Italy: Pride & Prejudice - la Repubblicadownload.repubblica.it/pdf/2011/Italypride.pdf · Italy:...

Citi Investment Research & Analysis is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Citigroup Global Markets

Europe | Italy Italy (Citi)

22 September 2011 │ 156 pages

Italy: Pride & Prejudice Brave Investors Wanted

How Cheap is Cheap? — In The Year of the Dog? in February we kept a long-held bearish view on Italy against a bullish consensus, but seven months later, with Italian equities since down 40% (& investors asking us if Italy faces a food shortage), we think markets might have gone too far. We still see a bumpy road in the short term, but take a more positive longer-term view: Italy may finally be reaching a long-awaited inflection point in its cultural mindset: a paramount step for a brighter future.

Macro View — Citi economists expect weaker growth than in core euro-area members and they have recently cut Italy’s GDP forecasts for 2011-12E due to additional fiscal tightening, ongoing weakness in labour income and a slowdown in exports. Citi economists reckon that the new fiscal tightening (worth 3% of GDP in 2012-13E) will help reduce the deficit to c.1% of GDP in 2013 but at the expense of weaker growth. The debt-to-GDP ratio should stabilise at around 120%, but barring major privatisations, it is unlikely to show significant declines before 2014E.

A Beautiful “Colony” — Over the last few decades we think Italy has distinguished itself as “a place not to be” for many investors. Although there are good reasons (and prejudices) preventing Italy from attracting investors, we think that on some metrics Italy might be in better shape than other countries. Whereas we believe a change in the cultural mindset is paramount, we think Italy might strongly benefit from a (temporary) “loss” of some of its independence to Europe.

With a “Little Help” from our Friends— As Minister of Finance Giulio Tremonti recently warned, the final end for Titanic’s first-class passengers wasn’t any better than that of passengers in third class; we believe that Italy is currently in the eye of the storm of Europe, which might struggle to survive with a large, unreformed and stagnant key partner (and debtor). However, years of underperformance leave room for potential huge enhancements and – with a “little help” from the ECB – Italy could unleash significant resources from reforms that have been postponed for too long and potentially offer good returns for brave investors on a 12-month horizon.

Talking About SMID Caps — While suggesting investors finally start bringing Italian equities back onto their radar screens, in SMID Caps we maintain our preference for “cosmopolitan companies incidentally bearing an Italian passport”. Our preferences still go to Campari, Autogrill, Prysmian, Pirelli, Tod’s & Luxottica while we recently upgraded Geox on both better competitive positioning and cheap valuation. Although our long-term concerns remain, we think Hold-rated Lottomatica could outperform in the shorter term while benefiting from strong Italian operations and visibility on 2012E cash flows.

Our Sells — Cheap valuation is not a catalyst to buy yet. We maintain our negative stance on – among others – Mediaset, Mondadori, Landi Renzo, Finmeccanica, Buzzi and Italcementi. Although we maintain our long-held negative view, we reckon that Mediaset could potentially offer attractive upside if i) an aggressive cost-cut plan of €350-400m is implemented, and ii) noise surrounding Berlusconi fades away.

Changes to Target Prices and Estimates — Our changes are summarised on p2.

Equities

Mauro Baragiola +39-02-8906-8703 [email protected]

Antonella Bianchessi [email protected]

Giada Giani [email protected]

Jeremy Bragg [email protected]

Thomas Chauvet [email protected]

Georgios Ierodiaconou [email protected]

Aynsley Lammin [email protected]

Clyde Lewis [email protected]

Andrew Light [email protected]

Natalia Mamaeva [email protected]

Manuel Palomo [email protected]

Mike Pinkney, CFA [email protected]

Alastair R Syme [email protected]

Philip Watkins [email protected]

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures.

https://ir.citi.com/NgIlGsvJK4y5D9tYAJ7pzvKNDQbjoalOj3Ulab9IKS8%3D�

Italy: Pride & Prejudice 22 September 2011

Citigroup Global Markets 2

Rating Target Price

Current Year Earnings Estimates

Next Year Earnings Estimates

Ticker Old New Old New Old New Old New AGL.MI 1M 1M €12.00 €11.00 €0.45 €0.43 €0.66 €0.54 ATL.MI 1M 1M €15.50 €12.00 €1.19 €1.19 €1.26 €1.26 BZU.MI 3M 3M €5.80 €5.80 €0.17 €0.17 €0.33 €0.33 CIRX.MI 1M 1M €1.80 €1.80 €-0.07 €-0.07 €-0.07 €-0.07 CPRI.MI 1M 1M €6.00 €6.50 €0.30 €0.31 €0.34 €0.35 EGPW.MI 3M 3M €1.80 €1.80 €0.10 €0.10 €0.10 €0.10 ENEI.MI 2M 2M €3.50 €3.50 €0.45 €0.45 €0.42 €0.42 ENI.MI 1M 1M €15.50 €15.50 €1.82 €1.82 €1.59 €1.59 ESPI.MI 2M 2M €1.90 €1.30 €0.18 €0.15 €0.17 €0.12 FI.MI 1H 1H €10.00 €10.00 €0.53 €0.53 €0.64 €0.64 GEMI.MI 2S 2S €0.69 €0.69 €0.00 €0.00 €0.02 €0.02 GEO.MI 1M 1M €3.60 €3.60 €0.18 €0.18 €0.19 €0.19 ITAI.MI 3H 3H €4.00 €4.00 €-0.08 €-0.08 €0.15 €0.15 LR.MI 3S 3S €1.50 €1.50 €0.05 €0.05 €0.09 €0.09 LTO.MI 2M 2M €13.00 €13.00 €1.12 €1.25 €1.24 €1.28 LUX.MI 1M 1M €26.00 €24.00 €1.03 €0.96 €1.21 €1.05 MOED.MI 3M 3M €2.45 €1.50 €0.22 €0.17 €0.25 €0.15 MS.MI 3M 3M €2.20 €2.20 €0.26 €0.26 €0.25 €0.25 PECI.MI 1M 1M €8.00 €8.00 €0.67 €0.67 €0.72 €0.72 PGIT.MI 3S 3S €0.05 €0.03 €0.04 €-0.01 €0.04 €0.00 PRY.MI 1M 1M €15.00 €15.00 €0.95 €0.95 €1.29 €1.29 SAVE.MI 1M 1M €7.70 €7.70 €0.44 €0.44 €0.53 €0.53 SFLG.MI 2S 2S €13.00 €9.00 €0.53 €0.53 €0.82 €0.82 SIFI.MI 3H 3H €4.00 €4.00 €0.71 €0.71 €0.80 €0.80 SRG.MI 1L 1L €4.30 €4.30 €0.26 €0.26 €0.27 €0.27 TIS.MI 3S 3S €0.05 €0.03 €-0.01 €-0.02 €0.09 €-0.01 TLIT.MI 1M 1M €1.20 €1.20 EU¢14 EU¢14 EU¢15 EU¢15 TOD.MI 1M 1M €101.00 €101.00 €4.31 €4.31 €4.92 €4.92 TRN.MI 1L 1L €3.10 €3.10 €0.25 €0.25 €0.18 €0.18 YOOX.MI 2M 2M €13.31 €13.31 €0.18 €0.16 €0.26 €0.24

Data Summary



Executive Summary 4 Brave Investors Wanted 5 Pride & Prejudice 9 After Berlusconi, the ECB? 12 Citi Economists’ View on Italy 15 Citi Strategists’ View on Italy 20

Company Updates (Local Coverage) 23 Autogrill SpA (AGL.MI) 24 Davide Campari-Milano SpA (CPRI.MI) 26 CIR - Compagnie Industriali Riunite SpA (CIRX.MI) 28 Gruppo Editoriale l'Espresso SpA (ESPI.MI) 30 Geox SpA (GEO.MI) 32 Landi Renzo (LR.MI) 34 Lottomatica Spa (LTO.MI) 36 Luxottica Group SpA (LUX.MI) 38 Mediaset SpA (MS.MI) 40 Arnoldo Mondadori Editore (MOED.MI) 42 Prysmian SpA (PRY.MI) 44 Safilo SpA (SFLG.MI) 46 Aeroporto di Venezia - Marco Polo SpA (SAVE) (SAVE.MI) 48 Seat Pagine Gialle SpA (PGIT.MI) 50 Tiscali SpA (TIS.MI) 52 Yoox (YOOX.MI) 54

Company Updates (Sector Coverage) 57 Atlantia (ATL.MI) 58 Buzzi Unicem (BZU.MI) 60 ENEL SpA (ENEI.MI) 62 Enel Green Power (EGPW.MI) 64 Eni (ENI.MI) 66 Fiat Industrial (FI.MI) 68 Finmeccanica (SIFI.MI) 70 Gemina SpA (GEMI.MI) 72 Italcementi Group (ITAI.MI) 74 Pirelli (PECI.MI) 76 Snam Rete Gas SpA (SRG.MI) 78 Telecom Italia SpA (TLIT.MI) 80 TERNA SpA (TRN.MI) 82 Tod's SPA (TOD.MI) 84

Change in Estimates 86

Company Valuations & Risks 101 Appendix A-1 132

Contents



Our preferred stocks among mid-caps are Campari (sound business and balance sheet, reliable management); Prysmian (late cycle, exposure to infrastructure spending, compelling valuation, set to benefit from Draka’s take-over); Autogrill (well run, duty free booming on exposure to emerging markets travellers and hopes of corporate actions); Geox (improved competitive positioning and attractive valuation); Tod’s (quality and defensive name); and Pirelli (emerging market focus and mix improvements). We also like Luxottica (a ‘world champion’ set to benefit from both ageing populations in advanced economies and untapped emerging markets) – although properly not a midcap with a market capitalisation in excess of €9.0bn. We also have a Buy on CIR – although we recommend the stock particularly to fans of holding companies – and SAVE, unfortunately a pretty illiquid stock. Among Citi’s Best Ideas, we list ENI and Telecom Italia savings as Most Preferred stocks. Among utilities our preference goes to Snam Rete Gas and Terna, whose share prices we believe already discount the political and regulatory risk in Italy, materialised with the introduction of the Robin Hood tax. Finally, we remain Buyers of Atlantia and Fiat Industrial.

Whereas we like the business model and management we are neutral on Yoox (leadership in the untapped online luxury market) although it might keep attracting interest from overseas investors searching for online players. While we maintain our long-term concern on Lottomatica, we could see outperformance in the shorter term on extremely strong Italian operations – but investors should watch out for news on September 24th on Lotto concession arbitration. Investors in Safilo should watch out for news on September 29th when the eyewear manufacturer will present its business plan and – likely – give a final word on the Giorgio Armani licence renewal uncertainty. We are neutral on Espresso (strong management team achieving good results in a declining industry), and on Gemina on traffic expectations and financing risks. Finally, we remain cautious on ENEL: while the stock’s multiples and dividend yield look attractive, we believe the company is exposed to potential regulatory and political intervention aimed at limiting the growth in Italian electricity bills which, without correction, might increase by 29% in 3 years due to large subsidies to renewable energy.

We remain Sellers of businesses facing structural declines such as Mediaset, Mondadori, Tiscali, Seat and Landi Renzo; experiencing very weak markets such as Buzzi Unicem and Italcementi; or facing strategic issues such as Finmeccanica. We maintain our negative view on Enel Green Power among utilities. However, we would suggest that investors keep Mediaset monitored as it might become a recovery play in the (unlikely for the time being) scenario of both an aggressive cost-cut plan and less noise surrounding Silvio Berlusconi.

Executive Summary

Our Buys…..

…Holds….

…and Sells



It Can’t Rain Forever

The Italian market has consistently underperformed most of the Advanced Economies markets since 2005 and – while hovering around its March 2009 nadir – the Italian index remains some 66% below 2007 peaks.

After a strong start of the year (up some 13% in February 2011), a new round of sell-offs started along with the Southern Europe crisis and – we believe – a weak government (and an even weaker opposition) only made things worse.

Figure 1. Italy vs Europe, 2005 YTD (as of September 20, 2011). Figure 2. Italy vs Europe, YTD (as of September 20, 2011).

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

MSCI Europe MSCI Italy

-40%

-30%

-20%

-10%

0%

10%

20%

3-Ja

n-11

19-J

an-1

1

4-Fe

b-11

20-F

eb-1

1

8-M

ar-1

1

24-M

ar-1

1

9-Ap

r-11

25-A

pr-1

1

11-M

ay-1

1

27-M

ay-1

1

12-J

un-1

1

28-J

un-1

1

14-J

ul-1

1

30-J

ul-1

1

15-A

ug-1

1

31-A

ug-1

1

16-S

ep-1

1

MSCI Europe MSCI Italy

Source: CIRA calculation on MSCI Inc. data Source: CIRA calculation on MSCI Inc. data

Italy has underperformed European markets for 7 years in a row and for 14 out of the last 21 years. Incidentally, the first Berlusconi government was in 1994. While we have been consistently bearish in our country reports on Italy since 2006 – with the main index down 30% YTD (and down 43% since February peak) we think that the markets might have gone too far. And for the first time in years, we now take a more positive longer-term view on Italy – although we still see a bumpy road in the short term.

What is 2007-11 Performance Telling Us?

Both our strategists (in their note The Italian Job, dated 25 November 2010) and ourselves in our The Year of the Dog? dated 7 February 2011 suggested under-weighting Italy while sticking to good companies, ie those with strong balance sheets, sound management, and good corporate governance, rather than cheap stocks.

The table below provides an overview of the performance of stocks covered in this report since 2007:

Brave Investors Wanted

Good Companies vs. Cheap Stocks

School of fish?

https://ir.citi.com/5CN4GDD6nOwO%2FSz1%2Bx1C9Eek3M0Jp%2Bv9H1KQHY9V5UM%3D�




Figure 3. Stock & Index Absolute Performances 2007-YTD (as of 20 -Sept-11)

Company Name Rating YTD 2010 2009 2008 2007 Jan 07-YTD Autogrill 1M - Buy, Medium Risk -24.3% 19.8% 64.2% -53.9% -16.3% -42.5% Davide Campari 1M - Buy, Medium Risk 17.1% 33.5% 52.0% -26.8% -12.8% 51.8% CIR 1M - Buy, Medium Risk 2.1% -24.3% 149.0% -71.3% 1.1% -44.2% Gruppo Espresso 2M - Hold, Medium Risk -28.1% -24.5% 93.9% -62.0% -26.2% -70.5% Geox SpA 1M - Buy, Medium Risk -19.0% -29.0% 10.5% -68.3% 17.1% -76.4% Landi Renzo* 3S - Sell, Speculative Risk -43.9% -12.5% 4.4% 44.7% -47.7% -61.3% Lottomatica 2M - Hold, Medium Risk 21.0% -33.9% -20.3% -29.8% -20.3% -64.4% Luxottica Group 1M - Buy, Medium Risk -9.1% 26.3% 42.5% -41.7% -6.6% -11.0% Mediaset 3M - Sell, Medium Risk -45.2% -21.1% 41.5% -41.3% -23.2% -72.4% Mondadori SpA 3M - Sell, Medium Risk -34.6% -14.4% -11.1% -38.0% -29.0% -78.1% Prysmian* 1M - Buy, Medium Risk -14.2% 4.6% 9.8% -34.3% 6.3% -31.1% Safilo SpA 2S - Hold, Speculative Risk -39.6% 68.0% -3.7% -73.7% -49.1% -86.9% Aeroporto di Venezia (SAVE) 1M - Buy, Medium Risk -12.9% 30.3% 41.8% -61.1% -14.2% -46.3% Seat Pagine Gialle 3S - Sell, Speculative Risk -53.0% -49.1% -65.6% -78.5% -40.1% -98.9% Tiscali SpA 3S - Sell, Speculative Risk -46.1% -51.5% -58.7% -61.0% -20.9% -96.7% Yoox* 2M - Hold, Medium Risk 23.7% 84.3% 12.0% na na na Atlantia 1M - Buy, Medium Risk -28.2% -12.1% 39.3% -49.5% 19.0% -47.2% Buzzi Unicem 3M - Sell, Medium Risk -29.2% -24.3% -2.6% -38.8% -12.1% -71.9% Enel 2M - Hold, Medium Risk -16.5% -7.6% 1.5% -44.4% 4.1% -54.7% Enel Green Power* 3M - Sell, Medium Risk 11.7% -1.2% na na na 10.4% Eni 1M - Buy, Medium Risk -20.6% -8.2% 6.3% -33.2% -1.7% -49.1% Fiat Industrial* 1H - Buy, High Risk na na na na na na Finmeccanica 3H - Sell, High Risk -38.1% -24.0% 2.8% -44.9% 7.0% -71.5% Gemina 2S - Hold, Speculative Risk 16.7% -6.8% 55.3% -69.4% -35.8% -66.8% Italcementi 3H - Sell, High Risk -28.5% -33.9% 6.6% -38.6% -31.6% -78.8% Pirelli 1M - Buy, Medium Risk -6.0% 39.5% 59.7% -65.1% -0.3% -27.1% Snam Rete Gas 1L - Buy, Low Risk -7.5% 7.2% 6.8% -9.4% 1.7% -2.4% Telecom Italia 1M - Buy, Medium Risk -18.4% -11.1% -5.4% -45.9% -7.2% -65.5% Terna 1L - Buy, Low Risk -17.1% 5.3% 28.5% -15.3% 7.3% 1.9% Tod’s 1M - Buy, Medium Risk 3.9% 42.5% 72.4% -37.1% -21.7% 25.7% FTSE ALL SHARE -26.2% -11.5% 19.2% -48.8% -7.3% -63.0% FTSE MIB -27.9% -13.2% 19.5% -49.5% -7.0% -64.9% Euro Stoxx 50 -23.4% -5.8% 21.1% -44.4% 6.8% -48.0% Euro Stoxx 600 -16.9% 8.6% 28.9% -46.0% -0.2% -37.3%

*LR.MI: 2007 data as of 26 June 2007 (stock listed); PRY.MI: 2007 data as of 3 May 2007 (stock listed); YOOX.MI: 2009 data as of 3 December 2009 (stock listed); EGPW.MI: 2010 data as of 4 November 2010 (stock listed); FI.MI: data not available as stock was listed on 3 Jan 2011.

Source: Powered by dataCentral; dataCentral is CIRA's proprietary database, which includes Citi estimates, data from company reports and feeds from Reuters

The above table suggests that a strategy of underweighting Italy while selectively buying cosmopolitan companies incidentally bearing an Italian passport with little exposure to the domestic economy would have delivered good results versus both the index and “cheap” stocks.

To keep a long story short, whereas Italy has significantly underperformed Europe, good Italian stocks have not. And good companies are trading much closer to their highs than bad companies. Time to change strategy and overweight Italian stocks and – in particular – those trading cheaply? Well, yes and no.

Our strategists in their recent note European Equity Strategy - Lows Before Highs (8 September 2011) still rank Italy well below Northern European countries.

The Strategists’ View

https://ir.citi.com/TXsuy1hK5aydIj4KlA%2FqNqOirAGcprNCMTaSay%2FImpo%3D�



Figure 4. European Country Attribution Model (CAM) (*)

Exp (EM)

Exp (US) Earn Mo DYG P/B Corp B/S

Bond Sp Govn Debt

Macro Final Rank

Factor Weight 20% 5% 15% 10% 10% 15% 5% 10% 10% 100% Switzerland 7 5 4 4 15 3 1 - 1.5 5.45 Sweden 5 6 8 6 13 1 3 - 5.5 5.90 Austria 2 15 5 3 6 12 9 4 5 5.95 Netherland 8 4 10 2 9 6 5 2 3.5 6.10 Germany 11 7 2 10 8 8 2 1 5.5 6.60 Finland 1 12 16 16 4 3 6 3 8.5 7.10 Denmark 4 8 13 5 16 6 4 - 5.5 7.55 UK 10 3 7 7 12 5 7 5 9.5 7.65 Norway 15 11 1 12 14 2 8 - 1.5 7.80 Italy 9 10 11 8 2 13 13 7 12 9.45 Greece 6 16 15 1 1 11 16 11 15 9.50 France 12 9 8 11 7 9 10 8 12 9.70 Belgium 13 2 6 13 11 13 11 6 9.5 10.05 Spain 3 13 11 9 10 15 12 9 15 10.05 Ireland 16 9 2 15 3 10 14 12 12 10.35 Portugal 14 14 13 14 5 16 15 10 14.5 12.95

Source: DataStream and CIRA (*08-Sept-2011)

However, our strategists say that – while all European countries trade below their average 12-month forward P/E – Italian equities are the cheapest on this basis, followed by Portugal, France and Germany.

Our strategists also add that on a price/book basis, European equities also look cheap with Italian non-financials already trading below 1x price/book – below European average. According to the strategists, this suggests that a lot of bad news is already priced in and that material downside moves from here are likely to need strong recessionary pulses or rising systemic threats.

Figure 5. Current 12m Fwd P/E vs. Average P/E (15yrs) Figure 6. Current P/B vs. 2008-2009 Lows (Non Financials)

0

5

10

15

20

25

30

35

40

45

50

Den Nor Ire Aus UK Switz Bel Neths Fin Sp Gre Swed Ger Fra Port Ita

Current 12m Fwd P/E Average P/E (15yr)

0

10

20

30

40

50

UK Germany Italy France Spain

Current P/B vs 2008-09 Lows (Non-Financials)

Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis

As country analysts, we take a slightly more positive view on Italy although, we acknowledge, this is much more based on anecdotal evidence than crude statistics – and we would suggest that investors start putting Italy back onto their radar screens with the aim of increasing exposure over a 12-month time horizon.

The Country Team View



However, in the SMID caps universe our preference remains for the usual names, despite the fact that they are trading closer to their peaks than troughs; the only exception being Geox which we recently upgraded on both better competitive positioning and attractive valuation. We still rate Mediaset as a Sell despite trading close to an all-time low – but we acknowledge it could become an interesting recovery story assuming both the implementation of an aggressive cost-cutting strategy (in the range of €350-400m) and noise on Berlusconi fading away. Both issues seem anyhow pretty unlikely in the short term.

Utilities in general should benefit from the restructuring and consolidation of the public service sector still characterised by widespread inefficiencies, fragmentation and political intervention. While the ongoing consolidation of the gas industry should lead to substantial cost reduction, we believe that possible benefits will be passed through to consumers, still suffering one of the highest tariffs in Europe.

Figure 7. Peaks and Troughs 2007-YTD (as of 20 Sept-11)

Company Name (RIC) Current Price (€) 2007-YTD LOW & Date 2007-YTD HIGH & Date NOW vs. MIN NOW vs. MAX Autogrill (AGL.MI) 8.01 3.25 9-Mar-09 16.69 17-Jul-07 146.7% -52.0% Davide Campari (CPRI.MI) 5.71 1.93 5-Dec-08 5.94 26-Jul-11 196.4% -3.9% CIR (CIRX.MI) 1.40 0.66 24-Feb-09 3.20 27-Apr-07 111.3% -56.1% Gruppo Espresso (ESPI.MI) 1.22 0.58 19-Mar-09 4.25 10-Jan-07 110.0% -71.3% Geox SpA (GEO.MI) 2.77 2.59 13-Sep-11 16.50 31-Oct-07 7.0% -83.2% Landi Renzo (LR.MI)* 1.68 1.52 6-Sep-11 4.89 28-Aug-08 10.1% -65.8% Lottomatica (LTO.MI) 11.22 8.93 10-Jan-11 33.88 19-Jan-07 25.7% -66.9% Luxottica Group (LUX.MI) 20.73 9.61 5-Mar-09 28.79 9-Jul-07 115.7% -28.0% Mediaset (MS.MI) 2.48 2.24 12-Sep-11 9.51 19-Jan-07 10.5% -73.9% Mondadori SpA (MOED.MI) 1.73 1.72 19-Sep-11 8.67 6-Feb-07 0.8% -80.0% Prysmian (PRY.MI)* 10.94 6.10 9-Mar-09 21.02 24-Jul-07 79.5% -48.0% Safilo SpA (SFLG.MI) 8.04 3.87 9-Mar-09 66.99 4-Jul-07 108.0% -88.0% Aeroporto di Ven (SAVE.MI) 6.69 2.78 9-Mar-09 15.25 31-May-07 141.1% -56.1% Seat Pagine Gialle (PGIT.MI) 0.04 0.04 20-Sep-11 3.98 19-Feb-07 0.0% -99.0% Tiscali SpA (TIS.MI) 0.04 0.04 16-Sep-11 1.82 14-Oct-09 1.4% -97.6% Yoox (YOOX.MI)* 11.90 4.63 21-Dec-09 13.32 31-May-11 157.0% -10.7% FTSE ALL SHARE 15,449.83 13,270.55 9-Mar-09 45,071.35 18-May-07 16.4% -65.7% FTSE MIB 14,547.38 12,621.00 9-Mar-09 44,364.00 18-May-07 15.3% -67.2% Euro Stoxx 50 2,140.41 1,809.98 9-Mar-09 4,557.57 16-Jul-07 18.3% -53.0% Euro Stoxx 600 229.10 157.97 9-Mar-09 400.31 1-Jun-07 45.0% -42.8% Atlantia (ATL.MI) 10.44 8.48 13-Mar-09 24.69 6-Nov-07 23.2% -57.7% Buzzi Unicem (BZU.MI) 6.05 5.71 12-Sep-11 26.33 1-Jun-07 6.0% -77.0% Enel (ENEI.MI) 3.12 2.91 9-Mar-09 7.54 1-Jun-07 7.2% -58.6% Enel Green Power (EGPW.MI)* 1.77 1.49 23-Aug-11 2.05 8-Apr-11 18.4% -13.8% Eni (ENI.MI) 12.97 12.17 10-Aug-11 28.33 9-Jul-07 6.6% -54.2% Fiat Industrial (FI.MI)* 6.17 5.56 13-Sep-11 10.66 26-Jan-11 11.0% -42.1% Finmeccanica (SIFI.MI) 5.27 4.50 13-Sep-11 21.32 15-Jun-07 17.0% -75.3% Gemina (GEMI.MI) 0.62 0.21 9-Mar-09 2.04 8-Feb-07 189.4% -69.5% Italcementi (ITAI.MI) 4.52 4.24 12-Sep-11 24.90 4-May-07 6.6% -81.8% Pirelli (PECI.MI) 5.69 1.52 9-Mar-09 9.59 27-Apr-07 275.0% -40.7% Snam Rete Gas (SRG.MI) 3.44 2.96 29-Apr-09 4.29 11-May-11 16.3% -19.7% Telecom Italia (TLIT.MI) 0.79 0.73 12-Sep-11 2.42 9-Apr-07 8.8% -67.4% Terna (TRN.MI) 2.62 2.13 17-Dec-08 3.48 11-May-11 23.3% -24.6% Tod’s (TOD.MI) 76.80 25.95 27-Jan-09 96.55 27-Apr-07 196.0% -20.5%

*LR.MI: 2007 data as of 26 June 2007 (stock listed); PRY.MI: 2007 data as of 3 May 2007 (stock listed); YOOX.MI: Low &High data as of 3 December 2009 (stock listed); EGPW.MI: FI.MI Low &High data as of 4 November 2010 (stock listed); FI.MI Low &High data as of 3 Jan 2011 (stock listed). Source: Powered by dataCentral; dataCentral is CIRA's proprietary database, which includes Citi estimates, data from company reports and feeds from Reuters

The Utilities Angle



150 years since its foundation, we believe Italy remains a “mere geographical expression” (Klemens von Metternich): Italy is still a fragmented country – combining areas of excellence in the North with “the largest and most populated underdeveloped region in the euro area” in the South (Mario Draghi, the Governor of the Bank of Italy).

Whereas the aim of this report is to analyse Italian companies from a bottom-up approach, we believe that investors should bear in mind the key themes influencing the Italian macro picture. While leaving macro analysis to economists, we use our local (and maybe cynical) knowledge to update our long-held list of the positive and negative issues affecting “la Bella Italia”.

What’s Negative We have divided problems into three categories: i) political system and cultural mindset; ii) macroeconomics; and iii) attractiveness of the Italian equity market.

Political system and cultural mindset

As front pages of Italian newspapers tell us on a daily basis, Italians both politicians (dubbed the “Chaste”) and common people (e.g. very high tax evasion), too often act to preserve their personal interests rather than to pursue national interests.

Corruption is widespread at all levels of Italian society as the “bribeville” scandal and recent investigations too often show. Italy still has not ratified the anticorruption European legislation dated 1999.

Italy is a forest of privileges which often represent barriers to reforms as the recent horse-trading on the approval of the second round of austerity packages is proving.

Political intervention and state ownership of strategic industrial sectors remains high and often act as obstacles to increasing efficiency, innovation and competition;

Italy structurally lacks high-profile civil servants: nearly one-tenth of MPs are under investigation, awaiting trial or have already been convicted of various wrongdoings (source: La Repubblica and The Financial Times). Around 60% of these MPs are in Berlusconi’s PdL party which recently dubbed itself “the party of Honest People”.

The current Electoral Law dubbed “Porcellum” (PiggyLaw) de facto has transformed parties into pyramidal organisations where the party leaders choose candidates, preventing electors from expressing their choices.

We see no credible alternatives to Berlusconi in his own party and the opposition appears extremely fragmented, with no clear strategies or leaders.

Archaic and inconsistent justice system – often unhelpful to private enterprises (e.g. by taking a long time to make decisions).

Although in theory a secular republic for 65 years, the Catholic Church is still very powerful, often appearing to affect government decisions. Also the Church gets an eighth per thousand of taxes paid by Italians and is exempted from paying taxes on its large businesses and real estate empires.

Pride & Prejudice

One Nation, Two Countries



Macroeconomics

One of the highest public debt/GDP ratios in the world.

Depressed southern regions with large population, huge deficits, and lack of infrastructure and resources. Even worse, these areas have historically been hampered by criminal organisations.

Large black economy with some estimates by ISTAT (the national statistics office) pointing to the black economy accounting for up to 15-20% of GDP.

A two-tier labour market and anachronistic trade union organisations protecting “insiders” rather than youngsters or “outsiders”.

Heavy bureaucracy limiting private enterprise and public life. Italy ranks 80 in the World Bank’s “Doing Business” index and 48th in the World Economic Forum’s competitiveness rankings, one of the poorest scores among Advanced Economies.

Lack of infrastructure, R&D has historically not received significant investment in the past and this is unlikely to change given the current lack of resources.

Also because of the above issues, Italy has been struggling to attract foreign direct investments while Italian firms have been pretty active in de-localisation of manufacturing processes.

Ageing population: i) one of the oldest populations in the world, with a very low fertility rate; ii) the younger generation is not prominent in either public entities or private enterprises. By 2030, there might be only two Italians aged 20-64 for every pensioner but – on the other hand – statistics say that some 20% of 15-29 year-old Italians neither work nor study.

Attractiveness of Italian Equity Market

Limited scope of the Italian market. There are currently fewer than 300 listed stocks in Italy (in line with a decade ago). Of these, some 70% and 45% have market caps below €500m and €100m respectively. Even worse, only 20% have had volumes above €5m per day over the last 90 days.

Poor corporate governance among several Italian groups, which appear not to prioritise the interests of minority investors.

Combining limited scope with poor corporate governance and liquidity, we believe the number of “investable” stocks unfortunately ends up in the 50-70 range for the third-largest economy in the Euro-zone.

Assets managed by Italian fund managers have been shrinking over the years with a lot of Italian savings now managed by foreign players who might tend to underweight Italy.

What’s Positive

'Private' Italy (family and businesses) has very low gearing, especially in consumer credit.

Consumer spending is slightly less linked to GDP than in other countries as wealth accumulated over decades of saving is as important as income.



Families take charge of providing support that other countries demand from governments: e.g. elders tend to help working people while taking care of children or providing some financial support (after decades of high savings).

First-class entrepreneurs and managers are often doing their best while facing constraints.

First-class companies that are global leaders in their niches and often compensate for labour costs disadvantage with flexibility, quality and precision.

Export-driven economy set to benefit from EM growth, although often in an indirect way (e.g. via Germany).

Italy is potentially a goldmine for tourism: beaches, mountains, arts, food and fashion: a tourist destination that in our view is among the best in the world.

Mario Draghi – the current Governor of the Bank of Italy – will soon become the president of the ECB.

The seriousness of Giorgio Napolitano, the Presidente della Repubblica, and one of the best civil servants Italy has, in our view, in managing the current crisis.

Although now facing criticism from many, Giulio Tremonti (Minister of Finance) has somewhat changed the very old habits of Italian politics by resisting in 2009-2010 very strong pressure to boost public spending while pushing for cuts.

The latest austerity package includes an amendment aimed at reducing the power of unions on the national stage by giving more leeway to employers to negotiate redundancies at factory level.

This new amendment follows some recent victories of corporate Italy over militant trade unionists and may represent a turning point for Italian industrial relations: corporates agreeing rules with workers outside the union collective bargaining system. Such events might hopefully be followed by negotiations for more flexible contracts among workers at Italy's largest groups, including banks and partly state-owned companies.

Although highly controversial, the Gelmini Law aimed at reforming Italian universities might crack the current byzantine world of universities, characterised by widespread nepotism. A school system based on meritocracy is paramount to forging a better-educated generation of Italians.

Things Can Only Get Better, Can’t They?

Over the last few decades, Italy has distinguished itself as “a place not to be” for many investors, while gradually becoming seen as the “sick man of Europe”, suffering from a chronic disease slowly gnawing away at its vitality: when Europe’s economies shrink, Italy’s shrinks more; when they grow, Italy grows less.

However – despite the long list of negatives and while in the middle of one of the most acute crises ever – we are paradoxically more positive on Italy than we have ever been in the last few years. Dire straits could eventually spark a virtuous circle with the ECB’s help and Italy could unleash significant resources from reforms that have been postponed for too long.

It’s Binary…



Since the end of the so-called Prima Repubblica in 1992, Italy has failed to develop a two-party system and the strong personality of Silvio Berlusconi has polarised much of Italy into two groups: strongly in favour or strongly against the premier.

In our previous country reports, we argued that – no matter how good or bad Silvio Berlusconi is – we saw no credible alternatives to his government. Even worse, we argued that the long decline of Berlusconi‘s government was delaying much-needed economic and political reforms. Over weeks of horse-trading on the second austerity package which weakened proposals agreed with the ECB in early August, the government’s fractious coalition and a weakened, fragmented opposition have seemed unable to resist Italy’s powerful lobbies.

In our previous reports, we also warned of ongoing behind-the-scenes attempts to secure future power with several high-profile people under investigation for a wide range of scandals (eg see The Year of the Dog? dated 7 February 2011).

Whereas the international community has been assisting to a certain extent, we are keen to be a little more positive as we see some glimpse of hope as the “war” may be getting close to an end. While Silvio Berlusconi’s political status appears to be continuing its slow decline, the “war” has seen: i) a partial implosion of the Northern League, which just a few months ago had been strongly on the rise; ii) a much less powerful Giulio Tremonti; and iii) finally a far-reaching and serious investigation into alleged bribes in the North of Italy has started denting PD – the main opposition party – which was building consensus on being “different” thanks to a supposed “civil servant DNA”.

One might imagine that a “grand plan” is taking place to show to the Italian electorate that “noone is different in the Italian political chaste”, i.e. the Italian political classes are all the same and that new elections would hardly mark a changing point. We believe a shock is needed and this might only come from abroad. And we are among those who hope that – after all – a different “grand plan” does exist and is gaining traction: our feeling is that – despite all of government’s claims – the policy direction seems to be increasingly being set by Mario Draghi (governor of the Bank of Italy and the next President of the ECB) and Giorgio Napolitano (President of the Italian Republic), who is doing all that he can do with his constitutional powers to better manage the crisis.

The Times, are they a-Changing?

As crude as it might sound – while celebrating its 150th year – Italy appears to be somewhat losing its independence to Europe and the ECB. However, this might be the only way to get out of Italy’s vicious circle of public debt, corruption and lack of competitiveness.

And what is positive for Italy is also positive for Europe, which might struggle to survive with an unreformed and stagnant Italy, with a public debt at over 120% of GDP: after all, as Italian ministry Giulio Tremonti recently said, the Titanic didn’t prove to be much safer for first class passengers than for third class.

Short-term pains to long-term gains

We believe that Italians are masters at managing private interests and businesses but too often poor at achieving public interests – while preserving the interests of lobbies and corporations. Whereas we believe no elected or aspiring to be elected government would dare push for much-needed reforms in Italy, Italian people might be ready to accept sacrifices while hoping for a better future.

After Berlusconi, the ECB?

The long decline of Berlusconi’s

government is postponing reforms…

….no credible alternatives…

…apart from “EU Sponsored”

government of national unity

On the Titanic final end was no better in

first class than in third class




An “EU sponsored” government of national unity to push through sweeping structural reforms that the political elite lacks the courage to undertake could be the right solution for Italy; in our The Year of the Dog report dated 7 February 2011 we half-jokingly said “Voting Ms. Angela Merkel as the next Italian Prime Minister would probably be a step in the right direction”. Some six months later we might be some steps closer – especially following the recent horse-trading in Rome over the revised austerity budget originally proposed in August which underwent four major changes before being approved in a way that was somewhat acceptable to the ECB (see later in this report for comments from our economists).

Italy can count on some outstanding civil servants – among whom we highlight:

The widely respected President Giorgio Napolitano – despite being 86 years old – is in our opinion standing out as one of the most reliable figures among Italian politicians and he is doing his best to steer Italy towards Europe and a new Rinascimento. We believe that President Napolitano deserves credit for the unusually quick approval of the two austerity packages voted on since July 2011.

Mario Draghi will become the new President of the ECB later this year. We believe Mario Draghi to be close to President Giorgio Napolitano and to share most of the international community’s concerns on Italy. Being the head of the ECB, he might have the power to push for much-needed reforms in Italy.

And potentially:

Mario Monti – a former EU commissioner who distinguished himself while serving between 1999 and 2004. The Italian press has been calling Mario Monti the “white-knight” who could lead a possible government of national unity.

Although we might be wrong, we believe that a large part of the Italian population – especially in the North – might pragmatically prefer to be efficiently run by Northern Europe’s politicians than by politicians in Rome.

With a “Little Help” from the ECB

Italy’s underperformance leaves room for a potential significant enhancement with a relatively small amount of effort: most of the reforms that the country needs to introduce in order to reverse the trends would not cost much in macroeconomic terms – although with a huge impact on the social mindset. Reforms might try to address: i) a lack of competition in private and public services; ii) the inefficient civil-justice system; iii) poor universities; and iv) a two-tier labour market with protected insiders and exposed outsiders.

This would likely require, among other things, continuous and strong pressure from the ECB to push Italians for reforms (a government of national unity would help). We welcomed Mario Draghi’s recent warning that the ECB’s bond purchasing programme is temporary and it should not be taken for granted by member states.

We might be too cynical but his warning could also be read in a different and tougher way, eg “If you don’t comply, we stop buying and we start selling what we bought in recent weeks”. Reversing the purchasing programme could, we believe, threaten the standing of any Italian government.

Why a government of national unity

might help

Respect!

Rome or Frankfurt? Frankfurt

Room for Improvement, Lots of Room

The Purchasing Programme

A Reversal of the Purchasing Programme



So we are not surprised that, despite the EU Council President Van Rompuy saying that he welcomes the “ambitious” fiscal package Italy has recently approved, as well as the government’s proposal to introduce a balanced-budget clause in the constitution, according to several sources, including Reuters, the Italian government will start discussing a package of growth-enhancing measures in the next few weeks, together with measures to reduce the public debt, such as sales of state-owned assets. These sales may involve state-owned real estate assets and local utilities companies, but not the major stakes the government still owns in the national electricity and energy companies.

In our view, the next steps might also include measures aimed at:

Introducing a broader fiscal reform, lowering taxes on workers and companies while raising taxes on wealth and real estate;

Cracking down on tax evasion to reduce the deficit while freeing up resources to invest in future growth; we believe the government should push hard for evasion to be a penal crime with jail terms for those swindling the state out of large sums;

Aligning Italy with Germany and the UK in the taxation of wealth held in Switzerland by Italians;

Reducing the cost of its political class – including several layers of local government and government bodies, parties and trade union organisations;

Reforming the pension system – while removing widespread inefficiencies;

Boosting privatisation and – more importantly – liberalisation to overcome decades of bureaucracy and monopolistic niches, which are preventing growth and hindering entrepreneurships;

Reforming the highly inefficient judiciary system which de facto makes it impossible for businesses to deal with litigation in a reasonable amount of time;

Reducing the current tax benefits to the Vatican (on all non-religious activities) or – at least – discussing them again, also considering that the Vatican provides some help to Italians from a welfare point of view.

Confindustria recently said the “reforms notably lacking in the budget – including cuts in bureaucracy, liberalisation, changes to the judiciary and lowering the cost of labour – could increase Italy’s GDP by tens of percentage points in a reasonable time frame”.

A more liberalised country might both provide a boon for the still large industrial districts in the North and boost tourism everywhere. Italy is potentially a goldmine for tourism: beaches, mountains, arts, food and fashion: few countries match Italy as a tourist destination which, in our view, is among the best in the world.

Although we are still far from saying that an inflection point sparking a new Rinascimento has already been reached, with a little help from the ECB, Italians and investors in Italian equity might have a brighter future ahead.

Third Time Lucky?

Confindustria’s view

Dreaming of a New Rinascimento



Italy’s Austerity Drive — Too Little, Too Late1 Despite last week’s final approval of a quite sizable fiscal austerity package, Italy has suffered major credibility losses over the past two months. A tortuous political process to agree on the fiscal measures, the absence, so far, of structural reforms on the policy agenda and ongoing pressures on Italian bonds were all likely to lead rating agencies to downgrade Italy’s credit rating, which indeed occurred on 19th September.

The Italian developments show how the ECB’s target of preserving euro area financial stability is increasingly clashing with that of enforcing sound economic management in member countries. This inevitably calls for more spread widening in Italy — which may eventually force the government to take further actions in terms of structural reforms — but also for more negative repercussions throughout the rest of the financial system

Figure 8. Italy – Deficit-Cutting Measures Approved over the Past Year (Cumulated, Pct of GDP)

0

1

2

3

4

5

6

2011 2012 2013 2014

0

1

2

3

4

5

6

Sept 2011 Package

July 2011 Package

July 2010 Package

% of GDP % of GDP

Sources: Italian Senate, Italian Treasury and Citi Investment Research and Analysis

Last week the Italian Parliament finally approved the second fiscal consolidation package – in less than two months – spanning the next three years. Despite this, market perceptions of Italian debt have steadily deteriorated since we last wrote on Italy — this was in mid-August, soon after the ECB decision to start purchasing Italian and Spanish bonds. Manifest disagreements within the governing coalition on the fiscal measures and lack of a strong resolve to implement quick and effective measures have led to a significant loss of credibility. With only the ECB able to cap the Italian spread (before the introduction of the amended EFSF), and with the decision of S&P to downgrade Italy’s sovereign rating, we think market pressure on Italian debt is bound to increase further.

To be sure, the austerity package that the Italian Lower House voted on Wednesday, 14 September, and the other package approved earlier in July are, at least on paper, quite bold fiscal steps. According to the government’s estimates, the combined fiscal plans will produce savings for the public budget of around €60bn — or 3.4pp of GDP — between 2012 and 2014, with most of the impact occurring in

1 This is an extract from Euro Weekly - Italy’s Austerity Drive — Too Little, Too Late, Citi, 16 September 2011.

Citi Economists’ View on Italy

Giada Giani

(44-20) 7986-3281

[email protected]

Two terrible months for Italy led to a

significant credibility loss by the

government

The recently approved fiscal package is

quite sizable, comparable to the Spanish

efforts



2012 and 2013. If the deficit-cutting measures approved in 2010 are also taken into account — worth 1.5pp of GDP and equally spread between 2011 and 2012 — the total fiscal tightening in the four-year period of 2011-2014 amounts to almost 5pp of GDP (see Figure 8 above). This figure may pale in comparison with the massive fiscal tightening, over a similar timeframe, required from Greece (around 15pp), Portugal (10.5pp) or Ireland (9pp). But it is not so distant from Spain’s current commitment to achieve budget savings of 6pp of GDP between 2010 and 2014. And to be sure, Italy started its fiscal consolidation process with a fiscal deficit that was less than half of Spain’s in 2009 (5.4% versus 11.2% of GDP).

