JPM__May_19_2010_O&G

Europe Equity Research 17 May 2010

EMEA First to Market

Top Research for Monday, 17 May 2010

Head of European Equity Research

Jose M. Linares, CFAAC

(44-20) 7325-4476 [email protected]

J.P. Morgan Securities Ltd.

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 mayhave a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making theirinvestment decision.

Rating Changes Company New Rating Old Rating Upgrades Royal Dutch Shell B OW N

Price Target Changes

Price Target

Company Rating New Old Introductions BG Group OW 1,425p NA BP OW 675p NA EVS OW €45.00 NA Micro Focus OW 590p NA Northumbrian Water N 285p NA Pennon N 535p NA Royal Dutch Shell B OW 2,050p NA Severn Trent OW 1,275p NA United Utilities OW 580p NA

J.P. Morgan EPS Estimate Changes Current FY Next FY Company New Old New Old Increases BG Group 76.94p 74.89p 84.31p 84.15p Intertek 89.14p 87.72p 100.39p 97.82p Micro Focus $0.60 $0.59 $0.68 $0.67 Royal Dutch Shell B $2.95 $2.66 $3.55 $3.55 Severn Trent 104.86p 101.98p 86.76p 86.11p Decreases EVS €2.21 €2.82 €2.27 €2.66 Revisions BP $1.06 $0.99 $1.11 $1.19 Northumbrian Water 24.48p 23.89p 23.92p 24.04p Pennon 37.38p 36.56p 36.89p 38.30p United Utilities 64.04p 59.71p 38.38p 39.86p

The extracts are from recently published research. For additional information on each stock's investment thesis, including full disclosure, please contact your sales person, the covering analyst's team or MorganMarkets

Integrated Oil and Gas Investor concerns on exploration risks masking long term commodity positives. Upgrading RDS to OW (Fred Lucas) • Macondo incident has highlighted risks to deep water exploration in investors’ minds. • Longer term positives for oil prices have been less accepted. Brent Dec 18 now >

$98/bbl, 23% > spot. Low P/Es have fallen, eg BP 7.8x ’10E; DY risen, eg BP 7%. • 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 but view that core OPEC oil price tolerance c$10 higher than prev thought, interest rates likely to stay lower for longer, breakdown in –ve correl between $/ and oil price, higher marginal supply risk prem from Macondo, maths of ytd avg of Brent at $79.7.

• RD Shell: OW (N); TP 2050p =>15% upside; new oil f/c reduces ’10E –ve CF, lifts ’10E EPS by 11% to $2.95 (vs cons $3.00), offers highest YoY EPS growth, lowest consensus risk.

• New price assumptions lift ’10E EPS Chevron 17%, RDS 11%, BP 7%, BG 3% and Exxon Mobil 2%.

• BG Group P/E 13x vs Woodside (closest peer) > 20x. We feel parity with WDS is fair. BP’s yield, P/E almost equal - rare - last time it occurred (Q109), o/p followed.

European Banks Commercial Banks and regulatory change – see 200bps upside to sector ’11E RoNAV from LLP normalisation – see SG, UCG, HSBC attractive and well placed (Francesca Tondi) • Report guides on IASB proposed acctg chgs, key issues in NPL recog, provisioning

for European Commercial Banks, modelling theoretical impact on sustainable return. • IASB draft suggests moving to Expected Loss model (vs current Incurred Loss

model), recognising LLP earlier and avoiding under-provisioning in “good times”. Using EL model JPMC sees sector LLPs at 78bps vs 30bps in past good years ’05-07, but lower than 101bps in formal JPMC ’11 company models.

• Using EL LLP, JPMC derives “normalized” ’11E sector RoNAV 14% (vs 12% forecast in JPMC co models), attractive given current 1.1x P/NAV.

• French, Italians most attractive on normalised RoNAV: RoNAV, P/NAV SG 17%, 0.9x; BNP 16%, 1.1x, UCG 14%, 0.9x; ISP 17%, 1.1x NAV; also HSBC 18%, 1.6x.

• Pressure for consistency in NPL ratios, minimal reserve coverage implies theoretical reserve shortfall €102bn for sector. Gap largest for Irish, UK, Greek, German. Closing over 5yrs wd reduce norm RoNAV by JPMCe 230bp esp for those with largest gaps.

UK Water Trading at RAV, with supportive newsflow. UU, SVT preferred (Edmund Reid) • JPMC reiterates +ve view on UK Water sector; ltd regulatory risk as next review not

until ’14, cos have revenue visibility => clear/sustainable 5yr div policies; asset base 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).

• Cos’ debt mostly fixed/index linked with long duration (4 cos’ debt portfolios’ avg maturity ranges 19-25yrs) thus insulated (operationally) from credit mkt deterioration.

• Severn Trent: OW; TP 1,275p => 13% upside. 1.5% discount to Mar-11E RAV, ’10/11E div yield 5.8%. We expect reassuring results on 28 May and final dividend of 44.1p should be supportive for the share price.

http://www.morganmarkets.com/

2


Jose M. Linares, CFA (44-20) 7325-4476 [email protected]

• 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.

3



Contents Estimate & Price Target Changes ▼EVS €39.74 Overweight Daud Khan (44-20) 7155 6125 Long awaited upturn in Studio offset by weaker OB market and lower margin structure. Reducing estimates.

