GS_The_European_Conviction_List_watermark

Source: Company data, FactSet, Goldman Sachs Global Investment Research.

Source: Company data, Goldman Sachs Global Investment Research

28 November 2018

51

Exhibit 90: We see a strong dividend trajectory for Zurich, as

Exhibit 91: Zurich delivered operational improvements in 2017, and

earnings growth comes to fruition

we see a clear earnings trajectory for the next two years

DPS estimates (CHF) for Zurich Insurance Group

Business operating profit ($ bn, net of minorities) and combined ratio

(%)

24

Business operating profit ($bn, LHS)

Combined ratio (%, RHS)

22

7

106%

22

20

21

6

6.1

104%

20

5.8

18

19

5

4.9

5.4

102%

18

4.7

4.7

4.5

4.6

4

4.2

16

17

17

17

17

17

17

17

100%

3

4.1

3.8

2.9

14

2

98%

12

1

96%

10

0

2021E

94%

2010

2011

2012

2013

2014

2015

2016

2017

2018E

2019E

2020E

2021E

2010

2011

2012

2013

2014

2015

2016

2017

2018E

2019E

2020E

Source: Company data, Goldman Sachs Global Investment Research

Source: Company data, Goldman Sachs Global Investment Research

28 November 2018

52

Returns

Growth

Valuation

Yield

Ticker

Company Name

Sector

Market cap

Price

Last

Upside

ROE

CROCI

Sales CAGR

EPS CAGR

P/E

EV/EBITDA

FCF Yield

Div Yield

¼ PQ

Symbol

price

to TP

2018

2019

2020

2018

2019

2020

2017-2021 2017-2021

2019

2019

2019

2019

BAES.L

BAE Systems

Aerospace & Defence

18,112

£

506.00

56%

28%

30%

30%

10%

12%

13%

5%

14%

8.9x

8.3x

10%

5%

RR.L

Rolls-Royce

Aerospace & Defence

16,800

£

812.40

54%

5%

10%

14%

10%

14%

21%

6%

8%

27.6x

9.9x

4%

2%

CNHI.MI

CNH Industrial

Autos

11,461

¼

8.38

88%

22%

24%

24%

9%

10%

11%

5%

61%

8.9x

4.4x

11%

4%

SABE.MC

Banco Sabadell

Banks

6,240

¼

1.11

71%

6%

8%

8%

0%

8%

6.3x

8%

BAWG.VI

BAWAG Group

Banks

3,688

¼

36.88

44%

11%

11%

11%

4%

2%

8.7x

6%

BNPP.PA

BNP Paribas

Banks

55,275

¼

44.36

67%

8%

9%

9%

3%

6%

6.8x

7%

INGA.AS

ING Groep NV

Banks

41,565

¼

10.71

49%

11%

10%

10%

3%

5%

8.0x

6%

STAN.L

Standard Chartered

Banks

22,216

£

600.40

53%

5%

6%

7%

5%

33%

8.8x

4%

DPWGn.DE

Deutsche Post DHL

Business Services

34,195

¼

27.83

55%

15%

18%

18%

12%

13%

14%

4%

7%

11.8x

6.6x

4%

5%

ELIS.PA

Elis SA

Business Services

3,668

¼

16.72

67%

9%

10%

10%

12%

12%

12%

12%

12%

11.9x

6.5x

6%

3%

EUFI.PA

Eurofins Scientific

Business Services

6,009

¼

351.40

88%

10%

13%

13%

9%

10%

11%

14%

21%

18.5x

10.8x

5%

1%

EXPN.L

Experian

Business Services

19,624

£

1849.50

30%

34%

36%

38%

17%

18%

18%

7%

11%

21.2x

13.4x

5%

2%

AKZO.AS

Akzo Nobel

Chemicals

18,273

¼

72.34

34%

12%

10%

16%

1%

8%

9%

-10%

2%

22.3x

10.0x

5%

8%

CLN.S

Clariant

Chemicals

5,798

SFr

20.32

48%

17%

18%

18%

6%

7%

8%

5%

10%

11.6x

7.0x

6%

3%

ABI.BR

Anheuser-Busch InBev

Consumer Products

132,609

¼

67.28

44%

10%

11%

13%

9%

9%

10%

8%

14%

15.1x

11.4x

8%

3%

JE.L

JUST EAT

Food Retail

4,618

£

602.20

76%

12%

14%

19%

18%

18%

23%

29%

24%

26.6x

16.4x

5%

0%

AV.L

Aviva Plc

Insurance

18,088

£

409.30

37%

13%

13%

14%

4%

5%

7.1x

7%

AXAF.PA

AXA

Insurance

50,583

¼

20.91

29%

9%

10%

10%

2%

3%

8.1x

6%

ZURN.S

Zurich Insurance Group

Insurance

40,607

SFr

305.90

27%

12%

14%

14%

3%

14%

10.4x

7%

PRTP.PA

Kering

Luxury Retail

49,178

¼

390.30

55%

34%

28%

27%

15%

16%

17%

14%

20%

15.6x

10.0x

6%

3%

ABBN.S

ABB Ltd.

