IBERIA Indra

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1 EQUITY RESEARCH IBERIA 11 January 2013 TOP STORY WEEKLY Banking Sector - Once again, banks had a stellar performance on the back of a very exciting relief of sovereign yields (Portuguese 5 yr bonds below 5% (!) after climbing above 20% a year ago) and following the watering down of liquidity Basel 3 rules (with the potential of improving banks profitability). Currently we are working with a CoE until 2016 of 21.10%, having implicit a risk free rate for Portugal of 10%, helping to explain the sell recommendations we have on BES and BPI. However, if we were to adjust the CoE to better reflect the performance of sovereign bonds (to 7%), CoE s would fall by more than 500bp leading to valuation improvements above 15%, not far away from current stock prices. OUT THIS WEEK Snapshots/Company Reports Sector Overview, Portugal Telecom, Sonaecom/Zon, JM Price Target / Recommendation Changes Banco Popular, Bankinter, BES, BPI, Sonae Capital, Jerónimo Martins, Portucel Other News Banking Sector, Banco Popular, Bankinter, BES, Telefónica, Portugal Telecom, Sonaecom/Zon, EDP, Construction Sector WEEK AHEAD Nothing to register PORTFOLIOS This week, Mib Aggressive Portfolio went up 5.23%, outperforming the PSI20 by 0.61pp. Impresa was the only contributor for this outperformance (page 10). This week, Mib Liquidity Portfolio went up 2.83%, underperforming the PSI20 by 1.78pp. Excluding Portugal Telecom, all the stocks contributed for this underperformance (page 11). Stock Market Last 1W YTD 2012 Daily Vol. ( mn) 1W 1M 6M 2012 PSI 20 6, % 8.75% 2.93% PSI IBEX 35 8, % 6.09% -4.66% IBEX 35 3,617 3,518 2,393 2,578 Euro Stoxx 50 2, % 3.11% 13.79% Euro Stoxx 50 8,662 7,602 7,234 7,867 Forex Rates Last 1W YTD 2012 Interest Rates Last 1W Chg YE12 António Seladas, CFA EUR/USD % 0.61% 1.97% Euribor 6m 0.33% 0.32% 1bp 0.32% EUR/GBP % 0.87% -2.30% 10Y Bond PT 6.21% 6.32% -12bp 7.01% EUR/BRL % 0.66% % 10Y Bond SP 4.89% 5.06% -17bp 5.26% antonio.seladas@millenniumbcp.pt Best & Worse Performers -1 Week (%) Best & Worse Performers - YTD (%) BPI 26.2 Bankinter 41.2 Sonae Capital 20.0 BPI 33.8 Impresa 19.4 Sonae Capital 28.6 Av. José Malhoa, Lote Lisboa Tel / Fax: / 09 Bankinter BCP Galp Energia Iberdrola Banco Popular Martifer Sonaecom Cofina Sonaecom -1.4 Cimpor -1.7 Indra -1.7 Iberdrola -2.5 Brisa -2.4 Brisa All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the second last page. Page 1 of 14

2 CHANGES New Previous Rating Target Rating Target Motive Banco Popular Neutral 0.75 Buy 0.75 Price Performance Bankinter Sell 3.70 Reduce 3.70 Price Performance BES Sell 0.95 Reduce 0.95 Price Performance BPI Sell 1.10 Neutral 1.10 Price Performance Sonae Capital Neutral 0.19 Buy 0.19 Price Performance Jerónimo Martins Neutral Buy Price Performance Portucel Reduce 2.55 Neutral 2.55 Price Performance EARNINGS Company 4Q2012 1Q2013 2Q2013 3Q2013 Investor Day Jerónimo Martins * AM BM BM BM Galp Energia * BM BM BM BM Sonae * AM n.a. n.a. n.a. Bankinter BM n.a. n.a. n.a. BPI AM n.a. n.a. n.a. Banco Popular BM n.a. n.a. n.a. BES AM AM AM AM Novabase AM AM AM AM BCP AM n.a. n.a. n.a. Galp Energia BM BM BM BM Iberdrola BM BM BM BM Jerónimo Martins BM n.a. n.a. n.a. Sonae Indústria AM AM AM AM Telefónica BM n.a. n.a. n.a. EDP AM n.a. n.a. n.a. Sonaecom AM AM n.a. n.a. REN AM AM AM AM Sonae AM n.a. n.a. n.a. Impresa AM n.a. n.a. n.a. Glintt Portucel n.a. n.a. n.a. n.a. Media Capital n.a. n.a. n.a. n.a. Semapa n.a. n.a. n.a. n.a. Brisa n.a. n.a. n.a. n.a. Sonae Sierra n.a. n.a. n.a. n.a. EDP Renováveis n.a. n.a. n.a. n.a. Altri n.a. n.a. n.a. n.a. Cofina n.a. n.a. n.a. n.a. Zon Multimedia n.a. n.a. n.a. n.a. Cimpor n.a. n.a. n.a. n.a. Indra n.a. n.a. n.a. n.a. Martifer n.a. n.a. n.a. n.a. Sonae Capital n.a. n.a. n.a. n.a. Ibersol n.a. n.a. n.a. n.a. Mota-Engil n.a. n.a. n.a. n.a. Portugal Telecom n.a. n.a. n.a. n.a. ESFG n.a. n.a. n.a. n.a. Soares da Costa n.a. n.a. n.a. n.a. SAG n.a. n.a. n.a. n.a. AM - After market; BM - Before market; n.a. - Not available; (e) Expected; * Trading Update 2012 FY Page 2 of 14

