Equity Solutions WATCHER - Société Générale

[Pages:23]Weekly Publication

12/07/2016

Equity Solutions WATCHER

Holiday Season: its Clicks over Picks!

In accordance with the applicable regulation, we inform the reader that this material is qualified as a marketing document. Data as of 05 December 2016, 11 p.m. Paris time.

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Editorial (1/2)

Contents

2 Editorial

4 Focus: Basket of Stocks 7 Market Dashboard &

Conviction Lists ? Performances

8 Global Conviction List & Historical Performance

10 Dividend Conviction List

11 Emerging Markets Overview

12 Regional Conviction Lists

14 Convictions by Sectors

15 Contact Details

16 Rating System

17 Calculation Methodology

18 Glossary

20 Important Disclosures & Disclaimers

This document presents equity ideas exclusively provided for potential investments. This document cannot be considered as adapted to a person or based on the analysis of the situation of a person.

Holiday Season: its Clicks over Picks!

It's that time of the year again when attractive deals and promotions lure customers to stuff their shopping bags. The holiday season has kicked off with Thanksgiving on 24 November, followed by Black Friday and Cyber Monday. The US National Retail Federation (NRF) expects holiday sales this year to grow 3.6% YoY to USD 655.8 bn (barring autos, gas and restaurant sales in November and December). This is significantly higher than the ten-year average of 2.5% and beats the seven-year average of 3.4% since recovery began in 2009. The NRF has also reported that the long shopping weekend from Thanksgiving to Cyber Monday alone has contributed a whopping 15% to this year's holiday sales.

The NRF forecasts non-store sales (e-commerce and mcommerce) to grow 7?10%, reaching an all-time high of ~USD 117 bn. This year's Cyber Monday became the biggest online shopping day ever, with online sales at USD 3.39 bn, growing 10.2% YoY; while Black Friday registered the highest mobile revenue at USD 1.2 bn, growing 48% YoY. Total online sales growth (Thanksgiving to Cyber Monday) was 17.7% YoY, while instore sales fell 1.0%.

Online shopping, along with its benefits of price comparison and higher discounts, has depressed foot-fall in brick-and-mortar stores. However, high shipment costs may still pressurise margins for e-commerce players. Overall, online traffic grew 2% YoY to ~154 mn even though average spending declined 3.4% to USD 289.19. In terms of assortment, traffic was the strongest for electronics (led by TVs, PlayStations, laptops and mobile phones), followed by apparel, footwear and meat (primarily turkey).

Retailers have also prepared themselves well to capture the seasonal upturn. Most saw solid traffic and comparable sales growth. Wal-Mart expanded its online offerings to 23 mn products (from 8 mn last year) with new brands and over 3 000 marketplace sellers. To grab the maximum share of sales, it began offering its Cyber Monday deals two days earlier this year at 12am on Black Friday. Costco also launched early Black Friday deals (online only) for its members and benefited from the larger reach of its new co-branded Visa card (vs. the Amex card used previously). Amazon built 26 new warehouses and increased its

Data & recommendations as of 05 December, 2016 close

Shalinee G Equity Expert

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Editorial (2/2)

workforce by 40% with 120 000 temporary workers (trained by robots to minimise the training time to two days) to support the peak holiday sales. NRF expects retailers to hire 640k?690k seasonal workers this holiday season, in line with last year's 675k new holiday positions. Most retailers are thus poised for holiday cheer given sound consumer sentiment and healthy spending on the back of encouraging job and wage growth. Strong credit positions with low debt levels also provide supportive ground for a hearty holiday season. Only 9% of consumers finished holiday shopping till Cyber Monday, down 200 bps YoY which indicates greater momentum ahead. The leading retailers in our coverage, viz., Amazon, WalMart, Costco and Kroger have already identified the evolving consumer preference for online and mobile channels and are taking significant strides in this direction. Higher sales of electronic goods during the holiday season (mainly TVs, handsets, and laptops) should also benefit the tech majors Apple and Samsung. We expect all six stocks in our basket to make the most of the holiday season.