Machinery

37,681

SFr

19.88

53%

21%

22%

24%

11%

12%

13%

5%

11%

11.9x

7.9x

7%

6%

MRON.L

Melrose

Machinery

8,116

£

181.85

32%

10%

9%

10%

1%

7%

8%

59%

17%

12.2x

7.0x

3%

2%

PHG.AS

Philips

MedTech

30,652

¼

33.40

26%

12%

15%

17%

8%

11%

11%

5%

18%

16.9x

9.5x

6%

3%

28 November 2018

53

Returns

Growth

Valuation

Yield

Ticker

Company Name

Sector

Market cap

Price

Last

Upside

ROE

CROCI

Sales CAGR

EPS CAGR

P/E

EV/EBITDA

FCF Yield

Div Yield

¼ PQ

Symbol

price

to TP

2018

2019

2020

2018

2019

2020

2017-2021

2017-2021

2019

2019

2019

2019

AAL.L

Anglo American Plc

Mining

22,490

£

1568.80

43%

9%

9%

7%

9%

9%

7%

-1%

-15%

9.3x

3.5x

10%

5%

FRES.L

Fresnillo Plc

Mining - Precious

6,208

£

746.40

98%

16%

18%

19%

15%

15%

15%

9%

12%

11.6x

5.4x

2%

5%

RRS.L

Randgold Resources

Mining - Precious

6,703

£

6440.00

16%

6%

9%

9%

12%

14%

16%

7%

12%

19.8x

10.6x

4%

4%

BP.L

BP Plc

Oil

114,666

£

512.60

46%

12%

12%

11%

9%

9%

9%

2%

19%

10.4x

4.3x

10%

6%

NOVN.S

Novartis

Pharma

176,928

SFr

87.98

25%

9%

10%

11%

11%

11%

12%

5%

9%

15.6x

13.1x

6%

3%

NOVOb.CO

Novo Nordisk

Pharma

112,148

Dkr

297.00

52%

74%

72%

73%

55%

54%

58%

7%

12%

16.4x

12.0x

6%

3%

AEDAS.MC

AEDAS Homes

Real Estate

1,011

¼

21.08

79%

1%

5%

12%

0%

6%

12%

118%

20.0x

13.7x

4%

0%

KOJAMO.HE

Kojamo Oyj

Real Estate

2,237

¼

9.05

36%

4%

4%

4%

3%

3%

3%

6%

6%

15.6x

22.3x

6%

4%

VNAn.DE

Vonovia

Real Estate

22,034

¼

42.53

20%

4%

4%

4%

2%

3%

3%

7%

9%

18.0x

27.4x

5%

4%

MT.AS

ArcelorMittal

Steel & Paper

20,334

¼

19.94

78%

14%

11%

9%

10%

8%

8%

1%

0%

4.5x

3.5x

16%

7%

VOES.VI

Voestalpine

Steel & Paper

5,141

¼

29.39

72%

10%

10%

10%

7%

7%

7%

1%

3%

7.0x

4.6x

15%

5%

ASML.AS

ASML Holding

Technology

62,547

¼

144.50

53%

26%

38%

43%

29%

33%

37%

12%

21%

17.8x

15.0x

5%

3%

CAPP.PA

Capgemini

Technology

17,179

¼

101.05

43%

15%

16%

17%

13%

14%

15%

6%

13%

17.1x

8.8x

8%

2%

SAPG.DE

SAP

Technology

106,684

¼

89.35

37%

14%

15%

17%

14%

14%

15%

8%

11%

23.6x

14.5x

4%

2%

WDIG.DE

Wirecard

Technology

16,304

¼

131.95

89%

20%

24%

26%

37%

48%

58%

31%

38%

31.3x

18.7x

3%

0%

ORAN.PA

Orange

Telecoms

38,261

¼

14.64

31%

9%

10%

11%

1%

21%

11.6x

4.3x

10%

6%

TNET.BR

Telenet

Telecoms

4,744

¼

41.08

41%

-25%

-19%

-18%

12% 12% 11%

1%

44%

12.4x

7.5x

12%

TELIA.ST

Telia Co.

Telecoms

17,012

Skr

40.49

33%

12%

13%

14%

6%

6%

6%

1%

13%

12.6x

7.4x

7%

6%

FER.MC

Ferrovial SA

Transport and Infrastructure

13,250

¼

18.11

33%

6%

7%

9%

9%

10%

10%

2%

7%

30.2x

19.4x

6%

4%

SGEF.PA

Vinci

Transport and Infrastructure

