IBERIA
2 November 2012 EQUITY RESEARCH
TOP STORIES
Galp-British Gas (BG) made some comments regarding Lula NE (a consortium in which Galp participates). BG said that the FPSO Cidade Paraty is due to come on stream later in 2013, two quarters later than Galp had disclosed two days ago (2Q13), meaning that BG is more pessimistic regarding schedule. If we were to consider one-year delay, the impact will be not meaningful (only 3 cents). (page 15). EDP - The Portuguese Government has approved the 7th privatization (corresponding to 4,144% of EDP’s share capital). If institutional investors decide to buy this stake, we believe a discount over EDP’s current
price will be demanded. On the other hand, if China Three Gorges decides to increase its stake (it currently owns 21.35% and could increase up to 25%, which is the limit of voting rights), the pressure over this share will be reduced (page 10). OUT THIS WEEK Earnings Comment – Sonaecom, Impresa, Media Capital, Novabase, Semapa, Galp Energia Other Snapshots/Company Reports – Portugal Telecom, Retail Sector Price Target / Recommendation Changes – EDP, EDP Renováveis, Semapa, Mota-Engil Other News – Banco Popular & Bankinter, BES, Telefónica, Portugal Telecom, EDP, Retail Setor, Mota-Engil, Galp Energia WEEK AHEAD Monday – BCP’s 3Q12 Earnings; Impresa`s 3Q12 Conference Call Tuesday - EDP’s 3Q12 Earnings; EDPR’s 3Q12 Earnings; Sonae Sierra’s 3Q12 Earnings Wednesday – Telefónica’s 3Q12 Earnings; Altri’s 3Q12 Earnings Thursday – REN’s 3Q12 Earnings; Portugal Telecom’s 3Q12 Trading Update; Cofina’s 3Q12 Earnings Friday – Zon Multimedia’s 3Q12 Earnings: REN’s Investor day PORTFOLIOS
This week, Mib Aggressive Portfolio went up 1.56%, outperforming the PSI20 by 1.69pp. Excluding
Sonae Industria, all stocks contributed for this outperformance (page 17).
WEEKLY This week, Mib Liquidity Portfolio went down 0.01%, outperforming the PSI20 by 0.12pp. Excluding EDPR and Galp Energia all the stocks contributed for this outperformance (page 18). Stock Market Last 1W YTD 2011 Daily Vol. (€mn) 1W 1M 6M 2011 PSI 20 5,384 -0.13% -2.01% -27.60% PSI 20 52 77 58 148 António Seladas, CFA IBEX 35 7,969 2.49% -6.97% -13.11% IBEX 35 2,027 2,915 2,588 4,925 +351 21 003 7826 Euro Stoxx 50 2,547 2.05% 9.95% -5.56% Euro Stoxx 50 6,019 7,769 7,968 14,831
[email protected] Forex Rates Last 1W YTD 2011 Interest Rates Last 1W Chg YE11 EUR/USD 1.29 -0.45% -0.69% -3.17% Euribor 6m 0.39% 0.40% -1bp 1.62%
EUR/GBP 0.80 0.05% -4.03% -2.96% 10Y Bond PT 8.45% 8.08% 37bp 13.36% EUR/BRL 2.61 -0.38% 8.06% 8.86% 10Y Bond SP 5.66% 5.59% 7bp 5.09%
Best & Worse Performers -1 Week (%) Best & Worse Performers - YTD (%)
Zon Multimedia 7.1 BPI 83.3 Av. José Malhoa, Lote 27 Sonaecom 5.7 Mota-Engil 26.6 Novabase 4.0 Sonae 25.9 1099-010 Lisboa Brisa 3.5 Portucel 17.1 Tel / Fax: +351 21 003 7800 / 09 Altri 2.1 Altri 15.7 Cofina -3.3 Cimpor -37.7 Galp Energia -3.3 Cofina -38.3
Sonae Industria -3.3 Sonae Capital -44.4 Mota-Engil -4.8 Martifer -44.4 Cimpor -6.2 Banco Popular -64.9 -10 -5 0 5 10 -95-65-35-5255585
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All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the second last page.
Millennium investment banking Weekly 2 November 2012
CHANGES New Previous Motive Rating Target Rating Target
EDP Buy 2.80 Buy 2.85 Moving Valuation to YE13
EDP Renováveis Buy 5.30 Buy 5.30 Moving Valuation to YE13
Semapa Buy 8.20 Neutral 5.35 Moving Valuation to YE13
Mota-Engil Buy 1.50 Neutral 1.50 Price Performance
EARNINGS
Company 3Q2012 Investor Day
Galp Energia ** 12-10 BM Bankinter 18-10 BM Portucel 22-10 AM BPI 24-10 AM Iberdrola 24-10 BM Jerónimo Martins 25-10 BM 11-12-2012 Banco Popular 26-10 BM Media Capital 26-10 AM Galp Energia 29-10 BM 06-03-2012 Novabase 30-10 AM Semapa 30-10 AM Sonaecom 30-10 AM 15-06-2012 Impresa 31-10 AM Brisa 31-10 AM BCP 05-11 AM EDP 06-11 AM 25-05-2012 Sonae Sierra 06-11 AM EDP Renováveis 06-11 BM 24-05-2012 Telefónica 07-11 BM Altri 07-11 AM REN 08-11 AM 09-11-2012 Portugal Telecom** 08-11 BM Cofina 08-11 AM Zon Multimedia 09-11 BM BES 13-11 AM Glintt 13-11 AM Cimpor 13-11 BM Sonae 14-11 AM Indra 15-11 AM Martifer 15-11 AM Sonae Capital 15-11 AM Sonae Indústria 16-11 AM Ibersol 19-11 AM Mota-Engil 21-11 AM Portugal Telecom 30-11 BM ESFG n.a. Soares da Costa n.a. SAG n.a. AM - After market; BM - Before market; n.a. - Not available; (e) Expected; ** Trading update
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NEXT WEEK RESULTS Telefónica Buy – Medium Risk (Target YE12: €16.95 Alexandra Delgado, CFA 3Q12 Earnings Preview Equity Analyst Sales YoY OIBDA YoY Op. Income YoY Net Profit YoY
15,613 -1.1% 5,487 86.3% 3,040 773.5% 1,531 N/A Telefónica will release 3Q12 Earnings next Wednesday, November 7th, before the market opening. A conference call will be held that day, at 1.00 pm (GMT). We estimate €15,613 mn revenues in the quarter, -1.1% vs. 3Q11. Accelerated organic growth in Latin America should be offset by a weak performance in Europe. We estimate OIBDA in the quarter of €5,487 mn (-2.3% YoY if we exclude €2,671 mn of workforce restructuring expenses booked in 3Q11) with lower OIBDA in Europe (-12.5% YoY excluding restructuring expenses) not being offset by OIBDA growth in Latin America (+9.0% YoY). OIBDA margin in the quarter is estimated to be 35.1%, 0.4pp lower than margin in 3Q11 (adjusted by restructuring expenses mentioned above). Finally, we estimate Net profit to reach €1,531 mn (+6.3% YoY, if we exclude the €1,870 mn net of taxes impact of the workforce restructuring plan), on the back of lower D&A and lower net financial expenses.
Portugal Telecom Buy – Medium Risk (Target YE12: €6.00) Alexandra Delgado, CFA 3Q12 Trading Update Preview Equity Analyst Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
1,590 -9.0% 550 -15.9% 191 -27.5% 62 -31% Portugal Telecom will release a trading update on 3Q12 Earnings next Thursday, November 8th, before the market opening. A conference call will be held that day, at 4.00 pm (GMT). Brazilian Oi will release its 3Q12 Earnings on November 13th, after the market close, and PT will disclose its 3Q12 Consolidated results on Friday, November 30th 2012, before the market opening. We estimate €1,590 mn of consolidated revenues in the quarter and an EBITDA excluding PRBs of €550 mn. In terms of consolidated net income we expect the company to reach €62 mn in the quarter. The trading update next week will exclude the proportional consolidation of Oi and Contax. We estimate revenues in Portugal should fall 5.6% YoY in the quarter, with a growing residential segment not offsetting the weakness in the personal, enterprise and wholesale segments. We estimate EBITDA margin in Portugal to come down 1.1pp vs. 3Q11 to 44.0%, leading EBITDA to drop 8.0%.
