for important disclosure information please see appendix ... · edenred 5,677 14 24.09 27 12%...

19 December 2017

TOP PERFORMANCE LIST

Ignition!

For important disclosure information please see Appendix section at the end of this report

For important disclosure information please see Appendix section at the end of this report. 2 / 80

TOP PERFORMANCE LIST

Sector Report | 80 Pages | 20 December 2017

Ignition!

We are launching our MainFirst Top Performance List, which reflects 12-month convictions within our universe, with an emphasis on where we believe we have a differentiated view.

For each stock, we provide an investment case, where we differ from street view, a 12-month and 3-year valuation view, and a review of shorter term prospects and triggers.

In this report, we also provide screenings of our coverage universe on some selected themes as well as a review of our most to least preferred stocks in each (sub) sector covered.

MAINFIRST TOP PERFORMANCE LIST

Our list carries 16 names to start with (10 large caps, 6 SMIDs), leaving some

space for further SMID additions in the coming months. We intend to run this

list with a strict methodology, report all changes as they occur and track

performances on a regular basis. On aggregate our list is fairly differentiated to

the street, with price targets exceeding consensus by c17% on average, for an

average upside of 20% on a 12-month view. Many of these names also offer a

very attractive 3-year upside.

MainFirst Top Performance List

18/12/2017 MKT CAP (€M)

DAILY AVG VAL (€M)

LAST PRICE (LC)

12-MTH TP (LC)

UPSIDE (%)

ANALYST

Bayer 88,070 228.2 108.4 144 34% Michael Leacock

Volkswagen 85,135 225.7 172.2 220 27% Adam Hull

UBS 59,527 136.7 18.08 20 10% Daniel Regli

Kering 49,104 81.6 397.3 500 26% John Guy

Continental AG 44,521 82.1 227.3 260 14% Florian Treisch

Lonza 16,604 63.9 267.5 325 22% Markus Gola

Bouygues 15,697 37.9 43.92 51 16% Jean-Baptiste Sergeant

Swiss Life 9,889 44.6 345.8 400 16% Rene Locher

TUI AG 9,677 7.5 16.83 20 19% Tobias Sittig

Wacker Chemie AG 8,297 17.0 158.7 191 18% Andreas Heine

Edenred 5,590 13.7 24.175 27 12% Mourad Lahmidi

A2A 4,950 14.7 1.585 1.80 14% Enrico Bartoli

Siltronic AG 3,596 23.8 123.85 150 21% Juergen Wagner

Gerresheimer AG 2,184 8.2 71.03 83 17% Marcus Wieprecht

Bilfinger SE 1,685 7.3 38.44 47 22% Patrick Horch

Hochdorf 339 0.5 276.75 380 35% Alain Oberhuber

Source: MainFirst Research

Focus List

Europe

ANALYSTS

Lyonel Francoy

Equity Research

+33 (1) 7098 3980

[email protected]

TOP PERFORMANCE LIST, IGNITION!

20 December 2017 3 \ 80

Contents

Our ideas for 2018 4

A2A Value creation story to continue in 2018 10

Bayer Hoe Hoe Hoe! 14

Bilfinger SE Inflection point?! 18

Bouygues Four-dimensional game 21

Continental AG Sentiment should improve further 24

Edenred Cyclical upswing 29

Gerresheimer Back to growth 32

Hochdorf “Swissness” for babies at its best 36

Kering In the driving seat 40

Lonza Superior growth at low risk 43

Siltronic Wafer shortage 4.0 46

Swiss Life From ‘Life Insurer’ to ‘Fee Generator’ 49

TUI Future business model taking shape 52

UBS Shareholder returns are coming 56

Volkswagen Rebooted premium FCF 60

Wacker Chemie The sun shines on polysilicon 64

Our screenings 67

Take-out companies in our coverage universe 74

Appendix: Regulatory Disclosures and Disclaimer 75

Company-Specific Disclosures 75

General Disclosures and Disclaimer 79

International Distribution and Research Locations 80

International Distribution Locations 80


20 December 2017 4 / 80

Our ideas for 2018


We launch this morning our research driven Top Performance List, which

targets to present high conviction ideas where we believe we offer a

proprietary or somehow differentiated research and investment angle.

As we intend to stand behind all of our convictions, we will run this list in a

consistent and transparent way, with a regular review of performances and

explanations on the evolution of our convictions.


MKT CAP (€M)

DAILY AVG VAL (€M)

LAST PRICE (LC)

12-MTH TP (LC)

UPSIDE (%)

ANALYST SECTOR COUNTRY

Bayer 89,145 228 107.8 144 34% Michael Leacock Pharmaceuticals Germany

Volkswagen 86,580 226 173.1 220 27% Adam Hull Automotive Germany

UBS 60,257 137 18.18 20 10% Daniel Regli Banks Switzerland

Kering 50,228 82 397.75 500 26% John Guy Consumer goods France

Continental AG 45,471 82 227.35 260 14% Florian Treisch Automotive supplier Germany

Lonza 17,118 64 267.2 325 22% Markus Gola Healthcare Switzerland

Bouygues 15,823 38 43.845 51 16% Jean-Baptiste Sergeant Telecom services France

Swiss Life 10,024 45 345.1 400 16% Rene Locher Insurance Switzerland

TUI AG 9,892 8 16.84 20 19% Tobias Sittig Travel & Leisure Germany

Wacker Chemie AG 8,441 17 161.85 191 18% Andreas Heine Chemicals Germany

Edenred 5,677 14 24.09 27 12% Mourad Lahmidi Business services France

A2A 4,956 15 1.582 1.8 14% Enrico Bartoli Utilities Italy

Siltronic AG 3,732 24 124.4 150 21% Juergen Wagner Technology Hardware Germany

Gerresheimer AG 2,225 8 70.85 83 17% Marcus Wieprecht Healthcare Germany

Bilfinger SE 1,697 7 38.375 47 22% Patrick Horch Construction Germany

Hochdorf 348 1 282 380 35% Alain Oberhuber Consumer goods Switzerland

Average 20%


Our list, which offers 10 large cap ideas and 6 small and mid-caps at this

stage, targets to run at a cruising speed with a maximum of 20 ideas, ideally

split roughly equally between large and SMIDs. The country and size splits are

presented in the table below.

Breakdown of our ideas

GERMANY SWITZERLAND FRANCE ITALY

Large caps Bayer UBS Kering

Mkt cap > EUR6bn Volkswagen Lonza Bouygues

Continental AG Swiss Life

TUI AG

Wacker Chemie AG

Small & mid caps Siltronic AG Hochdorf Edenred A2A

Mkt cap <EUR6bn Gerresheimer AG

Bilfinger SE


Some metrics around our list

We detail in the following tables some market metrics on our ideas, notably to

show how we are positioned against the standard market views. We would

highlight the following:

Estimates: our estimates are on aggregate c9% ahead of consensus on

EPS 2018.


20 December 2017 5 / 80

Price targets: our PTs are on average 17% ahead of consensus, and offer

on average 20% upside.

YTD performance: on average the stocks that we are recommending

have progressed by 38% this year, but 29% ex Siltronic, so clearly

outpacing overall European markets (Stoxx600: 8.6% YTD).

Love ratio (recommendation indicator with 1 = 100% Sell/Underperform

ratings, and 5 = 100% Buy/Outperform ratings): the average love ratio of

our ideas on the market is 3.83, i.e. a slight positive bias only vs the

average market rating (Stoxx600 average ratio is 3.57).

Consensus & key market data on our ideas

STOCKS MKT CAP FREE FLOAT 3M DAV MF TP TP CONS. MAINFIRST CONSENSUS NB OF CONS LOVE RATIO YTD PERF

(€bn) (%) (€m) (lc) (lc) UPSIDE (%) UPSIDE (%) ANALYSTS 1 to 5

Bayer 89.1 100% 221 144.0 121.5 34% 13% 33 4.06 9%

Volkswagen 86.6 89% 606 220.0 185.3 27% 7% 33 4.12 30%

UBS 60.3 97% 147 20.0 18.6 10% 2% 32 3.72 18%

Kering 50.2 59% 87 500.0 413.4 26% 4% 31 4.06 86%

Continental AG 45.5 54% 86 260.0 234.6 14% 3% 33 4.00 24%

Lonza 17.1 100% 66 325.0 279.6 22% 5% 11 4.36 66%

Bouygues 15.8 77% 40 51.0 43.7 16% 0% 24 3.38 29%

Swiss Life 10.0 99% 46 400.0 368.6 16% 7% 14 3.86 24%

TUI AG 9.9 77% 8 20.0 16.8 19% -1% 23 4.17 26%

Wacker Chemie AG 8.4 33% 21 191.0 132.7 18% -18% 20 3.10 64%

Total / avg large 39.3 20% 2% 25 3.88 38%

Edenred 5.7 88% 14 27.0 23.6 12% -2% 19 3.47 28%

A2A 5.0 50% 16 1.80 1.6 14% 1% 9 4.00 29%

Siltronic AG 3.7 69% 25 150.0 140.0 21% 13% 5 4.60 183%

Gerresheimer AG 2.2 97% 9 83.0 70.3 17% -1% 16 3.81 0%

Bilfinger SE 1.7 70% 8 47.0 39.3 22% 2% 12 2.83 5%

Hochdorf 0.3 55% 1 380.0 303.3 35% 8% 3 3.67 -8%

Total / avg SMID 3.1 20% 3% 11 3.73 39%

Total 25.7 20% 3% 20 3.83 38%



20 December 2017 6 / 80

Key valuation ratios of our ideas

STOCKS EV/EBITDA EV/EBITDA EV/EBIT EV/EBIT P/E P/E DIV YIELD DIV YIELD FCF YIELD FCF YIELD

2017 MFe 2018 MFe 2017 MFe 2018 MFe 2017 MFe 2018 MFe 2017 MFe 2018 MFe 2017 MFe 2018 MFe

Bayer 10.2x 11.1x 13.6x 14.5x 16.0x 16.3x 2.6% 2.8% 6.4% 5.6%

Volkswagen 1.6x 1.4x 2.3x 2.0x 6.3x 6.0x 2.2% 3.5% 25.2% 26.6%

UBS n.a. n.a. n.a. n.a. 15.9x 11.6x 3.6% 5.0% n.a. n.a.

Kering 15.8x 13.6x 18.7x 16.1x 24.6x 20.9x 1.6% 1.8% 3.6% 4.3%

Continental AG 7.3x 6.5x 10.9x 9.5x 13.8x 12.4x 2.1% 2.3% 2.8% 5.9%

Lonza 18.3x 14.0x 24.5x 18.2x 26.0x 20.8x 1.1% 1.4% 1.9% 3.1%

Bouygues 5.9x 5.5x 12.6x 11.4x 18.4x 16.4x 3.6% 3.6% 2.8% 7.4%

Swiss Life n.a. n.a. n.a. n.a. 12.0x 11.1x 4.1% 4.7% n.a. n.a.

TUI AG 7.4x 8.0x 9.6x 10.4x 11.8x 12.5x 4.4% 4.9% neg. 3.0%

Wacker Chemie AG 10.1 8.2x 26.0x 15.9x 30.4 17.9x 1.9% 2.5% 2.3% 6.9%

Total / avg large 9.6x 8.5x 14.8x 12.2x 17.5x 14.6x 2.7% 3.2% 5.0% 6.3%

Edenred 12.1x 10.8x 13.5x 12.0x 22.2x 20.1x 3.4% 3.8% 6.7% 6.8%

A2A 7.4x 7.3x 12.2x 12.7x 13.2x 13.2x 3.6% 4.1% 6.1% 8.4%

Siltronic AG 10.7x 7.0x 16.3x 8.8x 19.9x 11.4x 1.9% 3.4% 3.6% 4.1%

Gerresheimer AG 9.7x 9.3x 16.3x 15.5x 16.7x 15.7x 1.6% 1.7% 4.8% 5.3%

Bilfinger SE 17.8x 8.3x neg. 15.3x neg. 23.7x 2.7% 2.9% neg. 1.3%

Hochdorf 16.3x 11.7x 21.3x 15.0x 28.1x 18.3x 1.6% 1.6% neg. 1.9%

Total / avg SMID 12.4x 9.1x 16.0x 13.2x 20.1x 17.1x 2.5% 2.9% 5.2% 4.7%

Total 10.8x 8.8x 15.3x 12.6x 18.4x 15.5x 2.6% 3.1% 5.1% 5.7%


Our approach

Our selection process

Our strict selection criteria are the following:

Outperform ratings only.

A risk weighted approach to the upside, with a 12-month PT offering a

minimum of 10% upside for low risk stocks, and 20% upside for higher

risk stocks.

Research available: we aim to present stocks that offer a recently

published or still valid substantive research report.

Liquidity: we aim to take on stocks that offer a market cap of over

EUR 1bn and a daily traded volume of more than EUR 2m. Below this

level, we would only accept to take on companies which we believe offer

a spectacular mid-term return potential to offset the liquidity risk.

Our soft selection criteria are the following:

Differentiation: we focus on ideas where our views or arguments are

either proprietary, differentiated from consensus views, or are highly

dependent from our local insights.

Diversification: we try, to the extent that the above are respected, to get a

fair representation of countries and sectors (and notably will try to avoid

having similar ideas at the same time).

The above process basically means that our list is not strictly that of our best

official upside potentials (which we display in our screenings later in this

report).


20 December 2017 7 / 80

Working principles

Idea updates: although we will only formally publish a full update every 6

months, we will implement changes on our list “on the go” to reflect our

changes in convictions as they occur.

Turnover: we intend to give our ideas enough time to go through the

triggers we have identified or for the market perception to meet our views

(unless proved wrong). We would therefore not expect our list to have a

turnover of more than 1x over 12 months.

Performance and reference index: we will use the Stoxx 600 as a

benchmark for relative performance of each stock in the list. We will use

the average price of the stock (VWAP) over the day as the reference price

for the entries and exits in the list, to erase the effect, if any, from our

market impact or overnight news on the stock.

Performance metrics that we will focus on: the individual performances of

each idea (both absolute and relative to Stoxx 600) but also the overall

performance of our list in terms of hit ratio (i.e. the proportion of our ideas

that outperform the Stoxx 600) as well as its overall absolute and relative

performance, assuming that all ideas are equally weighted at the time of

entry into the list.

Table of sector picks

We show below our pecking order per sector or sub sector, highlighting those

that sit in our Top Performance List (dark green), those on which we have a

Outperform rating (light green), and those on which we have an Underperform

rating (red).


20 December 2017 8 / 80

Analysts stock pecking order per sector


Analysts stock pecking order per sector

Sector

Construction &

MaterialsTechnology Healthcare Transport & Logistics Chemicals Automotive - Suppliers Automotive - OEMs

Analyst

Patrick Horch & Tobias

FahrenholzJürgen Wagner

Marcus Wieprecht &

Markus Gola

Tobias Sittig &

Johannes Braun

Andreas Heine &

Daniel Buchta

Pierre-Yves Quemener

& Florian Treisch

Adam Hull & Pierre-

Yves Quemener

Pick 1 Bilfinger Siltronic Gerresheimer TUI Wacker Chemie Conti Volkswagen

Pick 2 Hochtief AMS Lonza Lufthansa Croda Valeo Daimler

Pick 3 Sika Infineon Grifols IAG DSM Plastic Omnium Renault

Pick 4 Nexity Wirecard Merck KGaA Maersk Evonik Stabilus BMW

Pick 5 Implenia Logitech Vifor Pharma KNIN Brenntag Leoni FCA PSA

Pick 6 Geberit Dialog Semiconductor FME FHZN BASF Rheinmetall PSA

Pick 7 Wienerberger STMicroelectronics Sonova DSV Covestro Schaeffler

Pick 8 Zehnder Gemalto Straumann HLAG Arkema Michelin

Pick 9 Arbonia Ingenico Biotest PostNL Linde ElringKlinger

Pick 10 Strabag u-blox Holding AG Amplifon ÖPost Clariant Hella

Pick 11 ASML Qiagen Easyjet Lanxess Bertrandt

Pick 12 Aixtron Galenica Bpost Air Liquide Faurecia

Pick 13 Strada ADP Symrise

Pick 14 Fresenius SE Air France KLM Givaudan

Pick 15 Rhön Klinikum Fraport K+S

Pick 16 GN Store Nord DPW EMS-Chemie

Pick 17 Drägerwerk Panalpina Fuchs Petrolub

Pick 18 Dufry

Pick 19 Ryanair

Pick 20 HHLA

Sector IT serv ices & software Luxury & HPC Pharmaceuticals Banks & Fin. serv ices Insurance Consumer Goods Industrials

Analyst

Chandramouli SriramanJohn Guy & Nicky

Cheung

Michael Leacock &

Angela Gray

Matt Clarke & Daniel

RegliRene Locher

Alain Oberhuber &

Gian-Marco Werro

Tobias Fahrenholz,

Sven-Erik Schipanski,

Daniel Gleim,

Iwan Tjutjunnikow

Pick 1 SAP Kering Bayer UBS Swiss Life Hochdorf Schindler

Pick 2 Cap Gemini Tod's Novartis Société Générale Swiss Re Beiersdorf Jungheinrich

Pick 3 Temenos Swatch Group Roche ABN AMRO Munich Re Nestlé Conzzeta

Pick 4 Nemetschek LVMH Sanofi Leonteq Zurich Emmi Forbo

Pick 5 SNP Adidas Group Julius Baer Allianz Danone Ascom

Pick 6 Atos Nike GAM Hannover DKSH Dürr

Pick 7 Worldline Richemont ING Group Helvetia Aryzta KION

Pick 8 Dassault Systemes Puma SE Valiant Scor Lindt&Sprüngli GEA

Pick 9 Software AG Burberry Crédit Agricole Baloise Adecco Georg Fischer

Pick 10 Hugo Boss AG Commerzbank Talanx Barry Callebaut Bucher

Pick 11 Prada Crédit Suisse L’Oréal Pfeiffer

Pick 12 Salvatore Ferragamo Vontobel Henkel Siemens

Pick 13 BNP Paribas Unilever Sulzer

Pick 14 Cembra Norma

Pick 15 EFG Kone

Pick 16 Natix is Bossard

Pick 17 BCV Interroll

Pick 18 Deutsche Bank dormakaba

Pick 19 Belimo

Pick 20 SFS

Pick 21 Krones

Pick 22 Oerlikon

Pick 23 va-Q-tec

Pick 24 Nordex


20 December 2017 9 / 80

Analysts stock pecking order per sector (continued)


Analysts stock pecking order per sector (continued)

Sector Media Telcos Business serv ices Utilities Concessions Asset gatherers Towers

Analyst Jean-Baptiste Sergeant Jean-Baptiste Sergeant Mourad Lahmidi Enrico Bartoli Enrico Bartoli Irene Rossetto Irene Rossetto

Pick 1 TF1 Bouygues Edenred A2A Atlantia Banca Generali Inwit

Pick 2 M6 Iliad Elis Iren Abertis Anima Cellnex

Pick 3 Stroer Orange Teleperformance Endesa Sias Fineco Rai Way

Pick 4 JCDecaux Applus Serv ices Acea Banca Mediolanum EI towers

Pick 5 Vivendi Eurofins Italgas Azimut

Pick 6 Lagardère Essilor Snam

Pick 7 Mediaset Virbac Hera

Pick 8 WPP Neopost Terna

Pick 9 Publicis Seb Enel

Pick 10 Sodexo

Pick 11 SGS

Pick 12 Bureau Veritas

Pick 13 Intertek

Pick 14 BIC


20 December 2017 10 / 80

A2A

Value creation story to continue in 2018

Price EUR 1.58 – Target EUR 1.80 (+14%) – A2A IM – Market Cap EUR 5bn

– Italy – Utilities

Enrico Bartoli - +39 (02) 8546 5763 - [email protected]

Why we have it on the list?

We expect A2A’s value creation story to continue in 2018 and that A2A will

keep beating market expectations and surprising on the positive side. The

outlook for power prices in the Italian power generation market is improving

and we think that A2A would be the main beneficiary of increasing prices,

higher margins and load factors for CCGT plants. In this outlook, we think that

investors will gradually perceive A2A’s exposure to power generation as an

opportunity rather than a risk. We also expect A2A’s management to identify

further business development and efficiency improvement opportunities which

we think will likely be disclosed within the business plan update to be

presented in March. In our opinion this business plan update will further

improve visibility on the de-risking trend of A2A’s business portfolio through

growth in regulated or quasi-regulated businesses, hence cutting the

proportional contribution to EBITDA from power generation. We expect A2A to

continue to reduce its net debt over the next years thanks to its strong FCF

generation. The company’s FCF yield is the highest within its peer group: we

estimate the FCF yield to remain close to 10% over the next years despite

robust levels of capex. We expect upside pressure on our EUR 1.80 price

target (see valuation section below).

Where do we differentiate?

Our price target is the highest in the street according to what is reported by

Bloomberg. We think that the company would continue to beat market

expectations through additional potential business development opportunities

and further efficiency measures and M&A. We think that A2A’s exposure to

power generation would prove to be more an opportunity rather than a risk in

the current outlook for the power generation market in Italy which is

characterised by recovery of electricity demand, increasing uncertainty on

imports of electricity from France and expected increase in contribution from

renewables to the energy mix. Our EBITDA and EPS estimates are

respectively 3% and 5% higher than consensus’ estimates on average for the

period 2017-20.

12-month PT and 3-year valuation view

Our 12-month EUR 1.80 price target is obtained through a SOTP based

valuation. DCFs are based on risk-free rate assumptions slightly above the

current level of Italian government bond yields (2.0% for 10-year bond, 3.2%

for the 30-year). Upside potential on our price target would derive from 1)

better than expect outlook for power prices in the Italian electricity market (we

assume EUR 48/MWh as of 2019); 2) mark-to-market of risk-free rate

assumptions in our DCFs; 3) growth opportunities in the retail supply business

that would arise from the full liberalisation of currently regulated electricity

mailto:[email protected]


20 December 2017 11 / 80

clients and which are not included in our estimates; 4) value creation from

possible additional development capex; 5) value creation from business

development opportunities arising from M&A.

We calculated a 3-year price target by applying our target 2018 multiples to our

2020 EBITDA estimates for each business, and using our end 2020 net debt

estimate as well as the EUR 0.7bn of cumulated dividends we expect over

2018-20: this would lead to a price target of EUR 2.26, ie another 26% higher

than our EUR 1.80 12-month target.

A2A - Peer group comparison


2018 H1/FY prospects

A2A has consistently beaten our and consensus’ expectations on quarterly

results for the past three years. We expect this trend to continue in 2018 and to

provide positive news flow for the stock. We currently estimate FY-18 EBITDA

and adjusted net profit to remain flat versus 2017 despite lower green

certificates available for sale in the power generation business, lower expected

positive one-offs at the EBITDA level and increasing DD&As resulting from the

implementation of the capex plan. We expect A2A’s FCF generation to remain

strong and to determine a reduction of net debt to below EUR 3.1bn at end

2018, from EUR 3.3bn estimated for end 2017.

