Trevi. Equity Company Note BUY. Robust Order Backlog but Slimmer Profitability. Target Price: EUR 8.19 (from EUR 9.90)

Transcription

1 Equity Company Note Trevi Robust Order Backlog but Slimmer Profitability Trevi - Key estimates and data Y/E December 2010A 2011E 2012E Revenues EUR M , , EBITDA EUR M EBIT EUR M Net income EUR M Dividend ord. EUR Adj. EPS EUR EV/EBITDA x Adj. P/E x A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research 3Q-9M11A results. The group s 3Q/9M11A results were below our forecasts at the top line, operating profitability and net income levels. At end-september the group net debt increased more than expected to EUR 386M vs. EUR 334M at 30 June 2011, while positive news came from the order backlog which reached EUR 1.02Bn vs. EUR 940.2M at end-june 2011 and EUR 759M at 30 September The 3Q11A and 9M11A order inflow amounted to EUR 330.5M and EUR 956.9M respectively, compared to EUR 279.3M and EUR 668.2M in 3Q10 and 9M10. Overall, we note the third quarter of the year while suggesting that the group is on track to reach a top line of around EUR 1Bn, did not show the expected operating profitability recovery and was still negatively impacted at the bottom line level by a high tax burden related to the unfavourable geographical mix of profits. In the 9-months, Trevi continued to leverage on its well engineered business model, based on a wide geographical diversification and on a presence in businesses characterised by diverse growth drivers but faced more competition, above all in the construction related divisions (Trevi and Soilmec). Outlook. Based on the 9-months results we reduced our 2011E-12E group revenue forecast by respectively 4% and 3%. The main change for both 2011E and 2012E regarded the Trevi division which could continue to suffer from a lower level of activity in the Middle East and from the generally tougher market environment. We also fine-tuned our Petreven top line forecasts to factor in a slightly higher than previously estimated depreciation of the USD. As for operating profitability, we adopted a more conservative view on the Trevi division operating profitability for 2011E and 2012E and this was the main reason which led us to reduce our group 2011E-12E EBITDA forecasts by respectively 6.7% and 6.9%. Valuation. Based on our DCF model and 2012E peers multiples-based SOP valuations, we reduce our target price to EUR 8.19/share (EUR 9.90/share previously). However, considering the potential price upside we maintain the stock rating at BUY. We believe that investors should focus their attention on the company s ability to increase the earnings visibility and to control the level of the net working capital and consequently of the consolidated net debt. In our opinion, positive signals on these fronts, would be very helpful in restoring investors confidence in the company following the unsatisfying 3Q11A results and the growing uncertainties surrounding the award of the Mosul dam project. Key risks. Among the investment risks, we highlight that the company s bottom line appears to be sensitive to the USD exchange rate, to which it is positively correlated. We also note that, while remaining at an outstanding level, in the last three quarters the ground engineering services division significantly reduced its operating profitability. We also expect the division s reference market to remain extremely competitive in BUY Target Price: EUR 8.19 (from EUR 9.90) Building & Materials Company Update Intesa Sanpaolo Research Department Bruno Permutti Research Analyst Price performance, -1Y /12/11 5 D J F M A M J J A S O N TREVI FIN INDUSTRIALE FTSE ITALIA ALL SHARE - PRICE INDEX Source: Thomson Reuters Data priced on Target price ( ) 8.19 Target upside (%) Market price ( ) week range ( ) 11.3/5.2 Market cap ( M) No. of shares (M) Free float (%) Major shareholder (%) Trevisani D., Reuters TFI.MI Bloomberg TFI IM FTSE It All Shares Performance % Absolute Rel. to FTSE All Sh -1M M M M M M Source: Intesa Sanpaolo Research estimates and Thomson Reuters See page 13 for full disclosures and analyst certification

