Equities Earnings Estimates – Outlook
Equities Still Good Opportunities on the Equity Market
Q4 Earnings Estimates After a 2% rise in Q4 2006, domestic equities have increased by 5% YtD. Key ratios are attractive, both by historical and international comparison, giving reason to expect considerable price rises this year.
January 15, 2007
• Forecast 40% profit increase in Q4 According to our Q4 earnings estimates, the aggregate profit of our 18 ICEX-listed companies will increase 40% YoY. We expect 13 of the 18 companies for which we publish forecasts to deliver a profit on the quarter and five to report a loss. FL Group, Hf. Eimskipafélag Íslands and Glitnir are expected to report the highest YoY increase in profit. Performance of the first two is buoyed up by gains on sale of assets, while the major factors behind Glitnir’s improved performance are increased fees and commissions, plus good equity portfolio returns.
Icelandic Research Icelandic • Good profit growth especially in manufacturing sector For 2007, we predict aggregate profit of ICEX-listed companies will drop 18% from that of 2006, primarily due to substantially lower sales and trading gains than in 2006. While this should chiefly dampen the performance of financials, we expect the banks’ core income to remain strong and the insurance operations of Exista (VÍS Insurance) and TM to improve. According to our forecasts, profits of manufacturing companies should rise considerably this year. • Expect a rise of 20-25% in 2007 Based on Research’s valuations, we can expect a 12.5% equity market return in the coming 12 months, and 18% in 2007. On the other hand, the experience of recent years indicates that acquisitions and expansion abroad boost company value substantially. Most of our forecast companies have plans for continuing expansion, plus the financial muscle to do so. With this in mind, we expect share price rises may well surpass the estimates resulting from our valuations and our according recommendations. As market conditions are also relatively favourable, despite high interest rates, we expect the market could climb as much as 20-25% in 2007. • Attractive by international comparison Companies’ price multiples indicate that the market is definitely fairly priced: its P/E ratio, based on our 2007 earnings estimates, is 11.3 while P/E ratios of leading foreign indices range from 13 to 17. The Icelandic market is clearly attractive by international comparison. • Overweight manufacturing companies We recommend overweighting Actavis, Alfesca, Bakkavör and Össur, which we feel have the greatest potential for share price increases in coming months. Our estimated
Kepler Teather & Greenwood Merrion 12M target share prices for these companies are 14-30% up from current market price.
Landsbanki Kepler Teather & Greenwood Merrion
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Equities Earnings Estimates – Outlook
Authors:
Anna María Ágústsdóttir 410 7385 anna.agustsdottir@landsbanki.is Björn Rúnar Guðmundsson 410 7382 [email protected] Edda Rós Karlsdóttir 410 7381 [email protected] Guðmunda Ósk Kristjánsdóttir 410 7384 [email protected] Haraldur Johannessen 410 7391 [email protected] Hermann Már Þórisson 410 7388 [email protected] Ingi Sturla Þórisson 410 7389 [email protected] Karl Kári Másson 410 7394 [email protected] Kristján Bragason 410 7393 [email protected] Lúðvík Elíasson 410 7386 [email protected]
2 Landsbanki Kepler Teather & Greenwood Merrion January 15, 2007
Equities Earnings Estimates – Outlook
Weighting Recommendation 4 Changes from latest report 4 Likely increase of 20-25% in 2007 5 Operating results published over… 5
Key price ratios and equity market pricing 6 P/E ratio 6 Price-to-book ratio 8 EV/EBITDA 9 Price-to-cash flow ratio 10 Key ratios in the Icelandic market are relatively favourable 11
Pricing fair in comparison with foreign companies 11
Continuing international expansion this year 15
The economic environment 18
Table of Contents ISK exchange rate 18 Inflation at 1.8% for the year as a whole 19 Policy rate drop in July 19 The economy and the equity market 20 Forecast for Q4 2006 and for 2006 and 2007 as a whole 21 Q4 2006: A time of transformation 21 2006: A year of growth and capital gains 22 2007: Solid performance but lower sales and trading gains 23
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 3
Equities Earnings Estimates – Outlook
Weighting Recommendation
We have given weighting recommendations for 18 companies based on their share prices at the close of the market on 12 January 2007. These companies represent nearly 88% of the total market capitalisation of companies listed on ICEX. No weighting recommendation is issued for Landsbanki, which represents just less than 12% of the market cap. If Landsbanki were included, our weighting recommendations would cover some 99.5% of the market cap. • Changes from latest report Since the publication of our last earnings estimates, dated 5 October, we have reviewed all of our valuations. We continue to recommend overweighting of Actavis and now recommend overweighting of Alfesca, Bakkavör, and Össur as well. It is interesting to note that the companies for which we recommend overweighting at this time all fall within the manufacturing sector, but in all cases the expected return on their shares is 14%-30% over the next 12 months. In the case of Alfesca, a new valuation carried out after the publication of their Q4 results in November has led us to change the recommendation for the company from underweight to overweight. Furthermore, the company’s shares dropped in price by roughly 2% at the same time that the ICEX–15 rose by 9% (4 Oct 2006 – 12 Jan 2007). A new valuation of Bakkavör has resulted in our recommendation being changed from marketweight to overweight. The revised valuation of Össur following the company’s acquisition of the French orthopaedic device manufacturer Gibaud, together with the fact that Össur shares dropped by some 8% while the ICEX-15 rose by 9%, results in a change in our recommendation for the company from marketweight to overweight. Glitnir Bank drops from marketweight to underweight because Glitnir share prices have increased 10% over and above the market since the beginning of October 2006. In all, we recommend overweighting for four companies, marketweighting for 10, and underweighting for the final four. We recommend overweighting for 17% of the market cap, marketweighting for 65%, and underweighting for 18%.
Table 1: Weighting recommendation Weighting in Market cap in Weighting Company % of market Research’s ISK billions Recommendation collection 365 hf 15 0.5% 0.6% Underweight Actavis Group 215 7.9% 9.2% Overweight Alfesca 29 1.1% 1.2% Overweight Atorka 21 0.8% 0.9% Marketweight Bakkavör Group 134 4.9% 5.7% Overweight Exista 263 9.7% 11.3% Marketweight FL Group 216 7.9% 9.2% Marketweight Glitnir Bank 346 12.7% 14.8% Underweight Hf. Eimskipafélag Íslands 68 2.5% 2.9% Marketweight Icelandair Group 30 1.1% 1.3% Marketweight Icelandic Group 21 0.8% 0.9% Underweight Kaupthing Bank 658 24.2% 28.1% Marketweight Marel 28 1.0% 1.2% Marketweight Mosaic 43 1.6% 1.9% Marketweight Straumur-Burðarás 169 6.2% 7.2% Marketweight Teymi 16 0.6% 0.7% Marketweight TM Insurance 39 1.4% 1.7% Underweight Össur 43 1.6% 1.9% Overweight Source: Landsbanki
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• Likely increase of 20-25% in 2007 The expected return of the companies examined averages 12.5% for the next 12 months. According to our weighting recommendations, the equity market could therefore rise by 18% during the year, as the ICEX-15 had already risen by 5% as of January, when this report was written. The largest of the companies listed on ICEX have engaged in significant foreign expansion, and their endeavours have been very successful. Also, most of them have both the planning and the financial strength to continue expanding. Naturally, however, our valuations of these companies only take into account the expansion that has already taken place. The experience of the past few years shows that acquisitions and international expansion have greatly increased these companies’ value. Icelandic manufacturers have participated actively in global concentration in their sectors, as is demonstrated by Actavis in the generic pharmaceuticals sector; Össur in the prosthetic and orthopaedic device field; Marel, manufacturer of investment products for the food industry; and Bakkavör, which manufactures fresh ready meals and prepared food products. It appears that the integration of new production units into group activities is going smoothly and that streamlining and economy of scale are contributing to positive operating results. The same can be said for the Icelandic banks, whose expansion efforts have been successful. For this reason, we are of the opinion that the likelihood of continuing acquisitions makes it probable that the increase in share prices will be greater than is indicated by our weighting recommendations. Furthermore, market conditions are reasonably good despite high interest rates. All of these considerations lead us to believe that the market could appreciate by 20%-25% during the year.
Operating results published over several months’ time
As before, the ICEX companies publish their annual operating results over a long period of time. The first results will appear later this month, beginning with Hf. Eimskipafélag Íslands and Nýherji, though Hf. Eimskipafélag Íslands’ accounting year differs from the calendar year (1 Nov – 31 Oct). Roughly a week later, the Icelandic banks will publish their operating results. After that, results will appear more or less steadily until 13 March, when the second-last publication takes place. Mosaic Fashions, the last company to publish its results, maintains an accounting year from 1 February to 31 January and will present its annual results on 25 April.
Table 2: Schedule of publication of annual operating results for 2006 Date Company Accounting Date Company Accounting period period 19 Jan Nýherji 12 mo. 13 Feb Marel 12 mo. 19 Jan* Hf. Eimskipafélag Íslands 12 mo. 16 Feb* Teymi 12 mo. 26 Jan Landsbanki 12 mo. 16 Feb* TM Insurance 12 mo. 30 Jan Straumur-Burðarás 12 mo. 20 Feb Icelandair Group 12 mo. 30 Jan Glitnir Bank 12 mo. 22 Feb Alfesca 6 mo. 30 Jan Kaupthing Bank 12 mo. 2 Mar* Atorka Group 12 mo. 31 Jan Bakkavör Group 12 mo. 2. Mar* Icelandic Group 12 mo. 2 Feb* 365 12 mo. 5 Mar* P/F Atlantic Petroleum 12 mo. 2 Feb* FL Group 12 mo. 8 Mar* Flaga Group 12 mo. 7 Feb Össur 12 mo. 9 Mar* HB Grandi 12 mo. 8 Feb* Exista 12 mo. 13 Mar* Actavis 12 mo. 9 Feb* Vinnslustöðin 12 mo. 25 April Mosaic Fashions 12 mo. Source: Icelandic Stock Exchange * Results published during the pertaining week.
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Equities Earnings Estimates – Outlook
Key price ratios and equity market pricing
As before, we have examined developments in several commonly used price ratios that give indications concerning the pricing of the market. The ratios under scrutiny are: the price/earnings (P/E) ratio, the price-to-book ratio, the EV/EBITDA ratio, and the price-to-cash flow ratio. • P/E ratio The ratio between price, or market value (P), and earnings (E) indicates how many years it will take for a company’s profits to return the market value of its share capital. There is no universal rule that governs whether a P/E ratio is too high or low, but it is normal that it be higher among companies undergoing rapid growth than among those that are growing slowly or not at all.
Advantageous P/E values The P/E ratio of the 18 companies we examine is 8.8 based on the earnings estimates for 2006 and 11.3 based on the estimates for 2007. These are lower figures than appeared in our last earnings estimate of 5 October, when the ratios were 9.6 or 2006 and 13.3 for 2007. Since that time, the ICEX-15 has risen by around 7.2%, while estimates of the companies’ total earnings have risen considerably more. Since 5 October, when the earnings estimates for Q3 were published, we have made considerable changes in our earnings estimates for both 2006 and 2007. Those changes, however, are all in line with both our recent reports on the companies in question, and they reflect our revised valuations, which we issued after the publication of operating results. Estimates for banks and other financials have increased greatly, with the exception of Straumur-Burðarás. The increase for 2006 stems from significant trading and sales gains, while that for 2007 can be explained by the expectation of more extensive growth than we previously assumed. The reduced earnings estimate for Straumur-Burðarás is explained by the bank’s purchase of its own shares. Estimates of earnings for most of the companies in the manufacturing sector have been reduced. Depreciation of intangibles and temporarily high financing costs in relation to acquisitions are the most important factors in the case of Actavis, Össur, and Marel. On the other hand, operational difficulties lie behind the reduced earnings expectations for Icelandic and Mosaic. However, estimates for Hf. Eimskipafélag Íslands (previously Avion Group) have risen considerably due to the sale of assets and operational divisions, as well as changes in operations.
Chart 1: P/E ratio of Landsbanki companies*
18 15.8 16 14.7 14 11.3 12 10.6 10 8.8 8 6 4 2 0 2003 2004 2005 2006E 2007E
Source: Landsbanki *Landsbanki companies are those for which Landsbanki Research prepares earnings estimates.
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Equities Earnings Estimates – Outlook
As can be seen on the bar graph above, the P/E ratio for 2007 is considerably lower than it was in 2004, despite sharp increases in share prices during that period. When the companies are categorised according to whether they are manufacturers or financial companies, distinct trends emerge. The P/E ratio of companies in the manufacturing sector drops in both 2006 and 2007 and rises for financial companies in 2007. This is due to expectations of improved operations among manufacturers year-on-year and expectations that financials will not achieve the spectacular trading and sales gains of the past few years. Forecasts nonetheless assume good results for all of the financial companies.
Chart 2: P/E ratio by sector
30 2003 2004 2005
25 2006E 2007E 2008E 23.3
20 18.5 15 11.3 11.2 11.1 10.6 9.9
10 8.8 7.4 7.1 5 0 Landsbanki Banks (excl. Manufacturing Financials (excl. companies* Landsbanki) companies Landsbanki)
Source: Landsbanki *Landsbanki companies are those for which Landsbanki Research prepares earnings estimates.
Companies with an unconventional accounting year It should be noted that three of the companies discussed here observe an accounting year that does not correspond to the calendar year. Hf. Eimskipafélag Íslands’ accounting year begins on 1 November, while Mosaic Fashions and Alfesca begin their accounting year on 2 February and 1 July respectively. Therefore, with respect to Alfesca’s financial ratios, the bar marked “2007” refers to the 2006-07 accounting year, while the bar labelled “2008” refers to 2007-08. Furthermore, in Alfesca’s case, the bar labelled 2006 refers to the past 12 months.
Chart 3: P/E ratios of manufacturers
50
2006E 2007E 2008E 61
45 243 169 128 40 35 30 25 20 15 10 5 0 MARL OSSR IG ACT MOSAIC A BAKK HFEIM ICEAIR TEYMI
Source: Landsbanki
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Equities Earnings Estimates – Outlook
Chart 4: P/E ratios of financial undertakings
14 2005 2006E
2007E 2008E 41.7 12 16.5 10 8 6 4 2 0 GLB KAUP STRB ATOR EXISTA FL TM
Banks Investment and Insurance companies
Source: Landsbanki
• Price-to-book ratio The ratio of market value to book value of equity indicates what the market is willing to pay for each ISK of equity. The price-to-book ratio is governed largely by a company’s capital employed. The less capital that must be tied up in operations in order to yield each ISK of profit, the higher the justifiable price-to-book ratio. Based on our earnings estimates, the price-to-book ratio is 1.7 for 2006 and 1.6 for 2007, which means that the companies’ equity will increase by nearly 10% YoY, assuming unchanged market value.
Chart 5: Price-to-book ratio by sector
4.0 2003 2004 2005 3.5 2006E 2007E 2008E 3.0 2.5 2.0 1.9 1.8 1.7 2.0 1.8 1.7 1.6 1.6 1.5 1.5 1.0 0.5 0.0 Landsbanki Banks (excl. Manufacturing Financials (excl. companies* Landsbanki) companies Landsbanki)
Source: Landsbanki *Landsbanki companies are those for which Landsbanki Research prepares earnings estimates.
Chart 6: Price-to-book ratios of manufacturers
4.5 2006E 2007E 2008E 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 BAKK OSSR TEYMI MOSAIC MARL ACT 365 A IG HFEIM ICEAIR
Source: Landsbanki
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Equities Earnings Estimates – Outlook
Chart 7: Price-to-book ratios of financial undertakings
3.0 2006E 2007E 2008E 2.49
2.5 2.36 2.1 2.1 1.93 1.9
2.0 1.8 1.6 1.33 1.33
1.5 1.3 1.21 1.2 1.1 1.14 1.1 1.0 1.0 0.5 0.0 GLB KAUP STRB ATOR EXISTA FL TM
Banks Investment and Insurance companies
Source: Landsbanki
• EV/EBITDA Enterprise value (EV) is a measure of the capital, both borrowings and equity, that is employed in a company’s operations, while market value measures only the value of equity. The ratio of EV to EBITDA is often used to assess the value of a company as a whole. The primary difference between the P/E ratio and the EV/EBITDA ratio is that the P/E ratio measures how much a company’s operations return to its owners, while EV/EBITDA measures how much the company returns to both shareholders and creditors. Naturally, the EV/EBITDA ratio has no significance in the case of financial companies; therefore, they are excluded from these calculations. For most of the companies, the EV/EBITDA ratio based on our forecasted EBITDA margin for 2007 decreases slightly in comparison with our last earnings estimates. In addition, it is important to bear in mind that because many of the companies have acquired others in recent months, the EBITDA margin of the new companies is not fully reflected in 2006. It is difficult to pinpoint “normal” EV/EBITDA, as the ratio varies according to business sector; however, it is safe to say that a fair ratio for a company is generally around 10, or slightly less. The pricing of the Icelandic market must therefore be considered appropriate.
Table 3: EV/EBITDA of manufacturers 2005 2006E 2007E 2008E 365 11.2 41.6 18.6 - Alfesca - 10.0 8.5 8.0 Actavis Group 21.0 11.1 9.6 7.7 Bakkavör Group 18.5 10.8 9.4 8.3 Hf. Eimskipafélag Íslands - 8.3 9.9 6.3 Icelandair Group - 9.8 9.1 8.6 Icelandic Group 39.2 19.1 10.5 - Marel 16.7 22.9 12.5 - Mosaic Fashions 9.4 12.2 6.5 - Össur 33.3 24.9 14.7 12.5 Teymi 13.4 8.4 7.2 High 39.2 41.6 18.6 12.5 Low 9.4 8.3 6.5 6.3 Average 21.3 16.7 10.7 8.4 Median 18.5 12.2 9.6 8.0 Source: Landsbanki
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Equities Earnings Estimates – Outlook
Chart 8: EV/EBITDA: Average, median, and high and low values
45 Average 40 Median High / low 35 30 25 20 15 10 5 0 2005 2006E 2007E 2008E
Source: Landsbanki
• Price-to-cash flow ratio Another useful tool that we use to assess the pricing of the equity market is a comparison of market value and the cash flow (working capital from operations) generated by companies; this is the so-called price-to-cash flow ratio. The price-to- cash flow ratio is not applicable to financial and investment companies; therefore, these companies are excluded from the calculations. If we make assumptions concerning the companies’ income growth and average investment requirement, we can then calculate the average rate of return required by investors. If investors’ risk premium is low (a low discount rate), it indicates that the market value of companies is too high with respect to the cash flow they generate, and vice versa. In calculating the price-to-cash flow ratio, we use a nominal growth rate of 4.4% per annum as an average. Furthermore, it is assumed that the companies use an average of 30% of their working capital from operations for investment activities.
