Beruflich Dokumente
Kultur Dokumente
08 January 2014
(44-20) 7134-5887 david.aserkoff@jpmorgan.com Bloomberg JPMA ASERKOFF <GO> J.P. Morgan Securities plc
Ayan Ghosh
(27-11) 507-0372 ayan.x.ghosh@jpmorgan.com J.P. Morgan Equities South Africa Proprietary Ltd.
Uttam Digga
(91-22) 6157-3261 uttam.digga@jpmorgan.com J.P. Morgan India Private Limited
See page 14 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com
Oct-07
Oct-09
Oct-11
Oct-13
2014
110
2013
100
90 Feb-12
Aug-12
Jan-13
Jul-13
Dec-13
Source: J.P. Morgan, IBES, Datastream, Notes: EPS figures are normalized, starting at 100 on base date Feb 2012 for ease of comparison.
If TRY stays weak, then rates could stay high we now forecast 75 bp rate hikes in Jan
While we might be getting closer to a period of FX stability (our FX team forecasts TRY 2.20 in '14), we think a prolonged period of high rates (10%+ bond yields) will keep the cost of equity high and depress EPS and economic growth. First, we are expecting at least 75 bps in rate hikes from the CBRT pushing the interbank O/N rate to 8.5% (see Turkey: evaluation of the 2014 monetary policy framework dated 24 Dec) . The tougher rhetoric from the CBRT and its push to run a more orthodox monetary policy make us think we will see significant rate hikes to help stabilize the currency. We could have argued for a sub-10% Cost of Equity in May based on 5% 10 year yields. Now, a 15% cost of equity would be optimistic in our view. When we look at banks with low-teens ROEs for 2014, sub1x P/BV look reasonable in the context of a 15+% CoE. The rate hikes, macroprudential policies and special consumption taxes on cars, tobacco and alcohol have led us to forecast a drop in the current account deficit to US$46.4 billion (5.5% of GDP) in 2014 from US$59.0 billion (7.1% of GDP) in 2013. Since the tapering debate started, 2013, the CAD has been the key worry for investors we would argue that equity investors will still see 5.5% as an issue, but steady improvement will help diminish it. Also, the European recovery is a boon to Turkey; pre-crisis 58% of Turkish exports went to Europe v sub40% now. Already, we are seeing sharp acceleration in European exports: Germany +12%, France +12%, Spain +25% oya in November. Typically, Turkish assets all move together bonds, equity and FX all have 100%-ish correlation. But Q1 may see a more stable FX spot rate likely allowing fixed income investors to earn the carry while equity investors see stocks move sideways as higher rates/lower growth/earnings downgrades get priced in. A stable FX could stop the declines in the stock market, but does not guarantee a long-lasting rally, in our view.
Figure 7: Turkey Real effective exchange rate
125 120 115 110 105 100 95 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Turkey REER
Apr-13
Jul-13
Oct-13
Jan-14
Oct-07
Oct-09
Oct-11
Oct-13
2012 Summary 31 Dec 12 11 Jan 13 31-Jan-13 29-Mar-13 8-Apr-13 11 Jan 13 31 Jan 13 29-Mar-13 8- Apr-13 26-Apr-13
18-Oct-13
25-Oct-13
-0.9%
42.6%
-0.5%
7.5%
-0.4%
32.7%
18-Nov-13 6-Jan-14
-1.9% -7.7%
39.9% 29.1%
-2.4% -5.7%
4.9% -1.1%
0.5% -2.1%
33.4% 30.6%
Source: J.P. Morgan research, Bloomberg, updated 6 January 2014. Note: Benchmark is MSCI EMEA. Past results cannot and should not be viewed as an indicator of future performance. Transaction and other costs have not been included in these calculations. Last 12 months data shown. Full details of the calculation and historical comparisons are available.
