IBERIA. Thursday Bankinter s 3Q12 Earnings During the week - Brazilian mobile subscribers by the end of September (Anatel)

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1 EQUITY RESEARCH IBERIA 12 October 2012 TOP STORIES Some Iberian companies raised funds over the week, namely Telefónica and Portugal Telecom by issuing 7 and 5.5 year bonds and Ren through an 8 year and 12 year loan with a Chinese bank. Clearly a strong signal that confidence on the Iberian financial market is coming back (pages 5 and 7). WEEKLY António Seladas, CFA antonio.seladas@millenniumbcp.pt OUT THIS WEEK Snapshots / Company Reports Pulp & Paper Sector Overview, Galp Energia, Telefónica Price Target / Recommendation Changes Jerónimo Martins, Banco Popular, Mota-Engil, Bankinter Other News Banking Sectir, Telefónica, Portugal Telecom, Iberdrola, REN, Jerónimo Martins, Galp Energia WEEK AHEAD Thursday Bankinter s 3Q12 Earnings During the week - Brazilian mobile subscribers by the end of September (Anatel) PORTFOLIOS This week, Mib Aggressive Portfolio went down 0.98%, underperforming the PSI20 by 0.48pp. Excluding Novabase and Indra, all stocks contributed for this underperformance (page 12). This week, Mib Liquidity Portfolio went down 0.81%, underperforming the PSI20 by 0.31pp. Excluding Galp Energia and Indra, all stocks contributed for this underperformance (page 13). Stock Market Last 1W YTD 2011 Daily Vol. ( mn) 1W 1M 6M 2011 PSI 20 5, % -2.43% % PSI IBEX 35 7, % % % IBEX 35 1,577 2,945 2,625 4,925 Euro Stoxx 50 2, % 6.58% -5.56% Euro Stoxx 50 8,086 8,788 8,163 14,831 Forex Rates Last 1W YTD 2011 Interest Rates Last 1W Chg YE11 EUR/USD % 0.24% -3.17% Euribor 6m 0.42% 0.43% -1bp 1.62% EUR/GBP % -3.45% -2.96% 10Y Bond PT 8.03% 8.22% -19bp 13.36% EUR/BRL % 9.41% 8.86% 10Y Bond SP 5.63% 5.69% -6bp 5.09% Martifer Jerónimo Martins Best & Worse Performers -1 Week (%) Indra BPI Mota-Engil Sonae Best & Worse Performers - YTD (%) Mota-Engil 2.5 Portucel 13.5 Cofina 2.2 Galp Energia 13.3 Av. José Malhoa, Lote 27 Telefónica Altri Sonae Capital Cimpor Lisboa Brisa -5.5 Bankinter Tel / Fax: / 09 Bankinter Martifer Banco Popular Banco Popular Page 1 of 16 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.

2 CHANGES New Previous Rating Target Rating Target Motive Jerónimo Martins Buy Buy Moving Valuation to YE13 Banco Popular Buy 1.50 Neutral 1.55 Valuation Update Mota-Engil Buy 1.50 Reduce 1.25 Moving Valuation to YE13 Bankinter Neutral 3.10 Reduce 3.10 Price Performance EARNINGS Company 3Q2012 Investor Day Galp Energia ** BM Bankinter BM Portucel AM BPI AM Jerónimo Martins BM Iberdrola BM Zon Multimedia BM Banco Popular (e) BM Galp Energia BM Novabase AM Semapa AM Sonaecom AM Impresa AM Brisa AM BCP AM EDP AM Sonae Sierra AM EDP Renováveis BM Telefónica BM Altri AM Sonae Indústria AM REN AM Portugal Telecom BM Cofina AM BES AM Glintt AM Cimpor BM Sonae AM Indra AM Martifer AM Sonae Capital AM Ibersol AM Mota-Engil AM Media Capital n.a. ESFG n.a. Soares da Costa n.a. SAG n.a. AM - After market; BM - Before market; n.a. - Not available; (e) Expected; ** Trading update Page 2 of 16

