NKBM D.D.

Transcription

1 1 st April 2011 NKBM D.D. Banks LJSE ticker: KBMR Bloomberg: KBMR SV 12,5 Target price: 11.4 EUR Previous target price: 13.2 EUR, HOLD ( ) Recommendation: HOLD 12 months stock performance in EUR Stock data as of 1 st April 2011 Market price (EUR) 10.1 Market Cap (EUR) 264.2m 52 week range (EUR) No. of Shares 26.1m Avg. daily trade vol., EUR(k) 62.2 Free float 49% Average daily % of stock traded 0.022% Dividend yield 0% Price performance Multiples: TTM 2011F 3 months 12 months P/E price change in % -0.4% -12.7% P/B SBI TOP index change in % -2.1% -14.7% relative to SBI TOP in % 1.8% 2.4% 12,0 11,5 11,0 10,5 10,0 9,5 9,0 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Key figures (According to International Accounting Standards) Consolidated data in EURm Income statement: Balance sheet: million FY2009 FY F 2012F million FY2009 FY2010 TTM Net int. income Total loans 4, , ,281.3 Net int. margin 2.4% 2.5% 2.5% 2.6% Deposits 3, , ,712.7 Other revenue Provisions Growth yoy 58.9% 54.3% 49.4% 42.0% Equity CIR Assets 5, , ,866.7 Provisions Loan/Dep Net income ROA 0.2% 0.2% 2.7% Growth yoy -23.4% 3.3% 48.9% 8.2% ROE 2.7% 2.7% 0.2% EPS E/A 6.8% 6.8% 6.8% KBMR SBI TOP Second largest Slovenian bank. State ownership could dilute. Consolidation of the group could increase ROE. IPO in Warsaw. ALTA Invest, investicijske storitve, d.d. Železna cesta 18 SI-1000 Ljubljana Slovenia phone: invest@alta.si Head of Research: Sašo Stanovnik saso.stanovnik@alta.si Head of Trading: Igor Taljat igor.taljat@alta.si Investment Thesis: Second largest Slovenian banking institution: Nova kreditna banka Maribor (NKBM) is the second largest banking group in Slovenia which had a 11.3% market share in terms of total banking sector s assets (NKBM and PBS in 2010) and 11.6% market share in commercial loans. In 2010 bank remained a strong depositary institution and it held a high 15.5% market share in terms of deposits. Core Banking Business: In the environment of different regulatory changes and restrictions, NKBM Group could be among the beneficiaries. Group s trading portfolio shrank significantly and at the end of the 2010 represented less than 0.1% of total assets compared to 5.8% in 2005 and 2.7% in The primary reason was not the meltdown of Slovenian capital market which began at the end of 2007 but the sale of securities held for trading. The management sees focusing on the core banking activity as a long term strategy. NKBM Group's results and forecasts (in EUR m) 2010A 2011P (Jan 11) Total Balance 5, ,959.2 Net interest Income Net Fee and Commission Income Provisions Profit from Operations Net Income Net Income (Holders of the Parent) For 2011 they expect slow growth with Group s assets increasing by 1.5%. Due to lower provisioning and better performance of subsidiaries, net income will increase significantly. Management warned that although economic growth for period is encouraging there are till uncertainties guidance is hence once again under great influence of net impairment losses and provisions which are projected to amount to EUR 67.2 million. New Strategy: In January 2010 NKBM started to expand its operations on lower developed South-East European markets. In accordance with this more aggressive approach, the Group injected fresh capital into a small Serbian bank Credy banka a.d. NKBM became a 55.1% owner of Credy banka. In November 2010, NKBM Group injected additional capital and hence increased its ownership to 72.38%. 1/10

2 Management expects Serbian bank will return to profitability by 2011 and will positively affect Group s profitability in the years after We believe Credy banka is well positioned to gain from the rebuilding of the Serbian auto industry. Although further capital injections are expected, they are justified by large retail network. Namely, a greenfield investment would require higher capital expenses. In line with this strategy we can also mention possible consolidation of NKBM Group. Capital increase worth around EUR 130 million which is expected in the next few months could (if successful) result in increasing ownership in PBS (NKBM currently holds 55% of bank), Adriabank AG (NKBM currently holds 50.54% of bank) and Zavarovalnica Maribor (NKBM currently holds 49.96% of insurance company). In 2010, total assets of mentioned banks (both are already consolidated in Group results) amounted EUR 1,050 million while they achieved combined net profit of EUR 7.4 million. Maribor Insurance Company: NKBM group consists of more affiliated financial institutions which are integrated into a combined bank assurance business. The biggest one is Zavarovalnica Maribor - ZM (Maribor insurance company) which is also one of the three largest insurance companies in Slovenia (12.4% market share in 2010). NKBM holds a 49.96% stake in the insurance company. NKBM last year said that it is interested in acquiring ZM. The main obstacle to this plan is still the 46% share which