DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
27 May 2015
Global
Equity Research
Investment Strategy
Global Equity Strategy STRATEGY
Oil: excess speculation
■ We note that speculative positions in oil are excessive and appear to
have peaked. Ordinarily, this leads to a fall in the oil price. Additionally, if the
oil price rose significantly from here it would threaten Saudi Arabia's market
share strategy (which it implemented at an $80p/b oil price) especially with
shale capex being switched back on at $65p/b. Since 1860, bear markets in
oil have lasted 11 to 28 years, not 7 years. The recent strength in the dollar
points to a weaker oil price, tactically. Credit Suisse's house view is that oil
prices will weaken in the near-term, before rising to $71p/b in Q4.
■ We are underweight IOCs: P/B relatives are back to their norm (though
book value is, if anything, more impaired than normal); adjusting for scrip,
the dividend yield relative to the market is back to its norm. Above all, on an
oil price of $76p/b, the FCF yield of the global IOC sector is forecast by our
analysts to be just 3.4% in 2016. Recently, capex cuts appear to have
slowed. Sell-side net buy recommendations have risen sharply to levels from
which, 75% of the time, the sector has subsequently underperformed over
the following 3 and 6 months.
■ We would look to buy some of those areas that have suffered from the
recent rise in oil price. We add money to Airlines: 10% off the oil price
ordinarily leads to c5% outperformance; P/E relative is at the low end of its
range at a 43% discount to the market; earnings revisions are still better
than the market (in spite of the rise in the oil price) suggesting that capex to
sales being below its norm is still resulting in capital discipline (our airlines
margin proxy, calculated as the gap between airlines CPI and fuel CPI, is
abnormally supportive). Buy IAG, easyJet and Ryanair.
■ We re-iterate our recent upgrade of UK retailing to overweight, if oil
peaks near term. The sector is abnormally cheap versus its peers and its
historical norm and the outlook for real disposable income growth is very
good. Earnings revisions are positive. Buy Kingfisher, Poundland, B&M.
We would look to buy some of the energy-consuming areas, particularly
those that have underperformed since the trough in the oil price and have
pricing power. The following stocks are cheap on Credit Suisse HOLT®,
have positive earnings revisions and are Outperform-rated by our analysts:
Ryanair, easyJet, Akzo Nobel. We would buy India and Korea: these are
two of the biggest oil importers, and when India has been this oversold it has
outperformed historically. We would be cautious on Russia-exposed
European stocks which tend to track the oil price (e.g., Oriflame Cosmetics,
Adidas, Teliasonera).
Research Analysts
Andrew Garthwaite
44 20 7883 6477
Marina Pronina
44 20 7883 6476
Robert Griffiths
44 20 7883 8885
Yiagos Alexopoulos
44 20 7888 7536
Nicolas Wylenzek
44 20 7883 6480
27 May 2015
Global Equity Strategy 2
Table of contents Oil: excess speculation 3
Integrated Oil: an underweight 5 Who are the potential beneficiaries if oil falls? 8 Airlines: add to weightings 8 UK retailing: re-iterate overweight 10 Oil importing GEMs 12 Energy consuming stocks 15 Cautious of Russian exposure 15
Appendix 18 Long-term oil price 18 Sell-side net buy recommendation backtest 18 UK retail sales volume 19 Russia vs the oil price 19 US IOCs 20 US airlines 21 US retailing 22 Sector weightings 24
27 May 2015
Global Equity Strategy 3
Oil: excess speculation A number of factors make us a little nervous on the near-term outlook for the oil price:
■ Speculative positions are extended: Net long positions in oil have risen to all-time
highs. Historically, once very elevated speculative positions start to roll over, the oil
price has fallen significantly (with the oil price falling by between 12% and 60% on the
last 4 occasions that speculative positions rolled over from very high levels). In recent
days, just such a peak in speculative positions seems to have been seen.
Figure 1: Speculative positions in oil are extended Figure 2: In recent years, the oil price has fallen by
around 30% following peaks in net long positions
40
50
60
70
80
90
100
110
120
130
140
0
50,000
100,000
150,000
200,000
250,000
300,000
2011 2012 2013 2013 2014 2015
ICE Brent managed money net long contracts
Brent in USD/bbl, rhs
Date of peakOil price at
peak
Subsequent oil
price drop
Duration (in
months)
29/03/2012 125 -28% 2.8
12/02/2013 119 -18% 2.1
29/08/2013 117 -12% 2.3
20/06/2014 116 -60% 6.9
Average -29% 3.5
Oil price performance after peaks in net long positions
Source: The BLOOMBERG PROFESSIONAL™ service, Credit
Suisse research
Source: The BLOOMBERG PROFESSIONAL™ service, Credit
Suisse research
■ Saudi Arabia's market share battle isn't over yet. Saudi Arabia introduced its
market share strategy when the oil price was at $80p/b, and this change of strategy
was subsequently backed up by near record production. In other words, Saudi Arabia
wished to avoid the repetition of its 1980 to 1985 experience when it acted as swing
producer to non-OPEC production, which resulted in a nearly 75% fall in its output.
Consensus expects the oil price to rise close to $80pb by the end of 2016. However,
the last time Saudi Arabia introduced a 'market share' strategy, it took 5 years for the
oil price to return to the level it was at when the 'market share' strategy was
introduced. We would also note, in this context, that the oil price is now performing
significantly better than it did the last time Saudi Arabia introduced a market share
strategy (in November 1985).
We believe that if the oil price were to rise significantly from here, then Saudi Arabia
would start to lose its market share. Indeed, at $65p/b, EOG Resources has stated
that it would resume double-digit production growth, as reported in the FT, 5 May
2015. Against that backdrop, the IEA has stated that it is 'premature' to conclude that
OPEC 'has won the battle for market share' (see the FT, 13 May).
■ The oil price is now modestly overbought. The oil price has moved from being
oversold to overbought.
