New co-manager appointed in June 2017

BlackRock Greater Europe Investment Trust 11 August 2017 Inv trust standard (8 pages)
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BlackRock Greater Europe Investment Trust

New co-manager appointed in June 2017

Investment trusts

11 August 2017

Price

320.0p

Market cap

£305.0m

AUM

£335.8m

NAV*

334.2p

Discount to NAV

4.3%

NAV**

338.0p

Discount to NAV

5.3%

*Excluding income. **Including income. As at 9 August 2017.

Yield

1.7%

Ordinary shares in issue

95.3m

Code

BRGE

Primary exchange

LSE

AIC sector

Europe

Reference index

FTSE World Europe ex-UK

Share price/discount performance

Three-year performance vs index

52-week high/low

325.0p

260.0p

341.1p

271.4p

**Including income.

Gearing

Gross*

4.9%

Net*

4.9%

*As at 31 July 2017.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

BlackRock Greater Europe Investment Trust (BRGE) aims to generate capital growth from a relatively concentrated portfolio invested across the greater European region. In June 2017, it was announced that Stefan Gries would replace Vincent Devlin as co-manager. He will continue to adopt BRGE’s flexible bottom-up stock selection approach, drawing on the wider resources of BlackRock’s European and emerging markets equity teams, but is reducing the number of holdings and intends opportunistically to make fuller use of the emerging European allocation. The trust is referenced against the FTSE World Europe ex-UK index and its NAV total return has outperformed over three and 10 years and is broadly in line over five years, while lagging over the last 12 months. Although the primary aim is capital growth, BRGE has a progressive dividend policy. Its current dividend yield is 1.7%, which is in line with its peer group average.

12 months ending

Share price
(%)

NAV
(%)

FTSE World Europe ex-UK (%)

FTSE All-Share (%)

FTSE World
(%)

31/07/13

35.2

36.5

36.0

24.3

26.3

31/07/14

1.2

0.8

4.1

5.6

4.6

31/07/15

14.4

13.5

9.6

5.4

12.3

31/07/16

8.5

10.8

7.1

3.8

18.0

31/07/17

19.8

19.4

24.6

14.9

18.2

Source: Thomson Datastream. Note: All % on a total return basis in GBP.

Investment strategy: Structured bottom-up process

Co-managers Gries and Sam Vecht are able to draw on the resources of BlackRock’s experienced investment teams to select a concentrated portfolio of stocks in both developed and emerging Europe. Idea generation is the first step of the process, driven by the knowledge of the investment team, which conducts more than 1,000 company meetings a year. Potential investments form a research pipeline to ensure the best ideas are implemented in the most efficient manner.

Market outlook: Improving European economy

The outlook for Europe is looking more favourable based on improving economic growth estimates, which is filtering through to positive company earnings estimate revisions. However, investors should be mindful that equity prices are reflecting this improvement to some extent as valuations are now less attractive than in late-2016; in aggregate, on a forward P/E multiple, stocks are trading at a 23% premium to their 10-year average. Investors seeking exposure to the region may therefore be interested in an actively managed fund with a disciplined stock selection approach.

Valuation: Discount broadly in line with averages

BRGE’s current 5.3% share price discount to cum-income NAV is broadly in line with the 4.9% average over the last 12 months (range of 2.5% to 9.5%) and compares to the averages of the last three, five and 10 years of 4.3%, 4.0% and 4.5% respectively. The board actively manages the discount via share repurchases and discretionary semi-annual tender offers. BRGE has a progressive dividend policy and has increased its annual dividend every year since the fund was launched; its current dividend yield is 1.7%.

BlackRock Greater Europe Investment Trust is a research client of Edison Investment Research Limited

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

BlackRock Greater Europe Investment Trust’s objective is achieving capital growth, primarily through investment in a focused portfolio of large, mid- and small-cap European companies, together with some investments in the developing markets of Europe. It aims to achieve a net asset value total return in excess of the FTSE World Europe ex-UK index (in sterling terms).

27 July 2017: Announcement of the appointment of non-executive director Dr Paola Subacchi with immediate effect.

20 June 2017: Announcement that Stefan Gries has replaced Vincent Devlin as co-portfolio manager.

26 April 2017: Six-month report ending 28 February 2017. NAV TR +5.9% versus reference index TR +9.4%. Share price TR +6.0%. Interim dividend of 1.75p announced (+6.1% versus H116).