▲Intertek 1,480p Overweight Kellie McAvoy (44-20) 7155 6645 Q1 IMS - organic growth ahead, upgrading FY10E EPS by 2%, FY11E +3%

▲Micro Focus 509p Overweight Stacy Pollard (44-20) 7155 6124 Upgrades following solid pre-close statement

Company Updates Atlantia €15.16 Overweight Elodie Rall (44-20) 7155 6659 Q1 2010 results - ALERT

Banco Popolare €4.19 Overweight Francesca Tondi (44-20) 7325-1579 Q110 Results, finally a set of clean, solid numbers - ALERT

Britvic 470p Overweight Matthew Webb (44-20) 7155 6154 H1 results preview

Computacenter 334p Overweight Stacy Pollard (44-20) 7155 6124 Q1 IMS: Product stronger, Services a little weaker, Outlook solid. - ALERT

EADS €15.40 Neutral John Middleton (44-20) 7155 6126 Breakeven in Q1 - ALERT

Garanti YTL6.95 Overweight Paul Formanko (44-20) 7325-6028 Strong Q1 results. Robust volumes, improving collections. Margins holding up well- maintain OW - ALERT

IntesaSanpaolo €2.30 Overweight Francesca Tondi (44-20) 7325-1579 Q110 Results - Lower costs and LLP more than offset still tough revenue trends - ALERT

Renishaw 680p Neutral Richard Paige (44-20) 7155 6747 Strong Q3 IMS; significant upgrades (35%+) to consensus expected - ALERT

SABMiller 2,051p Overweight Matthew Webb (44-20) 7155 6154 Remaining positive into FY results

Sonova Holdings AG SF 130.10 Neutral David Adlington (44-20) 7155 6624 FY2010 results preview - ALERT

UBI €8.47 Neutral Francesca Tondi (44-20) 7325-1579 Q1 10 Results, weaker trends but asset quality better - ALERT

Unipol €0.73 Underweight Andreas de Groot van Embden (44-20) 7155 6688 1Q 2010 results & 2012 strategic plan - Underweight - ALERT

Sector Updates Banks Francesca Tondi (44-20) 7325-1579 European banks: Asset quality: Assessing the impact of regulatory changes

Banks Carla Antunes da Silva (44-20) 7325-8215 UK Banks: Asset Quality: Assessing the impact of regulatory changes - ALERT

Insurance Duncan Russell, CFA (44-20) 7325-4831 European insurance: Update on here are the numbers and sovereign risk - Post 1Q 10

Integrated oil & gas Fred Lucas (44-20) 7155 6131 Big oil back in the firing line: Raising 2010 oil price, reducing 2010-12 US gas price, upgrade RDS to OW

Oil Services & Equipment Amy Wong (44-20) 7325-9460 Seismic Sector Update: Focus on decommissioned marine vessels

Water Edmund Reid (44-20) 7155 6676 UK Water: Fundamentally attractive, trading at RAV with supportive newsflow

Strategy M&S pension funding deal Peter Elwin (44-20) 7155 6404 Trustees allow for asset appreciation since March 2009

Economics Global Data Watch Bruce Kasman (1-212) 834-5515 From liquidity crisis to existential angst

Key: ▲= Upgrade; ▼ = Downgrade

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

Integrated oil & gas

Fred LucasAC

(44-20) 7155 6131 [email protected]

Jessica Saadat (44-20) 7155 6636 [email protected]


For Specialist Sales advice, please contact Hamish W Clegg (44-20) 7325-0878 [email protected]

BG Group vs Woodside PER (x)

BG./BG.(F1FD12) 14/5/10

2004 2005 2006 2007 2008 20095

10

15

20

25

30

35

BG./BG.(F1FD12)A:WPLX/A:WPLX(F1FD12)

Source: Thomson Datastream

Source: Datastream

BP's PER / Yield ratio vs price relative performance

BP.(PE)/BP.(DY) 14/5/10

2001 2002 2003 2004 2005 2006 2007 2008 20090

1

2

3

4

5

6

7

8

9x10-2

8.00

8.50

9.00

9.50

10.00

10.50

11.00

BP.(PE)/BP.(DY)BP./OILINUK(R.H.SCALE)

Source: Thomson Datastream

Source: Datastream.

• Big oil is back in the firing line. The Macondo well incident in the Gulf of Mexico has raised investor concerns that big oil will face more challenged access to attractive deep water exploration opportunities, higher costs and higher operating taxes. In our view, investors have been quick to see more risk and higher costs in deep water exploration, but slower to accept the longer-term positive consequences for the oil price. We note the Brent Dec-2018 futures price is now above $98/bbl, 23% above the spot price that dominates investor sentiment. Already low PE multiples have fallen further, dividend yields have risen, in certain names to extremes. We continue to see attractive value in this sector.

• Raising 2010E oil price to $80 per barrel - We typically revise our macro assumptions in Q2 – waiting for the inventory picture following the winter heating period and, ideally, a disruption to macro trends to reset 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 gas price forecast 2010-12. Our higher oil price in 2010 is not induced by a change to near term supply/demand fundamentals, which have only improved slightly relative to our prior expectations (note that since December, the IEA’s global growth estimate has increased from 1.34 to 1.62 million bopd, but its expected call on OPEC supplies has actually fallen). Instead, it more reflects (i) evidence that core OPEC's oil price tolerance is perhaps $10 per barrel higher than we thought (ii) the prospect of lower interest rates for longer, following the Greek debt crisis, ought to reduce economic growth risk whilst sustaining oil market speculative long positions for longer (iii) an unexpected break down in the negative correlation between the dollar and the oil price (iv) a higher marginal supply risk premium resulting from Macondo (v) the simple arithmetic 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 2010 negative cash flow and raises our 2010 EPS by 11%. On our estimates it now has the highest YoY EPS growth (+63%) and smallest 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.

