Green Impact Screener - Long Finance

24 April 2014

Thematic & Impact Investing

Green Impact Screener Investing in small change-makers

Positive policy outlook backs up our Green Impact theme After years of adverse economic and regulatory conditions, we see climate and green policies gathering new momentum. Moreover, even if this new dynamic drops off again, we still expect positive growth prospects for a host of small change-makers that respond to environmental challenges.

Our screening process for top Small & Mid Green Impact stocks We analyse the exposure of top Green Impact stocks to secular growth drivers in the context of our investment case. We also assess the positive environmental impact of their core business in the following clusters:

Eco-products & services Energy efficiency Forestry Green cars Railway Renewable energy Waste & water management

Transformation stories and green champions: two takeaways We highlight companies expected to successfully transform their product portfolios into growth-related assets, and attempt to shed light on neglected pure green plays as well as longstanding convictions on green economy leaders.

Sustainability research team

Samuel Mary (author) [email protected] +44 20 7621 5190

Mark Lewis [email protected] +33 1 7081 5760

Stéphane Voisin (coord.) [email protected] +33 1 7081 5762

Sudip Hazra [email protected] +33 1 7081 5762

Robert Walker [email protected] +44 20 7621 5186

IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst certification(s)

keplercheuvreux.com

mailto:[email protected]

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2 keplercheuvreux.com

Contents

Green impact coverage research team ......... 2

Coverage ................................................................. 5

Green impact coverage research team 6

Summary ................................................................. 8

Bright outlook for green themes beyond the policy talks 8

SMID: the place to be for environmental-themed investing 8

Selecting the top European green impact stocks 8

The top-down view 13

Green impact approach ...................................... 17

Our framework to navigate major green stocks 17

SMIDs: the best place for environmental-themed investing 27

Our SMID screener: five steps to assess green impact 28

Conclusions: Green champions and transformation cases 34

Clusters ................................................................... 37

Tracking market and policy trends 37

Alternative Energy & Trans .............................. 38

Railway 38

Biomass resources ............................................... 40

Forestry 40

Energy efficiency .................................................. 44

Efficient lighting 44

Green cars 49

Eco-products & services..................................... 52

Support services: TIC 52

Renewable energy 55

Waste & Water management 62

Stock profiles ........................................................ 66

Green factors in the investment case context 66

A2A 67

Aalberts 69

Acciona 71

ACEA 73

Aixtron 75

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Albioma 77

Alerion 80

Andritz 81

Ansaldo STS 82

Arcadis 84

Blue Solutions 86

CAF 87

EDP Renovaveis 89

ElringKlinger 91

Ence 92

ENEL Green Power 94

ERG 96

Eurofins 98

Falck Renewables 100

FCC 102

Grontmij 104

Groupe Eurotunnel 105

HERA 106

Imtech 108

IREN 109

K + S 110

Meyer Burger 112

Naturex 113

Oerlikon 115

Osram Licht 117

Pfeiffer Vacuum Technology 119

TomTom 120

Umicore 121

Verbund 123

Vossloh 125

Wienerberger 126

Zumtobel 128

Research ratings and important disclosures 130

Legal and disclosure information .................... 133

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This report is part of a series on Thematic & Impact Investing

Prior reports include:

Investors’ Impact Integrated = I3 Document link

Inclusive Business: The business of social business is business

Document link

http://www.keplercheuvreux.com/document.aspx?tag=EG_EG_231908.pdf

http://www.keplercheuvreux.com/document.aspx?tag=EG_EG_202145.pdf

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Coverage

Table 1: Green impact full coverage

Company Country Sector Green cluster Market cap (EURm)

Analyst

A2A Italy Utilities Waste & Water 2923 Claudia Introvigne ABB Switzerland Capital goods Energy efficiency 43515 Christoph Ladner Acciona Spain Utilities Renewable Energy 3487 Jose Porta ACEA Italy Utilities Waste & Water 2326 Claudia Introvigne Air Liquide France Chemicals Eco-Products & Serv 31117 Markus Mayer Aixtron Germany Semis Energy efficiency 1353 Bernd Laux Albioma France Utilities Renewable Energy Xavier Caroen Alerion Italy Utilities Renewable Energy 161 Claudia Introvigne Alfa Laval Sweden Capital goods Eco-Products & Serv 8286 Joakim Hoglund Alstom France Capital goods Alternative Energy & Trans 6810 Pierre Boucheny Andritz Austria Capital goods Renewable Energy 4710 Thomas Neuhold, CFA Ansaldo STS Italy Capital goods Alternative Energy & Trans 1512 Enrico Coco Arcadis Netherlands Capital goods Eco-Products & Serv 2051 Andre Mulder Blue Solutions France Capital goods Energy efficiency 793 Xavier Caroen Bureau Veritas S.A. France Support services Eco-Products & Serv 9772 Patrick Jnglin, CFA CAF Spain Capital goods Alternative Energy & Trans 1286 Inigo Egusquiza EDP Renovaveis Portugal Utilities Renewable Energy 4259 Jose Porta ElringKlinger Germany Autos & parts Energy efficiency 1888 Michael Raab, CFA Ence Spain Paper Renewable Energy 551 Javier Campos Clavero ENEL Green Power Italy Utilities Renewable Energy 10100 Claudia Introvigne ERG Italy Utilities Renewable Energy 1817 Claudia Introvigne Eurofins Scientific SE France Support services Eco-Products & Serv 3151 David Cerdan Falck Renewables Italy Utilities Renewable Energy 428 Claudia Introvigne FCC Spain Construction &

materials Waste & Water 2094 Joaquin Ferrer, CFA

Gamesa Spain Capital goods Renewable Energy 2102 Jose Porta Geberit AG Switzerland Construction &

materials Waste & Water 8745 Martin Flueckiger

Grontmij Netherlands Capital goods Eco-Products & Serv 231 Andre Mulder Groupe Eurotunnel S.A. France Transport Alternative Energy & Trans 5095 Nabil Ahmed Hera S.p.A. Italy Utilities Waste & Water 2940 Claudia Introvigne Iberdrola Norway Utilities Renewable Energy Jose Porta Imtech Netherlands Capital goods Eco-Products & Serv 879 Andre Mulder Intertek Group PLC United Kingdom Support services Eco-Products & Serv 5759 Patrick Jnglin, CFA IREN Italy Utilities Waste & Water 1659 Claudia Introvigne K + S Germany Chemicals Biomass Resources 4541 Martin Roediger Linde Germany Chemicals Eco-Products & Serv 27127 Markus Mayer Meyer Burger Technology AG Switzerland Capital goods Renewable Energy 966 Christoph Ladner Naturex France Food Biomass Resources 497 Claire Deray Novozymes Denmark Pharma & biotech Biomass Resources 9853 Richard Koch Oerlikon Switzerland Capital goods Energy efficiency 4150 Christoph Ladner Osram Light Germany Capital goods Energy efficiency 4978 Peter Olofsen Pfeiffer Vacuum Technology Germany Capital goods Renewable Energy 873 Craig Abbott Philips Netherlands Capital goods Energy efficiency 23324 Peter Olofsen Saint-Gobain France Construction &

materials Energy efficiency 25424 Josep Pujal

Schneider Electric France Capital goods Energy efficiency 35867 Pierre Boucheny SGS S.A. Switzerland Support services Eco-Products & Serv 13997 Patrick Jnglin, CFA Siemens AG Germany Capital goods Energy efficiency 84265 Hans-Joachim

Heimbuerger Suez Environnement S.A. France Utilities Waste & Water 7565 Xavier Caroen Umicore Belgium Chemicals Eco-Products & Serv 4093 Peter Olofsen Veolia Environnement France Utilities Waste & Water 7529 Xavier Caroen Verbund Austria Utilities Renewable Energy 5246 Ingo Becker, CFA Vossloh Germany Capital goods Alternative Energy & Trans 948 Craig Abbott Wienerberger AG Austria Construction &

materials Energy efficiency 1603 Stephan Trubrich

Zumtobel Austria Construction & materials

Energy efficiency 773 Stephan Trubrich

Source: FactSet, Kepler Cheuvreux

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Green impact coverage research team

Andre Mulder +31 20 563 2380 [email protected]

Bernd Laux +49 69 7569 6141 [email protected]

Christoph Ladner +41 43 333 6645 [email protected]

Claire Deray +33 1 5365 3538 [email protected]

Claudia Introvigne +39 02 8550 7220 [email protected]

Craig Abbott +49 69 7569 6256 [email protected]

David Cerdan +33 1 70 81 57 43 [email protected]

Enrico Coco +39 02 8550 7227 [email protected]

Hans-Joachim Heimbuerger +49 69 7569 6121 [email protected]

Ingo Becker, CFA +49 69 7569 6295 [email protected]

Inigo Egusquiza +34 914 36 5112 [email protected]

Javier Campos Clavero +34 91 436 5115 [email protected]

Joakim Hoglund +46 8 723 51 63 [email protected]

Joaquin Ferrer, CFA +34 91 436 5111 [email protected]

Jose Porta +34 914 36 5113 [email protected]

Josep Pujal +33 1 53 65 35 26 [email protected]

Markus Mayer +49 69 7569 6147 [email protected]

Martin Flueckiger +41 43 333 6005 [email protected]

Martin Roediger +49 69 756 96 169 [email protected]

Michael Raab, CFA +49 69 7569 6157 [email protected]

Nabil Ahmed +33 1 70 81 57 50 [email protected]

Patrick Jnglin, CFA +41 43 333 6000 [email protected]

Peter Olofsen +31 20 563 2367 [email protected]

Pierre Boucheny +33 1 5365 3506 [email protected]

Richard Koch +46 8 723 5172 [email protected]

Stephan Trubrich +43 1 537 12 4149 [email protected]

Thomas Neuhold, CFA +43 1 537 12 4147 [email protected]

Xavier Caroen +33 1 5365 3676 [email protected]

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Table 2: Green impact full coverage: price data and performance

Cap Currency Target Price Up/ Performance (%) Company Rating Ticker Sector local local local local downside 1 month YTD

A2A Hold A2A IM Utilities 2923 EUR 0.9 1.0 -6% 5.6 9.7 ABB Hold ABBN VX Capital goods 54134 CHF 22.0 22.2 -1% -0.5 0.1 Acciona Reduce ANA SM Utilities 3870 EUR 30.9 59.8 -48% 7.4 0.2 ACEA Hold ACE IM Utilities 2326 EUR 9.5 10.8 -12% 14.8 0.0 Air Liquide Buy AI FP Chemicals 30893 EUR 120.0 97.6 23% -1.1 0.0 Aixtron Hold AIXA GR Semis 1219 EUR 10.0 12.0 -17% -5.4 0.0 Albioma Buy ABIO FP Utilities 580 EUR 34.0 19.6 73% 3.0 Alerion Buy ARN IM Utilities 162 EUR 4.1 3.6 0% 8.9 0.0 Alfa Laval Reduce ALFA SS Capital goods 74954 SEK 125.0 170.3 -27% 0.2 0.1 Alstom Reduce ALO FP Capital goods 6510 EUR 26.0 20.2 29% 2.3 0.1 Andritz Hold ANDR AV Capital goods 4690 EUR 45.0 43.2 4% -1.3 0.1 Ansaldo STS Hold STS IM Capital goods 1344 EUR 8.1 8.1 0% -0.4 0.0 Arcadis Buy ARCAD NA Capital goods 2010 EUR 28.0 27.7 1% 2.7 0.1 Blue Solutions Hold BLUE FP Capital goods EUR 18.0 21.0 -14% 16.3 0.0 Bureau Veritas S.A. Hold BVI FP Support services 9649 EUR 22.0 22.7 -3% 11.5 0.1 CAF Buy CAF SM Capital goods 1286 EUR 375.0 375.0 0% -2.6 0.1 EDP Renovaveis Hold EDPR PL Utilities 4259 EUR 4.4 4.7 -6% 0.9 0.1 ElringKlinger Reduce ZIL2 GR Autos & parts 1716 EUR 27.0 26.6 2% -4.9 0.0 Ence Buy ENC SM Paper EUR 2.4 2.2 9% -16.3 0.1 ENEL Green Power Buy &

Selected List EGPW IM Utilities 10100 EUR 2.3 2.0 14% 2.1 0.0

ERG Buy ERG IM Utilities 1817 EUR 13.0 11.6 13% 13.9 0.1 Eurofins Scientific SE Reduce ERF FP Support services 3151 EUR 175.0 214.9 -19% 1.3 0.0 Falck Renewables Buy FKR IM Utilities 428 EUR 1.8 1.4 26% 1.6 0.2 FCC Not Rated FCC SM Construction &

materials 2094 EUR na 15.9 na -13.9 0.0

Gamesa Under Review GAM SM Capital goods 2034 EUR na 8.0 na -0.6 0.0 Geberit AG Hold GEBN VX Construction &

materials 11013 CHF 266.0 284.7 -7% 5.9

Grontmij Reduce GRONT NA Capital goods 231 EUR 3.0 3.5 -14% -10.4 0.0 Groupe Eurotunnel S.A. Buy &

Selected List GET FP Transport 5303 EUR 11.0 9.0 22% 6.1 0.0

Hera S.p.A. Buy HER IM Utilities 2809 EUR 2.2 2.0 9% 8.0 0.0 Iberdrola Buy IBE SM Utilities 61 EUR 5.0 4.9 1% 5.0 0.0 Imtech Buy IM NA Capital goods 435 EUR 2.9 2.0 43% -0.4 0.2 Intertek Group PLC Reduce ITRK LN Support services 4728 GBP/p 2750.0 3000.0 -8% -0.7 0.0 IREN Reduce IRE IM Utilities 1659 EUR 1.1 1.3 -15% 4.7 0.1 K + S Buy SDF GR Chemicals 4541 EUR 26.0 22.9 13% -4.5 -0.1 Linde Buy LIN GY Chemicals 25933 EUR 175.0 142.7 23% -3.6 0.1 Meyer Burger Technology AG

Reduce MBTN SW Capital goods 963 CHF 5.5 14.0 -61% -14.7 -0.1

Naturex Buy NRX FP Food 491 EUR 70.0 64.0 9% 1.7 0.1 Novozymes Reduce NZYMB DC Pharma & biotech 63857 DKK 180.0 233.4 -23% -6.5 0.0 Oerlikon Buy OERL SW Capital goods 4976 CHF 18.0 14.9 21% -1.3 0.1 Osram Light Reduce OSR GY Capital goods EUR 35.5 46.3 -23% -5.2 0.0 Pfeiffer Vacuum Technology

Hold PFV GY Capital goods 873 EUR 80.0 88.5 -10% 3.3 0.1

Philips Hold PHIA NA Capital goods 23876 EUR 27.0 24.2 12% -4.6 0.1 Saint-Gobain Hold SGO FP Construction &

materials 24610 EUR 38.0 42.0 -10% -1.8 0.0

Schneider Electric Reduce SU FP Capital goods 36471 EUR 62.0 64.5 -4% -2.2 0.1 SGS S.A. Hold SGSN VX Support services 16619 CHF 2150.0 2140.0 0% -2.9 0.0 Siemens AG Buy SIE GR Capital goods 87959 EUR 115.0 97.8 18% 3.1 0.1 Suez Environnement S.A.

Hold SEV FP Utilities 7272 EUR 14.0 14.7 -5% 4.3 0.0

Umicore Hold UMI BB Chemicals 4240 EUR 36.5 35.9 2% 3.3 0.0 Veolia Environnement Reduce VIE FP Utilities 7160 EUR 10.0 14.2 -30% 10.4 0.0 Verbund Reduce VER AV Utilities 5246 EUR 11.0 14.8 -26% -5.3 0.0 Vossloh Buy VOS GY Capital goods 1053 EUR 70.5 72.6 -3% -3.1 0.1 Wienerberger AG Reduce WIE AV Construction &

materials 1603 EUR 10.5 13.6 -23% 3.0 0.1

Zumtobel Hold ZAG AV Construction & materials

400 EUR 11.0 17.0 -35% -4.1 0.0

Source: FactSet, Kepler Cheuvreux

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Summary Years of adverse government regulation and economic difficulties have

broadly forced the most environmentally concerned companies and industries

to restructure, which has led to more solid stock fundamentals. Currently, we

now see climate and green policies gathering momentum at both the EU and

international level. Moreover, should global climate negotiations fail, we still

see healthy long-term growth prospects for a myriad of companies best placed

to provide sustainable alternative solutions to energy and environmental

challenges.

As we believe smaller companies share particularly appealing features for

investors seeking exposure to green investment themes (a larger number of

pure green plays and transformation stories, greater “additionality” for

investors) we have picked the top “green impact” stocks from our extensive

SMID coverage based on our bottom-up analysis of their exposure to secular

growth drivers, the importance of these green trends within the context of our

investment case, and a critical review of whether their core business can

generate positive environmental outcomes.

Our SMID green impact screener emphasises two baskets of stocks to watch:

transformation stories and green champions.

Bright outlook for green themes beyond the policy talks

Years of adverse government regulation and economic difficulties have broadly forced the

most environmentally concerned companies and industries to restructure, which has led to

more solid stock fundamentals. Currently, we now see climate and green policies gathering

momentum at both the EU and international level, with the EU’s recently proposed 2030

framework for climate and energy policies and the UN COP-21 meeting scheduled for

December 2015 in Paris. Moreover, should global climate negotiations fail, we still see

healthy long-term growth prospects for a myriad of companies best placed to provide

sustainable alternative solutions to energy and environmental challenges.

SMID: the place to be for environmental-themed investing

Our in-depth review of the green drive across our whole universe further strengthens our

view that smaller companies share particularly appealing features from an environmental-

themed investing standpoint, with the combination of a larger number of pure green plays

and transformation cases and greater scope for socially-motivated investors to make a

difference via their holdings and engagements i.e. what we define as “additionality”.

Selecting the top European green impact stocks

We have therefore picked the top “green impact” stocks from our extensive SMID coverage

based on our bottom-up analysis of their exposure to secular growth drivers grouped into

six clusters (alternative energy & transport, biomass resources, eco-products & services,

energy efficiency, renewable energy, waste & water), the importance of these green shifts

within the context of our short- to long-term investment case, the existence of ESG or

liquidity issues, and a critical review of whether these companies can generate positive

environmental outcomes.

We believe SMIDs offer particularly appealing features for investors seeking exposure to green investment themes

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Chart 1: Our green impact screener

Source: Kepler Cheuvreux

Our watch list: transformations and secular growth stories

We would emphasise two baskets of stocks that stand out in our analysis.

First, our screener highlights companies expected to successfully transform their product

portfolio into growth-related assets while improving their environmental footprint, e.g

through shifts from fossil fuels to renewable energy generation (biomass for Albioma, wind

energy for ERG), or due to specific M&A stories set to boost energy efficiency savings

potential (Oerlikon with coating following the acquisition of Metco, which is expected to be

closed in Q3).

Second, we look at stocks that already have heavy exposure to green themes (>50% of their

sales or earnings) coupled with fairly strong growth prospects on the back of

environmental drivers. Our focus on SMIDs sheds light on somewhat neglected small pure

green plays (Alerion, Falck Renewables in wind energy generation), recent IPOs with

massive upside (electricity storage for Blue Solutions) and reinforces our long-standing

convictions on green champions i.e. structural growth stories on the back of green motors

(ElringKlinger for technology helping to reduce car weight, Umicore with recycling and

automotive catalysts, Naturex with natural ingredients, Pfeiffer Vacuum with vacuum

pumps).

We would emphasise two broad groups of companies that stand out in our analysis: 1) Transformation stories 2) Green champions

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When it comes to our views on specific themes, our selection of stocks reflects our current

positive views on renewables stocks in Italy, where there is clear and visible regulation, as

well as the good momentum for suppliers of more energy efficient solutions for cars, as new

legislation maintains pressure on car makers in Europe (recent pollutant emissions

regulations on light-duty and heavy-duty vehicles, new CO2 2020 targets for OEMs).

Table 3: Transformation cases: key points on our picks

Companies Main green themes Key points

Energy efficiency

Oerlikon Thin-film coating vacuum (green cars) and textile (machines)

Metco’s coating business acquisition means greater potential to provide technology that improves fuel efficiency, mainly to the automotive sector (thin-film coating vacuum). Our estimate of its total exposure to green themes jumps from 19% in 2013E to up to 50% in 2014E consolidated.

Renewable energy Albioma Wind energy production Overall, we see rather positive momentum in terms of its environmental footprint:

growing share of electricity generation from biomass (from c. a third of its electricity generated from renewables currently to 50% within ten years), solar projects ambitions, modernisation and upgrade of existing plants to comply with new regulation on industrial emissions, potential for lowered exposure to coal.

ERG Wind energy production ERG is transforming from an oil company (the largest independent operator in oil downstream in Italy) into a pure renewables company (first player in the Italian wind generation thanks to its external growth). The company also offers compelling growth prospects.


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Table 4: Our green champions: key points on our picks

Companies Main green themes Key points

Biomass resources

Naturex

Natural ingredients Naturex is well placed to benefit from the long-term shift from synthetic to natural ingredients, driven by both defensive (e.g. food & beverage customers) and aggressive strategies (e.g. for personal care). Thanks to the underlying trend of its market, success of new products, and commercial network extension, we are confident in the company’s ability to sustain +6-8% organic growth. Adding in margin improvement, we estimate that results could significantly grow.

Eco products & services Umicore Metal recycling and

automotive catalysts Metal recycling is a strong growth area. Expansion of the Hoboken facility might increase the group’s earnings potential to new records in coming years. The recycling business is very profitable

We highlight the increasing electrification of cars as another long-term growth driver. The company has strong positions in mobile emission catalysts, rechargeable battery materials and recycling.

Energy efficiency Blue Solutions Lithium-metal polymer

batteries (energy storage) Blue Solutions stands to benefit from two main markets: 1) energy storage applications; 2) EV market development. While the group’s longer-term target is to become an integrated electricity storage solutions provider, the current investment case for investors is based on battery production, with limited commercial risks.

ElringKlinger Energy efficient solutions (gaskets, sealings, heat shields) for engines and exhaust systems cars

With its product set-up, in our view the company continues to be very well positioned to capitalise on structural growth opportunities in the car industry. The need to increase the efficiency of conventional powertrains and the efforts to introduce alternative ones (specifically hybrid and full electric powertrains) have one thing in common: they help increase ElringKlinger’s content per vehicle in the

future.

Oerlikon Thin-film coating vacuum (fuel efficiency) and textile (machines)

Metco's acquisition broadens Oerlikon’s coating technology portfolio, with Oerlikon being a PVD specialist and Metco being mainly in thermal spray, and also its end-market exposure, opening doors into aviation and power generation.

Oerlikon expects to become the clear number one in a structurally growing coating market following the transaction, which is expected to be closed in Q3.

Pfeiffer Vacuum Vacuum pumps The vacuum pump technology industry is a structural (albeit cyclical) growth industry led by a multitude of growth drivers: miniaturisation of electronic devices, Moore's Law, LED/OLED, steel degassing, energy efficiency initiatives and, in the medium term, the commercialisation of lithium-ion batteries, all of which require a higher share of vacuum pump technology. A potential major driver of demand growth in the semi industry (accounting for 37% of the vacuum pumps market) is the pending commercialisation of EUV lithography. As the global no. 2, Pfeiffer Vacuum is well positioned to continue to outpace market growth in the coming years.

Renewable energy Alerion Wind energy production We like its attractive asset base and its strategy of entering the market for the

development and construction of wind farms (announced in August) in order to exploit its expertise without increasing its leverage.

ERG Wind energy generation ERG is the only renewables company with interesting growth prospects ahead and an appealing dividend yield. The company signed many extraordinary deals with itsstrategic partners in the last few months, which has made us more bullish in terms of the implicit value of the installed capacity of the renewables business.

Falck Renewables Wind energy production Falck Renewables is a small renewables company that is diversified both geographically (mainly Italy and the UK) and technologically (mainly wind and waste), with 731MW of current installed capacity (o/w 353MW is in Italy and 288MW in the UK). We like its geographical and technological footprint.


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Table 5: Policy and market: a summary of the main highlights

Cluster /Theme/Issue SMID affected Highlights

Biomass resources Forestry Regulation review in Spain Ence Release of details on the new renewables energy regulation on 3

February 2014: the final outcome was worse than expected. We are assuming the new tariff framework proposal will be approved in its current form and the recurrent impact (according to the draft) in terms of EBITDA for Ence is around EUR20m.

Long-term supply/demand balance for wood

Ence In the long run, the supply/demand balance of forest products is getting tighter. With this, access to competitive and reliable wood supply will become an increasingly important competitive advantage for many end-consuming sectors. Integrated forest names will benefit from structural demand growth. Among our SMID universe, Ence is the most exposed with, however, only 88,266 hectares of managed wood as of 2013 (o/w 56% is owned).

Energy efficiency Efficient Lighting Near and long-term prospects for the LED market

Aixtron, Osram Licht, Zumtobel Overall, we see huge potential for energy efficiency and efficient lighting solutions in the future. Due to the still existing oversupply situation in the LED production arena and the persisting reluctance of clients to order new equipment (upgrade packages seem to be more en vogue), we recommend steering clear of the shares of these companies for the time being.

Green cars Environmental regulations Blue Solutions, Elringklinger,

Umicore The EC is maintaining maximum pressure on the industry with its new 95g/km 2020 target and recent pollutant emissions regulations on light-duty and heavy-duty vehicles, as Euro VI legislation takes effect in Europe. We see the the most opportunities for suppliers exposed to this, including among SMID names Blue Solutions (Lithium-metal polymer batteries), Elringklinger (automotive light weight construction) and Umicore (mainly automotive catalysts, which account for 30% of the company’s sales).

Eco products & services Support services: TIC Long-term prospects for the outsourced environment market

Eurofins Scientific Twenty percent of Eurofins sales are exposed to the outsourced environment testing market (water, air, soil) which is estimated at EUR4bn and is forecast to grow at c. 5% a year, driven by more stringent regulation, voluntary control by corporates, pollution accidents and greater use of specialised companies.

Renewable energy Visible regulation for wind energy in Italy

Alerion, ERG, Falck Renewables Wind energy rules are clear and stable and Italian legislation was completely revised in 2013 (changing from a system based on green certificates to a feed-in tariff) with no retroactive impact. Renewables are the only companies still growing among Italian utilities, and are only partly affected by the difficult macro scenario.

Regulation review in Spain: elimination of premiums and substitution by a new mechanism

Acciona, EDPR, Gamesa After luring investors to invest in renewables during the 2000s, Spain’s government did an about-face in 2013, as it concluded renewable premiums were too onerous. The impact of the regulatory changes affecting the renewables space over 2012-14E has been significant: we estimate a cumulative equity value erosion of 48% at Acciona, 15% at EDPR and 12% at Iberdrola.

New water regulation in Italy

ACEA, HERA, Iren In Italy, water is the future business driver for local utilities, thanks to the new water regulation released on 27 December 2013, which represents a very important step towards the new phase of the water system. ACEA will be a consolidator, thus opportunities may arise for ACEA and numbers could go up.


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The top-down view

The EU framework EU climate and environmental frameworks The European Union has been pursuing an ambitious climate-and-energy policy since 2007,

when it set targets for 2020 for: 1) reducing greenhouse-gas (GHG) emissions; 2) increasing

the amount of energy produced from renewable sources; and 3) improving energy

efficiency. This framework is known as the 20/20/20 framework, as the respective targets

are to reduce its GHG-emissions by 20% by 2020 relative to 1990 levels, to source 20% of

all energy consumed by 2020 from renewable sources, and to reduce its primary-energy

consumption by 20% by 2020 relative to 2005 levels. At this point in time, the EU is on

track to outperform against the emissions target, meet the renewables target, but miss the

energy-efficiency target.

On 22 January this year, the European Commission proposed its legislative package for

extending the EU’s climate and energy targets beyond 2020 to 2030. As with all proposed

EU legislation that ultimately leads to a new directive or changes to an existing directive(s),

the commission’s proposals require the approval of both the European Parliament and the

European Council (comprising member state governments).

The commission’s proposed 2030 framework for climate and energy policies (available in

full here) covers three key areas and looks in each case to build on the existing 20/20/20

targets for 2020:

Emissions reductions: for 2030, the commission is proposing a 40% reduction

in EU-wide GHG-emissions versus 1990 levels, compared with the current

2020 target of 20%. The EU-ETS will play a key role in achieving this target,

with the commission proposing that in order to achieve the EU-wide 40%

reduction, the industrial sectors covered by the EU-ETS should have to reduce

their emissions by 43% versus 2005 levels, and the non-EU-ETS sectors by

30% versus 2005 levels.

Renewable energy: for 2030, the commission has proposed increasing the

target for the amount of renewable energy in total final energy consumption to

27%, compared with the current target of 20%. This target would be binding at

the EU level, but unlike the current 2020 target it would not be binding on

individual member states.

Energy efficiency: the commission has not yet proposed a formal energy-

efficiency target for 2030, but over the course of this year the existing Energy-

Efficiency Directive (EED) will be reviewed. As a result, the commission will

come back with more information on its specific proposal for a 2030 energy-

efficiency target later this year, once the review of the EED is completed. The

existing 2020 target foresees a reduction in the EU’s primary-energy

consumption of 20% by 2020 relative to 2005 levels.

The EU has been leading the world in setting ambitious targets for emissions reductions,

renewable energy, and energy efficiency, but there are also ongoing global discussions via

the United Nations Framework Convention on Climate Change (UNFCCC), which are set to

culminate at the twenty-first Conference of the Parties meeting (COP-21) in Paris in

December 2015 with a view to reaching a global climate deal. To inform the policy process

through the UNFCCC, the Intergovernmental Panel on Climate Change (IPCC) is finishing

off the so-called Fifth Assessment Report, the final version of which will be published in

EU on track to outperform against emissions target, meet renewables target, but miss energy-efficiency target

On 22 January, EC proposed legislative package for extending EU’s climate and energy targets beyond 2020 to 2030

Emissions reductions: EU-ETS to play key role in achieving this target

Renewable energy: target would be binding at EU level, but unlike current 2020 target, would not be binding on individual member states

Existing Energy-Efficiency Directive (EED) to be reviewed over course of this year

Analyst: Mark Lewis

http://ec.europa.eu/clima/policies/2030/index_en.htm

http://ec.europa.eu/clima/policies/2030/index_en.htm

http://www.ipcc.ch/report/ar5/index.shtml

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October. It has just published (14 April) the third instalment of four components to the

Fifth Assessment Report, focusing on the mitigation of climate change, and will publish the

final instalment – a synthesis for policymakers – in October of this year.

The upshot of all this is that climate and environmental policy are set to continue gathering

momentum at both the EU and UN level over the coming months, years and decades. This is

because the challenges posed by climate change, environmental stress and resource

constraints will only grow going forward, as the world’s population and energy

consumption continues to grow.

In this respect it is interesting to note that the International Energy Agency (IEA) now runs

a simulation every year in its benchmark annual overview of global energy trends – the

World Energy Outlook (WEO) – looking at what a global climate policy consistent with the

UNFCCC target of restricting the increase in the average global temperature to no more

than 2°C above pre-industrial levels would look like.

In modelling global energy trends to 2035, the IEA begins by taking the population

forecasts of the United Nations Population Division (UNPD) as set out in the UNPD’s 2012

Revision of World Population Prospects. This shows the world’s population as a whole

Table 6: World population growth assumed in the New Policies Scenario

Region CAGR, 2011-35 2011 2020 2035

Africa 2,3% 1,056,985 1,312,142 1,811,640 Asia 0,7% 4,210,008 4,581,523 4,997,305 Europe -0,1% 741,276 743,569 730,431 Latin America 0,8% 602,974 661,724 738,780 North America 0,7% 349,527 375,724 415,480 Oceania 1,2% 1,056,985 1,312,142 1,811,640 World 0,9% 6,997,999 7,716,749 8,743,447 OECD 0,4% 1,250,085 1,312,416 1,386,878 Non-OECD 1,0% 5,747,913 6,404,333 7,356,569

Source: United Nations Population Division

The IEA then models three scenarios, its base-case scenario (known as the New Policies

Scenario, or NPS), the business-as-usual scenario (known as the Current Policies Scenario

or CPS), and a scenario consistent with limiting the impact of climate change by restricting

the increase in global GHG concentrations to 450 parts per million (known as the 450-

scenario).

The IEA’s base-case scenario, the NPS, assumes existing climate policies remain in place

and that there is a gradual tightening of legislation around the world over the next two

decades. However, these policies are nowhere near robust enough to put the world on a

trajectory consistent with a 2°C world, and, as shown in Chart 1 below, both global energy

demand and CO2 emissions from energy continue to rise out to 2035 under the NPS.

In contrast, the 450-scenario assumes a much tougher global policy framework consistent

with limiting the GHG concentration levels to 450ppm, and hence to giving the world an

even chance of restricting the temperature increase to 2°C against pre-industrial levels. As

can be seen from Chart 1, under the 450-Scenario, although global primary energy demand

increases slightly, emissions fall sharply, reflecting the fact that fossil-fuel demand declines

while renewables increase their share of total energy supplied.

Climate and environmental policy to continue gaining momentum at both EU and UN level over coming months, years and decades

Ongoing global discussions via United Nations Framework Convention on Climate Change (UNFCCC) set to culminate at twenty-first Conference of the Parties meeting (COP-21) in Paris in December 2015

http://www.ipcc.ch/report/ar5/wg3/

http://esa.un.org/unpd/wpp/index.htm

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Chart 2: Global demand and emissions by scenario Chart 3: Change in global demand by fuel & scenario

Source: IEA, 2013 World Energy Outlook Source: IEA, 2013 World Energy Outlook

None of this is to suggest that a global climate deal will be struck at COP-21 next year that

will put the world on the kind of trajectory for energy consumption consistent with the

IEA’s 450-Scenario. However, whether such an ambitious deal is reached or not, the

direction is now settled: renewable energy and energy efficiency are set to become ever

more important in the global energy mix over the next two decades, not only owing to

growing policy pressure, but also hard economics.

Bright prospects for renewable energy and energy efficiency Chart 3 shows the IEA’s assumptions for growth in renewable energy under its base-case

scenario (the NPS), and Chart 4 the improvement it expects in energy efficiency out to

2035 under the NPS versus the business-as-usual scenario (the CPS).

Chart 4: Growth in renewable generation, 2011-35

Chart 5: Change in global demand by fuel & scenario

Source: IEA, 2013 World Energy Outlook Source: IEA, 2013 World Energy Outlook

Renewable energy and energy efficiency set to become ever more important in global energy mix over next two decades, not only owing to growing policy pressure, but also hard economics

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Regardless of whether ambitious global climate deal is struck next year or at any point

thereafter, prospects for renewable energy and energy efficiency – and companies engaged

in these fields – look bright

This means that regardless of whether an ambitious global climate deal is struck next year

or at any point thereafter, the prospects for renewable energy and energy efficiency – and

the companies engaged in these fields – look bright.

