The Morocco Stock Market in face of international trends

Transcription

1 The Morocco Stock Market in face of international trends

2 Executive Summary The decline of the Casablanca Stock Market has lasted for way too long. Over the past six months, a distinct downward trend with insignificant volumes has been observed. This situation leads to HESITATION giving room to troublesome questions. This document will provide some answers to issues arising during these times of uncertainty: Is this downward trend in the market legitimate? What are the reasons behind the collapse in the level of activity? Why does the market remain insensitive to the quality of the reported incomes of listed companies? Who are the real actors on the market and what are the different kinds of interventions made by these actors? The structural downward trend observed since the beginning of the year along with the significant fall in volume are mainly due to the global uncertainty about the market situation due to the unfavourable geopolitical climate initiated early in the year by the crisis in Tunisia. Growing distrust has invaded the market pushing the investors to significantly reduce their exposure. After a performance of 21.2% in 2010 and a stock market rally in the first weeks of January bringing the MASI to 13,398.0 points, investors have achieved profit taking in a situation of widespread uncertainty. This decrease became worse practically in April, hitting the lowest performing sectors in terms of profit growth. At the same time the low level of market trading is a direct consequence of the passiveness of local institutional investors who hesitate to invest in actions due to the lack of any clear-cut trends normally injected by foreign investors. The latter appear to be rethinking their positions in the MENA region, after the outbreak of the Tunisian crisis. However, these are only conjectures and answers constitute nothing more than partial responses to the questions arising. We do not stop at this idea but we move on to an in-depth analysis of the general climate influencing investment decisions. In this light, a second series of questions is brought up: What was the general business climate like at the beginning of the year? Is the expected profit growth in 2011 going to lead to a market rebound? Is the Moroccan market fairly valued? If so, what stocks are likely to attract our attention? Firstly, the indicators for the first half of 2011 express a degree of optimism. Although having to contend with international trends, the domestic economic situation could still be described as positive. Our most recent forecasts predict sustained market growth profits of 8.9%. This growth is attributed largely to the flagship sectors along the same lines as in 2010 when gross corporate profit growth was 11.3%. We exclude the assumption that the Moroccan Equity market is over-priced. The predicted P/E 11e is of 18.5x compared to a theoretical P/E of 17.0x. Our conclusion comprises: 9 BUY recommendations vs. 5 SELL recommendations. The Morocco Stock Market in face of international trends

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4 Table of Contents Casablanca Stock Market facing the investors uncertainty...5 The downward trend of the activity has begun in January characterized by unusually low volumes... 6 in a doubtful and uncertain geopolitical context... 8 Despite this situation, 2011 appears to be a promising year...9 A positive domestic economic situation facing international trends... 9 and decent profit growth forecast for 2011, However, the return of confidence is a prerequisite for the recovery in line with 2010 performance Gross profit growth of 11.3% slightly above our forecasts, but still needs to be put into perspective Which investment opportunities to seize? A market fairly valued excluding the hypothesis that the Casablanca Stock Market is overpriced offering arbitration opportunities Our recommendations The Morocco Stock Market in face of international trends The Morocco Stock Market in face of international trends

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6 Casablanca Stock Market faces the investors uncertainty MASI et MADEX : -3.4% MASI : 10.2% MADEX : 10.5% 22/11/2010 : Quotation of CNIA Saada for a raised equity of MAD Mn 25/02/2011 : period of posting FY 2010 financial results MASI : -12.4% MADEX : -12.5% /11/10 22/11/10 29/11/10 06/12/10 13/12/10 20/12/10 27/12/10 06/01/11 14/01/11 21/01/11 27/01/11 31/01/11 07/02/11 14/02/11 01/11/10 08/11/10 21/02/11 28/02/11 07/03/11 14/03/11 21/03/11 28/03/11 04/04/11 11/04/11 18/04/11 25/04/11 03/05/11 10/05/11 The downward trend of the activity has begun in January /05/11 31/05/11 07/06/11 14/06/11 Source: Analysis & Research 95 10/01/2011 : period of FY 2010 financial results anticipations Since the beginning of the year, the Moroccan stock market has seen a negative balance sheet. The negative performance of 3.4% of the MASI occurred in conjunction with several events negatively impacting investor morale and any potential rebound in the stock market for the remainder of the year. When uncertainty occurs in the market, investor confidence is hit inevitably leading to nervousness and the desire to securitize profits due to the extreme loss aversion in times of uncertainty. However, in the previous year the stock market reported a commendable performance constituting a break with the successive drops registered in 2008 (-13.5%) and 2009 (-4.9%), in a descending trend allowing the MASI to end the year with a growth of 21.2%. After two years (2008 and 2009) of financial and economic crisis, stock market investors regained their confidence thanks to the ability of sectors in the domestic economy to grapple with multiple external shocks. Proof thereof is the fact that 2011 got off to a good start in the first weeks of January. The MASI registered a performance of 5.9% leading us to believe that the Casablanca Stock Market would continue its growth cycle further to the positive economic fundamentals economy, as well as gross market profit growth in 2010 registering a performance of 11.3%. However, one momentous event caused the trend to reserve on the MASI. The social crisis in Tunisia that turned into a political crisis provoking the overthrow of Ben Ali on January 14th and the contagious effect on other Arab countries, undoubtedly inspired hesitation about investing in the region. In this context, foreign investors significantly reduced their exposure on Arab markets eventually leading to frigidity on the part of domestic operators and institutional and private investors who did not hesitate to trigger profit taking. In this context, the positive anticipation of annual income of listed companies posting profit growth is estimated at 10.5% which made it impossible to curb the decrease in the MASI. Paradoxically, the reaction thereto was very mixed: the market did not react to the outcomes deemed to be positive and in their wake corrected the excessive rises observed in 2010 in the principal market capitalizations. In so doing they dropped for the first dime since 2011 breaking the 12,000 point threshold on 06 April. Concurrently, the publication of disappointing outcomes in certain sectors widened selling trend without any counterbalance to the good performance of the various market sectors. Indeed, the profit growth in the Telecoms sector, better than expected, as well as the highly improved income for mining attributable to soaring metals prices on the international scene, contributed to the substandard performance of the stock market at the beginning of the year. The Morocco Stock Market in face of international trends 5

7 characterized by unusually low volumes The volume trends over the first five months of this year show that the drop in the MASI occurred at low levels of volume comparison to the same period in the previous year. In the absence of significant to and fro movements, the sales trend triggered at the beginning of the year bears witness of to the liquidation by foreign investors of their exposure on regional market followed by private investors who built up their positions during the bullish period. This movement remains little significant given the low volume of stock market trading at the beginning of this year. Indeed, we note that the average daily volume of the central market over the first five months of the year was of MAD Mn, i.e. the lowest level observed over the six past years. This particularly applies to the stock market trading in the region of MAD Mn, primarily on the block market. Nervousness of local, foreign and institutional investors Observation of the volume breakdown per investor category shows the major contribution in Q1 of 2011 of Moroccan institutional investors (Private investors and Mutual Funds) concentrating 71.1% of market volume. These two players appear to be strengthening their positions for the three past years reporting more than 10 points over the same period. This factor is justified by the limited capacity of institutional investors to invest abroad (ceiling limit of assets invested abroad at 10.0%) and also by the lack of arbitration opportunities at the national level. In the first quarter of this year, foreign investors saw their market share fall by 1.5 points finally settling at 12.5%, due to disengagement in the MENA region. In the wake, local private investors, in a full-fledged follow-up, also saw their interventions fall by 7.5 points at 14.4% in Q1 of leading them to reduce exposure to the equity market In Q1 2011, the net trading balance (buy-sell) clearly shows the SELL trend initiated by investors as a whole, with the exception of mutual funds. Indeed, foreign investors registered a forthright trend to sell for a total amount of MAD Mn ; followed by Moroccan individuals and institutional investors, of MAD Mn and MAD Mn, respectively. Mutual Funds managed to limit this trend by posting a net BUY trend amounting to MAD 1,332.0 Mn. Dailly Average Volume per month (MAD Mn) 1, Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May DAV Central Market DAV Bloc Market Trend in volume from January to May (MAD Mn) 1, % 40% 35% 30% 25% 20% 15% 10% 5% 0% Jan-May 06 Jan-May 07 Jan-May 08 Jan-May 09 Jan-May 10 Jan-May 11 Central Market Bloc Market Global Market 39.1% 35.7% 35.4% 32.0% 32.5% 21.0% 1.2% 0.7% 0.7% LII-1 OPCVM FII-1 FII-2 LII-2 LII-1 : Local Institutional Investors FII-1 : Foreign Institutional Investors % 13.0% 11.8% Source: Analysis & Research Source: Analysis & Research Market share of stakeholders on the Casablanca Stock Exchange (Central Market) Q Q Q % 18.2% 14.4% FII-2 : Foreign Individual Investors LII-2 : Local Individual Investors Source: CDVM

8 The reduction of exposure by foreign investors appears to have a strong influence on share investment decisions by other stakeholders. Indeed, over the past few years it has been observed that foreign investors have been genuine trend makers in the sense that they injected dynamics which other shareholders were able to feed into. Triggering of a bullish trend by foreign investors impacts the global market as institutional and private investors prefer to buy in an upward cycle already initiated. Conversely, in a downward trend, they do not seek to create any trend and prefer stock-picking and buying at stable rates. This year, foreign investors appear to show lack of interest in the region as a whole given the prevailing geopolitical climate which explains the downward movement observed since the beginning of the year. Breakdown in volume in Q per investor category 6,000 5,000 4,844 4,365 4,053 4,000 3,512 3,000 1,881 2,000 1,604 1,332 1,504 1,169 1, , ,000 LII-1 OPCVM FII-1 LII-2 FII-2 Buy Sell Net Source: CDVM The Morocco Stock Market in face of international trends

9 in a doubtful and uncertain geopolitical context The Casablanca stock exchange appears to induce uncertainty. The quality of incomes posted by listed enterprises did not enable any slackening of investor fears about the geopolitical situation in the region. This feeling of nervousness applies to all MENA countries. All the Arab stock exchanges, except for Saudi Arabia, registered a significant drop in their indexes ranging from 3,0% in Abu Dhabi and 22.7% in Egypt. In the last week of January, Arab stock markets lost more than 40 billion dollars. The uncertainty hitting the markets led primarily by foreign investors to no longer differentiate between the countries concerned by reform movements and those who are not. The markets no longer appear to have support from macro economics. As evidence of this, the stock exchanges of the Gulf Cooperation Council (GCC) posted counter performances even though they benefited from higher oil prices showing the highest growth rates in the region along with budgetary surpluses. Trend in principal indices in the MENA region MENA region Index April May Monthly Performance Annual Performance Arabie Saoudite Tadawul All Share Index 6,711 6, % 1.7% Abu Dhabi ADX Index 2,696 2, % -3.0% Qatar QE 20 Index 8,548 8, % -3.5% Maroc MASI Index 11, , % -3.6% Bahrain Bahrain All Share Index 1,405 1, % -6.0% Koweit KSE Index % -8.4% Liban Beirut SE Index 1, , % -8.5% Jordanie ASE 2, , % -9.0% Oman MSM 30 Index 6,336 6, % -11.1% Tunisie Tunisia Index 4, , % -19.4% Egypte EGX 30 5, , % -22.7% Source: Bloomberg However, the winds of optimism seem to be blowing over these countries stock markets over the past two months. Indeed, the reasons behind uncertainty appear to be receding as the GCC stock markets are returning to their former state by gaining 20 billion dollars in SM capitalizations in April along with the improvement in volume and a general anticipation of a rebound. Neighboring stock exchanges are also witnessing an improvement in stock marking trading, particularly in Egypt considered by foreigner as a compass for SM investment in the MENA region. On the other hand, In Morocco the Casablanca stock exchange has been losing pace. Since January, the volume has be falling. However, 2011 appears to be a promising year. Indeed, the economic situation for the first four months of the year is positive and our profits growth predication for listed companies is satisfactory. There is still one significant factor that can help regain the activity on the Casablanca stock exchange, that is the return of CONFIDENCE a sine qua condition. Trend in volume in MENA region countries (million $) CCG stock exchange January February March April May Bahrain Bourse Muscat Securities Market Abu Dhabi Exchange Qatar Exchange 2,923 2,491 2,751 1,559 2,264 Kuwait Stock Exchange 3,018 1,638 2,523 2,308 2,568 Saudi Stock Exchange 22,349 18,031 29,024 33,715 29,896 Total GCC equity markets 30,233 23,847 36,836 39,402 37,300 MENA (exclu. CCG) January February March April May Tunisia Stock Exchange Beirut Stock Exchange Casablanca SE Amman Stock Exchange Egypt Stock Exchange 1, ,816 3,354 Source: Bloomberg 8

10 Despite this situation, 2011 appears to be a promising year It is certain that the unstable geopolitical climate in which the Moroccan economy is engulfed either directly (strikes, demonstrations, etc.) or indirectly (rise in oil prices, hesitant investors and foreign tourists, etc.) will finally dampen the growth potential of a part of the economy. For the time being, there is no reason to fear the worst which at best could be a sharp decline in growth, or at worst a mild recession. A few sectors like tourism and transportation will experience a difficult year but the remainder of the economy, in principle, continues to develop along almost normal lines. Relevant cases are cement sales which have grown by more than 11.0%, automobile sales which constitute a good indicator of household consumption are currently up by nearly 10.0%, as well as the growth in bank loans which is hovering between 6.0 and 7.0% T T A still positive business climate 50 T T T T T T T T T T T A positive domestic economic situation, facing international trends At the beginning of 2011, upon analyzing the Moroccan macroeconomic context and consulting the principal indicators, the general impression is one of a globally positive overall situation. This is firstly reflected by the great majority of posted indicators developed by Bank Al Maghrib. Indeed, we note a net improvement in the orders index in April posting positive figures for the sixth month in a row. We also take note of the satisfactory level in the use of output capacities by more than 70.0% since March What is more important to be pointed out is the positive business environment which, despite a clear-cut deceleration in the first quarter of 2011, managed to stay in positive territory for the sixth consecutive quarter. Positive signals have also been registered for export performance reported by the sectors suffering most from the international financial crisis. At the end of April, and according to the data published by the foreign exchange office, the export of electronic components grew by 17.0%, electrical wiring and cables by 43.0%, and textile exports were also up, growing by 15.0% for ready-to-wear apparel and 11.0% for hosiery items. Nonetheless, this context of reasonable growth is now being affected by a hostile environment. These external risks are the product of two main sources, i.e. the high volatility of metals and raw materials abroad and an unstable geopolitical climate backed by full up order books and rising exports % 100% 1-apr-07 1-jun-07 1-aug-07 1-oct-07 1-dec-07 1-feb-08 1-apr-08 1-feb-07 50% 12% 0-8% -17% -50% -100% Global orders index 135% 1-apr-09 1-jun-09 1-aug-09 1-oct-09 1-dec-09 1-feb-10 1-apr-10 1-jun-08 1-aug-08 1-oct-08 1-dec-08 1-feb-09 6 months average and good export performance 1-jun-10 1-aug-10 1-oct-10 1-dec-10 1-feb-11 1-apr-11 53% 63% 29% 18% 18% 48% 27% 23% 3% 14% -13% -4% 6% -10% -42% -19% -56% Electrical components Electrical Wires & cables Textile Source: BAM, Moroccan Exchange Office The Morocco Stock Market in face of international trends 9

11 A strong volatility in metals and raw materials prices Soaring raw materials prices abroad will have a considerable effect increasing growth in Morocco s imports. In the first quarter of 2011 with sugar imports moving ahead by 64.0%, raised by 52.4% and wheat imports ballooned more than twice increasing from 1.4 to MAD 4.5 Bn. At the same time, the import of unrefined vegetable oils grew by 52.4%, and plastics by 231%. Alternatively, in 2010 the price of a barrel of oil was up by 27.9% reaching 94.0 Dollars at the end of last year due to sharply accentuated growth in demand and expected instability in supply. Oil prices will continue to rise in 2011cloating around $100 to a backdrop of notable geopolitical tensions in North Africa, the Middle East and Sub-Saharan Africa. Prices are therefore expected to remain at exceptionally high levels. It is true that the aforementioned products are all subject to compensation. The impact thereof will inevitably affect the government budget. For the remainder the impact on output prices will be unquestionable. Industrialists will be faced with the choice either of reflecting the said rise on the selling prices of their products, necessarily leading to higher inflation levels, or to refrain from applying these hikes at the risk of contraction in profit margins This, in fact is what occurred in the second half of The mining sector is expected to benefit from higher metals prices abroad. For example, the price of Gold moved briskly ahead since the onset of the financial crisis, reaching record levels in 2010 at 1,420.0 dollars per ounce. This bullish trend is explainable by the depreciation of the dollar along with high demand from emerging countries, China and India in particular. In this climate mining raw materials moved along the same lines in May, i.e.: +14.3% for phosphate rock, +47% for Copper, % for Aluminum and +38% for Silver. An unstable geopolitical climate The MENA region and Sub-Saharan Africa since the beginning of the year have undergone a highly unstable geopolitical environment stimulating the confidence of investors and Western tourists. The effect of contagion will undoubtedly affect the Moroccan economy over time at undetermined degrees. Currently, even if the situation of tourism receipts remains satisfactory growing by 7% in the first quarter, the majority of sector professionals fear a mediocre summer season. Along with remittances from Moroccan expatriates, tourist receipts constitute a cushion softening the effect of the trade deficit on the balance of payments. In 2010 the current balance of payments account showed a deficit of MAD 33.0 billion. This year it is expected to widen. Unless something unexpected occurs, operations on the balance of payments capital account (FDI and Loans) would not contribute enough hard currency to compensate for this deficit. A share of the Morocco s foreign exchange reserves would necessarily be affected. Soaring raw materials and, 120% 111% 100% 87% 80% 63% 60% 46% 49% 40% 28% 27% 19% 20% 7% 15% 0-20% -17% -3% -40% -33% -35% -60% ,800 2,300 1,800 1, Hydrocarbons Agri-food metals prices 2,532 2,387 2,572 2,185 2,173 2,161 1,664 1,656 1,724 1,479 1, Aluminium Zinc Plomb Gold Average 2009 Average 2010 Average 2010 A deepening deficit Balance of payments 50,000 40,000 30,000 20,000 10, ,000-20,000-30,000-40,000-50, e Current account Global output Source: BAM, Bloomberg 10

12 and decent profit growth forecasts in 2011 Based on conservative assumptions in 2011, the estimated profit growth should settle at about MAD 33.2 Mn, 8.9% higher compared to By integrating the shortfalls, it could reach 10.6% because of the return of SONASID to a positive income estimated to be around MAD Mn and also the narrowing deficits of financing institutions. A growth profit of 8.9%, resulting from the market flagship sectors A more in-depth analysis of these figures is necessary to identify the sectors contributing significantly to market profit growth. Indeed, apart from the entities that incur a loss, once again it is the real estate, banking and mining sectors which are expected to report significant growth contributing to more than 80.0% of the overall performance. Real estate or the years of deliveries: the leading contributor to profit growth in 2011e with a share of 29.3%, this sector should post a NIGS 11e of MAD 3.4 Bn, up by 36.9% compared to This growth is basically attributable to Addoha and Alliances contributing 54.3% and 26.4%, respectively. Indeed, in spite of the difficulties encountered in a few segments of its activity, in 2011 Alliances expects to report high income growth compared to 2010, i.e %. Thanks to diversification in its business lines, via positioning on the low-cost segment, and the creation of a construction component through the acquisition of new companies EMT and Somadiaz. This real estate developer in 2011e is expected to make up for the profit losses registered in other segments of the Group. Addoha is expected to post a NIGS 11e of MAD 2.2 Bn, up by 29.7% due to the volume effect registered in the low-cost and social sector and to a lesser degree in the continuation of deliveries of upscale housing units with high added value. Banks: the second ranking contributor to profit growth in 2011e with a market share of 19.5%, this sector is expected to register a performance of 7.6% reaching MAD 8.7 Bn. This prediction takes into consideration the decreasing trend of deposits and customer loans, a higher cost of risk and also a lower contribution by subsidiaries abroad. This will affect the most highly exposed banks due to the regional economic situation. However, high domestic demand, the positive lever of bank penetration, as well as improved command over the operating expenses of the main banking groups, in our opinion, justifies our profit growth predictions for this sector. Representing 72.2% of the NIGS 11e of listed banks, Attijariwafa bank and the BCP group should register growth rates of 7.1% and 6.1%, at MAD 4.4 Bn and MAD 1.9 Bn, respectively. Both groups are expected to benefit from the volume effect registered for customer loans, and boosted by the evergrowing expansion of their respective banking networks. Mines: with a contribution of 19.2%, the mining sector is the third ranking contributor to the global profit growth on the market. This sector is expected to post high profit growth at 85.0%. For this purpose the NIGS, according to our predictions, should rise from MAD Mn to MAD 1,314.5 Mn from 2010 to Mining operator Managem is behind this performance. Indeed, in 2011 the group should benefit from two principal positive factors: * the drop in the level of coverage for Silver falling from 73.0% to 65.5% in This situation should allow Managem to sell an additional amount of 13.0 tons of Silver at a highly attractive average price of $30.0/ounce, * the positive volume effect for Gold of about Kg further to the start up of production in Q of the Bakoudou project in Gabon. Recall that the average selling price of Gold, according to our estimates is around $1,400.0/ounce. The Morocco Stock Market in face of international trends Profit growth in 2011e that we estimate to be of 8.9% +10.6% +8.9% Market Market excluding losses e..boosted by the real estate, Banking and Mining sectors -3.1% Agro-alimentaire -2.3% Automobile -0.1% Tourism Transport 0.1% Pharmaceuticals 0.2% Distribution 0.3% Utilities 0.3% Chemistry 0.4% NTI 0.6% Others 2.0% Energy 2.3% Insurance 3.4% finance companies 4.6% Telecommunications 5.2% Cement works 5.6% Building and public works 12.5% Mines 19.2% Banks 19.5% Real Estate 29.3% -5% 0 5% 10% 15% 20% 25% 30% 35% contributing by 68.0% to the variation in the 2011e NIGS of the market In MAD Mn e Var. Var. Weigth NIGS (MAD Mn) 11e global Real Estate 2, , % % Banks 8, , % % Mines , % % Building and public works % % Cement works 3, , % % Telecommunications 9, , % % Finance companies % % Insurances 1, , % % Energy 1, , % % Others % % NTI % % Chemistry % % Utilities % % Distribution % % Pharmaceutical % % Transport % % Tourism % % Automotive % % Agri-business 1, , % % Source: Analysis & Research 11

