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Equity Highlights
June 18, 2019 2
Performance
ScheduleImportant Events This Week
Tuesday: German ZEW, US Housing Starts
Wednesday: US Crude Oil Inventories, US FOMC
Thursday: BOE Meeting, US Jobless Claims
Friday: BOJ Meeting, Markit Industrial PMIs
Monday: German IFO
Total return performance on both the portfolios and the indices
Strategy Facebook – Libra
Video Game Publishers – E3 Recap
YtD 19.07% vs 15.91% / 3.16% alpha YtD 18.23% vs 16.29% / 1.95% alpha
Weekly 0.60% vs 0.09% / 0.51% alpha Weekly 0.93% vs 0.53% / 0.40% alpha
2018 -6.90% vs -11.26% / 4.36% alpha 2018 1.48% vs -4.39% / 5.86% alpha
Since Inception 151.29% vs 99.74% / 51.55% alpha Since Inception 231.10% vs 179.02% / 52.09% alpha
Since August 2011 Benchmark: EuroStoxx 50 Since August 2011 Benchmark: S&P 500
YtD 16.21% vs 4.75% / 11.46% alpha YtD 24.50% vs 18.78% / 5.72% alpha
Weekly 2.19% vs 0.93% / 1.25% alpha Weekly 0.66% vs 0.86% / -0.20% alpha
2018 -12.99% vs -16.04% / 3.05% alpha 2018 6.92% vs 0.01% / 6.91% alpha
Since Inception 15.53% vs -0.20% / 15.73% alpha Since Inception 52.62% vs 29.86% / 22.76% alpha
Since August 2017 Benchmark: Topix Since July 2017 Benchmark: Nasdaq
European Global Leaders US Global Leaders
Japanese Global Leaders Next-Gen Leaders
Facebook – Libra
Facebook is expected to unveil today its own digitalcurrency backed up by a consortium of more than adozen companies including Visa, MasterCard, PayPaland Uber.
The currency, named Libra, will be pegged to a basket ofgovernment-issued currencies and thus will be verydifferent from traditional cryptos such as the Bitcoin.Details of the plan (and the reaction of regulators) willbe closely followed by investors.
Bitcoin is still mostly used for speculative purpose and ishardly used for commerce. Facebook is betting that itcan change this. The opportunity for the media giant isto create its own shopping ecosystem. At first, the Librashould be only available on Facebook chat apps(WhatsApp, Messenger and Instagram).
Some of the members of the consortium could serve as“nodes” along the system that verify transactions andmaintain records of them, creating a brand-newpayments network. That would be a new opportunity forthe likes of Visa, MasterCard and PayPal.
-> Stay Long Facebook and Payment TechnologiesStocks.
June 18, 2019 3
Facebook - Daily
PayPal - Daily
Video Game Publishers – E3 Recap
June 18, 2019 4
Video Game Publishers – E3 Recap
The 2019 E3 (Electronic Entertainment Expo) trade eventtook place in Los Angeles last week.
It was an opportunity for players in the video gameindustry to present new games and hold press conferencesand investor meetings to outline their strategy.
The event failed to provide a catalyst for a rebound of thesector but provided some insight into the next consolegeneration coming for Christmas 2020.
Hot topics were:
New Game launches and the production pipeline,
The shift to digital downloads and game streaming,following the introduction of Google Stadia and apartnership in cloud and AI between Microsoft andSony,
In-game digital content fatigue and the impact ofFortnite and free-to-play games,
The E3 showed that the new Games pipeline is relativelypoor in 2019. R&D expenses and capitalized developmentcosts remain high pointing to a slate a new games launchesin 2020, in line with the release of next-generationconsoles at the end of 2020 (PS5 and Xbox Scarlett).
June 18, 2019 5
Actor Keanu Reeves introducing CD Projekt Cyberpunk 2077 game at E3
UbiSoft streaming services presentation at E3
Video Game Publishers – E3 Recap
We continue to believe 2019 is a year of adjustment forthe industry to:
review their cost base,
refocus their product portfolio,
accelerate the move to digital distribution and cloudgaming,
get ready for the next-generation of consoles.
Our key investment thesis for the industry remains valid:
A strong top-line growth driven by mobile andincreased consumer interest in video games;
Improving margins through digital sales, cloudgaming, and increased monetization of existingfranchises;
A reasonable valuation and some potential M&Awithin the industry or from players interested inexpanding their content offering (Alphabet,Facebook, Tencent, Verizon, Vivendi, Disney,Microsoft, Sony, Amazon, etc…)
Expect a sharp rebound in sales an earnings in the comingquarters on the back of new product launches, cost cutsand low guidance from publishers.