Zon Multimedia Buy – Medium Risk (Target YE13: €3.20) Alexandra Delgado, CFA 3Q12 Earnings Preview Equity Analyst Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
213.4 -0.1% 78.3 -1.6% 24.5 3.8% 9.8 8% Zon Multimedia will release 3Q12 Earnings next Friday, November 9th, before the market opening. For 3Q12 we estimate revenues to be stable YoY, with African business consolidation offsetting pressured domestic topline. We forecast revenues in Portugal to decline by 4.0% YoY, with Triple Play dropping 2.0% and Audiovisual 9.0%. Triple play should continue to be affected by lower consumer spending, particularly on the premium side. We expect the challenging economic environment to result in a worsening trend vs. previous quarter: -2.0% YoY in 3Q12 compares to a very positive -0.3% YoY in 2Q12. Accordingly, we’re also estimating the trend in Audiovisuals to deteriorate: we forecast a 9.0% YoY decline, which compares to -8.1% in 2Q12. We expect EBITDA to reach €78.3 mn, which stands for a Page 3 of 21
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margin of 36.7%. Margin declines due to consolidation of Angolan business; for Portugal we estimate margin should advance by 0.4pp on a YoY basis to 37.6%. Net profit should increase YoY, due to Zap’s improved profitability offsetting higher interests.
Cofina Reduce – High Risk (TargetYE13: €0.51) João Flores, 3Q12 Earnings Preview Equity Analyst Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
30.0 -7.0% 5.0 -6.0% 4.2 -4.0% 1.9 nm Cofina will disclose its 3Q12 Earnings on November 08th, after market close. We expect operational revenues will show resilience (reducing pace of decline) in an increasingly tough media market (both In advertising and circulation) reflecting costs control policy.
EDP Buy – Low Risk (Target YE13: €2.80) Vanda Mesquita, 3Q12 Earnings Preview Equity Analyst Gross Profit YoY EBITDA YoY EBIT YoY Net Profit YoY
1,317 2% 811 -7% 430 -21% 169 -21% EDP will release its 3Q12 on 6th November after the market closing. According to our expectations, gross profit for 3Q12 should increase by 2% YoY and EBITDA 3Q12 should decrease by 7% YoY. Like the previous quarter, wind activities should be the main driver of this set of results. Net Profit should drop to €169mn vis-à-vis €215mn in the same period of the previous year mainly due to higher financial costs (as a consequence of a higher financial debt).
EDP Renováveis Buy – Low Risk (Target YE13: €5.30) Vanda Mesquita, 3Q12 Earnings Preview Equity Analyst Gross Profit YoY EBITDA YoY EBIT YoY Net Profit YoY
240 8% 153 10% 42 2% -29 7% EDPR will release its 3Q12 earnings on 6th November before the market opening. According to our expectations, EBITDA for 3Q12 should rise by 10% YoY, on the back of a higher production (+8% YoY) and higher prices. Net income should be negative (as usual in the 3Q), because this quarter is the weakest one in terms of EBITDA due to the lower load factors.
REN Buy – Low Risk (Target YE13: €2.60) Vanda Mesquita 3Q12 Earnings Preview Equity Analyst Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
207.5 -7% 128.5 12% 82.1 19% 32.5 18% REN will release its 3Q12 on November, 8th after the market close. EBITDA for 3Q12 should post an increase of 12% YoY on the back of a higher rate of return for electricity assets compared to the same period in the previous year and also a higher regulatory asset base. Net financial costs should jump to €36.6mn in 3Q12 from €25.2mn in 3Q11 not only due to the rise of debt, but also due to a higher cost of funding. REN should report a 18.5% YoY rise in net profit. The company
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will host an Investor Day on 9th November, one day after the release of 3Q12 earnings. As previously mentioned, we expect this event to give us a further insight on the strategic partnerships with State Grid International Development and Oman Oil Company, the new capex plan, the future dividend policy and also about its internationalization strategy.
FINANCIALS Banco Popular Neutral – High Risk (Target YE13: €1.55) Bankinter Reduce – High Risk (Target YE12: €3.10) Bad Bank - Prices similar to OW base-case scenario and possible only Rita Silva; after both RD’s haircuts Equity Analyst Details of the Bad Bank have been disclosed yesterday afternoon. It doesn’t seem that significant haircuts will be applied to assets that will be transferred to the bad bank as they will be similar to the net value after the impairments of the 2 Royal Decrees are fully charged, that are also similar to the OW base-case scenario. Therefore, the transparency and clarity it will bring to Spanish RE assets should be well received. We recall that Bankinter has no intention to transfer assets to the bad bank and that Banco Popular is applying the worst-case OW scenario in its provisioning effort, expected to be completed after the capital increase. The transfer value will follow two steps: (1) firstly, the economic value will be calculated taking into consideration the expected losses in the baseline scenario of the bottom-up exercise performed by Oliver Wyman, and thus very close to the net value of the assets after having applied Royal Decrees 24/2012 and 18/2012 (that have to be concluded before any asset transfer); (2) secondly, a discount will be applied to the estimate of economic value that will depend on aspects such as: the en bloc acquisition of the assets; the consideration of certain expenses borne by the banks' income statements which must now be assumed by the company (asset management and administration costs, financial costs); the outlook for the timing of the divestment of the assets transferred to the company; and other factors that affect the viability of and the risks involved in the specific activity of bad bank. As such, transfer prices cannot be used to value bank assets that have not been transferred to the bad bank. The transfer value will have an average discount of 63% on the gross book value of foreclosed assets. By asset type: the discount is 79.5% for land; 63.2% for unfinished developments and 54.2% for finished housing. The average discount in the case of loans to developers is 45.6%, including haircuts of 32.4% for finished projects and 53.6% for loans to finance urban land. Other details: The own funds of the bad bank will be approximately 8% of the volume of total assets and its capital structure will consist of a non-majority holding of the FROB and a majority holding by private investors. A portion of the own funds may be in the form of subordinated bonds. In exchange for the assets contributed, the banks may receive bonds issued by the company and guaranteed by the State. The volume of assets to be transferred to the bad bank will not exceed €90 billion.
BES Buy – High Risk (Target YE13: €0.95) Rita Silva; BES kickstarts wholesale markets Equity Analyst BES has issued €750mn senior unsecured debt, with a 3-year maturity and a coupon of 5,875%. The order book reached about €2.7bn. Although this type of non State guaranteed issue has a higher cost associated (although not significant given the size of the issue), its success reveals the bank's ability to issue in a wholesale market that has been "closed" for several years - which is quite positive.
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TELECOMS Telefónica Buy – Medium Risk (Target YE12: €16.95 Telefónica completes Telefónica Germany IPO at €5.60/ share and Alexandra Delgado, CFA sells 50% of Rumbo Equity Analyst Telefónica has completed the IPO of its German unit this week. It has sold 23.17% of Telefónica Germany capital (258.75 million shares) at €5.60/ share, raising €1.449 million. At this price, Telefónica Germany enterprise value is €7.4 billion and equity is €6.3 bn. The operation was completed at a 5.2x EV/EBITDA multiple, considering our estimate for EBITDA in 2013. Telefónica Germany started trading in Frankfurt stock exchange on Wednesday. We remind that the initial price range for the IPO was between €5.25 and €6.50/ share, which stands for an EV/EBITDA 2013E multiple between 5.0x and 6.0x. The fact that the deal was executed at the lower half of the initial interval shows that market conditions are challenging, but that the company remains fully committed to its goal to reduce debt. According to Bloomberg today, Telefónica will also sell its 50% stake in online travel agency Rumbo to Swiss tourism company Bravofly. Bravofly will buy Telefónica’s 50% stake plus travel operator Orizonia 50% stake, in a deal worth about €74 million. The Spanish operator had announced the intention to sell Rumbo, a non-strategic asset, back in May.
Telefónica to swap €2 billion preferred shares for shares and newly issued bonds Telefónica launched Wednesday an offer to swap €2 billion in preferred shares for common equity (shares held as treasury stock) and for bonds (2022 bonds with 4.185% coupon). Telefónica offers to buy 100% of nominal value of preferred shares in cash, if investors use 60% of money to buy newly issued bonds and 40% of money to buy shares. If all holders accept the offer, Telefónica’s debt will be reduced by €800 million (40% of €2 billion), as preferred shares are considered debt. The acceptance period of the offer begins on November 5th and ends on November 23th. Telefónica issued the preferred shares in December 2002, which were non-callable for 10 years. Telefónica pays a dividend on these instruments of 3-month Euribor, with a floor at 4.25% and cap at 7%, up to December 30th 2012, changing to Euribor plus 400bp as of 2013. This remuneration is now considered too high considering that ordinary shares will not receive dividend in 2013 in an effort to reduce debt. This offer should help Telefónica lower its debt and its financing costs and should therefore be well received by investors.
