Lojas Americanas (LAME4 BZ)

Company report Consumer & Retail Equity Brazil Lojas Americanas (LAME4 BZ) Overweight Target price (BRL) 20.00 Share price (BRL) 14.14 Forecast dividend yield (%) 1.5 Potential return (%) 42.9 Note: Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield Dec 2013 a 2014 e 2015 e HSBC EPS 0.49 0.42 0.65 HSBC PE 28.9 33.8 21.8 Performance 1M 3M 12M Absolute (%) -6.6-0.6 6.8 Relative^ (%) -3.1-6.5-2.1 Note: (V) = volatile (please see disclosure appendix) Richard Cathcart* HSBC Bank Brasil S.A. +55 11 2169 4429 richard.m.cathcart@hsbc.com.br Stewart Ragar* HSBC Bank Brasil S.A. +55 11 3847 9342 stewart.h.ragar@hsbc.com.br View HSBC Global Research at: http://www.research.hsbc.com *Employed by a non-us affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Issuer of report: HSBC Bank Brasil S.A. Banco Múltiplo Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it OW: Re-focusing on an undervalued stores business We spent a week with investors in Europe, and Americanas is attracting attention in an otherwise unattractive sector We consider Americanas to be least exposed to a slowdown, yet the implied valuation of the stores is at historic lows LAME4 shares are trading on c.22x our FY15e EPS, with the stores on c.18x vs. a historical average of c.26x Feedback from a week of meetings with investors in Europe suggests that we are not alone in having little enthusiasm for Brazil s discretionary retailers over the next 12 months. With a weak macro environment, concern is rising that consensus estimates are likely too high and that the sector could experience a de-rating. This is in line with the views that we set out in our recent report Reality bites (1 September 2014). However, Lojas Americanas stands out as one stock that we believe could buck this trend. We think that this is the right time to be looking at the stock from both valuation and operational perspectives. Based on our estimates for FY15e, the implied forward PE of the Americanas stores business (stripping out the B2W stake) has fallen to c.18x versus an average of c.26x over the last five years (see calculations and charts inside). We do not think this is justified. Total sales growth at Americanas stores remains high (FY15e 12% vs. c.14% over the period 2010-14e), and we forecast an EBITDA margin of 18.7% in FY15e versus 15.2% in FY10. The potential expansion of the store network also remains considerable, in our view. We therefore see no structural reason for a de-rating of the Americanas stores. Furthermore, our benchmarking exercise with Renner suggests a valuation of 25x to be appropriate. If the standalone Americanas stores business were to trade on 25x forward PE, we calculate investors would be paying almost zero for the B2W stake. We understand that investors are nervous about whether the rally of B2W in 2014 is sustainable, but we think the current valuation more than prices in those concerns. We anticipate gradual improvements in B2W s ability to generate cash (even if it continues to spend all of this cash) due to a rising gross margin and lower financial costs. We do not think that B2W needs to prove all its doubters wrong overnight; operational results moving in the right direction is sufficient, in our view, for investors to re-focus attention on the Americanas stores business. With 2015 looking set to be a tough year for Brazil s retailers, we think Americanas should command a premium as it continues to report resilient results. Lojas Americanas is in our equity strategy team s Brazil Model Portfolio please see the latest Brazil Equity Insights report (9 October 2014). Index^ BOVESPA INDEX Index level 57,058 RIC LAME4.SA Bloomberg LAME4 BZ Enterprise value (BRLm) 18,819 Free float (%) 62 Market cap (USDm) 6,655 Market cap (BRLm) 16,147

