthcare) and others suffering the most (Banks, Oil&Gas, Travel&Leisure, Media). The Italian STAR index has been a positive surprise YTD (-0.4%), outperforming the European Mid-Caps index, thanks to a lower exposure to financial sector but above all thanks to the quality of the companies in the index, usually with leadership positions in their sectors and exposed to structural growth trends.

The BTP-Bund spread narrowed YTD by -17bps YTD (to 1.47%) benefitting from the EU Recovery Fund agreement, support from the ECB and a more appealing yield relative to other EU govies.

Market volatility is significantly up compared to the end of 2019, with the VIX index at 32 points, well below the March peak (83) but still above pre-Covid levels. We believe that volatility will continue to be relatively high in the coming months due to rising Covid infections, the ongoing poor visibility on the evolution of the macroeconomic picture, in addition to political developments (US elections, USA- China trade tensions).

PERFORMANCE OF ITALIAN MID SMALL INDEXES

2018 2019 2020 YTD Ftse Mid Caps -17.5% 20.9% -13.6% Ftse Italia Star -14.8% 30.0% -0.8% Ftse AIM Italia -11.5% -5.7% -14.5% European Mid Caps -13.7% 27.0% -6.0% FTSEMIB -13.7% 33.8% -16.5% Ftse Italia Small Cap -24.1% 30.0% -16.6% Source: Bloomberg

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PIR MONITOR – September 10, 2020

FTSE ITALIA ALLSHARE: SECTOR PERFORMANCE YTD

Health Care Food & Beverage Utilities

Technology Construction & Materials Automobiles & Parts

Personal & Household Goods Industrial Goods & Services Telecommunications

Financial Services Banks

Media

Insurance Retail

Oil & Gas

Travel & Leisure Basic Materials

-60.0%-50.0%-40.0%-30.0%-20.0%-10.0% 0.0% 10.0% 20.0% 30.0% Source: Bloomberg data

PERFORMANCE OF MAIN ASSET CLASS YTD AND QTD (in €)

Lyxor Ftse ITALIA EQUITY PIR

Lyxor Ftse ITA MID CAP us treasury 7-10 yrs

us treasury 1-3 yrs YTD QTD euro govies 1-3yrs

euro aggregate bonds

euro govies 7-10yrs euro govies 15-30yrs

global corporate bonds emerging corporate bonds

High yield global bonds High yield bonds in euro

euro corporate bond IG emerging equities

eurostoxx600 S&P500

global equities

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

Source: Bloomberg data

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PIR MONITOR – September 10, 2020

◼ Best and worst performers YTD in the FTSE Mid Cap and AIM Index

BEST AND WORST PERFORMERS IN THE FTSE MID CAP INDEX (YTD)

Index Index Weight Weight Best PERF YTD (%) Worst PERF YTD (%) 1 SESA SPA 49.8 1.3 SARAS SPA -60.3 0.9 2 DE'LONGHI SPA 49.0 5.2 SPA -52.8 1.6 3 TINEXTA SPA 47.9 1.0 FILA SPA -50.4 0.4 4 CAREL INDUSTRIES SPA 36.7 2.2 IMMOBILIARE GRANDE DISTRIBUZ -50.2 0.6 5 REPLY SPA 35.0 5.6 TOD'S SPA -45.4 0.6 6 ITALMOBILIARE SPA 28.9 1.2 RCS MEDIAGROUP SPA -43.8 0.2 7 GRUPPO MUTUIONLINE SPA 18.6 1.6 MAIRE TECNIMONT SPA -40.2 0.6 8 FALCK RENEWABLES SPA 17.3 1.9 AEROPORTO GUGLIELMO MARCONI -39.1 0.2 9 LA DORIA SPA 15.8 0.3 BANCA IFIS SPA -38.1 0.7 10 ERG SPA 14.3 3.5 FINCANTIERI SPA -37.5 0.8 11 AVIO SPA 9.4 0.8 SALVATORE FERRAGAMO SPA -36.6 2.3 12 INDUSTRIA MACCHINE AUTOMATIC 4.8 4.1 EL.EN. SPA -35.2 0.6 13 SOL SPA 4.3 1.2 DATALOGIC SPA -34.0 0.6 14 ZIGNAGO VETRO SPA 2.5 1.2 MEDIASET SPA -33.6 1.6 15 SPA 1.5 1.4 MARR SPA -33.1 1.3 16 BANCA MONTE DEI PASCHI SIENA 0.2 1.1 WEBUILD -32.3 0.7 17 SANLORENZO SPA/AMEGLIA -1.0 0.5 CATTOLICA ASSICURAZIONI SC -31.4 2.2 18 RAI WAY SPA -2.9 1.7 ENAV SPA -31.0 2.7 19 ACEA SPA -4.4 2.3 ASTM SPA -30.6 3.3 20 BF SPA -6.2 0.5 JUVENTUS FOOTBALL CLUB SPA -27.9 1.3 21 UNIPOLSAI ASSICURAZIONI SPA -8.5 3.5 TECHNOGYM SPA -25.7 3.1 22 GUALA CLOSURES SPA -10.0 1.0 BREMBO SPA -25.0 3.5 23 PIAGGIO & C. S.P.A. -10.6 1.2 DOVALUE SPA -24.1 1.6 24 DEA CAPITAL SPA -11.5 0.3 DANIELI & CO -21.4 0.4 25 ASCOPIAVE SPA -12.2 0.8 IREN SPA -20.3 4.1 Source: Bloomberg

