top picks 2014

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Table of contents

Introduction: Improving developed markets economies bode well for equities 2

The Macro Outlook Europe: Gradual recovery 4 US: imminent tapering 4 Asia: Slowdown in China 5 Positive outlook for equities 6 Summary of our Top Picks 7 Aalberts 9 ASM International 13 Brunel 17 Exact 21 KPN 25

Reed Elsevier 29 Sligro 33

Appendices Performance SNS Securities Top picks 2003-2014 37


Introduction Improving developed markets economies bode well for equities

Stock markets rallied in H2 2013 Post NL, one of our Top Picks, was the best performer in the AEX index

2013 has turned out to be a great year for equity investors. While stock markets moved sideways in the first half of the year, indices broadly increased in developed markets in the second half of 2013. Markets withstood the uncertainty of a US government shutdown, a fragile European recovery, an economic growth slowdown in emerging markets and the ‘threat’ of Fed tapering. The Dutch AEX index increased by 15% since the publication of our mid-year 2013 Top Picks, slightly ahead of the European Stoxx index. Post NL, one of our top picks in June 2013, was the biggest mover in the Dutch large cap index, rising by 95% in the same period. The mid-caps AMX index increased by 18% and the small-caps ASCX index by 16%.

Our mid-year 2013 Top Picks increased by 23%, better than the broader market

Our selection of mid-year 2013 top picks outperformed the broader market in the second half of 2013. Our Top Picks increased by an average of 23%. We picked the clear winner Post NL that increased almost twice as much as the number 2 in the large-cap AEX index. Another strong performer was TMG that paid out a special dividend of EUR 6 per share. The total return for TMG was 35%. Grontmij was up 9% in the period, somewhat below the market index. BAM Group and Vopak were our weakest picks. Finally, we advised to short Heineken shares, which worked out nicely. Heineken’s share price dropped 8% since the publication of the mid-year 2013 Top Picks.

The world economy improves Different trends in Europe, but a recovery is under way Reasonable growth in the US Chinese GDP growth will gradually fall back Favorable outlook for equities

But what are our expectations going forward? The world economy has passed the mid-cycle dip and is on the path of recovery. The revival continues to be led by the US, but leading indicators in Europe are improving as well. The growth trend of the Chinese economy is declining, but only slightly. The economic picture across Europe varies, but there are clear signs that we are getting out of the difficult period we went through in the past few years. Southern European countries like Spain and Portugal are finally showing new signs of life and the Italian economy is showing a modest improvement. France remains Europe’s weak spot with little evidence of structural reforms. The outlook for Germany is positive with a broad-based improvement in investment spending and consumption. Finally, the Dutch economy was one of the weaker performers, but the outlook improves as the residential market bottoms out, consumer confidence increases and unemployment declines. The US economy is showing reasonable growth. The number of jobs is growing and the hourly wages increase, which positively impacts consumption. The residential market has also strengthened as well as related expenditure and construction activities. The Fed will start to slow down the quantitative easing, which provides clarity to the market about its intentions. The impact on interest rates will be limited in our view as these have already adjusted in anticipation of the Fed tapering. China continues to put a major mark on the overall Asian economy and its economic growth has slowed down in recent quarters. Importantly, the new Chinese leadership has set out its plans for structural reform including the transition from an investment-led growth to a consumption-based growth. Without short-term stimulus, we expect that economic growth will gradually fall back. We believe the positive sentiment on the stock markets will be maintained driven by the steadily continuing economic recovery. The current phase of the business cycle is favorable for equities and we consider bonds as an unattractive alternative.


7 Top Picks For 2014 we have chosen 7 Top Picks that are expected to do well. Our Top Picks for 2014 are:

Aalberts ASM International Brunel Exact KPN Reed Elsevier Sligro

SNS Top Picks long term performance is strong

Our H2 2013 Top Picks selection managed to outperform the broader market, as we noted before, resulting in pure alpha of 10% in the period. We remain very satisfied with our long-term performance as well. If you would have invested EUR 100 in the AEX index in 2002, it would be worth EUR 145. Investing in our Top Picks, the EUR 100 investment would have grown to EUR 348.

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FY03 FY04 FY05 FY06 FY07 1H08 H208 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13

Cumulative return performance of the Top Picks vs. benchmark2002 (=100)

AEX AMX ASCX AAX SNS Securi ties

We hope that you enjoy reading our 2014 Top Picks and look forward to discussing our ideas with you.

On behalf of SNS Securities,

Martijn den Drijver, Head of Research


The Macro Outlook

The world economy has passed the mid-cycle dip and is on the path of recovery. The revival is led by the US, but Europe has found the way up as well. In Asia, the growth trend of the Chinese economy is declining, but only slightly.

Europe: Gradual recovery

European indicators are improving

After a temporary lull, European indicators are improving again. Outlier is France, where indicators don’t look good, which was also confirmed by a small economic contraction in the third quarter. In France, there is also little evidence of structural reforms or a recovery in its competitive position. That is also reflected in the persistent trade deficit of France, where for example Spain and Portugal show strong improvements. The Italian economy is showing a modest improvement and is still suffering from the continuing recession. Bright spot is that industrial orders, especially from abroad, are increasing. The Spanish economy recorded minimal growth for the first time in ten quarters and also other indicators show encouraging improvements. The Spanish export is expected to support a further economic recovery in the coming quarters.

Positive outlook Germany The outlook for Germany is positive. In the third quarter, growth slowed down somewhat from 0.7% to 0.3%, but the composition of growth was reassuring. Domestic demand was the main driver for growth, in particular investment spending and construction. The contribution of the consumer was a bit less this quarter, but given stronger wage growth and continued job growth a further boost from consumption can be expected. Rising house prices can also contribute to growth.

Dutch economy shows signs of recovery

Even the Dutch economy is showing signs of recovery with a marginal growth in the third quarter, a bottoming residential market and a sudden recovery in consumer confidence. All in all, the Eurozone is in a phase of tepid recovery, which is expected to continue in the coming quarters. Inflation is expected to rise again, after becoming dangerously low at 0.7%.

British economy strong The British economy is showing a remarkable strength. The recovery of the residential market, driven by the "Help to Buy" program of the government, has been an important impulse. This is not too reassuring. Consumers are actually tempted to borrow too much albeit with the government as backstop. The labour market is rebounding again and stronger job growth may become a more solid foundation for economic growth. Nevertheless, only if capital spending will pick up again we’ll have a solid recovery.

US: imminent tapering

Growth US will be increasingly driven by consumers

In the third quarter, the U.S. economy showed reasonable growth of 1.0% (quarter on quarter). The contribution of the consumer was moderate, but we expect this contribution will rise going forward. Continued job growth is creating an increasing number of people with income and at the same time we also see that the increase in hourly wages is accelerating. Consumer confidence decreased somewhat in recent months due to the political wrangling, but on balance remains in a slightly rising trend.


Residential market is improving

Another engine of the US economy is the improving residential market and related expenditure and construction activities. The imminent tapering of the current policy of quantitative easing, has, however, led to a rise in mortgage rates, causing a temporary slowing in the recovery of the residential market.

Outlook US for 2014 not bad at all

Despite rising mortgage rates houses remain very affordable and we therefore expect that the recovery will continue, although possibly at a more moderate pace. The persistently high level of confidence among homebuilders confirms this expectation. A bit more worrisome is the development in capital spending. Growth in capital spending has weakened after a revival at the start of 2013. This is partly related to the political uncertainty and the flattening of the earnings growth. In that respect, the possibilities of a recovery in investment growth in the next few quarters look much better. The downward pressure of fiscal policy is expected to ease in the next few years. It is expected that the budget deficit will improve to 3.4 % this year and to 2.1% next year. Key indicators such as the purchasing managers' indices confirm our optimistic expectations, while the OECD leading indicator even shows an acceleration. The Fed will slow down the quantitative easing starting this month, but the impact will be limited because the greatest impact on the interest rate is already behind us. With a decreasing fiscal drag and improving consumer and investment spending the outlook for 2014 isn’t bad at all.

Asia: slowdown in China

The Japanese economic growth is slowing to more sustainable levels, after the spike in the first quarter of 2013. Growth is also pressured by the high growth in imports, which is mainly caused by the shutdown of nuclear power plants and the resulting higher oil imports. Export growth was mainly disappointing in the third quarter, but the latest figures suggest the start of a recovery. The greatest threat to economic growth is the increase in VAT from 5% to 8 % in April. This will, however, be accompanied by fiscal and monetary stimulus.


Growth in China most likely to gradually fall back

The growth of the Chinese economy has shown little acceleration in recent quarters. In the last meeting of the Central Committee of the Communist Party, the new Chinese leadership has set out its plans for structural reforms. This will include a decisive role for markets, more opportunities for individuals to own land and the transition from an investment-led growth to a consumption-led growth. It is important that a powerful committee is in the lead of this process, which increases the chances of success. In the short term it will have little impact on economic growth but in the long term this will make the Chinese economy more resilient. China, however, continues to struggle with high credit growth, excessive debt, overcapacity in some sectors and large-scale corruption. Especially now that there seems no willingness to undertake short-term stimulus, it is likely that economic growth will gradually fall back.

Positive outlook for equities

The current phase of the business cycle is favourable for equities

Most stock markets recently managed to continue their upward trends, driven by encouraging economic data, further easing by the ECB and despite the tapering announcement of the Fed mid-December. The current phase of the business cycle is favourable for equities. We consider bonds as an unattractive alternative. Developments in the US will be of decisive influence here and US bond yields are too low relative to growth and inflation.


Summary

Aalberts Industries - More closely knit, ready for growth Aalberts is prepared for a resumption of organic growth. Management has strengthened the ties between the numerous operating companies, setting up cross-subsidiary key account management in Industrial Services and cross-branding and cross-selling in Flow Control. Historically, organic growth has been the main driver of ROCE for Aalberts, improving working capital efficiency and generating incremental returns 2-3 times as high as M&A efforts. Our DCF model assumes a gradual resumption of organic growth (‘14E: +5%, ‘15E: +8%). In this early recovery phase, optimism may push the stock beyond our conservative model’s verdict. Buy, target EUR 26.5, 13x EV/EBITA ‘14E. ASMI - Potential for unlocking further value ASMI’s front-end semiconductor equipment business is standing on its own feet now and adoptation of ASMI’s key technology, ALD, is increasing rapidly, as chip geometries are getting smaller. With increasing volumes and potential for lower input costs, profitability should increase as well. Consolidation is a theme in Front-end equipment, certainly after the probable combination of Applied Materials (AMAT) and Tokyo Electron (TEL). This could trigger new deals. ASMI could also take over smaller targets itself. Furthermore, we expect further divestments of the remaining 40% ASMPT stake. Stand alone, ASMI’s valuation is very undemanding. Brunel – The windows for growth remain open Over the years, the sources of growth may shift between German manufacturing, upstream projects and regular energy engineer staffing, but Brunel’s growth story stands. In 2000-‘13E, gross profit grew at 10% p.a., ’06-‘13E growth was 11% p.a. We expect no deviation for the coming years. Its markets in professionals for global upstream energy and engineering graduates for German manufacturing share characteristics of tight labour supply, demographical shifts and increasing knowledge-intensity of the end-market. Performance comes from customer development and organisational capacity rather than competitive muscle. With a focus on branded value for both sides of the brokerage, Brunel is generating sector-leading returns. The combination of positioning and performance is not fully rewarded in the share price. At our EUR 51 target, Brunel would be trading on 12x ‘14E EV/EBITDA. Exact - The year of truth Although Exact has slightly lowered the guidance for FY13 EBITDA at the 3Q trading update to the low end of the range, we retain our positive stance. Growth in Cloud continues at a high level (>40% yoy) and in FY14 we will see the contributions from the geographic expansion in the UK, the US and Germany. Signs so far are positive in terms of customer feedback. We have also become more positive about Business Solutions as we see traction on certain key issues such as attrition (down), new logo sales (up) and deal value (up). We are also more positive because we expect the European midmarket to improve in FY14. Exact will also be much more on the radar given the acquisition of Unit4 recently, another mid-market player with a fast growing Cloud unit.


KPN - Looking beyond the earnings dip Although revenue will remain under pressure, the market seems to underestimate KPN’s ability to maintain profitability at healthy levels. FCF will increase as of FY13 (despite lower Mobile profitability) due to the stickiness of triple/quadruple play offerings, the impact of project Simplification and declining capex from FttH and 4G. On top of that, we assume that E-Plus will be sold and that KPN will then profit from the value increase at Telefonica Deutschland (TFDE) as it extracts synergies and gains massive scale advantages. An APV valuation which includes the post-transaction value of TFDE, consolidation of Reggeborgh (limited impact) and the tax benefit from the E-Plus sale, suggests a price target of EUR 3.50 per share. That valuation, on top of growing dividend as from FY14, explains why we rate the shares Buy, price target EUR 3.50 per share. Reed Elsevier - High cash generation continues Reed Elsevier will continue to benefit from good growth in the US whilst Europe is expected to show a gradual recovery. Organic revenue growth could accelerate towards 4%, with electronic and face-to-face (more than 80% of revenues) showing underlying growth of 5-7%. Cash generation remains high, offering ample room for add-on acquisitions and continued share buy-backs. Reed Elsevier is valued at a small discount to its peers which suggests further upside potential as the company shows above average growth and margins. Price target is EUR 17.00 with an attractive dividend yield of 3-4%. Sligro – Prospects quickly improving We expect Sligro to benefit from the improving economic environment in the Netherlands, especially the company’s foodservice operations. Apart from the economic tailwind, revenue synergies from recent acquisitions will support earnings growth in 2014 and 2015. We expect the competitive pressure in food retail to remain intense, but several surveys show that Sligro’s Emté has materially improved its proposition in recent years. As a result, its market share has increased and we expect this to continue in the next few years. We rate the shares Buy with a target price of EUR 33.