Portugal Telecom Buy – Medium Risk (Target YE12: €6.00) Citic confirms conversations with all CTM shareholders, Alexandra Delgado, CFA including PT Equity Analyst According to news published by Portuguese newspaper Diário Económico, Citic’s CEO has confirmed that the company is talking to all CTM shareholders, including PT. We remind that Cable & Wireless Communications (CWC) has issued a statement on October 17th confirming it was in discussions with Citic Telecom International, controlled by the Chinese state, regarding a potential sale of its 51% stake in Companhia de Telecomunicações de Macau (CTM). According to the press, the deal could raise between $600 and $650 million. CTM is the only fixed-line provider in Macau and the leading mobile player. Cable & Wireless Communications holds 51% of CTM’s capital, Portugal Telecom has 28%, Citic has 20% and Macau Post 1%. We estimate a value of €205 million for the 28% stake that Portugal Telecom holds in CTM, that stands for a 5x EV/EBITDA 2012E multiple. The value between $600 and $650 million for a stake of 51% implies a value between €251 and €272 million for the 28% stake, above our €205 million estimate. Therefore, as we said 2 weeks ago, the sale at these prices will have a positive impact Page 6 of 21
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between €0.05 and €0.10/ share on our price target for PT. CTM is not a strategic asset for PT, as other African businesses, so we wouldn’t be surprised if PT takes this opportunity to sell its stake along with CWC, thus monetizing this asset and taking the proceeds to reduce debt.
Technology & Innovation Conference - Laying the basis for the future . PT’s core message in its Technology and Innovation Conference revolved around three main ideas: first, that the company has invested significantly in network and infrastructure (FTTH, 4G, data centre), second, that this investment sets the base for revenue growth, and third, that new technology and business transformation allows significant cost and capex reduction. The focus was on technology and no financial guidance was provided. . In terms of network & infrastructure, the company stressed: current 1.6 mn households passed with FTTH ( 46% of population / 70% of GDP); planned 4G coverage of 90% of population by YE; significant investment in backhaul; and construction of new data centre. . In B2C, the company highlighted it has still opportunities to grow in Pay TV (penetration increase and mkt share gain), Broadband (penetration increase) and in mobile (smartphone adoption increase). PT has invested in differentiating its Pay TV product from competition and expects to be able in the future to translate this into a premium price. . In B2B, PT is moving from connectivity to IT/IS services (cloud, outsourcing, BPO). The goal is to increase share of wallet of ICT spending. PT says it expects IT/IS plus outsourcing plus managed services to surpass 50% of corporate revenues in the future (25% in 2011). . Network and IT investment is having a positive effect on IT costs: between 2009 and 2012, IT opex is down 17% and IT capex is down 9%. . PT showcased its innovation drive and ambition in this conference. It has invested in its network, in simplifying its processes and in providing a superior customer experience. It is stretching into ICT and cloud services in order to move away from connectivity. However domestically, growth is more dependent on economic recovery, so PT focused on showing the market that leaner operations and new generation networks are driving efficiency. . In summary, PT has a solid strategy and is well prepared for the future. This is true for the domestic market, but the real potential is the possibility to launch similar services & transformation in Brazilian Oi, moving from a 10.6 mn to a 194 mn inhabitants market. (For further details, please refer to our snapshot out this week)
Sonaecom Buy – High Risk (Target YE13: €2.40) Alexandra Delgado; CFA 3Q12 Earnings Highlights – EBITDA growth doesn’t slowdown Equity Analyst . Sonaecom announced its 3Q12 earnings this week. EBITDA was better than we expected (5% above) on the back of better margin from mobile and SSI. . Revenues dropped 6.6% YoY in 3Q12 to €211.9 mn. Still, consolidated EBITDA grew 6.0%, to €66.5 mn. . Mobile revenues reached €143.9 mn in 3Q, dropping 8.4% YoY. Customer revenues declined 6.9% YoY, a slight deterioration in trend vs. previous quarters (-6.4% YoY in 2Q12) with austerity measures further impacting consumer spending. Operator revenues continue to decline sharply (- 18.9%) on the back of lower mobile termination rates. On a positive note, EBITDA margin continues to expand at a good pace: +5.6pp YoY to 43.0%. . Wireline revenue dropped 6.7% YoY in the quarter. Customer revenues YoY decline worsened (- 14.2% YoY vs. -11.5% YoY in 2Q12) and the company continues to lose accesses (-10k both in 3Q12 & 2Q12). On a positive note, operator revenues remained relatively stable (-1.0%) and EBITDA still grew 4.2% YoY despite topline weakness.
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. SSI top line increased 1.6% YoY in 3Q12 on the back of service revenue growth (+20.4%, +4% LfL) offsetting -32% of equipment sales. EBITDA margin in 3Q12 was 9.5%, +3.4pp YoY. . Media’s (Público) business remains quite pressured, with a negative EBITDA of -€1.8 mn in 3Q12 (- €3.15 mn in 9M12). . Quarterly results were positive. EBITDA continues to grow (+6.0% in 3Q) in every business but Media, despite pressured topline. In accumulated terms, EBITDA is up by €10.7 mn in 9M12. Operating CF continues strong at €90.3 mn in 9M12, despite higher capex with 4G deployment (+23%). (For further details, please refer to our company update out this week)
3Q12 Earnings Comment – EBITDA growth doesn’t slowdown (II) . Revenues dropped 6.6% YoY in 3Q12 to €211.9 mn (-5.0% in 9M12). Still, consolidated EBITDA grew 5.8% YoY in 3Q12 (+6.0% in 9M12). . In mobile, customer revenues dropped 6.9% YoY in 3Q12, showing a worse trend than in previous quarter (-6.4% YoY in 2Q12) with austerity measures further impacting consumer spending. But EBITDA margin continues to expand at a good pace: +5.6pp YoY to 43.0%. . Wireline revenue dropped 6.7% YoY in the quarter, with a worsening customer revenues trend (- 14.2% YoY vs. -11.5% YoY in 2Q12). On a positive note, operator revenues remained relatively stable (-1.0%) and EBITDA grew 4.2% YoY despite topline weakness. . In the conference call, management acknowledged the challenging macro environment but said it believes the company will be able to maintain positive momentum. . Management also believes current margin is sustainable and that there are still efficiency gains to be achieved. There is a limit to efficiency gains, but they are not there yet. Management doesn’t know how much austerity measures will impact consumption. If impact on consumption is moderate, then EBITDA is sustainable. If impact is more severe, then EBITDA will be hit. . Quarterly results were positive. EBITDA continues to grow (+5.8% in 3Q) in every business but Media, despite pressured topline. In accumulated terms, EBITDA is up by €10.7 mn in 9M12. Operating CF continues strong at €90.3 mn in 9M12, despite higher capex with 4G deployment (+23%). Next quarters will be definitely hard on the revenue side, but the company’s track record in terms of efficiency gives us confidence EBITDA will suffer less. . We maintain the price target for Sonaecom at €2.40 (YE13), with a Buy, High Risk recommendation. (For further details, please refer to our company update out this week)
MEDIA Impresa Buy – High Risk (Target YE13: €55) 3Q12 Earnings Comment – EBITDA penalized by decline in TV João Flores, advertising Equity Analyst . Impresa published this week its 3Q12 figures. Company will held a conference call on November 5th, at 10:00 am, Lisbon time. We will update our view after CC. Overall, EBITDA was penalized by a higher than expected decline in TV advertising revenues, thus additional cost cutting measures are crucial. . Revenues declined 9% YoY to €51.0mn (€53.2mn estimated), reflecting a tough environment in all business areas (advertising declined 14% YoY, circulation dropped 11% YoY). Costs declined 6% YoY to €49.2mn (below estimated €49.9mn), thus EBITDA was lower than expected (declined 51% YoY to €1.7mn vs estimated €3.4mn). . In TV segment, adverting declined 11% YoY to €17.3mn (€18.5mn estimated) while thematic channels and others revenues slightly rose (in line with estimated). Revenues in TV segment declined 4% YoY to €34.3mn (below estimated €35.6mn). We highlight advertising increased pace of decline (from 7% in 2Q12 to 11%). Costs were slightly higher than