BEST AND WORST PERFOMERS IN THE FTSE AIM INDEX (YTD)

Source: Bloomberg data

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PIR MONITOR – September 10, 2020

INDEX PERFORMANCES SINCE PIR INTRODUCTION (Dec-2016)

Source: Bloomberg data

RELATIVE PE OF THE ITMC (Italian Mid Cap) vs FTSEMIB INDEX (PE fwd Blended 12M)

Source: Bloomberg data

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PIR MONITOR – September 10, 2020

VALUATION OF ITALIAN SMALL CAPS

Italian mid-small caps are currently trading with a 16.4x Adj. PE 2021E (and 31.4x in 2020E) - with earnings growth ex banks of +33% YoY after -46% exp. in 2020 – slightly above the average of the last 3Y (15.5x).

EVALUATION MATRIX OF ITALIAN MID SMALL CAPS

Market EPS Growth Adj PE EV/EBITDA Yield Adj. ROE PBV Cap 2020 2021 2020 2021 2020 2021 2020 2020 2020 Industrials 69% -49% 60% 31.5 19.7 10.2 7.8 2.2% 4.9% 1.52 Banks 20% 11% -18% 9.0 11.0 1.0% 0.1% 0.63 Insurance 8% -54% 161% 54.0 20.7 5.9% 9.7% 0.88 Holding Co.s 2% n.m. n.m. n.m. n.m. 2.8% 1.7% 0.83 TOTAL MARKET 100% -57% 91% 31.4 16.4 2.8% 3.6% 1.10 Source: EQUITA SIM estimates

Compared to the whole market Italian Mid-Small caps show a 19% premium in terms of PE (2021E P/E of 16.4x vs. 13.8x), slightly below the last 5 years historical average (about 25-30%). Compared to the European indexes, Italian mid-small caps are trading at 4% discount (2021E P/E of 16.4x vs. 17.1x) vs. 3% in May-20 and 0%-2% in Nov/Sept-19.

ITALIAN MID-SMALL CAPS VS THE ITALIAN MARKET AND EUROPEAN PEERS

2020 PE 2021 PE Italian Mid-Small 31.4 16.4 Overall Italian market 23.5 13.8 Premium(discount) 34% 19% Italian Mid-Small 31.4 16.4 European Mid-Small 30.6 17.1 Premium(discount) 3% -4% Source: EQUITA SIM estimates

Before the launch of the PIR, smaller cap traded at a 15% premium vs. overall Italian market.

MID-SMALL PREMIUM BEFORE PIR AND NOW (PE IN THE YEAR T+1)

Dec-16 Now Mid-Small 13.7 16.4 Overall market 11.9 13.8 Premium 15% 19% Source: Company data and EQUITA SIM estimates

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PIR MONITOR – September 10, 2020

EQUITA PIR PORTFOLIO

Equita PIR portfolio has been built using our Equity Research portfolios (Blue Chips and Mid-Small caps) as components to get the desired equity exposure, while for the bond component we inserted corporate bonds issued by companies that we cover.

As a benchmark we have chosen a portfolio with the following weights: 1. FTSE MIB Total return 50% 2. FTSE ITALIA MID CAP Total Return 30% 3. Cash 20%

We have increased the weight of mid-small caps by 300bps and consequently reduced the weight of large caps by 300bps. In our opinion, mid-small caps will benefit from both traditional PIR (3.0) and new alternative PIR. In addition, the current premium of mid-small caps is still lower than the last 5 years historical average (19% vs 25%/30%).

We have an exposure to large caps (44.9% vs. 50%), which is below the benchmark, while the exposure to mid-small equities (32.4% vs. 30%) is above the benchmark.