13 However, the return of confidence is a prerequisite for the recovery If we were to summarize in a word the market context as it currently stands, only one term would apply without any hesitation: UNCERTAINTY. In all its forms and configurations, the inaction of investors has predominated across the market for four months. Today, it is our conviction that investor risk aversion is clearly highly sensitive to the geopolitical factor than microeconomic factors such as profit growth and sectorial indicators. To justify this vision, bear in mind that with regard to volume and performance, the market remains indifferent to the profit growth of listed companies at 11.3% published in March At this level one legitimate question arises: «ls the quality of the quarterly outcomes in 2011, a factor that could relieve the atmosphere of uncertainty running through the market?». Unfortunately we have to respond by an explicit No. In our opinion the 2011e quarterly outcomes will not dampen the climate of uncertainty but, however, could at least mitigate the worst market trends. Indeed, well beyond the figures and economic outlook expressed by analysts, investors are waiting for responses on other topics that have priority status in their opinion. To speak clearly, this refers to the potential political issues existing in the region s countries. This lack of visibility on the geopolitical front, according to us, remains a factor that feeds the UNCERTAINTY felt on the stock market. Finally, our opinion is that the alleviation of the geopolitical tensions the region is currently experiencing constitutes the principal factor that could lead to a comeback of trust on the Stock Exchange. This scenario would come to pass only progressively as in the future it would require the compounding of several positive qualitative and quantitative indicators. 12

14 in line with 2010 performance In 2010, our division advocated the assumption of strong profit growth and change in the structure of the global profits. Indeed, in our last study entitled Mid-term Report we stated that the half yearly income of the past year gave evidence to a comeback of listed companies. Operating in a more positive macroeconomic context, the market showed sustained growth in turnover and operating income at 12.6% and 10.1%, respectively. With regard to profit growth, we justified the modest growth of 2.0% by the over weighting of Maroc Telecom on the global market (1/3 of consolidated market growth) making it difficult to validly assess the general trend taken by the totality of listed enterprises. The transition of this operator from a growth to a maturity phase, in our opinion, was going to significantly impact the general market trend over the coming years leaving room to other sectors such as banks and real estate. 35% 30% 25% 20% 15% 10% 5% 0% -5% Gross growth of 11.3% 32.1% 15.8% 11.3% -3.1% In the second half of 2010, the market operated in a favourable economic climate marked by improvement in GDP growth, the recovery of external demand components and a less severe liquidity deficit. In this context, how did market growth perform and what sectors gained from the good behaviour of their activities? Gross profit growth of 11.3%... In 2010 listed companies reported gross growth of MAD 30.1 Bn, 11.3% higher compared to However, if restated with loss making entities, this performance comes to 9.9% compared to a market profit growth of +4.9% in This positive performance from one year to another is attributable to the rising income of several flagship sectors, primarily banks, telecoms, real estate, energy and mines. The sectors of activity directly impacted by soaring raw materials prices, such as cement works, building and public works and agro-industries are severely affected by their operational indicators. pushed by the flagship market sectors Var Weight Energy , % 3.5% Mines % 2.4% Real Estate 1, , % 8.3% Insurance 1, , % 4.4% Banks 6, , % 26.9% Telecommunications 9, , % 31.7% Cement works 3, , % 10.6% Agri-business 1, , % 5.9% Distribution % 0.2% Finance companies % 1.1% Building and public works % 1.2% registering a normative growth of 9.9% % Gross Market +9.3% +9.9% Market excluding losses Comparable basis Source: Analysis & Research The Morocco Stock Market in face of international trends 13

15 FY 2010 was marked by the positive growth of the activity level and the operating income of the principal sectors representing the Moroccan economy, primarily energy, banks, telecoms and real estate which represent more than 53.8% of the global market turnover. In a more favorable economic situation, these sectors managed to improve their profits by taking advantage of the volume and price effect. Indeed, the energy sector, represented by Samir*, benefits from the price effect of the raw materials prices and inventory variation of stocks. The banking, telecoms and real estate sector continue to benefit from structurally sustained demand. From an operational standpoint, these sectors managed to conserve the rise in their operational income demonstrating their capacity to control the evolution of their operating expenses and to optimize their productivity ratios. Trend in turnover and operating income of the principal market sectors Var. 08/09 Var. 09/10 Weight Var. 08/09 Var. 09/10 Weight Revenues global R EBIT global EBIT Energy 29, , % 36.3% 19.6% Banks 14, , % 9.8% 31.8% Banks 34, , % 11.8% 18.8% Telecommunications 14, , % 2.3% 29.0% Telecommunications 30, , % 4.3% 15.4% Cement works 5, , % -8.6% 9.8% Agri-business 19, , % 1.9% 9.8% Real Estate 2, , % 27.8% 7.2% Cement works 12, , % -0.4% 6.1% Agri-business 3, , % -1.2% 6.0% Real Estate 10, , % 17.7% 6.0% Insurances 1, , % 35.2% 3.9% Insurances 9, , % 4.5% 4.9% Energy , % 335.0% 3.8% Building and public works 9, , % -11.3% 4.0% Mines ,086.2 ns 150.8% 2.2% Utilities 5, , % 6.1% 2.8% Finance companies % -12.8% 1.4% Distribution 1, , % 166.2% 2.4% Utilities % -9.3% 0.9% Automotive 4, , % -4.9% 2.0% Automotive % -6.9% 0.9% Mines 3, , % 31.9% 2.0% Pharmaceutical % 19.7% 0.4% Market 182, , % 12.4% 100.0% Market 45, , % 9.0% 100.0% Source: Analysis & Research Banks, real estate, energy and mines caused market growth Banks, energy, mines and real estate are the sectors that contributed most to the growth of both the operating income and the net result of the market. The banking sector continued to take advantage of first the development dynamics of the local credit activity and also from the expansion of the consolidation scope of the major banks in Morocco as well as abroad. On the other hand, the real estate sector take advantage from the Contribution to growth in global EBIT volume effect of the low-cost and medium scale segments and also profit from the comfortable margins at the level of luxury segment in order to improve its revenues. Finally, the energy and mines sector contribute up to 51.7% to the EBIT growth taking advantage of soaring metals prices, favorable MAD/USD parity, and to a lesser extend the improvement in production volumes. Contribution to global NIGS -11.2% Building and public works -14.4% Building and public works -11.1% Cement works -9.5% Cement works -2.6% Sociétés de financement -7.1% Sociétés de financement -1.2% Others -5.8% Agro-alimentaire -1.1% Utilities -0.8% Distribution -0.9% Agri-food Chemistry 0.1% -0.8% Automobile Automobile 0.2% -0.3% Transport Transport 0.3% -0.3% Chemistry Pharmaceuticals 0.7% Distribution 0.1% NTI 0.7% NTI 0.6% Utilities 1.2% Pharmaceuticals 0.9% Telecommunications 3.6% Tourism 2.6% Others 3.7% Telecommunications 8.0% Tourism 5.2% Insurance 12.2% Insurance 8.1% Mines 16.0% Mines 10.3% Real Estate 19.0% Real Estate 26.9% Banks 34.3% Energy 30.2% Energy 35.7% Banks 64.5% -20% -10% 0 10% 20% 30% 40% Source: Analysis & Research 14

16 slowed down by the sectors affected by the rise of input cost and/or the decline of the demand Although the majority of the sectors managed to straighten their financial situation this year, some saw their operating indicators deteriorate due to the negative impact of the rise of the inputs cost. This rise is caused by the soaring of raw materials prices abroad, by the decline of the productivity and/or by the falling demand of the sales. In the Food-processing industry, Lesieur, Cosumar and Centrale Laitière were impacted by the rise in the cost of raw materials abroad as for soy seeds, raw sugar and powdered milk. Furthermore, Lesieur suffered from the fall in demand for table oil which significantly impacted its turnover downwards. Also Lesieur and Centrale Laitière saw their operating margins decline in spite of their efforts to compensate their loss on other posts. At the level of breweries, SBM saw its activity volume decline due to the fall of demand and to the increase of the internal consumption tax (TIC). The cement sector was heavily affected by the rise of the fuel prices and the drop in cement demand in certain regions. Despite the investment effort deployed by the principal actors, the sector s operating margin reached 38.4%, i.e. down by 3.5 points. Finally, the construction sector, represented mainly by SONASID suffered from intense competition on prices of finished products, the decline in consumption and also from the rise of scrap metal s prices. Among the sectors that suffered the most from the deterioration in their specific environments in 2010, we point out the automotive and financing institution sectors which saw their operating incomes decline by 6.9% and 12.9%, respectively The automotive sector saw its sales volume drop by 3% for particular cars and by 17% for industrial vehicles. The reasons behind this decline are mainly the weak demand and the tight conditions imposed by financing institutions for granting loans due to high level of NPIS. At the same time, the investment plan initiated by Auto-Hall to enlarge its distribution network increased operating expenses which caused a drop in the operating margin by 20 bps to reach 10.4%; The financing institution sector saw its production fall sharply in 2010 in line with the prudent strategy adopted by the institutions, especially in terms of consumers loan in a period of high unpaid debts. At the same time, the increase in the cost-income ratio as well as the provisioning effort occurring due to more risks impacted negatively this sector that registered a fall of 7.3 points to attain 42.3%. The trend in principal sectors contributing negatively to market growth In MAD Mn Var. Contribution to global In MAD Mn Var. Contribution to globa EBIT EBIT Var. NIGS NIGS Var. Building and public works 1, % -11.2% Building and public works % -14.4% Cement works 5, , % -11.1% Cement works 3, , % -9.5% Finance companies % -2.6% Finance companies % -7.1% Utilities % -1.1% Agri-business 1, , % -5.8% Agri-business 3, , % -0.9% Distribution % -0.8% Automotive % -0.8% Market 45, , % Market 27, , % Source: Analysis & Research The Morocco Stock Market in face of international trends 15

17 slightly above our forecasts The profit growth reported by the market apart from entities posting a deficit in 2010 reached MAD 30.4 Bn. The MAD 1.1 Bn gap is primarily attributable to the Insurance, Banks and Real Estate sectors. Their incomes turned out to clearly surpass our forecasts. The stock market listing of CNIA Saada, as well as the improvement in income of Wafa Assurance and Atlanta explains the gap seen in the Insurance sector. In the banking sector the merger-absorption of BPC by Banque Centrale Populaire was behind the difference in NIGS in this sector. Also, the gap seen between real estate companies is attributable to first the drop in the financial expenses of Addoha as a result of the recent capital increase. 16% 14% 12% 10% 8% 6% 4% 2% 0% Profit growth estimated at 10.5% 13.4% 10.5% Estimated NIGS* 2010 Real NIGS* 2010 * NIGS Excluding loss making entities With regard to negative gaps, we over estimated the profit growth in the cement, building and public works and finance companies of MAD Mn, MAD Mn and MAD Mn, respectively. The stagnation and even reduction in cement sales; in addition to the rise of fuel prices negatively impact cement manufacturers, mainly Ciments du Maroc and Lafarge. As for the building and public works sector the gap is basically explained by the negative net income of Sonasid that reached a deficit of MAD 8.8 Mn. Declining steel consumption in a context of slackening building activity as well as the rise in the cost of inputs negatively impacted corporate incomes. The finance companies suffered from the rise of the risk cost due to an unfavorable economic situation marked by high number of unpaid debts primarily in consumer loans and declining automobile sales. At the time of publication of the «Mid-term report» last November we expressed our fundamental impressions about the principal sectors listed on the Casablanca Stock Exchange. At the same time we put our estimates for the activity trends of these entities in The profit growth posted by these sectors reassures us about the exactitude and correctness of our choices. Indeed, we pointed out that the food-processing industry, cement works and building and civil engineering sectors will see their activity declining due to a less favorable economic climate. On the other hand, we also pointed out that the bank, real estate, energy and mining sectors will see significant improvement in their activity indicators. posting a positive gap of 1.1 Bn MAD Sector Estimated NIGS* Real NIGS* Gap 2010 (MAD Mn) 2010 (MAD Mn) MAD Mn Banks 7, , Real Estate 2, , Mines Energy - 1, Agri-business 1, , Telecommunications 9, , Cement works 3, , Insurance , Building and public works Finance companies Automotive Distribution Market 29, , ,149.2 * NIGS Excluding loss making entities in line with our estimates expressed in the «Mid-term Report» Sectors "Mid-term report" NIGS appreciation growth Telecommunications + 1.2% Agri-business % Banks % Insurance % Real Estate % Cement works 0-8.3% Building and public works % Energy % Mines % Appreciation scale : ++, +, 0, -, - - Source: Analysis & Research 16

18 but still needs to be put into perspective Upon analyzing gross profit growth reported in 2010 by all market sectors, it can be observed that the growth is differentiated between them and is primarily the result of: Sectors reporting negative growth (Group A): This refers to sector registering a drop in activity in a context of an unfavorable economic situation marked by a drop in demand and/or rise in input costs. These sectors constitute 20.5% of stock market capitalization. Sectors reporting moderate growth (Group B): in 2010 three sectors registered moderate growth between 1.2% and 3.5%, contributing 25.3% of global market capitalization. The telecoms sector which is the principal contributor saw its net income grow by 1.2%, under the effect of aggressive competition and drop in the operating margin by 90 basis points. Sectors registering renewed growth (Group C): these sectors, representing 46.5% of market capitalization in 2010 saw their net income rise sharply from 21.3% for banks to 48.9% for real estate. In 2010, banks registered sharp growth due to the growth rates of BMCE bank whose income was up from MAD Mn to MAD Mn. Furthermore, BCP saw its NIGS rise from MAD 1.0 Bn to MAD 1.8 Bn under the effect of the extension of the bank network. On a proforma basis, the sector registered a growth of 20.5%. For its part, the real estate sector registered growth of 48.9% principally due to Addoha which recover from the weaker income of MAD Mn reported in 2009 as a result to the sale at a loss of two hotels at the SAIDIA station. Sector registering exceptional growth (Group D): the energy and mining sectors representing 5.3% of global capitalization saw their profit growth rise by 79.1% and 64.5%, respectively. The mining sector, mainly Managem, was able to take advantage of exceptionally soaring metals prices abroad and the drop of coverage. The energy sector, primarily represented by Samir, saw its NIGS multiplied by six due to the revaluation of inventories leading to a rise of MAD 1.4 Bn coupled with the price effect linked to the rise of the oil barrel by 27.3% during Group A P/E Distribution 40 Group C 35 Group B Building and public works Finance companies Agri-food Cement works Pharmaceutical Banques Automobiles Assurances Telecommunications Chemistry NTI Utilities Real Estate Mines Energy Transport 5 Groupe D -60.0% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% >50% Gross profit growth in 2010 Source: Analysis & Research The Morocco Stock Market in face of international trends 17

19 Which investment opportunities to seize? A market fairly valued Market P/E 10e vs. Target P/E 10e (June 2010) According to our DCF valuation of the Moroccan equity market, the target P/E 11e, which is calculated on the basis of the target prices of our stock universe, stood at 17.0x % 16.9 The DCF method applied to the companies of our stock universe is based on a discounted rate calculated on the basis of a risk premium of 7.5%, a risk free rate of 4.1%, a statistical beta for each listed stock and infinite growth rate varying within an interval of 0.0% to 3.0%. If we don t take into account BMCE and CGI stocks which push the market P/E up, with respectively a P/E11e of 40.0x and 45.4x, the stock market become attractive with an average P/E 11e of 15.6x vs. a target P/E 11e of 16.6x. excluding the hypothesis that the Casablanca Stock Market is overpriced For several years, we have observed a structural premium of the Moroccan stock market compared to the emerging markets. In our last report entitled «Investment Strategy », we justified this premium by the significance of local investors who, with limited investment capacities abroad, consider the Moroccan stock market as an indispensable investment vehicle. This situation supports structurally the high valuation levels of the equity market. Market P/E 10e Target P/E 10e Market P/E 11e vs. target P/E (June 2011) % 17.0 Market P/E 11e Target P/E 11e A P/E 2011 of 18.5x x 20.3x 15.9x 24.5x 18.5x e relatively high compared to other countries in the MENA region, Morocco Saudi Arabia Egypt Tunisia South Africa Qatar UAE Libanon Source: Analysis & Research, Bloomberg 18

20 Three main arguments support our hypothesis: A defensive market We note that the Moroccan stock market has a low systemic risk, reacting slightly to trends in international markets, either upward or downward. Also, the volatility of the Emerging stock market indexes is higher than that of Morocco. In these conditions, the relatively high valuation levels, compared to emerging countries, can be justified by the intrinsic quality of Morocco as a defensive market. A high financial profitability The Casablanca stock market is one of the most attractive in the MENA region in terms of financial profitability. This refers to a ROE 11e of 25.7% vs. an average of 18.7% for the countries of the region. Indeed, over the period , the average ROE of the Moroccan market stood at 26.0% vs. an average of 23.5% for the MENA region. This performance can be explained fundamentally by the structurally high levels of operating margins of the principal listed sectors such as telecommunications (45.3%), cement works (38.4%), real estate (28.7%) and banks (40.7%). Also, the listed companies use more and more debt, which improves technically their ROE. A market P/E driven by two large capitalizations We note that there are three shares which pull up to the P/E 11e. They represent 13.7% of the global market capitalization but only 5.9% of the average daily volume in Therefore, most listed companies, i.e. 85.0% of the global market capitalization, post a P/E 11e of 15.6x, in line with the one of the emerging countries (15.0x). In our opinion, the correction of BMCE and CGI stocks, respectively by -18.5% and -14.1% since the beginning of 2010 is salutary since they post valuation levels disconnected to those of their sectors. Indeed, the BMCE posts a P/E 11e of 40.0x vs. 21.9x for the sector. For its part, CGI posts a P/E 11e of 45.4x vs. 26.3x for listed real estate companies. Volatility of the MASI index over a period of 90 days 12% MASI MSCI AM MSCI EM 10% 8% 6% 4% 2% 0% 31/12/07 31/03/08 30/06/08 30/09/08 31/12/08 31/03/09 30/06/09 30/09/09 D/Y 11e vs. P/E 11e ROE 11e vs. P/E 11e 31/12/09 31/03/10 30/06/10 30/09/10 6% 5% Libanon 4% Qatar UAE Morocco 3% Saudi Arabia 2% South Africa Egypt Tunisia 1% 0% % 25% Morocco Libanon Qatar South Africa 20% Egypt 15% Saudi Arabia UAE Tunisia 10% 5% 0% % of capitalization shows a P/E 11e of 15.6x CGI BMCE UNIMER Source: Analysis & Research, Bloomberg The Morocco Stock Market in face of international trends 19