This document presents equity ideas exclusively provided for potential investments. This document cannot be considered as adapted to a person or based on the analysis of the situation of a person.

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Focus: Basket of Stocks (1/3)

Inc (AMZN-US) ? BUY ? Target Price: USD 880.00

Investment Case: Amazon's investments in infrastructure, web services and logistics have enabled it to generate strong cash flow growth and higher returns, a trend we expect to continue. We view Amazon to be well-placed to capitalise on the global growth in e-commerce and m-commerce. Global e-commerce specifically should continue to gain market share from traditional retailers with improved penetration. The company's high-margin cloud should continue to facilitate revenue growth in our view; along with the Amazon Prime and Fulfilment programmes driving market share. Main Risks: Amazon's e-commerce business is part of a highly disruptive space and could be affected by superior competition from players with new technology, coupled with increased pressure from offline retailers providing heavy discounts. Macroeconomic headwinds leading to a slowdown in consumer spends may affect the company's revenues. Company Description: , a Seattle-based Fortune 500 company, is one of the world's largest online retailers. It also operates Amazon Web Services (AWS), a leading cloud-based computing platform, and provides marketing and promotion services (online advertising and cobranded credit-card agreements). For a detailed analysis, please refer to the Amazon Equity Note, which can be found here.

Apple Inc (AAPL-US) ? BUY ? Target Price: USD 130.00

Investment Case: Apple is aiming to become a leading player in the Internet of Things (IoT) space and its new products (like Watch and TV) and services are aimed towards this objective. Given its strong user connect, we believe this objective is attainable and should add to revenues in the coming years. In addition, its product sales growth cycle is showing strong growth. Main Risks: China is Apple's second-biggest market, and any slowdown in the Chinese consumer demand could significantly impact Apple's sales growth. The company is facing stiff competition in the tablet market (iPad) with multiple products at cheaper price points. Due to this, the segment is expected to be under pressure in the next few years. Company Description: Apple is a leading manufacturer of PCs and mobile communication devices. It also offers portable music devices (the iPod) and software for all its devices. Through its devices and software, such as iOS, iTunes and App Store, the company is building an ecosystem around users. For a detailed analysis, please refer to the Apple Equity Note, which can be found here.

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Focus: Basket of Stocks (2/3)

Costco Wholesale Corp. (COST-US) ? BUY ? Target Price: USD 166.00

Investment Case: In our view, healthy addition of new members, high renewal rate, addition of new private-label products, international expansion and potential fee hike in the US and Canada should help Costco maintain strong growth in net sales and MFI. Further, Costco's high bargaining power with its vendors (due to bulk volumes) enables it to price its products competitively and grow its margins. Costco's recent shift to Citibank's Visa credit card is bound to drive membership growth, backed by Visa's greater reach and a 40?50% improvement in reward programme. Main Risks: Increase in membership fees could impede the growth rates for both memberships and renewals, which in turn could weaken Costco's prospects for near-term and long-term earnings growth. The company's margins may be pressured as it plans to make price investments to be ahead of competition. Opening of new stores would cannibalise sales in existing stores and hamper their revenue contribution. Company Description: Costco is the second-largest American membership-only warehouse club retailer. It operates 715 warehouses, spread across the US and Puerto Rico (501), Canada (91), Mexico (36), UK (28), Japan (25), Korea (12), Taiwan (12), Australia (8) and Spain (2). It also operates ecommerce websites in the US, Canada, UK, Mexico, Korea and Taiwan. For a detailed analysis, please refer to the Costco Equity Note, which can be found here.