is held by Sava Re Group. Although in 2010 Sava Re expressed their intention to sell its share in ZM, on the latest analyst meeting (March 2011) Slovenian reinsurance company said that the environment changed. Accordingly, Sava Re s share in ZM is currently not for sale (at least not for previously anticipated price of EUR 62m) and the management is working on the plan which will enable efficient operations of jointly owned Zavarovalnica Maribor. Weak Competition/Alternative Financing Options: In the last few years foreign banks entered the Slovenian banking market and increased competitiveness among banks in Slovenia. In the process of gaining market share, foreign banks neglected the risks related to the lending to cyclical Slovenian companies and financing MBOs. In the last year foreign banks changed their strategy, lowered there aggressiveness and in some cases even decreased their presence on the Slovenian market. The position of domestic banks like NKBM is hence improving and will likely prevent the net interest margin to continue its steep downward trend. Signs of this development were seen already in Another reason for positive trend is also the unfavourable position of Slovenian companies which are mostly too small for issuing bonds. In the last two years when bond issuance of western non-financial companies increased significantly, only two Slovenian companies successfully taped bond market (Petrol, Telekom Slovenije). Therefore smaller domestic companies have very limited alternative financing options and have to rely on banks. Risks: State ownership: Even though we believe that the present 51% ownership by the Slovenian government (including para-state funds KAD and SOD) can be a benefit in the current time of crisis, it is often seen as a drag in the times of economical expansion due to the non-optimal decision making process and possible political influences regarding the banking business. Given the latest government statements state will not participate in the current capital increase; hence, its ownership may be diluted. Accordingly, government could loose some influence on bank s operations. Ownership structure as of 30th March 2011: Republic of Slovenia 47% 41% Kapitalska družba Slovenska odškodninska družba NFD 1 Others 2% 5% 5% 2/10

3 Increased risk of defaults: Last financial crisis significantly affected bank s credit portfolio structure. From 2006 to second quarter 2008 NPLs gross amount to gross total portfolio ratio slowly decreased to 3.36%. After the Gross NPL to Gross Loans first half of 2008, the trend changed into 14% a negative direction with the ratio hitting 12% 12.1% at the end of the NPL 10% coverage ratio also moved in the 8% negative direction. At the mid % provisions to gross NPLs ratio was at 4% 129.9, dropping to 87.1% by the end of 2% 2009 and stood at 59.6% in December The main problem is loans which 0% were given to construction companies that are now victims of frozen realestate market. Regulatory Risks and Capital adequacy: In the past years NKBM sought high capital adequacy also through issuing hybrid instruments and tier II capital. After the implementation of proposed Basel III regulations banks could be forced to find new capital sources and issuing new capital. At the end of the 2010 NKBM Group s total capital adequacy ratio and capital adequacy ratio (original own funds) stood at 10.9% and 7.4%, respectively. Although Slovenian bank was not a part of the 91 banking groups which were included in the stress test simulation in 2010, the Bank of Slovenia conducted the stress test simulation also for the Nova KBM Group. Nova KBM stood the test well. According to different stress-test scenarios, the Bank's 2011 Tier I capital ratio could move between 7.1% and 7.5%. The management believes that new growth strategy requires further strengthening of capital ratios. Strengthening of capital ratios will be pursued also through expected capital increase. Capital increase could dilute EPS and BVPS: NKBM intends to issue new shares. According to the management up to EUR 130m worth of new capital issuance can be expected in the first half of Although current capital levels are sufficient for organic growth in years 2010, 2011, new equity will be needed in order to consolidate the ownership in associated companies. The NKBM Group said that they are considering the options to increase its shares in Poštna banka Slovenije, Zavarovalnica Maribor and Adria Bank. Although this strategy could be very positive (more cost efficient operations), we should note that high takeover premiums would still mean EPS dilution. Since new shares will be priced between EUR 8 and EUR 10.5 current shareholders should expect capital dilution. Lending Stagnation: In the last few years Slovenian banks intensified lending activity. According to our calculations, average year over year growth (quarterly data) exceeded 18% in the period from 2005 to Due to a global economic recession, housing market issues, the process of deleveraging and hence stagnation of lending through all Eurozone, growth rates from previous years are highly unlikely. During , the Slovenian lending growth will probably stay between 3% and 7%. 3/10