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.


European banks

Asset quality: Assessing the impact of regulatory changes

Banks

Francesca TondiAC


Andrea Unzueta (44-20) 7325-7454 [email protected]


For Specialist Sales advice, please contact: Justine Shih (44-20) 7779 2149 [email protected]

Nick Gough (44-20) 7325-9459 [email protected]

Oliver Doeltl (44-20) 7779-2187 [email protected]

In this report we provide an “all you need to know” guide on NPL recognition and provisioning for European Commercial Bank,s also in the context of the proposed accounting changes. The IASB proposes to change from an “Incurred Loss Model” to an “Expected Loss Model”, effectively suggesting the recognition of provisions from when a loan is originated. This is intended to promote more conservative accounting and avoid under provisioning in “good times”. This may help reduce earnings volatility with potentially positive impacts on risk premium and valuations in our view. 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 reported in past “good years” (avg. 2005-07) but also lower than the 101bps we have in our 2011 models. • Using our EL LLP, we calculate a "normalised" 2011E RoNAV of

14% for the sector, c.200bp better than the current 12% we have in our models for 2011; and attractive given the current low 1.1x P/NAV11E multiple for the sector, as shown in the table below.

• Based on “normalized” RoNAV levels, we believe French and Italian banks are the most attractive. Preferred names are Soc Gen (17% normalized RoNAV and 0.9x P/NAV, OW), BNP (16% normalized 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

RoNAV 11E Normalized

LLps Normalized RoNAV 11E P/NAV (x)

Normalized EPS (€)

Normalized P/E (x)

Reserve Shortfall €mn

Additional LLPs bps

Impact on 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


UK Water

Fundamentally attractive, trading at RAV with supportive newsflow

Water

Edmund ReidAC


Richard Stuber (44-20) 7155 6677 [email protected]


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.

UK water vs FTSE All Share WATERUK/FTALLSH

FROM 11/5/00 TO 13/5/10 WEEKLY

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.08

0.10

0.12

0.14

0.16

0.18

0.20

0.22

0.24

0.26

0.28

0.30

HIGH 0.28 16/10/08 LOW 0.08 7/ 9/00 LAST 0.19Source: Thomson Datastream

Source: Datastream

March 2011E premium (discount) to RAV

1.7%

0.4%

-1.5%

0.7%

Northumbrian Pennon Severn Trent United Utilities

Source: J.P. Morgan estimates.

• The UK water sector has given up much of its Q1 outperformance vs the market over the last six weeks. We believe that this has been largely driven by an absence of newsflow following trading updates at the end of March.

• In our view, the fundamentals of the UK water sector remain strong due to: limited regulatory risk following the 2009 regulatory review; revenues linked to UK RPI which continues to surprise on the upside; and a strong financing position with most of the companies’ debt fixed and long duration.

• We are about to enter a period of heavy newsflow for the UK water companies: all the companies are due to announce full year results over the next three weeks and we expect EDF to finalise the sale of its UK electricity distribution networks by the end of June.

• The companies are likely to announce their final dividends for 2009/10 with the results and we expect the yields on the final dividends alone to be between 3.0% and 4.5%, which should be supportive for the share prices.

• We think that EDF's UK networks are likely to be sold at 10% plus EV premium to RAV. We believe that if a sale is agreed at that price, there will be a positive read across to the UK water companies which are currently trading in line with March 2011E RAV.

• We retain our Overweight recommendations for Severn Trent and 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 March 2011 target price of 1,270p and a 2010/11E dividend yield of 5.8%.


EVS

Overweight EVSB.BR, EVS BB

Long awaited upturn in Studio offset by weaker OB market and lower margin structure. Reducing estimates.

Price: €39.74

Price Target: €45.00

IT Hardware

Daud KhanAC



30

40

50

€

May-09 Aug-09 Nov-09 Feb-10 May-10

Price Performance

YTD 1m 3m 12m Abs -13.9% -8.0% -4.7% 15.8%

EVS Broadcast Equipment SA (EVSB.BR;EVS BB)FYE Dec 2009A 2010E

(New)2010E

(Old)2011E

(New)2011E

(Old)2012E

Adj. EPS FY (€) 1.88 2.21 2.82 2.27 2.66 2.94Bloomberg EPS FY (€) 1.88 2.61 2.69 4.08Revenue FY (€ mn) 77 93 99 95 98 114EBIT FY (€ mn) 37 44 55 43 52 56EBIT margin FY 48.7% 46.6% 55.1% 45.5% 52.5% 49.5%DPS (Gross) FY (€) 2.48 2.73 3.00 1.33EV/Revenue FY 6.3 5.2 5.1 4.2EV/EBITDA FY 12.3 10.4 10.5 8.1Adj P/E FY 21.2 18.0 14.1 17.5 14.9 13.5Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data Price (€) 39.74Date Of Price 13 May 10Price Target (€) 45.00Price Target End Date 31 Dec 1052-week Range (€) 53.42 - 32.10Mkt Cap (€ bn) 0.5Shares O/S (mn) 14

• Following Q1 results we are reducing estimates to reflect the continuing shift in the balance of the business towards the studio market and the softer demand in the OB market in the near term. Due to the larger contract nature of the studio market, gross margins are likely to be lighter going forward and the growing product portfolio is leading to increased investment in R&D and distribution. We remain comfortable with the long term growth story hinged on the growing adoption of HD, the shift to tapeless workflows and the increasing number of distribution channels.