2 3Q11A-9M11A Results The group s 3Q/9M11A results were below our forecasts at the top line, operating profitability and net income levels. At end-september, the group net debt increased more than expected to EUR 386M vs. EUR 334M at 30 June 2011, while positive news came from the order backlog which reached EUR 1.02Bn vs. EUR 940.2M at end-june 2011 and EUR 759M at 30 September The 3Q11A and 9M11A order inflow amounted to EUR 330.5M and EUR 956.9M respectively, compared to EUR 279.3M and EUR 668.2M in 3Q10 and 9M10. Overall, we note the third quarter of the year while suggesting that the group is on track to reach a top line around EUR 1Bn, did not show the expected operating profitability recovery and was still negatively impacted at the bottom line level by a high tax burden related to the unfavourable geographical mix of profits. In our opinion in the 9-months Trevi continued to leverage on its well engineered business model, based on a wide geographical diversification and on a presence in businesses characterised by diverse growth drivers but faced more competition above all in the construction related divisions (Trevi and Soilmec). Trevi - 3Q/9M11A results EUR M 3Q11A 3Q11E % vs. est. 3Q10A % yoy 9M11A 9M11E % vs. est. 9M10A % yoy Revenues EBITDA Margin (%) EBIT Margin (%) Pre-tax income Net Income A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research Trevi - 3Q/9M11A results by business division EUR M 3Q11A % on cons. sales % yoy 3Q10A % on cons. sales 9M11A % on cons. sales % yoy 9M10A % on cons. sales Machines for foundations works Drilling machinery Elisions NM Mechanical Division Drilling services Special foundations works Elisions NM Services Division Parent Company Elisions Consolidated Sales A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research The yoy comparison shows that in the third quarter the consolidated sales continued to grow yoy driven by Drillmec and Soilmec, while the group s operating profitability, remained subdued above all in the services division. We would also point out that the group s 9M11A value of production increased by 15.6% yoy mostly thanks to a higher volume of work in progress which, according to the company, should translate into an acceleration of the top line growth in the last quarter of the year and in the first part of On this point, management said that 4Q11 revenues are expected to be around EUR 275M-305M, thus confirming its previously stated target of FY11 sales above EUR 1Bn. With regards to the individual divisions, we highlight that in 9M11A all the group s businesses improved in terms of sales yoy with the exception of the ground engineering division (Trevi ), as the lower level of activity in the Middle East and Africa was not completely offset by the positive performance in South America. The start of the works for the Cityringen Metro project in Copenhagen and the new contracts won in West Africa and Algeria in 2Q11 should help the Trevi division s performance in the last quarter of the year, which will compare with a quite strong 4Q10 (Trevi revenues before elisions amounted to EUR 111M). Petreven (+15.4% yoy), whose business is less cyclical, regularly provided its drilling services in Venezuela, Perù, Argentina, Colombia and Chile, and confirmed a sound growth path 2 Intesa Sanpaolo Research Department

