DL

Europe Today
Today's best ideas in European Equities

Friday, April 27, 2012
Today
With Luca Solca, Global Head of European Research
The euro zone saga continues, with the vicious effects of a 'paradox of thrift' and a 'one way' austerity policy now more and more evidently recognised by all: a growing number of European politicians (including the winner of the first round of the French presidential elections), the ECB this week, and S&P last night with a two-notch cut of Spain's credit rating. Is this danger now too obvious, so that remedial action is soon to be expected? We will see. Please see Nicholas Doisy's updated views on the path out of the EUR quagmire. Xavier Croquez upgrades Danone to 1/SL today, on the back of the same logic behind the recent Diageo upgrade.
Upcoming Conferences
For further info on the events below: cheuvreuxconference@cheuvreux.com or your usual CA Cheuvreux contact. 21-23 May: Pan-Euro Forum (London) Read more... 19-21 September: Autumn Conference (Paris)
Upcoming corporate roadshows over the next two weeks

For further info on the events below:
cheuvreux.marketing.corporate@cheuvreux.com
or your usual CA Cheuvreux contact. 2 May: Skandinaviska Enskilda Banken (England) 3 May: Seche Environnement (England) 8 May: Stora Enso (United States) 8 May: Total Sa (United States) 9 May: Rautaruukki (England) 9 May: Sanoma (England) 10 May: Ericsson Telecom AB (England) 10 May: Sodexo (England) 11 May: Ericsson Telecom AB (France)
Topics of the Day

E&S On the fly Draghi's growth compact: it's all about structural reforms, not a Marshall plan Nicolas Doisy, Economist & Strategist (ndoisy@cheuvreux.com, +33 1 41 89 73 43) Danone From 2/ to 1/Selected List TP EUR58 (+7%) Xavier Croquez, Sector Head (xcroquez@cheuvreux.com, +33 1 41 89 73 77) European Banks Sector Q1-12 results confirm expected trends, but the sector remains difficult - At 0.76x tangible BV 2013E for a weighted average ROTE of 11.7%, the sector looks cheap - However, it will face major headwinds until the summer, starting with the French presidential elections and the upcoming post-general election difficulties of Greece - The results so far have confirmed the trends we were expecting: strong results from Nordic banks, worrying asset quality trends in Spain and outstanding performance of the capital markets for investment banks, but which no one wants to extrapolate. - In spite of the attractive valuation, we see very few banks that are attractive to buy at the moment; we reiterate our negative stance on Spanish banks, we are selective on Nordic banks with two Top Picks, Nordea (2/OP, TP SEK80, +38%) and Danske (1/SL, TP DKK125, +35%), and we prefer Crdit Suisse (1/SL, TP CHF31, +35%) in the investment banking space: the results are better than investors seem to think. - The valuation of French banks looks compelling, but we remain cautious ahead of the elections (both presidential and general). Cyril Meilland, CFA, Sector Head (cmeilland@cheuvreux.com, +33 1 41 89 75 49)
Changes to Ratings, TPs & EPS

Astra Zeneca 2/Outperform TP USD50.00 (+9%) Q1 bad, but not so bad. PT USD 50 (52) Marcel Brand, Research Analyst (mbrand@cheuvreux.com, +41 44 218 17 05) Dassault Systemes 2/Outperform TP EUR82.00 (+8%) Fundamentals comforted Michal Beucher, Research Analyst (mbeucher@cheuvreux.com, +33 1 41 89 73 49) Safran 3/Underperform TP EUR26.00 (-2%) Beginning of a strong trend? We doubt it Antoine Boivin-champeaux, Research Analyst (aboivinchampeaux@cheuvreux.com, +33 1 41 89 73 25)
Disclosures are available on www.cheuvreux.com
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Siemens AG 2/Outperform TP EUR83.00 (+18%) Revising estimates. EUR83 is new TP Alfred Glaser, Research Analyst (aglaser@cheuvreux.com, +33 1 41 89 74 42) STMicroelectronics 2/Outperform TP EUR5.50 (+23%) Share bounce poised to continue for now Bernd Laux, Research Analyst (blaux@cheuvreux.com, +49 69 47 89 75 12) Tenaris 3/Underperform TP EUR15.50 (+6%) No pricing traction; TP lowered to EUR15.5 Geoffroy Stern, Research Analyst (gstern@cheuvreux.com, +33 1 41 89 73 79)
Company updates
Ahold 1/Selected List TP EUR12 (+27%) Ahold buys 82 C1000/Jumbo stores for EUR290m; overall positive we believe Paul Hofman, Research Analyst (phofman@cheuvreux.com, +31 20 5730 632) Areva 2/Outperform TP EUR24.8 (+84%) Q1 sales in line, guidance re-iterated Alfred Glaser, Research Analyst (aglaser@cheuvreux.com, +33 1 41 89 74 42) BASF 1/Selected List TP EUR80 (+23%) Q1-12 above consensus Martin Roediger, Research Analyst (mroediger@cheuvreux.com, +49 69 47 89 77 63) Daimler 1/Selected List TP EUR55 (+29%) Q1 10% above low expectations. Launches burden margins Alexander Neuberger, Research Analyst (aneuberger@cheuvreux.com, +49 69 47 89 73 84) Deutsche Bank 3/Underperform TP EUR34 (+2%) Feedback from conf call, slight EPS adjustments Cyril Meilland, Research Analyst (cmeilland@cheuvreux.com, +33 1 41 89 75 49) DNB 2/Outperform TP NOK90 (+28%) Q1-12: Below expectations also adjusted for one-offs Mats-Fredrik Anderson, Research Analyst (manderson@cheuvreux.com, +46 8 723 51 70) ENI 2/Outperform TP EUR20 (+21%) A good set of results Jean-Charles Lacoste, Research Analyst (jlacoste@cheuvreux.com, +33 1 41 89 75 13) Fresenius SE 2/Outperform TP EUR81 (+10%) Take over offer for Rhoen Klinikum not our preferred area of capital allocation Oliver Reinberg, Research Analyst (oreinberg@cheuvreux.com, +49 69 47 89 75 26) Hugo Boss 2/Outperform TP EUR89 (+2%) Feedback from the Q1-12 conference call Jrgen Kolb, Research Analyst (jkolb@cheuvreux.com, +49 69 47 89 74 26) Hydro 2/Outperform TP NOK40 (+38%) First glance Hydro A tad weaker (EBIT 4% below & strong cash flow Joakim Ahlberg, Research Analyst (jahlberg@cheuvreux.com, +46 8 723 51 79) K+S 2/Outperform TP EUR47 (+26%) Price hike in Brazil by BPC - good news; PotashCorp's Q1-12 figures look bearish at first sight Martin Roediger, Research Analyst (mroediger@cheuvreux.com, +49 69 47 89 77 63) Pernod Ricard 3/Underperform TP EUR82 (+3%) Pernod Q3 post call: Above but no upgrades Eric Boroian, Research Analyst (eboroian@cheuvreux.com, +33 1 41 89 73 15) Royal Dutch Shell 1/Selected List TP EUR31.5 (+21%) Good progress against targets Jean-Charles Lacoste, Research Analyst (jlacoste@cheuvreux.com, +33 1 41 89 75 13) Sandvik 3/Underperform TP SEK90 (-3%) Sandvik Q1 - Very strong numbers, clear beat on profitability Andreas Brock, Research Analyst (abrock@cheuvreux.com, +46 8 723 51 69) Sanofi 2/Outperform TP EUR63 (+11%) Q1 above consensus, and reassuring in EMs. EPS guidance reiterated. Positive. Laurent Flamme, Research Analyst (lflamme@cheuvreux.com, +33 1 41 89 73 23) SCOR 2/Outperform TP EUR23 (+17%) April renewals with strong price increases Frank Kopfinger, Research Analyst (fkopfinger@cheuvreux.com, +49 69 47 89 75 44)
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Technip 2/Outperform TP EUR100 (+12%) Feedback from conference call: outlook remains solid Geoffroy Stern, Research Analyst (gstern@cheuvreux.com, +33 1 41 89 73 79) Unibail - Rodamco 3/Underperform TP EUR145 (+1%) Q1-12 turnover released with very few details as usual Bruno Duclos, Research Analyst (bduclos@cheuvreux.com, +33 1 41 89 73 35) Vinci 2/Outperform TP EUR43 (+26%) Solid Q1-12 figures- cautious guidance (as expected) Borja Castro, Research Analyst (bcastro@cheuvreux.com, +34 91 4951631) Volkswagen 2/Outperform TP EUR176 (+39%) Strong Q1, 10% above consensus Alexander Neuberger, Research Analyst (aneuberger@cheuvreux.com, 49 69 47 89 73 84) WPP Group 2/Outperform TP GBPp1050 (+25%) Q1 in line with expectations Thomas Jorion, Research Analyst (tjorion@cheuvreux.com, +33 1 41 89 75 27)
Sector/market updates
Netherlands Agreement with opposition on 2013 budget Hans Pluijgers, Research Analyst (hpluijgers@cheuvreux.com, +31 20 573 06 34) Spain- Sovereign rating hammered two notches by S&P Iigo Vega, Research Analyst (ivega@cheuvreux.com, +34 91 495 16 29) Chemicals Europe Dow Chemical Q1-12 figures - slightly better than expected; Encouraging read across for the chemicals sector from Bayer's conference call Martin Roediger, Research Analyst (mroediger@cheuvreux.com, +49 69 47 89 77 63)
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Europe Today
Friday, 27 April 2012
Topics of the Day

E&S Draghi's growth compact: it's all about structural reforms, not a Marshall plan
Nicolas Doisy, Economist & Strategist (ndoisy@cheuvreux.com, +33 1 41 89 73 43) Mario Draghi's "growth compact" was a call for governments to pursue structural reforms, and not for a fiscal stimulus. Reading between the lines, it was a way to deflect calls for a larger ECB intervention in response to market volatility, as Germany maintains its opposition to both options. This point was made clear by Asmussen when he referred only to unused EU structural funds that could never be big enough to prop up growth. Thus, while necessary, a Marshall Plan to kick start growth in Europe is not being considered, as it would require the launch of a large Eurobond. A "two-speed" Eurozone built around a small-scale Eurobond project remains the sole option, where only nondeflation countries would team up. The likeliest outcome to address the Spanish problem is thus a Troika (IMF/EU) programme on top of more ECB liquidity, in order to stop the rot. With ECB liquidity a mere backstop, good risk (Italy) must be sorted out from bad (Spain) before a political solution is found at the government level. Clarification will come only when Spain gets a much needed Troika programme, opening the way to a small-scale Eurobond (see Microscope No. 4).
Danone From 2/ to 1/Selected List TP EUR58 (+7%)