• 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 believe this new model structure represents a base model which should have room for outperformance. We also introduce FY 12 estimates with revenue of €114m and EPS of €2.94.

• 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.


Intertek

Overweight ITRK.L, ITRK LN

Q1 IMS - organic growth ahead, upgrading FY10E EPS by 2%, FY11E +3%

Price: 1,480p

Price Target: 1,780p

Business Services

Kellie McAvoyAC


Robert Plant (44-20) 7155 6141 [email protected]

Michael Morris (44-20) 7155 6164 [email protected]

Victoria Prior (44-20) 7155 6166 [email protected]


1,000

1,200

1,400

1,600

p


Price Performance

YTD 1m 3m 12m Abs 17.9% 1.1% 25.7% 36.2%

Intertek Group (ITRK.L;ITRK LN) FYE Dec 2009A 2010E

(Old)2010E

(New)2011E

(Old)2011E

(New)Adj. EPS FY (p) 81.51 87.72 89.14 97.82 100.39Revenue FY (£ mn) 1,237 1,310 1,333 1,390 1,421Operating profit FY (£ mn) 209 222 225 241 246Operating margin FY 16.9% 16.9% 16.9% 17.3% 17.3%Pretax Profit Adjusted FY (£ mn)

192 206 209 230 235

Pretax Profit Reported FY (£ mn)

169 191 194 215 220

Net Income adjusted FY (£ mn)

131 140 142 156 160

DPS (Net) FY (p) 26 28 28 31 31Net Yield FY 1.7% 1.9% 1.9% 2.1% 2.1%Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data Price (p) 1,480Date Of Price 13 May 10Price Target (p) 1,780Price Target End Date 31 Dec 1052-week Range (p) 1,576 - 988Mkt Cap (£ bn) 2.72Shares O/S (mn) 184

Organic growth at Intertek has accelerated to 3% (from 1% in H2 FY09) in the first four months of 2010. The management continues to expect FY organic growth in-line with FY09 (+3.5%). However, given the company's conservative track record on guidance, the easier H2 comparatives and strong first four months, we are increasing our FY10E organic growth to 4.5% (from 3.5%). As a result of this and recent positive fx moves (eg the US dollar), we are raising our FY10E EPS by 2% (to 89.1p) and FY11E by 3% (to 100.4p). We remain Overweight.

• Q1 organic growth ahead at +3% – organic growth in the first four months of FY10E has accelerated to 3%, from 1% in H2 FY09 and ahead of our f/c of 1%. Reported sales were broadly flat YoY, but we expect the fx headwind which was behind this to turn positive in the coming months, particularly given recent moves.

• Margin to remain broadly stable – at this stage, the operating margin is down YoY due to lower toy volumes at Consumer Products and the FY guidance is for a broadly stable margin, in-line with our forecasts (Reuters consensus implies a YoY decline).

• 2010 organic growth outlook maintained, but appears increasingly conservative – Intertek expects FY10E organic growth to reach a similar level to FY09's 3.5%. However, we feel that the risks to this lie firmly on the upside in view of the strong H1 showing accelerating 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.


Micro Focus

Overweight MCRO.L, MCRO LN

Upgrades following solid pre-close statement

Price: 509p

Price Target: 590p

Software & IT Services

Stacy PollardAC



300

400

500

p


Price Performance

YTD 1m 3m 12m Abs 11.7% -2.7% 9.4% 27.3%

Micro Focus (MCRO.L;MCRO LN) FYE Apr 2009A 2010E

(Old)2010E

(New)2011E

(Old)2011E

(New)Adj. EPS FY ($) 0.42 0.59 0.60 0.67 0.68Revenue FY ($ mn) 275 427 432 479 486Adj EBITDA FY ($ mn) 119 171 173 194 198Adj EBITDA Margin FY 43.2% 40.0% 40.1% 40.5% 40.6%EBIT FY ($ mn) 91 104 108 172 177Pretax Profit Adjusted FY ($ mn)

106 143 147 168 173

Net Income adjusted FY ($ mn)

85 72 122 123 141

Net Income FY ($ mn) 66 75 126Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data Price (p) 509Date Of Price 13 May 10Price Target (p) 590Price Target End Date 01 May 1152-week Range (p) 550 - 301Mkt Cap (£ bn) 1.03Shares O/S (mn) 203

Following the company's solid pre-close statement, we are upgrading our earnings estimates by 2.4% for 2010E and 2.8% for 2011E. This reflects 1-2% upgrades at the revenue level, and earlier than expected margin achievements from the Borland and Compuware acquisitions.

• Licences grew slightly in H2, and we would hope to see this accelerate as the macroeconomic environment improves. Management highlighted a solid deal pipeline of migration opportunities for 2011, which helps underpin our increases in revenue growth for this year.

Table 1: Summary of model changes $m 2010E % change 2011E % change 2012E % change Revenues 432.4 1.3% 486.5 1.6% 518.5 1.4% 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% 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% 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.

119 137

72 123


Atlantia

Overweight ATL.MI, ATL IM

Q1 2010 results - ALERT

Price: €15.16

14 May 2010

Toll Roads

Elodie RallAC


Andy Jones (44-20) 7325-1622 [email protected]


Overall, Q1 2010 performance was ahead of expectations, although various exceptional items and an IFRIC 12 restatement make tracking the underlying changes more difficult. Revenues are in line with expectations (up 8.8% vs. our expectations of 8.1%), since the company had previously reported its traffic increase in Q1-10, but the underlying increase in EBITDA of 8.9% is higher than expected (JPMCe 2.5%) due to the company's cost control efforts in Q1-10. 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.