In other words, even without a global climate deal, the IEA’s base-case scenario for energy

trends projects an increase in renewable-energy output of nearly 80% by 2035 relative to

2011, while existing policies and those expected by the IEA under its NPS will see energy

savings of 1,250m tonnes of oil equivalent (mtoe) over 2011-35 versus the business-as-

usual scenario. This equates to about 10% of total global energy demand in 2011 (which

stood at 13,000mtoe).

Regardless of whether ambitious global climate deal is struck next year or at any point thereafter, prospects for renewable energy and energy efficiency – and companies engaged in these fields – look bright

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Green impact approach

Our framework to navigate major green stocks

Picking “green impact” stocks in our coverage From our universe of over 700 stocks, we have selected 55 “green impact” stocks, which we

define as the companies most active in six major clusters where their core business may

make a meaningful positive contribution to a low-carbon, resource-efficient, and

sustainable economy i.e. “green economy” as per the UNEP definition (“an economy that

results in improved human wellbeing and social equity, while significantly reducing

environmental risks and ecological scarcities. In its simplest form, a green economy can be

thought of as one that is low-carbon, resource-efficient and socially inclusive’):

Alternative energy and transport.

Biomass resources.

Eco-products and services.

Energy efficiency.

Renewable energy.

Waste & water management.

These green impact clusters reflect a wide range of secular growth opportunities with long-

term trends underpinning the demand for these products and/or services comprising

environmental awareness, resource scarcity, demographics, urbanisation, climate change,

etc.

Table 7: Kepler Cheuvreux green impact clusters

Clusters Impact objective Examples of product and/or service

Alternative energy & transport

Contribution towards a low-carbon economy (e.g. via less carbon-intensive transport system and infrastructure)

Hydrogen, fuel cells, power storage, mass transport.

Biomass resources Use biomass resources sustainably to create energy and materials, and as a substitute for fossil carbon sources.

Biofuels, bioenergy, biogas, biomaterials, wood.

Eco-products & Services

Benefit the environment and society (e.g. improve environmental impact of buildings, infrastructure)

Engineering, pollution control and testing, eco-services.

Energy efficiency Reducing energy used by specific end-use devices and systems, typically without affecting services provided.

Insulation & lighting, efficient power & electricity, efficient transport.

Renewable energy Contribution towards a low-carbon economy Hydro, wind, solar, geothermal, marine.

Waste management Reduce negative externalities associated with waste.

Waste collection and handling, waste treatment, recycling.

Water management Reduce risk of global water stress and scarcity. Water treatment, water distribution, water savings.


Each theme reflects an area of positive environmental impact and a secular growth opportunity

We have selected 55 “green impact” stocks in our coverage i.e. the companies most active in six green segments

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Table 8: Kepler Cheuvreux full coverage: details on main activities related to green themes

Company Details on main business exposure to environmental themes

Alternative Energy & Trans Alstom Railway: In the transport sector, Alstom serves the urban transit, regional/intercity passenger travel markets

and freight markets globally with rail transport products, systems and services (5% market share). The group is trying to implement innovations such as composite materials to reduce weight, more efficient traction systems, energy recovery braking and eco-driving supported by electronics for existing and new products. Note that Alstom has decided to open the capital of its transport division, either through the disposal of a minority stake to an industrial or financial partner, or through an IPO.

Energy efficiency: Grid management solutions (5% market share). Alstom Grid is a pioneer in smart grids, and the business unit has already won two contracts in Germany (EnBW Baltic 2 and Meerwind).

Power generation solutions for renewable energy. Alstom is the world leader in hydro. In wind, it has a small position in onshore and targets to be among the top five in offshore.

Ansaldo STS Railway: Supplier of rail and mass transport systems (e.g. signalling and turn-key transport systems).

CAF Railway: Design, production, maintenance and supply of equipment for the railway industry.

Groupe Eurotunnel S.A. Railway: Operates the fixed link between Great Britain and Europe. The company manages the Channel Tunnel infrastructure. It also operates the Truck and Car Shuttle, which compete with Short Straits ferries. All the group’s operations, with the exception of ferrylink, offer an alternative to air and ferry transport, which are both higher GHG emitters per passenger.

Vossloh Railway: Rail infrastructure, RI, (fastening systems, switch systems, rail services). Motive Power & Components (transportation systems (rail vehicles; vehicle systems/components), electrical systems).

Biomass Resources K + S Potash & magnesium products (fertilisers that are used for food, feed or biofuel): mine and process high-

quality raw materials.

Naturex Manufacturing of natural specialty ingredients for the food & beverage, nutrition & health and personal care industries. The long-term shift from synthetic to natural ingredients may have positive benefits for the environment.

Novozymes Industrial enzymes: primarily the bioenergy enzymes business, but also all sales, except pharma, technical, food & beverages and alcohol. The enzymes are typically used as performance enhancers (detergents) or yield enhancers (bioethanol).

Eco-Products & Serv Air Liquide Hydrogen: Hydrogen can be used as a fuel or to crack sulphur our of crude oil/gas to meet environmental

norms.

CCS: provides gases for carbon capture projects to convert i.e. coal power plants into zero CO2 emission plants and provides electronic gases for solar cells.

Biofuels: Leading engineering company for biofuel plants. Gas will be supplied by bulk contracts.

Alfa Laval Suppliers in the markets for heat exchangers, separators and fluid equipment. Enables companies to meet the demand related to environmental regulation on water, CO2 emissions reduction, heating, cooling (energy efficiency), food transportation.

Bureau Veritas S.A. In-service inspection & verification certification, for example. biofuel testing, environmental compliance & testing, systems certification (energy management systems, biofuels, GHG, carbon footprint, etc.), energy efficiency of buildings.

Arcadis Environmental services: offers services from soil, groundwater and sediment remediation and environmental

impact assessments, through to consultancy on corporate energy, product stewardship, health and safety issues.

Waste & water: It protects water by means of specialised chemicals, preserving drinking water and helping water authorities with the design of their systems. It is also active in the areas of coastal defence, lock/canal systems and dike design.

Parts of its building activities contribute to greener buildings: design of efficient systems for heating, cooling, airco, storage of heat.


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Table 9: Kepler Cheuvreux full coverage: details on main activities related to green themes (continued)

Eurofins Scientific SE Environmental testing: Testing of water, air, soil, waste and other products to assess their quality and impact on health and the environment. Eurofins is also exposed to food & feed testing (40% of revenues) and testing for pharma/biotech.

Grontmij Environmental management and design, urban development and spatial planning, leisure and landscaping (e.g. sustainable design: designing solutions that minimise environmental impact; waste-to-energy and wastewater treatment plants.

Imtech Technical services provider in the fields of electrical engineering, ICT and mechanical engineering. Products & services related for instance to green solutions to generate energy savings innovations that favour sustainable energy sources, biomass energy and sustainable alternative energy, reduction of emissions of greenhouse gases (notably by buildings, industry and marine), intelligent mobility solutions and high-tech traffic measures, which reduce fine particle emissions from road traffic by optimising logistics pollution.

Intertek Group PLC Testing, inspection, certification. Related sustainability services include: 1) health and sustainability services for consumer goods; 2) environmental sustainability solutions (policy, strategy, LCA, etc.); 3) environmental and sustainability report verification; 4) biofuels sustainability auditing services; 5) BIFMA level™ sustainability certification for commercial furniture; 6) health and environmental sustainability benchmark profile; environmental certification.

Linde Cleaner fuels & clean coal & gas: - Owns & operates LNG-terminals & fuelling stations & distributes LNG to industrial and maritime customers - builds hydrogen fuelling stations & supplies hydrogen -CO2 separation, conditioning and handling for fuel gas from coal- and gas-fired power plants and from industrial sources.

Enhanced oil recovery (EOR) & enhanced gas recovery (EGR): - Builds, owns & operates large-scale nitrogen schemes, nitrogen rejection units and CO2 supply.

Gas-to-liquids: - Builds, owns and operates large-scale oxygen schemes for gas-to-liquid plants.

.SGS S.A. Testing, inspection, certification: Offers a range of inspection, testing, audit and verification services that help customers develop and implement environmental solutions, from advising on sustainable forestry, monitoring dioxins, providing ISO 14001 certifications and carbon foot-printing to supporting the development of new wind farms.

Umicore Recycling treats complex waste streams containing precious and other non-ferrous metals. The operations can recover some 20 precious and other non-ferrous metals from a wide range of input materials ranging from industrial residues to end-of-life materials. Umicore’s recycling business is unique in the range of materials it is able to recycle and the flexibility of its operations. Input materials – which are sourced from a truly global supply base - predominantly come from secondary sources.

Automative catalysts to reduce carbon emissions and rechargeable battery materials for electric vehicles

Energy efficiency ABB Energy efficiency solutions are categorised along four broad lines: 1) plant process selection (e.g. using

electrical systems instead of fossil fuels); 2) optimized process control (e.g. distributed control systems in industry); 3) more efficient equipment (e.g. high-efficiency motors); and 4) loss recovery and/or loss reductions (e.g. efficient transformers, power transmission, turbocharging, in some cases also robots in this category).

Aixtron Efficient lighting: Development and production of equipment for the production of compound semiconductors (mainly LEDs).

Blue Solutions Provider of lithium-metal polymer batteries dedicated to energy storage applications (mobility and stationary applications) for industrials, municipalities and private households. The group develops and manufactures batteries for Blue Applications and supercapacitors for industrials.

ElringKlinger The company’s expertise in engine gasketing is crucial for OEMs’ efforts to cut CO2, allowing for greater combustion pressure, which is the key to greater efficiency and lower CO2 output. Its ability to substitute metal with plastic enables weight reduction, another key to curbing CO2. Finally, its capability to process metal and plastic so as to withstand higher levels of pressure and temperature can leverage from the area of conventional engines into the territory of electro mobility (cell connectors).

Oerlikon Coating: automotive sector (fuel efficiency), increased lifespan of materials; 2) improved energy efficiency in textiles machines; 3) wind turbines as part of drive systems.

Osram Light Efficient lighting: Products, systems, solutions and services with the greatest potential for energy savings. Mainly LED.


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Table 10: Kepler Cheuvreux full coverage: details on main activities related to Green themes (continued)

Pfeiffer Vacuum Technology Develops, manufactures and markets components and systems for vacuum generation, measurement and analysis; which enable energy savings in a range of applications (e.g. semiconductors, DVDs and thermally insulated glass, as well as for coating high-stress mechanical tools).

Philips Efficient lighting: Lamps with lower energy consumption including LED and compact fluorescent.

Saint-Gobain In building insulation, the main products are glass wool and flat glass. To a small extent: distribution and exterior solutions. It also has products to improve energy efficiency in the automotive sector.

Schneider Electric Energy efficiency: The largest contributors to energy efficiency sales are, in decreasing order: critical power, building automation systems and variable speed drives. Power equipment for wind & solar projects. Charging stations for electric vehicles.

Renewable energy: Power equipment for wind & solar projects.

Alternative energy & transport: charging stations for electric vehicles.

Siemens AG Energy efficiency as part of infrastructure & cities BU:

Power grid solutions & products: 1) smart grid: energy automation; rail electrification; service; 2) low medium voltage: low voltage; medium voltage.

Building technologies: building automation; fire safety & security; control products & systems.

Rail solutions as part of its infrastructure & cities BU: 1) rail systems: high speed and commute; metro, coaches, light rail; locomotives and components; customer services and transportation solutions; 2) mobility and logistics: infrastructure logistics, complete transportation and e-infrastructure.

Wind turbines e.g. connection of offshore wind farms.

TomTom Business solutions: Feet management solutions to logistics and transport companies.

Wienerberger AG Wienerberger’s innovative products and system solutions for bricks (clay blocks, roof tiles, facing bricks) help to reduce energy costs and CO2 emissions. For example, its high thermal insulating clay blocks filled with mineral wool or perlite already meet all EU requirements for 2020.

Zumtobel Efficient lighting: professional lighting solutions, luminaires, lighting management and lighting components for

indoor and outdoor applications.

Renewable Energy Alerion Wind energy production (415GWh in 2013).

Albioma Biomass: Albioma is a fully-integrated IPP (independent power producer) that designs, builds and operates thermal (>89% of the company’s total revenues in 2013) and solar power stations. Albioma has a strong position in the French DOM-TOM territories. Renewables sources accounted for 35.2% of the company’s total generation (mainly bagasse and other biomass resources) as of 2012 with two-thirds predicted within ten years.

Acciona Water (designs, builds and operates plants for drinking water and wastewater treatment, desalination and water reuse) and urban solid waste collection and treatment, renewable energy generation (7.1GW installed capacity in wind, also a tiny share in solar, hydro, biomass & biofuel) and energy efficiency in buildings and construction.

Andritz Renewables mostly electromechanical equipment for hydropower stations (particularly turbines generators); but also biomass boiler for the pulp and paper industry production equipment for biofuel (second generation) and biomass pelleting; biomass torrefaction.

Waste & water: technologies and services in the solid/liquid separation and thermal treatment areas for the environmental sector (particularly treatment of municipal and industrial waste water).

EDP Renovaveis Wind energy generation (8.5GW installed capacity; 19.9GWh of production in 2013).

Ence Biomass energy: Production of renewable energy using forest biomass and energy crop. The company currently has an installed capacity of 280MW, of which 230MW is renewable energy from biomass. Annual electricity production amounted to 1,900 GWh.

ENEL Green Power Wind generation, geo, hydro, solar (8.9GW of installed capacity).

ERG Wind generation (1.34GW of installed capacity, and 2.4GWh of electricity production for 2013; mostly wind).

Falck Renewables Wind energy production, waste/biomass (716GW installed capacity).


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Table 11: Kepler Cheuvreux full coverage: details on main activities related to green themes (continued)

Gamesa Wind energy equipment (volume range of 2,200-2,400MW in 2014E) and production.

Iberdrola Wind energy equipment, wind energy generation, hydro generation (24GW of total RNW installed capacity).

Meyer Burger Technology AG

Solar energy equipment: complementary technologies along the entire solar value chain, including wafering, cells, modules and integrated solar systems.

Verbund Hydropower generator (30.9TWh of electricity generated in 2013).

Waste & Water Aalberts Climate control includes complete systems from source to emission to improve climate control, energy

efficiency and comfort for heating & cooling systems.

A2A Renewable energy generation (7.5GW in hydroelectricity, 5GW in PV).

Waste (WTE, landfills and treatment plants).

ACEA Management of water services.

Electricity generation (mostly hydro: 12.7GW installed capacity as of 2012).

FCC Environmental services, which include the collection, treatment and elimination of solid urban waste, street cleaning, sewer system maintenance, park and garden maintenance, treatment and elimination of industrial waste and full-service water management.

Water distribution and treatment. FCC is mostly exposed to Spain (water and environmental services) and the UK (waste recycling).

Geberit AG Water: Products (i.e. water saving flushing systems, optimised waste water drainage systems, etc.) that enhance water savings, water efficiencies and thus water management.

Hera S.p.A. Waste: operational environmental services (waste collection, street sweeping and cleaning) and waste treatment (recycling and disposal), waste to energy (235GWh of energy produced in 2012).

Water: Hera is active in the collection, treatment, distribution, sewerage and purification.

IREN

Water distribution, water treatment, waste management.

Hydropower generation (1,004GWh for the first nine months of 2013).

Suez Environnement S.A

Water distribution and treatment, desalination, waste management and recycling.

Veolia Environnement All services in waste management (36% of turnover): from collection to landfill, including recycling, incineration and WTE. The group also manages water at every stage: construction of water treatment plants, water drawing, storage and distribution, wastewater treatment, recovery of sewage sludge (as compost).


There are still no recognised common frameworks for defining and reporting on sales

related to products, systems, solutions and services that lower the economy’s negative

impacts on the environment and reduce emissions of carbon dioxide and other greenhouse

gases.

In our screening and analysis, we search for the most meaningful data and information to

help give a sense of the companies’ future growth from products and services expected to

generate environmental benefits:

Where relevant, we use our own estimates, sometimes based on a more

conservative view than the companies’, for those which externally report

some numbers, regarding the share which could be considered

environmentally friendly.

Beyond the top-line exposure, we have included data on the EBIT or EBITDA

(for utilities for instance), or the importance of environmental themes as part

of their growth drivers for capital goods (e.g. see the breakdown for Alfa

Laval in the tables 16-17).

We search for the most meaningful indicator that gives a sense of the companies’ exposure and future growth generated from products and services expected to generate environmental benefits

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For companies with different business lines and exposure to several themes,

we break down the key data for each of these activities as well as the

estimates at group level.

We attempt to forecast the evolution of this exposure over at least a two-

year horizon and provide estimates for 2016 for a number of stocks.

When available, we also look at data on innovation trends which shed light

on the “greening” of companies’ business models and product portfolio (e.g.

R&D related to environmental improvements).

Since the focus of this report is on environmental themes, certain social

themes such as healthcare are not taken into account in the calculation.

Table 12: Exposure to green themes (2013 and 2016E)

Company Sector Exposure (2013)

Exposure (2016E)

Alternative Energy & Trans Alstom Capital goods Total group : 56% of sales

60% of sales 48% of EBIT

o/w: Rail transport : 28% of sales 21% of EBIT

Rail transport : 30% of sales 25% of EBIT

Energy efficiency (grid management solutions): 19% of

sales 14% of EBIT

Energy efficiency (grid management solutions): 20% of sales

16% of EBIT

Renewable energy (power generation): 9% of sales

6% of EBIT

Renewable energy (power generation): 10% of sales

7% of EBIT

Ansaldo STS Capital goods 100% of sales 100% of sales

CAF Capital goods 100% of sales 100% of sales

Groupe Eurotunnel S.A Transport 94% na

Vossloh Capital goods 100% of sales 100% of sales Biomass Resources Ence Paper 27% of sales

27% of sales 27% of sales 27% of sales

K + S Chemicals 54% of sales 82% of EBIT

50% of sales

Naturex Food 100% of sales 100% of sales

Novozymes Pharma & biotech 65% of sales* Eco-Products & Serv Air Liquide Chemicals Total group :21% of both sales and

EBIT na

o/w: Hydrogen: 15% of both sales and EBIT

Biofuels: 3% of both sales and EBIT

Renewable energy: 3% of both sales and EBIT

Alfa Laval Capital goods 25% of drivers na

Bureau Veritas S.A. Support services 30% of sales 30% of sales


We forecast the evolution of this exposure over at least a two-year horizon

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Table 13: Exposure to green themes (2013 and 2016E) – (continued)


Exposure (2016E)

Arcadis Capital goods 43% of sales 50% of EBIT

50% of sales

o/w : Eco-products & Services : 28% of sales

36% of sales

Waste & Water : 15% of sales 14% of sales

Energy efficiency: 10% of sales 10% of sales

Eurofins Scientific SE Support services 20% of sales and EBIT 20% of sales and EBIT

Grontmij Capital goods 67% of sales 70%

Imtech Capital goods 30% of sales 40% of EBIT

35% of sales

Intertek Group PLC Support services 25% of sales 25% of sales

Umicore Chemicals 57% of sales 80% of EBIT

65% of sales

o/w : Recycling : 25% of sales 60% of EBIT

25% of sales

Green cars : 32% of sales 20% of EBIT

40% of sales

Linde Chemicals Total group : 45% of sales 45% of EBIT


o/w Gas-to-liquid : 25% of both sales and EBIT

na

Enhanced Oil Recovery (EOR) & Enhanced Gas Recovery (EGR): energy efficiency : 10% of both

sales and EBIT

Cleaner fuels & clean coal & clean gas : 10% of sales

10% of EBIT

SGS S.A. Support services 20% of sales 20% of sales

Energy efficiency ABB Capital goods 50% of sales >50% of sales

Aixtron Semis 80% of sales 80% of sales

Blue Solutions Capital goods 100% of sales 100% of sales

ElringKlinger Autos & parts 100% of sales 100% of sales

Oerlikon Capital goods 19% of sales 50% of sales

Osram Light Capital goods 70% of sales 100% of sales

Pfeiffer Vacuum Technology

Capital goods 100% of sales 100% of sales

Philips Capital goods 25% of sales 36% of sales

Saint-Gobain Construction & materials

30% of sales 30% of sales

Schneider Electric Capital goods 46% of sales 31% of EBIT

58% of sales

o/w : Energy efficiency : 40% of sales 25% of EBIT

Energy efficiency : 50% of sales

Renewable Energy: 5% of sales 5% of EBIT

Renewable Energy:6% of sales

Alternative energy & transport (EVs) : 1% of sales

1% of EBIT

Alternative energy & transport (EVs): 2% of sales


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Exposure (2016E)

Siemens AG Capital goods Total group : 43% of sales 50% of sales

o/w: Energy efficiency : 20% of sales na

Rail solutions : 9% of sales na

Wind equipment : 7% of sales na

TomTom IT hardware & telco eqpmt


Wienerberger AG Construction & materiasl


Zumtobel Construction & materials


Renewable Energy Alerion Utilities 100% of sales 100%of sales

Acciona Utilities Total group : 44% of sales 82% of EBITDA

49% of sales 80% of EBITDA

Renewable energy : 32% of sales 78.5% of EBITDA


Waste & Water Management : 12% of sales

4% of EBITDA

20% of sales

6% of EBITDA

Andritz Capital goods Total group 54% of sales na

Renewable energy : 50% of sales

Waste & Water : 3-4% of sales

EDP Renovaveis Utilities 100% of sales 100% of sales

ENEL Green Power Utilities 100% of sales 100% of sales

ERG Utilities 5% of sales 47% of EBIT


Falck Renewables Utilities 100% of sales 100% of sales

Gamesa Capital goods 100% 100%

Iberdrola Utilities 7% of sales 22% of EBIT

21% of sales


Capital goods 80% of sales 75% of EBIT


Verbund Utilities 89% of electricity generation 89% of electricity generation Waste & Water Aalberts Construction &

materials 11% of sales 15% of sales

A2A Utilities Total group : 58% of EBITDA 63% of EBITDA

o/w : Waste & Water : 26% of EBITDA 29% of EBITDA

Renewable energy : 35% of EBITDA

34% of EBITDA

ACEA Utilities 60% of EBITDA na

o/w : Waste & Water Management : 56% of EBITDA

56% of EBITDA

Renewable energy : 4% of EBITDA 4% of EBITDA

FCC Construction & materials



Geberit AG Construction & materials

90% 90%


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Exposure (2016E)

IREN Utilities 39% of EBIT : 54% of EBIT :

o/w Waste & water: 13% of EBIT Waste & water: 26% of EBIT

Hydro generation: 26%. Hydro generation: 27%.

Hera S.p.A. Utilities 35% of sales 52% of EBIT


Suez Environnement S.A. Utilities >90% of sales >90% of sales

Veolia Environnement Utilities >80% of sales >80% of sales


Hunting for the most relevant environmental impact KPI: Alfa Laval Given the diversity of the themes and stocks addressed, where we believe the top line’s

exposure to green clusters is particularly difficult to assess accurately (e.g. for capital

goods, support services) and may not be the most meaningful indicator of a company’s

exposure to environmental themes, we have constructed other indicators and broken

down other data that should help shed light on the importance of environmental factors

specifically. For example, we have looked at growth opportunities driven by environmental

legislation for Alfa Laval. This shows that 25% of the company’s drivers are expected to be

driven by environmental-related factors, green trends, notably environmental regulation

related to water, CO2 emissions reduction, heating, cooling (energy efficiency), food

transportation.

Where we believe top-line exposure to green clusters may not be most relevant indicator of company’s exposure to environmental themes, we provide other estimates to shed light on importance of environmental factors specifically…

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Table 16: Alfa Laval’s exposure to Green drivers1

Drivers by customer segment

Total % of Group Demand

Green driving forces as a % of Group Demand (our

estimates)

Green driving forces Non-green drivers

Marine & Diesel division Marine & Diesel Equipment

25% 8% Marine: Environmental legislation

Marine: Global transport requirements, consolidation in the shipbuilding industry, government

initiatives to support local shipyards: Diesel: The need for electricity in

remote locations, global energy demand, the need for power reserves

Marine & Offshore Systems

6% 1% Environmental legislation, increased focus on energy

efficiency

Global transport requirements, governmental initiatives to support

local shipyards, safety regulations for transporting flammable cargoes,

increased energy demand leading to investments in offshore oil and gas

exploration and offshore drilling technology improvements.

Process Technology division Energy & Environment 13% 7,5% Energy: national

independence (LNG), development of energy

production using renewable fuels, increased focus on

nuclear power and the need for energy-efficient solutions.

Environment: New rules and regulations, increased need for

freshwater due to a growing population and increased

urbanization

. Process Industry 13% 5% Ethanol, corn, the need for

energy-efficient solutions, the need for productivity

enhancements, demand for fuel and a technological shift.

Global market prices for raw materials, such as sugar, oil and steel,

energy price trends, environmental legislation

Food Technology 8% 2% Increased focus on healthy food

Demographic changes, population growth, improved standard of living,

changes in consumption patterns, subsidies and raw material price

trends Equipment division Industrial Equipment 20% 6% The need for energy-efficient

solutions, shift toward demand for more

environmentally friendly cooling media, environmental

legislation, increased environmental focus and

expansion of power supply.

Activity levels in the construction industry, energy price trends,

industry capacity utilization, commodity and energy price trends

Sanitary Equipment 10% 2,5% The need for energy-efficient solutions and expanded food

production.

Change in consumption habits as a result of urbanization in growing

economies, the development of new medicines, improved standard of

living, demographic changes OEM (Air conditions and Heat pumps)

5% 4% Increased focus on the environment, the need for energy-efficient solutions, government subsidies and

energy price trends.


1 The impact of Frank Mohn AS’s acquisition is not factored into our estimates. It would probably dilute the environmental exposure since Frank Mohn does not contribute to that portfolio but to total sales.

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Table 17: Key data on Alfa Laval’s exposure to green activities (our estimates)

Cluster Eco-products & services Main themes Energy efficiency, waste & water

Green trends as a total % of group drivers 25% o/w Marine & diesel equipment 8% o/w Marine & offshore systems 1% o/w Energy & environment 7,5% o/w Process industry 5% o/w Food technology 2% o/w Industrial equipment 6% o/w Sanitary equipment 2,5% o/w OEM (air conditions and heat pumps) 4% EBIT margin (%) for products exposed to green drivers 20% R&D (%) for products exposed to green drivers 25% Emerging markets exposure 50% Market share Between 10 and 30% depending on the technologies Key competitors GEA, Hisaka, SPX/APV, SWEP, Pieralisi, Andritz,

Flottweg, Mitsubishi Kokoki Kaisha


We also provide our forward-looking view on demand specifically related to these

environmental trends. For example, for Alfa Laval, we expect these environmental drivers

to outgrow industrial demand over the next 2-3 years. Although it is difficult to assess by

how much, a reasonable assumption would be approximately 2x industrial demand. In

terms of the growth opportunities driven by specific environmental legislation, we highlight

for instance revenues potential of EUR2.7bn until 2016E for ballast water treatment and

EUR2.7bn for exhaust gas cleaning (SOx) for Alva Laval.

SMIDs: the best place for environmental-themed investing

We have chosen to focus on small & mid caps, as we believe they offer several somewhat

specific features compared to larger caps from an environmental-themed investment

standpoint:

Larger number of pure plays: A greater number of pure green players. Out of 19

stocks in our coverage with sales, EBITDA and EBIT more than 80% exposed to

environmental themes (currently or in a two-year horizon) 15 are SMIDs.

Transformation stories: We have also found among the SMIDs the most

compelling stories of companies shifting their product portfolio into growth-

related assets, while improving their environmental footprint.

Greater potential for socially-motivated investors’ impact: Small caps generally

tend to suffer from low liquidity alongside possible market frictions or

imperfections e.g. incomplete information, small deal sizes or corporate

governance issues. When focusing on socially motivated investors seeking to

enhance their impact through active capital allocation and engagement, and

actively attempting to measure it, we believe small caps with good exposure to

sustainability-related themes are particularly suitable (greater additionality2).

2 We define “additionality” in this context as investors’ potential to produce beneficial social or environmental outcomes that would not occur but for their investment in these companies (adapting a definition from Paul Brest and Kelly Born in an article published in fall 2013 in the “Stanford Social Innovation Review”, which examines socially-motivated investors’ ability to have an impact via their investment in social enterprises).

…and give our forward-looking view on demand related to environmental trends specifically

We believe SMIDs offer several specific features compared to larger caps from a green investment standpoint Out of 19 stocks in our coverage with sales, EBITDA or EBIT more than 80% exposed to environmental themes (currently or on a two-year horizon), 15 are SMIDs

Using a EUR6bn market cap threshold, we have identified 32 Small & Mid cap in our coverage (59% of the total), with at least 20% of their three-year forward revenues (sales or EBIT) generated in all green themes.




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Our SMID screener: five steps to assess green impact

Our screener maps small & mid companies in five steps, based on their exposure to green

themes, their environmental impact credentials, the existence of ESG concerns, liquidity

issues, and the importance of these trends within the context of our short- to long-term

investment case. It is noteworthy that we see the positives but keep an eye on the threats

(areas of negative environmental and social impact and an analysis of ESG issues; step 3).

Table 18: Our SMID impact screener

Steps Description Indicators

1. Exposure Estimating companies’ current and expected business exposure to each

theme

For each driver:

- Percentage of current sales, EBITDA, EBIT - Expected % of sales, EBITDA, EBIT in 2016 - Market share - Size of the market - EBITDA, EBIT margins - Capex, environmental spending - R&D investments - EV

2. Impact analysis Selecting data, indicators, and facts

providing evidence of the positive environmental outcomes in order to

assess the impact credentials

- Company- & sector-specific KPIs on outputs and outcomes giving a sense of the benefits for

the environment/society and consumers

3. ESG issues Looking into complementary

information on ESG risks - Estimating the business exposure to

controversial/sensitive activities (e.g. % and expected sales or earnings, installed capacity or

electricity produced from fossil fuels) - Highlighting topical ESG issues to watch (e.g.

governance, restructuring, business ethics, environmental liability)

4. Liquidity issues Identifying liquidity issues

- Free float - Market cap (EURm) - Free float market cap 2013 (EURm) - 1 month avg (EURm) - 1M avg volume - Average daily turnover (monthly basis)

5. Investment case Linking each driver to our short to

long-term investment case Our views on:

- The importance of each theme as a growth opportunities

- The company's general short to long-term outlook

- Momentum and sentiment - Risks - Links to our valuation - Market position - Innovation - Level of competition - Consolidation/restructuring - Industry trends


Our screener maps small & mid caps in five steps

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Step 1: Screening SMIDs seemingly exposed to green themes Using a EUR6bn market cap threshold, we have found 35 small & mid caps in our coverage

(66% of the total), with at least 20% of their two-year forward revenues (sales or EBIT)

generated in all green themes.

Aalberts Industries and Tomtom are for instance two that we screened out, as we estimate

they have a lower exposure (less than 20% of sales or earnings):

Aalberts Industries: 11% for Climate Control & Systems

Although 71% of the company’s revenues relate to water equipment (flow control), we

estimate that a limited share can be seen as playing a meaningful role in lowering the

environmental impact of other sectors, that is their climate control business, which

includes complete systems from source to emission to improve climate control, energy

efficiency and comfort for heating & cooling systems, and represents 11% of the turnover.

While it is growing slightly faster than the other business, as part of flow control, we do not

foresee it exceeding 20%.

TomTom: c. 10% of sales for Business Solutions

The areas where they help customers reduce CO2 emissions is in the B2B division called

Business Solutions, which offers fleet management solutions to logistics and transport

companies. We estimate it accounts for only 10% of sales

Step 2: Tracking impact credentials When focusing on the impact, we gathered the most meaningful data, indicators,

qualitative statements on specific activities, output (essentially) and outcomes, and other

evidence/elements suggesting that a potential positive social and environmental impact

may be delivered by the company’s core business which relates to the environmental

impact theme(s) previously identified:

Weighing the pros and cons of including stocks into our universe: We weigh

the pros and cons of their inclusion into our green impact universe based on a

critical review of these data and our level of confidence in these impact

credentials. We factor the evidence of a negative or positive momentum in

terms of improvement of the company’s environmental footprint.

Impact indicators – utilities stand out: We make a distinction between 1) all

the sectors for which mostly narrative elements and quantitative studies at

product level regarding the company’s positive environmental footprint from

its products or services can be gathered (e.g. case studies on the environmental

benefits for LEDs; see table); and 2) utilities for which detailed data activities

may translate into positive social and environmental impact (eg. estimates of

CO2 saved thanks to renewables generation; see table 19) and be potentially

aggregated (e.g. installed capacity, energy production, CO2 savings for

renewables generation, tons of waste treated for waste management and

customers for water).

Using EUR6bn market cap threshold, we have found 35 small & mid caps in our coverage (66% of the total), with at least 20% of their two-year forward revenues (sales or EBIT) generated in all green themes

We make a distinction between: 1) Sectors for which mostly narrative elements regarding the company’s positive environmental footprint can be gathered 2) Utilities for which data on the positive environmental outcomes can be analysed (eg. estimates of CO2 saved thanks to renewables generation)

We screen out Aalberts Industries and Tomtom due to a low exposure and lack of evidence on the positive impact credentials

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Affordability and inclusion: Other general factors considered comprise

affordability (business exposure to low-income customers/underserved

populations are included when relevant, especially for Business to Customers

sectors, eg access to energy issue).

Table 19: KPIs and data examined for utilities (examples)

Sector Impact objective and KPIs, data

Utilities Energy: renewable electricity generation Renewables: installed capacity Renewables: electricity produced Renewables: CO2 emissions avoided (mt) Group: number of customers served Group: number of customers using specific offers (e.g. the Social bonus) Group: GHG emissions (scope 1, 2 and 3) Group: energy consumption (TJ) Waste: minimum use of landfills, maximising the recovery of materials and energy from waste Waste collected/treated (tonnes) Waste disposed of (Ktonne) Water: improving water access, water sanitation; reducing water leakage, improving water

quality. Positive net contribution (hm3) Water recycled/reused/rainwater as a % of all water consumed Water distributed (Mcm) Water purified (Mcm) Drinking water supplied (Mm3)


Table 20: Data and narrative elements considered on other sectors (examples)

Sector Impact objective and details on relevant products and services

Capital goods Climate change adaptation (eg coastal defence, locks systems, dike design) Design of efficient systems for heating, cooling, airco, storage of heat Energy efficient lighting solutions (mainly LED) Environmental engineering Environmental services (eg services from soil, groundwater and sediment remediation and

environmental impact assessments, through to consultancy on corporate energy, product stewardship, health and safety issues)

Heat exchangers, separators and fluid equipment: water, CO2 emissions reduction, heating, cooling (energy efficiency), food transportation.