Table 4: Calculation of price-to-cash flow ratio Dec 05 Jun 06 Sep 06 Forecast 06 Forecast 07 Price-to-cash flow ratio 18.7 13.1 14.7 10.7 9.0 Investment ratio 30% 30% 30% 30% 30% Future growth 4.4% 4.4% 4.4% 4.4% 4.4%
Discount rate 9.1% 10.0% 9.4% 11.2% 12.5% Source: Landsbanki
The conclusion is that the discount rate for the equity market is 11.2% if we take into account estimated cash flow for the year 2006. If we consider our cash flow forecast for 2007, the result is the same as that in our earnings estimate of 5 October; that is, the discount rate, exclusive of financial and investment companies, is 12.5%. By comparison, in our last update, we used a 12.6% discount rate, which is well in line with the rate of return that investors seem to demand for 2007. Our price-to-cash flow calculations therefore indicate that the market is fairly priced. In support of this, it is worth mentioning that in the event of a 10% drop in share prices, income growth of only 3.6% in perpetuity would suffice to obtain our required rate of return. Though one can always expect fluctuation in the equity market, we consider it unlikely that a potential drop in share prices would be other than temporary. In view of the above considerations, a 10% or greater decrease in equity prices would represent an excellent buying opportunity.
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Equities Earnings Estimates – Outlook
Table 5: Future growth based on a drop in equity prices Decrease in equity prices 0% 5% 10% 20% 30% Price-to-cash flow ratio 9.0 8.5 8.1 7.2 6.3 Research’s weighted discount rate 12.6% 12.6% 12.6% 12.6% 12.6%
Future growth 4.5% 4.1% 3.6% 2.6% 1.3% Source: Landsbanki
Key ratios in the Icelandic market are relatively favourable
Key price ratios increased last year in the chief equity markets around the globe. At first glance, a comparison of the key ratios in the Icelandic market to those of markets abroad indicates that the Icelandic market is economically priced. It should be borne in mind, however, that commercial banks and investment companies weigh heavily — around 75% — in the ICEX-15, a much higher proportion than is reflected in foreign indices. If financial companies are excluded, the P/E ratio rises substantially. It is not fair to exclude Icelandic banks entirely from the calculations, however, because foreign banks are included in foreign indices, but the comparison is informative nonetheless.
Table 6: Key ratios: comparison with foreign markets Index Country P/E 06 P/E 07 Price-to-book Landsbanki companies* Iceland 8.8 11.3 1.7 Banks Iceland 7.4 11.1 1.9 Manufacturers Iceland 23.3 18.5 2.0 Financials Iceland 7.1 9.9 1.7 AEX Amsterdam Holland 11.3 12.6 2.3 SIM Zurich Switzerland 18.6 16.5 3.2 FTSE 100 London UK 17.9 13.0 2.7 CAC 40 Paris France 14.7 13.6 2.4 S&P 500 New York USA 17.9 16.2 2.9 Dow Jones Ind. New York USA 21.8 15.9 3.4 Nikkei 225 Tokyo Japan 36.2 42.2 2.7 Nasdaq New York USA 41.2 30.2 3.6 MIB30 Milan Italy 14.2 14.7 2.3 IBEX35 Madrid Spain 13.7 15.4 3.1 OMX C20 Copenhagen Denmark 18.9 17.5 3.2 DAX Frankfurt Germany 14.5 14.0 1.9 OMX S30 Stockholm Sweden 15.3 15.3 2.9 OMX H25 Helsinki Finland 19.7 15.7 2.6 ISEQ Dublin Ireland 17.0 15.6 3.5 OBX Oslo Norway 11.2 13.6 2.7 Source: Bloomberg, Landsbanki *Landsbanki companies are those for which Landsbanki Research prepares earnings estimates.
Pricing fair in comparison with foreign companies
A comparison of the Icelandic manufacturers with comparable foreign companies reveals that, in general, they are fairly priced with regard to price-to-book, P/E, and EV/EBITDA ratios. It is necessary to bear in mind, though, that the operations of the comparison companies do not correlate to those of the Icelandic companies in all cases. The prices of Actavis, Alfesca, Bakkavör Group, Icelandic Group, Mosaic Fashions, and Icelandair Group are, as a whole, in line with the prices of their comparison companies. The same sort of comparison, however, is rather disadvantageous to Össur and Marel. Marel’s disadvantage can be traced largely to one-off expenses relating to the acquisition of the Danish manufacturer Scanvægt. Marel’s management expects to expense most of these costs during the first half of this year. If a correction is made for these costs, Marel’s P/E ratio is 24.0 and its EV/EBITDA ratio is 10.7 for 2007.
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Equities Earnings Estimates – Outlook
Hf. Eimskipafélag Iceland has undergone major changes in recent weeks; therefore, the P/E ratio for 2007 does not give an accurate picture of the company. The company’s managers have stated that they intend to sell assets at Atlas Cold Storage, which will significantly reduce the group’s depreciation and financial costs. The P/E ratio for Hf. Eimskipafélag Íslands is therefore reduced to 9.1 for 2008. At Össur, high P/E and EV/EBITDA ratios are due to irregular expenses and depreciation of intangibles resulting from the acquisition of other companies. Össur recently acquired the French orthopaedic device manufacturer Gibaud Group, which generated significant one-off costs that will be expensed in Q4 2006 and Q1 2007. Continuing depreciation of intangibles will tend to distort the P/E comparison for the next few years, but that amortisation will not, of course, affect the company’s cash flow. This depreciation is due primarily to the depreciation of goodwill as a result of the purchase of Royce Medical. After correcting for irregular expenses and depreciation of intangibles, Össur’s P/E ratio is 20.3 for 2007 and 16.6 for 2008, while the EV/EBITDA ratio stands at 13.3 for 2007 and 11.6 for 2008. The following tables include a summary of average, weighted average, and median figures. The Icelandic companies are omitted from those summaries.
Table 7: Generic pharmaceuticals manufacturers Company Country Market Price-to- P/E P/E 2006E P/E 2007E EV / EBITDA Change in value in book (12M) EBITDA margin share price ISK last 12 YTD millions mo. ACTAVIS GROUP Iceland 227,100 2.0 21.8 36.4 20.6 11.1 26.1% 5.3% TEVA PHARMACEUTICAL IND Israel 1,871,207 2.5 63.1 14.0 15.0 12.1 29.6% 7.0% BARR PHARMACEUTICALS USA 403,493 3.2 16.2 15.9 14.0 8.5 44.4% 5.3% CIPLA India 309,123 9.3 30.4 25.5 20.7 30.0 22.2% -1.6% MYLAN LABORATORIES USA 316,818 4.6 17.1 15.0 14.5 9.6 32.3% 4.2% KRKA Slovenia 279,101 5.5 27.1 27.8 21.2 21.3 21.7% 8.8% RICHTER GEDEON NYRT Hungary 275,754 2.7 12.9 14.4 14.9 8.8 32.6% -6.7% RANBAXY LABORATORIES India 250,060 6.3 75.7 30.1 22.4 124.0 2.7% 6.2% STADA ARZNEIMITTEL Germany 218,857 3.2 30.0 26.9 19.4 16.3 19.0% 2.3% DR. REDDY'S LABORATORIES India 214,092 5.9 82.6 19.7 22.3 44.5 14.6% -2.4% WATSON PHARMACEUTICALS USA 191,514 1.2 23.0 22.9 18.3 6.0 27.4% -0.1% PLIVA D.D. Croatia 181,915 - - 30.6 26.9 - 20.9% 0.0% PERRIGO CO USA 111,331 2.3 20.5 18.9 16.6 12.0 12.9% -3.4% EGIS Hungary 73,573 2.4 18.1 12.6 12.9 13.3 15.8% -1.5% LANNETT CO USA 10,557 1.9 30.4 21.0 16.4 12.4 19.4% -2.7% Average 3.9 34.4 21.1 18.2 24.5 Weighted average 3.7 44.6 18.7 17.1 20.9 Median 3.2 27.1 20.3 17.4 12.4 Source: Bloomberg, Landsbanki
Table 8: Fashion retailers Company Country Market Price-to- P/E P/E 2006E P/E 2007E EV / EBITDA Change in value in book (12M) EBITDA margin share price ISK last 12 YTD millions mo. MOSAIC FASHIONS Iceland 43,797 2.1 24.5 28.1 9.0 12.2 14.9% -1.3% HENNES & MAURITZ AB-B SHS Sweden 2,842,378 11.5 27.4 26.9 23.4 16.8 23.9% -2.0% INDITEX Spain 2,414,987 8.4 28.4 26.5 22.6 15.6 21.9% 2.5% MARKS & SPENCER GROUP UK 1,613,683 10.3 19.4 17.5 15.8 9.9 14.6% -4.7% GAP/THE USA 1,204,474 3.3 19.7 23.9 20.8 7.6 14.8% 6.0% NEXT UK 615,043 - 14.6 13.7 12.5 7.0 22.4% 7.6% MONSOON UK 101,233 4.3 20.4 17.6 15.2 8.9 16.6% 2.3% TED BAKER UK 36,402 6.2 19.8 18.9 17.0 11.3 18.8% 3.1% FRENCH CONNECTION GROUP UK 27,855 1.7 66.0 130.7 45.9 16.7 7.5% 2.6% Average 6.5 27.0 34.5 21.6 11.7 Weighted average 9.0 24.3 24.0 20.6 13.2 Median 6.2 20.1 21.4 18.9 10.6 Source: Bloomberg, Landsbanki
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Equities Earnings Estimates – Outlook
Table 9: Food processing Company Country Market Price-to- P/E P/E 2006E P/E 2007E EV / EBITDA Change in value in book (12M) EBITDA margin share price ISK last 12 YTD millions mo. ALFESCA Iceland 29,086 1.2 24.0 18.2 13.8 10.0 - -1.8% BAKKAVOR GROUP Iceland 134,652 3.8 20.7 14.1 15.1 10.8 11.9% -0.2% ICELANDIC GROUP Iceland 21,119 1.2 - 127.6 13.5 19.1 1.3% -3.9% UNILEVER NV-CVA Holland 3,243,056 3.6 18.2 15.9 15.4 - 17.0% -1.4% PREMIER FOODS UK 212,814 - 25.9 15.8 14.7 17.1 15.2% 1.7% NORTHERN FOODS UK 79,846 3.2 - 17.7 15.1 7.3 9.4% 1.1% CAMPOFRIO ALIMENTACION Spain 66,832 2.4 28.4 24.6 20.9 10.2 9.0% -1.4% SA UNIQ UK 35,852 3.4 - - - 9.8 4.6% -1.8% FLEURY MICHON SA France 20,777 1.7 15.0 18.6 15.6 5.3 10.4% -1.3% Average 2.9 21.9 18.5 16.4 9.9 Weighted average 3.6 18.8 16.1 15.5 12.9 Median 3.2 22.1 17.7 15.4 9.8 Source: Bloomberg, Landsbanki
Table 10: Healthcare Company Country Market Price-to- P/E P/E 2006E P/E 2007E EV / EBITDA Change in value in book (12M) EBITDA margin share price ISK last 12 YTD millions mo. OSSUR Iceland 43,306 3.8 54.0 169.2 37.4 24.9 17.7% -0.4% WILLIAM DEMANT HOLDING Denmark 374,336 41.7 35.7 32.9 27.6 23.4 25.9% 4.0% COLOPLAST-B Denmark 309,741 8.9 46.9 30.2 22.5 19.1 20.1% 1.6% DJO USA 70,871 3.8 37.2 39.4 24.7 17.9 23.5% -0.1% ORTHOFIX INTERNATIONAL NV Holland 56,434 2.1 32.4 90.7 23.1 40.1 24.7% -4.2% Average 14.1 38.0 48.3 24.5 25.1 Weighted average 23.1 39.9 36.5 25.1 22.4 Median 6.4 36.4 36.2 23.9 21.2 Source: Bloomberg, Landsbanki
Table 11: Investment products Company Country Market Price-to- P/E P/E P/E EV / EBITDA Change in value in book (12M) 2006E 2007E EBITDA margin share price ISK last 12 mo. YTD millions MAREL Iceland 27.715 2.1 236.6 243.4 28.1 22.9 11.5% -1.9% SANDVIK AB Sweden 1.171.898 4.5 15.1 15.5 14.4 9.1 17.8% -2.0% ATLAS COPCO AB-A SHS Sweden 1.404.858 5.0 18.7 19.5 18.1 10.3 23.8% -3.0% METSO OYJ Finland 502.086 4.0 15.3 15.0 13.6 - 10.4% 0.0% METTLER-TOLEDO Switzerland 228.427 5.1 24.1 23.1 20.0 13.7 15.7% 2.6% INTERNATIONAL STORK NV Holland 123.034 2.7 16.0 15.4 13.4 8.3 9.2% 1.1% Average 4.2 17.8 17.7 15.9 10.4 Weighted average 4.6 17.2 17.6 16.1 10.0 Median 4.5 16.0 15.5 14.4 9.7 Source: Bloomberg, Landsbanki
Table 12: Airline and transport Company Country Market Price-to- P/E P/E P/E EV / EBITDA Change in value in book (12M) 2006E 2007E EBITDA margin share price ISK last 12 mo. YTD millions HF. EIMSKIPAFELAG ISLANDS Iceland 60,982 1.1 - 11.1 61.3 8.3 6.8% 4.6% ICELANDAIR GROUP HOLDING Iceland 29,342 1.1 - 9.6 12.2 9.8 - 1.4% A P MOLLER - MAERSK A/S Denmark 2,910,235 1.8 11.3 14.3 12.2 - 23.9% 1.9% BRITISH AIRWAYS UK 896,903 2.9 7.2 12.6 10.6 3.9 16.9% 5.8% RYANAIR HOLDINGS Ireland 809,521 3.8 22.2 25.0 19.7 13.9 29.5% 8.4% TUI Germany 366,403 1.1 75.8 31.9 23.1 5.8 6.2% 3.8% EASYJET UK 375,470 2.7 27.9 21.0 15.6 15.8 9.0% 5.6% DSV A/S Denmark 270,203 6.4 35.2 24.0 18.0 18.1 5.6% 0.8% SAS AB Sweden 225,006 1.8 140.6 35.5 12.2 68.0 4.8% 15.9% FIRST CHOICE HOLIDAYS UK 213,321 5.4 21.0 16.0 14.2 9.6 6.2% 0.9% FINNLINES OYJ Finland 65,912 1.7 16.3 20.5 17.3 11.9 9.8% 1.6% DFDS A/S Denmark 78,181 2.0 17.7 17.9 16.7 9.9 14.2% 15.6% Average 3.0 37.5 21.9 16.0 17.4 Weighted average 2.6 23.1 18.3 14.2 14.1 Median 2.4 21.6 20.8 16.2 11.9 Source: Bloomberg, Landsbanki
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 13
Equities Earnings Estimates – Outlook
Table 13: Financials Company Country Market value Price-to- P/E P/E P/E 2007E Share price rise Return on in ISK billions book (12M) 2006E last 12mo. [%] equity (ROE) Icelandic banks Glitnir Bank hr. Iceland 348 (2.4)3.8 (10.6) 16.4 (8.6) 9.2 (12.5) 12.8 27.4 29% Kaupthing Bank Iceland 669 (1.9) 2.2 (8.0) 7.3 (7.6) 8.6 (10.7) 10.9 20.0 29% Landsbanki Islands hf Iceland 315 2.8 10.4 8.7 10.6 8.3 33%
Straumur-Burðarás Investm. Bank Iceland 185 (1.3) 1.6 (5.1) 5.1 (5.4) 7.2 (10.2) - 4.8 36% Weighted average 2.6 9.8 8.6 9.9 17.4 31% International banks Abn Amro Holding Nv Holland 4,386 2.0 8.2 11.1 10.5 15.7 23% Allied Irish Banks Plc Ireland 1,815 2.9 15.3 12.1 11.4 27.0 22% Anglo Irish Bank Corp Plc Ireland 1,051 4.4 16.9 14.0 12.0 21.0 29% Bank Of Ireland Ireland 1,548 2.7 12.4 11.5 10.5 30.2 26% Barclays Plc UK 6,955 2.7 12.4 11.6 10.7 26.7 21% Bear Stearns Companies Inc USA 1,780 2.2 12.0 11.5 10.9 42.1 18% Can Imperial Bk of Commerce Canada 2,020 3.3 14.2 12.9 12.0 26.3 27% Capitalia Spa Italy 1,738 2.0 15.2 17.8 13.6 50.6 13% Citigroup Inc USA 19,134 2.3 13.0 12.7 11.9 15.2 22% Commerzbank Ag Germany 1,903 1.5 12.9 14.3 12.2 20.0 10% Credit Suisse Group-Reg Switzerland 5,913 2.2 13.4 11.8 11.7 19.5 15% Deutsche Bank Ag-Registered Germany 4,965 1.7 10.0 10.2 9.9 22.3 13% Deutsche Postbank Ag Germany 1,024 2.2 19.0 18.4 15.3 25.9 10% Goldman Sachs Group Inc USA 6,774 3.1 10.8 11.1 10.4 61.9 28% Hsbc Holdings Plc UK 14,952 2.0 12.3 11.9 11.3 0.3 17% Jpmorgan Chase & Co USA 12,047 1.5 14.0 13.0 12.1 22.3 8% Julius Baer Holding Ag-Reg Switzerland 944 2.6 48.5 20.7 17.7 49.3 4% Kbc Groep Nv Belgium 3,274 2.0 10.7 12.9 12.0 22.6 16% Lehman Brothers Holdings Inc USA 3,091 2.5 12.1 11.2 10.4 21.3 23% Lloyds Tsb Group Plc UK 4,661 3.2 13.0 12.5 11.4 23.2 23% Macquarie Bank Limited Australia 1,092 4.4 19.2 15.3 15.3 16.2 25% Merrill Lynch & Co Inc USA 6,118 2.4 14.4 16.3 12.9 37.4 16% Morgan Stanley USA 6,211 2.6 11.9 11.3 10.5 40.4 26% Raiffeisen Intl Bank Holding Australia 1,461 5.6 39.6 27.6 20.7 78.7 16% Royal Bank Of Scotland Group UK 9,118 1.8 11.3 10.8 9.9 19.7 16% Societe Generale France 5,618 2.2 10.8 10.9 10.6 27.6 21% Ubs Ag-Reg Switzerland 9,198 3.1 14.0 13.5 12.4 16.6 36% Weighted average 2.4 13.1 12.6 11.6 23.5 20% A1 credit rating 3I Group Plc UK 663 1.3 5.9 8.1 9.6 12.9 22% Banca Monte Dei Paschi Siena Italy 1,389 2.0 16.3 15.7 14.1 31.4 11% Banco Comercial Portugues-R Portugal 944 2.7 13.5 13.7 12.2 19.4 24% Banco De Sabadell Sa Spain 1,005 2.8 20.5 19.6 16.4 62.6 14% Banco Espirito Santo-Reg Portugal 649 1.6 16.0 14.5 14.1 35.7 12% Banco Pastor Spain 376 3.2 26.4 24.5 19.6 50.4 13% Credit Industriel Et Comm France 893 1.6 16.6 14.3 12.8 71.2 10% Deutsche Postbank Ag Germany 1,024 2.2 19.0 18.4 15.3 25.9 10% Irish Life & Permanent Plc Ireland 539 2.7 17.8 12.8 11.8 28.1 16% Unicredito Italiano Spa Italy 6,671 1.9 13.3 14.5 12.3 19.5 10% Weighted average 2.0 15.0 15.1 13.1 29.0 12% A2 & A3 Credit rating Abn Amro Holding Nv Holland 4,386 2.0 8.2 11.1 10.5 15.7 23% Amvescap Plc UK 679 2.3 28.4 20.1 17.1 26.2 6% Anglo Irish Bank Corp Plc Ireland 1,051 4.4 16.9 14.0 12.0 21.0 29% Banca Lombarda E Piemontese Italy 569 2.3 18.0 21.5 19.6 46.6 11% Banca Popolare Di Milano Italy 530 1.8 - 17.7 15.5 48.7 9% Banche Popolari Unite Scpa Italy 671 1.5 12.1 13.2 11.8 13.7 15% Banco Bpi Sa.- Reg Shs Portugal 423 3.5 14.7 16.6 14.8 50.3 23% Banco Popolare Di Verona E N Italy 791 2.0 11.8 12.1 11.7 30.0 16% Landesbank Berlin Holding Ag Germany 741 4.4 30.8 30.4 21.6 134.6 13% Bayerische Hypo-Und Vereinsb Germany 2,328 1.7 10.9 17.3 13.5 24.0 5% Capitalia Spa Italy 1,738 2.0 15.2 17.8 13.6 50.6 13% Commerzbank Ag Germany 1,903 1.5 12.9 14.3 12.2 20.0 10% Lloyds Tsb Group Plc UK 4,661 3.2 13.0 12.5 11.4 23.2 23% Weighted average 2.4 13.0 14.8 12.7 29.5 17% Nordic banks Danske Bank A/S Denmark 1,974 2.0 11.5 11.9 11.7 16.0 18% Dnb Nor Asa Norway 1,299 2.0 11.5 10.9 11.0 24.1 19% Jyske Bank-Reg Denmark 327 2.8 15.1 16.5 14.2 39.0 20% Nordea Bank Ab Sweden 2,978 2.2 10.8 11.6 12.0 32.5 18% Oko Bank Plc-A Finland 241 1.5 20.0 13.7 12.9 6.8 21% Roskilde Bank Denmark 92 4.2 18.0 16.8 15.6 33.3 29% Swedbank Ab - A Shares Sweden 1,371 2.4 13.2 12.9 12.4 22.0 24% Skandinaviska Enskilda Ban-A Sweden 1,530 2.3 13.7 13.2 12.9 34.1 16% Svenska Handelsbanken-B Shs Sweden 1,365 2.1 10.7 11.2 11.6 11.8 18% Weighted average 2.2 12.1 12.1 12.0 24.6 19% Source: Bloomberg, Landsbanki (Figures in parentheses are from Landsbanki Research earnings estimates.) Continuing international expansion this year
14 Landsbanki Kepler Teather & Greenwood Merrion January 15, 2007
Equities Earnings Estimates – Outlook
Most of the ICEX companies have grown substantially over the past few years, not least through takeovers and mergers with companies abroad. It is necessary to keep this in mind when comparing YoY performance. A summary of the principal acquisitions and mergers of 2005-2006 can be found below in Table 14. According to statements made by the management of most ICEX companies, there is no reason to suppose that this expansion will subside in the near future. Management objectives are generally ambitious and include growth that involves acquisition and/or merger. Company executives vary in their willingness to speak plainly. Some talk of company growth but do not mention targets relating to market position or turnover. Others have gone even further — for example, Actavis, Össur, and Marel — and have announced market position and turnover targets that cannot be achieved without takeover and/or merger. The Icelandic banks all have a strong equity ratio and are well positioned to engage in further expansion. Recently Kaupthing issued share capital for ISK 55bn, which is intended, among other things, to fund acquisitions. Overall, the banks’ objectives have been more general than those of the manufacturers mentioned above; nonetheless, it is clear that they aim at further international expansion in the near future. Straumur-Burðarás has not stated what sort of financial company it is seeking out, but it is clear that the company needs to engage in a takeover or merger in order to achieve its aim of becoming a leading Nordic investment bank. In general, operations at the investment companies Atorka, Exista, and FL Group have gone well in recent years, and their balance sheets have grown rapidly. All have an equity ratio approaching 50%. We are of the opinion that these investment companies are well positioned to take on further investments, as is shown below in Table 14. The combined investment capacity of these companies is estimated at ISK 240bn.
