Key Thoughts. Signals & Themes

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Ashlyn Marsh
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1 Monday, 06 March 2017 Key Thoughts Signals & Themes New Longs EZJ LN, DAL, EOAN GY, WYNN, SHP LN, HUM New Shorts PBR, COP, RRC, CTL, UBSG VX Closing Positions: MTN SJ, KGH PW, MNST Food for Thought: Dancing on the Ceiling Historically, extremely low levels of volatility precede a shift in oil price. Currently, 10-day oil price volatility is coming off a 2-year low, and at a level we expect to rise (Fig.1). Oil has been unusually range bound, a sign that a trend change is likely. We anticipate that the risk of a move down is higher than up. Fig. 1 A Comparison of Crude volatility to CO1 10day historic volatility v. Brent futures The divergence between Crude and the equities-driven ''Oil Euphoria index' gauging sentiment (Fig.2) also suggests that an opportunity to short CO1 is nearby. Additionally, the net speculative position in Crude futures is close to 2SD levels (on 1m data) where mean reversion risk increases. Oil cost curves have been flattening (driven by technology enhancements and productivity gains). Coupled with Trump s policy easing we believe that oil price is close to a ceiling. Increasing reflexive supply should enforce this. We will help you time the entry to short CO1 in future notes. In the interim we suggest playing the short in crude using a well-hedged basket. Source: Bloomberg Systematic Ideas: Long EZJ LN, DAL Fig. 2 Disconnect Between Crude and Oil Euphoria Index. Short PBR, COP A ratio of Oils to Airlines presents a gauge on sentiment in oil. The disconnect in Crude to this Oil Euphoria Index suggests that the calm in Crude will be short-lived. Using proprietary methods that focus on correlation intensity we choose PBR and COP as shorts in the energy sector; these are also good hedges to our airline long choices: DAL and EZJ LN. The cost of oil production per barrel in Brazil is relatively high, standing at ~$49, compared to a global average of $27.1, making PBR susceptible to any falls in the price of oil. COP s margins have been under pressure of late; at a 4% operating margin, COP is ~ 50 % below the global E&P peer group average. Trump s mooted tax breaks, reduced regulations and a strengthening dollar due to expected interest rate hikes suggest that 2017 should be a fertile environment for airlines in the US to grow. DAL should prove to be a key beneficiary. Source: Bloomberg, Deydun Sentiment in EZJ has began to improve in the past month. Net number of buy recommendations are at 25%, up 10% from an all time low of 14% in the previous month. In the past excessively low levels have often proved to be a precursor to price growth. EZJ's EV/ Revenue discount is the largest versus 5 year history (at 37% below 5y average) in comparison to its EU low cost peers. By contrast, a market cap weighted average of EZJ's peers is at 19% premium to 5y average. 1

2 Monday, 06 March 2017 A Selection of Market Implied Price Path (MIPP*) Charts from our Live Signals Fig. 3 MIIP of Boston Properties Boston Properties INC (BXP US) BUY - 23 Feb 2017 The base case MIPP scenario is $161.6 with a 16.2% upside in 12 months. Source: Deydun/Bloomberg Discovery Communications (DISCA US) Fig. 4 MIIP of Discover Communications BUY - 08 Feb 2017 The base case MIPP scenario is 30.8 with a 11% upside in 12 months. Source: Deydun/Bloomberg 2