Kroger Co. (KR-US) ? BUY ? Target Price: USD 36.30

Investment Case: Food deflation in the US appears to be nearing a trough and should improve from 4Q16, serving as a tailwind for Kroger. Kroger has consistently grown market share with 51 quarters of identical sales growth and EPS-accretive acquisitions of established local players (Roundy's, Harris Teeter, ), which seems sustainable to us. Kroger is poised to benefit from evolving customer trends with its investment in digital platforms and best-in-class customer analytics, focus on health and wellbeing with the recent acquisition of Axium Pharmacy, and improved assortment with private and organic/natural labels. Main Risks: Kroger's investment-grade rating depends on its ability to maintain its net debt to adjusted EBITDA ratio at 2.0?2.2x. Kroger faces stiff competition to further increase its market shares from WalMart, Amazon and niche players in organic and eco-friendly products. Prolonged food deflation in the US would hurt Kroger's growth prospects. Company Description: Kroger is the second-largest food retailer in the US (after Wal-Mart) with annual sales of USD 108.5 bn in FY15. Kroger operates 2 778 retail stores in 35 states under 20+ banners in 4 formats: supermarkets, multi-department stores, marketplace and price-impact warehouse stores. It also has 785 convenience stores and 323 jewellery stores. For a detailed analysis, please refer to the Kroger Equity Note, which can be found here.

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Focus: Basket of Stocks (2/3)

Samsung Electronics (SMSN-GB) ? BUY ? Target Price: USD 810.00

Investment Case: Investors have reset expectations based on the management's profit warning following the Note 7 discontinuation, and we expect a gradual recovery in the mobile segment, driven by stronger demand for Galaxy S7/S7 Edge followed by the 1Q17E launch of the flagship Galaxy S8. Its semiconductor business should benefit from better average selling prices in the near term due to a healthy supply? demand scenario for DRAM/NAND and solid demand for OLEDs. Main Risks: DRAM/NAND prices could trend lower in the short term due to stagnating demand for PCs/mobiles and higher supply growth by major industry players (yield improvements), thereby impacting Samsung's semiconductor segment margins. Given the quality issues related to Samsung's Note 7 phones, a potential deterioration of Samsung's long-term brand value could lead to its market share loss to competitors. Company Description: Samsung Electronics, the flagship company of the Samsung Group, is one of the world's leading producers of consumer electronics and semiconductor components. Samsung is the world's top manufacturer of smartphones, DRAM and flash memory. It also holds the number one position in the global TV market. For a detailed analysis, please refer to the Samsung Electronics Equity Note, which can be found here.

Wal-Mart Stores, Inc (WMT-US) ? BUY ? Target Price: USD 79.00

Investment Case: Wal-Mart is known for its `Everyday Low Prices' (EDLP) strategy. We believe the company's emphasis on a disciplined expense-management system and cost-saving programmes should enhance its ability to maintain its price position and remain ahead of competition. Wal-Mart's strategy to restructure the sales growth pie (by increasing the contribution of ecommerce) is a positive step, aimed at capturing the acceleration in online sales. We expect Wal-Mart's acquisition of , (a US-based ecommerce start-up) to provide long-term benefits by strengthening its ecommerce offerings, improving its delivery channels and facilitating warehouse optimisation. Main Risks: Wal-Mart's acquisition would increase losses in ecommerce in the short term, where it has already been registering deficits. Wal-Mart's large market share may pose a hurdle to its long-term ability to continue gaining incremental market share. Continued food deflation in the US and the UK and adverse currency movements could prove to be a significant headwind for Wal-Mart's topline growth. Company Description: Wal-Mart is the world's largest brick-and-mortar retailer by revenue (USD 482 bn in FY16). It operates through a chain of hypermarkets, supercentres, neighbourhood markets, discount department stores, grocery stores and warehouse clubs. It has presence in 27 countries outside the US and operates ecommerce websites in 10 countries. For a detailed analysis, please refer to the Wal-Mart Equity Note, which can be found here.

