EMEA First To Market: Top Research For Monday, 17 May 2010

Europe Equity Research
17 May 2010
EMEA First to Market

Top Research for Monday, 17 May 2010
Integrated Oil and Gas Head of European Equity

Investor concerns on exploration risks masking long term commodity positives. Research
Upgrading RDS to OW (Fred Lucas) Jose M. Linares, CFA
AC
• Macondo incident has highlighted risks to deep water exploration in investors’ minds. (44-20) 7325-4476
• Longer term positives for oil prices have been less accepted. Brent Dec 18 now > jose.linares@jpmorgan.com
$98/bbl, 23% > spot. Low P/Es have fallen, eg BP 7.8x ’10E; DY risen, eg BP 7%. J.P. Morgan Securities Ltd.
• JPMC Equity Oil sector team raise ’10E oil price to $80/bbl (from $70), reduce US
gas to $4.73/mmbtu (from $6.25). Drivers unchanged in supply/demand assumptions Rating Changes
but view that core OPEC oil price tolerance c$10 higher than prev thought, interest Company New Rating Old Rating
rates likely to stay lower for longer, breakdown in –ve correl between $/ and oil price, Upgrades
higher marginal supply risk prem from Macondo, maths of ytd avg of Brent at $79.7. Royal Dutch Shell B OW N
• RD Shell: OW (N); TP 2050p =>15% upside; new oil f/c reduces ’10E –ve CF, Price Target Changes
lifts ’10E EPS by 11% to $2.95 (vs cons $3.00), offers highest YoY EPS growth,
Price Target
lowest consensus risk.
• New price assumptions lift ’10E EPS Chevron 17%, RDS 11%, BP 7%, BG 3% and Company Rating New Old
Exxon Mobil 2%. Introductions
BG Group OW 1,425p NA
• BG Group P/E 13x vs Woodside (closest peer) > 20x. We feel parity with WDS is BP OW 675p NA
fair. BP’s yield, P/E almost equal - rare - last time it occurred (Q109), o/p followed. EVS OW €45.00 NA
European Banks Micro Focus OW 590p NA
Commercial Banks and regulatory change – see 200bps upside to sector ’11E Northumbrian Water N 285p NA
Pennon N 535p NA
RoNAV from LLP normalisation – see SG, UCG, HSBC attractive and well placed Royal Dutch Shell B OW 2,050p NA
(Francesca Tondi) Severn Trent OW 1,275p NA
• Report guides on IASB proposed acctg chgs, key issues in NPL recog, provisioning United Utilities OW 580p NA
for European Commercial Banks, modelling theoretical impact on sustainable return.
J.P. Morgan EPS Estimate Changes
• IASB draft suggests moving to Expected Loss model (vs current Incurred Loss
Current FY Next FY
model), recognising LLP earlier and avoiding under-provisioning in “good times”. Company New Old New Old
Using EL model JPMC sees sector LLPs at 78bps vs 30bps in past good years ’05- Increases
07, but lower than 101bps in formal JPMC ’11 company models. BG Group 76.94p 74.89p 84.31p 84.15p
• Using EL LLP, JPMC derives “normalized” ’11E sector RoNAV 14% (vs 12% Intertek 89.14p 87.72p 100.39p 97.82p
forecast in JPMC co models), attractive given current 1.1x P/NAV. Micro Focus $0.60 $0.59 $0.68 $0.67
Royal Dutch
• French, Italians most attractive on normalised RoNAV: RoNAV, P/NAV SG 17%, Shell B $2.95 $2.66 $3.55 $3.55
0.9x; BNP 16%, 1.1x, UCG 14%, 0.9x; ISP 17%, 1.1x NAV; also HSBC 18%, 1.6x. Severn Trent 104.86p 101.98p 86.76p 86.11p
• Pressure for consistency in NPL ratios, minimal reserve coverage implies theoretical Decreases
reserve shortfall €102bn for sector. Gap largest for Irish, UK, Greek, German. Closing EVS €2.21 €2.82 €2.27 €2.66
over 5yrs wd reduce norm RoNAV by JPMCe 230bp esp for those with largest gaps. Revisions
BP $1.06 $0.99 $1.11 $1.19
UK Water Northumbrian
Trading at RAV, with supportive newsflow. UU, SVT preferred (Edmund Reid) Water 24.48p 23.89p 23.92p 24.04p
• JPMC reiterates +ve view on UK Water sector; ltd regulatory risk as next review not Pennon 37.38p 36.56p 36.89p 38.30p
until ’14, cos have revenue visibility => clear/sustainable 5yr div policies; asset base United
Utilities 64.04p 59.71p 38.38p 39.86p
and revenues linked to UK RPI thus inflation hedge. Given financial leverage,
equity value geared to RPI (NWG 2.1%, most geared, Pennon 1.3%, least geared). The extracts are from recently
• Cos’ debt mostly fixed/index linked with long duration (4 cos’ debt portfolios’ avg published research. For additional
information on each stock's investment
maturity ranges 19-25yrs) thus insulated (operationally) from credit mkt deterioration.
thesis, including full disclosure, please
• Severn Trent: OW; TP 1,275p => 13% upside. 1.5% discount to Mar-11E RAV, contact your sales person, the covering
’10/11E div yield 5.8%. We expect reassuring results on 28 May and final dividend analyst's team or MorganMarkets
of 44.1p should be supportive for the share price.
See page 27 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Jose M. Linares, CFA Europe Equity Research
(44-20) 7325-4476 17 May 2010
jose.linares@jpmorgan.com
• United Utilities: OW; TP 580p => 10% upside. Trading in line with Mar-11E
RAV, ’10/11E div yield 5.9%. Expect reassuring results 21 May, with co likely to
update market on progress of its disposal programme. We expect the company to
announce a final dividend of 23.1p which should be supportive for the share price.
• General catalysts: results 21 May to 2 Jun (JPMC lifts ’09/10E EPS 3.7% on avg);
div announcements, EDF likely to receive final bids for UK electricity distribution
network Jun, with Jun/Jul announcement. JPMCe 10% plus EV premium to RAV
which could be a reference point for UK water valuations.
2
(44-20) 7325-4476 17 May 2010
Contents
Estimate & Price Target Changes Sonova Holdings AG SF 130.10 Neutral
David Adlington (44-20) 7155 6624
▼EVS €39.74 Overweight FY2010 results preview - ALERT
Daud Khan (44-20) 7155 6125 UBI €8.47 Neutral
Long awaited upturn in Studio offset by weaker OB Francesca Tondi (44-20) 7325-1579
market and lower margin structure. Reducing Q1 10 Results, weaker trends but asset quality better
estimates. - ALERT
▲Intertek 1,480p Overweight Unipol €0.73 Underweight
Kellie McAvoy (44-20) 7155 6645 Andreas de Groot van Embden (44-20) 7155 6688
Q1 IMS - organic growth ahead, upgrading FY10E 1Q 2010 results & 2012 strategic plan - Underweight -
EPS by 2%, FY11E +3% ALERT
▲Micro Focus 509p Overweight Sector Updates

Stacy Pollard (44-20) 7155 6124
Upgrades following solid pre-close statement Banks
Francesca Tondi (44-20) 7325-1579
Company Updates European banks: Asset quality: Assessing the impact
of regulatory changes
Atlantia €15.16 Overweight
Elodie Rall (44-20) 7155 6659 Banks
Carla Antunes da Silva (44-20) 7325-8215
Q1 2010 results - ALERT
UK Banks: Asset Quality: Assessing the impact of
Banco Popolare €4.19 Overweight regulatory changes - ALERT
Francesca Tondi (44-20) 7325-1579
Q110 Results, finally a set of clean, solid numbers - Insurance
Duncan Russell, CFA (44-20) 7325-4831
ALERT
European insurance: Update on here are the numbers
Britvic 470p Overweight and sovereign risk - Post 1Q 10
Matthew Webb (44-20) 7155 6154
H1 results preview Integrated oil & gas
Fred Lucas (44-20) 7155 6131
Computacenter 334p Overweight Big oil back in the firing line: Raising 2010 oil price,
Stacy Pollard (44-20) 7155 6124 reducing 2010-12 US gas price, upgrade RDS to OW
Q1 IMS: Product stronger, Services a little weaker,
Outlook solid. - ALERT Oil Services & Equipment
Amy Wong (44-20) 7325-9460
EADS €15.40 Neutral Seismic Sector Update: Focus on decommissioned
John Middleton (44-20) 7155 6126 marine vessels
Breakeven in Q1 - ALERT
Water
Garanti YTL6.95 Overweight Edmund Reid (44-20) 7155 6676
Paul Formanko (44-20) 7325-6028 UK Water: Fundamentally attractive, trading at RAV
Strong Q1 results. Robust volumes, improving with supportive newsflow
collections. Margins holding up well- maintain OW -
ALERT Strategy
IntesaSanpaolo €2.30 Overweight M&S pension funding deal
Francesca Tondi (44-20) 7325-1579 Peter Elwin (44-20) 7155 6404
Q110 Results - Lower costs and LLP more than offset Trustees allow for asset appreciation since March
still tough revenue trends - ALERT 2009
Renishaw 680p Neutral Economics
Richard Paige (44-20) 7155 6747
Strong Q3 IMS; significant upgrades (35%+) to Global Data Watch
consensus expected - ALERT Bruce Kasman (1-212) 834-5515
From liquidity crisis to existential angst
SABMiller 2,051p Overweight
Matthew Webb (44-20) 7155 6154
Remaining positive into FY results
Key:
▲= Upgrade; ▼ = Downgrade
3
Global Equity Research
17 May 2010
Big oil back in the firing line

Raising 2010 oil price, reducing 2010-12 US gas price,
upgrade RDS to OW
• Big oil is back in the firing line. The Macondo well incident in the Gulf Integrated oil & gas
of Mexico has raised investor concerns that big oil will face more AC
Fred Lucas
challenged access to attractive deep water exploration opportunities, (44-20) 7155 6131
higher costs and higher operating taxes. In our view, investors have been fred.lucas@jpmorgan.com
quick to see more risk and higher costs in deep water exploration, but
Jessica Saadat
slower to accept the longer-term positive consequences for the oil price. (44-20) 7155 6636
We note the Brent Dec-2018 futures price is now above $98/bbl, 23% jessica.saadat@jpmorgan.com
above the spot price that dominates investor sentiment. Already low PE J.P. Morgan Securities Ltd.
multiples have fallen further, dividend yields have risen, in certain names
to extremes. We continue to see attractive value in this sector. For Specialist Sales advice, please
contact
• Raising 2010E oil price to $80 per barrel - We typically revise our Hamish W Clegg
macro assumptions in Q2 – waiting for the inventory picture following the (44-20) 7325-0878
winter heating period and, ideally, a disruption to macro trends to reset hamish.w.clegg@jpmorgan.com
our 12-month view. We refresh our company forecasts to reflect a higher

oil price assumption in 2010 (from $70 to $80 per barrel) and a lower US BG Group vs Woodside PER (x)
gas price forecast 2010-12. Our higher oil price in 2010 is not induced by a 35
BG./BG.(F1FD12) 14/5/10
change to near term supply/demand fundamentals, which have only 30
improved slightly relative to our prior expectations (note that since 25
December, the IEA’s global growth estimate has increased from 1.34 to 20
1.62 million bopd, but its expected call on OPEC supplies has actually 15
fallen). Instead, it more reflects (i) evidence that core OPEC's oil price 10
tolerance is perhaps $10 per barrel higher than we thought (ii) the prospect 5
2004
BG./BG.(F1FD12)
2005 2006 2007 2008 2009
of lower interest rates for longer, following the Greek debt crisis, ought to
A:WPLX/A:WPLX(F1FD12)
Source: Thomson Datastream
Source: Datastream
reduce economic growth risk whilst sustaining oil market speculative long
positions for longer (iii) an unexpected break down in the negative BP's PER / Yield ratio vs price relative
correlation between the dollar and the oil price (iv) a higher marginal performance
supply risk premium resulting from Macondo (v) the simple arithmetic 9
BP.(PE)/BP.(DY) 14/5/10 x10-2
11.00
effect of a YTD 2010 Brent price average of $79.7 per barrel.