STOCKS IN OUR RECOMMENDED PORTFOLIOS

BLUE CHIPS MID- SMALL CAPS A2A Leonardo Acea Fiera Milano Buzzi Unicem MediobancaFinmeccanica Anima Gruppo Enel Moncler Cementir illimityMutuiOnlin Banke ENI Poste Italiane CIR Iren EXOR Recordati Credem Italmobiliare FinecoBank SNAM Datalogic Mondadori Hera Telecom Italia Sav. doValue Newlat Food Interpump Terna De' Longhi Raiway Intesa Sanpaolo Unipol Erg Reply Inwit Falck Renewables Technogym

Source: EQUITA SIM

EQUITA’S MID-SMALL CAP PORTFOLIO

Stock Mkt Cap Adj. EPS Growth P/E adj. Dividend yield Vol € mn 2020E 2021E 2020E 2021E 2020E 2021E € mn Acea 3,714 -2% 8% 14.6x 13.5x 4.6% 4.8% 2.64 Anima 1,411 -18% 0% 8.4x 9.0x 4.3% 4.3% 4.38 Cementir 932 -14% 33% 13.0x 9.8x 2.7% 3.1% 0.62 CIR 526 nm nm nm 44.3x 4.9% 5.3% 0.43 Credem 1,392 -32% 18% 9.8x 8.6x 4.8% 4.8% 0.58 Datalogic 621 -89% 558% 51.1x 15.8x 0.4% 2.7% 1.11 doValue 758 -84% 907% 44.2x 11.4x 0.0% 6.1% 1.94 De' Longhi 4,221 -1% 8% 25.8x 24.3x 1.3% 2.0% 4.16 Erg 3,223 250% 16% 29.1x 25.2x 3.5% 3.5% 4.73 Falck Renewables 1,605 -28% 31% 43.1x 35.4x 1.2% 1.2% 4.10 Fiera Milano 196 nm nm nm 8.0x 0.0% 3.7% 1.52 MutuiOnline 931 -13% 7% 22.4x 21.1x 1.3% 1.3% 0.42 illimity Bank 540 nm 105% 22.8x 9.1x 0.0% 1.2% 1.22 Iren 2,840 -8% 8% 13.0x 12.0x 4.7% 5.2% 3.64 Italmobiliare 1,262 32% 6% 17.7x 16.7x 2.0% 2.0% 0.51 Mondadori 336 -87% 600% 24.4x 11.9x 0.0% 4.7% 0.74 Newlat Food 230 106% -55% 17.2x 14.9x 0.0% 0.0% 0.13 Raiway 1,559 -5% 0% 25.7x 25.6x 4.1% 3.9% 0.78 Reply 3,502 -4% 12% 33.1x 28.5x 0.6% 0.6% 5.36 Technogym 1,731 -61% 99% 53.1x 26.7x 1.0% 1.9% 4.78 Source: EQUITA SIM

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The corporate bonds that we own in the Equita PIR portfolio are the following:

BONDS BOUGHT IN OUR PIR PORTFOLIO

Price Issuer Description Expiry date Seniority 09/09/2020 Ytm TELECOM ITALIA TITIM 4 04/11/24 04/11/2024 Senior Unsecured 108.0 1.55% ALERION CLEAN POWER ARNIM 3 1/8 12/19/25 19/12/2025 Senior Unsecured 102.2 2.63% CREDITO VALTELLINESE CVALIM 8 1/4 04/12/27 12/04/2027 Tier II 103.9 5.00% SPA CRDEM 3 5/8 07/10/27 10/07/2027 Tier II 100.0 2.91% BANCA MPS MONTE 3 5/8 09/24/24 24/09/2024 Senior Unsecured 103.3 2.64% Source: EQUITA SIM

EQUITA PIR PORTFOLIO

Ticker Price Price Performance (%) Weight Weight Amount invested 30-Dec-19 09-Sep-20 Absolute Relative 30-Dec-19 09-Sep-20 30-Dec-19 09-Sep-20 FTSE MIB Total Return FTSEMIBN Index 39,811 33,985 -14.6 50.0 FTSE MID CAP Total Return TITMCE Index 54,305 47,606 -12.3 30.0 Cash 20.0 Benchmark return -11.0

Portfolio -8.9 2.1 100.0 100.0 1,009,168 918,988

Italian companies in FTSEMIB 48.0 45.7 o/w Equita Main portfolio 1,373 1,135 -17.3 -6.3 48.0 44.9 484,354 412,913 o/w Equita recommended bonds 0.0 1.8 0 16,720 Italian companies ex FTSEMIB 36.0 39.7 o/w Equita Small-cap portfolio 3,971 3,605 -9.2 1.8 26.0 32.4 262,525 297,783 o/w Equita recommended bonds 9.9 7.3 100,380 66,884 Bonds portfolio 997 1,022 2.5 13.5 Cash 16.0 13.6 161,909 124,688 Source: EQUITA SIM

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PIR MONITOR – September 10, 2020

APPENDIX

WHAT ARE ELTIFs?