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 15
Equities Earnings Estimates – Outlook
Table 14: Summary of principal acquisitions in 2005-2006 and indications of further investment Company Acquisition Purchase Curre Plans for further investment price of ncy share capital** Actavis Biovena (January 2005) n/a Actavis has a stated policy of external growth. Lotus Laboratories (March 2005) 20.0 EUR Management intends that the company be among the Pharma Avalanche (March 2005) n/a top five generics producers in the world within 2-3 years. Balkanpharma Razgrad (Sold - July 2005) n/a We expect further acquisitions during the year, but we Amide (July 2005) 600.0 USD* believe that the emphasis will be on a greater number of Kéri Pharma (October 2005) n/a smaller companies rather than fewer and larger, after Higia (December 2005) n/a the attempt to acquire PLIVA. Actavis had guaranteed Alpharma (December 2005) 675.0 EUR* financing for PLIVA, whose purchase price was around Sindan (March 2006) 147.5 EUR* EUR 2bn. We have no reason to believe that this Abrika (November 2006) 181.0 EUR* financing will not still be available. 51% share in ZiO Zdorovje (November 2006) 47.0 EUR* Alfesca Labeyrie Group (January 2005) 323.3 EUR* Alfesca’s managers have a stated interest in achieving Iceland Seafood Corp. (Sold - February 2005) growth through acquisition. They are most likely to take Saltkaup og Tros (Sold - April 2005) over companies that would broaden Alfesca’s product Delpierre frozen division (Sold - September 2006) 17.0 EUR line and reduce the importance of salmon in their production. Atorka Sæplast (October 2005) n/a Jarðboranir aims at further expansion abroad in order to 63.5% share in Austurbakki (April 2005) 59.5 ISK exploit the company’s technology. It might possible Bonar Plastic (Promens) (July 2005) 25.8 GBP acquire a company that drills for gas, oil, or geothermal Jarðboranir (November 2005) 10,000.0 ISK heat. Elkhart Plastics (Promens) (April 2006) n/a Promens has grown rapidly but could engage in further Sæþór (Jarðboranir) (October 2006) 310.0 ISK takeovers. Fasteignafélagið Summit sold (September 2006) n/a We estimate Atorka’s investment capacity at ISK 15bn Polimoon (Promens) (November 2006) 1,351.0 NOK based on the company’s equity ratio target. Bakkavör Geest (May 2005) 623.0 GBP The company can be expected to engage in further Group Hitchen Foods (October 2005) 45.0 GBP acquisitions similar to recent ones in order to strengthen New Primebake (April 2006) n/a individual product categories. Laurens Patisseries (April 2006) 130.0 GBP The company is considering expansion in Asia and the Rye Valley Patisserie (November 2006) n/a US and is investigating acquisition/takeover as well as 50% share in Fresh Cook Ltd (November 2006) n/a building from the ground up. Dagsbrún 365 Publishing (January 2005) 5,800.0 ISK Dagsbrún has been divided into three companies: P/F Kall (July 2005) 650.0 ISK Teymi, 365, and Hands Holding. We do not expect that Saga film (August 2005) 170.0 ISK 365 and Teymi will acquire any companies during the Securitas (January 2006) 3,150.0 ISK year. Sena (February 2006) 3,600.0 ISK Kögun (April 2006) 23,500.0 ISK Wyndeham (May 2006) 80.6 GBP* Exista 20% share in VÍS (February 2005) n/a Exista aims at increasing diversity in its portfolio but has 45% share in Síminn (July 2005) 30,000.0 ISK not stated any clear plans. We estimate Exista’s 80% share in VÍS (May 2006) 53,200.0 ISK investment capacity at roughly ISK 75bn; based on this, the company’s equity ratio would be nearly 40%. FL Group Bláflutningar og Flugflutningar (August 2005) 3,800.0 ISK We estimate FL Group’s investment capacity at around Sterling (October 2005) 1,500.0 DKK ISK 150 bn. Management is interested in further 16.9% share in EasyJet (April 2006) 13,000.0 ISK investments in financials and beverage manufacturers 49% share in Refresco (April 2006) 56.0 EUR but are investigating other opportunities. The company’s Icelandair Group (Sold - October 2006) 43,000.0 ISK aim is to invest abroad. Sterling (Sold - December 2006) 20,000.0 ISK Glitnir BNbank (March 2005) n/a Glitnir has immense investment capacity. Sjóvá (Sold - April 2005 and May 2006) 9,500.0 ISK Management has stated that it is seeking a financial Norse Securities (January 2006) n/a company that would enhance the bank’s commission 50.1% share in UNION Group AS (March 2006) n/a income. 51% share in Kreditkort hf (April 2006) n/a We estimate excess equity at some ISK 40-50bn. Fischer partners (May 2006) 380.0 SEK 45% share in Norsk Privatokonomi (August 2006) n/a Hf. Heri Thomsen (July 2005) n/a Eimskip set growth targets for 2004-2010 and has Eimskipafélag 49% share in CTG (November 2005) n/a virtually achieved them as of year-end 2006. Íslands 40% share in Daalimpex (January 2006) 150. EUR It cannot be ruled out, however, that Eimskip might Farmaleiðir (April 2006) n/a acquire/take over companies during the year if 55% share in Innovate Holdings (May 2006) 15 GBP advantageous opportunities arise. 70% share in Kursiu Linija (May 2006) 5.6 EUR In addition, it can be assumed that Eimskip will seek full 30% share in Kursiou Linija (September 2006) 2.4 EUR ownership of Containerships and Innovate Holding at a 65% share in Containerships (September 2006) n/a later time. Corby Chilled (September 2006) 28.0 GBP Atlas Cold Storage (November 2006) 630.0 CAD Pacific Tramper Services (November 2006) n/a 60% share in Daalimpex (January 2007) n/a Icelandair Group listed on ICEX (December 2006)
16 Landsbanki Kepler Teather & Greenwood Merrion January 15, 2007
Equities Earnings Estimates – Outlook
Icelandic Sjóvík (March 2005) 4,100.0 ISK Management has indicated a desire to continue the Group Ecomsa in Spain (March 2005) 4.1 EUR company’s growth in the next few years and to become Dalian Three Star Ltd. (November 2005) 2.7 USD a leading seafood products manufacturer worldwide. Fiskval (January 2006) 30 ISK Pickenpack (January 2006) 155 EUR* Saltur ApS (April 2006) 1,161.0 ISK Delpierre frozen division (September 2006) 17.0 EUR VGI ehf (Sold - December 2006) 270.0 ISK
Kaupthing Lýsing (Sold - February 2005) 6,100.0 ISK Kaupthing has substantial excess equity. We estimate it Bank Singer & Friedlander (July 2005) 547.0 GBP at ISK 80bn. VÍS (Sold - May 2006) 15,9000. ISK Kaupthing is primarily interested in a foreign bank that is Exista (Sold - fall 2006) not dependent on the equity market for financing. Kögun Skrín hf. (April 2005) 73.0 ISK Purchased by Dagsbrún. In the reorganisation of Span hf. (July 2005) 7.3 ISK Dagsbrún, a part of Kögun went to Teymi, while the WorkIT (July 2005) n/a other went to a new company, Hands Holding. Commitment Data AS (September 2005) n/a Hands ASA (November 2005) 1,700.0 ISK SCS Inc. (March2006) 600.0 ISK EJS (June 2006) 2,100.0 ISK Landsbanki Verðbréfun hf. (March 2005) n/a Landsbanki has substantial excess equity. We are of the Teather & Greenwood (April 2005) 42.8 GBP opinion that the bank is looking primarily for a depository Burðarás (September 2005) n/a institution outside Iceland. 81% share in Kepler Equities (November 2005) 76.1 EUR 50% share in Merrion Capital (May 2005) 27.7 EUR Cheshire Guernsey Limited n/a Marel Geba in Germany (January 2005) n/a Management aims at turnover of EUR 300-500m and Dantech in Singapore (October 2005) n/a global market share of 15-20% in the next 3-5 years. It AEW Thurne og Delfort Sortaweigh (April 2005) 19.5 EUR is estimated that, after the share capital offering this fall, Scanvægt (August 2006) 109.2 EUR* Marel could acquire companies for roughly ISK 20-30bn, or over EUR 200-300m. Mosaic Rubicon (October 2006) 185.0 GBP* We do not expect any acquisitions during the year. Straumur- Burðarás (August 2005) n/a Straumur has substantial excess equity, which we Burðarás 50% share in Stamford Partners (July 2006) n/a estimate at around ISK 50bn. TM Nemi Forsikrin (October 2006) 886.6 NOK Össur Royce Medical Holding (August 2005) 216.0 USD* Management aims at turnover of USD 750m by year- Innovative Medical Products (December 2005) 18.5 USD* end 2010 . In order to achieve this, further acquisitions Innovation Sports. Inc (January 2006) 38.4 USD* are necessary. We assume that management is always Gibaud Group (December 2006) 101.0 EUR* looking for companies to take over. A share capital offering is planned during the year. Source: Iceland Stock Exchange, Landsbanki * Enterprise value ** Figures in millions
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 17
Equities Earnings Estimates – Outlook
The economic environment
• ISK exchange rate A fundamental change with regard to the ISK has taken place during the last year or so. In November 2005, when the real exchange rate (RER) was at an historical high, it was evident that a depreciation was unavoidable, and it was only a question of time when it would begin. This adjustment process is now concluded, and the ISK is close to an equilibrium RER. A macroeconomic imbalance appeared, for example, in a substantial current account deficit, which had reached 27.4% of GDP by Q3. While the adjustment process has commenced, it is proceeding more slowly than we had previously anticipated. A weaker ISK expedites such an adjustment; however, in the short term, it impedes the Central Bank’s reining in inflation and in so doing reduces the likelihood of a rapid policy rate decline in the immediate future. Nonetheless, the high foreign-domestic interest rate differential, which is not expected to decrease significantly in coming months, buoys up the ISK exchange rate. Our forecast concerning the CB policy rate assumes a nominal interest rate differential averaging 10% during 2007 and a policy rate of 11% at year-end. In the first two weeks of the new year, foreign issuers have issued ISK Eurobonds (glacier bonds) for a total of ISK 58bn. These are purchased by foreign investors whose faith in the Icelandic economy is great enough that they are willing to take on the accompanying exchange rate risk. We believe that considerable glacier bond issuance will continue, exceeding the total amount maturing this year (some ISK 180bn with interest). Other factors pushing the exchange rate upwards are expectations of additional power-intensive industry projects following the conclusion of the present ones. Considering the most recent news of a possible Alcan expansion, it would appear that this likelihood has not diminished. At the moment, the question causing the greatest uncertainty regarding the ISK exchange rate is whether Iceland’s banks intend to convert their equity from ISK to a foreign currency. This factor is the primary reason that we have amended our exchange rate forecast for 2007, as we had previously assumed a relatively steady appreciation of the ISK over the course of the year. The banks’ rapidly growing foreign reserves indicate that one or more of them are considering converting their equity to a foreign denomination. Such a move might weaken the ISK in the short run, but the long-term effect will more likely be ISK appreciation, especially if banks and other listed companies convert their share capital to foreign currency as well. A diminishing exchange rate risk associated with investments in key companies on ICEX will, in our opinion, serve to enhance foreign investors’ interest in the Icelandic financial market. In addition, it can be assumed that the short-term financing of equity investments, which is now largely in ISK, will also be converted to foreign currency. Such a shift involves increased foreign borrowing and therefore an increased supply of currency and a stronger ISK. It is important that, if Icelandic companies convert their share capital to foreign currency, Icelandic investors define their equity holdings in those companies as a foreign holding, and some will choose to limit their exchange rate risk by taking a foreign currency loan to offset the holding.
18 Landsbanki Kepler Teather & Greenwood Merrion January 15, 2007
Equities Earnings Estimates – Outlook
In the coming months the ISK exchange rate should fluctuate considerably around its current TWI value of 126, which we regard as the current equilibrium ISK real exchange rate. Later in the year, we expect the ISK to strengthen and hover around 120.
Chart 9: Inflation forecast Chart 10: ISK exchange rate forecast
10.0% CPI 150 Forecast 8.0% 140
6.0% 130
4.0% 120
2.0% 110
0.0% 100 2004 2006 2008 2010 2000 2002 2004 2006 2008
Source: Statistics Iceland, Landsbanki Source: EcoWin, Landsbanki
• Inflation at 1.8% for the year as a whole The 0.26% increase in the CPI in January was slightly above expectations, but over the next few months it is foreseeable that inflation will drop rapidly as the effects of VAT reductions on food begin to emerge. These effects will begin to show in March and April and should bring the 12-month inflation rate to a level below the CB inflation target by May. For the year as a whole, we predict a 1.8% rise in the CPI from the beginning to the end of the year. We estimate that the average annual inflation rate will increase by 2.5% YoY. Next year inflation is likely to rise again temporarily, and for the period 2008-2010 we forecast inflation rates of around 3% per year. • Policy rate drop in July Even excluding the effects of reductions in VAT on food, the outlook is for declining inflation; therefore, in our opinion there is little likelihood that the policy rate will rise further during the year. We assume that the policy rate will remain unchanged at 14.25% through the CB’s next two interest rate determination meetings, but on 5 July we expect a 0.25% drop. After that time, the policy rate will decrease rapidly, settling at 11% at year-end 2007 and dropping further to 9.5% in the spring of 2008. The reason for the temporary halt in interest rate reductions is the continuing spate of energy-intensive construction projects, which will peak in 2009. We expect that policy rate reductions will begin again in fall 2009 and that rates will drop quickly thereafter.