Banco Popolare

Overweight BAPO.MI, BP IM

Q110 Results, finally a set of clean, solid numbers - ALERT

Price: €4.19

14 May 2010

Banks

Francesca TondiAC




• After several quarters of pain, Banco Popolare finally reported a set of results which showed a clean profit, and was easy to understand. Reported Q1 net income of €77mln (o/w BP €10mln and Italease €-23mln), was above our €34mn estimates. This was mostly explained by higher trading contribution, although all lines (NII, Fess, costs, LLP) were actually a bit better than we expected. Note numbers are not fully comparable on a YoY basis, due to the consolidation of Italease from July 09.

• 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.


Britvic

Overweight BVIC.L, BVIC LN

H1 results preview

Price: 470p

Price Target: 515p

Beverages

Matthew WebbAC


Mike J Gibbs (44-20) 7325-1205 [email protected]


Natasha Cobden (44-20) 7325 3092 [email protected]

250

350

450

p


Price Performance

YTD 1m 3m 12m Abs 11.6% -0.6% 10.8% 70.5%

Britvic Plc (BVIC.L;BVIC LN) FYE Sep 2008A 2009A 2010E 2011E 2012EAdj. EPS FY (p) 24.76 29.87 36.02 40.15 44.34Adj P/E FY 19.0 15.7 13.0 11.7 10.6Revenue FY (£ mn) 927 979 1,018 1,069 1,106EBIT FY (£ mn) 97 110 126 138 148EBITDA FY (£ mn) 139 153 170 184 187Net Income FY (£ mn) 53 64 77 86 95FCF Yield FY 6.7% 7.7% 5.7% 7.4% 8.4%EV/EBITDA FY 10.6 9.6 8.7 8.0 7.9Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data Price (p) 470Date Of Price 13 May 10Price Target (p) 515Price Target End Date 01 Mar 1152-week Range (p) 498 - 253Mkt Cap (£ bn) 1.02Shares O/S (mn) 216

• Britvic reports H1 results on Tuesday 18th May.

• We understand from the company that our EBIT forecast of £38.6m is in line with consensus, so we do not expect any great surprises tomorrow.

• It is important to remember that H1 is a small half, accounting for less than 30% of annual EBIT in FY2009. This is because it covers the period October–March (inclusive). Although this includes the seasonal high point of Christmas (and also, on this occasion, Easter), demand for soft drinks is of course lower than in the summer months.

• H1 is therefore highly geared to changes in the top line. We expect this to be evident in this period following the extremely strong Q1 performance (sales up 11%; GB sales up 15%).

• Specifically, we expect 6% top line growth in H1 to translate to 8% growth in brand contribution, 21% EBIT growth and 38% EPS growth.

• If our H1 forecasts are accurate, Britvic would “only” have to grow sales by 2% and EBIT by 12% in H2 to meet our full year forecasts, which are 4% above (Bloomberg) consensus of 34.5p at the EPS level. 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.


Computacenter

Overweight CCC.L, CCC LN

Q1 IMS: Product stronger, Services a little weaker, Outlook solid. - ALERT

Price: 334p

13 May 2010

Software & IT Services

Stacy PollardAC



Computacenter Q1 revenues were up 8% LFL to £616m. Product demand in particular has clearly rebounded in Q1, but the slower Services revenue growth is below what we would have hoped – although it is expected to improve as the year progresses. Product grew 9%, or 12% LFL (excluding disposals and acquisitions), while Services grew 2%. Q2 is seeing similar 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.


EADS

Neutral EAD.PA, EAD FP

Breakeven in Q1 - ALERT

Price: €15.40

13 May 2010

Aerospace and Defence

John MiddletonAC


Robert Owens (44-20) 7155 6629 [email protected]


• Break even in Q1 - Operating profit of €83m (JPMe €77m; Cons €211m, 1Q09 €232m) was in line with JPMe, but below the Bloomberg consensus. EPS of €0.13 was comfortably ahead (JPMe €0.02; Cons €0.04; 1Q09 €0.21) due to €130m positive other financial result.

• Outlook – Management stated they were, “cautiously optimistic that our industry is slowly on its way back up”. Guidance for €1bn of 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 issues with the A380 continue to weigh on the profitability of the business. EADS continues to expect deteriorating hedge rates to impact profits by €1bn yoy due to a 10c yoy reduction in the average hedge 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.

For Specialist Sales advice, please contact: Timm Schulze-Melander, CFA (44 20) 7325-3282 [email protected]

mailto:[email protected]

CEEMEA Equity Research 14 May 2010

Garanti

Overweight GARAN.IS, GARAN TI

Strong Q1 results. Robust volumes, improving collections. Margins holding up well- maintain OW - ALERT

Price: YTL6.95

14 May 2010

Banks

Paul FormankoAC


Rohit Nigam (44-20) 7325-0803 [email protected]


• Garanti bank reported strong Q1 net profit of TRY 1085mn, increasing 16% qoq and 23% above JPMe(881mn). The beat was driven by higher than expected NII (on back of stable NIM), higher other income (increased provision reversals) and lower provisions (22% below JPMe). Key positives were above sector average volume growth (+9% qoq net loan growth- highest in the sector along with Yapi Kredi) and favorable margin evolution (20bps NIM decline vs 50-70 for peers). As highlighted in our previous note, we remain 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)


IntesaSanpaolo

Overweight ISP.MI, ISP IM

Q110 Results - Lower costs and LLP more than offset still tough revenue trends - ALERT

Price: €2.30

13 May 2010

Banks

Francesca TondiAC




Figure 1: ISP P/NAV in last 10 years

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Bloomberg

Figure 2: ISP RoNAV, improving %

0%5%

10%15%20%25%30%35%

2002

2003

2004

2005

2006

2007

2008

2009

2010

E20

11E

2012

E

Source: J.P. Morgan estimates, Company data.