Xavier Croquez, Sector Head (xcroquez@cheuvreux.com, +33 1 41 89 73 77) In the current tricky markets, our strategist upgraded recently the sector to overweight. We upgraded Diageo (TP: 1680p) to 1/Sel. List and add similarly Danone (TP: EUR58) to the list today with no change to our numbers. Danone's Q1 sales reassured on Russian Dairy and hinted at better trends in US dairy were Danone expects to leverage its new capacity with launches also beyond the Greek segment. H1 margins are expected down, Corporate tax may get a 100-200bp hike post the French election, and Argentina (5% of sales) may blow up. But fundamentally, we expect performance to improve throughout FY12 (6.4e%) pointing at 7%-8% LT sales growth. It will drive superior op. profit growth (2012-16: 8.4%pa), EPS growth (10.5%pa) and cash-flows, deserving a 10%-20% EV/EBIT premium to Nestl. With big M&A risk set aside for now (Wyeth disposal will be EUR0.8-1.5bn) and the AGM allowing buy-backs (SBB) at up to EUR65 per Share visibility should improve. It will allow the stock to re-rate gradually and expand its current 13x EV/EBIT 2012 multiple (PE 2012: 16x). Q1 sales point at improving MLT trends Q1 organic growth up 6.9% beat expectations implying a healthy 5% underlying trend on tough comps up 8.5%. S. Europe was weak but EMs were in double digit growth and in the key Dairy division, Russian volumes were up 2% and US sales were up 5% with strong share gains in the Greek segment. This double positive inflexion as early as Q1 is very encouraging for Danone's return to superior sales growth. End of Wyeth auction removes uncertainty On our maths, Danone could have bought Wyeth for USD11.5bn retaining its credit rating (Debt/EBITDA of 2.9x end-2012 and 2.5x end-2013) with no R. Issue whilst initiating a SBB plan with ~EUR500m in 2013. Now that Nestl won the Wyeth auction spending overall the same USD17bn as Danone at similar multiples for growth in babyfood (See Appendix 5), the big M&A risk on Danone is set aside. Visibility should improve, especially if the Board uses the SBB resolution voted at the AGM. Stock to re-rate vs. resilient peers as visibility returns At 13x EV/EBIT 2012, Danone trades at a ~5% discount to Nestl. With visibility improving, we expect the share to re-rate gradually versus this rock-solid benchmark.
European Banks Sector Q1-12 results confirm expected trends, but the sector remains difficult
Cyril Meilland, Research Analyst (cmeilland@cheuvreux.com, +33 1 41 89 75 49) At 0.76x tangible BV 2013E for a weighted average ROTE of 11.7%, the sector looks cheap;
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However, it will face major headwinds until the summer, starting with yesterday's 2-notch downgrade of Spain, the French elections and the likely post general election difficulties of Greece; The results so far have confirmed the trends we were expecting: strong results from Nordic banks, worrying asset quality trends in Spain and outstanding performance of capital market activities for investment banks, but which no one wants to extrapolate; In spite of the attractive valuation, we see very few banks that are attractive to buy at the moment; we reiterate our negative stance on Spanish banks, we are selective on Nordic banks with two Top Picks, Nordea (2/OP, TP SEK80, +38%) and Danske (1/SL, TP DKK125, +35%) and we prefer Crdit Suisse (1/SL, TP CHF31, +35%) in the investment banking space: the results are better than investors seem to think; The valuation of French banks looks compelling, but we remain cautious ahead of the elections (both presidential and general). Q1-12 results so far confirm our expectations We are roughly halfway into the earnings season, which so far have confirmed the trends we were highlighting in our latest report European banks: Q1-12 previews published a few weeks ago: - strong capital market revenues, in particular in fixed income activities, and to a lesser extent in equity activities - deterioration of asset quality in the periphery of Europe, i.e. so far in Spain, for lack of results published by Italian banks; - and conversely, a solid performance by Swedish banks, thanks to the strength of the local economy. First and foremost, it is worth noting that all large banks posted profits, with the only exception of Barclays (Not covered) due to extraordinary own debt charges (GBP2.6bn). Even Crdit Suisse, which booked a very large own debt charge as well (CHF1.6bn), managed to remain in the black thanks to its strong capital market performance. In a quarter of crisis, it is worth noting that the sector remains profitable, even though the returns on equity were subdued. Therefore, and again with the only exception of Barclays, all large banks improved their core Tier 1 ratios and are on track to comply with the EBA Capital Test, or are already compliant as of end December 2011 and/or end of March 2012. We reiterate our view that European banks do not need large capital injections, which should help bring some comfort once the threat of the sovereign crisis will be reduced. The Nordic banks having published, i.e. the four large Swedish banks, so far have beaten estimates by 6% (SHB) to 19% (Swedbank), with good revenues - higher margins, volume growth in spite of a sequential deceleration or even decline, strong trading income - and cost control and still low loan loss provisions - loan loss ratio usually below 10bp. At face value, the quality of the beat was of lesser quality at SEB (2/OP), and of higher quality at Swedbank (3/UP), although our reading is different: part of the higher revenues at Swedbank came from Treasury activities and are not likely to be sustainable. In the Nordic space, we continue to prefer the stocks trading at lower valuation, at or below tangible book value, Nordea (2/OP) and Danske (1/SL), where we see a recovery in profitability. Spanish banks' asset quality has deteriorated further, and the two large banks have deferred their reserving efforts. However, they are still profitable (EUR1bn net profit for BBVA, EUR1.6bn for Santander) and were in line with consensus expectations. The focus will now be on the deterioration of asset quality in the non-property books, and outside of Spain: Santander showed worrying signs of quarter on quarter deterioration in Brazil, which is the reason why we would prefer marginally BBVA in a pair trade. However, we remain cautious on all Spanish banks and therefore would not go net long any of them. The three investment banks that have published Crdit Suisse (1/SL, TP CHF31, +40%), Deutsche Bank (3/UP, TP EUR34, +0%) and Barclays (Not covered) - have followed on their US peers' path, with strong revenues in fixed income and to a lesser extent in equities. Q1-12 profitability would suggest that the challenges to the profitability of this business have been convincingly addressed (Deutsche bragged about a 26% annualised pre tax ROE on a 9% equity allocation), and the management of these banks emphasise the decline or at least stability of the risks (VaR) and the absence of inventory gains: all the revenue performance is arguably derived from client activity. However, Q2-12 results look already less strong, and even though we remain positive on the long term prospects for this business, in a world where a larger share of the private sector financing will go through the markets instead of through the banks we understand the muted reaction to these banks' earnings, all the more so as the results from the retail or investment management activities of these banks were far less stellar. Nevertheless, we consider that the very negative reaction to CS results is overdone: the stock has lost 6% in 2 days, whereas it managed to book a profit in spite of CHF1.6bn in own debt charge. Valuation looks attractive, however the largest discounts The sector is back to deep crisis valuation levels: it is trading at 6.5x next year's earnings (market cap weighted average) and 0.75x tangible book value 2013E for a ROTE of 11.7%, and this discount to what should be a "normal" valuation for
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such a level of ROTE (i.e. approx. 1x even applying a high cost of equity) cannot be explained by a large capital shortfall or expected losses: few banks we cover are expected to post losses in the coming quarters, either by us or the consensus. Based on the comparison we have used since the start of the euro crisis last year, the sector is getting closer to the trough valuation of March 2009, when it was trading at 0.63x prior year tangible book value. It is today at 0.84x, , but many banks are now below and if we restate for the large premium of Nordic banks, few banks are more than 10% above what was then a compellingly low valuation. European banks - P/TBV 11 as of today vs. P/TBV 08 on 9 March 2009
NB. Average is market cap weighted, based on our full coverage universe of 34 stocks Source: CA Cheuvreux
We remain very selective So the sector looks cheap, but the uncertainty is so high for many stocks, and there is so little support from fundamentals, that we would only buy a handful of them, and we would even wait for the outcome of the French elections for some of them: the sector will remain volatile until then, and we doubt there is much risk attach to staying put for now. We obviously favour non-euro zone banks: Nordea and Danske, as well as Crdit Suisse. We consider the market's darlings, Swedbank and SHB, as too highly valued with little potential for growth or ROE enhancement. The high beta/high upside potential stocks we would consider after the French elections are Commerz (1/SL, TP EUR3, +88%) and BNPP (2/OP, TP EUR45, +47%). We think Deutsche (3/UP, TP EUR34, +0%) is not attractive because the bank will have to announce a major restructuring to address the double issue of its capital shortfall and the improvement of its overall ROE (in PCAM, where the cost income ratio of its retail banking business are still too high at 70%+, but also in CIB, where the 26% pre-tax return in what was a good quarter is not good enough).
Changes to Ratings, TPs & EPS

Please see next page
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PHARMA
Rating Target price (6 months)
2/Outperform +9.1% USD50.00 USD45.82 USD57.158bn
Astra Zeneca
Q1 bad, but not so bad. PT USD 50 (52)
Recent Management and Board changes suggest that the M&A risk is clearly skewed to the upside. The current CFO Simon Lowth will be appointed interim CEO from June 1, 2012. The new Chairman Leif Johansson was a non-executive director of Bristol-Myers Squibb from 1998 until Sep 2011. We believe an agreed merger with BMS makes great sense and would create significant shareholder value for AZN shareholders. After the Seroquel patent expiry, there is probably no more antitrust issue because of BMS`s Abilify (licensed from Otsuka). A merger would create a leading player in cardiology and oncology with little portfolio overlaps. The Onglyza and dapagliflozin collaborations are another reason. Larger M&A moves happened at several occasions when a stock was trading at a discount to the sector similar to the one that we see with AZN today (43% on EV/EBITDA for 2013, 35% still for 2016). Q1 was a dismal quarter, but the next quarters will be better. Sure, generic erosion of Seroquel in the US will be ugly, but that is anticipated by the market. More importantly, a number of negative swing factors seen in Q1 will be reversed (see list in our Pharma Daily). Our below consensus long-term estimates suggest a fair falue for the shares USD 48. This in conjunction with the big discount vs the sector, sustainable for the next years justifies our new PT of USD 50 (52).
Price (25/04/12) Market capitalisation

Reuters: AZN.N Performances
Absolute perf. Relative perf.
56 54 52 50 48 46 44 42 40 04.10 08.10 12.10 04.11 08.11 12.11
Bloomberg: AZN UN
1 month 1.4% 4.0%
3 months 12 months -4.1% -8.1% -4.6% -3.2%

56 54 52 50 48 46 44 42 40 04.12
Price/FTSE-A ALL SHARE
Price
To 31/12 (USD) Sales (m) NAP, rest. (m) Clean EPS P/E bef. GW (x) EV/EBITDA (x) EV/EBITA (x) FCF yield (%) ROE (%) Net yield (%)
Dec12E 29072 6252 5.02 9.1 5.3 6.7 14.3 34.1 6.2
Dec13E 27312 6743 5.58 8.2 4.8 5.8 14.2 31.2 5.8
Dec14E 25511 6635 5.49 8.4 4.5 5.5 13.9 26.7 6.3
Sector focus Sector Top Picks More details in our Pharma Daily Dose Least favoured
Bayer, Ipsen, Roche, Sanofi Glaxosmithkline, Novartis, Novo Nordisk
Link to our latest Company report. Link to our latest Company figures. Summary Q1 was bad, but compared to expectations, several swing factors suggest that the rest of 2012 will meet consensus M&A risk is clearly skewed to the upside, due to the large discount to the sector We reduce our PT from USD 52 to USD 52 to reflect a decline in our fair value DCF Marcel BRAND (Research Analyst)
(41) 44 218 17 05 - mbrand@cheuvreux.com
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IT SOFTWARE & SERVICES
2/Outperform +7.6% EUR82.00 EUR76.19 EUR9.529bn

Bloomberg: DSY FP
Dassault Systemes
Fundamentals comforted
Following Q1-12 results & outlook, EPS revised up by ~4% in 13E & after
This EPS revision is reflecting the stronger Q1 performance and the acquisition of Gemcom in the simulation area. Overall, DSY should be able deliver ~15% EPS growth in 2012E or more, in line with its long term average, despite the current environment. Note guidance (6-10% EPS growth) remains low profile and is comforting our scenario of an EPS upgrade cycle that could take place all along 2012E. The group did not see any slowdown in demand so far.

