27 January 2014 Global Equity Research Investment Strategy
Global Equity Strategy Research Analysts Andrew Garthwaite 44 20 7883 6477
[email protected] Marina Pronina 44 20 7883 6476
[email protected] Mark Richards 44 20 7883 6484
[email protected] Sebastian Raedler 44 20 7888 7554
[email protected] Robert Griffiths 44 20 7883 8885
[email protected] Nicolas Wylenzek 44 20 7883 6480
[email protected]
STRATEGY
M&A: Welcome to the recovery M&A is one of our key themes for 2014. We think it’s set to accelerate as: ■ Cash-financed M&A/buy-backs are EPS-enhancing for 49% and 23% of the European and US market, respectively (double the mid-2012 levels). ■ The corporate sector has $2.3trn of 'firepower' to return leverage to average levels in Europe and the US, and private equity has nearly $1.1trn available to spend. 32% and 16% of US and European market cap have net cash. ■ Cheaper to buy than build: 26% of market cap trades below replacement value in Europe, 34% in GEM, 43% in Japan and 5% in the US. Why now? M&A follows CEO business confidence, macro uncertainty (see chart below) and stock market returns by 1 to 1½ years. It is now the preferred use of cash among UK CFOs. M&A (rel to market cap) is running at half and at a third of average levels in North America and Europe, respectively. Implications: Typically, equities gain 9% on average after an acceleration in M&A activity. Near-record premiums are being paid. The corporate sector has bought $1.4trn since the market low (compared with $200bn of retail selling) and can buy c10% of market cap. This is negative for corporate credit. The sectors most vulnerable to M&A are pharma, hotels, semis, tobacco and telecoms in Europe, on our scorecard. Analysts' picks are featured in CSEREUMA and CSUSUSMA. Fenner, Arkema, Sonova, Flowserve, Health Net, Global Payments and Informatica are more than 10% cheap on Credit Suisse HOLT®, have positive EPS momentum and are Outperform-rated. We also show quant screens. M&A is not enough to make us alter our neutral stance on investment banks. Trends in M&A: Abnormally high PE involvement, record premiums and, on average, the acquirer outperforms over the next 1 and 2 years. Historically, the resources sector has seen the most successful deals. Figure 1: The fall in Stanford University macro uncertainty suggests M&A will pick up (a fall RHS inverted=pick up in M&A LHS) -2%
US policy uncertainty, 1y ma
190
North America M&A, value, % of market cap, rhs, inverted
0%
170
2%
150
4%
130
6%
110
8%
90
10%
70
12%
50
14%
30
16%
10 1990
18% 1993
1996
1999
2002
2005
2008
2011
2014
Source: www.policyuncertainty.com, Thomson Reuters, Credit Suisse research
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
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27 January 2014
Table of contents Key charts M&A: Welcome to the recovery Market implications What areas could see a pick-up in M&A activity? Identifying sectors Analyst picks What happens after a deal? Recent trends in M&A Appendix – US quant screens
Global Equity Strategy
3 4 13 20 20 22 30 32 33
2
27 January 2014
Key charts Figure 2: FCF as a percentage of GDP is still close to
Figure 3: 26% of European market cap trades below
record highs
replacement value
10% 8%
FCF, % of non-financial GDP
45%
FCF post dividends, % of non-financial GDP
40%
6%
Eur market, % of mkt cap trading below replacement value Average
35%
4%
30%
2%
25%
0%
20%
-2%
15%
-4% 10%
-6% -8% 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
5% 0%
1995
1998
2001
2004
2007
2010
2014
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
Figure 4: European corporates' appetite for M&A has
Figure 5: M&A is the most preferred option for UK CFOs'
increased (Credit Suisse Executive Panel survey)
use of cash
60%
90
If increasing corporate actions, will it be through M&A?
50%
80
40% 30%
70
20%
60
10%
50
0%
Outlook in next 12 months (net % balance reporting an increase)
40
-10%
30
-20% -30%
20
-40%
10
-50% Mar 2010
July 2010
Nov 2010
May 2011
Sep 2011
Jan 2012
May 2012
Nov 2012
Jun 2013
Oct 2013
0 M&A
Hiring
Capex Operating Div's Fin. costs Disc Cash costs spending
Source: Credit Suisse Executive Panel survey
Source: Thomson Reuters, Credit Suisse research
Figure 6: The current level of the S&P is consistent with
Figure 7: Both private equity and strategic buyers are
high M&A
paying close to record premiums
100%
Share of M&A in gross corporate buying (%) S&P 500 (rhs)
80% 60%
2000
34%
1800
30%
Premium paid by financial buyers
1600
26%
Premium paid by strategic buyers
1400
22%
1200
18%
1000
14%
800
10%
600
6%
40% 20% 0% -20% 1998
2000
2002
2004
2006
2008
2010
Source: Thomson Reuters, Credit Suisse research
Global Equity Strategy
2012
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
3
27 January 2014
M&A: Welcome to the recovery 2014 has finally seen meaningful signs of a resurgence in M&A activity. On 13 January, corporates across several regions and sectors announced deals amounting to almost $100bn (e.g. Suntory's bid for Beam and Charter's bid for Time Warner Cable) leading many bankers and the press to declare that the M&A cycle had finally turned for the better (FT, 14 January). We believe this is true and M&A remains one of our key themes for this year (as discussed in 2014 Outlook: Themes, Sectors and Styles, 19 December 2014). After previous false dawns, we believe that M&A and corporate net buying will increase materially this year for the following reasons: ■
M&A is abnormally earnings enhancing;
■
M&A tends to lag confidence and macro uncertainty;
■
Corporate balance sheets are underleveraged;
■
Buying is cheaper than building, with a high proportion of market cap trading below replacement value;
■
M&A as percentage of market cap is abnormally low;
■
The growing importance of an internet strategy is in many cases forcing a rapid change in business models, and this may lead to M&A.
(1) M&A is abnormally earnings enhancing The gap between the earnings yield and the corporate bond yield remains above average, and hence M&A is abnormally earnings enhancing. Additionally, free cash flow remains high in aggregate. In the US, free cash flow from the listed corporate sector is worth around 8% of GDP, towards the top end of its long run average (after dividends, free cash flow from the US corporate sector falls to 0.6% of GDP). From a bottom-up perspective, we would further note that 250 of the DJ Stoxx 600 (accounting for around 49% of the market cap) offer a free cash flow yield in excess of the European junk bond yield. This compares with 143 companies, or 28% of market cap, as of June 2012. In the US, only 94 companies in the S&P 500, accounting for 23% of market cap, offer a free cash flow yield above the junk bond yield.
Global Equity Strategy
4
27 January 2014
Figure 9: … and FCF as a percentage of GDP is still high
Figure 8: The earnings yield is still abnormally high relative to the corporate bond yield… 8
10%
Earnings yield less BAA corporate bond yield
6
6%
2
4%
0
2%
-2
0%
-4
-2%
-6
-4%
-8
-6%
-10 1954
1964
1974
1984
1994
2004
FCF post dividends, % of non-financial GDP
8%
post 1950 average
4
FCF, % of non-financial GDP
2014
Source: Thomson Reuters, Credit Suisse research
-8% 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Source: Thomson Reuters, Credit Suisse research
(2) Crucially, confidence is now returning, and macro uncertainty is falling That M&A activity is extremely depressed is not new: for much of the past five years, activity has been well below long-run averages. However, the following three developments suggest that M&A activity will return toward historic average levels: ■
M&A tends to track the equity market with a lag. M&A activity has tended to follow the equity market with a lag of around 12 months. The 30% gain in the S&P 500 last year is consistent with a sharp pick up in M&A as illustrated in Figure 10;
■
US and European survey data point to growing corporate confidence. Similarly, US CEO business confidence has now returned toward the top end of its historic range, a level which has been consistent historically with M&A activity worth around 8% of global market cap.
Figure 10: M&A tends to follow the equity market with a
Figure 11: M&A also lagged the improvement in corporate
lag, with this relationship implying a significant pick-up
confidence
S&P 500, y/y%, lead 12 month, lhs 80%
Global M&A, % of market cap, lagged 2 years
Global M&A 12m sum as % of Mkt cap
60% 40%
12%
12%
10%
10%
70
8%
8%
60
6%
6%
50
4%
4%
40
2%
2%
30
0%
0%
20%
80
US CEO business confidence, rhs
0% -20% -40% -60% 1982
1987
1992
1998
2003
Source: Thomson Reuters, Credit Suisse research
Global Equity Strategy
2009
2014
20 1981
1986
1991
1996
2002
2007
2012
Source: Thomson Reuters, Credit Suisse research
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27 January 2014
Resurgent confidence among US corporates is reflected in European survey data. Credit Suisse's Executive Panel survey of large European corporates shows an increasingly positive attitude towards M&A, with respondents the most positively disposed toward M&A since Q2 2011 (see Credit Suisse Executive Panel - Turning point confirmed, 8 November 2013). In addition, according to Deloitte’s UK CFO survey, corporates’ most preferred use of cash is to fund M&A activity. Figure 12: European corporates' appetite for M&A has
Figure 13: M&A is now the most preferred option for UK
increased, according to the Credit Suisse Executive Panel
CFOs' use of cash, but discretionary spending and hiring
survey
are also improving
60%
90
If increasing corporate actions, will it be through M&A?
50%
80
40%
20%
60
10%
50
0%
40
-10%
30
-20%
20
-30%
10
-40%
0
-50% Mar 2010
July 2010
Nov 2010
May 2011
Sep 2011
Jan 2012
May 2012
Source: Credit Suisse Executive Panel survey
■
Outlook in next 12 months (net % balance reporting an increase)
70
30%
Nov 2012
Jun 2013
Oct 2013
M&A
Hiring
Capex Operating Div's Fin. costs Disc Cash costs spending
Source: Credit Suisse Executive Panel survey
US economic policy uncertainty has fallen significantly. While corporate fundamentals have been in reasonably good shape for much of the last 2-3 years, economic uncertainty has been extremely elevated. Both 2011 and 2013 saw the US government reach last minute deals to avoid default on its debt, while 2012 witnessed the most acute phase of the euro area crisis (until Draghi's London speech of July that year). As we argued in our piece Four macro trends: Who benefits? Who gets hurt? (29 October 2013), we believe that macro uncertainty will continue to edge lower as the economic recovery in the US strengthens and recent signs from Washington indicate a greater bipartisan spirit within US policy making (with Congress having passed a bipartisan spending bill in December 2013, funding the US government until the end of its current fiscal year on 30 September 2014). In line with this view, Stanford University's US policy uncertainty index has now fallen back to levels consistent with a significant pick-up in M&A activity.
Global Equity Strategy
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27 January 2014
Figure 14: The recent fall in macro uncertainty appears consistent with a pick-up in M&A activity -2%
US policy uncertainty, 1y ma
190
North America M&A, value, % of market cap, rhs, inverted
0%
170
2%
150
4%
130
6%
110
8%
90
10%
70
12%
50
14%
30
16%
10 1990
18% 1993
1996
1999
2002
2005
2008
2011
2014
Source: www.policyuncertainty.com, Thomson Reuters, Credit Suisse research
(3) The corporate sector is underleveraged There has been some debate over the extent of corporate leverage. On some measures using US Flow of Funds data, corporate leverage is quite high (such as credit market debt less liquid assets as a proportion of GDP). However, on measures that we consider more appropriate, such as total leverage relative to total assets or total leverage to total profitability, leverage is abnormally low. Total financial liabilities relative to total financial assets are 26% below their norm. Total financial liabilities relative to equity market cap is 27% below its norm, short-term liabilities relative to liquid assets are also 39% below their norm. Figure 15: Some measures of corporate leverage are
Figure 16: …the ratios of liabilities relative to assets and
extended, but….
short-term liabilities relative to liquid assets are close to all-time lows
160%
Credit market debt less total liquid assets / GDP Total financial liabilities / Total financial assets
250%
Total financial liabilities / Market value of equity Short-term liabilities / liquid assets, rhs
140%
500%
200%
120%
600%
400%
100%
150% 300%
80%
100%
60%
200%
40%
50%
100%
20%
0%
0% Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 1951195519591963196719711975197919831987199119951999200320072011
Source: Thomson Reuters, Credit Suisse research
Global Equity Strategy
0%
Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Source: Thomson Reuters, Credit Suisse research
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27 January 2014
In addition, the corporate sector's credit market debt has been increasingly termed out, with short-term debt at an all-time low expressed as a share of all credit market debt. This should make corporates less vulnerable to economic shocks and changes to short-term rates. Our favoured measure remains net debt-to-EBITDA and that is still 9% below its norm. Figure 17: Corporate sector short-term debt is at an all-
Figure 18: Net debt-to-EBITDA is exceptionally low
time low as a proportion of all credit market debt Long-term debt / credit market debt (%)
90
US Net debt to EBITDA, non-financials
2.3
Short-term debt / credit market debt (%)
80
Average 2.1
70
1.9
60
1.7
50 1.5
40 30
1.3
20
1.1
10 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
Source: Thomson Reuters, Credit Suisse research
0.9 1986
1990
1994
1998
2002
2006
2010
2014
Source: Thomson Reuters, Credit Suisse research
Looking at leverage in more detail, 32% and 14% of US and European market cap have net cash, respectively (we have excluded financials and companies with negative EBITDA from this calculation). Similarly, the cash on the balance sheet of those companies with net debt-to-EBITDA below zero in the US, UK and Europe and Japan is $339bn, $53bn, $11bn and $154bn respectively and together is an exceptionally large $557bn (note this is net cash, not gross cash). Figure 19: More than $4.6trn worth of US market cap have
Figure 20: $1.2trn worth of European market cap have net
net cash (105 companies, 32% of total market cap*)
cash (58 companies, 14% of total market cap*)
4,000,000
3,000,000
Mkt cap of US non-financials, U$mn
Mkt cap of European non-financials, U$mn
3,500,000
2,500,000
3,000,000 2,000,000
2,500,000 2,000,000
1,500,000
1,500,000
1,000,000
1,000,000 500,000
500,000 0
0
Above 5x
4x to 5x
3x to 4x
2x to 3x
1x to 2x
0x to 1x
-1x to 0x
-2x to -1x
Global Equity Strategy
Below 2x
Above 5x
4x to 5x
3x to 4x
2x to 3x
1x to 2x
0x to 1x
-1x to 0x
-2x to -1x
Below 2x
Source: Thomson Reuters, Credit Suisse research *Only non-financial companies with negative EBITDA are included
Source: Thomson Reuters, Credit Suisse research *Only non-financial companies with negative EBITDA are included
8
27 January 2014
There is c$3trn of firepower from corporates and private equity If we take the analysis a step further, we find that 73% of US and 56% of European market cap have abnormally low net debt: we calculate that if those companies with leverage below the 20-year market average returned to average leverage levels, then the US and European corporate sector could buy $1.5trn and $733bn of equity, respectively amounting to nearly 10% of market cap. Figure 21: Net debt / EBITDA is slightly above average for
Figure 22: Were net debt/EBITDA to rise above 20-year
the European market and below average in the US
market average, US companies could buy back 10% of
(ex-financials)
market cap and 9% in Europe
2.5
US
Net debt to EBITDA, non-financials
Non-financial corporate sector
Pan Europe
2.3
US
2.1 1.9 1.7
1.5 1.3
Europe
If companies with net debt/ebitda < market 20yr avg relever to that level
% mkt cap with net debt/Ebitda < mkt 20-yr avg
73%
56%
Underleverage ($bn)
1,485
733
% market cap
10%
9%
% impact on EPS
8%
7%
1.1 0.9
0.7 0.5 1994
1996
1999
2001
2004
2006
2009
Source: Thomson Reuters, Credit Suisse research
2011
2014
Source: Thomson Reuters, Credit Suisse research
According to the Financial Times (14 January), buyout firms hold a record of $1.07tn in unspent capital, surpassing the previous high reached in 2008. This, in combination with booming equity markets, will put private equity firms under pressure to make use of their funds or they might be forced to return cash to investors. (4) Buying is still abnormally cheap compared to building in Europe The proportion of market cap trading below replacement value is above historical average levels (based on Credit Suisse HOLT® value-to-cost ratio), implying that equity market valuations are sufficiently attractive to encourage further bid activity: 26% of European market is trading below replacement value, well above the post-1995 average of 15%. However, we note that in the US, only 5% of market cap is trading on a value-to-cost ratio below 1x, which is slightly below the post-1995 average of 6%. In passing, the abnormally high proportion of European companies trading below replacement value is one of the reasons we stick to our overweight of Continental Europe.
Global Equity Strategy
9
27 January 2014
Figure 23: 26% of European market cap trades below
Figure 24: 5% of US market cap trades below replacement
replacement value
value, below the post-1995 average of 6% value
45%
30%
Eur market, % of mkt cap trading below replacement value
US market, % of mkt cap trading below replacement value
Average
40%
Average 25%
35% 30%
20%
25%
15% 20% 15%
10%
10%
5% 5% 0%
1995
1998
2001
2004
2007
2010
2014
0% 1995
1998
2001
2004
2007
2010
Source: Thomson Reuters, Credit Suisse research
Source: Thomson Reuters, Credit Suisse research
Figure 25: 43% of Japan market cap trades below
Figure 26: 34% of GEM market cap trades below
replacement value
replacement value
90% 80%
2014
Japan market, % of mkt cap trading below replacement value
50%
GEM market, % of mkt cap trading below replacement value
Average
45%
Average
40%
70%
35%
60%
30%
50%
25% 40%
20%
30%
15%
20%
10%
10%
5%
0%
0% 1995
1998
2001
2004
2007
Source: Thomson Reuters, Credit Suisse research
2010
2014
1995
1998
2001
2004
2007
2010
2014
Source: Thomson Reuters, Credit Suisse research
(5) M&A activity remains abnormally low relative to its long-run norms in both the US and Europe In Western Europe and the US, the value of M&A relative to market cap is close to an alltime low, at roughly one-third and one-half of normal levels respectively. Only in emerging markets is the number of deals above the long-run average (although deal value as a percentage of market cap is one-third below normal levels).
Global Equity Strategy
10
27 January 2014
Figure 27: M&A as a percentage of market cap for US and
Figure 28: … and half its 10-year average
Europe is close to 20-year lows… 18%
6% M&A deals, value, 52-wk rolling sum, % of market cap Western Europe
16%
5%
North America
14%
M&A deals, 52-w k rolling sum, % of market cap 4.9% Last 12 months 10-y ear av erage 4.5% 4.2% 3.6%
4%
12%
3%
10% 8%
2.5%
2.2% 1.3%
6%
0.7%
1%
4% 2% 0% 1995
2.1%
1.9%
2%
0%
1998
2001
2004
2007
Source: Thomson Reuters, Credit Suisse research
2010
2014
North
Emerging
America
markets
Global
Western
Asia Pac
Europe
Dev
Source: Thomson Reuters, Credit Suisse research
(6) The importance of an internet strategy may encourage companies to buy rather than build The increasing importance of the internet inevitably demands an internet strategy. Our head of tech strategy, John Pitzer, highlights that by the end of this year, smartphones will be 50% of the installed base. Already in the UK, internet sales accounted for 11.8% of retail sales in November 2013 compared with 6% in the US and the CAGR over the last 7 years has been 27%. This requires a rapid change in business models and, in many sectors, it might be better to buy rather than develop their own internet business since it is believed to be very hard to replicate a successful online business model quickly. Witness the food retailer Morrison entering into a 25-year agreement with the internet delivery service, Ocado. In other instances, the barrier to entry is assumed to be the appropriate hardware to accompany the software and hence Google's purchase of Nest Labs and Motorola Mobility.
