IBERIA. Best & Worse Performers -1 Week (%)

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1 EQUITY RESEARCH IBERIA 30 November 2012 TOP STORIES WEEKLY Galp Energia - Following ENI s recent deal (4% of Galp s outstanding shares sold + 8% under 3-year exchangeable bonds), the huge short-term overhang pressure has been reduced (which we consider positive), however the long-term overhang pressure is still there. According to our understanding, there are still 8% of Galp s shares that can be sold after the end of the ENI s 90-day lock-up period. At YE13, Amorim Energia can exercise its call option and the right of first refusal, meaning that in thirteen months more shares could be available (8.34% of Galp s shares) and last but not least in 3 years time the exchangeable bond recently issued matures and 8% of Galp s outstanding shares may come to the market if the stock price is below the strike (page 10). OUT THIS WEEK Earnings Comment Portugal Telecom Price Target / Recommendation Changes Bankinter, Telefónica, Sonae, Galp Energia, Cofina Other News BES, Banco Popular, Telecom Sector, Telefónica, PT & TEF, Zon Multimedia, Media Sector, Sonae Capital, Jerónimo Martins, Mota-Engil, Galp Energia WEEK AHEAD Monday TV audience shares in Portugal; November car sales in Portugal PORTFOLIOS This week, Mib Aggressive Portfolio went up 1.20%, outperforming the PSI20 by 2.47pp. Excluding Telefónica and Portugal Telecom, all stocks contributed for this outperformance (page 13). This week, Mib Liquidity Portfolio went down 1.67%, underperforming the PSI20 by 0.40pp. Excluding Semapa and EDP, all the stocks contributed for this underperformance (page 14). Stock Market Last 1W YTD 2011 Daily Vol. ( mn) 1W 1M 6M 2011 PSI 20 5, % -4.33% % PSI IBEX 35 7, % -7.37% % IBEX 35 1,351 1,705 2,382 4,925 Euro Stoxx 50 2, % 11.17% -5.56% Euro Stoxx 50 5,229 6,116 7,547 14,831 António Seladas, CFA antonio.seladas@millenniumbcp.pt Forex Rates Last 1W YTD 2011 Interest Rates Last 1W C hg YE11 EUR/USD % 0.36% -3.17% Euribor 6m 0.34% 0.35% -1bp 1.62% EU R/GBP % -2.93% -2.96% 10Y Bond PT 7.64% 7.90% -26bp 13.36% EU R/BRL % 13.73% 8.86% 10Y Bond SP 5.31% 5.62% -31bp 5.09% Best & Worse Performers -1 Week (%) Best & Worse Performers - YTD (%) Cofina 24.0 BPI 71.7 Banco Popular 16.7 Mota-Engil 31.3 Impresa 10.0 Sonae 27.2 Av. José Malhoa, Lote 27 Bankinter 4.4 Altri Lisboa Tel / Fax: / 09 Altri Sonae Industria Portugal Telecom Sonaecom Bankinter Cimpor Galp Energia -4.9 Sonae Capital Iberdrola -5.0 Martifer -5.6 Martifer Banco Popular 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. Page 1 of 17

2 CHANGES New Previous Rating Target Rating Target Motive Bankinter Buy 3.70 Neutral 3.10 Moving Valuation to YE13 Telefónica Buy Buy Moving Valuation to YE13 Sonae Buy 1.00 Buy 0.76 Moving Valuation to YE13 Galp Energia Buy Buy Moving Valuation to YE13 Cofina Sell 0.51 Buy 0.51 Price Performance FINANCIALS Banco Popular Buy High Risk (Target YE13: 0.75) Rita Silva; Popular s main shareholders participate in the capital increase Banco Popular said Allianz, Américo Amorim and Banque Federative du Credit Mutuel and Unión Europea de Inversiones exercised their rights in the capital increase as they had irrevocably compromised to a few weeks ago. Thus, major shareholders will have the following stakes: Source: Mbcp; Banco Popular Popular aims to repurchase securities at a gain Banco Popular has announced a tender offer intended to repurchase several ABS, Preferred and Subordinated securities expectations, expecting to obtain capital gains between 40-50mn. The new business plan that Popular presented in October already took into account this kind of operation and should have no impact on the expectations regarding its targets for net income (our expectations - 2.4bn for 2012; Popular expects - 2.3bn). Popular Bank ends successfully its capital increase Banco Popular has successfully completed the capital increase of 2500mn, avoiding the entry of the Spanish Government in its capital structure. Note that core shareholders subscribed a sum higher than expected ( 520mn instead of 420mn), while demand by minority shareholders was above its corresponding stake. On 4 December Popular will release the final shareholder structure, while new shares will start negotiating on the 6 th. Bankinter Buy High Risk (Target YE13: 3.70) Valuation Update - Shift in strategy to protect margins Rita Silva, We have updated our estimates for Bankinter and moved our valuation to the end of We value Page 2 of 17