3 DIVIDENDS Company Gross Payment Ex-Div Last Year AGM Obs DPS Date Date Pay Date Gross DPS Banco Popular* (1) '1x 21 ou 8c (1) 11-Jun-12 26/06/2012 (2) 21/06/2012 (2) Approved 11-Oct Jul-11 1x May-11 1x Jan Bankinter * Jan-12 7-Jan-12 Approved 28-Sep Apr-12 7-Apr-12 Approved 2-Jul Jul-12 7-Jul-12 Approved Oct Oct-12 Approved 1-Jan BCP Jun BES Mar Approved 11-Apr BPI Jun Approved - - Banif Mar ESFG May Jun Estimate 4-Jan Sonaecom Apr May May-12 Approved 25-May Zon Multimedia Apr May May-12 Approved 6-May Telefónica** May May May-12 Approved 6-May Proposed 7-Nov Impresa Apr Approved Media Capital Mar Apr Apr-12 Approved 15-Apr Cofina Apr May-12 8-May-12 Approved 21-Jun Indra Jun-12 4-Jul-12 4-Jul-12 Approved 4-Jul Novabase May-12 4-Jun May-12 Approved 6-Jun Jul Glintt May Approved - - Iberdrola** Jun Jul Jul-12 Approved 5-Aug Jun Approved 13-Jul EDP Apr May May-12 Approved 13-May EDP Renováveis Apr Approved REN Mar Apr Apr-12 Approved 12-May Brisa Apr Rejected 5-May Sonae Apr May May-12 Approved 27-May Dec Portucel Apr Apr Apr-12 Approved - - Altri Apr May May-12 Approved 21-Jun F Ramada Jun Inapa Sonae Industria Mar Approved Sonae Capital Mar Approved Cimpor - 20-Apr May Jul-12 3-Aug Jul-12 Approved - - Semapa May Jun-12 6-Jun-12 Approved Mota-Engil Apr May May-12 Approved 13-May Soares da Costa May Approved 13-Jun Teixeira Duarte May Approved 16-Jun Martifer Apr Approved Galp Energia May May May-12 Approved 30-May Sep Sep-12 Approved - - Ibersol Apr May-12 8-May-12 Approved 11-May na - Not available Estimate: Estimated by the Millennium investment banking Proposed: Announced by the company to be proposed in AGM Approved: Dividend already approved by AGM (1) Remuneration system, which allows choosing between new, shares or cash. Cash dividend: 0.08; Scrip dividend: one new share for every 21 shares. (2) These dates apply for shareholders in Portugal * Company pays dividends four times a year ** Company pays dividends twice a year. Page 3 of 16

4 NEXT WEEK RESULTS Bankinter Neutral High Risk (Target YE12: 3.10) 3Q12 Earnings Preview Rita Silva, NII YoY B. Income YoY Op. Income YoY Net Profit YoY % % % -1 nm Bankinter will disclose its quarterly earnings on the 18 th October, before the market opening. NII should decrease quarterly reflecting the effort to reduce its dependence on the wholesale market by increasing deposits. After Bank of Spain removing the penalties banks were charged for overpaying for deposits, the competition for deposits has intensified in the country. On the other hand, repricing should continue to improve as Bankinter is shifting its strategy towards corporate lending and away from retail mortgages. We expect NII to reach 168mn in 3Q12. We recall that Bankinter has already complied with both provisioning RD (I and II) and that by Oliver Wyman s criteria it does not have the need for extra capital, by the contrary, it has a 399mn capital surplus under the adverse scenario in the stress tests recently conducted. FINANCIALS Banking Sector Rita Silva; Minimum CT1 raised from 8% to 9% in Spain Bank of Spain has released a Circular (under consultation) that defines a minimum CT1 of 9% for banks, instead of the previous 8% threshold. Also, banks that were previously required to maintain a minimum of 10% (due to excessive dependence on the wholesale market, for example) will also comply with a minimum 9%. This new rule is to be applied from 1 January 2013 onwards. Also, the definition of CT1 will be the same used by EBA (the same used in the Oliver Wyman stress tests). Other details include the listing of the criteria that mandatory convertible bonds must have to be eligible for CT1 purposes, namely that they have to be CoCo s with a trigger point of 5.125% for CT1. This decision is neutral valuation wise as we demand a minimum CT1 of 10%. Banco Popular Buy High Risk (Target YE13: 1.50) Rita Silva; Results of voluntary conversion of MCB - 126mn new shares issued Banco Popular will issue 126,035,134 new shares as a result of a voluntary conversion of the mandatory convertible bonds I/2012 (total amount 1109mn, maturity 2018). Conversion price stood at 1,6258. The total amount to be included in the equity base stands at: 204,9mn. This will impact Popular s valuation by 5c/share, reducing the current price target from 1.55 to Given the 15% upside, Popular has a Buy recommendation. New shares should be issued after the announced capital increase of 2500mn that should happen mid-november. For more details on our view on Banco Popular please refer to our latest valuation update issued on 2 October, 2012: Company Update: Banco Popular New business plan followed by a massive capital increase. (For further details, please refer to our snapshot out today) Page 4 of 16

