Silver Bullets

SILVER BULLETS
Q2 2010
EUROPEAN EQUITY CONTACTS
Aerospace & Defence Sales
Edward Stacey +44 20 7456 9135 Dipesh Patel +44 20 7456 1675
Austin Quick +44 20 7456 1160
Banks Catherine Pitcher +44 20 7456 9134
Chris Wilson +44 20 7456 1685
Fiona Swaffield +44 20 7456 1693 Derek Buckley +44 20 7456 1149
Alan Broughton +44 20 7456 6761 Duncan Haward +44 20 7456 1148
Anke Reingen +44 20 7456 1653 Iain Whiteley +44 20 7456 1651
Joseph Dickerson +44 20 3364 6752 James Goldstone +44 20 7456 1681
Jeremy McKeown +44 20 3364 6732
Capital Goods Mileen Rash +44 20 3364 6734
Nick Paton +44 20 7456 1190 Noel Leonard +44 20 3364 6781
Patrick Mayhew +44 20 7456 9156
Rob Virdee +44 20 7426 4222
Patrick Mortensen +44 20 7456 1147
Food & Beverages Philippe Piessens +44 20 7456 9160
Vicki Miller +44 20 3364 6737
James Edwardes Jones +44 20 7456 1697 David Walker (US) +1 203 622 8713
Martin Dolan +44 20 7456 1674 Amy Johnston (US) +1 203 983 3222
Burr Clark (US) +1 617 531 7100
Diversified Financials Elena Newman (US) +1 212 843 8810
Jan Halaska (US) +1 617 531 7101
Nitin Arora +44 20 3364 6786 Kevin Steuerer (US) +1 203 983 3232
Laura Burke (US) +1 212 843 8811
General Insurance
Joy Ferneyhough +44 20 7456 1670 Sales Trading Europe
Rakshit Ranjan +44 20 3364 6787
Garreth Hodgson +44 20 7456 1150
John Moore +44 20 7456 1140
Healthcare Alistair Thomson +44 20 7456 1690
Stefan Hamill +44 20 3364 6768 Andy Leonard +44 20 3364 6731
Chirag Talati +44 20 3364 6769 Chris Haase +44 20 7456 1159
James Lawless +44 20 7456 1125
Leisure Julie Beecher +44 20 7456 1656
Laura Mould +44 20 3364 6733
Alistair Macdonald +44 20 7456 9126 Peter Homan +44 20 7456 1677
Geetanjali Sharma +44 20 3364 6774 Peter Ward +44 20 7456 1145
Richard Archbold +44 20 7456 1666
Media Russell Clifton +44 20 7456 1680
Giasone Salati +44 20 7456 1163 Chris Davidson (US) +1 203 622 8733
Mike Cahill (US) +1 203 983 3224
Real Estate
Michael Burt +44 20 3364 6784 Corporate Access
Danielle Poulain +44 20 7456 1699
Retail Pippa Todd +44 20 7456 9170
Caroline Gulliver +44 20 7456 9173 Suzanne King +44 20 7456 9175
Richard Cathcart +44 20 7456 9155 Marianne Headey +44 20 7426 4263
Rob Evans +44 20 7426 4210
Sanjay Vidyarthi +44 20 3364 6788 Derivatives
Support Services Nick Tranter +44 20 7426 4255
David Gibbs +44 20 7456 4251
Shantnu Phutela +91 22 4211 0999 Graham Cottis +44 20 7426 4252
Jim Hoogewerf +44 20 7456 1691
Technology Christophe de la Celle +44 20 3364 6738
Andrew Miller +44 20 7426 4253
Arun George +44 20 3364 6783
Jiban Nath +44 20 7456 1657
Vijay Anand +44 20 3364 6775 Simon Dooley +44 20 7426 4256
Simon West +44 20 7426 4254
Telecommunications
Will Draper +44 20 7456 1694
Andrew Hogley +44 20 7456 1652 Portfolio and Electronic Trading
Nick Brown +44 20 7456 1669 Tony Nash +44 20 7456 1156
Alasdair Rolfe +44 20 7456 9168
Utilities Ben Johnson +44 20 7456 1655
Lawson Steele +44 20 3364 6771 Nishad Vallonthaiel +44 20 3364 6711
Andrew Fisher +44 20 3364 6773 Oliver Wilson +44 20 7456 1142
Q2 Silver Bullets Q2 Silver Bullet Buys
ABI 3
Load Up with Silver Bullets Aviva 5
AXA 7
For Q2 2010, Execution Noble Silver Bullet Buys are ABI, Aviva, AXA,
BNP Paribas, Cable & Wireless Communications, DSGI, Enterprise BNP Paribas 9
Inns, Hellenic Telecom, Lloyds Banking Group, Pernod Ricard, Cable&Wireless Comms 11
Prysmian, Qinetiq, Suez Environment and WPP
DSGI 13
Silver Bullet Sells are BAE Systems, Deutsche Telecom, Home Retail
Group, L’Oreal, Nordea Bank, RSA, Wolters Kluwer and Santander. Enterprise Inns 15
Hellenic Telecom 17
No quarter given
Another new quarter, another batch of Silver Bullets. The following pages contain Lloyds Banking Group 19
an amalgamation of our analyst’s highest conviction calls. These views are based Pernod Ricard 21
on our fundamental bottom-up analysis with a proviso that there must be some
form of catalyst in the quarter. In the previous quarter our portfolio outperformed Prysmian 23
the market producing a positive alpha of 2.8%.
Qinetiq 25
More stocks, more sectors, more positive
Suez Environment 27
We do not impose any top down view or inclusion requirements and as such the
shape of the list tells us much about the true nature of our analyst’s opinions right WPP 29
now. As such, it is interesting to note that 22 Buy and Sell ideas is the most we
have ever had (although to be fair there is another new sector this quarter,
welcome Utilities). We have 14 Buys which is the most Buys ever in the portfolio
and more intriguingly, the portfolio is 27% net long which is as positive a position Q2 Silver Bullet Sells
as the portfolio has held since inception in Q3 2007 – you have been warned!
BAE Systems 31
New and Old
Deutsche Telecom 33
This quarters’ portfolio is a good mix of brand new and existing ideas. Lloyds
Banking Group (Buy) and Prysmian (Buy) are two very successful calls held over Home Retail Group 35
from the last quarter. ABI (Buy), BNP Paribas (Buy) and Nordea (Sell) have begun
to work in our favour and are given another quarter to come to fruition and DSGI L’Oreal 37
(Buy) is given another chance. We see new catalysts for DT (Sell), L’Oreal (Sell),
Nordea Bank 39
Pernod (Buy), Wolters Kluwer (Sell), and WPP (Buy) and these all return back to
the fold. However we also feature a raft of brand new ideas. Aviva, Axa, CWC, RSA 41
Enterprise Inns, Hellenic Telecom, Qinetiq, and Suez Environment are all brand new
Buy ideas, while BAE Systems, Home Retail, RSA and Santander feature as key Santander 43
Sells for the first time.
Wolters Kluwer 45
Q1 2010 – Back in the groove
Our portfolio performed very well in the first quarter actually outperforming the
market (just!) despite being less than 30% net long. This marks a particular
watershed as it is the first time we have outperformed a rising market in absolute
terms despite the naturally hedged balance of the portfolio. Our Buy calls on
Lloyds Banking Group, Prysmian, Pearson, ZFS and Meggitt are the absolute stand
outs with each call showing a large positive return and significantly outperforming
their relevant sectors and the market as a whole. Putting the numbers on this,
Silver Bullets portfolio was up 3.9% in the quarter against a market which increased
by 3.8% (SXXP our benchmark again). Moreover the portfolio picks created a
positive alpha of 2.8% in the quarter which now makes it 9 quarters out of 12 that
we have generated a positive alpha return.
Page 1 of 48
http://www.execution-noble.com
Figure 1: Looking back at Q1 performance
(1) Silver Bullet sector relative performance measures stock performance relative to a corresponding net (long or short) investment in the relevant sector index
(2) Silver Bullet market relative performance measures stock and sector performance relative to the move in the market (not adjusted for direction of call)
(3) Silver Bullet portfolio alpha is an amalgamation of individual stock calls relative to a corrresponding position (long or short) in the market
Performance based in € Quarterly Share Price Silver Bullet € Rebased Silver Bullet Sector Silver Bullet Market Silver Bullet Portfolio
Move (local currency) Performance Relative Performance Relative Performance Market Alpha
Pearson Buy 16.3% 15.9% 9.4% 12.1% 11.6%

Informa Sell 21.0% -20.6% -14.1% -24.4% -17.5%
Silver Bullets Media -2.4% -8.9% -6.2% -2.4%
Media Sector (SXMP) 6.5%
Virgin Media Buy 4.5% 4.1% 5.2% 0.3% 0.3%

BT Group Sell -8.2% 8.5% 7.5% 4.7% 12.8%
Belgacom Sell 14.3% -14.3% -15.3% -18.1% -10.9%
Silver Bullets Telecom -0.6% 0.5% -4.4% -0.9%
Telecom Sector (SXKP) -1.0%
ZFS Buy 19.3% 24.3% 19.4% 20.5% 19.8%

Silver Bullets Insurance 24.3% 19.4% 20.5% 19.8%
Insurance Sector (SXIP) 5.0%
DSGI Buy -4.2% -4.6% -11.1% -8.4% -8.1%

JD Wetherspoon Sell 20.6% -20.2% -13.7% -24.0% -17.0%
Silver Bullets Retail 6.5% -12.4% -18.9% -16.2% -12.4%
Retail Sector (SXRP) 6.5%
Lloyds Banking Group Buy 23.8% 23.4% 23.2% 19.6% 18.9%

BNP Paribas Buy 1.7% 1.7% 1.5% -2.1% -2.0%
Nordea Sell -2.3% -2.8% -2.6% -6.6% 1.1%
Silver Bullets Banks 7.4% 7.3% 3.6% 6.1%
Banks Sector (SX7P) 0.2%
ABI Buy 2.5% 2.5% -4.4% -1.3% -1.3%

Silver Bullets Consumer 2.5% -4.4% -1.3% -1.3%
Consumer Sector (SX3P) 6.9%
Prysmian Buy 19.3% 19.3% 9.3% 15.4% 14.9%

Megitt Buy 17.6% 17.2% 7.2% 13.4% 12.9%
Silver Bullets Industrials 10.0% 18.2% 8.3% 14.4% 13.9%
Industrials Sector (SXNP) 10.0%
Silver Bullets Portfolio 3.6% 3.9% 0.1% 2.8%

Market (SXXP) 3.8%
Source: ExecutionNoble
Figure 2: Indexed Performance and Benchmarks
120
110
100
Returns Indexed to June 2007
90
80
70
60
50 Silver Bullets Absolute Performance

Credit Suisse/Tremont Equity long/short (€)
40
SXXP Index
30
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010
Page 2 of 48
ABI
Jazzing it up in St. Louis BUY 8% upside
Fair Value €40.4

ABI remains our favourite pick in the sector. Q1 figures due in early
May will mark the weakest quarter of the year but this has been well RIC, Bloomberg Code INTB.BR, ABI BB
Share Price €37.54
flagged and we would expect an improving earnings profile and
Market Capitalisation €59,658m
upgrades as we move through the year. ABI’s investor trip to St.
Free Float 48%
Louis should be the highlight of the quarter. We believe a key focus
here will be on the US distribution opportunity in terms of further
concentration, greater efficiency and improving effectiveness. This US$m (unless stated) 2009 2010E 2011E 2012E
Sales 33,860 36,630 38,053 39,766
should deliver another incremental leg to the ABI synergy story. Ebitda 12,110 14,089 15,194 15,999
EPS (US$) 2.27 3.38 3.91 4.32
Q1 expectations rightly lowered Dividend (€)
FCF
0.32
7,737
0.45
5,899
0.52
6,451
0.58
6,789
Invested Capital 81,522 78,514 76,550 74,313
ABI management went out of their way at the year end stage to lower Net Debt 45,174 39,929 34,286 28,338
expectations for the first half of 2010 and for Q1 ’10 in particular. This applies
equally to the top line, “in the first quarter 2010, volumes look the most challenging
for the full year” and the operating margin, “recall in the first quarter last year our
sales and marketing expense fell 3.3% while in the fourth quarter ’09, it increased
20% year over year”. So we don’t expect any great fireworks when ABI announces
th
Q1 results on Wednesday May 5 . Which begs the question, why pick ABI for this X (unless stated) 2009E 2010E 2011E 2012E
EV/Sales 4.2 3.9 3.7 3.6
quarter so? EV/Ebitda 11.8 10.1 9.4 8.9
PE 22.1 14.8 12.8 11.6
Its all about St. Louis in June Dividend Yield (%) 0.9 1.2 1.4 1.5
FCF Yield (%) 9.7 7.4 8.1 8.5
ABI have been so cautious on Q1 that behavioural finance alone would lead us to ROIC (%) 9.6 10.5 10.5 10.5
believe that they will beat expectations. However this is not enough to ensure Net Debt/Ebitda 3.7 2.8 2.3 1.8
ABI’s place as a Silver Bullet call for the second quarter. No, we believe that the
real catalyst for further performance will come around the Group’s capital markets
nd
day in St. Louis on June 2 . We remember back to the Group’s last big Capital
Markets trip to Sao Paolo following the AMBEV/Interbrew deal and the degree of
positive reaction that followed on from this trip.
US Synergies – cost and revenue ?

While the €2.25bn cost synergy side of the Anheuser Bush acquisition in the US is
well understood and pretty fairly discounted in the share price at the moment, we
believe there is a further opportunity for greater synergies (cost and revenue) to
be revealed – and we are not talking about the Pepsi purchasing synergies here. No
the next stage in the ABI integration should be a more holistic examination of the
distribution opportunities in the US. Part of this will come from greater
concentration of the US distribution/wholesale system. We reckon ABI has around
40 distribution/wholesalers in the state of Florida alone. This can be wholesaler led
or perhaps even company led – although the group’s latest initiatives in Illinois
seem to indicate some ongoing resistance to this route. Part also will come from a
greater focus on efficiency and execution in the distribution system itself. ABI
credits this greater emphasis on distribution efficiency and effectiveness as the key
factor that shifted the Brazilian mindset from an industrial driven business to a
sales led business in the mid 90’s. This is where we would expect the revenue
synergies to manifest themselves.
Still more legs to the story

Analysts
ABI is not expensive. It currently trades on 14.8 times this years earnings and 12.8 Martin Dolan
times 2011 – although we are 6% and 5% ahead of consensus for both years +44 20 7456 1674
respectively and hence would expect upgrades anyway. We also expect the trip to martin.dolan@execution-noble.com
St. Loius to illustrate the opportunity for further upgrades on top of this again. ABI James Edwardes Jones
remains firmly focussed on reducing net debt/Ebitda to 2.5 times and we forecast +44 20 7456 1697
james.ej@execution-noble.com
a level of 2.8 times by the end of this current year - in itself this will result in a
further €5bn equity for debt swap during 2010. There is 11% upside to our current Ved Vyas
+44 20 7426 4262
fair value and ABI is a Silver Bullet buy for the second quarter. ved.vyas@execution-noble.com
Page 3 of 48
Figure 11: ABI Abridged Financials
Valuation Metrics 2008 2009E 2010E 2011E
Anheuser-Busch InBev
Recommendation: Buy Execution P/E 20.3 14.8 12.8
Fair Value: EUR 40.4 Reported P/E 17.3 15.3 13.1
EV / Sales 3.8 4.4 4.0 3.9
Share Price: EUR 37.54 EV / EBITDA 12.3 12.2 10.5 9.7
Upside / Downside 7.6% EV / EBIT 16.2 15.4 13.0 11.9
FCF Yield 9.7% 7.4% 8.1%
Previous Fair Value EUR 35.1 Dividend yield 0.7% 0.9% 1.2% 1.4%
% change to fair value 15.1%
Bloomberg: ABI BB Key ratios 2008 2009E 2010E 2011E

T-One: ABI-BT
Model Published On: 01 April 2010 EBITDA margin 30.8% 35.8% 38.5% 39.9%
EBIT margin 23.3% 28.4% 31.1% 32.6%
Capex / Revenue 0.0% 4.1% 3.9% 4.7%
Shares In Issue (Less Treasury) 1,589 Capex / Depreciation 0.00 0.55 0.53 0.64
Market Cap (US$) 79,661 Net Debt / EBITDA 4.7 3.7 2.8 2.3
Net Debt 45,174 EBITDA / Net Interest 3.2 5.4 6.6
Adjustments For Associates & Minorities 23,011 ROE 15% 18% 19%
Enterprise Value 147,847
Net Pension Deficit
P&L Summary 2008 2009E 2010E 2011E
Forthcoming Catalysts Revenue 39,158 33,860 36,630 38,053

% change -13.5% 8.2% 3.9%
Full year 2009 results 04 March 2010 EBITDA 12,068 12,110 14,089 15,194
General Shareholders Meeting 27 April 2010 % change 0.3% 16.3% 7.8%
First Quarter 2010 results 05 May 2010 % margin 30.8% 35.8% 38.5% 39.9%
Second Quarter and Half Year 2010 results 12 August 2010 Depreciation & Amortisation -2,945 -2,507 -2,689 -2,789
EBIT 9,123 9,603 11,400 12,405
% change 5.3% 18.7% 8.8%
% margin 23.3% 28.4% 31.1% 32.6%
Associates 513 539 566
Execution Analyst Reported Operating Profit 9,123 11,568 11,250 12,249
James Edwardes Jones Net Financials -3,790 -2,625 -2,313
(44) 20 7456 1697 Other Pre-tax Income
james.edwardesjones@executionlimited.com Pre Tax Profit 7,662 9,164 10,502
Income Tax Expense -1,786 -2,422 -2,824
Minority Interests -1,264 -1,520 -1,618
Revenue Breakdown Net Income 4,612 5,222 6,060
Central & Asia Pacific Execution Net Income 3,920 5,372 6,216
Eastern 5%
Europe Reported EPS 2.90 3.29 3.81
Global Export
7%
& Holding Execution EPS 2.47 3.38 3.91
Companies
8% North America
DPS (€) 0.28 0.32 0.45 0.52
42%
Payout Ratio 11.2% 13.7% 13.7%
Western Shares In Issue (Less Treasury) 1,576 1,589 1,589 1,589
Europe
12%
Cash Flow Summary 2008 2009E 2010E 2011E

Latin America
26%
EBITDA 12,110 14,089 15,194
Taxes Paid -1,569 -2,422 -2,824
Operating Profit Breakdown Interest Paid / Received -2,776 -2,625 -2,313
Central and Change in Working Capital 787 -50 -60
Asia Pacific
Eastern Associate & Minority Dividends -513 -539 -566
1%
Global export Europe Other Operating Cash Flow 1,084 -1,131 -1,208
and holdings 3%
Net Trading Cash Flow 9,123 7,322 8,224
5%
Capital Expenditure -1,386 -1,423 -1,773
Western Free Cash Flow 7,737 5,899 6,451
Europe Acquisitions & Disposals 7,045 0 0
6% North America
Dividends Paid To Shareholders -1,313 -841 -1,074
48%
Equity Raised / Bought Back 0 0 0
Latin America Other Financing Cash Flow -1,983 187 267
37%
Net Cash Flow 11,486 5,245 5,643
Balance Sheet Summary 2008 2009E 2010E 2011E

Margin Trends
Cash & Equivalents 2,936
40% Tangible Fixed Assets 19,671
Goodwill & Intangibles 73,881
35% Associates & Financial Investments 7,110
Other Assets 7,903
Margin
30% Total Assets 111,501 112,525 112,197 111,633

Interest Bearing Debt 48,804 47,077 43,618 37,975
Other Liabilities 40,513 32,277 34,983 36,395
25%
Total Liabilities 89,317 79,354 78,601 74,370
Shareholders' Equity 22,442 30,318 29,224 31,273
20% Minority Interests -258 2,853 4,373 5,991
2008 2009E 2010E 2011E
Total Equity 22,184 33,171 33,597 37,263
EBITDA margin EBIT margin
Net Debt 56,660 45,174 39,929 34,286
Page 4 of 48
Aviva
Low Hanging Fruit BUY 42% upside
Fair Value 550p

Having achieved the targeted £500m of cost savings one year early
in 2009 we believe management could generate a further £200m of RIC, Bloomberg Code AV.L, AV/ LN
Share Price 387.7
savings in 2010 as the benefits of the restructuring programs in
Market Capitalisation £10,728m
various business units (particularly Europe) continue to emerge. This
Free Float 95%
would drive upgrades to IFRS earnings of 10%.
Q409 new business sales complimented our view that Aviva’s £m (unless stated) 2008 2009x 2010ex 2011ex
international diversification will afford them a quicker return to life Gross Written Premium 36,206 36,594 36,123 36,200
Net Income -885 1,492 1,847 2,227
sales growth than UK peers and we forecast 7% group operating EPS -36.78 37.86 57.13 68.31
profit growth in 2010 driven by life and asset management recovery. TBV per share 281 281 349 443
Combined ratio 98.4% 98.6% 98.1% 98.2%
We expect Q1 sales on May 11th to reinforce this view. Off balance Investment Yield 4.9% 4.8% 4.6% 4.6%
DPS 33.0p 24.0p 25.0p 27.5p
sheet gains from a release of the default reserve (£1.1bn) and Delta
Lloyd improvement should drive above average NTA growth of 18%.
At 1.1x 2010e NTA for a 15% RONTA we believe Aviva offers cheap
optionality on revenue growth returning in H2 2010 and see potential
for ST upgrades from restructuring. X (unless stated) 2008 2009x 2010ex 2011ex
P/E -10.5 10.2 6.8 5.7
Restructuring Should Drive further Cost Savings P/TBV 1.4 1.4 1.1 0.9
ROE 17.6% 16.0% 15.9% 14.3%
Aviva confirmed at FY09 results that they had completed £500m of cost saves a Yield incl. buybacks 8.5% 6.2% 6.4% 7.1%
Premium growth 16.8% 1.1% -1.3% 0.2%
year ahead of plan. With UK expense ratios still 3% behind peers and European Book Value growth -14.6% -6.3% 18.2% 21.2%
expense ratios 7-9% behind we see further savings available, particularly as the
European operations move from 15 separate entities to one holding company
structure in Dublin. As with ZFS’s “Zurich Way” program we expect a snowball
effect with further savings and efficiencies emerging over the next 2-3 years. We
have identified £200m of further saves in 2010 which would drive upgrades of 10%
to IFRS profit.
Growth and Margin Prospects Attractive

The sector is cheap, but desperate for catalysts. Aviva’s geographic diversification
(70% non-UK) will be an advantage, as we expect European life growth (via banc
assurance and unit-linked products) to pick up before the UK where we see
regulatory and tax constraints holding sales back. Q409 new business sales
suggested this may have begun with Q4/Q4 European sales of +17% driving YOY
growth of +5%. Aviva’s cost savings and northern European focus should drive
more resilient personal lines P&C profit than peers and improvements in life growth
will drive operating profit growth for the group of 7% in 2010 and 14% in 2011e
Default reserves and Delta Lloyd boost NTA

Aviva’s attractive 15% ROE will drive solid underlying book value growth in 2010/11.
Additionally we see upside of 28p per share to NTA from the release of UK default
reserves (£1.1bn) which are extremely conservative vs. UK bank peers (8% of loans
vs. 2-3% at LLOY/RBS) and as yet unutilised. We also expect an off balance sheet
gain from the recent re-rating of Delta Lloyd post IPO. We estimate 18% NTA
growth in 2010e.
Valuation Attractive, Upgrades Possible Analysts