3 Bankinter at 3.70 per share (YE13), upward revised from our previous calculation of 3.10 (YE12). Given the 25% upside on the stock we rate it as Buy (High Risk). Historically Bankinter trades at a premium when compared to its peers (30% 5-yr average premium to its Domestic Iberian peers, and 40% vs. the rest of Europe). Currently Bankinter trades at P/TBV 12E 0.56x (in line with consensus 0.55x) and P/NAV 12E of 0.58x (7% premium vs. consensus 0.54x). The current TBV multiple (and relatively small premium to NAV) can be explained by the uncertainties regarding a bailout in Spain. Spain will probably ask for help in 2013 triggering the ECB OMT, potentially lowering sovereign yields, which would be good for the financial system. Although this uncertainty could linger on for some time, pressuring Bankinter s performance in the short-term, we believe that Bankinter has a significant upside to its intrinsic value. Bankinter biggest caveat is its high reliance on wholesale funding (LtD 157%) pressuring for a faster deleveraging or overpayment for deposits. The bank targets a % LtD ratio in 2 years, consistent with our estimates: this implies a 4% CAGR 12-21E for deposits and 1% for loans. We estimate that until LtD stabilizes, Bankinter will have to pay more for its deposits while, in the meantime spreads on loans should positively reflect the change in strategy away from its traditional model of high exposure to low yielding retail mortgages towards corporates. An improvement in NIM will, however, not be easy as low Euribors and the search for good quality credit will act as negative forces. Bankinter has a net profit goal for 2012 at 130mn above our estimates ( 118mn); probably due to our conservative approach to the provisioning effort - we expect loan impairments to stand at 449mn in The fact that Bankinter is 100% exposed to Spain makes it dangerously dependent on the future of its economy. We are expecting a NPL peak by 2014 (4.7%) and a slight improvement by One of the main positive features of Bankinter is its low exposure to RE assets (3% of assets are problematic vs. 13% of its peers) and a much lower NPL ratio (4% vs. Spanish banking system of 9.9%). Another positive is its exposure to the insurance business (Linea Directa, JV with Mapfre) permitting an interesting diversification that already accounts for more than 20% of banking income. (For further details, please refer to our company update out this week) BES Buy High Risk (Target YE13: 0.95) Rita Silva; BES issues exchangeable bonds BES will issue exchangeable bonds indexed to Bradesco shares, in the amount of USD 400mn maturing in 2015, with an option to increase to USD 450mn. The net proceeds of the issuance will be used for general financing needs of BES Group. The semiannual coupon will be between 3.00% and 3.50% per annum and have a conversion premium of 18% to 23%. Although this issue is made with a coupon above a similar operation made in 2010 with a 1,625% coupon, BES has access to a yield lower than the one it would have if it issued normal debt - which represents a monetization of the strategic stake it holds in Bradesco. Just remember the bonds BES issued a couple of weeks ago (3 year maturity) with a coupon of 5.875%. TELECOMS Telecom Sector Anacom discloses Broadband & Pay TV accesses by the end of 3Q12 Alexandra Delgado, CFA The Portuguese Fixed Broadband market reached 2,350k accesses in the end of 3Q12, with 44k net adds in the quarter. By the end of 3Q12 there were 22.1 broadband accesses per 100 inhabitants. Accesses growth has been broadly in line with previous quarters despite challenging macro environment (+6.0% YoY in 3Q12 vs. +6.3% in 2Q12 and +6.1% in 1Q12). FTTH/B accesses reached 337k (14.3% market share), with 30k net adds in the period. Cable added 12k Page 3 of 17