Aalberts Industries Buy Industrial Diversified Equity Analyst

More closely knit, ready for growth

• Aalberts Industries is prepared for a resumption of organic growth. Management has strengthened the family ties between the numerous operating companies. Cross-subsidiary key account management in Industrial Services and cross-branding and cross-selling in Flow Control have become commercial realities.

• The trend to outsource manufacturing processes has accelerated time-to-market of high-end engineered products. OEMs no longer have to invest in tools and processes that they need only for limited periods. Neither do they have to maintain a specialist work force for each step of the process. Aalberts Industrial Services has specialist capabilities in a wide array of processes and products. Group management has made extra efforts to combine the commercial forces of independent units for key accounts, coordinating the Aalberts group offering at an early stage in customer development. Organic growth should benefit.

• Builders prefer modular systems to reduce time-to-learn, to save time-to-build and to reduce mistakes; architects prefer branded systems that guarantee the quality befitting their designs. Aalberts Flow Control heating and cooling installation offerings have been integrated, with products and systems developed and controlled from designated “competence centers”. As the US building industry is recovering, Aalberts’ now integrated and branded products should bear fruit in volumes and prices.

• Relative to peers, Aalberts' units appear currently more working capital intensive. With initiatives as described above, organic growth should accelerate as soon as end markets allow. Historically, organic growth has been the main driver of ROCE for Aalberts, reducing working cap intensity and generating incremental returns 2-3 times as high as M&A efforts.

• Our DCF model assumes a gradual resumption of organic growth (‘14E: +5%, ‘15E: +8%) and improved asset turnover; it suggests enough free cash flow in later years for acquisitions without additional debt. In this early recovery phase, optimism may push the stock beyond our conservative DCF model’s verdict. Buy, target EUR 26.5, 13x EV/EBITA ‘14E.

Gert Steens [email protected] +3120 5508639 Share price EUR 23.37 Target share price EUR 26.50 Perf: 1/3/12m (%) 7.3 / 15.7 / 42.6 Market capitalisation EUR 2,580 m Outstan ding shares 110 m Average daily volume 167 k Company codes Bloomberg: AALB NA Reuters: AALB.AS Major shareholders Aalberts family: 13% FMR: 10% Oppenheimer: 5% Ameriprise: 5% Norges Bank: 4% Cantillon: 3% Relative share price performance

Aalberts Industries: Key Financial Data Financial year 2011 2012 2013E 2014E 2015E Total revenues (EURm) 1,937.4 2,024.5 2,050.0 2,150.0 2,325.0

Adjusted EBITDA (EURm) 279.4 296.1 298.7 326.1 372.5 Company profile Adjusted EBITA (EURm) 208.9 219.1 218.3 243.1 287.5 Industrial Services, 1/3 of group EBITA, makes or improves customers’ semi-finished products through specialist treatment. Honing, turning, drilling, hardening, brazing and cleaning are sample treatments for car and aerospace parts, turbine blades and semiconductor machinery. Flow Control, 2/3 of group EBITA, supplies plumbing systems. Valves, pipes and fittings match control systems in building installations, process industries, upstream oil and gas installations and beverage dispensers. www.aalberts.nl

EBITA margin (%) 10.8% 10.8% 10.6% 11.3% 12.4% Adjusted net result (EURm) 145.8 152.1 154.3 176.0 212.9 Change (%) 24.4% 4.3% 1.4% 14.1% 21.0% Reported EPS 1.22 1.23 1.25 1.44 1.77 Adjusted EPS 1.35 1.39 1.41 1.60 1.92 Change (%) 22.8% 3.1% 1.2% 13.6% 20.4% Dividend per ordinary share 0.34 0.35 0.35 0.40 0.45 Dividend yield (%) 1.5% 1.5% 1.5% 1.7% 1.9% Adjusted P/E 17.3 16.8 16.6 14.6 12.1 FCF Yield (%) 4.6% 3.9% 4.6% 7.1% 7.8% EV / Adjusted revenues 1.6 1.5 1.5 1.3 1.2 EV / Adjusted EBITDA 11.2 10.5 10.1 8.8 7.3 EV / Adjusted EBITA 15.0 14.1 13.9 11.8 9.4 Source:SNS Securities Research


Aalberts Industries: Strategy and targets An increasingly integrated industrial conglomerate

Aalberts management has been using the lackluster markets since 2010 for improving corporate intimacy amongst its dozens of operating companies, most of which have been added to the fold through acquisitions. Cross-subsidiary key account management in Industrial Services and cross-branding and cross-selling in Flow Control should drive commercial success.

Industrial Services: Advanced materials treatment for industrial applications

Industrial Services, 28% of prospective group revenues and one-third of group net operating assets and EBITA, makes or improves customers’ semi-finished products through highly specialist materials treatment. Honing, turning, drilling, hardening, brazing and cleaning are sample treatments for car parts, turbine blades, semiconductor machinery and aerospace parts. Strategic performance hinges on matching specialist talent and experience (and state of the art tools and facilities) to vital parts of an OEM’s end product.

Flow Control: Systems and parts for handling liquids and gases in building installations, beverage dispensers and industrial engineering

Flow Control, 78% of revenues and two-thirds of net operating assets and EBITA, supplies integrated systems for handling liquids and gases. Valves, pipes and fittings of various materials match control systems in building installations, process industries, upstream oil & gas, heating and cooling systems and beverage dispensers. Strategic success hinges not just on an all-encompassing catalogue (with matching logistics) but increasingly on modular pre-fabricated units that help architects decide and prescribe top-down. Ease of installation helps bottom-up.

Aalberts Industries: Financial position Varied financial characteristics of constituent businesses

Aalberts’ constituent parts have widely diverging financial ratios. Industrial Services is heavy on fixed assets, Flow Control has major inventories and accounts receivable. At the conglomerate level, net capital employed is 54% of revenues, excluding 25%-points of goodwill paid for acquisitions. In the summer, seasonality in the construction industry temporarily absorbs a further 5%-points for working capital.

On average, acquisitions have added 8% to revenues each year for 10 years

Acquisitions have contributed more than three-quarters of Aalberts Industries’ revenue growth over the past decade. In many an investor’s mind, this average annual addition of 8%-points (!) eclipses the healthy autonomous stats. But Aalberts is not all M&A: if we were to leave out the collapse (-19%) in 2009 and the subsequent sharp recovery (+12%) in 2010, organic growth would have averaged 4.3%, close to the 5% median for the period.

Significantly deleveraged since 2008

Debt and internally generated cash have funded the double-digit growth of Aalberts’ top line. Organic expansion had an effective incremental Capital Employed to Sales ratio of 35% (excluding the ’09-’10 distortion), acquired additions cost on average 86% f incremental revenues. Since the EUR 765m peak net debt in 2008 (EUR 7.5 per share, 3x peak EBITDA), reigned-in spending has allowed retained earnings to double group equity and reduce net debt by 40%. On our estimates, 2013 closing net debt was EUR 463m (EUR 4.1 per share), 1.6x trailing 12 months’ EBITDA.

Aalberts Industries: SWOT analysis STRENGTHS WEAKNESSES • Integrated network

• Entrepreneurial, delegated set-up • Full branded Flow Control catalogue

• Short lead times • Distributed working capital may

lessen group control OPPORTUNITIES THREATS • Modularisation and branding of

building installations • Networked outsourcing of high-end

manufacturing • Upstream oil & gas installations

• Geographical stretch as clients move on

• Geo-political influence on raw material availability

• Talent scarcity, esp. in Germany


Aalberts Industries: Recent developments and outlook Finally, growth appears to be sticking across the portfolio

The initial recovery from the 2009 void stalled in 2012, especially in European engineering and manufacturing. Aalberts recorded shrinking revenues in both divisions in 12Q4 and 13Q1. By 13Q3, growth had returned throughout the portfolio. Industrial Services revenues and order books firmed up, especially in German engineering but also (gradually) in France. Building Installations Europe did not deteriorate further, Building Installations North America confirmed both the cyclical recovery and the market acceptance of the new multi-material easy-fitting systems. Only orders from Russian gas projects declined. For the full year, management has confirmed the expectation of growing revenues and EBITA.

Operational leverage to be triggered by organic growth

The lack of organic growth has impacted reported returns as management had accelerated capex programmes in Industrial Services from 12H2 and rewritten the building installation catalogue (with corresponding inventory build-up) in Flow Control. Historically, organic growth has been the prime driver for working capital efficiency and hence ROCE.

Aalberts Industries: Expected news flow / triggers Building industry and industrial engineering headlines

As US construction volumes trend up and European builders regain confidence, Aalberts’ repositioned and integrated Flow Control business may flourish sooner rather than later. Engineering volumes, especially in German and French manufacturing, could boost Industrial Services, with additional demand from the semiconductor industry.

2013 Results due 26 Feb ‘14 Aalberts Industries will publish its 2013 results on Wednesday, 26 February 2014. Aalberts Industries: Valuation Organic growth to return to the prior 10-year average, to drive ROCE through working capital turnover “Organic-only” DCF = EUR 25.5

On the basis of a cautious bounce from the bottom in 2014E, we have reworked our long-term cash flow projections for Aalberts. With the onset of organic growth, we have assumed improving working capital efficiency. For the full 10-year period, we have factored in 4.5% revenues CAGR, similar to the average organic growth recorded in the past 10 years, with the exception of the collapse and rise in ’09-’10. As in the prior decade’s upturn, we have assumed operating leverage to filter through in the form of restrained (25%) incremental capital intensity, half the level of the current activities, rather than dramatic margin widening beyond 2015E. Our modeled next-peak EBITDA margin is just below to the 2003-2005 average. The central “organic-only” scenario arrives at a DCF value of EUR 25.5 per share.

Acquisitions may add, but... ...peer comparison suggests that assets can be sweated more

With c. EUR 200m of annual free operating cash flow, the Aalberts M&A machine may be reignited, tempted by customer development strategies. If used in full, it could add 8% new revenues each year, similar to the previous period. Acquisitions add value to the DCF, but one could focus on Aalberts’ relatively high capital intensity first, with ample opportunities for value generation from just catching up with peers’ asset velocity. Valuation multiples, currently in line with peers, will appear attractive when the capital intensity ratios align.

Front-end loaded growth prospects; target EUR 26.5, Buy

With organic growth front-loaded in full-recovery mode, ROCE gains may come in stronger than modeled in 2014E and 2015E. One more percentage point of extrapolated growth expectations implies one more Euro of DCF value per share. Hence our optimistic EUR 26.5 target share price and our Buy recommendation.


Aalberts Industries: Financial Data P&L STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Total revenues 1,682.8 1,937.4 2,024.5 2,050.0 2,150.0 2,325.0 EBITDA 248.2 279.4 296.1 298.7 326.1 372.5 Depreciation -68.3 -70.5 -77.0 -80.4 -83.0 -85.0 EBITA 179.9 208.9 219.1 218.3 243.1 287.5 Amortisation and impairment 0.0 0.0 0.0 0.0 0.0 0.0 EBIT 167.0 194.5 202.1 201.3 226.1 270.5 Interest results -26.7 -23.0 -20.5 -20.5 -17.5 -14.5 Other financial results -0.9 -3.6 0.3 0.0 0.0 0.0 Result from participations 0.0 0.0 0.0 0.0 0.0 0.0 Pre-tax results 139.4 167.9 181.9 180.8 208.6 256.0 Tax -33.1 -36.3 -45.9 -43.5 -49.6 -60.1 Minorities -2.0 -0.2 -0.9 0.0 0.0 0.0 Other P&L items 0.0 0.0 0.0 0.0 0.0 0.0 Net result 104.3 131.4 135.1 137.3 159.0 195.9 PER SHARE DATA ( EUR mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 106.70 108.10 109.40 109.65 110.15 110.65 Outstanding shares (year end), millions 106.70 108.10 109.40 109.90 110.40 110.90 Reported EPS 0.98 1.22 1.23 1.25 1.44 1.77 Change (%) 24% 2% 1% 15% 23% Adjusted EPS 1.10 1.35 1.39 1.41 1.60 1.92 Change (%) 23% 3% 1% 14% 20% Free cash flow per ordinary share 1.36 1.09 0.91 1.07 1.67 1.83 Change (%) -20% -16% 17% 56% 10% Dividend per ordinary share 0.28 0.34 0.35 0.35 0.40 0.45 Change (%) 21% 3% 0% 14% 13% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 2,016.6 2,526.3 2,556.7 2,568.4 2,580.0 2,591.7 Net debt (+) 593.7 605.5 541.5 463.2 298.8 118.7 Enterprise value 2,610 3,132 3,098 3,032 2,879 2,710 Net working capital 286.5 319.5 345.4 370.1 362.1 373.9 Net working capital / Adjusted total revenues 15.4% 15.6% 16.4% 17.5% 17.0% 15.8% Solvency 42.0% 44.4% 50.1% 54.8% 61.0% 69.0% Net debt / Adjusted EBITDA 2.4 2.2 1.8 1.6 0.9 0.3 Adjusted EBITDA / Interest result 9.3 12.1 14.4 14.6 18.6 25.7 Adjusted EBITA / Interest result 6.7 9.1 10.7 10.6 13.9 19.8 CASH FLOW STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 167.0 194.5 202.1 201.3 226.1 270.5 Depreciation and amortisation 81.2 84.9 94.0 97.4 100.0 102.0 Organic change in working capital -12.8 -27.9 -23.3 -24.7 8.0 -11.8 Organic change in provisions -1.3 -0.9 -0.6 36.4 1.0 1.0 Financial income and expenses -12.8 -25.3 -23.1 -20.5 -17.5 -14.5 Dividend from non-consolidated companies 0.0 0.0 0.0 0.0 0.0 0.0 Tax paid -17.7 -26.8 -45.9 -61.6 -49.6 -60.1 Other changes in free cash flow 0.0 0.0 0.0 0.0 0.0 0.0 Net capital expenditure -58.0 -81.2 -103.1 -110.8 -84.4 -85.0 Free cashflow 145.6 117.3 100.1 117.5 183.6 202.2 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 17.2 17.3 16.8 16.6 14.6 12.1 Share price / Book value 2.8 3.0 2.6 2.3 2.0 1.8 Free cash flow per ordinary share / share price 7.2% 4.6% 3.9% 4.6% 7.1% 7.8% Dividend / share price 1.5% 1.5% 1.5% 1.5% 1.7% 1.9% Enterprise value / Adjusted revenues 1.6 1.6 1.5 1.5 1.3 1.2 Enterprise value / Adjusted EBITDA 10.5 11.2 10.5 10.1 8.8 7.3 Enterprise value / Adjusted EBITA 14.5 15.0 14.1 13.9 11.8 9.4


ASM International Buy Technology Hardware & Equipment Equity Analyst

Potential for further unlocking value

• ASMI’s front-end semiconductor equipment business is standing on its own feet now. Adoptation of ASMI’s key technology ALD is increasing rapidly, as chip geometries are getting smaller and ASMI is qualified at nearly all large semiconductor manufacturers. In 2013, ASMI realized double digit revenue growth in contrast to a decreasing overall equipment market and in the next years, ALD is also expected to outgrow the industry.

