National P&K Inv Book 2010

8/14/2019 National P&K Inv Book 2010

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ATIONAL P&K SECURITIES S.A.

E Q U I T Y R E S E A R C H

I N V E S T M E N T B O O K DDECEMBER 2009


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Equity strategy Market positive structural reforms in sight Attractive valuations across sectors Variety of early cycle, defensive and limited Greek exposure plays Adverse macro may impact disposable income and earnings

Macro strategy International demand to lower extenal imbalancies Monetary conditions in EU area improving Pessimistic scenarios already priced in for financial assets Widening deficit and public debt undermine confidence in the economy Fiscal tightening may postpone capital formation for investment purposes

InvestmentCalls

Economic reforms a key catalyst for banks/market rebound Positive on Energy (RES), non residential construction and banks Top picks include Bank of Cyprus, Coca Cola Hellenic, Ellaktor, Metka

Valuation ratios

Chng Chng P/E EPS chng P/BV EV/EBITDA Div.Yield GDP CPI Exch. 10-yr

WTD YTD 2010e 2010e 2010e 2010e 2009e Growth 10e Rate 09e Bond y.

(%) (%) (x) (%) (x) (x) (%) 10e (%) (% eop) ( eop) 09e (%)

Greece 5.5 24.4 9.5 5.0 1.2 6.4 4.1 (0.3) 2.5 1.4 n.a.

National P&K Research Team+30210 7720 000

[email protected]

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* The exchange rate 09e applies to USD/EURO rate. Source: National P&K Securities, Finansinvest, ETEBA Romania and NBG estimate**Valuation multiples are based on National P&K Securities Watch list.***Closing price, WTD and YTD refer to the General Index.

EQUITY RESEARCH

INVESTMENT BOOK

Please refer to important disclosure at the end of the document

December 2009


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Page 2 Please refer to important disclosure at the end of the document

INVESTMENT

BOOK

EXECUTIVESUMMARY

The end of the year finds Greece at a critical juncture. The dramatic widening in the budgetdeficit to 12.7% of GDP in 2009 reflects the unwelcome combination of declining governmentrevenues and sizeable spending slippages. The international economic crisis made fiscalconstraints far more binding contributing to the rise of sovereign debt to record levels of 113%of GDP.

The main challenge for the newly elected government is to implement measures of apermanent nature including a revision of the social security system, as well as initiatives thatwill help gain control of the extensively inefficient public spending regime, and measures thatwill help curb tax evasion. An ambitious 2.5bn privatization program for 2010 will provideadditional comfort in meeting targets as will a commitment to growth achieved by tackling thered tape and boosting liquidity.

On the other hand, investors have viewed governments recent announcements with caution

given a row of successive revisions of Greek statistics, in the recent past. We subscribe to amore positive view as we believe the Government has the clout and the social support that willenable it to implement its proposed spending cuts and pension system revision initiatives.Greece has successfully walked through a similar convergence path during the period of 1993-99 in the run up for its Euro entry with Debt/GDP ratios above 100% and double digit deficits.This time, EU supervision will ensure macroeconomic progress is followed through.

Key catalyst ahead is the Stability and Growth plan, to be released in January 2010, which willdetail the specifics for a successful implementation. This is the premise for our base casescenario that calls for GDP decline of 0.3%, core inflation of 2.1% and a stock market upside ofroughly 20% for the FTSE 20 index over the next twelve months.

The recent underperformance of the Greek stock market has brought valuations to seven-yearlows relative to Euro stocks. Moreover, supportive factors for the key energy sector anddomestic concessions, improved balance sheets for Greek & Cypriot banks and opportunities

from a variety of early-cycle and defensive themes further increase our confidence in the Greekmarkets prospects. As the tides turn over the course of next year and the economic landscapeimproves, we are looking forward with optimism to 2010.

Theodore RitsosResearch DirectorNational P&K Securities


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Nick Magginas, PHD

Theodore RitsosKostas Ntounas

Panagiotis Kladis, CFA

George Vitorakis

Theodore Ritsos

Kostas NtounasVictor Labate

Victor Labate

Ioanna Katsoula

CONTENTS

Macro StrategySizeable fiscal imbalances blur Greeces growth prospects

Equity Strategy

Upside potential will be fuelled by country wide reforms

Sector Updates

Banks - Spread management and asset quality improvement to drive both earnings and priceshigher

Gaming - Reform, now a not so distant scenario

Telecoms - Mobile pricing pressures likely offset by weaker fixed line competition

Industrials / Materials - Stocks to start pricing in gradually improving business environment

Oil & Gas - Recovery in middle distillates and petrol station network expansion

Retail/Consumer Goods - Tough macroeconomic conditions will put pressure on consumerspending value for money concepts will prevail

Selected List

Watchlist Statistics

Company Index

Aegean Airlines 24 Iaso

Agricultural Bank of Greece 25 Intracom

Alapis 26 Intralot

Alpha Bank 27 Jumbo

Autohellas 28 Korres Natural Products

J&P Avax 29 Marfin Popular BankCoca Cola Hellenic 30 Metka

Corinth Pipeworks 31 Motor Oil

Bank of Cyprus 32 Mytilineos Holdings

Duty Free Shops 33 OPAP

Ellaktor 34 OTE

EFG Eurobank Ergasias 35 Piraeus Bank

EYATH (Thessaloniki Water) 36 PPA

EYDAP (Athens Water) 37 PPC

Folli Follie 38 S&B Industrial Minerals

Forthnet 39 Sarantis

Fourlis 40 Sidenor

Frigoglass 41 Terna Energy

GEK Terna 42 Titan Cement

Hellenic Exchanges 43 Viohalco

Hellenic Petroleum 44

Hellenic Postbank 45

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Weakening domestic demand and sizeable fiscalimbalances blur Greeces growth prospects

In Q1:2009, the Greek economy entered its first recession since1993. Activity was held back by a broad-based decline in domesticand external demand, despite the support from loose monetaryconditions and a significant fiscal impulse (reflected in the

substantial widening of the fiscal deficit to an estimated 12.7 percent of GDP in 2009 from 7.7 per cent of GDP in 2008).

Source: Eurostat and NSSG, NBG estimations

Private consumption: On a downward path sinceQ4:2008

Consumer spending remains under pressure with privateconsumption in negative territory for 3 consecutive quarters startingfrom Q1:2009. Although the recent readings of forward-looking

indicators point to a significant improvement in consumersentiment, private consumption is unlikely to recover before mid-2010, as rapidly deteriorating labor market conditions will continueto weigh heavily on household spending decisions. Employment isexpected to be down by 1.6 per cent y-o-y in 2009 and anadditional 0.7 per cent in 2010.

Further downward pressure on consumer spending is expected toarise from: i) the need to intensify the fiscal adjustment effort inview of EMU commitments and the high debt burden of the order,ii) the containment of wage costs in the private, as well as in thepublic, sector with a view to sustaining employment, and iii) theweakening of favorable terms of trade effects from falling energyprices. In addition, in view of the highly uncertain environment,household savings are expected to increase, putting furtherdownward pressure on consumption.

Source: NSSG, AMECO and NBG estimates

...despite healthy household balance sheets andimproving liquidity conditions

The relatively low leverage of Greek households and the stablevaluation of the stock of housing wealth make Greekhousehold budgets less vulnerable to the economic downturncompared with other euro area countries, whereas improving

credit conditions will be also supportive of economic growth.Nevertheless, despite the considerable loosening of monetaryconditions, reflecting the maintenance of interest rates athistorically low levels by the ECB, in conjunction with theimplementation of extraordinary liquidity enhancementmeasures, credit to the private sector has further deceleratedto 4.4 per cent y-o-y in October from 5.4 in Septemberalthough it remained significantly higher than the euro arearefecting a high degree of uncertainty surrounding householdspending decisions and investment prospects. This furtherdeceleration reflected the continuing slowdown in householdcredit (which grew by 3.3 per cent y-o-y in October) asconsumer and mortgage credit slowed to 2.4 and 4.0 per centy-o-y respectively, from 3.3 and 4.4 per cent in the previous

month, whereas credit to enterprises has also slowed to 5.4per cent y-o-y from 6.8 per cent in September.

Indeed, in 2009, credit expansion to households is estimated tobe very weak (3.5 per cent y-o-y in December 2009), downfrom 14.5 per cent y-o-y in 2008, a reduction in the creditstimulus from 4.7 per cent of GDP in 2008 to 1.3 per cent in2009.