(7) Corporate concerns about red tape and taxation could fall Corporates are now more concerned about the negative impact on their businesses from red tape and taxation than from poor sales (ie the outlook for growth). We believe that the increased chances of multi-year deals in Congress should ease some of these concerns (as highlighted by December's passing of a spending bill to fund the government until the end of September, with a spending limit around $22bn above that imposed under the sequester). We would acknowledge that the debt ceiling does need to be raised again by the end of the first quarter, but given the negative impact of the last debt ceiling battle on Republican poll ratings, it appears likely that negotiations will occur in a significantly less hostile political atmosphere.
Global Equity Strategy
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27 January 2014
Figure 29: The internet share of retail sales in the UK at
Figure 30: Taxes and red tape are still cited as the main
11.8% in November is double that of the US
problems for corporates
12
35 10
US internet retail sales, % total
8
UK internet retail sales, % total, 12 month moving average
NFIB small business survey - what is the most important problem facing your business? (% of respondents) Poor sales, 14
Taxes, 23
30
Red tape, 20 25
6
4
2
0 2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Thomson Reuters, Credit Suisse research
Global Equity Strategy
20 15 10
5 2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Thomson Reuters, Credit Suisse research
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27 January 2014
Market implications 1)
Previous turning points in M&A activity have tended to be positive for the equity market
If our analysis is correct, then January 2014 could represent a notable turning point in M&A activity. Looking at previous such turning points over the past 30 years, when M&A activity has troughed before rising significantly (with the dates displayed below), equity markets have tended to rise reasonably strongly in the following months. In the six months following a trough in M&A activity, the S&P 500 has gained around 9% on average. Figure 31: Peaks in US M&A measured by the number of
Figure 32: Troughs in M&A activity have tended to
deals
precede reasonably strong market performance Performance of the S&P 500 in the following:
70
M&A trough
Monthly number of US M&A deals
60 50 40
30 20 10 0 1981
1984
1988
1991
1995
1999
2002
2006
2009
+1 month
+2 month
+3 months
+6 months
Jan-83
3.3%
9.1%
10.6%
22.1%
Feb-83
5.4%
9.9%
9.9%
9.8%
Jan-93
1.6%
1.4%
3.3%
3.1%
Dec-94
2.3%
4.8%
8.2%
18.8%
Jan-97
6.2%
7.4%
2.6%
20.3%
Jun-99
6.7%
2.6%
2.8%
8.0%
Feb-06
0.7%
1.2%
1.8%
-0.9%
Nov-08
-15.5%
-6.5%
-14.6%
-9.2% 9.0%
Average
1.3%
3.7%
3.1%
Market avg.
0.8%
1.5%
2.3%
4.7%
No. times +ve
87.5%
87.5%
87.5%
75.0%
2013
Source: Thomson Reuters, Credit Suisse research
Source: Thomson Reuters, Credit Suisse research
This view is supported by the record premium that are currently being paid for M&A in the US. Figure 33: Premiums paid in Europe are below their
Figure 34: …if we break down by type of buyer, then both
average, whereas premiums paid in the US are above…
private equity and strategic buyers are paying close to record premiums 34%
55%
Western Europe average premium paid (quarter) North America average premium paid (quarter)
45%
30%
Premium paid by financial buyers
26%
Premium paid by strategic buyers
22%
35%
18%
25% 14%
15%
10% 6%
5% 2002
2004
2006
2008
2010
2012
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
Global Equity Strategy
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
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27 January 2014
■
The corporate sector is the key buyer of equities…a funds flow squeeze
The key buyers of equities have been corporates: since March 2009, US corporates have purchased around $1.35trn of equity (net of issuance), according to Trim Tabs, while net inflows into equity funds globally have been just over $200bn (with net institutional inflows at around $400bn, offset by retail outflows, on data from EPFR).
Figure 36: The last 6 months in particular have seen
net equity buying by retail and institutional funds has
sustained outflows from bond funds, and inflows into
been extremely modest since the market trough
equity funds
1,350 1,172 1,150
3-month annualized inflows, % of net assets, all regions
Figure 35: 2013 saw a shift from bonds into equities, but
Flows into global funds, USD bn Equities Bonds
950 750 550 350
308 204
176
150 -50 -56
-131
-250 Since Mar 2009
2013
Bonds; AUM = 2.9 Trn USD
13% 8% 3% -2% -7% -12% Jul-10
Last six months
Source: EPFR, Credit Suisse research
Equities, rhs; AUM = 6.5 Trn USD
18%
Jan-11 Jul-11
Jan-12 Jul-12
Jan-13 Jul-13
Jan-14
Source: EPFR, Credit Suisse research
Buybacks have accounted for 75% of corporate net buying since the market trough in March 2009, above their long run average share of c.60%. Over the last 12 months, share buybacks by US corporates have averaged 4.5% of market cap, against their long run average of 3.1%. The value of cash acquisitions, however, has averaged only 1.3% of market cap in 2013, down from its long run average of 1.7%. Figure 37: Corporate have been the key buyer of equities
Figure 38: Buybacks have been the main driver of
relative to retail and institutional funds
corporate net buying in recent years, accounting for 75% of net buying compared to a long run average of 60%
1400 1200 1000
2500
$ billion
$ billion Cash takeovers
2000
Net corp buying Retail Institutional
Share buybacks
1500
800
New issuance
1000
600 500
400
0
200 0
-500
-200
-1000
-400 2013
Since March 2009
Source: Trim Tabs, EPFR, Credit Suisse research
Global Equity Strategy
-1500 Last 6 months
2013
Since March 2009
Source: Trim Tabs, Credit Suisse research
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27 January 2014
M&A or buybacks? As highlighted above, we calculate that if those companies with leverage below the 20year market average returned to average leverage levels, then the US and European corporate sector could buy $1.5trn and $733bn of equity, respectively. Were all of this used to fund buybacks, it would increase EPS by 8% in the US and 7% in Europe. Corporates face a choice, however, between using their cash reserves to pursue buy backs, thereby boosting EPS (which tends to be a key metric for executive compensation), or pursuing M&A. As discussed above, on Trim Tabs data, 75% of gross corporate buying since the trough in the market has been in the form of buy backs. From an M&A perspective, the risk is that this bias toward buybacks continues, particularly as the market continues to reward those companies which are pursuing such a cash return strategy, with the S&P 500 buy back basket continuing its strong outperformance. Figure 39: Were net debt/EBITDA to rise above 20-year
Figure 40: Stocks that have a history of share buybacks
market average, US companies could buy back 10% of
tend to outperform high dividend yield stocks
market cap, 9% in Europe US Non-financial corporate sector
Europe
If companies with net debt/ebitda < market 20yr avg relever to that level
S&P 500 dividend aristocrats / S&P 500
250
S&P 500 buyback stocks / S&P 500 Jan 1997 = 100
% mkt cap with net debt/Ebitda < mkt 20-yr avg
73%
56%
Underleverage ($bn)
1,485
733
% market cap
10%
9%
% impact on EPS
8%
7%
200
150
100
50 Jan-97
Source: Thomson Reuters, Credit Suisse research
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Source: Thomson Reuters, Credit Suisse research
However, we would point out that, historically, the share of M&A in gross corporate buying has tended to broadly track the equity market: the higher the level of the S&P 500, the higher the companies' propensities to pursue M&A rather than buybacks. Also, as discussed on page 30, corporate acquirers tend to outperform on average 1 and 2 years after an acquisition.
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27 January 2014
Figure 41: Historically, the current level of the S&P has been associated with a much greater share of corporate gross buying being in the form of M&A 100%
2000 Share of M&A in gross corporate buying (%)
S&P 500 (rhs) 1800
80%
1600
60%
1400 40% 1200 20%
1000
0%
800
-20% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
600
Source: Thomson Reuters, Credit Suisse research
■
Negative for corporate credit
A debt for equity swap by corporates would ultimately raise the supply of credit and also the risk profile of corporate debt relative to equity, and would serve to reinforce our preference for equity over corporate credit. Currently, US high yield spreads are discounting a default rate that, while low by historical standards (3% against a pre-crisis average of 4%), seems to be in line with both the actual and forecast default rate. Figure 42: Corporate spreads in the US have tracked
Figure 43: Moody's projections of speculative default
equities closely in recent years
rates are consistent with spreads around current levels
1900
1800
S&P 500 US high-yield spreads (over benchmark)
1700 1600
3.0
20
3.5
18
4.0
4.5
1400 1300
5.5
16
18%
14
15% 12%
10
9%
8
6.0
6
6.5
4
1200 7.0 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14
Source: Thomson Reuters, Credit Suisse research
21%
12 5.0
1500
US high-yield spreads, %, lhs US 12m trailing speculative default rates, 6m lag Moody's forecast
2 1988
6% 3% 0% 1992
1996
2001
2005
2009
2014
Source: Thomson Reuters, Credit Suisse research
There appears some complacency within European corporate credit markets. European high yield credit spreads currently appear consistent with a 12-month speculative grade default rate of around 1% (with Moody's forecasting a speculative default rate of around 3%).
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27 January 2014
Figure 44: High yield credit spreads in Europe appear a
Figure 45: …this appears particularly complacent from a
little complacent, with Moody's forecast consistent with a
European perspective, where credit spreads have
slight rise in spreads
continued to move in line with those of the US
European high-yield spreads, %, lhs European 12m trailing spec default rates, 6m lag Moody's forecast
27
18%
22
14% 12%
17
10% 8%
12
6% 4%
7
2% 2 1998
0% 2000
2003
2006
2008
2011
Source: Thomson Reuters, Credit Suisse research
900
CDX high y ield spread
16%
2014
Itrax x crossov er spread
800 700 600 500 400 300 Feb-11
Jun-11
Oct-11
Feb-12
Jun-12
Oct-12
Feb-13
Source: Thomson Reuters, Credit Suisse research
Perhaps the biggest problem for corporate credit is the duration risk, 80% of credit is investment grade and the average duration of investment grade credit in Europe is 5 years (and 10 years in the US), with our US rates team forecasting that the 10-year Treasury yield will rise to 3.65% by the end of the year. In our view, we do not believe spreads will narrow sufficiently to compensate for this duration risk. This is also at a time when equity to corporate credit volatility is at a seven-year low and, as above, the FCF yield is still abnormally attractive relative to the corporate bond yield. ■
Investment banks – providing relief?
A pick-up in M&A activity would provide some relief to investment banks. Advisory activity directly accounts for c.9% of revenues for the major European investment banks (purely as a share of IBD revenue, i.e. excluding wealth and asset management units, this rises to around 20-30%). We would note in this context that earnings momentum for global investment banks has picked up in recent weeks, but is still only in line with that of the market. Among the main beneficiaries in the US, where purer financial plays on the M&A cycle exist, would be Greenhill, for whom financial advisory accounts for almost 100% of revenues, and Lazard, for whom the figure was 50% in the year to Q3 2013, according to Credit Suisse’s US Investment Bank and Brokerage research team (see CS Capital Markets: 2014 Outlook: Focus on Fundamentals, 11 December 2013).
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27 January 2014
Figure 46: Earnings momentum for global investment
Figure 47: And M&A should provide a boost for the purer
banks has picked up
play financial advisory stocks, such as Lazard 5.00
Global investment banks 3m breadth
60%
Rel
12.0%
4.50
40%
10.0%
4.00
20%
8.0%
3.50
0%
3.00
-20%
2.50
6.0%
4.0%
2.00
-40%
Lazard rel 1.50
-60% 1993
1996
1999
2002
2005
2008
Source: Thomson Reuters, Credit Suisse research
2011
2014
1.00 2004
2.0%
M&A as a % of market cap (rhs)
0.0% 2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Thomson Reuters, Credit Suisse research
As discussed in our note 2014 Outlook: Themes, Sectors and Styles (19 December 2013), despite the cyclical boost to investment banks from a pick-up in M&A and equity volumes, we see the following structural challenges to the industry, and consequently remain benchmark.
The negatives for investment banks (1) Regulatory pressure is, we believe, the single greatest risk. Regulation hits the sector in four ways: (a) it leads to higher costs (legal and compliance); (b) it reduces the scope for proprietary trading; (c) it forces deals on exchange (which is often associated with much lower margins); and, above all, (d) it is designed to lower the macro risk associated with investment banks by lowering their leverage and thus profitability (European bank assets account for 300% of GDP compared 80% of GDP in the US, with much this accounted for by investment banking). We fear that regulators will continue to tighten the rules on leverage until investment banks are perceived not to represent a substantial macro risk. (2) Increased price visibility: This is because of regulatory changes and partly because of technology, which aids price visibility, in turn lowering banks’ ability to charge their clients abnormally high margins. (3) The cautious outlook for commodities and bond markets: Fixed income, commodities and FX account for about a 50% to 60% of ‘normalised’ investment bank revenues in Europe (less so in the US, c30%)– and we believe rates and commodities are in a bear market (for the reasons discussed in our report, 2014 Outlook: Equities, Regions and Macro, 3 December. (4) Valuations are not clearly attractive: Global investment banks' 12-month forward relative to global equities is only at historical average levels (i.e. not clearly cheap). The price-to-book relative is still clearly below historical average levels (at 50% of the level of global markets, compared to a historical discount of 25%—even at these levels, we are not tempted by valuations, given the secular decline in profitability). (5) Increased analyst optimism: Although sell-side net buy recommendations on global investment banks relative to those for global equities have fallen back slightly in recent weeks, they remain close to a two-year high, pointing to increased levels of optimism on the sector.
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27 January 2014
Figure 48: Global investment banks' P/E relative is only at
Figure 49: Relative sell-side net buy recommendations for
historical average levels
global investment banks have just turned negative
100%
Rel Market +=Buy; -=Sell
Global investment banks, relative to global equities, 12m fwd P/E
13%
95%
1.8
Global investment banks on analyst recommendations (1=Buy; 5=Sell)
8%
90%
2.1
85%
3%
80%
2.4
75%
-2%
70% 65%
-7%
2.7
60% 55% Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Source: Thomson Reuters, Credit Suisse research
Global Equity Strategy
Jan-12
Jan-14
-12% 1999
2002
2005
2008
2011
2014
Source: Thomson Reuters, Credit Suisse research
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27 January 2014
What areas could see a pick-up in M&A activity? Identifying sectors We highlight sectors where free-cash flow yield exceeds the corporate bond yield, which have low leverage and where the value-to-cost ratio is low (the lower it is, the cheaper it is to buy assets); sectors that score well on these metrics may offer the greatest potential for M&A. Pharma, in particular, stands out on our scorecard, with hotels and semis the next highest scoring sectors. Transport and mining, commercial services and healthcare, on the other hand, score least well. Figure 50: Pan European sectors ranked on FCF yield versus corporate bond yield, leverage (i.e. net debt-to-EBITDA) and value-to-cost Pan Europe sectors M&A scorecard Sector
FCFY less BY
Weight
Net Debt to EBITDA Value to Cost Ratio
Total score
50%
25%
25%
100%
Pharma
2.7%
0.8
1.9
1.3
Hotels & Lei
3.0%
1.5
2.2
1.1
Semis
0.6%
-2.7
1.6
1.0
Tobacco
4.5%
1.9
5.2
0.7
Food Rtl
2.2%
1.6
1.4
0.5
Telecoms
2.6%
2.7
1.2
0.5
S/W & Svs
3.0%
0.1
4.6
0.3
Retail
2.1%
-0.2
3.3
0.2
Media
2.7%
1.7
3.4
-0.3
H/H & Per Prod
1.8%
0.2
3.8
-0.8
Fd Prods
2.3%
1.3
3.6
-0.8
Cap Goods
0.9%
1.4
2.0
-1.4
Tech H/W
-1.3%
-1.9
1.0
-1.5
Cons Dur & App
0.7%
0.4
2.6
-1.6
Beverages
2.5%
2.3
4.2
-1.6
Utilities
0.8%
3.0
0.9
-1.9
Autos
0.0%
2.5
0.9
-2.6
Energy
-1.0%
0.6
1.0
-2.7
Met & Min
1.0%
4.6
1.4
-2.9
Transport
-1.0%
1.6
1.2
-3.5
Comml Svs
0.7%
1.8
4.1
-3.5
Healthcare
0.0%
2.0
3.3
-3.9
Market 1.0% 1.6 0.0 Note: All the parameters are ranked on z-score. High FCFY less BY is positive, low Net debt to EBITDA and low VCR are positives. Source: Thomson Reuters, Credit Suisse research
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27 January 2014
Below we show the same for the US. Figure 51: US sectors ranked on FCF yield versus corporate bond yield, leverage (i.e. net debt-to-EBITDA) and value-to-cost US Sectors M&A scorecard Sector
FCFY less BY
Weight
Net Debt to EBITDA Value to Cost Ratio
Total score
50%
25%
25%
100%
Tech H/W
4.6%
-0.5
2.2
4.8
Semis
2.3%
-0.6
1.7
3.0
Pharma
2.3%
0.3
2.0
2.2
Telecoms
2.6%
2.7
1.2
1.1
S/W & Svs
1.2%
-0.9
3.7
0.8
Healthcare
2.2%
1.4
2.6
0.7
Autos
2.0%
2.5
1.3
0.6
Media
1.7%
1.9
2.2
0.1
Food Rtl
0.7%
1.2
2.0
-0.1
Transport
0.2%
1.4
1.6
-0.5
Retail
0.3%
0.9
2.7
-0.8
Com Serv
1.2%
2.4
2.8
-1.1
Cap Goods
1.3%
3.0
2.5
-1.3
Cons Dur & App
-0.8%
0.8
2.6
-1.7
Hotels & Lei
0.1%
2.0
2.5
-1.7
Fd Prods
-0.2%
2.0
2.8
-2.2
Beverages
0.1%
1.6
3.7
-2.3
Energy
-2.6%
0.8
1.2
-2.4
H/H & Per Prod
-0.1%
1.3
4.8
-3.0
Met & Min
-3.6%
3.4
1.1
-5.3
Utilities
-4.2%
4.2
1.1
-6.5
Tobacco
na
1.4
7.3
na
Market 0.8% 1.3 1.8 Note: All the parameters are ranked on z-score. High FCFY less BY is positive, low Net debt to EBITDA and low VCR are positives.
