intelligent investing - canaccord investing/031... · bulk of aberdeen’s strategic weaknesses ......

ContentsMarket Review 1

Equities Aberdeen Asset Management 2

WPP 2

Equity Screens UK 3

US 4

US Equities Stryker 5

Investment Trust Personal Assets Trust 5

Profit Takers 6

Published: 3 April 2017

Intelligent Investing

The information provided in Intelligent Investing is not tailored advice – it has no regard for the specific investment objectives, financial situation or needs of any specific person.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

This is a marketing communication under FCA rules. For important information please see the full disclosures.

Intelligent Investing | April 2017

bulk of Aberdeen’s strategic weaknesses and opens avenues to growth. We also look at WPP, which recently disappointed markets with a cautious growth outlook but retains a strong long-term track record and a business plan with room to keep delivering.

In the US, we examine medical technology company Stryker, which has an outstanding record of value creation. Finally, our investment trust article highlights Personal Assets Trust, which runs a high-conviction, capital preservation strategy that has produced strong long-term returns.

Our regular UK equity screen looks at potential takeover candidates in light of recent merger and acquisition activity. In the US, we search for quality and growth in an environment of high valuations.

After a strong year in equities, there’s a widespread sense that it may be time to pause for breath; and that perhaps, given the political risks on both sides of the pond, there may be an increase in volatility, or even a market correction. However, with economic momentum still positive, we would look beyond any such setbacks. Even if they have begun to rise in the US, elsewhere interest rates are still low - and at this very early stage of the tightening cycle, we believe there’s room for risk assets to continue to move higher.

Richard Champion Deputy Chief Investment Officer, UK

Market Review

Equity markets have continued their march higher over the last few weeks, fuelled by optimism that the new US administration will deliver a pro-growth, anti-red tape agenda and drive faster economic growth and stronger earnings to companies. At the time of writing, the FTSE 100 Index has risen by 4.9% since the end of January 2017, with the S&P 500 Index in the US up by 4.0% over the same period.

However, with the US Federal Reserve raising interest rates by 0.25% on 15 March and offering a measured outlook for US growth, employment and inflation, the immediate beneficiary seems not to have been equities but US Treasury bonds – as evidenced by their rise in value following the announcement. At the time of writing, the FT Actuaries Gilts All Stocks Index is up 3.0% since the end of January.

Political risks in Europe remain elevated, despite the general election defeat of the largest Dutch anti-Euro party on 15 March. With the UK triggering Article 50 and starting the formal process to leave the EU, along with French presidential elections in late April and early May, media attention remains focused on the potential for market disruption from populism and its after-effects.

Against this backdrop, in this issue we consider an eclectic mix of potential investments. In the UK, we review Aberdeen Asset Management following the merger deal with Standard Life – a move that we believe addresses the

WPP

Market cap: £21.6bn

Share price: 1,715p

Source: Quest®

Note: 2017 and 2018 are forecast years

Source: Quest®

Note: 2017 is a forecast year

2016A 2017F 2018F

Revenue (£bn) 1.0 1.0 1.0

Earnings per Share (p) 20.9 20.6 21.6

Dividend per Share (p) 19.5 17.2 17.4

Dividend Yield 6.6% 6.5% 6.6%

Free Cash Flow Yield 6.3% 7.6% 7.9%

Price Earnings Ratio 14.0 12.8 12.2

Return on Capital Employed 16.9% 25.7% 25.4%

2016A 2017F 2018F

Revenue (£bn) 14.4 15.6 16.3

Earnings per Share (p) 126.7 126.1 134.8

Dividend per Share (p) 56.6 62.9 67.5





Aberdeen Asset Management

Market cap: £3.4bn

Share price: 263p

Source: Quest®

Note: 2017 and 2018 are forecast years

Intelligent Investing | April 2017 2

uplift in earnings for Aberdeen. If history repeats itself, this synergy target is likely to be exceeded with further savings.

Perhaps the biggest benefit is that the potential for a dividend cut, which Aberdeen CEO Martin Gilbert flagged as a possibility last November, is now clearly off the cards. Admittedly, on completion of the merger – expected in the third quarter of 2017 – Aberdeen shareholders will see the dividend per share fall by 23%. However, we still believe this is preferable to what appeared increasingly likely on a standalone basis, considering that dividend cover slipped to 1.1x last year, down from 2.2x just three years earlier.

