N = 305 N = 11 N = 58 N = 23 N = 16 N = 37 N = 32 N = 25 N ...

?

Europe Equity Market Outlook: Third-Quarter 2021 The equity market now sits above our intrinsic value, but for investors who look deeper, pockets of opportunity exist.

Stock prices continued to rally over the last quarter, albeit at a slower pace than in the first quarter of

the year, with the aggregated market up close to 7% over the period. At the time of writing,

Morningstar's Europe, Middle East, and Africa, or EMEA, coverage sits in slightly overvalued territory,

with stocks trading on average at a 5% premium to our intrinsic value. There are, of course, pockets of

value remaining, but these are becoming increasingly difficult to find as markets continue to rise.

Currently just over 25% of our EMEA coverage sits in 4- or 5-star territory, indicating attractive upside

potential. Many of these opportunities are, however, concentrated in a few out-of-favour sectors,

namely telecoms, energy and financial services; the performance of these three sectors has lagged the

market over the last quarter, and in some cases the last year.

Key Takeaways

× Continued rallies over the quarter have meant the market as a whole has now risen by more than 30%

over the last 12 months, with much of this rise concentrated in a handful of sectors, including

industrials and basic materials, both of which are up around 45%.

× Healthcare and consumer defensive sectors were flavour of the month, up 11.5% and 9% respectively

over the last quarter, a sharp acceleration from the price movements in the first quarter.

× High-income stocks are becoming more difficult to find, with the big dividend payers concentrated in the

telecoms and utility sectors. Both sectors are projecting cuts over the next five years, which means

investors need to be even more careful with their stock selection.

Star Rating Distribution by Sector

Source: Morningstar. N = number of companies. Data as of June 30, 2021.

Morningstar Equity Research

July 9, 2021

Contents

2 Market Outlook

4 Top Picks by Sector

5 Communication Services

7 Consumer Cyclical

9 Consumer Defensive

11 Energy

13 Financial Services

15 Healthcare

17 Industrials

19 Utilities

Michael Field, CFA

Senior Equity Analyst, Amsterdam

[email protected]

Marloes Spanjersberg

Associate Equity Analyst, Amsterdam

[email protected]

For quarterly outlooks from PitchBook, visit

morningstar.com

Important Disclosure

The conduct of Morningstar's analysts is governed

by Code of Ethics/Code of Conduct Policy, Personal

Security Trading Policy (or an equivalent of),

and Investment Research Policy. For information

regarding conflicts of interest, please visit:

http://global.morningstar.com/equitydisclosures

N = 305 N = 11 N = 58 N = 23 N = 16 N = 37 N = 32 N = 25 N = 32 N = 58 N = 13

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

QQQQQ QQQQ QQQ QQ Q

http://www.morningstarcreditratings.com/


European Equity Market Outlook: Third-Quarter 2021 | July 9, 2021 | See disclosures at the end of this report.

Healthcare Observer | 9 July 2021

Paper Title | 9 July 2021






of 27

Page 2 of 27

Page 2 of 27

Page 2 of 27

Page 2 of 27

Page 2 of 27

Page 2 of 27

Page 2 of 27

The European market rally continued in the second quarter, buoyed by the progress many large Western

European countries have made in rolling out their respective coronavirus vaccination programmes.

Having lagged countries like the United States and the United Kingdom, which both vaccinated a

significant part of their populations in the first quarter; France, Spain, and Germany have largely caught

up in the second quarter and have now vaccinated more than 50% of their populations with at least one

dose. The anticipated reopening of commerce and reduced concern about future potential lockdowns

have spurred the market rally, rising almost 7% over the quarter, and more than 30% over the last 12

months. Unlike previous rallies, however, much of what we have witnessed over the last quarter has

been focused on several key sectors, particularly those exposed to demands of the end consumer, who

having been stuck at home for over a year may now have surplus cash to spend. Consumer cyclical was

the fastest rising sector over the quarter, adding another 16% rise to its already impressive year-to-date

performance.

Stock pickers face an unenviable task this quarter, currently we view almost half the stocks in our EMEA

coverage as fairly valued, and another 30% as overvalued. In the context of the global picture, however,

EMEA still looks to contain more opportunities than most, with 24% of stocks in our coverage in 4- or 5-

star territory, double the level in our North American coverage. Investing opportunities are not evenly

spread, however, with just four of the 10 EMEA sectors screening as undervalued. The ever-dependable

utilities sector has been added to the ranks of the less-favoured sectors, as inflation rose across the

eurozone to levels not seen since 2018, fueling fears about future interest rate hikes. While economic

moats are few and far between in the utilities sector, they are relatively abundant in the communication

services and financials sectors, two areas in which we see significant opportunity currently. In both

sectors, more than 40% of the stocks under coverage are rated as 4- or 5-star stocks, indicating material

upside potential. The industrials and basic materials sectors have moved in the opposite direction, with

gains of 6.5% and 5.4%, respectively, over the last quarter, bringing their trailing 12-month gains to

around 45% for both. We view less than a quarter of stocks in the industrials segment as being

undervalued, while in basic materials we have no 4- or 5-star opportunities.

If stock selection was important before, it is absolutely paramount in the current environment. The

phrase “a rising tide lifts all boats”, first coined by John F Kennedy, is very applicable to markets today,

with many of the stocks that have been left behind by the market rally harbouring esoteric investor

concerns around their resilience and/or ability to perform in this environment. However, in almost every

sector, we still see opportunities for alpha generation, be it in U.K. grocers, low-cost airlines, or medical

care companies.

With the Market Up With Events, Investors Need to Look to Key Sectors for Opportunities

Market Outlook w









of 27

Page 3 of 27

Page 3 of 27

Page 3 of 27

Page 3 of 27

Page 3 of 27

Page 3 of 27

Page 3 of 27

Exhibit 1 Overview of European Sectors

Source: Morningstar. Data as of June 25, 2021.

1a. Moat Rating Distribution 1b. Star Rating Distribution

1c. P/FVE by Sector 1d. Forward P/E by Sector

1e. Aggregated Stock Price Change 1f. Aggregated Dividend Yields

0

0.2

0.4

0.6

0.8

1

1.2

1.4

P/FVE - Morningstar P/FVE - Market Concensus & Quant Valuation Average P/FVE - MS Europe

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0xForward P/E - MS Forward P/E - Concensus

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Trailing Div Yield Fwd Div Yield - PB 5yr Proj Div Yield - QB

30.4%

44.0%

59.3%

34.7%

21.9%

24.4%

45.4%

37.7%

15.9%

11.1%

11.5%

6.7%

5.4%

8.6%

3.4%

3.9%

2.5%

6.5%

8.7%

9.1%

11.5%

(1.4%)0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

(10.0%) 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Europe

Basic Materials

Consumer Cyclical

Financial Services

Communication Services

Energy

Industrials

Technology

Consumer Defensive

Healthcare

Utilities

Aggregated Market Cyclical Sensitive Defensive

Dark shade: TTM % Change Light shade: Trailing Quarter % Change

N = 305 N = 25 N = 23 N = 37 N = 32 N = 11 N = 58 N = 32 N = 58 N = 13 N = 16

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Wide Narrow None

N = 305 N = 25 N = 23 N = 37 N = 32 N = 11 N = 58 N = 32 N = 58 N = 13 N = 16

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q QQ QQQ QQQQ QQQQQ









of 27

Page 4 of 27

Page 4 of 27

Page 4 of 27

Page 4 of 27

Page 4 of 27

Page 4 of 27

Page 4 of 27

Highlighted Companies

Source: Morningstar. Data as of July 9, 2021.

Company and Sector

Morningstar

Rating

Fair Value

Estimate Current Price

Uncertainty

Rating

Moat

Rating

Price /

Fair Value

Market Cap

(B)

Communication Services

Orange (ORA) ÙÙÙÙ EUR 13.90 EUR 9.37 Medium None 0.7 EUR 24.9

Iliad (ILD) ÙÙÙÙ EUR 165.00 EUR 119.5 High None 0.7 EUR 7

Consumer Cyclical

Just Eat Takeaway.com (TKWY) ÙÙÙÙÙ EUR 152.00 EUR 78 High Narrow 0.5 EUR 16.5

Swatch Group (UHR) ÙÙÙ CHF 310.00 CHF 301.9 High Narrow 1 CHF 15.3

Consumer Defensive

Tesco (UK) (TSCO) ÙÙÙ GBP 2.63 GBP 2.34 High None 0.9 GBP 18.4

Anheuser-Busch InBev (ABI) ÙÙÙÙ EUR 76.00 EUR 58.67 Medium Wide 0.8 EUR 116.1

Energy

Total (TTE) ÙÙÙÙ EUR 49.00 EUR 37.1 High None 0.8 EUR 98

TechnipFMC (FTI) ÙÙÙÙÙ EUR 21.00 EUR 7.22 High None 0.3 EUR 3.2

Schlumberger (SLB) ÙÙÙÙ USD 47.00 USD 30.53 High Narrow 0.6 USD 42.7

Financial Services

ING Group (INGA) ÙÙÙÙ EUR 14.00 EUR 10.59 High Narrow 0.8 EUR 41.3

Admiral Group (ADM) ÙÙÙÙ GBP 39.20 GBP 31.32 Medium None 0.8 GBP 9.5

London Stock Exchange Group (LSEG) ÙÙÙÙ GBP 91.00 GBP 78.64 Medium Wide 0.9 GBP 40.8