Lithium-metal polymer batteries Railway Solar energy equipment Thin-film Coating Vacuum Water equipment Wind equipment Chemicals Gases such as oxygen or hydrogen can be used with coal or natural gas to produce clean

energy or fuels, and to reduce greenhouse gases emission. Gases for Carbon Capture Fertilizers Metal and e-waste recycling Construction & materials

Climate control systems: contribution to improve the energy-efficiency of the distribution of heat and cooling

Building insulation Sealing that improve energy efficiency in the automotive sector.

Solutions for PV industries, such as quartz crudibles for smelting silicon slabs Food Natural ingredients Support services In-service inspection & verification/Certification


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Step 3: Pinpointing ESG risks - Keeping an eye on the threats We outline a wide range of potential environmental, social and governance concerns

affecting these companies, distinguishing between the exposure to non-Green activities

(table 21) and other ESG issues to be watched (table 22), including human capital,

corporate governance, business ethics, environmental liabilities issues.

Table 21: Our watch list: main exposure to controversial/sensitive activities

Company Exposure to controversial/sensitive activities (e.g. nuclear, gambling, fossil fuels etc.)

A2A Fossil fuels (2014 production: coal: 2GW; Oil: 1.3GW).

Aalberts Among key end markets, the company provides systems for the oil & gas sector, beer industry, and is also exposed to the automotive and Aerospace & Defence (e.g. engines for airplanes) sectors. We estimate Aalbert’s sales exposure to A&D to be c2%, including 1% for Defence (steady to slow growing business).

Acciona Buildings & Construction (41% of 2013 sales and 11% of EBITDA). Ferries (Trasmediterranea: 6% of sales and 1% of EBITDA). Social and environmental concerns regarding first-generation biofuels (methanol and vegetable oil consumption was nonexistent in 2012). Strong energy consumption in desalination installation.

Albioma Exposure to coal. Outside of the sugar cane harvesting season, the bagasse cogeneration power plants generate electricity from coal (or also – ultimately – from other forms of biomass) . We note that, to reduce its direct exposure to coal, Albioma intends to gradually scale back the proportion of coal used to fuel its dual-fuel plants over the coming years, replacing it with locally-sourced biomass (e.g. green waste) or imported biomass (by-products of forestry-related and agribusiness industries

Andritz Exposure to the automobile industry (we estimate below 20% of total sales). Andritz group is also a leading supplier of plants and services for the pulp and paper industry (25-30% of order intake) where there are acute environmental issues (e.g. chemicals and power consumption). In all these segments, we don’t see Andritz solutions as expected to generate particular environmental benefits

Ence Pulp production: Ence is Europe's leading eucalyptus pulp producer

ERG Power & Gas (2.6GWh of electricity produced in 2013), and Oil (downstream business).

FCC 25% of EBITDA (2014E) exposure to construction and cement

K+S Mining: Saline waste water. This could jeopardise the whole potash business should policy makers build pressure on the issues. K+S invested EUR360m last year to reduce waste water. The amount of waste water has been cut in the past few years. Health and safety: Fatal accidents can happen at mines (3 fatalities in an accident in 2013) and result in lost investments, production facilities.

Verbund Small thermal electricity generation: 4TWh in 2013 (essentially coal; some plants are closing next year).


We break down the exposure to non-Green activities and other ESG issues to be watched

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Table 22: Our ESG risk watch list

Company ESG issues and improvements (e.g. governance, liabilities, labour ris

A2A Governance problems and political intervention: A2A it is going through a transformation recently approved by its two main shareholding municipalities (with a total 55% stake). There will be a governance structure shift from dual to traditional along with the placement of a c5% stake in 2014

ACEA Governance: The agenda of the next AGM (on 5 June) could include the appointment of a new BOD and a lower number of BOD members (from 9 to 5) together with a lower remuneration to BOD members.

Ence Human capital: The company is to release a cost savings plan in H2. We do not believe jobs cut would be the key of the cost savings plan however.

ERG Fiscal fraud: The potential fiscal fraud in the TotalERG JV is the main risk for ERG. The investigation involves suspected false invoices (implying VAT credits) worth EUR904m, issued by a Bermuda-based company. The potential fiscal fraud is related to the period before 1 october 2010, when the JV was not set up: the financial statement of the JV was nevertheless signed for the entire 2010 by the ERG CEO (Edoardo Garrone who is now Chairman)

Hera S.p.A. and IREN Environment: There is a significant environmental issue in Tirreno Power, a generation company (3.4GW of installed capacity) in which both IREN and HERA have a 5% stake: 2 unit of its coal plant have been recently closed because it seems they have caused a lot of healthy problems to the population of the nearby territory. Tirreno Power stake has been written down to zero both for HERA and for IREN

Imtech Frauds: Imtech had to face EUR408m write-downs last year. The write-downs cover a period of three years, having also led to a restatement of results for 2010-11. The serious problems in Germany and Poland have been mostly caused by fraudulent behaviour by local management. Imtech used to operate a highly decentralised model. The fraudulent actions of the former German divisional management included a complete dual reporting system with a separate IT system only accessible to German management (the hierarchical structure and threat of retaliation kept this system in operation for a very long time). Also external accountants, having worked for Imtech for over ten years, have not been able to discover this for years. Imtech underwent a complete corporate overhaul with new management, new procedures (accounting, reporting, tendering) and a new strategy. The write-downs and operationallosses blew a hole in the company’s financial ratios with sizeable equity injections bringingthe necessary repairs.

K+S Health and safety: Fatal accidents can happen at mines (3 fatalities in an accident in 2013) and result in lost investments and production facilities.

Vossloh Governance: In mid-February, Vossloh announced a complete change of the management board, to take effect this spring. The incoming board brings significant experience, particularly in the rail industry. We also note that, in contrast to the recent past, the executive board will now consist of three members (instead of two) and will also include a CEO (previously the CEO and CFO roles were combined). We are confident that the new management team is coming on board with a clear mandate to significantly improve earnings and growth and that, whatever the new management’s strategic plan, it is likely to be value-creative for shareholders, although there is a near-term risk that a ‘clean-up’ could lead to some kitchen-sinking in 2014.


Step 4: Identifying liquidity issues Seven (20%) of these stocks have an average daily trading volume below EUR2m

(calculated on a monthly basis), illustrating significant liquidity issues which may discourage

investors, who might conclude that they are uninvestable. We do not aim to build an index

here, so we don’t screen out any of these companies as part of our selection, but note that a

sizeable trade may have a substantial impact on the quotation of the equity concerned.

Seven (20%) of these stocks have an average daily trading volume of below EUR2m (calculated on a monthly basis)

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Table 23: Free float, market cap and liquidity data

Company Free float Market cap (EURm)

Free float market cap 2013 (EURm)

1 month avg (EURm)

1M avg volume

Average daily turnover (monthly basis)

A2A 43.0% 2923 1257 1.0 23.7 22.9 Acciona 40.0% 3487 1395 59.3 0.2 13.2 ACEA 19.0% 2326 442 10.4 0.2 1.7 Aixtron 82.5% 1353 1116 12.2 0.4 5.3 Albioma 57.0% na na 19.9 0.0 0.6 Alerion 44.0% 161 71 3.8 0.1 0.4 70.0% 4710 3297 44.9 0.2 7.2 Ansaldo STS 60.0% 1512 907 8.2 1.0 8.6 Arcadis 64.8% 2051 1329 27.8 0.1 2.7 Blue Solutions 11.0% 793 87 21.2 0.0 0.5 CAF 41.5% 1286 533 377.3 0.0 3.5 EDP Renovaveis 22.5% 4259 958 4.7 0.6 3.0 ElringKlinger 48.0% 1888 906 27.2 0.1 2.9 Ence 37.0% 551 204 2.2 1.0 2.2 ERG 32.0% 1817 582 11.2 0.4 4.2 Eurofins Scientific SE 56.0% 3151 1764 212.2 0.0 2.5 Falck Renewables 37.0% 428 158 1.4 1.5 2.1 FCC 33.0% 2094 691 15.7 1.9 29.3 Gamesa 80.0% 2102 1682 8.2 2.8 22.8 Grontmij 58.4% 231 135 3.5 0.1 0.3 Groupe Eurotunnel S.A. 78.3% 5095 3990 9.0 1.1 10.3 Hera S.p.A. 40.0% 2940 1176 2.0 2.8 5.6 Imtech 78.7% 879 692 2.0 7.0 14.2 IREN 46.0% 1659 763 1.3 2.7 3.5 K + S 90.1% 4541 4091 23.5 2.3 54.4 Meyer Burger Technology AG 90.0% 966 869 13.0 1.5 18.9 Naturex 63.5% 497 316 64.6 0.0 0.6 Oerlikon 52.0% 4150 2159 12.3 1.0 11.9 Osram Light 80.5% 4978 4007 47.1 0.3 16.1 Pfeiffer Vacuum Technology 100.0% 873 873 88.8 0.0 1.8 Umicore 72.3% 4093 2959 36.1 0.4 15.3 Verbund 19.0% 5246 997 15.0 0.2 3.3 Vossloh 63.1% 948 598 70.4 0.0 2.2 Wienerberger AG 100.0% 1603 1603 13.6 0.2 2.2 Zumtobel 64.6% 773 500 17.9 0.1 1.0

Source: Factset, Kepler Cheuvreux

Step 5: Link to our investment case - The big picture Our cluster and stock profiles (pages 37-129) provide a broad overview of the main take-

aways on the influence of environmental trends within the context of our investment case

(eg environmental legislation, cost benefits from environmental technologies, main growth

opportunities).

While we acknowledge our investments views and horizon may not be aligned with our

SMID Green Impact’s main purpose, which looks for long-term upside from sustainable

solutions specifically, they enable to get the big picture and thereby provide useful

indications about market trends coupled with insight into tensions involving the risks and

returns related to Green activities and the environmental impact. Our screener is however

not intended to generate a recommended list of either individual stocks or a group of

stocks to trade.

Our cluster and stock profiles provide a broad overview of the main take-aways on the influence of environmental trends within the context of our short to long-term investment case

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Conclusions: Green champions and transformation cases

Among a very diverse range of conclusions on issues and companies addressed, we

emphasise two broad groups of companies that stand out.

Green champions: “Some are born green” First, among companies with an already greater exposure that we identify as Green

champions due to their ability to grow rather solidly on the back of environmental drivers,

our SMID emphasis enables to shed light on somewhat neglected pure Green players

(Alerion, Falck Renewables), recent IPOs with massive upside (Blue Solutions) and refine

our long-standing convictions on stocks with already robust positions in structural growth

areas driven by green trends (Elringklinger, Umicore, Naturex, Pfeiffer Vacuum). We

haven’t found any significant ESG issues currently affecting these companies and have a

good level of confidence in their impact credentials.

Transformation stories: “Some achieve greenness” Second, we also pinpoint companies expected to successfully transform their product

portfolio into growth-related assets while improving their environmental footprint, such as

through a shift from fossil fuels to renewable energy generation (Albioma, ERG) or due to

specific M&A stories set to boost energy efficiency savings potential (Oerlikon with

coating). As regards ESG issues, besides the concerns related to the current environmental

impact of Albioma and ERG, we also stress that ERG is currently embroiled in a potential

fiscal fraud in TotalERG.

Market & Policy drive: “Some have greenness thrust upon them” Last but not least, in our cluster and stocks profiles, for all other companies we have

underlined a wide series of business or regulatory drivers for the companies’ investments

and efforts in enhancing their environmental performance and offerings (e.g. wastewater

concerns for K+S).

Liquidity: a persisting hindrance We overall point out that liquidity remains an important issue for these companies as

Albioma, Alerion and Blue Solutions have an average daily trading volume below EUR2m

(calculated on a monthly basis).

We emphasise two broad groups of companies that stand out: 1) Green champions 2) Transformation stories

Liquidity remains an important issue (Albioma, Alerion, Blue Solutions)

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Table 24: Green Impact SMID – overview of main data

Company Sector Main Green Exposure (total group) Average daily Exposure to Risks: ESG s 2013 2016E turnover

(monthly basis) controversial/

sensitive activities Issue

to watch

Alternative Energy & Trans Ansaldo STS Capital goods Railway 100% of sales 100% of sales 8.6

CAF Capital goods Railway 100% of sales 100% of sales 3.5

Groupe Eurotunnel S.A.

Transport Railway 94% of sales na 10.3

Vossloh Capital goods 100% of sales 100% of sales 2.2 x


25% of sales 30% of sales 1.0

Biomass Resources K + S Chemicals Fertilizer 54% of sales

82% of EBIT 50% of sales 54.4 x x

Naturex Food Natural ingredients


Eco-Products & Serv Eurofins Scientific SE

Support services Environmental testing

20% of sales and EBIT

20% of sales and EBIT

2.5

Umicore IT hardware & telco eqpmt

Recycling, Green cars



15.3

Grontmij Capital goods planning & design activities


Arcadis Capital goods Environmental services


43% of sales

50% of EBIT

2.7

Imtech Capital goods Environmental engineering

30% of sales

40% of EBIT

35% of sales 14.2 x

Energy efficiency Aixtron Semis Efficient

Lighting 80% of sales 80% of sales 5.3

Blue Solutions Capital goods Electricity storage, Green

cars


ElringKlinger Autos & parts Green cars 100% of sales 100%of sales 2.9

Oerlikon Capital goods Thin-film Coating

Vacuum, Textile

19% of sales up to 50% 11.9

Osram Light Capital goods Efficient Lighting



Capital goods Vacuum pumps 100% of sales 100% of sales 1.8

Wienerberger AG

Construction & materials

Green buildings 25% of sales 30% of sales 2.2 x

Renewable Energy A2A Utilities Hydro

generation, waste

management

61% of EBITDA

63% of EBITDA 22.9 x

Acciona Utilities Wind energy generation

51% of sales

82% of EBITDA

49% of sales

80% of EBITDA

13.2 x

Albioma Utilities Biomass generation, solar

35% of 2012 electricity

generation

na 0.6 x


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Table 25: Green Impact SMID – overview of main data (continued)

Company Sector Main Green Exposure (total group) Average daily Exposure to Risk: ESG s 2013 2016E turnover

(monthly basis) controversial/

sensitive activities Issue

to watch

Alerion Utilities Wind energy generation

100% of sales 100%of sales 0.4

Andritz Capital goods Hydro equipment

54% of sales na 7.2 x x

EDP Renovaveis Utilities Wind generation 100% of sales 100%of sales 3.0

ERG Utilities | Wind energy generation

5% of sales

47% of EBIT 24% of sales 69% of EBIT

4.2 x x

Ence Forestry, Paper and Packaging

Biomass generation



2.2 x

Falck Renewables

Utilities Wind energy generation



Capital goods Solar energy equipment



18.9

Verbund Utilities 89% of electricity

generation

89% of electricity

generation

3.3 x x

Waste & water ACEA Utilities Waste & water,

Hydro generation

60% of EBITDA

na 1.7 x


Environmental services, Water distribution and

treatment

53% of sales 75% of

EBITDA*

47% of sales 81% of

EBITDA*

29.3 x

Hera S.p.A. Utilities 35% of sales 52% of EBIT


5.6 x

IREN Utilities Waste & water, Hydro

generation

39% of EBIT 54% of EBIT 3.5 x


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Clusters

Tracking market and policy trends

In this section we provide an overview of the seven clusters covered in this guide. Each

summary outlines the key factors affecting the cluster:

1. Company exposure: Key data on the positioning of companies in our universe.

2. Market overview: Brief summary of key facts on the market, regulations, main

trends, as well as the latest news (recent events and economic data).

3. Impact case (for a selected number of themes): general evidence supporting the

contention that activities related to the theme may deliver a positive

environmental and social impact.

Table 26: Companies exposed: highlights

Cluster/Theme Companies most exposed

Alternative Energy & Trans Railway Ansaldo STS, CAF, GET and Vossloh Biomass Resources Forestry Ence, Holmen, Stora Enso, UPM Eco-products & services Support services: TIC BV, Eurofins, Intertek, SGS Energy efficiency Efficient lighting Aixtron, Osram Light, Philips and Zumtobel Green cars Automative catalysts: Umicore Coating: Oerlikon Lithium-metal polymer batteries: Blue Solutions Automotive light weight construction: Elringklinger Renewable Energy Biomass Albioma, Ence Hydro equipment Andritz Hydro generation A2A, IREN, Verbund Solar energy equipment Meyer Burger Wind energy generation Alerion, Acciona, EDPR, ENEL GP, ERG, Falck Renewables, Iberdrola, IREN Wind energy equipment Gamesa Waste & Water Mgmt Waste & Water Mgmt A2A, ACEA, FCC, Geberit, Hera, Iren, Suez Environnement, Veolia

Environnement


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Alternative Energy & Trans

Railway

Companies’ exposure: Alstom, Ansaldo STS, CAF, GET, Vossloh, Siemens

Table 27: Main companies involved in our coverage

Company Sector 2013 sales exposure Activities

Alstom Capital goods 29% The transport sector division serves the urban transit, regional/intercity passenger travel markets and freight markets all over

the world with rail transport products, systems and services.

Ansaldo STS Capital goods 100% Supplier of rail and mass transport systems (e.g. signalling, turn-key transport systems).

CAF Capital goods 100% Design, production, maintenance and supply of equipment for the railway industry

Groupe Eurotunnel S.A. Transport 94% Operates the fixed link between Great Britain and Europe. The company manages

the Channel Tunnel infrastructure. It also operates the Truck and Car Shuttle, which competes with Short Straits ferries. All the

group’s operations, except ferrylink, offer an alternative to air and ferry transport, both

higher GHG emitters per passenger.

Vossloh Capital goods 100% Rail infrastructure, RI, (fastening systems, switch systems, rail services); 2 ) Motive

Power & Components (transportation systems (rail vehicles; vehicle

systems/components), electrical systems).

Siemens AG Capital goods 9% Rail solutions is part of its Infrastructure & cities BU: 1) Rail systems: High Speed and

Commute; Metro, coaches, light rail; locomotives and components; customer services and transportation solutions 2)

Mobility and Logistics: Infrastructure Logistics, Complete transportation and e-

infrastructure


Market overview: solid growth ahead According to Unife (the European Rail Industry Association), the world rail supply market is

expected to post decent growth for the 2012-17 period (CAGR of 2.6% vs. 3.4% over 2007-

113), reaching an absolute average figure of up to EUR170bn a year, supported by

global population/urbanisation trends, efficiencies and cost effectiveness (oil),

other environmental issues and the liberalisation of certain European rail markets

(positive impact on rolling stock and services).

It is an activity that can even be counter-cyclical, as shown during the 2007-11 downturn.

Although western Europe and Asia-Pacific still represent more than 50% of the world’s rail

3 The update of the UNIFE study is due to be published in September this year

World rail supply market expected to post decent growth in 2012-17 (CAGR of 2.6% vs. 3.4% over 2007- 11)

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supply market, other areas expected to post stronger growth are LatAm and Africa, where

Unife anticipates an expansion of 7-8% a year.

Table 28: Urbanisation trends 1950-2050 (% of population in urban areas)

1950 1980 2000 2010 2015 2030 2050

World 29 39 47 52 54 60 67 Western 64 73 76 79 81 84 88 US 64 74 79 82 83 86 89 Japan 53 76 79 91 94 97 98 China 12 19 36 49 56 69 77 Brazil 36 65 81 84 86 88 91 Africa 14 28 36 39 41 48 58

Source: United Nations

The main long-term risks that we see are:

1. Impact of lower public spending on demand due to budget constraints.

2. Overcapacity: stiffer competition (Asian players are not yet present in mature

markets) is putting pressure on margins and prepayment levels as traditional

contracts change.

3. International expansion means both higher execution risks (Venezuela contract is

a good example) and taxes.

Table 29: Breakdown of average global rail supply market 2009-11

(EUR m) Total %

Rolling stock 47 705 32.70% Services 55 158 37.80% Infrastructure 30 220 20.70% Rail control 1237 8.30% Integrated projects 687 0.50% Total 145 807 100.00%

Source: Unife

Impact case: a key contributor to less carbon-intensive transport With a share of 0.8% of GHG emissions in the EU, we see railways as a key contributor to a

less carbon-intensive transport system and infrastructure. Improved public urban

transport lowers congestion and air pollution, thereby generating substantial economic

and health impacts. On the downside, 10% of the EU's population is exposed to high rail

noise levels. Transport infrastructure can also cause territory fragmentation, with negative

effects on biodiversity conservation.

Table 30: Consumption/Emissions per mode of transport

Car Train Plane Coach

CO2 emissions (g per passenger) 115 17 153 30 Average external cost (EUR per 1,000 passengers per km) 76 23 (*) 53 38 Equivalent oil consumption (litres/100km) 7 5 5 7.7

Source: US Transportation Energy Data Book (*) High-speed train

1) Impact on demand of lower public spending 2) Overcapacity 3) International expansion means both higher execution risks and taxes

With a share of 0.8% of GHG emissions in the EU, we see railways as a key contributor to a less carbon-intensive transport system and infrastructure

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Biomass resources

Forestry

Companies’ exposure: Ence, Holmen, SCA, Stora Enso and UPM Among our SMID universe, Ence had 88,266 hectares of managed woodlands as of 2013

(o/w 56% are owned). Ence is Europe's leading eucalyptus pulp producer, with an over 50%

market share (1,340,000 tonnes annual capacity), which makes it the fourth largest

producer in the world. Ence is Spain's market leader in the production of renewable energy

using forest biomass and energy crop (15% of EBIT). Other SMID pulp & paper stocks under

our coverage (Ahlstrom, Metsa Board, Norske Skog) do not own substantial forest assets.

Larger companies with material forest assets (c.1-2m hectares) in our universe are Holmen,

SCA, Stora Enso and UPM.

Market data: supply/demand balance getting tighter Pulp demand has shown a healthy development despite the secular demand decline in

paper. The main drivers are demand growth in tissue and packaging, as well as emerging

market-related growth. Furthermore, the fibre deficit in China has resulted in the

expansion of low-cost plantation-based pulp manufacturing in Latin America, which is

being exported to Asia and Europe. The amount of new capacity coming on stream during

the next two years has triggered a debate over the risks of oversupply.

Table 31: World bleached market pulp demand by end-use and region – 2011

WE NA China ROW Total

P&W 14% 5% 10% 9% 39% Tissue 9% 6% 4% 8% 28% Packaging 2% 1% 3% 2% 8% Speciality 7% 2% 3% 4% 16% Fluff 2% 3% 1% 4% 10% Total 35% 16% 21% 27% 100% Declining market segment Growing market segment

Source: Hawkins Wright (2011), UPM

However, in the long run, the supply/demand balance of forest products is getting tighter.

With this, access to competitive and reliable wood supply will become an increasingly

important competitive advantage for many end-consuming sectors. Integrated forest

names will benefit from structural demand growth.

Power is a structural growth end-market for forest products, driven by growing biomass

adoption. Power generation end-markets are correlated to GDP growth but, beyond that,

they are growing on the back of environmental targets, which are driving wood pellet

power generation. Securing stable and competitively priced wood pellet supply is a key

challenge for biomass power generation. Carbon markets are an end segment for forests,

as carbon sinks and clean development mechanisms (CDM). CO2 prices are weak, but long-

term we see demand as new carbon trading schemes develop.

Ence had 88,266 hectares of managed woodlands as of 2013 (o/w 56% owned) - other SMID pulp & paper stocks under our coverage (Ahlstrom, Metsa Board, Norske Skog) do not own substantial forest assets

Access to competitive and reliable wood supply to become increasingly important competitive edge for many end-consuming sectors

Securing stable and competitively priced wood pellet supply is a key challenge for biomass power generation

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Chart 6: Consumption of wood products Chart 7: European wood demand

Source: FAO Source: FAO

Table 32: Global wood market overview

Number of producers Production Consumption Export/(Import) Nature of markets

Europe Austria 25 626000 509000 117000 Heating Belgium 10 325000 920000 -595000 Power/Heating Bulgaria 17 27200 3000 24200 Heating Czech Republic 12 27000 3000 24000 Power/Heating Denmark 12 134000 1060000 -926000 Heating Finland 19 373000 149200 223800 Heating France 0 240000 200000 40000 Heating Germany 50 1460000 900000 560000 Power/Heating Greece 5 27800 11100 16700 Heating Hungary 7 5000 10000 -5000 Heating Ireland 2 17000 30000 -13000 Heating Italy 75 650000 850000 -200000 Heating Netherlands 2 120000 913500 -793500 Power/Heating Norway 8 35100 39800 -4700 Heating Poland 21 340200 120000 220200 Heating Portugal 6 100000 10000 90000 Heating Romania 21 114000 25000 89000 Heating Slovakia 14 117000 17550 99450 Heating Spain 17 100000 10000 90000 Heating Switzerland 14 70000 90000 -20000 Heating Sweden 94 1405000 1850000 -445000 Power/Heating UK 15 125000 176000 -51000 Power/Heating North America Canada 31 1200000 200000 1000000 Heating USA 97 1800000 2096150 -296150 Heating Latin America 0 Brazil 1 25000 25000 0 Heating Argentina 1 7000 7000 0 Heating Chile 1 20000 20000 0 Heating Asia China 1 20000 50000 -30000 Power/Heating Japan 55 60000 109000 -49000 Power/Heating

Source: pellet@lats, IE, FA/UNECE, USDA

0

200

400

600

800

1000

1200

1400

2010 2020 2030

m c

m R

WE

/yr

Bioenergy

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Chart 8: Global wood supply and demand trends

Source: Kepler Cheuvreu

Impact case: competitive benefits from wood certification The increased long-term demand for wood will result in an increased amount of forest

plantation start-ups in emerging markets, making certification (FSC) an important issue.

By and large, all forest-managing and forest-product-consuming industries are subject to

reputational risk with regards to their forestry practices. Illegal logging, deforestation and

other practices have in instances led to pushback by end consumers and sometimes even

embargoes. A known case was International Paper's (not covered) embargo on Indonesian

pulp, due to controversial forestry practices by the local industry. Certification, and in

particular chain of custody certification, helps companies manage and reduce reputational

risk with regards to their forestry involvement and forest product consumption.

In particular, Asia is a region that attracts attention in this regard, due to its rapid pace of

deforestation, particularly in China. But LatAm is not exempt either. The strong

profitability of pulp production in the southern hemisphere in general, and LatAm in

particular, is attracting investors' interest, and there are numerous plans aimed at capacity

expansion of pulp production that seek to use forest plantations as the raw material. It is

worth noting that the larger Brazilian pulp producers claim that all of their wood is FSC-

certified and that they only use wood from plantations.

Certification, in some instances, is also a basic requirement for access to markets. Beyond

that, it increases the credibility of suppliers or forest products and also pricing power. UN

reports covering the 2008-09 recession have shown that wood became a buyer’s market

and that buyers became more selective in their choice of supply. As such, there does not

seem to be any specific "green premium" in the market, but certification is required for

ongoing access to markets. In 2012, the certified forest area globally grew 4% YOY. All in

all, certification is now a reference for the forestry sectors and we expect it to grow further.

It is worth noting that larger Brazilian pulp producers claim that all of their wood is FSC-certified and that they only use wood from plantations

Increased long-term demand for wood to result in increased amount of forest plantation start-ups in emerging markets, making certification (FSC) an important issue

Certification, in some instances, is also a basic requirement for access to markets

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The major pulp and paper companies have a very similar approach to their certification

activities in that around 80% of their supply and products are certified.

Requirements for certification often include protection of biodiversity, sustainable growth,

management and harvesting, and other social and environmental criteria.

Forest management. Certification of sustainable forest operations under

environmental and social aspects.

Supply chain/chain of custody. This tracks wood from its origin through the

production process to end use. Certification that all products throughout a given

supply chain have been sourced from certified forests. This is an important

certification, especially for those countries looking to export into environmentally

conscious markets, more specifically Europe and North America.

Wood control. Certain forest products that have been sourced from noncertified

forests can receive traceability certificates through this certification.

Major pulp and paper companies have a very similar approach to their certification activities in that c. 80% of their supply and products are certified

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Energy efficiency

Efficient lighting

Companies’ exposure: Aixtron, Osram Light, Philips, Zumtobel

Table 33: Exposure of our universe to efficient lighting theme

Company Sector % of green sales (2013)

% of green sales (2016E)

Key activities

Aixtron Semis 80% 80% Development and production of equipment for the production of compound

semiconductors (mainly LEDs).

Osram Light Capital goods 70% 100% Products, systems, solutions and services with the greatest potential for energy savings

(mainly LED.

Philips Capital goods 25% 36% Lamps with lower energy consumption including LED, compact fluorescent


50% 50% Professional lighting solutions, luminaires, lighting management and lighting components

for indoor and outdoor application


Market overview: a changing industry Having been fairly stable for decades, the lighting industry is now changing dramatically,

triggered by the emergence of LED-based lighting. As we expect LEDs to commoditise and

the lighting industry profit pool to move downstream, the changing industry could have

significant consequences for individual companies.

While the LCD TV backlighting market has been the major growth driver for LED and LED

equipment makers over the last three years, LED lighting is gaining more and more traction

and market share. For FY 2016, market researchers are predicting a 40-45% increase in

LED lighting penetration in the global general lighting market from 5% in 2012. LED

lighting penetration may reach 70-80% by 2020E.

Despite the bright long-term prospects, the near-term picture has darkened somewhat due

to the persisting adverse macro environment in important regions of the globe and the still-

noticeable negative impact from the LED equipment overinvestment in 2010-11.

Thus, it is not surprising that LED equipment suppliers saw new order intake remain at trough

levels in 2013 and are continuing to guide quite cautiously on their near-term prospects.

The overall expectation is that there will be a certain improvement in the business

environment towards the end of 2014. How fast and sustainable this recovery will

materialise remains to be seen. In our view, there has been no significant recovery yet and

the prospects for the next 2-3 quarters also remain meagre.

Overall, we see huge potential for energy efficiency and efficient lighting solutions in the

future. Due to the still existing oversupply situation in the LED production arena and the

persisting reluctance of clients to order new equipment (upgrade packages seem to be

more en vogue), we recommend investors to steer clear of the shares of these companies

for the time being.

LED equipment suppliers saw new order intake remain at trough levels in 2013 and continue to guide quite cautiously on near-term prospects

Lighting industry changing dramatically, triggered by emergence of LED-based lighting

For FY 2016 market researchers predict a 40-45% increase in LED lighting penetration in the global general lighting market from 5% in 2012. LED lighting penetration may reach 70-80% by 2020E

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Table 34: Global light source market

EURbn 2012E 2016E 2012-16 CAGR

2020E 2012-20 CAGR

Incandescent lamps 0.8 0.2 -28% 0 -100% Halogen lamps 1.4 1.5 0% 0.6 -10% High intensity discharge lamps 1.8 1.7 -2% 1.3 -4% Fluorescent lamps 6.1 4.0 -10% 2.1 -12% LED lamps and light engines 3.4 9.5 29% 13.5 19% Total light source market 13.5 17.0 6% 17.5 3%

Source: Osram, McKinsey, Kepler Cheuvreux

Chart 9: Global light source market

Source: Osram, McKinsey, Kepler Cheuvreux

Table 35: Leading light source and LED manufacturers

Traditional lamps LED chip and packaging LED light engines and lamps

Philips Nichia Philips Osram Samsung Cree GE LG Innotek GE Havells Osram Sharp Toshiba Seoul Semiconductor Toshiba Panasonic Philips Panasonic Ushio Cree Osram Satco Toyoda Gosei Megaman TCP Sharp Aurora Feit Electric Everlight Lutron Electronics Megaman Lumens Samsung Electronics NVC Lighting Lite-On LG Electronics Halco Epistar Delta Electronics Aurora Lextar Hitachi Foshan Electrical and Lighting Forepi CNLIGHT Yankon Lighting San’an Optoelectronics Elec-Tech Toshiba TSMC SSL Silan Huga Optotech Refond Edison Opto Plessey Semiconductors Soraa


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012E 2016E 2020E

LED

CFL

HID

Halogen

Incandescent

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Chart 10: Packaged LED market shares (2012) Chart 11: Packaged LED market breakdown (2013)

Source: Strategies Unlimited, Kepler Cheuvreux Source: Strategies Unlimited, Kepler Cheuvreux

Impact case: strong potential for energy savings The potential for energy savings in lighting is high and could be achieved through more

efficient control appliances, luminaries, ballasts and lamps, but also through changes in

consumer behaviour.

Ninety percent of the energy is consumed during the usage of the lamp.

Ninety percent of the electricity sent to an incandescent bulb is lost via heat to

the surroundings. CCFL bulbs and LEDs have a much better efficiency coefficient

(only 15-30% lost as heat).

Depending on the use (street, residential, office) more efficient lamps (LED, TFL, CFL) could

enable energy savings of between 57% and 80%.

While the initial price of energy-efficient bulbs is typically higher than traditional

incandescent light bulbs, newer bulbs cost less to operate because of the lower energy

consumption, saving money over the life of the bulb. Many of the newer bulbs last

significantly longer than traditional bulbs. The lower energy consumption and longer

lifetime make the total cost of ownership of energy-efficient light bulbs compare

favourably with that of traditional incandescent lamps.

Table 36: Comparison between traditional incandescent and energy-efficient light bulbs

60W traditional 43W energy-saving 15W compact 12W LED incandescent incandescent fluorescent

Energy saved - c. 25% c. 75% 75 - 80% Bulb life 1,000 hours 1,000 - 3,000 hours 8,500 hours 25,000 hours

Source: US Department of Energy

In 2012, the US Department of Energy conducted a study into the life-cycle energy

consumption of various lamp technologies. As different lamp types are not equivalent in

terms of their lumen output and lifetime, 20m lumen-hours of lighting service was used as a

functional unit (representing one LED replacement lamp), with life-cycle energy estimates

multiplied by the number of lamps needed to reach this value. The results show

significantly lower energy consumption for LED lamps compared with conventional light

Nichia 16.5%

Samsung 9.9%

LG Innotek 8.0%

Osram 7.6%

Seoul Semi 5.5%

Philips 5.5%

Cree 5.5%

Toyoda Gosei 4.5%

Epistar 4.2%

Sharp 3.0%

Everlight 3.2%

Lumens 3.1%

San'an Opto 3.0%

others 20.5%

Lighting 31%

Backlight (TV/monitor)

18% Mobile

18%

Signage 12%

Automotive 10%

Others 11%

Shift to LED offers significant energy savings potential

LED lamps have a much longer lifetime

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sources, with the difference set to increase further with additional improvements to LED

technology in the coming years.