27 May 2015
Global Equity Strategy 4
Figure 3: Oil is no longer oversold
Figure 4: The current oil price cycle vs Nov 1985, the last
time when Saudi Arabia opted for a strategy of market
share. It took 5yrs for the oil price to reach previous highs
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1984 1989 1994 1999 2004 2009 2015
Brent Crude, deviation from 6mma
Average (+/- 1 SD)
0 30 60 90 120 150 180 210 240 270 300 330 360
20
30
40
50
60
70
80
90
100
110Oil price 365 working days after peak
25 Nov 1985
25 Aug 2014
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
We also worry about four other factors impacting negatively on the oil price:
■ An optimistic consensus: There is very tight and clear consensus that the oil price
will rebound towards $75-$80p/b by the end of next year. The Bloomberg consensus
is $75 for year-end 2016, the 3-year forward price is $73.6p/b and the tone of
commentary from CEOs and oil traders in the media has turned notably more
optimistic;
■ Bear markets have tended to last significantly longer: Historically, oil bear markets
have lasted 11 to 28 years (see Appendix);
■ Lower subsidies and environmental legislation will impact on demand: Our oil
team highlights that oil demand growth in the OECD is currently 1.2% Y/Y, a three-
year high. We are concerned, however, that the rebound in demand is more limited
than would normally be the case with half of demand growth in the past 10 years
having come from oil exporters; oil subsidies in a number of emerging markets have
been reduced significantly (in India and Indonesia, in particular); and tougher
environmental considerations are likely to weigh on demand (CO2 emissions
standards, the requirement for MPG for US cars to be 52.5 by 2025, nearly double
today's level).
■ The oil trade has been correlated to the dollar (with Figure 6 illustrating the
relationship between Brent and the dollar trade weighted index). On the basis of this
relationship, the move higher in the dollar over the past week is consistent with the oil
price falling back to below $60.
27 May 2015
Global Equity Strategy 5
Figure 5: Consensus expects the oil price to rise steadily
above $77 next year
Figure 6: The dollar TWI and the oil price have been
closely related in recent years
63
6972 72
77
40
50
60
70
80
90
100
110
Q3 15 Q4 15 Q1 16 Q2 16 Q3 16
Median forecast (with high/low band)CS forecastBrent forward
Bloomberg consensus forecasts for Brent
40
50
60
70
80
90
100
110
12082
87
92
97
102
107
Jan 13 Jul 13 Jan 14 Jul 14 Jan 15
US TWI, inverted, lhs
Oil brent, rhs
Source: The BLOOMBERG PROFESSIONAL™ service, Credit
Suisse estimates
Source: Thomson Reuters, Credit Suisse research
In Oil Sense: Taking Stock, 7 May 2015, our energy analyst Jan Stuart suggested oil
markets are due a correction. The team forecast that Brent crude will fall in the near term,
but ultimately end the year at $71.00 (for Brent). We agree.
Integrated Oil: an underweight
We believe investors should be underweight IOCs. Valuations are average, at best: the
IOCs now have a dividend yield relative to the market which, adjusted for scrip (25% of
total dividends), is back to its average. The P/B relative of the sector is also back to its
norm (and book value, we believe, is more impaired than normal because much of their
asset life depends on high cost oil whose book value is now questionable in a lower cost
oil regime). We show the same charts for the US sector in the appendix.
Figure 7: DY relative to the market of the IOCs are back to
average after scrip
Figure 8: With P/B relative also back to average
70%
90%
110%
130%
150%
170%
190%
210%
230%
1995 1999 2003 2007 2011 2015
Europe IOCs DY rel market
Average (+/- 1sd)
Assuming a 25% aggregatescript
40%
60%
80%
100%
120%
140%
160%
1995 1999 2003 2007 2011 2015
Europe IOCs ex BP P/B rel market
Average
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 6
Furthermore, IOCs offer the lowest 2016 consensus free cash flow yield of all sectors. In
fact, on our analysts numbers and assuming spot energy prices as well as their base case
(76 USD Brent in 2016), none of the European oil majors are able to cover their dividends
on free cash flow (in contrast to some of the major miners).
Figure 9: None of the oil majors cover their dividend with
free cash flow on our analysts' 2016 forecasts…
Figure 10: … the same is the case on our team's base
case assumptions
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Gle
n
RIO
BH
P
RD
S
AA
L
TO
TA
L
BP
(pr
e-M
acon
do)
BP
(po
stM
acon
do)
FCF yield
DY (including scrip)
2016 estimate assuming spot oil (67 USD Brent) /commodity prices
0%
1%
2%
3%
4%
5%
6%
7%
RD
S
Exx
onM
obil
Tot
al
BP
(pr
e-M
acon
do)
BP
(po
stM
acon
do)
Che
vron
FCF yield Dividend yield (incl. scrip)
2016 estimate assuming CS base case (76 USD Brent)
Source: CS mining / oil & gas equity research team, Credit Suisse
estimates
Source: CS oil & gas research team, Credit Suisse estimates
We believe that the market should not reward dividends being paid out of debt or
disposals (for example, GSK's dividend yield is high at 5.1% because investors see only
75% of the dividend being covered by free cash flow). The debate is whether capex gets
cut significantly further than the analysts forecast. That partly depends on the oil price, but
we would note that US companies seemed to have stopped cutting capex and that the
flexible part of opex (S,G and A) is close to normal levels relative to capex.
Figure 11: S,G & A is 30% of capex for the oil sector Figure 12: 2015 Capex estimates for major IOC have fallen
significantly, though not recently
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
SG&A/CAPEX (%)
55
65
75
85
95
105
115
Jan-14 Mar-14 Jun-14 Sep-14 Nov-14 Feb-15 May-15
Exxon Mobil Chevron
Conocophillips Occidental
2015 Capex estimates, YTD, Jan 2014 = 100
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 7
The IOCs sector moved from being heavily oversold to being 1 standard deviation
overbought (though has now fallen back to only slightly above neutral levels).
Figure 13: Price momentum for the Pan European sector relative to the sector is neutral
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2000 2003 2006 2009 2012 2015
Pan European energy, deviation from 6mma rel mkt Average (+/- 1 SD)
Source: Thomson Reuters, Credit Suisse research
In addition, sell-side recommendations have now turned much more positive on the sector.
The last time net buy recommendations were at this level, the oil sector subsequently
underperformed the market on 75% of occasions over the following 3 and 6 months (see
Appendix).
