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ITALY
Please see important disclosures at the end of this document www.cheuvreux.com
21 October 2008
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ELECTRICITY UTILITIES RATING CHANGE
ENEL
Rating 2 to 3/Underperform
Target price (6 months) +5.8% EUR5.5 (8.2)
Price (17/10/2008) EUR5.2
Reuters: ENEI.MI Bloomberg: ENEL IM
Too much debt and low visibility on Endesa
Rating downgraded to 3/Underperform – new TP of EUR5.5We are downgrading ENEL from 2/Outperform to 3/Underperform and reducing our TP from EUR8.2 to EUR5.5. Reasons for the downgrade are: 1) 2009-10 EPS cut by 12%-15% after lowering Endesa and Russia estimates, trimming Italian electricity prices as of 2010 and raising cost of debt; and 2) the increasing risk of re-financing (Q1-10).
Now trading broadly in line with peers but higher risk/debtOver the past six months, ENEL has outperformed the Italian market by 15%. ENEL is now trading in line with peers on EV/EBITDA, and the discount on P/E is well jusitified by a lower growth profile and higher gearing. Given the debt level and medium/high regulatory risk, we see no reasons to outperform the sector.
Resolving the Endesa issue may be a catalyst but low visibility A positive outcome of the Endesa issue with an assets break-up would ease current uncertainty providing full control of a portion of assets without additional debt and paving the way for more synergies. For the time being, however, visibility remains low.
Refinancing peak in 2010 – regulatory risk in Spain/Russia European electricity utilities have been de-rated (EV/EBITDA from 9x to 6.7x) due to M&A value destruction, regulatory risks, declining oil prices and strong exposure to credit markets. In this light, ENEL has the highest gearing in the sector, a refinancing peak in 2010 (EUR18bn) and 50% of debt at floating rates. Visibility is good on the Italian business, but we see rising regulatory risk in Spain and Russia.
Put option threat will continue to weigh on the stock ENEL has a safe liquidity position in 2008 and 2009, but a refinancing peak in 2010 (EUR18bn) plus a possible Acciona put option (EUR14bn). Endesa's break-up would be the best option, but for the time being the threat of the put option will continue to weigh on the stock.
Francesca PEZZOLI Research Analyst [email protected] (39) 02 80 62 83 80
Stock data
Market capitalisation EUR32 146mFree Float EUR21 794mEnterprise value EUR91 333mNo. of shares, adjusted 6 182mDaily volume EUR325.71m
Performances 1 month 3 months 12 months
Absolute perf. -9.7% -6.3% -35.7% Relative perf. 8.9% 22.0% 19.5%
4.1
5.1
6.1
7.1
8.1
9.1
10.1
11.1
01/01 12/01 12/02 12/03 11/04 11/05 11/06 10/074.1
5.1
6.1
7.1
8.1
9.1
10.1
11.1
Price/MIB30 Price
Next event
Q3-08 results due on 11 November.
Sector focus Sector Top Picks ACEA, EnagasLeast favoured Gas Natural, Theolia
Shareholders Free Float 67.8%, Italian Treasury Minister 21.9%, Cassa Depositi E Prestiti 10.3%
To 31/12 (EUR) 2007 2008E 2009E 2010E
Sales (m) 43 673.0 56 595.0 57 595.0 58 252.0
EBITDA (m) 10 023.0 13 835.0 14 110.0 14 659.0
EBIT (m) 6 990.0 9 635.0 9 710.0 10 059.0 Net att. profit, rest. ( )
3 582.0 3 641.0 3 578.0 3 593.0
Free cash flow (m) 5 083.0 1 301.0 158.0 1 553.0
Clean EPS 0.58 0.59 0.58 0.58
Net dividend 0.49 0.49 0.49 0.49
2007 2008E 2009E 2010E
P/E (x) 14.0 8.8 9.0 8.9
EV/EBITDA (x) 11.7 6.6 6.6 6.6
Attrib. FCF yield (%) 8.2 3.3 0.4 3.9
Net debt/EBITDA (x) 5.6 3.6 3.8 3.7
Yield (%) 6.0 9.4 9.4 9.4
ROCE (%) 8.0 11.3 11.0 11.1
EV/Capital empl. (x) 1.3 1.1 1.1 1.1
Company profile
Leading Italian player – 60% of 2008E EBITDA in Italy ENEL is the leading Italian electricity player, operating all along the supply chain (generation, distribution and sales). It commands a 30% market share in generation and 80% in distribution. In terms of geographical exposure, 2008E EBITDA breaks down as follows: 60% Italy, 6% eastern Europe and Russia, 20% in Spain and 12% LatAm.
Gearing after the acquisition campaign (Debt/EBITDA: 3.6x) Over the past year, ENEL closed two big acquisitions (Endesa for EUR28bn and OGK-5 for EUR2.6bn of cash-out). As a result the company's gearing increased and it is one of the most leveraged companies that we cover (Debt/EBITDA at 3.6x vs. average 2.6x). In terms of debt structure, 50% of the debt is at floating rates and therefore exposed to Euribor fluctuations, and the next re-financing peak is in 2010, when EUR18bn of medium term facilities expire.
Strategy: asset disposals and debt reduction ENEL presented its long-term strategic targets in London last March, calling for 6% EBITDA and 10% EPS CAGR l-f-l over the period 2008-12 and debt declining from >EUR57bn to EUR45-49bn after EUR11-15bn of disposals. Our estimates are below the company's guidance as we expect 3% EBITDA CAGR and flattish EPS. For 2008, after H1 results the company upgraded its guidance to EBITDA of EUR13.8bn in 2008 and debt below EUR50bn (in line). After the completion of the assets disposals to E.ON, ENEL now plans to sell the same grids in Italy (electricity high voltage grid valued EUR1.5bn and gas distribution for an estimated EUR2bn) and list its renewables branch (ENEL Green Power) in H1-09 (potential cash in of EUR3-4bn for a 40% stake).
Many scenarios possibile at Endesa Our estimates are based on the current consolidation scope (Endesa proportionally consolidated and no disposal). ENEL owns and consolidates 67% of Endesa and Acciona owns 25%, but despite its smaller stake that latter has effective control (having majority voting rights). By March 2010, Acciona will be able to sell its stake to ENEL at EUR41.7/share. At this stage many scenarios are possible for Endesa: 1) continued Acciona/ENEL joint management; 2) assets break-up, or 3) exercise of the put option.
SWOT analysis
Strengths Weaknesses Dominant position in Italian
generation and distribution
Highest DY in the sector (9%)
International diversification
High leverage (Debt/EBITDA at 3.6x in 2008)
Low organic growth
No financial flexibility Opportunities Threats
Expansion in renewables (EUR6.8bn capex 2008-12)
Growth of markets under liberalisation (Russia, Slovakia)
IPO renewables assets
Refining risk on EUR18bn credit lines expiring in 2010
Regulatory risk in Spain and Russia
Acciona put option
Valuation We downgrade ENEL from 2/Outperform to 3/Underperform, reducing our TP from EUR8.2 to EUR5.5 after cutting 2009-10 EPS by 12-15%, increasing cost of debt (from 5.5% to 6.5%) and reducing the terminal growth rate from 2% to 1.5%.
We ran a DCF. The WACC is based on: a cost of debt of 6.5%, a 4.5% risk-free rate, a 4% equity market premium, a 1.4 leveraged beta and current leverage with debt representing 50% of total EV. We obtain a WACC of 7.4%. ENEL's equity fair value stands at EUR34bn, based on an enterprise value of EUR101bn (81% attributable to the terminal value), EUR50.3bn in debt, and EUR8bn in pension and other provisions at end-2008. We added EUR1.2bn for the financial stakes, and subtracted EUR7.4bn for minorities and EUR2bn for the put option. We arrive at a valuation of EUR5.5/share. Based on these assumptions we derive a terminal EV/EBITDA of 7.2x, slightly higher than the current sector multiple of 6.7x (2008E).
ENEL trades at ~15% discount to peers on P/E 2009E, which is justified by its lower growth profile and higher gearing. Conversely, it is in line on EV/EBITDA at 6.6x.
Investment case Our positive stance was based on ENEL's cheap valuation relative to the sector and good visibility on the Italian business. However, at this level it trades in line with its peers on EV/EBITDA. As regards the business, we are still confident on Italy, where visibility is fairly high, but we have growing concerns on Spain (tariff deficit) and Russia (market liberalisation). As a result, we believe that the company's risk profile is worsening. Although we do not see a massive risk of a shortfall in our estimates, we think that given the tight financial structure any cash-flow generation deterioration would weigh.
ENEL has no liquidity problem in the short term, but it faces a refinancing peak in 2010 (EUR18bn) on top of which there could be EUR14bn from the exercise of the put option. To contend with this peak it plans to dispose of some assets (grids) and list ENEL Green Power in H1-09. In this difficult market context and given the risk of a credit crunch, we think that visibility is too low and market concerns on the sustainability of debt and dividend are not going to ease soon.
21 October 2008 ITALY ENEL
www.cheuvreux.com
2
Summary Rating downgrade – 2009-10 EPS reduced by 12-15%, higher cost of debt ahead We are downgrading our rating on ENEL from 2/Outperform to 3/Underperform and moving our target price from EUR8.2/share to EUR5.5/share. We are reducing our expectations of growth at OGK-5 and Endesa (lower output given the deterioration of the economic environment in Spain and LatAm) and trimming Italian electricity prices from 2010 onward. As a result, we are cutting our 2009-10 EPS by 12-15%, and we now expect EBITDA CAGR of 3% and flattish earnings for the next few years.