-> Stay Long Video Games Publishers
June 18, 2019 6
Microsoft Keynote
Electronic Arts FIFA Volta
Video Game Publishers – E3 Recap
Activision failed to provide any meaningful information.The increased monetization of Call of Duty remains thecompany largest opportunity in particular through amobile version of the game.
New games should be announced in November at BlizzCon2019.
Activision will invest in marketing at King (Candy Crush) tore-energize the brand.
Ubisoft New games such as Ghost Recon:Breakpoint werewell received but the announcement of the Uplay+subscription failed to convince investors.
The 15% increase in R&D also raised some questions onprofitability
Ubisoft stock fell following the recent sale of shares by thefounding family whose stake has dropped below 18% (and25% of the voting rights). The move is likely linked topersonal projects rather than a lack of faith in the company(only one year ago, the family blocked a takeover attemptby Vivendi).
June 18, 2019 7
Activision - Daily
Ubisoft - Daily
Video Game Publishers – E3 Recap
Electronic Arts introduced FIFA Volta, a street soccermode designed to attract new players while the StarWars Jedi: Fallen Order will be the major holiday release.
One big unknown remains the progress of Fortnitecompetitor Apex as significant revenue contributor.
Take Two seems to have the best pipeline with the RedDead online version coming this summer and thepotential to leverage NBA 2K in a cloud version.
In addition to the Xbox Scarlett, Microsoft announced60 games including 14 coming from the company’sinternal Xbox game studios. It also announced a testphase this Autum of a new xCloud streaming service.
While gaming represents only 8% of Microsoft revenues(about $10bn p.a.), it represent a strong growthopportunity for the Tech giant to be both a leadingcontent provider as well as a leading platform forgaming publishers.
Microsoft is one of our core Global Leaders holdings
June 18, 2019 8
Take Two - Daily
Electronic Arts - Daily
Video Game Publishers – Comp Sheet
Description
NameMkt Cap
($bn)
Revenue
($bn)Sector Sub-Industry
Country
NameCurrency
Microsoft 1014.9 110.4 Information Technology Systems Software UNITED STATES USD
Activision Blizzard 34.9 7.5 Communication Services Interactive Home Entertainment UNITED STATES USD
Electronic Arts 27.6 5.0 Communication Services Interactive Home Entertainment UNITED STATES USD
Take-Two Interactive 12.4 2.7 Communication Services Interactive Home Entertainment UNITED STATES USD
Ubisoft 8.3 2.1 Communication Services Interactive Home Entertainment FRANCE EUR
Konami Holdings Corp 6.8 2.4 Communication Services Interactive Home Entertainment JAPAN JPY
CD Projekt SA 5.2 0.1 Communication Services Interactive Home Entertainment POLAND PLN
Square Enix Holdings Co Ltd 3.9 2.4 Communication Services Interactive Home Entertainment JAPAN JPY
June 18, 2019 9
Valuation Value Creation
NameEst. PE - 12M
Fwd
Est. PE - 24M
Fwd
Est.
EV/EBITDA
Est.
Price/Sales
Est.
EV/SalesEst. RoE
Trailing
ROE
Trailing
ROIC
Sales
Growth (3y
avg.)
EPS
Growth (3y
avg.)
LT Exp.
EPS
CAGR
Asset
Turnover
Microsoft 26.1 22.7 15.8 7.4 7.0 37.0% 40.1% 23.2% 5.9% 22% 13% 48%
Activision Blizzard 19.4 16.7 12.7 5.2 4.9 11.9% 16.4% 13.9% 18.3% 165% 7% 40%
Electronic Arts 19.9 17.9 12.5 5.3 4.4 24.4% 20.5% 16.6% 4.2% -3% 13% 56%
Take-Two Interactive 24.6 22.0 14.4 4.6 4.0 18.7% 18.9% 11.8% 25.2% na 9% 67%
Ubisoft 21.2 18.5 7.4 3.2 3.3 29.9% 11.1% 6.8% 10.0% 5% 36% 61%
Konami Holdings Corp 19.0 16.6 8.5 2.7 2.2 12.9% 12.9% 18.4% 1.9% 60% na 71%
CD Projekt SA 24.7 14.5 17.8 14.1 13.7 41.2% 10.8% 10.8% -23.1% -31% na 34%
Square Enix Holdings Co Ltd 18.1 15.2 7.5 1.5 1.1 10.7% 9.3% na 7.6% 1% na 99%
Cash Flow Generation
Name
Est.
