Trading Idea - Short Danone

Thursday, September 27th 2012

Investment Case

H1 2012 reported consolidated sales growth of 7.7%, 5.9% LFL. As

expected, Europe was the weakest geographical area (-0.1% LFL;

trading operational margin decreased to 11.93% from 14.16%). Asia

and Rest of the World showed strong performances, up 18.2% LFL

and 11.7% LFL, respectively. Reflecting a lower profitability in South-

ern Europe, H1 2012 trading operating margin decreased to 13.85%

(-0.61bps). Adjusted EPS was €1.51.

Ability to deliver above-average top-line and bottom-line growth

could prove tougher to achieve given the more difficult macro envi-

ronment in Western Europe. Trading deterioration in Southern

Europe (white brands are an increasing threat), mainly Spain, contin-

ues to be a great concern.

At their H1 2012 earnings report, Management maintained their

FY12 guidance, established at the time of last June´s profit warning.

Nonetheless, Danone’s Western Europe Fresh Dairy businesses

could affect the group’s operational performance (sales and mar-

gins) in the coming quarters.

Danone announced that it will purchase two minority shareholders

in Spain. This could cause some market concern, given the current

weak outlook for that country.

Danone is a company with attractive long-term growth prospects,

and it trades at a discount to European food peers. But, after last

June´s profit warning, the market will probably wait for increased

visibility.

Technical Comment

Announcement: Fincor—Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents men-

tioned in this document do not constitute (nor should they be interpreted as to form) any kind of counselling, or investment recommendation, or a

record of our trading prices, or an offer or solicitation to trade in any financial instrument. Fincor—Sociedade Corretora, S.A. Will not accept any

responsibility resulting from any use referring to said content or about any resulting effect that could have occurred.

www.fincor.pt

www.facebook.com/Fincor

Company Description

Analysts Recommendations:

Source: Bloomberg

Market Price Data

52-week High (€) 54.96

52-week Low (€) 44.375

Last Price (€) 49.255

YTD Change 1.41%

Mkt Cap (€bn) 31.679

Float 81.2%

Source: Bloomberg

Market Multiples

P/E DY EPS CAGR Debt/Equity

2013 Est. 2013 Est. 2011/13

Est 2012 Est.

14.61 3.24 8.02% 1.63

Source: Bloomberg

Financial Highlights H1 2011 H1 2012

Sales (€ mn) 9,728.00 10,475.00

Operating Margin % 14.47% 13.85%

Trading Operating Income (€ mn) 1,407.47 1,450.88

Change % (YoY) 3.08%

Source: Danone's Half Year Report