Forthcoming

Capital structure

Fund details

AGM

November 2017

Ongoing charges

1.07% (as at 31 August 2016)

Group

BlackRock Investment Mgmt (UK)

Final results

October 2017

Net gearing

4.9%

Manager

Stefan Gries, Sam Vecht

Year end

31 August

Annual mgmt fee

0.85%

Address

12 Throgmorton Avenue,
London, EC2N 2DL

Dividend paid

May, December

Performance fee

None

Launch date

20 September 2004

Trust life

Indefinite

Phone

+44 (0) 20 7743 3000

Continuation vote

None

Loan facilities

£20m overdraft facility

Website

blackrock.co.uk/brge

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

BRGE pays two dividends a year in May and December. Ordinary dividends have increased every year since trust launch.

To help manage the discount, the board has the authority (alongside normal buyback powers) to implement a twice-annual tender for up to 20% of shares outstanding, renewed annually. 2012 allotments include the acquisition of Charter European Trust.

Shareholder base (as at 30 June 2017)

Portfolio exposure by geography (as at 31 July 2017)

Top 10 holdings (as at 31 July 2017)

Portfolio weight %

Company

Country

Sector

31 July 2017

31 July 2016*

Bayer

Germany

Chemicals

4.7

N/A

Unilever

Netherlands

Personal goods

4.2

N/A

Richemont

Switzerland

Personal goods

4.0

N/A

ASML

Netherlands

Technology hardware & equipment

3.8

N/A

SAP

Germany

Software & computer services

3.8

N/A

Wartsila

Finland

Industrial machinery

3.4

N/A

Lonza Group

Switzerland

Pharmaceuticals & biotechnology

3.3

N/A

Fresenius Medical Care

Germany

Healthcare equipment & services

3.3

N/A

RELX

Netherlands

Media

3.2

2.8

CRH

Ireland

Building materials & fixtures

3.2

N/A

Top 10 (% of holdings)

31.7

29.1

Source: BlackRock Greater Europe Investment Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in July 2016 top 10.

Market outlook: Improving economic outlook in Europe

Exhibit 2 (left-hand side) shows both the absolute and relative performance of European ex-UK equities (sterling-adjusted) over the last 10 years. Over the last year, currency weakness has boosted absolute returns for sterling-based investors. The European economy has been slower to recover compared to other major markets following the global financial crisis; this is reflected in the underperformance of European ex-UK versus world equities. However, in the recent July 2017 update to its World Economic Outlook, the International Monetary Fund revised up its forecasts for annual growth in the euro area by 0.2pp and 0.1pp to 1.9% and 1.7% for 2017 and 2018 respectively. This contrasts with the US where growth was reduced by 0.2pp and 0.4pp to 2.1% in both 2017 and 2018 as President Trump is finding resistance to his fiscal stimulus proposals. European fund managers point to the improved earnings outlook in Europe, where estimates are generally being revised upwards; this has not been a feature of the European stock market in recent years. However, while the economic outlook for Europe is looking more positive, investors should be aware that stock prices have anticipated a recovery, and valuations now look less attractive than in late-2016. Compared to our last published note in November 2016, on a forward earnings basis, Europe ex-UK equities are now trading on a higher multiple (14.4x versus 13.4x), which is a 23% premium to the 10-year average (from a 15% premium); although European equity valuations remain relatively attractively valued compared with those in the US. For investors seeking exposure to European equities, an actively managed fund with a broad geographic remit and a disciplined stock selection process may therefore appeal.

Exhibit 2: Market performance and valuation

Performance of FTSE World Europe ex-UK index over 10 years (£)

Valuation multiples of global Datastream indices

 

Last

High

Low

10-year
average

Last as % of
average

Forward P/E (x)

Europe ex-UK

14.4

15.6

7.4

11.7

123

UK

14.6

15.6

7.4

12.0

121

US

18.3

18.3

9.4

14.5

126

World

15.7

16.0

8.8

14.1

112

Price-to-book (x)

Europe ex-UK

14.4

15.6

7.4

11.7

123

UK

14.6

15.6

7.4

12.0

121

US

18.3

18.3

9.4

14.5

126

World

15.7

16.0

8.8

14.1

112

Source: Thomson Datastream, Edison Investment Research. Note: Valuation data as at 1 August 2017.

