Jyske Preferred, Senior Analyst, Equity Research Robert Jakobsen

Transcription

1 Jyske Preferred, Jyske Preferred is a concentrated focus on the international stocks which the analysts assess as having the most attractive return potential. This week in Jyske Preferred you can read about BMW's positive expectations of 2014, supporting our investment case. We have no changes on the list this week. FOCUS WAS ON: BMW: While the total European market delivered growth of 13% in December, BMW declined by 5.6%. However, this is not a true and fair view of the situation. In December 2012 the entire market declined by 16.4%, while BMW still delivered moderate growth of 0.7%. So, BMW's basis of comparison was more difficult. BMW: At the Detroit Motor Show BMW officially announced two new members of its M-series (M3 and M4) and the new 2-series Coupe (replaces the 1-series Coupe). Although its was well-known, the new models are an important part of BMW's strategy to maintain its leading position by extending its range. Later on, the X4 and i-series will, among others, follow suit. BMW: BMW's head of sales and marketing, Ian Robertson, announced that BMW has a good momentum going into The target is that 2014 will be yet another good growth year, and BMW will also in 2014 maintain its leading position. He also indicated that BMW considers to develop bigger SUVs than the X5. This will particularly be good news in the US. The US and China are BMW's two most important export markets. In China BMW once again predicts doubledigit unit growth in In the US Robertson predicts that growth will return to the level from before the financial crisis. All in all, positive announcements that support our investment case. China Mobile: China Mobile and Apple announced that they have entered into a closer cooperation. In future CM will sell other Apple products than iphones. We find it obvious that CM's 3,000 shops will also sell ipads, wereables and other Apple products that can use CM's mobile network. Imperial Tobacco: The credit rating agency, Moody's, reiterated its Baa3 rating for IT but lowered its outlook from stable to positive, as earnings in 2013 were lower than it had expected. We see this as a lower exposure. The downgrade did not affect the share. Imperial Tobacco: Wednesday was the ex-date for IT. Dividend of GBP 0.90 or 4% will be paid on 17 February. FOCUS WILL BE ON: BMW: On Tuesday, BMW will attend an investor conference. But we do not expect any new surprising announcements. BMW wants to save those for its investor day on 20 March. China Mobile: On Friday, 17 January, CM's shops will start selling iphones. In the course of the week of 20 January, we expect to see data indicating that CM's customers have applauded iphone 5s and 5c. Although it increases CM's reimbursements to smartphones, it is a good investment. The money will come back sufficiently, and it will be easier for CM to defend its market share at the high end of the market. Jyske Preferred BMW ChinaMobile Imperial Tobacco Calendar Monday Tuesday Wednesday Thursday Friday Senior Analyst, Equity Research Robert Jakobsen jrj@jyskebank.dk Assisting Equity Analysts: Christoffer Thimsen Christoffer.thimsen@jyskebank.dk Kasper Friis Toft Kasper.friis.toft@jyskebank.dk Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg CM: Sales during the week BMW investorconference Important investor information: Please see the last page

2 Jyske Preferred - Overview Com pany Recom m endation Investm entcase BMW Strong Buy We believe that BMW has the qualities to maintain its leading position in the market for premium cars. ChinaMobile Strong Buy We expect that CM may in 2014 surprise the market positively compared to the current expectations Imperial Tobacco Strong Buy In 2014, we still expect Imperial Tobacco to be able to deliver earnings growth. Jyske Quant break down Return compared to S&P Global Jyske Quant 10 8 Performance 6 4 Fundamental 2 0 Momentum Fundamental relative Relative to S&P W 1M 3M 6M 1Y Quality Financial strenght -30 BMW ChinaMobile Imperial Tobacco BMW ChinaMobile Imperial Tobacco 2014 EPS revisions (indexed) Cyclical FX sep-2013 okt-2013 nov-2013 dec-2013 jan-2014 BMW China Mobile Imperial Tobacco Upside CAGR % E P/E EV / EBITDA P / B Net Debt / EBITDA Rating to target Sales EPS BMW Strong Buy 30% 3% 4% ChinaMobile Strong Buy 17% 4% -3% Im perial Tobacco Strong Buy 19% 1% 3%