Expected triggers

We expect A2A’s share price to benefit from several pieces of positive news

flow over the next months: 1) we expect a final agreement regarding the so

called “utility of northern Lombardy” which would integrate Acsm-Agam (ACS

IM, not rated), AEVV and Lario Reti into the A2A group. The industrial project

has already been agreed among the parties involved and it is expected to

increase EBITDA to EUR 90-120m by 2021 versus around EUR 70m we

estimate for 2017; 2) we expect regulation for the implementation of a capacity

market in the Italian electricity system to be approved over the next weeks and

that the first delivery of capacity would start in H1-18. The start-up of the

capacity market would provide visibility on the net positive impact on EBITDA

we expect for A2A’s power generation business; 3) A2A will present its

2017E 2018E 2019E 2020E 2021E

A2A (Outperform, PT EUR 1.80)

EV/EBITDA 7.4 7.3 7.0 6.7 6.4

PE 12.9 12.8 12.3 11.8 11.5

Dividend yield 3.6% 4.1% 4.7% 5.2% 5.3%

FCF yield 6.1% 7.7% 8.0% 8.5% 9.7%

Iren (Outperform, PT EUR 2.90)

EV/EBITDA 7.3 6.9 6.9 6.6 6.2

PE 14.0 12.8 12.7 11.6 11.1

Dividend yield 2.7% 3.0% 3.3% 3.6% 3.9%

FCF yield 5.0% 2.7% 0.7% 4.1% 7.4%

Acea (Outperform, PT EUR 17.0)

EV/EBITDA 6.8 6.5 6.6 6.4 6.3

PE 14.2 13.2 13.8 13.1 12.9

Dividend yield 4.0% 4.1% 4.2% 4.3% 4.5%

FCF yield -7.4% 0.3% -1.4% 0.1% 1.1%

Hera (Neutral, PT EUR 2.85)

EV/EBITDA 7.8 7.8 7.9 7.6 7.3

PE 18.3 18.6 18.7 17.9 17.6

Dividend yield 3.1% 3.1% 3.3% 3.3% 3.3%

FCF yield 5.5% 4.6% 4.4% 6.5% 9.2%


20 December 2017 12 / 80

updated business plan in March 2018. We expect that the new plan would

improve visibility on further growth potential for the company in terms of

business development and efficiency improvement; 4) forward Italian power

prices are continuing their positive trend and we think likely that they would

determine upside pressure to our and consensus’ estimates.

Want to find out more?

Better outlook for A2A’s power generation – 13 Nov 17

http://mainfirst.force.com/SingletrackCMS__DownloadDocument?docRef=b5f78893-d002-46ec-9c1a-521a347aadad


20 December 2017 13 / 80

KEY FINANCIALS – A2A

YEAR TO DECEMBER (EUR M) 2016 2017E 2018E 2019E

PROFIT & LOSS ACCOUNT Group revenue (as reported) 5,093 5,960 5,962 6,175

EBITDA 1,231 1,202 1,193 1,217

EBIT 456 664 684 700

t/o: At-equity result (4) (3) (3) (3)

Pre-tax result 354 490 570 593

Income tax, other items (115) (188) (183) (191)

Net result group 239 302 386 402

Minorities, other (15) (2) (3) (3)

Net result shareholders 224 300 383 399

EPS, fully diluted (EUR) 0.07 0.10 0.12 0.13

MainFirst adjustments

Exceptionals in EBIT (128) (5) 0 0

Profit & Loss Account (adj.)

EBITDA 1,103 1,147 1,193 1,217

EBIT 584 669 684 700

Net result, shareholders 377 380 383 399


CASH FLOW STATEMENT EBITDA 1,231 1,202 1,193 1,217

Cash interest and tax (1,231) (770) (761) (768)

Changes in working capital (97) (70) (40) (40)

Other operating CF items 901 441 461 467

Net operating cash flow 804 803 853 876

Capital expenditure (intangibles, tangibles) 424 504 442 454

Free cash flow 380 299 411 422

Acquisitions, Disposals, Financial assets (507) (286) (31) (31)

Dividends, minority payouts (127) (153) (176) (202)

Capital measures, other 15 (3) (1) (4)

Change in net cash (debt) (239) (142) 204 184

Net cash (debt) (3,136) (3,278) (3,075) (2,890)

BALANCE SHEET

Fixed assets 7,315 7,687 7,730 7,778

t/o Goodwill 0 0 0 0

Current assets 2,639 2,709 2,749 2,789

t/o Inventories 159 159 159 159

t/o Trade receivables 1,821 1,891 1,931 1,971

t/o Cash and equivalents 659 659 659 659

Group equity 3,271 3,416 3,622 3,815 t/o Shareholders equity 2,717 2,864 3,072 3,269

Interest-bearing liabilities 3,795 3,937 3,734 3,549

Other liabilities and provisions 2,888 3,043 3,123 3,203

t/o Pension provisions 0.00 0.00 0.00 0.00

t/o Trade liabilities 1,384 1,384 1,384 1,384

Balance sheet total 9,954 10,396 10,479 10,567

Net working capital 596 666 706 746

Capital employed (incl. Goodwill) 7,911 8,353 8,436 8,524

RATIOS

Revenue y/y 3.5% 17.0% 0.0% 3.6%

EBITDA margin (adj.) 21.7% 19.2% 20.0% 19.7%

EBIT margin (adj.) 11.5% 11.2% 11.5% 11.3%

EPS (adj.) y/y 35.6% 0.9% 0.8% 4.1%

Net working capital intensity (as a % of sales) 11.7% 11.2% 11.8% 12.1% DSOs (trade receivables as days of revs) 131 116 118 117

Inventory turnover (Days) 11.4 9.74 9.73 9.40

Net debt (cash) / EBITDA (adj.) 2.84 2.86 2.58 2.37

EBITDA (adj.) / Capex 2.60 2.28 2.70 2.68

Free CF yield (FCF / market cap) 13.0% 6.1% 8.4% 8.6%

Year To December (EUR m) 2016 2017E 2018E 2019E

A2A – EBITDA and net profit (EUR m)

Source: MainFirst

A2A – Free cash flow yield

Source: MainFirst

A2A – EBITDA breakdown in 2021E (EUR m)

Source: MainFirst


20 December 2017 14 / 80

Bayer

Hoe Hoe Hoe!

Price EUR 108 – Target EUR 144 (+34%) – BAYN GY – Market cap EUR

89bn– Germany – Pharmaceuticals

Michael Leacock - +44 (207) 478 8075 - [email protected]


Companies often claim to be a leader in a particular segment or arena. In the

case of a merged Bayer / Monsanto this would be true on a global basis. In

seeds we estimate that Bayer/Monsanto would have a global share of 28%,

seven percentage points above its nearest competitor, even accounting for the

proposed disposal of the parts of Bayer’s business to BASF (2016 PF data). In

terms of global crop science, Bayer would also be #1 by an even bigger margin

– c.28% market share, some ten percentage points above the next biggest

player.

Although the timing of any turn of crop cycle is tough to call, the underlying

dynamics are pretty clear – Global demand for soybean and corn has risen 4%

CAGR over the past 10 years (Source: SuccessfulFarming 13 Dec 2017).

Being the global leader in a market with that long-term sustainable growth is a

good position to be in.

The other main division, Pharma, is set fair for the next six years, we forecast

6% CAGR in sales 2017-23E. There are patent issues to come in the middle of

the next decade and Bayer needs to work on its pipeline. It would not take

many deals similar to the recent one with LOXO though to solve this problem.

After a year or more of regulatory and anti-trust pondering, we should be close

to completion for the Bayer / Monsanto deal – CIFUS has already allowed the

deal and the EC deadline is currently set for the 5 March 2018. We should see

completion well within H1 2018.


We have the highest target price in the market, based on our detailed analysis

of the crop science drivers (for details see our initiation piece below). We had

no position to push before reinitiating our coverage in May 2017 and have

used the same analyst for the entire company rather than having the

(dis)advantage of farming out the crop sector to an agro specialist. Thus there

is a coherence of approach in our modelling.

Our target price is of course adjusted so that it remains the same independent

of what the rights issue might actually be, although for the record we currently

model one of EUR 6bn.


Our 12 month price target is EUR 144, based on a DCF model of the combined

entity, using a WACC of 7.1% and a terminal growth of 1.7% (blended from

assumptions of 1% for Pharma, 3% for Crop, -1% for consumer and 2% for

AH). We have used consensus Monsanto forecasts where available and



20 December 2017 15 / 80

assumed synergies arrive at the scale and timing as initially proposed by the

company on the announcement of the deal.

An improvement in the longer term prospects for Pharma such that Xarelto

patents expiries were likely to be overcome could lift our valuation by EUR 10

per share. Should we the projections from Monsanto in its extended

contingency case for 2021-2025 (p 43 Monsanto SEC filing of Oct 2016) of

Monsanto this would add c.EUR15 to our valuation. Incorporating these two

factors into longer term valuation would suggest a three year fair value of

around EUR 170.


There remains a myriad of issues to be resolved in the near term:

What businesses will need to be disposed of to ensure regulatory

approval?

Can these be done before the completion or afterwards?

The final scale of disposals will also affect the likely synergies that may be

achieved – they could be lower than anticipated.

How much will the rights issue be and when will it occur?

The EC current deadline is 5 Mar 2018 and the Brazilian anti-trust

decision is expected shortly afterwards (20 March). These could be

further extended.

Thus news flow in the first quarter (and perhaps beyond) is likely to be intense

and mostly merger-related. That said it should all be focused on completing the

deal and thus should have a positive endpoint. Monsanto reports its next

results on 4 January 2018, Bayer Q4 ’17 results are expected at the end of

February. It is unlikely that we will see resolution of the consumer health issues

at that point, that is likely to come following the arrival of the new CEO for the

divisions. Investors will be watching pharma closely at Q4 to see that Xarelto

sales continue a positive dynamic after the surprising weakness in Q3 ’17 as

well as taking note of the underlying trends for factor VIII therapy.

Once the Monsanto deal is completed (assuming regulatory and anti-trust

approval) we expect the market to focus on the company achieving proposed

synergies in crop (given the poor performance seen with the Merck OTC

acquisition). We expect the market will also move to look at solutions to sustain

the current strong Pharma growth well into the next decade.

What are the risks to our view?

There is always a (slim) possibility that the deal does not go through, perhaps

owing to insurmountable regulatory/anti-trust demands. There are over 20,000

lawsuits ongoing concerning the labelling of Xarelto in the US. Although Bayer

won the first three trials, it lost the most recent trial in Philadelphia, with a

USD 28m punitive damages award. This could provide considerable risk of

litigation costs and payments, most of which we would assume would not be

covered by insurance.

The crop market may have mid-single digit longer term growth but determining

the timing of any turn in the cycle is very difficult and it could be some time

before it does so.


20 December 2017 16 / 80

One of the key products for Monsanto has struggled to maintain a European

licence (now granted until Dec 2022). France’s president has targeted

removing the product from the market before any future renewal which could

put pressure on other European countries and thus sales of glyphosate and

associated seeds.


Headwinds – but not blown off course - 26 oct 17

A Bayer-logical transformation - 22 may 17

https://s3.amazonaws.com/mainfirst/research_BAY-NOT-26.10.2017.pdf?X-Amz-Signature=111410b1bad652cf94e166872a5abb7b0a6b7be000067c993069ce9aee64cf74&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

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20 December 2017 17 / 80

KEY FINANCIALS - BAYER



EBITDA 10,785 10,398 9,097 9,852

EBIT 7,042 7,698 6,908 7,663

t/o: At-equity result (26) (10) 234 242

Pre-tax result 5,887 6,938 6,260 7,410

Income tax, other items (1,329) (1,570) (1,502) (1,778)

Net result group 4,558 5,368 4,757 5,632

Minorities, other (295) (756) 0 0

Net result shareholders 4,263 4,612 4,757 5,632



Exceptionals in EBIT (1,088) (721) (207) (212)


EBITDA 11,302 10,936 9,304 10,064

EBIT 8,130 8,420 7,115 7,875

Net result, shareholders 6,094 5,807 5,696 6,573



Cash interest and tax (3,247) (2,330) (2,151) (2,031)

Changes in working capital (103) 0 0 (659)

Other operating CF items (331) 16 (0) (0)

Net operating cash flow 7,104 8,084 6,946 7,162

Capital expenditure (intangibles, tangibles) 2,578 2,441 2,057 2,182

Free cash flow 4,526 5,643 4,889 4,980

Acquisitions, Disposals, Financial assets (913) 8,679 5,900 0

Dividends, minority payouts (2,126) (2,361) (2,442) (2,620)

Capital measures, other 4,184 (3,788) 218 214

Change in net cash (debt) 5,671 8,173 8,565 2,574

Net cash (debt) (11,778) (3,605) 4,960 7,534

BALANCE SHEET

Fixed assets 51,791 45,956 39,924 39,917

t/o Goodwill 16,312 16,047 14,147 14,147

Current assets 30,447 34,995 43,342 46,531

t/o Inventories 8,408 6,687 6,687 7,034


t/o Cash and equivalents 7,803 15,756 24,103 26,463




t/o Pension provisions 11,134 9,925 9,925 9,925



Net working capital 12,967 11,108 11,108 11,767


RATIOS

Revenue y/y 1.0% -9.6% -16.9% 5.2%


EBIT margin (adj.) 17.4% 19.9% 20.2% 21.3%

EPS (adj.) y/y 1.0% -9.0% -2.1% 15.2%

Net working capital intensity (as a % of sales) 27.7% 26.3% 31.6% 31.8% DSOs (trade receivables as days of revs) 85.6 80.2 96.5 96.5


Net debt (cash) / EBITDA (adj.) 1.04 0.33 n/m n/m

EBITDA (adj.) / Capex 4.38 4.48 4.52 4.61


Oper. FCF yield ([FCF - net int. taxed] / EV) 5.0% 6.0% 5.9% 5.7%

Sales by division - proposed merged entity 2020E

Source: MainFirst, ex announced seeds disposal

Combined Crop Science EBITDA and margin 2017-24E

Source: MainFirst

IFRS EBITDA contribution for potential merged entity 2020E

Source: MainFirst, ex announced seeds disposal

Pharma

Consumer Health

Crop Science (including

Monsanto & synergies)

Animal HealthReconciliation

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

20000

21000

22000

23000

24000

25000

26000

27000

28000

2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Combined CS combined EBITDA margin

Pharma28%

Cons. Health5%Crop Science

combined65%

Animal Health2%


20 December 2017 18 / 80

Bilfinger SE

Inflection point?!

Price EUR 38 – Target EUR 47 (+22%) – GBF GY – Market Cap EUR 1.7bn

– Germany – Industrial Services

Patrick Horch - +49 (69) 78808 231 - [email protected]


With Q3-17 potentially being the inflection point of the long-term turnaround of

Bilfinger, we think now is the time to start building a position in the name.

GBF’s new and very experienced management continues to win back

investors’ confidence and our in-depth analysis shows that the company’s new

2-4-6 strategy and organisational set-up are well-suited to drive the turnaround

of the company. While FY-17 was the predicted transition year, we expect

gradually improving top-line (MFe: +2.7% y/y) and margin dynamics (MFe:

+275bps y/y) over the course of FY-18 with a potential positive surprise due to

a pick-up of the O&G sector in H2-18. While we remain cautious at the

targeted output volume CAGR of GBF (>5% vs. MFe: 3.5%), we believe that

the real story and upside lies in the margin improvement potential (2016-20E:

+500bps). Additionally, a great deal of the targeted cost savings are low

hanging fruits, in our view, and we thus believe that our forecasted margin

uplift should materialise even if the growth turns out to be lower than expected.

Uncommon for a turnaround case, the running share buyback (up to EUR

150m) should support the shares in the coming months and investors will be

reimbursed by a cash return of >8% in FY-18 until the earnings recovery is in

full swing. We thus find this self-help story offers a very attractive risk/reward

profile with a potential share price of EUR 70 in our blue sky scenario.


Apart from our confidence in the margin improvement potential of the

company, we believe that the upside potential in GBF’s 49% stake in Apleona

(former Building and Facility business) is largely overlooked by the market. We

therefore looked at different scenarios for the future sale proceeds of GBF’s

stake (Risk/reward ratio skewed to the upside). In our base case, we expect

future sale proceeds of EUR 327m in 2020 which, discounted back, offer an

upside of EUR 2.6/share, or 7%. In the bull case, we assume that EQT

achieves a similar development as it did with ISS, which would even yield EUR

6.0/share, or 16% upside. Furthermore, we analysed GBF’s O&G exposure

and believe that any additional downside is now limited. In contrast, positive

management commentary in the context of the Q3 reporting and x-reads from

other suppliers to the O&G sector indicate a potential pick up in the O&G

sector in H2-18. Together with increased tendering activities by GBF in North

America after the implementation of its new risk management system, the

company could positively surprise investors.


With FY-17 being the expected transition year, we believe that one has to look

at GBF’s 2020 targets in order to derive a fair value for the company. Our

SOTP valuation is thus based on our 2020 estimates and discounted back to


http://mainfirst.force.com/SingletrackCMS__DownloadDocument?docRef=118740b5-a3f6-4d4a-992f-b27b8fd651ca


20 December 2017 19 / 80

FY-18, which yields a fair value of EUR 47 per share. In our blue sky scenario,

we even derive a fair price of EUR 70 in 2020. GBF currently trades at 0.4x

EV/Sales, 7.2x EV/EBIT 2020E and 9.2x cash adj. PE 2020E.


We forecast a growth in output volume of 2.7% y/y in 2018 and a 270bps

improvement in the adj. EBITA margin which is driven by the reduction in

project losses (EUR 60m/EUR 55m in FY-16/-17) and by progress in the

various cost savings measures. Furthermore, we expect an accelerating

earnings dynamic over the course of the year with a particularly strong H2-18.

With our estimates we are 1.8% and 11.3% above consensus. However,

should GBF continue to deliver on its promises, we expect to see consensus

upgrades over the year, not only for FY-18, but also for the coming years up to

2020.

Expected triggers

Announcement of new orders, cost savings becoming increasingly visible and

further positive commentary on the development in the O&G sector in the

upcoming reporting season should improve investors’ sentiment.


Risk/reward ratio skewed to the upside - 29 Jun 17

New path is laid out – GBF’s time to walk the talk - 13 Mar 17

http://mainfirst.force.com/SingletrackCMS__DownloadDocument?docRef=118740b5-a3f6-4d4a-992f-b27b8fd651ca

https://s3.amazonaws.com/mainfirst/research_GBF-NOT-13.03.2017.pdf?X-Amz-Signature=f4aff9a33cba0f8b685cdf94cf17b3e84c6c7dc0784f6a3e4c0399aec3db9611&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

TOP PERFORMANCE LIST, ERROR! NO TEXT OF SPECIFIED STYLE IN DOCUMENT. ()

20 December 2017 20 / 80

KEY FINANCIALS - BILFINGER



EBITDA (123) (26) 141 239

EBIT (231) (123) 47 149

t/o: At-equity result 0 0 0 0

Pre-tax result (253) (134) 37 141

Income tax, other items (26) 47 (11) (41)

Net result group (279) (87) 26 100

Minorities, other (1) 4 (8) (8)

Net result shareholders (280) (84) 18 92

EPS, fully diluted (EUR) 6.13 (0.55) 0.45 2.26


Exceptionals in EBIT 0 (116) (54) (25)


EBITDA (123) 90 195 264

EBIT (231) (7) 101 174

Net result, shareholders (8) (8) 57 110

EPS, fully diluted (EUR) (0.18) (0.20) 1.40 2.69

CASH FLOW STATEMENT EBITDA (123) (26) 141 239

Cash interest and tax (48) 28 (28) (56)

Changes in working capital (132) 10 (3) 5

Other operating CF items 79 15 (21) (23)

Net operating cash flow (224) 28 89 166


Free cash flow 702 (55) 11 88



Capital measures, other (92) (75) (75) 0

Change in net cash (debt) 605 (176) (118) 34

Net cash (debt) 522 346 228 262

BALANCE SHEET

Fixed assets 1,690 1,680 1,668 1,659

t/o Goodwill 816 816 816 816

Current assets 2,329 2,093 2,012 2,079


t/o Trade receivables 884 799 810 831

t/o Cash and equivalents 1,032 856 738 772


Interest-bearing liabilities 510 510 510 510


t/o Pension provisions 304 307 308 313

t/o Trade liabilities 681 632 666 704




RATIOS

Revenue y/y -15.8% -6.7% 2.8% 3.9%

EBITDA margin (adj.) -2.9% 2.3% 4.8% 6.3%

EBIT margin (adj.) -5.5% -0.2% 2.5% 4.1%

EPS (adj.) y/y -106.5% 8.7% -809.1% 93.1%



Net debt (cash) / EBITDA (adj.) n/m n/m n/m n/m

EBITDA (adj.) / Capex 0.13 1.09 2.51 3.41

Free CF yield (FCF / market cap) 28.4% -3.4% 0.7% 5.7%

Oper. FCF yield ([FCF - net int. taxed] / EV) 32.1% -2.7% 1.4% 6.0%

GBF’S EXPECTED 500BPS MARGIN IMPROVEMENT UNTIL 2020 WILL BE DRIVEN BY…

Source: MainFirst

…A 200BPS UPLIFT IN THE GROSS PROFIT MARGIN AND AN IMPROVEMENT OF 300BPS IN THE SG&A OUTPUT VOLUME RATIO

Source: MainFirst

POTENTIAL UPSIDE FROM GBF’S 49% EQUITY STAKE IN APLEONA

Source: MainFirst


20 December 2017 21 / 80

Bouygues

Four-dimensional game

Price EUR 44 – Target EUR 51 (+16%) – EN.FP – Market cap EUR 16bn–

France – Telecom Services

Jean-Baptiste Sergeant - +33 (1) 7098 3985

[email protected]


Bouygues currently benefits from a strong momentum in all of its businesses

(telecoms, media and construction), which should lead to a 20% adj. EPS

CAGR between 2016 and 2019 at group level: 1/ Bouygues Telecom should

continue to expand its market share both in mobile (competitive 4G network)

and in fixed (efficient pricing strategy), leading to a strong EBITDA margin

improvement (+530 bps between 2016 and 2019E), 2/ TF1 (OPF, PT EUR

16), the leading French TV group, 43.9% owned by Bouygues, is now seeing

better trends, with increased ad market shares and audience ratings, and will

benefit from the acquisition of Aufeminin in 2018. This should enable TF1 to

meet its double-digit margin target in 2019 (MF: 11.4% vs. 6.3% in 2016), 3/

the construction business is also well-oriented and should improve its margin

by 50bps between 2016 and 2019. In France, the main growth driver is the

‘Grand Paris’ (>EUR 30bn investments between 2015 and 2030), knowing that

Bouygues has already won contracts worth EUR 1.3bn out of the EUR 3.7bn

assigned so far. Abroad, Bouygues has won several large contracts and will

integrate a major player in Canada (Miler & McAsphalt). The fourth part of the

jigsaw relates to the dividends to be received from Siemens-Alstom in 2018

(EUR 500m), that could lead to an enhanced dividend policy, although it is

already appealing (c.4% yield). If the stake in Siemens-Alstom is sold in 2019

(EUR 2.3bn market value), the sales proceeds could also be returned.


Contrary to consensus, we believe that the merger project between Bouygues

Telecom and Orange may re-emerge as Bouygues could re-negotiate a better

marriage than last year by valuing Bouygues Telecom at a higher price and

getting a larger stake in the new entity (given the likely partial divestment of the

French State from Orange). Bouygues Telecom could now be valued EUR

13.3bn in such a transaction (vs. EUR 10.0bn last year) applying the same

multiple, i.e. 11.8x EBITDA of the estimated current year. Assuming that half of

the payment would be made in shares, Bouygues would own 13.7% of the new

entity (Orange / Bouygues Telecom) vs. 19.5% for the French State. This

would be highly EPS accretive, even before synergies (14% in our view). Also,

Bouygues could become the main shareholder of the new entity by acquiring

an additional 3% stake from the French State. Giving a 33% probability to this

‘consolidation’ scenario, our valuation of Bouygues Telecom in our SOTP

stands at EUR 8.8bn (at 100%). We also have a differentiated view on TF1

since we think that regulation for TV advertising is likely to be eased in France

next year. The main measure could extend the list of TV advertising-eligible

sectors to cinema, literature and retail special promotions, which would

generate 5% additional TV ad growth for TF1 and would be accretive by more

than 30% on its net result.



20 December 2017 22 / 80


Our PT is derived from a sum-of-the-parts approach, with a specific

methodology for each activity: peers’ multiples for the construction businesses,

weighted average of two methods for Bouygues Telecom (DCF, 67% weighting

/ Transaction value, 33% weighting), MainFirst target price for TF1 (EUR 16

per share) and mark-to-market valuation for the 28% stake in Alstom. We then

apply a 10% holding discount to derive our PT of EUR 51.