3 driven by a growing number of operating rigs. We highlight that in the first few months of the year Petreven started operations on its twelfth rig, compared to the 10 rigs operating at June 2010, adding the promising Chilean market to its geographical diversification. Management confirmed the strategy aimed at increasing the drilling rigs operated by Petreven by 2 units per year. Looking at the Mechanical divisions, in the 9-months, Soilmec, the first to be impacted by the crisis since 1Q09, showed a good yoy sales increase driven by demand for medium range equipment even if 3Q11 was less brilliant than the previous two quarters. We would highlight that the abovementioned increase in the group s value of production is partially attributable to work in progress in the Soilmec division and that at end-september the order backlog for machines for ground foundation work reached EUR 92M, corresponding to approximately 5 months in terms of sales vs. 3-4 months in the last few quarters. For Drillmec, we would highlight that in 3Q11 the drilling machinery division showed a top line above EUR 90M thus confirming the guidance of growing production volumes from the second half of the year. In particular, in the nine months the oil drilling equipment division reached new strategic areas signing important contracts in China, North America, Russia and Belarus. The group showed a 9M11A decline in the EBITDA margin of 200bps (13.4%) compared to the corresponding period last year mostly due to the lower profitability of the Services business and despite the substantial stability shown by the Mechanical divisions (-20bps yoy). Note that Soilmec operating profitability, even if gradually improving, continued to suffer from the tough market environment and the costs for entering new markets (in particular Brazil, India and China) and product segments, while Drillmec showed an EBITDA margin above 13%, supported by the conclusion of the Saipem-Kazakhstan project and by the good quality of the order backlog. The Services business registered a 9M11A EBITDA margin of 16.1% with a decline of 340bps compared to 9M10 which we believe was mainly attributable to Trevi, whose profitability remained outstanding (three times higher compared to its peers), but suffered from the lower average size and the start-up phase of the processed orders. Below the EBIT line, we highlight that the group posted foreign exchange losses of EUR 3.97M, essentially related to the weak USD at 30 September Management pointed out that most of the losses are unrealised and could therefore vary by year-end depending on the USD exchange rate. The group s 9M11A net profit was below our forecast mainly due to the higher than estimated tax rate which climbed to 44.3%, compared to 37.5% in the corresponding period of 2010 and our forecast of 35% for FY11E. Management blamed the unfavourable geographical profit mix and said that significant changes are unlikely by year-end. Intesa Sanpaolo Research Department 3

4 Trevi - Quarterly division sales and operating profitability EUR M 1Q10A 2Q10A 3Q10A 9M10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A 9M11A % yoy Machines for foundations works Drilling machinery Elisions NM Mechanicals Division Drilling services Special foundations works Elisions NM Services Division Parent Company Elisions Consolidated Sales Services 1Q10A 2Q10A 3Q10A 9M10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A 9M11A % yoy Added Value % EBITDA % EBIT % Mechanicals 1Q10A 2Q10A 3Q10A 9M10A 4Q10A FY10A 1Q11A 2Q11A 3Q11A 9M11A % yoy Added Value % EBITDA % EBIT % NM: not meaningful; A: actual; Source: Company data NFP The group s end-september 2011A net debt amounted to EUR 385.7M, with a substantial increase compared to the EUR 334M at end-june 2011 mainly due to a higher net working capital (+EUR 64.7M in 3Q11A vs. end-june). We would highlight that in the July-September period, the group registered an increase in inventories of approximately EUR 75M vs. the end of June which was only partially offset by the advance payments received by clients (+EUR 40M vs. end-june). Based on management statements we understand that such an increase in inventories was mostly related to the purchase of components to feed the growing production levels of Drillmec and therefore should be at least partially re-absorbed in the first few months of 2012, when finished products are planned to be delivered to clients. The group s 9M11A net investments amounted to EUR 52.4M (EUR 15.9M in 3Q11A); the figure is consistent with the previous guidance for an increase in the 2011 capex level compared to 2010 (EUR 43M) and with our 2011E capex forecast of EUR 65M. Trevi - Quarterly net debt 2008A-9M11A Net Debt (EUR M) Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 A: actual; Source: Company data 4 Intesa Sanpaolo Research Department

5 Order backlog There was good news from the order backlog, which at 30 September 2011 reached its second highest level in six years at EUR M, showing an increase compared to both end-june 2011 (EUR 940M) and vs. the corresponding period of last year (EUR 759M at 30 September 2010). A good increase was registered yoy by the construction related divisions (Trevi and Soilmec) while Drillmec and Petreven showed negative yoy variations. Management pointed out that Drillmec soft backlog is strong and that Petreven has contracts under negotiation for approximately USD 150M which are expected to be concluded by the beginning of The 9M11A order inflow amounted to EUR 956.9M, in our opinion quite a good level compared to EUR 668.2M in 9M10. Strong order inflow in the first 9-months Trevi - Quarterly order backlog 2006A-3Q11A Order Backlog(EUR M) 1,400 1,200 1, , , , Order Inflow(EUR M) A: actual; Source: Company data Trevi - Order backlog in 2008A-9M11A EUR M 1H08 9M08 FY08 1H09A 9M09A FY09 1H10A 9M10A FY10A 1H11A 9M11A yoy % vs. June % Machines for foundations (Soilmec) Drilling machinery(drillmec) Mechanical Divisions Drilling services(petreven) Special foundations works(trevi) Services Divisions Group Total A: actual; Source: Company data Intesa Sanpaolo Research Department 5