8
10.50
7
6 10.00
• Upgrade RD Shell to Overweight – Our $80/bbl forecast reduces Shell’s 5
9.50
2010 negative cash flow and raises our 2010 EPS by 11%. On our 4
3 9.00
estimates it now has the highest YoY EPS growth (+63%) and smallest 2
consensus risk (-2%). BP’s problem re-ignites the UK market’s

8.50
1
polarization tendency, even though we think it will ultimately be a

0 8.00
2001 2002 2003 2004 2005 2006 2007 2008 2009
BP.(PE)/BP.(DY)
BP./OILINUK(R.H.SCALE)
Source: Thomson Datastream
problem that will be shared by big oil. Source: Datastream.
Table 1: Integrated oil & gas - valuation snapshot

PER (x) EV/DACF (x) Yield (%)
2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E
BG Group 13.9 12.7 11.9 9.7 9.0 8.5 1.3 1.4 1.5
BP 7.8 7.4 6.9 6.0 6.2 5.5 6.7 7.1 7.3
RD Shell 9.3 7.7 7.2 6.6 5.7 5.2 6.1 6.4 6.7
Chevron 9.4 9.1 8.7 5.5 5.0 4.6 3.6 3.8 4.0
Exxon Mobil 11.9 10.6 9.2 7.7 6.9 6.0 2.7 2.8 3.0
Source: J.P. Morgan estimates.
17 May 2010
European banks
Asset quality: Assessing the impact of regulatory
changes
In this report we provide an “all you need to know” guide on NPL recognition Banks
and provisioning for European Commercial Bank,s also in the context of the AC
Francesca Tondi
proposed accounting changes. The IASB proposes to change from an (44-20) 7325-1579
“Incurred Loss Model” to an “Expected Loss Model”, effectively suggesting francesca.tondi@jpmorgan.com
the recognition of provisions from when a loan is originated. This is intended
Andrea Unzueta
to promote more conservative accounting and avoid under provisioning in (44-20) 7325-7454
“good times”. This may help reduce earnings volatility with potentially andrea.e.unzueta@jpmorgan.com
positive impacts on risk premium and valuations in our view. J.P. Morgan Securities Ltd.
1) Using our assessment of an “Expected Loss Model”, we calculate
“normalized” LLP of c.78bps for the sector. This is higher than the 30bps For Specialist Sales advice, please
contact:
reported in past “good years” (avg. 2005-07) but also lower than the 101bps
we have in our 2011 models. Justine Shih
(44-20) 7779 2149
• Using our EL LLP, we calculate a "normalised" 2011E RoNAV of justine.shih@jpmorgan.com
14% for the sector, c.200bp better than the current 12% we have in Nick Gough
our models for 2011; and attractive given the current low 1.1x (44-20) 7325-9459
P/NAV11E multiple for the sector, as shown in the table below. nick.c.gough@jpmorgan.com
• Based on “normalized” RoNAV levels, we believe French and Italian Oliver Doeltl
banks are the most attractive. Preferred names are Soc Gen (17% (44-20) 7779-2187
normalized RoNAV and 0.9x P/NAV, OW), BNP (16% normalized oliver.doeltl@jpmorgan.com
RoNAV and 1.1x P/NAV, OW) UCG (14% normalized RoNAV and 0.9x
P/NAV, OW) and ISP (17% normalized RoNAv and 1.1x NAV, OW), but
also HSBC (18% normalized RoNAv and 1.6x NAV, OW).
• Our EL model is sensitive to macro changes. For every +/-1% uniform
change in GDP gr., we see -/+16bps ch. in LLPs and +/-120bps in RoNAV.
2) We also believe there is an issue with consistency of NPL recognition and
reserve coverage and estimate a reserve shortfall of €102bln for the sector.
• This is based on our attempt to uniform parameters for NPL ratios (which
we see at 8.6%, vs. 5.0% reported), and minimal reserve coverage
(which we see at 48% vs. 35% reported).
• If banks were to close that gap over 5 years, we estimate additional LLPs of
23bps, and -230bps avg. impact on normalized RoNAV over five years.
• Reserve gap is larger for the Irish, UK, Greek and German banks,
which we would suggest avoiding on this specific theoretical sensitivity, as
the path to LLP and RoNAV normalization may take longer.
Table 1: European banks: Normalized return and valuation
Current Normalized Normalized Normalized Normalized Reserve Additional Impact on
RoNAV 11E LLps RoNAV 11E P/NAV (x) EPS (€) P/E (x) Shortfall €mn LLPs bps norm RoNAV
ITALY 13.8% 0.66% 14.0% 0.9 0.32 6.7 -4,426 -6 -0.6%
SPAIN 17.0% 0.93% 20.0% 1.3 1.20 6.9 -12,589 -18 -1.9%
FRANCE 15.9% 0.69% 16.2% 1.0 3.99 6.8 -14,815 -20 -2.1%
NORDICS 10.2% 0.54% 10.2% 1.2 0.71 11.8 -2,597 -7 -0.7%
UK 9.7% 0.96% 12.9% 1.2 0.16 10.0 -42,761 -32 -2.5%
IRELAND -0.8% 0.62% 15.2% 0.4 0.55 2.8 -5,774 -50 -8.5%
PORTUGAL 7.1% 0.65% 10.6% 0.8 0.17 7.5 1,223 15 1.7%
GERMANY 2.8% 0.48% 2.2% 0.5 0.39 23.4 -9,778 -41 -5.9%
GREECE 18.4% 1.34% 15.4% 0.8 1.60 5.4 -4,315 -66 -6.3%
EUROPE 12.4% 0.78% 14.3% 1.1 0.34 8.2 -101,704 -23 -2.3%
Source: Company reports and J.P. Morgan estimates
17 May 2010
UK Water
Fundamentally attractive, trading at RAV with
supportive newsflow
• The UK water sector has given up much of its Q1 outperformance vs Water

the market over the last six weeks. We believe that this has been Edmund Reid
AC
largely driven by an absence of newsflow following trading updates at (44-20) 7155 6676
the end of March. edmund.reid@jpmorgan.com
Richard Stuber
• In our view, the fundamentals of the UK water sector remain strong (44-20) 7155 6677
due to: limited regulatory risk following the 2009 regulatory review; richard.stuber@jpmorgan.com
revenues linked to UK RPI which continues to surprise on the upside; J.P. Morgan Securities Ltd.
and a strong financing position with most of the companies’ debt fixed
and long duration. UK water vs FTSE All Share
WATERUK/FTALLSH
0.30 FROM 11/5/00 TO 13/5/10 WEEKLY
• We are about to enter a period of heavy newsflow for the UK water 0.28
companies: all the companies are due to announce full year results over 0.26
the next three weeks and we expect EDF to finalise the sale of its UK
0.24
0.22
electricity distribution networks by the end of June. 0.20
0.18
• The companies are likely to announce their final dividends for 2009/10 0.16
with the results and we expect the yields on the final dividends alone to 0.14
be between 3.0% and 4.5%, which should be supportive for the share 0.12
prices.
0.10
0.08
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
• We think that EDF's UK networks are likely to be sold at 10% plus EV HIGH 0.28 16/10/08 LOW 0.08 7/ 9/00 LAST 0.19 Source: Thomson Datastream
premium to RAV. We believe that if a sale is agreed at that price, there Source: Datastream
will be a positive read across to the UK water companies which are

March 2011E premium (discount) to
currently trading in line with March 2011E RAV. RAV
• We retain our Overweight recommendations for Severn Trent and

1.7%
United Utilities. Severn Trent is our key pick in the sector trading at a
1.5% discount to March 2011E RAV, offering 12.6% upside to our 0.7%
March 2011 target price of 1,270p and a 2010/11E dividend yield of 0.4%
5.8%.
-1.5%
Northumbrian Pennon Severn Trent United Utilities
Source: J.P. Morgan estimates.
Equity Ratings and Price Targets

Mkt Cap Rating Price Target
Company Symbol (£ mn) Price(p) Cur Prev Cur Prev
Northumbrian Water Group Plc NWG.L 1,404.03 271 N n/c 285 –
Pennon PNN.L 1,789.85 509 N n/c 535 –
Severn Trent SVT.L 2,697.48 1,143 OW n/c 1,275 –
United Utilities UU.L 3,600.96 529 OW n/c 580 –
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 14 May 10.
14 May 2010
Overweight
EVS EVSB.BR, EVS BB
Price: €39.74
Long awaited upturn in Studio offset by weaker OB
Price Target: €45.00
market and lower margin structure. Reducing
estimates.
• Following Q1 results we are reducing estimates to reflect the IT Hardware

continuing shift in the balance of the business towards the studio Daud Khan
AC
market and the softer demand in the OB market in the near term. Due (44-20) 7155 6125
to the larger contract nature of the studio market, gross margins are daud.khan@jpmorgan.com
likely to be lighter going forward and the growing product portfolio is J.P. Morgan Securities Ltd.
leading to increased investment in R&D and distribution. We remain
comfortable with the long term growth story hinged on the growing Price Performance
adoption of HD, the shift to tapeless workflows and the increasing