Our PT would reach EUR 60 by valuing Bouygues Telecom only through its

transaction value (EUR 13.3bn). The risk-reward is highly favourable as our PT

would remain higher than the current share price (at EUR 46) if the

consolidation scenario doesn’t materialise (Bouygues Telecom’s valuation only

derived from a DCF model, at EUR 6.6bn). This bear case scenario would

even lead to PT of EUR 53 in three years.


After a strong 2017, with a margin increase in the three businesses (+90bps at

the group level, at 4.4%), Bouygues should continue to improve its profitability

in 2018. Indeed, we expect current operating margin to increase by 30bps y/y,

mainly driven by Bouygues Telecom (+170bps y/y vs. +10bps for Construction,

thanks to the accretive Canadian acquisition, and -70bps for TF1 due to the

extra-cost of the World Soccer Cup rights). We see 12% EPS growth in 2018,

which is 2% higher than consensus. Note that margin improvement should be

more significant in 2019 (MF: +50bps to 5.2%), this time driven by TF1 that

should meet its target of a double-digit margin. Our 2019 EPS is 8% higher

than consensus.

Expected triggers

The main catalyst could come from a resumption of the merger project with

Orange in telecoms with a better offer than the previous attempt (higher

valuation for Bouygues Telecom and a higher stake in the new entity).

The stock could also benefit from new contract wins for the Construction

business (several tender offers linked to the Grand Paris in the coming

months) and from regulatory changes for TV advertising.


Four-dimensional game - 27 nov 17

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20 December 2017 23 / 80

KEY FINANCIALS - BOUYGUES



EBITDA 2,583 3,176 3,357 3,518

EBIT 947 1,548 1,670 1,809


Pre-tax result 1,033 1,485 1,582 1,728


Net result group 784 1,036 1,111 1,226


Net result shareholders 732 928 1,003 1,118



Exceptionals in EBIT (174) 124 75 0


EBITDA 2,757 3,052 3,282 3,518

EBIT 1,121 1,423 1,595 1,809

Net result, shareholders 632 846 952 1,118



Cash interest and tax (430) (677) (714) (742)

Changes in working capital 194 (453) 232 109

Other operating CF items 0 (0) 0 (0)



Free cash flow 709 446 1,181 1,160

Acquisitions, Disposals, Financial assets 1,395 (113) (1,202) (117)


Capital measures, other (747) (143) 51 55


Net cash (debt) (1,866) (2,283) (2,827) (2,303)

BALANCE SHEET

Fixed assets 17,432 17,717 18,926 19,058

t/o Goodwill 5,367 5,367 5,367 5,367

Current assets 17,422 17,452 17,296 18,001

t/o Inventories 2,955 2,955 2,955 2,955








Net working capital (3,107) (2,854) (3,086) (3,195) Capital employed (incl. Goodwill) 14,325 14,863 15,840 15,864

RATIOS Revenue y/y -2.0% 2.6% 4.0% 1.8%


EBIT margin (adj.) 3.5% 4.4% 4.7% 5.2%

EPS (adj.) y/y 26.0% 30.0% 12.0% 17.4%

Net working capital intensity (as a % of sales) -9.8% -8.8% -9.1% -9.3%

DSOs (trade receivables as days of revs) 110 110 110 110


Net debt (cash) / EBITDA (adj.) 0.68 0.75 0.86 0.65 EBITDA (adj.) / Capex 1.68 1.91 1.94 2.04



BOUYGUES’ REVENUE AND CURRENT OPERATING MARGIN

Source: MainFirst

BOUYGUES’ ADJ. EPS EVOLUTION

Source: MainFirst

BREAKDOWN OF BOUYGUES’ EV IN OUR SOTP

Source: MainFirst

4.0%

2.7%2.9%

3.5%

4.4%4.7%

5.2%5.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

38,000

40,000

2013 2014 2015 2016 2017E 2018E 2019E 2020E

Revenue (EUR '000) Current operating margin

1.94

1.47 1.45

1.82

2.37

2.66

3.12

2013 2014 2015 2016 2017E 2018E 2019E

Bouygues Construction, 19%

Colas, 24%

Bouygues Immobilier, 7%

Bouygues Telecom, 32%

TF1, 6%

Alstom, 10%


20 December 2017 24 / 80

Continental AG

Sentiment should improve further

Price EUR 227 – Target EUR 260 (+14%) – CON GY – Market Cap EUR

45bn – Germany – Automotive

Florian Treisch - +49 (69) 78808 232 - [email protected]


Conti has historically traded at a premium to most peers given its perception as

a high-quality name, though after several years of a mediocre performance

Conti trades at a c.10% discount to peer multiples based on a sector-based

SOTP valuation framework. Our analysis suggests that the opposite should be

the case: Conti’s performance is back on track to earn a premium again. Our

price target of EUR 260 (implied 13.7x P/E FY-19E) factors in a 10% premium.

Automotive: Future-proof products now set the pace for growth: we calculate

that products for autonomous driving (ADAS) alone will push Conti’s

Automotive revenues by 1.5% p.a. until FY-20. Starting in FY-18, hybrid and

electric vehicle (HEV) products should gain momentum as well. All together,

we expect Conti to return to a c.600bps global production outperformance

(after <100bps in FY-16). The flipside is: we estimate a (non-structural) 170bps

Automotive margin dilution in FY18 but scale effects and R&D efficiency

should kick-in already in FY-19/20E. Powertrain offers several free options as

the market no longer believes in management’s FY-19 guidance and any mid-

term M&A fantasy.

Conti’s Tires segment is a unique asset, characterised by a superior

profitability compared to peers: Conti’s edge is a greater exposure to the

European tires market (c.60% of rev. vs. 30% global peer average) with a

favourable low-cost centric manufacturing footprint (>70% of volumes). We

calculate that the European operations represent >70% of tires earnings. This

favourable mix, in our view, should allow Conti to sustain its best-in-class

margin profile (MFe: 19-20% until FY-20) beyond what was assumed

historically.


While we do not materially differ from consensus’ expectations, we believe our

deep-dive analysis of Conti’s Automotive portfolio product-by-product and the

Tires segment by various parameters add confidence to the expected financial

performance. This should lead to a further improving sentiment and ultimately

higher multiples paid, in our view. Our analysis revealed: (a) organic top-line

growth should stay at c.600bps outperformance of the global car production

based on an increasing share of high-growth products and a strong order

intake in recent years converting into revenues in about 4 years; and (b) Conti

has a margin edge over peers as it has a greater share of revenues in Europe

with a strong manufacturing footprint in low cost countries. This should allow

Conti to report a sustainable margin gap to key tire peers.



20 December 2017 25 / 80


Conti’s mid-term Automotive growth case has just started to evolve and the

tires business should remain a benchmark when it comes to profitability. This

leaves limited arguments to justify the current 10% discount to peers, in our

view. The opposite should be the case: our price target of EUR 260 (10x/13.7x

EV/EBIT / P/E adj. FY-19E) is based on a segment-based SOTP valuation

(incl. a 10% premium) and is in line with the current FY-17E multiple.

We believe the key for Conti’s investment case in the coming years will be to

change the perception of Conti from an Automotive supplier tanker to a

speedboat, at least for an increasing part of the portfolio such as products for

autonomous driving and electric vehicles. This said, execution is the key driver:

our order backlog analysis suggests that our estimates leaves some room to

surprise positively and that Powertrain execution is a free option not factored

in. All that should enable Conti to trade above the average market’s multiples.

Applying our valuation method (i.e. 13.7x P/E multiple to forward earnings) two

years out, to derive a 3-year valuation view, would yield a PT of EUR 295.


20 December 2017 26 / 80

Continental – SOTP valuation

EV/EBIT 2017E 2018E 2019E

EBIT - Tires Division 2,175 2,300 2,310

Multiple 10.4x 9.1x 8.2x

EBIT - Conti Tech Division 502 645 678


EBIT - Chassis & Safety Division 945 1,035 1,120


EBIT - Powertrain Division 475 579 695


EBIT - Interior Division 840 910 992


EBIT - Holding/Others Division -135 -145 -155


Enterprise value 56,338 55,274 52,444

(-) Net debt / (cash) -2,467 -793 912

(-) Pensions -5,500 -5,500 -5,500

(-) Minority interest -465 -465 -465

(+) Financial assets 435 450 460

Equity value 48,341 48,967 47,852

NOSH (#m) 200 200 200

Equity value per share (EUR) 242 245 239

P/E adjusted 2017E 2018E 2019E

Net Income adj. 3,232 3,596 3,833


Equity value 49,441 50,246 49,264

NOSH (#m) 200 200 200

Equity value per share (EUR) 247 251 246

EV by division 2017E 2018E 2019E

Tires Division 40.3% 38.0% 36.3%

Conti Tech Division 15.8% 16.5% 16.2%

Chassis & Safety Division 21.0% 21.4% 21.5%

Powertrain Division 8.5% 9.5% 10.8%

Interior Division 17.2% 17.3% 18.0%

Holding/Others Division -2.8% -2.7% -2.7%

Enterprise value 100.0% 100.0% 100.0%

Rubber Group 56.1% 54.5% 52.4%

Automotive segment 46.8% 48.2% 50.3%

Others -2.8% -2.7% -2.7%



We believe the upcoming Q4 reporting should support our case: (1)

Automotive growth should stay at a high single-digit org. y/y growth rate

increasingly driven by future-proof products; (2) Powertrain weakness in Q3

was a one-off and should recover in Q4, and (3) a very robust winter tire sell-

out should enable Conti to report a very healthy Tires margin after a weaker

than expected recovery in Q3. The key focus however will be on the FY-18

outlook. We expect two positive messages: (1) Automotive revenue growth

rates should stay at a high level and margin dilution should stay at current

levels or even slightly decline; and (2) the Rubber group should benefit from

lower raw material headwinds (at least in H1) and a recovery in some

ContiTech segments (e.g. Oil & Gas and Mining). This will bring margin

expansion back on the agenda for FY-18.


20 December 2017 27 / 80

Expected triggers

We believe the key trigger to look at will be the upcoming CMD on the 9th of

January at the CES conference in Las Vegas. Besides an expected positive

outlook for FY-18E, as outlined above, we believe the event should highlight

that the automotive industry is changing faster than ever, driven by

technological innovations: …and one winner should be Conti. We believe the

management will be optimistic on the upside from new products such as ADAS

solutions and HEV products, but also products related to connectivity and

digitalisation. Conti should increasingly be seen as a structural growth winner

with over 80% of the Automotive enterprise value coming from non-Powertrain,

future-proof products.


A premium supplier at a discount - 6 Dec 17

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20 December 2017 28 / 80

KEY FINANCIALS - CONTINENTAL



EBITDA 6,201 6,908 7,504 7,957

EBIT 4,096 4,572 5,054 5,375


Pre-tax result 3,979 4,402 4,934 5,265


Net result group 2,882 3,191 3,577 3,817





Exceptionals in EBIT (245) (230) (270) (265)


EBITDA 6,446 7,138 7,774 8,222

EBIT 4,341 4,802 5,324 5,640





Changes in working capital (1,026) (511) (371) (492)

Other operating CF items 992 (158) (1) 8



Free cash flow 1,787 1,228 2,625 2,765

Acquisitions, Disposals, Financial assets (536) 0 0 0

Dividends, minority payouts (750) (850) (950) (1,060)

Capital measures, other 277 (0) 0 (0)

Change in net cash (debt) 778 378 1,675 1,705

Net cash (debt) (2,845) (2,467) (793) 912

BALANCE SHEET

Fixed assets 21,270 21,425 22,714 24,032

t/o Goodwill 6,857 6,866 6,866 6,866

Current assets 14,905 17,176 19,372 21,669

t/o Inventories 3,753 4,072 4,368 4,629











RATIOS

Revenue y/y 3.4% 8.5% 5.8% 6.0%


EBIT margin (adj.) 10.7% 10.9% 11.4% 11.4%

EPS (adj.) y/y 2.8% 11.3% 11.3% 6.6%



Net debt (cash) / EBITDA (adj.) 0.44 0.35 0.10 n/m

EBITDA (adj.) / Capex 2.04 1.97 2.57 2.61



AUTOMOTIVE: GROWTH SUPPORTED BY MEGATRENDS

Source: MainFirst

TIRES: CONTI HAS A MARGIN EDGE OVER PEERS - MANUFACTURING

Source: MainFirst

CASH FLOW: ONE OF THE BEST IN THE INDUSTRY

Source: MainFirst

0

200

400

600

800

1,000

1,200

FY-13 FY-14 FY-15 FY-16 FY-17E FY-18E FY-19E FY-20E

ADAS HEV (all products) Electronic Stability Control (ESC) Turbo chargers

ADAS is a key revenue driver

HEV will start to contribute in FY-18

Absolute rev. growth y/y (EURm)

0%

25%

50%

75%

100%

Nokian Conti Tires Pirelli Michelin Goodyear(MFe)

Bridgestone(MFe)

Low-/Best-cost countries High-cost countries (Germany, France, Japan, USA etc.)

1,819

3,258

1,315

2,303

2,018

2,6252,765

3,018

5.5% 9.4% 3.4% 5.7% 4.6% 5.6% 5.6% 5.8%

95%

137%

48%

82%65% 75% 74% 76%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2013 2014 2015 2016 2017E 2018E 2019E 2020E

FCF adj. (excl. M&A/special items) FCF margin Cash conversion

EURm % of FCF / net income


20 December 2017 29 / 80

Edenred

Cyclical upswing

Price EUR 24 – Target EUR 27 (+12%) – EDEN FP – Market Cap EUR 6bn –

France – Business services

Mourad Lahmidi - +33 (1) 7098 3983 - [email protected]


According to our estimates, Brazil represents c. 30% to 35% of Edenred’s

operating results and the region has been a drag to earnings development in

the past 24 months owing to higher unemployment. However, unemployment

has peaked and started to gradually decline since Q1-17. If this trend

continues (as evidenced by improved GDP forecasts – +2.5% in 2018E after

+0.8% in 2017E), this could be a significant tailwind for Edenred both at the top

line and bottom line level, as Brazil boasts the highest margins within the

group. According to our estimates, 1% additional growth in Brazil has EUR 1m

accretion on group’s EBITA.

On the other hand, the group has benefited from improved trends in Europe

(high single digit growth) thanks to decreased unemployment and the switch to

digital. We expect this to continue as 1/ the shift from paper to cards has yet to

deliver its full potential 2/ the ramp up of expense management should

increasingly contribute to earnings growth thanks to the expansion of fuel

cards in Western and Eastern Europe.


Our contrarian Outperform rating (32% only in consensus) is backed by

estimates that sit 6.5% above consensus as we assume a growth uptick in

Brazil (+5% in 2018E) owing to an improved economic backdrop and the

delayed knock-on impact of lower unemployment in the country.


Our DCF based price target stands at EUR 27 per share. Our valuation is

based on a long term EBIT margin of 34.0%. However, the ongoing shift to

digital is accretive to margins, and according to our estimates a 100% digital

business model yields EBIT margins of 37.0%. This would imply a DCF based

valuation of EUR30/share.

At last price, Edenred trades at a 12m forward PE of 20.3x i.e. at the median

point of its valuation range in the past two years. The low end of the range (15x

reached in Sept 2015) reflected heightened market concerns on the group’s

exposure to economic headwinds in Brazil.

Compared to fuel & fleet specialists like Fleetcor or Wright Express, Edenred

trades with a significant discount based on EV/EBIT or EV/EBITDA. This

shows that the group’s strategy to increase the share of expense management

should be accretive to valuation.



20 December 2017 30 / 80

EDENRED Peer group comparison

PRICE EV/EBITDA EV/EBIT P/E

2017E 2018E 2017E 2018E 2017E 2018E

MF Estimates

Edenred 23.9 12.3x 11.0x 13.7x 12.2x 22.4x 20.3x

Bloomberg Cons.

Sodexo 111.6 10.5x 9.7x 12.8x 11.9x 20.0x 18.7x

VISA Inc. 113.3 18.6x 16.7x 19.5x 17.4x 27.8x 23.9x

Mastercard Inc. 151.7 21.8x 19.0x 23.1x 20.0x 33.2x 28.2x

Fleetcor Inc. 189.7 16.4x 14.0x 21.9x 18.0x 22.5x 19.5x

Wright Express Corp. 128.7 17.0x 14.3x 33.3x 24.2x 24.0x 20.4x

Peers Average 16.9x 14.7x 22.1x 18.3x 25.5x 22.1x



We expect Edenred to post another year of strong EPS growth in 2018 (+8%

after +30% in 2017E – including acquisitions). Consensus should move up

along with an improved economic newsflow in Brazil.

Expected triggers

Edenred should publish its FY results on 20 February 2018 before the close.

The group is expected to give more details on its IATA contract and the

expansion of fuel & fleet in Europe where there could be a good upside

potential.


Rebalancing the model – 20 Mar 17

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20 December 2017 31 / 80

KEY FINANCIALS - EDENRED



EBITDA 401 484 523 553

EBIT 344 432 469 498







MainFirst adjustments Exceptionals in EBIT (26) (15) (7) (7)

Profit & Loss Account (adj.) EBITDA 427 499 530 560

EBIT 370 447 476 505



CASH FLOW STATEMENT

EBITDA 401 484 523 553


Changes in working capital 215 109 105 108

Other operating CF items (39) 25 7 7




Acquisitions, Disposals, Financial assets (194) (83) 0 0



Change in net cash (debt) 52 214 196 169

Net cash (debt) (587) (373) (177) (8)

BALANCE SHEET Fixed assets 1,296 1,311 1,326 1,338

t/o Goodwill 904 904 904 904

Current assets 4,336 5,555 5,902 6,201




Group equity (1,161) (989) (911) (832)

t/o Shareholders equity (1,230) (1,062) (987) (912)






Net working capital (2,583) (3,290) (3,439) (3,605) Capital employed (incl. Goodwill) (1,287) (1,979) (2,113) (2,267)

RATIOS Revenue y/y 6.5% 16.8% 4.5% 6.9%


EBIT margin (adj.) 32.5% 33.6% 34.3% 34.0%

EPS (adj.) y/y 2.0% 29.5% 7.8% 7.1%

Net working capital intensity (as a % of sales) -226.8% -247.4% -247.4% -242.6%

DSOs (trade receivables as days of revs) 453 484 484 475

Inventory turnover (Days) 104 91.3 91.2 91.3




UNEMPLOYMENT RATE - BRAZIL

Source: Banco Do Brazil

EBIT (adj.) BRIDGE FOR 2018

Source: MainFirst, Bloomberg Consensus

EBIT (adj.) EVOLUTION

Source: MainFirst, Company Accounts

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

Jan-2016 May-2016 Sep-2016 Jan-2017 May-2017 Set-2017

447

476

41

0 012

469

EBIT2017E

OperatingLeverage

FinancialRevenues

Perimeter FX EBIT2018E

Consensus

250

300

350

400

450

500

2011 2012 2013 2014 2015 2016 2017 2018

Virtually flat due to FX and interest rates headwinds


20 December 2017 32 / 80

Gerresheimer

Back to growth

Price EUR 71 – Target EUR 83 (+17%) – GXI GY – Market Cap EUR 2.2bn–

Germany – Healthcare

Marcus Wieprecht - +49 (69) 78808 221 -

[email protected]


Gerresheimer shares dropped substantially from their peak reached last

summer, driven by investor concerns around structurally slowing growth after

three quarters with even declining organic revenue trends. We however

believe that industry fundamentals in the global primary pharma packaging

market have not changed. We are convinced that volume growth for

Gerresheimer will return soon driven by growing demand for drugs treating

chronic diseases like diabetes or respiratory diseases, increasing trends

towards self-medication, and rising volumes for generic products. We believe

that the anticipated growth recovery in fact materialised already in Q4 2017

driven by a) a fading de-stocking effect as the pharma industry is running on

very low working capital levels by now, b) an expected catch-up of some

revenue streams (e.g. tooling revenues and inhaler production ramp-up at

GXI´s Peachtree facility and c) a good demand for cosmetics products and

syringes. We expect Q4 2017 results to at least meet market expectations

based on our c. 10% organic revenue growth estimate (despite a tough

comparison base in Q4 2016) with a c.170 bps adj. EBITDA-margin jump yoy.

Gerresheimer continues to operate in a highly regulated environment with a

proven long-term reliability and strong customer relationships providing

significant barriers to entry for competitors.


We do not share the street´s concern of structurally slowing growth of

Gerresheimer´s business mid-term. Following our recent CFO investor

roadshow, we in fact believe that growth momentum will already pick up

substantially in Q4 2017. We further believe the street is underestimating

potentially substantial earnings accretive M&A deals by GXI which could

further drive a re-rating of the shares in our view. Last but not least, we believe

that street is underestimating the probability of GXI being taken over itself.


GXI shares trade at a PE 2018/19 of c.15.7x/c.14.2x, in-line with its historic

average. We expect a re-rating of the shares driven by an improving visibility

on top-line growth recovery and c. 10% bottom-line growth in 2018/19E. Our

new EUR 83 PT is derived from our 17x forward target PE estimate rolled over

to FY 2019.

Looking a bit further down the road, we believe that shares could reach levels

>EUR 100 in three years from now. This could be driven by 1) a further

multiple expansion beyond our target PE of 17x (a 20x PE 2020 suggest

already >EUR 100), 2) substantial EPS accretive M&A given that the company



20 December 2017 33 / 80

has reached its leverage target of <2.5x one year ahead of schedule and 3) a

potential acquisition of Gerresheimer itself by industry competitors like West

Pharmaceutical Services or other life sciences/contract manufacturing players

who potentially look into further vertical integration into primary pharma

packaging for liquid/injectable drugs or even by private equity companies.

Gerresheimer Peer group comparison



We expect Gerresheimer to report a record quarterly result (Q4 2017) on Feb

22, 2018 driven by a strong pick-up of volume growth. We expect c. 10%

organic revenue growth yoy for Q4 2017 together with a >24% EBITDA-margin

despite already tough comps in Q4 2016. Key for investors will also be the FY

2018 outlook provided with the release of FY 2017 results on Feb 22, 2018 as

well. We expect the shares to re-rate during 2018 driven by an improving top-

as well as bottom-line momentum kicking off most likely already with Q4 2017

results.

Market EBITDA-

Healthcare related companies (EURm) Margin ´17E 2018E 2019E 2018E 2019E

Fresenius Medical Care AG & Co. KGaA 26,469 18.5% 19.9 17.8 9.6 8.6

West Pharmaceutical Services Inc. 6,247 21.5% 34.2 29.4 18.4 16.9

Becton Dickinson & Co. 42,335 29.1% 20.6 18.5 17.3 15.5

Ypsomed Holding AG 1,755 20.9% 43.6 34.3 16.5 18.8

Carl Zeiss Meditec AG 4,552 17.0% 34.9 31.6 18.1 16.0

Mean 21.4% 30.7 26.3 16.0 15.2

Median 20.9% 34.2 29.4 17.3 16.0

Market EBITDA-

General packaging (EURm) Margin ´17E 2018E 2019E 2018E 2019E

AptarGroup Inc. 4,659 19.4% 24.4 22.3 11.8 10.9

Owens-Illinois Inc. 3,324 19.3% 8.5 8.0 6.1 5.7

RPC Group PLC 4,184 16.3% 11.8 11.2 7.3 6.9

Mean 18.3% 14.9 13.8 8.4 7.8

Median 19.3% 11.8 11.2 7.3 6.9

P/E

P/E EV/EBITDA

EV/EBITDA

Weight 2018E 2019E 2018E 2019E

Healthcare related companies 40% 30.7 26.3 16.0 15.2

General packaging companies 60% 14.9 13.8 7.3 6.9

Weighted average 21.2 18.8 10.8 10.2

Current prem (disc) -26% -25% -10% -8%

Fair premium (disc) 0% 0% 0% 0%

Fair price (€) 93.7 92.2 76.3 75.2

Weight 50% 50% 50% 50%

Price target (in €, implied) 92.9 75.8

Gerresheimer AG 2018E 2019E

P/E 15.7 14.2

EV/Sales 2.2 2.2

EV/EBITDA 9.7 9.3

PE EV/EBITDA


20 December 2017 34 / 80

Expected triggers

In our view, a re-rating of the shares could be triggered by 1) a confirmation of

a c. 10% organic growth recovery in Q4 2017 and a reinsuring FY 2018

guidance to be provided on 22 Feb 2018, 2) a short-term final decision on US

tax and/or healthcare reform, 3) a return to EPS accretive M&A given that GXI

will most likely reach its <2.5x leverage target already one year ahead of

schedule (which was end 2018) and 4) an acquisition of GXI itself by either

private equity players, industry competitors or contract manufacturers

potentially looking into further vertical integration.


