IBERIA 28 June 2013 EQUITY RESEARCH TOP STORY Altri went up by 12% in the week, while the PSI 20 rose by 1.9%. There were no major reasons but in the week before Altri underperformed, lost 9.33%, as the PSI20 went down by 5.5%. So we will say that it was mainly a pull back from a strong fall (page 9). OUT THIS WEEK Snapshots / Company Reports - Retail Setor, Semapa Price Target / Recommendation Changes – Semapa, Jerónimo Martins, Altri, Portucel, Mota- Engil News – Banking Sector, Telefónica, Portugal Telecom, EDP Renováveis, Retail Setor, Inditex, Jerónimo Martins, Altri, Galp Energia WEEK AHEAD Monday – New car sales in Portugal and Spain (June) PORTFOLIOS This week, Mib Aggressive Portfolio went up 1.65%, underperforming the PSI20 by 0.27pp. Excluding Portugal Telecom and Novabase, all stocks contributed for this underperformance (page 11). This week, Mib Liquidity Portfolio went up 2.07%, outperforming the PSI20 by 0.14pp. Excluding EDP Renováveis and Portugal Telecom, all stocks contributed for this outperformance (page 12). Stock Market Last 1W YTD 2012 Daily Vol. (€mn) 1W 1M 6M 2012 PSI 20 5,557 1.9% -1.74% 2.93% PSI 20 110 105 111 66 IBEX 35 7,763 0.8% -4.96% -4.66% IBEX 35 3,941 2,830 2,436 2,578 Euro Stoxx 50 2,603 2.1% -1.26% 13.79% Euro Stoxx 50 10,906 8,387 7,753 7,867 WEEKLY Forex Rates Last 1W YTD 2012 Interest Rates Last 1W Chg YE12 EUR/USD 1.31 -0.8% -0.86% 1.97% Euribor 6m 0.34% 0.33% 0bp 0.32% EUR/GBP 0.86 0.5% 5.04% -2.30% 10Y Bond PT 6.45% 6.43% 2bp 7.01% António Seladas, CFA EUR/BRL 2.87 -3.2% 6.32% -10.68% 10Y Bond SP 4.77% 4.91% -14bp 5.26% +351 21 003 7826 [email protected] Best & Worse Performers -1 Week (%) Best & Worse Performers - YTD (%) Impresa 106.5 Altri 11.9 Portucel 8.3 Mota-Engil 48.5 EDP Renováveis 8.0 BCP 28.0 Mota-Engil 6.6 Zon Multimedia 24.9 Av. José Malhoa, Lote 27 Sonae Capital 6.3 Sonae Capital 21.4 1099-010 Lisboa Telefónica 0.5 Cimpor -4.6 Tel / Fax: +351 21 003 7800 / 09 BPI -0.1 Inditex -10.1 Indra -1.4 Portugal Telecom -20.2 BES -1.8 Cofina -28.9 Galp Energia -3.6 BES -31.3 -8 -3 2 7 12 -60 -20 20 60 100 Page 1 of 15 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 28 June 2013 CHANGES New Previous Motive Rating Target Rating Target Semapa Neutral 6.50 Buy 8.20 Valuation Update Semapa Reduce 6.50 Neutral 6.50 Price Performance Jerónimo Martins Neutral 17.20 Buy 17.2 Price Performance Altri Reduce 1.75 Neutral 1.75 Price Performance Portucel Neutral 2.50 Buy 2.50 Price Performance Mota-Engil Reduce 2.20 Neutral 2.20 Price Performance EARNINGS Page 2 of 15 Millennium investment banking Weekly 28 June 2013 DIVIDENDS Page 3 of 15 Millennium investment banking Weekly 28 June 2013 FINANCIALS Banking Sector Vanda Mesquita; EU reached a deal for dealing with failing banks Equity Analyst According to the press, the European Union reached an agreement to set the rules for dealing with failing banks. In the case of a bank failure, shareholders should be the first ones to assume losses. By order, creditors that are not protected should be the second ones to assume losses, then the senior debt creditors and, as a last resort, the savers whose deposits exceed €100,000. Deposits under €100,000 continue to be safeguarded. As previously mentioned, despite being difficult to quantify, this scenario should penalize banks, since in our opinion the remuneration for higher deposits than €100.000 is expected to rise. A solution like this one is equal for all banks regardless of the country in which they operate. At the same time, this solution also makes customers more selective in choosing the bank to make a deposit. Under this context, it is expected that the banks with greater financial strength and with more comfortable solvency ratios will give more security to savers and therefore attract more deposits higher than €100.000. In our opinion, we believe that net interest income will remain under pressure and that banks should be more capitalized to receive more funding. TELECOMS Telefónica Buy – Medium Risk (Target YE13: €17.20 Alexandra Delgado, CFA TEF sells Irish unit Equity Analyst . Telefónica announced this week it has sold its Irish unit to Hutchison Whampoa for €780 mn. This figure can be increased up to €850 mn, since there is an additional deferred payment of €70 mn based on the completion of agreed financial objectives. The agreed price implies an EV/EBITDA multiple between 7.3x and 7.9x, considering an inflow between €780 mn and €850 