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Market Dashboard & Conviction-list Performance

Conviction Lists2 & Benchmarks

12/05/2016

Global CL Developed Asia-Pacific CL European CL US CL Emerging CL Dividend CL MSCI AC World MSCI Pacific Index MSCI Europe SPX Index MSCI Emerging Markets MSCI World High Dividend Yield

Inception Date

09/14/2009 02/22/2016 03/10/2010 03/10/2010 02/22/2016 02/05/2015 09/14/2009 02/22/2016 03/10/2010 03/10/2010 02/22/2016 02/05/2015

51.9% 5.1% 25.4% 40.2% 19.7% -3.2% 45.8% 11.2% 28.9% 92.4% 14.0% 1.4%

We e k ly

YTD

0.5% -0.7%

-1.0% 5.1% 1

0.1%

-9.8%

-1.2% 0.1%

-3.4% 19.7% 1

0.9%

-3.6%

0.2%

3.7%

-1.5%

0.8%

0.5%

-6.1%

0.1%

7.9%

-1.1%

7.5%

-0.1%

6.4%

Sources: SGPB & FactSet

MSCI World AC Group Ranked Returns

12/05/2016

MSCI AC WORLD Energy Financials Materials Industrials Cons. Discretionary Healthcare Telecom Services Cons. Staples Info Technology Utilities

We e k ly

0.2% 4.5% 2.2% 1.1% 0.5% -0.3% -1.0% -1.1% -1.3% -1.8% -1.9%

YTD

3.7% 21.5%

7.0% 21.5%

9.6% 0.3% -10.1% -3.3% -3.3% 8.6% -1.3%

52 Week Rolling

Low

High

17.9%

-2.5%

45.6%

-0.6%

31.1%

-0.2%

42.9%

-0.4%

23.7%

-0.4%

16.6%

-2.5%

3.3%

-12.4%

4.7%

-12.0%

4.2%

-11.2%

25.3%

-3.9%

4.4%

-12.4%

Sources: SGPB & FactSet

Global Style Counselling3

12/05/2016

MSCI AC WORLD MSCI World Value MSCI World Grow th MSCI World Small Cap MSCI World Large Cap

We e k ly

0.2% 1.1% -0.5% 0.6% 0.2%

YTD

3.7% 6.7% 0.0% 9.3% 3.6%

52 Week Rolling

Low

High

17.9%

-2.5%

20.6%

0.0%

13.4%

-4.5%

26.3%

-0.3%

17.5%

-2.4%

Sources: SGPB & FactSet

1 Performance since 02/22/2016. 2 Conviction lists' content is detailed on the following pages. 3 Each style is defined according to MSCI standards, detailed in the glossary.

Past performance is not a reliable indicator of the future performance. The amounts indicated above do not include any fees, duties or other charges which may be added in case of conclusion of an operation.

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Global Conviction List...

List Definition

The List comprises Societe Generale Private Banking Equity Experts' convictions with exclusively buy rated listed companies.

The selection derives from Societe Generale Private Banking investment universe.

Any update in the list is announced through a "Conviction List Change" publication.

U.S. Alphabet Inc (GOOGL-US)

Apple Inc (AAPL-US) Check Point Software Technologies Ltd (CHKP-US)

Citigroup Inc (C-US) Facebook, Inc. Class A (FB-US)

Oracle Corp (ORCL-US) Pfizer Inc. (PFE-US)

Thermo Fisher Scientific Inc (TMO-US) Walt Disney Co (DIS-US)

EUROPE Actividades de Construccion y

Servicios SA (ACS-ES) BNP Paribas SA (BNP-FR)

Bayer AG (BAYN-DE) Cie de St-Gobain SA (SGO-FR)

Danone SA (BN-FR) ING Groep NV (INGA-NL)

LVMH SE (MC-FR) Novartis AG (NOVN-CH) Pernod Ricard SA (RI -FR) Schneider Electric SE (SU-FR)

WPP Plc (WPP-GB)

ASIA Alibaba Group Holding Ltd (BABA -US)

Japan Airlines (9201-JP) Japan Tobacco Inc (2914-JP) Mitsubishi UFJ Financial Group (8306-JP) Samsung Electronics Co Ltd (SMSN-GB)

Past performance is not a reliable indicator of the future performance. The amounts indicated above do not include any fees, duties or other charges which may be added in case of conclusion of an operation.

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