Back to growth – Roadshow feedback – 19 Dec 17

Recent de-rating overdone – Upgrade to Outperform - 20 Sept 17

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20 December 2017 35 / 80

KEY FINANCIALS - GERRESHEIMER

YEAR TO NOVEMBER (EUR M) 2016 2017E 2018E 2019E


EBITDA 304 308 324 340

EBIT 180 182 193 206











EBITDA 308 308 324 340

EBIT 183 182 193 206



CASH FLOW STATEMENT EBITDA 304 308 324 340



Other operating CF items 42 (9) (5) (5)




Acquisitions, Disposals, Financial assets 233 0 0 0


Capital measures, other (272) 1 0 (0)


Net cash (debt) (812) (735) (641) (535)

BALANCE SHEET

Fixed assets 1,832 1,814 1,795 1,777

t/o Goodwill 688 688 688 688

Current assets 543 690 792 905




Group equity 763 836 923 1,023 t/o Shareholders equity 726 820 907 1,007


Other liabilities and provisions 681 670 665 660






RATIOS

Revenue y/y 5.5% -1.6% 3.3% 4.0%


EBIT margin (adj.) 13.3% 13.4% 13.8% 14.1%

EPS (adj.) y/y 19.4% 0.1% 8.5% 10.2%




EBITDA (adj.) / Capex 2.78 2.74 2.79 2.81



GERRESHEIMER SALES BY REGION (2017E)

Source: MainFirst estimates

GERRESHEIMER SALES BY END MARKET (2017E)


GROUP ORGANIC REVENUE GROWTH AND MARGIN TRENDS


Americas26%

Emerging markets/others

17%

Europe ex Germany

33%

Germany24%

Pharma & Healthcare

83%

Cosmetics 12%

Others 5%

-5%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E

Organic revenue growth EBITDA-margin

2018E target ~23%

Step-up due to Centor acquisition


20 December 2017 36 / 80

Hochdorf

“Swissness” for babies at its best

Price CHF 282 – Target CHF 380 (+35%) – HOCN SW – Market Cap

CHF0.4bn – Switzerland – Food & Beverage

Alain-Sebastian Oberhuber, CFA - +41 (43) 888 6164 -

[email protected]


High growth and defensive food stock in an attractive market segment.

Hochdorf is transforming itself through a forward integration strategy into a

high-margin, high-growth baby care business. We expect the group organic

growth rate to be 6.3% p.a. until FY-20E, combined with an EBIT growth rate

of +40% p.a. Due to the issuance of the mandatory convertible bond to finance

the Pharmalys acquisition, combined with incremental capacity ramp-up, the

EPS CAGR17E-20E will be 25%. Hochdorf generates stable cash flows from

its traditional dairy ingredients, and the company has the potential for further

growth in its cereals & ingredients business with children’s food and chocolate.

We estimate a significant increase in ROCE, rising from just 12.2% in FY-17E,

to more than 16.2% by FY-20E. This is achieved through margin

improvements, a high growth rate, and a decline in capex from elevated levels

of 12% of sales in FY-16/FY-17E, to a normalised level of below 4.5%. The

capacity increase in baby nutrition will help the firm to double its baby care

production volume through FY-20. This will result in a FCF yield of around 16%

by FY-18E, but reaching 7.9% by FY-20E.


We are one of the only investment houses who follow the stock. We are most

positive on the stock as we know the baby food industry well and see its high

potential. Hochdorf’s medium-term goals for FY-20 are the following: sales of

CHF 800m and an EBIT of CHF 100m. The EBIT margin currently stands at

6.6% (FY-17E) but should increase to around 12%. This corresponds to

current group revenues of CHF 628m (gross CHF 648 m) in FY-17E, an EBIT

margin of 6.6% and group EBIT of CHF 62.9m (FY-18E). This would result in

an annual growth rate of +8% in revenues, +40% in EBIT and 25% in net

earnings. Expansion into baby food is vital, as it is the first step towards higher

value-added products. The “Swissness” branding will help achieve product-

driven forward integration, which will help the company gain market share and

generate higher margins.


Hochdorf trades at around 11.7x EBITDA-18E and 15.0x EBIT, which is slightly

higher than Emmi (OPF, PT CHF 800), which trades at 11.4x / 17.9x but

significantly below Barry Callebaut (N, PT CHF 1,600) at 16.9x / 20.5,

Lindt&Sprüngli (N, PT CHF 5.550) at 19.7x / 24.1x and Aryzta at 12.0x / 17.2x.

However, its forecast earnings growth is +25% p.a. vs. Emmi at +9% p.a.,

Barry Callebaut +15% and Lindt&Sprüngli +8% and Aryzta at 6% p.a. until FY-

20E. Furthermore, if we compare Hochdorf to baby nutrition peers, which trade



20 December 2017 37 / 80

at a median of 12.9x, the stock is worth around CHF 380 per share, which is

our 12-months price target.

Hochdorf is a longer-term case, as its biggest improvement in margins and

cash flow will occur after FY-17. Therefore taking a 3-year view on valuation

makes sense. We would look at both DCF, which would point at a (not

discounted to present value) price of CHF 545, and at transaction multiples of

baby nutrition firms, which would be point to CHF 470 per share. These 3-year

valuation approaches, which represent a near-doubling of the share price from

current levels, provide material upside and compensate for the lack of liquidity

of the stock.

Hochdorf Peer group comparison


Swiss food manufacturers

Values as of FX Price Price Mcap

13/12/2017 LC target Rec. EUR m Hist 17E 18E 19E Hist 17E 18E 19E Hist 17E 18E 19E Hist 17E 18E 19E

NESTLE 'R' * CHF 86 105 Outperform 226,437 2.7 2.8 2.7 2.6 15.8 14.9 13.9 12.5 19.9 18.2 16.8 14.9 19.8 24.4 22.2 19.6

CHOC.LINDT & SPRUENGLI * CHF 5,765 5,550 Neutral 13,192 4.1 3.9 3.6 3.3 22.2 21.3 19.7 18.1 28.1 26.9 24.1 22.1 0.5 31.8 28.8 26.8

BARRY CALLEBAUT * CHF 1,902 1,600 Neutral 9,021 1.3 1.2 1.6 1.5 14.4 13.2 16.9 15.7 18.4 15.9 20.5 19.1 19.0 25.2 30.4 27.4

ARYZTA * CHF 37 30 Neutral 2,856 1.3 1.4 1.4 1.2 12.4 n.m. 12.0 9.5 23.1 18.9 17.2 12.9 18.5 15.7 19.1 15.9

EMMI AG * CHF 686 800 Outperform 3,119 0.7 1.2 1.1 1.1 8.0 12.1 11.4 10.5 14.7 20.1 17.9 16.2 14.1 22.5 20.9 19.5

BELL AG - REG CHF 423 NR Not rated 1,449 0.5 0.6 0.7 0.7 6.2 7.8 8.0 8.0 11.2 14.5 15.5 15.9 10.9 15.0 13.5 14.0

HOCHDORF HOLDING AG * CHF 275 380 Outperform 591 0.5 1.4 1.3 1.2 8.8 16.3 11.7 8.3 13.5 21.3 15.0 10.5 13.5 28.0 18.2 12.4

ORIOR AG CHF 75 NR Not rated 381 0.8 1.0 0.9 0.9 8.2 9.8 9.2 8.7 12.1 14.4 13.5 12.6 11.7 14.1 14.0 13.7

HUEGLI AG CHF 801 NR Not rated 333 1.1 1.2 1.1 1.1 9.8 10.7 9.8 9.0 14.2 16.6 15.3 13.6 15.0 18.5 17.7 16.6

Average 28,598 1.4 1.6 1.6 1.5 11.8 13.2 12.5 11.1 17.2 18.5 17.3 15.3 13.7 21.7 20.5 18.4

Median 2,856 1.1 1.2 1.3 1.2 9.8 12.6 11.7 9.5 14.7 18.2 16.8 14.9 14.1 22.5 19.1 16.6

* MF data

Global food manufacturers

Values as of FX Price Price Mcap

13/12/2017 LC target Rec. EUR m Hist 17E 18E 19E Hist 17E 18E 19E Hist 17E 18E 19E Hist 17E 18E 19E


DANONE * EUR 71 80 Outperform 47,506 1.9 2.5 2.3 2.2 13.1 14.0 12.7 11.4 18.2 17.7 15.9 14.0 17.0 20.6 18.6 16.6

UNILEVER CERTS. * EUR 49 45 Underperform 141,871 2.1 3.0 3.0 2.9 10.9 15.2 14.6 13.4 12.8 17.3 16.6 15.3 18.2 21.5 20.7 19.1

PARMALAT EUR 3.2 NR Not rated 5,851 0.6 0.9 0.8 0.7 8.6 11.9 9.9 n.a. 15.0 20.0 15.2 12.9 18.4 38.5 26.3 22.5

EBRO FOODS EUR 20 NR Not rated 3,000 1.3 1.4 1.3 1.3 10.2 9.6 9.0 8.4 13.2 12.3 11.4 10.5 14.8 16.8 15.8 14.7

KRAFT HEINZ USD 78 NR Not rated 81,069 4.5 4.8 4.6 4.6 17.6 15.7 14.5 14.1 23.2 17.0 15.7 15.0 16.1 21.8 20.1 19.2

MONDELEZ INTERNATIONAL CL.A USD 43 NR Not rated 54,389 2.2 3.0 2.9 2.8 14.8 15.3 14.0 13.5 18.8 18.3 16.9 15.8 18.6 20.1 18.2 16.9

CONSTELLATION BRANDS USD 219 NR Not rated 36,408 4.6 7.1 6.8 6.3 17.4 21.0 18.4 n.a. 19.7 23.7 21.0 19.0 20.9 33.0 26.1 23.6

GENERAL MILLS USD 56 NR Not rated 26,967 2.3 2.6 2.7 2.6 11.7 12.1 12.2 11.9 14.0 14.8 15.0 14.6 16.0 18.3 18.1 17.4

KELLOGG USD 67 NR Not rated 19,519 2.1 2.5 2.5 2.4 16.3 11.9 11.5 11.1 22.3 14.7 14.1 13.7 16.8 16.5 15.6 14.8

HERSHEY USD 113 NR Not rated 20,177 3.2 3.5 3.5 3.4 15.4 14.5 13.7 13.2 17.8 17.0 16.0 15.2 21.7 23.5 21.7 20.3

CAMPBELL SOUP USD 49 NR Not rated 12,390 2.3 2.3 2.4 2.3 10.8 10.2 10.5 10.1 17.4 12.3 13.0 12.5 14.4 15.9 16.3 15.7

J M SMUCKER USD 117 NR Not rated 11,309 2.2 2.5 2.5 2.4 11.0 10.9 11.0 n.a. 14.0 12.4 12.5 12.0 16.8 15.4 15.1 14.3

POST HOLDING USD 79 NR Not rated 4,425 1.9 1.7 1.5 1.4 10.4 8.9 7.4 n.a. 16.0 13.5 10.9 9.9 17.7 29.0 20.6 17.1

HAIN CELESTIAL USD 41 NR Not rated 3,625 2.1 1.7 1.6 1.5 19.6 18.0 13.5 n.a. 24.0 24.1 17.3 14.9 25.7 34.4 24.6 21.8

SNYDER'S LANCE USD 39 NR Not rated 3,224 1.7 2.2 2.2 2.1 15.4 15.8 14.2 n.a. 24.4 23.4 20.2 16.6 24.5 34.2 29.3 24.6

Average 4,406 2.4 2.8 2.7 2.6 13.7 13.7 12.6 12.0 18.2 17.3 15.5 14.2 18.6 24.0 20.6 18.6

Median 42.883 2.2 2.5 2.5 2.4 14.0 14.3 13.1 12.2 18.0 17.1 15.8 14.7 17.9 21.6 20.4 18.2

* MF data

EV / Sales EV / EBITDA EV / EBIT

EV / Sales EV / EBITDA EV / EBIT P/E

P/E


20 December 2017 38 / 80

Hochdorf Peer group comparison (continued)



The baby care business is doing very well. We expect an EBIT-17E of CHF

42m in total, of which Hochdorf’s B2B category will generate CHF 10m and its

B2C business (Pharmalys) may post an operating profit of CHF 32m.

Pharmalys will grow again by around 80% in FY-17; i.e. we assume that sales

could be around CHF 100-110m with an EBIT of CHF 30-35m, or an estimated

margin of more than 30%. The strategy is to continue to grow in Morocco,

Senegal and KSA, as well as in Tunisia, where Pharmalys is the market

leader. The biggest markets are Egypt, KSA, Libya and Tunisia. The strategy

is to boost sales to a level close to CHF 350m by mid-term, up from CHF 250m

in FY-17E. The current capacity after the full implementation of Sulgen is

sufficient (at around 54,000t) to reach CHF 350m in revenues in baby care.

Sulgen is on track, with the new tower being available by the end of February

2018, and sellable products will be ready by April 2018. The investment in

tower 9 will total around CHF 100m. The capacity of 18,000t will increase by

36,000t, to reach a total of around 54,000t.

Expected triggers

We see potential for a positive surprise in H2-17 results as the performance of

Pharmalys is very strong with a high operating margin. We are confident that

these estimates will be achieved. We see Hochdorf as one of the most

attractive growth stories in the FMCG sector as infant formula in the Middle

East and in China will continue to grow strongly.

Furthermore, China becomes an interesting market for FY-18 onwards.

Pharmalys will focus mainly on the Middle East and Africa, and Hochdorf will

concentrate on China in FY-18. China will become very interesting in Q2-18 as

Hochdorf will have completed the registration for its four brands by Jan 2018.

Hochdorf believes that it is time to make its move in China, and will see

regulation regarding infant formula imports being fully implemented by January

2018. We assume that Chinese sales were around 15% in FY-16 but will

decline to 5% this year due to registration issues. However, Hochdorf has high

potential in particular with its super premium B2B products. We estimate that

B2B sales could increase to more than CHF 50m until FY-20, up from the

expected CHF 11m (FY-17E).


“Swissness” for babies at its best – 31 Jan 17

Infant formula and baby nutrition companies

Values as of FX Price Price Price Mcap

13/12/2017 LC target LC EUR m Hist 17E 18E 19E Hist 17E 18E 19E Hist 17E 18E 19E Hist 17E 18E 19E


DANONE * EUR 71 80 Outperform 47,506 1.9 2.5 2.3 2.2 13.1 14.0 12.7 11.4 18.2 17.7 15.9 14.0 17.0 20.6 18.6 16.6

YASHILI INTERNATIONAL HOLDIN HKD 1.5 NR Not rated 779 1.7 2.3 2.2 2.0 10.3 n.m. n.m. 32.4 5.8 n.m. n.m. n.m. 20.0 - n.m. 142.3

FRESENIUS SE & CO KGAA EUR 66 NR Neutral 36,808 1.9 1.9 1.8 1.7 10.8 10.4 9.6 8.7 13.8 13.6 12.7 11.3 18.3 19.9 18.6 16.7

ABBOTT LABORATORIES USD 55 55 Not rated 81,186 3.5 4.2 3.6 3.3 18.5 15.0 13.1 11.4 30.5 18.6 15.3 13.1 28.1 22.0 19.4 17.3

HOCHDORF HOLDING AG * CHF 275 380 Outperform 591 0.5 1.4 1.3 1.2 8.8 16.3 11.7 8.3 13.5 21.3 15.0 10.5 13.5 28.0 18.2 12.4

A2 MILK AUD 7.1 NR Neutral 3,291 4.0 10.1 6.2 4.8 49.9 42.0 21.3 16.0 104.6 42.4 21.5 16.2 10.9 68.9 33.5 25.0

Average 5,710 2.3 3.6 2.9 2.5 18.2 18.8 13.7 14.4 29.5 22.0 16.2 13.3 18.2 30.6 21.8 35.7

Median 36,808 1.9 2.5 2.3 2.2 13.1 15.0 12.9 11.4 18.2 18.4 15.6 13.6 18.3 23.2 19.0 17.3

* MF data

EV / Sales EV / EBITDA EV / EBIT P/E

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20 December 2017 39 / 80

KEY FINANCIALS - HOCHDORF

YEAR TO DECEMBER (CHF M) 2016 2017E 2018E 2019E

PROFIT & LOSS ACCOUNT Group revenue (as reported) 543 628 696 747

EBITDA 33 54 79 105

EBIT 22 41 62 82







EPS, fully diluted (CHF) 14.1 9.80 15.1 22.1




EBITDA 33 54 79 105

EBIT 23 41 62 82



CASH FLOW STATEMENT EBITDA 33 54 79 105




Net operating cash flow 24 (13) 43 82


Free cash flow (34) (94) 11 49

Acquisitions, Disposals, Financial assets 0 0 (75) 0


Capital measures, other (109) 197 14 36

Change in net cash (debt) (148) 97 (59) 75

Net cash (debt) (169) (72) (131) (56)

BALANCE SHEET

Fixed assets 217 313 408 417


Current assets (163) (11) (45) 38




Group equity 32 277 334 422 t/o Shareholders equity 46 297 354 442


Other liabilities and provisions (213) (166) (162) (157)



Balance sheet total 54 302 362 455


Capital employed (incl. Goodwill) 301 476 604 628

RATIOS

Revenue y/y -0.5% 15.8% 10.8% 7.3%


EBIT margin (adj.) 4.1% 6.6% 8.9% 11.0%

EPS (adj.) y/y 24.2% -30.6% 53.9% 46.7%


Inventory turnover (Days) 34.7 61.0 108 108


EBITDA (adj.) / Capex 0.58 0.66 2.53 3.11

Free CF yield (FCF / market cap) -10.7% -15.9% 1.9% 8.2%

Oper. FCF yield ([FCF - net int. taxed] / EV) -6.5% -10.4% 2.0% 6.1%

HOCHDORF - SALES BY PRODUCT CATEGORY

Source: MainFirst

HOCHDORF - EBIT BY PRODUCT CATEGORY

Source: MainFirst

HOCHDORF – ADJ. EBIT AND ADJ. EBIT MARGIN

Source: MainFirst


20 December 2017 40 / 80

Kering

In the driving seat

Price EUR 398 - Target EUR 500 (+26%) – KER FP – Market Cap EUR 50bn

– France – Luxury

John Guy - +44 (20) 7478 8042 - [email protected]


We expect Kering’s Luxury division to continue to outperform sector sales

growth in 2018 driven not only by the Gucci brand but also supported by Saint

Laurent, Balenciaga and McQueen amongst other brands. Bottega

restructuring is ongoing though sales momentum ought to improve slightly next

year.

We look for a Puma disposal in 2018, which would provide incremental

shareholder returns in addition to enhancing Kering (ex-Puma) margins.

The Gucci brand remains the key focus for investors. We forecast 4Q17E and

FY18E Gucci brand organic sales of +34% and +15% respectively. Investor

concerns for Gucci persist into 2018 on account of a high organic sales

comparison base and perceived fashion risk.

However, according to our proprietary Baidu search share database, we

believe the Gucci brand momentum remains firmly on track with a high

probability to positively surprise in terms of sales, market share momentum

and margins relative to peers in 2018.


Our proprietary Baidu search share database indicates that 4Q17 search share

momentum remains robust, lending support to a strong year-end. Moreover,

we believe there may be upside risk to Gucci brand 2018E organic sales

growth of +15% assuming current search share momentum persists into next

year.

Our proprietary LFL price and price/mix leather goods databases suggest that

Gucci has raised LFL prices on average (non-weighted) across key regions by

900bp while the price/mix for new iconic handbag lines compared with historic

iconic bag increased by +700bp yoy during December 2017. The strategic

decision to elevate the price/mix offering as well as raise LFL prices in key

markets ensures that implied volume growth may prove conservative.

As the Gucci brand store refurbishment program progresses to 2019, we

expect incremental sales conversion and margin opportunities to arise,

resulting in a sustainable 2015-2018E sales CAGR of +21%.

We expect Gucci management to update Gucci mid-term organic sales growth

and sales density targets. We look for c€40,000 sq/m by FY20E. Our FY19E

EPS of €21.6 is 8% ahead of Bloomberg consensus expectations while we

believe Kering’s luxury assets trade at an unjustified discount to peers.



20 December 2017 41 / 80

12-month PT valuation view

Our 12-month €500 PT is derived from a blended average of P/E, DCF (9%

WACC, 3% terminal growth) and SOTP analyses driven by fundamental

bottom up cash-flow and earnings forecasts.

Kering P/E relative performance vs. sector Kering share price performance vs. BI Luxury Goods Index

Source: Bloomberg, MainFirst Research Source: Bloomberg, MainFirst Research


We forecast Kering luxury 2018E organic sales growth (+13.4%) to eclipse

sector growth expectations of +3-5% (Bain & Co). Based on higher growth

prospects, Kering FCF generation stands to grow at a double-digit pace in

2018E (+20%) and outer years resulting in a three-year (FY17E-20E) FCF

CAGR of +15%.

We expect positive news-flow for the Gucci brand in 2018 as management is

due to update on Gucci mid-term organic sales growth, margin and sales

density targets. We believe double-digit organic sales growth, an EBIT margin

of 35% and sales sq/m of €40,000 are achievable goals.

Expected triggers

Besides the usual reporting dates (annual, semi-annual and quarterly

updates), we believe Kering will announce the disposal of its 85.8% stake in

Puma. We expect Kering management to utilise a market option (part placing,

spin-off, full placing), which would result in >500bp EBITDA margin uplift for

Kering luxury assets, which currently trade at a 21% discount to global soft

luxury peers.