Reuters: DAST.PA Performances
Absolute perf. Relative perf. 1 month 18.0% 27.1%
3 months 12 months 19.6% 35.6% 22.9% 65.2%
84 79 74 69 64 59 54 49 44 04/10 08/10 12/10 04/11 08/11 12/11
84 79 74 69 64 59 54 49 44 04/12
comforted capacity to grow sales double digit l-f-l

Q1 performance confirmed the capacity of DSY to grow double digit l-f-l, combining 1) the growth of the PLM market (6-8% p.a.), 2) the portfolio of products which is growth oriented (digital manufacturing, simulation, entry level, collaborative tools notably), 3) some natural gain of market (natural monopoly)
Price/SBF120
Price
Acquisition of Gemcom strengthening the position in the simulation segment

Gemcom has been specialising in geological simulation. This acquisition is clearly improving the position of DSY on the simulation segment where it is not yet n1 and is opening the way for DSY to expand towards modelling and simulation of nature, to improve predictability, efficiency , safety and sustainability TP up from EUR 71 to EUR82 Our new TP is discounting our new estimates and we also now assume a probability of undisputed leadership in the range of 8090% vs. 70-80% previously, while keeping other assumptions unchanged. Fundamental is strong + positive momentum.
To 31/12 (EUR) Sales (m) NAP, rest. (m) Clean EPS P/E bef. GW (x) EV/EBITDA (x) EV/EBITA (x) FCF yield (%) ROE (%) Net yield (%)
Dec12E 1995 410 3.28 23.2 13.0 13.8 5.1 16.1 1.0
Dec13E 2178 461 3.69 20.7 11.0 11.7 5.6 16.2 1.1
Dec14E 2409 518 4.14 18.4 9.2 9.7 6.1 16.4 1.2
Sector focus Sector Top Picks Least favoured
Alten, Capgemini, Steria Indra
Link to our latest Company figures. Summary Following Q1-12 results & outlook, +acquisition of Gemcom, EPS up toEUR3.29 in 12E (vs. 3.21), EUR3.69 in 13E (vs. 3.58) and EUR4.15 in 14E (vs. 4.00). TP up from EUR71 to EUR82. Buy rtd. Michal BEUCHER (Research Analyst)
(33) 1 41 89 73 49 - mbeucher@cheuvreux.com
Stanislas BELLIARD (Research Analyst)

(33) 1 41 89 74 09 sbelliard@cheuvreux.com
EPS estimate changes

2012E Prev Sales EBITA EBITA mg EPS 1935 602 31.1% 3.21 Rev 1995 623 31.2% 3.29 Prev 2125 670 31.5% 3.58 2013E Rev 2178 696 32.0% 3.69 Prev 2349 755 32.1% 4.00 2014E Rev 2409 785 32.3% 4.15
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AEROSPACE & DEFENCE
3/Underperform -2.5% EUR26.00 EUR26.68 EUR11.038bn
Safran
Beginning of a strong trend? We doubt it
Q1 2012: surprise on CFM spares/equipment OEM
Safran surprised positively the market yesterday with a 24% CFM spares growth and with a 17% l-f-l growth for the equipment division on the other side. The only disappointing figure came from military propulsion, which was impacted by administrative delays on Rafale engines and this will be caught up in the following quarters..

Reuters: SAF.PA Performances
Absolute perf. Relative perf. 1 month -1.2% 5.5%
Bloomberg: SAF FP
3 months 12 months 12.6% 8.6% 13.9% 31.5%
32 30 28 26 24 22 20 18 04/10 08/10 12/10 04/11 08/11 12/11
32 30 28 26 24 22 20 18 04/12
CFM spares growth est. revised up, not much though

There was around 100 airlines having performed 586 shop visits in Q1 (250-300 a/c), and the management implied the growth could have been due to few airlines. Taking into account this Q1 & some marginal better growth in the following ones, we raise our FY CFM56 spares growth estimate from 8% to 14%, which means a sales impact of EUR85m in 2012 and 2013. Profit wise, it means an impact of EUR55m on EBITA for both years, given the very high profit we estimate on this segment.
Price/SBF120
Price
We also revise our growth rate for the equipment OE

The equipment division organic growth was 17% (+21% for the OE - nacelles, landing systems, wiring - alone according to our calculation), i.e. and thus 10% above our estimate, which is going to be the case for the full year most likely. We estimate the impact to be EUR30-35m on both years.
As a consequence, we raise our rest. EBITA by 8%

We raise our restated EBITA estimate by 8% in 2012, 7% in 2013, our restated EPS by 9% in 2012, 8% in 2013.
To 31/12 (EUR) Sales (m) NAP, rest. (m) Clean EPS P/E bef. GW (x) EV/EBITDA (x) EV/EBITA (x) FCF yield (%) ROE (%) Net yield (%)
Dec11E 11736 549 1.35 17.2 6.9 10.6 5.2 11.0 2.7
Dec12E 13289 707 1.73 15.4 7.0 10.3 4.7 14.1 3.0
Dec13E 14744 834 2.03 13.1 6.1 8.7 5.8 15.4 3.7
Valuation: an addition of EUR2 but no more at this stage

Our above revision translates into a TP increase of 8%. This compares with the share outperformance of 5% yesterday and we therefore consider the good news are already priced in. Sector focus Sector Top Picks Least favoured
EADS Rolls-Royce
Summary Q1 2012 CFM spares and equipment OE growth leads us to increase our estimates by 8-9% in 2012, 7-8% in 2013 We are now above the company guidance with +13% sales growth (USD1.31), 25% published EBIT growth We raise our TP from EUR24 to EU26 following the release. 3/Underperform maintained Antoine BOIVIN-CHAMPEAUX (Research Analyst)
(33) 1 41 89 73 25 - aboivinchampeaux@cheuvreux.com
EPS estimate changes

2011 Prev Sales EBITA, published EBITA, restated EPS, restated 11 736 1 189 1 068 1.35 Rev 11 736 1 189 1 068 1.35 Prev 13 079 1 406 1 127 1.58 2012E Rev 13 289 1 497 1 218 1.73 Prev 14 424 1 605 1 305 1.88 2013E Rev 14 724 1 695 1 395 2.03
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CAPITAL GOODS
2/Outperform +18.0% EUR83.00 EUR70.32 EUR61.560bn

Bloomberg: SIE GR
SIEMENS AG
Revising estimates. EUR83 is new TP
Adjusting our forecasts to the new guidance
As we announced yesterday, we are reducing our profit forecasts factoring in the revised guidance and all explanations given by management on Power Transmission, NSN, etc. (see table below). We do expect now an income from continuing operations (IFCO) of EUR5.18bn vs EUR5.54bn previously (guidance: EUR5.2-5.4bn). These numbers include additional North Sea project charges in H2e and the EUR100m transmission reorganisation costs. We also anticipate another EUR100m(e) on NSN. On, the positive side, the underlying profitability is to improve in H2e, and the order intake as well; SIE was confident in a FY book-to-bill ratio well above 1.0x. We also adjust our 2013e estimates, but less than 2012e, while our 2014e forecasts remain virtually unchanged.

Reuters: SIEGn.DE Performances
Absolute perf. Relative perf. 1 month -8.8% -4.2%
3 months 12 months -4.4% -27.4% -7.3% -20.8%
98 93 88 83 78 73 68 63 04/10 08/10 12/10 04/11 08/11 12/11
98 93 88 83 78 73 68 63 04/12
Our TP moves from EUR87 to EUR83

Our TP is based on DCF + SOP and slides to EUR83 (18% upside). The SOP valuation is based on listed peers by sector, and thus includes the stock markets' overall weakness. Our SOP also includes a 15% conglomerate discount, which represents a very cautious valuation approach; with a 10% discount our price target would be EUR85, with a 20% discount it would be EUR81. Compared to larger Capital Goods stocks in Europe, Siemens has now a 13% average discount, while it was historically trading in line.
Price/DAX
Price
Y/E Sep Sales (m) NAP, rest. (m) Clean EPS P/E bef. GW (x) EV/EBITDA (x) EV/EBITA (x) FCF yield (%) ROE (%) Net yield (%)
Sep12E 75844 5241 5.99 11.7 7.4 10.0 4.5 16.6 4.3
Sep13E 77954 6033 6.89 10.2 6.3 8.3 7.7 17.5 4.3
Sep14E 81714 7019 8.02 8.8 5.4 7.1 8.8 18.3 4.7
Alstom, Andritz AG Sandvik
Summary As announced yesterday we revise our numbers a bit down, mostly for 2012e and 2013e Consequently our DCF + SOP based TP moves from EUR87 to EUR83 (18% upside) We confirm our positive view on SIE: the worst is behind us, H2e is to beat H1e and the stock is discounted Alfred GLASER (Research Analyst)
(33) 1 41 89 74 42 - aglaser@cheuvreux.com
OUR NEW FORECASTS POST Q2 2012

EURbn
Old Revenue New Revenue New Growth rate Old EBIT Old margin New EBIT New margin Old Income Cont. Ops New Income Cont. Ops Old Free cash flow New Free cash flow 6.426 3.986 4.262 7.011 6.062 8.8% 7.958 10.8%
FY 09/10
68.978
FY 10/11
73.515
FY 11/12e
74.982 75.844 3.2% 7.183 9.6% 6.756 8.9% 5.542 5.181 3.301 2.835
FY 12/13e
77.064 77.954 2.8% 7.943 10.3% 7.854 10.1% 6.139 5.993 5.122 4.867
FY 13/14e
80.769 81.714 4.8% 8.783 10.9% 8.887 10.9% 6.898 6.899 5.502 5.540
FY 14/15e
84.415 85.403 4.5% 8.999 10.7% 9.166 10.7% 7.334 7.389 5.669 5.758
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SEMIS
2/Outperform +23.0% EUR5.50 EUR4.47 USD5.403bn
STMicroelectronics
Share bounce poised to continue for now
Earnings estimates lowered to a loss for 2012E
Following a disappointing set of Q1-12 results and the ST-Ericsson restructuring announcement, we reduce our EPS estimates for the group from USD0.28 to USD-0.05 for 12E, from USD0.69 to USD0.60 for 13E, and from USD0.77 to USD0.69 for 14E, factoring in the USD130-150m restructuring charge, the planned net cut of about 1,100 staff, partnership synergies and the lower base.