5 TELECOMS Telefónica Buy Medium Risk (Target YE12: Alexandra Delgado, CFA Telefónica issues 1,200 mn 7-year bonds Telefónica announced last Friday the issuance of 1,200 mn in bonds, maturing in January 2020 (7 years), with a spread of 330bp over Mid-swap and a coupon of 4.71%. Telefónica is taking advantage of an improvement in credit conditions to issue debt, since the European Central Bank announced an unlimited bond-buying programme to reduce peripheral countries' financing costs in early September. We remind that last bond issue from Telefónica was on September 5 th : issue of 750 mn increased to 1,000 mn, with a maturity of 5 years and a coupon of 5.811%. 750 mn were issued with a spread of 485bp over Mid-swap and 250 mn with a spread of 390bp over Mid-swap. Atento sale - Debt reduction on track Telefónica announced today it has agreed to sell its unit Atento to private equity Bain Capital. The deal gives Atento an enterprise value of 1,039 million, 5.2x EV/EBITDA 2013E. The transaction is subject to regulatory approval and is expected to be completed until the end of this year. Atento is the leader in CRM (Customer Relationship Management) business in Latin America and the second largest in the world. It generated 1,802 million revenue in 2011 and 161 million in OIBDA. Telefónica disclosed in the release that Atento s net debt as of June 2012 was 175 million. Enterprise value includes 110 million of a contingent deferred payment and 110 million of vendor financing provided by Telefónica. The company did not disclose what conditions in terms of evolution of business are behind the contingent deferred payment. Our Sum-Of-The Parts for Telefónica included an estimated enterprise value of 1,229 million for Atento, 6.3x EV/EBITDA 2012E. Accounting for the sale of Atento at an enterprise value of 1,039 million has a slight negative impact on our valuation (- 0.04/ share), nevertheless price target (YE12) is maintained at 16.95/ share, as well as our Buy recommendation. According to our estimates, the combination of asset sales in 1H12 ( 3.1 bn), plus announced dividend cancellation and 0.6 bn with sale of Atento guarantees the company reaches net debt goal by YE12 (2.35x Net financial debt-on-oibda). Atento sale price is far from spectacular and below our valuation for the unit. Telefónica s commitment toward debt reduction means it is willing to accept multiples below its expectations, for example our estimate of a multiple between 5.5x and 6.0x EV/EBITDA 2013E for Telefónica Germany. Bottom line, Telefónica is showing good execution of plan to reduce debt and therefore this deal should be well received by investors. (For further details, please refer to our snapshot out today) Portugal Telecom Buy Medium Risk (Target YE12: 6.00) Portugal Telecom issues 750 mn 5.5-year bonds Alexandra Delgado, CFA Portugal Telecom announced Wednesday the issuance of 750 mn in bonds, maturing in April 2018 (5.5 years), with a spread of 542bp over Government Bonds and a coupon of 5.875%. PT said in the press release that this transaction further enhances PT s financial flexibility by extending debt maturities, which in the current environment, substantially reduces financial risks. PT is now refinanced until July 2016 (previously, until June 2016). Page 5 of 16

6 PT has issued last July 400 million of 4-year bonds for the general public, with a coupon of 6.25% per year. Before that, last bond issue from Portugal Telecom was on January 2011: 600 mn, with a maturity of 5 years and a spread of 337bp over Government Bonds. It is a fact that spreads are still high and that issuing debt at this price doesn t seem logical for a company that it was already refinanced until June However, we believe it is positive the fact that the company was able to issue debt in these uncertain conditions. Besides, average cost of debt of the company will not rise significantly, because there is a 1 bn bond maturing in the beginning of 2013 that has a 6% interest rate. Government and Portugal Telecom agree termination of universal service contract The Portuguese government and Portugal Telecom announced they ve reached an agreement that terminates the universal service contract. The concession of the universal service was attributed to PT back in 2003, without public tender, and was valid until The universal service assures a connection to a communications line at a reasonable cost in any place in the country, public phones and the distribution of phone lists. With this agreement, the government avoids a fine of 5.5 million, plus 33k per day, imposed by the EU. In October 2010, Portugal was condemned by the EU Justice Court to hold a tender to choose a universal service provider, or pay the abovementioned fine. The amount that will be paid to Portugal Telecom as compensation for the early termination of the concession will be determined by an independent auditor to be designated by Anacom. Both parties committed to accepting a compensation value between 30 and 35.5 million. This compensation will only be paid if Portugal Telecom doesn t win the public tender. The government announced it will launch a public tender next week and that the new providers of universal service will be announced in 1H13. There should be three different tenders: communications, public phones and telephone lists. The new contracts to be awarded are for 5 years. The main criterion to decide the winner will be the lowest price. The cost of the universal service will be supported by telecom operators, through a compensation fund created last August: annual net costs of universal service will be shared among telcos based on the turnover each one generates. Zon and Vodafone said they will analyse the tenders conditions and then decide if they bid. Optimus confirmed it will bid, saying it is a natural candidate. The legislation that created the compensation fund determines telecom operators have to make extraordinary contributions in the next 3 years (between 2013 and 2015) to pay the net costs of the universal service provided by PT in past years. The other operators contest this payment, since they consider the attribution of this service to PT was illegal. Anacom determined that 2007 was the first year in which Portugal Telecom had net costs with the universal service, so we re talking about costs between 2007 and Anacom hasn t yet disclosed what the total cost for that period amount to but PT has booked in its 2Q12 accounts an extraordinary gain of 26.6 million with the universal service between 2007 and The deal with the government should have a neutral impact on Portugal Telecom, assuming the compensation amount ( mn) is enough to cover investments. The 26.6 million figure stand for 5.3 mn per year. A 5.3 mn annual inflow until 2025, discounted at an 11% weighted average cost of capital, stands for a net present value of 39.7 million, not very far from the interval announced. Page 6 of 16