Healthcare

Elekta (EKTA B) ÙÙÙ SEK 133.00 SEK 125.55 Medium Wide 0.9 SEK 48

Roche Holding (ROG) ÙÙÙÙÙ CHF 438.00 CHF 353.95 Low Wide 0.8 CHF 306.5

Fresenius (FRE) ÙÙÙ EUR 52.00 EUR 43.74 High Narrow 0.8 EUR 29.3

Industrials

Wizz Air (WIZZ) ÙÙÙÙ GBP 68.00 GBP 47 High None 0.7 GBP 5.7

Prosegur Compañia de Seguridad (PSG) ÙÙÙÙÙ EUR 5.00 EUR 2.94 Medium Narrow 0.6 EUR 1.6

Safran Group (SAF) ÙÙÙÙ EUR 142.00 EUR 117.2 Medium Wide 0.8 EUR 50

Utilities

RWE (RWE) ÙÙÙÙ EUR 41.00 EUR 31.25 Medium None 0.8 EUR 21.6

Veolia Environnement (VIE) ÙÙÙÙ EUR 30.00 EUR 25.79 Medium None 0.9 EUR 14.6

Engie (ENGI) ÙÙÙÙ EUR 14.60 EUR 11.53 Medium None 0.8 EUR 27.9









of 27

Page 5 of 27

Page 5 of 27

Page 5 of 27

Page 5 of 27

Page 5 of 27

Page 5 of 27

Page 5 of 27

The Morningstar European Communication Services Index has

underperformed the Morningstar European Index year to date. At this

point, we find the sector undervalued, with an average price/fair value

estimate of 0.85 and most of our names in 3-star and 4-star territory.

COVID-19 has added more top-line pressure to many European telecoms,

with travel restrictions causing international roaming revenue to

decline and companies being unable to monetise the increased Internet

usage during lockdowns. During this period, the

sector has also maintained a high level of investment

to continue deploying high-speed fixed and mobile networks, which has

also weighed on cash flow generation. Although the end of the pandemic

could partially ease top-line pressure on telecoms, we believe revenue

trends are generally more dependent on market-specific dynamics than

on overall macroeconomic trends.

The Spanish market is a good example of this. In addition to the overall

weak economic environment during 2020 and 2021, we find a market that

is fiercely competitive on the mobile front. After withdrawing from the

football rights market, Vodafone has reinvested these savings in its low-

end mobile brand Lowi, exacerbating a price war that has harmed Orange

especially (Exhibit 2c). We expect pricing pressure will have

continued in the second quarter and will last through the third quarter as

several MVNOs have launched aggressive offerings for the summer. We

expect mobile-only revenue declines to continue at around high-single-

digit to double-digit rates for Orange in Spain, driven by customer losses

and lower pricing.

Conversely, the French market has stabilised, following years

of competitive pricing pressure. Mobile prices have remained relatively

stable since 2017 as challenger Iliad has eased its pressures. We expect

the market to remain relatively stable in the following quarters as it is not

in Iliad’s interests to begin a new pricing war. We expect average

revenue per user to remain stable during the third quarter for

the French mobile operators in our coverage, with slight

declines for Orange mobile-only revenue and flat to slight

increases for Iliad mobile-only revenue.

Javier Correonero | [email protected]

Exhibit 2 There Are Still Buying Opportunities in the Communications

Sector 2a. Communications has underperformed the MS European Index.

2b Majority of the names remain in 3-star and 4-star territory.

2c Expect mobile pricing pressures to continue in Spain during the summer (postpaid ARPU).

2d France Is an example of a more benign mobile market (postpaid ARPU).

Sources: 2a Morningstar, 2b Morningstar, 2c Morningstar, 2d Morningstar estimates.

Data as of June 30, 2021.

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

MS Europe MS Europe - Com Serv

N = 23 N = 15 N = 1 N = 2 N = 1 N = 4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

QQQQQ QQQQ QQQ QQ Q

12

13

14

15

16

17

18

19

Orange Vodafone

COVID-19 Not an Excuse for Weak Mobile Market Dynamics. Each Country Is a Different Story.

i Communication Services

8

10

12

14

16

18

20

22

Orange Bouygues Iliad









of 27

Page 6 of 27

Page 6 of 27

Page 6 of 27

Page 6 of 27

Page 6 of 27

Page 6 of 27

Page 6 of 27

Communication Services | Quick Takes


Top Picks

i Communication Services

Company (Ticker) Rating Price P/FV Moat Mkt. Cap (B)

Orange (ORA) QQQQ EUR 9.37 0.67 None EUR 24.9

No-moat Orange is currently trading in 4-star territory with a sustainable dividend covered by cash flow and some room for potential

dividend increases going forward as capital intensity is reduced in the following years. Although the company has recently struggled in the

Spanish mobile market, it has a stable position in France, where it is the market leader and from where it derives 50% of revenue and

profits. We expect the French market to remain rational in the future as it is not in Iliad’s interests to start new pricing wars.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Iliad (ILD) QQQQ EUR 119.5 0.72 None EUR 7

No-moat Iliad is trading at a 27% discount to our EUR 165 fair value estimate, as the company recently increased its capital expenditure

expectations for France in 2021 but without giving clear guidance. Although we remain more conservative than consensus and the

uncertainty on the name is high due to a very competitive mobile market in Italy, we like the company’s low-cost culture and value

materialisation strategy through asset sales. Potential upside in the coming year could come from deleveraging, continued commercial

success in Italy or more certainty on France’s cash flow for 2021.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 7 of 27

Page 7 of 27

Page 7 of 27

Page 7 of 27

Page 7 of 27

Page 7 of 27

Page 7 of 27

The Morningstar Europe Consumer Cyclicals Index has significantly

outperformed the Morningstar Europe Index since November 2020, when

Pfizer announced its first results from vaccine trials. Luxury, apparel,

travel, and leisure stocks have rebounded dramatically in anticipation of a

smooth reopening.

The sector is largely fairly valued, with luxury goods and apparel

manufacturers trading at elevated valuations. More specifically, seven

out of nine luxury good companies and two out of three apparel

manufacturers in our coverage have 1- or 2 star ratings, with an average

price/fair value estimate ratio of 1.5/1.6. Within the diverse Internet retail

segment of our coverage, we see pockets of opportunities in food delivery

while we view our apparel online retailers as overvalued.

For food delivery, with people spending more time at home, the pandemic

has been a tailwind for takeaway platforms, as both penetration and

usage have spiked to unprecedented levels. Google search trend data

suggests that the interest in food delivery has remained strong despite

the lifting of lockdowns and increasing rates of vaccinations, an early sign

of a sustained change in consumer behaviour. We remain constructive on

the segment, but investors need to be selective.

Over the last few quarters, luxury sector shares have rallied as concerns

about a slow recovery from the pandemic dissipated, while strong real

estate prices, financial markets, a resilient Chinese economy and savings

from delayed travels, fine dining, and other luxury experiences provided a

good backdrop for luxury buying. Even though we expect consumption on

discretionary items such as luxury goods, fashion and apparel to rebound

as savings rates gradually normalize, we do believe that valuations in

these categories already reflect a very rosy future.

Jelena Sokolova, CFA | [email protected]

Ioannis Pontikis, CFA | [email protected]

Exhibit 3 Cyclical Stocks Have Significantly Outperformed the

Morningstar Europe Index. 3a. Consumer cyclical stocks have vastly outperformed the MS Europe Index.

3b. The sector is largely fairly valued, with luxury and apparel trading at elevated valuations.

3c. Interest in food delivery remains elevated despite the lifting of lockdowns.

3d. We expect consumption of discretionary items to rebound as savings rates gradually normalise.

Sources: 3a Morningstar, 3b Morningstar, 3c Morningstar, 3d Morningstar estimates.


(50.0%)

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

40.0%

MS Europe MS Europe - Con Cyc

N = 37 N = 6 N = 3 N = 5 N = 9 N = 1 N = 1 N = 1 N = 2 N = 9

0%10%20%30%40%50%60%70%80%90%

100%

QQQQQ QQQQ QQQ QQ Q

0

20

40

60

80

100

120

140

3/7/2016 3/7/2017 3/7/2018 3/7/2019 3/7/2020 3/7/2021

Food Delivery Google Searches - UK Food Delivery Google Searches - NL

0

5

10

15

20

25

30

35

40

4/1/

2016

7/1/

2016

10/1

/201

6

1/1/

2017

4/1/

2017

7/1/

2017

10/1

/201

7

1/1/

2018

4/1/

2018

7/1/

2018

10/1

/201

8

1/1/

2019

4/1/

2019

7/1/

2019

10/1

/201

9

1/1/

2020

4/1/

2020

7/1/

2020

10/1

/202

0

1/1/

2021

4/1/

2021

% US Personal Saving Rate, Percent, Monthly, Seasonally Adjusted Annual Rate

t Consumer Cyclical

Frothy Valuations for Luxury and Apparel, Pockets of Opportunity in Food Delivery









of 27

Page 8 of 27

Page 8 of 27

Page 8 of 27

Page 8 of 27

Page 8 of 27

Page 8 of 27

Page 8 of 27

Consumer Cyclical | Quick Takes


Top Picks t Consumer Cyclical

Company Rating Price P/FV Moat Mkt. Cap (B)

Just Eat Takeaway (TKWI) QQQQQ EUR 78 0.51 Narrow EUR 16.5

Best-positioned food delivery player, cheap both on a DCF and relative valuation basis, consensus underestimates growth potential from

own-delivery investments, 70% of fair value estimate is coming from leading markets in NL, UK and GER, where JET is winning. In our

estimates, Germany alone, where the company runs a virtual monopoly (despite recent new entrants such as DHER, Uber Eats, Wolt), is

worth about 70% of current market cap. If we add the Netherlands, we arrive at the current market price (excluding central costs and SBC).