4 2010 Results and Recent news Impairments and Credy bank negatively affected the Group s profit million FY2009 FY2010 YoY 4Q09 3Q10 4Q10 QoQ YoY Net int. income % % 11.6% Net int. / Loans 3.3% 3.4% 0.9% 0.9% 0.9% Other revenue % % -3.2% Net income % Net margin 4.8% 4.7% 2.4% 4.6% -9.8% Deposits % 3, , , % 5.8% Loans 4, , , , , % 4.3% Difficult market conditions affecting results. Due to a loss in q net profit below our expectations. High net impairments and provisions due to difficult economic conditions. Assets increase due to consolidation of Credy banka. The Group's operations were marked by difficult market conditions and slow recovery of the economic environment, which resulted in high net impairment losses and provisions. Negative affects were partly offset by higher net interest income; however, overall profitability for 2010 was rather disappointing. Last year Nova KBM reached EUR million in net interest income, which represents an increase compared to 2009, when net interest income amounted to EUR million. In 2010 net fee and commission income totalled EUR 63.1 million, which also represents an increase compared to 2009, when the value amounted to EUR 59.5 million. In the fiscal year 2010 the Group Nova KBM achieved a net profit of EUR 10.8 million, which represent a slight increase compared to the financial year 2009, when the bank made EUR 10.4 million net profit (viewed from the perspective of the parent). On the company level net profit amounted to EUR 9.3 million in Realized net income of the group was below our expectations (EUR 20 million). Lower than expected net income was achieved due to loss in the last quarter Negative performance was a result of a huge impairment charges and credit provisions which totalled EUR 32 million in 4q 2010 and EUR 80 million for whole Our conservative expectations suggested that provisions won t exceed EUR 62 million. In November last year NKBM acquired 72.38% share in Serbian Credy bank, which in 2010 (from April onwards) recorded a loss of EUR 6.7 million. Major reason for high loss were restructuring activities and downsizing which resulted in huge increase of administration costs. In the period from January to September 2010 expenses for salaries amounted over EUR 6.5 million (this number was likely even higher for the whole year 2010). High restructuring costs affected also Group results. NKBM s administration costs hence increased by 14.6% in Total deposits from the non banking sector increased to EUR 3,712.7 million, but also total loans to the non banking sector increased and amounted to EUR 4,034.9 million last year. Loans to deposit ratio decreased from 111% in 2009 to 108% in Total assets of the Group as of 31 December 2010 amounted to EUR 5,866.7 million, which represent a slight increase compared to 2009, when total assets amounted to EUR 5,785.6 million. We should note that positive assets growth was achieved due to a consolidation of Credy banka and that excluding acquisition this growth was in fact negative. Changes on the liabilities side of the NKBM s statement of financial position in 2010 were mainly due to increased deposits from customers by 5.8%, decreased other liabilities by 21.1%, decreased debts due to banks by 27.6% and decreased debt securities by 27.6%. On the assets side changes were mainly due to the increased loans and advances to customers by 5.0%, increased loans and advances to banks by 16.3%, increased held-to-maturity financial assets by 23.6%, decreased available-for-sale financial assets by 16.1% and decreased financial assets held for trading by 81.8%. For 33% increased also other assets which are including seized properties and buildings which possibly contributed the most to this change. Equity attributable to owners increased by 1.1%. As of 31 December 2010 equity attributable to owners of the parent bank amounted to EUR million, which represent an increase of 1.1% compared to Book value per share on 31 December 2010 amounted to EUR 15.22, representing a slight increase compared to 2009, when the value amounted to EUR In 2010 return on equity was 2.7%. During the last quarter 2010 NPL increased by 1.2% and at the end of the year totalled EUR 556.5m (12.1% of gross loan portfolio). Due to huge provisioning in Q4 NPL coverage ratio slightly increased in comparison to the end of the September 2010 and reached 59.6%. 4/10