Source: Bank of Greece OECD

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GDP Growth

Euro area SEE-5 Greece

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Private Consumption and Real DisposableIncome

Private Consumption Real Disposable Income

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Credit to the Private Sector% GDP (as in September 2009)

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(e)

Nominal House Prices(y-o-y % change)

Greece Spain Ireland


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Investment spending: The end of a high investmenteraThe continuing retrenchment in construction activity which

continues for a third consecutive year-- compounded by shrinkingbusiness investment, and still existing margins for additionaladjustment in inventories, are expected to exert a net drag of morethan 4 percentage points on economic activity in 2009, and about

0.4 percentage points in H1:2010 before reversing course in late-2010. In this respect, investment spending as a per cent of GDP isexpected to undershoot its 20-year average of 21 per cent by morethan 4 percentage points, which along with the contraction inemployment will lead to negative implications for potential growth(c. 2% annually in the medium term).

The recovery will be led by an improvement in business investmentby mid-2010, on the back of the improving internationalenvironment and the concomitant bottoming-out of businesssentiment from the very low level of 2009, whereas the pick up inresidential construction will take hold in early 2011, as the stock ofunsold houses remains high and new tax measures on real estateproperty are implemented, whereas the correction in house prices,from their peak in Q4:2008, is expected to be of the order of 10 per

cent (peak to trough).

Source: AMECO and NBG estimates

Although private consumption and fixed capital formation appear tohave started bottoming out in Q3:2009, the fragile outlook ofconsumer and business sentiment presages further declines inGDP in Q4:2009 and Q1 or Q2:2010. The expected return ofannual GDP growth in positive territory in H2:2010 will be mainlybased on recovering external demand and favorable base effects,while domestic demand will remain weak against a backdrop ofintensifying efforts for fiscal consolidation.

External imbalances start to unwind, helped by theeconomic downturn

The continuing shrinkage in imports is expected to more thancompensate for the significant drop in exports of goods andservices. Indeed, increasing signs of a faster than-initially-expectedstabilization of the world economy start confining the losses intourism and shipping revenue in the vicinity of -9 y-o-y and -27 percent y-o-y, respectively, in Q3:2009, from nearly -16 and -33 percent, respectively, in H1:2009. Thus, the contribution of net exportson economic activity will be positive of the order of 2 per cent in2009 and 0.2 per cent in 2010. In 2010, shipping revenue isexpected to increase by about 7 per cent annually, on the back ofimproving shipping market conditions and especially of significant

improvements in the size and quality of the Greek fleet, whereasthe recovery in tourism revenue will be marginal as severe costcompetition will continue to compress profit margins despite therecovery in arrivals.

Source: NSSG and NBG estimates

The near-term The current account deficit is expected toshrink by almost 4 percentage points of GDP to 10.5 per centof GDP in 2009 and decline further to 8.5 per cent in 2010against a background of weaker domestic demand andrecovering economic activity internationally. oil.

Source: BoG and NBG estimates

The international economic crisis made fiscalconstraints far more binding

The dramatic widening in General Government deficit to 12.7per cent of GDP in 2009, from an upward revised 7.7 per centin 2008, reflects declining revenues as well as considerablespending slippages. On the revenue side, the decline inrevenues by about 0.8 of a percentage point of GDP comparedwith 2008 mainly reflects: i) weakening domestic demand; ii)lower-than-expected return of revenue measures; and iii)continuing weaknesses of the tax collection mechanism,

especially during a prolonged election period. Expenses werealso out of control increasing by about 3.5 percentage pointsof GDP, reflecting inter alia: i) higher-than-projected transfersdue to the operation of automatic stabilizers; ii) an extensiveelectoral cycle due to the successive European and nationalsnap elections, and iii) insufficient expenditure rationalizationespecially in a time of crisis.

The main challenge for fiscal policy in 2009 is to implementpermanent measures, most importantly intensify efforts againsttax evasion, stop wasteful and inefficient spending andimprove public spending control. The 2010 Budget aims toreduce the deficit to 9.1 per cent of GDP in 2010 on the back ofan increase in government revenue of 2.0 pps of GDP and a

reduction in spending of about 1.5 pps of GDP. TheGovernment is expected to back its request for a 3-4 yearreprieve to correct the excessive deficit with a package ofmeasures of more permanent nature, including a revision ofthe social security system, to be announced early next year.

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Investment as %GDP

Greece Spain Ireland

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2009f

Current Account Deficit

CA def icit (%GDP)

CA deficit, excluding oil & ships (%GDP)

Fiscal Table

2005 2006 2007 2008 2009f* 2010f*

General Government Balance -5,1 -2,9 -3,7 -7,7 -12,7 -9,1

Primary Balance 1,7 2,7 1,4 2,0 3,2 3,2

Cycl. Adj. General Government Balance -5,7 -3,5 -4,8 -8,5 -11,4 -8,6

Ordinary Budget -3,3 -1,8 -2,9 -4,2 -9,2 -6,6

Public Investment Budget -2,4 -2,1 -1,7 -1,9 -3,0 -2,6

Rest of General Government Budget 0,6 1,0 0,9 -1,6 -0,5 0,1

Gross Debt 98,1 97,1 95,6 99,2 113,4 120,8

Spread over 10-y Bund (period average) 18 bps 27 bps 28 bps 80 bps 185 bps

* MNEC and NBG estimates (in per cent of GDP)


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Greek sovereign bond spreads have widened sinceNovember after the announcement of the new fiscalsituation

The sustained improvement in investors risk appetite inconjunction with liquidity enhancement measures by the ECB in

Q2:2009 had compressed liquidity and risk premia, driving thespread of the 10-year Greek Government bond to an 11-monthlow of 120 bps in September.

Nevertheless, the spread widened substantially in earlyDecember to above 200 bps as a result of increasing worriesabout the sustainability of Greek debt dynamics, the downwardrevision in GDP growth for H1:2009 (by more than 0.7 per cent)and the contraction of economic activity by 1.6 per cent y-o-y inQ3:2009 in conjunction with the two consecutive downgrades ofthe Greek sovereign debt by Fitch and S&P to BBB+ and anincreasing risk of an additional cut from Moodys in comingweeks.

Source: European Commission Autumn Report and NBG estimates

Greek sovereign debt pays an increasing borrowingpremium in recent weeks due to a stricterreassessment of fiscal imbalances and aconcomitant credibility deficitThe spread over bunds is expected to be conditioned on near-term developments in risk appetite and the progress on the fiscalconsolidation front, whereas the probability of additional ratingdowngrade (by Moody's and S&P) appears to have been, to asignificant extent, incorporated in mid-December valuations ofGreek government bonds (c. 240 bps). The achievement of fiscaltargets of 2010 budget and the credibility gains from potentialannouncement of structural economic measures in followingmonths could, ceteris paribus, bring the spreads significantlydown from their current extremely high levels.

Source: Reuters

Inflation pressures will remain muted despite thefading out of favourable base effects

Headline inflation will remain muted in 2009, near 1.2 per cent,while the core measure will stubbornly remain near 1.7 percent despite the sizeable output gap (of the order of -1 percent of potential GDP) , due to rapidly rising unit labor cost, by4 per cent y-o-y, and structural rigidities in domestic markets.1

Source: NSSG and BoG

Major sources of uncertainty for 2010

A further weakening of private consumption against abackdrop of rapidly declining employment and intensifying

efforts for fiscal consolidation through increased taxburden and stagnated wages

A high degree of uncertainty and a significant tightening offiscal stance could push further back the expectedrecovery of fixed capital formation to early 2011 forbusiness investment and even later for residentialconstruction

A new round of negative credibility effects and adversefeedbacks with other macroeconomic variables in theevent of serious slippages in the implementation of 2010Government budget which could followed by a anadditional one-notch downgrade by rating agencies.

The Greek banking system remains healthy and wellcapitalized although it cannot remain untouched by aprotracted period of high uncertainty and economicstagnation.

The continuation of a strong declining trend in imports inconjunction with improving demand for Greek exports ofproducts and services

A stronger currently expected recovery of economicactivity in euro area and SE Europe.

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General Government Deficit

(% GDP)

Greece Euro area Spain

Germany Ireland

IT

GR

ES IE

PT

BE

FR

NL

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GR

ES

IE

PT

BE

FR

NL

-1

1

3

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7

9

0 50 100 150 200 250 300

Spread over Bund

Government Spreads against S&P Ratings

S&PRa

tings

January 08

December 09

AAA

AAA-

AA+

AA

AA-

A+

AA-

BBB+


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Upside potential will be fuelled by country wide reforms

Equity StrategyGreece

The big picture will become positive

We maintain a positive market view for 2010, following the notable downturn in theGreek stock market at end Q4 09. The sell off reflected a number of real Greekeconomy structural drags where however, investors have probably overlooked twocritical areas of public finances: Firstly, the relatively high waste in public sector andsecondly, the magnitude of tax evasion. What has not been the case elsewhere,Greece continues to retain a pool of untapped potential which has never in the pastbeen addressed by political agendas. Recent elections highlighted the extent of publicendorsement for such an agenda, implying that society itself now stands behind thereforms. This emulates somewhat how the G20 nations stood behind the measures fora gradual global recovery, last March. Additionally, relative valuations for a number ofsectors have now reached very attractive levels, even assuming further negativerevisions in 2010 earnings. Our base case scenario (based on GDP decline of 0.3%

and core inflation of 2.1% for 2010) implies a bottom up upside potential of 19% forthe FTSE 20 index over the next twelve months.