3 Recent Live Signals Stock Position Date P&L (%)* Entry Price Tactical Stance** GICS2 Index FOXA US Long 14-Nov % 27.3 n/a Media MKS LN Short 30-Nov % 3.28 Risk c Retailing KGF LN Short 02-Dec % 3.48 n/a Retailing NRG US Long 15-Dec % Risk c Utilities AZN LN Long 13-Jan % Risk c Pharmaceuticals, Biotechnology ULVR LN Long 09-Jan % n/a Household & Personal Products UL NA Long 09-Jan % n/a Real Estate GSK LN Long 09-Jan % n/a Pharmaceuticals, Biotechnology WKL NA Long 05-Jan % Looking to close on correction Commercial & Professional Serv JBSS3 BZ Long 09-Jan % 11.6 n/a Food Beverage & Tobacco UA US Short 17-Jan % Looking to close on a bounce Consumer Durables & Apparel ORK NO Short 17-Jan % 75.3 Risk c Food Beverage & Tobacco TSCO LN Short 17-Jan % 202 n/a Food & Staples Retailing VIV FP Short 17-Jan % n/a Media NPN SJ Long 17-Jan % n/a Media WFM US Short 31-Jan % 29.9 n/a Food & Staples Retailing DRI US Long 31-Jan % Risk c Consumer Services CVS US Short 31-Jan % n/a Food & Staples Retailing SNH SJ Short 31-Jan % Risk c Consumer Durables & Apparel MCO US Long 31-Jan % n/a Diversified Financials SPG US Short 31-Jan % n/a Real Estate NG/ LN Short 31-Jan % n/a Utilities DHR US Long 02-Feb % n/a Health Care Equipment & Servic BHARTI IN Long 02-Feb % n/a Telecommunication Services PHIA NA Short 02-Feb % Monitoring price at Capital Goods POP SM Short 02-Feb % Looking to close on a bounce Banks LUX IM Short 02-Feb % 50.1 Looking to close on a bounce Consumer Durables & Apparel NESN VX Short 02-Feb % 72.3 n/a Food Beverage & Tobacco FER SM Short 02-Feb % Risk c Capital Goods BBVA SM Short 02-Feb % Risk 6.6 Banks AI FP Short 02-Feb % 100 Risk c Materials VWS DC Long 02-Feb % n/a Capital Goods KPN NA Short 08-Feb % 2.59 n/a Telecommunication Services GLE FP Short 08-Feb % Looking to close on a bounce Banks 3988 HK Long 08-Feb % 3.54 n/a Banks MCD US Long 08-Feb % n/a Consumer Services DISCA US Long 08-Feb % n/a Media IMB LN Long 08-Feb % 3,717 n/a Food Beverage & Tobacco TCS IN Long 21-Feb % 2,502 n/a Software & Services ABI BB Long 21-Feb % n/a Food Beverage & Tobacco VOW3 GY Short 21-Feb % n/a Automobiles & Components BAYN GY Long 23-Feb % n/a Pharmaceuticals, Biotechnology ORA FP Long 23-Feb % n/a Telecommunication Services BAX US Long 23-Feb % n/a Health Care Equipment & Servic BXP US Long 23-Feb % n/a Real Estate CNA LN Short 27-Feb % n/a Utilities CS FP Short 27-Feb % n/a Insurance ACA FP Short 27-Feb % Risk Banks MAS US Long 27-Feb % n/a Capital Goods VLO US Long 27-Feb % n/a Energy OXY US Short 27-Feb % n/a Energy GM US Long 27-Feb % n/a Automobiles & Components New Signals Today Stock Position Date Entry Price GICS2 Index HUM US Long 06-Mar-17 Open Price - 6th March Health Care Equipment & Servic RRC US Short 06-Mar-17 Open Price - 6th March Energy CTL US Short 06-Mar-17 Open Price - 6th March Telecommunication Services EOAN GY Long 06-Mar-17 Open Price - 6th March Utilities UBSG VX Short 06-Mar-17 Open Price - 6th March Diversified Financials Wynn US Long 06-Mar-17 Open Price - 6th March Consumer Services SHP LN Long 06-Mar-17 Open Price - 6th March Pharmaceuticals, Biotechnology DAL US Long 06-Mar-17 Open Price - 6th March Transportation EZJ LN Long 06-Mar-17 Open Price - 6th March Transportation PBR US Short 06-Mar-17 Open Price - 6th March Energy COP US Short 06-Mar-17 Open Price - 6th March Energy *As of last available close. Entry price for fresh signals calculated using close price on the signal entry date. N.B. We only track stock ideas currently. **When we have a short-term tactical risk situation (e.g. short-term counter trend), we may suggest a tactical stance. Stop-losses act only as a 3

