June 26, 2009

Cross Asset Research

SAXO BANK RESEARCH
The bear market rally has resulted in plenty of over- David Karsbøl
valued stocks Chief Economist
DKA@SaxoBank.com
Since the release of the first Cross Asset Research publication (Playing a
Contracting Economy) the broad stock markets have gone down slightly; the S&P John J. Hardy
500 index has dropped 2.4%. This is in line with our overall belief that equities FX Consultant
will grind lower in the second half of 2009. However, the slight drop in equity JJH@SaxoBank.com
prices implies that many stocks are still priced above their fundamental value.
Christian T. Blaabjerg
Chief Equity Strategist
Having offered five long equity positions in the first publication of Cross Asset
CTB@SaxoBank.com
Research, we are now considering stocks that have market valuations that in our
opinion exceed their fundamental valuations. These companies generally have Mads Koefoed
poor financial health, are highly leveraged, and have a negative outlook in the Market Strategist
medium term. MKOF@SaxoBank.com

In our opinion long exposure to the stock market should still be negligible and we
believe that the broad stock market will be slowly grinding lower throughout the
rest of the year.

Our general strategy is a combination of short positions in five stocks and a six
month call option in EURJPY (since the cross is positively correlated to the stock
market). The aggressive investor can simply short the five stocks, but that is not
our preferred strategy.

Cross Asset Research – Shorting Equities is the second part of our equity
strategy. The first part Playing a Contracting Economy advocated a strategy
composed of five long positions in single stocks and a short position in the S&P
500. From publication of the strategy on June 4, 2009, the portfolio has
generated a return of 4.25% in EUR.

Stock Ticker PF Weight Return Return

% Local % EUR
Roche ROG:xvtx 0.20 1.69 1.02
Lorillard LO:xnys 0.20 -1.32 0.29
J.M. Smucker SJM:xnys 0.20 13.07 14.91
AT&T T:xnys 0.20 2.01 3.68
Orion ORNBV:xhel 0.20 -1.94 -1.94
S&P 500 SP500.i -1.00 2.26 0.66
Total 0.00 4.96 4.25

For important disclosures, refer to the

Disclosures Section, located at the
end of this document.

Saxo Bank. The Specialist in Trading and Investment.

Cross Asset Research – Shorting Equities

Sell Metro (MEO:xetr) – Current Price: EUR 35.6

Short Metro on high exposure to weak European economies
Metro generates approximately 39% of its revenues in Germany with another 31% coming from other
western European countries. Practically without exception, all these countries are experiencing severe
recessions. Metro has been able to growth its quarterly revenues YoY for many years, but that trend
stopped in 4Q of 2008. And Metro has even seen their revenues shrink in 1Q of 2009. Likewise earnings-
per-share took a major hit in both 4Q2008 and 1Q2009.
Given the economic environment of the countries that Metro operates in, we believe that earnings-per-
share will fall YoY in the three remaining quarters of 2009.
Earnings-per-share fell 24% YoY from EUR -0.041 to EUR -0.170 in 1Q. If this trend continues the present
consensus estimates are far too high. Revisions downward by analysts are likely to push the stock price
down.
Metro has risen 77% from a March low of EUR 20; too steep an increase we believe given the
performance of the company in the last two quarters and the macroeconomic outlook.

Key triggers
Earnings are revised down by analysts; they seem too optimistic at the moment.

Key risks
The growth in Eastern Europe continues unabated.
A faster than expected recovery in key markets, especially Germany.

Profitability and Valuation

Profitability and Valuation 2007 2008 2009E 2010E 2011E

P/E 14.1 28.9 14.9 12.9 11.2
P/B 1.9 2.0 1.9 1.8 1.7
EV/EBITDA 6.3 6.1 6.1 5.7 5.3
EBITDA-margin % 4.9 4.8 4.9 5.0 5.2
Dividend Yield % 2.1 4.1 3.3 3.4 3.6
Gearing % 68.4 79.0 80.0 71.8 61.0
Source: Saxo Bank Research, Bloomberg, Thomson-Reuters DataStream.

Metro trades on a price-earnings ratio of 38 vs. a peer average of 16. We do not think that this difference
is reasonable.

Trading Strategy
Sell towards EUR 30, target left open and keep a stop-loss above EUR 38.

Company description
Metro AG operates retail stores and markets products over the Internet. The Company operates cash and
carry stores, supermarkets and hypermarkets, consumer electronics stores, department stores, theme
stores, and online sales services.

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Cross Asset Research – Shorting Equities

The stock price and index level. Interest Expense Coverage is the ratio of EBIT to interest expense.

Gearing is the ratio of net debt to shareholders’ common equity. Total debt to total assets.

Return on common equity is the ratio of net income to common Operating margin is the ratio of operating income to sales. Pre-
shareholders’ equity. tax margin is the ratio of pre-tax profits to sales.