In the driving seat – PT raised to €500 – 18 Dec 17

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

22.0x

24.0x

26.0x

28.0x

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Kering Sector (MF Soft Luxury Index) Kering vs Sector

70

90

110

130

150

170

190

210

Dec

-16

Jan-

17

Feb

-17

Mar

-17

Apr

-17

May

-17

Jun-

17

Jul-1

7

Aug

-17

Sep

-17

Oct

-17

Nov

-17

Kering Secotr (BI LuxG Index)

Kering vs. BI LuxG Index: +75.1%

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20 December 2017 42 / 80

KEY FINANCIALS - KERING



EBITDA 1,812 3,379 3,848 4,333

EBIT 1,380 2,850 3,268 3,703


Pre-tax result 1,178 2,644 3,111 3,607


Net result group 880 2,007 2,362 2,739


Net result shareholders 825 1,927 2,269 2,631





EBITDA 2,318 3,379 3,848 4,333

EBIT 1,886 2,850 3,268 3,703

Op. result (Co. def.) 1,886 2,850 3,268 3,703



CASH FLOW STATEMENT

EBITDA 1,812 3,379 3,848 4,333



Other operating CF items 693 225 113 (6)



Free cash flow 1,122 1,748 2,105 2,344


Dividends, minority payouts (504) (1,403) (1,565) (1,735)

Capital measures, other 414 1,018 1,018 1,018


Net cash (debt) (4,371) (3,753) (2,891) (1,896)

BALANCE SHEET Fixed assets 18,499 19,788 20,371 20,981

t/o Goodwill 3,534 3,534 3,534 3,534

Current assets 5,640 5,729 5,893 6,194

t/o Inventories 2,432 2,652 2,870 3,088


t/o Cash and equivalents 1,050 612 420 360

Group equity 11,964 10,497 10,926 11,458

t/o Shareholders equity 11,270 10,018 10,518 11,107






Net working capital 2,530 2,855 3,071 3,307 Capital employed (incl. Goodwill) 21,029 22,643 23,442 24,288

RATIOS Revenue y/y 6.9% 23.7% 9.3% 8.6%


EBIT margin (adj.) 15.2% 18.6% 19.5% 20.4%

EPS (adj.) y/y 26.0% 55.5% 17.7% 16.0%

Net working capital intensity (as a % of sales) 20.4% 18.6% 18.3% 18.2%

DSOs (trade receivables as days of revs) 35.3 35.8 35.8 35.8





KERING GROUP SALES & MARGIN EVOLUTION TO FY20E (INC. PUMA)

Source: MainFirst

GUCCI BRAND RETAIL & WHOLESALE ORGANIC SALES TO FY17E

Source: MainFirst

KERING LUXURY VALUATION AT A DISCOUNT TO PEERS (EX-PUMA)

Source: MainFirst

18.4% 18.1%

16.6%

14.2%

15.2%

18.6%

19.5%

20.4%

21.4%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

22.0%

0

5,000

10,000

15,000

20,000

25,000

FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Group turnover (€m) Group EBIT margin

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17E

FY

17E

Retail Wholesale Gucci total

Kering Luxury implied P/E FY18E calculation

Kering share price 389

Kering no. of shares 126

Kering market cap €m 48,995

Puma share price 371

Puma no. of shares m 15

Kering's stake in Puma 86%

Market value of 86% Puma stake €m 4,758

Market value of Volcom €m 0

Implied Kering Luxury NAV €m 44,238

Kering Luxury net income FY18E €m 2,260

Implied Kering Luxury P/E FY18E 19.6x

Global soft luxury market cap weighted sector P/E FY18E 24.9x

Premium/discount to sector -21%


20 December 2017 43 / 80

Lonza

Superior growth at low risk

Price CHF 267 – Target CHF325 (+22%) – LONN VX – Market Cap CHF

20bn – Switzerland – Healthcare

Markus Gola - Phone: +49 (69) 78808 233 - [email protected]


Lonza’s mid-term targets imply a superior 2016-22E CORE EBITDA CAGR of

9.7% for a 2018E EV/EBITDA of 14.2x, broadly in line with our healthcare

universe (14.4x). The company has an exceptionally strong visibility on future

revenue streams, driven by the nature of the biologics CMO industry, where

contract durations usually range between 5 – 10+ years. Contracts are based

on a take-or-pay structure and even in an extreme scenario, where a product

would be withdrawn from the market (e.g. due to security concerns), Lonza

would insist that the customer honours the contract, at least until the idle

capacity is otherwise filled. With 20 commercial scale biologics in its portfolio,

Lonza is not dependent on the success of any single product or customer.

Management recently highlighted that the mid-term guidance is only based on

already contracted projects and the existing asset base. Upside to the targets,

and consensus which stands at mid-tem guidance, comes from additional

commercial contracts which we believe will be signed near term for capacities

in the new, large-scale IBEX biopark (c. 100,000m²) and later also from

Lonza’s clinical pipeline (c. 190 large molecules in the clinic). Lonza’s Specialty

Ingredients segment is skewed towards highly defensive consumer care

markets (nutrition, personal care, hygiene). Management seeks to divest the

more cyclical business units to position Lonza towards a fully-fledged

healthcare company, which should result in a noticeable multiple expansion.


Lonza is still a poorly covered stock, with only a few sell-side analysts vocal on

the story. We believe the superior industry growth combined with the low risk

profile of the company is still poorly appreciated by the market. Also we see a

couple of catalysts for the year 2018, which are currently neither reflected in

our nor consensus estimates. We believe Lonza will sign new large-scale

biologics commercial scale contracts in the beginning of the year, given the

advanced discussions with multiple customers. A further catalyst could be an

update on synergies from the Capsugel acquisition. The company has recently

become increasingly optimistic on the product synergy target of CHF 100m

revenues until 2022. Management has not excluded to provide an upgrade on

that number in the course of 2018.


Our price target for Lonza is CHF 325. We derive our fair value from a DCF

valuation. Our estimates are roughly in line with the company’s mid-term

targets. We believe the guidance is highly robust given the strong order book

visibility of multiple years in most business lines and Lonza’s track record to

provide conservative targets which have been exceeded noticeably in prior

periods. Our price target implies a 16.8x 2018E EV/EBITDA multiple.



20 December 2017 44 / 80

The 3 year price target for Lonza based on our estimates is CHF 370 and the

same valuation method, assuming only current contracts and no changes to

the corporate structure via divestments or acquisitions.


Lonza is guiding for high-single digit sales growth and a CORE EBITDA above

CHF 1bn in FY17. The guidance is excluding the Capsugel acquisition. We

look for 10% top-line growth and CHF 1,095m CORE EBITDA for Lonza

standalone. Our assumptions are slightly ahead of FY17 consensus. CFO

Rodolfo Savitzky highlighted in November on the road with us, that he is

extremely confident on achieving FY17 targets and commented that the 2018

guidance will not be a surprise, but consistent with the 2022 mid-term goals.

With the H1-18 results, Lonza will host a CMD where it will present a new

reporting structure post the Capsugel acquisition. The company will form a new

Consumer Care segment, which will focus on nutritional supplements and

functional food. Management believes this is a highly attractive market and the

company seeks to reach biologics CORE EBITDA margins (c. 30%) in this

business until 2022. In the remaining Specialty Ingredients business the

company wants to focus on antimicrobial solutions where Lonza has a strong

technology and superior regulatory knowhow. The market for antimicrobial

solutions is expected to grow at mid- to high single digits. The other business

units are mainly Lonza’s legacy business, which is growing GDP+. Here,

management is open for divestments, which however is not a priority given the

cash generative nature of these business units.

Expected triggers

Signing of new commercial scale contracts during H1-18

Capital markets day and upgrade of the top-line synergy targets with

the H1-18 results on 25 July 2018.


Here you go, the crystal ball – raising our price target by 44% - 18 Sep 17

Initiation – Heavy lifting and a healthy diet – 5 Oct 16

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20 December 2017 45 / 80

KEY FINANCIALS - LONZA



EBITDA 848 1,169 1,605 1,827

EBIT 486 699 1,010 1,220

t/o: At-equity result (1) 0 0 0

Pre-tax result 373 525 887 1,101



Minorities, other 0 0 0 0






EBITDA 863 1,289 1,665 1,837

EBIT 651 959 1,278 1,427



CASH FLOW STATEMENT EBITDA 848 1,169 1,605 1,827




Net operating cash flow 752 807 1,158 1,393



Acquisitions, Disposals, Financial assets (239) (5,500) 0 0


Capital measures, other 55 3,116 0 (0)

Change in net cash (debt) 75 (2,198) 390 495

Net cash (debt) (1,586) (3,784) (3,395) (2,900)

BALANCE SHEET

Fixed assets 4,763 10,043 10,021 10,037

t/o Goodwill 1,287 3,687 3,687 3,687

Current assets 2,065 2,497 2,526 2,858

t/o Inventories 897 1,129 1,218 1,302











RATIOS

Revenue y/y 8.7% 23.7% 19.6% 6.9%


EBIT margin (adj.) 15.8% 18.8% 20.9% 21.8%

EPS (adj.) y/y 23.8% 16.9% 25.4% 14.4%




EBITDA (adj.) / Capex 2.38 2.71 2.90 2.95



LONZA 2022 TARGETS

Source: MainFirst

HIGH ORDER BOOK VISIBLITY

Source: MainFirst

MARKET LEADING POSITION

Source: MainFirst

0

1,500

3,000

4,500

6,000

7,500

9,000

Sales CORE EBITDA

2016

2022

+6.2%p.a.

+9.7%p.a.

Biologics

ChemicalsConsumer

Care

Emerging Technologies

Bioscience Solutions

Agro Ingredients

Coatings & Composites

Water Treatment

35%

10% 21%

3%

10%

6%

9% 6%

average order book visbility

40%

30%

12%

5%

3%10%

Mammalian cell culture Lonza

BoehringerIngelheimRentschler

Celltrion

Baxter

Others

30%

18%18%

18%

18%

Microbial Fermentation

Lonza

FujiFilm(Diosynth)Synco

Novasep

RichterHelm


20 December 2017 46 / 80

Siltronic

Wafer shortage 4.0

Price EUR 124 – Target EUR 150 (+21%) – WAF GY – Market Cap EUR

3.7bn– Germany – Technology

Jürgen Wagner - +49 (69) 78808 230 - [email protected]


No wafer manufacturer will raise output into 2018, despite improving demand.

Thus, we expect the current wafer shortage to even become more pronounced

next year and forecast another 20% ASP increase for 300mm wafers in 2018.

Consequently, earnings momentum will continue to support the shares

throughout H1-18. At the same time, valuation of the shares is undemanding,

trading at 11x P/E 2018E. Supply additions so far have been disciplined as

market leader Sumco is adding only 110k wafers per month which implies that

they want to grab c.1/3 of the additional market until 2019, more or less

keeping their market share unchanged and not going for share gains. WAF

itself indicates an 8% output increase but only in 2019. Thus, we don’t expect a

supply driven downturn in the wafer market. Our view is also supported by the

fact that the supply base has strongly consolidated over the past 10 years with

only 5 wafer suppliers left.


As shown in our proprietary bottom up wafer model (chart below), Siltronic is

highly leveraged towards ASP changes. We currently assume a 17% price

increase for all wafers in 2018E, +10% for 150mm, +15% for 200mm, +20% for

300mm, moving our estimates for 2018 above consensus. If demand continues

to develop favourably, the shortage could become much worse, implying

upside to our forecasts. 300mm wafers are 62% of WAF’s installed capacity in

2018E and 300mm is where the shortage is most severe. In a scenario with

ASPs for 300mm wafers rising 25%/30%/35% in 2018 vs. our forecast of

+20%, the price target for Siltronic would move to EUR 164/176/187.


At our price target of EUR 150, WAF is valued at 14x 2018E P/E, still not high

and also implying a 20% discount to the historic average P/E (12 months

forward) that market leader Sumco has been trading at over the last 5 years.

While at the time of the IPO a large discount was justified, this is no longer the

case, given that WAF has now become highly profitable and closed the margin

gap to Sumco. Peer average 2018E P/E is >15x, much higher than the number

that WAF is trading at on our forecast.

If the shortage continues into 2019, valuation multiples have further room to

expand as the market should increasingly value Siltronic as a strategic asset

for the semiconductor industry, rather than being seen as a tech commodity

stock that is waiting for the next capex driven downcycle.



20 December 2017 47 / 80

Siltronic - Sumco - 12-month forward P/E ratio



We expect that the upcoming reporting season should confirm the strong top-

line and margin recovery for Siltronic that has started in 2017. We expect the

EBIT margin to rise to 28% in 2018E from 19% in 2017E.

Expected triggers

Commodity semiconductor stocks, such as Siltronic, typically trade on earnings

momentum that is driven by product pricing. Wafer prices have started to rise

significantly since Q4-16. However, no wafer manufacturer will raise output into

2018, despite improving demand. Thus, we expect pricing momentum to

further unfold, supporting further share price outperformance.


PT up to EUR 150 on higher profitability - 30 oct 17

Rising ASPs and capex discipline: PT up to EUR 125 - 21 sept 17

6.8x

24.4x

9.8x

37.5x

11.6x

15.3x

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

Jul-1

6

Oct

-16

Jan-

17

Apr

-17

Jul-1

7

Oct

-17

https://s3.amazonaws.com/mainfirst/Siltronic_OPF_PT_EUR_150_PT_up_to_EUR_150_on_higher_profitability.pdf?X-Amz-Signature=3fa1d984a757d2efd534f329e7f3951d4fc37c4203003a998c5d389f2c47a50e&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

https://s3.amazonaws.com/mainfirst/Siltronic_OPF_PT_EUR_125_Rising_ASPs_and_capex_discipline_PT_up_to_EUR_125.pdf?X-Amz-Signature=ec90f4a7355930d116e958744d77c645c5b3d948cdcbfa0336ad0ecf6e214193&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host


20 December 2017 48 / 80

KEY FINANCIALS


PROFIT & LOSS ACCOUNT Group revenue (as reported) 933 1,178 1,484 1,483

EBITDA 146 347 521 508

EBIT 27 228 416 393




Minorities, other 3 (8) (10) (10)



MainFirst adjustments Exceptionals in EBIT 0 0 0 0

Profit & Loss Account (adj.) EBITDA 146 347 521 508

EBIT 27 228 416 393



CASH FLOW STATEMENT

EBITDA 146 347 521 508


Changes in working capital 2 (7) (82) (29)

Other operating CF items (23) (59) (4) (4)





Dividends, minority payouts 0 0 (72) (127)



Net cash (debt) 175 298 375 423

BALANCE SHEET Fixed assets 554 555 650 735


Current assets 503 643 822 884




Group equity 425 607 861 1,023

t/o Shareholders equity 419 607 861 1,023


Other liabilities and provisions 591 551 571 556




Net working capital 178 185 267 297 Capital employed (incl. Goodwill) 732 740 917 1,032

RATIOS Revenue y/y 0.2% 26.2% 26.0% -0.1%


EBIT margin (adj.) 2.9% 19.4% 28.0% 26.5%

EPS (adj.) y/y -185.7%

1,401.5% 75.5% -11.9%




Net debt (cash) / EBITDA (adj.) n/m n/m n/m n/m EBITDA (adj.) / Capex 1.51 2.90 2.60 2.54



Siltronic wafer model shows high leverage to rising ASPs


CAPEX DISCIPLINE THE FOUNDATION FOR SHORTAGE

Source: Sumco

SHORTAGE SET TO CONTINUE IN 2018

Source: SEMI, Siltronic

EURm 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E

k wpm (thousand wafers per month)

150 mm (27.38 square inch) 1000 1000 1000 950 950 950 950 950 950

200 mm (48.67 square inch) 610 610 610 610 610 610 610 610 610

300 mm (109.56 square inch) 450 450 780 780 785 805 834 855 878

msi (million square inches)

150 mm (27.38 square inch) 27 27 27 26 26 26 26 26 26

200 mm (48.67 square inch) 30 30 30 30 30 30 30 30 30

300 mm (109.56 square inch) 49 49 85 85 86 88 91 94 96

Total capacity per month 106 106 143 141 142 144 147 149 152

Capacity utilisation 85% 85% 83% 86% 87% 94% 98% 96% 93%

Average selling price US-$m/msi 1.04 0.91 0.80 0.73 0.71 0.86 1.01 1.01 0.99

150 mm (27.38 square inch) 0.95 0.90 0.82 0.73 0.69 0.70 0.77 0.77 0.76

200 mm (48.67 square inch) 1.02 0.93 0.88 0.78 0.76 0.83 0.96 0.96 0.96

300 mm (109.56 square inch) 1.08 0.90 0.75 0.71 0.70 0.91 1.10 1.10 1.07

EUR/USD exchange rate 1.29 1.33 1.33 1.14 1.12 1.18 1.18 1.18 1.18

Total revenues (EURm) 868 743 846 931 933 1178 1484 1483 1433

EBITDA 9 27 132 124 146 347 521 508 480

EBITDA margin 1% 4% 16% 13% 16% 29% 35% 34% 34%

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Capex Sumco Corp. 2004-2016 (in EUR m)

Sumco Corp


20 December 2017 49 / 80

Swiss Life

From ‘Life Insurer’ to ‘Fee Generator’

CHF 345 – Target CHF 400 (+16%) – SLHN SW – Market Cap CHF 12bn –

Switzerland – Insurance

René Locher - +41 (43) 888 6151 - [email protected]


Swiss Life’s strong interest rate margin, its tight cost control, a healthy risk

result in the insurance business, coupled with the 2018 operating income

target for the capital-light fee and commission business of CHF 400-450m,

supports our view of Swiss Life’s well-diversified business model and the

gradually increased share of capital-light earnings. Swiss Life’s solvency ratio

(SST) of ~175% (S2: >200%) looks healthy, and we believe that the ongoing

discussions with FINMA on regulation are going in the right direction.

According to our analysis the fee result will contribute 31% to the 2018E

operating profit. The beauty of the fee business is that 1. There is no

policyholder participation; 2. Its earnings fully support the dividend payment to

shareholders; 3. The business has no embedded options and guarantees; 4.

The capital consumption is very low, which should result in a higher ROE and

5. Last but not least investors are paying higher multiples for this capital-light

business. The company will update the financial community on its strategy

2019-2021 at its 2018 Investor Day on 29 November 2018. We believe the key

focus will be how to further grow the fee and commission result (organically

and through M&A), cash generation/remittance and capital management.


In H1-17 the cash remittance to the Swiss Life holding amounted to CHF 591m

(=CHF 17.40/dividend bearing shares), whereof CHF ~440m was generated by

Swiss Life AG (=insurance business) while the rest came from the Asset

Managers. CFO Buess has guided for CHF 625m (=CHF 18.40/share) for FY-

17. We have analysed Swiss Life’s cash remittance and its pay-out to

shareholders: Our 2017/18E DPS forecast is 8% ahead of consensus. Our

positive view on Swiss Life’s dividends is supported by the company’s

admission to the SPI Select Dividend 20 Index in Switzerland. In addition, we

estimate that in the period 2016-2018e CHF ~550m of the cash will remain at

the holding level for financial flexibility. In our view Swiss Life could use the

cash to buy back part (or all) of the 2.1m shares which were exercised with the

forced conversion of the 7y Senior Convertible Bond, issued in 2013. There

are two additional factors where we do not fully agree with the market: 1. In

September 2017 Swiss Life was contacted by the U.S. Department of Justice

(DoJ) about its so-called ‘wrapper business’. The news has put quite some

pressure on its share price. The recent court defeat for US DoJ in a Swiss

banker trial (Bank Frey, November 2017) should support Swiss Life’s

discussion with the DoJ. We expect a limited (financial) impact for Swiss Life.

2. We give Swiss Life the credit that the (Swiss) real estate market is not

causing headaches. We know that Swiss Life owns excellent locations and its

vacancy rate in Switzerland is down at ~4.5%, as we understood. The recent

newsflow on the domestic real estate market was more positive, also driven by

the expected GDP growth in the coming years.



20 December 2017 50 / 80


At 11.1x 2018E earnings and 0.9x 2018E net asset value for an RoNAV of

8.1%, we consider Swiss Life’s valuation to be attractive, given its growth

prospect in the capital-light fee business and an estimated dividend growth of

88% in the period 2015 to 2018.

Based on a back-of-the-envelope calculation we conclude that Swiss Life

valuation could reach CHF ~500/share (upside: +47%) until the end of its

strategy period 2019-2021. One of the key drivers could be the fee result,

which is expected to grow at a 2018-2021E CAGR of 11%. For the insurance

business we are less bullish and forecast a 2018-2021E CAGR of 1%.

Swiss Life Peer group comparison


* The stocks are not covered and therefore we use consensus figures for the different metrics (EPS, DPS, etc.)


Swiss Life is well on track to meet and has already exceeded some of its

financial targets set for the strategy period 2015-2018. Investor’s focus will be

on Swiss Life’s 2018 Investor Day on 29 November 2018, when the company

will publish its strategic plan for the period 2019-2021.

Expected triggers

Together with the FY-17 results on 27 February 2018 we expect Swiss Life to

announce a dividend of CHF 14 (yield: 4.1%), which is 8% ahead of

consensus. The FINMA release of the ‘official’ SST ratio in H1-17 is also

expected to be a positive surprise to the market. Already a few months ahead

of the 2018 Investor Day we expect the market to price in continued growth in

capital-light fee and commission income, an increase of the pay-out midpoint

target from 40% to 50%, and the launch of a share buyback.


Financial Model – 18 Dec 17

The ‘Swiss Life 2018’ success story continues - 12 Aug 16 - 15p

http://mainfirst.force.com/SingletrackCMS__DownloadDocument?docRef=82b9a47c-8e82-466c-9206-2ddc02278332

https://s3.amazonaws.com/mainfirst/STKR_10267__1.pdf?X-Amz-Signature=6fb49c412be6e0c5cfe02e03df6610da3caa567345800533eb65882891290f78&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host


20 December 2017 51 / 80

KEY FINANCIALS – SWISS LIFE


PROFIT & LOSS ACCOUNT Business volume 12,402 12,545 12,779 13,021

Gross written premiums 12,402 12,545 12,779 13,021

Net earned premiums 13,229 13,447 13,765 14,089

Net investment income 4,285 4,184 4,140 4,093

Other investment income 768 701 675 810

Other operating income 1,425 1,528 1,650 1,780

Total income 19,707 19,860 20,230 20,772

Net claims and benefits (15,388) (15,428) (15,629) (16,027)

Net acquisitions expenses (842) (895) (959) (1,021)

Net administrative expenses (862) (896) (933) (971)

Other operating expenses (1,155) (1,155) (1,155) (1,149)

Total expenses (18,248) (18,374) (18,677) (19,167)

Operating result 1,459 1,487 1,553 1,605

EBIT 1,392 1,421 1,487 1,539

Interest on financial debt (178) (178) (178) (178)

Pre-tax result 1,214 1,243 1,309 1,361

Income taxes (289) (273) (275) (286)

Net result 925 969 1,034 1,075

Minority interests (4) (4) (4) (4)

Net result (shareholders, reported) 920 965 1,030 1,071

MF adjustments (1) 0 0 0

Net result (shareholders, adjusted) 919 965 1,030 1,071

BALANCE SHEET

Investments (CHF bn) 158.3 161.1 164.0 167.0

Goodwill, other intangibles 1,238 1,238 1,238 1,238

Other assets 40,173 40,200 41,258 42,341

Total assets (CHF bn) 199.7 202.6 206.5 210.6

Shareholders' equity 13,657 14,248 13,963 13,626

Minorities 82 82 82 (10)

Subordinated debt 2,612 2,612 2,612 2,612

Other financing debt 452 452 452 452

Policyholder reserves (CHF bn) 146.1 147.5 150.8 154.2

Other liabilities 39,415 40,302 41,222 42,268

Total liabilities (CHF bn) 199.7 202.6 206.5 210.6

OPERATING METRICS & RATIOS

Business volume growth y/y -3.9% 1.2% 1.9% 1.9%

EBIT growth y/y 5.1% 2.1% 4.7% 3.5%

Pre-tax result growth y/y 4.4% 2.4% 5.4% 3.9%

Net result (adjusted) growth y/y 6.5% 5.0% 6.7% 4.0%

Operating margin 11.8% 11.9% 12.2% 12.3%

Pre-tax margin 9.8% 9.9% 10.2% 10.5%

EPS (reported) (CHF) 27.1 28.4 30.9 33.0

EPS (adjusted) (CHF) 27.1 28.4 30.9 33.0

P/E (reported) 7.93 12.0 11.1 10.3

P/E (adjusted) 7.93 12.0 11.1 10.3

DPS (CHF) 11.0 14.0 16.0 17.5

Dividend yield 5.1% 4.1% 4.7% 5.1%

BV/share (CHF) 402 419 423 426

NAV/share 365 383 386 387

P/BV 0.54 0.81 0.81 0.80

P/NAV 0.59 0.89 0.89 0.88

ROE (adj.) 7.1% 6.9% 7.3% 7.8%

RONAV (adj.) 7.4% 7.4% 8.1% 8.6%

FEE RESULT IS THE KEY EARNINGS DRIVER

Source: MainFirst

STABLE INSURANCE U/W MARGINS

Source: MainFirst

AN ATTRACTIVE, SUSTAINALE DIVIDEND PAYER

Source: MainFirst


20 December 2017 52 / 80

TUI

Future business model taking shape

Price EUR 17 - Target EUR 20 (+19%) – TUI1 GY – Market Cap EUR 10bn

Germany – Travel & Leisure

Tobias Sittig - +49 (69) 78808 220 - [email protected]


TUI’s transformation from a conglomerate of touristic and shipping assets is

almost complete. TUI is now a pure play tourism company, with the market

leading European tour operator vertically integrated with its large hotel and

cruise ship portfolio, with a strong master-brand and common IT platforms for

marketing, CRM, pricing, capacity management and inventory management.