Sector issues: debt and regulation; ENEL has gearing and medium regulatory risk Over the past 18m the sector has been de-rated (EV/EBITDA from 9x to 6.7x 08E) as a result of: M&A value destruction, declining oil prices, high leverage and political/regulatory risk. In the current environment, we favour players with no credit issues, an expected stable regulatory framework and limited exposure to the economic downturn. We see ENEL as a quite risky player, because it is one of the most highly geared players with 50% of debt at floating rates and a re-financing peak (EUR18bn) in 2010. On the regulatory issue, we continue to think that the visibility in Italy is good, but we have concerns about Russia (liberalisation of the market), Spain (tariff deficit) and LatAm (deterioration of the macroeconomic scenario) which taken together represent ~40% of 2012E EBITDA.
Visibility on the Endesa situation remains low – Acciona put option still pending In terms of future prospects there are still several options open. The best case would be a break-up of Endesa assets as it would ease uncertainty, provide ENEL full control of a portion of assets and probably pave the way for more synergies. The worst case in our view would be the exercise by Acciona of its put option as it would imply EUR14bn in additional debt (Debt/EBITDA >4x), further value destruction (EUR3.8bn) and potentially a credit rating downgrade. To contend with this situation, ENEL plans to sell some assets (EUR3bn from grids) and list its renewables companies (maximum cash-in EUR4bn), but given the difficult market scenario we believe that there could be some delays. In our view visibility is fairly low, and market concerns regarding the sustainability of debt and dividends could worsen as we approach the 2010 deadline.
Now trading at a discount to peers on P/E and in line on EV/EBITDA Over the past six months ENEL performed better than the Italian market by 15% and broadly in line with sector. At this stage, the stock is no longer cheap vs. peers, as it is trading at a 15% discount to its peers on P/E (justified by its low growth profile and higher-than-average gearing) but broadly in line on EV/EBITDA and EV/EBIT. It still offers an appealing 9% DY, which we believe is sustainable at least for 2008.
We do not see massive downside risk on our estimates, but debt is a risk We do not see massive downside risk on our estimates, but we note that any deterioration of the cash flow generation would heavily impact the stock given its geared balance sheet. We therefore do not see significant reasons for the stock to outperform the sector.
EUROPEAN ELECTRICITY UTILITIES 2009 MULTIPLES
(EUR m, EUR, %) Rating Mkt. Cap. Price Target Upside P/E EV/EBITDA EV/EBIT Yield Debt/EBITDA
E.ON 2 53 339 28.7 48.0 67.2% 8.5 5.8 7.8 5.6% 2.3
EDF 2 75 465 41.4 65.0 56.9% 12.9 7.2 11.8 3.4% 1.1
ENDESA 2 23 838 22.5 41.7 85.3% 10.4 5.6 7.7 5.0% 1.7
ENEL 2 to 3 32 146 5.2 5.5 5.8% 9.0 6.6 9.6 9.4% 3.8
GDF SUEZ 2 64 821 29.4 46.0 56.5% 9.5 6.0 8.2 6.8% 1.4
IBERDROLA 1 29 463 5.9 8.4 42.5% 11.4 7.2 10.4 5.1% 3.4
RWE 1 30 521 58.5 89.0 52.1% 6.9 4.5 5.9 9.0% 0.3 Source: Cheuvreux
21 October 2008 ITALY ENEL
www.cheuvreux.com
3
CONTENTS
Summary 3
I— Valuation 5 Valuation 5 SOP valuation 5 Stock performance and multiples 6
II— Estimates revision 8 III— Sector issues: debt, M&A and regulation 9
M&A 9 Political and regulatory risks 9 Is the dividend at risk? 10 Debt structure and analysis 10 Goodwill 12
IV— Scenario analysis 14 Distressed scenario analysis 15
Our DCF Valuation 16 Environmental. Social. Governance Issues 17
CHEUVREUX'S UTILITIES TEAM
Damien De Saint-Germain (coord.) France (33)-1-41 89 73 12 ( Direct ) [email protected]
David Halldén Nordic (46)-8-723 5170 ( Direct ) [email protected]
Sebastian Kauffmann Germany (49)-69-478 97 524 ( Direct ) [email protected]
Fernando Lafuente Spain (34)-91-495 16 28 ( Direct ) [email protected]
José Ramón Ocina Spain (34)-91-495 16 29 ( Direct ) [email protected]
Francesca Pezzoli Italy (39)-02-80 62 83 80 ( Direct ) [email protected]
Laurent Poinsot France (33)-1-41 89 73 15 ( Direct ) [email protected]
Costas Theodorou France (30)-210-373 4004 ( Direct ) [email protected]
Benoit Trochu France (33)-1-41 89 75 74 ( Direct ) [email protected]
Rene Jurgen Ulamec Austria (43)-1-22712 7019 ( Direct ) [email protected]
21 October 2008 ITALY ENEL
www.cheuvreux.com
4
I— Valuation We are reducing our rating on ENEL, moving our target price from EUR8.2 to EUR5.5/share. The reasons for the downgrade are: 1) we are reducing our 2009 and 2010 EPS estimates (by 12% for 2009 and 15% for 2010) after cutting our forecasts on OGK-5 and Endesa, lowering electricity prices for Italy after 2010; and 2) we are raising our cost of debt from 5.5% to 6.5% and reducing g from 2% to 1.5%. Moreover, ENEL is now trading broadly in line with peers on EV/EBITDA and we do not see any substantial reasons to outperform the sector.
Valuation We are moving our target price from EUR8.2/share to EUR5.5/share. The change follows our EPS reduction (-12% for 2009 and -15% for 2010) and the change in some parameters of our DCF, namely: 1) cost of debt from 5.5% to 6.5% (marginal cost of debt, assuming 5% Euribor and 150bp of spread); and 2) g from 2% to 1.5%. As a result, our terminal EV/EBITDA multiple moves from 8x to 7.2x (a touch above the 2008E sector multiple of 6.7x). We derive a 7.4% WACC and 10% cost of equity.
We value the total EV at EUR101bn. We deduct EUR50bn of debt expected at the end of 2008, EUR8bn in pension and other provisions, EUR7.4bn in minorities (1.8x P/BV) and EUR2bn for the put option valuation. We add EUR1.1bn of financial stakes and come up with EUR34bn of equity corresponding to EUR5.5/share.
WACC CALCULATION ENEL: DCF VALUATION
Cost of debt 6.5%
Risk-free rate 4.5%
Equity market premium 4.0%
Unleveraged beta 0.76
Beta 1.40
Debt/EV 50%
Equity/EV 50%
Tax rate 27.5%
g 1.50%
Net cost of debt 4.7%
Cost of equity 10.1%
WACC 7.4%
(EUR m, EUR, %) Total Per share % Of EV
DCF 2009-2013 19 010 3.1 19%
Terminal value 81 537 13.2 81%
Enterprise value 100 547 16.3 100%
Net debt 2008 (50 319) (8.1) -50%
Provisions (8 058) (1.3) -8%
Put option (2 000) (0.3) -2%
Financial stakes 1 170 0.2 1%
Minorities (7 440) (1.2) -7%
Equity value 33 899 5.5 34%
g 1.5%
Terminal EV/EBITDA (x) 7.2 Source: Cheuvreux Source: Cheuvreux
SOP valuation We cross-check our DCF via a SOP based on multiples, RAB and DCF.
We value the Italian business at EUR54bn (53% of the total EV) or EV/EBITDA of 6.7x, which seems a reasonable multiple given that nearly half of the business is regulated (electricity distribution).
We value Centrel (SE) at EUR5.2bn or EV/EBITDA of 7x
We value Russia EUR1.5bn implying an EV/EBITDA of 7x, which could be considered a low multiple given the high growth expected, but we believe it is reasonable given the risk profile.
We value EUFER and ENEL LatAm at EUR2bn or EV/EBITDA of 8x as they operate in the renewables business.
7.4% WACC and 10% cost of equity
DCF delivers EUR5.5/share
21 October 2008 ITALY ENEL
www.cheuvreux.com
5
We value Endesa via a DCF. We have moved our fair value from EUR35.4/share to EUR30.7/share after reducing our 2009-10 estimates. We value the Spanish business at an EV/EBITDA of 8.7x and LatAm at 6.2x.
We deduct debt, the put option, minorities and provisions and we reach EUR5.5/share fair value.
ENEL: SOP VALUATION
(EUR m, EUR, x) 2009E EBITDA Method EV/EBITDA (x) EV Per share
Market 390 Multiple 6 2340 0.4
Generation 3 598 Multiple 6.5 23 390 3.8
Infrastructure & Network 3 933 15% RAB premium 7 27 533 4.5
Other 52 Multiple 6 312 0.1
Total Italy 7 974 6.7 53 574 8.7
Centrel 740 Multiple 7 5 183 0.8
SE Europe 297 Multiple 7 2 077 0.3
Russia 201 Multiple 7 1 500 0.2
Others 109 Multiple 7 763 0.1
ENEL LatAm 161 Multiple 8 1 288 0.2
EUFER 101 Multiple 8 808 0.1
Total ENEL International business 1610 7.2 11 619 1.9
Endesa Spain & Portugal (67%) DCF 8.7 24 316 3.9
Endesa LatAm (67%) DCF 6.2 11 034 1.8
Total EV 14 110 7.1 100 543 16.3
Financial stakes 1 170 0.2
Minorities (7 440) (1.2)
Pension and other provisions (8 058) (1.3)
Net debt 08E and put option (52 319) (8.5)
Equity 33 896 5.5Source: Cheuvreux
Stock performance and multiples In terms of performance, we note that ENEL outperformed both the Italian market (by 15%) and broadly in line with the STOXX Utilities over the past six months.