Reuters: STM.PA Performances
Absolute perf. Relative perf. 1 month -29.8% -24.5%
Bloomberg: STM FP
3 months 12 months -13.5% -45.8% -11.4% -32.6%
9.0 8.0 7.0 6.0 5.0 4.0 04/10 08/10 12/10 04/11 08/11 12/11
9.0 8.0 7.0 6.0 5.0 4.0 04/12
ST-Ericsson restructuring, a time-consuming exercise

The restructuring of the wireless JV is far from a quick fix. The targeted 50% cut in break-even to USD600m in quarterly sales terms by 2014 requires a doubling of the current gross margin to about 40%. The sub-scale top-line issue has yet to be resolved. We believe further partnerships and modem IP licensing are needed.
For ST group the worst likely is over

ST's group quarterly earnings are set to improve sequentially during the rest of 2012E, with capacity utilisation expected to recover from 69% (Q1) to the mid/high 80s%. The confidence in H2-12 improvements is based on 1) significant design-wins in Digital (TV/STB), MEMS, analog and MCUs, 2) partnership synergies, 3) typical seasonality.
Price/CAC40
Price
ST shares, a value play (7% yield) in hope of recovery

After their collapse to close to multi-year lows (0.5x EV/sales, 0.8x book, 0.7x EV/InvCap), ST shares appear oversold. However, their depressed valuation (4x EV/EBITDA 13E) is unlikely to change until management can show the market a strong rebound in returns. For the time being, we see no other catalyst and believe the current dead-cat bounce will be limited to the EUR5-5.5 range.
Dec11E 9735 650 0.72 8.3 3.8 109.1 -6.0 8.9 6.7
Dec12E 9010 -41 -0.05 -127.8 10.1 -7.6 0.1 -0.6 6.8
Dec13E 10150 532 0.60 9.8 3.8 16.4 6.1 8.4 6.8
ARM HOLDINGS, Dialog Semiconductor
Summary Post poor Q1-12 results + ST-Ericsson restructuring we cut our EPS ests. to a loss for 12E and by 13% for 13E We are not convinced the Wireless JV will turn around by 14E. In our view, the lack of top line issue is not resolved ST's wholly owned business in reasonable shape. For ST group the worst likely is over. Shares bounce to continue Bernd LAUX (Research Analyst)
(49) 69 47 89 75 12 - blaux@cheuvreux.com
EPS ESTIMATE CHANGES

2012E USDm Sales EBIT Net profit after minorities EPS, USD Prev 9090 -300 251 0.28 Rev 9010 -645 -41 -0.05 Prev 10255 320 606 0.69 2013E Rev 10150 300 532 0.60 Prev 10900 630 680 0.77 2014E Rev 10600 550 609 0.69
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OIL SERVICES
3/Underperform +5.6% EUR15.50 EUR14.68 USD22.918bn
Tenaris
No pricing traction; TP lowered to EUR15.5
No further EBITDA margin increase seen by year-end
Q1-12 EBITDA margin reached 26.9%, 100 bps above consensus est. thanks to lower raw material costs, better absorption of fixed costs and mills efficiency. This led to lower cost of good sold and SG&A, with the latter as % of revenue reaching 17% (vs. 18.6% in 2011), a level seen as sustainable for the remainder of 2012. Tenaris is guiding for higher average selling prices due to product mix improvements (higher proportion of seamless pipes vs. welded) but expects operating margins to remain close to the Q1-12 level. We have therefore lower our 2012 EBITDA margin est. from 27.6% to 26.9%.

Reuters: TENR.MI Performances
Absolute perf. Relative perf. 1 month -1.7% 11.7%
Bloomberg: TEN IM
3 months 12 months -3.9% -12.6% 5.4% 27.5%
21.0 19.0 17.0 15.0 13.0 11.0 9.0 04/10 08/10 12/10 04/11 08/11 12/11
21.0 19.0 17.0 15.0 13.0 11.0 9.0 04/12
No pricing traction despite a growing demand

Tenaris has confirmed what it already mentioned last February, i.e. that pricing is expected to remain flat. Given Tenaris's positive comments on demand growth with international rig count seen up by 6-8% in 2012 (the US remaining flat) and the increasing share of premium applications, this confirms our view that the market remains overall in an overcapacity situation, preventing high-end players to raise prices.
Price/FTSE ITALIA ALL-SHARE INDEX
Price
Adjustment to our estimates; TP lowered to EUR15.5

The slight downward revision to our 2012-2013 EBITDA margin estimates (we were c. 120bps above consensus) has led us to lower our FY-12 and FY-13 EBITDA est. by resp. 2% and 1%. By taking into account the minority buyout of Confab by Tenaris (USD750m in cash), our FY-12 and FY-13 EPS have been raised by resp. 2% and 3%. In all, those adjustments (incl. lower net cash position) have led us to adjust downward our TP to EUR15.5 from EUR16: we apply the same target EV/EBITDA multiple of 7.2x (mid-cycle average) to our 2013 estimates. Given the limited upside potential, we stick to our 3/UP rating on stock.
Dec11 9972 1331 1.13 16.4 9.1 11.8 1.8 13.5 2.1
Dec12E 11133 1728 1.46 13.3 7.6 9.5 6.2 15.9 3.0
Dec13E 11617 1908 1.62 12.0 6.6 8.1 8.7 16.0 3.3
CGGVeritas, Technip
Link to our latest Company figures. Summary No further EBITDA margin increase seen by year-end following the 110bps sequential improvement in Q1-12. No pricing traction despite a growing demand, highlighting in our view that the overall market remains oversupplied. FY-12 and FY-13 EBITDA est. lowered by 2% and 1%. TP adj. to EUR15.5 (16) post minority buy out of Confab. 3/UP. Geoffroy STERN (Research Analyst) (33) 1 41 89 73 79 - gstern@cheuvreux.com Dominique PATRY (Research Analyst) (33) 1 41 89 73 37 dpatry@cheuvreux.com
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Company updates
Ahold 1/Selected List TP EUR12 (+27%) Ahold buys 82 C1000/Jumbo stores for EUR290m; overall positive we believe
Paul Hofman, Research Analyst (phofman@cheuvreux.com, +31 20 5730 632) Ahold buys 82 C1000/Jumbo stores for EUR290m; overall positive we believe As we wrote in our sector report last April 16, Jumbo presented its plans regarding the C1000 take-over. Jumbo will sell 136 stores of which 82 stores to Ahold (and 54 stores to Coop); 136 stores is a considerably larger number than the 18 stores that had to be divested anyway to get approval from Dutch anti-trust authorities. Admittedly, the 82 stores (78 C1000 and 4 Jumbo stores; 78 stores operated by franchisers and 4 company owned ones) that Ahold will on-board is also larger than we expected. Ahold will pay EUR290m for the stores that achieved consumer sales of EUR800m in 2011. Real estate of 78 stores is included. Ahold added that 57 of the 82 stores are in areas where it is currently not active. We see some pros and cons of this deal, but see it overall as a positive deal. The main positives include: 1) Ahold will increase its leading share further by an estimated 2.5% to 36.5% and thus will further enlarge the distance versus peers. Jumbo said post the divestment it will operate around 600 stores with a 20% market share (all C1000's will be remodelled into Jumbo's). In our note last April we concluded dominant market shares are a key success factor in food retail; 2) The C1000 stores enjoy sound sales parameters. We estimate the acquired stores realise weekly consumer sales of EUR190,000 and sales/m2 of an estimated EUR190, which is above industry average; 3) Ahold will further increase its exposure in areas where it less or not present at all. The main negatives: 1) The EUR290m paid suggests a multiple of 36% x consumer sales and EUR3.5m per store. Profitability was not disclosed but also based on the fact that the large majority of the stores are operated by franchisers, multiples are relatively high in our view; 2) AH's current platform enjoys favourable demographics and income parameters. As we explained in detail this is softer for C1000 stores, although exact locations of the stores to be purchased are not known.
Areva 2/Outperform TP EUR24.8 (+84%) Q1 sales in line, guidance re-iterated

Alfred Glaser, Research Analyst (aglaser@cheuvreux.com, +33 1 41 89 74 42) Areva published sales of EUR2,025m, very close to our EUR2,060m est. Organic growth was 1.3%. We would remind you that quarterly sales are not very meaningful in this long-term contract business.
The backlog stands at EUR45.1bn vs. EUR45.6bn three months earlier Order cancellations after Fukushima total EUR612m so far vs. EUR464m as of December Mining: growing thanks to higher volume; average sales price was slightly lower YoY; average FY sales price is to be rising. Areva signed a large 2000 ton order in Q1. Front End: the important sales decline stems from Enrichment (winding down of the Georges Besse plant) and unfavourable delivery schedules in Fuel. R&S: better growth than expected thanks to good Installed Base business and Nuclear Measurement contracts in Japan. New Builds decelerate due to the advancement stages of the large projects. The R&S backlog (EUR8.7bn) is up thanks to large orders in France and Romania. Back End: nearly stable business, as expected. Renewables: strong growth thanks to backlog (EUR1.7bn end of March 2012), esp. in the offshore market. 2012 outlook: the previous guidance has been confirmed.
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We view the stock as massively discounted against its fair value of EUR24.8. The most recent share price slide does not make sense.
BASF 1/Selected List TP EUR80 (+23%) Q1-12 above consensus