At the current share price, the new entity will provide a dividend yield of c.5.5% compared with the UK market on just 3.8%. Equally important, we believe that future dividend per share growth is well positioned to increase, given Standard Life has grown the dividend at an average annual rate of 6% over the last five years.

Simon McGarrySenior Equity Analyst

• Greater exposure to emerging markets than its global peers

• Brazil, WPP’s seventh-largest market, is showing signs of a recovery

• 37% of revenues are from North America, making WPP a major beneficiary of any boost to GDP growth under Trump

• The dividend payout ratio target of 50% was achieved in 2016, a year ahead of schedule.

However, in the melee that followed the annual results, the market seems to have overlooked these points. Shares are down 12% since, trading on 12-month forward earnings of 13.4x compared with 14.9x for the UK market. And they offer a better-than-average dividend yield of 3.7%, having grown the dividend at an annual rate of 18% over the last 10 years.

In our view, this is a rare opportunity to invest in a high-quality company at a discount to both its history and the market.

Simon McGarrySenior Equity Analyst

Double scotch Aberdeen Asset Management is a specialist emerging market asset manager with £303bn of third-party assets under management (as at the end of 2016). Four weeks ago, the company surprised the market by announcing an all-share merger with fellow Scottish asset manager, Standard Life – a deal which will see Aberdeen shareholders owning a third of the new entity.

The last few years have been difficult for Aberdeen, with institutional investors ditching emerging markets in favour of developed markets. So the deal seems compelling, given that it will create a giant in the asset management world, with increased scale, distribution channels and a much broader client base. It also significantly de-risks the business by diversifying revenues and reducing its relative exposure to emerging markets, which currently accounts for over 80% of earnings.

Scale is more important than ever, considering aggressively priced passive funds have stolen market share in recent years. With £660bn in assets under administration, the new business will rank in the top 20 global asset managers and number two independent in Europe – giving both companies the firepower to protect their margins. Indeed, initial estimates suggest £200m of cost synergies post-merger, which on a standalone basis would lead to a 15%

Ad break WPP is a world leader in marketing communications covering a variety of services including advertising, PR and branding. With 3,000 offices in 111 countries, the group boasts an impressive 70% of the Fortune 500 as clients.

Despite reporting solid 12 month figures on 3 March 2017 (+7.2% sales and +12.5% constant currency profit), the company also downgraded its 2017 expected growth from 3% to 2%. The shares fell 8%. Management stressed that 2% is conservative, and in fact WPP beat this target in January.

WPP gave a long-term operating margin target of 20%. At the current 0.3% yearly rate of improvement, this implies seven more years of margin uplift. Additionally, WPP is accelerating its emerging market strategy, targeting 40-45% of sales from 'fast growth markets' by 2020. Finally, the company aims for average EPS growth of 10-15% in the long term through sales growth, better margins, acquisitions, and share buybacks.

Other attractions include:

• Best-in-class exposure to digital services

UK Equities

Earnings and dividend per share (pence)

0

20

40

60

80

100

120

140

2009 2011 2013 2015 2017F

EPS DPS


UK Equity ScreenAnother month, another M&A roundup

Since the EU referendum, we’ve repeatedly forecast that UK PLC was poised for a spike in M&A activity – as our regular readers will be well aware. This view was largely based on the following:

1. Despite an increase in financial leverage in recent years, US corporates have substantial overseas cash balances trapped, which would be costly to repatriate

2. There’s an abundance of readily available cheap debt-to-finance deals, despite the US Federal Reserve starting to raise interest rates

3. Private equity funds are sitting on record cash piles

4. Sterling has dropped 15% against the US dollar since the Brexit vote, and by 26% since the middle of 2014.

Although there were, on average, more than two deals per week with a transaction value of more than £100m in the six months after the Brexit vote, the frequency for mergers has now stepped up a gear. In late February, Kraft Heinz made an unsuccessful US$143bn merger proposal with Unilever. Barely a week later, Aberdeen Asset Management and Standard Life

announced plans to merge. Then came troubled FTSE 250 housebuilder Bovis receiving competing bids from fellow FTSE 250 constituents Galliford Try and Redrow.