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estimated (kept unchanged YoY to €32.4mn vs €32.0mn estimated). EBITDA dropped 43% YoY to €1.9mn (vs estimated €3.6mn). . Revenues in Publishing unit declined 17% YoY to €16.0mn (estimated €17.0mn) penalized by strong decline in advertising (-21% YoY) and circulation (-11% YoY). Costs declined 14% YoY to €16.3mn vs estimated €17.1mn). . Below EBITDA, depreciations were in line with estimates while financials costs were slightly higher than expected (-€3.5mn vs -€3.1mn). Net debt reached €219mn (-€14mn YoY). Estimated YE12 is €221Mn (€10mn decline). . All in all, Impresa will need additional costs cutting measures. According to the news, Impresa reduced its Press portfolio in October, two sites were closed and cost cutting will reach central departments (financial/accounting, marketing,…). . Based on Impresa`s latest restructuring charges (2010) and newsflow, we estimate in our valuation, numbers could reach €2.0Bn to €2.5Bn in 4Q12 while costs cutting (per year) from 2013 could reach €1.5bn to €2.0bn. (For further details, please refer to our snapshot out this week)
Media Capital Unrated (Target YE13: €2.15) João Flores, 3Q12 Earnings Comment - Value added calls = Value added EBITDA Equity Analyst . Media Capital disclosed 3Q12 earnings last Friday. . Overall, TV other revenues were the big (positive) surprise) while other segments were broadly in line with estimates. We highlight advertising revenues slightly increased pace of decline, not benefiting from a more favorable comparison basis. . Revenues declined 16% YoY in 3Q12 to €41.2mn (vs €37.6mn estimated) penalized by strong declines in Audiovisual and Entertainment. . TV revenues reduced pace of decline to 2% YoY (€31.8mn vs €30.1mn estimated), strongly benefiting from positive surprise in other revenues (+76% YoY to €12.2mn vs estimated €8.1mn, reflecting value added calls in game shows, multimedia services,…) which offset negative surprise in advertising revenues (declined 23% YoY to €19.6mn vs estimated €22.0mn). FTA advertising market is expected to decline 22% YoY in 3rd quarter while Cable reached minus 12% YoY. . Radio advertising revenues dropped 14% YoY to €2.8mn (below estimated €3.2mn). Radio advertising market is expected to decline 24% YoY in 3rd quarter. . Costs were slightly higher estimated (declined 23% YoY to €34.1mn vs estimated €33.7mn) reflecting strong cost cutting measures and lower activity in Audiovisual and Entertainment. . EBITDA rose 45% YoY to €7.1mn (above estimated €3.9mn), benefiting from strong numbers in TV other revenues (value added calls), thus EBITDA Margin recovered to 17.1% (+7.2pp YoY) above estimated 10.3%. . Below operational numbers, D&A were in line with estimates while net financials costs were higher than expected (€-2.3mn vs -€1.8mn), penalized by higher interest costs. . Net income reached €1.4mn (above minus €0.7mn estimated). (For further details, please refer to our snapshot out last Friday)
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TECHNOLOGY Novabase Buy – High Risk (TargetYE13: €4.10) 3Q12 Earnings Comment - EBITDA on track and very positive cash Alexandra Delgado, CFA generation Equity Analyst . Novabase disclosed its 3Q12 earnings today, after the market close. 3Q12 Earnings showed significant pressure on domestic topline, as in previous quarters, but EBITDA was slightly above our estimates. . Revenues in 3Q12 dropped 11.9% (-9.8% in 9M12) due to the sharp contraction of third party product sales in Portugal, as seen by IMS performance (-26.1% YoY in 9M12). Business Solutions performance remains positive, with revenues growing 9.3% YoY in 9M12. . Revenues in Portugal dropped 12.5% YoY in 3Q12 (-22.0% in 9M12) due to very challenging environment. International business grew 43.2% in 9M12, accounting for 30% of consolidated revenues in that period. . EBITDA was €4.0mn, meaning 8.5% margin (+1.9pp YoY). The positive performance in terms of EBITDA (+22% in 9M12) is a result of restructuring in Portugal in 4Q11. EBITDA in 9M12 stands for 81% of annual guidance (middle of the range). . Net profit reached €1.5mn in 3Q12 (+27.9% YoY) on the back of higher EBITDA. Net cash grew to €25.8 mn (€11.1mn by the end of 2011) which is very positive under current environment. . Management expects 2013 to be quite challenging in the domestic business and recognizes they cannot boost margins on the back of restructuring like in the current year. . Questioned on the possibility of an extraordinary dividend next year, the CEO said that if he would have to make a decision today, he would not propose an extraordinary dividend. This is due to current macro environment, but also with the fact that the company is considering being more aggressive in terms of internationalization, which will require more investment. . All in all, 3Q12 earnings were positive, with EBITDA on track with guidance and a very positive cash generation. We therefore remain comfortable with our estimates. We maintain the price target for Novabase at €4.10 (YE13), with a Buy, High Risk recommendation. (For further details, please refer to our snapshot out this week)
UTILITIES EDP Buy – Low Risk (Target YE13: €2.80) Vanda Mesquita, Parpública to sell EDP’s shares Equity Analyst The Portuguese Government has approved the 7th privatization of EDP on Wednesday. We recall that in December 2007, Parpública had issued an exchangeable bond linked to 151,517,000 shares in EDP, which represents 4,144% of EDP’s share capital. The value of this issue amounted to € 1,015,150,000, the exchange price was set at € 6.70 and the coupon price was set at 3.25%. This exchangeable bond issue is due to expire on December 18, 2014, but investors have the option to be reimbursed on the 5th anniversary of the closing (i.e. December 18, 2012). The Portuguese Government said that those shares might be sold through one or more direct sales to domestic or foreign investors and that it can be done through an accelerated bookbuilding or through block trade (one or more blocks). If investors decide to be reimbursed, which is a scenario that is likely to occur due to the low interest rate, Parpública will receive the aforesaid EDP’s shares. If institutional investors decide to buy this minority stake (only 4.14%), we believe that a discount over EDP’s current price will be demanded and consequently EDP’s share will be under pressure. On the other hand, if China Three Gorges (CTG) decides to increase its stake (it currently owns 21.35% of EDP’s shares and could increase up to 25%, which is the limit of voting rights), the pressure over this share will be reduced. Following the completion of this sale, Parpública will conclude EDP’s privatization and its stake in EDP will be reduced to zero. The sale may occur from mid-December onwards (at the 5th anniversary of the issue). Due to the Christmas
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season, we believe that it will be difficult to complete the process until year-end, unless this sale is prepared in advance (in this case CTG being the acquirer). If CTG decides to buy this stake, it will be interesting to know the price. We remind that CGT paid €3.45 per share last December and that the last 6-month average trading is €1.967. Finally, we would like to highlight that the price of this sale will be a reference price for future sales. As previously mentioned (please refer to our company update CTG speeds up deleveraging and regulatory receivable slows it down released on 30th October) we believe that some shareholders (namely the Spanish ones), pressured by the current economic crisis, may sell their stakes in EDP.
