Analyst Report 1

HP – STRONG BUY Equity Research • IT • 22 November 2011 • Jyske Markets Accounts This is a case recommendation. The company will be included in our equity- research universe as long as it holds price potential justifying a BUY recommendat ion. When this is no longer the case, we will discontinue our coverage although our recommendation is BUY, REDUCE or SELL. Publisher: Jyske Markets Vestergade 8-16 DK - 8600 Silkeborg Senior Equity Analyst Robert Jakobsen +45 89 89 70 44 [email protected] Assisting Equity Analyst Jesper Agerholm Jensen Translation: Translatio n Services Read more equity research reports on www.jyskemarkets.com Disclaimer: Please see the last page HP lowers the bar We maintain our STRONG BUY recommendati on 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 HP’s new CEO Meg Whitman’s 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 division’s 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. HP’s forecast for 2012 is pointing to an EPS of at least USD 4, w hich is below consensus at 4.6. The lower-than- anticipated 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. Price trend Fundamental valu atio n Undervalued Risk High News flow Neutral 12-month price target 35 Current price 26.9 Accountin g figures and key figures (DKKm) 2010R 2011E 2012E 2013E Sales 125 ,6 82 1 27 ,5 67 1 25 , 016 13 0 ,6 42 Operating profit 12,485 13,139 11,251 12,934 Results befo re taxes 10,966 13,039 11,351 13,134 Share information EBIT margin 9.9% 10.3% 9.0% 9.9% Hi gh/low latest 12 months 49/22 ROE 21.6% 20.8% 15.5% 15.5% Pri ce trend (3/12 months) 14%/-37% ROIC 22.5% 19.8% 16.6% 19.2% - relative to S&P 500 8%/-36% 0 EP S 3.7 4.8 4.2 4.9 Market value (DKKm) 58,210 P /E 11.4 7.7 8.8 7.6 Free float 90% EV/EBITA 9.2 7.1 8.3 7.2 Average daily volume (DKKm) 760 P/BV 2.0 1.6 1.4 1.2 Reuters HPQ.CO Dividend 0.3 0.3 0.4 0.5 Bloomberg HPQ US S ource: Jy ske Ban k & Datastream 21 26 31 36 41 46 51 n d j f m a m j j a s o n HP S&P 500

Analyst Report 1

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