MARKET UPDATE India | Retail | Large Cap | 17-June-2013
Titan Industries Rules changed - still in pole position Investors’ concerns of regulatory overhang came true as new regulations to curb gold imports were introduced. However we think Titan has been oversold in the past 15 days (corrected -23%) on concerns that the business model will be disrupted by these recent regulatory changes. Though there is no denying these regulations will impact its financial model, Indian gold demand, Titan’s brand/retail format and front-end operating model all remain intact. The regulations will indeed remove the charm of negative working capital, and increase financing and hedging costs. Based on the limited information shared by management, we cut our FY14E/15E EPS 11/10% respectively, with ROE falling to 37%. This results in our FV falling from Rs350 to Rs300, but we think that the current uncertainty and disruption present a rare entry point into top notch business. Buy.
Rules changed – investors’ concerns come true To rein in an expanding current account deficit (CAD), on 4th June the RBI issued two points in a circular to curb gold import: 1) an extension of the restriction on import of gold on a consignment basis from banks to nominated agencies, premier and star trading houses; 2) all letters of credit to be opened by nominated banks/agencies for gold import only on a 100% cash margin basis. Titan management confirmed during an investor call that this means that from now on it would need to purchase gold on a cash basis and not on supplier credit.
Impact of new regulations During the investor call Titan management refrained from stating if the new regulations would have any financial impact immediately and mentioned it was exploring various credit/hedging options. Our analysis suggests Titan’s net working capital for FY14/15 will increase from 3% of sales to 22%, forcing the company to raise debt of c.Rs1bn in FY14 after exhausting its cash balance. Further, the company will have to pay finance charges on the funds raised and it will have to forfeit interest income. However, the company will still get a 1% VAT benefit under the direct import of 10 tons of gold (~Rs280m). Based on this assumption our FY14/FY15 EPS forecasts fall to INR 9.4/11.9 respectively.
GREEN
Accounting & corporate governance Franchise Strength
GREEN
Earnings Momentum
AMBER
BUY
33% upside
Fair Value
Rs300.00
Bloomberg ticker Share Price Market Capitalisation Free Float
TTAN IN Rs224.80 Rs189,764.28m 50%
INR m Y/E 31-Mar
2012A
2013A
2014E
2015E
Revenue EBITDA
88484 8363
101233 10125
122534 13144
150847 16507
EBIT
7907
9563
12489
15732
Net Income
6014
7253
8312
10556 11.9
EPS
6.8
8.2
9.4
DPS
2.0
2.9
3.3
4.2
16.5
22.2
28.3
36.0
2012A
2013A
2014E
2015E
26.1%
25.8%
25.8%
25.8%
EBITDA Margin
9%
10%
11%
11%
PAT Margin
7%
7%
7%
7%
ROE
48%
42%
37%
37%
PE (X) EV/EBIDTA (X)
33.2 21.3
27.5 17.6
24.0 13.6
18.9 10.8
Dividend Yeild
0.9%
1.3%
1.5%
1.9%
BVPS Y/E 31-Mar Gross Margin
Share Price Performance 160
140
120
100
80 Jul 2012
Aug 2012
Sep Oct 2012 2012
TTAN IN
Nov Dec 2012 2012
Jan 2013
Feb Mar 2013 2013
Apr 2013
May 2013
Jun 2013
vs BSE500 Index
Source: Espirito Santo Investment Bank Research, Company Data, Bloomberg
Our view These new regulations have changed the rules of the game for everyone in the sector, but we think Titan is much better placed than peers, be it in raising debt or managing gold volatility risk. Late last week we spoke with other members of the Titan management team, as well as other Industry players, which strengthened our view that supply side constrains won’t impact demand. In the short term, we expect accounting treatment (especially inventory) and hedging mechanism to be concerns for the company and investors, but we believe Titan’s proven business model will allow it to weather the current regulatory storm. In our view it has a rare combination of secular growth, good management and sustainable competitive advantage.