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Cross Asset Research – Shorting Equities

Sell Thomson (TMS:xpar) – Current Price: EUR 0.63

Sell Thomson on very poor financial health and negative outlook
Thomson competes in an unattractive sector with low margins.
The balance sheet is in particularly dire straits with a current ratio of 0.55, negative book value, total
debt to assets of 52%, and a negative cash conversion cycle of -1.83.
Thomson’s short term debt to total assets exploded from 11% in 2007 to 52% in 2008.
Thomson has so far had trouble refinancing due to contracted credit markets and climbing rates.

Key triggers
Failure to restructure balance sheet could very well result in the company being dissolved.
Roll-over of debt at higher interest rates. With the company already struggling enough as it is, any
additional interest expenses will do nothing but push Thomson closer to bankruptcy.

Key risks
Successful restructure of balance sheet.

Profitability and Valuation

Profitability and Valuation 2007 2008 2009E 2010E 2011E

P/E N/A N/A 30.8 2.2 1.5
P/B 0.1 N/A 0.3 0.3 N/A
EV/EBITDA 3.2 4.1 4.0 3.7 3.9
EBITDA-margin % 12.2 11.2 11.7 12.5 13.2
Dividend Yield % 0.0 0.0 0.0 0.0 N/A
Gearing % 61.2 N/A 314.6 307.3 N/A
Source: Saxo Bank Research, Bloomberg, Thomson-Reuters DataStream.

With revenue growth of -14%, net losses, and no dividend payouts, Thomson does not look like a
promising turnaround case. A comparison with peers does not change this view.

Trading Strategy
Sell towards EUR 0.60, target left open and keep a stop-loss above EUR 0.72.

Company description
Thomson manufactures and distributes pre-recorded DVDs, videocassettes and movie film prints, provides
film and television post-production services, produces televisions, DVD players, home telephony, home
theater systems, set-top boxes, modems, television displays, broadcast and networking equipment and
optical components. The Company also licenses its technologies.

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Cross Asset Research – Shorting Equities

The stock price and index level.

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Cross Asset Research – Shorting Equities
Sell Eastman Kodak (EK:xnys) – Current Price: USD 2.58
Sell Eastman Kodak on a very poor outlook.
Eastman Kodak (EK) has already fallen 85% from a 52wk high of 17.71, but nevertheless we believe that
a further deterioration in the stock price is in store for investors.
Eastman Kodak is trying to shift to a digital product line, but these products are also experiencing weak
demand with sales down 33% in Q1.
The photographic products industry is highly competitive. Digital products have especially low margins
while traditional photography products have a very uncertain outlook.
Revenues declined 9% while earnings dropped 264% in 2008.

Key Triggers:
Lower than expected company guidance.
A continuation of recent price competition in the digital products segment will hurt Eastman Kodak as
the company is in the midst of shifting into this segment.

Key Risks:
Turnaround in the digital segment, which accounts for some 32% of revenues.
Valuation metrics far below their historical averages are justified given the weak demand and poor
outlook. Better than expected numbers or guidance could drive the price up.

Profitability and Valuation

Profitability and Valuation 2007 2008 2009E 2010E 2011E

P/E 1.1 N/A N/A N/A N/A
P/B 0.3 0.7 1.7 N/A N/A
EV/EBITDA 0.6 -3.9 4.7 2.3 N/A
EBITDA-margin % 10.7 -1.9 2.0 4.2 N/A
Dividend Yield % 2.3 7.6 0.0 18.9 18.9
Gearing % -44.6 -87.6 61.8 N/A N/A
Source: Saxo Bank Research, Bloomberg, Thomson-Reuters DataStream.

Eastman Kodak trades at a price-book ratio of 1.08; below the peer average of 1.55. We believe,
however, that this discount is warranted due to the negative outlook. The debt to assets and gearing
ratios are better than the peer averages, but these are solely due to recent asset sales.

Trading Strategy
Sell towards USD 2.44, target left open and keep a stop-loss above USD 3.00

Company description
Eastman Kodak Company develops, manufactures, and markets imaging products. The company provides
professional and consumer digital cameras, laser images for radiologists and photographic films for
professionals and amateurs. Kodak also provides digital services for cinematographers, document scanners,
aerial images, digital printers for commercial customers, and flat panel displays.

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Cross Asset Research – Shorting Equities

The stock price and index level. Interest Expense Coverage is the ratio of EBIT to interest expense.

Gearing is the ratio of net debt to shareholders’ common equity. Total debt to total assets.

Return on common equity is the ratio of net income to common Operating margin is the ratio of operating income to sales. Pre-
shareholders’ equity. tax margin is the ratio of pre-tax profits to sales.

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Cross Asset Research – Shorting Equities

Sell Pioneer (6773:xtks) – Current Price: JPY 294

Sell Pioneer on weak demand and poor financials.
Pioneer has been reluctant to adjust capacity and shift towards low cost production facilities in a market
characterized by falling demand.
Combined with 15-20% lower sales per employee Pioneer is suffering from a weak underlying free cash
flow (-319.98 JPY/share) to service a rather high debt (debt to assets at 41.28%).
Besides the injection of private capital to restructure the company, Pioneer needs government support in
order to keep operations going.