Joy Ferneyhough
Aviva now trades at only 1.1x TBV despite a 15% ROE. Our fair value of 550p values +44 20 7456 1670
Aviva at 1.5x 2010e TBV (350p) in line with our other core large cap BUY ideas in joy.ferneyhough@execution-noble.com
the sector of ZFS and AXA. However if cost saves do emerge we believe further Rakshit Ranjan
upgrades are possible and we would note that despite Aviva’s target of “one +44 20 3364 6787
rakshit.ranjan@execution-noble.com
Aviva, twice the value” which implies a doubling of IFRS profit from 2007-2012e;
current consensus is over 25% below this level today. Santosh Singh
+91 22 2570 1152
santosh.singh@execution-noble.com
Page 5 of 48
Figure 11: Aviva Summary Financials
Valuation Metrics 2008 2009 2010E 2011E
Aviva
Recommendation: BUY Reported P/E -10.5 10.2 6.7 5.6
Fair Value: GBp 525 Operating P/E 6.7 8.6 7.7 6.8
P/NTA 1.4 1.4 1.1 0.9
Share Price: GBp 384 RONTA -13.1% 13.5% 16.4% 15.4%
Upside / Downside 36.6% Op. RONTA 17.6% 16.0% 15.8% 14.3%
Dividend yield 8.6% 6.2% 6.5% 7.2%
Bloomberg: AV/ LN Buy back yield
Model Published On: 1st April 2010

Key ratios 2008 2009 2010E 2011E
Shares In Issue 2,767 Loss ratio 62.6% 66.7% 66.2% 66.8%

Market Cap 10,636 Expense ratio 35.4% 32.3% 31.8% 31.0%
Free Float 100% Combined ratio 98.2% 99.1% 98.0% 97.8%
Accident year combined ratio 105.7% 102.2% 101.4% 100.5%
Net Tangible Assets 7,781 Running yield on investments 4.9% 4.8% 4.6% 4.6%
NTA per share GBp 281 Reported ROI 1.0% 4.0% 4.5% 4.6%
Investable asset base/NTA 14.2 13.5 11.1 9.2
Dividend payout ratio -90% 63% 44% 40%
Forthcoming Catalysts Ceded Reinsurance ratio 5.1% 5.2% 5.2% 5.2%
Tax rate 21.2% 27.1% 22.0% 22.0%
AGM April 28th 2010 Minority -2.3% 12.7% 15.0% 18.0%
1Q 2010 New Business May 11th 2010
Q2 2010 Results August 5th 2010
Q3 new business 4th November 2010 P&L Summary (GBP m) 2008 2009 2010E 2011E
Gross Written Premium 36,206 36,594 36,123 36,200

Net Written Premium 34,365 34,685 34,241 34,309
Execution Noble Analysts Net Earned Premium 34,642 34,755 34,261 34,319
Joy Ferneyhough Net claims incurred -29,353 -27,890 -28,516 -29,111

(44) 20 7456 1670 Underwriting expenses -8,095 -6,942 -7,073 -7,355
joy.ferneyhough@execution-noble.com Underwriting Result
Investment income
Rakshit Ranjan Realised and Unrealised gains
(44) 20 3364 6787 Other income
rakshit.ranjan@execution-noble.com Other expenses
Finance charges -436 -697 -691 -692
Revenue Breakdown Pre Tax Profit -1,300 1,805 2,296 2,734

Asset
managament
Income Tax Expense 415 -490 -506 -606
4% Net Income -885 1,315 1,790 2,128
Diluted EPS -37 38 57 68

Operating EPS 58 45 50 57
P&C DPS 33.0 24.0 25.0 27.5
45%
Life
51%
Growth rates 2008 2009 2010E 2011E
Gross Written Premium 1% -1% 0%

Net Written Premium 1% -1% 0%
Net Earned Premium 0% -1% 0%
Investments Breakdown Other
Net Tangible Assets 4% 24% 27%
8% EPS -203% 51% 20%
DPS -27% 4% 10%
Loans Governments
19% 28%
Balance Sheet Summary (GBPm) 2008 2009 2010E 2011E
Investable asset base 106,035 105,069 107,452 112,905

Cash
Goodwill & Intangibles -3,578 -3,381 -3,381 -3,381
6%
Net Tangible Assets 7,474 7,781 9,667 12,262
Corporates NTA per share 281 281 349 443
ST 29%
investments ABS/MBS
3% 7% Interest Bearing Debt 6,715 6,782 6,782 6,782
Preference shares 200 200 200 200
Cost of capital, Combined ratio, RONTA trend
20%
18%
16%
14%
12%
Margin
10%
8%
6%
4%
2%
0%
2007 2008 2009 2010E 2011E
Underwriting margin Cost of capital RONTA
Page 6 of 48
AXA
Organic Opportunities BUY 23% upside
Fair Value €20.5

FY09 results highlighted that the road to recovery for life earnings
has begun, however, concerns remain on US sales and the P&C RIC, Bloomberg Code AXAF.PA, CS FP
business. We expect this tug of war to continue as Axa focuses on
containing the operating headwinds in P&C vs. positioning
Free Float 94%
themselves for equity linked growth in sales/profits in the life
business through ‘10 and ‘11. We believe the upside will prevail here
with 9% operating profit growth in 2010e as AXA’s market geared €m (unless stated) 2008ex 2009ex 2010ex 2011ex
life business benefits from a return to growth. From a sentiment Net Income 923 3,605 4,492 4,908
EPS 0.45 1.57 1.96 2.14
perspective, we believe, the biggest catalyst will be a stabilisation of TBV per share 11.5 14.1 15.8 17.5
US sales. However, financially the current share price looks heavily Combined ratio 95.6% 99.0% 99.6% 100.4%
DPS 0.4 0.6 0.8 0.9
discounted vs. peers at 1x NTA given the medium term outlook for
earnings (14% ROE) and offers a good entry point here. We upgrade
our FV from EUR 19 to EUR 20.5 to reflect strong FY09 NTA growth
Axa’s Life Franchise well positioned for Growth

Given Axa’s clear correlation with the equity markets (30-40% of operations equity X (unless stated) 2008ex 2009ex 2010ex 2011ex
P/E 37.0 10.6 8.5 7.8
geared alongside balance sheet exposures) one of the key challenges over the near P/TBV 1.5 1.2 1.1 1.0
term will be re-energizing the sales effort in unit-liked and variable annuity life ROE 14.8% 12.3% 13.9% 13.6%
insurance as well as asset management. Trends have been improving with sales in Yield incl. buybacks 2.4% 3.3% 4.6% 5.3%
Premium growth -1.7% 0.4% 2.7% 4.6%
Q4 positive driving flat performance in 2009. Operating profit grew 55% in FY09, Book Value growth -24% 23% 12% 11%
however, excluding one offs this was also flat vs. 2008 a recovery from a -10%
decrease in H1. We expect unit-linked sales to increase across Europe in 2010 and
Axa should be a key beneficiary. Given margins of 123bps in UL vs. 66bps in
guaranteed business, growth will have a leveraged impact on margins as well. We
see the life and asset management businesses (65% of group) as the growth
engine of earnings and value going forward.
P&C Headwinds Remain

AXA’s personal lines franchise suffered from macro pressures in 2009 with
accident year loss ratio declines of 170bps. This drove underlying operating profit
down -12%. Management have a EUR 750m cost savings target in place for 2012
which should improve loss ratios by 2.8% via a combination of cost cuts and a shift
to direct marketing however we believe the near term challenges will still be high
in 2010 and have -7% operating profit in this segment.
Solvency Improvements Continue

Axa’s solvency I position improved 20% points in H2 to 171% of which 11% was
organic and 9% from the rights issue. This is back to pre crisis levels and in line
with peers Allianz as well as the target range for the likes of ZFS and Allianz. AXA
do still have higher leverage than peers, however, this reduced 8% to 26% in H2
and we expect this could reduce further if organic profitability continues at current
levels. Uncertainty still remains over Solvency II regulations and implementation
and AXA will continue to be at the forefront of the debate for investors, however
continued de-leveraging and strong organic ROE (14% in 2010) should ease some
of these concerns.
Analysts
Discounted Valuation Offers Attractive Entry Point Joy Ferneyhough
+44 20 7456 1670
joy.ferneyhough@execution-noble.com
Whilst FY09 results were solid, there were enough small niggles raised on Solvency
II, P&C operating outlook and sluggish US sales to lead to underperformance of the Rakshit Ranjan
+44 20 3364 6787
stock since then. However the shares are now trading at 0.9x NTA for a 14% rakshit.ranjan@execution-noble.com
RONTA which to us appears to have overly discounted any concerns. We expect
Santosh Singh
AXA to show operating profit growth above peers in 2010 and 2011 as the life and +91 22 2570 1152
asset management businesses improve. As such the current price looks a good santosh.singh@execution-noble.com
entry level for the longer term investor
Page 7 of 48
Figure 11: AXA Summary Financials
AXA
Recommendation: BUY Reported P/E 36.2 10.4 8.3 7.6
Fair Value: EUR 20.50 Operating P/E 8.3 9.7 8.9 8.1
P/NTA 1.4 1.2 1.0 0.9
Share Price: EUR 16.34 RONTA 3.9% 11.1% 12.4% 12.3%
Upside / Downside 25.5% Op. RONTA 14.8% 12.3% 13.9% 13.6%
Dividend yield 2.4% 3.4% 4.7% 5.4%
Bloomberg: CS FP Buy back yield - - - -
Model Published On: 1st April 2010

Key ratios 2008 2009 2010E 2011E

NTA per share EUR 14.1 Reported ROI 3.0% 3.2% 4.2% 4.3%
Dividend payout ratio 89% 35% 39% 41%
Tax rate 20.1% 19.6% 20.1% 19.9%
AGM 2010 April 29th 2010 Minority 9.4% 7.2% 7.5% 8.2%
1Q 2010 Sales May 6th 2010
2Q 2010 Results August 4th 2010
Autumn Investor Seminar November 16th 2010 P&L Summary (EUR m) 2008 2009 2010E 2011E

Net Written Premium

joy.ferneyhough@execution-noble.com Underwriting Result
Investment income -27,620 35,793 37,583 39,462
Rakshit Ranjan Realised and Unrealised gains
(44) 20 3364 6787 Other income
Finance charges -685 -1,482 -1,556 -1,634
Revenue Breakdown Pre Tax Profit 5,732 5,263 5,791 6,406

Asset Income Tax Expense -1,150 -1,033 -1,163 -1,275
Management
8% Net Income 923 3,605 4,492 4,908
Diluted EPS 0.45 1.57 1.96 2.14

P&C
36% Operating EPS 1.98 1.68 1.83 2.01
DPS 0.4 0.6 0.8 0.9
Life
Growth rates 2008 2009 2010E 2011E
50%
International
P&C Gross Written Premium -2% 0% 3% 5%
6% Net Written Premium
Net Earned Premium 0% 0% 3% 5%
Investments Breakdown Net Tangible Assets -25% 38% 12% 11%
Other
Real estate 5%
EPS -135% 248% 25% 9%
11% DPS -67% 38% 39% 15%
Cash Governments
5%
Balance Sheet Summary (EUR m) 2008 2009 2010E 2011E
37%
Investable asset base 410,772 416,966 428,080 441,619

Equities Goodwill & Intangibles -16,965 -16,469 -15,646 -14,863
5% Shareholders' Equity 37,443 46,229 49,266 52,292
ABS/MBS
NTA per share 11.5 14.1 15.8 17.5
2%
Corporates
35% Interest Bearing Debt 17,800 15,500 15,500 15,500
Preference shares - - - -
18%
16%
14%
12%
10%
Margin
8%
6%
4%
2%
0%
-2% 2007 2008 2009 2010E 2011E
Page 8 of 48
BNP Paribas
Number of pockets for upgrades BUY 27% upside
Fair Value €72

BNP’s gearing to investment banking, an improving credit
environment and good cost management should provide potential RIC, Bloomberg Code BNPP.PA, BNP FP
for earnings upgrades. The market has recently given BNP little
credit for consistent delivery. With an implied ROTE of 12% the
Free Float 85%
shares are undervaluing BNP’s ROTE potential and earnings
momentum. BNP should also be relatively well placed to face
regulatory challenges €m (unless stated) 2009 2010E 2011E 2012E
Pre-provision profit (adj) 15,001 15,339 15,394 16,362
Pre-tax profit 8,999 8,462 11,827 14,746
Adjusted net profit 4,906 5,681 7,266 9,524
EPS(€) 4.7 4.8 6.1 8.0
Earnings momentum DPS (€) 1.5 1.6 2.0 2.3
BVps(€) 51 53 58 63
TBVps (€) 39 42 46 52
Earnings expectations still look conservative. BNP has indicated it expects 2010
LLP as % RWAs 102 107 76 48
profits to be higher than 2009 but consensus and our estimates are still pretty much Cost income ratio (%) 56 57 57 56
close to 2009 levels. The key will be for BNP to prove to the market that CIB profits
which contributed 50% to 2009 pre tax profit are sustainable. We have factored in a
21% decline in capital markets pre provision profits 2010/2009 and a 16% decline
Q1/Q1. Flat capital markets profits 2010/2009 would add 7% to 2010 underlying pre X (unless stated) 2009 2010E 2011E 2012E
provision profit. Sluggish economic growth should mean that cost control remains Adjusted P/E 12.1 11.8 9.3 7.1
Pre-provision multiple 3.9 4.4 4.4 4.1
key. BNP has a proven track record of cost management and cost synergies from
Price / book 1.1 1.1 1.0 0.9
the Fortis deal should provide an additional lever. 2010 incremental cost synergies Price / tangible book 1.4 1.3 1.2 1.1
from the Fortis deal will add 1% to pre provision profit but an earlier delivery on 2012 Yield (%) 2.6 2.8 3.5 4.0
ROE (%) 10.86 8.63 11.29 13.31
cost synergies targets does not seem inconceivable.
ROTE (%) 13.3 11.8 13.9 16.3
Core Tier 1 ratio (%) 8.0 7.7 8.2 8.8
Provisioning cycle – earlier light at end of the tunnel?
BNP has guided for loan loss charges to come down from EUR8.4bn in 2009. Our
estimates screen conservatively. We do not expect loan loss charges to come down
from Q4 2009 levels before H2 2010. Our estimate of EUR7.8bn in 2010 compares to
EUR7.4bn underlying loan losses in 2009. Loan loss charges should come down
faster than for most of the stocks in our sector due to a higher weighting of
corporate loans (43% of exposure) and exposure to the US via BancWest (5%)
where loan losses seem to have stabilised. The sensitivity to changes in loan loss
charges is high – every 10bp decline in our 2011 loan loss charge estimate of 76bp
adds 7% to group profit.
Regulation – levers to pull

Uncertainty persists on where capital levels need to raise to and by when under a
new regulatory regime. The biggest hit to BNP’s core tier 1 ratio (8.0% YE 2009)
should be the deduction of minorities which appears the most likely to be watered
down. There is additional pressure that RWA will increase because of regulation
but we believe that BNP can do more to reduce RWA at Fortis than it initially
presented – 60bp additional capital relief best case. The outcome on liquidity rules
in terms of definition and timing is unclear. A solid position as a debt issuer and a
wide deposit base should be a relative advantage for BNP though.
Analysts
Anke Reingen
+44 20 7456 1653
anke.reingen@execution-noble.com
Fiona Swaffield
+44 20 7456 1693
fiona.swaffield@execution-noble.com
Joseph Dickerson
+44 20 7426 4228
joseph.dickerson@execution-noble.com
Page 9 of 48
Figure 11: BNP: Financial Summary
Valuation Metrics 2008 2009 2010E 2011E 2012E

BNP Paribas
Recommendation: BUY PER (adjusted) (x) 20.2 12.1 11.8 9.3 7.1
Fair Value: EUR 72.00 Price/Pre Provis Profit per share (x) 6.4 3.9 4.4 4.4 4.1
P/NAV (adjusted) (x) 1.6 1.4 1.3 1.2 1.1
Share Price: EUR 56.86 RoE (%) (adjusted) 8.5% 13.3% 11.8% 13.9% 16.3%
Upside / Downside 26.6% RoRWA (%) 0.56% 0.96% 0.81% 1.06% 1.31%
Implied cost of equity (curve) (%) 9.5% 9.0% 10.9% 12.6%
Bloomberg: BNP FP Yield (net) (%) 2.6% 2.8% 3.5% 3.9%
Key ratios 2008 2009 2010E 2011E 2012E

Core tier 1 ratio 5.5% 8.0% 7.7% 8.2% 8.8%
Shares In Issue 1,182 Leverage ratio 54.7% 37.4% 35.8% 33.3% 30.3%
Market Cap 67,186 Cost income ratio 63.6% 56.4% 57.4% 56.9% 55.6%
Free Float 85% Loan loss charges / loans 0.57% 1.02% 1.07% 0.76% 0.48%
RoE (%) (adjusted) 8.5% 13.3% 11.8% 13.9% 16.3%
NAV 2010E 49,913 RoA 16.9% 30.2% 32.2% 40.2% 51.5%
NAV per share 2010 EUR 42.3 RoRWA 0.56% 0.96% 0.81% 1.06% 1.31%
Forthcoming Catalysts
P&L Summary 2008 2009 2010E 2011E 2012E
Q1 2010 results 5th May 2010
AGM 2010 12th May 2010 Net interest income 13,498 21,021 20,627 21,040 22,092
Q2 2010 results 2nd August 2010 Total non interest income 13,878 19,170 20,453 20,513 20,713
Total gross operating income 27,376 40,191 41,080 41,553 42,805
Costs -18,400 -23,340 -25,100 -24,431 -24,699
Pre Provision Net Operating Income 8,976 16,851 15,980 17,122 18,106
Execution Noble Analysts Loan loss charges -5,752 -8,369 -7,830 -5,660 -3,750
Post provision profit 3,224 8,482 8,150 11,462 14,356
Anke Reingen Pre Tax Profit 3,924 8,999 8,462 11,827 14,746
(44) 20 7456 1653 Net profit 3,021 5,831 5,618 7,728 9,844
EPS adj. 2.8 4.7 4.8 6.1 8.0
Growth rates 2008 2009 2010E 2011E 2012E
Operating income -12% 47% 2% 1% 3%

Pre provision profit -27% 88% -5% 7% 6%
EPS adj. -66% 67% 2% 28% 31%
NAV (adjusted)/share -11% 24% 8% 10% 12%
Balance Sheet Summary 2008 2009 2010E 2011E 2012E
Total adj assets 1,585,020 1,737,161 1,787,698 1,828,852 1,870,829

Goodwill & Intangibles 12,728 13,178 13,178 13,178 13,178
Shareholders' Equity 41,693 59,684 63,091 68,135 75,001
NAV (adjusted)/share 31.8 39.3 42.3 46.4 52.1
NAV per share 46.0 50.5 53.4 57.7 63.5
RWA 528,000 621,000 689,630 710,319 745,835
Tier 1 equity 41,800 62,721 66,448 71,813 78,998
Core tier 1 equity 29,000 49,421 53,148 58,513 65,698
Page 10 of 48
Cable&Wireless Communications
Positive catalysts and strong cash flow BUY 34.5% upside
Fair Value £0.75

CWC is too cheap on current trading multiples. We expect greater
clarity, better disclosure, cyclical upside and management focus to RIC, Bloomberg Code CWC.L, CWC LN
act as positives and M&A interest is inevitable. Cash generation is Share Price £0.56
strong and increasing if you look through the current year. All these Market Capitalisation £1.5bn
factors are underpinned by the ongoing management LTIP, Free Float 100.0%
incentivizing managers that are currently out of the money to create

some value before its expiry in March 2011. BUY, FV £0.75. GBP m (unless stated) Mar-09 Mar-10 Mar-11 Mar-12
Net revenue 2,447 2,294 2,318 2,335
Cyclical upside EBITDA 871 833 873 873
Capex 337 320 310 300
CWC Group is managed as four regional operations: the Caribbean, Panama, FCF 301 345 424 428
Net Debt 571 771 801 819
Macau and Monaco & Islands. Many of the 38 economies in these regions are EPS (GBP) 0.07 0.04 0.06 0.07
dependent on tourism and the decrease in tourists over the last couple of years DPS (GBP) 0.15 0.05 0.08 0.08
exacerbated the effect of the downturn. International voice and roaming services All financial estimates are "as reported"
DPS includes special dividends
in particular were adversely affected.
The Caribbean has been most affected by the downturn and there will probably be
no improvement in the next financial year, but management sees stabilization here,
supported by recent improvements in GDP and tourist arrival statistics. Mar-09 Mar-10 Mar-11 Mar-12
EV / Sales 1.2 1.3 1.3 1.3
Panama is a “premium GDP growth market” – the IMF estimates GDP will grow by EV / EBITDA 3.3 3.7 3.5 3.5
P/E 9.9 13.8 11.9 11.2
3.7% in 2010 and will continue to grow by around 7% p.a. in 2011-14, which bodes FCF Yield (%) 10.2% 11.7% 14.3% 14.5%
well for CWC in Panama. Indeed, CWC have already started to see more FCFE Yield (%) 6.5% 10.3% 14.0% 14.7%
government enterprise projects in Panama which are currently represent more Dividend Yield (%) 26.8% 9.4% 14.4% 14.7%
Net Debt / EBITDA 0.7 0.9 0.9 0.9
than 50% of the total revenues from enterprise projects in the region ($100m).
All multiples based on underlying financials
Macau has also seen enhanced GDP growth in the past few years, driven by the Proportionate adjustments made where appropriate
construction and operation of large-scale casinos. Macau’s economy suffered in

early 2009 but has benefited in the last quarter from increased tourist numbers
and gaming revenue and a resumption of a number of the hotel and casino
projects. We believe this region should be much stronger for CWC in the 2010/11
financial year if this cyclical recovery continues.
M&A interest is inevitable

We believe greater clarity of structure post demerger will lead to bid interest.
There is likely to be a longer term break-up, although in the near term
management is likely to reposition the assets around regional clusters. Macau and
Monaco could be sold (to CMHK, FT), and assets bought in the Caribbean and
Central America (Cuba, Govt stake in Panama). Overall we see M&A acting as a
positive catalyst.
Forecasts show strong cash flow generation

We forecast 1-1.5% long term revenue growth, EBITDA margin that erodes to 35%,
and flat capex at $300m (c. 12% of sales). These estimates produce extremely
healthy equity FCF that grows from $350m in FY9/10 to above $500m – helped by
de-leverage. We do not include an allowance for a cyclical recovery – despite
evidence that this is already underway in Panama and Macau. CWC should be able
to build on its FY10/11 $0.08 DPS pledge, an attractive and sustainable yield.
Valuation attractive Analysts

Will Draper
We value CW Communications at £0.75 ($1.15). At the current share price, CWC is +44 20 7456 1694
will.draper@execution-noble.com
trading at a 22% discount to our fair value, and looks even cheaper on multiples of
3.5x EBITDA, 11.9x PE, 14.1% EFCF yield and dividend yield of 14.4%. We need to Andrew Hogley
+44 20 7456 1652
acknowledge the lack of a natural peer group for CWC but these yield multiples
andrew.hogley@execution-noble.com
are stand-out cheap, especially the dividend yield, for a stock producing reliable
FCF with a sustainable dividend and cyclical upside. The ongoing management Nick Brown
+44 20 7456 1669
LTIP will also incentivize managers that are currently out of the money to create nick.brown@execution-noble.com
some value before its expiry in March 2011.
Page 11 of 48
Figure 11: Cable & Wireless Communications Financial Summary
CWC Valuation Metrics Mar 08 Mar 09 Mar 10 Mar 11 Mar 12

Recommendation: BUY
Fair Value: GBP 0.75 Execution P/E 7.0 9.9 13.8 11.9 11.2
Reported P/E 10.1 12.3 21.8 14.2 12.1
Share Price: GBP 0.56 EV / Sales 1.2 1.2 1.3 1.3 1.3
Upside / Downside 34.5% EV / EBITDA 3.7 3.3 3.7 3.5 3.5
EV / EBIT 6.5 5.5 6.4 5.8 5.5
Previous Fair Value GBP 0.75 FCF Yield 9.6% 10.2% 11.7% 14.3% 14.5%
% change to fair value 0.0% Dividend yield 27.0% 26.8% 9.4% 14.4% 14.7%
Bloomberg: CWC LN
T-One: CWC-LN Key ratios Mar 08 Mar 09 Mar 10 Mar 11 Mar 12
Model Published On: 01 April 2010
EBITDA margin 31.4% 35.6% 36.3% 37.7% 37.4%
EBIT margin 18.5% 21.8% 20.1% 22.0% 23.1%
Shares In Issue (Less Treasury) 2,625 Capex / Revenue 14.9% 14.7% 13.9% 13.4% 12.8%
Market Cap 2,187 Capex / Depreciation 1.29 1.22 0.96 0.92 0.87
Net Debt 771 Net Debt / EBITDA -0.6 0.7 0.9 0.9 0.9
Adjustments For Associates & Minorities 0 EBITDA / Net Interest 14.9 5.5 6.9 7.5 8.2
Enterprise Value 2,958 ROE 12% 23% 12% 20% 25%
Net Pension Deficit 243
P&L Summary Mar 08 Mar 09 Mar 10 Mar 11 Mar 12

Revenue 2,462 2,447 2,294 2,318 2,335
FY 2009/10 results 27 May 2010 % change 6.6% -0.6% -6.2% 1.0% 0.7%
1Q IMS 21 July 2010 EBITDA 774 871 833 873 873
AGM 21 July 2010 % change 0.9% 12.5% -4.3% 4.8% 0.0%
% margin 31.4% 35.6% 36.3% 37.7% 37.4%
Depreciation & Amortisation -284 -294 -332 -339 -344
Associates 77 60 38 25 25
EBIT 455 534 461 511 539
% change -2.4% 17.4% -13.7% 10.8% 5.6%
Execution Analyst % margin 18.5% 21.8% 20.1% 22.0% 23.1%
Will Draper Net Financials -52 -159 -121 -117 -107
(44) 20 7456 1694 Other Pre-tax Income 31 19 -1 0 0
will.draper@executionlimited.com Pre Tax Profit 434 394 339 394 432
Income Tax Expense -106 -88 -99 -98 -108
Disconitinued Operations 0 18 0 0 0
Revenue Breakdown Minority Interests -112 -146 -140 -141 -143
Net Income 216 178 100 154 181
Execution Net Income 312 221 159 183 196
Macau
23% Reported EPS 0.09 0.07 0.04 0.06 0.07
Caribbean Execution EPS 0.13 0.09 0.06 0.07 0.07
37% DPS 0.15 0.15 0.05 0.08 0.08
Payout Ratio 171.6% 210.9% 137.0% 136.5% 118.6%
Shares In Issue (Less Treasury) 2,424 2,486 2,625 2,625 2,625
Monaco &
Islands
13%
Cash Flow Summary Mar 08 Mar 09 Mar 10 Mar 11 Mar 12
Panama
27% EBITDA 774 871 833 873 873
Taxes Paid -92 -115 -89 -89 -103
EBITDA Breakdown Interest Paid / Received -52 -159 -121 -117 -107
Change in Working Capital 39 17 -25 -4 -2
Associate & Minority Dividends 8 -77 -115 -140 -141
Macau Other Operating Cash Flow 38 99 192 233 242
20%
Caribbean Operating cash flow 715 636 676 757 762
32% Capital Expenditure -367 -359 -320 -310 -300
Free Cash Flow 284 301 345 424 428
Monaco & Acquisitions & Disposals -44 -13 -3 0 0
Islands Dividends Paid To Shareholders -277 -258 -260 -200 -212
16% Equity Raised / Bought Back 24 5 194 0 0
Other Financing Cash Flow -689 -594 -297 -254 -234
Net Cash Flow -702 -559 -21 -30 -18
Panama
32%
Balance Sheet Summary Mar 08 Mar 09 Mar 10 Mar 11 Mar 12

Margin Trends
Cash & Equivalents 1,360 581 643 613 595
40% Tangible Fixed Assets 1,660 1,602 1,631 1,647 1,647
35% Goodwill & Intangibles 453 371 327 283 239
30% Associates & Financial Investments 299 327 295 291 301
25% Other Assets 806 640 678 672 669
Margin
20% Total Assets 4,578 3,521 3,575 3,506 3,451

15% Interest Bearing Debt 873 1,152 1,414 1,297 1,190
10% Other Liabilities 1,584 1,280 1,341 1,341 1,341
5%
Total Liabilities 2,457 2,432 2,755 2,638 2,531
Shareholders' Equity 1,738 774 808 762 732
0%
Minority Interests 383 315 323 324 326
2008 2009 2010 2011 2012
Total Equity 2,121 1,089 1,131 1,086 1,058
Net Debt -487 571 771 801 819
Source: Bloomberg, Company data, ExecutionNoble
Page 12 of 48
DSGI
2D or Not 2D BUY 29% upside
Fair Value 45p

Management continues to deliver uplifts from new formats and cost-
savings from the core business, defying a valuation in line with UK- RIC, Bloomberg Code DSGI.L, DSGI LN
Share Price 35p
exposed retail peers. With profit forecasts 16% ahead of consensus,
we see the risk to EPS forecasts and valuations to the upside; Buy.
Free Float 99%
Recent management visit supports positive stance
Whilst management has made the underlying rationale for the Renewal and Year to 30 April, £m 2008 2009 2010E 2011E
Sales 8,339 8,365 8,488 8,488
Transformation plan very clear, including the acceleration of the rollout of the new PBT 223 56 105 136
formats, it is also responding well to the issues facing the UK electricals industry. EPS (p) 9.1 0.7 1.2 2.3
We hosted John Browett and David Lloyd-Seed last week and would highlight the Dividend (p) 5.5 0.0 0.0 0.0
FCF*1 108 -386 10 8
following 3 points as key to the investment story: Invested Capital 971 1,351 1,374 1,441
Net Debt -52 475 219 212
x Management has talked of staffing new Megastores and 2-in-1s with high
1. Post capex
calibre store management. With recruitment and training providing ample
talent, there is no fear that lesser teams won’t be able to maintain uplifts
as the plan is accelerated. Recruiting staff from competitors is something
which is becoming easier as candidates are keen to join the “revolution”.
Year to 30 April, x 2008 2009 2010E 2011E
x The threat of Best Buy was met with a degree of bemusement as to what EV / Sales 0.15 0.21 0.20 0.20
they will bring to the UK market which isn’t already provided. Much has EV / EBITDA 3.5 8.1 6.3 6.0
PE 3.8 46.6 28.8 15.5
been made of the potential for Best Buy to sign cheap lease agreements,
Dividend Yield (%) 15.6 0.0 0.0 0.0
but remember that DSGI signed a significant proportion of its current FCF Yield (%) 8.6 -30.6 0.8 0.6
OOT lease agreements as an anchor tenant to new bulky goods sites. As ROIC (%) 13.9 2.8 3.8 6.8
Net Debt / EBITDA -0.2 2.2 0.8 0.7
such, it will have received favourable terms and doesn’t envisage Best
Buy gaining any sort of a structural cost advantage here.
x The current technological cycle is still moving forwards to the benefit of

DSGI, despite the flat-screen market reaching maturity. As more and more
content is provided in HD or even 3D, TVs and Laptops are becoming
obsolete more quickly thus encouraging consumers to trade up (we
understand the laptop replacement cycle has reduced from 4 to 2 years).
Interestingly, 2D content is being converted to 3D content in Laptops, as
witnessed during a recent management visit from DDD, and Sky will
reportedly roll out its 3D channel to hundreds of pubs from April.
Helped by structurally strong profits in Nordics in the bag…

DSGI’s Nordic business, which we forecast will account for 73% of group profits in
FY10, is structurally leaner with only one DC operating from Sweden. Historically,
the business existed to supply franchisees and as such, is run to a very lean cost
base. Not only this, but it generates excellent sales densities and has been growing
its already impressive market share through the recession.
…FY10 results expected at the top end of consensus

DSGI’s interim results were the first confirmation that the company was able to
drive continued sales and gross margin uplifts, close loss-making stores and retain
cost savings, reversing operating losses to report a £10m operating profit. In the
quarter to end-June, we expect to see further evidence of these initiatives with
DSGI scheduled to report FY trading on 6 May and FY profits on 24 June. We are
happy to be 16% ahead of consensus PBT forecasts for the full year (Exec £105m). Analysts
Caroline Gulliver
+44 20 7456 9173
Valuation, on 11.9x cal 2011 EPS, is increasingly appealing caroline.gulliver@execution-noble.com
At 35p, trading on 18.7x cal 2010 EPS, DSGI’s share price arguably reflects much of Robert Evans
+44 20 7426 4210
this year’s potential positive earnings surprise, but on 11.9x cal 2011 EPS, there is robert.evans@execution-noble.com
seemingly very little priced in for the following year. We remain of the view that
Richard Cathcart
despite the prevailing macroeconomic environment, DSGI will drive c.50% CAGR in +44 20 7456 9155
PBT for the next three years, as such we retain our Buy recommendation richard.cathcart@execution-noble.com
Page 13 of 48
DSGi
Recommendation: Buy Execution P/E 4.0 -1,502.0 28.8 15.5 10.4
Fair Value: 45p Reported P/E -2.6 -3.4 37.2 15.5 10.3
EV / Sales 0.2 0.2 0.2 0.2 0.2
Share Price: 35p EV / EBITDA 4.2 6.7 5.3 5.0 4.2
Upside / Downside 28.9% EV / EBIT 7.1 18.2 10.7 9.5 7.2
FCF Yield 7.2% -19.4% 3.3% 2.2% 6.0%
Previous Fair Value Dividend yield 15.6% 0.0% 0.0% 0.0% 5.2%
% change to fair value
Bloomberg: DSGI LN Key ratios 2008 2009 2010E 2011E 2012E

T-One: DSGI-LN
Model Published On: 01 April 2010 EBITDA margin 4.1% 2.6% 3.2% 3.4% 3.9%
EBIT margin 2.5% 1.0% 1.6% 1.8% 2.3%
Capex / Revenue 2.1% 1.7% 2.1% 2.3% 2.3%
Shares In Issue (Less Treasury) 3,612 Capex / Depreciation 1.3 1.0 1.3 1.4 1.4
Market Cap 1,261 Net Debt / EBITDA -0.2 2.2 0.8 0.7 0.6
Net Debt 219 EBITDA / Net Interest -31.2 8.0 7.2 11.8 15.1
Adjustments For Associates & Minorities -26 ROE 18% 0% 5% 8% 11%
P&L Summary, y/e Apr 2008 2009 2010E 2011E 2012E
Forthcoming Catalysts Revenue 8,339 8,365 8,488 8,488 8,698

% change 5.2% 0.3% 1.5% 0.0% 2.5%
FY2010 results 24 June 2010 EBITDA 343 215 274 291 343
1Q trading statement (tbc) 01 September 2010 % change -14.1% -37.1% 27.2% 6.3% 17.6%
1H2011 results (tbc) 25 November 2010 % margin 4.1% 2.6% 3.2% 3.4% 3.9%
Operating Profit 206 80 136 154 201
% change -22.4% -61.2% 71.1% 12.6% 31.1%
% margin 2.5% 1.0% 1.6% 1.8% 2.3%
Execution Analysts EBIT 212 83 143 161 210
Caroline Gulliver +44 20 7456 9173 Net Financials 11 -27 -38 -25 -23
Robert Evans +44 20 7426 4210 Other Pre-tax Income 0 0 0 0 0
Richard Cathcart +44 20 7456 9155 Pre Tax Profit (core) 223 56 105 136 188
Minority Interests -1 0 0 0 0
Revenue breakdown (2010E) Net Income (core) 156 0 44 81 122
Net income (published) -243 -219 34 81 122
Other
10%
Execution EPS 8.6 0.0 1.2 2.3 3.4
UK Electricals
Southern 30%
Reported EPS -13.5 -10.2 0.9 2.3 3.4
Europe
19% DPS 5.45 0.00 0.00 0.00 1.80
Payout Ratio 63.2% 0.0% 0.0% 0.0% 53.4%
Nordics UK Computing Cash Flow Summary, y/e Apr 2008 2009 2010E 2011E 2012E
24% 17%
EBITDA 343 215 274 291 343
Taxes Paid -53 -36 -61 -54 -66
Profit breakdown (2010E) Interest Paid / Received -28 -106 -38 -25 -23
Change in Working Capital 6 -288 26 0 22
£m
80 Associate & Minority Dividends -4 -4 -6 -7 -9
70 Other Operating Cash Flow -12 -28 -10 0 0
60
Operating cash flow 251 -246 185 205 267
50
40 Capital Expenditure -175 -142 -175 -198 -202
30 Free Cash Flow 76 -388 10 8 65
20 Acquisitions & Disposals 32 1 0 0 0
10 Dividends Paid To Shareholders -161 -60 0 0 -65
0
Equity Raised / Bought Back -97 0 311 0 0
-10
-20
Other Financing Cash Flow 0 -30 -65 0 0
-30 Net Cash Flow -150 -477 256 8 0
UK UK Nordics Other E-Commerce
Electricals Computing
Balance Sheet Summary, y/e Apr 2008 2009 2010E 2011E 2012E
Sales growth trends
Cash & Equivalents 448 202 457 465 465
Tangible Fixed Assets 531 490 527 587 648
4% Goodwill & Intangibles 1,128 1,218 1,218 1,218 1,218
Other Assets 1,720 1,707 1,733 1,733 1,756
0%
Total Assets 3,857 3,659 3,989 4,071 4,173
2008 2009 2010E 2011E 2012E
-2% Interest Bearing Debt -396 -676 -676 -676 -676
-4% Other Liabilities -2,607 -2,398 -2,384 -2,384 -2,429
Total Liabilities -3,003 -3,074 -3,060 -3,060 -3,105
-6% Shareholders' Equity 880 611 956 1,037 1,095
-8% Minority Interests -27 -26 -26 -26 -27
-10%
Total Equity 854 585 930 1,011 1,068
LFL New space Net Debt / (Cash) -52 475 219 212 212
Page 14 of 48
Enterprise Inns
Concerns are vanishing BUY 25% upside
Fair Value 150p

ETI will report interims on 11 May which should offer reassurance over
several issues. First, we anticipate further improvement in underlying RIC, Bloomberg Code , ETI LN
Share Price 120p
trading. Second, we expect further success in selling down its
Market Capitalisation £599m
underperforming estate. Third, the company should confirm that
Free Float 92%
debt renegotiations remain on track and as pubs are sold down we
take comfort that the ultimate requirement will be lower.
Additionally, we expect fears over the beer tie to continue to abate. Year to Sept, £m 2008 2009 2010E 2011E
Sales 880 811 739 725
Consequently we expect a greater shift in the market’s focus away Ebitda 512 450 397 385
EPS 39.1 30.6 23.8 24.7
from these issues and towards the huge discount to NAV that ETI is Dividend 16.2 0 0 0
currently trading at (209p ex-goodwill or 308p on an EPRA adjusted FCF post asset churn 125 194 351 196
Net Debt (3,767) (3,679) (3,328) (3,132)
basis). Buy, FV 150p.
Future of the beer tie in Pubcos hands

Post the BISC report, we believe that the threat of Competition Commission
involvement is very much in the hands of the Pubcos and is therefore significantly
reduced. The OFT/CAMRA decision is still pending and the GMB continues to gain Yeat to Sept, x 2008 2009 2010E 2011E
press inches, but we do not see these as a significant threat to the beer tie. EV/Sales 5.0 5.3 5.3 5.1
EV/Ebitda 8.5 9.5 9.9 9.7
No numbers, but no surprises in last week’s IMS PE
Dividend Yield (%)
3.1
13.5%
3.9
0.0%
5.0
0.0%
4.9
0.0%
FCF Yield (%) 20.9% 32.4% 58.5% 32.8%
A rather frustrating IMS statement gave no real update other than to say that
Net Debt/Ebitda 7.4 8.2 8.4 8.1
‘there has been no material change’ in performance and we expect to see net
income per pub down between 3-4% for 1H. Financial support continues to reduce
as the underperforming estate is sold down, and guidance over disposals and sale
and leaseback remains unchanged. In our view, steady as she goes should be seen
as reassuring and share price weakness a buying opportunity.
Interims on the horizon should breed confidence

We expect an unsurprising set of interims on 11 May, which should show the market
that ETI is continuing to move in the right direction and debt levels are reducing.
We do not expect the renegotiation of the financing loan to have taken place, but
a reiteration that that the company remains confident of completing its refinancing
by September. Nonetheless, a reassuring set of numbers should make such
negotiations that much easier and begin to purge fears of an equity raise along
with some confidence that negotiations will conclude on schedule. Concern over
the debt renegotiation continues to drag on ETI’s share price and, like JDW, once
removed should lead to significant outperformance.
Pub property market recovering?

Pub property values have crumbled since 2007 but, according to Christie’s, the
market has effectively hit the bottom. Transaction volumes have leapt up in Q1
2010 YOY according to the Morning Advertiser, which notes the early buds of a
return of market confidence. This should help ETI sell down its underperforming
estate and further reduce its debt requirement in time for renegotiation.
Too much of a discount to NAV

Analysts
On our estimates ETI trades on a calendar 2010 EV/EBTIDA of 10.9x (vs the sector
Alistair Macdonald
on 9.0x). We still believe current year numbers are too high and remain 11% below +44 20 7456 9126
consensus at the FY2010 PBT level, but even on our numbers debt covenants alistair.macdonald@execution-noble.com
remain secure. However, we do not believe the company should be trading on such Caroline Gulliver
a large discount to NAV (291p per share, 209p excluding goodwill). Indeed, using a +44 20 7456 9173
caroline.gulliver@execution-noble.com
conservative interpretation of the European Public Real Estate Association’s best
practice policy we reach an NAV of 308p. Even applying a 15% discount to account Robert Evans
+44 20 7426 4210
for ETI not being a REIT leaves this metric on 262p. Additionally, we believe the robert.evans@execution-noble.com
property portfolio alone could be worth in excess of 300p per share (adjusted for
debt but pre costs associated with sale and early debt redemption).
Page 15 of 48
Table 11: Enterprise Inns £m unless stated
Valuation Metrics Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E
Enterprise Inns
Recommendation: BUY Execution P/E 4.1 5.0 4.9 4.4 4.0
Fair Value: 150p Reported P/E 3.9 5.0 4.9 4.4 4.0
EV / Sales 5.3 5.8 5.9 5.8 5.7
FCF Yield 7.6% 7.0% 7.4% 7.0% 7.1%
Previous Fair Value 80p Dividend yield 0.0% 0.0% 0.0% 9.2% 10.0%
% change to fair value 87.5% REP Ratio 1.37 1.24 1.22 1.25 1.28
NAV 275 291 315 331 349
Bloomberg: ETI EBITDA LFL% -11% -7% 2% 4% 4%
T-One: ETI NAV goodwill adjusted 193 209 233 249 267
Model Published On: 01 April 2010 EPRA+ NAV 294 308 332 348 366
Key ratios Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E
Shares In Issue (Less Treasury) 499
Market Cap 599 EBITDA margin 55.5% 53.7% 53.2% 53.4% 53.6%
Net Debt 3,679 EBIT margin 54.0% 52.2% 51.7% 51.9% 52.2%
Adjustments For Associates & Minorities 0 Capex / Revenue 6.9% 6.6% 6.4% 6.2% 5.9%
Enterprise Value 4,278 Capex / Depreciation 4.67 4.52 4.35 4.19 4.05
Net Pension Deficit -1 Net Debt / EBITDA 8.2 8.4 8.1 7.6 7.2
EBITDA / Net Interest 2.0 1.8 1.9 2.0 2.1
ROE 11.1% 8.2% 7.8% 8.2% 8.5%
Adj ROCE 7.7% 7.1% 8.1% 8.4% 8.7%
Interims results 11 May 2010
Third quarter results July 2010
Full year results November 2010 P&L Summary Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E
First quarter results January 2011
Revenue 811 739 725 733 749
% change -7.8% -8.8% -2.0% 1.1% 2.2%
EBITDA 450 397 385 391 402
% change -12.1% -11.8% -2.9% 1.5% 2.7%
Execution Analyst % margin 55.5% 53.7% 53.2% 53.4% 53.6%
Alistair Macdonald Depreciation & Amortisation -12 -11 -11 -11 -11
(44) 20 7456 9126 EBIT 438 386 375 381 391
alistair.macdonald@executionlimited.com % change -13.1% -11.8% -3.0% 1.5% 2.7%
% margin 54.0% 52.2% 51.7% 51.9% 52.2%
Revenue Breakdown Net Financials -230 -224 -206 -195 -188
Pre Tax Profit 208 163 169 185 203
Other
0% Income Tax Expense -55 -49 -51 -56 -61
Rents
Net Income 153 119 123 135 148
receivable
29% Execution Net Income 146 119 123 135 148
Reported EPS 30.6 23.8 24.7 27.1 29.7

Execution EPS 29.2 23.8 24.7 27.1 29.7
Wines, spirits
and minerals DPS (p) 0.0 0.0 0.0 11.0 12.0
Beer and cider
sales sales Payout Ratio 0.0% 0.0% 0.0% 40.6% 40.4%
4% 67% Shares In Issue (Less Treasury) 499 499 499 499 499
Cash Flow Summary Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E
Gross Profit Breakdown
EBITDA 450 397 385 391 402
Other Taxes Paid -59 -44 -46 -50 -55
1%
0%
Interest Paid / Received -232 -224 -206 -195 -188
Change in Working Capital -10 -6 23 3 2
Operating cash flow 149 124 157 149 162
Beer and cider Capital Expenditure -56 -49 -46 -45 -45
Rents
receivable sales Free Cash Flow 93 75 110 104 117
48% 49% Acquisitions & Disposals 101 276 86 58 38
Dividends Paid To Shareholders -52 0 0 -20 -57
Equity Raised / Bought Back 0 0 0 0 0
Wines, spirits
Other Financing Cash Flow -54 0 0 0 0
and minerals
sales Net Cash Flow 88 351 196 142 99
2%
Margin Trends Balance Sheet Summary Sept 2009 Sept 2010E Sept 2011E Sept 2012E Sept 2013E
56% Cash & Equivalents 101 452 648 790 889

Goodwill & Intangibles 409 409 409 409 409
54%
Associates & Financial Investments 6 6 6 6 6
Margin
53%
Other Assets 127 78 77 77 79
52% Total Assets 5,979 6,043 6,188 6,307 6,402
51% Interest Bearing Debt 3,780 3,780 3,780 3,780 3,780
Other Liabilities 824 812 834 872 879
50%
49% Shareholders' Equity 1,375 1,451 1,574 1,654 1,743
2009 2010E 2011E 2012E
Total Equity 1,375 1,451 1,574 1,654 1,743
Net Debt 3,679 3,328 3,132 2,990 2,891
Source: Execution Noble
Page 16 of 48
Hellenic Telecom
Deep discount and structurally attractive BUY 60.5% upside
Fair Value €14.75

We believe Hellenic Telecom is in a structurally attractive position vs.
the European sector; there is no threat from cable competition in RIC, Bloomberg Code OTEr.AT, HTO GA
Share Price €9.19
Greece, and mobile pricing is low both in absolute terms and relative
Market Capitalisation €4.5bn
to the termination rate. Operating trends have held up well over the
Free Float 75.0%
last year despite the economic pressures in Greece with stable fixed
access lines and strong usage growth in mobile. Whilst we
acknowledge that macro risk remains high in Greece, and the EUR m 2009 2010E 2011E 2012E
Net revenue 5,984 5,809 5,651 5,528
potential for further surprises on tax, valuation is in our view now too EBITDA 2,156 2,031 1,994 1,935
Capex 891 870 795 736
cheap vs. the sector at 8x earnings and 4.4x EBITDA. We reiterate FCF 804 874 959 1,013
our BUY recommendation on the shares, our fair value is €14.75 per Net Debt 4,553 4,072 3,762 3,455
EPS (EUR) 0.82 1.04 1.12 1.15
share. DPS (EUR) 0.50 0.85 0.90 1.00
All financial estimates are "as reported"
Greek wireline, no threat from cable DPS includes special dividends
x Greece is one of just two markets in Europe with no cable competition,

the other being Italy. We believe this gives Hellenic Telecom a structural
advantage vs. its European peers; access line loss is, and in our view will 2009 2010E 2011E 2012E
continue to be lower than in other European markets, and we see less EV / Sales 1.5 1.6 1.6 1.6
competitive pressure to invest in FTTH. This is already evident in the EV / EBITDA 4.3 4.4 4.5 4.6
P/E 13.6 8.2 7.8 7.6
operating trends; Hellenic Telecom suffered access line loss of less than FCF Yield (%) 8.9% 9.7% 10.6% 11.2%
0.1% through 2009, the European sector as a whole lost 3.1% of lines and FCFE Yield (%) 13.1% 13.8% 16.4% 18.0%
in markets such as Sweden and Norway losses were as high as 8%. Dividend Yield (%) 5.4% 9.2% 9.8% 10.9%
Net Debt / EBITDA 2.1 2.0 1.9 1.8
x Unbundling is still having an impact on voice lines but we believe Hellenic All multiples based on underlying financials
Proportionate adjustments made where appropriate
Telecom has now stabilised its retail market share of DSL and we see
limited pressure from further migration of wholesale connections.
Greek mobile, pricing already low

x Greek mobile pricing is already low both in absolute terms and relative to
the mobile termination rate. We calculate that the average revenue per
voice minute was €0.068 in the fourth quarter. This is 52% below the
level in Spain (€ 0.143 per minute) and 32% below the level in Portugal
(€0.100 per minute). Cosmote’s ARPM is also below the termination rate
which was €0.079 per minute through 2009.
x We are also much more conservative with our medium to long-term

mobile pricing assumptions in Greece; we assume €0.045 per minute
from 2014 vs. a range of €0.06 to €0.07 per minute in other European
mobile markets.
x Cosmote’s pricing strategy has enabled it to deliver strong volume

growth over the past year, call volumes were up by 38% in 2009 despite
the economic weakness whereas in other European markets growth has
been in the low single digit range. Cosmote has also continued to gain
market share from the number two operator, Vodafone.
Valuation is too cheap

x Whilst we acknowledge there is a risk that further exceptional taxes are Analysts
levied against Hellenic Telecom through 2010 or 2011 we believe that Will Draper
valuation is now too cheap. On our estimates the shares are trading at an +44 20 7456 1694
EV/EBITDA of 4.4x 2010 (sector 5.8x), P/E 8.2x (sector 12.2x) and a FCFE
yield of 13.8% (sector 8.5%). Andrew Hogley
+44 20 7456 1652
x We see upside potential of 60% to our DCF based valuation of €14.75 per andrew.hogley@execution-noble.com
share which is based on a WACC of 8.5% for Greece, we typically assume Nick Brown
8.0% for the European sector. +44 20 7456 1669
nick.brown@execution-noble.com
Page 17 of 48
Figure 11: Hellenic Telecom Financial Summary

Hellenic Telecom
Fair Value: EUR 14.75 Reported P/E 7.6 11.4 8.9 8.2 8.0
EV / Sales 1.4 1.5 1.5 1.5 1.4
Share Price: EUR 9.19 EV / EBITDA 4.0 4.3 4.1 4.1 4.1
FCF Yield 10.7% 8.9% 10.2% 11.6% 12.7%
Previous Fair Value EUR 14.75 Dividend yield 8.2% 5.4% 9.2% 9.8% 10.9%
Bloomberg: HTO GA Key ratios 2008 2009 2010E 2011E 2012E

T-One: HTO-AT
EBIT margin 16.5% 16.7% 16.0% 16.6% 16.9%
Capex / Revenue 15.7% 14.9% 15.0% 14.1% 13.3%
Shares In Issue (Less Treasury) 490 Capex / Depreciation 0.83 0.77 0.79 0.75 0.73
Market Cap 4,504 Net Debt / EBITDA 2.0 2.1 2.0 1.9 1.8
Net Debt 4,553 EBITDA / Net Interest 8.4 8.2 8.1 9.1 9.7
Adjustments For Associates & Minorities 0 ROE 45% 32% 34% 35% 35%
P&L Summary 2008 2009 2010E 2011E 2012E

% change 1.4% -6.6% -2.9% -2.7% -2.2%
FY 2009 results 25 February 2010 EBITDA 2,271 2,156 2,031 1,994 1,935
1Q 2010 results 12 May 2010 % change 2.3% -5.0% -5.8% -1.8% -3.0%
AGM 2010 16 June 2010 % margin 35.4% 36.0% 35.0% 35.3% 35.0%
Ex dividend 09 July 2010 Depreciation & Amortisation -1,213 -1,155 -1,103 -1,056 -1,002
2Q 2010 results 05 August 2010 EBIT 1,058 1,001 929 938 932
3Q 2010 results 04 November 2010 % change 1.0% -5.4% -7.2% 1.0% -0.6%
% margin 16.5% 16.7% 16.0% 16.6% 16.9%
Execution Analyst Operating Profit 1,058 1,001 929 938 932
Will Draper Net Financials -271 -264 -251 -218 -200
(44) 20 7456 1694 Other Pre-tax Income 46 33 13 12 12
will.draper@executionlimited.com Pre Tax Profit 832 771 691 733 744
Revenue Breakdown Minority Interests 4 4 3 5 4
Net Income 590 395 507 548 562
Other
RomTelecom Execution Net Income 569 332 549 581 589
2%
13%
Reported EPS 1.20 0.80 1.04 1.12 1.15
Execution EPS 1.16 0.68 1.12 1.18 1.20
DPS 0.75 0.50 0.85 0.90 1.00
Cosmote Payout Ratio 62.3% 62.1% 82.1% 80.6% 87.1%
49%
Shares In Issue (Less Treasury) 490 490 490 490 490
Wireline
36%
Cash Flow Summary 2008 2009 2010E 2011E 2012E
EBITDA 2,271 2,156 2,031 1,994 1,935

Taxes Paid -240 -299 -187 -190 -186
Operating Profit Breakdown Interest Paid / Received -146 -215 -251 -218 -200
Change in Working Capital -392 -175 -100 -50 0
Other Associate & Minority Dividends 3 6 0 0 0
RomTelecom 5% Other Operating Cash Flow 329 7 0 0 0
12%
Operating cash flow 1,824 1,480 1,494 1,536 1,548
Capital Expenditure -1,006 -891 -870 -795 -736
Free Cash Flow 819 589 624 740 813
Cosmote Acquisitions & Disposals -917 -56 0 0 0
52% Dividends Paid To Shareholders -368 -367 -245 -417 -441
Wireline
Equity Raised / Bought Back 0 0 0 -50 -100
31% Other Financing Cash Flow 541 -712 103 36 36
Net Cash Flow 75 -546 481 309 307

Margin Trends
Cash & Equivalents 1,428 869 1,350 1,660 1,967
25% Other Assets 2,416 2,173 2,173 2,173 2,173
Margin
20%
Total Assets 11,425 10,294 10,453 10,479 10,496
Interest Bearing Debt 5,415 5,389 5,389 5,389 5,389
15%
Other Liabilities 3,821 2,925 2,825 2,775 2,775
10%
5%
0% Minority Interests 861 758 755 749 745
2007 2008 2009 2010E 2011E 2012E Total Equity 2,173 1,980 2,239 2,315 2,332
Net Debt 4,513 4,553 4,072 3,762 3,455
Page 18 of 48
Lloyds Banking Group
2010: the new black BUY 62% upside
Fair Value 100p

RIC, Bloomberg Code LLOY.L, LLOY LN
Becoming normal Share Price 61.8p
This is the third quarter that we feature LLOY as a Silver Bullet BUY. Our thesis
remains that the company’s tangible capital raise and eventual reduction of HMG’s Free Float 57%
stake in the group will help to bring down costs of wholesale funding triggering a
virtuous circle of reduced funding costs, net interest margin expansion and
price/tbv re-rating. £m (unless stated) 2008x 2009ex 2010ex 2011ex
Pre-provision profit 9,119 11,826 11,917 12,527
As for wholesale funding, we expect demand for spread-rich bank credit to Pre-tax profit -6,713 -4,488 810 7,132
increase as investors increasingly shun sovereign risk given the low visibility and Adjusted net profit -9,218 -6,207 529 5,505
deteriorating fundamentals contrast with better visibility and improving leverage EPS(p) 13.2 -9.3 1.5 9.0
DPS(p) 11.4 0.0 0.0 0.0
profiles at banks such as LLOY.
BVps(p) 163 69 70 78
TBVps(p) 125 57 58 66
Expect positive earnings in 2010 LLP as % loans 2.2% 3.3% 2.0% 1.0%
Cost income ratio (%) 57% 49% 47% 46%
x Lloyds recently provided guidance to the market that it expects to be Pre-APS
profitable in 2010. We highlight our expectations of key drivers below: Figures are pro forma HBOS
x Net interest margin improvement to 200bps

X (unless stated) 2008x 2009ex 2010ex 2011ex
x Our granular modeling suggests a prospective 8 basis point negative net Adjusted P/E 468.2 -667.1 39.9 6.9
Pre-provision multiple 3.0 2.3 2.3 2.2
interest margin impact from the roll-off of Government backed funding. Price / book 0.4 0.9 0.9 0.8
Management has guided that it expects the roll-off of government Price / tangible book 0.5 1.1 1.1 0.9
supported funding to negatively impact net interest margin by less than Yield (%) 0% 0% 0% 0%
ROE (%) -26% -13% 1% 11%
10bps. However, we had assumed that SLS funding was largely as at a ROTE (%) -34% -16% 1% 12%
cost of LIBOR + 0, and the company disclosed that the cost of such Core Tier 1 ratio (%) 6.2% 8.6% 8.8% 10.8%
funding was at L+50bps, so net net, our 8 basis point headwind is likely to Pre-APS
be too high. Figures are pro forma HBOS
x Flat revenue 2009-2012 as the net interest margin rises on a loan book
which is contracting at 6% p.a. Management recently guided that it
expects revenue growth of “high single digit”, so room for upside surprise
if management can make its guidance.
x Cost/income ratio improvement of 200bps p.a. with synergy uplift on the

HBOS transaction to £2.0bn from £1.5bn.
x Impairments of £12bn.
x Source of optionality #1: Prospective revenue uplift from moving HBOS

product depth to that of LLOY and also deepening existing LLOY
customer relationships: a £1.9bn revenue opportunity
x Source of optionality #2: potential divestiture of commercial real estate

assets into REIT-type structures frees up regulatory capital.
+59% upside: risk/reward is absolutely skewed to BUY

x We continue to expect LLOY to be re-rated relative to peers due to its
declining leverage profile. Specifically, our research reveals that balance
sheet leverage has explained 76pct of the variance in the bank's
price/book multiple over the past ten years. As leverage improves to 20x Analysts
by 2011 from a peak of 40x, we expect investors to re-rate the bank to a Joseph Dickerson
+44 20 7426 4228
multiple of 1.6x in 2011. Our fair value remains 100p, and is based on 1.5x joseph.dickerson@execution-noble.com
our 2011E TBV estimate of 67p/share. LLOY is currently trading on 0.9x
Fiona Swaffield
our 2011E TBV/share and 7.1x 2011E EPS. +44 20 7456 1693
Anke Reingen
+44 20 7456 1653
Page 19 of 48
Figure 11: Lloyds Banking Group Financial Summary

LLOY
Recommendation: BUY PER (adjusted) (x) -2.0 -2.7 207.7 6.2 5.0
Fair Value: 100p Price/Pre Provis Profit per share (x) 1.4 1.9 2.9 2.8 2.8
P/NAV (adjusted) (x) 0.4 0.9 0.9 0.8 0.7
Share Price: 61.8p RoE (%) (adjusted) -23.9% -27.2% 0.5% 14.0% 15.1%
Upside / Downside 61.8% RoRWA (%) -1.41% -2.06% 0.04% 1.27% 1.69%
Implied cost of equity (curve) (%) -29.3% 0.5% 15.4% 16.4%
Bloomberg: Yield (net) (%) 0.0% 0.0% 0.0% 0.0% 0.0%
Key ratios 2008 2009 2010E 2011E 2012E

Core tier 1 ratio 6.2% 8.6% 8.8% 10.8% 13.2%
Free Float Loan loss charges / loans -2.20% -3.09% -1.83% -0.92% -0.65%
RoE (%) (adjusted) -23.9% -27.2% 0.5% 14.0% 15.1%
NAV 2010E 38,567 RoA -0.67% -0.85% 0.02% 0.64% 0.84%
NAV per share 2010 0.58 RoRWA -1.41% -2.06% 0.04% 1.27% 1.69%
P&L Summary 2008 2009 2010E 2011E 2012E
Interim Management Statement 27th April
AGM 2010 6th May Net interest income 14,903 13,088 12,844 13,667 13,393
Total non interest income 6,933 10,720 10,401 10,131 10,132
Costs -12,236 -11,388 -10,728 -10,671 -10,493
Post provision profit -5,280 -9,005 410 7,432 9,179
Joseph Dickerson Pre Tax Profit -6,935 -10,687 455 7,427 9,172
(44) 20 7426 4228 Net profit -6,923 -10,107 174 5,800 7,195
EPS adj. -0.31 -0.20 0.00 0.09 0.11
Growth rates 2008 2009 2010E 2011E 2012E
Operating income 1% 9% -2% 2% -1%

Pre provision profit -18% 29% 1% 5% -1%
EPS adj. -213% -34% -101% 3237% 24%
NAV (adjusted)/share -4% -55% 1% 14% 16%
Total adj assets 1,098,841 993,885 931,598 873,461 837,632

Shareholders' Equity (adjusted) 27,386 38,038 38,567 44,072 50,974
NAV per share 1.6 0.7 0.7 0.8 0.9
RWA 498,500 484,776 474,991 438,726 411,984
Tier 1 equity 47,368 53,213 48,914 54,419 61,321
Core tier 1 equity 30,680 41,482 42,011 47,516 54,418
Page 20 of 48
Pernod Ricard
Absolution BUY 1% downside
Fair Value €62.0

Pernod Ricard reports its calendar Q1 (fiscal Q3) results on April 29th.
We expect that this could mark the turning point in Pernod’s fortunes RIC, Bloomberg Code PERP.PA, RI FP
with a return to like for like growth. From here revenue expectations
are well below historical mid cycle averages and we look for revenue
Free Float 62%
upgrades to lead the way.
A period of easier comps…. €m (unless stated) 2009 2010E 2011E 2012E

Sales 7,203 6,901 7,167 7,517
Unlike a number of its global consumer peers, the comps for Pernod are now Ebitda 2,003 1,921 2,030 2,158
getting easier and nowhere more so than for calendar Q1 2010. Remember that EPS(€) 4.27 3.92 4.45 4.97
Dividend (€) 0.50 1.31 1.48 1.66
organic revenues for this period last year were marked by a significant trade de-
FCF 1,242 958 1,157 1,290
load and volumes declined by 11.5% in the Group’s fiscal Q3 (June year end so Invested Capital 19,267 22,494 22,868 23,038
calendar Q1) last year. Net Debt 10,888 9,869 9,058 8,160
….and a good early start….

On top of this the Group CEO went out on a limb to point out that “January was
very good” at the full year results presentation in February. In fairness the
comparatives are particularly favourable for this month and the late start of X (unless stated) 2009 2010E 2011E 2012E
th th EV/Sales 3.67 3.83 3.69 3.52
Chinese New year this year (Feb 14 vs. January 26 ) pushed the shipping of
EV/Ebitda 13.2 13.8 13.0 12.3
about 50,000 case sales in to January of 2010 rather than December. PE 14.7 16.0 14.1 12.6
Nevertheless it is always worth noting when a CEO points out that the start is Dividend Yield (%) 0.8 2.1 2.4 2.6
ahead of the curve FCF Yield (%) 7.5 5.8 7.0 7.8
ROIC (%) 8.0 6.4 6.6 7.0
Net Debt/Ebitda 5.44 5.14 4.46 3.78
….should result in a good first quarter
All in all, this should result in the delivery of the first positive organic growth since
the final quarter of 2008. We have conservatively pitched for organic revenue
growth of 1.3% for the January – March quarter. The key variable here is the speed
of any restock. There is no doubt that wholesaler stock levels have been pared
back to the bare minimum. A sensible cash conservation ploy when volumes are
declining and manageable even with some limited anemic growth. However any
nascent recovery in the markets in North America, Europe and parts of Asia will be
exacerbated by a positive re-stock effect also. We do not believe that this re-stock
will be evident in Q1 but do see it as the potential upside surprise as we go through
2010.
Absolut more expensive

Despite a very difficult backdrop in the US, Absolut continues to perform well
elsewhere. In the Group’s first half (calendar H2 ’09) Absolut volumes were up 3%
globally with revenues up by 5%. Bearing in mind that US revenues were down 5%
(with pricing more or less flat with-in this), this implies a very strong volume
performance outside the US (around 50% of vols outside US) in spite of an
aggressive price re-positioning in a tough environment. This augurs very well for a
further re-bound given the cyclicality (out of home consumption) of the business in
the key US market.
Running the sensitivity

On our current forecasts, Pernod trades more or less in line with our APV derived
Analysts
fair value of €62. However, we believe, that Pernod is among the most
Martin Dolan
economically sensitive of the stocks in the consumer universe and, as such, it is +44 20 7456 1674
probably worth while looking at some sensitivity analysis. As recently as 2007 and martin.dolan@execution-noble.com
2008 Pernod was producing like for like growth of 9% and 8.5% respectively. We James Edwardes Jones
have argued that addition of Absolut should actually boost these growth rates – +44 20 7456 1697
indeed, we are already seeing that with Absolut in the rest of the world growing at
14% in the first half. Against this, our forecasts only allow for 3.9% revenue growth
in 2011 and 4.9% in 2012 then gently slowing down to the 2.5% long term growth
rate from 2020. This results in a 4.5% cagr between 2011 and 2020. Every 1% step-
up in the rate of revenue growth from this level would deliver a further €8 per
Page 21 of 48
Figure 11: Pernod Abridged Financials
Valuation Metrics 2007 2008 2009 2010E 2011E

Pernod Ricard
EV / Sales 3.6 3.4 3.9 3.8 3.6
Share Price: 62.9 EV / EBITDA 14.5 13.5 14.1 13.7 12.6
FCF Yield 2.9% 0.4% 7.5% 6.3% 7.0%
Bloomberg: RI FP Key ratios 2007 2008 2009 2010E 2011E

T-One: RI-FR
EBIT margin 22.5% 23.1% 25.6% 25.7% 26.1%
Capex / Revenue 2.2% 3.1% 2.7% 2.5% 2.5%
P&L Summary 2007 2008 2009 2010E 2011E

% change 6.2% 2.3% 9.3% -4.2% 3.9%
3rd Quarter Sales 29 April 2010 EBITDA 1,596 1,688 2,003 1,921 2,030
Full-year Trading Statement 16 July 2010 % change 13.8% 5.8% 18.7% -4.1% 5.7%
Annual Sales and Results 02 September 2010 % margin 24.8% 25.6% 27.8% 27.8% 28.3%
Combined General Meeting 10 November 2010 Depreciation & Amortisation -149 -166 -157 -146 -158
EBIT 1,447 1,522 1,846 1,775 1,872
% change 15.3% 5.2% 21.3% -3.9% 5.5%
% margin 22.5% 23.1% 25.6% 25.7% 26.1%
Execution Analyst Operating Profit 1,447 1,522 1,846 1,775 1,872
James Edwardes Jones Net Financials -351 -333 -619 -468 -391
(44) 20 7456 1697 Other Pre-tax Income 20 -97 -160 -93 0
james.edwardesjones@executionlimited.com Pre Tax Profit 1,116 1,092 1,067 1,214 1,482
Discontinued Operations 0 0 8 0 0
Minority Interests -25 -29 -21 -20 -21
Revenue Breakdown Net Income 831 839 946 977 1,179
Execution Net Income 831 897 1,010 1,039 1,179
France
10% Reported EPS 3.87 3.86 4.00 3.69 4.45
Europe (ex. Execution EPS 3.87 4.13 4.27 3.92 4.45
France)
34%
Asia & Rest of
DPS 1.26 1.30 0.50 1.31 1.48
World Payout Ratio 32.6% 33.7% 12.5% 35.4% 33.3%
28% Shares In Issue (Less Treasury) 215 217 236 265 265
Cash Flow Summary 2007 2008 2009 2010E 2011E

Americas
28% EBITDA 1,596 1,688 2,003 1,921 2,030
Taxes Paid -198 -213 -179 -204 -248
Change in Working Capital -149 -513 246 -50 -53
France
Associate & Minority Dividends 0 0 0 0 0
10% Other Operating Cash Flow -273 -328 -50 0 0
Operating cash flow 614 268 1,439 1,226 1,338
Americas
Capital Expenditure -140 -207 -197 -175 -182
34%
Asia & Rest of Free Cash Flow 474 61 1,242 1,051 1,157
World Acquisitions & Disposals -33 -22 -5,560 65 0
27%
Dividends Paid To Shareholders -251 -280 -300 -112 -345
Equity Raised / Bought Back -25 196 1,000 0 0
Other Financing Cash Flow -329 417 -1,127 0 0
Net Cash Flow -164 372 -4,745 1,005 811
Europe (ex.
France)
29%
Balance Sheet Summary 2007 2008 2009 2010E 2011E
Margin Trends
Page 22 of 48
Prysmian
Overhang gone but opportunity remains BUY 27% upside
Fair Value € 18.5

Prysmian is once again our Capital Goods Silver Bullet Buy for the
quarter, with 27% upside to our price target. Many of the key factors RIC, Bloomberg Code PRY.MI, PRY IM
Share Price € 14.6
we had hoped to see during 1Q10 have come through, yet the stock
Market Capitalisation $3,654m
has not fully reflected the improved outlook. With no stock
Free Float 83%
overhang remaining, we believe investors should increasingly focus
on Prysmian’s attractive end-market profile.
€m (unless stated) 2009 2010E 2011E 2012E
Overhang issues have now been completely removed Sales 3,731 3,929 4,159 4,448
Adjusted EBITA 315 413 464 526
Prysmian’s share structure has been significantly improved over the past quarter, Adjusted EPS 1.1 1.4 1.7 2.0
Dividend 0.4 0.4 0.5 0.6
with the remaining Goldman Sachs and Taihan stakes being placed in the market. FCF* 247 288 312 342
This has removed uncertainty on Taihan and GS’s intentions which had dominated EV Adjustments** 23 174 231 293
newflow on the stock. In addition, the Prysmian Lux (II) entity through which GS Net Debt 544 336 107 -136
* FCF = EBITDA - capex - NWC - int ex. - tax
and Prysmian management held their stakes will no longer have a participation in
** Pension, Tax, Equity and non-consolidated assets
the stock, removing fears that this vehicle might be used to siphon value out of
Prysmian Spa to the detriment of the remaining shareholders. CEO Valerio Battista
has helped sentiment significantly by taking a 1.2% stake in the Prysmian Spa entity
to replace the stake he was in effect forced to sell when GS sold its stake. X (unless stated) 2009 2010E 2011E 2012E
EV/Sales 0.7 0.8 0.7 0.6
End-markets are picking up, company rhetoric has not (yet) EV/EBITA Adjusted 8.1 7.7 6.5 5.4
P/E Adjusted 10.0 10.2 8.6 7.2
Prysmian’s optical Telecom business represents around 7% of group sales but Dividend Yield (%) 2.9% 3.0% 3.6% 4.2%
FCF Yield (%) 12.4% 10.9% 11.8% 12.9%
should see significant growth as European Telecom incumbents roll out European Net Debt/EBITDA 1.4 0.7 0.2 -0.2
fibre-optic networks. Capex guidance given at the full year numbers by the
European operators indicates that demand is likely to pick up materially in 2010,
although Prysmian has thus far been cautious on European demand ahead of EU-
driven regulation of fibre infrastructure. Prysmian’s Transmission business, which
represents around 19% of group sales also looks likely to see a pick-up in demand.
Prysmian’s Transmission order book has fallen from 18 months of orders at 3Q08 to
just 6 months at 4Q09 but looks set to recover as EU projects and infrastructure
build-out in the developing world develop into orders. The EU has recently
allocated €900mn to 9 large projects in Europe and the ‘Friends of the Supergrid’
group (of which Siemens, Areva and Prysmian are founding members) is pushing
the EU to commit to a structured approach to linking renewables generation and
the end markets requiring power. We believe the EU transmission links in
aggregate amount to over €30bn in required investment of which Prysmian is
likely to get a healthy share given it is one of few companies actually able to install
the technology.
Guidance likely to be raised at 1Q results on 13th May

Prysmian’s 2010 guidance given at the FY09 results was slightly underwhelming:
expecting 2010 to be no better than 2009. As 1Q10 has progressed we believe
there is reason to be more positive on some of the critical end-markets for
th
Prysmian and thus that guidance at the 1Q results 13 May will be more positive. In
2009, Prysmian guided for €400mn adjusted EBITDA, and achieved €403mn. For
2010 we estimate €435mn adjusted EBITDA and believe Prysmian could guide for
something in this range. The €60mn cost savings Prysmian achieved in 2009
versus 2008 should be strong support for our €35mn increase in EBITDA given the
run-rate of savings was higher at the end of the year than this average figure. Analysts
Nick Paton, CFA
Valuation: €18.5 price target based on 8.0x 2011E EV/EBITA +44 20 7456 1190
nick.paton@execution-noble.com
Our €18.5 price target is based on Prysmian trading on 8.0x 2011E EV/EBITA which
Rob Virdee
is a conservative multiple given the quality of Prysmian’s assets, its management +44 20 7456 9222
and the prospects for earnings growth post 2011E. The European Capital Goods rob.virdee@execution-noble.com
sector currently trades on 9.7X 2011E EV/EBITA. On DCF we find fair value of
€18.6 for Prysmian and we note that Prysmian offers very good value on 11.8%
2011E FCF yield at the current prices. The dividend yield of 3.6% in 2011E is very
well supported in our view.
Page 23 of 48
Prysmian
Fair Value: 18.5 Reported P/E 10.5 8.0 10.2 8.6 7.2
EV / Sales 0.6 0.7 0.8 0.7 0.6
Upside / Downside 27.0% EV / EBITA 6.7 8.1 7.7 6.5 5.4
FCF Yield 15.6% 12.4% 10.9% 11.8% 12.9%
Previous Fair Value EUR 15 Dividend yield 2.9% 2.9% 3.0% 3.6% 4.2%
Bloomberg: PRY IM Key ratios 2008 2009 2010E 2011E 2012E

T-One: I:PRY
Adj. EBITA margin 9.1% 8.3% 10.5% 11.2% 11.8%
Capex / Revenue 2.3% 2.9% 1.8% 1.8% 1.8%
Shares In Issue 182m Capex / Depreciation 1.66 1.53 1.03 1.09 1.15
Market Cap 2,655 Net Debt / EBITDA 1.2 1.4 0.7 0.2 -0.2
Net Debt 336 EBITDA / Net Interest 3.2 7.3 11.6 22.8 155.5
Tax Loss carry forward -97
Umbilicals fine 100 P&L Summary 2008 2009 2010E 2011E 2012E
Enterprise Value (Dec 2010E) 3,165
Revenue 5,144 3,731 3,929 4,159 4,448
% change 0.5% -27.5% 5.3% 5.9% 6.9%
Forthcoming Catalysts Adj. EBITDA 536 381 482 533 595
% change 2.4% -28.9% 26.5% 10.5% 11.7%
Q1 2009 Results 13 May 2010 % margin 10.4% 10.2% 12.3% 12.8% 13.4%
Q2 2009 Results 03 August 2010 Depreciation -70 -70 -68 -69 -70
Q3 2009 Results 10 November 2010 Adj. EBITA 466 311 413 464 526
% change 1.7% -33.3% 32.9% 12.2% 13.3%
% margin 9.1% 8.3% 10.5% 11.2% 11.8%
Execution Analyst Associates 3 3 3 3 3
Nick Paton, CFA Net Financials -165 -52 -42 -23 -4
(44) 20 7456 1190 Pre Tax Profit 286 337 375 443 525
nick.paton@executionlimited.com Income Tax Expense -51 -85 -112 -133 -157
Minority Interests 2 -4 -1 -1 -1
Net Income 237 248 261 309 366
Revenue Breakdown Execution Net Income 218 198 261 309 366
Reported EPS 1.30 1.36 1.44 1.70 2.01

Execution EPS 1.20 1.09 1.44 1.70 2.01
Other
Telecom
2%
11%
DPS 0.42 0.42 0.44 0.52 0.62
Payout Ratio 32.0% 30.6% 30.6% 30.6% 30.6%
Industrial Utilities
17% 43%
Shares in Issue 182m 182m 182m 182m 182m
Trade and Installer Cash Flow Summary 2008 2009 2010E 2011E 2012E
27%
Pre Tax Profit 286 337 375 443 525
Depreciation & Amortisation 66 66 68 69 70
Taxes Paid -83 -62 -112 -133 -157
EBIT Breakdown Net Financials 165 52 42 23 4
Change in Working Capital 66 36 20 -1 -26
Other Operating Cash Flow 5 -75 -34 -15 7
Other
Telecom Operating cash flow 505 354 359 387 422
7%
6% Capital Expenditure -116 -107 -71 -75 -80
Free Cash Flow 389 247 288 312 342
Industrial
14% Acquisitions & Disposals -12 11 -4 -4 -4
Trade and Installer Utilities Equity Raised / Bought Back 0 0 0 0 0
8% 65% Other Financing Cash Flow -167 -61 0 0 0
Net Cash Flow 134 122 208 228 243
Margin Trends Cash & Equivalents 492 492 700 929 1,172
12% Other Assets 1,693 1,575 1,605 1,664 1,764
10% Total Assets 3,098 3,044 3,291 3,592 3,953
Margin

6%
4%
Shareholders' Equity 447 677 863 1,092 1,364
2%
0% Total Equity 463 698 885 1,115 1,388
2008 2009 2010E 2011E 2012E
Net Debt 666 544 336 107 -136

Adj. EBITDA margin Adj. EBITA margin
Page 24 of 48
Qinetiq
Great location, but in need of attention BUY 23.1% upside
Fair Value 165p

Qinetiq is a US and UK defence services company with attractive
growth businesses. Legacy issues have weighed on performance, RIC, Bloomberg Code , QQ/ LN
Share Price 134p
which could now be addressed following management change which
Market Capitalisation £874m
took place in October 2009. We would buy ahead of the strategic
Free Float 100%
review and FY Mar2010 results, May 27th.
Favourable market positioning £m (unless stated) 2008 2009 2010E 2011E

Sales 1366 1617 1637 1699
We believe defence procurement budgets are beginning to accelerate their shift Ebitda 132 197 160 181
out of spending on platforms (ships, fighter jets, etc) and into the so-called Adj. EPS (p) 8.3 14.5 10.3 13.5
Dividend (pps) 4.3 4.8 4.8 4.8
network centric capabilities, driven by military doctrine and budget tightness.
FCF 102 152 106 94
EV adjustments 0.0 0.0 0.0 0.0
The losers will continue to be the manufacturers of heavy hardware, and the Net Debt 395 550 508 446
winners will continue to be the providers of networked capabilities, both in product
businesses, or like Qinetiq in services offerings.
Based on our discussions with military and political figures in the UK, including a
serving army general, and the Shadow Defence Procurement Minister, we believe
that the shifting priorities are on balance favourable to Qinetiq. X (unless stated) 2008 2009 2010E 2011E
EV/Sales 1.01 0.85 0.84 0.81
th
Strategic review, May 27 EV/Ebitda 10.44 7.00 8.64 7.64
PE 16.07 9.24 13.00 9.92
Qinetiq has good exposure to high growth services activities, but has disappointed Dividend Yield (%) 3.17 3.54 3.54 3.54
FCF Yield (%) 7.41 11.01 7.66 6.76
investors in recent years. We would argue that historically Qinetiq was guilty of
Net Debt/Ebitda 2.98 2.78 3.18 2.46
acquiring expensively in growth markets whilst failing to address the shortcomings
of some of the legacy businesses.
The appointment of Leo Quinn as CEO in October 2009 was greeted favourably by
the financial markets, given his history as a corporate turnaround leader. However,
Qinetiq’s shares have now given up all of the gains that were posted when the
appointment was announced, following profits warnings on November 25th 2009
and January 10th 2010.
th
The company will release the results of its strategic review on May 27 , alongside
FY March 2010 results, and we believe this date will be a catalyst for the shares.
Goods businesses, and businesses needing attention

The good businesses comprise 70% of Qinetiq’s revenues. The Mission Systems
and Systems Engineering businesses are focused on high-end services to military
and intelligence agencies, including IT and communications security services.
Demand is driven by increasing technological complexity at the agencies in
question, and by cyber-security tensions with China and others.
The businesses in need of attention comprise 30% of Qinetiq’s revenues, and

include the UK R&D outsourcing business, and also the US technologies business
whose specialties include battlefield robotics. However, we believe the contractual
nature of Qinetiq’s businesses limits the extent of downside risk in contrast to, for
example, defence platforms prime contractors.
M&A
The technology services offerings of Qinetiq fall within a segment of defence Analysts
services which have been a hot target for defence prime contractors to buy into in Edward Stacey
recent years. If the new management team cannot identify enough opportunities to +44 20 7456 9135
edward.stacey@execution-noble.com
create value internally, we believe asset disposals are a possible route.
Rob Virdee
+44 20 7456 9222
Valuation rob.virdee@execution-noble.com
Our 165p price target applies a March 2011 P/E of 12.2x, which is in line with our
A&D coverage universe average. If we instead use a Sum-of-parts, to fully capture
the value of some of Qinetiq’s higher growth businesses, we could arrive at a
valuation above 200p.
Page 25 of 48
QinetiQ
Recommendation: Buy Execution P/E 12.0 16.1 9.2 13.0 9.9
Fair Value: 165p Reported P/E 14.5 16.2 10.2 15.6 13.8
EV / Sales 1.20 1.01 0.85 0.84 0.81
FCF Yield 5.1% 7.4% 11.0% 7.6% 6.8%
Bloomberg: QQ/:LN Key ratios 2007 2008 2009 2010E 2011E

T-One: QQ.-LN
Adj. EBITA margin 8.1% 5.6% 8.1% 5.5% 6.5%
Capex / Revenue 3.3% 2.1% 2.1% -0.9% 2.1%
Shares in Issue (less Treasury) 653m Capex / Depreciation 0.64 0.51 0.51 -0.21 0.49
Market Cap 874 Net Debt / EBITDA 2.1 3.0 2.8 3.2 2.5
Net Debt (incl Pension liability) 508 EBITDA / Net Interest 12.8 7.4 8.0 5.0 NA
ROE 13% 10% 14% 9% 9%
P&L Summary 2007 2008 2009 2010E 2011E
Revenue 1,150 1,366 1,617 1,637 1,699

% change 109.3% 18.8% 18.4% 1.2% 3.8%
Forthcoming Catalysts EBITDA 153 132 197 160 181
% change 11.9% -13.5% 49.1% -18.9% 13.1%
% margin 13.3% 9.7% 12.2% 9.8% 10.7%
Full year Results 2009 27 May 2010 Depreciation & Amortisation -60 -56 -66 -70 -71
AGM 29 July 2010 EBIT 93 76 132 90 110
1H2010 Interim results 18 November 2010 % change 19.1% -18.2% 72.1% -31.6% 22.2%
% margin 8.1% 5.6% 8.1% 5.5% 6.5%
Net Financials -12 -18 -25 -32 -28
Execution Analyst Other Non operating income 0 0 0 -1 0
Edward Stacey Pre Tax Profit 81 58 107 57 82
(44) 20 7456 9135 Income Tax Expense -20 -4 -20 0 -18
edward.stacey@executionlimited.com Minority Interests 0 0 0 0 0
Net Income 61 54 86 57 64
Exceptionals -13 -10 -14 34 0
Revenue Breakdown Execution Net Income
Reported EPS 9.26 8.25 13.17 8.61 9.70

Technology
Technology Ventures
SolutionsEMEA
Solutions EMEA 1% Mission solutions Execution EPS 11.12 8.34 14.50 10.30 13.51
20%
20% 18%
Systems DPS 3.65 4.25 4.75 4.75 4.75
Engineering Payout Ratio 39.4% 51.5% 36.1% 55.2% 48.9%
Systems
15%
Consulting
Consulting Shares in Issue (less Treasury) 653m 653m 653m 653m 653m
Engineering
9%
9% 15%
Technology
Solutions QNA
Technology Cash Flow Summary 2007 2008 2009 2010E 2011E
Managed Service
Managed Service
14%
Solutions QNA
23%
23% 14% Pre Tax Profit 81 58 107 57 82
Taxes Paid -3 -18 -3 0 -18
Adjusted EBITA Breakdown Net Financials 12 18 25 32 28
Other Operating Cash Flow -19 46 -12 -66 -28
Ventures Operating cash flow 108 131 186 91 129
Capital Expenditure -38 -29 -34 15 -35
Free Cash Flow 70 102 153 106 94
Acquisitions & Disposals -126 -116 -74 -34 0
EMEA
Equity Raised / Bought Back 0 -13 -1 0 0
Other Financing Cash Flow 0 0 0 0 0
North America Net Cash Flow -78 -51 49 41 62
-40 -20 0 20 40 60 80 100

Margin Trends Cash & Equivalents 24 32 265 307 369

Other Assets 486 556 629 636 660
10%
Total Assets 1,309 1,482 2,041 2,088 2,138
Margin
8%
Interest Bearing Debt 328 415 793 793 793
6% Other Liabilities 140 116 172 172 172
4% Total Liabilities 467 531 964 964 964
Shareholders' Equity 477 533 603 645 677
2%
0%
Total Equity 841 951 1,076 1,124 1,174
2007 0 1150 1 153

Net Debt 320 395 550 508 446
Page 26 of 48
Suez Environment
It's not just about a cyclical recovery BUY 18.1% upside
Fair Value €20.00

Suez Environnement (SEV) is one of the three Buys in our recent
sector launch (‘Utilities - Tough to Achieve’, 5 March 2010). Better RIC, Bloomberg Code SEVI.PA, SEV FP
balance sheet health, better parenting and better exposure to
Market Capitalisation €8,276
cyclical recovery make it a more attractive candidate than its peer,
Free Float 53.9%
Veolia Environnement (VIE).
. EUR 2009A 2010E 2011E 2012E
Revenues m 12,296 12,787 13,765 14,716
We are above consensus EPS EBITDA m 1,755 1,969 2,337 2,493
EPS 0.82 0.98 1.25 1.36
9%, 14% and 19% ahead of consensus in 2010/11/12 respectively. However, we are DPS 0.65 0.68 0.75 0.81
only assuming a 3% recovery in waste revenues this year versus an 8% underlying FCF ps 1.72 1.89 2.33 2.57
EV 16,703 16,703 16,703 16,703
decline in 2009, with a stronger recovery of 6% in 2011. Consensus guidance looks Net Debt 6,227 7,346 7,789 8,151
tentative Net Debt/Ebitda 3.0 3.3 3.0 3.0
Catalyst: Q1 sales on 29th April

Waste accounts for 39% of SEV’s group EBITDA. It is a business that is exposed to
the cyclical elements of the economy, having been hit by both prices and volumes.
At Current Price: 2009A 2010E 2011E 2012E
We will be looking for signs of recovery in the waste business. Lead indicators
PE 20.6 17.3 13.6 12.5
already suggest some recovery. We do not expect anything stellar, just EV/Ebitda 9.5 8.5 7.1 6.7
confirmation that the business has bottomed out and is now on an improving path. Dividend Yield (%) 3.8% 4.0% 4.4% 4.8%
FCF Yield (%) 10.2% 11.2% 13.8% 15.2%
At Target Price: 2009A 2010E 2011E 2012E
But it is not all about waste PE 24.3 20.4 16.0 14.7
EV/Ebitda 11.6 10.3 8.7 8.2
60% of the group is fuelled by the water and the international businesses. Success, Dividend Yield (%) 3.3% 3.4% 3.7% 4.1%
i.e. growth, in these businesses comes from the ability to employ the balance sheet.
Here SEV has a clear advantage over its only credible global competitor, VIE. SEV
has enjoyed growth and seems to have better managed margins and returns than
VIE.
Suez Environnement beats Veolia Environnement

x Better balance sheet: VIE’s hunger for less discriminate growth has
resulted in an over-stretched balance sheet. SEV’s discipline has been
rewarded with a net debt/EBITDA of 3.0x vs. VIE’s 4.3x. Further, SEV’s
cash flow generation is now superior, affording a higher capex spend with
more flex (should economies turn south). In the water business, capex =
growth.
x Better dividends: VIE is limited to an earnings-diluting scrip issue. SEV’s

more circumspect investments are paying dividends, literally (i.e. cash).
x Better parentage: Having a successful international power bidder as a

parent makes a difference. When GDF SUEZ (who owns 35% of SEV)
tenders for international power contracts, it is a natural progression to put
SEV forward as a solution too, e.g. a water desalination plant. That is a
massive fillip that VIE just does not have. And GDF SUEZ’s financial
backing gives further strength to SEV’s balance sheet.
x Better exposure to waste recovery: 39% of group EBITDA at SEV vs.

28% at VIE.
Analysts
Valuation Lawson Steele
+44 20 3364 6771
lawson.steele@execution-noble.com
Whilst valuation multiples look high for the utility-world, both companies really
belong in the realms of industrial companies. Their growth prospects (unique in the Andrew Fisher
water world) and cyclical recovery provide compelling growth against multiples, +44 20 3364 6773
andrew.fisher@execution-noble.com
more so for SEV than for VIE.
Page 27 of 48
Figure 11: Suez Environnement Financial Summary
Key Metrics 2009A 2010E 2011E 2012E 2013E

Suez Environnement
Recommendation Buy Execution adj P/E 20.6 17.3 13.6 12.5 11.3
Share Price 16.935 EPS growth -25% 19% 27% 9% 11%
Fair Value 20.00 EV / EBITDA 9.5 8.5 7.1 6.7 6.2
Upside / Downside 18.1% FCF Yield 10.2% 11.2% 13.8% 15.2% 16.7%
Previous target price na Dividend yield 3.8% 4.0% 4.4% 4.8% 5.3%
% change to previous target price na DPS growth 0% 5% 10% 9% 11%
SOP DCF/EVA 20.76 Net Debt / EBITDA* 3.0 3.3 3.0 3.0 2.9
ROIC 7.8% 8.1% 7.9% 7.9% 8.0%
Bloomberg SEV FP Equity
T-One 0 Key Drivers 2009A 2010E 2011E 2012E 2013E
Model Published On 03 Mar 2010
Waste revenue growth -7.1% 3.0% 6.1% 4.2% 4.6%
Market Cap 8,276 Waste EBITDA margin 13.8% 15.1% 17.1% 16.6% 16.6%
Economic Net Debt (ie inc nuclear provisions) 7,346 Water revenue growth 3.7% 4.8% 6.7% 8.3% 8.8%
Adjustments For Associates & Minorities 1,080 Water EBITDA margin 17.5% 19.0% 20.4% 20.4% 20.1%
Enterprise Value 16,703 Capex/depreciation 1.20 2.06 1.85 1.75 1.66
o/w nuclear provisions 0
P&L Summary (EURm) 2009A 2010E 2011E 2012E 2013E
Q1 sales 29 Apr 2010 Revenue 12,296 12,787 13,765 14,716 15,874
AGM 20 May 2010 EBITDA** by division
H1 results 04 Aug 2010 Water Europe 700 797 916 990 1,062
Waste Europe 797 808 941 971 1,015
International 445 492 607 660 729
Execution Analysts Other (188) (128) (128) (128) (128)
Lawson Steele / Andrew Fisher Div5 0 0 0 0 0
(44) 20 3364 6771 / 6773 Div6 0 0 0 0 0
lawson.steele@execution-noble.com / andrew.fisher@execution-noble.com EBITDA** 1,755 1,969 2,337 2,493 2,678
% change -5.1% 12.2% 18.7% 6.7% 7.4%
Company contacts % margin 14.3% 15.4% 17.0% 16.9% 16.9%
Jean-Louis Chaussade CEO o/w associates 38 38 38 38 38
Jean-Marc Boursier CFO Depreciation & Amortisation (851) (923) (1,018) (1,078) (1,137)
Eleonore de Larboust IR head EBIT 904 1,046 1,319 1,416 1,541
% change -15.7% 15.8% 26.0% 7.4% 8.8%
EBITDA Breakdown (2010) % margin 7.3% 8.2% 9.6% 9.6% 9.7%
Other
6% Net Financial expenses (260) (260) (293) (304) (316)
Exceptional items 1 0 0 0 0
Pre Tax Profit 645 786 1,026 1,111 1,224
International Water Europe Income Tax Expense (129) (172) (247) (279) (320)
22% 36% Disconitinued Operations 0 0 0 0 0
Net Income 516 614 779 832 904
Reported EPS 0.82 0.98 1.25 1.36 1.50

Execution EPS 0.82 0.98 1.25 1.36 1.50
Waste Europe DPS 0.65 0.68 0.75 0.81 0.90
36% Payout Ratio 79.0% 69.7% 60.0% 60.0% 60.0%
Weighted average shares in issue (m) 489 489 489 489 489
Group ROIC vs WACC
Cash Flow Summary (EURm) 2009A 2010E 2011E 2012E 2013E
12.0%
10.0% Maintenance capex (568) (603) (638) (638) (638)
8.0% Free Cash Flow 842 924 1,141 1,254 1,382
Growth capex (494) (1,300) (1,250) (1,250) (1,250)
6.0% Acquisitions & Disposals + Other 38 0 0 0 0
Cash used for investing (1,024) (1,903) (1,888) (1,888) (1,888)
4.0% Cash used for financing 654 (318) (334) (80) (132)
o/w Dividends Paid To Shareholders (431) (318) (334) (366) (398)
2.0%
ROIC Group WACC Net Cash Flow 1,043 (693) (443) (76) 0
0.0%
2005A 2006A 2007A 2008A 2009A 2010E 2011E 2012E Balance Sheet Summary (EURm) 2009A 2010E 2011E 2012E 2013E
Cash & Equivalents 3,853 3,160 2,717 2,641 2,641

EPS Forecasts vs Consensus (EUR ps) Tangible Fixed Assets 8,378 10,829 11,698 12,508 13,258
Intangible Non-Current Assets 5,305 5,305 5,305 5,305 5,305
2.50 Other Assets 5,012 5,704 6,020 6,328 6,702
Total Assets 22,548 24,998 25,740 26,782 27,907
2.00 Interest Bearing Debt 10,080 10,506 10,506 10,792 11,058
1.50 Other Liabilities 8,049 8,594 8,892 9,181 9,534
Total Liabilities (exc equity) 18,130 19,100 19,398 19,973 20,591
1.00 Shareholders' Equity 3,676 4,818 5,262 5,729 6,235
0.50 Minority Interests 742 1,080 1,080 1,080 1,080
Total Equity 4,418 5,898 6,343 6,809 7,315
0.00
2007A 2008A 2009A 2010E 2011E 2012E Net Debt 6,227 7,346 7,789 8,151 8,417
Economic Net Debt (ie inc nuclear provns) 6,227 7,346 7,789 8,151 8,417
Actual EPS * SEV def, ex concession renewal expenses; ** Execution Noble def, inc concession renewal expenses
all figures in EURm or EURps unless otherwise stated
Page 28 of 48
WPP
Improving macro and margin surprise BUY 20% upside
Fair Value 815p