Hence, investors can buy NL and GER and take U.K., Canada (SkipTheDishes, profitable leading food delivery player in Canada, 50% market

share), Rest of World (multiple leading market positions in Europe, with No 1 positions in Australia, Italy and Poland) and iFood stake (33%

stake /leading food delivery player in Brazil, 7 times larger than No 2, management has rejected a GBP 2.3 billion bid) for free.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Swatch Group (UHR) QQQ CHF 301.9 0.97 Narrow CHF 15.3

Narrow-moat Swatch is trading in 3-star territory but provides value on a relative basis in an increasingly expensive luxury sector. It's the

owner of strong high-end watch brands such as Omega, the number-two brand by sales after Rolex, supported by the James Bond

franchise and Moonwatch legacy. Demand for high-end watches (39% revenue) has not been impaired, while lower-price watches (24% of

sales) could stabilise from a low base once smartwatches reach maturity in five or six years. Swatch’s balance sheet is strong enough to

weather the COVID-19 crisis, and the company is increasingly taking actions to trim costs in the low-price business and tackle gray market

channels.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 9 of 27

Page 9 of 27

Page 9 of 27

Page 9 of 27

Page 9 of 27

Page 9 of 27

Page 9 of 27

The Morningstar Europe Consumer Defensive Index has significantly

underperformed the Morningstar Europe Index since November 2020,

when Pfizer announced its first results from vaccine trials. Shares of

grocers and packaged goods companies, which saw a robust

performance in the second and third quarter of 2020, have lagged in

anticipation of a smooth reopening.

COVID-19 has had an unprecedented impact on online grocery. We

believe penetration has been brought forward by several years across

markets. Although we see acceleration of the trend, we do not anticipate

a step change in long-term penetration levels for now. Most of that short-

term spike in online orders has been consumers who have opted to buy

their groceries online, given the risk of infection that comes with visiting

a store. As immunisation progresses and restrictions are lifted, we are

starting to see the first signs of a slowdown in the online channel. That

said, we think grocers that exhibit a strategic focus on automation,

already have strong online positions and direct relationships with

customers are optimally positioned for the online opportunity. Tesco,

Sainsbury’s, and Ahold Delhaize stand out from the crowd.

Higher raw material costs are looming for consumer defensive

companies, many of which will begin to feel the pinch of cost inflation

this year. Commodity inflation is likely to be broad-based, but two costs

that are markedly higher and will affect many FMCG manufacturers are

those of oil and palm oil. Both commodities are up over 200% year over

year, as shown in Exhibit 4c. Palm oil is used by many household and

personal care manufacturers, such as Unilever. The oil price rally will

increase packaging costs in categories in which plastic packaging is still

prevalent, such as bottled water, as well as pushing up distribution costs

across the board. To position a portfolio for the coming wave of inflation,

we recommend holding companies with pricing power, for their ability to

pass on rising costs to the consumer, and wide gross margins for the

proportionately lower price increases necessary to offset cost inflation.

Diageo, Pernod Ricard, and L’Oreal are examples of companies that fit the

bill.

Ioannis Pontikis, CFA | [email protected]

Philip Gorham, CFA | [email protected]

Exhibit 4 Consumer Staples Screen as Broadly Fairly Valued 4a. Consumer defensive stocks have underperformed the MS Europe Index.

4b. Pockets of Opportunity in Packaged Foods With Grocers Fairly Valued.

4c. Oil and palm oil costs will pressure margins.

4d. Online grocery penetration still low despite COVID-19 boost.

Source: 4a Morningstar, 4b Morningstar, 4c Morningstar Estimates, 4d Morningstar.


(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

MS Europe MS Europe - Con Def

N = 32 N = 8 N = 7 N = 8 N = 5 N = 1 N = 1 N = 2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

QQQQQ QQQQ QQQ QQ Q

0

200

400

600

800

1,000

1,200

0

10

20

30

40

50

60

70

80

Brent Crude (LHS) Palm Oil (RHS)

0%

5%

10%

15%

20%

25%

30%

2018 2019 2020 2040E (Pre-Covid19) 2040E (Post-Covid19)

Online Food & Drink Sales % of Grocery Sales

Inflationary Pressures and Shifting Shopping Habits Means Focus Should Be on Companies With Proven Pricing Power and Multichannel Exposure.

s Consumer Defensive









of 27

Page 10 of 27

Page 10 of 27

Page 10 of 27

Page 10 of 27

Page 10 of 27

Page 10 of 27

Page 10 of 27

Consumer Defensive | Quick Takes


Top Picks s Consumer Defensive


Tesco (TSCO) QQQ GBP 2.34 0.89 None GBP 18.4

Though a 3-star-rated name, Tesco trades at a 15% discount to our fair value estimate. We think the pandemic has been a net positive for

scaled grocers with a mature multichannel presence. Tesco’s successful turnaround has resulted in strong performance lately,

outperforming its big four peers while at the same time uncovering value and distributing cash to shareholders through divestments (Asia

business). Operationally, Tesco has maintained its "Aldi Price Match" scheme on more than 500 lines and strengthened its price position

against peers. We think the 2-year like-for-like growth of 9.3% in the U.K. reflects sustainable benefits for Tesco and the grocery market at

large with customers consuming more meals at home versus prior to COVID-19. Although we expect sales to normalise in 2021, this could

have positive mix effects as people return to stores and Booker resumes organic growth. Finally, we see upside risks to our estimates from

a largely underappreciated online advertising opportunity.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Anheuser-Busch InBev (ABI) QQQQ EUR 58.67 0.77 Wide EUR 116.1

At 25 times 2021 earnings, ABI still trades at a discount to peers. A temporary discount may be justified given the high debt load following

the acquisition of SABMiller in 2016, but we think the strong competitive positioning of AB InBev in several large markets means it is well

positioned for above-average profitable growth in the long term. The company has an insurmountable cost advantage in multiple markets

in Africa, which should allow it to offer low-cost beer to the emerging consumer. In Latin America, its monopoly-like positions afford it best-

in-class margins. An acceleration of EBITDA growth would reduce leverage and help assure investors of the quality of the earnings growth

to come.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 11 of 27

Page 11 of 27

Page 11 of 27

Page 11 of 27

Page 11 of 27

Page 11 of 27

Page 11 of 27

All is going according to plan with a continued vaccine rollout, decline in

infections, and recovery in demand. Each week, inventories slide lower

while oil prices grind higher. We expect this pattern to more or less

continue for the next 18 months with steadily increasing demand

allowing for the gradual return of OPEC+ volumes and some U.S. growth.

In the near term, the biggest risk is on the demand side.

Vaccine distribution is accelerating, but predominantly in developed

economies. Over 23% of the world population has received at least one

dose of the vaccine, but the slow rollout in emerging economies

heightens the risk of new variants emerging that could compromise

vaccine efficacy. Though new daily cases of coronavirus in India have

fallen by more than 90% since the peak in early May, concerns over the

spread of the more contagious COVID Delta variant and uncertainty

regarding lockdown extensions persists, leaving our demand forecast

unchanged. However, outside of a delayed full reopening in the U.K., no

material impact has been felt yet. Also, vaccines are largely effective in

preventing severe illness or hospitalisation. Our near-term demand

estimates for 2021 and 2022 are 96.2 mmbp/d and 100.4 mmb/d,

respectively.

On the supply-side, OPEC+ will proceed with the modest volume

increases it previously scheduled, though some additional volumes are

likely to be delayed until 2022. An accelerated return of Iran volumes

continues to pose a risk, but we still see the situation as manageable. Our

global supply estimate for 2021 is 94.7 mmb/d. Inventories should

normalise rapidly (Exhibit 5d) as global supply falls 1.5 mmb/d short of

demand in 2021. As such, supply/demand dynamics support current price

levels. Equity market has largely incorporated higher prices, but oilfield

services and integrated oils, which have lagged oil prices, remain

attractive.

Allen Good, CFA | [email protected]

Exhibit 5 European Energy's Recovery Has Stalled Despite Continued

Rise In Oil Prices 5a. European energy shows plenty of room for further recovery.

5b. Star rating distributions.

5c. Global liquids supply and demand.

5d. Global commercial crude inventories compared with the historical range.