Figure 9. Italy -- Deficit-Cutting Measures Contained in the August Austerity Package (€Bn)

2011 2012 2013 2014 Extra Revenues 0.7 14.1 22.1 10.5 High-income earners tax hike 0.1 0.1 Gaming and lotteries and increase in excise duties 1.5 1.5 1.5 Increase in capital gains and capital income tax 1.4 1.5 1.9 Tax reform/Cuts to tax exemptions and deductions (safety clause) 4.0 12.0 Reduction of tax evasion 0.7 1.6 1.6 Tax hike on energy companies (Robin Tax) 1.8 0.9 0.9 VAT hike (one-pp to 21%) 0.7 4.2 4.2 4.2 Lower Expenditures 10.7 7.8 1.5 Cuts to local authorities transfer 4.2 3.2 Cuts to ministerial expenses 6.0 2.5 Cuts in public employment 0.4 2.1 1.5 Total 0.7 24.7 29.9 12.0

Sources: Italian Parliament and Citi Investment Research and Analysis

With these corrective measures, the Italian government aims to bring the fiscal deficit close to zero by 2013, down from around 4.0% (or slightly below this level) in 2011, and to improve the primary balance to a surplus of around 5.5% of GDP by 2013, from an expected 1.0% in 2011. This would be the largest primary surplus since the year before euro accession in 1998. A reduction in the headline deficit of 4pp of GDP with deficit-cutting measures worth 5pp of GDP (to account for the likely negative cyclical component affecting the headline deficit) seems at first sight a fairly reasonable projection.

However, we think that some uncertainties remain on the ability to actually achieve these fiscal targets. Firstly, one third of the measures approved in the past couple of months remain undefined. Out of total savings of €54.2bn by end-2013, €20bn should stem from a reform of the tax system, which is only on the government’s policy agenda for next year, to be approved by September 2012 (see Figure 9). A safety clause has been included in the decree law approved last week which requests that, were the tax reform not approved within that deadline, 5% across-the-board cuts to all tax exemptions and tax deductions on personal income and indirect taxes be applied to preserve the targeted budget savings.

While tax reform may require more than just a couple of months to be designed and agreed (although the government has been discussing its possible implementation since its election in 2009), the introduction of a safety clause in the current law suggests the inability of the governing coalition to tackle such a sensitive issue at times of heightened political tensions. The safety clause implies that failure to agree on the tax reform would result in broad-based tax increases (€20bn, or 1.2pp of GDP), distributed in a quite indiscriminate way across all income levels. This may result in a politically difficult action to be taken sometime late in 2012, ahead of a general election due in spring 2013. Risks that the government may eventually back track on this measure are in our view quite high.

It aims at bringing the primary surplus to

pre-euro levels

But many uncertainties still undermine

the credibility of the austerity plan

Some decisions on tax changes have

been deferred into late 2012 — just ahead

of 2013 general elections



A second factor of uncertainty stems from the fact that the composition of the manoeuvre is highly skewed towards revenues rather than expenditures. The government’s estimates indicate 73% of the measures in 2012 will be higher revenues and only 27% will be spending cuts (the balance shifts slightly more in favour of expenditures in 2013 at 65%-35%). When it is considered that cuts in transfers to local authorities will probably, at least in part, result in higher taxes at the local level, this implies an even bigger bias towards revenues.

Figure 10. Selected Euro Area Countries -- Tax Burden (Total Tax and Social Security Contribution Receipts (Excl. Imputed Social Security Contr.) as Pct of GDP, 2002-2010

25

30

35

40

45

Belg

ium

Italy

Finl

and

Aust

ria

Fran

ce

Euro

Are

a

Ger

man

y

Net

herla

nds

Portu

gal

Spai

n

Gre

ece

Irela

nd

2002-2007 Average 2010

45%

Sources: EU Commission AMECO Database Citi Investment Research and Analysis

It may be argued that some tax-raising measures may guarantee more certain and quicker deficit cuts than a vague commitment to cut certain expenditures. However, the Italian tax burden (as measured by total tax revenues and social security contributions as a percentage of GDP) is already one of the highest in Europe (and among OECD countries). Which is partly the reason why labour costs are high and take-home pay low in Italy, and competitiveness of Italian firms so poor (see Figure 10). Moreover, the tax burden has already been increasing since the middle of the past decade, and it did not even edge down during the 2008-09 recession as automatic stabilisers would have suggested (in contrast to what has happened elsewhere). Estimates indicate the tax burden will rise by 2pp of GDP as a result of the summer austerity packages, to 44.5% by 2013.

Therefore, tax-increasing measures may well achieve the same reduction in the fiscal deficit, but they also risk making the other main Italian problem — lack of economic growth — even worse both in the short and medium term. Empirical evidence generally shows fiscal adjustments based on expenditure cuts have less of a recessionary impact than revenue-based measures. We have already highlighted in a recent piece that the balance sheet situation of the Italian private sector has been deteriorating significantly over the past decade, reducing the scope for any increase in the tax burden to be absorbed by a reduction in the private sector saving rate rather than by a compression in private spending2. The Italian business association this week has loudly criticised the package on these grounds.

2 See “Italy Lagging Behind”, Giada Giani, Euro Weekly, 3 June 2011, Citi

Revenues constitute the bulk of the

manoeuvre

Italy already has one of the heaviest tax

burdens in developed countries

Further tax increases may hit more

negatively on GDP growth than

expenditure cuts



Closely related to this argument, there is a third factor of uncertainty related to the fiscal package — that is the macroeconomic scenario the government used to project the savings estimates. The government’s official economic forecasts have not been changed since the Stability Programme published last April, which envisaged GDP growth at 1.1% in 2011, 1.3% in 2012 and 1.5% in 2013. These are now outdated, partly because of the economic slowdown in the rest of the world and partly because of the additional fiscal tightening approved since then. We suspect tax revenues will turn out weaker than currently estimated by the austerity package.

Aside from the purely fiscal measures, what has been really missing so far from the government’s policy agenda are structural reforms. A list of broad structural measures was apparently one of the main points contained in the letter sent in early August to the Italian government by the ECB President Trichet, and Bank of Italy Governor Draghi. A progressive increase in the legal retirement age for women working in the private sector, to start in January 2014, is the only structural measure introduced at the very last minute before the approval of the Senate two weeks ago. It does not have any meaningful impact on the fiscal balance before the next four to five years, given its delayed starting date. Yet, this is one of the measures which has been the subject of the most extensive negotiations within the governing coalition over the past month.

All the other structural measures Italy has been requested to deliver — eg liberalisation of local public services, privatisation of state-owned or controlled enterprises, more flexibility in the labour market — have not yet even reached the negotiating table. These are only some of the policy areas on which the Italian Program of National Reform focuses. The government has also put forward last week a law proposal to introduce the balanced-budget rule in the Constitution, responding to the German requests. But this is unlikely to change the government’s perceived commitment towards fiscal austerity. Spain, led by a minority government two months ahead of a general election, has actually already passed the same constitutional amendment last week with a two-thirds parliamentary majority.

Market perceptions on the Italian government’s commitment towards fiscal discipline have significantly worsened over the past two months. The protracted back and forth in the negotiations on the fiscal package highlighted the political tensions within the same governing coalition and probably, in our view, also the lack of an adequate perception of the severity of the crisis by many government officials. We reckon high political turbulence and uncertainty around future political developments will likely continue to unsettle Italian debt market participants.

While, as we argued, the austerity package is quite sizable and probably able to lift the primary surplus quite substantially in the next two years, the political process that led to its approval indicates the government’s limited ability to tackle the current crisis. The score on the other two points highlighted by Moody’s is probably worse. First, not many structural reforms have been put on the table in two and a half months of market turbulence. Second, the euro debt crisis looks more severe today — and the contagion more widespread — than it was in June. We reckon at least a one-notch downgrade — from Aa2 to Aa3 — by Moody’s is highly likely to happen, with a decent probability of a two-notch move, to A1. In the mean time, S&P has downgraded Italy to A with negative outlook on September 19th.

We suspect further intense market pressure on the Italian debt is probably required to get the government into further action. With its decision to intervene in support of BTPs, the ECB finds itself in the uncomfortable position of not really having any other effective leverage on Italy to deliver on its promises apart from letting the Italian spread widen. This is obviously costly for Italy — not only in terms of government funding, but also for the banks and the negative repercussions on the Italian equity market. But a widening and volatile BTP/Bund spread is also highly

Uncertainty about the government’s

underlying macro scenario used to

estimate the savings

No structural reforms yet passed, aside

from a much-debated increase in

women’s retirement age from 2014

A balanced-budget rule in the

Constitution unlikely to change Italy’s

perceived austerity drive

A severe loss of credibility has probably

resulted from the political tensions of the

past two months

Rating agencies are looking closely at

Italian developments…

Additional market pressure on Italy looks

inevitable, putting the ECB in a very

uncomfortable position



negative for the rest of the euro area's financial system, as circa €800bn of Italian debt is sitting in non-Italian investors’ portfolios. In a very similar fashion to what is happening for the rest of the distressed euro periphery, the ECB’s target of preserving euro area financial stability is increasingly clashing with that of enforcing sound economic management in some member countries.

Here follows an extract from European Economic Forecast Highlights - August 2011, Giada Giani, Citi, 25 August 2011

Q2 GDP growth (+0.3% QQ) was slightly above the euro area average, but forward-looking indicators suggest GDP dynamic may actually turn negative in Q3. We have cut our GDP forecasts for this year and next due to additional fiscal tightening, ongoing weakness in labour income, and a slowdown in exports. We reckon the new fiscal tightening (worth 3% of GDP in 2012-13) will help reduce the deficit to around 1% of GDP in 2013, but at the expense of weaker GDP growth. Tighter private sector financial conditions will also weigh on growth. The debt-to-GDP ratio should stabilise at around 120%, but, barring major privatisations, it is unlikely to show significant declines before 2014. Tensions within the governing coalition are likely to stay high, with the possibility of early elections before the scheduled date of spring 2013 still quite high.

Figure 11. Italy – Economic Forecasts, 2010-12F

History Forecast History Forecast 2010 2011 2012 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12Real GDP YY 1.2 0.6 -0.3 0.7 1.4 1.4 1.5 1.0 0.8 0.4 0.2 0.0 -0.4 -0.4 -0.5

QQ SAAR 2.6 1.9 1.1 0.6 0.6 1.0 -0.7 0.0 -0.5 -0.5 -0.5 -0.5 Final Domestic Demand YY 0.9 0.4 -0.6 0.4 1.1 1.2 0.9 0.9 0.6 0.1 0.1 -0.3 -0.6 -0.7 -0.8

QQ SAAR 1.2 1.7 1.2 -0.3 0.9 0.4 -0.7 -0.2 -0.8 -0.8 -0.8 -0.9 Private Consumption YY 1.0 0.8 -0.7 0.9 1.0 0.9 1.1 1.0 1.2 0.7 0.4 -0.1 -0.6 -0.9 -1.2

QQ SAAR 1.0 0.2 1.7 1.3 0.7 0.9 -0.2 0.1 -1.2 -1.2 -1.2 -1.2 Public Consumption YY -0.6 -0.6 -1.7 0.1 -0.6 -0.6 -1.1 0.1 -0.8 -0.8 -0.8 -1.7 -1.7 -1.7 -1.6

QQ SAAR -2.5 1.7 -1.3 -2.2 2.1 -1.6 -1.6 -2.0 -1.6 -1.6 -1.6 -1.6 Fixed Investment YY 2.4 0.2 0.7 -1.0 3.1 4.6 2.8 1.5 0.1 -0.9 0.1 0.3 0.4 1.0 1.1

QQ SAAR 5.9 6.5 2.5 -3.3 0.4 0.9 -1.4 0.5 1.2 1.2 1.2 0.8 -- Business Equipment YY 8.5 0.6 0.3 4.7 11.4 10.7 7.3 2.9 0.4 -0.8 -0.2 0.2 -0.4 0.8 0.8

QQ SAAR 17.0 14.2 1.1 -2.1 -0.7 3.4 -3.6 0.0 1.0 1.0 1.0 0.3 -- Construction YY -3.7 -0.2 1.1 -6.5 -5.0 -1.6 -1.7 -0.1 -0.2 -1.0 0.5 0.4 1.2 1.3 1.4

QQ SAAR -4.7 -1.5 4.2 -4.7 1.6 -1.8 1.0 1.1 1.4 1.4 1.4 1.4 Exports of Goods and Services YY 8.9 4.1 1.6 6.2 9.7 9.8 9.7 7.3 5.7 1.5 2.2 1.2 0.8 2.5 1.8

QQ SAAR 15.9 10.0 11.8 1.8 5.9 3.5 -4.9 4.8 1.8 1.8 1.7 1.7 Imports of Goods and Services YY 10.3 4.8 0.0 6.4 9.2 13.0 12.5 8.6 8.2 2.3 -0.2 -0.7 -0.6 0.7 0.4

QQ SAAR 18.4 1.4 19.5 11.8 2.8 0.0 -4.6 1.3 0.5 0.5 0.5 0.3 Net Exports (Contrib. to YY GDP Growth) -0.5 -0.2 0.4 -0.2 0.5 -0.5 -0.7 0.2 0.2 0.1 0.0 0.1 0.1 0.1 0.1 Consumer Prices YY 1.6 2.8 2.4 1.1 1.6 1.8 1.9 2.1 3.0 2.1 3.5 2.7 2.5 2.0 2.1 Compensation per Employee 2.9 NA NA Employment Growth -0.7 0.1 -0.1 Unemployment Rate % 8.4 8.3 8.5 Current Account Balance € bn -53.5 -60.9 -57.8

% GDP -3.5 -3.8 -3.5 General Government Balance € bn -71.2 -64.3 -40.6

% GDP -4.6 -4.1 -2.5 General Government Debt € bn 1843 1907 1948

% GDP 119.0 120.7 121.7

Note: Percentage changes unless indicated. Annual data are period averages. Sources: Bank of Italy, ECB, Eurostat, ISTAT and Citi Investment Research and Analysis

On 14 September the Italian business association Confindustria cut quite drastically its economic forecasts for Italy for this year and the next – projecting that GDP will expand by 0.7% in 2011 and by just 0.2% in 2012 (from 0.9% and 1.1%, respectively). The impact of the austerity package will be significant, as the tax burden will increase from 42.8% in 2011 to 44.1% in 2012 – beyond the historical peak of 43.7% reached in 1997 ahead of the entry into the euro.

The Confindustria Angle

https://ir.citi.com/f74vk4rIWG431%2Fibw3BsmABkhhnA7qQQKKPKHzL3nSA%3D�



Key Economic Data

2010F 2011F 2012FGDP 1.2 0.6 -0.3CPI 1.6 2.8 2.5Fiscal deficit -4.6 -4.1 -2.5Trade deficit -3.5 -3.8 -3.5Unemployment rate 7.1 6.2 6.1

Source: CIRA

Macro: Sluggish growth is expected to continue and forward-looking indicators suggest GDP dynamic may actually turn negative in 3Q. GDP forecasts have been cut due to additional fiscal tightening, ongoing weakness in labour income and slowdown in exports. Performance: Italy is among the weaker performers over the past three months. The MSCI Italy Index is down 34% over 3m. The index has fallen 41% since the May highs. EPS: 2011F earnings growth expectations have been aggressively revised downwards. 2011 growth forecasts are now 3% vs c30% a year ago. Valuation: Italy trades at 7.3x on 12m forward earnings. In November 2008, Italy was only 10% cheaper on an absolute basis. On a relative basis, Italy has never looked this cheap. CAM: Italy ranks in the bottom half of our CAM model. Its cheap valuation makes it more attractive than most peripheral countries, but it ranks low on macro factors, EM exposure and balance sheet strength.

Performance Figure 12. Absolute Performance (EUR) Figure 13. Relative Performance (EUR)

20

40

60

80

100

120

Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11

90 Day Moving Average

50

60

70

80

90

100

110


Source: Datastream. Source: Datastream.

Valuation Figure 14. 12-Month Forward P/E - 5 Years Figure 15. Dividend Yield

6

8

10

12

14

16


70

80

90

100

110

120

Italy PE Rel (RHS)

2

3

4

5

6

7

8

9

10


Italy MSCI Europe

Source: IBES, Citi Investment Research and Analysis. Source: Datastream.

3 Contribution by Anna Esposito, CIRA European Equity Strategy team (+44-20-7986-4039).

Citi Strategists’ View on Italy3



Earnings Figure 16. Earnings Growth Figure 17. Rel Earnings Price Momentum

0

5

10

15

20

25

30

35

Sep-10 Dec-10 Mar-11 Jun-11

2010 2011 2012

50

60

70

80

90

100

110


Earnings Relative Price Relative

Source: Citi Investment Research and Analysis. Source: IBES, Citi Investment Research and Analysis.

Country factoid Figure 18. Valuation Data

10F 11F 12F 10F 11F 12F 10F 11F 10F 11F

Italy 8.3 8.0 6.9 5.9 6.2 6.7 4.6 4.4 7.9 5.3Pan-Europe 10.1 9.5 8.5 4.3 4.7 5.2 6.1 5.7 6.9 6.1

10F 11F 12F 10F 11F 12F 10F 11F 10F 11F

Italy 15.4 3.2 16.0 6.1 6.6 7.4 2.2 2.1 9.5 6.5Pan-Europe 40.5 6.8 11.5 12.8 8.7 11.5 1.3 1.2 12.2 3.9

PE DY EV/EBITDA FCF Yield

EPS Growth (%) DPS Growth (%) N.Debt/EBITDA Sales growth (%

Source: Citi Investment Research and Analysis

Profitability Figure 19. Return on Equity Figure 20. Price to Book

4

6

8

10

12

14

16

18


20

40

60

80

100

120

140

160Abs (LHS) Rel (RHS)

0.0

1.0

2.0

3.0

4.0

5.0


40

60

80

100

120

140Abs (LHS) Rel (RHS)

Source: Datastream. Source: Datastream.

Beta & Sales Figure 21. Sales Exposure Figure 22. Beta – 5 Years

Other2%

EM23%

US9% Europe

66%

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5


Source: Citi Investment Research and Analysis Source: Datastream.



Figure 23. OW/UW Sectors vs. Stoxx Figure 24. OW/UW Size vs. Stoxx Figure 25. Top 10 Stocks

-15 -10 -5 0 5 10 15 20 25

Consumer Stap

MaterialsHealth Care

IndustrialsInformation Tech

Consumer DiscTelecom Serv

Financials

Utilities

Energy

-35 -25 -15 -5 5 15 25

Small

Mid

Large Ex Mega

Mega

Italy

M.Cap Earnings Perf(€bn) Rec P/E 11E 2YCAGR -3M

ENI 33412 1M 8 -2 -1Enel 19756 2M 7 -5 -21Generali 15031 2M 7 12 -9Intesa Sanpaolo 13928 2S 4 22 -35Unicredit 13121 2S 4 30 -38Telecom Italia 7990 1M 5 191 -3Saipem 7023 1M 11 17 -1Snam Rete Gas 5074 1L 12 1 -4Tenaris 4926 10 22 -19Fiat Industrial 4106 1H 6 51 -24

Source: Datastream. Source: Datastream. Source: Citi Investment Research and Analysis. (ISP.MI; €1.00; 2S); (CRDI.MI; €0.71; 2S); (GASI.MI; €11.20; 2M); (SPMI.MI; €29.27; 1M)



Company Updates (Local Coverage)



Autogrill SpA (AGL.MI) Dare to Shine What We Like — i) A well-run group operating F&B and retail outlets across the

world; ii) the bulk of costs are variable, capex is somewhat discretionary and working capital is negative; iii) management is very good at managing day-to-day operations; iv) the group has historically outperformed traffic; v) benign competitive environment for new bids; vi) room for margin recovery in F&B; vii) indirect exposure to emerging market traffic growth via European hubs.

What We Don't Like — i) We see few synergies from running F&B and retail; ii) the current sizes of the two businesses don’t leave space for value-creating spin-offs and separate listings; iii) exposure to Italian highways.

Break it up! — In our report Dreaming about Autogrill’s Future dated June 20th, we suggested that Autogrill should sell T&R and invest in F&B where distressed players might be acquired cheaply. We still believe that this would be the best path to follow and – accordingly – we welcome the new non-recourse financing.

A Better Group than in 2008 — Back in 2008 Autogrill faced the great recession in pretty bad shape – with very high gearing, a challenging integration of three newly acquired retail businesses and an underperforming/highly capital intensive in-flight business. Four years later, travel & retail is highly integrated and profitable, in-flight has gone and debt is under control. And then there is Heathrow T5, a formidable machine.

What we Expect in 2011E — Sound H111A results showed acceleration in 11A. Airports outperformed in both Europe and the US while motorways were the laggards everywhere. Autogrill managed to improve profitability in both F&B and T&R. As the key summer season is going well, 2011E EBITDA might nearly be in the bank and the risk of profit warnings seems much lower than for the overall market. Our 6.5% cut in 2011E EPS purely reflects costs for refinancing.

Looking Ahead — We expect modest traffic recovery in 2012E and a sharp 1.5% fall of traffic in Italy with little outperformance. Whereas traffic is unpredictable by definition, Autogrill has a very flexible cost structure considering that the bulk of COGS, rents and payroll are very variable. Our c.20% cut in 2012-13E EPS (and c.6% in EBITDA) reflects lower expectations on Italy (where we see EBITDA down by 10% and 20% from 2011E and 2012E respectively) and higher financing costs.

Capital Structure — The decision of splitting debt on the business could be seen a first (but “mandatory”) step toward a group reorganisation. With a net debt of €1.5bn or 2.3x EV/EBITDA, we believe that gearing is no longer a critical issue for Autogrill.

Reiterating our Buy, TP €11.00 — Although we set our target price of €11.00 (down from €12.00 to reflect lower estimates and the c10% discount to FCF we now apply to reflect Italian macro issues) on a plain FCF valuation, stripping out the possible price-tag for T&R, we estimate core F&B would trade below 4x 2011E EV/EBITDA, well below historical multiples. We believe this, and the low risk of profit warnings, make Autogrill a “must have” among Italian mid-caps.

Company Focus


Buy/Medium Risk 1MPrice (21 Sep 11) €8.03Target price €11.00

from €12.00 Expected share price return 37.0%Expected dividend yield 3.0%Expected total return 40.0%Market Cap €2,043M US$2,800M

Price Performance (RIC: AGL.MI, BB: AGL IM)

Company Update Target Price Change Estimate Change

Europe | Italy Restaurants (GICS) │ Food Distribution Services (Citi)



Fiscal year end 31-Dec

2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) 27.7 19.2 18.9 15.0 13.1 EV/EBITDA adjusted (x) 7.1 6.7 6.2 5.6 5.2 P/BV (x) 4.0 3.0 2.8 2.6 2.3 Dividend yield (%) 0.0 0.0 3.0 3.7 3.7 Per Share Data (€) EPS adjusted 0.29 0.42 0.43 0.54 0.61 EPS reported 0.15 0.41 0.43 0.54 0.61 BVPS 2.00 2.71 2.90 3.13 3.44 DPS 0.00 0.00 0.24 0.30 0.30

Profit & Loss (€M)

Net sales 5,730 5,704 5,840 5,999 6,282 Operating expenses -5,479 -5,448 -5,548 -5,667 -5,925 EBIT 251 255 292 332 357 Net interest expense -95 -75 -88 -84 -79 Non-operating/exceptionals 0 25 0 0 0 Pre-tax profit 156 205 204 248 277 Tax -105 -89 -87 -103 -113 Extraord./Min.Int./Pref.div. -14 -12 -9 -9 -10 Reported net income 37 103 108 136 155 Adjusted earnings 74 106 108 136 155 Adjusted EBITDA 606 605 611 647 674 Growth Rates (%) Sales -1.1 -0.5 2.4 2.7 4.7 EBIT adjusted -24.4 1.8 14.3 13.7 7.5 EBITDA adjusted 0.8 -0.1 1.0 5.8 4.1 EPS adjusted -44.9 44.1 1.6 25.9 14.2

Cash Flow (€M)

Operating cash flow 449 488 448 420 481 Depreciation/amortization 355 350 320 315 317 Net working capital 42 22 11 -41 0 Investing cash flow -153 -69 -238 -205 -236 Capital expenditure -158 -225 -238 -205 -236 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -407 -387 -61 -76 -76 Borrowings -257 -377 0 0 0 Dividends paid 0 0 -61 -76 -76 Change in cash -112 32 149 139 168

Balance Sheet (€M)

Total assets 4,094 3,833 3,896 3,957 4,052 Cash & cash equivalent 209 191 334 467 629 Accounts receivable 110 60 62 126 132 Net fixed assets 985 755 686 591 523 Total liabilities 3,530 3,121 3,137 3,139 3,153 Accounts payable 709 680 696 698 712 Total Debt 2,144 1,767 1,767 1,767 1,767 Shareholders' funds 563 711 758 818 898

Profitability/Solvency Ratios (%)

EBITDA margin adjusted 10.6 10.6 10.5 10.8 10.7 ROE adjusted 14.8 17.8 15.2 17.8 18.5 ROIC adjusted 5.1 6.2 8.1 9.3 10.2 Net debt to equity 343.4 221.5 188.9 158.8 126.8 Total debt to capital 79.2 71.3 70.0 68.3 66.3

For further data queries on Citi's full coverage universe please contact CIRA Data Services Europe at [email protected] or +44-207-986-4050



Davide Campari-Milano SpA (CPRI.MI) Rarely Cheap, Structural Buy What we Like — i) Proven track record of delivering organic growth while

pursuing opportunistic external growth; ii) successful mix of brands/countries strategies with a) 90% of sales generated via direct networks and b) bulk of sales generated in niches with dominant brands; iii) the huge potential of aperitifs across Europe; iv) sound balance sheet and strong conversion of EBITDA into cash; v) acquisitive but financially disciplined; and vi) corporate governance

What we Don't Like — i) Exposure to the mature Italian market that leaves little room for growth – especially for mono-dose products; & ii) 'Fashion component' of SKYY Vodka, the only brand in direct competition with sector ‘big guns’.

What we Expect in 2011E — During the H111A call, the management was optimistic about full-year prospects – an “upgrade” on the “cautiously optimistic” oxymoron view of the FY10A call. This leads us to believe that all cylinders are likely to keep firing in 2011E – particularly aperitifs and American Honey.

Looking Ahead — Campari is more exposed to Aperitifs and Happy Hours than other players in the industry (see our report Rarely Cheap, Structural Buy, 14 June) .We believe that Aperitifs and Happy Hours are social events less dependent on GDP growth than top/premium segments or expensive spirits. So whereas spirits companies might struggle to sell expensive whisky or cognac in Italy and Europe right now, we might expect a growing numbers of Europeans to keep on spending while sipping a “Spritz” with friends. So we remain cautiously optimistic even in a weaker macro-environment. Cheers.

Fine-Tuning Estimates — Although H11A was particularly sound, given the uncertain macro-environment we have resisted the temptation to increase our 2011-12E estimates accordingly: had we applied the weight of H110A EBITDA (43.1% of FY10A) to the current year, our model would point to an EBITDA for 2011E of €359m; in fact we have lifted our 2011E EBITDA to just €333m (up 3.6%). We are also increasing 2011-13E EPS by some 3%.

Capital Structure — Although highly acquisitive, Campari has consistently been disciplined with a self-imposed 3x Net debt/EBITDA – a level below the 3.5x (4.25x for acquisitions) granted by debtors. Assuming a 3x EBITDA of 2011E, Campari could sustain a net debt of €1,050m – providing a €500m war chest.

Buy Maintained, Increasing TP €6.50 — We see history repeating itself with a sound dual path of growth and we believe there is still room for outperformance. In valuing Campari, we use free cash flow (FCF) yield (revised in line with the changes to our earnings model) as our primary valuation methodology, reflecting Campari's status as a cash cow. We calculate a WACC of 7.8%, assuming a leverage ratio of 25%. We use long-term earnings growth of 2.0%, which we believe reflects both the maturity of the business and Campari's record in managing external growth.

Company Focus




Price Performance (RIC: CPRI.MI, BB: CPR IM)


Europe | Italy Distillers & Vintners (GICS) │ Beverages (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 1,008 1,163 1,265 1,357 1,461 Operating expenses -767 -890 -962 -1,023 -1,096 EBIT 241 273 303 334 365 Net interest expense -37 -37 -41 -39 -38 Non-operating/exceptionals -6 -3 0 0 0 Pre-tax profit 198 233 262 295 327 Tax -61 -76 -83 -92 -101 Extraord./Min.Int./Pref.div. 0 -1 -1 -1 -1 Reported net income 137 156 179 203 225 Adjusted earnings 137 156 179 203 225 Adjusted EBITDA 267 299 333 365 396 Growth Rates (%) Sales 7.0 15.3 8.8 7.3 7.6 EBIT adjusted 22.7 13.8 11.1 10.4 9.1 EBITDA adjusted 24.2 11.9 11.5 9.6 8.5 EPS adjusted -45.8 13.9 14.5 13.7 10.7

Cash Flow (€M)

Operating cash flow 89 246 232 270 290 Depreciation/amortization 27 26 30 31 31 Net working capital -112 27 -17 -2 -5 Investing cash flow -335 -55 -39 -32 -33 Capital expenditure -38 -55 -31 -32 -33 Acquisitions/disposals -296 0 -8 0 0 Financing cash flow 382 -228 -75 -74 -72 Borrowings 413 -233 -41 -39 -38 Dividends paid -31 -35 -35 -35 -35 Change in cash 136 -37 118 165 184


Total assets 2,372 2,651 2,801 2,987 3,201 Cash & cash equivalent 309 261 379 544 728 Accounts receivable 300 269 279 286 294 Net fixed assets 206 326 325 324 324 Total liabilities 1,311 1,398 1,404 1,421 1,442 Accounts payable 163 187 193 208 224 Total Debt 949 938 938 938 938 Shareholders' funds 1,061 1,253 1,397 1,566 1,756






CIR - Compagnie Industriali Riunite SpA (CIRX.MI) The Sleeping Beauty What we Like — i) First-class management team that has created significant

value, launching businesses from scratch; ii) it has a well diversified portfolio of businesses run by best-in-industry management teams; iii) CIR is trading at a c.30% discount to NAV, which assumes no premium for control of its assets and a valuation of €500m for its Sorgenia stake; iv) discount to NAV widens to 40% once the €560m windfall from Lodo Mondadori is considered (net of taxes) with cash accounting for c.28% of total assets.

What we Don't Like — i) It’s a mid-cap Italian holding company: hardly the first choice for overseas investors; ii) exposure to publishers; iii) CIR hasn’t disposed of any assets over the last few years; and iv) ten years into an impressive launch, Sorgenia might be facing a stall in its growth and might need to fine-tune its strategy.

A €560m Mid-Summer Court Dream — Last July Fininvest, Silvio Berlusconi’s family holding company, was ordered by an Italian court to pay €560m in compensation (of which €20m is interest) to CIR in relation to the long-running dispute over the takeover of Mondadori. Even if we assume a 30% tax rate, we calculate CIR’s net windfall will be around €400m or c.28% of its current market capitalisation.

How to Spend It — While waiting for the final appeal (at least another 18-24 months to the 30-year long litigation), we believe CIR is likely to invest it in the money market – while revamping its long-time buyback aimed at cancelling shares to increase the De Benedetti family’s control. Longer term, we would expect CIR to favour expanding investments in industries and energy rather than media.

Valuation — We maintain our positive view on CIR (Buy/Medium Risk), and our target price of €1.80. However, while we believe that CIR should deliver long-term value, we believe that CIR might offer limited upside in the short term. On the other hand, cash and the discount to NAV should help CIR to better weather bad markets.

Company Focus


Buy/Medium Risk 1MPrice (21 Sep 11) €1.42Target price €1.80Expected share price return 26.6%Expected dividend yield 0.0%Expected total return 26.6%Market Cap €1,128M US$1,546M

Price Performance (RIC: CIRX.MI, BB: CIR IM)

Company Update

Europe | Italy Industrial Conglomerates (GICS) │ Conglomerates (Citi)



CIR NAV (prices as of 20-Sept-11)

Shares Stake Book value Price Mkt. Value m. % €m € €m L'Espresso 220.8 53.90% 268.6 1.22 269.3 Sogefi 65.7 56.59% 98.9 1.40 92.0 listed assets 367.6 361.4 Sorgenia 88.6 51.80% 491.7 700.0 KOS 65.40% 87.4 163.5 Oakwood/Jupiter 100.0 - unlisted assets 679.1 963.5 Total Investments 1,046.6 1,324.9 Net Cash (Debt) 123.0 Private Equity investments 67.0 100.0 Real estate & Others 18.0 20.0 CIR Treasury shares 43.1 5.44% 1.47 63.4 Net Assets 1,631.3 Per share Data EUR NAV (€m) 1,631.3 Shares Outstanding (m) 791.1 NAV per share (€) 2.06 Price (€) 1.47 Premium (Discount) on Gross NAV -28.5%

Source: Company Reports and CIRA Estimates



Gruppo Editoriale l'Espresso SpA (ESPI.MI) Best in Class – in the Wrong Class What we Like — i) Strong brand awareness – especially among Berlusconi’s

opposition; ii) it has historically exhibited best practice in Italy for both timing and efficiency of cost-cutting strategies; iii) Espresso has been pioneering new media for almost a decade (although with limited impact on the bottom line so far); iv) cash flow generation; v) Espresso might rent DTT capacity to broadcasters; and vi) strong management team.

What we Don't Like — i) After the impressive cost-cutting plan (c 20% of 2008A operating costs), either revenues need to start growing again, or Espresso might have an inadequate cost structure compared to its future sales; ii) the current format of Repubblica looks unfit for the long term and we believe Espresso needs to focus on quality vs quantity of information; iii) we believe the group should centralise national and international news at Repubblica while leaving local staff in charge of local news; and iv) DTT might already be entering in the age of abundance and Espresso might fail to monetise its TV strategies.

What we Expect in 2011E — We expect core circulation to increase from €268m in 2010A to €275m as gradual increases in local newspapers’ cover price (from €1.0 to €1.2) should more than offset declines in copies sold. Total circulation should anyhow suffer from a further decline in add-ons. We are assuming Espresso will increase Repubblica’s cover price only in 2012. However, Repubblica’s circulation might suffer once the ‘gossip effect’ on Berlusconi fades away. Finally, we assume advertising will grow short of c.2% in 2011E. We calculate an EBITDA of €158.6m ex one-off in 2011E.

Looking Ahead — We expect flattish revenues in 2012E as the increase of cover price should more than offset decline in core circulation, add-ons and a 2.5% decrease in advertising. Starting from an EBITDA of €158.6m, we point to an EBITDA of €149.7m in 2012E after considering changes in top line and inertial inflation on operating costs. We are cutting 2011-13E EPS by 14%, 30.1% and 32.5% on the basis of the above assumptions on top line and costs trends. While capex should stabilise at €30m, we still see strong cash flow generation for 2011-12E with Espresso’s net debt hovering around €100m by the end of 2012E – after paying an unchanged dividend.

Capital Structure — Espresso has modest gearing of less than 1.0x net debt/EBITDA and a relatively low cost of debt (5.125%) on its October 2014 bond. Espresso has limited capex in the range of €30m and – accordingly – might keep paying dividends.

The Age of Abundance in TV — We stick to our long-held view (see “The Songs Remains the Same” dated 2 October 2009) and we believe that TV is entering an age of abundance rather than scarcity. Accordingly, we still attribute little value to Espresso’s TV business – despite market expectations.

Valuation — We value Espresso using a five-year DCF reaching a valuation of €1.30 per share, which we set as our target price (down from €1.90 to reflect our earnings revisions and slight changes in our assumed WACC and long-term growth rate to 8.5% and -1% respectively). Although we recognise that Espresso could potentially have a much higher break-up value — especially considering the influential position of Repubblica in Italian politics and the economic environment — CIR controls a majority stake in Espresso and we don't expect any corporate action in the short or medium term.

Company Focus


Hold/Medium Risk 2MPrice (21 Sep 11) €1.24Target price €1.30

from €1.90 Expected share price return 5.3%Expected dividend yield 6.0%Expected total return 11.3%Market Cap €507M US$694M

Price Performance (RIC: ESPI.MI, BB: ES IM)


Europe | Italy Publishing (GICS) │ Media - General (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) nm 8.4 8.1 10.3 9.9 EV/EBITDA adjusted (x) 9.4 4.5 4.1 4.4 4.2 P/BV (x) 1.0 0.9 0.9 0.9 0.8 Dividend yield (%) 0.0 0.0 6.0 6.0 6.0 Per Share Data (€) EPS adjusted -0.02 0.15 0.15 0.12 0.13 EPS reported 0.01 0.12 0.14 0.12 0.13 BVPS 1.19 1.32 1.39 1.43 1.48 DPS 0.00 0.00 0.07 0.07 0.07


Net sales 887 885 899 889 878 Operating expenses -823 -776 -778 -776 -764 EBIT 64 109 121 113 115 Net interest expense -20 -14 -16 -15 -15 Non-operating/exceptionals 0 0 0 1 2 Pre-tax profit 44 95 105 99 102 Tax -39 -45 -47 -49 -50 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income 6 50 58 49 51 Adjusted earnings -8 60 62 49 51 Adjusted EBITDA 86 166 166 150 151 Growth Rates (%) Sales -13.5 -0.2 1.6 -1.2 -1.2 EBIT adjusted -33.0 102.0 0.1 -12.6 1.5 EBITDA adjusted -39.7 93.5 0.0 -9.9 0.7 EPS adjusted -137.7 872.4 3.8 -21.0 4.5

Cash Flow (€M)

Operating cash flow 103 109 124 98 95 Depreciation/amortization 43 38 37 37 36 Net working capital 35 7 12 -4 -10 Investing cash flow -27 -11 -36 -31 -31 Capital expenditure -26 -25 -36 -31 -31 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -37 -57 -68 -60 -45 Borrowings -31 -38 0 0 0 Dividends paid 0 0 -30 -30 -30 Change in cash 39 41 20 7 19


Total assets 1,395 1,383 1,401 1,430 1,479 Cash & cash equivalent 160 195 215 220 234 Accounts receivable 230 235 239 266 304 Net fixed assets 204 182 183 181 178 Total liabilities 900 840 830 839 868 Accounts payable 148 144 146 159 177 Total Debt 368 330 330 330 330 Shareholders' funds 495 543 572 591 611


EBITDA margin adjusted 9.7 18.8 18.5 16.8 17.2 ROE adjusted -1.6 11.7 11.3 8.5 8.6 ROIC adjusted 2.8 9.9 9.9 7.7 7.8 Net debt to equity 42.0 24.9 20.2 18.7 15.7 Total debt to capital 42.6 37.8 36.6 35.9 35.1




Geox SpA (GEO.MI) Do Fundamentals Still Matter? Buy What We Like — i) Strong brand awareness in Italy and some European

markets; ii) technology concept; iii) potential upside for apparel in Italy; iv) shift from wholesale to retail in the longer term; and v) the cash position.

What We Don't Like — i) Technology vs. pricing; ii) exposure to weak European economies; iii) apparel in overseas markets; and iv) exposure to ‘mom & pop’ shops, which are suffering from the credit crunch.

Take It Private? — Geox has a market capitalisation of c.€700m, cash of some €80m and we estimate EBITDA of €120-130m in 2011E and 2012E. The business is recovering following some changes in strategy, the valuation looks attractive and LIR controls 70.99%. Is taking it private a tempting option? We recently upgraded Geox to Buy from Sell with an unchanged target price of €3.60 (Geox SpA (GEO.MI) - Sell-Off Overdone: Upgrade to Buy, 9 September 2011).

Technology is Dead, Long Live Technology — In our view, Geox used to put too much emphasis on technology relative to what consumers were willing to pay. We believe that Geox has now gradually shifted its positioning to a more appropriate price-product mix, while technology remains a powerful tool for brand awareness.

Improved Distribution Network and Reach — Whereas the strong growth of the last decade was achieved via boosting wholesale and expansion in some 100 countries, Geox is now focusing on retail and key countries such as Germany, France and Spain which – along with Italy – account for c65% of sales, on our estimates. It is also now adopting a more local approach to better fine-tune to consumer tastes. Sponsorship of Formula 1 Red Bull and world champion Sebastian Vettel may also help in Germany.

Improved Sourcing — Over the last few years, Geox has also gradually reduced its dependence on trading companies while exploiting direct sourcing in Asia and Brazil. While some 600-800 items out of 4,000 generate around 80% of sales, Geox is also planning a reduction to some 2,500 products for the two key collections while introducing more frequent collections.

Bucking the Trend — We see Geox’s EBITDA hovering around €120-130m in 2011-12E as better operations should help offset a worsening macro scenario. We forecast sales growing c.4% in 2012E – well below the 8% increase in the Fall/Winter 2011 order backlog so far – resulting in our recent 20% cut in 2012E EPS. We are 15% and 21% below consensus EBITDA and EPS, respectively. Management still appears to us more positive on 2012E, anticipating a margin recovery from 1H11 troughs.

Buy, TP €3.60 — We recently upgraded Geox to Buy from Sell – with a target price of €3.60 per share – on i) attractive valuation; ii) improved operations; and iii) de-listing option.

Company Focus


Buy/Medium Risk 1MPrice (21 Sep 11) €2.78Target price €3.60Expected share price return 29.7%Expected dividend yield 5.8%Expected total return 35.4%Market Cap €720M US$986M

Price Performance (RIC: GEO.MI, BB: GEO IM)

Company Update

Europe | Italy Footwear (GICS) │ Apparel/Footwear/Textiles (Citi)

https://ir.citi.com/mLh0tnx1j0jWG1lWIEs7bSHbK3zQXHRRZXVkVJr2krw%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 865 850 879 910 952 Operating expenses -748 -757 -804 -832 -861 EBIT 117 93 74 78 91 Net interest expense -4 -3 -3 -3 -3 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit 113 90 71 75 88 Tax -46 -32 -26 -26 -31 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income 67 58 46 49 57 Adjusted earnings 67 58 46 49 57 Adjusted EBITDA 166 132 120 129 144 Growth Rates (%) Sales -3.1 -1.7 3.4 3.6 4.6 EBIT adjusted -32.1 -20.2 -20.2 4.8 17.2 EBITDA adjusted -16.6 -20.5 -9.2 7.6 11.5 EPS adjusted -45.9 -13.1 -21.3 6.7 17.9

Cash Flow (€M)

Operating cash flow 166 72 80 93 101 Depreciation/amortization 49 39 46 51 53 Net working capital 50 -25 -11 -7 -9 Investing cash flow -24 -32 -40 -42 -46 Capital expenditure -24 -32 -40 -42 -46 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -66 -60 -47 -47 -47 Borrowings 0 0 0 0 0 Dividends paid -62 -52 -47 -47 -47 Change in cash 76 -20 -7 5 8


Total assets 630 596 598 605 621 Cash & cash equivalent 116 106 97 100 107 Accounts receivable 142 125 130 131 133 Net fixed assets 65 70 77 78 80 Total liabilities 203 173 175 180 186 Accounts payable 152 118 120 125 130 Total Debt 14 14 14 14 14 Shareholders' funds 429 426 425 428 438


EBITDA margin adjusted 19.2 15.6 13.7 14.2 15.1 ROE adjusted 15.6 13.6 10.7 11.4 13.3 ROIC adjusted 20.7 20.4 15.8 16.6 19.3 Net debt to equity -23.9 -21.6 -19.6 -20.2 -21.2 Total debt to capital 3.1 3.1 3.1 3.1 3.0




Landi Renzo (LR.MI) Multiple Options in EM, Harsh Reality in Europe What we Like — i) A dynamic, small Italian company that due to its

entrepreneurial approach has been able to establish itself as the worldwide market leader in alternative fuel systems for the LPG and CNG markets; ii) oil above $100 p/b might renew the attractiveness of the aftermarket business; and iii) potentially opportunities might arise if governments start giving incentives for eco-friendly fuel systems – especially in the US and the Middle East.