Five reasons to buy Greek stocks in 2010

Attractive valuation: The Greek market has been trading at a widening discount vs.the DJ Euro Stoxx index. On pure valuation grounds, we spot opportunities incompanies such as OPAP, PPC, Ellaktor, Bank of Cyprus, Alpha Bank and EurobankEFG.

The governments strong political will: In our view, there is a relatively highprobability that the government will succeed in improving public finances by tacklingwidespread tax evasion, spending in the public sector and the pension system deficit.

Supportive factors for the energy and construction sectors include the Public

Investment Programme (higher by ca 5% y-o-y), increasing pace of absorption ofsubsidies and speed up in RES capacity additions.

Improved balance sheet for Greek & Cypriot banks by building equity reserves andsecuring adequate liquidity resources. The macro turnaround will support profitabilityand drive valuations higher.

A variety of early cycle, defensive plays and limited Greek exposure: Wehighlight the resilient characteristics of OPAP (dividend yield and earnings clarity),Ellaktor and Metka (top line visibility on high backlog and earnings power) andJumbo (value for money retail concept). Early cycle plays include Sidenor/Viohalco,Titan, Mytilineos, S&B and Aegean Airlines whileheavy foreign exposure is foundin CCHB, Intralot, Frigoglass, Bank of Cyprus and S&B.

Further Catalysts

Detailed structural reforms will be included in the Stability & Growth Program, dueby mid-January. They are likely to provide further macro support and confidence in theeconomic recovery.

Updated and/or new business plans are likely to be presented by new managementteams in key names like PPC and OPAP as well as OTE. Increased visibility andclarity for investment cases will be partly offset by the risk of governmentalinterference.

ConcernsAdverse macroeconomic conditions and public finances could impact corporateearnings. The most exposed sectors include financials, construction and retail. Thegaming and telecoms sectors should be largely unaffected.

Limited credit expansion and deteriorating asset quality could materially affect the

banking sector and the housing market.

Lower disposable income, on the back of increased taxes and unemployment, willnegative affect financials and retail stocks.

Increased government interference in the banking sector and in key state-controlledcompanies (e.g. OPAP, PPC) could negatively affect market dynamics.

Trading Data2007 2008 2009

last

General Index 5,178 1,786 2,222chng (%) 18 -66 24Market Cap (aop, bn) 183 129 82chng (%) 31 -29 -37Market cap / GDP (%) 80 53 34Volume/Market cap (%) 65% 61% n.mDaily volume (aop, m) 472 316 206Free float (%) 50.7 48.4 61.7Foreign institutional (%) 39.7 32.4 34.1Domestic FUM/GDP (%) 8.8 3.6 4.6Listed stocks (#) 293 262 230

Valuation2007 2008 2009e 2010e

EPS chng (%) 26 -10 0.3 5DJStoxx600 EPS chng(%) 5 -21 -14 25P/E (x) 17.3 6.4 10.0 9.5DJ Stoxx 600 P/E (x) 14.3 13.3 15.8 12.7Earnings yield gap (bps) 3.9 7.5 n.a. n.a.EBITDA chng (%) -7 13.3 4.8 8.1EV/EBITDA (x) 10.0 5.7 6.3 6.4Dividend yield (%) 3.2 6.3 4.1 4.4RoE (%) 32 38 26 26P/BV (x) 3.5 1.0 1.2 1.2Risk free (%) 4.5 4.7 5.2 5.2Risk premium (%) 4.8 5.3 4.3 4.3FTSE 20 2752 932. 1142 1363

Transaction DataSettlement T+3

SE related taxes10% capital gains tax due 1/10cash dividend/stock options from1/ 09

Fees to the SE 6bp per trade (4 goes to EXAE)0.15% on positions purchased


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2010 Investment ThemesValuation: Greek market trades at a discount

The charts below, which use forward P/E, show that theGreek market is trading at a discount (>25%) to the DJ EuroStoxx Index. As demonstrated in the graphs, this could be

construed as rather extreme, given past data (graph 2) andthe relatively small discrepancy in the respective EPS growthestimates (graph 1). Having said that, we do point out that:

The aforementioned discount is largely attributed to thesharp correction (20-25%) witnessed in the Greekmarket over the last month.

Earnings risk is relatively high given that corporateprofits could prove to be quite sensitive to domesticmacroeconomic conditions and fiscal policy relatedmeasures.

Source: JCF

Source: JCF

Monetary Conditions and Interest rates

Following the liquidity crunch at the beginning of the year, marketsare starting to normalise while the ECB will start unwinding theextraordinary measures taken during the crisis, gradually in 2010.Banks are tapping into wholesale markets again while deposit rateshave declined substantially compared to H1 09. Looking forward,we believe that interest rates on deposits, which are the primarysource of funding for Greek and Cypriot banks (ie c63% of totalassets), will remain low reducing cost of funding. Interest rates,which are projected to increase towards the end of 2010, will alsohelp banks to expand interest margins. Deposit rich banks likeNBG, Bank of Cyprus, Marfin Popular, ATE Bank and HellenicPostbank will benefit the most.

Asset quality trends

Asset quality, which was the key determinant for 2009 bankprofitability, will remain an important factor for 2010 earnings. Thecurrent year proved very tough with Greek, Turkish, and SEEeconomies facing a sharp deterioration in economic activity.

Accordingly, quality of loan portfolios also deteriorated but not tothe extent that could raise viability concerns, as many investorsfeared a year ago. Given the projected recovery in Turkey and SEEwe believe that NPL formation will decelerate and NPL ratio willpeak by mid 2010. Therefore, cost of credit risk will be lower in2010 in our view. We favour banks that have already shown someprogress on that front such as Eurobank, Bank of Cyprus and Alpha

USD/EUR rate: sustained weakness is likely

We believe that the USD vs. the EUR is likely to remain weak (atleast in H110) as the Fed is expected to keep its rates roughlyunchanged for the first couple of months into 2010. Companiesaffected by such developments are: Refiners (MOH, ELPE),Mytilineos Holdings, Titan, Intralot, Aegean Airlines, Jumbo andFolli Follie.

Industrials: improving pricing environment starting frommid-2010We expect the increase in commodity prices starting from mid-2010to also be accompanied by an increase in spreads on industrialproducts. Such an increase in spreads is anticipated to lead to amaterial margin improvement especially for industrial companiesthat have significant commodity costs (e.g. metal processors).

Commodity prices ($/ton)

Source LME, Metal Bulletin, Bloomberg.

More specifically, we expect a correction of 25% for copper prices

and of 15% for steel prices in H110, and then a subsequentmaterial increase in H210. We anticipate aluminium prices toincrease starting from beginning of 2010 as they remain below their10-year average. As a result, some companies that hold stocks ofcopper and steel could incur inventory losses in H110 and makesubsequent inventory gains in H210.

-100%

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99 00 01 02 03 04 05 06 07 08 09 10

Estimates Forward P/E and EPS Growth

for Greece Relative to DJ Euro Stoxx

P/E (L)

EPS Growth (R)

6

8

10

12

14

16

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20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Next 12 months P/E for Greecevs. DJ Euro Stoxx

Greece (GR) DJ Euro Stoxx

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0

1,000

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Copper (left axis)

Aluminium (leftaxis)Zinc (left axis)

Steel (right axis)


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12/69

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PPC willfilters to.