Source: 5a Morningstar, 5b Morningstar, 5c International Energy Agency, Energy Information

Administration, Capital Economics, Rystad, OPEC+, Morningstar, 5d International Energy

Agency, Energy Information Administration, Capital Economics, Rystad, OPEC+, Morningstar.


(60.0%)

(50.0%)

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

MS Europe MS Europe - Energy

N = 11 N = 6 N = 5

0%

20%

40%

60%

80%

100%

Energy Oil & Gas Integrated Oil & Gas Equipment &Services

QQQQQ QQQQ QQQ QQ Q

(600)

(400)

(200)

-

200

400

600

800

1,000

80.0

85.0

90.0

95.0

100.0

105.0

110.0

2010201120122013201420152016201720182019202020212022202320242025

mmbblsmmbpd Implied Inventory Build (Draw) World Supply (Mstar)World Demand (Mstar)

Actual Forecast

Steady as She Goes

o Energy

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

mmbbls 2015 - 2019 Range, Adj. for Days of Supply Commercial Inventory (Mstar)

Actual Forecast









of 27

Page 12 of 27

Page 12 of 27

Page 12 of 27

Page 12 of 27

Page 12 of 27

Page 12 of 27

Page 12 of 27

Energy | Quick Takes


Top Picks o Energy


TotalEnergies (TTE) QQQQ EUR 37.1 0.76 None EUR 98

Total has managed to maintain its dividend thanks to one of the strongest balance sheets in the group. Total’s latest strategic plan aims to

achieve net-zero emissions by 2050 while delivering near-term financial performance in a lower oil-price environment. The emissions-

reduction goal is in line with many of its European peers, but in contrast to some, Total does not plan a quick retreat from oil and gas

through divestment. Instead, it plans to reduce emissions over time by expanding its ownership of renewable power assets.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


TechipFMC (FTI) QQQQQ EUR 7.22 0.34 None EUR 3.2

Even before COVID-19, we think the market was too pessimistic about headwinds in pricing and activity in the subsea E&C industry overall

(in which TechnipFMC’s subsea segment participates). Additionally, TechnipFMC stands out as a leader for its efficiency-boosting products

and services such as Subsea 2.0 and integrated projects, which will create more value for the company than the market seems to

appreciate.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Schlumberger (SLB) QQQQ USD 30.53 0.65 Narrow USD 42.7

Although rallying share prices have removed much of our oilfield-services coverage from deeply undervalued territory, investors can still

get industry leader Schlumberger for a bargain. We expect industry activity to recover from COVID-19, with long-run activity in

international markets (where Schlumberger focuses) even surpassing prepandemic levels. We think Schlumberger will continue its

historical record of leading peers in technological progress and generating high returns on capital.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 13 of 27

Page 13 of 27

Page 13 of 27

Page 13 of 27

Page 13 of 27

Page 13 of 27

Page 13 of 27

Since the market drop in March 2020, European financials have lagged

the Morningstar Europe Composite (Exhibit 6a), driven by the poor

economic outlook and amplified by lower interest rates. Over the past

couple of months, however, the valuation gap has started to close as

inflationary pressures are starting to emerge and yield curves are tilting

upward.

We still see good opportunities across our financial services coverage

(Exhibit 6b). We believe valuations look favourable for banks, exchanges,

and insurance, where we see the highest concentration of 4-star-rated

names.

The outlook for European banks has improved significantly compared with

last year. The expectation is that loan loss provisions will be much lower

than previously feared and the outlook for net interest margins improved.

Extensive government support and accommodative monetary policy has

kept individuals in employment and companies liquid and solvent. While

nonperforming loans will increase, the provisions raised by banks during

2020 now look more than enough to cover future bad loans. Inflation is

bubbling beneath the surface which supports a steeper yield curve.

Higher interest rates and steeper yield curves should support wider net

interest margins over time.

Market volatility during 2020 has been a boon for exchanges, which

forms a difficult base to beat this year as market activity is set to slow.

Looking at exchanges through such volatility cycles, structural growth

remains strong, and we expect the trend of passive investing and new

products related to ESG to remain long-term tailwinds for exchanges.

Within insurance, we are bullish on U.K. motor insurance. Motor

insurance is inextricably linked to the strength of an economy and as an

economy weakens, so does motor insurance pricing. This cuts both ways

though, because as an economy recovers, so do motor insurance

premiums. While the U.K. targeted exit from lockdown in June, this is

now more likely to occur in July. This will aid U.K. motor insurance prices

for some years to follow as evidenced by the prior recession.

Henry Heathfield, CFA | [email protected]

Johann Scholtz, CFA | [email protected]

Niklas Kammer, CFA | [email protected]

Exhibit 6 Economic Recovery Drives Financials Higher 6a. Financials flip from one of the weakest to the strongest performing sectors.

6b. Value remains in asset managers and insurers.

6c. Rapid decline in home loan balance deferrals to total home loans (%).

6d. Major incumbents are losing share across platforms.

Source: 6a Morningstar, 6b Morningstar, 6c Morningstar, 6d Morningstar.


(50.0%)

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

MS Europe MS Europe - Fin Serv

N = 58 N = 17 N = 31 N = 5 N = 2 N = 3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

QQQQQ QQQQ QQQ QQ Q

(800)

(600)

(400)

(200)

0

200

400

600

800

1,000

January1998

January2000

January2002

January2004

January2006

January2008

January2010

January2012

January2014

January2016

January2018

Δ in United Kingdom Car Insurance Consumer Price Inflation in Basis Points

-0.90%

-0.80%

-0.70%

-0.60%

-0.50%

-0.40%

-0.30%

-0.20%

-0.10%

0.00%

3m 1Y 2Y 5Y 7Y 10Y

6/24/2021 12/30/2020

Rising Yield Curves Have Lifted European Financials, but We Still See Opportunities for Patient Investors y Financial

Services









of 27

Page 14 of 27

Page 14 of 27

Page 14 of 27

Page 14 of 27

Page 14 of 27

Page 14 of 27

Page 14 of 27

Financial Services | Quick Takes


Top Picks y Financial Services


London Stock Exchange Group (LSEG) QQQQ GBP 78.64 0.86 Wide GBP 40.8

With the acquisition of Refinitiv, LSEG has significantly improved its position in the lucrative financial data market adding strong data

distribution capabilities as well as unique data sets to its already strong FTSE/Russell index business. We expect the group to benefit

from an increasing shift from active to passive investment strategies as well as new theme-based investment styles such as ESG. We

believe the market is overly concerned with integration risks around the Refinitiv acquisition, offering a great entry point for investors

eager to pick up a high-quality business with a wide moat and a long structural-growth pathway ahead. LSEG’s diversified business

model also shields investors from interest rate risks and typically benefits when markets are volatile.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Admiral Group (ADM) QQQQ GBP 31.32 0.81 None GBP 9.5

As the United Kingdom emerges from lockdown there are further headwinds for general insurers. While the coronavirus pandemic created

an unprecedented set of trading conditions, there have been headwinds, namely pricing and these are set to continue. We do not see

respite within motor insurance pricing until at the earliest the second half of the year. Further, the Financial Conduct Authority General

Insurance Pricing Review and the Civil Liability Act Part Two both threaten further flurries. However, Admiral appears to use one simple

tactic during these intervals. It undercuts competition in order to reap volume and market share. We foresee this again being fruitful.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


ING Group (INGA) QQQQ EUR 10.59 0.76 Narrow EUR 41.3

ING is one of the European banks with the greatest interest rate sensitivity. Net interest income contributed 77% of ING's revenue for 2020,

it is primarily funded by short duration deposits and it has a long duration, fixed rate, loan book. A steepening of the yield curve is a plus for

ING's valuation. Our midcycle profitability estimates for ING argue against its current discount valuation, compared with the sector. In a

normal rate environment ING should comfortably generate double-digit returns on capital, ahead of the high-single-digit average we

estimate for the sector. ING has material surplus capital. Once the European Central Bank lifts its dividend ban, we estimate that ING will

return around 10% of its current value to shareholders through dividends and share buybacks. Even after this, we estimate that there is still

surplus capital of around EUR 7 billion (nearly 20% of its current market value). ING has confirmed its willingness to return this to

shareholders over time.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 15 of 27

Page 15 of 27

Page 15 of 27

Page 15 of 27

Page 15 of 27

Page 15 of 27

Page 15 of 27

As coronavirus concerns continue to ease, Morningstar's European

Healthcare Index delivered strong performance over the trailing 12

months (Exhibit 7a). However, the performance slowed lately relative to

the broader equity market. Concerns around U.S. healthcare policies are

likely weighing on some stocks as the U.S. market represents a

disproportionate share of profits for many healthcare companies due to

the high prices in the U.S. and the large population base; however, we

expect only modest changes due to the complexity of healthcare markets

and difficulties of passing major legislation. Overall, the underlying

healthcare fundamentals look solid across the globe, and we expect an

acceleration in growth for several more elective healthcare areas where

demand fell due to COVID-19 restrictions.

Most of our European healthcare coverage trades in an overvalued

territory following strong market gains. We see only a few relatively

undervalued ideas in the segment, with roughly 20% of our coverage

rated 4 or 5 stars (Exhibit 7b), and more than a half of our coverage is

now considered overvalued. The most attractively priced firms are in the

drug and instruments industries. With solid underlying growth

fundamentals within the pharmaceutical industry, valuations imply a high

degree of risk around potential changes in U.S. healthcare policies

targeting drug prices, which we don’t consider likely.