What we Don't Like — i) Future opportunities largely depend on governments rather than on management skills; ii) current state of public finances across advanced economies (AE) is hardly supportive of new cash-for-clunkers deals; iii) given current harsh fights between Fiat and the trade unions, we believe that Italy is unlikely to introduce any kind of incentive; and iv) following the introduction of EURO5, we fear that LPG and CNG’s main advantages in terms of costs and emission may fade going forward.

No Room for Incentives in AE — given budget constraints in most of the West European countries, we don’t expect any incentives over the coming quarters. And so far EURO5 in not generating big numbers. We also think that Nat Act Gas would hardly be a priority for the US administration these days. And oil below USD100 would not be sufficient to boost the after market in advanced economies in our view.

Strong but Scattered Presence in EM — Although EM performed pretty well (SW Asia up 43%, Latin America +38%), along with RoW (up 28%), Landi Renzo is targeting new markets in the “Stans” on top of its historical presence in Pakistan, Venezuela, Iran and Turkey, and we fear that the group might struggle to be cost-efficient while competing in so many challenging and complicated countries

Myths and Opportunities in the US — we have always been cautious about the US market. Whereas the approval of Nat Act Gas could open an important market, visibility remains low. However, the complexity of running a potentially very large US business could be a very challenging task for a small Italian company (no matter how good it is). The best-case scenario we see would be Landi selling Baytech at a profit and reinvesting in EM, although management hasn’t suggested such a sale.

Re-shaping the Organisation — since its IPO in 2006, Landi has been swinging between advanced economies and emerging markets depending on cash-for-clunkers schemes and the oil price. Although the group was very quick and flexible to adapt to market trends, cash-for-clunkers schemes required big investments for OEM in Europe which left the group with a heavier cost structure that needs to be scaled down.

Capital Structure — NFP of €66m for FY2011E or 2.5x might be the next issue to address – especially if management is able to reduce its debt burden from €80.4m from €69.5m in December 2010 (€75m adjusted for dividends) – despite a more favourable mix of more After Market and less OEM.

Valuation — We maintain our 3S recommendation with a target price of €1.50 per share.

Company Focus


Sell/Speculative 3SPrice (21 Sep 11) €1.67Target price €1.50Expected share price return -10.2%Expected dividend yield 3.7%Expected total return -6.5%Market Cap €188M US$258M

Price Performance (RIC: LR.MI, BB: LR IM)

Company Update

Europe | Italy Auto Parts & Equipment (GICS) │ Auto Parts & Equipment (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 271 302 276 302 325 Operating expenses -239 -269 -263 -284 -304 EBIT 32 33 12 18 21 Net interest expense -3 -2 -3 -3 -3 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit 29 31 10 16 17 Tax -7 -11 -3 -5 -6 Extraord./Min.Int./Pref.div. 0 -1 -1 -1 -1 Reported net income 22 19 6 10 11 Adjusted earnings 22 19 6 10 11 Adjusted EBITDA 42 46 26 33 36 Growth Rates (%) Sales 25.3 11.7 -8.9 9.6 7.5 EBIT adjusted 63.6 3.4 -63.2 50.6 11.6 EBITDA adjusted 56.9 10.5 -43.1 26.5 8.8 EPS adjusted 18.6 -11.5 -70.7 70.0 12.9

Cash Flow (€M)

Operating cash flow -7 18 28 21 24 Depreciation/amortization 9 13 14 15 15 Net working capital -42 -17 5 -7 -7 Investing cash flow -18 -51 -16 -12 -13 Capital expenditure -12 -16 -16 -12 -13 Acquisitions/disposals -6 -35 0 0 0 Financing cash flow 17 12 -8 -8 -8 Borrowings 24 19 -2 -2 -2 Dividends paid -8 -7 -6 -6 -6 Change in cash -9 -21 4 1 2








Lottomatica Spa (LTO.MI) Short-Term Gain, Long-Term Pain? What we Like — i) Excellent Italian business whose EBITDA has nearly tripled

over recent years; ii) Gtech could benefit from the secular trend of governments introducing lotteries to raise much-needed cash to finance public spend; iii) some of the biggest US states might be keen to push lottery wagers to finance current deficits via “voluntary taxation” regardless of social responsibility issues; and iv) we believe Marco Sala is a very solid CEO.

What we Don't Like — i) Nearly five years after the acquisition, Lottomatica and Gtech remain two barely integrated businesses with few synergies; ii) cash flow generation over the last few years has been modest; iii) Lottomatica has a stretched balance sheet following poor cash flow generation, acquisitions and generous buyback/dividends; iv) deflation pressure is strong in the sector either via significant cuts in fees or introduction of upfront fees; v) Lottomatica could suffer from a vicious circle of stretched balance sheet and introduction of upfront fees; and vi) Italy might approach maturity and some cannibalisation might occur.

What we expect in 2011E — we are lifting 2011E EBITDA and EPS by 3.7% and 11.9% respectively to reflect strong performances of the Italian operations. With an EBITDA of €963m we are slightly above the €940-960m management guidance. Watch out for 24 September — when (very much in theory) the final word on Lotto’s litigation with AAMS should be out. While we assume Lotto’s concession will be extended to May 2016 (although we would expect a more difficult renewal then), we cannot rule out the possibility of black swans.

Looking Ahead — We don’t expect significant growth in 2012E as Lottomatica will face i) higher fees and cannibalisation on gaming machines; and ii) likely lower contribution from Lotto’s ritardatari and lower contribution from Texas and Illinois. For the time being we expect negligible impact from the two recent austerity budget laws – which might end up affecting 3-5% of EBITDA in a worst-case scenario and some €30-50m cash-out for new licences and rights.

The Capex Challenge— Lottomatica now estimates capex at c.20% of EBITDA – a sharp decline from the recent past. Whereas this target might be achieved in 2012E (considering that there are no important RFP in the immediate future) we believe that investors should pay attention to the accounting of capitalised internal costs, which might result in lower capex and higher opex.

Capital Structure — Although the group doesn’t face any refinancing issues (on paper) until 2015, Lottomatica is still overly levered, in our view, and cash flows are unlikely to allow a quick de-gearing, especially if unexpected capex is needed. Whereas there are no major concessions in the pipeline, investors should bear in mind that cash-hungry governments might not be the best counterparties these days. We would advise a cautious approach to dividends.

Long-Term Neutral Stance Unchanged — We could see the stock outperform in the short term on i) strong FY111E; ii) increased visibility on FY2012E strong cash flow generation; and iii) no immediate financing needs. Having said this, we believe that most of Lottomatica’s issues will resurface in the medium/longer term. Lottomatica is a highly geared group which is regulated by a cash-strapped government which might one day decide that it has been too generous with gaming and betting concessionaires. We maintain our 12-month neutral stance while believing that Lottomatica could face tough challenges in the longer term.

Company Focus


Hold/Medium Risk 2MPrice (21 Sep 11) €11.31Target price €13.00Expected share price return 14.9%Expected dividend yield 2.7%Expected total return 17.6%Market Cap €1,947M US$2,669M

Price Performance (RIC: LTO.MI, BB: LTO IM)

Company Update Estimate Change

Europe | Italy Casinos & Gaming (GICS) │ Gaming (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 2,177 2,314 2,845 3,035 3,121 Operating expenses -1,811 -1,928 -2,306 -2,471 -2,537 EBIT 366 386 540 564 584 Net interest expense -178 -273 -179 -173 -168 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit 188 113 361 391 416 Tax -76 -68 -123 -141 -150 Extraord./Min.Int./Pref.div. -44 -45 -70 -77 -81 Reported net income 68 0 168 173 185 Adjusted earnings 144 98 215 220 232 Adjusted EBITDA 784 812 963 979 997 Growth Rates (%) Sales 5.7 6.3 22.9 6.7 2.8 EBIT adjusted 7.8 5.3 52.0 4.2 3.2 EBITDA adjusted 3.8 3.6 18.6 1.6 1.8 EPS adjusted -33.4 -35.6 118.4 2.4 5.4

Cash Flow (€M)

Operating cash flow 569 507 580 646 663 Depreciation/amortization 407 378 424 414 412 Net working capital 50 83 -82 -19 -16 Investing cash flow -80 -460 -334 -264 -300 Capital expenditure -316 -1,268 -334 -264 -300 Acquisitions/disposals 227 -14 0 0 0 Financing cash flow 161 462 0 -120 -120 Borrowings 0 0 0 0 0 Dividends paid -101 -125 0 -120 -120 Change in cash 651 509 245 261 242


Total assets 6,205 6,963 7,140 7,204 7,279 Cash & cash equivalent 474 159 334 518 679 Accounts receivable 792 712 799 823 848 Net fixed assets 863 979 972 938 951 Total liabilities 4,308 4,604 4,613 4,623 4,633 Accounts payable 901 981 990 1,000 1,010 Total Debt 2,896 3,134 3,134 3,134 3,134 Shareholders' funds 1,897 2,359 2,527 2,580 2,645






Luxottica Group SpA (LUX.MI) The “World Champion” What we Like — i) A “world champion” thanks to a best-in-class integrated

business model combining a dominant market share in retail operations with manufacturing; ii) extremely strong proprietary brands and top licensed brand; iii) prescription business providing a growing source of revenues on ageing populations in AE; iv) late but certain arrival in EM could double size of the market.

What we Don't Like — i) Highly exposed to US consumer spending; ii) limited room for external growth in the mature US market although still room for organic growth; and iii) manufacturing costs in China pegged to USD.

A Much Better Group than in 2007 — Back in 2007 Luxottica was an early cycle caught in a recession trap while facing i) integration of its huge retail network; ii) Oakley acquisition; iii) excessive leverage; and iv) lower exposure to emerging markets. Four years later, Luxottica is much leaner company benefiting from successful integrations (both front and back operations) with gearing under full control. Lower dependence on “free-to-choose”, improved perception of sunglasses, shorter time to market and better WC management should allow Luxottica to weather the storm. And emerging markets offer new opportunities.

Late but Certain Arrival in EM — EM don’t have a significant weight yet for eyewear. However, while educating consumers on RX and sunglasses (as luxury accessories) Luxottica is in the favourable position of almost deciding the speed of its growth in an untapped market of billions. Assuming 2.5% of 2.4bn people needing eye care buy a frame and that Luxottica maintains its market share - that would translate into some 30m pairs or 1.3x current prescription output. Add sunglasses and Luxottica might double its annual output over the next decade.

Estimate Revision — While adjusting our model we anticipate a slowdown in the economy and we position ourselves some 10% below 2011-12E EPS consensus on 2012E and – we believe – management’s expectations. Whereas our 4.7% cut in 2011E EBIT (and 8.5% on 2011E EPS) is entirely due to the celebration of the 50-year anniversary (€15m in stocks distributed to employees), the 15% cut in 2012-13E EPS reflects flattish US prescriptions, a 2.5% increase in sun retail and a better performance in APAC. Wholesale up 7.8% includes the new Coach licence and mid-single digit growth globally.

Capital Structure — Luxottica has a pretty manageable gearing of 2x net debt/EBITDA – a much sounder position than in 2007 when it had to weather financial storms while digesting Oakley’s acquisition. While Luxottica might keep on paying dividends, we wouldn’t rule out Luxottica acquiring retail players while taking advantage of the weak macro-environment.

Structural Buy — While we fear that the stock might end up trading in a narrow €18.50-€21.00 range in the short term – also reflecting FX (a 10% change in €/USD implies a 9% change in the EPS), we believe that Luxottica is a structural Buy and we remain Buyers on a 12-month view with a revised target price of €24.00 (lowered from €26.00 in line with our earnings revisions).

Company Focus




Price Performance (RIC: LUX.MI, BB: LUX IM)


Europe | Italy Apparel, Accessories & Luxury Goods (GICS) │ Luxury Goods (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 5,094 5,798 6,084 6,381 6,680 Operating expenses -4,523 -5,086 -5,284 -5,529 -5,757 EBIT 571 712 800 852 924 Net interest expense -102 -107 -102 -92 -89 Non-operating/exceptionals -4 20 0 0 0 Pre-tax profit 465 626 698 760 834 Tax -160 -218 -244 -266 -284 Extraord./Min.Int./Pref.div. -6 -5 -8 -8 -9 Reported net income 299 402 446 486 542 Adjusted earnings 299 402 446 486 542 Adjusted EBITDA 857 1,034 1,104 1,168 1,253 Growth Rates (%) Sales -2.1 13.8 4.9 4.9 4.7 EBIT adjusted -21.9 24.7 12.4 6.5 8.4 EBITDA adjusted -14.0 20.7 6.7 5.8 7.2 EPS adjusted -23.3 32.5 11.0 8.8 11.6

Cash Flow (€M)

Operating cash flow 955 726 691 755 825 Depreciation/amortization 285 302 304 316 329 Net working capital 364 16 -67 -55 -55 Investing cash flow -328 -178 -313 -316 -353 Capital expenditure -200 -230 -313 -316 -353 Acquisitions/disposals -128 52 0 0 0 Financing cash flow -445 55 -237 -260 -216 Borrowings -521 74 -44 -67 -23 Dividends paid -101 -163 -201 -201 -201 Change in cash 182 603 141 179 255


Total assets 7,261 7,994 8,225 8,450 8,776 Cash & cash equivalent 380 680 833 1,047 1,293 Accounts receivable 619 656 694 727 762 Net fixed assets 1,150 1,229 1,234 1,234 1,247 Total liabilities 4,508 4,724 4,710 4,651 4,636 Accounts payable 435 538 560 560 560 Total Debt 2,717 2,791 2,747 2,680 2,657 Shareholders' funds 2,754 3,269 3,515 3,799 4,140






Mediaset SpA (MS.MI) The Axeman Cometh? Still Waiting What we Like — i) A 'must have' for ad-spenders, offering the lowest cost per

contact in Italy; ii) unique, friendly competitive environment since its inception; and iii) potentially huge room for cost cutting in Italy and Spain.

What we Don't Like — i) Fully exposed to weak Southern Europe economies; ii) Free-to-air TV (FTA) faces a structural decline that PPV cannot fully offset; iii) PPV is currently stuck in its strategy; iv) competition from Sky is increasingly impacting the costs of programming; v) management has never implemented cost-cutting measures; vi) Digital+ and Endemol might require further financing; and vii) noise surrounding Silvio Berlusconi.

FTA — Mediaset is facing a ‘hat trick’: i) declining audience; ii) flattish revenues (at best) thanks to multi-channels; and iii) increase in cost of programming due to both increased competition for core channels and the launch of new DTT channels. We believe that the next 18 months will be particularly challenging and we model advertising down 2.7% and 0.3% in 2011-12E (despite remarkable +180% and 50% increases in multi-channels) while we expect costs of programming to grow by 2.7% and 1.1% over the same period.

PPV — We increasingly see Mediaset’s PPV as stuck in the middle: too expensive for a price leader and too low quality to attract premium viewers. The subscriber base is nearly unchanged YOY and an escalation in the cost of programming looks likely – especially from 2013 onwards – once the football bill is re-negotiated with a debt-ridden Football League. Despite a likely spike in Q311E subscribers’ base (on very aggressive commercial offer), we maintain our estimates pointing to an operating loss of c€30m in 2011E while we don’t expect PPV to become profitable anytime soon.

Looking Ahead — We recently fine-tuned our 2011-13E figures – cutting EPS by 5.3%, 20.2% & 19.4% for 2011-13E to reflect weaker operations in Italy and Spain (European Media, 9 Sept 2011). Due to the rigid cost structure, even a small decline in sales has a big impact on bottom line. We are now 10% below Bloomberg consensus on 2011E and 20% for both 2012-13E. We also cut the dividend to €0.20, and would suggest Mediaset to start focusing on de-gearing.

Dare to Shine — We see little room for a big improvement in the 3% guidance on 2011E cost of programming, given the semi-fixed nature of the bulk of its costs. Mediaset needs to cut 2012E costs while preserving quality in a stiffer competitive environment. Although a challenging task, we believe this is a mandatory strategy for Mediaset while facing secular decline in its core business. We believe that – should Mediaset implement aggressive cost-cutting – savings could be in the range of €350-400m – of which half in personnel.

The Political Decline of Silvio Berlusconi — While we see little correlation between Mediaset’s medium-term economic returns and Berlusconi’s political fate (and we are agnostic about his role), we believe that the decline is unstoppable given the gravity of the allegations. And headlines involving Berlusconi could be negative for sentiment on the stock near term.

Unchanged Target Price — Based on DCF we set a target price of €2.2. Trading at premium to its European peers, we believe risk remains to the downside. The dividend yield is attractive, but should not distract investors from the issues facing Mediaset. We believe cutting costs is the only route to recovery.

Company Focus


Sell/Medium Risk 3MPrice (21 Sep 11) €2.46Target price €2.20Expected share price return -10.5%Expected dividend yield 8.1%Expected total return -2.4%Market Cap €2,903M US$3,980M

Price Performance (RIC: MS.MI, BB: MS IM)

Company Update

Europe | Italy Broadcasting (GICS) │ Media - General (Citi)

https://ir.citi.com/Ewm45T%2BPZ5C7IQIu2la3eP6YtBNVvBxuVkyTPmKyPWc%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 3,883 4,293 4,432 4,466 4,603 Operating expenses -3,281 -3,477 -3,777 -3,891 -3,972 EBIT 602 816 654 574 631 Net interest expense -29 -25 -36 -34 -35 Non-operating/exceptionals -124 -191 -3 15 0 Pre-tax profit 448 600 616 555 595 Tax -143 -213 -199 -175 -146 Extraord./Min.Int./Pref.div. -34 -35 -107 -90 -130 Reported net income 272 352 310 290 319 Adjusted earnings 272 352 310 290 319 Adjusted EBITDA 776 985 816 741 797 Growth Rates (%) Sales -8.7 10.5 3.2 0.8 3.1 EBIT adjusted -38.9 35.6 -19.7 -12.2 9.8 EBITDA adjusted -33.1 27.0 -17.2 -9.2 7.6 EPS adjusted -33.4 29.3 -12.0 -6.3 10.0

Cash Flow (€M)

Operating cash flow 1,609 1,412 1,304 1,216 1,336 Depreciation/amortization 1,181 1,174 997 1,027 1,061 Net working capital 40 -139 -119 -210 -157 Investing cash flow -1,319 -951 -863 -849 -905 Capital expenditure -1,434 -951 -863 -849 -905 Acquisitions/disposals 115 0 0 0 0 Financing cash flow -228 -291 -449 -270 -272 Borrowings 223 0 0 0 0 Dividends paid -539 -266 -413 -236 -236 Change in cash 62 170 -9 97 159


Total assets 6,313 6,298 6,212 6,284 6,385 Cash & cash equivalent 135 82 74 171 330 Accounts receivable 1,121 1,154 1,281 1,499 1,664 Net fixed assets 504 541 521 506 367 Total liabilities 3,775 3,673 3,691 3,709 3,727 Accounts payable 1,497 1,401 1,415 1,429 1,443 Total Debt 1,673 1,673 1,673 1,673 1,673 Shareholders' funds 2,538 2,624 2,521 2,575 2,658






Arnoldo Mondadori Editore (MOED.MI) Time for a Deep Restructuring What we Like — i) An efficient player in the Italian book industry, with dominant

leadership in trade and a strong presence in education; ii) the group has implemented a network of bookstores (property and franchising) to have a better understanding of what the ultimate readers want to read; and iii) Grazia France has been delivering sound results.

What we Don't Like — i) Highly exposed to the declining magazine business in Italy and France; ii) costly diversification in French magazines is unlikely to pay back anytime soon; iii) negligible exposure to new media (products and strategy); iv) small presence in the radio sector, which might require further capex for digitalisation and frequencies; iv) peripheral assets add little value; and v) having been a sound cash cow for several years, Mondadori might not have the culture to implement a real turnaround.

What we Expect in 2011E — While listening to the Mondadori H111 conference call, we were surprised that management kept on providing positive comments while describing performances of the different businesses. We believe the situation is much less bright and we continue to expect the business to deteriorate – especially for Italian magazines.

Looking Ahead — while adjusting our model for a weaker macro-environment leading to a further acceleration in the decline of the core magazine business, we model magazine sales down 4.4% in 2011E and a further 7.2% in 2012E – with advertising down 10% next year. While we see flattish trade books, we expect Art & Exhibition to remain under pressure – reducing profitability for the book division. Peripheral assets are expected to remain negligible. Based on the above, we reduce our 2011-13E EPS by 19.7%, 40% and 44.8% while we cut EBITDA by 6.5%, 21.8% and 27.5% in the same period.

Waiting for the Axeman to Come — Whereas the top line is falling, our feeling is that Mondadori is still sitting quietly and relatively modest cost-cutting strategies have been put in place since 2008. When CEO Maurizio Costa joined a struggling group in the mid 1990s, his first goal was to boost profitability while shrinking capital employed. We believe a similar recipe is needed now and cost efficiencies should be implemented as soon as possible.

Capital Structure — Whereas management does not appear concerned about leverage (net debt of €340m FY2011E) being well below the covenants, at 2.4x net debt/EBITDA on 2011E – going to 2.7x in 2012E assuming a €0.10 dividend – we believe that Mondadori should focus on de-gearing rather than paying dividends. We maintain our negative view on the stock.

Valuation — While lowering our 2011E-2014E EPS by 19.7%, 40% and 44.8% we maintain our long-time negative view with a Sell/Medium Risk (3M) rating and a reduced target price of €1.50 (lowered from €2.45 to reflect both lower short-term estimates and bleaker long-term negative growth after 2014E). Although we do not believe Mondadori should pay dividends while facing a re-implementation of its digital strategy, we expect Mondadori to pay a dividend of c€0.10, which might attract interest among some investors.

Company Focus


Sell/Medium Risk 3MPrice (21 Sep 11) €1.74Target price €1.50

from €2.45 Expected share price return -13.5%Expected dividend yield 5.8%Expected total return -7.8%Market Cap €428M US$586M

Price Performance (RIC: MOED.MI, BB: MN IM)






2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 1,540 1,558 1,565 1,510 1,491 Operating expenses -1,468 -1,444 -1,456 -1,412 -1,393 EBIT 73 114 109 98 98 Net interest expense -8 -24 -22 -21 -19 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit 65 90 88 77 79 Tax -29 -48 -42 -39 -39 Extraord./Min.Int./Pref.div. -1 -1 0 0 0 Reported net income 35 42 45 38 40 Adjusted earnings 35 42 45 38 40 Adjusted EBITDA 106 140 136 125 126 Growth Rates (%) Sales -15.3 1.2 0.4 -3.5 -1.3 EBIT adjusted -64.4 57.5 -4.2 -10.0 0.0 EBITDA adjusted -57.4 32.0 -3.2 -7.8 0.4 EPS adjusted -64.0 20.3 7.7 -15.5 8.0

Cash Flow (€M)

Operating cash flow 120 107 91 78 77 Depreciation/amortization 34 26 26 27 27 Net working capital 34 6 -12 -17 -19 Investing cash flow -40 -16 -31 -32 -34 Capital expenditure -31 -31 -31 -32 -34 Acquisitions/disposals -8 14 0 0 0 Financing cash flow -244 -14 -52 -36 -33 Borrowings -245 -7 -12 -11 -9 Dividends paid 0 0 -40 -25 -25 Change in cash -164 77 8 10 10


Total assets 1,922 1,884 1,911 1,953 2,002 Cash & cash equivalent 161 119 117 118 118 Accounts receivable 378 385 406 440 479 Net fixed assets 10 40 48 57 67 Total liabilities 1,376 1,303 1,325 1,354 1,386 Accounts payable 358 381 387 400 416 Total Debt 534 461 461 461 461 Shareholders' funds 546 581 586 600 616






Prysmian SpA (PRY.MI) Reassuring Call – De-rating Overdone What We Like in Prysmian — i) A well-run group set to benefit from potential

structural demand for high-margin cables across the globe; ii) strong competitive positioning in submarine, HV, wind farms and optical cables; ii) cash flows healthy even in the 2009-10A trough; iii) the bulk of profits are generated by business with high visibility & sound backlog; iv) benefits from Draka’s integration might be higher than guided; & v) one of the few public companies in Italy without a controlling shareholder and could attract interest from large industrial groups.

What We Don’t Like in Prysmian— i) Exposure to commodities businesses; ii) antitrust issues on submarine cables; iii) potential price pressure on more lucrative businesses (notably HV) in a prolonged recession; and iv) correlation of stock price with copper price – regardless of the impact on profits.

Sound Backlog, Waiting for Germany — While reporting H11A in line, management made some reassuring statements on the order backlog for submarine (over two years) and HV (more than a year) ahead of a possible boon from the switch to renewable from nuclear. Submarine and HV generate the bulk of profits and, given the order intake, we are less worried about the state of more cyclical businesses, which generate less than 20% of group EBITDA.

Better Geographical Mix — Prysmian is experiencing a decent market for Industrials and Telecom cables due to a better geographical mix. T&I was uninspiring in H111A – reversing expectations of some recovery. However, we don’t think investors should spend too much time on T&I, as it is a late-cycle business unlikely to boom before a new boom in building. But T&I remained profitable in the 2009-10A slump and we think it unlikely that it could significantly depress group profits (14% of EBITDA in H111A).

Raising Draka Synergies — As widely expected, management increased the synergies goal to €150m from €100m from 2014-15. We still think that the total achievement could be even higher, especially considering management increased restructuring costs to c.€200m from €170m. Also, the integration with Draka should help the group to emerge as the strongest global leader when the new cycle starts.

Looking Ahead — Starting from our €537m EBITDA for 2011E (and pro-forma of €555m – including 12m of Draka), we calculate an EBITDA of €619m for 2012E – including €45m synergies from Draka, commodities profitability in line with the 2009-10A slump and €20m incremental profits from businesses already covered by the order backlog.

Capital Structure — As long as the order intake remains strong, net debt should not be an issue as FY2011E net debt of c.€1.3bn, or a ratio on EBITDA of c.2.3x, would be comfortably below 3.5x covenants. Prysmian made a €200m provision for antitrust litigation – matching its main competitor. Although we believe that the final bill will be in the €100-150m range, we assume a €200m fine in our valuation.

Buy Maintained — we think that the recent de-rating was overdone and we maintain our positive view on Prysmian.

Company Focus



Price Performance (RIC: PRY.MI, BB: PRY IM)

Company Update

Europe | Italy Electrical Components & Equipment (GICS) │ Cable (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 3,731 4,571 6,625 7,211 7,538 Operating expenses -3,434 -4,264 -6,472 -6,808 -7,047 EBIT 297 307 153 403 491 Net interest expense -49 -94 -120 -108 -94 Non-operating/exceptionals 0 0 5 7 9 Pre-tax profit 248 213 38 302 407 Tax -85 -63 -34 -79 -98 Extraord./Min.Int./Pref.div. 89 -2 -2 -3 -2 Reported net income 252 148 2 220 307 Adjusted earnings 206 148 203 276 361 Adjusted EBITDA 383 388 537 619 711 Growth Rates (%) Sales -27.5 22.5 44.9 8.8 4.5 EBIT adjusted -29.2 0.1 -39.9 128.2 19.0 EBITDA adjusted -29.4 1.2 38.5 15.2 15.0 EPS adjusted -38.3 -28.0 16.0 36.1 30.7

Cash Flow (€M)

Operating cash flow 312 168 413 257 354 Depreciation/amortization 49 58 336 160 166 Net working capital -9 -21 92 -126 -120 Investing cash flow -84 -164 -494 -109 -115 Capital expenditure -106 -125 -114 -109 -115 Acquisitions/disposals 22 -39 -380 0 0 Financing cash flow -97 -33 62 -60 -35 Borrowings -97 263 1,138 -794 0 Dividends paid -75 -75 -35 -35 -35 Change in cash 131 -30 -19 88 204


Total assets 3,044 3,765 5,722 5,110 5,420 Cash & cash equivalent 587 865 1,174 485 667 Accounts receivable 622 764 1,192 1,227 1,338 Net fixed assets 728 789 1,238 1,197 1,159 Total liabilities 2,346 2,966 4,969 4,129 4,165 Accounts payable 561 862 1,443 1,421 1,458 Total Debt 1,061 1,324 2,462 1,668 1,668 Shareholders' funds 698 799 758 981 1,254






Safilo SpA (SFLG.MI) It’s All About Armani What we Like — i) Safilo is the world’s second-largest eyewear manufacturer in

an arguably de facto oligopoly; ii) after having been inefficiently run for nearly two decades, we see huge room for efficiencies following the rescue led by Hal (a Dutch-based holding company with operations in optical retail); and iii) potential synergies with new shareholder Hal.

What we Don't Like — i) Gaps accumulated vs. Luxottica will likely never be recovered; ii) Safilo doesn’t have a proprietary retail network (although Hal does); iii) house brands generate only c.20% of sales; iv) house brands lack international reach; v) some key licences will expire between 2011 and 2012 and Armani is due anytime soon; and vi) limited opportunities to grab new licences in the market.

What we Expect in 2011E — Safilo reported a good set of H111 results with balanced growth between sunglasses and prescription. Wholesale (roughly 94% of sales) grew organically by 10.3% and 7.4% in Q211 and H111 respectively – assuming constant FX. Profitability was driven by volumes, sales mix and better quality of products in stock. H111 was consistent with our FY11 expectations which imply H211E weighting of 47.1%, 40% and 33.5% of FY11E sales, EBITDA and EBIT. These would be broadly in line with H110 weights on FY10: 46.3%, 39.9% and 34.1%. However, we are still some 6% above the street on 2011E EBITDA and we see no room for lifting our estimates.

Looking Ahead — Although we still see room for i) efficiencies, especially SG&A and labour costs, with part of the manufacturing shifted to China; ii) link with HAL retail operations; and iii) rationalisation of the portfolio of brands, it’s all about Armani. Losing the licence would be a major blow and Safilo would need to start a new and deep restructuring to absorb the contribution of Armani to cover fixed costs.

The Talented Mr. Armani — We believe that Armani’s licence generates some €150-200m in sales. Assuming €150m revenues, we would calculate the impact on EBIT were this licence to be lost of roughly €50m – after considering lower COGS for €60m COGS (or 60% gross margin), €30m lower licence fee and marketing and some €10m other costs. For 2012E (with Armani onboard) we estimate an EBIT of €116.5m.

Watch Out for 29 September — While pretty low multiples would justify a double-digit price for Safilo shares, we see Armani licences (expiring in December) as a Damocles sword hanging over Safilo. As we argued in our report dated 29 November 2010 Italian Eyewear: Stick to the Original, we see it as more likely that Safilo will get a renewal than lose it. However, considering i) the unpredictability of the talented Giorgio Armani; ii) thin volumes on Safilo shares; iii) the crowded trade; and iv) market volatility, we would suggest investors wait a little bit longer to buy Safilo’s shares: Safilo’s management confirmed presentation of the new business plan on 29 September. We would be surprised if the Armani uncertainty is not cleared by then. Neutral stance maintained, although we lower target price to €9.00 to reflect Armani’s short-term concerns, conservatively assuming in our revised DCF a worst-case scenario of a loss of the licences.

Company Focus


Hold/Speculative 2SPrice (21 Sep 11) €7.99Target price €9.00

from €13.00 Expected share price return 12.6%Expected dividend yield 0.0%Expected total return 12.6%Market Cap €454M US$622M

Price Performance (RIC: SFLG.MI, BB: SFL IM)

Company Update Target Price Change

Europe | Italy Apparel, Accessories & Luxury Goods (GICS) │ Apparel/Footwear/Textiles

(Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) nm nm 15.1 9.8 6.9 EV/EBITDA adjusted (x) 17.8 8.1 5.1 4.1 3.3 P/BV (x) 5.2 0.6 0.6 0.5 0.5 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Per Share Data (€) EPS adjusted -0.16 0.01 0.53 0.82 1.16 EPS reported -0.61 0.01 0.53 0.82 1.16 BVPS 1.54 13.30 13.83 14.65 15.81 DPS 0.00 0.00 0.00 0.00 0.00


Net sales 1,011 1,080 1,141 1,203 1,252 Operating expenses -995 -1,012 -1,048 -1,087 -1,111 EBIT 16 68 93 117 141 Net interest expense -54 -39 -25 -25 -24 Non-operating/exceptionals -128 0 0 0 0 Pre-tax profit -166 29 68 92 117 Tax -6 -24 -34 -41 -47 Extraord./Min.Int./Pref.div. -2 -4 -4 -4 -4 Reported net income -174 1 30 46 66 Adjusted earnings -46 1 30 46 66 Adjusted EBITDA 58 108 134 158 183 Growth Rates (%) Sales -11.9 6.8 5.6 5.5 4.1 EBIT adjusted -81.4 322.4 37.2 25.3 21.0 EBITDA adjusted -54.1 85.8 24.0 18.1 16.0 EPS adjusted -98.4 107.4 nm 54.7 41.8

Cash Flow (€M)

Operating cash flow -110 95 76 65 88 Depreciation/amortization 42 40 41 41 42 Net working capital 20 50 1 -27 -24 Investing cash flow -22 -74 -33 -33 -35 Capital expenditure -35 -62 -33 -33 -35 Acquisitions/disposals 13 -12 0 0 0 Financing cash flow -188 31 -2 -2 -2 Borrowings 2 -281 -3 -3 -3 Dividends paid 0 0 0 0 0 Change in cash -320 51 40 30 51


Total assets 1,391 1,486 1,529 1,588 1,664 Cash & cash equivalent 37 88 125 151 197 Accounts receivable 269 271 287 302 315 Net fixed assets 185 182 179 174 169 Total liabilities 945 719 732 744 755 Accounts payable 150 204 216 228 237 Total Debt 625 344 342 339 336 Shareholders' funds 446 767 797 843 909






Aeroporto di Venezia - Marco Polo SpA (SAVE) (SAVE.MI) As Good As Illiquid What We Like — i) The catchment area (Venice) is one of the world’s main

tourist destinations and Veneto one of the wealthiest regions in Italy); ii) the length of concessions (Venice 2041 and Treviso 2049); iii) current airport capacity utilisation is around 60%, limiting future capex requirements; iv) potential tariff increases are closer than ever.

What We Don’t Like in SAVE — i) The diversification into Food & Beverages (F&B) and railway stations (Centostazioni) offers a less attractive mix of risk/return and capital deployment. Although Centostazioni could potentially offer decent margins and growth, cash deployed is inefficient; F&B is a higher-margin risk than airports where size matters and external growth is expensive. ii) SAVE is a relatively illiquid name compared to other airport stocks.

The Tariff Saga — In July ENAC (Italian Civil Aviation Authority) finally approved the 2012-2016 tariffs dynamic and SAVE is now waiting for the final approval by the Italian government – which might put an end to a decade-long wait. Given the current political situation, there is still low visibility on the timing of the increase anyhow but we estimate that tariffs might be worth a €5-6m EBITDA increase — roughly 10% of the consolidated figure.

The Airport System — SAVE manages an airport system featuring annual transit of about 9m passengers that has experienced strong growth in recent years (CAGR 2002-10 c8% vs. c4% average for the main European airports) despite Alitalia’s problems. We believe traffic growth will continue to outperform in coming years, also thanks to the opening of intercontinental routes.

Outlook for 2011 — In H111A passengers were up 11.5% and July was again a strong month with more than 1m passengers – well ahead of management’s original expectations of a 3% increase in passengers. Q211A also showed acceleration on Q111A traffic growth (+7% in Q111A). In H111A group revenues were up 5.1% but airport (36% of sales) outperformed with a 10.2% increase. EBITDA in H11A was up some 25% thanks to both solid airport operations (up 20% and accounting for c.65% of EBITDA) and a sharp recovery in F&B (+109%). Whereas H111A might have led us to an upward revision of our estimates, we maintain our forecasts unchanged considering the macro scenario. We are still not factoring in any tariff increase on airport traffic.

Compelling Absolute and Relative Valuation — SAVE looks quite cheap in absolute and relative terms. Our DCF points to €9.5 per share and SOTP to €7.70, while SAVE trades at a discount to European peers on both EV/EBITDA and P/E. New tariffs could potentially make the shares even more attractive. On the negative side, liquidity remains an issue. We keep our Buy rating with a target price of €7.70.

Company Focus


Buy/Medium Risk 1MPrice (21 Sep 11) €6.65Target price €7.70Expected share price return 15.8%Expected dividend yield 6.0%Expected total return 21.8%Market Cap €368M US$504M

Price Performance (RIC: SAVE.MI, BB: SAVE IM)

Company Update

Europe | Italy Airport Services (GICS) │ Airports (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 340 337 354 373 391 Operating expenses -305 -292 -304 -315 -330 EBIT 34 46 50 58 60 Net interest expense -3 1 -2 -2 -2 Non-operating/exceptionals 0 -5 -5 -5 -5 Pre-tax profit 31 42 43 51 53 Tax -13 -12 -14 -17 -18 Extraord./Min.Int./Pref.div. 0 -2 -2 -2 -2 Reported net income 18 28 27 32 33 Adjusted earnings 18 25 24 30 31 Adjusted EBITDA 60 67 72 81 83 Growth Rates (%) Sales 3.7 -0.7 4.9 5.3 4.9 EBIT adjusted 28.6 18.9 9.7 18.3 3.7 EBITDA adjusted 8.7 11.3 7.0 12.7 3.3 EPS adjusted 28.9 38.7 -4.5 22.2 3.6

Cash Flow (€M)

Operating cash flow 41 53 53 60 63 Depreciation/amortization 26 21 22 23 23 Net working capital -7 0 -2 -2 0 Investing cash flow 0 0 0 0 0 Capital expenditure 0 0 0 0 0 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -88 -11 -26 -23 -26 Borrowings -71 5 -7 -1 -2 Dividends paid -16 -16 -19 -22 -25 Change in cash -47 41 27 37 37








Seat Pagine Gialle SpA (PGIT.MI) Time is on Bondholders’ Side What we Like — i) CEO Alberto Cappellini’s back-to-basics strategy focused on

stabilising the customer base and EBITDA; ii) the brand is still strong; and iii) the new internet strategy seems on the right track.

What we Don't Like — i) Seat is still facing a falling top line with a pretty efficient cost base and heavy debt; ii) the company lacks true competitive advantages while facing growing competition; iii) huge gearing and rigid debt structure; iv) tight agenda to re-shape the company; v) very high exposure to SMEs, which are suffering the most from the credit crunch; and vi) peripheral assets seem pretty much worthless.

Swapping Debt into Equity — Seat’s current gross debt of €2.9bn includes €717m in senior bonds expiring in 2017 (10.5% coupon) and a €1.3bn junior debt expiring in 2014, with an 8% coupon. We believe that the junior bond is the natural candidate for restructuring. Assuming an EBITDA of c.€375m in 2012E and a restructured 3.5x debt to EBITDA, we calculate that Seat could bear a net debt of €1.4bn: that would imply junior bondholders receiving a significant haircut (the bond is currently trading at c€0.15) and banks accepting some restructuring as well.

Watch Out for October 30th Coupon Payment — On October 30, 2011 Seat should pay the coupon on its Lighthouse junior bond. Whereas the company has the cash to pay the coupon, we would expect a decision to be taken ahead of this deadline to avoid either a default or a potential argument for potential litigation in the future (assuming a debt-to-equity swap soon after, the payment of the coupon on the junior bond could be seen as a kind of “dividend” to future shareholders).

Looking Ahead — While commenting on H111A results, management presented a new 2011-15E plan – pointing to a stabilisation of the customer base from 2012E and some 80% of Italian revenues generated online by 2015E. Assuming Seat manages to achieve this goal, EBITDA should stabilise at 45% or c€400m in 2015E, some 7% above 2011E revised EBITDA guidance of €365-385m (or €415-435m under the old accounting).

Cutting Estimates — With effect from June 30, 2011 Seat has changed the revenue recognition policy in the online and voice business segment and – accordingly – revenues and costs will be recognised over the product/service duration. This implies c.€68m lower EBITDA in 2011E (a 15% impact) while management guided that the new accounting would have virtually no impact in 2015 – once the online migration has been completed. We update our model for the new 2011-15E plan and the new revenue recognition policy. Our new EBITDA for 2011-12E are 20.1% and 24.1% lower while 2015E is some 10.5% below our previous estimates and some 3% below guidance. The impact on EPS is optically very significant; however, we see this as a matter for mathematicians for a stock trading below €0.05 and accordingly, we pay little attention to EPS.

Penny Stock — While maintaining our negative view, we lower our target price to €0.025 from €0.05 to reflect our new forecasts. Given that equity represents c.3% of enterprise value, we still expect significant volatility throughout the debt restructuring process.

Company Focus


Sell/Speculative 3SPrice (21 Sep 11) €0.04Target price €0.03


Price Performance (RIC: PGIT.MI, BB: PG IM)






2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) 0.3 -8.1 -4.2 nm 15.0 EV/EBITDA adjusted (x) 5.4 6.7 7.3 7.8 7.5 P/BV (x) 0.1 0.2 0.2 0.2 0.2 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Per Share Data (€) EPS adjusted 0.12 0.00 -0.01 0.00 0.00 EPS reported -0.02 -0.38 -0.01 0.00 0.00 BVPS 0.52 0.19 0.18 0.18 0.18 DPS 0.00 0.00 0.00 0.00 0.00


Net sales 1,210 1,033 970 929 921 Operating expenses -964 -1,409 -662 -648 -632 EBIT 246 -376 307 281 290 Net interest expense -215 -254 -249 -246 -237 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit 31 -630 58 35 53 Tax -54 -104 -75 -34 -47 Extraord./Min.Int./Pref.div. -15 -2 -1 -1 -1 Reported net income -38 -736 -18 -1 5 Adjusted earnings 223 -9 -18 -1 5 Adjusted EBITDA 557 415 372 346 355 Growth Rates (%) Sales -12.1 -14.6 -6.1 -4.3 -0.8 EBIT adjusted -15.8 -29.2 -12.2 -8.6 3.1 EBITDA adjusted -12.5 -25.5 -10.3 -7.1 2.5 EPS adjusted -98.1 -104.3 -92.0 96.2 836.4

Cash Flow (€M)

Operating cash flow 256 7 83 90 75 Depreciation/amortization 282 791 65 65 65 Net working capital -12 -49 37 26 5 Investing cash flow -37 -146 -35 -46 -46 Capital expenditure -20 -77 -35 -46 -46 Acquisitions/disposals -17 -69 0 0 0 Financing cash flow -648 -145 -34 327 -397 Borrowings -563 -158 -34 327 -397 Dividends paid 0 0 0 0 0 Change in cash -429 -284 15 371 -368


Total assets 4,570 3,755 3,728 4,047 3,648 Cash & cash equivalent 294 142 157 528 160 Accounts receivable 622 675 662 629 636 Net fixed assets 97 91 82 73 64 Total liabilities 3,536 3,382 3,371 3,691 3,287 Accounts payable 229 222 216 208 201 Total Debt 3,030 2,873 2,838 3,165 2,769 Shareholders' funds 1,034 375 356 356 361


EBITDA margin adjusted 46.1 40.2 38.4 37.3 38.5 ROE adjusted 23.1 -1.4 -5.2 -0.2 1.5 ROIC adjusted 11.0 7.1 7.5 8.1 8.1 Net debt to equity 264.6 728.8 752.1 741.2 722.7 Total debt to capital 74.6 88.5 88.8 89.9 88.5




Tiscali SpA (TIS.MI) Dire Straits What we Like — i) Fully committed management (and shareholder) after years

of inefficient management and unfocused largest shareholder.

What we Don't Like — i) Lack of competitive advantages; ii) low scale; iii) little diversification; and iv) financial constraints preventing Tiscali from investing in both marketing and new offers.

Back to Italy — Since 2009, Tiscali is now focused on Italy providing ADSL, dual play, narrowband and other services to Italian clients only. Over the years, Tiscali has undergone a dramatic process, shrinking its portfolio of assets from a peak of 15 countries to Italy only. As of June 30th 2011, Tiscali has 521k ADSL customers – down from 582k in June 2010A as Tiscali wrote off dormant customers. We believe that the company will struggle to significantly increase its customer base in the highly competitive Italian market.

