HP STRONG BUY

Equity Research IT 22 November 2011 Jyske Markets

Accounts
This is a case recommendation. The company will be included in our equityresearch universe as long as it holds price potential justifying a BUY recommendation. When this is no longer the case, we will discontinue our coverage although our recommendation is BUY, REDUCE or SELL.

HP lowers the bar

We maintain our STRONG BUY recommendation for HP after the company on 21 November turned in favourable quarterly accounts and issued a conservative forecast for 2012. We expect that the time of confusing announcements from HP and probably also downgrades is over.
OK quarterly accounts: on 21 November, HP turned in good quarterly results. Sales came out in line with expectations (we had feared a disappointment) and EPS was a shade better than anticipated at USD 1.17 vs. consensus at USD 1.13 and our estimate at USD 1.14. Outlook: investors and analysts had anxiously awaited HPs new CEO Meg Whitmans announcements for the 2012 accounting year (ending October 2012). Generally, she met our expectations about getting HP back on track. She promised that there will be no more confusing announcements (such as uncertainty about the PC divisions future, WebOs, expensive acquisitions (Autonomy), an aggressive 2014 EPS forecast, etc.), which have only caused concern among investors. HP will now once again focus on operations and optimise its possibilities in its strong hardware, software and IT services portfolio. Investors will appreciate this development. HPs forecast for 2012 is pointing to an EPS of at least USD 4, which is below consensus at 4.6. The lower-thananticipated outlook is due to the following: 1) HP has a pessimistic view of the market conditions in North America and Europe. It is no longer only private consumers that are reluctant to invest but also companies and the public sector; 2) there is hardly any doubt that CEO Meg Whitman wanted to lower the bar, meaning that HP has good opportunities of meeting or exceeding its targets. We believe that investors fully understand and have interest in this. After three downgrades in 2011, investors once again want to be confident that the issued forecasts will be met or exceeded; 3) HP continues to overinvest in e.g. the IT services division to increase its exposure to more value-creating IT services. All in all, we believe that Meg Whitman issued an attainable and conservative forecast. HP should be able to meet this forecast provided that market conditions do not deteriorate considerably. STRONG BUY + high risk profile: we reiterate our STRONG BUY recommendation. The share is undervalued. At a 2012 EPS of USD 4 the share is trading at a P/E below 7x, which is far from the historical average of approx. 12x. Our DCF model estimates a fair value of USD 42 and HP is trading at a considerable discount to its peers. We also expect that investors will appreciate that: 1) the time of confusing announcements is over, 2) HP once again has a management that focuses on operations and 3) there will probably be no more downgrades.

Publisher: Jyske Markets Vestergade 8-16 DK - 8600 Silkeborg Senior Equity Analyst Robert Jakobsen +45 89 89 70 44 jrj@jyskebank.dk Assisting Equity Analyst Jesper Agerholm Jensen Translation: Translation Services

Price trend
Fundamental valuation Risk News flow 12-month price target Current price Undervalued High Neutral 35 26.9
51 46 41 36 31 26 21
n d j f m

Accounting figures and key figures

(DKKm)
S ales Operating profit Results before taxes EBIT margin
0

2010R 2011E 2012E 2013E

125,682 127,567 125,016 130,642 12,485 10,966 9.9% 21.6%
0

13,139 13,039 10.3% 20.8% 19.8% 0.00 4.8 7.7 7.1 1.6 0.3

11,251 11,351 9.0% 15.5% 16.6% 0.00 4.2 8.8 8.3 1.4 0.4

12,934 13,134 9.9% 15.5% 19.2% 0 4.9 7.6 7.2 1.2 0.5

HP

S&P 500

Share information
High/low latest 12 months Price trend (3/12 months) - relative to S&P 500 Market value (DKKm) Free float Average daily volume (DKKm) Reuters Bloomberg 49/22 14%/-37% 8%/-36% 58,210 90% 760
HP Q.CO HP Q US

Read more equity research reports on www.jyskemarkets.com Disclaimer: Please see the last page STRONG BUY)

ROE ROIC EP S P /E EV/EBITA P /BV Dividend

22.5% 0 3.7 11.4 9.2 2.0 0.3

S ource: Jyske Bank & Datastream

HP STRONG BUY
Equity Research IT 22 November 2011 Jyske Markets

HP STRONG BUY
Equity Research IT 22 November 2011 Jyske Markets

HP STRONG BUY
Equity Research IT 22 November 2011 Jyske Markets

Disclaimer & Disclosure

Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/terms.

Jyske Banks share recommendations current allocation

Allocation of recommendations, Danish shares (number) 14
12 10 8 6 4 2 0 Strong Buy
Source: Jyske Bank

Allocation of recommendations, all shares (number) 25

20 15 10 5 0

Buy

Reduce

Sell

Strong Buy
Source: Jyske Bank

Buy

Reduce

Sell

Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Banks recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investors base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Update of research report The planned update of the report will be prepared immediately upon the release of the companys financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated.

HP STRONG BUY
Equity Research IT 22 November 2011 Jyske Markets
Recommendation Strong Buy Buy Reduce Sell
Source: Jyske Bank

Risk-adjusted return >20% 10-20% 0-10% <0%

Share recommendation concepts Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return of 10% during the period 1902-2011). When we determine the recommendation for a share we use the 10% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment.

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