Valuation
Analysts
Titan is now trading at 24x FY14E EPS, a 16% discount to its 5 year average P/E and 38% discount to peak multiple, and well below FMCG consumption plays. Whilst return ratios have fallen, they remain high, and whilst we’ve cut our FV to Rs300 (from Rs350), this still implies 33% upside. Risks include further regulatory action (such as saving schemes ban, additional tax on gold purchase or reduction in purchase limit threshold for KYC norms).
Nitin Mathur +91 22 4315 6821
[email protected] Espirito Santo Securities India Private Limited Vivek Veda +91 22 4315 6817
[email protected] Espirito Santo Securities India Private Limited
FOR IMPORTANT DISCLOSURE INFORMATION, INCLUDING DISCLOSURES RELATED TO THE U.S. DISTRIBUTOR OF THIS REPORT, PLEASE REFER TO THE FINAL PAGES OF THIS REPORT - Please refer to the final pages of this report for important disclosures, analyst certifications and additional information. Espirito Santo Investment Bank 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. This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA (v1.0.5.2)
Change in the financials Figure 1
Impact in Balance sheet
Balance sheet impact (mn)
FY14E Old
Share holder funds
FY14E New
25,786
Loans
-
Deferred tax Total
Small change due to decline in proifitability
10,000
Funds will be raised for working capital requirement
(78)
(78)
25,708
35,015
Net Fixed assets
6,552
6,552
Inventories
39,691
39,691
Cash and Bank balance
15,326
1,551
5,851
5,851
Others Trade payable
23,331
249
Other CL
18,380
18,380
25,708
35,015
Total
Comments
25,093
Cash balance will reduced as used to fund Trade payable and Working Capital Trade payable will be reduced as no credit will be granted
Source: Espirito Santo Investment Bank Research, Company Data
Figure 2
Impact in Profit and Loss account
Profit an d loss impact
FY14E Old
EBITDA
FY14E N e w
13,144
13,144
Depreciation
655
655
Other Income
1,159
397
Finance Charges
621
PBT
Comme n ts
Reduced due to cash reduction in books. However increased by 280mn 1% benefit from VAT saving
1,341 Increase due to working capital loans.
13,027
11,545
Tax
3,648
3,233
PAT
9,380
8,312
EPS
10.6
9.4
ROE
41.2
37.1 Reduction due to fall in profits
Source: Espirito Santo Investment Bank Research, Company Data
Channel checks suggest demand intact We recently organised a conference call with World Gold Council (WGC) India CEO Mr. Somasundaram PR. He said that the physical demand of gold is still very strong and he doesn’t see much impact on demand due to supply side constrains. Since the April price falls the WGC has seen a significant jump in demand supported by robust sales during Akshaya Tritiya. WGC estimates Q2 CY13 sales to be around 350-400 tons (181 tons in Q2 FY12). For the full year, WGC estimates sales to be c.865-965 tons and, after viewing the sales figures of the first few months, believes it to be in the top end of the range. We maintain our assumption of increases in volume demand of 35% and 25% YoY for FY14 and FY15 respectively for Titan’s jewellery business. Further, in our recent discussions with Titan management, they clearly specified that: a) growth plans remain intact and the company won’t hesitate to raise debt if need be; b) the company would focus more on Tier II and Tier III cities; c) they had used hedging mechanisms in the past and were reviewing what their best option would be post new regulations; d) the new regulations were more of a financial change and that demand and the operating model was intact; e) demand side still doesn’t see any pressure and; e) as of now 10 tons of gold import under direct route and savings schemes are intact. Figure 3
Change in estimates
FY14 - old Revenues
FY14 - new
% change
122,534
122,534
-
EBITDA
13,144
13,144
-
PAT
9,380
8,312
ROE
Revenues
-11%
Comments
Increase in finance charges and reduction in other income
41.2%
37.1%
(410) bps
Lower PAT impact
FY15 - old
FY15 - new
% change
Comments
150,847
150,847
16,507
16,507
PAT
11,728
10,556