Martin Roediger, Research Analyst (mroediger@cheuvreux.com, +49 69 47 89 77 63) BASF reported Q1-12 results, which beat consensus expectations. Most important figures are adj. EBIT, which dropped by 7% to EUR2.53bn, but still 10% above consensus. Price hikes of 5% and flat volumes have supported the company's performance. Disposal gains (EUR645m) due to the disposal of the fertilizer business were booked in special items (EUR588m); this has additionally lifted reported EBIT and EBT; but this was partly compensated by a higher tax rate (39.6%) than assumed. Thus, adj. EPS was (just) 5% better than the market has assumed.
The biggest surprise came in from oil and gas, which increase adj. EBIT by 56% to EUR1.157bn, 47% above all expectations. This is certainly due to: a) the higher oil price (+23%); and b) the recovery of operations in Libya. Also very impressive was the performance in agricultural solutions, which showed a 22% increase in adj. EBIT to EUR419m, which was 20% above consensus. While Performance Products and Functional Solutions were in line with the market, Chemicals and Plastics missed expectations in terms of earnings. "Others" was also worse than expected.
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As the major earnings surprise came from oil and gas, but a large part of this comes obviously from Libya (high tax rate), adj. EPS was just slightly above expectations. BASF reiterated its targets for an increase in sales and adj. EBIT in 2012 (no surprise).
Daimler 1/Selected List TP EUR55 (+29%) Q1 10% above low expectations. Launches burden margins
Alexander Neuberger, Research Analyst (aneuberger@cheuvreux.com, +49 69 47 89 73 84) Overall, DAIs Q1 is 10% above expectations w/o any negative surprises 1) Launch cost for new truck engines, the Actros truck and the A/B-Class pushed margins below peer levels 2) Mercedes Pass Cars EBIT margin: 8.4%, Trucks 5.2%. 3) Industrial FCF of a negative EUR2bn due to EUR1.8bn inventory built-up of EURO V trucks/Brazil, A/B-Class ahead of product launch and inventories for Chinese spring selling season 4) Daimler expects a substantially better Q2 when vehicles in inventories turn into sales/profits 5) Actros launch cost alone were some EUR150m, suggesting an adjusted truck margin of 7.2% 6) EU truck business last 6 weeks above expectations. EU orders down only 6% y/y in line with peers 7) EURO V trucks to provide substantial truck sales recovery in Brazil from H2/12 CONCLUSION:
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Daimler beats low expectations. All key divisions are burdened by major product relaunches which is no surprise The EU truck market recovery on top of a solid US business and a strong order book for the A/B-Class very likely generate a substantial upswing in the overall group performance in Q2. Net of launch cost, Heavy trucks were almost on par with Volvo. A P/E of 7.7x, EV/EBITDA of 2.8x highlight a very attractive valuation BUYING OPPORTUNITY ahead of a substantially better Q2
Deutsche Bank 3/Underperform TP EUR34 (+2%) Feedback from conf call, slight EPS adjustments
Cyril Meilland, Research Analyst (cmeilland@cheuvreux.com, +33 1 41 89 75 49) The conf call confirmed the very positive quarter in capital market activities, but also the mediocre performance at PCAM with low prospects for improvement We revised our earnings estimates, with no major impact, and remain well below consensus We think that the stock will move sideways until the new management's strategy and restructuring plans are announced, but more details are not expected before the autumn; 3/Underperform reiterated, same target price. Feedback from conf call Highlights from these results were: Strong performance in CB&S thanks to better-than-expected revenues in debt sales & trading and investment banking Mediocre contribution from PCAM, in spite of lower provisions in Germany De-risking in credit portfolio led to a reduction in RWA, which boosted the CT1 to 10% vs. 9.5% at end December 2011 At the conference call, CFO Stefan Krause emphasised the strong performance in CB&S, thanks to market share gains, in spite of the de-risking of the business at the end of last year and a further decline in VaR. The revenue performance in Q1-12 is pure of any valuation gain or buy-to-hold contribution, it is reflecting the client activity of the bank. Barclays' CEO Bob Diamond made the very same comment one hour later at his bank's conf call. Deutsche ranked No.3 in advisory and origination, whereas they think their natural position is more Top 5. The pre-tax return on allocated capital was 26%, in spite of an increase in the allocated capital, from 9% Tier 1 to 9% CT1 capital (adding approximately 20% to the capital base). The operating expenses in this division were depleted by a change in method for accounting the deferred compensations for the staff eligible to the early retirement programme. So far they were accounting for the full impact, assuming that 100% of the staff eligible to this programme (a maximum impact which would have totalled EUR600m in Q1-12), whereas this year they decided to ask for the staff to make a decision for the year at end February. This led to a charge of only EUR300m, so operating expenses were EUR300m lower compared to the method used in Q1-11. The PBT YoY growth is therefore inflated by this change of method. The outlook for the rest of the year is balanced, between a more challenging environment in Q2 and a strong pipeline. Management expects that the market share gains will be maintained and will continue. For PCAM, the CFO highlighted that most of the deleveraging at Postbank is done now (EUR56bn reduction in RWA compared to a target of EUR57bn), and the revenue performance was close to a run-rate for the whole division, even though client activity was "muted". However, the bank booked only EUR68m of restructuring charge, whereas they expect EUR500m for the full year: the coming quarters will optically show an even higher cost income ratio (74.7% in Q112 already). Capital position
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The CT1 ratio improved by 50bp from 9.5% at end December 2011 to 10% at end March 2012, thanks to EUR0.7bn increase in CT1 capital and a reduction by EUR13bn in RWA, at EUR368bn. The pro forma, phased-in (so not fully front loaded) Basel 3 CET1 estimate is 8.8% by the 1st of January 2013, which is 30bp higher than the previous estimate. The fully loaded CET1 ratio, excluding all phase-in impact, is 7.2%, 20bp higher than previous estimate. This represents in our calculation approx. EUR13bn-EUR14bn of capital shortfall. To compare with other players, one should need to project this to end 2013, the capital shortfall would probably drop to approx. EUR6bn-EUR8bn, close to our own estimate. We think that a large part of the accelerated reduction in RWA in Q1 is only Deutsche being ahead of schedule, not really doing more than what they were planning. They still highlight the management action they can implement, but we are then back to our argument that this will come at the cost of lower revenues/profits. Other issues The Corporate Investments division's contribution will be affected by the disposal of Actavis in Q4-12, because Actavis was a positive contributor. The restructuring of BHF is completed and BHF should now contribute positively, Las Vegas Casinos are also performing well. The rest of the portfolio is more volatile (including a company involved in freight containers). Total risk-weighted assets (RWA) in this division were EUR12bn, of which EUR4bn will go with Actavis. This RWA figure will not change with Basel 3. We calculated an effective tax rate of 23.6% for Q1-12, vs. our expectation of 32%, which explains partially the small difference with our net profit estimate in spite of the negative one-offs and lower underlying contribution. The CFO guided for a 30%-32% effective tax rate going forward, we are using 31%. We have not materially changed our earnings estimates for this year or the coming years, but we expect the consensus to move downward because of weaker contribution from PCAM and more importantly because of the negative impact of the deleveraging. Deutsche Bank's earnings revisions
Source: CA Cheuvreux
We reiterate our 3/Underperform rating and our target price of EUR34 on Deutsche Bank.
DNB 2/Outperform TP NOK90 (+28%) Q1-12: Below expectations also adjusted for oneoffs
Mats-Fredrik Anderson, Research Analyst (manderson@cheuvreux.com, +46 8 723 51 70) DnBs Q1-12 was below expectations also adjusted for one-off items.
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A weak result was expected after the stellar performance in Q4-11 when the group benefited from swap gains in the quarter which was expected to reverse in this. Still the Net items of -NOK1,006m (Q1-11; NOK662m) were considerably weaker than consensus expectations of -144m. Contrary to the Swedish banks which have already reported, DnB has apparently not succeeded with the trading income in the quarter. Furthermore the NII of NOK6.7bn (Q1-11 NOK6.0bn) was below consensus expectations and where the whispering consensus has risen during this weeks peer reports. Net commissions in line with expectations at NOK1,667m (Q1-11 NOK1,782m). Total revenues amounted to NOK8.1bn (Q111 NOK9.5bn).
Costs amounted to NOK5.1bn (Q1-11 NOK4.8bn), which was 4% higher than expected by consensus, while loan loss provisions amounted to -NOK0.8bn (Q1-11 -NOK0.9bn). Intl conference call at 14.00 CET today.
ENI 2/Outperform TP EUR20 (+21%) A good set of results

Jean-Charles Lacoste, Research Analyst (jlacoste@cheuvreux.com, +33 1 41 89 75 13) Op. profit and net profit 9% and 8% respect. above consensus Eni reported a Q1-12 adjusted operating profit of EUR6.45bn, up 27% y-o-y, 9% above consensus and 7% above our forecast. Adj. net profit pertaining to Eni was EUR2.48bn, up 13% y-o-y, 8% ahead of consensus and 6% above our forecast. Most deviation with expectations came from the G&P business (20% above consensus), and E&P (6% above consensus). The R&M segment posted significant op. losses (EUR228m), as expected. Q1-12 production was 1,674kboe/d, almost flat vs. Q1-11 (1,684kboe/d). Gearing ratio decreased from 46% at end of 2011 to 43% at the end of Q1-12. Outlook Eni expects the 2012 outlook to be challenging due to the economic slowdown. Recovery perspectives look poor in the gas sector with gas demand expected to be soft and pressure on margins to remain. Also Eni expects refining margins to remain at unprofitable levels due to high costs of supply, sluggish demand and excess capacity. For 2012, Eni is no more guiding on a 10% growth of the production, but said it expects production to grow compared to 2011. Longer term, the management seems less optimistic than before with a moderate growth trajectory in production. All other guidance seem to be confirmed, including 2012 capex flat y-o-y. 2/Outperform rating and TP EUR 20/sh maintained Conference call this afternoon at 14:00 CET.
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Fresenius SE 2/Outperform TP EUR81 (+10%) Take over offer for Rhoen Klinikum not our preferred area of capital allocation
Oliver Reinberg, Research Analyst (oreinberg@cheuvreux.com, +49 69 47 89 75 26) Implications for Rhoen Klinikum Offer price of EUR22.5 suggesting a 55% premium and total equity bid of EUR3.1bn; est. EV about E3.9bn translates to EV/Sales 2012 of 11.4x and EV/EBITDA of 11.3x according to our estimates This is a once in a lifetime opportunity for Rhoen shareholders after setbacks over the last years; the 55% premium offered is full and clearly attractive Antitrust: all privates have a 16% share of hospital beds in Germany; Rhoen and Helios likely about 4% each translating into a 8% combined market share; antitrust will focus on local circumstances, basically trying to assure that there is competition on a city by city basis; this will likely translate into some small divestments required but unlikely anything meaningful Acceptance ratio of 90%: Fresenius wants either full control or no deal; this is also required to apply necessary changes to Rhoen's articles of association; given rich premium and disappointment Rhoen shareholders experienced, we believe most shareholders are happy to tender their shares Counter bid? Asklepios is similar in size to Helios and Rhoen, but has no access to capital markets, and given the rich premium, a counter bid is unlikely in our view Implications for Fresenius SE We structurally have some concerns regarding the German hospital business given a combination of low growth, cost inflation, no money in the system, capital intensity, overcapacity in the market, and tight regulation; hence we would generally have preferred a larger capital allocation into other areas. Besides shorter term synergies (see below), the long term idea is to build a Germany-wide integrated network that allows for increased submissions via an effective combination between acute and post-acute care as well as contracting with major organisations and insurance funds for private patients enrolment given that Fresenius-Rhoen would have a large German-wide coverage as a result of this deal; the potential of this is not incorporated into Fresenius' forecasts Deal structure: positive that it will entail only small equity component (likely in the form of a convertible bond) and high required acceptance to follow full control; the deal came, however, as a complete surprise; ND expected between 3.03.5x end 2012 and back to 2.5-3.0x end of 2013. Funding: EUR3.1bn bid to be funded by equity and equity-like instruments of about EUR1bn (c. 9% of new shares); after conference call this is likely to be a convertible (calculation below assumes straight equity); remainder syndicated loan and bond EPS impact: first back of the envelope calculation (see table below): 2012 EPS proforma: 2.9% EPS dilution (deal to close in Q3-12E); Fresenius guides for slight EPS dilution in 2013E (first year after deal closing) we estimate 1% and a slight accretion in 2014E. We believe this should be limited to 1-2% in 2014. Impact: Worst case argument: premium paid equates to a EUR1.07bn gain for Rhoen shareholders or 9% of Fresenius Mcap. This would ignore, however, accretion from synergies that are expected to reach EUR100m pre tax after the third year after deal closing. We assume this means by 2016. Capitalising the synergies, these are worth about 6% of Fresenius market cap. Hence, one can argue for a negative 3-4% impact. While Fresenius upped its net income guidance by 4%, this was largely expected by the market. Synergies, may, however, be more pronounced, in particular longer term. Fresenius estimates a group WACC of 5.8% (and argues that the German hospital business has an even below group average risk profile). This would allow Fresenius to generate excess returns starting in 2014 according to our calculation. If investors set an own long-term ROCE post tax threshold of 8.5%, the potential for excess returns will be likely minor. Refinancing: Fresenius flagged in its conference call that the as part of the financing of this deal also part of the APP financing will be re-financed. The total package will comprise EUR5.3bn; excluding the EUR3.1bn for Rhoen, hence also EUR2.2bn will be refinanced. Given lower rates today, we would (besides a potential one-time charge) expect a moderate group earnings accretive effect.
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Fresenius: First back of the envelope calculation