21 offering arbitration possibilities Based on the target prices of the stocks which have been analyzed individually, and which represent 91.3% of the global market capitalization: 9 stocks are to BUY, 9 to HOLD and 5 to SELL. Our target portfolio, which represents 54.9% of the global market capitalization, includes 9 stocks to BUY with attractive valuation levels, i.e. an average P/E of 15.1x and D/Y of 4.4%. The stocks to HOLD remain as a core portfolio investment with regard to their structural dividend yields. For stocks which bring the market valuation upwards and which we believe to be over-valuated in comparison to their fundamentals, we can mention: Auto-Hall, Label Vie, CIH, and particularly BMCE and CGI which represent 13.4% of the global market capitalization. We believe that a correction is necessary concerning these stocks in order to bring them to reasonable price levels. Summary of our recommendations Market Price P/E 11e D/Y 11e Target Recommendation Potential capitalisation 17/06/2011 price DELTA HOLDING 3,832, % 110 Buy 26% SBM 5,314,203 1, % 2,475 Buy 32% LAFARGE 31,444,403 1, % 2,100 Buy 17% CIMAR 14,941,264 1, % 1,320 Buy 28% EQDOM 2,615,612 1, % 1,864 Buy 19% COSUMAR 7,669,634 1, % 2,041 Buy 12% IAM 127,029, % 160 Buy 11% ALLIANCES 8,058, % Buy 10% HOLCIM 10,314,500 2, % 2,700 Buy 10% To Buy stock % AFRIQUIA GAZ 5,826,563 1, % 1,842.3 Hold 9% BMCI 12,362, % 1,006 Hold 8% LYDEC 2,793, % 369 Hold 6% LESIEUR 3,108, % 116 Hold 3% BCP 26,962, % 416 Hold 2% CNIA Saada 4,841,444 1, % 1,162 Hold -1% CDM 7,017, % 805 Hold -1% Centrale Laitière 12,594,540 1, % 1,243 Hold -7% SAMIR 7,568, % Hold -9% To HOLD stock % AUTO-HALL 4,295, % 81 Sell -11% LABEL VIE 2,687,050 1, % 999 Sell -15% CIH 6,842, % 220 Sell -27% To SELL stock % MANAGEM 7,631, % Report under process - CMT 2,583,900 1, % Report under process - IMITER 4,736,214 2, % Report under process - ADDOHA 30,807, % Report under process - Report under process % ATW 72,576, % No recommendation - Wafa Assurance 10,185,000 2, % No recommendation - Stock with capitalization partnership % BMCE 36,972, % - Neutral CGI 25,771,200 1, % - Neutral Neutral % Source: Analysis & Research 20

22 Our universe of recommendations Real Estate Banks Mines Cement works Telecommunications Insurance Building and public works Energy Consumer loans Distribution Automotive Agri-business Utilities The Morocco Stock Market in face of international trends 21

23

24 Real Estate The Morocco Stock Market in face of international trends 23

25

26 Addoha Our recommendation : Report under process Sector : Real Estate 17 june 2011 ADH MAD USD Price Market capitalisation (million) 30,807 3,899.6 Average daily volume 2011 (million) Float 35.0% 35.0% Bloomberg Reuters Code ADH MC ADH.CS ADH MASI 2010 performance 2.4% 21.2% 2011 performance -6.0% -7.1% e EPS P/E NAPS P/B DPS D/Y 2.0% 2.0% ROE 17.4% 18.4% Stock price evolution since 01/01/2010 (100 basis) ADH dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 6, , % 9,302.4 Operating Income 1, , % 3,425.3 Operating Margin 25.8% 30.8% 5.0 pts 36.8% Net Income Group Share 878 1, % 2,187.1 Net margin 14.6% 22.2% 7.6 pts 23.5% Dividend per share (MAD) % parent company figures In MAD Mn Evolution Turnover 3, , % Operating Income , % Operating Margin 24.1% 30.9% +6.8 pts Net income , % Net margin 24.1% 22.5% -1.6 pts The Addoha Group honors its commitments and restores confidence By reaching a turnover of MAD 7.6 Bn in 2010, the real estate developer Addoha exceeds its business plan project (MAD 7.2 Bn), as well as our forecasts (MAD 7.1 Bn). Addoha successfully managed its re-conversion to social housing given that its high performance is principally attributable to the social and intermediate segments. In 2010, sales in the intermediate segment rose by 21.3% to MAD 5.9 Bn representing 78.7% of the Group s revenues. This situation is confirmed by the number of housing units sold. The social and intermediate segments occupy a predominant position with 94.8% of the units sold (21,197 units), far in front of the high end segment where sales totalled only 1,152 units. These basically concern principal residences partially escaping the sluggishness of the high end segment. Indeed, they have quadrupled to reach a turnover of MAD 1.2 Bn against MAD Mn a year earlier. The quality of Addoha s earnings is reflected more greatly at the level of the operating income. The operating income recovered substantially last year settling at MAD 2.3 Bn, rising by 50.3%. This growth is basically explainable by two factors; An unfavorable base in 2009: Recall that last year, the Fadesa Maroc Group sold two hotels at a loss thereby generating a substantial drop in income. The operating margin of the Addoha Group rose from 25.8% in 2009 to 30.8% in This improvement in the operating margin was due to the growing contribution of the GFM subsidiary (Fadesa Maroc), whose operating margin rose from 2.0% to 18.0%. Reprocessing the sale of the third Hôtel at Saidia sold at a loss in 2010, the operating margin of GFM stood at 25.0%; Improvement of the product mix: This sharp rise in the high end sector, a major generator of margins (40.0%) in the global turnover with a contribution which moved from 18.2% in 2009 to 22.0% in Indeed, in 2010 the Addoha Group delivered 1,152 high end units (Ryad Al Andalous, Argane Golf Resort, Fez City Center, Al Cudia, Atlas Golf Resort and Saidia). The Morocco Stock Market in face of international trends 25

27 Addoha Our recommendation : Report under process Sector : Real Estate 17 june 2011 A capital increase which reduces the financial stress of the real estate developer The net indebtedness of the Addoha Group returned to normative levels. Further to the capital increase of MAD 3.0 Bn, the gearing level of this real estate developer stood at 68.1% vs.152.1% in the previous year. This situation led to a decline in the cost of indebtedness. Indeed, its net financial debt dropped from MAD 8.4 Bn at the end of December 2009 to MAD 6.6 Bn in 2010, i.e. a comfortable level of indebtedness allowing the Group to continue the development of its activities. Taking into account a strong growth in the operating income and notable decline in the financial cost, the NIGS reached a new level to MAD 1.6 Bn vs. MAD Mn a year earlier. The Group outlook remains attractive The publication of the 2010 outcome showed the Group s flexibility and reactivity to the behaviour of the Moroccan real estate market with the shift to the social segment which constitutes an opportunity to preserve the Group s revenues. The balance sheet items posted a well-balanced financial situation allowing this developer to dispose of a considerable flexibility to honor its debt. Resultantly, the period 2011/2012 should come in confirmation of good outcomes with a business plan primarily focusing on social housing projects. The positive dynamics of the social segment is expected to continue and lead to growth in sales of 19.3% which we estimate at MAD 7.0 Bn in Addoha is also expected to continue delivery of high end housing units, sharply up in 2011 (+59.0%). This primarily refers to the Ryad Al Andalous, Bouskoura Golf City, Argane Golf Resort, Saidia, Atlas Golf Resort, Al Cudia and Marrakech Golf City. Taking into consideration the program of the production and delivery in FY 2011, nearly 25.0% of the forecasts will be achieved in the 1st half of the year and 75.0% at end of the 2nd half. We are confident with regard to the continuation of the performances achieved in Thus, our forecasts are as follows: Turnover 2011e of MAD 9.3 Bn, up by 22.7%; Operating income 2011e of MAD 3.4 Bn, up by 46.9%; Net income Group share 2011e of MAD 2.2 Bn, up by 29.7%. In terms of stock market trends, the Addoha stock which represents the 4th ranking capitalization on the market, has stagnated for nearly two years and loses 6.0% since the beginning of this year after a performance of 2.4% in Currently it shows attractive stock market multiples, i.e. a P/E 11e of 14.1x and P/B of 2.8 vs. a P/E 11e of 26.3x and P/B 11e of 4.0 for the sector. Our opinion remains positive on the Addoha stock which appears able to offer the growth expected by the management. Note that the stock valuation will be communicated in an upcoming report. 26

28 Alliances Développement Immobilier Our recommendation : Buy Sector : Real Estate 17 june 2011 Target price : MAD 733 ADI MAD USD Price Market capitalisation (million) 8,059 1,020.1 Average daily volume 2011 (million) Float 23.8% 23.8% Bloomberg Reuters Code ADI MC ADI.CS ADI MASI 2010 performance 11.3% 21.2% 2011 performance -12.0% -7.1% e EPS P/E NAPS P/B DPS D/Y 1.2% 1.2% ROE 17% 18% Stock price evolution since 01/01/2010 (100 basis) ADI dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 2, , % 3,703.4 Operating Income % 1,054.7 Operating Margin 28.3% 30.4% 2.1 pts 28.4% Net Income Group Share % Net margin 16.1% 16.2% 0.1 pts 18.03% Dividend per share (MAD) % parent company figures In MAD Mn Evolution Turnover % Operating Income % Operating Margin -11.0% -0.3% pts Net income % Net margin 17.9% 16.9% -1.0 pts Although experiencing sharp growth, the activity level disappointed the market s expectations In 2010, the Alliances Group recorded a rise of 15.3% in the consolidated turnover to MAD 2.6 Bn, well below the market expectations of nearly MAD 3.9 Bn. This gap is explainable by the sluggish growth in the activity of the construction subsidiaries, such as the Moroccan cement sector which registered a rise of only 0.3% in sales volume. This year, the growth in turnover was largely due to the rise in sales of social and intermediate units. They contributed by basis points of growth representing 29.7% of revenues vs. 12.4% a year earlier. Operating performance consolidated by the rising position of the intermediate pole The operating profit grew by 2.1% to MAD Mn leading to an operating margin of 30.4%, vs. 28.3% in the previous year. This strengthening of the operating margin was largely due to the rising contribution of the intermediate segment at the expense of construction activity generating lower margins. Growth in the net income Group share settled at 16.5%, i.e. MAD Mn. Indeed, the performance of the operating profit was partially absorbed by the twofold rise in the cost of financing (more than MAD Mn) and the falling of non current income. An uneasy financial situation On the financial level, the balance sheet situation appears to be uneasy. Indeed, net indebtedness moved upwards by 114.7% in 2010 to MAD 3.7 Bn representing 133.0% of shareholders equity vs. 63.0% a year earlier. Recall that indebtedness strongly rose further to the issuance of a bond loan of MAD 1.0 Bn in 2010 to finance the extension of the Group s scope of operation and the strengthening of land holdings for the intermediate and social segments. The Morocco Stock Market in face of international trends 27

29 Alliances Développement Immobilier Our recommendation : Buy Sector : Real Estate 17 june 2011 further to growth in working capital requirements. In two years, the Group s WCR grew by 186.1% rising from MAD 2.8 Bn in 2008 to MAD 8.2 Bn in Analysis of the changes in the WCR components leads us to state that the strengthening of the land reserve and the launch of new projects constitute the principal reasons behind the strong growth in WCR. Indeed, the Group s inventory rose by 126.3%, from MAD 2.4 Bn in 2008 to MAD 5.6 Bn in Trade receivables represent 25.0% of WCR, i.e. MAD 2.0 Bn in 2010 posting an increase of 15.4 times compared to Alliances is expected to benefit from the promising outlook in the social segment We think that Alliances strategy aiming to recenter the Group activities and strengthen the autonomy of the various poles of operation, appears to be highly pertinent. Indeed, by reinforcing its presence in the social housing segment, the Group should win a new mass customer base and resultantly increase its profits via the sale of a higher number of units. Thus, the major trump card of Alliances is therefore to be in a position to take advantage from the fast growth in the social housing segment, especially with the implication of the government and its encouragement accompanying the developers via tax incentives. Nonetheless, working in the direction of growth in social housing should not impinge of the financial situation or put the Group in difficulty. We remain concerned by this rising debt which reminds us of the tribulations of the other real estate developers. We think that given the substantial delay registered in 2010 to achieve the targets, the assumption of the BP communicated at the time of the bond loan in 2010, will be difficult to reach. Indeed, the financial situation of this operator does not allow such a large rise in production. For 2011 our forecasts are the following: Turnover in 2011e of MAD 3.7 Bn, i.e. up by 41.8%; Operating income 2011e of MAD 1.1 Bn, i.e. up by 32.8%; Net income Group share 2011e of MAD Mn, i.e. up by 57.6%. In terms of stock market growth, the ADI stock lost 12.0% since the beginning of the year after a performance of 11.3% in However, this stock shows attractive stock market multiples, i.e. a P/E11e of 8.7x and P/B of 2.3x vs. a P/E 11e of 26.3x and P/B 11e of 4.0x for the sector. On the basis of valuation by DCF method, we recommend buying the Alliances stock with a target price of MAD

30 Compagnie Générale Immobilière Our recommendation : Neutral Sector : Real Estate 17 june 2011 CGI MAD USD Price 1, Market capitalisation (million) 25,771 3,262.2 Average daily volume 2011 (million) Float 20.0% 20.0% Bloomberg Reuters Code CGI MC CGI.CS CGI MASI 2010 performance 9.1% 21.2% 2011 performance -21.4% -7.1% e EPS P/E NAPS P/B DPS D/Y 1.3% 1.3% ROE 8.6% 11.2% Stock price evolution since 01/01/2010 (100 basis) 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 2, , % 2,927.8 Operating Income % Operating Margin 26.3% 19.7% -6.6 pts 23.0% Net Income Group Share % Net margin 18.5% 17.5% -1.0 pts 19.4% Dividend per share (MAD) % parent company figures In MAD Mn Evolution Turnover 1, , % Operating Income % Operating Margin 26.8% 24.1% -2.7 pts Net income % Net margin 34.5% 19.8% pts A disappointing decline in activity While other competitor operators posted a double digit growth in level of activity, CGI underperforms the market and posts a slowdown in turnover of 2.1%. Indeed, its turnover stood at MAD 2.2 Bn decreasing by 2.1% in This decline is attributable to an unfavorable basis of comparison, essentially due to the sale of parcels allocated to shopping mall and hotel units totalling MAD Mn by the Al Manar subsidiary in FY Reprocessing the sale of hotel units and land parcels, this developer recorded a turnover s growth of 47.4%. Decreasing revenues reflected at the level of the operating income dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 CGI jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 MASI jan-11 feb-11 mar-11 apr-11 may-11 The operating income fell by 26.8% to MAD Mn showing an operating margin level of 19.7% vs. 26.3% a year earlier. This decline of 6.6 points in the operating margin is attributable to both the cost and the income effects. The company s fixed expenses grew by 21.4% in 2010 rising from MAD Mn to MAD Mn. FY 2010 was characterized by the sales of products with low margins compared to 2009, therefore implying a drop in the operating margin. Due to a sharp drop in the operating income and notable decrease in financial cost, the decline of the NIGS stood at 10.8%, i.e. MAD Mn. Indeed, the net financial debt of this real estate developer moved from MAD 1.8 Bn at the end of December 2009 to MAD 1.5 Bn in 2010, i.e. a gearing of 34.1%. This fall in indebtedness was primarily due to a decrease in WCR by 297.5%. Resultantly, in 2010 the WCR of the CGI Group reached MAD 2.5 Bn vs. MAD 3.9 Bn a year earlier. 29 The Morocco Stock Market in face of international trends

31 Compagnie Générale Immobilière Our recommendation : Neutral Sector : Real Estate 17 june 2011 The reorientation to low-cost housing represents a growth opportunity for CGI In order to come up with the downturn of the high end housing, the CGI began a plan to shift toward new promising sectors. This ambitious plan is to occur over time. It aims to invest in the social segment and reach within 10 years 100,000 social housing units in several Moroccan cities. In our opinion, this strategy which appears to be the only viable one (given the current situation of the high end segment) to boost revenues growth, gives rise to two questions related to its implementation: Does CGI have the necessary expertise for a segment requiring industrial organization? Given the scarcity of labor, won t this strategy delay the delivery of the other segments, in particular high end housing with a long real estate cycle? Given the new Group strategy, our forecasts for 2011 is close to those of the management with a risk premium reflecting our concern with regard to the questions above. Resultantly, our forecasts for 2011 are as follows: Turnover 2011e of MAD 2.9 Bn, i.e. up by 31.8%; Operating income 2011e of MAD Mn, i.e. up by 53.4%; Net income Group share 2011e of MAD Mn, i.e. up by 45.6%. In terms of stock market growth, the CGI stock lost 21.4% since the beginning of the year after a performance of 9.1% in CGI therefore offers high stock market multiples, i.e. a P/E 11e of 45.4x and P/B of 5.8x vs. a P/E 11e of 26.3x and P/B 11e of 4.0x for the sector. The current price of CGI stock is completely far from the company s fundamentals. We adopt a neutral position on CGI stock. 30

32 Banks The Morocco Stock Market in face of international trends 31

33

34 Attijariwafa bank No recommendation Sector : Banks 17 june 2011 Attijariwafa bank MAD USD Price Market capitalisation (million) 72, ,186.8 Average daily volume 2011 (million) Float 15.7% 15.7% Bloomberg Reuters Code ATW MC ATW.CS ATW MASI 2010 performance 50.7% 21.2% 2011 performance -7.6% -7.2% e EPS P/E NAPS P/B DPS D/Y 2.1% 2.3% ROE 19.2% 18.0% Stock price evolution since 01/01/2010 (100 basis) ATW dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Bn Evolution ATI 2011e Net Banking Income % 15.7 Adjusted Net Banking Income % 15.7 Gross Operating Income % 8.9 Adjusted Gross Operating Income % 8.9 Operating Margin 59.2% 56.2% -3.0 pts 57.0% Net income part du groupe % 4.4 Net Income Group Share * % 4.4 Net margin 29.6% 27.9% -1.7 pts 28.0% Dividends per share (MAD) % 8.7 * Restated of the exceptional capital gains related to sale of CDM stake in 2009 The income posted by Attijariwafa bank in 2010 bears witness to consolidation of this banking group in a context of high organic growth, and significant contribution of insurance and international activities. The Group s sales dynamics made possible the enlargement of its customer base to 4.6 million along with the sustained development of the banking network, i.e. the opening of 261 branch offices reaching a total of 2, Consolidated leadership in the collection of savings and credit distribution This year, the banking group managed to consolidate its role as leading collector of savings in spite of national and international economic situation marked by scarce liquidity. Indeed, the outstanding amount of global saving collected improved by 6.9% to MAD Bn. For activities in Morocco, customer deposits grew by 1.8% reaching MAD Bn. The drop in the collection of interest-bearing deposits of 2.5% (vs. a rise in the sector of 5.5%) is indicative of the Group s determination to build a healthy structure of resources along with the predomination of non-interest bearing deposits (67.2% of the total amount of customer deposits). With regard to credit activity, Attijariwafa bank actively contributed to the financing of the economies of different countries where present as is testified by the 9.5% rise in distributed loans with a total outstanding amount of MAD Bn. In Morocco, this banking group saw its customer loan credit activity rise by 12.9% up to MAD Bn. Thanks to this performance, the bank significantly improved its market share as it reported a better than that of the sector average, i.e. +9.5%. The main loan categories benefiting from this rise are equipment and real estate acquirers loans which registered respectively rises of 24.8% and 16.6% for outstanding amounts of MAD 42.6 Bn and MAD 29.9 Bn. A rise in activity thanks to performance on the domestic and international fronts. In 2010, the consolidated net banking income registered a rise of 10.7% compared to 2009, settling at MAD 14.7 Bn. This positive trend is primarily explainable by the rise in interest revenue, i.e. growth in the interest margin of 20.8% compared to 2009,thus stabilizing at MAD 8.9 Bn. The margin on fees also benefited from the improving retail activity registering a rise of 30.6% at MAD 2.9 Bn. To be noted is the Net Banking Income would have shown a rise of 12.6% if fiscal year 2009 is restated with the exceptional capital gains further to changing the consolidation scope. For the parent company, the NBI registered a significant rise of 16.8% reaching MAD 8.2 Bn. The strong increase in interest margin of 17.7% is explainable by the rise in the interest margin of 36 base points, under the effect of a more favorable resource structure and the volume effect observed in credit activity. The margin on fees increased by 7.5%. The Group appears to have benefited from the sustained performance of local and international banking activities. Indeed, the retail bank NBI moved ahead by 6.7% while international retail bank saw growth of 61.1%. In 2010, these two activities respectively contributed to 56.6% and 22.0% of consolidated NBI of the Group. 33 The Morocco Stock Market in face of international trends