ROE
39.6%
EBITDA
Further during our channel checks in Tier II and Tier III cities jewellers reiterated the fact that with the sharp correction in prices they have seen substantial jump in volumes (in some case already achieved Oct – Nov sales target)
37.0%
-10% (260) bps
Increase in finance charges and reduction in other income Lower PAT impact
Source: Espirito Santo Investment Bank Research, Company Data
Page 2 of 7
Company description Titan Industries is one of India’s leading retail chains with a presence in watches, jewellery and eye wear. Figure 4 100%
Titan business split 4%
3%
4%
4%
4%
29%
24%
22%
19%
17%
16%
90% 80%
Figure 5 Titan EBIT split
3%
Figure 6
100%
60%
60% 50%
800
40%
40%
73%
68%
30%
79%
79%
77%
75%
20%
1000
38%
49%
61%
19%
25%
31%
80%
70%
Aggressive store expnasion
1200
72%
67%
59%
49%
83%
78%
600 400
20% 0%
10%
2008
0% 2008
2009
2010
Jewellery
2011
Watches
2012
2009
2010
Jewellery
Others
Source: Espirito Santo Investment Bank Research, Company Data
2011
2012
2013
Watches
0
Others
2008
Source: Espirito Santo Investment Bank Research, Company Data
Valuation
2009
2010
2011
2012
2013
Source: Espirito Santo Investment Bank Research, Company Data
Figure 7
Our DCF valuation of Titan provides a fair value of Rs300 per share, offering a potential upside of 33% on the current share price. We maintain our revenue assumption and believe the company will be able to post ~21% earnings CAGR (2014E-17E). We expect the growth rate to moderate to 13% from FY20182020 and assume a terminal growth rate of 5%. We are ~5% ahead of the consensus on our FY15 EPS estimates. Based on the limited information shared by the management, our FY14E/15E EPS are impacted negatively by 11/10% respectively; with ROE for FY15 falling from 40% to 37%. Figure 8
200
-20%
2013
DCF Analysis
Discounted cash flow analysis WACC
9.8%
Equity Risk Premium
5.0%
Beta
0.7
Risk Free Rate
7.3%
Terminal Growth Rate
5%
DCF fair value
INR 300
Source: Espirito Santo Investment Bank Research
Scenario analysis
DCF valuation Upside/downside: FY 14/15 EPS
High case
Base case
324.6
300
201
44% upside
33% upside
-10%
9.7/12.7
9.4/11.9
Assuming no further change in government regulation and spurt in volumes by 40% /30%in FY14/FY15
Key assumption
Low case
8.2/8.7
Assuming no further change in government regulation and increase in volumes by 35%/25% for FY14/FY15
Assuming volumes growth falls drastically to 15% and flat for FY14/15
Source: Espirito Santo Investment Bank Research, Company Data.Assumed 13% y-o-y decline in Gold Price in FY14 and flat gold prices in FY15.
SWOT analysis Strengths
Weaknesses
Strong brand image and distribution network act as entry barrier for competition. Company is leveraging this to distribute high end watches of other brands (such as Tag Heuer, Seiko.)
Product portfolio comprises discretionary items and so a prolonged slowdown in the economy will hit spending on its products first.
Market leader in all the three segments it operates in — watches, jewellery and eye wear; strong Tata brand behind new ventures.
Making charges are higher than local players, thus attracting new customers takes time.
Opportunities
Threats
Robust demand as all three segments are underpenetrated by branded companies. Titan, as the first branded player, has a first mover advantage with its pan India presence.
Major chunk of revenue comes from jewellery segment, which of late has seen a lot of government intervention.
Strong brand recall will help the company to gain market share as more and more customers start shifting to branded products.
Intense competition from entry of several foreign brands, proliferation of grey market transactions and competition from the unorganised segment can impact company’s watch market share.
Strong brand recall and distribution network can be used as launching pad for other products/segments.
Steep fall in gold prices coupled with low volume may impact company revenues, as gold making charges are linked to gold prices.