5 Relative valuation: Low ROE justifies depressed P/B multiples. P/E P/B ROE TTM Company name TTM 2011F 2012F TTM 2011F 2012F TTM 2011F 2012F PKO Bank % 18.5% 18.7% OTP % 14.0% 15.5% Bank Handlowy % 14.7% 16.8% BRE Bank % 13.7% 14.1% Kredyt Bank n.a. 6.6% 11.3% n.a. Komercni Banka % 18.1% 18.5% Raiffeisen n.a. 5.7% 13.3% n.a. Erste Group % 11.7% 12.6% National Bank of Greece % 8.8% 10.9% NKBM % 4.1% 4.3% Average % 13.8% 15.3% Div. yield (%) Net interest to Company name TTM 2011F 2012F ROA TTM Assets/ Equity Total Assets (%) PKO Bank % OTP % Bank Handlowy % BRE Bank % Kredyt Bank % Komercni Banka % Raiffeisen n.a. 0.5% Erste Group % National Bank of Greece % NKBM % Average % Due to weak last quarter 2010 peer comparison indicates that NKBM Group s performance in 2010 was below its peers. TTM P/E of 24.5 is revealing that NKBM currently trades at premium. Although NKBM trades at 0.67 TTM book value per share, low ROE justifies depressed P/B multiples. We believe that profitability will improve in the period ; however, the expected performance of NKBM Group is likely to remain below comparable banks. Accordingly, P/B multiples are likely to remain well below peer group s ratios. We should note that valuation analysis does not include ongoing offering of new shares. We will adjust our valuation as soon as bank announces number and price for shares which will be issued in the April. We also expect the management to present plans how acquired capital will be used. That will also give better insight what will be effects of share dilution. Peer valuation target: 14.1 EUR Based on our peer group valuation model we derived a target price of EUR 14.1 per share. The target price indicates that NKBM Group currently trades far below fair value, however due to low profitability expectations on the one hand and differences between strategies and operating risks among peer group banks on the other, relative valuation should be considered as a less appropriate valuation method. P/B 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0, /10

6 Outlook: Slow growth is expected in Interest margin: lower interest rates offset by higher net interest spread. Group results will depends on the performance of subsidiary companies. Housing market will continue to influence the performance. We lowered our net profit estimates. Assets growth will remain subdued through as we believe NKBM will remain reluctant to take expensive syndicated loans and will rather reduce ASF assets. Although around EUR 1bn loans and receivables to banks will mature in the next 5 years we believe NKBM will use other sources to cover debt to foreign lenders (ECB, government deposits). Due to slow and cautious lending activity (average growth of commercial lending is likely to be less than 6% through ) we do not expect NKBM to tap the syndicated loan market prior to Although rates are remaining on the historical low levels (EURIBOR and LT government bonds) NKBM Group offset negative effects by increasing net interest spread. Although competition on the Slovenian banking market is increasing (Unicredit), relatively high interest margin should remain intact during the period After 2015 gradual decrease to a more competitive level is expected. Future performance of NKBM Group also largely depends on the results of Group s subsidiaries. In 2009 Group s results were affected by a loss in Zavarovalnica Maribor whereas 2010 was hit by restructuring costs in Serbian Credy bank and KBM Projekt. Namely, Croatian real-estate company (Group holds 76%) generated loss of EUR 9.8m. We believe the performance of Credy banka will improve already in 2011 and that long-term threat for performance could be seen only in case of the Croatian company. Although total assets of KBM Projekt is worth only EUR 50.2m and negative effects could be somewhat limited, Croatian housing market does not indicate any signs of relief and prices have room to decrease. Hence we can expect further impairments of value of properties in Croatia. From housing perspective large issue could also be real-estate holdings in Slovenia. During last few years the amount of confiscated real-estates has been increasing and valuations could substantially impact earnings in the next few years. Non-performing loans are remaining the main issue of NKBM Group (and also other Slovenian banks). In comparison to March 2010 gross non-performing loans jumped for around 50% (our estimates). Accordingly, NPL coverage ratio dropped from 81.6% to 59.6% in December The management expects that Group s 2011 provisions and impairment charges will amount to EUR 67.2m; however, in our valuation we expect that credit provision costs will be higher and amount to EUR 75.7m. We believe that impairment charges which will be a result of a lower real-estate prices in Slovenia and Croatia, could force management to write-down the value of seized real-estates. Negative effects from housing market could be an issue up until 2013 when disposal of those assets is expected. Given the mentioned trends and uncertainties (high NPL growth, weak real-estate market and uncertain economic environment) we lowered our profit estimates of NKBM Group. We currently expect that 2011 net profit (Equity holders of the parent) will be EUR 16.1m (versus EUR 23.4m