Why is this in the CEEMEA Strategy Top 10 list? Upside to consensus DPS if government follows through on dividend plan. China gas deal could mean long-term EPS growth. The cheapest big cap EM bank we can find outside of China. EPS downgrade cycle ending in our view. Discount to the NAV, biggest discount excluding the MBT stake. Hope for better dividends. Low valuation. Lower capex going forward could upsize the dividend Consistent earnings delivery and big M&A pipeline. Best-managed health care company in CEEMEA in our view. Serious cost-cutting in the SA (Project Phoenix worth ZAR 4bn by FY16) and the positive impact of the US ethane cracker. Out top pick in SA banks. Repatriating low-return capital from UK should drive returns, as should re-pricing its mortgage book. Beneficiary of global growth rebound and a weaker rand. Improving cash flow and earnings, once restructuring done. Better pricing environment from less aggressive VOD. Shareholder dispute resolution should trigger significant shareholder returns in our view. Best way to play Polish recovery. Top EM bank pick for 2014. Recent 7% drop offers sub-PLN40 entry point to PLN 53 TP. Our 14 EPS >4% above cons.
Risks to our Strategy Capex to fund the China gas plans. DPS does not come through as hoped. Slowing economy and further CBR limitations/tighter regulation on consumer lending & credit cards. Cost discipline. Catalysts on non-MBT assets could come in 2H14 (or later) not 2H13. Slow growth and high maintenance capex on core Russian assets Stock had a strong run delays to M&A could mean stock treads water, or worse. Weaker oil/stronger ZAR will hurt near-term EPS. Capex overruns in US projects or delays to SA cost-cutting would hurt DCF. Weak ZAR and under-delivery on ROE expansion.
Cost-cutting and labor relations are key risks. So are PGM prices. Market competition returns. Delays to dividends. Polish market expensive with pension reform looming.
JPM View N OW UW UW
Bull case Cheap ZAR could bounce back. Pick-up in commodity prices & good Q3 in the mines. Labour relations could beat expectations Global value rally into Q4 helps Russia, the least expensive EM. Government delivers on dividend hopes in state-owned big caps Further upside from European recovery. ECB easing Rebound from oversold technical level on FX might help. Fewer political headlines Low valuations, a return to economic growth and falling risk premia. EM funds are yet to buy in post-MSCI moves
Bear Case Policy paralysis. Growth remains sluggish. Consumer credit growth remains weak. Weak and volatile ZAR Governance. Slowing GDP growth. Pension fund reform cut inflows and mid-cap valuations. Expensive stocks come back to earth. Deteriorating growth outlook plus rate hikes. Stocks not very cheap despite market declines. More political headlines Debt/GDP still high. Medium-term growth a huge challenge. Govt has a small minority. Banks no longer cheap post-rally. Low-beta market in an EM rally. Weak CZK does little but erode returns for USD-based GEM investors PM Orbans long and consistent track record of high effective taxation. Low growth hurts. Weak Q3 earnings, especially in consumers. Disclosure and transparency remain issues. So does market access. Political and policy uncertainty big negatives. Q3 results were weak. Liquidity and FOLs still low. Bank sector payout ratios may get sacrificed to fund loan growth.
Weaker CZK should revive growth. Faster -zone growth should mean faster 2H & 2014 growth. Eurozone recovery. Current account now in surplus. Strong GDP growth domestically. Broad and deep stock market. Market opening could come within 12 months. Valuations are low. Growth potential is still there. GDP growth still strong and some good dividend payers.