Source:
Espirito Santo Investment Bank Research
Figure 9
ESIB vs. Consensus
Our estimates
Consensus estimates
Difference
Titan Industries FY12
FY13
FY14E
FY15E
FY14E
FY15E
Revenue
In Rs. Million
88,484
101,233
122,534
150,847
119,118
141,980
3%
6%
EBITDA
8,363
10,125
13,144
16,507
12,150
14,791
Net Profit
6,014
7,253
8,312
10,556
8,360
10,113
6.8
8.2
9.4
11.9
9.4
11.3
8% -1% 0%
12% 4% 5%
EPS
FY14E
FY15E
Source: Espirito Santo Investment Bank Research, Company Data, Factset for consensus estimate ,
Page 3 of 7
Valuation Metrics
Titan Industries Ltd. Recommendation: Fair Value:
BUY INR 300
Share Price: Upside / Downside
INR 224.8 33.4%
3 Month ADV ($m) Free Float 52 Week High / Low
16.0 50.0% 314/204
Bloomberg code: Model published on:
TTAN IN EQUITY 13 June 2013
Shares In Issue (mm) Market Cap (INR mn) Net Debt/ (Cash) (INR mn) Enterprise Value (INR mn)
888 260,610 (11,390) 249,219
Forthcoming Catalysts Q1FY14 results
Jul-13
Research Analysts Nitin Mathur (91) 22 4315 6821|
[email protected] Vivek Veda (91) 22 4315 6817|
[email protected]
Shareholding Pattern (31 March 2013)
Others 25%
DII 3%
Promoter 53% FII 19%
Revenue Breakdown (FY13)
Others 4%
Watches 17%
Jewellery 79%
2011A
2012A
2013E
2014E
2015E
46.1x 46.1x 3.8x 40.4x 42.8x 3.8% 0.6%
33.2x 33.2x 2.8x 29.8x 31.5x 0.1% 0.9%
27.5x 27.5x 2.5x 24.6x 26.1x 1.7% 1.3%
24.0x 24.0x 2.0x 19.0x 20.0x -6.0% 1.5%
18.9x 18.9x 1.7x 15.1x 15.8x 1.8% 1.9%
Key Ratios
2011A
2012A
2013E
2014E
2015E
Gross margin EBITDA margin Capex / Revenue Net Debt / EBITDA (x) ROCE ROE
28.2% 9.4% 1.0% -1.7x 61.0% 49.3%
26.1% 9.5% 1.5% -1.1x 61.4% 48.2%
25.8% 10.0% 1.5% -1.1x 55.7% 42.3%
25.8% 10.7% 1.8% 0.6x 45.7% 37.1%
25.8% 10.9% 1.3% 0.5x 40.9% 37.0%
P&L Summary
2011A
2012A
2013E
2014E
2015E
Revenue % change COGS EBITDA % change Depreciation & Amortisation EBIT % change Interest Expenses Other Income Pre Tax Profit Income Tax Expense Minority Interests Net Income ESS Net Income
65,331 39.7% 46,930 6,169 55.2% 351 5,817 72.8% 345 561 6,033 1,701 0 4,332 4,332
88,484 35.4% 65,402 8,363 35.6% 456 7,907 35.9% 437 936 8,405 2,390 0 6,014 6,016
101,233 14.4% 75,134 10,125 21.1% 562 9,563 20.9% 507 1,008 10,064 2,816 0 7,253 7,248
122,534 21.0% 90,943 13,144 29.8% 655 12,489 30.6% 1,341 397 11,545 3,233 0 8,312 8,312
150,847 23.1% 111,956 16,507 25.6% 775 15,732 26.0% 1,420 349 14,661 4,105 0 10,556 10,556
Reported EPS EPS DPS Payout Ratio Shares In Issue (diluted)
4.9 4.9 1.5 29.8% 888
6.8 6.8 2.0 30.0% 888
8.2 8.2 2.9 35.1% 888
9.4 9.4 3.3 35.1% 888
11.9 11.9 4.2 35.1% 887.80