Financials & valuation Financial statements Year to 12/2013a 12/2014e 12/2015e 12/2016e Profit & loss summary (BRLm) Revenue 13,401 16,450 19,533 23,292 EBITDA 1,846 2,165 2,610 3,195 Depreciation & amortisation -273-347 -400-470 Operating profit/ebit 1,573 1,817 2,209 2,725 Net interest -881-1,174-1,025-1,067 PBT 599 626 1,185 1,657 HSBC PBT 691 644 1,185 1,657 Taxation -169-168 -332-464 Net profit 463 508 788 1,064 HSBC net profit 463 508 788 1,064 Cash flow summary (BRLm) Cash flow from operations 1,077 982 1,229 1,619 Capex -1,335-3,245-2,915-2,423 Cash flow from investment -1,335-3,245-2,915-2,423 Dividends -231-254 -393-531 Change in net debt 461-934 135-484 FCF equity -248-2,263-1,686-804 Balance sheet summary (BRLm) Intangible fixed assets 1,785 2,160 2,160 2,160 Tangible fixed assets 2,185 2,907 3,819 4,435 Current assets 8,992 9,749 10,710 11,886 Cash & others 4,088 4,022 4,022 4,022 Total assets 14,138 15,992 17,866 19,657 Operating liabilities 4,825 5,807 6,745 7,875 Gross debt 7,693 6,693 6,828 6,344 Net debt 3,605 2,671 2,806 2,322 Shareholders funds 1,175 1,972 2,773 3,919 Invested capital 4,049 4,986 5,923 6,584 Ratio, growth and per share analysis Year to 12/2013a 12/2014e 12/2015e 12/2016e Y-o-y % change Revenue 18.2 22.8 18.7 19.2 EBITDA 17.4 17.3 20.6 22.4 Operating profit 15.5 15.6 21.6 23.3 PBT 16.2 4.5 89.3 39.9 HSBC EPS 12.7-14.5 55.1 35.0 Ratios (%) Revenue/IC (x) 3.5 3.6 3.6 3.7 ROIC 29.7 29.4 29.2 31.4 ROE 46.7 32.3 33.2 31.8 ROA 10.6 11.6 12.1 13.1 EBITDA margin 13.8 13.2 13.4 13.7 Operating profit margin 11.7 11.0 11.3 11.7 EBITDA/net interest (x) 2.1 1.8 2.5 3.0 Net debt/equity 306.8 135.5 101.2 59.3 Net debt/ebitda (x) 2.0 1.2 1.1 0.7 CF from operations/net debt 29.9 36.7 43.8 69.7 Per share data (BRL) EPS reported (fully diluted) 0.49 0.42 0.65 0.88 HSBC EPS (fully diluted) 0.49 0.42 0.65 0.88 DPS 0.24 0.21 0.32 0.44 Book value 1.24 1.62 2.28 3.22 Key forecast drivers Year to 12/2013a 12/2014e 12/2015e 12/2016e Same store sales (%) 9 6 7 8 Number of Stores 838 958 1,058 1,158 Selling Area ('1000 sqm) 795 883 961 1,039 Valuation data Year to 12/2013a 12/2014e 12/2015e 12/2016e EV/sales 1.5 1.1 1.0 0.8 EV/EBITDA 10.7 8.7 7.3 5.8 EV/IC 4.9 3.8 3.2 2.8 PE* 28.9 33.8 21.8 16.1 P/Book value 11.4 8.7 6.2 4.4 FCF yield (%) -1.5-14.0-10.4-5.0 Dividend yield (%) 1.7 1.5 2.3 3.1 Note: * = Based on HSBC EPS (fully diluted) Price relative 17 16 15 14 13 12 11 10 9 8 2012 2013 2014 2015 Lojas Americanas Rel to BOVESPA INDEX Note: price at close of 08 Oct 2014 17 16 15 14 13 12 11 10 9 8 2