13/69


Greek Sectors


14/69


Prices as of

December 16th

P/E P/BV RoERating Target

PriceCurrent

PriceUpside

PotentialM.Cap(m)

YTD(%)

2009e 2010e 2009e 2010e 2009e 2010e

Alpha Bank O/P 12.0 8.55 40.4% 4,658 40.2% 11.2x 11.3x 0.83x 0.99x 8.8% 9.0%

Agricultural Bank U/P 1.80 1.85 -2.3% 1,675 32.1% 17.5x 18.5x 0.93x 0.90x 7.2% 5.0%Bank of Cyprus O/P 6.10 4.72 28.6% 2,769 76.8% 8.4x 8.9x 1.24x 1.13x 15.4% 13.3%EFG Eurobank O/P 11.0 7.95 38.6% 4,281 42.3% 11.3x 10.7x 1.08x 1.02x 9.8% 9.8%Piraeus Bank Neutral 11.5 8.25 39.6% 2,274 31.6% 10.8x 12.1x 0.83x 0.79x 7.2% 7.1%

Hellenic Postbank Neutral 4.70 4.24 11.8% 1,206 -5.3% 8.9x 13.0x 0.95x 0.93x 15.0% 7.2%Marfin Popular Neutral 2.8 2.38 19.5% 1,975 25.3% 11.5x 12.8x 0.56x 0.55x 5.0% 4.4%AVG* 33% 11.3x 12.4x 0.9x 0.9x 10% 8%DJ Euro Stoxx 50.0% 15.99x 12.03x 0.98x 0.94x 6.15% 7.80%

Source: National P&K Securities Estimates *Simple arithmetic average

Panagiotis Kladis, CFAFinancials AnalystTel.: +30210 7720185e-mail: [email protected]

Banks

Spread management and asset quality improvement todrive both earnings and prices higher

View After a very challenging year for Greek and Cypriotbanks, we believe that 2010 will be a better year. In 2009 wewitnessed: i) a significant margin squeeze as a result of theliquidity crunch, ii) a sharp slowdown in loan growth, iii) a spikein the cost of credit due to the economic recession but also iv)strong trading gains after March. We believe that loan growthwill remain limited in the foreseeable future but marginrecovery along with a gradual reduction in cost of credit, willprove to be adequate for higher earnings in 2010. Lately,concerns over the Greek macroeconomic environment havecome to the forefront, resulting in local banks

underperformance relative to their European peers.

Recommendations In such an environment we are looking forbanks that: i) can better manage their NIM, ii) have alreadyexperienced a slowdown in NPL formation which will graduallyresult in a lower cost of credit risk, iii) have more exposureoutside of Greece, and iv) have a solid balance sheet. In ourview, Bank of Cyprus stands out as it compares favourablywith its local peers in all the above mentioned criteria. We alsofavour EFG Eurobank due to its significant exposure outside ofGreece and Alpha Bank which combines a solid balance sheetwith a very attractive valuation.

Key Sector Themes

Macro Concerns Weigh on Valuations The recent concernsover the Greek macroeconomic environment are reflected inthe sovereign spread widening versus the German bund whichspiked lately.

Source: FactSet, National P&K Securities

As it can be seen in the graph there is a strong correlationbetween the banks Earnings Yield (reciprocal of P/E) and thesovereign spread. Consequently, an improvement in the outlookfor the Greek economy which would ease pressures on thesovereign spread is a necessary condition in order to see higherbank valuations.Valuations supportive At this point, valuations do seem to offersupport as on a P/B relative basis compared to their Europeanpeers we are at lower levels even when compared to Q1 09,when the spread of the 10year GGB versus the respectiveGerman bund had reached 300bps.

Source: FactSet, National P&K Securities

We believe that once positive news on the Greek macro frontemerges, Greek banks will outperform their European peersonce again.

NIM Management Bank NIMs took a significant hit at thebeginning of the previous year due to the liquidity crunch makingdeposits very expensive. Banks began to reprice their asset sidewhich resulted in a significant recovery during 2Q and 3Q.Admittedly, this effort has to a large extent now taken placewhich leaves little room for further improvement. However, giventhat deposit margins are still in negative territory, as a result alsoof historically low interbank rates, we believe that NIMs can

improve further.

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

0.000

0.050

0.100

0.150

0.200

0.250

0.300

Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09

Greek & Cypriot Banks -Earnings Yield (L)

10 Year Sovereign Spread

Sovereign Spread and Bank Valuations

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2.20

15/10/2004 15/10/2005 15/10/2006 15/10/2007 15/10/2008 15/10/2009

Greek & Cypriot Banks 12m fwd P/B relative to DJ Euro Stoxx Banks P/B

5yr average


15/69


Despite the fact that banks will have to gradually replacecheap ECB liquidity in 2010, we believe that the total cost offunding will be lower on the back of the lower cost of depositswhich account for 60-70% of total liabilities.

Source: Bank of Greece, National P&K Securities

Furthermore, any rate hikes from the ECB, which are projectedtowards the 2H of 2010 will also help bank NIMs. Finally, theyield curve remains steep and is projected to remain so wellinto 2010.

ECB funding not an issue Q3 results showed that Greekbanks have already started implementing their own exitstrategies from the cheap ECB liquidity extensively usedduring 2009. During Q3, we witnessed the largest Greek banksreducing their exposure substantially, i.e. c.30% qoq.

Source: Companies Reports, National P&K Securities

In our view, as the unwinding of the ECBs funding is expected

to be gradual and smooth, Greek banks will not face anyproblem in reducing their dependence. Moreover given that the12m Euribor currently stands at 1.23%, the impact in theoverall cost of funding will be limited and will be more thanoffset by the lower deposit rates.

Loan growth limited Given another stagnant year in Greecein addition to the fact that credit penetration is approachingmaturity levels, i.e. above 100% of GDP, we expect that loangrowth will remain limited in the years to come. Loan growththerefore, will most likely surface from the banks SEoperations. However, we believe that in 2010, Greek & Cypriotbanks will remain cautious. Hence, a mid single digit on aGroup level should be expected in our view for the next year.

Asset Quality Improvement Lower Cost of Credit RiskWe believe that NPL formation will start to decelerate slowly butsteadily in 2010, as with Q3 results, given the fact that themacroeconomic outlook for the SEE region and Turkey areconsiderably better than 2009. Although banks need to restorecoverage ratios which were pushed significantly lower in 2009,we believe that this can be achieved with a lower cost of creditrisk. We assume a c.8bps lower cost of credit than the 130bpswitnessed in 2009.

Source: Companies Reports, National P&K SecuritiesCost containment also supportive It has been a year sincemanagement teams made cost containment a priority. Thisincluded freezing new branch openings and new employee hiresas well as efforts to rationalize and streamline general andadministrative expenses. Early indications of this policys resultsare clearly identifiable in the last two quarters and we believethat further signs of cost containment will be evident in theforeseeable future. Overall constrained cost evolution will besupportive for the bottom line since we estimate that these willpost marginal increases during 2009 - 2010 and in some cases(i.e. EFG Eurobank) we may even see a reduction in the overallcost base.

Regulatory Environment Following last years crisis in thefinancial sector, it is highly likely that a stricter regulatoryenvironment will evolve. We believe that in 2010, regulatorybodies worldwide will decide on the new regulatory environment;bearing in mind that a grace period of several years will begranted in order for the banks to adjust. Furthermore, Greecesnewly appointed government is currently amending theregulatory environment in order to resolve issues concerninglongstanding overdue debts. In their attempt to be proactive inlight of this, the banks under our coverage have alreadyenhanced capital bases, reduced loan to deposit ratios andleverage whilst constantly seeking settlement and debtrestructuring with clients facing economic difficulties.

Consequently, we do not see any serious impact from the abovementioned regulatory changes.

Banks will repay govt support by mid 2010 NBG, HellenicPostbank and Alpha bank have already proceeded with capitalincreases, the latter exclusively to repay government preferredsecurities. Most of the other banks will examine the repaymentof government support by mid 2010 while the Bank of Greecehas asked for any repayments to take place after May 2010. Webelieve that for the large part, banks will repay the governmentsupport plan by the end of 2010; hence any governmentintervention and more specifically restrictions on dividend policy,will cease to take effect.

0

1

2

3

4

5

6

7

D ec -0 8 Ja n-09 F eb-0 9 Ma r-0 9 A pr-0 9 Ma y-09 J un -09 Ju l-09 Au g-0 9 S ep -09 Oct-0 9

Ti me Depos its - Househo lds Ti me Depos its - Corpora te

Mortgage Loans - (maturity >5yrs) Corporate Loans - (maturity >5yrs)

Interest Rates on Existing Balances - Greece

12.7bn

11.8bn 12bn

6.3bn

2.6bn

9.5bn9bn

6bn

3.8bn

1.9bn

NBG Alpha EFG Piraeus Marfin

Q2 '09 Q3 '09

ECB Funding

1,138

1,480

2,261

18001700

16001500

Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10

Quarterly NPL Formation/Aggregate Figures*(in m)

NPLs to peakduring H1 2010

NPL Formation


16/69


George VitorakisGamingTel.: +30210 7720151e-mail: [email protected]

Gaming

Reform, now a not so distant scenario

View We believe that the Greek gaming sector is now close to aseries of structural changes including regulatory reforms as wellas new product introductions. The governments need to raiseadditional funds in order to reduce widening budget deficits isexpected to be the main driver behind any final decisions.

