Pair Trade: Long ASML - Short Cap Gemini

Monday, October 22nd 2012

Investment Case

Technical Comment

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Companies Description

Analysts Recommendations:

Source: Bloomberg

ASML Holdings has recently underperformed after guiding towards

Q4 orders weakness. Softness in the PC industry and macro

challenges, which caused DRAM prices to fall, was probably the key

driver. We acknowledge the low visibility on this issue over the next

few months.

However, in the European technology sector, ASML could remain

attractive. The Intel-Samsung-TSMC deal and the recently

announced Cymer acquisition seem to provide revenue and margin

upside at the next cyclical peak. Cymer is their laser source supplier.

ASML intends to increase efficiency and simplify the supply chain.

The Intel-Samsung-TSMC deal is a customer co-investment program

for the development of some technologies. At the same time, those

companies are expected to buy an equity stake in ASML. Intel agreed

to buy a 15% stake.

Cap Gemini: Last week’s IBM Q3 miss on revenues could have a

negative read-across to Euro IT Services. GBS revenues growth (more

relevant to Cap Gemini) was negative Q/Q, slowing down from the

previous quarter. The booking was also down.

Q3 revenues will be reported at November 8th. Higher competition

and economic weakness (mainly in Europe) should be considered.

Nonetheless, the shift to offshore locations should allow the

company to reduce its costs. With expectations that don’t seem very

demanding, we’ll prefer to close the pair trade before Cap Gemini ´s

Q3 Revenues announcement.

The ASML/Cap Gemini has a current relative ratio value of 1.309. We

will define our target at 1.375 and our stop-loss at 1.265.

Market Price Data

ASML Holdings (ASML NA)

Last Price (€) 41.235

YTD Change 25.23%

Mkt Cap (€ bn) 20.149

Cap Gemini (CAP FP)

Last Price (€) 31.495

YTD Change 30.9%

Mkt Cap (€ bn) 5.113

Source: Bloomberg

Next Report Date

ASML

Q4 and Annual

Results

January 17th,

2013

Cap Gemini Q3 Revenues.

November 8th,

2012

Source: Bloomberg