• ASMI is dominant in ALD and PEALD deposition technologies in several market segments, both in logic and in memory. New applications for ALD, for instance using new materials and improving 3D conformality at smaller geometries are being developed, adding to ASMI’s growth potential.

• Profitability should increase with increasing volumes and potential for lower input costs a.o. through a more efficient supply chain. We expect there is potential in gross margins up to ~45% (2012: 34%, 2013E 39%), which is on the high side of industry averages. With relative stable SG&A and R&D slowly moving to mid teen %-of sales, we see room for operational margin improvement to ~13% in 2015 (<10% in 2013).

• Consolidation is a theme in Front-end equipment, certainly after the probable combination of Applied Materials (AMAT) and Tokyo Electron (TEL). This will create a dominant player in Front-end next to ASML and could trigger new deals, as LAM Research (specialized in etching and depositing) might be looking to reinforce as well.

• The lock up regarding potential further sales of parts of ASMI’s 40% stake in ASMPT has expired in September. This will trigger speculation on further potential divestments. Divesting 12% of the ASMPT stake in 2013 has unlocked a lot of value for ASMI shareholders and this might taste like more.

• Excluding the value of the stake in ASMPT (EUR 15.45 per share), ASMI’s share price has varied between EUR 3 and EUR 9 since March. At ASMPT’s current market price, this implies a cleaned EV/EBITDA of 2.1. Compared to other equipment makers this is extremely cheap and it clearly underestimates ASMI’s growth potential. Buy, PT EUR 30.

Edwin de Jong [email protected] +31 20 550 8569 Share price EUR 24.08 Target share price EUR 30 Perf: 1/3/12m (%) 0.7 / -4.0 / -18.5 Market capitalisation EUR 1,521 m Outstanding shares 63.2 m Average daily volume 258 k Company codes Bloomberg: ASM NA Reuters: ASMI.AS Major shareholders Mr A. Del Prado: 18% Capital: 4.4% Aberdeen: 9.9% MFS: 3% Tokyo Electron: 4% Eminence Capital: 3.4% Relative share price performance

ASM International: Key Financial Data: * ASMPT consolidated Financial year 2011* 2012* 2013E 2014E 2015E Total revenues (EURm) 1,634 1,418 448 538 635

Adjusted EBITDA (EURm) 327 141 64 88 111 Company profile Adjusted EBITA (EURm) 277 88 44 63 83 Founded in 1968 by current major shareholder Arthur del Prado, ASM International is a leading supplier of semiconductor manufacturing equipment. ASMI produces equipment for front-end wafer processing, especially for deposition, epitaxy and diffusion Next to its front end business, ASMI has a 40% stake in listed ASMPT, a market leader in backend equipment for both wafer assembly & packaging and SMT. www.asm.com

EBITA margin (%) 16.9% 6.2% 9.8% 11.8% 13.0% Adjusted net result (EURm) 141 7 33 57 74 Change (%) -22.0% -94.9% 358.8% 74.0% 29.1% Reported EPS 2.53 0.13 22.45 1.87 2.31 Adjusted EPS 2.53 0.13 0.52 0.90 1.16 Change (%) -25.1% -94.9% 300.8% 74.0% 29.1% Dividend per ordinary share 0.50 0.50 0.55 0.55 0.60 Dividend yield (%) 2.2% 2.1% 2.3% 2.3% 2.5% Adjusted P/E 9.0 186.2 46.5 26.7 20.7 FCF Yield (%) 9.7% -1.9% 2.2% 6.3% 8.3% EV / Adjusted revenues 1.7 2.0 2.7 2.2 1.7 EV / Adjusted EBITDA 8.5 20.3 19.1 13.2 9.6 EV / Adjusted EBITA 10.1 32.3 27.8 18.3 13.0 Source:SNS Securities Research


ASM International: Strategy and targets Focus on Front End ASMI increasingly focuses on the front-end part of the semiconductor equipment

market, the part that captures most appealing technology shifts. ASMI’s strategy in this highly consolidated and cyclical ~USD 30bn market segment consists of four key elements: Competitive Edge, Global Reach, Technology Leadership and Innovation.

Strong growth prospects Innovation EBIT margin of ~13% possible

ASMI’s core strengths are especially in specific parts of the fast growing market segment for Atomic Layer Deposition (ALD) and Plasma Enhanced ALD (PEALD). These deposition technologies of very thin films are essential especially at smaller geometries and 3D structures. With over 50% of equipment spending in 2015 expected to be below the 22nm geometry, ASMI has strong growth prospects. Where the strategy for (PE) ALD is to expand aggressively, ASMI wants to nurture its attractive (top 3) positions in several other mature niche markets. These are in Epitaxy (thick film), Plasma Enhanced Chemical Vapor Deposition (PECVD), Low Pressure Chemical Vapor Deposition (LPCVD) and vertical furnaces. To maintain its strong position, ASMI targets to innovate continuously, for instance through improving processes (to increase productivity) or by extending the existing Low K film solution to higher technology nodes. Although there are no formal targets, ASMI should be able to reach gross margins of 35-45% through the cycle. With relative stable SG&A and R&D slowly moving to mid teen %-of sales, we see room for operational margin improvement to ~13% in 2015 (<10% in 2013), which is in line with the original plans for the Front End division in 2008.

ASM International: Financial position 12% ASMPT sold Earlier this year, ASMI sold a 12% stake in ASMPT, reducing its participation in the

leading supplier of back end semiconductor equipment to somewhat over 40%. The proceeds were partly returned to shareholders in the form of a capital return of EUR 4.25 per ASMI share, on top of the regular EUR 0.50 dividend and used to strengthen the balance sheet.

Net cash of EUR 300m After capital returns and debt redemption, a net cash position of EUR 300m

remains. ASMI has not indicated precisely what it is planning to do with the remaining surplus cash, but (add on) acquisitions could be possible. We expect roughly EUR 150m of the net cash position could be available for this. Due to the highly cyclical character of the industry a relatively large financial buffer is desired. There is still room for fiscal friendly further capital repayments.

ASM International: SWOT analysis STRENGTHS WEAKNESSES • Strong position in advanced

technologies • Well exposed to Intel and TSMC • ASMPT is market leader in back-end

• Front-end competes with large players (AMAT, TEL)

• High dependency on a few customers

• Highly cyclical nature chip industry OPPORTUNITIES THREATS • Bring profitability in line with

competition • Capture growth in new applications for

(PE) ALD • Expand in Memory and Foundry

• Potential entrants in ALD • Discount Front End activities ex

value ASMPT stake remains • Front-end still has to build track

record of profitable growth


ASM International: Recent developments and outlook Double digit growth in 2013 Capex plans at clients Sale of ASMPT stake

In contrast to the industry, which is expected to show a single digit decrease over 2013, ASMI has had a strong year. For 4Q13 ASMI expects sales to show a single digit increase compared to Q3 and a low double digit increase in order intake. This will result in double digit top line growth in 2013, which is driven by higher technology node volume production at clients. Capex plans are the most important top line driver. These show a mixed picture. Although ASMI’s largest client Intel (2012: 33.6% of net sales) has scaled back capex during 2013, capex plans for 2014 look more positive. TSMC expects double digit capex growth for 2014. Next to this, memory clients (a.o. Samsung, Micron, Toshiba) will become a more important client group. However, the key event last year was the partial disposal of ASMI’s stake in ASMPT. This disposal was the outcome of a study that ASMI conducted to address the clear undervaluation of the company. This has been successful, as ASMI’s front end activities now clearly have positive value, where it traded at negative values in the years before.

ASM International: Expected news flow / triggers More ASMPT for sale The lock up on further divestments of the ASMPT stake expired in November.

Reducing the participation by 12%-points has unlocked a lot of value for ASMI shareholders in 2013, with the front-end now clearly having a positive valuation and this tastes like more. We do expect that ASMI will further divest its participation, although we believe that it will keep a substantial stake.

Fab spending At the moment most semiconductor equipment is ordered for the 32nm node, but in

the next years production will shift more and more to more advanced nodes where penetration of ASMI’s key ALD equipment is much higher. At TSMC, ASMI’s second largest client, 28nm production is increasing fast and is now the largest part of production. 20nm volume production will be ramped up in 1Q14 and 16nm finfet volume production is expected within a year. Intel will continue to invest in higher technology nodes as well. In these production nodes there will be much more ALD and PEALD applications. Memory chipmaker Hynix recently announced a large fab investment.

Results In February, ASMI will report its FY13 results, which we expect to be strong. ASM International: Valuation Extremely cheap Buy, PT EUR 30

Excluding the value of the stake in ASMPT (which is EUR 15.45 per ASMI share), ASMI’s share price has varied between EUR 3 and EUR 9. At the current share price of EUR 24.08, this implies a cleaned EV/EBITDA of 2.1. Compared to other equipment makers this is extremely cheap. We believe that this valuation clearly underestimates ASMI’s growth potential. Although ASMI’s front end has always traded at a discount and even at negative values, we believe that with full focus on the now profitable front end and potential further divestments of the ASMPT stake, more investors will start to see the apparent under valuation. We have a Buy rating on ASMI and price target of EUR 30.


ASM International: Financial Data * ASMPT consolidated P&L STATEMENT (EUR mln) 2010* 2011* 2012* 2013E 2014E 2015E Total revenues 1,223 1,634 1,418 448 538 635 EBITDA 376 327 141 64 88 111 Depreciation -36 -51 -53 -20 -24 -29 EBITA 340 277 88 44 63 83 Amortisation and impairment 0 0 0 0 0 0 EBIT 340 277 88 44 63 83 Interest results -22 -9 -22 -5 4 4 Other financial results 0 0 0 0 0 0 Result from participations 0 0 0 1,386 61 73 Pre-tax results 318 268 67 1,424 128 159 Tax -38 -44 -26 -6 -10 -13 Minorities -133 -83 -33 0 0 0 Other P&L items 0 0 0 0 0 0 Net result 146 141 7 1,419 118 146 PER SHARE DATA ( EUR mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 52.70 55.50 55.20 63.20 63.20 63.20 Outstanding shares (year end), millions 52.70 55.50 55.20 63.20 63.20 63.20 Reported EPS 2.75 2.53 0.13 22.45 1.87 2.31 Change (%) -8% -95% 17263% -92% 24% Adjusted EPS 3.38 2.53 0.13 0.52 0.90 1.16 Change (%) -25% -95% 301% 74% 29% Free cash flow per ordinary share 3.02 2.22 -0.47 0.52 1.52 2.01 Change (%) -27% -121% -211% 193% 32% Dividend per ordinary share 0.40 0.50 0.50 0.55 0.55 0.60 Change (%) 25% 0% 10% 0% 9% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 1,396.3 1,263.2 1,328.9 1,521.4 1,521.4 1,521.4 Net debt (+) -125 -209 -196 -301 -362 -451 Enterprise value 2,997 2,780 2,858 1,221 1,160 1,070 Net working capital 250 380 512 112 132 148 Net working capital / Adjusted total revenues 20.5% 23.3% 36.1% 25.0% 24.5% 23.3% Solvency 53.3% 60.1% 70.0% 95.0% 94.2% 93.7% Net gearing -19.3% -21.9% -18.7% -16.4% -18.8% -22.2% Net debt / Adjusted EBITDA -0.3 -0.6 -1.4 -4.7 -4.1 -4.1 Adjusted EBITDA / Interest result 16.9 38.1 6.5 11.8 -24.6 -27.6 Adjusted EBITA / Interest result 15.3 32.2 4.1 8.1 -17.8 -20.5 CASH FLOW STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 340 277 88 44 63 83 Depreciation and amortisation 36 51 53 20 24 29 Organic change in working capital -18 -58 -8 -12 -19 -16 Organic change in provisions 0 0 0 0 0 0 Financial income and expenses -22 -9 -22 -5 4 4 Dividend from non-consolidated companies 0 0 0 0 61 71 Tax paid -38 -44 -26 -6 -10 -13 Other changes in free cash flow -37 0 -430 0 0 0 Net capital expenditure -101 -93 -68 -8 -27 -31 Free cashflow 159 123 -26 33 96 127 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 7.8 9.0 186.2 46.5 26.7 20.7 Share price / Book value 3.4 1.9 1.8 0.8 0.8 0.7 Free cash flow per ordinary share / share price 11.4% 9.7% -1.9% 2.2% 6.3% 8.3% Dividend / share price 1.5% 2.2% 2.1% 2.3% 2.3% 2.5% Enterprise value / Adjusted revenues 2.5 1.7 2.0 2.7 2.2 1.7 Enterprise value / Adjusted EBITDA 8.0 8.5 20.3 19.1 13.2 9.6 Enterprise value / Adjusted EBITA 8.8 10.1 32.3 27.8 18.3 13.0


Brunel Buy Staffing Sector Equity Analyst

The windows for growth remain open • Over the years, the sources of growth may shift between German

manufacturing, upstream projects and regular energy engineer staffing, but Brunel’s growth story stands. Between 2000 and 2013E, Brunel’s gross profit grew at a compound annual average of 10%. Between 2006 and 2013E the growth rate was 11%. For the coming period, our model calls for a continuation of commercial performance.