Cash Flow Summary Net profit before tax & WC Depreciation Taxes Paid Interest Paid / Received Change in Working Capital Associate & Minority Dividends Other Operating Cash Flow Operating cash flow Capital Expenditure Free Cash Flow Int rec/ Dividend etc Dividends Paid To Shareholders Equity Raised / Bought Back Other Cash Flow Net Cash Flow
2011A 5,990 345 -1,722 -206 6,057 0 47 10,511 -637 9,874 382 -772 0 -397 9,087
2012A 8,384 449 -2,559 -493 -4,540 0 334 1,575 -1,352 223 653 -1,282 0 -1,062 -1,468
2013E 10,064 562 -2,816 507 -2,240 0 0 6,077 -1,531 4,546 0 -1,302 0 -620 2,625
2014E 11,545 655 -3,233 1,341 -23,739 0 0 -13,431 -2,150 -15,581 0 -2,918 0 8,659 -9,839
2015E 14,661 775 -4,105 1,420 -6,076 0 0 6,675 -2,010 4,665 0 -3,705 0 -1,420 -460
Balance Sheet Summary
2011A
2012A
2013E
2014E
2015E
Net Fixed Assets Investments Inventories Sundry Debtors & Others Cash and Bank Balances Other Current Assets Current Liabilities & Others Total Assets Equity Reserves and Surplus Total Equity Debt Deferred Tax Liability Total Liabilities
3,051 26 19,981 1,176 11,099 2,252 -26,528 11,057 444 9,912 10,356 680 21 11,057
4,088 24 28,820 1,652 9,671 2,869 -32,437 14,687 888 13,721 14,609 113 -35 14,687
5,057 29 36,803 1,658 11,390 3,817 -39,134 19,620 888 18,811 19,699 0 -78 19,620
6,552 29 39,691 1,970 1,551 3,852 -18,629 35,015 888 24,205 25,093 10,000 -78 35,015
7,787 29 48,831 2,384 1,091 4,678 -22,934 41,866 888 31,056 31,944 10,000 -78 41,866
Net Debt
-10,419
-9,558
-11,390
8,449
8,909
P/E (x) Reported P/E EV / Sales EV / EBITDA (x) EV / EBIT FCF Yield Dividend yield
Source: Company data, Bloomberg, Espirito Santo Investment Bank Research for estimates Note: 2013 cash flow figures are estimates; P&L and BS for 2013 is actual
Page 4 of 7
Valuation Methodology Please see page 3 and figure 7 Figure 10 Steep correction post regulatory clarity
37
Max 35.3
32 12-mth fwd P/E (x)
+1 Sd 30.9 27
Avg 26.2
22
-1Sd 21.6
17 Min 14.5 12
Source: Espirito Santo Investment Bank Research, Company Data, Factset
Risks to Fair Value Any further regulatory change in order to curb gold demand or any major upward gold movement or slowdown in volumes might negatively impact our valuation. Further, Any slowdown in discretionary spending might impact Titan’s watch business, especially medium/high range, resulting in a fall in realization and in turn profitability, thereby impacting overall valuation of the company Titan Industries Buy
350
TTAN IN Trading Buy
Neutral
Trading Sell
Sell
Restricted
Dropped Coverage
B
300
250
200
150
100 Jun-10
Sep-10
Report date 2013
May 31
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Recommendation
Fair value
Share price
Buy
Rs350.00
Rs296.70
Source: Bloomberg, Espirito Santo Investment Bank Research
Please visit our website at www.EspiritoSantoIB.co.uk for up to date recommendation charts.