Valuation Update – CTG speeds up deleveraging and regulatory receivable slows it down . Following estimates fine-tuning, we value EDP at €2.80 per share (YE13), slightly revised downwards from our previous estimates (€2.85 per share YE12), keeping our buy recommendation (Low risk) unchanged. Adjustments to our price target came from the roll over to 2013 (+20 cents), the downward revision of 10-year Portuguese Government Bond yield to 10% from 11% (+5 cents), the update of estimates (-25 cents) and the update of Energias do Brazil’s market value (-5 cents). . Attention (at the holding level) currently lies on (i) the evolution of regulatory receivables and also (ii) share overhang risk on some EDP’s shareholders (namely the Spanish shareholders) that pressured by the current economic crisis may sell their stake. At the renewable subsidiary level, we expect further news about (iii) the acquisition of minority stakes in wind parks by China Three Gorges and (iv) the decision about the renewal of the production tax credit (PTC) for wind energy in the US (the decision is expected to be unveiled until the end of this year). . We see EDP focused on deleveraging (company’s target of Net Debt to EBITDA 2015 excluding regulatory receivables below 3x), although at a lesser degree than other European utilities that are announcing a massive sale of assets to accelerate deleveraging. We believe that the difference in the aggressiveness can be explained by the strategic partnership with CTG that will help EDP to lower its net debt by €2bn (CTG plans to invest €2bn until 2015 in 1500MW, 900MW of which in capacity under operation and the remaining MW in projects under construction). However, the evolution of debt will be conditioned by the evolution of regulatory receivables in Portugal. We believe these will tend to be higher, at least until the market becomes completely liberalized. According to our estimates, Net Debt to EBITDA should fall to 4.1x in 2015 vis-à-vis 4.5x in 2011. If we were to exclude regulatory receivables and also take into account the aforesaid partnership with CTG, Net Debt to EBITDA in 2015 should drop to 3.1x (close to EDP’s target). (For further details, please refer to our company update out this week)
EDP Renováveis Buy – Low Risk (Target YE13: €5.30) Vanda Mesquita, Valuation Update – Awaiting for PTC renewal Equity Analyst . Following estimates fine-tuning, we value EDPR at €5.30 per share (YE13), keeping our price target and our buy recommendation (Low risk) unchanged. While the roll over to 2013 added 25 cents to our valuation, the update of estimates cut 30 cents. The downward revision of 10-year Portuguese Government bond yield to 10% from 11% reduced WACC estimates and added 5 cents to our valuation. . Main events in the near future include the acquisition of minority stakes in wind parks by China Three Gorges and also the decision about the renewal of the PTC (production tax credit) for wind energy in the United States (the decision is expected to be unveiled until the end of this year). While the acquisition of minority stakes will help to crystallize value of the wind parks under operation, the extension of the fiscal benefits will determine EDPR’s future investments in the US. . Despite the renewable sector being under pressure (due to tariff revisions in some European countries), it seems that everything is falling into place, as the majority of the questions regarding the capacity under operation have been recently clarified. In September, there was the announcement of the new tariff scheme in Portugal that extended the regulatory framework from 15
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years to 20-22 years. The announcement of the measures to tackle the generation of further tariff deficits in Spain were also made in September, in which a 6% sales tax on all generation technologies was included. Both measures helped to reduce uncertainty substantially. . Growth should be focused on EDPR’s current markets such as Poland, Romania and Brazil, but also on new markets offering good opportunities and new technologies, including offshore and solar. In the US, another of the current core markets, the approval of the fiscal benefits remains a big question mark. If EDPR decided to cancel all the projects in the US, our price target will drop by 20 cents to €5.10. (For further details, please refer to our company update out this week)
CONGLOMERATE Semapa Buy – High Risk (Target YE13: €8.20) 3Q12 Earnings Comment - Efficiency gains vs weak market and difficult João Mateus; logistics Equity Analyst . Semapa released this week 3Q12 earnings. We maintain our valuation of Semapa at €8.20 per share for the YE13, with a buy, high-risk recommendation. All in all, the positive trend in pulp and paper prices and efficiency gains in both Portucel and Secil, will have to stand against a decreasing domestic cement market, and possible further worsening of logistics costs. . In the 3Q12, EBITDAP came 11% over our estimate, on a 6.6pp positive deviation in Secil’s margin, mainly from a sharp recovery of margin in Lebanon and a more moderate fall in Portugal. Consolidated EBITDAP came 18% higher YoY with an almost 1pp recovery in margin on the back of a 7.8% recovery (+1.2pp) in Portucel and a 54.5% increase in Secil (-1.6pp). The YoY recovery in Secil is mainly explainable by the acquisition of the 49% stake and the QoQ recovery of 7pp by the strong margin recovery in Lebanon, with a little help from efficiency gains in Portugal. . The top-line in the 3Q12 came relatively in line with our estimate (-0.7%) and 13.6% higher YoY, mainly on the consolidation effect resulting from the acquisition of 49% of Secil (+68%). The QoQ fall of 5.9% in Secil came on the back of the decrease in sales for the domestic market, not offset by the increase in export sales, in Tunisia and in Lebanon. ETSA represented less than 2% of Semapa’s top line and slightly more than 2% of Semapa’s EBITDAP in the 3Q12. . Net financial costs increased 50% YoY in the 3Q12 and 63% in QoQ terms, on interest rate increases and net debt increment. Stated consolidated Net Debt increased 146% during the 9M12, mainly due to Secil’s and Supremo’s deals. All-in-all, Semapa keeps a comfortable leverage level with a Net Debt to EBITDA estimated at 3.12x for the YE12 and 2.96x for the YE13. (For further details, please refer to our snapshot out this week)
Estimates and valuation update - The hidden potential of exposure to country risk . We changed our valuation of Semapa from €5.35 for the YE12 to €8.20 per share, for the YE13, with a recommendation of Buy, High Risk. We updated our valuation based on an estimates revision in Portucel and Secil (-€0.10 per share), on a slight reduction of the country risk premium (+€0.55 per share) and on the shift in the reference date from the YE12 to the YE13 (+€2.40 per share). Semapa will release the 3Q12 earnings next 30 October, after market closing. All in all, both Portucel and Secil are highly exposed to the Portuguese country risk that may be starting to show some relief. . Our estimates revision in Secil has offset the positive impact of the revision in Portucel, resulting in a total net negative €0.10 per share impact in the valuation of Semapa. The estimates revision in Portucel had a positive impact in the company’s equity of 3%. The most significant impact came from the improvement in forecasted operating rates for the coming years, and a small increase in average paper prices for 2013 and beyond. Portucel released the 3Q12 earnings last 22 October and our estimates for the 3Q12 of Semapa already include actual figures of Portucel. Our estimates and forecasts revision in Secil impacted negatively Secil’s equity valuation in 9.4%. This impact was Page 12 of 21
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mainly influenced by the value reduction (lower estimated margins) in Lebanon and Tunisia. . We reduced the country risk premium of Portugal for the explicit period only, implied in the reduction of assumed 10-year sovereign rate from 11% to 10%, with an impact of €0.55 per share (+10%) in Semapa’s price target. With the stabilization at present levels or reduction of the Portuguese sovereign debt rates, we admit stronger cuts in assumed country risk that may impact significantly our price target. The one year shift in the reference date had a positive €2.40 per share impact (+41%), influenced by an increased leverage and risk, consequence of the expensive acquisition of the 49% stake of CRH in Secil earlier this year. . We value the 50% stake held in Brazilian Supremo Cimentos at acquisition value of €57.7mn. This investment may result in value increase to be considered only with confirmation of expansion capex and more information allowing better estimates of margins and volumes. (For further details, please refer to our company update out this week)
RETAIL Retail Sector Retail Sales Sep12 - Portugal and Greece reduced pace of decline, Spain João Flores, plunged Equity Analyst . Retail sales plunged in Spain (penalized by a higher VAT) while slowdowns in Poland. Portugal and Greece reduced pace of decline. Numbers are neutral to our Jerónimo Martins (Rating: Buy; Target YE13: €16.00, Medium Risk) and Sonae (Rating Buy; Target YE12: €0.76; Medium Risk) valuations. . Portuguese retail sales (disclosed on Oct 30th) reduced pace of decline in September, benefiting from Non-Food numbers while Food increased pace of decline. Retail sales (overall) declined an annual 5.7% YoY in September, after dropped 6.1% YoY in August. On a monthly basis, sales were down 4.1% YoY (+3.1% in August). Food Retail sales declined 2.6% YoY in September (-1.4% YoY in August). Recall Pingo Doce LfL (Food) sales in Portugal reached -0.6% in 3Q12 Non-food Retail sales fell 8.8% YoY in September (-10.5% YoY in August). Recall Portugal light vehicles sales reduced pace of decline in August We highlight October car sales in Portugal will be disclosed next Friday (November 2nd). . Spanish retail sales (disclosed on Oct 29th) plunged 12.6% YoY in September, the biggest drop in nearly a decade, penalized by a higher VAT (general rate jumped from 18% to 21% from September 1st) and a struggling consumer confidence (unemployment rose to a record 25.1%). Retail sales in Spain have now contracted for 28 months straight in annual terms. We highlight seventeen of nineteen major cities across the country experienced double-digit sales declines. We highlight Non-food sales declined 16.8% YoY (new car sales slumped 37% YoY in September). . Polish retail-sales (disclosed on Oct 23th) growth slowed more than expected in September. Overall, the risks of a negative surprise and strong deceleration of Polish economy are increasing, however we believe Biedronka will keep outperforming Polish food retail market, since company has room to adopt a more aggressive pricing strategy. According to the news, economic data (retail, labor-market, industrial output,…) suggests central bank will reduce benchmark rates by 25pb to 4.5% on Nov 07th. Retail sales in Poland: increased 3.1% on an annual basis in September (4.5% consensus), lower than the 5.8% growth seen in August and the slowest number since April 2010. On a monthly basis, retail sales declined 1.3% during the month (0.3% consensus), following 0.1% increase in August. Recall car sales in Poland increased pace of decline in September -13% YoY (disclosed on October 4th), thus suggesting retail sales slowdown. Food: There was a 0.9% YoY gain in retail sales of food, beverages and tobacco products (from 5.0% in August), thus YTD average declined to 5.8% from 6.5%. Page 13 of 21
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The unemployment rate was unchanged at 12.4% in September (12.5% estimated). . Retail sales in Colombia (disclosed on Oct 18th) rose 1.2% YoY in August (+ 1.3% YoY July). . Greek retail sales (disclosed on Oct 31th) dropped 7.2% YoY in August, reducing pace of decline (-8.1% YoY July). Greek retail sales continue to decline since households have slashed spending. According to separate estimates from Greece's national trade confederation, turnover during the July and August summer sales period dropped 20% YoY, and a total 36% since the summer of 2010. (For further details, please refer to our snapshot out this week)
Retail: Dia/Minipreço sales in Portugal recovered in 3Q12 Food Retailer Dia Group disclosed this week its 3Q12 Earnings. Dia/ Minipreço sales in Portugal recovered, suggesting Sonae (Continente), J.Martins (P. Doce) and Dia (Minipreço) increased market share while Lidl, Auchan, Intermarche and traditional retail lost market share in 3Q12.