50
number of distribution channels.
€
40
• We are reducing revenue in 2010/2011 by 6%/3% and EPS by
22%/16% due to increased investment in R&D and distribution. We 30
believe this new model structure represents a base model which should May-09 Aug-09 Nov-09 Feb-10 May-10
have room for outperformance. We also introduce FY 12 estimates YTD 1m 3m 12m

with revenue of €114m and EPS of €2.94. Abs -13.9% -8.0% -4.7% 15.8%
• The rebound in broadcasting spend is still not guaranteed but

management believe the feedback from customers from the recent
NAB trade show is very positive. A return of pent up demand,
particularly in the studio could lead to anti-cyclical growth (i.e. in a
non major sporting year such as 2011). We remain supportive of the
business but caution investors with regards to the limited visibility (and
hence possibility of lumpy results) and the changing margin structure
of the business.
• We are introducing a Dec-10 price target of €45 (13% upside) based on

an EV/NOPAT multiple of 20x 2010E, which is based on an
underlying assumption of 5% long-term earnings growth. We believe
this leaves room for further upside in the future. Our view is supported
by clear technology leadership and strong long term demand dynamics.
The studio market represents a market opportunity which is a multiple
of the OB market, and the introduction of entry level products in both
the OB and studio arena broadens the market opportunity further.
EVS Broadcast Equipment SA (EVSB.BR;EVS BB)

FYE Dec 2009A 2010E 2010E 2011E 2011E 2012E Company Data
(New) (Old) (New) (Old) Price (€) 39.74
Adj. EPS FY (€) 1.88 2.21 2.82 2.27 2.66 2.94 Date Of Price 13 May 10
Bloomberg EPS FY (€) 1.88 2.61 2.69 4.08 Price Target (€) 45.00
Revenue FY (€ mn) 77 93 99 95 98 114 Price Target End Date 31 Dec 10
EBIT FY (€ mn) 37 44 55 43 52 56 52-week Range (€) 53.42 - 32.10
EBIT margin FY 48.7% 46.6% 55.1% 45.5% 52.5% 49.5% Mkt Cap (€ bn) 0.5
DPS (Gross) FY (€) 2.48 2.73 3.00 1.33 Shares O/S (mn) 14
EV/Revenue FY 6.3 5.2 5.1 4.2
EV/EBITDA FY 12.3 10.4 10.5 8.1
Adj P/E FY 21.2 18.0 14.1 17.5 14.9 13.5
Source: Company data, Bloomberg, J.P. Morgan estimates.
14 May 2010
Overweight
Intertek ITRK.L, ITRK LN
Price: 1,480p
Q1 IMS - organic growth ahead, upgrading FY10E
Price Target: 1,780p
EPS by 2%, FY11E +3%
Organic growth at Intertek has accelerated to 3% (from 1% in H2 FY09) Business Services

in the first four months of 2010. The management continues to expect FY Kellie McAvoy
AC
organic growth in-line with FY09 (+3.5%). However, given the company's (44-20) 7155 6645
conservative track record on guidance, the easier H2 comparatives and kellie.mcavoy@jpmorgan.com
strong first four months, we are increasing our FY10E organic growth to Robert Plant
4.5% (from 3.5%). As a result of this and recent positive fx moves (eg the (44-20) 7155 6141
US dollar), we are raising our FY10E EPS by 2% (to 89.1p) and FY11E by robert.plant@jpmorgan.com
3% (to 100.4p). We remain Overweight. Michael Morris
(44-20) 7155 6164
• Q1 organic growth ahead at +3% – organic growth in the first four michael.morris@jpmorgan.com
months of FY10E has accelerated to 3%, from 1% in H2 FY09 and Victoria Prior
ahead of our f/c of 1%. Reported sales were broadly flat YoY, but we (44-20) 7155 6166
expect the fx headwind which was behind this to turn positive in the victoria.prior@jpmorgan.com
coming months, particularly given recent moves. J.P. Morgan Securities Ltd.
• Margin to remain broadly stable – at this stage, the operating margin Price Performance
is down YoY due to lower toy volumes at Consumer Products and the 1,600
FY guidance is for a broadly stable margin, in-line with our forecasts 1,400
(Reuters consensus implies a YoY decline). p
1,200
• 2010 organic growth outlook maintained, but appears increasingly 1,000

conservative – Intertek expects FY10E organic growth to reach a May-09 Aug-09 Nov-09 Feb-10 May-10
similar level to FY09's 3.5%. However, we feel that the risks to this lie
YTD 1m 3m 12m
firmly on the upside in view of the strong H1 showing accelerating Abs 17.9% 1.1% 25.7% 36.2%
momentum, the management's expectation of an improvement in
growth in H2, and the easier H2 comparatives. We are therefore
increasing our FY10E organic growth assumption to 4.5% (from
3.5%).
• Increasing estimates, FY10E +2%, FY11E +3% – to reflect higher

organic growth and recent fx moves (eg the US dollar), we are
increasing our FY10E EPS by 2% to 89.1p and FY11E by 3% to
100.4p.
Intertek Group (ITRK.L;ITRK LN)

FYE Dec 2009A 2010E 2010E 2011E 2011E Company Data
(Old) (New) (Old) (New) Price (p) 1,480
Adj. EPS FY (p) 81.51 87.72 89.14 97.82 100.39 Date Of Price 13 May 10
Revenue FY (£ mn) 1,237 1,310 1,333 1,390 1,421 Price Target (p) 1,780
Operating profit FY (£ mn) 209 222 225 241 246 Price Target End Date 31 Dec 10
Operating margin FY 16.9% 16.9% 16.9% 17.3% 17.3% 52-week Range (p) 1,576 - 988
Pretax Profit Adjusted FY (£ 192 206 209 230 235 Mkt Cap (£ bn) 2.72
mn) Shares O/S (mn) 184
Pretax Profit Reported FY 169 191 194 215 220
(£ mn)
Net Income adjusted FY (£ 131 140 142 156 160
mn)
DPS (Net) FY (p) 26 28 28 31 31
Net Yield FY 1.7% 1.9% 1.9% 2.1% 2.1%
14 May 2010
Overweight
Micro Focus MCRO.L, MCRO LN
Price: 509p
Upgrades following solid pre-close statement
Price Target: 590p
Following the company's solid pre-close statement, we are upgrading our Software & IT Services
earnings estimates by 2.4% for 2010E and 2.8% for 2011E. This reflects 1- Stacy Pollard
AC
2% upgrades at the revenue level, and earlier than expected margin (44-20) 7155 6124
achievements from the Borland and Compuware acquisitions. stacy.pollard@jpmorgan.com
J.P. Morgan Securities Ltd.
• Licences grew slightly in H2, and we would hope to see this accelerate
as the macroeconomic environment improves. Management Price Performance
highlighted a solid deal pipeline of migration opportunities for 2011,

500
which helps underpin our increases in revenue growth for this year.
p
400
Table 1: Summary of model changes
$m 2010E % change 2011E % change 2012E % change 300
Revenues 432.4 1.3% 486.5 1.6% 518.5 1.4% May-09 Aug-09 Nov-09 Feb-10 May-10
EBITDA, adj. 173.3 2.4% 197.6 2.8% 213.0 2.6%
Net income, adj. 122.1 2.5% 140.9 2.9% 154.4 2.6% YTD 1m 3m 12m
EPS, adj. basic 59.8 2.5% 68.3 2.9% 74.1 2.6%
EPS, adj. diluted 58.1 2.4% 66.4 2.8% 72.0 2.6% Abs 11.7% -2.7% 9.4% 27.3%
Source: J.P. Morgan.
• According to the pre-close statement, FY 2010 revenues are c.$432m

(ahead of our previous estimate of $427m) and EBITDA margins of
40%, or around $173m (ahead of our previous estimate of $169m and
Reuters consensus of $163m).
• The Borland and Compuware acquisitions have been integrated rapidly,

and the 12-month run rate revenue contribution from those businesses
was in line with guidance of $160m. EBITDA in the acquisitions was
around 40%, which was above previous guidance of 30%, and 15%
when they were first acquired a year ago.
Micro Focus (MCRO.L;MCRO LN)

FYE Apr 2009A 2010E 2010E 2011E 2011E Company Data
(Old) (New) (Old) (New) Price (p) 509
Adj. EPS FY ($) 0.42 0.59 0.60 0.67 0.68 Date Of Price 13 May 10
Revenue FY ($ mn) 275 427 432 479 486 Price Target (p) 590
Adj EBITDA FY ($ mn) 119 171 173 194 198 Price Target End Date 01 May 11
Adj EBITDA Margin FY 43.2% 40.0% 40.1% 40.5% 40.6% 52-week Range (p) 550 - 301
EBIT FY ($ mn) 91 104 108 172 177 Mkt Cap (£ bn) 1.03
Pretax Profit Adjusted FY ($ 106 143 147 168 173 Shares O/S (mn) 203
mn)
Net Income adjusted FY ($ 85 119
72 122 137
123 141
mn)
Net Income FY ($ mn) 66 72 75 123 126
14 May 2010
Overweight
Atlantia ATL.MI, ATL IM
Price: €15.16
Q1 2010 results - ALERT
14 May 2010
Overall, Q1 2010 performance was ahead of expectations, although Toll Roads

various exceptional items and an IFRIC 12 restatement make tracking the Elodie Rall
AC
underlying changes more difficult. Revenues are in line with expectations (44-20) 7155 6659
(up 8.8% vs. our expectations of 8.1%), since the company had previously elodie.rall@jpmorgan.com
reported its traffic increase in Q1-10, but the underlying increase in Andy Jones
EBITDA of 8.9% is higher than expected (JPMCe 2.5%) due to the (44-20) 7325-1622
company's cost control efforts in Q1-10. andrew.r.jones@jpmorgan.com
The headline net income figure is lower than expected, which is driving the
shares down, whereas the underlying performance is actually better than
expected (+22% vs. consensus 0% and JPMC -12%). We believe the Q1-10
underlying performance is being misunderstood due to the accounting
changes, and thus we think today's share price weakness represents a
buying opportunity.
• The company had previously reported preliminary traffic figures
for Q1 2010. Overall, traffic increased by 1.8% in Q1 2010 vs. Q109.
Traffic increased by 3.1% at the light vehicle level, while traffic
declined by 2.5% at the heavy vehicle level, though traffic in the
heaviest category was up 6%, leading to a positive mix effect of 0.5%.
The results are summarised in Table 1 below.
Table 1: Atlantia Q1 2010 results
€ million
Q1 2010A Q1 2010E Consensus Q1 2009A (restated) % change YoY
Toll revenues 708 700 611 15.8%
Total revenues 848 837 846 779 8.8%
EBITDA 500 468 472 460 8.9%
EBIT 363 338 353 336 8.0%
PBT 195 200 234 163 19.5%
Net profit 121 130 145 99 22.0%
Source: J.P. Morgan estimates, Company data.
• Toll revenues increased by 15.8% to €708m vs. our expectations of