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 19
Equities Earnings Estimates – Outlook
Chart 11: Policy rate forecast
16% 14% 12% 10% 8% 6% 4% 2% Forecast CB Policy rate 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Central Bank of Iceland, Landsbanki
• The economy and the equity market A high policy rate means that the equity market has a difficult time competing with money market rates. The policy rate averaged 12.6% in 2006, and we estimate an average rate of around 13.3% for 2007. Money market rates will thus remain high during the year despite our assumption that the CB will begin a series of rate reductions at mid-year. Because the equity market is, by its very nature, driven by expectations, the expected interest rate reductions should already have made some impact on the market. In this context, however, it is worth mentioning that prices on the Icelandic equity market have risen almost uninterrupted since May 2004, when the CB began raising the policy rate (from 5.3% to 14.25%), or about 153%. It is therefore clear that other factors weighed more heavily during that period. We can assume, however, that when investors are offered risk-free returns of 12-14% they won’t be terribly patient; therefore, continuing news of expansion and acquisitions are the grounds for equity market increases in excess of money market rates. It is accurate to say, though, that there is considerable uncertainty regarding short- term developments in the ISK exchange rate, as is discussed above. Increased activity by foreign investors, issuance of glacier bonds, and uncertainty concerning whether Iceland’s three commercial banks will follow Straumur-Burðarás’ example and convert their accounts to foreign currency are among the influencing factors. The rule of thumb is that the depreciation of the ISK enhances the value of those Icelandic companies that have a major portion of their operations abroad and carry out their accounting in foreign currency, but whose share capital is still in ISK. This is why it has always been said that ISK depreciation is a good thing for the Icelandic equity market. The past year, however, has highlighted the fact that an unstable exchange rate is generally detrimental to the equity market, no matter whether the ISK appreciates or depreciates. A precondition for a healthy equity market is that the currency market not show excessive fluctuation. Regarding the ISK exchange rate, it also matters whether Icelandic investors finance their equity purchases in foreign currency and, if so, which currencies they use. In our estimation, the nominal exchange rate of the ISK is at or near equilibrium, which should mean that investors will be less afraid to take foreign-denominated loans. The fact that the ISK is at or near equilibrium is no less important for foreign investors interested in buying shares in Icelandic companies. We are of the opinion that the expectation of increased influx of foreign investors into the Icelandic equity market is one of the most important reasons for the good performance of the market during the year.
20 Landsbanki Kepler Teather & Greenwood Merrion January 15, 2007
Equities Earnings Estimates – Outlook
Forecast for Q4 2006 and for 2006 and 2007 as a whole
18 companies included in earnings estimate We have compiled earnings estimates for 18 companies listed on ICEX. Their combined market value is ISK 2,393bn, or nearly 88% of the market cap. We do not forecast for Landsbanki, but if it were included, our earnings estimates would cover 99.5% of the total ICEX market cap. • Q4 2006: A time of transformation 42% profit increase YoY for Q4 In our forecasts, we assume that our collection of 18 companies will record a total of ISK 84.6bn in profit in Q4 2006, which is a profit increase of 73% over the previous quarter. The period was an eventful one on the equity market. In mid-December Icelandair Group was sold by FL Group and listed on ICEX as an independent company. FL Group also sold the Danish budget airline Sterling to a newly established travel company (Northern Travel Holding) in which FL Group holds a 34% stake. With this sale, FL Group has virtually ceased business operations and has become an investment company. Hf. Eimskipafélag Íslands (previously Avion Group) sold one of its three main profit divisions as well as a 51% share in Avion Aircraft Trading (AAT) and is therefore a considerably different company than it was when its nine- month interim results were published. HB Grandi was de-listed in the beginning of October. Effective 1 October, Dagsbrún was divided into three companies, two of which — Teymi and 365 — were listed on ICEX in November. In addition, Exista is newly listed on ICEX (as of September 2006) and has therefore been added to our forecasts from last year; however, YoY comparison figures are not available for Exista. If corrections are made for these factors, the YoY profit increase for the companies for which we have performance figures is just over 42%. Of the 18 companies that we analyse, we expect 13 to return a profit during the quarter and five to report losses. We assume that, after accounting for the changes discussed above, Q4 turnover for the manufacturing companies will increase by nearly 74% and profit by almost 78%. The banks’ net operating income for Q4 will increase by 14% YoY, and profit will increase by almost 6%. Net financial income for the investment companies (Atorka and FL Group) will increase by 90% YoY, and profit by 143%.
Greatest profit increase at FL Group, Hf. Eimskipafélag Íslands, and Glitnir Bank FL Group, Hf. Eimskipafélag Íslands, and Glitnir Bank will report the greatest year- on-year increase in profit. In the case of FL Group, the gain on the sale of Icelandair Group (ISK 26bn) weighs heaviest. At Hf. Eimskipafélag Íslands the capital gain on the sale of both XL Leisure Group and the 51% stake in AAT, totalling USD 154m, made an impact on Q4 performance. Improved performance at Glitnir Bank can be traced to the fact that returns on the bank’s equity portfolio were negative in Q4 2005 but positive in Q4 2006. Moreover, the bank’s commission income has grown substantially. Bakkavör Group’s performance will be coloured by the GBP 20m in insurance compensation expected by the company just before year-end.
Five companies with operating losses during the quarter We estimate operating losses for five companies during Q4: Icelandic Group, Icelandair Group, Össur, 365, and Teymi. Operations at Icelandair Group are subject to sharp seasonal fluctuations with indifferent first and fourth quarters, though the company has certainly made improvements between years. The loss at Icelandic Group is explained by operational difficulties and intensive streamlining efforts that have been underway for the past year and a half. Össur recorded a profit of USD 3.1m
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 21
Equities Earnings Estimates – Outlook
in Q4 2005, but we predict a loss of USD 4.5m in Q4 2006. This is explained by unfavourable exchange rate trends, increased depreciation of tangibles as a result of the acquisition of Gibaud in late December, and the fact that restructuring costs due to the Gibaud acquisition were expensed during the quarter. The division of Dagsbrún into 365 and Teymi has proven quite expensive, which partially explains our expectation of a loss for Q4. In addition, it proved necessary to write off goodwill in the amount of ISK 1.5bn due to Wyndeham and ISK 1.0bn due to Kögun. • 2006: A year of growth and capital gains We forecast income and contribution margin/net operating income for 18 companies for the year 2006; however, we do not have sufficient information from 365 and Teymi to be able to estimate profit for 2006, as both companies were part of Dagsbrún at that time. For this reason we have included 16 of 18 companies in our earnings estimate. With respect to year-on-year comparisons, it is necessary to bear in mind that we have no information on Hf. Eimskipafélag Íslands’ profit for 2005, and no figures on Icelandair Group’s operations have been issued for Q4 of 2006. It is therefore possible to compare turnover for 16 companies and profit for 13.
33% profit increase YoY We assume a 57% increase in revenue for the 16 companies for which we have comparison figures from the prior year. The increased turnover for the 13 companies we compared is just over 62% YoY, and their profit increase is 34%. The increase in turnover for the manufacturers for which we have comparison figures is slightly more than 60%, and they have increased their profit by 70%. The banks’ net operating income will increase by 60% YoY, and profit will increase by roughly 57%. Net financial income for the investment companies Atorka, Exista, and FL Group will increase by 44%, and profit by 8.3%. Both Atorka and FL Group will return increased profit YoY, but we expect a considerable drop in profit at Exista because capital gains on the company’s core investments (Kaupthing and Bakkavör) were unusually high in 2005. The ICEX-15 rose by 15.8% in 2006 and 64.7% in 2005.
Capital gains distributed increased profit between years Most of the companies reported better performance this year than last, but a large portion of the profit increase was generated by sales gains. FL Group realised a gain of ISK 26bn on the sale of Icelandair Group, and Kaupthing Bank realised a gain of ISK 26bn on the sale of its stake in Exista. Hf. Eimskipafélag Íslands realised a capital gain of ISK 10.5bn on its share of XL Leisure Group and Avion Aircraft Trading. Glitnir Bank sold Sjóvá and real estate holdings and realised a gain of ISK 4.3bn, in addition to a considerable increase in commission income. Because of Atorka’s adoption of the International Financial Reporting Standards (IFRSs), the company increased the fair value of unlisted assets, which partially explains its improved performance.
Forecasts indicate that all companies will report a profit for 2006 We predict that all 16 of the companies we analyse will report a profit for 2006; however, if it were possible to forecast for 365 and Teymi, it is likely that they would record a loss for the year.
22 Landsbanki Kepler Teather & Greenwood Merrion January 15, 2007
Equities Earnings Estimates – Outlook
• 2007: Solid performance but lower sales and trading gains In 2007 we will compile earnings estimates for 18 companies. Because there are no comparison figures concerning profit for 365 and Teymi, we will only compare profit for 16 of the companies.
19% Year-on-year increase in turnover We estimate that income for the 18 companies will increase by 17% between 2006 and 2007. For the 16-company group, income is expected to rise by 19%, but profit is expected to drop by a little less than 18%. According to this, profit for 2007 will total ISK 209bn, as opposed to the 2006 forecast of ISK 254bn. The drop in profit can be explained primarily by the fact that there is no expectation that the companies will record significant sales and trading gains, as was the case in 2006. This will affect the results of financial companies the most, but we believe that the banks’ baseline performance will be excellent and that results from insurance operations at Exista (VÍS) and TM will improve.
Increased turnover for all manufacturers but one Most of the manufacturing companies in our collection will report stronger performance in 2007 than in 2006, and we estimate that both their YoY turnover and that of the comparable members of the 16-company group will increase by roughly 32%, while profit is expected to increase by 27%. The only company that will not report a YoY increase in turnover is 365. This is because Wyndeham is no longer a part of the company’s operations in 2007. 365 is also the only company that we expect to report an operating loss for 2007. The manufacturers’ profit is expected to increase substantially with the exception of Bakkavör and Hf. Eimskipafélag Íslands. The reason for the reduction in profit at Bakkavör is the insurance compensation paid to the company in 2006 because of a fire in 2005; however, the company’s profit from operations is expected to increase. The reason for reduced profit at Hf. Eimskipafélag Íslands is the substantial capital gain on the sale of assets and operational units in 2006.
Banks: Expectation of lower trading gains Net financial income for the investment companies Atorka, Exista, and FL Group will increase by slightly less than 3%, but profit will drop by just over 14%. We estimate that Exista’s income will increase by ISK 18bn between 2006 and 2007 and that profit will increase by somewhat over ISK 7bn. On the other hand, we expect both income and profit to drop year-on-year for Atorka and FL Group. Exista’s increased income can be partially explained by the company’s purchase of VÍS, which was only included in its accounts for a part of 2006. In addition, Exista has expanded its equity holdings, partially through borrowings, which also explains our expectation of a year- on-year increase in profit.
Income and profit increase YoY at Exista Net financial income for the investment companies Atorka, Exista, and FL Group will increase by slightly less than 3%, but profit will drop by just over 14%. We estimate that Exista’s income will increase by ISK 18bn between 2006 and 2007 and that profit will increase by somewhat over ISK 7bn. On the other hand, we expect both income and profit to drop year-on-year for Atorka and FL Group. Exista’s increased income can be partially explained by the company’s purchase of VÍS, which was only included in its accounts for a part of 2006. In addition, Exista has expanded its equity holdings, partially through borrowings, which also explains our expectation of a year- on-year increase in profit.
January 15, 2007 Landsbanki Kepler Teather & Greenwood Merrion 23
Equities Earnings Estimates – Outlook
Kepler Teather & Greenwood Merrion January 15, 2007
Reuters 365.IC / Bloomberg 365 IR Rating Target Price 365 hf Under review
Previous Current Price Guðmunda Ósk Kristjánsdóttir +354 410 7384 Sector Market Cap Free Float [email protected] Media ISK15.4bn 45% ISK4.68
In Focus Blood, Sweat and Tears
Q4 Earnings Estimate 365 hf. has announced sales of assets which will improve its debt position. The company has been hard at work reducing debt and forecasts anticipate considerable improvement in performance, although
January 15, 2007 its key ratios are still on the high side.
After tax P/E EV/EBITDA ISK millions Revenue EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 ------2006E 22,834 858 3.8% -1,787 -7.8% - - - - 2007E 12,000 1,200 10.0% 660 5.5% -115 -0.03 -134.2 18.6 Q4 05 Q1 06 2,302 118 5.1% 15 0.7% - - - - Q2 06 5,766 258 4.5% -149 -2.6% - - - - Q3 06 7,222 182 2.5% -1,829 -25.3% - - - - Q4 06E 7,544 300 4.0% 176 2.3% -418 -0.13 - 41.6
Source: Landsbanki
1) Ratios for 2007/08 are calculated based on closing price 10 January 2007. Small & Mid-Cap | • No turnaround expected in Q4 The split-up of Dagsbrún into Teymi hf. and 365 hf. took effect on 1 October 2006. The principal businesses in 365 hf. are Icelandic print and broadcasting companies Fréttablaðið, Stöð 2, Sýn, Fjölvarpið and Bylgjan, plus the leisure and entertainment companies Sagaflm, D3 and Sena. Soon after the split-up, it became clear that UK printers Wyndeham Press would be disposed of and currently 356 hf. owns only 36% in the company. In Q4 accounts, however, Wyndeham is included as a subsidiary. Q4 is generally the best quarter for 365 hf., as December advertising revenues are high for both print and broadcasting media. We assume that the company’s restruc- Icelandic Research turing cost will continue to be high; in Q3 it amounted to ISK 260 m. 356’s 9M performance was below expectations and we do not expect a reversal of this situation in Q4. Financial cost will remain a major burden and we expect a loss on the quarter. • Selling off assets relieves debt burden Following its listing on ICEX in mid-November, 365 hf. announced sales of several assets aimed at reducing its liabilities. After the sale of the distribution system Digital Ísland and a 9% holding in the IT company Hands, plus a share capital increase in Wyndeham, interest-bearing debt has been reduced from ISK 23 bn to ISK 8.1 bn, which will in turn result in a substantial drop in financing cost. Despite this, we expect losses in 2007 due to high domestic interest rates. The company’s forecast turnover for 2007 is ISK 12-13 bn and EBITDA is ISK 1.2-1.4 bn (an EBITDA ratio of 10%), on which we base our earnings estimate. • We recommend underweighting Landsbanki Research has not published a valuation for 365 hf. but its key ratios (EV/EBITDA and Price-to-book) for this year are on the high side. In addition, companies of this type are considerably sensitive to economic fluctuations and slower purchasing power growth is expected in Iceland in the next two years. Bearing this in mind, we recommend underweighting the company’s shares.
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Reuters A.IC / Bloomberg A IR / ICEX A Rating Target Price Alfesca Buy ISK6.03
Kristján Bragason Previous Current Price +354 410 7393 Sector Market Cap Free Float [email protected] Food Producers ISK29.1bn 27% Buy ISK4.95
In Focus Poised for Further Growth
Q2 Earnings Estimate A major drop in salmon prices in recent weeks combined with cost-cutting measures in previous quarters have contributed to improving Alfesca’s perfomance visibly. The company has reinforced its January 15, 2007 market anchoring and is preparing to expand further.
After-tax P/E EV/EBITDA EUR millions Revenues EBITDA EBITDA% EBIT EBIT% profit EPS4 (12M) (12M) 2005/2006 555.4 43.8 7.9% 26.5 4.8% 12.0 0.20 18.2 9.7 2006/2007E 592.7 57.3 9.7% 40.2 6.8% 22.5 0.38 13.8 8.5 2007/2008E 628.1 60.7 9.7% 44.1 7.0% 24.9 0.42 12.5 8.0 Q2 2005/2006 221.5 28.7 13.0% 24.5 11.1% 15.3 0.26 21.6 12.2 Q3 2005/2006 111.5 5.6 5.0% 0.5 0.4% 0.5 0.01 22.2 11.5 Q4 2005/2006 117.5 6.4 5.5% 0.9 0.8% -0.6 -0.01 25.7 11.9 Q1 2006/2007 111.8 3.5 0.0% -0.9 -0.8% -1.8 -0.03 24.0 11.7 Q2 2006/2007E 237.9 33.2 13.9% 28.9 12.2% 19.0 0.32 18.2 10.4 Source: Landsbanki 1) The company’s financial year begins on 1 July and ends on 30 June. 2) Ratios for 2007 and 2008 are calculated based on closing price January 10, 2007. 3)12 month target price. The calculation of the target price takes account of the updated valuation fair price
Small & Mid-Cap Small & Mid-Cap and the discount rate that we apply to the company. 4) Earnings per share (EPS): EUR cent.
| • Most Important Quarter Alfesca’s 2nd quarter (its financial year extends from 1 July to 30 June) is by far its most significant, as around 60% of its EBITDA for the year is generated in the quarter. Management have disclosed that Q2 results this year should exceed those of the previous year. The company has continued to cut back its overhead and disposed of its premises in Hafnarfjörður for some EUR 7m. EUR 1m profit on the sale will be recognised this quarter and the sale proceeds used to reduce debt. • Acquisition on the agenda Icelandic Research Icelandic Alfesca is a market leader in sales of various festive products, such as smoked salmon, shrimp and foie gras, in France, Spain and the UK. While this market has been characterised by strong growth, Alfesca has outperformed the market in its major products. For some time now, the company has clearly had its sights set on an acquisition, to add variety to its product line and reduce the preponderance of salmon in its performance. Alfesca has sufficient financial strength for a leveraged takeover. Its equity ratio is high (around 43%) and operations could support the additional debt service burden. • Drop in salmon prices boosts performance Salmon prices are one of the most critical factors in Alfesca’s success, as it is among Europe’s largest farmed salmon buyers. Since this past summer, salmon prices have fallen by close to 40% and, according to various indications, should remain moderate in coming quarters. Since salmon products generate some 40% of Alfesca’s income, this should have positive impact on its performance. • Recommend buy We value Alfesca at ISK 31,6 bn (EUR 337,5m), equivalent to a share price of 5,38. ISK weakening in recent weeks has positively affected the company’s valuation. The 12M target price is ISK 6,03. As the turnaround of recent months does not seem to be reflected in the company’s share price, we recommend investors buy Alfesca’s shares and overweight them in a well diversified portfolio reflecting the Icelandic market.
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Reuters ACT.IC / Bloomberg ACT IR / ICEX ACT Rating Target Price Actavis Buy ISK86.90
Previous Current Price Guðmunda Ósk Kristjánsdóttir +354 410 7384 Sector Market Cap Free Float [email protected] Pharmaceuticals & Biotechnology ISK225.6bn 45% Buy ISK67.3
In Focus Prominent in Generics Acquisitions
Q4 Earnings Estimate Actavis’s management has mapped out a clear strategy and keeps a steady hand on the wheel steering the company. Its financial strength suggests we can expect additional growth through acquisitions
January 15, 2007 in 2007.