Looking Ahead — We revise our estimates following H111A and to reflect the weaker macro-environment in Italy – making it more challenging for Tiscali to become profitable. While cutting 2011-13E EBITDA (net of provision) by 11%, 22% and 22% respectively, we now forecast Tiscali to report net losses in the coming years. We disregard the changes to our EPS forecasts as not material – given the micro absolute values (-€0.01).

Capital Structure — Tiscali would need to commit money to improve its offer and marketing spending. We believe that substantial financial constraints prevent management from implementing such expensive strategies, while operating activities don’t generate enough cash. We still struggle to see how Tiscali can exit from this vicious circle with net debt (€212m in FY2011E)/EBITDA (adjusted per bad debt provisions) hovering around 4x.

M&A Speculation — According to the Italian press, Tiscali is often the target of speculation pointing to a potential takeover by larger telecom groups. While we can’t rule out such a scenario, we believe that Tiscali is unlikely to be taken over at a significant premium. A reverse merger to gain the advantages of Tiscali’s listing might be a more attractive option for private players – but again – no such plans have been suggested and we would struggle to justify any premium for the going-concern business.

Unchanged Stance and New Target Price — We maintain our negative view with a Sell/Speculative (3S) rating, while lowering our target price to €0.025 from €0.05 based on our DCF, lowered in line with our forecast changes to reflect the weaker macro environment impacting both short-term estimates and – more importantly – bleaker longer-term opportunities.

Company Focus


Sell/Speculative 3SPrice (21 Sep 11) €0.04Target price €0.03


Price Performance (RIC: TIS.MI, BB: TIS IM)


Europe | Italy Alternative Carriers (GICS) │ Telecommunications Services - Wireline (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) 0.0 -0.1 -2.3 -3.9 -4.4 EV/EBITDA adjusted (x) 6.2 4.3 3.8 3.8 3.7 P/BV (x) 0.0 0.0 -0.6 -0.5 -0.5 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Per Share Data (€) EPS adjusted -6.28 -0.45 -0.02 -0.01 -0.01 EPS reported -6.28 -0.45 -0.02 -0.01 -0.01 BVPS -1.09 -1.53 -0.07 -0.08 -0.09 DPS 0.00 0.00 0.00 0.00 0.00


Net sales 290 278 283 283 285 Operating expenses -279 -280 -294 -281 -281 EBIT 11 -2 -11 3 5 Net interest expense -14 -22 -19 -19 -19 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit -3 -24 -30 -17 -15 Tax -12 -3 -2 -2 -2 Extraord./Min.Int./Pref.div. -372 0 0 0 0 Reported net income -387 -27 -32 -19 -17 Adjusted earnings -387 -27 -32 -19 -17 Adjusted EBITDA 88 70 79 79 82 Growth Rates (%) Sales -70.5 -4.2 1.6 0.3 0.7 EBIT adjusted 100.7 nm -24.1 87.5 7.7 EBITDA adjusted -43.2 -20.1 12.0 0.3 3.2 EPS adjusted nm 92.9 96.2 40.7 11.0

Cash Flow (€M)

Operating cash flow -423 44 24 31 32 Depreciation/amortization 58 50 63 49 50 Net working capital -95 31 14 8 7 Investing cash flow 384 -24 -32 -31 -32 Capital expenditure -15 -13 -13 -11 -11 Acquisitions/disposals 399 -12 -19 -20 -21 Financing cash flow -438 2 0 0 0 Borrowings -596 2 0 0 0 Dividends paid 0 0 0 0 0 Change in cash -477 23 -8 0 0


Total assets 429 360 332 310 290 Cash & cash equivalent 16 10 2 2 2 Accounts receivable 112 100 92 92 92 Net fixed assets 138 127 117 105 92 Total liabilities 496 454 459 455 452 Accounts payable 151 139 142 138 135 Total Debt 241 215 215 215 215 Shareholders' funds -67 -94 -126 -145 -162


EBITDA margin adjusted 30.3 25.3 27.9 27.9 28.6 ROE adjusted na na na na na ROIC adjusted -2.5 11.1 10.9 26.2 34.1 Net debt to equity na na na na na Total debt to capital 138.6 178.5 242.8 308.7 406.9




Yoox (YOOX.MI) Pondering Long- and Short-Term Opportunities What we like in Yoox — i) Immature growth story; ii) Yoox’s competitive

advantage is based on the combination of a) sophisticated econometric models, b) experienced buyers in the luxury industry, and c) close relationships with sourcing partnerships; iii) CEO Marchetti rightly focused on long-term strategies rather than pushing short-term ones to cheer investors; iv) mono-brands stores; and v) on track to create long-term value via either establishing itself as the leader in the untapped luxury retail market or to be taken over by a large player.

What we don’t like in Yoox — i) Working capital goal of c.11.6% of FY2011E sales might be challenging to achieve; ii) bullish investors’ expectations might somewhat affect management’s future behaviour.

Overview of 2011E — In our model, H111 sales account for 47% of FY11E sales vs. 45% in FY10A while H111 Adj. EBITDA accounts for 32% of FY11E vs. 36% in 2010 – thus suggesting a slight acceleration in H211E. Management confirmed that consensus for both sales and EBITDA for 2011E is realistic and we tend to agree. We find a little more challenging the goal of having WC back to c.11.6% of sales by year end from 15.3% as of June as this would imply a c.€6m cash flow generation from WC alone. Such flow should be generated via trade payables growing faster than inventories. This is partly supported by the growing weight of Mono-Brands and thecorner.com requiring fewer inventories.

Looking Ahead — The weaker macro-environment is uncharted territory for an immature growth company: on one hand weaker macro might put pressure on inventories, mono-brands sales and average selling prices for multi-brands. On the other hand, Yoox might end up with a more favourable sourcing environment (quality and prices) and more consumers might scale down their spending habits and buy more off-season than full-priced, in-season items.

Yoox's Long-Term Focus — Yoox is continuing to invest in mono-brand stores (which are long-term by definition as the goal is to establish long-term partnerships rather than short-term flash sales) and new markets like China – also requiring 18-24-month launches. While mainly keeping sourcing based in Italy, Yoox is increasing local independence in terms of marketing and strategies (the strong achievements in Russia are supportive). Finally, Yoox is spending time and resources on further improving logistics and IT.

Multi-brands — We also like Yoox’s strategies for its core proprietary brands: i) enlarging reach of Yoox.com while targeting horizontal diversification into kids, textile, jewelry and design – categories which fit well in Yoox.com's customers’ spending habits; ii) thecorner.com is increasingly seen as an “eco-system” to test new brands or to approach mono-brand stores. We still believe that Yoox offers an attractive platform with a global reach for online luxury brands and we don't understand why a luxury brand would instead choose to develop internally.

Looking Ahead — While we like Yoox’s strategies, we do not believe these will have a significant impact on 2012E, leaving little room for increasing our 2011-13E estimates. We are slightly lowering 2011-13E EPS has 9%, 5% and 2.5% to reflect higher stock option costs and negative FX.

Immature Growth Story — Compounding growth is at the centre of our investment case: while Yoox shouldn’t be valued on traditional yardsticks, we believe that Yoox’s stock will need to keep growing momentum just to keep outperforming. As we don’t expect any significant earnings upgrades in the coming months, while waiting for further evidence on WC control, we maintain our neutral view with a target price of €13.31.

Company Focus


Hold/Medium Risk 2MPrice (21 Sep 11) €12.01Target price €13.31Expected share price return 10.8%Expected dividend yield 0.0%Expected total return 10.8%Market Cap €636M US$872M

Price Performance (RIC: YOOX.MI, BB: YOOX IM)

Company Update Estimate Change

Europe | Italy Internet Retail (GICS) │ Apparel/Footwear/Textiles (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 152 214 279 352 432 Operating expenses -139 -199 -261 -325 -395 EBIT 13 15 18 27 37 Net interest expense -1 0 -1 0 0 Non-operating/exceptionals -4 0 0 0 0 Pre-tax profit 7 15 18 27 38 Tax -3 -6 -8 -11 -16 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income 4 9 10 15 22 Adjusted earnings 4 9 10 15 22 Adjusted EBITDA 17 23 31 41 52 Growth Rates (%) Sales 50.0 40.8 30.2 26.1 22.9 EBIT adjusted 131.7 29.5 19.3 29.8 30.3 EBITDA adjusted 106.9 35.1 36.6 32.2 28.7 EPS adjusted 72.5 120.9 11.8 51.8 41.9

Cash Flow (€M)

Operating cash flow 22 -1 10 15 21 Depreciation/amortization 2 4 8 12 14 Net working capital 13 -18 -13 -14 -16 Investing cash flow -3 -14 -22 -18 -21 Capital expenditure -3 -12 -22 -18 -21 Acquisitions/disposals 0 -2 0 0 0 Financing cash flow 8 1 6 8 10 Borrowings -24 0 0 0 0 Dividends paid 0 0 0 0 0 Change in cash 26 -15 -7 5 10








This page is intentionally left blank



Company Updates (Sector Coverage)



Atlantia (ATL.MI) Robust cash flow being overlooked by the market Robust cash flow being overlooked by the market — Atlantia continues to

enjoy the benefits of an extremely robust toll road network, which enjoyed essentially flat traffic during 2009/10 despite the dire economic climate. In addition, and aided by good cost control, 6-month 2011 EBITDA rose c6% to c€1.14bn. Management's success in generating additional revenues and controlling costs is encouraging. The group's financial situation remains solid for a toll road business with c€8.8bn of net debt representing c3.8x 2011E EBITDA.

Regulatory concerns — The general erosion in investor sentiment following the sharp declines seen in equity markets during Aug/Sept has been magnified amongst toll road stocks by heightening concerns regarding regulatory and tax risks for the sector. Worries regarding potential plans by the Italian government to increase the tax rate for utility and toll road companies have been a key factor. The authorities in Rome proposed and then watered down plans to reduce the rate of fiscal amortisation for concessions as recently as early July. But, with governments looking at ways to raise revenues, all options are likely to be on the table. Historically, regulatory changes in the sector, particularly in Spain, have been accompanied by concession life extensions (with effectively zero ‘cost’ to politicians) and have been at least NPV-neutral. A relatively painless way could, for example, be for governments to extend concessions terms in exchange for lump-sum payments. While there are some EU rules relating to such extensions (a new tender process is required), we would not be surprised to see the authorities adopt a flexible approach in this case, given the dire state of governments’ finances.

Financing issues — Group net debt of c€8.8bn at the end of June was down c€0.9bn YTD (primarily due to the deconsolidation of Strada del Parchi debt) and represents c4x EBITDA. This is slightly below the average for European sector peers (c5x). But ATL has by far the heaviest annual capex programme (€1.5-2.0bn p.a.) relative to its free cashflow pre-capex (c€1.3bn) and thus requires steady access to debt financing in coming years. Whilst short-term requirements are covered, the business model needs financing markets to be functioning relatively smoothly and this is clearly a concern for investors given the current climate of financial and economic instability, with its focus on sovereign debt problems.

TP lowered to €12.0 but valuation attractions now appear considerable — Our SOP valuation for Atlantia is based principally on dividend discount models (key assumptions include an average WACC of 7% and cost of equity of 10%-12%), deriving an average valuation of c€15/per share. We now apply an increased c20% discount to reflect our assessment of the increased risk premium resulting from the negative impact of the recent fiscal proposals from the government and the much less favourable financing conditions that are developing given the developing sovereign debt crisis in the Eurozone, which results in our reduced TP. Nevertheless, after the recent sell-off the stock is at the low end of its 10-year valuation range on c6.6x EBITDA 2011E falling to c6.2x 2012E. Clearly there is some risk of government intervention but with our estimate of an underlying IRR at ATL of c17%, well supported by a c7% dividend yield, the shares appear very attractive, in both absolute and relative terms.

Company Focus

Mike Pinkney, CFA [email protected]



Price Performance (RIC: ATL.MI, BB: ATL IM)

Company Update Target Price Change

Europe | Italy Highways & Railtracks (GICS) │ Motorways (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 3,611 3,750 3,844 4,019 4,234 Operating expenses -1,950 -1,983 -2,033 -2,089 -2,153 EBIT 1,661 1,767 1,811 1,931 2,081 Net interest expense -480 -657 -547 -595 -620 Non-operating/exceptionals -57 -2 -20 -20 -20 Pre-tax profit 1,124 1,108 1,244 1,316 1,441 Tax -443 -400 -473 -500 -548 Extraord./Min.Int./Pref.div. 9 -25 -20 -21 -23 Reported net income 691 683 752 795 870 Adjusted earnings 690 690 752 795 870 Adjusted EBITDA 2,204 2,285 2,340 2,483 2,661 Growth Rates (%) Sales 3.9 3.9 2.5 4.6 5.3 EBIT adjusted 2.2 10.6 2.5 6.8 8.0 EBITDA adjusted 4.2 3.6 2.4 6.1 7.2 EPS adjusted -3.5 -2.4 6.4 5.8 9.5

Cash Flow (€M)

Operating cash flow 1,709 1,145 1,212 1,659 1,772 Depreciation/amortization 544 517 529 552 579 Net working capital -269 283 349 -11 -19 Investing cash flow -1,488 -1,433 -1,741 -1,704 -1,974 Capital expenditure -1,326 -1,422 -1,730 -1,693 -1,962 Acquisitions/disposals -163 -11 -11 -11 -11 Financing cash flow 1,157 250 174 207 406 Borrowings 1,618 789 848 913 1,168 Dividends paid -413 -446 -482 -520 -562 Change in cash 1,377 -38 -356 162 204


Total assets 19,354 20,461 22,001 23,266 24,828 Cash & cash equivalent 1,222 1,174 1,494 1,618 1,822 Accounts receivable 889 866 888 929 978 Net fixed assets 10,034 11,514 12,778 13,939 15,293 Total liabilities 15,099 15,955 17,218 18,201 19,446 Accounts payable 720 757 930 951 973 Total Debt 11,886 12,675 13,523 14,436 15,604 Shareholders' funds 4,255 4,506 4,783 5,065 5,382






Buzzi Unicem (BZU.MI) Still Weakness in Key Markets What we Like — Buzzi Unicem has strong regional positions in cement in Italy,

Germany, Eastern Europe, Mexico and the US. The group should benefit from volume recovery in the medium term as the economies in Europe and the US continue to recover. Growth rates in Eastern Europe should be strong over the medium term as there continues to be a structural need for more infrastructure in these economies. We expect the group to benefit from significant positive operational leverage when volumes recover and prices start to edge up again. In 2007, the group was earning €1,046 million of EBITDA and we expect it to report just over €400m for 2011. The group also has a leading position in Italy, which at some point could benefit from a sharp improvement in profitability if the Italian cement market consolidates and enjoys higher pricing as a result.

Weaknesses — Trading during H1 2011 was relatively weak, with EBITDA margins down on the previous year due to a weak pricing environment and cost inflation in key markets beginning to weaken. H1 2011 results came in with EBITDA of €183m, down 3% on the previous year. Both Italy and the US were weak with significantly lower margins as the pricing environment was weaker than many had hoped for at the beginning of the year. Germany and Eastern Europe were better, generally.

What we expect in 2011 & 2012 — Management have commented that they expect an improvement in EBITDA for 2011 over 2010. We have a slight increase forecast but there remains a risk that this is not met. While EBITDA this year is expected to be around 60% below the peak reached in 2007, we see little sign of a sharp recovery in the next few years. Italy is likely to remain weak into 2012 with pricing remaining weak as volume recovery is absent. The US is also not expected to see much recovery in 2012 with profits virtually flat compared to 2011. Eastern Europe will probably show more signs of recovery but we still expect a lacklustre performance compared to 2007. We have recently trimmed our forecasts for 2011, but mainly for 2012 with EBITDA expected to be €403m and €437m respectively. The balance sheet remains in relatively good shape.

Valuation — The share price has fallen significantly but we do not see any imminent recovery in profitability driving the share price higher in 2012. While there is limited downside to our price target we remain cautious. The stock trades at 2012E EV/EBITDA of 5.6x and a PE of 18 times. These multiples are at a premium to its long-run average multiples. Looking at more medium-term valuation metrics, the stock looks more attractive value. It resides on a 0.40 times net asset multiple, against a long-run average of over 1 times. However, to realise this value, we need to see a sustained recovery in volumes, combined with better prices boosting margins and returns to more like normal through-the-cycle levels – which at this point seems some way off.

Company Focus

Aynsley Lammin [email protected]


Sell/Medium Risk 3MPrice (21 Sep 11) €6.02Target price €5.80Expected share price return -3.6%Expected dividend yield 0.8%Expected total return -2.7%Market Cap €1,126M US$1,544M

Price Performance (RIC: BZU.MI, BB: BZU IM)

Company Update

Europe | Italy Construction Materials (GICS) │ Building Products (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) 9.2 11.0 35.1 18.3 11.0 EV/EBITDA adjusted (x) 4.2 6.0 5.9 5.3 4.4 P/BV (x) 0.5 0.5 0.5 0.5 0.5 Dividend yield (%) 3.0 0.0 0.5 1.2 1.7 Per Share Data (€) EPS adjusted 0.66 0.55 0.17 0.33 0.55 EPS reported 0.69 -0.30 0.17 0.33 0.55 BVPS 12.12 12.44 12.57 12.82 13.26 DPS 0.18 0.00 0.03 0.07 0.10


Net sales 2,672 2,648 2,741 2,809 2,963 Operating expenses -2,349 -2,473 -2,566 -2,593 -2,682 EBIT 323 176 174 216 281 Net interest expense -100 -104 -98 -90 -86 Non-operating/exceptionals 12 -174 1 3 4 Pre-tax profit 235 -102 78 129 199 Tax -64 61 -20 -35 -56 Extraord./Min.Int./Pref.div. -32 -22 -24 -28 -32 Reported net income 140 -63 33 66 111 Adjusted earnings 133 111 33 66 111 Adjusted EBITDA 542 398 403 437 503 Growth Rates (%) Sales -24.1 -0.9 3.5 2.5 5.5 EBIT adjusted -53.7 -45.7 -0.8 23.8 30.4 EBITDA adjusted -41.3 -26.5 1.1 8.6 15.0 EPS adjusted -65.8 -16.4 -68.7 91.4 67.1

Cash Flow (€M)

Operating cash flow 301 290 234 260 307 Depreciation/amortization 219 223 229 222 222 Net working capital -60 12 -30 -50 -50 Investing cash flow -376 -253 -130 -155 -155 Capital expenditure -406 -271 -150 -175 -175 Acquisitions/disposals 30 18 20 20 20 Financing cash flow 192 1,589 1,413 -289 1,527 Borrowings 267 1,635 1,419 -274 1,548 Dividends paid -75 -46 -6 -14 -21 Change in cash 117 1,577 1,517 -184 1,679


Total assets 6,059 5,855 5,670 5,884 6,047 Cash & cash equivalent 697 396 250 450 600 Accounts receivable 436 451 466 481 496 Net fixed assets 3,411 3,478 3,399 3,352 3,306 Total liabilities 3,347 3,052 2,839 3,001 3,074 Accounts payable 266 279 344 410 476 Total Debt 1,803 1,635 1,419 1,529 1,548 Shareholders' funds 2,712 2,804 2,831 2,882 2,973






ENEL SpA (ENEI.MI) Spanish regulatory risk and debt still a concern Fairly valued, target price €3.5, Hold reiterated — We believe that the current

share price adequately discounts the implementation of the Robin Hood tax, the high Spanish regulatory risk and the increasingly uncertain outlook for the Italian gas and electricity market. On our numbers and following some share price correction, the stock trades at a 15% discount to the sector, a level that we believe is justified by the group’s application of IFRIC 18 (which inflates EPS by 15%) and higher than sector average gearing.

2013E target revision could be material (-20% to EPS)… before any intervention on Spanish regulation — ENEL official targets still point to €18.5bn of EBITDA and to €4.9bn of net profit in 2013E. These targets are under revision and should consider the impact of the Italian distribution regulatory review, the lower than forecast electricity prices in Italy (FWD for 2013 points to €76/MWh vs €85/Mwh expected by ENEL) and Endesa’s more cautious guidance. Russian political risk and delay in tariff increase might add to the EBITDA target downside risk. We see a 7-9% cut in EBITDA targets that, combined with the Robin Hood tax and with the increase in the group cost of debt, might lead to a 20% reduction to the 2013 net profit target.

Consensus EPS and targets still unadjusted. — Our EPS estimates, that still do not factor in any regulatory reform in Spain, are some 15-20% below consensus (2012-2014). We expect very significant revisions to consensus EPS and therefore DPS. Lower operative cash flow and delay in the securitisation of the tariff deficit might also add pressure on the group debt reducing the confidence on the group dividend policy.

Write-offs and cautious accountancy policy might hinder reported earnings and eventually DPS. Over the last 3 years, ENEL reported numbers have been affected by a number of positive non-recurring elements, related to revaluation of assets. Now, ENEL has some €24bn of goodwill on its books, mainly related to Endesa. While the outlook in Spain might remain stable (for the time being) the increase in WACC might add pressure for write-offs. This could also lead to a more cautious accountancy policy that, while non cash, might translate into lower dividends (while non recurring, capital gains added to EBITDA have been distributed in the past).

Company Focus


Hold/Medium Risk 2MPrice (21 Sep 11) €3.14Target price €3.50Expected share price return 11.5%Expected dividend yield 8.3%Expected total return 19.7%Market Cap €29,527M US$40,471M

Price Performance (RIC: ENEI.MI, BB: ENEL IM)

Company Update

Europe | Italy Electric Utilities (GICS) │ Utilities (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 64,362 73,377 72,292 72,625 72,984 Operating expenses -53,330 -62,119 -60,793 -61,489 -61,984 EBIT 11,032 11,258 11,499 11,136 10,999 Net interest expense -2,712 -3,203 -2,845 -2,771 -2,595 Non-operating/exceptionals 866 19 50 50 50 Pre-tax profit 9,186 8,074 8,704 8,415 8,454 Tax -2,597 -2,401 -3,149 -3,032 -3,070 Extraord./Min.Int./Pref.div. -1,004 -1,283 -1,285 -1,453 -1,568 Reported net income 5,585 4,390 4,271 3,930 3,817 Adjusted earnings 5,585 4,390 4,271 3,930 3,817 Adjusted EBITDA 16,371 17,480 17,433 17,186 17,157 Growth Rates (%) Sales 5.2 14.0 -1.5 0.5 0.5 EBIT adjusted 15.6 2.0 2.1 -3.2 -1.2 EBITDA adjusted 21.2 6.8 -0.3 -1.4 -0.2 EPS adjusted 10.5 -21.4 -2.7 -8.0 -2.9

Cash Flow (€M)

Operating cash flow 13,405 10,316 8,108 7,013 7,612 Depreciation/amortization 4,574 5,272 5,354 5,467 5,563 Net working capital 4,839 1,772 347 -804 -266 Investing cash flow -15,783 -3,755 -7,185 -6,161 -5,741 Capital expenditure -6,825 -7,090 -6,766 -6,191 -5,771 Acquisitions/disposals -8,958 3,335 -419 30 30 Financing cash flow -2,734 -2,351 -2,634 -2,633 -2,358 Borrowings 0 0 0 0 0 Dividends paid -2,734 -2,351 -2,634 -2,633 -2,358 Change in cash -5,112 4,210 -1,711 -1,780 -488


Total assets 163,037 167,054 162,532 160,240 157,439 Cash & cash equivalent 12,154 18,286 13,286 10,286 7,286 Accounts receivable 13,010 12,505 12,280 12,336 12,397 Net fixed assets 76,882 78,393 80,670 82,259 83,332 Total liabilities 117,104 113,509 107,350 103,761 99,501 Accounts payable 11,174 12,373 12,076 12,109 12,242 Total Debt 69,015 65,320 59,136 55,803 51,243 Shareholders' funds 45,933 53,545 55,182 56,479 57,938






Enel Green Power (EGPW.MI) Regulatory Risk Remains High Power prices to continue to put pressure on earnings – Austerity measures

impacting electricity demand as well as further renewables development impacting the potential production output from thermal plants are likely to lead to a slowdown in thermal generation load factors, meaning that a power price rally is much more unlikely and that we could see further pressure on earnings.

Regulation still under risk in its two key markets – Italy is yet to define a long-term regulatory framework, but we see it as likely to get weaker (green certificates); therefore no upside in returns should be expected. In Spain the regulation of new assets (from 1 January 2013) is yet to be defined, but given that: 1) the country is well ahead of the 2020 targets, and 2) there is a need for cost-cutting, we expect a significant decrease in returns & hence in installations from 2013. Initially, we expect no retrospective change in the regulation, but the existing (€18.5bn out of which €7.0bn already securitised) and ongoing deficit (€4.0bn expected in 2011) make us think that renewables will share the pain.

Country risk premium still an issue – With the ECB buying Italian and Spanish bonds, markets have no clear reference of the country risk premium; however, it has increased in recent months and continues to penalise companies' valuations. In addition, the likelihood of taxes on cash flow generators being increased given the IMF requirements as regards to country deficit reductions.

Fairly valued but higher risk – EGP is trading at 2012E EV/EBITDA 8.2x and P/E 17.4x. Multiples compare well with other renewable companies but growth rates (CAGR 2010-14E EBITDA +11.7% and EPS 8.4%) are well below peers'. In addition recent auctions in new markets (Brazil) show that new developments will see lower returns than in the old days.

Company Focus

Manuel Palomo [email protected]

Sell/Medium Risk 3MPrice (21 Sep 11) €1.75Target price €1.80Expected share price return 2.7%Expected dividend yield 1.7%Expected total return 4.5%Market Cap €8,760M US$12,007M

Price Performance (RIC: EGPW.MI, BB: EGPW IM)

Company Update

Europe | Italy Independent Power Producers & Energy Traders (GICS) │

Alternative/Renewable Energy - Other (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 1,777 2,179 2,297 2,270 2,519 Operating expenses -986 -1,385 -1,379 -1,260 -1,399 EBIT 791 794 917 1,010 1,120 Net interest expense -135 -128 -117 -166 -203 Non-operating/exceptionals 2 16 8 13 2 Pre-tax profit 658 682 808 857 919 Tax -219 -189 -283 -300 -322 Extraord./Min.Int./Pref.div. -21 -41 -41 -41 -41 Reported net income 418 452 485 516 556 Adjusted earnings 418 452 485 516 556 Adjusted EBITDA 1,207 1,313 1,475 1,638 1,821 Growth Rates (%) Sales -1.7 22.6 5.4 -1.1 11.0 EBIT adjusted 9.4 0.4 15.5 10.1 10.8 EBITDA adjusted 5.8 8.8 12.3 11.1 11.2 EPS adjusted -48.4 8.1 7.2 6.5 7.8

Cash Flow (€M)

Operating cash flow 894 676 1,035 1,162 1,297 Depreciation/amortization 416 519 557 627 702 Net working capital -62 124 -35 0 0 Investing cash flow -852 -1,947 -1,199 -1,461 -1,540 Capital expenditure -744 -1,066 -1,199 -1,461 -1,540 Acquisitions/disposals -115 -862 0 0 0 Financing cash flow -60 2,250 -136 -145 -155 Borrowings -60 0 0 0 0 Dividends paid 0 0 -136 -145 -155 Change in cash -22 984 -300 -444 -398


Total assets 9,494 13,131 13,564 14,396 15,688 Cash & cash equivalent 144 199 199 199 199 Accounts receivable 512 602 629 622 690 Net fixed assets 7,200 8,571 9,091 9,898 11,167 Total liabilities 6,930 5,787 5,843 6,275 7,137 Accounts payable 454 1,193 944 933 1,035 Total Debt 5,659 3,630 3,930 4,374 5,122 Shareholders' funds 2,564 7,344 7,722 8,121 8,551






Eni (ENI.MI) An underperformer in 2011 for all the right reasons, but now offers emerging value and growth Discounted valuation — Eni is the worst performing European Integrated Oil

equity YTD, a performance that has been understandable against a backdrop of Libya (10% of cash flows), potential delays in Kashagan Phase II (a key growth project) and, of course, most recently market perception of a rising cost of equity in Italy. That underperformance leaves the equity at around a 10% discount to the European Integrated sector median 2012/13E EV/DACF.

Strong growth 2015 — Our recent upgrade to Buy (European Oils - An Eye on the Cost Curve is Essential as Growth Slows) reflects strong growth credentials emerging over the 2011-15 period, with operating cash flow forecast to expand c.35%, outstripping growth of other large-cap Integrateds by a factor of 2x. This growth is driven by (1) a progressive re-start of Libya over the 2012/13 period, (2) a partial recovery in Italian gas margins, and (3) the start-up of key E&P growth projects in Kazakhstan (Kashagan), Iraq, Angola and Venezuela.

E&P is well-positioned on cost-curve — We see the E&P growth to 2015 and 2020 as fairly well positioned on the cost-curve, with an average oil price breakeven of US$47/bbl and very few high-end developments. Kashagan is the highest-cost development, but is now close to coming onstream, while developments in Angola Block 15/06 — with a breakeven of c.US$65-70/bbl — are now largely committed.

Libya re-start to boost margins in 2012 — Although Libya is not without risk, we believe that Eni will likely continue to play a key role in the country’s oil and gas infrastructure. Near-term, a progressive re-start of production should provide a boost to operating performance across all of Eni’s E&P, Gas & Power and refining businesses; we model a 10% boost to operating cash flows by early 2013.

Defensible dividend — We see Eni as cash flow breakeven at around US$100/bbl in 2012, so will likely have to fund dividend from debt. Nevertheless, the company looks well capitalised (22% at-equity gearing) and, given the growth outlook, is projected to move back into a stronger free cash position by 2014. We also note the ongoing intention to sell the company’s 33% holding in GALP, worth almost €3bn post-tax at current market valuation.

Valuation in context — At a 10% valuation discount to the sector, Eni looks to offer better than sector-average cash flow growth (2x large-cap end of the group), flat returns to 2015 (versus peer group decline of c. 100 bps) and what we regard as a defensible dividend (yielding 6.7% 2011E at our target price).

Company Focus

Alastair R Syme [email protected]


Price Performance (RIC: ENI.MI, BB: ENI IM)

Company Update

Europe | Italy Integrated Oil & Gas (GICS) │ Integrated Oils (Citi)

https://ir.citi.com/yHhsImLvz6nxmZgFFndRPIDnkMI%2FJeOg0sO1BrsRMTE%3D�

https://ir.citi.com/yHhsImLvz6nxmZgFFndRPIDnkMI%2FJeOg0sO1BrsRMTE%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 84,345 88,388 72,790 63,567 70,855 Operating expenses -71,223 -71,084 -53,926 -47,030 -52,269 EBIT 13,122 17,304 18,864 16,538 18,586 Net interest expense -551 -692 -739 -733 -780 Non-operating/exceptionals 110 1,388 1,201 803 829 Pre-tax profit 12,681 18,000 19,326 16,607 18,635 Tax -7,114 -9,417 -10,775 -9,214 -10,411 Extraord./Min.Int./Pref.div. -1,200 -1,065 -1,133 -1,036 -1,138 Reported net income 4,367 7,518 7,418 6,357 7,085 Adjusted earnings 5,207 6,911 7,279 6,357 7,085 Adjusted EBITDA 22,935 26,883 27,188 24,738 27,759 Growth Rates (%) Sales -22.5 4.8 -17.6 -12.7 11.5 EBIT adjusted -39.4 31.9 9.0 -12.3 12.4 EBITDA adjusted -27.1 17.2 1.1 -9.0 12.2 EPS adjusted -48.2 32.7 5.3 -12.7 11.5

Cash Flow (€M)

Operating cash flow 11,266 14,694 16,485 15,330 17,121 Depreciation/amortization 9,813 9,579 8,324 8,201 9,173 Net working capital -2,104 -1,726 -362 0 0 Investing cash flow -11,125 -13,769 -13,071 -14,290 -14,661 Capital expenditure -12,795 -13,870 -13,695 -13,389 -13,590 Acquisitions/disposals 2,898 1,113 1,633 0 0 Financing cash flow -472 -1,719 -3,083 -3,288 -3,178 Borrowings 3,957 2,535 1,009 901 1,072 Dividends paid -4,429 -4,254 -4,092 -4,188 -4,250 Change in cash -331 -794 332 -2,247 -718








Fiat Industrial (FI.MI) Reiterate Buy4 Reiterate Buy — Fiat Industrial has been one of the companies in our coverage

that was sold off aggressively in the recent market sell-off. The share looks attractive given a potential EBIT margin expansion (the full potential of which we believe is not reflected in our and consensus forecasts), secular growth in ag equipment (c40% of sales), and potential to further strengthen the current business portfolio. In addition, the multiple of Fiat Industrial may be supported by M&A speculation.

Changes to Forecasts — We recently lowered our 2012-2013 growth forecasts to reflect a weaker macro economic backdrop. The downgrades were predominantly in the Iveco division. Our target price was reduced to €10 from €13, in line with our updated DCF and SOTP valuations.

What’s Priced In? — The current share price implies a 10% decline in sales Y/Y in 2012E versus our 2011E (vs. implied 7% decline for the sector).

Restructuring Story Could Drive Upgrades — Fiat Industrial is one of the last potential restructuring stories left in our sector. The company is targeting 11.4% trading profit margins by 2014 (8.4% in 2Q11, back to the previous peak from the recent trough of 2% in 2009), which we have not reflected in our forecasts (we estimate 7.8%). We are starting to see some evidence of restructuring, which is encouraging: (i) we saw signs of efficiency improvement at the main plant in Europe (Zedelgem harvesting equipment manufacturing facility) during CNH’s CMD; and (ii) Iveco announced 2 plant closures as a part of its Bus segment restructuring plan, with expected cost savings of €35m. Worth noting, Iveco is also expected to generate €300m of annual purchase value in 2014 (related to low-cost purchasing). If the 5-Year Plan targets are achieved, we estimate that the fair value for Fiat Industrial could be €15/share. The current share price discounts a trading profit margin of 4%, vs. 6% margins achieved during the past cycle, while our €10 TP is based on through-cycle margin improvement of only 6.6% (ex financial services).

Balance Sheet — Following the demerger, Fiat Industrial (at the beginning of this year) has secured its funding needs for the next few years (3-years syndicated loans and bonds issued in 1Q11). Fiat Industrial relies on US and European capital markets, with a limited exposure to Italy. We forecast industrial net debt at €1.5bn at the end of 2011. Unutilised committed credit lines are c€1.2bn.

4 Extract from Engineering Sector Review - Opportunities Emerging, Citi,12 September 2011.

Company Focus

Natalia Mamaeva [email protected]

Buy/High Risk 1HPrice (21 Sep 11) €6.38Target price €10.00Expected share price return 56.7%Expected dividend yield 2.0%Expected total return 58.8%Market Cap €7,590M US$10,403M

Price Performance (RIC: FI.MI, BB: FI IM)

Company Update

Europe | Italy Construction & Farm Machinery & Heavy Trucks (GICS) │ Engineering (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) nm 19.1 12.0 10.0 8.4 EV/EBITDA adjusted (x) na 14.8 11.6 10.7 9.8 P/BV (x) 1.6 2.0 1.6 1.4 1.2 Dividend yield (%) 0.0 0.0 2.0 2.5 3.0 Per Share Data (€) EPS adjusted -0.10 0.33 0.53 0.64 0.76 EPS reported -0.38 0.27 0.52 0.64 0.76 BVPS 4.10 3.22 4.04 4.67 5.24 DPS 0.00 0.00 0.13 0.16 0.19


Net sales 17,968 21,342 24,034 25,376 26,562 Operating expenses -17,646 -20,250 -22,429 -23,619 -24,610 EBIT 322 1,092 1,604 1,757 1,952 Net interest expense -401 -505 -509 -438 -369 Non-operating/exceptionals -391 -11 93 120 120 Pre-tax profit -470 576 1,188 1,439 1,703 Tax -33 -198 -475 -576 -681 Extraord./Min.Int./Pref.div. 39 -37 -68 -70 -80 Reported net income -464 341 645 793 942 Adjusted earnings -123 416 661 793 942 Adjusted EBITDA 955 1,754 2,316 2,511 2,727 Growth Rates (%) Sales na 18.8 12.6 5.6 4.7 EBIT adjusted na 239.1 46.9 9.5 11.1 EBITDA adjusted na 83.7 32.0 8.4 8.6 EPS adjusted na 436.6 58.9 20.0 18.7

Cash Flow (€M)

Operating cash flow 986 2,384 738 1,065 1,269 Depreciation/amortization 633 662 712 754 775 Net working capital 888 993 -618 -483 -448 Investing cash flow -706 -871 -1,000 -1,000 -900 Capital expenditure -706 -871 -1,000 -1,000 -900 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -314 -2,098 550 140 -97 Borrowings 0 0 0 0 0 Dividends paid 0 0 0 -160 -197 Change in cash -34 -585 288 204 272




EBITDA margin adjusted 5.3 8.2 9.6 9.9 10.3 ROE adjusted na 9.2 14.7 14.7 15.4 ROIC adjusted na 3.9 4.7 4.8 5.0 Net debt to equity 232.2 316.4 247.9 211.2 184.6 Total debt to capital 72.2 79.8 75.9 73.1 70.8




Finmeccanica (SIFI.MI) A Difficult Road Ahead What we like – 1) Significant emerging market exposure and a large order

backlog (2.5 years revenue), spread across several programmes (JSF, Eurofighter, C27J, helicopters) and >1/0x book-to-bill; 2) Excellent helicopter offering, both in military and civil sectors; 3) Civil/commercial exposed businesses (43% of group sales in 2010A) could recover from 2012E; 4) Restructuring actions initiated by new CEO could deliver better-than-expected cost savings.

What we do not like – 1) Exposure to Italian defence spending (c20% of sales); 2) Poor profitability in the core Defence Electronics and Aeronautics businesses; 3) Ongoing losses at Ansaldo Breda; 4) Substantial government stake (32%) and a large Italian employee base, which could impede management’s ability to restructure the business adequately; 5) High level of debt vs. peers (particularly if including Law 808/85 government advances); 6) Poor cash conversion; 7) Potential significant restructuring charges;

Overview of 1H11A and FY11 expectations – 1H11 results were materially lower than expected, with adjusted EBIT missing consensus forecasts by 18%. FCF performance was also considerably worse than expected. Management withdrew FY11 EBIT guidance citing uncertainty over further restructuring charges and lowered FY11 sales and FCF guidance. Following weak 1H11 results, we cut our FY11 forecasts for adjusted EBIT by 24% and EPS by 46% (see note dated 17 August). In addition to tough underlying trading in 2H11, we also see potential for further above and below the line restructuring charges, which we have not factored into our forecasts.

2012 estimates – Our forecasts show c6% YoY growth in 2012E adjusted EBIT to €1.2bn on broadly flat sales of €18bn. We are in line with consensus on 2012E sales but c4% ahead on adjusted EBIT and EPS, although we note that consensus forecasts likely contain a mix of earnings estimates before and after restructuring charges.

Balance sheets/financing – Finmeccanica’s balance sheet is relatively stretched, with a 2011E Net Debt/EBITDA of 1.7x vs European defence peers’ average of 0.7x. FNC’s free cash conversion ratio also materially lags its peers (c.28% in 2010A vs. 63% average for peers). A stretched balance sheet coupled with weak FCF generation limits FNC’s ability to supplement EPS growth through earnings enhancing acquisitions or share buybacks, in our view. The next major debt refinancing (c€1bn) is due end-2013.

Valuation conclusion – Our €4 target price is based on 6x 2012E EV/EBIT and implies a P/E of 5x 2012E. This is a 15% discount to the implied target EV/EBIT for FNC’s closest peer, BAE Systems (BAES.L; £2.87; 1H), which we believe is appropriate due to a worse profit outlook, lower returns, weaker cash conversion and a worse financial track record

Company Focus

Jeremy Bragg [email protected]

Sell/High Risk 3HPrice (21 Sep 11) €5.31Target price €4.00Expected share price return -24.6%Expected dividend yield 7.7%Expected total return -16.9%Market Cap €3,067M US$4,204M

Price Performance (RIC: SIFI.MI, BB: FNC IM)

Company Update

Europe | Italy Aerospace & Defense (GICS) │ Aerospace & Defense (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 18,176 18,695 18,010 17,980 18,220 Operating expenses -16,669 -17,191 -16,951 -16,854 -17,059 EBIT 1,507 1,504 1,059 1,126 1,161 Net interest expense -314 -352 79 -360 -359 Non-operating/exceptionals -98 -286 -314 -115 -115 Pre-tax profit 1,095 866 824 652 687 Tax -377 -309 -208 -238 -251 Extraord./Min.Int./Pref.div. -64 -64 -65 -67 -68 Reported net income 654 493 551 347 368 Adjusted earnings 782 723 412 465 486 Adjusted EBITDA 2,242 2,252 1,859 1,921 1,966 Growth Rates (%) Sales 20.9 2.9 -3.7 -0.2 1.3 EBIT adjusted 21.6 0.1 -28.0 5.8 2.9 EBITDA adjusted 21.5 0.4 -17.4 3.3 2.3 EPS adjusted -5.1 -7.6 -43.1 12.9 4.6

Cash Flow (€M)

Operating cash flow 1,028 1,296 784 1,082 1,113 Depreciation/amortization 727 785 817 812 822 Net working capital -488 -117 -158 -158 -160 Investing cash flow -478 -961 -317 -810 -820 Capital expenditure -465 -853 -811 -810 -820 Acquisitions/disposals -10 -138 473 0 0 Financing cash flow -236 -970 -527 -315 -347 Borrowings 20 -713 -214 0 0 Dividends paid -256 -257 -313 -315 -347 Change in cash 333 -776 -168 -42 -54








Gemina SpA (GEMI.MI) Reduced Valuation on Increased Volume and Re-financing Risks5 Earnings forecasts recently lowered on reduced traffic expectations — We

recently reduced our 2011E EBITDA forecast from €273m to €270m (excluding exceptional items), flat on 2010, due to lower non-aviation revenue, notably advertising, reported in 1H results. Our 2012E EBITDA forecast was reduced from €309m to €297m and 2013E from €343m to €339m. The main reason for these reductions is lower expected passenger growth from 3.5% to 2% as we expect airlines to announce capacity cutbacks from 4Q11 due to deteriorating macroeconomic conditions and still high fuel costs. Given the negative effects of MENA unrest, the Libyan war and the Japan earthquake/aftermath in 2011, our expectation for underlying growth in 2012E is essentially nil.

Long-term tariff agreement still the main earnings and share price driver... — Aeroporti di Roma has reportedly reached agreement in principle with regulator, ENAC, over tariff and concession agreements but negotiations are ongoing and will involve consultation with airlines before final approval by Prime Minister's Decree. Even though ADR's tariffs are c.40% below benchmark levels, we only expect a 20% increase by 2014 with most of the increase end-loaded.

...followed by refinancing issues — Gemina recently announced: (i) it will pay off a €42.1m debt maturity in Dec 2011 with a 3-year €60.1m facility repayable in Dec 2014; and (ii) ADR extended a €100m facility by one year to February 2013. While it is positive that ADR/Gemina can access the credit markets, more substantial re-financing will be needed to repay €500m of debt in 2013 and €400m in 2014. We are concerned the current Eurozone debt crisis could lead to higher funding costs for Gemina/ADR, which may be difficult to pass on via airport tariffs in order to earn their capital costs. Reduced credit market access could increase probability of a dilutive equity issue.

Target price of €0.69 — As we do with other airports, we recently increased (in Gemina SpA (GEMI.MI) - Reduced Valuation on Increased Volume and Re-financing Risks) Gemina's discount to its theoretical RAB-based DOTP – from 15% to 25% – to reflect increased passenger volume and re-financing risks/costs. We therefore maintain our Hold/Speculative (2S) rating until there is more clarity on the regulatory and re-financing issues.