• ISP reported a good set of Q1 results, with profits of c. €688mn vs our €564mn estimate and €551mn consensus. Excluding €86mn of tax benefits, €16mn of integration costs, €28mn income on discounted operations and €92mn of PPA charges, we calculate clean net income of €673mn, still 6% above our €634mln clean estimate. With pre provision profit coming fairly in line with our numbers, the beat was mainly explained by lower than expected provisions. This is equivalent to €0.05 clean EPS which still supports our FY10 forecast of €0.24, assuming some 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 importantly, was up 14% QoQ and 12% YoY, showing that the group's earnings are progressing as good cost trends more than offset weak revenues in Italy, a trend that we see continuing for ISP especially.

• NII of €2.4bn coming 2% below both our estimates and consensus driven by slightly lower loans (-1%QoQ) and an 8bps contraction of margins to 170bps, which was expected. On this front, management pointed out c. €430mn benefits from hedging in the quarter, which are to remain in place till 2012, as hedging has been extended and should support NII while interest rates remain low.

• Fees of €1.4bn also came 1-2% below expectations, though with a still 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).

• Costs came better than expected at €2,247mn (vs. €2,280mn estimate, -12%QoQ), mostly due to staff reduction and the completion of the amortization plan in 2009.

• Provisions of 81bps, came below our 90bps estimate and 114bps in Q4, with NPLs up 3%QoQ (vs. 10%QoQ in Q4), though with deterioration trends clearly decelerating (inflows down by 25%QoQ). We would note that most of the QoQ increase is due to a c. €800mln loan that has been restructured and is performing well (though still classified) and thus requires no provision.

• 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.


Renishaw

Neutral RSW.L, RSW LN

Strong Q3 IMS; significant upgrades (35%+) to consensus expected - ALERT

Price: 680p

12 May 2010

UK Small/Mid Cap Capital Goods

Richard PaigeAC



• Renishaw’s Q3 IMS states that group profits for the year are expected to be “significantly ahead of current market expectations”. According to Bloomberg consensus estimates are for EPS of 20.8p (range 17.7p-23.5p) for FY10E and 30.7p (25.7p-36.5p) for FY11E. This compares with our current estimates of EPS of 22.0p and 32.5p.

• 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.


SABMiller

Overweight SAB.L, SAB LN

Remaining positive into FY results

Price: 2,051p

Price Target: 2,165p

Beverages

Matthew WebbAC


Mike J Gibbs (44-20) 7325-1205 [email protected]


For Specialist Sales Advice, please contact: Natasha Cobden (44-20) 7325 3092 [email protected]

1,000

1,600

2,200

p


Price Performance

SAB.L share price (p)MSCI-Eu (rebased)

YTD 1m 3m 12m Abs 10.9% 7.6% 22.2% 68.1% Rel 9.9% 11.9% 15.7% 41.0%

SABMiller plc (SAB.L;SAB LN) FYE Mar 2009A 2010E

(Old)2010E

(New)2011E

(Old)2011E

(New)Adj. EPS FY ($) 1.37 1.62 1.62 1.96 1.96Adj P/E FY 21.8 18.5 18.5 15.3 15.3Revenue FY ($ mn) 20,919 21,719 21,719 23,087 23,087Adj EBITDA FY ($ mn) 4,958 5,384 5,384 6,298 6,298EBIT FY ($ mn) 4,129 4,557 4,557 5,442 5,442Pretax Profit Adjusted FY ($ mn)

3,405 4,027 4,027 4,914 4,914

Net Income FY ($ mn) 2,065 2,531 2,531 3,107 3,107DPS (Net) FY (p) 58 63 63 70 70Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data Price (p) 2,051Date Of Price 13 May 10Price Target (p) 2,165Price Target End Date 01 Mar 1152-week Range (p) 2,090 - 1,189Mkt Cap (£ bn) 32.24Shares O/S (mn) 1,572

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

• In our view the main point of interest will not be the results themselves, where our forecasts are broadly in line with Bloomberg consensus.

• FY11 input costs a key focus. Our focus will instead be on the guidance for input costs in FY2011. We expect this to provide evidence that SABM 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 falling input costs, combined with ongoing price increases, and potentially growing volumes, would allow SABM to rebuild its gross margin.

• Moderate upside risks to FY10 results. With regard to the FY2010 results themselves, we see the risk being modestly to the upside. We see the scope for a positive surprise being largely in the margin, with input costs having moderated in H2 and SABM having continued to bear down on its operating costs.

• Focus on 1Q11 trends. We have already had volume data for the full year so there will be no surprises there. However, there should certainly be interest in whether the improved trends seen in fiscal Q4 have continued into the first quarter of FY2011. We think that some of the Q4 figures were unsustainably strong (notably South Africa), but that others will show clear improvement into FY2011 (notably the US). More broadly, we 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.


Sonova Holdings AG

Neutral SOON.VX, SOON VX

FY2010 results preview - ALERT

Price: SF 130.10

12 May 2010

Medtech & Services

David AdlingtonAC


Sally Taylor (44-20) 7155 6663 [email protected]


• Sonova reports FY10 results (y/e March) on 18 May at 7am CET. Conference call at 11am CET. EU +41 91 610 5600; UK +44 20 7107 0611; USA +1 (1) 866 291 4166.

