IBERIA 3 January 2014 EQUITY RESEARCH TOP STORIES Sonae rose 4.0% this week. We believe Portuguese Prime Minister decision not to increase VAT rates (which was widely expected) as a “Plan B” to court rejection of government plans to converge state and private sector pensions it`s potentially positive to retail stocks (page 5). Portugal Telecom went up 9.1% in today’s session, after an Italian newspaper reported Telefónica was close to a joint offer together with rivals Claro and Oi to acquire TIM Brasil and then break up the Telecom Italia unit between the three players. Oi is the largest beneficiary from a TIM Brasil break-up: as the smallest mobile player, it should secure the largest part of TIM Brasil assets (page 4). OUT THIS WEEK Snapshots/Company Reports – PT & TEF, Retail Sector Price Target / Recommendation Changes – BES, Zon Optimus, Semapa, Sonae Industria Other News – Telecom Sector, PT & Zon Optimus, Sonae, Utilities Sector, Retail Sector WEEK AHEAD Nothing to register PORTFOLIOS This week, Mib Aggressive Portfolio went up 0.62%%, underperforming the PSI20 by 1.25pp. Excluding Sonae, all stocks contributed for this underperformance (page 10). This week, Mib Liquidity Portfolio went up 1.18%, underperforming the PSI20 by 0.69pp. Excluding Sonae and BPI, all stocks contributed for this underperformance (page 11). Stock Market Last 1W YTD 2013 Daily Vol. (€mn) 1W 1M 6M 2013 PSI 20 6,769 1.9% 3.20% 15.98% PSI 20 93 106 105 108 IBEX 35 9,798 -1.0% -1.20% 21.42% IBEX 35 1,824 2,942 2,671 2,570 WEEKLY Euro Stoxx 50 3,074 -1.2% -1.11% 17.95% Euro Stox x 50 5,150 7,338 7,308 7,456 Forex Rates Last 1W YTD 2013 Interest Rates Last 1W Chg YE13 EUR/USD 1.36 -1.3% -1.14% 4.46% Euribor 6m 0.38% 0.39% -1bp 0.38% EUR/GBP 0.83 -0.7% -0.39% 2.49% 10Y Bond PT 5.66% 6.02% -37bp 5.66% EUR/BRL 3.24 0.4% -0.56% 20.33% 10Y Bond SP 3.88% 4.23% -35bp 3.90% Best & Worse Performers -1 Week (%) Best & Worse Performers - YTD (%) BES 8.3 Sonae Industria 9.6 Sonae Industria 6.6 BES 9.0 Semapa 6.5 Novabase 8.8 Portugal Telecom 6.3 Portugal Telecom 7.9 Mota-Engil 5.0 Semapa 7.8 Novabase -0.7 Galp Energia -0.4 Telefónica -1.2 Iberdrola -0.5 Cofina -1.9 Inditex -0.8 Indra -2.1 Telefónica -1.3 António Seladas, CFA BCP -3.9 Indra -1.6 +351 21 003 7826 -10 0 10 -5 0 5 10 15 [email protected] Page 1 of 14 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 3 January 2014 CHANGES EARNINGS Company 4Q2013 1Q2014 2Q2014 3Q2014 Investor Day Jerónimo Martins * 13-01 AM n.a. n.a. n.a. Galp Energia * 27-01 BM 15-04 BM 14-07 BM 13-10 BM BCP 03-02 AM 05-05 AM 28-07 AM 03-05 AM Novabase 06-02 AM 08-05 AM 30-07 AM 06-11 AM Galp Energia 10-02 BM 29-04 BM 28-07 BM 27-10 BM 04-03-2014 Jerónimo Martins 26-02 BM 30-04 BM 30-07 BM 30-10 BM EDP 27-02 AM n.a. n.a. n.a. Telefónica 27-02 BM 09-05 BM 31-07 BM 06-11 BM Glintt 27-03 27-05 31-07 20-11 Portucel n.a. n.a. n.a. n.a. Media Capital n.a. n.a. n.a. n.a. Iberdrola n.a. n.a. n.a. n.a. BES n.a. n.a. n.a. n.a. Impresa n.a. n.a. n.a. n.a. Altri n.a.n.a.n.a.n.a. BPI n.a. n.a. n.a. n.a. EDP Renováveis n.a. n.a. n.a. n.a. Cofina n.a. n.a. n.a. n.a. Indra n.a. n.a. n.a. n.a. Semapa n.a. n.a. n.a. n.a. REN n.a.n.a.n.a.n.a. Martifer n.a. n.a. n.a. n.a. Sonae Sierra n.a. n.a. n.a. n.a. Portugal Telecom n.a. n.a. n.a. n.a. Zon Optimusn.a.n.a.n.a.n.a. Sonae Indústria n.a. n.a. n.a. n.a. Sonaecom n.a. n.a. n.a. n.a. Sonae n.a.n.a.n.a.n.a. Ibersol n.a. n.a. n.a. n.a. Sonae Capital n.a. n.a. n.a. n.a. Mota-Engil n.a. n.a. n.a. n.a. Cimpor n.a. n.a. n.a. n.a. Reditusn.a.n.a.n.a.n.a. SAG n.a. n.a. n.a. n.a. Soares da Costa n.a. n.a. n.a. n.a. Inditex n.a. n.a. n.a. n.a. ESFG n.a.n.a.n.a.n.a. AM - After market; BM - Before market; n.a. - Not available; (e) Expected; *Trading Statement Page 2 of 14 Millennium investment banking Weekly 3 January 2014 TELECOMS Telecom Sector Alexandra Delgado, CFA Telecom Sector – Government backs down on the Cinema Law Equity Analyst The Portuguese Government has backed down on the Cinema