5 From: Gemina SpA (GEMI.MI) - Reduced Valuation on Increased Volume and Re-financing Risks, 6 September 2011.

Company Focus

Andrew Light [email protected]

Hold/Speculative 2SPrice (21 Sep 11) €0.62Target price €0.69Expected share price return 11.2%Expected dividend yield 0.0%Expected total return 11.2%Market Cap €915M US$1,254M

Price Performance (RIC: GEMI.MI, BB: GEM IM)

Company Update

Europe | Italy Airport Services (GICS) │ Airports (Citi)

https://ir.citi.com/WsCxZgll3aNeXTNUDfyXaFxRbQPsAfWNj8wTBEz1Fwc%3D�

https://ir.citi.com/WsCxZgll3aNeXTNUDfyXaFxRbQPsAfWNj8wTBEz1Fwc%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) nm nm 166.5 34.4 20.6 EV/EBITDA adjusted (x) 10.5 8.7 8.4 7.5 6.7 P/BV (x) 0.6 0.6 0.6 0.6 0.6 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Per Share Data (€) EPS adjusted -0.03 -0.03 0.00 0.02 0.03 EPS reported -0.03 -0.03 0.00 0.02 0.03 BVPS 1.09 1.07 1.07 1.09 1.12 DPS 0.00 0.00 0.00 0.00 0.00


Net sales 571 653 640 733 809 Operating expenses -487 -562 -526 -600 -650 EBIT 83 91 115 132 159 Net interest expense -81 -88 -84 -77 -77 Non-operating/exceptionals -22 -25 -7 0 0 Pre-tax profit -20 -21 24 55 82 Tax -20 -16 -17 -26 -35 Extraord./Min.Int./Pref.div. 1 1 -2 -2 -3 Reported net income -39 -37 5 27 44 Adjusted earnings -39 -37 5 27 44 Adjusted EBITDA 226 269 270 297 339 Growth Rates (%) Sales -1.9 14.4 -1.9 14.4 10.4 EBIT adjusted -13.8 9.1 26.2 15.3 20.2 EBITDA adjusted -4.2 19.3 0.3 9.9 14.1 EPS adjusted -15.9 5.0 114.7 383.8 67.2

Cash Flow (€M)

Operating cash flow 161 267 278 254 308 Depreciation/amortization 142 108 113 120 131 Net working capital -26 41 32 -16 4 Investing cash flow -97 -96 -67 -180 -211 Capital expenditure -93 -93 -67 -180 -211 Acquisitions/disposals -4 -2 0 0 0 Financing cash flow -103 -126 -281 -246 -661 Borrowings -21 -31 -135 -111 -504 Dividends paid 0 0 0 0 0 Change in cash -39 45 -69 -171 -563


Total assets 4,020 4,005 3,977 3,959 4,054 Cash & cash equivalent 205 261 260 156 161 Accounts receivable 214 190 203 214 212 Net fixed assets 17 15 50 89 131 Total liabilities 2,379 2,400 2,365 2,318 2,366 Accounts payable 145 160 202 212 227 Total Debt 1,632 1,600 1,510 1,440 1,440 Shareholders' funds 1,641 1,605 1,612 1,641 1,688


EBITDA margin adjusted 39.5 41.2 42.2 40.5 41.9 ROE adjusted -2.3 -2.3 0.3 1.7 2.7 ROIC adjusted 1.8 2.2 2.9 3.2 3.6 Net debt to equity 87.0 83.4 77.6 78.3 75.8 Total debt to capital 49.9 49.9 48.4 46.7 46.0




Italcementi Group (ITAI.MI) Still no Signs of Recovery What we Like — Italcementi has strong market positions in a number of national

markets including France, Italy, Belgium, Egypt, and Morocco while it also has good regional positions in Thailand, India, Turkey and North America. In total c.40% of the group turnover comes from emerging markets. The majority of the group’s products and markets tend to be relatively localised due to the high transport costs of their products. The business is also operationally geared to higher volumes due to the high fixed cost nature of its companies, in particular the cement ones.

Weaknesses — Lack of volume growth in mature markets will hold back a return to more normal profitability, with the group also having to deal with some higher costs over the next 6-12 months. Italy and Egypt remain difficult markets with downside risks. While the balance sheet is okay, there is not much room for corporate development in the medium term. The corporate structure, due in part to the existence of two share classes, does not help the group’s appeal for investors.

What we Expect in 2011 & 2012 — We expect zero volume growth in most mature markets in 2012. The picture should be better in emerging markets in terms of volume growth but both regions will likely experience some cost inflation driven by higher coal and petcoke in particular. With a lack of volume recovery in mature markets pricing is likely to be difficult resulting in little margin improvement in 2012. Italy remains a key swing factor for Italcementi in 2012 but until we see more material rationalisation steps being taken by the two leading players it is hard to see prices recovering much without a significant recovery in volumes. The other big issues for the group are the turnaround in the US market (which we expect to be muted in 2012) and the performance of Egypt. Overall we expect only a 6% increase in EBITDA in 2012.

Valuation — Italcementi’s P/E and EV/EBITDA metrics are well above long-term averages (of 10.6x P/E and 5.7x EV/EBITDA, respectively). On other valuation metrics like EV/IC or P/NAV the stock is trading at 0.69x and 0.23x, respectively, both well below their averages. However, to realise this value, we need to see a sustained recovery in volumes, combined with better prices boosting margins and returns to more like normal through-the-cycle levels – which at this point seems some way off. We cut our forecasts following the Q2 numbers with Egypt being the key change for us. We believe that uncertainty surrounding Italy and Egypt, in particular, warrant a certain amount of extra caution in the near term. Valuation is not sufficiently depressed relative to the cement peer group or its own historical average rating to merit a valuation argument for the stock, in our view, despite its recent poor run. Italy remains a potential turnaround story but we do not see any sign of this occurring over the next 12-18 months and therefore have a Sell rating on the stock in the absence of any positive near-term catalysts.

Company Focus


Sell/High Risk 3HPrice (21 Sep 11) €4.61Target price €4.00Expected share price return -13.2%Expected dividend yield 2.6%Expected total return -10.6%Market Cap €1,042M US$1,429M

Price Performance (RIC: ITAI.MI, BB: IT IM)

Company Update

Europe | Italy Construction Materials (GICS) │ Building Products (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) 11.2 19.2 nm 31.3 18.7 EV/EBITDA adjusted (x) 5.0 5.7 6.0 5.5 5.3 P/BV (x) 0.4 0.4 0.4 0.4 0.4 Dividend yield (%) 2.6 2.6 2.6 2.8 3.0 Per Share Data (€) EPS adjusted 0.41 0.24 -0.08 0.15 0.25 EPS reported 0.26 0.16 0.30 0.15 0.25 BVPS 12.28 12.65 12.80 12.80 12.88 DPS 0.12 0.12 0.12 0.13 0.14


Net sales 5,006 4,791 4,967 4,994 5,191 Operating expenses -4,563 -4,437 -4,692 -4,673 -4,804 EBIT 443 354 275 321 387 Net interest expense -107 -91 -122 -113 -106 Non-operating/exceptionals -27 -4 127 24 27 Pre-tax profit 310 259 280 232 308 Tax -94 -62 -59 -74 -99 Extraord./Min.Int./Pref.div. -144 -151 -138 -117 -141 Reported net income 71 46 82 41 69 Adjusted earnings 112 67 -23 41 69 Adjusted EBITDA 972 836 763 808 874 Growth Rates (%) Sales -13.3 -4.3 3.7 0.5 4.0 EBIT adjusted -16.7 -17.2 14.2 -15.5 20.6 EBITDA adjusted -12.7 -13.9 -8.8 5.9 8.2 EPS adjusted -63.9 -41.7 -133.8 282.2 67.3

Cash Flow (€M)

Operating cash flow 1,071 748 552 571 619 Depreciation/amortization 529 483 488 487 487 Net working capital 200 134 0 -20 -20 Investing cash flow -760 -496 -159 -600 -600 Capital expenditure -750 -615 -560 -600 -600 Acquisitions/disposals 20 144 401 0 0 Financing cash flow 208 34 153 -129 -86 Borrowings 260 189 192 -87 -41 Dividends paid -39 -130 -40 -43 -45 Change in cash 519 286 395 -159 -67


Total assets 9,813 10,021 9,813 9,946 10,079 Cash & cash equivalent 775 825 825 825 825 Accounts receivable 881 739 699 699 699 Net fixed assets 4,393 4,595 4,467 4,580 4,693 Total liabilities 5,121 5,035 4,686 4,748 4,759 Accounts payable 548 589 589 589 589 Total Debt 3,165 3,084 2,614 2,701 2,742 Shareholders' funds 4,692 4,986 5,127 5,197 5,316


EBITDA margin adjusted 19.4 17.5 15.4 16.2 16.8 ROE adjusted 3.4 1.9 -0.6 1.2 1.9 ROIC adjusted 4.1 3.6 4.3 3.3 3.8 Net debt to equity 50.9 45.3 34.9 36.1 36.0 Total debt to capital 40.3 38.2 33.8 34.2 34.0




Pirelli (PECI.MI) Emerging market focus and mix improvements are supportive6 Tyre stocks have performed in line with the sector sell-off — We think the

indiscriminate treatment of Tyre stocks during the recent sell-off provides an opportunity given the industry’s less cyclical characteristics reflecting the 75% of sales that are replacement led. We also believe that Pirelli’s focus on emerging markets provides it with a unique profile. It experienced the smallest revenue declines of all Tyre players in 08 and 09 because of this with trough margins of 6%. Though we understand concerns about a cooling Brazil economy, macro prospects still seem much weaker in developed economies to us, so we continue to like the high LatAm exposure vs peers. Pirelli’s rapid mix progress is another supportive factor with the investment proposition much more about this than volume growth.

2012 forecasts — We see revenues of €6.1bn – recently reduced by 3% from our prior forecasts with total volume growth of 2.5% in 12E (flat replacement sales in Europe). For 12E we see EBIT of €642mn. We continue to see mix improvements of +3% p.a. in 2012E. Our 12E EPS forecasts declined by 10% to €0.69. 13E numbers came down also to reflect a lower 12E base though our 13E vs 12E volume growth expectations are broadly unchanged. We reduced 11E sales growth forecasts to +19.4% vs +19.8% previously with global Tyre supply remaining tight.

Scenario analysis: a further 5% drop in volumes — If Volumes were to decline a further 5% from our base case in 12E this would suggest EBIT of €552mn, down a further 14%.

Still a Buy though, TP €8 — As stated in Revised Automotive Economy, with the sector offering more defensive characteristics outside of the Truck Tyre business we retain our Buy rating. We did though recently lower our target price from €9 to €8 to reflect our lower 2012 estimates and the application of lower target multiples than we had previously to reflect increased macro uncertainties. Our current TP is based on 5.1x EV/EBITDA on 12E vs 5.6x previously, which is a 15% discount to historical multiples to reflect this macro uncertainty.

6 From: Revised Automotive Economy - Credit Signals, Volume Risk, Keep Us Focused on German Names, 1 September 2011.

Company Focus

Philip Watkins [email protected]


Price Performance (RIC: PECI.MI, BB: PC IM)

Company Update

Europe | Italy Tires & Rubber (GICS) │ Auto Parts & Equipment (Citi)

https://ir.citi.com/tH%2F1VCNhyNuq%2FsXxfhkvA%2BEe0FndHfCa%2FJipSewXHLE%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) nm 10.6 8.5 7.9 6.7 EV/EBITDA adjusted (x) 4.5 5.0 4.2 3.9 3.3 P/BV (x) 1.3 1.4 1.2 1.1 1.0 Dividend yield (%) 2.8 3.0 4.1 4.9 6.0 Per Share Data (€) EPS adjusted -0.15 0.54 0.67 0.72 0.85 EPS reported -0.21 0.50 0.64 0.69 0.82 BVPS 4.46 4.09 4.56 5.02 5.56 DPS 0.16 0.17 0.23 0.28 0.34


Net sales 4,067 4,848 5,777 6,093 6,574 Operating expenses -3,762 -4,415 -5,172 -5,452 -5,842 EBIT 305 433 605 642 731 Net interest expense -70 -66 -90 -90 -90 Non-operating/exceptionals -67 -2 -10 -10 -10 Pre-tax profit 168 366 505 542 631 Tax -90 -137 -187 -200 -227 Extraord./Min.Int./Pref.div. -179 18 -5 -5 -5 Reported net income -101 246 313 336 399 Adjusted earnings -75 261 326 349 412 Adjusted EBITDA 521 658 850 911 1,020 Growth Rates (%) Sales -12.7 19.2 19.2 5.5 7.9 EBIT adjusted 63.1 42.0 39.7 6.1 14.0 EBITDA adjusted 29.0 26.3 29.2 7.1 11.9 EPS adjusted 78.0 448.1 24.5 7.1 18.1

Cash Flow (€M)

Operating cash flow 405 848 379 564 666 Depreciation/amortization 216 225 246 270 289 Net working capital 212 95 -185 -46 -27 Investing cash flow 31 -452 -500 -400 -400 Capital expenditure -186 -415 -500 -400 -400 Acquisitions/disposals 202 -36 0 0 0 Financing cash flow -174 -568 -82 -112 -136 Borrowings -102 -422 0 0 0 Dividends paid -2 -85 -82 -112 -136 Change in cash 257 -164 -203 52 129


Total assets 6,727 5,619 5,954 6,238 6,633 Cash & cash equivalent 793 455 257 315 451 Accounts receivable 1,001 912 1,080 1,137 1,224 Net fixed assets 1,727 1,977 2,226 2,351 2,455 Total liabilities 4,233 3,591 3,690 3,745 3,872 Accounts payable 1,730 1,720 1,819 1,874 2,001 Total Debt 1,795 1,142 1,142 1,142 1,142 Shareholders' funds 2,495 2,028 2,265 2,494 2,761






Snam Rete Gas SpA (SRG.MI) Robin Hood Tax priced in, upside risk to earnings SRG offers a 34% total return, BUY/Low Risk — Despite recent government

intervention (Robin Hood Tax) we believe SRG still offers a solid and visible earnings outlook and defensive nature. Target price: €4.3 per share.

Relative risk profile substantially improved — We believe SRG’s current share price fully discounts the implementation of the Robin Hood Tax in the long term. We now see some upside risk to our estimates if an agreement with the government to dilute the impact on earnings were to be reached. Regulatory and political risk continues to remain a key issue in Europe and might further dent estimates of other European names (especially in Iberia).

Robin Hood Tax discounted, relative P/E to the sector in line with historical levels. — Following the recent share price reaction (-9% since mid August) SRG’s 2011E P/E relative to the sector remained in line with its historical levels.

… but 5-year EPS growth well above sector average to 10.4% — The removal of the tax, the pass-through of increasing Italian rates and the group’s strong capex cycle should allow a double-digit 5-year EPS growth rate that compares with ~4% EPS growth p.a. for utilities.

7.7% avg dividend yield remains solid — Due to its strong balance sheet we expect SRG to maintain its dividend policy. The pay-out ratio should increase to ~95% over the period 2011-2013E and renormalise to 75% in 2014 when we expect the tax to be removed or pass through.

Company Focus


Buy/Low Risk 1LPrice (21 Sep 11) €3.50Target price €4.30Expected share price return 22.7%Expected dividend yield 6.8%Expected total return 29.6%Market Cap €12,513M US$17,152M

Price Performance (RIC: SRG.MI, BB: SRG IM)

Company Update

Europe | Italy Gas Utilities (GICS) │ Utilities (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 2,468 3,508 3,553 3,728 3,929 Operating expenses -1,194 -1,646 -1,648 -1,691 -1,733 EBIT 1,274 1,862 1,905 2,037 2,196 Net interest expense -217 -271 -320 -377 -491 Non-operating/exceptionals 22 47 49 52 54 Pre-tax profit 1,079 1,638 1,635 1,712 1,760 Tax -347 -532 -685 -721 -742 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income 732 1,106 949 991 1,018 Adjusted earnings 718 1,077 923 963 989 Adjusted EBITDA 1,887 2,540 2,573 2,735 2,926 Growth Rates (%) Sales 27.7 42.1 1.3 4.9 5.4 EBIT adjusted 22.0 46.2 2.3 6.9 7.8 EBITDA adjusted 23.1 34.6 1.3 6.3 7.0 EPS adjusted -27.8 49.9 -14.2 4.3 2.6

Cash Flow (€M)

Operating cash flow 1,842 1,947 1,355 1,610 1,670 Depreciation/amortization 613 678 668 698 730 Net working capital 497 163 -262 -79 -78 Investing cash flow -1,410 -1,540 -1,631 -1,812 -1,971 Capital expenditure -1,410 -1,540 -1,631 -1,812 -1,971 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -818 -806 -776 -1,165 -1,206 Borrowings 0 0 0 0 0 Dividends paid -405 -675 -776 -815 -856 Change in cash -386 -399 -1,052 -1,367 -1,507


Total assets 19,761 20,557 21,512 23,031 24,682 Cash & cash equivalent 36 8 10 10 10 Accounts receivable 771 828 839 880 927 Net fixed assets 13,089 13,644 14,401 15,668 17,070 Total liabilities 13,259 13,852 14,634 15,977 17,467 Accounts payable 900 1,095 1,131 1,169 1,214 Total Debt 9,979 10,350 11,404 12,771 14,278 Shareholders' funds 6,502 6,705 6,878 7,054 7,216






Telecom Italia SpA (TLIT.MI) The end of the beginning7 Still needs to deliver — TIM’s 2.1pp in 2Q underlying improvement in service

revenues is a sign that we are past the worst. Voice pricing was rebased in 2010 and stayed flat so far in 2011. Interactive data services are gaining traction with 9% YoY growth in 2Q11 and should continue to converge with the 20% levels that Vodafone Italy is reporting. Fixed headline weakness masks solid trends in the core business. A better pricing environment and regulation should help revenues and KPIs improve in 2H.

Upgrade to cash flow generation — TI left its net debt target for the year unchanged. This is an implicit upgrade to cash flow guidance as the Atimus (R$1.5bn) acquisition is included. It should also benefit future cash flow (lower capex in Brazil going forward) and is therefore an implicit reduction to future leverage.

Target prices — In Telecoms Services - Take Cover! … Dividend Cover (21 Sept) we cut our price targets by €0.10 for ordinary and savings (TLITn.MI; €0.68; 1M) shares to €1.20 and €1.05, respectively, due to higher cost of capital. TI shares have come under pressure on the back of the sovereign crisis in Italy and its relatively high leverage. However, we believe the market is discounting the worst without focusing on the operational turnaround of the business. Both in Italy and LatAm, TI’s performance is improving and we expect 2H results to show a complete turnaround. In terms of valuation, TI trades on compelling multiples at deep discounts to the sector: EV/EBITDA of 4.2x; P/E of under 5x, 23% FCF yield and 10.6% (11.5%) and yield for the ordinary (savings) shares in 2012. We retain our Buy rating on both share categories.

Perhaps the end of the beginning — We believe the market will remain sceptical given past failure to deliver. But as we argued in ‘The incredible, credible or the possible impossible’, TI is more focused on operational performance than in the past (when EBITDA was the main focus) and is well positioned to deliver ongoing improvement in service revenues. The fixed remains the big hidden value driver that the market should start to focus on as mobile improves. It will take time, but the process has begun, in our view.

7 From: Georgios Ierodiaconou, Telecom Italia SpA (TLIT.MI) - The end of the beginning, Citi, 5 August 2011.

Company Focus

Georgios Ierodiaconou [email protected]


Price Performance (RIC: TLIT.MI, BB: TIT IM)

Company Update

Europe | Italy Integrated Telecommunication Services (GICS) │ Telecommunications

Services (Citi)

https://ir.citi.com/y5tZf8RNuLJNigBX3fjnRJHJOwPU1yZUiyBcvvw2zdo%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) 8.3 4.7 5.7 5.4 5.3 EV/EBITDA adjusted (x) 4.4 4.4 4.3 4.1 4.0 P/BV (x) 0.6 0.5 0.6 0.5 0.5 Dividend yield (%) 6.3 7.3 8.3 9.6 10.8 Per Share Data (¢) EPS adjusted 10 17 14 15 15 EPS reported 8 16 -3 15 15 BVPS 135 150 141 149 156 DPS 5 6 7 8 9


Net sales 27,163 27,571 30,044 29,726 29,755 Operating expenses -21,670 -21,758 -26,367 -22,613 -22,624 EBIT 5,493 5,813 3,676 7,113 7,132 Net interest expense -2,221 -2,074 -2,097 -1,923 -1,796 Non-operating/exceptionals 67 99 69 69 69 Pre-tax profit 3,339 3,838 1,649 5,259 5,405 Tax -1,121 -548 -1,669 -1,885 -1,940 Extraord./Min.Int./Pref.div. -637 -169 -469 -534 -570 Reported net income 1,581 3,121 -489 2,840 2,895 Adjusted earnings 1,849 3,250 2,709 2,850 2,895 Adjusted EBITDA 11,327 11,801 12,227 12,298 12,224 Growth Rates (%) Sales -6.3 1.5 9.0 -1.1 0.1 EBIT adjusted 0.4 8.2 10.3 3.6 0.1 EBITDA adjusted -0.8 4.2 3.6 0.6 -0.6 EPS adjusted -25.4 75.8 -16.7 5.2 1.6

Cash Flow (€M)

Operating cash flow 5,121 7,307 7,884 8,035 8,438 Depreciation/amortization 5,622 5,599 8,530 5,176 5,092 Net working capital -689 -616 -448 -426 -52 Investing cash flow -3,877 -3,319 -4,976 -5,095 -4,471 Capital expenditure -3,924 -4,583 -4,866 -5,095 -4,471 Acquisitions/disposals -6 0 0 0 0 Financing cash flow -881 -3,904 -6,240 -5,261 -2,827 Borrowings 180 -2,811 -4,900 -3,700 -1,000 Dividends paid -1,032 -1,029 -1,183 -1,351 -1,543 Change in cash 596 84 -3,332 -2,321 1,141








TERNA SpA (TRN.MI) Worst-case scenario still offers 21% upside Buy, target price €3.1. Following a 12% share price decline, TRN is now trading

at an 8.1% discount to RAB and we believe the share price discounts structural value destruction, a situation that in our view would not occur even in the unlikely scenario that the Robin Hood tax will weigh on utilities’ earnings in the long run.

Terna: Worst-case scenario points to €2.8 per share — In the unlikely scenario that the tax would not be removed, we would value Terna at €2.8 per share and the stock would offer a 21% total return.

Bull case could lead to €3.3 per share — We now see some upside risk to our estimates if an agreement with the government to dilute the impact on earnings were to be reached.

Forthcoming regulatory review could be more benign than previously expected — We expect the regulator to allow a 6.5% return on the group RAB for the period 2012-2015 to reflect the higher Italian bond yield (5.2% AVG Dec 2010 - Nov 2011) and the reduction of Italian CPI in 2012 to 2.5% also considering the poor economic outlook. We see some upside to this scenario as the regulator, in the next regulatory paper expected to be published in October, with the approval of the government, might introduce some measures to mitigate the impact of the Robin Hood tax.

8.5% avg dividend yield remains solid — Due to its strong balance sheet we expect Terna to maintain its €0.21 dividend in the long term. With the Robin Hood tax in 2012 and 2013 the group pay-out is forecast to increase to 115% but should normalise to 77% starting from 2014.

Company Focus


Buy/Low Risk 1LPrice (21 Sep 11) €2.70Target price €3.10Expected share price return 14.9%Expected dividend yield 7.8%Expected total return 22.7%Market Cap €5,423M US$7,433M

Price Performance (RIC: TRN.MI, BB: TRN IM)

Company Update

Europe | Italy Electric Utilities (GICS) │ Utilities (Citi)




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 1,390 1,589 1,627 1,687 1,777 Operating expenses -697 -775 -799 -817 -856 EBIT 694 814 828 870 921 Net interest expense -151 -105 -136 -202 -237 Non-operating/exceptionals 3 3 0 0 0 Pre-tax profit 545 712 692 668 684 Tax -192 -245 -330 -304 -311 Extraord./Min.Int./Pref.div. 417 147 138 0 0 Reported net income 770 613 500 364 373 Adjusted earnings 770 613 500 364 373 Adjusted EBITDA 1,003 1,175 1,207 1,263 1,345 Growth Rates (%) Sales -0.3 14.3 2.3 3.7 5.3 EBIT adjusted -2.9 17.4 1.7 5.1 5.9 EBITDA adjusted 0.9 17.2 2.7 4.7 6.5 EPS adjusted 134.2 -20.4 -18.5 -27.2 2.5

Cash Flow (€M)

Operating cash flow 765 773 982 1,029 908 Depreciation/amortization 309 361 379 394 424 Net working capital -239 -219 77 43 -126 Investing cash flow -900 -1,160 -1,060 -1,010 -964 Capital expenditure -900 -1,160 -1,060 -1,010 -964 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -316 -382 -422 -422 -422 Borrowings 0 0 0 0 0 Dividends paid -316 -382 -422 -422 -422 Change in cash -451 -769 -500 -403 -477


Total assets 9,320 10,775 10,816 11,329 11,946 Cash & cash equivalent 501 151 151 151 151 Accounts receivable 1,169 1,496 1,531 1,428 1,504 Net fixed assets 6,990 7,803 8,489 9,110 9,655 Total liabilities 6,818 8,014 7,975 8,545 9,209 Accounts payable 1,482 1,542 1,544 1,480 1,426 Total Debt 4,324 5,305 5,543 6,222 6,984 Shareholders' funds 2,502 2,761 2,841 2,784 2,737






Tod's SPA (TOD.MI) Quality, Defensive Growth Quality growth — In a fast-changing economic environment, we back quality

growth companies with defensive characteristics, good EM sales momentum and strong balance sheets. Tod’s fits the bill. On the back of another strong sales and margin performance in 2Q11 (slightly above consensus expectations), and a positive outlook for 2H11, we recently raised our FY12-13E EPS by 3% and 6% respectively (see Quality, Defensive Growth – Upgrade to BUY, 9 August 2011).

What we like — i) Strong earnings momentum in FY11-13E and historical earnings resilience; ii) Defensive model driven by its core shoe business and the Tod’s brand, which capture a loyal customer base through classic luxury products; iii) Sales momentum in Tod’s underpenetrated markets (Asia, US), with more to come; iv) Good sales visibility in 2H11; v) Self-help driving gross margin improvements; vi) Opportunities to pursue profitable product diversification in leather goods (Tod’s, Hogan); vii) Limited currency risks; and viii) Strong FCF generation and balance sheet.

Resilience to downturns — Over the past decade, marked by two severe industry downturns (2001-03, 2008-09), Tod’s has produced a strong CAGR performance of 12% for sales (constant FX), 13% for EBIT and 14% for EPS despite a much lower exposure to Asia/EM. This compares to 8%, 10% and 12% for the luxury sector, respectively.

Supportive valuation, reiterate Buy — The shares are down ~19% since 26 July and trade on a 15.8x 2012E P/E multiple (14.8x ex-cash), ~10% below its 5Y average and broadly in line with the luxury sector ex-Hermes. While we argue that the stock should trade in line with peers as it delivers industry-average earnings growth, we incorporate a take-out multiple approach in our valuation model to reflect renewed M&A activity in the sector. A weighted average of our DCF, peer multiple and M&A-based valuation methodologies points to a fair value of €101.0, which is the basis for our target price. With ~30% upside from current share price, we reiterate our Buy (1M) recommendation.

Company Focus

Thomas Chauvet [email protected]


Price Performance (RIC: TOD.MI, BB: TOD IM)

Company Update

Europe | Italy Footwear (GICS) │ Luxury Goods (Citi)

https://ir.citi.com/c0YkUko6b0hQvnBbn%2FeKInhl1cgqK9CrEtTLwvxac2Y%3D�




2009 2010 2011E 2012E 2013E

Valuation Ratios



Net sales 713 788 893 983 1,082 Operating expenses -587 -628 -700 -762 -831 EBIT 127 160 194 221 251 Net interest expense 0 3 3 4 5 Non-operating/exceptionals 0 0 0 0 0 Pre-tax profit 127 163 197 225 256 Tax -40 -53 -63 -72 -82 Extraord./Min.Int./Pref.div. 0 -2 -2 -2 -3 Reported net income 86 109 132 151 171 Adjusted earnings 86 109 132 151 171 Adjusted EBITDA 159 193 231 263 296 Growth Rates (%) Sales 0.8 10.4 13.4 10.0 10.1 EBIT adjusted -0.1 26.4 21.1 14.1 13.5 EBITDA adjusted 1.6 21.7 19.8 13.4 12.6 EPS adjusted 4.5 27.2 21.0 14.2 13.5

Cash Flow (€M)

Operating cash flow 160 157 170 177 193 Depreciation/amortization 32 33 38 41 45 Net working capital 42 14 1 -15 -23 Investing cash flow -24 -107 -51 -50 -55 Capital expenditure -19 -98 -52 -51 -56 Acquisitions/disposals -5 -10 0 0 0 Financing cash flow -34 -9 -61 -75 -86 Borrowings -2 36 0 0 0 Dividends paid -38 -46 -61 -75 -86 Change in cash 102 41 58 52 52


Total assets 847 916 999 1,085 1,176 Cash & cash equivalent 204 172 229 280 331 Accounts receivable 108 120 115 127 139 Net fixed assets 106 174 199 219 242 Total liabilities 187 297 308 318 322 Accounts payable 104 130 143 147 152 Total Debt 27 91 91 91 91 Shareholders' funds 660 618 691 767 854






Change in Estimates



The table below summarises the changes to EPS estimates made in this report.

Figure 26. EPS Changes (€)

EPS 2011E EPS 2012E EPS2013E

Company Name RIC Old New Chg Old New Chg Old New Chg Autogrill AGL.MI 0.45 0.43 -6.5% 0.66 0.54 -19.1% 0.77 0.61 -20.3% Davide Campari CPRI.MI 0.30 0.31 2.3% 0.34 0.35 3.1% 0.38 0.39 3.1% Gruppo Espresso ESPI.MI 0.18 0.15 -14% 0.17 0.12 -30.1% 0.19 0.13 -32.5% Lottomatica LTO.MI 1.12 1.25 11.9% 1.24 1.28 3.4% 1.31 1.35 3.2% Luxottica Group LUX.MI 1.03 0.96 -6.7% 1.21 1.05 -13.6% 1.36 1.17 -14.2% Mondadori SpA MOED.MI 0.22 0.17 -19.7% 0.25 0.15 -40.0% 0.29 0.16 -44.8% Seat Pagine Gialle PGIT.MI 0.04 -0.01 -121.1% 0.04 0.00 -100.9% 0.04 0.00 -93.5% Tiscali SpA TIS.MI -0.01 -0.02 40.7% 0.09 -0.01 -111.8% 0.10 -0.01 -109.4% Yoox YOOX.MI 0.18 0.16 -9.5% 0.26 0.24 -5.0% 0.35 0.34 -2.5%

Source: Citi Investment Research and

Autogrill

As the key summer season is going well, 2011E EBITDA might nearly be in the bank and the risk of profit warnings seems much lower than for the overall market. Our 6.5% cut in 2011E EPS purely reflects costs for refinancing.

Looking ahead, we expect modest traffic recovery in 2012E and a sharp 1.5% fall of traffic in Italy with little outperformance. Whereas traffic is unpredictable by definition, Autogrill has a very flexible cost structure considering that the bulk of COGS, rents and payroll are very variable. Our c.20% cut in 2012-13E EPS (and c.6% in EBITDA) reflects lower expectations on Italy (where we see EBITDA down by 10% and 20% from 2011E and 2012E respectively) and higher financing costs.

Figure 27. Estimates Revision 2011E-2013E (€m)

2011E 2012E 2013E Revenues new 5,839.8 5,999.2 6,281.5 Revenues old 5,783.3 6,065.0 5,823.8 %change 1.0% -1.1% 7.9% EBITDA new 611.5 647.2 673.6 EBITDA old 611.1 687.4 722.1 % change 0.1% -5.9% -6.7% EBITDA margin new 10.5% 10.8% 10.7% EBITDA margin old 10.6% 11.3% 12.4% EPS new 0.43 0.54 0.61 EPS old 0.45 0.66 0.77 % change -6.5% -19.1% -20.3%




Figure 28. Quarterly Results and Estimates (€m)

1Q11A 2Q11A 1H11A 2H11E 2011E Total Revenues 1,202.8 1,453.0 2,655.8 3,184.0 5,839.8 - F&B 855.4 969.6 1,825.0 2,239.5 4,064.5 - Travel Retail & Duty Free 347.4 464.6 812.0 963.2 1,775.2 Total EBITDA 85.9 164.9 250.8 360.7 611.5 - F&B 51.2 107.7 158.9 269.5 428.4 - Travel Retail & Duty Free 32.6 64.0 96.6 121.6 218.2 - Unallocated EBITDA 2.1 -6.8 -4.7 -30.4 -35.1 margin 7.1% 11.3% 9.4% 11.3% 10.5% EBIT 14.0 94.2 108.2 183.7 291.9 margin 1.2% 6.5% 4.1% 5.8% 5.0% YOY Change Total Revenues 3.9% 2.0% 2.8% 2.0% 2.4% - F&B 2.6% -3.1% -0.6% 2.1% 0.9% - Travel Retail & Duty Free 7.3% 9.7% 8.7% 3.8% 5.9% Total EBITDA -8.0% 7.6% 1.7% 0.5% 1.0% - F&B -26.2% -2.0% -11.3% 3.8% -2.4% - Travel Retail & Duty Free 15.6% 31.7% 25.8% 4.0% 12.6% EBIT -38.3% 12.0% 11.0% 16.4% 14.3% Weight on FY11E Total Revenues 20.6% 24.9% 45.5% 54.5% 100.0% Total EBITDA 14.0% 27.0% 41.0% 59.0% 100.0% EBIT 4.8% 32.3% 37.1% 62.9% 100.0%


Davide Campari-Milano SpA Given the uncertain macro-environment, we have resisted the temptation to increase our 2011-12E estimates in line with recent evidence; based on H111A, the first 6 months of the year would weigh as 46.3% of our FY11E EBITDA vs. 43.1% in 2010; were we to apply the 2010A weight, our model would point to an EBITDA in excess of €355m. However, to reflect the macro uncertainty we lift 2011E EBITDA to only €333m (up 3.6%) and 2011-13E EPS by some 3%.



Figure 29. Estimates Revision 2011-13E (€m) 2011E 2012E 2013E Revenues new 1,265.0 1,357.4 1,461.0 Revenues old 1,256.3 1,357.4 1,461.0 % change 0.7% 0.0% 0.0% EBITDA new 333.0 365.1 396.1 EBITDA old 321.4 355.0 385.5 % change 3.6% 2.8% 2.7% EBITDA margin new 26.3% 26.9% 27.1% EBITDA margin old 25.6% 26.2% 26.4% EBIT new 302.9 334.4 364.8 EBIT old 295.1 328.2 358.1 % change 2.7% 1.9% 1.9% EBIT margin new 23.9% 24.6% 25.0% EBIT margin old 23.5% 24.2% 24.5% EPS new 0.31 0.35 0.39 EPS old 0.30 0.34 0.38 % change 2.3% 3.1% 3.1% Source: Citi Investment Research and Analysis


1Q11A 2Q11A 1H11A 2H11E 2011E Revenues 268.4 320.7 589.1 675.9 1,265.0 EBITDA before one-offs 69.4 84.8 154.2 178.8 333.0 margin 25.9% 26.4% 26.2% 26.5% 26.3% EBIT before one-offs 9.0 77.4 86.4 216.5 302.9 margin 3.4% 24.1% 14.7% 32.0% 23.9% YOY Change Revenues 14.9% 13.7% 14.2% 4.4% 8.8% EBITDA before one-offs 17.4% 22.0% 19.9% 5.2% 11.5% EBIT before one-offs -82.8% 21.5% -25.5% 38.1% 11.1% Weight on FY11E Revenues 21.2% 25.4% 46.6% 53.4% 100.0% EBITDA before one-offs 20.8% 25.5% 46.3% 53.7% 100.0% EBIT before one-offs 3.0% 25.5% 28.5% 71.5% 100.0%


Espresso We expect core circulation to increase from €268m in 2010A to €275m as gradual increases in local newspapers’ cover price (from €1.0 to €1.2) should more than offset declines in copies sold. Total circulation should, however, suffer from a further decline in add-ons. We are assuming Espresso will increase Repubblica’s cover price only in 2012. Moreover, Repubblica’s circulation might suffer once the ‘gossip effect’ on Berlusconi fades away. Finally, we assume advertising will grow less than c.2% in 2011E (from our previous assumption of c.3%). We calculate an EBITDA of €158.6m in 2011E.



Looking ahead, we expect flattish revenues in 2012E as the increase in cover price would more than offset declining in core circulation, add-ons and a 2.5% decrease in advertising. Starting from an EBITDA of €158.6m in 2011E, we point to an EBITDA of €149.7m in 2012E after considering changes in top line and inertial inflation on operating costs. We are cutting 2011-13E EPS by 14%, 30.1% and 32.5% on the basis of the above assumptions of declining top line and costs trends and the weaker macro picture. While capex stabilises at €30m, we still see strong cash flow generation for 2011-12E with Espresso’s net debt hovering around €100m by the end of 2012E – after paying an unchanged dividend.


2011E 2012E 2013E Revenues new 899.2 888.7 878.3 Revenues old 902.8 931.4 937.5 %change -0.4% -4.6% -6.3% EBITDA new (ex- one-off) 158.6 149.7 150.8 EBITDA old 177.1 184.4 191.1 % change -10.4% -18.8% -21.1% EBITDA margin new 18.3% 18.3% 18.3% EBITDA margin old 16.6% 16.6% 16.6% EPS new 0.15 0.12 0.13 EPS old 0.18 0.17 0.19 % change -14% -30.1% -32.5%



1Q11A 2Q11A 1H11A 2H11E 2011E Revenues 222.2 235.2 457.4 441.8 899.2 Tot Circulation 88.2 81.8 170.0 162.1 332.1 - o/w add-on 15.0 na na na 56.8 Advertising 127.6 146.8 274.4 262.7 537.1 Other 6.4 6.6 13.0 17.0 30.0 0.0 EBITDA 36.8 44.7 81.5 77.1 158.6 margin 16.5% 19.0% 17.8% 17.5% 17.6% EBIT 27.6 35.4 63.0 58.2 121.2 margin 12.4% 0.15 13.8% 13.2% 13.5% YOY Change Revenues 4.0% 1.6% 2.8% 0.4% 1.6% Tot Circulation 0.1% -1.6% -0.7% -0.5% -0.6% - o/w add-on -34.2% na na na -14.4% Advertising 4.9% 2.4% 3.6% -0.3% 1.6% EBITDA 21.1% 0.9% 9.1% 6.5% 7.8% EBIT 30.2% -0.3% 11.1% 11.2% 11.2% Weight on FY11E Revenues 24.7% 0.26 50.9% 49.1% 100.0% Tot Circulation 26.6% 0.25 51.2% 48.8% 100.0% - o/w add-on 26.4% na na na 100.0% Advertising 23.8% 0.27 51.1% 48.9% 100.0% EBITDA 23.2% 0.28 51.4% 48.6% 100.0% EBIT 22.8% 0.29 52.0% 48.0% 100.0%




Lottomatica

We are adjusting our 2011-2013E estimates to reflect strong performances of the Italian operations. While we are slightly above management guidance for 2011E, we don’t expect significant growth in 2012E as Lottomatica will face i) higher fees and cannibalisation on gaming machines; ii) likely lower contribution from Lotto’s ritardatari and lower contribution from Texas and Illinois. For the time being we expect negligible impact from the two recent austerity budget laws – which might end up affecting 3-5% of EBITDA in a worst-case scenario.


2011E 2012E 2013E Revenues new 2,845.1 3,035.4 3,121.1 Revenues old 2,826.0 3,009.1 3,094.2 %change 0.7% 0.9% 0.9% EBITDA new 963.2 978.7 996.7 EBITDA old 928.5 967.4 985.4 % change 3.7% 1.2% 1.1% EBITDA margin new 33.9% 32.2% 31.9% EBITDA margin old 32.9% 32.1% 31.8% EPS new 1.25 1.28 1.35 EPS old 1.12 1.24 1.31 % change 11.9% 3.4% 3.2%



1Q11A 2Q11A 1H11A 2H11E 2011E Group Revenues 702.1 702.6 1,404.7 1,440.4 2,845.1 - Italy 459.9 451.9 911.8 921.7 1,833.4 - Gtech 257.4 257.2 514.6 497.1 1,011.7 EBITDA 256.0 245.3 501.3 461.9 963.2 - Italy 199.0 188.0 387.0 309.0 696.0 - Gtech 57.0 57.3 114.3 -114.3 267.1 margin 36.5% 34.9% 35.7% 32.1% 33.9% EBIT 152.7 140.0 292.7 246.9 539.6 margin 21.7% 19.9% 20.8% 17.1% 33.9% YOY Change Group Revenues 28.9% 22.3% 25.5% 20.5% 22.9% - Italy 52.7% 55.4% 54.1% 39.1% 46.1% - Gtech 5.3% -9.8% -2.9% -13.9% -8.6% EBITDA 29.7% 22.6% 26.2% 11.3% 18.6% - Italy 48.5% 51.6% 50.0% 13.6% 31.3% - Gtech -10.0% -24.6% -18.0% -180.0% -5.4% EBIT 29.3% 26.9% 28.1% 56.8% 39.8% Weight on FY11E Group Revenues 24.7% 24.7% 49.4% 50.6% 100.0% - Italy 25.1% 24.6% 49.7% 50.3% 100.0% - Gtech 25.4% 25.4% 50.9% 49.1% 100.0% EBITDA 26.6% 25.5% 52.0% 48.0% 100.0% EBIT 28.3% 26.0% 54.2% 45.8% 100.0%




Luxottica

While adjusting our model we anticipate a slowdown in the economy and we position ourselves some 10% below 2011-12E EPS consensus on 2012E and – we believe – management’s expectations. Whereas our 4.7% cut in 2011E EBIT (and 8.5% on 2011E EPS) is entirely due to the celebration of the 50-year anniversary (€15m in stocks distributed to employees), the 15% cut in 2012-13E EPS reflects flattish US prescriptions, a 2.5% increase in sun retail and a better performance in APAC. Wholesale up 7.8% includes new Coach licence and mid-single digit growth globally.

Figure 35. Estimates Revisions 2011-2013E (€m)

2011E 2012E 2013E Revenues new 6,084 6,381 6,680 Revenues old 6,137 6,479 6,846 % change -0.8% -1.5% -2.4% EBITDA new 1,104 1,168 1,253 EBITDA old 1,145 1,283 1,390 % change -3.6% -8.9% -9.9% EBITDA margin new 18.1% 18.3% 18.8% EBITDA margin old 18.7% 19.8% 20.3% EBIT new 800 852 924 EBIT old 840 963 1,055 % change -4.7% -11.5% -12.4% EBIT margin new 13.2% 13.4% 13.8% EBIT margin old 13.7% 14.9% 15.4% Adjusted EPS new 0.96 1.05 1.17 EPS old 1.03 1.21 1.36 % change -6.7% -13.6% -14.2%





1Q11A 2Q11A 1H11A 2H11E 2011E Group Revenues 1,556.1 1,633.5 3,189.6 2,894.8 6,084.5 - Wholesale 641.1 704.0 1,345.1 1,100.4 2,445.5 - Retail 915.0 929.5 1,844.5 1,794.4 3,639.0 EBITDA 283.0 352.1 635.1 468.8 1,103.9 margin 18.2% 21.6% 19.9% 16.2% 18.1% EBIT 207.4 276.8 484.2 316.0 800.2 - Wholesale 148.0 188.3 336.3 201.2 537.5 - Retail 97.0 129.6 226.6 188.6 415.2 - Intercompany -38 -41.1 -78.7 -73.8 -152 margin 13.3% 16.9% 15.2% 10.9% 13.2% YOY Change Group Revenues 11.8% 2.4% 6.8% 3.0% 337.2% - Wholesale 15.8% 8.1% 11.7% 6.7% 341.8% - Retail 9.2% -1.5% 3.5% 0.8% 334.1% EBITDA 16.5% 5.1% 9.9% 7.4% 354.3% EBIT 21.2% 7.1% 12.7% 11.8% 367.4% - Wholesale 23.2% 19.8% 21.3% 9.0% 347.5% - Retail 10.2% -5.1% 0.9% -5.6% 371.8% - Intercompany 1.9% 15.9% 8.7% -27.4% 313.2% Weight on FY11E Group Revenues 25.6% 26.8% 52.4% 47.6% 100.0% - Wholesale 26.2% 28.8% 55.0% 45.0% 100.0% - Retail 25.1% 25.5% 50.7% 49.3% 100.0% EBITDA 25.6% 31.9% 57.5% 42.5% 100.0% EBIT 25.9% 34.6% 60.5% 39.5% 100.0% - Wholesale 27.5% 35.0% 62.6% 37.4% 100.0% - Retail 23.4% 31.2% 54.6% 45.4% 100.0% - Intercompany 24.7% 26.9% 51.6% 48.4% 100.0%


Mondadori While adjusting our model for a weaker macro environment, which we expect will lead to a further acceleration in the decline of the core magazine business, we model magazine sales down 4.4% in 2011E and a further 7.2% in 2012E – with advertising down 10% next year. While we see flattish trade books, we expect Art & Exhibition to remain under pressure – reducing profitability for the book division. Peripheral assets are expected to remain negligible. Based on the above, we reduce our 2011-13E EPS by 19.7%, 40% and 44.8% while we cut EBITDA by 6.5%, 21.8% and 27.5% in the same period.