management guidance). We also lowered our estimates for the next 4 years as we believe that Slovenian banks will need more time to successfully digest current credit portfolio situation. Prior financial crisis management set very straight forward dividend policy which suggested dividend payout ratio of 35% for the period after Due to weak results and expected Basel III regulation dividends have become more and more questionable. Already for 2009 NKBM Group did not pay out any dividends and given possible capital increase, investors should forget about any dividend cashflows for at least next 2-3 years. Due to these uncertain circumstances we decided to change our valuation model and instead of a classical dividend discount method start using excess return valuation. We believe that new valuation approach is more appropriate for valuation banks (in our case NKBM Group) which are not expected to have stabile dividend policy. On 4 th April 2011, NKBM Group published prospectus for the public offering of shares. NKBM intends to issue up to million shares (capital of Nova KBM currently consists of million shares) which will be priced somewhere between EUR 8 and EUR Issued capital in the amount up to EUR million will be used for strengthening of capital structure (approx. 40%) and supporting new strategy (including acquisitions). 6/10

7 Year Total Assets 5,787 5,867 6,063 6,046 6,369 6,713 7,093 Assets growth 5.4% 1.4% 3.4% -0.3% 5.4% 5.4% 5.7% Net loans 4,105 4,281 4,437 4,619 4,855 5,198 5,570 Loan growth 3.9% 5.2% 3.2% 3.7% 4.9% 7.0% 7.3% Deposits 3,508 3,713 3,935 4,191 4,485 4,821 5,158 Deposit growth 10.1% 5.8% 6.0% 6.5% 7.0% 7.5% 7.0% Equity Equity to Assets 7.5% 7.5% 7.2% 7.4% 7.2% 7.1% 7.1% Loan to deposit ratio 111% 109% 106% 103% 101% 101% 102% ROE 2.8% 2.7% 4.0% 4.3% 3.5% 4.1% 6.4% Year Net interest income Net interest margin 2.4% 2.5% 2.5% 2.6% 2.6% 2.6% 2.6% Net fee and commission income Net fee and commission growth 8.2% 6.6% -11.5% -6.5% 3.8% 3.8% 3.0% Other income Other income growth % -5.1% -3.4% 4.2% 25.5% -10.1% 13.7% CIR EBT margin 8.5% 7.8% 10.0% 10.7% 8.5% 10.8% 16.7% Tax rate 26.7% 36.6% 20.0% 20.0% 20.0% 20.0% 20.0% Net income Net income growth -23.4% 3.3% 48.6% 8.1% -17.0% 17.3% 64.7% Year EPS EPS growth -31.4% 3.3% 48.6% 8.1% -17.0% 17.3% 64.7% ROE 2.8% 2.7% 4.0% 4.3% 3.5% 4.1% 6.4% 7/10

8 Excess Return Valuation: Year Net Profit Cost of Equity Shareholders' equity Excess Equity Return Excess return valuation Cost of equity 2010 TV Value in forecasting period Leveraged beta Continuing value Risk free rate 3.8% 3.8% Equity value per share 10.7 Premiums 9.6% 9.3% Cost of equity 9.8% 9.5% Perpetuity growth rate 2.5% Due to unfavourable trends of Group s credit portfolio and abandoned dividend policy for 2009 we changed our valuation model and revised target price downward from EUR 12.4 per share to 10.7 per share. Our excess return model returns a target price of EUR 10.7 and hence indicates 6% upside. Since exact price and the amount of new capital are not yet known, our valuation does not include ongoing capital increase. We will revise our valuation by the end of April, when issuance of new shares will be concluded. By that time we expect that NKBM will also reveal more detail plans and timeline for use of new capital. Sensitivity analysis: Cost of Capital Long term growth 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 8.0% % % % % % % CIR Ratio TV Net interest margin TV 1.5% 1.7% 1.9% 2.1% 2.3% 2.5% 2.7% 5100% % % % % % % Implied multiples: P/B P/E P/B P/E P/B P/E Current price Target price There are too many uncertainties regarding the capital increase and strategy. We have valued NKBM Group by using a combination of excess return model and Peer-Based Multiples model. We have assigned subjective weights of 80% to DCF and 20% to Peer-Based valuation in order to calculate our fair value. This valuation approach derives a target price of EUR Although our target price indicates a 13% upside potential we rate the stock with a hold recommendation. We believe there are still too much uncertainties regarding capital increase and strategy which includes also acquisitions. 8/10

9 Top5 shareholders: Republic of Slovenia 41.5% KAD 4.8% SOD 4.8% NFD 1 2.1% East Capital Balkan 1.8% Brief Company profile Nova Kreditna Banka Maribor Group is one of the leading Slovenian financial institutions with over 3,000 employees, almost 600,000 clients, 278 ATMs and 96 branches all across Slovenia. The predecessor of Nova KBM d.d. was Mestna Hranilnica Maribor (the Maribor City Savings Bank) established in Along with their associated companies they provide comprehensive and broadly accessible banking and financial services not only in the field of traditional banking, but also in insurance, mutual funds and stock brokerage business. Very important parts of the NKBM Group are also partly owned Adria bank AG (since 2001), Poštna banka Slovenije (since 2004) and insurance company