Lojas Americanas stores undervalued at current share prices The tables below set out the following calculations: (1) the implied forward PE valuation of the Lojas Americanas stores based on current share prices; and (2) the implied valuation per share of B2W in a scenario with Lojas Americanas stores valued at 25x forward PE. A valuation of 25x would be broadly in line with the 5-year average, which we think is appropriate given that there has been no deterioration in sales growth, margins or outlook for expansion. A comparison with Renner (more detail below) backs this up, in our view. Current share prices imply 18x forward PE for Americanas stores; using 25x forward PE implies a value for B2W of BRL0.5 per share (BRL unless stated) Current prices: current LAME / BTOW share prices Source: Bloomberg. HSBC for estimates Scenario: implicit value of B2W with LAME stores at 25x fwd PE Current LAME4 price 14.1 Current LAME4 price 14.1 No of LAME4 shares (m) 763 No of LAME4 shares (m) 763 Current LAME3 price 11.9 Current LAME3 price 11.9 No of LAME3 shares (m) 452 No of LAME3 shares (m) 452 Current LAME mkt cap inc B2W 16,145 Current LAME mkt cap inc B2W 16,145 Current BTOW3 price 32.5 LAME stores 2015e PE multiple 25.0x No. of BTOW3 shares (m) 254.2 LAME stores 2015e net income 639 Current BTOW3 mkt cap 8,262 LAME stores mkt cap ex. BTOW3 15,975 BTOW3 stake held by LAME (%) 55% Implied value BTOW3 stake held by LAME (R$m) 170 BTOW3 stake held by LAME 4,544 BTOW3 stake held by LAME (%) 55% LAME stores mkt cap ex. BTOW3 11,601 Implied BTOW3 mkt cap (100%) 309 LAME stores 2015e net income 639 BTOW3 2015e sales 10,390 LAME stores 2015e PE 18.2x BTOW3 2015e net debt 735 BTOW3 implied 2015e EV 1,044 BTOW3 implied 2015e EV / Sales 0.10x LAME stores 2015e net income 639 BTOW3 implied share price (R$) - stores at 25x fwd PE 0.5 The charts below paint a picture of the figures above, showing: (1) the implied value of BTOW3 with the current LAME4 share price and based on valuing the Americanas stores at 20x and 25x forward PE; and (2) the implied value of LAME4 shares based on valuing the Lojas Americanas stores at 20x and 25x forward PE alongside the current BTOW3 share price. Implied value of BTOW3 (BRL per share) 35.0 Implied value of LAME4 (BRL per share) 20.0 30.0 25.0-26% 15.0 +27% 20.0 15.0 10.0 10.0 5.0 0.0 Current share price Americanas stores at 20x fwd PE -99% Americanas stores at 25x fwd PE 5.0 0.0 Current share price Americanas stores at 20x fwd PE Americanas stores at 25x fwd PE Source: Bloomberg, HSBC estimates Source: Bloomberg, HSBC estimates We therefore see significant potential for LAME4 shares to re-rate to higher multiples. 3

Lojas Americanas stores have historically traded at c.26x PE 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Americanas stores implied fwd PE Average Americanas stores 2011-14 Consolidated forward PE Source: Thomson Reuters Datastream, HSBC estimates We have also used Renner as a benchmark to judge whether this is an appropriate valuation. The table below sets out these calculations. We have taken Renner s historical average forward PE of c.19x and stripped out the Financial Services business at 10x to arrive at an implied valuation for the stores of c.21x. We think Americanas stores should trade at a premium for the following reasons: (1) higher EBITDA margin; (2) lower working capital requirement; (3) less capital-intensive expansion; (4) less gross margin risk (markdown); and (5) less competition in its product categories. Benchmarking with Renner s historical average multiple, we think 25x is appropriate for Americanas stores What multiple should LAME stores trade at? LREN3 historical average multiple 18.8x Contribution from Financial Services 20% Financial Services PE 10.0x LREN stores implied multiple 21.0x LAME stores multiple premium 20% LREN stores implied multiple 21.0x LAME stores estimated fair multiple 25.2x Source: Company reports, HSBC estimates Valuation and risks We arrive at our target price of BRL20 for LAME4 shares by applying the historical average consolidated multiple of 31x to our FY15e EPS of BRL0.65. Under our research model, for stocks without a volatility indicator, the Neutral band is 5ppt above and below the hurdle rate for Brazil stocks of 11%. Our target price of BRL20 implies a potential return of 42.9% (including a forecast dividend yield of 1.5%), which is above the Neutral band of our model; therefore, we are reiterating our Overweight rating on Lojas Americanas shares. Potential return equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated. Downside risks include a more negative impact from a tougher consumer environment, slower roll-out of new stores, increased competition, and slower or shallower turnaround at B2W. 4

Disclosure appendix Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Richard Cathcart and Stewart Ragar Brazilian Securities Exchange Commission (CVM) Regulation No. 483 Pursuant to CVM Ruling No. 483 (July 2010), HSBC has obtained from the analyst(s) listed above under " Certification" and disclosed (where applicable), the statements set forth in Article 17 and have rendered (where applicable) the statements set forth in Article 18, under the sections titled " Certification" and "HSBC & Disclosures". The analyst(s) furthermore certifies(y) that the recommendations contained in this report have been prepared independently, even in relation to HSBC. Additionally, for purposes of Article 16, the principal analyst responsible for compliance of the mentioned regulation is the first name in the list under " Certification" that has local certification, where applicable. Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below. This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website. HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months 5