3 BMW - STRONG BUY BMW can maintain its leading position BMW stands a good chance to maintain its leading position in the premium market. Combined with good growth opportunities and a high Jyske Quant score, BMW deserves to be on the list of Jyske Preferred. BMW should be able to maintain its market leading position: With its 2020 strategy plan ONE, BMW focuses heavily on future-proofing its organisation. The plan contains, among other things, a significant extension of its range - the number of models is to be trebled compared to 2005 through increased innovation speed. In this connection BMW is trying to implement a module architecture, meaning that its cars will share several components - but without affecting the differentiation opportunities. Combined with the sector's strongest brand, BMW has good odds to maintain its leading market position. Growth possibilities in emerging market countries: Deloitte estimates that in the period the number of millionaires (in USD) will increase by 10% annually in emerging-market countries and by almost 6% in the largest developed countries. This trend is primarily driven by the urbanisation. For BMW increasing wealth means increasing sales. Global Insight estimates that the sale of premium cars in China will increase by 16% annually in the period In terms of units, China is already BMW's most important market. In order to illustrate the potential, BMW today sells more or less the same amount of cars in the Nordic countries (including the Baltic countries) as in India + Turkey + Brazil. A total population of 1.5bn. New sales record in 2014: The launch of more new model should ensure that 2014 will be yet another record-breaking year in terms of sales. We expect BMW to issue a satisfactory 2014 forecast, when the Q4 results will be released. Macroeconomic improvement in the EU will be very positive for BMW: After two years with negative GDP growth in the euro-zone countries, growth is expected in the coming years. Even if this does not materialise, it is worth noting that BMW has historically been less cyclical than many other car manufacturers. Quant info Shar e infor m ation Quant score 7,3 Number of stocks (mill.) 602 Valuation 8,4 High/Low last 12 months 85/64 Valuation relative 8,2 Price movements 3/12 months 3%/17% Financial strenght 7,7 - relative to index -15%/-26% Quality 6,0 Market cap (mill. GBP) 0 Momentum 6,2 Free float 53% Performance 6,6 Avr. daily volume (mill.) 109 This company was selected on the basis of Jyske Quant. Jyske Quant is a model that rates companies based on a string of factors. In that way, the model comes up with a total score that indicates whether the share is currently a good investment or not. This is a noncomplex product Sector Cons. Descre. Fundamental valuation Cheap Risk Medium News flow Poitiv 12-month target price Current price 85.2 Reuters BMWG.DE Bloomberg BMW GR Equity JB sec. code Pr ice tr end 90 BMW DAX j f m a m j j a s o n d Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg Senior Analyst, Equity Research, Robert Jakobsen jrj@jyskebank.dk Assisting Equity Analyst, Christoffer Thimsen christoffer.thimsen@jyskebank.dk Important investor information: Please see the last page 3

4 4

5 CHINA MOBILE - STRONG BUY 750 million subscribers! China Mobile (CM) has significant economies of scale being the world's largest mobile operator. We believe that the expectations of CM are moderate, offering room for surprises. CM also has a strong balance sheet, which ensures that the supervisory board can maintain an attractive dividend policy. We consider China Mobile an attractive investment for the following reasons: Significant economies of scale: CM is without comparison the world's largest mobile operator having 750m subscribers. The size of CM is a major advantage that can be utilised in a wide perspective - including marketing and launch of new technologies. Opportunity to deliver positive surprise: In our view, CM currently has This company was selected on the basis of Jyske Quant. Jyske Quant is a model that rates companies based on a string of factors. In that way, the model comes up with a total score that indicates whether the share is currently a good investment or not. This is a noncomplex product Sector Telecom Fundamental valuation Undervalued Risk Medium News Flow Negative 12-month target price 92 Current price 78 Reuters 0941.HK Bloomberg 941 HK Equity JB sec. code good opportunities of surprising the market's modest expectations positively over the coming years. Particularly because: 1) China is facing a data explosion (3G and 4G), 2) the share of Chinese people owning a smartphone is still relatively low (a smartphone customer is more Pr ice tr end 120 China Mobile HANG SENG profitable), 3) rising wealth will over time increase earnings of the currently less profitable customers, 4) we expect that the Apple agreement will strengthen CM's competitiveness and 5) the massive price competition in the smartphone market is to the benefit of CM. Defensive: CM is defensive of nature, as telecommunication is having a high priority among consumers. 4.5% dividend: In 2014 we estimate a dividend of 4.5%. CM has room to raise the dividend. This may take place after the launch of 4G (2015). Please note that CM has a very sound balance sheet. The share has an attractive valuation: For instance, CM is trading at an estimated 2014 P/E of 10, while China Telecom and China Unicom are trading at 11 and 14, respectively. Quant info Quant score 5, 9 Share information Number of stocks (mill.) Valuation 7, 9 High/Low last 12 months 88/75 Valuation relative 8, 4 Price movements 3/12 months -8%/-11% Financial strenght 8, 1 - relative to index -7%/-10% Quality 4, 9 Market cap (mill. GBP) 0 Momentum 3, 1 Free float 26% Performance 2, 9 Avr. daily volume (mill.) j f m a m j j a s o n d j Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg Senior Analyst, Equity Research, Robert Jakobsen jrj@jyskebank.dk Assisting Equity Analyst, Christoffer Thimsen christoffer.thimsen@jyskebank.dk Important investor information: Please see the last page 5

