NEWS. Equities Commentary. Facebook Market trends continue to favour tech giant Closing Price: $ Monday, 11th January 2016

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1 NEWS R Monday, 11th January 2016 Last Friday s strong Non Farm Payroll figures in the US brought some stability to equity markets, as did the removal of circuit breakers on Chinese equity markets, allowing for the Shanghai index to finish the week with positive sessions. Critically, Chinese authorities have not devalued the Yuan further in the last two trading sessions which has eased investors concerns. Q4 reporting season kicks off in the US today, but gathers pace on Thursday with JP Morgan and Intel. On the economic front, Thursday will also see the first ECB meeting of the year. While we do not expect any change in policy from the Governing Council, the press conference will be closely watched to see if the recent bout of volatility has encouraged to expand the QE programme in the near future as we believe it should; Core CPI readings for the Eurozone last week saw inflation remain at 0.9%, far below the ECB s target of 2%. Overall, we believe the current volatility presents opportunity to gain exposure to solid companies, with strong business outlooks and management teams at attractive levels. We broadly retain a preference for European equities, but continue to like specific names in the US and UK which possess strong business specific earnings drivers. David Donnelly Senior Investment Analyst Equities Commentary Facebook Market trends continue to favour tech giant Closing Price: $97.33 Social media giant Facebook remains one of our highest conviction calls, and we see the recent sell off as an opportunity to add to positions. Facebook holds the enviable position of being at the intersection of four unfolding mega growth trends, 1) mobile, 2) social, 3) programmatic and 4) video. It has the largest/most-engaged mass reach Internet platform for advertisers, with 1.6bn monthly active users, a proven mobile ad format, unmatched targeting potential, and additional monetisation opportunities with Messenger, Whatsapp and Instagram. Facebook is also set to launch its virtual reality headset, Oculus in the coming weeks, with pre-orders opening last week. Global online advertising spend is expected to reach $136.8bn in 2016, with mobile poised to grow significantly from $31.3bn to $65.8bn of this. Facebook should be a key beneficiary, given that c.60%+ of its revenues comes from mobile advertising. This growth in online advertising and mobile also supports expectations for a 3 year CAGR of 30%. The shares are currently trading on 17.5x EV/ EBITDA for 2016 and we see the shares offering exceptional value under $100 given the shift in market dynamics and growth outlook. Shane Kelly Investment Analyst Revenue ($ bn) EPS ($) EV/EBITDA 24.1x 17.5x 13.6x Div Yield 0.00% 0.00% 0.00% Share Price Return 1 Mth 3 Mth YTD Facebook -8.6% 5.3% -7.0% S&P -7.5% -4.5% -5.95% C AN T O R F I T Z G E R AL D I R E L AN D L T D 1

2 Allianz Preferred Insurer Closing Price: Allianz remains our preferred European insurer, given its strong growth outlook and attractive dividend yield. Allianz s growth prospects were significantly upgraded during Q4 15 with management guiding 5% growth YoY to 2018 against expectations for -0.7%. In addition to the profit upgrade management is also targeting a Return on Equity (RoE) of 13% by 2018 (11.2% in 2014). It has also identified 1bn of cost saving per annum between Allianz s strong dividend yield of 4.87% remains attractive given the lower for longer yield environment in Europe, we believe yielders should outperform, as investors look for returns instead of depositing cash in the bank. Allianz shares trade on 10.4x 2016 earnings and we see the next support level around 152. Shane Kelly Investment Analyst Revenue ( bn) EPS ( ) P/B 1.12x 1.07x 1.03x Div Yield 4.75% 4.84% 5.07% Allianz -6.9% 5.8% -7.2% Dax -7.7% -1.4% -8.3% Intesa Sanpaolo High dividend and exposure to a strong economic recovery Closing Price: 2.89 We have added Intesa Sanpaolo to our Core Portfolio for This year s expected dividend yield of 6.1% is exceptionally high and should be attractive to institutional and retail investors alike given the prevailing low interest rate environment in Europe. In addition, the dividend per share is 1.3 times covered by earnings, and the bank is in a strong capital position, meaning that the dividend is well supported and secure. The CET1 ratio, the primary method of assessing a bank s Balance Sheet strength, is also very high at 13.4%, which is higher than Bank of Ireland s at 11.4%. The bank earns a greater proportion of its profits from fee income (41% of operating income), and is therefore less exposed to the prevailing low interest rate environment in Europe. Intesa is also highly exposed to the rapidly improving Italian economy, which saw GDP declines of -0.4% as recently as 2014, but is expected to grow at a robust 1.3% in This is illustrated in Intesa s expected compounded earnings growth of 13.2% per annum over the next 3 years. We see support for the shares near 2.94 and 2.85 below that. The stock trades at just 1.04x FY16 Price/Book David Donnelly Senior Investment Analyst Key Metrics 2015e 2016e 2017e Revenue ( bn) EPS ( c) P/B 1.07x 1.04x 1.02x Div Yield 4.54% 6.15% 7.94% Intesa Sanpaolo -6.8% -8.4% -5.6% Italian MIB -7.8% -9.7% -7.2% C AN T O R F I T Z G E R AL D I R E L AN D L T D 2

