nomura european equity strategy - august 21 2011 - worse than 08

8/4/2019 Nomura European Equity Strategy - August 21 2011 - Worse Than 08

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Rating: See report end for details of Nomuras rating system.

European Strategy WeeklyEUROPEAN STRATEGY

EQUITY RESEARCH

Worse than 08? August 21, 2011

On some measures European stocks are now trading on similar

valuations to those that prevailed in early 2009, while others are fast

approaching that point.

We do not think the fundamentals are as severe as they were back then.

With European stocks now priced for a hit to earnings of approximately30%, we still believe the overall market is oversold at current levels.

That said, within the market, the most cyclical sectors still trade onabove normal multiples and are vulnerable to further underperformance.

Research analysts

European Strategy

Ian Scott - NIplc

[email protected]

+44 20 7102 2959

Inigo Fraser-Jenkins - NIplc

[email protected]+44 20 7102 4658

Shanthi Nair - NIplc


Mark Diver - NIplc


Saurabh Katiyar


Rohit Thombre


Robertas Stancikas - NIplc


Maureen Hughes - NIplc


See Appendix A-1 for analystcertification and important

disclosures. Analysts employedby non US affiliates are notregistered or qualified asresearch analysts with FINRAin the US.


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Nomura | European Strategy Weekly August 21, 2011

2

To be a seller of European stocks at current prices one really has to think that the

fundamentals are at least as bad as they were in the aftermath of the collapse of

Lehman Brothers. We doubt that this is the case.

Fig. 1: Pan-European price/book multiple

Source: FTSE, Worldscope, Nomura Equity research

Fig. 2: Pan-European free cash-flow yield

Source: FTSE, Worldscope, Nomura Equity research

At the time of writing, European equities sell for 1.25 times their last reported book value,

compared with a nadir of 1.1 times in March 2009, and the non-financials have a free

cash-flow yield of 7.9% (which covers their dividends almost twice over) compared with

8.2% in March 2009. The forward PE of 9x sits 30% below the steady range seenbetween 2003 and 2007, a similar multiple to the one that prevailed in mid 2009 at the

trough of the earnings cycle. On this basis one might argue that a 30% cut to EPS

forecasts is already in the price.

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Ian Scott

+44 20 7102 4659

[email protected]

European equities trade on1.25x book value compared to

their nadir of 1.1x in March 2009


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Fig. 3: Pan-European 12-month forward PE

Source: FTSE, IBES, Nomura Equity research

In early 2009, not only was the global economy in the midst of the worst recession since

the 1930s, but the financial system was also close to collapse. Credit spreads were over

200 basis points at their widest point, and it was unclear whether the authorities would

not or could not stem the tide. Spreads are wide now but closer to their 2010 wide point

rather than the 2008/09 period.

Fig. 4: European credit spreads

Figure shows the Markit iTraxx Europe Index, which is composed of 125 investment grade entities. Source: Bloomberg

Similarly, with the financials, CDS, while inflated are closer to the 2010 wides than the

2008/09 period.

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2009 saw not only the worstrecession since the 1930s, but

the financial system was alsoclose to collapse


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Fig. 5: European Financials CDS

*5-year CDS for individual companies are weighted together according to their stock market capitalisations.Source: Datastream, Nomura Strategy research

Where we continue to see a set of expectations out of step with the current economic

situation is among Europes cyclical companies. They continue to trade on a price/bookpremium to the norm compared with the non-cyclical part of the market (Figure 6).

Fig. 6: European cyclical versus non-cyclical sector valuations price/book

Weighted price/book multiple based on stocks in the Basic Industries, Capital Goods and Consumer Cyclical sectors,divided by Utilities, Healthcare and Consumer Staples. Source: Worldscope, Nomura Strategy research

Even on PE with the cyclical vulnerable to further downgrades they still do not yet

offer the value consistent with past historical lows such as 2001 and 2008.

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We continue to be surprised by

the high multiples demanded forcyclical companies


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Fig. 7: European cyclical versus non-cyclical sector valuations PE

Weighted PE multiple based on stocks in the Basic Industries, Capital Goods and Consumer Cyclical sectors, divided byUtilities, Healthcare and Consumer Staples. Source: Worldscope, Nomura Strategy research

So once again, while we find the overall market to be oversold and consistent with a

recessionary downgrade to current EPS forecasts in the region of 30%, at the sectorlevel the market still accords the cyclical sectors a set of valuations inconsistent with the

current risks to their earnings.

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European recommended portfolio

Price (LC) Mkt Cap

Calendarised EPS y/e

Dec1Price/

earnings Date

Rel Perf.

since

Rel Perf.

Ove r Analyst

Sector Stock Currency 18 Aug 11 US$m 2010a/e 2011e 2012e Dec 11 (x) Added Added week Rating2

Basic Industries RIO TINTO PLC GBP 34.95 86,338 7.2 10.8 12.3 3.2 11 Dec 09 22 1 Not Rated

Capital Goods GAMESA CORP TECNO EUR 3.90 1,378 0.3 0.3 0.5 13.0 13 Nov 09 -67 2 Not Rated

MEGGITT PLC GBP 3.23 4,133 0.3 0.3 0.4 10.5 3 Dec 10 3 -1 Buy

THALES SA EUR 24.55 2,798 -0.2 2.4 3.1 10.2 8 Oct 10 1 -2 Buy

Consumer Cyclicals COMPASS GROUP GBP 5.15 15,936 0.4 0.4 0.5 12.4 23 Oct 09 49 -2 Buy

INTERCONTINENTAL HOTELS PLC GBP 9.88 4,715 1.0 1.1 1.3 8.7 3 Dec 10 -5 -2 Buy

Energy AMEC PLC GBP 9.29 5,068 0.6 0.7 0.8 13.2 3 Dec 10 -4 6 Not Rated

BP PLC GBP 4.00 124,089 1.1 1.2 1.2 3.4 22 May 09 -30 3 Not Rated

REPSOL EUR 18.19 31,776 1.9 2.0 2.4 9.3 4 Oct 10 5 0 Not Rated

TULLOW GBP 9.94 14,479 0.1 0.9 1.1 10.7 4 Oct 10 -14 -3 Not Rated

Financials - Banks BNP PARIBAS EUR 34.21 51,055 6.3 8.0 9.0 4.3 16 Apr 10 -23 -3 Buy

CREDIT AGRICOLE EUR 6.23 8,566 0.5 1.7 2.2 3.7 12 Jun 11 -23 -2 Buy

LLOYDS GBP 0.30 19,709 0.0 0.0 0.1 NM 2 Jul 10 -47 -5 Buy

NATIONAL BANK OF GREECE EUR 3.75 5,129 0.5 0.6 1.0 6.2 11 Dec 09 -72 -4 Neutral

UBS AG CHF 10.65 51,081 2.0 2.0 2.5 5.5 17 Sep 10 -20 -6 Buy

UNICREDITO ITALIANO EUR 0.96 26,469 0.1 0.2 0.2 5.9 16 Apr 10 -44 -4 Buy

Financials - Insurance AEGON NV EUR 2.91 7,964 0.8 0.7 0.7 4.5 9 Jan 09 -65 3 Buy

AVIVA PLC GBP 3.22 15,177 0.6 0.6 0.7 5.3 31 Jul 09 -6 -4 Buy

AXA EUR 10.56 35,059 1.8 2.1 2.3 5.1 9 Jan 09 -42 2 Buy

LEGAL & GENERAL GROUP PLC GBP 0.95 9,206 0.1 0.1 0.2 6.7 11 Dec 09 42 -1 Buy

ZURICH FINANCIAL SERVICES AG CHF 166.10 30,967 24.6 20.9 23.3 8.0 11 Dec 09 17 1 Buy

Financials - Other 3I GROUP PLC GBP 2.04 3,241 0.2 0.3 0.4 6.3 8 Jul 11 -17 -2 Buy

GT PORTLAND ESTATES GBP 3.67 1,889 0.2 0.1 0.1 46.1 3 Dec 10 17 0 Not Rated

ICAP PLC GBP 4.02 4,394 0.5 0.5 0.5 7.7 3 Dec 10 -7 -1 Buy

LAND SECURITIES PLC GBP 7.63 9,781 0.4 0.4 0.4 20.7 3 Dec 10 31 -1 Not Rated

Healthcare MERCK KGAA EUR 63.51 5,873 2.9 4.3 4.6 14.6 4 Sep 09 3 1 Buy

NOBEL BIOCARE HLDG CHF 9.86 1,550 0.4 0.7 0.8 15.1 3 Dec 10 -18 -22 Buy

NOVARTIS AG CHF 43.96 138,043 4.3 4.8 4.9 9.1 9 Jan 09 2 3 Buy

Media PUBLICIS GROUPE EUR 31.07 6,341 2.4 2.6 2.8 12.0 3 Dec 10 1 -3 Buy

REED ELSEVIER GBP 4.61 9,235 0.4 0.5 0.5 10.1 4 Sep 09 10 1 Buy

WPP PLC GBP 6.01 12,453 0.6 0.6 0.7 9.6 3 Dec 10 -7 0 Buy

Technology AUTONOMY PLC GBP 14.29 5,708 1.1 1.3 1.6 11.2 3 Dec 10 18 -7 Buy

CAPGEMINI SA EUR 27.07 6,003 1.9 2.5 3.2 10.9 22 Jul 11 -17 -2 Buy

ILIAD S.A. EUR 80.09 2,510 5.9 5.4 5.2 14.9 23 Oct 09 9 -1 Buy

SAP AG EUR 34.26 45,092 2.3 2.7 3.1 12.6 23 Oct 09 4 -5 Buy

STMICROELECTRONICS EUR 4.28 4,185 0.7 0.9 1.2 4.8 9 Jan 09 -27 -10 Buy

Telecoms DEUTSCHE TELECOM EUR 9.17 42,937 1.0 1.0 1.2 9.3 4 Sep 09 10 0 Buy

TELENOR ASA NOK 82.35 12,471 8.7 8.1 9.3 10.2 8 May 09 90 -3 Buy

Utilities NATIONAL GRID PLC GBP 5.90 34,076 0.5 0.5 0.5 11.4 4 Sep 09 24 4 Neutral

Portfolio perf. (Euro Return, %)

3

1 W K 1 MTH YTD 12 MTH 2010 2009 2008

4

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995Nomura Strategy Recommend Portfolio -2.5 -16.1 -21.9 -20.2 5.3 49.4 -20.7 -4.5 20.9 21.7 7.7 22.5 -34.0 -21.2 14.7 67.4 26.4 43.2 35.7 17.8

FTSE-World Europe Index -0.9 -13.4 -15.5 -9.1 11.7 33.2 -20.4 3.6 17.2 23.0 9.4 12.6 -31.7 -17.3 -2.9 25.4 18.6 40.5 24.7 11.2

1 EPS est imates are based on Nomura estimates (for stock s under coverage), IBES (for stock s not under coverage).2 Analyst rating refers to Nomura research department rating.3 Return history presented as price return in euro terms from before 2006. Returns from 2007 to present are on a total return basis.4 Ending 12 September 2008.

Please turn to the back cover for an explanation of Nomura's rating system. Past performance is not a guarantee of future results.

Past performance should not and c annot be viewed as an indicator of future performance. Complete record available upon request.

Source: IBES, IDC/Exshare, Factset, Nomura Strategy estimates

European recommended sector allocation

BenchmarkRecommended

WeightingRecommendation

Basic Industries 11 6 Underw eight -Capital Goods 7 9 Neutral

Consumer Cyclicals 1 9 2 Underw eight

Consumer Staples 14 0 Underw eight

Energy 11 19 Overw eight -Financials 20 35 Overw eight

of which: Banks 12 16 Overw eight

Insurance 5 11 Overw eight

Other 2 8 Overw eight -

Healthcare 11 6 Underw eight

Media 2 6 Overw eight

Technology 3 10 Overw eight -Telecoms 7 5 Underw eight

Utilities 5 3 Underw eight - We underweight the Utilities and Healthcare sectors.

- We have an underweight recommendation in Telecoms.1 Combination of Cyclical Consumer Goods and Cyclical Services excluding Media.

Source: Nomura Strategy research

We overweight Financials as asset price reflation should provide support.

Valuations discou nt further capital raising; we think these concerns will be

mitigated by rising asset values.

We also overweight the Tech and Media sectors, which s hould benefit from

increased business spending.

We recomme nd overweighting the Oil sector and underweig hting the BasicIndustries s ector; demand for non-oil commodities has become more s ensitive

to prices, while mining stocks a re also expensive relative to Oils.

We underweight sectors that are vulnerable to a rise in bond yields and prefer

sectors that should benefit from a reduction in the equity risk premium . We also

overweight sectors that should benefit from increased capital spending.


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European index targets

End 2011

Current Level* End 2011

Price Return

(%)**

FTSE Europe 137 162 19 -FTSE Europe ex UK 122 145 19

EURO STOXX 50 2331 2850 22 -FTSE 100 (UK) 5332 6200 16

Dax 30 5949 7500 26

CAC 40 3254 3950 21 -

SMI 5421 6200 14

AEX 293 355 21 -IBEX 8728 10300 18

OMX 958 1100 15

MIB 15951 19250 21

**Eur terms* As of 18-Aug-2011

We use the FTSE All World Developed index for Europe and Europe ex UK.


We think 2011 will see companies reinvest in their businesses, either

through organic investment or through M&A.

We expect the European market to recover from current lows.

Equity valuations appear attractive to us, with embedded risk premiumsat high levels, and we expect the earnings recovery to continue, though

at a slower pace.

We think the market has overreacted to concerns of slowing growth, and

sentiment has moved to depressed levels.

European earnings growth forecasts

2010 2011 2012

Europe ex UK1 11% 11% 15% -

UK2 17% 10% 13%

Europe 13% 11% 15% -

* EPS growth

1 FTSE Europe ex UK

2 FTSE 100


We have lowered our earnings growth forecast for 2011 for continental

Europe to take into account the lower growth in the first quarter.

We have lowered our earnings growth forecast for 2011 for Europe from

13% to 11%; our 2012 forecast is unchanged.


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Investible themes

Source: Bloomberg

For details of the investible products based on these themes and how to trade them please contact the Quantitative Solutions Group on +44 (0) 20

7103 9988 or [email protected]. Our investible themes and style portfolios are listed on Bloomberg at NMRA. Bloomberg codes are listed,

where applicable, with each theme below.

Our investible themes and style portfolios are listed on Bloomberg at NMRA. We show live tradable prices for these themes. Option 1 shows the

long/short return of our key style portfolios, option 2 shows the returns of the top and bottom quartiles of the full range of styles and allows access tothe constituents.

Investible themes are available under option 3 as shown below.


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Source: FTSE All World, Exshare, Nomura Strategy research

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Source: FTSE All World, Worldscope, Exshare, Nomura Strategy research

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Source: Nomura research, Bloomberg, FTSE All World, Exshare

Divestiture Basket

Within overall M&A activity we think divestitures deserve special

attention. We believe we could see divestitures and s pin-offs

increase during the rest of the year as companies seek to increase

value for their shareholders .

The basket consist of 19 European stocks that Nomura sector

analysts consider potential candidates for spin-offs and

divestitures.

See European Strategy Weekly, Unlocking the value in divestitures ,

10 April 2011.

Chart shows the performance of a basket of European stocks that are considered potential candidates for spin-offs and divestitures. The performance is shown on

an equal weighted USD total return basis relative to market.

Chart shows the performance of a basket of European stocks that we consider could be potential takeover targets based on a screening that takes into account

valuation and the attractiveness of the companies as a strategic asset for potential buyers. The performance of the basket is shown relative to the FTSE ALL World

Europe Index. The performance is shown on an equal weighted USD total return basis .

M&A Basket

We expect M&A activity to pick up in 2011. It has been at a low ebb

until recently yet corporates have large amounts of available cash.

We identify companies that we think are potential targets to be bid

for. For more details of the basket please see Can Companies

Provide the Catalyst? (III) 30 January 2011.

Organic Growth Basket II

Chart shows the performance of a basket of European stocks that we consider could be potential takeover targets based on a screening that takes into account

valuation and the attractiveness of the companies as a strategic asset for potential buyers. The performance of the basket is shown relative to the FTSE ALL World

Europe (ex financials) Index. The performance is shown on an equal weighted USD total return basis.

We expect the market to reward companies that can invest in

profitable internal growth opportunities.

We have refreshed the constituents of our original Organic

Growth basket, which we closed on 09/06/2011.

To derive the basket we look for European companies with

ROCE > 10%, where capex / depreciation (2010) ratio is greater

than 1.5 and where we expect capex to grow in the next few

years. We also looked for expected EPS growth in the next 3

years in excess of 10% pa, giving a total of 51 constituents.

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Index

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Index


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Source: FTSE, Worldscope, IBES, Exshare, Nomura Strategy research

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Source: FTSE World, Worldscope, IDC/Exshare, Nomura Strategy research

Trade On Trade Off Return

Emerging Market Exposed Basket NMRAEQEM 20/02/2009 31/07/2009 27.60% Return relative to FTSE World European index in USD

Government Spending basket NMRAFISC 23/01/2009 15/01/2010 37.80% Return relative to FTSE World European index in USD

Organic Grow th Basket I 06/12/2010 09/06/2011 -0.30% Return relativ e to FTSE World European ex Financ ials index in USD

European Q-GAARP Basket 08/01/2010 03/12/2010 -5.33% Long/Short

Capital Structure Arbitrage Basket 09/10/2009 03/12/2010 -6.24%

Dividend Theme Basket 19/02/2010 03/12/2010 -6.63% Return relative to FTSE World European index in USD


Closed trades

European Multifactor Model

Chart shows the relative performance of attractive relative to unattractive styles according to our style selector model with styles rebalanced each month.

A quant-driven model that selects attractive and unattractive stocks

each quarter.

Uses a broad range of factors with regressions used to assign

coefficients to factors bas ed on the efficacy of factors in each sector.

Incorporates a non-linear interaction term that captures the level of

agreement between value and mom entum.

European Style Selector

Chart shows the performance of our long-short European multifactor stock selection model. The performance is on a USD total return basis with a 5-day

implementation lag at each quarter end. Sectors are equally weighted and stocks equally weighted within sectors. The Portfolios have been rebalanced quarterly.

A quant-driven model that selects attractive and unattractive styles

each quarter.

Uses the valuation of style factors and the recent momentum of

style factors to rank s tyles each month.

See European Multifactor Model, 3 November 2008.

See European Style Selector, 5 June 2009.

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European valuation and profitability12 month Forward P/E1

Current Values Post 1990 Average

Eur ex UK UK Europe EEMEA Eur ex UK UK Europe EEMEA5

Basic Industries 9.7 6.9 8.4 9.4 Basic Industries 12.9 12.0 12.5 11.1

Capital Goods 10.0 9.0 9.9 8.8 Capital Goods 15.7 11.7 14.3 7.8

Consumer Cyclicals 10.0 11.4 10.3 10.5 Consumer Cyclicals 15.4 12.6 14.0 9.0

Consumer Staples 14.3 12.5 13.5 14.9 Consumer Staples 16.9 12.8 14.7 10.9

Energy 7.2 7.5 7.3 4.4 Energy 13.9 14.3 14.1 7.6

Financials2 6.4 8.4 6.9 8.3 Financials2 13.1 12.3 12.8 9.0

of which: Banks 6.1 8.0 6.6 8.0 of which: Banks 11.7 11.5 11.5 9.2

Insurance 6.4 7.9 6.7 9.8 Insurance 16.5 15.1 15.7 8.6

Healthcare 10.7 9.5 10.3 8.5 Healthcare 18.2 17.2 17.8 18.9

Technology 11.8 15.9 12.3 14.3 Technology 21.7 18.6 20.8 13.9

Media 8.5 10.7 9.3 15.5 Media 18.0 18.8 18.2 41.6

Telecoms 9.0 9.7 9.3 9.4 Telecoms 19.8 16.1 17.0 14.2

Utilities 8.9 11.4 9.4 8.2 Utilities 14.5 10.2 11.8 11.6

Market 9.0 9.1 9.0 7.4 Market 14.3 12.7 13.6 9.7

Enterprise Value / Sales







Energy 0.7 0.7 0.7 1.0 Energy 1.0 1.1 1.1 1.2

Financials2 NA NA NA NA Financials2 NA NA NA NA

of which: Banks NA NA NA NA of which: Banks NA NA NA NA

Insurance NA NA NA NA Insurance NA NA NA NA



Media 1.2 1.4 1.3 3.8 Media 1.7 2.2 1.9 1.8



Market ex Financials 1.1 1.2 1.1 1.3 Market ex Financials 1.1 1.4 1.2 1.3

Enterprise Value / EBITDA







Energy 2.9 6.4 4.2 4.0 Energy 5.3 7.1 6.0 5.1

Financials

2

NA NA NA NA Financials2 NA NA NA NAof which: Banks NA NA NA NA of which: Banks NA NA NA NA

Insurance NA NA NA NA Insurance NA NA NA NA



Media 4.8 8.4 5.8 13.3 Media 8.1 10.6 8.9 8.7




1Ratios reflect earnings before goodwill amortisation

2Financials excluding Real Estate

5Post 2000 average for EEM EA region

Source: FTSE, Worldscope, IBES, Nomura Strategy research


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European valuation and profitabilityReturn on Capital Employed4 (ROE4 Financials)







Energy 12.1 7.1 9.4 12.6 Energy 12.6 12.5 12.6 17.7

Financials1,2 8.7 9.7 9.0 15.7 Financials1,2 9.7 11.9 10.2 15.6

of which: Banks2 8.1 8.6 8.2 15.9 of which: Banks2 9.3 14.6 10.4 15.9

Insurance2 10.0 13.9 10.7 20.1 Insurance2 11.4 11.4 11.4 19.9



Media 14.8 13.4 13.9 14.4 Media 12.1 16.1 13.8 13.4




Enterprise Value / Capital Employed (P/BV Financials)







Energy 1.0 1.2 1.1 0.9 Energy 1.6 2.0 1.8 1.3

Financials1,3 0.6 0.8 0.7 1.4 Financials1,3 1.8 1.8 1.8 1.9

of which: Banks3 0.6 0.8 0.6 1.5 of which: Banks3 1.6 2.0 1.7 2.1

Insurance3 0.8 1.0 0.8 1.4 Insurance3 2.7 2.0 2.5 1.5



Media 1.0 1.4 1.1 2.2 Media 2.1 2.8 2.4 1.8

Telecoms 1.1 1.0 1.1 1.5 Telecoms 1.4 1.5 1.4 2.3Utilities 0.8 1.4 0.9 0.8 Utilities 1.3 1.2 1.2 0.9


1Financials excluding Real Estate

2Return on equity used for Financials.

3Price to book value used for Financials.

4RO E and RoCE calculated pre goodwill and pre exceptionals.

5Post 2000 average for EEM EA region

Source: FTSE, Worldscope, IBES, Nomura Strategy research


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Appendix A-1

Analyst Certification

I, Ian Scott, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or

all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be

directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my

compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,

Nomura International plc or any other Nomura Group company.


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Important DisclosuresOnline availability of research and additional conflict-of-interest disclosuresNomura Japanese Equity Research is available electronically for cl ients in the US on NOMURA.COM, REUTERS, BLOOMBERG andTHOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS andBLOOMBERG.Important disclosures may be accessed through the left hand side of the Nomura Disclosure web pagehttp://go.nomuranow.com/research/globalresearchportal or requested from Nomura Securities International, Inc., on 1-877-865-5752. If youhave any difficulties with the website, please email [email protected] for technical assistance.The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, aportion of which is generated by Investment Banking activities.Unless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified as research analysts underFINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions oncommunications with covered companies, public appearances, and trading securities held by a research analyst account.Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for thesales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content ofresearch reports in which their names appear.Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarilyresponsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may alsocontribute to research reports in which their names appear and publish research on their sector.Distribution of ratings (US)The distribution of all ratings published by Nomura US Equity Research is as follows: 40% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 10% of companies with thisrating are investment banking clients of the Nomura Group*.53% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 3% of companies with thisrating are investment banking clients of the Nomura Group*.7% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with thisrating are investment banking clients of the Nomura Group*.As at 30 June 2011.*The Nomura Group as defined in the Disclaimer section at the end of this report.Distribution of ratings (Global)The distribution of all ratings published by Nomura Global Equity Research is as follows: 49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 41% of companies with thisrating are investment banking clients of the Nomura Group*.40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies withthis rating are investment banking clients of the Nomura Group*.11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 14% of companies withthis rating are investment banking clients of the Nomura Group*.As at 30 June 2011.*The Nomura Group as defined in the Disclaimer section at the end of this report.Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America forratings published from 27 October 2008The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited managementdiscretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriatevaluation methodology such as discounted cash flow or multiple analysis, etc.STOCKSA rating of 'Buy',indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months.A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable

regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a mergeror strategic transaction involving the company.Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks(accessible through the left hand side of the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal);GlobalEmerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months.Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI EmergingMarkets ex-Asia.Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from30 October 2008 and in Japan from 6 January 2009STOCKS


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Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.A 'Buy' recommendation indicates that potential upside is 15% or more.A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%.A 'Reduce' recommendation indicates that potential downside is 5% or more.A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/orfirm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving thesubject company.Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entityidentified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/orcompanies.SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation.A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutralabsolute recommendation.A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negativeabsolute recommendation.Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings inEurope, Middle East and Africa, US and Latin America published prior to 27 October 2008)STOCKSA rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next sixmonths.A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next

six months.A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% overthe next six months.A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% overthe next six months.A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months.Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additionalresearch reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or otherinformation contained herein.SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months.A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months.Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector -Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe;

Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: BloombergWorld Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published priorto 30 October 2008STOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price,subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value ofthe stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn'tthink the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from theintrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and ourestimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within thishorizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downsideimplied by the recommendation.A 'Strong buy' recommendation indicates that upside is more than 20%.A 'Buy' recommendation indicates that upside is between 10% and 20%.A 'Neutral' recommendation indicates that upside or downside is less than 10%.A 'Reduce' recommendation indicates that downside is between 10% and 20%.A 'Sell' recommendation indicates that downside is more than 20%.SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positiveabsolute recommendation.A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutralabsolute recommendation.A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negativeabsolute recommendation.Target PriceA Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be

impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if thecompany's earnings differ from estimates.


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DisclaimersThis publication contains material that has been prepared by the Nomura entity identified at the top or bottom of page 1 herein, if any, and/or, with the sole or jointcontributions of one or more Nomura entities whose employees and their respective affiliations are specified on page 1 herein or elsewhere identified in thepublication. Affiliates and subsidiaries of Nomura Holdings, Inc. (collectively, the 'Nomura Group'), include: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan;Nomura International plc ('NIplc'), United Kingdom; Nomura Securities International, Inc. ('NSI'), New York, NY; Nomura International (Hong Kong) Ltd. (NIHK),Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (NFIK), Korea (Information on Nomura analysts registered with the Korea Financial InvestmentAssociation ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr ); Nomura Singapore Ltd. (NSL), Singapore (Registration number 197201440E,regulated by the Monetary Authority of Singapore); Capital Nomura Securities Public Company Limited (CNS), Thailand; Nomura Australia Ltd. (NAL), Australia(ABN 48 003 032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence number246412; P.T. Nomura Indonesia (PTNI), Indonesia; Nomura Securities Malaysia Sdn. Bhd. (NSM), Malaysia; Nomura International (Hong Kong) Ltd., TaipeiBranch (NITB), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited (NFASL), Mumbai, India (Registered Address: Ceejay House, Level 11,Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; SEBI Registration No: BSE INB011299030, NSE INB231299034, INF231299034,INE 231299034); Banque Nomura France (BNF); NIplc, Dubai Branch (NIplc, Dubai); NIplc, Madrid Branch (NIplc, Madrid) and OOO Nomura, Moscow (OOO

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