Alpha Pilot Small/Mid Cap

Transcription

1 October 11, 2012 Alpha Pilot Small/Mid Cap Same same, but different Estimate downgrades + mid-point valuation = creative stock-picking Portfolio suggestions combining value, GARP, yield and quality Almost time to bet against the negative revisions in consumer stocks

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3 Contents Table of figures 4 Key highlights 6 Valuation 11 Revisions 19 Quality 26 Implied sales growth 31 Multifactor models 34 Screening methodology 41 Disclaimer 43 Carl Grapenfelt cagr09@handelsbanken.se Elias Porse elpo03@handelsbanken.se This product combines consensus data and our own estimates, building on our work done in the Consensus Pilot and our Small/Mid and large cap pilots for Nordic stocks with a market cap below EUR 4bn and a daily liquidity of at least EUR 200,000. Jan Dworsky jadw01@handelsbanken.se

4 Table of figures Key highlights Quality yield screening (quality 70%, dividend yield 30% weight)... 8 Quality GARP screening (50% quality, 50% implied growth)... 8 HCM multifactor screening 1 (value 30%, yield 20%, quality 30%, growth 20%)... 9 HCM multifactor screening 2 (value 30%, yield 20%, rev. 10%, quality 40%) Valuation P/E, 12m forward and 12m trailing P/B and ROE, 12m forward Last 12m dividend yield vs. 10-year yield Dividend payout, next 12m vs. last 12m Next 12m EV/sales vs. 12m forward EBIT margin EV/S model 12m forward, top EV/S model 12m forward, bottom EV/S model 12m historical, top EV/S model 12m historical, bottom largest 2013e P/E appreciation, -3m (%) largest 2013e P/E declines, -3m (%) highest 2012 dividend yields (%) Payout ratio top lowest forward P/E lowest trailing P/E highest forward P/E lowest 12m forward P/B EV/S relative to EW, top decile EV/S relative to EW, bottom decile Div yielders relative to EW, top decile P/BV relative to EW, bottom decile Revisions HCMe EPS revision indicator EBIT margin outcome vs. expectations Sales growth expectations vs. outcome EPS growth trend Dispersion in EPS trend (median of universe) HCMe sales revision indicator Recommendation trend Figure 1: Proportion of companies with EBIT margin improvement Bottom e EPS revisions, -3m Top e EPS revisions, -3m Two-factor revision model, top Revision trends, bottom Sales revision ratio vs. EPS revision ratio Recommendation revision ratio vs. EPS revision ratio EPS revisions relative to EW, top decile Sales revisions relative to EW, bottom decile EPS + recommendation revision combo relative to EW, top decile EPS + recommendation revision combo relative to EW, bottom decile October 11, 2012

5 Quality 7-year average ROCE Top EBITDA margin stability Top EBIT margin stability Top Net debt/ebitda ranked by lowest for 2012e Net debt/ebitda ranked by highest for 2012e Biggest positive net debt/ebitda change in units since Biggest negative net debt/ebitda change in units since Lowest one-year (52w) beta Defensive quality screen (high ROCE, margin stability, low beta) top ROCE margin stability combo relative to EW, top decile Implied sales growth diff vs. CAGR e - top 25 (long screen) Implied sales growth diff vs. CAGR e - bottom 25 (short screen) Implied sales growth diff vs. 2014e - top 25 (long screen) Implied sales growth diff vs. 2014e - bottom 25 (short screen) Multifactor models Greenblatt top 25, forward Greenblatt bottom 25, forward Greenblatt top 25, historical Greenblatt - bottom 25, historical Handelsbanken s two-factor model (value + revisions), top 25 (forecasts) Handelsbanken s two-factor model (value + revisions), bottom 25 (forecasts) Handelsbanken s two-factor model (value + revisions), top 25 (history) Handelsbanken s two-factor model (value + revisions), bottom 25 (history) Three-factor model (value + revisions + quality) top 25, forward Three-factor model (value + revisions + quality) bottom 25, forward Three -factor model (value + revisions + quality) top 25, historical Three -factor model (value + revisions + quality) bottom 25, historical EV/S + revision combo relative to EW, bottom decile October 11,