6 Earnings Outlook Backlog. We expect the group s order backlog could be around EUR 950M by year-end. According to our 4Q11E revenue forecasts this would imply an order inflow of approximately EUR 212M in 4Q11E which compares to EUR 292.8M in 4Q10 and an average quarterly order inflow of EUR 319M in the first nine months of In addition, management signalled that the soft backlog for Drillmec and Petreven continued to be quite strong and this should strengthen expectations that our 2011E backlog estimate will not be missed; Top line. Based on the 9-months results we have reduced our 2011E-2012E group revenue forecast by respectively 4% and 3%. The main change concerned for both 2011E and 2012E a more cautious stance on the Trevi division which has recently lost the tender for the remediation works of the Center Hill dam in the US and could continue to suffer from a lower level of activity in the Middle East and from the generally tougher market environment. We also fine tuned our Petreven top line forecasts to factor in a slightly higher than previously estimated depreciation of the USD; Operating profitability. The third quarter operating results missed making the recovery that we expected for the group s ground engineering business operating profitability, probably due to the strong market competitiveness and the decline of works in Africa and the Middle East. We therefore adopted a more conservative view on the division s operating profitability for 2011E and 2012E and this was the main reason which led us to reduce our group s 2011E- 12E EBITDA forecasts by respectively 6.7% and 6.9%; Net income. As a result of the lower than previously estimated group operating profitability, a higher than previously estimated net debt and related costs and a higher than expected tax burden mostly related to the unfavourable geographical mix of profits, we reduced our group bottom line forecasts by 26% and 29.8% for 2011E and 2012E respectively. In particular we significantly increased the estimated tax rate from 35% to 44% in 2011E. For 2012E we factored in a slightly lower tax rate (42%) to factor in the expected recovery of the group s level of activity in Africa and the far East where tax income is low; Net debt. Despite the positive impact of the capital increase for EUR 45M deriving from the convertible bond redemption, we left our group s net debt 2011E-12E forecasts substantially unchanged as we now expect the new financial resources should be absorbed by a higher than previously estimated net working capital absorption. In particular the management said that an important amount product deliveries should take place for Drillmec in the first part of 2012 and this should prevent the group from significantly reduce NWC by year end. Our updated group forecasts are illustrated in the tables below: Trevi E-12E estimates revision EUR M FY11E FY12E New Old % chg. New Old % chg. Revenues 1, , , , EBITDA Margin (%) 13.6% 14.0% 13.9% 14.5% EBIT Margin (%) 8.8% 9.2% 9.2% 9.7% Pre-tax income Net Income A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research 6 Intesa Sanpaolo Research Department

7 Trevi A/E-2012E revenue and EBITDA by business unit Revenue - EUR M 2010A/E % yoy % on sales 2011E % yoy % on sales 2012E % yoy % on sales Special foundations works Drilling services Machines for foundations works Drilling machinery Group Revenue EBITDA - EUR M 2010A/E % yoy % on EBITDA 2011E % yoy % on EBITDA 2012E % yoy % on EBITDA Special foundations works % margin Drilling services % margin Machines for foundations works % margin Drilling machinery % margin Group EBITDA % margin Source: Company data and Intesa Sanpaolo Research estimates Intesa Sanpaolo Research Department 7