2012 proforma, EURm Sales EBIT Interest PBT Tax rate Tax PAT Minorities PAT Shares old Shares new Shares total EPS new EPS old Dilution Fresenius 18,950 2,985 -631 2,354 30.5% -718 1,636 -784 852 164.8 Rheon 2,869 210 -34 Impact Proforma 21,818 3,195 -771 2,425 30.5% -740 1685 -790 895 164.8 14 179 4.92 5.15 -2.9% Impact 15.1% 7.0% 2.1%
-105
2.1% 3.3%
-6
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Hugo Boss 2/Outperform TP EUR89 (+2%) Feedback from the Q1-12 conference call
Jrgen Kolb, Research Analyst (jkolb@cheuvreux.com, +49 69 47 89 74 26) Conclusion: Q1-12 numbers revealed growth figures that put Hugo Boss on track to meet its targets, but no major positive surprises. Business in China may soften a little, but we believe the company reacted quickly enough and is able to control its inventory levels. Its brand image remains intact and it is laying the foundations for further long-term margin expansion with the construction of its new warehouse. The investment case remains fully intact and we see no need to make any estimate changes. We suggest investors use any weakness in the share price as an opportunity to buy into BOS. Note, however, Permira's lock-up period ends on 14 May. We keep our 2/OP rating. Key points from the conference call: It was no surprise that the topic that attracted most interest was China. Here are the core messages from BOS' CFO Mark Langer: The competitive landscape in China has become tougher due to economic reasons as well as stronger competition from other brands and the hunt for the consumers' share of wallet Growth rates in China dropped sequentially from 19% in Q4-11 to 13% in Q1-12 BOS' new warehouse logistics in China are now fully operational, giving it the ability to deliver all merchandise to all stores within a very short time and to exchange merchandise between stores depending on sell-through performances Excess inventories are not an issue thanks to the more efficient logistics and the increased offering of factory outlet centres BOS has not changed its view on China; it still sees the region as a core driver for its business with about 20 new store openings p.a. Growth rates in the Asian/Pacific region in CY12 may come closer to the average group growth rate of "up to 10%", which is more a function of weaker sales in Japan (Q1-12: flat y-o-y) and Australia (Q1-12: -5% FX adj. y-o-y) BOS sees solid l-f-l sales increases in its own stores in China, which it expects to continue => the somewhat slower growth rate in Asia will not affect BOS' CY12 guidance as the company already factored in some growth declines. OPEX topics: Costs and CAPEX for the new flat goods warehouse have not been included in the P&L and will most likely not affect the P&L materially before Q3-14, when the warehouse should be fully operational; it is not yet clear how the new warehouse will be operated - under a leasing contract or fully owned by BOS Managed space business with strong success in Spain
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At 20 El Corte Ingles stores BOS has started to manage the space for the retailer and claims to have recorded a substantial sales uplift Additional stores will follow and BOS is prepared to roll out this concept to other countries such as Switzerland The overall sales impact is still small, but it reduces complexity for BOS and allows it to react more quickly to fashion changes Other: BOS Orange recorded only a flat y-o-y sales performance; it attributed this to a fashion change to a cleaner look that favoured more the fashion approach of HUGO (+13% y-o-y) BOS expects its inventory growth rate (23% y-o-y) to gradually shift closer to its sales growth rate as retailers come to accept more and more its 4-seasons concept, thereby relieving it of the need for a 'buffer' inventory The 4-seasons concept has been accepted by retailers, but BOS believes it may have 'lost' a small amount of business from retailers who concentrate more on the summer collection than on a split order cycle; it expects a catch-up in Q2, leading to stronger wholesale growth than in Q1-12 of 1% FX-adj. y-o-y
Hydro 2/Outperform TP NOK40 (+38%) First glance Hydro A tad weaker (EBIT 4% below & strong cash flow
Joakim Ahlberg, Research Analyst (jahlberg@cheuvreux.com, +46 8 723 51 79) First glance Hydro A tad weaker (EBIT 4% below & strong cash flow) Headline numbers: underlying EBIT 4% below solid cash of NOK600m in the quarter Underlying EBIT reached NOK557m vs. consensus expectations of NOK578m (we were looking for NOK449m). Net profit (underlying) came in at NOK256m vs. consensus of NOK417m (we expected NOK309m). Cash flow was strong again NOK0.6bn. Balance sheet remains very solid with net cash of NOK1.5bn.
OUTLOOK: weaker outlook ex China of +3% for 2012 (was ~5% before) Demand is expected to improve overall into the second quarter. Quality of results reasonably low as Energy saved the day (again!) Primary Aluminium underlying EBIT reached NOK30m vs. consensus at NOK91m (we were going for NOK-407m). What saved the day (again!) was Energy EBIT of NOK556m vs. consensus at NOK440m (we had NOK549m). Conf-call at CET 16:00 (+44 207 136 2051)
K+S 2/Outperform TP EUR47 (+26%) Price hike in Brazil by BPC - good news; PotashCorp's Q1-12 figures look bearish at first sight
Martin Roediger, Research Analyst (mroediger@cheuvreux.com, +49 69 47 89 77 63) Price hike in Brazil by BPC - good news According to FMB (Fertilizer Market Bulletin), BPC has contracted to ship 100,000 tonnes of potash fertilizer to Brazil for the 2nd half of May. The important point is that this is done at a new price: USD550/tonne for big clients, USD560 for smaller customers. This is USD40 above the recent price in Brazil and means a recovery to the price level in to Q4-11. This underlines the view that after a weak Q1-12, there is strong demand in Q2-12 coming up. This is good news for K+S, as it offers the chance for more price increases going forward. PotashCorp's Q1-12 figures look bearish at first sight In contrast to the announcement by Mosaic yesterday, which included a positive surprise in terms of the outlook, PotashCorp's Q1-12 results were below consensus, although the company had already warned of poor Q1 results. Clean EPS at PotashCorp fell 33% to USD0.56, below consensus of USD0.64 (Bloomberg). The company had previously guided for EPS of USD0.55-0.75.
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Sales came in at USD1.75bn, also below consensus of USD1.79bn. The company's outlook for 2012 is not encouraging. In EPS terms it predicts USD3.20-3.60, while consensus stands at USD3.65 for 2012. The company's previous guidance was for EPS of USD3.40-4.00. The reason for the shortfall is lower demand in Q1-12, especially in potash, where volumes fell 57% y-o-y to 1.2m tonnes in Q1-12 due to restraint in China and India. In North America as well distributors deferred purchasing, leading to a drop in potash volumes in this region of 64% to 0.4m tonnes. This resulted in lower capacity utilisation, which more than offset the 19% higher average selling prices. The poor Q1 figures have led PotashCorp to lower its guidance. This is negative news flow for the potash sector and will weigh on stocks like K+S. However, investors should note that K+S is less exposed to China and India (total 5% exposure) and less exposed to North America, so that it is less affected than PotashCorp. We know that distributors Europe were also showing restraint in buying potash, so that K+S's potash volumes in Q1-12 should be down by ~20%. But this is widely known and should not be a surprise. K+S is optimistic that volumes will catch up in the course of the year, leading to stable potash volumes in 2012 yoy. Weakness in K+S's share price today (Thursday, 26 Apr) can be used to build up holdings in K+S. After the expected earnings drop at K+S is released on 9 May (due also to weakness in the de-icing salt business), the share price should hit bottom and thereby offer a good entry point.
Pernod Ricard 3/Underperform TP EUR82 (+3%) Pernod Q3 post call: Above but no upgrades
Eric Boroian, Research Analyst (eboroian@cheuvreux.com, +33 1 41 89 73 15) Conclusion: Solid Q3s validating the share rebound so far this week but no upgrades and stock to continue trading in EUR74-82 range Summary: 1. Q3 sales up 3.1% were above expectations (down 0.2%) even after adjusting for wrong-footing technicalities. 2. Strong but not accelerating performances in Asia up 16% over 9M and solid growth in the USA up 5% were good news offset by ... 3. ... a FY op. profit target up ~8% LfL confirmed below cons. at 9.5%, underlying trends down ~4% in WE incl. France, and Absolut sales down in the US 4. At calendar EV/EBIT 2012 of 13.3x, the share rallied this week on the back of Rmy's numbers but we expect the share to remain in a EUR74-82 range 5. We expect little change to our numbers and consensus. Details: - Underlying sales growth of 8% in Q3 in line with H1 (adj. for French loading and Chinese New Year). Adj. for German loading ahead of a price hike (50-70bp), one extra-day (~110bp) and Easter, we estimate the Q3 real underlying trend at 6%. With the reversal of the German loading (-60bp) and still 48m of destocking in Q4 in France (-280bp) this points to Q4 organic sales growth of ~4.5% all things being equal. - US sales up 5% in Q3 in line with H1 despite Absolut sales and share erosion - Europe underlying trend of -1%/2% in Q3: excluding booming East. Europe up 30% points at WE down 4%/5% in line with French market also down 4% - Mexico down 13% in Q3 following restructuring to last over the next 9 months - Martell up 14% in Q3 and 23% over 9M. with MLT growth guidance of 15%-plus in sales and 6%-plus in volumes (above Remy's 3%-6% range). - Tax rate and French election. No comment by the company but confirmation that a fair chunk of group debt is tax located in France. This could be seen by politicians as an "artificial" cut in the tax base, whatever the potential change in the tax rate (same as Danone). - Coupon confirmed at 5.3%, slightly up FY-13 and then down a bit.
Royal Dutch Shell 1/Selected List TP EUR31.5 (+21%) Good progress against targets
Jean-Charles Lacoste, Research Analyst (jlacoste@cheuvreux.com, +33 1 41 89 75 13) Good Q1-12 results in Integrated gas are sustainable
