Key Themes this Week. OPEC Meeting and Oil Prices. Monday, 28th November Major Markets Last Week

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1 Monday, 28th November 2016 Key Themes this Week Currency moves remain in focus Last week saw dramatic moves in developed market currencies, particularly the US dollar and the euro, and we expect high levels of volatility to be maintained in the coming days. Demand for the dollar is being driven by robust economic data releases, making Friday s Non Farm Payroll a key milestone ahead of the December 14th Fed meeting. Conversely, the euro has come under pressure due to the mounting political risk in Europe stemming from next week s Italian referendum and the re-run of the Austrian Presidential election, both having the potential to impact the future stability of the Eurozone. Italy takes to the polls Italians are set to vote in the Constitutional referendum next Sunday in a critical vote for Prime Minister Matteo Renzi who has promised to step down from his position if his Yes campaign is unsuccessful. At present, the Prime Minister s side is lagging in the polls, raising the spectre that this could be the first step in Italian politics swinging to the populist wings and starting down the road to its own Brexit style referendum on EU membership. The failure of the Yes campaign would likely see the euro come under further selling pressure and could push the single currency below support of $1.05 against the dollar. Non Farm Payrolls the last hurdle for a December hike? Friday sees the final Non Farm Payroll reading of the year in the US. Weekly jobless data has been positive in recent weeks, leaving scope for the 180k expected Non Farm number to be surpassed. A strong reading would almost certainly cement the Fed s decision to raise rates on the 14th given how buoyant equity markets are at present. Major Markets Last Week Value Change % Move Dow % S&P % Nasdaq % UK Index % DAX % ISEQ % Nikkei 18, % H.Seng 22, % STOXX % Brent Oil % Crude Oil % Gold % Silver % Copper % CRB Index % Euro/USD % OPEC Meeting and Oil Prices Oil prices have remained volatile ahead of Wednesday s scheduled meeting between OPEC members and the planned discussions to agree the details of a reduction in output among members. A staple element of OPEC meetings are a series of contradictory headlines emanating from members, and this meeting is no different, with rumours circulating that Iran and Iraq were refusing to cut production, only to be followed up by further rumours to the contrary. Though clearly members are motivated to boost prices, and an agreement is more likely than any point in the last year given Saudi Arabia s record production levels and Iran returning to post-sanction production levels, there remains the possibility that members will fail to agree given the longstanding rivalries and political difference. Absent of a deal being agreed, we maintain our view that oil prices will average c.$45 through yearend. Euro/GBP % GBP/USD % Value Change German 10 Year UK 10 Year US 10 Year Irish 10 Year Spain 10 Year Italy 10 Year BoE ECB Fed

2 S&P500 Index. Daily Chart. October 2015 to present. Including 50DMA/200DMA. The index broke to a new all-time high last week. Indicators are now in overbought mode suggesting a pause for the rally at least in the near term. As well as the technical over-bought indictor, the index is facing the headwind of a strong US dollar which will impact overseas earnings of US companies. We continue to see value in the oversold bond proxies in telco s and pharma while we see financials and industrials as pricing in a lot of the postelection exuberance. EUROSTOXX 50 Index. Daily Chart. October 2015 to present. Including 50DMA. The index continues to trade within its four month inner range between 2908 to European markets underperformed last week with financials the main drag as uncertainty over the forthcoming Italian Referendum weighed. The currency sensitive export sectors benefitted from euro weakness and we still see upside potential in autos (Daimler) and technology (SAP) as well as property group Green REIT, Paddy Power and Kingspan. NASDAQ Composite Index. Daily Chart. October 2015 to present. Including the 50DMA. The index broke to a new all-time high last week and has marginally underperformed the main US market in While the index hit an all-time high last week, it has underperformed the broader indices since the election. We see scope for outperformance on the week and continue to like Facebook after its $6bn share buyback announcement, Amazon as a beneficiary of Black Friday/Cyber Monday and PayPal which will also benefit from the a busy consumer period. 2