According to Dia, Iberia continues to perform very strongly, and Portugal also improved versus 2Q12. In Iberia, gross sales under banner increased by 4.6% to €1.49Bn in 3Q12. LFL sales growth was 1.1% (1.3% 2Q12; 4.2% 1Q12), with Spain again performing better than Portugal in spite of the recovery seen in the latter during 3Q12 in comparison to 2Q12. In Spain, the new VAT rates (no changes in the super-reduced 4% rate, an increase from 8% to 10% in the reduced rate and from 18% to 21% in the general rate) was enforced from 1 September, but the net LFL effect in 3Q12 was negligible. Adjusted EBITDA in Iberia was €115.2mn, a 5.8% increase versus 3Q11, with margins expanding by 21bp to 8.9%. Recall JM disclosed 3Q12 Earnings on October 25th (last week) Lfl Portugal -0.6% 3Q12; 2.4% 2Q12; -1.6% 1Q12; 1.4% 3Q11 Sonae will disclose its 3Q12 Earnings on November 14 (after market close). We estimated LfL sales 2012: Jerónimo Martins: Food +1.3% Sonae Food -0.8% Non-Food -11.9%
CONSTRUCTION
Mota-Engil Buy – High Risk (TargetYE13: €1.50)
António Seladas, CFA Mota Engil’s outsourcer hasn’t paid wages Equity Analyst According to a country newspaper, roughly 40 employees from Divertec, a building company that is working for Mota Engil, building a bridge that belongs to Pinhal Interior sub-concession, are not receiving their salaries for 2 months. Still according to the news, Mota Engil declared that all payments were done and for the time being the final date for the conclusion of the motorway, November 2012, is not in danger.
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It is unusual news and not particularly relevant, however taking in consideration that the sector is underperforming and the economic environment is really tough a formal statement from Mota Engil management would be probably advisable, avoiding any kind of rumors.
OIL & GAS Galp Energia Buy – High Risk (Target YE12: €17.85) Vanda Mesquita, Galp – BG’s comments regarding FPSO Cidade Paraty Equity Analyst British Gas released its 3Q12 earnings on Wednesday morning and in its press release made some comments regarding the slowdown of its production target in 2013 (BG’s share reacted negatively) and also some comments about Lula NE (a consortium in which Galp participates). The company said that the FPSO Cidade Paraty is due to come on stream later in 2013. We recall that Galp has recently mentioned in its 3Q12 results presentation (29th October) that this FPSO was on schedule and that it should start its operations in 2Q13. The information released by BG somewhat contradicts the data released by Galp on Monday. At the beginning of the afternoon, Galp announced that maintain its view regarding the schedule that the company has stated two days ago. If we were to consider one-year delay in our valuation, our price target would drop by 3 cents. Finally, we would like to highlight that these comments cast once again doubts over the way that the consortium manages the release of the information.
3Q12 Earnings Highlights – Growth propelled by all business areas . Galp disclosed its 3Q12 this week. A conference call will be held today at 11:30, Lisbon and UK Time. Earnings surprised on the upside due to the better than expected performance from Refining & Marketing (R&M) and Gas & Power (G&P) businesses. EBITDA went up 38% YoY beating our estimates by 14%. By business, Exploration & Production (E&P) benefited from higher production coming from Brazil, R&M was lifted by a recovering refining margin and G&P was driven by good LNG trading opportunities. Galp reaffirmed its EBITDA 2012 guidance of €1bn (in line with our YE12 estimates). Following this set of results, we feel confident in our estimates. . E&P: Driven by higher production, adjusted EBITDA for 3Q12 rose by 74% YoY (broadly in line with our estimates). Net entitlement production stood at 19.5 kboepd (+60% YoY), 12.3 kboepd of which coming from Brazil (vis-à-vis 4.2 kboepd in 3Q11), showing that this country is becoming the main driver of growth. . R&M: Lifted by a recovering refining margin ($4.4/bbl this quarter vis-à-vis $0.9/ bbl in the same period of the previous year), adjusted EBITDA for 3Q12 went up 14% YoY to €86mn (9% above our estimates). Marketing activities continue to be influenced by the failing consumption in Iberia (retail volumes posted a sharp drop of 8.1% YoY). . G&P: Good trading opportunities and supply margins in terms of international LNG led to an increase in EBITDA that jumped from €79mn in 3Q11 to €105mn in 3Q12 (40% above our estimates). . Net profit for 3Q12 rose by 58% YoY (beating our estimates by 27%). . Capex 9M12 stood at €613mn, accounting for 61% of our YE12 estimate. . Net debt at 9M12 dropped to €1.369mn from €3.504mn at the end of the year, due to the close of the Sinopec Deal (announced at the end of March). (For further details, please refer to our snapshot out this week)
3Q12 Earnings Comment – Growth propelled by all business areas (II) . Regarding the short-term outlook, the company said that 4Q12 crude production is targeted to reach 24 kboepd (slightly above our estimates of 23.1 kboepd) and a slightly lower contribution than this quarter (25.9 kboepd), as a consequence of some maintenance works and the end of the EWT in
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Lula and Cernambi. Benchmark refining margin should decrease on a quarterly basis as a consequence of the end of the maintenance season and the 6-day strike will affect crude processed in the fourth quarter. Marketing volumes should continue its falling trend due to the austerity measures in Iberia and LNG trading volumes should decrease in the fourth quarter. . The company said that it continues to drill Carcará (BM-S-8) and Jupiter NE (BM-S-24) and that news flow regarding these fields should be unveiled before the end of this year. Sines new hydrocracker should reach steady production at the end of the fourth quarter, but the full impact should only be felt in 2013. Finally, no major new regarding ENI’s sale (Galp said that ENI is not a stressed seller at the moment). (For further details, please refer to our snapshot out this week)
SECTOR PERFORMANCE
Sector Performance -1 Week (%) Sector Performance - YTD (%)
PSI20 -0.1 PSI20 -2.0
Telecoms 2.3 Telecoms 38.5
Retail * 0.6 Financials 36.6
Industrials & Other 0.4 Retail * -1.8
Financials -0.4 Oil & Gas -4.3
Electric Utilities -0.7 Electric Utilities -14.8
Oil & Gas -3.3 Industrials & Other -31.2
-6-4-20246 -50 -30 -10 10 30 50
* includes Jeronimo Martins and Sonae . This week, the PSI20 went down 0.1%. The best performing sector was Telecoms with a 2.3% growth and the worst was Oil & Gas with a 3.3% fall. . On a Ytd basis, the PSI20 went down 2.0%. The best performing sector was Telecoms with a 38.5% growth and the worst was Industrials & Other with a 31.2% fall.
AGGRESSIVE PORTFOLIO . This week, Mib Aggressive Portfolio went up 1.56%, outperforming the PSI20 by 1.69pp. Excluding Sonae Industria, all stocks contributed for this outperformance. . We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe. It is equal weighted and rebalanced on a weekly basis.
LIQUIDITY PORTFOLIO . This week, Mib Liquidity Portfolio went down 0.01%, outperforming the PSI20 by 0.12pp. Excluding EDPR and Galp Energia all the stocks contributed for this outperformance. . We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe, excluding the less liquid stocks. It is equal weighted and rebalanced on a weekly basis.
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Mib AGGRESSIVE PORTFOLIO 834 13 8 Portfolio weekly return 300 Return since inception (27Jul04) Risk Market Price Upside Weekly Performance Company 270 Rating Price (€) Target (€) Potential Return Contribution Deviation Portfolio PSI20 Novabase High 2.10 4.10 95% 4.0% 0.79pp 0.82pp 240 Impresa High 0.30 0.55 83% 0.0% 0.00pp 0.03pp 210 Sonaecom High 1.40 2.40 71% 5.7% 1.13pp 1.10pp 180 Telefónica Medium 10.36 16.95 64% 1.5% 0.30pp 0.33pp 150 Sonae Industria High 0.52 0.85 63% -3.3% -0.67pp -0.64pp Portfolio 1.56% 120 PSI 20 -0.13% 90 Gain/loss 1.69pp 60 Explained by the portfolio 1.64pp 23/07/04 09/12/05 27/04/07 12/09/08 29/01/10 17/06/11 02/11/12 Explained by being underweight in the remaining PSI20 stocks 0.05pp
Next week Portfolio Changes in Portfolio Ytd Return Risk Market Price Upside Company In Out 120.0 Rating Price (€) Target (€) Potential 115.0 Novabase High 2.10 4.10 95% -- 110.0 Impresa High 0.30 0.55 83% 105.0 Sonaecom High 1.40 2.40 71% 100.0 Telefónica Medium 10.36 16.95 64% 95.0 Sonae Industria High 0.52 0.85 63% 90.0 85.0 Return vs. PSI 20 80.0 Portfolio PSI20 75.0 2007 2008 2009 2010 2011 YTD 1 Month 1 Week 30/12/11 16/03/12 01/06/12 17/08/12 02/11/12 Portfolio -2.4% -43.6% 71.9% -7.30% -36.6% 17.8% 1.7% 1.6% PSI20 16.3% -51.3% 33.5% -10.30% -27.6% -2.0% -0.1% -0.1% Gain/loss -18.7pp 7.7pp 38.5pp 3.0pp -9.0pp 19.8pp 1.8pp 1.7pp
Source: Bloomberg; Millennium investment banking "Mib Aggressive Portfolio" is composed by the five stocks with a higher upside potential of our coverage universe. "Mib Aggressive Portfolio" is equal-weighted and its composition changes at the end of the last trading day of each week.