35 Attijariwafa bank No recommendation Sector : Banks 17 june 2011 Operational performance in a context of effective command over expenditure Attijariwafa bank registered growth of 5.0% in the gross operating income settling at MAD 8.2 Bn. In spite of the effort devoted to extension of the network as well as the various investment and development programs of the group both at the domestic and the international markets, the banking group managed to retain command over its operating expenses. On a proforma basis, expenses were up by 6.4%, bringing the cost-income ratio to 43.8%. Note that this cost income remains one of the sectors best at the consolidated level. From the parent company s standpoint, the net operating income improved by 6.9% reaching MAD 5.2 Bn. The improvement in the cost-income ratio of 320 basis points vs. 2009, reaching 37.7% gives evidence to the Group s capacity to contain expenses and attain economies of scale in a context of rising NBI along with the annual opening of more than 80 branch offices..and relatively low cost of risk With regard to risk, ATW saw its consolidated risk expense increase by MAD Mn. The volume effect registered for consumer credit (+11.7%) showed that the Group managed to control the cost of risk in a less favorable economic situation. Therefore, the cost of risk remained moderate settling at 0.6%, i.e. up by 6 base points vs Recall that the cost of risk is a part of the collective dispositions taken further to the post closing information on Tunisia and Ivory Coast. As for activity in Morocco, the cost of risk in 2010 rose by MAD Bn bringing the cost of risk to 0.6%. This 16 base points rise vs mirrors the vigorous policy of bank provisioning in order to secure itself against the rise in NPLs in certain sectors highly exposed abroad (79.7% in the rate of provisioning at the end of 2010). The recurrent net income group share by 18.2% The consolidated net income marks a 3.3% rise settling at MAD 4.7 Bn. On a pro forma basis apart from capital gains, this outcome registers a rise of 15.4%. As for the net income group share, it registered a rise of 18.2% on a pro forma basis, settling at MAD 4.1 Bn. At the level of activities in Morocco, the net income registers a rise of 7.5% vs. 2009, settling at MAD 3.0 Bn. Observation of the structure of NIGS shows the increasing contribution of Moroccan activity and retail bank abroad. Indeed, these two activities moved ahead from 290 base points and 350 base points finally settling at 68.4% and 9.9% of net income group share. Note that this year significant performance of Wafa Assurance in 2010 represented a contribution of more than MAD Mn in group NIGS. Income outlook for 2011 We leave unchanged our forecast for 2011, i.e. a NIGS 11e of MAD 15.7 Bn and net income group share of 11e MAD 4.4 Bn. The Attijariwafa bank stock is one of the best multiples in the sector, i.e. a P/E 11e of 16.5x vs. an average of 21.9x for the sector and ROE 11e of 18.0% vs. 14.0% for the sector s average. 34

36 Banque Centrale Populaire Our recommendation : Hold Sector : Banks 17 june 2011 Target price : MAD 416 BCP MAD USD Price at 06/17/ Market capitalisation (million) 29, ,792.8 Average daily volume 2011 (million) Float 18.5% 18.5% Bloomberg Reuters Code BCP MC BCP.CS BCP MASI 2010 performance 72.8% 21.2% 2011 performance -3.3% -7.2% e EPS P/E NAPS P/B DPS D/Y 2.0% 2.1% ROE 14.4% 13.2% Stock price evolution since 01/01/2010 (100 basis) BCP dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Net Banking Income 8, , % 10,990.0 Cost Income ratio 46.9% 45.8% -1.1 pts 45.5% Gross Operating Income 4, , % 6,000.5 Cost of risk % Operating Income 4, , % 5,050.0 Operating margin 48.4% 46.0% -2.4 pts 46.0% Net income 2, , % 3,247.0 Net margin 32.2% 30.5% -1.7 pts 29.5% Net Income Group Share * 1, , % 1, parent company figures Overview Since the BCP proforma NIGS (including the MAD Mn contribution of Regional BP Casablanca) has not been posted, we have restated the NIGS of BCP in 2009 to MAD 1.5 Bn instead of MAD 1.1 Bn, as published. In MAD Mn Evolution Net Banking Income 3, , % Gross Operating Income 2, , % Operating Income 2, , % Operating margin 77.1% 76.9% -0.2 pts Net income 1, , % Net margin 51.1% 50.4% -0.7 pts Dividends per share (MAD) % At the end of 2010, the annual figures posted by Banque Centrale Populaire had the special feature of emphasizing, in synthetic form, the revenues dimension of the Banques Populaires conglomerate. The law amendment allowing the merger-absorption of the Banque Populaire de Casablanca and the integration of regional banks in the consolidation sphere of Banque Centrale Populaire have the merit of clearly showing the revenues of this group and clarifying its ambitions within the Banques Populaires universe. The financial statements show the consolidated accounts of the Banques Populaires Group comprising: The consolidated accounts of the BCP Group including the Banque Centrale Populaire after the merger, the ten regional banks and the financial and international activities subsidiaries; The corporate accounts of the Banque Centrale Populaire after the merger. The below diagram illustrates our understanding of the accounts construction published by the Group; BCP Group consolidate accounts BCP corporate accounts BCP post-merger BCP post-merger 10 Regional BPs Financing institutions* + international banks The Morocco Stock Market in face of international trends 35

37 Banque Centrale Populaire Our recommendation : Hold Sector : Banks 17 june 2011 Given the new format showing the financial outcome of BCP and the universe in which it operates, our analysis of this entity will henceforth be based on the situation of the consolidated indicators the principal aggregates of which are the following: Consolidated NBI of MAD 10.0 Bn, i.e. up by 12.1% compared to 2009; Cost income ratio of 45.8%, i.e. down by 1.1 points compared to 2009; Operating income of MAD 4.6 Bn, i.e. up by 6.4%; NIGS of MAD 1.8 Bn, i.e. up by 16.2%. In our opinion, this approach to analysis of the consolidated accounts is inevitable on the grounds listed below: The sharp development over the past few years of the business flow between BCP and regional banks; The recent merger-absorption with the Regional Banque Populaire of Casablanca, among the most important of the eleven cooperatives; The law amendment authorizing the merger between the BCP and the regional BPs; The deep-seated willingness of the current management to make the transition from an investment to a universal bank. Aggregate balance sheet trends commensurate with the sector With regard to the collection of customer deposits, we observe an improvement in customer deposits of 4.0% with an outstanding amount of MAD Bn. This growth is attributable to the 8.0% growth in interest bearing deposits with an outstanding amount of MAD 63.7 Bn. Non interest bearing deposits grew by 1.9% with an outstanding amount of MAD Bn bringing their contribution to 61.9% of global deposits, i.e. a drop of 1.4 points compared to The Group appears to be determined to hold onto its market share with regard to deposit collection, in spite of the higher cost of resources settling at 1.5% by the end of For loans, the BCP Group managed to improve its contribution to financing the economy as is borne out by the rise in the outstanding amount of customer loans of 10.3% at a global amount of MAD Bn. This performance is explainable by the 25.0% growth in the distribution of equipment loans and real estate acquirers loans of 12.0%, with respective outstanding amounts of MAD 30.4 Bn and MAD 29.0 Bn. With regard to consumer and developer real estate loans, the banking group limits its exposure due to the less positive economic context marked by the rise in non-performing loans in these segments for the whole sector. Nonetheless, this trend in outstanding loans as well as the commercial effort put forth by the group over the past few years paradoxically went hand in hand with stagnation in rate of non-performing loans of the bank in an economic context marked rising cost of risk. In 2010 the BCP group posted a rate of non performing loans of 3.2% vs. an observed sector average of 5.2%. Along the same lines, an identical trend was observed in the rate of provisioning at the end of the fiscal year of 62.9% vs. an average of 71.5% in the sector. Operational performances in a context of a rise in the cost of risk In 2010, NBI saw a rise of 12.1% to an amount of MAD 10.0 Bn. This performance is basically explainable by the interest earnings components which improved by 11.1% to MAD 7.9 Bn, the result of the volume effect for customer loans. The fees margin grew by 13.1% to an amount of MAD Mn, while market activity income improved by 29.4% to MAD Mn further to the effect of the capital gains on the bank securities portfolio. 36

38 Banque Centrale Populaire Our recommendation : Hold Sector : Banks 17 june 2011 The structure of the consolidated NBI is as follows: Interest margin: MAD 7.9 Bn with a contribution of 78.2%; Fees margin: MAD Mn with a contribution of 9.8%; Market activity income: MAD Mn with a contribution of 9.8%. The gross operating income grew by 14.5% reaching MAD 5.4 Bn, an improvement made possible by the controlled rise in operating expenses. At the end of 2010, the cost income ratio stood at 45.8%, i.e. down by 110 basis points compared to the previous year. With regard to risks in 2010, the banking group made allocations to provisions of some MAD Mn, up by MAD Mn. On the basis of this amount, the cost of risk came to 0.5%, i.e. up by 20 basis points compared to This provisioning effort is in connection with the sharp growth experienced over the past few years in terms of credit distribution. This is a trend which should inevitably continue over forthcoming years to reinstate the risk management indicators to sector standards. The net consolidated income came to MAD 3.1 Bn, i.e. up by 6.0% compared to the previous year placing the BCP net income group share to MAD 1.8 Bn, up by 16.2%. This variation is calculated on the basis of a NIGS to MAD 1.5 Bn according to our estimate based on the following data: NIGS 2009 proforma of BCP to MAD 1.06 Bn; Net income in 2009 of BP Casablanca of MAD Mn (exclusive of intra group operations). Group activity future The last two fiscal years were characterized by an enlargement of the consolidation scope via the inclusion of these subsidiaries: Maroc Leasing; Fonds Banque Populaire pour le Micro-Crédit (BP fund for Micro credit); Banque Populaire de Casablanca. This last operation enabled the bank to approach the Retail sector and to benefit from a network of more than 150 branch offices. The volume effect in this segment, as well as the high margins connected there to will enable the bank to improve its revenues. Recall that the positioning of BCP over the past few years on the Corporate segment has enabled it to win over market shares but still to the detriment of its intermediation margin. Recent forecasts and the ambitions of the current management lead us to estimate that over forthcoming years the bank could acquire other regional banks. With this in view, the net income of this conglomerate representing MAD 3 Bn in 2010 currently posts satisfactory profitability and financial indicator compared to the income reported by other banks on the market. However, in our opinion future growth at this income level will be moderate given the following elements: High growth of the bank just mainly on the domestic market. The marketing strategy of competitor banks has shown that it was possible to diversify the sources of revenue and to reduce exposure with regard to a henceforth mature market; High concentration of bank earnings on the banking sector alone. The groups specialized subsidiaries do not currently constitute any substantial weighting in the consolidated net income. Also the absence of an insurance company within the conglomerate is indicative of a break in the series of business lines of an integrated financial group; The Morocco Stock Market in face of international trends 37

39 Banque Centrale Populaire Our recommendation : Hold Sector : Banks 17 june 2011 High competition on the domestic market of Moroccan banking groups, as well as French banks are looking to capture a large share in financing of the economy; Additional provisioning effort that could slow down growth in the bank s financial income in the event of substantial difficulties of counterparts. A part from these forecasted constraints, the BCP confronted a major challenge and managed to transform a bank of limited dimension to a major size institution. Outlook for 2011 Given the new architecture of the group s financial publications, our forecast for 2011 is the following: Net Banking Income 2011e of MAD 11.0 Bn, up by 9.4%; Operating income 2011e of MAD 5.1 Bn, up by 9.2%; Net income group share 2011e of MAD 1.9 Bn, up by 7.1% In terms of stock market growth, the BCP share lost 6.0% since the beginning of the year with a 2010 performance level of 72.8%. It shows attractive stock market multiples, i.e. a P/E 11e of 14.3x and P/B of 1.8x vs. a P/E 11e of 21.9x and P/B 11e of 2.6x in the sector. The BCP share benefits from particular attractiveness to investors and is at relatively reasonable levels. On the basis of a valuation via the updated distributable net income method, we recommend holding the BCP share with a target price of MAD

40 BMCE Bank Our recommendation : Neutral Sector : Banks 17 june 2011 BMCE Bank MAD USD Price Market capitalisation (million) 36, ,680.0 Average daily volume 2011 (million) Float 14.2% 14.2% Bloomberg Reuters Code BCE MC BMCE.CS 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Net Banking Income 6, , % 8,255.6 Cost Income ratio 65.3% 61.6% -3.7 pts 61.5% Gross Operating Income 2, , % 3,182.1 Cost of risk 1, % Operating Income 1, , % 2,336.7 Operating margin 17.0% 27.5% pts 28.3% Net income part du groupe % Net margin 6.0% 10.8% +4.8 pts 11.2% Net Income Group Share * % - * After restating of the increased stake of BMCE in BOA and Maghrébail to 55.8% and 51.0% respectively BMCE Bank MASI 2010 performance -1.5% 21.2% 2011 performance -17.6% -7.2% e EPS P/E NAPS P/B DPS D/Y 1.4% 1.6% ROE 9.6% 7.8% Stock price evolution since 01/01/2010 (100 basis) 2010 parent company figures In MAD Mn Evolution Net Banking Income 3, , % Cost Income ratio 61.9% 61.8% -0.1 pts Gross Operating Income , % Cost of risk % Operating Income % Operating margin 17.6% 20.2% 2.6 pts Net income % Net margin 13.5% 13.2% -0.3 pts Dividends per share In 2010, BMCE bank posted growth of its net income group share of 96.2% finally settling at MAD Mn. The volume effect registered for loans, the improvement in the cost-income ratio, and the lower risk charge are the main reasons behind this outcome. In spite of the strengthening of its financial structure and the enlargement of its consolidation scope further to the increase in its stakes in the Bank of Africa and Maghrébail, this banking group did not manage to significantly improve its profitability and risk management indicators like its main competitors dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 BMCE jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 MASI jan-11 feb-11 mar-11 apr-11 may-11 The balance sheet aggregates underperform the sector In Morocco, the bank saw its outstanding deposits settle at MAD 87.4 Mn, up by 0.8% compared to This growth, while below the sector average, i.e. 3.5%, was due to the growth in interest-bearing deposits of 12.1% at an outstanding amount of MAD 39.5 Bn. Non interestbearing deposits registered a drop of 6.9% with an outstanding amount of MAD 48.0 Bn, bringing the contribution thereof to 54.9% of global deposits, i.e. a decline of 4.5 points compared to The deterioration in the resource structure bears witness to the outright determination of the bank to hold onto its market share to the detriment of the high cost of its customer deposits amounting to 1.8% vs. an average of 1.6% for its direct competitors. The bank s loan activity improved its contribution to financing the Moroccan economy as is shown by customer loans up by 8.6% at MAD 70.4 Bn. This performance is basically attributable to the growth in equipment and real estate acquirer of 11.3% and 11.0% at outstanding amounts of MAD 14.9 Bn and MAD 17.1 Bn. To our surprise, the growing expansion of consumer and real estate loans of 14.0% and 13.9% with outstanding amounts of MAD 6.3 Bn and MAD 8.4 Bn, respectively. Indeed, in contrast with the sector, the bank increased its exposure in a year where economic context was marked by a rise in NPLs for these types of loans. The additional amount of loans distributed this year, i.e. MAD 5.6 Bn remains largely below that of its direct competitors which settled at MAD 14.5 Bn. Limited by the size of its network and little diversified positioning, this bank managed to hold on to its market share in this activity by 12.5%, a similar level to that observed in The Morocco Stock Market in face of international trends 39

41 BMCE Bank Our recommendation : Neutral Sector : Banks 17 june 2011 The rate of NPL registered 4.5%, i.e. down by 60 basis points compared to Paradoxically, this trend was also observed at the rate of provisioning level settling at 69.4%, i.e. down by 3.7 points compared to the previous year. In our opinion, an additional provisioning effort would be commendable given the economic situation marked by a rise in the cost of risk, and the international standards practiced in this respect. The consolidated outstanding resources attributable to the customers were up by 7.8% at MAD Bn accounted for at 74.3% by the retail bank in Morocco vs. 78.6% one year earlier. The Group s African subsidiaries saw their contribution to the collection of resources improve by 4.1 points, finally settling at 24.2%. The outstanding amounts of customer loans of the BMCE group moved ahead by 14.1% totaling MAD Bn with a contribution of 68.9% by the domestic division of the bank. Growth in domestic and international activity In 2010, the net banking income for the parent company was up by 6.4% compared to 2009, finally settling at MAD 3.9 Bn. This trend is basically explained by interest income, up by 12.3% at MAD 2.4 Bn. This was the result of the volume effect and an average intermediation margin at 3.9%, i.e. down by 10 basis points compared to the previous year. The margin on fees moved ahead by 1.3% to MAD Mn while income from market activities was up by 5.5% to MAD Mn pushed by the capital gains derived from the bank s securities portfolio. In terms of structure of the corporate NBI, the interest margin contributed by 59.6% of the global NBI, i.e. up by 320 basis points, while the margin on fees and income from market activities represent 15.8% and 25.0% respectively. The consolidated net banking income improved by 17.7% settling to MAD 7.6 Bn, pushed by the improvement in the interest margin of 14.1% and income from market activities of 52.0% at respective outstanding amounts of MAD 4,9 Bn and MAD 1.1 Bn. The volume effect registered for the Moroccan and international activities, primarily within the Bank Of Africa Group, as well as the excellent performance of market activities primarily explain these outcomes. The net banking income earned from international activities improved by 23.1% with an outstanding amount of MAD 3.0 Bn, thereby adding to its contribution in by global NBI by 170 basis points at 39.2%. The Morocco activity represents 48.1% of the Group s consolidated income, i.e. a similar level to the previous year. in spite of the weight of structure expenses BMCE bank saw its gross operating income move up by 18.9% reaching MAD 1.1 Bn and stable cost income ratio at 61.8% and allocations to provisions on securities portfolio, primarily those concerning the London subsidiary, for an amount of MAD Mn vs. MAD Mn one year earlier. However, the structure of expenses high level compared to the sector, as well as the flagging income of BMCE bank International weighs on this bank s outcome. In this context, the readjustment plan for the European subsidiary announced by the management, as well as the project for the optimization of expenses with the aim of obtaining a cost-income ratio of 55% at the end of 2012, are indicative of the Group s growing awareness about the importance of improving these indicators over years to come. At the consolidated level, the gross operating income was up by 30.2% to MAD 2.9 Bn under the effect for the drop in the cost income ratio by 370 basis points at 61.6%. In spite of the efforts deployed for extending the network by the opening of 92 branch offices in 2010, including 41 units in Sub-Saharan Africa, and the various investment and development programs, this Group managed to limit the rise operating expenses. However, note that this cost income ratio remains particularly high compared to Attijariwafa bank or the Banque Centrale Populaire amounting to 43.8% and 45.8% respectively. and the cost of risk affecting the Group s income. With regard to risks, the bank proceeded to the constitution of allocations to provisions of MAD Mn, i.e. up by 13.3% compared to the previous year. On the basis of this amount, the cost of risk on the parent company accounts was of 0.5%, a similar level to that of At the consolidated level, the provisions to risk came to MAD Mn vs. MAD 1.1 Bn one year earlier. This banking group saw its cost of risk settle at 0.7% under the effect of write-offs from provisions for a total of MAD Mn and taking into account of losses on unrecoverable debts amounting to MAD Mn. 40

42 BMCE Bank Our recommendation : Neutral Sector : Banks 17 june 2011 Net consolidated income of MAD 1.4 Bn The net consolidated income came to MAD 1.4 Bn, i.e. up by 73.7% compared to The pro forma NIGS showed an increase of 96.2% finally settling at MAD Mn under the effect of the fall in minority interest shares. Observation of the NIGS structure reveals the high contribution of the Morocco activity amounting to 84.8%, i.e. up by 10.1 points compared to International activities which contributed by 4.3% in 2009 saw their share settle at 7.0% of the NIGS in Note that this negative contribution is primarily due to Europe activity which participated by MAD Mn. However, the income posted by activities in Africa counterbalanced this loss as the participation thereof came to MAD Mn, i.e. 25.0% in the net income group share. At the parent company level, the net income posted growth of 3.7% to MAD Mn. The bank saw its tax burden rise from 23.3% in 2009 to 34.6% under the effect of fewer tax deductions (dividends and write downs from provisions for investment). Future trends in Group s activity The recent sale of the self controlled stake in BMCE stocks to CDG group, as well as capital increase booked for the CIC enabled the banking group to strengthen its basic shareholders equity by more than MAD 6.0 Bn. This raising of capital is demonstrative of the group s determination to support development both domestically and internationally, and also to improve its solvency ratio which at came to 12.6% at year end. The strategy of internationalization of BMCE bank since 2003 has been rather ambiguous joining together the acquisition and setting up business banks (BMCE Capital Dakar, Axis Afrique) and taking out of minority equity in African retail banks. It was only as of 2007 that the BMCE Group has really obtained a position at the retail bank level with the acquisition of 55.8% in BOA. This operation enabled the group to hold 12 commercial banks in their majority operating in West and East Africa. Although this acquisition enabled the bank to dispose of a genuine growth relay in Africa, BMCE communicates very little on the development model and strategy it intends to deploy. The only certainty is that the group s shareholder initiated a general recapitalization of all the subsidiaries. This comes in confirmation of the management s determination to develop and improve the revenues of these banks in the future. To do so, it should strive to take account of the maturity of these markets and their development potential. This implies active participation in bank use via a policy geared to extension of the branch office network and efficient recovery models. Trend Outlook in 2011 Our forecasts for 2011 are the following: Net Banking Income 2011e of MAD 8.3 Bn, up by 9.3%; Operating income 2011e of MAD 2.3 Bn, up by 12.4%; Net income group share 2011e of MAD Mn, up by 12.9%. In terms of stock market trends, the BMCE stock lost 17.6% since the beginning of the year after a negative performance of 1.5% in It showed comparables disproportionate compared to the sector, i.e. P/E 11e of 40.0x vs. an average of 21.9x for the sector and ROE 11e of 7.8% vs. 14.0% for the sector. We have a neutral position on the stock. The Morocco Stock Market in face of international trends 41