Chart 12: Life-cycle energy consumption of lamps

Source: US Department of Energy, Kepler Cheuvreux

Table 37: Characteristics of lamp types used in life-cycle energy-consumption assessment

Lamp type Watts Lumens Lifetime

Incandescent 60 900 1,000 Halogen 43 750 1,000 CFL 15 900 8,500 LED 12.5 800 25,000 LED (2015) 5.8 800 40,000


Another study sponsored by the US Department of Energy, commissioned in 2011, looked

at the electricity savings potential in the US. Key model variables included the projected

LED and conventional technology improvements, retail price and operating lifetime. The

starting point of the analysis was the lamp installed base in 2010 of 8.2bn units. Then a

baseline was calculated assuming LED penetration was to remain at 2010 levels.

The outcomes of the study were quite impressive. The increased market penetration of

LED is estimated to result in annual energy savings of about 300 terawatt-hours by 2030.

The total electricity consumption for lighting would decrease by 46% relative to the

baseline scenario with no additional penetration of LED lighting. At the energy prices at the

time of the study, that would equate to approximately USD30bn energy savings in 2030

alone and USD250bn (2,700 terawatt-hours) over 2010-30.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

incandescent,22 lamps

halogen,27 lamps

compactfluorescent,

3 lamps

LED (2011),1 lamp

LED (2015),0.6 lamp

En

erg

y

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pti

on

(M

J/2

0m

lum

en

-h

ou

rs)

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Chart 13: Energy savings potential in the US from rising LED penetration


In addition to energy savings resulting from the change in light source technology, large

savings can be made through a smarter use of light with the help of intelligent lighting

solutions. As LEDs are semiconductor-type products, light source technology has become

digital, which makes it easier to adjust the intensity of the light and integrate controls in the

lighting solution.

Energy savings with lighting controls can be achieved by switching off or regulating

artificial light depending on presence detection, amount of daylight available, scheduling

(day/night settings), traffic/weather conditions, etc.

Chart 14: Energy savings potential of lighting solutions

Source: Zumtobel

LEDs allow for intelligent lighting solutions

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Green cars

Companies’ exposure: Blue Solutions, Elringklinger, Oerlikon, Umicore

Table 38: SMID Companies involved

Company Sector % of green sales (2013 )

% of green sales (2016E)

Key activities related to the theme

Blue Solutions Capital goods 100% 100% Provider of Lithium-metal polymer batteries dedicated to energy storage applications (mobility and stationary applications) for

industrials, municipalities and private households. Group develops and manufactures

batteries for Blue Applications and supercapacitors to industrials

ElringKlinger Autos & parts 100% 100% The company’s expertise in engine gasketing is

curcuial for OEMs’ combat against CO2, allowing higher combustion pressure which is the key to

better efficiency and lower CO2 output. Its ability to substitute metal with plastic enables weight

reduction, another key to curbing CO2. Finally, its capability to process metal and plastic such as to

withstand higher levels of pressure and temperature can leveraged from the area of

convetional engines into the territory of electro mobility (cell connectors).

Oerlikon Capital goods 19% 50% Coating for the automotive sector (fuel efficiency)

Umicore Waste & Water 32% 40% Automative catalysts to reduce carbon emissions (c.30% of sales) and rechargeable battery

materials for electric vehicles (c2% of sales)


Market overview: environmental regulations maintain pressure

The global auto industry is forecast to maintain its growth path this year. While growth in

global demand is anticipated to remain positive, with China and North America remaining

the main drivers, this time around it is expected to be supported by stabilisation in Europe,

the early signs of which have appeared on the horizon. As of late, currency depreciation has

started to cast some shadows over the demand prospects of some emerging markets.

European OEMs have made significant progress in reducing the carbon footprint of their

fleets and in the meantime CO2 efficiency has also emerged as a marketing argument for

them. While the 2015 CO2 targets (130g/km) are drawing nearer, the industry is already

undergoing preparatory steps to deal with a 2020 limit of 95g/km.

The new 95g/km 2020 target, whose related text was endorsed by the European

Parliament in February, requires OEMs to cut the CO2-intensity of the fleet sold in a range

of c. 3% for Peugeot to c. 5% for Nissan on average per year. The EC is also maintaining

maximum pressure on the industry with recent pollutant emissions regulations on light

duty and heavy duty vehicles as Euro VI legislation takes effect in Europe.

EC maintaining maximum pressure on industry with recent pollutant emissions regulations on light duty and heavy duty vehicles as Euro VI legislation takes effect in Europe

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Chart 15: Emission legislation – light duty

Source: Johnson Matthey

Chart 16: Emission legislation – heavy duty

Source: Johnson Matthey

The second phase of efforts to improve power train efficiency has started, following the

first phase, which focused on the combination of downsizing and turbo charging

combustion engines. While further efforts are being made to achieve more progress in the

aforementioned technological areas, these are now increasingly flanked by partial

(hybridisation) or even the full electrification (battery-powered electric vehicles) of

powertrains, improving the on-board consumption of energy and enhancing light weight

construction. This final factor is proving to be increasingly necessary to offset the rising

share of SUVs in fleets, specifically in markets such as North America and China.

From this angle we see the most opportunities for profitable structural growth coming

from the need to become more eco-friendly. Some suppliers exposed to any one of the

aforementioned technological areas include, among SMID names, Blue Solutions (Lithium-

metal polymer batteries), Elringklinger (automotive light weight construction) and Umicore

(mainly automotive catalysts which account for 30% of the company’s sales).

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Chart 17: Leverage for improved energy efficiency in a vehicle

Source: JAMA, Kepler Cheuvreux

Improvement in thermal efficiency:

•Direct injection

•Variable mechanisms (variable

cylinder activation, VVT&L, …)

Reduction in friction loss:

Reduction of piston & position ring

friction loss

Low viscosity lubricating oil

Tyres:

Reduced rolling resistanceImproved powertrain

performance:

•Expansion of lock-up area

• Increased number of transmission

gears

•Continuously variable

transmission

Reduced vehicle weight:

•Lightweight materials

• Improved body structure

Reduced aerodynamic drag

Other:

•Electric power steering

• Idling prevention (stop-start)

•Hybridisation

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Eco-products & services

Support services: TIC

Companies with exposure: Bureau Veritas, Eurofins, Intertek, SGS

Table 39: TIC sector: exposure to environmental activities

Company Sector Sales (2013)

Sales (2016E)

Activities

Bureau Veritas S.A. Support services 30% 30% In-service inspection & verification Certification, for example biofuel testing, environmental compliance & testing, systems certification

(energy management systems, biofuels, GHG, carbon footprint, etc.), energy efficiency of

buildings.

Energy efficiency 10% 10% Parts of its Building activities, contribute to greener buildings: Design of efficient systems

for heating, cooling, airco, storage of heat.

Eurofins Scientific SE Support services 20% 20% Environmental testing: Testing of water, air, soil, waste and other products to assess their quality

and impact on health and the environment. Eurofins is also exposed to Food & feed testing

(40% of revenues) and testing for pharma/biotech

Intertek Group PLC Support services 25% 25% Related sustainability services include: 1) Health and sustainability services for Consumer Goods;

2) Environmental Sustainability Solutions (policy, strategy, LCA, etc.); 3) Environmental

and Sustainability Report Verification; 4) Biofuels Sustainability Auditing Services; 5)

BIFMA level™ Sustainability Certification for Commercial Furniture; 6) Health and

Environmental Sustainability Benchmark Profile; environmental certification

SGS S.A. Support services 20% 20% Offers a range of inspection, testing, audit and verification services that help customers

develop and implement environmental solutions, from advising on sustainable forestry,

monitoring dioxins, providing ISO 14001 certifications and carbon foot-printing to

supporting the development of new wind farms. The data is spread across different business lines

and geographies and is not consolidated according to these categories.


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Chart 18: Top 15 TIC players (sales in EURm)


Market overview: long-term attractiveness of the industry

We believe the fundamentals of the TIC industry should remain attractive. They are mainly

based on the following pillars:

Further globalisation and liberalisation of trade policies and tariffs. Historically,

world trade growth has significantly outperformed global GDP growth by a factor

of c. 2x. The IMF expects global trade growth to continue to outperform world

output growth, mainly because of the further possible outsourcing of production to

low-cost regions. This should further increase the need for inspection and

verification services.

Regulation and strengthening of quality standards. Players in the industry should

continue to benefit from tighter regulations in fields such as environment

protection, food safety, etc. This is also increasingly becoming a topic in emerging

markets, as these regions are turning more into sophisticated consumer markets

with a growing urban and middle-class population, rising living standards, etc.,

which is increasing the importance of risk management among consumers, as well

as public and private players.

Privatisation and outsourcing of auditing and inspection functions. Public

authorities and companies are increasingly outsourcing their inspection activities

to third parties such as SGS, BV and Intertek, to reduce costs, improve the

management of their QHSE (quality, health, safety, environment) risks and focus

on their core competencies. We estimate that still roughly 60% of the overall TIC

market is operated in-house today.

Shortening of product life cycles and product variety. Shorter product life cycles

and increasing product variety should also further increase the need for the testing

services offered by industry players.

Sustainable long-term growth drivers: outsourcing, regulation, etc.

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In our SMID universe, 20% of Eurofins’s sales are exposed to the outsourced environment

testing market (water, air, soil), which is estimated at EUR4bn annually. This market is

highly fragmented, as it is a local business operated by a host of specialised companies by

subsegment. In this market, Eurofins is the global leader with a 6-7% market share through

strong local positions in Europe, solid positions in the US, thanks to the acquisition of

Lancaster, and weak positions in other continents.

We forecast the environment market to grow at around 5% a year, driven by more

stringent regulations, voluntary control by corporates, pollution accidents and greater use

of specialised companies.

Chart 19: Eurofins’s offering in environment


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Renewable energy

Companies’ exposure: ABIO, ANA, ARN, ANDR, BLUE, EDPR, EGP, ENC, ERG, FKR

Table 40: Main companies exposed to the Renewables theme

Renewable Energy Sector Exposure (2013)

Exposure (2016E)

Details on assets capacity/production

Wind energy Alerion Utilities 100% of sales 100%of sales Wind energy production (415GWh in 2013)

Acciona Utilities 32% of sales 78.5% of EBITDA

29% of sales 74% of

EBITDA

Renewable energy generation (7.1GW installed capacity in wind, also a tiny share in solar, hydro, biomass & biofuel)

EDP Renovaveis Utilities 100% of sales 100% of sales 100% Wind energy generation (8.5GW installed capacity; 19.9GWh of production in 2013)

ENEL Green Power Utilities 100% of sales 100% of sales RNW generation (8.9GW of installed capacity): Wind (58% of capacity); Hydro (29%); Geo (9%); Solar

ERG Utilities 5% of sales 47% of EBIT


Wind generation (1.34GW of installed capacity, and 2.4GWh of electricity production for 2013; mostly wind)

Falck Renewables Utilities 100% of sales 100% of sales RNW generation (716GW installed capacity): Wind (92% of capacity); EfW/Biomass (6%); Solar (2%)

Gamesa Capital goods 100% 100% Wind energy equipment (volume range of 2,200-2,400MW in 2014E) and production

Iberdrola Utilities 7% of sales 22% of EBIT


Wind energy equipment, Wind energy generation, Hydro generation (24GW of total RNW installed capacity)

Solar Meyer Burger Technology AG Capital goods 80% of sales

75% of EBIT 80% of sales 75% of EBIT

Complementary technologies along the entire solar value chain, including wafering, cells, modules and integrated solar system

Hydro A2A Utilities 25% of

EBITDA 25% of

EBITDA Renewable energy generation (7.5GW in Hydroelectricity,

5GW in PV)

Andritz Capital goods 50% of sales na Equipment: electromechanical equipment for hydropower stations (particularly turbines generators); but also:

equipment for biofuel (second generation) and biomass pelleting; .

Verbund Utilities 89% of electricity

generation

89% of electricity

generation

Hydropower generator (30.9TWh of electricity generated in 2013

IREN Utilities 16% of sales 13% of EBIT

20% of sales

Hydro generation (1TWh for the first 9 months of 2013)

Biomass Albioma Utilities 35% of 2012

electricity generation

na Fully-integrated IPP (Independent Power producer) that designs, builds and operates thermal (>89% of the company’s

total revenues in 2013) and solar power stations sources. Renewables accounted for 35.2% of the company’s total

generation (mainly bagasse and other biomass resources) as of 2012 with 2/3rd predicted within 10 years.

Ence Paper 27% of sales 15% of EBIT


Production of renewable energy using forest biomass and energy crop. The company currently has an installed capacity

of 280MW, of which 230MW is renewable energy from biomass. Annual electricity production amounted to 1,900

GWh.

Other : Electricity storage Blue Solutions Capital goods 100% of sales 100% of sales Provider of Lithium-metal polymer batteries dedicated to

energy storage applications (mobility and stationary applications) for industrials, municipalities and private

households. Group develops and manufactures batteries for Blue Applications and supercapacitors to industrials


ESG research


Market overview The share of renewable energies in Europe is increasing every year, as the European

Commission aims to see 20% of energy generated from renewable resources by 2020 in

order to have a secure, sustainable and competitive energy mix for the future. By 2035, a

third of global energy production could come from renewables, putting renewables on par

with coal as the primary source of energy on the back of declining technological costs (the

cost of batteries and solutions), rising fossil fuel prices and increasing subsidies (from

USD88bn in 2011 to USD240bn in 2035, according to the IEA). Renewables are expected

to grow strongly in the coming years in mature markets.

Chart 20: Installed capacity of wind/solar PV (GW)


Source: : Boston Consulting Group, Electricity storage, Kepler Cheuvreux Source: xxx



Source: xxx Source: xxx

ESG research




Among utilities, we currently favour renewable names in Italy (Enel Green Power, Falck

Renewables, ERG) where the regulation is visible, and avoid renewable names in Spain

(Acciona, EDPR), given the severe adverse impact expected from new regulation.

Among capital goods, we note that the target of cutting C02 emissions while reducing

exposure to nuclear technology could have a positive impact on Blue Solutions/Blue

Applications’s business model, as the need to store energy to stabilise the grid or create an

independent system with no grid connection will rise sharply over the next 20 years.

Country focus: Germany

In Germany, renewables have grown to represent a quarter of the power generation

market over the past ten years (and conventional capacities have lost that market share to

them), and this trend is set to continue. The German government aims to double the share

of renewables in the next decade.

Chart 25: Germany: share of renewables in gross electricity production (%), 1990-2012


The target of cutting C02 emissions while reducing exposure to nuclear technology could have a positive impact on Blue Solutions/Blue Applications’s business model

ESG research


The massive rise in production from renewable sources has been led by the rise in

production from wind, biomass, solar PV and waste

Chart 26: Germany: gross electricity production from renewables (TWh(el)), 1990-2012


Country focus: Italy

Italian utilities differ from their European counterparts in that there is no single utility

focused on the electricity generation market, rather they are at least 50% regulated at the

EBITDA level (ENEL, ACEA, A2A, HERA, IREN all fall squarely in this category), or wholly

focused on renewables (ENEL Green Power, ERG, Falck Renewables, Alerion), or fully

regulated (SNAM and Terna).

The Italian electricity generation market has been riddled with overcapacity for some

years, due to weak electricity demand coupled with massive growth in renewables. In 2012,

gross electricity production was 299TWh, of which 31% was from renewables and 43%

from gas-fired plants, compared with a 2008 production covered 18% by renewables and

54% by gas-fired plants.

In 9M 2013, 36% of Italian domestic production was covered by renewables (27% in 9M

2012), of which 19% was from hydro (+29% YOY), 5% from wind (+24% YOY), 9% from

solar (+20% YOY), and 2% from geothermal.

The Italian electricity generation market has been riddled with overcapacity for some years, due to weak electricity demand coupled with massive renewables growth

In 9M 2013, 36% of Italian domestic production was covered through renewables

ESG research


Table 41: Generation of electricity, from 2001 (GWh)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Solid fuels 31,730 35,447 38,813 45,518 43,606 44,207 44,112 43,074 39,745 39,734 44,726 46,755 Natural gas 95,906 99,414 117,301 129,772 149,259 158,079 172,646 172,697 147,270 152,737 144,539 129,058 Oil and similar 75,009 76,997 65,771 47,253 35,846 33,830 22,865 19,195 15,878 9,908 8,474 9,409 Other 14,147 15,788 16,406 17,945 18,207 19,304 19,187 18,840 16,113 19,429 19,935 19,852 Total thermoelectric (A) 216,792 227,646 238,291 240,488 246,918 255,420 258,811 253,806 219,007 221,808 217,674 205,075 Hydro from pumping (B) 7,115 7,743 7,603 7,164 6,860 6,431 5,666 5,604 4,305 3,290 1,934 1,979 Hydro 46,810 39,519 36,674 42,744 36,067 36,994 32,815 41,623 49,138 51,117 45,823 41,875 Wind 1,179 1,404 1,458 1,847 2,343 2,971 4,034 4,861 6,543 9,126 9,856 13,407 Solar 5 4 5 4 4 2 39 193 677 1,906 10,796 18,862 Geothermal 4,506 4,662 5,341 5,437 5,325 5,527 5,569 5,520 5,342 5,376 5,654 5,592 Biomass 2,587 3,423 4,493 5,637 6,155 6,745 6,954 7,523 7,631 9,440 10,832 12,487 Total renewables (C) 55,087 49,012 47,971 55,669 49,893 52,239 49,411 59,720 69,330 76,964 82,962 92,222 Total (A+B+C) 278,994 284,401 293,865 303,321 303,672 314,090 313,888 319,129 292,642 302,062 302,570 299,276

Source: Italian Energy Authority

Wind energy rules are clear and stable. In 2013, Italian legislation was completely revised

(changing from a system based on green certificates to a feed-in tariff) with no retroactive

impact. Renewables are the only companies still growing among Italian utilities, and are

only partly affected by the difficult macro scenario (prices, not volumes, because

renewables have dispatch priority, the only risk is that they could be affected by adverse

weather, such as poor wind or water conditions for hydro). Diversification is a therefore

key strength for renewable companies.

Chart 27: Wind capacity in Italy


Chart 28: : Europe wind capacity


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ESG research


Country focus: Impact of the new regulation in Spain

After prompting investors to invest in renewables during the 2000s, Spain’s government

did an about-face in 2013, as it concluded renewable premiums were too onerous (40% of

regulated costs). The impact of the regulatory changes affecting the renewables space over

2012-14E has been significant: we estimate a cumulative equity value erosion of 48% for

Acciona, 15% for EDPR and 12% for Iberdrola.

The details of the new regulation have yet to be announced, but it looks as if the

government will break the law in the pursuit of the greater good (taming the tariff deficit).

Mid-term renewable operators are going to suffer badly. The government is intent on

cutting premiums by EUR1.5bn-EUR1.8bn (out of a total of c. EUR9.5bn).

In the table below we show the breakdown of the 2004 capacity installed. We did a bit of

M&A (in the case of Acciona we take Acciona, Cesa and then 50% of Endesa, in the case of

EDP we take Genesa plus Cantabrico’s Desa etc). Just the impact of the elimination of

subsidies on the 2004 capacity (EUR40/MWh) amounts to EUR955m. If we take for good

the EUR1.2bn overall impact and assume similar market shares, the impact for Acciona of

the wind review would be EUR205m, to which one should add the Minihydro (a minimum of

EUR15m) and Thermosolar impacts. All in all, the impact could be north of EUR220m, this is

wildly above our estimated EUR95m, and would imply moving to a group bottom line loss

of c. EUR100m in 2004, other things being equal.

Table 42: Impact of premiums lost on MWs installed as of 2004

% share MWs Premium lost Load GWh EURm lost

Iberdrola 34.5% 2944 40 32% 8242 330 Acciona (ANA + Cesa + 50% Endesa) 17.1% 1461 40 32% 4090 164 Enel GP (50% Endesa +50% Enel UF) 7.2% 616 40 32% 1726 69 EDP (Genesa + Desa) 6.3% 537 40 32% 1502 60 Gas Natural (Dersa + 50% UF Enel) 4.2% 362 40 32% 1014 41 Other 30.6% 2611 40 32% 7310 292 Total 100% 8530 40 32% 23884 955


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Table 43: Valuation breakdown (2013)

(EURm) Acciona % of total EDPR % of total Iberdrola % of total

Enterprise value 10,182 100% 8,640 100% 59,750 100% o/w Energy 7,511 74% 8,640 100% 59,284 99% Wind 5,576 55% 8,681 100% 12,095 20% o/w Spain 3,000 29% 2,022 23% 4,042 7% o/w International 2,575 25% 6,659 77% 8,054 13% Thermosolar 1,171 12% 0 0% 434 1% o/w Spain 1,022 10% 0 0% 434 1% o/w International 149 1% 0 0% 0 0% Other 989 10% 36 0% 16,628 28% o/w Spain 652 6% 0 0% 10,276 17% o/w International 337 3% 36 0% 6,352 11% Energy, non-generation -225 -2% -78 -1% 30,127 50% o/w Other businesses 2,672 26% 0 0% 466 1% Infrastructure 1,098 11% 0 0% 0 0% Other 1,574 15% 0 0% 466 1% Financial assets & other 3,628 Net debt -7,016 -4,119 -25,582 Contingencies -362 -48 -2,936 Minorities -169 -370 -225 Equity value 2,635 4,103 34,635 No. of shares (m) 57.3 872.3 6240.0 Equity value per share 46.02 4.70 5.55 Last price (EUR) 61.50 4.80 5.00 Upside (%) -25% -2% 11%


On 7 April, the CNMC (Spanish markets & competition commission) published its (non-

binding) report on the impact of the draft Ministerial Order on special regime

remuneration (which developed RDL 09/2013 as far as special regime technologies are

concerned) and which was made public in late January 2014. The CNMC estimates a

EUR1.67bn impact on renewable premiums, which does not change our estimates.

Table 44: Impact according to CNMC by technologies

EURm Old remuration (A)

New remuneration

(B = 1+2)

Investment remuneration

(1)

Opex remuneration

(2)

Difference (B-A)

% chg

Cogeneration 1,689 1,513 64 1,449 -176 -10% Solar PV 2,818 2,445 2,302 143 -373 -13% Solar Thermoelectric 1,438 1,252 1,073 179 -186 -13% Wind 1,802 1,194 1,194 0 -608 -34% Minihydro 162 12 12 0 -150 -93% Biomass 281 294 137 157 13 5% Waste 81 51 48 3 -30 -37% Waste treatment 414 253 3 250 -161 -39% Total 8,685 7,014 4,833 2,181 -1,671 -19%


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Waste & Water management

Companies’ exposure: A2A, ACEA, FCC, Geberit, Hera, Iren, Suez, VIE

Table 45: Universe of stocks exposed to waste & water management

Company Sector Exposure (2013) Exposure (2016) Key activities

A2A Utilities 35% of EBITDA 35% of EBITDA Waste (WTE, landfills and treatment plants).

ACEA Utilities 56% of EBITDA 56% of EBITDA Management of water services



47% of sales and 81%

1) Environmental services (40% of 2014E group sales) which include the collection, treatment and elimination

of solid urban waste, street cleaning, sewer system maintenance, park and garden maintenance, treatment

and elimination of industrial waste and full-service water management. 2) Water distribution and

treatment (13% of 2014E group sales). FCC is mostly exposed to Spain (water and environmental services)

and the UK (waste recycling)

Geberit AG Construction & materials

90% 90% Products (i.e. water saving flushing systems, optimised waste water drainage systems, etc.) that enhance

water savings, water efficiencies and thus water management.

IREN Utilities 16% of sales 13% of EBIT


Water distribution, Water treatment, Waste management

Hera S.p.A. Utilities 35% of sales na Waste: operational environmental services (waste collection, street sweeping and cleaning) and waste treatment (recycling and disposal), waste to energy

(235GWh of energy produced in 2012)

Water: Hera is active in the collection, treatment, distribution, sewerage and purification.

Suez Environnement S.A. Utilities >90% of sales >90% of sales Water distribution and treatment, Desalination, Waste management and recycling

Veolia Environnement Utilities >80% of sales >80% of sales Offers all services in waste management (36% of turnover): from collection to landfill, including

recycling, incineration and WTE. The group also manages water at every stage: construction of water

treatment plants, water drawing, storage and distribution, wastewater treatment, recovery of

sewage sludge (as compost).


Market overview: smart applications & WTE will be important drivers Both waste and water sectors suffered in Europe in 2013, as both pricing and volumes were

affected by economic factors in the region. Water consumption for private households is

mature in almost all European countries, along with the structural decline (1-2% per year)

due to consumption optimisation and lower water utilisation from new equipment at home.

As for Industrial volumes a big part of contracts are cyclical and then highly correlated to

industrial production. On pricing most of the decline is coming from contracts

renegotiations with municipalities which put pressure on utilities like Veolia and Suez

Environnement. To gain the contract these companies have no choice to massively reduce

pricing (-15/-25%). Some municipalities are even taking back internally the contract to

Both waste and water sectors strongly suffered in Europe in 2013 with both pricing and volumes being affected

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reduce costs (yet quality and life time of the system will tend to deteriorate at higher speed

as municipalities have difficulties to invest) which have obviously a negative impact on both

Veolia and Suez Environnement market shares.

As for the waste business, which is more cyclical, volumes were also negatively impacted

last year in Europe following plant closures and lower production. Groups are currently

investing in Energy from Waste business to value more their business model and to

monetize waste they treat. We do not expect massive recovery on these two markets this

year in Europe, implying margin expansion will only come from restructuring efforts or

from growth outside Europe.

As for mid to long term outlook, both waste and water business in Europe should benefit

from the development of smart applications (smart metering to control business, water and

waste savings) which should increase monetization for group’s like Veolia and Suez

Environnement, allowing them to offset the structural decline in volumes (water notably).

As for waste business, growth would also come from change in treatment mix with

government favoring development of energy from waste treatment mode while reducing

landfilling investments. Players present on this market will grow at higher speed than

peers.

Chart 29: Annual waste volumes per capita and split of treatment mode (2010 data updated in April 2012)


Country focus: Italy (water)

Water is in Italy the future business driver for local utilities, thanks to the new water

regulation released on 27 December 2013 which represents a very important step towards

the new phase of the water system. ACEA will be a consolidator, thus opportunities may

arise for ACEA and numbers could go up. Water tariffs in Italy should go up and not down,

due to the huge need of capex.

Both waste and water business in Europe should benefit from the development of smart applications (smart metering to control business, water and waste savings)

Water is in Italy the future business driver for local utilities, thanks to the new water regulation released on 27 December 2013

ESG research


Chart 30: Water market in Italy (residents served in millions)

Source: Company, Kepler Cheuvreux

Country focus: Italy (waste)

In terms of fundamentals, in Italy we also cover four local utilities (ACEA, A2A, HERA and

IREN), which are also dependant on waste volumes . While there are no specific statistics in

Italy on waste volumes, we see from HERA’s business plan that special waste volumes (the

part of waste not regulated) were also hit by the tough macro conditions, and that they

could only be recovered by strong commercial policies. In our estimates, waste represents

32% of HERA’s EV, 25% of A2A’s, 13% of ACEA’s and 10% of IREN’s.

Chart 31: Italy: waste managed: market players (m tonnes)


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ESG research


Country focus: France (waste)

The water market is highly competitive, with both Suez Environnement and Veolia being

the two main players in France (Suez Environnement is the second largest provider with

20%+ market share, while Veolia remains the leader with a market share of 38-40%).

We note some growth opportunities for Suez Environnement which will continue to invest

in new innovative service offers to municipalities (mainly smart water business). By

promoting more value-added services, the group could manage to gradually raise its

market share in France and other European countries. The group has strong commercial

activity in smart water revenues, and managed to raise its European sales in this segment

by 17% in 2012 (leading to EUR300m of sales by 2012). The addressable market is

estimated by Global Water Intelligence at USD20bn by 2020. In this segment, the aim is to

grow by a minimum of 10% a year, which could bring the value of this business to EUR440m

by 2016.

Chart 32: Suez Environnement – smart water revenues (EURm)


We note some growth opportunities for Suez Environnement which will continue to invest in new innovative service offers to municipalities (mainly smart water business)

ESG research


Stock profiles

Green factors in the investment case context

In this section, we provide an overview of our 35 SMIDs exposed to the 11 clusters covered

in this guide. Each overview addresses key factors affecting the cluster:

1. Green activities: main exposure and long-term outlook.

2. Environmental impact overview: pros and cons for including the companies in our

Green Impact universe.

3. Recent highlights, including ESG issues to watch.

4. Long-term investment drivers via a SWOT angle.

We have also kept the profiles of Aalberts and Tomtom (despite their removal from our

universe) and have included a profile on Enel Green Power (the only non-SMID pure

renewables play).

A2A

Italy | Utilities | Renewable Energy

Green Impact Profile

Green activities: exposure and outlook

Exposure (61% of EBITDA): 1) Energy (35% of 2013E EBITDA from Renewables). A2A, the largest local Italian utility, is the most exposed to electricity generation among local utilities player. The company is a leading player in hydro generation and 20% of our EV comes from the electricity generation business in Italy (48% of 2013 EBITDA), made up (more than half) by hydro generation, but also impacted by overcapacity. 33% of Group Energy’s 2013 production came from Hydro. 2) Waste (25% of 2013 EBITDA) & Water (1%). In waste, it can rely on a large portfolio of assets (WTE, landfills and treatment plants).

Outlook: A2A predicts its energy and waste segments to grow in 2014-16 (no quantified projections). While we are cautious about the company’s long-term outlook and guidance, we still appreciate the efforts to cut net debt and reorganise the company. In terms of politics, A2A could be boosted by the capacity payment, while it is undergoing a fundamental change decided by its two main shareholders, the municipalities of Brescia and Milan.

Environmental impact: overview of pros and cons

(+) 1) Energy: Renewable energy generation. 2) Waste: Minimum use of landfills, maximizing the recovery of materials and energy from waste. (-) In Energy: Fossil fuels (2014 production: coal: 2GW; Oil: 1.3GW).

Recent highlights

ESG issues to watch: A2A it is going through a transformation recently approved by its two main shareholding municipalities (with a total 55% stake). There will be a governance structure shift from dual to traditional along with the placement of a c. 5% stake in 2014.

Financials: A2A’s guidance for 2014 sees another weak year, during which the managers will continue to stabilise EBITDA (we expect FY 2014 EBITDA, up 1% YOY) and to cut net debt (we expect EUR3.7bn in FY 2014, vs. EUR3.87bn in FY 2013). The next catalyst will be the business plan presentation in June.

Long-term investment drivers

Strengths

Large hydro plant operator

Leading player in waste in Italy

Potential sector consolidator

given the size and geo position

Opportunities

Italian electricity process decline

risk

Industrial waste business is quite

cyclical

Weaknesses

• High leverage (debt/EBITDA at ~4x)

Largely exposed to Italian

electricity generation

Governance problems and political

intervention

Threats

• Small M&A to consolidate, growth

in cogeneration, further cost cutting

Hold (Hold) Target price EUR 0.90 Current price EUR 0.93 Claudia Introvigne [email protected] Reuters A2 MI Bloomberg A2A IM Index DJ Stoxx 600

Market data

Market cap (EURm) 2,923

Free float 43%

No. of shares outstanding (m) 3,133

Avg. daily trading volume('000) 18,628

YTD abs performance 9.7%

52-week high (EUR) 1.03

52-week low (EUR) 0.49

FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 5,604.0 7,092.8 7,120.9

EBITDA adj (m) 1,133.0 1,147.0 1,155.8

EBIT adj (m) 257.0 506.8 509.0

Net profit adj (m) 78.0 212.3 221.1

Net fin. debt (m) 3,874.0 3,732.5 3,473.6

FCF (m) 731.0 197.9 410.5

EPS adj. and fully dil.

0.02 0.07 0.07

Consensus EPS 0.05 0.06 0.06

Net dividend 0.03 0.04 0.04

FY to 31/12 (EUR) 2013 2014E 2015E

P/E (x) adj and ful. dil. 25.6 13.8 13.2

EV/EBITDA (x) 5.7 6.4 6.1

EV/EBIT (x) 25.3 14.4 13.8

FCF yield 32.2% 6.0% 12.4%

Dividend yield 5.2% 4.0% 4.2%

Net debt/EBITDA (x) 3.7 3.5 3.2

Gearing 115.7% 105.6% 95.6%

ROIC 1.8% 4.2% 4.2%

EV/IC (x) 1.0 1.1 1.1


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ESG research –A2A


Key data

Table 46: Green activities (2013)

Renewables Waste & Water

% of Group EBITDA 35% 26%

% of Group EBITDA (2016E) 34% 29% % of capex 29% for Energy on the whole 14% Market share na No. 2 in waste and water management in Italy. Size of the market na EUR36bn for municipal waste European market

Source: A2A, Kepler Cheuvreux

Table 47: Environmental outputs/outcomes (2011-2013)

2011 2012 2013 Energy - Group Electricity produced (TWh) 15.6 17.2 17.4 o/w renewables 5.3 6.1 8.1

o/w hydro 4.7 5.5 7.5 Electricity customers (supply points) 1,023,599 1,007,978 na Water customers (aqueduct service users) 278,366 278,366 na A2A Energia customers who have used the Social Bonus Gas bonus: 21715

Electricity Bonus: 17897 na

CO2 - balance Total GHG- Scope 1 (tCO2eq) 5,079,241 5,124,047 na Indirect GHG - Scope 2 (tCO2) 119,071 102,479 na Other indirect GHG emissions - Scope 3 (tCO2) na 727,446 na Waste - Group Collected waste (tonnes) na 910,000 896,000 Waste disposal (tonnes) na 2,457,000 2,517,000 Water - Group Water distributed (Mcm) na 69 63 Water purified (Mcm) 40 41 na Waste disposed of (Ktonne) 2,626 2,457 na

Source: A2A, (2011 and 2012 data on consumers, GHG emissions, water purified and disposed didn’t include neither Edipower, nor EPCG (A2A's subsidiary in Montenegro))

Table 48: Breakdown of environmental expenditures (2012)

Classification Energy sector

Heat sector

Environment sector

Services sector

Total

Emission reduction 5% 89% 6% 0% 100% Energy efficiency 87% 0% 13% 0% 100% Renewable energy (hydroelectric, biogas and solar) 76% 0% 24% 0% 100% Innovation 23% 0% 65% 12% 100% Total specific sector investments 63% 17% 19% 1% 100%

Source: A2A, Kepler Cheuvreux

Aalberts

Netherlands | Construction & materials | Waste & Water


Green activities: main exposure and outlook

Exposure (11% of sales): Aalberts’ climate control business includes complete systems from source to emission to improve climate control, energy efficiency and comfort for heating & cooling systems. Climate control systems (11% of 2013 group revenues) are part of the Flow control business (71% of sales) which develops, produces and markets products and systems for connecting and distributing the flow of fluids and gasses (valves, pressure regulators, measuring devices, safety devices, cleaning adapters, etc.) in areas such as construction, district heating and irrigation.