€700m. The increase was attributed to the 1.8% traffic increase, the
impact of the double tariff increase (+4.8% split between +2.4% on Jan
1st 2010 and +2.4% on May 1st 2009), the positive mix effect of 0.5%
(due to an increase in the biggest vehicle category which are charged
the highest tolls) and the ANAS toll surcharge of €44.1m (vs. our
expectation of €50m) which was not in Q109 figures (but which is
neutral on Atlantia’s profits as the company accounts the same amount
in its operating costs). Total revenues came in at €847.5m vs. our
expectations of €837m.
• EBITDA is up by 8.9% YoY to €500m, which is ahead of our
forecast for €468m. Factors behind this were an inclusion under IFRIC
12 of toll revenues on construction linked tariff components and a
reduction in materials expenses relating to lower road resurfacing work
carried out in the quarter, and lower staff costs.
14 May 2010
Overweight
Banco Popolare BAPO.MI, BP IM
Price: €4.19
Q110 Results, finally a set of clean, solid numbers -
14 May 2010
ALERT
• After several quarters of pain, Banco Popolare finally reported a Banks

set of results which showed a clean profit, and was easy to Francesca Tondi
AC
understand. Reported Q1 net income of €77mln (o/w BP €10mln (44-20) 7325-1579

and Italease €-23mln), was above our €34mn estimates. This was francesca.tondi@jpmorgan.com
mostly explained by higher trading contribution, although all lines Andrea Unzueta
(NII, Fess, costs, LLP) were actually a bit better than we expected. (44-20) 7325-7454
Note numbers are not fully comparable on a YoY basis, due to the andrea.e.unzueta@jpmorgan.com
consolidation of Italease from July 09. J.P. Morgan Securities Ltd.
• Revenues of €1bn came ahead our €0.9bn estimate, with better NII,
strong fees and trading income:
• NII of €547mn, came above our €540mn estimate and Q4's
€544mn, with limited loan growth (+1%QoQ) and better margins
(NIM up 6bps in the quarter to 179bps), aided by repricing of some
key transactions, as well as €18mn hedging gains (vs. total €11mn in
FY09), which according to management are to remain in place until
the end of the year (though gradually declining) and some treasury
benefits. Loans were up 1% QoQ and 6% YoY, driven by mortgages
(+2.7%, +12% respectively) and small business (+2.1%, +7.3%).
• Fees of €322mn (-6%QoQ, +22%YoY), came above our €320mn
estimate, aided by asset management and bancassurance fees, in
line with other peers. Product placement should continue in Q2 esp
of life insurance as branches have reestablished good relationships
with their clients, following problems in recent years.
• Trading income of €118mn was positively impacted by the effect
from the fair value measurement of debt securities, though also with
a solid contribution of Banca Aletti (replicable core business) of
€69mn vs. €14mn in Q4 and €55mn in Q109.
• Costs of €611mn came fairly in line with estimates, with in line staff
costs benefiting from 152 personnel reduction in the quarter and with
administrative costs benefiting from lower amortization costs and
further costs reductions.
• Provisions of 74bps (€176mn) came slightly below our 75bps

estimate (€180mn), with NPLs up by 5%QoQ (vs. +19% in Q4),
underpinning decelerating asset quality trends. Including watchlist and
restructuring loans, NPL ratio remained flat at 8.6%, with coverage
slightly down to 34% (from 35%). Sofferenze loans (which Italians
refer to as NPLs) stood at 3.2% of loans (vs. 3.1% in Q4) with
coverage levels of 50% (from 51% in Q4). Within that, Italease
problem loans decline 2% QoQ, while the “bad company”, Release,
saw problem loans decline by c. €1bln to €3.9bln since end-2009 also
thanks to recent transactions; additionally, within that €1bln have gone
back to being performing.
17 May 2010
Overweight
Britvic BVIC.L, BVIC LN
Price: 470p
H1 results preview
Price Target: 515p
• Britvic reports H1 results on Tuesday 18th May. Beverages

AC
Matthew Webb
• We understand from the company that our EBIT forecast of £38.6m is (44-20) 7155 6154
in line with consensus, so we do not expect any great surprises matt.webb@jpmorgan.com
tomorrow. Mike J Gibbs
(44-20) 7325-1205
• It is important to remember that H1 is a small half, accounting for less mike.j.gibbs@jpmorgan.com
than 30% of annual EBIT in FY2009. This is because it covers the J.P. Morgan Securities Ltd.
period October–March (inclusive). Although this includes the seasonal
high point of Christmas (and also, on this occasion, Easter), demand Natasha Cobden
for soft drinks is of course lower than in the summer months. (44-20) 7325 3092
natasha.z.cobden@jpmorgan.com
• H1 is therefore highly geared to changes in the top line. We expect this Price Performance
to be evident in this period following the extremely strong Q1
performance (sales up 11%; GB sales up 15%). 450
p
• Specifically, we expect 6% top line growth in H1 to translate to 8% 350
growth in brand contribution, 21% EBIT growth and 38% EPS growth.
250
• If our H1 forecasts are accurate, Britvic would “only” have to grow May-09 Aug-09 Nov-09 Feb-10 May-10
sales by 2% and EBIT by 12% in H2 to meet our full year forecasts, YTD 1m 3m 12m
which are 4% above (Bloomberg) consensus of 34.5p at the EPS level. Abs 11.6% -0.6% 10.8% 70.5%
Given the momentum of the business shown in both FY2009 (EBIT
+14%) and Q1 of FY2010 (sales +11%) this would, in our view, be
very achievable. Although Britvic’s businesses performed strongly in
the second half of last year, this was despite very poor weather across
its markets. In that sense the comp is actually relatively easy.
• Britvic remains our top pick of the “SMID” beverages stocks. It trades
on only 11.4x CY2011 PE, a 12% discount to the sector on 13.0x. Its
dividend yield of 4.4% is the highest in the sector by some margin. Its
earnings growth prospects are slightly below the sector average, but
still double digit on our estimates even after the >20% growth we
expect this year. We retain our Overweight recommendation.
Britvic Plc (BVIC.L;BVIC LN)

FYE Sep 2008A 2009A 2010E 2011E 2012E Company Data
Adj. EPS FY (p) 24.76 29.87 36.02 40.15 44.34 Price (p) 470
Adj P/E FY 19.0 15.7 13.0 11.7 10.6 Date Of Price 13 May 10
Revenue FY (£ mn) 927 979 1,018 1,069 1,106 Price Target (p) 515
EBIT FY (£ mn) 97 110 126 138 148 Price Target End Date 01 Mar 11
EBITDA FY (£ mn) 139 153 170 184 187 52-week Range (p) 498 - 253
Net Income FY (£ mn) 53 64 77 86 95 Mkt Cap (£ bn) 1.02
FCF Yield FY 6.7% 7.7% 5.7% 7.4% 8.4% Shares O/S (mn) 216
EV/EBITDA FY 10.6 9.6 8.7 8.0 7.9
14 May 2010
Overweight
Computacenter CCC.L, CCC LN
Price: 334p
Q1 IMS: Product stronger, Services a little weaker,
13 May 2010
Outlook solid. - ALERT
Computacenter Q1 revenues were up 8% LFL to £616m. Product demand Software & IT Services
in particular has clearly rebounded in Q1, but the slower Services revenue Stacy Pollard
AC
growth is below what we would have hoped – although it is expected to (44-20) 7155 6124
improve as the year progresses. Product grew 9%, or 12% LFL (excluding stacy.pollard@jpmorgan.com
disposals and acquisitions), while Services grew 2%. Q2 is seeing similar J.P. Morgan Securities Ltd.
growth rates, albeit a little faster in Services. The company achieved small
cost reductions for Q1 yoy as well. The balance sheet remains strong, with
net cash of £89m (or £53m including Customer Specific Financing).
• OUTLOOK: Trading this year to date across the Group has increased
management’s “confidence of another year of progress for
Computacenter, in line with management expectations.”
• Comments by Geography: UK Product revenues were up 20%, or
>10% excluding a non-recurring large deal, while Service revenues
increased 3%. Improved trading in March has continued into Q2.
Germany had a slow start to the year, but saw a material pick-up in
March and into Q2. Product grew 1% excluding the acquisition of
becom (12% including it) and Services declined 3%. France saw
Product revenues up 7% and Services up 13%.
• No changes to our estimates. We believe Computacenter is on track to
meet our revenues and profit expectations for the half and full year. For
H1 we are modeling revenues of £1.2bn, adj PBT of £22m, and EPS
adj of 11p. For the full year 2010 we expect revenues of £2.5bn, adj
PBT of £60m and EPS adj of 30p. These current estimates were
upgraded by 13% in March after the company reported solid 2009
results and several good-sized managed services contracts which
should underpin good growth in services for the full year.
Table 1: Summary P&L and valuation
2009 2010E 2011E 2012E
Revenues (£m) 2503.2 2523.0 2592.4 2657.2
PBT adj. (£m) 43.1 54.2 59.6 64.6
EPS adj, diluted (p) 21.0 27.7 29.7 31.9
DPS (p) 8.2 11.0 11.6 12.1
EV/Revenues 0.2x 0.2x 0.2x 0.2x
EV/EBITDA 4.3x 4.2x 4.0x 3.8x
P/E 12.1x 11.2x 10.5x 9.7x
Dividend yield 3.3% 3.5% 3.6% 3.8%
Source: Company reports and J.P. Morgan estimates.
• Investment thesis and valuation: In our view, Computacenter can

continue to improve revenue growth and profitability. Although Q1
saw a stronger Product recovery, ultimately we believe the mix shift
will continue in favour of Services, which are higher margin. In
addition to providing higher profitability in the near term, this revenue
mix shift also increases the longer term predictability and sustainability
of earnings. In addition, Computacenter has a strong balance sheet and
cash flow.
14 May 2010
Neutral
EADS EAD.PA, EAD FP
Price: €15.40
Breakeven in Q1 - ALERT
13 May 2010
• Break even in Q1 - Operating profit of €83m (JPMe €77m; Cons Aerospace and Defence
€211m, 1Q09 €232m) was in line with JPMe, but below the John Middleton
AC
Bloomberg consensus. EPS of €0.13 was comfortably ahead (JPMe (44-20) 7155 6126
€0.02; Cons €0.04; 1Q09 €0.21) due to €130m positive other financial john.middleton@jpmorgan.com
result. Robert Owens
(44-20) 7155 6629
• Outlook – Management stated they were, “cautiously optimistic that robert.owens@jpmorgan.com
our industry is slowly on its way back up”. Guidance for €1bn of J.P. Morgan Securities Ltd.
EBITA in 2010e is maintained based on an average US$:€ of 1.40.
• Airbus break even – Airbus delivered EBITA of €7m (JPMe €-18m)

on sales of €6.3bn (JPMe €6.2bn) so in line with expectations, albeit
down yoy compared to €89m. The deteriorating hedge rate and ongoing
For Specialist Sales advice,
issues with the A380 continue to weigh on the profitability of the please contact:
business. EADS continues to expect deteriorating hedge rates to impact Timm Schulze-Melander, CFA
profits by €1bn yoy due to a 10c yoy reduction in the average hedge (44 20) 7325-3282
timm.schulze-melander@jpmorgan.com
rate of US$:€1.26 in 2009 to 1.36 in 2010e.
• Signs of order improvement – EADS booked €14.4bn of new orders

in Q1 largely due to orders for its A330 and A350 aircraft and Airbus
now targets gross new aircraft orders of 250-300 aircraft in the year
ahead.
• €1bn of cash burn – driven by inventory build (a w/c outflow of