3 Current Stock Trading News From a market trading perspective we are long Daimler and the position remains in the money. While we are offside in our Paddy Power position, however we are still comfortable with our positive view and see the stock as being attractive given its growth dynamics and leading market position. Green REIT - Trading at steep discount to NAV Closing Price: Stephen Hall, CFA Investment Analyst Key Metrics 2017e 2018e 2019e Revenue ( m) EBITDA ( m) P/E 10.7x 9.7x Div Yield 3.3% 4.2% 4.9% Share Price Return 1 Mth 3 Mth YTD Green REIT -10.8% -13.4% -20.9% Source: Bloomberg Green REIT s share price is currently trading at a 17% discount to its last reported Net Asset Value (NAV) of 1.52 at June 2016 which represents an attractive opportunity for new money investors to take advantage of this weakness in our opinion. The REIT s shares have declined in recent trading as a result of selling pressure across a wide range of Irish equities, and concerns about US companies pulling out of Ireland in the wake of Trumps election win outweighing the potential benefit from companies headquartered in the UK moving to Ireland as a consequence of Brexit. Green s portfolio is 99% let to strong blue chip names and its weighted average unexpired lease term (WAULT) was up to 7.8 year as of June 2016, including the full letting of its Molesworth street property upon completion. The company also grew contracted rents to 61.3m in FY16. The current development pipeline is projecting a 39% return on costs in the current environment while these properties may add as much as 10c per Net Asset Value once complete. This would leave the current share price at a 23% discount to 1.62 when completed, which we view as an achievable NAV by the end of FY17. The REIT has 4 developments under way, including an additional block at Central Park in Leopardstown, Harcourt road and two projects on Molesworth Street. These are expected to be completed by year end 2017 and we believe management can leverage all four locations given the strong demand and undersupply for commercial space in Dublin at the moment. Vacancy rates in Dublin are very low, and management views upcoming future supply as manageable which should sustain upward pressure on rents. The REIT currently has 19.2% gearing (25% management target) and its cost of debt reduced 90bps to 1.9% in FY16. We feel the stock represents exceptional value at current market prices given its long, visible rental income pipeline to high quality tenants including Vodafone and Pioneer Investments. It also offers investors a 3.3% dividend yield for FY17. 3

4 Vodafone High quality yield play Closing Price: GBp David Donnelly, CFA Senior Investment Analyst Key Metrics 2017e 2018e 2019e Revenue EPS ( ) 6.8c P/E 34.5x 27.6x 22.1x Div Yield 6.3% 5.9% 5.8% Share Price Return 1 Mth 3 Mth YTD Vodafone -11.7% -14.1% -9.7% Source: Bloomberg Vodafone s shares began trading ex-dividend last Thursday, taking the price to new lows of In our view this presents an attractive opportunity to gain exposure to a fundamentally improving business with an attractive dividend yield of 6.3% for Its stock has come under pressure in recent weeks due to a rising yields on UK bonds, making its Vodafone s dividend yield relatively less attractive. However we believe this rise in UK yields to be an over-reaction to Trump s US Presidential win, and that Vodafone continues to offer exceptional value. It s recent half year results showed EBITDA growth ahead of revenue growth, driven by cost efficiencies boosting operational leverage. In our view Vodafone s growth in the AMAP region (EBITDA +9.2% YoY) coupled with a stabilisation in Europe (EBITDA +3.1%) bodes well for the company. Equally, margin expansion is being facilitated by the realization of synergies from recent acquisitions, and the dividend yield remains highly attractive. Glaxo - Pricing pressure fears ease with Trump win Closing Price: GBp1,540.5 David Donnelly, CFA Senior Investment Analyst Key Metrics 2016e 2017e 2018e Revenue ( bn) EPS ( ) P/E 15.3x 13.9x 13.2x Div Yield 5.22% 5.23% 5.26% Share Price Return 1 Mth 3 Mth YTD Glaxo -6.0% -7.4% 13.1% Source: Bloomberg We reiterate our Outperform rating on GSK, and continue to see the dividend yield of 5.2% as attractive. Glaxo is a greatly improved business since its asset swap deal with Novartis last year, having reduced it s over-reliance on its respiratory drug portfolio and bolstered its consumer health and vaccines businesses. The sector had come under pressure in the run up to the US election, as a victory for the Democrats would have seen an expansion of the Obamacare programme, placing further pressure of drug pricing. Though Trump has expressed some support for elements of Obamacare, Republicans have been ardently against the plan, leading to an easing in the selling pressure Glaxo shares have seen in recent weeks. Glaxo s HIV unit is currently enjoying exceptional growth rates in the region of 27% year-on-year, reinforcing management s decision last year to not spin-off the business. The shares are currently trading at 13.9x FY17e earnings and offer attractive 17.6% upside to the 12 month current consensus target price of