2011E 2012E 2013E Revenues new 1,565.3 1,510.4 1,491.4 Revenues old 1,534.9 1,516.4 1,502.5 %change 2.0% -0.4% -0.7% EBITDA new 135.7 125.2 125.6 EBITDA old 153.5 160.1 173.2 % change -11.6% -21.8% -27.5% EBITDA margin new 8.7% 8.3% 8.4% EBITDA margin old 10.0% 10.6% 11.5% EPS new 0.17 0.15 0.16 EPS old 0.22 0.25 0.29 % change -19.7% -40.0% -44.8%



1Q11A 2Q11A 1H11A 2H11E 2011E Group Revenues 355.6 385.8 741.4 823.9 1,565.3 - Italy 273.0 296.0 569.0 650.3 1,219.3 - France 82.6 89.8 172.4 173.6 346.0 EBITDA 21.8 37.2 59.0 76.7 135.7 margin 6.1% 9.6% 8.0% 9.3% 8.7% EBIT 16.3 31.6 47.9 61.4 109.3 margin 4.6% 8.2% 6.5% 7.5% 7.0% YOY Change Group Revenues 3.2% 1.0% 2.0% -0.9% 0.5% - Italy 3.6% 0.4% 1.9% -0.8% 0.4% - France 1.8% 2.9% 2.4% -1.3% 0.5% EBITDA 2.8% 11.4% 8.1% -10.3% -3.2% EBIT 3.8% 16.6% 11.9% -14.0% -4.3% Weight on FY11E Group Revenues 22.7% 24.6% 47.4% 52.6% 100.0% - Italy 22.4% 24.3% 46.7% 53.3% 100.0% - France 23.9% 26.0% 49.8% 50.2% 100.0% EBITDA 16.1% 27.4% 43.5% 56.5% 100.0% EBIT 14.9% 28.9% 43.8% 56.2% 100.0%


Seat Pagine Gialle While commenting H111A results, management presented a new 2011-15E plan – pointing to a stabilisation of the customer base from 2012E and some 80% of Italian revenues generated online by 2015E. Assuming Seat manages to achieve this goal, EBITDA should stabilise at 45% or c€400m in 2015E, some 7% above 2011E revised EBITDA guidance of €365-385m (or €415-435m under the old accounting).

With effect from June 30, 2011 Seat has changed its revenue recognition policy in the online and voice business segment and – accordingly – revenues and costs will be recognised over the product/service duration. This implies c.€68m lower EBITDA in 2011E (a 15% impact) while management guided that the new accounting would have virtually no impact in 2015 – once the online migration has been completed.



We update our model for the new 2011-15E plan and the new revenue recognition policy. Our new EBITDA for 2011-12E are 20.1% and 24.1% lower while 2015E is some 10.5% below our previous estimates and some 3% below guidance. The impact on EPS is optically very significant; however, we see this as a matter for mathematicians for a stock trading below €0.05 and accordingly, we pay little attention to EPS.


2011E 2012E 2013E Revenues new 969.8 928.5 921.4 Revenues old 1,077.4 1,066.0 1,060.5 %change -10.0% -12.9% -13.1% EBITDA new 372.5 346.0 354.8 EBITDA old 466.0 455.8 446.4 % change -20.1% -24.1% -20.5% EBITDA margin new 38.4% 37.3% 38.5% EBITDA margin old 43.3% 42.8% 42.1% EPS -0.009 -0.000 0.003 EPS old 0.045 0.041 0.041 % change -121.1% -100.9% -93.5%


Figure 40. Half-Year Results and Estimates (€m)

1H11A 2H11E 2011E Group Revenues 433.3 536.5 969.8 - Italy 353.0 469.5 822.5 - Abroad 90.2 88.2 178.4 - Eliminations -9.9 -21.2 -31.1 EBITDA 150.2 222.3 372.5 margin 34.7% 41.4% 38.4% EBIT 92.9 214.6 307.5 margin 21.4% 40.0% 31.7% Weight on FY11E Group Revenues 44.7% 55.3% 100.0% - Italy 42.9% 57.1% 100.0% - Abroad 50.6% 49.4% 100.0% - Eliminations 31.8% 68.2% 100.0% EBITDA 40.3% 59.7% 100.0% EBIT 30.2% 69.8% 100.0%


Tiscali

We revise our estimates following H111A and weaker macro environment in Italy – making it more challenging for Tiscali to become profitable. While cutting 2011-13E EBITDA (net of provision) by 11% and 22%, we now forecast Tiscali to report net losses in the coming years. We disregard the changes in EPS as not material – given the micro absolute values (-€0.010).




2011E 2012E 2013E Revenues new 282.6 283.5 285.4 Revenues old 285.0 293.4 296.9 %change -2.8% -3.4% -3.9% EBITDA new 51.8 52.0 54.4 EBITDA old 59.5 67.0 69.9 % change -11.2% -22.4% -22.2% EBITDA margin new 20.9% 18.3% 19.1% EBITDA margin old 22.8% 22.8% 23.5%



1Q11A 2Q11A 1H11A 2H11E 2011E Revenues 69 71.1 140.1 142.5 282.6 - Internet 35.3 35.9 71.2 84.5 155.7 - Voice 28.1 28.8 56.9 47.6 104.5 - Other 5.6 6.4 12 10.4 22.4 EBIT -2.3 -6.4 -8.7 -2.5 -11.2 margin -3.3% -9.0% -6.2% -1.8% -4.0% YOY Change Revenues 0.6% -1.3% -0.4% 3.6% 1.6% - Internet -11.3% -10.0% -10.7% 10.2% -0.4% - Voice 16.1% 10.3% 13.1% -4.6% 4.3% - Other 21.7% 6.7% 13.2% -5.9% 3.5% EBIT -160.5% -1700.0% -307.1% -58.2% 522.7% Weight on FY11E Revenues 24.4% 25.2% 49.6% 50.4% 100.0% - Internet 22.7% 23.1% 45.7% 54.3% 100.0% - Voice 26.9% 27.6% 54.4% 45.6% 100.0% - Other 25.1% 28.6% 53.7% 46.3% 100.0% EBIT 20.5% 57.1% 77.6% 22.4% 100.0%


Yoox

While we like Yoox’s strategies, we do not believe these will have a significant impact on 2012E, leaving little room for increasing our 2011-13E estimates. We are slightly lowering 2011-13E EPS has 9%, 5% and 2.5% to reflect higher stock option costs and negative FX.




2011E 2012E 2013E Revenues new 278.9 351.6 432.0 Revenues old 278.9 351.6 432.0 %change 0.0% 0.0% 0.0% EBITDA new 30.7 40.6 52.3 EBITDA old 30.8 40.6 52.1 % change -0.2% 0.1% 0.4% EPS new 0.16 0.24 0.34 EPS old 0.18 0.26 0.35 % change -9.5% -5.0% -2.5%



1Q11A 2Q11A 1H11A 2H11E FY11E Revenues 69.7 61.5 131.2 147.7 278.9 - Multi-brand 52.9 44.9 97.8 105.8 203.6 - Mono-brand 16.8 16.6 33.4 41.9 75.3 Gross Profit 25.0 24.1 49.1 57.8 106.9 Gross margin 35.9% 39.2% 37.4% 39.1% 38.3% Adj EBITDA (ex incentive plan costs) 5.6 4.5 10.1 20.6 30.7 margin 8.0% 7.3% 7.7% 14.0% 11.0% EBITDA 4.3 3.6 7.9 18.8 26.7 margin 6.2% 5.9% 6.0% 12.7% 9.6% EBIT 2.8 2.3 5.1 13.3 18.4 margin 4.0% 3.7% 3.9% 9.0% 6.6% YOY Revenues 38.6% 32.9% 35.9% 25.5% 30.2% - Multi-brand 38.2% 26.3% 32.5% 17.8% 24.4% - Mono-brand 40.0% 54.8% 47.0% 50.3% 48.8% Gross Profit 33.7% 30.9% 32.3% 22.3% 26.7% Adj EBITDA (ex incentive plan costs) 34.0% 11.9% 23.2% 44.3% 36.6% EBITDA 10.1% 23.0% 15.6% 57.3% 42.2% EBIT -12.9% 9.9% -3.9% 36.8% 22.4% Weight on FY Revenues 25% 22% 47% 53% 100.0% - Multi-brand 26% 22% 48% 52% 100.0% - Mono-brand 22% 22% 44% 56% 100.0% Gross Profit 23% 23% 46% 54% 100.0% Adj EBITDA (ex incentive plan costs) 18% 15% 33% 67% 100.0% EBITDA 16% 13% 30% 70% 100.0% EBIT 15% 13% 28% 72% 100.0%




Best Ideas — Europe

Conviction – Best Ideas captures our analysts' Most Preferred and Least Preferred calls. Calls are relative to each sector and use a 3-month horizon.

Best Ideas: a global database – Citi has launched the European selections in our global Best Idea database. This tool allows investors to filter Citi analysts' highest conviction ideas and an Excel-based filter is now on Citi's GEO (Global Equities Online) homepage.

Telecom Italia SpA

(TLITn.MI; €0.69; 1M)

Catalyst and Thesis — TI has seen the largest positive revenue (+6.5%) and EBITDA (+4.6%) revisions year to date and is second only to BT on EPS upgrades (+1.6%). We see further room for improvement in 2H in both Italian fixed and mobile. The dividend yield is high (>10% in 2012E), rising (by 15% cagr) and well covered.

Eni

(ENI.MI; €12.83; 1M)

Catalyst and Thesis — Recent performance leaves, in our view, an undemanding valuation (c. 6.5x 2012E P/E, 6.6% DY). Exposure to the Italian consumer is c. 25%, but is more than offset by defensible international earnings. We expect the mini-strategy update early October to reinforce medium-term growth options.



Company Valuations & Risks



Autogrill SpA Company description

Autogrill is the leading concession food service group worldwide. c32% of group sales are generated in the US (mainly airports), c20% are generated in Italy (mainly motorways) and 48% in other countries. After the acquisitions of Spain's Aldeasa and the UK's World Duty Free and Alpha Airports, Autogrill has also become the world leader in airport duty-free and duty-paid retail. Investment strategy

We rate the stock Buy. Autogrill's business is extremely visible and resilient. The group has consistently grown profitability despite some of the worst stress tests possible for this business, particularly the 9/11 attacks in 2001 (US airports generate 35% of group EBITDA). In the past two years, the group has achieved double-digit sales growth, fuelled by ongoing new contract wins. Although the global traffic slowdown linked to the deteriorating macro picture is likely to be reflected in the company's fundamentals in the short/medium term, we are factoring in conservative assumptions for 2011 in line with company guidance. Valuation

We value Autogrill at €12.00 based on a FCF yield valuation, using 2009A-13E normalised cash flow. We assume a WACC of 8.5% and long-term growth of 1.5%. Assuming a break-up approach, we would value Autogrill in excess of €14.0 per share. While setting our target price of €11.00 we apply a c10% discount to FCF valuation to reflect Italian macro issues and we disregard our Sum-of-the-Parts valuation. Risks

We rate Autogrill as Medium Risk. We believe that Autogrill's environment is stable. Indeed, Autogrill accounts have demonstrated strong resilience despite recurring terrorist attacks aimed particularly at air travel (9/11 and the terrorist scares at London Heathrow) and at the Atocha train station in Madrid as well as during the periods of SARS and Avian Flu. The risk rating on the stock is derived after consideration of a number of factors, which include an assessment of industry-specific risks, financial risk and management risk. In addition, we consider historical share price volatility, which for Autogrill the CIRA quantitative research team values as being of medium price volatility. We would further highlight the following short-term specific risks that could prevent our target price from being reached: in the event of further terrorist attacks of the magnitude of those of 9/11 in the US, the impact on the travel industry could be to bring many of the already ailing airlines to bankruptcy, thereby potentially substantially changing the air travel industry and Autogrill's economics. Likewise, a sharp economic downturn would significantly alter traffic flows on motorways and in airports, thereby also affecting Autogrill's accounts.



Davide Campari-Milano SpA Company description

Campari is one of the global players in the alcoholic beverage sector, specialising in the spirits, wines and soft drinks segments. The group is currently ranked sixth among the top 100 premium spirits producers. The company is market leader in Italy and Brazil and is among the major players in the US, Germany and Switzerland. Investment strategy

We rate Campari as Buy. At first glance, investors might be tempted to value Campari using a straight peer comparison. However, in our view, this methodology doesn't allow financial investors to fully price in all of Campari's features. We believe that the Italian group has a different risk profile from the heavyweights competing in the sector for a number of reasons, including the following: 1) Campari's top brands should allow it to keep posting solid results while maintaining strong cash flows; and 2) management enjoys an impressive track record in closing good deals and, especially, in managing post-acquisition integration processes. Valuation

Because of Campari's strong cash generation, we use free cash flow (FCF) yield as our primary valuation methodology. In valuing Campari, we use a normalised figure for free cash flows (based on 2010A-14E). We calculate a WACC of 7.8%, assuming a leverage ratio of 25%. We use long-term earnings growth of 2.0%, which we believe reflects both the maturity of the business and Campari's record in managing external growth. Our FCF yields method points to a fair value of €6.75 per share, which we round to €6.50 in setting our target price. Risks

We rate Campari as Medium Risk based on our assessment of industry- and company-specific risk factors. Our main assumption envisages a steady market for spirits over the coming years. New generations or special laws might reduce spirit consumption. Campari is also exposed to the US market and in particular to Skyy, a premium vodka, whose volumes could decline if the brand were to go out of fashion. These risks could prevent the shares from reaching our target price.



CIR - Compagnie Industriali Riunite SpA Company description

CIR is a holding company controlling businesses generating revenues in excess of €3bn. CIR's main assets show little correlation: 1) Gruppo Editoriale Espresso, a media company listed in Milan; 2) Sogefi, an automotive component business listed in Milan; 3) Sorgenia, an unlisted company operating in the energy business; 4) KOS operating in the healthcare market (rehab, nursing and psychiatric care) which has recently started its IPO process. Investment strategy

We rate CIR Buy. CIR is trading at a c.35% discount to its NAV. We believe this gap is not justified, considering: 1) the opportunities in both the energy and healthcare markets; 2) the quality of CIR's listed investments; 3) the lack of correlation among CIR's investments; and 4) the cash pile that CIR is using to buy back (and cancel) its outstanding shares and bonds. Valuation

Based on a sum-of-the-parts approach, the most reliable methodology for valuing holding companies, we calculate CIR's NAV at c.€2.40 per share; after deducting the PV of overhead costs, our valuation points to a €1.80 fair value, which we set as our target price.

Our base case NAV assumes market prices for Espresso, Sogefi and CIR's treasury shares. We assume a valuation of €500m for Sorgenia and c.€165m for KOS. We attribute no value to Jupiter, Oakwood and real estate. Risks

We have a Medium Risk code. Sorgenia's value could be severely hit if major delays occur in its three planned CCGT and wind farms. Espresso is highly exposed to advertising, which might suffer from the current weakness in the Italian economy. Sogefi operates in the highly competitive auto components business. Finally, we cannot fully exclude reinvestment risks on the cash pile and the De Benedetti family might decide to merge controlling Cofide with CIR, while penalising minorities. The above risks could impede the shares from achieving our target price.

Gruppo Editoriale l'Espresso SpA Company description

Espresso is a leading multimedia player in Italy, providing services in the publishing, radio, advertising, internet and television businesses. The company has a strong position in Italy in all its business segments apart from TV. The national daily La Repubblica is ranked first in daily readership (3m), while local newspapers add another 3m daily readership. Investment strategy

We believe there are long-term threats affecting publishers. Espresso has historically been the most profitable Italian publisher and - once again - it is ahead of the curve in cutting costs. However, while we believe that Espresso needs to address its strategy to a changing world, we fear that no matter how efficient cost cutting is, Espresso might have a structurally inadequate cost structure for its future



sales. We rate Espresso Hold. While we see little reason to be invested in the long term, we see the stock's valuation as fair and it might benefit from positive short-term expectations from the financial community. Valuation

We value Espresso using a five-year DCF reaching a valuation of €1.30 (8.5% WACC and -1% long-term growth), which we set as our target price. We believe Espresso is set for a bumpy road ahead due to the worsening economic environment and company reshape. While valuation is not a catalyst per se, we pragmatically believe that momentum wins over fundamentals and accordingly we acknowledge that in the short term Espresso could benefit from the impact of the major cost-cutting taking place.

Although we recognise that Espresso could have a much higher break-up value - especially considering the influential position of Repubblica on Italian politics and the economic environment - we acknowledge that CIR controls a majority stake in Espresso and we don't expect any corporate action in the short or medium term. Accordingly, we don't give any importance to break-up value when setting Espresso's target price. Risks

We rate Espresso as Medium Risk based on our assessment of industry- and company-specific risk factors. Espresso is highly dependent on advertising, where trends are particularly volatile and erratic; this is balanced somewhat by its strong positioning and strategy. However, should advertising fall, Espresso's bottom line could suffer due to its semi-rigid cost structure. Traditional media are highly exposed to the internet. Although Espresso has one of the best positions in the internet in Italy, a big switch from print to the web would be a major issue for Espresso given the different magnitude of the two forms of media.

If the impact on the company from any of these factors proves to be less negative than we anticipate, the stock could materially outperform our target.

Geox SpA Company description

Geox is Italy's leading footwear player in the medium retail price range (indicatively €76-125). Since its inception in the early 1990s, the company has based its business strategy on the "shoe that breathes" concept: Geox's footwear features a transpiring waterproof membrane in the soles based on a proprietary patented technology. Since starting operations in 1992, Geox has enjoyed an average >40% annual sales growth coupled with outstanding profitability. Geox has also started to manufacture and commercialise apparel items (mainly jackets) based on the same patented technology applied to footwear, in an effort to expand its range of products. While the bulk of commercial operations remain at the wholesale level, the company has started to operate in the retail channel, building a network of mono-brand stores ("Geox Shops") managed both by third parties under franchise agreements and directly by the company (DOS, Directly Operated Stores). Investment strategy

We rate Geox Buy. Geox is Italy's leading and one of the world's fastest growing players in the footwear market. Despite the impressive growth reported in the past, we believe Geox still has a bright future in the long term. Geox is now focusing on



retail and key countries such as Germany, France and Spain which - along with Italy - account for c65% of sales, on our estimates. It is also now adopting a more local approach to better fine-tune to consumer tastes. We believe that Geox has also now gradually shifted its positioning to a more appropriate price-product mix, while technology remains a powerful tool for brand awareness. While the current macro and consumer spending outlook has become increasingly challenging recently, we think the shares are oversold at current levels. Valuation

We value Geox based on DCF and FCF valuation approaches. Our DCF model (8.5% WACC/cost of equity, 1.0 beta, 2.0% long-term growth) points to €4.00. Our FCF valuation is based on the straight average of the net present value derived from three-year normalised cash flows, yielding €3.60. To be conservative we set our target price at the lower of these values.

Risks

We rate Geox as Medium Risk based on our assessment of industry- and company-specific risk factors. An eventual macroeconomic slowdown or improvement in Geox's key markets (eg Italy and Europe) might affect the company's fundamentals, given its mid-range retail price positioning. Harsher EU anti-dumping policies might cause unexpected volatility on operational performance, as the company has its production largely outsourced to suppliers in low-cost countries. The expansion strategy in the US might prove an unsuccessful project, considering the highly competitive nature of the market. A slower-than-expected rollout of Geox's retail network or a lower sales trend from this channel might affect both top-line growth and profitability. Geox's brand extension to apparel products might not be as successful internationally as it has been in the domestic market: a disappointing ramp-up of the apparel business abroad might limit the company's future growth prospects. Barriers to entry in the market are low: unlike luxury brands, customers' fidelity is more volatile and more price-driven in Geox's retail price segment. Should our assumptions relating to these factors prove too optimistic, the shares might undershoot our target price.

Landi Renzo Company description

Landi Renzo is world market leader with a 23% share of the highly-fragmented world market of compressed natural gas (CNG) and liquefied petroleum gas (LPG) alternative fuel systems for vehicles. With sales to over 50 countries and non-Italian sales representing 70% of group turnover in 2008; declining to 60% in 2009E, Landi Renzo's production structure is increasingly adopting an international manufacturing base. Investment strategy

Landi Renzo has been growing at 20% for several years, banking on both growing oil prices and SRI and cash-for-clunkers. However, after the long run in 2009-2010, we believe that market is likely to decline, while governments cut back on incentives schemes. Oil below $100 per barrel should limit attractiveness of After Market in advanced economies but we believe that it might make Landi's kits attractive in emerging markets. We can't exclude that the US might start providing some



incentives but we believe that Landi might face a very challenging market should the US market open itself to CNG. We rate the stock Sell/Speculative (3S) while weighing opportunities in emerging markets against threats in advanced economies. Valuation

In our view, DCF is the most suitable valuation approach for a company with revenues that are expected to grow double-digits while enjoying EBITDA margins above 20% and ROI well above 50%. Our DCF embodies full projections until 2013 - a WACC of 11.0% to reflect geopolitical risks, and long-term growth of 1%. We value Landi at €1.5 per share. Risks

We rate Landi Renzo as Speculative Risk based on the following factors that could cause the shares to deviate from our target price. Landi's reference worldwide market is small and little information is available. While analysing the company, we relied on information provided by either the company or Frost & Sullivan. Most growth is expected to come from emerging markets - notably Iran and Pakistan. A major sector player has yet to enter in Landi's niche given the modest size of the market. However, should the market grow strongly, bigger players could decide to enter given: i) low relative barriers to entry; ii) very high returns on investments; and iii) high margins. Other forms of alternative fuel systems can be introduced in the market, while attracting more interest from consumers as well as car producers and governments. Although Landi technologies are considered safe, there might be some resistance to their adoption: i) LPG kits might occupy a large part of much-needed boot/trunk space; ii) difficulties in parking due to parking lot restrictions; and iii) the availability of refueling stations. If the impact of these risk factors is more or less negative than we currently anticipate, then the share price deviate significantly from our target price.

Lottomatica Spa Company description

Lottomatica is the largest lottery operator in the world and provides gaming solutions and services in more than 50 countries. The group is a vertically integrated player offering its clients a strong track record in managing the biggest online lottery as well as cutting-edge technology. Investment strategy

Lottomatica has yet to benefit from the dilutive €4bn acquisition of Gtech in 2006. Although the Italian business has been achieving outstanding results, the international business is suffering from poor US sales, few new concessions, and an increasingly competitive environment in a deflationary world. The group's conversion of EBITDA into cash is poor. Despite such low cash conversion, Lottomatica stretched its balance sheet in 2008 via acquisitions, generous dividends and buybacks. Net debt stood at 4x 2010 EBITDA. While we believe the company could benefit from addressing its operating problems, we fear it is too focused on boosting the top line. We see Lottomatica as a low-growth/low-yield stock for a company with a stretched balance sheet. While we see structural trends affecting profitability and cash flows, we rate the stock Hold.



Valuation

Although Lottomatica is considered a simple business by many, we believe that it is one of the most difficult companies to understand and - accordingly - one of the trickiest to value. While valuing Lottomatica, investors should bear in mind: 1) The nature of the business: concessions always require upfront cash-outs (either fees or capex); 2) Deflationary trends in the core businesses and potential threats from the Internet; 3) Minority interests - accounting for c.12% of EBITDA and seldom considered; and 4) A lack of comparable peers and scarcity of gaming stocks. We believe DCF and FCF remain the best approaches to value Lottomatica. Our key assumptions are 8x 2016E EBITDA, a blended 80% renewal of concessions after 2016 (with the exception of Lotto), €500m upfront fee for the renewal of Lotto in 2015 and no other upfront fees (although after 2016, the group will be requested to pay for renewals of - among the others - VLTs, Sport Betting as well as S&W in 2019). Using a WACC of 8.5% our model points to a value of €15.40 per share. Our FCF model points to a valuation of €10.60 per share, based on a full cycle (of concessions) spreading from 2008A to 2015E. In setting our target price, we assign a 50% weighting to our FCF valuation and a 50% weighting to our DCF-based valuation, reaching a fair value of €13 per share, which we set as our target price. Risks

We rate Lottomatica as Medium Risk following the decision of the company to stop cash dividends and drop the hybrid bond launch. The biggest risk is now related to the Gtech integration. Both Lottomatica and Gtech manage regulated games, whose concessions are awarded by the state. Changes in state laws could negatively or positively affect the company's profitability. Legal action related to the concessions awarded to the company could result in an adverse decision for the company. Lottomatica is entering new games, which as start-ups could negatively affect its short-term profitability. Our model forecasts new contracts, which are partially dependent on the legalisation of lotteries. Legislatures have proved difficult to predict, and there could be fewer or more opportunities than we expect. Should the company be responsible for systems failures that reduce lottery sales, the company could be required to pay penalties to lottery authorities. This has not proven to be a meaningful issue to date. If the impact on the company from any of these factors proves to be more or less negative than we anticipate, the stock price could deviate significantly from our target price.

Luxottica Group SpA Company description

Luxottica is the world's leading company in the eyewear industry. Born as a manufacturer and wholesale distributor in the early 1960s, it subsequently integrated downstream into the retail business. The company operates in both the prescription frames and sunglasses segments, with a portfolio of house brands (including Ray-Ban, Oakley) and licenses from major fashion and luxury houses. Investment strategy

Our Buy rating is based on: i) we expect proprietary brands to outperform, banking on Ray-ban and Oakley strengths; ii) we expect emerging market exposure to grow exponentially once consumers are educated to both Rx and sunglasses (as luxury accessories) - and proprietary brands (WS and retail) should make the difference; and iii) Luxottica might have a chance to win back the Armani licences which could add up to 20% to licensed brands.



Valuation

We value Luxottica at €24.90 per share, based on a DCF analysis. Our DCF model uses explicit forecasts for the period 2011E-15E (including conservative assumptions in respect of EM growth), a WACC of 7.5% and 1.75% long-term growth - within which we allow 0.5% to reflect longer-term opportunities in emerging markets. Were Luxottica to win the Armani licences, our fair value would increase to €26.70 per share. While calculating our target price, we don't assign any value to Armani and we conservatively round our DCF down to €24.00 to reflect Luxottica's exposure to the USD and the US market. Risks

We rate Luxottica as Medium Risk based on our assessment of industry- and company-specific risk factors. The following risks may impede the share price from reaching our target price. Further weakening of the €/US$ exchange rate might hit profitability. Volatile trends in US consumption patterns might adversely affect the company's fundamentals. The loss of a major licence agreement could weigh on company's business performance. Prospects for the luxury eyewear licensing business could remain limited for some time. Finally, the expected synergies from the integration of Oakley might take longer than expected: however, we believe that Luxottica's established presence in the US and successful acquisition track record might mitigate this risk.

If the impact on the company from any of these factors proves to be more negative than we anticipate, the stock will likely have difficulty achieving our financial and price targets. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.

Mediaset SpA Company description

Mediaset owns and operates three of the largest free-to-air analogue terrestrial channels in Italy - Canale 5, Italia 1 and Rete 4. It is involved in all aspects of the television business: signal broadcasting, in-house television production, the acquisition of film and drama rights, and the collection of advertising. In addition, Mediaset has expanded internationally and holds a controlling stake (52%) in Telecinco, a leading commercial free-to-air broadcaster in Spain. The group also owns a network of multiplexes across the Italian market, a pay TV business on digital terrestrial, built around Serie A football, and a stake in Endemol via a JV. Investment strategy

We rate Mediaset Sell. We fear the latest round of headlines involving Mr Berlusconi could be negative for sentiment on the stock. Moreover, we identify the following as potential longer-term headwinds: i) free-to-air TV (FTA) faces structural decline which pay-per-view (PPV) cannot offset; ii) if fully successful, PPV could further reduce the attractiveness of FTA for ad spenders; iii) fierce content competition from Sky will likely eventually impact cost of programming; and iv) fragmentation of interests among key stakeholders limits both cost cutting (we see room for significant cost cuts) and investments in non-linear TV. After the Cuatro deal, Spain might be less of an issue but we maintain our sceptical view on the Spanish TV market.



Valuation

We have a target price of €2.20. Our DCF model (which assumes an 8% WACC and -1% LT growth) values Mediaset at €2.50/share. In setting our target price, we apply a discount to DCF to reflect risks to both risks of further deterioration of Mediaset's core businesses in the medium term (pushing LT below 0%) and the sentiment that we think is likely to constrain share price performance over the next 12 months. Specifically, the latest headlines relating to Mr Berlusconi (Mediaset's largest shareholder and the Italian prime minister) may negatively impact sentiment towards Mediaset stock. All in all, we don't believe that the company's results and newsflow (e.g. on PPV) are likely to be strong enough offsetting factors to convince investors to focus instead on fundamentals and ignore the noise. Risks

We view Mediaset as Medium Risk. Our risk rating on the stock is derived after consideration of a number of factors. These factors include an assessment of industry-specific risks, financial risk and management risk. In addition, we consider historical share price volatility, based upon the input of the Citi quantitative research team, as a possible indicator of future stock-specific risk.

The major areas of risk for Mediaset that could impede the share price from achieving our target price are as follows. 1) The outlook for advertising markets in Italy and Spain. 2) Programme investment may be higher than historically, as the group attempts to retain audience share. Investment in pay TV may also prove value-destructive. 3) The digital terrestrial television (DTT) framework is still relatively immature, leading to uncertainty over potential future costs and competition. 4) The regulatory environment may change, given the recent change in government while there is the threat of the internet cannibalising ad share.

If the impact from any of these factors proves to be more negative than we anticipate, the stock will likely have difficulty achieving our financial and price targets. However, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.

Arnoldo Mondadori Editore Company description

Mondadori is one of the leading Italian media groups, operating in several businesses: books, magazines, printing, advertising, direct marketing, retail and radio. Mondadori is one of the market leaders in all its business areas, with the exception of radio. Generating revenues in excess of €1,700m, the Italian businesses offer limited scope for organic growth, while external growth is capped by antitrust and media laws. Mondadori thus moved abroad in 2006 via the acquisition of EMAP France (now Mondadori France), the third-largest magazine publisher in the French market with revenues of €425m in 2007. Investment strategy

Although Mondadori is facing major threats from the digital revolution, management does not seem ready to aggressively cut costs in the magazine businesses in both Italy and France. If things get worse before management takes a tougher approach on costs, we do no see any reason to be invested in Mondadori. Accordingly, we rate the stock Sell.



Valuation

We derive a fundamental valuation for Mondadori of €1.50, using DCF and FCF. We value Mondadori mainly on cash flows, while trading multiples provide a necessary sanity check. We give equal weight to our DCF model (9% WACC and negative long-term growth of 2%), which tends to capture future trends, and to a FCF yield approach based on sustainable free-cash flow. (Note that in calculating our previous target price we assumed zero long-term growth). Risks

We rate Mondadori Medium Risk in consideration of the following risk factors, which could also cause the shares to deviate from our price target. Mondadori is highly dependent on add-on sales which sell: (1) directly to consumers and (2) indirectly to competitors in the form of rights. Margins from add-on sales are in the range of €60m. However, add-on sales might have achieved a peak, resulting in lower future margins. Mondadori is little exposed to advertising compared to other media companies. However, it tends to focus on magazines, which are late cycle with limited upside. The same trend could be envisaged for magazine circulation, which can more easily fall from current levels than grow. Traditional media are highly exposed to the internet and Mondadori lacks exposure to new media. Mondadori has invested €551m to buy EMAP France and diversify into a competitive market. Given the results achieved by the French business in the recent past, we see little scope for Mondadori to reverse these trends in the short term.

If the impact on the company from any of these factors proves to be more negative than we anticipate, the stock will likely have difficulty achieving our financial and price targets. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.

Prysmian SpA Company description

Prysmian is one of the major worldwide energy and telecom cable players with a pro-forma adjusted EBITDA in 2011E of c.€550m. Its business can be divided into Energy (c.90% of sales) and Telecom Cables & Fibres (c.10%). The Energy Cables & Systems business is focused on sub-marine and terrestrial cables for electricity transmission and distribution, while Telecom Cables & Fibres is focused on optical fibres and cables for video, data and voice transmission, and copper telecom cables. The company is the one of the largest global manufacturer of optical cables and is co-leader with Nexans in the energy cables market. Investment strategy

We rate Prysmian Buy/Medium Risk (1M). We see many reasons to be positive on the stock, including: 1) we think synergies from the Draka deal might be higher than guided; 2) we see reasons for structural growth in all continents for high-margin cables and Prysmian looks well positioned in submarine, HV, wind farms and telecom cables; 3) Prysmian is late cycle, which remained profitable during the recession; 4) it is one of the few public companies in Italy without a controlling shareholder and could attract interest from large industrial groups; and 5) the current EV/EBITDA does not seem to incorporate any incremental increases in government spending. Short-term performance may be capped by: 1) copper price volatility; and 2) antitrust investigation in Europe.



Valuation

Our €15 target price is based on our FCF valuation of €15 for Prysmian's standalone activities, €1 for the accretion of the Draka deal but we deduct €1 for the potential antitrust-fine. Our FCF model values Prysmian using a weighted average of unleveraged free-cash flow over 2005-13E - based on a 9% WACC and 0.5% long-term growth rate. Our initial assessment of the Draka deal is €1 per share - although we understand that the value might further increase, taking into consideration: i) €750m carry-forward tax losses (up to €1 per Prysmian share); ii) revenues synergies; and iii) additional cost efficiencies. Finally, we believe that antitrust fine might be lower than provisioned. Risks

We rate Prysmian Medium Risk based on our assessment of industry- and company-specific risk factors. The market perception of Prysmian as highly cyclical could have a negative impact on the share price, despite our assessment that the cable market is becoming less cyclical and the company's strategy to focus on high value-added segments. In any case, in a fully recessionary phase, some divisions could see a sharp decline in revenue/profitability. Prysmian is heavily exposed to copper price fluctuations, which could severely penalise its NWC and in turn FCF generation. Finally, there are some risks concerning the Draka deal, including execution risk of integrating the two groups. These risks could prevent the shares from reaching our target price.

Safilo SpA Company description

Safilo is the world's second-largest eyewear company and the leader in the high-end and luxury eyewear segment ($100 retail price). The company is present in the prescription frames, sunglasses and sports eyewear segments, featuring both house brands and licenses mostly from fashion and luxury houses. The company was rescued in 2009 after having faced insolvency. Investment strategy

We rate Safilo Hold. While we believe that gaps versus Luxottica will not be recovered (e.g. integration with proprietary retail network/house brands), following an eleventh-hour rescue, Safilo could target EBIT margins of 11-12% by 2012E, leaving space for significant upgrades from the current depressed level. While there are high execution risks, we believe Safilo's stock might benefit from positive momentum, with investors keen to perceive any good news as a signal that a turnaround is happening. Although Safilo is on track on its turnaround, we feel the stock remains a 'blind call'. While waiting for Armani licence renewal, we maintain our neutral stance, balancing longer-term risk and rewards. Valuation

Our DCF based on 2010-15 estimates (WACC of 9% and long-term growth of 1.25%) points to a valuation of €13.00 per share. However, we estimate that losing Armani could depress our DCF by €4-5. Neutral stance maintained, although we lower our target price to €9.00 to reflect short-term Armani concerns, conservatively assuming in our revised DCF a worst-case scenario of a loss of the licences.



Risks

We rate Safilo Speculative based on our assessment of industry- and company-specific risk factors. The following risks may impede the share price from reaching our target price. Safilo was rescued at the eleventh hour; while this is only positive, we think that execution risk might be under-estimated. A slower trend in US consumption might affect adversely the company's fundamentals. The eventual loss of a major licence agreement could weigh on the company's business performance. Excessive concentration on few counterparts in the licence brands business might yield some disruption in the company's fundamentals in the event that the agreements are not renewed. High-end fashion and luxury companies might limit distribution on their licenses as a potential risk for their brand perception: as a result, revenues from licence agreements might be capped below full potential. If the impact on the company from any of these factors proves to be less negative than we anticipate, the stock could outperform our financial and price targets.

Aeroporto di Venezia - Marco Polo SpA (SAVE) Company description

SAVE operates the Venice airport system as well as railway stations and Food & Beverages outlets in Italy and Austria. It is the third-largest airport system in Italy with over 8.5m passengers in 2007. Centostazioni: management of 103 railway station properties, including design, refurbishment, property management and commercial development. F&B shops and retail services are located in airports, railway stations, ports and motorways. Investment strategy

We rate SAVE Buy/Medium Risk (1M) to reflect strong fundamentals and a well-diversified business portfolio. In the past few years, SAVE has completed a major capex plan at its Venice airport while diversifying into attractive businesses with low risks. Although margins and cash flow have lately been depressed by recent investments, we expect increased future cash flows for SAVE as a result of a number of drivers. In the key airport business, we expect traffic growth as flag and low-cost carriers open new routes to/from Venice. Running below 60% of capacity, SAVE has no need to make significant investment. We believe Centostazioni, after some initial troubles, will be a fast-growing/high-margin/low-risk activity. Finally, F&B has high operating gearing and we expect cash flow enhancement once traffic growth has been restored. Valuation

We approach SAVE's valuation with a DCF and a trading multiple based SOTP valuation. Our DCF points to a value of €9.50, assuming a WACC of 9.0% and a long-term growth rate of 1%, in line with the expected inflation rate. Our more conservative SOTP delivers a target price of €7.70. We believe DCF to be better suited to capture the expected evolution in SBU1 and (to a lesser extent) SBU2, thus ultimately returning the fair value of SAVE in the medium/long run. However, we adopt a conservative stance due to the limited visibility on tariffs and the stock's scarce liquidity, and set our target price at €7.70. Risks

We rate SAVE Medium Risk in consideration of the following factors which could prevent the shares achieving our target price. The main risk is the approval of the



original proposal to increase tariffs following a semi-single till RAB-based scheme, that we believe could be negative for SAVE. Unwelcome events such as terrorist attacks, epidemics or recession might slow GDP growth and consequently reduce future traffic from/to Venice. Other airports located not far from Venice could start offering low tariffs in order to attract low-cost carriers.

Seat Pagine Gialle SpA Company description

Seat Pagine Gialle Group is a leading pan-European directory publishing business. Its main activities are in Italy where it is the leading publisher of Yellow & White Pages. It also has a strong position in online and voice-based directory assistance. Outside Italy its principal divisions are Telegate, a pan-Euro voice-based directory assistance business, and Thomson, which is the third player in the UK directory market. In addition, the group has some exposure to direct marketing and merchandising services, as well as B2B directories and call centre services. Investment strategy

Seat Pagine Gialle (SPG) is an efficient company that we believe needs to reinvent its business model even as it is facing top-line declines and cash constraints. Whereas SPG has been "dressed up for sale" for more than a decade, SPG may now need to be run for its own survival. Although we do believe that there's value in directories, we don't necessarily think that SPG's current offer fully satisfies its customers' web needs. Our forecasts reflect the tougher economic environment and lack of focused web strategies. As a result, we could see SPG facing cash constraints and we wonder if the cash cushion is enough to finance much-needed capex for web strategies. The situation is likely to get worse before it gets better. We rate SPG Sell, reflecting its micro-cap status and high gearing. Valuation

Our DCF assumes a discount rate of 13% (based on a beta of 1.4x) and negative long-term growth in 2015 of -2.0%, reflecting the long-term threats that we believe the business will have to face in the future. We calculate an enterprise value of about €2.7bn, implying c.7.2x 2010E EBITDA but €2.7bn is to be ascribed to debt. Our DCF model suggests a fair value of €0.025 and accordingly we set our target price at this level. However, we believe the value of Seat's equity will eventually depend on stakeholders' strengths in the ongoing process aimed at debt restructuring. Risks

We rate Seat as Speculative Risk. With regard to Seat, we would highlight in particular the visibility of earnings estimates and the complexity and transparency of financials as key drivers of our rating. Although operating risk would suggest high risk, we stress that SPG is now a penny stock (i.e. trades for under €1) with all of the risks associated. Risk factors include: i) stock price could be affected by the usual speculation surrounding companies facing financial constraints (eg. takeover, disposals etc); ii) SPG could receive cash up to €65m from litigation in Germany. Net cash for SPG shareholders would be approximately €50m or 6.5% of our equity value; and iii) a half of a euro cent change in the stock price would imply a 6% change. If the impact on the company from any of these factors proves to be more positive than we anticipate, the stock could materially outperform our target price.



Tiscali SpA Company description

Tiscali is an independent telecommunication company competing in Italy, providing its customers with ADSL, narrowband, VoIP, and more specific and hi-tech products. The group is now refocusing on ADSL (with a customer base of around 0.5m). Investment strategy

We rate the stock Sell/Speculative (3S). Tiscali hasn't been able to create a true and sustainable competitive advantage yet. It is still burning cash, as EBITDA barely matches capex and interest charges, while operating in highly competitive markets. We are unconvinced by the new business plan, which mirrors those of other competitors in both countries. We still see Tiscali as run-of-the-mill, with no clear competitive advantages to attract new customers except the lowering of prices. Valuation

We value Tiscali using a DCF, based on 2011-13 estimates and a WACC of 12%, to reflect a high beta and cost of debt. We calculate the terminal value assuming 0% long-term growth. Our DCF points to a value per share of €0.025. Risks

We rate Tiscali as Speculative Risk for the following reasons: (1) it operates in highly competitive markets; (2) it doesn't have a clear competitive advantage, in our view; (3) it has already a stretched balance sheet and the group could further burn cash, with debt reaching unsustainable levels; and (4) financing needs might require either a rights issue or Tiscali raising cash via disposals. If the impact of these risk factors is less negative than we currently anticipate, then the share price might not decline to our target price. Finally, we can't rule out that Tiscali could be taken over in the coming months by players searching for broadband exposure in core European markets and/or a listing on the Italian Stock Exchange.

Yoox Company description

Yoox is an online fashion retailer selling off-season premium apparel and accessories at discounted prices via a proprietary store and in-season luxury goods via third parties online powered by Yoox. The group leverages on c600k active customers and traffic of c8.5m monthly unique visitors in 2010A. Yoox group sells more than 1,000 brands and operates in more than 100 different countries (including China and Russia). Investment strategy

We rate Yoox Hold. We believe Yoox has a competitive advantage based on the combination of i) sophisticated econometric models; ii) experienced buyers in the luxury industry and iii) close relationships with sourcing partnerships. We estimate that Yoox could achieve CAGRs of 25.6% and 28.5% for sales and EBITDA in 2009A-2015E while achieving an EBITDA margin of 12.6%. We believe that the Italian group is on track to create long-term value via either establishing itself as the leader in the untapped luxury retail market or to be taken over by a large player.