With the UK M&A environment heating up, we’ve used Quest® (Canaccord Genuity's proprietary equity valuation system) to screen for stocks where we see scope for a bid. Excluding heavily indebted companies and those with above-average volatility in their operating returns, we’ve highlighted what we believe are some of the most attractive potential M&A candidates using our LBO free cash flow yield** valuation metric.

Past performance and future forecast figures are not a reliable indicator of future results.

12 month forward

Company name Industry nameMarket cap

(£m) Share price

LBO free cash flow

yield

Price earnings

ratioDividend

yieldDebt + other

EBITDARDividend

cover

Price performance

over 6 months

Schroders Capital Markets 8,506 3,094 15.3% 15.5 3.2% -4.6 2.0 15%

TP ICAP Capital Markets 2,527 456 15.0% 13.1 3.7% -0.6 2.1 n/a

Hays Professional Services 2,266 157 10.4% 16.3 2.6% 0.2 2.4 21%

IG Group Holdings Capital Markets 1,811 495 14.2% 11.5 6.6% -1.5 1.2 -43%

WS Atkins Professional Services 1,449 1,488 11.6% 12.1 3.0% 1.0 2.9 -6%

Galliford TryConstruction and Engineering

1,222 1,485 11.7% 9.1 6.8% 0.6 1.6 14%

Computacenter IT Services 896 741 11.6% 13.4 3.1% 0.0 2.5 4%

Go Ahead Road and Rail 744 1,737 25.4% 8.2 6.0% 0.6 2.1 -15%

RPS GroupCommercial Services and Supplies

541 250 10.7% 14.7 4.0% 1.7 1.7 43%

CostainConstruction and Engineering

470 451 15.5% 13 3.3% 1.6 2.4 26%

Impellam Professional Services 395 785 14.3% 8.2 2.7% 1.4 4.7 3%

Staffline Professional Services 301 1,175 14.8% 9.2 2.4% 0.8 4.5 38%

Wilmington Professional Services 213 244 12.6% 11.4 3.6% 0.7 2.6 -3%

Source: Quest®

Search Criteria1. Market capitalisation greater than £200m

2. LBO free cash flow yield greater than 10%**

3. Net debt + capitalised operating leases + pension deficit divided by EBITDAR is less than 2x.

** See glossary for full explanation


US growth

While the outlook for the US economy remains positive, with many commentators continuing to see the Trump administration as a boon for both the economy and markets, US equities are far from cheap.

Following an eight-year bull market, the US large and mid-cap universe on Quest® (Canaccord Genuity’s proprietary equity evaluation system) is currently trading on an EV/sales of 2.1x compared with the long-run average of 1.6x. Likewise, the current 19.1x P/E is 1.24x above its long-run average value of 15.3x.

Nevertheless, market volatility remains a distinct possibility given the uncertainties around how effective Trump will be in delivering his agenda – not to mention the impact of upcoming Brexit negotiations and several key national European elections.

In such an environment we prefer to seek out quality companies with a track record of value creation: companies that should be better able to navigate these uncertain times. Therefore, we’ve run the same screen we ran last month across our European universe. Specifically, we have identified companies that have solid balance sheets (net debt/EBITDA less than 3x), return on capital employed (ROCE) above the market average, and a history of sales and earnings growth (3-year average sales and earnings per share (EPS) growth greater than 3% pa).

US Equity

Below we highlight 14 companies that satisfy our criteria. They include medical technology specialist Stryker (featured in a separate article in this publication), as well as global tech giants Alphabet (parent of Google) and Apple. Also listed is Charles Schwab – America’s largest publicly traded investment services firm as measured by client assets. It should be a beneficiary of the rising interest rate environment in the US, with the company estimating that each 0.25 percentage point increase in the target Fed funds rate could increase group revenue by US$650m a year.

Past performance and future forecast figures are not a reliable indicator of future results. The figures above are shown in US dollars. These returns may differ significantly when converted to other currencies at the prevailing exchange rates.