6 Key highlights Our view remains generally the same, as we continue to argue that estimates are too high, but valuation levels have now reached mid-point making for an even more demanding stock-picking environment. The value normalisation we witnessed in early September came to a screeching halt in conjunction with QE3, implying that value alone is not enough. Leaning on revisions is also dangerous, as we see estimate dispersion widening. Recent profit warnings in Net Ent. and Betsson have painfully reminded us what happens when quality growth stocks disappoints, leaving us advocating a more defensive mix of value, quality, yield and GARP traits. A contrarian strategy would involve looking for decent yielding Greenblatt names that have already shown weakness. Many consumer stocks fit this bill, and we are on high alert as we approach a point when it is time to bet against the negative revision trend. Valuation levels have reached historical averages but are still attractive vs. bonds We remain convinced that the prevailing estimate pressure is here to stay Valuation Valuation multiples have expanded on the heels of rising markets and falling estimates, and now stand just shy of 15x 12-month trailing EPS. This has pushed the yield gap vs. long dated government bonds down towards 200bp, after peaking at 250bp in late spring, whereas the earnings yield gap has fallen to around 500bp from its 700bp peak. Equities still imply better fortunes relative to bonds, though multiples have normalised relative to the historical averages. This normalisation phase has proven the strongest among value stocks, which have sharply outperformed the market (8-10 p.p. from summer lows). However, whether using our normalised value approach (EV/S model) or low quality value approach, the cheapest names have underperformed the market following the QE3 announcement on September 13. This development is in line with the conclusions in our latest Small/Mid Cap Pilot, where we argued that investors should not play a strategy based solely on valuation factors. Revisions Estimates have remained under pressure, with our revision indicators deep in negative territory. We continue to argue that forecast changes will stay on the minus side, as expectations for 2013e still look exuberant. Just consider that the prevailing consensus forecasts imply margins improving 150bp on 3% of top-line growth or that 93% of the universe is expected to post margin improvements in Further to this, our screenings show earnings dispersion at extremely low levels, which suggests confidence in estimates. We find such a scenario very unrealistic and consequently expect dispersion to widen as we exit the reporting season and, hopefully, analysts take down 2013e estimates. We maintain our view that during this process it will be unusually difficult to find earnings upgrade candidates, while simply betting on the stocks currently seeing the best revision pattern is too risky. The revision factor (top decile) has in fact been flat since May, though recent weeks have shown some outperformance. The bottom decile has seen strong alpha generation lately, which in effect could spell trouble for the entire universe as downgrades have been punished. Quality Quality factors have shown an inverse pattern compared to value stocks. That is, this strategy underperformed until the QE3 announcement, and has outperformed since. We believe a combination of yield, GARP and quality should yield is best Conclusions The stock-picking environment is very tricky, as we foresee continued estimate pressure coupled with valuation levels at mid-point. We continue to argue that it is not as simple as buying value outright, but also find that the revisions factor carries unusually high risks. This leaves quality, and GARP characteristics, which we believe should be combined with value and dividend yield traits. However, as recent profit warnings in Focus List names Betsson and Net Entertainment have reminded us: it can be very painful when quality growth stocks disappoint. 6 October 11, 2012

7 Approaching an opportunity to bet against the revision trend within the consumer names Stock calls A contrarian strategy would involve looking for decent yielding Greenblatt names that have already shown weakness in both estimates and share prices. Consumer-related stocks dominate this category, as they are overrepresented in our Greenblatt-inspired rankings. In this sector, we are approaching a point when it is time to take a bet against the negative revision trend. Stocks which fit the bill include Axfood, Clas Ohlson, MTG, Bilia, Oriflame, Betsson, Ekornes, JM, Net Entertainment, CDON and Duni. We are therefore not exiting MTG, Betsson and Net Entertainment, which all have been downgraded recently (to ACCUMULATE), though we acknowledge that in the short term they remain triggerless and risk further de-rating. Additionally, these companies would be among the key benefactors from the proposed corporate tax cut in Sweden. When it comes to Oriflame, Clas Ohlson, Bilia, Duni and CDON, we are monitoring their performance closely, but are not prepared to include them in our Focus List just yet. Taking into account the above mentioned factor risks, we also highlight groupings of companies that reflect a particular style or combination thereof from a screening perspective, thereby leaving our subjectivity out of the equation. Below are some of the stocks that we think warrant highlighting, illustrating some of the difficulties that we face: Axfood a great bet if you are bearish Outotec and JM illustrate screening appeal vs. sentiment risk Axfood and Intrum Justitia screen among the most attractive when you combine high ROCE, margin stability, low beta, and dividend yield. Despite our EV/S model suggesting that these stocks look fair, we think they warrant a closer look. Axfood s bottom line could also see ~6% boost to EPS in 2013 given the proposed corporate tax cuts. Outotec score highly when we join value, quality and revision traits, but we believe that mining capex cuts will eventually bleed into sales in 2014, when we expect a 13% y-o-y drop. Do you trust the short-term revision trend, valuation and historical growth or should you be afraid of downgrades based on potential peak earnings multiples? JM looks very cheap, at 0.75x sales, given historical and forecasted profitability well above 10% and a 6% yield. In contrast, the secondary housing market is characterised by high supply and major home builders have seen bookings fall sharply, potentially signalling risk in the housing market. We are thus stuck between cheapness and sentiment risk again. HiQ among the best cases around we just wish the liquidity was greater HiQ (part of SHB Focus List) screens favourably using all our metrics apart from revisions, with an EV/S of <1x, stable EBIT margins (~15%), high returns, delivery of >10% top-line growth historically, and about a 7%. Further, it is a beneficiary of the proposed corporate tax cut. The only caveat is the size of the company and stock liquidity. The lower-quality value segment merits a mention, where asset plays Songa Offshore (part of SHB Focus List) and BW Offshore screen cheaply and did not bounce in line with stocks with a similar debt level. Patience is running out and the debt pile is cause for concern, but it is hard to argue that these stocks should remain so depressed. Our screenings imply profit-taking in Prosafe and FOE Take profit in Schibsted, B&O and Metsä Board Our oil service call from three months ago has played out nicely. From this junction, we note that the upside in our EV/S model in Fred Olsen is now rather limited, potentially prompting some profit taking. Prosafe screens negatively, with its estimates under pressure and its share trading at 5x sales, which also suggests good profit taking odds. We remain more optimistic on subsea and seismic names from a screening perspective. Schibsted has seen downgrades for over two years, but the share has completely decoupled from the estimate trend, which at the current valuation implies that the company would need to outgrow its historical track-record by almost 3x. Bang Olufsen and Mestsä Board look risky, with unstable profitability and poor ROCE, in addition to looking very expensive according to our EV/S model. October 11,