Outlook: Flow Control stands to benefit from product innovations as well as cross-selling and increased marketing & sales efforts and we expect the division to outperform its addressable market (4% organic growth for this division in 2014-16E) with climate control growing a bit faster than the other businesses. It remains predominantly a European business but Aalberts is expanding it to the US. Overall, we believe Aalberts’ business model offers strong potential for operational leverage. This potential stems from solid added-value margins (revenue minus raw material costs; c. 80% in industrial services, c. 50% in flow control), recent investments in process automation and other efficiency measures, and excess capacity as some markets never fully recovered from the 2008-09 downturn (room to grow flow control volumes by 15%). As for R&D, we think Aalberts has done rather well in terms of innovation, and products launches, which is reflected in some market share gains.


(+) Contribution to improve energy-efficiency of distribution of heat and cooling.

(-) Among key end markets, the company provides systems for the oil & gas sector, beer industry, and is also exposed to the automotive and Aerospace & Defence (e.g. engines for airplanes) sectors. We estimate Aalbert’s sales exposure to A&D to be c. 2%, including 1% for Defence (steady to slow growing business).

Recent highlights

Acquisitions: Aalberts announced on 13 March the acquisition of US-based Nexus Valve, adding about USD20m in sales to its flow control division. With Nexus Valve also adding a portfolio of valves for air heating and air conditioning systems, Aalberts strengthens its product offering in the climate control business, allowing it to enter the US market and allowing for new cross-selling opportunities.


Strengths

• Diverse product portfolio Strong in niche markets Geographical spread Good acquisition track record

Opportunities

• Increased level of outsourcing of OEMs • Single vendor approach among customers • Cross-selling within the group

Weaknesses

Limited visibility on earnings Cyclical Threats

Competition from low-cost countries

Price pressure

Hold (Hold) Target price EUR 24.00 Current price EUR 25.73 Peter Olofsen. [email protected] Reuters AALB.AS Bloomberg AALB NA Index DJ Stoxx 600

Market data


Free float 60%

No. of shares outstanding (m) 111

Avg. daily trading volume('000) 166




FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 2,040.0 2,132.4 2,217.7

EBITDA adj (m) 304.5 335.6 362.5

EBIT adj (m) 207.1 236.0 261.9

Net profit adj (m) 151.8 176.8 197.3

Net fin. debt (m) 480.2 370.2 247.1

FCF (m) 99.1 155.3 176.2

EPS adj. and fully dil. 1.38 1.60 1.78



FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 8.6 9.8 8.7

EV/EBIT (x) 12.7 13.9 12.1

FCF yield 4.8% 5.5% 6.2%



Gearing 45.5% 31.6% 19.0%

ROIC 10.0% 11.2% 12.2%

EV/IC (x) 1.7 2.1 2.0

IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst certifications

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Key data


Cluster Waste & Water Management Activities Climate control systems % of sales 11% % of sales in 2016E 15% Market share Market leader in Flow Control in Europe (~20% market share). Top 5

position Flow Control in the US. Top 2 player in Metal Treatment (Industrial Services) in Europe

Key competitors Wavin, Geberit, Uponor, Mueller Industries, Bodycote

Source: Aalberts, Kepler Cheuvreux

Acciona

Spain | Utilities | Renewable Energy



Exposure (44% of sales and 82% of EBITDA for renewable energy and waste and water management): With 66% of equity value explained by the renewables business (whose installed capacity is 70% Spain-based), mostly wind energy generation, Acciona is the closest thing to a Spanish renewables play.

Outlook: Acciona is the most exposed stock to the Spanish renewables’ regulation story, i.e. a sharp expected reduction in returns as a result of the elimination of renewable premiums and its substitution by a new mechanism that may wipe out 2014E group earnings (the impact of premium lost on MWs is around EUR200m), in a context where other potential drivers (international construction, Transmediterranea turnaround) are just not materialising. We recognise, however, that management has reacted swiftly to the challenges and that things are moving in the right direction.


(+) Renewable energy generation. Reducing the environmental impact of the growing waste generation, notably contaminated soils. Improving water access, water sanitation; reducing water leakage, improving water quality.

(-) Environmentally sensitive business: Buildings & Construction (41% of 2013 sales and 11% of EBITDA). Ferries (Trasmediterranea: 6% of sales and 1% of EBITDA). Social and environmental concerns regarding first-generation biofuels (methanol and vegetable oil consumption was nonexistent in 2012). Strong energy consumption in desalination installation.

Recent highlights

Stock performance: Acciona was the worst performer in the Iberian utility space in 2013 (- 25%), but it has staged a remarkable comeback in 2014 (+46% YTD).


Strengths

• Good local presence

• Good geographical spread with

respect to US and Europe

Opportunities

• Expansion into emerging markets

• Acquisitions

• Climate change and sustainability

pushing demand

• PPP infra projects in Europe

Weaknesses

• Still limited exposure to emerging

markets

Threats

• Government austerity programs

• Property market in Asia

Reduce (Reduce) Target price EUR 46.00 Current price EUR 60.90 Jose Porta [email protected] Reuters ANA.MC Bloomberg ANA SM Index DJ Stoxx 600

Market data


Free float 40%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 6,607.0 6,298.2 6,469.9

EBITDA adj (m) 1,228.2 1,123.0 1,224.9

EBIT adj (m) -1,771.0 355.8 443.2

Net profit adj (m) -1,972.2 0.3 61.1

Net fin. debt (m) 6,715.0 6,677.3 6,134.6

FCF (m) 1,085.7 -74.8 530.7

EPS adj. and fully dil. -32.65 0.01 1.07



FY to 31/12 (EUR) 2013 2014E 2015E

P/E (x) adj and ful. dil. na na 57.0

EV/EBITDA (x) 7.9 9.3 8.1

EV/EBIT (x) na 29.4 22.3

FCF yield 42.9% -2.0% 15.3%



Gearing 197.6% 196.8% 178.1%

ROIC -10.6% 2.5% 3.2%

EV/IC (x) 1.0 1.0 1.0


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Key data


Key themes Renewable Energy Waste & Water Management

% of sales 32% Water: 8.9% Waste Management: c.3%

% of sales (2016E) 29% 20%

% of EBITDA 78.5% 3.7%

% of EBITDA (2016E) 74% 6% EBITDA margin 46.2% 8% Capex as of total sales 9.6% 4.1% % of Capex 46.4% 44.8% % of R&D 30% 19.5% Market share Around EUR341bn na Key competitors Local: Gamesa, Iberdrola, Ferrovial,

Sacyr Vallehermoso, FCC, ACS, Befesa, Agbar, Abengoa, Aqualia

Global: General Electric, Vestas, Vinci, Bechtel, Ast, Veolia, Hyudai, Kajima,

Obayashi

Iberdrola, Sacyr Vallehermoso, FCC, Aqualia, GDF Suez, Fluidra, Agbar

Source: Acciona, Kepler Cheuvreux

Table 51: Environmental outputs/outcomes (2010-2013)

2010 2011 2012 2013

RNW

Installed capacity (GW) 8.5 o/w wind 7.1 Production (GWh) 22 o/w wind 18 CO2 emissions avoided (mt) 11.41 11.7 14 Water ACCIONA Agua's customers served (m) 50 Water footprint: positive net contribution (hm3) 236 405 426 Water recycled/reused/rainwater as a % of all water consumed 10.21 20 37 Group CO2 emissions generated (mt) – scope 1 and 2 1.06 0.86 0.81 CO2 emissions intensity (tco2/sales in EURk) 0.17 0.13 0.12 Energy consumption ratio (TJ/sales in thousands euros) 2.5 1.69 1.58

Source: Acciona

Table 52: Environmental expenses and investments (2012)

EURm In % of total

Acciona Infrastructure 45.7 64% Acciona Logistics Services and Transportation 2.8 4% Acciona Energy 15.4 22% Acciona Agua and Environment 6.1 9% Other 1.3 2% Total 71.3

Source: Acciona, Kepler Cheuvreux

ACEA

Italy | Utilities | Waste & Water



Exposure (60% of EBITDA): 1) Waste & water: ACEA is mainly involved in: the management of water services (25% of sales, 49% of EBITDA), but also in waste (4% of sales, 7% of EBITDA); 2) RNW generation: After the breakup of the JV with Suez Electrabel the contribution is modest (we estimate 4% of EBITDA derives from RNW energy, mostly hydro). The company’s exposure to the energy efficiency theme (e.g. launch of smart grid pilot project, LED in public lighting services) is not factored into our estimates of green activities at group level.

Outlook: Acea’s new business plan presented on 11 March struck us as quite ambitious for the waste business in the longer term, where the company currently has a small presence but where it plans to double its EBITDA, but seems based on solid assumptions for the water and network businesses. The strategy in the water business is to grow via efficiencies and consolidation (potential acquisitions in Tuscany and Umbria), with also the possibility to grow abroad (ACEA is already present in LatAm). In Italy, the new water regulation released in December 2013 makes it easier for companies to predict investments, which is why we have decided to align our estimates with the business plan targets.


(+) 1) Waste water treated, people served. 2) renewable electricity generation.

(-) 1) Emissions of GHG from waste treatment. Emissions of SO2, NOx, CO2, volatile organic compounds, dioxins and metal. Water leakage.

Recent highlights

ESG issues to watch (governance): The agenda of the next AGM (in April) could include the appointment of a new BOD and a lower number of BOD members (from 9 to 5) together with a lower remuneration for BOD members.

Financials: ACEA’s BoD (appointed in April 2013) approved on 10 March the 2014-18 business plan.


Strengths

Leading water player in Italy

85% of EBITDA from regulated

business

Leading player in electricity

distribution in Latium

Opportunities

Cost cutting

Acquisition of generation assets

Weaknesses

Modest electricity generation

assets

No gas distribution assets

Threats

Governance problems

Water tariff performance

Hold (Hold) Target price EUR 9.50 Current price EUR 10.92 Claudia Introvigne [email protected] Reuters ACE.MI Bloomberg ACE IM Index DJ Stoxx 600

Market data


Free float 19%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 3,570.6 3,717.5 3,814.0

EBITDA adj (m) 766.0 768.5 806.6

EBIT adj (m) 383.8 404.7 432.4

Net profit adj (m) 141.9 153.6 167.2

Net fin. debt (m) 2,467.5 2,493.0 2,507.5

FCF (m) 156.9 83.9 94.6




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 5.2 6.6 6.3

EV/EBIT (x) 10.4 12.5 11.7

FCF yield 11.2% 3.4% 3.9%



Gearing 171.2% 164.4% 156.1%

ROIC 10.0% 10.2% 10.5%

EV/IC (x) 1.9 2.3 2.2


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Key data

Table 53: Key data on Green activities (2013)

1) Waste & Water % of EBITDA 56% EBITDA margin 26% % of Capex 55%

Market share Leader in Italy in water management with a market share of 14%.

Key competitors Local: Hera, Iren, A2A

Global: Veolia; Remondis

2) RNW energy

% of EBITDA 4%


Table 54: Key data on outputs/outcomes (as of 2012)

Water (integrated water service) Drinking water supplied (Mm3) 655.7 Waste water treated (Mm3) 851.9 Inhabitants served in Italy (millions) 8.6 abroad (millions) 9.7 Waste Volumes of waste treated (m) - 2013 0.9 Energy RNW generation (GWh) 530 o/w Hydroelectric 361 RNW installed capacity (GW) 192.7 o/w Hydroelectric 121.7 Waste to energy generation (GWh) (gross) 218 WTE: waste treated - WDF (t) 218,256 People served in Italy (m) - Energy Group 9.0 Social tariff system users 18,000


Aixtron

Germany | Semis | Energy Efficiency



Exposure (80% of sales): Aixtron develops and produces equipment for the production of compound semiconductors (HBTs, LEDs, etc. – mainly using the MOCVD process) and silicon semiconductors (based on CVD technology). In 2005 the company entered the silicon production equipment (SPE) industry by acquiring Genus Inc., a specialist in atomic layer deposition (ALD). The vast majority of the order book is for compound semiconductor systems, e.g. for the production of LEDs and OLEDs. We reckon that an overwhelming part of the company’s sales relate to energy-efficient lighting products.

Outlook: LEDs are the major growth driver for Aixtron. At this stage, we see no trigger for Aixtron’s shares to move sustainably higher. They are expensively priced, already discounting a major turnaround in the coming years. However, Aixtron’s intrinsic value probably lies with its technology expertise and IP, which remains first class, and which will be key for a number of new next-generation technologies like OLEDs and carbon structures. We expect Aixtron to spend EUR51m in R&D this year (about half of the total industry, more than VEECO) and to launch a new generation of tools technologies, with higher productivity (power pricing back to the co but with customers benefitting too) by the end of this year (no take-off before 2016/17, however).


(+) The use of LEDs in solid state lighting has striking environmental advantages, e.g. 80% less energy consumption vs incandescent bulbs, no toxic materials included.

Recent highlights

Financials: Q4 2013 results were slightly weaker than expected. The outlook disappointing: it expects roughly flat sales of around EUR183m and a further, reduced EBIT loss.


Strengths

• Market and technology leadership in a duopolistic MOCVD market with high barriers to entry (production process expertise)

• No bank debt; strong balance sheet • Highly scalable business model

Opportunities • Sound long-term growth prospects

for many end-markets using MOCVD-made devices (incl. LEDs, OLEDs) as well as ALD/AVD.

• Early strategic positioning in promising future markets (power electronics, OLEDs, Carbon Nanotubes)

Weaknesses

• High FX sensitivity (AIXA generates over 90% of its sales in USD vs. just 20% of its costs.)

• AIXA is only a small player in the area of silicon semiconductors

• Dependence on the cyclical semiconductor industry

Threats • Powerful new competition from

silicon chip tool makers entering • AIXA's turf (e.g. Applied Materials). • Investments in probable future

markets may not pay off

Hold (Hold) Target price EUR 10.00 Current price EUR 11.99 Bernd Laux. [email protected] Reuters AIXG.DE Bloomberg AIXA GR Index DJ Stoxx 600

Market data


Free float 83%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 182.9 190.0 250.0

EBITDA adj (m) -67.9 -18.5 6.0

EBIT adj (m) -95.7 -34.0 -8.0

Net profit adj (m) -101.0 -34.0 -8.0

Net fin. debt (m) -306.3 -270.4 -254.9

FCF (m) -4.5 -35.9 -16.0

EPS adj. and fully dil. -0.98 -0.30 -0.07

Consensus EPS -0.98 -0.17 0.25


FY to 31/12 (EUR) 2013 2014E 2015E

P/E (x) adj and ful. dil. na na na

EV/EBITDA (x) na na na

EV/EBIT (x) na na na

FCF yield -0.4% -2.7% -1.2%


Net debt/EBITDA (x) 4.5 14.6 na

Gearing -65.8% -62.7% -60.2%

ROIC -48.9% -22.7% -7.8%

EV/IC (x) 5.4 6.8 6.5


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ESG research –Aixtron


Key data


Cluster Energy efficiency Theme Efficient Lighting % of sales 80% Market share 40% Size of the market na Key competitors VEECO Instruments, Nippon sanso


Albioma

France | Utilities | Renewable Energy



Exposure (35% of 2012 electricity generation): Albioma is a fully-integrated IPP

(Independent Power producer) that designs, builds and operates thermal plants

(>89% of total revenues in 2013) and solar power stations. Albioma has a strong

position in the French DOM-TOM territories. The group produced 3,582 GWh of

electricity in 2012 (at 100%) o/w 94% from its thermal plants (biomass & coal) &

3% from its solar activities. Renewables sources accounted for 35.2% of the

company’s total generation (mainly bagasse and other biomass resources) as of

2012 with two-thirds predicted within ten years.

Outlook: Albioma is now targeting expansion in Brazil, where the sugarcane

business is set to see further growth on the back of higher demand from a growing

population, a growing middle class, and the need for new energy capacities. As for

the energy mix, solar (3% of its total electricity production) is projected to account

for 10% of its installed capacity in 2024. To reduce its direct exposure to coal,

Albioma intends to gradually scale back the proportion of coal used to fuel its

dual-fuel plants over the coming years, replacing it with locally-sourced biomass

(e.g. green waste) or imported biomass (by-products of forestry-related and

agribusiness industries).


(+) Solar projects. Potential for lowered exposure to coal. (-) Exposure to coal. Pollution and resources consumption. Impact on biodiversity.

Recent highlights

Acquisition: The group recently acquired Methaneo (60%) to develop on

anaerobic digestion.

ESG issues to watch – governance: Given the company’s quite good price

performance in the last year (+41%) and the equity market’s strong appetite for

such investment cases with high earnings growth potential, we believe Apax

Partners (the largest shareholder with 42% of the shareholding structure) is

getting closer to a potential interesting exit point


Strengths

ROCE is secured on almost all current assets giving good visibility on earnings growth in the future (specific contracts with EDF, Endesa, Centrica and CEB)

Group’s s dominant position in niche markets implies high barriers to entry

Opportunities

Bagasse cogeneration in Brazil

Ambitions to develop the methanation (anaerobic digestion) segment

Weaknesses

Threats

Governance – Apax Partners potential exit

Social – labour conflicts

Environment – potential disruptions due to weather

Buy (Buy) Target price EUR 24.00 Current price EUR 20.21 Xavier Caroen [email protected] Reuters ABIO.PA Bloomberg ABIO FP Index DJ Stoxx 600

Market data

Market cap (EURm) 577

Free float 51%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 369.5 363.4 374.9

EBITDA adj (m) 133.6 126.0 141.6

EBIT adj (m) 86.3 81.7 91.1

Net profit adj (m) 37.0 33.0 36.1

Net fin. debt (m) 421.4 568.0 718.4

FCF (m) 67.5 -132.4 -136.5




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 6.8 9.5 9.5

EV/EBIT (x) 10.5 14.6 14.8

FCF yield 15.4% -22.9% -23.7%



Gearing 96.9% 125.2% 151.0%

ROIC 6.6% 6.0% 5.7%

EV/IC (x) 1.1 1.2 1.2


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Key data

Chart 33: Albioma – installed capacity by technology

Source: Albioma, Kepler Cheuvreux

Chart 34: Albioma – installed capacity mix 1992 Chart 35: Albioma – installed capacity mix 2024

Source: Albioma, Kepler Cheuvreux Source: Albioma, Kepler Cheuvreux

Table 1: Discharges to water

Discharges to water – in tonnes 2012 Total oxygen demand (TOD) 56.5 Total (organic and inorganic) nitrogen 20.3 Total (organic and inorganic) phosphorus 2.2 Sulphates 108.1 Heavy metals Total hydrocarbons 0.3 Suspended matter 100.3

Source: Albioma

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Total Thermal biomass Total Wind power Total Photovoltaic Anaerobic digestion

Thermal biomass

100%

Thermal biomass

89%

Photovoltaic 10%

Anaerobic digestion

1%

ESG research –Albioma


Table 2: Gaseous emissions

Gaseous emissions – in t 2012 Sulphur oxide (SOx) emissions 7,260.40 Nitrogen oxide (NOx) emissions 4,299.30 Particulate emissions 192.2 Carbon monoxide (CO) emissions 1,104.60

Source: Albioma

Table 3: Energy consumption

2011 2012 Total energy consumption (MWh) at all production facilities 209,499 220,968 YOY growth 5%

Source: Albioma

Table 4:Total CO2 emissions

2011 2012 Total carbon emissions (kt of CO2e) 2,370.90 2,403.50 Carbon intensity of the electricity and steam production activity (g CO2/kWh) (direct CO2 emissions)

684.2 678.3

Source: Albioma

Alerion




Exposure (100% of sales): Alerion is a small company focused on wind energy, mainly in Italy; expansion in Bulgaria began in 2012, thus it is fully exposed to technology and country risks. Table 56: Key data on Green activities (2013)

Cluster Renewable energy Theme Wind energy production % of sales 100%

Installed capacity (MW) 253

Production (GWh) 415

Source: Alerion

Outlook: Renewables companies are the only Italian utilities still growing, and are only partly affected by the difficult macro scenario (prices, not volumes; because renewables have priority dispatch, the only risk is that they might be affected by adverse weather, such as poor wind or hydro). However, Alerion is currently focused on debt (5.6x net debt/EBITDA 2014E) rather than on growth. We like its attractive asset base and its strategy of entering the market for the development and construction of wind farms (announced in August) in order to exploit its expertise without increasing its leverage.

Impact impact overview: pros and cons

(+) Renewable energy generation.

Recent highlights

Strategy: Alerion sold its biomass business in 2012 and its solar business in 2013. It signed a partnership with Santander in August for development, construction and operation of a wind farm in Italy.


Strengths

• Strong asset base

Strong main shareholder (F2i)

Opportunities

Partnerships

Weaknesses

• Very small company

• High leverage

Threats

• Wind conditions and regulation

Buy (Buy) Target price EUR 4.10 Current price EUR 3.88 Claudia Introvigne. [email protected] Reuters ARN.MI Bloomberg ARN IM Index DJ Stoxx 600

Market data


Free float 44%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 68.2 68.9 74.9

EBITDA adj (m) 41.0 47.6 52.2

EBIT adj (m) 19.5 23.3 25.9

Net profit adj (m) 0.2 5.7 7.2

Net fin. debt (m) 269.5 276.0 286.7

FCF (m) 22.5 -0.5 -4.6




FY to 31/12 (EUR) 2013 2014E 2015E

P/E (x) adj and ful. dil. na 28.0 22.5

EV/EBITDA (x) 10.3 9.1 8.5

EV/EBIT (x) 21.6 18.6 17.1

FCF yield 14.5% -0.3% -2.9%



Gearing 185.9% 190.4% 195.8%

ROIC 2.8% 4.8% 5.2%

EV/IC (x) 1.3 1.3 1.3


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Austria | Capital goods | Renewable Energy



Exposure (54% of sales): About 50% of total sales relates to equipment and process technologies that generate energy from renewable sources (mostly electromechanical equipment for hydropower stations, production equipment for biofuel (second generation) and biomass pelleting; waste-to-energy). We also estimate 3-4% of its sales relate to waste & water treatment: technologies and services in the solid/liquid separation and thermal treatment areas for the environmental sector (particularly treatment of municipal and industrial waste water). Around a third of total sales are exposed to emerging markets.

Outlook: The renewable energy business is a stable business with organic growth potential due to increasing environmental regulations worldwide. The hydro business has been constantly growing in the past few years. Going forward, growth will also depend on orders. This could fluctuate quite strongly compared to the other businesses as it is sensitive to economic cycles.


(+) 1) Energy: Renewable energy equipment (mainly hydro, wood pelleting separation).

(-) Resistance to hydropower dams, particularly in sensitive areas such as Latam (e.g. concerns related to the EUR400m Belo Monte’s order). Exposure to the automobile industry (w estimate below 20% of total sales). Environmental issues in the Pulp & Paper industry (e.g. chemicals and power consumption).

Recent highlights

Financials: During the FY 2013 results conference call, CEO Leitner sounded marginally more positive on the Hydro business. Here, several large projects are in the pipeline, especially in Africa, which could lead to a slightly better order situation in 2014 compared to 2013.


Strengths

Leading market positions in P&P and Hydro

Excellent M&A track record

High cost flexibility

30% service share Strong balance sheet, extraordinary

returns

Opportunities

M&A opportunities especially in current environment of depressed multiples

Long term opportunities in Hydro driven by Fast growing emerging markets (50% of group sales)Green energy development (55% of group sales)

Weaknesses

Cyclicality of Pulp & Paper & Metals

Generally low margins in new equipment business

Threats

Contractual and general project cancellation risks

Resistance to hydropower dams, particularly in sensitive areas such as Latam

Slowdown in paper industry capex and metals

Hold (Hold) Target price EUR 45.00 Current price EUR 43.65 Thomas Neuhold, CFA [email protected] Reuters ANDR.VI Bloomberg ANDR AV Index DJ Stoxx 600

Market data


Free float 70%



YTD abs performance -4.3%



FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 5,710.8 6,339.1 6,503.6

EBITDA adj (m) 255.2 507.6 568.6

EBIT adj (m) 89.8 343.2 394.8

Net profit adj (m) 66.6 237.1 271.1

Net fin. debt (m) -752.5 -990.4 -1,160.6

FCF (m) -17.6 256.1 288.2




FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 5,710.8 6,339.1 6,503.6

EBITDA adj (m) 255.2 507.6 568.6

EBIT adj (m) 89.8 343.2 394.8

Net profit adj (m) 66.6 237.1 271.1

Net fin. debt (m) -752.5 -990.4 -1,160.6

FCF (m) -17.6 256.1 288.2





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Ansaldo STS

Italy | Capital goods | Alternative Energy & Trans.



Exposure (100% of sales): Ansaldo STS is a supplier of rail and mass transport systems. It operates two business units: 1) Signalling, which supplies signalling systems for railways and mass transit systems; 2) Transport Systems, which provides turn-key transport systems. The group has seven business lines: High Speed; Main lines & Freight; Mass transit & light rail; Computer-based interlocking; Planning, supervision & traffic control; components; and Operation & maintenance. Ansaldo is present in over 50% of all high-speed lines built around the world (excl. Japan) and is leader in ERTMS 2 (the most advanced railway control system to date).

Outlook: Fundamentally, Ansaldo STS is a good company, exposed to a growing reference market of railways and mass transit system. Finmeccanica’s exit from transport activities is likely and management believes an industrial partnership with a player with global coverage would boost STS’s growth outlook. However, visibility on M&A scenario (offer on STS minorities) is low, while benefits from a partnership with a global player would represent a positive catalyst only in the medium term.

Environmental Impact: overview of pros and cons

(+) Contributor to less carbon-intensive transport system and infrastructure.

Recent highlights

New contract: On 28 March, Ansaldo STS announced it had won a contract worth USD710m related to the driverless metro in Lima, Peru. The contract (c. EUR520m) accounts for c. 30% of STS’ order intake guidance for 2014 (EUR1.4-1.7bn), and assuming an EBIT margin of 9% we estimate an NPV equals to 3% of STS’s market cap.


Strengths

Track record (150 years in the business)

Expertise (leading position in most advanced technologies)

Opportunities

Addressing extra-European markets

more aggressively.

Maximising leading expertise in

signalling for high-speed and

driverless metros

Weaknesses

Overexposure to Italy/Europe,

capital constrained

>90% of clients are public entities,

capital constrained

Threats

Price competition rising, putting

pressure on margins

Partnerships private-public gain

ground, requiring private equity

investments

Hold (Hold) Target price EUR 8.10 Current price EUR 8.27 Enrico Coco. [email protected] Reuters STS.MI Bloomberg STS IM Index DJ Stoxx 600

Market data


Free float 60%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 1,256.4 1,298.0 1,347.3

EBITDA adj (m) 131.4 136.2 137.4

EBIT adj (m) 118.1 123.3 128.0

Net profit adj (m) 77.8 80.9 84.0

Net fin. debt (m) -259.6 -265.5 -266.6

FCF (m) 16.3 69.7 69.0




FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 10.5 10.1 10.0

EV/EBIT (x) 11.6 11.1 10.7

FCF yield 1.1% 4.6% 4.6%


Net debt/EBITDA (x) -1.7 -1.7 -1.7

Gearing -50.0% -46.4% -42.6%

ROIC 157.0% 101.7% 90.9%

EV/IC (x) 18.2 15.8 13.4


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Key data


Cluster Alternative Energy & Trans. Theme Railways % of sales 100% Market share c.11% worldwide Size of the market EUR14bn Key competitors Global: Alstom, Siemens, Thalès, Bombardier, GE

Source: Ansaldo STS, Kepler Cheuvreux

Arcadis

Netherlands | Capital goods | Eco-product & services



Exposure (43% of sales): 1) Eco-products & Services (28% of sales): The company is a global top-three player in Environmental services. It offers services from soil, groundwater and sediment remediation and environmental impact assessments, through to consultancy on corporate energy, product stewardship, health and safety issues. 2) Waste & Water (15% of sales): In Water, the company holds a global top-ten position, offering services across the total water cycle. It protects water by means of specialised chemicals, preserving drinking water and helping water authorities to design their systems. It also protects the water (coastal defence, locks systems, dike design). 3) Energy efficiency: Parts of its Building activities, contribute to greener buildings: Design of efficient systems for heating, cooling, airco, storage of heat. We don’t factor them into our estimates of group revenues exposed to green themes.

Outlook: Overall, we expect further growth, both organic and from acquisitions, with some acceleration in 2015 as economic conditions improve. Details by theme are as follows: 1) We expect it to grow amid ongoing awareness of the environmental impact. 2) We foresee increased demand for drinking water. Together with a rise in sea levels, the need for coastal defence and flood protection is seen increasing. 3) We predict this to stay at current levels, so no relative rise. Most measures have already been taken and demand is likely ease in a growing economy.


(+) 1) Framework contracts which involved the clean-up of environmental legacy sites and help clients cut their waste and emissions; 2) Having built up experience in the Netherlands with flood protection systerms Arcadis carried out work in New Orleans after the floodings, installing similar systems. 3) Green Building design.

Recent highlights

Financials: Arcadis staged a strong performance, especially after Q3 numbers that showed the needed turnaround in Central Europe. This continued in Q4, although sales growth was a bit sluggish, both in terms of organic growth and acquisitions.


Strengths

• Good local presence

• Good geographical spread with respect

to the US and Europe

Opportunities

• Expansion into emerging markets

• Acquisitions

• Climate change and sustainability

pushing demand

• PPP infra projects in Europe

Weaknesses

• Scarcity of technically skilled staff

Threats

• Government austerity programmes

• Property market in Asia

Target price: EUR 28.00 Current price EUR 28.11 Andre Mulder. [email protected] Reuters ARDS.AS Bloomberg ARCAD NA Index DJ Stoxx 600

Market data


Free float 65%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 2,515.9 2,656.2 2,828.3

EBITDA adj (m) 202.2 241.3 273.7

EBIT adj (m) 151.1 187.3 217.7

Net profit adj (m) 96.6 123.6 150.8

Net fin. debt (m) 206.7 128.7 39.0

FCF (m) 11.7 128.1 149.4




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 8.9 9.2 7.8

EV/EBIT (x) 11.8 11.8 9.8

FCF yield 0.8% 6.2% 7.3%



Gearing 34.6% 19.0% 5.0%

ROIC 13.4% 15.7% 18.4%

EV/IC (x) 2.0 2.5 2.4


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Key data


Cluster Eco-product & services % of Green sales Expected % of green sales (in 2016E)

43%. 50%

% of Green EBIT Key competitors Aecom, Atkins, Grontmij, Jacobs Engineering, Pöyry,

Tetra Tech, Sweco, URS, White Young Green, WSP Confidence in the company’s impact credentials Medium

Source: Arcadis, Kepler Cheuvreux

Table 59: Breakdown of Green segment (2013)

1) Eco-product & services 2) Waste & Water Management

% of sales 28% 15% % of EBIT 36% 14% EBIT margin 12% 9% Market share Market share: Top-3 position in Europe,

Top-10 position in the world; Top-3 position in global environment market

Global top 10

Source: Arcadis, Kepler Cheuvreux

Blue Solutions

France | Capital goods | Energy efficiency



Exposure (100% of sales): Blue Solutions is a provider of Lithium-metal polymer batteries dedicated to energy storage applications (mobility and stationary applications) for industrials, municipalities and private households. The group develops and manufactures batteries for Blue Applications and supercapacitors for industrials. Blue Solutions business supports the development of electric vehicles and also contributes to cutting CO2 emissions by meeting the need to store energy to stabilise the grid or create an independent system with no grid connection.

Outlook: Blue Solutions stands to benefit from two main markets in the coming years: 1) energy storage applications for both industrials and households; 2) electric vehicle market development, driven by stricter regulations imposed on OEMs in mature markets. With Blue Applications, the Bolloré group intends to offer global solutions, mainly for these two markets, based on lithium-metal polymer technology. Blue Solutions’ expertise in electricity storage is highly prized in an economic environment that favours green technology. While the group’s longer-term target is to become an integratedelectricity storage solutions provider, the current investment case for investors is based on battery production, with limited commercial risks. Visibility on growth potential has remained unchanged, making the investment case difficult to value.


(+) Electricity storage. Electric Vehicles.

Recent highlights

New projects in the UK: In December 2013, Transport for London (TfL) announced that IER had been selected to take over the management and operations of Source London, the capital’s electric vehicle (EV) charge point network and membership scheme. IER, a subsidiary of the Bolloré Group, integrated into Blue Applications, will take over the scheme from summer 2014 and will develop the number of charging stations with the final objective to achieve 6,000 stations by 2018 (vs. 1,400 currently installed).


Strengths

Extensive expertise in Lithium-metal polymer technology following a EUR2bn investment over the last twenty years. The group is the only one in the sector to produce LMP batteries, competitors are producing lithium-ion batteries

Opportunities Electric vehicle market, energy

storage market Lower C02 emissions projects

development

Weaknesses

• Low visibility on technology as group is not selling batteries to external partners. Products are still expensive:a higher number of units produced would strongly reduce operating losses

Threats

Limited threats as the group is alone on its market, and does not benefit from any subsidies. The only real threat we see is a fire or an accident involving its batteries which would put pressure on growth potential

Hold (Hold) Target price EUR 18.00 Current price EUR 27.50 Xavier Caroen [email protected] Reuters BLUE.PA Bloomberg BLUE FP Index DJ Stoxx 600

Market data


Free float 11%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 47.4 95.0 152.0

EBITDA adj (m) -13.2 2.0 27.7

EBIT adj (m) -28.0 -12.0 9.4

Net profit adj (m) -31.0 -15.4 4.5

Net fin. debt (m) 29.2 83.6 122.5

FCF (m) -54.7 -54.4 -38.9

EPS adj. and fully dil. -1.07 -0.53 0.16

Consensus EPS -1.16 -0.48 -0.01


FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) na na 33.1

EV/EBIT (x) na na 97.3

FCF yield -6.9% -6.9% -4.9%


Net debt/EBITDA (x) -2.3 42.2 4.5

Gearing 21.1% 67.8% 95.9%

ROIC -12.5% -4.5% 2.9%

EV/IC (x) 5.2 4.6 4.0


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CAF

Spain | Capital goods | Alternative Energy & Trans.



Exposure (100% of sales): CAF is involved in the design, production, maintenance and supply of equipment for the railway industry. The group splits its activities into three business units: 1) railway; 2) rolling stock and components; and 3) concessions business. The three main markets for CAF are 1) quality markets (Europe and the US), which account for 50-60% of the company's business; 2) historical markets (LatAm), which represent another 20%; 3) occasional markets, which make up another 20% of CAF's current business (Australia, South Africa, Finland, etc.). Another opportunity for CAF is to develop the signaling business, which has huge potential (higher margins) but is tough to start from scratch.

