Equity Outlook Global Uncertainties Continue to Stoke Fears

ECONOMIC & STRATEGY RESEARCH

17 June 2019

Semiannual report Extract from a report

Equity Outlook Global uncertainties continue to stoke fears

¢ The first months of the year were positively influenced by global equity markets’ recovery after selloffs at the end of 2018: In December 2018, equity markets suffered from severe selloffs, which decreased the price basis and allowed for a decent rebound. This was supported by the wait for conclusion of a trade agreement between the United States and China.

¢ May was highlighted by another selloff: This happened primarily due to the temporary failure of trade negotiations with China. The relationship between the US and China is still quite cold. Another drop in global stock indices was caused by US President Donald Trump’s threats of imposing import tariffs on Mexican goods. June brought a solution to the Mexican tariffs so markets could rebound and cover May’s losses.

¢ Outlook for the second half of the year is not rosy: With low visibility of the outcome of the trade war and Brexit, and a recession expected in the US in mid-2020, Société Générale further reduced the risk profile of its global asset allocation portfolio. We see a downside potential to global equity indices.

¢ Sectoral composition: We are more directed toward defensive stocks again, with a focus on quality earnings and solid higher dividend yielders. Utility, beverages and real estate are the sectors with a new Overweight recommendation.

¢ Prague Stock Exchange: We believe the PX index is able to surpass developments of West European competitors and achieve double-digit growth this year.

Miroslav Frayer Jiří Kostka (420) 222 008 567 (420) 222 008 560 [email protected] [email protected]

Please see back page for important disclaimer Date and time of the compilation: 17 June 2019, 2:40 PM

Economic & Strategy Research Equity Outlook

Prague Stock Exchange statistics 2014 2015 2016 2017 2018 5/2019 PX Index (eoy) 947 956 922 1,078 987 1,044 Change (CZK) -4.3 1.0 -3.6 17.0 -8.5 5.8 Change (USD) -16.7 -7.0 -6.9 41.1 -13.6 2.8 Traded volumes (CZK m) 158,222 169,202 163,580 140,741 142,125 50,366 Traded volumes (USD m) 7,648 6,941 6,687 6,002 6,557 2,213 Market capitalization (CZK m) 1,018,162 1,011,989 1,020,891 1,208,467 1,095,553 1,158,362 Market capitalization (USD m) 44,434 40,696 39,844 56,888 48,753 50,051 Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka

KB/SG recommendations for the PSE titles Company Price Target price Recomm. From date Year high Year low Avast 89.0 98.5 Buy 14.VI.18 95.0 62.5 CEZ 544.5 717.0 Buy 10.VI.19 585.0 514.0 CME 93.0 117.9 Buy 28.III.19 95.0 62.0 Erste Bank 820.6 1,178.1 Buy 6.V.19 936.5 681.0 Kofola 291.0 484,0 Buy 26.IX.18 373.0 267.0 Komercni banka 904.0 - - - 964.5 812.5 Moneta Money Bank 76.5 97.0 Buy 2.III.19 82.8 70.0 O2 CR 225.5 298.0 Buy 12.XII.18 261.9 212.8 PFNonwovens 740.0 924,0 Buy 26.X.18 940.0 734.0 Philip Morris CR 13,660.0 18,308.0 Buy 3.XII.18 15,920.0 13,360.0 Stock Spirits 66.0 - - - 71.9 55.2 VIG 591.5 668.0 Buy 11.IX.18 652.0 512.0 Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka; *prices as of 17 June 2019, 9:08 am CET

Companies overview

Price Monthly year-to-date change Avg. daily volumes CZK change CZK USD 1-5/2019 1-5/2019 Company 17-Jun-19 (%) (%) (%) (CZK m) (USD m) Avast 89.0 -2.7 9.2 7.5 6.4 0.3 CEZ 544.5 3.5 1.8 0.2 127.7 5.6 CME 93.0 9.3 49.3 47.0 11.3 0.5 Erste Bank 820.6 -1.6 14.6 12.9 76.6 3.4 Kofola 291.0 -4.0 2.8 1.3 2.1 0.1 Komercni banka 904.0 6.1 6.7 5.1 127.4 5.6 Moneta Money Bank 76.5 5.7 5.5 3.9 89.9 3.9 O2 CR 225.5 -8.2 -4.8 -6.2 15.1 0.7 PFNonwovens 740.0 -0.8 -8.2 -9.6 1.7 0.1 Philip Morris CR 13,660.0 -0.7 -3.0 -4.5 20.8 0.9 Stock Spirits 66.0 -2.9 7.5 5.9 1.0 0.0 VIG 591.5 -4.6 12.2 10.5 4.2 0.2 Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka; *prices as of 17 June 2019, 9:08 am CET

Economic & Strategy Research Equity Outlook

Fresh wind at the beginning of this year

Jiří Kostka The first half of this year showed signs of a stock market recovery, with the first quarter (420) 222 008 560 [email protected] being the best period. There was a downward correction in May, which is currently

being erased by growing markets. The global MSCI index gained more than 12% in 1H19.