4 net accesses while ADSL lost 3k. Portugal Telecom increased its market share in the quarter to 51.1% (+0.5%), while Zon gained 0.1% to 32.6%. Cabovisão lost 0.1% to 6.9%, Optimus lost 0.2% to 4.6% and Vodafone lost 0.1% to 4.0%. The Portuguese Pay TV market reached 3,107k subscribers in the end of 3Q12, with 27k net adds in the quarter. By the end of 3Q12 circa 54.0% of households had Pay TV service. Growth has decelerated in the quarter (+8.4% YoY vs. +9.7% YoY in 2Q12 & 1Q12), but is still strong considering current macro conditions. We remind that the analogue switch-off early this year led some households to opt for Pay TV services and therefore DTT explains partially this good performance. FTTH was the technology adding more new clients (+29k), while cable lost 12k clients. Zon lost 0.8% market share to 50.6% and Portugal Telecom raised its market share by 1.0% to 38.6%. Cabovisão lost 0.2% market share to 8.1%, Vodafone increased 0.1% to 1.4% and Sonaecom has maintained its 1.2% market share. In summary, accesses growth is still healthy despite challenging macro environment; analogue switch-off early this year and market competition explain good performance. Portugal Telecom is the player capturing market growth. Two main players (PT & Zon) combined continue to strengthen their market share in both segments, while smaller players continue to lose market share; this shows, as in previous quarters, that wireline is slowing advancing towards a duopoly. 3Q11 4Q11 1Q12 2Q12 3Q12 Fixed Broadband accesses (k) 2,217 2,243 2,281 2,307 2,350 ADSL 1,106 1,102 1,096 1,087 1,084 Cable FTTH Other Fixed Broadband (YoY growth) 7.0% 5.5% 6.1% 6.3% 6.0% ADSL -0.4% -0.9% -0.3% -0.6% -2.0% Cable 7.0% 5.0% 4.4% 3.8% 4.2% FTTH 94.5% 81.4% 79.6% 75.5% 66.3% Other -21.0% -93.7% -89.0% -83.9% -77.4% Source: Anacom 3Q11 4Q11 1Q12 2Q12 3Q12 Pay TV subscribers (k) 2,866 2,936 3,032 3,079 3,107 Cable 1,422 1,438 1,466 1,470 1,459 DTH IPTV (Other) FTTH Pay TV subs (YoY growth) 7.2% 7.4% 9.7% 9.7% 8.4% Cable -0.4% 0.7% 3.3% 3.7% 2.6% DTH 2.6% 4.4% 5.2% 3.8% 2.4% IPTV (Other) 14.4% 8.6% 9.1% 8.8% 7.0% FTTH 95.9% 83.7% 82.8% 77.4% 67.0% Source: Anacom Telefónica Buy Medium Risk (Target YE13: 17.35) Valuation Update - Debt under control; high potential once Spain woes Alexandra Delgado, CFA ease We have fine-tuned our estimates for Telefónica and moved our valuation to the end of We value Telefónica at per share (YE13), meaning a 2.4% upward revision from our previous calculation of (YE12). Given the 70.1% upside on the stock we rate it as Buy (Medium Risk). Dividend cut, sale of Atento, IPO of TEF Germany and exchange rate update increased our valuation by 0.60/ share. The downward revision of revenue estimates in Spain led to a price target decrease of 0.85/ share. Lower revenue estimates in the rest of European markets except for Germany and lower margins in Ireland and in Czech Republic decreased our valuation by 0.45/ share; the decline of margin estimates in Latin America decreased our valuation by 0.55/ share. Page 4 of 17

5 Finally, moving our valuation to the end of 2013 has revised upwards our valuation by 1.65/ share. Telefónica has tackled its debt problem in the last months. It has cancelled shareholder remuneration (on 2012 Earnings) and has successfully sold non-core assets raising over 5.2 bn, which will translate into an over 6 bn debt reduction in Equally important, refinancing activity ( 13.7 bn YTD) has been intense and debt maturities are now covered beyond 2014; TEF has maintained access to debt markets and liquidity position is also strong, at 18 bn. Telefónica is also keeping a card up its sleeve: the possible listing of its Latin America holding. We highlight that Telefónica could raise 4.3 bn with the float of 15% of Latin America (exc. Argentina & Venezuela). So, investor concerns on debt load and refinancing ability have calmed down in the last months. This is shown by stock performance: Telefónica is down circa 24% this year, but has started to recover with a price increase of 11% since the beginning of August. In operational terms, the tough environment in Spain and other European countries will continue to drag the company s performance, but we believe this is already incorporated into the price. The stock might continue to be pressured in the short term because of these concerns, but we still see significant value in the stock on a fundamental basis. We highlight that in order for our valuation to reach current stock price, we would have to cut Spain and Rest of Europe estimates ( E) by 30% and Latin America by 20%. (For further details, please refer to our company update out this week) Telefónica offer to swap 2 billion preferred shares is accepted by 97.06% Telefónica s offer launched on October 31st to swap 2 billion in preferred shares for common equity (shares held as treasury stock) and for bonds (2022 bonds with 4.185% coupon) ended on November 23rd. Telefónica offered to swap 100% of nominal value of preferred shares for 60% of the value in newly issued bonds and 40% of value in shares. The offer was accepted by 1,941k preferred shares, which represent 97.06% of the outstanding issue. Telefónica will therefore issue 1,941k bonds of nominal value of 600 each and 10-year maturity, which amounts to a total amount of 1,165 million. The price of Telefónica shares for the purpose of the offer was fixed at (5-year average up to November 23 rd ) and accordingly Telefónica will deliver 76.4 million shares to the investors which have accepted the swap. This operation will result in Telefónica s debt being reduced by 776 million (40% of 1,941 mn) and also in lower financing costs, and is therefore positive for the company. Portugal Telecom Buy Medium Risk (Target YE12: 6.00) 3Q12 Earnings Comment - Lower EBITDA drags net income; net debt reached 7.8 bn Alexandra Delgado, CFA PT announced this morning its 3Q12 Earnings. Consolidated revenues amounted to 1,639 mn, dropping 6.2% YoY in 3Q12. Consolidated EBITDA exc. PRBs reached 588 mn, declining 10.2% YoY. EBITDA margin was 35.9%, -1.6pp. We remind that the company had already released a trading update (excl. proportional consolidation of Brazilian assets, namely Oi and Contax) on November 8th and that Oi released its 3Q12 Earnings on November 13th. Portugal figures were broadly in line with our estimates. We highlight that pressure on domestic business topline has intensified in the quarter, particularly in the personal segment. Please refer to snapshot Snapshot: Portugal Telecom - 3Q12 Earnings Comment - Broadly neutral; pressure on domestic topline intensifies, published on November 8th. Oi s EBITDA in 3Q12 came below our estimates. Operational results were encouraging with the good evolution of subs figures (residential, mobile post-paid) translating into a better revenue trend. However, EBITDA remains pressured as topline growth requires substantial commercial effort and full-year guidance looks difficult to reach. Management maintained guidance for 2012, despite an R$ bn delta in revenue coming from equipment sales. Please refer to snapshot Snapshot: Page 5 of 17