3 SECTOR OVERVIEW Sector Overview Spotting turning points - Portugal shows some signs of stabilization In December, monthly electricity consumption (adjusted for temperature and working days) went down by 0.5% YoY in Portugal, the smallest decline recorded in Annual consumption (-3.6% YoY) is similar to the consumption levels recorded in In Spain, monthly electricity consumption dropped by 3.00% YoY and annual consumption fell by 1.8% YoY. The Spanish Pay TV market reached 4,183k subscribers in the end of 3Q12, losing 78k net subs in the quarter. The number of Pay TV subscribers is on the decline this year (1Q, 2Q and 3Q) on the back of the economic crisis. The Spanish Fixed Broadband market reached 11,172k subscribers in the end of 3Q12, with 24k net adds in the quarter. By the end of the quarter there were 24.2 broadband subscribers per 100 inhabitants. 3Q12 showed, as previous quarters, a deceleration of subscribers growth, but trend is still healthy under current circumstances (+2.8% YoY). The Spanish Mobile market reached 51,552k subscribers in the end of 3Q12, losing 320k subs in the period. Mobile penetration rate reached 111.6%. Regarding Mobile Broadband, there were 2,877 wireless datacards in Spain by the end of 3Q12 (-175k in the quarter), 6.2% of the population. The Brazilian mobile market reached million clients and a penetration of 131.9% in the end of November 2012, according to data disclosed by Anatel. Net additions during the month were 746k, which compares to 4,450k net adds in November 2011 (-83.2%). Subscriber growth in the Brazilian market has decelerated significantly in the last months, on the back of higher penetration. Subscribers grew 10.1% YoY in the last 12 months. The Brazilian Pay TV market reached 16 million clients by the end of November, which stands for 26.9% penetration of households, according to data disclosed by Anatel. Pay TV subscriber growth continues strong, with k net adds per month since the beginning of the year; net additions in November were 267k. Number of subscribers grew an impressive 28.3% in the last 12 months. In the banking sector we highlight the effects that the economic slowdown and austerity measures are having on default rates both in Portugal and Spain. However, while in Portugal, the increases of the NPL s are slowing down, in Spain they continue to increase. Traffic containers at Porto of Lisbon are under strong adjustment mainly due to the strike that was in place since August/September. December should show the same kind of negative figures, however from January the traffic containers should gradually recover, as the strike finished by the end of December. So the strong performance recorded in Port of Leixões should gradually revert. (For further details, please refer to our report out this week) FINANCIALS Banking Sector Liquidity rules watered down clearly good news for banks Broader asset definition as well as new phase-in arrangement Rita Silva; The Basel Committee will adopt new rules on the Liquidity Coverage Ratio (LCR) that will give banks more time to increase their cash buffers. The new definition of the LCR also includes a broader range of assets eligible and some refinements to the assumed inflow and outflow rates. LCR is defined as: This means that the value of the ratio be no lower than 100% (i.e. the stock of HQLA - high quality liquid assets - should at least equal total net cash outflows). During a period of financial stress, however, banks may use their stock of HQLA, thereby falling below 100%. Page 3 of 14