8 Screening various investment styles Quality yield screening (quality 70%, dividend yield 30% weight) 5.3% yield with 1% implied growth for this basket Intrum and Clas O knocking on Focus List door Is it finally time for Securitas to shine? Betsson PW vs. 6% yield and likely growth in 2013e Screening for overweights Mcap (EURm ) Perf - 3m (%) EBIT-margin (%) Share Pot. (%) Impl. Sales gr. (%) Growth EV/S Hist Fwd Implied Hist Fwd 5y CAGR e Div. yield 12e % HiQ Oriflame 1, Ekornes Axfood n.m Sw eco Intrum Justitia Duni Net Entertainment Elisa 2, Clas Ohlson Prosafe 1, Simcorp Securitas 2, Veidekke Axis 1, Mekonomen Indutrade Lundbeck 2, NCC 1, Betsson Beta TGS-Nopec 2, Royal Unibrew Fred. Olsen Energy 2, Unibet Group Pandora 1, n.m Average Source: Handelsbanken Capital markets (Quality defined as: 40% ROCE, 30% margin stability and 30% low beta) Quality GARP screening (50% quality, 50% implied growth) 4% yield, beta 0.9 with 1% implied growth for this basket Net Ent, Axis, HiQ, Betsson, KOG, MTG, and AF part of our Focus List Clas O again Consumer stocks ex Pandora have struggled Screening for overweights Mcap (EURm ) Perf - 3m (%) EBIT-margin (%) Share Pot. (%) Impl. Sales gr. (%) Growth EV/S Hist Fwd Implied Hist Fwd 5y CAGR e yield 12e % Net Entertainment HiQ Axis 1, TGS-Nopec 2, Pandora 1, Ekornes Sw eco Unibet Group Clas Ohlson CDON Group Betsson Kongsberg Gruppen 1, Oriflame 1, Modern Times Group 2, Hexpol 1, Lundbeck 2, Veidekke Indutrade Transmode Opera Softw are Simcorp Mekonomen DSV 3, Fred. Olsen Energy 2, AF-Group Beta Source: Handelsbanken Capital markets (quality defined as 50% ROCE. 40% margin stability and 10% Beta) 8 October 11, 2012