5 Paddy Power Betfair - Positive market response to strong Q3/16 results Closing Price Stephen Hall, CFA Investment Analyst Key Metrics 2016e 2017e 2018e Revenue ( bn) EPS ( ) P/E 72.9x 29.8x 22.9x Div Yield 1.77% 2.16% 2.46% Share Price Return 1 Mth 3 Mth YTD PPB 7.6% -8.1% 15.8% Source: Bloomberg The gambling giant, Paddy Power Betfair (BBF) reported very strong Q3/16 results 3 weeks ago today which has seen its share price rally 7% in the interim. We still see significant further upside potential in the long term which we cover in more detail in our recently published 5 for 5 equity publication. At Q3/16, management revealed it is optimistic on the outlook for the remainder of 2016, and raised its full year 2016 EBITDA guidance range from 365m- 385m to 390m- 405m and grew its EBITA margin 5 percentage points from 23% to 28% in the 3 month period. We see Paddy Power Betfair as a strong partnership between two market leading brands, with separate customer characteristics and attractive growth opportunities. The core investment case for the group includes scale, synergies, positions in regulated markets, differentiated client base and a strong balance sheet for the combined Group. Paddy Power is seen as a playful and social brand while Betfair is seen as knowledgeable and authentic. Both utilise different strategies with Paddy Power taking its strength in its customer service and attractive promotions, while Betfair is seen to have attractive odds and a good product range. Paddy Power's strong online and gaming presence coupled with Belfair's exchange (which allows customer back or lay bets) offers a key diversifier in the space. Both offer attractive odds and as part of the merger can leverage innovation by the other party and employ it in their offer. Despite a strong position online and across most regulated markets, management has said that there is just 3% overlap between the two brands and 74% of customers online who do not use either brand, highlighting future growth potential. Aryzta - Q1/17 trading update Closing Price Stephen Hall, CFA Investment Analyst Key Metrics 2016e 2017e 2018e Revenue ( bn) EPS ( ) P/E 11.1 x 10.2 x 9.5 x Div Yield 1.41% 1.49% 1.63% Share Price Return 1 Mth 3 Mth YTD Aryzta -5.95% 11.6% -18.8% Source: Bloomberg Aryzta released a disappointing Q1/17 update this morning, with revenue declining 3.3% to 962.3m, 2% below consensus expectations primarily impacted by contract renewals and negative FX movements. North American volumes declined 5.7%, disappointing in light of management s expectation of flat year-on-year growth. Management said the weaker revenue performance reflects contract renewals in North America, the timing of new business listings as well as a subdued European Performance disrupted by consolidation of manufacturing activities in Germany. It also said the material reduction in total group debt funding costs will provide EPS support for FY17. Management also noted that the outlook for both free cash generation and for underlying fully diluted EPS remains unchanged. 5

6 From the News - Monday Headlines BP: The oil major has announced that it has agreed to buy from ENI a 10% interest in the Shorouk concession offshore Egypt, which contains the super-giant Zohr gas field for $375m. BATS: The company is closer to recognising 1.2b tax return. The Sunday Times reports that in dismissing a challenge from HMRC, the Court of Appeal ruled last week that BAT and other multinationals including Ford and GKN overpaid taxes on dividends from foreign subsidiaries for almost 30 years through the late 1990s. LVMH: The luxury name is said to be in talks to buy Rapha (High end cycling apparel) as part of a move into the sports and leisure sectors, Mail on Sunday reports, citing sources. LVMH also thought to be looking at Italian bike brand Pinarello Daimler: Denies report in Spiegel they may stop selling diesel cars in the US. There is currently neither a decision nor a consideration to stop diesel sales in the U.S., Airbus: WSJ reporting that the WTO is expected to find that Boeing has gotten illegal state aid subsidies for its 777x. Sources have stated that the WTO probably won't put a value on the tax break it will deem illegal and the body will probably deny most of the claims that the EU brought in the case. Cantor in The Media Bloomberg News: Yen Rises, Nikkei Futures Erase Gain After Quake; Oil Holds Gain - Justin Lederer Clip Yahoo Finance: U.S. shares end at record highs for second day, oil steadies - Justin Lederer Clip CNBC Online: Take advantage of these pullbacks - Youssef Squali Clip Yahoo Finance: Trump rally could take stocks to record highs before next pullback - Justin Lederer Clip 6

7 This Weeks Market Events The Week Ahead Monday Tuesday Wednesday Thursday Friday Corporate Corporate Corporate Corporate Corporate Aryzta - Q1 One 51 Trading Update Greencore FY16 RPC Group H1 Siemens FY16 N/A N/A Economic Economic Economic Economic Economic GE - Retail Sales US - Dallas Fed Mnf. Activity EC - Economic Confidence EC - Consumer Confidence GE - CPI US - GDP Price Index US - PCE Core US - Chicago Purchasing Manager US - Fed beige Book CH - Manufacturing EC - Market Eurozone Manf. PMI US - Initial Jobless Claims US - ISM Manufacturing US - Change in Nonfarm Payrolls US - ISM New York Upcoming Events 05/12/2016 Independent News & Media EGM 06/12/2016 N/A 07/12/2016 N/A 08/12/2016 Green REIT AGM 09/12/2016 N/A 05/12/2016 Italian Referendum results 06/12/2016 N/A 07/12/2016 N/A 08/12/2016 ECB Meeting 09/12/2016 N/A 7

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10 Regulatory Information Issuer Descriptions: (Source: Bloomberg) Green REIT: Green REIT plc operates as a property investment company. The Company invests in a portfolio of long-lease and freehold, primarily commercial and mainly Dublin-based properties. Vodafone: Vodafone Group PLC is a mobile telecommunications company providing a range of services, including voice and data communications. GlaxoSmithKline: GlaxoSmithKline PLC is a research-based pharmaceutical company. Paddy Power Betfair: Paddy Power Betfair Public Limited Company is a betting and gaming company. The Company provides online betting and gaming products Historical Record of recommendation Green REIT: We have an Outperform rating for Green REIT since 09/02/15 and no changes to the recommendation have been made in the last 12 months. Vodafone: We have been positive on Vodafone s outlook since 04/02/14 and no changes have been made to this recommendation in the last 12 months. GlaxoSmithKline: We have been positive on GSK s outlook since 04/02/13 and no changes have been made to the recommendation since then. Paddy Power Betfair: We have upgraded our outlook on Paddy Power Betfair to Outperform from Not rated as of 21/07/2016 None of the above recommendations have been disclosed to the relevant issuer prior to dissemination of this Research. Date of distribution The first date of distribution is the same date as this report unless otherwise specified. All regulatory disclosures pertaining to valuation methodologies and historical records of the above recommendations can be found on the Cantor Fitzgerald Ireland website here: This material is approved for distribution in Ireland by Cantor Fitzgerald Ireland Ltd. It is intended for Irish retails clients only and is not intended for distribution to, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. 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