INDEPENDENT RESEARCH Top Picks 11th October 2017 Top Picks 4Q2017 Top Picks AB INBEV BUY EUR128 This is the last volume of our quarterly ‘Top Picks’ for 2017. The list is not ACCORHOTELS BUY EUR49.5 intended to be a model portfolio, but simply reflects a pure stock-picking ASML BUY EUR155 exercise in our coverage universe. It reflects a bias towards themes that ASTRAZENECA BUY 5380p we believe fit best with the current environment: self-helped businesses, DANONE BUY EUR80 steady organic growth and/or earnings momentum. DBV TECHNOLOGIES BUY EUR105 Our list has produced a poor performance in Q3 2017, at +0.4% HEIDELBERGCEMENT BUY EUR95 INDRA SISTEMAS BUY EUR16 compared to +2.3% for the DJ Stoxx600, with strong performances INGENICO GROUP BUY EUR119 from DBV and Michelin unable to compensate for setbacks on Elior, NOVARTIS BUY CHF92 Fresenius and Suez. Our cumulative performance since Q1 2012 is now RENAULT BUY EUR99 +138% vs. +59% for the Stoxx600. European equity markets have been lacklustre in Q3, mainly because of the rise of EUR in July-August. This trend has reverted somehow over the last weeks, driven by growing prospects of more US rates’ hikes than previously anticipated, offering a better market momentum since September. However, the very low level of volatility with the VIX index below 10 (suggesting some risks could be mispriced…), the overall negative USDEUR impacts that will gradually materialise with the next sets of publications, and the ongoing Amazon disruption that is affecting more and more business models (especially in the Consumer segments), prompt us to remain very selective. For our Q4 list we have therefore decided to focus on 11 stocks (out of 161 stocks) that offer better-than-average, short-term visibility: self- helped drivers, steady organic growth and/or earnings momentum. This document is a compilation of the notes written to update our Top Pick list Q1 17 Q2 17 Q3 17 BG Top Picks 8.35% -0.05% 0.39 STOXX EUROPE 5.45% -0.46% 2.3% STOXX EUROPE 4.99% -1.22% 1.62% Analyst: Olivier Pauchaut 33(0) 1 56 68 75 49 [email protected] r r Top Picks Table of contents Construction & Materials | Q4 Top Pick HeidelbergCement (FV EUR95 vs EUR93) on the back of positive momentum ....................................................................................................................... 5 Hotels & Nursing Home | Top picks Q4: AccorHotels again ........................................................... 6 Automotive | Q4 2017 Auto & Parts Top Pick: Renault ................................................................. 8 Utilities | Top Picks Q4 2017: we see limited short-term catalysts (that have not been priced- in…) ................................................................................................................................................. 9 TMT |Q3 2017 review and our TMT Top Picks for Q4: ASML, Indra Sistemas and Ingenico Group . ................................................................................................................................................. 11 Healthcare | Deep changes to our list for Q4 2017 ...................................................................... 15 Consumer | Q4 Top Picks: Danone (Buy-FV :EUR80) and AB Inbev (Buy-FV: EUR128) ................ 18 Business Services | No Top Pick ................................................................................................... 20 Insurance | No Insurance Top Pick in Q4 ..................................................................................... 21 Bryan Garnier stock rating system ................................................................................................ 22 Top Picks Our top picks for 4Q 2017 are Fig. 1: Valuation ratios: 4Q 2017 Top Picks Market Cap. EV/EBIT(x) PER (x) RDT (%) (EUR) 2017e 2018e 2017e 2018e 2017e 2018e FV ACCORHOTELS 12 487 16.8 13.4 44.2 35.6 1.2% 1.4% BUY 49.50 HEIDELBERGCEMENT 16 832 12.9 10.7 14.3 12.0 2.2% 2.9% BUY 95.00 RENAULT 25 337 1.6 1.3 5.6 5.4 4.3% 4.6% BUY 99.00 ASML 62 649 27.9 21.8 32.5 25.2 0.8% 1.0% BUY 155.00 INGENICO GROUP 4 886 14.1 11.1 16.5 14.2 1.9% 2.3% BUY 119.00 INDRA SISTEMAS 2 311 13.3 9.7 19.2 14.2 2.7% 3.4% BUY 16.00 DBV TECHNOLOGIES 1 936 NM NM -12.7 -9.6 0.0% 0.0% BUY 105.00 NOVARTIS 219 815 24.5 20.5 18.4 16.2 2.7% 3.1% BUY 92.00 ASTRAZENECA 65 473 23.1 19.5 17.3 17.4 4.1% 4.1% BUY 5380.00 DANONE 46 353 - - 20.3 18.6 2.7% 2.9% BUY 80.00 AB INBEV 176 944 19.6 17.0 27.9 22.7 1.9% 2.3% BUY 128.00 Source: Company Data; Bryan, Garnier & Co ests. Changes : Fig. 2: Dividend payments: 4Q 2017 Top Picks +RENAULT No dividends +ASML +NOVARTIS +ASTRAZENECA +DANONE -ELIOR -ESSILOR -FRESENIUS -MICHELIN -SUEZ ENV. 3 Top Picks Top picks for 3Q 2017 performances 3Q 2017 