Figure 14: Sell-side analysts have turned much more
positive on the sector
Figure 15: The sector's earnings momentum tend to
follow the oil price
2.1
2.3
2.5
2.7
2.9
3.1-15%
-10%
-5%
0%
5%
10%
1996 1999 2002 2005 2008 2011 2015
Europe IOCs on analyst recommendations rel to market (+=Buy; -=Sell)Analyst recommendations (1=Buy; 5=Sell)
-50
-40
-30
-20
-10
0
10
20
30
-80
-60
-40
-20
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013 2014 2015
Brent, 6m % chg
Pan European energy 12m forwardEPS, 6m %chg, rhs
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Historically, this sector has been a serial value destroyer (the CFROI® per unit of the oil
price has fallen 75% since 2002).
On the positive side, the main supports for the sector are the high nominal yield (at 4.7%
on a trailing basis), the credit rating (AA), and earnings revisions (which unsurprisingly
tend to follow the oil price, as illustrated in Figure 15).
27 May 2015
Global Equity Strategy 8
Who are the potential beneficiaries if oil falls?
It might be worth considering some of the trades that might benefit from a fall in the oil
price.
Airlines: add to weightings
The airline team point out that IAG should retain most of the windfall gain from a lower oil
price given BA's attractive position at a full Heathrow, with budget airlines easyJet and
Ryanair occupying the middle ground, while Air France KLM and Lufthansa will likely see
benefits largely competed away over time. (See European Airlines: Pricing power trumps
falling fuel, 16 January).
Figure 16: 12-month forward P/E relative is low Figure 17: European airlines tend to outperform when the
oil price falls, and vice versa: 10% on the oil price tends
to mean 5% off airlines
20%
70%
120%
170%
220%
270%
320%
370%
2002 2004 2006 2008 2010 2012 2015
European Airlines 12m fwd P/E relEuropean Market
-80%
-60%
-40%
-20%
0%
20%
40%
60%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
European airlines relative 3m % chg
Oil price 3m % chg (rhs inverted)
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
In our view, airlines are a play on three separate themes:
■ Reasonable capital discipline. Despite the fall in the oil price and the investment
plans of the Middle Eastern state-backed operators, there is in general still reasonable
capital discipline, as illustrated by: (i) below average capex to sales; (ii) the very high
margin (our margin proxy is airline CPI less airline fuel costs) and (iii) the fact that
earnings revisions are positive despite the recent rise in the oil price. Our team
expects short haul capacity to rise by c4% this year, close to the increase in demand,
and expects transatlantic capital discipline to remain high. Underlying this greater
capital discipline has been the fact that the sector has seen state
involvement/ownership decline significantly over the past 10 years.
■ Second, a rise in corporate spend (according to our airlines analyst, Neil Glynn, this
accounts for 40% for the flag carriers overall revenues – with IAG the most exposed).
27 May 2015
Global Equity Strategy 9
Figure 18: Despite the move higher in the oil price,
earnings revisions for the sector remain slightly stronger
than the market
Figure 19: Capex to sales has moved higher, but remains
below its long run average
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1996 1999 2002 2005 2008 2011 2015
European Airlines 3m breadth Rel market
4
6
8
10
12
14
Q2 1995 Q4 1997 Q2 2000 Q4 2002 Q2 2005 Q4 2007 Q2 2010 Q4 2012 Q2 2015
European airlines capex / sales (%)
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
■ Third, the sector is a play on a likely rise in euro-area tourism, which increased 3.9%
yoy in 2014 (with the budget airlines having 100% of their revenues and legacy
carriers having 40-50% of their revenues coming from European travel). The fall in the
euro against both sterling and the US dollar YTD is likely to provide further support to
this trend. Moreover, the CEO of major retailers (such as M&S and Next) have
highlighted that the windfall gains of a lower oil price are being spent on big ticket
technology items and holidays.
Figure 20: Airlines margin proxy (calculated as the gap
between airlines CPI and fuel CPI) is highly supportive,
though less than it has been
Figure 21: European airlines sector looks neutral on our
price momentum monitor
-40
-30
-20
-10
0
10
20
30
40
2010 2011 2012 2013 2014 2015
Gap between air transport CPI and Liquid fuelCPI (Margin proxy)
% chg Y/Y (bps)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
European Airlines %dev from 6mma, rel to European Market
Average (+/- 1SD)
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 10
Below, we show a screen of airlines rated Outperform by Credit Suisse equity research
analysts. Our team particularly like IAG owing to the capacity constraints at Heathrow, and
the budget airlines whose cost base (labour costs to sales) is nearly half that of the legacy
flag carriers.
Figure 22: Stocks rated Outperform in European airlines sector by Credit Suisse analysts
Name Absrel to
Industry
rel to mkt %
above/below
average
Abs
rel to mkt %
above/below
average
FCY DY
Price, %
change to
best
3m EPS 3m Sales Credit Suisse
rating
Intl.Cons.Airl.Gp.(Cdi) 9.9 45% -41% 4.4 91% 30.8 2.1 22.0 19.5 4.0 2.2 Outperform
Ryanair Holdings 15.1 94% -23% 4.7 19% 3.7 1.0 13.7 8.9 2.5 2.0 Outperform
Easyjet 12.2 76% -21% 3.1 48% 2.2 3.5 12.2 1.8 -2.3 2.1 Outperform
-----P/E (12m fwd) ------ 2015e Momentum, %------ P/B ------- HOLT2015e, %Consensus
recommendation
(1=Buy; 5=Sell)
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
UK retailing: re-iterate overweight
UK retailing is another sector that tends to be abnormally sensitive to the oil price (and
over the past year should have performed better given the fall in the oil price).
Figure 23: A falling oil price tends to be positive for the
relative performance of the UK general retail sector
Figure 24: A fall in the share of household disposable
income spent on oil tends to be positive for the relative
performance of the UK general retail sector
-100%
-50%
0%
50%
100%
150%-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1991 1994 1997 2000 2003 2006 2009 2012 2015
General retail price relative, y/y% change
Oil price, y/y% change, rhs, inverted
1.9%
2.0%
2.1%
2.2%
2.3%
2.4%
2.5%
2.6%
2.7%
2.8%
2.9%0.4
0.6
0.8
1.0
1.2
1.4
90 94 98 02 06 11 15
General retail price relative
Share of UK household disposable incomespent on oil, rhs inverted
Rise in oil prices, retail underperforms
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Moreover, the P/E relative is cheap, especially against its global peers, and earnings
revisions are positive. We upgraded the sector to overweight in our report, Overweight UK
equities post-election; sector changes (8 May 2015).