TUI can now leverage this setup by more efficient marketing, better product

differentiation and superior returns of >15% on its assets base. This results in

10% EBIT CAGR 2016-20 and 19% EPS CAGR, well underpinned by the

growing portfolio of hotels and cruise ships and benefits from the vertical

integration and streamlining, and despite the constant headwinds from airline

failures, tropical storms and geopolitical events. As the transition ends, capex

will normalise towards 3-3.5% of revenues, allowing for a FCF yield of 9%.

This is not reflected in the very moderate valuation at 9.8x P/E 2019 (MFe).


Our forecasts are 15% ahead of consensus for 2018 and 13% ahead for 2020,

as we buy into TUI’s transformation story, but also have a more optimistic view

on future interest cost, tax rate and minorities. However, the biggest

differentiator is our perception of a company that is evolving. While the market

still views TUI as a volatile, potentially challenged tour operator with some

adjacent hotel and cruise operations, we believe the vertically integrated model

gives TUI a competitive advantage over offline and online competition that

should result in steady, reliable earnings growth and a re-rating of the shares.


Our 12-month price target is derived from a SOTP approach, outlined below.

We use peer multiples for the hotel and cruise operations and a moderate 7x

EBIT multiple for the tour operator. Mid-term, we see TUI fetching a P/E

multiple of c. 15x, which would allow for a share price of EUR 25 in 2019/20.



20 December 2017 53 / 80

TUI SOTP valuation



As TUI generates 99% of its earnings in Q4, the first quarters of any business

year are not so meaningful. We expect 13% EBITA growth for the full year and

regular trading updates supporting the positive trends, even though initial

bookings may look soft given a strong prior-year base in particular in the UK.

TUI revenue and earnings model

Source: MainFirst Research, TUI

Entity/Position Valuation Value (€m) per share (€m)

MV TUI Tourism 7x EBIT 2019E 4,720 8.04

MV TUI Hotels & Resorts Peer multiples (Sol Melia, NH, Accor) 4,572 7.79

MV TUI Cruises (incl. Thomson Cruises) Peer multiples (Royal Caribbean, Carnival) 3,796 6.47

Total value operations 13,088 22.30

Net cash (debt) TUI Holding Per FY End 2018 110 0.19

Working capital adjustment "touristic swing" -800 -1.36

Pensions Book value -1,127 -1.92

Tax loss carryforwards NPV 500 0.85

SOTP value TUI AG 11,771 20.05

2015 2016 2017E 2018E 2019E 2020E CAGR 16-20

Revenues

Northern Region 7014.9 6595.0 6601.5 6667.5 6834.2 7005.1 1.5%

Central Region 5601.8 5562.9 6039.5 6190.5 6345.2 6503.9 4.0%

Western Region 2903.4 2869.9 3502.2 3572.2 3643.7 3716.6 6.7%

Source Markets 15520.1 15027.8 16143.2 16430.2 16823.1 17225.5 3.5%

Hotels&Resorts 574.8 618.6 679.0 728.4 775.1 821.1 7.3%

Cruises 273.3 703.1 815.0 855.8 891.3 928.4 7.2%

Other Tourism 496.1 669.3 677.0 683.8 690.6 697.5 1.0%

Tourism 16864.3 17018.8 18314.2 18698.2 19180.1 19672.5 3.7%

All other segments 85.1 165.8 220.8 223.0 225.2 227.5 8.2%

TUI Continuing Operations 20011.6 17184.6 18535.0 18921.2 19405.4 19900.0 3.7%

Underlying EBITA

Northern Region 530.3 383.1 345.8 366.7 382.7 392.3 0.6%

Central Region 103.5 85.1 71.3 136.2 171.3 201.6 24.1%

Western Region 68.8 86.1 109.2 114.3 120.2 126.4 10.1%

Source Markets 702.6 554.3 526.3 617.2 674.3 720.3 6.8%

Hotels&Resorts 234.6 303.8 356.5 388.6 423.6 457.4 10.8%

Cruises 80.5 190.9 255.6 280.6 317.2 338.9 15.4%

Other Tourism -21.1 7.9 13.4 15.0 17.3 17.4 21.9%

Tourism 996.6 1056.9 1151.8 1301.4 1432.3 1534.0 9.8%

All other segments -100.6 -56.5 -49.9 -51.3 -49.6 -47.8 -4.1%

TUI Continuing Operations 1069.0 1000.4 1101.9 1250.1 1382.8 1486.3 10.4%

Sep. disclosed items/disc. ops 203.70 160.00 75.40 80.00 80.00 80.00 -15.9%

Reported EBITA 865.3 840.4 1026.5 1170.1 1302.8 1406.3 13.7%

EPS reported 0.67 1.77 1.10 1.27 1.47 1.62 -2.1%

EPS adjusted 0.98 0.86 1.14 1.38 1.58 1.73 19.1%

Dividend per share 0.56 0.63 0.65 0.74 0.82 0.90 9.3%


20 December 2017 54 / 80

TUI divisional earnings split over time

Source: MainFirst Research, TUI

Expected triggers

We do not foresee any substantial triggers, but rather a steady development as

TUI delivers on each release. Latest when the market focuses on 2020 as the

year when FCF generation explodes, we expect the shares to re-rate.


Future Business Model Takes Shape – Price Target Raised to EUR 20 - 14

Dec 17

2020 appearing on the horizon – Outperform reiterated - 30 Nov 17

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2013 2014 2015 2016 2,017 2018E 2019E 2020E

Northern Region Central Region Western Region Hotels&Resorts Cruises Other Tourism

https://s3.amazonaws.com/mainfirst/STK_16139__1.pdf?X-Amz-Signature=3adeaf4a78c36d1a1009c8b366ed6c53d20d103f108cacc5e602dc92e1032cb7&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

https://s3.amazonaws.com/mainfirst/STK_16139__1.pdf?X-Amz-Signature=3adeaf4a78c36d1a1009c8b366ed6c53d20d103f108cacc5e602dc92e1032cb7&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

https://s3.amazonaws.com/mainfirst/research_TUI1-NOT-30.11.2017.pdf?X-Amz-Signature=7e654c48e848177393bd370960667a200c573a22a8481d487a1d7b0068ce3fe0&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host


20 December 2017 55 / 80

KEY FINANCIALS - TUI



EBITDA 1,524 1,638 1,814 1,935

EBIT 1,007 1,170 1,303 1,406


Pre-tax result 907 1,056 1,192 1,301


Net result group 589 879 1,004 1,102







EBITDA 1,620 1,718 1,894 2,015

EBIT 1,102 1,250 1,383 1,486





Changes in working capital 384 (149) (78) (78)



Capital expenditure (intangibles, tangibles) 1,049 1,150 1,000 640


Acquisitions, Disposals, Financial assets 362 (10) 10 0


Capital measures, other 187 (79) (0) 0


Net cash (debt) 583 110 37 375

BALANCE SHEET

Fixed assets 9,067 9,712 10,140 10,199

t/o Goodwill 2,890 2,890 2,890 2,890

Current assets 5,118 4,759 4,530 4,716










Net working capital (483) (534) (586) (639)


RATIOS

Revenue y/y 7.9% 2.1% 2.6% 2.5%


EBIT margin (adj.) 5.9% 6.6% 7.1% 7.5%

EPS (adj.) y/y 32.6% 21.2% 14.2% 9.7%

Net working capital intensity (as a % of sales) -2.6% -2.8% -3.0% -3.2% DSOs (trade receivables as days of revs) 40.6 36.4 32.3 28.3


Net debt (cash) / EBITDA (adj.) n/m n/m n/m n/m

EBITDA (adj.) / Capex 1.54 1.49 1.89 3.15



REVENUE SPLIT BY DIVISION (2017)

Source: MainFirst

ADJ. EBITA SPLIT BY DIVISION (2017)

Source: MainFirst

SOTP VALUATION

Source: MainFirst

Northern Region Central Region Western Region

Hotels&Resorts Cruises Other Tourism

Northern Region Central Region Western Region

Hotels&Resorts Cruises Other Tourism

Entity/Position Value (€m) per share (€m)

MV TUI Tourism 4,720 8.04

MV TUI Hotels & Resorts 4,572 7.79

MV TUI Cruises (incl. Thomson Cruises) 3,796 6.47

Total value operations 13,088 22.30

Net cash (debt) TUI Holding 110 0.19

Working capital adjustment -800 -1.36

Pensions -1,127 -1.92

Tax loss carryforwards 500 0.85

SOTP value TUI AG 11,771 20.05


20 December 2017 56 / 80

UBS

Shareholder returns are coming

Price CHF 18 – Target CHF 20 (+10%) – UBSG SW – Market Cap CHF 70bn

– Switzerland – Banks

Daniel Regli - +41 (43) 888 6169 - [email protected]


UBS is a global wealth manager (54% of revenues are coming from wealth

management) but trading at low European investment banks multiples. In a

world with rising administrative requirements for wealth management, scale

and digitalisation are crucial. While most peers are either too small or still too

busy with restructuring and cleaning up the heritage from the financial crisis,

UBS is investing into digitalisation and other projects and thereby setting the

cornerstone for future competitive advantages. One example is the all-

embracing digital wealth management platform ‘OneWealth’, which should

make wealth management more client centric, more cost efficient, and

increase the operating leverage of the business. Additionally, UBS through its

Wealth Management Americas Division and its significant USD loan book, is

one of the key European beneficiaries of a rising USD yield curve. Its

formidable capital situation, also after implementing Basel IV, allows for a very

attractive shareholder return policy. We expect an increasing payout ratio

going forward.


We have seen Credit Suisse (N, PT CHF 17.5) lowering its target CET1 ratio to

12.5% from 13% at its most recent investor day. Due to the more wealth

management focused and therefore less capital intensive business model, we

expect UBS to actually lower its target CET1 ratio to 12% with its FY results

and payout the thereby created surplus capital of c.CHF 3.0bn via share

buybacks. Additionally, we expect UBS to increase its payout target to 60-70%

of the robust net profits (MFe ROTE of c.12.5% for 2018-2020) for the coming

years, with a progressively growing ordinary dividend and further share

buybacks on top. Adding both together, we expect a total yield for the

shareholder of c.5% for 2018 and 6% for 2019, which is 20% and 24% ahead

of consensus respectively. Additionally we expect better cost efficiency in WM

and WMA in the mid to longer term through the launched digitalisation efforts.

Last but not least we expect a moderate recovery in gross margins after

reaching a trough in Q1-18, whereas consensus expects gross margins to stay

at best flat.


We value UBS on the basis of five different valuation methods, a COE of 9%

and a terminal growth rate of 1.5%. We thereby reach a 12m price target of

CHF 20, reflecting an upside of c.12%. On a 3 year horizon, we expect UBS to

trade at c.CHF 25 (c.13x MFe 2021E EPS of CHF 1.91), reflecting an upside of

c.40% or 12% per annum. In combination with the c.5% dividend / return yield,

this sums to a total return of 17% p.a. for shareholders. We think the market

currently puts UBS into the ‘European investment banks’ bucket and not



20 December 2017 57 / 80

appropriately reflects the more wealth management focussed business model

UBS has compared to other large European banks.

UBS Peer group comparison

Company name Ticker CCY Stock Market

price cap. 2017E 2018E 2019E 2017E 2018E 2017E 2018E 2019E

USD x x x x x % % %

UBS UBSG SW CHF 17.9 69,589 14.0 12.3 11.3 1.2 1.2 8.2 9.5 10.2

CS Group CSGN SW CHF 17.5 45,165 24.4 13.9 10.6 1.0 1.0 3.8 6.9 9.3

Julius Baer BAER SW CHF 57.5 13,002 15.8 13.7 12.3 2.2 2.0 14.1 14.8 14.7

Deutsche Bank DBK GR EUR 16.5 40,192 17.7 12.2 9.9 0.5 0.5 2.2 3.7 4.9

Commerzbank CBK GR EUR 12.8 18,834 39.3 17.7 12.3 0.6 0.6 0.9 3.1 4.5

BNP Paribas BNP FP EUR 64.4 94,626 10.3 10.2 9.3 0.9 0.8 8.4 8.2 8.5

Societe Generale GLE FP EUR 44.5 42,307 10.3 9.3 8.6 0.7 0.7 6.1 7.0 7.4

Credit Agricole ACA FP EUR 14.5 48,536 11.4 11.1 10.0 0.7 0.7 6.9 6.9 8.2

Barclays BARC LN GBp 203.1 46,315 13.4 10.0 9.0 0.6 0.6 3.6 6.0 6.7

Royal Bank Of Scotland RBS LN GBp 281.5 45,029 12.0 11.0 9.9 0.8 0.8 7.1 7.4 7.8

HSBC HSBA LN GBp 772.6 206,596 15.6 14.6 13.8 1.2 1.2 7.8 8.3 8.6

Santander SAN SM EUR 5.7 107,680 12.5 11.0 9.9 0.9 0.9 7.5 8.3 9.0

BBVA BBVA SM EUR 7.2 56,502 10.9 10.5 9.7 1.0 0.9 8.7 8.8 9.2

UniCredito Italiano UCG IM EUR 16.7 43,801 12.1 11.0 8.6 0.7 0.6 8.4 6.1 7.5

Bank Of America BAC US USD 29.2 304,939 16.1 13.5 11.8 1.2 1.1 7.9 8.8 9.4

JP Morgan Chase JPM US USD 106.5 369,786 15.4 13.9 12.4 1.6 1.5 10.5 11.2 11.5

Citigroup C US USD 75.9 200,825 14.5 12.8 11.1 1.0 0.9 6.8 7.2 7.8

Goldman Sachs GS US USD 258.3 101,148 13.5 12.6 11.4 1.3 1.3 10.4 10.1 10.8

Morgan Stanley MS US USD 54.0 97,608 15.2 13.3 12.1 1.4 1.3 9.4 9.8 10.6

Royal Bank Of Canada RY CN CAD 102.5 115,712 13.7 12.7 12.0 2.2 2.1 16.7 16.6 16.3

Nomura 8604 JP JPY 672.3 22,714 10.2 10.2 9.8 0.8 0.8 9.7 8.3 8.2

Average weighted 14.7 12.8 11.4 1.2 1.2 8.6 9.2 9.7

Average unweighted 173,247.6 15.1 12.3 10.7 1.1 1.0 7.9 8.4 9.1

UBS 17.9 69,589 14.0 12.3 11.3 1.2 1.2 8.2 9.5 10.2

SX7P SX7P EUR 187.3 n.a. 12.9 11.8 10.6 1.0 0.9 9.1 9.2 9.4

Return on equityP/E P/B



Even though gross margins are likely to decline again into H1-18 due to

expected cross-border outflows in late 2017, we think gross margins should

have reached its trough with this and the company should able to give a more

positive guidance for the rest of the year. We believe that a higher asset base

should more than offset the decline in gross margins over the full year.

Additionally, operating leverage should improve because of digitalisation and

cost efforts. The focus will be on a clearer guidance regarding regulatory

capital requirements and the eventual announcement of share buybacks (or

special dividends) in combination with this. Additionally, we expect UBS to give

better guidance on what kind of cost base they expect to operate going

forward.


20 December 2017 58 / 80

Expected triggers

Following improved regulatory visibility, we see scope for UBS to follow CS by

lowering its target CET1 ratio and adopting a more shareholder friendly capital

return policy when it reports FY17 results. Given strong cost discipline of

recent years, it is also conceivable that the announcement of further cost cuts

or cost guidance below current expectations could be an additional catalyst.


First takes on Basel IV – 8 Dec 17

UBS versus Credit Suisse - Valuations and RWA inflation risks - 22 Sept 17

European Universal Banks - Cherry-picked opportunities - 19 apr 17

https://s3.amazonaws.com/mainfirst/SEC_16095_1.pdf?X-Amz-Signature=7aac5c5b1fbb65ba7b1d85842c7e3da6525339dfc7609cb19d34af05176e5a55&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

https://s3.amazonaws.com/mainfirst/UBS_versus_Credit_Suisse_Valuations_and_RWA_inflation_risks_1_1.pdf?X-Amz-Signature=b72ac7687222206da7d6f8eac7f4829984e6dcf70832781f2ec90ea6171f6305&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host

https://s3.amazonaws.com/mainfirst/European_Universal_Banks_Cherry_picked_opportunities_1_1.pdf?X-Amz-Signature=72afc63113835bb13ccea692a57fe945fc9677842237b3ad052ea74a3a2e2e19&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host


20 December 2017 59 / 80

KEY FINANCIALS - UBS


PROFIT & LOSS ACCOUNT NII 6,413 6,272 6,255 6,324

Fees 16,397 17,522 18,502 19,109

Revenues 28,357 29,438 30,717 31,589

Costs (24,230) (23,853) (23,444) (23,387)

Pre-provision result 4,127 5,585 7,273 8,202

Loan loss charge (38) (62) (99) (113)

Operating result 4,089 5,523 7,174 8,089

Other 0 (14) (0) 0

Pre-tax result 4,089 5,508 7,174 8,089

Net result, reported 3,204 4,222 5,774 6,355

Net result, adjusted 5,249 5,520 6,486 6,641

BALANCE SHEET Customer loans (CHF bn) 306.3 317.0 319.3 322.0

Goodwill & other intangibles 6,556 6,384 6,214 6,151

Total assets (CHF bn) 935.0 916.1 915.8 917.0

Customer deposits (CHF bn) 423.7 403.2 417.1 431.7

Common shareholders' equity 53,723 54,339 57,696 60,704

Tangible common equity 47,167 47,955 51,482 54,553

PER SHARE

No. of shares outstanding, period-end (m) 3,712.3 3,718.7 3,718.7 3,718.7

EPS, reported (CHF) 1.37 1.44 1.69 1.73

EPS, adjusted (CHF) 0.86 1.14 1.55 1.71

DPS (CHF) 0.60 0.65 0.90 1.05

Book value per share (CHF) 14.5 14.6 15.5 16.3

NAV per share (CHF) 12.7 12.9 13.8 14.7

REGULATORY CAPITAL CET1 capital 30,693 32,771 34,719 36,078

RWA (CHF bn) 222.7 241.7 246.5 251.4

CET1 ratio 13.8% 13.6% 14.1% 14.3%

T1 ratio 0.0% 0.0% 0.0% 0.0%

Leverage assets 870 884 898 910

T1 leverage ratio 3.5% 3.7% 3.9% 4.0%

ASSET QUALITY

Non-performing loans (NPLs) 2,399 1,698 1,507 1,316

Loan loss reserve (LLR) 653 858 729 780

NPLs / customer loans, gross 0.7% 0.5% 0.4% 0.4%

LLR / NPLs 67.0% 67.0% 67.0% 67.0%

Texas ratio 5.0% 3.5% 2.9% 2.4%

PROFITABILITY RATIOS

NIM 0.7% 0.7% 0.7% 0.7%

NII / revenues 22.6% 21.3% 20.4% 20.0%

Fees / revenues 57.8% 59.5% 60.2% 60.5%

Cost/income ratio 85.4% 81.0% 76.3% 74.0%

Tax rate 16.5% 20.6% 18.8% 21.0%

ROA 3.0% 3.2% 3.4% 3.4%

ROE, reported 5.9% 7.9% 10.3% 10.7%

ROE, adjusted 9.7% 10.4% 11.6% 11.2%

RoNAV, reported 6.9% 9.2% 11.7% 12.1%

RoNAV, adjusted 9.6% 11.1% 12.7% 12.4%

CHANGE Y/Y Revenue -7.7% 3.8% 4.3% 2.8%

Costs -3.5% -1.6% -1.7% -0.2%

Pre-provision result -26.4% 35.3% 30.2% 12.8%

Adjusted EPS -48.8% 31.9% 36.6% 10.1%

DPS -29.4% 8.3% 38.5% 16.7%

Loans -1.8% 3.5% 0.7% 0.9%

RWA 7.3% 8.5% 2.0% 2.0%

NAV per share -2.2% 1.5% 7.4% 6.0%

TRADING AT A SIGNIFICANT DISCOUNT VS. APPROPRIATE PEERS

-25%

-20%

-15%

-10%

-5%

0%

5%

7

8

9

10

11

12

13

14

15

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

UBS UBS peer index UBS/peer index (RHS) Par (RHS)

Source: Bloomberg, MainFirst, UBS peer index consists of 52.5% Swiss wealth managers, 27.5% Europ. investment banks, 12.5% Europ. retail banks, 7.5% asset mngrs simple avg. PE multiples

54% OF REVENUES ARE WEALTH MANAGEMENT

26%

28%13%

6%

26%WM

WMA

PCB

AM

IB

Source: MainFirst

CAPITAL SITUATION SHOULD ALLOW FOR DVDS/SBB

0.100.15

0.25

0.750.85

0.600.65

0.90

1.05

1.20

1.35

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-0.10

0.10

0.30

0.50

0.70

0.90

1.10

1.30

1.50

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Div

iden

d y

ield

(in

%)

DP

S (

in C

HF

)

Ord. Div. Spec. Div./Share BB Total return to SH Total yield

Source: MainFirst


20 December 2017 60 / 80

Volkswagen

Rebooted premium FCF

Price EUR 173 – Target EUR 220 (+27%) – VOW3 GY – Market Cap EUR

87bn– Germany – Automotive OEMs

Adam Hull - Phone: +44 (207) 478 8072 - [email protected]


Despite its name, the VW group is not a mass market OEM with a few

premium brands, but rather it is now a well invested highly cash generative

OEM with over €100bn of premium brands revenues which generate margins

of 9-17% (Porsche, Audi, Scania, Lamborghini and Ducati). With cost cuts,

new SUVs and a fading of the damage to the VW brand image from the diesel

crisis, VW Passenger Cars division margin in 2017-18 is c. 4.0%, rising to

5.0% in 2020, sharply up from 1.8% in 2016. The VW group EBIT margin is

already 7.5% in 2017E, rising to 8.0% in 2020E, with around 2/3rd

of EBIT

coming from premium brands and trucks, which should be more highly valued.

Additionally, below EBIT VW has associate income from it equity stakes in its

Chinese JVs that pay VW an annual cash dividend of c.€3.3bn (and have a

c.13% EBIT margin). After cash payments of €25bn by end 2018E the diesel

crisis is fading and VW is becoming more investable. With higher EBIT and the

sharp cuts to capex and R&D as a percentage of revenue, Automotive FCF is

€10bn in 2019E, an Autos equity FCF yield of c.17%, or even c.25% on core

Autos. This, and a 2018/19E PE of c.6.1x/c.5.6x, is compelling.


We think that investors significantly underestimate VW’s underlying FCF (in

part due to the temporary impact of the diesel payments), wrongly compare it

to the group market capitalisation, and significantly underestimate dividends in

2017-20E. The headline FCF is actually Automotive FCF and management

has confirmed it does not include any income or dividend from Financial

Services. Hence, annual Automotive FCF of €9-11bn in 2017-20E should be

compared to a current implied Automotive equity value of c.€59bn, group

market capitalisation of c.€87bn less an assumed value for Financial Services

(which we value at 1x 2019E book value, i.e. €28bn). We simply assume a

3.2% cash return on €214bn of Automotive revenue in 2019 to give core

Automotive FCF of c.€6.7bn plus a €3.3bn cash dividend from China to give a

total Automotive FCF of €10.0bn.

Our underlying 2018-19 EPS forecasts are 9-12% above Bloomberg

consensus and our 2018E/19E VW pref DPS of €6.06 and €8.06 is 23% and

30% above consensus. Even in 2019 we only assume a 27% dividend payout

on reported EPS, which compares to mid-term guidance for a 30% payout. We

assume a higher dividend payout because we are more confident in the

underlying FCF, and in the speed at which management will convert the strong

FCF into cash returns for shareholders. This is also supported by Osterloh,

head of the Labour union, saying he is comfortable with higher dividends.