perf. incl. Div. Euro Local Ccy Euro Local Ccy ACCOR -0.3% -0.3% -0.3% -0.3% ANHEUSER-BUSCH INBEV 4.1% 4.1% 4.1% 4.1% DBV TECHNOLOGIES 15.6% 15.6% 15.6% 15.6% ELIOR PARTICIPATIONS (Out 27 Jul.) -13.5% -13.5% -13.5% -13.5% ESSILOR INTL. (Out 28 Jul.) 1.0% 1.0% 1.0% 1.0% FRESENIUS (XET) -9.1% -9.1% -9.1% -9.1% HEIDELBERGCEMENT (XET) -1.5% -1.5% -1.5% -1.5% INDRA SISTEMAS 4.6% 4.6% 4.6% 4.6% INGENICO GROUP 1.5% 1.5% 1.5% 1.5% MICHELIN 7.6% 7.6% 7.6% 7.6% SUEZ -5.80% -5.8% -5.8% -5.8% 3Q 2017* Top picks average Perf. 0.39% 0.39% 0.39% 0.39% STOXX EUROPE 600 2.32 3.31 STOXX EUROPE 50 1.62 2.80 Source: Company Data; Bryan, Garnier & Co ests. 4 Top Picks Construction & Materials | Q4 Top Pick HeidelbergCement (FV EUR95 vs EUR93) on the back of positive momentum Published on 26th September 1 M 3 M 6 M 31/12/16 LOOKING BACK ON Q3 2017 Cons & Mat 3.0% -2.8% 0.3% 7.8% Share price performances have been very mixed within our coverage, with negative or poor DJ Stoxx 600 2.6% -1.0% 2.0% 6.2% performances for CRH (-1%), HeidelbergCement (1%), Vicat (-1%) and Imerys (+1.4%). These *Stoxx Sector Indices companies were penalised by a relatively quiet first half, usually difficult weather and sometimes specific issues (i.e. Egypt for Vicat, poor volumes for Imerys in Q2). USD exposure didn’t help, Companies covered either. The best performer was Eiffage (+9% so far), while both Vinci and Saint-Gobain were CRH BUY EUR35 strong too, with a 6-7% increase. LafargeHolcim was penalised by reaction to the analysts' Market Last Price EUR30,6 EUR25,594m breakfast comments yesterday. EIFFAGE NEUTRAL EUR90 Last Price EUR86,56 Market EUR8,483m WHAT WE SEE FOR Q4 2018 HEIDELBERGCEMENT BUY EUR95 vs 93 We expect a less negative weather impact in H2, although admittedly, the South-East of the United Last Price EUR83,7 Market EUR16,607m States, as well as Mexico, will be penalised in the short term because of the hurricanes and IMERYS NEUTRAL EUR82 earthquakes (we expect no positive impact from future reconstruction, yet). But key cement Last Price EUR76,6 Market EUR6,095m markets are expected to perform better in H2, in particular the US as a whole or Indonesia, while LAFARGEHOLCIM NEUTRAL CHF55 the recovery is expected to continue in various markets, in particular in western Europe, although there are some concerns regarding the UK. In France, toll roads traffic should continue Last Price CHF56,5 Market CHF34,290m on a similar and steady trend (2.2% Vinci Autoroutes +2.7% APRR). Plus, French Contractors are SAINT GOBAIN BUY EUR53 likely to win new contracts for Grand Paris. Last Price EUR49,61 Market EUR27,799m VICAT NEUTRAL EUR60 CONCLUSIONS AND TOP PICKS Last Price EUR61,29 Market EUR2,752m In this context, we have decided to keep HeidelbergCement as our Top Pick for Q4. We see short VINCI NEUTRAL EUR80 term catalysts that should benefit the share price. Last Price EUR80 Market EUR47,473m Firstly, key markets should be strong in H2. US construction was disappointing in H1, with the gradual fading of construction spending of around USD1.2 trillion SAAR (from 7.3% y/y increase in January to 1.8% last July) but the lead indicators are usually rather solid (ABI, Dodge Momentum Index…). The US accounts for approx. 25% of EBITDA. Volumes in Indonesia (10% of EBITDA) were steady too with a 5% increase YTD at end-August for the market and +2% for Indocement, but we suspect prices are solid and management comments on the outlook are definitely upbeat (management said some kilns might be restarted to satisfy demand). Comments on Western Europe (20% of EBITDA) are positive with a recovery expected in Spain and Italy (where LafargeHolcim has reported more than 23% volumes growth in H1 2017) and a solid outlook in Germany and France. Secondly, HeidelbergCement's H1 2017 EBITDA was penalised by a EUR46m negative price impact in Indonesia, Ghana and Thailand (compared with a total EUR6m lfl variance). But we understand that Indocement decided to stop promotions since last Summer (and prices are stabilising), we note that Dangote prices in Ghana were up sequentially this year and that prices have stabilised in Thailand. Thirdly, momentum looks fine per see. Within our coverage, HEI is the only stock down YTD along with CRH, with a -6% underperformance. 2018e EV/EBITDA stands at 7.1x vs 7.8x for LafargeHolcim and 8.1x for CRH. Risks related to the integration of Italcementi are probably behind us, while most of the restructuring costs and synergies are now running virtually at full pace. We have updated our forecast model (slightly more organic growth, FX and macro assumptions updated), leading to a 2% increase on average in EBITDA over 2017e-2019e, translating into a EUR95 FV vs EUR93 previously, with an unchanged approach.