27 May 2015
Global Equity Strategy 11
Figure 25: UK general retail is trading below its average
PE relative
Figure 26: Relative to international peers, UK general
retail trades at a substantial discount
55%
65%
75%
85%
95%
105%
115%
125%
135%
145%
155%
1995 1998 2001 2005 2008 2011 2015
UK Retailing: 12m fwd. P/E rel. to mkt
Average (+/- 1 SD)
5
10
15
20
25
30
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Euro area general retail
UK general retail
US general retail
12 month forward PER
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
The backdrop to the UK consumer is particularly strong given that real wage growth is now
at a 10-year high (and should rise further given the fall in unemployment) and vacancy
growth is consistent with 2% employment growth, while UK private sector earnings growth
is now showing meaningful signs of acceleration. Against this backdrop, UK retail sales
volume growth – particularly in non-food stores – has been extremely strong (it is currently
running at around 8% Y/Y – see appendix).
If sterling were to strengthen because UK rates expectations are a little too sanguine, then
UK retailing should outperform.
Figure 27: 4-week earnings momentum has picked up
strongly despite the rise in the oil price…
Figure 28: …and vacancy growth remains consistent with
2% employment growth
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012 2013 2014 2015
UK earnings revisions 4-week
13-week
-40
-30
-20
-10
0
10
20
30
40
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
2003 2005 2007 2009 2011 2013 2015
Employment, y/y%
Vacancies, y/y%, lead 3m, rhs
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 12
Figure 29: UK wage growth is now showing meaningful
signs of acceleration and should rise further given the fall
in unemployment
Figure 30: The UK retail sector tends to outperform when
sterling strengthens
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2001 2003 2005 2007 2009 2011 2013 2015
Private sector regular pay growth, single month
Change in UK unemployment from a year ago, 3mlead rhs
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
70
75
80
85
90
95
100
105
2002 2004 2006 2008 2010 2012 2015
TW£, lhs
UK general retail relative, rhs
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Our preferred names in this space are shown below. From a top-down perspective, we
particularly like Kingfisher which was on our M&A target list (see M&A: the wave builds, 29
April), is a play on a European recovery (c50% of revenues), is engaged in restructuring
and is particularly cheap relative to Home Depot.
Figure 31: Outperform-rated UK retail stocks
Name Absrel to
Industry
rel to mkt %
above/below
average
Abs
rel to mkt %
above/below
average
FCY DY
Price, %
change to
best
3m EPS 3m Sales
Consensus
recommendation
(1=Buy; 5=Sell)
Credit Suisse
rating
Kingfisher 15.8 67% 11% 1.3 -38% 2.7 3.1 9.9 -6.5 -9.0 3.0 Outperform
Poundland Group 20.1 85% -16% na na na 1.5 -34.3 -3.9 -2.0 3.0 Outperform
Lenta Gdr Each 5 Repr
1 Ord16.6 70% -7% na na -1.5 0.0 30.5 -9.2 -1.6 2.4 Outperform
B&M European
Val.Ret. (Di)23.9 101% -6% na na na 1.3 -51.5 -1.8 0.2 2.0 Outperform
-----P/E (12m fwd) ------ 2015e Momentum, %------ P/B ------- HOLT2015e, %
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Oil importing GEMs
There has been, in general, a poor fit between country performance and net oil importers
since the trough in the oil price but this is not the case for emerging markets.
27 May 2015
Global Equity Strategy 13
Figure 32: There has been a very poor fit on the whole between market performance and
net oil imports (as % of GDP) since the trough in the oil price
South Korea
India
Netherlands
Japan
Indonesia
Spain EUChina Germany
France
Italy
US
Australia
Brazil
UKArgentina
Mexico
Canada
0%
5%
10%
15%
20%
25%
30%
-4% -3% -2% -1% 0% 1% 2% 3%
Equ
ity m
kt p
erf s
ince
the
trou
gh in
the
oil p
rices
(14
th
Jan)
Oil net exports as % of GDP (59 USD average oil price)
Norway (6.7%, 15%)
Source: Thomson Reuters, Credit Suisse research
India: In our recent emerging markets upgrade note, India scored fifth on our composite
scorecard, while Brazil was third bottom (see Emerging Markets: upgrade to benchmark, 6
May 2015).
Looking at India/Brazil versus the oil price, it is clear that when the oil price weakens, the
Indian stock market looks attractive. In the case of India, the fall in the oil price helps the
current account position as well as dampens inflation (which with high real rates allows
interest rates to fall).
Indian equities appear abnormally oversold, at levels from which they historically
outperform and India is no longer clearly expensive. Even the rupee seems to be
undervalued versus the export market share that India achieves.
Figure 33: Indian equities should outperform Brazilian
equities if the oil price falls
Figure 34: India equities are significantly oversold
40
50
60
70
80
90
100
110
120
130
14030
35
40
45
50
55
60
2011 2012 2013 2014 2015
MSCI India rel to Brazil, LCBrent price, rhs, inverted
-25%
-15%
-5%
5%
15%
25%
35%
2000 2003 2006 2009 2012 2015
MSCI India, deviation from 6mma, rel AC world
Average (+/- 1SD)
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 14
Figure 35: …and the PE relative has now corrected Figure 36: The Indian rupee is undervalued if we look at
currency valuation relative to the export market share
80%
90%
100%
110%
120%
130%
140%
150%
160%
170%
180%
2000 2003 2006 2009 2012 2015
India 12m fwd PE rel GEM Average (+/- 1SD)
-80%
-78%
-76%
-74%
-72%
-70%
-68%
-66%
-64%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
1996 1998 2001 2003 2005 2008 2010 2012 2015
India exports % of World exports
Currency deviation from PPP
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Korea: Korea is the biggest net oil importer. Korean earnings momentum is positive and it
is one of the biggest beneficiaries of a pick-up in global growth (which, as we argued last
week, the rise in real bond yields seems to be implicitly predicting). See Bonds sell off:
Implications for equities, 15 May. Again, like India, it has been one of the worst performing
regions this year.