ENEL, SPMIB and STOXX utilities performance
50
60
70
80
90
100
110
4/17
/200
8
5/1/
2008
5/15
/200
8
5/29
/200
8
6/12
/200
8
6/26
/200
8
7/10
/200
8
7/24
/200
8
8/7/
2008
8/21
/200
8
9/4/
2008
9/18
/200
8
10/2
/200
8
10/1
6/20
08
Stoxx utilities SPMIB ENEL
Source: Cheuvreux
21 October 2008 ITALY ENEL
www.cheuvreux.com
6
Looking at multiples, we note that our positive view on ENEL has long been based on the fact that the company was trading at a significant discount to the sector. At this stage, ENEL is cheaper than peers only on P/E (15% discount for 2009E) but we think it is justified by its lower growth profile (no growth vs. 8% sector average) and much higher gearing. Conversely, In terms of EV/EBITDA and EV/EBIT it is now trading broadly in line with peers. As a result we do not see significant reasons for ENEL to outperform the sector. The DY, however, remains appealing (>9% vs. 6% sector average).
EUROPEAN ELECTRICITY UTILITIES MULTIPLES
(x. %) P/E EV/EBITDA EV/EBIT Yield (%)
2008E 200E9 2008E 2009E 2008E 2009E 2008E 2009E
A2A 11.4 9.1 5.9 5.3 8.7 7.7 7.3 8.0
EDISON 15.5 12.4 5.8 5.3 11.3 9.5 4.4 4.8
E.ON 9.3 8.5 6.3 5.8 8.6 7.8 5.6 6.1
EDF 14.8 12.9 7.6 7.2 12.7 11.8 3.4 3.9
EDP 8.4 11.6 6.7 6.4 11.1 10.6 5.9 4.3
ENDESA 10.0 10.4 5.3 5.6 7.2 7.7 5.0 4.8
ENEL 8.8 9.0 6.6 6.6 9.5 9.6 9.4 9.4
FORTUM 10.8 8.8 7.8 6.5 9.5 7.8 7.0 7.8
GDF SUEZ 11.0 9.5 6.6 6.0 9.3 8.2 6.8 5.6
IBERDROLA 10.2 11.4 7.4 7.2 10.5 10.4 5.1 5.6
IRIDE 8.2 8.3 5.9 5.5 9.3 8.5 7.0 7.9
RWE 10.6 6.9 5.0 4.5 6.6 5.9 9.0 7.7
UNION FENOSA 17.4 17.1 9.8 9.3 13.5 13.0 3.0 3.2
Electricity average 11.2 10.5 6.7 6.2 9.8 9.1 6.1 6.1
ENEL discount/premium to the sector -23% -15% -1% 6% -4% 6% 55% 55%Source: Cheuvreux
Trading in line with peers on EV/EBITDA
21 October 2008 ITALY ENEL
www.cheuvreux.com
7
II— Estimates revision We are reducing our EPS estimates by 12% in 2009 and 15% in 2010 after reducing expectations on Russia and Spain and increasing the cost of debt.
We are reducing our 2009 and 2010 estimates following the deterioration of the economic scenario, tough credit market situation, higher interest rates (Euribor still at ~5%), and declining oil prices (oil price assumptions moved from USD100/bbl to USD90/bbl after 2009).
We are assuming a lower growth rate in Russia, as we believe that the liberalisation process and the related upward trend in electricity prices could be delayed. At Endesa we are reducing our 2009-10 EBITDA by 5% and EPS by 8%, after lowering our electricity production estimates and LatAm generation and distribution volumes as well. In Italy, visibility is high up to 2009 (80% of volumes already secured), and we are just fine-tuning our electricity prices from 2010 onward (from EUR75/MWh to EUR70/MWh).
Given the sharp increase in Euribor (still at ~5%) and the fact that 50% of debt is at floating rates, we are also revising up the expected cost of debt: from 5.4% to 5.7% in 2009 and to 6% in 2010 when new bonds should be issued with a higher spread (we estimate that marginal cost of debt could be in excess of 6.5%). As a result, we are reducing our net profit estimates by 12% in 2009 and 15% in 2010.
ENEL: 2008-10E REVISED ESTIMATES
(EUR m, %) 2008E 2009E 2010E
New Prev. % Chg. New Prev. % Chg. New Prev. % Chg.
EBITDA 13 835 13 756 0.6% 14 110 14 467 -2.5% 14 659 15 219 -3.7%
EBIT 9 635 9 556 0.8% 9 710 10 067 -3.5% 10 059 10 619 -5.3%
Net profit adj. 3 641 3 717 -2.0% 3 578 4 053 -11.7% 3 593 4 246 -15.4%Source: CheuvreuxEe
As a consequence, we are reducing our expectations of growth for the following years. Based on our new estimates, ENEL offers a modest operating growth profile (EBITDA CAGR of 2-3%). For EPS we expect a flattish profile for the next few years as the low operating growth would be offset by expected increasing cost of debt (peak in 2010, when new bond should be issued).
ENEL: 2008-12E ESTIMATES
CAGR
(EUR m, %) 2007A 2008E 2009E 2010E 2011E 2012E 08-10E 08-12
Sales 43 673 56 595 57 595 58 252 53 226 52 193 1% -2%
EBITDA 10023 13835 14110 14659 15713 15725 3% 3%
D&A (3 033) (4 200 (4 400 (4 600 (4 800) (5 000)
EBIT 6 990 9 635 9 710 10 059 10 913 10 725 2% 3%
Financial charges (902) (2 900) (2 950) (3 200) (3 300) (3 300)
Pre-tax profit 6 088 6 735 6 760 6 859 7 613 7 425 1% 2%
Taxes (2 002) (2 021) (2 332) (2 366) (2 626) (2 562)
Minorities (236) (800) (850) (900) (950) (1 000)
Discontinued 127 226 0 0 0 0
Net profit 3 977 4 141 3 578 3 593 4 036 3 864 -7% -2%
Net profit adj 3 582 3 641 3 578 3 593 4 036 3 864 -1% 1%
Source: Cheuvreux
We are reducing our forecasts for Russia
and Endesa
We cut 2009 EPS by 12% and 2010 by 15%
We expect modest growth profile
Higher cost of debt
21 October 2008 ITALY ENEL
www.cheuvreux.com
8
III— Sector issues: debt, M&A, regulation We see several reasons for the electricity utilities sector de-rating: high leverage in a period of widening credit spread, M&A value destruction, declining oil prices and regulatory/political risk. In this light we consider ENEL as riskier relative to the sector as it has high gearing and a refinancing peak in 2010 and with a medium/high risk profile in terms of regulation (exposure to Russia, Spain and LatAm which all together represent 40% of the group EBITDA). Overall, we do not see a huge downside risk on our forecasts, but given the stretched financial structure any deterioration of cash-flow generation would have a particularly negative impact.
M&A Overall, in the past 18 months electricity utilities EV/EBITDA multiple has fallen from 9x to 6.7x 2008E. We believe that the sector de-rating is related to several issues, namely: 1) value destruction from M&A (several acquisitions at the peak of the cycle), 2) political interference (i.e. Spain, France, Belgium, "Robin Hood" tax in Italy), 3) the decline in oil prices (negative earnings momentum), 4) uncertainty on project IRR at a time of a ramp-up in capex; and 5) strong exposure to the credit market and widening credit spread.
As regards the risk of value destruction from M&A, we believe that it is no longer an issue for ENEL as it completed its external growth process recently and we do not expect other acquisitions in the near future. In any case, the main deals closed (Endesa and OGK-5) were carried out at the peak of the cycle: for Endesa acquisition an EV/EBIDTA multiple of ~9x vs. current sector multiple of 6.7x and OGK-5 bought at >20x in light of the future market liberalisation. At this point, value destruction is already factored into market prices, and the remaining issue is the potential write-downs of goodwill that could occur in future.
Political and regulatory risks Political interference is becoming a relevant issue for utilities given that peaking electricity prices are often perceived as a political problem. With regard to ENEL, we see modest risk on the Italian business, as regulation is fairly stable and recently the Italian minister of industry officially stated that the Italian Government is not considering a freeze on public services tariffs. With regard to current market concern on the decline in electricity prices following the drop in oil prices and increasing competition, we do note that we already include in our estimates a reduction of spark spreads going forward and that a big portion of 2009 sales (80%) is already secured at EUR85/MWh and therefore the negative impact of price reductions could occur from 2010 onward.
Russia today represents a negligible percentage of group EBITDA, but after the acquisition of OGK-5 (fully consolidated from H2-08) and given the massive growth expected, it should represent 5% of 2012E EBITDA. Here we see significant risk of downside on estimates, as expected growth should derive from gradual market liberalisation fuelling electricity prices and margins. We believe that with the deterioration of the economic environment (we recently reduced our 2008-09 GDP expectations to 3.5%) liberalisation may possibly be postponed. Political and industrial risks here are high.
For Endesa, we see a medium/high level of risk. In Spain, we believe that the risk of government intervention in the utility sector is mounting, and we remain concerned about the tariff deficit, which is becoming bigger and more difficult to secure. In our view, the solution will be a mix of above inflation tariffs hikes, lower revenues for generator sand partial waiver of the cumulative tariff deficit not secured.