43 BMCI Our recommendation : Hold Sector : Banks 17 june 2011 Target price : MAD 1,006 BMCI MAD USD Price Market capitalisation (million) 12, ,564.9 Average daily volume 2011 (million) Float 15.0% 15.0% Bloomberg Reuters Code BMCI MC BMCI.CS BMCI MASI 2010 performance 11.4% 21.2% 2011 performance -9.6% -7.2% e EPS P/E NAPS P/B DPS D/Y 2.7% 2.7% ROE 12.3% 12.0% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 BMCI jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may Consolidated figures In MAD Mn Evolution ATI 2011e Net Banking Income 2, , % 2,987.1 Cost Income ratio 40.0% 39.9% -0.1 pts 40.3% Gross Operating Income 1, , % 1,782.8 Cost of risk % Operating Income 1, , % 1,435.1 Operating margin 47.1% 49.7% +2.6 pts 48.0% Net income part du groupe % Net margin 28.3% 27.6% -0.7 pts 27.7% In 2010 the subsidiary of the BnP Paribas Group posted positive growth of its activity indicators to a backdrop of a cautious development of the credit activity. Indeed, the Moroccan bank continued to enforce a selective credit policy and rigorous strategy of expenditure optimization. Prudent development of bank intermediation The banking group registered growth of the customer credit activity of 1.2%, a level clearly below that of the market (+9.1%). In an environment of rising NPLs for certain loan segments due to the less positive economic situation, the bank adopted a usual prudent development strategy running the risk seeing its market shares for customer loans fall by 59 basis points at 7.6%. In particular, the bank saw its outstanding real estate loans and consumer credit fall respectively by 1.6% and 14.2% settling to MAD 3.6 Bn and MAD 0.8 Bn. Customer resources registered a rise of 3.6% to MAD 40.9 Bn, a similar level compared to the sector average. The bank managed to conserve its market share at 6.7% while improving its resource structure. We note the drop in outstanding interest bearing deposits at 1.1% in face of the 6.8% rise in non interest bearing deposits. Resultantly, the share of non interest-bearing deposits improved by 180 basis points finally settling at 62.0% at the end of 2010 against a drop of only 70 basis points for the market at 61.1%. to a backdrop of lower expenses and cost of risk In 2019 the consolidated net banking income registered a rise of 8.0% compared to 2009, settling at MAD 2.8 Bn. This positive variation is primarily explainable by the rise in the interest margin of 7.6% and fees margin of 5.5% at outstanding amounts of MAD 2.3 Bn and MAD 0.4 Bn, respectively. The gross operating income came to MAD 1.7 Bn, aided by the drop in the cost income ratio of 10 basis points at 39.9%, i.e. the sector s best. The operating income registered a lower risk charge reporting a performance of 14.1% at MAD 1.4 Bn. Indeed, the cost of risk declined by 10 basis points finally settling at 0.5% due to the rise in taking from provisions of MAD Mn for a global amount of MAD Mn. The drop in the bank s cost of risk in 2010 was indicative of the active strategy of displaying the best risk management indicators of the sector. This is borne out by the provisioning effort which, measured via the rate of provisioning, came to 81.6%, i.e. the highest sector. In spite of a heavier Corporate tax charge, the net income group share came to MAD Mn, i.e. up by 5.4% compared to Outlook for 2011 We maintain our outlook for 2011, i.e. a consolidated NBI of MAD 3.0 Bn and net income group share of MAD Mn, i.e. up by 4.9% and 5.0%, respectively. These performances are warranted by the bank s reduced margin of maneuver since its productivity ratios are already the sector s best. However, the BMCI share has attractive stock market multiples, i.e. a P/E 11e of 15.1x vs. 21.9x for the sector and a P/B 11e of 1.8x vs. 2.6x for listed banks average. At the current price, we recommend holding the stock in portfolios with a target price of MAD 1,

44 Crédit du Maroc Our recommendation : Hold Sector : Banks 17 june 2011 Target price : MAD 805 Crédit du Maroc MAD USD Price Market capitalisation (million) 7, Average daily volume 2011 (million) Float 13.3% 13.3% Bloomberg Reuters Code CDM MC CDM.CS CDM MASI 2010 performance 39.2% 21.2% 2011 performance -10.4% -7.2% e EPS P/E NAPS P/B DPS D/Y 3.7% 3.5% ROE 13.4% 13.8% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 CDM jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may Consolidated figures In MAD Mn Evolution ATI 2011e Net Banking Income 1, , % 2,128.5 Gross Operating Income , % 1,132.7 Operating margin 38.5% 29.4% +0.9 pts 30.0% Net income group share % Net margin 23.4% 18.1% -5.3 pts 20.1% Dividends per share (MAD) In a Moroccan economic context marked by structural scarcity in liquidity and decelerating loan distribution (+9.1% in 2010 vs % in 2009), Crédit Du Maroc reported moderate growth in the retail banking activity. Even though the bank s targeted expansion policy naturally led to the loss of market shares to the benefit of the main banking groups on the market, its active risk management strategy did not constitute a shield against the mounting instances of nonperforming loans observed during the year. A hesitant development strategy of the credit activity In 2010, the banking group reported growth in the customer credit activity of 2.4%, i.e. a level largely below than market average (+9.1%). The limited scale of the bank network (308 branches), the selective policy of credit distribution, as well as the size of shareholders equity did not allow it to benefit from the volume effect observed over the past few years, as opposed to the main banks operating on the market. Customer resources registered a rise of 9.8% to MAD 33.6 Bn, i.e. the bank appears to be determined to maintain its market share in this segment on behalf of the mounting cost of the said resources. Indeed, interest-bearing deposits grew by 11.1% finally settling at MAD 13.2 Bn. in a context of the rising cost of risk In 2010, the consolidated Net Banking Income registered a rise of 11.2% vs reaching MAD 2.0 Bn. This growth is basically explainable by the rise in interest margin of 11.0% and the rise in fees of 13.3% at outstanding amounts of MAD 1.7 Bn and MAD 0.3 Bn, respectively. Even though the gross operating income was up by 14.9% at MAD 1.1 Bn, aided by the drop in the cost income ratio of 1.7 points, i.e. 46.5% at the end of 2010, the operating income was hit by higher provisioning (allowance of MAD Mn). Growth in the cost of risk amounting to 60 base points, finally settling at 1.4%, is indicative of the higher level of unpaid amounts by individual (mainly Moroccans living abroad) and corporate customers (the main sectors hit by the economic crisis). Resultantly, the net income group share fell by 14.0%, finally settling at MAD Mn. A strengthening of shareholders equity coming to the rescue of the Group Strengthening of the stake taken out in the Crédit Agricole Group at 76.7% in the capital of Crédit Du Maroc, as well as the recent subordinated bond (MAD Mn) is illustrative of the parent company s determination to support organic growth of the bank while keeping a watchful eye on reinforcing financial soundness. Our revised outlook for 2011 We revise our forecast for 2011, i.e. a consolidated 11e NBI of MAD 2.1 Bn and net income group share of MAD Mn. The CDM share represents an attractive yield level, i.e. a D/Y 11e of 3.5% vs. 2.6% for the sector average and favorable stock market multiples (P/E 11e of 16.4x vs. 21.9x for the listed banks). At these price levels, we recommend to hold the stock with a target price of MAD 805,0. The Morocco Stock Market in face of international trends 43

45 Crédit Immobilier et Hôtelier Our recommendation : Sell Sector : Banks 17 june 2011 Target price : MAD 220 CIH MAD USD Price Market capitalisation (million) 6, Average daily volume 2011 (million) Float 18.1% 18.1% Bloomberg Reuters Code CIH MC CIH.CS CIH MASI 2010 performance 4.8% 21.2% 2011 performance -9.1% -7.2% e EPS P/E NAPS P/B DPS D/Y 2.0% 2.0% ROE 8.1% 8.3% Stock price evolution since 01/01/2010 (100 basis) CIH dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Net Banking Income 1, , % 1,592.5 Cost Income ratio 59.5% 69.0% +0.5 pts 63.1% Gross Operating Income % Cost of risk % Operating Income % Operating margin 7.2% 0.3% -6.9 pts 18.9% Net income part du groupe % Net margin 6.7% 15.5% +8.8 pts 15.5% Rationalization to reinforce the universal bank status For this real estate specialized bank, 2010 was primarily a year of rationalization with the aim of settling past accounts and turning resolutely to the future, i.e. moving in the direction of a universal bank with solid financial foundations and fundamentals akin to other listed banks. Indeed, during the year this bank undertook various rationalization endeavors primarily regarding the sale of hotel assets to the CDG Group against taking out minority stakes in Maroc Leasing and SOFAC; settlement of the fiscal verification for amounting to MAD Mn, as well as provisioning of all the historical matters the litigation portfolio totaling MAD 4.2 Bn. At the same time, CIH proceeded to several strategic actions aiming to direct the bank toward a Universal bank status via beneficial positioning with regard to insurance as is testified by the creation of a brokerage subsidiary, as well as the development of bank insurance products via the opening of 20 branch offices, as well as creation of a representative office in France indicative of the bank s determination to develop and provide assistance to its domestic and international customers. in spite of the extremely high concentration of the credit portfolio At the parent company level, outstanding customer loans stood at MAD 23.1 Bn, up by 5.4% compared to This performance was largely attributable to the favorable trend in the real estate acquirers and consumer loans which moved ahead by 4.9% and 19.8% entailing outstanding amounts of MAD 16.3 Bn and MAD 0.8 Bn respectively. As opposed to the sector, this bank saw its outstanding equipment loans fall by 14.2% finally settling at MAD 0.5 Bn due to the effect of hotel asset withdrawal from consolidation scope. As for resources, outstanding customer loans came to MAD 17.7 Bn, down by 1.4% compared to the previous year. The rise in non interest bearing deposits of 13.8% at MAD 9.6 Bn, along with the fall in interest bearing deposits from 13.6% to MAD 8.0 Bn bears witness to the bank s determination to improve the structure of these resources. Therefore the share of interest bearing deposits fell by 6.9 points finally settling at 45.5% vs. a sectoral average of 38.9%. Indicators of activity hit by the worsening cost ratio The consolidated Net Banking Income showed a slight rise of 1.4% to MAD 1.5 Bn principally due to the interest margin which registering quasi stagnation (+0.8%) to MAD 1.2 Bn representing 77,6% of NBI. The worsening cost income ratio of 9.5 points at 69.0% is primarily due to the rise in management expenditure of more than MAD 80.0 Mn. In spite of a lesser cost of risk down by 6.4%, the operating income was down, settling at MAD 4.4 Mn, declining by 96.0% compared to The gains registered on other assets amounting to MAD Mn further to the sale of hotel assets saves the year, as it led to a NIGS of MAD Mn, up by 135.5% compared to Does the bank dispose of the means commensurate with its ambitions? The various rationalization endeavors initiated by the new management are commendable on many grounds. Directing the bank toward universal bank business lines is ambitious but appears to be strewn with stumbling blocks. The stakes taken out in financing companies are minority holdings not allowing any particular margin of maneuver apart from an outright takeover which would imply disposing of sufficient shareholder capital. Added thereto is the belated positioning on the bank insurance front. For lack of a loyalty model creating synergy, we do not think that the partnership with Atlanta would make it possible to capture any further significant flows turning bank into a genuine growth relay. Consequently, we revise our forecast downwards, i.e. NBI of MAD 1.6 Bn and NIGS of MAD Mn, up by 5.8% and 5.7%, in 2011 respectively. Given the price level reported on June 17th, our recommendation is to sell the share. 44

46 Mines The Morocco Stock Market in face of international trends 45

47

48 Managem Our recommendation : Report under process Sector : Mines 17 june 2011 Managem MAD USD Price Market capitalisation (million) 7, Average daily volume 2011 (million) Float 21.3% 21.3% 2010 consolidated figures In MAD Mn Evolution ATI 2011e Turnover 2,223 2, % 3,510 Operating Income x Operating Margin 3.7% 16.5% pts 27.5% Net Income Group Share x Net margin 1.0% 7.7% +6.7 pts 14.2% Bloomberg Reuters Code MNG MC MNG.CS Managem MASI 2010 performance 183.8% 21.2% 2011 performance 31.7% -7.2% e EPS P/E NAPS P/B DPS D/Y 1.3% 2.9% ROE 16% 23% Stock price evolution since 01/01/2010 (100 basis) 50 0 dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Managem jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 MASI jan-11 feb-11 mar-11 apr-11 may-11 Growth in activity above expectations At the time of our last publication (Mid-Term Report) published on 14 December 2010, we projected for Managem a rise in turnover of 21.5% at MAD 2.7 Bn basically in connection with the rise in metals prices, the drop in the quantity hedged of Silver, and a positive MAD/Dollar parity. This scenario occurred in 2010: Silver and base metals prices grew on average by 37.7% and 18.5%, respectively compared to 2009; The price of Cobalt moved ahead on average by 47.1% compared to 2009; The levels of coverage for Silver dropped by 72.6% vs. 93.0% in 2009 allowing the operator to sell larger quantities at the market price; The Dollar appreciated by 4.3% against the Dirham. However, with a turnover of MAD 2.9 Bn up by 29.4%, the mining operator s outcomes are better than expected. The gap between our forecasts and the realizations is mainly due to the increase of the production capacity of Imiter. Indeed, our division deemed that Silver output in 2010 at approximately T while the actual output amounted to Tons, i.e. 15.7% above our original forecast. This performance is in connection with the improvement in grade at the Imiter mine. A margin level showing the beginning of recovery As predicted by our division, the Group was able to significantly improve its operating margin with a rise from 3.7% to 16.5%. This comes in support of the vision we developed in our last publication: «2010 should constitute the beginning of a recovery for Managem. In fact, the mining operator is expected to return to normative margin levels in the neighborhood of 36.0% by 2013». The return to a normative operating margin by 2013 is based on the following assumptions: Gradual fall of hedging level for Silver from 72.6% to 3.2% during the period this situation should allow Managem to sells increasingly large quantities at the market price expected to be very lucrative. Indeed, our division is counting on an average Silver price during the period of $28.5/ounce vs. $20.2/ounce in 2010 ; A positive volume effect further to the commissioning of several projects including: Bakoudou (Gold), Pumpi (Cobalt) and the Anti-Atlas (Copper). To be recalled is that in 2010 the NIGS turned out to be almost in line with our predictions at MAD Mn vs. MAD 22.3 Mn one year earlier. Our medium term vision At the end of 2010 the achievements of Managem come in support of our forecasts for 2011 which are maintained. For this purpose, the Group should see growth in income by some 22.0% along with a progressive return to high operating margin levels, i.e. 27.5% in Eventually, the commissioning of new projects in Africa as of Q and lower hedging levels for precious metals, are expected to constitute the primary reasons behind growth in future income. In terms of valuation, this stock posts attractive ratios, i.e. a P/E11e of 15.3x and D/Y11e of 2.9%. We wish to point out that our division will produce a report on the mining sector in Morocco comprising our valuation and recommendations regarding the Managem stock. The Morocco Stock Market in face of international trends 47

49 CMT Our recommendation : Report under process Sector : Mines 17 june 2011 CMT MAD USD Price at 06/17/2011 1, Market capitalisation (million) 2, Average daily volume 2011 (million) Float 33.0% 33.0% 2010 consolidated figures In MAD Mn Evolution ATI 2011e Turnover % 600 Operating Income % 373 Operating Margin 61.0% 63.3% +2.3 pts 62.2% Net income % 318 Net margin 46.4% 51.1% +4.7 pts 52.9% Bloomberg Reuters Code CMT MC CMT.CS CMT MASI 2010 performance 72.2% 21.2% 2011 performance 8.7% -7.2% e EPS P/E NAPS P/B DPS D/Y 5.7% 7.7% ROE 63% 67% Stock price evolution since 01/01/2010 (100 basis) 250 Growth in activity pushed by the rise in metals prices In a favorable metals prices context in 2010, CMT posted earnings up by 16.4% to MAD 518,0 Mn. The outcome of CMT remain slightly above our expectations estimating the turnover at MAD Mn, i.e. up by 8.3% vs Compared to the previous fiscal year, CMT benefited in 2010 from the appreciation of three principal metals, namely: Silver: +37.7% from an average of 14.7 to $20.2/ounce; Zinc: +30.3% from an average of 1,656.0 to $2,159.0/ton; Lead: +24.6% from an average of 1,724.0 to $2,147.0/ton. Like the other operators in the sector, CMT benefited from a favorable MAD/Dollar parity after appreciation of the greenback in Indeed, the average parity of the Dirham/Dollar rose from MAD 8.07 in 2009 to MAD 8.42 in 2010, i.e. a rise of 4.3%. and stimulated by a favorable coverage strategy To be recalled is that since its listing in 2008, CMT had adopted an extremely opportunistic hedging strategy never exceeding 40,0% of the forecasted output thereby allowing it to take full advantage of soaring metals prices. On the other hand, the future growth of this operator remains highly sensitive to short term price volatility. An attractive margin level The rise in the operating income at 20.8% is clearly higher than the activity growth (16.4%). In this context the operating margin appreciated by 2.3 points at 63.3%. This performance is basically attributable to the excellent company cost control thanks to its simple structure and relatively stable investment level dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 CMT jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 In the end, the NIGS turned out to be almost in line with our predictions at MAD Mn vs. MAD Mn one year earlier. In our last publication we predicted a net income of CMT at MAD Mn, i.e. up by 27.5% compared to expected to hold in 2011 Given the bullish trend of metals prices, CMT should post in 2011: Turnover up by 15.7% to MAD Mn; Operating income to MAD Mn with operating margin of 62.2%; Net income up by 20.0% to MAD Mn. In terms of valuation, the stock offers the most attractive ratios in the sector, i.e. a P/E11e of 7,2x and D/Y11e of 7.7%. We wish to point out that our division will produce a report on the mining sector in Morocco including our valuation and recommendation of CMT stock. 48

50 SMI Our recommendation : Report under process Sector : Mines 17 june 2011 SMI MAD USD Price 2, Market capitalisation (million) 4, Average daily volume 2011 (million) Float 25.8% 25.8% 2010 company figures In MAD Mn Var ATI 2011e Turnover % 1,070 Operating Income % 567 Operating Margin 16.9% 38.4% pts 53.0% Net income % 455 Net margin 31.7% 29.9% -1.8 pts 42.5% Bloomberg Reuters Code SMI MC SMI.CS SMI MASI 2010 performance 128.9% 21.2% 2011 performance 51.5% -7.2% e EPS P/E NAPS P/B DPS D/Y 3.5% 7.7% ROE 29% 47% Stock price evolution since 01/01/2010 (100 basis) SMI dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI A high activity growth, stimulated by three main factors In FY 2010, SMI agreeably surprised the market by reporting high revenues growth of 58.8% at MAD Mn. Three main factors are behind this performance: The appreciation of Silver prices by 37.7% in 2010 compared to 2009; The drop in Silver hedging ratios, falling from 93.0% in 2009 to 72.6% in 2010, enabling this operator to sell larger quantities at the market price; The increase in Silver output of the Imiter mine at 15.7% rising from 210/tons to 243/tons between 2009 and With regard to these points, to be noted is that our department predicted Silver output to be of approximately tons in This performance is linked to the improvement of grade at the Imiter deposit by nearly 14.4% compared to Like all operators working in the sector, SMI benefited from a favorable MAD/dollar parity further to the appreciation of the Dollar in Indeed, the average MAD/Dollar parity rose from MAD 8.07 in 2009 to MAD 8.42 in 2010, i.e. a jump of 4.3%. Gradual return to high margin levels The year 2010 saw a net improvement in the operating income of SMI which increased by 261.3% compared to 2009, up from MAD 79.0 Mn to MAD Mn. In this context, the operating margin was up by 21.5 points to 38.4%. The Silver cash cost to date remains highly competitive at $4.0/oz, maintaining a high margin levels for the future. We estimate that the SMI target operating margin is 60.0%. The operator is able to reach this target basically in conjunction with the clearing out of heddging contracts scheduled for and highly promising outlook in the medium term Given the solid fundamentals of Silver which, according to us, remains undervalued, the gradual drop in hedging levels and the cash-cost control exercised over, SMI should post in 2011: Turnover up by 44.6% at MAD 1.1 Bn; Operating income at MAD Mn with operating margins settling at 53.0%; Net income up by 101.0% at MAD Mn. In terms of valuation, SMI stock posts attractive ratios, i.e. a P/E11e of 10.4x and D/Y11e of 7.7%. We wish to point out that our division will produce a report on the mining sector in Morocco comprising our valuation of the SMI stock. The Morocco Stock Market in face of international trends 49