9 HCM multifactor screening 1 (value 30%, yield 20%, quality 30%, growth 20%) 5% yield, beta 1 with -1.4% implied growth for this basket If construction margins improve, the sector has scope to normalise Duni again Our screenings can t get rid of MTG and Axfood Screening for overweights Mcap (EURm ) Perf - 3m (%) EBIT-margin (%) Share Pot. (%) Impl. Sales gr. (%) Growth EV/S Hist Fwd Implied Hist Fwd 5y CAGR e Div. yield 12e % HiQ Ekornes Pandora 1, TGS-Nopec 2, NCC 1, JM 1, Veidekke Clas Ohlson Oriflame 1, Kongsberg Gruppen 1, Fred. Olsen Energy 2, Sw eco Konecranes 1, Securitas 2, Duni Outotec 1, Betsson Modern Times Group 2, Unibet Group Höganäs Beta Boliden 3, Hexpol 1, Tieto Net Entertainment Axfood 1, % yield, beta 1.2 with 12% implied growth for this basket Metsä Board and B&O screen poorly Nobia back at 0.5x sales Elekta needs to match historical growth for valuation to be fair Screening for underweights Mcap (EURm ) Perf - 3m (%) EBIT-margin (%) Share Pot. (%) Impl. Sales gr. (%) Growth EV/S Hist Fwd Implied Hist Fwd 5y CAGR e Div. yield 12e % Talvivaara Mining Co n.m n.m n.m Outokumpu 1, n.m n.m SAS n.m n.m Norske Skog n.m n.m Alk-Abello Metsä Board n.m Norw egian Air Shuttle n.m n.m Bang & Olufsen Lundin Mining 2, SSAB 1, n.m Chr. Hansen 3, Stockmann 1, Schibsted 3, Nobia BW Offshore n.m n.m D/S Norden KappAhl n.m Elekta 3, Petroleum Geo-Services 2, Archer AarhusKarlshamn 1, Songa Offshore Vestas 1, Amer Sports 1, Stora Enso 3, Beta Source: Handelsbanken Capital markets October 11,

10 HCM multifactor screening 2 (value 30%, yield 20%, rev. 10%, quality 40%) 5% yield, Beta 1 with -1.6% implied growth for this basket Axfood and MTG again Konecranes and Outotec the capital goods names Intrum and AF also makes the cut Screening for overweights Mcap (EURm ) Perf - 3m (%) EBIT-margin (%) Share Pot. (%) Impl. Sales gr. (%) Growth EV/S Hist Fwd Implied Hist Fwd 5y CAGR e Div. yield 12e % Ekornes TGS-Nopec 2, Oriflame 1, HiQ JM 1, Axfood 1, Pandora 1, Sw eco NCC 1, Duni Konecranes 1, Outotec 1, Securitas 2, Clas Ohlson Veidekke Fred. Olsen Energy 2, YIT 1, Tieto Kongsberg Gruppen 1, Modern Times Group 2, Beta Lundbeck 2, Höganäs Boliden 3, Intrum Justitia AF-Group % yield, Beta 1.2 with 12% implied growth for this basket New Wave, Songa and NKT value bets in our Focus list Christian Hansen in need of >15% growth assuming 25% sustainable margins AAK now trading in line with historical growth rates Screening for underweights Mcap (EURm ) Perf - 3m (%) EBIT-margin (%) Share Pot. (%) Impl. Sales gr. (%) Growth EV/S Hist Fwd Implied Hist Fwd 5y CAGR e Div. yield 12e % SAS n.m n.m n.m Talvivaara Mining Co n.m n.m n.m Norske Skog n.m n.m Outokumpu 1, n.m n.m Norw egian Air Shuttle n.m n.m Alk-Abello Metsä Board n.m Lundin Mining 2, Bang & Olufsen Archer Songa Offshore SSAB 1, n.m Stockmann 1, KappAhl n.m BW Offshore n.m n.m Vestas 1, Nobia Schibsted 3, D/S Norden New Wave Opera Softw are North Atlantic Drilling 1, n.m Chr. Hansen 3, Petroleum Geo-Services 2, AarhusKarlshamn 1, Beta Source: Handelsbanken Capital markets 10 October 11, 2012

11 Valuation Valuation multiples have expanded to a point just shy of 15x 12-month trailing EPS. This has pushed the yield gap vs. bonds down towards 200bp (250bp four months ago), while the earnings yield gap has fallen to around 500bp (700bp). Equities still imply better fortunes relative to bonds, but multiples have normalised relative to historical averages. This normalisation phase has proven the strongest among value stocks, which have sharply outperformed the market (up 8-10 p.p. from summer lows). However, the cheapest groupings (EV/S model and P/BV) have underperformed the market since the QE3 announcement on September 13, potentially marking the end of normalisation. We continue to argue that value cannot stand alone and needs support from quality, yield and GARP characteristics. P/E, 12m forward and 12m trailing <15x trailing EPS up from ~12x in May Forecast cuts set to drive further forward P/E expansion Next 12 months P/E Last 12 months P/E P/B and ROE, 12m forward 1.5x BV a touch below historical midpoint % 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% Next 12 months Price/Book (L) Next 12 months Return on Equity (R) October 11,

