NEWS. Equities Commentary. Facebook Expecting strong results on Wednesday Closing Price: $ Monday, 25th January 2016

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1 NEWS R Monday, 25th January 2016 We are cautiously optimistic about prospects for equity markets this week. Indices held key support levels at the end of last week in strong volume, while ECB President Draghi intimated that further stimulus was likely on the way, which coincides with our outlook for As a result, we believe the time is right to begin cautiously putting money back into equity markets. That said, we would be remiss not to highlight the potential hurdles in the week ahead, including a raft of economic data like US and UK GDP, US Industrial data and a statement from the Fed following its rate decision, where we expect no change to rates. As we have highlighted, US Industrial data has been progressively weaker throughout Potentially offsetting these headwinds however, are Q4 results from some of the strongest companies in our coverage universe, including Facebook and Amazon. Therefore, on balance, we believe that the huge sell offs seen in recent weeks have created attractive opportunities to gain exposure to the high quality names within our Core Portfolio. David Donnelly Senior Investment Analyst Equities Commentary Facebook Expecting strong results on Wednesday Closing Price: $97.94 We reiterate our positive view on Facebook ahead of its Q4 results this Wednesday. Facebook is one of our highest conviction calls for With c.1.6 billion Monthly Active Users (MAUs), the company has the greatest reach for advertisers on the internet. Currently, consumers spend roughly 30% of media viewing time either on Mobiles or the Internet, yet these mediums receiver a little over 10% of advertising budgets. We believe this disparity should adjust over time, and an ever increasing amount of ad dollars should flow to Facebook as a result. Facebook holds a wealth of information on each of its users, including stage of life, interests and hobbies, geographical location etc. This information is then used to tailor advertisements directly to the user, increasing the effectiveness of the advertisement on consumers. Facebook also owns the messaging service Whatsapp, which has c.900 million active users, and Instagram, which has over 400 million. These businesses are yet to be properly monetised, which offers substantial optionality in future years. Lastly, Facebook owns a virtual reality company called Oculus, a leader in its field, which is set to release its first product in the summer. Virtual Reality headsets offer substantial growth and profit opportunities, not only in Video Games, but also in telecommunications. We expect Facebook to Q4 EBITDA of $3.58 billion, which would imply a margin on 65%. Growth in Mobile earnings have been the driver of earnings growth in recent times, however we expect that Video advertising should become an increasingly important element of earnings through The shares trade on 16.8x EV/EBITDA, which we view as exceptionally cheap given the expected +30% annual earnings growth over the coming years. David Donnelly Senior Investment Analyst Revenue ($ bn) EPS ($) EV/EBITDA 23.2x 16.8x 13.0x Div Yield 0.0% 0.0% 0.0% Share Price Return 1 Mth 3 Mth YTD Facebook -10.1% -3.0% -10.0% S&P -7.5% -7.4% -8.6% 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 CRH Attractive entry point Closing Price: CRH held the support level and we continue to believe that the shares remain attractive. The shares are trading on 15.5x 2016 earnings, a discount to its long run average of c. 17x. Full year 2015 results are expected on the 3rd March with a 25% gain in EBITDA YoY expected. CRH continues to trade in a range it has been in since the Lafarge Holcim deal, and FY14 results in March last year ( to 28.20). Momentum has been strong following the 6.5bn acquisition of Lafarge Holcim assets, growing the group s exposure in key markets, while providing an entry into some attractive high growth regions in Eastern Europe, South America and Asia. CRH s Americas division was the catalyst for both top line, and operating profit growth in recent months, while Europe remained choppy. The announcement of a c. $65bn increase in infrastructure spending in the US should also help drive earnings in the region going forward. Management also reiterated its full year outlook for c. 25% EBITDA growth YoY. CRH trades on 15.5x FY16e earnings, broadly in line with the market. It also offers a dividend yield of 2.9%. Shane Kelly Investment Analyst Revenue ( bn) EPS ( ) P/E 25.1x 15.5x 12.7x Div Yield 2.61% 2.83% 3.18% Share Price Return 1 Mth 3 Mth YTD CRH -9.5% 2.9% -11.6% ISEQ -6.8% -1.6% -7.9% Daimler Dax pullback offers attractive entry levels Closing Price: Daimler offers a strong brand presence in the autos space, and an exceptionally attractive dividend yield in a lower for longer rates environment in the Eurozone. Geographically revenue is attractively split; roughly 33% comes from Western Europe, and 25% from the US. We view Daimler as superior to peer BMW in that it is less exposed to the Chinese market (Daimler has c.10% revenue exposure to the country vs. BMW s c.19%). Moreover, it s growth rates within the region are superior, rising 31% YoY (vs BMW on +1.7%). Daimler s strong balance sheet, which boasts a net cash position of 21bn and a projected Free Cash Flow of 6bn (FCF yield of 8.7%), allows it to pay an attractive dividend, yielding 4.65%. The dividend is 2.7x covered by earnings. A key reason for Daimler s strong sales growth and margin expansion globally, has been the high profile remodels and the introduction of a number of new offerings into the Mercedes portfolio. Daimler shares trade at 7.6x FY16e earnings, a discount to peer BMW on 8.3x. We see current levels as an attractive entry point with support around 65. Shane Kelly Investment Analyst Revenue ( bn) EPS ( ) P/E 8.0x 7.6x 7.3x Div Yield 4.65% 5.14% 5.45% Share Price Return 1 Mth 3 Mth YTD Daimler -13.1% -11.0% -15.4% Dax -8.8% -6.5% -10.9% 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 Threadneedle European Select Fund - Diversified recovery play Closing Price: 1.89 For clients looking for a less volatile way to play our expectation of a rebound in equities, we suggest the Threadneedle European Select Fund. This fund has a bias towards quality companies with strong pricing power, sustainable earnings and cash flows. It has a strong track record producing an annualised return over the previous 5 years of 13.9% versus the broader European EuroSTOXX 50 index at 6.4%, and with a lower level of volatility, 13.1% versus 16.6%. The fund consists of a concentrated portfolio of stocks, and typically holds between 45 and 65 positions. Although the fund is focused on growth companies it has a more cautious tilt relative to its benchmark, resulting in an underweight allocation to financials and more cyclical sectors such as Autos. As a result the fund tends to outperform in weaker markets relative to its peers but could lag in a rapidly rising market or when more cyclical names outperform. However, for the more cautious investor this investment style offers less volatility and lower drawdowns. This fund is accumulating, meaning dividends are reinvested back into more shares of the companies in the fund. Stephen Hall, CFA Investment Analyst Key Metrics As of 31/12/2015 3yr Annualised Return 16.5% 3yr Max drawdown -10.1% ESMA Risk Rating 5 - Medium to High 12M Yield 0.99% Source: Morningstar C AN T O R F I T Z G E R AL D I R E L AN D L T D 3