6 Portugal Telecom - Oi s 3Q12 Earnings Comment - Good operationals lead to revenue growth; guidance hard to reach, published on November 14th. Net income reached 63.7 mn, declining 28.8% YoY on the back of lower EBITDA coming from both the Portuguese business and Brazilian Oi. Increased profits from associates were offset by higher financial costs. Consolidated net debt by the end of the quarter was 7.8 bn (3.3x EBITDA) which compares to our YE estimate of 7.2 bn. Net debt of 7.8 bn is 4.6 bn excluding Oi and Contax net debt. We maintain the price target for Portugal Telecom at 6.00 (YE12), with a Buy, Medium Risk recommendation. (For further details, please refer to our snapshot out today) Portugal Telecom Telefónica Buy Medium Risk (Target YE12: 6.00) Buy Medium Risk (Target YE13: 17.35) Oi increases Pay TV market share, while Telefónica loses clients in Alexandra Delgado, CFA October The Brazilian regulator released yesterday October Pay TV subscribers numbers. The market grew 1.95% in October reaching 15.7 million subscribers, which stands for 26.4% penetration of households. Pay TV subscriber growth continues strong, with k net adds per month since the beginning of the year; net additions in October were 301k. Net/ Embratel (America Movil) continues to lead the market with a subscribers market share of 52.8% (lost 0.2% market share in the month), followed by Sky with 31% (maintained market share). Oi registered 48k net adds in October, increasing its subscribers market share by 0.2% to 4.1%. Oi has surpassed Telefónica in Pay TV clients last month and is now third largest operator in this segment. Oi has been pushing for growth in the Pay TV segment with good results: its market share increased 1.4% this year. Telefónica lost 8k clients in the month. Its subscribers market share declined 0.1% in October to 3.9%; it lost 1.7% share since the end of Telefónica has been redefining its Pay TV strategy; in October it relaunched its IPTV service (with new Microsoft platform). The redefinition of the strategy, as well as the intense competition in São Paulo (GVT) explains the poor performance in this segment this year. Page 6 of 17

7 Zon Multimedia Buy Medium Risk (Target YE13: 3.20) Isabel dos Santos is now a non-executive member of Zon s Board Alexandra Delgado, CFA of Directors Zon Multimédia announced Tuesday in a regulatory filing that the Board of Directors in a meeting held that day approved the appointment of Isabel José dos Santos, Miguel Filipe Veiga Martins, Catarina Eufémia Amorim da Luz Tavira and André Palmeiro Ribeiro as Non-Executive Members of the Board of Directors to complete the current term of office running from 2010 to Isabel dos Santos is Zon s leading shareholder, holding 28.8% of Zon s capital. The four new members of the Board of Directors replace former members that represented CGD and Cinveste. The latter entities sold their stakes in Zon s capital to Isabel dos Santos last June. It is important to highlight that notwithstanding the fact that Isabel dos Santos is a shareholder in many Portuguese companies, it is the first time it becomes a member of the Board of Directors, even if only a non-executive one. We believe this fact is significant, since it reinforces Isabel dos Santos commitment to Zon and also shows the businesswoman wants to be more involved in the management and strategy definition of the company. Looking at the rest of the new Board members, Catarina Tavira is a Board member of Zap (Angolan operator, 70% held by Isabel dos Santos and 30% by Zon) and André Ribeiro is a former Board member of Galp (in representation of Isabel dos Santos). Finally, Miguel Veiga Martins is CEO of Unitel, leading Angolan mobile operator, in which both Isabel dos Santos and Portugal Telecom (PT) hold 25% of capital each. The fact that Isabel dos Santos become the leading shareholder in Zon has brought concerns that the relationship with Portugal Telecom in Unitel has become difficult. The appointment of Unitel s CEO to Zon s Board reinforces this idea, and therefore we consider it to be negative for PT. MEDIA Media Sector João Flores; Media Sector reaches boiling point We highlight Media companies showed a strong performance in early week, despite media sector fundamentals have not changed while keeping depressed (recall we estimate advertising revenues decline will be above 13% this year and close to 7% next year). Starting with Cofina, we believe strong appreciation is based on news / expectations: i) Management/shareholders increased stake in Cofina, which lead market to believe it will continue, which we think is likely, though not at high prices (our Cofina`s price target is 0.51 YE13). Recall management increased stake in Cofina: i) Caderno Azul increased its stake to 14:41% after buying 1.050mn shares (1.02% stake) on November 19th at 0.399/share ii) Mr. Paulo Fernandes increased its stake to 8.97% from 7.2%, following purchase of 1.820mn shares on November 22th (1.77% stake) at 0.41/share. ii) expectations regarding Cofina`s interest in RTP. Remember its already known Cofina's interest in a possible RTP privatization/concession while there are no further news from Government. iii) expectations that TV project based on RTP privatization / concession can be reinforced by high profile Programming Directors, which would be an important support and confidence-building. We highlight Mr. Nuno Santos recently asked resignation from RTP News Director (former SIC Programming Director) and according to the press, Mr. José Eduardo Moniz (former Programming Director at TVI and responsible for the successful recovery of the channel) asked resignation from Holding group Ongoing, thus there will be two strong Programming Director (possibly) available to the new privatized TV channel. Overall, Cofina performance is based on assumptions already known, thus we keep unchanged our Cofina price target at 0.51 YE13 with Sell (High Risk) recommendation. Recall our Cofina valuation includes TV cable channel "Correio da Manhã TV" but not a possible positive effect from winning RTP Page 7 of 17