3 Smurfit Kappa Retractment now complete Closing price: Smurfit Kappa s negative start to 2016 is in-line with the broader ISEQ Index. However, we still remain positive on Smurfit s EBITDA growth potential in Last Monday, Smurfit Kappa expanded its geographical reach in South America by acquiring two integrated paper based packaging businesses in Brazil. The deal was completed for a combined consideration of 186m, transacted at a valuation multiple of 6.3x EV/ EBTIDA post 6m in synergies; we view this transaction as a long term positive in keeping with management s growth strategy. This transaction gives Smurfit a 5% market share and management will focus on integrating the business in Smurfit is a highly cyclical business, where organic volume growth is very sensitive to changes in GDP growth. Traditionally, Smurfit used to take instructions from its customers, however it is now adding value through it design expertise, and growing EBITDA margins as a result. Smurfit is focused on the end customer, looking to innovate and differentiate packaging, to appeal to the end-user, in a highly competitive market place. This should enable Smurfit to move up the customer s value chain. Smurfit has retraced c. 24% off its 2015 high over the past 9 months and we believe current market prices represent an attractive entry level for the stock. Smurfit is a highly cash generative business with a Net Debt/ EBITDA ratio of 1.9x; as such the business has sufficient debt headroom to further consolidate the sector. Consensus 12 month price targets suggests a target price of 30.60, offering investors 33% upside potential if achieved. Smurfit currently trades at 10.4x FY16e earnings and we can see a potential re-rating toward 11.7x in the near term. Stephen Hall, CFA Investment Analyst Revenue ( bn) EPS ( ) P/E 12.1x 10.5x 9.7x Div Yield 2.82% 3.29% 3.58% Smurfit Kappa -5.3% -6.8% -3.9% ISEQ -2.8% 6.4% -3.3% C AN T O R F I T Z G E R AL D I R E L AN D L T D 2

4 This Weeks Market Events Monday Tuesday Wednesday Thursday Friday Corporate Corporate Corporate Corporate Corporate Alcoa - Q4 Grafton Group - Trading Update Lufthansa - Traffic Stats Sainsbury - Q3 ABF - Trading Update Burberry - Q3 Intel - Q4 JP Morgan - Q4 SuperGroup - Trading Update Tesco - Q3 Citi - Q4 Economic Economic Economic Economic Economic N/A UK - Industrial Production UK - Manufacturing Production EU - Industrial Production US - Fed Release Beige Book Germany - GDP EU - ECB Monetary Policy UK - BOE Rate Decision US - Retail Sales Advance US - PPI Final US - Empire Manufacturing US - U. of Michigan Expectations Upcoming Events 18/01/2016 Rio Tinto - Q4 19/01/2016 Bank of America - Q4, British Land - Q3, IBM - Q3, Unilever - Q4 20/01/2016 N/A 21/01/2016 Royal Mail - Trading Update, SABMiller - Q3, Verizon - Q4 22/01/2016 GE - FY15, SAP - FY15 Ex Div Dates 11/01/2016 N/A 12/01/2016 N/A 13/01/2016 Abbvie $ /01/2016 WH Smith GBp /01/2016 Caterpillar $0.77 C AN T O R F I T Z G E R AL D I R E L AN D L T D 3

5 Regulatory Information Issuer Descriptions: () Facebook: Facebook Inc. operates a social networking website. The Company's website allows people to communicate with their family, friends, and coworkers. Facebook develops technologies that facilitate the sharing of information, photographs, website links, and videos. Facebook users have the ability to share and restrict information based on their own specific criteria. Allianz: Allianz SE, through subsidiaries, offers insurance and financial services. The Company offers property and casualty, life and health, credit, motor vehicle and travel insurance, and fund management services. Intesa Sanpaolo: Intesa Sanpaolo attracts deposits and offers banking and financial services. The Bank offers consumer credit, asset management, Internet banking, merchant banking, securities brokerage, factoring, and lease financing services, and manages mutual funds. Intesa Sanpaolo operates branches throughout Italy, and offices elsewhere in Europe, Asia, and the United States. Smurfit Kappa Group: Smurfit Kappa Group PLC manufactures containerboards, solid boards, graphic boards, corrugated and solid board packaging products. Historical Record of recommendation Facebook: We have been positive on the outlook for Facebook, and it was added to the core portfolio on the 11/05/2015 and no changes to our recommendation have been since. Allianz: We have been positive on Core Portfolio stock, Allianz since 24/04/14 and no changes have been made to the recommendation since then. Intesa Sanpaolo: We have changed our recommendation for Intesa Sanpaolo from Not Rated to Outperform on the 04/12/2015. Smurfit Kappa Group: We have added Smurfit Kappa to our core portfolio on the 01/01/2016 and we have upgraded our recommendation from Market Perform to Outperform. 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