4 This Weeks Market Events Monday Tuesday Wednesday Thursday Friday Corporate Corporate Corporate Corporate Corporate McDonalds - Q4 AIG - Q4 Apple - Q1 easyjet - Q1 Johnson & Johnson - Q4 P&G - Q2 Phillips - FY15 Siemens - Q1 Boeing - Q4 ebay - Q4 Facebook - Q4 Novartis - FY15 PayPal - Q4 Alibaba - Q3 Amazon - Q4 Caterpillar - Q4 Diageo - Interims Microsoft - Q2 RPC Group - Q3 Chevron - Q4 Sky - H1/16 Economic Economic Economic Economic Economic Germany - IFO Expectations US - Dallas Fed Manf Activity US - Consumer Germany - Consumer Germany - Retail sales US - Fed Rate Decision UK - GDP EU - Consumer Germany - CPI US - Durable Goods Orders US Germany - Retail Sales UK - Consumer EU - CPI EU - CPI Core US - GDP US - PCE Core US - Chicago PMI US - U. of Michigan Sentiment Upcoming Events 01/02/2016 BT - Q3, Google - Q4, Ryanair - Q3 02/02/2016 BP - Q4, Exxon Mobil - Q4, Pfizer - Q4 03/02/2016 Hargreaves lansdown, GSK - FY15 04/02/2016 AstraZebeca - FY15, Daimler - FY15, RD Shell - FY15, Vodafone - Q3 05/02/2016 BG Group - Q4, Intesa Sanpaolo - FY15 Ex Div Dates 25/01/2016 N/A 26/01/2016 N/A 27/01/2016 Ford - $0.15, Morgan Stanley $0.15, Siemens /01/2016 Aryzta CHF 0.656, CitiGroup - $ /01/2016 N/A C AN T O R F I T Z G E R AL D I R E L AN D L T D 4

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 co-workers. 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. CRH: CRH PLC, a Fortune 500 company, is a diversified international building materials group which manufactures and distributes a range of construction products such as heavy materials, elements to construct the frame and value-added exterior products. Daimler: Daimler AG develops, manufactures, distributes, and sells a wide range of automotive products, mainly passenger cars, trucks, vans and buses. The Company also provides financial and other services relating to its automotive businesses. Thread needle European Select Fund: The investment objective of the Fund is to achieve above average capital growth. The ACD s investment policy is to invest the assets of the Fund mainly in a relatively concentrated portfolio of equities of companies domiciled in Continental Europe or which have significant Continental European operations. The select investment approach means that the ACD has the flexibility to take significant stock and sector positions which may lead to increased levels of volatility. 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. CRH: CRH was added to the core portfolio on the 01/01/2016, we have upgraded our recommendation to outperform from market perform. Daimler: We have added Daimler to our core portfolio on the 01/01/16, with a recommendation of Outperform. 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