8 privatization (we believe RTP privatization winner will be known in the second half of next year). Following Cofina`s strong performance, Impresa also rose, showing a buy opportunity at current stock prices. Recall our Impresa`s valuation already includes a RTP privatization scenario in the second half of next year, thus its virtually neutral if it happens. Our review is for Impresa Purchase (high risk) with a price target of 0.55 YE13. For further information please see our "Company Report: Media Sector Update - Managing Costs" that was published on October 17. CONGLOMERATE Sonae Buy Medium Risk (Target YE13: 1.00) João Flores; Food retail as growth driver We fine-tuned our Sonae`s estimates based on latest data, new estimates and updated WACC. Furthermore, we moved reference year to YE13. Our price target was revised upwards to 1.00 from 0.76, while recommendation was kept unchanged at Buy (Medium Risk), meaning a 74% upside vs current price. We believe current stock price makes Sonae an attractive stock, since company keeps showing strong resilience in Portugal while rethinking international expansion (focused on capital light/franchising while slowdown stores openings in Spain). Company keeps showing debt reduction (partially refinanced up to 2015) while market expects a possible M&A in telecoms unit (Sonaecom + Zon Multimedia) which seems dependent from a favourable decision from Zon`s major shareholders (namely Angolan investor Isabel dos Santos, Bes). Updated valuation: i) updated estimates had a 0.04 positive effect on price target since upwards revision in EBITDA (CAGR to 1.9% from 1.6%) via higher margins in food retail offset top line downwards revision. Consolidated Sales in 2012 were slightly revised downwards (from 5.408Bn to 5.399Bn): food retail (CAGR is expected to reach 0.7% from 1.2%) and Specialized retail (CAGR was revised downwards to 0.3% from 2.6%) were revised downwards while retail properties and investment management were revised upwards; ii) Sonaecom updated valuation (from 2.00 YE12 to 2.40 YE13) had a 0.05 positive effect on Sonae`s price target. iii) updated WACC (Portugal sovereign yield was revised to 10% from 11%) had a 0.05 positive effect on Sonae`s price target. iv) Finally, moving reference year to 2013YE from 2012YE had a 0.10 positive effect. Using Sonaecom current stock price ( 1.45/share) and applying a 20% discount on Sonae Sierra NAV (we are using 10%), Sonae`s price target would decline to 0.90 (57% upside). Slowdown in Spain and lack of visibility in Angola led company to focus on Portuguese food retail. Strategy based on Spain (and Angola) will not definitely be a growth driver for the next years, thus Sonae is rediscovering how to benefit from its food retail unit in Portugal. Operational numbers keep showing positive surprises, reflecting a management increasingly focused on a successful business model. Following increasing tough environment in Spanish economy (Worten is running relatively well while Sportzone is facing difficulties), Sonae`s internationalization plans were reduced. Ambitious international expansion plan had to be fine-tuned, thus stores openings in Spain were reduced while stores openings into new markets is via franchisings / joint ventures in a capital light structure with local partners, since via own stores is too risky. In current tough environment the best solution to keep capital spending at low levels given risks of credit restrictions. (For further details, please refer to our company report out this week) Page 8 of 17

9 Sonae Capital Buy High Risk (Target YE13: 0.19) António Seladas, CFA; Sonae Capital second main shareholder reduces its stake Roughly 5 weeks ago Mr. Mohnish Pabrai, second main shareholder of Sonae Capital, informed the market that, had sold through its Funds, 1.74% of SC share capital (between 0.14 and 0.15 per share), reducing the total stake to 4.33% or shares. Meanwhile and up to today trading session it were traded shares in the stock market. So if we assumed that Mr. Pabrai sold 75% of the total figure and he wants to reduce to zero its stake, it means that there are still available roughly shares or roughly 2% of share capital. We believe that once Pabrai Funds sold the entire stake the stock price could rebound, as the selling pressure disappears. If we are right and the sales pace be kept it should taken roughly 4 more weeks to sell the entire stake and the price could go down by more 2 to 3 cents per share. RETAIL Jerónimo Martins Buy Medium Risk (Target YE13: 16.50) Polish retail sales growth accelerated less than expected in October João Flores, (Food 1.3% YoY) Food: There was a 1.3% YoY gain in retail sales of food, beverages and tobacco products (from 0.9% in September), thus YTD average declined to 5.4% from 5.8%. Recall we estimate Biedronka`s LfL sales in 2012 will reach 6%. Retail sales in Poland: increased 3.3% on an annual basis in October (3.6% consensus), higher than the 3.1% growth seen in September. On a monthly basis, retail sales rose 4.3% during the month (4.6% consensus), following 1.3% decline in September. Recall new car sales in Poland strongly reduced pace of decline in October to -2.5% YoY from -13% YoY in September (disclosed on November 07), partially benefiting from favorable comparison basis, since car market strongly accelerated pace of decline from September The unemployment rate slightly rose to 12.5% in October from 12.4% in September (12.5% estimated). JM will hold its Investor's Day in Lisbon on December 11, Page 9 of 17