Source: Thomson Reuters, Credit Suisse research
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27 January 2014
Analyst picks Credit Suisse's sector analysts within Europe, the US and Japan have provided their thoughts on potential targets and acquirers, together with sector commentary. Those potential targets highlighted in bold are constituents of Credit Suisse's Delta One basket on this theme: CSEREUMA. Figure 52: Analyst picks: European sectors Sector Telecoms
Comment
Mobile consolidation could lead to a sector re-rating. MVNOs (Mobile Virtual Network Operators) represent sizeable market share in some countries e.g. 10% in Spain. This could lead incumbents with larger market shares to examine the smaller players as possible takeover targets. A large stumbling block would be regulatory approval; the EC could be onerous in the remedies that it requires especially given the uncertainty over who is the next EC competition commissioner. Comments from Commissioner Almunia and his staff made clear they are more concerned with competition at the service level than network competition, having already allowed network sharing deals in most markets e.g. the 5-to-2 in the UK. Capital Goods We see a possibility of a step-up in M&A activity in the process automation space in 2014 given a number of players have expressed interest in expanding in this space combined with a number of currently free-standing pure plays existing. In late 2013, we saw ABB expressing interest in expanding in process automation instrumentation (valves), Schneider (historically a discreet automation player) acquiring Invensys (process) post Siemens acquiring the Rail segment. Siemens expressing interest to expand in process as well as Yokogawa and Emerson. In terms of possible targets, UK offers two pure plays such as IMI (valves) and Rotork (valve actuators) while the New Metso (post Pulp, Paper and Power spin off) also has a process automation business that has little synergy with Mining & Construction. Steel We think the recently-announced acquisition of Rautaruukki by SSAB was the last “obvious” consolidation step in the European steel industry and that we are unlikely to see any major consolidations in the short term. In the longer term however we think further consolidation is possible—one such possibility in our view is a potential tie-up between Thyssen, Riva and Corus. Thyssen’s CEO has made it clear that he sees another wave of M&A within steel and that Thyssen’s European steel operations could participate if this was the case. We also wonder if Tata may consider divesting Corus; an issue which has been discussed in press reports. Healthcare Continued strong cash generation and an already healthy balance sheet could lead to unexpected Equipment and M&A activity in the sector. This is particularly true for subsectors that have a low level of industry Services Sector concentration and where cost synergies play an important role or where price pressure is existing and/or deteriorating. Chemicals We believe the possibility of M&A in the European Chemicals sector is increasing into 2014. This is a function of: 1) Sector gearing is approaching 5-year lows, at c1x net debt/EBITDA. This provides ample balance sheet firepower for M&A; and 2) improving macroeconomics across Europe providing increased confidence surrounding the demand outlook. We also note inventory levels are approaching trough levels. Luxury Goods M&A remains a key theme in European luxury goods given the presence of natural consolidators (LVMH, Kering, Richemont and Swatch) with strong balance sheets and targets, most of them sitting in private control and with a controlling shareholder. Among the public names that are potential targets that we cover, Hermes, Tod's, Ferragamo and Burberry stand out, with Burberry being the only one with no controlling shareholder (close to 100% free float). Media We expect M&A to continue to be prevalent in Media, as traditional media incumbents look to higher growth from acquisitions in the digital space and in faster growing geographic markets, or seek to consolidate with peers to exploit cost synergies and improve market positioning. We may also see more from the US media conglomerates looking to expand in Europe. We also expect private equity players to be more active in European media. Perennial M&A targets include Informa, UBM, ITV, BSkyB. We would also highlight Moneysupermarket.com and Perform in the SMID space. In addition, Havas and IPG in the agency space are obvious candidates, continuing the industry consolidation trends (Publicis and Omnicom due to complete their merger in Q2). In terms of acquirers, again we expect the agencies to be the most active, in particular in the area of data analytics as clients focus increasingly on the opportunities presented by the proliferation of data from digital media platforms. The global holding companies, WPP, Publicis, Omnicom, Interpublic and Havas, already compete or partner with software vendors for client spending on data analytics. As the agency world continues to consolidate, the next step could be for an agency to significantly expand its data analytics capabilities eg. by buying a data broker, a data analytics platform or data analytics software company. WPP is the most obvious buyer in this scenario, given 2014 will be a transition year for Publicis and Omnicom, as they focus on executing their merger.
Link to relevant Potential research targets European telcos Vodafone, 2014 Outlook Tele2, KPN (in Germany)
Potential acquirers TEFD, KPN (Holland)
European Capital Fenner, Rotork, Assa Abloy, Goods Sector Spectris, Halma, Siemens, Outlook 2014 Vesuvius, Weir ABB, Legrand, Group, IMI, Rotork Morgan
EU Steel - Further Corus, Consolidation ahead ThyssenKrupp of Recovery Steel Europe, Riva
Corus, ThyssenKrupp Steel Europe
N/A
Straumann, Fresenius, Nobel Biocare, Smith&Nephew, Sonova Tecan, Gerresheimer European Chemicals Arkema, BASF - It's not so specialty Clariant if everyone can make it N/A
Hermes, Tod's, LVMH, Kering, Ferragamo, Richemont, Burberry Swatch
N/A
Informa, UBM, ITV, BSkyB, MoneySupermarket.com, Perform, Havas, IPG
WPP
Source: Credit Suisse research
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27 January 2014
Figure 53: Analyst picks: European sectors - continued Sector
Comment
Consumer staples Consumer Staples has a number of large cash generative companies with strong balance sheets. However the industry is already well consolidated, particularly in sub sectors such as beer, making large deals difficult from a regulatory point of view. As a result most companies are focused on ‘add on’ or ‘bolt on’ deals in specific niches or geographic regions. Some of these are likely to be the acquisition of private companies or individual divisions of larger entities. We expect many of the large companies (i.e. Unilever, Nestle, L’Oreal, Henkel, Reckitt) to continue to make this kind of acquisitions. Among the international tobacco companies, media reports have cited Imperial Tobacco as a potential takeover candidate. A weak volume backdrop has put pressure on tobacco earnings across the board. PMI and Imperial have both lowered expectations for 2014. M&A has historically been a source of earnings growth for the industry, but few options remain after a spur of consolidation in the mid 2000s. With China closed and the internationals unlikely to push into the US market, reports have cited Imperial as the most obvious takeout candidate in big tobacco. Synergies from consolidating Imperial’s European operations could provide a source of earnings growth and remove the biggest value player from the market. A deal would likely have anti-trust issues in some key markets (Spain, UK, Germany) so might need to have a partner involved or someone to sell on to. JT + BAT might be one possible constellation to split the business. A financial sponsor could be involved in markets with antitrust issues (UK, Spain, Germany) given the cash generative nature of the business. Insurance We believe a pick-up in M&A activity to be plausible for the European insurance sector in 2014. This reflects the combination of improved certainty on capital requirements given the finalisation of solvency 2 rules and the strong position of sector balance sheets following a number of years where insurers have been focused on improving the quantum and composition of their capital bases. We would not be expecting anything transformational and would see limited scope for large in-market deals between European listed companies. However we believe bolt-on deals that strengthen existing franchises, are incrementally positive for EPS and can be funded internally or with limited increases in debt are the most likely course of action. The targets in this scenario are often companies that are unlisted, or are discrete divisions/countries of existing listed companies. Pharma Given poor historic internal R&D success, and plenty of free cash flow, major pharma has been a steady acquirer of biotech/R&D driven "new product" companies and platform technologies and we expect this to continue as organic sales growth remains pedestrian at only 2-4% for most companies. Many large pharma have set a threshold of $5-10bn for individual purchases but this would be larger if the target also brings current cash flow. The accounting convention in the sector for ignoring intangible asset amortisation in CORE EPS helps ensure very limited apparent dilution from any deals. Another area of continued investment via acquisitions is EM where big pharma needs local brands, and local infrastructure through which to sell Western developed medicines. Many companies might be both possible acquirers to build critical mass and leverage infrastructure. and possible targets for larger companies. A major block to deals is the large number of family ownership structures across Europe which have protected companies from hostile takeovers . There is more limited business diversification now than in the past although there is still a " shuffling" of assets/companies in OTC drugs and animal health expected in 2014. Telecom ALU: Company shifting its strategic focus, also looking to raise at least €1bn from asset sale Equipment NSN (Nokia segment) may be potentially interested in ALU's wireless asset. While this may strategically make sense, we equally would note this transaction may be complex with execution risks. With NSN now being the core business within Nokia group, newswires (Reuters, Bloomberg and WSJ) have suggested NSN could be potentially interested in acquiring ALU's wireless business to increase its scale. While theoretically, it makes sense as it would propel NSN to a clear #2 position in wireless infra market with 25% share (Ericsson at 40%, Huawei at ~18%), we would also note technical complexities with such a deal (merging of two different RAN platforms and cost associated with the swap out) as we saw with Nokia and Siemens JV in 2007, and Alcatel, Lucent and Nortel merger in 2006. For Sage, Unit4 a similar company in the Netherlands, has just been bid for. Other potential takeover targets companies in the space are trading on expensive multiples Mining We think divestments will be an ongoing theme through 2014 as the large caps continue to simplify and reduce financial leverage. All four of the large caps have flagged potential divestments which could total in excess of $20bn. Glencore needs to divest copper assets for anti-trust purposes and we think will also exit platinum in South Africa. We see the potential for RIO to shed part of its aluminium and non-core iron ore asset base. Longer term, Anglo may exit platinum and diamonds, in our view. We think the likely buyers of these assets are sovereign buyers, public markets (IPO), private equity and trade. Large-scale M&A looks unlikely. There are no obvious takeout targets in the UK market, although AMI and LOND could attract interest from strategic buyers looking to secure off-take. Source: Credit Suisse research
Global Equity Strategy
Link to relevant research N/A
Potential targets Imperial Tobacco
Potential acquirers Unilever, Nestle, L'Oreal, Henkel, Reckitt
N/A
RSA (as part of remedial efforts on balance sheet) Topdanmark
Allianz Axa Prudential Mapfre L&G Sampo Gjensidige Ageas
N/A
Shire, Meda, UCB
Shire, Meda, Roche, Sanofi, AZN,GSK, Novartis, Bayer
Nokia – Strategic review in focus
N/A
ALU (Wireless Nokia, Samsung segment), Imagination Technologies
AMI, LOND
N/A
23
27 January 2014
Figure 54: Analyst picks: US sectors Sector Agricultural Sciences
Comment M&A within the agricultural productivity segment should continue to be strong in 2014, although we would expect the average size of deals to remain in the small to mid-size range.
Link to relevant research
Potential targets
Potential acquirers
ICL, POT, SQM, MOS, EVGN
POT, BHP, MON, AGU
Looking to 2014, the group as a whole has a relatively clean set of balance sheets, that actually Chemicals: Despite the improved in aggregate in 2013 despite M&A—largely because some companies divested assets MMM, DD, FMC, Big Move in 2013, ROC, CYT, Chemicals and also EBITDA improved, to a leverage ratio of 1.69X (the best it has been in a number of RPM, PPG, Chemicals to Climb HXL, FOE years). With this strength and solid free cash expected, we believe the trends in M&A and in SHW, ROC Higher in 2014 returning cash to shareholders will continue. EE/MI - Stay Overweight; Change in Electrical ALLE, ADT, TYC, SWK, UTX, The three most likely takeout candidates in our space we believe are ALLE, ADT, and SSYS. view on three endEquipment SSYS T, VZ markets, and three stocks M&A has been a trend as contractors look to play NA Energy infrastructure. KBR and MDR are Engineering & the two most likely US candidates to be acquired, however both have issues that they need to 2014 Engineering & KBR, MDR Construction work through. Once execution stabilizes, MDR could be a target. KBR is more interesting, though Construction Outlook challenging to acquire given the gov't business. 2014 Machinery Sector Outlook - What's Hot & What's Not in 2014 Industrial Multi-industry and machinery names have expressed interest in getting bigger and diversifying PNR, PH, GE, PLL, FLS Machinery into the high margin high aftermarket flow businesses (ie. pump and filtration). DHR: Solid US Q4 DHR, SIE growth, Software a key strategy; customer outsourcing opportunity Consolidation/M&A of smaller brands and companies in Beauty will likely continue. The soft Some of AVP's drinks industry shows a high degree of consolidation. Except for a potential MNST acquisition by brands / Global Beauty Industry COTY, EL, one of the large soft drinks companies, we would mainly see small tuck-in acquisitions of still regional - Premiumization, OREP.PA, PG, Consumer Staples beverages mainly oriented toward healthy products. The beer industry also shows a high degree businesses, KO, PEP, Specialization, of consolidation. Global spirits is more fragmented than beer or soft drinks. We see scope for Clarins, Unc.AS Consolidation M&A in spirits in the medium term. For Household Personal Care, big players may be looking at BEIG.DE, BF.B, acquisitions this year; personal care and mass beauty are areas of particular interest. MNST, WWAV Food & Drug Going forward we see potential for further consolidation in both the dollar store and food retail Exploring a DG/FDO Retail spaces as each is highly competitive and contains the possibility to unlock significant synergies. Combination DG, KR, FDO, SWY Cerberus, WMT Cerberus Buy-Out Makes Sense Packaged Food PEP, TSN, CPB, Valuation Multiples Are WWAV, K, JBS or other We expect tack-on acquisitions to continue as US food companies utilise their clean balance Packaged Foods Higher And Growth Is Michaels Foods, foreign sheets to jump-start their growth rates. Slower? Doesn't Sound BNNY, HSH competitors in Promising the protein space Gaming, Lodging, and Leisure - Don't Call it a Going forward, while we do not anticipate any large-scale M&A activity, we see the potential for Comeback, 2014 Leisure / Gaming newly formed GLPI to acquire one-off assets in the regional gaming space from operators such ISLE, BYD, PNK GLPI Outlook is Positive; as ISLE, BYD and PNK. Albeit Valuations May be Stretched CKEC and other We believe M&A remains an important driver for this sector, given (1) overcapacity in the sector Movie Exhibitors US Movie mid-sized from a screen perspective, (2) industry fragmentation past the top four players, and (3) limited Tough Act to Follow, RGC, CNK Exhibitors private organic growth opportunities in this mature sector. but Outlook Is Healthy companies Overall, we see the likelihood of a significant transaction here as low. We expect any M&A within CS Capital Markets: Capital Markets the sector will remain centered on small tuck-in acquisitions focused on technology and OTC 2014 Outlook: Focus on execution/clearing/post-trade capabilities. Fundamentals We expect bank M&A to persist at the smaller end with buyers armed with stronger currencies looking to leverage excess capital, enhance earnings, improve strategic growth prospects and 2014 SMID Cap Bank BKU, FRC, ASBC, BKU, Small-Cap Banks gain additional scale including the absorption of higher compliance costs related to Basel III, Outlook TCBI HBHC, SUSQ stress testing and the CFPB. HIG Group As a result of several larger players (MET, PRU, LNC) all looking to rebalance earnings mix away 2014 US Life Insurance Benefit Life Insurance from annuities into other areas, we think there may be some activity on the M&A front for group MET, PRU, LNC Outlook Business or businesses in 2014. SFG There are some opportunities for consolidation amongst the Bermudan reinsurers, but overall not AHL, PTP, P&C Insurance HIG, BRK, ACE much M&A activity. CINF, CB Global Equity Strategy
24
27 January 2014
Building Products
Pharma
Managed Care
We expect the Building Products space to remain active from an M&A perspective, with consolidation likely occurring at both the manufacturer and distributor level. We think near-term deals are most likely to resemble the recent past, with publicly-traded companies primarily pursuing bolt-on deals and targeting privately-held companies. We continue to expect more bolt-on acquisitions (small to mid-sizes), product-specific acquisitions, partnerships, and licensing agreements rather than large deals. More recently, Ideas Engine: AGN consolidation has occurred in the specialty pharmaceuticals space, with business model moving Compelling Turnaround away from generics, and several aimed towards obtaining more efficient tax rate. That said, deal Story into 2014 activities in the next 12 months will likely be more concentrated in the specialty pharmaceuticals space compared to major pharmaceuticals. WCG: Initiating Coverage with Neutral Rating, $77 TP We’ve seen a wave of large Managed Care deals over the last few years (i.e. Cigna acquired HealthSpring, WellPoint acquired Amerigroup and Aetna acquired Coventry) and expect further consolidation.
Healthcare Distribution & Technology
There has been some increased interest from players in the pharmaceutical supply chain in M&A to diversify revenues / operations and deploy capital.
Biotechnology
Whilst it’s relatively easy to identify the key M&A attributes, it is much harder to identify specific companies (and exit prices therefore) that ultimately get bid for. We see three key M&A attributes: (1) Unencumbered assets; (2) Later-stage/Commercial products; (3) Inevitable “Big Brother needed” product vs. “we can always self-market”.
Broadcasting
Telecom
IT Services
Environmental Services
Employment Services
Small Cap Software
MOH: Assuming Coverage with a Neutral Rating
FHBS, MHK, SWK
FRX, AGN
CNC, MOH, HNT
CI, HUM, UNH
OCR
ABC, CAH, MCK, ESRX
SMID-Cap Biotech Companies
AMGN, BIIB, CELG, GILD
CNC: Assuming Coverage with Outperform Rating MCK: With Agreement to Acquire Celesio In Place, Raising PT to $200 ESRX: Time To Flex Its Balance Sheet Muscle and Think Outside The Box An Outlook for 2014 M&A Premium But Don't Believe the Hype Hit Me One More Time: Feedback from Our Recent M&A Note
NXST has been an active acquirer the past 18 months, and we expect them to continue to CS/NXST: 25% acquire private TV broadcasters in the near-term. As we move past that, there is the possibility Dividend Raise Leaves LIN, GTN, MEG NXST that it could seek to merge with another mid-sized publicly traded broadcaster (i.e. LIN, GTN, Capacity for M&A MEG). Consolidation in the telecom space has been top of mind since the WSJ reported that Sprint is considering a bid for T-Mobile. Given the benefits of such a transaction and Sprint's show of Consolidation Good, TMUS S, DISH interest in the past, we are not surprised that the company is evaluating a potential bid. However, but a Long Shot from here to a completed deal is fraught with obstacles. Data, Processing & IT Private Equity, The payment processing/merchant acquiring business model is naturally inclined towards Services - Services Merchant consolidation given the incredibly scalable aspects of the model. Consolidation within this GPN Year Ahead: Four Acquirer business has been taking place over recent years and we expect it to continue in 2014. Stocks for '14 Competitors Environmental Services Consolidation in waste space will likely lead to better pricing and discipline as evident by the 2014 Outlook BIN, NES, WCN, WM, RSG RSG and Allied Waste merger in December 2008. Cautious Near Term, CWST Positive Long Term Major staffing companies have tried to diversify into the higher-margin higher-growth IT end Employment Services market where skill shortages are rampant. They have tried to build the business organically but to The Staffing Super KFRC MAN, RHI gain critical mass, it makes sense to purchase a well-run pure-play IT staffing company like Cycle KFRC. Closing out 2013 was the acquisition of Responsys (MKTG) by Oracle for $1.5bn, which we JIVE, CNQR, believe could signal the start of a larger M&A cycle, particularly among cloud (SaaS) assets. We 2014 SMID Software ULTI, INFA, believe a consolidation wave is inevitable as SMID vendors' businesses grow to become bigger ORCL, SAP, IBM Outlook OTEX, LPSN, problems for the large-cap vendors that have either tried to internally develop their own solutions COVS or dabbled with previous SaaS acquisitions to complement their on-premise legacy solutions.