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Main reason behind the good Upstream performance in Q1-12 was the very strong performance of integrated gas which generated a net income of USD2.4bn in Q1-12 vs. USD1.1bn in Q1-11. 60% of the y-o-y improvement came from Qatar (Qatargas 4 at full capacity and Pearl GTL ramping up) while the remaining 40% was driven by higher volumes from Russia and Nigeria (LNG volumes were up 17% y-o-y), better prices and good trading results. As the LNG market is tight and since contract LNG prices are linked to oil prices, Shell should continue to generate robust results in integrated gas in the coming quarters. Q2-12 production to be impacted by higher maintenance The CFO said there will be higher levels of planned maintenance activities on offshore fields in Americas, Asia Pacific and Europe in Q2-12. This is expected to lead to a production impact of ca 50,000boe/d on a Q2-Q2 basis. Shell's three large start-ups of 2011 (Qatargas 4, Pearl GTL and AOSP) produced 360,000boe/d in Q1-12, compared to 130,000boe/d in Q1-12 and should produce 450,000boe/d at peak. As there will be maintenance on AOSP in Q2-12, the CFO expects these three projects to deliver in Q2-12 a similar production level than in Q1-12. In the GoM, there is no more decline, but production is still ca 50,000boe/d below the level that would have prevailed without the impact of the moratorium. 2012 guidance In the Downstream segment, CFO expects worldwide refinery and chemicals availability for Q2-12 to be in line with Q211. The upgrade in the Port Arthur refinery will not have a huge impact in Q2-12. With USD2.4bn of disposals in Q1-12, Shell has increased its disposals targets from USD2-3bn to at least USD4bn for 2012. Organic capex guidance for 2012 remains at USD32bn, excluding up to USD1bn spend if Shell gets access to drill in Alaska this year. Alaska is one of Shell's most important milestones in 2012 and the group expects to be in position to drill there as of Q3-12. Up to now, Shell has invested USD4bn on Alaska and will be mobilizing 2 rigs in the area. Exploration is still expected at USD5bn in 2012. Shell has restarted share buy-backs in Q2-12 to offset the dilution from scrip dividends, which have totalled over USD5bn since the company launched the scrip in 2010. Very bullish for the LNG market Shell expects the LNG market to grow strongly from 240mtpa at present to 400mtpa in ten years time and up to 500mtpa beyond. Shell currently has an LNG capacity of 20mtpa, is building 7mtpa of additional capacity and is considering another 15mtpa capacity addition excluding Mozambique. Shell is the largest private player in the LNG business which provides great return and long projects. North America gas strategy Shell is still considering four options to extract value from its huge 40Tcf gas resources in the US: gas to transport (to feed trucks), gas to chemicals, GTL and LNG exports. The company is looking at the ways to replicate in Louisiana or in Texas the Pearl GTL plant while bringing costs down and improving efficiency. This engineering process and the construction will take some time. Hence a start-up is not expected before the end of the decade. Regarding LNG exports, Shell is considering the construction of a plant in Canada with Mitsubishi and PetroChina as partners, with LNG exports toward Asia. 1/Selected List rating and TP EUR31.5/sh maintained
Sandvik 3/Underperform TP SEK90 (-3%) Sandvik Q1 - Very strong numbers, clear beat on profitability
Andreas Brock, Research Analyst (abrock@cheuvreux.com, +46 8 723 51 69) Sandvik reported its Q1 numbers this morning. Headline numbers are very strong with a clear beat on profitability. Shares will trade up significantly. Order intake: 28.9bn SEK +13% vs consensus Sales: 24.8bn SEK +4% vs consensus EBIT: 3819 +21% vs consensus Pretax profit: 3371+ 26%vs consensus
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Underlying market by geography: Nothing surprising but clear strong message on many geographies Europe: Largely stable North America: Strong South America: Strong Asia: Mixed picture, China had significant fluctuations among various segments Underlying market by segment: Only SMT is weak Mining: Remained strong, major orders booked in South America, Australia, Asia and Europe Sandvik Machining Solution: Demand remained high Materials Technology: Mixed demand picture, high demand in energy, several other segments continued to weaken. Organisation - Still hope for more especially in NWC Started to see effects, improvement potential in NWC and Cash Flow
Sanofi 2/Outperform TP EUR63 (+11%) Q1 above consensus, and reassuring in EMs. EPS guidance reiterated. Positive.
Laurent Flamme, Research Analyst (lflamme@cheuvreux.com, +33 1 41 89 73 23) Sales up 9.4% (+7% at CER, -0.6% like-for-like), Business EBIT +12.9%, Business Net Profit +12.5% (Business EPS +11.2%) This is 1%, 8%, and 9% above consensus (2%, 12% and 12% above our estimates). Sales in emerging markets up 9.9% at CER (LatAm +16%, Asia +12%, Africa +10%), and 7.9% pro forma with Genzyme and excluding vaccines (changes in delivery phasing in Southern Emisphere) Business EPS guidance reiterated, with -12% to -15% at constant exchange rates.
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Key positive sales deviations vs. our estimates came from Lantus, Eloxatin, Taxotere, Lovenox, Allegra, and Consumer HC. New Genzyme (rare diseases) registered sales up 13.7% like for like, including notably +50% for Fabrazyme (shipping from new site in Framingham began in March,) and +17% for Myozyme/Lumizyme. Cost of sales came below expectations, notably thanks to a positive effect on the cost of crude heparins (for Lovenox; in early 2011, those crude heparins had prices up approximately 70%). Good control of R&D/Sales (R&D +5.2% at CER and -5.9% pro forma with Genzyme) and SG&A/Sales (SG&A +7.4% at CER, -4.9% pro forma with Genzyme).
SCOR 2/Outperform TP EUR23 (+17%) April renewals with strong price increases
Frank Kopfinger, Research Analyst (fkopfinger@cheuvreux.com, +49 69 47 89 75 44) 7% price increase in April further improves profitability of the P&C portfolio SCOR reported a strong price increase of 7% and a total premium increase of 11% for the business (EUR328m GWP) that had been renewed during the April renewals. This business represents 11% of the total treaty business and the focus of the renewals was the Asia Pacific region (70% of April renewals) which got hit last year not only by the earthquake/tsunami in Japan but also by floods in Australia and an earthquake in New Zealand. Therefore the price driver was natcat protection. SCOR did not increase its natcat exposure in this region and benefitted purely from better prices. Combined price increase on renewed business so far YTD of around 3% Together with the price improvements already seen during the January renewals (50-60% of the book / 2% price increase) the combined price increase on the renewed business so far is around 3%. This will not fully hit the bottom-line as SCOR did also renew its protection program in January, which went also along with higher costs and will eat up parts of the price improvement. Taking this hedging costs into account we estimate that the net price increase on the renewed business is now 1% which should improve the combined ratio to this extent. Given its strong growth track, the renewed protection is the right thing to do. Together with the January renewals SCOR is fully on track for its "Strong-Momentum"targets which should bring P&C premium volume to EUR5bn by 2013 (2011: EUR4.0bn).
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The very positive renewals outcome confirms our view that SCOR is the disciplined growth stock within the sector and is fully on track for its strategic targets. We confirm our 2/OP rating.
Technip 2/Outperform TP EUR100 (+12%) Feedback from conference call: outlook remains solid
Geoffroy Stern, Research Analyst (gstern@cheuvreux.com, +33 1 41 89 73 79) Technip confirmed that tendering activity remains particularly strong. Backlog at end Q1-12 offers solid visibility for 2012, with EUR7bn already in its hands for the year, 90% of the mid-range 2012 targeted sales, which compares to 86% in Q1-11. With a very strong increase of the order intake for its Subsea business in Q1-12, up 53% seq. and 153% y-o-y, Technip indicates that it will be even more selective going ahead by bidding on projects where it can generate higher profitability with a high probability of winning the contract. A number of very large projects (West Africa, Brazil, AsiaPac, US GoM) are expected to come to awards in the upcoming 12-18 months, and Technip believes that it has the right capacity in terms of assets and people to bid on these projects. The group will take the delivery of 2 new vessels at end 2012 (Deep Orient and Deep Energy) while Technip has some room to significantly increase the utilization rate of Global Industries' vessels. Indeed, the bidding activity for contracts to be executed in 2013-2014 by Global Industries' s assets has significantly increased over the past 3 months. In addition, the utilization rate of its new manufacturing plant in Malaysia is set to further ramp-up while the group will benefit from its new Flexible plant in Brazil by 2014. In terms of resources, since early 2011, more than 5,000 people around the world have been recruited by Technip. That said, Technip will take a decision by year-end to invest in new assets to tackle the ultra-deepwater market which will open up in the upcoming years. No change to our estimates and TP of EUR100. We maintain our 2/OP rating on the stock, which remains in our Top Picks list.
Unibail - Rodamco 3/Underperform TP EUR145 (+1%) Q1-12 turnover released with very few details as usual
Bruno Duclos, Research Analyst (bduclos@cheuvreux.com, +33 1 41 89 73 35) Unibail-Rodamco (UR) has released a Q1-12 turnover at EUR431.0m, in line (+0.7%) with Q1-11. As UR does not provide any data on a like-for-like basis, a refined analysis is impossible given the significant change in the scope over the past 12 months (asset disposals, acquisitions and extensions). UR also provides the growth of its retailers' turnover (+3.3% over Q1-12 vs. Q1-11) but this figure includes the positive impact of the extensions of existing assets: it is only possible to estimate that the turnover probably increased on a like-for-like basis, which would be in line with our positive view on the resilience of UR's revenues. We expect UR will provide more detailed figures for its Q3-12 turnover, in line with its industry leader status. In its press release, UR also mentions the launch of its 4-Star policy, the opening of Lyon Confluence and its successful refinancing for which we have provided extensive comments in our European Property Insight notes (resp. on 11/04/2012, 13/04/2012 and 20/03/2012). In spite of UR's secure profile and the decrease in share price since our February downgrade, we believe the stock is still too expensive with a 10% premium to 3NAV11 (18% discount for peers) and a CF yield at 6.5% (7.4% for peers). Our TP (EUR145) shows no upside, which motivates our renewed 3/Underperform rating.
Vinci 2/Outperform TP EUR43 (+26%) Solid Q1-12 figures- cautious guidance (as expected)
Borja Castro, Research Analyst (bcastro@cheuvreux.com, +34 91 4951631) Vinci published a very decent set of Q1-12 results yesterday with revenues up 6% y-o-y to EUR8.15bn (+5.3% on a comparable structure). By division, concession revenues were up 2% (despite traffic falling 1%) and contracting revenues up 4.7%. By division in contracting: Energies was resilient, Eurovia weak though seasonal - and Construction was strong. The backlog was solid and Vinci anticipates some FY-12 growth with margins maintained. As expected, the tone was cautious:
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Vincis order book at 31 March 2012 stood at EUR32.6 billion, a new record high, giving it good visibility over its Contracting business to the end of the year and beyond. Nonetheless, the uncertainties surrounding economic growth in Europe and, in particular, policies aimed at reducing public deficits, require caution with respect to certain countries and business sectors. Despite the decline in traffic observed since the beginning of the year, Vinci anticipates a slight increase in toll revenue from its French motorways based, inter alia, on a more favorable comparison base in the second half. Against this backdrop and given the level of contracting activity during the 1st quarter, the Group could experience a slight increase in its overall full year 2012 revenue, with the objective of keeping its operating margins at the good levels achieved in 2011. Our FY-12 forecasts see very limited growth, with FY-12 EPS basically unchanged, trading at around 10x P/E, with 50% of EPS coming from contracting and 50% from concessions. As we have said in the past, we see Vincis trading range at EUR30-40 per share and would advise investors to buy in the low 30s. At this stage, we believe the stock is unlikely to do much until we have more visibility on the year and the French situation. For longer term investors, we see Vinci as a wellrun company with a reasonable financial profile contrary to some of its southern peers.
Volkswagen 2/Outperform TP EUR176 (+39%) Strong Q1, 10% above consensus