Page 5 of 7
IMPORTANT DISCLOSURES 080613 This report was prepared by Espírito Santo Investment Bank Research, a global brand name for the equity research teams of Banco Espírito Santo de Investimento, S.A., with headquarters in Lisbon, Portugal, of its Branches in Spain and Poland and of its affiliates BES Securities do Brasil, S.A – Corretora de Câmbio e Valores Mobiliários, in Brazil, and Execution Noble Limited, in the United Kingdom, all authorized to engage in securities activities according to each domestic legislation. All of these entities are included within the perimeter of the Financial Group controlled by Espírito Santo Financial Group S.A. (“Banco Espírito Santo Group”). Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; the issuers were not previously informed about the content of the recommendation included in this research report and the assumptions were not validated by the issuers; (2) no part of his or her compensation is directly or indirectly related to: (a) the specific recommendations or views expressed by that research analyst in the research report; and/or (b) any services provided or to be provided by Banco Espírito Santo de Investimento, S.A. and/or by any of its affiliates to the issuer of the securities under recommendation. Moreover, each of the analysts hereby certifies that he or she has no economic or financial interest whatsoever in the companies subject to his or her opinion and does not own or trade any securities issued by the latter. Ratings Distribution Espirito Santo Investment Bank Research hereby provides the distribution of the equity research ratings in relation to the total Issuers covered and to the investment banking clients as of end of March 2013. Explanation of Rating System 12-MONTH RATING BUY
Ratings Distribution DEFINITION
Analyst expects at least 10% upside potential to fair value, which should be realized in the next 12 months
As at end March 2013 Recommendation
Total ESIB Research Count % of Total
Total Investment Banking Clients (IBC) Count
% of IBC % of Total
12 Month Rating: NEUTRAL
SELL
Analyst expects upside/downside potential of between +10% and -10% to fair value, which should be realized in the next 12 months Analyst expects at least 10% downside potential to fair value, which should be realized in the next 12 months
TRADING RATING TRADING BUY
DEFINITION
Analyst expects a positive short-term movement in the share price (max duration 2 months from the time Trading Buy is announced) and may move out of line with the fair value estimate during that period
TRADING SELL Analyst expects a negative short-term movement in the share price (max duration 2 months from time Trading Sell is announced) and may move out of line with the fair value estimate during that period
Buy
229
44.4%
28
60.9%
5.4%
Neutral
181
35.1%
14
30.4%
2.7%
Sell
99
19.2%
0
0.0%
0.0%
Restricted
5
1.0%
4
8.7%
0.8%
Under Review
1
0.2%
0
0.0%
0.0%
Trading Buy
1
0.2%
0
0.0%
0.0%
Trading Sell
0
0.0%
0
0.0%
0.0%
516
100%
46
100%
8.9%
Trading Rating:
Total recommendations
For further information on Rating System please see “Definitions and distribution of ratings” on: http://www.espiritosantoib-research.com. Share Prices Share prices are as at the close of business on the day preceding publication, unless otherwise specified. Coverage Policy Espírito Santo Investment Bank Research reserves the right to choose the securities it expresses opinions on. The main criteria to choose such securities are: 1) markets in which they trade 2) market capitalisation 3) liquidity, 4) sector suitability. Espírito Santo Investment Bank Research has no specific policy regarding the frequency in which opinions and investment recommendations are released. Representation to Investors Espírito Santo Investment Bank Research has issued this report for information purposes only. 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Espírito Santo Investment Bank Research is not under any obligation to update or keep current the information and the opinions expressed herein nor to provide the recipient with access to any additional information. Espírito Santo Investment Bank Research has not entered into any agreement with the issuer relating to production of this report. Espírito Santo Investment Bank Research does not accept any form of liability for losses or damages which may arise from the use of this report or its contents. Ownership and Material Conflicts of Interest Banco Espírito Santo de Investimento, S.A. and/or its Affiliates (including all entities within Espírito Santo Investment Bank Research) and/or their directors, officers and employees, may have, or have had, interests or qualified holdings on issuers mentioned in this report. Banco Espírito Santo de Investimento, S.A. and/or its Affiliates may have, or have had, business relationships with the companies mentioned in this report. However, the research analysts may not purchase or sell securities or have any interest whatsoever in companies subject to their opinion. Banco Espírito Santo Group has a qualified shareholding (1% or more) in EDP, Portugal Telecom, Providência and ZON Multimédia. Portugal Telecom has either a direct or indirect qualified shareholding (2% or more) in Banco Espírito Santo, S.A. Bradesco has an indirect qualified shareholding (4.8%) in Banco Espírito Santo, S.A. and has a direct qualified shareholding (20%) in BES Investimento do Brasil, S.A., the parent