Higher gambling taxation across the board We note thegrowing trend for higher gambling taxation across the board thatis hurting both domestic and global operators as seen inBulgaria (where taxation rose to 15% from 10% previously) andPoland). In Greece, the Ministry of Finance postponed the

application of the tax regime until 30.04.2010. We believe thatalthough it will still hold negative implications, the new regimewill be more positive for OPAP compared to the postponedmeasures.

Deregulation & instant tickets: Evolution during 2010 hashigher chances Regarding evolution on the deregulation front,the debate between regulation and deregulation has still notprovided any unanimous decision on a European level.However, key countries such as France and Denmark are nowready to follow a controlled liberalization model and open theirdomestic gambling market. In addition, the Schleswig-Holsteinstate in Germany has also expressed its intention to regulate itsgambling market locally, which may lead to wider changes on a

national level in the longer term.

With regards to the Greek monopoly issue, investors attentionhas shifted to the anticipated decision of the Greek Council ofState on Stanleybets appeal. The worst-case scenario for nowwould be a referral to the ECJ, which in turn would mean thatmore time (in excess of 1-2 years) would be needed to reach aruling. We believe that over the next two years it is more likelythat the Greek Government will begin a public consultationregarding a controlled liberalization model. We thereforereiterate our view that the Greek State will take regulatoryaction ahead of any rulings from the ECJ.

With regards to new products, a public consultation on ascratch ticket Tender had already commenced under theformer government. We believe that sooner rather than later,the current government will move towards this direction aswell, whereby the viability of the scratch tickets Tender will relyheavily on the upfront payment and payout structure of thegame.Lack of major privatizations in the next 6 months; higherexpectations in the medium-term In terms of the globaloperating environment, our thesis for 2009 regardinginternational operators and their reduced risk appetite, has

proved to be correct as evidenced in cases such as MilliPiyango, Tote Tasmania and Camelot which attracted littleinvestor interest. Despite a clear improvement in investorsentiment, we see little room for major privatization projectstaking place during the first half of 2010. Acquisitions orbuyouts are now more viable even in the short-term, withCamelot ranking as one of the first available targets. In thelonger term, we would expect to hear about the final decisionregarding the Illinois lottery privatization, clearly a landmarkcase for future developments in the US, during Q4 2010.

Sill cautious on player spending recovery As for playerspending evolution, we stay cautious on European playerspending recovery. In doing so, we share Intralots

managements view that any signs of an upturn on aninternational level will be more evident in the US and Asia. Inour view, higher gambling taxation in SEE Europe could further

hurt player spending in the region. On the positive side,concerns over the Greek macroeconomic environment shouldnot have an impact on Intralot as more than 95% of our targetvaluation derives from international operations.

Top recommendations Overall, 2010 should be a year of highvolatility for the gaming sector. Although we prefer OPAP inthe short-term, we would also feel comfortable with a buy onthe dips approach for Intralot as well. Especially with regard tochanges on the regulatory front, any major developmentscould eventually serve as good entry points for both stocks.

Prices as of

December 16thPrice

MarketCap.

Perf. Y-t-d P/E 09 e P/E 10 eEV/EBITDA

09 eEV/EBITDA

10 eDivYield 09 e DivYield 10 e

OPAP 15.2 4,849 -27% 7.9 x 7.3 x 4.5 x 4.7 x 12.3% 13.2%

Intralot 3.8 606 27% 7.4 x 6.7 x 4.8 x 4.6 x 4.11% 5.36%

Lottomatica` 13.5 2,331 -23% 13.8 x 11.6 x 5.3 x 5.0 x 4.64% 4.27%

Scientific Games 9.9 925 -21% 21.4 x 16.2 x 8.3 x 7.3 x 0.00% 0.00%

Ladbrokes 1.6 1,398 -5% 6.9 x 8.6 x 7.1 x 7.6 x 3.57% 4.48%

William Hill 2.1 1,489 35% 9.5 x 9.4 x 6.9 x 6.3 x 3.98% 4.50%

Paddy Power 23.9 1,147 82% 21.0 x 17.8 x 13.2 x 10.4 x 2.18% 2.28%

SNAI 3.0 347 39% 98.0 x 19.4 x 6.4 x 5.0 x 0.00% 1.20%

Bwin 40.2 1,425 202% 22.2 x 14.8 x 12.4 x 8.8 x 1.64% 2.64%

Party Gaming 2.9 1,186 44% 15.9 x 13.6 x 10.9 x 8.4 x 0.00% 0.00%Simple average 35% 22.4 x 12.6 x 8.0 x 6.8 x 3.37% 3.71%

OPAPs close peers 38.1 x 12.5 x 6.8 x 6.3 x 2.52% 3.39%

Intralots close peers 17.6 x 13.9 x 6.8 x 6.2 xSource: Factset estimates, National P&K Securities


17/69


Theodore RitsosResearch DirectorTMT/ TransportationTel.: +30210 7720176e-mail: [email protected]

Telecoms

Mobile pricing pressures likely offset by weaker fixed

line competition

View

During 2010, the Greek telecom market will continue to becharacterised by rising broadband penetration, investments inLocal Loop Unbundling (LLU) and price undercutting in mobileservices. Fixed line altnets and mobile operators financialstruggles to produce positive returns by reaching a criticalmass of unbundled subscribers or protecting customer baseshas led to unsustainable market share chasing strategies(bundling of services, triple play offers and undercuttingprices). This unstable industry structure and market frustration

is likely to increase inertia among existing incumbent OTEcustomers, decelerate line loss and protect fixed linerevenues, in the short term. On the other hand, mobilecompetition is likely to remain well in place which coupled withtermination rate cuts, may sustain lower margins and returnsfor the industry.

Key themes

LLU competition likely to ease -- Altnets with relatively limitedfinancial flexibility (for example Tellas and HOL) are likely toease pricing pressures that were exerted during 2009. This willclear the field for growth for better financed players, likeForthnet and OTE, whom are generally committed to operatingmargin protection and cash flow generation.

We would expect medium term pricing to converge toEuropean averages of c. 30 (from c. 40 currently) for doubleplay and c. 40 for triple play packages. Dominant players willbe in an improved position to benefit from incrementalbroadband penetration. Customer churn will also be evidencedamong altnets during 2010 upon the expiration of typical one-year lock up periods for contracts also leaving extra room forcustomer growth.

Fixed to mobile substitution an ongoing threat to lineloss-- With the fall of mobile prices, fixed line access fees arebecoming an unnecessary expense while mobility premiumsoutweigh the faster access, albeit with complications andlogistics, of ADSL and LLU services.

Mobile telephony: New rounds of termination cuts Greek operators will have to follow a sliding path in reducingmobile termination rates by a cumulative 37% over the nexttwo years from 0.0786 currently to 0.0495 per min to meet EUaverages. These cuts will be broken down in two tranches:where a 20.6% reduction will take place in January 2010followed by a 20.7% cut in 2011. The impact may be a minornegative (1-2% at the EBITDA level) for Cosmote as operatorswith large customer bases tend to be net receivers oftermination revenue.

and likely price wars may outpace data growth

Mobile post paid customers will seek to lower their bills as theircontracts expire early and late in 2010. As aggressive pricepromotions initiated by Wind Hellas early in 2009 expire,contract customers are likely to seek similar if not higher,savings in monthly bills. This may lead players to promotelower tariff plans in order to prevent customer market shareloss.

On a more positive note, higher ARPU levels may e driven byraising data revenues as smart phones tend to grow fasterthan plain terminals. Generally, Smartphones have drivenhigher data ARPU and revenue growth in EU and the US

without cannibalizing voice.

Recommendations

On the growth side of the sector, Forthnet remains ourpreferred play as it is the financially strongest altnet inbroadband and content provision set to benefit from anunsustainable level of competition. The viable strategy of focuson profitability -- rather than market share chase through pricecuts faces an economic environment less supportive forpremium, pay TV, services, in the short term.

On the other hand, OTEs strengthened market position indomestic fixed line, due to weakening altnets as well as theintroduction of competitive tariff schemes, is likely to mitigatepart of the decline in revenues from mobile. Further upsidemay arise from additional employee redundancies and tangiblesynergies from Deutsche Telekoms involvement.