As trends continue to reverse from the initial lockdowns, we have seen

demand in the second quarter starting to recover in the more elective

areas of healthcare, like device, dental, hearing, and hospital industries.

As many elective surgeries were cancelled or postponed during the

pandemic, decreasing COVID-19 hospitalisations are starting to free up

capacity for elective surgeries to resume. The same is visible in demand

for hearing aids given the near shutdown in patient traffic in 2020. We

anticipate strong tailwinds (largely a result of easy comparables) to last

through the end of the year as European countries continue to increase

their vaccination rates. In time, we expect a return to a more normal pre-

pandemic market, driven by effective vaccines. While global herd

immunity looks unlikely, we expect regional areas of strong protection

(Exhibits 7c and 7d). We expect the biopharma industry to use the

goodwill of creating the vaccine as leverage with non-COVID drug pricing,

while services and device segments benefiting from a more normalized

demand.

Alex Morozov, CFA | [email protected]

Damien Conover, CFA | [email protected]

Exhibit 7 We See Limited Buying Opportunities in Healthcare 7a. Healthcare returns since the pandemic are in line with broader market.

7b. Star rating distribution and average P/FV.

7c. Cumulative population vaccinated by region through 2022.

7d. Global herd immunity unlikely, but regional herd immunity developing.

Source: 7a Morningstar, 7b Morningstar, 7c Company filings, Morningstar estimates 7d

Company filings, Morningstar estimates.


(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

MS Europe MS Europe - Healthcare

N = 32 N = 9 N = 3 N = 13 N = 5 N = 2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

QQQQQ QQQQ QQQ QQ Q

Healthcare Valuations Look Slightly Elevated, but the Drug and Biotech Industries Still Look Undervalued

d Healthcare Healthcare Valuations Look Slightly Elevated, but the Drug and Biotech Industries Still Look Undervalued

d









of 27

Page 16 of 27

Page 16 of 27

Page 16 of 27

Page 16 of 27

Page 16 of 27

Page 16 of 27

Page 16 of 27

Healthcare | Quick Takes


Top Picks d Healthcare


Elekta (EKTA B) QQQ SEK 125.55 0.94 Wide SEK 48

Buoyed by growing demand for radiotherapy, wide-moat Elekta should enjoy strong sales momentum for the next decade. The RT industry

has consolidated substantially over the past decade, and the two main players are in a prime position to benefit from a market that we

believe will grow at mid-single-digit levels. Elekta has several things going for it in the near term, with the main catalyst around adoption of

its MR-RT Unity technology. The company has sunk immense amounts of capital (and time) into the platform and should now start seeing

steady order upticks as clinical data highlighting its advantage starts trickling in.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Fresenius (FRE) QQQ EUR 43.74 0.85 Narrow EUR 29.3

Fresenius SE shares appear undervalued after its dialysis segment (Fresenius Medical Care) looks likely to turn in weak results in 2021. We

think investors should take advantage of this opportunity to pick up shares of this narrow-moat firm at a discount. The dialysis business is

projecting a high-teens to mid-20s decline in net income due to COVID-19 challenges in 2021. Beyond 2021, Fresenius Medical Care aims

to introduce cost-cutting initiatives that could boost profitability, and management reiterated its targets of mid-single-digit sales growth

and high-single-digit income growth through 2025 for the dialysis business.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Roche (ROG) QQQQQ CHF 353.95 0.81 Wide CHF 306.5

We don’t think the market fully appreciates Roche's drug portfolio and industry-leading diagnostics, which combine to create

sustainable competitive advantages. Roche's exposure to the coronavirus pandemic looks modest. Although hospital-administered

drugs could see lower near-term sales as hospitals delay treatments, patients are likely to eventually resume treatment, particularly for

cancer. As the market leader in biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global healthcare

into a safer, more personalised, and more cost-effective endeavor.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 17 of 27

Page 17 of 27

Page 17 of 27

Page 17 of 27

Page 17 of 27

Page 17 of 27

Page 17 of 27

N = 58 N = 18 N = 4 N = 8 N = 6 N = 4 N = 12 N = 6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

QQQQQ QQQQ QQQ QQ Q

A resurgence in demand for capital goods and business services spurred

outperformance of the Morningstar Europe Industrial Index over

Morningstar’s European Index during the last 12 months. The rally has

left few stocks in attractive territory; however, we highlight airlines as an

exception. The recovery in European air traffic is taking longer than

expected, with passenger numbers still way below 2019 pre-COVID-19

levels. The average number of passenger movements at the largest U.K.

and European airports are only at 15% of comparable 2019 levels at the

end of May, while low-cost carriers Ryanair and Wizz Air are tracking at

13% and 24%, respectively compared with the same period in 2019. This

compares with large domestic markets such as the U.S., which have

recovered to around 70% of pre-COVID-19 traffic levels, and China which

has fully recovered. A recovery in air travel over the important summer

travel period in Europe remains highly uncertain as a result of country-

specific travel restrictions, which include quarantine and testing

requirements. However, recently the UK announced it will allow fully

vaccinated people to return from amber list countries without the need to

quarantine despite the emergence of the Delta variant of COVID-19.

Hopes for a strong third quarter seem optimistic, given that traffic tracks

below the most recent guidance provided by airline companies in the

sector. We believe that results could disappoint, and balance sheets

could become further stretched, especially for the network carriers

Lufthansa, Air France-KLM, and IAG. Low-cost carriers are in a better

position to manage an extended downturn as a result of lower and more

flexible cost structures and healthier balance sheets. The 4-star names

under our European airline coverage include IAG and Wizz Air, with Wizz

Air being our top pick due to strong medium-term growth prospects

backed by a solid balance sheet.

Joachim Kotze, CFA | [email protected]

Denise Molina, CFA | [email protected]

Exhibit 8 We See a Few Pockets of Opportunity After Broad Industrials

Rally 8a. Morningstar Europe Industrials vs. Morningstar Europe Index.

8b. Star distribution ratings.

8c. Airport traffic still heavily depressed at about 15% of 2019 levels.

8d. Airline traffic remains depressed.

Source: 8a Morningstar, 8b Morningstar, 8c Morningstar Estimates, 8d Morningstar.


(50.0%)

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

MS Europe MS Europe - Industrials

0%

5%

10%

15%

20%

25%

30%

Jan Feb Mar Apr May

2021 Airline passengers as a percentage of 2019 levels

Ryanair Wizz Air

0%

5%

10%

15%

20%

25%

30%

Jan Feb Mar Apr May

2021 Airport passengers as a percentage of 2019 levels

Heathrow Gatwick CDG Schipol Frankfurt Madrid

Ready for Take-Off: Lagging Travel Recovery Creates Opportunities in Airline and Aerospace Stocks p Industrials









of 27

Page 18 of 27

Page 18 of 27

Page 18 of 27

Page 18 of 27

Page 18 of 27

Page 18 of 27

Page 18 of 27

Industrials | Quick Takes


Top Picks p Industrials


Safran Group (SAF) QQQQ EUR 117.2 0.83 Wide EUR 50

Safran is a high-quality, well managed business in an industry with high barriers to entry, demonstrated by return on invested capital

sustainably above 20% over the past decade. The group, in partnership with GE Aviation, manufactures and maintains narrow-body

engines for the civil aerospace market and boasts the world’s largest in-service fleet, generating a stream of high-margin recurring

revenue. Safran has a sound balance sheet and the group proactively secured additional liquidity to see them through the challenging

environment that lies ahead. Although the stock has recovered somewhat since its trough in the midst of the crisis, it still offers 20%

upside from current levels to our EUR 145 fair value estimate. Long-term patient investors should utilise this opportunity to acquire a

stake in a business which rarely comes up for sale.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Prosegur Compañia de Seguridad (PSG) QQQQQ EUR 2.94 0.59 Narrow EUR 1.6

With our EUR 5 fair value estimate sitting at almost twice the current share price, Narrow-moat Prosegur offers exposure to several sticky

and entrenched businesses, such as cash-in-transit, or CIT, and alarms. Its high exposure to Emerging markets, In particular Latin America,

means that economic headwinds could persist for some time, however the longer-term picture is brighter. Beyond 2022 we see organic

revenue growth of more than 7% through the rest of the decade, as well as steadily improving operating margins. This operating margin

improvement is predicated on a structural shift to higher-value services in the cash and guarding businesses, shifts that not only improve

the financial attractiveness of the business, but should also boost client retention rates, and increase market shares in certain businesses

as Prosegur further differentiates itself from smaller, less capable, peers.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Wizz Air (WIZZ) QQQQ GBP 47 0.70 None 5.7

No-moat Wizz Air is trading 26% below our GBX 6,800 fair value estimate. We believe Wizz Air is in the sweet spot of an airline’s life cycle:

big enough to matter to suppliers, but small enough to enjoy a substantial runway of profit growth before reaching maturity. We believe

group revenue can grow at 14% per year over our 5-year forecast period, as the company doubles its capacity and enjoys high exposure to

the fast growing Central and Eastern European region. EBIT growth of 20% over the same period is underpinned by margin expansion, as we

believe the company has a unique opportunity to drive down nonfuel unit costs, stemming predominantly from lower ownership costs as the

group benefits from increased bargaining power due to growing scale. 0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 19 of 27

Page 19 of 27

Page 19 of 27

Page 19 of 27

Page 19 of 27

Page 19 of 27

Page 19 of 27

After four years of outperformance against the Morningstar DM Europe

Index, the Morningstar DM Europe Utilities index is flat year to date,

underperforming the former by 16%. This is driven by market jitters about

rising interest rates, escalating competition in the renewables segment,

sector rotation from COVID-19 winners to losers, and political risk.

Despite those headwinds, we view the backdrop as generally supportive.

Power and CO2 prices are at near all-time highs, the energy transition

acceleration is providing investment opportunities, and there is the roll-

out of the European recovery plan and the rebound of industrial

production. All of this underpins our forecast of a 6.5% average EPS

CAGR over the next five years. This earnings trajectory appears priced in,

however, since we view the sector as fairly valued on average. In saying

this, there are currently three names in 4-star territory. As they are in a

transformation phase, the market fails to grasp their favourable exposure

to power prices or the rebound in industrial production. At the other end

of the spectrum, some regulated utilities are significantly overvalued,

reflecting investors' overdue optimism on dividend sustainability and

increase in allowed returns in future regulatory periods on rising

government bond yields.

The wave of dividend cuts and cancellations from European utilities in the

spring of 2020 in the wake of the pandemic reminded investors of the

lack of reliability of the sector's payout in challenging times. The current

median trailing dividend yield of 4.4% is slightly below the 4.7% historical

average but offers a high premium against current government bond

yields and margin of safety should the yield on government bonds rise.

On average, we foresee a 4.2% dividend CAGR through 2025, largely

covered by EPS growth. Nonetheless, we expect five companies to cut

their dividends including three that have yet to announce it, while names

with sustainable dividend are slightly overvalued on average. All said, we

do see some attractive dividend opportunities, but selectiveness is of the

essence to avoid traps.

Tancrede Fulop, CFA | [email protected]

Exhibit 9 Utilities’ Underperformance Year-to-Date has Erased the

Outperformance of 2020 9a. Morningstar Europe Utilities sector vs. Morningstar Europe Index.

9b. Star distribution ratings.

9c. German power prices stand at decade high.

9d. European utilities' yield high premium to government bond yields, which provides margin of safety.

Sources: 9a Morningstar, 9b Morningstar, 9c Morningstar, 9d Morningstar.


(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

MS Europe MS Europe - Utilities

N = 16 N = 8 N = 2 N = 3 N = 1 N = 1 N = 1

0%10%20%30%40%50%60%70%80%90%

100%

QQQQQ QQQQ QQQ QQ Q

0

10

20

30

40

50

60

70

80

Geman power prices

-1

0

1

2

3

4

5

6

7

8

12

/1

/20

04

6/1

/20

05

12

/1

/20

05

6/1

/20

06

12

/1

/20

06

6/1

/20

07

12

/1

/20

07

6/1

/20

08

12

/1

/20

08

6/1

/20

09

12

/1

/20

09

6/1

/20

10

12

/1

/20

10

6/1

/20

11

12

/1

/20

11

6/1

/20

12

12

/1

/20

12

6/1

/20

13

12

/1

/20

13

6/1

/20

14

12

/1

/20

14

6/1

/20

15

12

/1

/20

15

6/1

/20

16

12

/1

/20

16

6/1

/20

17

12

/1

/20

17

6/1

/20

18

12

/1

/20

18

6/1

/20

19

12

/1

/20

19

6/1

/20

20

12

/1

/20

20

% Yield France 10-Year Italy 10-Year Germany 10-Year Utilities Median Yield

European Utilities Are Fairly Valued on Average but There Are Some Appealing Turnaround Stories

f Utilities









of 27

Page 20 of 27

Page 20 of 27

Page 20 of 27

Page 20 of 27

Page 20 of 27

Page 20 of 27

Page 20 of 27

Utilities | Quick Takes


Top Picks f Utilities


RWE (RWE) QQQQ EUR 31.25 0.78 None EUR 21.6

RWE is the second-biggest offshore wind player behind Orsted and should double its capacity by 2026. We expect an average IRR of 7%

from its offshore wind projects making them highly value-accretive. Thanks to new capacity and the decommissioning of nuclear and lignite

plants, 75% of RWE’s EBITDA will come from wind and solar in 2024. Still, RWE is not yet fully perceived as a renewables leader because

of its legacy coal and lignite assets, which might prevent ESG investors from buying the shares. We believe RWE could ultimately place

these dirty assets in a special-purpose vehicle in which the decommissioning liabilities would be covered by RWE's financial assets,

especially the 15% stake in E.On. As such, RWE's significant discount versus renewables peers—30% in terms of EV/EBITDA—could be

reduced. Finally, RWE is one of the most favorably exposed company to rising power prices.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Veolia (VIE) QQQQ EUR 25.79 0.86 None EUR 14.6

The acquisition of Suez is a fat pitch for Veolia. Despite the 32% increase in the tender offer, the deal will be highly value-accretive thanks

to the high number of synergies. Earnings-wise, the deal should boost EPS by 31%. The group will get international assets it prized. Getting

comparable ones from bolt-on acquisitions would have been much more costly than the 8 EV/EBITDA Veolia will pay to acquire Suez.

Thanks to its cyclical waste management business, Veolia is well positioned to benefit from the economic recovery on a stand-alone basis.

We expect the 2021 guidance to be raised and forecast EPS CAGR of 14.6% over 2020-25. All said, Veolia is both a ''vaccine'' and a ''green''

stock, which is not that common.0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV


Engie (ENGI) QQQQ EUR 11.53 0.79 None EUR 27.9

Engie’s 2021 P/E of 11.8 is 36% below the current sector average. That reflects investors’ distrust in the company, based on a bad

capital allocation track record, too many strategic shifts over the last decade, and skepticism regarding the execution of the new

business plan. We think the latter is moving in right direction, with accelerated investments in renewables, disposals of minority stakes

at a high premium and downsizing of the asset-light client solutions activity. Furthermore, Engie is the company best positioned to

benefit from the coal-to-gas switch, thanks to its large fleet of CCGTs across Europe. It is also one of the most exposed utilities to rising

power prices. Finally, after disappointingly cancelling its 2019 dividend due to the pandemic and pressure from the French government,

Engie reinstated it on 2020 earnings and should deliver a 2.8% average annual dividend growth through 2025 versus pre-cut level,

largely covered by earnings growth.

0.25

0.50

0.75

1.00

1.25

1.50

1.75

P/FV









of 27

Page 21 of 27

Page 21 of 27

Page 21 of 27

Page 21 of 27

Page 21 of 27

Page 21 of 27

Page 21 of 27

Research Methodology for Valuing Companies Overview

At the heart of our valuation system is a detailed projection of a company's future cash flows, resulting from our analysts' research.

Analysts create custom industry and company assumptions to feed income statement, balance sheet, and capital investment

assumptions into our globally standardized, proprietary discounted cash flow, or DCF, modeling templates. We use scenario

analysis, in-depth competitive advantage analysis, and a variety of other analytical tools to augment this process. Moreover, we

think analyzing valuation through discounted cash flows presents a better lens for viewing cyclical companies, high-growth firms,

businesses with finite lives (e.g., mines), or companies expected to generate negative earnings over the next few years. That said,

we don't dismiss multiples altogether but rather use them as supporting cross-checks for our DCF-based fair value estimates. We

also acknowledge that DCF models offer their own challenges (including a potential proliferation of estimated inputs and the

possibility that the method may miss short-term market price movements), but we believe these negatives are mitigated by deep

analysis and our long-term approach.

Morningstar's equity research group ("we," "our") believes that a company's intrinsic worth results from the future cash flows it

can generate. The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic worth—or fair

value estimate, in Morningstar terminology. Five-star stocks sell for the biggest risk-adjusted discount to their fair values, whereas

1-star stocks trade at premiums to their intrinsic worth.

Morningstar Research Methodology

Source: Morningstar.

Four key components drive the Morningstar rating: (1) our assessment of the firm's economic moat, (2) our estimate of the stock's

fair value, (3) our uncertainty around that fair value estimate, and (4) the current market price. This process ultimately culminates

in our single-point star rating.

Economic Moat

The concept of an economic moat plays a vital role not only in our qualitative assessment of a firm's long-term investment

potential, but also in the actual calculation of our fair value estimates. An economic moat is a structural feature that allows a firm

to sustain excess profits over a long period of time. We define economic profits as returns on invested capital (ROIC) over and

above our estimate of a firm's cost of capital, or weighted average cost of capital (WACC). Without a moat, profits are more

susceptible to competition. We have identified five sources of economic moats: intangible assets, switching costs, network effect,

cost advantage, and efficient scale.

Companies with a narrow moat are those we believe are more likely than not to achieve normalized excess returns for at least the

next 10 years. Wide-moat companies are those in which we have very high confidence that excess returns will remain for 10 years,

with excess returns more likely than not to remain for at least 20 years. The longer a firm generates economic profits, the higher its

intrinsic value. We believe low-quality, no-moat companies will see their normalized returns gravitate toward their cost of capital

more quickly than companies with moats.

To assess the sustainability of excess profits, analysts perform ongoing assessments of the moat trend. A firm's moat trend is

positive in cases where we think its sources of competitive advantage are growing stronger, stable where we don't anticipate

changes to competitive advantages over the next several years, or negative where we see signs of deterioration.









of 27

Page 22 of 27

Page 22 of 27

Page 22 of 27

Page 22 of 27

Page 22 of 27

Page 22 of 27

Page 22 of 27

Estimated Fair Value

Combining our analysts' financial forecasts with the firm's economic moat helps us assess how long returns on invested capital are

likely to exceed the firm's cost of capital. Returns of firms with a wide economic moat rating are assumed to fade to the perpetuity

period over a longer period of time than the returns of narrow-moat firms, and both will fade slower than no-moat firms, increasing

our estimate of their intrinsic value.

Our model is divided into three distinct stages:

Stage I: Explicit Forecast

In this stage, which can last 5 to 10 years, analysts make full financial statement forecasts, including items such as revenue, profit

margins, tax rates, changes in working capital accounts, and capital spending. Based on these projections, we calculate earnings

before interest, after taxes (EBI) and net new investment (NNI) to derive our annual free cash flow forecast.

Stage II: Fade

The second stage of our model is the period it will take the company's return on new invested capital—the return on capital of the

next dollar invested (RONIC)—to decline (or rise) to its cost of capital. During the Stage II period, we use a formula to approximate

cash flows in lieu of explicitly modeling the income statement, balance sheet, and cash flow statement as we do in Stage I. The

length of the second stage depends on the strength of the company's economic moat. We forecast this period to last anywhere

from one year (for companies with no economic moat) to 10–15 years or more (for wide-moat companies). During this period, cash

flows are forecast using four assumptions: an average growth rate for EBI over the period, a normalized investment rate, average

return on new invested capital (RONIC), and the number of years until perpetuity, when excess returns cease. The investment rate

and return on new invested capital decline until a perpetuity value is calculated. In the case of firms that do not earn their cost of

capital, we assume marginal ROICs rise to the firm's cost of capital (usually attributable to less reinvestment), and we may truncate

the second stage.

Stage III: Perpetuity

Once a company's marginal ROIC hits its cost of capital, we calculate a continuing value, using a standard perpetuity formula. At

perpetuity, we assume that any growth or decline or investment in the business neither creates nor destroys value and that any

new investment provides a return in line with estimated WACC.

Because a dollar earned today is worth more than a dollar earned tomorrow, we discount our projections of cash flows in stages I,

II, and III to arrive at a total present value of expected future cash flows. Because we are modeling free cash flow to the firm—

representing cash available to provide a return to all capital providers—we discount future cash flows using the WACC, which is a

weighted average of the costs of equity, debt, and preferred stock (and any other funding sources), using expected future

proportionate long-term, market value weights.

Uncertainty Around That Fair Value Estimate

Morningstar's uncertainty rating captures a range of likely potential intrinsic values for a company and uses it to assign the margin

of safety required before investing, which in turn explicitly drives our stock star rating system. The uncertainty rating represents

the analysts' ability to bound the estimated value of the shares in a company around the fair value estimate, based on the

characteristics of the business underlying the stock, including operating and financial leverage, sales sensitivity to the overall

economy, product concentration, pricing power, and other company-specific factors.

Analysts consider at least two scenarios in addition to their base case: a bull case and a bear case. Assumptions are chosen such

that the analyst believes there is a 25% probability that the company will perform better than the bull case and a 25% probability

that the company will perform worse than the bear case. The distance between the bull and bear cases is an important indicator of

the uncertainty underlying the fair value estimate.

Our recommended margin of safety widens as our uncertainty regarding the estimated value of the equity increases. The more

uncertain we are about the estimated value of the equity, the greater the discount we require relative to our estimate of the value

of the firm before we would recommend the purchase of the shares. In addition, the uncertainty rating provides guidance in

portfolio construction based on risk tolerance.









of 27

Page 23 of 27

Page 23 of 27

Page 23 of 27

Page 23 of 27

Page 23 of 27

Page 23 of 27

Page 23 of 27

Our uncertainty ratings for our qualitative analysis are low, medium, high, very high, and extreme.

× Low: Margin of safety for 5-star rating is a 20% discount and for 1-star rating is a 25% premium.

× Medium: Margin of safety for 5-star rating is a 30% discount and for 1-star rating is a 35% premium.

× High: Margin of safety for 5-star rating is a 40% discount and for 1-star rating is a 55% premium.

× Very high: Margin of safety for 5-star rating is a 50% discount and for 1-star rating is a 75% premium.

× Extreme: Margin of safety for 5-star rating is a 75% discount and for 1-star rating is a 300% premium.

Morningstar Equity Research Star Rating Methodology

Market Price

The market prices used in this analysis and noted in the report come from the exchange on which the stock is listed, which we

believe is a reliable source.

For more details about our methodology, please go to http://global.morningstar.com/equitydisclosures.

Morningstar Star Rating for Stocks

Once we determine the fair value estimate of a stock, we compare it with the stock's current market price on a daily basis, and the

star rating is automatically recalculated at the market close on

every day the market on which the stock is listed is open. Our analysts keep close tabs on the companies they follow and, based on

thorough and ongoing analysis, raise or lower their fair value estimates

as warranted.

Please note, there is no predefined distribution of stars. That is, the percentage of stocks that earn

5 stars can fluctuate daily, so the star ratings, in the aggregate, can serve as a gauge of the broader market's valuation. When

there are many 5-star stocks, the stock market as a whole is more undervalued, in our opinion, than when very few companies

garner our highest rating.

We expect that if our base-case assumptions are true, the market price will converge on our fair value estimate over time,

generally within three years (although it is impossible to predict the exact time frame in which market prices may adjust).










of 27

Page 24 of 27

Page 24 of 27

Page 24 of 27

Page 24 of 27

Page 24 of 27

Page 24 of 27

Page 24 of 27

Our star ratings are guideposts to a broad audience, and individuals must consider their own specific investment goals, risk

tolerance, tax situation, time horizon, income needs, and complete investment portfolio, among other factors.

The Morningstar Star Ratings for stocks are defined below:

QQQQQ We believe appreciation beyond a fair risk-adjusted return is highly likely over a multiyear time frame. Scenario

analysis developed by our analysts indicates that the current market price represents an excessively pessimistic outlook, limiting

downside risk and maximizing upside potential.

QQQQ We believe appreciation beyond a fair risk-adjusted return is likely.

QQQ Indicates our belief that investors are likely to receive a fair risk-adjusted return (approximately cost of equity).

QQ We believe investors are likely to receive a less than fair risk-adjusted return.

Q Indicates a high probability of undesirable risk-adjusted returns from the current market price over a multiyear time frame,

based on our analysis. Scenario analysis by our analysts indicates that the market is pricing in an excessively optimistic outlook,

limiting upside potential and leaving the investor exposed to capital loss.

Risk Warning

Please note that investments in securities are subject to market and other risks, and there is no assurance or guarantee that the

intended investment objectives will be achieved. Past performance of a security may or may not be sustained in the future and is

no indication of future performance. A security investment return and an investor's principal value will fluctuate so that, when

redeemed, an investor's shares may be worth more or less than their original cost. A security's current investment performance

may be lower or higher than the investment performance noted within the report. Morningstar's uncertainty rating serves as a

useful data point with respect to sensitivity analysis of the assumptions used in our determining a fair value price.

General Disclosure

Unless otherwise provided in a separate agreement, recipients accessing this report may only use it in the country in which the

Morningstar distributor is based. Unless stated otherwise, the original distributor of the report is Morningstar Research Services

LLC, a U.S.-domiciled financial institution.

This report is for informational purposes only and has no regard to the specific investment objectives, financial situation or

particular needs of any specific recipient. This publication is intended to provide information to assist institutional investors in

making their own investment decisions, not to provide investment advice to any specific investor. Therefore, investments discussed

and recommendations made herein may not be suitable for all investors: Recipients must exercise their own independent

judgment as to the suitability of such investments and recommendations in the light of their own investment objectives,

experience, taxation status, and financial position.

The information, data, analyses, and opinions presented herein are not warranted to be accurate, correct, complete, or timely.

Unless otherwise provided in a separate agreement, neither Morningstar, Inc. nor the Equity Research Group represents that the

report contents meet all of the presentation and/or disclosure standards applicable in the jurisdiction the recipient is located.

Except as otherwise required by law or provided for in a separate agreement, the analyst, Morningstar, Inc., and the Equity

Research Group and their officers, directors, and employees shall not be responsible or liable for any trading decisions, damages,

or other losses resulting from, or related to, the information, data, analyses, or opinions within the report. The Equity Research

Group encourages recipients of this report to read all relevant issue documents (e.g., prospectus) pertaining to the security

concerned, including without limitation, information relevant to its investment objectives, risks, and costs before making an

investment decision and, when deemed necessary, to seek the advice of a legal, tax, and/or accounting professional.