• The company updated guidance on 18 February to organic sales growth of 17-18% and an EBITA margin of around 28%. It also held an analyst meeting at AudiologyNOW! on 15 April, and confidence from that meeting leads us to believe that there is more upside than 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.


UBI

Neutral UBI.MI, UBI IM

Q1 10 Results, weaker trends but asset quality better - ALERT

Price: €8.47

13 May 2010

Banks

Francesca TondiAC




UBI reported a mixed set of results with net income of €38mln comparing to our €43mln estimate, largely due to higher than expected taxes, but also with lower revenues and slightly higher costs. PBT of €137mn came above our €129mn estimate, due to better than expected provisions. Excluding PPA, clean net income of €59mln annualizes into €235mln and still some way away from our FY10 of €332mln, which implies at this point some quite aggressive progression.

• NII of €550mn came 2% below our estimates (-4%QoQ), with no volume 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.


Unipol

Underweight UNPI.MI, UNI IM

1Q 2010 results & 2012 strategic plan - Underweight - ALERT

Price: €0.73

12 May 2010

Insurance

Andreas de Groot van EmbdenAC



Dibin Korath (91-22) 6157-3275 [email protected]

J.P. Morgan India Private Limited

• Unipol today presents its 2010-2012 strategic plan together with the first quarter results. The results were lower than expected, with Unipol reporting a €7m loss vs our €18m profit estimate. Shareholders equity was more or less in line with our estimates at €3636m (we estimate an NAV per share of €0.74 per share).

• The 2010Q1 loss is mainly driven by a €38m pre-tax loss in non life on the back of a worse than expected 105% combined ratio (JPMCe €1m loss with 103.1% combined ratio). The combined ratio is worse 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.


UK Banks

Asset Quality: Assessing the impact of regulatory changes - ALERT

Banks

Carla Antunes da SilvaAC


Amit Goel, CFA (44-20) 7325-6924 [email protected]

Francesca Tondi (44-20) 7325-1579 [email protected]



For further details please refer to JPM ‘European Banks: Asset Quality – Assessing the impact of regulatory changes’ 17 May 2010

• This morning our European banking colleagues Francesca Tondi & Andrea Unzueta have published an in-depth report on asset quality, reviewing the impact of potential changes to provisioning requirements, as proposed by the IASB, and harmonising data across the European Union. A link to the note is provided below right; we highlight the main findings for the UK banks;

• 1. Changing accounting standards for provisioning - The IASB is proposing a move from 'incurred loss' provisioning to 'expected loss'. What this means is that rather than only taking a provision when there is evidence of impairment, banks may have to take a provision when a loan is originated, based on historical experience for that type of asset. If the loan then performs differently to expectation the provision is either added to or reduced. The table below shows the RoNAV if 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

provisions 2005-2007

average vs. 05-07 average

RoNAV 2006

RoNAV 2006 EL

2011E estimate

RoNAV 2011E

Resulting RoNAV

Normalized EPS

P/ NAV

P/E

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 attempted to harmonize the data to make it more comparable. As a result of this analysis we estimate that the UK banks need to increase reserve levels by £36.7bn from YE09 levels, which if it was done over 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;


European insurance

Update on here are the numbers and sovereign risk - Post 1Q 10

Insurance

Duncan Russell, CFAAC



Figure 1: SXIP Index price performance

130.0

150.0

170.0

1-Jan-10 1-Mar-10 1-May -10

sx ip index

Source: Bloomberg, Priced intraday 13th May 2010

• For the past year we have been publishing a data dump of the main balance sheet metrics and investments for the European insurance sector.

• In this note we update for the 1Q10 figures, where published.

• Where numbers are not disclosed (on Government bond exposures for example) we have made some estimates, all of which are detailed. For the Govt bond exposures we show both net and gross of policyholder (sometimes we have to make an estimate on the policyholder share) as 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 numbers (i.e. before policyholders) are also very relevant.

• This data is available in spreadsheet form.

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


Seismic Sector Update

Focus on decommissioned marine vessels

European Oil Services & Equipment

Amy WongAC


Andrew Dobbing (44-20) 7155 6134 [email protected]


For Specialist Sales advice, please contact: Hamish W Clegg (44-20) 7325-0878 [email protected]

Share price performances (USD adjusted) April 15

-25% -15% -5%

SBMOSUBTECTGSTRESPMFURPGS

CGGVBEUOILS

PFCACYWG

AmecAKSO

VK

Source: Bloomberg, c.o.b. 14-May-10

• We see demand continuing to improve in the seismic market but along with this renewed optimism come worries that old vessels in reserve could be brought back into the market. We recognize this threatens the supply and demand balance to the marine seismic market but we see the impact only at the lower end of the market, i.e. low-capacity vessels with less than 6 streamers. We summarize our thoughts following meetings with various personnel from the seismic companies, including CGG Veritas, TGS-Nopec, Fugro and BGP (subsidiary of Chinese National Petroleum Company). CGG Veritas continues to be our preferred pick in the sector 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 14.1x, a 12% discount to its long term average forward P/E 16.0x.