€1.1bn) and a small increase in customer financing to €152m (vs an
inflow of €15m a year ago).
• Forex – has been the main driver of the share price in recent weeks in
our view and remains highly volatile, we see scope for Consensus
estimates to rise if the current exchange rate is maintained.
• Problem contracts – while the A380 was named as continuing to

weigh on Q1 profits, there was little comment about A400M. EADS
continues to state that future profitability depends on its ability to
execute on the A380, A400M and A350 in line with customer
commitments.
• Conference call – 11am (CET) dial in +4969710491413.

CEEMEA Equity Research
14 May 2010
Overweight
Garanti GARAN.IS, GARAN TI
Price: YTL6.95
Strong Q1 results. Robust volumes, improving
14 May 2010
collections. Margins holding up well- maintain OW -
ALERT
• Garanti bank reported strong Q1 net profit of TRY 1085mn, Banks

increasing 16% qoq and 23% above JPMe(881mn). The beat was Paul Formanko
AC
driven by higher than expected NII (on back of stable NIM), higher (44-20) 7325-6028
other income (increased provision reversals) and lower provisions paul.formanko@jpmorgan.com
(22% below JPMe). Key positives were above sector average volume Rohit Nigam
growth (+9% qoq net loan growth- highest in the sector along with (44-20) 7325-0803
Yapi Kredi) and favorable margin evolution (20bps NIM decline vs rohit.z.nigam@jpmchase.com
50-70 for peers). As highlighted in our previous note, we remain J.P. Morgan Securities Ltd.
positive on Garanti, owing to its high profitability (07-09 avg RoE
25%) and efficient management structure and maintain our OW
recommendation.
• Valuations- on current estimates Garanti is trading at 10E 8.2x,
P/NAV 1.8x and 11E PE 7.4x, P/NAV 1.5x for 11E RoE of 22%, 10-
12E cumulative EPS growth of 49%.
• Robust volumes- Garanti registered an impressive 9% qoq net loan
growth (highest is the sector along with Yapi Kredi) with TL and FX
loans growing 8% qoq. Growth was oriented towards more profitable
segments (supportive for margins) - mortgage loans grew by 10% qoq
(mkt share 14.1%, leading market player), general purpose loans grew
by 15%. Deposits grew in line with sector at 4% (with demand deposit
growth outpacing sector- 4% qoq growth). Overall L./D came at 81%
• Margins holding up well, core revenues improving- NII was down
6% qoq and came 7% above JPMe (NIM declined 20bps qoq - much
better than the sector with 50-70bps decline. NIM was helped by fall in
deposit costs and the presence of CPI linkers within the securities book,
which benefited from an inflation rise in Q1.Management highlighted
that the competitive environment remains stable and supportive for
margins.).Fee income was up 30% qoq and came 1% below JPMe
(helped by increasing contribution of non payment system related
business. In addition Q1 shows seasonality). Management guiding for
double digit growth for 2010.
• Other income adding in to revenues- in line with trend seen across
sector, Garanti benefited from reversal in provision charges- with other
income increasing from 80mn in Q4 to 268mn in Q1'10. Management
highlighted that given the strong collection efforts, additional quarters
of provision reversals could be seen.
• Costs were up 3% qoq and came 15% above JPMe (figures included
one off charges relating to branch taxes and legal fees). Management
highlighted that the current run rate would moderate going forwards
and guides for high single digit cost growth for full year (in line with
inflation)
14 May 2010
Overweight
IntesaSanpaolo ISP.MI, ISP IM
Price: €2.30
Q110 Results - Lower costs and LLP more than offset
13 May 2010
still tough revenue trends - ALERT
• ISP reported a good set of Q1 results, with profits of c. €688mn vs our Banks
€564mn estimate and €551mn consensus. Excluding €86mn of tax AC
Francesca Tondi
benefits, €16mn of integration costs, €28mn income on discounted (44-20) 7325-1579
operations and €92mn of PPA charges, we calculate clean net income of francesca.tondi@jpmorgan.com
€673mn, still 6% above our €634mln clean estimate. With pre provision
Andrea Unzueta
profit coming fairly in line with our numbers, the beat was mainly (44-20) 7325-7454
explained by lower than expected provisions. This is equivalent to €0.05 andrea.e.unzueta@jpmorgan.com
clean EPS which still supports our FY10 forecast of €0.24, assuming some J.P. Morgan Securities Ltd.
moderate progression
• Operationally, revenues were a bit soft, but costs better, with the
result that operating profit of €2bn was 1% above JPME, and more Figure 1: ISP P/NAV in last 10 years
importantly, was up 14% QoQ and 12% YoY, showing that the
3.0
group's earnings are progressing as good cost trends more than offset
weak revenues in Italy, a trend that we see continuing for ISP 2.5
especially. 2.0
• NII of €2.4bn coming 2% below both our estimates and consensus 1.5
driven by slightly lower loans (-1%QoQ) and an 8bps contraction of
1.0
margins to 170bps, which was expected. On this front, management
pointed out c. €430mn benefits from hedging in the quarter, which are to 0.5
remain in place till 2012, as hedging has been extended and should 0.0
support NII while interest rates remain low.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
• Fees of €1.4bn also came 1-2% below expectations, though with a still Source: Bloomberg
positive progression quarter on quarter, with positive trends in asset
management and with banking fees impacted by seasonality. Trading
and income from insurance were strong at €218mn (9% above) and
€166mln (vs. our €120mn estimate). Figure 2: ISP RoNAV, improving
%
• Costs came better than expected at €2,247mn (vs. €2,280mn estimate,
-12%QoQ), mostly due to staff reduction and the completion of the 35%
30%
amortization plan in 2009.
25%
• Provisions of 81bps, came below our 90bps estimate and 114bps in Q4, 20%
15%
with NPLs up 3%QoQ (vs. 10%QoQ in Q4), though with deterioration
10%
trends clearly decelerating (inflows down by 25%QoQ). We would note 5%
that most of the QoQ increase is due to a c. €800mln loan that has been 0%
restructured and is performing well (though still classified) and thus
2002
2003
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
requires no provision.
Source: J.P. Morgan estimates, Company data.
• Core Tier 1 ratio at 7.2% in Q1, with a further 30bps to be booked in Q2
from asset sales already closed net of some branch acquisition and
excluding the planned sale of 150-200 branches to CASA, which is
currently under negotiation as well as other sales underway. It also does
not yet include the benefit of the Basle II full advanced model, which
would have a positive impact of 25bps on capital.
• 2010 Guidance is positive. Revenues moderately up, costs down and
LLPs down vs. 2009 as well as less restructuring costs and more capital
gains to be booked in the year.
14 May 2010
Neutral
Renishaw RSW.L, RSW LN
Price: 680p
Strong Q3 IMS; significant upgrades (35%+) to
12 May 2010
consensus expected - ALERT
• Renishaw’s Q3 IMS states that group profits for the year are expected UK Small/Mid Cap Capital Goods
to be “significantly ahead of current market expectations”. According Richard Paige
AC
to Bloomberg consensus estimates are for EPS of 20.8p (range 17.7p- (44-20) 7155 6747
23.5p) for FY10E and 30.7p (25.7p-36.5p) for FY11E. This compares richard.paige@jpmorgan.com
with our current estimates of EPS of 22.0p and 32.5p. J.P. Morgan Securities Ltd.
• Revenue for FY10E is expected to be ahead of the FY09A level of

£171.2m. This means that management expects revenue of over £50m
in Q4 as sales to the end of March were £121.1m, still £18.3m lower
than the £139.4m reported in the comparable period last year. Typical
‘drop–through’ of sales to profit has been 50-55% in the first three
quarters of FY10E.
• At the end of Q3 Renishaw had generated PBT of £15.5m on sales of
£121.1m. This suggests PBT of £8.4m on sales of £47.2m has been
generated in Q3. This compares with PBT of £5.1m on sales of £41.4m
in Q2 and PBT of £2.0m on sales of £32.5m.
• Factoring in sales of at least £50m in Q4 (the strong order book would
suggest even higher than this) would suggest PBT of c. £10m. This
suggests an upgrade to the consensus of at least 35% today and
most likely higher.
• Favourable currency exchange rates have also boosted sales by £5.1m
and PBT by £4.3m YoY in the nine months to the end of March.
• The order book has continued to improve, standing at £24.1m at the
end of April, as the group enters its most important trading period of its
year. This compares with an order book of £17.6m at the end of H1 and
£9.7m at the start of the year.
• Good growth has been experienced in the Far East and improvement is
being seen in all other regions.
• At the end of April, the group had net cash of £29.2m. This compares
with net cash of £24.4m at the interims.
• This continues the theme of strong updates from the capital goods
sector and given Renishaw’s strong operational gearing to recovery we
believe today’s strong update has been anticipated to a certain extent.
The shares are currently trading on an EV/sales of 2.9x FY09A sales of
£171.2m, which compares with their long run average of 2.5-3.0x. Longer
term recovery to FY08A 'peak' sales of £200m (and mindful that sterling's
depreciation relative to the euro and dollar since then could mean sales will
recover beyond this in sterling terms) and an EV/sales of 2.5-3.0x would
suggest a fair value range of 695-830p.
17 May 2010
Overweight
SABMiller SAB.L, SAB LN
Price: 2,051p
Remaining positive into FY results
Price Target: 2,165p
• SABMiller reports FY2010 results on 20th May (this Thursday). Beverages