14 12 10 8 6 Jan-04
10 8 6 4 Jan-04
Jul-06
Jan-09
Jul-11
Jan-14
Jul-06
Jan-09
Jul-11
Jan-14
6 Jan-04
Jul-06
Jan-09
Jul-11
Jan-14
14 12 10 8 6 Jan-04
Jul-06
Jan-09
Jul-11
Jan-14
P/E (x) Div. Yield (%) 3-Jan-14 Hist.** P/ EPS Current 12m Prospective Hist.** Current Prospective Hist.** MSCI Index Trough (Trend) Trailing Fwd 2012E 2013E 2014E Peak Trailing 2013E 2014E Trough 473 7.0 5.8 8.8 8.7 10.4 8.8 8.7 4.9 3.6 3.6 3.9 1.1 263 7.3 4.5 9.8 11.2 9.2 9.8 11.1 10.0 7.0 7.0 6.7 0.5 19 -0.4 3.9 15.2 2.3 3.9 15.1 1.2 2.3 1.6 1.6 0.1 893 4.4 4.1 11.1 9.3 9.0 11.1 9.3 5.3 2.7 2.7 3.3 0.6 1,701 6.7 10.2 13.3 12.9 10.2 13.3 12.9 7.1 4.8 4.8 4.4 1.0 790 3.6 2.5 5.2 5.3 5.2 5.2 5.3 4.2 4.2 4.2 4.5 0.2 1,137 9.1 11.3 15.9 14.2 16.8 15.9 14.2 4.7 3.1 3.1 3.4 1.4 934,642 5.1 5.4 9.2 8.5 9.8 9.2 8.5 4.0 3.5 3.5 4.1 1.0 1,361 270 957 561 413 667 61.6 809 6,820,041 40,135 196,416 46,269 805 1,350 1,752 437 5.5 10.4 6.8 8.9 -38.6 10.3 7.2 9.6 8.6 9.0 6.5 10.2 11.5 9.8 11.6 9.4 4.2 12.7 7.1 14.4 7.3 9.7 6.1 9.1 29.8 11.3 15.6 14.0 13.6 12.9 14.7 17.9 16.6 12.0 9.7 16.8 14.5 20.6 12.2 11.5 17.8 15.2 17.1 15.6 8.7 11.8 10.5 11.9 14.1 10.5 8.8 13.9 12.3 17.9 10.2 10.3 15.0 13.4 15.6 14.1 11.0 10.6 14.9 18.5 20.3 13.3 10.8 18.6 14.8 19.5 12.8 12.8 30.5 14.8 18.2 16.6 13.7 12.8 14.7 17.9 16.6 12.0 9.7 16.8 14.5 20.6 12.2 11.5 27.2 15.2 17.1 15.6 8.7 11.9 10.6 12.0 14.2 10.5 8.8 14.0 12.3 17.9 10.2 10.4 16.1 13.5 15.6 14.1 9.2 5.8 9.7 7.0 7.5 3.4 5.7 2.6 5.1 4.1 7.6 3.6 3.0 6.1 4.0 4.1 2.6 3.9 4.5 3.2 3.6 2.5 3.4 1.5 3.0 1.7 3.8 2.8 1.7 3.4 2.0 2.5 2.6 5.1 4.8 4.8 3.4 2.5 3.4 1.5 3.0 1.7 3.8 2.8 1.7 3.4 2.0 2.5 3.2 5.1 5.1 5.5 3.8 2.7 3.6 1.7 3.2 1.6 4.2 3.1 1.9 3.6 2.1 2.7 1.0 2.0 1.3 1.4 0.5 1.0 0.5 1.4 0.6 0.7 0.4 1.0 0.8 1.1 1.4 1.3
P/BV (x) Current Prospective Trailing 2013E 2014E 1.1 1.1 1.0 1.3 1.3 1.3 -0.2 1.2 0.0 0.9 0.9 0.8 1.3 1.3 1.2 0.7 0.7 0.6 2.5 2.5 2.3 1.3 1.3 1.2 1.1 -0.5 2.2 3.3 2.6 1.5 1.4 2.6 1.7 2.6 1.4 1.5 1.4 1.7 2.5 2.0 1.1 2.7 1.9 2.1 1.5 1.5 1.4 2.6 1.7 2.6 1.4 1.5 1.4 1.7 2.5 2.0 1.0 0.5 1.8 1.0 0.8 1.4 1.3 2.3 1.5 2.4 1.3 1.3 1.3 1.6 2.3 1.8
Earnings growth (%) 2012 -4.7 -3.2 -6.6 -12.3 -5.6 -11.0 8.2 17.0 4.7 -4.9 10.9 41.0 18.1 5.7 1.4 10.2 -18.4 37.5 -30.5 -1.5 -14.0 -5.0 5.5 2.1 2013E 17.6 -6.9 -40.4 -18.9 -23.0 -1.2 6.0 7.0 -19.3 -17.6 1.5 2.9 22.2 11.0 11.2 10.9 1.7 -5.1 4.7 10.6 12.0 -2.3 6.4 6.4 2014E 1.7 -11.7 -74.4 19.7 3.2 -1.9 11.5 8.2 57.3 8.4 39.1 49.3 17.6 13.7 10.3 20.3 18.5 15.0 19.4 11.4 69.4 12.7 9.7 10.7
ROE (%) 2012 2013E 12.7 13.4 15.4 13.7 19.9 -3.9 9.5 8.0 14.0 10.0 14.7 13.2 16.6 16.4 17.0 15.7 9.7 22.5 14.2 12.9 8.1 13.1 15.2 16.3 10.9 15.2 9.7 12.4 5.1 11.9 15.0 12.7 6.9 28.7 16.1 13.9 9.2 13.5 15.5 16.6 11.6 13.4 10.9 13.0 5.4 11.5 14.9 12.9 2014E 12.3 11.8 4.0 9.0 9.8 11.7 16.9 15.1 11.9 29.3 16.7 14.3 9.3 13.9 15.5 17.6 13.1 14.0 12.9 13.4 8.5 12.5 15.2 13.4