Figure 37: Korea's earnings momentum has improved
sharply…
Figure 38: …and earnings remain highly leveraged to the
global cycle
-35%
-25%
-15%
-5%
5%
15%
25%
35%
2007 2009 2011 2013 2015
South Korea: 3-month earnings revisions relative to Global
7.2
6.0
3.5 3.4
2.9 2.8 2.7 2.52.3 2.2
1.9
0.1
0
1
2
3
4
5
6
7
8
Japa
n
Kor
ea
Ger
man
y
US
Fra
nce
Rus
sia
Italy
Spa
in
Indi
a
UK
Chi
na
Bra
zil
Beta of EPS to Global IP
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
We provide further detail on our overweight stance in Emerging Markets: upgrade to
benchmark, but in summary: the KOPSI is cheap, corporate governance is improving from
very low levels, the market is under-owned and the Won is also looking abnormally
undervalued against export market shares.
27 May 2015
Global Equity Strategy 15
Figure 39: Korea has one of the lowest pay-out ratios in
the world but it has started to increase in recent quarters
Figure 40: Investors tend to be very underweight Korea
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Korean pay-out ratio
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14
India Thailand
Indonesia China
S Korea Taiwan
Fundmanger weighting (benchmark=1)
Source: Thomson Reuters, Credit Suisse research Source: EPFR, Credit Suisse GEM Equity Strategy team research
Energy consuming stocks
Below we screen for stocks that were beneficiaries of a falling oil price and which have
some degree of pricing power. The names are listed below, and could be among the
beneficiaries from a correction in the price of oil.
Figure 41: Energy consuming stocks
Name
Price performance rel
respective market since
trough in oil price
Absrel to
Industry
rel to mkt %
above/below
average
Abs
rel to mkt %
above/below
average
FCY DY
Price, %
change to
best
3m EPS 3m Sales
Consensus
recommendation
(1=Buy; 5=Sell)
Credit Suisse
rating
Osaka Titanium 7% 26.4 153% -42% 2.5 -51% na 0.6 -35.2 21.9 -2.4 2.7 Outperform
Fedex 10% 16.2 101% -4% 3.7 33% 5.3 0.5 6.4 -1.0 0.2 2.0 Outperform
Wolseley 22% 15.5 93% 26% 3.5 25% 4.2 2.4 na 0.5 -2.4 2.7 Outperform
Ryanair Holdings 50% 15.1 94% -23% 4.7 19% 3.7 1.0 13.7 8.9 2.5 2.0 Outperform
Easyjet 10% 12.2 76% -21% 3.1 48% 2.2 3.5 12.2 1.8 -2.3 2.1 Outperform
Dollar General 9% 18.0 77% 9% 4.0 10% 3.1 1.1 9.3 -1.6 -0.2 2.1 Outperform
Wal Mart Stores -8% 16.0 86% -26% 3.1 -41% 5.0 2.5 32.1 -6.8 -1.7 2.8 Outperform
Carnival 12% 16.5 75% -4% 1.5 -44% 1.9 2.2 31.1 -2.5 -3.1 2.4 Outperform
Croda International 17% 20.1 118% 31% 7.9 44% 3.1 2.5 -13.1 0.2 -0.5 2.9 Outperform
Akzo Nobel -2% 16.4 96% 22% 2.9 -21% 3.4 2.3 12.7 7.2 2.2 2.8 Outperform
Pirelli 20% 14.8 132% 18% 3.0 102% 2.7 2.7 26.2 -3.7 -1.3 2.9 Outperform
Thomas Cook Group 6% 11.1 51% 29% 75.9 321% 11.1 1.9 -17.4 -10.4 -3.8 2.4 Outperform
-----P/E (12m fwd) ------ ------ P/B ------- 2015e, % HOLT 2015e Momentum, %
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Of these stocks, Akzo Nobel is cheap on HOLT, has positive earnings momentum and
has underperformed since the recent trough in the oil price.
Cautious of Russian exposure
We would be cautious of Russian exposure. Each $10 on the oil price improves the
Russian current account position by nearly 2.5% of GDP (thus offsetting more significant
domestic adjustments), and with 50% of fiscal revenues from oil and around 20% of GDP
directly (and a further 15% of GDP indirectly) accounted for by oil, it clearly has a
significant growth impact. We can see that the European stocks with high Russian
sensitivity have closely followed the oil price.
27 May 2015
Global Equity Strategy 16
Figure 42: The relative performance of European stocks with Russian exposure follows
the oil price
37
42
47
52
57
62
67
72
20
40
60
80
100
120
140
2005 2007 2009 2011 2013 2015
Brent oil price European stocks with Russian exposure in USD rel. market, rhs
Source: Thomson Reuters, Credit Suisse research
The screen below shows European companies with significant Russian exposure.
Figure 43: European stocks with exposure to Russia
Name Russian exposure Absrel to
Industry
rel to mkt %
above/below
average
Abs
rel to mkt %
above/below
average
FCY DY
Price, %
change to
best
3m EPS 3m Sales
Consensus
recommendation
(1=Buy; 5=Sell)
Credit Suisse
rating
Oriflame Cosmetics
Sdr
50% sales 13.7 63% -3% 5.9 -61% 0.8 3.1 -22.2 -13.9 0.9 2.7 Underperform
Carlsberg 'B' 37% sales 16.8 80% 2% 1.4 -37% 4.9 1.5 -18.0 -4.3 1.7 3.3 Outperform
Henkel 9% sales 18.3 85% 30% 3.9 24% na 1.9 na 0.0 1.9 2.3 Not Rated
Fortum 20% of 2015E EBITDA 18.1 115% 37% 1.5 -23% 3.4 7.3 23.2 -8.6 -12.1 3.1 Not Rated
Telenor 7% sales 17.1 103% 24% 4.2 63% 2.8 4.3 18.4 -4.9 4.6 2.9 Neutral
Teliasonera 19% of net income 13.2 80% -26% 2.0 -11% 6.9 6.1 14.5 -7.4 3.0 2.9 Neutral
Adidas 10% sales 20.2 107% 28% 2.7 -41% 3.2 2.1 -1.3 0.3 3.8 2.6 Neutral
Renault 8% sales 8.7 78% -41% 1.1 -3% 3.6 2.5 102.6 7.9 2.0 2.3 Outperform
Nokian Renkaat 26% sales 17.5 157% 28% 3.5 0% 6.1 4.7 -5.9 13.9 2.1 3.2 Underperform
-----P/E (12m fwd) ------ 2015e Momentum, %------ P/B ------- HOLT2015e, %
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
Our GEM equity strategy team's model of Russian equity market performance forecasts
c.24% downside potential for the market by year-end, even using the Credit Suisse
forecast for a higher oil price.