Electricity utilities sector de-rating
No more M&A risks. Write downs?
Low risk in Italy
High risk in Russia
Medium to high risk in Spain
21 October 2008 ITALY ENEL
www.cheuvreux.com
9
ENEL EBITDA BREAKDOWN 2008E AND 2012
(x, %) 2008E % Of the total 2012E % Of the total Risk (?)
Italian 8 128 59% 7 678 49% Low
Centrel 733 5% 793 5% Medium
SE Europe 181 1% 456 3% Low
Russia 59 0% 847 5% High
Endesa 4 494 32% 5 300 34% Medium/High
Other International 240 2% 651 4%
Total 13 835 100% 15 725 100% Source: Cheuvreux
Is the dividend at risk? One of the main concerns of the market these days is the sustainability of the dividend. With >9% DY (vs. 6% sector average) ENEL is one of the most appealing players in our coverage, and its official guidance entails a stable dividend at EUR0.49/share for the next few years.
Given the high debt, the market fears that the dividend could be cut; in any case, we do not think this is likely to happen in 2008 as: 1) recently it has approved the interim dividend of EUR0.2 to be paid in November and confirmed the FY dividend; 2) even in case of goodwill write-down, ENEL should have EUR5bn in distributable reserves at the end of 2008 that could be used to pay the annual dividend (EUR3bn); and 3) there is no short-term refinancing need/liquidity stress. We believe a dividend cut is more likely in 2009 if Acciona intends to use the put option. In this case and if the credit market remains tight, we believe that ENEL could decide to reduce or even cancel the dividend payment.
Debt structure and analysis Utilities are very exposed to the credit market. Financing is a key issue as it fuels growth and they have strongly re-leveraged over the past three years (share buybacks, capex, M&A). With regard to debt, ENEL is not in a good position compared with the sector, as it is one of the most highly geared companies in Europe: Debt/EBITDA of 3.6x vs. a sector average of 2.6x, and Debt/Cash flow at 6.4x vs. 3.6x. Moreover it faces a sizable refinancing peak in 2010 (EUR18bn) and 50% of the debt is at floating rates.
ENEL debt topped EUR51bn at the end of the first half, and it announced the target of reducing debt to below EUR50bn by year end, which we believe is an achievable target, especially if it closes the sale of the high voltage grid to Terna at EUR1.5bn. In any case, Terna recently stated that it may consider postponing the offering to 2009, and therefore we fear that this deal could be delayed. At the moment we expect ~EUR50bn of debt by the year end and Debt/EBITDA at 3.6x.
Regarding the debt structure, we highlight the following points:
The average maturity is 5 years and 3 months;
The average cost of debt is 5.3%;
Debt at fixed rates and hedged represents 50% of total debt, whereas the remaining 50% is at floating rates ;
The credit rating is still quite solid (A-/A-2 outlook negative from S&P and A2/P-1 outlook negative from Moody's).
ENEL one of the most geared companies in
Europe
Appealing DY, we think 2008 dividend is
safe
2009 dividend could be at risk if Acciona
exercises the put
21 October 2008 ITALY ENEL
www.cheuvreux.com
10
EUROPEAN UTILITIES: DEBT AND CREDIT RATIO COMPARISON
(%, x) Gearing Interest cover Debt/EBITDA Debt/CF
2008E 2009E 2008E 2009E 2008E 2009E 2008E 2009E
E.ON 65 65 8.1 6.8 2.4 2.3 2.9 2.9
EDF 56 57 6.8 7.7 1.1 1.2 1.3 1.4
ENDESA 54 48 8.3 8.7 1.8 1.7 1.3 2.5
IBERDROLA 77 80 6.8 5.4 3.4 3.4 4.1 4.9
ENEL 202 208 4.9 4.8 3.6 3.8 6.4 6.6
EDP 117 123 4.3 4.4 3.6 3.6 4.6 5.4
FORTUM 44 37 16.3 NS 1.5 1.2 2.1 1.6
GDF SUEZ 29 30 12.7 13.1 1.4 1.4 1.9 1.8
RWE 12 16 7.3 9.6 0.2 0.3 0.2 0.3
UNION FENOSA 84 80 7.3 7.0 2.5 2.4 3.8 3.7
A2A 79 77 6.4 6.5 3.4 3.1 5.2 4.4
ACEA 103 120 8.3 8.3 2.5 2.8 3.6 4
HERA 97 96 5.7 6.9 2.8 2.5 4.3 3.8
IRIDE 92 93 7.3 8.2 3.7 3.5 5.3 5.4
ENIA 66 71 6.7 8.7 2.8 2.9 3.8 4
SUEZ ENVIRONNEMENT 128 125 7.4 6.8 2.7 2.7 3.8 4.1
VEOLIA ENVIRONNEMENT 167 166 4.3 4.0 4.3 4.1 6.4 6.3
Average 86.5 87.7 7.6 7.3 2.6 2.5 3.6 3.7Source: Cheuvreux
After the disposal of Viesgo and Endesa Italia, ENEL significantly improved its short-term liquidity and has enough funds to cover its redemptions with no significant refinancing need until Q1 2010. The next peak in re-financing is in April 2010 when EUR14bn of loans subscribed for the Endesa acquisition mature. Moreover, in April 2010 the Acciona put option expires, meaning that ENEL could have to pay another EUR11bn and >EUR3bn to acquire the minorities still listed. We believe that the group will have to work hard on its re-financing as soon as credit market's conditions normalise in order to gradually refinance its medium term maturities.
ENEL FUTRUE REFINANCING NEEDS ENEL DEBT STRUCTURE
Source: ENEL Source: ENEL
Focus on refinancing its medium-term
maturities
21 October 2008 ITALY ENEL
www.cheuvreux.com
11
After the re-leverage in mid-2007, ENEL's credit default swap moved significantly, and we believe it is becoming a quite relevant parameter to explain ENEL's performance given the big impact of cost of debt on the cost of capital. Year-to-date, ENEL's five-year CDS moved up from a 73bp credit spread vs. Euribor to the current >150bp. The utilities sector index experienced a sharp increase in the credit spread compared with last year's level when spreads were minimal. However ENEL's CDS performance is worse than the sector due to the relevant increase of debt in a period when credit markets are tightening. Even if the current average cost of debt is 5.3%, it is reasonable to suppose that new bonds would be issued at higher spreads. Euribor is still at ~5%. We therefore estimate that the marginal cost of debt could be in excess of 6.5%.
Moreover we note that last week GdF-Suez issued two bonds: EUR1bn, 5 years maturity with 200bp spread and EUR0.9bn, 10 years maturity with 240bp spread. Given that GdF-Suez financial situation (debt/EBITDA at 1.4x) as well as credit default swap (75bp vs. 150) are much better than ENEL's ones we think that the read across for ENEL is quite negative.
ENEL AND UTILITIES SECTOR 5 YEARS CDS
0
20
40
60
80
100
120
140
160
180
1/1/
2007
2/1/
2007
3/1/
2007
4/1/
2007
5/1/
2007
6/1/
2007
7/1/
2007
8/1/
2007
9/1/
2007
10/1
/200
7
11/1
/200
7
12/1
/200
7
1/1/
2008
2/1/
2008
3/1/
2008
4/1/
2008
5/1/
2008
6/1/
2008
7/1/
2008
8/1/
2008
9/1/
2008
10/1
/200
8
Eu
rib
or
spre
ad (b
p)
Int. Index CDS Utilities 5Y ENEL 5Y SEN
Source: Bloomberg
Goodwill ENEL is one of the utilities with the highest amount of goodwill on the balance sheet (ER24bn in H1-08), mainly due to the Endesa acquisition completed in 2007 (EUR20bn in goodwill) and to a lesser extent to the recent acquisition of Russian Genco OGK-5 (EUR1.5bn). Endesa's goodwill has been reduced by ~EUR4bn following the sale of assets (Endesa Italia and ENEL Viesgo) to E.ON at the beginning of 2008. Moreover, ENEL announced its intention to allocate part of this goodwill to assets by the year end, thus increasing depreciation by ~EUR300m per annum. As a result, we believe that a further reduction of the goodwill of ~EUR6bn is likely. Therefore, by year end, we expect total goodwill to top EUR18bn, which should represent the total maximum potential write-down.
For the sake of simulation, we estimate the possible impairment of goodwill, deriving a potential impact of EUR10-15bn assuming either market price (worst case) or a 30% discount vs. purchase prices. In any case, we note that: 1) current market prices are particularly depressed and are perhaps not fully representative of the fair value, also considering the very limited free float (8% for Endesa and 15% for OGK-5); and 2) for IFRS, Endesa and OGK-5 are valued via a DCF and the company does not expect to have carry out write-downs.
Peaking CDS in the sector
ENEL 5 years CDS at >150bp
EUR24bn of goodwill recorded
21 October 2008 ITALY ENEL
www.cheuvreux.com
12
ENEL: GOODWILL ANALYSIS
(EUR m) 31/12/2007 30/06/2008 Potential impairment at
market price
Potential impairment at 30% discount to
acquisition price
Total intangible assets 28 177 26 250
o/w Goodwill 26 274 24 291
o/w Endesa 24 458 20 202 13 500 9 000
o/w OGK-5 - 1 516 1 516 600
o/w Other 1 816 2 573
Source: ENEL and Cheuvreux
21 October 2008 ITALY ENEL
www.cheuvreux.com
13
IV— Scenario analysis We believe that ENEL's profile in the near future is not easy to determine, as many options are possible, namely: 1) continued joint management of Endesa with Acciona; 2) Acciona put option exercisef by March 2010; or 3) earlier termination of the contract with Acciona and new agreement (assets break-up, cash payment to Acciona or a combination of the two). We therefore believe that the best thing is to analyse the financial profile and valuations in various scenarios.