Shares of developed markets were slightly better with gains amounting to more than 13%. Especially the May selloff caused the MSCI for emerging markets to gain slightly above 6%. Looking at specific regions, the Japanese Nikkei 225 (gained 8%) was worse than the global MSCI index. A comparable performance to MSCI World was shown by the European Global equity market Stoxx 600 index, which rose around 12%. As is often the case, the absolute winner was the 540 American S&P 500 index. It grew at a faster pace than other indices for the whole period and

520 especially at the end of 1H it was able to recover faster and more energetically from May’s selloff. This led to growth of almost 15%. 500

480 Development of main equity indices in 1H19 (1 January 2019 = 100)

460 MSCI World MSCI Emerging MSCI Developed 120 440 I-19 II-19 III-19 IV-19 V-19 VI-19

Source: Bloomberg, MSCI World index 115

110

105

100

95 I-19 II-19 III-19 IV-19 V-19 VI-19

Source: Economic & Strategy Research, Komerční banka, Bloomberg; *data as of 14 June 2019

Until May, equity markets were It ought to be mentioned that equity markets had perfect conditions for a successful expecting an end to the trade war start to the new year, as at the end of last year there was a severe selloff on global between the United States and China. equity markets. In January alone, almost all main global equity indices grew approximately 7%. In the first few months of this year, hopes for a trade agreement between the United States and China helped markets to grow. There was a constant inflow of positive news regarding trade negotiations, and everything signalled an end to the trade war. Nevertheless, at the beginning of May, equity markets experienced a cold shower as US President Donald Trump announced plans to increase import tariffs on Chinese goods in the amount of $200m from 10% to 25% within a couple of days. At the same time, Trump also threatened to impose a new 25% tariff on remaining Chinese imports in the amount of $325m. The reason for these announcements was the alleged effort by China to renegotiate certain parts of the trade agreement that Trump considered unacceptable. Unfortunatelly, since then, the relationship between the two countries has deteriorated significantly. Mutual accusations as who is responsible for not reaching a trade agreement followed, which led to increased tension. Within a couple of days the inevitable happened and the United States increased import tariffs on Chinese goods to 25%. China retaliated almost immediately by increasing import tariffs from 5% and 10% for different types of goods to a united 25% for American goods in a total amount of $60m.

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Economic & Strategy Research Equity Outlook

May showed signs of increased At the end of May, a well-known factor The fear index volatility and selloffs due to the appeared in the inverse bond curve, where temporary failure of trade VIX Index negotiations with China. the difference between the three-month rate 50

and the 10-year yield fell to its lowest level 40 since March. An inverse bond curve has 30 been an omen of recessions in the past. To make matters worse, at the beginning of 20

June, Trump turned his attention to Mexico 10 and threatened to impose 5% import tariffs 0 on all Mexican goods starting on 10 June. I-18 IV-18 VII-18 X-18 I-19 IV-19 These tariffs could reach up to 25% by Source: Bloomberg October, i.e. 5% monthly growth. The reason for this threat, according to Trump, is unresolved immigration policy in Mexico. Within a week, the two countries found a solution for this issue and Trump revoked his plan for tariffs. Since then, nothing has stood in the way of the wave of optimism on equity markets, which began to correct May’s selloffs. The situation in May is clearly captured by the VIX index, which shows the volatility of markets, i.e. uncertainty and fear among investors.

Comparison of stock indices in 1H19 (%)

YTD in CZK 15

-5

-10 PX WIG20 BUX MSCI Stoxx600 S&P500 Nikkei225 MSCI World Emerging

Source: Economic & Strategy Research, Komerční banka, *data as of 14 June 2019

The Prague Stock Exchange is The development on the Prague Stock Exchange was in line with global markets with a still ahead of its regional peers. total return of almost 7% in the first half of this year. Even though this result is deeply below the performance level of the US S&P 500 index, the PX index was able to perform much better in comparison with its CEE peers. In the comparable period, the Hungarian BUX increased more than 6%, and Poland’s WIG20 reached the level of last year-end prices after May’s selloffs. The chart above shows that the performace of the PSE was approximately half the size as that of the US S&P 500 index. With regard to the FX rates, the euro and US dollar are currently trading at comparable levels as at the end of last year, and the performance of indices in CZK equivalents do not differ much.