12 Last 12m dividend yield vs. 10-year yield 8.0% 7.0% Dividend yield gap of ~200bp % 5.0% 4.0% 3.0% 2.0% 1.0% Last 12 months Net Div Yield 10-Year Yield...but based on a payout ratio not seen since 2003, implying risk of forecast cuts Dividend payout, next 12m vs. last 12m 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% Next 12 months Div. Payout Last 12 months Div. Payout Next 12m EV/sales vs. 12m forward EBIT margin >10x forward EBIT, despite estimate risk % 12% 11% 10% 9% 8% 7% 6% 0.5 5% EV/Sales EBIT Margin Fwd 12 October 11, 2012

13 EV/S model 12m forward, top 25 High upsides are harder to find, as several value names have performed strongly Consumer names Bilia, Duni and JM climb rankings following poor performance EBIT-margin (%) Share Pot. (%) Mcap Perf - (EURm ) 3m (%) Hist Fw d Implied EV/S Hist Fw d Eniro EAC Auriga Industries Haldex JM 1, Kongsberg Gruppen 1, Kvaerner Cermaq Concentric n.m 65 Pandora 1, Bilia HiQ Ekornes Duni Höganäs Outotec 1, Veidekke NCC 1, Golden Ocean Boliden 3, FLSmidth & Co 2, Leroy Seafood Group Tieto TGS-Nopec 2, Transmode Source: Handelsbanken Capital Markets EV/S model 12m forward, bottom 25 What s normalised profitability in CDON? Look for strong performers with big downsides as sources of funding Schibsted, Simcorp, Elekta, B&O, Nobia stand out EBIT-margin (%) Share Pot. (%) Mcap Perf - (EURm ) 3m (%) Hist Fw d Implied EV/S Hist Fw d Stockmann 1, CDON Group Chr. Hansen 3, Rautaruukki Archer Songa Offshore Alk-Abello Schibsted 3, Elekta 3, D/S Norden Metsä Board n.m -31 Lundin Mining 2, Net Entertainment Axis 1, Simcorp AarhusKarlshamn 1, Bang & Olufsen Nibe Industrier 1, Holmen 1, Elisa 2, Husqvarna 2, Petroleum Geo-Services 2, DFDS Nobia Indutrade Source: Handelsbanken Capital Markets October 11,

14 Only ~60% upside in SSAB at 0.8x sales when you include the boom years Clas Ohlson screens attractively NKT could rock if cables profitability finally improves EV/S model 12m historical, top 25 EBIT-margin (%) Share Pot. (%) Mcap Perf - (EURm ) 3m (%) Hist Fw d Implied EV/S Hist Fw d Eniro EAC Pandora 1, Cermaq KappAhl n.m Lundbeck 2, Kongsberg Gruppen 1, HiQ Ekornes JM 1, Boliden 3, SSAB 1, n.m Securitas 2, NCC 1, Unibet Group Cargotec 1, Leroy Seafood Group Rautaruukki Clas Ohlson NKT Holding D/S Norden DFDS Bilia TGS-Nopec 2, Kvaerner Source: Handelsbanken Capital Markets Schibsted appears immune to estimate downgrades Royal Unibrew move makes it fair on forecasts Amer you have to believe in 10% target to find solid upside Tomra above 1.8x sales time for a breather? Trelleborg: historical data includes the automotive division EV/S model 12m historical, bottom 25 EBIT-margin (%) Share Pot. (%) Mcap Perf - (EURm ) 3m (%) Hist Fw d Implied EV/S Hist Fw d Bang & Olufsen Stockmann 1, Chr. Hansen 3, Elekta 3, Schibsted 3, Opera Softw are Archer AarhusKarlshamn 1, Nordic Semiconductor Royal Unibrew Auriga Industries Nibe Industrier 1, Alk-Abello Elisa 2, Amer Sports 1, Petroleum Geo-Services 2, Lundin Mining 2, Tomra 1, Simcorp Trelleborg 2, Intrum Justitia Axis 1, Atea Mekonomen Net Entertainment Source: Handelsbanken Capital Markets 14 October 11, 2012

15 15 largest 2013e P/E appreciation, -3m (%) Estimate cuts behind the majority of these moves Significant multiple expansion for many names SAS Outokumpu Talvivaara Mining Co Vestas Rautaruukki D/S Norden DNO International ASA Eniro SSAB Pandora P/E 13 change, -3M Price ch, -3M Bang & Olufsen NKT Holding Lundin Mining Prosafe Nobia 15 largest 2013e P/E declines, -3m (%)...while consumer stocks HiQ and Intrum J. have not re-rated, though the contraction is small Alm. Brand Norske Skog Alk-Abello Transmode BW Offshore Modern Times Group Lundbeck Oriflame Kongsberg Gruppen Clas Ohlson HiQ FLSmidth & Co Sweco AF-Group Intrum Justitia P/E 13 change, -3M Price ch, -3M 15 highest 2012 dividend yields (%) stocks yielding >6% Oil service, consumer and construction names dominate BW Offshore North Atlantic Drilling Sanoma Ekornes Atea NCC Fred. Olsen Energy Elisa HiQ Bilia Kvaerner Oriflame Peab Stora Enso Duni October 11,

16 Will steel companies really pay out as expected? Will Peab pay 81% of EPS given gearing? 25 stocks with payouts above 70% We say the risk of cuts have increased Payout ratio top 25 Mcap Perf - Pay-out r. Div Yield Net debt / Net debt / (EURm ) 3m (%) 12e % 2012e EBITDA 12e Equity 12e BW Offshore Rautaruukki Kvaerner Elisa 2, Ekornes Atea Axis 1, SSAB 1, DFDS HiQ Peab 1, Stora Enso 3, Sanoma 1, Oriflame 1, Nordic Semiconductor Stockmann 1, Kesko 2, Betsson Clas Ohlson Veidekke NCC 1, Axfood 1, Fred. Olsen Energy 2, North Atlantic Drilling 1, Royal Unibrew /Handelsbanken Capital Markets 15 lowest forward P/E 9 The highly-geared bunch Eniro Alliance Oil Songa Offshore Golden Ocean Storebrand DNO International BW Offshore Norwegian Air Shuttle Noreco Bilia Peab New Wave North Atlantic Drilling Pandora Prosafe 16 October 11, 2012

17 15 lowest trailing P/E 10 If trailing EPS is a good reflection of sustainable earnings then this group is way too cheap Eniro Alliance Oil Songa Offshore Golden Ocean North Atlantic Drilling Storebrand Bilia Pandora Sanoma New Wave Cargotec Fred. Olsen Energy Boliden NCC Securitas 15 highest forward P/E Still only a handful above 20x forward EPS Vestas Talvivaara Mining Co Alk-Abello SAS D/S Norden Rautaruukki Bang & Olufsen CDON Group Elekta Chr. Hansen Schibsted Axis Opera Software Simcorp KappAhl 15 lowest 12m forward P/B 0.8 Steel, P&P, oil, renewable and highly-geared oil service PA Resources Norske Skog SAS Eniro Songa Offshore Outokumpu Noreco Archer Vestas BW Offshore SSAB Spar Nord EAC Alm. Brand Golden Ocean October 11,

18 EV/S relative to EW, top decile Value rebound halted when QE3 was announced Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct EV/S relative to EW, bottom decile Most expensive decile flat since start of September Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Div yielders relative to EW, top decile High yielders also flat in past six weeks Oct 2011 Nov Dec 2011 Jan 2012 Feb Mar Apr May Jun Jul Aug Sep Oct 2012 P/BV relative to EW, bottom decile Low-quality value mirrors normalised value following QE Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Source: Handelsbanken Capital Markets, Factset (EW = equally weighted index) 18 October 11, 2012

19 Revisions Estimates have remained under pressure, with our revision indicators deep in negative territory. We continue to argue that 2013 estimates look exuberant, given that the prevailing consensus forecasts imply margins improving 150bp on 3% of top-line growth and that 93% of the universe is expected to post a margin improvement in Further, we find earnings dispersion at extremely low levels, signalling confidence in estimates, in our view falsely. We consequently expect dispersion to widen as we exit the reporting season and hope that analysts take down 2013e estimates. We maintain that during this process it will be unusually difficult to find earnings upgrade candidates, while simply betting on the stocks currently seeing the best revision pattern is too risky. The revision factor (top decile) has in fact been flat since May, though recent weeks have shown some outperformance. The bottom decile has seen strong alpha generation lately, which in effect could spell trouble for the entire universe, as downgrades appear to have been punished. EPS trend (EUR) Estimates continue to slide, but 2013e cuts are not keeping pace with 2012e Q Q Q Q Q Q Q Q Q Q Q Q Q Earnings Per Share 2011 Earnings Per Share 2012 Earnings Per Share 2013 HCMe EPS revision indicator 2.5 We expect the revision pattern to stay negative Nordics < 4bn neutral October 11,

20 EBIT margin outcome vs. expectations 12% 2013 margins are set to rise 150bp 2012e margins below 2011, which was below 2010 Why is 2013 up 150bp on 3% topline growth? 11% 10% 9% % % % % Sales growth expectations vs. outcome 15% Growth in excess of 5% needed to sustain >7% EBIT margin 10% 5% 0% % % EPS growth trend 30% 2013 growth expectations keep climbing now 25% 25% 20% 15% 10% 5% 0% H H H H H H H EPS % Change 2012 EPS % Change October 11, 2012