Law. We remind this Law established an annual tax applied to Pay TV operators: €3.50 per Pay TV client, growing yearly by 10% until it reached €5.00 per client; the money raised by this tax will be used to support the film sector. Yesterday, the government approved that the tax will stabilize at €3.5 per subscriber and that it will be supported by both Pay TV operators and by Anacom starting this year. In 2014, Pay TV operators will pay €1.75 per subscriber and Anacom will pay €1.75; the operators’ contribution will increase until it reaches €2.00, meaning Anacom will contribute with €1.50. The €3.5 per subscriber related to 2013 will be fully paid by operators. Last September, Portugal's Cinema and Audiovisual Institute (ICA) had started an official settlement procedure against the five major Portuguese Pay-TV operators, as these refused to pay about €12.5 million due under the Law on Cinema and the Audiovisual Sector. The new Cinema Law was published in the Diário da República (Official State Gazette) on September 6th 2012. The deadline for payment expired on July 31st 2013; Zon failed to pay €6.3 million, Portugal Telecom (Meo) €4.7 million, Cabovisão owes €1 million, while Vodafone and Optimus owe €166,000 and €148,000, respectively. This decision is obviously positive for telcos, as it entails a 60% reduction over the fees approved in 2012. Assuming Zon Optimus will maintain its 1.56 mn Pay TV customers, then it could expected to pay a maximum of €7.8 mn in fees in some years (€5.00 per subscriber), now it will pay a maximum of €3.1 mn (€2.00 per subscriber). Assuming PT will maintain its 1.3 mn Pay TV customers, then it was expected to pay a maximum of €6.5 mn in fees (€5.00 per subscriber); now that turns to €2.6 mn (€2.00 per subscriber). Portugal Telecom Buy – Medium Risk (Target YE14: €3.80) Telefónica Buy – Medium Risk (Target YE14: €14.40) Brazilian Mobile Market MoM – Slow month; post-paid continues Alexandra Delgado, CFA strong Equity Analyst . The Brazilian regulator released Tuesday November mobile subscribers’ numbers. The Brazilian mobile market reached 270.5 million clients in November 2013, which stands for 136.2% penetration of the population. Net additions during the month were 595k, which compares to 746k in November 2012 (-64%). Subscriber growth in the Brazilian market has decelerated significantly on the back of higher penetration. First eleven months of 2013 registered net adds 51% lower than the same period of 2012. Post-paid net adds continue strong: 681k in November; +24% YoY accumulated net adds up to November. Vivo added 286k subscribers, broadly maintaining its 28.7% market share. It is worth mentioning that Vivo has gained 0.3pp post-paid market share in November, ending the month with 39.6% (+2.7pp accum. 2013). Oi added 70k subscribers during the month, broadly keeping its market share at 18.55%. Positive net adds in pre-paid more than offset losses in post-paid (-52k subs). Oi lost post-paid market share for the ninth month in a row (-0.2pp in November, to 14.3%; -1.5pp accum. 2013). Oi’s strategy is now to grow in pre-paid, after tightening credit requirements for new post-paid customers as a means to control bad debt provisions. (For further details, please refer to our snapshot out this week) Page 3 of 14 Millennium investment banking Weekly 3 January 2014 Italian newspaper says Telefónica is close to joint offer to acquire TIM Brasil Italian newspaper Il Sole 24 Ore said today Telefónica was close to defining a financial vehicle together with rivals Claro (America Movil) and Oi to acquire TIM Brasil and then break up the Telecom Italia unit between the three players. This possibility has been advanced numerous times in the past months and is definitely the ideal scenario for Telefónica: it solves TEF issues with the Brazilian antitrust agency (Cade gave Telefónica 18 months to decrease control over the mobile business in Brazil), while assuring a 3-player mobile market vs.