27 May 2015
Global Equity Strategy 17
Figure 44: Our GEM equity strategy team forecasts c.24%
downside for the Russian equity market
Figure 45: Model details
200
400
600
800
1000
1200
1400
1600
1800
2004 2006 2008 2010 2012 2014 2016
Predicted MSCI Russia
Actual MSCI Russia
Model inputs Coeff. P-value Current y/e 2015 Upside
25 May Scenario from
current
Oil (Brent) 0.13 0.088 66.2 71.0 7.3%
RUB USD -0.25 0.019 49.9 50.0 0.2%
IFO business expec. 1.05 0.000 103.0 99.0 -3.9%
CRB Metals Index 0.75 0.000 734 874 19.0%
MSCI Russia
25 May y/e 2015
Adj R square: 0.79 Actual 569 569
Observations: 137 Warranted 468 434
Intercept 0.00 Upside % -17.8 -23.7
Source: Credit Suisse GEM Equity Strategy team Source: Credit Suisse GEM Equity Strategy team
27 May 2015
Global Equity Strategy 18
Appendix Long-term oil price
Figure 46: Bull markets in oil tend be short, bear markets protracted
0
30
60
90
120
150
1861 1880 1899 1918 1938 1957 1976 1995 2015
Real oil price (2013 US$)
Average
3 yrs
28 years 20 years
3 yrs 5 yrs
9 yrs
9 yrs
19 yrs11 yrs
35 year average = 56$
Source: Credit Suisse Fixed Income Strategy team
Sell-side net buy recommendation backtest
Figure 47: The European IOC sector tends to underperform following the point at which
analysts have become as positive on the sector as they are now
Date 1m 3m 6m 12m
20-Sep-95 2% -5% -4% -10%
20-Aug-08 6% -12% -17% 2%
20-Jun-12 -1% 2% 10% 16%
20-Dec-13 0% -1% -8% 12%
Av erage 2% -4% -5% 5%
Ty pical 0% 0% 1% 1%
% of rise 75% 25% 25% 75%
Relative performance of Europe IOCs after sell side
recommendations were at current levels
Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 19
UK retail sales volume
Figure 48: UK retail sales volumes at non-food stores have been extremely strong
recently
-4
-2
0
2
4
6
8
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Non-food store sales volume, % change Y/Y, 3 m.m.a.
Predominantly food stores sales volume, % change Y/Y, 3 m.m.a.
Source: Thomson Reuters, Credit Suisse research
Russia vs the oil price
Figure 49: The performance of MSCI Russia relative has tended to track the oil price
closely
30
50
70
90
110
130
60
80
100
120
140
160
180
200
220
240
260
Jan 13 Jul 13 Jan 14 Jul 14 Jan 15
MSCI Russia rel world, $ terms Brent price, rhs
Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 20
US IOCs
We would argue that US IOCs look in aggregate slightly more attractive than their
European counterparts. They look cheaper on P/B relative to the market and remain
oversold (having underperformed YTD despite the rise in the oil price). We would,
however, note that the dividend yield relative is not as attractive as it is for the European
integrateds and their FCF yield is lower in some cases (see Figure 10).
Figure 50: US IOCs look cheap on P/B relative… Figure 51: … and attractive on DY relative
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
US IOCs P/B rel market
Average
70%
120%
170%
220%
270%
1990 1994 1998 2002 2006 2010 2015
US IOCs DY rel market Average
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Figure 52: The price relative remains oversold despite
rebounding recently
Figure 53: Earnings momentum is still negative
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1990 1993 1996 1999 2002 2005 2008 2011 2014
US IOCs %dev from 6mma, rel to market Average
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
1993 1996 1999 2002 2005 2008 2011 2014
US IOCs 3m breadth Rel market
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 21
US airlines
US airlines are very oil sensitive (10% off the oil price has historically led to 14%
outperformance), are cheap on P/E relatives and oversold. Capital discipline still looks
reasonable (with capex to sales still at the low end of its historical range). Our analysts
have an Outperform rating on Delta Air Lines, JetBlue Airways, Southwest Airlines and
United Continental.
Figure 54: US airlines trade on a P/E relative close to its
previous low
Figure 55: Price momentum of the sector is c.1 standard
deviation oversold
0%
50%
100%
150%
200%
250%
300%
350%
2003 2006 2009 2012 2015
US Airlines 12m forward PE rel market Average
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1997 2000 2003 2006 2009 2012 2015
US Airlines %dev from 6mma, rel to US Market
Average (+/- 1SD)
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Figure 56: Capex to sales is moving higher, but remains
low by historic standards…
Figure 57: …and the sector tends to outperform when the
oil price falls
0%
5%
10%
15%
20%
25%
30%
1997 2000 2003 2006 2009 2012 2015
US Airlines Capex to Sales
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%-60%
-40%
-20%
0%
20%
40%
60%
80%
2007 2008 2009 2010 2011 2012 2013 2014 2015
Oil US $/BBL
US Airlines price relative to market, inverted, rhs
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 22
US retailing
The US retailing sector historically is heavily influenced by the oil price and should have
performed better given the fall in the oil price and also the strength of the dollar.
Figure 58: The retailing sector should be doing much
better given the fall in the oil price
Figure 59: The retail sector should benefit from USD
strength
-30%
-20%
-10%
0%
10%
20%
30%
40%-100%
-50%
0%
50%
100%
150%
200%
1995 1999 2003 2007 2011 2015
Oil price, y/y%
US general retail relative, rhs, inverted
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1995 1999 2003 2007 2011 2015
Trade-weighted US$, y/y%
US general retail relative, rhs, y/y%
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
There continues to be a strong inverse correlation between consumer confidence and the
oil price.
Figure 60: Falling gasoline prices tend to be positive for
US consumer confidence
Figure 61: Relative earnings momentum has just rolled
over but remains positive
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%-25
-15
-5
5
15
25
2008 2009 2010 2011 2012 2013 2014 2015
UMich consumer confidence,expectations, 6m ch (6m lag)
Gasoline prices, 6m%ch, rhs, inverted
-30%
-20%
-10%
0%
10%
20%
30%
40%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
US Retailing 3m breadth of revisions Rel to mkt
Source: Thomson Reuters, Credit Suisse research Source: Credit Suisse HOLT
Valuations of retailing ex Amazon are back to reasonable levels and Amazon on P/S or
HOLT is not expensive.