10 CONSTRUCTION Mota-Engil Buy High Risk (TargetYE13: 1.50) António Seladas, CFA Small acquisition in Brazil Mota EngiI announced yesterday that in accordance with the international expansion goals of the Strategic Plan Ambition 2.0, it has agreed to acquire a majority stake of minimum capital of Empresa Construtora do Brasil (ECB), based in Belo Horizonte, Minas Gerais Brazil, through its subsidiary Mota Engil Brasil. The amount agreed was R$52.6Mn, roughly 19.4Mn for what we believe 50.1% of the share capital. Still according to the press release, the acquisition will be done partially by a share capital increase. The deal should be finalized in 2 months once a set of conditions be met. ECB is a 67 years old company, with know how in several areas of construction namely road and rail infrastructures, dams and highway concessions. The average turnover of ECB in recent years was R$116.Mn (R$121.3Mn in 2010 and R$98.5Mm in 2009) and the operating margin was roughly 17% in 2010 and 9% in ME management finally acquired a company in Brazil, we should notice that this intention was announced at least a couple of years ago, actually an acquisition was done in the past that meanwhile was reverted as both shareholders did not reach an agreement regarding the expansion plans of the company. The amount paid, roughly 1X EV/Sales, despite interesting operating margins, it was in the upper limit of the valuation s range, however, it should not be relevant taken in consideration the absolute size of the deal and the needed to pay a premium to enter in the Brazilian market and benefit from the strong expansion plans announced by the Brazilian government. As we already mentioned in the past we are not comfortable with the geographic dispersion of the company and the eventually lack of human resources to manage the different regions despite the recent change on the structure of the company, creating regional sub-holdings. We also believe that the Brazilian market is extraordinary difficult to enter and has its own rules that could prevent ECB to grow. Last but not least we are not changing immediately our estimates, as we were already expecting a good performance in Latin America ( cagr 2011/15 of 40%). Despite that the stock is clearly creating exposure to regions of strong growth being an interesting proxy of that regions. OIL & GAS Galp Energia Buy High Risk (Target YE13: 17.05) Vanda Mesquita, Overhang pressure has been reduced ENI sold through an accelerated bookbuilding 4% of Galp s shares at 11.48, which corresponds to the lower limit of the offered range price ( ). At the same time, ENI placed a 3-year exchangeable bond amounting to 1.028mn (the initial amount was up to 1.100mn) that corresponds approximately to 8% of Galp s shares (strike price of 15.5 per share, which is 35% above the placement price and a coupon of 0.25%). In addition, Caixa Geral de Depósitos (CGD) sold 1% due to the exercise of its tag along right to sell its stake under this deal. The total number of Galp s shares placed in the market amounted to 41.5 million, less than 1% than the top number of shares officially announced yesterday (49.8 million shares), meaning that the overall deal was downsized. ENI has a 90-day lock up period and Amorim Energia s option to buy 5% of Galp from ENI was extended until 31 December We recall that under the agreement signed on 29th March 2012 (in which ENI s exit from Galp was prepared), ENI had the right to sell up to 18% of Galp s shares in the market (percentage that eventually could be increased by 2% in the case of the exchangeable bond issue) through a public offering, accelerated bookbuilding, block trades, overnight market transaction and/or private placements. Amorim still holds a call option to buy a 5% of the share capital of Galp from ENI and as a consequence of the exchangeable bond issue, Amorim Energia has also a right of first refusal of up to 3.34% or up to 8.34% (vis-à-vis 5.34% or up to 10.34% in the previous agreement) respectively depending on whether the call Page 10 of 17