Prices as of

December 16th

P/E P/BV EV/Sales EV/EBITDA

Currency PriceMarketCap (m)

Mean EV'09

YTD 2009 e 2010 e 2009 e 2010 e 2009 e 2010 e 2009 e 2010 e

BT Group GBP 1.43 11,062 20,988 5.5% 10.3 9.5 1.0 1.0 3.8 3.7

Deutsche Telekom EUR 10.29 44,878 86,068 -4.3% 15.5 15.1 1.2 1.2 1.3 1.3 4.2 4.2

Portugal Telecom EUR 8.38 7,510 12,955 38.0% 12.8 12.6 11.7 10.8 1.9 1.8 5.3 5.0

Vodafone Group GBP 1.42 74,693 107,274 2.2% 9.5 9.3 0.8 0.8 2.5 2.4 7.3 7.1

Telefonica EUR 19.41 91,324 133,365 22.5% 11.4 10.4 4.4 4.0 2.4 2.3 5.9 5.7

Telekom Austria EUR 9.74 4,315 7,986 -5.4% 16.5 11.9 2.3 2.4 1.6 1.7 4.8 4.9

France Telecom EUR 17.31 45,847 78,942 -13.3% 9.8 9.3 1.6 1.6 1.6 1.5 4.6 4.4

OTE EUR 10.48 5,137 9,293 -11.9% 8.9 9.0 3.4 3.0 1.5 1.6 4.2 4.4

Average excl OTE 12.3 11.2 3.7 3.4 1.8 1.7 5.1 5.0

Premium(Discount) -27.0% -19.3% -8.0% -12.2% -12.1% -8.8% -17.5% -12.8%

Source: National P&K Securities, Factset estimates


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Kostas NtounasDeputy Research DirectorIndustrials / Energy / ConstructionTel.: +30210 7720174e-mail: [email protected] Labate

Industrials / Oil & GasTel.: +30210 7720076e-mail: [email protected]

Industrials / Materials

Stocks to start pricing in gradually improving business

environment

View

We believe that there will be a gradual recovery of demand forindustrial products in 2010 driven by the pick up in economicactivity in Europe. We are already in the midst of observingpositive trends, such as positive GDP growth and theimprovement in industrial activity in some EU countries. We alsonote that building materials is an early cycle sector. As a result,stocks will start pricing in the economic recovery in key markets(US and Europe).

We favour companies with the following characteristics:

Defensive and diversified operations. Early cycle plays. Limited exposure to the domestic housing market. Attractive valuations, balance sheet strength and good

top line visibility on high backlog.

Our preferred picks are Metka (low risk) and Sidenor-Viohalco(high risk). We would also have S&B Industrial Minerals on ourradar screen due to its very limited exposure to the Greekmarket and its leading market position in most of its segments.

We adopt a non-positive stance (i.e. neutral or bearish) oncompanies that are heavily exposed to the EUR/USD rate,

possess large regional exposure, sell mostly to the constructionsector and have high leverage.Outlook

Pick up in industrial demand in Western Europe. Stagnant construction activity in Greece and SEE

mainly due to sluggish residential sector. Public construction/BOOT activity gradually

accelerating. We expect volatility and likely pressure on base metals

prices in the short-term, but a gradual recovery startingfrom mid-2010. Key determinants of metals prices areexpected to be Chinas economic growth and outputgap globally.

Likely further weakening of USD vs. EUR (y-o-y) will be

a drag on dollar denominated sales. Low transportation costs due to relatively low oil prices

and ocean freight rates.Key ThemesKey themes for the sector for 2010 are the economic recovery inEurope which is expected to drive demand and improve thepricing environment for industrial products, the upturn incommodity prices, the exposure to both the residential andpublic construction sector, the weakening of the USD vs. EURand the impact of lower interest rates for the most highlyleveraged companies.

Key themes in 2010Upturn in Depreciat ion Exposure Exposure High Regional Diversi fied

commodity

pricesUSD vs. EUR

residentialsector

publicprojects

leverage exposure operations

MYTIL - / + (*) - +

METKA -TITAN - - + -S&B -VIOHALCO + - - + - - +

SIDENOR + - - + - -HALCOR + - - - -ELVAL + - - - - +

FRIGOGLASS -

Source:National P&K Securities, (*) lower base metal prices: negative, lower oil prices: positive

Positives

The economic recovery in Europe should lead to higher demandfor industrial products in 2010.

The upturn in commodity prices will be accompanied by animproved pricing environment for metal processors.

Implementation of concessions and public projects in Greece,after years of delays, can support revenues and profits forindustrial companies, such as Sidenor and Titan, in the mediumterm.

Low transportation costs (e.g. ocean freight rates) will have apositive impact on S&B, Mytilineos and Corinth Pipeworks.

Expansion abroad, combined with Greek metal processingcompanies leading position in SEE and a developed distributionnetwork represents an opportunity to strengthen market share inthe region (Viohalco and Titan).

The transition to higher value added products represents anopportunity to improve margins.

Negatives

Recovery may take longer than expected (Viohalco-Sidenor,Titan and Mytilineos). For instance, the domestic residentialsector could recover but most likely not before H111.

Overcapacity in the South East Europe region, competition,

imports (mainly from Turkey and Italy) and the presence of manyplayers in the market, could lead to further weakening in sellingprices and in turn margin erosion (Titan and Sidenor).

The volatility of base metals prices (including scrap metal) couldsignificantly hurt margins (Viohalco Group).

Continued recession in the US residential sector will materiallyaffect Titans operations for yet another year.

Prices as of

December 16thTarget Market P/E EV/EBITDA P/BV Div. Yield

Sector Rating Price Price () Cap ( m) 09e 10e 09e 10e 09e 10e 09e 10e

Mytilineos Holdings Metals & Energy Neutral 5.10 6.2 597 22.0 9.6 8.5 6.7 0.7 0.7 2.5% 5.8%

Metka EPC Outperform 9.17 14.4 476 12.7 8.1 7.5 5.3 3.0 2.4 4.7% 7.4%Titan Cement Cement Neutral 21.58 21.0 1,700 13.7 10.6 8.4 6.7 1.2 1.1 1.4% 1.8%

Viohalco Metal Processor Neutral 4.14 4.2 826 n.a. 49.9 27.3 10.2 0.7 0.8 0.0% 0.6%

Sidenor Metal Processor Outperform 4.82 6.8 463 n.a. 22.2 55.3 8.8 0.9 0.8 n.a. 1.3%

Corinth Pipeworks Pipes Underperform 1.44 1.5 179 8.7 n.a. 6.3 17.6 1.2 1.2 0.0% 0.0%

Frigoglass Ind. Packaging Underperform 7.50 6.0 302 42.7 19.9 10.1 8.2 2.8 2.5 0.8% 1.7%Source: National P&K Securities Estimates


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Victor LabateIndustrials / Oil & GasTel.: +30210 7720076e-mail: [email protected]

Oil & Gas

Recovery in middle distillates and petrol stationnetwork expansion

View

Even though the economic environment could remainchallenging in Greece in 2010, refiners are expected to gainfrom the improvement in refining margins. We expect an upturnin middle distillates spreads in 2010 driven by the globaleconomic recovery, whilst on the other hand; we anticipate lightand heavy distillates to remain at their current levels. Moreover,

the Balkans petrol station network remains underdeveloped andwe expect Greek refiners to gain from their expansion in SEEand from the development of their Marketing Units.

Key themes

Key themes are a) the gradual recovery in benchmark Medcracking margins from their current record low levels and theupturn in middle distillates spreads driven by the globaleconomic recovery, b) the weak USD vs. the Euro, c) therelative stability of crude oil prices, d) the development ofMarketing, and e) gains from storage activity.

Benchmark Med cracking margins are forecast to improvegradually in 2010 from their current record low levels. Weexpect that there will be a relative shortage in the production of

diesel and jet fuel and increase in demand for middle distillates.As a result, we expect a material increase in diesel and jet fuelmargins next year. Meanwhile, there will be excess capacity ata global level for the production of gasolines.

The weak USD is anticipated to be negative for refiners asbenchmark refining margins are quoted in USD whereas a largeportion of costs are incurred in Euros. Refiners are expected tomake foreign exchange gains in the short-run but in the longerrun, they are expected to suffer from the weak USD.

Crude oil prices are projected to remain at their current levels (c.$75) in 2010, and we do not foresee a large shift upwards ordownwards next year.

We anticipate Greek refiners to continue to develop their

marketing activity by achieving synergies and economies ofscale (acquisition of BP and Shell by Hellenic Petroleum and

Motor oil respectively) and by expanding in SEE (HellenicPetroleum).

The fundamentals for storage activity remain good at a globallevel and we expect Motor Oil in particular, to continue earningstable income from this activity.