The CME media group has won On the Prague trading floor, the CME media group’s shares increased the value of the stock performance race. investment for their owners the most. The market capitalisation rose more than 49% (in CZK terms). This growth was primarily allowed due to the very low price base of shares at the end of last year, when CME suffered heavily from market selloffs. The successive recovery of equity markets supported by strong corporate earnings for 2018 and 1Q19 catapulted the share price into the sky. The company has reached record profitability together with lowering the level of indebtedness. With a great distance behind CME, Erste Group ranked second with

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Economic & Strategy Research Equity Outlook

profit of almost 15%. Even though its earnings were not as stunning as those of CME, it exceeded market expectations and led to share price growth. Insurance company VIG ranked third, as its shares gained more than 12%. Again, the main reason for this performance was excellent financial results due to continuing good macroeconomic conditions on VIG markets.

Conclusively, the most losing On the opposite side of the Performance of equities on the PSE in 1H19 (%) investment on the Prague trading imaginary peloton, three floor was the textile company 50 PFNonwovens. stock titles fell into losses for the first half of this year. 40

The worst performing 30 stock was textile company PFNonwovens as it 20

suffered a loss of more 10 than 8%. The company is 0 more interesting for long-term investors than for -10 EZ PX KB O2 VIG Č short-term investors, which PFN CME Erste Avast Stock Kofola PMCR is partly due to its lack of Moneta dividend policy and Source: Economic & Strategy Research, Komerční banka, *data as of 14 June 2019 relatively low free float. Telecommunications company O2 Czech Republic ranked second with a stock price decrease of almost 5% since the beginning of the year. The main reason for this price drop is the dividend in the amount of CZK21 per share as the stock had its ex-dividend date on 3 June. Tobacco company Philip Morris ČR ranked third. Its losses reached 3%. As in the case of O2, this loss was also caused by ex-dividend date. The dividend in the case of PMČR was approved by the general meeting in an amount of CZK1,600 per share. Part of this dividend consisted of undistributed profits from previous years. The amount of this dividend was a big surprise on the PSE in the first half of the year. It ought to be mentioned that, in the case of including dividends in stock price performace, the Prague trading floor would have only one losing title in the textile company PFNonwovens.

Shares of energy giant ČEZ are in In our opinion, the most interesting stock title of the Prague Stock Exchange is currently ČEZ. our opinion strongly undervalued, For more than a year, the stock price has been oscillating between CZK520 and CZK580 per and the price does not fully reflect market conditions. share. Moreover, since the beginning of last year there is a divergence between the share price of ČEZ and the spot market price of electricity. These two prices used to correlate strongly in the past; in the past two years the spot price of electricity grew heavily whereas the price of ČEZ shares didn’t significantly reflect this development. When compared with similar companies such as Electricite de France, the growth pace of ČEZ’s share price lags behind EDF. ČEZ shares gained approximately 9% since the beginning of last year whereas EDF shares grew more than 17%. Nevertheless, we keep our outlook for ČEZ very positive as the profitability of the company should grow supported by higher spot prices of electricity. The main factor preventing the share price from growing was the plan to build new power plant reactors. Currently, this factor is fading out as the final decision was postponed by several years. More detailed information can be found in our analysis of ČEZ 1.

1 Analysis of ČEZ – We keep our BUY recommendation and upgrade the 12m target to CZK717 published on June 10 at 7:33 a.m. available for downloading on http://bit.ly/CEZ_upd1906ENG

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Economic & Strategy Research Equity Outlook

Semi-annual development of stocks traded on the PSE (performance in %)

H1 18 H2 18 H1 19 50

-10

-30

-50 EZ KB O2 PX VIG Č PFN CME Erste Avast Stock Kofola PMCR Moneta

Source: Economic & Strategy Research, Komerční banka, *data as of 14 June 2019

Lower trading activity slightly The first half of this year showed signs Average daily trading volume (CZKbn) mixed the ranking as Philip Morris of lower trading activity on the Prague overtook O2. 1,00 Stock Exchange. The average daily 0,85 trading volume reached CZK480m, which was one of the lowest values in history. The 0,70 five most traded titles accounted for more 0,55 than 90% of total traded volume. ČEZ confirmed its position as the most 0,40

attractive stock with a 26.4% share. 0,25 VI-17 IX-17 XII-17 III-18 VI-18 IX-18 XII-18 III-19 Komerční banka, with 26.3%, ranked second on the ladder of most traded titles Source: PSE, Bloomberg, Economic & Strategy Research, Komerční banka on the Prague Stock Exchange. Moneta Money Bank, with a 19% stake, followed, and the third bank on the PSE, Erste Group, reached 16%. The five most interesting titles were exceptionally supplemented by the Philip Morris tobacco company with 4% and overtook O2 Czech Republic with a 3% share in trading activity.