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Mib LIQUIDITY PORTFOLIO 834138 Ytd Return (since inception) Portfolio weekly return 120.0 Risk Price Upside Weekly Performance Company Market Price (€) Rating Target (€) Potential Return Contribution Deviation 115.0 Telefónica Medium 10.36 16.95 64% 1.5% 0.30pp 0.33pp 110.0 Portugal Telecom Medium 3.91 6.00 54% 1.2% 0.24pp 0.04pp 105.0 EDP Renováveis Low 3.71 5.30 43% -0.5% -0.11pp -0.06pp 100.0 Indra High 8.85 12.40 40% 1.1% 0.22pp 0.25pp Galp Energia High 12.24 17.85 46% -3.3% -0.66pp -0.13pp 95.0 Portfolio -0.01% 90.0 PSI 20 -0.13% 85.0 Gain/loss 0.12pp Portfolio PSI20 Explained by the portfolio 1.64pp 80.0 Explained by being underweight in the remaining PSI20 stocks -1.51pp 75.0 30/12/11 16/03/12 01/06/12 17/08/12 02/11/12 Next week Portfolio Changes in Portfolio Risk Price Upside Company Market Price (€) In Out Rating Target (€) Potential Telefónica Medium 10.36 16.95 64% Semapa Indra Portugal Telecom Medium 3.91 6.00 54% Semapa High 5.36 8.20 53% Galp Energia High 12.24 17.85 46% EDP Renováveis Low 3.71 5.30 43%
Return vs. PSI 20
2011 YTD 1 Month 1 Week Portfolio - 17.4% 1.6% 0.0% PSI20 -27.6% -2.0% -0.1% -0.1% Gain/loss - - 19.4pp 1.7pp 0.1pp
Source: Bloomberg; Millennium investment banking "Mib Liquidity Portfolio" is composed by the five stocks with a higher upside potential, excluding less liquid stocks. "Mib Liquidity Portfolio" is equal-weighted and its composition changes at the end of the last trading day of each week.
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Millennium investment banking Weekly 2 November 2012
Latest Target Risk Trnvr (€mn) M Cap Change (%) EPS P / E EV / Sales EV / EBITDA Div Yield P/BV 2012/11/02 Upsd Rating Pr (€) YE12 Rating 3m 6m (€ mn) Week 1M 3M 12M YTD 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2012E PSI 20 5,384 - - 46,560 -0.13 1.2 17.8 -4.6 -2.0 Financials 42.3 42.9 11,253 -0.4 1.9 22.3 -32.8 -34.0 ------Banco Popular (4) 1.24 1.50 21.5% Buy High 16.3 20.6 2,685 -1.6 -18.0 -12.3 -60.4 -64.9 0.22 -1.12 0.15 15.4 loss 8.2 ------0.5% 0.0% 1.0 Bankinter 3.10 3.10 0.1% Neutral High 6.5 7.2 1,747 0.4 -4.7 28.5 -25.8 -34.8 0.32 0.09 0.22 14.3 34.3 14.2 ------2.9% 1.2% 0.7 BCP (1) 0.07 -- --6.24.5 1,399 -1.4 7.6 22.4-15.9-19.0------BES (4) 0.77 0.95 23.2% Buy High 12.1 9.6 3,098 0.7 30.7 64.7 -8.1 -5.3 -0.05 0.01 0.03 loss 55.8 25.7 ------0.0% 0.0% 0.4 BPI (4) 0.86 1.10 27.5% Buy High 1.0 0.7 1,200 -0.8 6.2 74.3 92.6 83.3 -0.28 0.10 0.02 loss 8.8 35.2 ------0.0% 0.0% 0.9 Telecoms 249.6 468.2 51,929 1.6 -1.0 18.8 -28.0 -19.8 - - - 11.3 9.3 9.2 2.1 1.8 1.8 6.1 5.5 5.4 9.8% 11.9% 2.0 Telefónica 10.36 16.95 63.7% Buy Medium 235.2 453.5 47,126 1.5 -1.3 18.7 -29.2 -21.0 1.20 1.17 1.16 10.5 8.8 8.9 2.2 1.8 1.8 6.1 5.5 5.4 10.3% 12.7% 2.2 Portugal Telecom 3.91 6.00 53.6% Buy Medium 13.0 13.4 3,501 1.2 -0.9 18.9 -20.9 -12.2 0.42 0.26 0.33 9.7 14.9 11.8 1.9 1.9 1.9 5.6 5.6 5.7 15.9% 8.3% 1.4 Zon Multimedia (4) 2.55 3.20 25.3% Buy Medium 1.2 1.0 789 7.1 17.7 29.0 20.1 10.0 0.11 0.13 0.14 19.3 19.3 18.9 1.8 1.8 1.8 4.8 5.0 4.9 7.3% 6.3% 3.7 Sonaecom (4) 1.40 2.40 71.4% Buy High 0.2 0.3 513 5.7 0.6 17.3 6.9 15.2 0.17 0.14 0.13 6.8 10.3 10.7 0.9 1.1 1.1 3.5 3.7 3.5 5.9% 4.9% 0.5 Media 0.1 0.1 191 -4.1 -6.6 25.3 -18.5 -35.4 - - - loss 11.3 12.0 1.2 1.1 1.1 9.8 7.9 8.8 2.3% 4.4% 0.7 Impresa (4) 0.30 0.55 83.3% Buy High 0.0 0.0 50 0.0 -3.2 -14.3 -33.3 -36.2 -0.17 0.01 -0.01 loss 49.9 loss 1.2 1.2 1.2 12.4 11.8 14.5 0.0% 0.0% - Media Capital (2) (4) 1.28 2.15 68.0% - - 0.0 0.0 93 -6.6 -6.6 57.1 -17.9 -33.3 0.01 0.10 0.13 119.7 13.4 10.2 1.1 1.0 1.0 8.6 5.4 5.7 4.2% 6.0% - Cofina (4) 0.47 0.51 8.8% Neutral High 0.1 0.1 48 -3.3 -9.8 37.9 4.2 -38.3 0.05 0.07 0.07 15.8 6.5 7.1 1.3 1.1 1.1 8.4 7.4 8.0 1.4% 3.4% 2.8 Technology Indra (4) 8.85 12.40 40.1% Buy High 4.8 8.8 1,453 1.1 15.7 29.1 -25.5 -10.0 1.10 0.97 1.03 8.3 9.1 8.6 0.8 0.7 0.7 6.9 7.2 6.3 7.4% 2.2% 1.4 Nov abase (4) 2.10 4.10 95.2% Buy High 0.0 0.0 66 4.0 2.9 18.0 -3.2 0.5 0.05 0.22 0.22 41.3 9.6 9.4 0.3 0.2 0.2 4.3 3.0 2.4 1.5% 4.3% 0.7 Utilities 143.7 213.2 37,656 0.1 3.9 36.0 -15.5 -16.3 - - - 10.4 9.3 8.8- 2.1 1.9 1.8 8.0 7.2 6.8 - 4.1% 5.0% 0.7 Iberdrola 4.00 4.95 23.8% Buy Low 132.1 199.0 24,556 0.5 7.2 47.3 -19.5 -17.3 0.47 0.44 0.45 10.25 9.2 8.8 1.9 1.6 1.5 7.9 6.8 6.4 6.9% 8.5% 0.7 EDP (4) 2.08 2.80 34.9% Buy Low 9.3 10.7 7,587 -0.8 -4.1 13.8 -5.7 -13.2 0.30 0.28 0.26 7.37 7.5 8.0 1.9 1.9 1.8 7.8 7.8 7.7 8.3% 8.9% 0.9 EDP Renov áv eis (4) 3.71 5.30 42.9% Buy Low 2.2 2.9 3,236 -0.5 2.8 54.3 -10.2 -21.5 0.10 0.14 0.17 46.6 26.9 21.8 8.0 6.1 5.6 10.8 8.6 7.7 0.0% 0.7% 0.6 REN (4) 2.00 2.60 30.1% Buy Low 0.1 0.5 2,277 0.0 0.0 0.8 -3.9 -5.3 0.23 0.24 0.26 8.8 8.5 7.7 3.8 4.3 4.3 7.5 6.9 6.5 8.5% 8.5% 1.0 Motorways Brisa (3) 1.79 - - - - 0.7 1.6 1,074 3.5 -10.5 -34.7 -27.8 -29.7 0.14 - - 18.1 - - 6.1 - - 8.8 - - 11.2% - - Conglomerates 1.2 1.1 1,827 -0.1 8.0 26.9 ------Sonae 0.58 0.76 31.5% Buy Medium 0.9 0.7 1,156 -0.3 7.8 41.0 16.8 25.9 0.05 0.06 0.06 8.3 9.8 9.2 0.7 0.8 0.7 5.9 7.1 7.6 7.7% 5.7% 0.8 Semapa (4) 5.36 8.20 53.1% Buy High 0.2 0.3 634 0.5 8.4 7.3 0.3 -0.2 1.05 1.08 1.00 4.9 5.0 5.4 1.1 1.2 1.1 4.7 5.0 4.8 4.7% 4.5% 0.6 Sonae Capital 0.15 0.23 53.4% Buy High 0.0 0.0 38 0.0 -11.8 -11.8 -40.0 -44.4 0.01 -0.06 -0.05 22.5 loss loss 2.2 2.3 2.4 loss loss loss 0.0% 0.0% 0.1 Retail Jerónimo Martins (4) 13.75 16.00 16.4% Buy Medium 8.8 8.5 8,650 0.8 1.4 10.0 13.5 7.5 0.56 0.62 0.73 4.5 22.1 18.7 0.9 0.9 0.7 12.3 12.2 10.3 2.2% 4.0% 6.5 Industrials 0.9 5.7 4,252 -2.5 1.5 0.5 -17.7 -20.1 ------5.7% - - Sonae Industria 0.52 0.85 63.1% Buy High 0.1 