• Increasing evidence that upstream spending from oil and gas companies is increasing. Underpinning seismic spend are the exploration and development budgets from the oil companies. J.P. Morgan regularly produces the “Upstream Spending Survey.” Our comprehensive proprietary model of global organic upstream spending includes data from 71 oil and gas companies, including 10 NOCs, 12 IOCs and 49 independent oil 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 (previously +6.5%). The main reason for the increase in the expected 2010 growth is mainly driven by the actual spending in 2009 coming down from budgets as opposed to the revision of previously announced 2010 budgets which typically occurs later in the year. Applying the historical relationship between upstream spend (based on our updated survey) and growth in seismic industry revenues suggests that 2010 revenues could increase by about 16% - this compares to consensus expectations of -6% y/y revenues for the industry (consensus based on Bloomberg and J.P. Morgan estimates).

Figure 1: Growth in seismic revenues tracks growth in exploration spend

2010E2009

20082007

20062005

20042003

y = 1.1755x - 0.0266R2 = 0.7442

-30%-20%-10%

0%10%20%30%40%50%

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35%

Upstream organic ex ploration and dev elopment spending Y/Y Grow th (%)

Seism

ic Re

venu

es Y

/Y G

rowt

h (%

)

Source: Company reports, J.P. Morgan estimates


M&S pension funding deal

Trustees allow for asset appreciation since March 2009

European Pensions Strategy

Peter ElwinAC



• This week Marks and Spencer Group announced a funding agreement with its UK pension scheme worth £800m to cover an actuarial deficit of £1.3bn (priced at 31 March 2009). We believe the Pensions Regulator has accepted the agreement.

• 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).

Global Data Watch

Economic ResearchMay 14, 2010

www.morganmarkets.com

• Dramatic policy actions in Europe are expected to contain sovereign cri-sis and limit spillover to European and global economies

• Revised Euro area forecast anticipates moderately slower growth andno ECB tightening through 2011

• Strong April activity data reaffirm China policy call for initial moves onFX and policy rates by midyear

Bruce Kasman(1-212) [email protected] Chase Bank NA

David Hensley(1-212) [email protected] Chase Bank NA

Joseph Lupton(1-212) [email protected] Chase Bank NA

From liquidity crisis to existential angstThis week delivered important constructive news on the policy front acrossEurope as actions were taken to stem the broadening crisis surrounding sover-eign debt. Most notable was the establishment of a European StabilizationMechanism (ESM), which represents a move by EU governments toward shar-ing the credit risk of countries being asked to implement large fiscal consolida-tions. As part of this plan, tightening packages on the periphery were increasedand a commitment was made to shore up the discipline of the Growth and Sta-bility Pact. For its part, the ECB agreed to buy sovereign debt for the purposeof stabilizing markets. Across the channel, a UK coalition government wasformed that proposed to deliver an emergency budget plan by the end of June.

Many details related to these initiatives are not yet available and there is imple-mentation risk. However, we believe these risks are modest in an environment inwhich policymakers recognize the dire consequences of a failure to act (see “TheEuropean Stabilization Mechanism,” J.P. Morgan European Rates Strategy Re-search, May 14, 2010). As such, there are three conclusions that should be drawnfrom this news regarding the path that Europe is set to follow.

• Euro area sovereigns will have access to financing through 2012, as long asthey remain on their fiscal austerity paths. Combined with the steps taken bythe ECB, the building liquidity crisis facing sovereigns and the spillover tobanks 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. Forecastrevisions this week represent a widening in both of these gaps.

• Rates will remain lower for longer at the ECB and Bank of England. Thecombination of an even more moderate economic recovery and extremely low

-6

-4

-2

0

2

4

6

99 01 03 05 07 09 11

%ch from prev year

Euro area GDP

Germany

SpainGreece

0

2

4

6

8

10

12

PRT GRC ESP FRA IRL DEU ITA

Change in primary net lending, 2009 to 2013

% of GDP; J.P. Morgan forecast

ContentsEconomic Research noteUS shift from pessimism gives a big lift to growth 11Central Europe: assessing the damage from EMU debt crisis 15Australia’s budget back in black by 2012-13 17

Global Economic Outlook Summary 4Global Central Bank Watch 6The J.P. Morgan View: Markets 7Selected recent research from J.P. Morgan Economics 10

Data WatchesUnited States 19Euro area 27Japan 33Canada 37Mexico 39Brazil 41Andeans 43United Kingdom 45Russia 49Turkey 51Australia and New Zealand 53China, Hong Kong, and Taiwan 57Korea 61ASEAN 63India 67

Regional Data Calendars 72

27



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 banking services in the next three months from BG Group, BNP Paribas, BP, HSBC Holdings plc, IntesaSanpaolo, Royal Dutch Shell B, Société Générale, UniCredit.

• Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other than investment banking from BG Group, BNP Paribas, BP, HSBC Holdings plc, IntesaSanpaolo, Royal Dutch Shell B, Société Générale, UniCredit. An affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from BG Group, BNP Paribas, BP, CGG Veritas, HSBC Holdings plc, IntesaSanpaolo, Royal Dutch Shell B, Société Générale, UniCredit.

• Broker: J.P. Morgan Securities Ltd. and/or an affiliate acts as Corporate Broker to BG Group.

Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on J.P. Morgan’s website https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)

https://mm.jpmorgan.com/disclosures/company

28



coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2010

Overweight (buy)

Neutral (hold)

Underweight (sell)

JPM Global Equity Research Coverage 45% 42% 13% IB clients* 48% 46% 32% JPMSI Equity Research Coverage 42% 49% 10% IB clients* 70% 58% 48%

*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative.

Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMSI, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMSI, and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

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29



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Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require that a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic

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updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

“Other Disclosures” last revised March 1, 2010.

Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan.

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