Preferred refiner: Motor Oil

In such a difficult refining environment, we prefer refiners with ahigh level of complexity which are geared to gain from the upturnin middle distillate spreads. Motor Oil remains our preferred pickin the Greek market. With a Nelson Complexity Index of 11.95and the Crude Distillation Unit investment due to start next year,the refiner can maintain solid refining margins and boost itsproduction of diesel and jet fuel. Motor Oil is also trading at adiscount vs. its peers (see table below).

Med cracking ($/bbl), Diesel, Gasoline spreads ($/ton)

Source: Bloomberg, IEA.Prices as of

December 16th

Rating Target Price Upside Market YTD P/E EV/EBITDA P/BV Div Yield

Price 09/12/09 Potential Cap (m) (%) 2009e 2010e 2009e 2010e 2009e 2010e 2009e 2010e

Hellenic Petroleum Neutral 8.2 8.3 -1.0% 2,537 49,8 14.0 x 11.8 x 10.3 x 10.1 x 1.1 x 1.0 x 5.5 5.6

Motor Oil Outperform 13.5 10.7 25.3 1,185 34.7 10.7 x 9.4 x 9.2 x 8.5 x 3.4 x 3.1 x 7.9 11.6

Neste Oil n.a n.a 11.6 n.a 2,956 9.0 31.2 x 17.4 x 11.2 x 9.4 x 1.3 x 1.3 x 1.7 2.9

Erg n.a n.a 9.9 n.a 1,420 16.1 19.1 x 23.0 x 6.1 x 0.8 x 0.8 x 4.2 4.2

Saras n.a n.a 2.1 n.a 1,933 -15.3 13.6 x 12.1 x 5.4 x 1.5 x 1.4 x 0.5 4.4

MOL n.a n.a 56.8 n.a 5,924 52.7 14.5 x 8.9 x 7.2 x 5.3 x 1.1 x 1.0 x 2.6 3.0

PKN n.a n.a 7.6 n.a 3,213 20.2 20.2 x 11.4 x 7.3 x 5.9 x 0.7 x 0.7 x 0.0 1.0

OMV n.a n.a 28.5 n.a 8,607 53.3 11.4 x 7.2 x 4.2 x 3.3 x 1.1 x 1.0 x 2.6 3.7

Tupras n.a n.a 12.9 n.a 3,301 74.6 9.8 x 9.3 x 6.8 x 6.9 x 2.0 x 1.9 x 8.0 8.7Source: National P&K Securities Estimates, Factset consensus.

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Urals Med cracking (left axis)Diesel spread (right axis)Gasoline spread (right axis)


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Ioanna KatsoulaRetail/Consumer GoodsTel.: +30210 7720184e-mail: [email protected]

Retail/Consumer GoodsTough macroeconomic conditions will put pressure on

consumer spending value for money concepts will prevail

Private consumption has been negative for 3 consecutivequarters in 2009 and it is not expected to recover before mid2010. Negative factors such as increasing unemployment anddecelerating consumer credit are counterbalancing any positiveeffects from real wage increases. For the remainder of the year,private consumption is expected to remain a drag on GDPgrowth as employment and disposable income are expected todeteriorate. Going forward, the governments fiscal adjustmentsincluding higher taxes in 2010, the containment of wageincreases and the fading positive effect from falling energyprices are expected to put downward pressure on disposableincome.

Lower private consumption has had a pronounced effect onretail sales in 9m 09.

Source: NSSG,

Business climate having peaked in October, declined inNovember, mainly on the back of a significant drop in theConsumer Confidence indicator and the mild decline in theRetail Trade Confidence Indicator. Consumer confidence isexpected to remain low at least until H1 10, on account of thehigh uncertainty around unemployment and new taxes.

Source: IOBE

Key trends/issues: Heightened Competition: The key targetfor all companies in the current environment will still be winningmarket share. We expect an intensification of competition withthe focus shifting to offers/promotions as well as advertisingcampaigns. Financially healthy companies are likely to weatherthe difficulties and prevail vs. smaller, more distressed familyrun companies.

Focus on inventory management: Destocking - keeping lowerinventory levels the risks of inventory write offs fade out ascompanies addressed this issue in 2009.

Cost containment focus: Retailers and consumer goods

companies addressed their opex levels in 2009 and proceededwith cost structure rationalisation measures - however in 2010,there is little room for further cutdowns. In certain cases, costcontainment initiatives and their effects will be fullymaterialised in 2010.

Attempts to lower debt levels: through WC capitalimprovements.

Value for money concepts: Private label products are likely togain popularity amongst consumers.

External Factors: such as weather conditions, strikes, riots andthe H1N1 flu pandemic.

FX fluctuations affecting both companies with a sales presencein other countries as well as companies sourcing products or

raw materials from countries with different currencies.Relative valuation: the re-rating of the international peer grouppositively affected all retail companies in FY 09.

Concluding, we believe that the following year will be a toughyear in terms of macroeconomic and market conditions. Highuncertainty around the impact of the new tax measures andthe changes in public sector wages will be a drag on consumerspending at least for H1 10. Consumer behaviour will remainvolatile, affected in large part by the macroeconomic outlook.This uncertainty/volatility, at least for the first half of 2010,will be potentially reflected on our covered company stockprices.

We expect that the key trends we witnessed in 09 will continueand that value for money concept strategies will prevail. Inaddition, we anticipate market share gains, store networkexpansion and product mix enrichment, as well as costcontainment initiatives, and in some cases, a favourable FXenvironment. Faster international recovery could have apositive impact on companies with international exposureand/or dependency on the tourism industry.

Ourfavourite stock in the retail sector would be Jumbo dueto its more resilient product offering, higher margins andreturns and healthier balance sheet.

Prices as of

December 16thPrice Market Cap. Perf. Y-t-d P/E 09 e P/E 10 e

EV/EBITDA09 e

EV/EBITDA10 e

DivYield 09 e DivYield 10 e

Folli Follie 14.34 472 147.2% 4.7 4.9 6.1 6.1 0.85% 0.83%

Fourlis 8.60 438 72.0% 12.1 10.9 7.3 6.9 2.4% 3.5%

HDFS 6.18 326 7.7% 7.2 6.7 6.9 6.6 7.4% 8.1%

Jumbo 8.20 994 88.9% 10.9 10.3 7.7 7.3 2.8% 2.9%Korres 6.80 79 31.3% 20.5 18.4 12.7 11.5 1.7% 1.9%

Sarantis 4.56 175 7.5% 11.4 9.7 7.9 7.0 0.7% 1.5%

DJ Euro Stoxx Retail 272.3 113,522 +25.1% 16.4x 14.6x 8.0x 7.2x 2.86% 3.08%DJ StoxxPersonal/Household 310.2 174,996 +36.9% 23.1x 19.2x 12.0x 10.5x 1.97% 2.08%

Source: Factset estimates, National P&K Securities

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Retail Sales Evolutionin constant prices

General Index inc luding fuels General Index Exc luding fuels

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Consumer Confidence vs. Retail TradeConfidence

Con sumer Confidence (left axis)

Retail Trad e Confidence (right axis)


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Greek Selected List


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Top picks EllaktorAn investment proposal combining defensive charactersitcs, mostly linked to concessions (mainly the AtticaRing Road), with strong growth potential coming from the Groups RES/Environmental operations. We buythe shares mainly due to:

Visibility from construction sales on relatively high backlog. Positive catalysts will be the re-tendering of the ARR extension and the Kastreli airport in H210. Anticipated stabilization of construction margins going forward. Leading positions in local concessions and majority shareholding in the ARR. Concessions account

for c.60% of the consolidated operating profits. Fast growing presence in the energy and environmental business sector, mainly through capacity

additions in wind energy. Supportive peer group valuation.

Kostas Ntounas, +30210 7720174, [email protected]

MetkaA story highlighted by excellent growth potential at relatively low risk. We buy the shares mainly on:

Significant growth potential anticipated from FY10 onwards on impressive backlog accumulation. Work-in-hand has reached record-high of 2.2bn, or 3.5x 10e sales, providing excellent visibility for

the years to come. Well-diversified project portfolio. The project assignments in Pakistan, Romania, Syria and Turkey prove that Metka can successfully

participate in international tenders winning new contracts. Net cash position maintained in 9M09. High operating margins and economic returns, very low capex needs and decent dividend yield. Attractive valuation at current levels. EPS CAGR 09-11 of 32%.

Kostas Ntounas, +30210 7720174, [email protected]

Bank of CyprusA strong balance sheet and favourable geographical exposure:

The groups operating performance is improving on a gradually expanding NIM and better assetquality trends.

In terms of geographical contribution, BoCs regional operations - most importantly Russia andGreece - turned profitable during Q3. We expect these trends to continue providing support to thegroups profitability as regional economies are on a recovery path.