Outlook: CAF offers a good business profile thanks to its 3Y backlog, growing international exposure (80% of revenues) and maintenance activities (50% of profits), plus new businesses. The industry is set to post decent growth (a CAGR 2012-17E of 2-3%) with Asia/Pacific and LatAm expanding at an above-average rate (+7-8% a year). We estimate an order intake of EUR1.6bn in 2014 and an EBITDA CAGR 2013-16E of 6%.

Environmental impact: overview ofpros and cons

(+) Contribution to a less carbon-intensive transport system and infrastructure.

Recent highlights

Financials: CAF’s Q4 2013 numbers: top line was below expectations and EBITDA in line. 2013 order intake below, net debt above. 2014 prospects seemed reassuring (new awards to come).


Strengths

• Higher margins compared to its peers.

Increasing presence in international markets (80% revenues).

Notable pipeline and R&D achievements (AER, BRAVA, SIBI).

Great importance of enviromental sustainability in its business strategy.

Opportunities

• Reducing exposure to cyclical results due to its diversifiction in other business areas such as "Maintenance and Signalling".

• Development of more efficient and ecofriendly processes like the use of new production materials and the

• Reduction in the consumption of trains and systems.

Weaknesses

• Low presence in high-growth markets (Africa and Asia).

• Higher tax structure. • Increasing net debt, difficulting the

investment in R&D and enviromental

policies.

Threats • • Impact on demand of lower

public spending due to budget constraints.

• Surge of new competitors from Asia, currently not present in mature markets.

• Decreasing revenues might affect the amount of resources allocated to green policies to boost the bottom line.

Buy (Buy) Target price EUR 425.00 Current price EUR 375.00 Inigo Egusquiza, [email protected] Reuters CAF.MC Bloomberg CAF SM Index DJ Stoxx 600

Market data


Free float 42%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 1,535.2 1,627.4 1,725.0

EBITDA adj (m) 222.9 236.0 250.1

EBIT adj (m) 151.3 182.0 197.1

Net profit adj (m) 105.0 114.7 126.2

Net fin. debt (m) 583.5 556.9 522.6

FCF (m) -13.4 73.7 85.2


Consensus EPS 26.99 34.55 36.63

Net dividend 12.84 13.86 14.97

FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 7.9 7.8 7.2

EV/EBIT (x) 11.6 10.1 9.2

FCF yield -1.1% 5.7% 6.6%



Gearing 96.8% 83.1% 70.1%

ROIC 15.9% 16.9% 21.1%

EV/IC (x) 2.2 2.6 3.0


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Key data


Cluster Alternative Energy & Trans. Theme Railways % of sales 100% Market share c. 4% worldwide Size of the market EUR38bn Key competitors Siemens/Bombardier, Alstom

Source: CAF, Kepler Cheuvreux

F,

EDP Renovaveis

Portugal | Utilities| Renewable Energy



Exposure (100% of sales): EDPR is essentially a wind-only generator. Currently EDPR is mainly a play on US wind (positive) and on Spanish wind regulation (negative).

Outlook: EDPR has been less affected than its peers by the Spanish renewables review, given its relatively young asset base. Within the renewables space, EDPR is well positioned to grow. First, it has attractive options such as the c. 980MW it is set to install in the US over the next three years, plus 250MW in Brazil and some 150MW in Italy, Portugal and other countries. According to the company, the profitability of the new MWs in the US will be significantly above (c. 30%) EDPR’s average portfolio return (EBITDA/MW basis). Second, the self-funding model allows for strong credit metrics (76% of its debt consists of intra-group loans with EDP, but the company is gradually increasing the PF component). Third, the company’s leverage is moderate (we estimate 2.7x in 2015E) and value-accretive asset rotation will continue. EDPR expects single-digit growth in output and moderate price hikes (ex-Spain) in 2014.

Environmental impact: overview of pros and cons(+) RNW energy

generation. (-) Network management issues linked to variability of wind flow. Not In My Backyard (NIMBy) issues.

Recent highlights

Financials EDPR was a mediocre performer (and one of the worst in the Iberian utility space) in 2013 (-3%), but in 2014 (like Acciona) it has staged a remarkable comeback (YTD +28%).


Strengths

• China Three Gorges to invest

EUR2bn in EDPR over 2012-15 at a

minimum valuation of EUR1.3m/MW

• Financial support from parent

company

Opportunities

• Ability to tap international growth

opportunities

Weaknesses

• Significant weight in the USA, a

market with dull pricing and

uncertain regulatory

developments.

Threats

• Spanish regulator may consider to

reduce renewables' remuneration

as a way to reduce the tariff

deficit.

• Portuguese regulator has

suspended renewables premiums

Hold (Hold) Target price EUR 4.70 Current price EUR 4.88 Jose Porta. [email protected] Reuters EDPR.LS Bloomberg EDPR PL Index FTSE Euro First 300

Market data


Free float 23%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 1,356.1 1,325.6 1,513.1

EBITDA adj (m) 947.1 921.6 1,063.9

EBIT adj (m) 474.4 443.3 521.6

Net profit adj (m) 136.4 135.7 182.4

Net fin. debt (m) 3,282.5 3,192.6 2,820.4

FCF (m) -371.2 28.7 443.8




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 8.5 9.6 8.2

EV/EBIT (x) 17.0 20.0 16.8

FCF yield -11.3% 0.1% 9.6%



Gearing 53.9% 51.1% 42.8%

ROIC 3.0% 2.8% 3.2%

EV/IC (x) 0.7 0.8 0.8


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Key data

Table 61: Green activities (2013) Cluster Renewable Energy Theme Wind % of sales 100% Market share 2.5% Size of the market EUR40bn Key competitors Iberdrola, NextEra Acciona Energia, Endesa, EDF, E.ON, Gamesa

Source: EDPR, Kepler Cheuvreux

Table 62: Environmental impact from wind power generation (2013)

Output/Outcomes Result

Installed capacity (GW) 8.5 Production (TWh) 19.9 Tons of CO2 saved (m) 9.5

Source: EDPR

ElringKlinger

Germany | Autos & parts | Energy efficiency



Exposure (100% of sales): The company’s expertise in engine gasketing is crucial for OEMs in their fight against CO2, allowing higher combustion pressure, which is the key to better efficiency and lower CO2 output. Its ability to substitute metal with plastic enables weight reduction, another key to curbing CO2. Finally, its ability to process metal and plastic to levels that withstand higher pressure and temperatures can be leveraged from the area of conventional engines into the territory of electro mobility (cell connectors).

Outlook: With its product set-up, in our view the company continues to be very well positioned to capitalise on structural growth opportunities in the car industry. The need to increase the efficiency of conventional powertrains and the efforts to introduce alternative ones (specifically hybrid and full electric powertrains) have one thing in common: they will help increase ElringKlinger’s content per vehicle in the future.

Environmental impact overview: pros and cons

(+) There is almost no part of the company’s automotive portfolio that does not reduce weight and hence curb vehicle emissions. Its key products include different types of gaskets for engines as well as heat shields for engine components and engine exhaust systems, while the plastic parts of the Engineered Plastics division serve to reduce weight. This makes Elringklinger a huge beneficiary of the most relevant mega-trend in the car industry.

Recent highlights

New contracts: ElringKlinger's analyst conference on 28 March focused primarily on the new contract for light-weight components the company has been awarded (EUR120-130m over six years for Mercedes-Benz). After ElringKlinger issued a profit warning in late January, we have the impression that profitability from structural growth prospects will materialise later than originally envisaged.


Strengths

• Strong, profitable market position appears sustainable thanks to high entry barriers in gasket business

Opportunities

• Basically, all the group’s products lower CO2 emissions

• Electric mobility bears huge long-term upside through rising content per vehicle

Weaknesses

• Some of the acquired operations continue to dilute group margins

Threats • High capital intensity and above-

average R&D expenses require high levels of profitability to maintain solid returns on invested capital

Reduce (Reduce) Target price EUR 27.00 Current price EUR 29.80 Michael Raab, CFA. [email protected] Reuters ZILGn.DE Bloomberg ZIL2 GR Index DJ Stoxx 600

Market data


Free float 48%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 1,178.6 1,269.2 1,342.5

EBITDA adj (m) 245.4 254.6 278.9

EBIT adj (m) 161.0 163.1 187.3

Net profit adj (m) 104.0 106.4 124.6

Net fin. debt (m) 244.6 231.5 206.4

FCF (m) 44.4 49.5 62.4




FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 9.6 9.2 8.3

EV/EBIT (x) 14.6 14.4 12.4

FCF yield 2.3% 2.5% 3.2%



Gearing 34.0% 29.2% 23.3%

ROIC 10.9% 10.3% 11.1%

EV/IC (x) 2.1 2.0 1.8


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Ence

Spain | Forestry, Paper and Packaging | Biomass resources



Exposure (27% of sales and 15% of EBIT): Ence is Spain's market leader in the production of renewable energy using forest biomass and energy crop (15% of EBIT) and Europe's leading eucalyptus pulp producer, with above 50% market share (1,340,000 tonnes annual capacity), which makes it the fourth largest producer in the world. It currently has an installed capacity of 280MW, of which 230MW is renewable energy from biomass. Annual electricity production amounts to 1,900 GWh. Ence had 88,266 hectares of managed wood in 2013 (of which 56% is owned).

Outlook: We believe Ence has a clear competitive advantage in biomass. Following the release of details on the new renewables energy regulation on 3 February (the final outcome was worse than expected), we see the share of Ence’s sale and earnings derived from biomass to remain approximately stable. We are assuming the new tariff framework proposal will be approved in its current form. The recurrent impact (according to the draft) in terms of EBITDA for Ence is around EUR20m.

Environmental impact: overview of pros and cons (+) Renewable

energy production (biomass). Sustainable forest management (eg reforestation). (-) In Pulp production: Consumption of chemical products, fuel and electricity, water consumption, NOX, SO2, particles emissions.

Recent highlights

Regulation: Details on the new renewables energy valuation came out on 3 February. Ence’s shares have since fallen by 22%, which we see as an overreaction.


Strengths

• Sound financial position

• Operational excellence thanks to its

well-located distributions centers

• An integrated business model that

generates many synergies and

financial flexibility

Well diversified sales geographically

Opportunities

• Investment in new production

facilities to expand its market share

• High margin for growth in energy

generation

Weaknesses

• High dependence on global pulp

prices

• Highly unionized workforce

• Decreasing revenues from

traditional business lines (i.e.

newsprints)

Threats

• Political risk in its energy division

in Spain

• Risk of plant concessions

• Labour strikes

Buy (Buy) Target price. EUR 2.40 Current price. EUR 2.20 Javier Campos Clavero.

[email protected] Reuters ENC.MC Bloomberg ENC SM Index DJ Stoxx 600

Market data


Free float 37%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 849.6 811.8 816.9

EBITDA adj (m) 141.3 113.9 119.7

EBIT adj (m) 29.0 33.9 39.2


Net fin. debt (m) 203.1 201.6 164.2

FCF (m) 58.6 17.7 53.6




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 5.8 6.6 6.0

EV/EBIT (x) 28.1 22.2 18.2

FCF yield 9.6% 3.2% 9.7%



Gearing 28.6% 28.3% 22.8%

ROIC 2.1% 2.5% 2.8%

EV/IC (x) 0.9 0.8 0.7


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Key data


Cluster Biomass ressources

Theme Renewable energy generation from biomass % of sales 27% % of EBIT 15% Market share 40% in Spain, 0.02% globally Size of the global market EUR90bn Key competitors Statkraft, DONG, Helius Energy, ABO Wind

AG

Source: Ence, Kepler Cheuvreux

Table 64: Key environmental data (2011-2012) - Ence

2011 2012

Forest management Hectares of managed wood % owned

na 115985 66%

PEFC (Programme for the Endorsement of Forest Certification) na 88103 %PEFC 76 FSC (Forest Stewardship Council) na 53866 %FSC na 46 Energy Consumption and Emissions 2012 Primary energy consumed in electricity production (GJ) 6,007,098 6,002,499 Total indirect energy consumption by source (GJ) 2,661,098 2,659,061 Direct emissions (tCO2) 472,218 491,690 Indirect emissions (tCO2) 243,934 243,747 Total emissions (tCO2) 716,152 735,437


ENEL Green Power

Italy | Utilities |Renewable Energy



Exposure (100% of sales): ENEL Green Power, created in December 2008, is the company of the Enel Group which develops and manages green energy projects worldwide (Wind, PV, Hydro, Geothermal). Our ENEL Green power EV is made up of: wind (51%), geothermal (24%), hydro (18%), solar (6%) and biomass (1%). ENEL Green Power is currently present in 16 countries with five technologies and 8.9GW of installed capacity, it has already addressed a further five countries (South Africa, Turkey, Morocco, Peru and Ecuador) and is ready to explore even more opportunities (North Africa, East Africa, Middle East).

Outlook: In our view, ENEL Green Power is hedged against political risk and has strong fundamentals thanks to its diversification strategy in technologies and regions. Renewables are the only companies still growing among Italian utilities, and are only partly affected by the difficult macro scenario (prices, not volumes, because renewables have priority of dispatch; the only risk is that they could be affected by adverse weather, such as poor wind or hydro). Being diversified is a therefore key strength for renewable companies.

Environmental impact: overview of pros and cons (+) RNW generation.

Recent highlights

New business plan: ENEL Green Power’s 2014-18 business plan guidelines came out during the 12 March presentation of the ENEL business plan. Its strategy will continue to be focused on diversification, thanks to its large, diversified pipeline and flexible capital allocation. This plan includes 4.6GW of new installed capacity (4.4GW in the old plan), 60% already secured, and, considering the huge need for renewable capacity in the world, these targets could be considered cautious.


Strengths

High average load factor (44%)

Low dependence on incentives (23%

of revenues)

Capex covered by cash flows

Diversified mix of technologies

Opportunities

• Further expansion in Latam, in Africa

and in Middle East

• Relatively low gearing

• Big and diversified pipeline

Weaknesses

Modest growth

Exposure to electricity price

volatility (but for a modest part of

its production)

Threats

Downside risk on Italian electricity

prices

Regulatory risk

Buy (Buy) Target price EUR 2.30 Current price EUR 2.02 Claudia Introvigne [email protected] Reuters EGPW.MI Bloomberg EGPW IM Index DJ Stoxx 600

Market data


Free float 31%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 2,778 2,742 3,212

EBITDA adj (m) 1,787 1,893 2,259

EBIT adj (m) 1,065 1,155 1,471

Net profit adj (m) 528 502 627

Net fin. debt (m) 5,446 5,891 6,249

FCF (m) -139 -77 300




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 7.9 8.7 7.5

EV/EBIT (x) 13.2 14.3 11.6

FCF yield -1.5% -0.7% 2.7%



Gearing 65.9% 67.7% 67.1%

ROIC 6.2% 6.4% 7.9%

EV/IC (x) 1.2 1.4 1.4


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Key data


Cluster Renewable Energy

Themes Wind generation, Geo, Hydro, Solar % of sales (2013) 100% Installed capacity (GW) 8.9 o/w Wind 5.2 o/w Hydroelectric 2.6 o/w Geo 0.8 o/w Solar 0.3 Net production (GWh) 29,453 o/w Hydroelectric 10,921 o/w Wind 12,169 o/w Solar 294 o/w Geo 5581 opex breakdown: Wind 62% Geo 17% Solar 9% Hydroelectric 8% Other 4%

CO2 emissions avoided (mt) 20


ERG

Italy | Utilities |Renewable Energy



Exposure (5% of sales and 47% of EBIT): ERG has three business units: Renewables (1.34GW of installed capacity, and 2.4GWh of electricity production for 2013; mostly wind), Power & Gas (2.6GWh of electricity produced in 2013), and Oil (downstream business).

Outlook: ERG is transforming into a 100% renewables company that we now implicitly see at EUR1.5m per MW. ERG is the only renewable company with interesting growth prospects (net debt adj. /EBITDA adj. at 1.8x in 2013 and 1.6x in 2104E) and an appealing dividend yield. The low leverage put ERG in a unique financial situation in which it could choose where to invest: we believe that there will be room for further capex of at least EUR500m. On the legislation side, wind energy rules are clear and stable and Italian legislation was completely revised in 2013 (changing from a system based on green certificates to a feed-in tariff) with no retroactive impact.


(+) RNW generation (-) Still exposed to oil (7% of 2013E adj. RC-EBITDA) and thermoelectric power plant: SO2, NOx, CO2 emissions, volatile organic compounds, dioxins and metal.

ESG issues to watch – business ethics: The potential tax fraud in the TotalERG JV is the main risk for ERG. The investigation involves alleged false invoices (implying VAT credits) worth EUR904m, issued by a Bermuda-based company. The potential tax fraud is related to the period before 1 October 2010 (i.e. before the JV was set up): the JV’s financial statement was nevertheless signed off for the whole of 2010 by the ERG CEO (Edoardo Garrone, who is now Chairman).

Recent highlights

Financials: On 17 January, Unicredit bought 7.14% of ERG Renew providing a EUR50m cash-in for ERG. In the last few months, ERG has signed many extraordinary deals with its strategic partners.


Strengths

• Strong asset base in Italy (first player

as per market share)

Positive track record in deals already

signed

Low leverage

Opportunities

• New deals to optimise leverage

Weaknesses

• Poor diversification

Threats

• Weather

Buy (buy) Target price EUR 13.00 Current price EUR 12.09 Claudia Introvigne [email protected] Reuters ERG.MI Bloomberg ERG IM Index DJ Stoxx 600

Reuters ERG.MI Bloomberg ERG IM Index DJ Stoxx 600

Market data


Free float 32%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 7,051.0 1,850.9 1,618.3

EBITDA adj (m) 567.7 489.9 416.4

EBIT adj (m) 277.6 250.2 199.7

Net profit adj (m) 38.0 86.5 99.8

Net fin. debt (m) 808.6 575.4 444.0

FCF (m) -43.9 464.6 266.1




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 2.3 3.1 3.3

EV/EBIT (x) 4.7 6.2 6.9

FCF yield -3.0% 20.5% 11.7%



Gearing 51.3% 42.6% 33.0%

ROIC 6.8% 7.5% 7.2%

EV/IC (x) 0.7 1.0 1.0


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Key data



Theme Wind generation % of sales (2013) 5% % of sales (2016E) 24% % of EBIT (2013) 47% % of EBIT (2016E) % of capex

69% 80%

Market share 13% Italy; 1% Europe (2012)

Key competitors Italy: Enel Green Power, edison Energie speciali, edf, e-on, falck renewables

Europe: iberdrola, acciona, edf, enel gp, gdf suez, rwe, edf, E ON

Source: ERG, Kepler Cheuvreux

Table 67:Key environmental data (2010-2013)

RNW CO2 avoided emissions in 2013 (kt) 197 307 492

Installed capacity (MW) 596 1,340

Electricity production (GWh) 1,222 2,403 Thermoelectric power plant So2 index thermoelectric power Plant (t/gwheq) 0.2 0.14 0.09 Efficiency of thermoelectric Power plants (tep/mwheq) 0.217 0.207 0.206 Co2 Index of thermoelectric power plants (Kt/gwheq) 0.6 0.57 0.58 Group Direct Co2 emissions (kt) 3,998 4,128 4,382 NoX emissions (t) 1,505 1,206 1,314 So2 emissions (t) 1,336 940 683 Water returned to the natural cycle (%) 87.2 89.2 93.7

Source: ERG; Kepler Cheuvreux

Eurofins

France | Support services| Eco-products & services



Exposure (20% of sales): Eurofins' green activities relate to its environmental testing business. Its offering comprises testing of water, air, soil, waste and other products to assess their quality and impact on health and the environment. Eurofins is also exposed to Food & feed testing (40% of revenues) and testing for pharma/biotech (40% of revenues).

Outlook: In the outsourced environment testing market, Eurofins is the global leader with a 6-7% market share through strong local positions in Europe, solid positions in the US thanks to the acquisition of Lancaster and weak positions in other continents. We forecast the environment market to grow at around 5% a year driven by more stringent regulation, voluntary control by corporates, pollution accidents and greater use of specialised companies.

Environmental impact: overview of pros and cons (+) Their testing

activities can be considered as improving the environmental impact of their clients (e.g. water, air, soil, waste).

Recent highlights

Financials: Management reiterated in early March its mid-term objectives based on: 1) EUR2bn of revenues by 2017E driven by organic and external growth; and 2) at least a 20% adjusted EBITDA margin by 2017. We think that it will be very challenging to achieve both goals as recurring start-up costs to fuel organic expansion and recurring M&A have a dilutive effect on profitability as evidenced by the flat adjusted EBITDA margin forecast by the group for 2014.


Strengths

• Strong leading positions in niche markets

Organisation in competence centres with a range of 100,000 tests and acknowledged expertise

Adequate infrastructure in place (global presence, critical size, strong IT platform)

Some spare capacity

Opportunities

• Increasingly strict norms and quality

control

• Sustained trend towards outsourcing

• Steady consolidation of what remains a

fragmented market

• Development in BRICS where Eurofins

Scientific has recently opened labs

Weaknesses

• Risk related to acquisitions (growing competition from other TIC players, some execution risk)

• Competition from big rivals in the US pharmaceutical market

Threats

• Cyclicality of the environmental testing business (with 50% of sales exposed to construction and industries, especially auto)

• Risk of inflation in multiples paid for external growth targets

• Faster commoditisation of some tests

Reduce (Reduce) Target price EUR 175.00 Current price EUR 211.75 David Cerdan. [email protected] Reuters EUFI.PA Bloomberg ERF FP Index DJ Stoxx 600

Market data


Free float 56%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 1,221.9 1,344.1 1,492.0

EBITDA adj (m) 213.4 242.8 278.5

EBIT adj (m) 158.6 181.6 206.5

Net profit adj (m) 112.8 129.0 149.9

Net fin. debt (m) 382.9 397.6 397.6

FCF (m) 36.5 74.8 97.6




FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 17.3 15.3 13.3

EV/EBIT (x) 23.3 20.4 18.0

FCF yield 1.2% 2.4% 3.1%



Gearing 90.7% 79.7% 66.6%

ROIC 15.1% 15.4% 15.9%

EV/IC (x) 4.2 3.9 3.5


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Key data


Cluster Eco-product & services

Theme Environmental analyses % of sales 20% % of EBIT 20%

Market share

Global leader. No. 1 in Europe

No. 1 in Germany No. 1 in France

No. 1 in Scandinavia No. 1 in Benelux

Size of the market ~EUR4bn Key competitors TUV, Alcontrol, SGS, BV


Falck Renewables




Exposure (100% of sales): Falck Renewables is a small renewables company that is diversified both geographically (mainly Italy and the UK) and technologically (mainly wind and waste), with 731MW of current installed capacity (o/w 353MW is in Italy and 288MW in the UK).

Outlook: We like its geographical and technological footprint. Falck Renewables' focus is mainly on growth, as with all the other Italian renewables companies, not on dividends. At the moment the company strategy is focused on business rationalisation and control of existing plant performances (to cope with the adverse regulation), to develop the waste to energy business in the UK (40MW, whose capex will begin to be spent in 2014) and to focus on innovative technologies (hybridisation).


(+) RNW energy generation.

Recent highlights

Deal closing: The closing of the already announced deal with CII (Pension Danmark) happened in March: CII valued the UK wind business of the company EUR2m per MW, versus our EUR1.6m valuation, and that it is committed to co-investing a further EUR100m in new projects. Q4 2013 results were good.


Strengths

• Strong asset base

Good management team

Technical and geographical

diversification

Opportunities

• Further investments thanks to the

deal with CII (pension Danmark)

Weaknesses

• Small dimension

Threats

• Regulatory risk

Buy (Buy) Target price EUR 1.40 Current price EUR 1.47 Claudia Introvigne. [email protected] Reuters AA4.MI Bloomberg FKR IM Index DJ Stoxx 600

Market data


Free float 37%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 275.9 283.1 283.7

EBITDA adj (m) 157.0 148.7 161.0

EBIT adj (m) 79.3 84.1 96.2

Net profit adj (m) 15.0 16.4 23.0

Net fin. debt (m) 757.6 707.6 630.7

FCF (m) 33.8 -59.6 87.2




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 6.8 7.8 6.7

EV/EBIT (x) 13.4 13.7 11.3

FCF yield 9.8% -11.8% 17.3%



Gearing 200.0% 179.2% 151.0%

ROIC 3.5% 4.5% 5.3%

EV/IC (x) 1.0 1.1 1.1


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Key data


Cluster Renewable energy

Main theme Wind energy production % of sales 100%

Installed capacity (MW) 731

o/w wind 670

o/w waste/biomass 45

o/w solar 16

Source: Falck Renewables, Kepler Cheuvreux

FCC

Spain | Construction & materials | Waste & Water



Exposure (53% of sales and 75% of EBITDA in 2014E): FCC is a Spanish conglomerate with activities in a wide variety of sectors including construction, cement, real estate, urban services, energy and concessions. Exposure to green themes includes: 1) Environmental services (40% of 2014E group sales) which include the collection, treatment and elimination of solid urban waste, street cleaning, sewer system maintenance, park and garden maintenance, treatment and elimination of industrial waste and full-service water management. 2) Water distribution and treatment (13% of 2014E group sales). FCC is mostly exposed to Spain (water and environmental services) and the UK (waste recycling).

Outlook: The company has a weak capital structure (over 7x debt/EBITDA) and we think it needs a capital increase. FCC is also looking for efficiencies by divesting assets. In the next four years, we expect limited growth for environmental services (3% CAGR), and water to grow a bit faster due to new contract in Southern Spain (3-4% CAGR). In the meantime, we see some recovery in construction that could bring about cash flows for environmental activities. Overall, we would expect at group level only limited cash flow generation in 2016E (below EUR0.2bn)


(+) Reducing the environmental impact of the growing waste generation, notably

contaminated soils. Improving water access, water sanitation, water quality; reducing water leakage.

(-) 25% of EBITDA (2014E) exposure to construction and cement. Emissions of SO2, NOx, CO2, volatile organic compounds, dioxins and metal. Water leakage

Recent highlights

Refinancing agreement: On 1 April, FCC announced the closure of an agreement to refinance corporate debt (two debt tranches for EUR3.16bn and EUR1.35bn).


Strengths

• Good asset portfolio –although with

a cyclical bias

Increasing international exposure (a

management focus)

Opportunities

• Privatisations in Spain (water in

particular could offer opportunities)

• Recovery in construction could bring

about cash flows for environmental

activities

Weaknesses

• Too much debt

• High domestic exposure

Threats

• Lack of future divestments could

deteriorate the company’s credit

rating

• Tight financial position could

continue to restrict the company's

growth capacities

Reduce (Not rated) Target price 17.10 Current price 15.85 Joaquin Ferrer, CFA [email protected] Reuters FCC.MC Bloomberg FCC SM Index DJ Stoxx 600

Market data


Free float 33%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 9,610.0 9,560.0 9,815.0

EBITDA adj (m) 876.0 1,090.0 1,140.0

EBIT adj (m) 439.0 550.0 600.0

Net profit adj (m) 79.0 105.0 165.0

Net fin. debt (m) 6,987.4 6,892.4 6,737.4

FCF (m) 101.0 95.0 155.0


Consensus EPS -0.19 0.29 1.02


FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 9.4 7.5 7.0

EV/EBIT (x) 18.8 14.8 13.3

FCF yield 4.8% 4.5% 7.4%



Gearing 402.6% 374.5% 336.0%

ROIC na na na

EV/IC (x) na na na


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Key data

Table 70: Green activities

Cluster Waste & Water

Main theme Environmental services, Water % of sales (2014E) 53% % of sales (2016E) 47% % of EBITDA (2014E) 75% % of EBITDA (2016E) 68% % of capex (maintenance) 81% Market share No. 2 in water management in Spain

Top 3 in waste collection in Spain Top 4 in waste recycling in the UK

Key competitors Waste collection in Spain: ACS, Ferrovial, Sacyr Water in Spain: Agbar, Sacyr

Waste recycling in the UK: Biffa, Viridor, Veolia Environnement, Suez environnement.


Table 71: Population served by environmental services (2012, m)

Services

Maintenance of parks, gardens and green areas 18.3 Beach cleaning 12.3 Sewage networks 16.8 Street cleaning 4.9 Treatment and elimination of municipal solid waste and similar materials 6.1 Waste collection 5.2 Total inhabitants being served 27.8

Source: FCC

18 February 2014

Grontmij

Netherlands | Capital goods | Eco-products & services



Exposure (up to 67% of sales): Its planning & design activities (41% of sales) include a range of services such as environmental management and design, urban development and spatial planning, leisure and landscaping. In Waste & Water management (26% of sales), Grontmij designs production and processing systems for the chemical, pharma, food industries as well as for water and industrial companies. In water it is the market leader in Denmark, the Netherlands and the UK.

Outlook: Overall, almost fully focused on Europe and with a large exposure to the public sector, Grontmij’s starting position remains weak. For the time being any improvement will have to come from within. Management is successful in achieving cost savings, but weak market conditions (organic sales decline, margin pressure) wash most of the positive impact away


(+) Improving water access, water sanitation; reducing water leakage, improving water quality. Reducing the environmental impact of the growing waste generation, notably contaminated soils. Providing renewable energy.

Examples: Sustainable design: designing solutions that minimise environmental impact (e.g. new bridge at Frankfurt-am-Main, BREEAM certification for buildings) or Waste-to-energy (e.g. Bialystok Thermal). Waste Treatment Plant contract) and wastewater investment projects.

(-) Design, engineering and management consultancy for building, distribution, highways & roads infrastructure, fossil fuel energy, biochemical industry, chemical industry, mining, steel and metal industry.

Recent highlights

Financials: Grontmij produced FY 2013 results that were pretty much in line at operational level. Assuming a slower recovery, management has poisoned its targets.


Strengths

• A large number of clients, which limits contract and execution risks to some extent

Sustainability fully integrated into its activities

Opportunities

• Consolidation in the industry

• Climate change & sustainability trends • Expansion into Eastern Europe over

time

Weaknesses

• Weak position outside Western Europe

• High financial leverage

• Its EBITA margin that lags competitions'

Threats

• Government austerity programs

• Price pressure

Reduce (Reduce) Target price EUR 3.00 Current price EUR 3.61 Andre Mulder. [email protected] Reuters GRONc.AS Bloomberg GRONT NA Index DJ Stoxx 600

Market data


Free float 58%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 771.6 786.7 815.3

EBITDA adj (m) -31.3 37.6 44.8

EBIT adj (m) -47.3 20.6 26.8


Net fin. debt (m) 90.5 84.0 78.1

FCF (m) -32.2 8.5 10.5




FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) na 8.7 7.2

EV/EBIT (x) na 15.9 12.0

FCF yield -14.0% 3.7% 4.5%



Gearing 68.6% 61.5% 54.2%

ROIC -25.6% 5.2% 6.8%

EV/IC (x) 1.1 1.1 1.1


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Groupe Eurotunnel

France | Transport | Alternative Energy & Transport



Exposure (93% of sales): Eurotunnel operates the fixed link between Great Britain and Europe. The company manages the Channel Tunnel infrastructure and perceived fees from third-party railway operators transporting passengers (Eurostar; >10m passengers/year) and freight. It also operates the Truck and Car Shuttle, which competes with Short Straits ferries. Finally, GET has developed its own rail freight operations (Europorte) and has recently started a ferry service (MyFerryLink). All the group’s operations except ferrylink (6% of 2013 sales) therefore offer an alternative to air and ferry transport, both higher GHG emitters per passenger.

Outlook: The stock provides exposure to a unique underutilised infrastructure asset with attractive long-term growth prospects and high operational leverage. This should pave the way for an impressive trajectory for FCF generation and dividend payments, in our view.



(-) Strong impact of infrastructure on the environment during construction.

Recent highlights

Financials: GET released a good set of FY 2013 numbers, mainly thanks to lower-than-expected losses at MyFerryLink and higher operating leverage at Europorte


Strengths

• Unique infrastructure with a huge

competitive advantage over other

means of transport

• Good pricing power (no pricing

regulation)

• A highly-leveraged business

• Substantial cash generation

Opportunities

• Opening of new high-speed railway

lines

• Revival in the rail freight market

• Leeway to increase capacity

• Easing of traffic standards in the

Channel tunnel

Weaknesses

• Exposure to a single asset

• High sensitivity to the GBP/EUR

exchange rate

• Restrictive technical regulation

• Still limited access to financial

markets and refinancing

possibilities

Threats

• Major accidents such as a fire in

the tunnel

• Terrorism

• Aggressive pricing policy of ferry

companies

• Chronic under-use of

infrastructure

Buy (Buy) Target price EUR 11.00 Current price EUR 9.40 Nabil Ahmed [email protected] Reuters GETP.PA Bloomberg GET FP Index DJ Stoxx 600

Market data


Free float 78%






FY to 31/12 (EUR)

2013 2014E 2015E

Sales (m) 1,092.0 1,181.6 1,254.1

EBITDA adj (m) 449.1 487.2 532.6

EBIT adj (m) 285.0 317.9 362.4

Net profit adj (m) 18.4 45.5 87.6

Net fin. debt (m) 4,279.5 4,224.2 4,144.2

FCF (m) 143.5 121.1 161.4

EPS adj. and fully dil.

0.03 0.09 0.16



FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 16.9 18.8 17.1

EV/EBIT (x) 26.7 28.9 25.1

FCF yield 4.2% 2.4% 3.2%



Gearing 172.5% 172.8% 170.2%

ROIC 3.1% 3.5% 4.0%

EV/IC (x) 1.2 1.4 1.4


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HERA

Italy | Utilities| Waste & Water Management



Exposure (35% of sales and 52% of EBIT): Hera is a local Italian multi-utility, mainly operating in the Emilia Romagna region, with more than 50% of regulated activities and participated by around 180 Municipalities. HERA is involved in the entire waste management cycle through operational environmental services (waste waste collection, street sweeping and cleaning) and waste treatment (recycling and disposal). As for water, HERA is active in the collection, treatment, distribution, sewerage and purification.

Outlook: HERA remains our preferred Italian local utility, mainly thanks to its diversification among businesses that are mostly regulated (waste, water and gas being the main ones), its strategy to grow through small M&A moves in its territories (which also led the Italian Strategic Fund to guarantee the November EUR100m capital increase, successfully closed), its appealing and visible dividend (at least EUR0.09 or 5% yield) and its lack of governance problems.