7 UTILITIES Iberdrola Buy Low Risk (Target YE12: 4.95) Vanda Mesquita, 3Q12 operational data IBE disclosed its 3Q12 operational data this week. Energy produced dropped by 6.9% YoY, mainly due to a 34.4% decrease in the UK production and a 3.6% decline in Spain. In the other countries/regions, there was an increase of energy generated, namely in the US (+1.3% YoY) and in the Rest of the World (+10.3% YoY). In Latin America energy produced stood flat YoY. Comparing to our estimates, we highlight that energy produced in Spain in the first nine months of the year accounts for 68% of the YE12 estimates and that in the UK the figure represents only 49% of the target included in our model that we acknowledge that we are too upbeat regarding the production figures in this country. IBE also disclosed that the average price in Spain in the first nine months stood at 58.61/MWh, slightly below our 60/MWh estimates. It is also noteworthy that this quarter there was a drop in the combined cycle production (-22.1% YoY at the group level and -72% YoY in Spain) and also in the hydro production (-15.2% YoY at the group level). We believe that combined cycle plants are being less used than other technologies, due to the higher generation costs compared to other technologies. Renewable energy production rose by 12.4% YoY. Comparing to our estimates, renewable energy production in the first nine months accounts for 77% of the figure included in our model perhaps too pessimistic, as typically the fourth quarter is one of the strongest ones in terms of wind production. Finally, we would like to highlight that volumes of energy distributed by the group stood almost flat YoY (- 1.8% YoY in Spain, +1% YoY in the UK, +2.2% YoY in the US and +3.85% YoY in Latin America) and the Group has only been installing renewable energy, as expected. Given the disclosed figures, we do not anticipate significant changes in IBE s valuation. IBE will disclose its 3Q12 results on October, 24th before the market opens. Iberdrola to divest at least 4bn in assets in the coming two years According to the Spanish press, Iberdrola will announce a more than 4bn divestment plan to maintain the dividend policy and at the same time to reinforce its financial situation. Divestment plan should include the sale of the IBE s stake in EDP (about 6.7%) and also the sale of gas assets in the US. This piece of news came as no surprise, since the company has recently made it clear that the company s strategy is now focused on the debt reduction not only to maintain the current shareholder remuneration, but also to strengthen its financial situation. In recent times, several rumors have arisen regarding likely sales, namely the sale of a minority stake in the transport and distribution businesses in the UK as well as the sale of wind farms in some European countries. Bearing in mind that Spain s bailout is imminent, we believe that this kind of divestment strategy makes sense, as it will reduce financing needs substantially, whose cost will tend to be higher if Spanhish bailout happens. IBE will announce its 3 rd quarter results on October 24 th. In addition, on the same day, IBE will also address its strategy and guidance for the years to come, therefore we expect to obtain more details about this divestment plan by then. REN Buy Low Risk (Target YE13: 2.60) Vanda Mesquita China Development Bank approved a 800mn loan REN has announced that China Development Bank has approved a 800mn loan that comprises two different tranches. The first tranche is to refinance debt, while the second one is to finance new electricity and gas projects. Both tranches amount to 400mn, the former one will have a 8- year maturity and a spread of 4.7% over 6-mothn Euribor and the latter a 12-year maturity and a spread of 4.9% over 6-mothn Euribor. Page 7 of 16