Zavarovalnica Maribor. Since 2010 Group includes also Serbian bank Credy banka. Structure of Assets (2010A) Structure of Liabilities (2010A) Avalable for Sale Assets 14% Cash and balances with CB 2% Loans to banks 5% Other 10% Loans to Customers 69% Other Debt 9% securities 1% Loans and receivables to banks 18% Equity 7% Loans and receivables to non-bank customers 65% Disclaimer GENERAL DISCLOSURE The research department of ALTA Invest, investicijske storitve, d.d. (eng. ALTA Invest, investment services, Inc.), is, in order to avoid and deter conflict of interests, a separate organizational part of the company. It is independent in its decisions about selecting, monitoring and updating its investment recommendations of an individual issuer. According to its information policy, ALTA Invest, investicijske storitve, d.d. provides data privacy and strongly defends accessibility to the data bases and other materials of the research department, against any unauthorized personnel. ALTA Invest, investicijske storitve, d.d. may trade with the financial instruments mentioned in this document for its own account and may also engage in securities transactions in a manner inconsistent with this research report as a result of the short term trading suggestions of analysts. The payment of the analyst, who provides monitoring of a certain issuer, is among other factors based also on the profitability of ALTA Invest, investicijske storitve, d.d. and a part of that is also profit arising from ALTA Invest, investicijske storitve, d.d. investment services. ALTA Invest, investicijske storitve, d.d. is supervised by Slovenian security and exchange commission (Agencija za trg vrednostnih papirjev), Poljanski Nasip 6, 1000 Ljubljana, Slovenia. Conflict of interest ALTA Invest, investicijske storitve, d.d. (eng. 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10 ALTA Invest, investicijske storitve, d.d. and its affiliated entities, its employees and other individuals, which have participated in the formulation of this document, can possess financial instruments arising from this document or can be business partners with its issuers. ALTA Invest, investicijske storitve, d.d. points that any investments in financial instrument, including the financial instruments that are subject to this document, are risky. When investing in financial instruments, it is important to be aware of both systematic and unsystematic risk. Unsystematic risk applies to a certain financial instrument, which does not have the influence on the entire financial market and is independent of the movements on those markets. The effects of the unsystematic risk can be eliminated with portfolio diversification. On the other hand, systematic risk applies to factors that influence the entire financial market and therefore affect the value of investor's portfolio. Furthermore, settlement and custodial risk in emerging markets may be higher than in markets where there is a long established infrastructure. Stock liquidity may be impacted by the number of market participants which may therefore impact upon the reliability of any investments made as a result of acting upon information contained in this document. Further risks not discussed in this document may apply to the discussed security. Investors should always investigate the various risk aspects of any security in any market before making an investment decision. We advise investors contacts appropriate investment consultants or brokers to gather additional information. The selling price of financial instrument is usually not known in advance and can differ from the expected target price used to calculate expected gross return. Therefore realized and expected gross return can differ. Also investor must take into account that provisions, trade cost and taxes will influence final net return earned by difference between purchase and selling price of financial instrument. The difference can be positive or negative and cannot be forecasted in advance. In addition, all investors should be aware of the possibility of the failure to reach forecasted events and assumptions of the valuation on which the document is based, as well as the possibilities of price fluctuation of a particular financial instrument issuer. In the case of unfavourable movements of the price of a particular financial instrument, there is a possibility of lower future value of the investment, compared to the initial (purchase) value or vise versa. If a financial instrument is denominated in a currency other than an investor s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from, the financial instrument, and such investor effectively assumes currency risk. The reader of the recommendation should first also be aware of the large impact of chosen assumptions at predicting the target price of the financial instrument issuer, which is presented also in the sensitivity analysis, as well as the facts that past performance is