6 6

7 IMPERIAL TOBACCO STRONG BUY Positive earnings growth We expect that Imperial Tobacco (IMT) will despite more regulatory tightening measures still be able to deliver earnings growth. Growth will, among other things, be driven by lower costs, higher sales prices and new product launches. In 2014, a dividend of 5.7% is expected. EPS growth despite difficult market conditions: We expect that IMT will deliver moderate annual EPS growth (3-7%) driven by: 1) an improved product mix, 2) price increases, 3) growth in the emerging-market countries, 4) more efficient marketing, 5) cost reductions of GBP 300m up to 2018 and 6) buyback of own shares (approx. 2% annually). We expect continued progress in the US and Russia: In H IMT succeeded in turning the US and Russia from a difficult situation with a disappointing market performance and weak earnings into an improved situation with earnings growth. We expect further increases in New products in 2014: 2014 will be the year when IMT will enter the market for e-cigarettes. An attractive market that contrary to the cigarette market shows positive volume growth. We believe that IMT has good opportunities to gain success in the attractive market, particularly after the acquisition of Dragonite International - one of the pioneers within e- cigarettes - that will contribute with more know-how and important patents. Defensive nature: The tobacco industry is considered a relatively defensive industry. IMT is no exception. Even during the financial crisis IMT's earnings rose. IMT rewards its investors: For 2014 IMT guides a dividend increase of at least 10%. For 2014 we expect IMT to pay a dividend of 5.7%, which will be based on a payout rate of 55% of the net result. Quant info Share information Quant score 5,6 Number of stocks (mill.) 969 Valuation 7,1 High/Low last 12 months 24,7/21,2 Valuation relative 7,2 Price movements 3/12 months -2%/-8% Financial strenght 2,7 - relative to index -6%/-19% Quality 7,0 Market cap (mill. GBP) 0 Momentum 3,6 Free float 99,93% Performance 3,2 Avr. daily volume (mill.) 4041 This company was selected on the basis of Jyske Quant. Jyske Quant is a model that rates companies based on a string of factors. In that way, the model comes up with a total score that indicates whether the share is currently a good investment or not. This is a noncomplex product Sector Cons. Staples Fundamental valuation Cheap Risk Medium News flow Negative 12-month target price 26.0 Current price 21.8 Reuters IMT.L Bloomberg IMT LN Equity JB sec. code Pr ice tr end 3000 Imperial Tobacco FTSE Index j f m a m j j a s o n d Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg Senior Analyst, Equity Research, Robert Jakobsen jrj@jyskebank.dk Assisting Equity Analyst, Christoffer Thimsen christoffer.thimsen@jyskebank.dk Important investor information: Please see the last page 7

8 8

9 Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at Jyske Bank s share recommendations current allocation Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number) Strong Buy Buy Reduce Sell 0 Strong Buy Buy Reduce Sell Source: Jyske Bank Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Update of research report The planned update of the report will be prepared immediately upon the release of the company s financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated. 9

10 Recommendation Risk-adjusted return Strong Buy >20% Buy 10-20% Reduce 0-10% Sell <0% Source: Jyske Bank Share recommendation concepts Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return of 10% during the period ). When we determine the recommendation for a share we use the 10% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and productspecific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment. Risk classification definitions: Green products are products for which the risk of losing the invested amount is regarded as insignificant provided the investment is held to maturity. The product type is simple to grasp. This category includes Danish goverment and mortgage bonds. Amber products are products for which there is a risk of losing the invested amount partially or fully. The product type is simple to grasp. This category includes equities traded in regulated markets, mutual fund units and certificates. Red products are products for which there is a risk of losing more than the invested amount, OR product types which are difficult to grasp. This category includes structured bonds, hedge funds, options and forward exchange contracts. 10