27 May 2015
Global Equity Strategy 23
Figure 62: US retailing ex Amazon 12-month forward P/E
relative to the market
Figure 63: Amazon relative to market price to sales
70%
80%
90%
100%
110%
120%
130%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
US retailing ex Amazon 12m fwd P/E rel market
Average (+/- 1SD)
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Amazon price to sales rel US mkt
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Earnings revisions have rolled over (as shown in Figure 61).
Total payroll income growth at 4% p.a. should support real retail sales growth of c.3%yoy.
Figure 64: Payroll income growth fell recently but
remains elevated
Figure 65: US real retail sales continue to grow at c3%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1990 1993 1996 1999 2002 2005 2009 2012 2015
Payroll income y/y%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1996 1999 2002 2005 2008 2011 2014
Real retail sales
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
We continue to prefer the US home improvement companies that are still looking cheap
relative to the market at a time when we continue to believe that the long-run level of
housing starts is c.1.5m (the NAHB is consistent with this level).
27 May 2015
Global Equity Strategy 24
Figure 66: US home improvement retail stocks trade just
below neutral on P/E relative to the market
Figure 67: The NAHB index is consistent with c1.5m
housing starts
70%
90%
110%
130%
150%
170%
190%
1995 1999 2003 2007 2011 2015
US home improvement 12m fwd PE rel market
Average (+/- 1SD)
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
0
10
20
30
40
50
60
70
80
90
1986 1990 1995 2000 2005 2010 2015
US NAHB index US Housing starts (000's, rhs)
Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research
Figure 68: We highlight Home Depot and Lowe's in the US home improvement market
Name Absrel to
Industry
rel to mkt %
above/below
average
Abs
rel to mkt %
above/below
average
FCY DY
Price, %
change to
best
3m EPS 3m Sales
Consensus
recommendation
(1=Buy; 5=Sell)
Credit Suisse
rating
Home Depot 20.3 87% -12% 15.7 152% 5.4 2.1 -7.9 0.7 0.5 2.1 Outperform
Lowe's Companies 19.8 85% -1% 6.7 72% 5.5 1.4 -13.2 0.6 0.7 2.2 Outperform
-----P/E (12m fwd) ------ 2015e Momentum, %------ P/B ------- HOLT2015e, %
Source: MSCI, IBES, Thomson Reuters, Credit Suisse HOLT, Credit Suisse research
27 May 2015
Global Equity Strategy 25
Sector weightings
Figure 69: European sector weightings
Over/underweighting
score
Benchmark
weight (a)
Recommended
weight (b)
Difference from
benchmark (bps) (b-a)
Change from
previous (score)
Software & Services 1.50 1.6 2.4 78
Commercial Services & Supplies 1.25 1.3 1.6 31
Telecoms 1.20 4.8 5.8 93
Media 1.20 2.7 3.2 51
Banks 1.12 12.1 13.5 135
Hotels & Leisure 1.12 1.2 1.3 13
Semiconductors & Semiconductor Equipment 1.10 0.9 1.0 9
Pharmaceuticals & Biotechnology 1.08 12.6 13.5 91
Automobiles & Components 1.07 3.6 3.8 23
Transportation 1.06 1.5 1.6 8 2
Insurance 1.05 6.0 6.2 25
Capital goods 1.00 8.3 8.3
Chemicals 1.00 3.9 3.9
Utilities 1.00 3.9 3.9
Household & Personal Products 1.00 1.9 1.8
Health Care Equipment & Services 1.00 1.3 1.2
Food & Staples Retailing 1.00 1.2 1.2
Technology Hardware & Equipment 1.00 0.9 0.9
Construction Materials 1.00 0.8 0.8
Pulp & paper 1.00 0.2 0.2
Metals & Mining 0.99 2.6 2.6 -5
Diversified Financials 0.90 3.4 3.0 -36
Consumer Durables & Apparel 0.90 2.6 2.3 -28
Beverages 0.85 3.3 2.8 -51
Retailing 0.80 1.5 1.2 -30
Real Estate 0.80 1.3 1.0 -27
Energy 0.80 7.4 5.8 -156 -1
Food Products 0.74 5.4 4.0 -143
Tobacco 0.65 1.8 1.2 -64
Total 100.0 100.0 Source: Thomson Reuters, Credit Suisse research
27 May 2015
Global Equity Strategy 26
Companies Mentioned (Price as of 22-May-2015)
Adidas AG (ADSGn.F, €75.34) AkzoNobel (AKZO.AS, €69.82) Amazon com Inc. (AMZN.OQ, $427.63) Anglo American Plc (AAL.L, 1062.5p) B&M European Retail (BMEB.L, 332.0p) BHP Billiton (BHP.AX, A$29.25) BP (BP.L, 457.75p) Carlsberg (CARLb.CO, Dkr648.5) Carnival (CCL.N, $47.35) Chevron Corp. (CVX.N, $104.89) ConocoPhillips (COP.N, $65.11) Croda International (CRDA.L, 2927.0p) Delta Air Lines, Inc. (DAL.N, $43.18) Dollar General (DG.N, $73.56) EOG Resources (EOG.N, $90.26) EasyJet (EZJ.L, 1591.0p) ExxonMobil Corporation (XOM.N, $86.52) FedEx Corporation (FDX.N, $175.18) GlaxoSmithKline plc (GSK.L, 1464.5p) Glencore (GLEN.L, 292.4p) Home Depot (HD.N, $112.16) International Airlines Group (ICAG.L, 542.5p) JetBlue Airways Corporation (JBLU.OQ, $20.44)
Kingfisher (KGF.L, 365.4p) Lenta Ltd (LNTAq.L, $9.01) Marks & Spencer (MKS.L, 594.0p) Mediaset (MS.MI, €4.62) Next (NXT.L, 7450.0p) Nokian Tyres (NRE1V.HE, €31.22) Occidental Petroleum (OXY.N, $77.01) Oriflame Cosmetics (ORIsdb.ST, Skr136.6) Osaka Titanium Technologies (5726.T, ¥2,772) Pirelli (PECI.MI, €15.53) Poundland (PLND.L, 314.7p) Renault (RENA.PA, €98.81) Rio Tinto (RIO.L, 2902.5p) Royal Dutch Shell plc (RDSa.L, 1970.5p) Ryanair (RYA.I, €10.9) Southwest Airlines Co. (LUV.N, $36.86) Telenor (TEL.OL, Nkr175.3) TeliaSonera (TLSN.ST, Skr51.5) Thomas Cook Group plc (TCG.L, 147.3p) Total (TOTF.PA, €47.73) United Continental Holdings, Inc. (UAL.N, $53.69) Wal-Mart Stores, Inc. (WMT.N, $75.86) Wolseley (WOS.L, 4060.0p)