Our current estimates and valuation are based on the existing consolidation scope, proportionate consolidation of Endesa at 67% and no disposal, even if the company recently reiterated its intention to sell some assets (EUR3-3.5bn cash-in expected from sale of minor grids) and list ENEL Green Power (40% stake) in order to raise money, improve the financial structure and handle the put option if necessary. Under current estimates we expect Debt/EBITDA to stay stable at the current level of 3.6-3.7x up to 2010 which could be considered a high but sustainable level.
Our best case would be the break-up of Endesa as it would give to ENEL full control of its portion of assets with little additional debt: EUR3.5bn to buy out Endesa minorities implying EUR1.8bn of value destruction at current market prices. On the positive side, the negative impact of the put option (EUR2bn) would disappear, and the current situation of uncertainty on the debt, dividends and corporate governance would be eased. We recognise that Acciona is in a good bargaining position given the protection due to the put option, but we think that a break-up would be a win-win situation resolving current corporate governance problems and paving the way for more synergies.
Exercise of the Acciona put option represents a worst-case scenario in our view as it would imply additional debt and should prompt a buy-out of minorities at EUR41.7/share (put option price). In this scenario we estimate that debt would be lifted from EUR50bn to EUR68bn (after EUR11bn of put option, EUR4bn of additional Endesa's debt to be consolidated and EUR3bn to acquire minorities). Debt/EBITDA would move to >4x, which in our view would very likely imply a credit rating downgrade. Even assuming a cost of debt of 6.5% this scenario is mildly EPS accretive (5% on average), as Endesa would be fully consolidated (3% EPS accretion with 7% cost of debt).
Last scenario assumes the exercise of the put option and buy-out of minorities acquisition, but also disposal of grids and listing of ENEL Green Power. In this case, Debt/EBITDA would remain below 4x. We believe that the disposal of grids is reasonable (the sell of the high voltage grid to Terna could be postponed to Q1-09 but there are several potential buyers for gas distribution network), whereas the listing of the ENEL Green Power looks quite difficult in these market conditions.
ENEL: 2008-10E FIGURES AND RATIO IN DIFFERENT SCENARIOS
(EUR m, x, %) Current estimates Post put option + minorities acquisition
Post put option + minorities and disposals
2008E 2009E 2010E 2008E 2009E 2010E 2008E 2009E 2010E
EBITDA 13 835 14 110 14 659 15 931 16 326 17 005 15 571 15 959 16 630
Debt 50 346 53 218 54 694 68 258 70 926 72 289 59 958 62 626 63 989
Debt/EBITDA 3.6 3.8 3.7 4.3 4.3 4.3 3.9 3.9 3.8
Earnings 3 676 3 578 3 593 3 879 3 746 3 820 3 690 3 513 3 534
EPS accretion/dilution 3% 5% 6% 0% -2% -2%Source: Cheuvreux
Our estimates are based on current
perimeter
Best case: Endesa assets break-up
Worst case: put option exercise
21 October 2008 ITALY ENEL
www.cheuvreux.com
14
We also try to assess our valuation in the various scenarios in order to determine the potential maximum downside. The base case reflects the current situation in which we value the stock EUR5.5/share implying a P/E of 10x for 2008 and EV/EBITDA of 7x.
The best case scenario assumes Endesa's break-up under reasonable conditions and therefore no more pending put option and little additional synergies. Moreover, we include the liberalisation of the Russian market, which would justify the full price of the acquisition (~EUR2.6bn). Against this backdrop we value the stock at EUR6.5/share (24% upside).
The worst-case scenario is instead based on the exercise of the put option, meaning additional debt at higher cost (6.5%) and added value destruction from the additional acquisition of 33% of Endesa (EUR3.8bn of potential value destruction vs. our fair value of Endesa of EUR30.7/share). In this case we would value the stock at EUR4.6/share, thus implying 12% downside.
ENEL: VALUATION UNDER IN DIFFERENT SCENARIOS
Valuation (EUR, %) Base case Best case Worst case Fair value 5.5 6.5 4.6
Current price 5.20 5.20 5.20
Upside 6% 24% -12%Source: Cheuvreux
Distressed scenario analysis Given the current credit market environment we performed a "liquidity stress test", assuming that no refinancing can be carried out due to credit market conditions with a view to determining how long each company can repay debt redemptions without further issues.
As far as ENEL is concerned, the liquidity position is positive in 2008 as it has enough cash and undrawn loan facilities to face its refinancing needs. In 2009 there is a minimal negative liquidity position, and there is a peak of EUR18bn in 2010. On top of this, there the put option could be exercised and minorities bought out (EUR14bn). Overall, the total amount to be refinanced would be in excess of EUR32bn.
ENEL: LIQUIDITY STRESS
(EUR m) <12 months H2 2009E 2010E 2011E 2012E >2012E Refinancing schedule 9 461 1 121 14 707 2 510 11 802 19 052
H2 2008, new issues 0
Cash and equivalents 7 362
Undrawn portion of LF 4 200 (1 300) (2 900)
Net financial debt 51 291
Excess liquidity position 2 101 (320) (17 927) (20 437) (32 239) (51 291)
Source: H1-08 report, Fichier Supply
Assuming that access to credit would continue to be difficult in 2009 as well, we believe that the possible measures to contend with the re-financing peak in 2010 are:
Cancel 2009-10 dividends. The company announced flat DPS of EUR0.49 for the next few years, meaning a cash-out of ~EUR3bn per annum. A dividend cancellation would therefore save EUR6bn.
Assets disposal.
Reduce capex in 2009-10. ENEL announced its intention to invest EUR7bn per year, assuming that capex would be halved (meaning only maintenance capex and no development) which would result in additional savings of ~EUR7bn.
A rights issue. In our view this would be quite difficult as it could dilute the Government's stake and we thus believe that could be considered to be a remote possibility.
Worst case at EUR4.6/share
21 October 2008 ITALY ENEL
www.cheuvreux.com
15
Our DCF Valuation WACC Risk free rate 4.5%
Risk premium 4.0%
Beta 1.40
Cost of equity 10.1%
Gearing in market value 100.0%
Debt Spread 2.0%
Cost of Debt 6.5%
Tax rate 27.5%
WACC 7.4%
IMPLICIT VALUE
Implicit Beta 1.55
Implicit Wacc 7.7%
DCF SUMMARY
2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E
EBITDA 13 835 14 110 14 659 15 713 15 725 14 825 15 122 15 424 15 732
Tax on EBITA (2 891) (3 399) (3 521) (3 820) (3 754) (3 404) (3 472) (3 541) (3 612)
Change in WCR 0 0 0 0 0 0 0 0 0
Capex (6 540) (7 820) (6 640) (6 460) (5 100) (5 100) (5 100) (5 100) (5 100)
Financial investments 0 0 0 0 0 0 0 0 0
Disposals 7 138 0 0 0 0 0 0 0 0
Operating FCF 11 543 2 892 4 498 5 433 6 871 6 321 6 550 6 783 7 020
Discounted Free Cash Flow 0 2 692 3 899 4 385 5 162 4 422 4 266 4 112 3 963
FCF Growth Target Value Percent x/EBITDA x/EBITA
1-8 years +3.8% 32 900 32.6%
Terminal value +1.5% 68 055 67.4% 7.7 11.7
Enterprise value 100 955 100.0% 7.2 10.5
DCF VALUE
Enterprise value 100 955
Financial Assets & Associates 1 170
Capital Employed 102 125
Pension provisions (2 920)
Other provisions (5 123)
Net Financial Debt (50 381)
Minority interests (7 429)
Dilution 0
Shareholder's Equity 36 272
/ Number of Shares 6 182.00
/ Potential number of Shares 0.00
Per Share 5.87
Per Share fully diluted 5.87
Last Price 5.20
SENSITIVITY OF OUR VALUATION TO CHANGES IN THE WACC/ DISCOUNT RATE AND IN GROWTH TO INFINITY
Discount rate or WACC % 6.9 7.4 7.9
1.0 6.3 5.1 4.11.5 7.2 5.9 4.8
Growth rate to infinity (%)
2.0 8.3 6.8 5.5
21 October 2008 ITALY ENEL
www.cheuvreux.com
16
Environmental. Social. Governance Issues
CORPORATE GOVERNANCE HIGHLIGHTS
1. Does the company disclose its corporate governance policies or guidelines? Yes
2. Does the company have a combined chair/CEO? No
3. Percent Independent Directors 88.90%
4. Do all executive board members own shares after excluding options held? ND
5. Do all common or ordinary equity shares have one-share, one-vote, with no restrictions? Yes
6. Is there a single shareholder or shareholder group which controls a majority of the voting power of the company? No
7. Do shareowners have a right to act in concert through written communication? No
8. Do shareholders have a right to convene an EGM with 10% or less of the shares requesting one? No
9. Is the company currently under investigation for accounting irregularities? No
10. Has the company adopted a shareholder rights plan ("poison pill")? No
11. Potential Dilution from Stock Options Outstanding + Not Yet Granted Under Old or New Plans 0.00%
12. Disclosure on CEO remuneration details (amount detailed if disclosed) Yes The information contained in this table is written and presented under the sole responsibility of GMI. CA Cheuvreux does not accept any responsibility for any loss which may arise from reliance on information contained in this table Source: GMI
CORPORATE GOVERNANCE ANALYSIS
ENEL publishes a detailed corporate governance statement on its website, which specifies the board's role in setting and benchmarking corporate strategy. GMI has nevertheless been forced to red-flag the Market for Control section due to "golden shares" held by the Italian government's Economy Ministry, which owns, both directly and indirectly, 31.6% of capital. Of this 31.6%, the Italian Economy Ministry owns 21.4% of shares directly and 10.2% indirectly through the state-run lender Cassa Depositi e Prestiti. As a result, a hostile bid is not possible as the Italian Government has a stake sufficient to block any EGM. ENEL board is composed of nine members, eight of whom are independent according to GMI standards. CEO compensation is disclosed and in 2007 it amounted to EUR3.1m.