• Brunel supplies university-trained specialists for (long-term) assignments. Its markets in professionals for the global upstream business and mechanical and electro-technical graduates for European (German) manufacturing, share characteristics of tight labour supply, demographical shifts and increasing knowledge-intensity of the end-market. Commercial performance comes from customer development and organisational capacity rather than competitive muscle.

• Financial performance reflects the exemplary positioning. With a focus on executional excellence in providing branded value for both sides of the brokerage (the corporate customer and the individual specialist), Brunel is generating sector-leading returns, both in terms of EBITA/Gross Profit (30-40% depending on the division) and incremental ROCE (>50%).

• The combination of superior positioning and exemplary performance is not fully rewarded in the share price. Our conservative DCF model is based on margin stability and growth gradually slowing from its 10-year double-digit track record. The central case pinpoints a target value of EUR 51. The sensitivity table suggests that the current valuation underestimates the sustainability of growth (CAGR ’14-‘22E +2.5%-5.5% vs our base case +7.5%, +2% perpetual) and/or overestimates the financial risks (WACC 9.5% vs our base case 8.5%).

• At our EUR 51 target, Brunel would be trading on 12x ‘14E EV/EBITDA. It would value the stock just behind Hays (which outside Germany and Energy has an arguably less resilient business mix) and just ahead of On Assignment (which has Brunel-like high-end specialty exposure, albeit in medical and laboratory sectors in addition to IT).

Gert Steens [email protected] +3120 5508639 Share price EUR 45.78 Target share price EUR 51.00 Perf: 1/3/12m (%) 6.1 / 17.7 / 17.1 Market capitalisation EUR 1,153 m Outstanding shares 25.2 m Average daily volume 48 k Company codes Bloomberg: BRNL NA Reuters: BRUN.AS Major shareholders Noverhead: 63% Relative share price performance

Brunel: Key Financial Data Financial year 2011 2012 2013E 2014E 2015E Total revenues (EURm) 972 1,237 1,258 1,398 1,575

Adjusted EBITDA (EURm) 65 78 80 90 107 Company profile Adjusted EBITA (EURm) 61 74 74 84 100 Brunel matches university-trained specialists with customers for long temporary assignments. In Germany (35% of group gross profit), the roster consists predominantly of mechanical and electrotechnical engineers. In the Netherlands (25%), Brunel employs high-end IT, legal and financial specialists. In the global upstream Oil & Gas industry (40%), Brunel matches specialists to individual assignments as well as teams to large projects. www.brunel.nl

EBITA margin (%) 6.3% 5.9% 5.9% 6.0% 6.3% Adjusted net result (EURm) 39 48 51 59 71 Change (%) 35.2% 21.0% 7.1% 15.5% 20.3% Reported EPS 1.69 1.88 2.08 2.39 2.82 Adjusted EPS 1.69 2.00 2.11 2.39 2.82 Change (%) 34.0% 18.6% 5.6% 13.1% 18.0% Dividend per ordinary share 0.90 1.00 1.10 1.20 1.30 Dividend yield (%) 2.0% 2.2% 2.4% 2.6% 2.8% Adjusted P/E 27.1 22.9 21.7 19.2 16.2 FCF Yield (%) 3.0% 2.4% -0.1% 4.8% 5.0% EV / Adjusted revenues 1.0 0.8 0.8 0.7 0.7 EV / Adjusted EBITDA 15.4 12.9 13.1 11.5 9.6 EV / Adjusted EBITA 16.3 13.7 14.2 12.4 10.3 Source:SNS Securities Research


Brunel: Strategy and targets 10% Growth from alternating windows

Brunel offers university-educated specialists in an increasingly complex environment. Management targets continuation of the low-teens organic growth trend established since the early 2000s. The weight of growth may shift amongst the various specialties, but between them, German mechanical engineers, Canadian oil sand explorers and Australian-Asian drilling platform builders will continue to push Brunel’s top and bottom line. In the medium term, networked geographical expansion (e.g. engineering towards Eastern and Central Europe) and additional specialties with similar labour markets (e.g. pharma) may carry the CAGR.

Knowledge intensity of upstream oil & gas Generation shift in German engineering Quality of execution intertwined with brand perception

The upstream oil and gas industry has become significantly more knowledge-intensive over the past decade. Extending the useful life of existing fossil sources requires a different mindset centered around cutting-edge science. New sources, whether oil sands, shale gas of deep-water drilling, are much more complex, and the availability of applicable talent and intelligence rather than capital and muscle has become a prime driver of success. The shortage of “midcareer” oil engineers is not expected to fade anytime soon. The revived German manufacturing industry is generating value in technologically complex products and processes. The IT-boom around the millennium sucked talent away from more traditional engineering courses, creating a vacuum of mechanical and electro-technical engineering graduates. Demand for experienced engineers with knowledge of modern manufacturing processes far outstrips availability. In the original Dutch core, management has culled the roster to maintain good occupancy of high-end IT professionals and finance specialists. In the industries mentioned above, Brunel’s sought-after specialists fill long-term temporary roles on a just-what’s-needed just-in-time basis. On the basis of strict execution guidelines, Brunel strategy aims to maintain a leading brand, yielding superior returns from value added to both corporate client and individual specialist.

Brunel: Financial position Working capital intensity Net cash

Net operating assets are a modest 10-15% of revenues, mostly a net balance of short-term receivables and payables, but gross assets can be considerable in Brunel’s business model. Year-end gross receivables tend to amount to more than 20% of annual revenues with intra-season peaks higher. Maintaining a debt-free balance sheet is part of strategy and brand value. We estimate that in December 2013, net cash was EUR 78m, EUR 3 per share.

Brunel: SWOT analysis STRENGTHS WEAKNESSES • Targeting natural growth with markets

rather than taking business from competitors within markets

• Brand • Execution focus

• Organisational development requires own staff similar to the customers’ demand for scarce talent

• Entrepreneurial model has a delicate freedom/control balance

• Limited liquidity, 63% held by founder OPPORTUNITIES THREATS • Increasing knowledge-intensity of

upstream energy • Shortage of German engineers; volume

growth and wage inflation • Extension to neighbouring territories and

similar specialties • Cultural shift towards personalised

acceleration/deceleration of professional careers

• Disintermediation of parts of the value proposition

• Narrow-specialist cherry-picking • Cyclicality may be disguised behind

technological/demographic trends


Brunel: Recent developments and outlook Energy driving growth; Germany consolidating; The Netherlands bottoming out Oil & Gas Projects fading out Corporate infrastructure reinforced

Management has guided for flat revenues and EBIT 2012 vs 2011. In the recurring energy business, Brunel’s network expansion has accelerated top line growth to +33% in 13Q3. German growth slowed down to +9%, as corporates were re-assessing their project portfolios. The Dutch business recorded marginal growth after three consecutive quarters of shrinkage. After a couple of gung-ho years, Brunel’s involvement in major gas projects off the Australian coast is being phased out. The halving of the Australian business will be prominent in the top line development in the coming quarters. On our estimates, in 2012, these projects generated roughly one-quarter of Brunel’s revenue, one-tenth of its gross profit and one-quarter of group EBIT. Its lumpy nature and its capital-intensity, however, always made this high-profile business the lowest-multiple unit in the portfolio in terms of valuation. In our view, apart from the financial profits generated, the spin-off from these projects both in terms of reputation and network is tangible in the accelerated growth of the “recurring energy” business. After the discovery of an accounting fraud that had gone unnoticed for five quarters, Brunel reorganised its control and reporting infrastructure. Years of rapid growth in the upstream business had apparently spread attention too thinly. Reportedly, no other irregularities have been found. New staff, new reporting lines and new processes are expected to have established a firm back office footing for the next phase of Brunel’s growth.

Brunel: Expected news flow / triggers Upstream focus on incremental rather than mind blowing project extensions

We would not expect spectacular news flow to carry the stock. Rather, we would expect confirmation of the trends in upstream spending: less on large projects, less on new programmes and a lot more on yield-improvement and extensions in existing fields. It is especially this technologically-led quest for incremental gains that keeps Brunel’s recurring energy unit so busy.

No let-up in German engineering labour market

Although the number of engineering vacancies in select specialties has come down from above 7x the number of available engineers in 2012 to less than 4x in 2013Q4, the tension in the German engineering labour market is still extreme. We would expect wage inflation to add to structural volume developments in the coming quarters. The Dutch unit for IT and finance staff, in slightly uncharacteristically competitive markets, has maintained profitability and may benefit from operational leverage as and when demand starts to catch up years of under-spending. We would not hold our breath, however.

Results 28 February 2014 Brunel’s 2013 results are due on 28 February 2014. Brunel: Valuation Room for a shift in perception of value Buy, target EUR 51

After 2013’s post-fraud run-up in the share price and the fading away of Australian project profits, Brunel is not cheap on 2014 fundamentals. Our recommendation is based on the expectation of continued investor appreciation of the attractive risk profile, the exceptional profitability and the unique growth markets serviced. Brunel is one of the world’s most profitable listed staffing companies, both in terms of margins (35% EBITA/Gross) and ROCE (>50% long-term historical and projected), trading on a middle-of-the-pack multiple of 10.6x prospective EV/EBITDA. Brunel, in specialist growth markets where executional excellence amplifies industry trends, deserves better. Our EUR 51 target (12x ‘14E EV/EBITDA) is in the middle of a conservative DCF sensitivity table based on margin stability and growth gradually slowing from its 10-year double-digit track record.


Brunel: Financial Data P&L STATEMENT (E UR mln) 2010 2011 2012 2013E 2014E 2015E Total revenues 721 972 1,237 1,258 1,398 1,575 EBITDA 41 65 74 79 90 107 Depreciation -4 -4 -4 -6 -6 -7 EBITA 37 61 70 73 84 100 Amortisation and impairment 0 0 0 0 0 0 EBIT 37 61 70 73 84 100 Interest results 1 1 0 0 0 0 Other financial results 0 0 -1 0 0 0 Result from participations 0 0 0 0 0 0 Pre-tax results 34 62 67 72 84 100 Tax -13 -22 -25 -23 -25 -29 Minorities 0 0 0 0 0 0 Other P&L items -4 0 -3 -1 0 0 Net result 21 39 41 49 59 71 PER SHARE DATA ( EUR mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 23.18 23.39 23.86 24.20 24.70 25.20 Outstanding shares (year end), millions 23.25 23.53 24.18 24.68 25.18 25.68 Reported EPS 1.09 1.69 1.88 2.08 2.39 2.82 Change (%) 55% 11% 10% 15% 18% Adjusted EPS 1.26 1.69 2.00 2.11 2.39 2.82 Change (%) 34% 19% 6% 13% 18% Free cash flow per ordinary share 0.18 1.39 1.11 -0.04 2.20 2.27 Change (%) 660% -20% -104% -5683% 3% Dividend per ordinary share 0.80 0.90 1.00 1.10 1.20 1.30 Change (%) 13% 11% 10% 9% 8% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 439.4 1,077.3 1,107.1 1,129.9 1,152.8 1,175.7 Net debt (+) -64 -86 -99 -78 -111 -143 Enterprise value 376 991 1,009 1,051 1,042 1,033 Net working capital 107 122 130 180 186 199 Net working capital / Adjusted total revenues 12.8% 11.8% 10.2% 12.3% 13.1% 12.2% Solvency 68.7% 61.1% 63.0% 70.4% 69.5% 70.2% Net debt / Adjusted EBITDA -1.4 -1.3 -1.3 -1.0 -1.2 -1.3 Adjusted EBITDA / Interest result -60.8 -92.1 -301.2 43.0 22.4 17.4 Adjusted EBITA / Interest result -55.9 -86.8 -284.0 39.9 20.8 16.2 CASH FLOW STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 41 61 74 74 84 100 Depreciation and amortisation 4 4 4 6 6 7 Organic change in working capital -22 -12 -13 -50 -6 -13 Organic change in provisions 0 0 0 0 0 0 Financial income and expenses 1 1 0 0 0 0 Dividend from non-consolidated companies 0 0 0 0 0 0 Tax paid -16 -14 -31 -25 -24 -30 Other changes in free cash flow 0 0 0 0 0 0 Net capital expenditure -3 -7 -7 -6 -6 -7 Free cashflow 4 33 26 -1 54 57 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 15.0 27.1 22.9 21.7 19.2 16.2 Share price / Book value 2.2 4.6 4.2 3.9 3.5 3.2 Free cash flow per ordinary share / share price 1.0% 3.0% 2.4% -0.1% 4.8% 5.0% Dividend / share price 4.2% 2.0% 2.2% 2.4% 2.6% 2.8% Enterprise value / Adjusted revenues 0.5 1.0 0.8 0.8 0.7 0.7 Enterprise value / Adjusted EBITDA 8.4 15.4 12.9 13.1 11.5 9.6 Enterprise value / Adjusted EBITA 9.1 16.3 13.7 14.2 12.4 10.3


Exact Buy Technology Software Equity Analyst

The year of truth

• Exact is showing that the core of its business, the Business Solutions division, is on the right track. Attrition rates are down in FY13 (albeit modestly) while key new logo sales are improving with deal value also going up. The new approach in new logo sales is working so well that Exact is working on a second team of ‘hunters’ for FY14. In other words, the core of the business is doing well, meaning solid EBITDA and cash flow in FY14 assuring a high dividend, a pillar in our investment case.

• The Cloud business has done very well in FY13 (we assume that the 4th quarter will also show growth of around 40% yoy) and we expect this to continue in FY14. Most of the sales growth will come from the Benelux where Exact Online is gaining market share, we assume, from the likes of Unit4, Reeleezee and Twinfield while some growth will also come from upgrading some of its on-premise customers.