12-month forward 3 year average

Company name Industry nameMarket

cap ($bn)

Price earnings

ratio

Return on capital

employed EPS growthSales

growth

Current year net debt /

EBITDA

Total shareholder

return over 3 mths

AppleTechnology Hardware Storage and Peripherals

703 15.2 39.4% 13% 8% 0.2 24%

Alphabet Internet Software and Services 546 26.4 44.4% 16% 15% -2.3 6%

Walt Disney Media 165 17.9 23.8% 18% 7% 0.9 8%

IntelSemiconductors and Semiconductor Equipment

156 12.6 23.3% 9% 4% 0.1 -2%

UnitedHealth Healthcare Providers and Services 147 16.9 24.5% 10% 15% 0.8 2%

MasterCard IT Services 116 25.6 217.2% 13% 9% -0.6 8%

Amgen Biotechnology 112 13.6 40.8% 17% 6% -0.5 11%

AbbVie Biotechnology 97 11.6 34.9% 12% 11% 2.7 6%

Bristol Myers Pharmaceuticals 86 19.7 34.6% 19% 6% -0.2 -4%

Walgreens Boots Food and Staples Retailing 84 15.7 19.8% 21% 18% 0.7 1%

Gilead Sciences Biotechnology 82 8.6 33.5% 71% 40% 1.3 -6%

Biogen Idec Biotechnology 54 13.2 37.0% 31% 21% 0.2 2%

Charles Schwab Capital Markets 50 24.4 36.9% 19% 11% -6.9 2%

Stryker Corp Healthcare Equipment and Supplies 46 20.2 22.7% 9% 8% 0.7 10%

Source: Quest®

Search Criteria1. Net debt/EBITDA less than 3x

2. Return on capital employed (ROCE) above the US market average of 17%

3. 3-year average sales and earnings growth above 3%

4. Average annual sales and earnings per share (EPS) growth of at least 3%


2.4%2.9%

4.6%5.1%

5.8% 6.1%

4.8%

6.4%

MedTech Market Stryker

2013 2014 20162015

growth and cost optimisation. The company has a good track record in acquisitions which has seen its sales more than double since 2006.

One notable transaction was the acquisition of Mako in 2013, which developed Stryker’s specialisation in robotic-arm-assisted joint replacement surgery. The Mako system is currently the only robotic technology that can be used across the joint replacement service line to perform total knee, total hip and partial knee replacements. With robotic-arm-assisted surgery seeing lower re-admission rates, and with the demand for primary knee replacement procedures in the US expected to increase 673% by 2030, this bodes well for the future.

Stryker’s shares currently trade on a 12-month forward P/E of 20.2x compared with the US market’s 19.1x. This means the issue for investors is not one of quality, but more one of value. Nevertheless, the shares remain attractive given the US Healthcare Equipment and Supplies sector’s P/E of 20.8x.

Marc Pullen Senior Equity Analyst

Stryking for growth

Stryker is a US-based global leader in medical technology, specialising in orthopaedics (hip, knee and joint replacement implants) and medical and surgical equipment for orthopaedic, neurological and endoscopic procedures.

The company appears in rude health, posting a strong set of 2016 results with sales up 13.9% year on year. A significant part of that growth has come from acquisitions, but even without these factored in, sales increased 6.4% on a constant currency basis during the year.

For the foreseeable future, global healthcare demand should remain well supported by an ageing population and the continued expansion of the middle class in emerging markets. However, with stretched government finances and increasing private health insurance premiums, affordability may well become an issue over time – which would impact profitability across the industry.

Stryker is seeking to maintain its existing market-leading sales growth and margin expansion with a strategy of specialisation, acquisitions, international

US Equity

Source: Company factsheet

Investment Trust

Past performance is not a reliable indicator of future results.

PAT tested

Personal Assets Trust seeks to increase future value by participating in long-term market gains to minimise losses when markets fall. The management team considers risk as the likelihood of losing money, rather than the volatility of returns relative to an index. As a result, they balance equity risk exposure with other defensive and diversifying asset classes – gold, index-linked bonds and cash (including Treasury bills).

The Trust’s attractive risk-adjusted returns are generated by skilfully managing the asset class mix and disciplined stock selection within the equity allocation. Given the role that equity exposure plays in the Trust, it’s no surprise that there’s a defensive bias to the stocks selected. Quality and franchise are key, with a tendency to invest in Consumer Goods, Healthcare and Business Software, while avoiding capital-intensive and highly cyclical sectors.

The performance track record has not been perfect but the approach adds value over time:

• The decision to hedge US$ back to GBP was a detractor last year given the collapse in the pound after the Brexit vote. Looking further back, 2013 was also a particularly

challenging year, with a 'perfect storm' of the market favouring cyclical equities and gold selling off aggressively. Over a shorter time horizon, this company can clearly underperform.