8 Valuation DCF based sum-of-the-parts valuation Our updated DCF based sum-of-the-parts valuation, calculated on DCF models of the drilling and construction businesses, points to a fair value of EUR 8.07/share, down vs. our previous EUR 10.79/share due to the estimates revision detailed above. Trevi - SOP valuation based on DCF Company Division Valuation Method EUR M EV Construction related business DCF model 306 EV Drilling related business DCF model 645 Total EV 951 Net Debt as at 31 Dec SOP value 566 n of shares (M) 70 Fair value/share 8.07 Current Share Price () 5.9 Upside(+)/Downside(-) potential % 36.7 E: estimates; Source: Intesa Sanpaolo Research DCF-based SOP valuation of EUR 8.07/share (EUR 10.79/share previously) Peers comparison-based sum-of-the-parts valuation We also value Trevi Group with a SOP valuation based on 2012E EV/EBITDA peers comparison. We split the drilling division into drilling services (Petreven) and oil services equipment (Drillmec), and the foundation division into special foundation works (Trevi), and machines for foundation works (Soilmec). We highlight that in the Trevi and Soilmec enterprise value calculation included in our group sum-of-the-parts model, we use the 2012E EV/EBITDA multiples of Bauer, which we consider the most similar peer based on its size and perimeter of activity. Peers comparison-based SOP valuation of EUR 8.32/share Construction works and equipment peers multiples EV/EBITDA 2011E 2012E Skanska Hochtief AG Bilfinger & Berger AG Fomento Const y Contr (Fcc) Vinci Keller Bauer Sample Median Source: FactSet and Intesa Sanpaolo Research estimates Drilling services peers multiples EV/EBITDA 2011E 2012E Transocean Ltd Noble Corp Diamond Offshore Drilling Inc ENSCO PLC ADS Hercules Offshore Inc Sample Median Source: FactSet and Intesa Sanpaolo Research estimates 8 Intesa Sanpaolo Research Department

9 Drilling equipment peers multiples EV/EBITDA 2011E 2012E National Oilwell Varco Cooper Cameron Corp Fmc Technologies Inc Dril Quip Saipem Technip Sample Median Source: FactSet Trevi - SOP valuation based on 2012E peers multiples Company Division Valuation Method EV Special Foundation Works Peers Comparison 328 EV Drilling Equipment Peers Comparison 363 EV Drilling Services Peers Comparison 178 EV Special Foundation Machines Peers Comparison 71 Total EV 940 Net Debt December 2012E 356 SOP Value 584 n of shares (mn) 70 Fair Value/sh. (EUR) 8.32 Current Share Price (EUR) 5.9 Upside(+)/Downside(-) potential % 41.1 E: estimates; Source: Intesa Sanpaolo Research Our sum-of-the-parts model, based on 2012E peers multiples, points to a Trevi group valuation of EUR 8.32/share (previously EUR 8.94/share). Conclusions We think the group valuation should be the average of both the DCF-based and 2012E peers multiples-based SOP valuations. In our opinion, the former method provides a medium-term view and a more objective indication of the group s possible value, while the latter shows our valuation in the current market context. Based on our estimates, updated market multiples and DCF valuations we reduce our target price to EUR 8.19/share (EUR 9.90/share previously). Note that our target price is calculated as the weighted average of the DCF-based SOP valuation (50%) of EUR 8.07/share and the 2012E multiples comparison-based SOP valuation (50%) of EUR 8.32/share.We believe that investors should focus their attention on the company s ability to increase the earnings visibility and to control the level of the net working capital and consequently of the consolidated net debt. In our opinion, positive signals on these fronts, would be very helpful in restoring investors confidence in the company following the unsatisfying 3Q11A results and the growing uncertainties surrounding the awarding of the Mosul dam project. Based on the potential price upside of approx. 38%, due also to market conditions, we confirm our BUY rating on the stock. Among the investment risks, we highlight that the company s bottom line appears to be sensitive to the USD exchange rate, to which it is generally positively correlated. We also note that, while remaining at an outstanding level, in the last three quarters the ground engineering services division significantly reduced its operating profitability. We expect that the division s reference market will remain extremely competitive also in DCF and Peers Multiples SOP-based valuations to EUR 8.19/share (EUR 9.90/share previously). BUY rating confirmed Key risks Intesa Sanpaolo Research Department 9