Pursuant to EU Regulation No. 2015/760, ELTIFs are European instruments focused on SMEs and other asset classes that are otherwise difficult to finance using traditional means: an alternative product that have the potential to increase inflows to levels thus far unseen by PIRs. Managers of these funds must channel at least 70% of investments towards Eligible investments, as defined by the regulations for ELTIFs themselves. In more detail: - “Eligible investments”: i) non-financial company; ii) non-listed or with mkt cap <€500mn; iii) established in a EU member country; - Eligible assets: i) equity, ii) quasi-equity, iii) debt instruments, iv) units of other ELTIFs, EuVECAs and EuSEFs; - At least 70% of assets invested in eligible investments; - Max 30% invested in other assets; - Max 10% invested in a single issuer; - Closed-end and long-term funds.

THE UK EXAMPLE: VENTURE CAPITAL TRUSTS

Following the introduction in 1995 of a similar incentive to that offered for ELTIFs, the UK experience shows that investments in these instruments reached a total of £ 7.7bn by the end of 2018. The UK experience reassures us that there is room within the Italian market for demand from investors specialised in SME.

Venture Capital Trusts: - Launched in 1995 with the aim of encouraging equity investment in start-ups, early stage companies or expansion companies (SMEs with assets of up to £ 15mn); - Significant tax benefits for individuals: (i) 30% tax credit, calculated based on a maximum investment of £ 200k for each tax year, with a 5-year holding period; (ii) Tax exemption on any capital gains and dividends; - Since 1995, VCTs have raised around £ 7.7bn of AUM (on average around £320mn per year), traded on the London Stock Exchange; - 70 VCTs with an average of around £ 110mn of assets; - Average duration of investments = 6 years.

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PIR MONITOR – September 10, 2020

INFORMATION PURSUANT TO EU REGULATION 2016/958 supplementing Regulation EU 596/2014 (c.d. MAR)

This publication was prepared by the Equita SIM (EQUITA SIM is licensed to provide investment services pursuant to Italian Legislative Decree no. 58/1998, CONSOB resolution no. 11761 of December 22nd 1998 and registered as no. 67 in the Italian central register of investment service companies and financial intermediaries) Research Division’s team of financial analysts who are bound to Equita SIM by an employment contract. The team members are: Gianmarco Bonacina, Massimo Bonisoli, CFA, Paola Carboni, Alessandro Cecchini, Martino De Ambroggi, Luigi de Bellis, Emanuele Gallazzi, Stefano Gamberini, Domenico Ghilotti, Roberto Letizia, Andrea Lisi, Luigi Pedone, CFA, Giovanni Razzoli, CFA

EQUITA SIM is distributing this publication via e-mail to more than 700 qualified operators from September 11, 2020 at 08:00 AM The prices of the financial instruments shown in the report are the reference prices posted on the day prior to the date indicated on cover page.

EQUITA SIM intends to provide continuity in reporting on the financial instruments covered by this document, half- yearly and, in any case, in line with the timing of the periodic financial reporting and any other exceptional events that occur within the scope of the issuer’s activities.

The information contained in this publication is based on sources believed to be reliable. Although EQUITA SIM makes every reasonable endeavour to obtain information from sources that it deems to be reliable, it accepts no responsibility or liability as to the completeness, accuracy or exactitude of such information. If there are doubts in this respect, EQUITA SIM clearly highlights this circumstance. The most important sources of information used are the issuer’s public corporate documentation (such as, for example, annual and interim reports, press releases, and presentations) besides information made available by financial service companies (such as, for example, Bloomberg and Reuters) and domestic and international business publications. This publication has not been submitted to the issuer.

The recommendations were produced using proprietary Excel models that are stored on company servers. The models are backed up at the end of each month.

EQUITA SIM has adopted internal procedures able to assure the independence of its financial analysts and that establish appropriate rules of conduct for them. However, it is pointed out that EQUITA SIM is an intermediary licensed to provide all investment services as per Italian Legislative Decree no. 58/98. Given this, EQUITA SIM might hold positions in and execute transactions concerning the financial instruments covered by the present publication, or could provide, or wish to provide, investment and/or related services to the issuers of the financial instruments covered by this publication. Consequently, it might have a potential conflict of interest concerning the issuers, financial issuers and transactions forming the subject of the present publication.