After-tax P/E EV/EBITDA EUR millions Revenue EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 579 147 25.4% 107 18.4% 81 0.02 27.4 21.0 2006E 1,395 292 20.9% 205 14.7% 103 0.02 36.4 11.1 2007E 1,677 377 22.5% 266 15.9% 157 0.04 20.6 9.6 2008E 1,975 474 24.0% 350 17.7% 215 0.07 10.7 7.7 Q1 2006 342 72 21.2% 50 14.6% 31 0.01 28.6 23.0 Q2 2006 364 79 21.8% 55 15.2% 30 0.01 22.3 13.2 Q3 2006 324 66 20.3% 47 14.4% 8 0.00 34.8 13.2 Q4 2006E 365 74 20.3% 53 14.6% 34 0.01 36.4 11.1 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target
price takes account of the updated valuation fair price and the discount rate that we apply to the company. Small & Mid-Cap | • Over 300 pharmaceuticals placed on the market in 2006 Quarterly performance is highly dependent upon the launching of new products and fewer product launchings were forecast for the latter half of 2006. Actavis marketed a total of 65 pharmaceuticals in Q3 and the Q4 can be expected to be similar. We none the less expect an increase in sales in Q4, since Q3 is generally the company’s poorest quarter. If our estimates are correct, Actavis has marketed over 300 new products in 2006. As far as we can determine, the company was first-to-market with three pharmaceuticals in Q4, two in Turkey and one in Sweden. Figures for their sales volume are not available. Actavis also launched the diabetes drug Glipizide ER in the
Icelandic Research US; we estimate its sales will be at least USD 15 m on an annual basis. • Financing readily available Q4 was an eventful one in terms of acquisitions. At the end of November Actavis concluded its acquisition of Russian generics producer ZiO Zdorovje and US generics company Abrika. We expect Actavis’s equity ratio to be around 38% in its annual financial statements, with the ratio of interest-bearing debt to EBITDA 3.6. Strong cash flow in the coming years should enable the company to reduce its debt burden and we forecast this ratio will drop below 3.0 in 2008. Since Actavis has been con- spicuous in its acquisitions in the past two years, the company is often mentioned in connection with speculation of takeovers in the global generics market. Financing appears to be readily available, as evidenced by the fact that the company had secured financing for its proposed acquisition of PLIVA amounting to USD 2.5 bn, most of it loan financing. • Overweighting recommended After updating our discount rate and taking exchange rates into consideration, our value for Actavis is ISK 262 bn (EUR 2.59 bn), equivalent to a share price of ISK 77 and 12M target price of ISK 86.9. We continue to recommend buying and overweighting the company’s shares in well diversified portfolios.
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Reuters ATOR.IC / Bloomberg ATOR IR / ICEX ATOR Rating Target Price Atorka Group Hold ISK7.78
Previous Current Price Karl Kári Másson +354 410 7394 Sector Market Cap Free Float [email protected] General Financial ISK23.4bn 62% Buy ISK6.94
In Focus Private Equity Project Concluded in 2007?
Q4 Earnings Estimate 2006 has seen plenty of action at Atorka and its subsidiaries. Iceland Drilling (Jarðboranir) has been positioned for further growth and Promens has expanded greatly through acquisitions. We await the January 15, 2007 conclusion of a private equity project and realised profit.
Net financial Operating After-tax P/E ISK millions income expenses profit EPS ROE Equity ratio (12M) P/B 2005 2,118 612 1,491 0.54 16.6% 48.7% 10.5 1.8 2006E 7,935 905 5,966 1.94 48.8% 50.2% 3.5 1.1 2007E 4,374 790 2,939 10.68 17.5% 54.3% 7.2 1.0 Q4 2005 1,155 111 850 0.31 34.9% 48.7% 10.5 1.8 Q1 2006 5,051 379 4,016 1.35 120.4% 50.9% 4.0 1.2 Q2 2006 1,224 182 856 0.27 21.4% 49.0% 3.3 1.2 Q3 2006 833 173 555 2.02 13.9% 49.4% 3.2 1.1 Q4 2006E 827 170 539 0.18 13.2% 50.2% 3.5 1.1 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target price takes account of the updated valuation fair price and the discount rate that we apply to the company.
Small & Mid-Cap
| • Jarðboranir poised for takeover Jarðboranir was refinanced and restructured last November and Volcano Holding established. The aim of the new company is to separate more clearly operations of Jarðboranir from those of Björgun, its former subsidiary. The changes are intended to support management plans for Jarðboranir’s expansion abroad. • Acquisition of Polimoon greatly expands activities at Promens Promens has grown enormously in Q4 in accordance with its management’s strategy. In November, Promens concluded the acquisition of Norwegian plastics manufacturer
Icelandic Research Icelandic Polimoon, which has an estimated turnover for 2006 of EUR 570 m, making the estimated turnover for the merged companies EUR 720m. In our estimation the EUR 300m purchase price (enterprise value) represents good value. • Private equity project concluded in 2007? Atorka’s management has hinted it may exit a private equity project within the next 18 months. We expect this will take the form of floating Promens on the market. That should prove an interesting trial undertaking, the first in Atorka’s short history, and an important test of the company’s ability to conclude a major project successfully. • Performance of listed assets varies At the end of Q3, Atorka’s listed equities comprised about 20% of its balance sheet. The largest portion was investments in London, and their share price developments were generally unfavourable in Q4 2006, although this is offset by ISK weakening. On 21 December, Atorka sold its holding in Hampiðjan for ISK 836m (7.65 per share). According to our calculations the book price of the holding was around ISK 863m at the end of Q4. • Marketweighting recommended Since issuing our 1 December valuation, recommending buying Atorka’s shares, the company’s share price has risen by over 10%. Our share price for Atorka is ISK 6.88 and we recommend shareholders hold their shares in the company and marketweight them in a well diversified portfolio.
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Reuters BAKK.IC / Bloomberg BAKK IR / ICEX BAKK Rating Target Price Bakkavör Group Buy ISK70.8
Previous Current Price Anna M. Ágústsdóttir +354 410 7385 Sector Market Cap Free Float [email protected] Food Producers ISK133.6bn 55% Buy ISK61.9
In Focus Outperforms the market
Q4 Earnings Estimate Bakkavör’s operations were highly successful in 2006, with growth well exceeding its market. Its strong cash flow has been used to accelerate repayment of long-term debt. January 15, 2007
After-tax P/E EV/EBITDA 3 GBP millions Revenues EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 722.1 86.1 11.9% 66.7 9.2% 32.3 2.00 30.3 18.5 2006E 1,234.2 148.2 12.0% 114.0 9.2% 67.6 3.14 14.1 10.8 2007E 1,357.6 168.7 12.4% 134.9 9.9% 64.1 2.97 15.1 9.4 2008E 1,479.8 185.3 12.5% 151.7 10.3% 76.0 3.52 12.7 8.3
Q4 2005 252.2 28.4 11.3% 20.9 8.3% 11.3 0.70 30.3 18.5 Q1 2006 258.6 27.3 10.6% 18.5 7.1% 6.0 0.36 25.6 14.0 Q2 2006 298.5 40.7 13.6% 32.8 11.0% 14.2 0.80 16.9 11.2 Q3 2006 332.9 40.4 12.1% 32.0 9.6% 15.2 0.70 20.2 11.9 Q4 2006E 344.1 39.7 11.5% 30.7 8.9% 32.1 1.51 14.1 10.8 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price 10 January 2007. 2) 12M target price. The calculation of the target price Small & Mid-Cap takes into account the updated valuation fair price and the discount rate that we apply to the company. 3) Earnings per share (EPS):
GBP pence. |
• Steering a steady course Bakkavör’s 2006 operations were very successful, with one record quarter following the other. Seasonal fluctuations in operations have practically disappeared thanks to good product line diversification. In our estimation, Bakkavör’s management has been steering its operations along the course it mapped out. Cost-efficiency measures and emphasis on profitable product lines have been raising the margin. We expect Bakkavör to announce fine Q4 results and point out that the profit forecast for 2006 includes insurance compensation of GBP 20 m expected by the company at year-end. Icelandic Research Icelandic • Two acquisitions in Q4 This past quarter Bakkavör acquired chilled dessert producer Rye Valley Patisserie, which has reinforced its desserts production. It also purchased 50% of Fresh Cook Ltd. from Rannoch Foods to add to its previous 50% holding in the company. Fresh Cook specialises in ready-to-cook meals. Neither acquisition materially affects 2006 performance. • Strong cash flow remains a key factor Bakkavör’s strong cash flow has ensured its success despite high indebtedness, enabling relatively rapid repayment of long-term debt resulting from acquisitions in previous quarters. Our valuation of Bakkavör assumes that the company will continue to pay off its debts rapidly and its equity will be close to 30% in 2009. • Overweighting recommended Our most recent valuation of Bakkavör was published at the beginning of November 2006, recommending buy and overweight. Our value for Bakkavör is ISK 137 bn, or equivalent to a share price of ISK 63.6. Our recommendation is unchanged; we continue to recommend that investors buy Bakkavör’s shares and overweight them in well diversified portfolios reflecting the Icelandic market.
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Reuters EXISTA.IC / Bloomberg EXISTA IR / ICEX EXISTA Rating Target Price Exista Under Review Previous Current Price Karl Kári Másson +354 410 7394 Sector Market Cap Free Float [email protected] General Financial ISK263.4bn 35% Under Review ISK24.3
In Focus Eventful Quarter Concludes
Q4 Earnings Estimate Exista gained an additional 30,000 shareholders in Q4 when Kaupthing paid out dividends in the form of shares in Exista. Additional benefit is expected from restructuring at VÍS in Q4 and the coming year. January 15, 2007
Net financial Operating After-tax P/E ISK millions income expenses profit EPS ROE Equity ratio (12M) P/B 2005 48,952 -245 50,315 8.31 108.6% 59.4% - - 2006E 55,618 -10,831 30,330 2.80 24.5% 46.6% 7.9 1.3 2007E 73,629 -19,411 37,547 3.46 21.2% 45.9% 6.8 1.2 Q4 2005 ------Q1 2006 ------H1 2006 6,377 -1,432 -3,270 -0.30 -3.4% 46.1% - - Q3 2006 33,586 -4,675 27,566 2.54 76.9% 45.8% - 1.5 Q4 2006E 15,655 -4,725 6,035 0.56 14.1% 46.6% 7.9 1.3 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007.
| Small & Mid-Cap • Shareholder group mushrooms When Exista was listed on ICEX on 15 September 2006 its shares were purchased by pension funds, institutional investors, the general public and its employees. Some 7,400 investors subscribed for shares plus around 200 employees. On 26 October, Kaupthing paid out ISK 831 million shares in Exista as dividends, equivalent to around 7.7% of Exista’s total share capital. This added some 30,000 shareholders to Exista’s ownership base. • Profitability lower than in Q3 The share price of Exista’s main assets fluctuated during Q4. Its holding in
Icelandic Research Research Icelandic Kaupthing, which was 38% of its balance sheet at the end of Q3, dropped by over 1% during the quarter, after increasing by close to 15% during Q3. When Kaupthing paid dividends in the form of Exista shares, Exista received own shares worth over ISK 4 bn, which will make a considerable impact on its Q4 results. Since the beginning of this year, Kaupthing’s share price has risen by around 7%, making Exista’s trading gain on these shares during this period around ISK 10 bn. • Positive results of restructuring at VÍS Restructuring has been underway at VÍS after Exista acquired the company fully in 2006. The measures have already brought results and we expect additional benefits to be visible in Q4 and in 2007. Management aim at bringing the overall claims and cost ratio below 100%. In Q3 the ratio was 110%, a decrease from the 9M figure of 116%. • Marketweighting recommended Although there has been little news of Exista’s activities in Q4, since the end of 2006 its principal asset have increased by close to ISK 10 bn. During this same period its own share price is up by 8%, while the ICEX-15 index has risen 5%. In Q4 2006, Exista’s shares rose by 3% and the ICEX-15 by 2%. Exista’s price-to-book ratio is currently around 1.3, while that of FL Group is 1,2 and Atorka 1,1. Research has not published a valuation of Exista, but we recommend marketweighting its shares in a well diversified portfolio.
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Reuters FL.IC / Bloomberg FL IR / ICEX FL Rating Target Price FL Group Hold ISK31.1
Previous Current Price Anna M. Ágústsdóttir +354 410 7385 Sector Market Cap Free Float [email protected] General Financial ISK220.9bn 30% Hold ISK27.8
In Focus Action-filled Year Concludes
Q4 Earnings Estimate FL Group’s 2006 operations were highly successful and we expect the company to report a record profit. Sales of Icelandair Group and Sterling this past year leave FL Group almost exclusively an investment January 15, 2007 company.
Investment Operating After-tax P/E ISK millions income expenses profit EPS ROE Equity ratio (12M) P/B 2005 19,794 1,652 17,251 5.90 23.2% 56.1% 6.4 1.5 2006E 38,156 2,548 38,477 4.96 23.2% 53.1% 5.1 1.2 2007E 26,470 2,800 23,670 3.05 12.5% 56.4% 9.0 1.1
Q1 2006 10,458 485 5,839 0.96 7.5% 41.1% 5.7 1.7 Q2 2006 -1,346 523 -118 -0.02 -0.1% 41.2% 4.9 1.2 Q3 2006 1,211 695 5,257 0.68 4.7% 46.8% 8.2 1.6 Q4 2006E 27,833 845 27,499 3.54 16.6% 53.1% 5.1 1.2 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price 10 January 2007. 2) 12M target price. The calculation of the target price
Small & Mid-Cap takes account of the updated valuation fair price and the discount rate that we apply to the company.
| • Record Q4 profit We expect a record Q4 profit for FL Group, with a major share of it profit on sale of Icelandair Group. The company has also made good trading gains on both its domestic and foreign asset portfolios. ISK weakening of 5.25% in Q4 positively affected performance for the quarter, although the Group’s exact FX exposure is uncertain, and therefore profit on this position remains a question mark. • Major changes in assets, operating units sold FL Group sold its 16.9% holding in the UK low-cost airline easyJet in April, realising
Icelandic Research Icelandic a profit of ISK 13 bn. At the end of October, Icelandair Group was sold, realising a profit of ISK 26 bn for FL Group. Two other investments proved less profitable: most of a 24.2% holding in Straumur-Burðarás Investment Bank, purchased around mid- year for ISK 47 bn, was sold again in mid-December for ISK 42 bn, after the inves- tors’ original intentions were apparently not realised. It should be borne in mind, however, that FL Group paid for the shares in part with an issue of new share capital, and the loss could therefore be regarded as cost incurred in increasing share capital. The Danish low-cost carrier Sterling, acquired in October 2005, was sold in December 2006, with an insubstantial impact on FL Group’s performance. At the beginning of 2006, FL Group owned just under 10% of Glitnir, but by year-end had increased this holding to 31%. There is considerable speculation as to FL Group’s intentions in this regard, as a takeover obligation arises at 33% ownership. • Substantial investment capacity At the end of Q3, FL Group’s CEO stated that the company’s investment capacity was in the range of ISK 120-150 bn. Since that time this has been augmented by profit on the sale of Icelandair Group and borrowing, making the figure currently around ISK 150 bn, according to our estimate. • Marketweighting recommended Our value for FL Group is ISK 216.4 bn, equivalent to a share price of ISK 27.9. We recommend investors hold their shares in FL Group and marketweight them in well diversified portfolios reflecting the Icelandic market.
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Reuters GLB.IC / Bloomberg GLB IR / ICEX GLB Rating Target Price Glitnir Bank Reduce ISK25.5
Previous Current Price Hermann Þórisson +354 410 7388 Sector Market Cap Free Float [email protected] Banks ISK349.5bn 45% Reduce ISK24.5
In Focus Commission Income Still Growing
Q4 Earnings Estimate Glitnir underwent considerable changes last year as its largest shareholder increased its holding steadily, disposing of a holding in another bank. The new owners’ impact is visible primarily in the increase in January 15, 2007 corporate finance and active participation in projects.
Net interest Net oper. Other oper. After-tax Interest Cost-income P/E ISK millions income Income Expenses profit EPS spread ratio (12M) P/B 2005 23,390 36,411 15,731 19,099 1.50 2.2% 38.4% 14.3 3.2 2006E 39,342 71,708 26,770 38,073 2.77 2.2% 37.3% 8.6 2.4 2007E 42,183 73,773 31,621 27,193 1.93 1.9% 42.9% 12.5 2.1 2008E 46,490 79,900 34,512 27,918 1.98 1.8% 43.2% 12.2 1.9 Q4 2005 6,627 9,784 4,231 3,741 0.30 1.9% 43.2% 14.3 3.2 Q1 2006 7,830 17,291 5,973 9,098 0.70 2.0% 34.0% 10.1 2.1 Q2 2006 11,477 18,560 6,675 10,702 0.76 2.4% 36.0% 8.2 1.9 Q3 2006 9,722 15,531 6,692 8,641 0.63 2.0% 43.1% 9.1 2.2 Q4 2006E 9,929 20,327 7,531 9,632 0.68 2.0% 37.1% 8.6 2.4 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target Small & Mid-Cap price takes account of the updated valuation fair price and the discount rate that we apply to the company.
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• Major projects in Q4 Glitnir was involved in a number of large corporate finance projects in Q4, including the listing of Icelandair Group, advising on and financing Baugur’s takeover of House of Fraser, and co-ordinating and underwriting TM Insurance’s share offer. In addition, Glitnir has participated in share offerings in Norway, for example, to increase the share capital of Villa Salmon AS and Copeinca ASA. The bank will handle the floating of Copeinca ASA on Oslo Børs early in 2007. Commission income doubles and redoubles YoY
Icelandic Research Icelandic • Glitnir has increased its commissions substantially this year: we expect Q4 commission income to practically equal that of 2005 as a whole. While new operations acquired by Glitnir in 2006 account for a major share, organic growth is also significant. • Additional acquisitions of commission-generating units Glitnir acquired several commission-oriented financial operations in 2006. The bank also opened new offices abroad, including one in Shanghai. It has stated that it is seeking additional acquisitions of commission generating units and we expect it to focus on its current operating regions. • Successful funding Glitnir was fairly successful in acquiring wholesale funding this year. A summary of its refinancing published at year-end 2006 shows that the bank began accepting wholesale deposits in London in Q4, which totalled ISK 45 bn, or 10% of its total deposits. • Recommend that investors reduce their holding in the bank Glitnir’s operations have been highly successful, and encouraged high expectations, pushing its share price up. While we expect the bank to continue to perform well, in consideration of its current market price, we recommend that investors reduce their holdings and underweight them in a well-diversified portfolio. The bank’s key ratios support this recommendation: price-to-book at year-end 2006 is 2.4e and P/E 2007e is 12.5.
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Reuters HFEIM.IC / Bloomberg HFEIM IR / ICEX HFEIM Rating Target Price Hf. Eimskipafélag Ísl. Under review
Previous Current Price Anna M. Ágústsdóttir +354 410 7385 Sector Market Cap Free Float [email protected] Transportation ISK59.4bn 20% ISK33.2
In Focus A Year of Wide-reaching Changes
Q4 Earnings Estimate Performance at Eimskip ehf. has been in line with forecasts for 2005/2006, while Air Atlanta’s operations have been difficult. Group performance in 2006 is sweetened by profit on sale of XL Leisure Group and January 15, 2007 Avion Aircraft Trading.