4 The Basel Committee has now changed the definition of HQLA (assets that can be converted into cash at little or no loss of value in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario and net cash outflows), some of which subject to haircuts. These include: (i) cash, central bank reserves, and certain marketable securities backed by sovereigns and central banks; and (ii) certain marketable government securities as well as corporate debt securities, residential mortgage backed securities and equities that meet certain conditions. The latter (ii) are subject to certain limits. Regarding the denominator, we highlight the decrease of the rates at which liabilities and off-balance sheet commitments are expected to run off or be drawn down (for example, the outflow on certain insured deposits has reduced from 5% to 3% and nonfinancial corporate deposits from 75% to 40%). Timetable for phase-in of the standard the LCR will be introduced as planned on 1 January 2015, but the minimum requirement will begin at 60%, rising in equal annual steps of 10 percentage points to reach 100% on 1 January We also highlight the reaffirmation of the usability of the stock of liquid assets in periods of stress; The Committee will now press ahead with the review of the Net Stable Funding Ratio. Banco Popular Neutral High Risk (Target YE13: 0.75) Rita Silva; Banco Popular successful at issuing senior debt Banco Popular sold 750mn of 2.5 yr bonds priced to yield 4,125% (362bp + MS). This was another step given towards some normality at wholesale markets after which banks have the flexibility to reduce their dependence on ECB funding. Bankinter Sell High Risk (Target YE13: 3.70) Rita Silva, Bankinter issues 3.5 Yrs bonds, 2.75% rate Bankinter issued bonds with 3.5 yrs maturity, with a 2.75% rate (220pb + MS). This is another piece of evidence that the Spanish wholesale market is showing signs of openness, in a week when several banks (and also companies from the non-financial sector) issued notes. The rate at which Bankinter issued is below sovereign rates and below Banco Popular s most recent issuance (01/08/2013) with a 18 months maturity and 4125% rate. Banco Popular Bankinter High yield deposits with a direct impact on CT1 Neutral High Risk (Target YE13: 0.75) Sell High Risk (Target YE12: 3.70) Rita Silva; According to the press, Bank of Spain has issued a new Circular that will penalize banks that pay excessive high yields for deposits, with negative impacts directly on CT1. This is an innovation following the cancelation of the Salgado law that obliged banks to a reinforced contribution to the FGD in case of high yielding deposits. If implemented, the impact on NII would be positive (ceteris paribus) leading to higher valuations: an extra 5c/share on Banco Popular (from 0.75/share to 0.80/share) and 10c/share on Bankinter (from 3.70/share to 3.80/share). We are not taking into account the potential shift that banks would have to do towards wholesale funding, that could water down the positive effects of a reduction in retail funding costs. Anyway, given the recent signs of openness of the Spanish wholesale market, the mere fact that this measure could lead to a normalization of deposit costs can be seen as positive. Bank of Spain wants to limit yields offered on consumer deposits, pagarés and other guaranteed Page 4 of 14

5 securities. Banks that offer more than 15% of new deposits with a 1 year maturity with an yield above 1.75% (ECB rate + 1%) will have to set aside an extra 75bp on top of the 9% minimum EBA threshold. This yield cap will be of 2.25% for deposits between 1 and 2 years and 2.75% above 2 years with a capital add-in of up to 125bp which is quite aggressive and constitutes a good motivation for the financial system to lower deposit yields. BES Sell High Risk (Target YE13: 0.95) Rita Silva; BES issues more unsecured debt BES has issued 500mn senior unsecured debt, with a 5-year maturity and a coupon of 4.75% (3 months after issuing 750mn 3-yr 5,875% bond). Although this type of non State guaranteed issue has a higher cost associated (even though not significant given the size of the issue), its success reveals the bank's ability to issue in a dysfunctional wholesale market - which is quite positive. TELECOMS Telefónica Buy Medium Risk (Target YE13: Alexandra Delgado, CFA Telefónica issues 1,500 mn 10-year bonds Telefónica announced Tuesday the issuance of 1,500 mn in bonds, maturing in January 2023 (10 years), with a spread of 230bp over Mid-swap and a coupon of 3.99%. Telefónica has taken advantage of the yields on corporate bonds recent drop (reaching the lowest level since January 2008) to tackle the debt markets, following Spanish bank BBVA. We remind that