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Economic & Strategy Research Equity Outlook

Equity markets outlook

Miroslav Frayer Our outlook for equity markets is based on the forecasts and recommendations of Société (420) 222 008 567 [email protected] Générale’s reports Multi Asset Portfolio – Increase focus on bonds as cyclical risks are growing

(published on 5 June 2019, 1:02 p.m. CET) and The Big Picture – Buckle up (published on 3 June 2019, 5:37 p.m. CET). With low visibility of the outcome of the trade war and Brexit, Société Générale reduced the and a recession expected in the US in mid-2020, Société Générale further reduced the risk weight of equitites in its global profile of its global asset allocation portfolio. As a result, the weight of equities was lowered portfolio to 35% and keeps its to 35% from 40% ( Underweight recommendation) and of corporate bonds from 15% to Underweight recommendation. 12% ( Overweight ), while SG increased sovereign bonds from 25% to 35% ( Overweight ).

SG/KB outlook for equity indices Last price IX/19 XII/19 I/20 II/20 XII/20 change Index 14-Jun est. est. est. est. est. 1 year (%) S&P 500 (USA) 2,892 2,500 2,700 2,500 2,600 2,800 -10.1 Stoxx 600 (Europe) 380 325 330 310 320 350 -15.9 FTSE 100 (UK) 7,369 6,500 6,600 6,000 6,200 6,800 -15.9 CAC 40 (France) 5,376 4,700 4,800 4,400 4,500 4,800 -16.3 DAX 30 (Germany) 12,169 10,500 11,000 10,000 10,250 11,000 -15.8 FTSE MIB (Italy) 20,563 17,500 18,000 16,000 16,500 18,000 -19.8 IBEX 35 (Spain) 9,205 8,000 8,200 7,500 7,700 8,200 -16.4 Nikkei 225 (Japan) 21,117 20,300 20,600 20,000 20,800 22,000 -1.5 MSCI China 76 70 75 75 78 82 2.7 KOSPI 200 (South Korea) 271 250 255 265 270 285 -0.2 Nifty50 (India) 11,851 11,800 12,500 11,800 12,300 14,000 3.8 MSCI AC Asia ex-Japan 629 590 620 600 625 675 -0.6 PX (KB/SG, market prices) 1,051 1,130 1,200 1,280 1,300 1,352 23.7 PX (KB/SG, consensus) 1,051 1,130 1,220 1,300 1,330 1,383 26.6 Source: SG Cross Asset Research (Multi Asset Portfolio from 5 June 2019); Economic & Strategy Research, Komerční banka; *prices as of 14 June 2019, 10:50 am CEST

Markets are pricing a Fed rate cut The first half of the year was successful for equity markets, but we are cautious about the for this year. In our opinion, outlook for 2H19. We see a downside potential to global equity indices. In our view, the summer easing seems too early. recent escalation of the US/China trade war is set to feed into 3Q19 economic data, further increasing the likelihood of a global slowdown and/or a US recession. As stock markets usually overtake the economic cycle by roughly six to nine months, the impact of the expected economic downturn should be visible by the end of this year. The weakness in cyclical indicators should push the Fed into a dovish stance. Markets are in fact expecting with almost full probability a policy response by the end of the year. But, there is high probability (85%) of a rate cut at the Fed’s meeting in July. Société Générale’s call for the Fed is to stay on hold this year with rate cuts in 2020. Although we can admit the possibility of a rate cut by the end of this year, we consider monetary easing in the summer to be too early.

After the expected drop in 3Q19, We expect the S&P500 to oscillate between 2,500 and 2,800 points by summer 2020, we see the S&P500 oscillating. staying under current levels. It should experience the most visible drop this summer, as a reaction to weaker cyclical indicators and the Fed’s wait-and-see approach, which could reduce market expectations about a rate cut in July. We don’t expect a massive selloff despite the lack of complacency among market participants and given the fact that, at this point, the S&P500 is rather fairly valued. The anticipated shift of Fed monetary policy toward a more dovish stance should hinder equities in a further decline in 4Q19, and we see a little correction of summer losses followed by stabilisation within the range of 2,500 to 2,800 points.

European equities will remain We believe European equities will not be immune to a global equity market sell-off, as under selloff pressure. policy room for the ECB is limited and portfolio rebalancing (outflows of European

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Economic & Strategy Research Equity Outlook

equities), the weakening US dollar and political uncertainty (Brexit, Italy) will weigh on eurozone equity markets. The SMI index should be more resilient in a period of greater volatility, while the FTSE 100 is likely to be very sensitive to GBP swings.