After-tax P/E EV/EBITDA USD millions Revenues EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2004/2005 921.8 105.4 11.4% 37.8 4.1% - - - - 2005/2006E 998.5 200.0 20.0% 140.7 14.1% 71.6 4.08 11.1 8.3 2006/2007E 1,821.2 168.3 9.2% 76.9 4.2% 13.3 0.76 61.3 9.9 2007/2008E 2,015.0 185.2 9.2% 133.3 6.6% 90.1 5.14 9.1 6.3
Q1 2005/2006 243.2 27.4 11.2% 10.2 4.2% 3.9 0.23 - - Q2 2005/2006 209.1 10.2 4.9% -8.3 -4.0% -46.1 -2.64 - - Q3 2005/2006 229.7 19.1 8.3% 1.0 0.4% -7.1 -0.40 - - Q4 2005/2006E 316.5 143.3 45.3% 137.8 43.5% 120.8 6.89 - - Source: Landsbanki Small & Mid-Cap 1) The company´s financial year begins on 1 November and ends on 31 October. 2) Ratios for 2007/08 are calculated based on closing price on 10 January 2007. |
• Profit divisions now two Hf. Eimskipafélag Íslands underwent major changes during its first year as a listed company on ICEX. In January Avion Group, as it was then called, had three profit divisions, but during 2006 sold one of these, XL Leisure Group, together with a 51% holding in Avion Aircraft Trading. The estimated pre-tax profit of USD 154 m on the sale will set its mark on 2006 performance. The remaining two profit divisions are Transport & Logistics (Eimskip and related companies) and Aviation Services (Air
Icelandic Research Icelandic Atlanta and related companies). We expect Eimskip to turn in a very good Q4 performance and meet its 2006 targets. On the other hand, Air Atlanta will clearly fall short of expectations. • Outlook positive Hf. Eimskipafélag Íslands has set ambitious targets for improved operations of both divisions in 2007, involving restructuring of Atlas and other Eimskip operating units plus a complete turnaround of Air Atlanta’s operations. Some improvement should be felt in 2007, with the main force of the changes manifest in 2008 and later. • Sale and re-leasing of assets planned Assets acquired as part of the takeover of Atlas Cold Storage are to be sold before the operating year 2006/2007 concludes, and long-term leases then negotiated with the new owners. Estimated profit on the sale is around CAD 100 m, which will be credited towards leasing cost for the period. • Recommend marketweighting Research has not yet published a valuation of Hf. Eimskipafélag Íslands, but this situation should be rectified in a few weeks’ time. We recommend that investors marketweight the company’s shares in well diversified portfolios reflecting the Icelandic equity market.
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Reuters ICEAIR.IC / Bloomberg ICEAIR IR / ICEX ICEAIR Rating Target Price Icelandair Group Under review
Previous Current Price Anna M. Ágústsdóttir +354 410 7385 Sector Market Cap Free Float [email protected] Airlines ISK28.5bn 30% ISK28.5
In Focus Listed on ICEX Again
Q4 Earnings Estimate Icelandair Group was sold by FL Group and floated on ICEX as an independent company late in 2006. Airline operations have been profitable this year and the outlook is good for 2007. Aircraft purchase January 15, 2007 contracts could eventually return a good profit.
After-tax P/E EV / EBITDA ISK millions Revenue EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 45,595 4,953 10.9% 2,591 5.7% 1,846 0.62 - - 2006E 56,610 5,983 10.6% 3,465 6.1% 3,077 2.88 9.6 9.8 2007E 62,554 6,412 10.3% 3,629 5.8% 2,409 2.26 12.2 9.1 2008E 67,558 6,790 10.1% 3,785 5.6% 2,491 2.33 11.8 8.6 Q4 2005 10,806 -396 -3.7% -1,427 -13.2% 296 0.10 - - Q1 2006 9,595 -265 -2.8% -1,092 -11.4% -555 -0.19 - - Q2 2006 14,481 1,564 10.8% 1,155 8.0% 1,279 0.43 - - Q3 2006 19,477 4,421 22.7% 3,779 19.4% 2,541 0.85 - - Q4 2006E 13,057 263 2.0% -377 -2.9% -188 -0.19 9.6 9.8 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target Small & Mid-Cap price takes account of the updated valuation fair price and the discount rate that we apply to the company.
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• Q4 performance improves YoY We expect a considerable operating improvement from Q4 2005, as cost-efficiency measures resulted in visible improvement in operations during the first 9M of 2006. These are the first quarterly results published by Icelandair Group after it was sold by FL Group at the end of October and listed independently on ICEX. Airline and travel operations have, however, been listed since 1992, originally as Flugleiðir. • Future prospects bright
Icelandic Research Icelandic External circumstances, such as high fuel prices, growing competition and terrorist threats, made for a difficult airline operating climate in 2006, although the situation improved later in the year when oil prices declined, the EUR strengthened against the USD, and economic growth picked up in Icelandair’s main market regions. We expect external conditions to continue positive in 2007, as is reflected in our forecast. • Valuable contracts for aircraft purchases and leasing In our estimation, Icelease’s contracts and options to purchase new Boeing aircraft have increased in value since concluded, in part due to problems in development and manufacturing at Airbus. The hidden assets could amount to tens of millions USD, although it should be borne in mind that this profit is far from realised as yet. It is still some time until the aircraft are to be delivered and impossible to predict the development of the external circumstances determining whether profit will actually be realised and how much. • Marketweighting recommended We have not yet issued a valuation of Icelandair Group, but one is expected in coming weeks. When the company was floated, we recommended that long-term investors subscribe for shares. Since the IPO (share price ISK 27), the company’s share price has risen by 5.6% while the ICEX-15 index has increased by 4.6%. Our view of the company is unchanged and we recommend that investors marketweight Icelandair Group’s shares in a well diversified portfolio reflecting the Icelandic equity market.
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Reuters IG.IC / Bloomberg IC IR / ICEX IG Rating Target Price Icelandic Group Under Review
Kristján Bragason Previous Current Price +354 410 7393 Sector Market Cap Free Float [email protected] Food Producers ISK21.1bn 15% ISK7.3
In Focus Never-Ending Story
Q4 Earnings Estimate After almost two years, there is still no end in sight to Icelandic Group’s restructuring. Performance has improved but is still unacceptable. Management are confident cost-efficiency measures will deliver the January 15, 2007 goods this year; we advise investors to wait and see.
Hagn. Hagn. V/H EV/EBITDA m.EUR Revenues EBITDA EBITDA% EBIT EBIT% e. skatt á hlut (12M) (12M) 2005 1,205.0 16.2 1.3% 2.3 0.2% -15.1 -0.70 - 42.0 2006s 1,505.0 40.2 2.7% 19.1 1.3% 1.82 0.06 127.6 19.1 2007s 1,648.3 72.7 4.4% 49.9 3.0% 16.70 0.58 13.5 10.5 4. ársfj. 05 303.8 -2.8 -0.9% -9.4 -3.1% -14.8 -0.68 - 25.8 1. ársfj. 06 383.6 10.4 2.7% 6.0 1.6% 1.0 0.04 - 38.7 2. ársfj. 06 366.5 10.9 3.0% 6.2 1.7% 1.3 0.04 - 25.1 3. ársfj. 06 371.1 13.6 3.7% 7.7 2.1% 1.0 0.03 - 24.3 4. ársfj. 06s 385.0 9.0 2.3% 3.0 0.8% -2.7 -0.09 - 17.5 Source: Landsbanki 1) Ratios for 2007 and 2008 are calculated based on closing price January 10, 2007. 2)12 month target price. The calculation of the target price takes account of the updated valuation fair price and the discount rate that we apply to the company. 3) Earnings per
Small & Mid-Cap Small & Mid-Cap share (EPS): EUR cent.
| • Restructuring continues Icelandic Group’s restructuring continues in Q4, and includes the recent sales of its packaging subsidiary VGI ehf. for around EUR 3m. Profit on the sale has not been disclosed, but will be recognised in Q1 2007. Icelandic USA has announced the closure of its Cambridge, MA, plant in 2007, which was considered old and inefficient, as part of efforts to streamline its operations. Its production will be transferred to the company’s plant in Newport News, VA. Although the closure will involve expenses of around EUR 13 m for restructuring and
Icelandic Research Icelandic lost goodwill, in our estimation this is a positive step, which will reduce long-term operating cost. • Impairment uncertainty In parallel to its strong external growth, Icelandic Group’s goodwill has grown con- siderably, amounting to EUR 255m at the end of September, or 27.2% of total assets. The performance of units acquired in recent years has varied and in its latest results the company admitted doubt as to whether this figure would stand up in the impair- ment test applied when compiling annual financial statements for 2006. Our forecast does not anticipate expensing of impairment exceeding the figure mentioned above in connection with the Maryland plant closure, but current uncertainty in this respect could negatively impact Q4 results. • Recommend underweighting Although Icelandic Group’s operations are headed in the right direction, it has a good way to go before its performance could be considered satisfactory. As Research is preparing a new valuation of Icelandic Group, we continue to recommend underweighting of its shares in well-diversified portfolios, not least in consideration of its relatively high ratios.
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Reuters KAUP.IC / Bloomberg KAUP IR / ICEX KAUP Rating Target Price Kaupthing Bank Hold ISK995
Previous Current Price Hermann Þórisson +354 410 7388 Sector Market Cap Free Float [email protected] Banks ISK666.4bn 65% Buy ISK900
In Focus Acquisition in the Wings – When and Where?
Q4 Earnings Estimate Kaupthing has concluded its most profitable year ever. We do not expect comparable 2007 profits but the upcoming year should be an exciting one. New capital will be used for further external growth, with January 15, 2007 news on this front expected soon.
Net interest Net oper. Other oper. After-tax Interest Cost- P/E ISK millions income Income Expenses profit EPS spread income ratio (12M) P/B 2005 32,710 101,403 34,729 49,260 75.2 1.6% 34.2% 11.6 2.8 2006E 50,782 159,141 55,417 80,459 120.4 1.6% 34.8% 7.6 1.9 2007E 68,024 144,575 60,424 61,425 83.0 1.4% 41.8% 10.7 1.8 2008E 80,890 159,475 67,162 64,747 87.5 1.4% 42.1% 10.1 1.6 Q4 2005 9,528 32,685 11,277 14,786 22.4 1.6% 34.5% 11.6 2.8 Q1 2006 10,484 35,451 12,553 18,798 28.3 1.5% 35.4% 9.1 2.4 Q2 2006 14,385 31,064 14,805 13,034 19.6 1.8% 47.7% 8.5 2.0 Q3 2006 12,687 59,816 13,804 35,393 53.4 1.4% 23.1% 6.9 2.0 Q4 2006E 13,226 32,810 14,255 13,234 19.1 1.4% 43.4% 7.6 1.9 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target price takes account of the updated valuation fair price and the discount rate that we apply to the company.
Icelandic Research Research Icelandic • Successful PO in Q4 Kaupthing increased its share capital by ISK 55 billion (bn) or 11% this past quarter, boosting still further a very strong capital position. The increased equity heightens expectations of an upcoming new acquisition of a bank abroad. Kaupthing has stated that it is seeking an enterprise with a high deposit ratio. We do not expect the bank to look far beyond the borders of its current market region, although there have been rumours it was considering enterprises in Germany and other Nordic countries. • Major YoY growth of core income New share capital has not yet been used for external growth, but will deliver returns in December. Q4 is, in other respects, comparable to the same quarter of 2005. We expect growth of around 45% in net interest and commission income YoY, plus 55% balance sheet growth in 2006 much of it due to ISK weakening, however. • Exciting year ahead Following its successful PO, foreign financial analysts have begun covering the company’s equities. This coverage, plus the merger of ICEX with OMX should whet foreign investors’ appetites. • Favourable outlook on foreign equity markets Kaupthing has been steadily reducing the share of domestic equities in its total equity exposures. We do not expect high Q4 trading income from domestic equities, in part due to a considerable decline in Exista’s shares following the dividend pay-out and a large drop in Mosaic’s share price, where Kaupthing is a major shareholder. Nordic equity markets rose by 9-20% during Q4. We expect sizeable profit to be reported on Kaupthing’s foreign equity portfolio, including a substantial return on the bank’s holding in Norwegian insurance company Storebrand. • Recommend hold We recommend that investors hold their shares in Kaupthing and marketweight them in a well-diversified portfolio.
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Reuters MARL.IC / Bloomberg MARL IR / ICEX MARL Rating Target Price Marel Under Review
Previous Current Price Haraldur Johannessen +354 410 7391 Sector Market Cap Free Float [email protected] Industrial Engineering ISK27.7bn 45% Buy ISK75.5
In Focus Another Major Acquisition Likely This Year
Q4 Earnings Estimate Marel doubled in size last year and yet another major acquisition is likely this year. Strong financial position will support external growth. While the company’s market position is strong, its underlying operations
January 15, 2007 reflect the strains resulting from rapid growth.
After-tax P/E EV/EBITDA 2) EUR thousands Revenue EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 129,039 14,814 11.5% 9,721 7.5% 5,715 2.40 36.6 16.9 2006E 206,175 16,990 8.2% 8,662 4.2% 1,222 0.32 243.4 22.9 2007E 290,842 31,442 10.8% 20,129 6.9% 10,539 2.88 28.1 12.5 Q4 2005 34,785 2,764 9.8% 1,275 3.7% 579 0.24 36.6 16.9 Q1 2006 32,467 1,876 8.5% 454 1.4% 551 0.23 45.3 20.6 Q2 2006 46,639 5,979 12.8% 4,324 9.3% 797 0.33 54.9 15.7 Q3 2006 57,648 4,094 7.1% 1,671 2.9% -674 -0.18 30.2 Q4 2006E 69,421 5,041 7.3% 2,213 3.2% 548 0.15 243.4 22.9 Source: Landsbanki 1) Ratios for 2007 are calculated based on closing price January 10, 2007. 2) Earnings per share (EPS): EUR cent
Small & Mid-Cap | • Continuing Growing Pains Marel suffered some growing pains in the third quarter of 2006 and we expect this to have continued in the fourth quarter. Sales growth in the “original” Marel companies seems to have stagnated after many key employees were transferred to newly acquired subsidiaries. We expect growth to pick up again this year, but organic growth will still suffer somewhat due to rapid external growth. • Acquisitions Should Bring Substantial Benefits Marel has approximately doubled in size following last year’s acquisitions. The
Icelandic Research Icelandic company has accelerated its integration process and we anticipate that, despite a temporary setback to underlying performance, the acquisitions will bring substantial benefits. Benefits from the integration should become visible in the first half of next year. • Stronger Market Position The acquisitions have definitely strengthened Marel’s market position. The company’s target is to continue adding to its market share and, during the course of the next 3-5 years, reach a turnover of EUR 400-500 m. We expect turnover this year to be around EUR 290 m. • Strong Financial Position The company’s very strong financial position, following its share offering in September, opens up possibilities for further external growth and we expect a new major acquisition this year. Stork Food Systems is one possible candidate, although severe differences between management and major stockholders make it difficult to predict whether an acquisition will be possible in the near future. The results of an extraordinary general meeting on 18 January may bring us closer to answering that question. • Recommend marketweighting We have updated our weighting recommendation and recommend marketweighting the company’s shares instead of the previous overweighting recommendation. A new valuation is under preparation.
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Reuters MOSAIC.IC / Bloomberg MOSAIC IR/ ICEX MOSAIC Rating Target Price Mosaic Fashions Under review
Previous Current Price Guðmunda Ósk Kristjánsdóttir +354 410 7384 Sector Market Cap Free Float [email protected] Retail ISK43.4bn 55% Buy ISK14.90
In Focus Clearer Signs of a Turnaround Needed
Q4 Earnings Estimate Mosaic’s performance has fallen short of expectations for the third quarter in a row. Its dominant product line has underperformed the market and no turnaround is expected until Easter. The sluggish UK high street
January 15, 2007 makes it an uphill struggle for clothing manufacturers.
After-tax P/E EV/EBITDA GBP thousands Revenue EBITDA EBITDA% EBIT EBIT% profit EPS4 (12M) (12M) 2005/2006 410,000 59,200 14.4% 42,800 10.4% 12,600 0.21 39.8 9.4 2006/2007E 574,860 62,900 10.9% 44,800 7.8% 11,200 0.54 28.1 12.2 2007/2008E 979,200 117,500 12.0% 91,900 9.4% 34,600 1.67 9.0 6.5 Q4 2005/2006 117,300 15,500 14.5% 11,600 9.9% 5,400 0.21 36.7 9.8 Q1 2006/2007 98,400 10,100 10.3% 6,600 6.7% 800 0.04 30.2 9.1 Q2 2006/2007 113,300 15,600 13.8% 11,800 10.4% 4,800 0.17 21.2 8.2 Q3 2006/2007 124,300 10,400 8.4% 6,000 4.8% -1,400 -0.05 36.3 25.2 Q4 2006/2007E 238,860 26,900 11.3% 20,500 8.6% 7,000 0.24 28.1 12.2
Source: Landsbanki 1) Financial year: 1 February - 31 January. 2) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 3) 12-month Small & Mid-Cap target price. The calculation of the target price takes account of the updated valuation fair price and the discount rate that we apply to the company. 4) Earnings per share (EPS): GBP pence. |
• Earnings estimates for 2006 and 2007 cut back The fashion chain Rubicon, which Mosaic acquired last October, will be fully integrated in the group‘s accounts in Q4 of its accounting year (Nov.06-Jan.07) boosting its sales and EBITDA over the previous quarter. Management disclosed that Q4 had not begun well, with November sales below forecast, but sales picked up visibly during the Christmas season. Despite this, the company’s forecast EBITDA for the year was reduced to GBP63m (including Rubicon), a substantial drop from the forecast of 28 September last year. Our calculations suggest a YoY EBITDA Icelandic Research contraction, if external growth is excluded. We have no great expectations for Q4 performance and forecast a YoY growth for Mosaic (excl. Rubicon) of around 7.5%. Growth in the past three quarters has been below forecasts, ranging from 7.3 to 10.6%. • Internal and external factors affecting performance Mosaic’s largest product line, Oasis, has been its weakest link this year, under- performing the market. A new management has been appointed, but Mosaic’s spokesmen expect no visible turnaround until Easter. A slowdown on the UK high street market in general has compounded the problem, inducing us to cut back our earnings estimates for 2007. We expect Mosaic’s major growth opportunities lie outside the UK, as expansion abroad has gone well, although providing only 20% of total sales income. • Mosaic still a good buy by international comparison Compared with its peers, Mosaic’s share price is still favourable and the company’s longer-term outlook is good. In the near term, however, we do not expect a major share price rise until there are clearer signs of business picking up in Q4. • Recommend marketweighting As our valuation of Mosaic is currently under review, we recommend market- weighting instead of the previous overweight.
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Reuters OSSR.IC / Bloomberg OSSR IR / ICEX OSSR Rating Target Price Össur Buy ISK139.2
Previous Current Price Karl Kári Másson +354 410 7394 Sector Market Cap Free Float [email protected] Health Care Equipment & Services ISK43.3bn 32% Buy ISK112.5
In Focus Expansion Continues
Q4 Earnings Estimate Q4 performance will be characterised by a lower than anticipated margin, one-off costs of restructuring at Gibaud and currency losses on Euro loans. While the impact on this quarter is substantial, our overall view
January 15, 2007 of the company remains unchanged.