10 Trevi - Key figures Ordinary Rating Sector Building & Materials Mkt price EUR/Share 5.92 BUY REUTERS CODE TFI.MI Target price EUR/Share 8.19 Values per share (EUR) 2009A 2010A 2011E 2012E No. ordinary shares (M) No. NC saving/preferred shares (M) Total no. of shares (M) Adj. EPS CFPS BVPS Dividend Ord Dividend SAV Nc Income statement (EUR M) 2009A 2010A 2011E 2012E Sales 1, , , EBITDA EBIT Pre-tax income Net income Adj. net income Cash flow (EUR M) 2009A 2010A 2011E 2012E Net income before minorities Depreciation and provisions Change in working capital Operating cash flow Capital expenditure Other (uses of Funds) Free cash flow Dividends and equity changes Net cash flow Balance sheet (EUR M) 2009A 2010A 2011E 2012E Net capital employed of which associates Net debt/-cash Minorities Net equity Market cap Minorities value Enterprise value (*) Stock market ratios (x) 2009A 2010A 2011E 2012E Adj. P/E P/CEPS P/BVPS Dividend yield (% ord) EV/sales EV/EBITDA EV/EBIT EV/CE D/EBITDA D/EBIT Profitability & financial ratios (%) 2009A 2010A 2011E 2012E EBITDA margin EBIT margin Tax rate Net income margin ROE Debt/equity ratio Growth (%) 2010A 2011E 2012E Sales EBITDA EBIT Pre-tax income Net income Adj. net income (*) EV = Mkt cap+ Net Debt + Minorities Value - Associates A: actual; E: estimates; Source: Company data and Intesa Sanpaolo Research 10 Intesa Sanpaolo Research Department

11 Notes Intesa Sanpaolo Research Department 11

12 Notes 12 Intesa Sanpaolo Research Department

13 Disclaimer Trevi Analyst certification The financial analyst who prepared this report, and whose name and role appear on the first page, certifies that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures 1. Neither the analyst nor any member of the analyst s household has a financial interest in the securities of the Company. 2. Neither the analyst nor any member of the analyst s household serves as an officer, director or advisory board member of the Company. 3. The analyst named in this document is not registered with or qualified by FINRA, the U.S. regulatory body with oversight over Banca IMI Securities Corp. Accordingly, the analyst may not be subject to NASD Rule 2711 and NYSE Rule 472 with respect to communicates with a subject company, public appearances and trading securities in a personal account. For additional information, please contact the Compliance Department of Banca IMI Securities Corp at The analyst of this report does not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions. 5. The research department supervisors do not have a financial interest in the securities of the Company. This research has been prepared by Intesa Sanpaolo SpA and distributed by Banca IMI SpA Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo SpA accepts full responsibility for the contents of this report and also reserves the right to issue this document to its own clients. Banca IMI SpA and Intesa Sanpaolo SpA, which are both part of the Intesa Sanpaolo Group, are both authorised by the Banca d'italia and are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business. Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor. This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. 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Coverage policy and frequency of research reports The list of companies covered by the Research Department is available upon request. Intesa Sanpaolo SpA aims to provide continuous coverage of the companies on the list in conjunction with the timing of periodical accounting reports and any exceptional event that affects the issuer s operations. The companies for which Banca IMI acts as sponsor or specialist are covered in compliance with regulations issued by regulatory bodies with jurisdiction. In the case of a short note, we advise investors to refer to the most recent company report published by Intesa Sanpaolo SpA s Research Department for a full analysis of valuation methodology, earnings assumptions, risks and the historical of recommendation and target price. Research is available on Banca IMI s web site ( or by contacting your sales representative. Intesa Sanpaolo Research Department 13