20 December 2017 61 / 80


Our 12 month target of €220 is based on a combination of SOTP, Automotive

FCF equity, PE and dividend yield. Our SOTP conservatively ascribes no value

on VW Passenger Cars or on SEAT which is combined 2018E revenue of

c€93bn. It also includes a €20bn legal/financial discount equivalent to 15%

SOTP discount. Our 12 month target offers 27% potential upside but only

implies a 2018E/19E/20E PE of 7.8x/7.2x/6.7x, an Automotive FCF yield of

c.12-15% in 2019E/20E and dividend yield of 3.7%/4.3%. In absolute terms

and relative to peers we think this is quite or even very conservative given the

high proportion of premium brand sales and strong positioning in new

technologies. We do however accept that management needs to regain the

trust of investors. We think that VW shares could rise c.62%, to €280 within 3

years, only representing a 2019E/20E PE of 9.1x/8.6x, a 2020E Automotive

FCF yield of 9-10% and even a group FCF yield of c.8%.

VW group valuation at current price and at our 1year target price of €220



We expect strong sales figures for December 2017 and H1-18 (particularly for

high margin SUV sales at the VW brand in the US) to raise confidence in the

Q4 result and 2018-20. Both H1-18 and FY-18 should show clear y/y rises in

revenue and margins at the VW brand, Audi, and at both Scania and MAN.

Meanwhile, FCF will be supported by proportionally lower investment

spending.

Summary valuation at VW prefs at 13 December 2017 close 2016 2017E 2018E 2019E 2020E

VW pref price 170.1 170.1 170.1 170.1 170.1

VW ord price 170.0 170.0 170.0 170.0 170.0

MAINFIRST underlying EPS forecast (€) VW prefs/ords 24.03 26.94 28.24 30.63 32.75

Reported EPS forecast (€) VW prefs/ords 10.26 21.95 26.89 29.38 31.64

MAINFIRST DPS forecast (€) 2.06 3.86 6.06 8.06 9.50

Dividend payout ratio on PPA adjusted EPS 8.6% 14.3% 21.5% 26.3% 29.0%

Dividend payout ratio on reported unadjusted EPS 20.1% 17.6% 22.5% 27.4% 30.0%

VW prefs P/E x 7.08 6.31 6.02 5.55 5.19

Dividend yield on VW Prefs 1.2% 2.3% 3.6% 4.7% 5.6%

Core EV/sales 18.2% 20.5% 18.5% 14.4% 10.8%

Core EV/EBIT 2.5 2.5 2.2 1.7 1.2

Equity FCF yield on Auto/Industrial business (ie ex Fin, Services) n.m. 15.6% 15.6% 17.5% 19.1%

Equity FCF yield on core Autos (group ex. Chinese JVs and ex. Fin, Services) n.m. 21.7% 23.1% 26.5% 29.4%

Implied equity FCF yield on group market capitalisation (we think this measure is overly harsh) n.m. 10.6% 10.6% 11.8% 12.9%

Summary valuation for VW prefs at €220 target price 2016 2017E 2018E 2019E 2020E

VW pref price 220.0 220.0 220.0 220.0 220.0

VW ord price 220.0 220.0 220.0 220.0 220.0

MAINFIRST underlying EPS forecast (€) VW prefs/ords 24.03 26.94 28.24 30.63 32.75

Reported EPS forecast (€) VW prefs/ords 10.26 21.95 26.89 29.38 31.64

MAINFIRST DPS forecast (€) 2.06 3.86 6.06 8.06 9.50

Dividend payout ratio on PPA adjusted EPS 8.6% 14.3% 21.5% 26.3% 29.0%

Dividend payout ratio on reported unadjusted EPS 20.1% 17.6% 22.5% 27.4% 30.0%

VW prefs P/E x 9.16 8.17 7.79 7.18 6.72

Dividend yield on VW Prefs 0.9% 1.8% 2.8% 3.7% 4.3%

Core EV/sales 31.7% 33.4% 30.8% 26.1% 22.1%

Core EV/EBIT 4.4 4.1 3.7 3.1 2.5

Equity FCF yield on Auto/Industrial business (ie ex Fin, Services) n.m. 10.9% 10.9% 12.1% 13.4%

Equity FCF yield on core Autos (group ex. Chinese JVs and ex. Fin, Services) n.m. 11.0% 11.7% 13.3% 14.9%

Implied equity FCF yield on group market capitalisation (we think this is overly harsh) n.m. 8.2% 8.2% 9.1% 10.0%


20 December 2017 62 / 80

Expected triggers

We expect VW’s FY-17 release and analyst meeting on the 12 March to show

annual FCF of c.€9.0bn, to include positive guidance for FCF for FY-18 and

beyond including a reiteration of tight control on R&D and capex. We forecast

a 2017 VW pref DPS of €3.86, 11% above the Bloomberg consensus and we

think a higher dividend will boost confidence in future cash returns.

We think the presentation of the pure electric Audi SUV (the Audi e-tron), with

an electric range of 500km plus (possibly in March 2018 with deliveries starting

around September 2018), will show that VW is well positioned in electric cars.

The plan for 50 pure electric vehicles in 2025 is fully factored into management

guidance for both 2020 and 2025 capex and R&D guidance of 6.0% of

revenue. We conservatively assume R&D and capex will be slightly higher

than management guides (e.g. both R&D and capex at 6.2% in 2020 rather

than guidance of 6.0%). We think that many investors overestimate the

competitive threat of Tesla – we expect this to fade over the next 12 months.

We expect consensus upgrades to EPS, but most importantly FCF and

dividends in 2017-20E and we think that investors’ perceived long-term

positioning of the VW group will sharply improve over the next 12 months.


Rebooted premium FCF; reinitiated PT €220 - 14 nov 17

https://s3.amazonaws.com/mainfirst/research_VOW-REP-14.11.2017.pdf?X-Amz-Signature=cbd80a182dba7635715629665546a72a53eb47a48e078813e620f2cb1b9de679&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host


20 December 2017 63 / 80

KEY FINANCIALS


PROFIT & LOSS ACCOUNT Group revenue (as reported) (EUR bn) 217.3 229.5 239.3 251.6

EBITDA 21,434 29,541 34,083 36,568

EBIT 7,103 14,510 18,165 19,653

t/o: At-equity result 3,497 3,579 3,511 3,638

Pre-tax result 7,292 15,152 18,705 20,421


Net result group 5,380 11,305 13,803 15,069





Exceptionals in EBIT (7,520) (2,595) 0 0


EBITDA 28,955 32,136 34,083 36,568

EBIT 14,624 17,105 18,165 19,653





Changes in working capital 3,802 2,022 76 (1,129)

Other operating CF items (1,439) (1,739) (1,927) (1,990)



Free cash flow 1,726 8,488 9,595 10,063

Acquisitions, Disposals, Financial assets 2,604 0 0 0

Dividends, minority payouts (2,298) (1,014) (1,915) (3,017)

Capital measures, other 25,148 (14,400) (5,000) 0

Change in net cash (debt) 27,180 (6,926) 2,679 7,046

Net cash (debt) 27,180 20,254 22,933 29,979

BALANCE SHEET

Fixed assets (EUR bn) 254.0 267.2 282.4 293.0

Current assets (EUR bn) 143.5 141.1 139.1 141.7

t/o Inventories 38,978 33,987 35,037 36,661



Group equity (EUR bn) 92,689 106.1 117.7 129.4

t/o Shareholders equity (EUR bn) 85,122 95,114 106.7 118.4

Interest-bearing liabilities (7,915) (880) (5,742) (11,509)

Other liabilities and provisions (EUR bn) 312.8 303.1 309.5 316.8



Balance sheet total (EUR bn) 397.5 408.4 421.4 434.8

Net working capital 28,371 26,348 26,272 27,401 Capital employed (incl. Goodwill) (EUR bn) 282.4 293.6 308.6 320.4

RATIOS Revenue y/y 5.6% 4.3% 5.1%


EBIT margin (adj.) 6.7% 7.5% 7.6% 7.8%

EPS (adj.) y/y -10.1% 12.1% 4.8% 8.5%




Net debt (cash) / EBITDA (adj.) n/m n/m n/m n/m EBITDA (adj.) / Capex 1.56 1.74 1.83 1.92



VW GROUP EBIT UP 6-8% PA IN 2017-20E, 2/3RDS FROM PREMIUM/QUALITY BRANDS, EBIT MARGIN 7.5% IN 2017E, 8.0% IN 20E

Source: MainFirst

VW R&D TO FALL FROM 7.3% OF REVENUES IN 2016 TO 6.9% IN 2017E AND TO 6.2% IN 2020 BUT STILL C.5X PSA R&D LEVEL

Source: MainFirst

OUR SOTP HAS NO VALUE FOR VW PASSENGER CARS BUT PORSCHE, CHINESE JVS, FIN. SERVICES & SCANIA KEY

Source: MainFirst

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

Porsche, Scania and MAN AudiVW, FS and other VW group EBIT margin % (RHS)VW Pass cars margin (RHS)

(1) VW group EBIT up 6-8% pa in 2018-20E 1/3rd Porsche, Sania/MAN, 1/3rd Audi and 1/3rd other so quality much greater than it used to be.

(2) 2017E margin of c.7.5% and rise to 8.0% in 2020E

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0

2000

4000

6000

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10000

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14000

16000

18000

2003

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2010

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E

2018

E

2019

E

2020

E

VW group cash R&D (€m, LHS)VW group cash R&D as percentage of Auto revs (RHS)

(1) R&D falls from 7.3% of revs in 2016to 6.5% in 2019E and 6.2% in 2020E above VW target of 6.0% in 20/21

(2) R&D spending in 2018-20E nearly €14bn so 5-6x that of PSA (before Opel) which spends under 4.0% of revs

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

5,000

10,000

15,000

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Value at target (€m, LHS) premium brands in yellow

Assumed proportion of total value at target (RHS)

(1) Porsche value €36bn, 23% group

(5) Scania €14bn, 9% group, total Trucks/Vans 16% with MAN/CVs

Premium brands c.65-70% of VW group value (yellow)

Zero value for both VW Brand Pass. Cars

and SEAT

(2) Chinese JVs €32bn, conservative 10% div yield, 20% group

(3) Audi €28bn, 4.9x EBIT18% grp

(4) Fin Services at 1.0x book so €28bn, 18% group


20 December 2017 64 / 80

Wacker Chemie

The sun shines on polysilicon

Price EUR 162 – Target EUR 191 (18%) – WCH GY – Market Cap EUR 8bn

– Germany – Chemicals

Andreas Heine - +49 (89) 99929 8271 - [email protected]


The tight market for the silicone intermediate siloxane provides new pricing

power in Silicones, leading to margin expansion at least until 2021. Wacker

doubled Silicone EBITDA within two years. In contrast to consensus, we

expect the double-digit earnings increase to continue. In the future it will be

mainly driven by price and mix effects. At Polysilicon, the substantial PV

installation growth and market share gains of mono-cells tightened the market.

While there is substantial capacity coming, we doubt that these will achieve the

high-end quality. Therefore, for Wacker the important high-end segment should

stay tight with ongoing high market prices. We expect Wacker’s polysilicon unit

cost decline to outpace potential price declines. We see substantial upside risk

from Polysilicon in case of a further tightening market, the Tennessee plant

coming back and delivery on the promised cost efficiency gains. In our view, a

changed sentiment towards the sector could be the next lever for multiple

expansion and share price performance in 2018.


In contrast to consensus, we expect the double-digit earnings increase to

continue. Compared to consensus assumptions of more or less flat EBITDA for

Polysilicon, we expect substantial upside risk to consensus estimates. We

expect Wacker’s relevant market to stay tight and the product mix to improve

significantly towards the high-quality segment. Our group EBITDA forecast is

10% ahead of consensus for 2018 and even 24% ahead in 2019. We

materially differentiate from the consensus in the long-term prospects for

Polysilicon. We expect entry barriers for the high-end quality to rise and the

market to be structurally more balanced than in recent years. While Polysilicon

used to be a drag for the investment case, we expect it to become a driver in

2018.


Our price target is based on the average of five metrics based on 2018E. We

increase our price target from EUR 161 to EUR 191 based on higher estimates

for Silicones and Polysilicon, but also based on higher multiples for Silicones.

We expect Silicones to increase EBITDA by >40% from 2017 to 2020 and

Polysilicon by 60% over the same horizon. Using the same multiples as for

2018 in our 2020 SOTP valuation derives EUR 261 per share. In case of the

blue sky scenario for Polysilicon (other segments unchanged), the value would

even increase to EUR 312. The worst case for Polysilicon, the 2020 SOTP

would still be at EUR 247.



20 December 2017 65 / 80

Valuation metrics 2018


H1-18 driven by higher prices in Silicones and Polysilicon

At Silicone, prices started to become a driver only in Q4-17. However, it is a

low season quarter. The full benefit should become visible in Q1-18. At

Polysilicon, prices have already been high throughout Q4-17 and the earnings

impact of higher prices and better mix should become apparent with Q4

reporting. Translating Q4 profitability to 2018, consensus estimates for the

segment should go up, in our view. Polymers benefits from strong volume

growth and price increases should start to offset raw material cost headwinds

in 2018. At Biosolutions, the lack of integration charges for the acquisition in

Spain should lead to higher earnings. We therefore expect double digit

EBITDA increase from each of the four segments.

Expected triggers

We expect strong Q4 results translating into ongoing strong trends in 2018.

However, Wacker usually starts with a cautious guidance, which might be

below our forecast. Nevertheless, we expect consensus estimates to move up

strongly over the coming six months. This should be triggered by Q4 results in

Polysilicon and again with Q1 results for Silicones based on the rising pricing

power. We also hope for positive news regarding the restart of the Tennessee

polysilicon plant. We expect the high-end polysilicon segment to stay tight

despite ample new capacities entering the market. However, we doubt that the

incremental capacity hits the high-end segment. If this is going to materialise,

market sentiment towards the Polysilicon segment can materially improve.


Better pricing drives up margins – 19 Dec 17

Things can still get much better from here - 18 oct 2017

http://mainfirst.force.com/SingletrackCMS__DownloadDocument?docRef=5d657849-654b-43d5-8aa9-797aa01d52e5

https://s3.amazonaws.com/mainfirst/Wacker_Chemie_AG_OPF_PT_EUR_161_0_Things_can_still_get_much_better_from_her_1.pdf?X-Amz-Signature=21d455da1f4ba85d62d40caf2e63b2335b396105125da7ce0077de3dbebe20d2&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIAIVXWP347D5NXMBLQ%2F20171218%2Fus-east-1%2Fs3%2Faws4_request&X-Amz-Date=20171218T000000Z&X-Amz-Expires=86400&X-Amz-SignedHeaders=host


20 December 2017 66 / 80

KEY FINANCIALS WACKER CHEMIE



EBITDA 1,101 1,054 1,229 1,407

EBIT 366 462 671 875





Minorities, other 0 0 0 0




Exceptionals in EBIT 138 87 78 82


EBITDA 963 967 1,151 1,325

EBIT 228 376 593 793







Net operating cash flow 737 743 935 1,009





Capital measures, other 195 32 (0) (0)


Net cash (debt) (993) (370) 30 410

BALANCE SHEET

Fixed assets 4,835 4,329 4,157 3,817

t/o Goodwill 0 530 530 530

Current assets 2,627 2,527 2,757 3,219





Interest-bearing liabilities 1,458 968 768 568







RATIOS

Revenue y/y 2.0% -7.7% 4.8% 7.2%


EBIT margin (adj.) 4.2% 7.5% 11.3% 14.2%

EPS (adj.) y/y 9.4% 57.7% 69.5% 36.3%



Net debt (cash) / EBITDA (adj.) 1.03 0.38 n/m n/m

EBITDA (adj.) / Capex 1.86 1.71 2.98 3.48



GROUP EBITDA AND MARGIN TREND

Source: MainFirst

SILOXANE SUPPLY DEMAND TREND

Source: Industry sources, MainFirst

POLYSILICON PRICE TREND

Source: pv Insights; MainFirst


20 December 2017 67 / 80

Our screenings

We show below the raw output (ie no eliminations) from our database on the

following filters and criterias.

Stocks with strong upside potential

We have summarized in the following table the stocks covered by MainFirst

which have the most upside according to our analysts. We have restricted the

screening to our Outperform rating universe, and ranked stocks by their

absolute upside potential to last closing.

Stocks screening: Absolute upside potential

MKT CAP RATING TP UPSIDE P/E FCF YIELD ND/EBITDA

(€bn) (lc) (%) 2018E 2018E 2018E

Large Cap. (>EUR 6bn)

Int. Airlines Group 14.8 Outperform 883.6 38.8% 5.6x 17.0% 0.0x

Bayer 89.1 Outperform 144.0 33.6% 16.5x 7.0% -0.5x

Merck KGaA 40.0 Outperform 120.0 30.5% 15.0x 7.0% 1.7x

AP Moeller Maersk 29.0 Outperform 13800.0 30.1% 25.8x 4.7% 1.7x

Volkswagen 86.5 Outperform 220.0 27.1% 6.1x 56.8% -0.7x

Daimler 76.5 Outperform 90.0 25.9% 7.7x 12.1% -1.0x

Kering 50.2 Outperform 500.0 25.7% 22.8x 5.8% 0.7x

Iliad 12.0 Outperform 255.0 25.2% 22.4x 2.2% 0.9x

Eurofins 9.0 Outperform 640.0 24.8% 24.0x 4.0% 1.8x

Nestle 225.6 Outperform 105.0 24.7% 22.3x 5.4% 1.1x

Small/Mid Cap. (<EUR 6bn)

Neopost 0.8 Outperform 50.0 108.3% 5.8x 13.7% 2.1x

SNP AG 0.2 Outperform 45.0 49.8% 27.3x 4.9% -1.4x

Anima Holding 1.8 Outperform 7.8 37.1% 13.2x n.a. -0.8x

Hochdorf 0.3 Outperform 380.0 34.8% 18.7x 5.2% 1.7x

Hapag-Lloyd 5.5 Outperform 39.6 27.1% 17.8x 8.8% 3.8x

TF1 2.7 Outperform 16.0 26.6% 20.7x 8.4% 0.1x

Banca Generali 3.3 Outperform 36.0 26.1% 15.2x n.a. n.a.

Leonteq 0.8 Outperform 75.0 25.4% 11.4x n.a. 80.5x

Bilfinger SE 1.7 Outperform 47.0 22.5% 23.8x 7.2% -1.1x

Siltronic AG 3.7 Outperform 150.0 20.6% 11.8x 8.8% -0.7x



20 December 2017 68 / 80

Stocks with upside potential vs. Consensus

In this next screening we have selected stocks which our analysts deem to

have a greater upside potential than what the market consensus expects.

Thus, we have ranked stocks based on the incremental upside expected by

our analysts when compared to the Bloomberg consensus.

Stocks screening: MFe Upside vs. Cons.

MKT CAP RATING LOVE RATIO TP UPSIDE TP EBIT 17E EBIT 18E EPS 17E EPS 18E

(€bn) 1 to 5 (lc) (%) Diff. to cons. Diff. to cons. Diff. to cons. Diff. to cons. Diff. to cons.


Wacker Chemie AG 8.4 Outperform 3.1 191 18% 41% 5% 22% 6% 31%

Int. Airlines Group 14.8 Outperform 3.9 884 39% 25% 5% 13% 3% 22%

Hochtief AG 9.6 Outperform 3.1 185 24% 21% -2% -1% -2% 1%

TUI AG 9.9 Outperform 4.2 20 19% 19% -2% -1% 11% 14%

Volkswagen 86.5 Outperform 4.1 220 27% 19% 9% 0% 15% 9%

Croda 6.5 Outperform 3.8 4900 12% 19% 0% -2% 0% -3%

Bayer 89.1 Outperform 4.1 144 34% 19% 14% -9% 2% -8%

Daimler 76.5 Outperform 3.7 90 26% 18% -1% 1% -2% 3%

Nestle 225.5 Outperform 3.8 105 25% 18% 1% 2% -5% -1%

Infineon 26.3 Outperform 3.8 28 21% 17% -8% 3% 0% 5%


Neopost 0.8 Outperform 3.8 50 108% 46% 2% 11% 17% 14%

Int. Airlines Group 14.8 Outperform 3.9 884 39% 25% 5% 13% 3% 22%

Hochdorf 0.3 Outperform 3.7 380 35% 25% 5% 23% -10% 5%

Tod´s 2.0 Outperform 2.4 70 15% 24% 1% 11% -3% 4%

TF1 2.7 Outperform 3.2 16 27% 24% 7% 10% 6% 2%

Bilfinger SE 1.7 Outperform 2.8 47 22% 20% 380% -31% 79% 63%

M6 2.7 Outperform 3.3 25 13% 17% 2% 4% 1% 1%

Biotest AG 0.9 Neutral 3.0 21 9% 17% 140% -3% 31% 21%

CTT 0.5 Neutral 3.2 5 46% 16% 43% 31% 24% 44%

Austrian Post 2.6 Outperform 2.9 44 15% 14% -1% -1% 2% 3%



20 December 2017 69 / 80

Stocks with strong downside potential

We have summarized in the following table the stocks covered by MainFirst

which have the most downside according to our analysts. We have opened the

screening to both our Underperform and Neutral rating universes, and ranked

stocks by their absolute downside potential to last closing. Stocks screening: Absolute downside potential

MKT CAP RATING TP UPSIDE FCF YIELD P/E ND/EBITDA

(€bn) (lc) (%) 2018E 2018E 2018E


Prada 7.8 Underperform 22.0 -22.0% 3.6% 33.7x 0.3x

Dassault Systèmes 23.6 Underperform 72.0 -20.4% 6.1% 30.7x -1.8x

Vifor Pharma 7.0 Neutral 100.0 -19.8% 2.0% 97.1x 0.2x

Deutsche Bank 35.3 Neutral 14.0 -18.1% n.a. n.a. n.a.

Intertek 9.4 Neutral 4200.0 -17.6% 4.9% 0.2x 0.7x

Barry Callebaut 9.1 Neutral 1600.0 -16.8% 3.8% 30.7x 1.4x

Faurecia 9.2 Underperform 56.0 -15.8% 7.9% 11.2x 0.2x

Nike 89.9 Neutral 55.0 -15.3% 3.9% 25.3x -0.2x

Bureau Veritas 10.1 Neutral 20.0 -12.7% 6.9% 22.9x 1.7x

Natixis 21.2 Neutral 5.9 -12.7% n.a. n.a. n.a.


Aixtron 1.5 Underperform 7.2 -45.0% 0.6% 156.9x -7.5x

Software AG 3.6 Underperform 30.0 -36.3% 7.9% 17.5x -0.6x

Bertrandt 1.0 Underperform 65.0 -33.6% 5.0% 20.1x 0.5x

Nordex SE 0.8 Underperform 6.0 -28.9% -3.0% -28.8x 1.7x

Sias 3.5 Neutral 11.6 -24.8% 10.0% 17.3x 1.8x

Salvatore Ferragamo 3.6 Underperform 17.0 -21.0% 3.8% 32.0x -0.6x

HHLA AG 1.7 Underperform 19.0 -19.9% 5.9% 21.9x 0.5x

Zehnder 0.4 Neutral 32.0 -19.6% 4.6% 23.2x -0.9x

Stada AG 5.0 Neutral 66.3 -18.0% 5.7% 23.1x 2.3x

Aryzta 2.9 Neutral 32.0 -13.7% 6.3% 19.0x 3.7x



20 December 2017 70 / 80

Stocks with downside potential vs. Consensus

We now selected stocks which our analysts deem to have a greater downside

potential than what the market consensus expects. Thus, we have ranked

stocks based on the additional downside expected by our analysts when

compared to the Bloomberg consensus.