last Euro bond issue from Telefónica was on October 5 th : issue of 1,200 mn, with a maturity of 7 years, a spread of 330bp over Mid-swap and a coupon of 4.71%. In the meantime, Telefónica issued by mid-november 400 mn Swiss Francs (CHF) in bonds, circa 332 mn at that time, in two tranches. The first tranche amounted to CHF250 mn, matures in December 2018 (6 years), has a coupon of 2.718% and had a spread of 230bp over Mid-swap. The second tranche amounted to CHF150 mn, matures in December 2022 (10 years), has a coupon of 3.45% and had a spread of 255bp over Midswap. Portugal Telecom Buy Medium Risk (Target YE13: 5.30) BNDES approves R$5.4 billion financing for group Oi Alexandra Delgado, CFA BNDES, the Brazilian development bank, has approved R$5.4 billion in financing for Group Oi, to be used in the company s investment plan between 2012 and According to BNDES announcement, the project includes the investment in the expansion and improvement of broadband access networks capacity, both fixed and mobile, and on Pay TV infrastructure, in addition to information technology investments. Conditions of the financing set that R$1.4 billion will be used in the acquisition of national equipments. BNDES will finance c. 34% of the total project, estimated to amount to R$15.9 billion. We remind that Oi plans to invest a total of R$24 billion between 2012 and 2015, an average of R$6 billion per year. The approval of this financing is good news for Oi s strategy in the next years. PT launches first quadruple play offer, M4O Portugal Telecom launched today the first quadruple play offer, M4O, which includes TV, internet, fixed telephone and mobile telephone; Meo has also been rebranded. PT had already signalled in its Tech Day last October that there was consumer interest for 4-Play Page 5 of 14

6 bundles and that it expected to benefit with this trend by offering convergent offers. M4O is available through FTTH (guaranteed speeds of 100 Mbps and 85 TV channels) and ADSL (up to 24 Mbps and 80 TV channels). It includes: two mobile cards with unlimited voice and SMS to all mobile and fixed national networks and 200 MB of internet per each card; unlimited fixed voice for fixed networks and one thousand minutes of international calls for 30 countries; unlimited and free access to PT s Wi-Fi network; and Musicbox available on the TV, PC and all mobile phones. M4O costs per month (same price through either FTTH or ADSL) with a 24 months contract. It has the possibility to add up two additional mobile cards for Euro 7.5 per month. This offer targets families that can achieve substantial savings if they include all family members mobile cards in the offer. Impact on SMEs should be limited, as mobile cards are limited to 4 and internet has a low download limit. Such a competitive offering launched by the market leader (mobile, triple play) can have a significant impact on current revenue streams. The fact that the Portuguese market is predominately a pre-paid market (81% of PT s personal mobile customers were pre-paid by the end of 9M12) should limit the negative impact this offer will have on mobile revenues; we remind that PT s ARPU in the personal mobile segment is 8.1 (9M12). Moreover, clients captured from competition (both in triple play and mobile) should offset negative impact on current client base, so net impact on revenue should be positive. For now, and unless adhesion to this 4-Play offering is much stronger than we anticipate, we do not believe revenue impact will be very significant. In our opinion the main benefits that result from this quadruple offer is the increased revenue predictability and specially the improved competitive position PT will have in the market. Moreover, it will enjoy a significant advance (more than 6 months) vs. future Zon Optimus. We remind that M4O implies a 24 month contract. Sonaecom Zon Multimedia Buy High Risk (Target YE13: 2.40) Neutral Medium Risk (Target YE13: 3.20) Alexandra Delgado, CFA Merger proposal update Searching for a fair Sonaecom discount Sonaecom SGPS and Isabel dos Santos announced on December 14th an agreement to recommend