After-tax P/E EV/EBITDA 3 USD millions Revenue EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 162.6 25.8 15.9% 16.5 10.2% 11.7 3.53 59.5 33.5 2006E 251.2 38.2 15.2% 18.7 7.4% 3.6 0.93 - 24.9 2007E 331.3 64.7 19.5% 39.3 11.9% 16.1 4.18 37.4 14.7 2008E 359.5 76.2 21.2% 49.7 13.8% 21.7 5.62 27.8 12.5 Q4 2005 49.9 7.9 15.9% 3.9 7.9% 3.1 0.80 59.5 33.5 Q1 2006 60.1 8.6 14.3% 3.8 6.3% 0.6 0.15 69.0 29.5 Q2 2006 65.6 13.1 20.0% 8.5 12.9% 2.1 0.55 87.6 23.2 Q3 2006 62.9 12.1 19.3% 7.1 11.2% 5.4 1.40 62.7 22.0 Q4 2006E 62.7 4.3 6.9% -0.6 -1.0% -4.5 -1.16 - 24.9 Source: Landsbanki
Small & Mid-Cap 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target price takes account of the updated valuation fair price and the discount rate that we apply to the company. 3) Earnings per share
| (EPS): USD cent.
• A year of integration Integration was the word of the year at Össur in 2006, following major acquisitions in late 2005 and January 2006. Near the end of Q4, Össur acquired French orthopedics manufacturer Gibaud, increasing the group’s turnover by around 20%. Bridge financing of the acquisition is reflected in our high financial expense forecast for Q4 2006 and 2007 as a whole. Össur plans a share offering for this year, which will clearly make its capital structure substantially different from our assumptions here.
Icelandic Research Icelandic • Growth hurts margin In parallel to its announcement of the Gibaud acquisition, Össur disclosed that its Q4 margin would be lower than previously forecast. We expect a Q4 margin of 17.3% excluding one-off items, and 19% for the year as a whole. This is due mainly to lost sales in Europe resulting from acquisitions, exceeding that which was predicted. Forecasts for Gibaud in 2007 are therefore also on the cautious side. • USD weakening a negative factor Össur’s performance this year has also been hit by the weaker USD against the EUR, which caused it considerable currency losses on EUR-denominated loans. The problem will continue in Q4, as the USD fell by another 4%. We expect some USD 2.2 m to be expensed for currency losses on loans, but it is difficult to gauge the impact of new debt arising from the takeover of Gibaud. Restructuring at Gibaud is estimated to cost USD 6.5 m, which will be expensed in Q4 2006. We expect a loss on the quarter, but the company’s effective tax rate is difficult to predict due to possible utilisation of tax credits. • Overweighting recommended Our value for Össur of USD 663 m is equivalent to a share price of ISK 124.3 (USD/ISK 72.17). Based on our forecasts for 2007 and 2008, its P/E ratios are very high, 37.4 and 27.8. In our estimation, however, this does not give a fair picture of the company due to the distortion of high intangibles depreciation. We recommend buying Össur’s shares and overweighting them in a well diversified portfolio.
Landsbanki Kepler Teather & Greenwood Merrion Amsterdam Dublin Edinburgh Frankfurt London Madrid Milan New York Paris Reykjavik Zurich
Reuters STRB.IC / Bloomberg STRB IR / ICEX STRB Rating Target Price Straumur-Burðarás Hold ISK19.9
Previous Current Price Hermann Þórisson +354 410 7388 Sector Market Cap Free Float [email protected] Banks ISK184.4bn 45% Buy ISK17.8
In Focus New Currency – New Era?
Q4 Earnings Estimate From now on, Straumur will publish accounts in EUR and we expect the bank to go the whole nine yards this year and convert its shares to EUR as well. While the bank’s core income has grown, trends on January 15, 2007 securities markets remain a major determinant.
Net interest Net oper. Other oper. After-tax Interest Cost-income P/E ISK millions income Income Expenses profit EPS spread ratio (12M) P/B 2005 -248 33,871 1,306 26,617 3.50 - 3.9% 6.4 1.5 2006E 4,466 41,727 3,152 30,880 3.08 1.5% 7.6% 5.4 1.3 2007E 5,912 28,068 6,029 16,634 1.61 1.6% 21.5% 10.2 1.3 2008E 6,860 30,647 7,522 17,233 1.67 1.6% 24.5% 9.9 1.1 Q4 2005 -185 15,893 614 12,615 1.40 - 3.9% 7.3 1.7 Q1 2006 485 24,213 756 19,127 1.88 0.7% 3.1% 4.2 1.4 Q2 2006 1,393 1,203 756 218 0.03 1.7% 62.8% 4.2 1.4 Q3 2006 1,258 2,804 701 1,493 0.15 1.5% 25.0% 5.3 1.4 Q4 2006E 1,330 13,507 939 10,042 1.02 1.6% 7.0% 5.4 1.3 Source: Landsbanki
Small & Mid-Cap 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007. 2) 12-month target price. The calculation of the target price takes account of the updated valuation fair price and the discount rate that we apply to the company.
| • High Q4 trading income We expect Straumur-Burðarás to report high trading gains in Q4 2006, as a major portion of its equity portfolio is listed on Nordic markets, which delivered generally high returns, from 9% to 20%. For example, two of its largest holdings at the end of Q3 were Tanganyika Oil, which rose by 50% in Q4, and Finnish Sampo, which was up 22%. • New branch opens in London Straumur opened a new branch in London at the beginning of the year, in addition to Icelandic Research Icelandic its Copenhagen branch. The branch should bolster the bank’s core income generation. Straumur’s objective is to be a leading Nordic investment bank and, in view of the bank’s extremely strong equity position, we feel there is a high probability of further external growth in 2007. • 2007 changeover to EUR The Q4 results will be the bank’s last in ISK; from now on the euro will be its reporting currency. This is reportedly done to increase foreign investors’ interest in the bank. Previously the bank has maintained a relatively large positive foreign cur- rency balance, amounting to ISK 36 bn at the end of Q3, which has returned it a tidy profit. It has stated that this position was increased in anticipation of the changeover. We expect a substantial return on this exposure in Q4 and it will be interesting to see whether the bank continues its currency exposures following the EUR adoption. • Recommend hold Straumur’s income breakdown has changed substantially in recent quarters, as detailed in our recent valuation of the bank. Since that valuation was published, recommending buying the bank’s shares, its share price has risen considerably. We therefore now recommend that investors hold their shares and marketweight Straumur’s shares in a well diversified portfolio.
Landsbanki Kepler Teather & Greenwood Merrion Amsterdam Dublin Edinburgh Frankfurt London Madrid Milan New York Paris Reykjavik Zurich
Reuters TEYMI.IC / Bloomberg TEYMI IR / ICEX TEYMI Rating Target Price Teymi Under review
Previous Current Price Guðmunda Ósk Kristjánsdóttir +354 410 7384 Sector Market Cap Free Float [email protected] TELECOMMUNICATIONS ISK16.4bn ISK6.02
In Focus Clearer path ahead
Q4 Earning Estimate In our estimation the split-up of Dagsbrún was to Teymi´s advantage and investors appear to have welcomed the move. Despite a significant rise in its share price recently, Teymi´s key ratios are still quite
January 15, 2007 acceptable.
After tax P/E EV/EBITDA ISK millions Revenue EBITDA EBITDA% EBIT EBIT% profit EPS (12M) (12M) 2005 2006E 20,220 2,964 14.7% 2,070 10.2% - - - 13.4 2007E 22,160 4,360 19.7% 3,570 16.1% 1,050 0.31 19.4 9.4 2008E 24,440 4,930 20.2% 4,030 16.5% 1,395 0.41 14.6 8.1 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06E 5,151 1,022 19.8% 798 15.5% -93 -0.03 - 13.4 Source: Landsbanki 1) Ratios for 2007/08 are calculated based on closing price January 10, 2007 Small & Mid-Cap
| • Financial expense and affiliates’ losses hurt performance Teymi’s income pillars are three: telecommunications, security services and software. Vodafone is the core of its communications business, Securitas the focus of its security services and Skýrr, EJS and Kögun its key software companies. High financial expense plus forecast losses on affiliates, especially its holding in the IT company Hands, will hurt its Q4 performance. We expect Teymi to report a loss on the quarter. • Share capital increase in Q1 2007 Following Teymi’s listing on ICEX in mid-November, measures were announced to Icelandic Research reduce its substantial liabilities, including sales of real estate for some ISK 2.0 bn and refinancing of short-term debt. In addition, Teymi is planning a share offering in Q1 2007 of ISK 4.0 bn market value, part of which will be used to pay off debt. These measures will substantially relieve the company’s debt burden and we expect, for instance, its ratio of interest-bearing debt to EBITDA to drop from its 2006 level of around 8.8 to 5.2 in 2007. • Split-up of Dagsbrún to Teymi’s advantage The company’s 2007 target is turnover of ISK 21.0-22.5 bn and EBITDA in the range of ISK 4.0-4.4 bn. We consider these targets realistic, after taking into consideration possible new competition on the telecom market in upcoming quarters, as recent rumours suggest Novator Telecom is eyeing the market. In our estimation, the split- up of Dagsbrún is to Teymi’s advantage and we expect positive progress from the company and its management. • Marketweighting recommended Since the company was listed in mid-November, Teymi’s shares have risen by 34%. Despite this its current key ratios, with the exception of its P/E ratio, are quite acceptable: EV/EBITDA is 8.4 and price-to-book is 1.4. We expect that Teymi’s share price may have reached an equilibrium level and recommend marketweighting its shares.
Kepler Teather & Greenwood Merrion
Amsterdam Dublin Edinburgh Frankfurt London Madrid Milan New York Paris Reykjavik Zurich
Reuters TM.IC / Bloomberg TM IR / ICEX TM Rating Target Price TM Insurance Under review Previous Current Price Karl Kári Másson +354 410 7394 Sector Market Cap Free float [email protected] Insurance ISK40.4bn 20% Under review ISK37.1
In Focus Successful PO in Q4 Underpins Expansion
Q4 Earnings Estimate Q4 is the first quarter that Norwegian insurance company NEMI is fully consolidated in TM’s accounts, as reflected in our forecast. TM’s share offering in November strengthened its equity follow- 15 January, 2007 ing the purchase and secured TM’s credit rating.
Net insurance Investment Net insurance Claims After-tax P/E ISK millions premium revenue income Net income claims ratio profit EPS (12M) P/B 2005 4,890 7,707 12,597 4,812 98.4% 7,199 7.89 3.4 1.5 2006E 6,607 4,724 11,330 6,211 94.0% 948 1.00 41.7 2.5 2007E 9,217 4,328 13,545 7,834 85.0% 2,358 2.16 16.5 2.1 Q4 2005 1,273 2,143 3,416 1,161 91.2% 1,764 1.95 3.5 1.5 Q1 2006 1,383 1,711 3,094 1,522 110.1% 626 0.69 6.0 2.6 Q2 2006 1,386 -322 1,064 1,378 99.4% -1,250 -1.38 9.1 2.3 Q3 2006 1,734 2,126 3,860 1,510 87.1% 1,088 1.17 17.7 2.5 Q4 2006E 2,104 1,208 3,312 1,802 85.6% 483 0.49 41.7 2.5 Source: Landsbanki
1) Ratios for 2007/08 are calculated based on closing price January 10, 2007.
Small & Mid-Cap
| • Results include NEMI’s operations fully for the first time The Norwegian insurance company NEMI forsikring ASA was consolidated in TM’s accounts as of 1 September 2006 and is therefore included in Q4. NEMI’s combined loss and cost ratio has been below 90%, while last year TM’s combined ratio was 130%. NEMI’s inclusion will therefore positively impact the merged company’s ratio. TM’s management has also taken steps to reduce cost in Iceland and boost income, including raising premiums. The actions brought visible results in Q3 and we expect improvement to continue in Q4. • Successful share offering
Icelandic Research Icelandic The acquisition of NEMI was originally to be financed with subordinated debt, but when this prompted S&P to downgrade NEMI’s credit rating from BBB to BBB-, TM’s management responded by increasing share capital instead to up its equity base. The public offering concluded successfully in mid-November. The offer price was ISK 38 and all shares were sold. Following this outcome S&P issued a statement returning NEMI’s credit rating to its previous level. • Synergies from the acquisition visible this year We hope to see the merger bring synergies in 2007. The combined strength of the two companies should enable them to obtain better reinsurance terms and make it possible for TM to participate in large international insurance contracts. • Recommend underweighting Although TM’s operations have undergone considerable changes recently, our view of the company has not changed since our most recent forecast. Based on our 2006 forecast, the company’s price-to-book ratio is 2.5, not including deferred income tax and 2.1 based on 2007 estimates. We recommend underweighting its shares in well- diversified portfolios.
Landsbanki Kepler Teather & Greenwood Merrion Amsterdam Dublin Edinburgh Frankfurt London Madrid Milan New York Paris Reykjavik Zurich
Earnings Estimates for Q4 2006
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (12M) (12M) 365 m.ISK 7,544 300 4.0% 176 2.3% -418 -0.13 - 41.6 Actavis m.ISK 32,487 6,579 20.3% 4,736 14.6% 3,020 0.01 36.4 11.1 Alfesca m.ISK 21,159 2,949 13.9% 2,574 12.2% 1,694 0.29 18.2 10.4 Bakkavör Group m.ISK 45,466 5,247 11.5% 4,061 8.9% 4,245 1.99 14.1 10.8 Hf. Eimskipafélag Ísl. m.ISK 22,068 9,990 45.3% 9,608 43.5% 8,423 4.80 - - Icelandair Group m.ISK 13,057 263 2.0% -377 -2.9% -188 -0.19 9.6 9.8 Icelandic Group m.ISK 34,243 800 2.3% 267 0.8% -240 -0.08 - 17.5 Marel m.ISK 6,174 448 7.3% 197 3.2% 49 0.13 - 22.9 Mosaic Fashion m.ISK 32,057 3,610 11.3% 2,751 8.6% 939 0.32 28.5 12.2 Össur m.ISK 4,323 300 6.9% -44 -1.0% -310 -0.80 - 24.9 Teymi m.ISK 5,151 1,022 19.8% 798 15.5% -93 -0.03 - 13.4
Cost- Net interest Net oper. Other oper. After-tax Interest income Company Crncy income income expenses profit EPS spread ratio P/E (12M) P/B Glitnir banki m.ISK 9,929 20,327 7,531 9,632 0.68 2.0% 37.1% 8.6 2.4 Kaupþing banki m.ISK 13,226 32,810 14,255 13,234 19.08 1.4% 43.4% 7.6 1.9 Straumur-Burðarás m.ISK 1,330 13,507 939 10,042 1.02 1.6% 7.0% 5.4 1.3
Net financial Operating After-tax Company Crncy income expenses profit EPS ROE Equity ratio P/E (12M) P/B Atorka m.ISK 827 170 539 0.18 13.2% 50.2% 3.5 1.1 Exista m.ISK 15,655 -4,725 6,035 0.56 14.1% 46.6% 7.9 1.3 FL Group m.ISK 27,833 845 27,499 3.54 16.6% 53.1% 5.1 1.2
Net insurance Net premium Investment insurance Claims After-tax Company Crncy revenue income Net income claims ratio profit EPS P/E (12M) P/B Tryggingamiðstöðin m.ISK 2,104 1,208 3,312 1,802 85.6% 483 0.49 41.7 2.5
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (12M) (12M) Actavis m.EUR 365.3 74.0 20.3% 53.3 14.6% 34.0 0.01 36.4 11.1 Alfesca m.EUR 237.9 33.2 13.9% 28.9 12.2% 19.0 0.32 18.2 10.4 Bakkavör Group m.GBP 344.1 39.7 11.5% 30.7 8.9% 32.1 1.51 14.1 10.8 Hf. Eimskipafélag Ísl. m.USD 316.5 143.3 45.3% 137.8 43.5% 120.8 6.89 - - Icelandic Group m.EUR 385.0 9.0 2.3% 3.0 0.8% -2.7 -0.09 - 17.5 Marel m.EUR 69.4 5.0 7.3% 2.2 3.2% 0.5 0.15 - 22.9 Mosaic Fashion m.GBP 238.9 26.9 11.3% 20.5 8.6% 7.0 0.24 28.5 12.2 Össur m.USD 62.7 4.3 6.9% -0.6 -1.0% -4.5 -1.16 - 24.9
January 15, 2007 Landsbanki Kepler Teather Greenwood Merrion 2006 Earnings Estimates
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (06E) (06E) 365 m.ISK 22,834 858 3.8% -1,787 -7.8% - - - 41.6 Actavis m.ISK 122,369 25,575 20.9% 17,983 14.7% 9,044 0.02 36.4 11.1 Alfesca * m.ISK 52,197 4,392 8.4% 2,660 5.1% 1,552 0.26 18.2 10.0 Bakkavör Group m.ISK 158,817 19,065 12.0% 14,672 9.2% 8,703 4.03 14.1 10.8 Hf. Eimskipafélag Ísl. m.ISK 68,544 13,726 20.0% 9,657 14.1% 4,917 2.80 11.1 8.3 Icelandair Group m.ISK 56,610 5,983 10.6% 3,465 6.1% 3,077 2.88 9.6 9.8 Icelandic Group m.ISK 132,018 3,526 2.7% 1,675 1.3% 160 0.06 - 19.1 Marel m.ISK 18,086 1,490 8.2% 760 4.2% 107 0.28 - 22.9 Mosaic Fashion m.ISK 70,005 7,660 10.9% 5,456 7.8% 1,364 0.66 28.1 12.2 Össur m.ISK 17,527 2,667 15.2% 1,302 7.4% 250 0.65 - 24.9 Teymi m.ISK 20,220 2,964 14.7% 2,070 10.2% - - - 13.4
Cost- Net interest Net oper. Other oper. After-tax Interest income Company Crncy income income expenses profit EPS spread ratio P/E (06E) P/B (06E) Glitnir banki m.ISK 39,342 71,708 26,770 38,073 2.77 2.2% 37.3% 8.6 2.4 Kaupþing banki m.ISK 50,782 159,141 55,417 80,459 120.38 1.6% 34.8% 7.6 1.9 Straumur-Burðarás m.ISK 4,466 41,727 3,152 30,880 3.08 1.5% 7.6% 5.4 1.3
Net financial Operating After-tax Company Crncy income expenses profit EPS ROE Equity ratio P/E (06E) P/B (06E) Atorka m.ISK 7,935 905 5,966 1.94 48.8% 50.2% 3.5 1.1 Exista m.ISK 55,618 -10,831 30,330 2.80 24.5% 46.6% 7.9 1.3 FL Group m.ISK 38,156 2,548 38,477 4.96 23.2% 53.1% 5.1 1.2
Net insurance Net premium Investment insurance Claims After-tax Company Crncy revenue income Net income claims ratio profit EPS P/E (06E) P/B (06E) Tryggingamiðstöðin m.ISK 6,607 4,724 11,330 6,211 94.0% 948 1.00 41.7 2.5
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (06E) (06E) Actavis m.EUR 1,395.0 291.6 20.9% 205.0 14.7% 103.1 0.02 36.4 11.1 Alfesca * m.EUR 578.7 48.7 8.4% 29.5 5.1% 17.2 0.29 18.2 10.0 Bakkavör Group m.GBP 1,234.2 148.2 12.0% 114.0 9.2% 67.6 3.14 14.1 10.8 Hf. Eimskipafélag Ísl. m.USD 998.5 200.0 20.0% 140.7 14.1% 71.6 4.08 11.1 8.3 Icelandic Group m.EUR 1,505.0 40.2 2.7% 19.1 1.3% 1.8 0.06 - 19.1 Marel m.EUR 206.2 17.0 8.2% 8.7 4.2% 1.2 0.32 - 22.9 Mosaic Fashion m.GBP 574.9 62.9 10.9% 44.8 7.8% 11.2 0.54 28.1 12.2 Össur m.USD 251.2 38.2 15.2% 18.7 7.4% 3.6 0.93 - 24.9
* Financial year ends June 30, figures are based on calendar year
January 15, 2007 Landsbanki Kepler Teather Greenwood Merrion 2007 Earnings estimates