In addition, it is pointed out that, within the constraints of current internal procedures, EQUITA SIM’s directors, employees and/or outside professionals might hold long or short positions in the financial instruments covered by this publication and buy or sell them at any time, both on their own account and that of third parties. Research Division management alone determines the remuneration of the analysts who produced the publication, and their remuneration is not linked to Equita SIM’s Investment Banking transactions. It is linked to Equita SIM’s total revenue, which includes the revenue of the Investment Banking and Sales & Trading Divisions. For more details on the policies and principles designed to ensure the integrity and independence of Equita SIM analysts, please refer to the policy on organizational mechanisms of the Research activity available at www.equita.eu on the “Legal notices” section.

Regarding securities for which EQUITA SIM has the role of sponsor and/or specialist the coverage policy is always coherent with the requirements of the role itself. For additional details on the policies and principles that guarantee the integrity and independence of Equita SIM analysts, please refer to the policy on the Research Division’s organisational and administrative mechanisms, which is available online at www.equita.eu in the “Legal Notices” section.

The recommendations to BUY, HOLD and REDUCE are based on Expected Total Return (ETR – expected absolute performance in the next 12 months inclusive of the dividend paid out by the stock’s issuer) and on the degree of risk associated with the stock, as per the matrix shown in the table. The level of risk is based on the stock’s liquidity and volatility and on the analyst’s opinion of the business model of the company being analysed. Due to fluctuations of the stock, the ETR might temporarily fall outside the ranges shown in the table.

EXPECTED TOTAL RETURN FOR THE VARIOUS CATEGORIES OF RECOMMENDATION AND RISK PROFILE

RECOMMENDATION/RATING Low Risk Medium Risk High Risk BUY ETR >= 10% ETR >= 15% ETR >= 20% HOLD -5%

The methods preferred by EQUITA SIM to evaluate and set a value on the stocks forming the subject of the publication, and therefore the Expected Total Return in 12 months, are those most commonly used in market practice, i.e. multiples comparison (comparison with market ratios, e.g. P/E, EV/EBITDA, and others, expressed by stocks belonging to the same or similar sectors), or classical financial methods such as discounted cash flow (DCF) models, or others based on similar concepts. For financial stocks, EQUITA SIM also uses valuation methods based on comparison of ROE (ROEV – return on embedded value – in the case of insurance companies), cost of capital and P/BV (P/EV – ratio of price to embedded value – in the case of insurance companies). The purpose of this publication is merely to provide information that is up to date and as accurate as possible. The publication does not represent to be, nor can it be construed as being, an offer or solicitation to buy, subscribe or sell financial products or instruments, or to execute any operation whatsoever concerning such products or instruments. EQUITA SIM does not guarantee any specific result as regards the information contained in the present publication, and accepts no responsibility or liability for the outcome of the transactions recommended therein or for the results produced by such transactions. All investment/divestiture decisions are the exclusive responsibility of the party receiving the advice and recommendations, who may decide whether or not to execute the investment/divestment based on his or her own knowledge and expertise.

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PIR MONITOR – September 10, 2020

Therefore, EQUITA SIM and/or the author of the present publication cannot in any way be held liable for any losses, damage or lower earnings that the subject using the publication might suffer following execution of transactions on the basis of the information and/or recommendations contained therein.

The estimates and opinions expressed in the publication may be subject to change without notice.

The list of all conflicts of interest, rating dispersion, last 12 months recommendation made by Equita SIM’s analysts and other important legal disclaimers are available on www.equita.eu in the “Legal notices” section.

This document has been provided to you solely for informational purposes and may not be reproduced or distributed, directly or indirectly, to any other person, nor may it be published, wholly or in part, for any reason, without EQUITA SIM’s specific authorization. By accepting this document, you agree to comply with the limitations indicated above.

For Entities and Clients in the United States

Equita is not registered as a broker-dealer with the U S Securities and Exchange Commission, and it and its analysts are not subject to SEC rules on securities analysts’ certification as to the currency of their views reflected in the research report. Equita is not a member of the Financial Industry Regulatory Authority. It and its securities analysts are not subject to FINRA’s rules on Communications with the Public and Research Analysts and Research Reports and the attendant requirements for fairness, balance and disclosure of potential conflicts of interest.

This research report is only being offered to Major U S Institutional Investors and is not available to, and should not be used by, any U S person or entity that is not a Major U S Institutional Investor. Equita can not and will not accept orders for the securities covered in this research report placed by any person or entity in the United States. Orders should be placed with our correspondent, Auerbach Grayson & Co. 212-557-4444.

16 IMPORTANT DISCLOSURES APPEAR AT THE BACK OF THIS REPORT