mn and an EBITDA declining 15% in 2013 (-23% YoY in 1T13) in the Irish unit. We believe the agreed terms are positive for Telefónica. The sale of the Irish unit does not have a material impact on our valuation. The deal is however an important contribution for Telefónica’s debt reduction goal, standing for a 0.04x Net debt-on-EBITDA reduction. Telefónica intends to end 2013 with €47 bn net financial debt, following €51.3 bn by the end of 2012. We remind that Telefónica sold in early March its UK fixed-line business to BSkyB for £180 million (€208 million) and a 40% equity stake in its Central America unit in the end of April for $500 million (€380 million). Portugal Telecom Buy – Medium Risk (Target YE13: €5.40) Alexandra Delgado, CFA Oi denies negotiations with PT concerning a merger Equity Analyst Oi issued a statement on Tuesday denying there are merger negotiations between Portugal Telecom and Oi at this time. This is Oi’s response to a request by the market regulator to clarify news published by newspaper Folha de São Paulo in the weekend. PT and Oi have been focusing on generating synergies between their operations. Newly appointed CEO of Oi, Zeinal Bava, has said he will continue to focus on strategic projects, on innovation and on joint workstreams, in order to crystallize synergies. News concerning a possible merger between Oi and PT have emerged regularly since the two operators announced a strategic partnership with cross shareholdings back in July 2010. A merger at this point Page 4 of 15 Millennium investment banking Weekly 28 June 2013 would be a very complex process from the standpoint of Oi’s shareholder structure, it wouldn’t result in a stronger Balance sheet, and would probably generate limited synergies beyond what can be generated under the existing industrial alliance. For these reasons, we believe the merger scenario does not make sense now, but that will be an alternative considered further along the road. UTILITIES EDP Renováveis Buy – Low Risk (Target YE13: €5.45) EDPR announced the financial close of the sale of minority stakes in wind Vanda Mesquita, farm parks in Portugal Equity Analyst EDPR announced the financial close of the sale of minority stakes in wind farms in Portugal. We remind that EDPR reached an agreement with China Three Gorges (CTG) to sell 49% equity and 25% loans from shareholders in EDPR Portugal in December 2012. The final price of the transaction was set at EUR 368 million. This transaction is already included in our valuation. CONGLOMERATE Semapa Reduce – High Risk (Target YE13: €6.50) António Seladas, CFA; Update Valuation – Cement, a difficult sector… Equity Analyst . We updated Semapa’s valuation changing the price target from 8.20YE13 to 6.5YE13, neutral recommendation, high risk; . The major impact is related with the downwards adjustment in the cement business, mainly due to Portugal environment. Cement consumption in Portugal went down by roughly 65% in the last 10 years, 50% since 2008 and for the last 3 quarters the YoY falls ranged between 29% and 39%. We still expect 16% fall this year and 4% in 2014. In our scenario we assumed a slow recovery by 2015/16 while any acceleration should just be seen by the end of the decade (2018/20). We assumed that operating margins will recover from the current abnormal low levels to the low twenties, clearly below the figures seen a few years ago, as margins in the overseas market are lower. Concerning the other regions Tunisia is still a problem as prices are regulated, Lebanon is performing pretty well, even that the war risk could prevent further investments and Brazil is just at the beginning, however we assumed that the new mill should be fully operational by 2016, roughly one year later than the management plans and margins should slowly evolve to high twenties; . Concerning the other businesses: Portucel we basically kept the valuation and detached the Environment business even that is too small to be relevant (we valued at €23.Mn); . Regarding the major issues in Semapa holding we believe that debt, after buying last year Secil minorities and Supremo’s 50% stake, is the major concern. We expect a very slow pace oF debt reduction, without further acquisitions. The process could be accelerated, by floating, up to 49% of Secil or selling a stake in Portucel. Having said that we do not expect this decision in the near future, as valuations are probably too low on Semapa’s board view.