4 Closed Signals Stock Position Entry Date Close Date P&L (%)** Entry Price Tactical Stance*** UHR VX Short 24-Nov Jan % on risk level failure PSN LN Short 30-Nov Jan % on risk level failure FME GR Long 20-Dec Jan % on risk level failure GIVN VX Long 05-Jan Jan % on Dividend Miss SL/ LN Short 17-Jan Jan % on Sector Conflict VOD LN Long 17-Jan Jan % On Sector Conflict KR US Long 28-Nov Jan % on Sector Conflict HEIA NA Short 17-Jan Feb % due to Risk Management EFX US Short 02-Feb Feb % due to Risk Management ERICB SS Short 08-Feb Feb % due to Risk Management CAP FP Short 24-Nov Feb % on risk level failure AVB US Short 30-Nov Feb % on risk level failure MTN SJ Short 08-Feb Mar % on risk level failure KGH PW Long 21-Nov Mar % Profit Taking MNST US Short 17-Jan Mar % on risk level failure Performance Statistics No. of Longs No. of Shorts Net Exposure Win Rate* Avg. Profit/ Avg. Loss Max Drawdown % 47.32% % * Win Rate calculated on all ideas. Live Signals Performance The chart above shows the performance of all calls published by Deydun from November 14th (excluding reiterations). 4

Methodology All our research and interpretation is driven by what is available publicly about the company. We do not speak to management nor do we intend to make financial statement forecasts.

stock. To risk capital, one needs to identify tailwinds, whether for a long or a short and that is what we are holistically attempting to do at Deydun.

We use a rigorous set of strategies to isolate the model that generates the profit curve that shows the most promise.

5 Methodology All our research and interpretation is driven by what is available publicly about the company. We do not speak to management nor do we intend to make financial statement forecasts. We attempt to read a global macro picture, which at any rate, is best distilled through price action in our view and then combine it with what we believe to be the fundamental underpinnings for the stock. To risk capital, one needs to identify tailwinds, whether for a long or a short and that is what we are holistically attempting to do at Deydun. Deydun Markets' QuantLab team use systematic models with fundamental and quantitative inputs to generate signals on stocks, ETFs, indices, forex pairs and commodities for both investors and traders. We use a rigorous set of strategies to isolate the model that generates the profit curve that shows the most promise. Our Investor Book uses signals with holding periods longer than 3 months while our shorter term Trader Book uses primarily quantitative and sentiment-tracking inputs to generate signals with holding periods around 1 month. We then study industry and macroeconomic variables and highlight topical themes and catalysts. This combination of systematic and fundamental analysis across varying timeframes and approaches helps sift out the highest conviction, actionable signals which we publish in our Focus List. While we aim to consistently deliver high return recommendations, we recognise that markets will occasionally move against us. Via our methods to mitigate drawdown, we will manage any losing trades with acceptable risk exposure. We find that the overlap of three approaches (price action, derivatives and fundamentals) produce the most durable signals. N.B. Stats for the Focus List stock models are available on demand. All data sourced from Bloomberg unless otherwise stated. For P&L calculations, when we issue a note in pre-market hours, we will use the next open price and when we issue a note intraday we will use the next close price. Contacts Ashwani Mathur Kasim Ahmed Sujit Kapur Satwinder Sehmi +44 (0) (0) (0) (0) ashwani@deydun.com kasim@deydun.com sujit@deydun.com sat@deydun.com We can also be found on Bloomberg at DEYD<GO> and via our website at 5

6/19/2014 All Time High $ /31/13 1/31/14 2/28/14 3/31/14 4/30/14 5/31/14 6/30/14 7/31/14 8/31/14 9/30/14 10/31/14 11/30/14 12/31/14

6/19/2014 All Time High $ /31/13 1/31/14 2/28/14 3/31/14 4/30/14 5/31/14 6/30/14 7/31/14 8/31/14 9/30/14 10/31/14 11/30/14 12/31/14 IDOG ETF Stats Ticker: Underlying Index: Listing Exchange: IDOG IDOGXTR NYSE Arca CUSIP: 00162Q 718 Fund Inception: 6/27/2013 Dividends Paid: Quarterly Most Recent Dividend**: $0.1630 Gross Expense Ratio: