Verden rundt på 15 minutter

Verden rundt på 15 minutter Quadruple M Macro, Micro & Markets by Molnes January 15th, 2016 Karl Johan Molnes Analysesjef +47 97 47 60 64 kjm@norne.no Equities Bonds Online Trading Market Making Research Corporate Finance 1

Globalisering har lange perioder med sterk vekst etterfulgt av lange perioder med svak vekst Globalization expanding = Everyone dancing. Trade Growth = 2 x GDP growth 1850-1913: GDP 2.1% & Trade 3.8% ) 1950-2007: GBP 3.8% & Trade 6.2% Globalization pause = Musicians at pause. Trade Growth = GDP growth. (1913-1950) & (2008 -? G1.25% & T1.75%) Strong growth - Main beneficiaries: MidCap companies looking to globalize to benefit brokers with local and global footprints Low interest rates - Main beneficiaries: Start-ups benefiting local brokers Share Buy Backs benefiting global brokers 2

Economic Growth is linked to increased access to cheap energy 3

China s economy will be volatile until pollution is no longer an issue - Shanghai 4

China s economy will be volatile until pollution is no longer an issue Hong Kong 5

Alberta Canada Climate Plan has room for Oil Sands

Mmbbl/d Global Oil Production 100 95 90 85 80 75 70 65 60 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 8

WTI Fibonacci Levels Sources: Macrobond, Norne Securities 9

6 faktorer som gir god avkastning Momentum Low Size Low Volatility High Yield Quality Value 10

Stockpicking Agenda for the Day Cheap Liquid High Yield Clean Frontier 11

BUY Odfjell TP NOK 40/sh. Project Felix implementation Net result targeted to increase by USD 100m/y Positive net profit 2Q in a row and expected to increase going forward Source: Odfjell 12

One Does Not Need to Look Far for Opportunities Chemical Tanker Rate Index 95 Dry Bulk Rate Index 1600 90 85 1400 1200 1000 800 80 600 75 70 aug'14 nov'14 feb'15 mai'15 aug'15 nov'15 400 200 0 aug'14 nov'14 feb'15 mai'15 aug'15 nov'15 13

BUY Odfjell TP NOK 40/sh. Profit & Loss (USDm) 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Operating revenues 1,212 1,027 1,053 942 968 1,018 1,047 1,076 Operating expenses -1,119-986 -993-751 -711-723 -734-742 EBITDA 93 41 60 191 257 295 313 333 Depreciation & Amortisation -132-89 -95-98 -91-97 -103-111 EBIT (adj) -39-48 -35 93 166 198 210 222 Non-recurring items -5-8 13-46 - - - - EBIT -44-56 -22 48 166 198 210 222 Net interest & other financial effects -68-48 -51-56 -38-38 -38-38 Pre-tax profit -112-104 -73-8 127 160 172 184 Minority interests - - - - - - - - Taxes 1-4 - -5-34 -43-46 -50 Profit after tax -111-108 -73-13 93 117 126 134 EPS rep. (USD) -1.3-1.2-0.8-0.1 1.1 1.3 1.4 1.5 EPS adj. (USD) -0.9-0.8-0.7 0.3 1.1 1.3 1.4 1.5 14

The US oil exports are important as they would boost transportation demand 16

Number of active land rigs Saudi oil strategy in one chart = good for tanker business 120 100 80 60 40 20 0 1982 1983 1985 1986 1988 1989 1991 1992 1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012 2013 2015 17

Dividend yield BUY Frontline TP 35/sh. 20,0 % 19% 15,0 % 15% 10,0 % 5,0 % 6% 0,0 % 0% 0% 0% 2012 2013 2014 2015E 2016E 2017E 18

LPG Shipping tanker supply and demand Condensed Propane Supply: Global VLGC fleet and orderbook Demand 300 3 Emerging Markets like Indonesia & India are providing incentives to switch to propane for domestic use 250 45 19 +1.5m tonnes LPG available from Abu Dhabi and Qatar US export capacity developing on track: 200 37 150 +33% 100 167 50 0 2014 2015 2016 2017 2018 Source: Dorian LPG 20

Fleet Utilization and Day rates: Extremely tight late 2016 expected Fleet Utilization 2015 Fleet Utilization 2016 100% 200000 100% 200000 90% 180000 90% 180000 80% 70% 160000 80% 70% 160000 60% 140000 60% 140000 50% 120000 50% 120000 40% 100000 40% 100000 30% 20% 80000 30% 20% 80000 10% 60000 10% 60000 0% jan feb mar apr mai jun jul aug sep okt nov des 40000 0% jan feb mar apr mai jun jul aug sep okt nov des 40000 2015 Spot VLGC'15 2016E Spot VLGC'15

NOK/sh. BUY Avance Gas TP NOK 200/sh. 120 100 102 80 82 60 40 20 0 4Q15 1Q16 2Q16 3Q16 4Q16 Share price Cumulative DPS 22

Scatec Solar vs REC Silicon: Solar Parks vs the Commodity Polysilicon Super-Profit goes to players at either of the ends of the value chain REC Silicon 2004-2008 Scatec Solar, Vivint Solar 2013-... Source: Bloomberg, Norne Securties Share price (rebased to 100 at 02.10.2014) 300 250 200 150 100 50 0 2014 2015 REC Silicon (RHS) Scatec Solar REC Solar (delisted) Polysilicon Price USD/kg 510 460 410 360 310 260 210 160 110 60 10 Source: Bloomberg, Norne Securties

NOKm NOK/sh. BUY Scatec Solar TP 48/sh. 2 500 3,50 2 000 1 500 3,00 2,50 2,00 1 000 500 1,50 1,00 0,50 0 2015E 2016E 2017E 2018E Operating revenues EBITDA EPS adj. (NOK) - 25

Hydrogen is a baby, Solar is a teenager and Wind is a grown up 3000 2500 Vestas GCL 2000 1500 1000 500 Hydrogen companies 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Sources: Bloomberg, Infinancials, Norne Securities 27

USDm DKK Wind: Vestas Wind Systems Revenues and EBIT margin 3 000 15% Share price 700 2 500 2 000 10% 5% 600 500 1 500 0% 400 300 1 000-5% 200 500-10% 100 0 1997 2004 2011 Inntekter EBIT margin -15% 0 1998 2001 2004 2007 2010 2013 28

Growing up ain t easy 29

Wal-Mart Inc is using 2000 Hydrogen Fork Lifts from Plug Power Wal-Mart Inc is using Hydrogen because: + Less downtime for fueling saves capex versus Electric + Hydrogen better for lifting than Electric = Improved operating margins 30

Proton Power Systems won a contract with Deutsche Bahnbau Deutsche Bahnbau will offer a service that collects hydrogen from surplus wind and solar renewable energy. Deutsche Bahnbau will replace diesel on its service trains with hydrogen. 31

BUY Gaming Innovation Group TP NOK 3/sh. Source: Gaming Innovation Group, Norne Securities 33

Buy Recommendations for 2016 Energy Shipping Buy Odfjell SE (ODF NO) Chemical Tankers Buy Frontline Ltd (FRO NO) Oil Tankers Buy Avance Gas (AVANCE NO) LPG Tankers Banking Buy DNB (DNB NO) Buy Sparebanken Vest (SVEG NO) Buy Helgeland Sparebank (HELG NO) Small Caps Buy Scatec Solar (SSO NO) Buy Gaming Innovation Group (GIG NO) Buy Photocure (PHO NO) 34

Valuation changes after the USD 80 oil floor in 2014 became the new ceiling in 2015 Valuation changes after the USD 80 oil floor in 2014 became the new ceiling in 2015 120 110 100 90 80 70 60 50 Detnor Statoil Forward curve Perceived USD 80 Oil Floor in 2014 Perceived USD 80 Oil Ceiling in 2015 Statoil Detnor Forward curve Share prices of large oil companies in the US & Europe have moved sideways this year Spot oil has dropped from USD 60 to USD 40 to trade around ½ the valuations of oil stocks with quality balance sheets 40 30 20 2014 2015 35

DNB (Buy, TP NOK 130/sh.) Clarified capital regulatory framework (new CET1 requirement of 15.0% by end-2016 announced last October) => more visibility and relief for DNB and share Capital efficiency initiatives (e.g. sale of non-core assets, consolidation of DNB Life) will add 80-120bps to CET1 by end-2016 => We estimate the CET1 of 15.1% by end-2016 DNB assured that latest drop in oil prices does not change its loan losses provisions guiding - NOK 3bn for 2015, and for 2016-2018 around NOK 4.0bn. We and consensus already are in the range of NOK 4.1-4.5bn Solid dividend yield 5.4% and 7.9% for 2016 and 2017 Based on 30% dividend payout for 2015 and 40% for 2016 Attractively priced vs. Nordic peers 28% disc. to Nordic banks on 2015e-2017 P/E, and 41% disc. P/B Discount explained by lower dividend Weak share performance recently Buy, TP of NOK 130/sh. (32% upside, last NOK 98.6/sh.) Based on 5% discount to avg. DDM & RIV value Trigger for share yesterday s assurance that loan losses guiding kept intact is positive for share => low oil prices explain weak share performance lately => risk of loan losses NOKm Estimates P/E adjusted P/B Dividend Yield 2015E 2016E 2017E 2015E 2016E 2017E DNB Norne 7.8 7.4 7.5 0.88 4.2 % 5.4 % 7.9 % DNB Consensus* 7.9 7.9 7.6 4.2 % 4.4 % 6.6 % Nordic Peers Svenska Handelsbanken Consensus* 12.6 12.6 12.0 1.87 5.7 % 5.8 % 6.0 % Nordea Consensus* 10.8 10.8 10.3 1.29 6.8 % 7.1 % 7.5 % Skandinaviska Enskilda Banken Consensus* 10.3 10.3 9.7 1.34 6.1 % 6.7 % 7.1 % Swedbank Consensus* 11.4 11.4 10.7 1.70 6.1 % 6.6 % 6.9 % Danske Bank Consensus* 10.4 10.5 9.8 1.24 4.5 % 4.8 % 5.3 % Average 11.1 11.1 10.5 1.49 5.8 % 6.2 % 6.6 % Premium/(disc.) of DNB consensus est. to peers -28% -28% -28% -41% -1.6%p -1.8%p 0.0%p * Infinancials 145 NOK 135 125 115 105 95 Jan Mar May Jul Sep Nov Jan 2015 DNB OSEBX (Rebased) Source: DNB, Macrobond, Infinancials 36

HELG (Buy, TP NOK 75/EC) Comfortable CET1 capital ratio: last 14.4%, we estimate 15.0% at end-2016 Above 14.5% level generally required by FSA We do not expect equity issue or other drastic messures to keep up with capital requirements Attractive pricing multiples: P/B 0.60, 2016e P/E 6.3 Good dividend yield estimated: 5.0% for 2015 and 7.1% for 2016 2016 div. yield highest among our covered savings banks Zero exposure to oil-related sectors One of highest deposits-to-loans ratios of 64% Further interest rate reductions on mortgages will likely continue to be partly compensated through reduction of deposit rates Some banks will not have this luxury Buy, TP of NOK 75/EC (44% upside, last NOK 52.25/EC) CET1 ratio, %, 3Q15 20 17.2 15.9 14.414.7 14.815.2 15.9 17.0 15 12.012.212.5 13.113.213.213.2 13.5 13.914.0 10 5 0 Large Medium Small SIFI * Adjusted for equity issue Dividend yield, %, 2016E 812 7.0 9.3 6.3 9.6 10.5 7.1 7 10 9.2 8.5 8.8 8.8 8.8 9.0 9.1 8.3 8 7.0 7.1 7.4 7.4 5.0 5.4 5.8 5.5 5.7 5.8 6 4.6 4.6 5 4.0 4.1 4.1 4 6 5.13.0 3.6 3 4 2 1 2 0.0 0 0 Large Large Medium Medium Small Small Source: HELG, Savings Banks 37

SVEG Strenghtened CET1 ratio through rights issue and lower dividend for 2015 => much lower risk of equity issue going forward Current CET1 ratio target 14.5% by year-end 2016 We estimate 13.6% by end-2015 and 14.5% by end-2016 Oil-related exposure is low (around 1.3% of lending) Retail market share (74%) in lending above average (reduces risk) Pricing ratios undemanding P/B 0.56 below historical avg. of 1.18 2016e adj. P/E 6.8 Low dividend yield for 2015 to be compensated with much higher payout for 2016 2.4% for 2015 (based on 25% payout) and 7.0% for 2016 (50% payout) Guiding 50 80% dividend payout once CET1 requirement met TP before rights issue NOK 61/EC Fair value adj. for rights issue NOK 43/EC based on 40% for DDM and 60% for RIV, without discount Last price NOK 33.00/EC 0.88 P/E adj. ratio, 2016E 16 14.0 14 12 8.9 9.9 10.0 10 6.8 7.0 7.2 7.4 7.6 7.7 8.0 8.2 8.3 8 6.0 6.2 6.3 6 5.2 4 2 0 Large Medium Small P/B ratio, 3Q15 1.4 1.30 1.2 1 0.82 0.90 0.8 0.67 0.69 0.69 0.71 0.74 0.56 0.58 0.60 0.64 0.66 0.6 0.43 0.38 0.4 0.2 0 Large Medium Small Source: SVEG, Savings Banks 38

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RECOMMENDATION STRUCTURE Norne Securities general recommendations Buy, Hold and Sell are based on the expected absolute return on the financial instrument within the next 12 months, which equals to an upside to the target price, in combination with a risk profile. The target price represents the price level which the analyst expects the financial instrument to trade at within the coming 12 months. The table below shows the ranges of returns under different risk levels, based on which the recommendation is being determined: Total return next 12 months (upside to target price) Risk Buy Hold Sell Low > 10% 2% - 10% < 2% Medium > 15% 3% - 15% < 3% High > 25% 5% - 25% < 5% In addition to the general recommendations, Trading Buy and Trading Sell recommendations can be used in the case where the analyst predicts a short term share price performance different from the twelve-month general recommendation. Trading Buy is given when the share price is expected to rise and Trading Sell is given when the share price is expected to fall in the short term (several days to several weeks horizon). Our risk assessments range from high risk to medium risk and low risk and are based on a subjective assessment of the following factors: 1) volatility in the share price, 2) liquidity in the share, 3) strength of the balance sheet, 4) absolute earnings level and trend and 5) estimate risk. TARGET PRICE AND UPDATES Target prices may be based on one or several valuation methods, for instance, the discounted cash flow (DCF) analysis or applying fair pricing multiple(s) based on historical valuation or peer pricing level. Target price may not necessarily equal to the fair value of the financial instrument certain discount or premium is possible due to various reasons, depending on the analyst s view of what the price may be within the 12 months period. Norne Securities AS plans to update the recommendation based on the following events: the target price is achieved; new accounting figures are released; any significant news on the company or its industry is announced. DISCLOSURE OF INTERESTS Norne Securities AS may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Norne Securities AS may hold positions in securities covered in this report due to its own-account trading that is part of its investment services operations, such as market making. Norne Securities AS has appointed and may at any time appoint tied agents to provide investment services on behalf of Norne Securities AS. Tied agents are listed in the public registry of the Norwegian Financial Supervisory Authority, and an updated overview of appointed tied agents of Norne Securities AS can be found on https://www.norne.no/nornesecurities/compliance/tilknyttede-agenter/ PREVENTING CONFLICTS OF INTEREST Norne Securities AS has arrangements in place with the aim of preventing conflicts of interest. As part of these arrangements, Norne Securities AS has established information barriers between different parts of the company to restrict and control the exchange of sensitive information. No direct link exists between remuneration of the Norne Securities AS analysts and investment banking services provided by Norne Securities AS. Under our internal regulations, which have been prepared in accordance with applicable legislation and relevant industry standards, our analysts are not permitted to purchase new securities in the companies they cover. POTENTIAL CONFLICTS OF INTEREST Norne Securities AS has provided corporate services over the previous 12 months for the following issuers of financial instruments where Norne Securities AS has research coverage: 1. Publicly disclosed not immaterial investment banking services or issues of financial instruments where Norne Securities AS has been lead manager or co-lead manager: Borgestad, Fjord Line, Gaming Innovation Group, Hugo Games, Indre Sogn Sparebank, Induct, Jæren Sparebank, Melhus Sparebank, NattoPharma, Sparebanken Vest. 2. Market making: AKVA Group, Aqua Bio Technology, Aurskog Sparebank, Borgestad, ContextVision, Helgeland Sparebank, Hofseth Biocare, Hugo Games, Indre Sogn Sparebank, Jæren Sparebank, Melhus Sparebank, NextGenTel Holding, Photocure, Scana Industrier, Serendex Pharmaceuticals, Skue Sparebank, Sparebanken Sør, Sparebanken Vest, Storm Real Estate, Tide, Totens Sparebank, Voss Veksel- og Landmandsbank. Please note that the following savings banks, for which Norne Securities AS has research coverage, are among the shareholders of Norne Securities AS: Sparebanken Vest (47.58% share), Sparebanken Sør (17.08%), Helgeland Sparebank (7.47%) and Sparebanken Øst (2.48%). The total list of the owners of Norne Securities AS can be found on: https://www.norne.no/no/om-norne-securities/eiere/. A list of share holdings of the Norne Securities employees can be found on https://www.norne.no/norne-securities/compliance/ansattes-egenbeholdning/. Distribution of Norne Securities recommendations during three months up till December 31, 2015: Buy Hold Sell Total recommendations 43 38 14 % of total 45% 40% 15% Corporate clients* 23 16 2 % of corporate clients* 56% 39% 5% * Includes publicly disclosed not immaterial investment banking services or issues of financial instruments where Norne Securities AS has been lead manager or co-lead manager, and market making clients during the 12 months prior to the overview date. Note: In the table above, Trading Buy recommendation is treated as Buy, and Trading Sell is treated as Sell. CAUTIONARY NOTE REGARDING RISK An investment in the company involves risk, and several factors could cause the actual results, performance or achievements of the company to be materially different from future results, performance or achievements that may be expressed or implied by statements and information in this presentation. Including, among others, risk or uncertainties associated with the company s business segments, development, growth management, financing, market acceptance and relations with customer, and more generally, general economic and business conditions, changes in domestic and foreign laws and regulations, taxes, changes in competition and pricing environment, fluctuations in currency exchange rates and interest rates and other factors. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document. Past performance is not a guide to future performance. Investing in securities may result in a loss of all or part of the investment. DISTRIBUTION RESTRICTIONS This report is not intended for and must not be distributed to private customers in the UK or US. 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