0.1 73 -3.3 -6.8 3.2 -25.9 -18.0 -0.41 -0.24 -0.09 loss loss loss 0.6 0.6 0.5 10.9 7.5 6.1 0.0% 0.0% 0.4 Altri 1.39 0.85 -38.8% Sell High 0.2 0.2 285 2.1 -1.9 22.0 25 15.7 0.12 0.16 0.17 9.6 8.8 8.3 2.0 1.8 1.7 8.7 7.1 6.5 1.7% 1.4% 1.5 Portucel (4) 2.15 2.55 18.4% Buy Medium 0.3 0.7 1,653 1.2 4.5 8.3 24.8 17.1 0.26 0.27 0.27 6.6 7.9 8.0 1.3 1.4 1.3 5.0 5.5 5.1 12.7% 7.6% 1.1 Cimpor (3) 3.31 - - - - 0.3 4.8 2,224 -6.2 -0.6 -7.3 -36.7 -37.7 0.31 - - 16.5 - - 2.4 - - 8.9 - - 3.9% - - Construction 0.2 0.2 328 -4.0 4.5 24.4 2.6 2.6 ------Mota-Engil (4) 1.31 1.50 14.9% Buy High 0.2 0.2 268 -4.8 5.1 29.7 26.6 26.6 0.16 0.21 0.26 5.9 6.2 5.1 0.7 0.8 0.7 6.4 6.3 5.8 10.8% 7.9% 0.7 Oil & Gas Galp Energia 12.24 17.85 45.8% Buy High 11.3 12.4 10,150 -3.3 -4.0 12.9 -18.3 7.6 0.30 0.34 0.38 36.8 35.5 32.0 0.8 1.4 1.1 16.5 23.5 20.0 1.8% 2.0% 3.4 (1) We do not have a recommendation on BCP, as Mib is a registered trademark of BCP; (2) Unrated due to low free-float; (3) Not Cov ered; (4) Price Target YE13
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Millennium investment banking Weekly 2 November 2012
DISCLOSURES . This report has been prepared on behalf of Millennium investment banking (Mib), a registered trademark of Banco Comercial Português, S.A. (Millennium bcp). . Millennium bcp is regulated by Comissão de Mercado de Valores Mobiliários. . Recommendations: Buy means more than 10% absolute return; Neutral means between 0% and +10% absolute return; Reduce means between -10% and 0% absolute return; Sell means less than -10% absolute return. . Unless otherwise specified, the time frame for price targets included in this report is current year-end or next year-end. . Risk is defined by the analyst’s view in a qualitative way (High, Medium, Low). . Usually we update our models and price targets in between 3 and 9 months. . Millennium bcp prohibits its analysts and members of their households to own any shares of the companies covered by them. . BCP group may have business relationships with the companies mentioned in this report. . Millennium bcp, expects to receive or intends to seek compensations for investment banking services from the companies mentioned in this report. . The views expressed above, accurately reflect personal views of the authors. They have not and will not receive any compensation for providing a specific recommendation or view in this report. There were not any agreements between the companies covered and the analysts regarding the recommendation. . Analysts are paid in part based on the profitability of BCP group, which includes investment banking revenues. . BCP group has more than 2% of EDP. . BCP group has more than 2% of Sonaecom. . BCP group was chosen to evaluate EDP regarding the 8th stage of the privatization process. . BCP group was chosen to evaluate REN regarding the 2nd stage of the privatization process. . A member of the Executive Board of Directors of Millennium bcp is member of the General and Supervisory Board of EDP - Energias de Portugal, SA. . Banco Millennium bcp Investimento, S.A. (merged into Millennium bcp) was chosen as a joint global coordinator of the Initial Public Offering of EDP Renováveis. . Banco Millennium bcp Investimento, S.A. (merged into Millennium bcp) was part of the consortium, as a Co-Leader, of BES rights issue, done in April 2009. . Millennium bcp was part of the consortium, as Co-Manager, of BES rights issue completed in May 2012. . Millenniumbcp through its investment banking department is providing investment banking services to Tagus Holdings S.a.r.l. (“Offeror” in the launch of a tender offer over Brisa - Autoestradas de Portugal, S.A. shares). . Recommendations on Millennium bcp covered companies (%) Recommendation Oct-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Buy 85% 65% 78% 72% 68% 93% 76% 79% 79% 63% 54% 41% 37% 30% 63% Neutral 8% 19% 4% 7% 11% 0% 14% 14% 7% 15% 4% 27% 11% 40% 6% Reduce 0% 4% 0% 3% 0% 0% 0% 0% 0% 7% 0% 0% 21% 5% 6% Sell 4% 8% 7% 3% 7% 0% 0% 4% 4% 4% 0% 14% 16% 5% 0% Unrated/Under Revision 4% 4% 11% 14% 14% 7% 10% 4% 11% 11% 42% 18% 16% 20% 25% Performance 2.9% 10.7% -15% 1% -7% -20% -6% 2% -10% 33% -51% 16% 30% 13% na PSI 20 5,356 5,203 4,698 5,557 5,494 5,891 7,324 7,753 7,588 8,464 6,341 13,019 11,198 8,619 7,600 DISCLAIMER This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or of opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not allowed without permission from the BCP group. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results.
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OFFICE LOCATIONS
Millennium investment banking Av. José Malhoa, Lote 27 - 5 1099-010 Lisboa Portugal Telephone +351 21 003 7811 Fax +351 21 003 7819 / 39
Equity Team Luis Feria (Head of Equities)
Equity Research +351 21 115 6220 António Seladas, CFA (Head) Fundamental Analysis Alexandra Delgado, CFA (Telecoms and IT) João Flores (Media and Retail) António Seladas, CFA/João Mateus (Industrials & Small caps) Rita Silva (Banks) Vanda Mesquita (Utilities and Oil&Gas) Market Analysis Ramiro Loureiro Sónia Martins Telma Santos Publishing Sónia Primo
Prime Brokerage +351 21 003 7855 Vitor Almeida (Head) Hugo Ferreira Pinto Paula Val
Institutional Equity Sales +351 21 115 6279 Karsten Sommer (Head) Manuel Lança Lopes Rodrigo Roque Pinho
Equity Trading +351 21 003 7850 Paulo Cruz (Head) Diogo Palma Gonçalo Lima Jorge Caldeira Nuno Sousa Paulo Sousa Pedro Ferreira Cruz Pedro Gonçalves Pedro Lalanda
Equity Derivatives +351 21 003 7890 Jorge Pina (Head) Ana Lagarelhos Diogo Justino Marco Barata
Maria Cardoso Baptista, CFA