42,650

¼

76.86

35%

16%

16%

16%

9%

9%

10%

4%

10%

12.7x

7.4x

9%

4%

NTGY.MC

Naturgy Energy Group

Utilities

21,965

¼

21.95

32%

8%

11%

13%

7%

6%

6%

6%

23%

13.1x

8.9x

3%

6%

RWEG.DE

RWE

Utilities

12,611

¼

18.98

22%

5%

6%

6%

1%

2%

2%

-1%

9%

13.6x

6.7x

0%

4%

28 November 2018

54

vk.com/id446425943

Goldman Sachs

Exhibit 94: Risks and 12-month price target methodologies

Company

PT Methodology

Key Risks

ABB Ltd.

Sector relative EV/IC to ROIC/WACC rolling

Downside risks to our view and price target: pronounced macro slowdown, execution issues in large orders, value

framework.

destructive M&A, FX, raw material headwinds.

AEDAS Homes

DCF-methodology

The key downside risks to our view and price target include unfavourable macro/political impacts, future unit

delivery, competition, interest rates.

Risks to our investment case: (1) Value-dilutive acquisitions (2)End markets and/or raw material headwinds

Fundamental value (85% weighting) based on 20.0x

worsening (3)Slowing demand from Latin America (4) Consolidation in the paints & coatings industry of other

Akzo Nobel

2019E EV/DACF and M&A value (15% weighting) on a

players which could intensify the competitive landscape (5) Over-reduction of sales force leading to weaker sales

14.4x 2019E EV/EBITDA multiple

capability (6)If the Spec Chem proceeds return format is not approved by shareholders at the November EGM

(7)If Akzo cancels or delays the return of Spec Chems proceeds to shareholders.

Anglo American Plc

5x EV/EBITDA multiple

Key risks to our view include lower commodity prices, stronger FX and political risk associated with political and

fiscal changes in South Africa.

Based on a DCF methodology (assuming a 7.1%

Key risks to our view and price target include weaker synergy delivery, weak organic growth, adverse FX moves,

Anheuser-Busch InBev

WACC and 2% terminal growth), implying a P/E of

limited cash deployment, higher bond yields and lower sector valuation.

17.1x on our December 2020 EPS forecasts.

ArcelorMittal

5.50x EV/EBITDA based on 2019 estimates

Key risks include weak China data, lower iron ore prices, lower steel margins, a sudden increase in imports and

lower-than-expected demand in US/EU.

ASML Holding

26x 2019E P/E multiple plus a special dividend

Key risks to our view and price target include EUV delays, capex cyclicality and market share shifts.

Key downside risks to our view and price target include: (i) lower volumes or higher new business strain in the UK

Aviva Plc

RoC-based target price

annuity market; (ii) a reduction in solvency capital generation and/or unencumbered liquidity position; (iii) a

smaller-than-expected share buyback in 2018/19; and (iv) lower-than-anticipated cash remittances from its

business units.