Fund profile: Bottom-up, broad European exposure

BRGE was launched in September 2004 and is managed by Stefan Gries (since June 2017; he is a member of BlackRock’s European equity team covering developed markets) and Sam Vecht (since 2004; he is head of BlackRock’s Emerging Europe and Frontiers equity team). The managers adopt a bottom-up investment process to construct a portfolio of 30-70 securities aiming to generate long-term capital growth. The majority of the portfolio is invested in larger companies, with a market cap greater than €5bn. Investment limits are in place, including a maximum 25% of the risk allocation in emerging Europe and up to 5% in unquoted investments – together these two exposures may not exceed 25%. Up to 15% of emerging European exposure may be via funds, and direct investment in Russia is limited to 10% of the portfolio. Up to 20% may be held in bonds, although in practice this does not occur. Derivatives are permitted for efficient portfolio management. Gearing of up to 15% of NAV at the time of drawdown is permitted; 4.9% at end-July 2017.

The fund managers: Stefan Gries, Sam Vecht

The manager’s view: Return to a fundamental-driven market

Gries, who manages BRGE’s developed Europe exposure, says 2016 was a top-down driven market, where stock prices did not necessarily react to fundamental earnings revisions. He says that the market was dominated by a reflation trade led by oil, material and financial stocks, but now investors are once again trading on company fundamentals, suggesting that it is now a more normal stock picking environment. Gries points to some of the portfolio companies which have seen share prices reacting positively to better-than-expected earnings year-to-date, such as Dutch semiconductor manufacturer ASML and Swiss healthcare company Lonza.

While stocks are selected on a bottom-up basis, Gries says that there are certain themes represented in the portfolio. They include exposure to:

EU construction and infrastructure – stocks in the portfolio include CRH, Vinci and Eiffage. The sector is a later-cycle play and there are signs of increasing global business activity. In France in particular, there is evidence of improving order books within both the construction and infrastructure sectors aided by government spending on projects such as 'Le Grand Paris'.

Emerging market consumer – the manager notes an inflexion point in emerging market demand, which is benefiting companies such as Richemont and Kering. Kering has a portfolio of brands including Gucci, which had been a poor performer for some time, but is now growing strongly; H117 comparable sales growth was 43%. The manager believes that Kering can grow earnings at a 20% compound annual growth rate for the next three years.

The agricultural cycle – the manager notes that following an industry downturn as a result of lower emerging market demand, the outlook for the sector appears more favourable. He says that consolidation should make for a firmer pricing environment, and thus an improvement in profitability. Bayer is held in the portfolio; it is in the process of acquiring Monsanto, while ChemChina is acquiring Syngenta.

Gries believes that he and Vecht have complementary investment styles; he says he has more of a focus on quality growth, looking for companies with positive earnings revisions, while Vecht has more of a value and anti-stock-price momentum focus. Gries believes that the combination of skills can lead to a more positive investment performance for BRGE. He says that both managers have experience of running long/short funds, so are happy to avoid large-cap stocks which they believe have downside risk, even if they have a meaningful weighting in the reference index.

Asset allocation

Investment process: Bottom-up stock selection

The managers are able to draw on the wider resources of BlackRock’s European and emerging markets equity teams to construct a relatively concentrated portfolio of European equities, aiming to generate long-term capital growth. BlackRock’s European equity team currently comprises 20 portfolio managers/sector analysts, who have specific research responsibilities across seven individual sectors. While Gries conducts research across the market in his portfolio management role, his primary sector focus is on business services. Stocks are selected on a bottom-up basis, but the team will also consider macro dynamics that could influence stocks and sectors within the market. In the developed Europe portfolio, Gries has four primary investment criteria: he looks for a quality management team with a strong track record of value creation; a company with high and importantly predictable returns; which generates strong cash flow; and possesses options to deploy this cash flow in areas of growth. In addition, the in-depth research process can help highlight companies which exhibit something unique, such as a product, brand or contract structure, which can shield a business and allow it to generate sustainable returns. The team looks for these characteristics within companies, which are not fully reflected in the current stock price, and can offer potential for earnings upgrades. The idea generation process, supported by the team's collaborative process and access to company management, helps highlight companies worthy of further fundamental research, which includes financial modelling. Company visits are therefore a key part of the investment process, which is flexible in nature, with no inherent growth, value or income bias. Stocks are sold when they have met the analysts’ price targets, if the investment case changes from that originally defined or if there is a better opportunity available. BlackRock adopts a proprietary risk management system, both to mitigate risk, and help maximise shareholder returns. For a more detailed description of the investment process, see our March 2016 initiation report.

