Seat PG. Flash Note. Fighting for survival

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1 Fabio Iannelli Fighting for survival Following Q3 results, management has guided for a weak H in domestic print directories, confirming our view that Seat PG might be close to breaching covenants in We confirm our contention that our estimated equity value is negative and cut our EUR0.01 target price to zero. Price EUR0.19 Previous Reduce Reuters PG.MI Bloomberg PG IM Index DJ Stoxx 600 Latest financials Target EUR0.00 Reduce Market cap (EURm) 363 Free float 49% Shares outstanding (m) 1,928 Daily trade volume ('000) 58,061 YTD abs. performance -98% 52-week high (EUR) week low (EUR) 0.15 Enterprise value (EURm) 3,099 Net debt (EURm) 2,666 (EUR) E 2010E Sales 1, , ,198.0 EBITDA EBIT Pretax profit Net profit (adj) EPS (adj) DPS PE EV/sales EV/EBITDA EV/EBIT na Net div. yield 0.0% 0.0% 0.0% Financial year end: 31 December Italy Media Seat PG COMPANY UPDATE 19 November 2009 In brief > Weak start expected in 2010 > Alarm on covenants might ring shortly > Tough to see a way out > Estimated equity value is negative, we drop our target price to zero In detail Weak start expected in 2010 Following Q3 results, management has already flagged a weak start in H for the domestic print business due to large cities orders booked in the current weak H2. We believe it is not simply a matter of weak economic outlook. We expect the print business to stay lacklustre even with positive GDP growth. Print is a mature media that has been and will continue to be crowded out by internet to a higher extent than any other media. While in the past we have described directories as a middle-aged business, we now believe we were being optimistic, as it could shortly prove no less than prehistoric. Alarm on covenants might ring shortly Due to the current 2009 business mix where print still accounts for over 60% of domestic revenues, although online revenues are growing at a healthy pace they would hardly offset the hit to domestic revenues given their still modest 20% weight. Assuming the print business at minus 12% YOY in 2009 with online at a healthy 20%, domestic revenues would decrease by 3-4% in Under this scenario we expect Seat PG s EBITDA 2010E to be below EUR490m, implying some 5.2x net debt/ebitda 2010E which would sound a loud alarm for the group s senior debt covenants. Flash Note Tough to see a way out The more domestic print business declines, the more the scenario of breaching covenants gets concrete. Seat PG might shortly be obliged to look for a further capital increase and renegotiate debt with banks, or a mix of the two. As we expected, the EUR200m share capital increase was simply a way to delay the pain. Major shareholders have been extremely short-sighted, in our view. In hindsight, they should have funnelled enough money into Seat PG to provide at least three years financial breathing room even under a double-digit negative growth scenario in the domestic print business Nov 08 Feb 09 M ay 09 Aug 09 Nov 09 Seat PG DJ Stoxx 600 Please refer to important disclosures at the end of this report Amsterdam Frankfurt Geneva London Madrid Milan New York Paris Zurich 219

2 Kepler Capital Markets Seat PG 2 Investment conclusion A matter of management We have acknowledged the increased focus on cost-cutting and believe CEO Alberto Cappellini will continue to deliver on the cost side. We appreciate his approach, clear statements and commitment to turn the group around. This is a veritable revolution for Seat PG compared to the approach of former CEO Luca Majocchi. Unfortunately, Majocchi was left too long in charge of Seat PG and the badwill in his wake is a tough load for the new CEO. Although we think Cappellini is a good manager, he is not equipped to work miracles, which unfortunately is precisely what Seat PG needs. Again, major shareholders must bear the blame for having left Majocchi too long in the CEO post, while it was clearly evident well before his departure that he had only a limited understanding of the directories business. One needs look no further than the business plans prepared by Majocchi for evidence of his inconsistency. Estimated equity value is negative Despite the ongoing good work on the cost side under the new CEO, as of today we believe Seat PG s estimated equity value is negative. We already cut our target price to a symbolic EUR0.01 but paradoxically it is proving to be a bullish valuation. With the print business declining double-digit in 2010, we don t expect group EBITDA to exceed EUR490m with free cash flow to serve debt which, in our view, would stabilise at around EUR140m. This implies that the group s capacity to deleverage is definitely jeopardised, entering a downward spiral that we expect to end shortly in a breach of covenants. On top of this, foreign assets that have been up for sale since March 2008 are clearly not appealing at the moment and are expected to contribute only a modest 9% to 2010 EBITDA. Since we were already discounting a double-digit negative scenario for the domestic print business, our estimates for the group after Q3 have been only fine-tuned (Table 1). In our valuation case, we have lowered the value attributed to the foreign assets from EUR240m to EUR123m, as the only asset that in our view might have a market appeal is Telegate, while Thomson and Europage might be worth peanuts. We continue to factor in EUR70m from the ongoing Telegate litigation. As a negative target price is nonsense, we are cutting our target price from EUR0.01 to zero. We clearly reiterate our Reduce rating. Table 1: Seat PG revision in estimates (EURm) FY09E FY10E FY11E Aggregate Old New % YOY Old New % YOY Old New % YOY Sales 1, , % 1, , % 1, , % EBITDA % % % EBITDA margin 42.0% 43.2% 39.1% 40.4% 38.7% 39.5% EBIT % % % EBIT margin 29.1% 17.4% 33.5% 35.1% 32.7% 34.8% Net profit % % %

3 Kepler Capital Markets Seat PG 3 Table 2: Seat PG SOTP Valuation (Seat Spa at DCF) (EURm) 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Seat Spa Growth YOY % -8.1% -3.2% -1.6% -0.5% -2.8% -2.1% -2.7% -2.2% -1.7% -1.2% Of which Print Growth YOY % -13.5% -12.0% -10.0% -10.0% -10.0% -10.0% -10.0% -10.0% -10.0% -10.0% Online Growth YOY % 28.0% 20.0% 15.0% 15.0% 8.0% 8.0% 5.0% 5.0% 5.0% 5.0% EBITDA EBITDA margin % 49.8% 45.4% 43.2% 41.1% 38.9% 36.8% 34.6% 32.5% 30.3% 26.0% EBIT EBIT margin % 28.1% 33.0% 31.3% 29.6% 27.8% 26.1% 24.4% 22.7% 20.9% 17.5% NOPAT Capital expenditures Depreciation & amortisation Change in working capital FCFF Growth YOY % -16.5% -31.9% -1.2% -5.1% -38.3% -9.5% -8.3% -8.2% -8.2% -15.1% WACC 6.9% 6.9% 7.1% 7.2% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% Discounted FCFF LT growth rate % -2.0% Terminal value EV Seat Spa 2, , , , , , , , , ,275.8 Implied EV/EBIT Seat Spa Implied EV/EBITDA Spa EBITDA EV/EBITDA Stake EV(100%) 09E 09E Telegate x 78.3% Business info & others % 15.0 Thomson x 100% 24.0 (EURm) 2009E 2010E Group EV 2, ,403.1 Implied EV/EBITDA Group Net debt -2, ,521.3 Litigation Telegate 70.0 Equity value Per share

4 Kepler Capital Markets Seat PG 4 Key financials Company profile Sales split Geographical and divisional Seat PG is the largest directories player in Italy with a market share over 90%. The Group is also present in the UK through Thomson and trying to expand its business across Europe in the directories assistance through Telegate. 100% 90% 100% 90% Top shareholders Private Equity funds 51.0% Events calendar 80% 70% 60% 50% 40% 30% 20% Abroad 22% Ital y 78% 80% 70% 60% 50% 40% 30% 20% 10% Consol i dat i on di f f er ences -4% Other Activities 5% Di r ector i es A ssi stance 14% T homson 9% Seat Spa 77% 10% 0% 0% -10% Income statement, 31 December (EURm E 2010E 2011E Balance sheet, 31 December (EU Rm) E 2010E 2011E Sales 1, , , ,193.6 EBITDA adjusted EBITA adjusted EBIT adjusted Net financial Non recurring items Associates PBT Income tax Tax rate (%) % 257.8% 41.0% 41.0% Others Minorities Reported net earnings Adjustments Adj. net earnings (group) Cash and equivalents Account receivables Other current assets Current assets Goodwill Other intangible assets 3, , , ,287.5 Property, plant & equipment Financial assets Fixed assets 3, , , ,480.0 Short-term debt Accounts payable Other current liabilities Current liabilities Cash-flow statement (EURm) E 2010E 2011E Net earnings D&A Change in TWC Other changes & non-cash Operating cash flow Capex Free cash-flow Disposals Financial investments Investing cash flow Change in equity Change in debt Dividends Others Financing cash flow Change in cash & equivalents Change in net debt Long-term debt 2, , , ,205.0 Pension provisions Other long-term liabilities Long-term liabilities 2, , , ,264.5 Shareholders' equity , , ,260.2 Minority interest Total shareholders' equity , , ,302.2 Net debt 3, , , ,374.7 Trade working capital Capital employed 3, , , ,481.4 Total assets 4, , , ,300.4 Ratios E 2010E 2011E Per share (EUR) E 2010E 2011E Sales growth (%) -4.7% -11.2% -2.0% -0.4% EBITDA growth (%) -6.6% -12.9% -8.3% -2.5% EBIT growth (%) -46.6% -6.6% 97.2% -1.3% Net earnings growth (%) ns ns ns 1.7% Gross margin (%) 47.8% 48.2% 44.9% 44.0% EBITDA margin (%) 44.0% 43.2% 40.4% 39.5% EBIT margin (%) 16.6% 17.4% 35.1% 34.8% Net earnings margin (%) -10.5% -2.4% 10.6% 10.8% EPS adjusted EPS reported CFPS BVPS DPS Year-end nb of shares(m) 8, , , ,927.0 Av. diluted nb of shares(m) 5, , , ,927.2 Net debt/equity (%) 344.1% 254.7% 214.9% 182.4% Net debt/ebitda (%) 498.4% 505.6% 521.4% 503.9% ROE (%) -15.1% -3.2% 11.7% 10.7% ROCE (%) 6.0% 6.0% 12.1% 11.9% Equity/total assets (%) 19.6% 24.3% 27.2% 30.3% TWC/sales (%) 19.6% 25.0% 26.0% 26.0% Operating CF/sales (%) 17.2% 23.4% 19.7% 20.0% Capex/sales (%) 5.1% 3.7% 3.8% 3.8% FCF/sales (%) 12.2% 19.7% 15.9% 16.2% Capex/D&A (%) 18.6% 14.3% 71.2% 79.9% Dividend pay out (%) 0.0% 0.0% 0.0% 0.0% Valuation E 2010E 2011E P/E na na P/BV P/CF na Dividend yield 0.0% 0.0% 0.0% 0.0% FCF yield 0.4% 64.9% 51.2% 51.7% EV/sales EV/EBITDA EV/EBITA EV/EBIT na EV/capital employed

5 Kepler Capital Markets Seat PG 5 Disclosures Disclosure checklist - Potential conflict of interests Stock ISIN Disclosure (see below) Currency Price Seat PG IT nothing to disclose EUR 0.19 Telegate A DE nothing to disclose EUR 9.00 Source: Factset closing prices of 18/11/2009 Key: 1. Kepler Capital Markets (KCM) holds or owns or control 5% or more of the issued share capital of this company. 2. The company holds or owns or controls 5% or more of the issued share capital of KCM. 3. KCM is or may be regularly doing proprietary trading in equity securities of this company. 4. KCM has been lead manager or co-lead manager in a public offering of the issuer s financial instruments during the last twelve months. 5. KCM is a market maker in the issuer s financial instruments. 6. KCM is a liquidity provider in relation to price stabilisation activities for the issuer to provide liquidity in such instruments. 7. KCM acts as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company. 8. KCM and the issuer have agreed that KCM will produce and disseminate investment research on the said issuer as a service to the issuer. 9. KCM has received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months. 10. KCM may expect to receive or intend to seek compensation for investment banking services from this company in the next three months. 11. The author of, or an individual who assisted in the preparation of, this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company. 12. An employee of KCM serves on the board of directors of this company. 13. As at the end of the month immediately preceding the date of publication of the research report Kepler Capital Markets, Inc. beneficially owned 1% or more of a class of common equity securities of the subject company. Rating History: Kepler Capital Markets has not changed its rating on Seat PG in the past 12 months. We have disclosed the recommendation to the issuer before its dissemination and the recommendation has not been amended following this disclosure. Rating ratio Kepler Capital Markets Q Rating breakdown A B Buy 50.8% 0.0% Hold 10.0% 0.0% Reduce 36.9% 0.0% Not Rated/Under Review/Accept Offer 2.3% 0.0% Total 100.0% 0.0% A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied From 9 May 2006, KCM s rating system consists of three recommendations: Buy, Hold and Reduce. For a Buy rating, the minimum expected upside is 10% in absolute terms over 12 months. For a Hold rating the expected upside is below 10% in absolute terms. A Reduce rating is applied when there is expected downside on the stock. Target prices are set on all stocks under coverage, based on a 12-month view. Equity ratings and valuations are issued in absolute terms, not relative to any given benchmark. KCM s strategy teams sector allocations rate each sector Overweight, Underweight or Neutral. Job titles: The functional job title of the person/s responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover. Compensation: The research analyst (s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst (s ) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst (s ) in the research report. The research analyst (s ) compensation is, however, determined by the overall economic performance of KCM. Analysts own views: The research analyst (s) primarily responsible for the preparation of the content of the research report attest that the views expressed in the research report accurately reflect the analyst (s ) personal and current views about all of the subject securities or issuers. Stock prices: Prices are taken as of the previous day s close (to the date of this report) on the home market unless otherwise stated. Regulators Location Regulator Abbreviation KCM France Autorité des Marchés Financiers AMF KCM España Comision Nacional del Mercado de Valores CNMV KCM Germany Bundesanstalt für Finanzdienstleistungsaufsicht BaFin KCM Italia Commissione Nazionale per le Società e la Borsa CONSOB KCM Nederland Autoriteit Financiële Markten AFM KCM Switzerland Swiss Federal Banking Commission SFBC KCM is authorised and regulated by both Banque de France and Autorité des Marchés Financiers. For further information relating to research recommendations and conflict of interest management please refer to

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