However, Yoox is currently trading at a PE of c.50x 2012E. While Yoox shouldn't be valued on traditional yardsticks, we believe that Yoox's stock will need to keep growing momentum just to keep under-performing. As we don't expect any significant earning upgrades in the coming months, we therefore think it may be time for a pause in the face of volatile markets. Valuation

Compounding growth is at the centre of our investment case and accordingly we believe Yoox is difficult to value using traditional yardsticks. Based on our DCF and peer valuations we identify a wide €8.5-€17.5 range, reflecting the immature growth story of Yoox. However, we conservatively set our target price at €13.31 calculated as the average of our DCF range (using a WACC of 9.0% and terminal growth of 3%) and the bottom end of peers' multiple valuation range of €13.60, (based on ASOS EV/Sales trading multiple and the acquisition multiple of Net-A-Porter). Risks

We rate Yoox as Medium Risk based on our assessment of industry and company related company-specific risk factors. The following risks may impede the share price for reaching our target price: 1) increased competition from traditional retailers moving towards a multi-channel offering and new competitors entering the market place; 2) difficulty in achieving double-digit CAGRs while maintaining human and technological advantages; 3) continued growth in relatively unknown international markets growth may prove more costly than we expect or may not materialise; 4) Yoox might remain a European player - failing to catch trends in Asia and Japan; 5) brands may end their partnership with Yoox, moving to an alternative third party website or offering product exclusively themselves; 6) potential difficulty in attracting and retaining talent; 7) over-stretched working capital, over-expansion or an inability to fulfill demand resulting in brand damage; 8) deterioration of outsourced operation.

Atlantia Company description

Atlantia is the largest motorway management company in Italy, controlling c.61% (+3,400 km) of the Italian toll motorway network or 17% of the European toll motorway network. The group generated revenues of €3.5bn in FY08A (+6.3% YoY). Other revenue is generated by engineering and construction, TLC tower management, and services. The group also operates in Poland, the US and South America and is planning to continue its international expansion. Investment strategy

We rate Atlantia Buy. Traffic has quickly recovered to pre-recession levels and with steady tariff increases likely EBITDA appears set for moderate, but steady, growth. The regulatory framework agreed in 2008 provides a tariff system which links remuneration to inflation and recognises a specific extra return on the 2002 capex plan as well as on new investments, providing superior visibility on future cash flows. On c8x EV/EBITDA and with an IRR in excess of 10% we estimate the shares continue to offer attractions. Valuation

Our SOP valuation for Atlantia is based principally on dividend discount models (key assumptions include an average WACC of 7% and cost of equity of 10%-12%),



deriving an average valuation of c€15/per share. In setting our target price of €12.0 we apply a c20% discount to reflect our assessment of the increased risk premium resulting from the negative impact of the new fiscal proposals from the government and the much less favourable financing conditions which are developing given the developing sovereign debt crisis in the Eurozone. Risks

We rate Atlantia Medium Risk. Our risk rating on the stock is derived after consideration of several risk factors, including an assessment of industry-specific risk, financial risk and management risk. In particular, we see the following key risks to our target price:

Traffic: In our view, the number one risk for Atlantia, from both an operational and stock price perspective, is weaker-than-expected traffic growth. This is most likely to result from prolonged GDP stagnation. On top of that, we believe: i) the oil price and competition among different means of transportation could have a negative impact, while ii) debottlenecking could be a positive.

Debt and interest rates: We believe investors require additional incentives to invest in highly leveraged stocks at present, given the ongoing credit crunch. Rising interest rates could also impact WACC and lower cash generation via an increase of debt service costs in the medium to long term. We estimate that Atlantia's net debt should increase to c.€16bn by 2018 from c.€9.5bn currently. Country and regulatory risk: The previous turbulence in Atlantia's relationships with the regulator/government seems to have subsided, and the new agreement sets out a clear regulatory framework. However, we think such problems remain a real, if remote, risk.

Buzzi Unicem Company description

Buzzi Unicem is an international heavy-side company focused on cement, ready-mixed concrete and aggregates. Its main markets are Italy, USA, Germany and Mexico. The group also has operations in Poland, Luxembourg, the Czech Republic, Ukraine and Russia. It has a total cement capacity of c.42 million tones, 520 rmc plants and 36 aggregate quarries. Investment strategy

In the near term, trading conditions in Buzzi Unicem's key markets of Italy, Eastern Europe and the US are likely to remain challenging with little clarity over the macro outlook. Pricing uncertainty remains high especially in light of the higher input costs that are coming through. While the group has a relatively strong balance sheet, we believe that the shares will be held back in the near term in the face of difficult newsflow on trading. Consequently, our rating is Sell. Valuation

In line with our methodology used across the building materials sector, we calculate our target price by using a number of valuation metrics including P/E, EV/EBITDA, P/B and DCF. The weighting of each metric varies by company depending on a number of factors including the position in the current business cycle, the likelihood of future deals and the importance the market places on each metric.



We use 2012 estimates to drive the target price and target multiples now reflect the recovery potential of earnings from their currently depressed levels.

For Buzzi Unicem, our target price is €5.8. For our P/E-based valuation €3.5, 40% weighting), we use a multiple of 11x 2012E - a premium to the recent historical average to reflect the fact that our earnings estimates are closer to trough earnings. For our EV/EBITDA valuation (€4.6, 40% weighting), we use a multiple of 5.5x, also a premium to the recent historical average, for the same reason. For P/B-based valuation (15% weighting), we have used a 1x target multiple, in line with historical average levels. Our DCF valuation (10% weighting) uses a range of discount rates from 6.5% to 8.5%. Risks

Our risk rating on Buzzi Unicem is Medium Risk. The risk rating mainly reflects the uncertain macro environment and the potential effect on earnings. It is derived from an analysis of various factors such as industry and market risks, financial risk and management competence. Using a consistent methodology across our stock universe we derive our risk rating for each stock.

Buzzi operates in the cement business, which is part of an industry that is termed ‘heavyside'. One of the main characteristics of heavyside products is that they have a low value relative to their weight - this, in turn, means that they cannot be transported over long distances (usually no more than 100-125 miles by road for cement). This gives the heavyside producer relatively good pricing power due to the barriers to entry that exist. The high capital outlay required to build a cement plant also provides a barrier to entry for the cement industry.

We would highlight the most important company-specific risks that could stop Buzzi from reaching our target price as:

In the group's main geographies, a prolonged downturn in any of the three construction end-markets of residential, private non-residential or public works would have a negative effect on group earnings. Government cuts in Europe are expected to negatively affect demand.

The pricing environment for cement has recently been weak in some of its key markets such as Italy, US and Eastern Europe. This could get worse if demand remains subdued.

Higher costs resulting from tighter environmental regulations are a potential risk as governments become more concerned with environmental issues.

The weather can have a significant effect on earnings, particularly in the first and fourth quarters in Northern Europe and the US.

Given the importance of highway construction as a source of demand in the US, a reduction in contracts awarded or hiatus around construction activity in this area would be a risk.

Acquisitions have been an integral part of the group's strategy. Failure to acquire businesses at value-creating prices could have a negative impact on growth. In addition, the usual integration risk is associated with any acquisitions.

On the positive side the main upside risk is that the market starts to look through the bad news and buys Buzzi as a recovery play.



ENEL SpA Company description

ENEL is a vertically integrated utility, its operations range from generation and import of electricity to distribution and supply to eligible and non-eligible customers. ENEL also distributes and supplies gas. Its operations span from Italy to Spain, Russia, Slovakia and Latin America. 54% of its EV is separately listed, as ENEL controls 92% of Endesa (which controls Enersis), 69.4% of Enel Green Power and 54% of OGK5. Investment strategy

We rate the stock Hold/Medium Risk (2M). We think ENEL benefits from part of its assets being fully regulated (distribution of electricity and gas) thus guaranteeing a continuous and reliable stream of cash flow, while the deregulated part of its business (generation of electricity) benefits from a relatively protected market in which, despite new capacity being built, ENEL should be able to maintain power prices at attractive levels. Also forward sales of electricity in all countries where ENEL is present lend further visibility to earnings. Valuation

In our sum-of-the-parts calculation, we value ENEL at €33.3bn or €3.50 per share using an average WACC of 7.9% that reflects the higher-than-sector average cost of debt. In Generation, we use a WACC of 8% and assume long-term growth of 2%, in line with inflation. Our long-term commodity price scenario assumes Italian electricity prices reach €72.7/MWh in 2016, oil prices remain in the region of US$100/bbl and Italian spark spreads reach €10/MWh. Our valuation of the regulated assets (electricity distribution network) is based on a DCF, in which we use a WACC of 6.6% up to 2020 and RAB as a terminal value. To value the group's other international assets, we use current share prices for Endesa, Enel Green Power and OGK-5. Risks

We rate ENEL Medium Risk in light of the following factors that may prevent the share from achieving our target price. On top of the commodity risk for an electricity generator, we would highlight substantial tariff risk in Spain given the persistent tariff deficit. In our model, we assume the group's tariff deficit is securitised completely in the next three years. The tariff deficit may also trigger further reform in Spain, which could curb integrated utility profitability (i.e. a hydro or nuclear tax). Italian distribution regulatory review also poses some uncertainties over the group's EBITDA outlook. We also see some project feasibility risk: we assume ENEL will build an additional 3.5GW of renewable capacity over five years (2011-15) and develop a nuclear power station in Slovakia by 2015. We also assume that Endesa will develop 2GW of capacity in Latin America. These projects carry some execution risk. Last but not least, ENEL's solid financial structure and strong cash flow generation might support acquisitions.



Enel Green Power Company description

EGP is a world leading renewable player. The company produces electricity from renewable technologies such as geothermal, wind, hydro, solar PV, biomass and CHP. EGP holds more than 6.1GW (FY10) and has international exposure to Italy, France, Iberia, Latam, Canada, US and Greece, among others. EGP also runs Enel.si, which is a retail seller of renewable electricity generators such as solar PV panels and small wind turbines. Investment strategy

We rate EGP Sell/Medium Risk (3M). We find EGP expensive in absolute and relative terms as: i) EGP is the only renewable company under our coverage trading above the value of existing assets; and ii) EGP's multiples (growth-adjusted) are at a premium to peers, on our estimates; we view this as unjustified, given what we see as its higher regulatory and execution risk. Valuation

Our target price of €1.8 is derived chiefly through valuation on a country and technology basis using a DCF model. According to our calculations, up-and running assets comprise 82% of the total valuation. In our sum of the parts, Italy and Europe account for 67% of the company's valuation, Iberia and Latam 22%, and North America 10%. At our target price, the company would trade at 8.4x 2012E EV/EBITDA and 17.8x 2012E adj. P/E, which we see as justified by expected growth.

For Italy we use a 6.2% WACC, for Spain a 6.7% WACC and for North America a 7.2% WACC. Risks

We rate EGP Medium Risk based on our assessment of industry and company specific factors. The following risks could prevent the shares from achieving our target price.

Power Price Risk: The company is exposed to power prices in Italy and Spain: EGP is highly exposed to power prices through geothermal, hydro and wind assets in Italy and Spain.

Regulatory Risk: Our valuation is very sensitive to regulatory frameworks and negative/positive developments could negatively/positively impact our target price.

Investment Cost Risk: Declines/increases in investment costs could affect profitability, hence our target price.

Liquidity Risk. Company liquidity is limited as Enel placed 30% of the company, 80% of which was among retail investors.

Sovereign Risk: An increase/decrease in sovereign yields could negatively/positively impact our valuation due to changes in WACCs.



Eni Company description

Eni is a large integrated oil & gas company, headquartered in Rome. Around 60% of Eni's invested capital is in the upstream business, with principal exposures to Italy, North Africa (Egypt, Libya, Algeria), West Africa (Nigeria, Angola, Congo) and Kazakhstan. Eni is also one of Europe's biggest gas wholesalers, owning stakes in a network of cross-border pipelines that transport gas purchased from Russia, Libya, Algeria, Norway and the Netherlands, and selling that gas to customers in Italy and the rest of Europe. Invested capital in this gas business amounts to around 15% of the company's exposure. Eni owns three important holdings in listed companies: 55% in regulated Italian gas transportation company Snam Rete Gas, 33% in Portuguese oil company GALP and 40% in oil service company Saipem. Investment strategy

Our investment rating on Eni is Buy / Medium Risk (1M). Eni looks inexpensive on most valuation screens, offering both decent growth to 2015 and a robust level of profitability versus sector peers. We think the portfolio has deepened in recent years, providing improved visibility around longer-term options. The dividend looks secure under our macro scenario, with defensibility provided by cash flow, a strong balance sheet and the potential sale of the sale in GALP. Valuation

Our 12-month price target of EUR 15.5/share is based on DCF valuation using CIRA’s commodity price outlook of (1) oil at US$86/bbl in 2012, US$90/bbl to 2013, and then long term US$80/bbl nominal, and (2) EUR/US$ of 1.43. For our DCF we model a 5-year explicit forecast period and then a terminal value assuming 0% terminal growth. We use a cost of capital of 7.6%, calculated using CAPM. Eni’s equity stakes in GALP, SRG and Saipem are all included at market value, less tax. Risks

We rate Eni as Medium Risk reflecting a number of industry and company-specific risk elements:

Commodity prices – Eni’s earnings are sensitive to changes in oil and natural gas prices, which can fluctuate significantly as a function of economic and geopolitical forces. We estimate a US$1/bbl move in oil prices (versus our 2012 forecast of US$86/bbl) would impact EPS by 1.6%, and a US$0.50/bbl move in refining margins (versus our US$3.7/bbl NW Europe margin forecast) would impact EPS by 0.8%.

Currency – Eni’s principal earnings and cost exposure is to US$, meaning that for a move in EUR/US$ currency has a largely translational impact on ordinary share EPS. There are some transactional effects on currency in gas marketing earnings, but these are mainly timing differences that in our experience get passed through on margins within a few quarters of earnings.

Economic backdrop – earnings in gas marketing (currently around 15% of Eni’s cash flows) are sensitive to the economic backdrop, particularly in Italy. While we already forecast a relatively slow industrial recovery, a lower than expected forecast would result in (1) a compression in cash margins, and (2) a need to renegotiate obligations under take-or-pay gas supply contracts.



Political – changing political forces can impact on Eni’s legal ownership, fiscal take and pace of development activity in any country in which it operates. Around 10% of the company’s cash flows in 2010 was generated from Libya; all activities are currently suspended. Although we assume Eni will be able to re-start Libyan output over the coming period, there could prove to be ownership/fiscal risks under a new Libyan regime.

Natural and Man Made Disasters – Eni’s operating activities can be severely disrupted by the effects of natural disasters or industrial accidents. Accidents may bear the burden of additional costs for remediation, fines and from restrictions on future business activities.

These risks could impede the share price from reaching our target price. Company description

Fiat Industrial manufactures and sells agricultural and construction equipment, trucks and commercial vehicles, engines and transmissions and has leading market positions in the sectors it serves. Investment strategy

We rate Fiat Industrial Buy/High Risk (1H). Fiat Industrial is well-positioned to benefit from the recovery of its key end markets – (i) the secular growth story in agricultural equipment in a high commodity price world (agriculture accounted for 43% of group sales in 2010); (ii) a cyclical recovery in construction equipment markets (11%) with the outlook improving in developed markets and strong growth in emerging markets; and (iii) embedded recovery in truck markets (30%). Our forecasts could prove conservative if the company successfully executes its margin expansion plan towards the benchmark competitors within 5 years (2010-14). Valuation

Our target price of €10 is based on our DCF fair value. We assume the following key parameters within our DCF valuation: a terminal growth rate of 2.5%, a through-cycle margin of 6.4% and a WACC of 8.5%. Our SOTP valuation also yields €10. Risks

We rate Fiat Industrial as High Risk, in line with our European Engineering sector. Below we highlight a number of risks that could prevent the shares from achieving our target price:

Macro Risk: In general, demand in the capital goods sector is highly correlated to the economic cycle and can be subject to greater levels of volatility. Various macro-economic factors (GDP, the level of consumer and business confidence, the cost of raw materials and the rate of unemployment) influence earnings and the financial position of Fiat Industrial. Fiat Industrial sales contracted by 28% y/y in 2009 and underlying margins declined to 1.8% in 2009 from a peak level of 8.2% in 2008.

Sector Related Risk: Similar to capital goods companies, Fiat Industrial activity levels will depend on the condition of financial markets, in particular, the ability to access the securitisation market and prevailing interest rates in that market. In North America, in particular, CNH makes considerable use of asset-backed securitisation to fund financing offered to dealers and end-customers.



End Markets Risk: Fiat Industrial’s activity levels are driven by capital investment patterns across a number of industries, with 79% of 2010 group sales biased towards agriculture, trucks and buses. Agriculture is the single largest end-market, accounting for 43% of group sales in 2010, while trucks and buses account for 36%. In addition CNH performance also depends on the recovery of construction equipment market (11% of group sales in 2010), which was the sole loss-making contributor to CNH’s performance in 2009.

Input Costs Risk: Similar to other capital goods companies, Fiat Industrial is vulnerable to increases in energy prices and fluctuations in prices of commodities or other raw materials.

Finmeccanica Company description

Finmeccanica is a major Italian Engineering and Aerospace and Defence group operating globally with significant operations in the UK, Italy and the US. The group is organised in seven divisions. Aeronautics designs and manufactures both civil and military aircrafts. AgustaWestland specialises in helicopters. Space (civil and military satellites) operates a joint venture with Thales. Defence Electronics is focused on avionics, air traffic control, military and secure communications. Defence Systems develops and produces missiles and armoured vehicles. The Energy/Transportation division is involved in the production of power plants (boilers, turbines, single or combined cycle and nuclear) and also supplies railway signalling systems and rolling stock. Investment strategy

We rate Finmeccanica Sell/High Risk (3H). The outlook for Finmeccanica’s core defence and security businesses remains challenging due to severe defence budget constraints in US and Europe. The company also needs to overcome significant industrial issues in its aeronautics and rolling stock businesses. Although a restructuring plan has been put in place, visibility on its progress continues to remain poor. We now expect restructuring costs to be materially higher than previously feared, with only modest benefits likely to flow to the bottom-line. Unlike its defence peers, Finmeccanica’s ability to supplement anemic EPS growth through share buybacks or earnings enhancing acquisitions is curtailed by its stretched balance sheet and weak FCF generation. Valuation

Our target price of €4.00/share is based on 6.0x 2012E EV/EBIT, which is lower than the implied EV/EBIT multiple at our target price for its closest European defence peer, reflecting the current higher equity risk premium for Italian stocks, as well as Finmeccanica’s weaker cash flows, restructuring challenges and a higher corporate tax rate (36%-40%). Our target price implies a 2012E P/E of 5.0x which is a significantly lower multiple than Finmeccanica’s long run average of c12x since 2003, reflecting a lower growth outlook for defence markets generally and increased gearing at Finmeccanica (with Net Debt per share of €5.43/share at 31 Dec 2010). A discounted cash flow valuation, based on 11.3% WACC and 1.1% terminal growth rate, suggests fair value of €5/share.



Risks

We rate Finmeccanica High Risk based on our assessment of industry and company-specific risk factors. We would highlight the following risks that could impede the shares from achieving our target price. Conversely, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.

US Defence Budgets may slow/shrink, following almost a decade of investment account budgetary growth. Around 25% of Sales are exposed to the US.

Italian defence spending looks likely to remain under pressure for some time. 20% of Sales are exposed to Italy.

The performance of acquired US business DRS may not be as good as expected.

Market concerns over debt may continue to weigh on the share price.

Significant exposure to non-defence markets (45% sales) including civil aerospace through 50% stake in turboprop manufacturer ATR

Translational FX exposure with US operations.

Contract execution risk.

Restructuring risk.

Gemina SpA Company description

Previously a pure holding company, Gemina has divested its non-core participations. Following its acquisition of the 44.7% stake in Aeroporti di Roma (AdR) previously held by Macquarie Group (July 2007), Gemina is now focused on AdR (96% of NAV, on our estimates), and is poised to become a mono-business company. Investment strategy

We expect AdR's performance to improve in aviation and non-aviation, owing to simultaneous recovery of traffic and higher tariffs from 2012. We see Rome as a destination that should appeal to newly wealthy travellers in emerging countries. Italian airport tariffs, which have largely been unchanged since 2000, have been adjusted for inflation starting for 2008, pending a new (favourable) RAB-based regulation that should close the existing gap vs. EU tariffs. Also commercial (non-aviation) activities are underdeveloped vs. peers, leaving room for AdR to improve its performance. However, AdR has substantial financial commitments, which will necessitate re-financing prior to 2013, including possible new equity issuance, which could be dilutive to existing shareholders. In view of limited implied upside to our target price and what we see as significant risks, we rate Gemina Hold/Speculative Risk (2S). Valuation

We derive our target price for Gemina of €0.69 through a pure RAB-based SOTP based on the following building blocks:



Regulated Asset Base (RAB) expected as of end-2011E of a combined €2.72bn, made up of €1.17bn Aviation RAB and €1.55bn Non-Aviation RAB. This is based on an estimated RAB of €2.6bn as of the start of 2008 and then moved forward, based on capex, inflation and depreciation assumptions, to the end of 2011.

Value of 50% Allowable Non-Aviation outperformance - which we estimate to be zero.

Less AdR's Net Debt and Pension Provision, expected as of the end of 2011, of €1.18bn - to give a value for AdR's equity of €1.54bn.

This implies Gemina's 95.76% stake in AdR's equity is therefore worth €1.47bn.

To this we add the value of Gemina's other investments and assets of €10m (Sistemi di Energia and Pentar).

We then deduct the value of Gemina's central costs of €26m (based on a P/E of 10x our estimated central operating costs for 2011).

We also deduct Gemina S.p.A. (i.e. parent company) net debt of €100m, being the difference between Gemina's reported net debt and AdR's reported net debt..

These building blocks add up to SOTP valuation of €1.36bn, equivalent to €0.92 per share.

We then apply a 25% discount to our theoretical SOTP value to calculate our target price to reflect risk of dilution to existing shareholders from further equity issuance.

Our target price equates to a 2011E EV/EBITDA of 8.8x, which compares to an European airport sector average of 8.6x currently. Risks

We rate Gemina Speculative Risk. (i) AdR has considerable net debt (4.1x 2010 EBITDA), which will need re-financing by 2013, possibly resulting in a dilutive capital increase. (ii) AdR's credit rating was downgraded (to Baa3) in 2008, which determined a ‘trigger event' that will oblige AdR to direct its cash generation to repay debt and prevent it paying a dividend, so this remains a major source of risk for Gemina. (iii) Visibility on the tariff scheme that will be approved (and when this is going to happen) is limited. That said, we think any of the likely outcomes should represent a significant improvement after an eight-year freeze in tariffs.

If the impact of these risk factors is more negative than we anticipate, then the share price might fail to reach our target price. Conversely, a tariff agreement could be more favourable than our expectations, potentially resulting in our target price being exceeded.



Italcementi Group Company description

Italcementi is a holding company for a variety of cement and other building material companies with operations around the world. It is the largest producer in the Italian market and has, through its c. 79% stake in Ciments Francais, large positions in France, Egypt, North America, India, Spain, Thailand and a number of other markets. In total it has operations in 22 countries with 63 cement plants and a number of downstream operations including 134 aggregate quarries and over 600 readymix concrete batching plants. The group is majority owned by Italmobiliare S.p.A which has a 60.3% stake in the group. Italmobiliare in turn has the Pesenti family as the major shareholders with a 46% stake. The group has both Ordinary (c.177m) and Savings (c.105m) shares where the savings shares are paid a higher level of dividend but do not have votes like the Ordinary shares. Investment strategy

We believe that uncertainty surrounding Italy and Egypt, in particular, warrant a certain amount of extra caution in the near term. Valuation is not sufficiently depressed relative to the cement peer group or its own historical average rating to merit a valuation argument for the stock, despite its recent poor run. Italy remains a potential turnaround story but we do not see any sign of this occurring over the next 12-18 months and therefore have a Sell rating on the stock in the absence of any positive near-term catalysts. Valuation

We have a price target of €4.0 per ordinary share on Italcementi. We calculate this target price by using a weighted average methodology which incorporates a PE valuation, EV/EBITDA, P/NAV and DCF. We use a 2012E PE multiple of 10.0x (35% weighting)), EV/EBITDA multiple of 5.5x (35% weighting), a P/NAV of 0.6x (25% weighting) and a DCF (5% weighting) within this calculation.

We have included a P/NAV element to adjust partly for the low level of profitability in a number of the group's key markets (Italy, India, US) which has meant the earnings profile remains low at present. Risks

Our risk rating on Italcementi is High Risk. It is derived from an analysis of various factors such as industry and market risks, financial risks, management competence and the historical volatility of the share price. Italcementi principally operates in the heavy end of the building industry and as such it is more exposed to infrastructure and the initial stages of new building rather than renovation and improvement. We would highlight the most important company-specific risks, which could prevent achievement of our target price, as:

Energy costs could rise significantly again. We believe that every 10% increase in fuel costs dilutes profits by 4-5%, ceteris paribus.

The key swing markets for the group are Italy, France, Egypt, US, India and Morocco but it is exposed to more than 20 countries in total.

The group is reasonably currency sensitive as over 40% of EBITDA will be generated in currencies other than the euro. We estimate that a 10% swing in the euro on a weighted basis would impact earnings by 6-7%.



If the impact on the company from any of these factors proves to be less negative than we anticipate, the stock could materially outperform our target.

Pirelli Company description

Pirelli is a leading tyre manufacturer generating revenues of €4.85bn in 2010. The company remains the dominant Latin American player in both passenger car tyres and truck tyres. Pirelli's strategy is focused on being a premium player in the passenger car tyre business and an emerging markets player in truck tyres. The free float is only 47% with investment holding company Camfin the largest shareholder. Investment strategy

Our Buy rating reflects our view of growing demand for premium tyres globally. With natural rubber prices high, Pirelli will face a raw material headwind in 2011E, but we are confident that this can be mostly compensated for by rising customer pricing/better mix. The price/mix track record in 2011 YTD is impressive. We expect Pirelli to enjoy the strongest Mix improvement in the sector over the medium term as it increasingly focuses on premium tyres and restructures capacity. Valuation

Our €8 target price is based on 2012E EV/EBITDA of 5.1x, in line with the multiple we apply to Michelin (MICP.PA; €46.37; 1M) which generates similar margins. This is roughly a 15% discount to its average attainment during 2000-08 to reflect ongoing uncertainties about the development of raw material prices and macroeconomic conditions. Pirelli historical multiples are only of limited use given the 2010 spin-off of its real-estate business and the 2010 reverse stock split. Risks

We rate Pirelli Medium Risk based on our assessment of industry- and company-specific risk factors. The key risks to achieving our target price are: renewed softness in replacement markets and lack of progress in improving Truck sales; materially higher raw material prices that cannot be passed on through price rises; and poorer mix. Conversely, stronger-than-anticipated control of working capital and lower debt, falling raw material prices, more rapid progress in reducing labour costs, and a faster-than-anticipated increase in mature market margins could see the share price rise above our target.

Snam Rete Gas SpA Company description

SNAM RG is the gas transmission company for Italy. It holds c98% market share and also operates the only Italian LNG terminal, a gas distribution network and storage assets. Its transmission and LNG activities are entirely regulated. In transmission, it benefits from a healthy return of 6.4% on its existing assets and new investments are guaranteed a premium return. LNG, storage and distribution enjoy a similar attractive regulatory system. A small portion of SNAM RG's activities relate to consultancy services supplied to gas shippers.



Investment strategy

We rate SNAM RG Buy/Low Risk (1L). SNAM RG is a solid defensive stock that benefits from a clear and stable regulatory environment that allows for incentives on investments for new infrastructures. We expect growth in capex to boost growth and value creation over the next 5 years. Due to the regulatory framework, SNAM RG distinguishes itself in its earnings and cash flow predictability. The stock offers growth in EPS and a strong and sustainable dividend yield underpins the attractive valuation. Valuation

Our valuation is based on a DCF approach, where we use a WACC of 5.8%, with the group's RAB as a terminal value. To the 2011E RAB of SRG, Italgas and Stogit we add the NPV of the value created by incentives on development capex, cost cutting above the regulator's targets, and the value created by a lower cost of debt than that assumed by the regulator. We add to our valuation the group's financial assets - 196m treasury shares valued at a market price of €3.3 each, and other shareholdings (AES, Napoletana Gas, Siciliana Gas and other Italgas non-consolidated stakes). We value these assets at €518m or 10x 2011E P/E, in line with the sector average. Based on this analysis, we set our target price at €4.30. Risks

We rate SNAM RG Low Risk based on consideration of a number of factors, including an assessment of industry-specific risks, financial risk and management risk. The following risks could impede the share price from achieving our target price. SRG faces the risk that some of its projects could be delayed or executed at a cost that is higher than that recognised by the regulator. A dramatic and swift in interest rates could also negatively affect the share price, in our view.

Telecom Italia SpA Company description

Telecom Italia is the incumbent operator in Italy and controls the number 2 Brazilian mobile operator TIM Brazil and incumbent operator Telecom Argentina. TI is controlled by a consortium of investors who in aggregate have a 23% stake. Via the controlling holding company Telefonica is the biggest investor. Investment strategy

We rate Telecom Italia Buy. Telecom Italia has suffered recently from the confluence of three negative pressures on the stock. We believe issues facing the stock relating to domestic mobile revenue weakness and the Sparkle VAT fraud investigation are now broadly reflected in the share price. We believe that domestic fixed is solid and undervalued and should continue to outperform European peers. We believe, as sentiment gradually improves, the shares have scope for re-rating. Valuation

Our valuation of TI and €1.2 target price are based on our 25-year DCF which fades the ROCE close to the cost of capital in the longer term. We use a WACC of 8.4% and 1.5% perpetuity growth rate from year 25. The perpetual growth in cash flow implied from year four from these assumptions is -0.7%.



Risks

We rate TI ordinary shares as Medium Risk based on our assessment of industry and company-specific risk factors. TI has relatively high financial leverage, ownership uncertainty remains through the Telco holding company, and turnaround of its domestic mobile business remains a key risk. If the impact of these risk factors is more or less negative than we currently anticipate, then the share price could fail to reach or exceed our target price.

TERNA SpA Company description

TERNA is the electricity transmission company of Italy, holding a market share of c96%. Its transmission operations are entirely regulated. TERNA also provides transmission services to ENEL, its parent company, as well as to other clients outside the ENEL group. The group also entered the solar business. Investment strategy

We rate Terna Buy. Terna is a solid defensive stock that benefits from a clear and stable regulatory environment that allows for incentives on investments for new infrastructure. We expect volumes in the electricity market to be driven by more extensive use of electricity for residential and industrial usages allowing average growth of c.1% pa. Thanks to the regulatory framework, Terna distinguishes itself with its earnings and cash flow predictability that we believe make it a stock to favour for those investors seeking defensiveness in the sector. Valuation

We value Terna using a RAB-based approach for its Italian transmission activities, which are the core business of Terna. To this end, we adopt a RAB-based DCF where for the terminal value we use the RAB as at the end of 2015 (coinciding with the end of the third regulatory period) whereas over 2012-14 we discount the cash flows that we estimate Terna will generate given the allowed return (by the regulator) of 6.0% (real, pre-tax) on its existing assets and the 2.6% premium allowed on new investments. Our SOTP valuation is €3.1, which is where we set our target price. Risks

We rate Terna Low Risk based on our assessment of sector and company-specific risks. The following risks could prevent achievement of our target price. While the domestic business looks reasonably safe we cannot exclude Terna may want to enter new foreign markets like for example the Balkans where state-owned companies are being privatised and little is known about regulation and regulators, which, where they exist, have no proven track record in terms of stability and consistency. Terna faces the risk that some of its projects could be delayed or executed at a cost that is higher than that recognised by the regulator. On the upside, the fact that Terna could announce more cost savings or a higher capex plan than we expect, could lead the share price to exceed our target price.



Tod's SPA Company description

Tod's is a leading producer of shoes, accessories and apparel. It operates worldwide under four brands: Tod's, Hogan, Fay and Roger Vivier. Tod's has revenues of approximately €900m generated via a network of c160 directly-operated stores (DOS) and c70 wholesale points of sales throughout the world. Investment strategy

In a fast-changing economic environment, we back quality growth companies with defensive characteristics, good EM sales momentum and strong balance sheets. Tod's fits the bill. The key points that underpin our positive stance are i) strong earnings momentum in FY11-13E and historical earnings resilience; ii) defensive model driven by its core shoe business and the Tod's brand, which capture a loyal customer base through classic luxury products; iii) sales momentum in underpenetrated markets (Asia, US), with more to come; iv) good sales visibility in 2H11; v) self-help driving gross margin improvements; vi) opportunities to pursue profitable product diversification in leather goods (Tod's, Hogan); vii) limited currency risks; and viii) strong FCF generation and balance sheet. We have a Buy (1M) rating and €101.0 price target. Valuation

We set a €101.0 target price for Tod's, built on DCF valuation (40% weight), sector peer multiple (40% weight) and take-out multiple (20% weight). The incorporation of an M&A-based approach in our valuation methodology is derived from our belief that consolidation in the luxury sector will remain an important theme in coming years.

Our DCF model is made up of a 10-year explicit stage and a terminal value based on a 2.5% long-term growth assumption. We use a risk-free rate of 4%, an equity risk premium of 5% in line with CIRA estimates for the Italian market and a beta of 1.1x to reflect recent macroeconomic uncertainty. Our WACC calculation points to 9.4%.

Our target P/E valuation is based on a luxury peer group's 2012E P/E, reflecting the group's historical earnings resilience and recent self-help (Asia, Retail, Tod's, Leather goods) which drives sector average earnings growth.

Our M&A-based valuation is based on a take-out EBITDA multiple of 14.4x, at a 60% premium to current valuation as seen in recent sector deals (in particular LVMH/Bulgari).

Our DCF valuation points to €111.8, our target P/E valuation yields €78.7 and our M&A-based methodology yields €123.7. We set our target price at €101.0 per share, based on a weighted average of the three methodologies (DCF 40%, P/E 40%, M&A 20%). Risks

We rate Tod's as Medium Risk, taking into account the following factors. Tod's is highly exposed to Italy (~50%+), its home market, where it is relatively mature. Outside Italy, Tod's brands are still relatively new and more exposed to Wholesale than some of its competitors. Tod's is growing nicely in Asia (Japan excepted), which provides higher mark-ups, revenues and margins. However, Tod's market



share is far from being consolidated and the brand is highly exposed to fashion risks and economic cycles in Asia. In the US, Tod's has so far achieved mixed results. Our estimates assume moderate growth in the Americas in the medium term; this could prove conservative. Finally, Tod's success in Apparel has been mixed so far, and we do not have much visibility on this product category. If the impact on the company from any of these factors proves to be more negative than we anticipate, the stock will most likely have difficulty achieving our financial and price targets. However, if their impact is less negative than we expect, the stock could materially outperform our target.



Appendix A-1 Analyst Certification

The research analyst(s) primarily responsible for the preparation and content of this research report are named in bold text in the author block at the front of the product except for those sections where an analyst's name appears in bold alongside content which is attributable to that analyst. Each of these analyst(s) certify, with respect to the section(s) of the report for which they are responsible, that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc and its affiliates. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this report.

IMPORTANT DISCLOSURES

0

2

4

6

8

10

12

O N D J2009

F M A M J J A S O N D J2010


F M A M J J A S

1

23

4

56

7

8

Date Rating Target Price Closing Price1 31-Oct-08 *2M *6.90 6.26

2 3-Feb-09 2M *5.00 4.65

3 8-Apr-09 *1M *5.70 4.86

Date Rating Target Price Closing Price4 6-Aug-09 1M *8.70 7.40

5 14-Jan-10 1M *10.30 9.05

6 18-Jun-10 1M *11.50 10.18

Date Rating Target Price Closing Price7 7-Feb-11 1M *12.50 10.59

8 19-Jun-11 1M *12.00 8.86


2 3-Feb-09 2M *5.00 4.65

3 8-Apr-09 *1M *5.70 4.86


5 14-Jan-10 1M *10.30 9.05

6 18-Jun-10 1M *11.50 10.18


8 19-Jun-11 1M *12.00 8.86

Autogrill SpA (AGL.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro BaragiolaCovered since February 4 2009

EUR

* Indicates change Rating/target price changes above reflect Eastern Standard Time

CoveredNot covered

Chart current as of 20 Septem

ber 2011

0

2

4

6

8

10

12

O N D J2009



F M A M J J A S

1

2

Date Rating Target Price Closing Price1 11-Feb-11 *ADD MP - 10.38

Date Rating Target Price Closing Price2 10-May-11 *REM MP - 9.60


Date Rating Target Price Closing Price2 10-May-11 *REM MP - 9.60

Autogrill SpA (AGL.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro BaragiolaCovered since February 4 2009

EUR


CoveredNot covered


ber 2011



6

8

10

12

14

16

18

O N D J2009



F M A M J J A S

1

2

34

5

6

7

Date Rating Target Price Closing Price1 2-Oct-08 1M *18.68 13.59

2 20-Mar-09 1M *14.51 9.19

3 15-Sep-09 1M *17.23 15.23

Date Rating Target Price Closing Price4 17-Nov-09 1M *18.14 16.33

5 8-Jun-10 1M *18.10 13.30

6 2-Jun-11 1M *17.14 15.50

Date Rating Target Price Closing Price7 6-Jul-11 1M *15.50 13.36


2 20-Mar-09 1M *14.51 9.19

3 15-Sep-09 1M *17.23 15.23


5 8-Jun-10 1M *18.10 13.30

6 2-Jun-11 1M *17.14 15.50


Atlantia (ATL.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mike Pinkney, CFACovered since February 3 2009

EUR


CoveredNot covered


ber 2011

6

8

10

12

14

16

18

O N D J2009



F M A M J J A S

Atlantia (ATL.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mike Pinkney, CFACovered since February 3 2009

EUR


CoveredNot covered


ber 2011

4

6

8

10

12

14

O N D J2009



F M A M J J A S

12 3

4 5 6

78

9

10

11

Date Rating Target Price Closing Price1 15-Oct-08 *1H *13.00 8.89

2 16-Jan-09 *2H *11.50 9.90

3 26-Mar-09 2H *9.50 8.68

4 12-Aug-09 2H *10.60 10.98

Date Rating Target Price Closing Price5 11-Nov-09 2H *12.00 11.60

6 24-Mar-10 2H *11.00 9.55

7 9-Jun-10 2H *9.50 8.52

8 11-Aug-10 2H *8.70 7.90

Date Rating Target Price Closing Price9 16-Feb-11 *3M *9.80 10.71

10 19-Apr-11 *2M 9.80 9.47

11 13-Sep-11 *3M *5.80 5.95


2 16-Jan-09 *2H *11.50 9.90

3 26-Mar-09 2H *9.50 8.68

4 12-Aug-09 2H *10.60 10.98

Date Rating Target Price Closing Price5 11-Nov-09 2H *12.00 11.60

6 24-Mar-10 2H *11.00 9.55

7 9-Jun-10 2H *9.50 8.52

8 11-Aug-10 2H *8.70 7.90


10 19-Apr-11 *2M 9.80 9.47

11 13-Sep-11 *3M *5.80 5.95

Buzzi Unicem (BZU.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Aynsley LamminCovered since October 16 2008

EUR


CoveredNot covered


ber 2011



4

6

8

10

12

14

O N D J2009



F M A M J J A S

1

2

Date Rating Target Price Closing Price1 11-Feb-11 *ADD LP - 10.53

Date Rating Target Price Closing Price2 13-Sep-11 *REM LP - 5.95


Date Rating Target Price Closing Price2 13-Sep-11 *REM LP - 5.95

Buzzi Unicem (BZU.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Aynsley LamminCovered since October 16 2008

EUR


CoveredNot covered


ber 2011

0.0

0.5

1.0

1.5

2.0

O N D J2009



F M A M J J A S

1

Date Rating Target Price Closing Price1 18-Jun-10 1M *1.80 1.53


CIR - Compagnie Industriali RiuniteSpA (CIRX.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

0.0

0.5

1.0

1.5

2.0

O N D J2009



F M A M J J A S

CIR - Compagnie Industriali RiuniteSpA (CIRX.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011



1

2

3

4

5

6

O N D J2009



F M A M J J A S

1

2

34

56

7

Date Rating Target Price Closing Price1 13-Jan-09 1M *2.95 2.30

2 6-Aug-09 1M *3.45 2.99

3 14-Jan-10 1M *4.25 3.67

Date Rating Target Price Closing Price4 31-Mar-10 1M *4.75 3.96

5 11-Nov-10 1M *5.25 4.62

6 5-May-11 1M *5.55 4.85



2 6-Aug-09 1M *3.45 2.99

3 14-Jan-10 1M *4.25 3.67


5 11-Nov-10 1M *5.25 4.62

6 5-May-11 1M *5.55 4.85


Davide Campari-Milano SpA(CPRI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

1

2

3

4

5

6

O N D J2009



F M A M J J A S

1

Date Rating Target Price Closing Price1 10-May-11 *ADD MP - 4.93

Date Rating Target Price Closing Price1 10-May-11 *ADD MP - 4.93

Davide Campari-Milano SpA(CPRI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

1.2

1.4

1.6

1.8

2.0

O N D J2009



F M A M J J A S

1

2

Date Rating Target Price Closing Price1 26-Jan-11 *3M *1.50 1.63




Enel Green Power (EGPW.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Manuel PalomoCovered since January 27 2011

EUR


CoveredNot covered


ber 2011



1.2

1.4

1.6

1.8

2.0

O N D J2009



F M A M J J A S

Enel Green Power (EGPW.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Manuel PalomoCovered since January 27 2011

EUR


CoveredNot covered


ber 2011

2

3

4

5

O N D J2009



F M A M J J A S

12

3

4

5

6

7

Date Rating Target Price Closing Price1 23-Feb-09 *1H *4.41 3.81

2 5-Aug-09 *1M *4.30 3.80

3 6-Nov-09 *2M 4.30 4.10

Date Rating Target Price Closing Price4 11-May-10 *2H *4.20 3.80

5 6-Jun-11 *2M *4.50 4.62

6 4-Aug-11 2M *3.90 3.73


Date Rating Target Price Closing Price1 23-Feb-09 *1H *4.41 3.81

2 5-Aug-09 *1M *4.30 3.80

3 6-Nov-09 *2M 4.30 4.10

Date Rating Target Price Closing Price4 11-May-10 *2H *4.20 3.80

5 6-Jun-11 *2M *4.50 4.62

6 4-Aug-11 2M *3.90 3.73


ENEL SpA (ENEI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Antonella BianchessiCovered since June 6 2011

EUR


CoveredNot covered


ber 2011

2

3

4

5

O N D J2009



F M A M J J A S

ENEL SpA (ENEI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Antonella BianchessiCovered since June 6 2011

EUR


CoveredNot covered


ber 2011



10

12

14

16

18

20

O N D J2009



F M A M J J A S

12 3

45

6 7

8

9

10

11

Date Rating Target Price Closing Price1 26-Sep-08 1M *26.00 19.30

2 12-Nov-08 1M *23.00 16.75

3 12-Jan-09 1M *22.00 17.12

4 5-Feb-09 1M *20.00 17.33


6 1-Jun-09 1M *20.00 17.73

7 5-Oct-09 1M *19.50 16.75

8 11-Jan-10 1M *21.00 18.56

Date Rating Target Price Closing Price9 21-Dec-10 Coverage terminated

10 27-Jan-11 *2M *18.20 17.72

11 23-Aug-11 *1M *15.50 13.39


2 12-Nov-08 1M *23.00 16.75

3 12-Jan-09 1M *22.00 17.12

4 5-Feb-09 1M *20.00 17.33


6 1-Jun-09 1M *20.00 17.73

7 5-Oct-09 1M *19.50 16.75

8 11-Jan-10 1M *21.00 18.56

Date Rating Target Price Closing Price9 21-Dec-10 Coverage terminated

10 27-Jan-11 *2M *18.20 17.72

11 23-Aug-11 *1M *15.50 13.39

Eni (ENI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Alastair R SymeCovered since January 27 2011

EUR


CoveredNot covered


ber 2011

10

12

14

16

18

20

O N D J2009



F M A M J J A S

1

Date Rating Target Price Closing Price1 10-Aug-11 *ADD MP - 12.17

Date Rating Target Price Closing Price1 10-Aug-11 *ADD MP - 12.17

Eni (ENI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Alastair R SymeCovered since January 27 2011