21 Dispersion in EPS trend (median of universe) EPS dispersion at record lows in an unusually uncertain economic setting As it rises, it gets harder to find EPS upgrade candidates 25% 20% 15% 10% 5% Nordics < 4bn HCMe sales revision indicator Revision indicator at depressed levels, implying a weakening outlook Nordics < 4bn neutral Recommendation trend Analysts getting more cautions after being close to record bullish this summer Rating definition: 1 Buy, 2 Hold, 3 Sell October 11,

22 Figure 1: Proportion of companies with EBIT margin improvement % 93% of universe expected to see margins expand on 3% top-line growth Exuberance! 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% e 2013e Nordic: margin improvement vs. Previous year Bottom e EPS revisions, -3m 30% Downgrades not uniformly punished -7% BWO only stock with multiple contraction -43% -80% Outokumpu Talvivaara Mining Co SAS Vestas SSAB Rautaruukki D/S Norden Archer BW Offshore Noreco EPS revisions Price change -3M EAC Eniro New Wave Alliance Oil NKT Holding Top e EPS revisions, -3m 50% 40% Upgrades well rewarded 30% 20% 10% 0% -10% Norske Skog Alm. Brand Auriga Industries Alk-Abello Kemira CDON Group Simcorp AF-Group Leroy Seafood Group Petroleum Geo-Services EPS revisions Price change -3M Spar Nord Norwegian Air Shuttle Pandora Royal Unibrew Kongsberg Gruppen 22 October 11, 2012

23 Outotec numbers raised ahead of Q3 Momentum turning positive in Axfood Lindab are estimates finally bottoming out? Two-factor revision model, top 25 Revision ratio (%) Revision ratio (%) EPS Curr 3m Avg vs. Trend Sales Curr 3m Avg vs. Trend Royal Unibrew Opera Softw are Auriga Industries EAC TGS-Nopec Cermaq Nibe Industrier Auriga Industries Axfood Outotec Duni TGS-Nopec Petroleum Geo-Service Eniro Tieto Lindab Lindab Bang & Olufsen Sw eco Simcorp Bilia Duni Atea NCC Boliden AF-Group Outotec Songa Offshore DSV Lundin Mining Kesko Norw egian Air Shuttle Transmode Tieto Cermaq Nordic Semiconductor Oriflame Transmode Norw egian Air Shuttle Axfood Holmen Mekonomen Intrum Justitia Intrum Justitia Outokumpu Outokumpu Haldex Concentric Norske Skog Höganäs /Handelsbanken Capital Markets Consumer stocks dominate the downgrades Mekonomen downgrades intensify Clas O: Can sentiment get any worse? Revision trends, bottom 25 Revision ratio (%) Revision ratio (%) EPS Curr 3m Avg vs. Trend Sales Curr 3m Avg vs. Trend HiQ Net Entertainment Clas Ohlson Clas Ohlson Net Entertainment North Atlantic Drilling Betsson Axis Mekonomen Archer NCC New Wave Prosafe Rautaruukki Securitas DFDS New Wave SSAB Songa Offshore Holmen Axis Ekornes NKT Holding Securitas SSAB NKT Holding KappAhl Unibet Group Opera Softw are Peab Archer Elekta Kvaerner Fred. Olsen Energy Alk-Abello Hexpol Stockmann Prosafe Pandora Betsson Rockw ool CDON Group Chr. Hansen Lundbeck CDON Group Sanoma Bang & Olufsen KappAhl DFDS HiQ /Handelsbanken Capital Markets October 11,