8 This loan is given under the strategic partnership with State International Grid (privatization process) that included a 1bn loan facility. The credit now approved amounts to 800mn, meaning that there are 200mn more to be withdrawn in the future. According to the economic press, REN s CFO mentioned that the remaining 200mn will be applied to new projects to be identified in the future. The longer maturities (8 years and 12 years) will help REN to extend its average debt maturity that stood at 3.4 years at 1H12. The interest of circa 5.1% and 5.3% will help REN to reduce its average cost of debt that stood at 5.6% at the end of 1H12. Given the contribution to the extension of the maturity of the debt and also the contribution to the decrease of financial costs, we consider the conditions quite positive for REN, as the current average debt maturity is somewhat shorter and the current financial costs are higher. We believe that financial needs will be assured for a longer period of time following the close of this operation,. RETAIL Jerónimo Martins Buy Medium Risk (Target YE13: 16.00) João Flores, JM will open first stores in Colombia next February JM`s Chairman, Mr Soares dos Santos disclosed yesterday (TV interview in cable news channel SIC Noticias ) that JM will open its first stores in Colombia next February (recall company recently said that the opening of the first stores may take place between the fourth quarter of 2012 and the first quarter of 2013). Furthermore, if business plan runs well (not necessarily so good as in Poland) company could expand to another Latin or Central America country. In Poland, Biedronka has currently stores (reached stores on October 08th) Valuation Update - A buy recommendation on a less optimistic scenario We updated our JM`s valuation based on latest data, new estimates and updated Euro/Zloty exchange rate. Furthermore, we moved reference year to YE13. Our price target YE13 was revised upwards to from (Buy recommendation, Medium Risk), meaning a 17% upside vs current price: i) changes from updated Euro/Zloty Fx rate to 4.28 YE13 from 4.27 YE12 had a 0.05 negative effect; ii) changes in estimates (Poland) had a 0.10 negative effect: 2012 sales numbers (in Zlotys) were revised upwards (fine-tune in avg sales per sqm) while sales numbers from 2013 onwards were revised downwards (penalized by less optimistic LfL sales scenario: 2013 LfL sales in Poland to 7% from 8%.). Recall we kept unchanged stores openings (estimated 250 net stores by year-end in Poland) and EBITDA margins; iii) changes in WACC (Portugal) had a 0.05 positive effect, we updated the local sovereign yield to 10% from 11% (Poland kept unchanged); iv) moving reference year to 2013 had a 1.40 positive effect. We have a Buy recommendation on JM, even considering a less optimistic scenario and lower visibility on Polish retail sales evolution. We believe stores openings plan in Poland are not a problem (company will keep focused on its stores target to: increase scale; occupy space) while retail sales pace of slowdown are a matter of concern. Company is confident it will keep outperforming the retail market, however it will not be safe from a sharp / continuing deceleration in Polish retail sales. Recall Biedronka retail unit its JM`s growth driver, thus negative news-flow from Poland are bad news to JM. We believe Portugal will keep under difficult situation (the worst is not over yet), however its low weight on JM`s valuation makes it not a major problem to the stock. We are not considering Colombia in our JM`s valuation since company will disclose later further details. JM will disclose 3Q Earnings on October 25th and will host Investor`s Day on November Page 8 of 16

9 08th. (For further details, please refer to our company update out this week) INDUSTRIALS Pulp & Paper Sector Pulp and paper and woodpanel sectors - Hike announcements in pulp and João Mateus, paper prices and cautious prospects for woodpanel margins For a better understanding of market drivers affecting pulp and paper stocks like Portucel and Altri, we must look at market trends in hardwood pulp prices (BHKP and BEKP), demand, capacity changes, inventory movements and cost trends worldwide. As to paper market trends, we must concentrate on office grades like A4B-Copy, generally uncoated woodfree (UWF) or uncoated freesheet. For a thorough analysis of the woodpanel markets affecting stocks like Sonae Industria, we may try to identify input price trends (urea, methanol and wood) and look at wood product market indicators, especially for Central Europe and North America. BHKP (pulp) prices in Europe in Euro came 3.4% higher YoY and 15.7% higher since the YE11, after a 10% fall since July. The recovery has lost momentum after June but latest price hike announcements improved prospects for the 4Q12. BEKP prices are targeted to reach USD780 for Europe, USD830 for North America and USD670 for Asia during October. These attempts to raise prices are partially due to current stock levels that should be at normal to low levels in Latin America. We believe that BEKP prices will reach or pass the USD800 mark in Europe until the YE12. In August 12, BHKP pulp imports to China came 15.6% lower YoY (+19.4% YoY in the 8M12). Simultaneously, Brazilian pulp exports decreased 16.3% YoY in August (+0.2% YoY in he 8M12). Demand in Europe came in line on a YoY basis, in August (-2.8% YoY in the 8M12) and world BHKP inventories reached 45 days in August, contrasting with only 18 days in Europe. A4B-Copy (paper) prices in Europe (in Euro), this week, came 1.6% lower YoY. Prices have been under a slow positive trend since March. After mid September, again several German paper traders have announced office paper price increases that ranged from 5% to 10%. The probable positive trend in pulp prices may sustain further price hikes in UWF paper until the YE12. Paper capacity utilization in the US has fallen to 79.8% in August 12, to under the long term average (82%), meaning that any possible paper demand growth in the US may immediately expand pulp demand. The US pulp and paper inventories to shipments ratio has been stable since early 2012 possibly signalling demand weakness in the US, despite remaining below the historic average of 1.09x. We expect a relative relief in woodpanel input costs, namely in wood and urea that may facilitate improved margins for German woodpanel producers in the 3Q12 and 4Q12. The question remains wether lower output prices in the 3Q12 have hampered margins of woodpanel producers, offsetting cost reductions. In North America, wood costs seemed to have been effectively passed to panel consumers. Capacity utilization in the US wood products was at 67% in August, still under the long term average of over 73%, indicating possible further market consolidation to come. The inventories to shipments ratio for US woodproducts has fallen to 1.46x in August following a recovery of 15.4% in shipments since September 11. (For further details, please refer to our sector report out this week) Page 9 of 16