Upcoming growth opportunities, especially in Russia, likely to further support profitability givenBoCs strong balance sheet, both in terms of capital and liquidity. Dividend payments and business guidance highlight commitment to shareholders.

Panagiotis Kladis, CFA +30210 7720185, [email protected]

Coca Cola HellenicAn investment proposal combining the defensive characteristics of the Food & Beverages sector, with stronggrowth potential coming from the Groups high exposure in the South Eastern European markets. We buy theshares mainly due to:

Following a difficult year in 2009, it seems that the environment is getting better in most of theeconomies of SEE for 2010. In its latest report IMF updated its projections for GDP and consumerprices for 2010 for most of these countries, which will have a positive impact on volumes as well asin the mix between Immediate and Future Consumption Channels

Limited exposure in the Greek market since sales will represent circa 7% of total volumes sold in

2009 and circa 9% of EBIT Currencies had a headwind impact in 2009 while with the turnaround of the economies of SEE willhave a slightly tailwind impact in 2010

FY 2009 proved to be a record year for FCF generation due to effective working capitalmanagement and reduced Capex. We expect this to continue in the coming years while we alsoexpect the Company to provide an upgraded guidance for FCF generation for the period 2010-2012in February

Reduced Capex in the following years since the Company is well positioned to capture potentialgrowth in SEE countries

Iakovos Kourtesis, +30210 7720251, [email protected]


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Greek Watch List


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Watch list selected financialsCompany View Close Chng Market Free Avg daily EPS chng P/E EV/Ebitda Div.Yield P/BV

16-Dec- YTD Cap Float value (3M) 2009e 2010e 2009e 2010e 2010e 2009e 2010e

(%) ( m) (%) () (%) (%) (x) (x) (x) (%) (x)

Alpha Bank O/P 8.55 40.2% 4,568 91.0% 24,920,839 -30.0% -1.2% 11.2 11.3 n.a. 2.5% 0.9Agricultural Bank U/P 1.85 32.1% 1,675 22.7% 2,522,333 n.m. -5 .0% 17.5 18.7 n.a. 2.0% 0.9Bank of Cyprus O/P 4.72 76.8% 2,769 100.0% 11,834,324 -37.5% -4.9% 8.4 8.9 n.a. 3.6% 1.1EFG Eurobank O/P 7.95 42.3% 4,282 59.0% 15,541,837 -43.26% 5.89% 11.6 10.7 n.a. 2.2% 1.0Marfin Popular Bank Neutral 2.38 25.3% 1,976 80.0% 12,341,802 -57.2% -10.2% 11.5 12.8 n.a. 3.5% 0.5

Piraeus Bank Neutral 8.25 31.6% 2,774 100.0% 11,312,565 -30.1% 2.5% 12.5 11.4 n.a. 1.7% 0.8Postal Savings Bank Neutral 4.24 -5.3% 1,206 55.0% 3,155,396 n.m. -31.1% 8.9 13.0 n.a. 3.9% 0.9Hellenic Bank -- 1.15 10.6% 342 70.0% 612.515 -- -- -- -- -- -- --

Banking 19.592 76.4% -23.9% 5.7% 9.6 9.1 n.a. 2.7% 1.0

OTE Neutral 10.48 -11.9% 5,137 50.0% 13,918,457 -4.4% -0.7% 8.9 9.0 4.4 7.2% 3.0Forthnet O/P 1.09 53.5% 169 66% 466,106 n.m. n.m. n.m. 48.5 6.8 0.0% 0.4

Telecoms 5,306 49.7% -20.6% 0.9% 8.7 10.3 4.9 6.9% 2.6

CC Hellenic Bottling O/P 16.30 72.1% 5,956 46.0% 6,397,025 -0.6% 7.3% 14.1 13.1 7.5 1.7% 2.0Food & Beverage 5,956 46.0% -0.6% 7.3% 14.1 13.1 7.5 1.7% 2.0

S&B Ind. Minerals UR 4.52 -41.0% 137 42.6% 48,262 UR UR UR UR UR UR URFrigoglass Neutral 7.50 120.6% 302 55.9% 398,569 -63.7% 116.2% 42.7 19.8 7.8 0.8% 2.5Sidenor O/P 4.82 50.6% 463 42.0% 446,849 n.m. n.m. n.m. 22.2 8.7 0.0% 0.8Corinth Pipeworks U/P 1.44 63.6% 179 20.1% 171,104 99.0% -125.5% 10.1 n.m. 17.0 0.0% 1.3Elval U/P 1.80 106.9% 223 44.9% 94,852 n.m. n.m. n.m. n.m. 8.1 0.0% 0.4Halkor U/P 1.40 86.7% 142 49.6% 88,765 n.m. n.m. n.m. 30.9 11.7 0.0% 0.8Viohalco UR 4.14 0.5% 826 44.9% 431,847 UR UR n.m. UR UR UR URMytilineos Holdings Neutral 5.10 28.8% 597 64.4% 1,568,650 37.5% 130.2% 22.0 9.6 6.6 2.3% 0.7Metka O/P 9.17 38.5% 476 47.0% 638,416 -9.3% 56.1% 12.7 8.1 5.3 4.7% 2.4

Materials/Industrials 3,345 48.0% -85.6% n.m. 11.1 16.4 8.1 0.7% 0.8

Ellaktor O/P 5.27 23.1% 933 60.0% 1,587,096 -0.9% 12.5% 9.8 8.8 5.6 2.2% 0.9J&P Avax O/P 2.97 30.8% 231 26.8% 107,853 41.1% 6.1% 7.8 7.3 6.8 2.5% 0.8

GEK-- 5.87 75.7% 504 58.1% 185,402 --

-- -- -- -- -- --

Construction 1.668 56.6% 7.2% 11.0% 9.4 8.5 6.2 2.2% 0.8

Intralot Neutral 3.76 25.3% 598 66.0% 2,763,398 -14.2% 6.4% 8.0 7.2 5.0 3.8% 1.6OPAP O/P 15.64 -24.4% 4,989 65.6% 14,627,947 -15.7% 7.7% 8.1 7.5 5.0 12.0% 18.3

Lodging/Gaming 5,587 65.6% -15.6% 7.5% 8.1 7.5 5.0 11.1% 8.8

EYDAP UR 5.80 11.1% 618 29.6% 320,085 UR UR UR UR UR UR UREYATH UR 4.90 14.0% 178 26.0% 248,601 UR UR UR UR UR UR URPPC O/P 13.24 14.7% 3,072 45.1% 11,587,693 n.m. -28.9% 3.9 5.4 5.3 10.4% 0.5

Utilities 3,867 41.7% n.m. -28.9% 3.9 5.4 5.3 10.4% 0.5

Hellenic Petroleum Neutral 8.30 53.7% 2,537 28.6% 1,501,977 n.m. 18.6% 14.0 11.8 10.1 5.5% 1.0Motor Oil O/P 10.68 39.8% 1,183 38.5% 2,645,703 37.2% 14.8% 10.7 9.4 8.4 7.9% 3.1

Energy 3,720 31.7% 183.5% 17.2% 13.0 11.0 9.5 6.2% 1.3

Intracom Neutral 1.19 63.0% 158 55% 477,062 n.m. n.m. 48.0 n.m. 8.4 1.7% 0.4Technology 158 53.6% n.m. n.m. 48.06 n.m. 14.4 1.7% 0.4

Titan Cement Neutral 21.58 55.3% 1,767 49.0% 2,082,240 -37.6% 28.4% 13.7 10.6 6.7 1.4% 1.1Cement 1,767 49.0% -37.5% 28.4% 13.7 10.6 6.7 1.4% 1.1

Hellenic Duty Free Neutral 6.18 7.7% 326 22.0% 59,735 4.1% 6.5 7.2 6.7 6.6 7.4% 1.9Jumbo O/P 8.20 88.9% 994 70.0% 1,694,907 16.1% 5.6% 10.9 10.3 7.3 2.8% 2.3Sarantis Neutral 4.56 7.5% 174 55.0% 283,866 -39.8% 18.2% 11.4 9.7 7.0 0.7% 1.3Fourlis O/P 8.60 72.0% 438 70.0% 751,195 -5.7% 11.3% 12.1 10.9 6.9 2.4% 1.8Folli Follie Neutral 14.34 147.2% 472 50.0% 1,342,823 30.8% -5.4% 4.7 4.9 6.1 0.9% 1.1Korres O/P 6.80 31.3% 79 30.0% 54,573 -1.9% 11.6% 20.5 18.4 11.5 1.7% 2.9

CG & Retail 2,483 59.6% 9.8% 1.4% 9.6 9.1 6.7 3.0% 1.7

Iaso O/P 3.55 -20.

National P&K Inv Book 2010

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