We see financial market movements as the key risk to our view. We view AXA as relatively geared to interest

rates among the multi-line insurers, so a moderation in interest rate expectations would be a downside risk. Other

AXA

ROC/growth/discount-based valuation

macro factors are also important, with downside risks including falling/more volatile equity markets and/or

widening credit spreads. Finally, we see downside risks relating to the integration, synergies and operational

aspects of the XL acquisition.

EV/DACF multiple of 15.3x applied to our 2019

Key risks to our view and price target include: 1) lower dividends, 2) FX, 3) programme delays, 4) MoD cost-

BAE Systems

estimates and discounted back six months at a 9%

cutting, 5) political change and 6) M&A.

WACC.

Based on a core valuation of €1.76 per share (1.18x

Risks to our view and price target include worse-than-expected macro developments in Spain and/or the UK;

Banco Sabadell

P/TBV 2019E) (85% weighting) and M&A-based

sharp FX moves in the EUR/GBP cross; a significant ‘de-risking’ in the unsecured/consumer loan segment;

valuation of €2.7 per share (1.44x P/TBV 2019E, in line

renewed political risk in Catalonia, potentially leading to net deposit and/or AUM outflows (as in early October

with precedent transactions) (15% weighting)

2017); and/or additional TSB-related costs in the UK.

BAWAG Group

ROE/COE methodology

Key risks include failure to deliver on M&A, insufficient progress on restructuring, headwinds in the domestic as

well as international businesses, adverse impact of regulations, and share overhang.

BNP Paribas

ROTE/COE methodology

Key risks to our view and price target include continued and unexpected regulatory changes, lack of progress on

efficiency improvement and renewed deterioration in asset quality.

Our new 12m price target of 750p (from 730p) is based Key risks to our view and price target are weaker hydrocarbon prices and/or refining margins than we expect,

BP Plc

on 7.7x EV/DACF (20 year historical average) applied

execution issues, higher than expected costs/capex in current/future developments and/or unanticipated material

to 2019E cash flow.

exploration disappointments.

Capgemini

CY19E P/E target multiple of 18x.

Key risks to our view and price target: Macro slowdown; M&A related integration and execution issues;

management changes and dynamic competitive landscape/pricing pressure.

Based on 13.5x 2019E EV/DACF, based on a factor of

Downside risks to our view and price target include a material slowdown in global growth, particularly in Europe;

1.14 applied to its 5-year historical multiple of 11.8x

lower US onshore production than previously anticipated, which could again derail Clariant’s growth trajectory in

Clariant

(85% weighting) and a M&A based valuation based on

a target multiple of 12.5x 2019E EV/EBITDA (15%

the Natural Resources division; and an unanticipated increase in Clariant’s key raw materials prices, which could

lead to margin pressures in its Care Chemicals division in the near term.

weighting)

Based on both ROIC and SOTP methods to reflect

potential investor focus on CNHI’s SOTP value. Our

CNH Industrial

ROIC-based value is US$18.5/share (75% weighting),

Risks to our investment thesis and price targets include extended farm income weakness, residual value risk,

based on a 2019-22E ROIC of 13.0% and

lower finco EBIT, high leverage risk, an economic slowdown and the threat of EM competition.

EV/IC:ROIC/FMCC of 1.0x . Our SOTP-based value is

US$16.5/share (25% weighting)

Based on a SOTP methodology, which results in a

Deutsche Post DHL

blended 12.5x 2019E EV/EBIT, discounted back by

Key risks: weaker economic growth, a faster decline in mail volumes, cost inflation, failure to expand margins in

one year (10%). We also add the potential value from

Express and failure to turnaround the Global Forwarding division.

uses of cash.

Based on 7.25x EV/EBITDA applied to 2019E, to which

we add the expected value from uses of cash (i.e. Elis

Elis SA

pursuing further M&A) and the optionality value to be

The biggest risks to our view would be the failure to integrate and extract synergies from some of the recent

involved in M&A (15% weighting at 18x EV/EBIT based

acquisitions (e.g. due to cultural clashes), overpaying for future acquisitions or macro headwinds (e.g. in Latam).

on historical transaction multiples in the subsector).