Middle East & Africa Egypt Morocco^ Qatar^ Saudi Arabia UAE^ Other Markets EMF Asia* China India EMF LatAm Mexico Brazil Emerging Markets Japan Europe USA Global
* Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JP Morgan estimates for covered stocks and I/B/E/S estimates for the rest. ^ Market forecast numbers are Bloomberg Estimates for Generic Years (1 and 2) for each MSCI index. For all other markets, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. Hist. ** refers to the historically lowest valuation of the MSCI indices since last 5 years. Trough PE represents the lowest 12 month trailing PE. For dividend yield the highest values are taken to represent the best multiple. USA, Europe and Japan PE are I/B/E/S aggregate estimates. Japan Valuation estimates are for the financial year ending March P / EPS (Trend) uses the trend EPS for the indices calculated by the linear regression on the natural log of trailing EPS. For more, please refer to 'Mayday call for the shorts - Perspectives and Portfolios', 5 May 2009, Mowat et al. P / EPE (Trend)' is NM for indices where the modeled relationship is weak with a less than 0.50 R-square. The start dates China and Singapore models are modified to make them more relevant. Sector indices inputs have not been altered.
Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecoms Utilities Region / Country Benchmark Change vs dollar
34.0% 15.9% 10.8% 19.1% 33.4% 27.0% 24.9% -2.9% 19.1% 7.0% 20.3%
40.7% 22.8% 19.0% 28.2% 39.8% 37.2% 27.6% 2.7% 8.6% 8.5% 27.6%
32.5% 14.9% 6.2% 24.2% 28.0% 27.3% 31.4% 0.7% 34.2% 9.4% 20.1%
60.6% 46.7% 20.3% 57.1% 41.4% 41.9% 46.5% 38.3% 113.9% 36.0% 51.9%
4.3% -5.5% -13.6% -7.0% 8.0% -2.8% 12.2% -19.1% -5.3% -5.9% -5.0%
20.4% -5.6% -3.9% -9.1% 13.0% -9.4% -37.7% 0.1% -29.2% -8.0%
8.8% 21.9% -6.4% -8.7% -65.8% -5.8% -25.7% 3.7% -29.2% -7.5%
-8.8% -11.7% -26.0% -14.1% -1.4% -7.2% 11.1% -23.4% -5.5% -18.6% -15.7%
2.6% 0.7% -15.7% -3.9% 8.6% -1.0% 12.3% -6.4% -7.5% 11.4% -0.2% 0.0%
-9.3% 1.3% -14.1% -4.1% 1.5% -2.8% 27.9% -10.9% -9.1% -11.2% -6.4% -13.1%
-1.2% 10.4% -17.5% -3.6% 22.3% 5.2% 79.3% -16.0% -10.1% 36.5% 0.4% 2.9%
3.5% 13.5% 2.4% -12.3% 24.0% -8.9% 61.5% -8.2% 27.2% -14.1% 6.9% -11.0%
9.1% -9.2% -21.5% 11.8% -14.0% -5.3% 1.9% -5.4% 29.5% 10.0% 1.6% 1.4%
26.4% 15.5% -4.9% 25.4% 30.5% 7.2% 5.5% 7.9% -6.1% 9.4% -2.6%
Czech Republic
South Africa
Hungary
Poland
Russia
2013
Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Telecoms Utilities Region / Country Benchmark Change vs dollar
8.9% 21.9% -6.4% -8.7% -84.2% -5.8% -25.7% 3.7% -29.2% -7.5%
50.5% -16.3% 36.3% 10.3% 40.0% 15.7% -33.5% 20.2% 12.5% -19.2%
Source: Bloomberg, MSCI. Updated as of 3 January 2014 Note: Local currency movements against the dollar: appreciation / (depreciation).Country and sector cross sections in italic blue have outperformed their indices by more than 2%. Cross sections in red have underperformed their indices by more than 2%.