Source: Credit Suisse research
Global Equity Strategy
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27 January 2014
Figure 55: Analyst picks – Japanese sectors Sector
Comment
Metals & Steel Japan's steel industry has been ripe for consolidation as there are many small players in what is a structurally declining industry. The merger of Nippon Steel and Sumitomo Metal in 2011 brought together Japan's #1 and #3 steel makers and raised expectations of further industry consolidation as the companies had overlapping businesses and also had shareholdings in many subsidiaries. There is especially focus on the electric arc furnaces as their earnings have been hit hard by rising energy costs. Consumer Staples Historically, overseas M&As led by Japanese food/beverage companies haven’t been that successful except for the acquisition of Gallaher by JT. Kirin HD has a bitter experience in the acquisition of dairy business in Oceania, and is now facing challenging situations in Brazil. Asahi GHD is also struggling in Oceania RTD business, which they acquired in 2011. However, Asahi needs overseas growth and should have appetites for M&A. Domestic M&A would be expected especially in soft drink industry. Profitability of the industry has deteriorated due to excessive price competition, and consumption tax hike could be a trigger for the industry. Insurance Japanese insurers have been looking for overseas acquisitions as the domestic market slows, to diversify their capital exposure to various countries, to gain larger market share, and to secure operating licenses in other markets. Tokio Marine and Daiichi Life have been especially active in the US. Banks
The banks are looking at overseas acquisitions especially in Asia to capture the market growth there. MUFG bought Union BanCal in 2008 and continues to look for opportunities in the US.
Link to relevant research N/A
Potential targets SMID electric arc furnace steel makers
Potential acquirers Kyoei Steel
N/A
Mid-small beverage companies
Asahi, Kirin HD, Ajinomoto
N/A
Overseas insurance companies
N/A
Overseas financials
Tokio Marine, Dai-ichi Life, MS&AD insurance, NKSJ insurance MUFG, Mizuho, SMFG
Source: Credit Suisse research
Global Equity Strategy
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27 January 2014
Quant stock screens Below, we show several pure quant screens that seek to identify potential targets, based on the specified criteria. These stock screens are purely quant screens and are not designed to look at the practical issues involved in M&A (size, blocking stakes by family or government golden shares, legal obstacles in terms of competition policy or threats to national security that a deal might create). Indeed, the appearance of a company on this screen is not a reflection of the current management of the company, but merely that the stock is undervalued relative to its fundamentals.
1)
Low leverage and high FCF yield
We screen for companies which have net debt to EBITDA below 1x, FCF yield above 6% and at least 10% potential upside on HOLT. Of these, Moneysupermarket, Bodycote and Wood Group have positive earnings momentum. Figure 56: European stocks rated Outperform or Neutral by our fundamental analysts with FCF above 6% and net debt to EBITDA < 1x -----P/E (12m fwd) ------
2013e, %
------ P/B ------Abs
FCY
2013e Momentum, %
DY
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Net Debt to EBITDA 2013e
Abs
rel to Industry
Hays
0.70
19.7
104%
17%
8.3
-55%
18.4
1.9
-18.4
-0.1
1.5
2.1
Outperform
Kingfisher
-0.14
15.0
70%
22%
1.5
-26%
34.4
2.5
-7.3
-2.3
0.6
2.6
Outperform
Metso
0.68
11.5
75%
41%
2.1
1%
10.2
6.8
23.7
-7.6
-3.3
2.8
Outperform
Straumann Hldg.
-0.45
20.9
133%
-17%
4.1
-54%
25.0
2.0
-24.4
-1.9
-0.2
2.9
Outperform
Moneysupermarket Com Gp. Bodycote
0.32
15.8
90%
18%
5.0
59%
11.9
10.5
97.3
4.3
1.6
2.1
Outperform
0.02
15.3
100%
74%
2.6
30%
6.0
2.0
1.2
0.3
-0.2
2.4
Outperform
Wood Group (John)
0.32
10.9
87%
-7%
2.4
-16%
6.0
1.8
87.5
2.0
-0.3
2.4
Outperform
Tate & Lyle
0.84
13.2
74%
24%
3.6
44%
7.3
3.4
-6.4
-3.3
-2.7
2.4
Neutral
Lonmin
-0.53
20.0
158%
15%
0.9
-69%
7.2
-0.1
25.3
-8.0
-4.2
2.7
Neutral
Forbo 'R'
-1.08
14.7
83%
13%
1.9
30%
6.6
1.8
11.6
0.0
0.2
2.1
Neutral
Tieto Oyj
0.06
10.7
61%
-34%
2.1
-50%
8.2
5.1
45.1
-1.5
-1.5
3.0
Neutral
Kaba
-0.03
16.7
88%
23%
3.0
-85%
13.1
2.6
-1.1
1.6
1.1
2.8
Neutral
Iliad
0.95
22.6
147%
5%
5.1
-22%
6.3
0.3
-7.4
2.6
-0.1
2.6
Neutral
African Minerals
0.71
5.2
41%
-72%
1.2
-61%
10.6
0.0
-108.0
-52.3
1.1
1.8
Neutral
Tui Travel
-0.08
12.7
61%
22%
2.9
78%
8.1
3.3
1.2
-1.0
0.4
2.7
Neutral
Man Group
-2.66
12.3
96%
25%
0.8
-72%
14.1
3.7
8.3
1.1
0.8
3.0
Neutral
Name
rel to mkt % above/below average
HOLT
rel to mkt % above/below average
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
2)
Stocks that are undervalued based on HOLT's price to best metric and have a value to cost below 0.8x
The concept here is that we want to focus on those stocks where it is cheaper to buy capacity than build it. We screen for non-financial stocks with a value to cost ratio below 0.8x, which are 10% (or more) undervalued based on HOLT's price to best metric and rated Outperform or Neutral rated by Credit Suisse fundamental analysts. We do not filter for CFROI®, but would highlight that companies with a low CFROI may be bid for in order for the acquirer to take out capacity from the industry. Companies with a high CFROI are clearly attractive if they enhance the profitability of the acquiring company.
Global Equity Strategy
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27 January 2014
Figure 57: Non-financial European stocks with VCR < 0.8 that are cheap on HOLT and Outperform- or Neutral-rated -----P/E (12m fwd) -----CFROI 5 yr CFROI FY trailing 1 median
Name
Value/Cost ratio
Abs
rel to Industry
rel to mkt % above/below average
2012e, %
------ P/B ------Abs
rel to mkt % above/below average
FCY
DY
HOLT
2012e Momentum, %
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Nokia
6.8
-3.4
0.7
22.8
175%
-4%
2.7
-59%
-3.3
0.2
0.2
155.0
-4.9
2.7
Outperform
Alpiq Holding
7.2
4.6
0.7
20.7
146%
47%
0.7
-74%
na
2.2
62.9
-13.2
5.4
3.0
Neutral
Voestalpine
5.6
5.2
0.7
11.5
91%
43%
1.2
-3%
1.1
2.6
80.2
-4.6
-0.1
2.7
Neutral
Italcementi Fabbriche Riunite Nexans
3.4
0.6
0.5
71.6
402%
294%
0.6
-53%
na
1.4
23.5
nm
0.0
3.4
Neutral
3.4
1.9
0.7
20.7
135%
61%
0.7
-24%
12.8
1.0
23.7
-1,067.3
-3.8
3.4
Neutral
Telecom Italia
5.3
5.9
0.8
8.7
57%
-78%
0.7
-58%
18.4
2.0
46.2
-6.0
-2.4
2.7
Neutral
Iberdrola
3.8
3.4
0.7
12.7
90%
18%
0.9
-45%
11.0
6.0
42.8
-0.7
-0.4
3.1
Neutral
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
3)
HOLT screen: low leverage, profitable growth and cheap on HOLT
This is the screen that our colleagues from Credit Suisse HOLT use to focus on potential targets. They screen for companies rated Outperform or Neutral by our fundamental analysts with low leverage (net book debt to EBITDA below 2x), CFROI above 8% in FY0 to FY2, a sustainable growth rate above 5% and more than 20% potential upside on HOLT’s price to best metric. We also restrict our screen to companies with a market cap below $30bn. Figure 58: European companies with low leverage, profitable growth and more than 20% potential upside on HOLT
Company GLOBALTRANS INVESTMENT PLC PETROFAC LIMITED ANTOFAGASTA PLC SPECTRIS PLC BETFAIR GROUP PLC SHIRE PLC ROTORK P.L.C. WEIR GROUP PLC (THE) FERREXPO PLC PADDY POWER PLC
Leverage, Book Debt (Net) / EBITDA (FY1) 1.72 -0.03 -0.72 0.69 -2.17 -0.13 -0.41 1.54 1.34 -1.17
CFROI (FY0) 15.73 28.07 15.47 23.80 18.83 16.07 36.63 22.36 9.57 36.61
CFROI (FY1) 13.74 22.46 11.25 22.96 20.90 16.19 39.08 18.46 9.69 30.69
Sustainable Warranted Growth Rate Upside (FY1) Downside % 7.23 109.4 17.51 75.2 10.33 61.38 15.83 56.69 19.84 54.22 16.40 53.33 31.85 49.21 12.30 40.8 7.98 36.08 17.19 34.86
CFROI (FY2) 12.530 19.890 10.320 21.830 18.370 17.000 32.480 17.390 8.240 30.890
Credit Suisse Analyst Rating OUTPERFORM OUTPERFORM NEUTRAL OUTPERFORM NEUTRAL NEUTRAL OUTPERFORM NEUTRAL NEUTRAL OUTPERFORM
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
4)
European corporates who could increase their buybacks
Figure 59: Europe stocks FCF above peers, leverage below peers, positive EM and Outperform-rated -----P/E (12m fwd) -----Name
Net Debt to EBITDA 2013e
Net Debt to M Cap 2013e
Abs
rel to Industry
rel to mkt % above/below average
2013e, %
------ P/B ------Abs
rel to mkt % above/below average
FCY
HOLT
2013e Momentum, %
DY
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Arm Holdings
-1.63
-3%
42.5
258%
3%
12.5
-10%
1.9
0.5
-25.3
1.5
0.5
2.3
Outperform
Bt Group
1.29
25%
13.7
89%
23%
-114.4
na
5.7
2.7
-7.1
0.7
0.6
2.3
Outperform
Oc Oerlikon
-1.41
-15%
16.4
107%
-33%
2.3
2%
5.8
2.1
-27.9
7.1
-1.1
2.0
Outperform
Komax
-0.33
-3%
13.7
89%
-4%
1.9
-18%
3.8
2.0
25.8
0.0
0.0
1.8
Outperform
Abb 'R'
0.26
3%
15.8
103%
12%
3.5
-81%
4.3
3.0
30.5
1.7
1.7
2.5
Outperform
Adecco 'R'
0.96
8%
16.0
85%
-4%
2.9
-37%
5.3
2.7
-30.5
6.8
-1.1
2.5
Outperform
Gdf Suez
2.53
84%
12.3
87%
5%
0.7
-51%
6.9
8.8
-6.0
1.6
0.3
2.5
Outperform
Rtl Group (Fra)
0.25
2%
19.6
106%
25%
na
na
8.3
6.0
na
4.5
-0.4
2.3
Outperform
Mondi
1.54
36%
11.7
93%
5%
2.0
73%
5.7
2.7
22.1
2.6
0.0
2.2
Outperform
Whitbread
0.90
7%
20.3
98%
96%
4.4
126%
4.4
1.7
-20.2
0.4
0.4
2.5
Outperform
Actelion
-0.59
-4%
17.9
75%
-43%
5.6
-50%
3.2
1.4
16.5
5.0
0.1
2.4
Outperform
Bodycote
0.02
0%
15.3
100%
74%
2.6
30%
6.0
2.0
1.2
0.3
-0.2
2.4
Outperform
Mailru Group Gdr (Reg S) Wood Group (John)
-1.15
-6%
24.2
153%
-6%
2.2
12%
3.1
7.9
-23.2
1.3
-0.4
2.0
Outperform
0.32
4%
10.9
87%
-7%
2.4
-16%
6.0
1.8
87.5
2.0
-0.3
2.4
Outperform
Countrywide
0.44
3%
15.3
67%
-9%
na
na
4.2
1.1
-15.5
2.1
2.2
1.5
Outperform
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Global Equity Strategy
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27 January 2014
Credit Suisse HOLT also screens for companies in both Europe and the US (shown in the Appendix) that have a track record of share buybacks and have a strong enough balance sheet to continue this policy in the future. Figure 60: HOLT European buyback screen -----P/E (12m fwd) -----rel to mkt % above/below average
HOLT
2013e, %
------ P/B ------Abs
rel to mkt % above/below average
FCY
2013e Momentum, %
DY
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Name
Abs
rel to Industry
Flsmidth & Co.'B'
11.2
73%
-11%
1.6
-33%
1.5
2.6
21.9
-10.3
-1.5
2.2
Not Rated
Paddy Power
20.2
98%
26%
11.1
44%
4.5
2.1
32.2
-8.5
-3.4
3.0
Outperform
Publicis Groupe
17.0
92%
9%
2.9
-50%
5.8
1.6
4.4
-0.8
-0.8
2.1
Outperform
Reckitt Benckiser Group N Sonova
17.8
94%
12%
5.7
-4%
5.2
2.9
17.1
-0.8
-0.8
2.8
Neutral
20.9
133%
-14%
5.0
-26%
3.5
1.4
10.2
-2.0
0.2
2.7
Outperform
The Swatch Group 'B'
16.6
93%
-51%
3.4
21%
2.2
1.3
13.7
-3.7
-2.0
2.1
Outperform
Gkn
12.1
112%
41%
3.9
17%
4.6
2.1
5.2
-1.3
0.6
2.0
Outperform
Siemens
14.3
93%
-2%
3.0
16%
6.1
3.1
16.1
-6.7
-1.4
2.3
Outperform
Betfair Group
23.3 10.7
113% 100%
23% -19%
8.6 1.5
40% 3%
5.3 1.2
1.5 3.6
45.8 63.5
2.8 8.3
-0.9 0.5
2.2 2.3
Neutral Not Rated
Daimler
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
US stocks which appear on more than one of our quant stock screens Below, we highlight those US stocks which appear in more than one of our quant stock screens highlighted above. These screens, compiled purely on a quantitative basis without analyst input, are presented in the appendix. Figure 61: US stocks which appear in more than one of our quant screens Low leverage and high FCF yield
Stocks that are more than 10% cheap on HOLT and have a value to cost below 0.8x
Corporate who could increase their buyback
Flowserve Corp
N
N
Global Payments Inc
Y
N
Cardinal Health Inc
Y
Sandisk
HOLT buyback basket
HOLT M&A screen
Analyst picks
Stock in more than one screen
N
Y
N
Y
Yes
N
N
Y
Y
Yes
N
Y
N
N
N
Yes
Y
N
Y
N
N
N
Yes
Safeway
Y
N
N
N
N
Y
Yes
Molina Healthcare
Y
N
N
N
N
Y
Yes
Lam Research Corp
N
N
Y
N
Y
N
Yes
Mcgraw Hill Financial
N
N
Y
Y
N
N
Yes
Regal Beloit
N
N
Y
N
Y
N
Yes
Wuxi PharmaTech
N
N
Y
N
Y
N
Yes
Avago Technologies Ltd
N
N
Y
N
Y
N
Yes
Cummins Inc
N
N
N
Y
Y
N
Yes
Symantec
N
N
N
Y
Y
N
Yes
Name
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Global Equity Strategy
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27 January 2014
What happens after a deal? We have looked at the biggest 300 deals (where European and US companies are the acquirer and the deal is above $500m) over the last 10 years and find the following conclusions: ■
In aggregate, there is little evidence of clear-cut outperformance for companies participating in M&A. Only 47% of acquiring companies outperform their sector in the year after a deal has been announced (although the average outperformance is 1.1% over this period). Some companies do perform well post M&A, with 29% of companies outperforming their sector by more than 10% over a one-year period.
■
The worst period of performance for an acquirer is usually one month after the announcement.
Figure 62: Relative performance of buyer after
Figure 63: Energy and materials seem to be the most
announcement of the deal – average is positive but a
successful acquirers
majority of firms underperforms 2.0%
52%
Average acquirer performance rel. sector
10%
% of acquirers outperforming after deal
1.5%
8%
48%
Acquirer return rel sector (12m after announcement) Target PE above/below sector 3m before announcement, rhs
6%
80% 60%
4%
1.0%
2%
44% 0.5%
0%
40% 20%
-2%
40%
0.0%
-4%
0%
-6% -8%
-0.5%
-20%
36% 1w
1m
2m 3m 6m after announcement
1y
2y
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
■
There is a modest sector bias on this metric. Acquisitions in the energy and materials space perform the best and acquisitions in the consumer space perform the worst.
■
Valuation of targets (relative to the sector) prior to the deal announcement seem to be the most expensive in IT and the cheapest in materials. However, there does not seem to be any correlation between the relative valuation of the target company and the subsequent performance of an acquirer.
■
There also does not seem to be a relationship between premium paid and relative performance of the buyer following the deal. (We look at the average premium paid for the best 15 performing acquirers and the worst 15 performing acquirers one year after a deal was announced, see Figure 64).
Global Equity Strategy
30
27 January 2014
Figure 64: The premium paid by the acquirer does not seem to influence future performance 50%
30%
10%
-10% Premium paid on stock price 1m pre bid -30%
Median performance after 1 year rel sector
-50% Top 15 performers (1y rel sector)
Bottom 15 performers (1y rel sector)
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research, Dealogic
Global Equity Strategy
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27 January 2014
Recent trends in M&A Growing importance of private equity: There also seems to be a change in the nature of deals. In 2013, for the first time since 2007 the number of transactions conducted by financial investors (i.e. private equity investors), returned to its 10-year average of 11%. The increasing importance of financial investors becomes even more obvious if we look at transactions of more than $500mn. Between 1993 and 2002, financial investors were only involved in 10% of M&A deals, compared with nearly 30% in the last 10 years (deal size above US$500m). We believe this trend will continue, especially if we consider that global private equity firms currently have more than US$1tn firepower ready to spend (see above). Figure 65: Acquisitions by financial investors are back to
Figure 66: …over the last 10 years financial investors
their 10-year average…
were already involved in 30% of all larger deals 80%
20% Acquisitons by financial investor as % of total
16%
Average (2002-12)
70%
1993 - 2002 2003 - 2013
60% 50%
* completed M&A deals >500m USD
12% 40%
30%
8%
20%
4%
10% 0%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
Traditional company takeover
Financial investor
Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters, Credit Suisse research
Sector trends: in value terms, autos, utilities and consumer services showed the least M&A activity in 2013 relative to their 10-year average. Food, beverages & tobacco, consumer durables and capital goods showed the most activity. Figure 67: Autos and utilities were the sectors with the least M&A activity in 2013 compared to their 10-year average (in terms of value) 80% 60%
2013 M&A activity (value) relative 10 year average (02-12)
40% 20% 0% -20%
-40% -60% -80% -100%
Source: Thomson Reuters, Credit Suisse research
Global Equity Strategy
32
27 January 2014
Appendix – US quant screens These are purely quant screens, compiled without analyst input. Low leverage, high FCF yield Figure 68: US stocks rated Outperform or Neutral by our fundamental analysts with FCF above 7% and net debt to EBITDA < 1x -----P/E (12m fwd) ------
2013e, %
------ P/B -------
rel to Industry
rel to mkt % above/below average
Abs
rel to mkt % above/below average
FCY
DY
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Net Debt to EBITDA 2013e
Abs
Apache
0.71
11.5
92%
-15%
1.1
-42%
9.2
1.0
63.4
-2.6
-1.6
2.2
Outperform
Automatic Data Proc.