• But it will be the year of truth for Exact in terms of its geographical expansion. In the UK we feel that Exact’s strategy of focusing on the verticals, using the accounting component to get in, appears the right one. Especially if Exact succeeds in allowing the accountants to provide more services around the verticals. We also have high hopes for the US where Exact can leverage off the installed base of Quickbook (350k companies as clients). Initial feedback (launch was in 4Q13) is very positive according to Exact and with a full scale launch in the coming month, positive news is expected. All in all we assume that Exact will show positive metrics in terms of customer take-up in 1H14, a key trigger for the investment case.

• The basis for our investment case is thus as follows: solid EBITDA and cash flow from Business Solutions (ensuring a high dividend) coupled with high growth in Cloud (hampering EBITDA because of start-up losses) because of international expansion.

• On top of that, but that is more speculative, Exact could become a target for private equity (similar to what happened with Unit4) while divestments (Longview, Lohn) could also provide a trigger.

Martijn den Drijver [email protected] +31 20 550 8636 Share price EUR 24.91 Target share price EUR 28.30 Perf: 1/3/12m (%) 6.5 / 41.5 / 55.7 Market capitalisation EUR 593 m Outstanding shares 23.8 m Average daily volume 14 k Company codes Bloomberg: EXACT NA Reuters: EXAH.AS Major shareholders van Nieuwland: 15.7% Hagens: 14.9% Janivo: 8.9% Aviva: 7.5% Delta VPV deelnemingenfonds: 5.3% Relative share price performance

Exact: Key Financial Data Financial year 2011 2012 2013E 2014E 2015E Total revenues (EURm) 216 217 214 224 234

Adjusted EBITDA (EURm) 50 51 47 48 52 Company profile Adjusted EBITA (EURm) 45 45 42 42 46 Exact is a software company that develops and markets business software for small and medium sized companies, providing support for financial, HR, sales, marketing, logistics and manufacturing processes. Its main products are Exact Globe and Exact Synergy, which it sells either directly or through (value-added) resellers. www.exactsoftware.com

EBITA margin (%) 20.9% 20.9% 19.7% 18.9% 19.8% Adjusted net result (EURm) 15 19 30 30 34 Change (%) -55.2% 25.9% 59.3% 0.6% 13.1% Reported EPS 0.62 0.79 1.25 1.26 1.42 Adjusted EPS 0.62 0.79 1.25 1.26 1.42 Change (%) -55.2% 25.9% 59.3% 0.6% 13.1% Dividend per ordinary share 2.00 1.26 1.25 1.26 1.42 Dividend yield (%) 8.0% 5.0% 5.0% 5.1% 5.7% Adjusted P/E 39.9 31.7 19.9 19.8 17.5 FCF Yield (%) 6.5% 5.8% 5.7% 5.8% 6.4% EV / Adjusted revenues 2.5 2.5 2.5 2.3 2.2 EV / Adjusted EBITDA 10.7 10.5 11.2 11.0 9.9 EV / Adjusted EBITA 11.9 11.7 12.5 12.4 11.1 Source:SNS Securities Research


Exact: Strategy and targets Business Solutions to return to growth

Exact’s strategy consists of two key pillars. The first one is to return the Business Solutions division to growth. Key focus areas are retention rates (which are up) and new logo sales (where a new team will be added), countering the effect of the FY12-FY13 simplification restructuring. The target is to return this business (and Specialized Solutions) to low single digit organic growth in the near term.

Cloud Solutions continues high growth path, helped by international expansion

The second part of the strategy focuses on Cloud Solutions. Exact aims to continue to grow in the Benelux while expanding into the UK, the US, Germany and France with the possibility of more countries being added thereafter. The revenue growth target is 30-50% per year in the coming years. Exact expects the Cloud Solutions division to break-even in FY16 (later if more countries are added) with EBITDA margins of 30%+ as a target further down the road.

Solid overall growth and increasing EBITDA

Overall this should lead to a growth rate of between 4-7%, roughly in line with and increasing EBITDA in the near term, ensuring a high dividend given Exact’s policy of a 100% pay-out ratio.

Modest targets for non-core Specialized Solutions

The Specialized Solutions division is also aiming for low single digit growth but we assume that if Exact can sell one of the units for a reasonable price, a deal will be struck.

Exact: Financial position Net cash position of around EUR 50m

Exact has no interest bearing debt and had over EUR 50m in cash at the end of the 3rd quarter of FY13. Normally the 4th quarter is the strongest quarter in terms of revenue and EBITDA (and thus cash flow) although start-up costs (US and Germany) will have an impact. But the net cash position will have improved further.

But sizeable goodwill Exact does have a sizeable portion of goodwill (>EUR 80m) on the balance sheet and if the performance of Longview or some of the specialized solutions in the US does not improve, there is a risk of a write-down. But given that these entities do not form the core of Exact, such an event should not lead to a material negative reaction.

Exact: SWOT analysis STRENGTHS WEAKNESSES • Fast growing Cloud applications

• High level of recurring revenues • Robust balance sheet (net cash) • Established brand name • Experienced management team

• Lack of scale in midmarket • Split in company between Cloud

and Business Solutions (culture wise)

• Uncertainty role of key shareholders

OPPORTUNITIES THREATS • Growth in Cloud solutions in Benelux

• International expansion of Cloud Solution

• Re-ignite midmarket segment for Business Solutions

• Divestment of non-core activities

• High levels of competition in mid-market

• Execution risk expansion • Loss of market share Benelux


Exact: Recent developments and outlook Good progress in 1H13 in Business Solutions…

The results of Exact have been rather good. In 1H13 the company reported much better results than we had expected. The Business Solutions division, still feeling the impact of the simplification restructuring of late FY12 (whereby multiple opco’s were eliminated or merged with larger units in both Europe and Asia and 150 staff were made redundant), reported a much smaller decline in revenue while operational EBITDA (adjusted for XOs and divestments) increased substantially (margin of 47% versus 41% in 1H12).

…with Cloud Solutions showing continued high growth rates…

In the same period, Cloud Solutions reported organic growth of 40% with annualized recurring revenue increasing by 43%. The EBITDA loss increased to EUR 5m because of the expansion into the UK and the US.

…resulting in a solid overall result

Overall, the company reported a modest organic decline in revenue (but positive in 2Q13) and an organic increase in EBITDA of 1.4%.

Strong performance continued in 3Q13 for both Business and Cloud Solutions…

The strong performance, given the state of the end markets in which Exact operates, continued in 3Q13. Business Solutions saw revenues decline by only 3% but attrition rates went down further while new logo sales increased along with deal value. Cloud Solutions reported organic growth of 40% while the company also launched in the UK after having successfully tested the UK Online version with over 60 launching customers.

…with the international roll-out being on schedule

In December Exact also launched in the US, leveraging off the installed base of Quickbooks, the leading SME accounting solution in the US owned by Intuit, which has over 350,000 companies as clients. Exact also made progress in terms of its official commercial launch in Germany (scheduled for 3Q14) having built a team of 10 staff, building a group of over 30 companies for the controlled release.

Exact: Expected news flow / triggers Solid progress in Business Solutions, driving overall EBITDA

One of the triggers will come from continued improvements in the Business Solutions division. Key metrics will be the retention rate (now a year a key part of the KPIs of Exact staff) which already declined from 8.1% to 7.5%, new logo sales (could be in the form of a subscription), overall revenue growth (turning positive) and the development of EBITDA. We forecast revenue of EUR 114m and an EBITDA of EUR 53m in FY13 and revenue of EUR 117m in FY14 with stable EBITDA as Exact steps up marketing and sales following product introductions.

Traction with the international roll out in the UK and US

The key trigger will be the growth rate of Cloud Solutions with a special focus on traction in the UK, the US and later in the year Germany. Exact will show the number of clients and revenue per region so it will be relatively easy to understand how successful the company is with its go to market strategy. If Exact can show that it is grabbing market share in the UK and the US, this is likely to result in a much higher valuation for the company as a whole given the valuation of other successful Cloud based companies, both here in Europe and in the US.

Divestments on non-core units A third trigger could be the divestment of one of the Specialized Solutions companies. Although Exact is not calling these units non-core we do assume that if an offer materializes, Exact will be willing to enter negotiations and reinvest proceeds into the remaining two core divisions.

Exact: Valuation In line with peers lagging in SaaS, DCF shows true potential

Relative to a peer group including Tyler Technologies, Sage and Intuit (which have lower levels of SaaS/Subscriptions revenues as a % of total sales), Exact appears to be fully valued at an FY14 EV/EBITDA of 11. However, if we adjust for that factor, Exact is undervalued. We see a DCF as the most appropriate valuation methodology, which results in a price target of EUR 27 per share.


Exact: Financial Data P&L STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Total revenues 228 216 217 214 224 234 EBITDA 52 50 51 47 48 52 Depreciation -5 -5 -5 -5 -5 -6 EBITA 48 45 45 42 42 46 Amortisation and impairment -6 -3 -6 -5 -5 -5 EBIT 42 42 39 37 37 42 Interest results 2 -1 -1 0 1 1 Other financial results 0 0 0 0 0 1 Result from participations 0 0 0 0 0 0 Pre-tax results 43 23 30 37 38 43 Tax -10 -8 -11 -7 -8 -9 Minorities 0 0 0 0 0 0 Other P&L items 0 -18 -9 0 0 0 Net result 33 15 19 30 30 34 PER SHARE DATA ( EUR mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 23.80 23.80 23.80 23.80 23.80 23.80 Outstanding shares (year end), millions 23.80 23.80 23.80 23.80 23.80 23.80 Reported EPS 1.39 0.62 0.79 1.25 1.26 1.42 Change (%) -55% 26% 59% 1% 13% Adjusted EPS 1.39 0.62 0.79 1.25 1.26 1.42 Change (%) -55% 26% 59% 1% 13% Free cash flow per ordinary share 1.78 1.62 1.45 1.43 1.45 1.59 Change (%) -9% -11% -2% 1% 10% Dividend per ordinary share 1.28 2.00 1.26 1.25 1.26 1.42 Change (%) 57% -37% 0% 1% 13% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 391.3 592.9 592.9 592.9 592.9 592.9 Net debt (+) -58 -50 -53 -57 -64 -71 Enterprise value 325 537 532 529 523 518 Net working capital -100 -73 -59 -61 -59 -57 Net working capital / Adjusted total revenues -16.4% -20.1% -25.2% -25.2% -25.2% -25.2% Net debt / Adjusted EBITDA -1.1 -1.0 -1.1 -1.2 -1.3 -1.4 Adjusted EBITDA / Interest result 34.4 -67.9 -66.1 93.7 68.0 57.9 Adjusted EBITA / Interest result 31.3 -60.9 -59.3 85.4 60.3 51.6 CASH FLOW STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 42 42 39 37 37 42 Depreciation and amortisation 11 8 12 10 10 10 Organic change in working capital 7 3 -2 0 0 0 Organic change in provisions -1 0 4 0 0 0 Financial income and expenses 2 0 1 0 1 1 Dividend from non-consolidated companies 0 0 0 0 0 0 Tax paid -10 -8 -5 -7 -8 -9 Other changes in free cash flow 0 0 0 0 0 0 Net capital expenditure -6 -8 -6 -6 -6 -6 Free cashflow 42 39 35 34 34 38 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 11.8 39.9 31.7 19.9 19.8 17.5 Share price / Book value 4.7 7.0 6.1 6.3 6.0 5.8 Free cash flow per ordinary share / share price 10.8% 6.5% 5.8% 5.7% 5.8% 6.4% Dividend / share price 7.8% 8.0% 5.0% 5.0% 5.1% 5.7% Enterprise value / Adjusted revenues 1.4 2.5 2.5 2.5 2.3 2.2 Enterprise value / Adjusted EBITDA 6.2 10.7 10.5 11.2 11.0 9.9 Enterprise value / Adjusted EBITA 6.8 11.9 11.7 12.5 12.4 11.1


KPN Telecom Buy Fixed Line Communications Equity Analyst

Looking beyond the earnings dip

• Although revenue will remain under pressure due to competition and regulation in Mobile, the market seems to underestimate KPN’s ability to maintain profitability at healthy levels while FCF will actually improve.

• It is true that competition in Mobile will remain at a high level. Vodafone has announced higher capex and opex investments, Tele2 will become a competitor and UPC and Ziggo are set to merge, increasing the likelihood of a 5th competitor in Mobile in due time.

• But the reality may be a bit different. KPN’s network is superior to that of Vodafone due to high investments and is ahead in 4G rollout. It will also remain vastly superior to that of Tele2 as it owns all of the components whereas Tele2 has to use MVNO deals.

• In the mean-time, KPN is well ahead in terms of 4G and FttH, which means lower capex going forward, even including Reggefiber. The advantage in 4G and VDSL translates into a head start in Quadruple play (retail + business), enabling KPN to lower SAC/SRC, which also positively impacts FCF. Regulatory pressure is also easing.

• On top of that we add KPN’s Simplification program, which will result in additional savings of EUR 200-300m in the near term in addition to the savings of the FTE reduction plan that has been completed in FY13. Putting all of this together means that FCF will improve substantially in the next 2 years: EUR 240m in FY13, EUR 600m in FY14 and EUR 0.9bn in FY16.

• We also assume that E-Plus will be sold without material remedies. KPN will then reduce leverage and profit from the massive synergies that can be extracted (NPV of EUR 5.0-5.7bn). Based on conservative estimates, we value the 17.6% stake at EUR 3.0bn.

• Plugging the above into our DCF for the continued business while also adding the tax advantages of the sale of E-Plus (EUR 3.7bn tax loss) results in an APV based price target of EUR 3.50 per share.