Alexander Neuberger, Research Analyst (aneuberger@cheuvreux.com, 49 69 47 89 73 84) Volkswagen reported an overall strong Q1 performance, with sales 8% and EBIT 20% above consensus Group EBIT margin of 6.8% vs. consensus of 6.1% was generated by all key divisions. VW brand EBIT margin at 4.1%, Audi at 11.4% Apparently, rising launch cost for the modular toolbox were offset by strong price/mix components Core industrial sales indicate a huge 14% rise in sales/car - likely a key reason for the margin surprise Strong rise in capex to 4.0% (2.8%) of sales, due to several new plant openings and modules, was a key drag on cash flow Operating cash flow came to EUR1.454bn down 42% y-o-y. Core auto cash flow at EUR2.9bn (EUR5.1bn) Overall the group showed a strong market performance with a very solid mix. Group expansion is weighing on capex. VW group Q1-12 results
WPP Group 2/Outperform TP GBPp1050 (+25%) Q1 in line with expectations

Thomas Jorion, Research Analyst (tjorion@cheuvreux.com, +33 1 41 89 75 27) Q1 in line with expectations WPP has just released its Q1 revenues. Gross margin is GBP2,392m vs. Cheuvreux GBP2,362m and consensus GBP2,358m. Organic growth is 4.0%. We were expecting 3.5% organic growth, consensus 3.8%. It is not a major surprise as management already indicated January was up 4%, as well as February (later in March during a RS we organised with them). Market research still weighing on group perf., but marked improvement By business, it is interesting to note that Consumer Insight is up 1.3% organically what is better than a flattish 2011, even if still weighing on group performance. As a reminder, WPP guides for a gradual improvement in this business post painful TNS integration, with more or less 4% organic growth by the end of the year. On top of that, advertising and media remained very strong, up 6%, as is Healthcare (up 3.8%). Guidance reiterated, even if Q1 is ahead of WPP's budget
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WPP still expects ca 4% organic growth over FY12 and a 50bp adjusted operating margin improvement (including associates). Management nevertheless highlights Q1 was slightly better than budget. It compares with our respective 4.3% organic growth estimate and 40bp margin improvement. Analyst meeting at 10am GMT in London. WPP's trading statement includes no major surprise in our view after Omnicom (5.1% org. gr.), Publicis Groupe (4.1%), Havas (3.5%) and Interpublic (2.8%). WPP remains one of our top picks within Media thanks to its appealing geo mix as well as proactive digital strategy.
Sector/market updates
Netherlands Agreement with opposition on 2013 budget
Hans Pluijgers, Research Analyst (hpluijgers@cheuvreux.com, +31 20 573 06 34) At the beginning of this week we had to say the unexpected had happened with respect to the Dutch 2013 budget. Now we can say it again but this time with a positive under tone. The Government has reached an agreement with the opposition (D'66, Greens and CU) to get the required majority at head lines for the 2013 budget. The budget will be cut to 3% and significant reforms will be implemented. The details will be discussed in coming weeks. We believe this is very positive and is already partly reflected in the bond spreads, which came down yesterday through the day when there we more and more signs of an agreement as can be seen in the chart below. We also had expected an agreement with the opposition on several reforms like on the tax deductibility of interest on mortgages and an increase in the retirement age, but not on the 3% deficit target and certainly not so fast.
Head lines of agreement are: Increase in top tariff of VAT by 2%-points to 21% Freezing of wages of government employees and unemployment benefits likely for up to two years. Estimated savings between EUR1.5-2.0bn Own risk for individuals in health care will be raised from EUR200 to EUR400m. Savings of EUR1bn Banking tax to be doubled to EUR600m annually. The retirements age will increase as of 2013 already by 1 months and in the years after by 3 months. As a result the retirement age will be 66 in 2019 and 67 already in 2024. Long-term savings of EUR3bn.
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Relaxation of lay-off rules and employers have to pay first six months of unemployment benefits. Reforms of the housing market. Tax deductibility of interest on mortgages will be reduced for new mortgages We believe a lot of the devil will be in the detail, especially with respect to the impact on the housing market of the housing market reforms. Impact for Financial and Building sector mixed The increase in the banking tax is off-course negative for the Dutch banking sector. A banking tax of EUR300m to be levied as of mid this year was already announced. The precise date of implementation of the higher banking tax is still not clear, but we expect no later than 1 January 2013. Despite the fact that we assume that the costs will gradually be passed on to clients, the initial impact will be significant. Based on the deposit market shares we estimate additional impact for ING at appr. 0.7% of 2013 group earnings. Impact for SNS Reaal estimated at 10-11% of 2013 earnings. The impact for Van Lanschot is estimated at 15% of 2013 earnings. The reduction of tax deductibility on new mortgages gives the so much required clarity. The tax deductibility on new mortgages will reduces gradually over 30 years. In the long-run its reduces the risk for the financial sector. However, is will also imply that the mortgage loan book will drop putting pressure on long-term profitability of the Dutch banking sector. Currently about mortgages account for about 50-60% of the Dutch loan book. However, due to the economic crisis we expect the Dutch housing market to remain under pressure. On top of that the accelerated increase in rents for higher income will push more people into buying houses. However, the impact will be very gradual as the accelerated increase is limited and the reduction in the tax deductibility of interest on mortgages will increase housing expenses. However, the impact of this will be vary gradual. Furthermore, what already said the devil is in the detail especially with respect to compensating impacts which will be important for the turnover in the housing market. Dutch Parliament
Spain- Sovereign rating hammered two notches by S&P

Iigo Vega, Research Analyst (ivega@cheuvreux.com, +34 91 495 16 29) S&P has cut Spain's credit rating from A to BBB+ with a negative outlook. The report mentions the likely inability to meet budget deficit targets (they estimate -6.2% in 2012 and -4.4% in 2013) in a context of private deleveraging and GDP contraction (-1.5% in 2012 and -0.3% in 2013). S&P believes that the delay in adopting the 2012 budget will make targets more challenging. Following almost EUR90bn capital outflows over Mar-11-Jan12 (and we still need to add those in FebApr of this year- not disclosed yet), the downgrade will hardly be a surprise to many investors. But it represents a threat to the new government's plan A, which was based on taking the hard measures and gradually gain credibility on the back of these. This is clearly not happening (the market is not now a great believer in orthodox deleveraging and austerity yielding results). Let's see what plan B is. Also, it will be interesting to see the reaction of some of the Spanish banks playing the carry trade, although we do not expect any changes to regulatory capital consumption of holding Spanish sovereign debt (only in CCPs haircuts could rise further, but the usage of CCPs has came down as a result of LTROs.).
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Chemicals Europe Dow Chemical Q1-12 figures - slightly better than expected; Encouraging read across for the chemicals sector from Bayer's conference call
Martin Roediger, Research Analyst (mroediger@cheuvreux.com, +49 69 47 89 77 63) Dow Chemical Q1-12 figures - slightly better than expected Dow Chemical reported Q1-12 figures slightly ahead of expectations. Sales were flat at USD14.7bn, a bit shy of consensus of USD15.18bn. Volumes (+3%) and prices (+1%) were offset by disposals (polypropylene). The major driver (no surprise) was Agro with 12% volume growth and 2% price hikes. Adjusted EPS came in at -25.6% to USD0.61 in Q1-12, but beat consensus of USD0.59. Clean EBITDA was -14.6% to USD2.089bn in Q1-11. In principle the only segment which increased earnings at Dow was Agro. Very high comparison bases in Q1-11 were the reason for the reduction in earnings in other segments. We certainly will see this at other chemical companies as well. Read across: Several chemical companies will have to digest a decrease in earnings in their chemical operations as Q111 was a record quarter with very high utilization rates. There are just a few exceptions (e.g. Lanxess), which will show an earnings increase yoy in Q1-12. Encouraging read across for the chemicals sector from Bayer's conference call Bayer's chemical activities are bundled in MaterialScience, which consists in principle of three major segments. We learnt in the conference call that TDI (polyurethanes) is ticking up due to stronger growth in North America. The improving housing market there is a positive indicator. In general the business is ticking up due to rising furniture volumes (TDI is used in mattresses). We understood that Bayer targets 5% growth for TDI in 2012 vs. -1% in 2011. Last year the TDI market came under pressure due to the start of a new facility by Bayer, leading to interim oversupply. TDI in Asia moved up in pricing and should continue momentum according to Bayer. This was supported by the mothballing of production assets by a competitor in Japan, balancing supply and demand.
In MDI Bayer recognized growth in the US for insulation purposes. Moreover, we understood that the company was saying that polyurethanes products substitute wood application, supporting demand. The market for MDI is tightening according to Bayer also due to (maintenance) shutdowns of some plants and some not performing assets.
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BEST REGARDS, CHEUVREUX

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Europe Today

Today's best ideas in European Equities

Upcoming corporate roadshows over the next two weeks

Topics of the Day

Changes to Ratings, TPs & EPS

Disclosures are available on www.cheuvreux.com

Disclosures are available on www.cheuvreux.com

Disclosures are available on www.cheuvreux.com

Topics of the Day

Danone From 2/ to 1/Selected List TP EUR58 (+7%)

Changes to Ratings, TPs & EPS

Rating Target price (6 months)

2/Outperform +9.1% USD50.00 USD45.82 USD57.158bn

Price (25/04/12) Market capitalisation

1 month 1.4% 4.0%

3 months 12 months -4.1% -8.1% -4.6% -3.2%

Price/FTSE-A ALL SHARE

Bayer, Ipsen, Roche, Sanofi Glaxosmithkline, Novartis, Novo Nordisk

IT SOFTWARE & SERVICES

Rating Target price (6 months)

2/Outperform +7.6% EUR82.00 EUR76.19 EUR9.529bn

Price (26/04/12) Market capitalisation

3 months 12 months 19.6% 35.6% 22.9% 65.2%

84 79 74 69 64 59 54 49 44 04/10 08/10 12/10 04/11 08/11 12/11

comforted capacity to grow sales double digit l-f-l

Acquisition of Gemcom strengthening the position in the simulation segment

Sector focus Sector Top Picks Least favoured

Alten, Capgemini, Steria Indra

Stanislas BELLIARD (Research Analyst)

EPS estimate changes

AEROSPACE & DEFENCE

Rating Target price (6 months)

3/Underperform -2.5% EUR26.00 EUR26.68 EUR11.038bn

Price (25/04/12) Market capitalisation

3 months 12 months 12.6% 8.6% 13.9% 31.5%

32 30 28 26 24 22 20 18 04/10 08/10 12/10 04/11 08/11 12/11

CFM spares growth est. revised up, not much though

We also revise our growth rate for the equipment OE

As a consequence, we raise our rest. EBITA by 8%

Valuation: an addition of EUR2 but no more at this stage

EPS estimate changes

Rating Target price (6 months)

2/Outperform +18.0% EUR83.00 EUR70.32 EUR61.560bn

Price (26/04/12) Market capitalisation

3 months 12 months -4.4% -27.4% -7.3% -20.8%

98 93 88 83 78 73 68 63 04/10 08/10 12/10 04/11 08/11 12/11

Our TP moves from EUR87 to EUR83

Sector focus Sector Top Picks Least favoured

Alstom, Andritz AG Sandvik

OUR NEW FORECASTS POST Q2 2012

Rating Target price (6 months)

2/Outperform +23.0% EUR5.50 EUR4.47 USD5.403bn

Price (25/04/12) Market capitalisation

3 months 12 months -13.5% -45.8% -11.4% -32.6%

9.0 8.0 7.0 6.0 5.0 4.0 04/12

ST-Ericsson restructuring, a time-consuming exercise

For ST group the worst likely is over

ST shares, a value play (7% yield) in hope of recovery

Sector focus Sector Top Picks Least favoured

ARM HOLDINGS, Dialog Semiconductor

EPS ESTIMATE CHANGES

Rating Target price (6 months)