51

52 Cement works The Morocco Stock Market in face of international trends 51

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54 Lafarge Our recommendation : Buy Sector : Cement works 17 june 2011 Target price : MAD 2,100 Lafarge MAD USD Price 1, Market capitalisation (million) 31,444 3,980.3 Average daily volume 2011 (million) Float 13.4% 13.4% 2010 Consolidated figures In MAD Mn Var ATI 2011e Turnover 5,441 5, % 5,300 Operating Income 2,734 2, % 2,700 Operating Margin 50.2% 44.9% pts 50.9% Net income group share 1,856 1, % 1,750 Net margin 34.1% 31.3% pts 33.0% Bloomberg Reuters Code LAC MC LAC.CS Lafarge MASI 2010 performance 49.6% 21.2% 2011 performance -15.1% -7.2% e EPS P/E NAPS P/B DPS D/Y 3.7% 3.9% ROE 25.8% 25.5% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Lafarge jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 An activity penalized by output overcapacity in Morocco s North The year 2010 was particularly unfavorable to Lafarge. Indeed, today this operators has to face with two principal constraints: Drop in cement demand in Morocco s North which recorded a significant decline of 8.1% compared to a domestic market which is in stagnation; Arrival of new production capacities in the Center of the country. This refers to Ciments de l Atlas. Resultantly, the market share of Lafarge declined by 2.0 points, from 41.0% in 2009 to 39.0% in In this context in 2010 the turnover of Lafarge posted a fallback of 1.6% at MAD 5,354.0 Mn. The outcome of this Group remains below our predictions which foresaw growth of 2.9%. According to us, this gap is explainable by the commissioning of Ciments de l Atlas plant in along with a pronounced contraction in margins In a context of falling activity, the operating margin was strongly impacted by the investment effort undertaken by the Group, as well as rising fuel prices in FY In fact, the operating margin declines by 5.3 points over the period from 50.2% to 44.9%. The rise of the level of depreciation is related to the commissioning over one full year of the 2nd baking line of Tetouan plant and the continued development of the wind farm. The energy bill became more expensive due to the higher prices of Coke C&F which rise by approximately 30.0% compared to In this context, the NIGS fell by 9.7% over the same period causing a net margin s decline of 2.8 points, from 34.1% to 31.3%. however, we remain confident with regard to the Group s capacity to return to normative margin levels In spite of the slowdown of demand in Morocco s cement sector, we believe that Lafarge should significantly improve its productivity, in particular thanks to its ability to exercise full control over costs. The drop in expenses will most likely be attributable to the energy bill which accounts for the largest share of production costs, i.e. 2/3rds of variable expenses. To do so, the Group has established an active investment policy targeting the expansion of its wind farms. In this respect, Lafarge remains clearly more advanced than its competitors. We expect an improvement in the operating margin in 2011 by 6.0 points, rising from 44.9% to 50.9%. Recall that the Group is currently reviewing its geographical positioning with the start up of construction of a new plant in Morocco s South. The objective is to take advantage from the infrastructure dynamics of this region. The Morocco Stock Market in face of international trends 53

55 Lafarge Our recommendation : Buy Sector : Cement works 17 june 2011 In terms of outlook, we believe that the sector should see a significant rebound from Q3 of 2011, mainly due to the start up of the various low-cost housing projects, as well as the large public infrastructure programs. We believe that Lafarge should fully benefit from a potential rise in long-term activity thanks to the investment efforts currently deployed, as well as more profitable targeted geographical diversification in the south of Morocco. In terms of valuation levels, the Group posted decent ratios, i.e. P/E11e of 18.0x and D/ Y11e of 3.9%. Our target price stands at MAD , i.e. an appreciation potential of 16.6% compared to the market price observed on 17/06/2011. Therefore, our recommendation is to BUY. 54

56 CIMAR Our recommendation : Buy Sector : Cement works 17 june 2011 Target price : MAD 1,320 CIMAR MAD USD Price 1, Market capitalisation (million) 14,941 1,891.3 Average daily volume 2011 (million) Float 14.9% 14.9% 2010 Consolidated figures In MAD Mn Var ATI 2011e Turnover 3,608 3, % 3,653 Operating Income 1,321 1, % 1,265 Operating Margin 36.6% 31.7% pts 34.6% Net income group share % 945 Net margin 26.7% 23.8% pts 25.9% Bloomberg Reuters Code CMA MC SCM.CS Lackluster growth similar to that of the sector 2010 was a less favorable year to the Moroccan cement sector, particularly for Cimar. Indeed, two main constraints penalize the sector in general: CIMAR MASI 2010 performance 28.1% 21.2% 2011 performance -13.8% -7.2% e EPS P/E NAPS P/B DPS D/Y ROE 17.4% 17.3% Stock price evolution since 01/01/2010 (100 basis) CIMAR dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI Contraction of domestic demand in 2010 with an insignificant growth of 0.4%. Recall that over the period , the domestic market posted a sustained annual growth of 10.0% in average. But in 2009, the growth level decreased suddenly to 3.4%; High energy prices after the structural rise in the inputs cost. Recall that the cost of energy is estimated at approximately 2/3rds of the variable expenditures of cement works. In this context, Cimar posted stagnating consolidated revenues of MAD 3,641.0 Mn with a sales volume up by 2.9%. The realisations of the group are below our estimates with revenues growth of 7.7%. The gap between our forecasts and the realizations of Cimar is justified by an over estimate of growth in cement demand in the Southern regions of the country which, in our opinion, seems to be spared from the slowdown experienced by the sector in general. An appreciable investment effort at the expense of margin levels In a lackluster growth environment, the significance of the operating costs increasingly cripples the margins. In this direction, the operating margin of Cimar posted a significant fallback of 4.9 points dropping from 36.6% in 2009 to 31.7% in The low growth in the activity was not able to offset the rising of fuel prices and the higher rate of depreciation after commissioning of the new plant at Ait Baha. We note that the increase in the output capacity of Cimar is occurring in a less favourable context marked by saturation in demand. However, we believe that Cimar could easily face to a possible recovery of the demand by This would be possible thanks to its appreciable ability to raise its output level. Toward readjustment of profitability in 2011 In a context of weak growth, we believe that Cimar will focus more on exercising better control over expenses to maintain its margins. For this purpose, we expect an improvement in the Group s operating margin in 2011 by 2.9 points, rising from 31.7% to 34.6%. This improvement is the consequence of two main factors: The total shutdown of the old plant in Agadir allowing this operator to obtain an appreciable fixed cost savings compared to 2010; Commissioning over one full year of the new plant in Ait Baha. This production unit is expected to allow the Group to substantially cut down on its energy bill with a drop in fuel consumption of nearly 24.0% in In this context, the NIGS could increase by 9.2%, from MAD Mn to MAD Mn over the period This performance is attributable to savings on expenses obtained by Cimar in In terms of valuation levels, the Group posted correct ratios with a P/E11e of 15,8x and D/Y11e of 3.2%. The target price stands at MAD 1,320.0, i.e. an appreciation potential of 27.5% compared to the market price observed on 17/06/2011. Therefore we recommend to BUY the stock. The Morocco Stock Market in face of international trends 55

57 Holcim Our recommendation : Buy Sector : Cement works 17 june 2011 Target price : MAD 2,700 Holcim MAD USD Price 2, Market capitalisation (million) 10,315 1,305.6 Average daily volume 2011 (million) Float 35.0% 35.0% 2010 Consolidated figures In MAD Mn Var ATI 2011e Turnover 3,543 3, % 3,675 Operating Income 1,215 1, % 1,310 Operating Margin 34.3% 35.5% +1.2 pts 35.6% Net income group share % 680 Net margin 18.9% 18.6% pts 18.5% Bloomberg Reuters Code HOL MC HOL.CS Holcim MASI 2010 performance 41.2% 21.2% 2011 performance -7.7% -7.2% e EPS P/E NAPS P/B DPS D/Y 5.3% 4.0% ROE 27.3% 26.9% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Holcim jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 Competition weighs on Holcim s growth The year 2010 remained relatively difficult for Holcim. Indeed, this operator today has to grapple with two main constraints, in particular: Compressed domestic demand, like the rest of the sector posting almost zero growth in 2010 at 0.4%; An increasingly competitive environment with the arrival of a new competitor in Morocco s central region. In this context, Holcim saw its sales slow down by 4.0%. Thanks to a positive price effect in 2010, Holcim was able to maintain its turnover almost unchanged at MAD 3,544.0 Mn. This growth level was slightly below our forecast which predicted more moderate growth of 3.4%. Appreciable maintaining of margin levels In spite of a slowdown in sector demand along with the rising of competition, Holcim is still able to improve its margin levels. Indeed, the operating margin in 2010 stood at 35.5%, up by 1.2 points compared to According to us, this operating performance is in connection with effective cost control thanks to greater use of substitute fuels which are less costly. Maintaining profitability levels in 2011 In an increasingly competitive environment, Holcim should more focus on preserving its margins. For this purpose, we believe that the group will maintain its operating margin at 35.6% in Indeed, we estimate that Holcim has an appreciable flexibility in terms of reducing its energy bill, as well as short-term improvement of productivity in its plants. The NIGS should benefit from the excellent control exercised over operating expenses, posting a rise of approximately 3.2%, from MAD Mn to MAD Mn over the period With regard to valuation, this Group posts the most attractive ratios in the sector, i.e. P/E11e of 15,2x and D/Y11e of 4.0%. Our target price stands at MAD , i.e. an appreciation potential of 10.2% compared to the market price observed on 17/06/2011. Therefore we recommend to BUY the stock. 56

58 Telecommunications The Morocco Stock Market in face of international trends 57

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60 Maroc Telecom Our recommendation : Buy Sector : Telecommunications 17 june 2011 Target price : MAD 160 IAM MAD USD Price Market capitalisation (million) 127,029 16,079.7 Average daily volume 2011 (million) Float 16.8% 16.8% H consolidated figures In MAD Mn H H Var ATI 2011e Turnover 15,447 15, % 31,000 Operating Income 6,645 6, % 12,400 Operating Margin 43.0% 39.8% -3.2 pts 40.0% Net income group share 4,443 3, % 8,680 Net margin 28.8% 26.0% -2.8 pts 28.0% Bloomberg Reuters Code IAM MC IAM.CS IAM MASI 2010 performance 10.7% 21.2% 2011 performance -3.7% -7.2% e EPS P/E NAPS P/B DPS D/Y 7.3% 6.8% ROE 50.7% 46.4% Stock price evolution since 01/01/2010 (100 basis) Maroc Telecom: a break from the historical earnings growth In the H1 2011, Maroc Telecom has broken with its structural upward trend of income for the first time since its IPO in Indeed, the Group s consolidated revenues have recorded, for the first time, a decrease of 0.8% to the end of June African subsidiaries: a real growth driver for the Group The decline in revenues was offset by the good performance of African subsidiaries which posted a turnover growth of 7.2% (on a comparable basis). The subsidiary Sotelma is distinguished by its exceptional turnover growth of 39.0%. To this end, we consider that the African subsidiaries, particularly Sotelma, constitute actually a real growth driver which will offset the slowdown in revenues growth in Morocco. We believe that the competitive pressure has led to lower income The competition aggressiveness in Morocco seems to exert strong pressure on Mobile prices, particularly from Indeed, the challenger Méditel and the new operator Wana adopt an aggressive strategy focused on lower prices, in order to increase their market share at the expense of the incumbent operator Maroc Telecom. Indeed, the increase in the usage by +22.0% does not seem enough to compensate the prices decrease on the Mobile segment, which amounts to -24.0%. Under these conditions, the ARPU of Maroc Telecom fell more than expected, by 7.8% to MAD In this way, the EBIT and the net income group share posted a significant decline of respectively 8.3% and 10.3% in H dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 IAM jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 Our point of view The competitive pressure, particularly from Wana, seems now more aggressive than expected. Indeed, it has led to a significant drop in prices of more than 7.0%, according to our estimates. We believe that this pressure on prices is expected to continue over the coming months, because the ANRT promotes actively lower prices in the Moroccan telecoms market. At this level, the main question that arises is: «will the continued lower prices at a high rate (> 10.0%) lead to a loss of value for the Stock Maroc Telecom?» We believe that it will depend on the degree of elasticity between the usage and prices in the future. A sharp increase in usage following the reduction of tariffs is expected to limit or even neutralize over time, the decline in ARPU of Maroc Telecom, and therefore will not lead to a destruction value. Thus we adopt this opinion. In this context, a flash will be published shortly in order to present our own vision about Telecommunications sector in Morocco, given the new competitive context. Note that this publication takes into account the updated results of Maroc Telecom on 26th July The Morocco Stock Market in face of international trends 59

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62 Insurance The Morocco Stock Market in face of international trends 61

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64 Wafa Assurance No recommendation Sector : Insurance 17 june 2011 Wafa Assurance MAD USD Price 2, Market capitalisation (million) 10, ,289.2 Average daily volume 2011 (million) Float 20.7% 20.7% Bloomberg Reuters Code WAA MC WASS.CS 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Life premiums 2,581 2, % 2,374.1 Non Life premiums 1,718 2, % 2,439.4 Global premiums 4,299 4, % 4,813.5 Life Technical outcome % Non life Technical outcome % Restated technical outcome * % Net income % Restated Net Income * % Dividends per share * restated of the exceptional capital gains derived from the sale of CDM stake in 2009 WAA MASI 2010 performance 48.9% 21.2% 2011 performance 2.5% -7.2% e EPS P/E NAPS P/B DPS D/Y 2.4% 2.4% ROE 28.1% 27.5% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 Wafa Assurance aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI Development of global activity boosted by the Non Life branch Well aware of the various growth levers existing in the insurance sector, Wafa Assu-rance consolidated in 2010 the development dynamics in the Life and Non Life insurance branches. Global turnover registered a rise of 4.7% compared to 2009, finally settling at MAD 4.5 Bn. This trend is primarily explainable by the double digit growth in Non Life activity of 30.3% at MAD 2.2 Bn. The Life branch reported a drop of 12.4% at MAD 2.3 Bn. Non Life activity: the corporate market gaining ground The performance in Non Life Insurance premiums is explainable by the company dynamics on the corpo-rate market where Wafa Assurance was able to broaden its wide corporate customer base finally registering a significant business volume in the process of renegotiation in the last quarter of The expansion of the number of intermediaries (+40 representatives), as well as the diversification of product offerings addressing this customer segment are the main reasons behind this perfor-mance. Automotive insurance, the flagship product, saw its contribution fall by 6.0 points settling at 47.0% of Non Life turnover. Life activity: definite refocus on long term savings Turnover for life insurance in 2010 at the end of year came to MAD 2.3 Bn, i.e. down by 12.4% compared to This negative performance is explainable by the purposeful fall in the number of single premium savings contracts. In a bid to securitize its premiums and emphasize long term savings, the company willfully cut down on its sales efforts for single premium contracts. On the contrary, death insurance improved its share in global life insurance turnover, finally settling at 25.0% vs. 18.0% in Development of the loan activity (mostly mortgage loans) partially explains this growth. Recurrent operational performance to a background of full command over loss expectancy Wafa Assurance registered a drop in its global technical income of 5.5%. By restating the exceptional items in 2009 (capital gain derived from sale of CDM stake), this outcome moved ahead by 31.9%. Non Life Insurance: The technical income from Non Life insurance amounted to MAD Mn. Restated with the exceptional items of 2009, it registered growth of 17.4% under the effect of the improvement in activity and full command over loss expectancy which settled at 70.9%. If this ratio is restated with the cost of this year s floods (exceptional) the company managed to improve its loss expectancy by 3.8 points settling at 67.1%; Life Insurance activity: its technical outcome was multiplied by three, finally settling at MAD Mn under the effect of gains in productivity in connection with the command over management expenses (-10 basis points) and the outcome of financial earnings (+MAD Mn in 2010 compared to 2009). Indeed, the company gained from the performing stock market in 2010 and the larger size of its securities portfolio. Recurrent net income up by 44.8% and revised forecast for 2011 The recurrent net income came to MAD Mn, i.e. up by 44.8% compared to This performance was reinforced by the positive trend in the non technical outcome which improved by +MAD 93.0 Mn. Our forecast for next year has been raised to an expected turnover in 11e to MAD 4.8 Bn and net recurring income of MAD Mn. We are confident in the group s outlook for the forthcoming year. For Non Life, Wafa Assurance should be able to take advantage of the corporate market and drop in loss expectancy for car insurance. For life insurance, in our opinion double digit growth in real estate loans and the diversification of savings products are the undisputable levers for development in this branch of activity. The Morocco Stock Market in face of international trends 63

65 CNIA Saada Our recommendation : Hold Sector : Insurance 17 june 2011 Target price : MAD 1,162 CNIA MAD USD Price 1, Market capitalisation (million) 4, Average daily volume 2011 (million) Float 15.0% 15.0% Bloomberg Reuters CNIA MASI 2010 performance 23.0% 21.2% 2011 performance -8.4% -7.2% e EPS P/E NAPS P/B DPS D/Y 1.9% 2.2% ROE 12.4% 12.9% CNIA Code CNIA MC CNIA.CS Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Life premiums % Non Life premiums 2, , % 2,603.5 Global premiums 2, , % 3,144.2 Life Technical outcome ns 56.5 Non life Technical outcome % Global Technical outcome % Net income % Dividends per share % 25.3 Non life activity, driving force of the growth of this insurance company In spite of a fierce competition among insurance companies for non life activity based upon a price war for automotive insurance, CNIA Assurance managed to gain market shares for this activity as is testified by the 6.3% growth in the gross premiums issued at an outstanding amount of MAD 2.5 Bn vs. +4.5% for the sector. On the other hand, the Life insurance activity registered a drop of 0.4% at MAD 0.5 Bn. This insurance company managed to stabilize its Life portfolio while lacking of a capitalistic bank insurance relationship as opposed its principal competitors, namely Wafa Assurance and RMA Watanya. Non-life activity: maintaining of leadership position in the car insurance branch In a sharply competitive context, CNIA Saada improved its income in this activity by 6.3% benefiting from its multiple targeted sales strategy. In 2010, the expansion of its intermediary network of 23 branches totaling 303 units, i.e. the leading network in the sector, as well as the sales dynamics for fire and miscellaneous risk insurance, are the principal driving forces behind this performance. Automotive insurance, the flagship product, saw its contribution fall by 2.0 points finally settling at 51.0% of the global turnover. Life activity: a bank insurance model comprising certain limits At the end of the year 2010, turnover for life insurance came to MAD 0.5 Bn, i.e. down by 0.4% compared to This negative performance is explainable by the drop in premiums issued, primarily for Death insurance. For lack of a capitalistic bank insurance model creating synergy and value like to first two insurance companies, CNIA remains hampered by the distribution agreements signed with the banking groups on the market. As proof thereof, the recent partnership of BCP with MAMDA challenges the historical alliance between CNIA and the banking Group. Although for the management the business flows with BCP remained little significant at MAD Mn, the impact of the transfer of this portfolio remains important to our opinion since its contribution to turnover in Life Insurance came to 33.3%. Drop in losses behind the operating performances CNIA Saada saw its global technical outcome move ahead by 36.9% finally settling at MAD Mn. The drop in claims, as well as improvement in the investment income are basically behind the bulk of this performance. The technical Non Life insurance outcome improved by 83.1% under the effect for improvement of the S/P of 8.8 points by 61.4%, i.e. one of the sectoral best. This drop in claims occurred in a context of clearing out the customer portfolio, primarily that inherited from Es Saada, and improved claims management. The technical performance showed a deficit of MAD 60.6 Mn. The drop in turnover along with the fall in investment income of 32% further to calculation of the allocation on securities of MAD 40.1 Mn, warrant this negative performance. The net income registered MAD Mn, up by 7.7% compared to 2009, in compliance with the predictions contained in the IPO prospectus. This moderate growth rate is explained by the negative non technical outcome further to account being taken of a MAD 20.0 Mn provision pursuant to the tax verification of FY 2006 of Es-Saada, as well as a corporate tax charge up by 37.7%. Our medium term vision Even though the low rate of renewal in Q4 of 2010 in car insurance foresaw fierce competition among insurance companies for maintaining their market share in forthcoming years, we remain confident with regard to the long-term development prospects of the company. The development levers on the domestic front are pursuant to the establishment of new mandatory insurance contract foreseen in the commitment with the state, as well as the improvement in losses further to the issuance of new driving regulations. Internationally, the acquisition of Pan-African insurance company SOLINA by SHAM Group, operating in eleven African countries, will have positive fallout on the long-term activity of this insurance company. At the current levels of prices, we recommend to hold the stock with a target price of MAD 1,162.0.