14 Valuation methodology (long-term horizon: 12M) The Intesa Sanpaolo SpA Equity Research Department values the companies for which it assigns recommendations as follows: We obtain a fair value using a number of valuation methodologies including: discounted cash flow method (DCF), dividend discount model (DDM), embedded value methodology, return on allocated capital, break-up value, asset-based valuation method, sum-of-the-parts, and multiples-based models (for example PE, P/BV, PCF, EV/Sales, EV/EBITDA, EV/EBIT, etc.). The financial analysts use the above valuation methods alternatively and/or jointly at their discretion. The assigned target price may differ from the fair value, as it also takes into account overall market/sector conditions, corporate/market events, and corporate specifics (ie, holding discounts) reasonably considered to be possible drivers of the company s share price performance. These factors may also be assessed using the methodologies indicated above. Equity rating key: (long-term horizon: 12M) In its recommendations, Intesa Sanpaolo SpA uses an absolute rating system, which is not related to market performance and whose key is reported below: Equity rating key (long-term horizon: 12M) Long-term rating Definition BUY If the target price is 20% higher than the market price ADD If the target price is 10%-20% higher than the market price HOLD If the target price is 10% below or 10% above the market price REDUCE If the target price is 10%-20% lower than the market price SELL If the target price is 20% lower than the market price RATING SUSPENDED The investment rating and target price for this stock have been suspended as there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and target price, if any, are no longer in effect for this stock. NO RATING The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulations and/or firm policies in certain circumstances, including when Intesa Sanpaolo is acting in an advisory capacity in a merger or strategic transaction involving the company. TARGET PRICE The market price that the analyst believes the share may reach within a one-year time horizon MARKET PRICE Closing price on the day before the issue date of the report, as indicated on the first page, except where otherwise indicated Historical recommendations and target price trends (long-term horizon: 12M) Target price and market price trend (-1Y) Historical recommendations and target price trend (-1Y) Date Rating TP Mkt Price 14 1-Apr-11 ADD May-11 ADD May-11 ADD Aug-11 ADD Sep-11 BUY Dec-11 U/R U/R Dec-10 Mar-11 Jun-11 Sep-11 I:TFI(P) Target Price Equity rating allocations (long-term horizon: 12M) Intesa Sanpaolo Research Rating Distribution (at November 2011) Number of companies subject to recommendations: 94 (**) BUY ADD HOLD REDUCE SELL Total Equity Research Coverage % of which Intesa Sanpaolo s Clients % (*) (*) Companies on behalf of whom Intesa Sanpaolo and the other companies of the Intesa Sanpaolo Group have provided corporate and Investment banking services in the last 12 months; percentage of clients in each rating category. (**) The total number of companies covered is Intesa Sanpaolo Research Department