Further improvement in the macroeconomic outlook and possible
surprise on margins in the first half make WPP our favourite short RIC, Bloomberg Code WPP.L, WPP LN
Share Price 680.5p
term pick for Q2. We reiterate our buy rating and 815p target price.
Macro improvements Free Float 100%
Recent improvements in the macroeconomic environment and a pick up in

advertising spending resulted in unexpected top line upgrades to our estimates (GBPm) 2008A 2009A 2010E 2011E
(please see our note on Advertising agencies, published 23rd March). We believe Turnover 7,477 8,684 8,983 9,266
Adj. EBITDA 1,291 1,243 1,427 1,520
that the balance of risk has now tilted towards the positive for advertising Adj. EBITA 1,118 1,017 1,182 1,254
agencies. In the medium term, WPP has the potential for further surprise if the Adj. EPS (GBp)* 55.4 44.4 55.8 61.5
recovery extends to the market research segment, which we believe might happen Dividend (GBp) 15.5 15.5 17.0 17.9
FCF** 659 520 608 719
slightly later in the cycle. Figure 1 shows continued improvement in business Net Debt 3,068 2,640 2,303 1,746
confidence (the best leading indicator for advertising spending) for the US, * fully diluted, ex. GW amortisation
Europe, India and China. ** FCF = EBITDA - capex - NWC - int ex. - tax
Figure 11: Global business confidence, best leading indicator for advertisign spending
2008A 2009A 2010E 2011E

105 EV/Sales*** 1.6x 1.4x 1.3x 1.2x
EV/ Adj Ebitda*** 9.4x 9.8x 8.3x 7.4x
EV/Adj EBITA*** 10.8x 11.9x 10.0x 9.0x
P/E*** 13.9x 17.3x 13.8x 12.5x
100 Dividend Yield*** 2.0% 2.0% 2.2% 2.3%
FCF Yield*** 7.3% 5.5% 6.4% 7.6%
Net Debt/Adj Ebitda 2.4x 2.1x 1.6x 1.1x
95 *** adjusted for pension, tax and other assets/liabilities
90
85
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
US Europe Brazil China
Source: OECD, ExecutionNoble
Margin surprise
We forecast a relatively stronger margin improvement in 2010 driven by cost
reduction achieved in late 2009 and, more importantly, by management’s
pessimistic outlook: we believe that WPP’s current budget of flat growth in 2010
will translate into slower hiring/investing. The first check-point will be Q1 results, at
the end of April, where we expect a positive message on margin progression:
current guidance is 12.7% for 2010 and 13.2% for 2011 (we forecast 13.2% and 13.5%
respectively, based on 1.2% and 2.5% organic growth). Such recovery should prove
once for all that advertising agencies’ business model is sound and lead to multiple
expansion.
Valuation
Analysts
Advertising agencies represent the cheapest way to gain exposure to cyclical
Giasone Salati
media and emerging markets. On our estimates (2% ahead of consensus on EPS +44 20 7456 1163
2010-12) WPP currently trades towards the bottom of the historic range: 13.7x EPS giasone.salati@execution-noble.com
’10 compared to a 12-month forward multiple of 10-20x for the last 20 years, Nick Brown
excluding 2001-2003. We believe that fears of disintermediation and structural +44 20 7456 1669
decline in margin are unduly compressing valuation. We do expect a return to peak
margins and growth at least in line with global advertising. We reiterate our buy
rating and 815p target price.
Page 29 of 48
Valuation Metrics 2008A 2009A 2010E 2011E 2012E
WPP
Fair Value: GBp 815 Reported P/E 18.1 19.2 12.9 11.6 10.3
EV / Sales 1.6 1.4 1.3 1.2 1.1
Share Price: GBp 680.5 EV / Adj EBITDA 9.4 9.8 8.3 7.4 6.5
Upside / Downside 19.8% EV / Adj EBITA 10.8 11.9 10.0 9.0 7.9
FCF Yield 7.3% 5.5% 6.4% 7.6% 8.9%
Previous Fair Value GBp 660 Dividend yield 2.0% 2.0% 2.2% 2.3% 2.6%
Bloomberg: WPP LN Key ratios 2008A 2009A 2010E 2011E 2012E

T-One: WPP-LN
EBIT margin 11.7% 8.8% 11.9% 12.3% 12.7%
Capex / Revenue 3.0% 2.9% 2.9% 2.9% 2.9%
Market Cap 8,426 Net Debt / Adj EBITDA 2.4 2.1 1.6 1.1 0.0
Net Debt 2,640 Adj EBITDA / Net Interest 7.4 8.0 8.0 10.5 16.1
Adjustments For Associates & Minorities 1,078 ROE 8% 7% 10% 11% 11%
Net Pension Deficit -270
P&L Summary 2008A 2009A 2010E 2011E 2012E

% change 2.7% -8.0% 1.2% 2.5% 4.6%
Q1 Trading update expected 28 April 2010 EBITDA 1,049 987 1,318 1,409 1,515
AGM expected 01 June 2010 % change 10.5% -5.9% 33.5% 6.9% 7.5%
Interim results expected 02 August 2010 % margin 14.0% 11.4% 14.7% 15.2% 15.6%
Q3 trading update expected 01 October 2010 Depreciation & Amortisation -173 -226 -245 -266 -283
Full year results expected 05 March 2011 EBIT 876 762 1,073 1,143 1,232
% change 8.9% -13.0% 40.9% 6.5% 7.7%
% margin 11.7% 8.8% 11.9% 12.3% 12.7%
Execution Analyst Operating Profit 922 819 1,132 1,204 1,296
Giasone Salati Net Financials -175 -156 -178 -145 -101
+44 20 7456 1163 Other Pre-tax Income
giasone.salati@executionlimited.com Pre Tax Profit 747 663 955 1,059 1,194
Revenue Breakdown Net Income 439 438 654 725 818
United Execution Net Income 648 550 691 763 855
Kingdom
11%
Reported EPS 37.54 35.36 52.75 58.50 65.91
Execution EPS (p) 55.43 44.42 55.78 61.52 68.94
North America
36%
Asia Pacific, DPS (p) 15.47 15.47 17.02 17.87 20.02
Latam, Africa Payout Ratio 27.3% 34.3% 30.0% 28.6% 28.6%
& ME Shares In Issue (Less Treasury) 1,170 1,238 1,239 1,240 1,241
27%
Cash Flow Summary 2008A 2009A 2010E 2011E 2012E
Continental
EBITDA 1,245 1,186 1,368 1,459 1,565
Europe
26% Taxes Paid -183 -217 -281 -310 -348
Change in Working Capital -109 -102 -30 -28 -42
United Associate & Minority Dividends -19 -18 47 49 51
Kingdom
12%
Other Operating Cash Flow 62 55 -59 -25 32
Operating cash flow 861 756 917 1,038 1,184
Free Cash Flow 640 502 655 767 901
North America
Acquisitions & Disposals -1,039 -136 0 0 0
Asia Pacific, 45%
Latam, Africa
& ME Equity Raised / Bought Back -95 -5 0 0 0
26% Other Financing Cash Flow 913 -544 -122 0 0
Net Cash Flow 258 -372 338 556 674
Continental
Europe
17%
Balance Sheet Summary 2008A 2009A 2010E 2011E 2012E
Margin Trends
18% Tangible Fixed Assets 691 681 697 702 702
14% Associates & Financial Investments 1,025 1,024 1,036 1,048 1,061
12% Other Assets 8,786 8,282 8,282 8,166 7,993
Margin
10% Total Assets 24,463 22,352 22,330 22,181 21,971

4% Total Liabilities 18,504 16,276 15,725 14,990 14,114
2% Shareholders' Equity 5,762 5,894 6,353 6,867 7,458
2008A 2009A 2010E 2011E 2012E
Total Equity 5,960 6,076 6,604 7,190 7,857
Net Debt 3,068 2,640 2,303 1,746 1,072
Page 30 of 48
BAE Systems
New government, new danger SELL 12.4% downside
Fair Value 325p

BAE Systems has underperformed the FTSE 100 by 30% over the
past 12 months, but rallied in the last 2 months on solid FY 09 results RIC, Bloomberg Code BA.L, BA/ LN
Share Price 371p
and a share buyback. We believe that the UK election in May, will
trigger bad newsflow for BAE, and we expect renewed weakness in
Free Float 100%
the shares. We retain a Sell rating with 325p price target.
The bow-wave £m (unless stated) 2008 2009 2010E 2011E

Sales 18543 22415 22885 22585
We believe that 2010 will be the year when the UK will address its defence budget Ebitda 2513 2726 2855 2864
issues, just as the US began to curtail defence spending in 2009 following the Adj. EPS (p) 36.99 40.68 41.95 42.79
Dividend (pps) 14.5 15.5 16.0 16.0
change of administration. The UK is a smaller market for BAE than the US, but with
FCF 401 1488 1566 1438
more acute budgetary issues to address. EV adjustments 0.0 0.0 0.0 0.0
Net Debt 3522 3269 2755 1864
A report from the National Audit Office in December 2009 estimated that there is
a £36bn shortfall in the procurement budget over 10 years. We interpret this to
mean that the MoD currently exceeds its £7.5bn procurement budget by £2bn
annually, rising to £4.5bn by 2020 if the budget stays flat in real terms. The MoD
has been balancing the books annually by pushing contract milestones backwards,
but this has created the so-called bow-wave effect of deferred expense. X (unless stated) 2008 2009 2010E 2011E
EV/Sales 0.83 0.69 0.67 0.68
EV/Ebitda 6.15 5.66 5.41 5.39
Next UK government – radical choices PE 10.03 9.12 8.84 8.67
th Dividend Yield (%) 4.03 4.35 4.31 4.31
The UK will hold a general election in Q2 2010, with May 6 the likely date. The FCF Yield (%) 2.60 9.64 10.14 9.31
post-election government will need to address the overheated pipeline of military Net Debt/Ebitda 1.40 1.20 0.96 0.65
programmes. If the government decided to cut the baseline procurement budget
by 15% in line with cuts that many commentators are forecasting for other
government departments, this would represent a 33% cut from the current plan.
Based on our discussions with military and political figures in the UK, including a
serving army General, and the Shadow Defence Procurement Minister, we believe
that the budget situation is likely to precipitate a radical rethink of defence
spending priorities, with negative impact for air and naval platforms.
Earnings sensitivity
The UK is BAE’s second largest customer, accounting for some 20% of group
revenues. The UK exposure is focussed on platform prime contracting, which has
historically been the most risky segment of the defence industry. We believe the
biggest risks to earnings are potential restructuring charges if volumes are cut, or
potential loss provisions if there are unfavourable amendments to any contracts.
We believe that BAE has maintained a healthy focus on risk mitigation in recent
years. But it is nonetheless quite easy to envisage scenarios which could lead to an
impact of 20% or more compared to our 40.7p 2010 EPS forecast.
Timing, catalyst
th
The election is likely to be held May 6 , and a strategic defence review is then due
to be published during H2. As a comparison, Barack Obama was elected on
th
November 4 2008, and the US defence sector began to underperform
significantly during January 2009, well ahead of the Defense Secretary’s initial
review which was released in March 2009. We therefore conclude that Q2 could be
the quarter when BAE Systems is most at risk from post-UK-election newsflow. Analysts
Edward Stacey
+44 20 7456 9135
Valuation edward.stacey@execution-noble.com
Our fair value of 325p would put the shares on a 2010e P/E of 7.7x or EV/Sales of Rob Virdee
0.6x. On the EV/Sales measure this valuation represents the bottom end of the +44 20 7456 9222
rob.virdee@execution-noble.com
middle tertial of the 10 year historic valuation range. On P/E, 7.7x represents the
low end of the 10 year historic range, excluding the crisis period of late 2002. We
are arguing for valuation metrics which are low by historic standards to reflect the
fact that end markets are much tougher than at any other time during the past
decade.
Page 31 of 48
http://www.execution-noble.com Page 1 of 4
BAE Systems
Recommendation: Sell Execution P/E 12.7 10.0 9.1 8.8 8.7
Fair Value: 325 Reported P/E 15.2 11.5 7.8 8.6 8.5
EV / Sales 1.0 0.8 0.7 0.7 0.7
Upside / Downside Ͳ12.4% EV / EBIT 13.3 8.22 7.01 6.80 6.87
FCF Yield 1.3% 2.6% 9.6% 10.1% 9.3%
%changetofairvalue 8.3%
Bloomberg: BA/ LN Key ratios 2007 2008 2009 2010E 2011E

T-One: BA.-LN
Adj. EBITA margin 8.0% 11.3% 12.5% 12.3% 11.9%
Capex / Revenue 10.3% 8.0% 2.9% 2.8% 2.7%
Shares in Issue 3,420m Capex / Depreciation 2.45 2.11 0.97 0.87 0.83
Market Cap (mn) 12,689 Net Debt / EBITDA 0.5 1.4 1.2 1.0 0.7
Net Debt (incl Pension liability) 2,755 EBITDA / Net Interest 46.6 24.6 16.8 16.0 21.4
ROE 15% 16% 23% 19% 17%

P&L Summary 2007 2008 2009 2010E 2011E
Forthcoming Catalysts Gross revenue 15,710 18,543 22,415 22,885 22,585

Revenue 14,453 16,665 17,685 18,539 18,823
Ex Dividend date 21 April 2009 % change 17.2% 15.3% 6.1% 4.8% 1.5%
AGM 05 May 2010 EBITDA 1,771 2,513 2,726 2,855 2,864
H1 2010 Results First week Aug 2010 % change 29.9% 41.9% 8.5% 4.7% 0.3%
% margin 12.3% 15.1% 15.4% 15.4% 15.2%
EBIT 1,161 1,879 2,202 2,272 2,247
Execution Analyst % change 23.4% 61.8% 17.2% 3.2% -1.1%
Edward Stacey % margin 8.0% 11.3% 12.5% 12.3% 11.9%
(44) 20 7456 9135 Associates 139 18 18 18 18
edward.stacey@executionlimited.com Operating Profit 1,300 1,897 2,220 2,290 2,265
Net Financials -38 -102 -162 -179 -134
Revenue Breakdown Pre Tax Profit 1,241 1,772 2,023 2,076 2,096
International Electronics, Net Income 868 1,132 1,696 1,474 1,488
Business Intelligence & Execution Net Income 1,008 1,132 1,696 1,474 1,488
18% Support
24% Reported EPS 24.47 32.12 47.65 43.10 43.51
Execution EPS 29.14 36.99 40.68 41.95 42.79
Programmes &
Support
DPS 12.80 14.50 15.50 16.00 16.00
25% Payout Ratio 52.3% 45.1% 32.5% 37.1% 36.8%
Land & Armaments Shares in Issue 3,547m 3,524m 3,559m 3,420m 3,420m
33%
Cash Flow Summary 2007 2008 2009 2010E 2011E
EBIT Breakdown Pre Tax Profit 1,241 1,772 2,023 2,076 2,096
Taxes Paid -112 -261 -327 -477 -482
Change in Working Capital 753 287 -39 -123 -300
International Electronics, Other Operating Cash Flow -803 -691 -183 17 17
Business Intelligence &
22% Support
25% Capital Expenditure -1,493 -1,340 -510 -510 -510
Free Cash Flow 196 401 1,488 1,566 1,438
Equity Raised / Bought Back 603 -27 0 -500 0
Programmes & Other Financing Cash Flow 0 0 0 0 0
Support Net Cash Flow 392 -115 977 514 891
Land & Armaments
25%
28%
Margin Trends Cash & Equivalents 3,226 2,624 4,174 4,688 5,579
Tangible Fixed Assets 2,918 4,260 4,246 4,173 4,065
18%
16%
Associates & Financial Investments 787 1,040 1,058 1,076 1,094
14%
Other Assets 3,770 5,445 6,130 6,797 7,277
12%
Total Assets 20,260 25,675 27,914 29,040 30,322
10%
Margin

8%
6%
4%
2%
0%
Total Equity 6,002 7,289 7,585 8,042 9,018
2007 2008 2009 2010E 2011E
EBITDA margin EBIT margin Net Debt (including pension liability) 899 3,522 3,269 2,755 1,864
Page 32 of 48
Deutsche Telekom
Better control, remains a Structural Sell SELL 22.8% downside
Fair Value €7.75

We have taken account of the positives from the investor day – tight
control of costs, efforts to improve market share, commitment to RIC, Bloomberg Code DTEGn.DE, DTE GY
return cash – and raised numbers and fair value accordingly (to
Market Capitalisation €43.8bn
€7.75). However we still see structural challenges in all three key
Free Float 68.3%
divisions and reiterate our SELL rating on the shares.
Positive message from investor day – better control EUR bn 2009 2010E 2011E 2012E
Net revenue 64.60 63.42 61.79 60.60
We liked the performance of the CFO and welcomed his message of financial EBITDA 20.67 20.25 19.38 18.68
control. It is likely that DT will perform well in cost reduction, remain disciplined in Capex 9.30 9.70 9.11 8.61
FCFE 5.71 5.72 5.36 5.36
M&A, and meet its target for cash return (at least in 2010). We are inline with FCF
Net Debt 40.91 38.60 36.63 34.68
guidance this year, although capex may have to rise sharply to accommodate fibre EPS (EUR) 0.78 0.80 0.74 0.70
and mobile capacity increases from 2011 onwards. DPS (EUR) 0.78 0.70 0.70 0.70
All financial estimates are "as reported"
Structural challenges in Germany DPS includes special dividends
DT’s access line loss has been accelerating and we expect this to continue. The
Entertain triple play will help, but investment in FTTH is the only real solution and
DT’s 10% target by 2012 may be too little. In mobile we do not see market repair on 2009 2010E 2011E 2012E
the horizon, and believe the process of slowing subscriber growth, MTR cuts, ARPU EV / Sales 1.5 1.5 1.5 1.6
EV / EBITDA 4.6 4.7 4.9 5.1
deterioration, and margin compression will continue. P/E 12.9 12.5 13.6 14.4
FCF Yield (%) 9.7% 9.7% 9.1% 8.9%
USA remains too tough to solve organically FCFE Yield (%) 13.0% 13.1% 12.3% 12.2%
Dividend Yield (%) 7.8% 7.0% 7.0% 7.0%
T-Mobile USA has lost momentum and will struggle to achieve its twin targets of Net Debt / EBITDA 2.0 1.9 1.9 1.9
simultaneously growing market share and margin. We assume better revenue All multiples based on underlying financials
Proportionate adjustments made where appropriate
growth, but at the expense of margin. Delaying investment in LTE creates the risk
of losing further market position to VZW and ATT. Long term the inevitable
solution will be a merger with Sprint, although this is two years away in our view.
Cash return will eventually have to come down

DT has “guaranteed” dividends of €0.70/share until 2012. But this implies an
extremely high payout of earnings and FCF that will be difficult to maintain in the
longer term. We believe DPS will fall to €0.65/share from 2013, especially in the
context of cash-outs for OTE, PTC and US spectrum (not in our numbers).
Figure 11: Dividends and payout ratios
0.80 100%
0.78
0.78
90%
0.75 80%
70%
0.70
0.70
0.70
Payout ratio (%)
0.70 60%
DPS (€)
50%
0.65
0.65
0.65 40%
30%
Analysts
0.60 20%
Will Draper
10% +44 20 7456 1694
0.55 0%
Andrew Hogley
2008
2009
2010E
2011E
2012E
2013E
2014E
+44 20 7456 1652

andrew.hogley@execution-noble.com
DPS Payout ratio of earnings Payout ratio of FCFE Nick Brown

+44 20 7456 1669
Source: Company data, ExecutionNoble
Page 33 of 48
Figure 22: Deutsche Telekom Financial Summary

DEUTSCHE TELEKOM
Recommendation: SELL Execution P/E 12.8 12.9 12.5 13.5 14.2
EV / Sales 1.4 1.5 1.5 1.5 1.6
Upside / Downside -22.8% EV / EBIT 10.2 10.5 10.3 11.0 11.5
FCF Yield 9.9% 9.7% 9.7% 9.1% 8.9%
Bloomberg: DTE GY Key ratios 2008 2009 2010E 2011E 2012E

T-One: DTE-XE
EBIT margin 14.3% 14.2% 14.6% 14.1% 13.8%
Capex / Revenue 14.1% 14.2% 15.3% 14.7% 14.2%
Net Pension Deficit -5,979
P&L Summary 2008 2009 2010E 2011E 2012E

% change -1.4% 4.8% -1.8% -2.6% -1.9%
FY 2009 results 25 February 2010 EBITDA 19,459 20,668 20,246 19,385 18,678
AGM 2010 03 May 2010 % change 0.7% 6.2% -2.0% -4.3% -3.6%
1Q 2010 results 12 May 2010 % margin 31.6% 32.0% 31.9% 31.4% 30.8%
2Q 2010 results 05 August 2010 Depreciation & Amortisation -10,639 -11,510 -10,990 -10,680 -10,332
3Q 2010 results 04 November 2010 EBIT 8,820 9,158 9,256 8,705 8,346
% change 9.1% 3.8% 1.1% -6.0% -4.1%
% margin 14.3% 14.2% 14.6% 14.1% 13.8%
Will Draper Net Financials -2,936 -3,125 -2,890 -2,732 -2,611
(44) 20 7456 1694 Other Pre-tax Income 0 0 0 0 0
will.draper@executionlimited.com Pre Tax Profit 5,884 6,033 6,366 5,973 5,735
Income Tax Expense -1,889 -2,102 -2,101 -1,971 -1,893
Revenue Breakdown Minority Interests -569 -541 -755 -791 -810
Systems Net Income 3,426 3,390 3,510 3,211 3,033
Solutions Execution Net Income 3,426 3,390 3,510 3,211 3,033
9%
Southern &
Eastern Reported EPS 0.79 0.78 0.80 0.74 0.71
Europe Germany Execution EPS 0.79 0.78 0.80 0.74 0.71
15% 38%
DPS 0.78 0.78 0.70 0.70 0.70
Payout Ratio 99.3% 100.3% 87.0% 94.3% 98.9%
Europe
14%
USA
24% EBITDA 19,459 20,668 20,246 19,385 18,678
Taxes Paid -520 -928 -1,050 -1,084 -1,136
Operating Profit Breakdown Interest Paid / Received -2,257 -2,476 -2,490 -2,332 -2,211
Systems Change in Working Capital 156 118 0 0 0
Southern & Solutions
Eastern Associate & Minority Dividends -548 -856 -488 -985 -1,036
3%
Europe Other Operating Cash Flow -922 -731 -312 475 708
13% Operating cash flow 15,368 15,795 15,905 15,459 15,004
Capital Expenditure -8,707 -9,202 -9,701 -9,112 -8,610
Free Cash Flow 6,100 5,708 5,716 5,363 5,357
Europe Germany Acquisitions & Disposals 1,252 591 0 0 0
14% 50% Dividends Paid To Shareholders -3,402 -3,402 -3,402 -3,053 -3,027
Equity Raised / Bought Back 3 2 2 -347 -373
Other Financing Cash Flow -3,127 -903 0 0 0
USA
Net Cash Flow 826 1,996 2,316 1,963 1,957
20%

Margin Trends
Associates & Financial Investments 3,555 3,740 3,740 3,740 3,740
25%
Other Assets 21,073 21,839 20,189 18,802 17,595
Margin
20% Total Assets 123,140 127,774 127,149 126,158 125,186

5%
0% Minority Interests 3,115 5,583 5,850 5,656 5,430
2007 2008 2009 2010E 2011E 2012E Total Equity 43,112 41,937 42,313 41,931 41,337
Net Debt 38,158 40,911 38,597 36,633 34,675
Page 34 of 48
Home Retail Group
Home sick SELL 23% downside
Fair Value 210p

Sales trends in the fourth quarter were disappointing and, against
tough comps, are likely to continue into the first quarter of the new RIC, Bloomberg Code HOME.L, HOME LN
Share Price 271p
financial year. We don’t see a potential return of cash to shareholders
and forecast 2010 to represent a peak in distributable cashflow yield,
Free Float 99%
thus a premium to Kingfisher is unwarranted. As such, with structural
pressures mounting, we see 23% downside to our 210p FV.
Year to 3 Mar, £m 2008 2009 2010E 2011E
1Q11 sales will be tough – IMS 10 June Sales 5,985 5,897 6,021 5,857
PBT 433 328 289 245
Home Retail’s recent fourth quarter results were disappointing, and further EPS (p) 33.6 25.6 22.4 19.3
Dividend (p) 14.7 14.7 14.7 14.7
guidance on cashflow was incrementally worse than we had forecast. What’s more, FCF*1 230 254 267 112
whilst we will receive more detail on the full year outlook at the preliminary results Invested Capital 3,326 3,306 3,076 3,127
on 28 April, the UK-exposed general retailers are facing particularly difficult comps Net Debt/(net cash) -174 -284 -407 -392
1. Post capex
in 1Q11 which the market seems to be overlooking. The company is scheduled to
release a 1Q11 IMS on 10 June and this is relevant given the level of operating
leverage within the Homebase business and potential for LfL disappointment. Not
only will Homebase cycle a late Easter (this year it is ‘early’), it will also annualise:
Year to 3 Mar, x 2008 2009 2010E 2011E
x exceptionally good weather, Spring has reportedly ‘sprung’ 6 weeks later EV / Sales 0.37 0.35 0.35 0.36
this year; EV / EBITDA 3.9 4.6 4.8 5.7
PE 8.1 10.6 12.1 14.0
x the first impact from ‘staycationers’ holidaying in the UK and spending on Dividend Yield (%) 5.4 5.4 5.4 5.4
DIY projects; and FCF Yield (%) 9.7 10.7 11.2 4.7
ROIC (%) 8.4 6.1 6.1 5.1
x the 18% benefit to disposable incomes that mortgage holders were Net Debt / EBITDA -0.3 -0.6 -0.9 -1.1
experiencing on average this time last year in contrast to the increase in

mortgage costs we have seen in the past few months.
Remember too that Homebase saw a c.10% LfL sales increase in seasonal products,
which account for c.40% of sales in the quarter.
Cashflow performance is admirable, but not returnable

It is admirable that Home Retail Group has generated an estimated £227m
distributable cash through FY2010, driving a year end net cash position of close to
£400m. That said, and as the company has reiterated several times, with fixed
charge cover of only 2.1x in FY10e and FY11e, this cash isn’t returnable to
shareholders. Moreover, whilst this cashflow performance is encouraging, we
believe FY2010 represents a peak for distributable cash, with working capital
inflows reversing next year and capex growing to c.£130m, the impressive 9.7%
yield falls to a more normalized 5.8% in FY11e.
As yet, we haven’t touched upon the structural challenges we believe Home Retail
Group, and particularly Argos, faces. We see several of Argos’ key departments as
a soft source of market share to specialists and non-specialists alike in electricals
and gaming. Without leadership on price and with competitors challenging Argos’
multi-channel leadership position, we envisage an erosion of share in the medium-
term. What’s more, we assume the street is expecting LfL growth in FY11, an
ambitious forecast given the macro-economic pressures and underlying volume
declines which could result.
A premium to Kingfisher is unwarranted - Sell Analysts

Caroline Gulliver
Trading on 13.0x our cal 2011 EPS estimates, Home Retail Group is the most +44 20 7456 9173
caroline.gulliver@execution-noble.com
expensive UK hardline retailer, trading at a premium to Kingfisher which we feel is
unwarranted. Our FY11 PBT forecast is 16% below recently revised consensus, as Robert Evans
+44 20 7426 4210
such, we feel that the 1Q IMS could prove to be one of many cuts to numbers in the robert.evans@execution-noble.com
coming 12 months and retain our Sell recommendation for the second quarter.
Richard Cathcart
+44 20 7456 9155
richard.cathcart@execution-noble.com
Page 35 of 48
Valuation Metrics, y/e Feb 2008 2009 2010E 2011E 2012E
Home Retail Group
Fair Value: 210p Reported P/E 8.1 -5.8 12.6 14.3 12.9
EV / Sales 0.3 0.3 0.3 0.3 0.3
FCF Yield 13.1% 14.3% 13.4% 4.8% 5.8%
Previous Fair Value Dividend yield 5.4% 5.4% 5.4% 5.4% 6.0%
% change to fair value
Bloomberg: HOME LN Key ratios, y/e Feb 2008 2009 2010E 2011E 2012E
T-One: HOME-LN
EBIT margin 6.7% 5.1% 4.8% 3.9% 4.0%
Capex / Revenue 3.5% 1.9% 1.5% 2.5% 3.2%
Market Cap 2,377 Net Debt / EBITDA n/a n/a n/a n/a n/a
Net Debt / (Cash) -407 EBITDA / Net Interest n/a n/a n/a n/a n/a
Adjustments For Associates & Minorities 0 ROE 8.8% 8.1% 7.0% 5.9% 6.4%
P&L Summary, y/e Feb 2008 2009 2010E 2011E 2012E

% change 6.7% -1.5% 2.1% -2.7% 0.8%
FY2010 results 28 April 2010 EBITDA 560 460 438 370 375
1Q Trading statement 10 June 2010 % change 18.1% -17.9% -4.8% -15.5% 1.6%
AGM 30 June 2010 % margin 9.4% 7.8% 7.3% 6.3% 6.4%
2Q Trading statement 09 September 2010 Depreciation & Amortisation -162 -159 -151 -141 -142
1H2011 results 20 October 2010 Operating profit 398 300 287 229 234
% change 50.2% -24.5% -4.5% -20.2% 2.0%
% margin 6.7% 5.1% 4.8% 3.9% 4.0%
Associates 2 (2) (1) (1) (1)
Execution Analysts EBIT 400 298 286 228 232
Caroline Gulliver +44 20 7456 9173 Net Financials 33 30 4 18 32
Robert Evans +44 20 7426 4210 Other Pre-tax Income 4 (18) 0 0 0
Richard Cathcart +44 20 7456 9155 Pre Tax Profit (core) 433 328 289 245 264
Income Tax Expense (139) (104) (93) (76) (79)
Minority Interests (1) (0) (0) (0) (0)
Revenue breakdown (2010e) Net Income (core) 293 224 196 169 184
Financial Net income (published) 295 (413) 189 166 185
Services
2% Execution EPS 33.4 25.6 22.4 19.3 21.0
Homebase Reported EPS 33.6 -47.1 21.5 18.9 21.1
26%
DPS 14.7 14.7 14.7 14.7 16.2
Payout Ratio 44.0% 57.5% 65.6% 76.3% 76.9%
Shares In Issue (Less Treasury) 877 877 877 877 877
Argos Cash Flow Summary, y/e Feb 2008 2009 2010E 2011E 2012E
72%
EBITDA 560 460 438 370 375

Taxes Paid (95) (75) (89) (74) (79)
Profit breakdown (2010e) Interest Paid / Received 15 17 4 18 32
Change in Working Capital (5) 164 19 (52) 9
Financial
Associate & Minority Dividends 0 0 0 0 0
Services
Homebase 2% Other Operating Cash Flow 9 (157) (12) (5) 0
13% Operating cash flow 484 409 359 256 337
Capital Expenditure (211) (111) (93) (144) (191)
Free Cash Flow 273 298 267 112 146
Acquisitions & Disposals (43) (44) 0 0 0
Dividends Paid To Shareholders (119) (127) (127) (127) (140)
Equity Raised / Bought Back 2 (22) 0 0 0
Other Financing Cash Flow 0 6 (17) 0 0
Net Cash Flow 113 111 122 (15) 6
Argos
85%
Balance Sheet Summary, y/e Feb 2008 2009 2010E 2011E 2012E
Sales growth trends
0% Other Assets 1,755 1,693 1,724 1,743 1,739
2008 2009 2010E 2011E 2012E Total Assets 4,679 4,190 4,284 4,289 4,339
-2%
Interest Bearing Debt 0 0 0 0 0
-4%
Other Liabilities (1,348) (1,431) (1,481) (1,448) (1,453)
-6% Total Liabilities (1,348) (1,431) (1,481) (1,448) (1,453)
-8% Shareholders' Equity 3,331 2,758 2,803 2,841 2,886
-10% Minority Interests 0 0 0 0 0
Total Equity 3,331 2,758 2,803 2,841 2,886
-12%
Argos LFL Homebase LFL Net Debt / (Cash) (174) (284) (407) (392) (397)
Page 36 of 48
L'Oreal
Not yet sucking Diesel SELL 31% downside
Fair Value €53.59

A&P expenditure is finally moving the right way and the L’Oreal
business model looks in better shape than at any time in the last five RIC, Bloomberg Code OREP.PA, OR FP
years. However, this is only sustainable in the second half with an
investment in the operating margin. We expect the resultant earnings
Free Float 40%
downgrades will act as a catalyst for further underperformance.
Better if not yet super model €m (unless stated) 2009 2010E 2011E 2012E
Sales 17,473 17,392 18,194 19,029
There is no doubt that the L’Oreal business model is in better shape now than it Ebitda 3,412 3,294 3,470 3,654
has been for some period of time. Management took advantage of the favourable EPS(€) 3.42 3.33 3.53 3.78
Dividend (€) 1.50 1.50 1.59 1.70
input/output price impact on gross margins in H2 last year to increase the
FCF 2,624 2,156 1,924 1,963
investment in A&P by 120 bps in the second half of 2009. Indeed the full year Invested Capital 10,134 10,789 11,404 11,389
increase of 70bps is the first time we have seen a meaningful increase in A&P Net Debt 1,958 654 -367 -1,363
spend since 2004. A sustainable increase in this investment is, we believe, crucial
to re-invigorating L’Oreal’s underperforming top line.
Further investment needed

However this is just one half and it will take longer (and perhaps a more favourable X (unless stated) 2009 2010E 2011E 2012E
business environment) before L’Oreal’s top line begins to respond sustainably. EV/Sales 2.33 2.34 2.24 2.14
EV/Ebitda 11.9 12.4 11.7 11.1
There is no doubt that this is the right thing for the business but with cost ratios (in PE 22.7 23.3 22.0 20.5
terms of sales of employees or sales per factory) already at the top of the class, it Dividend Yield (%) 1.9 1.9 2.0 2.2
is difficult to see where the incremental investment will come from once we FCF Yield (%) 5.8 4.8 4.2 4.3
ROIC (%) 18.5 16.2 16.0 16.0
anniversary the easier cost differentials in the middle of the year. We remain Net Debt/Ebitda 0.57 0.20 -0.11 -0.37
concerned that this will require investment in the margin and are still pretty much
out on our own forecasting a H2 weighted decline in L’Oreal’s margin this year.
Q1 looks ok
nd
L’Oreal reports Q1 revenues as soon as April 22 and we look for a pretty
uncontroversial like for like organic growth of 1.5%. Q1 last year was the weakest
quarter with like for like sales declining by -4.3%. A large part of this was due to
retailer destocking, primarily in the US, and luxury lfl was actually down by -17.5%.
Clearly this is a one-off impact but conversely nor would we expect a restocking
bounce back any time soon.
Just too expensive

Our concern is that L’Oreal is just too expensive given the current underlying
growth rates and expected future growth. A multiple of over 23 time earnings or
12.6 times Ebitda is clearly anomalous given the underlying profit and cash growth.
Moreover, we believe that it will be increasingly apparent that the race to re-
invigorate the top line will have an adverse impact on margins this year. Our 2010
eps number of €3.33 is over 10% below consensus and we believe the realisation
that numbers are too high will be the catalyst for renewed share price
underperformance.
Nestle acquisition not likely

In the past we have been concerned that the L’Oreal valuation has been held up by
expectations of a Nestle bid. Indeed we ourselves felt for a time that Nestle was
Analysts
trying to establish concert party status with the Bettencourts to enable them to
Martin Dolan
buy a controlling interest but not make a full bid. However in our recent note “Walk +44 20 7456 1674
on By” (March 12, 2010), we examined the possibilities of such an occurrence with a martin.dolan@execution-noble.com
number of French legal experts and were fairly convinced that such a move James Edwardes Jones
(whatever the concert party status) is not possible under French takeover +44 20 7456 1697
regulations. In addition, Nestle’s assertion that 2012 net debt will equal 2009 levels
also, we believe, precludes a full bid. As such L’Oreal is now our least preferred
stock in the sector.
Page 37 of 48
Table 11: L'Oreal Abridged Financials
L'Oreal
EV / Sales 2.3 2.3 2.3 2.2 2.1
FCF Yield 4.1% 5.8% 4.8% 4.2% 4.3%
Bloomberg: OR FP Key ratios 2008 2009 2010E 2011E 2012E

T-One: OR-FR
EBIT margin 15.5% 14.8% 14.2% 14.3% 14.4%
Capex / Revenue 4.2% 3.4% 5.2% 5.2% 4.9%
Market Cap 45,314 Net Debt / EBITDA 1.1 0.6 0.2 -0.1 -0.4
Net Debt 654 EBITDA / Net Interest 54.2 19.9 11.7 9.9 8.9
Adjustments For Associates & Minorities -5,255 ROE 17% 15% 12% 12% 12%
P&L Summary 2008 2009 2010E 2011E 2012E

% change 2.8% -0.4% -0.5% 4.6% 4.6%
Annual General Meeting 27 April 2010 EBITDA 3,431 3,412 3,294 3,470 3,654
Half-year results 25 August 2010 % change 0.2% -0.6% -3.5% 5.4% 5.3%
Financial Meeting Information 26 August 2010 % margin 19.6% 19.5% 18.9% 19.1% 19.2%
EBIT 2,725 2,578 2,463 2,602 2,746
% change -3.6% -5.4% -4.4% 5.6% 5.5%
% margin 15.5% 14.8% 14.2% 14.3% 14.4%

James Edwardes Jones Net Financials 63 171 282 351 412
(44) 20 7456 1697 Other Pre-tax Income -156 -278 0 0 0
james.edwardesjones@executionlimited.com Pre Tax Profit 2,788 2,749 2,746 2,953 3,158
Revenue Breakdown Net Income reported 1,948 1,792 1,946 2,064 2,207
Execution Net Income 2,064 1,997 1,946 2,064 2,207
Dermatology
Body Shop
4% 3%
Active Reported EPS 3.30 3.07 3.33 3.53 3.78
7% Execution EPS 3.49 3.42 3.33 3.53 3.78
DPS 1.44 1.50 1.50 1.59 1.70

Professional
Consumer Payout Ratio 43.7% 48.9% 45.0% 45.0% 45.0%
13%

Luxury
22%
Net income reported 1,948 1,792 1,946 2,064 2,207
Depreciation 706 834 830 868 908
Operating Profit Breakdown Taxes Paid 7 52 0 0 0
Change in Working Capital -149 466 200 -150 -155
Body Shop
Dermatology
2% Other Operating Cash Flow 85 80 79 83 -56
Active 3%
9% Operating cash flow 2,597 3,225 3,056 2,865 2,904
Free Cash Flow 1,861 2,624 2,156 1,924 1,963
Consumer
15%
Acquisitions & Disposals -1,299 -160 0 0 0
Luxury
52% Equity Raised / Bought Back -913 65 0 0 0
Other Financing Cash Flow -127 65 0 0 0
Net Cash Flow -1,327 1,742 1,304 1,021 997
Professional
19%

Margin Trends
18% Associates & Financial Investments 5,557 6,672 6,672 6,672 6,672
Other Assets 5,998 5,339 5,317 5,536 5,764
Margin
16% Total Assets 22,957 23,292 24,644 25,956 27,214

14%
2008 2009 2010 2011 2012
Total Equity 11,829 13,598 16,121 17,204 18,223
Net Debt 3,700 1,958 654 -367 -1,363
Source: Execution Noble
Page 38 of 48
Nordea
Unwarranted premium SELL 16% downside
Fair Value SEK 60

Our key issues with Nordea are valuation and the outlook for muted
top line growth in 2010/2011. Pre provision profit remains under RIC, Bloomberg Code NDA.ST, NDA SS
Share Price SEK 71.25
pressure and is expected to fall 11% in 2010 which given a high pre
Market Capitalisation SEK 288bn
provision multiple of 7.2x is a concern. Nordea is relatively
Free Float 60%
unaffected by the proposed regulatory changes but we would argue
that this is already priced in.
EURm (unless stated) 2009 2010E 2011E 2012E
Pre provision under pressure Pre-provision profit 4,561 4,040 4,205 4,415
Pre-tax profit 3,075 2,590 3,005 3,366
Q4 results in February confirmed our view that pre provision profit will be under Adjusted net profit 2,318 1,917 2,224 2,492
EPS(EUR) 0.60 0.47 0.55 0.62
pressure in 2010 and we expect an 11% decline. We down graded pre-provisions by BVps(EUR) 5.3 5.5 5.8 6.1
4% over 2010-12 largely on the back of weaker NII post results. The drag on 2010 TBVps (EUR) 4.6 4.8 5.1 5.4
earnings is the fact that the very strong trading profit is unlikely to be repeated LLP as % avg Loans 0.54 0.50 0.40 0.33
Cost income ratio (%) 49.7 53.7 53.5 53.0
and at 43% of pre provision profit in 2009 it is expected to fall to 37% in 2010. At
the same time the outlook for net interest income especially in H1 is difficult given
the lack of corporate loan growth in the region and continued low rates. Also of
the Nordics Nordea is the least geared to rising rate – every 100bp up adds 4% to
pre-provision. Also rates are most likely to rise first in Sweden and this is only a X (unless stated) 2009 2010E 2011E 2012E
third of the group. The bank has outlined a new plan for ‘prudent’ growth based on Adjusted P/E 12.2 15.5 13.3 11.9
investments of EUR240m but given our expectation of a muted economic recovery Pre-provision multiple 6.1 7.2 6.9 6.6
Price / book 1.4 1.3 1.3 1.2
we expect the impact on the p&l to be limited. Price / tangible book 1.6 1.5 1.4 1.4
Yield (%) 3.4 3.4 3.4 4.1
Loan losses slow to fall ROE (%) 12.0 8.8 9.7 10.3
ROTE (%) 14.0 10.2 11.2 11.8
Nordea’s provisions were in line with expectations in 2009 but it has pointed to Core Tier 1 ratio (%) 10.3 10.5 10.9 11.3
provisions remaining at a high level in 2010 at 50bp vs 54bp in 2009. This makes
sense given the continued issues in Denmark (corporate loans 11% of group) and
the late cycle nature of its large SME book. Also the provisioning levels in the
Baltics have been far lower than peers (338bp in Q4 09) so are likely to stay higher
for longer. Also coverage remains low in a European context at 53% although up
from a low of 48% Q109 so we assume that provisions are relatively slow to fall to
a normalized level and factor in 33bp by 2012 vs the 25bp normalized level.
Limited regulatory pressure but acquisition risk

Nordea does screen well from a regulatory pressure point of view due to its high
core T1 of 10.3% post a significant rights issue in 2009 and the fact potential B3
changes are likely to take less than 100bp off the core T1 ratio. This is largely as the
one differentiator of the Nordic banks is the very low risk weighting of mortgages
under B2 which is not affected by the B3 proposal (retail loans are risk weighted at
16% at NDA). On the other hand it does increase acquisition risk and also its
shareholder structure (19.9% owned by the Swedish state and 20.3% owned by
Sampo) should be taken into account. Given its size we see Nordea as a potential
acquirer and would be required to pay a premium for control.
Valuation: Very large premium

Our number one issue with Nordea is one of the valuation premium on which it
trades. It does given a risk adjusted EPS, which normalises provisions at 27bp (vs
our 33bp 2012 forecast, and on this basis it is trading on 12.5x our 2010 forecast
and 11.3x risk adjusted EPS by 2012. This is a significant premium to our retail Analysts
universe on 8.5x 2012. We would argue that the market is already pricing in Fiona Swaffield
+44 20 7456 1693
normalised provisions and some premium for lower regulatory risk for Nordea at fiona.swaffield@execution-noble.com
these levels. Our fair value is based on a cost of equity of 8.7% so we are giving
Anke Reingen
Nordea credit for its lower risk profile. +44 20 7456 1653
Joseph Dickerson
+44 20 7426 4228
Page 39 of 48
Figure 11: Figure Title
Nordea
Recommendation: SELL PER (adjusted) (x) 8.7 12.2 15.5 13.3 11.9
Fair Value: SEK 60 Price/Pre Provis Profit per share (x) 5.9 6.1 7.2 6.9 6.6
P/NAV (adjusted) (x) 1.6 1.6 1.5 1.4 1.4
Share Price: SEK 71.25 RoE (%) (adjusted) 19.2% 14.0% 10.2% 11.2% 11.8%
Upside / Downside -16.0% RoRWA (%) 1.43% 1.36% 1.10% 1.24% 1.34%
Bloomberg: NDA SS Yield (net) (%) 2.7% 3.4% 3.4% 3.4% 4.1%
Key ratios 2008 2009 2010E 2011E 2012E

Core tier 1 ratio 8.5% 10.3% 10.5% 10.9% 11.3%
Market Cap 293 Cost income ratio 51.5% 48.3% 52.2% 52.0% 51.5%
Free Float 60% Loan loss charges / loans 0.18% 0.54% 0.50% 0.40% 0.33%
RoE (%) (adjusted) 19.2% 14.0% 10.2% 11.2% 11.8%
NAV 2010E 19,291 RoA 0.71% 0.56% 0.44% 0.50% 0.54%
P&L Summary 2008 2009 2010E 2011E 2012E
Q1 2010 results 28 April 2010
AGM 2010 25 March 2010 Net interest income 5,093 5,281 5,300 5,600 6,000
Q2 2010 results 21 July 2010 Total non interest income 3,107 3,792 3,420 3,440 3,385
Costs -4,338 -4,512 -4,680 -4,835 -4,970
Execution Noble Analysts Loan loss charges -466 -1,486 -1,450 -1,200 -1,050
Fiona Swaffield Pre Tax Profit 3,396 3,075 2,590 3,005 3,366
(44) 20 7456 1693 Net profit 2,672 2,318 1,917 2,224 2,492
EPS adj. 0.85 0.60 0.47 0.55 0.62
Growth rates 2008 2009 2010E 2011E 2012E
Operating income 3% 11% -4% 4% 4%

Pre provision profit 4% 18% -11% 4% 5%
EPS adj. -15% -29% -21% 16% 12%
NAV (adjusted)/share 13% -2% 5% 6% 6%
Total adj assets 395,920 432,685 442,835 453,188 474,308

NAV per share 5.5 5.3 5.5 5.8 6.1
RWA 169,000 172,000 177,160 182,475 187,949
Tier 1 equity 15,760 19,577 20,484 21,699 22,980
Core tier 1 equity 14,313 17,766 18,673 19,888 21,169
Page 40 of 48
RSA
Under Pressure SELL 12% downside
Fair Value 112.0p

As a pure play P&C writer with predominant focus on personal lines,
RSA’s business mix faces several headwinds in 2010 on the RIC, Bloomberg Code RSA.L, RSA LN
Share Price £127.30
underwriting and investment side. Given 2009’s reliance on reserve
releases and our expectation that these will reduce this year, we
Free Float 100%
struggle to see how management will achieve the targeted flat
underwriting profit given accident year ratios are also under
pressure. With investment yields down again due to a conservative £m (unless stated) 2008x 2009x 2010ex 2011ex
portfolio we see operating profit falling -12% in 2010. RSA trade at a Net Income 586 419 413 432
EPS 17.7 12.3 12.1 12.7
sector high 1.6x NTA despite only a forecast 11% ROE in 2010. We see TBV per share 93.3 73.9 77.5 82.5
any M&A speculation as wide of the mark and believe RSA will Combined ratio 94.1% 94.3% 95.1% 95.5%
Investment Yield 4.6% 4.2% 4.0% 4.2%
underperform over the next quarter as commercial lines and life DPS 7.7 8.3 8.7 9.1
insurance peers post better operating profit growth.
Accident and Prior Year Loss Ratios under Pressure

The reported combined ratio was 94.6% for FY09 slightly ahead of the indicated
“95% range” however a large piece of this was driven by reserve releases (4.2%). X (unless stated) 2008x 2009x 2010ex 2011ex
Excluding these and the impact of benign weather/large losses the accident year P/E 7.2 10.4 10.5 10.1
P/TBV 1.4 1.7 1.6 1.5
combined ratio deteriorated 90bps to 98.5%. With volumes down -1% at constant ROE 14.8% 12.4% 10.8% 12.1%
exchange RSA are clearly showing signs of the challenges their business faces from Yield incl. buybacks 4.1% 3.8% 3.6% 3.8%
the macroeconomic environment on insured values and loss cost trends. Premium growth 10.7% 4.3% -0.1% 2.1%
Book Value growth 31.2% -25.7% 4.9% 6.8%
Furthermore 75% of the FY09 underwriting profit was driven by prior year releases
(£286m) which included some one offs in Canada and Sweden. We therefore
expect these releases to reduce in 2010 and as such with accident and prior year
ratios under pressure we struggle to see how management will achieve their
guidance of flat underwriting profit. Our forecasts are 7% below consensus.
Conservative Investments face lower yield in 2010

Management have provided good guidance for 2010 investment income,
unfortunately this includes a further fall in running investment income from £595m
in 09 to £540m as RSA maintain a conservative portfolio of >50% government
bonds & cash. This defensive portfolio helped RSA outperform through the crisis
and is a disciplined strategy however it does offer short term pressure for earnings
in the current rate environment. Realised gains are expected to be flat. As such we
see a further fall in overall investment yield by 20bps to 4%. Overall operating
th
profit is therefore forecast to fall -12%. RSA Q1 trading statement May 6 .
Capital Strength a Positive

RSA’s key strength remains the balance sheet with £1.7bn of reported IGD capital
surplus at YE09. This supported an increase in dividend ahead of expectations to
8.25p in 09, which offers an attractive 6.3% yield. Whilst we believe RSA are
comfortably capitalized, recent analyst meetings have focused on the rating
agency position which is still unclear. RSA confirmed that the excess position on a
rating agency basis was much lower but would not give a figure (previously they
have indicated c. £300m of headroom). Coupled with the dismissal of any
suggestion of a buyback and the commitment to offering a scrip dividend "as it
helps our regulatory capital position" we believe that questions on the real capital Analysts
position of the group with respect to S&P and Solvency II may rumble on. Joy Ferneyhough
+44 20 7456 1670
joy.ferneyhough@execution-noble.com
Valuation Expensive
Rakshit Ranjan
Whilst we feel the concerns on capital may be somewhat of a red herring we +44 20 3364 6787
rakshit.ranjan@execution-noble.com
remain SELLERS based on our concerns over operating profit declines and the
pressure this exerts on ROE. At 1.6x NTA the stock is the most expensive in the Santosh Singh
+91 22 2570 1152
sector relative to its ROE in 2010 of 11% (down from 12% in 2009). We feel there santosh.singh@execution-noble.com
are plenty of cheaper and more attractive bid targets around than RSA and do not
see M&A as a viable investment case
Page 41 of 48
Figure 11: RSA Valuation Overview
RSA
Recommendation: SELL Reported P/E 7.2 10.3 10.5 10.0
Fair Value: GBp 112 Operating P/E 10.2 13.8 15.4 13.1
P/NTA 1.4 1.7 1.6 1.5
Share Price: GBp 127 RONTA 18.9% 16.6% 15.6% 15.3%
Upside / Downside -11.6% Op. RONTA 14.8% 12.4% 10.8% 12.1%
Dividend yield 6.1% 6.5% 6.8% 7.2%
Bloomberg: RSA LN Buy back yield
Model Published On: April 1st

Key ratios 2008 2009 2010E 2011E

NTA per share GBp 74 Reported ROI 4.1% 3.8% 3.6% 3.8%
Dividend payout ratio 44% 67% 72% 72%
Tax rate 22.8% 24.4% 25.0% 25.0%
1Q 2010 Results May 6th 2010 Minority 0.0% 0.0% 0.0% 0.0%
AGM May 17th 2010
P&L Summary (GBP m) 2008 2009 2010E 2011E

Net Written Premium 6,462 6,737 6,732 6,872

joy.ferneyhough@execution-noble.com Underwriting Result 384 386 332 309
Investment income 654 595 549 593
Rakshit Ranjan Realised and Unrealised gains -60 -72 -60 -55
(44) 20 3364 6787 Other income
Finance charges -108 -116 -116 -116
Revenue Breakdown Pre Tax Profit 759 554 550 576

Income Tax Expense -173 -135 -138 -144
Other
8%
Net Income 586 419 413 432
Emerging
Market
12%
Diluted EPS 17.7 12.3 12.1 12.7
UK Operating EPS 12.4 9.2 8.2 9.7
40% DPS 7.7 8.3 8.7 9.1
Canada
15%
Growth rates 2008 2009 2010E 2011E
Gross Written Premium 10% 6% 0% 2%

Scandinavia
25%
Net Written Premium 11% 4% 0% 2%
Net Earned Premium 13% 6% -1% 2%
Investments Breakdown Net Tangible Assets 25% -19% 5% 6%
EPS -9% -30% -1% 5%
Cash Real estate DPS 10% 7% 5% 5%
7% Equities
3%
9%
Balance Sheet Summary (GBPm) 2008 2009 2010E 2011E
Corporate debt Investable asset base 14,362 13,896 13,718 14,109

27%
Goodwill & Intangibles -744 -969 -969 -969
Governments
54%
NTA per share 93 74 78 82
Interest Bearing Debt 1,611 1,611 1,611 1,611

Preference shares - - - -
18%
16%
14%
12%
Margin
10%
8%
6%
4%
2%
0%
2007 2008 2009 2010E 2011E
Page 42 of 48
Santander
Emperor's Clothes SELL 21% downside
Fair Value €8.10

RIC, Bloomberg Code SAN.MC, SAN SM
Dividend may need to be cut to preserve capital Share Price €10.2
Market Capitalisation €84,008
Santander will have to recognise greater loss through their P&L as the Spanish
economic backdrop deteriorates and forbearance proves only to have delayed loss Free Float 100%
as opposed to prevent it. Our stress tests suggest that Santander needs a further
€8bn of capital and we expect that this need will be met largely through a
€m (unless stated) 2008 2009 2010E 2011E
combination of dividend cut and possibly business divestitures. We rate Santander Pre-provision profit 18,930 22,961 22,524 23,587
SELL. Pre-tax profit 12,266 13,476 10,136 12,693
Adjusted net profit 8,894 9,026 6,925 8,782
EPS 1.21 1.09 0.81 1.03
Unable to circumvent Spanish macro DPS 0.65 0.60 0.30 0.30
TBVps 4.58 5.17 5.69 6.42
Spanish system-level credit is estimated to contract 5% pa over the course of ROTE (%) 25% 21% 14% 16%
2010-2013. Japanese-style forbearance is extensive in the Spanish system, with an LLP as % loans 1.06% 1.39% 1.78% 1.51%
estimated 20% of mortgage stock on modified terms (and not showing up in NPL Core Tier 1 ratio (%) 7.6% 8.6% 8.5% 9.1%
data); debt service capacity is set to become impaired with the roll-off of
unemployment benefits and likely wage deflation which will ensue as austerity
measures are adopted. Against this backdrop, we do not expect NPLs to peak until
2011. X (unless stated) 2008 2009 2010E 2011E
Adjusted P/E 8.4 9.3 12.5 9.9
The once unique generic loan loss reserves have been depleted starting in Q4 08 Pre-provision multiple 4.4 3.7 3.7 3.6
Price / book 1.3 1.3 1.2 1.1
and we expect that a greater proportion of Spanish credit loss will have to be Price / tangible book 2.2 2.0 1.8 1.6
taken through Santander’s P&L. It is this incremental P&L hit, mostly, which Yield (%) 6.4% 5.9% 2.9% 2.9%
generates 2011 earnings estimates 19% below the consensus expectation. The ROE (%) 15% 14% 10% 11%
Cost income ratio (%) 45% 42% 43% 42%
Iberian operations generated 37% of Santander’s net earnings in 2009. Thus, scope BVps 7.63 7.77 8.28 9.01
to circumvent macro deterioration in Spain is limited.
Loss absorbing capacity is at risk

Santander has pre-provision earnings equivalent to 2% of average assets – this is
2x the European average. The bank will need it given we calculate cumulative loss
at 7% on its loan book. Loss-absorbing capacity is at risk due to the lagged
relationship between the group net interest margin and Euribor where we observe
a provocative one-year lag. Relative to our base case, up to 42% of SAN’s pre-
provision earnings are at risk from margin contraction.
Overvalued with deteriorating fundamentals

Trading on 1.8x 2009 tbv/share and with 400bps of ROE contraction anticipated
through 2011, we regard Santander as overvalued. Our €8.10 fair value for
Santander is based on 1.3x 2011E tbv/share.
Figure 11: Santander: Lagged relationship between Euribor and GROUP net interest margin
6.0 3.0
R-squared = 75%
5.0 2.5
NII/average assets (%)
Euribor (1-year lag %)
4.0 2.0
NIM at risk
3.0 1.5
2.0 1.0
Analysts
1.0 0.5 Joseph Dickerson
+44 20 7426 4228
0.0 0.0
Q1 2002
Q3 2002
Q1 2003
Q3 2003
Q1 2004
Q3 2004
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Fiona Swaffield
+44 20 7456 1693
lagged 3m euribor (-1yr) NI/Assets Execution forecast fiona.swaffield@execution-noble.com
90bps of net interest margin at risk in 2010 Alan Broughton

= 9,139 m EUR +44 20 3364 6761
= 35% of net interest income
= 42% of pre-provision profits Alan.Broughton@execution-noble.com
Source: Company reports, Bloomberg, ExecutionNoble
Page 43 of 48
Figure 22: Santander Financial Summary

Santander
Recommendation: SELL PER (adjusted) (x) 8.4 9.1 12.0 9.5 7.6
Fair Value: EUR 8.1 Price/Pre Provis Profit per share (x) 4.0 3.9 3.9 3.7 3.4
P/NAV (adjusted) (x) 2.2 1.9 1.8 1.6 1.3
Share Price: EUR 9.96 RoE (%) (adjusted) 23.1% 22.4% 15.3% 17.3% 18.9%
Upside / Downside -18.7% RoRWA (%) 1.70% 1.68% 1.22% 1.46% 1.73%
Bloomberg: SAN SM Yield (net) (%) 6.0% 5.8% 3.0% 3.0% 3.0%
Key ratios 2008 2009 2010E 2011E 2012E

Core tier 1 ratio 7.6% 8.6% 8.5% 9.1% 9.9%
Free Float Loan loss charges / loans -1.10% -1.42% -1.75% -1.50% -1.33%
RoE (%) (adjusted) 23.1% 22.4% 15.3% 17.3% 18.9%
NAV 2010E 48,351 RoA 0.93% 0.90% 0.65% 0.76% 0.87%
P&L Summary 2008 2009 2010E 2011E 2012E
Net interest income 21,579 26,298 26,141 26,958 28,921

Total non interest income 12,083 11,370 12,691 12,876 12,966
Costs -15,291 -16,421 -16,849 -16,788 -16,723
Joseph Dickerson Pre Tax Profit 11,610 11,763 9,661 12,218 15,284
(44) 20 7426 4228 Net profit 8,726 9,026 7,057 8,914 11,123
EPS adj. 1.19 1.09 0.83 1.05 1.31
Growth rates 2008 2009 2010E 2011E 2012E
Operating income 29% 12% 3% 3% 5%

Pre provision profit 32% 16% 3% 5% 9%
EPS adj. -4% -8% -24% 26% 25%
NAV (adjusted)/share -26% 13% 10% 13% 15%
Total adj assets 953,816 1,050,673 1,134,727 1,225,505 1,323,545

NAV per share 7.6 7.8 8.3 9.0 10.0
RWA 514,013 561,684 592,381 626,988 657,667
Tier 1 equity 46,894 56,615 58,791 65,022 73,462
Core tier 1 equity 38,968 48,366 50,542 56,773 65,213
Page 44 of 48
Wolters Kluwer
Slow growth and margin compression SELL 34% downside
Fair Value € 10.6

The risk of further margin compression (inc. below-the-line charges)
and relatively slower pick up in revenue growth make Wolters Kluwer RIC, Bloomberg Code WLSNc.AS, WKL NA
Share Price € 16.0
our least favourite short term pick. We reaffirm our sell rating, but
we increase our target price to eu10.6 from eu9.9, after rolling over
Free Float 100%
our DCF.
Margin pressure (eu m) 2008A 2009A 2010E 2011E

Turnover 3,374 3,425 3,392 3,395
For 2010, Wolters Kluwer sees a "slow recovery", but doesn’t provide any guidance EBITDA 756 783 713 725
for organic revenue growth. The company expects "improved operating margin" in EBITA 678 682 613 625
Adj. EPS (EUR)* 1.47 1.45 1.21 1.23
2010, which is mostly the result of increased below-the-line charges, in our view:
Dividend (EUR) 0.65 0.66 0.66 0.67
guidance for 2010 increased to eu70m equal to 110bps positive impact on Ordinary FCF** 381 387 355 382
EBITA margin. In the medium term we forecast a margin compression to 18%-19% Net Debt 2,252 2,008 1,875 1,629
from 20% in 2009, to reflect further pressure on organic revenue growth and the * fully diluted, ex. GW amortisation
** FCF = EBITDA - capex - NWC - int ex. - tax
need for the company to start investing organically in the event of a potential
recovery in professionals’ spending. We see Wolters Kluwer as a constellation of
well-run independent businesses, struggling to achieve revenues and cost
synergies typical of a group of this size. Fig. 1 shows Wolters Kluwer organic
2008A 2009A 2010E 2011E
growth underperformance in the legal segment. Our long term margins are also set EV/Sales*** 2.1x 2.1x 2.1x 2.0x
below industry average because of higher fragmentation, by geography (especially EV/Ebitda*** 9.6x 9.0x 9.8x 9.4x
EV/EBITA*** 10.7x 10.4x 11.4x 10.9x
in Europe) and by product (compliance, tax, accounting, regulatory, etc.).
P/E*** 11.8x 11.8x 14.2x 13.9x
Dividend Yield*** 3.8% 3.8% 3.8% 3.9%
Figure 11: Global legal segment - Organic revenue growth by company
FCF Yield*** 7.7% 7.7% 6.9% 7.4%
Net Debt/Ebitda 3.0x 2.6x 2.6x 2.2x
8% *** adjusted for pension, tax and other assets/liabilities
6%
4%
2%
0%
-2%
-4%
-6%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
Weighted avg (%) REL - Legal TOC - Legal WKL - Legal
Source: Company data, ExecutionNoble
Earnings revision
We have revised our estimates upwards by 11% for Ordinary EPS 2010-11, reflecting
favourable currency fluctuations (5% positive impact) and higher Ordinary EBITA
margin (6% positive impact). The latter is chiefly due to a ~40% increase in “below-
the-line” restructuring costs, excluded from Ordinary EBITA and Ordinary EPS. Our
organic revenue growth assumptions improve from -1.8% to -1.3% for 2010 and
remain at -0.5% for 2011. Continuous recourse to “exceptional” charges Analysts
corroborates our thesis that Wolters Kluwer is currently underinvested. Giasone Salati
+44 20 7456 1163
giasone.salati@execution-noble.com
Valuation
Nick Brown
On our forecasts (~6% below consensus for Ordinary EPS 2010-12E, on average) +44 20 7456 1669
Wolters Kluwer trades on ~5% premium to industry peers, based on P/E and FCF
yield. Due to its lower growth potential and further earnings downgrade risk, we
believe that Wolters Kluwer should trade on 20% discount to the sector average.
We reiterate our sell rating, but we increase our target price to eu10.6 from eu9.9,
after rolling over our DCF.
Page 45 of 48
Valuation Metrics 2008A 2009A 2010E 2011E 2012E
Wolters Kluwer
EV / Sales 2.1 2.1 2.1 2.0 1.9
Upside / Downside -33.8% EV / EBITA 10.7 10.4 11.4 10.9 10.4
FCF Yield 7.7% 7.7% 6.9% 7.3% 7.3%
Bloomberg: WKL NA Key ratios 2008A 2009A 2010E 2011E 2012E

T-One: WKL-AE
EBIT margin 16.4% 9.2% 13.4% 13.7% 13.8%
Capex / Revenue 4.1% 3.6% 3.6% 3.6% 3.6%
P&L Summary 2008A 2009A 2010E 2011E 2012E

% change -1.1% 1.5% -1.0% 0.1% 2.6%
AGM 21 April 2010 EBITDA 756 783 713 725 745
Trading update 12 May 2010 % change 1.2% 3.6% -8.9% 1.6% 2.7%
Second quarter results 28 July 2010 % margin 22.4% 22.9% 21.0% 21.3% 21.4%
Trading update 03 November 2010 Depreciation & Amortisation -202 -469 -260 -260 -263
Full year results expected 23 February 2011 EBIT 554 314 453 465 482
% change 1.5% -43.3% 44.4% 2.5% 3.7%
% margin 16.4% 9.2% 13.4% 13.7% 13.8%
Associates -1 2 2 2 2
Execution Analyst Operating Profit 553 316 455 467 484
Giasone Salati Net Financials -116 -123 -140 -127 -110
+44 20 7456 1163 Other Pre-tax Income -51 -80 -70 -45 0
giasone.salati@executionlimited.com Pre Tax Profit 386 113 246 295 374
Minority Interests -2 8 0 0 0
Revenue Breakdown Net Income 313 118 190 229 294
Corporate &
Financial Reported EPS 1.08 0.40 0.64 0.76 0.96
Services, (NA) Legal, Tax & Execution EPS 1.47 1.45 1.21 1.23 1.28
14% Regulation
(EU)
38% DPS 0.65 0.66 0.66 0.67 0.70
Health Payout Ratio 17.8% 44.5% 44.3% 54.4% 54.2%
Tax, Cash Flow Summary 2008A 2009A 2010E 2011E 2012E

Accounting &
Legal (NA)
26% EBITDA 756 783 713 725 745
Taxes Paid -91 -89 -86 -98 -104
Other Operating Cash Flow -31 -57 -46 -24 -35
Health
17% Legal, Tax & Operating cash flow 521 510 477 504 508
Regulation Capital Expenditure -140 -123 -122 -122 -126
(EU) Free Cash Flow 381 387 355 382 382
33% Acquisitions & Disposals -665 -54 0 0 0
Corporate &
Financial
Services, (NA) Equity Raised / Bought Back 0 0 0 0 0
18% Other Financing Cash Flow 602 -144 -88 0 0
Net Cash Flow 193 64 133 246 241
Tax,
Accounting &
Legal (NA)
32% Balance Sheet Summary 2008A 2009A 2010E 2011E 2012E
Margin Trends
25% Tangible Fixed Assets 146 135 157 179 202
20%
Associates & Financial Investments 71 41 43 45 47
Other Assets 1,226 1,242 1,236 1,214 1,159
15%
Margin
Total Assets 6,388 6,053 5,911 5,754 5,563

5% Total Liabilities 4,941 4,698 4,499 4,250 3,906
2008A 2009A 2010E 2011E 2012E
Total Equity 1,447 1,355 1,411 1,504 1,657
Net Debt 2,252 2,008 1,875 1,629 1,388
Page 46 of 48
Page 47 of 48
Page 48 of 48
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of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers discussed herein.
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The relevant sector index is the DJ Stoxx sector subgroup which includes the subject company.
Distribution of Execution Noble Recommendations for Investment Research (End February 2010 - Rolling twelve month basis)
All stocks Corporate Clients
Buy 46 35% 0 0%
Hold 38 29% 0 0%
Sell 47 36% 0 0%
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Co. Ltd., historic data has been excluded as they published research under a non-independent regime.
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London E1 6QL Paris MA 029109 Hong Kong SAR
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EDINBURGH FRANKFURT MANHATTAN MUMBAI
Execution Noble Ltd Execution Noble Ltd Execution Noble LLC Execution Noble Ltd
76 George Street An der Welle 4 450 Park Avenue, Suite 2700 701 Powai Plaza Hirandani Gardens
Edinburgh 60322 New York Powai
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Silver Bullets

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SILVER BULLETS

Pearson Buy 16.3% 15.9% 9.4% 12.1% 11.6%

Virgin Media Buy 4.5% 4.1% 5.2% 0.3% 0.3%

ZFS Buy 19.3% 24.3% 19.4% 20.5% 19.8%

DSGI Buy -4.2% -4.6% -11.1% -8.4% -8.1%

Lloyds Banking Group Buy 23.8% 23.4% 23.2% 19.6% 18.9%

ABI Buy 2.5% 2.5% -4.4% -1.3% -1.3%

Prysmian Buy 19.3% 19.3% 9.3% 15.4% 14.9%

Silver Bullets Portfolio 3.6% 3.9% 0.1% 2.8%

Figure 2: Indexed Performance and Benchmarks

50 Silver Bullets Absolute Performance

Fair Value €40.4

US Synergies – cost and revenue ?

Still more legs to the story

Bloomberg: ABI BB Key ratios 2008 2009E 2010E 2011E

Forthcoming Catalysts Revenue 39,158 33,860 36,630 38,053

Cash Flow Summary 2008 2009E 2010E 2011E

Balance Sheet Summary 2008 2009E 2010E 2011E

30% Total Assets 111,501 112,525 112,197 111,633

Fair Value 550p

Growth and Margin Prospects Attractive

Default reserves and Delta Lloyd boost NTA

Valuation Attractive, Upgrades Possible Analysts

Model Published On: 1st April 2010

Shares In Issue 2,767 Loss ratio 62.6% 66.7% 66.2% 66.8%

Gross Written Premium 36,206 36,594 36,123 36,200

Joy Ferneyhough Net claims incurred -29,353 -27,890 -28,516 -29,111

Revenue Breakdown Pre Tax Profit -1,300 1,805 2,296 2,734

Diluted EPS -37 38 57 68

Gross Written Premium 1% -1% 0%

Balance Sheet Summary (GBPm) 2008 2009 2010E 2011E

Investable asset base 106,035 105,069 107,452 112,905

Underwriting margin Cost of capital RONTA

Fair Value €20.5

Axa’s Life Franchise well positioned for Growth

P&C Headwinds Remain

Solvency Improvements Continue

Model Published On: 1st April 2010

Shares In Issue 2,290 Loss ratio 67.1% 70.9% 71.8% 72.8%

Gross Written Premium 84,662 84,969 87,228 91,250

Joy Ferneyhough Net claims incurred -37,493 -98,840 -103,782 -108,971

Revenue Breakdown Pre Tax Profit 5,732 5,263 5,791 6,406

Diluted EPS 0.45 1.57 1.96 2.14

Investable asset base 410,772 416,966 428,080 441,619

Underwriting margin Cost of capital RONTA

Fair Value €72

Regulation – levers to pull

Valuation Metrics 2008 2009 2010E 2011E 2012E

Key ratios 2008 2009 2010E 2011E 2012E

Growth rates 2008 2009 2010E 2011E 2012E

Operating income -12% 47% 2% 1% 3%

Balance Sheet Summary 2008 2009 2010E 2011E 2012E

Total adj assets 1,585,020 1,737,161 1,787,698 1,828,852 1,870,829

Fair Value £0.75

incentivizing managers that are currently out of the money to create

construction and operation of large-scale casinos. Macau’s economy suffered in

M&A interest is inevitable

Forecasts show strong cash flow generation

Valuation attractive Analysts