(+) Improving water access, water sanitation, water quality; reducing water leakage. Reducing the environmental impact of the growing waste generation, notably contaminated soils. Generating energy from incineration and landfills. Renewable energy

(-) GHG emissions from waste treatments SO2, NOx, CO2 emissions, volatile organic compounds, dioxins and metal

Recent highlights

Merger agreement: The merger agreement with Amga Udine was signed on 23 January: it will be a paper deal that will close by 24 June and will become effective from 1 July. It was carried out at an attractive 6.36x EV/EBITDA. It fits in perfectly with HERA’s strategy to grow in its territories via small M&A deals (Amga Udine EBITDA represents 3.6% of HERA’s current EBITDA and 2.7% of its net debt 2014E) and it could be net profit accretive from the first year, while the dilution of our TP could be minor (c. 2% in our view).

ESG Issues to watch: There is a significant environmental issue in Tirreno Power, a generation company (3.4GW of installed capacity) in which both IREN and HERA have a 5% stake: two units of its coal plant have been recently closed as it seems they have caused health problems for people living nearby.


Strengths

Lack of governance problems

Appealing dividend Positive track record in small M&A

Opportunities

• Gas concession tenders

• Further development of the waste division

• New M&A

Weaknesses

Modest scale in electricity generation

Limited opportunities for sector consolidation

Gas concessions expiring in the next few years

Threats

Industrial waste cyclicality

Buy (Buy) Target price EUR 2.17 Current price EUR 2.07 Claudia Introvigne. [email protected] Reuters HRA.MI Bloomberg HER IM Index DJ Stoxx 600

Market data


Free float 40%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 4,851.3 5,048.9 5,216.5

EBITDA adj (m) 830.7 852.3 854.2

EBIT adj (m) 415.8 465.8 456.6

Net profit adj (m) 101.2 144.4 157.6

Net fin. debt (m) 2,594.6 2,636.0 2,606.7

FCF (m) 152.0 76.4 147.1




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 5.7 6.8 6.7

EV/EBIT (x) 11.4 12.4 12.6

FCF yield 6.1% 2.1% 4.0%



Gearing 134.5% 132.7% 127.9%

ROIC 6.7% 6.9% 6.6%

EV/IC (x) 1.3 1.5 1.4


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Key data


Main cluster Waste & Water management

Activities

n Waste treatment and disposal n Water treatment

WTE % of Sales (2013) 35%

% of Sales (2016E) 30% % of EBIT 52%

% of EBIT (2016E) 54% EBIT margin 16%

% of capex 60%

Market share No. 2 in waste and water management in Italy

key competitors in each green activity identified

Local: A2A(Waste), Acea (Water) Global: Veolia, Remundis

Source: Hera, Kepler Cheuvreux

Table 73: Environmental data (2012-2016E)

2012 2013E 2016E

Electricity production (GWh) 387 575 600 o/w WTE plants 235 374 374 o/w Biomass plant 39 86 86 Portion of energy produced from renewable sources (incl. WTE at 51%)

29% na na

Portion of energy produced from renewable sources (incl. WTE at 51%) and similar (incl turbonexpansion)

71.5% na na

tCO2 emissions avoided na 360836 382531 Total waste treated in the Group’s 48 facilities 2,678 na na Waste disposed of in plants with EMAS registration (a % of the total) 72.5% na na Waste disposed of in Group plants and the total waste disposed of in k of metric tonnes)

Separate waste collection 51.9% na na

Source: Hera, Kepler Cheuvreux

Imtech

Netherlands | Capital goods | Eco-products & services



Exposure (30% of sales, 40% of EBIT): Imtech is an international technical services provider (mechanical engineering, electrical engineering, ICT) with 26,000 employees. Via a network of over 500 offices (450 in Europe and 80 marine offices along major global shipping routes) it is serving 24,000 clients. Its activities are spread over the following divisions: Benelux, Germany & E-Europe, UK & Ireland, Spain & Turkey, Nordics, ICT, Traffic & Infra and Marine. We see its exposure to Green activities as its environmental engineering in the areas of efficient lighting, efficient building, smart grid, waste & water treatment.

Outlook: Imtech is a company in financial difficulty as it had to face s EUR408m write-downs last year. Following the new financing agreement, Imtech needs to reduce debt by EUR400m to avoid penalties With the help of recovering results, a further reduction of working capital and a sale of ICT, we think the company can achieve this.


(+) Reduction of energy consumption and GHG emission. Providing renewable energy. Improving water sanitation, water quality

Recent highlights

Financials: Imtech struck a new financing agreement with its financiers in March 2014.


Strengths

• Well-balanced client and services portfolio

• Strong cash flow generation and strong balance sheet

• Proven track record

• Strong M&A track record

• Opportunities

• Good growth prospects in Energy and Environment (CSR approach authorities and customers)

• Life-cycle approach

• Continuing trend towards outsourcing of technology by customers

• Growing mobility market and demand for comfort

• Expansion in new regions and through acquisitions

Weaknesses

• Scope to develop knowledge potential and management skills

• Decentralised business model, which can complicate internal co-operation

• Execution risk on large projects

Increasing dependence on large suppliers and co-makers

Threats

• Low barriers to entry in low-end parts of the business

• Shortage of qualified technical staff

• Increasing legal complexity and risk profile due to increasing average project size

• Forward integration suppliers

• Limited cyclicality due to recurring business

Buy (Buy) Target price EUR 2.50 Current price EUR 1.58

Andre Mulder. [email protected] Reuters GRONc.AS Bloomberg GRONT NA Index DJ Stoxx 600

Reuters IMUN.AS Bloomberg IM NA Index DJ Stoxx 600

Market data


Free float 79%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 4,944.9 4,928.4 5,146.8

EBITDA adj (m) -321.9 152.8 216.7

EBIT adj (m) -447.3 62.8 126.7

Net profit adj (m) -566.7 -16.5 39.9

Net fin. debt (m) 756.8 653.7 520.1

FCF (m) -513.8 109.6 140.2

EPS adj. and fully dil. -1.27 -0.04 0.09

Consensus EPS -0.88 -0.04 0.13


FY to 31/12 (EUR) 2013 2014E 2015E

P/E (x) adj and ful. dil. na na 17.6

EV/EBITDA (x) na 10.2 6.6

EV/EBIT (x) na 24.9 11.3

FCF yield -36.3% 15.6% 19.9%



Gearing 241.6% 221.4% 155.8%

ROIC -29.5% 4.4% 9.1%

EV/IC (x) 1.8 1.3 1.3


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IREN

Italy | Utilities | Waste & Water Management



Exposure (39% of EBIT): IREN is an Italian multi-utility born in 2010 from the merger of Enìa into Iride. It is mainly located in Northern Italy and focused on cogeneration, water, electricity, gas and waste. 13% of EBIT comes from waste & water management and 26% from hydro.

Outlook: IREN’s current strategy, which could be summed up as overly slow growth and restructure debt, looks like the right one in our opinion, but the company will need some time before it starts to grow again. Moreover, we do not expect IREN become the prey of other Italian local utilities (A2A and HERA), which seem to have adopted a strategy of growth through small M&A deals for the moment.


(+) Improving water access, water sanitation, water quality; reducing water leakage. Providing renewable energies Reducing the environmental impact of the growing waste generation, notably contaminated soils.

(-) Emissions of GHG from waste treatment. Emissions of SO2, NOx, CO2, volatile organic compounds, dioxins and metal. Water leakage

Recent highlights

Financials: Q4 2013 results released on 27 March were weak and affected by writedowns. IREN has launched in the first part of March a takeover bid on Acque Potabili, together with SMAT. Acque Potabili is a small cap (EUR37m in market cap, EUR17m in 2012 EBITDA and EUR30m in net debt) present in the water business in Piedmont and Liguria. We see this attempt as positive; it has been a long time coming and is headed in the right direction. It is a small positive deal, but does not alter our fundamental view on the stock.

ESG Issues to watch: There is a significant environmental issue in Tirreno Power, a generation company (3.4GW of installed capacity) in which both IREN and HERA have a 5% stake: two units of its coal plant have recently been closed as it seems they have caused health problems for people living nearby.


Strengths

Strong position in cogeneration and

in water

Partnership with F2i in water

business

Opportunities

Disposal of non core assets

Sector consolidation in Italy

Weaknesses

Still limited size in power

generation

High gearing (4x debt/EBITDA)

Threats

• Gas concessions expiring

Corporate governance issues

Reduce (Reduce) Target price EUR 1.10 Current price EUR 1.30 Claudia Introvigne. [email protected] Reuters IREE.MI Bloomberg IRE IM Index DJ Stoxx 600

Market data


Free float 46%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 3,448.0 3,629.3 3,708.3

EBITDA adj (m) 646.0 654.0 671.6

EBIT adj (m) 313.0 354.3 364.0

Net profit adj (m) 133.0 141.2 148.6

Net fin. debt (m) 2,525.4 2,472.7 2,314.9

FCF (m) 155.6 104.5 215.3




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 5.8 6.6 6.2

EV/EBIT (x) 12.0 12.1 11.4

FCF yield 12.5% 5.4% 11.0%



Gearing 127.0% 119.2% 107.0%

ROIC 4.0% 5.5% 5.5%

EV/IC (x) 1.1 1.2 1.1


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K + S

Germany | Chemicals | Biomass resources



Exposure (54% of sales): K+S is a mining company, and the fifth largest producer in the global potassium market (size: about USD30bn) and number three in terms of exports, with a market share of c.10%. The fertilizer business (sustainable activities) is called Potash & Magnesium Products. These fertilizers are used for food, feed or biofuel. We doubt that the sustainable feature has a large impact on valuation as key is earnings growth. The environmental business (waste management) is in the Complementary Activities (storage of trash in depleted mines).

Outlook: We see the Potash & Magnesium segment as strategic for the company, despite the fact that its contribution is set to shrink in the next few years (from 80% in 2013 to 50% in 2015). There will be a lag before a rebound, as additional potash capacity could come on stream in 2016-17, with rising volumes and prices.


(+) Contribution to nutrition and health (difficult to estimate as K+S is far away from end customers). (-) Saline waste water. This could jeopardise the whole potash business should policy makers build pressure on the issues. K+S invested EUR360m last year to reduce waste water. The amount of waste water has been cut in the past few years thanks to these investments.

ESG issues to watch – H&S: Fatal accidents can happen at mines (three fatalities in an accident in 2013) and result in lost investments and production facilities.

Recent highlights

Financials: Data for 2013 were above market expectations. But dividend disappointed. Moreover, the outlook was vague indicating uncertainties.


Strengths

• European market leader in potash fertilizers; world number five

• Number one in salt globally after the acquisition of Morton Salt

• Very focused company, concentrating on mining activities

Opportunities

• Chance to grow volumes in medium term thanks to the Legacy project, offering high margins

• Chance to re-open (currently closed) potash mine in Siegfried-Giesen, Lower Saxony

• Growth opportunities in Latin America due to extensive agricultural business

• Chance to expand towards eastern Europe and Latin America if the Russia/Ukraine crisis escalates and ban is imposed on Russian potash

Weaknesses

• •Dependent on pricing policies of competitors such as Canadian PCS, K+S is a price taker and has to wait until global players set new price levels outside Europe

• Profitability inferior to peers Threats

• Capex and operating costs for the Legacy project in Canada could further rise in the next few years

• Environmental issues in Germany – uncertain outcome of talks with regulatory authorities

Buy (Buy) Target price EUR 27.00 Current price EUR 23.73 Martin Roediger. [email protected] Reuters SDFG.DE Bloomberg SDF GR Index DJ Stoxx 600

Market data


Free float 90%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 3,950.4 3,720.9 3,786.1

EBITDA adj (m) 907.2 713.7 769.8

EBIT adj (m) 655.9 462.3 515.7

Net profit adj (m) 434.8 269.9 307.3

Net fin. debt (m) 321.2 976.4 1,593.7

FCF (m) -0.5 -623.0 -637.0




FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 5.5 7.9 8.1

EV/EBIT (x) 7.6 12.1 12.1

FCF yield 0.0% -13.7% -14.0%



Gearing 8.8% 25.2% 38.6%

ROIC 11.3% 6.8% 6.5%

EV/IC (x) 1.1 1.0 1.0


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Key data

Table 74: Activities related to Green themes (2013)

Theme Biomaterials Waste management and recycling % of sales 52% 2% % of EBIT 80% 2% % of staff 58% 1% % of capex 82% Market share 10% n.a. Market size c. USD30bn n.a. Cluster PotashCorp, Uralkali, Belaruskali, Mosaic,

Agrium n.a.

Source: K+S, Kepler Cheuvreux

Meyer Burger

Switzerland | Capital goods | Renewable Energy



Exposure (80% of sales): Meyer Burger provides complementary technologies along the entire solar value chain, including wafering, cells, modules and integrated solar systems. For the years to come, the firm aims to develop its production line division and its equipment, to provide more integrated and innovative products, as well as technologies in the solar value chain where the company is not yet active

Table 75: Key data on Green activities


Theme Solar energy equipment % of Green sales 80% % of Green EBIT 75% Market share 50% Size of the market EUR670m for 2014 Key competitors Applied Materials, Centrotherm, Komatsu, Schmid

Source: xxx

Our views: There is no doubt the PV market is picking up again, as can be observed from rising prices for wafers, cells and to a lower extent modules as well as the new investment plans of large Meyer Burger customers. However, the magnitude of the capacity increase is highly uncertain. Besides, long-term growth prospects for its solar energy equipment business are questionable given the solar market growth rates needed to sustain any sales increase.


(+) B2B: solar energy equipment. (-) We don't see major environmental issues affecting Meyer Burger, as responsibilities mainly affect their customers.

Recent highlights

Financials: 2013 figures were slightly better than previously guided Meyer Burger still expects negative EBITDA for 2014, which points to sales below the CHF400m previously indicated to be the breakeven level. Meyer Burger says it will be EBITDA breakeven at the earliest in 2015. Short-term, the company remains in trouble. Orders in January and February together amounted to CHF42m.


Strengths

• Asset-light business model: pure assembly

Market leader with an estimated 50% market share in wire saw machines

Integrated solution provider

Opportunities

• Fill gaps in the solar value chain via organic growth or acquisitions to offer an integrated solution (wafer to module)

• Attain cost leadership through lower sourcing costs

Weaknesses

• Supply chain bottlenecks in what is an immature and rapidly growing industry

• Capacity ramp-up is risky and can lead to disruption

Threats

• Raw material shortages (silicone)

• Loss of technology leadership

• Capacity ramp-up is risky and can lead to disruptions

• Further cuts in FiT and a cap on solar

Reduce (Reduce) Target price. CHF 5.50 Current price. CHF 14.05 Christoph Ladner. [email protected] Reuters MBTN.S Bloomberg MBTN SW Index DJ Stoxx 600

Market data

Market cap (CHFm) 1,185

Free float 90%




52-week high (CHF) 18.85

52-week low (CHF) 4.79

FY to 31/12 (CHF) 2013E 2014E 2015E

Sales (m) 225.8 327.4 442.0

EBITDA adj (m) -101.6 -16.4 35.4

EBIT adj (m) -178.4 -104.8 -26.5

Net profit adj (m) -144.8 -106.6 -27.3

Net fin. debt (m) -61.6 -79.7 -70.9

FCF (m) -244.5 -156.7 -129.6

EPS adj. and fully dil. -1.72 -1.26 -0.32

Consensus EPS -2.01 -0.78 -0.13


FY to 31/12 (CHF) 2013E 2014E 2015E


EV/EBITDA (x) na na 31.5

EV/EBIT (x) na na na

FCF yield -20.6% -13.2% -10.9%


Net debt/EBITDA (x) 0.6 4.9 -2.0

Gearing -9.7% -15.2% -14.3%

ROIC -37.1% -29.4% -7.9%

EV/IC (x) 2.9 3.4 3.2


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Naturex

France | Food| Biomass Resources



Exposure (100% of sales): Naturex derives 100% of its revenues from the manufacturing of natural specialty ingredients for the Food & Beverage, Nutrition & Health and Personal Care Industries.

Outlook: Naturex is well placed to benefit from the long-term shift from synthetic to natural ingredients, driven by both defensive (e.g. food & beverage customers) and aggressive strategies (e.g. for personal care). Beyond the extension of its product range (Nutrition, Personal Care, etc.), Naturex is also diversifying further its geographical presence (North America, Emerging markets). Thanks to the underlying trend of its market, success of new products, and commercial network extension, we are confident in the company’s ability to sustain +6-8% organic growth. Adding in margin improvement, we estimate that results could significantly grow. Considering its track record in terms of external growth, we are confident in the accretive impact of future deals (not integrated into our scenario, as they are hard to foresee).


(+) The long-term shift from synthetic to natural ingredients may have positive benefits for the environment. Naturex claims its plants are sourced according to several environmental criteria, including climate change and scarcity risks. We reckon the total proportion of Naturex’s ingredients that can be categorised as organic is nevertheless very low (we estimate they represent a few percentage points of total sales as raw materials are too polluted to be naturally purified).

Recent highlights

Financials: Naturex reported a rebound in organic growth in Q4 2013 despite a high base (+8% in organic growth in FY 2013). In terms of acquisitions, Naturex announced at the end of January the purchase of 51% of Chile Botanicalsfor USD3m in parallel with a capital increase to finance the building of a production site.


Strengths

• Dynamic markets

Sales resilience

High and resilient margins, room to

improve margins

Opportunities

• Diversification in products and

regions

• Regulation changes

• External growth operations

Weaknesses

• Presence in emerging countries

(only 18% of sales)

• High capex programme likely

• High WCR due to inventories

Threats

• Failure in external growth

integration

• Difficulties to find natural products

Buy (Buy) Target price EUR 74.00 Current price EUR 63.50 Claire Deray. [email protected] Reuters NATU.PA Bloomberg NRX FP Index DJ Stoxx 600

Market data


Free float 63%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 320.8 341.4 368.8

EBITDA adj (m) 52.2 62.0 72.8

EBIT adj (m) 34.5 42.2 51.4

Net profit adj (m) 16.9 22.5 29.8

Net fin. debt (m) 150.7 131.6 105.3

FCF (m) -24.4 19.8 27.7




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 11.7 10.2 8.3

EV/EBIT (x) 17.7 14.9 11.7

FCF yield -5.3% 4.0% 5.6%



Gearing 55.1% 44.6% 32.6%

ROIC 5.7% 6.6% 8.0%

EV/IC (x) 1.5 1.5 1.4


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Key data

Table 76: Market sizes and growth

Annual growth

Market size at end of period (USDbn)

Food & beverages 2007-2012 Natural foods 10% Nc With health claim 22% 179 Organic 34% 31

Nutrition & health 2010-2013 Nutraceutical ingredients 6.20% 22 Nutrients and minerals 12.6

Personal care 2010 Europe Natural products 12% 2

Source: Naturex

Table 77:Main competitors by product range

Food & Beverage Nutrition & Health

Company Country Natural colors

Flavoring extracts

Antioxidant Rosemary

extracts

F&V powders and juice

concentrates

Fruit pectins

Extracts with beneficial effects on

health

Chris Hansen Denmark x CPKelco Denmark x Cargill USA x Danisco Denmark x x D.D Williamson USA x Diana Naturals France x Euromed Spain x Finzelberg-Plantextrakt

Germany x

Frutarom Israel x GNT Germany x Indena Indena x Kalsec Kalsec x x Kerry Kerry x Sensient Sensient x Vitiva Vitivia x

Source: Naturex

Oerlikon

Switzerland | Capital goods | Energy Efficiency



Exposure (19% of sales, up to 50% post Metco acquisition): The company's leading technology solutions, components and tools in the materials treatment market enable resources savings. We estimate that three of Oerlikon’s divisions are exposed to Green drivers: 1) Thin-film Coating Vacuum (mainly fuel efficiency in the automotive sector, also systems that enable to increase the lifepsan of materials); 2) Textile (new generation of machines which help achieving meaningful cost and energy savings); 3) Transmissions components for Wind turbines as part of Drive Systems. The details of our estimates are provided in Table 115.

Outlook: With the sale of the natural fibre business, Oerlikon’s exposure to textile machinery has decreased from over 50% of total sales to 36%. Still, textile was up to now the largest division. This will change now with the acquisition of Metco: on our 2014 estimates, textile will drop to 29% and coating will increase from 18% to 35%. Hence, we believe that after the deal is closed Oerlikon could again be perceived more as a technology than a textile machinery company. Metco's acquisition broadens Oerlikon’s coating technology portfolio, with Oerlikon being a PVD specialist and Metco being mainly in thermal spray, and also its end market exposure, opening doors into aviation and power generation.

Impact analysis overview: pros and cons

(+) Energy efficiency savings. (-) Drive Systems are raw materials and energy intenstive activities.

Recent news

Acquisitions: Oerlikon announced the acquisition of Sulzer’s coating division Metco on 31 January, which is expected to be completed in Q3.


Strengths

• Leading technology solutions enable its

customers to achieve decisive

advantages with end users

Opportunities

• Metco’s acquisition (complementary in

terms of technology, market, presence

and business model)

• Above average growth of manmade

fibres versus natural fibres (new

applications, new market segments)

Weaknesses

• Potential margins development in

the textile business

Threats

• Economic development

• Interest rate sensitivity

• Increased competition leading to

unfavourable pricing

Buy (Buy) Target price CHF 18.00 Current price CHF 15.40 Christoph Ladner [email protected] Reuters OERL.S Bloomberg OERL SW Index DJ Stoxx 600

Market data

Market cap (CHFm) 5,091

Free float 52%




52-week high (CHF) 15.40

52-week low (CHF) 9.98

FY to 31/12 (CHF) 2013 2014E 2015E

Sales (m) 2,883.0 2,997.2 3,074.9

EBITDA adj (m) 492.0 520.2 544.7

EBIT adj (m) 426.0 389.2 410.7

Net profit adj (m) 258.0 264.9 271.6

Net fin. debt (m) -986.0 -1,185.5 -1,409.0

FCF (m) 177.0 295.7 324.4




FY to 31/12 (CHF) 2013 2014E 2015E


EV/EBITDA (x) 7.0 8.5 7.7

EV/EBIT (x) 8.1 11.3 10.2

FCF yield 4.4% 5.7% 6.3%



Gearing -47.3% -51.3% -54.8%

ROIC 18.3% 18.5% 18.5%

EV/IC (x) 2.2 2.8 2.6


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ESG research –Oerlikon


Key data

Table 78: Breakdown of activities related to Green drivers pre and post Metco acquisition (our estimates)

Pre Metco acquisition (2013) Post Metco acquisition

Division Thin-film Coating Vacuum Textile Drives Thin-film Coating Vacuum Textile Drives

Division % of Group sales

18% 36% 28% 36% 29% 22%

Automotive (fuel

efficiency)

Systems increasing

materials lifespan

More energy

efficient machines

Wind turbines (transmission components)

Automotive (fuel efficiency)

Systems increasing materials

lifespan

More energy

efficient machines

Wind turbines (transmission components)

Green drivers % of Group sales

9% 9% na 1% 17% 17% 10% 1%

Total % of Green sales

19% 45% (up to 50% once consolidated)


Osram Licht

Germany | Capital goods | Energy Efficiency



Exposure (70% of sales): Osram has a dedicated Environmental Portfolio (EP) that includes its products, systems, solutions and services with the greatest potential for energy savings: LED for general lighting applications, LED for other applications in the visible spectrum, LED for infrared-light emitters and laser diodes, Light management systems etc.

Outlook: Lagging behind in downstream applications. Despite the positive short-term margin trend, we remain cautious about Osram’s margin potential beyond 2015, after the cost savings progamme has been completed, due to negative price and mix developments. Price erosion accelerated during 2013 and is likely to accelerate further. We expect Osram’s revenue mix to weaken over time with a growing share of solid-state lighting sales and the likely commoditization of LEDs. Hence, we continue to expect Osram’s margins to trend down, after peaking in 2015. As regards R&D, we see Osram as one of the leading Lighting companies in terms of innovation.


(+) The use of LEDs in solid state lighting has striking environmental advantages, e.g. 80% less energy consumption vs. incandescent bulbs, no toxic materials included.

Recent news

Strategy update: At the Light + Building fair on 1 April 2014, Osram provided an update on its strategy and Osram Push transformation program. Apart from sales growth (warned comparable sales growth will be even weaker in Q2 than in Q1), financial targets were confirmed. Osram had reported Q1 sales of EUR1,326m (-2% YOY), with comparable sales growth of 2% that was below expectations (KC +3.4%, consensus +2.8%), as much stronger-than-expected growth in specialty lighting (9%) and opto semiconductors (20%) was largely offset by declines in general lighting. Full-year outlook was maintained.


Strengths

• Global leadership positions in lamp and LED manufacturing

Strong lighting brandnames (Osram, Sylvania)

Solid balance sheet with net liquidity of EUR172m at the end of 2013

Opportunities

• Osram Push programme resulting in improved operational excellence and competitiveness

• Expansion of lighting fixtures operations outside Europe

• Closer cooperation between Osram Opto Semiconductors and other

• divisions

• Returning cash to shareholders)

Weaknesses

• Weak position in lighting fixtures

• Weak acquisition track-record

• Over 40% of headcount is located in EMEA

Threats

• Intensifying competition from Asian manufacturers of LED and lamps

• Shift to solid state lighting causing negative mix effects

• Accelerating price erosion

• Regulatory changes can impact the competitive landscape and require changes to the strategy and business model

Reduce (Reduce) Target price EUR 35.50 Current price EUR 44.55 Peter Olofsen [email protected] Reuters OSRn.DE Bloomberg OSR GY Index DJ Stoxx 600

Market data


Free float 81%






FY to 30/09 (EUR) 2013 2014E 2015E

Sales (m) 5,288.7 5,306.0 5,412.8

EBITDA adj (m) 694.7 690.2 720.1

EBIT adj (m) 381.6 430.4 436.1

Net profit adj (m) 27.6 221.3 242.0

Net fin. debt (m) -172.0 -289.2 -375.2

FCF (m) 201.0 67.8 206.5




FY to 30/09 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 4.9 7.3 6.9

EV/EBIT (x) 8.9 11.7 11.4

FCF yield 6.3% 1.4% 4.1%


Net debt/EBITDA (x) 0.3 0.1 -0.1

Gearing -7.9% -12.2% -14.8%

ROIC 13.5% 15.9% 15.5%

EV/IC (x) 1.9 2.6 2.5


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ESG research –Osram Licht


Key data


Cluster Energy efficiency

Theme Efficient Lighting % ofsales 70% (100% expected)

Market share 50%

Size of the market Global lighting market: EUR83bn in 2012 (EUR99bn by 2016; 4.5% CAGR) Key competitors Philips, GE, Cree, Nichia,



Germany | Capital goods | Energy efficiency



Exposure (100% of sales): PFV, a technology company, designs, manufactures and services vacuum pumps and is no. 2 globally. Its core product line, particularly in terms of profitability, is turbo molecular vacuum pumps which acccount for ~30% of sales, here PFV claims to be no. 1 with ~35% global market share. Semiconductor (~39% of sales) is largest end market, followed by Industry (23%), Analytics (17%), R&D (11%) and Coating (10%). We estimate 5% of sales are sold to the solar industry while all its products can be seen as enabling energy savings.

Outlook: The vacuum pump technology industry is a structural (albeit cyclical) growth industry led by a multitude of growth drivers: miniaturisation of electronic devices, Moore's Law, LED/OLED, steel degassing, energy efficiency initiatives and, in the medium term, the commercialisation of lithium-ion batteries, all of which require a higher share of vacuum pump technology. A potential major driver of demand growth in the semi industry (accounting for 37% of the vacuum pumps market) is the pending commercialisation of EUV lithography. As global number two, Pfeiffer Vacuum is well positioned to continue to outpace market growth in the coming years.


(+) Energy efficiency savings and solar equipment.

Recent highlights

Financials: Pfeiffer reported very weak order intake in Q4 2013 (EUR88.5m (-15% sequentially, -9% YOY). Nevertheless, Pfeiffer guided for for higher sales/EBIT margin in 2014


Strengths

• World market leader in turbo pumps with an estimated market share of 30-35% and now technology leader in dry backing pumps.

Second-largest integrated vacuum company globally behind Edwards

Brand name and product reputation with its turbo pumps offering lowest lifecycle costs

Diversified customer base

Opportunities

• Cross-selling potential

• New end-market applications

• Strengthened position in coating

Weaknesses

• Short order book visibility, typically only 2-3 months due to short delivery times for standard products of just 5-7 days

• Close correlation to capital spending cycles in many end-markets (especially semi conductor)

• High margins/ROCE in turbo pump segment may attract more competition

• Adixen has increased the cyclicality of the firm and led to increased earnings volatility and reduction in forward visibility

• Integration risks, potential restructuring costs

Threats

• Company now more cyclical than in the past due to the current high semi share of sales

• FX exposure (USD/YEN)

Hold (Hold) Target price EUR 80.00 Current price EUR 88.50 Craig Abbott [email protected] Reuters PV.DE Bloomberg PFV GY Index DJ Stoxx 600

Market data


Free float 100%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 435.6 472.7 504.5

EBITDA adj (m) 73.1 94.1 101.8

EBIT adj (m) 54.1 74.6 86.2

Net profit adj (m) 36.7 51.7 60.0

Net fin. debt (m) -70.7 -105.4 -131.1

FCF (m) 54.8 62.3 64.5




FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 11.0 8.2 7.3

EV/EBIT (x) 14.9 10.4 8.7

FCF yield 6.3% 7.1% 7.4%



Gearing -23.9% -32.9% -38.4%

ROIC 16.6% 24.5% 28.3%

EV/IC (x) 3.8 3.7 3.6


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TomTom

Netherlands | IT hardware & telco eqpmt | Energy Efficiency



Exposure (10% of sales): TomTom is a leading global supplier of digital maps, traffic Information, navigation software, personal navigation devices (c.45% of sales) and fleet management solutions. The area where they help customers reduce CO2 emissions is in the B2B division called Business Solutions (10% of Group sales), which offers fleet management solutions to logistics and transport companies. Management believes the company has three core assets (map, navigation software, traffic information), with the majority of R&D spending aimed at building a real-time map-making platform.

Outlook: Overall, while we acknowledge that TomTom has some valuable assets, like its map database, guidance suggests 2014 will be the sixth of the last seven years to show lower sales (2010 was an exception). In our view, this shows TomTom’s struggle to monetise its map database while facing a structurally declining PND market. While TomTom is investing significant amounts in its three core assets, it remains to be seen whether this will result in a differentiated offering and market share gains. As we do not expect meaningful market share gains until contract wins have been announced, we believe TomTom is likely to witness continued top-line pressure in 2015.


(+) Reducing GHG car emissions by providing efficient routing (i.e. shorter routes). Independent research institute TNO has shown that the use of TomTom's navigation devices reduces the number of kilometres travelled by 16%, and the amount of travel time by 18%.

Recent highlights

Financials: 2014 guidance called for sales of around EUR900m (-7% YOY) and adjusted EPS of EUR0.20 (-23% YOY), below consensus of EUR924m and EUR0.26. TomTom has guided for capex increasing to EUR100m, of which capitalised R&D represents 70%. Together with R&D expenses directly taken through the P&L, R&D spending will amount to almost EUR250m (>25% of sales).


Strengths

• Market leader in European PND market

• Innovation leader with connected devices as a unique selling point

• Improving position in in-dash navigation

Opportunities

• Low penetration of in-dash market

• Emerging market is opening up for navigation solutions

Weaknesses

• High operational leverage

• Less cash reserves than main

competitor Garmin

Threats

• Free maps on smart phones eat

into potential customer base

• Price competition fierce, putting pressure on margins

Reduce (Reduce) Target price EUR 4.30 Current price EUR 5.02 Peter Olofsen. [email protected] Reuters TOM2.AS Bloomberg TOM2 NA Index DJ Stoxx 600

Market data


Free float 43%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 963.5 901.2 893.0

EBITDA adj (m) 142.5 125.5 138.4

EBIT adj (m) 25.1 13.5 24.4

Net profit adj (m) 57.6 45.2 54.6

Net fin. debt (m) -84.3 -92.1 -153.0

FCF (m) 174.9 7.8 60.8




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 6.2 8.2 7.0

EV/EBIT (x) 35.3 76.5 39.8

FCF yield 18.1% 0.7% 5.5%



Gearing -9.9% -10.6% -17.1%

ROIC 6.3% 3.8% 6.7%

EV/IC (x) 3.3 3.5 3.3


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Umicore

Belgium | Chemicals | Waste & Water



Exposure (57% of sales): 1) Recycling. Umicore is a leader in metal recycling. It is also exposed to the electronics consumer and IT growth mega-trends through its electronic waste recycling business. 2) Green cars: Mainly automative catalysts to reduce carbon emissions (c. 30% of sales).

Outlook: 1) Metal recycling is a strong growth area. Expansion of the Hoboken facility might increase the group’s earnings potential to new records in coming years. The recycling business is very profitable (60% of 2013 EBIT, but with full impact of hike in installed capacity, which was announced in October 2013, only to show in 2017). 2) We further point to increasing electrification of cars as another long-term growth driver. The company has strong positions in mobile emission catalysts, rechargeable battery materials and recycling.


(+) Recycling (e-waste and metal recycling, rare earthers recycling). Green cars.

Recent highlights

1) Umicore is investing in recycling facilities in Belgium, capacities will be increased by 40%. The new capacity should be fully operational in summer 2016. 2) New diesel legislation becoming effective in 2014.


Strengths

• Leading market positions and strong

technology positions

Strategy well-aligned with long-term

global growth trends

Ability to offer customers a closed

loop approach by offering materials

that Umicore can recycle

Solid balance sheet

Opportunities

• Expansion of recycling facility in

Hoboken, Belgium

• Upside to metal prices due to global

demand growth and supply

constraints

• Tighter emission legislation and

better enforcement in China

• Potential participation in Tesla's

gigafactory project

Weaknesses

• Earnings, particularly in recycling,

are quite sensitive to metal prices;

in many cases hedging is not

possible

• Supply and demand in key growth

areas are dependent on regulation

Threats

• Competitors increasing their

recycling capacities and enhancing

their recycling capabilities

• A persistent downward trend in

metal prices

• Large drop in share of diesel cars in

European car sales

• Electric vehicles failing to grow

their share of global car sales

• Competitive chemistries (other

than NMC) becoming the standard

for EV batteries

Hold (Hold) Target price EUR 36.50 Current price EUR 37.90

Peter Olofsen. [email protected] Reuters UMI.BR Bloomberg UMI BB Index DJ Stoxx 600

Reuters UMI.BR Bloomberg UMI BB Index DJ Stoxx 600

Market data


Free float 72%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 2,390.0 2,523.7 2,699.8

EBITDA adj (m) 462.6 461.9 517.0

EBIT adj (m) 304.0 291.9 336.0

Net profit adj (m) 218.0 200.8 226.6

Net fin. debt (m) 215.0 182.3 152.0

FCF (m) 207.0 218.0 155.7




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 9.5 9.8 8.7

EV/EBIT (x) 14.4 15.5 13.4

FCF yield 5.3% 5.3% 3.8%



Gearing 12.5% 10.4% 8.1%

ROIC 12.2% 11.7% 12.7%

EV/IC (x) 2.3 2.4 2.2


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Key data


Cluster Eco product & services Theme Recycling % of sales 2013 57% % of sales (2016E) 65%

Source: Kepler Cheuvreux, Umicore

Table 81: Breakdown of Green segments

1) Recycling 2) Green cars

% of sales (2013) 25% 32%

% of sales (2016E) 25% 40% % of EBIT 60% na EBIT margin 34% na % of Capex related to each theme 30% 50% % of R&D budget related to each theme 13% 60%

Source: Kepler Cheuvreux, Umicore

Verbund

Austria | Utilities | Renewable energy



Exposure (89% of electricity generation): One of Europe's largest hydropower generators (Austria's largest), also owner of Austria's transmission network. 89% of 2013 electricity generated came from RNW, overwhelmingly Hydropower as the exposure to wind/solar power is very small.