0.07
24.2
138%
21%
6.2
14%
9.8
2.2
2.4
0.3
0.3
2.5
Outperform
Cardinal Health
0.49
17.2
110%
31%
3.8
-4%
7.5
1.7
-0.2
3.0
4.5
1.7
Outperform
Caterpillar
0.53
15.5
101%
22%
3.4
-23%
7.9
2.3
15.9
-12.8
-4.1
2.4
Outperform
Cigna
0.36
11.9
76%
19%
3.5
45%
8.7
0.0
138.3
3.1
0.3
2.2
Outperform
Emc
-0.50
12.1
93%
-58%
2.4
-56%
9.9
0.6
53.5
-3.4
-1.1
1.8
Outperform
Oracle
-0.30
12.3
70%
-45%
3.9
-58%
7.8
1.1
49.3
1.2
0.2
2.3
Outperform
Global Payments
0.74
15.2
86%
-14%
4.3
11%
8.1
0.1
26.5
2.1
0.6
2.4
Outperform
Sandisk
-0.89
11.9
91%
-63%
2.3
-8%
7.9
0.5
108.7
9.0
1.8
2.2
Outperform
Safeway
0.90
18.9
122%
36%
2.7
-29%
64.6
2.1
0.1
-6.4
-0.1
2.5
Outperform
Sinclair Broadcast 'A'
-7.98
13.7
74%
-71%
-24.6
na
8.0
1.7
39.6
-1.8
-4.7
2.0
Outperform
Unitedhealth Gp.
0.68
13.4
85%
-7%
2.5
-27%
7.1
1.3
32.6
-0.1
-0.3
1.8
Outperform
Delek Us Holdings
0.04
15.0
120%
-19%
2.3
41%
7.9
2.6
14.2
-9.9
3.3
2.2
Outperform
Lyondellbasell Inds.Cl.A
0.32
11.1
71%
24%
4.1
56%
7.7
2.5
3.5
-0.5
0.0
2.0
Outperform
Northern Tier Energy
0.48
5.8
46%
-15%
4.7
-5%
14.4
11.1
na
-16.8
5.6
2.4
Outperform
Apple
-1.18
12.4
95%
-60%
4.0
5%
8.3
2.2
53.3
1.3
2.5
1.9
Neutral
Applied Mats.
0.76
15.5
94%
-36%
3.0
-25%
8.3
2.2
28.5
0.0
-0.9
2.4
Neutral
Archer-Danls.-Midl.
0.82
13.2
74%
6%
1.5
-7%
7.8
1.7
34.4
-0.3
1.5
2.5
Neutral
Barnes & Noble
0.14
-11.0
nm
na
1.2
-44%
9.6
0.0
-62.0
nm
-0.4
3.0
Neutral
Take Two Intact.Sftw.
0.38
10.1
57%
-36%
2.8
9%
18.1
0.0
285.2
55.4
27.9
2.2
Neutral
Molina Hlthcr.
-0.71
17.0
109%
16%
2.2
6%
8.1
0.0
32.0
-28.6
-1.4
2.3
Neutral
Broadcom 'A'
-0.44
11.6
71%
-72%
2.1
-69%
9.0
1.5
133.9
1.1
-1.1
2.3
Neutral
Diamond Offs.Drl.
0.95
10.5
84%
-52%
1.8
-46%
18.9
5.9
48.1
-7.1
-2.6
3.1
Neutral
Hewlett-Packard
0.80
7.7
59%
-38%
2.4
-24%
11.4
1.9
9.1
-3.0
0.2
2.6
Neutral
Humana
-0.28
13.2
84%
12%
1.9
-8%
10.3
1.0
25.6
-0.2
0.1
2.3
Neutral
Lockheed Martin
0.67
14.2
93%
-1%
1,202.2
10124%
7.6
3.3
-13.3
2.0
0.4
2.6
Neutral
Netapp
-0.05
13.9
107%
-62%
3.1
-67%
8.1
1.2
114.4
-1.2
-3.3
2.7
Neutral
Petsmart
0.13
16.5
77%
-15%
6.8
57%
7.2
0.8
10.9
-0.1
-0.6
2.8
Neutral
Merck & Co.
0.18
14.3
91%
-5%
2.8
-59%
9.0
3.5
18.7
0.5
-0.9
2.5
Neutral
Staples
0.26
12.2
57%
-34%
1.7
-55%
11.1
3.0
23.0
0.2
-0.5
2.7
Neutral
Tyson Foods 'A'
0.53
11.8
66%
-10%
1.8
9%
8.7
0.7
39.4
-0.9
1.7
2.1
Neutral
Resmed Cdi.
-1.25
17.3
102%
-26%
na
na
70.6
2.1
17.4
2.1
-1.3
1.6
Neutral
First Solar
-1.38
16.4
99%
-43%
1.4
-72%
10.8
0.0
59.5
14.8
-3.3
2.8
Neutral
Mercadolibre
-0.80
33.3
189%
-15%
15.8
-5%
11.7
0.5
9.3
-4.7
0.1
3.0
Neutral
Constant Contact
-2.29
32.0
182%
-35%
4.6
-4%
9.9
0.0
16.4
8.4
-0.1
2.3
Neutral
Aol
-0.46
18.6
106%
-18%
1.6
38%
7.9
0.0
-3.4
32.5
1.6
2.3
Neutral
Hollyfrontier
-0.33
11.1
89%
19%
1.7
-31%
7.8
6.3
25.7
-18.3
-0.3
2.4
Neutral
Expedia
-0.31
18.5
86%
122%
5.7
115%
8.7
0.7
-15.9
2.1
1.2
2.5
Neutral
Suncoke Energy Partners
0.21
11.4
90%
6%
na
na
8.9
5.9
na
-0.3
0.2
2.1
Neutral
Name
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Global Equity Strategy
33
27 January 2014
US HOLT M&A screen Figure 69: US companies with low leverage, profitable growth and potential upside on HOLT (Outperform-rated only) Leverage, Book Debt (Net) / EBITDA (FY1) -1.12 0.41 0.39 -0.64 -0.91 1.16 -0.97 0.41 -1.18 0.86 1.59 0.21 -1.53 -0.45 0.77 -0.18 1.48 1.24 -1.59 0.69 1.57 -0.84 0.06
Company CHANGYOU.COM LTD CIGNA CORP DEERE & CO SIRONA DENTAL SYSTEMS INC CITRIX SYSTEMS INC ALLIANCE DATA SYSTEMS CORP LAM RESEARCH CORP WORLD FUEL SERVICES CORP AVAGO TECHNOLOGIES LTD BAKER HUGHES INC AETNA INC COPA HOLDINGS SA CHECK POINT SOFTWARE TECHN CUMMINS INC REGAL-BELOIT CORP DELEK US HOLDINGS INC ESTERLINE TECHNOLOGIES CORP PRECISION CASTPARTS CORP WUXI PHARMATECH (CAYMAN) SOUTHERN COPPER CORP GLOBAL PAYMENTS INC SYMANTEC CORP GENERAL DYNAMICS CORP
CFROI (FY0) 35.72 23.70 14.51 24.09 23.27 34.82 9.30 16.00 22.46 8.20 18.00 9.81 20.18 14.74 12.13 17.39 14.37 21.18 14.53 16.22 19.23 22.35 17.45
CFROI (FY1) 20.00 22.83 12.53 22.54 21.63 34.64 17.16 14.30 22.06 8.30 22.42 11.37 19.86 11.06 11.20 9.26 13.67 21.51 15.81 11.85 20.76 22.96 17.40
Sustainable Warranted Growth Rate Upside (FY1) Downside % 9.77 130.97 21.39 127.73 8.62 91.42 24.69 78.75 23.41 77.9 28.51 76.72 14.69 56.41 13.57 51.78 19.66 50.84 5.82 49.23 16.02 48.14 8.01 45.53 22.19 42.05 7.35 40.33 6.22 39.28 5.88 33.94 10.48 33.09 22.69 31.46 18.19 29.87 7.30 23.81 22.96 23.22 11.73 22.05 9.43 21.06
CFROI (FY2) 18.480 20.120 10.800 21.280 21.640 33.850 17.830 13.650 21.570 9.740 23.050 10.570 18.600 11.870 11.410 9.240 14.200 20.280 13.860 10.300 18.340 22.740 17.190
Credit Suisse Analyst Rating OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
US value screen Figure 70: Non-financial US stocks with a value-to-cost ratio < 0.8x that are cheap on HOLT and Outperform- or Neutralrated -----P/E (12m fwd) -----Name
CFROI 5 yr CFROI FY trailing median 1
Value/Cost ratio
Abs
rel to Industry
rel to mkt % above/below average
2012e, %
------ P/B -------
HOLT
Abs
rel to mkt % above/below average
FCY
DY
Price, % change to best
2012e Momentum, % 3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Apache
6.7
4.4
0.7
11.5
92%
-15%
1.1
-42%
9.2
1.0
63.4
-2.6
-1.6
2.2
Outperform
Amkor Tech.
8.4
3.7
0.7
8.7
53%
-75%
1.4
-61%
na
0.0
72.7
13.4
1.4
2.2
Outperform
Micron Technology
-0.6
-2.0
0.7
10.1
61%
-75%
2.5
7%
6.8
0.0
60.3
12.4
13.0
2.4
Outperform
Penn Va.
4.7
1.8
0.4
42.6
341%
22%
0.6
-65%
na
0.0
108.1
nm
-4.8
1.9
Outperform
Xenoport
-2.5
-15.3
0.8
-4.4
nm
na
2.2
-61%
na
0.0
76.0
nm
-34.0
2.4
Outperform
Ternium Spn.Adr 1:10
5.5
6.3
0.8
9.6
75%
33%
1.1
-5%
na
2.1
11.8
-5.0
-0.2
2.3
Outperform
Anadigics
1.8
-24.5
0.7
-6.2
nm
na
1.3
-47%
na
0.0
149.7
nm
-3.2
2.6
Neutral
Bon-Ton Stores
6.2
4.9
0.7
12.9
60%
-45%
2.5
147%
8.0
1.3
65.9
89.0
-0.7
2.5
Neutral
Comstock Res.
-0.8
-1.3
0.7
29.9
239%
7%
0.9
-80%
na
1.1
173.3
nm
-1.8
2.0
Neutral
Echelon
-2.7
-3.5
0.7
-6.4
nm
na
1.2
-73%
na
0.0
66.1
nm
-2.4
2.5
Neutral
Entergy
3.9
3.2
0.7
12.5
88%
7%
1.2
-25%
1.2
5.4
81.7
0.8
0.6
3.1
Neutral
Devon Energy
1.9
0.3
0.6
9.5
76%
-29%
1.2
-40%
-6.0
1.4
122.2
3.0
-0.5
2.2
Neutral
Exelixis
-0.8
-12.5
0.7
-4.3
nm
na
3.8
-81%
na
0.0
19.2
nm
-1.9
2.4
Neutral
Seacor Hdg.
5.4
1.8
0.8
17.9
144%
53%
1.3
1%
-0.4
0.0
30.2
7.0
-0.5
2.7
Neutral
Us.Steel
1.9
3.9
0.7
23.6
186%
23%
1.3
-24%
-4.7
0.7
82.2
nm
-2.0
2.9
Neutral
Supervalu
7.9
5.8
0.7
10.3
67%
7%
-1.1
na
na
0.0
42.0
63.1
1.4
3.0
Neutral
Swift Energy
1.2
-1.4
0.4
22.5
180%
41%
0.6
-67%
-32.2
0.0
147.3
-4.6
0.1
2.1
Neutral
Diana Shipping
10.1
3.2
0.7
-75.9
nm
na
0.9
-45%
-13.2
0.0
10.6
nm
1.0
2.3
Neutral
Green Plains Renew.En. Codexis
6.2
4.8
0.8
11.7
93%
-35%
1.2
13%
na
0.0
17.9
1.9
-1.6
1.6
Neutral
1.2
-3.1
0.3
-2.6
nm
na
0.7
-70%
na
0.0
638.8
nm
-10.6
3.0
Neutral
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Global Equity Strategy
34
27 January 2014
US quant buyback screens Figure 71: US stocks FCF 20% above peers, leverage below peers, positive EM and Outperform-rated -----P/E (12m fwd) -----rel to mkt % above/below average
2013e, %
------ P/B ------Abs
rel to mkt % above/below average
FCY
DY
HOLT
2013e Momentum, %
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Net Debt to EBITDA 2013e
Net Debt to M Cap 2013e
Abs
rel to Industry
Allergan
-0.10
-1%
20.3
130%
-8%
5.7
-20%
4.2
0.2
30.7
0.0
0.8
2.0
Outperform
Best Buy
-0.51
-8%
14.3
67%
-12%
4.5
3%
5.0
1.7
-15.2
1.2
0.1
2.1
Outperform
Cardinal Health
0.49
5%
17.2
110%
31%
3.8
-4%
7.5
1.7
-0.2
3.0
4.5
1.7
Outperform
Celgene
-0.28
-1%
23.2
97%
-58%
12.7
-26%
2.9
0.0
104.9
0.4
1.0
1.6
Outperform
Cigna
0.36
5%
11.9
76%
19%
3.5
45%
8.7
0.0
138.3
3.1
0.3
2.2
Outperform
General Dynamics
0.01
0%
13.1
86%
2%
2.9
-3%
6.2
2.3
22.4
0.9
-0.3
2.1
Outperform
The Hershey Company
0.60
6%
23.6
132%
24%
20.7
59%
2.6
1.9
-25.0
0.2
-0.1
2.3
Outperform
Biogen Idec
-0.10
0%
24.3
101%
-42%
9.5
60%
2.9
0.0
-2.9
3.4
1.1
2.0
Outperform
Intel
-0.06
-1%
13.6
83%
-28%
2.5
-47%
6.3
3.5
58.3
1.3
-0.7
2.5
Outperform
Jacobs Engr.
-0.65
-6%
16.2
106%
9%
2.0
-26%
5.8
0.0
10.4
1.2
4.6
2.3
Outperform
Lam Research
-0.65
-7%
12.8
78%
-54%
2.0
-43%
5.3
0.0
61.9
13.2
1.3
1.9
Outperform
Mcgraw Hill Financial
-0.19
-2%
20.7
161%
21%
28.3
240%
4.0
1.4
-7.3
1.7
1.2
1.9
Outperform
Pfizer
0.17
2%
13.4
86%
-25%
2.7
-62%
6.5
3.1
-4.9
0.7
-0.2
2.2
Outperform
Ppg Industries
0.86
7%
19.8
127%
55%
7.1
85%
3.2
1.3
-6.4
1.7
0.0
1.9
Outperform
Regal Beloit
0.55
7%
15.5
101%
27%
1.7
-14%
6.9
1.1
52.6
1.6
-0.5
2.3
Outperform
Regeneron Pharms.
-0.63
-2%
50.6
211%
-43%
21.5
254%
1.1
0.0
19.9
8.7
6.3
2.0
Outperform
Raytheon 'B'
0.28
3%
14.4
94%
7%
3.6
76%
6.9
2.4
25.5
3.0
0.3
2.5
Outperform
Sandisk
-0.89
-12%
11.9
91%
-63%
2.3
-8%
7.9
0.5
108.7
9.0
1.8
2.2
Outperform
Terex
2.13
30%
14.2
93%
-23%
2.3
-72%
6.6
0.0
-2.1
6.9
-2.5
2.4
Outperform
Foot Locker
-0.55
-7%
13.3
62%
5%
2.6
38%
4.1
1.9
20.6
0.7
1.0
1.8
Outperform
Las Vegas Sands
1.30
10%
21.9
106%
-38%
9.3
13%
4.3
1.8
-41.4
3.8
2.3
1.8
Outperform
Starwood Htls.& Rsts. Worldwide Wuxi Pharmatech
0.74
6%
26.4
128%
25%
4.9
58%
3.9
1.7
-49.3
2.9
0.2
2.0
Outperform
-0.54
-3%
20.2
129%
27%
4.5
43%
4.0
0.0
27.3
7.5
0.4
1.8
Outperform
(Cayman) Adr 1:8 Avago Technologies
-0.44
-4%
15.4
94%
32%
5.4
31%
5.7
1.9
61.4
5.9
0.5
1.9
Outperform
Mead Johnson Nutrition Tumi Holdings
0.55
4%
22.7
127%
15%
900.6
1508%
2.5
1.6
-5.2
2.9
1.4
2.3
Outperform
-0.24
-2%
22.7
127%
-3%
4.9
-9%
2.8
0.0
-11.8
0.1
0.0
2.2
Outperform
Qiwi Ads B
-1.11
-14%
35.1
273%
45%
na
na
2.9
1.6
-0.2
8.5
6.9
2.0
Outperform
Name
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Global Equity Strategy
35
27 January 2014
Figure 72: HOLT US buyback screen (ticker HTUSBYBK) -----P/E (12m fwd) ------
HOLT
2013e, %
------ P/B -------
Abs
rel to Industry
Aetna
11.0
70%
-15%
2.3
47%
9.5
1.1
55.4
-0.3
-0.1
2.0
Outperform
Amgen
14.2
59%
-32%
4.6
-29%
5.8
1.6
8.2
2.7
0.9
2.4
Neutral
Baxter Intl.
13.8
88%
-12%
5.5
-10%
3.3
2.7
12.7
-0.2
-0.8
2.3
Outperform
na
na
na
na
na
na
na
na
na
na
na
Not Rated
Cbs 'B'
17.9
97%
-42%
3.9
124%
5.3
0.8
-1.2
-2.3
0.3
1.8
Not Rated
Cintas
20.2
107%
-5%
3.3
-26%
4.4
1.2
-23.5
1.4
0.4
2.6
Neutral
Comcast 'A'
17.9
98%
-67%
2.8
-53%
6.3
1.5
3.7
2.0
-0.2
1.8
Outperform
Csx
14.5
88%
20%
3.2
59%
3.7
2.1
20.4
2.0
0.6
2.3
Neutral
Cummins
15.1
99%
24%
4.0
63%
4.3
1.5
40.1
-7.6
-2.5
2.0
Outperform
Deere
11.1
72%
-17%
5.1
41%
7.3
2.2
91.1
10.3
3.9
3.2
Outperform
Directv
11.9
65%
-48%
-7.5
na
5.6
0.0
24.1
6.3
0.1
2.4
Neutral
Equifax
17.7
93%
39%
4.3
-51%
4.9
1.3
-7.4
-0.2
-0.5
2.1
Neutral
Exxon Mobil
12.7
101%
-13%
2.7
-22%
2.0
2.5
16.8
-2.3
0.8
2.4
Neutral
Flowserve
19.5
127%
55%
5.9
100%
3.5
0.7
0.8
1.9
0.2
2.0
Outperform
Illinois Tool Works
18.8
123%
18%
3.6
0%
4.8
1.8
-9.2
-14.0
-14.8
2.5
Neutral
International Bus.Mchs.