to the Boards of Zon and Optimus a merger between the two companies. Since the announcement, Zon price has risen 13.9% while Sonaecom price has fallen 2.8%. This means that taking into consideration the proposed exchange ratio (Zon's equity is 150% of Optimus equity), Sonaecom trades at a 22% discount. Sonaecom will become a holding with an economic interest of 32% in Zon Optimus plus SSI and Público, and therefore should trade at a discount vs. the new company. The pertinent question is if current discount is reasonable or too high for this company. The exchange ratio could be changed in favour of Zon s shareholders in order to guarantee approval. However, we do not believe it will be substantially different as that would undermine (even more) Sonaecom s relationship with its shareholders. If we assume exchange ratio goes up to 160%, Sonaecom s current discount is still 17%. We have analysed one Portuguese traded stock that presents the closest structure to future Sonaecom: Semapa. If we include the 76% stake in Portucel at market value in our valuation, we conclude that Semapa s current price incorporates a 26% discount vs. Portucel price. However, because a significant part of Sonaecom will be derived from its stake in Zon Optimus (94%), we argue that the discount should be lower than Semapa s. We believe current Sonaecom price incorporates a reasonable discount (17% to 22%) given the structure expected if merger happens. However, we believe that if Sonaecom s price continues to diverge from Zon s, then it is a good opportunity to buy Sonaecom. Page 6 of 14

7 (For further details, please refer to our snapshot out this week) Zon and Optimus should present merger plan to both Boards of Directors by January 25th According to Diário Económico this week, executive committees of Zon and Optimus should present a joint merger proposal to both Boards by January 25 th. We remind that former news indicated that a plan would be presented by the end of the month, so management teams are pushing towards a fast conclusion of negotiations. According to the same news, plan will include an estimate of merger synergies, resulting from both cost reduction as well as growth potential coming from reinforced competitive position. Following plan approval by both Board of Directors, the two companies will then disclose the merger plan and call for extraordinary shareholder meetings (that should be held by the end of February). UTILITIES EDP Buy Low Risk (Target YE13: 2.80) Parpública concludes the early repayment of the exchangeable bond linked to EDP s shares on February, 11th Vanda Mesquita, Parpública announced that it is going to reimburse the investors that did not ask for the early reimbursement on February, 11 th 2013, meaning that EDP s shares held by Parpública will be available soon. As a reminder, last month, Parpública had announced the exercise of the early repayment option on the 5th anniversary of the exchangeable bond linked to EDP s shares (linked to 151,517,000 shares in EDP, which represents 4,14% of EDP s share capital), mentioning that 99.6% of the investors had requested the cash reimbursement. Parpública also said that it would proceed to the compulsory acquisition of the remaining shares, which is a process that will be completed soon. As previously mentioned, we believe that China Three Gorges (CTG) will buy this stake. It will be interesting to know the price of this operation. However, we believe that CTG is not going to pay the same premium that it paid one year ago. All in all, we don t think that this topic will affect strongly stock price. RETAIL Jerónimo Martins Neutral Medium Risk (Target YE13: 16.50) Preliminary Sales Keep calm with Biedronka`s LfL sales João Flores, Jerónimo Martins (JM) published this week its FY12 preliminary sales. 