• Three-year returns are a good example of the Trust working well and delivering against its objectives, with the FTSE All-share Index annualising 7.4% and Personal Assets Trust NAV up 8.5%, with around 3% turnover (on the equity component).

• The real advantage of the Trust’s strategy can be seen in the 2008 period when, at the end of April, the portfolio was 100% liquid through the use of short futures in anticipation of a market correction. Although this is an extreme example, the effective liquidity of the portfolio has been in the range of 35-45% since 2001.

Finally, the Trust operates a zero discount policy. This is a distinct advantage for an absolute return strategy as it counteracts the share price volatility and short-term equity market correlation that we see impacting investment company discounts, particularly in times of market dislocation.

Patrick ThomasInvestment Manager

Source: Company factsheet

Top 10 holdings

Personal Assets Trust

Market cap: £787m

Premium / (Discount): 0.6%

Dividend yield: 1.4%

Established: November 2000

Source: Quest®. 2017 and 2018 are forecast years

2016A 2017F 2018F

Revenue (US$bn) 11.3 12.2 12.9

Earnings per Share (US$) 6.1 6.4 7.0

Dividend per Share (US$) 1.6 1.6 1.8





Stryker

Market cap: US$49.2bnShare price: US$132

Organic revenue growth

US Treasury Note 12.40%

Gold Bullion 10.99%

US Treasury Note 7.94%

United Kingdom (Government Of) 5.41%

United Kingdom (Government Of) 5.41%

Philip Morris International Inc NPV 5.38%

British American Tobacco plc Ordinary 25p

5.11%

Treasury 0% 10/04/17 GBP1 Gilt 4.73%

Treasury 0.125% Index Linked Gilt 2024 4.26%

Nestle Sa Ordinary CHF0.01 3.81%

These figures above are shown in US dollars. These returns may differ significantly when converted to other currencies at the prevailing exchange rates.


Profit TakersIn addition to providing insight and analysis of particular investment opportunities each month, we also review stocks that have shown strong performance in recent months and as a result investors might consider taking profits. Please do contact your portfolio manager to discuss any of these ideas or any other aspect of your portfolio held at Canaccord Genuity Wealth Management.

Performance over previous

Company nameMarket cap

(£m)Share

price (p)

Prior FY dividend per

share (p)

Current FY dividend per

share (p)