Martijn den Drijver [email protected] +31 20 550 8636 Share price EUR 2.55 Target share price EUR 3.50 Perf: 1/3/12m (%) 10.1 / 7.8 / -37.8 Market capitalisation EUR 10,880 m Outstanding shares 4,270 m Average daily volume 24.9 m Company codes Bloomberg: KPN NA Reuters: KPN.AS Major shareholders America Moviles: 29.7% Norges Bank: 3.1% Blackrock: 2.7% Ontario Teachers Plan: 2.2% Relative share price performance

KPN Telecom: Key Financial Data Financial year 2011 2012 2013E 2014E 2015E Total revenues (EURm) 13,163 12,708 8,543 8,351 8,288

Adjusted EBITDA (EURm) 5,138 4,528 3,044 2,836 2,785 Company profile Adjusted EBITA (EURm) 3,598 3,009 1,594 1,418 1,410 KPN's main units are the Dutch Telco business and Mobile International. As the incumbent player in the Netherlands, KPN has the leading positions in the fixed voice, mobile and broadband markets, both in the consumer and business segments. KPN is also the leader in IT services. In both Germany and Belgium KPN is the #3 mobile operator. In the NL, KPN rolls out a FttH network in a JV with Reggefiber. www.kpn.com

EBITA margin (%) 27.3% 23.7% 18.7% 17.0% 17.0% Adjusted net result (EURm) 1,645 842 381 687 569 Change (%) -11.9% -48.8% -54.8% 80.6% -17.2% Reported EPS 1.12 0.59 0.11 0.16 0.13 Adjusted EPS 1.12 0.59 0.11 0.16 0.13 Change (%) -5.6% -46.9% -81.9% 49.6% -17.2% Dividend per ordinary share 0.85 0.12 0.00 0.09 0.10 Dividend yield (%) 33.4% 4.7% 0.0% 3.5% 3.9% Adjusted P/E 2.3 4.3 23.7 15.8 19.1 FCF Yield (%) 55.4% 35.2% 3.1% 5.6% 5.4% EV / Adjusted revenues 0.9 0.9 1.6 1.2 1.2 EV / Adjusted EBITDA 2.3 2.6 4.6 3.7 3.7 EV / Adjusted EBITA 3.2 4.0 8.7 7.3 7.3 Source:SNS Securities Research


KPN Telecom: Strategy and targets Strategy consists of 3 pillars: Strengthen, Simplify and Grow

KPN’s strategy consists of 3 elements: The first component focuses on the strengthening of the market positions in the Netherlands by offering best in class networks and service to both retail and business customers. As part of this strategy, KPN will offer more bundled services (sticky quadruple play offerings with premium pricing) while simultaneously focusing on cost efficiency in all aspects. The second pillar of the strategy focus on simplification, both in terms of the product offering (less products but clearer propositions) as well as the organization (the Simplification program aims at removing legacy systems and improve business processes). The third pillar focuses on growth in Fixed and Mobile telephony. This is based on the Quadruple play offering that KPN is marketing in the Netherlands and a successful challenger strategy for Base in Belgium.

No quantitative targets… KPN has not provided quantitative targets in terms of revenues and EBITDA for FY13 or beyond. The company has indicated that it targets a stabilization of the Netherlands operation in FY14 and expects the Belgium operations to outperform, which are, in our view, somewhat cautious targets.

…apart from capex and the investment grade profile

KPN has provided guidance with regards to Capex (EUR 4.7bn in FY13-FY15 including Reggefiber capex for FY15) and that the company intends to maintain an investment grade credit profile. But if the E-Plus sale is approved, that target will certainly be met.

KPN Telecom: Financial position Net debt steady, pro forma net debt in healthy territory

At the end of 3Q13, KPN had net debt of EUR 9.6bn, which represented a net debt/EBITDA ration on an LTM basis of 2.4, which is slightly up from 2Q13. On a pro-forma basis, so including the proceeds of the sale of E-Plus but excluding the EBITDA contribution, the net debt/EBITDA would amount to 1.5x. KPN currently has a Baa2 with negative outlook from Moody’s, BBB- from S&P (stable outlook) and BBB- from Fitch (stable outlook).

Pension fund less of an issue The KPN pension fund coverage ratio amounted to 108% at the end of 3Q13, meaning no recovery payments are due in 1Q14. Given the performance of equity markets and the recovery in the economy (making lower interest rates less likely), no payments are expected in the near term.

KPN Telecom: SWOT analysis STRENGTHS WEAKNESSES • Leading position in Mobile, Fixed

telephony and Broadband • Well-known brands • Excellent quality network • Solid challenger in Mobile in Germany

and Belgium • Experienced management team

• Company track record • Weak customer service • Frequent senior management

changes • Too elaborate product portfolio • Lack of growth opportunities

OPPORTUNITIES THREATS • Sale of E-Plus allows for more

financial flexibility • Strengthen market position in NL • Improve profitability (Simplification

program + quadruple play)

• Negative ruling EU E-Plus sale • Aggressive tactics from merged

Ziggo/UPC • Successful Tele2 launch • Regulatory rate pressure


KPN Telecom: Recent developments and outlook The 3rd quarter was not KPN’s strongest quarter financially…

In the 3rd quarter revenue declined by 8% and EBITDA by 13%, caused by relative weak performances in consumer mobile (changing customer behavior) and business (overall impact economic downturn), partially offset by good performances in consumer residential where KPN is successfully countering the offerings of the cable operators. EBITDA was also impacted by a change in handset accounting (from lease to opex). All in all, FCF was down as well due to relatively high capex (4G roll out and other investments) and lower EBITDA.

…but there are bright spots operationally

But operationally there were some bright spots. KPN announced that Triple Play penetration was at 43%, up 11% yoy and that TV market share increased to 25%. The company also made progress in terms of its Simplification program preparation and the FTE reduction plan (c. 4,200 achieved versus target of 4,500 to 5,000). Furthermore, the 4G roll-out is on track.

FY14-FY16 FCF to improve substantially

For FY14-FY16 though we are more optimistic, which is the key pillar of our investment case. KPN will see the full effects of the FTE reduction program, the first effects of the Simplification program and lower capex (4G roll out completed, more use of VDSL in Triple Play), resulting in increased FCF despite pressure in Consumer Mobile due to the Tele2 offensive.

KPN Telecom: Expected news flow / triggers Approval of sale of E-Plus A key positive trigger is the approval of the sale of E-Plus by the EU. Based on the

competitive environment in Germany with over 100 MVNOs and 3 mobile operators we assume that approval will be granted with minor remedies, if any.

FCF improvements becoming visible

The second trigger will be that the improvements in profitability and FCF will become visible in the financial reports of KPN and that the market realizes that there is more to come despite all the obvious threats (Tele2, UPC/Ziggo). Currently there is uncertainty about the actual impact but we assume that, because of various reasons (KPN ahead in 4G and Quadruple play versus Vodafone, Tele2 technology unproven), the impact may not be as strong as expected.

AMX may come back to the table with a higher offer

It is also still be possible that AMX, after the cooling period has ended in June 2014, comes back with an improved offer for KPN, reflecting the expected improvements and the higher tax breaks. It is not the most likely scenario but it is a possibility.

KPN Telecom: Valuation KPN deserves premium versus peers but is valued in line

KPN is currently undervalued when looking at the FY14 and FY15 EV/EBITDA excluding discontinued operations. And although there is uncertainty with regards to E-Plus and the impact of Tele2, KPN should not be undervalued versus the smaller peers. The company is ahead in terms of network development (4G roll out), has already gone through a substantial restructuring with more measures announced. And if KPN is allowed to sell E-Plus, it will have much lower net debt/EBITDA ratio’s and higher financial flexibility. As such, an in line valuation would probably be more appropriate.

APV model shows true value of KPN looking beyond the earnings dip: PT of EUR 3.50

Because of the substantial tax advantages, we have built a comprehensive APV model. This model assumes the sale of E-Plus but no immediate sale of the shares of TFDE, allowing KPN to profit from synergy extractions. The model also includes the impact of Reggefiber (effective ownership as of 2H14). The APV model suggests a fair value of EUR 3.50, leaving upside of more than 40%.


KPN Telecom: Financial Data P&L STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Total revenues 13,398 13,163 12,708 8,543 8,351 8,288 EBITDA 5,476 5,138 4,528 3,044 2,836 2,785 Depreciation -1,409 -1,540 -1,519 -1,450 -1,417 -1,375 EBITA 4,067 3,598 3,009 1,594 1,418 1,410 Amortisation and impairment -817 -1,049 -1,189 -250 -244 -243 EBIT 3,250 2,549 1,820 1,344 1,174 1,168 Interest results -841 -658 -693 -685 -585 -455 Other financial results 0 0 0 0 0 0 Result from participations -31 -24 -13 -9 -9 -9 Pre-tax results 2,378 1,867 1,114 650 579 703 Tax -508 -222 -270 -185 -106 -128 Minorities -2 0 -2 -6 -6 -6 Other P&L items 0 0 0 0 0 0 Net result 1,868 1,645 842 381 687 569 PER SHARE DATA ( EUR mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 1,578.60 1,473.15 1,420.00 3,537.36 4,270.00 4,270.00 Outstanding shares (year end), millions 1,578.60 1,473.15 1,420.00 3,537.36 4,270.00 4,270.00 Reported EPS 1.18 1.12 0.59 0.11 0.16 0.13 Change (%) -6% -47% -82% 50% -17% Adjusted EPS 1.18 1.12 0.59 0.11 0.16 0.13 Change (%) -6% -47% -82% 50% -17% Free cash flow per ordinary share 1.05 1.41 0.90 0.08 0.14 0.14 Change (%) 34% -37% -91% 82% -3% Dividend per ordinary share 0.80 0.85 0.12 0.00 0.09 0.10 Change (%) 6% -86% -100% NA 13% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 2,434.2 3,753.6 3,618.2 9,013.2 10,880.0 10,880.0 Net debt (+) 11,714 12,109 12,610 9,127 3,756 3,621 Enterprise value 14,148 11,626 11,991 13,903 10,399 10,264 Net working capital -2,153 -2,388 -2,495 -1,643 -1,605 -1,591 Net working capital / Adjusted total revenues -6.1% -7.5% -10.1% -55.8% -19.6% -21.4% Solvency 15.4% 13.1% 11.0% 14.2% 17.0% 18.9% Net debt / Adjusted EBITDA 2.1 2.4 2.8 3.0 1.3 1.3 Adjusted EBITDA / Interest result -6.5 -7.8 -6.5 -4.4 -4.8 -6.1 Adjusted EBITA / Interest result -4.8 -5.5 -4.3 -2.3 -2.4 -3.1 CASH FLOW STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 3,250 2,549 1,820 1,344 1,174 1,168 Depreciation and amortisation 2,226 2,589 2,708 1,700 1,662 1,617 Organic change in working capital 75 93 -7 -103 -39 -14 Organic change in provisions -336 -209 -127 -135 -50 -50 Financial income and expenses -736 -637 -661 -685 -585 -455 Dividend from non-consolidated companies 1 1 19 0 0 0 Tax paid -589 -231 -486 -185 -106 -128 Other changes in free cash flow -83 0 -259 40 0 0 Net capital expenditure -2,146 -2,074 -1,734 -1,700 -1,450 -1,550 Free cashflow 1,662 2,081 1,273 276 606 588 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 1.4 2.3 4.3 23.7 15.8 19.1 Share price / Book value 0.7 1.3 1.5 1.3 3.1 2.9 Free cash flow per ordinary share / share price 86.4% 55.4% 35.2% 3.1% 5.6% 5.4% Dividend / share price 51.9% 33.4% 4.7% 0.0% 3.5% 3.9% Enterprise value / Adjusted revenues 1.1 0.9 0.9 1.6 1.2 1.2 Enterprise value / Adjusted EBITDA 2.6 2.3 2.6 4.6 3.7 3.7 Enterprise value / Adjusted EBITA 3.5 3.2 4.0 8.7 7.3 7.3


Reed Elsevier Hold Media Equity Analyst

High cash generation continues

• Reed Elsevier benefits from the good growth reported in the US, where the company realises more than half of its revenues. Growth in Europe is clearly lagging but we expect growth rates in this region to gradually improve in the next few years. Other geographies represent about 20% of revenues and are realising the highest growth within the company.

• Reed Elsevier generates stable free cash flow yields throughout the cycle as about half of its revenues are derived from subscriptions that have high renewal rates, inflation-linked prices and typically 2-3 year rolling contracts. Electronic products and face-to-face account for more than 80% of total revenues and are showing strong underlying growth of 5-7%. Revenues from print products continue to decline.

• Reed Elsevier is well positioned for further good organic revenue growth in the next few years. For 2013 we expect revenues to increase by 3% organically, driven by strong performances in Risk Solutions and Exhibitions. Legal remains the weakest performing division by showing 1% organic revenue growth. Organic revenue growth could accelerate towards 4%, with also eventually improving revenues in Legal. Margins will further improve, driven by revenue growth, further efficiency gains and product mix.

• Reed Elsevier’s financial position is sound. Net debt / EBITDA has improved towards 1.7 and we expect this ratio to further decline in the next few years. In recent years, Reed Elsevier has returned proceeds of disposals to its shareholders by means of share buy-backs and we expect that share buy backs will remain on the menu in order to re-leverage the balance sheet.

• Based on our 2014 estimates, Reed Elsevier trades at a P/E of 15 and an EV/EBITDA of 10.5. Reed Elsevier is valued at a small discount to its peers which suggests further upside potential as the company shows above average growth and margins. Cash flow generation will remain high enabling the company to pay a dividend yield of 3-4%, to make add-on acquisitions and to return capital to shareholders through share buy backs.