Outlook: No other utility is quite as exposed to central European power markets, which we forecast (for the sixth year in a row) to fall. Political support isn’t a prospect either for Verbund, given the competiveness of its fleet. Legacy investments brought additional burdens, and the grid is set to suffer from clawbacks and the slow remuneration of higher balancing costs. Long-term business prospects will depend on: 1) the price curve that we expect to decline; 2) Hydrological conditions that we assume to remain normal. In the next decades, we foresee Verbund’s level of hydro power generation to stabilize and thermal power to fall.


(+) RNW energy generation.

(-) Thermal electricity (essentially coal). Biodiversity affectation, question on methane released by the dams

Recent highlights

Financials: Adjusted FY 2013 results (EBIT/net income) were below forecasts. The2014 outlook is weak: partly underlying, partly one-offs. Power markets keep moving alongside our forecast (down).


Strengths

• Clean producer of electricity, No exposure toCO2 costs

• Low replacement capex needs given long lifespan of hydro plants

• Comfortable dividend coverage from free cash flow

Opportunities

• Rising electricity prices following Germany's exit from nuclear energy Rising CO2 prices – relatively speaking, Verbund would be among the biggest beneficiaries in the utilities sector

Weaknesses

• Majority share held by Austrian government, leading to low free float

• Past investments generate low profitability and have distorted capital returns

• Significant leverage despite capital increase in 2010

Threats

• Economic slowdown, which would lead to a decline in commodity and power prices

• Further unprofitable expansion, especially outside Austria and Germany

• •Long period of drought

Reduce (Reduce) Target price EUR 11.00 Current price EUR 15.10

Ingo Becker, CFA [email protected] Reuters VERB.VI Bloomberg VER AV Index DJ Stoxx 600

Market data


Free float 19%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 3,181.7 2,793.4 2,689.2

EBITDA adj (m) 1,260.8 878.4 863.9

EBIT adj (m) 498.4 530.8 521.9

Net profit adj (m) 591.3 172.1 201.9

Net fin. debt (m) 3,930.5 4,070.4 3,944.6

FCF (m) 277.3 240.4 264.1




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 7.8 11.0 11.1

EV/EBIT (x) 19.8 18.3 18.4

FCF yield 3.8% 3.3% 3.8%



Gearing 70.9% 75.3% 71.3%

ROIC 3.6% 3.6% 3.6%

EV/IC (x) 0.9 0.9 0.9


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ESG research –Verbund


Key data

Table 82: Verbund – electricity generation (GWh)

2012 2013 2014E

Hydropower generation (including purchase rights) 30.5 30.9 28.8 Thermal power generation 4.5 4.031 na Wind/solar power 242 565 na


Table 83: Key environmental data

2010 2011 2012

Carbon intensity (tCO2e/GWh) 127 151 118 Emissions avoided with renewable generation (kt) 21,724 19,718 24,890


Table 84: Growth capex 2014–2018

Destination Investment volume (EURm)

Details

Hydropower 370 430 MW1 pumped storage power plant Reißeck II (COD: 2014) New construction of run of river power plant Töging in Germany (additional capacity of 25 MW (COD: 2018) Efficiency increase measures EUR125m (part of maintenance ca pex) Additional 69 MW, 89 GWh Further project pipeline: 480 MW Limberg III, 89 MW Inn joint power plant, etc.)

Wind power 45 36 MW in Austria (COD: 2014) 21 MW in Austria (COD: 2015))

Grid 1,090 Projects based on grid development plan

Source: Verbund

Table 85: Electricity sales volume and own use (GWh)

2012 2013 Change

Consumers 9,568 10,093 5.50% Resellers 20,506 21,601 5.30% Traders 17,409 18,583 6.70% Group sales 47,483 50,276 5.90% Own use 2,457 2,685 9.30% Balancing energy volumes 459 627 36.70% Electricity sales volume and own use 50,398 53,589 6.30%

Source: Verbund

Vossloh

Germany | Capital goods | Alternative Energy & Transport



Exposure (100% of sales): A rail tech company with sales of ~EUR1.3bn and market leading positions in its core businesses. It is structured into two divisions. Rail Infrastruture (60% sales/70% EBIT) which consists of Fastening Systems (no. 1 globally), Switch Systems (global no.2) and Transportation (30% of EBIT).

Outlook: Despite major headwinds in 2012-13, Vossloh has strengthened its global positioning in Rail Infrastructure. While we do not expect a full return to peak profitability, we do foresee a significant recovery in earnings/ROCE in 2014-16, as low-margin projects in Transportation (homologation-related delays) are worked off, and margins improve in switch systems (capacity reductions/modest growth) and rail services. Thematically, the rail tech industry will remain a steady, albeit modest growth industry, due to secular demand drivers CO2 emission targets, urbanisation and mobility (congestion reduction) with average annual growth of 3.3% forecast by SCI Verkehr through 2017.



Recent highlights

ESG issues to watch (governance): In mid-February, Vossloh announced a complete change of the management board, to take effect this spring. The incoming board brings significant experience, particularly in the rail industry. In contrast to the recent past, the executive board will now consist of three members (instead of two) and will also include a CEO (previously the CEO and CFO roles were combined). We are confident that the new management team is coming on board with a clear mandate to significantly improve earnings and growth and that, whatever the new management’s strategic plan, it is likely to be value-creative for shareholders, although there is a near-term risk that a ‘clean-up’ could lead to some kitchen-sinking in 2014.


Strengths

• No. 1 globally with ~35% market share in high-margin rail fasteners; no.2 globally in switching technology; no.1 globally in electrical systems for trolley buses/trams.

• Balance sheet effectively degeared, raising scope for acquisitions or dividend increases

Opportunities

• Acquisitions in related niche product segments (switches, components).

• Increasingly global presence could enable Vossloh to benefit from growth in rail infrastructure investments.

• Margin enhancement in Transportation via vertical integration

Weaknesses

• Project risk. • An estimated 40% of sales are

related to the freight sector, which is significantly more cyclical than the passenger sector.

Threats

• Price pressure from budget constraints at national rail operators.

• Material cost volatility (i.e. steel).

• Increasing competition in high margin fasteners, and switches, especially in Europe.

• Chinese high-rail spending may not return to previous levels

Buy (Reduce) Target price EUR 82.00 Current price EUR 71.18 Craig Abbott [email protected] Reuters VOSG.DE Bloomberg VOS GY Index DJ Stoxx 600

Market data


Free float 63%






FY to 31/12 (EUR) 2013 2014E 2015E

Sales (m) 1,321.2 1,480.0 1,580.1

EBITDA adj (m) 94.4 130.5 158.5

EBIT adj (m) 54.3 89.1 116.0

Net profit adj (m) 15.1 49.1 66.2

Net fin. debt (m) 201.2 200.7 149.6

FCF (m) 43.3 7.2 64.4




FY to 31/12 (EUR) 2013 2014E 2015E


EV/EBITDA (x) 13.0 9.9 7.7

EV/EBIT (x) 22.7 14.4 10.5

FCF yield 4.9% 0.8% 6.8%



Gearing 41.0% 37.2% 25.0%

ROIC 4.5% 7.8% 9.0%

EV/IC (x) 1.6 1.4 1.3


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Wienerberger

Austria | Construction & materials | Energy efficiency



Exposure (25% of sales): Wienerberger’s innovative products and system solutions for bricks (clay blocks, roof tiles, facing bricks) help to reduce energy costs and CO2 emissions e.g. its high thermal insulating clay blocks filled with mineral wool or perlite already meet all EU requirements for 2020. The company targets to increase the share of revenues from innovative/sustainable products to 30% in 2015 (currently 25%). In terms of affordability (access to housing), the company generates c. 30% of its revenues in eastern Europe, where it faces a rather competitive environment. As a result, the company pursues a proactive pricing policy in order to increase sales volumes/gain market share.

Outlook: At our recent Conference, the CFO emphasised that residential housing markets in Benelux, France (c. 30% of group) and eastern Europe (28%) are likely to remain challenging in 2014, while Germany and the UK (20% of group) could do better. We are aligned with consensus for 2014 and acknowledge that the trough in earnings has most likely been reached. Nevertheless, from a top-down perspective we remain sceptical about the sustainability of the European/US housing recovery and therefore see downside to rather optimistic long-term consensus estimates (>60% EBITDA growth in 2013-17E).


(+) Reduction of energy consumption and therefore GHG emissions.

(-) Energy consumption for production.

Recent highlights

Financials: After the implementation of several restructuring measures in response to the 2008-09 market meltdown, management repeatedly stressed the material earnings upside in normalised markets given the company’s operational leverage, leaner cost base and stronger remodelling exposure. This, together with hopes for an imminent housing recovery in Europe triggered a share price rally, which we consider unjustified.


Strengths

• Leading market positions in clay products and plastic pipes

• Diversified product portfolio

• Leaner cost structure

Opportunities

• Sustainable housing recovery in Europe/US to trigger demand for energy-efficient solutions

• Catch-up demand potential in sewage/rainwater/fresh water supply management systems and rising demand for utility services in eastern Europe to increase demand for pipe systems/solutions.

Weaknesses

• Strong dependency on European residential construction market (>90% of group)

• High operating leverage (50% fixed costs) weighs in times of lower utilisation rates

Threats

• Resurgence of debt crisis in Europe/US to affect consumer confidence (drives residential)

• Austerity measures to weigh on public sector spending

• Substitute products

Reduce (Reduce) Target price EUR 10.50 Current price EUR 13.93 Stephan Trubrich [email protected] Reuters WBSV.VI Bloomberg WIE AV Index DJ Stoxx 600

Market data


Free float 100%






FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 2,685.3 2,740.7 2,850.7

EBITDA adj (m) 260.2 308.8 341.4

EBIT adj (m) 50.2 101.8 138.4

Net profit adj (m) -42.5 10.8 46.1

Net fin. debt (m) 552.6 471.2 376.8

FCF (m) 94.6 126.7 143.2

EPS adj. and fully dil. -0.37 0.09 0.40



FY to 31/12 (EUR) 2013E 2014E 2015E


EV/EBITDA (x) 10.6 8.7 7.6

EV/EBIT (x) 55.0 26.4 18.8

FCF yield 2.8% 4.9% 5.9%



Gearing 24.0% 20.4% 16.2%

ROIC 1.3% 2.8% 4.0%

EV/IC (x) 1.0 1.0 1.0


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ESG research –Wienerberger


Key data


Cluster Energy efficiency.

Theme Buildings insulation: % of sales (2013) 25% % of sales (2016E) 30% Market share leading player >10% Size of the market EUR86bn


Zumtobel

Austria | Construction & materials | Energy Efficiency



Exposure (50% of sales): Zumtobel provides complete professional lighting solutions, luminaires, lighting management and lighting components for indoor and outdoor applications. The group's include Thorn and Zumtobel (professional lighting solutions) and Tridonic (lighting components, modules and systems). Both divisions are also active in LED lighting.

Outlook: The company’s new medium-term guidance unveiled on 2 April looks ambitious, but achievable in a supportive industry environment. Secular trends (energy efficiency, LED) will be key drivers. Management did not give details of price/volume/mix effects in its revenue guidance, but we reckon that the positive price effect of LED luminaires (c. 25% price premium versus conventional, share of LED sales forecast at 45% in 2016/17 vs. 33%) could offset the 3-4% annual price erosion in conventional luminaires. In terms of innovation, the focus will be on LED efficiency/optics, system architecture, sensor technology and controls. Due to a higher share of software content, the group’s R&D expenditure will increase by 50bps to 5.5-6% annually (KECH 6%, below gross profit line in P&L).


(+) The use of LEDs in solid state lighting has striking environmental advantages.

Recent highlights

Strategy/mid-term goals were announced at CMD on 2 April.


Strengths

• Longstanding/ well established direct sales network

• Strong market shares in D/A/CH

• Application expertise / strong IP position

• Broad product portfolio (indoor/outdoor)

• Covers major parts of lighting value chain

Opportunities

• Exploit synergy potential by combining production & distribution of brands

• Increase economies of scale in order to offset price pressure

• Higher demand for customised solutions, particularly in premium segment

• Transition to LED, lighting controls and energy efficiency as main growth drivers

Weaknesses

• Strong local competition due to fragmented market structure

• Dependence on non-residential construction market

• Low & volatile margins of Thorn brand

• Untapped synergies (both revenue & cost) due to lacking cooperation between brands

• Low capacity utilisation at production facilities

Threats

• FX-risk (USD, GBP, AUD)

• Low growth expectations for Europe and NA due to weak non-residential construction activity

• Increasing commoditisation/standardization

• Increasing competition (forward integration of competitors) and price pressure

• Globalisation in commodity/budget /performance segment

• Technology shift (LED) requires higher R&D • Shorter innovation cycles

Hold (Hold) Target price EUR 11.00 Current price EUR 17.93 Stephan Trubrich [email protected] Reuters ZUMV.VI Bloomberg ZAG AV Index DJ Stoxx 600

Market data


Free float 65%






FY to 30/04 (EUR) 2012 2013E 2014E

Sales (m) 1,243.6 1,227.0 1,237.8

EBITDA adj (m) 93.5 109.5 111.1

EBIT adj (m) 35.7 50.6 51.7

Net profit adj (m) 17.6 29.8 33.3

Net fin. debt (m) 114.2 91.9 76.2

FCF (m) 43.8 26.0 20.6




FY to 30/04 (EUR) 2012 2013E 2014E


EV/EBITDA (x) 10.9 9.2 8.9

EV/EBIT (x) 28.6 19.8 19.2

FCF yield 5.6% 3.4% 2.7%



Gearing 32.0% 24.7% 19.1%

ROIC 5.2% 7.7% 7.8%

EV/IC (x) 1.9 1.9 1.8


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Key data

Table 87: Key data on Green activities Cluster Energy efficiency Theme Efficient Lighting % of sales (2013) 50% % of green sales (2016E) 60% % of EBIT 40% EBIT margin 5% % capex 0.5% % of R&D 80% Market share 4% globally; ~10% in Europe

Size of the market Global lighting market: EUR83bn in 2012 (EUR99bn by 2016; 4.5%

CAGR) Key competitors Philips, Osram, Siteco


ESG research


Research ratings and important disclosures Disclosure checklist - Potential conflict of interests Stock ISIN Disclosure (See Below) Currency Price

A2A IT0001233417 nothing to disclose EUR 0.87

Aalberts NL0000852564 nothing to disclose EUR 24.44

ABB CH0012221716 nothing to disclose CHF 22.73

Acciona ES0125220311 nothing to disclose EUR 57.81

ACEA IT0001207098 nothing to disclose EUR 10.65

Air Liquide FR0000120073 nothing to disclose EUR 98.74

Aixtron DE000A0WMPJ6 nothing to disclose EUR 11.48

Albioma FR000060402 nothing to disclose EUR 19.55

Alerion IT0004720733 nothing to disclose EUR 3.82

Alfa Laval SE0000695876 nothing to disclose SEK 178.10

Alstom FR0010220475 nothing to disclose EUR 22.59

Andritz AT0000730007 nothing to disclose EUR 43.66

Ansaldo STS IT0003977540 nothing to disclose EUR 7.54

Arcadis NL0006237562 nothing to disclose EUR 26.44

Blue Solutions FR0011592104 15, 17, 19 EUR 25.36

Bureau Veritas FR0006174348 nothing to disclose EUR 22.16

CAF ES0121975017 nothing to disclose EUR 374.30

EDP Renovaveis ES0127797019 nothing to disclose EUR 4.75

ElringKlinger DE0007856023 nothing to disclose EUR 28.65

Ence ES0130625512 nothing to disclose EUR 2.15

ENEL Green Power IT0004618465 nothing to disclose EUR 2.04

ERG IT0001157020 nothing to disclose EUR 11.98

Eurofins FR0000038259 nothing to disclose EUR 201.90

Falck Renewables IT0003198790 nothing to disclose EUR 1.40

FCC ES0122060314 nothing to disclose EUR 15.43

Gamesa ES0143416115 nothing to disclose EUR 7.13

Geberit CH0030170408 nothing to disclose CHF 280.30

Grontmij NL0010200358 nothing to disclose EUR 3.53

Groupe Eurotunnel FR0010533075 nothing to disclose EUR 9.29

HERA IT0001250932 14, 16, 18 EUR 2.14

Holmen SE0000109290 nothing to disclose SEK 224.00

Iberdrola ES0144580Y14 nothing to disclose EUR 4.85

Imtech NL0006055329 nothing to disclose EUR 1.49

Intertek GB0031638363 nothing to disclose GBP 2,923.00

IREN IT0003027817 nothing to disclose EUR 1.26

K + S DE000KSAG888 nothing to disclose EUR 23.30

Linde DE0006483001 nothing to disclose EUR 142.85

Meyer Burger CH0108503795 nothing to disclose CHF 10.90

Naturex FR0000054694 8 EUR 63.80

Novozymes DK0060336014 nothing to disclose DKK 240.40

Oerlikon CH0000816824 nothing to disclose CHF 14.30

Osram Licht DE000LED4000 nothing to disclose EUR 44.04

Pfeiffer Vacuum Technology DE0006916604 nothing to disclose EUR 82.04

Philips NL0000009538 nothing to disclose EUR 24.94

Saint-Gobain FR0000125007 nothing to disclose EUR 44.10

SCA SE0000112724 nothing to disclose SEK 181.50

Schneider Electric FR0000121972 nothing to disclose EUR 65.78

SGS CH0002497458 nothing to disclose CHF 2,154.00

Siemens DE0007236101 nothing to disclose EUR 97.42

Stora Enso FI0009005961 nothing to disclose EUR 7.50

Suez Environnement FR0010613471 nothing to disclose EUR 14.62

TomTom NL0000387058 nothing to disclose EUR 4.61

Umicore BE0003884047 nothing to disclose EUR 37.62

UPM FI0009005987 6 EUR 11.51

Veolia Environnement FR0000124141 nothing to disclose EUR 14.35

Verbund AT0000746409 nothing to disclose EUR 14.21

Vossloh DE0007667107 nothing to disclose EUR 73.00

Wienerberger AT0000831706 nothing to disclose EUR 13.37

Zumtobel AT0000837307 nothing to disclose EUR 15.83

Source: Factset closing prices of 21/04/2014 Stock prices: Prices are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated.

ESG research


Key:

Kepler Capital Markets SA (KCM) holds or owns or controls 100% of the issued shares of Crédit Agricole Cheuvreux SA (CA Cheuvreux), collectively hereafter KEPLER CHEUVREUX .

1. KEPLER CHEUVREUX holds or owns or controls 5% or more of the issued share capital of this company; 2. The company holds or owns or controls 5% or more of the issued share capital of Kepler Capital Markets SA; 3. KEPLER CHEUVREUX is or may be regularly carrying out proprietary trading in equity securities of this company; 4. KEPLER CHEUVREUX has been lead manager or co-lead manager in a public offering of the issuer’s financial instruments during the last twelve months; 5. KEPLER CHEUVREUX is a market maker in the issuer’s financial instruments; 6. KEPLER CHEUVREUX is a liquidity provider in relation to price stabilisation activities for the issuer to provide liquidity in such instruments; 7. KEPLER CHEUVREUX acts as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company; 8. KEPLER CHEUVREUX and the issuer have agreed that KEPLER CHEUVREUX will produce and disseminate investment research on the said issuer as a service to the issuer; 9. KEPLER CHEUVREUX has received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months; 10. KEPLER CHEUVREUX may expect to receive or intend to seek compensation for investment banking services from this company in the next three months; 11. The author of, or an individual who assisted in the preparation of, this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company; 12. An employee of KEPLER CHEUVREUX serves on the board of directors of this company; 13. As at the end of the month immediately preceding the date of publication of the research report Kepler Capital Markets, Inc. beneficially owned 1% or more of a class of common equity securities of the subject company; 14. KEPLER CHEUVREUX and UniCredit Bank AG have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG received consideration or a promise of consideration. Separately, through the Co-operation Agreement with UniCredit Bank AG for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX also received consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 15. KEPLER CHEUVREUX and Crédit Agricole Corporate & Investment Bank (“CACIB”) have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. CACIB provides investment banking services to this issuer in return for which CACIB received consideration or a promise of consideration. Separately, through the Co-operation Agreement with CACIB for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX also received consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 16. UniCredit Bank AG holds or owns or controls 5% or more of the issued share capital of KEPLER CAPITAL MARKETS SA. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG received consideration or a promise of consideration; 17. CACIB holds or owns or controls 15% of more of the issued share capital of KEPLER CAPITAL MARKETS SA. CACIB provides investment banking services to this issuer in return for which CACIB received consideration or a promise of consideration; 18. An employee of UniCredit Bank AG serves on the board of directors of KEPLER CAPITAL MARKETS SA; 19. Two employees of CACIB serve on the board of directors of KEPLER CAPITAL MARKETS SA. CACIB provides investment banking services to this issuer in return for which CACIB received consideration or a p romise of consideration; 20. The services provided by KEPLER CHEUVREUX are provided by Kepler Equities S.A.S., a wholly-owned subsidiary of KEPLER CAPITAL MARKETS SA.

We did not disclose the rating to the issuer before publication and dissemination of this document.

Rating ratio Kepler Cheuvreux Q4 2013 Rating breakdown A B Buy 45.5% 0.0% Hold 29.0% 0.0% Reduce 21.0% 0.0% Not Rated/Under Review/Accept Offer 5.5% 0.0% Total 100.0% 0.0% Source: Kepler Cheuvreux A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied

From 9 May 2006, KEPLER CHEUVREUX’s rating system consists of three ratings: Buy, Hold and Reduce. For a Buy rating, the minimum expected upside is 10% in absolute terms over 12 months. For a Hold rating the expected upside is below 10% in absolute terms. A Reduce rating is applied when there is expected downside on the stock. Target prices are set on all stocks under coverage, based on a 12-month view. Equity ratings and valuations are issued in absolute terms, not relative to any given benchmark.

Analyst disclosures The functional job title of the person(s) responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover.

Name of the Equity Research Analyst(s): Samuel Mary, Andre Mulder, Bernd Laux, Christoph Ladner, Claire Deray, Claudia Introvigne, Craig Abbott, David Cerdan, Enrico Coco, Hans-Joachim Heimbuerger, Ingo Becker, CFA, Inigo Egusquiza, Javier Campos Clavero, Joakim Hoglund, Joaquin Ferrer, CFA, Jose Porta, Josep Pujal, Markus Mayer, Martin Flueckiger, Martin Roediger, Michael Raab, CFA, Nabil Ahmed, Patrick Jnglin, CFA, Peter Olofsen, Pierre Boucheny, Richard Koch, Stephan Trubrich, Thomas Neuhold, CFA, Xavier Caroen

Regulation AC - Analyst Certification: Each Equity Research Analyst(s) listed on the front-page of this report, principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the equity research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each Equity Research Analyst(s) also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that equity research analyst in this research report.

Each Equity Research Analyst certifies that he is acting independently and impartially from KEPLER CHEUVREUX shareholders, directors and is not affected by any current or potential conflict of interest that may arise from any KEPLER CHEUVREUX activities.

Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst’s(s’) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst(s) in the research report. The research analyst’s(s’) compensation is, however, determined by the overall economic performance of KEPLER CHEUVREUX.

Registration of non-US analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of KEPLER CHEUVREUX, which is a non-US affiliate and parent company of Kepler Capital Markets, Inc. a SEC registered and FINRA member broker-dealer. Equity Research Analysts employed by KEPLER CHEUVREUX, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of Kepler Capital Markets, Inc. and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

Please refer to www.keplercheuvreux.com for further information relating to research and conflict of interest management.

ESG research


Regulators Location Regulator Abbreviation

Kepler Capital Markets S.A - France Autorité des Marchés Financiers AMF

Kepler Capital Markets, Sucursal en España Comisión Nacional del Mercado de Valores CNMV

Kepler Capital Markets, Frankfurt branch Bundesanstalt für Finanzdienstleistungsaufsicht BaFin

Kepler Capital Markets, Milan branch Commissione Nazionale per le Società e la Borsa CONSOB

Kepler Capital Markets, Amsterdam branch Autoriteit Financiële Markten AFM

Kepler Capital Markets, Zurich branch Swiss Financial Market Supervisory Authority FINMA

Kepler Capital Markets, Inc. Financial Industry Regulatory Authority FINRA

Kepler Capital Markets, London branch Financial Conduct Authority FCA

Kepler Capital Markets, Vienna branch Austrian Financial Services Authority FMA

Crédit Agricole Cheuvreux, SA - France Autorité des Marchés Financiers AMF

Crédit Agricole Cheuvreux España S.V Comisión Nacional del Mercado de Valores CNMV

Crédit Agricole Cheuvreux Niederlassung Deutschland Bundesanstalt für Finanzdienstleistungsaufsicht BaFin

Crédit Agricole Cheuvreux S.A., branch di Milano Commissione Nazionale per le Società e la Borsa CONSOB

Crédit Agricole Cheuvreux Amsterdam Autoriteit Financiële Markten AFM

Crédit Agricole Cheuvreux Zurich Branch Swiss Financial Market Supervisory Authority FINMA

Crédit Agricole Cheuvreux North America, Inc. Financial Industry Regulatory Authority FINRA

Crédit Agricole Cheuvreux International Limited Financial Conduct Authority FCA

Crédit Agricole Cheuvreux Nordic AB Finansinspektionen FI

Kepler Capital Markets S.A and Crédit Agricole Cheuvreux SA, are authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers.

For further information relating to research recommendations and conflict of interest management please refer to www.keplercheuvreux.com..

ESG research


Legal and disclosure information Other disclosures

This product is not for retail clients or private individuals.

The information contained in this publication was obtained from various publicly available sources believed to be reliable, but has not been independently verified by KEPLER CHEUVREUX. KEPLER CHEUVREUX does not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law.

This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information may be available on request. This report may not be reproduced for further publication unless the source is quoted.

This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of any securities, or for engaging in any other transaction. This publication is not for private individuals.

Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise. They reflect only the current views of the author at the date of this report and are subject to change without notice. KEPLER CHEUVREUX has no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of KEPLER CHEUVREUX.

The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and KEPLER CHEUVREUX accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realise such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk.

To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this publication or its contents.

KEPLER CHEUVREUX (and its affiliates) have implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business, which are available upon request. The KEPLER CHEUVREUX research analysts and other staff involved in issuing and disseminating research reports operate independently of KEPLER CHEUVREUX Investment Banking business. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of KEPLER CHEUVREUX or clients to ensure that price sensitive information is handled according to applicable laws and regulations.

Country and region disclosures

United Kingdom: This document is for persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restriction in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Articles 19(5) (Investment professionals) and 49(2) (High net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Any investment to which this document relates is available only to such persons, and other classes of person should not rely on this document.

United States: This communication is only intended for, and will only be distributed to, persons residing in any jurisdictions where such distribution or availability would not be contrary to local law or regulation. This communication must not be acted upon or relied on by persons in any jurisdiction other than in accordance with local law or regulation and where such person is an investment professional with the requisite sophistication to understand an investment in such securities of the type communicated and assume the risks associated therewith.

This communication is confidential and is intended solely for the addressee. It is not to be forwarded to any other person or copied without the permission of the sender. This communication is provided for information only. It is not a personal recommendation or an offer to sell or a solicitation to buy the securities mentioned. Investors should obtain independent professional advice before making an investment.

Notice to U.S. Investors: This material is not for distribution in the United States, except to “major US institutional investors” as defined in SEC Rule 15a-6 ("Rule 15a-6"). Kepler Cheuvreux refers to Kepler Capital Markets, Société anonyme (S.A.) (“Kepler Capital Markets SA”) and its affiliates, including CA Cheuvreux, Société Anonyme (S.A.). Kepler Capital Markets SA has entered into a 15a-6 Agreement with Kepler Capital Markets, Inc. ("KCM, Inc.”) which enables this report to be furnished to certain U.S. recipients in reliance on Rule 15a-6 through KCM, Inc.

Each U.S. recipient of this report represents and agrees, by virtue of its acceptance thereof, that it is a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of KCM, Inc.

KCM, Inc. is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) under the U.S. Securities Exchange Act of 1934, as amended, Member of the Financial Industry Regulatory Authority (“FINRA”) and Member of the Securities Investor Protection Corporation (“SIPC”). Pursuant to SEC Rule 15a-6, you must contact a Registered Representative of KCM, Inc. if you are seeking to execute a transaction in the securities discussed in this report. You can reach KCM, Inc. at 600 Lexington Avenue, New York, NY 10022, Compliance Department (212) 710-7625; Operations Department (212) 710-7606; Trading Desk (212) 710-7602. Further information is also available at www.keplercapitalmarkets.com. You may obtain information about SIPC, including the SIPC brochure, by contacting SIPC directly at 202-371-8300; website: http://www.sipc.org/

KCM, Inc. is a wholly owned subsidiary of Kepler Capital Markets SA. Kepler Capital Markets SA, registered on the Paris Register of Companies with the number 413 064 841 (1997 B 10253), whose registered office is located at 112 avenue Kléber, 75016 Paris, is authorised and regulated by both Autorité de Contrôle Prudentiel (ACP) and Autorité des Marchés Financiers (AMF).

Nothing herein excludes or restricts any duty or liability to a customer that KCM, Inc. may have under applicable law. Investment products provided by or through KCM, Inc. are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution, may lose value and are not guaranteed by the entity that published the research as disclosed on the front page and are not guaranteed by KCM, Inc.

Investing in non-U.S. Securities may entail certain risks. The securities referred to in this report and non-U.S. issuers may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Rule 144A securities may

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be offered or sold only to persons in the U.S. who are Qualified Institutional Buyers within the meaning of Rule 144A under the Securities Act. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Securities discussed herein may be rated below investment grade and should therefore only be considered for inclusion in accounts qualified for speculative investment.

Analysts employed by Kepler Capital Markets SA, a non-U.S. broker-dealer, are not required to take the FINRA analyst exam. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position.

In jurisdictions where KCM, Inc. is not registered or licensed to trade in securities, or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements.

The information in this publication is based on sources believed to be reliable, but KCM, Inc. does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author's judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice.

KCM, Inc. and/or its affiliates may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance.

KCM, Inc. and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company's actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company's products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement.

France: This publication is issued and distributed in accordance with Articles L.544-1 and seq and R. 621-30-1 of the Code Monétaire et Financier and with Articles 313-25 to 313-27 and 315-1 and seq of the General Regulation of the Autorité des Marchés Financiers (AMF).

Germany: This report must not be distributed to persons who are retail clients in the meaning of Sec. 31a para. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”). This report may be amended, supplemented or updated in such manner and as frequently as the author deems.

Italy: This document is issued by Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano, authorised in France by the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel (ACP) and registered in Italy by the Commissione Nazionale per le Società e la Borsa (CONSOB) and is distributed by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.), authorised in France by the AMF and the ACP and registered in Italy by CONSOB. This document is for Eligible Counterparties or Professional Clients only as defined by the CONSOB Regulation 16190/2007 (art. 26 and art. 58).Other classes of persons should not rely on this document. Reports on issuers of financial instruments listed by Article 180, paragraph 1, letter a) of the Italian Consolidated Act on Financial Services (Legislative Decree No. 58 of 24/2/1998, as am ended from time to time) must comply with the requirements envisaged by articles 69 to 69-novies of CONSOB Regulation 11971/1999. According to these provisions Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)warns on the significant interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)indicated in Annex 1 hereof, confirms that there are not significant financial interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the securities object of this report as well as other circumstance or relationship with the issuer of the securities object of this report (including but not limited to conflict of interest, significant shareholdings held in or by the issuer and other significant interests held by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)or other entities controlling or subject to control by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the issuer which may affect the impartiality of this document]. Equities discussed herein are covered on a continuous basis with regular reports at results release. Reports are released on the date shown on cover and distributed via print and email. Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano analysts are not affiliated with any professional groups or organisations. All estimates are by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) unless otherwise stated.

Spain: This document is only intended for persons who are Eligible Counterparties or Professional Clients within the meaning of Article 78bis and Article 78ter of the Spanish Securities Market Act. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This report has been issued by Kepler Capital Markets, Sucursal en España and Crédit Agricole Cheuvreux España S.V, registered in Spain by the Comisión Nacional del Mercado de Valores (CNMV) in the foreign investments firms registry and it has been distributed in Spain by it or by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers. There is no obligation to either register or file any report or any supplemental documentation or information with the CNMV. In accordance with the Spanish Securities Market Law (Ley del Mercado de Valores), there is no need for the CNMV to verify, authorise or carry out a compliance review of this document or related documentation, and no information needs to be provided.

Switzerland: This publication is intended to be distributed to professional investors in circumstances such that there is no public offer. This publication does not constitute a prospectus within the meaning of Articles 652a and 1156 of the Swiss Code of Obligations.

Canada: The information provided in this publication is not intended to be distributed or circulated in any manner in Canada and therefore should not be construed as any kind of financial recommendation or advice provided within the meaning of Canadian securities laws.

Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly.

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Amsterdam Kepler Cheuvreux Benelux Johannes Vermeerstraat 9 1071 DK Amsterdam

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North America Boston Kepler Capital Markets, Inc 225 Franklin Street, Floor 26 Boston, MA 02110

+1 617-217-2615

New York Kepler Capital Markets, Inc. 600 Lexington Avenue, Floor 28 10022 New York, NY USA

+1 212-710-7600

San Francisco Kepler Capital Markets, Inc 50 California Street, Suite 1500 San Francisco, CA 94111

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Kepler Cheuvreux has exclusive international distribution rights for UniCredit’s CEE product.

Green Impact Screener - Long Finance

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