Turkey
Egypt
Taiwan
Global
EMEA
Japan
Korea
China
Brazil
India
EMF
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68
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Company Name TAV Havalimanlari Steinhoff Int. Netcare Sberbank Megafon Magnit Foschini Group Kernel Holding Komercni Banka Sasol Comm. Int. Bank FirstRand Enka Insaat RMB Hold. Sberbank (Pref.) Norilsk Nickel AFK Sistema Halkbank Bank Millennium Vakifbank Turk Hava Yollari Aspen Pharmacare Bank Zachodni Erdemir MTS Imperial Hold. PZU mBank SiseCam BIM Turk Telekomunication Severstal Mr Price Grupa Lotos Nedbank Group Medi-Clinic lker Transneft Surgutneftegaz (Pref.) PKO Bank VTB Bank MTN Group Woolworths Hold. Arcelik Ford Otomotiv Life Healthcare Group Nampak Spar Group Vodacom Barloworld Standard Bank Sappi TPE African Rainbow Tatneft Assore MMI Holdings Novatek Remgro ATT Turkcell Bidvest Group Bank Pekao Liberty Hold. PGE Koza Gold Pretoria Portland Cement Bank Handlowy
Country Turkey South Africa South Africa Russia Russia Russia South Africa Ukraine Czech South Africa Egypt South Africa Turkey South Africa Russia Russia Russia Turkey Poland Turkey Turkey South Africa Poland Turkey Russia South Africa Poland Poland Turkey Turkey Turkey Russia South Africa Poland South Africa South Africa Turkey Russia Russia Poland Russia South Africa South Africa Turkey Turkey South Africa South Africa South Africa South Africa South Africa South Africa South Africa Poland South Africa Russia South Africa South Africa Russia South Africa Poland Turkey South Africa Poland South Africa Poland Turkey South Africa Poland
69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125
Bloomberg Ticker SNGS RM BGA SJ KIO SJ LKOH RM ISCTR TI DSY SJ EXX SJ EUR PW NPN SJ AKBNK TI CPS PW ANG SJ PGN PW CCOLA TI GAZP RM SNS PW ETEL EY TMGH EY RDF SJ ROSN RM PIK SJ TRU SJ SHP SJ TOASO TI SLM SJ MOEX RM TUPRS TI SAHOL TI PKN PW CEZ CP GARAN TI FEES RM RTKM RM SPTT CP KGH PW KCHOL TI ALR PW HYDR RM GTHE EY ENA PW EKGYO TI TBS SJ GRT SJ RMI SJ ABL SJ YKBNK TI MSM SJ NHM SJ AEFES TI TPS PW GFI SJ IMP SJ AMS SJ URKA RM JSW PW HAR SJ MOL HB
Company Name Surgutneftegaz Barclays Africa Group Kumba Iron Ore Lukoil Isbank Discovery Hold. Exxaro Resources Eurocash Naspers Akbank Cyfrowy Polsat AngloGold Ashanti PGN Coca-Cola Icecek Gazprom Synthos Telecom Egypt Talaat Moustafa Redefine Prop. Rosneft Pick 'n Pay Truworths Int. Shoprite Hold. Tofas Turk Sanlam Moscow Exchange Tupras Sabanci Hold. PKN ORLEN CEZ Garanti Bank Federal Grid Rostelecom Telefonica KGHM KOC Holding Alior Bank RusHydro Global Telecom H ENEA Emlak Konut Tiger Brands Growthpoint Prop. Rand Merchant Ins. African Bank Inv. Yapi Kredi Massmart Holdings Northam Plat. Anadolu Efes Telekomunikacja Polska Gold Fields Impala Platinum Anglo Amer. Plat Uralkali JSW Harmony Gold MOL
Country Russia South Africa South Africa Russia Turkey South Africa South Africa Poland South Africa Turkey Poland South Africa Poland Turkey Russia Poland Egypt Egypt South Africa Russia South Africa South Africa South Africa Turkey South Africa Russia Turkey Turkey Poland Czech Turkey Russia Russia Czech Poland Turkey Poland Russia Egypt Poland Turkey South Africa South Africa South Africa South Africa Turkey South Africa South Africa Turkey Poland South Africa South Africa South Africa Russia Poland South Africa Hungary