company of BES Securities do Brasil S.A. CCVM. BES Securities do Brasil S.A. CCVM does not hold a direct or indirect stake in the capital of the company (companies) that are subject of analysis(es)/recommendation(s) in this report, but the Banco Espírito Santo Group within which it is inserted, holds, directly and in some cases indirectly, 1% or more of the equity securities of Bradesco. With the exception of the company mentioned before, BES Securities do Brasil S.A. CCVM does not hold direct or indirect stakes in the capital of the other companies that are subject of analysis(es)/recommendations in this report, and it was not involved in the acquisition, alienation and intermediation of securities issued by these companies in the market. Pursuant to Polish Ministry of Finance regulations, we inform that Banco Espírito Santo Group companies and/or Banco Espírito Santo de Investimento, S.A. Branch in Poland do not have a qualified shareholding in the Polish Securities Issuers mentioned in this report higher than 5% of its total share capital. Mr. Ricardo Espírito Santo Silva Salgado, the CEO of Banco Espírito Santo, S.A. and Chairman of Banco Espírito Santo de Investimento, S.A., is a board member of Bradesco since June 2003. The Chief Executive Officer of Banco Espírito Santo de Investimento, S.A., Mr. José Maria Ricciardi, is a member of EDP’s General and Supervisory Board. Mr. Rafael Valverde, a member of the board of Banco Espírito Santo de Investimento, S.A., is a non-executive board member of EDP Renováveis. Mr. Ricardo Abecassis Espírito Santo Silva, a member of the board of Banco Espírito Santo de Investimento, S.A., is a board member of Brazil Hospitality Group. Banco Espírito Santo de Investimento, S.A and/or its subsidiaries are liquidity providers for Altri. Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated as a syndicate member in share offerings of Brazil Hospitality Group, Equatorial, IQE plc, Marfrig, Minerva, Santander, Suzano Papel e Celulose, Vertu Motors and ZE PAK in the last 12 months.
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Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated as a syndicate member in the bond issues of the following companies: EDP, Galp Energia, Jerónimo Martins, Mota-Engil, Portugal Telecom, REN, Sonae and ZON Multimédia in the last 12 months. Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries provided investment banking services to the following companies: 4imprint, ACM Shipping, AGA Rangemaster Group, Air Partner, Altri, Assura, Brazil Hospitality Group, Burford Capital, Casino Guichard, Cemig, Copel, EDP, Ence, Equatorial, Flybe Group Plc, Galp Energia, Godrej Consumer Products, ImmuPharma, Impax Asset Management Group, Inditex, IQE, Jerónimo Martins, Kcom Group, Kredyt Inkaso, Kruk, Laird, Marfrig, Minerva, Mota-Engil, Novae Group Plc, Portugal Telecom, REN, Rovi, Santander, Semapa, Shaftesbury Plc, Sonae, Sports Direct, Suzano Papel e Celulose, SVG Capital, Ted Baker, The Local Shopping REIT Plc, Tim, Vertu Motors, Workspace Group Plc, Xchanging, ZE PAK and ZON Multimédia in the last 12 months. Banco Espírito Santo Group has been a partner to Mota-Engil in the infrastructure business in Portugal and other countries. Mota-Engil and Banco Espírito Santo Group, through ES Concessões, S.G.P.S., S.A., have created a joint holding company – Ascendi – for all stakes in transportation infrastructure concessions, in Portugal and abroad. Banco Espírito Santo de Investimento, S.A. provided, or continues to provide, investment banking services to Ascendi. Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries do and seek to provide investment banking or other services to the companies referred to in this research report. As a result, investors should be aware that a conflict of interest may exist. Market Making UK Execution Noble Limited is a Market Maker in companies covered and may sell to or buy from customers as principal in certain financial instruments listed or admitted to listing on the London Stock Exchange. For information on Companies to which Execution Noble Limited is a Market Maker please see “Execution Noble Limited UK Market Making” on http://www.espiritosantoib-research.com. Confidentiality This report cannot be reproduced, in whole or in part, in any form or by any means, without Espírito Santo Investment Bank Research’s specific written authorization. This report is confidential and is intended solely for the designated addressee. Therefore any disclosure, replication, distribution or any action taken in reliance on it, is prohibited and unlawful. Receipt and/or review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets without first obtaining express permission from an authorized officer of Banco Espírito Santo de Investimento, S.A. Regulatory Authorities For information on the identity of the Regulatory Authorities that supervise the entities included within Espírito Santo Investment Bank Research please see http://www.espiritosantoibresearch.com. IMPORTANT DISCLOSURES FOR U.S. PERSONS This report was prepared by Espírito Santo Investment Bank Research, a global brand name for the equity research teams of Banco Espírito Santo de Investimento, S.A., with headquarter in Lisbon, Portugal, of its Branches in Spain and Poland and of its affiliates BES Securities do Brasil, S.A – Corretora de Câmbio e Valores Mobiliários, in Brazil, and Execution Noble