Union Securities Research Team

research@unionsecurities.ch

June 18, 2019

Equity Market Review

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

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Tel: +41 22 59 18 64

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Union Securities Switzerland SA

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June 18, 2019 17