EUR


CoveredNot covered


ber 2011

0.0

0.5

1.0

1.5

2.0

2.5

O N D J2009



F M A M J J A S

1

23

4

5

6 7

89

Date Rating Target Price Closing Price1 23-Sep-08 *3M *1.50 1.77

2 8-Jan-09 3M *1.00 1.17

3 15-Apr-09 3M *0.80 0.89


5 2-Oct-09 3M *1.30 1.80

6 14-Jan-10 3M *1.50 2.31

Date Rating Target Price Closing Price7 21-Apr-10 3M *1.75 2.29

8 18-Jun-10 *2M 1.75 1.78

9 9-Mar-11 2M *1.90 1.97


2 8-Jan-09 3M *1.00 1.17

3 15-Apr-09 3M *0.80 0.89


5 2-Oct-09 3M *1.30 1.80

6 14-Jan-10 3M *1.50 2.31

Date Rating Target Price Closing Price7 21-Apr-10 3M *1.75 2.29

8 18-Jun-10 *2M 1.75 1.78

9 9-Mar-11 2M *1.90 1.97

Gruppo Editoriale l’Espresso SpA(ESPI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011



0.0

0.5

1.0

1.5

2.0

2.5

O N D J2009



F M A M J J A S

Gruppo Editoriale l’Espresso SpA(ESPI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

4

5

6

7

8

9

10

11

O N D J2009



F M A M J J A S

1

2 3

Date Rating Target Price Closing Price1 7-Mar-11 *1H *12.00 9.96

Date Rating Target Price Closing Price2 29-Jul-11 1H *13.00 9.21

Date Rating Target Price Closing Price3 12-Sep-11 1H *10.00 5.57


Date Rating Target Price Closing Price2 29-Jul-11 1H *13.00 9.21

Date Rating Target Price Closing Price3 12-Sep-11 1H *10.00 5.57

Fiat Industrial (FI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Natalia MamaevaCovered since March 8 2011

EUR


CoveredNot covered


ber 2011

4

5

6

7

8

9

10

11

O N D J2009



F M A M J J A S

1

2 3

4

Date Rating Target Price Closing Price1 14-Apr-11 *ADD MP - 9.71

2 23-Jun-11 *REM MP - 8.59

Date Rating Target Price Closing Price3 14-Jul-11 *ADD MP - 8.52

4 15-Sep-11 *REM MP - 6.09

Date Rating Target Price Closing Price1 14-Apr-11 *ADD MP - 9.71

2 23-Jun-11 *REM MP - 8.59

Date Rating Target Price Closing Price3 14-Jul-11 *ADD MP - 8.52

4 15-Sep-11 *REM MP - 6.09

Fiat Industrial (FI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Natalia MamaevaCovered since March 8 2011

EUR


CoveredNot covered


ber 2011



0.0

0.2

0.4

0.6

0.8

O N D J2009



F M A M J J A S

1

2

3

4


2 18-Jun-10 *1S 0.75 0.55

Date Rating Target Price Closing Price3 8-Jun-11 *2S *0.78 0.72

4 6-Sep-11 2S *0.69 0.61


2 18-Jun-10 *1S 0.75 0.55

Date Rating Target Price Closing Price3 8-Jun-11 *2S *0.78 0.72

4 6-Sep-11 2S *0.69 0.61

Gemina SpA (GEMI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Andrew LightCovered since February 3 2009

EUR


CoveredNot covered


ber 2011

0.0

0.2

0.4

0.6

0.8

O N D J2009



F M A M J J A S

Gemina SpA (GEMI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Andrew LightCovered since February 3 2009

EUR


CoveredNot covered


ber 2011

1

2

3

4

5

6

7

8

O N D J2009



F M A M J J A S

1

2

3

4

5

Date Rating Target Price Closing Price1 18-Nov-08 *2H *4.60 4.06

2 25-Sep-09 *3M *5.00 5.97


4 18-Jun-10 3M *3.60 3.89

Date Rating Target Price Closing Price5 9-Sep-11 *1M 3.60 2.89


2 25-Sep-09 *3M *5.00 5.97


4 18-Jun-10 3M *3.60 3.89

Date Rating Target Price Closing Price5 9-Sep-11 *1M 3.60 2.89

Geox SpA (GEO.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011



1

2

3

4

5

6

7

8

O N D J2009



F M A M J J A S

Geox SpA (GEO.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

2

4

6

8

10

12

O N D J2009



F M A M J J A S

12

3

4

5

67


2 13-Mar-09 2H *8.10 7.32

3 13-Nov-09 2H *10.00 10.08

Date Rating Target Price Closing Price4 12-Mar-10 2H *9.50 8.78

5 9-Jun-10 2H *7.00 6.45

6 9-Aug-11 2H *5.70 4.98

Date Rating Target Price Closing Price7 13-Sep-11 *3H *4.00 4.41


2 13-Mar-09 2H *8.10 7.32

3 13-Nov-09 2H *10.00 10.08

Date Rating Target Price Closing Price4 12-Mar-10 2H *9.50 8.78

5 9-Jun-10 2H *7.00 6.45

6 9-Aug-11 2H *5.70 4.98

Date Rating Target Price Closing Price7 13-Sep-11 *3H *4.00 4.41

Italcementi Group (ITAI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Clyde LewisCovered since October 16 2008

EUR


CoveredNot covered


ber 2011

2

4

6

8

10

12

O N D J2009



F M A M J J A S

1

Date Rating Target Price Closing Price1 13-Sep-11 *ADD LP - 4.41

Date Rating Target Price Closing Price1 13-Sep-11 *ADD LP - 4.41

Italcementi Group (ITAI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Clyde LewisCovered since October 16 2008

EUR


CoveredNot covered


ber 2011



1

2

3

4

O N D J2009



F M A M J J A S

1

2

3

45

Date Rating Target Price Closing Price1 3-Feb-09 2H *3.40 3.06

2 14-Jan-10 2H *3.90 3.91


4 29-Jun-11 *2S *2.30 2.08

Date Rating Target Price Closing Price5 29-Aug-11 *3S *1.50 1.64


2 14-Jan-10 2H *3.90 3.91


4 29-Jun-11 *2S *2.30 2.08

Date Rating Target Price Closing Price5 29-Aug-11 *3S *1.50 1.64

Landi Renzo (LR.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

1

2

3

4

O N D J2009



F M A M J J A S

Landi Renzo (LR.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

6

8

10

12

14

16

18

20

O N D J2009



F M A M J J A S

1

23

4 56

78


2 12-Mar-09 3H *11.50 12.89

3 28-Jul-09 3H *13.00 14.88

Date Rating Target Price Closing Price4 18-Jun-10 3H *10.50 11.73

5 16-Nov-10 3H *9.70 10.45

6 9-Feb-11 *2H *11.11 10.84

Date Rating Target Price Closing Price7 3-May-11 *3M *13.00 15.44

8 25-Jul-11 *2M 13.00 12.52


2 12-Mar-09 3H *11.50 12.89

3 28-Jul-09 3H *13.00 14.88

Date Rating Target Price Closing Price4 18-Jun-10 3H *10.50 11.73

5 16-Nov-10 3H *9.70 10.45

6 9-Feb-11 *2H *11.11 10.84


8 25-Jul-11 *2M 13.00 12.52

Lottomatica Spa (LTO.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011



6

8

10

12

14

16

18

20

O N D J2009



F M A M J J A S

Lottomatica Spa (LTO.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

5

10

15

20

25

O N D J2009



F M A M J J A S

1

2

34 5

6 7 8

9


2 25-Feb-09 2M *11.40 10.21

3 7-May-09 2M *13.00 14.49


5 15-Sep-09 2M *17.00 17.50

6 6-May-10 2M *21.50 19.89


8 29-Nov-10 *1M *23.50 20.00

9 14-Jan-11 1M *26.00 23.13


2 25-Feb-09 2M *11.40 10.21

3 7-May-09 2M *13.00 14.49


5 15-Sep-09 2M *17.00 17.50

6 6-May-10 2M *21.50 19.89


8 29-Nov-10 *1M *23.50 20.00

9 14-Jan-11 1M *26.00 23.13

Luxottica Group SpA (LUX.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro BaragiolaCovered since May 6 2010

EUR


CoveredNot covered


ber 2011

5

10

15

20

25

O N D J2009



F M A M J J A S

Luxottica Group SpA (LUX.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro BaragiolaCovered since May 6 2010

EUR


CoveredNot covered


ber 2011



1.0

1.5

2.0

2.5

3.0

3.5

4.0

O N D J2009



F M A M J J A S

12

3 4 5


2 22-Apr-09 2M *2.75 2.66

Date Rating Target Price Closing Price3 30-Jul-09 *3M *2.50 2.98

4 18-Jun-10 3M *2.30 2.65

Date Rating Target Price Closing Price5 10-May-11 3M *2.45 2.81


2 22-Apr-09 2M *2.75 2.66

Date Rating Target Price Closing Price3 30-Jul-09 *3M *2.50 2.98

4 18-Jun-10 3M *2.30 2.65


Arnoldo Mondadori Editore(MOED.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

1.0

1.5

2.0

2.5

3.0

3.5

4.0

O N D J2009



F M A M J J A S

Arnoldo Mondadori Editore(MOED.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

1

2

3

4

5

6

7

O N D J2009



F M A M J J A S

1

2

3

4

5 6 7

8

9

10


2 26-Mar-09 3M *3.00 3.44

3 28-Jul-09 3M *3.50 4.23

4 22-Dec-09 *2M *6.00 5.72

Date Rating Target Price Closing Price5 18-Jun-10 *1M 6.00 4.95

6 4-Nov-10 *2M *5.50 5.35

7 7-Feb-11 2M *4.90 4.81

8 8-May-11 *3M *3.80 4.39


10 9-Sep-11 3M *2.20 2.36


2 26-Mar-09 3M *3.00 3.44

3 28-Jul-09 3M *3.50 4.23

4 22-Dec-09 *2M *6.00 5.72

Date Rating Target Price Closing Price5 18-Jun-10 *1M 6.00 4.95

6 4-Nov-10 *2M *5.50 5.35

7 7-Feb-11 2M *4.90 4.81

8 8-May-11 *3M *3.80 4.39


10 9-Sep-11 3M *2.20 2.36

Mediaset SpA (MS.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011



1

2

3

4

5

6

7

O N D J2009



F M A M J J A S

1



Mediaset SpA (MS.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

0

2

4

6

8

O N D J2009



F M A M J J A S

1

2





Pirelli (PECI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Philip WatkinsCovered since June 30 2011

EUR


CoveredNot covered


ber 2011

0

2

4

6

8

O N D J2009



F M A M J J A S

Pirelli (PECI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Philip WatkinsCovered since June 30 2011

EUR


CoveredNot covered


ber 2011



0.0

0.2

0.4

0.6

0.8

1.0

1.2

O N D J2009



F M A M J J A S

1

2

3

4

56

7

Date Rating Target Price Closing Price1 12-Nov-08 3S *0.41 0.52

2 11-Feb-09 3S *0.24 0.34

3 9-Mar-09 3S *0.08 0.13

Date Rating Target Price Closing Price4 15-Apr-09 3S *0.15 0.21

5 5-Aug-09 3S *0.13 0.17

6 18-Jun-10 3S *0.10 0.14

Date Rating Target Price Closing Price7 7-Feb-11 3S *0.05 0.09


2 11-Feb-09 3S *0.24 0.34

3 9-Mar-09 3S *0.08 0.13

Date Rating Target Price Closing Price4 15-Apr-09 3S *0.15 0.21

5 5-Aug-09 3S *0.13 0.17

6 18-Jun-10 3S *0.10 0.14


Seat Pagine Gialle SpA (PGIT.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

0.0

0.2

0.4

0.6

0.8

1.0

1.2

O N D J2009



F M A M J J A S

Seat Pagine Gialle SpA (PGIT.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

4

6

8

10

12

14

16

O N D J2009



F M A M J J A S

1 2

3 4

5

6


2 3-Feb-09 1M *10.70 9.29


4 7-Jan-11 1M *16.70 14.38


6 29-Aug-11 1M *15.00 10.67


2 3-Feb-09 1M *10.70 9.29


4 7-Jan-11 1M *16.70 14.38


6 29-Aug-11 1M *15.00 10.67

Prysmian SpA (PRY.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro BaragiolaCovered since February 4 2009

EUR


CoveredNot covered


ber 2011



4

6

8

10

12

14

16

O N D J2009



F M A M J J A S

1



Prysmian SpA (PRY.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro BaragiolaCovered since February 4 2009

EUR


CoveredNot covered


ber 2011

0

2

4

6

8

O N D J2009



F M A M J J A S

1

23







Aeroporto di Venezia - Marco PoloSpA (SAVE) (SAVE.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro BaragiolaCovered since February 3 2009

EUR


CoveredNot covered


ber 2011

0

2

4

6

8

O N D J2009



F M A M J J A S

Aeroporto di Venezia - Marco PoloSpA (SAVE) (SAVE.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro BaragiolaCovered since February 3 2009

EUR


CoveredNot covered


ber 2011



0

2

4

6

8

10

12

14

16

O N D J2009



F M A M J J A S

123

4

5 6

7

Date Rating Target Price Closing Price1 6-Nov-08 *2S *10.93 10.56

2 10-Nov-08 2S *13.66 11.30

3 17-Nov-08 *3S *6.97 7.53

Date Rating Target Price Closing Price4 25-Aug-09 3S *4.51 6.15

5 18-Jun-10 *2S *9.00 8.30

6 27-Aug-10 2S *9.50 8.39


Date Rating Target Price Closing Price1 6-Nov-08 *2S *10.93 10.56

2 10-Nov-08 2S *13.66 11.30

3 17-Nov-08 *3S *6.97 7.53

Date Rating Target Price Closing Price4 25-Aug-09 3S *4.51 6.15

5 18-Jun-10 *2S *9.00 8.30

6 27-Aug-10 2S *9.50 8.39


Safilo SpA (SFLG.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro BaragiolaCovered since February 3 2009

EUR


CoveredNot covered


ber 2011

0

2

4

6

8

10

12

14

16

O N D J2009



F M A M J J A S

Safilo SpA (SFLG.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro BaragiolaCovered since February 3 2009

EUR


CoveredNot covered


ber 2011

2

4

6

8

10

12

14

16

O N D J2009



F M A M J J A S

12

3

4 56 7

8

9

Date Rating Target Price Closing Price1 4-Dec-08 *1H *12.50 9.65

2 16-Mar-09 1H *12.00 9.00

3 5-Oct-09 *1M *13.50 11.96


5 13-May-10 *2M *10.50 9.63

6 29-Mar-11 2M *9.70 9.05


8 20-Jul-11 2M *8.00 7.53

9 17-Aug-11 *3H *4.00 4.98

Date Rating Target Price Closing Price1 4-Dec-08 *1H *12.50 9.65

2 16-Mar-09 1H *12.00 9.00

3 5-Oct-09 *1M *13.50 11.96


5 13-May-10 *2M *10.50 9.63

6 29-Mar-11 2M *9.70 9.05


8 20-Jul-11 2M *8.00 7.53

9 17-Aug-11 *3H *4.00 4.98

Finmeccanica (SIFI.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Jeremy BraggCovered since December 4 2008

EUR


CoveredNot covered


ber 2011



2

4

6

8

10

12

14

16

O N D J2009



F M A M J J A S

1

Date Rating Target Price Closing Price1 6-May-11 *ADD LP - 9.19


Finmeccanica (SIFI.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Jeremy BraggCovered since December 4 2008

EUR


CoveredNot covered


ber 2011

2.5

3.0

3.5

4.0

O N D J2009



F M A M J J A S

1

2

3

Date Rating Target Price Closing Price1 21-Apr-10 *2M *3.75 3.79

Date Rating Target Price Closing Price2 23-Jun-11 *1L *4.60 4.00

Date Rating Target Price Closing Price3 31-Aug-11 1L *4.30 3.36

Date Rating Target Price Closing Price1 21-Apr-10 *2M *3.75 3.79

Date Rating Target Price Closing Price2 23-Jun-11 *1L *4.60 4.00

Date Rating Target Price Closing Price3 31-Aug-11 1L *4.30 3.36

Snam Rete Gas SpA (SRG.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Antonella BianchessiCovered since June 23 2011

EUR


CoveredNot covered


ber 2011

2.5

3.0

3.5

4.0

O N D J2009



F M A M J J A S

Snam Rete Gas SpA (SRG.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Antonella BianchessiCovered since June 23 2011

EUR


CoveredNot covered


ber 2011



0.0

0.5

1.0

1.5

2.0

O N D J2009



F M A M J J A S

1

2

Date Rating Target Price Closing Price1 21-Jan-09 3S *0.09 0.28


Date Rating Target Price Closing Price1 21-Jan-09 3S *0.09 0.28


Tiscali SpA (TIS.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

0.0

0.5

1.0

1.5

2.0

O N D J2009



F M A M J J A S

1



Tiscali SpA (TIS.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro Baragiola

EUR


CoveredNot covered


ber 2011

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

O N D J2009



F M A M J J A S

1

2

3

4 56

7

8

Date Rating Target Price Closing Price1 15-Jan-09 2H *1.25 1.06

2 15-May-09 *1H *1.20 0.96

3 16-Oct-09 1H *1.40 1.18

Date Rating Target Price Closing Price4 22-Jan-10 *2H *1.10 1.04

5 14-Oct-10 *2M 1.10 1.07

6 7-Jan-11 *1M *1.20 1.04


8 21-Sep-11 1M *1.20 0.79

Date Rating Target Price Closing Price1 15-Jan-09 2H *1.25 1.06

2 15-May-09 *1H *1.20 0.96

3 16-Oct-09 1H *1.40 1.18

Date Rating Target Price Closing Price4 22-Jan-10 *2H *1.10 1.04

5 14-Oct-10 *2M 1.10 1.07

6 7-Jan-11 *1M *1.20 1.04


8 21-Sep-11 1M *1.20 0.79

Telecom Italia SpA (TLIT.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Georgios IerodiaconouCovered since December 10 2010

EUR


CoveredNot covered


ber 2011



0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

O N D J2009



F M A M J J A S

Telecom Italia SpA (TLIT.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Georgios IerodiaconouCovered since December 10 2010

EUR


CoveredNot covered


ber 2011

0

20

40

60

80

100

O N D J2009



F M A M J J A S

12

3 4 56

7 8 9

10 11

12

13


2 3-Feb-09 2M *27.80 29.84

3 9-Apr-09 2M *32.50 35.70

4 8-May-09 2M *37.00 39.47

5 29-Jul-09 2M *40.00 39.66


7 11-Nov-09 2M *48.00 49.99

8 22-Jan-10 2M *50.00 51.39

9 5-May-10 2M *53.00 52.85

10 2-Feb-11 2M *74.00 75.68


12 12-May-11 2M *94.00 96.55

13 8-Aug-11 *1M *101.00 74.60


2 3-Feb-09 2M *27.80 29.84

3 9-Apr-09 2M *32.50 35.70

4 8-May-09 2M *37.00 39.47

5 29-Jul-09 2M *40.00 39.66


7 11-Nov-09 2M *48.00 49.99

8 22-Jan-10 2M *50.00 51.39

9 5-May-10 2M *53.00 52.85

10 2-Feb-11 2M *74.00 75.68


12 12-May-11 2M *94.00 96.55

13 8-Aug-11 *1M *101.00 74.60

Tod’s SPA (TOD.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Thomas ChauvetCovered since February 3 2009

EUR


CoveredNot covered


ber 2011

0

20

40

60

80

100

O N D J2009



F M A M J J A S

1

2


Date Rating Target Price Closing Price2 9-Aug-11 *REM LP - 76.90


Date Rating Target Price Closing Price2 9-Aug-11 *REM LP - 76.90

Tod’s SPA (TOD.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Thomas ChauvetCovered since February 3 2009

EUR


CoveredNot covered


ber 2011



1.5

2.0

2.5

3.0

3.5

O N D J2009



F M A M J J A S

1

2 3

4

Date Rating Target Price Closing Price1 9-Feb-09 *1M 3.00 2.48

2 19-Feb-10 *1L *3.15 2.97


4 31-Aug-11 *1L *3.10 2.52

Date Rating Target Price Closing Price1 9-Feb-09 *1M 3.00 2.48

2 19-Feb-10 *1L *3.15 2.97


4 31-Aug-11 *1L *3.10 2.52

TERNA SpA (TRN.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Antonella BianchessiCovered since June 23 2011

EUR


CoveredNot covered


ber 2011

1.5

2.0

2.5

3.0

3.5

O N D J2009



F M A M J J A S

TERNA SpA (TRN.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Antonella BianchessiCovered since June 23 2011

EUR


CoveredNot covered


ber 2011

2

4

6

8

10

12

14

O N D J2009



F M A M J J A S

1

2


Date Rating Target Price Closing Price2 6-Jun-11 *2M *13.31 13.04


Date Rating Target Price Closing Price2 6-Jun-11 *2M *13.31 13.04

Yoox (YOOX.MI)Ratings and Target Price HistoryFundamental ResearchAnalyst: Mauro BaragiolaCovered since February 7 2011

EUR


CoveredNot covered


ber 2011



2

4

6

8

10

12

14

O N D J2009



F M A M J J A S

Yoox (YOOX.MI)Ratings and Target Price HistoryBest Ideas ResearchRelative Call (3 Month)Analyst: Mauro BaragiolaCovered since February 7 2011

EUR


CoveredNot covered


ber 2011

An employee of Citigroup Global Markets is a Member of the Board of Directors of Campari

An employee of Citigroup Global Markets or its affiliates is a Chairman of the Advisory Board of UniCredit SpA.

BEST IDEAS UNIVERSE: The best ideas universe from which Eni (covered by Alastair R Syme) were chosen comprises: Royal Dutch Shell (RDSa.L, US$20.85), Royal Dutch Shell (RDSb.L, US$21.08), BP (BP.L, £4.08), Total (TOTF.PA, €32.45), Eni (ENI.MI, €12.96), Repsol (REP.MC, €19.67), OMV AG (OMVV.VI, €25.09), BG Group (BG.L, US$12.67), Afren (AFRE.L, US$0.98), Soco International (SIA.L, US$3.45), Galp Energia (GALP.LS, €14.39), Statoil (STL.OL, NKr127.2), Premier Oil (PMO.L, US$3.43), Valiant Petroleum (VPP.L, US$4.47), Heritage Oil (HOIL.L, US$2.41), EnQuest (ENQ.L, US$0.99), Tullow Oil (TLW.L, US$13.39), Gulfsands Petroleum (GPX.L, US$1.79), Bowleven (BLVN.L, US$1.15), Salamander Energy (SMDR.L, US$2.06), Petrofac (PFC.L, US$13.7), CGGVeritas (GEPH.PA, €15.12), Technip (TECF.PA, €66.51), Seadrill (SDRL.OL, US$180.8), Subsea 7 (SUBC.OL, US$121.5), AMEC (AMEC.L, £9.01), Saipem (SPMI.MI, €29.37), Lamprell (LAM.L, US$2.77), PGS (PGS.OL, US$63.2) and Cove Energy (COVE.L, US$0.8). All prices as of 20 Sep 2011.

Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of UniCredit Group, Enel Green Power, ENEL SpA, Eni, Intesa Sanpaolo, Michelin, Snam Rete Gas SpA.

Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from Autogrill SpA, Atlantia, BAE Systems, UniCredit Group, ENEL SpA, Eni, Fiat Industrial, Assicurazioni Generali SpA, Intesa Sanpaolo, Italcementi Group, Michelin, Arnoldo Mondadori Editore, Pirelli, Prysmian SpA, Finmeccanica, Saipem, Snam Rete Gas SpA.

Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Autogrill SpA, Atlantia, ENEL SpA, Eni, Fiat Industrial, Luxottica Group SpA, Arnoldo Mondadori Editore, Pirelli, Prysmian SpA, Finmeccanica, Saipem, Snam Rete Gas SpA, Telecom Italia SpA.

Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from Autogrill SpA, Atlantia, BAE Systems, CIR - Compagnie Industriali Riunite SpA, Davide Campari-Milano SpA, UniCredit Group, ENEL SpA, Eni, Gruppo Editoriale l'Espresso SpA, Fiat Industrial, Assicurazioni Generali SpA, Geox SpA, Intesa Sanpaolo, Italcementi Group, Landi Renzo, Lottomatica Spa, Luxottica Group SpA, Michelin, Pirelli, Seat Pagine Gialle SpA, Prysmian SpA, Safilo SpA, Finmeccanica, Saipem, Snam Rete Gas SpA, Telecom Italia SpA, TERNA SpA in the past 12 months.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Autogrill SpA, Atlantia, BAE Systems, UniCredit Group, ENEL SpA, Eni, Fiat Industrial, Assicurazioni Generali SpA, Intesa Sanpaolo, Italcementi Group, Luxottica Group SpA, Michelin, Arnoldo Mondadori Editore, Pirelli, Prysmian SpA, Finmeccanica, Saipem, Snam Rete Gas SpA, Telecom Italia SpA.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: Autogrill SpA, Atlantia, BAE Systems, CIR - Compagnie Industriali Riunite SpA, Davide Campari-Milano SpA, UniCredit Group, ENEL SpA, Eni, Gruppo Editoriale l'Espresso SpA, Fiat Industrial, Assicurazioni Generali SpA, Intesa Sanpaolo, Italcementi Group, Landi Renzo, Lottomatica Spa, Luxottica Group SpA, Michelin, Pirelli, Seat Pagine Gialle SpA, Prysmian SpA, Safilo SpA, Finmeccanica, Saipem, Snam Rete Gas SpA, Telecom Italia SpA, TERNA SpA.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: Autogrill SpA, Atlantia, BAE Systems, CIR - Compagnie Industriali Riunite SpA, Davide Campari-Milano SpA, UniCredit Group, ENEL SpA, Eni, Gruppo Editoriale l'Espresso SpA, Fiat Industrial, Assicurazioni Generali SpA, Geox SpA, Intesa Sanpaolo, Italcementi Group, Landi Renzo, Lottomatica Spa, Luxottica Group SpA, Michelin, Pirelli, Seat Pagine Gialle SpA, Prysmian SpA, Safilo SpA, Finmeccanica, Saipem, Snam Rete Gas SpA, Telecom Italia SpA, TERNA SpA.

Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.

The Firm is a market maker in the publicly traded equity securities of BAE Systems, ENEL SpA, Intesa Sanpaolo, Lottomatica Spa.

For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research & Analysis product ("the Product"), please contact Citi Investment Research & Analysis, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention:



Legal/Compliance [E6WYB6412478]. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.

Citi Investment Research & Analysis Ratings Distribution 12 Month Rating Relative Rating Data current as of 30 Jun 2011 Buy Hold Sell Buy Hold SellCiti Investment Research & Analysis Global Fundamental Coverage 54% 36% 11% 10% 81% 10%

% of companies in each rating category that are investment banking clients 45% 41% 42% 50% 42% 44%Guide to Citi Investment Research & Analysis (CIRA) Fundamental Research Investment Ratings: CIRA's stock recommendations include a risk rating and an investment rating. Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S). Investment ratings are a function of CIRA's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating. Analysts may place covered stocks “Under Review” in response to exceptional circumstances (e.g. lack of information critical to the analyst's thesis) affecting the company and/or trading in the company's securities (e.g. trading suspension). Stocks placed “Under Review” will be monitored daily by management. As soon as practically possible, the analyst will publish a note re-establishing a rating and investment thesis. To satisfy regulatory requirements, we correspond Under Review to Hold in our ratings distribution table for our 12-month fundamental rating system. However, we reiterate that we do not consider Under Review to be a recommendation. Relative three-month ratings: CIRA may also assign a three-month relative call (or rating) to a stock to highlight expected out-performance (most preferred) or under-performance (least preferred) versus the geographic and industry sector over a 3 month period. The relative call may highlight a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Absent any specific catalyst the analyst(s) will indicate the most and least preferred stocks in the universe of stocks under consideration, explaining the basis for this short-term view. This three-month view may be different from and does not affect a stock's fundamental equity rating, which reflects a longer-term total absolute return expectation. For purposes of NASD/NYSE ratings-distribution-disclosure rules, most preferred calls correspond to a buy recommendation and least preferred calls correspond to a sell recommendation. Any stock not assigned to a most preferred or least preferred call is considered non-relative-rated (NRR). For purposes of NASD/NYSE ratings-distribution-disclosure rules we correspond NRR to Hold in our ratings distribution table for our 3-month relative rating system. However, we reiterate that we do not consider NRR to be a recommendation.

For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return).

Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk.

NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below:

Citigroup Global Markets Ltd Mauro Baragiola; Antonella Bianchessi; Giada Giani; Jeremy Bragg; Thomas Chauvet; Georgios Ierodiaconou; Aynsley Lammin; Clyde Lewis; Andrew Light; Natalia Mamaeva; Manuel Palomo; Mike Pinkney, CFA; Alastair R Syme; Philip Watkins; Azzurra Guelfi; Ryan W Kauppila; Raghu Hariharan; Anna Esposito

OTHER DISCLOSURES

The subject company's share price set out on the front page of this Product is quoted as at 21 September 2011 09:55 AM on the issuer's primary market.

Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to Atlantia, BAE Systems, UniCredit Group, ENEL SpA, Eni, Assicurazioni Generali SpA, Intesa Sanpaolo, Luxottica Group SpA, Prysmian SpA, Telecom Italia SpA. (For an explanation of the determination of significant financial interest, please refer to the policy for managing conflicts of interest which can be found at www.citigroupgeo.com.)

For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the Product. The Firm regularly trades in the securities of the issuer(s) discussed in the Product. The Firm may engage in securities transactions in a manner inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis.

Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of the Product. The Firm's research department has received assistance from



the subject company(ies) referred to in this Product including, but not limited to, discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within the Firm advising the companies discussed in this Product, information obtained in such role is not used in the preparation of the Product. Although Citi Investment Research & Analysis (CIRA) does not set a predetermined frequency for publication, if the Product is a fundamental research report, it is the intention of CIRA to provide research coverage of the/those issuer(s) mentioned therein, including in response to news affecting this issuer, subject to applicable quiet periods and capacity constraints. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the Product must take into account existing public information on such security or any registered prospectus.

Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details. Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product may be placed only through Citigroup Global Markets Inc.

Important Disclosures for Morgan Stanley Smith Barney LLC Customers: Morgan Stanley & Co. Incorporated (Morgan Stanley) research reports may be available about the companies that are the subject of this Citi Investment Research & Analysis (CIRA) research report. Ask your Financial Advisor or use smithbarney.com to view any available Morgan Stanley research reports in addition to CIRA research reports. Important disclosure regarding the relationship between the companies that are the subject of this CIRA research report and Morgan Stanley Smith Barney LLC and its affiliates are available at the Morgan Stanley Smith Barney disclosure website at www.morganstanleysmithbarney.com/researchdisclosures. The required disclosures provided by Morgan Stanley and Citigroup Global Markets, Inc. on Morgan Stanley and CIRA research relate in part to the separate businesses of Citigroup Global Markets, Inc. and Morgan Stanley that now form Morgan Stanley Smith Barney LLC, rather than to Morgan Stanley Smith Barney LLC in its entirety. For Morgan Stanley and Citigroup Global Markets, Inc. specific disclosures, you may refer to www.morganstanley.com/researchdisclosures and https://www.citigroupgeo.com/geopublic/Disclosures/index_a.html. This CIRA research report has been reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval was conducted by the same person who reviewed this research report on behalf of CIRA. This could create a conflict of interest.

The Citigroup legal entity that takes responsibility for the production of the Product is the legal entity which the first named author is employed by. The Product is made available in Australia through Citigroup Global Markets Australia Pty Ltd. (ABN 64 003 114 832 and AFSL No. 240992), participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Australia to Private Banking wholesale clients through Citigroup Pty Limited (ABN 88 004 325 080 and AFSL 238098). Citigroup Pty Limited provides all financial product advice to Australian Private Banking wholesale clients through bankers and relationship managers. If there is any doubt about the suitability of investments held in Citigroup Private Bank accounts, investors should contact the Citigroup Private Bank in Australia. Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. The Product is made available in Brazil by Citigroup Global Markets Brasil - CCTVM SA, which is regulated by CVM - Comissão de Valores Mobiliários, BACEN - Brazilian Central Bank, APIMEC - Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais and ANBID - Associação Nacional dos Bancos de Investimento. Av. Paulista, 1111 - 11º andar - CEP. 01311920 - São Paulo - SP. If the Product is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc. ("CGM Canada"), CGM Canada has approved the Product. Citigroup Place, 123 Front Street West, Suite 1100, Toronto, Ontario M5J 2M3. This product is available in Chile through Banchile Corredores de Bolsa S.A., an indirect subsidiary of Citigroup Inc., which is regulated by the Superintendencia de Valores y Seguros. Agustinas 975, piso 2, Santiago, Chile. The Product is made available in France by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 1-5 Rue Paul Cézanne, 8ème, Paris, France. The Product is distributed in Germany by Citigroup Global Markets Deutschland AG ("CGMD"), which is regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). CGMD, Reuterweg 16, 60323 Frankfurt am Main. Research which relates to "securities" (as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)) is issued in Hong Kong by, or on behalf of, Citigroup Global Markets Asia Limited which takes full responsibility for its content. Citigroup Global Markets Asia Ltd. is regulated by Hong Kong Securities and Futures Commission. If the Research is made available through Citibank, N.A., Hong Kong Branch, for its clients in Citi Private Bank, it is made available by Citibank N.A., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. Citibank N.A. is regulated by the Hong Kong Monetary Authority. Please contact your Private Banker in Citibank N.A., Hong Kong, Branch if you have any queries on or any matters arising from or in connection with this document. The Product is made available in India by Citigroup Global Markets India Private Limited, which is regulated by Securities and Exchange Board of India. Bakhtawar, Nariman Point, Mumbai 400-021. The Product is made available in Indonesia through PT Citigroup Securities Indonesia. 5/F, Citibank Tower, Bapindo Plaza, Jl. Jend. Sudirman Kav. 54-55, Jakarta 12190. Neither this Product nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable capital market laws and regulations. This Product is not an offer of securities in Indonesia. The securities referred to in this Product have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market laws and regulations. The Product is made available in Israel through Citibank NA, regulated by the Bank of Israel and the Israeli Securities Authority. Citibank, N.A, Platinum Building, 21 Ha'arba'ah St, Tel Aviv, Israel. The Product is made available in Italy by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. Foro Buonaparte 16, Milan, 20121, Italy. The Product is made available in Japan by Citigroup Global Markets Japan Inc. ("CGMJ"), which is regulated by Financial Services Agency, Securities and Exchange Surveillance Commission, Japan Securities Dealers Association, Tokyo Stock Exchange and Osaka Securities Exchange. Shin-Marunouchi



Building, 1-5-1 Marunouchi, Chiyoda-ku, Tokyo 100-6520 Japan. If the Product was distributed by SMBC Nikko Securities Inc. it is being so distributed under license. In the event that an error is found in an CGMJ research report, a revised version will be posted on the Firm's Global Equities Online (GEO) website. If you have questions regarding GEO, please call (81 3) 6270-3019 for help. The Product is made available in Korea by Citigroup Global Markets Korea Securities Ltd., which is regulated by the Financial Services Commission, the Financial Supervisory Service and the Korea Financial Investment Association (KOFIA). Citibank Building, 39 Da-dong, Jung-gu, Seoul 110-180, Korea. KOFIA makes available registration information of research analysts on its website. Please visit the following website if you wish to find KOFIA registration information on research analysts of Citigroup Global Markets Korea Securities Ltd. http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03030&pageDiv=02. The Product is made available in Malaysia by Citigroup Global Markets Malaysia Sdn Bhd, which is regulated by Malaysia Securities Commission. Menara Citibank, 165 Jalan Ampang, Kuala Lumpur, 50450. The Product is made available in Mexico by Acciones y Valores Banamex, S.A. De C. V., Casa de Bolsa, Integrante del Grupo Financiero Banamex ("Accival") which is a wholly owned subsidiary of Citigroup Inc. and is regulated by Comision Nacional Bancaria y de Valores. Reforma 398, Col. Juarez, 06600 Mexico, D.F. In New Zealand the Product is made available to ‘wholesale clients’ only as defined by s5C(1) of the Financial Advisers Act 2008 (‘FAA’) through Citigroup Global Markets Australia Pty Ltd (ABN 64 003 114 832 and AFSL No. 240992), an overseas financial adviser as defined by the FAA, participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Pakistan by Citibank N.A. Pakistan branch, which is regulated by the State Bank of Pakistan and Securities Exchange Commission, Pakistan. AWT Plaza, 1.1. Chundrigar Road, P.O. Box 4889, Karachi-74200. The Product is made available in the Philippines through Citicorp Financial Services and Insurance Brokerage Philippines, Inc., which is regulated by the Philippines Securities and Exchange Commission. 20th Floor Citibank Square Bldg. The Product is made available in Poland by Dom Maklerski Banku Handlowego SA an indirect subsidiary of Citigroup Inc., which is regulated by Komisja Nadzoru Finansowego. Dom Maklerski Banku Handlowego S.A. ul.Senatorska 16, 00-923 Warszawa. The Product is made available in the Russian Federation through ZAO Citibank, which is licensed to carry out banking activities in the Russian Federation in accordance with the general banking license issued by the Central Bank of the Russian Federation and brokerage activities in accordance with the license issued by the Federal Service for Financial Markets. Neither the Product nor any information contained in the Product shall be considered as advertising the securities mentioned in this report within the territory of the Russian Federation or outside the Russian Federation. The Product does not constitute an appraisal within the meaning of the Federal Law of the Russian Federation of 29 July 1998 No. 135-FZ (as amended) On Appraisal Activities in the Russian Federation. 8-10 Gasheka Street, 125047 Moscow. The Product is made available in Singapore through Citigroup Global Markets Singapore Pte. Ltd. (“CGMSPL”), a capital markets services license holder, and regulated by Monetary Authority of Singapore. Please contact CGMSPL at 1 Temasek Avenue, #39-02 Millenia Tower, Singapore 039192, in respect of any matters arising from, or in connection with, the analysis of this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). The Product is made available by The Citigroup Private Bank in Singapore through Citibank, N.A., Singapore Branch, a licensed bank in Singapore that is regulated by Monetary Authority of Singapore. Please contact your Private Banker in Citibank N.A., Singapore Branch if you have any queries on or any matters arising from or in connection with this document. This report is intended for recipients who are accredited, expert and institutional investors as defined under the Securities and Futures Act (Cap. 289). This report is distributed in Singapore by Citibank Singapore Ltd ("CSL") to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this report. Please contact your Citigold//Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this report. This report is intended for recipients who are accredited investors as defined under the Securities and Futures Act (Cap. 289). Citigroup Global Markets (Pty) Ltd. is incorporated in the Republic of South Africa (company registration number 2000/025866/07) and its registered office is at 145 West Street, Sandton, 2196, Saxonwold. Citigroup Global Markets (Pty) Ltd. is regulated by JSE Securities Exchange South Africa, South African Reserve Bank and the Financial Services Board. The investments and services contained herein are not available to private customers in South Africa. The Product is made available in Spain by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 29 Jose Ortega Y Gassef, 4th Floor, Madrid, 28006, Spain. The Product is made available in the Republic of China through Citigroup Global Markets Taiwan Securities Company Ltd. ("CGMTS"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan and/or through Citibank Securities (Taiwan) Company Limited ("CSTL"), 14 and 15F, No. 1, Songzhi Road, Taipei 110, Taiwan, subject to the respective license scope of each entity and the applicable laws and regulations in the Republic of China. CGMTS and CSTL are both regulated by the Securities and Futures Bureau of the Financial Supervisory Commission of Taiwan, the Republic of China. No portion of the Product may be reproduced or quoted in the Republic of China by the press or any third parties [without the written authorization of CGMTS and CSTL]. If the Product covers securities which are not allowed to be offered or traded in the Republic of China, neither the Product nor any information contained in the Product shall be considered as advertising the securities or making recommendation of the securities in the Republic of China. The Product is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security or financial products. Any decision to purchase securities or financial products mentioned in the Product must take into account existing public information on such security or the financial products or any registered prospectus. The Product is made available in Thailand through Citicorp Securities (Thailand) Ltd., which is regulated by the Securities and Exchange Commission of Thailand. 18/F, 22/F and 29/F, 82 North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand. The Product is made available in Turkey through Citibank AS which is regulated by Capital Markets Board. Tekfen Tower, Eski Buyukdere Caddesi # 209 Kat 2B, 23294 Levent, Istanbul, Turkey. In the U.A.E, these materials (the "Materials") are communicated by Citigroup Global Markets Limited, DIFC branch ("CGML"), an entity registered in the Dubai International Financial Center ("DIFC") and licensed and regulated by the Dubai Financial Services Authority ("DFSA") to Professional Clients and Market Counterparties only and should not be relied upon or distributed to Retail Clients. A distribution of the different CIRA ratings distribution, in percentage terms for Investments in each sector covered is made available on request. Financial products and/or services to which the Materials relate will only be made available to Professional Clients and Market Counterparties. The Product is made available in United Kingdom by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. This material may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA and further details as to where this may be the case are available upon request in respect of this material. Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. The Product is made available in United States by Citigroup Global Markets Inc, which is a member of FINRA and registered with the US Securities and Exchange Commission. 388 Greenwich Street, New York, NY 10013. Unless specified to the contrary, within EU Member States, the Product is made available by Citigroup Global Markets Limited, which is regulated by Financial Services Authority. Pursuant to Comissão de Valores Mobiliários Rule 483, Citi is required to disclose whether a Citi related company or business has a commercial relationship with the subject company. Considering that Citi operates multiple businesses in more than 100 countries around the world, it is likely that Citi has a commercial relationship with the subject company.



Many European regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to CIRA's Products can be found at www.citigroupgeo.com. Compensation of equity research analysts is determined by equity research management and Citigroup's senior management and is not linked to specific transactions or recommendations. The Product may have been distributed simultaneously, in multiple formats, to the Firm's worldwide institutional and retail customers. The Product is not to be construed as providing investment services in any jurisdiction where the provision of such services would not be permitted. Subject to the nature and contents of the Product, the investments described therein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Certain investments contained in the Product may have tax implications for private customers whereby levels and basis of taxation may be subject to change. If in doubt, investors should seek advice from a tax adviser. The Product does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Advice in the Product is general and should not be construed as personal advice given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. Prior to acquiring any financial product, it is the client's responsibility to obtain the relevant offer document for the product and consider it before making a decision as to whether to purchase the product. With the exception of our product that is made available only to Qualified Institutional Buyers (QIBs), CIRA concurrently disseminates its research via proprietary and non-proprietary electronic distribution platforms. Periodically, individual CIRA analysts may also opt to circulate research posted on such platforms to one or more clients by email. Such email distribution is discretionary and is done only after the research has been disseminated via the aforementioned distribution channels. CIRA simultaneously distributes product that is limited to QIBs only through email distribution. The level and types of services provided by CIRA analysts to clients may vary depending on various factors such as the client’s individual preferences as to the frequency and manner of receiving communications from analysts, the client’s risk profile and investment focus and perspective (e.g. market-wide, sector specific, long term, short-term etc.), the size and scope of the overall client relationship with Citi and legal and regulatory constraints.

© 2011 Citigroup Global Markets Inc. Citi Investment Research & Analysis is a division of Citigroup Global Markets Inc. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates and are used and registered throughout the world. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure of this report (the “Product”), including, but not limited to, redistribution of the Product by electronic mail, posting of the Product on a website or page, and/or providing to a third party a link to the Product, is prohibited by law and will result in prosecution. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient to any third party. Where included in this report, MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The Firm accepts no liability whatsoever for the actions of third parties. The Product may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Product refers to website material of the Firm, the Firm has not reviewed the linked site. Equally, except to the extent to which the Product refers to website material of the Firm, the Firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of the Firm) is provided solely for your convenience and information and the content of the linked site does not in anyway form part of this document. Accessing such website or following such link through the Product or the website of the Firm shall be at your own risk and the Firm shall have no liability arising out of, or in connection with, any such referenced website.

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST EU10921B

Italy: Pride & Prejudice - la Repubblicadownload.repubblica.it/pdf/2011/Italypride.pdf · Italy:...

Documents

Transcript of Italy: Pride & Prejudice - la Repubblicadownload.repubblica.it/pdf/2011/Italypride.pdf · Italy:...