24 Sales revision ratio vs. EPS revision ratio TGS and Outotec left alone 75 Opera Software EAC Bang & Olufsen Outotec Auriga Industries TGS-Nopec Top right hand corner looking very empty Maybe it s time to look at the bottom left quadrant Sales revision ratio (%) NCC Songa Offshore Simcorp Mekonomen Amer Sports Alm. Brand 0 Alk-Abello PA Resources Kvaerner Royal Unibrew Alliance Oil Stockmann -25 Schibsted Det Norske HiQ JM Oljeselskap Noreco Modern Times Group Peab Talvivaara Mining Co SASVestas Loomis Golden Ocean Nibe Industrier -50 Pohjola Unibet Group Prosafe DFDS Elekta Jyske Bank Nobia Lundbeck Frontline Axis Ekornes KappAhl Betsson Rautaruukki Trelleborg Hexpol Holmen -75 Securitas CDON Group Sanoma NKT Holding Archer SSAB Clas Ohlson Net Entertainment North Atlantic Drilling - New Wave EPS revision ratio (%) /Handelsbanken Capital Markets Revision ratio definition: (Nr rev. up (FY1) + Nr rev. up (FY2)) (Nr rev. down (FY1) + Nr rev. down (FY2) )/ (Nr of tot. est. (FY1) + Nr of tot. est. (FY2) Recommendation revision ratio vs. EPS revision ratio 75 Alm. Brand 50 Outotec Sizeable rec downgrades across most sectors >50% of analysts downgrade Clas O, Hexpol and AF- Group EPS revision ratio (%) Kemira AF-Group Metsä Board Fred. Olsen Energy Trelleborg Tomra Sanoma Outokumpu Jyske Bank FLSmidth & Co BW Offshore EAC Hexpol Ekornes JM Archer Axis Prosafe NKT Holding SSAB Transmode Sweco Simcorp Opera Software Clas Ohlson Betsson Recommendation revision ratio (%) /Handelsbanken Capital Markets Revision ratio definition: (Nr rev. up (FY1) + Nr rev. up (FY2)) (Nr rev. down (FY1) + Nr rev. down (FY2) )/ (Nr of tot. est. (FY1) + Nr of tot. est. (FY2) 24 October 11, 2012

25 EPS revisions relative to EW, top decile EPS upgrades have not yielded alpha since May, but show some sign of life in recent weeks Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Sales revisions relative to EW, bottom decile 102 Revisions working better lately as underweight alpha Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct EPS + recommendation revision combo relative to EW, top decile Combo model trails EPS factor alone YTD Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct EPS + recommendation revision combo relative to EW, bottom decile QE3 marked a resumed revision focus coincidence? Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Source: Handelsbanken Capital Markets, Factset (EW = equally weighted index) October 11,

26 Quality Quality factors (high ROCE and margin stability) have shown the inverse pattern compared to value stocks, underperforming until the QE 3 announcement and outperforming slightly thereafter. Our three-factor defensive quality model highlights Axfood and Intrum Justitia, which we believe warrant a closer look. Oriflame and Clas O screen well but ROCE trend is weak A good snapshot of quality stocks in Nordic small/mid cap universe 7-year average ROCE Top 25 ROCE (%) Mcap (EURm ) Perf - 3m (%) Median (05-11) Net Entertainment Axis 1, Simcorp Betsson Oriflame 1, CDON Group n.m n.m Nordic Semiconductor Axfood 1, Pandora 1, n.m n.m n.m Sw eco Ekornes HiQ Clas Ohlson Indutrade Mekonomen Transmode n.m n.m n.m Kongsberg Gruppen 1, Modern Times Group 2, Lundbeck 2, Unibet Group TGS-Nopec 2, Tomra 1, Kvaerner n.m n.m n.m Konecranes 1, Outotec 1, Source: Handelsbanken Capital Markets 26 October 11, 2012

27 MTG exhibits stability historically, but that is not helping the stock Indutrade and Hexpol stand out among peers EBITDA margin stability Top 25 Adjusted EBITDA-margin (%) Mcap (EURm ) Perf - 3m (%) Avg (05-11) Stdev/ Avg TGS-Nopec 2, Modern Times Group 2, DSV 3, Axfood 1, NCC 1, Intrum Justitia Nibe Industrier 1, Ekornes Net Entertainment Kemira 1, Elisa 2, AarhusKarlshamn 1, Lundbeck 2, Sanoma 1, Indutrade Sw eco Hexpol 1, Trelleborg 2, DFDS Prosafe 1, Petroleum Geo-Services 2, Simcorp Chr. Hansen 3,285 4 n.m Clas Ohlson Archer n.m Source: Handelsbanken Capital Markets Intrum stability not rewarded either Remember to look at the slope as well E.g. Securitas, Pandora & Oriflame vs. Hexpol, AAK, Nibe, Intrum etc. EBIT margin stability Top 25 Adjusted EBIT-margin (%) Mcap (EURm ) Perf - 3m (%) Avg (05-11) Stdev/ Avg Axfood 1, DSV 3, Modern Times Group 2, Intrum Justitia Sanoma 1, Securitas 2, Nibe Industrier 1, Prosafe 1, n.m n.m Sw eco Simcorp NCC 1, Indutrade Net Entertainment AarhusKarlshamn 1, Lundbeck 2, Ekornes TGS-Nopec 2, Oriflame 1, Hexpol 1, Kemira 1, Duni Pandora 1, n.m n.m n.m HiQ Huhtamaki 1, Clas Ohlson Source: Handelsbanken Capital Markets October 11,