Disclosure Appendix
Important Global Disclosures
The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
27 May 2015
Global Equity Strategy 27
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 42% (53% banking clients)
Neutral/Hold* 39% (50% banking clients)
Underperform/Sell* 16% (44% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
See the Companies Mentioned section for full company names
The subject company (CVX.N, RDSa.L, TCG.L, BHP.AX, BP.L, LNTAq.L, TOTF.PA, ORIsdb.ST, WMT.N, PLND.L, KGF.L, ADSGn.F, PECI.MI, MS.MI, COP.N, AKZO.AS, DG.N, BMEB.L, XOM.N, GLEN.L, CCL.N, RIO.L, OXY.N, HD.N, JBLU.OQ, EOG.N, GSK.L, DAL.N, UAL.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (CVX.N, RDSa.L, TCG.L, BP.L, LNTAq.L, TOTF.PA, WMT.N, PLND.L, COP.N, BMEB.L, XOM.N, GLEN.L, RIO.L, HD.N, EOG.N, GSK.L, UAL.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (ORIsdb.ST, KGF.L, XOM.N, DAL.N) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (RDSa.L, TCG.L, BP.L, WMT.N, PLND.L, COP.N, XOM.N, GLEN.L, HD.N, GSK.L, UAL.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (CVX.N, RDSa.L, TCG.L, BP.L, LNTAq.L, TOTF.PA, WMT.N, PLND.L, COP.N, BMEB.L, XOM.N, GLEN.L, RIO.L, HD.N, EOG.N, GSK.L, UAL.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CVX.N, CRDA.L, RDSa.L, TCG.L, BHP.AX, BP.L, LNTAq.L, TOTF.PA, WMT.N, PLND.L, TEL.OL, KGF.L, ADSGn.F, PECI.MI, MS.MI, COP.N, 5726.T, BMEB.L, XOM.N, GLEN.L, CCL.N, RIO.L, OXY.N, HD.N, JBLU.OQ, EOG.N, AMZN.OQ, LUV.N, GSK.L, MKS.L, UAL.N) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ORIsdb.ST, KGF.L, XOM.N, DAL.N) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (CVX.N, FDX.N, ORIsdb.ST, WMT.N, COP.N, DG.N, XOM.N, CCL.N, OXY.N, HD.N, JBLU.OQ, EOG.N, AMZN.OQ, LUV.N, DAL.N, UAL.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (RYA.I, CRDA.L, ORIsdb.ST, ADSGn.F, PECI.MI, ICAG.L, NXT.L, UAL.N).
Credit Suisse and its related bodies corporate have a substantial interest greater than 5% in (ORIsdb.ST)
Credit Suisse has a material conflict of interest with the subject company (GLEN.L) . Credit Suisse Securities (Europe) Limited is acting as financial advisor in connection with the GlencoreXstrata sale of its interest in the Las Bambas copper mine project in Peru to a consortium owned 62.5% by MMG Limited, 22.5% by GUOXIN International Investment Corporation Limited and 15.0% by CITIC Metal Co. Limited.
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (RYA.I, CVX.N, CRDA.L, RDSa.L, TLSN.ST, TCG.L, BHP.AX, BP.L, LNTAq.L, TOTF.PA, FDX.N, ORIsdb.ST, WMT.N, PLND.L, TEL.OL, KGF.L, ADSGn.F, PECI.MI, EZJ.L, MS.MI, RENA.PA, CARLb.CO, COP.N, AAL.L, 5726.T, AKZO.AS, AKZO.AS, AKZO.AS, DG.N, BMEB.L, XOM.N, WOS.L, GLEN.L, CCL.N, RIO.L, ICAG.L, OXY.N, HD.N, NRE1V.HE, JBLU.OQ, EOG.N, AMZN.OQ, LUV.N, GSK.L, DAL.N, MKS.L, NXT.L, UAL.N) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
27 May 2015
Global Equity Strategy 28
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (TCG.L, ORIsdb.ST, KGF.L, EZJ.L, RIO.L).
The following disclosed European company/ies have estimates that comply with IFRS: (RYA.I, CRDA.L, RDSa.L, TLSN.ST, TCG.L, BP.L, ORIsdb.ST, TEL.OL, KGF.L, ADSGn.F, EZJ.L, MS.MI, RENA.PA, CARLb.CO, AAL.L, AKZO.AS, XOM.N, WOS.L, RIO.L, MKS.L, NXT.L).
As of the end of the preceding month, the subject company (ORIsdb.ST) beneficially owned 5% or more of the total issued share capital of Credit Suisse Group.
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (RDSa.L, TCG.L, BP.L, TOTF.PA, WMT.N, PLND.L, MS.MI, COP.N, AAL.L, XOM.N, GLEN.L, RIO.L, HD.N, EOG.N, GSK.L, DAL.N, UAL.N) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Securities (Europe) Limited ........ Andrew Garthwaite ; Marina Pronina ; Robert Griffiths ; Yiagos Alexopoulos ; Nicolas Wylenzek
Important MSCI Disclosures
The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.
Important Credit Suisse HOLT Disclosures
With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.
The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.
Additional information about the Credit Suisse HOLT methodology is available on request.
The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.
CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
27 May 2015
Global Equity Strategy 29
References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This information is being distributed by Credit Suisse AG, Dubai Branch, duly licensed and regulated by the Dubai Financial Services Authority (DFSA), and is directed at Professional Clients or Market Counterparties only, as defined by the DFSA. The financial products or financial services to which the information relates will only be made available to a client who meets the regulatory criteria to be a Professional Client or Market Counterparty only, as defined by the DFSA, and is not intended for any other person. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright © 2015 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
XX6573EU.doc