The Report and its contents are not directed to, or intended for distribution to or use by, any person or entity who is a citizen or

resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability, or use

would be contrary to law or regulation or which would subject Morningstar, Inc. or its affiliates to any registration or licensing

requirements in such jurisdiction.









of 27

Page 25 of 27

Page 25 of 27

Page 25 of 27

Page 25 of 27

Page 25 of 27

Page 25 of 27

Page 25 of 27

Where this report is made available in a language other than English and in the case of inconsistencies between the English and

translated versions of the report, the English version will control and supersede any ambiguities associated with any part or

section of a report that has been issued in a foreign language. Neither the analyst, Morningstar, Inc., nor the Equity Research

Group guarantees the accuracy of the translations.

This report may be distributed in certain localities, countries and/or jurisdictions ("Territories") by independent third parties or

independent intermediaries and/or distributors ("Distributors"). Such Distributors are not acting as agents or representatives of the

analyst, Morningstar, Inc., or the Equity Research Group. In Territories where a Distributor distributes our report, the Distributor is

solely responsible for complying with all applicable regulations, laws, rules, circulars, codes, and guidelines established by local

and/or regional regulatory bodies, including laws in connection with the distribution third-party research reports.

Conflicts of Interest

× No interests are held by the analyst with respect to the security subject of this investment

research report.

× Morningstar, Inc. may hold a long position in the security subject of this investment research report that exceeds 0.5% of

the total issued share capital of the security. To determine if such is the case, please click http://msi.morningstar.com and http://mdi.morningstar.com.

× Analysts' compensation is derived from Morningstar, Inc.'s overall earnings and consists of salary, bonus, and in some cases

restricted stock.

× Neither Morningstar, Inc. nor the Equity Research Group receives commissions for providing research nor do they charge

companies to be rated.

× Neither Morningstar, Inc. nor the Equity Research Group is a market maker or a liquidity provider of the security noted within

this report.

× Neither Morningstar, Inc. nor the Equity Research Group has been a lead manager or co-lead manager over the previous 12

months of any publicly disclosed offer of financial instruments of the issuer.

× Morningstar, Inc.'s investment management group does have arrangements with financial institutions to provide portfolio

management/investment advice, some of which an analyst may issue investment research reports on. However, analysts do not

have authority over Morningstar's investment management group's business arrangements nor allow employees from the

investment management group to participate or influence the analysis or opinion prepared by them.

× Morningstar, Inc. is a publicly traded company (ticker symbol: MORN) and thus a financial institution the security of which is the

subject of this report may own more than 5% of Morningstar, Inc.'s total outstanding shares. Please access Morningstar, Inc.'s

proxy statement, "Security Ownership of Certain Beneficial Owners and Management" section

http://investorrelations.morningstar.com/sec.cfm?doctype=Proxy&year=&x=12

× Morningstar, Inc. may provide the product issuer or its related entities with services or products for a fee and on an arms' length

basis including software products and licenses, research and consulting services, data services, licenses to republish our ratings

and research in their promotional material, event sponsorship, and website advertising.

Further information on Morningstar, Inc.'s conflict of interest policies is available from

http://global.morningstar.com/equitydisclosures. Also, please note analysts are subject to the CFA Institute's Code of Ethics and

Standards of Professional Conduct.

For a list of securities that the Equity Research Group currently covers and provides written analysis on, please contact your local

Morningstar office. In addition, for historical analysis of securities covered, including their fair value estimate, please contact your

local office.

For Recipients in Australia: This Report has been issued and distributed in Australia by Morningstar Australasia Pty Ltd (ABN: 95

090 665 544; ASFL: 240892). Morningstar Australasia Pty Ltd is the provider of the general advice ('the Service') and takes

responsibility for the production of this report. The Service is provided through the research of investment products. To the extent

the Report contains general advice, it has been prepared without reference to an investor's objectives, financial situation, or

http://msi.morningstar.com/

http://mdi.morningstar.com/

http://investorrelations.morningstar.com/sec.cfm?doctype=Proxy&year=&x=12










of 27

Page 26 of 27

Page 26 of 27

Page 26 of 27

Page 26 of 27

Page 26 of 27

Page 26 of 27

Page 26 of 27

needs. Investors should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement

before making any decision to invest. Refer to our Financial Services Guide (FSG) for more information at

http://www.morningstar.com.au/fsg.pdf.

For Recipients in Hong Kong: The Report is distributed by Morningstar Investment Management Asia Limited, which is regulated

by the Hong Kong Securities and Futures Commission to provide services to professional investors only. Neither Morningstar

Investment Management Asia Limited nor its representatives are acting or will be deemed to be acting as an investment advisor to

any recipients of this information unless expressly agreed to by Morningstar Investment Management Asia Limited. For enquiries

regarding this research, please contact a Morningstar Investment Management Asia Limited Licensed Representative at

http://global.morningstar.com/equitydisclosures.

For Recipients in India: This Investment Research is issued by Morningstar Investment Adviser India Private Limited. Morningstar

Investment Adviser India Private Limited is registered with the Securities and Exchange Board of India (Registration number INA000001357) and provides investment advice and research. Morningstar Investment Adviser India Private Limited has not been

the subject of any disciplinary action by SEBI or any other legal/regulatory body. Morningstar Investment Adviser India Private

Limited is a wholly owned subsidiary of Morningstar Investment Management LLC. In India, Morningstar Investment Adviser India

Private Limited has one associate, Morningstar India Private Limited, which provides data-related services, financial data analysis,

and software development. The Research Analyst has not served as an officer, director, or employee of the fund company within

the last 12 months, nor has it or its associates engaged in market-making activity for the fund company.

* The Conflicts of Interest disclosure above also applies to relatives and associates of Manager Research Analysts in India

* The Conflicts of Interest disclosure above also applies to associates of Manager Research Analysts in India. The terms and

conditions on which Morningstar Investment Adviser India Private Limited offers Investment Research to clients varies from client

to client and are detailed in the respective client agreement.

For recipients in Japan: The Report is distributed by Ibbotson Associates Japan, Inc., which is regulated by Financial Services

Agency. Neither Ibbotson Associates Japan, Inc. nor its representatives are acting or will be deemed to be acting as an investment

advisor to any recipients of this information.

For recipients in Singapore: For Institutional Investor audiences only. Recipients of this report should contact their financial

adviser in Singapore in relation to this report. Morningstar, Inc. and its affiliates rely on certain exemptions (Financial Advisers

Regulations, Section 32B and 32C) to provide its investment research to recipients in Singapore.

http://www.morningstar.com.au/fsg.pdf










of 27

Page 27 of 27

Page 27 of 27

Page 27 of 27

Page 27 of 27

Page 27 of 27

Page 27 of 27

Page 27 of 27

About Morningstar® Institutional Equity ResearchTM

Morningstar Institutional Equity Research provides independent, fundamental equity research

differentiated by a consistent focus on sustainable competitive advantages, or Economic Moats.

For More Information

+1 312 696-6869

[email protected]

?

22 West Washington Street

Chicago, IL 60602 USA

©2021 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only

in the country in which its original distributor is based. The information, data, analyses, and opinions presented herein do not

constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a

security; and are not warranted to be correct, complete, or accurate. The opinions expressed are as of the date written and are

subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading

decisions, damages, or other losses resulting from, or related to, the information, data, analyses, or opinions or their use.

References to "DBRS Morningstar credit ratings" refer to credit ratings issued by one of the DBRS group of companies or

Morningstar Credit Ratings, LLC. The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate);

DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(CRA, NRSRO affiliate, DRO

affiliate); and DBRS Ratings Limited (England and Wales)(CRA, NRSRO affiliate, DRO affiliate). Morningstar Credit Ratings, LLC

is a NRSRO affiliate of DBRS, Inc. For more information on regulatory registrations, recognitions and approvals of DBRS group

of companies and Morningstar Credit Ratings, LLC, please see: http://www.dbrsmorningstar.com/research/highlights.pdf.

The DBRS group and Morningstar Credit Ratings, LLC are wholly-owned subsidiaries of Morningstar, Inc.

All DBRS Morningstar credit ratings and other types of credit opinions are subject to disclaimers and certain limitations. Please

read these disclaimers and limitations at http://www.dbrsmorningstar.com/about/disclaimer and

https://ratingagency.morningstar.com/mcr. Additional information regarding DBRS Morningstar ratings and other types of credit

opinions, including definitions, policies and methodologies, are available on http://www.dbrsmorningstar.com and

https://ratingagency.morningstar.com/mcr.

Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar

Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. The information contained

herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without

the prior written consent of Morningstar. To license the research, call +1 312 696-6869.

http://www.dbrsmorningstar.com/research/highlights.pdf

http://www.dbrsmorningstar.com/about/disclaimer

https://ratingagency.morningstar.com/mcr

http://www.dbrsmorningstar.com/

https://ratingagency.morningstar.com/mcr

N = 305 N = 11 N = 58 N = 23 N = 16 N = 37 N = 32 N = 25 N ...

Documents

Transcript of N = 305 N = 11 N = 58 N = 23 N = 16 N = 37 N = 32 N = 25 N ...