AC
• In our view the main point of interest will not be the results themselves, Matthew Webb
(44-20) 7155 6154
where our forecasts are broadly in line with Bloomberg consensus. matt.webb@jpmorgan.com
• FY11 input costs a key focus. Our focus will instead be on the guidance Mike J Gibbs
(44-20) 7325-1205
for input costs in FY2011. We expect this to provide evidence that SABM
mike.j.gibbs@jpmorgan.com
can start to recapture the 400bps of gross margin that it has lost over the
last 2 years, during which time its input costs have risen substantially
ahead of the spot prices of the underlying commodities. A period of flat or For Specialist Sales Advice,
falling input costs, combined with ongoing price increases, and potentially please contact:
growing volumes, would allow SABM to rebuild its gross margin. Natasha Cobden
(44-20) 7325 3092
• Moderate upside risks to FY10 results. With regard to the FY2010 natasha.z.cobden@jpmorgan.com
results themselves, we see the risk being modestly to the upside. We see
Price Performance
the scope for a positive surprise being largely in the margin, with input
2,200
costs having moderated in H2 and SABM having continued to bear down
on its operating costs. p 1,600
• Focus on 1Q11 trends. We have already had volume data for the full year 1,000
so there will be no surprises there. However, there should certainly be May-09 Aug-09 Nov-09 Feb-10 May-10
interest in whether the improved trends seen in fiscal Q4 have continued SAB.L share price (p)
MSCI-Eu (rebased)
into the first quarter of FY2011. We think that some of the Q4 figures
YTD 1m 3m 12m
were unsustainably strong (notably South Africa), but that others will
Abs 10.9% 7.6% 22.2% 68.1%
show clear improvement into FY2011 (notably the US). More broadly, we
Rel 9.9% 11.9% 15.7% 41.0%
think that demand in SABM's (predominantly emerging) markets is
recovering more strongly than in the mature markets, giving the company
an advantage over its peers.
• Remain Overweight. SABM trades on 13.7x CY2011E PER, a 6%

premium to the peer group on 13.0x. We believe that SABM has the most
attractive long-term top-line growth prospects in the sector and will deliver
the fastest EBIT growth in 2011 (ex Remy Cointreau). In our view this
warrants a more substantial premium to the sector and we retain our
Overweight rating.
SABMiller plc (SAB.L;SAB LN)

FYE Mar 2009A 2010E 2010E 2011E 2011E Company Data
(Old) (New) (Old) (New) Price (p) 2,051
Adj. EPS FY ($) 1.37 1.62 1.62 1.96 1.96 Date Of Price 13 May 10
Adj P/E FY 21.8 18.5 18.5 15.3 15.3 Price Target (p) 2,165
Revenue FY ($ mn) 20,919 21,719 21,719 23,087 23,087 Price Target End Date 01 Mar 11
Adj EBITDA FY ($ mn) 4,958 5,384 5,384 6,298 6,298 52-week Range (p) 2,090 - 1,189
EBIT FY ($ mn) 4,129 4,557 4,557 5,442 5,442 Mkt Cap (£ bn) 32.24
Pretax Profit Adjusted FY ($ 3,405 4,027 4,027 4,914 4,914 Shares O/S (mn) 1,572
mn)
Net Income FY ($ mn) 2,065 2,531 2,531 3,107 3,107
DPS (Net) FY (p) 58 63 63 70 70
14 May 2010
Neutral
Sonova Holdings AG SOON.VX, SOON VX
Price: SF 130.10
FY2010 results preview - ALERT
12 May 2010
• Sonova reports FY10 results (y/e March) on 18 May at 7am CET. Medtech & Services
Conference call at 11am CET. EU +41 91 610 5600; UK +44 20 7107 David Adlington
AC
0611; USA +1 (1) 866 291 4166. (44-20) 7155 6624

david.adlington@jpmorgan.com
• The company updated guidance on 18 February to organic sales
Sally Taylor
growth of 17-18% and an EBITA margin of around 28%. It also held (44-20) 7155 6663
an analyst meeting at AudiologyNOW! on 15 April, and confidence sally.taylor@jpmorgan.com
from that meeting leads us to believe that there is more upside than J.P. Morgan Securities Ltd.
downside risk to this guidance. With consensus (Source: Vara
research) looking for organic growth of 17.9% and EBITA margins of
27.9%, 2010 forecasts look highly achievable, in our view. We set out
our detailed forecasts in Fig 1.
• We are likely to get 2011 guidance for the first time. We and consensus
are looking for a slowdown from the very strong growth seen in 2010
as US market growth slows and Sonova faces increased competition in
the VA sector. We are looking for organic growth of c10.5%,
consensus is looking for 10.8% (range 8-14%). We shall be looking for
Sonova’s view on the call on William Demant’s recent commentary
that US volume growth could be flat in Q2. 2011E numbers will
receive a boost from the acquisition of InSound Medical and Advanced
Bionics, but this appears to be well captured in consensus forecasts.
• We believe these acquisitions are likely to dilute margins a little in

2011 (we estimate 50bp), but this appears to be captured in consensus
forecasts (looking for 70bp contraction).
• Forex is becoming significantly more unhelpful for 2011E. If rates stay

as they are currently, we estimate a headwind of c5-6%. We have not
yet adjusted for this in our 2011 forecasts. It also appears that
consensus is also yet to adjust for this. Furthermore, forex is likely to
crimp margins. In FY2009, forex headwinds of 7% hit EBITA margins
by 190bp.
• Valuation: EV/EBITDA 2010E of 17.4x, 2011E 15.2x, 2012E 13.7x.

PER of 21.0x, 18.2x and 16.1x respectively (an 11-14% premium to
our EU medtech universe).
• In the short term, we believe there is a small danger that the company
gives guidance that is conservative (the company has a tendency to
upgrade through the year). However, it appears that consensus has
adequately factored in a moderation in growth, so we are relatively
relaxed on the underlying outlook. What remains less clear to us is how
the market will react to currency related downgrades which could leave
the shares looking even more expensive than their current full rating.
14 May 2010
Neutral
UBI UBI.MI, UBI IM
Price: €8.47
Q1 10 Results, weaker trends but asset quality better -
13 May 2010
ALERT
UBI reported a mixed set of results with net income of €38mln comparing Banks
to our €43mln estimate, largely due to higher than expected taxes, but also AC
Francesca Tondi
with lower revenues and slightly higher costs. PBT of €137mn came above (44-20) 7325-1579
our €129mn estimate, due to better than expected provisions. Excluding francesca.tondi@jpmorgan.com
PPA, clean net income of €59mln annualizes into €235mln and still some way
Andrea Unzueta
away from our FY10 of €332mln, which implies at this point some quite (44-20) 7325-7454
aggressive progression. andrea.e.unzueta@jpmorgan.com
• NII of €550mn came 2% below our estimates (-4%QoQ), with no volume J.P. Morgan Securities Ltd.
growth and a 10bps decline in margins in the quarter (to 200bps). As

highlighted in Q4’s presentation, note changes in the lending mix towards
more corporate and SME focused are already being witnessed, with
corporate loans accounting for 36% of total (vs. 36% in Q109) and small
businesses at 16% (vs. 15% in Q109).
• Fees and commissions came in line with our expectations, though were
only 1%up YoY and flat vs. Q4 commissions if we exclude performance
fees, slightly worse than other peers who posted growth on this line.
• A Trading loss of €5mn was registered (vs. our €0mn estimate) due to
the negative impact deriving from the unwinding of hedging derivatives
related to fixed rate mortgages which were early paid.
• Costs came 2% higher than expected, at €598mn although still -2QoQ,
-1%YoY, with personnel costs of €371mn comparing to €365mn estimate
(+7% QoQ and -2%YoY) and administrative expenses of €185mn (-9%
QoQ, +1%YoY) 3% above our estimates.
• LLPs of €132mn (54bps) came below our 69bps estimate, and were
the lowest level reported in our universe, with NPLs up by 3%QoQ
(vs.25% in Q4), and with recovery levels showing positive trends
(€72mn in Q1 vs. €21mn in Q4 and €53mn in Q4 09). In terms of
Sovereign exposures, management confirmed the €24.8mn exposure to
Greece and no exposure to Spain, Ireland or Portugal.
• Taxes of €71mn (52%) came above our 45% estimate. Guidance for
the year remains at 40-45% levels.
Core capital ratio remains good at 7.41% (additional 70 bps could derive
from the conversion of the convertibles issued in July 09). NAV of €9.14
compares to €8.9mn in Q4 and was positively impacted by lower intangible
assets and in our view a positive AFS reserves, but at this stage we do not have
sufficient details, so our calculation is preliminary.
UBI presented the weakest set of results in our universe. We see
underlying asset quality trends getting better, but continue to see pressures
in the revenue line. We remain Neutral on the stock, trading at 0.9x
P/NAV11E, vs. the 1.1x sector multiple, with a healthy capital base, but
with low return levels (2.6% RoNAV in Q1, 9% RoNAV 2011E vs. 15%
for sector) and weaker results we see the stock under some pressure near
term.
14 May 2010
Underweight
Unipol UNPI.MI, UNI IM
Price: €0.73
1Q 2010 results & 2012 strategic plan - Underweight -
12 May 2010
ALERT
• Unipol today presents its 2010-2012 strategic plan together with the Insurance
first quarter results. The results were lower than expected, with Unipol Andreas de Groot van Embden
AC
reporting a €7m loss vs our €18m profit estimate. Shareholders (44-20) 7155 6688
equity was more or less in line with our estimates at €3636m (we andreas.vanembden@jpmorgan.com
estimate an NAV per share of €0.74 per share). J.P. Morgan Securities Ltd.
Dibin Korath
• The 2010Q1 loss is mainly driven by a €38m pre-tax loss in non life (91-22) 6157-3275
on the back of a worse than expected 105% combined ratio (JPMCe dibin.m.korath@jpmorgan.com
€1m loss with 103.1% combined ratio). The combined ratio is worse J.P. Morgan India Private Limited
than that reported by Generali and Allianz but slightly better than
Fondiaria SAI. The loss in non life has been offset by better results in
the life business (€69m vs JPMCe of €44m).
• The 2010-2012 strategic plan targets a net profit of €250m (vs a