not necessarily the indicator of future profitability of the financial instrument issuer and vice versa. ALTA Invest, investicijske storitve, d.d. accepts no responsibility for any damage or loss arising from the use of information in this document. BUY: The investment rating reflects the total expected return (the difference between the current price of the stock and estimated price, expressed in %, and the estimated dividend yield) for a potential investment in the 12-month period from the date of the initial rating, which is more than 10%. HOLD: The investment rating reflects the total expected return (the difference between the current price of the stock and estimated price, expressed in %, and the estimated dividend yield) for a potential investment in the 12-month period from the date of the initial rating, which is between 0% and 10%. SELL: The investment rating reflects the total expected return (the difference between the current price of the stock and estimated price, expressed in %, and the estimated dividend yield) for a potential investment in the 12-month period from the date of the initial rating, which is lower than 10%. NO RECCOMMENDATION / EVALUATION: No recommendation can be given on the basis of the data available. In the period between and the structure of all investment research was: Number Share Share of issuers, for which ALTA Invest, investicijske storitve, d.d., has provided investment services regarding financial instruments in last 12 months Buy 33 61% 7% Hold 13 24% 0% Sell 8 15% 0% Recommendations issued by ALTA Invest, investicijske storitve, d.d. Železna cesta 18, 1000 Ljubljana, are valid for 12 months, except in case of previous update of the recommendation. However, ALTA Invest, investicijske storitve, d.d. is not engaged in periodical updating of the recommendations of the issuer under consideration as well as is not obliged to notify readers about any kind of valuation, opinion or forecast changes, which have arisen from the occurrences after the recommendation release. When dealing with its customers, ALTA Invest, investicijske storitve, d.d. is not obliged to act in accordance with opinions and assessments expressed in investment recommendations. Financial analyst, who has prepared the document and other individuals, which are familiar with the time and content of the investment research, did not have any personal transactions or trade with the relevant financial instrument from the investment research or haven't been connected with the financial instruments in time during the preparation of the investment research and one day after. Specific disclosures of the issuer under consideration ALTA Invest, investicijske storitve, d.d. Železna cesta 18, 1000 Ljubljana, Slovenia, and financial analyst responsible for monitoring of the issuer under consideration, guarantee that this document has not been disclosed to the issuer of the financial instrument before it was publicly released. ALTA Invest, investicijske storitve, d.d. and its related legal entities can own shares of the issuer under consideration. A financial analyst responsible for monitoring of the issuer under consideration does not have any significant financial interests concerning the financial instrument. They also do not have any conflict of interest concerning the issuer under consideration. In the last 12 months, ALTA Invest, investicijske storitve, d.d. has not performed (any) services concerning financial instruments to the issuer under consideration. ALTA Invest, investicijske storitve, d.d. and related entities could hold securities of the relevant issuer. Statement of a financial analyst ALTA Invest, investicijske storitve, d.d. (eng. ALTA Invest, investment services, Inc.), and the undersigned financial analysts, responsible for monitoring of the issuer under consideration, declare that they have not received any kind of compensation, which could affect the formulation of this recommendation or opinion expressed in this document. The recommendation has not been disclosed to anyone before it was publicly released. Matej Šimnic, Analyst On the day of the public release, the author of the recommendation held securities of the relevant issuer. Sašo Stanovnik, Head of research On the day of the public release, the author of the recommendation held securities of the relevant issuer. First release of the recommendation was performed on Quarterly updates are planned for data, valuation, target price and recommendation. Other information Other information about the services of ALTA Invest, investicijske storitve, d.d. and financial instruments, including general conditions for provision of services, price list and other disclosures can be found at and ALTA Invest, investicijske storitve, d.d., Železna cesta 18, SI-1000 Ljubljana. Registered at the District Court of Ljubljana, Registration Number: , ID for DDV: SI , Share capital: 2.031, EUR. President of the board: Bogdan Pušnik. 10/10