10.3
58%
-28%
11.0
43%
6.9
1.9
37.6
-0.1
-1.9
2.7
Underperform
Kroger
12.8
83%
1%
4.8
-69%
-18.0
1.5
18.4
-0.3
-0.7
2.3
Neutral
Laboratory Corp.Of Am. Hdg.Hill Financial Mcgraw
13.4
86%
-32%
3.1
-17%
7.6
0.0
22.0
-0.8
0.4
2.9
Neutral
20.7
161%
21%
28.3
240%
4.0
1.4
-7.3
1.7
1.2
1.9
Outperform
Mckesson
15.9
101%
3%
5.1
74%
na
0.5
3.0
0.9
-4.3
1.9
Outperform
Nordstrom
15.2
71%
2%
6.4
48%
3.2
1.8
41.2
0.1
-0.2
2.4
Neutral
Pfizer
13.4
86%
-25%
2.7
-62%
6.5
3.1
-4.9
0.7
-0.2
2.2
Outperform
Raytheon 'B'
14.4
94%
7%
3.6
76%
6.9
2.4
25.5
3.0
0.3
2.5
Outperform
Rockwell Automation
18.4
121%
56%
6.3
42%
4.5
1.7
20.5
0.9
0.8
2.7
Neutral
Ross Stores
17.2
80%
32%
9.1
81%
3.5
0.9
14.8
-1.5
-0.9
2.3
Neutral
Seagate Tech.
9.8
75%
-21%
5.7
68%
9.9
2.9
31.4
-0.7
-1.6
2.6
Not Rated
Symantec
12.2
69%
-20%
3.0
-17%
6.3
2.5
19.8
-4.9
-4.0
2.4
Outperform
Target
13.6
64%
-12%
2.5
-27%
9.2
2.3
19.4
-9.2
-0.7
2.7
Neutral
Tjx Cos.
19.7
92%
40%
12.5
90%
3.0
0.9
-11.0
0.8
0.3
2.1
Neutral
Union Pacific
15.6
95%
21%
4.0
92%
4.0
1.7
13.2
-1.5
-1.2
2.1
Outperform
Verisign
22.8
129%
-35%
-987.5
na
5.2
0.0
-34.8
1.6
0.5
2.6
Neutral
Viacom 'B'
15.1
82%
27%
7.5
104%
5.6
1.3
-20.9
-0.4
-0.5
2.2
Neutral
Wal Mart Stores
14.1
91%
-27%
3.4
-36%
5.1
2.4
11.5
-0.5
-0.6
2.2
Neutral
Xilinx
19.1
116%
-29%
4.1
-25%
3.7
2.2
20.2
-1.8
-0.4
2.2
Outperform
Zimmer Hdg.
15.1
96%
-14%
2.7
-66%
5.6
0.8
10.8
-0.6
0.3
2.3
Outperform
BMC Software
FCY
DY
Price, % change to best
3m EPS
3m Sales
Consensus recommendation Credit Suisse (1=Buy; 5=Sell) rating
Name
Abs
rel to mkt % above/below average
2013e Momentum, %
rel to mkt % above/below average
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Global Equity Strategy
36
27 January 2014
Companies Mentioned (Price as of 21-Jan-2014) 3M (MMM.N, $136.99) ABB (ABBN.VX, SFr24.2) ACE Limited (ACE.N, $96.37) ADT Corporation (ADT.N, $39.58) ANADIGICS Inc. (ANAD.OQ, $2.05) AOL, Inc. (AOL.N, $50.01) ARM Holdings (ARM.L, 991.0p) AXA (AXAF.PA, €19.93) Actelion (ATLN.VX, SFr87.7) Adecco (ADEN.VX, SFr75.35) Aetna Inc. (AET.N, $70.26) African minerals (AMIq.L, 206.5p) Ageas (AGES.BR, €32.57) Agrium Inc. (AGU.N, $93.88) Ajinomoto (2802.T, ¥1,566) Alcatel-Lucent (ALUA.PA, €3.1) Allegion (ALLE.N, $48.17) Allergan Inc. (AGN.N, $120.07) Alliance Data Systems (ADS.N, $254.73) Allianz SE (ALVG.DE, €132.6) Alpiq Holding (ALPH.S, SFr125.0) American Capital Agency (AGNC.OQ, $20.57) American Express Co. (AXP.N, $90.59) AmerisourceBergen Corp. (ABC.N, $70.52) Amgen Inc. (AMGN.OQ, $119.25) Amkor Technology Inc. (AMKR.OQ, $5.8) Annie's (BNNY.N, $40.08) Apache Corp. (APA.N, $84.49) Apple Inc (AAPL.OQ, $549.07) Applied Materials Inc. (AMAT.OQ, $17.61) Archer Daniels Midland Inc. (ADM.N, $41.37) Arkema (AKE.PA, €78.89) Asahi Group Holdings (2502.T, ¥2,890) Aspen Insurance Holdings Limited (AHL.N, $39.89) Assa Abloy (ASSAb.ST, Skr340.5) Associated Banc-Corp (ASBC.OQ, $17.62) Automatic Data Processing Inc. (ADP.OQ, $80.32) Avago Technologies Ltd. (AVGO.OQ, $56.11) BASF (BASFn.DE, €80.61) BHP Billiton (BHP.AX, A$37.95) BT Group (BT.L, 381.5p) Baker Hughes Inc. (BHI.N, $56.73) Banco Popular (POP.MC, €5.09) BankUnited, Inc. (BKU.N, $32.54) Barnes & Noble, Inc. (BKS.N, $15.4) Baxter International Inc. (BAX.N, $69.56) Beiersdorf (BEIG.DE, €76.86) Best Buy (BBY.N, $24.47) Betfair Group PLC (BETF.L, 996.0p) Biogen Idec (BIIB.OQ, $310.5) Bodycote Plc (BOY.L, 685.0p) Boyd Gaming (BYD.N, $10.58) Braskem (BRKM5.SA, R$19.38) Broadcom Corp. (BRCM.OQ, $29.5) Burberry Group (BRBY.L, 1514.0p) CIT Group Inc. (CIT.N, $49.64) CSX Corporation (CSX.N, $27.04) Campbell Soup Company (CPB.N, $42.1) Cardinal Health, Inc. (CAH.N, $68.0) Carmike Cinemas Inc (CKEC.OQ, $26.28) Casella Waste (CWST.OQ, $5.35) Caterpillar Inc. (CAT.N, $90.6) Celgene Corp. (CELG.OQ, $168.55) Centene Corporation (CNC.N, $61.64) Changyou.com Ltd (CYOU.OQ, $30.69) Charter (CHTR.OQ, $133.5) Check Point Software Technologies Ltd. (CHKP.OQ, $64.51) Chubb Corporation (CB.N, $89.27) Cigna Corp. (CI.N, $90.13) Cincinnati (CINF.OQ, $50.48) Cinemark Holdings, Inc (CNK.N, $31.31) Cintas Corporation (CTAS.OQ, $59.84) Citrix Systems Inc. (CTXS.OQ, $61.49) Clariant (CLN.VX, SFr17.29) Cliffs Natural Resources (CLF.N, $21.3) Codexis, Inc. (CDXS.OQ, $1.67) Comcast (CMCSA.OQ, $53.31) Compagnie Financiere Richemont SA (CFR.VX, SFr90.0) Comstock Resources, Inc. (CRK.N, $17.36) Concur Technologies Inc. (CNQR.OQ, $111.43) Constant Contact (CTCT.OQ, $31.83) Copa Holdings (CPA.N, $146.66)
Global Equity Strategy
Coty Inc (COTY.N, $14.41) Countrywide (CWD.L, 600.0p) Covisint Inc. (COVS.OQ, $12.55) Cummins Inc. (CMI.N, $136.41) Cytec (CYT.N, $92.62) DISH Network Corp. (DISH.OQ, $54.1) Dai-ichi Life Insurance (8750.T, ¥1,762) Danaher Corporation (DHR.N, $78.0) Deere & Co. (DE.N, $89.38) Delek US Holdings, Inc. (DK.N, $32.52) Devon Energy Corp (DVN.N, $59.68) Diamond Offshore Drilling, Inc (DO.N, $54.49) Diana Shipping (DSX.N, $13.1) Discover Financial Services (DFS.N, $53.29) Dollar General (DG.N, $58.67) E.I. du Pont de Nemours and Company (DD.N, $63.73) EMC Corp (EMC.N, $26.33) Echelon (ELON.OQ, $2.93) Entergy Corporation (ETR.N, $61.99) Equifax Inc (EFX.N, $70.27) Estee Lauder Companies Inc (EL.N, $72.18) Esterline Technologies (ESL.N, $108.61) Evogene Ltd. (EVGN.N, $18.8) Exelixis (EXEL.OQ, $8.24) Expedia (EXPE.OQ, $67.67) Express Scripts Inc. (ESRX.OQ, $74.6) ExxonMobil Corporation (XOM.N, $98.5) FMC Corporation (FMC.N, $75.79) Fenner (FENR.L, 442.8p) Ferro (FOE.N, $13.19) First Republic Bank (FRC.N, $51.83) First Solar (FSLR.OQ, $51.81) Flowserve Corp. (FLS.N, $76.7) Foot Locker, Inc. (FL.N, $38.71) Forbo (FORN.S, SFr764.5) Forest Laboratories Inc. (FRX.N, $68.0) Fresenius (FREG.DE, €117.9) GDF Suez (GSZ.PA, €17.06) GKN (GKN.L, 400.0p) Gaming and Leisure Properties, Inc. (GLPI.OQ, $36.32) General Dynamics Corporation (GD.N, $95.3) General Electric (GE.N, $26.29) Gerresheimer AG (GXIG.DE, €53.74) Gilead Sciences Inc. (GILD.OQ, $81.58) Gjensidige Forsikring ASA (GJFS.OL, Nkr121.1) Glencore Xstrata PLC (GLEN.L, 333.7p) Global Payments, Inc. (GPN.N, $68.84) Globaltrans (GLTRq.L, $14.9) Gray Television (GTN.N, $11.2) Green Plains Renewable Energy (GPRE.OQ, $22.11) Halma (HLMA.L, 617.5p) Hancock Holding Company (HBHC.OQ, $37.15) Hartford Financial Services (HIG.N, $35.03) Havas (EURC.PA, €6.045) Hays (HAYS.L, 138.1p) Health Net Inc. (HNT.N, $33.24) Henkel (HNKG_p.F, €84.6) Hewlett Packard (HPQ.N, $29.9) Hexcel Corporation (HXL.N, $45.5) Hillshire Brands (HSH.N, $34.3) Holly Frontier Corp. (HFC.N, $48.78) Humana Inc. (HUM.N, $95.66) IMI Plc (IMI.L, 1538.0p) ITV (ITV.L, 204.6p) Iberdrola (IBE.MC, €4.63) Iliad (ILD.PA, €166.65) Illinois Tool Works, Inc. (ITW.N, $83.03) Imagination Technologies (IMG.L, 199.8p) Imperial Tobacco (IMT.L, 2284.0p) Informatica (INFA.OQ, $42.55) Intel Corp. (INTC.OQ, $25.59) International Business Machines Corp. (IBM.N, $188.43) Isle of Capri Casinos (ISLE.OQ, $7.75) Israel Chemicals (ICL.TA, agora3001.0) Italcementi (ITAI.MI, €7.15) JBS S.A. (JBSS3.SA, R$8.6) Jacobs Engineering (JEC.N, $66.06) Jive Software, Inc. (JIVE.OQ, $10.15) KABA (KABN.S, SFr434.0) KPN (KPN.AS, €2.68) Kellogg Company (K.N, $60.76) Kering (PRTP.PA, €152.55)
37
27 January 2014
Kforce Inc. (KFRC.OQ, $19.99) Kimber Resources (KBR.TO, C$0.15) Kingfisher (KGF.L, 385.4p) Kirin Holdings (2503.T, ¥1,456) Komax (KOMN.S, SFr149.2) Kroger Co. (KR.N, $36.59) Kudelski (KUD.S, SFr13.6) Kyoei Steel (5440.T, ¥2,017) L'Oreal (OREP.PA, €125.65) LIN Media (LIN.N, $24.17) LVMH (LVMH.PA, €129.0) Lab Corporation of America (LH.N, $91.27) Lam Research Corp. (LRCX.OQ, $54.45) Las Vegas Sands Corp. (LVS.N, $82.03) Legal & General (LGEN.L, 227.9p) Legrand SA (LEGD.PA, €40.6) Lincoln National Corp. (LNC.N, $51.35) LivePerson (LPSN.OQ, $14.7) Lockheed Martin (LMT.N, $154.1) London Mining Plc (LOND.L, 101.25p) Lonmin Plc (LMI.L, 316.4p) LyondellBasell Industries (LYB.N, $80.95) MS&AD Insurance Group Holdings (8725.T, ¥2,702) Mail.Ru (MAILRq.L, $42.44) Man Group (EMG.L, 86.2p) ManpowerGroup Inc. (MAN.N, $85.9) Mapfre SA (MAP.MC, €3.36) McDermott International (MDR.N, $9.12) McGraw Hill Financial Inc. (MHFI.N, $76.55) McKesson Corporation (MCK.N, $168.55) Mead Johnson Nutrition Co. (MJN.N, $82.28) Media General (MEG.N, $18.94) MercadoLibre Inc. (MELI.OQ, $105.06) Merck & Co., Inc. (MRK.N, $51.83) MetLife, Inc. (MET.N, $52.67) Metso (MEO1V.HE, €24.13) Micron Technology Inc. (MU.OQ, $23.12) Mitsubishi UFJ Financial Group (8306.T, ¥671) Mizuho Financial Group (8411.T, ¥232) Mohawk Industries (MHK.N, $146.23) Molina Healthcare Inc (MOH.N, $37.99) Mondi (MNDI.L, 993.0p) Moneysupermarket.com (MONY.L, 192.5p) Monsanto Company (MON.N, $113.5) Monster Beverage Corporation (MNST.OQ, $69.78) Morgan Advanced Materials (MGAMM.L, 325.0p) Mosaic Co. (MOS.N, $48.32) NKSJ Holdings (8630.T, ¥2,988) Nestle (NESN.VX, SFr68.65) NetApp (NTAP.OQ, $44.89) Nexans (NEXS.PA, €36.96) Nexstar Broadcasting Group (NXST.OQ, $46.04) Nobel Biocare (NOBN.S, SFr14.3) Nokia (NOK1V.HE, €5.78) Nordstrom (JWN.N, $59.66) Northern Tier Energy, LP (NTI.N, $26.2) Nuverra Environmental Solutions (NES.N, $14.78) OC Oerlikon Corp AG (OERL.S, SFr14.4) Omnicare Incorporated (OCR.N, $63.79) Open Text Corporation (OTEX.OQ, $90.98) Oracle Corporation (ORCL.N, $38.11) PPG Industries, Inc (PPG.N, $190.0) Paddy Power (PAP.I, €60.95) Pall Corporation (PLL.N, $83.66) Parker Hannifin Corporation (PH.N, $126.82) Penn Virginia Corp (PVA.N, $11.94) Pentair Ltd. (PNR.N, $77.75) Perform Group Plc (PER.L, 248.8p) PetSmart, Inc. (PETM.OQ, $63.78) Petrofac (PFC.L, 1248.0p) Pfizer (PFE.N, $31.23) Pinnacle Entertainment (PNK.N, $22.68) Platinum Underwriters (PTP.N, $58.17) Potash Corp - Saskatchewan (POT.N, $33.74) Precision Castparts (PCP.N, $270.31) Procter & Gamble Co. (PG.N, $80.18) Progressive Waste Solutions Ltd. (BIN.N, $23.62) Prudential (PRU.L, 1333.0p) Prudential Financial, Inc. (PRU.N, $90.13) Publicis (PUBP.PA, €67.44) QIWI plc (QIWI.OQ, $40.01) RPM International (RPM.N, $42.46) RSA Insurance Group (RSA.L, 102.2p) RTL (RRTL.DE, €93.83)
Global Equity Strategy
Raytheon Company (RTN.N, $91.53) Reckitt Benckiser (RB.L, 4754.0p) Regal Beloit (RBC.N, $79.36) Regal Entertainment Group (RGC.N, $19.87) Regeneron Pharmaceutical (REGN.OQ, $295.7) Republic Services (RSG.N, $32.27) ResMed Inc. (RMD.AX, A$5.09) Robert Half International Inc. (RHI.N, $41.82) Rockwell Automation (ROK.N, $119.83) Rockwood Holdings Inc. (ROC.N, $72.61) Ross Stores (ROST.OQ, $70.42) Rotork plc (ROR.L, 2688.0p) SAP (SAP.N, $81.41) SEACOR Holdings (CKH.N, $87.31) SUPERVALU INC. (SVU.N, $6.27) Safeway Inc. (SWY.N, $32.0) Sage Group (SGE.L, 413.1p) Salmat (SLM.AX, A$2.07) Salvatore Ferragamo SpA (SFER.MI, €24.57) Sampo PLC (SAMAS.HE, €35.37) SanDisk Corp. (SNDK.OQ, $71.89) Shanks Group PLC (SKS.L, 118.5p) Sherwin-Williams Company (SHW.N, $198.03) Siemens (SIEGn.DE, €99.97) Sinclair Broadcast Group, Inc (SBGI.OQ, $31.18) Sirona Dental Systems (SIRO.OQ, $70.65) Sky Deutschland AG (SKYDn.DE, €7.13) Smith & Nephew (SN.L, 881.5p) Sonova Holding (SOON.VX, SFr123.6) Soquimich (SQM.N, $27.55) Southern Copper Corporation (SCCO.N, $28.88) Spectris (SXS.L, 2384.0p) Springleaf Holdings (LEAF.N, $25.31) Sprint Corp (S.N, $9.04) Stanley Black & Decker, Inc. (SWK.N, $81.0) Staples (SPLS.OQ, $13.63) Starwood Hotels & Resorts Worldwide (HOT.N, $78.91) Stratasys (SSYS.OQ, $123.45) Straumann (STMN.S, SFr186.9) Sumitomo Mitsui Financial Group (8316.T, ¥5,284) SunCoke Energy Partners, L.P. (SXCP.N, $27.17) Susquehanna Bancshares, Inc. (SUSQ.OQ, $12.97) Swatch Group (UHR.VX, SFr559.0) Swift Energy Co. (SFY.N, $12.95) Symantec Corporation (SYMC.OQ, $23.3) T-Mobile US Inc (TMUS.N, $33.17) TUI Travel Plc (TT.L, 423.8p) Take-Two Interactive Software Inc. (TTWO.OQ, $17.39) Target Corporation (TGT.N, $59.2) Tate & Lyle (TATE.L, 792.0p) Tecan (TECN.S, SFr105.4) Tele2 AB (TEL2b.ST, Skr74.55) Telecom Italia (TLIT.MI, €0.84) Terex Corporation (TEX.N, $42.36) Ternium (TX.N, $31.0) Texas Capital Bancshares Inc. (TCBI.OQ, $63.4) The Bon-Ton Stores, Inc. (BONT.OQ, $11.44) The Coca-Cola Company (KO.N, $39.92) The Directv Group Inc (DTV.OQ, $72.71) The Hershey Company (HSY.N, $98.75) The TJX Companies, Inc. (TJX.N, $60.21) The Ultimate Software Group, Inc. (ULTI.OQ, $157.45) The Whitewave Foods Company (WWAV.N, $24.51) Thyssen Krupp AG (TKAG.F, €18.73) Tieto (TIE1V.HE, €17.09) Time Warner, Inc (TWX.N, $64.55) Tod's Spa (TOD.MI, €114.6) Tokio Marine Holdings (8766.T, ¥3,303) Tumi Holdings (TUMI.N, $20.92) Tyco International, Ltd (TYC.N, $41.37) Tyson Foods (TSN.N, $34.99) UBM plc (UBM.L, 719.0p) Unilever (UNc.AS, €29.49) Unilever (ULVR.L, 2480.0p) Union Pacific (UNP.N, $168.12) United Health Group (UNH.N, $73.16) United States Steel Group (X.N, $26.68) United Technologies Corp (UTX.N, $114.99) VeriSign Inc. (VRSN.OQ, $61.96) Verizon Communications Inc (VZ.N, $47.7) Vesuvius (VSVS.L, 466.3p) Viacom (VIAB.OQ, $82.55) Vodafone Group (VOD.L, 237.7p) Voestalpine (VOES.VI, €35.85)
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WPP (WPP.L, 1350.0p) Wal-Mart Stores, Inc. (WMT.N, $75.84) Waste Connections (WCN.N, $41.45) Weir Group (WEIR.L, 2174.0p) Whitbread (WTB.L, 3926.0p) Wood Group (WG.L, 664.5p)
World Fuel Svc (INT.N, $44.77) WuXi PharmaTech (WX.N, $36.5) XenoPort (XNPT.OQ, $6.38) Xilinx (XLNX.OQ, $47.54) Zimmer Holdings (ZMH.N, $96.45)
Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less at tractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Eur opean ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Austr alia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An an alyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy* 43% (54% banking clients) Neutral/Hold* 41% (48% banking clients) Underperform/Sell* 14% (43% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, cur rent holdings, and other individual factors.