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (07E) (07E) 365 m.ISK 12,000 1,200 10.0% 660 5.5% -115 -0.03 - 18.6 Actavis m.ISK 154,559 34,783 22.5% 24,516 15.9% 14,507 0.04 20.6 9.6 Alfesca * m.ISK 53,457 5,168 9.7% 3,628 6.8% 2,027 0.34 13.8 8.5 Bakkavör Group m.ISK 185,802 23,083 12.4% 18,465 9.9% 8,771 4.07 15.1 9.4 Hf. Eimskipafélag Ísl. m.ISK 126,368 11,679 9.2% 5,337 4.2% 924 0.53 61.3 9.9 Icelandair Group m.ISK 62,554 6,412 10.3% 3,629 5.8% 2,409 2.26 12.2 9.1 Icelandic Group m.ISK 151,914 6,700 4.4% 4,599 3.0% 1,539 0.53 13.5 10.5 Marel m.ISK 26,805 2,898 10.8% 1,855 6.9% 971 2.65 28.1 12.5 Mosaic Fashion m.ISK 134,738 16,168 12.0% 12,645 9.4% 4,761 2.30 9.0 6.5 Össur m.ISK 23,319 4,551 19.5% 2,769 11.9% 1,134 2.94 37.4 14.7 Teymi m.ISK 22,160 4,360 19.7% 3,570 16.1% 1,050 0.31 15.2 8.4
Cost- Net interest Net oper. Other oper. After-tax Interest income Company Crncy income income expenses profit EPS spread ratio P/E (07E) P/B (07E) Glitnir banki m.ISK 42,183 73,773 31,621 27,193 1.93 1.9% 42.9% 12.5 2.1 Kaupþing banki m.ISK 68,024 144,575 60,424 61,425 82.97 1.4% 41.8% 10.7 1.8 Straumur-Burðarás m.ISK 5,912 28,068 6,029 16,634 1.61 1.6% 21.5% 10.2 1.3
Net financial Operating After-tax Company Crncy income expenses profit EPS ROE Equity ratio P/E (07E) P/B (07E) Atorka m.ISK 4,374 790 2,939 10.68 17.5% 54.3% 7.2 1.0 Exista m.ISK 73,629 -19,411 37,547 3.46 21.2% 45.9% 6.8 1.2 FL Group m.ISK 26,470 2,800 23,670 3.05 12.5% 56.4% 9.0 1.1
Net insurance Net premium Investment insurance Claims After-tax Company Crncy revenue income Net income claims ratio profit EPS P/E (07E) P/B (07E) Tryggingamiðstöðin m.ISK 9,217 4,328 13,545 7,834 85.0% 2,358 2.16 16.5 2.1
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (07E) (07E) Actavis m.EUR 1,677.0 377.4 22.5% 266.0 15.9% 157.4 0.04 20.6 9.6 Alfesca * m.EUR 592.7 57.3 9.7% 40.2 6.8% 22.5 0.38 13.8 8.5 Bakkavör Group m.GBP 1,357.6 168.7 12.4% 134.9 9.9% 64.1 2.97 15.1 9.4 Hf. Eimskipafélag Ísl. m.USD 1,821.2 168.3 9.2% 76.9 4.2% 13.3 0.76 61.3 9.9 Icelandic Group m.EUR 1,648.3 72.7 4.4% 49.9 3.0% 16.7 0.58 13.5 10.5 Marel m.EUR 290.8 31.4 10.8% 20.1 6.9% 10.5 2.88 28.1 12.5 Mosaic Fashion m.GBP 979.2 117.5 12.0% 91.9 9.4% 34.6 1.67 9.0 6.5 Össur m.USD 331.3 64.7 19.5% 39.3 11.9% 16.1 4.18 37.4 14.7
* Figures are based on financial year and not calendar year
January 15, 2007 Landsbanki Kepler Teather Greenwood Merrion 2008 Earnings Estimates
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (08E) (08E) Actavis m.ISK 182,273 43,745 24.0% 32,302 17.7% 19,815 0.06 10.7 7.7 Alfesca * m.ISK 57,967 5,602 9.7% 4,070 7.0% 2,298 0.39 12.5 8.0 Bakkavör Group m.ISK 203,620 25,499 12.5% 20,874 10.3% 10,452 4.85 12.7 8.3 Hf. Eimskipafélag Ísl. m.ISK 142,723 13,117 9.2% 9,440 6.6% 6,381 3.64 9.1 6.3 Icelandair Group m.ISK 67,558 6,790 10.1% 3,785 5.6% 2,491 2.33 11.8 8.6 Icelandic Group m.ISK ------Marel m.ISK ------Mosaic Fashion m.ISK ------Össur m.ISK 25,461 5,398 21.2% 3,521 13.8% 1,535 3.98 27.8 12.5 Teymi m.ISK 24,440 4,930 20.2% 4,030 16.5% 1,395 0.41 11.5 7.2
Cost- Net interest Net oper. Other oper. After-tax Interest income Company Crncy income income expenses profit EPS spread ratio P/E (08E) P/B (08E) Glitnir banki m.ISK 46,490 79,900 34,512 27,918 1.98 1.8% 43.2% 12.2 1.9 Kaupþing banki m.ISK 80,890 159,475 67,162 64,747 87.45 1.4% 42.1% 10.1 1.6 Straumur-Burðarás m.ISK 6,860 30,647 7,522 17,233 1.67 1.6% 24.5% 9.9 1.1
Net financial Operating After-tax Company Crncy income expenses profit EPS ROE Equity ratio P/E (08E) P/B (08E) Atorka m.ISK ------Exista m.ISK ------FL Group m.ISK ------
Net insurance Net premium Investment insurance Claims After-tax Company Crncy revenue income Net income claims ratio profit EPS P/E (08E) P/B (08E) Tryggingamiðstöðin m.ISK ------
After-tax EV/EBITDA Company Crncy Revenue EBITDA EBITDA% EBIT EBIT% profit EPS P/E (08E) (08E) Actavis m.EUR 1,975.0 474.0 24.0% 350.0 17.7% 214.7 0.07 10.7 7.7 Alfesca * m.EUR 628.1 60.7 9.7% 44.1 7.0% 24.9 0.42 12.5 8.0 Bakkavör Group m.GBP 1,479.8 185.3 12.5% 151.7 10.3% 76.0 3.52 12.7 8.3 Hf. Eimskipafélag Ísl. m.USD 2,015.0 185.2 9.2% 133.3 6.6% 90.1 5.14 9.1 6.3 Icelandic Group m.EUR ------Marel m.EUR ------Mosaic Fashion m.GBP ------Össur m.USD 359.5 76.2 21.2% 49.7 13.8% 21.7 5.62 27.8 12.5
* Figures are based on financial year and not calendar year
January 15, 2007 Landsbanki Kepler Teather Greenwood Merrion Equities Earnings Estimates – Outlook
15 January 2007 Landsbanki Kepler Teather & Greenwood Merrion
Equities Earnings Estimates – Outlook
Landsbanki Kepler Teather & Greenwood Merrion 15 January 2007
Equities Earnings Estimates – Outlook
Disclosure Checklist - Potential Conflict of Interests Stock ISIN Disclosure (See Below) Currency Price ABNAmro NL0000301109 nothing to disclose EUR 24.78 Actavis IS0000000420 1, 3, 5, 10 ISK 67.40 Alfesca IS0000000461 3, 10 ISK 4.95 Allied Irish Banks IE0000197834 3, 11 EUR 22.25 Amvescap GB0001282697 nothing to disclose GBP 593.50 Anglo Irish Bank IE00B06H8J93 3, 11 EUR 15.83 Atorka IS0000000669 1, 3, 5, 10 ISK 6.98 Bakkavör IS0000000099 3, 10 ISK 63.80 Banco Pastor ES0113770236 nothing to disclose EUR 15.51 Bank of Ireland IE0030606259 3, 11 EUR 17.12 Barclays GB0031348658 nothing to disclose GBP 761.00 Campofrio ES0121501318 nothing to disclose EUR 13.70 Capitalia IT0003121495 nothing to disclose EUR 7.22 Commerzbank DE0008032004 nothing to disclose EUR 31.30 Credit Suisse Group CH0012138530 nothing to disclose CHF 84.65 Deutsche Bank DE0005140008 nothing to disclose EUR 102.80 Easyjet GB0001641991 nothing to disclose GBP 647.50
Disclosure Exista IS0000013175 nothing to disclose ISK First Choice Holidays GB0006648827 nothing to disclose GBP 287.50 FL Group IS0000000289 1, 3, 5, 10 ISK 27.80 French Connection GB0033764746 5 GBP 207.75 Glitnir Banki 0 3 ISK 24.40 Hennes & Mauritz SE0000106270 nothing to disclose SEK 339.00 Hf. Eimskipafélag Íslands IS0000011039 nothing to disclose USD HSBC GB0005405286 nothing to disclose GBP 924.00 Icelandair Group IS000001346 nothing to disclose ISK Icelandic Group IS0000000453 3, 10 ISK 7.30 Inditex ES0148396015 nothing to disclose EUR 41.81 Irish Life & Permanent IE0004678656 3 EUR 21.15 Julius Baer CH0012083017 nothing to disclose CHF 147.00 Kaupþing banki 0 3 ISK 903.00 KBC BE0003565737 nothing to disclose EUR 97.30 Landesbank Berlin DE0008023227 nothing to disclose EUR 8.00 LloydsTSB GB0008706128 nothing to disclose GBP 583.00 Marel 0 1, 3, 5, 10 ISK 75.50 Marks & Spencer GB0031274896 nothing to disclose GBP 683.50 Mosaic IS0000010817 3, 10 ISK 15.10 Next GB0032089863 nothing to disclose GBP 1,937.00 Raiffeisen International AT0000606306 nothing to disclose EUR 110.40 Royal Bank of Scotland GB0007547838 nothing to disclose GBP 2,068.00 Ryanair 0 3 EUR 11.32 Société Générale FR0000130809 nothing to disclose EUR 131.50 Straumur-Burðarás Fjárfestingarbanki 0 1, 2, 3, 5, 10 ISK 17.90 Tryggingamiðstöðin IS0000000586 2, 3, 10, 12 ISK 37.10 UBS CH0012032030 nothing to disclose CHF 75.95 Unilever NL0000388601 nothing to disclose EUR 20.45 Össur IS0000000040 3, 10 ISK 112.50 Source: Factset closing prices of 11/01/2007
15 January 2007 Landsbanki Kepler Teather & Greenwood Merrion
Equities Earnings Estimates – Outlook
1. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) hold or own or control 1% or more of the issued share capital of this company. 2. The issuer holds or owns or controls 1 % or more of the issued share capital of Kepler Equities or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki). 3. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) are or may be regularly doing proprietary trading in equity securities of this company. 4. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki)and/or its affiliate(s) have been lead manager or co-lead manager in a public offering of the issuer’s financial instruments during the last twelve months. 5. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) are a market maker in the issuer’s financial instruments. 6. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) are a liquidity provider for the issuer to provide liquidity in such instruments. 7. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) act as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company. 8. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) and the issuer have agreed that Kepler Equities and/or its affiliate(s) will produce and disseminate investment research on the said issuer as a service to the issuer. 9. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) have received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months. 10. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) may expect to receive or intend to seek compensation for investment banking services from this company in the next three months. 11. The author of or an individual who assisted in the preparation of this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company. 12. An employee of Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) and/or its affiliate(s) serve on the board of directors of this company. 2.
Rating Ratio Kepler Equities Q4 2006 Rating Ratio Merrion Stockbrokers Q4 2006 Rating breakdown A B Rating breakdown A B Buy 60.9% 0.0% Buy 45.0% 0.0% Hold 9.5% 0.0% Hold 35.0% 0.0% Reduce 26.9% 0.0% Reduce 15.0% 0.0% Not Rated/Under Review/Accept Offer 2.7% 0.0% Not Rated/Under Review/Accept Offer 5.0% 0.0% Total 100.0% 0.0% Total 100.0% 0.0% Source: Kepler Equities Source: Merrion Stockbrokers Limited A: % of all research recommendations A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied B: % of issuers to which Investment Banking Services are supplied
Rating Ratio Landsbanki Q4 2006 Rating Ratio Teather & Greenwood Q4 2006 Rating breakdown A B Rating breakdown A B Buy 54.3% 6.5% Buy 60.0% 84.0% Hold 13.9% 4.8% Hold 27.0% 12.0% Reduce 14.9% 0.0% Reduce 11.0% 0.0% Not Rated/Under Review/Accept Offer 16.9% 88.7% Not Rated/Under Review/Accept Offer 2.0% 4.% Total 100.0% 100.0% Total 100.0% 100.0% Source: Landsbanki Source: Teather & Greenwood Limited A: % of all research recommendations A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied B: % of issuers to which Investment Banking Services are supplied
From May 9th 2006, Kepler Equities, Teather & Greenwood, Merrion and Landsbanki's rating system consists of three recommendations: Buy, Hold and Reduce. For a Buy rating, the minimum expected upside is 10% over 12 months. For a Hold rating the expected upside is below 10%. A Reduce rating is applied when there is expected downside on the stock. Target prices are set on all stocks under coverage, based on a 12-month view. Equity ratings and valuations are issued in absolute terms, not relative to any given benchmark. Kepler Equities, Teather & Greenwood, Merrion and Landsbanki’s strategy teams’ sector allocations rate each sector Overweight, Underweight or Neutral.
Job titles: The functional job title of the person/s responsible for the recommendations contained in this report is equity research analyst unless otherwise stated on the cover
Stock prices: Prices are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated.
Regulators Location Regulator Abbreviation Kepler Equities France Autorité des Marchés Financiers AMF Kepler Equities España Comision Nacional del Mercado de Valores CNMV Kepler Equities Germany Bundesanstalt für Finanzdienstleistungsaufsicht BaFin Kepler Equities Italia Commissione Nazionale per le Società e la Borsa CONSOB Kepler Equities Nederland Autoriteit Financiële Markten AFM Kepler Equities Switzerland Swiss Federal Banking Commission SFBC Teather and Greenwood The Financial Services Authority FSA Merrion Stockbrokers Limited The Irish Financial Services Regulatory Authority IFSRA Landsbanki The Financial Supervisory Authority FME Source: Kepler Equities, Teather & Greenwood Limited, Merrion Stockbrokers Limited and Landsbanki
Teather & Greenwood Limited is authorised and regulated by the Financial Services Authority, and entered in its Register under Firm Reference Number 186677. Teather & Greenwood Limited is a member of the London Stock Exchange.
Merrion Stockbrokers Limited is authorised by the Irish Financial Services Regulatory Authority under the Stock Exchange Act, 1995. Merrion Stockbrokers Limited is a member firm of the Irish and London Stock Exchanges.
For further information relating to research recommendation and conflict of interest management please refer to www.kepler-equities.com, www.teathers.com, www.merrion-capital.com, www.landsbanki.is .
We have not discussed the report with the company.
Landsbanki Kepler Teather & Greenwood Merrion 15 January 2007
Equities Earnings Estimates – Outlook
The information contained in this publication was obtained from various sources believed to be reliable, but has not been independently verified by Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki).Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) does not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law.
This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information is available on request. This report may not be reproduced for further publication unless the source is quoted.
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Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise, only. They reflect only current views of the author and are subject to change without notice. Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) has no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki)
The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and Kepler Equities (or Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki) accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realize such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk.
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Kepler Equities usually acts as a broker, Teather & Greenwood Limited, Merrion Stockbrokers Limited, Landsbanki act in various different capacities. Kepler Equities, Teather & Greenwood Limited or Merrion Stockbrokers Limited or Landsbanki have put in place Chinese Wall procedures in order to avoid any conflict of interests or dissemination of confidential and privileged information.
United Kingdom: This document is intended to be communicated in the UK only to investment professionals and substantial companies. In particular, this document is not directed at private individuals in the UK and no private individual in the UK may act upon it.
United States: This research report is distributed in the United States by Kepler Equities and is intended for distribution in the United States to only "major U.S. institutional investors" as defined in Rule 15a-6 promulgated under the U.S. Securities Exchange Act of 1934, as amended. Kepler Equities is a broker-dealer registered with the Comité des Etablissements de Crédit et des Entreprises d’Investissements in France, and is not registered with the U.S Securities and Exchange Commission (SEC). U.S. persons seeking more information about any of the securities discussed in this report, or wishing to execute a transaction in these securities, should contact Kepler Equities Inc. (KEI), 600 Lexington Avenue, New York, NY 10022, phone (212) 710-7600. KEI is a broker-dealer registered with the SEC and is a NASD member firm. Nothing herein excludes or restricts any duty or liability to a customer that KEI has under applicable law. Investment products provided by or through KEI are not FDIC insured, may lose value and are not guaranteed by Kepler Equities. Investing in non-U.S. securities may entail certain risks. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies.
France: This publication is issued and distributed in accordance with art. L 544-1 and seq of the Code Monétaire et Financier and with the articles 321-122 to 321-138 of the General Regulations of the Autorité des Marchés Financiers (AMF).
Italy: Information is for institutional clients only as defined by art. 31 of CONSOB reg. 11522/98. Reports on companies listed on the Italian exchange are approved and distributed to over 500 clients in accordance with art. 69 of CONSOB Regulation 11971/1999 for enforcement of the Consolidation Act on financial brokerage (legislative decree 24/2/1998). According to this article Kepler Equities, branch of Milano warns on potential specific interests in securities mentioned. Equities discussed are covered on a continuous basis with regular reports at results release. Reports are released on date shown on cover and distributed via print and e-mail. Kepler Equities, branch of Milano analysts are not affiliated with any professional groups or organizations. All estimates are by Kepler Equities unless otherwise stated.
Spain: Reports on Spanish companies are issued and distributed by Kepler Equities, branch of Madrid, registered in Spain by the Comisión Nacional del Mercado de Valores (CNMV) in the foreign investments firms registry (member of the Madrid exchange). Reports and any supplemental documentation or information have not been filled with the CNMV. Neither verification nor authorization or compliance revision by the CNMV regarding this document and related documentation or information has been made.
Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly.
15 January 2007 Landsbanki Kepler Teather & Greenwood Merrion
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