4Q12 preliminary sales rose 16% YoY to 2.922mn (1.6% above estimated 2.875mn), benefiting from positive numbers in Poland which offset numbers slightly lower than expected in Portugal. Overall, Poland keeps benefiting from a solid strategy (strong expansion plan & outperformance) while Portugal is showing an increasing tough scenario (will loyalty card be the solution following strong success from loyalty card in major competitor Continente, Sonae`s supermarket/hypermarket retail chain?). Biedronka sales rose 27.8% YoY to 1.864mn (above estimated 1.807mn) reflecting LfL sales slightly higher than expected (FY12 6.4% vs 6.0% estimated) and positive exchange rate effect (c7% above 4% estimated on the quarter) since stores openings were in line with estimates (252 net openings in FY12 vs 250 estimated). In the quarter, as in the year, both average ticket and number of visits contributed positively to Biedronka s performance. We highlight LfL sales recovered in 4Q12 to 6.4% from 5.5% in 3Q12, benefiting from layout conversion completed and company reinforced price proposition. Recall food retail sales in Poland grew 1.3% in October and 2.4% in November while basket inflation reached 1.8% in the quarter. Page 7 of 14

8 Sales in Pingo Doce slightly rose 0.2% YoY to 869mn (below estimated 872mn), penalized by strong decline in LfL sales numbers (to -2.6% in 4Q12 from -0.6% in 3Q12). Basket deflation reached 2.4% in 4Q12. In Portugal the environment deteriorated faster than initially expected and got worse along the year, and food retail sales cumulative to November declined by 1.5%. Following sales numbers, we felt confident with our valuation, keeping the price target for JM at 16.50, for the YE13, with a Buy, Medium risk recommendation. We believe JM`s negative stock trend in the latest sessions was reflecting investors fears with Biedronka`s LfL sales numbers (following Poland lackluster retail sales numbers) which did not happened, thus stock has room to recover. Recall JM will disclose its 2012 Earnings on February 27th. (For further details, please refer to our snapshot out this week) CONSTRUCTION Construction Sector António Seladas, CFA Portuguese Construction industry stabilizing at low levels The INE (The Portuguese Statistic Institute) released today the Production in the Construction index regarding the month of November. The index is now minus 18.7% YoY, Moving Average of the last 3Months. The index continues to show some signs of consolidation between 51.1 (the lowest level on record, released in August) and 55.2 (October s figure), while in November the figure was The Confidence Indicator in the Industry released on monthly basis by the European Commission has also had a positive performance since May/June. All in all some stabilization at low levels. Our estimates, regarding Mota Engil Construction revenues in Portugal are -19% and -12% in 2012 and So we feel comfortable with our estimates. Page 8 of 14

9 Source: INE Source: European Commission SECTOR PERFORMANCE Sector Performance -1 Week (%) Sector Performance - YTD (%) PSI PSI Financials 15.5 Financials 20.7 Telecoms 6.8 Industrials & Other 13.7 Industrials & Other 4.7 Telecoms 10.8 Retail * 3.6 Retail * 6.8 Electric Utilities 0.8 Oil & Gas 5.3 Oil & Gas -0.3 Electric Utilities * includes Jeronimo Martins and Sonae This week, the PSI20 went up 4.6%. The best performing sector was Financials with a 15.5% growth and the worst was Oil & Gas with a 0.3% fall. On a Ytd basis, the PSI20 went up 8.8%. The best performing sector was Financials with a 20.7% growth and the worst was Electric Utilities with a 3.4% growth. AGGRESSIVE PORTFOLIO This week, Mib Aggressive Portfolio went up 5.23%, outperforming the PSI20 by 0.61pp. Impresa was the only contributor for this outperformance. We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe. It is equal weighted and rebalanced on a weekly basis. LIQUIDITY PORTFOLIO This week, Mib Liquidity Portfolio went up 2.83%, underperforming the PSI20 by 1.78pp. Excluding Portugal Telecom, all the stocks contributed for this underperformance. We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe, excluding the less liquid stocks. It is equal weighted and rebalanced on a weekly basis. Page 9 of 14