Johan van den Hooven [email protected] +31 20 550 8518 Share price EUR 15.65 Target share price EUR 17.00 Perf: 1/3/12m (%) 2.8 / 8.2 / 40.0 Market capitalisation EUR 10,956 m Outstanding shares 700 m Average daily volume 2.0 m Company codes Bloomberg: REN NA Reuters: ELSN.AS Major shareholders BlackRock: 5.02% Causeway Capital: 5% FIL limited: 3.72% Relative share price performance

Reed Elsevier: Key Financial Data Financial year 2011 2012 2013E 2014E 2015E Total revenues (GBPm) 6,002 6,116 6,073 6,171 6,316

Adjusted EBITDA (GBPm) 1,801 1,938 1,983 2,043 2,116 Company profile Adjusted EBITA (GBPm) 1,594 1,711 1,757 1,814 1,882 Reed Elsevier is a leading publisher of professional information focused on science, medical, legal, risk, business and exhibitions. Revenues are principally derived from subscriptions, circulation/transactions, advertising and exhibition fees. www.reedelsevier.com

EBITA margin (%) 26.6% 28.0% 28.9% 29.4% 29.8% Adjusted net result (GBPm) 1,060 1,138 1,175 1,217 1,284 Change (%) 7.8% 7.4% 3.2% 3.6% 5.5% Reported EPS 0.60 0.90 0.82 0.88 0.95 Adjusted EPS 0.83 0.95 0.97 1.04 1.11 Change (%) 6.5% 14.8% 2.0% 7.2% 6.7% Dividend per ordinary share 0.44 0.47 0.48 0.51 0.54 Dividend yield (%) 4.8% 4.2% 3.1% 3.3% 3.5% Adjusted P/E 10.8 11.7 15.9 15.1 14.1 FCF Yield (%) 14.1% 13.2% 11.0% 11.5% 12.3% EV / Adjusted revenues 2.6 2.8 3.5 3.4 3.2 EV / Adjusted EBITDA 8.5 9.0 11.0 10.4 9.7 EV / Adjusted EBITA 9.7 10.1 12.5 11.8 10.9 Source:SNS Securities Research


Reed Elsevier: Strategy and targets Reed Elsevier is transforming itself towards a professional information solutions

provider and is combining content & data with analytics & technology in global platforms. The company aims to help its customers to make better decisions, get better results and be more productive. Electronic products and face-to-face account for more than 80% of total revenues and are showing underlying growth of 5-7%. Revenues from print products continue to decline.

Optimising product portfolio The company aims to grow organically but also via selective acquisitions in its

chosen segments. It is optimising its product portfolio by divesting business units which no longer fits the company’s growth strategy. Over the last few years, disposals amounted to more than GBP 600m in revenues. This reshaping has resulted in more predictable revenues, higher margins and better returns.

On-going growth expected Reed Elsevier doesn’t have specific financial targets. For 2013, the company

expects further improvement in revenues, operating profit and net profit. Capital expenditure was about 5% of revenues in 1H13 and is expected to be similar for the full year. We expect further growth in revenues and margins in the next few years.

Reed Elsevier: Financial position Solid financial position Reed Elsevier has a strong balance sheet and shows good cash flow generation.

The group’s net debt/EBITDA has shown a gradual improvement over the past few years and was 1.7 at the end of June 2013. Driven by good cash flow generation we expect this ratio to further decline in the next few years.

High cash generation The annual free cash flow of GBP 600-700m after dividends offers ample room for add-on acquisitions or further share buy backs. The dividend yield is more than 3%.

Proceeds of disposals returned to shareholders

In order to mitigate the dilutive effect of disposals, Reed Elsevier is returning the proceeds of disposals to its shareholders by means of share buy backs. In 2012, GBP 250m was deployed on share buybacks and in 2013 about GBP 600m, which is GBP 200m more than the received proceeds on disposals. The company recently announced a further share buy-back of GBP 100m in the first quarter of 2014.

Reed Elsevier: SWOT analysis STRENGTHS WEAKNESSES • Strong brand names

• Strong market positions • High cash flow generation, solid financial

position

• Margins at Legal activities • Cyclicality Reed Business Information • Economic exposure Exhibition

activities

OPPORTUNITIES THREATS • Sector consolidation

• Expansion into adjacent markets • Geographical expansion

• A change in business model for STM journals (subscription paid to author paid)

• Customer consolidation (especially parts of the Health division and medium-sized US law firms)


Reed Elsevier: Recent developments and outlook Organic revenue growth at 3% Underlying revenues increased by 3% in the first nine months of 2013, equal to the

growth trends in the first half. Also divisional trends haven’t changed much during the third quarter and growth figures were the same as reported in the first half. Science is continuing modest revenue growth of 2% and about the same is expected for the full year. Risk again reported strong growth of 8% while Business again showed 3% revenue growth. Legal remains the weakest performing division by showing 1% organic revenue growth.

Further optimising product portfolio

Management continues to optimise its product portfolio. Since the half year results, Reed Elsevier made several acquisitions of small content and data assets, including Enclarity and Mapflow in Risk Solutions. The company also completed additional disposals including RBI Italy and a number of other small assets across business areas.

Further margin improvement expected

Partly driven by the portfolio changes, EBITA margin showed an impressive improvement of 150bps in 1H13. For the full year, we anticipate a margin improvement of more than 100bps. Driven by further efficiencies and scale benefits, combined with product mix shifting more to higher margin Risk management, we expect continued margin improvement in the next few years.

In November 2013, Reed Elsevier reiterated its full year guidance of further

improving revenues, operating profit and net profit. Reed Elsevier completed GBP 600m of share buy-backs in 2013 and announced a further GBP 100m in share buy-backs in the first 2 months of 2014.

Reed Elsevier: Expected news flow / triggers Strong growth in Risk and Exhibitions

For 2013 we estimate organic revenue growth of 3%, mainly driven by good growth in Risk Solutions and Exhibitions. Full year margins are expected to increase driven by organic revenue growth, further efficiency gains and portfolio changes.

With more than half of total revenues derived from the US, the company benefits

from the ongoing good growth in this region. The economic outlook in Europe is gradually improving which will benefit the company going forward. As the decline in print products (currently 20% of total revenues) is expected to level off, the stronger growth in electronic products will lift the overall revenue growth in the next few years.

Reed Elsevier will publish its full year results on 27 February 2014. Reed Elsevier: Valuation Discount to peers offers further upside

Based on our 2014 estimates, Reed Elsevier trades at a P/E of around 15 and an EV/EBITDA of 10.5. Reed Elsevier trades at a small discount compared to its peers, which offers upside in its share price given its solid growth path and strong financial position.

We expect a further improvement in Reed Elsevier’s results, as good growth in electronic products will clearly outweigh the decline in print products. Also, its end markets are expected to show further improvement, mainly driven by the anticipated recovery in Europe.


Reed Elsevier: Financial Data P&L STATEMEN T (GBP mln) 2010 2011 2012 2013E 2014E 2015E Total revenues 6,055 6,002 6,116 6,073 6,171 6,316 EBITDA 1,698 1,801 1,938 1,983 2,043 2,116 Depreciation -237 -207 -227 -225 -229 -234 EBITA 1,461 1,594 1,711 1,757 1,814 1,882 Amortisation and impairment -349 -359 -329 -323 -323 -323 EBIT 1,112 1,235 1,382 1,434 1,491 1,559 Interest results -287 -235 -224 -209 -189 -173 Other financial results -46 -22 45 44 0 0 Result from participations 0 0 0 0 0 0 Pre-tax results 790 978 1,211 1,270 1,303 1,386 Tax -120 -181 -113 -250 -250 -267 Minorities -6 -7 -5 -5 -5 -5 Other P&L items 0 0 0 0 0 0 Net result 664 790 1,093 1,015 1,047 1,114 PER SHARE DATA ( GBP mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 734.50 735.30 734.00 714.78 700.06 692.35 Outstanding shares (year end), millions 734.70 735.80 724.80 704.77 700.06 692.35 Reported EPS 0.51 0.60 0.90 0.82 0.88 0.95 Change (%) 17% 50% -8% 7% 8% Adjusted EPS 0.78 0.83 0.95 0.97 1.04 1.11 Change (%) 7% 15% 2% 7% 7% Free cash flow per ordinary share 1.42 1.27 1.48 1.70 1.80 1.93 Change (%) -11% 17% 14% 6% 7% Dividend per ordinary share 0.41 0.44 0.47 0.48 0.51 0.54 Change (%) 6% 7% 2% 7% 7% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 6,801.1 6,627.4 8,106.9 10,853.4 10,955.9 10,835.3 Net debt (+) 3,560 3,556 3,251 3,194 2,695 2,144 Enterprise value 10,256 15,395 17,354 22,062 21,685 21,030 Net working capital 240 243 245 243 244 244 Net working capital / Adjusted total revenues 4.0% 4.0% 4.0% 4.0% 3.9% 3.9% Solvency 17.7% 19.1% 21.0% 20.0% 21.8% 23.8% Net gearing 175.4% 156.3% 135.1% 141.7% 105.6% 73.6% Net debt / Adjusted EBITDA 1.9 1.9 1.6 1.6 1.3 1.0 Adjusted EBITDA / Interest result 5.9 7.7 8.7 9.5 10.8 12.3 Adjusted EBITA / Interest result 5.1 6.8 7.6 8.4 9.6 10.9 CASH FLOW STATEMENT (GBP mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 1,112 1,235 1,382 1,434 1,491 1,559 Depreciation and amortisation 586 566 556 548 552 557 Organic change in working capital -47 -38 -31 -1 -1 -1 Organic change in provisions -36 -33 43 0 0 0 Financial income and expenses -287 -235 -224 -209 -189 -173 Dividend from non-consolidated companies 0 0 0 0 0 0 Tax paid -9 -218 -216 -250 -250 -267 Other changes in free cash flow -7 -51 -14 0 0 0 Net capital expenditure -316 -360 -340 -348 -352 -356 Free cashflow 1,042 932 1,074 1,195 1,260 1,336 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 11.9 10.8 11.7 15.9 15.1 14.1 Share price / Book value 6.0 5.3 5.8 8.6 7.6 6.7 Free cash flow per ordinary share / share price 15.3% 14.1% 13.2% 11.0% 11.5% 12.3% Dividend / share price 4.5% 4.8% 4.2% 3.1% 3.3% 3.5% Enterprise value / Adjusted revenues 1.7 2.6 2.8 3.5 3.4 3.2 Enterprise value / Adjusted EBITDA 6.0 8.5 9.0 11.0 10.4 9.7 Enterprise value / Adjusted EBITA 7.0 9.7 10.1 12.5 11.8 10.9


Sligro Food Group Buy Food Retaile r & Wholesaler Equity Analyst

Prospects quickly improving

• It is by no means clear sailing for the Dutch economy, but recent economic data is encouraging. Consumer confidence is rising rapidly from the low in July 2013, with especially the forward-looking indicator being positive. Unemployment peaked in July 2013 at 8.7% and has come down to 8.2% since. The latest out-of-home consumption data confirm trends are improving. Broader consumer spending has yet to improve, but the leading indicators herald better times ahead.

• Sligro’s foodservice business stands to benefit the most from better economic circumstances, as foodservice is more sensitive to the economic cycle compared to food retail. Moreover, there will be a less negative, perhaps even a positive impact on the margin mix as the cash & carry business is likely to show a stronger recovery than the delivery operations.

• Additionally, Sligro’s foodservice business will benefit from revenue synergies from the Van Oers and Rooswinkel acquisitions. It has optimization opportunities with regard to its ecommerce application Slimis and Sligro’s automated ordering system. Finally, weather had an adverse effect on the foodservice business in H1 2013.

• Competitive pressure in the Dutch food retail industry has been very intense and this is likely to remain the case in 2014 even if the economic environment improves. We believe that the competitive position of Emté improves driven by a high quality and unique assortment and the national advertising campaign strengthening the Emté brand. This was recently confirmed by Emté’s position in GfK’s fresh produce report and identical sales growth ahead of the market.

• Our EUR 33 target price implies a 2014e EV/EBITDA of 9.0x, above historical averages, but justified in our view by our more positive stance towards an economic recovery in the Netherlands, scale effects from the Van Oers acquisition and strong expected earnings growth at Sligro in the next two years. We rate Sligro shares Buy.

Richard Withagen [email protected] +31 20 550 8572 Share price EUR 27,56 Target share price EUR 33,00 Perf: 1/3/12m (%) -2,9 / -2,6 / 25,8 Market capitalisation EUR 1.191 m Outstanding shar es 43,2 m Average daily volume 13 k Company codes Bloomberg: SLIGR NA Reuters: SLIGR.AS Major shareholders St. adm. kantoor Slippens: 34% ING Groep: 5.4% Darlin: 6.1% Arkelhave: 5.1% Boron Investments: 5.02% T. van Wettum: 5% FMR: 5.2% Relative share price performance

Sligro Food Group: Key Financial Data Financial year 2011 2012 2013E 2014E 2015E Total revenues (EURm) 2.420 2.467 2.498 2.577 2.684

Adjusted EBITDA (EURm) 159 144 144 158 170 Company profile Adjusted EBITA (EURm) 105 90 91 104 117 Sligro Food Group is a food retail (1/3) and foodservice company (2/3) fully focused on the Dutch market. The retail activities consist of company owned and franchise stores under the Em-Té banner. The Foodservice operations have a leading position on the Dutch market with a share of 19%. Sales are realized through self-service and delivery operations. www.sligrofoodgroup.nl

EBITA margin (%) 4,3% 3,6% 3,6% 4,0% 4,3% Adjusted net result (EURm) 78 70 69 79 89 Change (%) 11,4% -11,1% -0,5% 14,3% 12,7% Reported EPS 1,78 1,59 1,59 1,83 2,07 Adjusted EPS 1,78 1,59 1,59 1,83 2,07 Change (%) 11,9% -10,7% 0,2% 14,9% 13,2% Dividend per ordinary share 1,05 1,05 1,10 1,20 1,30 Dividend yield (%) 5,1% 3,8% 4,0% 4,4% 4,7% Adjusted P/E 11,7 17,3 17,3 15,0 13,3 FCF Yield (%) 14,8% 10,0% 9,9% 10,7% 11,6% EV / Adjusted revenues 0,4 0,5 0,5 0,5 0,4 EV / Adjusted EBITDA 6,5 8,9 8,7 7,7 6,9 EV / Adjusted EBITA 9,8 14,3 13,9 11,7 10,0 Source:SNS Securities Research


Sligro Food Group: Strategy and targets Sligro is market leader in the Netherlands in Foodservice

Sligro Food Group is active in the foodservice and food retail industry in the Netherlands. The company operates 46 cash & carry stores in the foodservice division and 11 delivery locations. The company is the market leader in the Netherlands with a market share of 20%. In food retail, Sligro operates the Emté format which consists of 130 stores and a market share of c. 3%.