€785m loss in 2009) driven by an improvement in the non life profit to
€175m thanks to a decline in the combined ratio from 108% in 2009 to
97.5% in 2012. Non life premiums are targeted to increase by c.2.9%
CAGR from 2009-2012 to €4.6bn.
• The assumptions for the non life business include cost savings of
€110m in claims settlement (2.4%-points of the CR), €165m in
underwriting process improvements (3.6%-points of the CR) and
€130m of tariff adjustments (2.8%-points of the CR). In addition,
efficiencies in the Agency network should add €35m or 0.8%-points of
the CR. Overall the loss ratio is expected to decline from 86% to 75.5%
and the expense ratio is expected to remain flat at 22%.
• The life business is targeting a net profit of €80m (vs €56m loss in
2009) with NBP expected to reach €85m (€42m in 2009) and margins
25% (19% in 2009). APE is expected to increase a CAGR of 16.5% to
€340m.
• Finally, the banking business should see a rebound in results to €50m

from a €24m loss in 2009 driven by a decline in the cost income ratio
(from 76.6% to 66%).
• The new strategic plan seems ambitious particularly in the life

segment, while a 97.5% combined ratio in P&C should be
achievable assuming the soft Italian P&C market turns around by
then and tariff increases come through.
• The challenge will be to achieve all the underwriting improvements

without tariff competition and claims inflation offsetting all the
benefits as has happened over the past three years at peers. For
example we could not find any comments on the extent at which
Unipol plans to increase tariffs or what the assumptions are on claims
inflation.
17 May 2010
UK Banks
Asset Quality: Assessing the impact of regulatory
changes - ALERT
• This morning our European banking colleagues Francesca Tondi & Banks
Andrea Unzueta have published an in-depth report on asset quality, Carla Antunes da Silva
AC
reviewing the impact of potential changes to provisioning (44-20) 7325-8215

requirements, as proposed by the IASB, and harmonising data across carla.antunes-silva@jpmorgan.com
the European Union. A link to the note is provided below right; we Amit Goel, CFA
highlight the main findings for the UK banks; (44-20) 7325-6924
amit.x.goel@jpmorgan.com
• 1. Changing accounting standards for provisioning - The IASB is
Francesca Tondi
proposing a move from 'incurred loss' provisioning to 'expected loss'. (44-20) 7325-1579
What this means is that rather than only taking a provision when there francesca.tondi@jpmorgan.com
is evidence of impairment, banks may have to take a provision when a Andrea Unzueta
loan is originated, based on historical experience for that type of asset. (44-20) 7325-7454
If the loan then performs differently to expectation the provision is andrea.e.unzueta@jpmorgan.com
either added to or reduced. The table below shows the RoNAV if J.P. Morgan Securities Ltd.
normalised 'expected loss' provisioning estimates are used, and the
multiples that the stocks are trading on to normalized earnings;
Table 1: UK Banks – normalised RoNAV
EL 2005-2007 vs. 05-07 RoNAV RoNAV 2011E RoNAV Resulting Normalized P/ P/E
provisions average average 2006 2006 EL estimate 2011E RoNAV EPS NAV
BARCLAYS 1.05% 0.64% 0.41% 33.3% 23.8% 1.20% 11.4% 12.3% 0.51 0.9 7.5
Lloyds 0.72% 0.63% 0.09% 31.9% 31.5% 1.41% 6.5% 13.2% 0.09 0.9 7.6
RBS 1.03% 0.35% 0.69% 35.2% 26.3% 1.75% 0.1% 4.8% 0.03 0.9 20.4
HSBC 1.03% 0.94% 0.10% 22.2% 21.2% 1.51% 15.9% 18.6% 0.86 1.6 9.1
Stan 0.66% 0.44% 0.22% 21.3% 19.7% 0.59% 17.2% 16.8% 1.35 2.3 14.8
UK 0.96% 0.64% 0.32% 26.6% 23.10% 1.42% 9.7% 12.9% 0.16 1.2 10.0
EUROPE 0.78% 0.30% 0.48% 24.2% 20.30% 1.01% 12.4% 14.3% 0.34 1.1 8.2
Source: J.P. Morgan estimates, Company data. Lloyds 2005-07 average does not include HBOS.
• Based on this analysis, we estimate normalizing provisioning levels

would increase the UK bank returns by 320bps to 12.9% on average
2011E, with RBS and Lloyds being the biggest beneficiaries. Note we
expect more normalized provisioning levels by 2012E, and hence
already derive a 12.8% sector RoNAV 2012E from our estimates. This
result compares to the broader European banking space that would see
a 190bps improvement to a 14.3% RoNAV. On a normalised PE basis
this leaves the UK banks trading at 10x 11E compared to the European
average of 8.2x 11E.
• 2. Comparing NPLs and reserves at a European level - Across the
European Union the definitions of NPLs (non performing loans) and
the levels of reserve coverage vary substantially. In the report we have For further details please refer to
attempted to harmonize the data to make it more comparable. As a JPM ‘European Banks: Asset
result of this analysis we estimate that the UK banks need to increase Quality – Assessing the impact of
reserve levels by £36.7bn from YE09 levels, which if it was done over regulatory changes’ 17 May 2010
a 5 year period would increase provisioning requirements by 32bps on
average and reduce normalised RoNAV by c.250bps. This is 42% of
the European banks total of £87bn. The tables below shows the detail
by bank;
14 May 2010
European insurance
Update on here are the numbers and sovereign risk -
Post 1Q 10
• For the past year we have been publishing a data dump of the main Insurance
balance sheet metrics and investments for the European insurance sector. Duncan Russell, CFA
AC
(44-20) 7325-4831
• In this note we update for the 1Q10 figures, where published. duncan.x.russell@jpmorgan.com
• Where numbers are not disclosed (on Government bond exposures for
example) we have made some estimates, all of which are detailed. For Figure 1: SXIP Index price performance
the Govt bond exposures we show both net and gross of policyholder 170.0
(sometimes we have to make an estimate on the policyholder share) as
150.0
we believe that the policyholder sharing is not a simple percentage in
most markets (it rather depends on the size of the loss), so the gross 130.0
numbers (i.e. before policyholders) are also very relevant. 1-Jan-10 1-Mar-10 1-May -10
sx ip index
• This data is available in spreadsheet form.
Source: Bloomberg, Priced intraday 13th May 2010
Table 1: European insurance – key picks

LC per share, %
Valuation comps Price Rating PE '11e P/NAV '10e RoNAV '11e Div yield '10e
Allianz 85.3 OW 6.4x 134.0% 20.9% 5.9%
Swiss Re 49.4 OW 6.1x 111.8% 18.4% 3.0%
Hannover Re 36.0 OW 6.7x 102.2% 15.3% 4.9%
Ageas 2.3 OW 11.9x 75.6% 6.3% 4.0%
ING 7.03 OW 5.9x 77.3% 13.1% 0.0%
RSA 123.9 OW 9.0x 157.5% 17.4% 7.1%
Sector average 6.7x 110.8% 17.0% 3.7%
Source: J.P. Morgan estimates and Price from Bloomberg CoB 12th May 2010
17 May 2010
Seismic Sector Update

Focus on decommissioned marine vessels
• We see demand continuing to improve in the seismic market but along with European Oil Services &
this renewed optimism come worries that old vessels in reserve could be Equipment
brought back into the market. We recognize this threatens the supply and Amy Wong
AC
demand balance to the marine seismic market but we see the impact only at (44-20) 7325-9460
the lower end of the market, i.e. low-capacity vessels with less than 6 amy.wong@jpmorgan.com
streamers. We summarize our thoughts following meetings with various Andrew Dobbing
personnel from the seismic companies, including CGG Veritas, TGS- (44-20) 7155 6134
Nopec, Fugro and BGP (subsidiary of Chinese National Petroleum andrew.dobbing@jpmorgan.com
Company). CGG Veritas continues to be our preferred pick in the sector J.P. Morgan Securities Ltd.
with its market leading 25% share of the global 3D seismic fleet and data
processing capability. After the recent pullback, CGG Veritas is trading at For Specialist Sales advice, please
contact:
14.1x, a 12% discount to its long term average forward P/E 16.0x.
Hamish W Clegg
• Increasing evidence that upstream spending from oil and gas (44-20) 7325-0878
hamish.w.clegg@jpmorgan.com
companies is increasing. Underpinning seismic spend are the exploration
and development budgets from the oil companies. J.P. Morgan regularly Share price performances (USD
produces the “Upstream Spending Survey.” Our comprehensive proprietary adjusted) April 15
model of global organic upstream spending includes data from 71 oil and VK
gas companies, including 10 NOCs, 12 IOCs and 49 independent oil
AKSO
companies. According to our latest survey, published on 12 May 2010, the
current aggregate organic spending is projected to grow by 13.7% y/y Amec
(previously +6.5%). The main reason for the increase in the expected 2010 WG
growth is mainly driven by the actual spending in 2009 coming down from ACY
budgets as opposed to the revision of previously announced 2010 budgets PFC
which typically occurs later in the year. Applying the historical relationship BEUOILS
between upstream spend (based on our updated survey) and growth in CGGV
seismic industry revenues suggests that 2010 revenues could increase by
PGS
about 16% - this compares to consensus expectations of -6% y/y revenues
FUR
for the industry (consensus based on Bloomberg and J.P. Morgan estimates).
SPM
Figure 1: Growth in seismic revenues tracks growth in exploration spend TRE
50% y = 1.1755x - 0.0266 TGS
Seismic Revenues Y/Y Growth (%)
40% R 2 = 0.7442 2006 TEC

2005
30% 2007
2008 SUB
20%
10%
SBMO
2003 2004
0%
2010E -25% -15% -5%
-10% 2009
-20%
-30% Source: Bloomberg, c.o.b. 14-May-10
-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35%
Upstream organic ex ploration and dev elopment spending Y/Y Grow th (%)
Source: Company reports, J.P. Morgan estimates

14 May 2010
M&S pension funding deal

Trustees allow for asset appreciation since March
2009
• This week Marks and Spencer Group announced a funding agreement European Pensions Strategy
with its UK pension scheme worth £800m to cover an actuarial Peter Elwin
AC
deficit of £1.3bn (priced at 31 March 2009). We believe the Pensions (44-20) 7155 6404
Regulator has accepted the agreement. peter.elwin@jpmorgan.com
• We believe the deal is positive for M&S because
1. It keeps cash payments low (£35m for 2010 to 2012, then £60m
annually until 2018).
2. It contributes new properties to the existing property partnership
thereby using assets already on the balance sheet in an efficient way to
provide collateral worth £300m against a promise to pay the trustees
£36m per annum for 15 years from 2017 plus a final payment in 2031.
3. It has no adverse accounting impacts (either to earnings or the B/S).
• A few caveats:
1. The cash agreement runs until 2018 - but in reality the trustees could
demand more following the 2012 triennial if they need to under UK
pensions law.
2. The liability remains large relative to the company (a £5.2bn scheme
vs a £5.5bn market cap) and as such constitutes both a deterrent to any
potential bidder, and a significant (on-going) risk/management issue.
3. The details of the £124m transfer of value from existing US$ debt
hedge contracts to the scheme are unclear (see comments on page 2).
• Interesting read-across to BT and British Airways (and others)
• The M&S trustees estimated the deficit as £1.3bn but only negotiated
cash/asset contributions with a PV of £800m. The statement says the
£500m difference "is expected to be met by investment returns".
• Based on our mark-to-market pensions model we estimate that the