11 option would be exercised. The agreement is not enough clear, but in our point of view, Amorim Energia gave up of buying 2% of Galp s shares. Excluding the sale of the first 5% of Galp s outstanding shares to Amorim Energia (last July) and also the 12% of Galp s shares placed under this deal (4% through accelerated bookbuilding plus 8% through exchangeable bonds), there is still a 16.34% stake. In addition, Amorim has a call option of up to 5% and the right of first refusal up to 3.34% or up to 8.34% depending on whether or not the call option would be exercised. To sum up and according to our understanding, there are still 8% of Galp s outstanding shares that can be sold, but not in the coming 3 months due to the 90-day lock-up period. At the end of the year 2013, Amorim Energia can exercise its call option and the right of first refusal or nominate a third party, meaning that in thirteen months there could be more shares available (8.34% of Galp s outstanding shares) and last but not least in 3 years time the exchangeable bond issue matures and 8% of Galp s outstanding shares could be available if the stock price is below the strike. Following the conclusion of this operation, the huge short-term overhang pressure has been reduced (roughly 13% out of 29.34%), which we consider positive; however the long-term overhang pressure is still there (approximately 24.34%). Moreover, due to the today s placement of 5% of Galp s shares free float will increase, which makes this stock more interesting. Valuation Update E&P news flow may give momentum Following estimates fine-tuning, we value Galp at per share (YE13), revised downwards from our previous calculations ( per share YE12), keeping our buy recommendation (high risk) unchanged. Attention currently lies on (i) news flow from Jupiter (BM-S-24) and Carcará (BM-S-8) and on (ii) the likely upward revision of recovery factors in BM-S-11 (Lula/Cernambi and Iara). The conclusion of ENI s operation has reduced the huge short-term overhang pressure, which we consider positive; however shares held by ENI that can be available to sell in the long-term is still a lingering issue. The positive impact from the roll over to 2013 (+ 2.90) was more than offset by the cut in estimates (- 3.10). Our estimates revision was mainly driven by a more conservative production profile (due to the recent news flow regarding the timing of Brazilian production, we cut overall production by 25% in 2015 and by 13% in 2020) and by an upward revision of Mozambique resources. In addition, due to the depressed economic environment, we revised earnings from marketing and refining businesses downwards. Estimates were also impacted by a higher YE12 debt and higher needs of working capital in the coming years. The downward revision of 10-year Portuguese Government bond yield to 10% from 11% added 15 cents to our valuation and the update of Exchange EUR/USD trimmed 75 cents. There is a potential upside to our estimates, if Jupiter contains more reserves and oil (we consider 5 billion boe of resources, 33% of which oil, 33% natural gas and 33% condensates; plus 1 billion boe than our estimates would add 53 cents to our price target); if the Declaration of Commerciality for BM-S-8 announces more resources (we assume 1 billion boe and for each 500 million boe extra our price target would increase by 25 cents) and if recovery factor BM-S-11 is updated (for instance in Iara if recovery factor is updated from 16% to 28%, resources will be 6.2 billion boe, plus 2.2 billion boe than our estimates, meaning an upward adjustment of 97 cents to our price target). (For further details, please refer to our company update out this week) Farm-in agreement in Namibia This week, Galp has announced that it has signed a farm-in agreement with HRT Participações em Petroleo (a Brazilian company) to acquire a 14% stake in three petroleum exploration licenses located in offshore Namibia. According to Galp s estimate, unrisked resources are close to 8 billion barrels in a discovery scenario, whose likelihood of success is between 20% and 30%. Given the very early stage of this project (no drilling was performed until now), the signature of this agreement has no impact in our valuation. In our point of view, these kinds of contracts will help not only Page 11 of 17

12 to assure the pursuance of a strategy very much focused on Exploration & Production area, but also to diversify the geographical areas in which the company operates. SECTOR PERFORMANCE Sector Performance -1 Week (%) Sector Performance - YTD (%) PSI PSI Industrials & Other 1.3 Financials 33.5 Financials 0.3 Telecoms 30.0 Electric Utilities -0.1 Retail * 2.0 Retail * -0.7 Oil & Gas -7.8 Telecoms -2.2 Electric Utilities Oil & Gas -4.9 Industrials & Other * includes Jeronimo Martins and Sonae This week, the PSI20 went down 1.3%. The best performing sector was Industrials & Other with a 1.3% growth and the worst was Oil & Gas with a 4.9% fall. On a Ytd basis, the PSI20 went down 4.3%. The best performing sector was Financials with a 33.5% growth and the worst was Industrials & Other with a 31.8% fall. AGGRESSIVE PORTFOLIO This week, Mib Aggressive Portfolio went up 1.20%, outperforming the PSI20 by 2.47pp. Excluding Telefónica and Portugal Telecom, all stocks contributed for this outperformance. 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 1.67%, underperforming the PSI20 by 0.40pp. Excluding Semapa and EDP, all the 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 12 of 17

13 Return since inception (27Jul04) Portfolio PSI /07/04 10/12/05 29/04/07 15/09/08 02/02/10 22/06/11 08/11/12 Mib AGGRESSIVE PORTFOLIO Portfolio weekly return Company Risk Market Price Upside Weekly Performance Rating Price ( ) Target ( ) Potential Return Contribution Deviation Novabase High % 0.0% 0.00pp 0.26pp Impresa High % 10.0% 2.00pp 2.26pp Sonaecom High % 0.4% 0.08pp 0.32pp Telefónica Medium % -1.7% -0.33pp -0.08pp Portugal Telecom Medium % -2.8% -0.56pp -0.06pp Portfolio 1.20% PSI % Gain/loss 2.47pp Explained by the portfolio 2.70pp Explained by being underweight in the remaining PSI20 stocks -0.23pp Ytd Return Portfolio PSI20 30/12/11 23/03/12 15/06/12 07/09/12 30/11/12 Next week Portfolio Changes in Portfolio Company Risk Market Price Upside Rating Price ( ) Target ( ) Potential In Out Novabase High % Sonae Sonaecom Telefónica Medium % Sonae Medium % Portugal Telecom Medium % Impresa High % Return vs. PSI YTD 1 Month 1 Week Portfolio -2.4% -43.6% 71.9% -7.30% -36.6% 17.6% -0.2% 1.2% PSI % -51.3% 33.5% % -27.6% -4.3% -2.4% -1.3% Gain/loss -18.7pp 7.7pp 38.5pp 3.0pp -9.0pp 21.9pp 2.2pp 2.5pp 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 13 of 17