Average sales growth target of 10% per year

Sligro aims to grow sales on average by 10% per year, split between 4% organic growth and 6% from acquisitions. Sligro focuses especially on relatively large acquisitions. It believes that these acquisition opportunities do exist in the Dutch food market. In addition, Sligro has recently focused on expanding its foodservice operations to neighboring countries. Currently, the company also operates in Belgium. Earnings growth is targeted to be in line with sales growth.

Sligro is a member of Superunie purchasing organization

Purchasing for Sligro’s food retail business is executed through Superunie, a purchasing organization that represents 30% of the Dutch food retail industry. By being a member of Superunie, Sligro can benefit from scale advantages in purchasing.

Sligro Food Group: Financial position Free cash flow expected to increase by 15% in 2014

We forecast free cash flow of EUR 74m for Sligro in 2013, EUR 9m less than in 2012, mainly driven by working capital. The majority of free cash flow has been used for dividend payments and the Van Oers acquisition. Still, net debt of Sligro will have improved in 2013. We forecast an end of the year net debt level of EUR 62m compared to EUR 73m at the end of 2012. In 2014, we expect free cash flow to improve to EUR 85m and assuming no acquisitions, net debt would decline to EUR 25m.

Sligro has a strong balance sheet

Leverage ratios of Sligro are very solid. Net debt to EBITDA will amount to an estimated 0.4x at the end of 2013 and decline to 0.2 at the end of 2014. The group’s solvency amounts to about 60%.

Sligro Food Group: SWOT analysis STRENGTHS WEAKNESSES • Strong and dedicated management

team; • Sligro is part of the Superunie buying

consortium which controls about 30% of the Dutch supermarket industry;

• Competitive advantage from a vertically integrated business model in the perishables range.

• Profitability of Sligro’s food retail business;

• Relatively small market share in Dutch food retail industry.

OPPORTUNITIES THREATS • Improve the positioning of Emté in

order to increase floor productivity; • Benefit from consolidation both in the

food retail as well as in the foodservice market;

• Apply best practices from food retail in foodservice and vice versa.

• Sligro is more cyclical than a pure food retailer due to the foodservice activities;

• Execution of the recovery of the food retail business;

• Competitive pricing environment.


Sligro Food Group: Recent developments and outlook Tough market conditions in Q4 2013

Sligro reported 2013 sales of EUR 2.5bn, 1.3% ahead of the year before. Fourth-quarter 2013 sales amounted to EUR 649m, a decrease of 0.6% compared to the same period a year earlier and this was lower than expected. Sligro noted that sales in December were weaker than expected. Service supermarkets in the Netherlands continue to face increasing competitive pressure from discounters, expanding food offerings of non-food retailers and ecommerce offerings. Reported data show volume decreases at supermarkets, probably partly reflecting leakage to other channels.

Management has not provided a 2013 outlook

Sligro management has not provided an outlook for 2013 due to major uncertainties about consumer spending. At the last trading updates, management said that September and December 2013 had been especially tough months for the industry.

Sligro Food Group: Expected news flow / triggers Improving economic conditions We believe the recent improvement in economic indicators in the Netherlands, like

consumer confidence and unemployment, will give rise to better prospects for consumer spending in 2014. Horeca or out-of-home consumption trends have already started to improve. In addition, the comparison base in H1 2014 is favorable given very poor weather conditions in the first half of 2013.

Sligro will report full-year earnings in January. This will be a key event to gauge whether consumer sentiment continues to improve and what impact it may have on sales trends in Sligro’s operations.

Synergies from the Van Oers and Rooswinkel acquisitions

Sligro acquired the activities of Van Oers in 2013 and recently announced the acquisition of Rooswinkel. In 2012, the company also eyed an acquisition in Scandinavia, but this deal fell apart. These examples show that the company has an appetite for acquisitions to add to its position in the Netherlands or to expand in regions like Scandinavia and Belgium. Sligro’s solid balance sheet can help to finance deals.

New initiatives in food retail and in foodservice

Sligro plans to introduce a loyalty scheme for its food retail operation in Q2 2014. Details of the scheme have not been disclosed yet, but the company has said that it is a differentiated proposition. In foodservice, Sligro plans to open a next generation cash & carry store in 2014.

We expect a dividend pay-out of 66%

Sligro aims to pay 50% of profit as dividend and increases this when the balance sheet allows for it. We forecast the company to pay a regular dividend of EUR 0.85 per share, but increase this by EUR 0.25 to EUR 1.10 as an additional dividend. The total pay-out would amount to c. 66%, similar to the pay-out in 2013.

Sligro Food Group: Valuation EUR 33 target price… We have a EUR 33 target price for Sligro shares based on a number of

methodologies. Key inputs for our discounted cash flow model are a perpetual growth rate of 1.5% and a perpetual EBIT margin of 4.5%, in line with the average in the past 8 years.

…implies 9.0x 2014e EV/EBITDA

Our EUR 33 target price implies a 2014e EV/EBITDA of 9.0x, above historical averages, but justified in our view by our more positive stance towards an economic recovery in the Netherlands, scale effects from the Van Oers acquisition and strong expected earnings growth at Sligro in the next two years. We rate Sligro shares Buy.


Sligro Food Group: Financial Data P&L STATEMENT (EUR mln) 2010 2011 2012 2013E 2014E 2015E Total revenues 2.286 2.420 2.467 2.498 2.577 2.684 EBITDA 146 159 144 144 158 170 Depreciation -55 -54 -54 -53 -53 -53 EBITA 91 105 90 91 104 117 Amortisation and impairment 0 0 0 0 0 0 EBIT 91 105 90 91 104 117 Interest results -5 -7 -5 -5 -4 -3 Other financial results 0 0 0 0 0 0 Result from participations 5 5 5 4 4 5 Pre-tax results 92 103 90 90 105 118 Tax -21 -25 -20 -21 -26 -29 Minorities 0 0 0 0 0 0 Other P&L items 0 0 0 0 0 0 Net result 70 78 70 69 79 89 PER SHARE DATA ( EUR mln) 2010 2011 2012 2013E 2014E 2015E Outstanding shares (average), millions 44,14 44,00 43,86 43,43 43,21 43,00 Outstanding shares (year end), millions 44,14 44,00 43,86 43,43 43,21 43,00 Reported EPS 1,59 1,78 1,59 1,59 1,83 2,07 Change (%) 12% -11% 0% 15% 13% Adjusted EPS 1,59 1,78 1,59 1,59 1,83 2,07 Change (%) 12% -11% 0% 15% 13% Free cash flow per ordinary share 2,72 3,07 2,75 2,72 2,96 3,20 Change (%) 13% -11% -1% 9% 8% Dividend per ordinary share 0,70 1,05 1,05 1,10 1,20 1,30 Change (%) 50% 0% 5% 9% 8% KEY BALANCE SHEET NUMBERS AND RATIOS 2010 2011 2012 2013E 2014E 2015E Market capitalisation 1.024,3 912,9 1.208,7 1.196,8 1.190,8 1.185,0 Net debt (+) 159 118 73 62 25 -14 Enterprise value 1.183 1.031 1.282 1.259 1.216 1.171 Net working capital 193 201 197 200 197 196 Net working capital / Adjusted total revenues 8,5% 8,3% 8,0% 8,0% 7,6% 7,3% Solvency 53,4% 58,1% 57,3% 60,1% 63,2% 66,7% Net gearing 31,8% 21,8% 13,2% 10,7% 4,1% -2,2% Net debt / Adjusted EBITDA 1,1 0,7 0,6 0,3 0,0 -0,3 Adjusted EBITDA / Interest result 31,0 23,1 27,1 31,0 38,2 52,8 Adjusted EBITA / Interest result 19,4 15,2 17,0 19,5 25,3 36,2 CASH FLOW STATEMENT (E UR mln) 2010 2011 2012 2013E 2014E 2015E Operating profit after amortisation of goodwill 91 105 90 91 104 117 Depreciation and amortisation 55 54 54 53 53 53 Organic change in working capital -17 -17 3 -3 3 1 Organic change in provisions 0 0 0 0 0 0 Financial income and expenses -5 -7 -5 -5 -4 -3 Dividend from non-consolidated companies 4 6 5 3 4 4 Tax paid -21 -17 -18 -21 -26 -29 Other changes in free cash flow 0 0 0 0 0 0 Net capital expenditure -46 -54 -41 -41 -46 -48 Free cashflow 57 65 83 74 84 91 VALUATION 2010 2011 2012 2013E 2014E 2015E Share price / Adjusted EPS 14,6 11,7 17,3 17,3 15,0 13,3 Share price / Book value 2,0 1,7 2,2 2,1 2,0 1,9 Free cash flow per ordinary share / share price 11,7% 14,8% 10,0% 9,9% 10,7% 11,6% Dividend / share price 3,0% 5,1% 3,8% 4,0% 4,4% 4,7% Enterprise value / Adjusted revenues 0,5 0,4 0,5 0,5 0,5 0,4 Enterprise value / Adjusted EBITDA 8,1 6,5 8,9 8,7 7,7 6,9 Enterprise value / Adjusted EBITA 13,0 9,8 14,3 13,9 11,7 10,0


Appendices

Historic Performance Overview of SNS Top Picks


Performance SNS Securities Top picks 2013 (Jun 2013 -Jan 2014)

18-Jun-13 8-Jan-14 Return

Dividend H2

Div. return

Total Return

BAM €3.74 €3.94 5.4% €0.00 0.0% 5.4% Grontmij €3.30 €3.58 8.5% €0.00 0.0% 8.5% Heineken €51.53 €47.31 8.2% €0.36 0.7% 7.5% TMG €11.49 €9.00 -21.7% €6.50 56.6% 34.9% PostNL €2.16 €4.22 95.2% €0.00 0.0% 95.2% Vopak €46.43 €40.91 -11.9% €0.00 0.0% -11.9%

TOTAL PERFORMANCE 13.96% 9.54% 23.28%

AEX 351.1 403.9 15.03% AMX 537.0 633.5 17.98% ASCX 446.8 518.3 16.01% AAX 536.4 608.4 13.43%

Source: Bloomberg, SNS Securities Research


Performance SNS Securities Top picks 2003-2014

AEX AMX ASCX

Performance SNS Securities

Top Picks

Out performance

VS AEX AMX ASCX

Top Picks 2003 +4.6% +12.5% +29.9% +32.2% +26.4% +17.5% +1.8%

Top Picks 2004 +3.1% +14.9% +16.6% +38.2% +34.0% +20.3% +18.5%

Top Picks 2005 +25.5% +26.8% +32.9% +45.7% +16.1% +15.0% +9.7%

Top Picks 1H2006 +0.8% +12.7% +14.9% +12.6% +11.7% -0.1% -2.0%

Top Picks 2H2006 +8.5% +7.6% +7.8% +4.3% -3.9% -3.0% -3.2%

Top Picks 1H2007 +14.0% +18.7% +27.0% +26.4% +10.8% +6.5% -0.5%

Top Picks 2H2007 -6.4% -12.5% -21.0% -18.6% -13.0% -7.0% +3.0%

Top Picks 1H2008 -14.2% -9.0% -13.5% -6.8% +8.6% +2.4% +7.7%

Top Picks 2H2008 -41.4% -46.5% -43.5% -39.0% +4.3% +14.1% +8.0%

Top Picks 1H2009 +4.2% +19.3% +27.9% +18.8% +14.0% -0.4% -7.1%

Top Picks 2H2009 +18.5% +32.7% +11.1% +7.6% -9.2% -18.9% -3.1%

Top Picks 1H2010 +7.4% +9.5% +3.6% +4.1% -3.1% -5.0% +0.4%

Top Picks 2H2010 +3.3% +10.5% +3.5% -4.5% -7.6% -13.6% -7.7%

Top Picks 1H2011 -3.8% +1.0% +7.4% +7.3% +11.5% +6.2% -0.2%

Top Picks 2H2011 -17.6% -30.4% -30.3% -20.9% -4.0% +13.7% +13.5%

Top Picks 1H2012 +6.8% +17.6% +6.5% +8.0% +1.2% -8.1% +1.4%

Top Picks 2H2012 +19.9% +13.1% +10.9% +16.6% -2.8% +3.1% +5.1%

Top Picks 1H2013 +0.3% -2.8% +6.6% -7.4% -7.7% -4.7% -13.1%

Top Picks 2H2013 +15.0% +18.0% +16.0% +23.3% +7.2% +4.5% +6.3%

Compound annual average +2.2% +6.8% +6.7% +10.0% +7.6% +3.0% +3.1%


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EQUITY SALES & TRADING f. . 020 42 04 186 t. +31 (0) 20 55 08 440

Marc Bos [email protected] t. +31 (0) 20 55 08 449

Paul Brouwer [email protected] t. +31 (0) 20 55 08 444

Erick van Engeland [email protected] t. +31 (0) 20 55 08 473

Job Heere [email protected] t. +31 (0) 20 55 08 486

Ad van de Laar [email protected] t. +31 (0) 20 55 08 482

Jeroen Numan [email protected] t. +31 (0) 20 55 08 429

Frank Schleeper [email protected] t. +31 (0) 20 55 08 477

Franklin Staupe [email protected] t. +31 (0) 20 55 08 447

Robbert Thieme [email protected] t. +31 (0) 20 55 08 469

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