10 Mib AGGRESSIVE PORTFOLIO Portfolio weekly return 300 Return since inception (27Jul04) Risk Market Price Upside Weekly Performance Company 270 Rating Price ( ) Target ( ) Potential Return Contribution Deviation Portfolio PSI20 Impresa High % 19.4% 3.87pp 2.95pp 240 Novabase High % 1.3% 0.26pp -0.66pp 210 Telefónica Medium % 4.5% 0.91pp -0.02pp 180 Sonaecom High % -1.4% -0.28pp -1.15pp 150 Sonae Medium % 2.4% 0.47pp -0.37pp 120 Portfolio 5.23% PSI % 90 Gain/loss 0.61pp 60 Explained by the portfolio 0.75pp 23/07/04 20/12/05 19/05/07 15/10/08 14/03/10 11/08/11 07/01/13 Explained by being underweight in the remaining PSI20 stocks -0.14pp Portfolio PSI20 Ytd Return Next week Portfolio Changes in Portfolio Company Risk Market Price Upside Rating Price ( ) Target ( ) Potential In Out Novabase High % Galp Sonae Sonaecom High % Telefónica Medium % Impresa High % Galp Energia High % Return vs. PSI /12/12 30/12/12 01/01/13 03/01/13 05/01/13 07/01/13 09/01/13 11/01/ YTD 1 Month 1 Week Portfolio 71.9% -7.30% -36.6% 22.3% 8.2% 7.5% 5.2% PSI % % -27.6% 2.9% 8.7% 9.3% 4.6% Gain/loss 38.5pp 3.0pp -9.0pp 19.4pp -0.5pp -1.8pp 0.6pp Source: Bloomberg; Millennium investment banking "Mib Aggressive Portfolio" is composed by the five stocks with a higher upside potential of our coverage universe. "Mib Aggressive Portfolio" is equal-weighted and its composition changes at the end of the last trading day of each week. Page 10 of 14

11 Return since inception (30Dec11) Portfolio PSI /12/11 02/04/12 05/07/12 07/10/12 09/01/ Portfolio PSI20 Ytd Return 28/12/12 30/12/12 01/01/13 03/01/13 05/01/13 07/01/13 09/01/13 11/01/13 Mib LIQUIDITY PORTFOLIO Portfolio weekly return Company Risk Price Upside Weekly Performance Market Price ( ) Rating Target ( ) Potential Return Contribution Deviation Telefónica Medium % 4.5% 0.91pp -0.02pp Sonaecom High % -1.4% -0.28pp -1.15pp Sonae Medium % 2.4% 0.47pp -0.37pp Galp Energia High % -0.3% -0.06pp -0.29pp Portugal Telecom Medium % 8.9% 1.79pp 0.16pp Portfolio 2.83% PSI % Gain/loss -1.78pp Explained by the portfolio 0.75pp Explained by being underweight in the remaining PSI20 stocks -2.54pp Next week Portfolio Changes in Portfolio Company Risk Price Upside Market Price ( ) Rating Target ( ) Potential In Out Sonaecom High % EDPR PT Telefónica Medium % Galp Energia High % Sonae Medium % EDP Renováveis Low % Return vs. PSI YTD 1 Month 1 Week Portfolio % 7.8% 10.4% 2.8% PSI % 2.9% 8.7% 9.3% 4.6% Gain/loss pp -0.8pp 1.1pp -1.8pp Source: Bloomberg; Millennium investment banking "Mib Liquidity Portfolio" is composed by the five stocks with a higher upside potential, excluding less liquid stocks. "Mib Liquidity Portfolio" is equal-weighted and its composition changes at the end of the last trading day of each week. Page 11 of 14

12 2013/01/11 Latest Target Risk Trnvr ( mn) M Cap Change (%) EPS P / E EV / Sales EV / EBITDA Div Yield P/BV Upsd Rating Pr ( ) YE13 Rating 3m 6m ( mn) Week 1M 3M 12M YTD E 2013E E 2013E E 2013E E 2013E E 2012E PSI 20 6, , Financials , Banco Popular % Neutral High , loss % 0.0% 2.3 Bankinter % Sell High , % 1.9% 0.8 BCP (1) , BES % Sell High , loss % 0.0% 0.6 BPI % Sell High , loss % 0.0% 1.4 Telecoms , % 0.7% 2.1 Telefónica % Buy Medium , % 0.1% 2.3 Portugal Telecom % Buy Medium , % 7.7% 1.3 Zon Multimedia % Neutral Medium % 5.1% 4.5 Sonaecom % Buy High % 4.6% 0.5 Media loss % 4.4% 0.7 Impresa % Buy High loss 61.5 loss % 0.0% - Media Capital (2) % % 9.7% - Cofina % Sell High % 2.7% 3.4 Technology Indra % Buy High , % 1.9% 1.6 Novabase % Buy High % 3.8% 0.7 Utilities , % 4.3% 0.7 Iberdrola % Buy Low , % 7.3% 0.6 EDP % Buy Low , % 7.9% 1.0 EDP Renováveis % Buy Low , % 0.7% 0.7 REN % Buy Low , % 7.6% 1.1 Motorways Brisa (3) , % - - Conglomerates , Sonae % Buy Medium , % 4.5% 1.1 Semapa % Buy High % 3.7% 0.7 Sonae Capital % Neutral High loss loss loss loss loss 0.0% 0.0% 0.1 Retail Jerónimo Martins % Neutral Medium , % 3.5% 7.4 Industrials , % - - Sonae Industria % Buy High loss loss loss % 0.0% 0.5 Altri % Reduce High % 1.2% 2.0 Portucel % Reduce Medium , % 6.6% 1.3 Cimpor (3) , % - - Construction Mota-Engil % Sell High % 5.4% 1.1 Oil & Gas Galp Energia % Buy High , % 1.9% 1.8 (1) We do not have a recommendation on BCP, as Mib is a registered trademark of BCP; (2) Unrated due to low free-float; (3) Not Covered Page 12 of 14