E&S ISSUES FOR THE ELECTRICITY UTILITIES SECTOR 1 Power plants are regulated under the EU ETS and bear most of the reduction effort. How is the company attempting to reduce CO2 emissions?
What is its record and expectations regarding the gap between allowances and emissions? Analysis for ENEL ENEL plans ~43mtonnes of CO2 emissions in Italy in the next five years, o/w ~80% (35m tonnes per year) will receive free allocations. In Spain (Endesa) planned emissions are ~42 .5m tonnes per year, o/w ~60% (25m tonnes per year) will receive free allocations. Overall in the period 2008-12 ENEL will have yearly CO2 emissions shortage of ~22m tonnes. The existing CER portfolio in Italy includes 75m tonnes o/w ~35m tonnes can be used directly in Italy for compliance. CO2 strategy for phase II is good whereas, after 2013, visibility is low. In relative terms ENEL has medium-high carbon intensity vs. peers (490 kgCO2/MWh in 2006). The industrial strategy in Italy envisages the conversion of old oil-fuelled plants into clean coal-power plants (additional 1.9GW by 2012).
2 For nuclear plants: decommissioning provisions? Waste treatment and transports – are risks tightly controlled? Analysis for ENEL 8% of ENEL's power generation was nuclear in 2006 and this is expected to top 10% of installed capacity by 2012, including the Endesa stake (19% nuclear). At the end of 2007, ENEL reported EUR2.5bn of provisions for nuclear decommissioning. In the business plan, EUR2bn of capex is directed towards nuclear technology.
3 The Renewable Directive and the Energy End-Use Efficiency Directive are incentives for innovation. Does the company invest and to which
extent, in renewable energy or energy efficiency? Analysis for ENEL In its 2008-12 capex plan ENEL budgeted for EUR8.6bn of investments in renewables. The bulk of capex will be directed at increasing wind capacity (from 857MW to 4,750MW) and a smaller proportion will be to upgrade current geothermal and mini-hydro capacity. By 2012, the target is to maintain ~28% of total volumes generated from renewable sources (22% hydro and 6% other renewables).
21 October 2008 ITALY ENEL
www.cheuvreux.com
17
ENEL FY to 31/12 (Euro m) 2003 2004 2004 2005 2006 2007 2008E 2009E 2010E
Profit & Loss Account Sales 31 317.0 36 489.0 37 414.0 33 787.0 38 513.0 43 673.0 56 595.0 57 595.0 58 252.0% Change 4.5% 16.5% 2.5% -9.7% 14.0% 13.4% 29.6% 1.8% 1.1%Staff costs (3 440.0) 3 315.0 3 224.0 2 762.0 3 210.0 3 300.0 3 366.0 3 433.0 3 502.0Other costs (18 036.0) (28 593.0) (29 670.0) (28 804.0) (33 704.0) (36 950.0) (46 126.0) (46 918.0) (47 095.0)EBITDA 9 841.0 11 211.0 10 968.0 7 745.0 8 019.0 10 023.0 13 835.0 14 110.0 14 659.0% Change 25.2% 13.9% -29.4% 3.5% 25.0% 38.0% 2.0% 3.9%Depreciation (4 516.0) (4 331.0) (5 403.0) (2 207.0) (2 200.0) (3 033.0) (4 200.0) (4 400.0) (4 600.0)EBITA 5 325.0 6 880.0 5 565.0 5 538.0 5 819.0 6 990.0 9 635.0 9 710.0 10 059.0% Change 51.6% 29.2% -0.5% 5.1% 20.1% 37.8% 0.8% 3.6%Goodwill amortisation before OP (593.0) (555.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0Goodwill amortisation [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Non recurring operational items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0EBIT 4 732.0 6 325.0 5 565.0 5 538.0 5 819.0 6 990.0 9 635.0 9 710.0 10 059.0Net financial items (1 203.0) (1 142.0) (1 320.0) (744.0) (651.0) (1 252.0) (2 900.0) (2 950.0) (3 200.0)Non recurring financial items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other exceptional items (136.0) (818.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0Tax (966.0) (1 533.0) (1 498.0) (1 934.0) (2 067.0) (2 002.0) (2 021.0) (2 332.0) (2 366.0)Associates [contribution] 0.0 0.0 0.0 0.0 0.0 350.0 0.0 0.0 0.0Discontinuing activities 0.0 0.0 0.0 1 272.0 0.0 127.0 226.0 0.0 0.0Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net profit [loss] before minorities 2 427.0 2 832.0 2 747.0 4 132.0 3 101.0 4 213.0 4 941.0 4 428.0 4 493.0Dividend to preferred shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Minorities 82.0 (126.0) (134.0) (237.0) (65.0) (236.0) (800.0) (850.0) (900.0)Net attributable profit [loss] 2 509.0 2 706.0 2 613.0 3 895.0 3 036.0 3 977.0 4 141.0 3 578.0 3 593.0Restatement [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Adj. for exceptional items 97.3 (877.0) 0.0 (1 153.0) 206.0 (395.0) (500.0) 0.0 0.0Net attrib. profit [loss], restated 3 199.3 2 384.0 2 613.0 2 742.0 3 242.0 3 582.0 3 641.0 3 578.0 3 593.0% Change 52.9% -25.5% 4.9% 18.2% 10.5% 1.6% -1.7% 0.4%Cash Flow Statement Cash flow 7 536.0 5 392.0 5 392.0 5 693.0 5 310.0 7 010.0 7 841.0 7 978.0 8 193.0% Change 11.6% -28.5% 5.6% -6.7% 32.0% 11.9% 1.7% 2.7%Change in WCR 2 084.0 0.0 0.0 0.0 0.0 3 303.0 0.0 0.0 0.0Capex (5 259.0) (3 834.0) (3 834.0) (2 829.0) (2 963.0) (5 230.0) (6 540.0) (7 820.0) (6 640.0)o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net cash flow 4 361.0 1 558.0 1 558.0 2 864.0 2 347.0 5 083.0 1 301.0 158.0 1 553.0Financial investments 0.0 (192.0) (192.0) (303.0) (1 082.0) (32 350.0) 0.0 0.0 0.0Net buyback of treasury shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Disposals 716.0 2 128.0 2 128.0 4 652.0 1 671.0 0.0 7 138.0 0.0 0.0Dividend paid (2 182.7) (4 256.0) (4 256.0) (3 472.0) (3 970.0) (3 027.0) (3 029.0) (3 029.0) (3 029.0)Capital increase 0.0 241.0 241.0 342.0 0.0 0.0 0.0 0.0 0.0Other cash flow (1 356.3) 399.0 399.0 8 119.0 1 393.0 (13 544.0) 0.0 0.0 0.0Dec. [inc.] in net debt 1 538.0 (122.0) (122.0) 12 202.0 359.0 (43 838.0) 5 410.0 (2 871.0) (1 476.0)Balance Sheet Shareholders' equity [group share] 21 124.0 17 953.0 17 953.0 19 057.0 18 460.0 19 631.0 20 743.0 21 291.0 21 854.0Minority interests 191.0 1 113.0 1 113.0 359.0 565.0 4 158.0 4 158.0 4 158.0 4 158.0Pension provisions 1 298.0 2 800.0 2 800.0 2 662.0 2 662.0 2 920.0 2 920.0 2 920.0 2 920.0Other provisions 5 594.0 1 073.0 1 073.0 1 954.0 4 152.0 8 974.0 9 314.0 9 314.0 9 314.0Net debt [cash] 24 174.0 24 296.0 24 514.0 12 312.0 11 953.0 55 791.0 50 381.0 53 253.0 54 729.0Gearing [%] 113.4 127.4 128.6 63.4 62.8 234.5 202.3 209.3 210.4Capital invested 52 381.0 47 235.0 47 453.0 36 344.0 37 792.0 91 474.0 87 516.0 90 936.0 92 975.0Goodwill 8 313.0 10 071.0 10 071.0 1 575.0 2 982.0 28 177.0 26 177.0 26 177.0 26 177.0Intangible assets 5 263.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Tangible assets 37 155.0 36 702.0 36 702.0 30 795.0 32 884.0 55 434.0 55 359.0 58 779.0 60 819.0Financial assets 2 060.0 246.0 246.0 3 266.0 1 550.0 4 184.0 2 300.0 2 300.0 2 300.0Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Working capital requirement (410.0) 434.0 434.0 708.0 376.0 3 679.0 3 679.0 3 679.0 3 679.0WCR as a % of sales (1.3) 1.2 1.2 2.1 1.0 8.4 6.5 6.4 6.3Capital employed 52 381.0 47 453.0 47 453.0 36 344.0 37 792.0 91 474.0 87 515.0 90 935.0 92 975.0