Dividend
Yield
Dividend
Payout
Ratio
FCF Margin
(3y avg.)FCF Yield
Est.
Gross
Margin
Est. EBIT
Margin
Est. Net
Margin
CFO to
Sales
Microsoft 1.5% 45% 30% 3.3% 65% 34% 28% 40%
Activision Blizzard 0.8% 15% 27% 4.6% 72% 34% 27% 24%
Electronic Arts 0.0% 0% 30% 5.1% 77% 31% 27% 31%
Take-Two Interactive 0.0% 0% 23% 6.2% 57% 21% 19% 32%
Ubisoft 0.0% 0% 42% 12.9% 85% 22% 17% 53%
Konami Holdings Corp 1.5% 46% 12% 3.7% 39% 20% 13% 19%
CD Projekt SA 0.1% 92% 41% 0.4% 74% 65% 50% 37%
Square Enix Holdings Co Ltd 1.2% 29% 6% na 46% 11% 8% 5%
Video Game Publishers – Comp Sheet
June 18, 2019 10
Analyst Recommendations Risk Profile
Name CoverageConsensus
Rating (0 to 5)
Consensus
Target PriceTarget %
ATM
Implied Vol
3 M
90%
Implied Vol
3 M
Debt to
Assets
Microsoft 39 4.7 143.18 8.1% 22.4% 25.7% 34%
Activision Blizzard 35 4.3 53.38 17.0% 37.1% 39.1% 15%
Electronic Arts 35 4.3 112.23 21.0% 35.4% 37.3% 11%
Take-Two Interactive 24 4.8 121.50 10.1% 35.6% 37.4% 0%
Ubisoft 17 3.9 82.20 24.6% 39.8% 42.2% 41%
Konami Holdings Corp 15 4.3 5896.36 14.9% na na 5%
CD Projekt SA 16 3.8 233.16 13.9% na na 0%
Square Enix Holdings Co Ltd 14 4.3 4330.91 25.7% na na 4%
Investment Recommendations
June 18, 2019 11
Global Leaders
June 18, 2019 12
Benchmark: S&P 500Benchmark: EuroStoxx 50
European Portfolio US Portfolio
The Global Leaders are quality companies that we believe are fit for long-term investment.
Check our website for more information.
*Since August 2011
Portfolio Benchmark Delta Annualized Portfolio Benchmark Delta Annualized
Performance 151.29% 99.74% 51.55% 13% Performance 231.10% 179.02% 52.09% 17%
Weekly Perf. 0.6% 0.1% 0.5% Weekly Perf. 0.9% 0.5% 0.4%
Performance YTD 19.07% 15.91% 3.16% Performance YTD 18.23% 16.29% 1.95%
Volatility 14.5% 19.1% -4.7% Volatility 13.5% 13.8% -0.3%
Max DrawDown -18.7% -27.8% 9.1% Max DrawDown -18.8% -19.4% 0.6%
-10
10
30
50
70
90
110
130
150
170Index Benchmark
-10
40
90
140
190
240Index Benchmark
Global Leaders – Current List
13June 18, 2019
European Portfolio US Portfolio
Name Ticker Exch Code Theme
Nestlé NESN SW Food Products
RDSA (GBP) RDSA LN Big Oil
RDSA (EUR) RDSA NA Big Oil
Novartis NOVN SW Pharmaceuticals
Roche ROG SW Pharmaceuticals
HSBC HSBA LN Banks
Unilever PLC ULVR LN Food and Household Products
Unilever NV UNA NA Food and Household Products
Total FP FP Big Oil
LVMH MC FP Luxury Goods
L'Oréal OR FP Household Products
SAP SAP GY Software
Novo Nordisk NOVOB DC Pharmaceuticals
Astrazeneca AZN LN Pharmaceuticals
Allianz ALV GY Diversified Insurance
Inditex ITX SM Apparel
Volkswagen VOW3 GY Automobiles
Airbus AIR FP Aerospace
ASML ASML NA Semiconductors Equipment
BNP BNP FP Banks
Daimler DAI GY Automobiles
Kering KER FP Luxury Goods
Essilor EL FP Medical Devices
Reckitt Benckiser RB/ LN Household Products
BMW BMW GY Automobiles
AXA CS FP Diversified Insurance
Heineken HEIA NA Brewers
Vinci DG FP Infrastructure
Vivendi VIV FP Media
Philips PHIA NA Health Care
Dassault Systemes DSY FP Software
Fresenius FRE GY Diversified Health Care
Thales HO FP Defense
Ferrari RACE IM Luxury Goods
Ubisoft UBI FP Video Games
Name Ticker Exch Code Theme
Amazon AMZN US e-Commerce
Microsoft MSFT US Software