13 DISCLOSURES This report has been prepared on behalf of Millennium investment banking (Mib), a registered trademark of Banco Comercial Português, S.A. (Millennium bcp). Millennium bcp is regulated by Comissão de Mercado de Valores Mobiliários. Recommendations: Buy means more than 10% absolute return; Neutral means between 0% and +10% absolute return; Reduce means between -10% and 0% absolute return; Sell means less than -10% absolute return. Unless otherwise specified, the time frame for price targets included in this report is current year-end or next year-end. Risk is defined by the analyst s view in a qualitative way (High, Medium, Low). Usually we update our models and price targets in between 3 and 9 months. Millennium bcp prohibits its analysts and members of their households to own any shares of the companies covered by them. BCP group may have business relationships with the companies mentioned in this report. Millennium bcp, expects to receive or intends to seek compensations for investment banking services from the companies mentioned in this report. The views expressed above, accurately reflect personal views of the authors. They have not and will not receive any compensation for providing a specific recommendation or view in this report. There were not any agreements between the companies covered and the analysts regarding the recommendation. Analysts are paid in part based on the profitability of BCP group, which includes investment banking revenues. BCP group has more than 2% of EDP. BCP group has more than 2% of Sonaecom. BCP group was chosen to evaluate EDP regarding the 8th stage of the privatization process. BCP group was chosen to evaluate REN regarding the 2nd stage of the privatization process. A member of the Executive Board of Directors of Millennium bcp is member of the General and Supervisory Board of EDP - Energias de Portugal, SA. Banco Millennium bcp Investimento, S.A. (merged into Millennium bcp) was chosen as a joint global coordinator of the Initial Public Offering of EDP Renováveis. Banco Millennium bcp Investimento, S.A. (merged into Millennium bcp) was part of the consortium, as a Co-Leader, of BES rights issue, done in April Millennium bcp was part of the consortium, as Co-Manager, of BES rights issue completed in May Millenniumbcp through its investment banking department is providing investment banking services to Tagus Holdings S.a.r.l. ( Offeror in the launch of a tender offer over Brisa - Autoestradas de Portugal, S.A. shares). Recommendations on Millennium bcp covered companies (%) Recommendation Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Jun-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Buy 77% 65% 78% 72% 68% 76% 79% 63% 54% 41% 37% 30% 63% Neutral 12% 19% 4% 7% 11% 14% 7% 15% 4% 27% 11% 40% 6% Reduce 4% 4% 0% 3% 0% 0% 0% 7% 0% 0% 21% 5% 6% Sell 4% 8% 7% 3% 7% 0% 4% 4% 0% 14% 16% 5% 0% Unrated/Under Revision 4% 4% 11% 14% 14% 10% 11% 11% 42% 18% 16% 20% 25% Performance 8.7% 10.7% -15% 1% -25% -3% -10% 33% -51% 16% 30% 13% na PSI 20 5,655 5,203 4,698 5,557 5,494 7,324 7,588 8,464 6,341 13,019 11,198 8,619 7,600 DISCLAIMER This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or of opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not allowed without permission from the BCP group. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Page 13 of 14

14 OFFICE LOCATIONS Millennium investment banking Av. José Malhoa, Lote Lisboa Portugal Telephone Fax / 39 Equity Team Luis Feria (Head of Equities) Equity Research António Seladas, CFA (Head) Fundamental Analysis Alexandra Delgado, CFA (Telecoms and IT) António Seladas (Industrials & Small caps) João Flores (Media and Retail) Rita Silva (Banks) Vanda Mesquita (Utilities and Oil&Gas) Market Analysis Ramiro Loureiro Sónia Martins Telma Santos Publishing Sónia Primo Prime Brokerage Vitor Almeida Equity Trading Paulo Cruz (Head) Gonçalo Lima Jorge Caldeira Nuno Sousa Paulo Sousa Pedro Ferreira Cruz Pedro Gonçalves Pedro Lalanda Rodrigo Roque Pinho Equity Derivatives Jorge Pina (Head) Ana Lagarelhos Diogo Justino Marco Barata Maria Cardoso Baptista, CFA