10 CONSTRUCTION Mota-Engil Buy High Risk (TargetYE13: 1.50) Update Valuation - Africa and Latin America are paying off António Seladas, CFA We updated Mota Engil valuation, changing the price target from 1.25YE12 to 1.50YE13, buy recommendation, keeping the high risk grade. Major changes were: (1) yearend rollover, plus 68cents; (2) change in Coe/Wacc plus 12cents and change on estimates minus 55cents, of which 39cents were due to downwards revisions on financial stakes, namely Martifer and Ascendi. So concerning estimates, without the impact of financial stakes, we were slightly more cautious now than before and clearly more conservative than the Ambitious 2.0 (the Strategic Plan 2011/2015 presented by the management 5 weeks ago); The strong focus in Africa and Latin America at expenses of Central Europe, despite the increase revenues volatility namely in Africa, is apparently paying off. Africa grew by 26% and minus 8% in 2010 and 2011 respectively and should grow 20% in Despite this volatility, margins have been quite impressive between 17% and 19%. The management stated on its Ambition 2.0 Strategic Plan a cagr 2011/15 of 14.2% and an Ebitda mg of 19.8% in 2015 vs. our estimates of 13.7% and 17.5% respectively. The same trend is true regarding Latin America, revenues grew by 98% and 78% in 2010 and 2011 and should grow by 62% in 2012, the cagr 2011/15 stated on the Ambition 2.0 is 59% and an operating margin of 13.2% in 2015 vs. our estimates of 40% and 10.2% respectively. Central Europe and Portugal are definitely lagging behind, even that Central Europe, according to the Strategic Plan, should increase profitability to 5.9% in 2015 vs. our estimate of 4.5% and Portugal should reach a bottom by Despite that we are clearly more bullish in Portugal now than before as the Portuguese borrowing needs dropped sharply in the recent past and we should soon start to attract foreign direct investment; All in all a right strategy in a very challenging environment. (For further details, please refer to our snapshot out this week) OIL & GAS Galp Energia Buy High Risk (Target YE12: 17.85) Vanda Mesquita, New carbon tax and the Ventiveste project According to the economic press, Galp s CEO said that the Portuguese refineries will pay 40 million per year for to the introduction of the new carbon tax. Additionally, he also said that Ventiveste (the consortium for the construction of wind farms in which Galp and Martifer participates) has deployed only about 12MW out of the 400MW (total amount of the tender), admitting difficulties in the completion of the project. Regarding the comments related to the new carbon tax, these comments does not bring any relevant news comparing to what was mentioned in the past and its impact is already included in our estimates. In what concerns the Ventiveste project, in our valuation we only include the capacity under operation, not giving any value to the capacity to be installed in the future, since we do not have visibility over those projects. 3Q12 Operating Data Comment Refining margin positive for the second consecutive quarter Galp disclosed its 3Q12 operating data this week. The figures released have broadly met our expectations. In spite of slightly lower Brent prices, we believe that Exploration & Production (E&P) business should be the main driver of results of the 3rd quarter results mainly due to the rising levels Page 10 of 16