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ENEL FY to 31/12 (Euro) 2003 2004 2004 2005 2006 2007 2008E 2009E 2010E
Per Share Data (at 17/10/2008) EPS before goodwill 0.53 0.39 0.43 0.45 0.53 0.58 0.59 0.58 0.58% Change 53.0% -25.6% 3.9% 17.2% 10.3% 1.7% -1.7% 0.3%EPS, reported 0.41 0.45 0.43 0.64 0.49 0.64 0.67 0.58 0.58% Change 25.1% 7.7% 47.6% -22.6% 30.7% 4.2% -13.6% 0.3% Goodwill per share 0.10 0.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00Dividend per share 0.36 0.69 0.63 0.63 0.49 0.49 0.49 0.49 0.49Cash flow per share 1.24 0.89 0.89 0.93 0.86 1.13 1.27 1.29 1.33% Change 11.6% -28.5% 4.6% -7.5% 31.9% 11.8% 1.8% 2.6%Book value per share 3.1 2.3 2.3 2.5 2.5 2.7 2.9 3.0 3.0 No. of shares, adjusted 6063.075 6063.000 6063.000 6124.000 6176.000 6182.000 6182.000 6182.000 6182.000Av. number of shares, adjusted 6063.075 6063.000 6063.000 6124.000 6176.000 6182.000 6182.000 6182.000 6182.000Treasury stock, adjusted 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000Share Price [Adjusted] Latest price 5.39 7.23 7.23 6.63 7.82 8.14 5.20 5.20 5.20High 6.10 7.27 7.27 7.72 7.91 8.60 8.28 - -Low 4.93 5.39 5.39 6.48 6.49 7.09 4.44 - -Average price 5.44 6.51 6.51 7.11 7.08 8.03 6.66 - - Market capitalisation 32 680.0 43 841.6 43 848.8 40 209.8 47 859.1 50 290.6 32 146.4 32 146.4 32 146.4Enterprise value 56 657.1 73 486.0 73 220.6 58 430.3 64 693.0 117 371.1 91 333.9 93 733.6 96 165.9Valuation P/E 12.5 24.0 16.8 14.8 14.9 14.0 8.8 9.0 8.9P/E before goodwill 10.2 18.4 16.8 14.8 14.9 14.0 8.8 9.0 8.9P/CF 4.3 8.1 8.1 7.1 9.1 7.2 4.1 4.0 3.9Attrib. FCF yield [%] 13.1 3.0 3.0 6.2 4.3 8.2 3.3 0.4 3.9P/BV 1.7 3.2 3.1 2.7 3.1 3.0 1.8 1.8 1.7Enterprise value / Op CE 1.1 1.6 1.6 1.8 1.8 1.3 1.1 1.1 1.1Yield [%] 6.7 9.5 8.7 9.5 6.3 6.0 9.4 9.4 9.4 EV/EBITDA, restated 5.8 6.6 6.7 7.5 8.1 11.7 6.6 6.6 6.6EV/EBITA, restated 10.6 10.7 13.2 10.6 11.1 16.8 9.5 9.7 9.6EV/Sales 1.81 2.01 1.96 1.73 1.68 2.7 1.6 1.6 1.7EV/Debt-adjusted cash flow 6.7 11.5 10.6 8.9 10.9 13.5 8.5 8.8 8.6Financial Ratios Interest cover 8.2 9.8 8.3 10.4 12.3 8.0 4.8 4.8 4.6Net debt/Cash flow 3.2 4.5 4.5 2.2 2.3 8.0 6.4 6.7 6.7EBITDA margin [%] 31.4 30.7 29.3 22.9 20.8 23.0 24.4 24.5 25.2EBITA margin [%] 17.0 18.9 14.9 16.4 15.1 16.0 17.0 16.9 17.3Net margin [%] 7.8 7.8 7.3 12.2 8.1 9.6 8.7 7.7 7.7Capital turn [Sales/ Op. CE] 0.6 0.8 0.8 1.0 1.1 0.5 0.7 0.7 0.6Gearing [%] 113.4 127.4 128.6 63.4 62.8 234.5 202.3 209.3 210.4Payout ratio [%] 87.0 154.6 146.2 99.1 99.7 76.2 73.2 84.7 84.3Return [%] Pre-tax RoCE 10.6 14.6 11.8 16.7 16.1 8.0 11.3 11.0 11.1RoCE after tax 7.6 9.5 11.8 10.0 9.6 5.4 7.9 7.1 7.2ROE [%] 12.6 16.3 15.7 22.8 17.9 22.5 22.2 18.3 17.9Return on equity, restated 13.1 10.7 15.7 15.5 19.3 20.1 19.2 18.3 17.9
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Important Disclosures
APPLICABLE DISCLOSURE CLAUSES
Company Closing Price Rating Disclosures
ENEL EUR5.2 3/Underperform E
A - One or more companies in the Crédit Agricole S.A. group owned more than 1% of the total issued share capital of the Company as of the end
of the second most recent month preceding the publication date of this report.
B - One or more companies in the Crédit Agricole S.A. group owned more than 5% of the total issued share capital of the Company as of the end of the second most recent month preceding the publication date of this report.
C - The Company owned more than 5% of the total issued share capital of Crédit Agricole SA as of the end of the second most recent month preceding the publication date of this report.
D - One or more companies in the Crédit Agricole S.A. group held, as of the end of the second most recent trading day, a net sales position higher than 1% of the total issued share capital of the Company.
E - The trading portfolio of one or more companies in the Crédit Agricole S.A. group contained shares of the Company as of the end of the second most recent trading day.
F - Crédit Agricole Cheuvreux and/or a company in the Crédit Agricole S.A. group is a market maker or a liquidity provider for the financial instruments of the Company.
G - Calyon and/or a company in the Crédit Agricole S.A. group has been involved within the last three years in a publicly disclosed offer of or on financial instruments of the Company.
H - Calyon and/or a company in the Crédit Agricole S.A. group has concluded or is party to a non confidential agreement relating to the provision of investment banking services (except publicly disclosed offers mentioned under G) to the Company during the past 12 months or that has given rise during the same period to the payment of compensation or to the promise to get a compensation paid.
I - This research has been communicated to the Company and following this communication, its conclusions have been amended before its dissemination.
J - A director or a board member of the Crédit Agricole S.A. group is an officer, director, or board member of the Company.
SPECIFIC DISCLOSURE CLAUSES
None
CHEUVREUX'S RATING AND TARGET PRICE SYSTEM
Ratings are built for a 6 to 12 month time horizon.
1/Selected List Expected to outperform the market and is in our country selected list
2/Outperform Expected to outperform the market
3/Underperform Expected to perform at best in line with the market
4/Sell Expected to underperform the market substantially
No Rating or Suspended The investment rating and target price have been suspended. Such suspension is pursuant to Cheuvreux's policy in circumstances when Cheuvreux's parent company, Calyon, is acting in an advisory capacity in a merger or strategic transaction involving this company or when Calyon or Crédit Agricole has a beneficial interest in this company and in certain other circumstances.
Target price methodology Cheuvreux's target prices are derived from one or more of the following methodologies: DCF, SOP, peer comparison and EVA.
Quote definitions Unless specified, all quotes that appear on Institutional research reports are closing prices the last business day.