14 Ytd Return (since inception) Portfolio PSI /12/11 23/03/12 15/06/12 07/09/12 30/11/12 Mib LIQUIDITY PORTFOLIO Portfolio weekly return Company Risk Price Upside Weekly Performance Market Price ( ) Rating Target ( ) Potential Return Contribution Deviation Telefónica Medium % -1.7% -0.33pp -0.08pp Portugal Telecom Medium % -2.8% -0.56pp -0.06pp Semapa High % 1.2% 0.24pp 0.45pp Galp Energia High % -4.9% -0.98pp -0.16pp EDP Low % -0.2% -0.04pp 0.21pp Portfolio -1.67% PSI % Gain/loss -0.40pp Explained by the portfolio 2.70pp Explained by being underweight in the remaining PSI20 stocks -3.09pp Next week Portfolio Changes in Portfolio Company Risk Price Upside Market Price ( ) Rating Target ( ) Potential In Out Telefónica Medium % Sonae EDP Sonae Medium % Portugal Telecom Medium % Semapa High % Galp Energia High % Return vs. PSI YTD 1 Month 1 Week Portfolio % -2.3% -1.7% PSI % -4.3% -2.4% -1.3% Gain/loss pp 0.1pp -0.4pp 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 14 of 17

15 2012/11/30 Latest Target Risk Trnvr ( mn) M Cap Change (%) EPS P / E EV / Sales EV / EBITDA Div Yield P/BV Upsd Rating Pr ( ) YE13 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 % Buy High , loss % 0.0% 2.0 Bankinter % Buy High , % 2.7% 0.6 BCP (1) , BES % Buy High , loss % 0.0% 0.4 BPI % Buy High , loss % 0.0% 0.9 Telecoms , % 12.2% 2.0 Telefónica % Buy Medium , % 13.0% 2.1 Portugal Telecom (4) % Buy Medium , % 9.1% 1.3 Zon Multimedia % Buy Medium % 6.1% 3.8 Sonaecom % Buy High % 4.7% 0.5 Media loss % 4.1% 0.8 Impresa % Buy High loss 54.9 loss % 0.0% - Media Capital (2) % % 7.6% - Cofina % Sell High % 2.7% 3.4 Technology Indra % Buy High , % 2.2% 1.4 Novabase % Buy High % 4.2% 0.7 Utilities , % 5.2% 0.7 Iberdrola (4) % Buy Low , % 8.9% 0.7 EDP % Buy Low , % 9.5% 0.8 EDP Renováveis % Buy Low , % 0.7% 0.6 REN % Buy Low , % 8.5% 1.0 Motorways Brisa (3) , % - - Conglomerates , Sonae % Buy Medium , % 5.7% 0.8 Semapa % Buy High % 4.7% 0.5 Sonae Capital % Buy High loss loss loss loss loss 0.0% 0.0% 0.1 Retail Jerónimo Martins % Buy Medium , % 3.8% 6.8 Industrials , % - - Sonae Industria % Buy High loss loss loss % 0.0% 0.4 Altri % Buy High % 1.4% 1.5 Portucel % Buy Medium , % 7.7% 1.1 Cimpor (3) , % - - Construction Mota-Engil % Buy High % 7.7% 0.7 Oil & Gas Galp Energia % Buy High , % 2.0% 1.8 (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 YE12 Page 15 of 17

16 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 Nov-12 Oct-12 Sep-12 Jun-12 Mar-12 Dec-11 Jun-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Buy 92% 85% 65% 78% 72% 68% 76% 79% 63% 54% 41% 37% 30% 63% Neutral 0% 8% 19% 4% 7% 11% 14% 7% 15% 4% 27% 11% 40% 6% Reduce 0% 0% 4% 0% 3% 0% 0% 0% 7% 0% 0% 21% 5% 6% Sell 4% 4% 8% 7% 3% 7% 0% 4% 4% 0% 14% 16% 5% 0% Unrated/Under Revision 4% 4% 4% 11% 14% 14% 10% 11% 11% 42% 18% 16% 20% 25% Performance -1.9% 2.9% 10.7% -15% 1% -25% -3% -10% 33% -51% 16% 30% 13% na PSI 20 5,256 5,356 5,203 4,698 5,557 5,494 7,324 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 16 of 17

17 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) António Seladas (Industrials & Small caps) João Flores (Media and Retail) 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) 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