China and India are our preferred For 2019, we think Asia should have already priced most negativity in the current equity countries in Asia. correction and should be relatively less sensitive going forward unless we see the worst-case scenario of a global trade war and/or a deep recession playing out, which would become apparent in the subsequent months. For 2020 and 2021, we see more upside potential as liquidity conditions will get better along with the growth outlook, particularly for China and export-oriented Asian markets.

A further shift to more defensive In a sectoral composition, Société Générale directs more toward defensive stocks again, stocks. with a focus on quality earnings and solid higher dividend yielders. It also increase the domestic tilt of our portfolio in less cyclical sectors to optimise the hedge against trade war risks and global cyclical concerns more generally. From this point of view, it has upgraded its recommendation for the utility, beverages and real estate sectors from Neutral to Overweight. On the contrary, it downgraded its recommendation for auto & components from Overweight to Neutral and financials and media from Neutral to Underweight . Otherwise, SG keeps the largest long positions in sectors of consumer staples, health care and oil & gas. The two former are also defensives, while companies of the latter offer strong balance sheets and attractive dividend yields.

Our outlook for the Czech equity We adopt a bottom-up approach because the PX index consists of only 12 issues, with the market remains positive. five largest usually having a combined weight of almost 80%. Besides shares of Komercni banka and Stock Spirits, we actively cover (including SG) all of them. For valuing stocks that we do not cover, we use two approaches, i.e. the actual market price and the market consensus. An average of these two estimates shows potential growth of almost 25% over the one-year horizon (see the table above) with an estimated dividend yield of 5.0%. The second half of the year standalone could bring almost 15%.

A sectoral composition of the PX An attentive reader will surely argue that the Czech stock market should add a quarter of its index favours growth this year. value in 12Y horizon, while European equity indices should record a double-digit drop in some cases. We keep Buy recommendations for all of our covered titles. All four financial institutions have very high growth potential. Their weight in the PX index is 55%. Our sectoral recommendation for banks is Neutral and insurance companies Overweight . Erste Group’s shares should be the biggest contributor as our SG’s colleagues keep the target price of €46, representing potential growth of 40% in comparison with the current market price. However, we have to admit that shares are significantly more sensitive to developments abroad and other European banks than Komercni or Moneta. Moreover, Czech representatives are positively fully affected by higher interest rates, while Erste is only partially, owing to its exposure to other CEE countries. Dividend yields are also more attractive. CEZ has the highest weight in the PX index, and the sectoral recommendation by Société Générale is Overweight. The recent development of electricity prices should support future profitability. We consider Avast shares, whose weight in the index is the fourth-highest (10.6%), to be fundamentally undervalued, and we still believe in our Buy recommendations. The sectoral recommendation by Société Générale is also Overweight . Other stocks (O2 Czech Republic, Philip Morris ČR, Kofola) are defensive representatives with an attractive dividend policy. Therefore, we believe the PX index is able to surpass the development of West European competitors and achieve double-digit growth this year.

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Economic & Strategy Research Equity Outlook

The announced corporate events in the coming months Date Company Event 26 June CEZ Annual general meeting 1 July CEZ Ex-date 4 July O2 Czech Republic Dividend payment 31 July Erste Group Company results for 2Q19 1 August Moneta Money Bank Company results for 2Q19 1 August Komercni banka Company results for 2Q19 12 August Kofola CeskoSlovensko Company results for 2Q19 13 August CEZ Company results for 2Q19 14 August Avast Company results for 2Q19 22 August PFNonwovens Company results for 2Q19 27 August Vienna Insurance Group Company results for 2Q19 24 September Philip Morris CR Company results for 1H19 18 October Avast Company results for 3Q19 30 October Erste Group Company results for 3Q19 6 November Moneta Money Bank Company results for 3Q19 6 November Komercni banka Company results for 3Q19 11 November Kofola CeskoSlovensko Company results for 3Q19 12 November CEZ Company results for 3Q19 14 November PFNonwovens Company results for 3Q19 27 November Vienna Insurance Group Company results for 3Q19 Source: Bloomberg, companies

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Economic & Strategy Research Equity Outlook

Foreign markets

S&P 500 (USA) Stoxx 600 (Europe)

3000 400

2880 385

2760 370

2640 355

2520 340

2400 325 I-19 II-19 III-19 IV-19 V-19 VI-19 I-19 II-19 III-19 IV-19 V-19 VI-19

Source: Bloomberg Source: Bloomberg

Nikkei 225 (Japan) MSCI China (China)

22500 90

21800 85

21100 80

20400 75

19700 70

19000 65 I-19 II-19 III-19 IV-19 V-19 VI-19 I-19 II-19 III-19 IV-19 V-19 VI-19

Source: Bloomberg Source: Bloomberg

WIG 20 (Poland) BUX (Hungary)

2450 43700

2380 42400 2310 41100 2240

39800 2170

2100 38500 I-19 II-19 III-19 IV-19 V-19 VI-19 I-19 II-19 III-19 IV-19 V-19 VI-19

Source: Bloomberg Source: Bloomberg

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Economic & Strategy Research Equity Outlook

Disclaimer

The information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell any securities. All information and opinions have been obtained from or are based on sources believed to be reliable, but their completeness and accuracy are not guaranteed by Kom erční banka, a.s., even though Komerční banka, a.s. believes them to be fair and not misleading or deceptive. The views of Komerční banka, a.s. reflected in this document may change without notice. Komerční banka, a.s. and its affiliated companies may from time to time deal in, profit from the trading of, hold or act as market makers of securities, or act as advisers, brokers or bankers in relation to securities or derivatives thereof emitted by persons, firms or entities mentioned in this document. Emplo yees of Komerční banka, a.s. and its affiliated companies, or individuals connected to them may from time to time have a position in or be holding any of the investments or related derivatives mentioned in this document. The authors of this document are not authorized to acquire the investment instruments mentioned in this document. This does not apply to cases when the investment recommendation mentioned in this document represents dissemination of an investment recommendation earlier produced by third parties according to Chapter III of regulation (EU) 2016/958. Komerční banka, a.s. and its affiliated companies are under no obligation to provide any services to their clients on the basis of this document. Komerční banka, a.s. does not accept any liability whatsoever arising from the use of the material or informat ion contained herein beyond what is required by law. This research document is primarily intended for professional and qualified investors. Should a private customer obtain a copy of this report, they should not base their investment decisions solely on th e basis of this document and should seek independent financial advice. The investors must make their own informed decisions regarding the appropriateness of their investments because the securities discussed in this report may not be suitable for al l investors. The performance attained by investment instruments in the past may not under any circumstance serve as an guarantee of future performance. The estimates of future performance are based on assumptions that may not be realized. Investment instruments a nd investments are connected with different investment risks, the value of any investment can rise and fall and there is no guarantee for the return of the initial invested amount. Investment instruments denominated in foreign currencies are also subject t o fluctuations caused by changes in exchange rates, which can have both positive and negative influences particularly on the prices of the investment instrument and consequently on the investment return. This publication is issued by Komerční banka, a.s. which is a bank/stockbroker according to the applicable legislation and thus regulated by the Czech National Bank. Komerční banka, a.s. applies various measures to prevent conflict of interests in the proc ess of creating investment recommendations, such as the implementation of an appropriate internal separation including information barriers between different departments of Komerční banka, a.s. in compliance with the requirements imposed by applicable regu lation. The employees of Komerční banka, a.s. proceed in accordance with the internal regulations governing conflict of interest. The evaluation of employees creating investment recommendations is never by any means tied with the volume or profit of the tr ades with instruments mentioned in this document done by Komerční banka, a.s., or the trades of Komerční banka, a.s. with the issuers of such instruments. However, the evaluation of the authors of this document is linked to the profits of Komerční banka, a.s. which also partially include the results of trading with investment instruments. The recommendations mentioned in this document are intended for the public and the document before its publication is not available to persons not involved in the creation of this document. As per our practice, the issuers do not receive a copy of research reports prior to their publication. Each author of this research report hereby states that (i) the views expressed i n the research report accurately reflect his or her personal views about any and all of the securities or issuers at stake. This document and its contents is not designed for persons with permanent residence or seat in the United States of America and to persons who are deemed as “U.S. persons”, as defined in Regulation S under the US Securities Act of 1933, as amended. Please refer to our website http:\\www.trading.kb.cz for more details.

Economic & Strategy Research Equity Outlook

The recommendation in this document and/or the document itself was not disclosed to the issuer before its dissemination.

This recommendation is not updated at regular intervals. The date of the next update has not yet been determined and finally will be influenced by relevant changes of the facts used as the ground for this recommendation to reflect proper development in the industry and/or the analyzed company.

The main methods KB is using for setting target price for stocks are discounted free cash flow analysis and sector comparison. Other methods may also be used if deemed appropriate by the analyst (e.g. sum of parts valuation, discounted dividend valuation, discount / premium to NAV). Target price is set for the time period of 12 months. KB is using three grades of investment recommendation: buy, hold and sell. The recommendation is set for the time period of the next 3-6 months. The most important factor for setting the recommendation is the difference between actual market price and target price calculated by KB equity research. The recommendation also reflects other factors the analyst expects to influence the stock and market in the time period of 3-6 months after its publication. The target price substantially above current price does not automatically mean a buy recommendation for the 3-6 months following the first period of 3-6 months since publication of the recommendation. Valuation methods and factors key for setting the recommendation are explained in the text of each analysis.

The chart below shows the structure of grades of valid investment recommendations of equity research of KB Economic & Strategy Research (9 recommendations).

Investment recommendations of KB equity research

Hold Sell 0% 0%

Buy 100%

Source: Economic & Strategy Research, Komerční banka

KB Equity Research ratings on a 12 month period BUY: absolute total shareholder return forecast of 15% or more over a 12 month period. HOLD: absolute total shareholder return forecast between 0% and +15% over a 12 month period. SELL: absolute total shareholder return forecast below 0% over a 12 month period. Total shareholder return means forecast share price appreciation plus all forecast cash dividend income, including income from special dividends, paid during the 12 month period. Ratings are determined by the ranges described above at the time of the initiation of coverage or a change in rating (subject to limited management discretion). At other times, ratings may fall outside of these ranges because of market price movements and/or other short term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by research management.

Economic & Strategy Research Equity Outlook

Overview of recommendations published by KB and relationships with particular issuers

MONETA PFNon- Philip Vienna Avast CME CEZ Fortuna Kofola Money O2 CR wovens Morris CR Insurance Bank Overview of last investment research and recommendations related to stocks of particular issuers Recommendation Buy Buy Buy End of Buy Buy Buy Buy Buy Buy Target price GBp 342 USD 5.2 CZK 717 coverage CZK 484 CZK 97 CZK 298 CZK 924 CZK 17546 EUR 27 Date 15.6.2018 28.3.2019 10.6.2019 9.5.2018 26.9.2018 7.3.2019 12.12.2018 1.4.2019 22.8.2017 11.9.2018 Price on the day of the publication GBp 214 USD 3.8 CZK 536 CZK 206 CZK 282 CZK 79.9 CZK 239 CZK 782 CZK 15500 EUR 23.2 Investment horizon 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months Author J. Kostka J. Kostka M. Frayer J. Kostka J. Kostka M. Frayer M. Frayer M. Frayer J. Kostka M. Frayer Overview of investment researches and recommendations for last 12M (quarterly) Recommendation Buy Buy Sell Buy Hold Hold Hold Buy Target Price USD 5 CZK 620 CZK 198 CZK 93 CZK 270 CZK 924 CZK 13500 EUR 26 Date 27.7.2017 11.6.2018 4.1.2018 6.3.2018 18.9.2017 26.10.2018 25.5.2017 3.3.2017 Recommendation Buy Buy Buy Buy Hold In revision Buy Target Price USD 4.2 CZK 542 CZK 198 CZK 90 CZK 267 In revision CZK 13500 Date 27.4.2017 20.9.2017 30.11.2017 17.8.2017 31.1.2017 17.5.2018 13.6.2016 Recommendation Buy In revision Buy Buy Sell Target Price USD 3.7 In revision CZK 95 CZK 267 CZK 876 Date 10.3.2017 9.11.2017 9.6.2017 9.12.2016 13.9.2017 Recommendation Hold Hold Sell Target Price CZK 128 CZK 260 CZK 876 Date 12.6.2017 22.3.2016 13.9.2017

DFCF DDM Valuation methods DFCF DFCF DFCF DFCF DFCF DFCF DDM DFCF DDM DDM ERM ERM

Frequency of rec. (per year) twice twice twice twice twice twice twice twice twice twice

Direct or indirect share (5% or more) of the issuer of the registered no no no no no no no no no no capital of KB

Other significant financial interest of KB and/or its linked persons in no no no no no no no no no no the issuer

KB direct or indirect share (0.5% or more) of the registered capital of no no no no no no no no no no the issuer.

Author’s direct or indirect share (0.5% or more) of the registered no no no no no no no no no no capital of the issuer. Signific. fin. interest in the issuer of the persons partic. in elaboration no no no no no no* no no no no of inv. research and rec. Relationships of Komerční banka with particular issuers KB Management or co- management of public offerings in no no no no no no no no no no the past 12 month

Agreements or contractual KB can have concluded agreements with the issuer for providing investment services. This information is protected by bank relations for providing investment secret and could not be disclosed. services with the issuer

Agreement with the issuer on production and dissemination of no no no no no no no no no no the research

KB market making for common no no no no no no no no no no stocks of the issuer

Note: DFCF – Discounted free cash flow model, DDM – Discounted dividend model, ERM – Excess return model * The author of the investment recommendation owns 635 shares of the issuer Moneta Money Bank. The author is not entitled to acquire any further shares of any issuer listed here. Source: Economic & Strategy Research, Komerční banka

We do not include our one-off short-term recommendations based on Société Générale’s analyses to this overview.

Economic & Strategy Research Equity Outlook

KB ECONOMIC & STRATEGY RESEARCH Chief Economist and Head of Research Jan Vejm ělek, Ph.D., CFA (420 ) 222 008 568 [email protected]

Economists Viktor Zeisel Mon ika Junicke Jana Steckerová František Táborský (420 ) 222 008 5 23 (420) 222 008 509 (420) 222 008 524 (420) 222 008 598 [email protected] [email protected] [email protected] [email protected]

Equity Analysts Miroslav Frayer Jiří Kostka (420 ) 222 008 567 (420 ) 222 008 560 [email protected] [email protected]

SG IN CENTRAL AND EASTERN EUROPE Chief Economist of SG Poland Head of Research of Rosbank Chief Economist of BR D-GSG Jaroslaw Janecki Evgeny Koshelev Florian Libocor (48 ) 225 284 162 (7) 495 725 5637 (40) 213 016 869 [email protected] [email protected] [email protected]

Head of Fin. Markets Research BRD -GSG Economist Equity Analyst Carmen Lipara Ioan Mincu Laura Simion, CFA (40 ) 213 014 370 (40 ) 213 01 4 472 (40) 213 014 370 [email protected] george.mincu [email protected] [email protected]

SG GLOBAL ECONOMICS RESEARCH Head of Global Economics Klaus Baader (852) 2166 4095 [email protected]

Euro area United Kingdom Michel Martinez Anatoli Annenkov Yvan Mamalet Brian Hilliard (33) 1 42 13 3421 (44) 20 7762 4676 (44) 20 7762 5665 (44 ) 20 7676 7165 [email protected] anatoli.ann [email protected] yvan.mamalet @sgcib.com [email protected] North America Latin America India Stephen Gallagher Omair Sharif Dev Ashish Kunal Kumar Kundu (212) 278 4496 (1) 212 278 48 29 (91) 80 2802 4381 (9 1) 80 6716 8266 [email protected] [email protected] [email protected] [email protected]

China Japan Korea Wei Yao Takuji Aida Arata Oto Suktae Oh (33) 1 57 29 69 60 (81) 3 -6777 -806 3 (81) 3 6777 8064 (82) 2195 7430 [email protected] takuji.aida @sgcib.com [email protected] suktae.oh @sgcib.com

SG CROSS ASSET RESEARCH – FIXED INCOME & FOREX GROUPS Global Head of Research Brigitte Richard -Hidden (33) 1 42 13 78 46 brigitte.richard [email protected]

Head of Fixed Income & Forex Strategy Guy Stear (33) 1 41 13 63 99 guy.stear @sgcib.com

Head of Retes Strategy Adam Kurpiel Bruno Braizinha Jean -David Cirotteau Cristina Costa (33) 1 42 13 63 42 (1) 212 278 5296 (33) 1 42 13 72 52 (33) 1 58 98 51 71 [email protected] bruno.brai [email protected] jean [email protected] [email protected] Head of Euro Area Rates Strategy Head of US Rates Strategy Jorge Garayo Ciaran O'Hagan Shakeeb Hulikatti Subadra Rajappa (44) 20 7676 7404 (33) 1 42 13 58 60 (91) 80 2802 4380 (1) 212 278 5241 [email protected] [email protected] [email protected] [email protected]

Jason Simpson Marc -Henri Thoumin Kevin Ferret (44) 20 7676 7580 (44) 20 7676 7770 (44 ) 20 7676 7073 [email protected] marc [email protected] [email protected]

Foreign Exchange FX Der ivatives Strategy Kit Juckes Olivier Korber Alvin T. Tan (44) 20 7676 7972 (33) 1 42 13 32 88 (44) 20 7676 7971 [email protected] [email protected] alvin [email protected]

Head of Emerging Markets Strategy Jason Daw (65) 6326 7890 [email protected]

Régis Chatellier Phoenix Kalen Kiyong Seong Marek Dřímal (44) 20 7676 7354 (44) 20 7676 7305 (852) 2166 4658 (44) 20 7550 2395 [email protected] [email protected] [email protected] [email protected]

Bertrand Delgado +1 212 278 6918 [email protected]