Current portfolio positioning

Since Gries’ appointment, the total number of developed Europe holdings has been reduced to c 35 versus the more typical historical range of 45-65, to increase the portfolio concentration (including meaningful changes to the portfolio in July 2017). He says that every holding has to be a compelling investment idea in order to earn its place in the portfolio. Stocks that have been sold recently are those where the manager believes that returns and cash flow are unpredictable, which includes some companies in the materials sector. Within financials, Gries is underweight banks as he believes the market is uncompetitive as the ECB has not allowed enough of the weaker players to fail, creating industry overcapacity. He highlights the mismatch between available liquidity and loan demand, which is leading to low pricing for banks and hence low returns. There is significant pressure on net interest margins because as loans roll over, the interest rate the bank is able to charge on new loans is sequentially lower. BRGE’s bank holdings are companies that operate in consolidated markets, such as the Nordic region, where the banks have strong market positions and are generating attractive returns.

Exhibit 3: Portfolio sector exposure vs reference index (% unless stated)

Portfolio end-July 2017

Portfolio end-July 2016

Change

(pp)

Index

weight

Active weight vs index (pp)

Trust weight/ index weight (x)

Industrials

27.4

25.5

1.9

15.1

12.3

1.8

Consumer services

14.5

10.4

4.1

4.9

9.7

3.0

Financials

13.4

17.8

(4.4)

24.0

(10.6)

0.6

Consumer goods

13.0

13.6

(0.6)

18.9

(5.9)

0.7

Healthcare

11.1

13.0

(1.9)

12.7

(1.6)

0.9

Technology

9.1

8.3

0.8

4.8

4.3

1.9

Basic materials

6.8

4.3

2.5

7.7

(0.9)

0.9

Oil & gas

4.9

0.0

4.9

4.2

0.7

1.2

Telecommunications

0.0

2.6

(2.6)

3.9

(3.9)

0.0

Utilities

0.0

0.0

0.0

3.9

(3.9)

0.0

Net current assets/liabilities

(0.2)

4.5

(4.7)

0.0

(0.2)

N/A

100.0

100.0

100.0

Source: BlackRock Greater Europe Investment Trust Edison Investment Research, FTSE Russell

At end-July 2017, 10.5% of the portfolio was invested in emerging Europe; this is much higher than the average c 6-8% over the last four years. Vecht says that there are attractive opportunities in the region following a 10-year period of relative underperformance, such as in Russia, which is now approaching its 10% maximum permitted exposure. Favoured names include energy companies, which are trading on more attractive valuations than in those in developed Europe and have the potential for positive earnings revisions leading to a rerating.

Performance: Near-term underperformance

BRGE has underperformed its reference index year-to-date. In the six months ending 30 June, on a sector basis the largest positive contribution was healthcare (+1.14pp), while the largest detractor was consumer goods (-0.92pp). On a stock-specific basis, the largest positive contributors were Straumann (a Swiss medtech company, +0.46pp), Mail.Ru (a Russian internet company, +0.46pp) and Powszechny Zaklad Ubezpieczen (PZU, a Polish insurance company, +0.45pp). The largest detractors were Tenaris (an Italian metal pipe manufacturer, -0.72pp) and Gazprom (a Russian gas producer and pipeline, -0.70pp).

Exhibit 4: Investment trust performance to 31 July 2017

Price, NAV and index total return performance, one-year rebased

Price, NAV and index total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

BRGE’s relative returns are shown in Exhibit 5. Despite its NAV total return underperforming the reference index over the last 12 months, the trust has maintained its record of outperformance over three and 10 years, and its NAV total return is broadly in line over five years. Of interest to UK investors, BRGE’s NAV total return has outperformed the FTSE All-Share index over all periods shown; this is particularly evident over three, five and 10 years.

Exhibit 5: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to FTSE World Europe ex-UK

(1.0)

(1.2)

(2.9)

(3.9)

1.7

(1.8)

18.7

NAV relative to FTSE World Europe ex-UK

0.1

(0.8)

(2.2)

(4.2)

2.6

(0.3)

18.3

Price relative to FTSE All-Share

(0.4)

1.7

3.6

4.3

18.4

23.3

27.4

NAV relative to FTSE All-Share

0.8

2.1

4.4

3.9

19.4

25.1

27.0

Price relative to FTSE World

(0.3)

1.3

4.3

1.4

(5.0)

(1.7)

(9.7)

NAV relative to FTSE World

0.9

1.7

5.0

1.0

(4.1)

(0.2)

(10.1)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-July 2017. Geometric calculation.

As shown in Exhibit 6, BRGE’s relative performance has been in a downward trend since late 2015. Gries attributes this to the stock market being driven by macro events, such as firmer commodity prices, the UK’s EU referendum and the election of US President Trump. He notes that in 2016, the seven sectors in the STOXX Europe 600 index in positive territory were all cyclical, led by basic resources (+66.1%) and oil & gas (+30.2%), while 12 sectors declined over the year. The manager notes that quality European stocks had their worst annual performance in 20 years.