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OVERALL RATING BREAKDOWN (AS AT 31/12/2007) RATING BREAKDOWN IN THE SECTOR (AS AT 31/12/2007)
0
50
100
150
200
250
300
350
400
450
1/Selected List 2/Outperform 3/Underperform 4/Sell
Number of companies in each category
Number of companies in each rat ing having received Calyon investment banking services within the last 12months
0
2
4
6
8
10
12
14
16
18
1/Selected List 2/Outperform 3/Underperform 4/Sell
SHARE PRICE TREND AND DATES OF CHANGES IN RATING AND/OR TARGET PRICE
DATES OF CHANGES IN TARGET PRICE AND/OR RATING
N° Date Rating Target price
1 06/09/2007 2/Outperform
2 07/09/2007 2/Outperform
3 09/11/2007 1/Selected List EUR9.40
4 13/12/2007 EUR9.60
5 14/03/2008 EUR9.00
6 23/04/2008 2/Outperform EUR8.20
6
3
21
4.60
5.10
5.60
6.10
6.60
7.10
7.60
8.10
09/07 12/07 03/08 06/08 09/08
Share price Rating change Target price change
7 21/10/2008 3/Underperform EUR5.50
LOCAL REGULATORY AUTHORITIES
Country Cheuvreux legal entity Regulatory authority
Austria Crédit Agricole Cheuvreux – Vienna Branch Finanzmarktaufsicht (FMA)
France Crédit Agricole Cheuvreux SA Autorité des Marchés Financiers (AMF)
Germany Crédit Agricole Cheuvreux Niederlassung - Frankfurter Branch Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin)
Greece Credit Agricole Cheuvreux - Athens branch Hellenic Capital Market Commission
Italy Crédit Agricole Cheuvreux Italia SIM SpA Commissione Nazionale per le Societa e la Borsa (Consob)
Netherlands Crédit Agricole Cheuvreux - Amsterdam Branch Autoriteit Financiële Markten (AFM)
Spain Crédit Agricole Cheuvreux Espana SV SA Comisión Nacional del Mercado de Valores (CNMV)
Sweden Crédit Agricole Cheuvreux Nordic AB Finansinspektionen
Switzerland Crédit Agricole Cheuvreux - Zurich Branch Swiss Federal Banking Commission (SFBC)
UAE Crédit Agricole Cheuvreux - Middle East Branch Dubai Financial Services Authority (DFSA)
UK Crédit Agricole Cheuvreux International Ltd Financial Services Authority (FSA)
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Intentionally blank
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Intentionally blank
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www.cheuvreux.com
RESEARCH & DISTRIBUTION CENTRES
AUSTRIA CRÉDIT AGRICOLE CHEUVREUX – VIENNA BRANCH OFFICE 5TH FLOOR, OPERNRING 3-5 1010 VIENNA TEL: +43 1 22 712 70 00 FAX: +43 1 22 712 70 01
BENELUX CRÉDIT AGRICOLE CHEUVREUX – AMSTERDAM BRANCH HONTHORSTSTRAAT 9 1071 DC AMSTERDAM TEL: +31 20 573 06 66 FAX: +31 20 672 40 41
FRANCE CRÉDIT AGRICOLE CHEUVREUX S.A. 9, QUAI PAUL DOUMER 92400 COURBEVOIE TEL: +33 1 41 89 70 00 FAX: +33 1 41 89 70 05
GERMANY CRÉDIT AGRICOLE CHEUVREUX – FRANKFURT BRANCH TAUNUSANLAGE 14 D-60325 FRANKFURT AM MAIN TEL: +49 69 47 897 100 FAX: +49 69 47 897 530
GREECE CRÉDIT AGRICOLE CHEUVREUX - ATHENS BRANCH 1 KORAI STREET (3RD FLOOR) 10564 ATHENS TEL : +30 210 373 4000 FAX: +30 210 373 4001
ITALY CRÉDIT AGRICOLE CHEUVREUX ITALIA SIM S.P.A. VIA BRERA 21 20121 MILAN TEL: +39 02 80 62 83 00 FAX: +39 02 86 46 15 70
SPAIN CRÉDIT AGRICOLE CHEUVREUX ESPAÑA S.V. S.A. PASEO DE LA CASTELLANA 1 28046 MADRID TEL: +34 91 495 16 48 FAX: +34 91 495 16 60
SWEDEN CRÉDIT AGRICOLE CHEUVREUX NORDIC AB REGERINGSGATAN 38 10393 STOCKHOLM TEL: +468 723 5100 FAX: +468 723 5101
SWITZERLAND CRÉDIT AGRICOLE CHEUVREUX – ZURICH BRANCH BAHNHOFSTRASSE 18 8001 ZURICH TEL: +41 44 218 17 17 FAX: +41 44 212 25 50
TURKEY CRÉDIT AGRICOLE CHEUVREUX MENKUL DEGERLER A.S. BUYUKDERE CAD. YAPI KREDI PLAZA C BLOK KAT:15 LEVENT 80620 - ISTANBUL TEL: +90 212 371 19 00 FAX: +90 212 371 19 01
UNITED ARAB EMIRATES CRÉDIT AGRICOLE CHEUVREUX – MIDDLE EAST BRANCH 702, 7TH FLOOR, PRECINCT BUILDING #2, THE GATE DISTRICT DUBAI INTERNATIONAL FINANCIAL CENTRE P.O. BOX 506611 DUBAI, UAE TEL: +971 4 428 3600 FAX: +971 4 428 3644
UNITED KINGDOM CRÉDIT AGRICOLE CHEUVREUX INTERNATIONAL LIMITED 12TH FLOOR MOORHOUSE - 120 LONDON WALL LONDON EC2Y 5ET TEL: +44 207 621 5100 FAX: +44 207 621 5101
DISTRIBUTION CENTRES
JAPAN CHEUVREUX CALYON CAPITAL MARKETS ASIA B.V., TOKYO BRANCH SHIODOME SUMITOMO BUILDING, 15TH FLOOR 1-9-2 HIGASHI-SHIMBASHI MINATO-KU TOKYO 105-0021 TEL: +81 3 4580 8522 FAX: +81 3 4580 5534
UNITED STATES CRÉDIT AGRICOLE CHEUVREUX NORTH AMERICA, INC.
NEW YORK 1301 AVENUE OF THE AMERICAS 15TH FLOOR NEW YORK, NY 10019 TEL: +1 (212) 492 8800 FAX: +1 (212) 492 8801
SAN FRANCISCO 388 MARKET STREET; SUITE 960 SAN FRANCISCO, CA 94111 TEL: +1 (415) 255 9800 FAX: +1 (415) 956 9940
Copyright © Crédit Agricole Cheuvreux, 2008. All rights reserved This research report or summary ("Research") has been prepared by Crédit Agricole Cheuvreux or one of its affiliates or branches (collectively “CA Cheuvreux”) from information believed to be reliable. The opinions and projections expressed in this document are entirely those of CA Cheuvreux and are given as part of its normal research activity. CA Cheuvreux has not independently verified the information given in this document. Accordingly, no representation, guarantee or warranty, express or implied, is made as to the accuracy, completeness, correctness or fairness of this information and opinions contained in this document or the research or analysis upon which such information and opinions are based. Any opinions or estimates expressed herein reflect the judgment of CA Cheuvreux as of the date the Research was prepared and are subject to change at any time without notice. Unless otherwise stated, the information or opinions presented, or the research or analysis upon which they are based, are updated as necessary and at least annually. Not all investment strategies are appropriate at all times, and past performance is not necessarily a guide to future performance. CA Cheuvreux recommends that independent advice should be sought, and that investors should make their own independent decisions as to whether an investment or instrument is proper or appropriate based on their own individual judgment, their risk-tolerance, and after consulting their own investment advisers. CA Cheuvreux, its parent companies or its affiliates may effect transactions in the securities described herein for their own account or for the account of others, may have positions with the issuer thereof, or any of its affiliates, or may perform or seek to perform securities, investment banking or other services for such issuer or its affiliates. The organisational and administrative arrangements established by CA Cheuvreux for the management of conflicts of interest with respect to investment research are consistent with rules, regulations or codes applicable to the securities industry. These arrangements can be found in CA Cheuvreux’s policy for managing conflicts of interest, available at www.cheuvreux.com. Current research disclosures regarding companies mentioned in this Research are also available at www.cheuvreux.com. This Research is provided for information purposes only. It is not intended as an offer, invitation or solicitation to buy or sell any of the securities described or discussed herein and is intended for use only by those Professional Clients to whom it is made available by CA Cheuvreux. This Research is not for distribution to Retail Clients. The recipient acknowledges that, to the extent permitted by applicable securities laws and regulations, CA Cheuvreux disclaims all liability for providing this Research, and accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this document or its contents. 1. IN THE UNITED STATES, CREDIT AGRICOLE CHEUVREUX NORTH AMERICA, INC. (“CAC NORTH AMERICA”) SPECIFICALLY ADVISES THAT IT DID NOT PREPARE, HAS NOT CONTRIBUTED TO, HAS NOT ANALYZED, AND DOES NOT ENDORSE THIS RESEARCH. CAC North America is a SEC-registered broker-dealer, and is not an investment adviser. CAC North America does not manage assets of other entities, CAC North America does not provide investment advice, and CAC North America neither issues nor promulgates reports or analyses within the meaning of Section 202(a)(11) of the Investment Company Act of 1940, as amended. CAC North America is unable to provide any additional information of any sort regarding this Research, and can neither support or refute any of the content, opinions, estimates, or conclusions contained in the Research. CAC North America further advises that this Research is solely intended to be delivered to customers of CAC North America who qualify as “Major U.S. institutional investors” as defined in Rule 15a-6 of the Securities and Exchange Act of 1934, as amended (“CAC North America Customers”). CAC North America Customers are restricted from re-delivering the Research to any other entity, and shall be held strictly liable for any and all costs, legal fees, damages, fines, or penalties resulting from any re-delivery of the Research to persons or entities other than CAC North America Customers. The existence of this Research, or CAC North America’s forwarding the Research to certain of its customers, shall not be deemed a recommendation or endorsement by CAC North America of the Research, a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed in the Research. 2. In the United Kingdom, this report is approved and/or distributed by Crédit Agricole Cheuvreux International Ltd (authorised and regulated by the Financial Services Authority (“FSA”). 3. In Italy, this Research is approved and/or distributed by Crédit Agricole Cheuvreux Italia SIM S.p.a. (regulated by CONSOB) and is not intended for circulation or distribution either to the public at large or to any other parties other than professional clients and/or qualified counterparties, as defined in Legislative Decree No.58 of 24 February 1998 as amended, and implementing Consob regulations. 4. In the Middle East, this Research is approved and/or distributed by CA Cheuvreux Middle East, based out of Dubai International Financial Centre (DIFC) and regulated by the Dubai Financial Services Authority (DFSA). THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING INSTRUCTIONS. The MSCI indexes are the exclusive property of MSCI Inc. (“MSCI”). MSCI and the MSCI index names are service mark(s) of MSCI or its affiliates and have been licensed for use for certain purposes by CA CHEUVREUX. The financial securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such financial securities. The Prospectus contains a more detailed description of the limited relationship MSCI has with CA CHEUVREUX and any related financial securities. No purchaser, seller or holder of this product, or any other person or entity, should use or refer to any MSCI trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity claim any affiliation with MSCI without the prior written permission of MSCI. No part of this report may be reproduced in any manner or redistributed without the prior written permission of CA Cheuvreux.