Stocks screening: Downside to Consensus

MKT CAP RATING LOVE RATIO TP UPSIDE TP EBIT 17E EBIT 18E EPS 17E EPS 18E

(€bn) 1 to 5 (lc) (%) Diff. to cons. Diff. to cons. Diff. to cons. Diff. to cons. Diff. to cons.


Ryanair 17.3 Underperform 4.2 13 -11% -29% -1% -6% -1% -7%

Publicis 13.1 Underperform 4.1 52 -9% -23% -4% -8% -6% -8%

Dassault Systèmes 23.6 Underperform 3.5 72 -20% -19% -17% -14% 1% 1%

Vifor Pharma 7.0 Neutral 3.5 100 -20% -19% -14% -24% -2% -41%

Prada 7.8 Underperform 2.9 22 -22% -17% -19% -16% -13% -17%

Natixis 21.2 Neutral 3.9 6 -13% -16% n.a. n.a. 0% -7%

ASML 64.2 Underperform 3.9 130 -13% -16% 1% 7% -1% 3%

Dufry 6.3 Underperform 3.8 142 5% -14% 0% -3% -70% -59%

Unilever 142.6 Underperform 3.7 45 -8% -14% -3% -6% 3% -2%

Sanofi 93.7 Neutral 3.5 75 1% -12% 2% 1% 1% 1%


Software AG 3.6 Underperform 3.1 30 -36% -31% -5% -4% 7% 5%

Credito Valtellinese 0.1 Neutral 3.3 2 23% -31% n.a. n.a. -25% -79%

Aixtron 1.5 Underperform 2.6 7 -45% -29% 49% -44% 139% -38%

Bertrandt 1.0 Underperform 3.0 65 -34% -30% -3% -3% 0% -1%

Salvatore Ferragamo 3.6 Underperform 2.9 17 -21% -22% -6% -22% -5% -22%

Sias 3.5 Neutral 4.3 12 -25% -22% -7% -8% -9% -8%

GN Store Nord A/S 3.8 Underperform 3.0 171 -13% -18% -1% -4% 0% -2%

Nordex SE 0.8 Underperform 2.4 6 -29% -16% -15% -154% -44% -738%

HHLA AG 1.7 Underperform 2.5 19 -20% -16% 15% 3% 10% -4%

Ingenico 5.4 Neutral 4.0 82 -6% -14% -11% -13% -6% -5%



20 December 2017 71 / 80

Growth stocks

We have screened for the growth stocks withing our equity coverage. The

ranking relies on the 2017-2019 EPS CAGR expected by our analysts,

regardless of the stock recommendation.

Stocks screening: Growth stocks

MKT CAP RATING TP UPSIDE SALES CAGR EBT CAGR EBTMRG. EBT MRG. EBT MRG. EPS CAGR

(€bn) (lc) (%) 2017-19E 2017-19E 2017E 2019E 13-16 av. 2017-19E


Swiss Re 27.9 Outperform 105.0 13.1% 2% n.a. 0.5% 7.8% 12.4% 269%

Munich Re 29.4 Neutral 205.0 8.2% 2% n.a. n.a. n.a. 5.2% 153%

ams 6.7 Outperform 115.0 24.2% 34% 149% 10.9% 12.2% 19.2% 88%

Credit Suisse 38.7 Neutral 17.5 -0.5% 6% n.a. 9.2% 26.7% 1.6% 81%

Commerzbank 16.1 Neutral 12.5 -2.5% 1% n.a. 5.8% 22.6% 5.3% 80%

Scor 6.8 Neutral 35.0 0.1% 5% n.a. n.a. n.a. 6.4% 76%

Vifor Pharma 7.0 Neutral 100.0 -19.8% 11% 42% 7.0% 14.9% 9.6% 70%

Wacker Chemie AG 8.4 Outperform 191 18% 6% 118% 6.9% 13.2% 5.2% 51%

Dufry 6.3 Underperform 142.0 4.6% 5% 48% 2.7% n.a. 1.9% 48%

Swatch Group 18.6 Outperform 435.0 9.6% 7% 34% 12.1% 18.9% 18.8% 34%


Hapag-Lloyd 5.5 Outperform 39.6 27.1% 8% 137% -0.5% 5.4% -2.4% 144%

Leonteq 0.8 Outperform 75.0 25.4% 18% n.a. 10.6% 35.7% 23.6% 113%

Cellnex 5.0 Neutral 20.4 -6.0% 8% 4% 9.2% 16.0% 13.8% 53%

Hochdorf 0.3 Outperform 380.0 34.8% 9% 38% 6.2% 9.9% 3.2% 50%

K + S 3.9 Neutral 21.0 3.6% 8% 70% 5.7% 10.5% 12.8% 46%

SNP AG 0.2 Outperform 45.0 49.8% 22% 48% 1.8% 6.5% 1.6% 43%

GAM 2.1 Outperform 17.0 10.7% 13% n.a. 28.8% 39.4% 17.2% 38%

Panalpina 3.1 Neutral 140.0 -7.7% 3% 27% 2.1% 3.6% 1.5% 38%

Rhön Klinikum 2.0 Neutral 27.0 -10.5% 3% 35% 3.0% 9.7% 2.7% 34%

Mediaset 3.8 Neutral 3.1 -3.3% -6% 0% n.a. n.a. 1.3% 32%



20 December 2017 72 / 80

Highest ROCE deviations from recent average

We have screened our coverage to identify which stocks should generate the

highest return, according to our analysts. We have based our analysis on the

upward change in ROCE expected by our analysts for 2018 vs. the historical

average ROCE of the company.

Stocks screening: Return on capital

MKT CAP RATING TP UPSIDE ROCE ROCE ROCE ROCE ND/EBITDA P/E

(€bn) (lc) (%) av. 13-16 2017E 2018E 18E vs. hist. av. 2017E 2018E


STMicroelectronics 16.9 Neutral 21.0 13.2% 0.4% 14.3% 19.0% 18.6% -0.3x 18.2x

Covestro 17.6 Neutral 79.0 -9.4% 7.8% 24.3% 18.5% 10.7% 0.3x 14.0x

EMS-CHEMIE 13.4 Underperform 610.0 -8.2% 34.4% 42.1% 44.5% 10.1% -0.8x 29.5x

Groupe PSA 15.6 Neutral 22.0 27.5% 8.5% 14.2% 17.1% 8.6% -1.0x 6.2x

Int. Airlines Group 14.8 Outperform 883.6 38.8% 12.4% 19.6% 20.5% 8.1% 0.3x 5.6x

Faurecia 9.2 Underperform 56.0 -15.8% 19.0% 25.7% 26.6% 7.5% 0.3x 12.3x

Temenos 7.7 Outperform 110.0 -13.4% 16.3% 20.2% 23.4% 7.1% 0.4x 44.3x

Sika 16.5 Outperform 7300.0 -5.9% 15.4% 20.2% 22.2% 6.8% -0.7x 26.2x

Ryanair 17.3 Underperform 13.0 -11.0% 21.2% 28.2% 27.6% 6.4% 0.1x 12.3x

Kühne + Nagel 18.0 Outperform 185.0 6.1% 17.9% 19.9% 23.9% 6.0% -0.7x 24.3x


CTT 0.5 Neutral 5.0 46.5% -105.4% 58.6% 68.2% 173.6% -2.8x 8.3x

Siltronic AG 3.7 Outperform 150.0 20.6% -3.8% 26.4% 36.3% 40.1% -0.9x 11.8x

Rai Way 1.4 Neutral 5.3 4.2% -0.1% 24.2% 27.0% 27.1% -0.1x 23.1x

Logitech 5.0 Outperform 40.0 20.1% 7.9% 28.5% 32.7% 24.8% -2.2x 19.4x

Aixtron 1.5 Underperform 7.2 -45.0% -14.5% -7.6% 3.3% 17.8% 20.9x 163.6x

Ascom 0.8 Outperform 24.0 -4.8% 10.7% 18.2% 21.3% 10.6% -0.5x 27.4x

SFS Group 3.7 Neutral 115.0 1.7% 7.5% 8.4% 15.2% 7.6% -0.1x 20.1x

Mediaset 3.8 Neutral 3.1 -3.3% 0.8% 7.2% 7.9% 7.1% 0.9x 17.8x

Panalpina 3.1 Neutral 140.0 -7.7% 13.1% 14.9% 19.2% 6.1% -2.4x 34.7x

Air France - KLM 5.7 Neutral 14.0 6.1% 2.6% 8.1% 7.9% 5.3% 1.0x 628.6x



20 December 2017 73 / 80

High yield stocks

We have performed a last set of screenings based on the dividend yield

attractiveness of the companies within our coverage. The ranking is based on

our analysts’ 2018 expected dividend yield. We have not restricted for

recommendation. However, we have differentiated between industrial

companies and financial companies (which tend to have higher dividend yield

than other sectors).

Stocks Screening: High Yield Financials

MKT CAP RATING TP UPSIDE DIV. YIELD DIV. YIELD DIV. COVER. DIV. COVER.

(€bn) (lc) (%) 2017E 2018E 2017E 2018E


Société Générale 35.0 Outperform 54.0 24.7% 5.1% 6.2% 2.1x 2.0x

Zurich Insurance Group 39.6 Neutral 300.0 -1.3% 5.7% 5.9% 1.1x 1.5x

KBC Group 29.8 Neutral 69.0 -3.1% 4.1% 5.9% 2.0x 1.8x

UBS 60.3 Outperform 20.0 10.0% 3.6% 5.8% 2.2x 1.9x

Scor 6.8 Neutral 35.0 0.1% 5.0% 5.6% 0.6x 1.8x


Azimut 2.3 Neutral 17.8 11.7% 7.2% 6.9% 1.3x 1.3x

Anima Holding 1.8 Outperform 7.8 37.1% 3.5% 6.0% 2.0x 1.3x

Cembra 2.4 Neutral 90.0 -2.2% 3.8% 5.6% 1.4x 1.3x

Banca Mediolanum 5.5 Neutral 7.8 5.4% 5.4% 5.4% 1.4x 1.3x

Banca Generali 3.3 Outperform 36.0 26.1% 4.6% 5.4% 1.3x 1.3x


Stocks screening: High Yield Industrials

MKT CAP RATING TP UPSIDE DIV. YIELD DIV. YIELD DIV. COVER. DIV. COVER. FCF YIELD FCF YIELD

(€bn) (lc) (%) 2017E 2018E 2017E 2018E 2017E 2018E


Endesa 19.8 Outperform 21.0 12.5% 7.2% 7.6% 0.9x 1.0x 8.8% 7.4%

Enel 55.5 Neutral 5.3 -2.6% 4.2% 5.9% 1.5x 1.4x 4.4% 4.8%

Daimler 76.5 Outperform 90.0 25.9% 4.8% 5.6% 2.6x 2.5x 5.7% 6.5%

Snam 14.5 Neutral 4.6 9.9% 5.3% 5.3% 1.1x 1.3x 3.8% 5.1%

Groupe PSA 15.6 Neutral 22.0 27.5% 3.8% 5.2% 3.6x 3.5x 7.9% 19.0%

AP Moeller Maersk 29.0 Outperform 13800.0 30.1% -0.2% 5.0% 1.3x 1.7x -4.2% 3.4%

Int. Airlines Group 14.8 Outperform 883.6 38.8% 3.5% 5.0% 4.1x 4.0x 10.1% 12.5%

Terna 10.3 Neutral 5.2 1.6% 4.7% 4.9% 1.4x 1.4x 3.1% 1.0%

TUI AG 9.9 Outperform 20.0 18.8% 4.4% 5.3% 1.9x 1.9x -0.1% 3.0%

Orange 39.2 Neutral 15.0 1.9% 4.4% 4.9% 1.6x 1.6x 6.2% 7.8%


CTT 0.5 Neutral 5.0 46.5% 11.1% 12.3% 0.9x 1.1x 18.8% 14.3%

PostNL 1.9 Outperform 4.5 9.4% 5.4% 7.8% 1.8x 1.7x 1.9% 6.8%

Neopost 0.8 Outperform 50.0 108.3% 7.1% 7.1% 2.4x 2.4x 18.1% 18.7%

Hapag-Lloyd 5.5 Outperform 39.6 27.1% 0.0% 6.2% n.a. n.a. 5.3% 10.8%

Austrian Post 2.6 Outperform 43.5 14.7% 5.4% 5.4% 1.2x 1.2x 6.5% 5.7%

bpost 5.2 Neutral 24.0 -7.7% 4.9% 5.0% 1.2x 1.2x 6.2% 6.4%

Nexity 2.9 Outperform 57.0 10.6% 4.7% 4.9% 1.3x 1.6x 3.8% 3.4%

A2A 5.0 Outperform 1.8 13.8% 3.6% 4.6% 1.8x 1.8x 6.1% 8.4%

ElringKlinger 1.0 Neutral 15.5 -0.8% 3.2% 4.5% 2.5x 2.7x -4.1% 2.8%

Rai Way 1.4 Neutral 5.3 4.2% 3.9% 4.5% 1.0x 1.0x 4.6% 5.0%



20 December 2017 74 / 80

Take-out companies in our coverage universe Take-out companies in our coverage universe

COMPANY SECTOR ANALYST RATING % FREE FLOAT

RATIONALE

ADP Industrial Transportation Tobias Sittig N 33 French State looking to privatise, Vinci considered most likely buyer if law is changed accordingly.

ams Technology Hardware & Equipment

Jürgen Wagner

OPF 85 ams is the leading 3D sensor supplier that faces a multi-year growth path (sales growth >40% 2016-2019E). It is of special interest to semi suppliers that want to enter the 3D sensor value chain. Longer term this product is also of great importance for ADAS applications in the car.

Ascom Technology Hardware & Equipment

Tobias Fahrenholz

OPF 99 Fragmented and generally highly attractive healthcare ICT market with typically above-average GDP+ sales growth rates, high returns and solid free cash flows given a limited capital intensity. Assuming that ASCN would successfully deliver on its considerably expanding one-stop-shopping offering with rising margins we would gradually see it as a mid-term takeover candidate (potential acquirers: Cisco, Cerner & Co)

Baloise Nonlife Insurance René Locher N 100 Baloise offers a well-diversified insurance portfolio and a strong balance sheet. An acquisition would open the buyer the door to the profitable Swiss non-life insurance with a combined ratio of ~85%. The 15% underwriting margin translates into a pre-tax ROE of 25%.

Cellnex Mobile Telecommunications

Irene Rossetto

N 65 Abertis owns 34% of the company -> a change of control of Abertis could potentially involve a takeover bid (50% chance incl. in our PT) or the disposal of a stake not to cross the 30% threshold (Under Spanish law, a shareholder that buys 30% or more of a company must make a full offer for that company)

Clariant Chemicals Daniel Buchta N 98 Company’s future very uncertain with activist investor White Tale forcing portfolio reshaping. If Clariant does what White Tale wants them to do, they have a nice niche portfolio and thus could be an M&A target. In our view, we rate this as a general intention of White Tale and not to be interested in holding Clariant for a longer period - what they officially claim.

Creval Banks Irene Rossetto

N 100 Post capital increase, we believe Creval could stand as a target in the consolidating Italian regional bank landscape

Dialog Technology Hardware & Equipment

Jürgen Wagner

OPF 96 Dialog is the leading power management IC supplier to smartphone makers. Post the sell-off valuation at EV/EBITDA of 3.9x is very attractive to large cap semis that want to expand their wireless footprint. China is already building up a stake but could face regulatory headwinds.

FCA Automobiles & Parts Pierre-Yves Quémener

OPF 70 It’s no secret that CEO Marchionne has been actively lobbying to find a tie-up with another large(r) OEM to 1/ improve returns and capital allocation and 2/ reduce the exposure of its reference shareholder EXOR to mass-market car makers. Time is soon up for CEO Marchionne is to step down after 2018 AGM (to be held in April – May 2019), so one must brace for a heavy news flow in H1-18 regarding potential changes in FCA Corporate Structure: from MMarelli IPO to a fully-fledged merger.

Gerresheimer Health Care Equipment & Services

Marcus Wieprecht

OPF 97 Could be acquired by industry competitors like West Pharmaceutical Services or other life sciences/contract manufacturing players who potentially look into further vertical integration into primary pharma packaging for liquid/injectable drugs. Furthermore, given its size (c. EUR 2.2bn market cap, 100% free-float) and its stable and defensive growth business with good free cash flow generation (>5% yield of market cap) it would be an interesting target for private equity players as well which could lever the business up to potentially 6x net debt/EBITDA (while GXI is ending the FY with <2.5x).

Inwit Mobile Telecommunications

Irene Rossetto

OPF 40 2 years ago Telecom Italia management decided to put its controlling stake up for sale (Telecom Italia owns 60% of Inwit) and Cellnex was ready to bid. The process wasn’t finalized as Mr Cattaneo became the new CEO of Telecom Italia and decided to keep the controlling stake in Inw it. Telecom Italia new management might change its approach towards the stake again (we have increased the speculative appeal last July on the back of this).

K+S Chemicals Andreas Heine

N 100 Potash Corp. already approached K+S in order to consolidate the potash market. That might happen again as the market is still oversupplied.

Kion Industrial Engineering Daniel Gleim OPF 57 Strategic investor Weichai Power (43%) could increase their stake further

Panalpina Industrial Transportation Tobias Sittig N 41 Global network, reasonable market cap and poor margins. If self help does not work and the foundation loses confidence, there could be 4-5 cash rich acquirers lining up: DSV, XPO, KNIN, potentially even DPW, UPS, FedEx.

PostNL Industrial Transportation Tobias Sittig OPF 100 Unlikely in the next 12-18 months, but conceptually a combination with BPOST or Royal Mail would make sense to us, and PNL operates in a far too small niche to remain independent forever.

Qiagen Pharmaceuticals & Biotechnology

Marcus Wieprecht

N 95 Could be a target within a heavily consolidation global life sciences industry and/or for larger conglomerates with exposure to healthcare businesses potentially looking for a profitability/growth booster to their business (e.g. Siemens Healthineers, GE) or as a complementary business within Merck KGaA´s Life Sciences business.

Wirecard Support Services Jürgen Wagner

OPF 93 Wirecard is the only publicly listed payment processor left in Europe. With the US names continue to expand into Europe, it is a target for US payment companies. With its pure online focus, the company is also positioned on the sweet spot of the market because eCommerce growth is accelerating and taking share from instore retail.



20 December 2017 75 / 80

Appendix: Regulatory Disclosures and Disclaimer

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Trading Act (Wertpapierhandelsgesetz; WpHG), the Regulation governing the Analysis of Financial Instruments (Finanzanalyseverordnung; FinAnV) and any further applicable laws and

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Company-Specific Disclosures

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20 December 2017 76 / 80

RECOMMENDATION DEFINITION OF RECOMMENDATION STRUCTURE

Outperform Expected to appreciate and outperform the STOXX Europe 600 by at least 5%

Underperform Expected to underperform the STOXX Europe 600 by at least 5%

Neutral Expected to perform broadly in line (+/- 5%) with the STOXX Europe 600

Source: MainFirst0

Any forecasts or price targets shown for Companies and/or financial instruments discussed in this Publication may not be achieved due to multiple risk factors including but not limited to

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DISTRIBUTION OF EQUITY RESEARCH RECOMMENDATIONS RECOMMENDATION NO. OF COMPANIES AS A % OF TOTAL BANKING SERVICES PROVIDED AS A % OF TOTAL

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BASIS OF VALUATION OR METHODOLOGY

Any basis of valuation or methodology used to evaluate a financial instrument or Companies, or to set a price target for a financial instrument, is herewith adequately summarized. The

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changes in the methodology or basis of valuation used are included in the Publication.

MAINFIRST RECOMMENDATION HISTORY

COMPANY DATE REC PRICE

Source: MainFirst, Bloomberg (*) O – Outperform, U – Underperform, N – Neutral, NR – Not rated

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Unless otherwise noted, the financial instruments mentioned in this Publication are priced as of market close on the previous trading day. All other financial instruments mentioned in this

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20 December 2017 77 / 80

COMPANIES MENTIONED IN THIS REPORT

COMPANY BLOOMBERG FX PRICE MF RATING

A2A A2A IM EUR 1.58 OPF

Iren IRE IM EUR 2.61 OPF

Acea ACE IM EUR 16.49 OPF

Hera HER IM EUR 3.10 N

Bayer BAYN GY EUR 107.80 OPF

Bilfinger SE GBF GY EUR 38.38 OPF

Bouygues EN FP EUR 43.85 OPF

Continental AG CON GY EUR 227.35 OPF

Edenred EDEN FP EUR 24.09 OPF

Sodexo SW FP EUR 112.10 N

Visa Inc. V US USD 113.55 NR

Mastercard Inc. MA US USD 153.12 NR

Fleetcor Inc. FLT US USD 190.68 NR

Wright Express Corp. WEX US USD 136.74 NR

Gerresheimer GXI GY EUR 70.85 OPF

Fresenius Medical Care AG & Co. KGaA FME GY EUR 88.53 OPF

West Pharmaceutical Services Inc. WST US USD 98.61 NR

Becton Dickinson & Co. BDX US USD 221.73 NR

Ypsomed Holding AG YPSN SW CHF 159.70 NR

Carl Zeiss Meditec AG AFX GY EUR 52.62 NR

AptarGroup Inc. ATR US USD 86.57 NR

Owens-Illinois Inc. OI US USD 22.64 NR

RPC Group PLC RPC LN GBp 864.50 NR

Hochdorf HOCN SW CHF 282.00 OPF

Kering KER FP EUR 397.75 OPF

Lonza LONN SW CHF 267.20 OPF

Siltronic WAF GY EUR 124.40 OPF

Swiss Life SLHN SW CHF 345.10 OPF

Aegon AGN NA EUR 5.35 NR

Allianz ALV GY EUR 201.00 N

Axa CS FP EUR 25.70 NR

Bâloise BALN SW CHF 154.70 N

CNP CNP FP EUR 19.31 NR

Generali G IM EUR 15.52 NR

Mapfre MAP SM EUR 2.73 NR

Helvetia HELN SW CHF 552.50 OPF

Talanx TLX GY EUR 35.00 N

UNIQA UQA AV EUR 8.85 NR

Vienna VIG AV EUR 26.21 NR

Zurich Insurance Group ZURN SW CHF 303.90 N

Hannover Re HNR1 GY EUR 108.40 N

Munich Re MUV2 GY EUR 189.40 N

Scor SCR FP EUR 34.98 N

Swiss Re SREN SW CHF 92.80 OPF

TUI TUI1 GY EUR 16.84 OPF

UBS UBSG SW CHF 18.18 OPF

CS Group CSGN SW CHF 17.59 N

Julius Baer BAER SW CHF 59.65 OPF

Deutsche Bank DBK GR EUR 17.07 N

Commerzbank CBK GR EUR 12.80 N

BNP Paribas BNP FP EUR 63.36 N

Societe Generale GLE FP EUR 43.32 OPF

Credit Agricole ACA FP EUR 14.27 N

Barclays BARC LN GBp 204.50 NR

Royal Bank of Scotland RBS LN GBp 276.70 NR

HSBC HSBA LN GBp 756.10 NR

Santander SAN SM EUR 5.67 NR


20 December 2017 78 / 80

COMPANIES MENTIONED IN THIS REPORT

BBVA BBVA SM EUR 7.25 NR

UniCredito Italiano UCG IM EUR 16.43 NR

Bank of America BAC US USD 29.48 NR

JP Morgan Chase JPM US USD 106.96 NR

Citigroup C US USD 75.67 NR

Goldman Sachs GS US USD 260.02 NR

Morgan Stanley MS US USD 53.24 NR

Royal Bank of Canada RY CN CAD 102.32 NR

Nomura 8604 JP JPY 675.00 NR

Volkswagen VOW3 GY EUR 173.10 OPF

Wacker Chemie WCH GY EUR 161.85 OPF



20 December 2017 79 / 80

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International Distribution and Research Locations

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