Limited, in the United Kingdom, all authorized to engage in securities activities according to each domestic legislation. Neither Banco Espírito Santo de Investimento, S.A. nor these affiliates are registered as a broker-dealer in the United States and therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is provided for distribution to U.S. institutional investors in reliance upon the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended. This report is confidential and not intended for distribution to, or use by, persons other than the addressee and its employees, agents and advisors. E.S. Financial Services, Inc. is the U.S. distributor of this report. E.S. Financial Services, Inc. accepts responsibility for the contents of this report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Any U.S. person receiving this report and wishing to effect securities transactions in any security discussed in the report should do so only through E.S. Financial Services, Inc. Contact Information Garreth Hodgson
Senior Managing Director / Head of Sales
(212) 351-6054
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Eva Gendell
Vice President
(212) 351-6058
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James Kaloudis
Executive Director
(212) 351-6065
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Lisa Gottardo
Executive Director
(212) 351-6060
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Mike Williams
Vice President
(212) 351-6052
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Pedro Marques
Vice President
(212) 351-6051
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Poorva Upadhyaya
Assistant Vice President
(212) 351-6056
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Rodrigo Carvalho
Senior Managing Director
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E.S. Financial Services, Inc. New York Branch 340 Madison Avenue, 12th Floor New York, N.Y. 10173 Each analyst whose name appears in this report certifies the following, with respect to each security or issuer that the analyst covers in this report: (1) that all of the views expressed in this report accurately reflect the personal views of the analyst about those securities and issuers; and (2) that no part of the compensation of the analyst was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in this report. The analysts whose names appear in this report are not registered or qualified as research analysts with the Financial Industry Regulatory Authority ("FINRA") and may not be associated persons of E.S. Financial Services, Inc. and therefore may not be subject to the applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Banco Espírito Santo de Investimento, S.A. and/or its Affiliates and/or their directors, officers and employees, may have, or have had, interests or qualified holdings on issuers mentioned in this report. Banco Espírito Santo de Investimento, S.A. and/or its Affiliates may have, or have had, business relationships with the companies mentioned in this report. For a complete list of the covered Issuers in which Banco Espírito Santo de Investimento, S.A. or its Affiliates hold stakes in excess of 1% and for information on possible material conflicts of interest arising from investment banking activities please see “Important disclosures for US persons” on http://www.espiritosantoib-research.com. Receipt of Compensation For information on Receipt of Compensation from subject Issuers please see “Important disclosures for US persons” on http://www.espiritosantoib-research.com. Representation to Investors Espírito Santo Investment Bank Research has issued this report for information purposes only. All the information contained therein is based upon information available to the public and has been obtained from sources believed to be reliable. However, Espírito Santo Investment Bank Research does not guarantee the accuracy or completeness of the information contained in this report. The opinions expressed herein are our present opinions only, and are subject to change without prior notice. Espírito Santo Investment Bank Research is not under any obligation to update or keep current the information and the opinions expressed herein. This report is not, and should not be construed as an offer or a solicitation to buy or sell any securities or related financial instruments. The investment discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Where an investment is denominated in a currency other than the investor’s currency, changes in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment. Past performance is not necessarily a guide to future performance. Income from investments may fluctuate. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation and opinion contained in this report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. The securities mentioned in this publication may not be eligible for sale in some states or countries. Espírito Santo Investment Bank Research does not accept any form of liability for losses or damages which may arise from the use of this report. Please note that investing in any non-U.S. securities or related financial instruments discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with the U.S. Securities and Exchange Commission or subject to regulation in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in the United States.
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