(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change. *A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change. Rating distribution for long-term investment opportunities As of, the distribution of all ratings published is as follows: Overweight (Buy) 45% (29% of these provided with Investment Banking Services) Neutral (Hold) 37% (29% of these provided with Investment Banking Services) Underweight (Sell) 18% (20% of these provided with Investment Banking Services) Share price and rating changes for long-term investment opportunities Lojas Americanas (LAME4.SA) Share Price performance BRL Vs HSBC rating Recommendation & price target history history From To Date Neutral (V) Underweight 06 March 2012 Underweight Neutral 16 November 2012 Neutral Overweight 31 January 2014 Target Price Value Date Price 1 8.11 06 March 2012 Price 2 7.97 10 May 2012 Price 3 10.37 09 October 2012 Price 4 15.15 16 November 2012 Price 5 13.55 10 July 2013 Price 6 14.35 17 September 2013 Price 7 17.54 31 January 2014 Price 8 16.00 06 May 2014 Price 9 17.00 16 June 2014 Price 10 20.00 01 September 2014 20 18 16 14 12 10 8 6 4 2 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 6

HSBC & disclosures Disclosure checklist Company Ticker Recent price Price Date Disclosure LOJAS AMERICANAS LAME4.SA 14.14 09-Oct-2014 7 1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 31 August 2014 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 August 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 August 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 August 2014, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-us Market Maker in securities issued by this company and/or in securities in respect of this company HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. s, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues. Whether, or in what time frame, an update of this analysis will be published is not determined in advance. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. Additional disclosures 1 This report is dated as at. 2 All market data included in this report are dated as at close 08 October 2014, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 7

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Global Consumer Brands & Retail Research Team Europe Consumer Brands & Retail Antoine Belge Head of Consumer Brands and Retail Equity Research +33 1 56 52 43 47 antoine.belge@hsbc.com Anne-Laure Jamain +44 207 991 6587 annelaure.jamain@hsbcib.com David McCarthy Head of Consumer Retail, Europe +44 207 992 1326 david1.mccarthy@hsbcib.com Jérôme Samuel +33 1 56 52 44 23 jerome.samuel@hsbc.com Emmanuelle Vigneron +33 1 56 52 43 19 emmanuelle.vigneron@hsbc.com Paul Rossington +44 20 7991 6734 paul.rossington@hsbcib.com Leisure Lena Thakkar +44 20 7991 3448 lena.thakkar@hsbcib.com CEEMEA Consumer Brands & Retail Bulent Yurdagul +90 212 3764612 bulentyurdagul@hsbc.com.tr Jeanine Womersley +27 21 6741082 jeanine.womersley@za.hsbc.com Specialist Sales Lynn Raphael +44 20 7991 1331 lynn.raphael@hsbcib.com David Harrington +44 20 7991 5389 david.harrington@hsbcib.com Jean Gael Tabet +44 20 7991 5342 jeangael.tabet@hsbcib.com Asia Consumer Brands & Retail Erwan Rambourg Head of Consumer Brands and Retail Equity Research +852 2996 6572 erwanrambourg@hsbc.com.hk Chris Zee +852 2822 2912 chriscmzee@hsbc.com.hk Christopher Leung +852 2996 6531 christopher.k.leung@hsbc.com.hk Lina Yan +852 2822 4344 linayjyan@hsbc.com.hk Catherine Chao +852 2996 6570 catherinefchao@hsbc.com.hk Charlene Liu +852 2822 4398 charlenerliu@hsbc.com.hk Alice Chan +852 2996 6535 aliceptchan@hsbc.com.hk Karen Choi +822 3706 8781 karen.choi@kr.hsbc.com Jena Han +822 3706 8772 jenahan@kr.hsbc.com Permada (Mada) Darmono +65 6658 0613 permada.w.darmono@hsbc.com.sg Ananita M Kusumaningsih +65 6658 0610 ananita.m.kusumaningsih@hsbc.com.sg Thilan Wickramasinghe +65 6658 0609 thilanw@hsbc.com.sg Amit Sachdeva +91 22 2268 1240 amit1sachdeva@hsbc.co.in North & Latin America Consumer & Retail Richard Cathcart +55 11 2169 4429 richard.cathcart@hsbc.com Stewart Ragar +1 212 525 3460 stewart.h.ragar@us.hsbc.com Food & Beverage James Watson +1 212 525 4905 james.c.watson@us.hsbc.com Diego T Maia +55 11 33718192 diego.t.maia@hsbc.com.br Agricultural Products Alexandre Falcao +55 11 3371 8203 alexander.p.falcao@hsbc.com.br Ravi Jain +1 212 525 3442 ravijain@us.hsbc.com Gustavo Gregori +55 11 3847 9881 gustavo.h.gregori@hsbc.com.br