Key triggers
The assumed return to profitability within the car electronic business in 2H 2009 will not take place due
to lower demand.
The capital restructuring plan of private and government injection of new capital will take longer than
first anticipated.

Key risks
Semiconductor and component output grows from new demand in advanced economies and expansion
of the Chinese market (unlikely to exceed the cyclical range with standard trends)
The reemergence of cyclical demand for PC’s, mobile handsets and other equipment within a faster than
expected recovering macroeconomic environment.

Profitability and Valuation

Profitability and Valuation 2007 2008 2009E 2010E 2011E

P/E N/A N/A N/A N/A 13,8
P/B 0,2 0,2 1,7 1,5 1,3
EV/EBITDA 3,2 3,9 24,3 3,8 3,4
EBITDA-margin % 6,7 5,7 1,7 11,1 12,2
Dividend Yield % 0,6 0,8 0,0 0,0 0,6
Gearing % 1,0 7,8 402,5 246,2 122,7
Source: Saxo Bank Research, Bloomberg, Thomson-Reuters DataStream.

Compared to a P/B sector average of 1.24, Pioneers’ current P/B of 0.50 seems to indicate that Pioneer is
a bargain. However, Pioneer faces significant challenges as it must service its debt even though the
current cash flow to interest expense is -22.11 vs. a sector average of 11.25.

Trading Strategy
Sell towards 265, target left open and keep a stop-loss above 334.

Company description
Pioneer manufactures and sells audio and video equipment for household, industrial, and automobile use.

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Cross Asset Research – Shorting Equities

The stock price and index level. Interest Expense Coverage is the ratio of EBIT to interest expense.

Gearing is the ratio of net debt to shareholders’ common equity. Total debt to total assets.

Return on common equity is the ratio of net income to common Operating margin is the ratio of operating income to sales. Pre-
shareholders’ equity. tax margin is the ratio of pre-tax profits to sales.

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Cross Asset Research – Shorting Equities

Sell Toshiba (6502:xtks) – Current Price: JPY 359

Sell Toshiba on negative operating earnings, high debt ratio and weak demand.
Toshiba has so far not made the necessary production adjustments to the new lower demand which puts
their margins under pressure due to a high fixed cost base and falling prices in their main markets.
Toshiba has a large debt to service (debt to assets ratio is 49.24%) with a weak free cash flow.

Key triggers
A cut in guidance for sales in semiconductors and consumer electronics when posting earnings.
Continuously falling prices in NAND and DRAM flash spot prices as iPhone production levels wear off.
The boost in capital is not enough to overcome the crisis in the long run and the fixed cost burden will
force Toshiba keep producing NAND and DRAM at current price levels and possibly use some of the free
capacity to enter into low price competition in other areas.

Key risks
Semiconductor supply deficit led by inventory adjustments (adjustment back to production levels) could
lead in the short term to higher prices on NAND and DRAM.
Restructuring plans are expected to lead fixed costs lower by 15-25% in the next two years.

Profitability and Valuation

Profitability and Valuation 2007 2008 2009E 2010E 2011E

P/E 8,7 9,4 N/A 21,9 13,2
P/B 1,0 1,1 2,2 2,0 1,9
EV/EBITDA 6,1 5,4 10,8 7,2 6,3
EBITDA-margin % 7,7 8,1 4,7 6,7 7,4
Dividend Yield % 1,4 1,8 1,3 1,6 1,0
Gearing % 76,6 99,0 217,5 193,4 175,6
Source: Saxo Bank Research, Bloomberg, Thomson-Reuters DataStream.

Toshiba’s P/B is currently 2.52 vs. a sector average of 1.61 which makes Toshiba look expensive.
Furthermore Toshiba could face challenges ahead with servicing the debt. The company’s interest
coverage is -12.15.

Trading Strategy
Sell towards 330, target left open and keep a stop-loss above 390.

Company description
Toshiba manufactures electrical and electronic products.

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Cross Asset Research – Shorting Equities

The stock price and index level. Interest Expense Coverage is the ratio of EBIT to interest expense.

Gearing is the ratio of net debt to shareholders’ common equity. Total debt to total assets.

Return on common equity is the ratio of net income to common Operating margin is the ratio of operating income to sales. Pre-
shareholders’ equity. tax margin is the ratio of pre-tax profits to sales.

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Cross Asset Research – Shorting Equities

General
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information contained herein is to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any
security, financial product, or instrument; or to participate in any particular trading strategy in any jurisdiction in which such an offer or
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Analysis Disclosure & Disclaimer

Index Technicals
The pivot support and resistance levels and the trend indications displayed below are provided for trading purposes.
Risk warning
Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any analysis, forecast or other information herein
contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that
clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the analysis,
especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses
as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

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