15 Valuation methodology (short-term horizon: 3M) Our short-term investment ideas are based on ongoing special market situations, including among others: spreads between share categories; holding companies vs. subsidiaries; stub; control chain reshuffling; stressed capital situations; potential extraordinary deals (including capital increase/delisting/extraordinary dividends); and preys and predators. Investment ideas are presented either in relative terms (e.g. spread ordinary vs. savings; holding vs. subsidiaries) or in absolute terms (e.g. preys). The companies to which we assign short-term ratings are under regular coverage by our research analysts and, as such, are subject to fundamental analysis and long-term recommendations. The main differences attain to the time horizon considered (monthly vs. yearly) and definitions (short-term long/short vs. long-term buy/sell ). Note that the short-term relative recommendations of these investment ideas may differ from our long-term recommendations. We monitor the monthly performance of our short-term investment ideas and follow them until their closure. Equity rating key (short-term horizon: 3M) Equity rating key (short-term horizon: 3M) Short-term rating Definition LONG Stock price expected to rise or outperform within three months from the time the rating was assigned due to a specific catalyst or event SHORT Stock price expected to fall or underperform within three months from the time the rating was assigned due to a specific catalyst or event Company specific disclosures Banca IMI discloses interests and conflicts of interest, as defined by: Articles 69-quater and 69-quinquies, of Consob Resolution No of , as subsequently amended and supplemented; the NYSE s Rule 472 and the NASD s Rule 2711; the FSA Policy Statement 04/06 Conflicts of Interest in Investment Research March 2004 and the Policy Statement 05/03 Implementation of Market Abuse Directive, March The Intesa Sanpaolo Group maintains procedures and organisational mechanisms (Information barriers) to professionally manage conflicts of interest in relation to investment research. We provide the following information on Intesa Sanpaolo Group s conflicts of interest: 1 The Intesa Sanpaolo Group has a conflict of interest inasmuch as it plans to solicit investment banking business or intends to seek compensation from the Company in the next three months. 2 The Intesa Sanpaolo Group has made significant financing to TREVI FINANZIARIA INDUSTRIALE S.p.A. and its parent and group companies. 3 Banca IMI is a corporate broker and liquidity provider relative to securities issued by TREVI FINANZIARIA INDUSTRIALE S.p.A. Intesa Sanpaolo Research Department 15

16 Intesa Sanpaolo Research Department Head of Research Gregorio De Felice Head of Equity & Credit Research Giampaolo Trasi Equity Research Monica Bosio Luca Bacoccoli Laura Carmignani Manuela Meroni Gian Luca Pacini Bruno Permutti Fabio M. Picardi Roberto Ranieri Corporate Broking Research Alberto Francese Marta Caprini Serena Polini Research Production Anna Whatley Bruce Marshall Annita Ricci Wendy Ruggeri Banca IMI SpA Largo Mattioli, Milan, Italy Tel: Banca IMI Securities Corp. 1 William Street New York, NY, USA Tel: (1) Banca IMI London Branch 90 Queen Street London EC4N 1SA, UK Tel Banca IMI Institutional Sales Nicola Maccario nicola.maccario@bancaimi.com Carlo Cavalieri carlo.cavalieri@bancaimi.com Francesca Guadagni francesca.guadagni@bancaimi.com Robert Meier robert.meier@bancaimi.com Alberto Sartori alberto.sartori@bancaimi.com Daniela Stucchi daniela.stucchi@bancaimi.com Mark Wilson mark.wilson@bancaimi.com Corporate Broking Carlo Castellari carlo.castellari@bancaimi.com Virginia Mortari virginia.mortari@bancaimi.com Laura Spinella laura.spinella@bancaimi.com US Institutional Sales Stephane Ventilato stephane.ventilato@bancaimi.com Jack Del Duca jack.delduca@bancaimi.com Barbara Leonardi barbara.leonardi@bancaimi.com Gregory Halvorsen gregory.halvorsen@bancaimi.com Sales Trading Roberto Gussoni roberto.gussoni@bancaimi.com Claudio Manes claudio.manes@bancaimi.com Lorenzo Pennati lorenzo.pennati@bancaimi.com Equity Derivatives Institutional Sales Andrea Martini andrea.martini@bancaimi.com Emanuele Manini emanuele.manini@bancaimi.com Massimiliano Murgino massimiliano.murgino@bancaimi.com Market Hub Brokerage & Execution Italian Equities - Sergio Francolini sergio.francolini@bancaimi.com Foreign Equities - Francesco Riccardi francesco.riccardi@bancaimi.com Market Hub Exchange Traded Derivatives Biagio Merola - Milan biagio.merola@bancaimi.com Market sales Giovanni Spotti giovanni.spotti@bancaimi.com 16 Intesa Sanpaolo Research Department