Closing Price 28.3 13,350 44,735 2,040 4.54 8,401 15,198 49.0 108,475 6.45 19.8 13,096 5.17 50.8 139 5.69 14.7 6.23 963 252 5,200 7,626 16,351 12.2 5,290 64.8 41.5 8.24 42.52 521 6.60 0.09 111 294 118 8.60 80.6 0.57 4.73 14.5 2.14 25,925 2,405 2,751 1,225 3.58 12,700 4,155 23.4 9.83 3,477 12,703 39,900 172 54.1 2,835 14,470
Valuation Q score 20.8% 86.4% 37.3% 54.5% 51.8% 45.7% 81.0% 35.4% 6.7% 39.7% 70.6% 82.4% 85.0% 10.4% 79.6% 49.8% 12.2% 38.2% 36.7% 21.7% 18.7% 63.4% 21.2% 33.2% 6.3% 8.0% 37.0% 48.2% 78.6% 52.7% 46.2% 80.9% 26.5% 12.2% 67.6% 28.9% 76.8% 55.2% 89.8% 21.8% 51.0% 40.5% 15.5% 26.4% 90.5% 45.7% 3.6% 29.4% 35.5% 0.7% 55.2% 45.2% 22.7% 0.5% 13.3% 18.4% 75.9%
Momentum Q score 68.7% 25.0% 0.9% 72.1% 16.4% 80.6% 7.4% 33.9% 96.9% 15.7% 27.6% 1.2% 30.6% 93.8% 67.6% 16.7% 27.6% 72.0% 58.9% 53.7% 50.7% 10.0% 28.8% 84.2% 61.9% 33.6% 29.2% 26.2% 7.7% 12.3% 2.4% 52.9% 32.5% 3.4% 44.5% 13.7% 39.1% 59.4% 39.8% 22.5% 24.6% 45.6% 78.8% 0.6% 15.8% 12.0% 36.9% 14.7% 16.3% 2.2% 1.7% 7.4% 27.7% 27.2% 0.5% 2.0%
Quality Q score 43.4% 55.4% 98.7% 66.8% 54.4% 61.7% 50.6% 97.1% 53.9% 59.1% 83.5% 12.1% 37.8% 74.9% 67.0% 71.2% 47.2% 28.9% 34.5% 51.5% 68.7% 92.7% 77.0% 83.6% 39.4% 82.8% 58.0% 36.9% 19.3% 62.4% 60.9% 10.9% 59.8% 13.7% 68.9% 51.3% 52.2% 31.0% 4.3% 27.9% 32.5% 67.3% 9.8% 35.6% 11.4% 41.8% 70.3% 6.1% 31.0% 12.3% 5.6% 13.9% 6.2% 71.0% 5.5% 3.0% 19.9%
Earnings & Sentiment Q score 68.3% 12.7% 50.2% 19.7% 61.1% 18.5% 29.7% 19.2% 15.8% 65.6% 14.1% 75.0% 11.4% 13.2% 4.6% 40.2% 79.7% 37.3% 43.5% 53.0% 44.8% 12.7% 37.8% 5.4% 58.7% 42.4% 25.5% 27.1% 10.8% 26.4% 26.1% 39.5% 15.8% 78.7% 10.6% 18.9% 4.4% 11.5% 7.0% 24.9% 15.1% 7.7% 44.4% 2.0% 2.5% 4.0% 14.6% 19.8% 6.9% 72.5% 24.6% 11.0% 30.2% 11.7% 6.1% 16.1%
Q-score (composite) 44.4% 42.1% 41.7% 40.5% 40.3% 40.2% 40.1% 39.2% 38.0% 37.4% 36.7% 35.8% 35.8% 35.7% 35.4% 34.9% 34.9% 34.8% 34.6% 34.0% 33.4% 30.9% 28.4% 27.4% 26.6% 26.0% 21.6% 21.0% 20.5% 20.2% 20.0% 19.9% 18.9% 18.9% 17.8% 17.3% 17.2% 17.1% 15.3% 14.7% 13.2% 13.1% 12.1% 8.7% 6.9% 5.9% 5.7% 5.4% 5.3% 5.1% 4.5% 4.1% 4.0% 3.2% 1.5% 0.9%
Source: J.P. Morgan Quant, Factset, MSCI, Thomson/Reuters. Prices as of 3 January 2014
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How is the Q-Score calculated? Share prices are affected by many different factors. Quant practitioners attempt to isolate factors that can be shown to constantly explain some of this return. The aim is to outperform the benchmark by targeting our portfolios toward those stocks with positive factor exposures and away from those with negative factor exposures. The Q-Score is generated by evaluating the companies prospects based on combining 10 such factors categorized into four factor families. These families are current valuation, recent success or momentum, quality attributes and a consideration of recent changes in earnings and sentiment. The detail for each factor family is shown in the table below. Liquidity / investibility criteria