M&S pension scheme assets have appreciated at least £500m since
March 09 (see page 2) - something the trustees would have been aware
of when negotiating the funding agreement they've just announced.
• BT, British Airways, and a number of other companies are currently

negotiating funding agreements with their pension trustees. The M&S
agreement will provide a useful precedent to justify taking into
account asset appreciation since Dec 08/Mar 09 when determining
cash contributions (i.e. demanding less than the 2008/9 actuarial
deficit).
Economic Research
May 14, 2010
Global Data Watch

• Dramatic policy actions in Europe are expected to contain sovereign cri- Contents
sis and limit spillover to European and global economies Economic Research note
• Revised Euro area forecast anticipates moderately slower growth and US shift from pessimism gives a big
lift to growth 11
no ECB tightening through 2011
Central Europe: assessing the
damage from EMU debt crisis 15
• Strong April activity data reaffirm China policy call for initial moves on
Australia’s budget back in black by
FX and policy rates by midyear 17
2012-13
From liquidity crisis to existential angst Global Economic Outlook Summary 4

Global Central Bank Watch 6
This week delivered important constructive news on the policy front across
The J.P. Morgan View: Markets 7
Europe as actions were taken to stem the broadening crisis surrounding sover-
eign debt. Most notable was the establishment of a European Stabilization Selected recent research from
10
J.P. Morgan Economics
Mechanism (ESM), which represents a move by EU governments toward shar-
ing the credit risk of countries being asked to implement large fiscal consolida- Data Watches
tions. As part of this plan, tightening packages on the periphery were increased United States 19
and a commitment was made to shore up the discipline of the Growth and Sta- Euro area 27
bility Pact. For its part, the ECB agreed to buy sovereign debt for the purpose Japan 33
of stabilizing markets. Across the channel, a UK coalition government was Canada 37
formed that proposed to deliver an emergency budget plan by the end of June. Mexico 39
Brazil 41
Many details related to these initiatives are not yet available and there is imple- Andeans 43
mentation risk. However, we believe these risks are modest in an environment in United Kingdom 45
which policymakers recognize the dire consequences of a failure to act (see “The Russia 49
European Stabilization Mechanism,” J.P. Morgan European Rates Strategy Re- Turkey 51
search, May 14, 2010). As such, there are three conclusions that should be drawn Australia and New Zealand 53
from this news regarding the path that Europe is set to follow. China, Hong Kong, and Taiwan 57
Korea 61
• Euro area sovereigns will have access to financing through 2012, as long as ASEAN 63
they remain on their fiscal austerity paths. Combined with the steps taken by India 67
the ECB, the building liquidity crisis facing sovereigns and the spillover to
Regional Data Calendars 72
banks exposed to their debt should be successfully contained.
• Relative performance gaps will get larger. Our macroeconomic forecast al-
ready incorporates a widening gap within Europe (Germany versus the periph-
ery) and the underperformance of Europe versus the rest of the world. Forecast
revisions this week represent a widening in both of these gaps.
• Rates will remain lower for longer at the ECB and Bank of England. The
combination of an even more moderate economic recovery and extremely low
Euro area GDP Change in primary net lending, 2009 to 2013 Bruce Kasman
(1-212) 834-5515
%ch from prev year % of GDP; J.P. Morgan forecast bruce.c.kasman@jpmorgan.com
Spain JPMorgan Chase Bank NA
6 Greece 12
4 10 David Hensley
Germany
(1-212) 834-5516
2 8 david.hensley@jpmorgan.com
JPMorgan Chase Bank NA
0 6
4 Joseph Lupton
-2
(1-212) 834-5735
-4 2 joseph.p.lupton@jpmorgan.com
JPMorgan Chase Bank NA
-6 0
PRT GRC ESP FRA IRL DEU ITA
99 01 03 05 07 09 11 www.morganmarkets.com
(44-20) 7325-4476 17 May 2010
Companies Recommended in This Report (all prices in this report as of market close on 14 May 2010)
BG Group (BG.L/1,028p/Overweight), BNP Paribas (BNPP.PA/€48.22/Overweight), BP (BP.L/530p/Overweight), CGG
Veritas (GEPH.PA/€20.66/Overweight), HSBC Holdings plc (HSBA.L/648p/Overweight), IntesaSanpaolo
(ISP.MI/€2.20/Overweight), Royal Dutch Shell B (RDSb.L/1,780p/Overweight), Société Générale
(SOGN.PA/€35.20/Overweight), UniCredit (CRDI.MI/€1.82/Overweight)
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
• Market Maker: JPMSI makes a market in the stock of BNP Paribas, Société Générale.
• Market Maker/ Liquidity Provider: JPMSL and/or an affiliate is a market maker and/or liquidity provider in BG Group, BNP
Paribas, BP, CGG Veritas, HSBC Holdings plc, IntesaSanpaolo, Royal Dutch Shell B, Société Générale, UniCredit.
• Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for
BNP Paribas, BP, HSBC Holdings plc, IntesaSanpaolo, Royal Dutch Shell B, Société Générale within the past 12 months.
• Beneficial Ownership (1% or more): JPMSI or its affiliates beneficially own 1% or more of a class of common equity securities of
HSBC Holdings plc, IntesaSanpaolo, UniCredit.
• Client of the Firm: BG Group is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the
company investment banking services, non-investment banking securities-related services and non-securities-related services. BNP
Paribas is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment
banking services, non-investment banking securities-related services and non-securities-related services. BP is or was in the past 12
months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment
banking securities-related services and non-securities-related services. CGG Veritas is or was in the past 12 months a client of
JPMSI. HSBC Holdings plc is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the
company investment banking services, non-investment banking securities-related services and non-securities-related services.
IntesaSanpaolo is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company
investment banking services, non-investment banking securities-related services and non-securities-related services. Royal Dutch
Shell B is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment
banking services, non-investment banking securities-related services and non-securities-related services. Société Générale is or was
in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services,
non-investment banking securities-related services and non-securities-related services. UniCredit is or was in the past 12 months a
client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment banking
securities-related services and non-securities-related services.
• Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking
services from BG Group, BNP Paribas, BP, HSBC Holdings plc, IntesaSanpaolo, Royal Dutch Shell B, Société Générale, UniCredit.
• Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment
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27
(44-20) 7325-4476 17 May 2010
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Europe Equity Research

EMEA First to Market

Integrated Oil and Gas Head of European Equity

▲Micro Focus 509p Overweight Sector Updates

Big oil back in the firing line

our 12-month view. We refresh our company forecasts to reflect a higher

change to near term supply/demand fundamentals, which have only 30

improved slightly relative to our prior expectations (note that since 25

effect of a YTD 2010 Brent price average of $79.7 per barrel.

• Upgrade RD Shell to Overweight – Our $80/bbl forecast reduces Shell’s 5

consensus risk (-2%). BP’s problem re-ignites the UK market’s

polarization tendency, even though we think it will ultimately be a

problem that will be shared by big oil. Source: Datastream.

Table 1: Integrated oil & gas - valuation snapshot

• The UK water sector has given up much of its Q1 outperformance vs Water

electricity distribution networks by the end of June. 0.20

will be a positive read across to the UK water companies which are

• We retain our Overweight recommendations for Severn Trent and

Northumbrian Pennon Severn Trent United Utilities

Source: J.P. Morgan estimates.

Equity Ratings and Price Targets

• Following Q1 results we are reducing estimates to reflect the IT Hardware

adoption of HD, the shift to tapeless workflows and the increasing

have room for outperformance. We also introduce FY 12 estimates YTD 1m 3m 12m

• The rebound in broadcasting spend is still not guaranteed but

• We are introducing a Dec-10 price target of €45 (13% upside) based on

EVS Broadcast Equipment SA (EVSB.BR;EVS BB)

Organic growth at Intertek has accelerated to 3% (from 1% in H2 FY09) Business Services

• 2010 organic growth outlook maintained, but appears increasingly 1,000

• Increasing estimates, FY10E +2%, FY11E +3% – to reflect higher

Intertek Group (ITRK.L;ITRK LN)

highlighted a solid deal pipeline of migration opportunities for 2011,

• According to the pre-close statement, FY 2010 revenues are c.$432m

• The Borland and Compuware acquisitions have been integrated rapidly,

Micro Focus (MCRO.L;MCRO LN)

Overall, Q1 2010 performance was ahead of expectations, although Toll Roads

• Toll revenues increased by 15.8% to €708m vs. our expectations of

• After several quarters of pain, Banco Popolare finally reported a Banks

understand. Reported Q1 net income of €77mln (o/w BP €10mln (44-20) 7325-1579

consolidation of Italease from July 09. J.P. Morgan Securities Ltd.

• Provisions of 74bps (€176mn) came slightly below our 75bps

• Britvic reports H1 results on Tuesday 18th May. Beverages

Britvic Plc (BVIC.L;BVIC LN)

• Investment thesis and valuation: In our view, Computacenter can

• Airbus break even – Airbus delivered EBITA of €7m (JPMe €-18m)

• Signs of order improvement – EADS booked €14.4bn of new orders

• €1bn of cash burn – driven by inventory build (a w/c outflow of

• Problem contracts – while the A380 was named as continuing to

• Conference call – 11am (CET) dial in +4969710491413.

• Garanti bank reported strong Q1 net profit of TRY 1085mn, Banks

• Revenue for FY10E is expected to be ahead of the FY09A level of

• SABMiller reports FY2010 results on 20th May (this Thursday). Beverages

• Remain Overweight. SABM trades on 13.7x CY2011E PER, a 6%

SABMiller plc (SAB.L;SAB LN)

0611; USA +1 (1) 866 291 4166. (44-20) 7155 6624

• We believe these acquisitions are likely to dilute margins a little in

• Forex is becoming significantly more unhelpful for 2011E. If rates stay

• Valuation: EV/EBITDA 2010E of 17.4x, 2011E 15.2x, 2012E 13.7x.

growth and a 10bps decline in margins in the quarter (to 200bps). As

• The 2010-2012 strategic plan targets a net profit of €250m (vs a

• Finally, the banking business should see a rebound in results to €50m

• The new strategic plan seems ambitious particularly in the life

• The challenge will be to achieve all the underwriting improvements