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Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names
The subject company (UBM.L, IMI.L, ALUA.PA, BRBY.L, EMG.L, IMT.L, SOON.VX, KFRC.OQ, ASSAb.ST, GXIG.DE, HLMA.L, COVS.OQ, COTY.N, ASBC.OQ, MAP.MC, MONY.L, NESN.VX, AXAF.PA, CNQR.OQ, TKAG.F, CINF.OQ, BNNY.N, SUSQ.OQ, CLN.VX, ALVG.DE, KPN.AS, 8750.T, ITV.L, LGEN.L, LPSN.OQ, BEIG.DE, SKYDn.DE, ABBN.VX, BASFn.DE, DFS.N, ESRX.OQ, TMUS.N, JIVE.OQ, OTEX.OQ, SN.L, GLPI.OQ, SIEGn.DE, CELG.OQ, WWAV.N, NOK1V.HE, BIIB.OQ, FREG.DE, ISLE.OQ, PRU.L, WEIR.L, UNH.N, GJFS.OL, SAMAS.HE, AMGN.OQ, NOBN.S, GLEN.L, PRTP.PA, LVMH.PA, AGES.BR, HUM.N, INFA.OQ, BYD.N, HIG.N, PRU.N, 2502.T, 2503.T, CYT.N, POT.N, ADT.N, POP.MC, 8306.T, 8316.T, 8411.T, 8766.T, AHL.N, ABC.N, ACE.N, AGNC.OQ, ALLE.N, AGU.N, AXP.N, BHP.AX, BIN.N, CAH.N, CB.N, CI.N, WMT.N, CIT.N, CLF.N, CPB.N, DD.N, DG.N, DHR.N, DISH.OQ, EL.N, EVGN.N, FLS.N, FOE.N, FRC.N, FRX.N, GE.N, GILD.OQ, HXL.N, IBM.N, JBSS3.SA, K.N, KO.N, KR.N, LEAF.N, LNC.N, MCK.N, MDR.N, MET.N, MMM.N, MON.N, NXST.OQ, PG.N, PPG.N, PTP.N, RGC.N, ROC.N, RSG.N, S.N, SWK.N, TCBI.OQ, TSN.N, UTX.N, VZ.N, SVU.N, LMT.N, MAILRq.L, DE.N, LH.N, VIAB.OQ, FORN.S, CHTR.OQ, ADS.N, AOL.N, GPRE.OQ, XNPT.OQ, NTI.N, DVN.N, ADM.N, BONT.OQ, JWN.N, RTN.N, LVS.N, SCCO.N, AGN.N, AMAT.OQ, ATLN.VX, TX.N, CYOU.OQ, TLIT.MI, SFY.N, AAPL.OQ, ADP.OQ, TWX.N, HOT.N, ZMH.N, HPQ.N, BRCM.OQ, KGF.L, CSX.N, INTC.OQ, ESL.N, AET.N, LRCX.OQ, XOM.N, MU.OQ, GD.N, XLNX.OQ, AMKR.OQ, UNP.N, JEC.N, ALPH.S, ADEN.VX, SYMC.OQ, CDXS.OQ, BAX.N, MEO1V.HE, BHI.N, CMCSA.OQ, CPA.N, SXCP.N, X.N, VRSN.OQ, TATE.L, MELI.OQ, MRK.N, PFE.N, CTXS.OQ, CHKP.OQ, CRK.N, REGN.OQ, FL.N, NTAP.OQ, TEX.N, GSZ.PA, BT.L, MHFI.N, DTV.OQ, TUMI.N, PVA.N, CWD.L, TJX.N, BBY.N, KUD.S, CAT.N, EMC.N, MJN.N, DO.N, IBE.MC, INT.N, SWY.N, ANAD.OQ, CTCT.OQ, HSY.N, ITW.N, CKH.N, BETF.L, SBGI.OQ, LYB.N, ELON.OQ, QIWI.OQ, FSLR.OQ, ORCL.N, RBC.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (UBM.L, ALUA.PA, IMT.L, SOON.VX, ASSAb.ST, GXIG.DE, COVS.OQ, MONY.L, NESN.VX, AXAF.PA, CNQR.OQ, BNNY.N, ALVG.DE, KPN.AS, ITV.L, SKYDn.DE, ABBN.VX, BASFn.DE, DFS.N, TMUS.N, SIEGn.DE, CELG.OQ, WWAV.N, NOK1V.HE, BIIB.OQ, FREG.DE, ISLE.OQ, UNH.N, AMGN.OQ, GLEN.L, PRTP.PA, HUM.N, BYD.N, HIG.N, PRU.N, ADT.N, POP.MC, 8306.T, 8316.T, 8411.T, AGNC.OQ, ALLE.N, AXP.N, WMT.N, CIT.N, CPB.N, DD.N, EVGN.N, FRX.N, GE.N, IBM.N, JBSS3.SA, KO.N, LEAF.N, LNC.N, MCK.N, MET.N, NXST.OQ, PG.N, PPG.N, RGC.N, S.N, SWK.N, VZ.N, SVU.N, MAILRq.L, DE.N, LH.N, CHTR.OQ, ADS.N, AOL.N, NTI.N, DVN.N, BONT.OQ, RTN.N, LVS.N, SCCO.N, CYOU.OQ, TLIT.MI, TWX.N, ZMH.N, HPQ.N, CSX.N, INTC.OQ, AET.N, XOM.N, MU.OQ, GD.N, AMKR.OQ, UNP.N, ALPH.S, BAX.N, CMCSA.OQ, SXCP.N, MRK.N, PFE.N, TEX.N, BT.L, DTV.OQ, TUMI.N, PVA.N, CWD.L, BBY.N, EMC.N, MJN.N, DO.N, INT.N, SWY.N, ANAD.OQ, LYB.N, QIWI.OQ, FSLR.OQ, ORCL.N, RBC.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (IMI.L, EMG.L, IMT.L, SOON.VX, GXIG.DE, ASBC.OQ, MAP.MC, NESN.VX, AXAF.PA, TKAG.F, CINF.OQ, SUSQ.OQ, CLN.VX, ALVG.DE, 8750.T, ITV.L, LGEN.L, ABBN.VX, BASFn.DE, DFS.N, ESRX.OQ, SIEGn.DE, CELG.OQ, NOK1V.HE, BIIB.OQ, ISLE.OQ, PRU.L, GJFS.OL, SAMAS.HE, AMGN.OQ, NOBN.S, GLEN.L, LVMH.PA, AGES.BR, HUM.N, HIG.N, PRU.N, POT.N, POP.MC, 8306.T, 8316.T, 8411.T, 8766.T, ABC.N, ACE.N, AGNC.OQ, AXP.N, BHP.AX, CAH.N, CB.N, CI.N, WMT.N, CIT.N, CPB.N, DD.N, EL.N, FRC.N, FRX.N, GE.N, GILD.OQ, IBM.N, KO.N, KR.N, LEAF.N, LNC.N, MET.N, MMM.N, NXST.OQ, PG.N, PPG.N, RGC.N, RSG.N, S.N, SWK.N, TCBI.OQ, TSN.N, VZ.N, LMT.N, DE.N, VIAB.OQ, CHTR.OQ, ADS.N, DVN.N, ADM.N, JWN.N, RTN.N, LVS.N, SCCO.N, ATLN.VX, TLIT.MI, AAPL.OQ, ADP.OQ, HOT.N, ZMH.N, HPQ.N, BRCM.OQ, CSX.N, INTC.OQ, AET.N, LRCX.OQ, XOM.N, MU.OQ, XLNX.OQ, ADEN.VX, BAX.N, BHI.N, CMCSA.OQ, SXCP.N, X.N, VRSN.OQ, TATE.L, MRK.N, PFE.N, CHKP.OQ, REGN.OQ, TEX.N, GSZ.PA, BT.L, MHFI.N, BBY.N, KUD.S, EMC.N, IBE.MC, SWY.N, BETF.L, LYB.N, FSLR.OQ) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (ALUA.PA, COVS.OQ, MONY.L, NESN.VX, CNQR.OQ, KPN.AS, BASFn.DE, DFS.N, TMUS.N, SIEGn.DE, WWAV.N, ISLE.OQ, UNH.N, GLEN.L, BYD.N, HIG.N, PRU.N, POP.MC, 8306.T, 8411.T, AGNC.OQ, AXP.N, WMT.N, CIT.N, DD.N, EVGN.N, FRX.N, GE.N, IBM.N, KO.N, LEAF.N, LNC.N, MET.N, NXST.OQ, PG.N, RGC.N, S.N, SWK.N, VZ.N, SVU.N, DE.N, LH.N, CHTR.OQ, AOL.N, NTI.N, DVN.N, BONT.OQ, TWX.N, CSX.N, AET.N, XOM.N, AMKR.OQ, UNP.N, ALPH.S, BAX.N, SXCP.N, MRK.N, PFE.N, DTV.OQ, TUMI.N, PVA.N, CWD.L, BBY.N, EMC.N, SWY.N, QIWI.OQ, FSLR.OQ, ORCL.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (UBM.L, ALUA.PA, IMT.L, SOON.VX, ASSAb.ST, GXIG.DE, COVS.OQ, MONY.L, NESN.VX, AXAF.PA, CNQR.OQ, BNNY.N, ALVG.DE, KPN.AS, ITV.L, SKYDn.DE, ABBN.VX, BASFn.DE, DFS.N, TMUS.N, SIEGn.DE, CELG.OQ, WWAV.N, NOK1V.HE, BIIB.OQ, FREG.DE, ISLE.OQ, UNH.N, AMGN.OQ, GLEN.L, PRTP.PA, HUM.N, BYD.N, HIG.N, PRU.N, ADT.N, POP.MC, 8306.T, 8316.T, 8411.T, AGNC.OQ, ALLE.N, AXP.N, WMT.N, CIT.N, CPB.N, DD.N, EVGN.N, FRX.N, GE.N, IBM.N, JBSS3.SA, KO.N, LEAF.N, LNC.N, MCK.N, MET.N, NXST.OQ, PG.N, PPG.N, RGC.N, S.N, SWK.N, VZ.N, SVU.N, MAILRq.L, DE.N, LH.N, CHTR.OQ, ADS.N, AOL.N, NTI.N, DVN.N, BONT.OQ, RTN.N, LVS.N, SCCO.N, CYOU.OQ, TLIT.MI, TWX.N, ZMH.N, HPQ.N, CSX.N, INTC.OQ, AET.N, XOM.N, MU.OQ, GD.N, AMKR.OQ, UNP.N, ALPH.S, BAX.N, CMCSA.OQ, SXCP.N, MRK.N, PFE.N, TEX.N, BT.L, DTV.OQ, TUMI.N,
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PVA.N, CWD.L, BBY.N, EMC.N, MJN.N, DO.N, INT.N, SWY.N, ANAD.OQ, LYB.N, QIWI.OQ, FSLR.OQ, ORCL.N, RBC.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (UBM.L, IMI.L, ALUA.PA, BRBY.L, AKE.PA, IMT.L, SXS.L, SOON.VX, KFRC.OQ, ASSAb.ST, GXIG.DE, PNK.N, HLMA.L, COVS.OQ, COTY.N, ASBC.OQ, MONY.L, NESN.VX, AXAF.PA, CNQR.OQ, TKAG.F, CINF.OQ, BNNY.N, SUSQ.OQ, CLN.VX, ALVG.DE, KPN.AS, 8750.T, ITV.L, LGEN.L, LPSN.OQ, BEIG.DE, SKYDn.DE, ABBN.VX, HBHC.OQ, BASFn.DE, DFS.N, TMUS.N, JIVE.OQ, OTEX.OQ, SN.L, GLPI.OQ, SIEGn.DE, CELG.OQ, WWAV.N, CKEC.OQ, NOK1V.HE, BIIB.OQ, FREG.DE, ISLE.OQ, PRU.L, WEIR.L, UNH.N, GJFS.OL, AMGN.OQ, GLEN.L, PRTP.PA, MHK.N, LVMH.PA, HUM.N, INFA.OQ, BYD.N, HIG.N, PRU.N, 2502.T, 2503.T, 2802.T, CYT.N, POT.N, ADT.N, POP.MC, 8306.T, 8316.T, CNC.N, 8411.T, 8630.T, 8766.T, AHL.N, ABC.N, AGNC.OQ, ALLE.N, AGU.N, AXP.N, BHP.AX, CAH.N, CB.N, CI.N, WMT.N, CIT.N, CLF.N, CPB.N, DD.N, DHR.N, DISH.OQ, EVGN.N, FLS.N, FMC.N, FOE.N, FRX.N, GE.N, GILD.OQ, GPN.N, HXL.N, IBM.N, JBSS3.SA, K.N, KO.N, KR.N, LEAF.N, LNC.N, MAN.N, MCK.N, MDR.N, MET.N, MMM.N, MOH.N, NXST.OQ, PG.N, PH.N, PLL.N, PPG.N, PTP.N, RGC.N, RHI.N, ROC.N, RPM.N, RSG.N, S.N, SHW.N, SWK.N, TCBI.OQ, TSN.N, UTX.N, VZ.N, WCN.N, SVU.N, MNDI.L, LMT.N, MAILRq.L, DE.N, LH.N, VIAB.OQ, FORN.S, CHTR.OQ, ADS.N, AOL.N, PUBP.PA, GPRE.OQ, XNPT.OQ, NTI.N, DVN.N, ADM.N, BONT.OQ, JWN.N, RTN.N, LVS.N, SCCO.N, NEXS.PA, AGN.N, AMAT.OQ, CYOU.OQ, TLIT.MI, SFY.N, TGT.N, AAPL.OQ, ADP.OQ, TWX.N, ZMH.N, HPQ.N, ILD.PA, BRCM.OQ, KGF.L, CSX.N, APA.N, INTC.OQ, ESL.N, CMI.N, PCP.N, AET.N, LRCX.OQ, XOM.N, MU.OQ, GD.N, XLNX.OQ, AMKR.OQ, OERL.S, UNP.N, JEC.N, ALPH.S, SYMC.OQ, CDXS.OQ, BAX.N, MEO1V.HE, CTAS.OQ, BHI.N, CMCSA.OQ, SNDK.OQ, CPA.N, SXCP.N, X.N, VRSN.OQ, SPLS.OQ, VOES.VI, TATE.L, MELI.OQ, MRK.N, PFE.N, CTXS.OQ, CHKP.OQ, CRK.N, REGN.OQ, FL.N, NTAP.OQ, ITAI.MI, TEX.N, GSZ.PA, ETR.N, GKN.L, BT.L, DTV.OQ, TUMI.N, PVA.N, CWD.L, TJX.N, BBY.N, KUD.S, CAT.N, EMC.N, MJN.N, DO.N, INT.N, SWY.N, BKS.N, ANAD.OQ, SIRO.OQ, CTCT.OQ, HSY.N, ITW.N, EXEL.OQ, CKH.N, BETF.L, TT.L, SBGI.OQ, LYB.N, ELON.OQ, QIWI.OQ, FSLR.OQ, ORCL.N, RBC.N) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (IMI.L, EMG.L, IMT.L, SOON.VX, GXIG.DE, ASBC.OQ, MAP.MC, NESN.VX, AXAF.PA, TKAG.F, CINF.OQ, SUSQ.OQ, CLN.VX, ALVG.DE, 8750.T, ITV.L, LGEN.L, ABBN.VX, BASFn.DE, DFS.N, ESRX.OQ, SIEGn.DE, CELG.OQ, NOK1V.HE, BIIB.OQ, ISLE.OQ, PRU.L, GJFS.OL, SAMAS.HE, AMGN.OQ, NOBN.S, GLEN.L, LVMH.PA, AGES.BR, HUM.N, HIG.N, PRU.N, POT.N, POP.MC, 8306.T, 8316.T, 8411.T, 8766.T, ABC.N, ACE.N, AGNC.OQ, AXP.N, BHP.AX, CAH.N, CB.N, CI.N, WMT.N, CIT.N, CPB.N, DD.N, EL.N, FRC.N, FRX.N, GE.N, GILD.OQ, IBM.N, KO.N, KR.N, LEAF.N, LNC.N, MET.N, MMM.N, NXST.OQ, PG.N, PPG.N, RGC.N, RSG.N, S.N, SWK.N, TCBI.OQ, TSN.N, VZ.N, LMT.N, DE.N, VIAB.OQ, CHTR.OQ, ADS.N, DVN.N, ADM.N, JWN.N, RTN.N, LVS.N, SCCO.N, ATLN.VX, TLIT.MI, AAPL.OQ, ADP.OQ, HOT.N, ZMH.N, HPQ.N, BRCM.OQ, CSX.N, INTC.OQ, AET.N, LRCX.OQ, XOM.N, MU.OQ, XLNX.OQ, ADEN.VX, BAX.N, BHI.N, CMCSA.OQ, SXCP.N, X.N, VRSN.OQ, TATE.L, MRK.N, PFE.N, CHKP.OQ, REGN.OQ, TEX.N, GSZ.PA, BT.L, MHFI.N, BBY.N, KUD.S, EMC.N, IBE.MC, SWY.N, BETF.L, LYB.N, FSLR.OQ) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (MNST.OQ, KFRC.OQ, PNK.N, SSYS.OQ, COVS.OQ, COTY.N, ASBC.OQ, BKU.N, CNQR.OQ, CINF.OQ, BNNY.N, SUSQ.OQ, LPSN.OQ, HBHC.OQ, DFS.N, ESRX.OQ, TMUS.N, JIVE.OQ, OTEX.OQ, GLPI.OQ, CELG.OQ, WWAV.N, CKEC.OQ, BIIB.OQ, ISLE.OQ, UNH.N, AMGN.OQ, MHK.N, ULTI.OQ, HSH.N, MOS.N, HUM.N, INFA.OQ, CNK.N, BYD.N, TYC.N, HIG.N, PRU.N, CYT.N, POT.N, ADT.N, 8306.T, CNC.N, AHL.N, ABC.N, ACE.N, AGNC.OQ, ALLE.N, AGU.N, AXP.N, BIN.N, CAH.N, CB.N, CI.N, WMT.N, CIT.N, CLF.N, CPB.N, DD.N, DG.N, DHR.N, DISH.OQ, EL.N, EVGN.N, FLS.N, FMC.N, FOE.N, FRC.N, FRX.N, GE.N, GILD.OQ, GPN.N, HNT.N, HXL.N, IBM.N, K.N, KO.N, KR.N, LEAF.N, LNC.N, MAN.N, MCK.N, MDR.N, MET.N, MMM.N, MOH.N, MON.N, NES.N, NXST.OQ, OCR.N, PG.N, PH.N, PLL.N, PNR.N, PPG.N, PTP.N, RGC.N, RHI.N, ROC.N, RPM.N, RSG.N, S.N, SHW.N, SQM.N, SWK.N, TCBI.OQ, TSN.N, UTX.N, VZ.N, WCN.N, SVU.N, LMT.N, DE.N, LH.N, VIAB.OQ, CHTR.OQ, ADS.N, AOL.N, DK.N, PETM.OQ, GPRE.OQ, XNPT.OQ, NTI.N, EFX.N, DVN.N, ADM.N, BONT.OQ, JWN.N, RTN.N, LVS.N, SCCO.N, HFC.N, AGN.N, AMAT.OQ, TX.N, CYOU.OQ, SFY.N, TGT.N, AAPL.OQ, ADP.OQ, TWX.N, HOT.N, ZMH.N, HPQ.N, WX.N, BRCM.OQ, CSX.N, APA.N, INTC.OQ, ESL.N, CMI.N, PCP.N, AET.N, ROST.OQ, TTWO.OQ, LRCX.OQ, XOM.N, MU.OQ, GD.N, XLNX.OQ, AMKR.OQ, UNP.N, JEC.N, SYMC.OQ, EXPE.OQ, CDXS.OQ, BAX.N, CTAS.OQ, BHI.N, CMCSA.OQ, SNDK.OQ, CPA.N, SXCP.N, X.N, VRSN.OQ, SPLS.OQ, MELI.OQ, MRK.N, PFE.N, CTXS.OQ, CHKP.OQ, AVGO.OQ, CRK.N, REGN.OQ, FL.N, NTAP.OQ, TEX.N, ETR.N, DSX.N, MHFI.N, DTV.OQ, TUMI.N, PVA.N, TJX.N, ROK.N, BBY.N, CAT.N, EMC.N, MJN.N, DO.N, INT.N, SWY.N, BKS.N, ANAD.OQ, SIRO.OQ, CTCT.OQ, HSY.N, ITW.N, EXEL.OQ, CKH.N, SBGI.OQ, LYB.N, ELON.OQ, QIWI.OQ, FSLR.OQ, ORCL.N, RBC.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (SOON.VX, NESN.VX, LOND.L, CLN.VX, VOD.L, ITV.L, ABBN.VX, BASFn.DE, GLPI.OQ, SIEGn.DE, NOK1V.HE, UNH.N, NOBN.S, CLF.N, FMC.N, SWK.N, MNDI.L, FORN.S, PUBP.PA, ATLN.VX, ILD.PA, MU.OQ, OERL.S, ADEN.VX, X.N, BT.L, PVA.N, CWD.L, ARM.L, KUD.S, PAP.I, WG.L). Credit Suisse has a material conflict of interest with the subject company (TMUS.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to MetroPCS Communications Inc on the announced proposed merger with Deutsche Telekom. Credit Suisse has a material conflict of interest with the subject company (GLEN.L) . Credit Suisse Securities (Europe) Limited is acting as financial advisor in connection with the GlencoreXstrata sale of its interest in the Las Bambas copper mine project in Peru. Credit Suisse has a material conflict of interest with the subject company (BYD.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Peninsula Gaming LLC on the announced acquisition by Boyd Gaming Corp. Credit Suisse has a material conflict of interest with the subject company (2502.T) . Credit Suisse Securities (Japan) Limited is a financial advisor to Asahi Group Holdings ("Asahi") with respect to a transaction involving the minority investment onto Tingyi-Asahi Beverages Holding Co., Ltd ("TAB") by PepsiCo, Inc. ("Pepsi") in exchange for the shares of PepsiCo's bottling companies in China. Credit Suisse has a material conflict of interest with the subject company (CPB.N) . Credit Suisse Securities (USA) LLC acted as financial advisor to Bolthouse Holding Corp in connection with the announced sale of the company to Campbell Soup Company.