Market cap greater than US$2 billion Daily turnover greater than US$5 million
Earnings Q-score The market is not efficient at incorporating new information and a window of opportunity exists to exploit recent analyst revisions in earnings and recommendations. Similarly analyst behavioral biases lead to subsequent changes suggesting an exploitable serial correlation in earnings upgrades/downgrades. Component Factors Earnings Momentum 3M avg FY1&FY2, Risk Adjusted (34%) 1M change in consensus recommendations (33%) Net Revisions (upgrades-downgrades) to mean FY2 EPS (33%) Quality Q-score Whilst arguably less readily observable than some other factors, it is generally accepted that it is desirable to tilt portfolios towards highly profitable and good quality businesses. Similarly over the long term the market also appears to reward 'earnings certainty' and penalize those stocks that carry a large degree of earnings risk. Component Factors ROE: average of FY1 and FY2 mean forecast (50%) Earnings Risk: Variation in FY1 and FY2 forecast EPS (50%)
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Equal Wt Benchmark
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.
Important Disclosures
Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in Aspen, Gazprom, Lonmin plc (LONJ.J), Lukoil, PKO Bank Polski, Sasol, Sberbank, AFK Sistema, Standard Bank Group Ltd, Turkcell. Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Gazprom, Sberbank within the past 12 months. Analyst Position: The following analysts (and/or their associates or household members) own a long position in the shares of Gazprom: David Aserkoff. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Aspen, Gazprom, Lonmin plc (LONJ.J), Lukoil, PKO Bank Polski, Sasol, Sberbank, AFK Sistema, Standard Bank Group Ltd, Turkcell. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Gazprom, Lonmin plc (LONJ.J), PKO Bank Polski, Sasol, Sberbank, AFK Sistema. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Gazprom, Lonmin plc (LONJ.J), PKO Bank Polski, Sasol, Sberbank, AFK Sistema, Standard Bank Group Ltd, Turkcell. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Gazprom, Lonmin plc (LONJ.J), Lukoil, Sberbank, Standard Bank Group Ltd. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Gazprom, Lonmin plc (LONJ.J), PKO Bank Polski, Sasol, Sberbank, AFK Sistema. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Gazprom, Lonmin plc (LONJ.J), PKO Bank Polski, Sasol, Sberbank, AFK Sistema. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Gazprom, Lonmin plc (LONJ.J), PKO Bank Polski, Sasol, Sberbank, AFK Sistema, Standard Bank Group Ltd, Turkcell. Broker: J.P. Morgan Securities plc acts as Corporate Broker to Lonmin plc (LONJ.J). Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com.
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*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
Other Disclosures
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Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised December 7, 2013.
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