Alphabet GOOGL US Internet Media
Apple AAPL US Hardware
Berkshire Hathaway BRK/B US Investment Company
Facebook FB US Internet Media
Johnson & Johnson JNJ US Pharmaceuticals
JP Morgan JPM US Banks
Visa V US Payment Technology
Exxon XOM US Big Oil
Bank of America BAC US Banks
Verizon VZ US Telcos
AT&T T US Big Telco
Chevron CVX US Big Oil
Mastercard MA US Payment Technology
Merck & Co MRK US Pharmaceuticals
Walt Disney DIS US Media & Entertainement
Pepsico PEP US Food Products
McDonald's MCD US Restaurants
Citigroup C US Banks
Nike NKE US Apparel
Adobe ADBE US Software
Medtronic MDT US Medical Devices
3M Co. MMM US Diversified Industrials
Honeywell HON US Diversified Industrials
Accenture ACN US IT Services
Costco COST US Mass Merchants
Starbucks SBUX US Restaurants
Bristol Myers BMY US Pharmaceuticals
Goldman Sachs GS US Banks
Japan Global Leaders
June 18, 2019 14
Benchmark: Topix
Japan Portfolio
We have introduced a Japanese version of the Global Leaders portfolio in September 2017.
Check our website for more information.
*Since September 2017
NameMkt Cap
($bn)Sector
Toyota Motor 199.6 Consumer Discretionary
Softbank Group 107.6 Telecommunication Services
Keyence 67.4 Information Technology
Nintendo 48.2 Information Technology
Nidec 42.7 Industrials
Kao 38.8 Consumer Staples
Shiseido 27.1 Consumer Staples
Komatsu 27.0 Industrials
Terumo 21.8 Health Care
Recruit Holdings 53.6 Industrials
Fujitsu 75.5 Consumer DiscretionaryPortfolio Benchmark Delta
Performance 15.53% -0.20% 15.73%
Weekly Perf. 2.2% 0.9% 1.3%
Performance YTD 16.21% 4.75% 11.46%
Volatility 19.6% 15.5% 4.1%
Max DrawDown -26.1% -24.4% -1.6%
-10
0
10
20
30Index Benchmark
Next-Gen Leaders
June 18, 2019 15
Benchmark: Nasdaq
Next-Gen Leaders
Next-Gen Leaders are cutting-edge companies with exciting growth profiles.
Check our website for more information.
*Since July 2018
Communication Services Industrials
Information Services Information Services
Online Dating Website Research & Analytics
Social Network Information Technology
Video Games Big Data Analytics
Web Advertising Cloud Based - CRM Application
Consumer Discretionary Cloud Based - HR Application
Food delivery Cloud-Based Software and Services
Online Fashion Retail Creativity Software
Health Care Design Software
DNA Sequencing Engineering Software
Human Data Science Internet Services
Medical Robots Navigation Systems
Medical Technology Payment Technologies
Research & Analytics
Invested sectors
Portfolio Benchmark Delta
Performance 52.62% 29.86% 22.76%
Performance 5D 0.7% 0.9% -0.2%
Performance YTD 24.50% 18.78% 5.72%
Volatility 22.5% 19.4% 3.2%
Max DrawDown -27.1% -22.7% -4.3%
-10
0
10
20
30
40
50
60Index Benchmark
Contacts
June 18, 2019 16
Union Securities Switzerland Research
Tel: +41 22 59 18 64
Union Securities Switzerland SA is a FINMA-registered Securities Dealer.
Union Securities Switzerland SA
11 Cours de Rive
1204 Geneva Switzerland
www.unionsecurities.ch
DisclaimerInvestment research – Risk information: USS researches are prepared and published by Union Securities Switzerland SA (regulated by FINMA in Switzerland) “USS”.
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June 18, 2019 17