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Credit Suisse has a material conflict of interest with the subject company (DD.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Ei du Pont de Nemours & Co in connection with the announced sale of the DuPont Performance Coatings business to the Carlyle Group. Credit Suisse has a material conflict of interest with the subject company (DISH.OQ) . . Credit Suisse has a material conflict of interest with the subject company (GILD.OQ) . A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of GILD. Credit Suisse has a material conflict of interest with the subject company (MMM.N) . Credit Suisse Securities (USA) LLC is acting as financial advisor to 3M on the proposed acquisition of Ceradyne, Inc. Credit Suisse has a material conflict of interest with the subject company (S.N) . Credit Suisse acted as financial advisor to a shareholder of Clearwire in connection with the announced proposed acquisition of Clearwire by Sprint. Credit Suisse has a material conflict of interest with the subject company (UTX.N) . Credit Suisse Securities (USA) LLC is acting as an advisor to Goodrich (GR) in a potential transaction with United Technologies Corp. Credit Suisse has a material conflict of interest with the subject company (SVU.N) . Credit Suisse, along with certain other financial institutions, agreed to arrange the financing in connection with the acquisition of certain assets of Supervalu Inc. by Cerberus Capital Management L.P. Credit Suisse has a material conflict of interest with the subject company (CHTR.OQ) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Charter Communications, Inc. in connection with their announced acquisition of Bresnan Broadband Holdings, LLC, a subsidiary of Cablevision Systems Corporation. Credit Suisse has a material conflict of interest with the subject company (ADM.N) . Credit Suisse is the financial advisor to GrainCorp Limited in relation to the proposed acquisition offer by Archer Daniels Midland Inc. Credit Suisse has a material conflict of interest with the subject company (SCCO.N) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report Credit Suisse has a material conflict of interest with the subject company (AMAT.OQ) . A member of the analyst's team received compensation from the subject company (AMAT) within the past 12 months. Credit Suisse Securities (USA) LLC is acting as an advisor to Varian Semiconductor Equipment Associates (VSEA) in a potential transaction with Applied Materials, Inc. (AMAT) Credit Suisse has a material conflict of interest with the subject company (TX.N) . The analyst Ivano Westin has a relationship with a natural person who may provide remunerated services to one or more of the companies covered in this report Credit Suisse has a material conflict of interest with the subject company (CMCSA.OQ) . An analyst or a member of the analyst's household has a long position in the common stock of Comcast. Credit Suisse has a material conflict of interest with the subject company (WG.L) . Credit Suisse Securities (Europe) Limited acts as broker to WG.L. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PG.N). An analyst or a member of the analyst's household has a long position in the common stock of (PG). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (TCBI.OQ). An analyst or a member of the analyst's household has a long position in the common stock of TCBI. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PFE.N). As of the date of this report, an analyst involved in the preparation of this report, Vamil Divan, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in the common stock Pfizer (PFE.N). A member of the analyst's household is an employee of Pfizer (PFE.N). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PFE.N). As of the date of this report, an analyst involved in the preparation of this report, Ronak Shah, has the following material conflict of interest with the subject company. The analyst has a long position in the common stock Pfizer (PFE.N). As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (ORCL.N). As of the date of this report, an analyst involved in the preparation of this report, Sitikantha Panigrahi, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in call options of Oracle Corporation (ORCL.N).
Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (STMN.S, SKS.L, UBM.L, FENR.L, IMG.L, MGAMM.L, TOD.MI, IMI.L, ALUA.PA, BRBY.L, SGE.L, AKE.PA, EMG.L, IMT.L, ROR.L, SXS.L, SOON.VX, TEL2b.ST, MNST.OQ, KFRC.OQ, ASSAb.ST, GXIG.DE, PNK.N, HLMA.L, SSYS.OQ, COVS.OQ, COTY.N, ASBC.OQ, MAP.MC, LEGD.PA, MONY.L, NESN.VX, AXAF.PA, UNc.AS, UHR.VX, CNQR.OQ, TKAG.F, CINF.OQ, BNNY.N, LOND.L, CLN.VX, ULVR.L, ALVG.DE, KPN.AS, 8750.T, VOD.L, ITV.L, LGEN.L, LPSN.OQ, BEIG.DE, SKYDn.DE, ABBN.VX, RB.L, OREP.PA, BASFn.DE, DFS.N, ESRX.OQ, PER.L, TMUS.N, HNKG_p.F, TECN.S, JIVE.OQ, OTEX.OQ, WPP.L, SN.L, GLPI.OQ, SIEGn.DE, CELG.OQ, WWAV.N, SFER.MI, NOK1V.HE, VSVS.L, BIIB.OQ, FREG.DE, ISLE.OQ, PRU.L,
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WEIR.L, UNH.N, GJFS.OL, SAMAS.HE, RSA.L, CFR.VX, AMGN.OQ, NOBN.S, GLEN.L, PRTP.PA, LVMH.PA, AGES.BR, ICL.TA, ULTI.OQ, HSH.N, MOS.N, HUM.N, INFA.OQ, CNK.N, BYD.N, TYC.N, HIG.N, PRU.N, 2502.T, 2503.T, 2802.T, 5440.T, CYT.N, POT.N, ADT.N, POP.MC, 8306.T, 8316.T, CNC.N, 8411.T, 8630.T, 8725.T, 8766.T, AHL.N, ABC.N, ACE.N, AGNC.OQ, ALLE.N, AGU.N, AXP.N, BHP.AX, BIN.N, BRKM5.SA, CAH.N, CB.N, CI.N, WMT.N, CLF.N, CPB.N, DD.N, DG.N, DHR.N, DISH.OQ, EL.N, EVGN.N, FLS.N, FMC.N, FOE.N, FRX.N, GE.N, GILD.OQ, GPN.N, HNT.N, HXL.N, IBM.N, JBSS3.SA, K.N, KO.N, KR.N, LEAF.N, LNC.N, MAN.N, MCK.N, MDR.N, MMM.N, MOH.N, MON.N, NES.N, NXST.OQ, OCR.N, PG.N, PG.N, PH.N, PLL.N, PNR.N, PPG.N, PTP.N, RGC.N, RHI.N, ROC.N, RPM.N, RSG.N, S.N, SHW.N, SLM.AX, SQM.N, TCBI.OQ, TSN.N, UTX.N, VZ.N, WCN.N, SVU.N, MNDI.L, LMT.N, MAILRq.L, DE.N, LH.N, GLTRq.L, VIAB.OQ, FORN.S, CHTR.OQ, ADS.N, AOL.N, PUBP.PA, DK.N, PETM.OQ, GPRE.OQ, XNPT.OQ, NTI.N, EFX.N, DVN.N, ADM.N, BONT.OQ, JWN.N, RTN.N, LVS.N, SCCO.N, HFC.N, BOY.L, NEXS.PA, AGN.N, AMAT.OQ, ATLN.VX, TX.N, CYOU.OQ, TLIT.MI, SFY.N, TGT.N, AAPL.OQ, ADP.OQ, TWX.N, HOT.N, ZMH.N, HPQ.N, ILD.PA, WX.N, BRCM.OQ, KGF.L, CSX.N, APA.N, WTB.L, INTC.OQ, ESL.N, CMI.N, AMIq.L, PCP.N, LMI.L, AET.N, ROST.OQ, TTWO.OQ, LRCX.OQ, XOM.N, MU.OQ, GD.N, XLNX.OQ, AMKR.OQ, OERL.S, UNP.N, JEC.N, ALPH.S, ADEN.VX, SYMC.OQ, EXPE.OQ, CDXS.OQ, MEO1V.HE, CTAS.OQ, BHI.N, CMCSA.OQ, SNDK.OQ, CPA.N, SXCP.N, X.N, PFC.L, VRSN.OQ, SPLS.OQ, VOES.VI, TATE.L, MELI.OQ, MRK.N, PFE.N, PFE.N, PFE.N, RMD.AX, CTXS.OQ, CHKP.OQ, AVGO.OQ, CRK.N, REGN.OQ, FL.N, KABN.S, NTAP.OQ, ITAI.MI, TEX.N, GSZ.PA, ETR.N, DSX.N, GKN.L, BT.L, MHFI.N, DTV.OQ, TUMI.N, PVA.N, CWD.L, HAYS.L, TJX.N, ARM.L, ROK.N, BBY.N, TIE1V.HE, KUD.S, CAT.N, EMC.N, MJN.N, DO.N, IBE.MC, INT.N, SWY.N, BKS.N, ANAD.OQ, PAP.I, SIRO.OQ, RRTL.DE, CTCT.OQ, HSY.N, ITW.N, EXEL.OQ, CKH.N, BETF.L, TT.L, KOMN.S, SBGI.OQ, LYB.N, ELON.OQ, QIWI.OQ, WG.L, FSLR.OQ, ORCL.N, ORCL.N, RBC.N) within the past 12 months An analyst involved in the preparation of this report has visited certain material operations of the subject company (MHK.N, CIT.N, SWK.N, AAPL.OQ, BAX.N) within the past 12 months The travel expenses of the analyst in connection with such visits were not paid or reimbursed by the subject company, other than de minimus local travel expenses. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (UBM.L, FENR.L, EMG.L, IMT.L, HLMA.L, MONY.L, ITV.L, BOY.L, KGF.L, PAP.I, WG.L). The following disclosed European company/ies have estimates that comply with IFRS: (UBM.L, MGAMM.L, IMI.L, ALUA.PA, SGE.L, EMG.L, IMT.L, SOON.VX, TEL2b.ST, ASSAb.ST, HLMA.L, MAP.MC, LEGD.PA, NESN.VX, AXAF.PA, UNc.AS, TKAG.F, CLN.VX, ALVG.DE, KPN.AS, VOD.L, ITV.L, LGEN.L, BEIG.DE, SKYDn.DE, ABBN.VX, RB.L, OREP.PA, BASFn.DE, HNKG_p.F, WPP.L, SN.L, SIEGn.DE, NOK1V.HE, FREG.DE, PRU.L, WEIR.L, RSA.L, NOBN.S, PRTP.PA, AGES.BR, POP.MC, CAH.N, MMM.N, PUBP.PA, DK.N, BOY.L, ATLN.VX, TLIT.MI, ILD.PA, KGF.L, LMI.L, XOM.N, ADEN.VX, MEO1V.HE, PFC.L, VOES.VI, TATE.L, ITAI.MI, GSZ.PA, GKN.L, BT.L, HAYS.L, BBY.N, TIE1V.HE, KUD.S, IBE.MC, ANAD.OQ, WG.L). As of the end of the preceding month, the subject company (SWK.N) beneficially owned 5% or more of the total issued share capital of Credit Suisse Group. An analyst involved in the preparation of this report received third party benefits in connection with this research report from the subject company (HPQ.N) Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ALUA.PA, COVS.OQ, ASBC.OQ, MONY.L, NESN.VX, AXAF.PA, CNQR.OQ, CLN.VX, KPN.AS, ABBN.VX, BASFn.DE, DFS.N, ESRX.OQ, PER.L, TMUS.N, SIEGn.DE, WWAV.N, NOK1V.HE, FREG.DE, ISLE.OQ, PRU.L, UNH.N, AMGN.OQ, NOBN.S, GLEN.L, LVMH.PA, MOS.N, BYD.N, TYC.N, HIG.N, PRU.N, ADT.N, POP.MC, 8306.T, 8316.T, 8411.T, AGNC.OQ, AXP.N, BHP.AX, WMT.N, CIT.N, CPB.N, DD.N, EVGN.N, FRC.N, FRX.N, GE.N, GILD.OQ, IBM.N, KO.N, LEAF.N, LNC.N, MCK.N, MET.N, NES.N, NXST.OQ, PG.N, PPG.N, RGC.N, RSG.N, S.N, SWK.N, VZ.N, SVU.N, MAILRq.L, DE.N, LH.N, CHTR.OQ, ADS.N, AOL.N, XNPT.OQ, NTI.N, DVN.N, BONT.OQ, JWN.N, RTN.N, LVS.N, SCCO.N, ATLN.VX, TLIT.MI, SFY.N, TWX.N, HOT.N, HPQ.N, CSX.N, INTC.OQ, AET.N, XOM.N, GD.N, AMKR.OQ, OERL.S, UNP.N, ALPH.S, ADEN.VX, SYMC.OQ, BAX.N, CMCSA.OQ, SXCP.N, X.N, MRK.N, PFE.N, TEX.N, ETR.N, DTV.OQ, TUMI.N, PVA.N, CWD.L, BBY.N, EMC.N, DO.N, IBE.MC, SWY.N, EXEL.OQ, LYB.N, QIWI.OQ, WG.L, FSLR.OQ, ORCL.N, RBC.N) within the past 3 years. As of the end of the preceding month, Credit Suisse beneficially owned the following percentages of the voting rights of the subject companies: 3.0% or more of STMN.S As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the
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NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Securities (Europe) Limited. Andrew Garthwaite ; Marina Pronina ; Mark Richards ; Sebastian Raedler ; Robert Griffiths ; Nicolas Wylenzek
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