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68 Sonasid Our recommendation : Neutral Sector : Building and public works 17 june 2011 Target price : MAD 1,650 Sonasid MAD USD Price at 06/17/2011 1, Market capitalisation (million) 5, Average daily volume 2011 (million) Float 23.1% 23.1% 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 5, , % 4,800.0 Operating Income % Operating Margin 9.4% 0.1% -9.3 pts 8.3% Net income group share % Net margin 6.3% -0.5% -6.7 pts 5.6% Bloomberg Reuters Code SID MC SOND.CS Sonasid MASI 2010 performance -7.7% 21.2% 2011 performance -16.7% -7.2% e EPS P/E N.S NAPS P/B DPS D/Y 0.0% 2.8% ROE -0.8% 11.8% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Sonasid jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 A particularly penalizing context for Sonasid In FY 2010, Sonasid registered a fall in turnover of nearly 25.1% from MAD 5,495.2 Mn to MAD 4,115.0 Mn. Recall that this Group had published a profit warning anticipating the sharp drop in its net income. In this context, our department decided to not reconsider its forecasts for In FY 2010, Sonasid was severely sanctioned by the following factors: The drop in domestic steel consumption by nearly 6.7%, falling from 1,500.0 KT to 1,400.0 KT. In our opinion, this situation occurred due to a relative slowdown in social housing projects, as well as in public investment in infrastructures; The rising pressure of competition leading to a situation of over-capacity production on the market estimated at more than 40.0%, according to the management. Indeed, the market saw the arrival of three new competitors causing high pressure on prices. As a result, there are now five operators sharing this market i.e.: Sonasid, Univers Acier, Moroccan Iron Steel, Ynna Steel and Somasteel. Sharp dip in margins under the effect of anarchic competition The sharp drop of the operator s operating income by 99.0%, is on one hand attributable to crumbling of its market shares which, according to our estimates, fell from 63.0% in 2009 to 53.0% in 2010, and on the other hand to the decrease in the selling price due to the increasingly fierce competition. Recall that the new competitors practice a highly aggressive sales policy, lower by 6.0% to 10.0% compared to the prices applied by Sonasid. In consequence, the operating margin of the Group dropped by 9.3 points from 9.4% to 0.1% over the period At this level, we think that the Moroccan steel industry is going through an anarchical and temporary phase during which new arrivals are destroying the sector s margins in order to win additional market share. In our opinion, this situation is not sustainable in the medium term. Therefore, the market should return to normative margin levels further to awareness by sector operators of the interest in maintaining a correct level of profitability. Sonasid, waiting for a better visibility We believe that Sonasid will be able to benefit from a visible recovery in its activity from Q3 2011, under the recovery of social housing programs and major public infrastructure projects. In terms of profitability, we think it is premature to talk about any significant recovery of the margins because no clear-cut visibility exists regarding the: Short term price policies of new competitors; The new strategy adopted by Sonasid in order to maintain its market share. Over time, we think that Sonasid remains penalized by two principal factors. Namely, this refers to the high price volatility in raw materials abroad, as well as the high expense structure in comparison to the competitors. Therefore, the Group s flexibility to reduce its selling prices remains particularly narrow. For 2011, we believe that Sonasid should post margin levels similar to those of 2009, i.e. an operating margin of 8.3% and a net margin of 5.6%. Finally and pending a communication by the new management, we uphold our neutral recommendation for Sonasid stock. The Morocco Stock Market in face of international trends 67

69 DeIta Holding Our recommendation : Buy 17 june 2011 Target price : MAD 110 Delta Holding MAD USD Price Market capitalisation (million) 3, Average daily volume 2011 (million) Float 21.4% 21.4% 2010 Consolidated figures In MAD Mn Var ATI 2011e Turnover 1,965 2, % 2,378 Operating Income % 404 Operating Margin 15.9% 15.8% pts 17.0% Net income group share % 269 Net margin 11.0% 10.3% pts 11.3% Bloomberg Reuters Code DHO MC DHO.CS Growth in activity based on solid fundamentals DHO MASI 2010 performance 38.0% 21.2% 2011 performance -4.1% -7.2% e EPS P/E NAPS P/B DPS D/Y 3.4% 4.2% ROE 17.6% 19.2% Stock price evolution since 01/01/2010 (100 basis) Delta Holding dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI In FY 2010, Delta Holding generated an appreciable growth in activity of 12.1% to MAD 2,203.9 Mn. This performance remains slightly above our forecasts which predicted a turnover growth of 10.9%. Therefore, Delta Holding benefited from two growth levers, mainly: Active participation in the principal infrastructure projects of the country. This basically refers to the Casablanca and Rabat tramway projects, the projects for building highways, the stadiums of Tangier and Marrakech, and installation of Renault site in Tangier; The further development of international operations. In this context, Delta Holding benefited from a favourable scope effect in FY 2010 further to the integration, of two subsidiaries in France, to its consolidation scope. This refers to ISOSIGN, a road infrastructure operator and GLS specialized in the environment. Maintaining of margins for 2011 Historically, we note that in the period of high growth such as the one that Delta Holding is now experiencing, corporate entities tend to emphasize their activities to the detriment of their operating expenses. In other terms, we generally witness a negligence of margins control at the expense of commercial issues. This potential risk weighing on Delta Holding was singled out by our department in conjunction with our last publication entitled «Mid-Term Report». Upon analyzing the operational performance of the Group, we insist on commending its capacity to keep full command over its operating charges in spite of a double digit structural growth. The operating margin therefore stabilized at 15.8%. Delta Holding, a long quiet river Positioned on sectors linked to Government contracts such as infrastructure, metallurgy and the environment, and in a context where public investments are put forward as one of the principal vectors of Morocco s growth, Delta Holding appears to be securitizing a level of activity both attractive and sustainable in the medium term. We are highly confident with regard to the Group s ability to maintain high growth levels and attractive profitability in Indeed, we anticipate: Turnover up by 7.9% to MAD 2,378.2 Mn; Operating margin rising to 17.0%, slightly up by 1.2 points; Income jumping by 18.7% to MAD Mn. With regard to valuation levels, this stock shows attractive multiples, i.e. a P/E11e of 14,2x and D/Y11e of 4.2%. Given that Delta Holding has a clear business model and its achievements are in line with our forecasts, we are keeping our target price unchanged, i.e. MAD As a result, our recommendation is to BUY. 68

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72 SAMIR Our recommendation : Hold Sector : Energy 17 june 2011 Target price : MAD 582 SAMIR MAD USD Price Market capitalisation (million) 7, Average daily volume 2011 (million) Float 26.9% 26.9% Bloomberg Reuters Code SAM MC SAMI.CS SAM MASI 2010 performance 7.7% 21.2% 2011 performance 8.2% -7.1% e EPS P/E NAPS P/B DPS D/Y 0.0% 0.0% ROE 20.5% 18.6% Stock price evolution since 01/01/2010 (100 basis) 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 26, , % 38,307.1 Operating Income , ,155.0% 1,451.5 Operating Margin 0.4% 3.8% 3.4 pts 3.8% Net Income Group Share % Net margin -0.5% 2.0% 2.5 pts 2.1% Dividend per share (MAD) % parent company figures In MAD Mn Evolution Turnover 26, , % Operating Income , % Operating Margin 3.6% 3.9% +0.3 pts Net income % Net margin 2.1% 2.3% +0.2 pts Thanks to a promising environment, SAMIR reports double digit growth Over this year, the turnover of this refinery moved ahead by 37.4%, at MAD 37.0 Bn. This growth is attributed to a barrel effect with average prices up by 27.3% at $79.2/barrel, as well as a volume effect, with a tonnage growing of only 4.2% (6,787 tons in 2010 vs. 6,516 tons in 2009). However, domestic demand rose by nearly 10% compared to 2009 settling at 9.9 million tons. This demand was boosted by demand of industrial fuel (+25.0%) and A1 jet fuel (+15.0% over the year), as well as other types of fuel. Resultantly once again Samir saw its market share dwindle by 3.8 points falling from 72.4% in 2009 to 68.6% in The oil price and rise in output stimulated the refinery s income In a context of soaring hydrocarbon prices and refining margins in 2010, the refinery posted a gross operating surplus of MAD 2.02 Bn vs. MAD Mn in the previous year, i.e. a performance of 474.0%. This performance was primarily attributed to the: dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 SAMIR jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 Inventory effect: Finished product inventories whose value moved ahead by MAD 1.4 Bn has impacted positively the final outcome. And to a lesser extent: Price effect: Appreciation of hydrocarbon selling price by nearly 27.3% in one year; Hydrocraking effect: Processing has reached 6.54 million tons, i.e. an output growth of 38.0%, thereby making it possible to cut down with the importation of finished products by 60.0%. Nonetheless, the operating income moved ahead by only 49.6% reflecting the impact of depreciation allocations rising by 146.3% further to the investment program concerning the Hydrocraking complex. In spite of the 82.3% rise in financial expenses the net income posted growth similar to that of the operating income, i.e. 50,7% beyond the MAD Mn appreciation in operating income, showing an improvement in non current income of MAD 73.0 Mn. The Morocco Stock Market in face of international trends 71

73 SAMIR Our recommendation : Hold Sector : Energy 17 june 2011 Nevertheless the operating income can be interpreted in two different ways It is true that the profits registered in 2009, i.e. up by nearly 600.0% could be construed as being excellent. However by looking into it more closely, this outcome is not as wonderful as the gross figures might suggest. Indeed, the annual income of this Moroccan refinery was stipulated all the more by essentially accounting entries, i.e. inventory variation of almost MAD 2.4 Bn and improvement in the economic outlook. Resultantly, by analyzing the available cash flow, in particular the net operating cash position, this in 2010 Samir generated a flow of MAD -1.7 Bn; reflecting the Group s inability to selffinance and to distribute dividends, as well as its dependency with regard of indebtedness for financing growth of its activity. This is a financing source that we deem used up by the Group which currently resorts to a debt restructuring operation. Promising operating performances under threat due to an financial structure imbalance Commissioning of the Hydrocraking complex and the bitumen unit are expected to meet the Morocco s growing requirements in diesel fuel at 50 ppm and 10 ppm and therefore obtain an operating margin well over that of previous years. Nonetheless, Samir s financial situation is still cause for concern. Its net debt was nearly 3 times shareholders equity on 31 December This high level of indebtedness is not without effect on the income of this oil giant as in 2010 it gave rise to heavy financial expenses representing up to 34% in operating income and 59% in net income. In the long term we are confident in predicting moderate growth. Our forecasts in 2011 as listed below bear witness to this situation: 2011e turnover of MAD 38.3 Bn, i.e. up by 3.5%; 2011e operating income of MAD 1.5 Bn, up by 7.1%; 2011e Net income group share MAD Mn, up by 3.4%. In stock market terms, Samir has lost 3.6% from the beginning of the year after a performance in 2010 of 7.7%. This generates attractive stock market multiples, i.e. P/E 11e of e 9.5x and P/B of 1.6x vs. a P/E 11e of 12.9x and P/B 11e of 2.3x for the sector. Based on a valuation by the DCF method, we recommend to Hold the stock Samir with a target price of MAD

74 Afriquia Gaz Our recommendation : Hold Sector : Energy 17 june 2011 Target price : MAD 1,842 AFG MAD USD Price 1, Market capitalisation (million) 5, Average daily volume 2011 (million) Float 4.8% 4.8% Bloomberg Reuters Code GAZ MC AGAZ1.CS AFG MASI 2010 performance 22.5% 21.2% 2011 performance 1.6% -7.1% e EPS P/E NAPS P/B DPS D/Y 4.3% 4.9% ROE 19.1% 18.2% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 AFG jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 2, , % 3,484.2 Operating Income % Operating Margin 15.7% 14.8% -0.9 pts 14.4% Net Income Group Share % Net margin 10.9% 10.3% -0.6 pts 9.6% Dividend per share (MAD) % parent company figures In MAD Mn Evolution Turnover 2, , % Operating Income % Operating Margin 13.6% 12.5% pts Net income % Net margin 10.5% 9.6% -0.9 pts Growing activity boosted by bottled butane With growth in activity of 24.6% in 2010, Afriquia Gaz reported income in line with our forecasts suggesting growth of 24.2%. The group reported a turnover of MAD 3.2 Bn vs. MAD 2.6 Bn one year earlier. This double digit growth is explainable by a price and volume effect. Volume effect: The volume in LPG sold in 2010 moved ahead by 3.8% at 831,408 TM. This market performance is the result of an aggressive sales strategy of the Group s gas subsidiary Akwa, as well as the rationalization of the distribution network which enabled the Group to gain market shares in regions where the company previously was without access. Indeed, the most recent publications concerning LPG on the Moroccan market show a gain in market share of 1.6 points for Afriquia Gaz at 43.9% vs. 42.3% in This growth is due to a reinforcement of bottled butane were the Group sold nearly 696,595 TM representing more than one half of its turnover, i.e. 83.3%. Price effect: further to a positive international economic situation gas prices moved briskly ahead reaching MAD 6, per ton thereby positively impacting the Group s turnover. Erosion of margins negatively impacted by rising costs The operating profit grew by 17.4% at MAD Mn showing a margin rate of 14.8% vs. 15.7% one year earlier. This worsening of the operating margin is largely attributable to the rise in the cost of goods and services sold and the increased position of bottled butane in the make-up of turnover. To be recalled is that this product has a low margin compared to LPG for industrial use. The purchase price of products sold represented only 67% of turnover in 2009 and posted a turnover quota of 71.0% in The rising costs are primarily explainable by skyrocketing input prices. However, payroll expenses underwent a light fall mitigating the impact of the rise in raw materials costs. The fall from 4.2% to 3.3% in turnover amounted to MAD Mn. The Morocco Stock Market in face of international trends 73

75 Afriquia Gaz Our recommendation : Hold Sector : Energy 17 june 2011 Financial income posted a loss of MAD Mn. It was primarily impacted by interest charge of MAD 64.7 Mn basically due to appreciation of the Group s indebtedness. Indeed, in 2010 net indebtedness grew by 297.0%, amounting to MAD Mn henceforth representing 46.7% of shareholders equity vs. 13.6% in the previous year. To be recalled is that net indebtedness grew sharply further to a bond issue of MAD Mn 2010 with the aim of reimbursement of the bond issued in 2005 for an amount of MAD Mn expiring in September 2010 and financing of Group growth via an investment program. The net income moved ahead by 17.3%, i.e. MAD Mn posting a net margin rate of 10.3%, down by 0.6 points. Considerable levers to the outlook of Afriquia Gaz The increasing number of household along with the sharp rise in the number of low cost housing units and consolidation of industrial activity (appreciation of industrial GDP of MAD 50.0 Mn in 2015), Afriquia Gaz, is expected to benefit from new growth niches. In addition, thanks to the strengthening of shareholders equity (MAD 1.7 Bn in 2010 vs. MAD 1.5 Bn in 2009) and in spite of the higher gearing at 46.7%, we deem that the Group still enjoys a solid financial foundation allowing it to carry out its development and investment projects. In the long term we are confident that continuation of the performances reported in Our forecasts established in 2011 given here below bear witness thereto: Turnover in 2011e of MAD 3.5 Mn, up by 7.4%; Operating income in 2011e of MAD Mn, up by 4.3%; Net income group share in 2011e of MAD Mn, up by 0.1%. In terms of stock market trends, the AFG share gained 1.9% since the beginning of the year after a performance in 2010 of 22.5%. It shows stock market multiples below the market level, i.e. a P/E 11e of 17.4x and P/B of 3.1 vs. a P/E 11e of 12.9x and sector P/B 11e of 2.3. On the basis of updated valuation by DCF, we recommend to Buy the stock Afriquia Gaz with a target price of MAD 1,

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78 Eqdom Our recommendation : Buy Sector : Consumer loans 17 june 2011 Target price : MAD 1,864 Eqdom MAD USD Price 1, Market capitalisation (million) 2, Average daily volume 2011 (million) Float 17.0% 17.0% Bloomberg Reuters Code EQD MC EQDM.CS 2010 parent company figures In MAD Mn Evolution ATI 2011e Net Banking Income % Cost Income ratio 35.7% 34.5% -1.2 pts 34.0% Gross Operating Income % Risk cost 0.7% 0.7% - 0.7% Operating Income % Operating margin 56.4% 56.5% +0.1 pts 57.4% Net income group share % Net margin 36.4% 36.3% -0.1 pts 36.0% Eqdom MASI 2010 performance 14.1% 21.2% 2011 performance -3.3% -7.2% e EPS P/E NAPS P/B DPS D/Y 7.0% 6.7% ROE 19.2% 17.5% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Eqdom jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 In a domestic economic context marked by a drop, for the second year (-5.0%), in the production of the consumer loan sector and worrisome rise in the cost of risk, Eqdom managed to improve its activity margins, helped by a solid financial foundation, and favorable clientele mix (low risk civil servants) enabling it to confront the high risk at the sector level. Growth in activity higher than that of the market This financing company in 2010 registered gross growth in outstanding consumer loans of 6.3% to MAD 9.2 Bn. This represented a level higher than that of the market, i.e. +4.4%, at the end of the year with an outstanding amount of MAD 41.1 Mn. The net banking income improved by 4.0% to MAD Mn, primarily attributable to the performance of interest rate margin (+9.6%), in an environment of declining income for financial leasing activities of 17.6% further to the constant fall in outstanding financial leases and leasing with options due to the discontinuance of the tax break. With an operating ratio of 34.5%, down by 120 basis points compared to 2009 in spite of the extension of branch office network, Eqdom managed to improve its gross operating profit margin by 1.2 points finally settling at 65.5%. Resultantly, the gross operating income came to MAD Mn, i.e. up by 5.8% compared to With regard to the cost of risk and in a sectoral context characterized by a 54.0% rise in net write-off allocations in 2009 at an outstanding amount of MAD Mn, the credit subsidiary of the Société Générale Group managed to do better than the market, by posting a 30.0% rise in the cost of provisioning at MAD 66.9 Mn. However, Eqdom still managed to maintain its risk s cost unchanged compared to the previous fiscal year, i.e. 0.7% of the gross outstanding loans. With regard to the sector, the rise in customer risks in this year led to tightening the conditions for granting loans by banks. This explains the consecutive drop, for the second year, in a row of production of loans in the sector. Solid financial foundation and high levels of yield EQDOM has a solid financial foundation and high margins in comparison to its competitors enabling it to confront the drop in production in a less favorable economic situation. The discomfiture of several competitors could prove beneficial for this subsidiary of the Société Générale which could allow the completion of external growth operations and therefore consolidate its position as a top player in consumer loans in Morocco. Our forecasts for 2011 maintained We maintain our predictions for 2011, i.e. a consolidated NBI 11e of MAD Mn and a net income group share 11e of MAD Mn, respectively up by 3.2% and 2.3%. These performances are due to the less favorable macroeconomic context and the rise in the cost of risk of the sector. However, the EQDOM stock has attractive stock market and yield multiples, i.e. a P/E 11e of 10.8x vs. 11.4x in the sector, a D/Y 11e of 6.7% vs. 5.8% for listed financing companies and ROE 11e of 17.5% vs. 14.0% for the sector. Given the current price level, we recommend buying this stock in portfolios with a price target of MAD 1, The Morocco Stock Market in face of international trends 77