11 of crude production. We also expect an improvement of the Refining business, driven by a recovery of refining margins which stood at a positive level for the second consecutive quarter. E&P: Average net entitlement production (figures after the effect of production share agreements) rose by 60% YoY and 3.7% QoQ to 19.5 kboepd, above our estimates of 19.2 kboepd. Regarding prices, average Brent price went down 3.5% YoY to $109.5/bbl vis-à-vis $113.5/bbl in the same period of the previous year. R&M: Crude processed rose by 2.6% YoY to 21.2 million barrels, above our estimates of 20.3 million barrels. Galp s benchmark stood at a positive level for the second consecutive quarter ($3.9 per barrel, +78.1% QoQ). We recall that in its last CC the company mentioned that it had seen an improvement of the benchmark, but at the same time said that it remained cautious about its future evolution, as the issues of the sector are still present. Sales to direct clients went down 9.3% YoY and up 2.2% QoQ. We believe that the positive evolution of volume QoQ is explained by seasonality effects (holiday season). In turn, the negative evolution YoY is explained by the depressed environment in Iberia that continues to affect volumes in the marketing business. G&P: Volumes of natural gas supplied went up 26.9% YoY and down 0.9% QoQ. Galp will release its 3Q12 results on October, 29th before the market opens. (For further details, please refer to our snapshot out this week) SECTOR PERFORMANCE Sector Performance -1 Week (%) Sector Performance - YTD (%) PSI PSI Retail * 2.3 Telecoms 33.3 Oil & Gas 1.5 Financials 31.1 Industrials & Other 0.0 Oil & Gas 0.9 Financials -0.9 Retail * -0.7 Electric Utilities -2.0 Electric Utilities Telecoms -2.9 Industrials & Other * includes Jeronimo Martins and Sonae This week, the PSI20 went down 0.50%. The best performing sector was Retail with a 2.3% growth and the worst was Telecoms with a 2.9% fall. On a Ytd basis, the PSI20 went down 2.4%. The best performing sector was Telecoms with a 33.3% growth and the worst was Industrials & Other with a 33.5% fall. AGGRESSIVE PORTFOLIO This week, Mib Aggressive Portfolio went down 0.98%, underperforming the PSI20 by 0.48pp. Excluding Novabase and Indra, all 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. It is equal weighted and rebalanced on a weekly basis. LIQUIDITY PORTFOLIO This week, Mib Liquidity Portfolio went down 0.81%, underperforming the PSI20 by 0.31pp. Excluding Galp Energia and Indra, all 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 11 of 16

12 Return since inception (27Jul04) Portfolio PSI /07/04 30/11/05 09/04/07 16/08/08 24/12/09 03/05/11 09/09/12 Mib AGGRESSIVE PORTFOLIO Portfolio weekly return Company Risk Market Price Upside Weekly Performance Rating Price ( ) Target ( ) Potential Return Contribution Deviation Novabase High % 0.5% 0.10pp 0.20pp Indra High % 3.6% 0.73pp 0.83pp Telefónica Medium % -4.4% -0.88pp -0.78pp Portugal Telecom Medium % -3.4% -0.69pp -0.09pp Sonae Industria High % -1.2% -0.24pp -0.14pp Portfolio -0.98% PSI % Gain/loss -0.48pp Explained by the portfolio 0.02pp Explained by being underweight in the remaining PSI20 stocks -0.50pp Ytd Return Portfolio PSI /12/11 10/03/12 20/05/12 30/07/12 09/10/12 Next week Portfolio Changes in Portfolio Company Risk Market Price Upside Rating Price ( ) Target ( ) Potential In Out Novabase High % - - Telefónica Medium % Portugal Telecom Medium % Indra High % Sonae Industria High % Return vs. PSI YTD 1 Month 1 Week Portfolio -2.4% -43.6% 71.9% -7.30% -36.6% 14.6% -1.3% -1.0% PSI % -51.3% 33.5% % -27.6% -2.4% -1.4% -0.5% Gain/loss -18.7pp 7.7pp 38.5pp 3.0pp -9.0pp 17.1pp 0.0pp -0.5pp 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 12 of 16

13 Ytd Return (since inception) Portfolio PSI /12/11 10/03/12 20/05/12 30/07/12 09/10/12 Mib LIQUIDITY PORTFOLIO Portfolio weekly return Company Risk Price Upside Weekly Performance Market Price ( ) Rating Target ( ) Potential Return Contribution Deviation Indra High % 3.6% 0.73pp 0.83pp Telefónica Medium % -4.4% -0.88pp -0.78pp Portugal Telecom Medium % -3.4% -0.69pp -0.09pp EDP Renováveis Low % -1.4% -0.27pp -0.12pp Galp Energia High % 1.5% 0.30pp 0.06pp Portfolio -0.81% PSI % Gain/loss -0.31pp Explained by the portfolio 0.02pp Explained by being underweight in the remaining PSI20 stocks -0.32pp Next week Portfolio Changes in Portfolio Company Risk Price Upside Market Price ( ) Rating Target ( ) Potential In Out Telefónica Medium % - - Portugal Telecom Medium % Indra High % EDP Renováveis Low % Galp Energia High % Return vs. PSI YTD 1 Month 1 Week Portfolio % 1.3% -0.8% PSI % -2.4% -1.4% -0.5% Gain/loss pp 2.7pp -0.3pp 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 13 of 16

14 2012/10/12 Latest Target Risk Trnvr ( mn) M Cap Change (%) EPS P / E EV / Sales EV / EBITDA Div Yield P/BV Upsd Rating Pr ( ) YE12 Rating 3m 6m ( mn) Week 1M 3M 12M YTD E 2013E E 2013E E 2013E E 2013E E 2012E PSI 20 5, , Financials , Banco Popular (4) % Buy High , loss % 0.0% 1.0 Bankinter % Neutral High , % 1.2% 0.6 BCP (1) , BES % Buy High , loss % 0.0% 0.4 BPI % Reduce High , loss % 0.0% 0.8 Telecoms , % 12.2% 2.0 Telefónica % Buy Medium , % 12.9% 2.1 Portugal Telecom % Buy Medium , % 8.5% 1.3 Zon Multimedia % Buy Medium % 7.7% 3.4 Sonaecom % Buy High % 5.1% 0.5 Media loss % 3.8% 0.8 Impresa % Buy High loss 49.9 loss % 0.0% - Media Capital (2) % % 6.0% - Cofina % Sell High % 3.1% 3.0 Technology Indra (4) % Buy High , % 2.5% 1.2 Novabase (4) % Buy High % 4.4% 0.6 Utilities , % 5.4% 0.7 Iberdrola % Buy Low , % 9.1% 0.7 EDP % Buy Low , % 9.6% 0.9 EDP Renováveis % Buy Low , % 0.9% 0.6 REN (4) % Buy Low , % 8.5% 1.0 Motorways Brisa (3) , % - - Conglomerates , Sonae % Buy Medium , % 6.0% 0.7 Semapa % Neutral High % 4.8% 0.5 Sonae Capital % Buy High loss loss loss loss loss 0.0% 0.0% 0.1 Retail Jerónimo Martins (4) % Buy Medium , % 6.6% 6.7 Industrials , % - - Sonae Industria % Buy High loss loss loss % 0.0% 0.4 Altri % Sell High % 1.5% 1.6 Portucel % Neutral Medium , % 7.8% 1.1 Cimpor (3) , % - - Construction Mota-Engil (4) % Buy High % 8.0% 0.7 Oil & Gas Galp Energia % Buy High , % 1.9% 3.6 (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; (4) Price Target YE13 Page 14 of 16

15 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 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Buy 65% 78% 72% 68% 93% 76% 79% 79% 63% 54% 41% 37% 30% 63% Neutral 19% 4% 7% 11% 0% 14% 14% 7% 15% 4% 27% 11% 40% 6% Reduce 4% 0% 3% 0% 0% 0% 0% 0% 7% 0% 0% 21% 5% 6% Sell 8% 7% 3% 7% 0% 0% 4% 4% 4% 0% 14% 16% 5% 0% Unrated/Under Revision 4% 11% 14% 14% 7% 10% 4% 11% 11% 42% 18% 16% 20% 25% Performance 10.7% -15% 1% -7% -20% -6% 2% -10% 33% -51% 16% 30% 13% na PSI 20 5,203 4,698 5,557 5,494 5,891 7,324 7,753 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 15 of 16

16 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) João Flores (Media and Retail) João Mateus (Industrials and Utilities) Rita Silva (Banks) Vanda Mesquita (Utilities and Oil&Gas) Market Analysis Ramiro Loureiro Sónia Martins Telma Santos Publishing Sónia Primo Prime Brokerage Vitor Almeida (Head) Hugo Ferreira Pinto Paula Val Institutional Equity Sales Karsten Sommer (Head) Manuel Lança Lopes Rodrigo Roque Pinho Equity Trading Paulo Cruz (Head) Diogo Palma Gonçalo Lima Jorge Caldeira Nuno Sousa Paulo Sousa Pedro Ferreira Cruz Pedro Gonçalves Pedro Lalanda Equity Derivatives Jorge Pina (Head) Ana Lagarelhos Diogo Justino Marco Barata Maria Cardoso Baptista, CFA