Prior FY price earnings

ratio

Current FY price earnings

ratio 1 month 3 months 6 months

Kaz Minerals 2,049 459 0.0 0.7 7.2 7.6 -13% 28% 105%

Burford Capital 1,683 808 7.4 10.1 7.9 14.8 18% 48% 97%

Hutchison China MediTech

1,927 3,175 0.0 0.0 124.6 -239.6 52% 39% 76%

boohoo.com 1,860 166 0.0 0.0 28.6 44.4 9% 22% 60%

Antofagasta 8,045 816 14.9 14.7 51.5 20.7 1% 21% 56%

Fevertree Drinks 1,736 1,507 6.3 6.5 33.6 58.5 7% 34% 52%

Vesuvius 1,416 526 16.6 17.1 11.1 15.5 15% 34% 48%

Glencore 44,604 313 5.7 10.0 78.7 11.6 -3% 14% 45%

Grafton 1,659 702 13.8 14.8 12.3 14.3 11% 27% 42%

Electrocomponents 2,111 479 11.8 11.8 17.4 24.4 1% 1% 40%

Bodycote 1,538 809 15.8 16.6 14.1 19.6 2% 25% 37%

Royal Bank of Scotland 28,447 241 0.0 0.9 -122.0 12.5 2% 8% 36%

Barclays 38,582 227 3.0 3.0 19.7 10.8 0% 2% 36%

G4S 4,715 305 9.4 9.6 11.5 16.6 16% 32% 35%

Evraz 3,238 228 0.0 5.4 7.5 5.0 -1% 4% 35%

Intl Cons Airlines 11,211 531 20.1 21.1 5.7 6.9 -1% 20% 35%

Vedanta PLC 2,189 790 20.8 34.1 -4.4 13.4 -8% -11% 34%

Elementis 1,334 288 13.6 7.1 16.6 19.0 -4% 4% 32%

Redrow 1,830 513 10.0 14.6 7.8 7.9 5% 20% 31%

Ashtead 8,148 1,638 22.5 26.4 11.6 15.7 -1% 4% 31%

Paragon Group 1,115 411 13.5 14.5 8.0 9.9 -3% 0% 31%

JD Sports Fashion 3,727 383 1.5 1.6 12.7 15.4 9% 20% 30%

Savills 1,250 923 29.0 30.8 10.1 16.6 8% 33% 29%

SSP 1,958 412 5.4 6.1 20.0 23.5 -1% 7% 29%

Burberry 7,555 1,745 37.0 37.5 18.8 22.9 1% 18% 29%

Rathbone Brothers 1,164 2,359 57.0 60.8 16.4 18.4 4% 22% 29%

Man Group 2,382 145 7.3 7.4 18.9 11.9 -1% 22% 28%

PageGroup 1,329 426 12.0 14.8 16.2 18.5 0% 9% 28%

Taylor Wimpey 6,261 192 2.8 2.1 9.2 10.0 7% 25% 28%

Synthomer 1,612 474 11.3 11.8 12.2 16.3 6% 24% 28%

Source: Quest®

Past performance and future forecast figures are not a reliable indicator of future results.

Glossary

Constant currencies: Constant currencies are exchange rates that eliminate the effects of exchange rate fluctuations when calculating financial performance.

Dividend Cover: A measure of the ability of a company to maintain the level of dividend paid out. It is calculated as normalised earnings divided by the ordinary net dividend.

Dividend Yield: Dividend per share divided by the share price, often expressed as a percentage. For historic periods the average share price for the year is used, for forecasts the current share price is used.

Earnings per Share (EPS): An indicator of a company’s profitability, it is the portion of profit after tax allocated to each outstanding share in issue.

EBITDA: Earnings before Interest, Tax, Depreciation and Amortisation: enables better comparison between companies as it is not affected by the way that the company is financed or by subjective accounting charges for depreciation and amortisation.

EBITDAR: EBITDA + rental expense. Useful measure when looking at companies that rely heavily on leased asset.

Enterprise Value (EV): Market capitalisation + net debt.

EV/ Sales (Enterprise-value-to-sales):

A valuation measure that compares the enterprise value (EV) of a company to the company’s sales. EV-to-sales gives investors a quantifiable metric of how much it costs to purchase the company’s sales. This measure is an expansion of the price-to-sales (P/S valuation), which uses market capitalisation instead of enterprise-value.

Fixed Charge Cover: A measure of a company’s ability to satisfy financing expenses out of profits. It is calculated as income before net interest and operating lease payments divided by all fixed (financial) charges, i.e. interest, preference.

Free Cash Flow (FCF): Free cash flow (FCF) is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

Free Cash Flow Yield: Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow yield is the annual free cash flow of the company divided by the market capitalisation of the company.

Gearing: Gearing is a measure of leverage and is calculated as net debt/shareholder equity.

LBO Free Cash Flow Yield:

Pre-tax, pre-financing cash flow relative to enterprise value (including pension liability). This is a high level measure of value often favoured by potential acquirers.

Net Asset Value (NAV):

Net asset value (NAV) is value per share of a mutual fund or an exchange-traded fund (ETF) on a specific date or time. With both security types, the per-share dollar amount of the fund is based on the total value of all the securities in its portfolio, any liabilities the fund has and the number of fund shares outstanding.

Net Debt to Capital Employed:

A measure of how much of the capital employed (resources on which the company pays a cost) is debt. Higher debt in the capital employed means higher risk of insolvency.

Price/Book Ratio: (Price/Book):

Equity market capitalisation divided by the balance sheet net assets (equity). This ratio also gives some idea of whether you’re paying too much for what would be left if the company went bankrupt immediately. Price/book ratios are often used to compare banks, because most assets and liabilities of banks are constantly valued at market values.

Price Earnings Ratio (P/E):

Share price divided by EPS. For historic periods the average share price for the year is used, for forecast years, the current share price is used. It shows how much investors are willing to pay per pound of earnings.

Quest®: Canaccord Genuity’s proprietary online valuation and analytical tool which combines consensus market figures with the Quest® Discounted Cash Flow (DCF) Valuation Model.

Return on Capital Employed (ROCE):

A measure of a company’s profitability and the efficiency with which it uses its capital. It is calculated as operating profit divided by capital employed.

Return on Equity (RoE): Net income (before exceptional items and goodwill amortisation) divided by book value of equity. RoE reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet.