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82 LABEL VIE Our recommendation : Sell Sector : Distribution 17 june 2011 Target price : MAD 999 Label Vie MAD USD Price 1, Market capitalisation (million) 2, Average daily volume 2011 (million) Float 16.7% 16.7% Bloomberg Reuters Code LBV MC LBV.CS Valeur MASI 2010 performance 9.2% 21.2% 2011 performance -9.8% -7.2% e EPS P/E NAPS P/B DPS D/Y 0.0% 0.0% ROE 7% 7% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Label Vie jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 1, , % 5,474.3 Operating Income % Operating Margin 4.1% 1.6% -2.5 pts 2.0% Net income group share % 62.0 Net margin 4.3% 1.1% -3.2 pts 1.1% A new dimension acquired after Metro Maroc acquisition With the recent Metro Maroc acquisition on 15 November 2010, Label Vie reached a new dimension. Its consolidated activity level approached the MAD 5.0 Bn (MAD 4,888.0 Mn) mark vs. MAD 1.8 Bn a year earlier. On a comparable basis, turnover grew by 15.0%. Pro forma growth was spurred by double digit figures of the already existing stores (+13.6%) and the opening of 7 new sale points accounting for the extra MAD Mn. On a comparable basis, the EBITDA reported a rise of 127% at MAD Mn representing an EBITDA margin of 4.8%. This rate was lower than that posted in 2009 (6.1%) primarily due to the new openings which showed profitability levels below those of the mature entities. An acquisition still temporarily weighing on profitability levels However, this surge in the operating indicators did not lead to growth in profits. On a comparable basis, the net consolidated income came to MAD 53.0 Mn compared to the MAD Mn deficit posted in the previous year. This drop takes account of negative income of MAD Mn for Metro Maroc, and considerable rise in financial expenditure in connection with the network extension program. A substantial rise closely connected to the net level of consolidated indebtedness which reached MAD 1,580.0 Mn vs. a null level at the time of the stock market listing. The debt to equity ratio consequently came to 188.0%. Confidence in the economic model leading to the acceleration of the expansion plan Confident in the pertinence of its economic model, Label Vie Group continued its ambitious development plans by leaps and bounds. They are based on: The gradual conversion of Metro Maroc sale points under the name of Carrefour by ; Opening of new Carrefour stores in Fez and Tangier encouraged by the outright success met by the first Carrefour openings; Extension of sales surface by 8 supermarkets and more than 9,000 square meters of additional floor surface; Investment in a storage platform at Skhirat which covers a surface area of 24,000 square meters. nevertheless being carried out to the detriment of margin levels Note that even though Label Vie globally reached its turnover targets set forth at the time of its stock market listing, the company registered a considerable delay in terms of operating and net profits. The foreseeable extension of the sales surface would lead one to hope for a rising level in activity rather the higher margin levels, at least in the short run. The valuation levels of this stock are particularly high. Currently, the stock is trading with a P/E 11e of 43.3(x). The price induced into the valuation by cash flows comes to MAD Sell at current prices. The Morocco Stock Market in face of international trends 81

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84 Automotive The Morocco Stock Market in face of international trends 83

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86 AUTO-HALL Our recommendation : Sell Sector : Automotive 17 june 2011 Target price : MAD 81 Auto-Hall MAD USD Price Market capitalisation (million) 4, Average daily volume 2011 (million) Float 22.5% 22.5% Bloomberg Reuters Auto-Hall MASI 2010 performance 22.1% 21.2% 2011 performance 0.6% -7.2% e EPS P/E NAPS P/B DPS D/Y 6.6% 3.8% ROE 12% 12% Code ATH MC AUTO.CS Stock price evolution since 01/01/2010 (100 basis) 2010 Consolidated figures In MAD Mn Evolution ATI 2011e Turnover 2, , % 2,863.4 Operating Income % Operating Margin 10.7% 10.0% -0.7 pts 9.7% Net income group share % Net margin 7.1% 7.3% +0.2 pts 6.9% A double digit drop in turnover highlighting the offensive nature of this activity Auto hall demonstrated the offensive nature of its activity, registering a considerable fallback of 10.0% in turnover at MAD 2,627.0 Mn. However, the extent of this decline must be put into context given the sharp drop in vehicle sales throughout Morocco. The most affected segments were agricultural tractors (-44.0%) as a result of the grant decrease, followed by industrial vehicles (-17.0%) which suffer from the Yen s surge and the new traffic rules which penalizes overloaded trucks, leading to lower demand on the small and medium tonnage. Margin levels globally held in spite of temporary difficulties The drop in consolidated operating income is in line with the drop in turnover. In spite of dwindling margins on resold purchases, the operating margin was maintained at a level of 10.0% thanks to an astonishing contraction (-14.0%) in wages, as result of specially the sales team. Lastly, the net consolidated income was down by -7.5% to MAD Mn. The positive contribution of financial income was behind the drop in operating indicators. Resulting from the drop in income, the board of directors offered a per unit dividend of MAD 3.5 representing a distribution rate of 84.0%. At current price levels, the D/Y 2010 still remains attractive at 6.6%. Growth forecasts of the management are difficult to reach dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Auto-Hall jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 In FY 2011, the management of Auto Hall predicts growth in turnover of 18.0% to MAD 3.1 Mn surpassing the level observed in 2009 settling at MAD 2.9 Bn. Although the crop year for is expected to be good with output calculated at 88.0 million quintals announcing a potential rebound in tractor and vehicle sales in January growing by 9.5%, we remain skeptical with regard to the Group s ability to reach this level. But do not challenge the development strategy of Auto Hall This reservation in no way challenges the pertinence of Auto Hall s strategy. The continuation of the branch office openings in both urban and rural areas are expected to continue to remain positive. Furthermore, the Group s land holdings accumulated throughout its existence constitute an appreciable underlying reserve and safety cushion against any structural furtherance of the drop in demand. With the decline in income, Auto Hall shows less attractive valuation levels. This stock is traded at a P/E 11e of 21.8x near the average market level. The valuation calculated according to the DCF method led to a price target of MAD Our recommendation is to Sell this stock. The Morocco Stock Market in face of international trends 85

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88 Agri-business The Morocco Stock Market in face of international trends 87

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90 Cosumar Our recommendation : Buy Sector : Agri-business 17 june 2011 Target price : MAD 2,041 Cosumar MAD USD Price 1, Market capitalisation (million) 7, Average daily volume 2011 (million) Float 11.6% 11.6% Bloomberg Reuters Code CSR MC CSMR.CS Cosumar MASI 2010 performance 46.1% 21.2% 2011 performance -6.2% -7.1% e EPS P/E NAPS P/B DPS D/Y 4.7% 4.5% ROE 20.8% 17.9% Stock price evolution since 01/01/2010 (100 basis) dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 Cosumar jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may Consolidated figures In MAD Mn Evol. Estimation ATI 10e Evol. GAP 2011e Turnover 5, , % 5, % 1.0 pts 5,927.1 Operating Income , % % 39.2 pts 1,007.6 Operating Margin 16.7% 20.8% 4.1 pts 14.5% 0.0 pts 4.1 pts 17.0% Net income group share % % 5.9 pts Net margin 9.7% 10.1% 0.4 pts 9.7% +0.2 pts 0.2 pts 9.7% Dividend per share % % 0.0 pts parent company figures In MAD Mn Evolution Turnover 4, , % Operating Income % Operating Margin 17.1% 15.5% -1.6 pts Net income % Net margin 12.2% 12.9% 0.7 pts A considerable improvement in income upheld by the development of production capacity Thanks to the rise in sales volumes, in connection with the restructuring and industrial development program, Cosumar once again began to see its activity growing in 2010 compared to In a neutral price effect context, the 2.1% growth in sales volume of Morocco s sugar producer contributed to the growth in turnover of 2.0% at MAD 5.8 Bn after stagnating in Note that 88.0% of sales concerned the sale of granulated sugar and sugar loafs. As opposed to 2009, the negative rainfall context had a lesser impact on output. Indeed, the sharp growth of refining in Casablanca helped to reduce the drop in domestic output from sugar plants by -7.0% at 380,000 tons. Appreciable preservation of operating margins in spite of the negative rainfall context Cosumar was able to improve slightly its operating performances with a gross operating surplus up by 1.9% to MAD 1.2 Bn. However the EBIT margin remained stable at around 20.0%. During the year, expenses in connection with operation underwent a substantial change. This situation is linked to the rise in raw materials costs and the rampant floods that hit the Gharb and Loukkos regions. Indeed, output came to 379,276 tons and was able to cover only 32.0% of Morocco s domestic consumption which led to import of unrefined sugar from Brazil which is more expensive. For the sugar producer, 2010 was marked by full control of investment levels moving from MAD Mn in 2009 to MAD Mn. The Morocco Stock Market in face of international trends 89

91 Cosumar Our recommendation : Buy Sector : Agri-business 17 june 2011 Appreciation of the net income group share In 2010 the net income group share posted a growth of 6.3% compared to 2009 rising from MAD Mn to MAD Mn. This situation is explainable not only by the turnover increase but also by the improvement of financial income through the rise in equity holdings of Cosumar in government-run sugar plants. Actually the group holds in Surac, Sunabel, Suta and Sucrafor, respectively, a stake of %, 99.15%, 99.63% and 90.96%. Outlook for 2011 The positive fallout from the Indimage plan should continue to 2013 and will enable Morocco s sugar producer to widen its output capacities and improve production costs. Also, the crop year which is expected to be favorable will allow the group to report better outcomes in Nevertheless, soaring raw materials prices are expected to weight on the cash position of this sugar producer which imports nearly 700,000 tons of raw sugar every year. This situation is thought to be in connection with Cosumar s recourse to short-term indebtedness to finance rising input costs pending compensation from the government. On the basis of growth calculated at 2.0% income coming from a slight rise in domestic consumption and minimal rise in output across crop years expected to be favorable, the 2011e turnover totalled MAD 5.9 Bn. Further, on the basis of the above, Cosumar should maintain its operating margins at levels around 18.0%, signifying a net income of MAD Mn. 90

92 Centrale Laitière Our recommendation : Hold Sector : Agri-business 17 june 2011 Target price : MAD 1,243 Centrale Laitière MAD USD Price at 06/17/2011 1, Market capitalisation (million) 12, ,594.2 Average daily volume 2011 (million) Float 4.1% 4.1% Bloomberg Reuters Code CLT MC LAIT.CS CLT MASI 2010 performance 19.6% 21.2% 2011 performance 6.5% -7.1% e EPS P/E NAPS P/B DPS D/Y 4.4% 4.4% ROE 31.9% 31.8% Stock price evolution since 01/01/2010 (100 basis) CLT dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evol. Estimation ATI 10e Evol. GAP 2011e Turnover 5, , % 6, % 0.2 pts 6,668.0 Operating Income % % 13.4 pts Operating Margin 16.1% 14.1% -2.0 pts 16.1% +0.0 pts 2.0 pts 14.0% Net income group share % % 17.1 pts Net margin 11.0% 9.5% -1.5 pts 11.2% +0.2 pts 1.7 pts 9.7% Dividend per share % % 5.4 pts parent company figures In MAD Mn Evolution Turnover 2, , % Operating Income % Operating Margin 13.5% 13.8% +0.3 pts Net income % Net margin 10.3% 9.6% -0.7 pts Centrale Laitière is maintaining it pace of growth thanks to the constant efforts put forth. In 2010, the Centrale Laitière Group was able to maintain its appreciable pace of growth registering a turnover of MAD 6,174.0 Mn, up by 8.2%. The resulting growth is essentially attributable to the rise in volumes (+7.7%) thanks to its product innovation and development policy in a climate of fierce competition. Indeed, for the Agro-food group 2010 was characterized by consolidation of «YAWMI» brand and the launch of the new product range «Activia». This performance was also boosted by the policy of supply securitization. Indeed, the positive trend in milk collection was up by 14.0% amounting to million litters of milk in the framework producer partner fabric development through the import of more than 5,600 heifers. On the same way, the strengthening of distribution channels further to the extension of the sales network and opening of the 27th sales office in Taza made possible the supply to 1,000 new proximity businesses. Dependency of the imports strongly penalizes the group s operational outcome The Group s operational outcome contracted by 5.5% compared to the previous years given the negative weather conditions, as well as the rise in raw materials prices abroad, particular for plastics and packing. The operational margin of Centrale Laitière fell from 16.1% to 14.1%, i.e. a drop of 200 base points. At the same time the net income group share showed a decline of 6.6%. This drop is attributable to the fallback in its operating income along with the considerable rise in financial expenses. In this context, the net margin fell by 1.5 points dropping from 11.0% to 9.5%. Attractive outlook on a tense market The high competition growth of the dairy product market is going through, as well as the economic situation in connection with the continuous raw materials price hikes are not expected to impact the Group s outcomes. Indeed, its expertise and development strategy having the aim of securitization and supplies at the local level with the objective of national self sufficiency and the consolidation of the proximity sales network under such names as «Maison/Home» increasingly ingrained in the Moroccan consumer. The Morocco Stock Market in face of international trends 91

93 Centrale Laitière Our recommendation : Hold Sector : Agri-business 17 june 2011 In this framework, Centrale Laitière initiated a series of investment programs, especially for the extension of its global output capacity, to reach 2.3 million litters involving nearly MAD 1.8 Bn over the next 5 years. At the same time, several partnership agreements were signed in connection with the Green Morocco Plan (Plan Maroc Vert) geared to the modernization of industrial tools of small milk producing farms. To be noted is that the market leader has just launched a new exclusive program called Fermes Laitiére Imtiaz (Imtiaz Dairy Farms). This program targets the development of dairy farms of over 10 hectares with the goal of reaching annual profits of MAD 50,000 per hectare. Consequently, in 2011 Centrale Laitière is expected to maintain its net profit levels. In this way, 2011 our forecast is as follows: Turnover of MAD 6,668.0 Mn, i.e. growth of 8.0%; Operating profit of MAD Mn, i.e. growth of 7.3%; Net income group share of MAD Mn, i.e. growth of 8.0%. On the stock market in 2010, the stock has registered a rise of 19.6%. Recall that this agrofood company carried out a split operation after which the par value slid from MAD to MAD 10.0 totalling MAD 9.42 million instead of MAD 942,000. Based on the above, we recommend to HOLD the stock Central laitière with a target price of MAD 1,243.0, according to our approach of valuation by DCF, i.e. a discount of 7.5% on 29 April

94 Lesieur Our recommendation : Hold Sector : Agri-business 17 june 2011 Target price : MAD 116 Lesieur MAD USD Price Market capitalisation (million) 3, Average daily volume 2011 (million) Float 12.0% 12.0% Bloomberg Reuters Code LES MC LESU.CS Lesieur MASI 2010 performance 37.4% 21.2% 2011 performance -22.4% -7.1% e EPS P/E NAPS P/B DPS D/Y 4.4% 4.4% ROE 10.3% 10.2% Stock price evolution since 01/01/2010 (100 basis) 150% 140% 130% 120% 110% 2010 Consolidated figures In MAD Mn Evol. Estimation ATI 10e Evol. GAP 2011e Turnover 3, , % 3, % 10.5 pts 3,279.0 Operating Income % % 30.3 pts Operating Margin 8.9% 7.0% pts 4.4% pts 2.6 pts 7.0% Net income group share % % 0.8 pts Net margin 7.3% 4.6% pts 5.3% pts 0.7 pts 9.7% Dividend per share % % 24.8 pts parent company figures In MAD Mn Evolution Turnover 3, , % Operating Income % Operating Margin 7.9% 6.9% +0.3 pts Net income % Net margin 7.1% 4.6% -0.7 pts Income penalized by competitive pressure In unfavorable sectoral context, the group Lesieur Morocco s table oil leader has registered a turnover of MAD 3.5 Mn representing a decline of 13.6% compared to Indeed, the sales volumes of table oil saw a sharp drop this year due to the pressure from competition concerning the table oil market. At the same time, the fall in table oil consumption by nearly 10.0%, constituted one of the factors contributing to this sharp decline. This situation is the result of a transfer of consumption of table oil to olive oil further to record oil production reaching 1,500,000 tons in the crop year, i.e. up by 76.0% compared to last year. In addition the soaring price for crude oil abroad not entirely carried over to selling prices impacted strongly the Group s activity. 100% 90% 80% dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 Lesieur aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 MASI feb-11 mar-11 apr-11 may-11 Sharp drop in operating performance In this context, during 2010 the Group posted an operating income of MAD Mn vs. MAD Mn, i.e. down by 32.1% compared to the previous year. This decline is particularly attributable to the rise in allocations to depreciation and provisions rising from MAD 5.0 Mn in 2009 to MAD 82.0 Mn. The Group Lesieur had to drop its crushing activity severely hit by the dismantling of soybean cake tariffs leading to assets depreciation of MAD 22.0 Mn. We note that in 2009 this activity generated a turnover of MAD Mn. Therefore, the operational margin registered a fall of 1.9 points dropping from 8.9% to 7.0%. For lack of any exceptional items the earnings were sharply down In spite of the significant trend in export sales volumes, Lesieur posted a net income group share of MAD Mn, down by 45.8%. This negative performance is largely explainable by the absence of an exceptional value added registered in the previous year, in connection with the sale of 100% of the capital of CMB PLASTIQUE subsidiary. Thus the net margin fell from 7.3% to 4.6%, i.e. a drop of 2.7 points. The Morocco Stock Market in face of international trends 93

95 Lesieur Our recommendation : Hold Sector : Agri-business 17 june 2011 In 2011, the high degree of volatility in oilseed prices abroad and the surplus offer on the olive oil market are expected to negatively impact the activity of Lesieur Cristal. Consequently, we expect a drop in turnover of approximately 5.0%, moving from MAD 3,452.0 Mn to MAD 3,279.0 Mn in In an unfavorable economic situation in terms of growth, Lesieur will focus its efforts in order to control its margins. Indeed, in 2011 the Group is expected to gain from strict optimization of expenses via better command over the production chain and stricter management of raw materials coverage. The significance of operational expenses, according to our estimate, should drop by 1.2 points falling from 94.2% to 93.0% in In this context, the operating margin is expected to stabilize over the same period at about 7.0%. In the end, the NIGS should post a slight rise compared to 2010 moving by 3.7% at MAD Mn. As for stock market performance, in 2010 the stock displayed a positive performance of 37.4%. We recall that this agro-food company carried out a split operation after which the stock nominal value was reduced from MAD to MAD Based on the above, our recommendation is to hold the Lesieur Cristal share at a target price of MAD 116.0, i.e. a 3.0% discount (our target price via DCF). 94

96 Brasseries du Maroc Our recommendation : Buy Sector : Agri-business 17 june 2011 Target price : MAD 2,475 SBM MAD USD Price 1, Market capitalisation (million) 5, Average daily volume 2011 (million) Float 20.8% 20.8% Bloomberg Reuters Code SBM MC SBM.CS SBM MASI 2010 performance -35.9% 21.2% 2011 performance 6.5% -7.1% e EPS P/E NAPS P/B DPS D/Y 5.3% 4.5% ROE 18% 19% 140% 130% 120% 110% 100% Stock price evolution since 01/01/2010 (100 basis) 90% 80% 70% 60% 50% SBM dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jul-10 aug-10 sept-10 oct-10 nov-10 dec-10 jan-11 feb-11 mar-11 apr-11 may-11 MASI 2010 Consolidated figures In MAD Mn Evol. Estimation ATI 10e Evol. GAP 2011e Turnover 2, , % 2, % 2.6 pts 2,284.0 Operating Income % % 8.7 pts Operating Margin 24.8% 22.1% pts 24.8% 0.0 pts 2.7 pts 21.8% Net income group share % % 38.0 pts Net margin 14.4% 11.4% pts 17.1% +2.3 pts 1.7 pts 9.7% Dividend per share % % 24.8 pts parent company figures In MAD Mn Evolution Turnover 1, , % Operating Income % Operating Margin 23.1% 22.0% pts Net income % Net margin 19.7% 18.3% pts Higher taxation sharply hits the activity of this Moroccan brewery In a very tight economic context in connection with higher consumption taxes (TIC) and fiscal marking, in 2010 the Group Brasseries du Maroc «SBM» reported growth of 3.6% in turnover to reach MAD 2,200.7 Mn against a slight rise of 1.6% in the previous year. Further, this rise in turnover should be put into context as the Group s activity suffered from a sharp drop in Indeed, the 50.0% rise in the TIC (Domestic Consumption Tax) and the hike in cost of fiscal marking affected the sales prices of the Group s products. Therefore, this price effect had a significant impact on the sales volume which declined by 12.5%. Also, the fact that the months of Chaâbane and Ramadan occurred at the same time as the summer season, a period of high sales, had a negative effect on the Group s income. In terms of operating income, SBM posted an operating income down by 7.9%. Indeed, the rise in operating expenses, settling at 7.7%, was clearly higher than that of turnover limited at 3.6%. In this context, the operating margin fell from 24.8% to 22.1%, i.e. a drop of 2.7 points. This situation is due to the significant fall in the volumes sold and higher taxation partially carried over prices. Consequently, for FY2010 SBM posted a profit of MAD Mn, i.e. down by 18.5%. This negative performance was also hit by higher deficit in non current income compared to the previous years, falling from MAD Mn to MAD Mn. Therefore the net margin showed a drop of 3.1 points declining from 14.4% to 11.4%. Outlook Since the beginning of 2010 the tax increases and coinciding of the months of Chaâbane and Ramadan with July and August, months of high sales, are expected to negatively impact the Group s activity and income in In this way, to limit the impact of the sales volumes decrease forecasted in 2011, this Moroccan brewer should undertake a certain number of measures with the aim of optimizing production and cutting down on expenditures. Considering the aforementioned items, the 2011 forecasts for Moroccan brewer SBM are the following: Turnover of MAD 2,284.0 Mn, i.e. up by 3.8%; Operating income of MAD Mn; Net income group share of MAD 239,8 Mn. The stock market performance of the stock registered in 2010 was -35.9%, with an average daily volume of MAD 3.4 Mn. On the basis of our approach DCF (discounted cash flow), our recommendation is to Buy SBM s stock with a target price of MAD 2, The Morocco Stock Market in face of international trends 95

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98 Utilities The Morocco Stock Market in face of international trends 97