We then discount this back by 10%

Based on 16x 2019E EV/EBITDA (on higher growth vs. Key risks: as Eurofins gains scale in revenues, it will likely have to undertake larger transactions in order to grow

Eurofins Scientific

testing peers) and includes uses of excess cash as

via M&A. Finding such large deals could prove difficult. Furthermore, even if these deals are found, they could

well as an M&A component (based on 18x 2019E

come at higher multiples and carry higher execution risk. Other risks include a failure to hit medium-term targets,

EV/EBITDA, 15% weighting).

key man risk (CEO & founder) and further potential equity raises.

Based on 26x P/E multiple applied to our 2019

The biggest downside risk to our view and price target is weaker economic growth or a slowdown in credit growth

in the company’s key markets (US, UK and Brazil). A slowdown in innovation or lack of success for new or future

Experian

calendar EPS estimates (85% weighting) and on an

product launches could also lead to lower-than-expected growth, as could increased competition or new product

M&A component based on 18x 1-year forward

launches from competitors. Adverse sector regulation, for example, following recent data breaches, could also

EV/EBITDA (15% weighting).

add additional costs to the firm. Given the large amount of data stored by the credit bureau, data breaches also

present a reputational risk for the industry.

Ferrovial SA

DCF-based SOTP

Key risks are increase in real interest rates, FX, regulatory risk; lower-than-expected traffic growth and execution

risk; strategic inertia.

28 November 2018

55

vk.com/id446425943

Goldman Sachs

Exhibit 95: Risks and 12-month price target methodologies

Company

PT Methodology

Key Risks

Fresnillo Plc

50/50 blend of 25x 2019E P/E and 1x NAV

Key risks to our view and price target include lower silver and gold prices, stronger MXN, grade variability at the

Fresnillo mine and further delays to the growth project.

Key downside risks to our view and price target relate to top-line headwinds, in particular prolonged pressure on

margins; disappointing progress on the implementation of the group’s strategic initiatives and weaker outlook for

ING Groep NV

ROE/COE methodology

operating expenses; slower-than-expected progress on capital build-up and lower capital distribution;

deterioration of the operating environment in Turkey and rising concerns around EM as well as negative surprises

on cost of risk. Politics and adverse regulatory changes across key markets could also be a consideration.

Derived from a DCF valuation (85% weighting) and an

Key risks to our view include Just Eat continuing to invest in delivery despite no/low returns, outsourcing of UK

JUST EAT

M&A valuation (15% weighting) based on 13.2x NTM

delivery means less control of customer experience, disruptive competitor actions, market share losses,

sales (based on Q1/Q2 average of recent industry

execution, lower-than-expected penetration of internet ordering, and a shift in consumer preferences away from

transactions).

takeaways.

Key risks: (1) The ongoing growth at Gucci brand is key. We will continue to monitor trends and industry

feedback. We have not seen a brand turnaround of this magnitude before with 90% of product available being

DCF methodology for Kering with cross-reference to

new. Establishment of a core ’evergreen’ product is key to sustainable long-term growth. (2) In the event Kering

Kering

does not wish to expand retail revenues via multibrand platforms (E-Concessions), our long-term forecasts may

peer group multiples and a sum-of-the-parts analysis

prove too optimistic. (3) Increasing luxury consumption raises the competitive environment (lowering barriers to

entry) and adds pricing transparency for consumers. We could be underestimating the investment required to

reach our sales assumptions.

Kojamo Oyj

70% on our fundamental EVA® valuation of €11.5/sh,

Key risks to our view and price target for Kojamo include weaker market trends than expected and/or weaker

and 30% on our M&A valuation of €14.2/sh

delivery on investment plans and/or the ability to sustain low underlying cash tax rates.

Melrose

SOTP methodology

Key risks include M&A execution, restructuring execution, cyclical concerns (automotive, aerospace, US

residential), potential tax charges, FX.