Exhibit 6: NAV total return performance relative to reference index over 10 years

Source: Thomson Datastream, Edison Investment Research

Discount: Broadly in line with historical averages

BRGE’s current 5.3% share price discount to cum-income NAV is only a little wider than the averages of the last one, three, five and 10 years (range of 4.0% to 4.9%).

The trust’s board actively manages the discount; in addition to share repurchases when considered to be in the interests of shareholders, at its discretion the board may implement semi-annual tender offers for up to 20% of shares outstanding. On 27 March 2017, it was announced that the board had decided not to implement a semi-annual tender offer in May 2017. The last tender offer was on 30 November 2016, when 6.6m (6.45% of ordinary shares outstanding) were tendered at a price of 272.08p (the prevailing cum-income NAV minus 2% to cover costs).

Exhibit 7: Share price premium/discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

Following the final conversion of subscription shares in FY16, BRGE has one class of share; there are currently 95.3m ordinary shares in issue, with a further 15.0m shares held in treasury. The trust has a £20m overdraft facility and a maximum permitted level of gearing of 15% of NAV at the time of drawdown. At end-July 2017, net gearing was 4.9%. Gries comments that gearing will be deployed more actively and opportunistically going forward; given the strength in equities in recent months, he is looking to increase gearing on a market pullback.

BRGE’s fee structure changed on 1 September 2015 from an annual management fee of 0.70% plus a three-year rolling performance fee of 15% of outperformance up to a maximum of 1.15%, to a base 0.85% of NAV. In FY16, ongoing charges were 1.07%, which was an 18bp increase versus the prior year; although in FY15 the award of a performance fee meant that total charges were 1.22% rather than 0.89%.

Dividend policy and record

Since 2014, dividends have been paid twice a year in May and December, having historically been paid once a year. BRGE’s board adopts a progressive dividend policy. Annual dividends have increased every year since the trust was launched in 2004; over the last five years they have compounded at an annual rate of 8.65%.

In FY16, the annual dividend of 5.30p was a 6% increase versus the prior financial year and was 1.06x covered by income. At end-FY16, BRGE had distributable reserves of just over 3x the annual dividend. Based on the current share price, the trust has a dividend yield of 1.7%.

Peer group comparison

There are eight investment trusts in the AIC Europe sector. BRGE’s NAV total returns are behind the peer group weighted averages over the periods shown. Its discount and net gearing are average. BRGE’s ongoing charge of 1.07% is the second highest in the group, but no performance fee is payable. Despite its focus on capital growth rather than income, its dividend yield is in line with the sector average.

Exhibit 8: AIC Europe peer group as at 10 August 2017*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (ex-par)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

BlackRock Greater Europe

301.6

18.0

57.5

104.0

130.1

(4.7)

1.1

No

105

1.7

European Investment Trust

392.6

31.5

44.9

100.2

52.1

(8.3)

0.6

No

100

2.4

Fidelity European Values

907.6

20.0

56.8

101.7

116.2

(7.4)

1.0

No

105

1.9

Henderson European Focus Trust

291.6

23.9

62.2

135.8

181.5

2.4

0.9

Yes

109

1.9

Henderson EuroTrust

241.5

22.4

65.1

128.6

172.0

(3.8)

0.9

Yes

100

1.9

JPMorgan European Growth Pool

236.5

24.5

62.6

123.0

94.0

(10.8)

1.1

No

111

2.2

JPMorgan European Income Pool

156.6

27.1

64.8

138.7

141.8

(8.2)

1.1

No

112

3.0

Jupiter European Opportunities

783.3

21.5

75.5

133.8

246.2

(2.3)

1.0

Yes

106

0.8

Weighted average

22.7

61.7

117.6

150.1

(5.2)

0.9

105

1.7

BRGE rank in sector

4

8

6

6

5

4

2

6

7

Source: Morningstar, Edison Investment Research. Note: *Performance to 9 August 2017. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are five members on BRGE’s board; all are non-executive and independent of the manager. Chairman Eric Sanderson was appointed in April 2013 and assumed his current role following the December 2016 AGM. Other directors and their dates of appointment are former chairman Carol Ferguson, who has announced her intention to retire at the December 2017 AGM (June 2004), Davina Curling (December 2011) and Peter Baxter (April 2015). On 27 July 2017, BRGE announced the appointment of non-executive director Dr Paola Subacchi, effective immediately. She is an economist, writer and commentator on the functioning and governance of the international financial and monetary system, and is also on the board of Scottish Mortgage Investment Trust.

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Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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