Tables: F- Forecast results, figures based on the combined estimates of analysts covering the company. A- Actual results, company’s published results.

The glossary is not intended as a technical definition as most of these metrics can be calculated in a number of different ways.


Investments discussed in this document may not be suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and resources, and if in any doubt, seek specific advice from an investment adviser.

Intelligent Investing is a marketing communication under FCA rules; it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and we are not therefore subject to any prohibition on dealing ahead of its dissemination of investment research.


For the purposes of UK regulation Canaccord Genuity Wealth Management produces non-independent research which is a marketing communication under the Financial Conduct Authority (FCA) Conduct of Business Rules and an investment recommendation under the Market Abuse Regulation and is not prepared in accordance with legal requirements designed to promote the independence of investment research, nor is it subject to any prohibition on dealing ahead of the dissemination of investment research.

However, Canaccord Genuity Wealth Management does have procedures in place to identify and manage conflicts of interest which may arise in the production of non-independent research, which include preventing dealing ahead. Further detail on Canaccord Genuity Wealth Management’s conflict management policies can be accessed at http://www.canaccordgenuity.com/Documents/en-gb/Our%20Resources/TandA0033%20CGWM%20External%20Conflicts%20Policy%20(1).pdf

Analyst Certification:

Each authoring analyst of Canaccord Genuity Wealth Management whose name appears within the text of this document hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the analyst’s personal, independent and objective views about any and all of the investments discussed herein and (ii) no part of the analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in this material.

Investment Recommendation:

Date and time of first dissemination: 03.04.2017 - 10.00AM ET

Date and time of production: 03.04.2017 - 10.00AM ET

Buy:

Unless otherwise stated, at the time of the recommendation we consider there is a material upside to the current share price.

Price:

Prices are as at market close on 29.03.2017

General Disclaimers

Investments discussed in this document may not be suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and resources, and if in any doubt, seek specific advice from an investment adviser.

This research is prepared for general circulation to clients. To the fullest extent permitted by law, none of CGWM, its affiliated companies or any other person accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research.

Investment involves risk. The investments discussed in this document may not be suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment adviser.

Past performance is not necessarily a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested.

Canaccord Genuity Wealth Management and/or connected persons may, from time to time, have positions in, make a market in and/or effect transactions in any investment or related investment mentioned herein and may provide financial services to the issuers of such investments. However, Canaccord Genuity Wealth Management does have procedures in place to identify and manage conflicts of interest. Details of these interests can be found on our website at http://www.canaccordgenuity.com/en-GB/wm/wealth-management-uk/Conflicts-Disclosure/ or if this document has been provided to you in hard copy, in the attached covering letter.

Quest® is used under licence and with permission of Canaccord Genuity Ltd. Accounts, Share Prices & Global Consensus Estimates data provided in conjunction with S&P Capital IQ © 2015; Benchmark Sector comparatives are based on the Global Industry Classification Standard (GICS®) and provided in conjunction with S&P Capital IQ © 2015 (and its affiliates, as applicable), see restrictions. Share prices are relative to the MSCI USA IMI (see restrictions) Quest® is at this stage registered in the UK and in the USA, and common law trade mark rights are asserted in other jurisdictions. CFROC, CITN and triAngle are trademarks of Canaccord Genuity Limited. Quest® is at this stage registered in the UK and in the US, and common law trade mark rights are asserted in other jurisdictions.

In the UK & Europe Canaccord Genuity Wealth Management (CGWM) is a trading name of Canaccord Genuity Wealth Limited (CGWL), Canaccord Genuity Financial Planning Limited (CGFPL) and Canaccord Genuity Wealth International Limited (CGWI) which are wholly owned subsidiaries of Canaccord Genuity Group Inc.

CGWL and CGFPL are authorised and regulated by the Financial Conduct Authority (registered numbers 194927 and 154608), and have their registered office at 41 Lothbury, London, EC2R 7AE. CGWL is registered in England no. 03739694, CGFPL is registered in England no. 02762351.

CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Isle of Man Financial Services Authority and the Jersey Financial Services Commission. CGWI is registered in Guernsey no. 22761 and has its registered office at Trafalgar Court, Admiral Park, St. Peter Port, GY1 2JA.

CGWL and CGWI are members of the London Stock Exchange and CGWI is also a member of the Channel Islands Securities Exchange.

Disclosures