Based on 30% M&A valuation derived through a

Key risks are more adverse regulatory changes in Spain, lower commodity prices and spark spreads,

Naturgy Energy Group

transaction-based SOTP of €33; 70% fundamental

valuation based on 60% P/E relative value (14.5x pro

slower/muted pace of portfolio reorganisation.

forma 2021E, €30), 40% DDM (2025E, €26).

Downside risks to our view and price target include lower than expected sales growth for Cosentyx, driven by

Novartis

SOTP methodology

increasing competitive pressures, sales rollout of new products disappoint, slower than expected operating

margin expansion in the Pharma business and Clinical trial failures of late-stage assets

Our 12-month price target of Dkr450 is based on 22x

Downside risks to our view and price target include unfavourable safety profile for oral sema in future Phase 3

Novo Nordisk

2020E EPS, which is then discounted back by a year

trials, slower-than-expected ramp-up of Ozempic, and higher-than-expected pricing pressure in the US.

(WACC of 7.5%, in line with our coverage).

Orange

ROIC-based

Key risks are pricing competition and capital discipline.

Philips

11.5x EV/EBITDA (2019E)

Key risks to our view and price target include meaningful deterioration in global hospital capex or GDP

environment, quality issues, failure to execute on restructuring, corporate activity, and FX.

Randgold Resources

50/50 blend of 25x 2019E P/E and 1x NAV

Key risks are lower gold prices, exploration surprise and M&A.

Based on 2020E EV/DACF multiple of 11.4x. Our

Rolls-Royce

target multiple assumes a 1:1 relationship between

Key risks include FX (weaker USD), lower offshore capex sanctioning, negative defence spending momentum,

EV/GCI and CROCI/WACC. We then discount it back

and programme risk on new engines.

1.5 years at a 9% WACC

Based on a 50/50 combination of SOTP (€25.3) and

Key risks are additional closures of lignite mines, an abrupt German coal and lignite phase out policy, falling

RWE

P/E relative value approach in line with sector multiples

power demand, poor execution on the renewables pipeline and GBP depreciation.

(€21.0).

SAP

26x 2019E PF EPS

Key risks to our view and price target include: Macro environment; lack of traction in S4HANA or cloud; M&A;

management changes; and additional opex spending dampening margin expansion.

Standard Chartered

ROTE/COE methodology

Key risks to our view and price target include worse-than-expected revenue progression, weaker-than-expected

asset quality and geopolitical risks.

Telenet

70% weighting to a fundamental valuation (DCF-

Key risks include further regulation of cable in Belgium, increased competitive pressure and changes in long-term

based) of €58.0, and a 30% weighting to an M&A

financing costs. Also, Liberty Global is a majority shareholder and could seek to increase its influence.

component at the same valuation.

Telia Co.

ROIC-based

Key downside risks include M&A investments especially in content/media, FX and competition.

Vinci

SOTP-based

Key risks are lower-than-expected growth in traffic and construction, adverse regulation, and M&A.

6.50x EV/EBITDA applied to our calendarised 2019

Key risks include: (1) Significant slowdown in European economic activity; (2) A significant increase in imports;

Voestalpine

and (3) A significant slowdown in European automotive market and company-specific production problems

estimates

related to the diesel scandal.

Vonovia

EVAfi-based price target

Key risks include a more negative impact from incremental regulation, higher interest rates than we currently

expect and a lack of investment opportunities, including less modernisation than we currently forecast.

70% weighting to our core PEG-based valuation of

Wirecard

€235/sh (implied 55.5x 2019E PF EPS) and a 30%

Key risks are lower-than-expected volumes/pricing, regulations, M&A integration, higher investments, and the

weighting to our M&A value of €285/sh (12.5x 2019E

EV/sales, towards the top end of the M&A transactions

competitive landscape.

in the payments space).

The key downside risk to our rating and valuation is execution risk around Zurich’s current restructuring plan,

particularly if expense savings delivered are substantially lower than targeted. Other risks include adverse macro

Zurich Insurance Group

Sector-wide ROC model

developments, e.g., lower interest rates, lower equity markets and wider credit spreads; adverse operating

developments including reserving risks and life / non-life underwriting risks; and unfavourable regulatory

developments.

28 November 2018

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28 November 2018

57